<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1999
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
CE GENERATION, LLC
(Exact name of registrant as specified in its charter)
DELAWARE 4911 47-0818523
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
--------------
302 SOUTH 36TH STREET, SUITE 400
OMAHA, NEBRASKA 68131
(402) 231-1641
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
DOUGLAS L. ANDERSON
VICE PRESIDENT AND GENERAL COUNSEL
CE GENERATION, LLC
302 SOUTH 36TH STREET, SUITE 400
OMAHA, NEBRASKA 68131
(402) 231-1641
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------
Copy to:
KELLEY M. GALE, ESQ.
LATHAM & WATKINS
701 B. STREET, SUITE 2100
SAN DIEGO, CALIFORNIA 92101
(619) 236-1234
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of 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
<TABLE>
<CAPTION>
==============================================================================================
PROPOSED PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE(1) FEE(2)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7.416% Senior Secured
Bonds Due December 15, 2018 $400,000,000 100% $400,000,000 $111,200
==============================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) Paid with the initial filing of the Registration Statement.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT 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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 22, 1999
PROSPECTUS
CE GENERATION, LLC
Exchange Offer for 7.416% Senior Secured Bonds Due December 15, 2018
----------------
This is an offer to exchange our outstanding, unregistered 7.416% Senior
Secured Bonds you now hold for new, substantially identical 7.416% Senior
Secured Bonds that will be free of the transfer restrictions that apply to the
old bonds. This offer will expire at 5:00 p.m., New York City time, on ,
1999, unless we extend it. You must tender the old, unregistered bonds by the
deadline to obtain new, registered bonds and the liquidity benefits they offer.
We agreed with the initial purchasers of the old bonds to make this offer
and register the issuance of the new bonds following the closing. This offer
applies to any and all old bonds tendered before the deadline.
The new bonds will not trade on any established exchange. The new bonds
have the same financial terms and covenants as the old bonds, and are subject to
the same business and financial risks.
A DESCRIPTION OF THOSE RISKS BEGINS ON PAGE 21.
The terms of the exchange offer will include the following:
o We will exchange all old securities that are validly tendered and not
withdrawn prior to the expiration of the exchange offer.
o You may withdraw tenders of old securities at any time prior to the
expiration of the exchange offer.
o 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 PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
The date of this prospectus is October , 1999
<PAGE>
TABLE OF CONTENTS
PAGE
Prospectus Summary ......................................................... 1
Risk Factors ............................................................... 21
Capitalization ............................................................. 37
Selected Financial Data .................................................... 38
Management's Discussion and Analysis of Financial Condition and Results
of Operations ............................................................ 40
Our Business and the Business of the Assignors ............................. 47
Our Management ............................................................. 53
Ownership of Our Membership Interests ...................................... 55
Our Relationships and Related Transactions ................................. 55
Summary Description of Principal Project Contracts ......................... 56
Description of the Securities .............................................. 85
Plan of Distribution ....................................................... 114
United States Federal Income Tax Considerations ............................ 115
Legal Matters .............................................................. 117
Power Generation Projects Independent Engineer ............................. 117
Natural Gas Projects Independent Engineer .................................. 117
Geothermal Projects Independent Engineer ................................... 117
Consultants' Reports ....................................................... 118
Where You Can Find More Information ........................................ 118
Index to Financial Statements .............................................. F-1
Appendix A--Power Generation Projects Independent Engineer's Report ........ A-1
Appendix B--Natural Gas Projects Independent Engineer's Report ............. B-1
Appendix C--Geothermal Projects Independent Engineer's Report .............. C-1
Appendix D--Power Market Consultant's Report ............................... D-1
Appendix E--Geothermal Resource Consultant's Report ........................ E-1
i
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus includes specific terms of the securities we are offering, as well
as information regarding our business and detailed financial data. We encourage
you to read the prospectus in its entirety. Unless the context clearly
indicates otherwise, the terms "we" "our" or "us" as used in this prospectus
summary refer to CE Generation, LLC, the issuer of your securities. You should
pay special attention to the "Risk Factors" section beginning on page 19 of
this prospectus.
CE GENERATION, LLC
We are a special purpose Delaware limited liability company formed for the
sole purpose of issuing securities and holding the equity interests in our
subsidiaries.
On March 2, 1999 we issued $400,000,000 of 7.416% Senior Secured Bonds Due
2018, which we refer to herein as the old Securities. We are offering to
exchange old Securities for 7.416% Senior Secured Bonds Due 2018 which have
been registered under the Securities Act, which we refer to herein as the new
Securities.
The old Securities have received ratings of Baa3 by Moody's Investors
Service, Inc. (which we refer to herein as Moody's) and BBB- by Standard &
Poor's Ratings Group (which we refer to herein as S&P). The old Securities and
the new Securities will be equivalent in right of payment and in the right to
share in the collateral. On September 30, 1999, the aggregate principal amount
of the outstanding old Securities was $400,000,000.
Our subsidiaries include the following companies, which we refer to herein
as the Assignors:
o Magma Power Company
o Salton Sea Power Company
o Falcon Seaboard Resources, Inc.
o Falcon Seaboard Power Corporation
o Falcon Seaboard Oil Company
o California Energy Development Corporation
o CE Texas Energy LLC
Each Assignor owns an interest in one or more project companies. Below is
a list showing those project companies in which each Assignor owns an interest.
Magma: Salton Sea Power Generation L.P., Fish Lake Power LLC, Salton Sea
Power L.L.C., Vulcan Power Company, CalEnergy Operating Corporation,
Vulcan/BN Geothermal Power Company, Leathers, L.P., Del Ranch, L.P.,
Elmore, L.P., CE Turbo LLC, Salton Sea Royalty LLC, Magma Land
Company I and Imperial Magma LLC.
Salton Sea Power: Salton Sea Power Generation L.P.
Falcon Seaboard Resources: Saranac Power Partners, L.P., Power Resources,
Inc., NorCon Power Partners, LP, Falcon Power
Operating Company and CE Texas Gas LLC.
Falcon Seaboard Power: Saranac, NorCon and Falcon Power Operating.
Falcon Seaboard Oil: Power Resources, Inc.
California Energy Development: Yuma Cogeneration Associates.
1
<PAGE>
CE Texas Energy LLC: CE Texas Gas.
Fifty percent of our membership interests are owned by MidAmerican Energy
Holdings Company (formerly CalEnergy Company, Inc.) and the other fifty percent
of our membership interests are owned by El Paso Power Holding Company. El Paso
Power is an affiliate of El Paso Energy Corporation.
MIDAMERICAN
MidAmerican is a fast-growing global energy company with an increasingly
diversified portfolio of regulated and non-regulated assets. The focus of
MidAmerican has evolved over time from development and acquisition activities
in the domestic and international power generation markets to strategic
electric and gas utility acquisitions, with a particular emphasis on
investment-grade countries such as the United States, the United Kingdom,
Australia, Canada, New Zealand and the countries of Western Europe. This focus
has provided MidAmerican with increased scale, skill, revenue diversity, credit
quality, quality of cash flows and additional growth opportunities associated
with each of the acquired businesses. MidAmerican's investments in related
activities (e.g. producing gas fields, gas reserves and advanced utility
information systems) are primarily intended to support and augment the
profitability of its existing core businesses.
MidAmerican, headquartered in Des Moines, Iowa, has approximately 9,800
employees and is the largest publicly traded company in Iowa. Through its
retail utility subsidiaries, MidAmerican Energy Company in the United States
and Northern Electric plc in the United Kingdom, MidAmerican provides electric
service to 2.2 million customers and natural gas service to 1.2 million
customers worldwide. Through CalEnergy Generation, MidAmerican's independent
power production and non-regulated business subsidiary, and MidAmerican
Energy's utility operations, MidAmerican manages and owns interests in
approximately 8,300 net megawatts of diversified power generation facilities in
operation, construction and development. MidAmerican is the successor of
CalEnergy Company, Inc.
EL PASO ENERGY
With over $10 billion in assets, El Paso Energy provides energy solutions
through its strategic business units: Tennessee Gas Pipeline Company, El Paso
Natural Gas Company, El Paso Field Services Company, El Paso Power Services
Company, El Paso Merchant Energy Company, and El Paso Energy International
Company. El Paso Energy owns the nation's only integrated coast-to-coast
natural gas pipeline system and has operations in natural gas transmission, gas
gathering and processing, power generation, energy marketing and international
energy infrastructure development.
THE ASSIGNORS AND THE PROJECTS
The Assignors own ten geothermal and four natural gas-fired electric
generating facilities located in California, New York, Texas, Pennsylvania and
Arizona. We own 100% of the interests in twelve of these projects. In addition,
we manage, control and have substantial equity interests in the remaining two
projects. Below is a simplified chart which illustrates both our current
ownership structure as well as the current ownership structure of each project.
2
<PAGE>
CE GENERATION PROJECTS
<TABLE>
<S> <C>
------------- -------------
MIDAMERICAN
ENERGY EL PASO
HOLDINGS POWER HOLDING
COMPANY COMPANY
------------- -------------
| 50% 50% |
--------------------------------------------
|
------------------
CE GENERATION, LLC
------------------
|
------------------
DIRECT AND
INDIRECT
SUBSIDIARIES
------------------
NATURAL GAS PROJECTS | GEOTHERMAL PROJECTS
------------------------------------------------------------------
| | 100%
-------------------------------------------- -----------------------------------------------------------
| (1) | 100% | (2) | 100% | | | | | |
- ------------ ------------ ------------ ------------ ------------ ------------ | ------------ ------------ -----------
SARANAC PRI NORCON YUMA SALTON SEA SALTON SEA | SALTON SEA SALTON SEA SALTON SEA
PROJECT PROJECT PROJECT PROJECT UNIT I UNIT II | UNIT III UNIT IV UNIT V
- ------------ ------------ ------------ ------------ ------------ ------------ | ------------ ------------ -----------
| 100%
-----------------------------------------------------------
| | | | |
------------ ------------ ------------ ------------ -----------
VULCAN ELMORE LEATHERS DEL RANCH CE TURBO
PROJECT PROJECT PROJECT PROJECT PROJECT
------------ ------------ ------------ ------------ -----------
</TABLE>
- ---------
(1) The percentage of distributions from the Saranac project indirectly
beneficially owned by us varies over time.
(2) The percentage of distributions from the NorCon project indirectly
beneficially owned by us varies over time.
THE PROJECTS (THE ASSIGNORS WHICH OWN A DIRECT OR AN INDIRECT INTEREST IN THE
PROJECTS ARE IN PARENTHESES)
IMPERIAL VALLEY PROJECTS (MAGMA AND SALTON SEA POWER)
Through Magma and its subsidiaries, we own 100% of the interests in the
following eight operating geothermal power plants and two geothermal power
plants under construction, each located in Imperial Valley, California at one of
the world's largest geothermal resource areas:
o a 10 megawatt nameplate geothermal power plant which has been in
operation for 12 years, which we refer to herein as Salton Sea Unit I.
o a 20 megawatt nameplate geothermal power plant which has been in
operation for 9 years, which we refer to herein as Salton Sea Unit II.
o a 50 megawatt nameplate geothermal power plant which has been in
operation for 10 years, which we refer to herein as Salton Sea Unit
III.
o a 34 megawatt nameplate geothermal power plant which has been in
operation for 3 years, which we refer to herein as Salton Sea Unit IV.
o a 49 megawatt geothermal power plant which is currently under
construction and scheduled to begin commercial operation in mid-2000,
which we refer to herein as Salton Sea Unit V.
3
<PAGE>
o a 34 megawatt nameplate geothermal power plant which has been in
operation for 13 years, which we refer to herein as the Vulcan
project.
o a 38 megawatt nameplate geothermal power plant which has been in
operation for 10 years, which we refer to herein as Elmore project.
o a 38 megawatt nameplate geothermal power plant which has been in
operation for 9 years, which we refer to herein as the Leathers
project.
o a 38 megawatt nameplate geothermal power plant which has been in
operation for 10 years, which we refer to herein as the Del Ranch
project.
o a 10 megawatt geothermal power project which is currently under
construction and scheduled to begin commercial operation in mid-2000,
which we refer to herein as CE Turbo project.
Salton Sea Units I-V are sometimes referred to collectively in this
prospectus as the Salton Sea projects. The Vulcan project, the Elmore project,
the Leathers project, the Del Ranch project and the CE Turbo project are
sometimes referred to collectively in this prospectus as the Partnership
projects. All of these Imperial Valley projects, together with a 30,000 metric
tonnes/year zinc recovery facility known as the zinc facility, were financed in
part through the issuance of debt securities by Salton Sea Funding Corporation.
These debt securities are rated "Baa2" by Moody's and "BBB" by S&P.
All of the operating Imperial Valley projects sell electric generating
capacity and energy to Southern California Edison Company under long-term power
purchase agreements. Some of the basic terms of these power purchase agreements
are as follows:
o Salton Sea Unit I: capacity payment and energy payment for the life of
the contract, which are subject to quarterly adjustment by reference
to inflation-related indices.
o Salton Sea Unit II:
o fixed price capacity payments for the life of the contract;
o fixed price energy payments until April 4, 2000; and
o energy payments based on Southern California Edison's short-run
avoided cost of energy after April 4, 2000.
o Salton Sea Unit III:
o fixed price capacity payments for the life of the contract;
o fixed price energy payments until February 13, 1999; and
o energy payments based on the avoided cost of energy after
February 13, 1999.
4
<PAGE>
o Salton Sea Unit IV:
o fixed price capacity payments for the life of the contract;
o for approximately 56% of the energy: fixed price energy payments,
subject to adjustment by reference to inflation-related indices,
until June 2017;
o for the remaining approximately 44% of the energy: (1) energy
payments based on a fixed price schedule for the first 10 years
of the contract; (2) energy payments based on a modified avoided
cost of energy for the next 5 years of the contract; and (3)
energy payments based on the avoided cost of energy for the
remaining life of the contract.
o The Vulcan, Elmore, Leathers and Del Ranch projects:
o fixed price capacity payments for the life of the contract;
o fixed price energy payments for the first 10 years of the
contract;
o the fixed price energy period expired in 1996 for the Vulcan
project;
o the fixed price energy period expired in 1999 for the Del
Ranch and Elmore projects; and
o the fixed price energy period will expire in 2000 for the
Leathers project; and
o energy payments based on the avoided cost of energy after the
first 10 years of the contract.
Stone & Webster Engineering Corporation is constructing Salton Sea Unit V
according to a fixed price, date certain engineering, procurement and
construction contract. Upon commercial operation, approximately one-third of the
net output of Salton Sea Unit V will be sold for use in the zinc facility which
is not owned by us but by a subsidiary of MidAmerican and is expected to begin
operation in mid-2000. The remainder of the Salton Sea Unit V output will be
sold through the California power exchange and other market transactions. The CE
Turbo project is also being constructed by Stone & Webster according to a fixed
price, date certain engineering, procurement and construction contract. The CE
Turbo project will sell its output through the California power exchange and
other market transactions.
The net revenues, equity distributions and royalties from the Imperial
Valley projects are used to pay principal and interest payments on outstanding
senior secured bonds issued by Salton Sea Funding Corporation. The final series
of these bonds is scheduled to mature in November 2018. The debt created by the
senior secured bonds is guaranteed by subsidiaries of Magma, including those
subsidiaries (other than Salton Sea Power and Salton Sea Funding Corporation)
which own interests in the Imperial Valley projects, and is secured by the
capital stock of Salton Sea Funding Corporation. The proceeds of the senior
secured bonds were loaned by Salton Sea Funding Corporation under loan
agreements and notes to subsidiaries of Magma. The proceeds of the senior
secured bonds were used for the construction of some of the Imperial Valley
projects, the refinancing of indebtedness and other purposes. Debt service on
the loans is used to repay debt service on the senior secured bonds. The loans
and the guarantees of the debt created by the senior secured bonds are secured
by the equity interests in, and substantially all of the assets of, the Imperial
Valley guarantors, including the Imperial Valley projects. As of September 30,
1999, $597.9 million of the debt created by the senior secured bonds was
outstanding. Under an equity commitment agreement, MidAmerican has agreed to
fund up to $122.5 million for a portion of the budgeted costs for the
construction of Salton Sea Unit V, the CE Turbo project and the zinc facility as
well as capital improvements at the Imperial Valley projects.
The proceeds of one series of the senior secured bonds are being used in
part to construct the zinc facility, and subsidiaries of MidAmerican which own
the zinc facility are among the guarantors of
5
<PAGE>
the debt created by the senior secured bonds. MidAmerican has guaranteed the
payment by the zinc guarantors of a specified portion of the scheduled debt
service on the senior secured bonds, including the current principal amount of
$140,520,000 and associated interest.
SARANAC PROJECT (FALCON SEABOARD RESOURCES)
Falcon Seaboard Resources owns an indirect interest in the Saranac project,
which is a 240 megawatt natural gas-fired combined cycle cogeneration facility
located in Plattsburgh, New York that has been in operation for 5 years. The
Saranac project is owned by Saranac Power Partners. Saranac Power Partners sells
capacity and energy from the Saranac project to New York State Electric and Gas
Corporation under a 15-year power purchase agreement. Payments under the power
purchase agreement are made at predetermined prices which escalate according to
a schedule. Saranac Power Partners also sells thermal energy produced by the
Saranac project to Georgia-Pacific Corporation and Tenneco Packaging, Inc. under
15-year agreements which provide for fixed payments (escalated for inflation).
The Saranac project is operated and maintained by Falcon Power Operating, a
wholly-owned subsidiary of Falcon Seaboard Power, under a long-term operation
and maintenance agreement.
The construction of the Saranac project was paid for with loans from a
group of commercial banks which must be repaid in March 2008. These loans are is
secured by a lien on substantially all of the assets of Saranac Power Partners.
As of September 30, 1999, the outstanding principal amount of these loans was
$183.1 million.
POWER RESOURCES PROJECT (FALCON SEABOARD OIL)
Falcon Seaboard Oil, a wholly-owned subsidiary of Falcon Seaboard
Resources, owns, indirectly, 100% of the interests in the Power Resources
project, which is a 200 megawatt natural gas-fired combined cycle cogeneration
facility located near Big Spring, Texas that has been in operation for 11 years.
The Power Resources project is owned by Power Resources, a wholly owned
subsidiary of Falcon Seaboard Oil. Power Resources sells capacity and energy
from the Power Resources project to Texas Utilities Electric Company under a
15-year power purchase agreement. Payments under the power purchase agreement
are made according to a schedule which includes both a capacity and an energy
component. Power Resources also sells thermal energy produced by the Power
Resources project to Fina Oil and Chemical Company under a 15-year agreement
which provides for fixed payments (escalated for inflation). The Power Resources
project is operated and maintained by Falcon Power Operating under a long-term
operation and maintenance agreement.
The construction of the Power Resources project was financed with loans
from a group of commercial banks which must be paid in December 2003. These
loans are secured by a lien on substantially all of the assets of Power
Resources and a pledge of the capital stock of Power Resources. As of September
30, 1999, the outstanding principal amount of these loans was $79.8 million.
NORCON PROJECT (FALCON SEABOARD POWER AND FALCON SEABOARD RESOURCES)
Falcon Seaboard Power also owns an indirect interest in the NorCon project,
which is an 80 megawatt natural gas-fired combined cycle cogeneration facility
located in North East, Pennsylvania that has been in operation for 6 years. The
NorCon project is owned by NorCon. NorCon sells capacity and energy from the
NorCon project to Niagara Mohawk Power Corporation under a 25-year power
purchase agreement. Payments under the power purchase agreement are based on
Niagara Mohawk's ongoing tariff avoided cost, subject (until 2007) to a floor
based on Niagara Mohawk's long-run avoided cost (as calculated in 1988). NorCon
also sells thermal energy produced by the NorCon project to Welch Foods, Inc.
for use in its grape processing plant. The NorCon project is operated and
maintained by Falcon Power Operating under a long-term operation and maintenance
agreement.
6
<PAGE>
The construction of the NorCon project was paid for with junior and senior
loans from General Electric Capital Corporation which must be repaid in
September 2007. These loans are secured by a lien on substantially all of the
assets of NorCon and a pledge of the equity interests in NorCon. As of September
30, 1999, the outstanding principal amount of these loans was $98.4 million.
YUMA PROJECT (CALIFORNIA ENERGY DEVELOPMENT)
California Energy Development owns, directly and indirectly, 100% of the
interests in the Yuma project, which is a 50 megawatt natural gas-fired combined
cycle cogeneration facility located in Yuma, Arizona that has been in operation
for 5 years. The Yuma project is owned by Yuma Cogeneration. Yuma Cogeneration
sells capacity and energy from the Yuma project to San Diego Gas & Electric
under a 30-year power purchase agreement. The power purchase agreement is an SO2
agreement with fixed capacity payments for the life of the agreement and energy
payments based on San Diego Gas & Electric's short-run avoided cost of energy.
Yuma Cogeneration also sells thermal energy produced by the Yuma project to
Queen Carpet, Inc. for use in its carpet manufacturing process. The Yuma project
is operated and maintained by Falcon Power Operating under a long-term operation
and maintenance agreement. The capital structure of the Yuma project is
currently 100% equity.
OTHER REVENUES
Magma also receives fees for the provision of day-to-day administrative,
management and technical services for the Imperial Valley projects, and Magma
and its subsidiaries receive royalties and lease payments for providing
geothermal resource rights and leasing land surface areas to the Imperial Valley
projects. Magma also receives royalties from the 10 megawatt and 12 megawatt
Mammoth projects, which are geothermal power generating facilities located in
Mono County, California and owned by a third party. Falcon Power Operating
receives fees for the provision of operation and maintenance services for the
natural gas projects. CE Texas Energy receives dividends from CE Texas Gas, a
wholly-owned subsidiary of CE Texas Energy, as a result of the income earned by
CE Texas Gas for providing natural gas to the Power Resources project.
Below and on the following page are tables describing the projects. The
availability and capacity figures are averages for 1996, 1997 and 1998. Each
power purchaser's long-term unsecured debt ratings from Moody's, S&P and Duff &
Phelps Credit Rating Co. (which we refer to herein as Duff & Phelps) are in
parentheses.
7
<PAGE>
<TABLE>
<CAPTION>
SALTON SEA SALTON SEA SALTON SEA SALTON SEA SALTON SEA
PROJECT UNIT I UNIT II UNIT III UNIT IV UNIT V LEATHERS DEL RANCH
- ------- ------ ------- -------- ------- ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Location Imperial Imperial Imperial Imperial Imperial Imperial Imperial
Valley, CA Valley, CA Valley, CA Valley, CA Valley, CA Valley, CA Valley, CA
Capacity(1) 10 megawatts 20 megawatts 49.8 megawatts 39.6 megawatts 49 megawatts 38 megawatts 38 megawatts
Fuel Type Geothermal Geothermal Geothermal Geothermal Geothermal Geothermal Geothermal
Ownership Interest 100% 100% 100% 100% 100% 100% 100%
Commercial
Operation July 1987 April 1990 February 1989 May 1996 Mid-2000 January 1990 January 1989
Availability 96.0% 96.7% 96.0% 94.5% N/A 97.2% 97.4%
Capacity 81.9% 119.1% 99.9% 114.8% N/A 115.9% 118.2%
Power Purchaser Southern Southern Southern Southern Zinc facility/ Southern Southern
California California California California California California California
Edison Edison Edison Edison power exchange Edison Edison
(A2/A/A+) (A2/A/A+) (A2/A/A+) (A2/A/A+) (A2/A/A+) (A2/A/A+)
Power Contract
Expiration June 2017 April 2020 February 2019 May 2026 N/A December 2019 December 2018
Thermal Energy Host N/A N/A N/A N/A N/A N/A N/A
Fuel Supplier N/A N/A N/A N/A N/A N/A N/A
Operator CalEnergy CalEnergy CalEnergy CalEnergy CalEnergy CalEnergy CalEnergy
Operating Operating Operating Operating Operating Operating Operating
Outstanding Debt (2) (2) (2) (2) (2) (2) (2)
Debt Service
Coverage Ratio
Test(3) 1.4x prior to 1.4x prior to 1.4x prior to 1.4x prior to 1.4x prior to 1.4x prior to 1.4x prior to
2000/1.5x 2000/1.5x 2000/1.5x 2000/1.5x 2000/1.5x 2000/1.5x 2000/1.5x
thereafter thereafter thereafter thereafter thereafter thereafter thereafter
</TABLE>
- ---------
(1) Power project capacity is a nominal number which varies with reservoir (in
the case of geothermal projects) and operating conditions.
(2) The total debt outstanding for the Imperial Valley projects and the zinc
facility is $597.9 million, of which $140.5 million is scheduled to be
repaid by the zinc guarantors.
(3) Represents historical and projected debt service coverage level required to
make equity distributions under each project's financing documents.
8
<PAGE>
<TABLE>
<CAPTION>
PROJECT ELMORE VULCAN CE TURBO SARANAC POWER RESOURCES NORCON YUMA
- ------- ------ ------ -------- ------- --------------- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
Location Imperial Imperial Imperial Plattsburgh, Big Spring, TX North East, PA Yuma, AZ
Valley, CA Valley, CA Valley, CA NY
Capacity(1) 38 megawatts 34 megawatts 10 megawatts 240 megawatts 200 megawatts 80 megawatts 50 megawatts
Fuel Type Geothermal Geothermal Geothermal Natural Gas Natural Gas Natural Gas Natural Gas
Ownership Interest 100% 100% 100% Varies 100% Varies 100%
Commercial
Operation January 1989 February 1986 Mid-2000 June 1994 June 1988 December 1992 May 1994
Availability 96.9% 95.4% N/A 95.2% 91.2% 94.4% 96.4%
Capacity 114.6% 113.5% N/A 92.5% 79.7% 94.5% 88.3%
Power Purchaser Southern Southern California New York State Texas Utilities Niagara San Diego Gas
California California power exchange Electric and (Baa1/BBB/ Mohawk & Electric
Edison Edison Gas BBB+) (Ba2/BB+) (A2/A+/A+)
(A2/A/A+) (A2/A/A+) (Baa1/BBB)
Power Contract
Expiration December 2018 February 2016 N/A June 2009 September 2003 December 2017 May 2024
Thermal Energy Host N/A N/A N/A Georgia-Pacific/ Fina Welch Queen Carpet
Tenneco
Fuel Supplier N/A N/A N/A Coral (Shell) Fina/Dreyfus Dreyfus Southwest Gas
Operator CalEnergy CalEnergy CalEnergy Falcon Power Falcon Power Falcon Power Falcon Power
Operating Operating Operating Operating Operating Operating Operating
Outstanding Debt (2) (2) (2) $183.1 million $79.8 million $98.4 million None
Debt Service
Coverage Ratio
Test(3) 1.4x prior to 1.4x prior to 1.4x prior to 1.2x Varies(4) 1.15x N/A
2000/1.5x 2000/1.5x 2000/1.5x
thereafter thereafter thereafter
</TABLE>
- ---------
(1) Power project capacity is a nominal number which varies with reservoir (in
the case of geothermal projects) and operating conditions.
(2) The total debt outstanding for the Imperial Valley projects and the zinc
facility is $597.9 million, of which $140.5 million is scheduled to be paid
by the zinc guarantors.
(3) Represents historical and projected debt service coverage levels required
to make equity distributions under project financing documents.
(4) 90% block if the debt service coverage ratio is less than 1.1x; 80% block
if the debt service coverage ratio is 1.1x or greater but less than 1.13x;
70% block if the debt service coverage ratio is 1.13x or greater but less
than 1.15x; 60% block if the debt service coverage ratio is 1.15x or
greater but less than 1.17x; 50% block if the debt service coverage ratio
is 1.17x or greater but less than 1.19x.
9
<PAGE>
STRUCTURE OF THE TRANSACTION AND COLLATERAL FOR THE SECURITIES
We used the net proceeds of the sale of the old Securities for the
following purposes:
o to repay Magma's 9 7/8% Secured Note Due 2003 payable to MidAmerican
in the aggregate principal amount of $200 million, at a repayment
price (including its premium) equal to approximately $222 million;
o to make payments to MidAmerican aggregating approximately $122 million
in return for MidAmerican's transfer of certain assets to us.
MidAmerican is using these funds to prefund future equity
contributions for the construction of Salton Sea Unit V, the CE Turbo
project and the zinc facility (the owner of which has pledged its
revenues to support the financing debt for the Imperial Valley
projects), subject to a reduction of these prefunded amounts by the
amounts paid as equity contributions in respect of these construction
projects by El Paso Holding;
o to repay approximately $49 million outstanding principal and interest
on a promissory note to MidAmerican, the proceeds of which were used
to finance the Yuma project;
o to make payments to MidAmerican aggregating up to approximately $4
million in return for MidAmerican's transfers of certain assets to us
which related to MidAmerican's development costs for Salton Sea Unit
V, the CE Turbo project and the zinc facility; and
o to pay transaction costs and fees associated with the offer and sale
of the old Securities.
We will make payments on the new Securities with the following amounts
received by the Assignors:
o with respect to any Assignor, to the extent the Assignor is entitled
to receive equity distributions from its project company, all equity
distributions received by that Assignor under any applicable project
document or project financing document, including those entered into
by or on behalf of that Assignor's project company, so long as these
equity distributions are no longer subject to any liens imposed by any
applicable project financing document and are delivered to the
depositary bank; and
o with respect to Magma, fees, royalties and other payments received by
Magma to the extent not otherwise required to be used for Magma
project costs or otherwise under any project financing document or
project document.
Throughout this prospectus, we refer to these distributions and other
payments as available cash flow.
Our obligations to make payments on the new Securities will be secured by
the following collateral:
o all available cash flow deposited with the depositary bank;
o a pledge of all of the equity interests in CE Texas Gas, the Assignors
(other than Magma and the shares of stock of Salton Sea Power owned by
Salton Sea Funding Corporation) and California Energy Yuma
Corporation, a parent of Yuma Cogeneration;
o upon the redemption of, or earlier release of security interests
under, Magma's 9 7/8% Secured Note Due 2003, a pledge of all of the
capital stock of Magma;
o a pledge of all of the capital stock of SECI Holdings, Inc.;
o a grant of a lien on and security interest in the depositary accounts
established by us with the depositary bank; and
10
<PAGE>
o to the extent assignable, a grant of a lien on and security interest
in all of our other tangible and intangible property (other than the
capital stock of Magma which will be pledged upon the redemption of,
or earlier release of security interests under, Magma's 9 7/8%
promissory notes).
MidAmerican's obligation to make payments on Magma's 9 7/8% promissory
notes is secured by a pledge of the capital stock of Magma and a lien on
dividends and distributions in respect of such Magma stock. On March 3, 1999,
MidAmerican repurchased $195.8 million in aggregate principal amount of its
9 7/8% Notes in connection with a tender offer for a repurchase price (including
premium) of $215.4 million. In connection with the corresponding reduction of
$195.8 million of the principal outstanding under Magma's 9 7/8% promissory
notes, $215.4 million of the proceeds of the old Securities were paid to
MidAmerican. As a result of the 9 7/8% note repurchase offer, the outstanding
principal amount of Magma's 9 7/8% promissory notes was reduced from $200
million to approximately $4.2 million. MidAmerican intends to redeem the
remaining outstanding Magma's 9 7/8% promissory notes on June 30, 2000, which is
the first day upon which an optional redemption is permitted under the trust
indenture for Magma's 9 7/8% promissory notes. A portion of the net proceeds of
the old Securities, in the amount of approximately $4.2 million, have been
distributed to MidAmerican and placed into an account held by the depositary
bank for the benefit of the secured parties. These proceeds are being used to
pay interest on, and effect the redemption (or the earlier repurchase) of the
remaining outstanding principal of, Magma's 9 7/8% promissory notes. At the time
of this redemption, the collateral agent is expected to obtain a pledge of all
of Magma's capital stock.
The structure described above has been designed to pool and
cross-collateralize the available cash flow of the Assignors from the projects.
A chart depicting the transaction structure is shown below.
11
<PAGE>
TRANSACTION STRUCTURE
-----------------------
CALENERGY COMPANY, INC.
(PREDECESSOR TO
MIDAMERICAN ENERGY BOND PROCEEDS -----------------
HOLDINGS COMPANY) ----------------
----------------------- | SECURITIES BONDHOLDERS
/|\ | ------------->
PORTION OF | | | -----------------
BOND PROCEEDS | | |
----------------------- | |
<-- | -----------------
CE GENERTAION, LLC ----- PLEDGED STOCK TRUSTEE/
-------------------------> COLLATERAL AGENT
----------------------- DEPOSITARY BANK
| /|\ -----------------
PORTION OF | | DISTRIBUTIONS /|\
BOND PROCEEDS \|/ | |
----------------------- ASSIGNMENT OF AVAILABLE |
CASH FLOW (AS DEFINED) |
ASSIGNORS -----------------------------------
-----------------------
/|\
| AVAILABLE CASH FLOW (AS DEFINED)
|
-----------------------
PROJECT COMPANIES/
INTERMEDIATE
HOLDING COMPANIES
-----------------------
/|\
| NET REVENUES
|
----------------------------------------------------------------------------
| |
| PROJECTS |
| |
| ------------ ------------ ------------ ------------ ------------ |
| SALTON SEA SALTON SEA SALTON SEA SALTON SEA SALTON SEA |
| UNIT I UNIT II UNIT III UNIT IV UNIT V |
| ------------ ------------ ------------ ------------ ------------ |
| |
| ------------ ------------ ------------ ------------ |
| LEATHERS DEL RANCH ELMORE VULCAN |
| PROJECT PROJECT PROJECT PROJECT |
| ------------ ------------ ------------ ------------ |
| |
| ------------ ------------ ------------ ------------ ------------ |
| CE TURBO SARANAC PRI NORCON YUMA |
| PROJECT PROJECT PROJECT PROJECT PROJECT |
| ------------ ------------ ------------ ------------ ------------ |
| |
----------------------------------------------------------------------------
12
<PAGE>
SUMMARY OF OUR EXCHANGE OFFER
On March 2, 1999 we completed the offering of $400,000,000 aggregate
principal amount of our 7.416% Senior Secured Bonds due 2018 in reliance on
exemptions from the registration requirements of the Securities Act. As part of
that offering, we entered into a registration rights agreement with the initial
purchasers of the old Securities in which we agreed, among other things, to
deliver this prospectus to you and to complete an exchange offer for the old
Securities. Below is a summary of that exchange offer.
The Exchange Offer.......... We are offering to exchange up to $400,000,000
principal amount of new Securities which have
been registered under the Securities Act for up
to $400,000,000 principal amount of old
Securities. We will exchange old Securities only
in integral multiples of $1,000.
In order to be exchanged, an old Security must
be properly tendered and accepted. We will
exchange all old Securities that are validly
tendered and not withdrawn. As of the date of
this prospectus, there are $400,000,000
principal amount of old Securities outstanding.
We will issue new Securities promptly after the
expiration of the exchange offer.
Resales Without Further
Registration................ Based on interpretations by the staff of the
Securities and Exchange Commission, we believe
that the new Securities issued in the exchange
offer may be offered for resale, resold or
otherwise transferred by you without compliance
with the registration and prospectus delivery
requirements of the Securities Act, so long as:
o you are acquiring the new Securities in the
ordinary course of your business;
o you are not participating, do not intend to
participate and have no arrangement or
understanding with any person to participate,
in a distribution of the new Securities; and
o you are not an "affiliate" of ours.
By tendering your old Securities as described
below, you will be making representations to
this effect.
Transfer Restrictions on
New Securities.............. If you are an affiliate of ours, are engaged
in, or intend to engage in or have any
arrangement or understanding with any person to
participate in, the distribution of the new
Securities:
(1) you cannot rely on the applicable
interpretations of the staff of the
Securities and Exchange Commission; and
(2) you must comply with the registration
requirements of the Securities Act in
connection with any resale transaction.
13
<PAGE>
Each broker or dealer that receives new
Securities for its own account in exchange for
old Securities that were acquired as a result of
market-making or other trading activities must
acknowledge that it will deliver this prospectus
in connection with any offer to resell, resale
or other transfer of the new Securities issued
in the exchange offer.
Expiration Date............. 5:00 p.m., New York City time, on 1999,
unless we extend the expiration date.
Accrued Interest on the New
Securities and Old
Securities................... The new Securities will bear interest from the
most recent date to which interest has been paid
on the old Securities. If your old Securities are
accepted for exchange, then you will waive
interest on the old Securities accrued to the
date the new Securities are issued.
Conditions to the Exchange
Offer....................... The exchange offer is subject to conditions. We
may assert or waive these conditions in our sole
discretion.
Procedures for Tendering Old
Securities.................. If you wish to tender your old Securities, you
must complete, sign and date the letter of
transmittal, or a facsimile of it, in accordance
with its instructions and transmit the letter of
transmittal, together with your old Securities
and any other required documentation, and Chase
Manhattan Bank and Trust Company, National
Association, who is the exchange agent, must
receive such documentation at the address set
forth in the letter of transmittal by 5:00 p.m.
New York City time, on the expiration date. By
executing the letter of transmittal, you will
represent to us that you are acquiring the new
Securities 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
the distribution of new Securities, and that you
are not an "affiliate" of ours.
Special Procedures for
Beneficial Holders.......... If you are the beneficial holder of old
Securities that are registered in the name of
your broker, dealer, commercial bank, trust
company or other nominee, and you wish to tender
in the exchange offer, you should promptly
contact the person in whose name your old
Securities are registered and instruct such
person to tender on your behalf.
Guaranteed Delivery
Procedures.................. If you wish to tender your old Securities and you
cannot deliver your notes, the letter of
transmittal or any other required documents to
the exchange agent before the expiration date,
you may tender your old Securities according to
the guaranteed delivery procedures.
Withdrawal Rights........... Tenders may be withdrawn at any time before
5:00 p.m., New York City time, on the expiration
date.
14
<PAGE>
Acceptance of Old Securities
and Delivery of New
Securities.................. Subject to conditions explained later in this
prospectus, we will accept for exchange any and
all old Securities which are properly tendered in
the exchange offer before 5:00 p.m., New York
City time, on the expiration date. The new
Securities will be delivered promptly after the
expiration date.
Exchange Agent.............. Chase Manhattan Bank and Trust Company,
National Association, is serving as exchange
agent in connection with the exchange offer.
Federal Income Tax
Considerations.............. We believe that your exchange of old Securities
for new Securities pursuant to the exchange offer
will not result in any gain or loss to you for
United States federal income tax purposes.
Use of Proceeds............. We will not receive any proceeds from the
issuance of new Securities pursuant to the
exchange offer. We will pay all expenses incident
to the exchange offer.
15
<PAGE>
SUMMARY OF THE TERMS OF THE SECURITIES
The form and terms of the new Securities and the old Securities are
identical in all material respects, except that transfer restrictions and
registration rights applicable to the old Securities do not apply to the new
Securities. The new Securities will evidence the same debt as the old
Securities and will be governed by the same indenture. Where we refer to
"Securities" in this prospectus, we are referring to both old Securities and
new Securities.
Securities Offered.......... $400,000,000 7.416% Senior Secured Bonds Due
December 15, 2018.
Interest Payment Dates...... June 15 and December 15.
Scheduled Principal
Payments.................... Principal of the Securities will be payable in
semiannual installments on each June 15 and
December 15, beginning June 15, 2000, as follows:
PERCENTAGE OF
PRINCIPAL
PAYMENT DATE AMOUNT PAYABLE
--------------------------------- --------------
June 15, 1999 ................... 0.000%
December 15, 1999 ............... 0.000%
June 15, 2000 ................... 1.300%
December 15, 2000 ............... 1.300%
June 15, 2001 ................... 1.575%
December 15, 2001 ............... 1.575%
June 15, 2002 ................... 2.575%
December 15, 2002 ............... 2.575%
June 15, 2003 ................... 2.250%
December 15, 2003 ............... 2.250%
June 15, 2004 ................... 1.825%
December 15, 2004 ............... 1.825%
June 15, 2005 ................... 1.850%
December 15, 2005 ............... 1.850%
June 15, 2006 ................... 2.400%
December 15, 2006 ............... 2.400%
June 15, 2007 ................... 2.250%
December 15, 2007 ............... 2.250%
June 15, 2008 ................... 3.525%
December 15, 2008 ............... 3.525%
June 15, 2009 ................... 3.075%
December 15, 2009 ............... 3.075%
June 15, 2010 ................... 1.775%
December 15, 2010 ............... 1.775%
June 15, 2011 ................... 1.900%
December 15, 2011 ............... 1.900%
June 15, 2012 ................... 2.560%
December 15, 2012 ............... 2.560%
June 15, 2013 ................... 2.550%
December 15, 2013 ............... 2.550%
June 15, 2014 ................... 3.225%
16
<PAGE>
PERCENTAGE OF
PRINCIPAL
PAYMENT DATE AMOUNT PAYABLE
--------------------------------- --------------
December 15, 2014 ............... 3.225%
June 15, 2015 ................... 3.380%
December 15, 2015 ............... 3.380%
June 15, 2016 ................... 3.660%
December 15, 2016 ............... 3.660%
June 15, 2017 ................... 3.780%
December 15, 2017 ............... 3.780%
June 15, 2018 ................... 4.545%
December 15, 2018 ............... 4.545%
Initial Average Life........ The average life of the Securities is
approximately 11.9 years.
Denominations............... We issued the old Securities in minimum
denominations of $100,000 or any integral
multiple of $1,000 in excess thereof. We will
issue the new Securities in minimum denominations
of $1,000.
Ratings..................... "Baa3" by Moody's, "BBB-" by S&P and "BBB" by
Duff & Phelps.
Optional Redemption......... We may redeem all or any portion of the
Securities at a redemption price equal to:
o 100% of the principal amount of the
Securities being redeemed, plus
o accrued and unpaid interest on the Securities
being redeemed, plus
o a yield maintenance premium which is based on
the rates of comparable treasury securities
plus 50 basis points.
Mandatory Redemption With
Yield Maintenance Premium... We will be obligated to redeem the Securities,
in whole or in part, at par plus accrued interest
to the date of redemption plus a yield
maintenance premium, in the following
circumstances, without duplication:
o if an Assignor receives more than $15,000,000
of available cash flow (altogether) in net
proceeds from one or more financings of the
Assignor's project or refinancings of the
Assignor's project company's project
financing debt;
o if an Assignor receives more than $15,000,000
of available cash flow (altogether) in net
proceeds from a sale of assets (including all
or a portion of a project) by the Assignor's
project company (other than a sale of assets
in the ordinary course of business);
o if we receive more than $15,000,000
(altogether) in proceeds from the sale of all
or any portion of our interest in any
Assignor (other than a transfer permitted
under the indenture for the Securities); and
17
<PAGE>
o if an Assignor receives more than $15,000,000
(altogether) in proceeds from the Assignors
sale of all or any portion of its interest in
any project company (other than a transfer
permitted under the indenture for the
Securities).
In each of the above cases, we will be obligated
to redeem only the amount of Securities to the
extent which will cause each rating agency to
confirm that, after giving effect to the
redemption, the rating assigned to the
Securities by the rating agency will be at least
as good as the higher of (a) the then-current
rating assigned to the Securities by the rating
agency or (b) the initial rating assigned to the
Securities by the rating agency as of the
closing date for the old Securities.
Mandatory Redemption Without
Yield Maintenance Premium... We will be obligated to redeem the Securities,
in whole or in part, at par plus accrued interest
to the date of redemption, in the following
circumstances, without duplication:
o if an Assignor receives more than $15,000,000
of available cash flow (altogether) in net
proceeds related to the damage or destruction
of all or a portion of the Assignor's
project;
o if an Assignor receives more than $15,000,000
of available cash flow (altogether) in net
proceeds related to a governmental
authority's compulsory taking or transfer, or
the threat of a governmental authority's
compulsory taking or transfer, of the
Assignor's project;
o if an Assignor receives more than $15,000,000
of available cash flow (altogether) in net
proceeds related to a defect in the title to
the land on which the Assignor's project is
located; and
o if an Assignor receives more than $15,000,000
of available cash flow (altogether) in net
proceeds related to the termination of an
Assignor's power purchase agreement or the
amendment of an Assignor's power purchase
agreement which reduces the amount of
capacity and energy sold under the agreement.
However, in the case of termination or amendment
of a power purchase agreement, we will be
obligated to redeem only the amount of
Securities to the extent which will cause each
rating agency to confirm that, after giving
effect to the redemption, the rating assigned to
the Securities by the rating agency will be at
least as good as the higher of (a) the
then-current rating assigned to the Securities
by the rating agency or (b) the initial rating
assigned to the Securities by the rating agency
as of the closing date for the old Securities.
18
<PAGE>
Ranking of the Securities... The Securities:
o are senior secured debt owed by us;
o rank equally in right of payment with our
other senior secured debt permitted under the
indenture for the Securities;
o share equally in the collateral with our
other senior secured debt permitted under the
indenture for the Securities;
o rank senior to any of our subordinated debt
permitted under the indenture for the
Securities;
o are effectively subordinated to the existing
project financing debt and all other debt of
the Assignors, SECI Holdings, California
Energy Yuma, the project companies and the
holding companies associated with the
projects; and
o are the only debt, other than the debt
permitted under the indenture for the
Securities, which we owe.
Collateral.................. The Securities are secured by the following
collateral:
o all available cash flow deposited with the
depositary bank;
o a pledge of 99% of the equity interests in
Salton Sea Power and all of the equity
interests in CE Texas Gas, the other
Assignors (other than Magma) and California
Energy Yuma;
o upon the redemption of, or earlier release of
security interests under, Magma's 9 7/8%
promissory notes, a pledge of all of the
capital stock of Magma;
o a pledge of all of the capital stock of SECI
Holdings;
o a grant of a lien on and security interest in
the depositary accounts; and
o a grant of a lien on and security interest in
all of our other tangible and intangible
property, to the extent assignable (other
than the capital stock of Magma, which will
be pledged upon the redemption of, or earlier
release of security interests under, Magma's
9 7/8% promissory notes).
Non-Recourse Obligations.... We are the only person obligated to pay
principal of, premium, if any, and interest on
the Securities. Neither MidAmerican, El Paso
Energy, Magma (nor any of MidAmerican's, El
Paso's Energy, Magma's or our stockholders,
officers, directors, employees or affiliates,
other than the Assignors) will guarantee the
Securities or has any obligation to make payments
on the Securities.
19
<PAGE>
Debt Service
Reserve Account............. We are required to maintain an amount on deposit
in the debt service reserve account equal on any
date to the maximum semiannual principal and
interest payment due on the Securities for the
remaining term. We are permitted to satisfy this
obligation by depositing cash into the debt
service reserve account or by delivering to the
depositary bank a letter of credit provided by a
commercial bank or other financial institution
whose long-term unsecured debt obligations are
rated at least "A" by S&P and "A2" by Moody's. We
initially funded the debt service reserve account
by providing the depositary bank with a debt
service reserve letter of credit in an amount of
approximately $24 million.
Covenants................... We have agreed in the indenture for the
Securities to, among other things:
o maintain our existence;
o comply with applicable laws and governmental
approvals;
o perform our obligations under the financing
documents;
o maintain the liens on the collateral in favor
of the collateral agent;
o provide the trustee, the collateral agent and
depositary bank with reasonable inspection
rights;
o pay our taxes and maintain our books and
records; and
o pledge all of Magma's capital stock within
ten days after the stock is released from the
liens securing Magma's 9 7/8% promissory
notes.
We have agreed not to, among other things:
o incur debt other than as permitted under the
indenture for the Securities;
o create liens on our property other than as
permitted under the indenture for the
Securities;
o engage in any activities other than those
permitted by the financing documents; or
o form subsidiaries, make any investment, loans
or advances or acquire the stock, obligations
or securities of any other person other than
as permitted under the indenture for the
Securities.
These affirmative and negative covenants are
subject to a number of important qualifications
and exceptions set forth in the indenture for
the Securities.
20
<PAGE>
RISK FACTORS
You should carefully consider the following factors before deciding to
tender your old Securities in the exchange offer.
YOUR FAILURE TO EXCHANGE YOUR OLD SECURITIES FOR NEW SECURITIES COULD RESULT IN
YOUR HOLDING ILLIQUID SECURITIES WHICH CANNOT BE RESOLD UNLESS YOU REGISTER
THEM UNDER THE SECURITIES ACT OR FIND AN EXEMPTION FROM REGISTRATION.
The old Securities 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 old
Securities for registered new Securities pursuant to the exchange offer, you
will not be able to resell, offer to resell or otherwise transfer the old
Securities unless they are registered under the Securities Act or unless you
resell them, offer to resell them 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 will no longer be under an obligation to
register the old Securities under the Securities Act except in the limited
circumstances provided under the registration rights agreement between us and
the initial purchasers of the old Securities. In addition, to the extent that
old Securities are tendered for exchange and accepted in the exchange offer, the
trading market for the untendered and tendered but unaccepted old Securities
could be illiquid.
WE ARE THE ONLY PERSON REQUIRED TO MAKE PAYMENTS ON THE SECURITIES AND THERE IS
NO COLLATERAL SECURING OUR OBLIGATION TO MAKE THESE PAYMENTS OTHER THAN THE
COLLATERAL DESCRIBED IN THIS PROSPECTUS.
No one other than us is obligated to make payments on the Securities. None
of our shareholders or affiliates (other than the Assignors to a limited extent)
or any of our or our shareholders' or affiliates' officers, directors or
employees will guarantee our obligation to make payments on the Securities or be
liable in any other way for the payment of the Securities. The only collateral
securing our obligation to make payments on the Securities is the collateral
described in this prospectus on page 10. If we are unable to make payments on
the Securities and you foreclose on and sell this collateral, the proceeds you
receive from the sale may not be sufficient to fully repay your Securities.
OUR ABILITY TO MAKE PAYMENTS ON THE SECURITIES IS DEPENDENT ON THE ASSIGNORS'
RECEIPT OF EQUITY DISTRIBUTIONS FROM THE PROJECT COMPANIES, WHICH IS IN TURN
DEPENDENT ON EVENTS WHICH ARE BEYOND OUR CONTROL.
We were formed for the purpose of issuing the Securities and owning our
subsidiaries. We do not have any operations. Accordingly, the sole source of
repayment of the Securities is the available cash flow of the Assignors. The
Assignors' sources of available are limited. Salton Sea Power, Falcon Seaboard
Resources, Falcon Seaboard Power, Falcon Seaboard Oil, California Energy
Development and CE Texas Energy conduct no business other than owning direct and
indirect interests in their project companies. Magma conducts no material
business other than owning its equity interests in the Imperial Valley project
companies and providing administrative and operation services and real estate
rights to the Imperial Valley project companies. Falcon Power Operating conducts
no business other than providing operation and maintenance services for the
Saranac, Power Resources, NorCon and Yuma projects. CE Texas Gas conducts no
business other than procuring natural gas for the Power Resources Project. In
addition, the project financing documents entered into by the project companies
in connection with the development and construction of their projects place
limitations on the ability of the project companies to make distributions to the
Assignors. For example, if there is a default under a project financing
document, the project company would not be permitted to make distributions to
the relevant Assignor. Such a default could result from the making of an untrue
representation by the project company or the failure of the project company to
satisfy a covenant. Finally, if an Assignor were to be found to be bankrupt, the
assignment of such Assignor's cash flow to the secured parties would not be
considered a lien that would continue if effect following the bankruptcy.
21
<PAGE>
THE PROJECT LENDERS MUST MAKE PAYMENTS ON DEBT INCURRED BY THEM BEFORE MAKING
EQUITY DISTRIBUTIONS TO THE ASSIGNORS.
The project companies (other than Yuma) paid for a portion of the costs of
constructing their projects with loans from banks and proceeds from the sale of
bonds. As of September 30, 1999, the aggregate amount of this debt was
approximately $959.2 million. The project companies must make regular payments
on this debt prior to making distributions to the Assignors. Any additional debt
incurred by the project companies would also in all likelihood have to be paid
before distributions could occur. Accordingly, the existence of debt at the
project company level reduces the amount of distributions that can be made to
the Assignors and, in turn, the amount of funds available to make payments on
the Securities. In addition, if there was a default under the documents
evidencing the project company level debt, the lenders of such debt could
foreclose on the collateral securing the debt, which could include the project
company's project. If this were to occur, we would lose an important source of
funds to use to make payments on the Securities.
WE CANNOT PREDICT THE REVENUES FROM THE SALE OF ELECTRICITY UNDER THE POWER
PURCHASE AGREEMENTS OR IN THE COMPETITIVE POWER MARKETS AND THE AMOUNT OF THESE
REVENUES MAY BE LOWER THAN AS SHOWN IN THE INDEPENDENT ENGINEER'S PROJECTIONS.
The energy payments under the power purchase agreements for the operating
Imperial Valley projects (other than the Salton Sea Unit I power purchase
agreements) depend, or will in the future depend, at least in part, on Southern
California Edison's avoided cost of energy. The energy payments under the Yuma
power purchase agreements are dependent upon San Diego Gas & Electric's avoided
cost of energy. Estimates of Southern California Edison's and San Diego Gas &
Electric's avoided cost of energy vary substantially and we cannot predict the
level of payments to be made in the future under these power purchase
agreements. These future payments may be lower than as contemplated by the
projections. Accordingly, there may be less funds available for repayment of the
Securities than as shown in the projections.
Although approximately one-third of the net electrical output of Salton Sea
Unit V is expected to be sold under a contract for use by the zinc facility,
neither Salton Sea Unit V nor the CE Turbo project currently has any material
long-term power sales agreement for the rest of their capacity. The strategy for
Salton Sea Unit V and the CE Turbo project is to sell output not needed by the
zinc facility in short term transactions through the California power exchange
or in such other transactions from time to time as may be found to be more
advantageous than those conducted through the California power exchange. The
California power exchange was recently created to establish markets for the sale
of power on a daily and an hourly basis. Thus, California power exchange prices
are expected to have the characteristics of short term spot prices and to
fluctuate from time to time in a manner that cannot be predicted with accuracy
and is not within our control or the control of any other person. The
projections use California power exchange prices. These estimates may turn out
to be wrong and the California power exchange prices may actually be lower than
as shown in the projections. If this is the case, there will be less funds
available to make payments on the Securities than as shown in the projections.
SOME OF THE POWER PURCHASE AGREEMENTS FOR THE PROJECTS WILL EXPIRE BEFORE THE
MATURITY DATE FOR THE SECURITIES AND THE PRICES AT WHICH THE POWER FROM THE
AFFECTED PROJECTS CAN BE SOLD AFTER EXPIRATION MAY BE LOWER THAN THE PRICES
UNDER THE POWER PURCHASE AGREEMENTS.
The initial terms of some of the power purchase agreements end prior to
the maturity date for the Securities and we cannot assure you that the terms of
these power purchase agreements will be extended beyond the initial terms. Upon
termination or expiration of a power purchase agreements, the affected project
company may make "spot" sales to the competitive market, enter into one or more
replacement power purchase agreements or sell power through a combination of
these approaches. In any of these cases, we cannot assure you that net revenues
generated from market sales or replacement power purchase agreements will not
be lower than the revenues contemplated by the projections. If the revenues are
lower, there will be less funds available to make payments on the Securities
than as shown in the projections.
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THE PROCEEDS RECEIVED UNDER THE PROJECT COMPANIES' INSURANCE POLICIES MAY NOT
BE SUFFICIENT TO COVER ALL LOSSES AND THE INSURANCE COVERAGE FOR THE PROJECTS
MAY NOT BE AVAILABLE IN THE FUTURE ON COMMERCIALLY REASONABLE TERMS.
The operation of the projects involves many risks, including the breakdown
or failure of power generating equipment, pipelines, transmission lines or
other equipment or processes, fuel interruption, performance below expected
levels of output or efficiency, operator error and catastrophic events such as
fires, earthquakes or explosions. The occurrence of any of these events could
significantly reduce or eliminate revenues generated by a project or
significantly increase the expenses of a project, thereby reducing the funds
available to make distributions to the Assignors and, consequently, reducing
the funds available to make payments on the Securities. The projects companies
currently possess property, business interruption, catastrophic and general
liability insurance. However, such comprehensive insurance coverage may not be
available in the future at commercially reasonable costs or terms and the
amounts for which the project companies are or will be insured may not cover
all potential losses.
THE PROJECT COMPANIES RELY ON A LIMITED NUMBER OF CUSTOMERS AND SUPPLIERS.
Each project depends on a single or limited number of companies to
purchase electricity or thermal energy, to supply water, to supply gas, to
transport gas, to dispose of wastes or to wheel electricity. For example, each
of the eight operating Imperial Valley projects relies on a power purchase
agreements with Southern California Edison for all of its revenues. The failure
of any power purchaser (including Southern California Edison), thermal energy
host, water or gas supplier, gas transporter, wheeling utility or other project
participant to fulfill its contractual obligations could increase the
expenditures of or decrease the revenues earned by the affected project
company. This would, in turn, decrease the amounts available for distribution
to the Assignors and, as a result, decrease the funds available to make
payments on the Securities.
THE CONSTRUCTION OF THE NEW PROJECTS MAY BE DELAYED AND MAY COST MORE THAN WE
EXPECTED.
Although twelve of the projects have been operating for a number of years,
Salton Sea Unit V and the CE Turbo project are under construction pursuant to
fixed price, date certain, turnkey engineering, procurement and construction
contracts. These new projects are subject to risks associated with the
construction of power plants including risks of delays in completion, cost
overruns and failures of the construction contractors to perform in accordance
with contract terms. Any material unremedied delay in or unsatisfactory
completion of the new projects could hurt the affected project companies'
results of operations. This would, in turn, decrease the amounts available for
distribution to the Assignors and, as a result decrease the funds available to
make payments on the Securities.
THE AVAILABLE GEOTHERMAL RESOURCES MAY NOT BE SUFFICIENT TO OPERATE THE
GEOTHERMAL PROJECTS FOR THE ENTIRE TERM OF THE SECURITIES AND THE USE OF
GEOTHERMAL FUEL IN THESE PROJECTS MAY RESULT IN SIGNIFICANT COSTS WHICH ARE NOT
WITHIN OUR CONTROL.
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 dry holes and uncontrolled releases. Because of the geological
complexities of geothermal reservoirs, the geographic area and sustainable
output thereof can only be estimated and cannot be definitively established.
There is, accordingly, a risk of an unexpected decline in the capacity of
geothermal wells and a risk of geothermal reservoirs not being sufficient for
sustained production of electricity by the Imperial Valley projects at the
expected levels.
In addition, both the cost of operations and the operating performance of
the Imperial Valley projects may be hurt by a variety of operating factors.
Production and injection wells can require frequent maintenance or replacement.
Corrosion caused by high-temperature and high-salinity geothermal fluids may
require the replacement or repair of equipment, vessels or pipelines. New
production and injection wells may be required for the maintenance of current
operating levels, thereby requiring substantial capital expenditures.
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THE PROJECT COMPANIES' BUSINESSES ARE SUBJECT TO A LARGE NUMBER OF REGULATIONS
AND PERMITTING REQUIREMENTS AND MAY BE HURT BY CHANGES IN THESE REGULATIONS AND
REQUIREMENTS.
The project companies are subject to a number of environmental laws and
regulations affecting many aspects of their present and future operations.
These laws and regulations generally require the project companies to obtain
and comply with a wide variety of licenses, permits and other approvals. The
project companies are also subject to environmental and energy regulations that
both public officials and private individuals may seek to enforce. We cannot
assure you that existing regulations will not be revised or that new
regulations will not be adopted or become applicable to the project companies
which could have an adverse impact on their operations.
The structure of federal and state energy regulations is currently
undergoing change and has in the past, and may in the future, be the subject of
various challenges, initiatives and restructuring proposals by utilities and
other electric industry participants. The implementation of regulatory changes
in response to these challenges, initiatives and restructuring proposals could
result in the imposition of more comprehensive or stringent requirements on the
project companies, electric utilities and other electric industry participants,
which would result in increased compliance costs and could otherwise have an
adverse effect on:
o the results of the project companies' operations;
o the project companies' ability to make distributions to the Assignors;
or
o the operations and financial condition of electric utilities
(including the utilities which have entered into power purchase
agreements with the project companies) and other industry
participants.
THERE ARE TWO PENDING LAWSUITS, THE OUTCOME OF WHICH MAY HURT THE REVENUES OF
THE AFFECTED PROJECT COMPANIES.
Saranac project. New York State Electric and Gas has filed a complaint in
federal court challenging the implementation of the Public Utility Regulatory
Policies Act of 1978 by the Federal Energy Regulatory Commission and the New
York State Public Service Commission and claiming that the prices in the
Saranac power purchase agreement exceed the prices mandated by PURPA. The NYPSC
also filed a related cross-claim against FERC making similar assertions. We
believe that New York State Electric and Gas's and the NYPSC's claims are
without merit because, among other things, these claims were unanimously denied
by FERC in earlier proceedings which found that (1) New York State Electric and
Gas's challenge to the regulatory scheme was grossly untimely, (2) the Saranac
power purchase agreement was exempt from further regulatory review and (3) the
rates payable under the Saranac power purchase agreement were consistent with
PURPA and FERC regulations. If, however, New York State Electric and Gas were
successful in reducing the rates payable under the Saranac power purchase
agreement or in obtaining any restitution, this rate reduction or restitution
payment could reduce the revenues of Saranac. This reduction would result in
decreased distributions made to Falcon Seaboard Resources, which would mean
less funds available to make payments on the bonds.
NorCon project. NorCon previously filed a claim for declaratory judgment
in federal district court that Niagara Mohawk did not have the right to demand
"adequate assurances" of NorCon's future performance under the NorCon power
purchase agreement. Niagara Mohawk filed a counterclaim seeking a declaration
that it had such a right and that if NorCon did not provide the assurances
Niagara Mohawk would be relieved of its obligations under the NorCon power
purchase agreement. The district court ruled in favor of NorCon and dismissed
Niagara Mohawk's counterclaim. Niagara Mohawk appealed to the federal circuit
court, which certified a state law question of law to the New York Court of
Appeals. The New York court ruled that in appropriate circumstances adequate
assurances may be requested and the case has been remanded to district court
for further proceedings. A trial has been held and post-trial arguments were
heard on October 14, 1999. If, however, the district court were to find that
further adequate assurances were appropriate, the
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provision of additional security could result in increased costs to NorCon. In
this regard, no available cash flow receivable by Falcon Seaboard Resources and
Falcon Seaboard Power in connection with the NorCon project has been included
in the projections.
IT IS POSSIBLE THAT THE ASSIGNORS' ASSIGNMENT OF THEIR AVAILABLE CASH FLOW
COULD BE SUBORDINATED OR DECLARED UNENFORCEABLE IN A BANKRUPTCY OR SIMILAR
PROCEEDING.
We distributed a substantial portion of the proceeds from the sale of the
old Securities to MidAmerican. The portion of the proceeds from the sale which
we contributed to each Assignor was less than the amount of available cash flow
assigned by each Assignor to secure our obligations with respect to the
Securities. It is possible that a creditor of an Assignor could make a claim,
under federal or state fraudulent conveyance laws, that the Security holders'
claims under the Assignor security agreement should be subordinated or not
enforced or that payments thereunder (including payments to the Security
holders) should be recovered.
In order to prevail on such a claim, a claimant would have to demonstrate
that:
o either:
o the obligations incurred under the Assignor security agreement
were not incurred in good faith; or
o that any Assignor did not receive fair consideration for its
assignment of available cash flow; and
o that any Assignor:
o was insolvent at the time it entered into the Assignor security
agreement; or
o at any time did not have and will not have sufficient capital for
carrying on its business or was not and will not be able to pay
its debts as they mature.
WE HAVE RELIED ON PROJECTIONS OF THE FUTURE PERFORMANCE OF THE PROJECTS IN
ASSESSING OUR ABILITY TO MAKE PAYMENTS ON THE SECURITIES. THESE PROJECTIONS,
WHICH WERE NOT VERIFIED BY OUR ACCOUNTANTS, ARE BASED ON ASSUMPTIONS WHICH MAY
PROVE TO BE INCORRECT AND WILL NOT BE UPDATED TO REFLECT ACTUAL RESULTS.
The independent engineers' reports contain projections prepared or
reviewed by Fluor Daniel and R.W. Beck and a discussion of the many assumptions
used in preparing these projections, which you should review carefully. All
projections of future operations and the economic results thereof included in
the geothermal projects independent engineer's report and the natural gas
projects independent engineer's report have been prepared or confirmed by Fluor
Daniel and R.W. Beck, respectively. Deloitte & Touche LLP, our independent
auditors, have neither examined nor compiled the projections and, accordingly,
do not express an opinion or any other form of assurance with respect thereto.
The reports were prepared prior to our offering of the old Securities and have
not been updated since that time. After the issuance of the Securities, neither
we, nor the Assignors, Fluor Daniel, R.W. Beck or any other person will have
any obligation to, nor do they intend to, provide the holders of Securities
with updated reports or revised projections comparing the projections and
actual operating results later achieved by us and the Assignors.
For purposes of preparing the projections, assumptions were made, of
necessity, with respect to general business and economic conditions, the
revenues the project companies will earn in their respective businesses, the
amount of available cash flow the Assignors will receive and several other
matters that are not within the control of the Assignors and the outcome of
which cannot be predicted by us, the Assignors, Fluor Daniel, R.W. Beck or any
other person with any certainty or accuracy. These assumptions and the other
assumptions used in preparing the projections are inherently subject to
significant uncertainties and actual results may differ, perhaps materially,
from those projected. Neither we, nor the Assignors, Fluor Daniel, R.W. Beck or
any other person, including any project company or affiliate thereof, assumes
any responsibility for the accuracy of such projections. Therefore, no
representation is made or intended, nor should any be inferred, with
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respect to the likely existence of any particular future set of facts or
circumstances. If actual results are less favorable than those shown or if the
assumptions used in formulating the projections prove to be incorrect, our
ability to make payments on the Securities may be adversely affected.
THERE IS NO EXISTING MARKET FOR THE NEW SECURITIES AND WE CANNOT ASSURE YOU
THAT AN ACTIVE TRADING MARKET WILL DEVELOP.
We are offering the new Securities to the holders of the old Securities.
There is no existing market for the new Securities and we cannot assure you
that a market will develop. If a market for the new Securities were to develop,
future trading prices would depend on many factors, including prevailing
interest rates, the operating results of the project companies and the market
for similar securities. We do not intend to apply for listing or quotation of
the new Securities on any securities exchange or stock market. As a result, it
may be difficult for you to find a buyer for your Securities at the time you
want to sell them, and even if you found a buyer, you might not get the price
you want.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT ARE DEPENDENT ON
CIRCUMSTANCES AND EVENTS WHICH MAY BE OUTSIDE OF OUR CONTROL.
Some of the statements contained in this prospectus are forward-looking
statements, as defined in Section 21D of the Exchange Act, that are dependent
on circumstances and events that may be outside of our control. We identify
these statements by using words such as "expect," "believe," "anticipate,"
"estimate" and "projected" and similar expressions. The forward-looking
statements in this prospectus involve known and unknown risks, uncertainties
and other important factors that could cause our actual results, performance or
achievements, or the results, performance or achievements of our affiliates, or
industry results, to differ materially from any future results, performance or
achievements expressed or implied by the forward-looking statements.
These risks, uncertainties and other important factors include:
o general economic and business conditions in the United States;
o governmental, statutory, regulatory or administrative initiatives
affecting us, the Assignors, the project companies, the projects or
the U.S. electricity industry;
o weather effects on sales and revenues;
o general industry trends; competition;
o fuel and power costs and availability;
o changes in business strategy, development plans or vendor
relationships;
o fuel transportation; availability, term and deployment of capital;
o availability of qualified personnel; and
o changes in, or the failure or inability to comply with, governmental
regulation, including industry deregulation and restructuring,
environmental and tax regulations and legislation.
We do not have any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained herein to reflect any
change in our expectations with regard thereto or any change in events,
conditions or circumstances on which the statement is based.
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THE EXCHANGE OFFER
BACKGROUND INFORMATION REGARDING THE EXCHANGE OFFER
We originally sold the outstanding 7.416% Senior Secured Bonds Due
December 15, 2018 on March 2, 1999 in a transaction exempt from the
registration requirements of the Securities Act. Credit Suisse First Boston
Corporation and Goldman, Sachs & Co., as the initial purchasers, subsequently
resold the notes to qualified institutional buyers in reliance on Rule 144A and
under Regulation S under the Securities Act. As of the date of this prospectus,
$400 million aggregate principal amount of unregistered bonds are outstanding.
We entered into an exchange and registration rights agreement with Credit
Suisse First Boston Corporation and Goldman, Sachs & Co. under which we agreed
that we would, at our own cost, (1) use our reasonable best efforts to cause
the registration statement, of which this prospectus is a part, relating to the
exchange offer to be declared effective by the Securities and Exchange
Commission prior to December 2, 1999, (2) keep the exchange offer open for a
period of not less than the shorter of (A) the period ending when the last of
the remaining old Securities is tendered into the exchange offer and (B) 30
days from the date notice is mailed to holders of the old Securities, and (3)
maintain the registration statement continuously effective for a period of not
less than the longer of (A) the period until consummation of the exchange offer
and (B) 120 days after effectiveness of the registration statement (subject to
extension), provided that in the event that all resales of new Securities
covered by the registration statement have been made, the registration
statement need not remain continuously effective. The summary in this
prospectus of provisions of the registration rights agreement does not purport
to be complete and is subject to, and is qualified in its entirety by, all the
provisions of the registration rights agreement, a copy of which is filed as an
exhibit to the registration statement.
YOUR ABILITY TO RESELL THE NEW SECURITIES
Based on no-action letters issued by the staff of the Securities and
Exchange Commission to third parties, we believe that a holder of old Securities
who exchanges old Securities for new Securities in the exchange offer generally
may offer the new Securities for resale, sell the new Securities and otherwise
transfer the new Securities without further registration under the Securities
Act and without delivery of a prospectus that satisfies the requirements of
Section 10 of the Securities Act. This does not apply, however, to a holder who
is an affiliate of ours within the meaning of Rule 405 of the Securities Act. We
also believe that a holder may offer, sell or transfer the new Securities only
if the holder acquires the new Securities in the ordinary course of its business
and is not participating, does not intend to participate and has no arrangement
or understanding with any person to participate in a distribution of the new
Securities.
Any holder of old Securities using the exchange offer to participate in a
distribution of new Securities cannot rely on the no-action letters referred to
above. This category of holders includes a broker-dealer that acquired old
Securities directly from us, but not as a result of market-making activities or
other trading activities. Consequently, this type of holder must comply with
the registration and prospectus delivery requirements of the Securities Act in
the absence of an exemption from these requirements.
Each broker-dealer that receives new Securities for its own account in
exchange for old Securities, where the old Securities were acquired by the
broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with the resale of new Securities received in exchange for old
Securities. The letter of transmittal (which accompanies this prospectus)
states that by so acknowledging and by delivering a prospectus, a participating
broker-dealer will not be deemed to admit that it is an underwriter within the
meaning of the Securities Act. A participating broker-dealer may use this
prospectus, as it may be amended from time to time, in connection with resales
of new Securities it receives in exchange for old Securities in the
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exchange offer. We will make this prospectus available to any participating
broker-dealer in connection with any resale of this kind for a period of 30
days after the expiration date of the exchange offer.
REPRESENTATIONS AND ACKNOWLEDGEMENTS THAT YOU MUST MAKE IN ORDER TO EXCHANGE
YOUR OLD SECURITIES FOR NEW SECURITIES
Each holder of the old Securities who wishes to exchange old Securities
for new Securities in the exchange offer will be required to represent and
acknowledge, for the holder and for each beneficial owner of the old
Securities, whether or not the beneficial owner is the holder, in the letter of
transmittal that:
o the new Securities to be acquired by the holder and each beneficial
owner, if any, are being acquired in the ordinary course of business,
o neither the holder nor any beneficial owner is an affiliate, as
defined in Rule 405 of the Securities Act, of ours or any of our
subsidiaries,
o any person participating in the exchange offer with the intention or
purpose of distributing new Securities received in exchange for old
Securities, including a broker-dealer that acquired old Securities
directly from us, but not as a result of market-making activities or
other trading activities, cannot rely on the no-action letters
referenced above and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a
secondary resale of the new Securities,
o if the holder is not a broker-dealer, the holder and each beneficial
owner, if any, are not participating, do not intend to participate and
have no arrangement or understanding with any person to participate in
any distribution of the new Securities received in exchange for old
Securities, and
o if the holder is a broker-dealer that will receive new Securities for
the holder's own account in exchange for old Securities, the old
Securities to be so exchanged were acquired by the holder as a result
of market-making or other trading activities and the holder will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of the new Securities received in the
exchange offer. However, by so representing and acknowledging and by
delivering a prospectus, the holder will not be deemed to admit that
it is an underwriter within the meaning of the Securities Act.
SITUATIONS IN WHICH WE WILL BE REQUIRED TO FILE A SHELF REGISTRATION STATEMENT
If applicable law or interpretations of the staff of the Securities and
Exchange Commission are changed so that the new Securities received by holders
who make all of the above representations in the letter of transmittal are not
or would not be, upon receipt, transferable by each holder without restriction
under the Securities Act, we will, at our cost:
o file a shelf registration statement covering resales of the old
Securities,
o use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act on or
prior to December 2, 1999, and
o use our reasonable best efforts to keep effective the shelf
registration statement until the earlier of three years after March 2,
1998, subject to exceptions, or the time when all of the applicable
old Securities are no longer outstanding.
We may postpone or suspend the filing or the effectiveness of any shelf
registration statement if such action is taken by us in good faith and for
valid business reasons. We will, if and when we file the shelf registration
statement, provide to each holder of the old Securities copies of the
prospectus which is a part of the shelf registration statement, notify each
holder when the shelf registration statement has become effective and take
other actions as are required to permit unrestricted resales of the old
Securities.
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THE INTEREST RATE ON THE OLD SECURITIES WILL INCREASE IF A REGISTRATION
STATEMENT IS NOT DECLARED EFFECTIVE BY DECEMBER 2, 1999
In the event that neither the exchange offer registration statement nor a
shelf registration statement has been declared effective by December 2, 1999,
the interest rate on the old Securities will increase by 0.50% per annum until
the exchange offer registration statement or the shelf registration statement
is declared effective. Upon consummation of the exchange offer, holders of old
Securities will not be entitled to any increase in the rate of interest on the
old Securities, but will be entitled to the benefits of the indenture under
which the old Securities were issued.
GENERAL TERMS OF THE EXCHANGE OFFER
We hereby offer, upon the terms and subject to the conditions set forth in
this prospectus and in the accompanying letter of transmittal, to exchange new
Securities for a like aggregate principal amount of old Securities properly
tendered on or prior to the expiration date and not properly withdrawn in
accordance with the procedures described below. We will issue, promptly after
the expiration date, the new Securities in exchange for a like principal amount
of outstanding old Securities tendered and accepted in connection with the
exchange offer. You may tender your old Securities in whole or in part in a
principal amount of $1,000 and integral multiples thereof, provided that if any
old Securities are tendered for exchange in part, the untendered principal
amount thereof must be $100,000 or any integral multiple of $1,000 in excess
thereof.
The exchange offer is not conditioned upon any minimum number of old
Securities being tendered. As of the date of this prospectus, $400,000,000
aggregate principal amount of the old Securities is outstanding.
If any tendered old Securities are not accepted for exchange because of an
invalid tender or any other reason, certificates for any unaccepted old
Securities will be returned, without expense to the tendering holder thereof
promptly after the expiration 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 the exchange of old Securities. We will pay all charges and expenses, other
than applicable taxes described below, in connection with the exchange offer.
Neither we nor our board of directors makes any recommendation to you as
to whether to tender or refrain from tendering all or any portion of your old
Securities pursuant to the exchange offer. In addition, no one has been
authorized to make this type of recommendation. You must make your own decision
whether to tender pursuant to the exchange offer and, if you do tender, the
aggregate amount of old Securities to tender. In making these decisions, you
should read this prospectus and the letter of transmittal and consult with your
advisers. You should make the decision whether to tender based on your own
financial position and requirements.
THE EXPIRATION DATE FOR THE EXCHANGE OFFER AND OUR ABILITY TO EXTEND THE
EXPIRATION DATE
The exchange offer expires on the expiration date. The term "expiration
date" means 5:00 p.m., New York City time, on , 1999, unless we in our
sole discretion extend the period during which the exchange offer is open. If
we do so, the term "expiration date" will mean the latest time and date to
which the exchange offer is extended. We may extend the exchange offer at any
time and from time to time by giving oral or written notice to the exchange
agent and by timely public announcement. Without limiting the manner in which
we may choose to make any public announcement and subject to applicable law, we
will have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a release to an appropriate news
agency. During any extension of the exchange offer, all old Securities
previously tendered pursuant to the exchange offer will remain subject to the
exchange offer.
WE CAN WAIVE CONDITIONS TO THE EXCHANGE OFFER AND AMEND THE EXCHANGE OFFER IN
OTHER WAYS
We reserve the right (1) to delay accepting any old Securities, to extend
the exchange offer or to terminate the exchange offer and not accept old
Securities not previously accepted for any reason,
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including if any of the conditions to the exchange offer described below are
not satisfied and are not waived by us, or (2) to amend the terms of the
exchange offer in any manner, whether prior to or after the tender of any of
the old Securities. If any such delay, extension, termination or amendment
occurs, we will give oral or written notice to the exchange agent and will
either issue a public announcement or give notice to the holders of the old
Securities as promptly as practicable.
If (1) we waive any material condition to the exchange offer or amend the
exchange offer in any other material respect and (2) the exchange offer is
scheduled to expire at any time earlier than the expiration of a period ending
on the fifth business day after the date that notice of the waiver or amendment
is first published, sent or given, then the exchange offer will be extended
until the expiration of the five business day period.
THE PROCEDURES YOU MUST FOLLOW IN ORDER TO TENDER YOUR OLD SECURITIES
THE ITEMS YOU MUST SUBMIT IN ORDER TO TENDER YOUR OLD SECURITIES
To tender in the exchange offer, you must (1) complete, sign and date the
letter of transmittal, or a facsimile thereof, (2) have the signatures thereon
guaranteed if required by the letter of transmittal and (3) mail or otherwise
deliver the letter of transmittal, together with any other required documents
or an agent's message in case of book-entry delivery as described below, to the
exchange agent prior to the expiration date. In addition, either
o certificates for the old Securities being tendered must be received by
the exchange agent along with the letter of transmittal on or prior to
the expiration date,
o a timely confirmation of a book-entry transfer of the old Securities,
if this procedure is available, into the exchange agent's account at
The Depository Trust Company pursuant to the procedure for book-entry
transfer described below, along with the letter of transmittal must be
received by the exchange agent on or prior to the expiration date, or
o you must comply with the guaranteed delivery procedures described
below.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT YOUR OPTION AND SOLE RISK. IF YOU DELIVER BY
MAIL, WE RECOMMEND REGISTERED MAIL (RETURN RECEIPT REQUESTED AND PROPERLY
INSURED) OR AN OVERNIGHT DELIVERY SERVICE. IN ALL CASES, YOU SHOULD ALLOW
SUFFICIENT TIME TO ENSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD
SECURITIES SHOULD BE SENT TO US.
SPECIAL CIRCUMSTANCES THAT MAY APPLY TO YOUR TENDER
To be tendered effectively, the old Securities, letter of transmittal and
all other required documents, or, in the case of a participant in The
Depository Trust Company, an agent's message must be received by the exchange
agent prior to 5:00 p.m., New York City time, on the expiration date. Except in
the case of a participant in The Depository Trust Company who transfers
Securities by an agent's message, delivery of all documents must be made to the
exchange agent at its address set forth on the back of this prospectus. You may
also request your respective broker, dealer, commercial bank, trust company or
nominee to effect your tender for you.
Your tender of old Securities will constitute an agreement between you and
us in accordance with the terms and subject to the conditions set forth in the
prospectus and in the letter of transmittal. If you tender less than all of
your old Securities, you should fill in the amount of old Securities being
tendered in the appropriate box on the letter of transmittal. The entire amount
of old Securities delivered to the exchange agent will be deemed to have been
tendered unless you indicate otherwise.
Only a holder of old Securities may tender such old Securities in the
exchange offer. The term "holder" with respect to the exchange offer means any
person in whose name old Securities are registered on our books or any other
person who has obtained a properly completed bond power from the registered
holder.
30
<PAGE>
Any beneficial owner whose old Securities are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on his behalf. If the beneficial owner wishes to
tender on his own behalf, the beneficial owner must, prior to completing and
executing the letter of transmittal and delivering his old Securities, either
make appropriate arrangements to register ownership of the old Securities in
the beneficial owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a firm (an "eligible institution") that is a
member of a recognized signature guarantee medallion program within the meaning
of Rule 17Ad-15 under the Exchange Act, unless the old Securities tendered
pursuant thereto are tendered (1) by a registered holder who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal or (2) for the account of an
eligible institution. In the event that signatures on a letter of transmittal
or a notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantee must be by an eligible institution.
If the letter of transmittal is signed by a person other than the
registered holder of any old Securities listed therein, the old Securities must
be endorsed or accompanied by bond powers and a proxy which authorizes such
person to tender the old Securities on behalf of the registered holder, in each
case as the name of the registered holder appears on the old Securities. If the
letter of transmittal or any old Securities 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
person should so indicate when signing, and unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal.
OUR RIGHTS IN CONNECTION WITH THE TENDERING PROCEDURES
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered old Securities will be determined by us
in our sole discretion, which determination will be final and binding. We
reserve the absolute right to reject any and all old Securities not properly
tendered or any old Securities which, if accepted by us, would be unlawful. We
also reserve the right to waive any irregularities or conditions of tender as
to particular old Securities. Our interpretation of the terms and conditions of
the exchange offer (including the instructions in the letter of transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of old Securities must be cured
within such time as we determine. Neither we, the exchange agent or any other
person will be under any duty to give notification of defects or irregularities
with respect to tenders of old Securities, nor will we or any of them incur any
liability for failure to give notification. Tenders of old Securities will not
be deemed to have been made until any irregularities have been cured or waived.
Any old Securities received by the exchange agent that are not properly
tendered, and which have defects or irregularities which have not been timely
cured or waived, will be returned without cost to the holder by the exchange
agent as soon as practicable following the expiration date.
In addition, we reserve the right in our sole discretion (1) to purchase
or make offers for any old Securities that remain outstanding subsequent to the
expiration date or to terminate the exchange offer, and (2) to the extent
permitted by applicable law, to purchase old Securities in the open market, in
privately negotiated transactions or otherwise. We have no present plan to
acquire any old Securities which are not tendered in the exchange offer. The
terms of any purchases or offers could differ from the terms of the exchange
offer.
YOU MAY BE ABLE TO USE THE DEPOSITORY TRUST COMPANY IN CONNECTION WITH YOUR
TENDER
The exchange agent will make a request to establish an account with
respect to the old Securities at The Depository Trust Company for purposes of
the exchange offer within two business days after
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<PAGE>
the date of this prospectus. Any financial institution that is a participant in
The Depository Trust Company may book-entry deliver old Securities by causing
The Depository Trust Company to transfer the old Securities into the exchange
agent's account at The Depository Trust Company in accordance with The
Depository Trust Company's procedures for transfer on or prior to the
expiration date. If you are a participant in The Depository Trust Company and
transfer your old Securities by an agent's message, you do not need to transmit
the letter of transmittal to the exchange agent to consummate your exchange.
The term "agent's message" means a message transmitted through electronic
means by The Depository Trust Company to and received by the exchange agent and
forming a part of a book-entry confirmation, which states that The Depository
Trust Company has received an express acknowledgment from the participant in
The Depository Trust Company tendering the Securities that the participant has
received and agrees to be bound by the letter of transmittal and/or the notice
of guaranteed delivery discussed below, where applicable.
YOUR ABILITY TO TENDER BY PROVIDING A NOTICE OF GUARANTEED DELIVERY
If you would like to tender your old Securities, and (1) your old
Securities are not immediately available, (2) time will not permit your old
Securities or other required documents to reach the exchange agent before the
expiration date, or (3) the procedure for book-entry transfer cannot be
completed on a timely basis, your tender may still be effected if:
o the tender is made through an eligible institution;
o on or prior to the expiration date, the exchange agent received from
the eligible institution a properly completed and duly executed letter
of transmittal (or in the case of a participant in The Depository
Trust Company, an agent's message) and notice of guaranteed delivery,
substantially in the form provided by us (or, in the case of a
participant in The Depository Trust Company, by an agent's message),
setting forth your name and address and the amount of old Securities
tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange trading days
after the date of execution of the notice of guaranteed delivery, the
certificates for all physically tendered old Securities, in proper
form for transfer, 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; and
o the certificates for all physically tendered old Securities, in proper
form for transfer, or a book-entry confirmation, as the case may be,
and any other documents required by the letter of transmittal are
received by the exchange agent within three New York Stock Exchange
trading days after the date of execution of the notice of guaranteed
delivery.
A tender will be deemed to have been received as of the date when your
properly completed and duly signed letter of transmittal accompanied by your
old Securities is received by the exchange agent, or if you are a participant
in The Depository Trust Company, as of the date when an agent's message has
been received by the exchange agent. Issuances of new Securities in exchange
for old Securities tendered pursuant to a notice of guaranteed delivery by an
eligible institution will be made only against deposit of the letter of
transmittal (and any other required documents) and the tendered old Securities.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL THAT YOU MAY BE REQUIRED TO
SUBMIT WITH YOUR TENDERED SECURITIES
The letter of transmittal contains the following terms and conditions,
which are part of the exchange offer:
o If you tender your old Securities for exchange, you exchange, assign
and transfer the old Securities to us and irrevocably constitute and
appoint the exchange agent as your agent and attorney-in-fact to cause
the old Securities to be assigned, transferred and exchanged.
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<PAGE>
o You represent and warrant that you have full power and authority to
tender, exchange, assign and transfer the old Securities and to
acquire new Securities issuable upon the exchange of the tendered old
Securities, and that, when the same are accepted for exchange, we will
acquire good and unencumbered title to the tendered old Securities,
free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim.
o You also warrant that you will, upon request, execute and deliver any
additional documents deemed by us to be necessary or desirable to
complete the exchange, assignment and transfer of tendered old
Securities.
o You agree that acceptance of any tendered old Securities by us and the
issuance of new Securities in exchange therefor will constitute
performance in full of our obligations under the registration rights
agreement and that we will have no further obligations or liabilities
thereunder.
o All authority conferred by you will survive your death or incapacity
and your obligations will be binding upon your heirs, legal
representatives. successors, assigns, executors and administrators.
By tendering old Securities, you certify that (1) you are not an
"affiliate" of ours within the meaning of Rule 405 under the Securities Act,
that you are not a broker-dealer that owns old Securities acquired directly
from us, that you are acquiring the new Securities offered hereby in the
ordinary course of your business and that you have no arrangement with any
person to participate in the distribution of such new Securities or (2) you are
an "affiliate" of ours or of an initial purchaser and that you will comply with
the registration and prospectus delivery requirements of the Securities Act to
the extent applicable to you. Each broker-dealer that receives new Securities
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 new Securities.
YOU MAY WITHDRAW YOUR TENDER
Old Securities tendered pursuant to the exchange offer may be withdrawn at
any time prior to 5:00 p.m. New York City time, on the expiration date. For a
withdrawal to be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the exchange agent
at its address set forth on the back of this prospectus. Any notice of
withdrawal must specify the name of the person having tendered the old
Securities to be withdrawn, identify the old Securities to be withdrawn,
specify the name in which the old Securities are registered if different from
that of the withdrawing holder, accompanied by evidence satisfactory to us that
the person withdrawing the tender has succeeded to the beneficial ownership of
the old Securities being withdrawn. If certificates for old Securities have
been delivered or otherwise identified to the exchange agent, then, prior to
the release of the 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 old Securities 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 The
Depository Trust Company to be credited with the withdrawn old Securities and
otherwise comply with the Depository Trust Company's procedures. If any old
Securities are tendered for exchange but are not exchanged for any reason, or
if any old Securities are submitted for a greater principal amount than the
holder desires to exchange, the unaccepted or nonexchanged old Securities will
be returned to the holder without cost to the holder as soon as practicable
after withdrawal, rejection of tender, termination of the exchange offer or
submission of nonexchanged old Securities.
WHAT HAPPENS TO OLD SECURITIES THAT ARE TENDERED BUT NOT EXCHANGED
Withdrawals of tenders of old Securities may not be rescinded. Old
Securities properly withdrawn will not be deemed validly tendered for purposes
of the exchange offer, but may be retendered at any subsequent time on or prior
to the expiration date by following any of the procedures described above.
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<PAGE>
All questions as to the validity, form and eligibility (including time of
receipt) of withdrawal notices will be determined by us in our sole discretion,
and our determination will be final and binding on all parties. Neither we, any
affiliates or assigns of ours, the exchange agent nor any other person will be
under any duty to give any notification of any irregularities in any notice of
withdrawal or incur any liability for failure to give any such notification.
ACCEPTANCE OF OLD SECURITIES AND DELIVERY OF NEW SECURITIES
Upon the terms and subject to the conditions of the exchange offer, we
will exchange, and will issue to the exchange agent, new Securities for old
Securities validly tendered and not withdrawn promptly after the expiration
date. For the purposes of the exchange offer, we will be deemed to have
accepted for exchange validly tendered old Securities when 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 of old Securities for the purposes of
receiving new Securities from us and causing the old Securities to be assigned,
transferred and exchanged. Upon the terms and subject to the conditions of the
exchange offer, delivery of new Securities to be issued in exchange for
accepted old Securities will be made by the exchange agent only after timely
receipt by the exchange agent of certificates for such old Securities or a
timely book-entry confirmation of the old Securities into the exchange agent's
account at The Depository Trust Company, a properly completed and duly executed
letter of transmittal and all other required documents, or, in the case of a
book-entry delivery, an agent's message.
SITUATIONS IN WHICH WE WILL NOT BE REQUIRED TO EFFECT THE EXCHANGE OFFER
Notwithstanding any other provisions of the exchange offer, or any
extension of the exchange offer, we will not be required to accept for
exchange, or to exchange, any old Securities for any new Securities, and, as
described below, may terminate the exchange offer (whether or not any old
Securities have theretofore been accepted for exchange) or may waive any
conditions to or amend the exchange offer, if any of the following conditions
has occurred or exists or has not been satisfied:
o the exchange offer, or the making of any exchange by a holder,
violates any applicable law or any applicable interpretation of the
staff of the Securities and Exchange Commission;
o in our reasonable judgment there is be threatened, instituted or
pending any action or proceeding before, or any injunction, order or
decree has been issued by, any court or governmental agency or other
governmental regulatory or administrative agency or commission, (1)
seeking to restrain or prohibit the making or consummation of the
exchange offer or any other transaction contemplated by the exchange
offer, (2) assessing or seeking any damages as a result thereof, or
(3) resulting in a material delay in our ability to accept for
exchange or exchange some or all of the old Securities pursuant to the
exchange offer;
o any statute, rule, regulation, order or injunction is sought,
proposed, introduced, enacted, promulgated or deemed applicable to the
exchange offer or any of the transactions contemplated by the exchange
offer by any government or governmental authority, domestic or
foreign, or any action will have been taken, proposed or threatened by
any government, governmental authority, agency or court, domestic or
foreign, that in our reasonable judgment might directly or indirectly
result in any of the consequences referred to in clauses (1), (2) or
(3) immediately above or, in our reasonable judgment, might result in
the holders of new Securities having obligations with respect to
resales and transfers of new Securities which are greater than those
described in the interpretations of the staff of the Securities and
Exchange Commission referred to in this prospectus, or would otherwise
make it inadvisable to proceed with the exchange offer;
o there will have occurred (1) any general suspension of trading in, or
general limitation on prices for, securities on the New York Stock
Exchange, (2) a declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States or any limitation
by any governmental agency or authority that adversely affects the
extension of credit to us, or (3) a commencement of a war, armed
hostilities or other similar international
34
<PAGE>
calamity directly or indirectly involving the United States, or, in
the case any of the foregoing exists at the time of commencement of
the exchange offer, a material acceleration or worsening thereof; or
o a material adverse change will have occurred or be threatened in our
business, condition (financial or otherwise), operations, stock
ownership or prospects.
The foregoing conditions are for our sole benefit and may be asserted by
us with respect to all or any portion of the exchange offer regardless of the
circumstances (including any action or inaction by us) giving rise to such
condition or may be waived by us in whole or in part at any time or from time
to time in our sole discretion. Our failure at any time to exercise any of the
foregoing rights will not be deemed a waiver of any such right, and each right
will be deemed an ongoing right which may be asserted at any time or from time
to time. In addition, we have reserved the right, notwithstanding the
satisfaction of each of the foregoing conditions, to amend the exchange offer.
Any determination by us concerning the fulfillment or non-fulfillment of any
conditions will be final and binding upon all parties.
In addition, we will not accept for exchange any old Securities tendered
and no new Securities will be issued in exchange for any such old Securities,
if at such time any stop order will be threatened or in effect with respect to
(1) the registration statement of which this prospectus constitutes a part or
(2) the qualification of the indenture under the Trust Indenture Act of 1939.
THE PERSON ACTING AS EXCHANGE AGENT FOR THE EXCHANGE OFFER
Chase Manhattan Bank and Trust Company, National Association, has been
appointed as the exchange agent for the exchange offer. Chase Manhattan Bank
and Trust Company, National Association, also acts as trustee under the
indenture.
Delivery of letters of transmittal and any other required documents and
questions, requests for assistance and requests for additional copies of this
prospectus or the letter of transmittal, should be directed to the exchange
agent at its address and numbers set forth on the back of this prospectus.
Except in the case of a participant in The Depository Trust Company who
transfers Securities by an agent's message, delivery to an address other than
as set forth herein, or transmissions of instructions via a facsimile or telex
number other than to the exchange agent as set forth herein, will not
constitute a valid delivery.
THE FEES AND EXPENSES WE WILL PAY IN CONNECTION WITH THE EXCHANGE OFFER
We have not retained any dealer-manager or similar agent in connection
with the exchange offer and will not make any payments to brokers, dealers or
others for soliciting acceptances of the exchange offer. We will, however, pay
the exchange agent reasonable and customary fees for its services and will
reimburse it for reasonable out-of-pocket expenses in connection therewith. We
will also pay brokerage houses and other custodians, nominees and fiduciaries
the reasonable out-of-pocket expenses incurred by them in forwarding copies of
this prospectus and related documents to the beneficial owners of old
Securities, and in handling tenders for their customers. The expenses to be
incurred in connection with the exchange offer, including the fees and expenses
of the exchange agent and printing, accounting and legal fees, will be paid by
us and are estimated at approximately $250,000.
YOU MAY BE REQUIRED TO PAY TRANSFER TAXES IN CONNECTION WITH YOUR TENDER
Holders who tender their old Securities for exchange will not be obligated
to pay any transfer taxes in connection therewith. If, however, new Securities
are to be delivered to, or are to be issued in the name of, any person other
than a registered holder of the old Securities tendered, or if a transfer tax
is imposed for any reason other than the exchange of old Securities in
connection with the exchange offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the letter of transmittal, the amount
of such transfer taxes will be billed directly to the tendering holder.
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<PAGE>
NO ONE ELSE HAS BEEN AUTHORIZED TO PROVIDE YOU WITH INFORMATION REGARDING THE
EXCHANGE OFFER
No person has been authorized to give any information or to make any
representations in connection with the exchange offer other than those
contained in this prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by us.
Neither the delivery of this prospectus nor any exchange made under this
prospectus will, under any circumstances, create any implication that there has
been no change in our affairs since the respective dates as of which
information is given herein.
The exchange offer is not being made to (nor will tenders be accepted from
or on behalf of) holders of old Securities in any jurisdiction in which the
making of the exchange offer or the acceptance thereof would not be in
compliance with the laws of the jurisdiction. However, we may, at our
discretion, take such action as we may deem necessary to make the exchange
offer in any such jurisdiction and extend the exchange offer to holders of old
Securities in the jurisdiction. In any jurisdiction that has securities laws or
blue sky laws which require the exchange offer to be made by a licensed broker
or dealer, the exchange offer is being made on behalf of us by one or more
registered brokers or dealers which are licensed under the laws of the
jurisdiction.
YOU WILL NOT HAVE APPRAISAL RIGHTS
Holders of old Securities will not have dissenters' rights or appraisal
rights in connection with the exchange offer.
THE FEDERAL INCOME TAX CONSEQUENCES OF YOUR EXCHANGE
The exchange of old Securities for new Securities will not be a taxable
exchange for federal income tax purposes, and holders should not recognize any
taxable gain or loss or any interest income as a result of the exchange.
36
<PAGE>
CAPITALIZATION
(IN THOUSANDS)
The following table sets forth our capitalization as of September 30,
1999. This table should be read in conjunction with our consolidated financial
statements and the notes thereto appearing elsewhere in this prospectus.
SEPTEMBER 30, 1999
------------------
INDEBTEDNESS:
Parent company debt:
Old securities ......................... $ 400,000
Subsidiary and project debt(1):
Project loan ........................... 79,828
Salton Sea notes and bonds(2) .......... 597,898
----------
Total consolidated indebtedness ......... 1,077,726
----------
Members' equity ........................... 379,467
----------
Total capitalization .................... $1,457,193
==========
- ---------
(1) Represents debt for which the repayment obligation is at the project or
subsidiary level.
(2) Subject to the terms and conditions of the guarantee, MidAmerican has
guaranteed the payment by the zinc guarantors of a specified portion of the
scheduled debt service, in an amount up to the current principal amount of
$140,520 and associated interest.
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<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS)
The selected data presented below as of September 30, 1999 and for the
nine months ended September 30, 1999 and 1998 are derived from our unaudited
consolidated financial statements which reflect all adjustments necessary in
the opinion of our management for a fair presentation of such data and which
are included elsewhere in this prospectus. The selected data presented below as
of December 31, 1998 and 1997 and for the years ended December 31, 1998, 1997
and 1996 are derived from our audited consolidated financial statements. The
consolidated financial statements reflect the consolidated financial statements
of Magma and subsidiaries (excluding wholly-owned subsidiaries retained by
MidAmerican), Falcon Seaboard Resources and subsidiaries and Yuma Cogeneration,
each a wholly-owned subsidiary of MidAmerican. The consolidated financial
statements present our financial position, results of our operations and our
cash flows as if we were a separate legal entity for all periods presented.
These consolidated financial statements and auditors' report thereon are
included elsewhere in this prospectus. The selected data presented below as of
December 31, 1996 and 1995 and for the year ended December 31, 1995 are derived
from our unaudited consolidated financial statements and reflect all
adjustments necessary in the opinion of our management for a fair presentation
of such data. The selected data presented below as of December 31, 1994 and for
the year then ended are derived from the audited consolidated financial
statements of Magma and its subsidiaries which were not under MidAmerican
control prior to February 24, 1995 ("predecessor" to CE Generation).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
PREDECESSOR SUCCESSOR
------------- -------------------------------------------------------
1994 1995 (1) 1996 (2) 1997 1998
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales of electricity and thermal energy ........... $ 158,374 $ 179,393 $ 281,307 $ 381,458 $ 395,560
Equity earnings in subsidiaries ................... -- -- 4,263 14,542 10,732
Interest and Other income ......................... 32,508 37,789 19,273 11,138 29,883
Total revenue ..................................... 190,882 217,182 304,843 407,138 436,175
Plant operations, general and
administrative, royalty and other expenses ....... 96,047 70,458 97,748 124,353 119,055
Depreciation and amortization ..................... 23,985 47,044 72,533 88,504 96,818
Interest expense, net of capitalized interest ..... 12,469 60,201 72,864 80,907 74,306
Provision for income taxes ........................ 19,832 10,348 15,487 43,378 52,218
Income before minority interest and
extraordinary item ............................... 38,549 29,131 46,211 69,996 93,778
Minority interest ................................. -- 4,091 -- -- --
Extraordinary item ................................ -- -- -- -- --
Net income ........................................ 38,549 25,040 46,211 69,996 93,778
OTHER DATA:
Capital expenditures .............................. 58,045 93,944 90,734 21,676 46,222
EBITDA (3) ........................................ 94,835 146,724 207,095 282,785 317,120
Ratio of EBITDA to fixed charges (3)(4)(5) ........ 7.20 2.22 2.67 3.50 4.25
Ratio of earnings to fixed charges (5) ............ 5.38 1.51 1.79 2.52 3.04
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1998 1999
------------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales of electricity and thermal energy ........... $ 293,485 $ 231,613
Equity earnings in subsidiaries ................... 8,635 17,718
Interest and Other income ......................... 21,823 17,665
Total revenue ..................................... 323,943 266,996
Plant operations, general and
administrative, royalty and other expenses ....... 87,914 88,181
Depreciation and amortization ..................... 71,901 43,400
Interest expense, net of capitalized interest ..... 54,784 55,729
Provision for income taxes ........................ 39,364 30,520
Income before minority interest and
extraordinary item ............................... 69,980 49,166
Minority interest ................................. -- --
Extraordinary item ................................ -- (17,478)
Net income ........................................ 69,980 31,688
OTHER DATA:
Capital expenditures .............................. 28,471 119,322
EBITDA (3) ........................................ 236,029 178,815
Ratio of EBITDA to fixed charges (3)(4)(5) ........ 4.31 3.06
Ratio of earnings to fixed charges (5) ............ 3.09 2.41
</TABLE>
(footnotes on following page)
38
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
PREDECESSOR SUCCESSOR SEPTEMBER 30,
------------- --------------------------------------------------- --------------
1994 1995 (1) 1996 (2) 1997 1998 1999
------------- ------------ ------------ ------------ ------------ --------------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Cash, restricted cash and investments .......... $113,428 $ 108,368 $ 43,422 $ 30,591 $ 154,327 $ 136,792
Properties, plants, contracts and equipment,
net ........................................... 438,862 724,763 990,285 932,207 893,492 982,258
Note receivable from related party ............. -- -- -- -- 140,520 140,520
Total assets ................................... 623,486 1,149,858 1,611,087 1,527,976 1,750,632 1,772,853
Project loans .................................. 179,546 54,707 114,571 103,334 90,529 79,828
Salton Sea notes and bonds ..................... -- 452,088 538,982 448,754 626,816 597,898
Senior Secured Bonds ........................... -- -- -- -- -- 400,000
Notes payable to related party ................. -- 248,292 247,812 247,812 247,681 --
Total liabilities .............................. 233,670 916,433 1,156,184 1,063,836 1,213,685 1,393,386
Net investments and advances (members'
equity at September 30, 1999) ................. 389,816 233,425 454,903 464,140 536,947 379,467
</TABLE>
- ---------
(1) Reflects the acquisition of Magma which was completed on February 24, 1995.
(2) Reflects the acquisition of the remaining 50% of the partnership projects
on April 17, 1996 and the acquisition of Falcon Seaboard Resources on
August 7, 1996.
(3) EBITDA means earnings before interest, taxes, depreciation and
amortization. EBITDA, as defined, may differ from EBITDA as defined in
similar offerings and, as such, may not be comparable.
(4) Information concerning EBITDA is presented here not as a measure of
operating results, but rather as a measure of our ability to service debt.
EBITDA should not be construed as an alternative to either (i) operating
income (determined in accordance with U.S. generally accepted accounting
principals) or (ii) cash flow from operating activities (determined in
accordance with U.S. generally accepted accounting principals)
(5) For purposes of computing historical ratios of earnings to fixed charges,
earnings are divided by fixed charges. "Earnings" represent the aggregate
of (a) our pre-tax income, and (b) fixed charges, less capitalized
interest. "Fixed charges" represent interest (whether expensed or
capitalized), amortization of deferred financing and bank fees, and the
portion of rentals considered to be representative of the interest factor
(one-third of lease payments) and preferred stock dividend requirements of
majority subsidiaries.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars and Shares in Thousands, Except Per Share Amounts)
The following is management's discussion and analysis of certain
significant factors which have affected our financial condition and results of
operations during the periods included in the accompanying statements of
operations. Our actual results in the future could differ significantly from
the our historical results.
ACQUISITIONS
In April 1996, one of the three predecessor businesses combined in our
formation completed the buy-out of approximately $70,000 of its partner's
interests in four electric generating plants in Southern California, resulting
in sole ownership of the Imperial Valley projects. In August 1996, another one
of the predecessor businesses acquired Falcon Seaboard Resources, Inc. for
approximately $226,000, thereby acquiring significant ownership in 520
megawatts of natural gas-fired electric production facilities located in New
York, Texas and Pennsylvania and a related gas transmission pipeline.
POWER GENERATION PROJECTS
For purposes of consistency in financial presentation, plant capacity
factors for the Vulcan, Hoch (Del Ranch), Elmore and Leathers plants, which we
refer to herein collectively as the partnership projects, are based on nominal
capacity amounts of 34, 38, 38 and 38 net megawatts, respectively. Plant
capacity factors for Salton Sea Unit I, Salton Sea Unit II, Salton Sea Unit III
and Salton Sea Unit IV, which we refer to herein collectively as the Salton Sea
projects, are based on nominal capacity amounts of 10, 20, 49.8 and 39.6 net
megawatts, respectively. Plant capacity factors for the Saranac, Power
Resources, NorCon and Yuma plants, which we refer to herein collectively as the
natural gas projects, are based on capacity amounts of 240, 200, 80 and 50 net
megawatts, respectively. Each plant possesses an operating margin which allows
for production in excess of the amount listed above. Utilization of this
operating margin is based upon a variety of factors and can be expected to vary
throughout the year under normal operating conditions.
Imperial Valley Projects--The current partnership projects sell all
electricity generated by the respective plants pursuant to four long-term
standard offer no. 4 agreements between the partnership projects and Southern
California Edison Company. These standard offer no. 4 agreements provide for
capacity payments, capacity bonus payments and energy payments. Southern
California Edison makes fixed annual capacity and capacity bonus payments to
the partnership projects to the extent that capacity factors exceed certain
benchmarks. The price for capacity and capacity bonus payments is fixed for the
life of the standard offer no. 4 agreements. Energy is sold at increasing
scheduled rates for the first ten years after firm operation and thereafter at
Southern California Edison's avoided cost of energy, which is expected to be
equal to the rate determined by the California power exchange.
The California power exchange is a nonprofit public benefit corporation
formed under California law to provide a competitive marketplace where buyers
and sellers of power, including utilities, end-use customers, independent power
producers and power marketers, complete wholesale trades through an electronic
auction. The California power exchange currently operates two markets: (1) a
day ahead market which is comprised of twenty-four separate concurrent auctions
for each hour of the following day; and (2) an hour ahead market for each hour
of each day for which bids are due two hours before each hour. In each market,
the California power exchange receives bids from buyers and sellers and, based
on the bids, establishes the market clearing price for each hour and schedules
deliveries from sellers whose bids did not exceed the market clearing price to
buyers whose bids were not less than the market clearing price. All trades are
executed at the market clearing price.
The scheduled energy price periods of the partnership projects' long-term
agreements extended until February 1996, December 1998 and December 1998 for
each of the Vulcan, Del Ranch and Elmore projects, respectively, and extend
until December 1999 for the Leathers project. The Del
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Ranch and Elmore projects' agreement provided for energy rates of 14.6 cents
per kilowatt-hour in 1998. The Leathers project's standard offer no. 4
agreement provided for an energy rate of 14.6 cents per kilowatt-hour in 1998
and provides for an energy rate of 15.6 cents per kilowatt-hour in 1999. The
weighted average energy rate for all of the partnership projects agreements was
11.7 cents per kilowatt-hour in 1998 and 6.4 cents per kilowatt-hour for the
nine months ended September 30, 1999.
Salton Sea Unit I sells electricity to Southern California Edison pursuant
to a 30-year negotiated power purchase agreement, which provides for capacity
and energy payments. The energy payment is calculated using a base price which
is subject to quarterly adjustments based on a basket of indices. The time
period weighted average energy payment for Salton Sea Unit I was 5.4 cents per
kilowatt-hour during 1998 and 5.3 cents per kilowatt-hour for the nine months
ended September 30, 1999. As the Salton Sea Unit I power purchase agreement is
not a standard offer no. 4 agreement, the energy payments do not revert to
Southern California Edison's avoided cost of energy. The capacity payment is
approximately $1,100 per annum.
Salton Sea Unit II and Salton Sea Unit III sell electricity to Southern
California Edison pursuant to 30-year modified standard offer no. 4 agreements
that provide for capacity payments, capacity bonus payments and energy
payments. The price for contract capacity and contract capacity bonus payments
is fixed for the life of the modified standard offer no. 4 agreements. The
energy payments for each of the first ten year periods, which periods expire in
April 2000 and February 1999, respectively, are levelized at a time period
weighted average of 10.6 cents per kilowatt-hour and 9.8 cents per
kilowatt-hour for Salton Sea Unit II and Salton Sea Unit III, respectively.
Thereafter, the monthly energy payments will be Southern California Edison's
avoided cost of energy. For Salton Sea Unit II only, Southern California Edison
is entitled to receive, at no cost, 5% of all energy delivered in excess of 80%
of contract capacity through September 30, 2004. The annual capacity and bonus
payments for Salton Sea Unit II and Salton Sea Unit III are approximately
$3,300 and $9,700, respectively.
Salton Sea Unit IV sells electricity to Southern California Edison
pursuant to a modified standard offer no. 4 agreement which provides for
contract capacity payments on 34 megawatts of capacity at two different rates
based on the respective contract capacities deemed attributable to the original
Salton Sea Unit I power purchase agreement option (20 megawatts) and to the
original Fish Lake power purchase agreement (14 megawatts). The capacity
payment price for the 20 megawatts portion adjusts quarterly based upon
specified indices and the capacity payment price for the 14 megawatts portion
is a fixed levelized rate. The energy payment (for deliveries up to a rate of
39.6 megawatts) is at a fixed rate for 55.6% of the total energy delivered by
Salton Sea Unit IV and is based on an energy payment schedule for 44.4% of the
total energy delivered by Salton Sea Unit IV. The contract has a 30-year term
but Southern California Edison is not required to purchase the 20 megawatts of
capacity and energy originally attributable to the Salton Sea Unit I power
purchase agreement option after September 30, 2017, the original termination
date of the Salton Sea Unit I power purchase agreement.
For the years ended December 31, 1998, 1997 and 1996, Southern California
Edison's average avoided cost of energy was 3.0 cents, 3.3 cents and 2.5 cents
per kilowatt-hour, respectively, which is substantially below the contract
energy prices earned for the year ended December 31, 1998. We cannot predict
the likely level of avoided cost of energy or California power exchange prices
under the standard offer no. 4 agreements and the modified standard offer no. 4
agreements at the expiration of the scheduled payment periods. The revenues
generated by each of the projects operating under standard offer no. 4
agreements will decline significantly after the expiration of the respective
scheduled payment periods.
Natural Gas Projects--The Saranac project sells electricity to New York
State Electric and Gas Corporation pursuant to a 15-year negotiated power
purchase agreement, which provides for capacity and energy payments. Capacity
payments, which in 1998 total 2.3 cents per kilowatt-hour, are received for
electricity produced during "peak hours" as defined in the Saranac power
purchase agreement and
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<PAGE>
escalate at approximately 4.1% annually for the remaining term of the contract.
Energy payments, which averaged 6.7 cents per kilowatt-hour in 1998, escalate
at approximately 4.4% annually for the remaining term of the Saranac power
purchase agreement. The Saranac power purchase agreement expires in June of
2009.
The Power Resources project sells electricity to Texas Utilities Electric
Company pursuant to a 15 year negotiated power purchase agreement, which
provides for capacity and energy payments. Capacity payments and energy
payments, which in 1998 are $3,138 per month and 3.0 cents per kilowatt-hour,
respectively, and in 1999 are $3,248 per month and 3.1 cents per kilowatt-hour,
respectively, escalate at 3.5% annually for the remaining term of the Power
Resources power purchase agreement. The Power Resources power purchase
agreement expires in September 2003.
The NorCon project sells electricity to Niagara Mohawk Power Corporation
pursuant to a 25-year negotiated power purchase agreement which provides for
energy payments calculated pursuant to an adjusting formula based on Niagara
Mohawk's ongoing tariff avoided cost and the contractual long-run avoided cost.
The NorCon power purchase agreement term extends through December 2017.
The Yuma project sells electricity to San Diego Gas & Electric Company
under a 30-year power purchase agreement. The energy is sold at San Diego Gas &
Electric's avoided cost of energy and the capacity is sold to San Diego Gas &
Electric at a fixed price for the life of the power purchase agreement. The
power is wheeled to San Diego Gas & Electric over transmission lines
constructed and owned by Arizona Public Service Company.
RESULTS OF OPERATIONS, NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Sales of electricity and steam decreased to $231,613 for the nine months
ended September 30, 1999 from $293,485 for the nine months ended September 30,
1998, a 21.1% decrease. This decrease was primarily a result of the expiration
of the fixed price periods for the Elmore and Del Ranch projects and for Salton
Sea Unit III. These periods ended in December 1998, December 1998 and February
1999, respectively.
The following operating data represents the aggregate capacity and
electricity production of the Imperial Valley projects:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Overall capacity factor ................... 97.3% 96.4%
Kilowatt-hours produced (in thousands) .... 1,704,500 1,689,600
Capacity (net megawatts) (average) ........ 267.4 267.4
</TABLE>
The following operating data represents the aggregate capacity and
electricity production of the natural gas projects:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Overall capacity factor .................... 86.5% 79.5%
Kilowatt-hours produced (in thousands) ..... 3,260,600 2,969,840
Capacity (net megawatts) (average) ......... 570 570
</TABLE>
The overall capacity factor of the natural gas projects reflects the
effect of certain contractual curtailments. The capacity factors adjusted for
these contractual curtailments are 96.64% and 91.60% for the nine months ended
September 30, 1999 and 1998, respectively. The overall increased capacity
factor of the natural gas projects reflects the impact of the January 1998 ice
storm at Saranac. The plant was down for approximately two months in the first
quarter of 1998.
The increase in equity earnings of subsidiaries for the nine months ended
September 30, 1999 to $17,718 from $8,635 for the nine months ended September
30, 1998 represents the negative impact of the January 1998 ice storm at
Saranac.
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<PAGE>
Interest and other income decreased to $17,665 for the nine months ended
September 30, 1999 from $21,823 for the nine months ended September 30, 1998.
This decrease was primarily due to reduced royalty income at the Imperial
Valley projects.
Plant operating expenses increased marginally for the nine months ended
September 30, 1999 to $84,848 from $84,100 for the nine months ended September
30, 1998.
General and administrative expenses decreased for the nine months ended
September 30, 1999 to $3,333 from $3,814 for the same period in 1998, a 12.6%
decrease. The decrease is due to reduced corporate allocations to us.
Depreciation and amortization decreased to $43,400 for the nine months
ended September 30, 1999 from $71,901 for the nine months ended September 30,
1998, a 39.6% decrease. The decrease was primarily due to reduced step up
depreciation after the end of the fixed price periods for the Del Ranch, Elmore
and Salton Sea Unit III projects.
Interest expense, less amounts capitalized, increased for the nine months
ended September 30, 1999 to $55,729 from $54,784 for the nine months ended
September 30, 1998, an increase of 1.7%. The increase was primarily due to
increased indebtedness from the issuances of the old Securities in 1999.
The provision for income taxes decreased to $30,520 for the nine months
ended September 30, 1999 from $39,364 for the nine months ended September 30,
1998. The effective tax rate was 38.3% and 36% for the nine months ended
September 30, 1999 and 1998, respectively. The changes from year to year in the
effective rate are due primarily to the generation of energy tax credits and
depletion deductions.
RESULTS OF OPERATIONS, THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Sales of electricity and steam increased to $395,560 in the year ended
December 31, 1998 from $381,458 in the year ended December 31, 1997, a 3.7%
increase. This increase was primarily due to an increase in electricity
production at the Imperial Valley projects.
Sales of electricity and steam increased to $381,458 in the year ended
December 31, 1997 from $281,307 in the year ended December 31, 1996, a 35.6%
increase. This increase was due to the acquisition of Falcon Seaboard Resources
and the partnership interest in the Imperial Valley projects, as well as the
commencement of operations at Salton Sea Unit IV.
The following operating data represents the aggregate capacity and
electricity production of the Imperial Valley projects:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Overall capacity factor ................. 98.2% 99.2% 98.9%
Kilowatt-hours produced (in thousands) .. 2,299,400 2,323,800 2,179,200
Capacity (net megawatts) (average) ...... 267.4 267.4 251.0*
</TABLE>
----------
* Weighted average for the commencement of operations at Salton Sea Unit
IV in 1996.
The following operating data represents the aggregate capacity and
electricity production of the natural gas projects:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Overall capacity factor ................. 81.6% 84.3% 84.2%
Kilowatt-hours produced (in thousands) .. 4,072,620 4,211,030 4,216,800
Capacity (net megawatts) (average) ...... 570 570 570
</TABLE>
The overall capacity factor of the natural gas projects reflects the
effect of certain contractual curtailments. The capacity factors adjusted for
these contractual curtailments are 92.2%, 95.7% and 93.2% for 1998, 1997 and
1996, respectively. The decrease in the overall capacity factor was due to
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<PAGE>
lower electricity production at Saranac due to severe winter snow and ice
storms which caused transmission curtailment, as well as a turbine overhaul at
Power Resources.
The decrease in equity earnings of subsidiaries in 1998 to $10,732 from
$14,542 in 1997 was primarily due to lower electricity production at Saranac
due to severe winter snow and ice storms which caused transmission
curtailments. The increase in equity earnings of subsidiaries in 1997 to
$14,542 from $4,263 in 1996 was primarily due to the acquisition of Falcon
Seaboard Resources in August 1996.
Interest and other income increased to $29,883 in the year ended December
31, 1998 from $11,138 in the year ended December 31, 1997. This increase was
primarily due to interest earned on higher cash balances as a result of the
issuance of Salton Sea Funding Corporation bonds in October 1998 and the East
Mesa income related to a royalty settlement. Interest and other income
decreased to $11,138 in the year ended December 31, 1997 from $19,273 in the
year ended December 31, 1996, a 42.2% decrease. The decrease is primarily
attributable to lower cash balances and the fact we are no longer recognizing
management fee income as a result of the Imperial Valley partnership interest
acquisition in April 1996.
Plant operating expenses decreased in 1998 to $114,092 from $119,973 in
1997, a 4.9% decrease. The decrease was primarily due to operating
efficiencies. Operating expenses increased in 1997 to $119,973 from $94,245 in
1996, a 27.3% increase. This increase is primarily a result of the acquisitions
of Falcon Seaboard Resources and the Imperial Valley partnership interest as
well as the commencement of operations at Salton Sea Unit IV.
Depreciation and amortization increased to $96,818 in 1998 from $88,504 in
1997, a 9.4% increase. This increase was due primarily to an increased step up
depreciation related to the acquisition of the Imperial Valley projects.
Depreciation and amortization increased to $88,504 in 1997 from $72,533 in
1996, a 22.0% increase. This increase is a result of the acquisitions of Falcon
Seaboard Resources and the Imperial Valley partnership interest as well as the
commencement of operations at Salton Sea Unit IV.
Interest expense, less amounts capitalized, decreased in 1998 to $74,306
from $80,907 in 1997, a decrease of 8.2%. Lower interest expense resulted from
the paydown of the Salton Sea Funding Corporation and Power Resources debt
offset by Salton Sea Funding Corporation's Series F issuance in October 1998.
Interest expense increased in 1997 to $80,907 from $72,864 in 1996, a 11.0%
increase. Higher interest expense for 1996 is primarily due to higher interest
expense on the Salton Sea Funding Corporation notes and bonds.
The provision for income taxes increased to $52,218 in 1998 from $43,378
in 1997 and $15,487 in 1996. The effective tax rate was 35.8%, 38.3% and 25.1%
in 1998, 1997 and 1996, respectively. The changes from year to year in the
effective rate are due primarily to the generation of energy tax credits and
depletion deductions.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $57,905 at September 30, 1999 as compared
to $25,774 at December 31, 1998. In addition, we recorded separately restricted
cash of $78,887 and $128,553 at September 30, 1999 and December 31, 1998,
respectively. The decrease in restricted cash was primarily due to the use of
the proceeds from issuance of Salton Sea Funding Corporation bonds for the
construction of Salton Sea Unit IV and the CE Turbo project and the Region 2
construction.
We believe that existing cash and cash generated by operating activities
will be sufficient to finance capital expenditures and make scheduled repayment
of debt for the foreseeable future.
On March 2, 1999, we closed the sale of $400,000 aggregate principal
amount of old Securities. The proceeds were used to repay Magma's 9 7/8% note
payable to MidAmerican of $200,000 and Yuma's note payable to MidAmerican of
$47,681. The remaining amount of the proceeds were distributed to MidAmerican
in return for MidAmerican's transfer of certain assets to us.
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<PAGE>
Salton Sea Power L.L.C., one of our indirect wholly-owned subsidiaries, is
constructing Salton Sea Unit V. Salton Sea Unit V will be a 49 net megawatt
geothermal power plant which will sell approximately one-third of its net
output to the zinc facility, which will be retained by MidAmerican. The
remainder will be sold through the California power exchange.
Salton Sea Unit V is being constructed pursuant to a date certain, fixed
price, turnkey engineering, procurement and construction contract by Stone &
Webster Engineering Corporation. Stone & Webster is one of the world's leading
engineering and construction firms for the construction of electric power
plants and, in particular, geothermal power plants. Salton Sea Unit V is
scheduled to commence commercial operation in mid-2000. Total project costs of
Salton Sea Unit V are expected to be approximately $119,067 which will be
funded by $76,281 of debt from Salton Sea Funding Corporation and $42,786 from
equity contributions. Salton Sea Power has incurred approximately $61,300 of
such costs through September 30, 1999.
CE Turbo LLC, one of our indirect wholly-owned subsidiaries, is
constructing the CE Turbo project. The CE Turbo project will have a capacity of
10 net megawatts. The net output of the CE Turbo project will be sold to the
zinc facility or sold through the California power exchange.
The partnership projects are upgrading the geothermal brine processing
facilities at the Vulcan and Del Ranch projects with the region 2 brine
facilities construction.
The CE Turbo project and the region 2 brine facilities construction are
being constructed by Stone & Webster pursuant to a date certain, fixed price,
turnkey engineering, procurement and construction contract. The obligations of
Stone & Webster are guaranteed by Stone & Webster, Incorporated. The CE Turbo
project is scheduled to commence initial operations in mid-2000 and the region
2 brine facilities construction is scheduled to be completed in early-2000.
Total project costs for both the CE Turbo project and the region 2 brine
facilities construction are expected to be approximately $63,747 which will be
funded by $55,602 of debt from Salton Sea Funding Corporation and $8,145 from
equity contributions. CE Turbo has incurred approximately $29,700 of such costs
through September 30, 1999
The net revenues, equity distributions and royalties from the partnership
projects are used to pay principal and interest payments on outstanding senior
secured bonds issued by the Salton Sea Funding Corporation, the final series of
which is scheduled to mature in November 2018. The Salton Sea Funding
Corporation debt is guaranteed by certain subsidiaries of Magma and secured by
the capital stock of the Salton Sea Funding Corporation. The proceeds of the
Salton Sea Funding Corporation debt were loaned by the Salton Sea Funding
Corporation pursuant to loan agreements and notes to subsidiaries of Magma and
used for construction of certain Imperial Valley projects, refinancing of
certain indebtedness and other purposes. Debt service on the Imperial Valley
loans is used to repay debt service on the Salton Sea Funding Corporation Debt.
The Imperial Valley loans and the guarantees of the Salton Sea Funding
Corporation debt are secured by substantially all of the assets of the
guarantors, including the Imperial Valley projects, and by the equity interests
in the guarantors.
The proceeds of Series F of the Salton Sea Funding Corporation debt are
being used in part to construct the zinc facility, and the direct and indirect
owners of the zinc facility are among the guarantors of the Salton Sea Funding
Corporation debt. MidAmerican has guaranteed the payment by the zinc guarantors
of a specified portion of the scheduled debt service on the Imperial Valley
loans described in the preceding paragraph, including the current principal
amount of $140,520 and associated interest.
YEAR 2000 ISSUES
What is generally known as the year 2000 computer issue arose because many
existing computer programs and embedded systems use only the last two digits to
refer to a year. Therefore, those computer programs do not properly distinguish
between a year that begins with "20" instead of "19". If not corrected, many
computer applications could fail or create erroneous results. The failure to
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<PAGE>
correct a material year 2000 item could result in an interruption in, or a
failure of, certain normal business activities or operations including the
generation of electricity. Such failures could materially and adversely affect
our results of operations, liquidity and financial condition.
The year 2000 issue creates uncertainty for us from potential issues with
our own computer systems and from third parties with whom we deal on
transactions. Our operations utilize systems and equipment provided by other
organizations. As a result, year 2000 readiness of suppliers, vendors, service
providers or customers could impact our operations. We are assessing the
readiness of such constituent entities and the impacts on those entities that
rely upon our services. We are unable to determine at this time whether the
consequences of year 2000 failures or third parties will have a material impact
on our results of operations, liquidity or financial condition.
MidAmerican has commenced, for all of our information systems, a year 2000
date conversion project to address all necessary code changes, testing and
implementation in order to resolve the year 2000 issue. MidAmerican created a
year 2000 project team to identify, assess and correct all of our information
technology and non-information technology systems, as well as identify and
assess third party systems. MidAmerican has identified and assessed
substantially all of our information technology and non-information technology
systems and is currently in the process of repairing or replacing those systems
which are not year 2000 compliant. Through September 1999, we are approximately
99% complete related to the natural gas projects and approximately 99% complete
related to the Imperial Valley projects in repairing or replacing those
systems. We expect to be 100% complete of correcting, testing and compliance by
October 1999.
Total year 2000 expenditures, for both repairing or replacing
non-compliant systems, were $344. We are not aware of any additional material
costs needed to be incurred to bring all of our systems into compliance,
however, we cannot assure you that additional costs will not be incurred.
A contingency plan identifying credible worst-case scenarios is being
developed. The contingency plan is comprised of both mitigation and recovery
aspects. Mitigation entails planning to reduce the impact of unresolved year
2000 problems, and recovery entails planning to restore services in the event
that year 2000 problems occur. It is expected that the contingency plan will be
finalized by October 1999.
Although management believes that the year 2000 project will be
substantially complete before January 1, 2000, any unforeseen failures of our
and/or third parties' computer systems could have a material impact on our
ability to conduct its business.
INFLATION
Inflation has not had a significant impact on our cost structure.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which established accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. We have has not yet determined the impact of this
accounting pronouncement.
INTEREST RATE RISK
The following discussion of our exposure to various market risks contains
"forward-looking statements' that involve risks and uncertainties. These
projected results have been prepared utilizing assumptions considered
reasonable in the circumstances and in light of information currently available
to us. Actual results could differ materially from those projected in the
forward-looking information.
At December 31, 1998, we had a fixed-rate long-term debt (excluding note
payable to related party) of $626,816 in principal amount and having a fair
value of $646,397. These instruments are
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<PAGE>
fixed-rate and therefore do not expose us to the risk of earnings loss due to
changes in market interest rates. However, the fair value of these instruments
would decrease by approximately $35,000 if interest rates were to increase by
10% from their levels at December 31, 1998. In general, such a decrease in fair
value would impact earnings and cash flows only if we were to reacquire all or
a portion of these instruments prior to their maturity.
At December 31, 1998, we had floating-rate obligations of $90,529 which
exposes us to the risk of increased interest expense in the event of increases
in short-term interest rates. We have entered into interest rate swap
agreements for the purpose of completely offsetting these interest rate
fluctuations. The interest rate differential is reflected as an adjustment to
interest expense over the life of the instruments. At December 31, 1998, these
interest rate swaps had an aggregate notional amount of $90,529, which we could
terminate at a cost of approximately $9,904. A decrease of 10% in the December
31, 1998 level of interest rates would increase the cost of terminating the
swaps by approximately $1,528. Such termination costs would impact our earnings
and cash flows only if all or a portion of the swap instruments were terminated
prior to their expiration.
At September 30, 1999, the $400,000 of old Securities had a fair value of
$363,419. However, the fair value would decrease by approximately $28,000 if
interest rates were to increase by 10% from their levels at September 30, 1999.
OUR BUSINESS AND THE BUSINESS OF THE ASSIGNORS
OUR BUSINESS
We were formed as a special purpose Delaware limited liability company on
February 8, 1999 for the purpose of owning our subsidiaries and issuing the
Securities. Our business activities will be limited to issuing the Securities
and other debt as permitted under the indenture for the Securities, holding the
stock of the Assignors and other actions taken in connection therewith, and any
other activities which could not reasonably be expected to result in a material
adverse effect and which the rating agencies confirm in writing will not result
in a ratings downgrade. The only funds available to us to pay principal of,
premium (if any) and interest on the Securities will be the available cash flow
received by the Assignors and amounts on deposit in the debt service reserve
account.
THE ASSIGNORS AND THE PROJECTS
The Assignors. Falcon Seaboard Oil, California Energy Development and CE
Texas Energy each own a direct or an indirect equity interest in one project
company. Magma, Salton Sea Power, Falcon Seaboard Resources and Falcon Seaboard
Power each own a direct or an indirect equity interest in more than one project
company. Magma and some of its subsidiaries provide administrative and other
services and the use of various real properties to the Imperial Valley
projects. Falcon Power Operating, a wholly-owned subsidiary of Falcon Seaboard
Power, provides operation and maintenance services to, and CE Texas Gas, a
wholly-owned subsidiary of CE Texas Energy, provides natural gas for some of
the natural gas projects. The business of each of Salton Sea Power, Falcon
Seaboard Resources, Falcon Seaboard Power, Falcon Seaboard Oil, California
Energy Development and CE Texas Energy consists solely of holding its equity
interest in the related project companies. Substantially all of the business of
Magma consists of holding its equity interests in the Imperial Valley project
companies and providing the services to the Imperial Valley project companies
described above. The business of each of Falcon Power Operating and CE Texas
Gas consists solely of providing the goods and services to the natural gas
projects described above. The Assignors' cash flow is derived solely from the
activities described in this paragraph. Each project company's business
consists solely of the ownership and operation of one or more projects or, in
the case of Falcon Power Operating and CE Texas Gas, the provision of the goods
and services described above, and its sole source of revenues consists of
revenues derived from the operation of such project(s) or the provision of such
goods and services.
The Projects. Each project, other than Salton Sea Unit V and the CE Turbo
project, meets the requirements promulgated under the Public Utility Regulatory
Policies Act of 1978 to be a qualifying
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<PAGE>
facility. Salton Sea Unit V and the CE Turbo project are expected to be
qualifying facilities when they commence operation. The Imperial Valley
projects are designed to generate electricity and the natural gas projects are
designed to generate both electric energy and thermal energy. The projects'
actual outputs of electric energy and, where applicable, thermal energy vary
based on their design and the requirements of the power purchase agreements
and, where applicable, the thermal energy agreements of the projects. The
Imperial Valley projects generate (or, in the case of Salton Sea Unit V and the
CE Turbo project, will generate) electricity from geothermal energy and the
other projects use natural gas as their primary source of fuel. Below are
tables illustrating annual availability and annual capacity factors for each of
the projects other than Salton Sea Unit V and the CE Turbo project. These
factors provide information regarding the historical operating performance of
the projects.
ANNUAL AVAILABILITY
<TABLE>
<CAPTION>
PROJECT AVERAGE 1998 1997 1996 1995 1994
- ------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Salton Sea Unit I .............. 96.3% 97.3% 97.3% 93.5% 93.7% 99.8%
Salton Sea Unit II ............. 97.0% 98.3% 98.4% 93.4% 95.2% 99.6%
Salton Sea Unit III ............ 96.1% 95.4% 98.1% 94.6% 92.7% 99.5%
Salton Sea Unit IV(1) .......... 94.5% 96.0% 95.9% 91.7% -- --
Vulcan ......................... 96.5% 96.1% 91.8% 98.3% 98.7% 97.6%
Leathers ....................... 97.3% 96.0% 99.1% 96.5% 97.4% 97.7%
Del Ranch ...................... 97.2% 98.4% 95.0% 98.8% 95.6% 98.4%
Elmore ......................... 96.8% 95.8% 99.0% 96.0% 98.5% 94.8%
Saranac ........................ 95.0% 92.8% 97.7% 95.2% 98.4% 90.7%
Power Resources ................ 92.4% 93.7% 91.2% 88.7% 97.4% 91.0%
NorCon ......................... 94.5% 92.3% 95.5% 95.3% 94.8% --
Yuma ........................... 96.8% 96.0% 96.2% 97.0% 97.8% --
</TABLE>
ANNUAL CAPACITY FACTOR
<TABLE>
<CAPTION>
PROJECT AVERAGE 1998 1997 1996 1995 1994
- ------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Salton Sea Unit I .............. 75.3% 90.2% 84.1% 71.3% 65.1% 65.8%
Salton Sea Unit II ............. 117.0% 120.7% 122.3% 114.4% 112.7% 114.9%
Salton Sea Unit III ............ 99.6% 99.8% 101.9% 98.1% 95.5% 102.6%
Salton Sea Unit IV(1) .......... 114.8% 111.6% 114.3% 118.6% -- --
Vulcan ......................... 117.0% 109.6% 108.6% 122.3% 126.7% 117.8%
Leathers ....................... 115.9% 114.9% 119.4% 113.5% 116.7% 114.9%
Del Ranch ...................... 117.9% 119.8% 114.9% 120.0% 115.8% 119.2%
Elmore ......................... 115.4% 111.5% 116.2% 116.1% 117.8% 115.6%
Saranac ........................ 92.4% 85.4% 95.0% 97.0% 95.1% 89.4%
Power Resources ................ 80.9% 82.3% 79.7% 77.0% 85.9% 79.5%
NorCon ......................... 94.6% 92.7% 95.5% 95.3% 94.8% --
Yuma ........................... 89.0% 93.0% 85.3% 86.5% 91.0% --
</TABLE>
- ----------
(1) Began operations in May 1996; figures are annualized based on seven
months of operation.
INSURANCE
The project companies are required under the project financing documents
and project documents to maintain insurance coverages relating to their
interests in the projects. These coverages are consistent with those normally
carried by companies engaged in similar businesses. The coverages are
48
<PAGE>
currently provided under a corporate umbrella program which includes liability
insurance and all-risk insurance covering physical loss or damage to the
projects. This all-risk insurance covers replacement value of all real and
personal property including losses from boiler and machinery breakdowns and the
perils of earthquake and flood, subject to certain sublimits, and business
interruption. The current program also covers the Assignors, California Energy
Yuma and SECI Holdings to the extent applicable to their respective businesses.
The project financing documents typically require that most insurance proceeds
be paid to the applicable collateral agent for use in accordance with the terms
of those documents.
The lenders and trustees under the project financing documents also have
the benefit of title insurance with respect to the applicable projects.
EMPLOYEES
CalEnergy Operating and Falcon Power Operating currently employ 166 and 75
people full-time, respectively. Neither we nor Magma, Salton Sea Power, Falcon
Seaboard Resources, Falcon Seaboard Power, Falcon Seaboard Oil, California
Energy Development, CE Texas Energy or CE Texas Gas currently has any
employees.
LITIGATION
In addition to the proceedings described in the "Risk Factors" section of
this prospectus, some of the projects are currently parties to various minor
items of litigation, none of which, if determined adversely, would have a
material adverse effect on those projects.
REGULATORY MATTERS
FEDERAL ENERGY REGULATIONS
Qualifying Facility Status Under PURPA. Qualifying facility status under
PURPA provides two primary benefits. First, regulations under PURPA exempt
qualifying facilities from the Public Utility Holding Company Act of 1935, most
provisions of the Federal Power Act and state laws concerning rates of electric
utilities and the financial and organizational regulation of electric
utilities. Second, regulations promulgated under PURPA require that electric
utilities purchase electricity generated by qualifying facilities, construction
of which commenced on or after November 9, 1978, at a price based on the
purchasing utility's avoided cost of energy.
Order 888. In the Spring of 1996, FERC issued a landmark decision, known
as Order No. 888, designed to bring competition to the wholesale power market.
Order No. 888 required all public utilities that own, control or operate
transmission facilities used in interstate commerce to file non-discriminatory,
open access transmission tariffs (so-called "pro forma tariffs") with FERC. The
directive was intended to preclude utilities from using their ownership of
transmission facilities to favor their own generation in the marketplace. To
prevent this result, Order No. 888 required these utilities to "functionally
unbundle" all new wholesale generation and transmission service. Specifically,
the utilities were required to:
o separate the operations of their wholesale marketing arm and their
transmission provider arm, and quote separate prices for wholesale
generation and transmission service;
o take wholesale (and unbundled retail) transmission under their own pro
forma tariff; and
o provide and rely upon same time access to transmission information via
postings on so-called OASIS sites on the Internet.
STATE ENERGY REGULATIONS
The structure of state energy regulation of independent power producers is
now undergoing change and may change in the future. Below are some of the
recent developments in the states in
49
<PAGE>
which the projects are located or sell power. Restructuring that promotes
access to customers may provide opportunities for the projects to sell power
when the terms of their power purchase agreements expire.
California (Imperial Valley Projects; Yuma). In December 1995, the
California Public Utilities Commission adopted a comprehensive plan for
restructuring California's electric industry. In August 1996, the California
Legislature approved, and on September 23, 1996 Governor Wilson signed into
law, comprehensive electric industry restructuring legislation, referred to
herein as AB 1890, which confirmed and enlarged upon the plan adopted by the
CPUC. California electric industry restructuring includes, among other things,
the creation of an independent system operator and the California power
exchange, direct access and retail competition for all customers which became
effective in 1998.
AB 1890 outlines a short run avoided cost methodology which establishes
energy pricing for those generators who are paid avoided cost of energy rates.
Initially, the short run avoided cost pricing is based on a 12-month average of
recent, pre-1996, short run avoided energy prices paid by a utility to
non-utility generators and is indexed to an appropriate gas price measure. In
the future, short run avoided cost pricing will be based on the clearing price
paid by the California power exchange when the CPUC has issued an order
determining that the California power exchange is functioning properly for
purposes of determining short run avoided cost. In July 1999, the coordinating
commissioner issued an order establishing procedures for addressing short run
avoided cost pricing by June 2000.
The California power exchange is a nonprofit public benefit corporation
formed to provide a competitive marketplace where buyers and sellers of power,
including utilities, end-use customers, independent power producers and power
marketers, complete wholesale trades through an electronic auction. The
California power exchange currently operates two markets: (1) a day ahead
market which is comprised of twenty-four separate concurrent auctions for each
hour of the following day; and (2) a market for each hour of each day for which
bids are due two hours before each hour. In each market, the California power
exchange receives bids from buyers and sellers and, based on the bids,
establishes the market clearing price for each hour and schedules deliveries
from sellers whose bids did not exceed the market clearing price to buyers
whose bids were not less than the market clearing price. All trades are
executed at the market clearing price.
New York (Saranac Project and NorCon Project). In response to a mandate
from the NYSPSC, on January 31, 1997 the eight members of the New York power
pool, consisting of 7 public utilities and the New York Power Authority, made
filings with FERC evidencing their plan to restructure the electric generation
and distribution markets in New York State. Under the plan, the New York power
pool will be replaced with an independent system operator, a New York State
Reliability Council to establish reliability standards for the competitive
retail market, and the New York Power Exchange, a coordinated bid-price market
which will provide both a day-ahead market as well as a competitive real-time
spot market. In addition to these systemic changes, the New York deregulation
plan requires each of the New York independent public utilities to generate its
own plan for lowering prices, increasing competition and introducing retail
choice in their regions, and provides for the utilities' recovery of stranded
costs through a competitive transition charge. Each of New York State Electric
and Gas Corporation and Niagara Mohawk has obtained NYSPSC approval of its
restructuring plan.
In 1992 Niagara Mohawk filed a petition requesting NYSPSC to authorize
Niagara Mohawk to curtail purchases from, and thus to avoid payment obligations
to, non-utility generators during certain periods. Niagara Mohawk claimed that
such curtailment would be consistent with PURPA and the other regulations of
FERC promulgated under PURPA, including Section 292.304(f) thereof. Section
292.304(f) provides that a utility may have a right to curtail purchases from a
qualifying facility during periods in which, due to "operational
circumstances," purchases from qualifying facilities will result in negative
avoided costs (i.e., costs greater than those that the utility would incur if
it did not make such purchases, but instead generated an equivalent amount of
energy itself). The NYSPSC initiated a proceeding to investigate whether
conditions existed to justify the exercise of PURPA curtailment
50
<PAGE>
rights and, if so, the procedures for implementing such rights. Niagara
Mohawk's petition has not been ruled upon. In the meantime, Niagara Mohawk's
claim that it is obligated to buy excessive generation has been significantly
reduced by its buyout of a number of power purchase agreements.
Texas (Power Resources Project). In June 1999, the Texas legislature
approved a comprehensive plan for restructuring Texas' electric industry. The
plan, known as SB 7, which became effective on September 1, 1999, calls for
customer choice to be fully implemented in Texas by 2004. Currently, the Public
Utility Regulatory Act of 1995, or PURA, authorizes the Public Utility
Commission to regulate the electricity market and ensure that only one electric
energy provider serves each area of the state. Among other things, SB 7 amends
PURA by deregulating the electricity generation market and permitting certain
providers to compete for customers who choose their electricity supplier in
competitive areas. SB 7 also authorizes the Commission to develop and
promulgate customer protection rules during and after a transition to a
competitive market. The Commission has not yet issued its rules implementing
SB 7.
Arizona (Yuma Project). The Arizona legislature enacted House Bill 2663,
under which retail competition in electric generation was to begin no later
than December 31, 1998 for at least 20% of Arizona's 1995 retail load, with
full retail competition expected prior to December 31, 2000. On January 5,
1999, however, the Arizona Corporation Commission voted to stay the
implementation of its HB 2663's electric competition rules, pending additional
public hearings. The Commission indicated that additional time was necessary to
fine-tune the process and rules. In April, the Commission proposed new
comprehensive retail competition and stranded cost rules to provide retail
access to all customers by January 1, 2001.
FINANCIAL INCENTIVES FOR IMPERIAL VALLEY PROJECTS
Salton Sea Power L.L.C. and CE Turbo LLC also expect to receive incentive
payments from the State of California's New Renewable Resources Account for
energy sold by Salton Sea Unit V or the CE Turbo project through the Imperial
Irrigation District's transmission system during the first five years of
operation of each of these projects. The California Energy Commission has
selected Salton Sea Unit V to receive incentive payments from the New Renewable
Resources Account in an amount equal to $0.0124 per kilowatt-hour of energy
produced, up to $25,548,364.80 altogether, for the first five years of
operation. The Energy Commission has selected the CE Turbo project to receive
incentive payments from the New Renewable Resources Account in an amount equal
to $0.0134 per kilowatt-hour of energy produced, up to $5,751,816 altogether,
for the first five years of operation. The amount of the incentive payments for
the fourth and fifth years of operation of a project will be reduced by 25% if
the actual generation from the project over the first three years of operation
averages less than 85% of the estimated annual generation of the project
(412,070,400 kilowatt-hours for Salton Sea Unit V and 85,848,000 kilowatt-hours
for the CE Turbo project). In order for a project to remain eligible for
incentive payments, the project must continue to satisfy specified eligibility
criteria (including ownership and fuel use criteria) and the project must
timely satisfy specified milestones, including completion of construction of
the project by January 1, 2002.
The State of California has also established financial incentives for
existing renewable energy power projects which are available in the 1998-2001
time period. Projects must meet specified eligibility requirements, including
date of initial operation, ownership and fuel use criteria. Each of the
operating Imperial Valley projects other than Salton Sea Unit I and Salton Sea
Unit IV will become eligible for this program upon expiration of the fixed
price period in its power purchase agreement. The program provides geothermal
plants with a monthly amount per kilowatt-hour of power sold equal to the
lowest of (1) $0.01/kilowatt-hour, (2) $0.03/kilowatt-hour minus a calculated
market clearing price and (3) a specified amount of funds available for such
month divided by eligible generation. The Imperial Valley projects have already
begun receiving payments under this program.
ENVIRONMENTAL MATTERS
Each of the projects is subject to environmental laws and regulations at
the federal, state and local levels in connection with the development,
ownership and operation of the projects. These
51
<PAGE>
environmental laws and regulations generally require that a wide variety of
permits and other approvals be obtained for the construction and operation of
an energy-producing facility and that the facility then operate in compliance
with such permits and approvals. Failure to operate the facility in compliance
with applicable laws, permits and approvals could result in the levy of fines
or curtailment of project operations by regulatory agencies.
We believe that each of the project companies is in compliance in all
material respects with all applicable environmental regulatory requirements and
that maintaining compliance with current governmental requirements will not
require a material increase in capital expenditures or materially affect any of
such entity's financial condition or results of operations. It is possible,
however, that future developments, such as more stringent requirements of
environmental laws and their enforcement policies, could affect the costs of
compliance and the manner in which the project companies conduct their
business.
52
<PAGE>
OUR MANAGEMENT
OUR DIRECTORS AND EXECUTIVE OFFICERS
Below are our current executive directors and officers and their positions
with us:
EXECUTIVE OFFICER POSITION
----------------- --------
Robert S. Silberman ...... Director, President and Chief Operating Officer
Brian K. Hankel .......... Vice President and Treasurer
Douglas L. Anderson ...... Director, Vice President and General Counsel
Richard P. Johnston ...... Vice President and Commercial Officer
Patrick J. Goodman ....... Director
Larry Kellerman .......... Director
John L. Harrison ......... Director
Steven M. Pike ........... Director
ROBERT S. SILBERMAN, 40, President and Chief Operating Officer of us and
each Assignor. Mr. Silberman joined MidAmerican in 1995. Prior to that, Mr.
Silberman served as Executive Assistant to the Chairman and Chief Executive
Officer of International Paper Company, as Director of Project Finance and
Implementation for the Ogden Corporation and as a Project Manager in Business
Development for Allied-Signal, Inc. He has also served as the Assistant
Secretary of the Army for the United States Department of Defense.
BRIAN K. HANKEL, 36, Vice President and Treasurer of MidAmerican, us and
each Assignor. Mr. Hankel joined MidAmerican in February 1992 as Treasury
Analyst and served in that position to December 1995. Mr. Hankel was appointed
Assistant Treasurer in January 1996 and was appointed Treasurer in January
1997. Prior to joining MidAmerican, Mr. Hankel was a Money Position Analyst at
FirsTier Bank of Lincoln from 1988 to 1992 and Senior Credit Analyst at
FirsTier from 1987 to 1988.
DOUGLAS L. ANDERSON, 40, Vice President and General Counsel of CalEnergy
Generation, us and each Assignor. Mr. Anderson joined MidAmerican in February
1993. From 1990 to 1993, Mr. Anderson was a business attorney with Fraser,
Stryker, Vaughn, Meusey, Olson, Boyer & Cloch, P.C. in Omaha. From 1987 through
1989, Mr. Anderson was a principal in the firm Anderson & Anderson. Prior to
that, from 1985 to 1987, he was an attorney with Foster, Swift, Collins & Coey,
P.C. in Lansing, Michigan.
RICHARD P. JOHNSTON, 43, Vice President and Commercial Officer of us and
Director of Operations for El Paso Energy International. Mr. Johnston joined El
Paso Energy in 1997 and was assigned to our management team at our founding in
March of 1999. In his 21 years of experience in power generation engineering
and management, Mr. Johnston has held positions directing Plant Operations and
Maintenance, Asset Management and Project Development in both the Domestic and
International Markets for ESI Energy, a Florida Power & Light subsidiary, The
AES Corp., based in Arlington, VA, and Westinghouse, based in Orlando, FL. Mr.
Johnston has extensive experience in hands-on management of the operations and
maintenance of oil and gas-fired combustion turbines, coal, biomass, geothermal
and solar independent power, including all aspects of construction management,
mobilization and start-up.
PATRICK J. GOODMAN, 32, Senior Vice President and Chief Financial Officer
of MidAmerican and a director of us and each Assignor. Mr. Goodman joined
MidAmerican in June 1995 and served as Manager of Consolidation Accounting
until September 1996 when he was promoted to Controller. Prior to joining
MidAmerican, Mr. Goodman was a certified public accountant at Coopers &
Lybrand.
LARRY KELLERMAN, 44, President of El Paso Power Services Company and a
director of us. Mr. Kellerman joined El Paso Energy in February 1998. Prior to
joining El Paso Energy, he was President of Citizens Power, where he initiated
Citizens' activities in the power marketing field in
53
<PAGE>
1988, when Citizens was the initial power marketer granted FERC authorization.
From 1982 through 1988, Mr. Kellerman was General Manager of Power Marketing
and Power Supply for Portland General Electric. From 1979 through 1982, Mr.
Kellerman was Financial Analyst and Power Contract Negotiator with Southern
California Edison, where he negotiated some of the first PURPA qualifying
facility contracts in the nation.
JOHN L. HARRISON, 40, Senior Managing Director and Chief Financial Officer
of El Paso Merchant Energy and a director of us. Mr. Harrison joined El Paso
Energy in June 1996. Prior to joining El Paso Energy, Mr. Harrison was a
partner with Coopers & Lybrand LLP.
STEVEN M. PIKE, 38, Vice President Structured Transactions of El Paso
Power Services Company and a director of us. Mr. Pike joined El Paso Energy in
April of 1998. Prior to joining El Paso Energy, Mr. Pike was Vice President
Risk Management for Enerz, a wholly-owned trading subsidiary of Zeigler Coal
Holding Company, Director of Strategic Planning for Zeigler Coal Holding
Company, and Director of Energy Development for Kennecott Corporation. Mr. Pike
began his career with Niagara Mohawk Power Corporation and held a number of
positions in power system transmission operations and generation dispatch
planning, power contracting, fuel supply, fossil and hydro generation planning,
and strategic planning.
Our directors and executive officers do not receive any compensation for
serving in these positions.
54
<PAGE>
OWNERSHIP OF OUR MEMBERSHIP INTERESTS
Fifty percent of our membership interests are owned by MidAmerican and the
other 50% are owned by El Paso Power. If the two owners of our membership
interests are unable to reach agreement on budgeting or other material
operational matters, the prior year's budget (adjusted for inflation) and
operational practices will be continued until agreement is reached. As of
September 30, 1999, our total capitalization was $1,457 million. There is no
public trading market for our membership interests. None of our directors or
executive officers beneficially own any of our equity interests. MidAmerican's
common stock is publicly traded on the New York, Pacific and London Stock
Exchanges. El Paso Power is owned indirectly by El Paso Energy. El Paso
Energy's common stock is publicly traded on the New York Stock Exchange.
OUR RELATIONSHIPS AND RELATED TRANSACTIONS
OUR RELATIONSHIPS WITH SUPPLIERS AND SERVICE PROVIDERS
The Imperial Valley projects' geothermal power plants are indirectly
wholly-owned and operated by Magma or subsidiaries of Magma. Land surface
rights for, and geothermal fluid supplying, these facilities is provided from
Magma's (or a subsidiary's) geothermal resource holdings in the Salton Sea
Known Geothermal Resource Area.
The Saranac project, the Power Resources project and the NorCon project
are indirectly partially- or wholly-owned by Falcon Seaboard Resources and are
operated and maintained by Falcon Power Operating, a wholly-owned subsidiary of
Falcon Seaboard Resources. Falcon Power Operating is entitled to reimbursements
and fees in exchange for providing such operation and maintenance services. In
addition CE Texas Gas, a wholly-owned indirect subsidiary of Falcon Seaboard
Resources, procures natural gas for the Power Resources project.
OUR RELATIONSHIP WITH MIDAMERICAN AND EL PASO ENERGY
We are 50% owned by MidAmerican and 50% owned by El Paso Power. We are
restricted, pursuant to the terms of the indenture for the Securities, to (1)
ownership of our subsidiaries and activities related thereto, (2) acting as
issuer of Securities and other indebtedness as permitted under the indenture
and activities related thereto and (3) other activities which could not
reasonably be expected to result in a material adverse effect so long as the
rating agencies confirm that these activities will not result in a downgrade of
their ratings of the Securities. We and each of the Assignors have been
organized and are operated as legal entities separate and apart from
MidAmerican, El Paso Energy and their other affiliates, and, accordingly, our
assets and the assets of the Assignors will not be generally available to
satisfy the obligations of MidAmerican, El Paso Energy or any of their other
affiliates. However, our and the Assignors' unrestricted cash and other assets
which are available for distribution may, subject to applicable law and the
terms of our and the Assignors' financing arrangements, be advanced, loaned,
paid as dividends or otherwise distributed or contributed to MidAmerican, El
Paso Energy or their affiliates. The Securities are non-recourse to MidAmerican
and El Paso Energy.
55
<PAGE>
SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS
The following is a summary of important features of the projects and
selected provisions of principal agreements related to the projects and the
business of the Assignors and the project companies, and is not considered to
be a full statement of the terms of such agreements. Accordingly, the following
summaries of such agreements are qualified by reference to each agreement and
are subject to the terms of the full text of each agreement. Unless otherwise
stated, any reference in this prospectus to any agreement will mean the
agreement and all schedules, exhibits and attachments to the agreement as
amended, supplemented or otherwise modified and in effect as of the date
hereof.
IMPERIAL VALLEY PROJECTS
Each of the Imperial Valley projects is (or, in the case of Salton Sea
Unit V and the CE Turbo project, is proposed to be) a geothermal power plant
located at the Salton Sea Known Geothermal Resource Area in Imperial Valley,
California. Below is a chart illustrating the commercial structure of the
Imperial Valley projects.
<TABLE>
<S> <C> <C>
----------------------------
POWER SALES
SCE
(all except CE Turbo Project
& Salton Sea Unit V)
CALIFORNIA PX
(CE Turbo Project
- ----------------------------- & Salton Sea Unit V) -----------------------------
PROJECT FINANCING DEBT \ ZINC FACILITY / TRANSMISSION
\ (Salton Sea Unit V) /
\ ---------------------------- / IMPERIAL IRRIGATION
$598 MILLION AS OF 9/99 \ | / DISTRICT
- ----------------------------- \ | / -----------------------------
\ | /
- ----------------------------- ---------------------------- -----------------------------
CE GENERATION PROJECT COMPANIES OPERATION & MAINTENANCE
OWNERSHIP ------ ------
IMPERIAL VALLEY CALENERGY OPERATING
100% / PROJECT COMPANIES \ CORPORATION
- ----------------------------- / ---------------------------- \ -----------------------------
/ | \
- ----------------------------- / | \ -----------------------------
EPC CONTRACTS / | \ ADMINISTRATIVE SERVICES
/ ---------------------------- \
STONE & WEBSTER GEOTHERMAL RIGHTS/ MAGMA
(Salton Sea Unit V LAND USE (all except CE Turbo Project)
& CE Turbo Project)
- ----------------------------- MAGMA, MAGMA LAND CEOC
AND OTHERS (CE Turbo Project)
---------------------------- -----------------------------
</TABLE>
SALE AND TRANSMISSION OF POWER
STANDARD TERMS OF SO4 AGREEMENTS
All of the power purchase agreements for the operating Imperial Valley
projects are standard offer no. 4 (or SO4) agreements, except the Salton Sea
Unit I power purchase agreement and the Salton Sea Unit IV power purchase
agreement. Although these SO4 agreements differ in some respects from the
standard SO4 agreement, many of the provisions are the same as those found in
the SO4 agreement. Below is a summary of the material terms and provisions
contained in each SO4 agreement.
Term and Termination. Each of the SO4 agreements has a contract term of 30
years from the firm operation date of the project. Upon expiration of the
contract term, the SO4 agreement remains in effect until either party
terminates the agreement upon 90 days prior written notice.
56
<PAGE>
The fixed price period is the first 10 years of the contract term. The
avoided cost of energy period begins upon expiration of the fixed price period
and continues for the remainder of the contract term.
Power Purchase Provisions. The SO4 agreement provides for (1) capacity
payments as described below and (2) energy payments either at an annually
escalating rate or at a levelized rate for the fixed rate period and energy
payments at Southern California Edison's avoided cost of energy for the avoided
cost of energy period.
Capacity Payments. A project will qualify for a fixed annual capacity
payment by meeting specified performance requirements during the months of June
through September of each year. The project must deliver an average
kilowatt-hour output during specified on-peak hours of each month in the
on-peak period at a rate corresponding to at least an 80% contract capacity
factor to meet its performance requirement. The contract capacity factor equals
(1) a plant's actual electricity output divided by (2) the product of the
project's contract capacity and the number of hours in the measurement period
(less applicable maintenance and curtailment hours). If a project maintains the
required 80% contract capacity factor, then Southern California Edison must pay
a fixed annual capacity payment equal to the product of the contract capacity
price set forth in the agreement and the project's contract capacity. The fixed
annual capacity payment is paid in monthly installments, and the monthly
installment may be reduced if the contract capacity factor is less than 80% for
such month. Capacity payments are weighted toward the on-peak months.
The project company is required to annually demonstrate its contract
capacity by satisfying the performance requirement. If the project company does
not do so, it may be placed on probation for up to 15 months, and, if the
project company cannot satisfy the performance requirement during the
probationary period, the contract capacity will be reduced to the greater of
(1) what has been delivered during the probationary period or (2) what can
reasonably be delivered. Additionally, failure to satisfy the performance
requirement will subject the project company to the penalties described below.
However, if the project company's failure to meet the performance requirement
is due to a forced outage or a request by Southern California Edison to reduce
delivery, Southern California Edison must continue to pay the full firm
capacity payment. If the project company is unable to provide contract capacity
due to uncontrollable forces (such as a flood or an earthquake), Southern
California Edison must continue to pay the full firm capacity payments for 90
days from the occurrence of the uncontrollable force.
Capacity Bonus Payments. Under the SO4 agreements, the project companies
are entitled to receive capacity bonus payments in an on-peak month if the
relevant project operates at least at an 85% contract capacity factor during
the on-peak hours of such on-peak month, and qualifies in respect of non-peak
months if the contract capacity factors for all on-peak months have been at
least 85% and the project operates at a contract capacity factor of at least
85% during on-peak hours of the relevant non-peak month.
Capacity bonus payments for each month increase with the level of
kilowatt-hours delivered between the 85% and 100% contract capacity factor
levels during the month. The capacity bonus payment for each month is equal to
a percentage of the firm capacity payment based on the project's on-peak
contract capacity factor (which percentage may not exceed 18% of one-twelfth of
the firm capacity payment).
Changes in Contract Capacity. The project company may reduce contract
capacity by notice to Southern California Edison. The project company must
refund Southern California Edison an amount of money equal to the difference
between the accumulated monthly capacity payments paid by Southern California
Edison prior to the receipt of the reduction notice and the total monthly
capacity payments Southern California Edison would have paid based on the
adjusted capacity price, as well as interest at the prime rate. If the project
company fails to give notice, it can reduce contract capacity if it refunds
said amount plus a penalty equal to the product of (1) the contract capacity
being reduced, (2) the difference between the contract capacity price and the
adjusted capacity price and (3) the number of years and fractions (not less
than one year) by which the project company has been deficient in giving the
prescribed notice. If, however, the adjusted capacity price is less than the
contract capacity price, then no penalty is due.
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<PAGE>
Energy Payments. In addition to capacity payments, each SO4 agreement
provides that Southern California Edison must make monthly energy payments
based on the number of kilowatt-hour of energy delivered by the relevant
project in such month. Energy payments are weighted toward on-peak months and
on-peak hours.
Annual Forecast Energy Payments. The Leathers SO4 agreement is an annual
forecast energy payment SO4 agreement. During the fixed price period the
project company is paid a monthly energy payment based on a schedule of the
forecast of the annual marginal cost of energy, which lists a price per
kilowatt-hour of 15.6 cents for 1999.
Levelized Energy Payments. Under the Salton Sea Unit II SO4 agreement,
during the fixed price period the energy payments are levelized to yield a time
weighted average of 10.6 cents per kilowatt-hour. The project must deliver to
Southern California Edison at least 70% of the average annual kilowatt-hour
delivered to Southern California Edison during periods when the levelized
energy payment price was greater than the energy price in the forecast of the
annual marginal cost of energy schedule. If the project fails to satisfy this
performance obligation or fails to perform any other contract obligations
during the fixed price period, and, at such time, the net present value of the
cumulative energy payments received exceeds the net present value of what the
project company would have been paid under the annual forecast energy payment
SO4 agreement, the project company must refund the difference. The project
company must post a performance bond, guarantee, letter of credit or other
security to insure payment to Southern California Edison of any such refund.
Avoided Cost of Energy Payments. During the avoided cost of energy period,
all of the project companies are paid a monthly energy payment at a rate which
equals Southern California Edison's avoided cost of energy. Southern California
Edison's avoided cost of energy is currently determined by an approved interim
formula which adjusts historic costs by an inflation/deflation factor
representing monthly changes in the cost of natural gas at the California
border and "time of use" adjustment factors. Consequently, during the avoided
cost of energy period under this methodology, energy payments under the SO4
agreements will fluctuate based on the time of generation and monthly changes
in average fuel costs in the California energy market. Pursuant to legislation
recently adopted in California, upon the satisfaction of certain conditions,
the avoided cost of energy will be based on the clearing price established by
the California power exchange.
In April 1995, Southern California Edison forecast its future avoided cost
of energy as follows:
<TABLE>
<CAPTION>
YEAR LOW MEDIAN HIGH
---- --- ------ ----
<S> <C> <C> <C>
1999 2.91 2.99 3.28
2000 3.11 3.22 3.60
2001 3.30 3.46 3.91
2002 3.42 3.59 4.13
2003 3.52 3.72 4.36
2004 3.62 3.88 4.61
2005 3.72 4.11 4.86
2006 3.83 4.31 5.16
2007 3.95 4.44 5.48
2008 4.06 4.59 5.82
2009 4.18 4.74 6.19
2010 4.31 4.89 6.59
2011 4.43 5.06 7.07
2012 4.57 5.22 7.60
2013 4.70 5.40 8.16
2014 4.84 5.58 8.76
2015 4.99 5.76 9.41
</TABLE>
The power market consultant's report (included as Appendix C to this
prospectus) also contains projections of future market prices of electricity.
Neither we nor any Imperial Valley Assignor has
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<PAGE>
prepared or relied upon any such forecasts. We and the Imperial Valley
Assignors believe that all forecasts of avoided cost of energy are speculative
in nature and that there can be no assurance that Southern California Edison's
actual future avoided cost of energy will be equal to any of the above
forecasts. Southern California Edison's actual avoided cost of energy will be
dependent upon, among other factors, Southern California Edison's future fuel
costs, system operation characteristics, market prices for electricity
(including California power exchange prices) and regulatory action.
Curtailment. Southern California Edison is not required to accept or
purchase energy for a maximum of 300 hours per year during off-peak hours if
the purchase would either (1) cost more than the costs Southern California
Edison would incur if it utilized energy from another source or (2) cause
Southern California Edison hydro-energy to be spilled under certain California
Public Utilities Commission mandated conditions.
IMPERIAL VALLEY POWER PURCHASE AGREEMENTS
Salton Sea Unit I Power Purchase Agreement. The Salton Sea Unit I power
purchase agreement is not an SO4 agreement, although as described below it
contains many of the provisions customarily found in an SO4 agreement.
Term and Contract Capacity. The contract term is for 30 years from the
firm operation date of July 1, 1987. The contract capacity is 10 megawatts.
Capacity Payments. The capacity payment is based on a firm capacity price
which adjusts quarterly based on inflation-related indices. If Salton Sea Unit
I is able to deliver 100% of the contract capacity set forth in the agreement,
Salton Sea Unit I receives a monthly performance payment based on the then
current firm capacity price multiplied by the contract capacity and the energy
delivered from Salton Sea Unit I up to the contract capacity. Based on the
current capacity price of $127.80 per kilowatt-year, the annual maximum
capacity payment is $1,278,000. The Salton Sea Unit I power purchase agreement
does not provide for bonus capacity payments.
If Salton Sea Unit I does not meet the performance requirement, Southern
California Edison may place the project on probation for a period not to exceed
15 months. If the performance requirement is not met during the probationary
period, Southern California Edison may derate the contract capacity.
Energy Payments. Salton Sea Unit I receives a monthly energy payment
calculated using a base price, which is subject to quarterly adjustments based
on inflation-related indices. The time period weighted average energy payment
was 5.4 cents per kilowatt-hour for the year ended December 31, 1998. As the
Salton Sea Unit I power purchase agreement is not an SO4 agreement, the energy
payments never revert to Southern California Edison's avoided cost of energy.
Salton Sea Unit II Power Purchase Agreement. Salton Sea Unit II sells
electricity to Southern California Edison pursuant to a modified SO4 agreement.
Term and Contract Capacity. The contract term is for 30 years from the
firm operation date of April 5, 1990. The contract capacity is 16.5 megawatts
during on-peak periods and 15 megawatts during mid-and off-peak periods.
Capacity Payments. Salton Sea Unit II has a contract capacity price of
$187 per kilowatt-year and, based on the contract capacity of 15 megawatts, the
annual maximum capacity payment is $2,805,000.
Energy Payments. The fixed price period for Salton Sea Unit II expires on
April 4, 2000. During the fixed price period, the energy payment is levelized
at a time weighted average of 10.6 cents per kilowatt-hour. After the fixed
price period, energy payments will be based on Southern California Edison's
avoided cost of energy. For the period from April 1, 1994 through March 31,
2004, Southern California Edison is entitled to receive, at no cost, 5% of all
energy delivered in excess of contract capacity.
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<PAGE>
Salton Sea Unit III Power Purchase Agreement. Salton Sea Unit III sells
electricity to Southern California Edison pursuant to a modified SO4 agreement.
Term and Contract Capacity. The contract term is for 30 years from the
firm operation date of February 14, 1989. The contract capacity is 47.5
megawatts.
Capacity Payments. Salton Sea Unit III has a contract capacity price of
$175 per kilowatt-year and, based on the contract capacity of 47.5 megawatts,
the annual maximum capacity payment is $8,312,500.
Energy Payments. The fixed price period for Salton Sea Unit III expired on
February 13, 1999 and thus energy payments are now based on Southern California
Edison's avoided cost of energy.
Salton Sea Unit IV Power Purchase Agreements. The Salton Sea Unit IV power
purchase agreement is not an SO4 agreement, although as described below it
contains many of the provisions customarily found in an SO4 agreement.
Term and Contract Capacity. The contract term is for 30 years from the
firm operation date of May 24, 1996. The contract capacity is 34 megawatts.
Capacity Payments. Through June 30, 2017, the capacity price is $121.72
per kilowatt-year plus quarterly inflation-related adjustments for 58.8% of the
contract capacity delivered by Salton Sea Unit IV. After June 30, 2017,
Southern California Edison will not be obligated to purchase this 58.8% of
capacity. Until the end of the contract term, Salton Sea Unit IV will be paid
$158 per kilowatt-year for 41.2% of the contract capacity delivered. The 1998
capacity payment was $5,010,000. Capacity bonus payments may be earned based on
the same criteria found in an SO4 agreement.
Energy Payments. Through June 30, 2017, the energy payments for 55.6% of
the total energy delivered by Salton Sea Unit IV (up to 110% of nameplate
capacity) will be calculated based on a base price of 4.701 cents per
kilowatt-hour, adjusted pursuant to inflation-related indices. Until the end of
the contract term, the energy payments for 44.4% of the total energy delivered
will be calculated according to a fixed price, based on an energy payment
schedule, for the first 10 years, Southern California Edison's avoided cost of
energy plus a predetermined spread per kilowatt-hour for years 11 through 15
and Southern California Edison's avoided cost of energy thereafter. After June
30, 2017, all energy payments will be calculated as provided in the chart
below. However, Southern California Edison will not be obliged to purchase any
energy attributable to 55.6% of Salton Sea Unit IV's capacity. The energy
payments for the 44% portion of the agreement and, after June 30, 2017, all
energy delivered under the agreement, will be as follows:
<TABLE>
<CAPTION>
ENERGY PAYMENT
YEAR (CENTS/KILOWATT-HOUR) YEAR ENERGY PAYMENT (CENTS/KILOWATT-HOUR)
---- --------------------- ---- ------------------------------------
<S> <C> <C> <C>
1999 10.7 2006 3.5+avoided cost of energy
2000 10.9 2007 2.9+avoided cost of energy
2001 11.2 2008 2.2+avoided cost of energy
2002 11.7 2009 1.2+avoided cost of energy
2003 12.1 2010 1.0+avoided cost of energy
2004 12.2 2011--2025 avoided cost of energy
2005 12.4
</TABLE>
Salton Sea Unit V Power Purchase Agreement. Salton Sea Power LLC and
CalEnergy Minerals LLC, the owners of the zinc facility, have entered into a
power sales agreement whereby Power LLC has agreed to supply electricity to
Minerals LLC and Minerals LLC has agreed to purchase its electricity
requirements from Power LLC up to 49 megawatts.
Conditions Precedent. Power LLC's and Minerals LLC's obligations under the
Salton Sea Unit V power purchase agreement are subject to the prior condition
that both Salton Sea Unit V and the zinc facility are ready to commence initial
operation. If, by a specified date, the zinc facility is ready to commence
initial operation, but Salton Sea Unit V is not, Power LLC will be liable to
Minerals LLC for any resulting damages or losses.
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<PAGE>
Term. The contract term is for 25 years from the date of initial
deliveries.
Energy Payments. Power LLC will be paid a monthly energy payment equal to
the product of (1) the total quantity in kilowatt-hour of electrical energy
purchased and received by Minerals LLC in such month multiplied by (2) the
product of the California power exchange price multiplied by a percentage to
adjust for transmission losses, minus an adjustment factor based on
transmission service charges.
Elmore Power Purchase Agreement. Elmore sells electricity to Southern
California Edison pursuant to an SO4 agreement.
Term and Contract Capacity. The contract term is for 30 years from the
firm operation date of January 1, 1989. The contract capacity is 34 megawatts.
Capacity Payments. Elmore has a contract capacity price of $198 per
kilowatt-year and, based on the contract capacity of 34 megawatts, the annual
maximum capacity payment is $6,732,000.
Energy Payments. The fixed price period expired on December 31, 1998 and
thus energy payments are now based on Southern California Edison's avoided cost
of energy.
Leathers Power Purchase Agreement. Leathers sells electricity to Southern
California Edison pursuant to an SO4 agreement which is identical in all
material respects to the Elmore power purchase agreement.
Term and Contract Capacity. The contract term is for 30 years from the
firm operation date of January 1, 1990. The contract capacity is 34 megawatts.
Capacity Payments. Leathers has a contract capacity price of $187 per
kilowatt-year and, based on the contract capacity of 34 megawatts, the annual
maximum capacity payment is $6,358,000.
Energy Payments. The Leathers power purchase agreement is an annual
forecast energy payment SO4 agreement. The fixed price period expired on
December 31, 1999, and thus energy payments are based on Southern California
Edison's avoided cost of energy.
Del Ranch Power Purchase Agreement. Del Ranch sells electricity to
Southern California Edison pursuant to an SO4 agreement which is identical in
all material respects to the Elmore power purchase agreement.
Term and Contract Capacity. The contract term is for 30 years from the
firm operation date of January 2, 1989. The contract capacity is 34 megawatts.
Capacity Payments. Del Ranch has a contract capacity price of $198 per
kilowatt-year and, based on the contract capacity of 34 megawatts, the annual
maximum capacity payment is $6,732,000.
Energy Payments. The fixed price period expired on December 31, 1998 and
thus energy payments are now based on Southern California Edison's avoided cost
of energy.
Vulcan Power Purchase Agreement. Vulcan sells electricity to Southern
California Edison pursuant to an SO4 agreement.
Term and Contract Capacity. The contract term is for 30 years from the
firm operation date of February 10, 1986. The contract capacity is 29.5
megawatts.
Capacity Payments. Vulcan has a contract capacity price of $158 per
kilowatt-year and, based on the contract capacity of 29.5 megawatts, the annual
maximum capacity payment is $4,661,000.
Energy Payments. The fixed price period expired on February 9, 1996. As a
result, energy payments for the balance of the contract term will be based on
Southern California Edison's avoided cost of energy.
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<PAGE>
TRANSMISSION SERVICE AGREEMENTS
Salton Sea Unit I delivers electricity to Southern California Edison at
the Salton Sea Unit I site. Each of the other operating Imperial Valley
projects delivers electricity to Southern California Edison on transmission
lines owned by the Imperial Irrigation District. These transmission lines
interconnect the operating plants with Southern California Edison's
transmission system. Transmission service charges are paid monthly to the
Imperial Irrigation District pursuant to transmission service agreements. The
transmission service agreement for Salton Sea Unit II expires in 2020; for
Salton Sea Unit III in 2019; and for Salton Sea Unit IV in 2026. The
transmission service agreements for the Leathers project, the Elmore project,
the Del Ranch project and the Vulcan project expire in 2015.
Salton Sea Power LLC has entered into a transmission service agreement
with the Imperial Irrigation District for Salton Sea Unit V and CE Turbo LLC
has entered into a transmission service agreement with the Imperial Irrigation
District for the CE Turbo project. These new agreements are similar to the
transmission service agreements for the operating Imperial Valley projects and
their terms are 30 years from the date of initial service. Power LLC has also
entered into a construction agreement with the Imperial Irrigation District,
pursuant to which the Imperial Irrigation District will construct the necessary
transmission facilities to provide the transmission and distribution services
for Salton Sea Unit V and the CE Turbo project described above.
OPERATION AND MAINTENANCE SERVICES
CalEnergy Operating Corporation provides day-to-day operation and
maintenance services for the Imperial Valley projects pursuant to long-term
operation and maintenance agreements with the Imperial Valley project
companies. The services provided by CalEnergy Operating under the operation and
maintenance agreements include, among other services, plant operations,
development and implementation of preventive maintenance plans, maintenance of
inventory, procurement of spare parts and disposal of spent geothermal brine.
CalEnergy Operating is reimbursed by the Imperial Valley project companies for
its actual costs and expenses incurred in the provision of services under the
operation and maintenance agreements.
ADMINISTRATIVE SERVICES
Magma provides administrative, management and technical services for the
Salton Sea projects and the CE Turbo project pursuant to long-term
administrative services agreements with the relevant Imperial Valley project
companies. CalEnergy Operating provides administrative, management and
technical services for the partnership projects (other than the CE Turbo
project) pursuant to long-term administrative services agreements with the
relevant Imperial Valley project companies. The services provided by Magma and
CalEnergy Operating under the administrative services agreements include, among
other services, (1) ordinary services such as general bookkeeping and financial
accounting services, general legal services, personnel administration and
payroll services, energy marketing services and assistance in obtaining
necessary franchises and permits, and (2) technical services such as
environmental compliance services, industrial hygiene and structural
engineering. Magma and CalEnergy Operating receive an administrative fee equal
to their actual costs plus a reasonable profit and a technical fee equal to an
amount specified in the agreements. The fees received by Magma pursuant to the
administrative services agreements will be included in Magma's available cash
flow.
Magma and CalEnergy Operating used to provide services to the Imperial
Valley project companies under the administrative services agreements using
CalEnergy Operating personnel, supplemented by personnel from MidAmerican. In
connection with the divestiture of 50% of our interests to El Paso Energy, we
entered into an administrative services agreement with MidAmerican in order to
provide administrative services that have customarily been provided by
MidAmerican for the Imperial Valley projects. This agreement will provide that
MidAmerican will be paid (1) for its actual out-of-pocket costs to third
parties and (2) a separate fee for services provided by MidAmerican employees
and use of MidAmerican assets. The fee described in clause (2) will be
subordinate to payment of debt service on the Securities.
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<PAGE>
SURFACE LAND USE
IMPERIAL IRRIGATION DISTRICT
Salton Sea Brine Processing and Salton Sea Power Generation entered into a
ground lease with the Imperial Irrigation District, pursuant to which the
Imperial Irrigation District leases the real property on which Salton Sea Units
I and II are located, consisting of approximately 117 acres, to Salton Sea
Brine Processing and Salton Sea Power Generation for a period of 33 years. The
Salton Sea Units I and II ground lease is triple net with original base rental
payments of $400 per acre per annum. Every 5 years this per acre price may be
adjusted based on changes in the consumer price index as specified in the
lease. The Salton Sea Units I and II ground lease permits improvements and
construction on the leased property to increase capacity.
MAGMA
Magma and its affiliates Imperial Magma and Magma Land control the land on
which the Imperial Valley projects (other than Salton Sea Units I and II) are
located through a combination of fee, leasehold and royalty interests. The
Imperial Valley project companies have entered into long-term agreements with
Magma, Imperial Magma and Magma Land to obtain the surface rights necessary to
operate their projects. The payments received by Magma, Imperial Magma and
Magma Land under the surface land use agreements will be included in Magma's
available cash flow.
GEOTHERMAL RIGHTS
Magma and Magma Land hold rights to use underground geothermal resources
in the Imperial Valley through a combination of fee and leasehold interests.
Magma and Magma Land have granted the Imperial Valley project companies the
rights to use these resources for power production purposes at their respective
projects pursuant to long-term easement agreements. We believe that the
Imperial Valley project companies have sufficient rights to geothermal
resources to operate their projects at capacity until the final maturity date
of the Securities.
CONSTRUCTION CONTRACTS
SALTON SEA UNIT V
Stone & Webster agreed to design, engineer, procure, construct, commission
and test Salton Sea Unit V on a turnkey basis for an aggregate fixed price of
$91,787,000. If Salton Sea Unit V fails to satisfy performance guarantees
regarding energy production, thermal energy production and brine temperature,
Stone & Webster must pay performance liquidated damages in accordance with the
terms of the Salton Sea Unit V construction contract. Stone & Webster will also
be obligated to pay delay liquidated damages if Salton Sea Unit V is not
completed on schedule. If Stone & Webster completes construction ahead of
schedule, Salton Sea Power LLC must pay a bonus to Stone & Webster pursuant to
the terms of the Salton Sea Unit V construction contract. Stone & Webster's
liability for liquidated damages under the contract is limited to 20% of the
contract price and its aggregate liability thereunder is limited to the full
contract price. Stone & Webster's payment and performance obligations under the
Salton Sea Unit V construction contract are guaranteed by its parent, Stone &
Webster, Incorporated. Salton Sea Unit V is expected to commence commercial
operation in mid-2000.
CE TURBO PROJECT
Stone & Webster agreed to design, engineer, procure, construct, commission
and test the CE Turbo project on a turnkey basis, as well as certain capital
improvements to the brine facilities at the Imperial Valley projects, for an
aggregate fixed price of $49,800,000. If the CE Turbo project fails to satisfy
performance guarantees regarding energy production, Stone & Webster must pay
performance liquidated damages in accordance with the terms of the CE Turbo
construction contract. Stone & Webster will also be obligated to pay delay
liquidated damages if the CE Turbo project is not
63
<PAGE>
completed on schedule and is entitled to a bonus if construction is completed
ahead of schedule. Stone & Webster's liability for liquidated damages under the
contract is limited to 20% of the contract price and its aggregate liability
thereunder is limited to the full contract price. Stone & Webster's payment and
performance obligations under the CE Turbo construction contract are guaranteed
by its parent, Stone & Webster. The CE Turbo project is expected to commence
commercial operation in mid-2000.
PROJECT COMPANY OWNERSHIP
SALTON SEA PROJECTS
Salton Sea Units I, II and III are owned by Salton Sea Power Generation,
Salton Sea Unit IV is owned by Salton Sea Power Generation and Fish Lake Power
LLC and Salton Sea Unit V is owned by Salton Sea Power LLC. Salton Sea Power
Generation is 99% owned by Salton Sea Brine Processing and 1% owned by Salton
Sea Power, which in turn is 99% owned by Magma and 1% owned by Salton Sea
Funding Corporation. Salton Sea Power also owns a 1% general partnership
interest in Salton Sea Brine Processing and Magma owns a 99% limited
partnership interest therein. Ninety-nine percent of the capital stock of Fish
Lake is owned by Magma, with Salton Sea Funding Corporation owning the
remaining 1%. CE Salton Sea Inc. owns 100% of the membership interests in Power
LLC. Magma owns 99% of the capital stock of CE Salton Sea and Salton Sea
Funding Corporation owns the remaining 1%. Magma owns 100% of the capital stock
of Salton Sea Funding Corporation, and we own 100% of the capital stock of
Magma. Below is a chart illustrating the ownership structure for the Salton Sea
projects.
------------------
CE Generation, LLC
------------------
| 100%
------------- 99%
--------------------------------- Magma Power ------------------
| -------- Company --- |
| | ------------- | |
| | | 100% | |
| | ------------- | -----------
| | Salton Sea | 1% CE Salton
| | Funding ---|-------- Sea Inc.
| | Corporation | -----------
| | ------------- | |
| | | | |
| | ------------- | |
| 99% 99% | 1% | 1% | | 99% | 100%
---------------- ---------------- ------------- |
Salton Sea Brine -------- Salton Sea Power Fish Lake ------------
Processing L.P. Company Power LLC Salton Sea
---------------- ---------------- ------------- Power L.L.C.
| | | ------------
---------- ---------- | |
99% | | 1% | |
---------------- | |
------- Salton Sea Power-------------------------- | |
| Generation L.P. ------- | | |
| ---------------- | | | |
| | | | | |
100% | 100% | 100% | 99% | | 1% 100% |
- ------------ ------------ ------------ ------------- -----------
SALTON SEA SALTON SEA SALTON SEA SALTON SEA SALTON SEA
UNIT I UNIT II UNIT III UNIT IV UNIT V
- ------------ ------------ ------------ ------------- -----------
PARTNERSHIP PROJECTS
The Leathers Project is owned by Leathers, the Del Ranch project is owned
by Del Ranch, the Elmore project is owned by Elmore, the Vulcan project is
owned by Vulcan and the CE Turbo project is owned by Turbo LLC. Each of
Leathers, Del Ranch and Elmore are 40% owned by CalEnergy Operating and 10%
owned by Magma. The remaining 50% of the interests in Leathers, Del Ranch and
Elmore are owned by San Felipe Energy Company, Conejo Energy Company and Niguel
Energy Company, respectively. San Felipe, Conejo and Niguel are each
wholly-owned by CalEnergy Operating. Each of Vulcan Power and Vulcan Power
Company Geothermal LLC own a 50% interest in Vulcan. VPC Geothermal is wholly
owned by Vulcan Power. CalEnergy Operating and Vulcan Power are 99% owned by
Magma and 1% owned by Salton Sea Funding Corporation. CE Salton Sea owns 100%
of Turbo LLC. Below is a chart illustrating the ownership structure for the
partnership projects.
64
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
-------------------
CE Generation,
LLC
-------------------
| 100%
----------------------------------------------- -------------------
| -------------------------|- Magma Power ------------
| | ------ Company |
| | | ------------------- | 99%
| | | | 100% |
| | | ------------------- 1% -----------
| -------------|------------------|-------- Salton Sea Funding ------ CE Salton
| | | | Corporation Sea Inc.
99% | | 1% | | ------------------- -----------
| | | | | 1% |
------------------- | | ------------------- |
Vulcan Power | -------- CalEnergy Operating |
Company | 99% -------- Corporation | 100%
------------------- | | ------------------- |
| | | | |
100% | | 50% | --------|---------------------------- |
| | | 100% | | | 100% | 100% |
- ---------------- ---------------- | ---------------- | ---------------- ---------------- |
50% Vulcan/BN | | |
VPC Geothermal --- Geothermal | Niguel Energy | San Felipe Conejo Energy |
LLC Power Company | Company | Energy Company Company |
- ---------------- ---------------- | ---------------- | ---------------- ---------------- |
| | | | | | |
100% | | | 50% --------------------|------------- | |
| | | | 40% 40% | | 50% 40% | | 50% |
---------------- | ---------------- ---------------- ---------------- ----------------
|
Vulcan Project | Leathers, L.P. Del Ranch, L.P. Elmore, L.P. CE Turbo LLC
---------------- | ---------------- ---------------- ---------------- ----------------
| | 10% | 10% | | 10% | | |
---------|------------------|--------------- | |
| 100% | 100% | 100% | 100%
---------------- ---------------- ---------------- ----------------
Del Ranch
Leathers Project Project Elmore Project CE Turbo Project
---------------- ---------------- ---------------- ----------------
</TABLE>
PROJECT FINANCING DEBT
The revenues received by the Imperial Valley project companies from the
Imperial Valley projects and the zinc facility are used to make payments on
outstanding senior secured bonds issued by Salton Sea Funding Corporation in
multiple series. As of September 30, 1999, outstanding Imperial Valley project
financing debt consisted of the following: $33,482,000 of 6.69% Series A Senior
Secured Notes due 2000; $104,378,000 of 7.37% Series B Senior Secured Bonds due
2005; $109,250,000 of 7.84% Series C Senior Secured Bonds due 2010; $6,825,000
of 7.02% Series D Senior Secured Bonds due 2000; $58,961,000 of 8.30% Series E
Senior Secured Bonds due 2011; and $285,000,000 of 7.475% Series F Senior
Secured Bonds due 2018.
Collateral; Guarantees. The proceeds of the Imperial Valley project
financing debt were loaned to the Imperial Valley guarantors. The Imperial
Valley project financing debt is secured by a pledge of the capital stock of
Salton Sea Funding Corporation and guaranteed by the Imperial Valley
guarantors. Such loans and guarantees are secured by the following collateral:
o an assignment of the revenues, equity distributions and royalties
received by the Imperial Valley guarantors;
o a lien on substantially all of the assets of the Imperial Valley
guarantors (including the Imperial Valley projects and related
material contracts); and
o a pledge of the equity interests in the Imperial Valley guarantors.
In connection with the divestiture of 50% of our interests to El Paso
Energy, MidAmerican provided a guarantee to Salton Sea Funding Corporation of
the payment by the zinc guarantors of a portion of the principal of and
interest on the loans made to the Imperial Valley guarantors and the zinc
guarantors.
Additional Project Debt. The Imperial Valley project financing documents
permit the incurrence of the following additional project-level debt, subject
to the satisfaction of debt service coverage tests, ratings confirmations and
other conditions described in the Imperial Valley project financing documents:
o debt incurred to finance additional permitted power facilities in the
Imperial Valley region;
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<PAGE>
o debt incurred to finance capital improvements to the Imperial Valley
projects required to comply with applicable laws;
o debt incurred to finance discretionary capital improvements to the
Imperial Valley projects;
o up to $15 million of working capital debt;
o debt incurred in connection with a debt service reserve letter of
credit;
o debt incurred in connection with permitted interest rate protection
agreements;
o up to $30 million of debt incurred in connection with the development,
construction, ownership, operation, maintenance or acquisition of
permitted power facilities; and
o up to $200 million of subordinated debt from affiliates for purposes
specified in the Imperial Valley project financing documents.
Distributions. Distributions are permitted under the Imperial Valley
project financing documents upon the satisfaction of the following conditions:
o the project accounts are fully funded;
o no default or event of default has occurred and is continuing;
o the debt service coverage ratio for the prior four fiscal quarters is
at least 1.4 to 1.0 (if such distribution occurs prior to 2000) or 1.5
to 1.0 (if such distribution occurs during or after 2000);
o there are sufficient geothermal resources to operate the Imperial
Valley projects at their required levels; and
o each Imperial Valley project under construction will not have failed
to be completed by its guaranteed substantial completion date (or, in
the alternative, buy-down or ratings confirmation requirements will
have been satisfied).
SELECTED FINANCIAL INFORMATION
The Imperial Valley project companies made distributions to the Assignors
in 1996, 1997 and 1998 in the amounts of approximately $75.3 million, $146.4
million and $134.0 million, respectively.
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<PAGE>
SARANAC PROJECT
The Saranac project is a 240 megawatt natural gas-fired combined cycle
cogeneration facility located in Plattsburgh, New York. The Saranac project is
owned by Saranac Power Partners, L.P. and commenced commercial operation in
June 1994. Below is a chart illustrating the commercial structure of the
Saranac project.
-----------------
- ------------------------- POWER SALES ------------------------
PROJECT FINANCING DEBT OPERATION & MAINTENANCE
NYSEG
\ / FALCON POWER
$183.1 MILLION AS OF 9/99 \ / OPERATING COMPANY
- ------------------------- \ ----------------- / ------------------------
\ /
- ------------------------- \ ----------------- / ------------------------
OWNERSHIP \ PROJECT COMPANY / STEAM SALES
SARANAC POWER
CE GENERATION ------ PARTNERS, L.P. ------ GEORGIA-PACIFIC
GE CAPITAL
TOMEN ----------------- TENNECO PACKAGING
- ------------------------- / \ ------------------------
/ \
/ \
------------------------- -------------------------
FUEL SUPPLY FUEL TRANSPORTATION
CORAL/ NORTH COUNTRY
SHELL CANADA (SARANAC SUBSIDIARY)
------------------------- -------------------------
SALE AND TRANSMISSION OF POWER
SARANAC POWER PURCHASE AGREEMENT
Saranac sells capacity and energy from the Saranac project to New York
State Electric and Gas pursuant to the Saranac power purchase agreement. The
initial term of the Saranac power purchase agreement expires in June 2009. The
contract capacity under the Saranac power purchase agreement is 240 megawatts.
New York State Electric and Gas's long-term debt obligations were rated "Baa1"
by Moody's and "BBB" by S&P as of January 1999.
Payments for Actual Generation. The Saranac power purchase agreement
provides for payments by New York Electric and Gas for electricity produced by
the Saranac project at fixed prices specified in a schedule set forth in the
Saranac power purchase agreement, which include both a capacity component and
an energy component. Peak-hour pricing, which applies from 7:00 a.m. to 10:00
p.m., weekdays, excluding holidays, ranges from 10.34 cents per kilowatt-hour
in 1999 to 15.82 cents per kilowatt-hour in 2009. Off-peak hour pricing ranges
from 6.09 cents per kilowatt-hour in 1999 to 9.39 cents per kilowatt-hour in
2009. New York State Electric and Gas has sought to reduce these rates on the
alleged grounds that they exceed the levels permitted under PURPA.
Dispatch and Curtailment. By an amendment to the Saranac power purchase
agreement, the express terms of which are confidential, New York State Electric
and Gas obtained limited rights to dispatch the Saranac project at less than
full capacity, agreed to make certain payments in connection with such dispatch
below full capacity and waived certain curtailment rights.
Regulatory and Other Termination Rights. New York State Electric and Gas
may terminate the Saranac power purchase agreement without liability to Saranac
if the Saranac project ceases to be a qualifying facility under PURPA. In the
event New York State Electric and Gas terminates the Saranac power purchase
agreement as a result of a default by Saranac, Saranac is obligated to pay New
York State Electric and Gas an amount equal to the difference between the total
amount paid by
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<PAGE>
New York State Electric and Gas for electricity under the Saranac power
purchase agreement prior to such termination and the amount New York State
Electric and Gas would have paid for such electricity during the term of the
Saranac power purchase agreement at its long-run avoided cost, plus interest.
Saranac has secured this obligation by a mortgage on and security interest in
the Saranac project which is subordinated to the liens of the Project lenders
under the Saranac project financing documents.
Other Rights of New York State Electric and Gas. In certain circumstances
which could affect the operation of the Saranac project, New York State
Electric and Gas has the right to step in and operate the Saranac project until
the circumstance giving rise to such right has been remedied, subject to the
rights of the project lenders under the Saranac project financing documents.
INTERCONNECTION
The facilities necessary to interconnect the Saranac project to the New
York State Electric and Gas system were constructed at Saranac's expense and
are owned and maintained by New York State Electric and Gas. Under the Saranac
power purchase agreement, New York State Electric and Gas is required to
arrange for the transmission of electricity generated by the Saranac project to
the extent necessary for the operation of the New York State Electric and Gas
system. For such transmission, Saranac paid wheeling amounts to New York State
Electric and Gas which were approximately $5,050,000 in 1998, and which
increase by 5% each year.
SALE OF THERMAL ENERGY
Saranac sells steam to Georgia-Pacific and Tenneco Packaging pursuant to
long-term steam sales agreements. We believe these agreements will enable
Saranac to sell the minimum annual quantity of thermal energy necessary for the
Saranac project to maintain its qualifying facility status under PURPA for the
term of the Saranac power purchase agreement.
FUEL PROCUREMENT
NATURAL GAS SUPPLY
Saranac entered into a gas sale and purchase agreement with Shell Canada
Limited which provides for the delivery of a maximum daily volume of 51,000
MMBtu of gas on a firm basis for 15 years, expiring in May 2007. The agreement
has been assigned to Coral Energy Canada, an affiliate of Shell Canada, and
guaranteed by Shell Canada. The gas supply agreement provides for an initial
gas price of $2.97 per MMBtu (1994 dollars), which escalates at 4% annually,
and Saranac must pay the unutilized firm transportation costs incurred by Coral
Energy if Saranac does not take the maximum daily volume of gas. In each year
during the term of the gas supply agreement, Saranac is obligated to take or
pay for an amount of gas equal to at least 80% of the aggregate of the maximum
daily volumes of gas for each day in such year.
NATURAL GAS TRANSPORTATION
Saranac entered into an agreement for firm gas transportation service with
TransCanada Pipelines Limited, which expires on the later of October 2008 or
such other date determined by Saranac, but in no case later than March 2010.
The TransCanada gas transportation agreement provides for transportation of a
maximum daily volume of gas not to exceed 53,000 MMBtu from the
Alberta/Saskatchewan border to the United States/Canada border. Saranac
assigned the TransCanada gas transportation agreement to Shell Canada, which
pays TransCanada a portion of the payments it receives from Saranac for gas
supply under the gas supply agreement described above.
North Country Gas Pipeline Corporation, a wholly-owned subsidiary of
Saranac, transports the gas required for operation of the Saranac project from
the United States/Canada border approximately 22 miles to the Saranac project.
North Country has entered into a gas transportation agreement with Saranac
which expires in June 2024, but which can be terminated by Saranac upon one
year's notice after June 2009. The North Country gas transportation agreement
provides for daily
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<PAGE>
deliveries of gas up to a maximum of 51,000 MMBtu on a firm basis and 5,000
MMBtu on an interruptible basis. The payments made by Saranac under the North
Country gas transportation agreement provide for a recovery of North Country's
costs of acquiring, financing and maintaining its pipeline facilities.
OPERATION AND MAINTENANCE SERVICES
Saranac entered into a 16-year agreement with Falcon Power Operating which
expires in July 2010 for the operation and maintenance of the Saranac project.
The duties of Falcon Power Operating under this agreement include coordinating
day-to-day operations with New York State Electric and Gas and the purchasers
of thermal energy from the Saranac project, performing routine on-line
maintenance and scheduled off-line maintenance, taking corrective action with
respect to any unscheduled outages and providing reports to Saranac regarding
the amount of electricity and thermal energy generated, the volume of fuel
consumed and the level of usage of other utilities. Falcon Power Operating is
paid a fixed monthly management fee of $125,000, adjusted annually for cost of
living increases, and is reimbursed for the direct costs of its services.
Falcon Power Operating is entitled to a bonus or required to pay a penalty
based on the annual availability and heat rate of the Saranac project, provided
that the total bonus or penalty in any year may not exceed 50% of the aggregate
management fees for such year. Saranac may terminate the Saranac operation and
maintenance agreement if, due to Falcon Power Operating's operation of the
Saranac project, the annual availability of the Saranac project is less than
86% of its potential availability or the average annual heat rate exceeds the
maximum rate specified in the agreement. The liability of each of Falcon Power
Operating and Saranac (other than for penalties and bonuses) under the
operation and maintenance agreement is limited to an aggregate amount not to
exceed $1.5 million in excess of any available insurance proceeds.
OWNERSHIP OF PROJECT SITE
Title to the Saranac project and the interests in the land on which it was
constructed are held by the County of Clinton Industrial Development Agency.
Saranac occupies the Saranac project site pursuant to an installment sale
agreement pursuant to which the Clinton IDA has agreed to sell the property to
Saranac for payments equal to the amounts due from the Clinton IDA with respect
to the Saranac project financing documents and other expenses incurred by the
Clinton IDA relating to the Saranac project. The installment sale agreement
will terminate and the property will be conveyed to Saranac in 2024. The
Clinton IDA has entered into a similar installment sale agreement with North
Country with respect to the pipeline facilities used by North Country to
transport gas to the Saranac project, which terminates in 2009.
PROJECT COMPANY OWNERSHIP
Saranac Energy Company, Inc., an indirect wholly-owned subsidiary of
Falcon Seaboard Resources, is the sole general partner of Saranac and also owns
a limited partnership interest in Saranac. The other limited partners in
Saranac are TPC Saranac Partner One, Inc. and TPC Saranac Partner Two, Inc.,
each a wholly-owned indirect subsidiary of Tomen Corporation, and GE Capital.
Below is a chart illustrating the ownership structure for the Saranac project.
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<PAGE>
-----------------
CE Generation,
LLC
-----------------
| 100%
-----------------
Falcon Seaboard
Resources, Inc.
-----------------
| 100%
-----------------
Falcon Seaboard
Power Corporation
-----------------
| 100%
-----------------
SECI Holdings,
Inc.
-----------------
| 100%
----------------- ----------------- -----------------
Saranac Energy
GE Capital TPC Saranac Company, Inc.
----------------- ----------------- -----------------
| | |
---------------------------|---------------------------
| (1)
-----------------
Saranac Power
Partners, L.P.
-----------------
| 100%
-----------------
Saranac Project
-----------------
- ----------
(1) The respective percentages of distributions allocated to Saranac Energy
Company, the TPC Saranac partners and GE Capital are set forth in the
Saranac partnership agreement and described below.
PROJECT FINANCING DEBT
Saranac and the Clinton IDA financed the construction of the Saranac
project with commercial term loans made pursuant to the Saranac credit
agreement. GE Capital, which holds the largest percentage of the debt
outstanding under the Saranac credit agreement, is also a limited partner in
Saranac. As of September 30, 1999, the aggregate principal amount outstanding
under the Saranac credit agreement was $183.1 million. Through swap
arrangements, the interest rate on all of the term loans outstanding under the
Saranac credit agreement has been fixed at a current annual rate of 8.185%,
which will increase to 8.31% in October 2001 and 8.56% in October 2005. In
addition to the outstanding term loans, the Saranac credit agreement provides
for the issuance of up to $20.5 million in letters of credit for Coral Energy
and up to $6.6 million for a letter of credit to secure a debt service reserve
fund to support the Saranac project financing debt. The term loans outstanding
under the Saranac credit agreement mature on March 31, 2008 and are payable in
54 quarterly principal installments which increase in annual aggregate amount
from $6.14 million in 1998 to $34.38 million in 2007.
Collateral. Saranac is jointly and severally liable with the Clinton IDA
on the loans outstanding under the Saranac credit agreement, and the liability
of the Clinton IDA is limited to recourse to the Saranac project. Saranac's
obligations under the Saranac project financing documents are secured by liens
on substantially all of the real and personal property of Saranac.
Limitation on Distributions. Distributions to the Saranac partners may be
made monthly with excess cash flow from the Saranac project, to the extent
permitted by the Saranac partnership agreement, upon satisfaction of the
following conditions: (1) no default or event of default has occurred under the
Saranac project financing documents; (2) all project accounts are fully funded
to their required levels; and (3) the debt service coverage ratio for the
preceding three-month period is at least 1.20 to 1.0. If the debt service
coverage ratio test described in clause (3) immediately above is not satisfied,
all amounts otherwise distributable to the Saranac partners for the next three
months
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<PAGE>
will be retained for application to mandatory prepayment of amounts owing under
the Saranac project financing documents if such debt service coverage ratio
test is not satisfied for six consecutive quarters.
Additional Debt. Saranac is prohibited from incurring debt other than
under the Saranac project financing documents, except for (1) customary trade
debt, (2) debt not to exceed $750,000 incurred in accordance with the approved
Saranac operating budget, (3) debt incurred to redeem the Saranac limited
partnership interest of GE Capital upon specified regulatory events (which debt
must be repaid only from amounts which would otherwise have been distributed to
GE Capital in respect of its Saranac limited partnership interest), (4)
intercompany debt between Saranac and North Country and (5) debt secured by (a)
liens securing the purchase of property in an aggregate principal amount not to
exceed $250,000 and (b) liens in favor of New York State Electric and Gas,
Georgia-Pacific and the Clinton County Development Corp. permitted under the
Saranac project financing documents.
PARTNERSHIP DISTRIBUTIONS
Each of the Saranac partners has an interest in cash distributions by
Saranac which changes when certain after-tax rates of return are achieved by GE
Capital and the TPC Saranac partners on their contributions to Saranac. The
cash distributions of Saranac are divided into three levels: (1) distributions
in fixed amounts payable during the first 15 years of operation of the Saranac
project, which are applied first to pay debt service and other amounts due
under the Saranac project financing documents and any refinancing loans, with
the remainder paid to GE Capital to enable it to achieve a certain base rate of
return; (2) distributions of the Saranac available cash remaining after payment
of the level 1 distributions during the first 15 years of operation of the
Saranac project; (3) distributions after the first 15 years of operation of the
Saranac project. During the first 15 years of operation of the Saranac project,
Saranac Energy will receive 63.51% of the level 2 distributions until TPC
Saranac partners achieve an 8.35% rate of return and, after such return is
achieved (which we expect to occur in 2000), Saranac Energy will receive 81.18%
of the level 2 distributions. After the first 15 years of operation of the
Saranac project, Saranac Energy will receive 68% of the legal 3 distributions
until GE Capital achieves a certain supplemental rate of return and,
thereafter, Saranac Energy will receive 76% of the level 3 distributions.
Distributions which would otherwise be payable to Saranac Energy and the
TPC Saranac partners on a quarterly basis may be required to be retained in a
reserve account established under the Saranac project financing documents. If
the ratio of available cash from the Saranac project to the scheduled level 1
distributions is less than 1.40 to 1.0 for any quarter, all level 2
distributions payable to Saranac Energy will be retained in the reserve
account. If this situation continues for three consecutive quarters, the amount
on deposit in the reserve account will be distributed to GE Capital as an early
level 1 distribution. When the level 1 distribution ratio has been maintained
at 1.40 to 1.0 or greater for three consecutive quarters, the amount on deposit
in the reserve account will be released to Saranac Energy. Amounts otherwise
distributable to Saranac Energy may also be retained in a reserve account if an
event has occurred which if not cured would give GE Capital the right to
replace Saranac Energy as the general partner of Saranac. Such amounts will be
paid to GE Capital if such event is not cured.
SELECTED FINANCIAL INFORMATION
Saranac made distributions to Saranac Energy in 1995, 1996, 1997 and 1998
in the amounts of approximately $13.3 million, $21.7 million, $22.8 million and
$16.2 million, respectively.
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<PAGE>
POWER RESOURCES PROJECT
The Power Resources project is a 200 megawatt natural gas-fired combined
cycle cogeneration facility located near Big Spring, Texas. The Power Resources
project is owned by Power Resources, Inc. and commenced commercial operation in
June 1988. Below is a chart illustrating the commercial structure of the Power
Resources project.
<TABLE>
<S> <C> <C>
- ----------------------------- -----------------------------
PROJECT FINANCING DEBT ------------------------ OPERATION & MAINTENANCE
\ /
\ POWER SALES / FALCON POWER
$79.8 MILLION AS OF 9/99 \ / OPERATING COMPANY
- ----------------------------- \ TEXAS UTILITIES / -----------------------------
\ /
- ----------------------------- \ ------------------------ / -----------------------------
CE GENERATION \ | / STEAM SALES
OWNERSHIP \ ------------------------
FINA OIL AND CHEMICAL
100% ------- ------- COMPANY
- ----------------------------- PROJECT COMPANY -----------------------------
- ----------------------------- POWER RESOURCES, INC. -----------------------------
FUEL SUPPLY ------- ------- WATER SUPPLY
FALCON SEABOARD GAS COMPANY / ------------------------ \
/ \ FINA OIL AND CHEMICAL COMPANY
LOUIS DREYFUS NATURAL / \ COLORADO RIVER WATER DISTRICT
GAS CORPORATION / \ SID RICHARDSON CARBON LTD.
- ----------------------------- / \ -----------------------------
/ \
- ----------------------------- / \ -----------------------------
FUEL TRANSPORTATION SITE LEASE
WESTAR TRANSMISSION FINA OIL AND
SYSTEM CHEMICAL COMPANY
- ----------------------------- -----------------------------
</TABLE>
SALE AND TRANSMISSION OF POWER
POWER RESOURCES POWER PURCHASE AGREEMENT
Power Resources sells capacity and energy to Texas Utilities pursuant to
the Power Resources power purchase agreement. The initial term of the Power
Resources power purchase agreement expires in September 2003. The contract
capacity under the Power Resources power purchase agreements is 200 megawatts.
Texas Utilities' long-term unsecured debt obligations were rated "Baa1" by
Moody's, "BBB" by S&P and BBB+ by Duff & Phelps as of January 1999.
Payments. The Power Resources power purchase agreement provides for
payments by Texas Utilities for capacity and energy produced by the Power
Resources project according to a fixed schedule set forth in the contract. The
capacity and energy rates for the remaining term of the Power Resources power
purchase agreement are as follows:
<TABLE>
<CAPTION>
CAPACITY ENERGY
YEAR ($/KILOWATT/MONTH) (CENTS/KILOWATT-HOUR)
---- ------------------ ---------------------
<S> <C> <C>
1999 ......... 16.24 3.17
2000 ......... 16.81 3.28
2001 ......... 17.40 3.40
2002 ......... 18.00 3.52
2003 ......... 18.63 3.64
</TABLE>
However, for any month in which the rolling 12-month average capacity
factor exceeds 72.5%, Power Resources is paid an energy payment for the billing
kilowatt-hour for the months which are in excess of the 72.5% annual capacity
factor at a rate based on 99% of Texas Utilities' average cost of gas and a
specified heat rate. There is no change in the capacity payment in such
circumstance.
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<PAGE>
Backdown. Texas Utilities has the right to request Power Resources to
backdown generation by up to 200,000 megawatt-hour per year. In addition.
subject to certain constraints, Texas Utilities may request additional
backdown. Over the last five years, Texas Utilities has taken 300,000
megawatt-hour of backdown each year. We believe that 300,000 megawatt-hour
represents the upper limit on annual backdown.
Texas Utilities Purchase Option. Pursuant to the Power Resources power
purchase agreement, Texas Utilities has the option to purchase the Power
Resources project at the end of the contract term. In addition, during the term
of the Power Resources power purchase agreement and for a period of one year
following the expiration thereof, Texas Utilities has a right of first refusal
to purchase the Power Resources project if Power Resources determines to lease,
sell or otherwise dispose of the Power Resources project. The purchase price
will be the agreed-upon appraised fair market value for the Power Resources
project.
Arbitration. Pursuant to the Power Resources power purchase agreement,
disputes regarding replacement of certain integral components of the Power
Resources project (including the generator stator, generator rotor, main power
transformer or steam turbine) and disputes concerning sales of the Power
Resources project assets in connection with Texas Utilities' option to purchase
or right of first refusal are subject to arbitration under the Texas General
Arbitration Act.
INTERCONNECTION
At Power Resources' expense, Texas Utilities modified an existing
switching station and existing transmission facilities and constructed new
transmission facilities in order to facilitate the signing of the Power
Resources power purchase agreement. Power Resources constructed an auxiliary
switchyard and substation to complete the interconnection. The Power
Resources-constructed facilities are required to interconnect with Texas
Utilities' facilities. The interconnection facilities are operated and
maintained by Texas Utilities for a minimal fee payable by Power Resources.
SALE OF THERMAL ENERGY
Power Resources has entered into a 15-year thermal energy purchase
agreement with Fina Oil and Chemical under which Power Resources agrees to
supply Fina with up to 150,000 pounds per hour of process thermal energy for
use in Fina's oil refinery, which is adjacent to the Power Resources project.
Fina returns any resulting thermal energy condensate to the Power Resources
project for re-use. The initial term of the agreement expires in September of
2003, but the agreement is subject to extension upon mutual consent by the
parties. As long as Power Resources meets its supply obligations under the
thermal energy purchase agreement, Fina is required to purchase at least the
minimum amount of thermal energy per year required to allow the Power Resources
project to maintain its qualifying facility status, even if the oil refinery is
closed or if Fina builds its own cogeneration facility. The thermal energy
purchase price is $2.48 per thousand pounds based on a base rate of $2.00
escalating at 2% annually from the commencement of delivery. If Fina closes the
refinery, the purchase price would be 60% of the contractual rate. We believe
that the refinery is critical to Fina's operations and is likely to continue
production through at least the end of the Power Resources power purchase
agreement term in 2003.
FUEL PROCUREMENT
NATURAL GAS SUPPLY
Pursuant to a fuel purchase agreement between Fina and Power Resources,
Power Resources is obligated to purchase, at $2.79 per MMbtu for 1999
escalating by 2% per year thereafter, an average of 3,600 million MMBtu per day
of refinery gas for use in the Power Resources project's combustion turbines.
To meet its additional gas requirements, Power Resources has entered into a gas
purchase agreement with CE Texas Gas, which expires on December 30, 2003. The
contractual rates under this gas purchase agreement are fixed at $2.98 per
MMBtu for 1998 and escalate by 3.0% per year thereafter, plus an annual
reservation fee of $580,842 which also escalates by 3.0% per year. Power
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<PAGE>
Resources pays a fuel transportation charge to CE Texas Gas of $0.075 per MMBtu
for each MMBtu delivered by CE Texas Gas up to an average of 25,000 MMBtu per
day, and $0.06 per MMBtu delivered which exceeds an average of 25,000 MMBtu per
day, calculated on a monthly basis. In order to meet its supply requirements to
Power Resources, CE Texas Gas entered into a gas purchase agreement with Louis
Dreyfus Natural Gas Corporation which expires on October 1, 2003. Under this
agreement, Dreyfus will make available, sell and deliver to CE Texas Gas on a
firm basis, and CE Texas Gas will purchase and receive from Dreyfus on a firm
basis, contracted amounts of gas, allocated among four pricing tiers,
sufficient to meet the operating requirements of the Power Resources project.
If Dreyfus fails to perform under the contract, Dreyfus must reimburse CE Texas
Gas for any additional costs which CE Texas Gas incurs in obtaining the
required natural gas. If CE Texas Gas fails to purchase the agreed amount of
natural gas, it must reimburse Dreyfus for any amount of natural gas that
Dreyfus is unable to resell in the spot market. The first tier of gas
deliveries are made according to a fixed price which is $2.23 per MMBtu in 1999
and which incrementally increases to $2.51 per MMBtu in 2003 for up to 31,200
MMBtu per day. The second tier quantities are set at the West Texas spot price
plus 5 cents per MMBtu for up to an additional 3,000 MMBtu per day. The third
tier of purchases is for up to an additional 15,000 MMBtu per day, and prices
for the third and fourth tiers are negotiated between Dreyfus and Power
Resources.
NATURAL GAS TRANSPORTATION
Under the terms of the Dreyfus gas purchase agreement, Dreyfus will
deliver gas into various interconnection points of the Westar Transmission
System. CE Texas Gas has entered into long-term transmission agreements with
Westar for the delivery of gas to the Power Resources project. Under these gas
transportation agreements, CE Texas Gas pays been $0.06 and $0.12 per MMBtu to
transport the gas, depending on the point of entry into the Westar pipeline
system. Such agreements are effective until September 30, 2003.
WATER SUPPLY
In addition to the thermal energy condensate returned to the Power
Resources project by Fina under the thermal energy purchase agreement, the
Power Resources project receives up to 155 gallons of water per minute from the
Colorado Municipal Water District under an agreement which expires in September
2003 and up to 65 gallons of water per minute from Sid Richardson Carbon
Limited under an agreement which expires in April 2007. The rate paid by Power
Resources under the Colorado Municipal Water District agreement is the same
rate as that charged to the City of Big Spring, Texas for water supply, subject
to a minimum of $0.60 per thousand gallons. Power Resources pays a rate of
$1.08 (escalated at 3% annually) per thousand gallons under the Sid Richardson
Carbon Limited agreement, so long as the water provided satisfies certain
conductivity standards.
OPERATION AND MAINTENANCE SERVICES
Operation and maintenance services for the Power Resources project are
provided by Falcon Power Operating under an operation and maintenance agreement
which expires in January 2004. Falcon Power Operating is obligated to provide
all services, personnel, insurance and materials necessary to operate and
maintain the Power Resources project in accordance with prudent operating
practices and contractual requirements. Power Resources is obligated to
reimburse Falcon Power Operating on a monthly basis for operating costs and pay
Falcon Power Operating an operator fee. The fee is subject to adjustment for
operating bonuses or liquidated damages based on the Power Resources project's
capacity factor. The operator fee is $1.14 million annually as of 1998, which
fee is comprised of a management fee of $0.24 million per year (with no
escalation) and an operating fee of $0.9 million in 1998, escalating at 3.5%
per year.
USE OF PROJECT SITE
Power Resources leases the real property on which the Power Resources
project is located from Fina for a nominal rent pursuant to a lease agreement
which expires on November 21, 2004. The term
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<PAGE>
of the lease may be extended for an additional 15-year period at Power
Resources' option and will be automatically extended for such additional period
if Power Resources and Fina elect to extend the term of the thermal energy
purchase agreement. Power Resources has a right of first refusal under the
lease agreement if Fina receives an offer to purchase all or any portion of the
leased property. Except in certain limited circumstances, either party may
terminate the lease agreement upon an event of default by the other party under
the thermal energy purchase agreement. In addition, Power Resources owns the
fee title to a number of parcels of land adjacent to the property leased from
Fina on which are located certain related support facilities. Power Resources
has the benefit of certain non-exclusive easements over property adjacent to
the Power Resources project pursuant to an easement agreement with Fina. These
easements include the right of pedestrian access, railway access, storm water
drainage, waterline services and wastewater connection to the existing salt
water disposal well.
Power Resources also pays an annual fee of $39,753 to the City of Big
Spring, Texas in lieu of property taxes pursuant to an agreement under which
the Power Resources project and the Fina refinery are deemed to be located
outside of the City's jurisdiction. This agreement expires in December 2003.
PROJECT COMPANY OWNERSHIP
Falcon Seaboard Oil owns all of the capital stock of Power Resources and
is wholly owned by Falcon Seaboard Resources. Falcon Seaboard Resources is a
wholly-owned subsidiary of ours. Below is a chart illustrating the ownership
structure for the Power Resources project.
-----------------
CE Generation,
LLC
-----------------
| 100%
-----------------
Falcon Seaboard
Resources, Inc.
-----------------
| 100%
-----------------
Falcon Seaboard
Oil Company
-----------------
| 100%
-----------------
Power
Resourecs, Inc.
-----------------
| 100%
-----------------
PRI Project
-----------------
PROJECT FINANCING DEBT
Power Resources financed the construction of the Power Resources project
with commercial loans made by a consortium of banks pursuant to the Power
Resources credit agreement. As of September 30, 1999, the aggregate principal
amount of debt outstanding under the Power Resources credit agreement was $79.8
million. Through swap arrangements, the interest rate on two-thirds of the
loans has been fixed at a current annual rate of 10.625% and the interest rate
on the remaining one-third of the loans has been fixed at 10.385%. After 2001,
all of the loans will bear interest at a fixed rate of 10.635%.
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<PAGE>
Collateral. Power Resources' obligations under its project financing
documents are secured by the following collateral:
o an assignment of all revenues received by Power Resources from the
operation of the Power Resources project;
o a lien on substantially all of the real and personal property of Power
Resources; and
o a pledge of the capital stock of Power Resources.
Limitation on Distributions. Power Resources may make distributions to
Falcon Seaboard Oil with excess cash flow from the Power Resources project upon
satisfaction of the following conditions: (1) all project accounts are fully
funded to their required levels; (2) no default or event of default has
occurred and is continuing under the Power Resources project financing
documents; and (3) the historical quarterly debt service coverage ratio is at
least 1.20 to 1.0. If the historical debt service coverage ratio is at least
1.17 to 1.0 but less than 1.19 to 1.0, distributions may be made with 50% of
the excess cash flow from the Power Resources project; if the historical debt
service coverage ratio is at least 1.15 to 1.0 but less than 1.17 to 1.0,
distributions may be made with 40% of the excess cash flow from the Power
Resources project; if the historical debt service coverage ratio is at least
1.13 to 1.0 but less than 1.15 to 1.0, distributions may be made with 30% of
the excess cash flow from the Power Resources project; if the historical debt
service coverage ratio is at least 1.1 to 1.0 but less than 1.13 to 1.0,
distributions may be made with 20% of the excess cash flow from the Power
Resources project; and if the historical debt service coverage ratio is at
least 1.1 to 1.0, distributions may be made with 10% of the excess cash flow
from the Power Resources project.
SELECTED FINANCIAL INFORMATION
Power Resources made distributions to Falcon Seaboard Oil in 1995 in the
amount of approximately $5.6 million, in 1996 in the amount of approximately
$300,000 and in 1997 in the amount of approximately $1.5 million.
76
<PAGE>
NORCON PROJECT
The NorCon project is an 80 megawatt natural gas-fired combined cycle
cogeneration facility located in North East, Pennsylvania. The NorCon project
is owned by NorCon Power Partners, LP and commenced commercial operation in
December 1992. Below is a chart illustrating the commercial structure of the
NorCon project.
- ------------------------- ------------------------
PROJECT FINANCING DEBT ----------------- OPERATION & MAINTENANCE
POWER SALES
\ / FALCON POWER
$98.4 MILLION AS OF 9/99 \ NIAGARA MOHAWK / OPERATING COMPANY
- ------------------------- \ ----------------- / ------------------------
\ | /
- ------------------------- \ ----------------- / ------------------------
OWNERSHIP PROJECT COMPANY STEAM SALES
CE GENERATION ----- NORCON POWER
TOMEN PARTNERS, LP WELCH FOODS, INC.
- ------------------------- / ----------------- \ ------------------------
/ \
- ------------------------- / \ ------------------------
FUEL SUPPLY / \ FUEL TRANSPORTATION
/ \
LOUIS DREYFUS NATURAL NATIONAL FUEL GAS
GAS MARKETING CORPORATION SUPPLY CORPORATION
- ------------------------- ------------------------
SALE AND TRANSMISSION OF POWER
NORCON POWER PURCHASE AGREEMENT
NorCon sells capacity and energy to Niagara Mohawk pursuant to the NorCon
power purchase agreement. The NorCon power purchase agreement expires in
December 2017. The contract capacity under the NorCon power purchase agreement
is 80 megawatts. Niagara Mohawk's long-term unsecured debt obligations were
rated "Ba2" by Moody's and "BB+" by S&P as of January 1999.
Payments. The payments to be made by Niagara Mohawk under the NorCon power
purchase agreement are determined according to which of three time periods is
currently in effect.
First Period. During the first period, which ended in July 1996, Niagara
Mohawk paid 6 cents per kilowatt-hour until the balance in the cumulative
avoided cost account decreased to zero. The cumulative avoided cost account
tracks the theoretical difference in actual payments under the NorCon power
purchase agreement and the payments NorCon would have received if it were
compensated at rates equivalent to Niagara Mohawk's long-run avoided cost (as
calculated in 1988).
Second Period. During the second period, which will end on the fifteenth
anniversary of the initial delivery of electricity under the NorCon power
purchase agreement (December 2007), Niagara Mohawk will pay a rate equivalent
to 95% of Niagara Mohawk's ongoing tariff avoided cost, subject to a floor of
90% of the contractual long-run avoided cost and a ceiling of 110% of the
contractual long-run avoided cost. During the second period, the variance
between 95% of Niagara Mohawk's tariff avoided cost and the actual rate paid
will be credited or debited to the adjustment account. Balances in the
cumulative avoided cost account and the adjustment account will accrue interest
at a rate of 11% per annum.
Third Period. The third period begins immediately after the end of the
second period and ends on the twenty-fifth anniversary of the initial delivery
of electricity under the NorCon power purchase agreement. During the third
period, Niagara Mohawk will pay a rate equivalent to 90% of its tariff avoided
cost. If, during the third period there exists a balance in the adjustment
account, then the rate paid to NorCon will be adjusted according to a formula
contained in the NorCon power purchase
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<PAGE>
agreement designed to reduce the balance in the adjustment account through the
end of the contract term. The party owing a balance at the end of the term of
the NorCon power purchase agreement is required to make a payment to the other
party.
Dispatch. Pursuant to an amendment to the NorCon power purchase agreement,
Niagara Mohawk has limited dispatch rights and, if Niagara Mohawk exercises
such rights, Niagara Mohawk is required to make payments to NorCon.
Security. In order to secure the operation of the NorCon project and the
balance in the adjustment account during the second period, NorCon has granted
a second security interest in the NorCon project to Niagara Mohawk to the
extent of any positive balance in the adjustment account.
INTERCONNECTION
NorCon owns and maintains the 7.3 miles of 115 kilovolt transmission line
from the NorCon project to Niagara Mohawk's South Ripley substation.
SALE OF THERMAL ENERGY
NorCon and Welch have entered into a thermal energy purchase agreement
pursuant to which Welch Foods purchases from NorCon thermal energy for use in
its grape processing plant, which is adjacent to the NorCon project. The base
term of the agreement ends in December 2012. In conjunction with the execution
of the NorCon thermal energy purchase agreement, NorCon constructed an ammonia
refrigeration plant to provide refrigeration as well as thermal energy to
Welch. Welch is required to purchase at least the minimum amount of thermal
energy per year required to maintain the NorCon project's qualifying facility
status. If NorCon fails to deliver thermal energy, it will be liable for
liquidated damages, limited to $10,000 per occurrence. NorCon's aggregate
liability over the term of the NorCon thermal energy purchase agreement is
subject to an escalating cap, which starts at $2.0 million and increases to
$3.2 million by the twentieth year of the contract. Welch also has the right to
suspend purchases of thermal energy if NorCon does not meet specified thermal
energy reliability requirements. NorCon has constructed an auxiliary boiler to
provide a backup thermal energy supply.
Welch must provide at least two years notice to NorCon if it considers
closing its grape processing facility and at least 18 months notice of its
actual intent to close or cease the facility's operations. If Welch provides
such notice, it is obligated to provide land to NorCon for construction of an
alternate thermal energy host. We believe that the Welch facility is likely to
continue production for the full term of the NorCon thermal energy purchase
agreement.
FUEL PROCUREMENT
NATURAL GAS SUPPLY
NorCon and Dreyfus have entered into a gas sale and purchase agreement
whereby Dreyfus is required to sell and deliver to NorCon a daily contract
quantity of natural gas on a firm basis up to 16,820 MMBtu per day for a period
of 15 years. The term of the agreement ends in December 2007. The daily
contract quantity is expected to fulfill 100% of the NorCon project's fuel
requirements. The purchase price for gas was $3.84/MMBtu (in 1998), which
escalates at 7% per year and includes transportation charges. NorCon is
obligated to purchase at least 90% of the daily contract quantity on an annual
basis.
NATURAL GAS TRANSPORTATION
NorCon has entered into a 20-year gas transportation agreement with
National Fuel Gas Supply Corporation to provide transportation of gas to the
NorCon project. Dreyfus is responsible for delivering gas to National Fuel Gas
and is obligated to reimburse NorCon for transportation charges pursuant to the
gas sale and purchase agreement described above.
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<PAGE>
OPERATION AND MAINTENANCE SERVICES
NorCon has entered into an operation and maintenance agreement with Falcon
Power Operating which provides for the operation and maintenance by Falcon
Power Operating of the NorCon project for a term which expires in December
2008. Pursuant to this agreement, Falcon Power Operating is obligated to
provide all services, personnel and materials necessary to operate and maintain
the NorCon project in accordance with prudent operating practices and
contractual requirements. NorCon is obligated to reimburse Falcon Power
Operating on a monthly basis for operating costs, and also pays Falcon Power
Operating a monthly fee, which totaled $828,000 in 1998, and which escalates in
accordance with an inflation-based index each year.
OWNERSHIP OF PROJECT SITE
NorCon owns the site of the NorCon project in fee. In addition, the
adjacent site of the NorCon refrigeration plant is leased to NorCon from Welch.
Non-exclusive easements over adjoining properties were granted by Welch in
order to allow the NorCon refrigeration plant to be interconnected with the
Welch grape processing plant. The lease has an initial term of 20 years, but
may be extended for a period coterminous with any extension of the NorCon
thermal energy purchase agreement upon terms to be agreed between NorCon and
Welch.
PROJECT COMPANY OWNERSHIP
Northern Consolidated, an indirect wholly-owned subsidiary of Falcon
Seaboard Power, is the sole general partner of NorCon and owns a limited
partnership interest in NorCon. The other limited partner in NorCon is TPC
NorCon, Inc., a wholly-owned subsidiary of Tomen Power Corporation. Below is a
chart illustrating the ownership structure for the NorCon project.
- --------------------- ---------------------
Tomen Power CE Generation,
Corporation LLC
- --------------------- ---------------------
| | 100%
| ---------------------
| Falcon Seaboard
| Resources, Inc.
| ---------------------
| | 100%
| ---------------------
| Falcon Seaboard
| Power Corporation
| ---------------------
| | 100%
| ---------------------
| NorCon
| Holdings, Inc.
| 100% ---------------------
| | 100%
- --------------------- ---------------------
Northern Consolidated
TPC NorCon Inc. Power, Inc.
- --------------------- ---------------------
| |
---------------------------------------------------------
| (1)
---------------------
NorCon Power
Partners, LP
---------------------
| 100%
---------------------
NorCon Project
---------------------
- ----------
(1) The respective percentages of distributions allocated to Northern
Consolidated and TPC NorCon are set forth in the NorCon partnership
agreement.
PROJECT FINANCING DEBT
NorCon financed the construction of the NorCon project with senior and
subordinated terms loans made by GE Capital under the NorCon credit agreement.
As of September 30, 1999, the
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<PAGE>
aggregate principal amount of debt outstanding under the NorCon credit
agreement was $98.4 million. Through swap arrangements, the interest rate on
the senior debt has been fixed at a rate of 8.90% through December 31, 2002 and
9.15% thereafter. The interest rate on the subordinated debt has been fixed at
13.967%. The NorCon credit agreement also provides for a letter of credit
facility of $3 million for use by NorCon to satisfy its obligation to provide
credit support under the National Fuel Gas transportation agreement.
Mandatory Prepayment; Priority Payment to GE Capital. In the event that on
a payment date during the second period under the NorCon power purchase
agreement either the scheduled debt service coverage ratio or the forecasted
debt service coverage ratio is less than 1.15 to 1.0, then 100% of cash flow
after total debt service will be used to prepay the junior debt. Commencing in
February 1999, GE Capital may apply 100% of excess cash flow to the prepayment
of the loans under circumstances set forth in the NorCon credit agreement. In
addition, GE Capital will receive a special payment equal to 20% of the sum of
the available cash flow after total debt service plus operation and maintenance
fees for the duration of the term loans prior to the making of distributions to
the NorCon partners.
Collateral. NorCon's obligations under the NorCon project financing
documents are secured by the following collateral:
o an assignment of all revenues received by NorCon from the operation of
the NorCon project;
o a lien on substantially all of the real and personal property of
NorCon; and
o a pledge of the partnership interests in NorCon and the stock of
Northern Consolidated.
Limitation on Distributions. Subject to the provisions described above for
mandatory prepayment, NorCon may make distributions to the NorCon partners with
excess cash flow from the NorCon project upon satisfaction of the following
conditions:
o all project accounts are fully funded to their required levels;
o no default or event of default has occurred and is continuing under
the NorCon project financing documents;
o the historical debt service coverage ratio is at least 1.15 to 1.0;
and
o the projected debt service coverage ratio is at least 1.15 to 1.0.
PARTNERSHIP DISTRIBUTIONS
The NorCon partners' rights to allocations of pretax cash flows from
NorCon vary over the life of the NorCon project. The nominal ownership of
NorCon is currently divided into a 1% general partnership interest held by
Northern Consolidated and 99% limited partnership interests divided between TPC
NorCon and Northern Consolidated. Allocations prior to the date on which TPC
NorCon achieves a pre-tax return of 16.5% on equity are 80% to TPC NorCon and
20% to Northern Consolidated. After this date, the allocations are 20% to TPC
NorCon and 80% to Northern Consolidated.
SELECTED FINANCIAL INFORMATION
NorCon made distributions to Northern Consolidated in 1995, 1996, 1997 and
1998 in the amounts of approximately $84,000, $26,000, $1.2 million and
$732,000, respectively.
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<PAGE>
YUMA PROJECT
The Yuma project is a 50 megawatt natural gas-fired combined cycle
cogeneration facility located in Yuma, Arizona. The Yuma project is owned by
Yuma Cogeneration and commenced commercial operation in May 1994. Below is a
chart illustrating the commercial structure of the Yuma project.
<TABLE>
<S> <C> <C>
- ----------------------- -----------------------
PROJECT FINANCING DEBT ------------------------ TRANSMISSION
POWER SALES
\ / ARIZONA PUBLIC SERVICE
NONE \ SAN DIEGO GAS & ELECTRIC / COMPANY
- ----------------------- \ ------------------------ / -----------------------
\ | /
- ----------------------- \ ------------------------ / -----------------------
CE GENERATION \ PROJECT COMPANIES / OPERATION & MAINTENANCE
OWNERSHIP
------ YUMA COGENERATION ------ FALCON POWER OPERATING
100% ASSOCIATES COMPANY
- ----------------------- / ------------------------ \ -----------------------
/ | \
- ----------------------- / ------------------------ \ -----------------------
FUEL SUPPLY / FUEL TRANSPORTATION \ STEAM SALES
/ \
SOUTHWEST GAS / SOUTHWEST GAS \
CORPORATION CORPORATION QUEEN CARPET
- ----------------------- ------------------------ -----------------------
</TABLE>
SALE AND TRANSMISSION OF POWER
YUMA POWER PURCHASE AGREEMENT
Yuma Cogeneration sells capacity and energy to San Diego Gas & Electric
pursuant to the Yuma power purchase agreement. The Yuma power purchase
agreement is a standard offer no. 2 contract and expires in May 2024. The
contract capacity under the Yuma power purchase agreement is 50 megawatts. San
Diego Gas & Electric's long-term unsecured debt obligations were rated "A2" by
Moody's, "A+" by S&P and "A+" by Duff & Phelps as of January 1999.
Payments. Under the Yuma power purchase agreement, Yuma Cogeneration sells
power to San Diego Gas & Electric at the utility's avoided cost of energy. Yuma
Cogeneration may deliver up to 56.5 megawatts of energy to San Diego Gas &
Electric at these rates. The average price of energy under the Yuma power
purchase agreement was 3.0 cents per kilowatt-hour in 1998. Payments for
capacity are fixed at $140 per kilowatt-year from 1999 to the end of the Yuma
power purchase agreement term. Yuma Cogeneration is eligible for capacity bonus
payments of up to approximately 18% of the contract capacity if it maintains
availability in excess of 85% during the on-peak hours of the peak months
(excluding curtailment). We expect bonus capacity payments to be $22 per
kilowatt-year.
Curtailment. San Diego Gas & Electric is not required to accept or
purchase energy from the Yuma project for a maximum of 900 flexible hours and
400 block hours (in one 400 hour block or two 200 hour blocks) through year
nine, 1,400 flexible hours and 400 block hours through year 15, and 2,200
flexible hours and 400 block hours through year 30. During curtailments, Yuma
Cogeneration is free to sell power into the open market.
TRANSMISSION AND INTERCONNECTION
Power from the Yuma project is wheeled over transmission lines constructed
and owned by Arizona Public Service Company to the Southwest Power Link, a high
voltage 500 kilovolt bulk transmission line in which San Diego Gas & Electric
owns a majority interest. An agreement for
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<PAGE>
interconnection, a firm transmission service agreement and an interruptible
transmission agreement have been executed between Arizona Public Service
Company and Yuma Cogeneration. Wheeling fees are $1.52 per kilowatt-month (no
escalation) plus $50,000 per year through the term of the contracts. Yuma
Cogeneration pays a transmission services charge of $0.002082 per kilowatt-hour
(no escalation) under the interruptible transmission agreement. Pursuant to the
firm transmission agreement, Arizona Public Service Company reserves 50.85
megawatts of its transmission capacity for power from the Yuma project. Both
the firm and interruptible transmission agreements expire on December 31, 2024.
SALE OF THERMAL ENERGY
Yuma Cogeneration has entered into a thermal energy sales agreement with
Queen Carpet, Inc. Queen Carpet was recently acquired by Shaw Industries, Inc.
of Dalton, Georgia, the largest tufted carpet manufacturer in the world. Queen
Carpet has the right to terminate the agreement upon one year's notice if a
change in its technology eliminates its need for thermal energy, and in any
case to terminate the agreement at any time upon three years notice. Otherwise,
the agreement expires on May 1, 2024. Queen Carpet is obligated to take a
minimum annual amount of 126,900 MMBtu per year, which is sufficient to permit
the Yuma project to meet its thermal energy requirements for qualifying
facility status. Yuma Cogeneration delivers thermal energy for use in Queen
Carpet's manufacturing process as well as for absorption chillers. The price of
thermal energy delivered for use in air conditioning is equal to 75% of Queen
Carpet's net avoided energy cost of producing chilled water. The price of
thermal energy used for textile manufacturing is 75% of the price of natural
gas purchased from the nearest available gas utility by a comparable industrial
customer. For 1998, the total thermal energy revenues were approximately
$718,000.
FUEL PROCUREMENT
Under the terms of the gas purchase agreement between Yuma Cogeneration
and Southwest Gas Corporation, Yuma Cogeneration may direct Southwest Gas to
purchase gas on its behalf and transport it to the Yuma project under the CG-30
tariff. This agreement allows Yuma Cogeneration to nominate gas from any one of
several surrounding supply basins and to receive such gas at the price of the
relevant index without a basis spread. The CG-30 tariff agreement can be
terminated by either party after June 26, 2002. If terminated, Yuma
Cogeneration will return to the CT-I transportation-only tariff, under which
Yuma Cogeneration purchases gas in the open market on its own behalf and
Southwest Gas arranges transportation. Under the CG-30 arrangement, Yuma
Cogeneration pays a $15,000 per month service charge to Southwest Gas. The
monthly service charge under the CT-I arrangement is $5,725.
OPERATION AND MAINTENANCE SERVICES
In connection with the offering of the old Securities, Yuma Cogeneration
operating personnel who had previously been employed by MidAmerican were
assigned to Falcon Power Operating, which entered into a long-term operation
and maintenance agreement with Yuma Cogeneration to provide operation and
maintenance services for the Yuma project on a cost of service basis.
OWNERSHIP OF PROJECT SITE
Yuma Cogeneration owns the fee title to the land on which the Yuma project
is located and has the benefit of associated easement rights for irrigation
purposes over adjacent land.
PROJECT COMPANY OWNERSHIP
Yuma Cogeneration is 50% owned by each of California Energy Development
and California Energy Yuma Corporation. We own all of the outstanding capital
stock of California Energy Development and California Energy Development owns
all of the capital stock of California Energy Yuma. Below is a chart
illustrating the ownership structure for the Yuma project.
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<PAGE>
- -----------------------
CE Generation,
LLC
- -----------------------
| 100%
- ----------------------- -----------------------
California Energy 100% California Energy
Development Corporation -------------------------------- Yuma Corporation
- ----------------------- -----------------------
| |
---------------------------------------------------------
50% | 50%
-----------------------
Yuma Cogeneration
Associates
-----------------------
| 100%
-----------------------
Yuma Project
-----------------------
YUMA INDEBTEDNESS
The Yuma project was financed in part by a loan from MidAmerican, which
received a note from Yuma Cogeneration. A portion of the net proceeds of the
initial offering were used to repay MidAmerican for the outstanding principal
and accrued interest on the Yuma Cogeneration note of approximately $47.7
million and $1.3 million. Yuma Cogeneration does not now have any outstanding
indebtedness for borrowed money.
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<PAGE>
OTHER SOURCES OF AVAILABLE CASH FLOW
GAS SUPPLY ARRANGEMENTS
CE Texas Gas sells natural gas to Power Resources pursuant to its natural
gas purchase agreement with Power Resources and obtains the necessary gas
supply from Dreyfus pursuant to its gas purchase agreement with Dreyfus. The
term of each of these contracts expires in 2003. Dividends paid by CE Texas Gas
to its sole owner, CE Texas Energy, as a result of profits earned in connection
with these gas supply arrangements are included in CE Texas Energy's available
cash flow. In 1996 CE Texas Gas made distributions to CE Texas Energy of
approximately $4.2 million. In 1997 CE Texas Gas made distributions to CE Texas
Energy of approximately $4.5 million. In 1998 CE Texas Gas made distributions
to CE Texas Energy of approximately $8.8 million.
MAMMOTH ROYALTY
In addition to its ownership interests in the Imperial Valley projects,
Magma has rights to royalties from the 10 megawatt and 12 megawatt geothermal
power generating facilities owned by Mammoth-Pacific, L.P. and located in Mono
County, California. The amounts of the royalties are 12.5% and 12% of gross
proceeds, respectively. In 1996 Magma received total royalties from these
projects of approximately $1,939,000. In 1997 Magma received total royalties
from these projects of approximately $2,153,000. In 1998 Magma received total
royalties from these projects of approximately $2,284,000.
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<PAGE>
DESCRIPTION OF THE SECURITIES
The following is a description of important provisions of the Securities.
The following information does not purport to be a complete description of the
Securities and is subject to, and qualified in its entirety by, reference to
the Securities and the indenture. Unless otherwise specified, the following
description applies to all of the Securities.
GENERAL
The old Securities were, and the new Securities will be, direct senior
obligations of ours, issued under the indenture for the Securities and secured
by the collateral. The old Securities were issued in fully registered form and
in denominations of $100,000 and any integral multiple of $1,000 in excess
thereof.
The indenture provides for the issuance of the Securities and other series
of senior notes or Securities as from time to time may be authorized by us,
subject to the limitations set forth in the indenture.
PRINCIPAL AMOUNT, INTEREST RATE AND FINAL MATURITY DATE
The old Securities were and the new Securities will be issued in a single
series in the aggregate principal amount of $400 million, bearing interest from
their date of issuance at 7.416% per annum and finally maturing on December 15,
2018.
PAYMENT OF INTEREST AND PRINCIPAL
INTEREST
Interest on the Securities is payable semiannually in arrears on each June
15 and December 15 to the registered holders thereof at the close of business
on the June 1 or December 1, as the case may be, preceding such date. Interest
will be calculated on the basis of a 360-day year, consisting of twelve 30-day
months.
PRINCIPAL
The principal of the Securities will be payable in semiannual
installments, commencing June 15, 2000, as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL AMOUNT
PAYMENT DATE PAYABLE
------------ -------
<S> <C>
December 15, 1999 ......... 0.000%
June 15, 2000 ............. 1.300%
December 15, 2000 ......... 1.300%
June 15, 2001 ............. 1.575%
December 15, 2001 ......... 1.575%
June 15, 2002 ............. 2.575%
December 15, 2002 ......... 2.575%
June 15, 2003 ............. 2.250%
December 15, 2003 ......... 2.250%
June 15, 2004 ............. 1.825%
December 15, 2004 ......... 1.825%
June 15, 2005 ............. 1.850%
December 15, 2005 ......... 1.850%
June 15, 2006 ............. 2.400%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL AMOUNT
PAYMENT DATE PAYABLE
------------ -------
<S> <C>
December 15, 2006 ......... 2.400%
June 15, 2007 ............. 2.250%
December 15, 2007 ......... 2.250%
June 15, 2008 ............. 3.525%
December 15, 2008 ......... 3.525%
June 15, 2009 ............. 3.075%
December 15, 2009 ......... 3.075%
June 15, 2010 ............. 1.775%
December 15, 2010 ......... 1.775%
June 15, 2011 ............. 1.900%
December 15, 2011 ......... 1.900%
June 15, 2012 ............. 2.560%
December 15, 2012 ......... 2.560%
June 15, 2013 ............. 2.550%
December 15, 2013 ......... 2.550%
June 15, 2014 ............. 3.225%
December 15, 2014 ......... 3.225%
June 15, 2015 ............. 3.380%
December 15, 2015 ......... 3.380%
June 15, 2016 ............. 3.660%
December 15, 2016 ......... 3.660%
June 15, 2017 ............. 3.780%
December 15, 2017 ......... 3.780%
June 15, 2018 ............. 4.545%
December 15, 2018 ......... 4.545%
</TABLE>
REDEMPTION OF THE SECURITIES
REDEMPTION GENERALLY
We are permitted to redeem the Securities prior to the maturity date
therefor upon terms and subject to conditions contained in the indenture. We
are obligated to redeem all or a portion of the Securities prior to their
maturity date, in accordance with terms and subject to conditions contained in
the indenture.
NOTICE TO TRUSTEE
Our election or requirement to redeem any Securities will be evidenced by
our written request. If we elect to redeem all or a portion of the Securities
in accordance with terms set forth in the indenture, we will deliver to the
trustee, at least 30 days prior to the date by which notice of redemption is
required to be given to the holders of the Securities (or such shorter period
as may be agreed by the trustee), a written request specifying the date on
which the redemption will occur and the principal amount of Securities to be
redeemed. If we are required to redeem all or a portion of the Securities in
accordance with the terms of the indenture, we will deliver to the trustee,
immediately upon the occurrence of the event resulting in the obligation to
redeem, a written request specifying the principal amount of Securities to be
redeemed, the price at which the Securities will be redeemed, the applicable
yield maintenance premium (if any), the paragraph of the indenture, pursuant to
which the Securities are being redeemed and the redemption date for such
redemption, which redemption date will be within 90 days of the occurrence of
the event resulting in the obligation to redeem.
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<PAGE>
NOTICE TO HOLDERS OF THE SECURITIES
Notice of any optional or mandatory redemption must be given to the
holders of Securities at least 30 but not more than 60 days prior to the
applicable redemption date. Each notice of redemption is required to set forth,
among other information:
o the redemption date;
o the redemption price and any applicable yield maintenance premium;
o if less than all outstanding Securities are to be redeemed, the
identification of the particular Securities to be redeemed and the
aggregate principal amount of Securities to be redeemed;
o in the case of Securities to be redeemed in part, the principal amount
of those Securities to be redeemed and a statement to the effect that
after the redemption date, upon surrender of those Securities, new
Securities in the aggregate principal amount equal to the unredeemed
portion thereof will be issued;
o the place where Securities subject to redemption are to be surrendered
for payment of the redemption price; and
o a statement to the effect that the availability in a special purpose
trust fund established pursuant to the indenture for redemption of the
Securities on the redemption date of an amount of immediately
available funds sufficient to pay the redemption price and any
applicable yield maintenance premium in full is a condition precedent
to the redemption described in such notice.
SECURITIES PAYABLE ON REDEMPTION DATE
The Securities or portions thereof to be redeemed will become due and
payable on the redemption date, and from and after the redemption date those
Securities or the portions thereof will cease to bear interest. Upon surrender
of any Security for redemption, that Security or the portion thereof we will
pay and redeem at the redemption price plus any applicable yield maintenance
premium. However, any payment of interest on any Security the payment date of
which is on or prior to the redemption date will be payable to the holder of
the Securities registered as such at the close of business on the relevant
record date according to the terms of the indenture and the Security. If less
than all the Securities are to be redeemed, the trustee will redeem the
Securities on a pro rata basis among the outstanding Securities not previously
called for redemption in whole.
OPTIONAL REDEMPTION
The Securities will be subject to our optional redemption, in whole or in
part, at any time on any business day, at a price equal to the redemption price
plus the yield maintenance premium.
The yield maintenance premium for the Securities is an amount equal to the
discounted present value calculated for any Security subject to redemption less
the unpaid principal amount of the Security. The discounted present value of
any Security subject to redemption will be equal to the discounted present
value of all principal and interest payments scheduled to become due on the
Security after the date of redemption, calculated using a discount rate equal
to the sum of (1) the yield to maturity on the United States Treasury security
having an average life equal to the remaining average life of the Security and
trading in the secondary market at the price closest to par and (2) 50 basis
points. However, if there is no United States treasury security having an
average life equal to the remaining average life of the Security, the discount
rate will be calculated using a yield to maturity interpolated or extrapolated
on a straight-line basis (rounding to the nearest month, if necessary) from the
yields to maturity for two United States treasury securities having average
lives most closely corresponding to the remaining average life of the Security
and trading in the secondary market at the price closest to par. The yield
maintenance premium will never be less than zero.
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<PAGE>
MANDATORY REDEMPTION--AT PAR
EVENT OF LOSS
If any Assignor receives available cash flow in excess of $15 million from
one or more distributions of loss proceeds by a project company in connection
with the damage or destruction of all or a portion of the Assignor's project,
that available cash flow will be used to redeem Securities at a price equal to
the redemption price.
EXPROPRIATION EVENT
If any Assignor receives available cash flow in excess of $15 million from
one or more distributions of expropriation proceeds by a project company in
connection with a governmental authority's compulsory taking or transfer or the
threat of a governmental authority's compulsory taking or transfer of the
Assignor's project, that available cash flow will be used to redeem Securities
at a price equal to the redemption price.
TITLE EVENT
If any Assignor receives available cash flow in excess of $15 million from
one or more distributions of title proceeds by a project company in connection
with a defect in the title to the land on which the Assignor's project is
located, that available cash flow will be used to redeem Securities at a price
equal to the redemption price.
PERMITTED POWER CONTRACT BUY-OUT
If any Assignor receives available cash flow in excess of $15 million from
one or more distributions of buy-out proceeds by a project company in
connection with one or more permitted power contract buy-outs permitted under
the project financing documents, such available cash flow will be used to
redeem the Securities, at a price equal to the redemption price, in an amount
equal to the lesser of (1) 100% of such available cash flow or (2) the amount
which will cause each rating agency to confirm that, after giving effect to
such redemption, the rating assigned to the Securities by the rating agency
will be equal to or better than the higher of (a) the existing rating assigned
to the Securities by the rating agency or (b) the initial rating assigned to
the Securities by the rating agency.
MANDATORY REDEMPTION--WITH YIELD MAINTENANCE PREMIUM
PROJECT FINANCING OR PROJECT DEBT REFINANCING
If any Assignor receives available cash flow in excess of $15 million from
one or more distributions of refinancing proceeds by a project company in
connection with one or more project financings or project debt refinancings
with respect to the Assignor's project company, that available cash flow will
be used to redeem the Securities, at a price equal to the redemption price plus
the yield maintenance premium, in an amount equal to the lesser of (1) 100% of
the available cash flow or (2) the amount which will cause each rating agency
to confirm that, after giving effect to such redemption, the rating assigned to
the Securities by the rating agency will be equal to or better than the higher
of (a) the existing rating assigned to the Securities by the rating agency or
(b) the initial rating assigned to the Securities by the rating agency.
ASSET SALE
If any Assignor receives available cash flow in excess of $15 million from
one or more distributions of asset sale proceeds by a project company in
connection with one or more asset sales with respect to the Assignor's project
company, that available cash flow will be used to redeem the Securities, at a
price equal to the redemption price plus the yield maintenance premium, in an
amount equal to the lesser of (1) 100% of the available cash flow or (2) the
amount which will cause each
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rating agency to confirm that, after giving effect to such redemption, the
rating assigned to the Securities by the rating agency will be equal to or
better than the higher of (a) the existing rating assigned to the Securities by
the rating agency or (b) the initial rating assigned to the Securities by the
rating agency.
SALE OF EQUITY INTERESTS
If (1) we sell all or any portion of our interest in any Assignor (other
than a transfer permitted under the financing documents) and receive proceeds
in excess of $15 million in connection with the sale or (2) any Assignor sells
all or any portion of its interest in any project company (other than a
transfer permitted under the financing documents) and receives proceeds in
excess of $15 million in connection with the sale, the proceeds of the sale
will be used to redeem the Securities, at a price equal to the redemption price
plus the yield maintenance premium, in an amount equal to the lesser of (1)
100% of the proceeds or (2) the amount which will cause each rating agency to
confirm that, after giving effect to the redemption, the rating assigned to the
Securities by the rating agency will be equal to or better than the higher of
(a) the existing rating assigned to the Securities by the rating agency or (b)
the initial rating assigned to the Securities by the rating agency.
REDEMPTION DATE
The redemption date for any redemption will be any date we select during
the 90-day period following the date on which the event requiring the
redemption occurred.
RATINGS
Moody's, S&P and Duff & Phelps have assigned the Securities ratings of
"Baa3", "BBB-" and "BBB", respectively. Each rating reflects only the view of
the applicable rating agency at the time the rating was issued, and any
explanation of the significance of a rating may be obtained only from the
rating agency. There is no assurance that any rating will remain in effect for
any given period of time or that any rating will not be lowered, suspended or
withdrawn entirely by the applicable rating agency, if, in the rating agency's
judgment, circumstances so warrant. Any lowering, suspension or withdrawal by
any rating agency may have an adverse effect on the market price or
marketability of the Securities.
FORM; TRANSFER AND EXCHANGE; BOOK-ENTRY SYSTEM
FORM OF SECURITIES
We will issue the new Securities (except for those sold to institutional
accredited investors) initially in the form of a single global bond or, if
required, multiple global bonds. We refer to this single global bond or
multiple global bonds as the global Security. We will issue the new Securities
in registered form.
We will issue the global Security initially to The Depository Trust
Company, referred to in this section as DTC. The global Security will be
registered in the name of Cede & Co., which is the nominee of DTC. The trustee
will act as custodian of the global Security for DTC or appoint a
sub-custodian. Because Cede & Co. will be the holder of record of the global
Security, each person owning a beneficial interest in the global Security must
rely upon the procedures of the institutions having accounts with DTC to
exercise or be entitled to any of the rights of holder.
New Securities issued to institutional accredited investors will be issued
in definitive form. Upon the transfer of a Security in definitive form, the
Security will, unless the global Security has previously been exchanged for
Securities in definitive form, be exchanged for an interest in the global
Security representing the principal amount of Securities being transferred.
PAYMENTS OF PRINCIPAL AND INTEREST
We will make payments of principal of and interest on the Securities
represented by the global Security through the Trustee to DTC or its nominee.
None of us, the trustee, any paying agents or the
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registrar will have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the Securities held by Cede & Co., as nominee for DTC, or
Euroclear, or for maintaining, supervising or reviewing any records relating to
the beneficial ownership interests.
Because of time zone differences, the securities account of a Euroclear
participant purchasing an interest in the global Security from a DTC
participant will be credited during the securities settlement processing day
(which must be a business day for Euroclear) immediately following the DTC
settlement date. Credit in interests in the global Security settled during the
processing day will be reported to the relevant Euroclear participant on that
day. Cash received in Euroclear as a result of sales of interests in the global
Security by or through a Euroclear participant to a DTC participant will be
received with value on the DTC settlement date but will be available in the
relevant Euroclear cash account only as of the business day following
settlement in DTC.
EXCHANGING INTERESTS IN THE GLOBAL SECURITY FOR DEFINITIVE SECURITIES
Any person having a beneficial interest in the Securities evidenced by the
global Security may, upon request, exchange its interest in the global Security
for a definitive Security. Upon receipt by the trustee of written or electronic
instructions from DTC or its nominee on behalf of any person having a
beneficial interest in the Securities evidenced by the global Security and upon
receipt by the trustee of a written order of such person containing
registration instructions: (1) the trustee will cause, in accordance with the
standing instructions and procedures existing between it and DTC, the aggregate
principal amount of the global Security to be reduced; and (2) following the
reduction, we will execute and the trustee will authenticate and deliver to
such person or the transferee, as the case may be, a definitive Security.
In addition, the Securities will be issued as definitive Securities to
holders or their nominees, rather than to Cede & Co. as nominee for DTC, if:
o We advise the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as depositary with respect
to the Securities and we are unable to locate a qualified successor;
o We, at our option, elect to terminate the book-entry system through
DTC with respect to the Securities; or
o after the occurrence of an event of default under the indenture,
beneficial owners holding interests representing an aggregate
principal amount of Securities of not less than 51% of the Securities
represented by the global Security advise the trustee through DTC in
writing that the continuation of a book-entry system through DTC (or a
successor thereto) with respect to the Securities is no longer in the
beneficial owners' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the trustee will, upon written notice and receipt of a list of all
persons who hold a beneficial interest in the global Security from DTC, be
required to notify, at our expense, all persons who hold a beneficial interest
in the global Security through DTC participants or indirect participants
through DTC participants of the issuance of definitive Securities. Upon
surrender by the trustee of the global Security and receipt from DTC of
instructions for re-registration, we will execute and the Trustee will
authenticate and deliver the definitive Securities.
TRANSFER AND EXCHANGE OF SECURITIES
Subject to the terms of the Indenture, the Securities may be surrendered
for registration of transfer or exchange for Securities of the same series, of
authorized denomination, and of like tenor, maturity and principal amount at
the corporate trust office of the Trustee. The Security registrar is not
required to do the following:
o issue or register the transfer of or exchange any Securities of any
series during a period:
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o beginning at the opening of business 15 days before the day of
the mailing of a notice of redemption of the Securities of that
series selected for redemption and ending at the close of
business on the day of the mailing, or
o beginning on the record date for the stated maturity of any
installment of principal of or payment of interest on the
Securities of that series and ending on the stated maturity of
the installment; or
o issue or register the transfer or exchange of any Securities selected
for redemption in whole or in part, except the unredeemed portion of
any Securities selected for redemption in part. No service charge will
be required of any holder participating in any transfer or exchange of
the Securities. However, payment may be required of any tax or other
governmental charges imposed in connection with the transfer or
exchange.
DTC'S BOOK-ENTRY SYSTEM
Securities represented by the global Security will be held in book-entry
form in DTC. DTC has advised us that it is:
o a limited purpose trust company organized under the laws of the State
of New York;
o a member of the United States Federal Reserve System;
o a clearing corporation within the meaning of the New York Uniform
Commercial Code; and
o a clearing agency registered pursuant to Section 17A of the Exchange
Act.
DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between DTC
participants through electronic book-entries, thereby eliminating the need for
physical movement of certificates. DTC participants include securities brokers
and dealers, banks, trust companies and clearing corporations. Indirect access
to the DTC system also is available to others, such as banks, brokers and
dealers and trust companies that clear through or maintain a custodial
relationship with a DTC participant, either directly or indirectly.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of Securities held
by it among DTC participants on whose behalf it acts and to receive and
transmit distributions of principal, premium and interest on the Securities.
DTC participants and indirect participants with which beneficial owners of
Securities held with DTC have accounts similarly are required to make
book-entry transfers and receive and transmit payments of principal and
interest on behalf of the beneficial owners. Accordingly, although beneficial
owners who hold Securities through DTC participants or indirect participants
will not possess the Securities, DTC's rules, by virtue of the requirements
described above, provide a mechanism by which DTC participants will receive
payments and will be able to transfer their interests in the Securities.
Because DTC may act only on behalf of DTC participants, who in turn act on
behalf of indirect participants, any holder of Securities through DTC desiring
to pledge its Securities to persons or entities that do not participate in DTC,
or otherwise take actions with respect to its Securities, will be required to
withdraw its Securities from DTC as described above.
DTC has advised us as follows:
o that it will take any action permitted to be taken by a holder only at
the direction of one or more DTC participants to whose accounts with
DTC the holder's Securities are credited;
o that it will take these actions with respect to any percentage of the
beneficial interests of holders who hold Securities through DTC
participants or indirect participants only at the direction of and on
behalf of DTC participants whose account holders include undivided
interests that satisfy the percentage; and
o that it may take conflicting actions with respect to other undivided
interests to the extent that these actions are taken on behalf of DTC
participants whose account holders include the undivided interests.
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NATURE OF RECOURSE ON THE SECURITIES
Our obligation to make payments of principal of, premium (if any) and
interest on the Securities will be an obligation solely of ours, secured by the
collateral. Neither MidAmerican nor El Paso Energy, nor any affiliate,
shareholder, member, officer, director or employee of ours or of MidAmerican or
El Paso Energy will guarantee the payment of the Securities or has any
obligation with respect to the Securities (other than the obligations of the
Assignors under the financing documents to which they are parties).
SUMMARY DESCRIPTION OF THE PRINCIPAL FINANCING DOCUMENTS
The following summaries of important provisions of the depositary
agreement, the indenture, the debt service reserve letter of credit
reimbursement agreement and the security documents do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions thereof, including definitions therein of certain
terms. Copies of the financing documents will be provided for inspection upon
written request of any of our potential investors.
DEPOSITARY AGREEMENT
GENERAL
The collateral agent, acting on behalf of the trustee, the holders of the
Securities and the other secured parties, has entered into a depositary
agreement with us and the Assignors, and has appointed the depositary bank.
Under the depositary agreement, we have established accounts with the
depositary bank and granted a security interest in these accounts to the
collateral agent for the benefit of the secured parties. The depositary
agreement sets forth, among other things:
o the terms upon which available cash flow in the depositary accounts is
disbursed to pay operating and administrative costs and payments of
principal of, premium (if any), interest on and other amounts due on
the Securities,
o the conditions which must be satisfied prior to making distributions
to us,
o the mechanism for receipt and disbursement of available cash flow
representing loss proceeds, expropriation proceeds, title proceeds,
buy-out proceeds, refinancing proceeds or asset sale proceeds and
proceeds from the sale of our interest in an Assignor or the sale by
an Assignor of its interest in a project company, and
o the terms upon which monies on deposit in the accounts may be invested
in permitted investments.
When used in this prospectus, the term permitted investments means
investments in securities that are:
o direct obligations of the United States or any agency thereof;
o obligations fully guaranteed by the United States or any agency
thereof;
o certificates of deposit or bankers acceptances issued by commercial
banks (including the trustee or any of its affiliates) organized under
the laws of the United States or of any political subdivision thereof
or under the laws of Canada, Japan, Switzerland or any country that is
a member of the European Economic Community having a combined capital
and surplus of at least $250 million and having long-term unsecured
debt securities then rated "A" or better by S&P or "A2" or better by
Moody's (but at the time of investment not more than $25 million may
be invested in such certificates of deposit from any one bank);
o repurchase obligations with a term of not more than seven days for
underlying securities of the types described in the preceding
paragraph;
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o open market commercial paper of any corporation incorporated or doing
business under the laws of the United States or of any political
subdivision (other than MidAmerican or any of its affiliates) thereof
having a rating of at least "A-1" from S&P and "P-1" from Moody's (but
at the time of investment not more than $25 million may be invested in
such commercial paper from any one company);
o auction rate securities or money market preferred stock (other than
securities issued by MidAmerican or any of its affiliates) having one
or the two highest ratings obtainable from either S&P or Moody's (or,
if at any time neither S&P nor Moody's is rating such obligations,
then form another nationally recognized rating service acceptable to
the trustee); or
o investments in money market funds or money market mutual funds
sponsored by any securities broker dealer of recognized national
standing (or an affiliate thereof), having an investment policy that
requires substantially all the invested assets of such fund to be
invested in investments descried in any one or more of the foregoing
clauses having a rating of "A" or better by S&P or "A2" or better by
Moody's (including money market funds for which the depositary bank in
its individual capacity or any of its affiliates is investment manager
or advisers).
ESTABLISHMENT OF ACCOUNTS
We have established the following depositary accounts with the depositary
bank:
o revenue account;
o debt payment account;
o debt service reserve account;
o distribution suspense account;
o redemption account; and
o 9 7/8% notes account.
We have granted a security interest in the depositary accounts to the
collateral agent for the benefit of the secured parties. The depositary
accounts will at all times be in the name of the collateral agent and in the
exclusive possession of, and under the exclusive dominion and control of, the
depositary bank acting at the direction of the collateral agent. Neither we nor
any of the Assignors have any right to withdraw monies from the depositary
accounts or any other rights with respect to the depositary accounts other than
as described in the depositary agreement.
DEPOSIT AND DISBURSEMENT OF FUNDS
REVENUE ACCOUNT
We have and will continue to deposit or cause to be deposited into the
revenue account the following funds:
o all available cash flow (other than available cash flow required to be
deposited in the redemption account as described below);
o to the extent the debt service reserve account is fully funded,
interest and other investment income earned on funds on deposit in any
of the depositary accounts, and
o any other amounts required to be transferred to the revenue account
pursuant to the depositary agreement or the intercreditor agreement.
We are required to submit to the collateral agent, on or prior to each
date on which funds are to be transferred from the revenue account to the other
depositary accounts, a funds transfer certificate indicating the amounts which
should be transferred from the revenue account to the other depositary accounts
on that date.
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PRIORITY OF PAYMENTS
On each funding date the depositary bank transfers monies on deposit in
the revenue account in such amounts as are specified in the relevant funds
transfer certificate in accordance with the following order of priority:
(1) First, ratably, to the persons entitled to payment an amount equal to
the sum of (a) all of our operating and administrative costs as well as those
of the Assignors and California Energy Yuma and SECI Holdings incurred on or
before the funding date or reasonably expected to be incurred within the next
30 days, plus (b) any taxes, assessments or other governmental charges or
levies then due. However, operating and administrative costs payable to our
affiliates or the affiliates of the Assignors, California Energy Yuma or SECI
Holdings (other than for the payment of operating and administrative costs
payable to third parties that are incurred by an affiliate on our behalf, or on
behalf of an Assignor, California Energy Yuma or SECI Holdings) will not be
paid under this first priority;
(2) Second, ratably, to the depositary bank, the collateral agent, the
trustee and the debt service reserve letter of credit provider, an amount equal
to all administrative costs due and payable to those parties on the next
payment date;
(3) Third, ratably, to the debt payment account, an amount which, together
with the funds then on deposit in or credited to that account, is equal to the
sum of (a) all principal of and interest on the Securities and all other
amounts payable under indenture, (b) all principal of and interest on any debt
service reserve bonds (as described below under the caption "Debt Service
Reserve Letter of Credit Reimbursement Agreement"), (c) all commitment, letter
of credit and fronting fees due and payable under any debt service reserve
letter of credit reimbursement agreement and (d) all interest on any debt
service reserve letter of credit loans (as described below under the caption
"Debt Service Reserve Letter of Credit Reimbursement Agreement"), in each of
clauses (a) through (d) to the extent due and payable on the next payment date;
(4) Fourth, to a sub-account of the debt payment account, an amount which,
together with the funds then on deposit in or credited to that account, is
equal to all principal of any debt service reserve letter of credit loans and
related fees and charges in connection with tax gross-ups, capital adequacy
costs and breakage costs, in each case to the extent due or becoming due on the
next payment date;
(5) Fifth, to the debt service reserve account, an amount which, together
with the sum of (a) the funds then on deposit in or credited to that account
and (b) the amount available for drawing under any debt service reserve letter
of credit, is equal to the then current debt service reserve requirement;
(6) Sixth, ratably, (a) to the debt service reserve letter of credit
provider, or any other financial institution providing a debt service reserve
letter of credit loan, other breakage costs which are due and payable in
connection with any debt service reserve letter of credit loans, and (b) to the
secured parties, any indemnification expenses or other amounts not otherwise
paid and required to be paid to the secured parties;
(7) Seventh, ratably, to the persons entitled to such payments, an amount
equal to all of our operating and administrative costs as well as those of the
Assignors, California Energy Yuma and SECI Holdings incurred on or before the
funding date or reasonably expected to be incurred within the next 30 days,
which are payable to our affiliates or those of the Assignors, California
Energy Yuma or SECI Holdings (other than operating and administrative costs
paid as provided in the first priority above); and
(8) Eighth, to the distribution suspense account, any amounts remaining in
the revenue account after the making of the transfers described above in
clauses (1) through (7).
However, in the event the Securities are accelerated and no foreclosure
occurs within 180 days afterwards, then principal of the debt service reserve
letter of credit loans will be paid equally and ratably in the third priority
instead of the fourth priority until the time that foreclosure has occurred or
the acceleration has been rescinded or otherwise remedied.
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DEBT PAYMENT ACCOUNT
Funds on deposit in or credited to the debt payment account on any funding
date pursuant to the third priority above will be used to pay the following:
o all principal of and interest on the Securities and all other amounts
payable under the indenture,
o all principal of and interest on any debt service reserve bonds,
o all commitment, letter of credit and fronting fees due and payable
under the debt service reserve letter of credit reimbursement
agreement, and
o all interest on any debt service reserve letter of credit loans.
Funds on deposit in or credited to the sub-account of the debt payment account
on any funding date pursuant to the fourth priority above will be used to pay
all principal of any debt service reserve letter of credit loans and related
fees and charges in connection with tax gross-ups, capital adequacy costs and
breakage costs on the payment date.
On any payment date that any of the amounts described in this paragraph
are due and payable (or if that day is not a business day, then on the next
business day), the depositary bank will remit funds on deposit in or credited
to the debt payment account or its sub-account to the persons entitled to the
payment of those amounts. If on any payment date, there are more funds on
deposit in or credited to the debt payment account than are required after
making the payments described in the immediately preceding sentence, the
depositary bank will transfer the excess funds from the debt payment account to
the revenue account on the payment date. If on any payment date, there are more
funds on deposit in or credited to the debt payment account's sub-account than
are required after making the payments described above, the depositary bank
will transfer the excess funds from the sub-account to the debt payment account
on the payment date.
DEBT SERVICE RESERVE ACCOUNT
We initially funded the debt service reserve account by providing the
depositary bank with a debt service reserve letter of credit in the amount of
approximately $24 million. We will at all times be required to maintain funds
in the debt service reserve account in an amount which, together with the
amount available for drawing under any debt service reserve letter of credit,
is equal to the then current debt service reserve requirement. The debt service
reserves requirement on any date equals the maximum semiannual principal and
interest payment due on the Securities for the remaining term. The funds on
deposit in the debt service reserve account and the amounts available for
drawing under any debt service reserve letter of credit will be used to pay
principal of, premium (if any) and interest on the Securities and any other
amounts payable under the indenture, and, to a limited extent as described
below, interest on any debt service reserve letter of credit loans, if amounts
on deposit in the debt payment account are insufficient to make such payments.
Any funds on deposit in or credited to the debt service reserve account which,
when aggregated with the amount available for drawing under any debt service
reserve letter of credit, exceed the then current debt service reserve
requirement, will be transferred to the revenue account.
Any debt service reserve letter of credit will be issued by a bank or
other financial institution with a long-term unsecured debt rating of at least
"A2" by Moody's and at least "A" by S&P. Any debt service reserve letter of
credit will provide that the depositary bank may make drawings under the debt
service reserve letter of credit upon the occurrence of the following events:
(1) there being insufficient funds in the debt payment account on any
payment date to pay interest or principal then due on the Securities
(after application of funds from the debt service reserve account);
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(2) upon our failure to provide a substitute letter of credit from another
letter of credit provider within at least 45 days after receipt of a
notice from the current debt service reserve letter of credit provider
that the long-term debt of the current debt service reserve letter of
credit provider is less than "A2" as determined by Moody's or "A" as
determined by S&P;
(3) upon receipt of a notice from the debt service reserve letter of
credit provider that its debt service reserve letter of credit will be
terminated prior to the stated expiration date;
(4) upon our failure to obtain an extension or provide a replacement debt
service reserve letter of credit at least 45 days before the
expiration of the existing debt service reserve letter of credit; and
(5) upon receipt of a notice from the debt service reserve letter of
credit provider that interest is due and payable, but unpaid, with
respect to outstanding debt service reserve letter of credit loans.
However, any drawing made pursuant to this clause, together with all
other drawings under the debt service reserve letter of credit in the
same fiscal year, cannot exceed $5,000,000 altogether.
The depositary bank will apply the proceeds of each drawing in the case of
clauses (1) and (5) above to payment of the relevant obligation. The depositary
bank will apply the proceeds of each drawing in the case of clauses (2), (3)
and (4) above to the debt service reserve account until the amount of the debt
service reserve requirement is met.
DISTRIBUTION SUSPENSE ACCOUNT
The distribution suspense account will be funded with funds remaining in
the revenue account after all other required transfers have been made. On any
funding date on which the distribution conditions detailed below are satisfied,
funds on deposit in the distribution suspense account may be distributed to or
as directed by us upon receipt by the trustee, the collateral agent and the
depositary bank of an officer's certificate of ours requesting the distribution
and certifying that the following distribution conditions are satisfied:
o the debt payment account and the debt service reserve account are
funded to their then current required levels and all payments
described in first, second, sixth and seventh priorities above are
satisfied in full;
o no default or event of default has occurred and is continuing or will
result from the distribution;
o the debt service coverage ratio for the preceding four fiscal quarters
ending on or prior to the funding date, measured as one annual period,
is greater than or equal to 1.5 to 1.0, as certified by one of our
authorized officers. However, for periods before the first anniversary
of the closing date for the old Securities, (a) the debt service
coverage ratio will be calculated and applied for each complete
calendar quarter ending since the closing date for the old Securities,
and (b) the projected debt service coverage ratio will be calculated
and applied for each remaining calendar quarter ending on or before
the first anniversary of the closing date for the old Securities;
o the projected debt service coverage ratio for the succeeding four
fiscal quarters (including the quarter in which the distribution is to
be made), measured as one period, is greater than or equal to 1.5 to
1.0, as certified by one of our authorized officers; and
o if a material default or an event of default has occurred and is
continuing under any project financing document for the Saranac
project, the Power Resources project, the Yuma project or the Imperial
Valley projects, the loan life coverage ratio, as certified by one of
our authorized officers, will be greater than or equal to 1.7 to 1.0.
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For purposes of this description of the distribution conditions:
(1) "debt service coverage ratio" means, for any period, without
duplication, the ratio of (1) the sum of (a) all available cash flow
for the period plus (b) all interest and other investment income
earned on monies on deposit in or credited to the depositary accounts
during the period plus (c) all other cash flow received and deposited
in the revenue account during the period, to (2) the sum of (a) all
operating and administrative costs (other than operating and
administrative costs that are subordinate to debt service on the
Securities and our other senior debt, if any) and other expenses due
and payable during the period plus (b) the aggregate of principal and
interest payments (and any other amounts due) on the Securities and
all other permitted debt (excluding subordinated debt) for the period;
and
(2) "loan life coverage ratio" means, at any measurement date, the ratio
of (1) the sum of (a) the net present value (at a discount rate equal
to the interest rate for the Securities) of the projected available
cash flow (other than the available cash flow of an Assignor for which
there has occurred a default or an event of default under the project
financing documents for the Assignor's project company) from the date
of measurement to the final maturity date of the Securities plus (b)
the then remaining balance in the debt service reserve account plus
(c) all interest and other investment income then on deposit in or
credited to the revenue account and the debt service reserve account
to (2) the sum of (a) the aggregate principal amount of the Securities
and all other permitted debt which is repayable during the period from
the measurement date up to and including the final maturity date of
the Securities plus (b) all administrative costs and other expenses
due and payable during the period from the measurement date up to and
including the final maturity date of the Securities.
If on any funding date amounts on deposit in the revenue account (after
taking into account any interest or other investment income earned on funds
then on deposit in or credited to the revenue account) are insufficient to make
the transfers described in the first through seventh priorities above, then
amounts on deposit in the distribution suspense account will be transferred to
the revenue account.
REDEMPTION ACCOUNT
The following funds will be deposited in the redemption account:
o all available cash flow representing proceeds from the damage or
destruction of all or a portion of a project;
o all available cash flow representing proceeds from a governmental
authority's compulsory taking or transfer or the threat of a
governmental authority's compulsory taking or transfer of a project;
o all available cash flow representing proceeds from a defect in the
title to the land on which an project is located;
o all available cash flow representing proceeds from a power contract
buy-out permitted under the financing documents;
o all available cash flow representing proceeds from a sale of assets;
o all available cash flow representing proceeds from the refinancing of
project-level debt;
o all proceeds from our sale of all or a portion of our interests in any
Assignor; and
o all proceeds from an Assignor's sale of all or a portion of its
interests in its project company.
Funds on deposit in the redemption account will be used to redeem the
Securities and to pay our other secured obligations.
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9 7/8% NOTES ACCOUNT
MidAmerican intends to redeem all of Magma's remaining 9 7/8% promissory
notes on June 30, 2000, the first day upon which redemption is permitted under
the indenture for the 9 7/8% promissory notes (if not previously repurchased).
As of the date of this prospectus, the outstanding principal amount of the
9 7/8% notes is approximately $4.2 million.
PERMITTED INVESTMENTS
All funds held by the depositary bank in the depositary accounts will be
invested in permitted investments at our expense and risk (1) if no default or
event of default has occurred and is continuing, at election and as directed in
writing by one of our authorized officers, and (2) if a default or an event of
default has occurred and is continuing, at the election of and as directed by
the collateral agent. The term permitted Investments is defined above under the
caption "General." These permitted investments must generally mature, or be
subject to redemption or be capable of being sold or otherwise liquidated at
the option of their holder, in amounts and not later than as may be necessary
to provide funds when needed to make payments as provided in the depositary
agreement, but in no event will any of permitted investments mature more than
one year after the date acquired. Absent written instructions from us or the
collateral agent, as applicable, the depositary bank will invest funds held in
the depositary accounts in direct obligations of the United States or any
United States agency with a maturity of 30 days or less. Net interest and other
investment income earned on any permitted investments credited to any
depositary account will be transferred (1) first to the debt service reserve
account until the amount of funds deposited in or credited to that account,
together with the amount available for drawing under any debt service reserve
letter of credit, is equal to the then current debt service reserve
requirement, and (2) then to the revenue account.
INDENTURE
GENERAL
The old Securities were, and the new Securities will be, issued under an
indenture entered into between us and the trustee acting on behalf of the
holders of Securities. The indenture describes the terms of the Securities. We
are permitted to issue additional securities under the indenture, subject to
the satisfaction of conditions described below. All additional securities will
rank evenly in priority with the Securities, will be secured by the collateral
and will have terms, be in a form and be issued at prices as will be approved
by us in writing. No additional Securities may be issued at any time if a
default or an event of default will have occurred and be continuing or if the
proposed issuance would cause a default or an event of default. All net
proceeds of any additional securities must be used for one or more of the
purposes specified in the indenture and described below.
CERTAIN COVENANTS
Following is a description of some of the affirmative and negative
covenants in favor of the trustee (acting on behalf of the holders of
Securities) with which we are obligated to comply under the indenture for as
long as any Securities (or additional securities) remain outstanding.
AFFIRMATIVE COVENANTS
INFORMATION REQUIREMENTS
We will furnish or cause to be furnished to the trustee and the rating
agencies (as well as any holder of Securities or beneficial owner of a Security
at their request) the following financial information:
o as soon as available and always within 45 days after the end of the
first, second and third quarters of our fiscal year, our unaudited
consolidated financial statements for that quarter, together with a
certificate signed by one of our officers stating that (1) the
unaudited financial
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statements fairly present our and our subsidiaries' financial
condition and the results of our and our subsidiaries' operations for
the periods indicated in accordance with generally accepted accounting
principals (other than with respect to the notes accompanying the
financial statements and normally recurring year-end adjustments), and
(2) no default or event of default has occurred and is continuing, or,
if a default or an event of default has occurred and is continuing, a
statement as to its nature; and
o as soon as available and always within 90 days after the end of each
of our fiscal years, (1) our annual audited consolidated financial
statements for that fiscal year, (2) an audit opinion by a nationally
recognized independent accounting firm, stating that those financial
statements present fairly, in all material respects, our and our
subsidiaries' financial condition and the results of our and our
subsidiaries' operations at the end of, and for, that fiscal year in
accordance with generally accepted accounting principals, and (3) a
certificate signed by one of our officers stating that no default or
event of default has occurred and is continuing, or, if a default or
an event of default has occurred and is continuing, a statement as to
its nature.
We will also furnish to the trustee and the rating agencies (but not the
holders of Securities or beneficial owners of the Securities), the following
information regarding an event of default:
o promptly and always within 15 days after one of our responsible
officers has actual knowledge of the occurrence of any event or
condition which constitutes a default or an event of default, written
notice specifically stating that the event or condition has occurred
as well as describing it and any action being or proposed to be taken
with respect to the condition or event.
At any time when we are not subject to the reporting requirements of
Section 13 or Section 15(d) of the Exchange Act, upon the request of any holder
of Securities or beneficial owner of a Security, we will promptly furnish to
the holder of Securities or beneficial owner, to a prospective purchaser of a
Security designated by the holder of Securities or beneficial owner, or to the
trustee for delivery to the holder of Securities, beneficial owner or
prospective purchaser, all information specified in, and meeting the
requirements of, paragraph (d)(4) of Rule 144A in order to allow the holder of
Securities or beneficial owner to comply with Rule 144A in connection with a
resale of Securities.
MAINTENANCE OF EXISTENCE, QUALIFICATION AND RIGHTS
Other than as provided below under the caption "Business Activities;
Fundamental Changes; Sales of Assets," we will at all times preserve and
maintain in full force and effect (1) our existence as a limited liability
company in good standing under the laws of the State of Delaware and (2) our
qualification to do business in each other jurisdiction where qualification is
necessary, except in each case as permitted under the financing documents.
We will maintain and renew all of the powers, rights, privileges and
franchises necessary to transact our business as it is actually conducted or as
it is proposed to be conducted, unless the failure to do so would not
reasonably be expected to result in a material adverse effect.
As used above and as used throughout the remainder of this summary, the
term "material adverse effect" means a material adverse effect on (1) the
financial condition or results of operation of us or the Assignors (taken as a
whole), (2) the validity or priority of the liens on the collateral, (3) our
ability to perform our material obligations under the indenture, the securities
or any of the other financing documents to which we are a party, or (4) the
ability of the Assignors (taken as a whole) to perform any of the material
obligations under the financing documents to which any of them is a party.
COMPLIANCE WITH LAWS AND GOVERNMENTAL APPROVALS
We will comply with all applicable laws, acts, rules, regulations,
permits, orders and requirements of any legislative, executive, administrative
or judicial body and obtain all necessary governmental approvals relating to
our issuance of the Securities and the performance of our obligations under the
indenture, if our failure to do so would reasonably be expected to result in a
material adverse effect.
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PERFORMANCE OF FINANCING DOCUMENTS
We will perform all of our material covenants and agreements contained in
any of the financing documents to which we are a party and will take all
reasonable and necessary actions to prevent the termination or cancellation of
any those financing document as against us, any Assignor or any affiliate of
ours or any Assignor, unless our failure to do so would not reasonably be
expected to result in a material adverse effect.
MAINTENANCE OF PROPERTY; FURTHER ASSURANCES
We will preserve and maintain good and valid title to all of our
properties and assets subject to no liens other than those described below and
unless our failure to do so would not reasonably be expected to result in a
material adverse effect.
We will preserve and maintain the liens on the collateral and will cause
the security documents to which we are a party, all of their supplements and
any instruments of conveyance, transfer, assignment or further assurance, or
appropriate certificates, financing statements or other statements related to
them, at all times to be recorded and filed and re-recorded and re-filed, in
the manner and in the places as may be required by applicable law in order to
fully preserve and protect the rights of the collateral agent, the holders of
Securities and the trustee.
We will defend our title to the collateral against the claims of all
persons, unless our failure to do so could not reasonably be expected to result
in a material adverse effect.
OTHER AFFIRMATIVE COVENANTS
The indenture also contains other affirmative covenants in favor of the
trustee (acting on behalf of the holders of Securities), including our
obligations to:
o make payments on the Securities,
o maintain an office for payment, exchange and transfer of the
Securities,
o pay all taxes and charges required to be paid by us,
o keep proper books and records in accordance with generally accepted
accounting principals,
o provide the trustee, the collateral agent and the depositary bank with
reasonable inspection rights,
o use the proceeds of the issuance and sale of the Securities and any
additional securities in accordance with the indenture,
o retain a nationally recognized independent accounting firm and permit
the trustee, the collateral agent and the depositary bank to discuss
our affairs, finances and accounts with that accounting firm upon
reasonable notice and at reasonable times, following and during the
continuance of a default or an event of default,
o pledge all of the capital stock of Magma within 10 days after the date
on which the stock is released from the liens securing Magma's 9 7/8%
promissory notes, and
o make an election to be treated as an association taxable as a
corporation for United States tax purposes for all periods commencing
on or after the closing date for the old Securities.
NEGATIVE COVENANTS
RESTRICTIONS ON THE INCURRENCE OF DEBT AND THE CREATION OF LIENS
We will not create or incur or suffer to exist any debt except the
following permitted debt:
o debt incurred under the indenture and the Securities;
o debt incurred under any debt service reserve letter of credit
reimbursement agreement;
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o debt in an aggregate principal amount not to exceed $10 million, so
long as, after giving effect to the incurrence of such debt, no
default or event of default will have occurred and be continuing;
o subordinated debt loaned to us by our affiliates (other than any of
our direct or indirect majority-owned subsidiaries) in an aggregate
principal amount not to exceed $200 million, so long as this
subordinated debt is used to finance capital expenditures, expansions
or operation and maintenance costs for the existing projects or the
construction of new projects; and
o debt incurred in excess of the $10 million of debt described above, so
long as (1) after giving effect to the incurrence of such debt, no
default or event of default will have occurred and be continuing, and
(2) the trustee will receive written evidence from each rating agency
then rating the Securities that, after giving effect to the incurrence
of such debt, the rating assigned to the Securities by that rating
agency will be equivalent to or better than an investment grade rating
(rating of "Baa3" from Moody's, "BBB-" from S&P and "BBB-" from Duff &
Phelps).
We will not create or allow to exist any lien upon or with respect to any
of our properties except the following permitted liens:
o liens specifically permitted or required by, or created by, any
security document;
o liens to secure permitted debt; so long as the holder of the permitted
debt, or a representative thereof, will have entered into the
intercreditor agreement;
o liens for taxes, assessments or governmental charges which are either
not yet due or which are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves are
established in accordance with generally accepted accounting
principals;
o other liens incidental to the conduct of our business 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 of the encumbered assets in the operation of
our business; and
o liens which existed on the closing date for the old Securities and are
set forth on a schedule to the indenture.
BUSINESS ACTIVITIES; FUNDAMENTAL CHANGES; SALES OF ASSETS
We will not at any time engage in any activities other than:
o owning our subsidiaries and related activities;
o the activities contemplated by the indenture and the other financing
documents and related activities; and
o any other activity which could not reasonably be expected to result in
a material adverse effect and which the rating agencies confirm in
writing will not result in a lowering of the existing ratings for the
Securities.
We will not enter into any transaction of merger or consolidation, change
our form of organization or our business, liquidate, wind-up or dissolve
ourselves (or allow any liquidation or dissolution) or discontinue our
business, unless (1) we are the surviving or continuing company or the
surviving or continuing company is a company formed under the laws of the
United States, one of the States thereof or the District of Columbia or Canada
and assumes our obligations under the Securities and the other financing
documents, (2) immediately before and after such transaction, no event of
default will have occurred and be continuing, and (3) the rating agencies
confirm that such transaction will not result in a lowering of the existing
ratings for the Securities.
We will not sell, transfer, assign, hypothecate, pledge, lease, sublease
or otherwise dispose of (in one transaction or in a series of transactions) any
of our assets, except in each case as permitted under the financing documents.
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INVESTMENTS; TRANSACTIONS WITH AFFILIATES
We will not form or have any subsidiaries, make investments, loans or
advances or acquire the stock, obligations or securities of any person, other
than the following:
o those that existed on the closing date for the old Securities,
o permitted investments,
o investments, loans or advances made with funds which do not constitute
collateral, and
o investments in subsidiaries if the rating agencies confirm that their
formation will not result in a lowering of the existing ratings for
the Securities.
We will not enter into any transaction or series of related transactions,
whether or not in the ordinary course of business, with any of our affiliates
which is not on terms and conditions at least as favorable as would be obtained
in a comparable arm's-length transaction with a person other than one of our
affiliates, except that we may perform our obligations and engage in the
transactions permitted by the financing documents.
RESTRICTED PAYMENTS
The following are restricted payments and will be made only from the
distribution suspense account if the distribution conditions are satisfied:
o any declaration and payment of distributions, dividends or any other
similar payment made on account of our equity interests;
o any payment of the principal of or interest on any of our subordinated
debt; or
o any loans or advances to any of our affiliates.
OTHER NEGATIVE COVENANTS
The indenture also contains other negative covenants in favor of the
trustee (acting on behalf of the holders of Securities), including, without
limitation, our obligation not to do any of the following:
o amend our certificate of formation or any other organizational
document if this action could reasonably be expected to result in a
material adverse effect,
o assign any of our rights or obligations under any financing document
or enter into any additional agreements, contracts or other
undertakings if this action could reasonably be expected to result in
a material adverse effect,
o take any action which will cause us to be in violation of the
Investment Company Act of 1940, as amended, or
o contingently or otherwise become liable in connection with any
guarantee obligation (except guarantees of permitted debt which is not
incurred by one of our affiliates (other than one of our wholly-owned
subsidiaries.
EVENTS OF DEFAULT AND REMEDIES
EVENTS OF DEFAULT
The following events constitute events of default under the indenture:
(1) if we fail to pay any principal of, premium (if any) or interest on
any Security when it becomes due and payable;
(2) if any representation or warranty we make in the indenture or in any
other financing document to which we are a party, or any
representation, warranty or statement in any certificate or other
document furnished to the trustee or any other person by or us on our
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behalf, proves to be false or misleading in any material respect as of
the time made, confirmed or furnished and the fact, event or
circumstance that gave rise to the inaccuracy has resulted in, or
could reasonably be expected to result in, a material adverse effect
and the fact, event or circumstance continues uncured for 30 or more
days from the date one of our authorized officers obtains actual
knowledge of the inaccuracy. However, if we commence and diligently
pursue efforts to cure the inaccurate fact, event or circumstance
within the 30-day period and deliver written notice of our efforts to
the trustee, we may continue to effect such cure, and the
misrepresentation will not be deemed an event of default, for an
additional 60 days so long as we are diligently pursuing the cure;
(3) if we fail to perform or observe any covenant under the indenture
relating to maintenance of existence, payment of taxes, incurrence of
debt, creation of liens, business activities, fundamental changes,
sales of assets, restricted payments or issuance of guarantee
obligations and if that failure continues uncured for 30 or more days
from the date one of our authorized officers obtains actual knowledge
of the failure;
(4) if we fail to perform or observe any of our covenants contained in the
indenture (other than those referred to above) and the failure
continues uncured for 60 or more days from the date one of our
authorized officers obtains actual knowledge of the failure. However,
if we commence and diligently pursue efforts to cure our default
within the 60-day period and deliver written notice of our efforts to
the trustee, we may continue to effect the cure, and the default will
not be deemed an event of default, for an additional 30 days so long
as we are diligently pursuing the cure;
(5) if we (a) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of ourself
or all or a substantial part of our property, (b) admit in writing our
inability or be generally unable to pay our debts as those debts
become due, (c) make a general assignment for the benefit of our
creditors, (d) commence a voluntary case under the U.S. bankruptcy
code, (e) file a petition seeking to take advantage of any other
debtor relief law, (f) fail to controvert in a timely and appropriate
manner, or acquiesce in writing to, any petition filed against us in
an involuntary case under the U.S. bankruptcy code or any other debtor
relief law or (g) take any action for the purpose of effecting any of
the foregoing;
(6) if a proceeding or case is commenced without our application or
consent in any court of competent jurisdiction, seeking (a) our
liquidation, reorganization, dissolution, winding-up or the
composition or readjustment of our debts or (b) the appointment of a
trustee, receiver, custodian, liquidator or the like for us or all or
a substantial part of our property under any debtor relief law and the
proceeding or case shall continues undismissed, or any order, judgment
or decree approving any of the above is entered and continues unstayed
and in effect for a period of 60 or more consecutive days, or any
order for relief against us is entered in any involuntary case under
the U.S. bankruptcy code or any other debtor relief law;
(7) if any security document ceases in any material respect to be in full
force and effect or any material lien purported to be granted in any
security document 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 in the security document with the priority, if
any, purported to be created in the security document. However, we
will have 10 days from the date we obtain actual knowledge of the
cessation to cure the cessation (if curable) or to furnish to the
collateral agent all documents or instruments required to cure the
cessation (if curable);
(8) if our debt in excess of $5 million (other than debt incurred under
the indenture or any debt service reserve letter of credit
reimbursement agreement) is required to be prepaid, or is declared to
be due and payable, other than by regularly scheduled required
repayment, before its stated maturity, as the result of the
acceleration of its stated maturity following an event of default
under the instrument evidencing the debt;
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(9) if one or more final and non-appealable judgment or judgments for the
payment of money in excess of $5 million is entered against us and
remains unpaid or unstayed for a period of 90 or more consecutive days
other than any judgment which we are diligently contesting in good
faith by appropriate proceedings and for which we have established
adequate cash reserves are established;
(10) if any party to any financing document (other than a secured party)
fails to perform or observe any covenant contained in the financing
document (subject to any applicable grace period) and the failure
could reasonably be expected to result in a material adverse effect;
and
(11) if MidAmerican fails to call for redemption all of Magma's outstanding
9 7/8% promissory notes within 10 days of the first day on which
redemption is permitted under the indenture for the 9 7/8% notes.
EXERCISE OF REMEDIES
CONTROL BY HOLDERS OF SECURITIES
Holders of Securities holding more than 50% of the aggregate principal
amount of the outstanding Securities 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. However,
(1) their direction may not be in conflict with any rule of law or with the
indenture or the intercreditor agreement, (2) the trustee may take any other
action deemed proper by the trustee which is not inconsistent with the
direction of the majority holders, and (3) the trustee need not follow any
direction of the majority shareholders if doing so would in its reasonable
discretion either involve it in personal liability or be unduly prejudicial to
holders of Securities not joining in the direction.
REMEDIES AVAILABLE
If any event of default occurs and continues:
(1) in the case of an event of default described in clause (1) above under
the caption "Events of Default," holders of Securities holding more than 331/3%
in aggregate principal amount of the outstanding Securities may, by written
notice to us and the trustee, declare the entire principal amount of the
outstanding Securities, all interest accrued and unpaid on the outstanding
Securities and premium (if any) and other amounts payable in connection with
the outstanding Securities, to be due and payable, whereupon the amounts will
become immediately due and payable without presentment, 9demand, protest or
further notice of any kind, all of which are waived by us under the indenture;
(2) in the case of an event of default described in clause (5) or (6)
above under the caption "Events of Default," the entire principal amount of the
outstanding Securities, all interest accrued and unpaid on the outstanding
Securities and all premium (if any) and all other amounts payable in connection
with the outstanding securities will automatically become due and payable
without presentment, demand, protest or notice of any kind, all of which are
waived by us under the indenture; and
(3) in the case of all other events of default described above under the
caption "Events of Default," the majority holders may, by written notice to us
and the trustee, declare the entire principal amount of the outstanding
Securities, all interest accrued and unpaid on the outstanding Securities and,
all premium (if any) and other amounts payable in connection with the
outstanding securities, to be due and payable, whereupon the same will become
immediately due and payable without presentment, demand, protest or further
notice of any kind, all of which are waived by us under the indenture.
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Subject to the intercreditor agreement, if at any time after the principal
of the Securities becomes due and payable upon a declared acceleration, and
before any judgment or decree for the payment of the money due, or any portion
of the money due, is entered, the majority holders, by written notice to us and
the trustee, may rescind and annul a declaration and its consequences if:
(1) there is paid to or deposited with the trustee a sum sufficient to
pay:
(a) all overdue installments of interest on the Securities;
(b) the principal of and premium (if any) on the Securities that have
become due other than by the declaration of acceleration and interest
on the Securities at the rates provided in the Securities for late
payments of principal;
(c) to the extent that payment of such interest is lawful, interest upon
overdue interest at the rates provided in the Securities for late
payments of interest; and
(d) all sums paid or advanced by the trustee under the indenture and the
reasonable compensation, expenses, disbursements and advances of the
trustee and its agents and counsel; and
(2) all events of default, other than the nonpayment of principal of the
Securities that has become due solely by the declared acceleration, have been
cured or waived in accordance with the indenture.
APPLICATIONS OF FUNDS
Following the application of funds as provided in the intercreditor
agreement, any money to be applied by the trustee after an event of default
will be applied 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, in case the unpaid principal amount of the outstanding
Securities has not become due, to the payment of any overdue interest
in the order of the maturity of the applicable payments, together with
interest (at the rates specified in the Securities for overdue
payments and to the extent that payment of the interest is legally
enforceable) on the payments of overdue interest;
(3) third, in case the unpaid principal amount of a portion of the
outstanding Securities has become due, first to the payment of premium
(if any) and accrued interest on all outstanding Securities in the
order of the maturity of the applicable payments, together with
interest (at the rates specified in the Securities for overdue
payments and to the extent that payment of the interest is legally
enforceable) on payments of premium (if any) and overdue interest, and
next to the payment of the unpaid principal amount of all Securities
then due;
(4) fourth, in case the unpaid principal amount of all of the outstanding
Securities has become due, to the payment of the whole amount then due
and unpaid upon the outstanding Securities for principal, premium (if
any) and interest, together with interest (at the rates specified in
the Securities for overdue payments and to the extent that payment of
the interest is legally enforceable) on such overdue principal,
premium (if any) and interest; and
(5) fifth, in case the unpaid principal amount of all of the outstanding
Securities has become due, and all of the outstanding Securities have
been indefeasibly paid in full in cash or cash equivalents, any
surplus then remaining will be paid to us or to whoever may be
lawfully entitled to receive the surplus, or as a court of competent
jurisdiction may direct.
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AMENDMENTS AND SUPPLEMENTS
We and the trustee may amend or supplement the indenture without the
consent of the holders of Securities for the following purposes:
o to add additional covenants against us, to surrender rights or powers
conferred upon us or to confer additional rights, remedies, benefits,
powers or authorities upon the holders of Securities,
o to increase the assets securing our obligations under the indenture,
o to provide for the issuance of additional securities on the conditions
described in the indenture, or
o for any purpose not inconsistent with the terms of the indenture to
cure any ambiguity, defect or inconsistency.
The indenture may be otherwise amended or supplemented by us and the
trustee with the consent of the majority holders. However, no amendment or
supplement may, without the consent of each holder of Securities, modify the
following:
o the principal, premium (if any) or interest payable upon any of the
Securities,
o the dates on which interest on or principal of any of the Securities
is paid,
o the dates of maturity of any of the Securities, or
o the procedures for amendment of the indenture by a supplemental
indenture.
SATISFACTION AND DISCHARGE
We may terminate the indenture by delivering all outstanding Securities to
the trustee for cancellation and by paying all other sums payable under the
indenture.
Legal and covenant defeasance will be permitted upon terms and conditions
customary for transactions of this nature.
TRUSTEE
There will at all times be a trustee under the indenture which will:
o be a corporation organized and doing business under the laws of the
United States, any state or territory of the United States or the
District of Columbia;
o be authorized under those laws to exercise corporate trust powers;
o be subject to supervision or examination by federal, state,
territorial or District of Columbia authority;
o either (1) have a combined capital and surplus of at least $50 million
or (2) have a combined capital and surplus of at least $10 million and
be a wholly-owned subsidiary of a corporation having a combined
capital and surplus of at least $50 million; and
o have a corporate trust office in New York City.
We agree 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 gross negligence or bad faith of the trustee.
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The trustee may resign at any time by giving written notice to us. The
trustee may be removed at any time by act of the majority holders, delivered to
the trustee and us. We will give notice of each resignation and removal of the
trustee and each appointment of a successor trustee to all holders of
Securities and to the rating agencies. The trustee also serves as trustee for
the holders of the Imperial Valley project financing debt. In the event a
conflict of interest were to arise between those holders and the holders of
Securities, the trustee may determine, or be required, to resign as trustee
under the indenture.
DEBT SERVICE RESERVE LETTER OF CREDIT REIMBURSEMENT AGREEMENT
GENERAL
On the closing date for the old Securities, the debt service reserve
letter of credit provider (Credit Suisse First Boston) issued a debt service
reserve letter of credit for our account in the amount of approximately $24
million in favor of the depositary bank. The debt service reserve letter of
credit was issued pursuant to the debt service reserve letter of credit
reimbursement agreement
The depositary bank may make drawings under any debt service reserve
letter of credit upon the occurrence of the following events:
(1) there being insufficient funds in the debt payment account on any
payment date to pay interest or principal then due on the Securities
(after application of funds from the debt service reserve account);
(2) upon our failure to provide a substitute letter of credit from another
letter of credit provider within not more than 45 days after receipt
of a notice from the debt service reserve letter of credit provider
that the long-term debt of the debt service letter of credit provider
is less than "A" as determined by S&P or "A2" as determined by
Moody's;
(3) upon receipt of a notice from the debt service reserve letter of
credit provider that the debt service reserve letter of credit will be
terminated before its stated expiration date;
(4) upon our failure to obtain an extension or provide a replacement debt
service reserve letter of credit at least 45 days before the
expiration of the debt service reserve letter of credit; and
(5) upon receipt of a notice from the debt service reserve letter of
credit provider that interest is due and payable, but unpaid, with
respect to outstanding debt service reserve letter of credit loans (so
long as any drawing under this clause, together with all other
drawings under the debt service reserve letter of credit in the same
calendar year, does not exceed $5,000,000).
The depositary bank will apply the proceeds of each drawing: in the case
of clauses (1) and (5), to payment of the relevant obligation, and in the case
of clauses (2), (3) and (4), to the debt service reserve account until the debt
service reserve requirement is met.
The amount available for drawing under the debt service reserve letter of
credit will be reduced upon (1) the making of draws, (2) a reduction of the
debt service reserve requirement and (3) the deposit of cash in the debt
service reserve account.
DEBT SERVICE RESERVE LETTER OF CREDIT LOANS
Each drawing on the debt service reserve letter of credit submitted by the
depositary bank will be converted into a loan to us.
Each debt service reserve letter of credit loan will be evidenced by a
note and will mature on the later of (1) 10 years from the closing date for the
old Securities or (2) 5 years from the drawing giving rise to the debt service
reserve letter of credit loan. We will repay the principal amount of each debt
service reserve letter of credit loan as, when and to the extent funds are made
available from the revenue account under the depositary agreement.
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CONVERSION TO DEBT SERVICE RESERVE BOND
If (1) 50% or more of the principal amount of any debt service reserve
letter of credit loan remains outstanding on or after 5 years from the drawing
giving rise to such loan or (2) the principal amount of any debt service
reserve letter of credit loan remains outstanding on or after l0 years from the
closing date for the old Securities, the debt service reserve letter of credit
provider may, upon 30 days' prior written notice to us and the trustee, convert
any such debt service reserve letter of credit loan into a debt service reserve
bond. Each debt service reserve bond will amortize on a basis which results in
levelized payment of the principal of and interest on the debt service reserve
bond to and including its maturity date, which will be the final maturity date
of the Securities and will bear interest at a fixed rate equal to the higher of
(a) the interest rate last applicable to the debt service reserve letter of
credit loan and (b) the then current (at the time of conversion rate of
interest on United States Treasury notes with an average life most comparable
to the average life of the Securities plus the higher of 2.50% and the spread
over United States Treasury notes applicable to the Securities on the closing
date for the old Securities. We will pay interest and principal on each debt
service reserve bond on each payment date on a pro rata basis with payments of
interest and principal on the Securities.
EVENTS OF DEFAULT
The following events constitute events of default under the debt service
reserve letter of credit reimbursement agreement:
o We fail to pay any principal, interest or other amounts due under or
in connection with the debt service reserve letter of credit
reimbursement agreement or any debt service reserve letter of credit
bond within 15 days after its due date (in the case of principal and
interest) and, in the case of the failure to pay fees, costs or
expenses, 15 days or more following delivery of notice to us regarding
the payment;
o if any representation or warranty made by or on behalf of us in the
debt service reserve letter of credit reimbursement agreement
(including by incorporation by reference) 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 the
inaccuracy has resulted in or could reasonably be expected to have a
material adverse effect and the fact, event or circumstance continues
to be uncured for 30 or more days from the date one of our responsible
officers obtains actual knowledge on the inaccuracy. However, if we
commence and diligently pursue efforts to cure the fact, event or
circumstance or the material adverse effect within the 30-day period,
we may continue to effect the cure, and the misrepresentation will not
be deemed an event of default, for an additional 60 days so long as we
are diligently pursuing the cure;
o if any provision of the indenture, the depositary agreement or any
security document is terminated, amended or otherwise modified without
the prior written approval of the letter of credit banks which hold at
least 66 2/3% of the obligations and/or the commitments under those
agreements if the termination, amendment or other modification would
(a) affect the priority of payments from the revenue account under the
depositary agreement in a manner adverse to the agent under the debt
service reserve letter of credit reimbursement agreement or any bank
party to the debt service reserve letter of credit reimbursement
agreement, (b) increase the interest rate on the Securities other than
in accordance with the indenture, (c) amend the payment dates for the
Securities in a manner adverse to the letter of credit agent or any
letter of credit bank, or (d) change the voting requirements under the
intercreditor agreement in a manner adverse to the letter of credit
agent or any letter of credit bank, and, in each case, the
termination, amendment or other modification is not cured with 60 days
after one of our authorized officers has actual knowledge thereof.
However, if we commence and diligently pursue efforts to cure the
default within the 60-day period, we may continue to effect the cure
of the default, and the default will not be deemed an event of default
for an additional 30 days so long as we are diligently pursuing the
cure;
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o if we fail to perform certain covenants under the indenture which are
incorporated by reference in the debt service reserve letter of credit
reimbursement agreement, and the failure continues for 30 days after
one of our authorized representatives has actual knowledge of the
failure. However, the failure will only be an event of default after
all outstanding amounts due under the Securities have paid in full and
the indenture is no longer in effect;
o if we fail to perform our covenants contained (including by
incorporation by reference) in any other provision of the debt service
reserve letter of credit reimbursement agreement and the failure
continues for 60 or more days after we have actual knowledge of the
failure. However, if we commence and diligently pursue efforts to cure
the default within such 60-day period, we may continue to effect the
cure, and the default will not be deemed a an event of default, for an
additional 30 days so long as we are diligently pursuing the cure; and
o if an event of default as described under any of clauses (2) through
(11) of the summary of indenture events of default occurs and is
continuing until the earlier of the expiration of 30 days or an
acceleration of the Securities.
REMEDIES
Upon the occurrence of an event of default under the debt service reserve
letter of credit reimbursement agreement, the debt service reserve letter of
credit provider may (1) terminate the debt service reserve letter of credit,
(2) accelerate any outstanding debt service reserve letter of credit loans or
debt service reserve bonds and (3) terminate its commitment.
SECURITY ARRANGEMENTS
Our payment of the principal of, premium (if any), interest on and other
amounts due under or in connection with the Securities or the other secured
obligations will be secured by the collateral pursuant to the security
documents. The preservation and administration of the collateral by the
collateral agent and the disposition of the collateral among the secured
parties upon acceleration and foreclosure will be governed by the intercreditor
agreement.
SECURITY DOCUMENTS
ASSIGNOR SECURITY AGREEMENT
Under the assignor security agreement executed by the Assignors in favor
of the collateral agent, Magma, Salton Sea Power, Falcon Seaboard Resources,
Falcon Seaboard Power, Falcon Seaboard Oil, California Energy Development and
CE Texas Energy have (1) assigned to the collateral agent all of the Assignors'
rights to receive available cash flow and (2) granted to the collateral agent,
acting on behalf of the secured parties, a lien (subject to permitted liens) on
all of the Assignors' available cash flow which is deposited with the
depositary bank.
The assignor security agreement also contains affirmative and negative
covenants of the Assignors in favor of the collateral agent (acting on behalf
of the holders of Securities and the other secured parties). Affirmative
covenants of the Assignors include the obligation of each Assignor to, subject
to exceptions set forth in the assignor security agreement:
o provide notices and information to the trustee and the rating
agencies;
o maintain its existence, qualification to do business and rights and
privileges (except, with respect to qualification to do business and
rights and privileges, where the failure to do so could not reasonably
be expected to result in a material adverse effect);
o comply with all applicable laws (except where the failure to do so
could not reasonably be expected to result in a material adverse
effect);
o obtain and comply with all necessary governmental approvals (except
where the failure to do so could not reasonably be expected to result
in a material adverse effect);
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o perform its obligations under the financing documents (except where
the failure to do so could not reasonably be expected to result in a
material adverse effect);
o cause its project company (1) to perform its covenants under its
project documents and project financing documents (except where the
failure to do so could not reasonably be expected to result in a
material adverse effect), (2) not to amend, terminate or otherwise
modify any of its project documents or project financing documents
(except a power contract buy-out which would not result in a ratings
down-grade or where doing so could not reasonably be expected to
result in a material adverse effect), (3) to maintain the qualifying
facility status of its project (except where the failure to do so
could not reasonably be expected to result in a material adverse
effect), (4) not to enter into any additional project documents or
project financing documents (except where doing so could not
reasonably be expected to result in a material adverse effect), (5)
not to incur any additional debt except (a) if the rating agencies
confirm in writing that the incurrence will not result in a ratings
downgrade and (b) other than with respect to Magma and Falcon Seaboard
Resources, in other limited circumstances, and (6) not to create any
liens other than liens permitted under the financing documents;
o maintain title to its assets (except where the failure to do so could
not reasonably be expected to result in a material adverse effect);
o maintain the liens on its collateral in favor of the collateral agent
(except where the failure to do so could not reasonably be expected to
result in a material adverse effect);
o pay its taxes;
o keep books and records in accordance with generally accepted
accounting principals;
o cause all available cash flow to which it has a right to receipt to be
deposited into the revenue account;
o use its reasonable best efforts to cause its project company, and each
of its subsidiaries which owns an interest in its project company, to
declare and pay distributions to it with all available cash flow then
available for distribution; and
o hold all available cash flow received by it in trust for the secured
parties and immediately deliver such available cash flow to the
depositary bank.
Negative covenants of the Assignors include the following obligation of
each Assignor not to, subject to exceptions set forth in the assignor security
agreement:
o incur any debt other than the secured obligations, debt existing on
the closing date for the old Securities and other permitted debt, or
permit either California Energy Yuma or SECI Holdings or any holding
company associated with the projects to incur any debt other than
permitted debt;
o create or allow to exist or permit any lien on its properties other
than permitted liens;
o become liable for any guarantee obligation (except guarantees of
permitted debt which is not incurred by an affiliate of the Assignor
(other than a wholly-owned subsidiary of the Assignor));
o engage in any activities other than (1) the ownership of an interest
in its project company, (2) with respect to Magma, the performance of
its obligations under the project documents, (3) the activities
contemplated by the indenture and the other financing documents and
activities incidental thereto and (4) other activities which could not
reasonably be expected to result in a material adverse effect and
which the rating agencies confirm will not result in a lowering of the
existing ratings for the Securities;
o merge, consolidate, change its form of organization or business,
liquidate, wind-up or dissolve itself other than in certain
circumstances which the rating agencies confirm will not result in a
lowering of the existing ratings for the Securities;
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o sell, transfer or convey any portion of its interest in its project
company other than, so long as no event of default has occurred and is
continuing, (1) any sale for fair market value the proceeds of which
are in the form of cash or cash equivalents and are used to redeem
Securities in accordance with the indenture, if required, or (2) a
transfer permitted under the financing documents;
o form subsidiaries, make investments, loans or advances or acquire the
stock, obligations or securities of any person other than (1)
permitted investments, (2) investments, loans or advances made with
funds which do not constitute collateral and (3) subsidiaries the
formation of which the rating agencies confirm will not result in a
lowering of the existing ratings for the Securities;
o enter into non-arm's-length transactions with affiliates except as
permitted by the financing documents;
o make restricted payments other than the payment of available cash flow
into the revenue account;
o assign its rights or obligations under the financing documents or
enter into additional contracts or agreements if those assignments or
additional contracts or agreements could reasonably be expected to
result in a material adverse effect; or
o amend its organizational documents or any other material contract if
such amendment could reasonably be expected to result in a material
adverse effect.
CE GENERATION SECURITY AGREEMENT
Under to the CE Generation security agreement executed by us in favor of
the collateral agent, we have granted to the collateral agent, acting on behalf
of the secured parties, a lien on the following, whether currently owned or
later acquired by us:
o all of our rights under the contracts, agreements or undertakings to
which we are a party;
o the depositary accounts and all cash, investments and other assets on
deposit in or credited to those accounts;
o all of our other tangible personal and intangible property, to the
extent assignable (other than the capital stock of Magma, which will
be pledged upon the redemption of, or earlier release of security
interests under, Magma's 9 7/8% promissory notes); and
o all proceeds received or receivable in connection with any of the
above, to the extent assignable.
PLEDGE AGREEMENTS
Under the pledge agreements executed by us, Magma and some of the
intermediate holding companies in favor of the collateral agent, those parties
pledged the following to the collateral agent, acting on behalf of the secured
parties: (1) all of the equity interests in CE Texas Gas and the Assignors
(other than the capital stock of Magma and the 1% of the shares of capital
stock of Salton Sea Power which is owned by Salton Sea Funding Corporation);
(2) upon the redemption of, or other release of security interests under, the
9 7/8% promissory notes, all of the capital stock of Magma; and (3) all
dividends, distributions, cash, instruments and other property and proceeds
from time to time received, receivable or otherwise distributed in respect of
or in exchange for the equity interests described in clauses (1) and (2).
INTERCREDITOR AGREEMENT
The collateral will be shared among the secured parties as provided in the
intercreditor agreement entered into among us, the Assignors and the secured
parties. The intercreditor agreement will govern: (1) the appointment of the
collateral agent as agent for each of the secured parties; (2) the preservation
and administration of the collateral by the collateral agent; (3) the
disposition of
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the collateral among the secured parties upon acceleration and foreclosure; and
(4) the application of (a) available cash flow representing loss proceeds,
expropriation proceeds, title proceeds, buy-out proceeds, refinancing proceeds
or asset sale proceeds and (b) proceeds from our sale of all or a portion of
our interests in any Assignor or the sale by an Assignor of all or a portion of
its interest in any project company. Each person replacing any of the secured
parties and each person (or a trustee therefor or agent thereof) holding
secured obligations will be required to become a party to the intercreditor
agreement, which will be amended to the extent necessary to accommodate the
replacement or addition of those persons.
VOTING
The exercise of remedies following the occurrence of a trigger event (as
described below) will be governed by the provisions of the intercreditor
agreement. The affirmative vote of secured parties holding at least (1) with
respect to a trigger event resulting from an event of default under clause (1)
above under the summary of the indenture events of default or any similar event
of default under any other financing document, 331/3% of the combined exposure,
or (2) with respect to any other trigger event or any other event or
circumstance requiring a vote of the secured parties, 50% of the combined
exposure, will be sufficient to direct the collateral agent to exercise
remedies on behalf of the secured parties following the occurrence of a trigger
event.
Except as described herein, any amendment, supplement, waiver or other
modification of the terms and provisions of, or release of liability under, any
instrument evidencing secured obligations may be made or consented to by the
secured parties who are party to those instruments in accordance with the terms
of those instruments without any consent of or notice to any other secured
party.
TRIGGER EVENTS; EXERCISE OF REMEDIES
Each of the following events will be deemed a trigger event under the
intercreditor agreement if the collateral agent, upon direction from the
required secured parties, shall have declared such event to be a trigger event:
o the occurrence of an event of default under the indenture and the
acceleration of all or a portion of the principal amount of the
outstanding Securities; and
o the occurrence of an event of default under any other instrument
evidencing secured obligations the holder of which (or an agent or a
trustee of which) is a party to the intercreditor agreement and the
acceleration of the debt thereunder in an aggregate principal amounts
in excess of $5 million;
However, upon the occurrence of an event of default described above in
connection with our bankruptcy or any bankruptcy of any Assignor, the event of
default will automatically be deemed a trigger event without any declaration or
other action by the collateral agent or the secured parties.
If a trigger event occurs and continues the collateral agent, upon the
written instructions of the required percentage of secured parties, will be
authorized to take any and all actions and to exercise any and all rights,
remedies and options available to it under the security documents. However,
upon the occurrence of a trigger event involving our bankruptcy or the
bankruptcy any Assignor, the collateral agent will automatically be authorized
to take actions and exercise rights, remedies and options without the written
instructions of the required percentage of secured parties.
APPLICATION OF PROCEEDS FOLLOWING A TRIGGER EVENT
Upon a foreclosure or other exercise of remedies following a trigger
event, the proceeds of any sale, disposition or other realization upon any or
all of the collateral will be distributed in the following order of priority:
(1) first, to the trustee, the debt service reserve letter of credit
provider, the collateral agent and the depositary bank, ratably, to pay all
administrative costs due and payable to those parties under the intercreditor
agreement and the other financing documents;
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(2) second, to the secured parties, ratably, an amount equal to the unpaid
amount of all secured obligations constituting principal, interest, premium (if
any) and fees (including commitment fees and fronting fees, if any, due and
owing for any debt service reserve letter of credit) due and payable to the
secured parties;
(3) third, to the secured parties, ratably, an amount equal to the unpaid
amount of all other secured obligations due and payable to the secured parties
as of the date of the distribution; and
(4) fourth, to us, the Assignors or our or their successors and assigns or
to whomever may be lawfully entitled, or as a court of competent jurisdiction
may direct, any surplus remaining after giving effect to clauses (1) through
(3) immediately above.
At the time the collateral agent is to make a distribution under clause
(2) above, and with the same priority as the distribution, the collateral agent
will deposit into a separate interest-bearing trust account funds up to the
then outstanding amount of the debt service reserve letter of credit
(calculated after giving effect to the redemption of Securities with proceeds
of the distribution). The collateral agent will hold the funds in the account
until receipt of a written notice from the debt service reserve letter of
credit provider that either (a) the depositary bank has made a drawing on the
debt service reserve letter of credit, or (b) the debt service reserve letter
of credit has expired or terminated. Upon receipt of a notice specified in (a)
above, the collateral agent will distribute to the debt service reserve letter
of credit provider funds equal to the drawing's proportionate share of the debt
service reserve letter of credit collateralized by the account. Upon receipt of
a notice specified in (b) above, the collateral agent will distribute (in
accordance with clauses (2), (3) and (4) above and without regard to this
paragraph) to the appropriate persons in an amount equal to the balance in the
account.
The proceeds of any sale, disposition or other realization with respect to
collateral held for the benefit of some but not all of the secured parties will
be applied to the payment of obligations owed to the secured parties for whose
benefit the collateral was held.
APPLICATION OF PROCEEDS
All (a) available cash flow representing loss proceeds, expropriation
proceeds, title proceeds, buy-out proceeds, refinancing proceeds or asset sale
proceeds and (b) proceeds from our sale of all or a portion of our interests in
any Assignor or the sale by an Assignor of all or a portion of its interests in
any project company, in each case which are required to be applied to the
redemption of Securities, will be distributed in the following order of
priority:
(1) first, to the trustee, the debt service reserve letter of credit
provider, the collateral agent and the depositary bank, ratably, in an amount
equal to the administrative costs due and payable to these parties as of the
date of the distribution;
(2) second, to the secured parties, ratably, an amount equal to the unpaid
amount of all secured obligations constituting principal, interest, premium (if
any) and fees (including commitment fees and fronting fees, if any, due and
owing in respect of any debt service reserve letter of credit) due and payable
to the secured parties as of the date of the distribution;
(3) third, to the secured parties, ratably, an amount equal to the unpaid
amount of all other secured obligations due and payable to the secured parties
as of the date of the distribution; and
(4) fourth, to us, the Assignors or our or their successors and assigns or
to whomever may be lawfully entitled or as a court of competent jurisdiction
may direct, any surplus remaining after giving effect to clauses (1) through
(3) immediately above.
At the time a distribution is to be made pursuant to clause (2) above, the
collateral agent will set aside available funds (on a ratable basis with the
distribution) in a separate interest-bearing trust account in an amount up to
the then outstanding amount of the debt service reserve letter of credit
calculated after giving effect to the redemption of Securities with proceeds of
the distribution). Upon a subsequent draw on the debt service reserve letter of
credit, the collateral agent will transfer funds
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from the separate account to the debt service reserve letter of credit provider
up to the amount drawn on the debt service reserve letter of credit. Upon an
expiration or termination of the debt service reserve letter of credit, funds
in the separate account collateralizing the debt service reserve letter of
credit will be released and applied as set forth in clauses (2), (3) and (4)
above.
PLAN OF DISTRIBUTION
Each broker-dealer that receives new Securities for its own account as a
result of market-making activities or other trading activities in connection
with the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new Securities. This prospectus, as it may
be amended or supplemented from time to time, may be used by participating
broker-dealers during the period referred to below in connection with resales
of new Securities received in exchange for old Securities if the old Securities
were acquired by the participating broker-dealers for their own accounts as a
result of the market-making or other trading activities. We have agreed that
this prospectus, as it may be amended or supplemented from time to time, may be
used by a participating broker-dealer in connection with resales of new
Securities for a period ending 120 days after the registration statement of
which this prospectus is a part has been declared effective (subject to
extension) or, if earlier, when all new Securities have been disposed of by the
participating broker-dealer.
We will not receive any proceeds from the issuance of the new Securities
offered by this prospectus. New Securities received by broker-dealers for their
own accounts in connection with the exchange offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the new Securities or a
combination of these methods of resale, at market prices prevailing at the time
of resale, at prices related to prevailing market prices or at negotiated
prices. Any resale may be made directly to purchasers or to or through brokers
or dealers and/or the purchasers of any new Securities. Any broker-dealer that
resells new Securities that were received by it for its own account in
connection with the exchange offer and any broker-dealer the participates in a
distribution of new Securities may be deemed to be an "underwriter" within the
meaning of the Securities Act, and any profit on any resale of new Securities
and any commissions or concessions received by any of those 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, a broker-dealer will not be deemed to admit that it
is a "underwriter" within the meaning of the Securities Act.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
QUALIFICATIONS AND DEFINED TERMS
The following summary describes material United States federal income tax
considerations related to the acquisition, ownership and disposition of the
Securities.
The summary is subject to the following qualifications:
o The summary is based on the Internal Revenue Code of 1986, as amended,
and regulations, rulings and judicial decisions as of the date hereof,
all of which may be repealed, revoked or modified with possible
retroactive effect;
o This discussion does not deal with holders that may be subject to
special tax rules, including:
o insurance companies,
o tax-exempt organizations,
o financial institutions,
o dealers in securities or currencies,
o holders whose functional currency is not the U.S. dollar, and
o holders who will hold the Securities as a hedge against currency
risks or as part of a straddle, synthetic security, conversion
transaction or other integrated investment comprised of the
Securities and one or more other investments;
o The summary is applicable only to purchasers that acquire the
Securities at the initial offering price and who will hold the
Securities as capital assets within the meaning of Section 1221 of the
Internal Revenue Code;
o The summary is for general information only and does not address all
aspects of United States federal income taxation that may be relevant
to holders of the Securities in light of their particular
circumstances; and
o The summary does not address any tax consequences arising under the
laws of any state, local or foreign taxing jurisdiction.
Accordingly prospective holders should consult their own tax advisors as to the
particular tax consequences to them of acquiring, holding or disposing of the
Securities.
As used herein, the term "United States holder" means a beneficial owner
of a Security that is (1) a citizen or resident of the United States for U.S.
federal income tax purposes, (2) a corporation created or organized under the
laws of the United States, any State thereof or the District of Columbia, (3)
an estate the income of which is subject to United States federal income tax
without regard to its source or (4) a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust
and one or more United States persons have the authority to control all
substantial decisions of the trust. A "non-United States holder" is any
beneficial holder of a Security that is not a United States holder.
INCOME TAX CONSIDERATIONS FOR UNITED STATES HOLDERS
TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of an old Security for a new Security pursuant to the
exchange offer will not constitute a "significant modification" of the old
Security for United States federal income tax purposes and, accordingly, the
new Security will be treated as a continuation of the old Security in the hands
of the holder. As a result, there will be no United States federal income tax
consequences to a United States holder who exchanges an old Security for the
new Security pursuant to the exchange offer and the holder will have the same
adjusted tax basis and holding period in the new Security as it had in the old
Security immediately before the exchange.
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ORIGINAL ISSUE DISCOUNT AND PAYMENTS OF INTEREST
The old Securities were not, and the new Securities will not be, issued
with more than a de minimis amount of original issue discount. Accordingly,
interest on a Security generally will be taxable to a United States holder as
ordinary income at the time it accrues or is received in accordance with the
United States holder's method of accounting for U.S. federal income tax
purposes.
DISPOSITION OF SECURITIES
Upon the sale, exchange, redemption, retirement or other disposition of a
Security, a United States holder generally will recognize gain or loss equal to
the difference between (1) the amount realized upon the sale, exchange,
redemption, retirement or other disposition (not including amounts attributable
to accrued but unpaid interest, which will be taxable as such) and (2) the
holder's adjusted tax basis in the Security. A United States holder's tax basis
in a Security will, in general, be the United States holder's cost for the
Security. The gain or loss will be capital gain or loss. Capital gain
recognized by an individual investor upon a disposition of a Security that has
been held for more than 12 months will generally be subject to a maximum tax
rate of 20% or, in the case of a Security that has been held for 12 months or
less, will be subject to tax at ordinary income tax rates.
INCOME TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
PAYMENTS OF PRINCIPAL AND INTEREST
Under present U.S. federal income tax law, subject to the discussion of
backup withholding and information reporting below, payments of principal of
and interest on the Securities to any non-United States holder will not be
subject to U.S. federal income or withholding tax so long as the following
conditions are satisfied:
o the non-United States holder does not actually or constructively own
10% or more of the total combined voting power of all classes of our
membership interests entitled to vote;
o the non-United States holder is not a bank receiving interest pursuant
to a loan agreement entered into in the ordinary course of its trade
or business;
o the non-United States holder is not a controlled foreign corporation
that is related to us (directly or indirectly) through equity
ownership;
o such interest payments are not effectively connected with a United
States trade or business; and
o the following certification requirements are met:
o the beneficial owner of the Security certifies on IRS Form W-8 or
a substantially similar substitute form, under penalties of
perjury, that it is not a United States person and provides its
name and address, and
o (a) the beneficial owner files the form with the withholding
agent or (b) in the case of a Security held by a securities
clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade
or business and holds the Security, the financial institution
certifies to us or our agent under penalties of perjury that the
statement has been received from the beneficial owner by it or by
a financial institution between it and the beneficial owner and
furnishes the withholding agent with a copy thereof.
DISPOSITION OF SECURITIES
Under present U.S. federal income tax law, subject to the discussion of
backup withholding and information reporting below, a non-United States holder
will not be subject to U.S. federal income tax on gain realized on the sale,
exchange, redemption, retirement or other disposition of a Security, unless (1)
the gain is effectively connected with a trade or business carried on by the
holder within the
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United States or, if a treaty applies, is generally attributable to a United
States permanent establishment maintained by the holder, or (2) the holder is
an individual who is present in the United States for 183 days or more in the
taxable year of disposition and other requirements are met.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, payments of interest and the proceeds of the sale, exchange,
redemption, retirement or other disposition of the Securities payable by a U.S.
paying agent or other U.S. intermediary will be subject to information
reporting. In addition, backup withholding at a rate of 31% will apply to these
payments if the holder fails to provide an accurate taxpayer identification
number in the case of a United States holder or the certification described
above (in the case of a non-United States holder) or other evidence of exempt
status or fails to report all interest and dividends required to be shown on
its U.S. federal income tax returns. Some categories of United States Holders
(including, among others, corporations) and non-United States holders that
comply with certification requirements are not subject to backup withholding.
Any amount paid as backup withholding will be creditable against the holder's
U.S. federal income tax liability, so long as the required information is
timely furnished to the Internal Revenue Service. Holders of Securities should
consult their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining an exemption. On October 6, 1997,
new Treasury Regulations were issued that generally modify the information
reporting and backup withholding rules applicable to certain payments made
after December 31, 1999. In general, the new regulations would not
significantly alter the present rules discussed above.
LEGAL MATTERS
The validity of the new Securities will be passed upon for us by Latham &
Watkins, 885 Third Avenue, Suite 1000, New York, New York 10022.
INDEPENDANT ACCOUNTANTS
Our consolidated financial statements as of December 31, 1998 and 1997,
and the related consolidated statements of operations and cash flows for each
of the three years in the period ended December 31, 1998, included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing in this prospectus, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
POWER GENERATION PROJECTS INDEPENDENT ENGINEER
Fluor Daniel, Inc. prepared the power generation projects independent
engineer's report dated February 24, 1999, which is included as Appendix A to
this prospectus. Fluor Daniel's report has been included in this prospectus in
reliance upon the conclusions of Fluor Daniel and upon the firm's experience in
preparing independent engineer's reports for power projects.
NATURAL GAS PROJECTS INDEPENDENT ENGINEER
R.W. Beck, Inc. prepared the natural gas projects independent engineer's
report dated February 24, 1999, which is included as Appendix B to this
prospectus. R.W. Beck's report has been included in this prospectus in reliance
upon the conclusions of R.W. Beck and upon the firm's experience in preparing
independent engineer's reports for natural gas-fired power projects.
GEOTHERMAL PROJECTS INDEPENDENT ENGINEER
Fluor Daniel also prepared the geothermal projects independent engineer's
report dated February 17, 1999, which is included as Appendix C to this
prospectus. Fluor Daniel's report has been included in this prospectus in
reliance upon the conclusions of Fluor Daniel and upon the firm's experience in
preparing independent engineer's reports for geothermal power projects.
117
<PAGE>
CONSULTANTS' REPORTS
Henwood Energy Services has prepared the power market consultant's report
dated February 11, 1999 included as Appendix D to this prospectus. You should
read this report in its entirety for information with respect to industry and
regulatory matters affecting the sales of electricity by some of the projects
and the related subjects discussed in the report. Henwood's report has been
included in this prospectus in reliance upon the conclusions of Henwood and
upon the 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. prepared the geothermal resource consultant's report
dated February 1999 included as Appendix E to this prospectus. You should read
this report in its entirety for information on the sufficiency of the
geothermal resources available for use and for conversion to electrical power
by the Imperial Valley projects and the related subjects discussed in the
report. GeothermEx's report has been included in this prospectus in reliance
upon the conclusions of GeothermEx and upon the firm's experience in preparing
consultant's reports for geothermal projects.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-4 with the Securities and
Exchange Commission pursuant to Securities Act with respect to our offering of
the new Securities. This prospectus does not contain all of the information in
the registration statement. You will find additional information about us and
the new Securities in the registration statement. Any statement made in this
prospectus concerning the provisions of legal documents are not necessarily
complete and you should read the documents that are filed as exhibits to the
registration statement.
We are subject to the informational requirements of the Exchange Act and
file periodic reports, registration statements, proxy statements and other
information with the Securities and Exchange Commission. You may inspect and
copy the registration statement, including exhibits, and our periodic reports,
registration statements, proxy statements and other information we file with
the Securities and Exchange Commission at the Public Reference Section of the
Securities and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Securities and Exchange Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the
Public Reference Section of the Securities and Exchange Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Securities and Exchange Commission maintains a web site
that contains reports, proxy and information statements and other materials
that are filed through the Securities and Exchange Commission's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system. This Web site can be accessed
at http://www.sec.gov.
118
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Consolidated Financial Statements:
Independent Auditors' Report ...................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 ..... F-3
Consolidated Statements of Operations for the Three Years Ended
December 31, 1998, 1997 and 1996 ............................... F-4
Consolidated Statements of Cash Flows for the Three Years Ended
December 31, 1998, 1997 and 1996 ............................... F-5
Notes to Consolidated Financial Statements ....................... F-6 - F-19
Interim Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 .......................................... F-20
Consolidated Statements of Operations for the Nine
Months Ended September 30, 1999 and 1998 ....................... F-21
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 1998 ....................... F-22
Notes to Consolidated Financial Statements ....................... F-23 - F-24
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
CE Generation, LLC
We have audited the accompanying consolidated balance sheets of CE
Generation, LLC as of December 31, 1998 and 1997, and the related consolidated
statements of operations and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of CE Generation, LLC as of
December 31, 1998 and 1997 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.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 28, 1999 (February 22, 1999 as to the first paragraph in Note 1)
* * * * *
F-2
<PAGE>
CE GENERATION, LLC
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents .......................................... $ 25,774 $ 23,684
Restricted cash .................................................... 128,553 6,907
Accounts receivable ................................................ 67,629 53,072
Properties, plants, contracts and equipment, net ................... 893,492 932,207
Equity investments ................................................. 125,036 131,207
Excess of cost over fair value of net assets acquired, net ......... 310,700 322,581
Note receivable from related party (Note 7) ........................ 140,520 --
Deferred financing charges and other assets ........................ 58,928 58,318
---------- ----------
Total assets .................................................... $1,750,632 $1,527,976
========== ==========
LIABILITIES AND EQUITY
LIABILITIES:
Accounts payable and other accrued liabilities ..................... $ 39,810 $ 48,943
Project loan ....................................................... 90,529 103,334
Salton Sea notes and bonds ......................................... 626,816 448,754
Notes payable to related party ..................................... 247,681 247,812
Deferred income taxes .............................................. 208,849 214,993
---------- ----------
Total liabilities ............................................... 1,213,685 1,063,836
Commitments and contingencies (Notes 9 and 12)
Net investment and advances ........................................ 536,947 464,140
---------- ----------
Total liabilities and equity ....................................... $1,750,632 $1,527,976
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CE GENERATION, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUE:
Sales of electricity and steam .................. $395,560 $381,458 $281,307
Equity earnings in subsidiaries ................. 10,732 14,542 4,263
Interest and other income ....................... 29,883 11,138 19,273
-------- -------- --------
Total revenues ................................ 436,175 407,138 304,843
-------- -------- --------
COST AND EXPENSES:
Plant operations ................................ 114,092 119,973 94,245
General and admininstration ..................... 4,963 4,380 3,503
Depreciation and amortization ................... 96,818 88,504 72,533
Interest expense ................................ 74,653 80,907 77,669
Less interest capitalized ....................... (347) -- (4,805)
-------- -------- --------
Total expenses ................................ 290,179 293,764 243,145
-------- -------- --------
Income before provision for income taxes ......... 145,996 113,374 61,698
Provision for income taxes ....................... 52,218 43,378 15,487
-------- -------- --------
Net income ....................................... $ 93,778 $ 69,996 $ 46,211
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CE GENERATION, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................. $ 93,778 $ 69,996 $ 46,211
ADJUSTMENTS TO RECONCILE CASH FLOWS FROM OPERATING
ACTIVITIES:
Depreciation and amortization ............................... 96,818 88,504 72,533
Provision for deferred income taxes ......................... (6,144) 4,280 3,874
Equity earnings in subsidiaries ............................. (10,732) (14,542) (4,263)
CHANGES IN OTHER ITEMS:
Accounts receivable ....................................... (14,557) (2,005) (1,112)
Accounts payable and other accrued liabilities ............ (9,133) 4,837 (26,540)
---------- ---------- ----------
Net cash flows from operating activities ............... 150,030 151,070 90,703
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................................ (46,222) (21,676) (90,734)
Purchase of Falcon Seaboard and Partnership
Interest, net of cash acquired ............................ -- -- (264,324)
Distributions from equity investments ....................... 16,903 23,960 8,295
Decrease (increase) in other assets ......................... (610) (3,961) 16,248
Decrease (increase) in restricted cash ...................... (121,646) 15,023 68,701
---------- ---------- ----------
Net cash flows from investing activities ............... (151,575) 13,346 (261,814)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Salton Sea notes and bonds ..................... (106,938) (90,228) (48,106)
Proceeds from Salton Sea notes and bonds .................... 285,000 -- 135,000
Note receivable from related party .......................... (140,520) -- --
Repayment of note payable to related party .................. (131) -- (480)
Repayment of project loans .................................. (12,805) (11,237) (107,906)
Advances (to) from MEHC, net ................................ (20,971) (60,759) 175,267
---------- ---------- ----------
Net cash flows from financing activities ............... 3,635 (162,224) 153,775
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents ......... 2,090 2,192 (17,336)
Cash and cash equivalents at beginning of year ............... 23,684 21,492 38,828
---------- ---------- ----------
Cash and cash equivalents at end of year ..................... $ 25,774 $ 23,684 $ 21,492
========== ========== ==========
SUPPLEMENTAL DISCLOSURE:
Interest paid ............................................... $ 73,283 $ 72,846 $ 64,244
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CE GENERATION, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AMOUNTS IN THOUSANDS)
1. BUSINESS
MidAmerican Energy Holdings Company ("MEHC" and formerly CalEnergy
Company, Inc.) completed a strategic restructuring in conjunction with its
acquisition of MidAmerican Energy Holdings Company in which certain of MEHC's
interests in geothermal and natural gas-fired combined cycle cogeneration
facilities were contributed by MEHC to the newly created CE Generation, LLC
(the Company). This restructuring was completed in February 1999.
BASIS OF PRESENTATION--These consolidated financial statements of CE
Generation, LLC reflect the consolidated financial statements of Magma Power
Company and subsidiaries (excluding certain wholly-owned subsidiaries retained
by MEHC), Falcon Seaboard Resources, Inc. and subsidiaries and Yuma
Cogeneration Association, each a wholly-owned subsidiary of MEHC. The
consolidated financial statements present the financial position, results of
operations and cash flows of the Company as if the Company was a separate legal
entity for all periods presented. The Company's basis in assets and liabilities
have been carried over from MEHC. All material intercompany transactions and
balances have been eliminated in consolidation.
GENERAL--The Company is engaged in the independent power business. The
following table sets out information concerning Company's projects:
<TABLE>
<CAPTION>
COMMERCIAL NOMINAL
PROJECT FUEL OPERATION CAPACITY LOCATION
---------------- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C>
Vulcan Geothermal 1986 34 MW California
Del Ranch Geothermal 1989 38 MW California
Elmore Geothermal 1989 38 MW California
Leathers Geothermal 1990 38 MW California
Salton Sea I Geothermal 1987 10 MW California
Salton Sea II Geothermal 1990 20 MW California
Salton Sea III Geothermal 1989 49.8 MW California
Salton Sea IV Geothermal 1996 39.6 MW California
Salton Sea V Geothermal 2000 49 MW California
CE Turbo Geothermal 2000 10 MW California
PRI Gas 1988 200 MW Texas
Yuma Gas 1994 50 MW Arizona
Saranac Gas 1994 240 MW New York
Norcon Gas 1992 80 MW Pennsylvania
</TABLE>
Vulcan, Del Ranch, Elmore, Leathers and CE Turbo are referred to as the
Partnership Projects. Salton Sea I, II, III, IV and V are referred as the
Salton Sea Projects. The Partnership Projects and the Salton Sea Projects are
collectively referred to as the Imperial Valley Projects. PRI, Yuma, Saranac
and Norcon are referred to as the Gas Projects.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS--The Company considers all investment instruments
purchased with an original maturity of three months or less to be cash
equivalents. Restricted cash is not considered a cash equivalent.
RESTRICTED CASH--The restricted cash balance is composed of restricted
accounts for debt service, capital expenditures and major maintenance
expenditures. The debt service funds are legally restricted as to their use and
transfer to a parent company in the form of loans, advances or cash dividends
and require the maintenance of specific minimum balances.
F-6
<PAGE>
CE GENERATION, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(AMOUNTS IN THOUSANDS)
WELL, RESOURCE DEVELOPMENT AND EXPLORATION COSTS--The Company 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 and the cost of drilling and equipping production wells
and other direct costs, are capitalized and amortized over their estimated
useful lives when production commences. The estimated useful lives of
production wells are ten to twenty years depending on the characteristics of
the underlying resource; exploration costs and development costs, other than
production wells, are generally amortized over the weighted average remaining
term of the Company's power and steam purchase contracts.
DEFERRED WELL AND REWORK COSTS--Geothermal well rework costs are deferred
and amortized over the estimated period between reworks ranging from 18 months
to 24 months. These deferred costs, net of accumulated amortization, are $6,709
and $4,811 at December 31, 1998 and 1997, respectively, and are included in
other assets.
PROPERTIES, PLANTS, CONTRACTS, EQUIPMENT AND DEPRECIATION--The cost of
major additions and betterments are capitalized, while replacements,
maintenance, and repairs that do not improve or extend the lives of the
respective assets are expensed.
Depreciation of the operating power plant costs, net of salvage value if
applicable, is computed on the straight line method over the estimated useful
life of 30 years. Depreciation of furniture, fixtures and equipment is computed
on the straight line method over the estimated useful lives of the related
assets, which range from 3 to 10 years.
The acquisitions of Magma Power Company, Falcon Seaboard Resources, Inc.
and Edison Mission Energy's partnership interests by the Company have been
accounted for as purchase business combinations. All identifiable assets
acquired and liabilities assumed were assigned a portion of the cost of
acquiring the respective companies equal to their values at the date of the
acquisition and includes power sales agreements which are amortized separately
over (1) the remaining portion of the scheduled price periods of the power
sales agreements and (2) for the Edison Partnership interests and Magma
acquisitions, the 20 year avoided cost periods of the power sales agreements
using the straight line method.
EQUITY INVESTMENTS--Investments in common stock of affiliated companies
are accounted for using the equity method if the Company has the ability to
exercise significant influence over the investee's operations and financial
policies.
EXCESS OF COST OVER FAIR VALUE--Total acquisition costs in excess of the
fair values assigned to the net assets acquired are amortized over a 40 year
period for the Magma acquisition and a 25 year period for the Falcon Seaboard
acquisition, both using the straight line method. Accumulated amortization was
$32,857 and $22,985 at December 31, 1998 and 1997, respectively.
MAINTENANCE AND REPAIR RESERVES--Major maintenance and repair reserves are
recorded monthly based on the Company's long-term scheduled major maintenance
plans for the Gas Projects and included in accrued liabilities. Other
maintenance and repairs are charged to expense as incurred.
CAPITALIZATION OF INTEREST AND DEFERRED FINANCING COSTS--Prior to the
commencement of operations, interest is capitalized on the costs of the plants
and geothermal resource development to the extent incurred. Capitalized
interest and other deferred charges are amortized over the lives of the related
assets.
Deferred financing costs are amortized over the term of the related
financing using the effective interest method.
F-7
<PAGE>
CE GENERATION, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(AMOUNTS IN THOUSANDS)
REVENUE RECOGNITION--Revenues are recorded based upon electricity and
steam delivered to the end of the month. See Note 5 for contractual terms of
power sales agreements. Royalties earned from providing geothermal resources to
power plants operated by other geothermal power producers are recorded when
delivered.
INCOME TAXES--The Company has historically been included in the
consolidated income tax returns of MEHC. The Company's provision for income
taxes is computed on a separate return basis. The Company recognizes deferred
tax assets and liabilities based on the difference between the financial
statement and tax bases of assets and liabilities using estimated tax rates in
effect for the year in which the differences are expected to reverse.
FAIR VALUE OF FINANCIAL INSTRUMENTS--Fair values of financial instruments
are estimated based on quoted market prices for debt issues actively traded or
on market prices of similar instruments and/or valuation techniques using
market assumptions.
IMPAIRMENT OF LONG-LIVED ASSETS--The Company reviews long-lived assets and
certain identifiable intangibles 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.
START-UP COSTS--In 1998, the Company adopted SOP No. 98-5, Reporting on
the Costs of Start-Up Activities, which requires costs of start-up activities
and organization costs be expensed as incurred. Such adoption had no
significant effect on the Company.
USE OF ESTIMATES--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.
ACCOUNTING PRONOUNCEMENTS--In June 1998, the FASB issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which established
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The Company has not yet
determined the impact of this accounting pronouncement.
3. ACQUISITIONS
On August 7, 1996, MEHC completed the acquisition of Falcon Seaboard
Resources, Inc. (FSRI) for approximately $226,000. The transaction was
accounted for as a purchase business combination. All identifiable assets
acquired and liabilities assumed were assigned a portion of the cost of
acquiring FSRI, equal to the fair values at the date of acquisition.
On April 17, 1996, MEHC completed the acquisition of Edison Mission
Energy's partnership interests (the "Partnership Interest Acquisition") in four
geothermal operating facilities in California for approximately $70,000. The
four projects, Vulcan, Del Ranch, Leathers and Elmore are located in the
Imperial Valley of California. Prior to this transaction, the Company was a 50%
owner of these facilities. The Partnership Interest Acquisition has been
accounted for as a purchase business combination. All identifiable assets
acquired and liabilities assumed were assigned a portion of the cost of
acquiring the Partnership Interest, equal to their fair values at the date of
the acquisition.
F-8
<PAGE>
CE GENERATION, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(AMOUNTS IN THOUSANDS)
On a pro forma basis for the year ended December 31, 1996, assuming these
transactions were effected January 1, 1996, the Company's revenue and net
income would have been $374,973 and $52,586, respectively.
4. EQUITY INVESTMENTS
The Company indirectly holds noncontrolling general and limited
partnership interests in two partnerships, Saranac Power Partners, L.P.
(Saranac) and Norcon Power Partners, L.P. (Norcon) which were formed to build,
own and operate natural gas fired combined cycle cogeneration facilities. The
lenders to these partnerships have recourse only against these facilities and
the income and revenues therefrom. The Company has a current approximate 45%
economic interest in Saranac and a current 20% economic interest in Norcon. The
Company will have an approximate 80% economic interest in each of these
partnerships after outside limited partners' returns, as defined in the
Partnership Agreements, are achieved.
The following is a summary of aggregated financial information for all
investments owned by the Company which are accounted for under the equity
method at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets ............... $ 414,592 $ 434,028
Liabilities .......... 307,047 326,230
Net income ........... 44,438 47,478
</TABLE>
Saranac's total revenue for the years ended December 31, 1998, 1997 and
1996 were $141,876, $146,954 and $140,396, respectively.
Saranac has project financing through a 14 year note payable agreement
with a lender with a principal amount outstanding of $189,282 at December 31,
1998. The note agreement is collateralized by all of the assets of Saranac.
Saranac is restricted by the terms of the payable agreement from making
distributions or withdrawing any capital amounts without the consent of the
lender. Under terms of the note payable agreement, distributions may be made to
the partners in accordance with the terms of the Saranac partnership agreement.
Norcon has project financing under a note payable comprised of senior and
junior debt with a total principal amount outstanding at December 31, 1998 of
$104,524. The note payable is collateralized by all of Norcon's assets. Under
the terms of the note payable agreement, Norcon is allowed to make
distributions after certain funds have been established; principally, a minimum
of $500 must be maintained in the Project's revenue account.
There were no undistributed earnings in equity investments at December 31,
1998.
F-9
<PAGE>
CE GENERATION, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(AMOUNTS IN THOUSANDS)
5. PROPERTIES, PLANTS, CONTRACTS AND EQUIPMENT
Properties, plants, contracts and equipment comprise the following at
December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Power plants ............................................ $ 678,710 $ 659,369
Wells and resource development .......................... 137,399 124,500
Power sales agreements .................................. 287,653 287,653
Licenses and equipment .................................. 41,671 41,471
--------- ---------
Total operating facilities ........................... 1,145,433 1,112,993
Less accumulated depreciation and amortization .......... (270,244) (184,788)
--------- ---------
Net operating facilities ................................ 875,189 928,205
--------- ---------
Construction in progress:
Other development ...................................... 18,303 4,002
--------- ---------
Total ................................................ $ 893,492 $ 932,207
========= =========
</TABLE>
SIGNIFICANT CUSTOMERS AND CONTRACTS--All of the Company's current sales of
electricity from the Imperial Valley Projects, which comprise approximately 74%
both of 1998 and 1997 electricity and steam revenues, are to Southern
California Edison Company (Edison) and are under long-term power purchase
contracts.
GEOTHERMAL PROJECTS--The current Partnership Projects sell all electricity
generated by the respective plants pursuant to four long-term SO4 Agreements
between the Projects and Edison. These SO4 Agreements provide for capacity
payments, capacity bonus payments and energy payments. Edison makes fixed
annual capacity and capacity bonus payments to the Projects to the extent that
capacity factors exceed certain benchmarks. The price for capacity and capacity
bonus payments is fixed for the life of the SO4 Agreements. Energy is sold at
increasing scheduled rates for the first ten years after firm operation and
thereafter at Edison's Avoided Cost of Energy, which is expected to be equal to
the rate determined by the PX.
The PX is a nonprofit public benefit corporation formed under California
law to provide a competitive marketplace where buyers and sellers of power,
including utilities, end-use customers, independent power producers and power
marketers, complete wholesale trades through an electronic auction. The PX
currently operates two markets: (1) a day ahead market which is comprised of
twenty-four separate concurrent auctions for each hour of the following day and
(2) an hour ahead market for each hour of each day for which bids are due two
hours before each hour. In each market, the PX receives bids from buyers and
sellers and, based on the bids, establishes the market clearing price for each
hour and schedules deliveries from sellers whose bids did not exceed the market
clearing price to buyers whose bids were not less than the market clearing
price. All trades are executed at the market clearing price.
The scheduled energy price periods of the Partnership Projects SO4
Agreements extended until February 1996, December 1998 and December 1998 for
each of the Vulcan, Del Ranch and Elmore Partnerships, respectively, and extend
until December 1999 for the Leathers Partnership. Del Ranch and Elmore
Partnerships' SO4 Agreements provided for energy rates of 14.6 cents per kWh in
1998. Leathers Partnership SO4 Agreement provides for an energy rate of 14.6
cents per kWh in 1998 and 15.6 cents per kWh in 1999. The weighted average
energy rate for all of the Partnership Projects' SO4 Agreements was 11.7 cents
per kWh in 1998.
Salton Sea I sells electricity to Edison pursuant to a 30-year negotiated
power purchase agreement, as amended (the Salton Sea I PPA), which provides for
capacity and energy payments.
F-10
<PAGE>
CE GENERATION, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(AMOUNTS IN THOUSANDS)
The energy payment is calculated using a Base Price which is subject to
quarterly adjustments based on a basket of indices. The time period weighted
average energy payment for Salton Sea I was 5.4 cents per kWh during 1998. As
the Salton Sea I PPA is not an SO4 Agreement, the energy payments do not revert
to Edison's Avoided Cost of Energy. The capacity payment is approximately
$1,100 per annum.
Salton Sea II and Salton Sea III sell electricity to Edison pursuant to
30-year modified SO4 Agreements that provide for capacity payments, capacity
bonus payments and energy payments. The price for contract capacity and
contract capacity bonus payments is fixed for the life of the modified SO4
Agreements. The energy payments for each of the first ten year periods, which
periods expire in April 2000 and February 1999, respectively, are levelized at
a time period weighted average of 10.6 cents per kWh and 9.8 cents per kWh for
Salton Sea II and Salton Sea III, respectively. Thereafter, the monthly energy
payments will be Edison's Avoided Cost of Energy. For Salton Sea II only,
Edison is entitled to receive, at no cost, 5% of all energy delivered in excess
of 80% of contract capacity through September 30, 2004. The annual capacity and
bonus payments for Salton Sea II and Salton Sea III are approximately $3,300
and $9,700, respectively.
Salton Sea IV sells electricity to Edison pursuant to a modified SO4
agreement which provides for contract capacity payments on 34 MW of capacity at
two different rates based on the respective contract capacities deemed
attributable to the original Salton Sea PPA option (20 MW) and to the original
Fish Lake PPA (14 MW). The capacity payment price for the 20 MW portion adjusts
quarterly based upon specified indices and the capacity payment price for the
14 MW portion is a fixed levelized rate. The energy payment (for deliveries up
to a rate of 39.6 MW) is at a fixed rate for 55.6% of the total energy
delivered by Salton Sea IV and is based on an energy payment schedule for 44.4%
of the total energy delivered by Salton Sea IV. The contract has a 30-year term
but Edison is not required to purchase the 20 MW of capacity and energy
originally attributable to the Salton Sea I PPA option after September 30,
2017, the original termination date of the Salton Sea I PPA.
For the years ended December 31, 1998, 1997 and 1996, Edison's average
Avoided Cost of Energy was 3.0 cents, 3.3 cents and 2.5 cents per kWH,
respectively, which is substantially below the contract energy prices earned
for the year ended December 31, 1998. The Company cannot predict the likely
level of Avoided Cost of Energy or PX prices under the SO4 Agreements and the
modified SO4 Agreements at the expiration of the scheduled payment periods. The
revenues generated by each of the projects operating under SO4 Agreements will
decline significantly after the expiration of the respective scheduled payment
periods.
GAS PROJECTS--The Saranac Project sells electricity to New York State
Electric & Gas pursuant to a 15 year negotiated power purchase agreement (the
Saranac PPA), which provides for capacity and energy payments. Capacity
payments, which in 1998 total 2.3 cents per kWh, are received for electricity
produced during "peak hours" as defined in the Saranac PPA and escalate at
approximately 4.1% annually for the remaining term of the contract. Energy
payments, which averaged 6.7 cents per kWh in 1998, escalate at approximately
4.4% annually for the remaining term of the Saranac PPA. The Saranac PPA
expires in June of 2009.
The PRI Project sells electricity to Texas Utilities Electric Company
(TUEC) pursuant to a 15 year negotiated power purchase agreement (the Power
Resources PPA), which provides for capacity and energy payments. Capacity
payments and energy payments, which in 1998 are $3,138 per month and 3.0 cents
per kWh, respectively, escalate at 3.5% annually for the remaining term of the
Power Resources PPA. The Power Resources PPA expires in September 2003.
The NorCon Project sells electricity to Niagara Mohawk Power Corporation
(Niagara) pursuant to a 25 year negotiated power purchase agreement (the Norcon
PPA) which provides for energy
F-11
<PAGE>
CE GENERATION, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(AMOUNTS IN THOUSANDS)
payments calculated pursuant to an adjusting formula based on Niagara's ongoing
Tariff Avoided Cost and the contractual Long-Run Avoided Cost. The NorCon PPA
term extends through December 2017.
Yuma sells electricity to San Diego Gas & Electric Company (SDG&E) under
an existing 30-year power purchase contract. The energy is sold at SDG&E's
Avoided Cost of Energy and the capacity is sold to SDG&E at a fixed price for
the life of the power purchase contract. The power is wheeled to SDG&E over
transmission lines constructed and owned by Arizona Public Service Company
(APS).
ROYALTIES--Royalty expense for the years ended December 31, 1998, 1997 and
1996, which is included in plant operations in the consolidated statements of
operations, comprise the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Vulcan ..................... $ 363 $ 326 $ 361
Leathers ................... 2,811 2,694 2,203
Elmore ..................... 2,192 2,213 1,883
Del Ranch .................. 2,870 2,650 2,255
Salton Sea I & II .......... 810 1,206 634
Salton Sea III ............. 1,637 2,439 1,334
Salton Sea IV .............. 2,645 2,815 1,558
-------- -------- --------
Total ..................... $ 13,328 $ 14,343 $ 10,228
======== ======== ========
</TABLE>
The Partnership Project pays royalties based on both energy revenues and
total electricity revenues. Del Ranch and Leathers pay royalties of
approximately 5% of energy revenues and 1% of total electricity revenue. Elmore
pays royalties of approximately 5% of energy revenues. Vulcan pays royalties of
approximately 4.167% of energy revenues.
The Salton Sea Project's weighted average royalty expense in 1998 and 1997
was approximately 4.8% and 6.1%, respectively. The royalties are paid to
numerous recipients based on varying percentages of electrical or steam
production multiplied by published indices.
6. PROJECT LOAN
Each of the Company's direct or indirect subsidiaries is organized as a
legal entity separate and apart from the Company and its other subsidiaries and
MEHC. Pursuant to separate project financing agreements, the assets of each
subsidiary (excluding Yuma) are pledged or encumbered to support or otherwise
provide the security for their own project or subsidiary debt. It should not be
assumed that any asset of any such subsidiary will be available to satisfy the
obligations of the Company or any of its other such subsidiaries; provided,
however, that unrestricted cash or other assets which are available for
distribution may, subject to applicable law and the terms of financing
arrangements for such parties, be advanced, loaned, paid as dividends or
otherwise distributed or contributed to the Company or affiliates thereof.
"Subsidiaries" means all of the Company's direct or indirect subsidiaries (1)
owning interests in the Imperial Valley, Saranac, NorCon and Power Resources or
(2) owning interests in the subsidiaries that own interests in the foregoing
projects.
PRI (Power Resources, Inc.) has project financing debt with a consortium
of banks with interest and principal due quarterly over a 15-year period,
beginning March 31, 1989. The original principal carried a variable interest
rate based on the London Interbank Offer Rate ("LIBOR") with a .85% interest
margin through the 5th anniversary of the loan, a 1.00% interest margin from
the 5th anniversary through the 12th anniversary of the loan and a 1.25%
interest margin from the 12th anniversary through the end of the loan. The loan
is collateralized by all of the assets of PRI.
F-12
<PAGE>
CE GENERATION, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(AMOUNTS IN THOUSANDS)
Effective June 5, 1989, PRI entered into an interest rate swap agreement
with the lender as a means of hedging floating interest rate exposure related
to its 15-year term loan. The swap agreement was for initial notional amounts
of $55,000 and $110,000, declining in correspondence with the principal
balances, and effectively fixed the interest rates at 9.385% and 9.625%,
respectively. PRI would be exposed to credit loss in the event of
nonperformance by the lender under the interest rate swap agreement. However,
PRI does not anticipate nonperformance by the lender. The estimated cost to
terminate the interest rate swap agreement, based on termination values
obtained from the lender, was $9,904 and $10,550 at December 31, 1998 and 1997,
respectively.
The interest rate can be increased by payments under a Compensation
Agreement included in PRI's term loan. The Compensation Agreement, which
entitles two of the term lenders to receive quarterly payments equivalent to a
percentage of PRI's discretionary cash flow (DCF) as separately defined in the
agreement, become effective initially for a 13-year period ending December 31,
2003. Under certain conditions relating to the amount of PRI's cash flow and
the restrictions on cash distributions, PRI has the option to replace the
payment obligation in a quarter with a payment to be calculated in a future
quarter and added to the end of the initial term of the agreement. The
Compensation Agreement entitles the lenders to payments totaling 10% of DCF for
the first ten years, 7.5% of DCF for the next three years and 10% of DCF for
each quarter added to the initial term of the agreement. PRI recorded
additional interest expense of $1,176 and $1,091 for the years ended December
31, 1998 and 1997, respectively, and $319 and $585 for the periods from August
7, 1996 through December 31, 1996 related to amounts owed under the
Compensation Agreement.
Scheduled maturities of project financing debt for the year ending
December 31 are as follows:
<TABLE>
<S> <C>
1999 .......... $ 14,268
2000 .......... 16,087
2001 .......... 18,119
2002 .......... 20,312
2003 .......... 21,743
--------
Total ......... $ 90,529
========
</TABLE>
Under PRI's term loan agreement, certain covenants and debt service
coverage ratios must be met before cash distributions can be made. PRI was in
compliance with these requirements at December 31, 1998.
7. SALTON SEA NOTES AND BONDS
The Salton Sea Funding Corporation (the "Funding Corporation"), a
wholly-owned indirect subsidiary of the Company, debt securities are as
follows:
<TABLE>
<CAPTION>
SENIOR FINAL DECEMBER 31,
SECURED MATURITY -------------------------
ISSUED DATE SERIES DATE RATE 1998 1997
- -------------------------- --------- ------------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
July 21, 1995 ............ A Notes May 30, 2000 6.69% $ 48,436 $ 97,354
July 21, 1995 ............ B Bonds May 30, 2005 7.37% 106,980 133,000
July 21, 1995 ............ C Bonds May 30, 2010 7.84% 109,250 109,250
June 20, 1996 ............ D Notes May 30, 2000 7.02% 12,150 44,150
June 20, 1996 ............ E Bonds May 30, 2011 8.30% 65,000 65,000
October 13, 1998 ......... F Bonds November 30, 2018 7.48% 285,000 --
--------- ---------
$ 626,816 $ 448,754
========= =========
</TABLE>
F-13
<PAGE>
CE GENERATION, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(AMOUNTS IN THOUSANDS)
Principal and interest payments are made in semi-annual installments. The
Salton Sea Notes and Bonds are non-recourse to the Company.
On October 13, 1998 the Funding Corporation completed a sale to
institutional investors of $285,000 aggregate amount of 7.475% Senior Secured
Series F Bonds due November 30, 2018. The proceeds of $144,480 from the
offering are being used to partially fund construction of two new geothermal
projects at the Salton Sea and other capital improvements at the existing
Salton Sea projects. The remaining amount of $140,520 is being used to fund the
cost of construction of, and was advanced to, the Zinc Recovery Project, which
is indirectly 100% owned by Salton Sea Minerals Corp., a MEHC affiliate not
owned by the Company.
The net revenues, equity distributions and royalties from the Partnership
Projects are used to pay principal and interest payments on outstanding senior
secured bonds issued by the Funding Corporation, the final series of which is
scheduled to mature in November 2018. The Funding Corporation Debt is
guaranteed by certain subsidiaries of Magma and secured by the capital stock of
the Funding Corporation. The proceeds of the Funding Corporation Debt were
loaned by the Funding Corporation pursuant to loan agreements and notes (the
"Imperial Valley Project Loans") to certain subsidiaries of Magma and used for
construction of certain Imperial Valley Projects, refinancing of certain
indebtedness and other purposes. Debt service on the Imperial Valley Project
Loans is used to repay debt service on the Funding Corporation Debt. The
Imperial Valley Project Loans and the guarantees of the Funding Corporation
Debt are secured by substantially all of the assets of the guarantors,
including the Imperial Valley Projects, and by the equity interests in the
guarantors.
The proceeds of Series F of the Funding Corporation debt are being used in
part to construct the Zinc Facility, and the direct and indirect owners of the
Zinc Facility (the "Zinc Guarantors", which will include Salton Sea Minerals
Corp. and Minerals LLC), are among the guarantors of the Funding Corporation
debt. In connection with the Divestiture, MEHC will guarantee the payment by
the Zinc Guarantors of a specified portion of the scheduled debt service on the
Imperial Valley Project Loans, including the current principal amount of
$140,520 and associated interest.
Pursuant to a depository agreement, Funding Corporation established a debt
service reserve fund in the form of a letter of credit in the amount of $42,457
from which scheduled interest and principal payments can be made.
Annual repayments of the Salton Sea Notes and Bonds for the years
beginning January 1, 1999 and thereafter are as follows:
<TABLE>
<S> <C>
1999 ............... $ 57,836
2000 ............... 25,072
2001 ............... 24,514
2002 ............... 27,148
2003 ............... 28,086
Thereafter ......... 464,160
---------
$ 626,816
=========
</TABLE>
8. NOTES PAYABLE TO RELATED PARTY
On July 21, 1995, MEHC issued $200,000 of 9.875% Limited Recourse Senior
Secured Notes Due 2003 (the "Notes"). The Notes are secured by an assignment
and pledge of 100% of the outstanding
F-14
<PAGE>
CE GENERATION, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(AMOUNTS IN THOUSANDS)
capital stock of Magma and are recourse only to such Magma capital stock. The
proceeds of Notes Offering were provided by MEHC to Magma and Magma issued an
intercompany note to MEHC in the amount of $200,000. Interest on the
intercompany note is at 9.875%. See Note 14.
Yuma Cogeneration Associates has outstanding a note payable to MEHC with a
principal balance at December 31, 1998 and 1997 of $47,681 and $47,812,
respectively, and bearing interest at a fixed rate of 10.25%. The terms of the
note require semiannual principal and interest payments. Annual repayment of
the note for each year beginning January 1, 1999 through 2003 is $4,755 with
$23,906 due thereafter.
9. COMMITMENTS AND CONTINGENCIES
PRI has contracted to purchase natural gas for its cogeneration facility
under two separate agreements, an 8-year agreement for up to 40,000 MMBTU per
day which expires in December 2003 and a 15-year agreement for 3,600 MMBTU per
day which expires in June 2003. These agreements include annual price
adjustments, and the 15-year agreement includes a provision which allows the
seller to terminate the agreement with a two-year written notice. As of
December 31, 1998, the seller had not elected to terminate this agreement;
therefore, the minimum volumes under the 15-year and 8-year agreements for the
years ending December 31, are included in the future minimum payments under
these contracts as follows:
<TABLE>
<S> <C>
1999 ........... $ 22,611
2000 ........... 23,308
2001 ........... 23,608
2002 ........... 24,285
2003 ........... 24,854
---------
Total ......... $ 118,666
=========
</TABLE>
The Company's geothermal and cogeneration facilities are qualifying
facilities under the Public Utility Regulatory Policies Act of 1978 (PURPA) and
their contracts for the sale of electricity are subject to regulations under
PURPA. In order to promote open competition in the industry, legislation has
been proposed in the U.S. Congress that calls for either a repeal of PURPA on a
prospective basis or the significant restructuring of the regulations governing
the electric industry, including sections of PURPA. Current federal legislative
proposals would not abrogate, amend, or modify existing contracts with electric
utilities. The ultimate outcome of any proposed legislation is unknown at this
time.
Saranac has contracted to purchase natural gas from a third party, for its
cogeneration facility for a period of 15 years for an amount up to 51,000
MMBTU's per day. The price for such deliveries is a stated rate, escalated
annually at a rate of 4%.
Salton Sea Unit V is obligated to supply the electricity demands of the
Zinc Recovery Project at the price available to Salton Sea Unit V from the PX
less the wheeling costs to the PX.
F-15
<PAGE>
CE GENERATION, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(AMOUNTS IN THOUSANDS)
10. INCOME TAXES
Provision for income tax is comprised of the following at December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Currently payable:
State .................................................... $ 11,099 $ 8,451 $ 3,586
Federal .................................................. 47,263 30,647 8,027
-------- -------- --------
58,362 39,098 11,613
-------- -------- --------
Deferred:
State .................................................... (836) 1,057 1,280
Federal .................................................. (5,308) 3,223 2,594
-------- -------- --------
(6,144) 4,280 3,874
-------- -------- --------
Total .................................................. $ 52,218 $ 43,378 $ 15,487
======== ======== ========
</TABLE>
A reconciliation of the federal statutory tax rate to the effective tax
rate applicable to income before provision for income taxes follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ------
<S> <C> <C> <C>
Federal statutory rate .................................... 35.00% 35.00% 35.00%
Percentage depletion in excess of cost depletion .......... (4.36)% (4.59)% (7.31)%
Investment and energy tax credits ......................... (2.52)% (0.90)% (17.45)%
Goodwill amortization ..................................... 3.06% 3.58% 5.29%
State taxes, net of federal benefit ....................... 4.59% 5.18% 5.44%
Other ..................................................... -- (0.01)% 4.13%
----- ----- ------
Effective tax rate ........................................ 35.77% 38.26% 25.10%
===== ===== ======
</TABLE>
Deferred tax liabilities (assets) are comprised of the following at
December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Depreciation and amortization, net .......................... $ 240,602 $ 247,891
--------- ---------
Accruals not currently deductible for tax purposes .......... (3,218) (3,628)
General business tax credits ................................ (8,891) (12,094)
Alternative minimum tax credits ............................. (16,333) (16,333)
Other ....................................................... (3,311) (843)
--------- ---------
(31,753) (32,898)
--------- ---------
Net deferred taxes .......................................... $ 208,849 $ 214,993
========= =========
</TABLE>
The Company has unused general business tax credit carryforwards of
approximately $8,891 expiring between 2004 and 2018. The Company also has
approximately $16,333 of alternative minimum tax credit carryforwards which
have no expiration date.
F-16
<PAGE>
CE GENERATION, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(AMOUNTS IN THOUSANDS)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Although management uses its best
judgment in estimating the fair value of these financial instruments, there are
inherent limitations in any estimation technique. Therefore, the fair value
estimates presented herein are not necessarily indicative of the amounts which
the Company could realize in a current transaction.
The carrying amounts in the table below are included in the consolidated
balance sheets under the indicated captions:
<TABLE>
<CAPTION>
1998 ESTIMATED 1997 ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Project loan ........................... $ 90,529 $ 90,529 $ 103,334 $ 103,334
Salton Sea notes and bonds ............. 626,816 646,397 448,754 463,720
Notes payable to related party ......... 247,681 265,581 247,812 265,641
</TABLE>
12. LITIGATION
NYSEG--On February 14, 1995, NYSEG filed with the FERC a Petition for a
Declaratory Order, Complaint, and Request for Modification of Rates in Power
Purchase Agreements Imposed Pursuant to the Public Utility Regulatory Policies
Act of 1978 (Petition) seeking FERC (i) to declare that the rates NYSEG pays
under the Saranac PPA, which was approved by the New York Public Service
Commission (the PSC) were in excess of the level permitted under PURPA and (ii)
to authorize the PSC to reform the Saranac PPA.
On March 14, 1995, Saranac intervened in opposition to the Petition
asserting, inter alia, that the Saranac PPA fully complied with PURPA, that
NYSEG's action was untimely and that the FERC lacked authority to modify the
Saranac PPA. On March 15, 1995, the Company intervened also in opposition to
the Petition and asserted similar arguments. On April 12, 1995, the FERC by a
unanimous (5-0) decision issued an order denying the various forms of relief
requested by NYSEG and finding that the rates rquired under the Saranac PPA
were consistent with PURPA and the FERC's regulations. On May 11, 1995, NYSEG
requested rehearing of the order and, by order issued July 19, 1995, the FERC
unanimously (5-0) denied NYSEG's request. On June 14, 1995, NYSEG petitioned
the United States Court of Appeals for the District of Columbia Circuit (the
Court of Appeals) for review of FERC's April 12, 1995 order. FERC moved to
dismiss NYSEG's petition for review of July 28, 1995. On July 11, 1997, the
Court of Appeals dismissed NYSEG's appeal from FERC's denial of the petition on
jurisdictional grounds.
On August 7, 1997, NYSEG filed a complaint in the U.S. District Court for
the Northern District of New York against the FERC, the PSC (and the Chairman,
Deputy Chairman and the Commissioners of the PSC as individuals in their
official capacity), Saranac and Lockport Energy Associations, L.P. (Lockport)
concerning the power purchase agreements that NYSEG entered into with Saranac
and Lockport.
NYSEG's suit asserts that the PSC and the FERC improperly implemented
PURPA in authorizing the pricing terms that NYSEG, Saranac and Lockport agreed
to in those contracts. The action raises similar legal arguments to those
rejected by the FERC in its April and July 1995 orders. NYSEG in addition asks
for retroactive reformation of the contracts as of the date of commercial
operation and seeks a refund of $281 million from Saranac. Saranac and other
parties have filed motions to dismiss and oral arguments on those motions were
heard on March 2, 1998. The case was
F-17
<PAGE>
CE GENERATION, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(AMOUNTS IN THOUSANDS)
recently reassigned to a new judge and new oral arguments have been scheduled
for March 3, 1999. Saranac believes that NYSEG's claims are without merit for,
among other reasons, the same reasons described in the FERC's orders.
NIAGARA--In March 1994, NorCon Power commenced an action against Niagara
in the Southern District of New York. In its complaint, NorCon requested a
declaratory judgment that Niagara has no right to demand additional security or
"adequate assurances" from Niagara of NorCon's future performance under a power
purchase agreement (the "Agreement") between the parties on the basis of a
demand letter dated February 4, 1994 from Niagara (the "Demand Letter") and a
permanent injunction enjoining Niagara from terminating or attempting to
terminate the Agreement for the reasons set forth in the Demand Letter. Niagara
filed a counterclaim for a declaratory judgment that Niagara had a right to
demand adequate assurances of NorCon's future performance under the Agreement,
Niagara properly exercised its right to demand "adequate assurances," and
NorCon's failure to provide "adequate assurances" constituted a repudiation of
the Agreement, and by reason of NorCon's repudiation, Niagara was relieved of
its obligations under the Agreement. On or about November 7, 1994, NorCon moved
for summary judgment. In a decision dated February 7, 1996, the Court granted
summary judgement in NorCon's favor, granting NorCon its requested declaratory
and injunctive relief and dismissing Niagara's counterclaim. On March 6, 1996,
Niagara filed a Notice of Appeal of the Court's decision (the "Appeal").
Judgment was entered in NorCon's favor on March 21, 1996. The Federal appellate
court certified a state law question of law to the New York Court of Appeals on
March 26, 1997. The state court has since issued its ruling that in appropriate
circumstances adequate assurance may be requested. On December 31, 1998, the
case was remanded to the trial court for further proceedings. The Company
believes that NorCon will not be required to provide additional security beyond
that currently provided under the Agreement and intends to vigorously defend
this action against Niagara.
EDISON--In February 1998, Del Ranch and Elmore ("plaintiffs") filed an
action for breach of contract, fraud and unlawful discrimination relating to
the long-term contracts between plaintiffs and Edison for purchase and sale of
geothermal power. Among other claims, plaintiffs contend that Edison failed to
pay the correct "forecast" price for energy purchased from plaintiffs during
1998. Plantiffs seek compensatory damages of about $6 million and additional
punitive damages. Edison's demurrer to the frauds claim was recently overruled
by the Superior Court. Both sides are engaged in early discovery proceedings
and no trial date has yet been set. Plantiff's intend to pursue this action
vigorously. Plantiffs further believe there are good grounds to support their
claims, and that they should ultimately prevail on the merits at trial.
13. TRANSACTIONS WITH MEHC
MEHC provides certain administrative services to the Company, and MEHC's
executive, financial, legal, tax and other corporate staff departments perform
certain services for the Company. Expenses incurred by MEHC and allocated to
the Company are estimated based on the individual services and expense items
provided. Management believes that such estimate of expense allocations are
reasonable. It is not practicable to estimate the expenses that would have been
incurred by the Company if it had been operated on a stand-alone basis.
Allocated expenses totaled approximately $3,000 for each of 1998, 1997, and
1996, and are inclued in General and Administration expenses.
F-18
<PAGE>
CE GENERATION, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(AMOUNTS IN THOUSANDS)
An analysis of the Company's net investment and advances is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of year .............................. $ 464,140 $ 454,903 $ 233,425
Net income ............................................. 93,778 69,996 46,211
Purchase accounting push down adjustment, net .......... -- -- 232,500
Distribution to MEHC, net of advances .................. (20,971) (60,759) (57,233)
--------- --------- ---------
Balance, end of year .................................... $ 536,947 $ 464,140 $ 454,903
========= ========= =========
</TABLE>
F-19
<PAGE>
CE GENERATION, LLC
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents .......................................... $ 57,905 $ 25,774
Restricted cash .................................................... 78,887 128,553
Accounts receivable ................................................ 61,971 67,629
Properties, plants, contracts and equipment, net ................... 982,258 893,492
Equity investments ................................................. 119,913 125,036
Excess of cost over fair value of net assets acquired, net ......... 288,286 310,700
Note receivable from related party ................................. 140,520 140,520
Deferred financing charges and other assets ........................ 43,113 58,928
---------- ----------
Total assets .................................................... $1,772,853 $1,750,632
========== ==========
LIABILITIES AND EQUITY
LIABILITIES:
Accounts payable and other accrued liabilities ..................... $ 60,357 $ 39,810
Project loan ....................................................... 79,828 90,529
Salton Sea notes and bonds ......................................... 597,898 626,816
Senior secured bonds ............................................... 400,000 --
Notes payable to related party ..................................... -- 247,681
Deferred income taxes .............................................. 255,303 208,849
---------- ----------
Total liabilities ............................................... 1,393,386 1,213,685
Member's Equity .................................................... 379,467 --
Net Investment and advances ........................................ -- 536,947
---------- ----------
379,467 536,947
---------- ----------
Total liabilities and equity ....................................... $1,772,853 $1,750,632
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
CE GENERATION, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
REVENUE:
Sales of electricity and steam .................. $231,613 $293,485
Equity earnings in subsidiaries ................. 17,718 8,635
Interest and other income ....................... 17,665 21,823
-------- --------
Total revenues ............................... 266,996 323,943
-------- --------
COST AND EXPENSES:
Plant operations ................................ 84,848 84,100
General and administration ...................... 3,333 3,814
Depreciation and amortization ................... 43,400 71,901
Interest expense ................................ 58,343 54,784
Less interest capitalized ....................... (2,614) --
-------- --------
Total expenses ............................... 187,310 214,599
-------- --------
Income before provision for income taxes ......... 79,686 109,344
Provision for income taxes ....................... 30,520 39,364
-------- --------
Net income before extraordinary item ............. 49,166 69,980
Extraordinary item, net of tax ................... (17,478) --
-------- --------
Net income ....................................... $ 31,688 $ 69,980
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
CE GENERATION, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................... $ 31,688 $ 69,980
ADJUSTMENTS TO RECONCILE CASH FLOWS FROM OPERATING
ACTIVITIES:
Depreciation and amortization ................................ 43,400 71,901
Provision for deferred income taxes .......................... 21,395 (4,609)
Equity earnings in subsidiaries .............................. (17,718) (8,635)
CHANGES IN OTHER ITEMS:
Accounts receivable ........................................ 5,658 (28,096)
Accounts payable and other accrued liabilities ............. 20,547 11,627
--------- ---------
Net cash flows from operating activities ................. 104,970 112,168
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................... (119,322) (28,471)
Distributions from equity investments ...................... 22,841 13,455
Decrease (increase) in other assets ........................ 25,385 126
Decrease (increase) in restricted cash ..................... 49,666 (1,024)
--------- ---------
Net cash flows from investing activities ................. (21,430) (15,914)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Salton Sea notes and bonds .................... (28,918) (53,469)
Proceeds from Senior Secured Notes ......................... 400,000 --
Repayment of project loans ................................. (10,701) (9,603)
Repayment of note payable to related party ................. (247,681) (131)
Advances (to) from MidAmerican Energy Holdings Company,
net ....................................................... (164,109) 13,465
--------- ---------
Net cash flows from financing activities ................. (51,409) (49,738)
--------- ---------
Net increase (decrease) in cash and cash equivalents ......... 32,131 46,516
Cash and cash equivalents at beginning of year ............... 25,774 23,684
--------- ---------
Cash and cash equivalents at end of year ..................... $ 57,905 $ 70,200
========= =========
SUPPLEMENTAL DISCLOSURE:
Interest paid .............................................. $ 37,620 $ 45,186
========= =========
Income taxes paid .......................................... $ 9,125 $ 1,001
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
CE GENERATION, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. FORMATION
On February 8, 1999, MidAmerican Energy Holdings Company (formerly
CalEnergy Company, Inc.) ("MEHC") created a new subsidiary, CE Generation, LLC
(the "Company"), and subsequently transferred its interest in MEHC's power
generation assets of the Imperial Valley Projects and the Gas Projects to the
Company.
On March 3, 1999, MEHC closed the sale of 50% of its ownership interests
in the Company to an affiliate of El Paso Energy Corporation.
B. GENERAL
The September 30, 1999 and 1998 consolidated financial statements included
herein have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of the Company,
all adjustments (consisting only of normal recurring accruals) have been made
to present fairly the financial position, the results of operations and the
changes in cash flows for the periods presented. Although the Company believes
that the disclosures are adequate to make the information presented not
misleading, it is suggested that these financial statements be read in
conjunction with the December 31, 1998 consolidated financial statements and
the notes thereto included elsewhere herein.
C. EXTRAORDINARY ITEM
On January 29, 1999, MEHC commenced a cash offer for all of its
outstanding 9-7/8% Limited Recourse Senior Secured Notes Due 2003. MEHC
received tenders from holders of an aggregate of approximately $195.8 million
principal which were paid on March 3, 1999, at a redemption price of 110.025%
plus accrued interest. The intercompany note to MidAmerican Energy Holdings
Company, including the redemption premium, was repaid by the Company, resulting
in an extraordinary loss of approximately $17.5 million, net of tax.
D. SENIOR SECURED BONDS
On March 2, 1999, the Company closed the sale of $400 million aggregate
principal amount of its 7.416% Senior Secured Bonds due 2018 and distributed
the proceeds to MEHC. Annual repayments of the bonds are $0, $10.4 million,
$12.6 million, $20.6 million, and $18 million for 1999 through 2003,
respectively, and $338.4 million thereafter. The estimated fair value of the
Senior Secured Bonds is $363.4 million at September 30, 1999.
E. INCOME TAXES
The Company has elected to be taxed as a "C" Corporation for federal
income tax reporting purposes.
F-23
<PAGE>
CE GENERATION, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. MEMBERS' EQUITY
Members equity comprised the following at September 30, 1999:
<TABLE>
<S> <C>
Net investment and advances, beginning of year ......... $ 536,947
Distribution to MEHC, net of advances .................. (6,575)
Net Income ............................................. 6,526
----------
Capital contribution by MEHC ........................... $ 536,898
==========
Distribution to MEHC, net of advances .................. $ (182,593)
Members' net income .................................... 25,162
----------
Members' equity, September 30, 1999 .................... $ 379,467
==========
</TABLE>
F-24
<PAGE>
APPENDIX A
POWER GENERATION PROJECTS
INDEPENDENT ENGINEER'S REPORT
CE GENERATION CONSOLIDATED PROFORMA ANALYSIS
PREPARED FOR
CE GENERATION, LLC
FEBRUARY 24, 1999
FLUOR DANIEL, INC.
IRVINE, CALIFORNIA
A-1
<PAGE>
SECTION 1.0
OVERVIEW
Fluor Daniel, Inc. (Fluor Daniel) has reviewed information related to the
CE Generation (CEG) Projects and has prepared a summary of resulting debt
coverage ratios for both a Base Case and selected sensitivity cases as
hereinafter defined. The CEG projects for which financial results are presented
consist of the following:
o The Imperial Valley Projects: Salton Sea Unit I, Unit II, Unit III,
Unit IV, Vulcan, Del Ranch, Elmore, and Leathers which are presently
in operation. Also included are two units under construction, Salton
Sea Unit V and CE Turbo, as well as additional Magma Royalties.
o The Gas-Fired Projects: Yuma, PRI, and Saranac.
o Falcon Seaboard Gas Company
o Falcon Power Operating Company
Fluor Daniel completed a review of the Consolidated Financial Model
created by CEG and used to compute consolidated debt coverage ratios. The
Consolidated Financial Model incorporates financial results of four detailed
project-specific financial models: Imperial, Yuma, PRI, and Saranac.
Fluor Daniel initially reviewed the Imperial financial model in October
1998 and has again reviewed this model as well as a model, for Magma Royalties.
R.W. Beck has independently generated financial results for the Gas-Fired
Projects and Falcon Power Operating Company. C.C. Pace provided the cash flow
forecasts for Falcon Seaboard Gas Company that have also been incorporated into
the Consolidated Financial Model.
SECTION 2.0
CONCLUSIONS
After a review of the Consolidated Financial Model and an examination of
the supporting financial models, Fluor Daniel concludes:
o The Consolidated Financial Model, prepared by CEG, accurately
represents the results of the four project-specific models that
contain the detailed project assumptions
o The Consolidated Financial Model, that is based on the Base Case
assumptions recommended by CE Generation and R.W. Beck, indicates that
revenues appear to be adequate to provide sufficient cash flow for
debt service, with Base Case debt service coverage ratios calculated
from 1999 through 2018 of 2.59 minimum and 3.08 average.
o The financial projections remain stable across a defined range of
sensitivities and avoided cost assumptions, specified further below.
SECTION 3.0
CONSOLIDATED FINANCIAL PROJECTIONS AND DEBT COVERAGE RATIOS
3.1 BASE CASE RESULTS
Fluor Daniel has reviewed the Consolidated Financial Model and has
analyzed the ability of CEG to pay anticipated debt service on the securities
over the next 20 years. The results are summarized in the table of debt
coverage ratios presented below. In addition, Fluor Daniel has performed a
series of selected sensitivity analyses that are also listed on the table and
described in more detail in the next section.
A-2
<PAGE>
SUMMARY OF DEBT COVERAGE RATIOS
<TABLE>
<CAPTION>
SCENARIO MINIMUM COVERAGE AVERAGE COVERAGE
- -------- ---------------- ----------------
<S> <C> <C>
Base Case ...................... 2.59 3.08
Higher O&M ..................... 2.43 2.82
Increased Heat Rate ............ 2.48 3.02
Reduced Availability ........... 2.13 2.73
Low Power Price 1 .............. 2.56 2.94
Low Power Price 2 .............. 2.46 2.78
SCE Low Avoided Cost ........... 2.64 3.14
SCE Mid Avoided Cost ........... 2.69 3.52
SCE High Avoided Cost .......... 2.89 4.98
</TABLE>
The Consolidated Financial Model used to compute debt coverages contains a
twenty year projection of cash flow items beginning in year 1999. These items
include revenues, expenses, initial and long term capital expenditures,
royalties, and financing cash flows. The consolidated model brings forward the
relevant cash flow items from the detailed project models and consolidates the
results for measuring aggregate debt service coverage.
Specifically, as directed by CEG, the debt coverage ratios are calculated
by bringing forward revenues and expenses from the Imperial Valley, PRI, and
Yuma projects and then determining operating income by subtraction. From this
result, all capital expenditures from Imperial Valley, PRI and Yuma and net
construction cash flows from the respective projects are subtracted. Subtracted
next are all project-level debt service payments for Imperial Valley and PRI.
An adjustment is made for additions and releases of funds from PRI. Next, cash
flows from Saranac, Falcon Power Operating Company and Falcon Seaboard Gas
Company are added to operating income. Finally, LOC and trustee fees are
substracted resulting in cash available for debt service. The debt coverage
ratio is the ratio of cash available for debt service to total CE Generation
debt service.
The Base Case Consolidated Financial Model, shown as Exhibit 1, indicates
that cash flows from the CEG Projects are reasonable and should be sufficient
to cover the projected annual operating expenses, post-completion capital
expenditures, and debt service for the Securities. Base Case average debt
coverage is 3.08 and minimum debt coverage is 2.59.
3.2 BASE CASE ASSUMPTIONS
Among the many assumptions used for the analysis, CEG provided the
assumptions regarding the pricing, term, and amortization of principal for the
new Securities. The Securities will be long term bonds priced at an assumed
annual interest rate of 7.42 percent. The final maturity is 20 years from
issuance with an average life of approximately 11.9 years.
Henwood Energy Services prepared the forecasts of spot electricity prices
used for the Imperial Valley and Yuma Projects. CC Pace projected natural gas
prices for Saranac and PRI. Based upon representations of CEG and/or R.W. Beck,
regarding specific elements of geothermal and gas projects, Operations and
Maintenance (O&M) escalation was assumed to be 2.5% per year for the geothermal
projects and 2.7% per year for the Gas-Fired projects.
SECTION 4.0
SENSITIVITY ANALYSIS
Fluor Daniel, in conjunction with R.W. Beck, created and modeled certain
sensitivity cases under CEG's direction to analyze the ability of the project
to maintain debt coverage levels under several different scenarios. The four
variables adjusted for this analysis are increased O&M expense, reduced fuel
efficiency, reduced plant availability, reduced fuel efficiency for the
Gas-Fired plants, increased fuel cost for the Gas-Fired projects, and power
price sensitivities for Imperial Valley and Yuma. The results of this analysis
are presented below.
A-3
<PAGE>
4.1 HIGHER O&M
To test the sensitivity of CEG debt coverage ratios to changes in project
operating costs, the level of O&M costs for all projects was raised by 10%.
This sensitivity resulted in average debt coverage of 2.82 and minimum debt
coverage of 2.43.
4.2 INCREASED HEAT RATE
As a further sensitivity, the fuel efficiency in the gas-fired power
plants was reduced through a 5% increase in the plant heat rate. The increased
heat rate reduced average debt coverage to 3.02 and minimum coverage to 2.48.
4.3 REDUCED AVAILABILITY
The impact of reduced availability on project debt coverage ratios was
tested by reducing the annual availability of all projects from their existing
Base Case level by 5%. This sensitivity resulted in average debt coverage of
2.73 and minimum debt coverage of 2.13.
4.4 POWER PRICE
Henwood Energy Services prepared the forecast of future spot-market
electric energy prices used in the financial projections for the Imperial
Valley and Yuma projects. As a downside case, Henwood also prepared two cases
based on assumptions of lower natural gas prices (10 or 15 percent). The lower
natural gas forecasts were used by Henwood to forecast the corresponding lower
electrical energy prices.
Use of the low power price 1 (10% lower gas price) forecast reduced the
average CEG debt coverage to 2.94 and minimum coverage to 2.56. The low power
price 2 case (15% lower gas price) resulted in an average coverage of 2.78 and
minimum coverage of 2.46.
Three more power price scenarios were run to test debt coverages using
projections of avoided costs made by Southern California Edison in 1995. The
first scenario, SCE Low, resulted in an average debt coverage ratio of 3.14 and
minimum coverage of 2.64. The SCE Mid price scenario produced an average
coverage of 3.52 and minimum of 2.69. Finally, the SCE High scenario resulted
in average debt coverage of 4.98 and minimum coverage of 2.89.
A-4
<PAGE>
4.5 BREAKEVEN ANALYSIS
The following table presents the Power Exchange electric price that
maintains project debt service at a level of 1.0 or higher.
<TABLE>
<CAPTION>
BREAKEVEN (CENTS/KWH)
---------------------
YEAR NOMINAL 1999 BASE
- ---- ------- ---------
<S> <C> <C>
1999 ............................................... 0.00 0.00
2000 ............................................... 0.00 0.00
2001 ............................................... 0.00 0.00
2002 ............................................... 0.22 0.20
2003 ............................................... 0.63 0.57
2004 ............................................... 1.01 0.89
2005 ............................................... 1.32 1.14
2006 ............................................... 1.16 0.97
2007 ............................................... 1.39 1.14
2008 ............................................... 0.95 0.76
2009 ............................................... 1.36 1.06
2010 ............................................... 2.32 1.77
2011 ............................................... 2.13 1.58
2012 ............................................... 1.77 1.29
2013 ............................................... 2.18 1.54
2014 ............................................... 1.82 1.25
2015 ............................................... 2.06 1.39
2016 ............................................... 2.05 1.35
2017 ............................................... 2.28 1.46
2018 ............................................... 2.09 1.31
</TABLE>
A-5
<PAGE>
ASSUMPTIONS, QUALIFICATIONS AND REVIEW DOCUMENTS
THIS REPORT WAS PREPARED BY FLUOR DANIEL, INC. EXPRESSLY FOR USE BY CE
GENERATION. IT IS FLUOR DANIEL'S UNDERSTANDING THAT THIS REPORT WILL BE
INCLUDED IN THE PUBLIC OFFERING MEMORANDUM AND SUBSEQUENT PROSPECTUS FOR THE
OFFERING OF THE BONDS, AS DESCRIBED HEREIN. NEITHER FLUOR DANIEL NOR CE
GENERATION NOR ANY PERSON ACTING IN THEIR BEHALF, MAKES ANY WARRANTY, EXPRESS
OR IMPLIED, OR ASSUMES ANY LIABILITY WITH RESPECT TO THE USE OF ANY
INFORMATION, TECHNOLOGY, ENGINEERING, OR METHODS DISCLOSED IN THIS REPORT.
In the preparation of this Report and the opinions contained therein,
Fluor Daniel 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 for the purpose of this Report, they are dependent
upon future events and actual conditions may differ from those assumed. In
addition, we have used and relied exclusively upon the information specified
below. Neither CE Generation nor Fluor Daniel Inc. has made an analysis,
verified, or rendered an independent judgment of the validity of the
information provided by others. While it is believed that the information
contained herein will be reliable under the conditions and subject to the
limitations set forth herein, neither CE Generation nor Fluor Daniel, Inc.
guarantee the accuracy thereof. Further, 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. Except for the
sensitivity analyses presented herein, no other sensitivities were performed.
This Report summarizes our work up to date of the Report. Thus, changed
conditions occurring or becoming known after such date could affect the
material presented to the extent of such changes.
The principal assumptions and considerations utilized by Fluor Daniel in
developing the results and conclusions presented in this report include the
following:
o The projected interest rates on the Securities, reinvestment rates,
cost of arranging the financing and the amortization schedule of the
Securities used in the debt service coverage analysis have been
provided to Fluor Daniel.
o CE Generation provided 1998 financial statements for the CE Generation
and other cost accounting information as well as future projections of
cost, expenses, prices, and other key assumptions.
o Brine quantities and depletion rates were provided by GeothermEx.
o The electricity pricing forecast was provided by Henwood Energy
Services.
o Fluor Daniel has not undertaken an independent review with all
regulatory agencies which could under any circumstances have
jurisdictions over or interests pertaining to the project
REVIEW DOCUMENTS
DOCUMENT
DATE DOCUMENT
---- --------
9/21/98 Proforma Cost Report
7/18/95 Salton Sea Funding Corporation Confidential Offering Circular
6/17/96 Salton Sea Funding Corporation Confidential Offering Circular
3/31/93 Technology Transfer Agreement -- Units I, II, & III
7/28/98 Second Amended and Restated Waste Disposal Agreement --
Units I, II, III, & IV
11/24/93 Ground Lease -- Units I & II
9/25/90 Plant Connection Agreement -- Unit II
A-6
<PAGE>
DOCUMENT
DATE DOCUMENT
---- --------
7/20/88 Plant Connection Agreement -- Unit III
3/31/93 Ground Lease -- Units III & IV
7/14/95 Plant Connection Agreement -- Unit IV
6/9/88 Plant Connection Agreement -- Del Ranch, L.P.
3/14/88 Ground Lease -- Del Ranch, L.P.
3/14/88 Technology Transfer Agreement -- Del Ranch, L.P.
6/9/88 Plant Connection Agreement -- Elmore, L.P.
3/14/88 Ground Lease -- Elmore, L.P.
3/14/88 Technology Transfer Agreement -- Elmore, L.P.
9/25/89 Plant Connection Agreement -- Leathers, L.P.
10/26/88 Ground Lease -- Leathers, L.P.
8/15/88 Technology Transfer Agreement -- Leathers, L.P.
12/6/88 Plant Connection Agreement -- Vulcan Power Company
4/14/98 IID Construction Agreement -- Salton Sea Unit V
4/1/98 IID Plant Connection Agreement -- Salton Sea Unit V
4/14/98 IID Transmission Services Agreement -- Salton Sea Unit V
7/30/98 Lump Sum Cost Proposal -- Salton Sea Unit V Project Schedule
8/5/98 Imperial Valley Operating Statistics
8/98 GeothermEx Report -- Assessment of the Resource Supply
8/5/98 BHP Royalty Agreement and Amendment
8/5/98 California Energy Commission, State of California Energy Resources
Conservation and Development Commission Clearance/Acknowledgement
that the Desert Valley/Salton Sea Unit V Project is not subject to
the Commission's jurisdiction.
9/2/98 Salton Sea Unit V Engineering, Procurement, and Construction Contract
9/11/98 Region II Upgrade Engineering, Procurement, and Construction Contract
8/12/98 Amendments to Power Purchase Agreement
3/31/98 Securities and Exchange Commission Form 10-Q
12/31/97 Securities and Exchange Commission Form 10-K
1/26/99 Consolidated and Project-Specific financial models
2/10/99 Mammoth Royalties Agreements
2/12/99 Responses to Fluor Daniel Data Requests
2/8/99 Excerpts from CalEnergy Operating Company 10 Year Plan
A-7
<PAGE>
EXHIBIT 1
CE GENERATION, LLC
Pro Forma Financial Projections ($'000s)
Base Case
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $ 222,320 $ 168,258 $ 163,615 $ 175,747 $ 180,487 $ 185,522
PRI 83,498 86,128 88,997 91,887 71,866 --
Yuma 20,817 21,140 19,782 22,079 22,579 22,248
------------------------------------------------------------------------
Total Revenues 326,635 275,526 272,394 289,713 274,932 207,770
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 55,448 49,737 50,462 52,366 51,852 51,319
PRI 51,081 51,687 53,094 54,503 42,015 --
Yuma 13,731 16,472 13,797 14,230 16,725 14,432
------------------------------------------------------------------------
Total Expenses 120,260 117,896 117,353 121,099 110,592 65,751
OPERATING INCOME FROM CONSOLIDATED PROJECTS 206,376 157,630 155,040 168,614 164,340 142,019
LESS: CAPITAL EXPENDITURES
Imperial Valley 21,525 21,159 17,305 7,334 17,779 15,598
PRI 1,409 1,002 715 516 351 --
Yuma 179 9 6 23 40 40
------------------------------------------------------------------------
Total Capital Expenditures 23,113 22,170 18,026 7,873 18,170 15,638
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures (142,812) (23,546) -- -- -- --
Proceeds from Financing 118,681 -- -- -- -- --
Equity Contributions 24,131 23,546 -- -- -- --
------------------------------------------------------------------------
Total Imperial Valley Construction -- -- -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 82,740 51,546 53,451 55,115 53,349 53,433
PRI 21,561 23,381 23,796 23,975 23,188 --
------------------------------------------------------------------------
Total Project Debt Service 104,301 74,927 77,247 79,090 76,537 53,433
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) (85) (128) (67) 183 12,328 --
------------------------------------------------------------------------
Total Releases (85) (128) (67) 183 12,328 --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 23,810 30,031 34,951 34,791 36,563 38,304
Falcon Power Operating Company 3,271 3,361 3,452 3,547 3,317 2,399
Falcon Seaboard Gas Company (3) 8,959 9,226 9,530 9,847 3,435 --
------------------------------------------------------------------------
Total Other Revenues 36,040 42,618 47,933 48,185 43,315 40,703
LESS: LOC / TRUSTEE FEES 299 447 460 528 488 442
TOTAL CASH AVAILABLE FOR DEBT SERVICE 114,618 102,576 107,174 129,490 124,788 113,210
CE GENERATING DEBT SERVICE
Interest 24,869 29,278 28,426 27,194 25,763 24,554
Principal Repayment -- 10,400 12,600 20,600 18,000 14,600
------------------------------------------------------------------------
Total Debt Service 24,869 39,678 41,026 47,794 43,763 39,154
CE GENERATING DEBT COVERAGE 4.61 2.59 2.61 2.71 2.85 2.89
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2005 2006 2007 2008
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $ 190,156 $ 183,391 $ 181,318 $ 187,934
PRI -- -- -- --
Yuma 23,459 23,408 23,531 24,590
---------------------------------------------
Total Revenues 213,615 206,799 204,849 212,524
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 52,997 52,726 53,260 54,305
PRI -- -- -- --
Yuma 14,880 15,118 19,613 16,310
---------------------------------------------
Total Expenses 67,877 67,844 72,873 70,615
OPERATING INCOME FROM CONSOLIDATED PROJECTS 145,738 138,955 131,975 141,909
LESS: CAPITAL EXPENDITURES
Imperial Valley 26,092 14,562 16,215 7,609
PRI -- -- -- --
Yuma 40 40 40 40
---------------------------------------------
Total Capital Expenditures 26,132 14,602 16,255 7,649
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- --
Proceeds from Financing -- -- -- --
Equity Contributions -- -- -- --
---------------------------------------------
Total Imperial Valley Construction -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 50,654 46,226 43,378 44,323
PRI -- -- -- --
---------------------------------------------
Total Project Debt Service 50,654 46,226 43,378 44,323
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- --
---------------------------------------------
Total Releases -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 40,549 41,525 40,605 49,062
Falcon Power Operating Company 2,464 2,531 2,599 2,669
Falcon Seaboard Gas Company (3) -- -- -- --
---------------------------------------------
Total Other Revenues 43,013 44,056 43,204 51,731
LESS: LOC / TRUSTEE FEES 433 464 438 523
TOTAL CASH AVAILABLE FOR DEBT SERVICE 111,532 121,719 115,108 141,145
CE GENERATING DEBT SERVICE
Interest 23,464 22,204 20,824 19,111
Principal Repayment 14,800 19,200 18,000 28,200
---------------------------------------------
Total Debt Service 38,264 41,404 38,824 47,311
CE GENERATING DEBT COVERAGE 2.91 2.94 2.96 2.98
</TABLE>
Minimum DCR (1999 - 2018) 2.59
Average DCR (1999 - 2018) 3.08
(1) Changes in accounts held at PRI related to PRI debt (final year data
provided by CEG)
(2) Saranac cash flow based on partnership allocations after capital
expenditures and debt service
(3) Data provided by CC Pace
A-8
<PAGE>
EXHIBIT 1
CE GENERATION, LLC
Pro Forma Financial Projections ($'000s)
Base Case
<TABLE>
<CAPTION>
2009 2010 2011 2012 2013 2014
-------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $185,550 $189,055 $ 188,223 $188,701 $194,037 $197,086
PRI -- -- -- -- -- --
Yuma 24,238 22,959 22,978 22,927 23,735 23,818
---------------------------------------------------------------
Total Revenues 209,788 212,014 211,201 211,628 217,772 220,904
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 52,804 55,109 55,556 55,087 58,568 58,332
PRI -- -- -- -- -- --
Yuma 16,817 15,971 19,020 16,993 17,531 17,817
---------------------------------------------------------------
Total Expenses 69,621 71,080 74,576 72,080 76,099 76,149
OPERATING INCOME FROM CONSOLIDATED PROJECTS 140,167 140,934 136,625 139,548 141,672 144,754
LESS: CAPITAL EXPENDITURES
Imperial Valley 17,666 10,456 14,570 8,944 18,198 7,529
PRI -- -- -- -- -- --
Yuma 40 40 40 40 40 40
---------------------------------------------------------------
Total Capital Expenditures 17,706 10,496 14,610 8,984 18,238 7,569
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- -- -- --
Proceeds from Financing -- -- -- -- -- --
Equity Contributions -- -- -- -- -- --
---------------------------------------------------------------
Total Imperial Valley Construction -- -- -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 40,294 38,551 29,749 25,106 21,951 23,477
PRI
---------------------------------------------------------------
Total Project Debt Service 40,294 38,551 29,749 25,106 21,951 23,477
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- -- -- --
---------------------------------------------------------------
Total Releases -- -- -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 43,219 -- -- -- -- --
Falcon Power Operating Company 1,371 -- -- -- -- --
Falcon Seaboard Gas Company (3) -- -- -- -- -- --
---------------------------------------------------------------
Total Other Revenues 44,590 -- -- -- -- --
LESS: LOC / TRUSTEE FEES 468 349 348 388 372 409
TOTAL CASH AVAILABLE FOR DEBT SERVICE 126,289 91,538 91,918 105,070 101,111 113,300
CE GENERATING DEBT SERVICE
Interest 17,153 15,715 14,624 13,301 11,786 10,072
Principal Repayment 24,600 14,200 15,200 20,480 20,400 25,800
---------------------------------------------------------------
Total Debt Service 41,753 29,915 29,824 33,781 32,186 35,872
CE GENERATING DEBT COVERAGE 3.02 3.06 3.08 3.11 3.14 3.16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2015 2016 2017 2018
------- ------- -------- --------
<S> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $ 200,915 $ 200,536 $197,715 $197,521
PRI -- -- -- --
Yuma 24,365 24,476 24,940 25,336
------------------------------------------
Total Revenues 225,280 225,012 222,655 222,857
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 59,839 59,145 60,019 60,035
PRI -- -- -- --
Yuma 22,643 19,254 19,864 20,464
------------------------------------------
Total Expenses 82,482 78,399 79,883 80,499
OPERATING INCOME FROM CONSOLIDATED PROJECTS 142,798 146,613 142,772 142,358
LESS: CAPITAL EXPENDITURES
Imperial Valley 6,427 8,828 10,036 8,315
PRI -- -- -- --
Yuma 40 40 40 40
------------------------------------------
Total Capital Expenditures 6,467 8,868 10,076 8,355
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- --
Proceeds from Financing -- -- -- --
Equity Contributions -- -- -- --
------------------------------------------
Total Imperial Valley Construction -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 23,740 23,743 21,725 10,528
PRI -- -- -- --
------------------------------------------
Total Project Debt Service 23,740 23,743 21,725 10,528
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- --
------------------------------------------
Total Releases -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) -- -- -- --
Falcon Power Operating Company -- -- -- --
Falcon Seaboard Gas Company (3)
------------------------------------------
Total Other Revenues -- -- -- --
LESS: LOC / TRUSTEE FEES 402 403 391 427
TOTAL CASH AVAILABLE FOR DEBT SERVICE 112,190 113,598 110,580 123,047
CE GENERATING DEBT SERVICE
Interest 8,113 6,025 3,818 1,348
Principal Repayment 27,040 29,280 30,240 36,360
------------------------------------------
Total Debt Service 35,153 35,305 34,058 37,708
CE GENERATING DEBT COVERAGE 3.19 3.22 3.25 3.26
</TABLE>
Minimum DCR (1999 - 2018) 2.59
Average DCR (1999 - 2018) 3.08
(1) Changes in accounts held at PRI related to PRI debt (final year data
provided by CEG)
(2) Saranac cash flow based on partnership allocations after capital
expenditures and debt service
(3) Data provided by CC Pace
A-9
<PAGE>
EXHIBIT 1
CE GENERATION, LLC
Pro Forma Financial Projections ($'000s)
Higher O&M Case
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $ 222,222 $ 168,172 $ 163,528 $ 175,656 $ 180,396 $ 185,449
PRI 83,498 86,128 88,997 91,887 71,866 --
Yuma 20,817 21,140 19,782 22,079 22,579 22,248
---------------------------------------------------------------------------
Total Revenues 326,537 275,440 272,307 289,622 274,841 207,697
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 58,490 52,567 53,311 55,324 54,835 54,330
PRI 52,198 52,763 54,205 55,639 42,890 --
Yuma 14,195 17,179 14,201 14,644 17,353 14,863
---------------------------------------------------------------------------
Total Expenses 124,883 122,509 121,717 125,607 115,078 69,193
OPERATING INCOME FROM CONSOLIDATED PROJECTS 201,655 152,931 150,590 164,015 159,763 138,504
LESS: CAPITAL EXPENDITURES
Imperial Valley 21,525 21,159 17,305 7,334 17,779 15,598
PRI 1,550 1,102 787 568 386 --
Yuma 197 10 7 25 44 44
---------------------------------------------------------------------------
Total Capital Expenditures 23,272 22,271 18,099 7,927 18,209 15,642
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures (142,812) (23,546) -- -- -- --
Proceeds from Financing 118,681 -- -- -- -- --
Equity Contributions 24,131 23,546 -- -- -- --
---------------------------------------------------------------------------
Total Imperial Valley Construction -- -- -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 82,740 51,546 53,451 55,115 53,349 53,433
PRI 21,561 23,381 23,796 23,975 23,188 --
---------------------------------------------------------------------------
Total Project Debt Service 104,301 74,927 77,247 79,090 76,537 53,433
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) (85) (128) (67) 183 12,328 --
---------------------------------------------------------------------------
Total Releases (85) (128) (67) 183 12,328 --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 22,424 28,305 33,068 32,849 34,556 36,234
Falcon Power Operating Company 3,598 3,696 3,797 3,901 3,649 2,639
Falcon Seaboard Gas Company (3) 8,959 9,226 9,530 9,847 3,435 --
---------------------------------------------------------------------------
Total Other Revenues 34,981 41,227 46,395 46,597 41,640 38,873
LESS: LOC / TRUSTEE FEES 299 447 460 528 488 442
TOTAL CASH AVAILABLE FOR DEBT SERVICE 108,679 96,385 101,112 123,249 118,497 107,861
CE GENERATING DEBT SERVICE
Interest 24,869 29,278 28,426 27,194 25,763 24,554
Principal Repayment -- 10,400 12,600 20,600 18,000 14,600
---------------------------------------------------------------------------
Total Debt Service 24,869 39,678 41,026 47,794 43,763 39,154
CE GENERATING DEBT COVERAGE 4.37 2.43 2.46 2.58 2.71 2.75
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2005 2006 2007 2008
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $ 190,051 $ 183,287 $ 181,191 $ 187,778
PRI -- -- -- --
Yuma 23,459 23,408 23,531 24,590
-----------------------------------------------
Total Revenues 213,510 206,695 204,722 212,368
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 56,422 56,651 57,760 59,455
PRI -- -- -- --
Yuma 15,320 15,546 20,443 16,778
-----------------------------------------------
Total Expenses 71,742 72,197 78,203 76,233
OPERATING INCOME FROM CONSOLIDATED PROJECTS 141,769 134,498 126,519 136,134
LESS: CAPITAL EXPENDITURES
Imperial Valley 26,092 14,562 16,215 7,609
PRI -- -- -- --
Yuma 44 44 44 44
-----------------------------------------------
Total Capital Expenditures 26,136 14,606 16,259 7,653
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- --
Proceeds from Financing -- -- -- --
Equity Contributions -- -- -- --
-----------------------------------------------
Total Imperial Valley Construction -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 50,654 46,226 43,378 44,323
PRI -- -- -- --
-----------------------------------------------
Total Project Debt Service 50,654 46,226 43,378 44,323
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- --
-----------------------------------------------
Total Releases -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 38,414 39,318 38,326 46,720
Falcon Power Operating Company 2,710 2,784 2,859 2,936
Falcon Seaboard Gas Company (3) -- -- -- --
-----------------------------------------------
Total Other Revenues 41,124 42,102 41,185 49,656
LESS: LOC / TRUSTEE FEES 433 464 438 523
TOTAL CASH AVAILABLE FOR DEBT SERVICE 105,670 115,304 107,628 133,291
CE GENERATING DEBT SERVICE
Interest 23,464 22,204 20,824 19,111
Principal Repayment 14,800 19,200 18,000 28,200
-----------------------------------------------
Total Debt Service 38,264 41,404 38,824 47,311
CE GENERATING DEBT COVERAGE 2.76 2.78 2.77 2.82
</TABLE>
Minimum DCR (1999 - 2018) 2.43
Average DCR (1999 - 2018) 2.82
(1) Changes in accounts held at PRI related to PRI debt (final year data
provided by CEG)
(2) Saranac cash flow based on partnership allocations after capital
expenditures and debt service
(3) Data provided by CC Pace
A-10
<PAGE>
EXHIBIT 1
CE GENERATION, LLC
Pro Forma Financial Projections ($'000s)
Higher O&M Case
<TABLE>
<CAPTION>
2009 2010 2011 2012 2013 2014
-------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $185,384 $ 188,860 $ 188,004 $ 188,454 $193,753 $ 196,767
PRI -- -- -- -- -- --
Yuma 24,238 22,959 22,978 22,927 23,735 23,818
-----------------------------------------------------------------
Total Revenues 209,622 211,819 210,982 211,381 217,488 220,585
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 58,492 61,745 63,108 63,647 68,557 69,560
PRI -- -- -- -- -- --
Yuma 17,294 16,462 19,775 17,505 18,054 18,323
-----------------------------------------------------------------
Total Expenses 75,786 78,207 82,883 81,152 86,611 87,883
OPERATING INCOME FROM CONSOLIDATED PROJECTS 133,836 133,612 128,099 130,229 130,877 132,702
LESS: CAPITAL EXPENDITURES
Imperial Valley 17,666 10,456 14,570 8,944 18,198 7,529
PRI -- -- -- -- -- --
Yuma 44 44 44 44 44 44
-----------------------------------------------------------------
Total Capital Expenditures 17,710 10,500 14,614 8,988 18,242 7,573
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- -- -- --
Proceeds from Financing -- -- -- -- -- --
Equity Contributions -- -- -- -- -- --
-----------------------------------------------------------------
Total Imperial Valley Construction -- -- -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 40,294 38,551 29,749 25,106 21,951 23,477
PRI -- -- -- -- -- --
-----------------------------------------------------------------
Total Project Debt Service 40,294 38,551 29,749 25,106 21,951 23,477
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- -- -- --
-----------------------------------------------------------------
Total Releases -- -- -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 42,017 -- -- -- -- --
Falcon Power Operating Company 1,508 -- -- -- -- --
Falcon Seaboard Gas Company (3) -- -- -- -- -- --
-----------------------------------------------------------------
Total Other Revenues 43,525 -- -- -- -- --
LESS: LOC / TRUSTEE FEES 468 349 348 388 372 409
TOTAL CASH AVAILABLE FOR DEBT SERVICE 118,889 84,213 83,388 95,747 90,312 101,243
CE GENERATING DEBT SERVICE
Interest 17,153 15,715 14,624 13,301 11,786 10,072
Principal Repayment 24,600 14,200 15,200 20,480 20,400 25,800
-----------------------------------------------------------------
Total Debt Service 41,753 29,915 29,824 33,781 32,186 35,872
CE GENERATING DEBT COVERAGE 2.85 2.82 2.80 2.83 2.81 2.82
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2015 2016 2017 2018
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $200,551 $200,129 $197,254 $197,003
PRI -- -- -- --
Yuma 24,365 24,476 24,940 25,336
-------------------------------------------
Total Revenues 224,916 224,605 222,194 222,339
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 72,643 73,494 76,344 78,479
PRI -- -- -- --
Yuma 23,649 19,811 20,433 21,047
-------------------------------------------
Total Expenses 96,292 93,305 96,777 99,526
OPERATING INCOME FROM CONSOLIDATED PROJECTS 128,625 131,300 125,416 122,813
LESS: CAPITAL EXPENDITURES
Imperial Valley 6,427 8,828 10,036 8,315
PRI -- -- -- --
Yuma 44 44 44 44
-------------------------------------------
Total Capital Expenditures 6,471 8,872 10,080 8,359
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- --
Proceeds from Financing -- -- -- --
Equity Contributions -- -- -- --
-------------------------------------------
Total Imperial Valley Construction -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 23,740 23,743 21,725 10,528
PRI -- -- -- --
-------------------------------------------
Total Project Debt Service 23,740 23,743 21,725 10,528
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- --
-------------------------------------------
Total Releases -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) -- -- -- --
Falcon Power Operating Company -- -- -- --
Falcon Seaboard Gas Company (3) -- -- -- --
-------------------------------------------
Total Other Revenues -- -- -- --
LESS: LOC / TRUSTEE FEES 402 403 391 427
TOTAL CASH AVAILABLE FOR DEBT SERVICE 98,012 98,281 93,220 103,498
CE GENERATING DEBT SERVICE
Interest 8,113 6,025 3,818 1,348
Principal Repayment 27,040 29,280 30,240 36,360
-------------------------------------------
Total Debt Service 35,153 35,305 34,058 37,708
CE GENERATING DEBT COVERAGE 2.79 2.78 2.74 2.74
</TABLE>
Minimum DCR (1999 - 2018) 2.43
Average DCR (1999 - 2018) 2.82
(1) Changes in accounts held at PRI related to PRI debt (final year data
provided by CEG)
(2) Saranac cash flow based on partnership allocations after capital
expenditures and debt service
(3) Data provided by CC Pace
A-11
<PAGE>
EXHIBIT I
CE GENERATION, LLC
Pro Forma Financial Projections ($'000s)
Increased Heat Rate Case
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $ 222,320 $ 168,258 $ 163,615 $ 175,747 $ 180,487 $ 185,522
PRI 83,498 86,128 88,997 91,887 71,866 --
Yuma 20,817 21,140 19,782 22,079 22,579 22,248
--------------------------------------------------------------------------
Total Revenues 326,635 275,526 272,394 289,713 274,932 207,770
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 55,448 49,737 50,462 52,366 51,852 51,319
PRI 52,537 53,153 54,582 56,014 43,183 --
Yuma 14,175 16,931 14,272 14,723 17,236 14,927
--------------------------------------------------------------------------
Total Expenses 122,160 119,821 119,316 123,103 112,271 66,246
OPERATING INCOME FROM CONSOLIDATED PROJECTS 204,476 155,705 153,077 166,610 162,661 141,524
LESS: CAPITAL EXPENDITURES
Imperial Valley 21,525 21,159 17,305 7,334 17,779 15,598
PRI 1,409 1,002 715 516 351 --
Yuma 179 9 6 23 40 40
--------------------------------------------------------------------------
Total Capital Expenditures 23,113 22,170 18,026 7,873 18,170 15,638
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures (142,812) (23,546) -- -- -- --
Proceeds from Financing 118,681 -- -- -- -- --
Equity Contributions 24,131 23,546 -- -- -- --
--------------------------------------------------------------------------
Total Imperial Valley Construction -- -- -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 82,740 51,546 53,451 55,115 53,349 53,433
PRI 21,561 23,381 23,796 23,975 23,188 --
--------------------------------------------------------------------------
Total Project Debt Service 104,301 74,927 77,247 79,090 76,537 53,433
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) (85) (128) (67) 183 12,328 --
--------------------------------------------------------------------------
Total Releases (85) (128) (67) 183 12,328 --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 22,061 27,824 32,511 32,246 33,904 35,530
Falcon Power Operating Company 3,271 3,361 3,452 3,547 3,317 2,399
Falcon Seaboard Gas Company (3) 8,959 9,226 9,530 9,847 3,435 --
--------------------------------------------------------------------------
Total Other Revenues 34,291 40,411 45,493 45,640 40,656 37,929
LESS: LOC / TRUSTEE FEES 299 447 460 528 488 442
TOTAL CASH AVAILABLE FOR DEBT SERVICE 110,969 98,444 102,771 124,941 120,450 109,941
CE GENERATING DEBT SERVICE
Interest 24,869 29,278 28,426 27,194 25,763 24,554
Principal Repayment -- 10,400 12,600 20,600 18,000 14,600
--------------------------------------------------------------------------
Total Debt Service 24,869 39,678 41,026 47,794 43,763 39,154
CE GENERATING DEBT COVERAGE 4.46 2.48 2.51 2.61 2.75 2.81
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2005 2006 2007 2008
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $ 190,156 $ 183,391 $ 181,318 $ 187,934
PRI -- -- -- --
Yuma 23,459 23,408 23,531 24,590
-----------------------------------------------
Total Revenues 213,615 206,799 204,849 212,524
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 52,997 52,726 53,260 54,305
PRI -- -- -- --
Yuma 15,393 15,649 20,166 16,879
-----------------------------------------------
Total Expenses 68,390 68,375 73,426 71,184
OPERATING INCOME FROM CONSOLIDATED PROJECTS 145,225 138,424 131,422 141,340
LESS: CAPITAL EXPENDITURES
Imperial Valley 26,092 14,562 16,215 7,609
PRI -- -- -- --
Yuma 40 40 40 40
-----------------------------------------------
Total Capital Expenditures 26,132 14,602 16,255 7,649
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- --
Proceeds from Financing -- -- -- --
Equity Contributions -- -- -- --
-----------------------------------------------
Total Imperial Valley Construction -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 50,654 46,226 43,378 44,323
PRI -- -- -- --
-----------------------------------------------
Total Project Debt Service 50,654 46,226 43,378 44,323
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- --
-----------------------------------------------
Total Releases -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 37,653 38,505 37,453 45,774
Falcon Power Operating Company 2,464 2,531 2,599 2,669
Falcon Seaboard Gas Company (3) -- -- -- --
-----------------------------------------------
Total Other Revenues 40,117 41,036 40,052 48,443
LESS: LOC / TRUSTEE FEES 433 464 438 523
TOTAL CASH AVAILABLE FOR DEBT SERVICE 108,123 118,168 111,403 137,288
CE GENERATING DEBT SERVICE
Interest 23,464 22,204 20,824 19,111
Principal Repayment 14,800 19,200 18,000 28,200
-----------------------------------------------
Total Debt Service 38,264 41,404 38,824 47,311
CE GENERATING DEBT COVERAGE 2.83 2.85 2.87 2.90
</TABLE>
Minimum DCR (1999 - 2018) 2.48
Average DCR (1999 - 2018) 3.02
(1) Changes in accounts held at PRI related to PRI debt (final year data
provided by CEG)
(2) Saranac cash flow based on partnership allocations after capital
expenditures and debt service
(3) Data provided by CC Pace
A-12
<PAGE>
Exhibit I
CE GENERATION, LLC
Pro Forma Financial Projections ($'000s)
Increased Heat Rate Case
<TABLE>
<CAPTION>
2009 2010 2011 2012 2013 2014
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $185,550 $189,055 $188,223 $188,701 $194,037 $197,086
PRI -- -- -- -- -- --
Yuma 24,238 22,959 22,978 22,927 23,735 23,818
----------------------------------------------------------------
Total Revenues 209,788 212,014 211,201 211,628 217,772 220,904
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 52,804 55,109 55,556 55,087 58,568 58,332
PRI -- -- -- --
Yuma 17,407 16,509 19,578 17,571 18,131 18,438
----------------------------------------------------------------
Total Expenses 70,211 71,618 75,134 72,658 76,699 76,770
OPERATING INCOME FROM CONSOLIDATED PROJECTS 139,577 140,396 136,067 138,970 141,072 144,133
LESS: CAPITAL EXPENDITURES
Imperial Valley 17,666 10,456 14,570 8,944 18,198 7,529
PRI -- -- -- -- -- --
Yuma 40 40 40 40 40 40
----------------------------------------------------------------
Total Capital Expenditures 17,706 10,496 14,610 8,984 18,238 7,569
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- -- -- --
Proceeds from Financing -- -- -- -- -- --
Equity Contributions -- -- -- -- -- --
----------------------------------------------------------------
Total Imperial Valley Construction -- -- -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 40,294 38,551 29,749 25,106 21,951 23,477
PRI -- -- -- -- -- --
----------------------------------------------------------------
Total Project Debt Service 40,294 38,551 29,749 25,106 21,951 23,477
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- -- -- --
----------------------------------------------------------------
Total Releases -- -- -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 41,516 -- -- -- -- --
Falcon Power Operating Company 1,371 -- -- -- -- --
Falcon Seaboard Gas Company (3) -- -- -- -- -- --
----------------------------------------------------------------
Total Other Revenues 42,887 -- -- -- -- --
LESS: LOC / TRUSTEE FEES 468 349 348 388 372 409
TOTAL CASH AVAILABLE FOR DEBT SERVICE 123,996 91,000 91,360 104,492 100,511 112,679
CE GENERATING DEBT SERVICE
Interest 17,153 15,715 14,624 13,301 11,786 10,072
Principal Repayment 24,600 14,200 15,200 20,480 20,400 25,800
----------------------------------------------------------------
Total Debt Service 41,753 29,915 29,824 33,781 32,186 35,872
CE GENERATING DEBT COVERAGE 2.97 3.04 3.06 3.09 3.12 3.14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2015 2016 2017 2018
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $200,915 $200,536 $197,715 $197,521
PRI -- -- -- --
Yuma 24,365 24,476 24,940 25,336
------------------------------------------
Total Revenues 225,280 225,012 222,655 222,857
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 59,839 59,145 60,019 60,035
PRI -- -- -- --
Yuma 23,256 19,919 20,554 21,177
------------------------------------------
Total Expenses 83,095 79,064 80,573 81,212
OPERATING INCOME FROM CONSOLIDATED PROJECTS 142,185 145,948 142,082 141,645
LESS: CAPITAL EXPENDITURES
Imperial Valley 6,427 8,828 10,036 8,315
PRI -- -- -- --
Yuma 40 40 40 40
------------------------------------------
Total Capital Expenditures 6,467 8,868 10,076 8,355
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- --
Proceeds from Financing -- -- -- --
Equity Contributions -- -- -- --
------------------------------------------
Total Imperial Valley Construction -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 23,740 23,743 21,725 10,528
PRI -- -- -- --
------------------------------------------
Total Project Debt Service 23,740 23,743 21,725 10,528
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- --
------------------------------------------
Total Releases -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) -- -- -- --
Falcon Power Operating Company -- -- -- --
Falcon Seaboard Gas Company (3) -- -- -- --
------------------------------------------
Total Other Revenues -- -- -- --
LESS: LOC / TRUSTEE FEES 402 403 391 427
TOTAL CASH AVAILABLE FOR DEBT SERVICE 111,577 112,933 109,890 122,334
CE GENERATING DEBT SERVICE
Interest 8,113 6,025 3,818 1,348
Principal Repayment 27,040 29,280 30,240 36,360
------------------------------------------
Total Debt Service 35,153 35,305 34,058 37,708
CE GENERATING DEBT COVERAGE 3.17 3.20 3.23 3.24
</TABLE>
Minimum DCR (1999 - 2018) 2.48
Average DCR (1999 - 2018) 3.02
(1) Changes in accounts held at PRI related to PRI debt (final year data
provided by CEG)
(2) Saranac cash flow based on partnership allocations after capital
expenditures and debt service
(3) Data provided by CC Pace
A-13
<PAGE>
EXHIBIT I
CE GENERATION, LLC
Pro Forma Financial Projections ($'000s)
Reduced Availability Case
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $ 213,742 $ 162,354 $ 157,889 $ 169,453 $ 173,918 $ 178,717
PRI 80,887 83,442 86,223 89,026 69,649 --
Yuma 19,748 20,056 18,770 20,949 21,423 21,106
--------------------------------------------------------------------------
Total Revenues 314,377 265,852 262,882 279,428 264,990 199,823
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 55,031 49,460 50,173 52,045 51,520 50,974
PRI 48,627 49,172 50,511 51,851 39,969 --
Yuma 13,085 15,992 13,300 13,517 14,135 16,027
--------------------------------------------------------------------------
Total Expenses 116,743 114,624 113,984 117,413 105,624 67,001
OPERATING INCOME FROM CONSOLIDATED PROJECTS 197,634 151,227 148,898 162,015 159,366 132,822
LESS: CAPITAL EXPENDITURES
Imperial Valley 21,525 21,159 17,305 7,334 17,779 15,598
PRI 1,409 1,002 715 516 351 --
Yuma 179 9 6 23 40 40
--------------------------------------------------------------------------
Total Capital Expenditures 23,113 22,170 18,026 7,873 18,170 15,638
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures (142,812) (23,546) -- -- -- --
Proceeds from Financing 118,681 -- -- -- -- --
Equity Contributions 24,131 23,546 -- -- -- --
--------------------------------------------------------------------------
Total Imperial Valley Construction -- -- -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 82,740 51,546 53,451 55,115 53,349 53,433
PRI 21,561 23,381 23,796 23,975 23,188 --
--------------------------------------------------------------------------
Total Project Debt Service 104,301 74,927 77,247 79,090 76,537 53,433
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) (85) (128) (67) 183 12,328 --
--------------------------------------------------------------------------
Total Releases (85) (128) (67) 183 12,328 --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 16,981 18,964 25,479 24,923 26,265 27,573
Falcon Power Operating Company 3,271 3,361 3,452 3,547 3,317 2,399
Falcon Seaboard Gas Company (3) 8,448 8,697 8,983 9,282 2,998 --
--------------------------------------------------------------------------
Total Other Revenues 28,700 31,022 37,914 37,752 32,580 29,972
LESS: LOC / TRUSTEE FEES 299 447 460 528 488 442
TOTAL CASH AVAILABLE FOR DEBT SERVICE 98,536 84,577 91,013 112,457 109,080 93,281
CE GENERATING DEBT SERVICE
Interest 24,869 29,278 28,426 27,194 25,763 24,554
Principal Repayment -- 10,400 12,600 20,600 18,000 14,600
--------------------------------------------------------------------------
Total Debt Service 24,869 39,678 41,026 47,794 43,763 39,154
CE GENERATING DEBT COVERAGE 3.96 2.13 2.22 2.35 2.49 2.38
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2005 2006 2007 2008
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $ 184,433 $ 176,997 $ 174,725 $ 181,025
PRI -- -- -- --
Yuma 22,254 22,208 22,323 23,329
-----------------------------------------------
Total Revenues 206,687 199,205 197,048 204,354
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 52,631 52,382 52,916 53,941
PRI -- -- -- --
Yuma 14,344 14,784 19,034 15,714
-----------------------------------------------
Total Expenses 66,975 67,166 71,950 69,655
OPERATING INCOME FROM CONSOLIDATED PROJECTS 139,712 132,039 125,099 134,699
LESS: CAPITAL EXPENDITURES
Imperial Valley 26,092 14,562 16,215 7,609
PRI -- -- -- --
Yuma 40 40 40 40
-----------------------------------------------
Total Capital Expenditures 26,132 14,602 16,255 7,649
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- --
Proceeds from Financing -- -- -- --
Equity Contributions -- -- -- --
-----------------------------------------------
Total Imperial Valley Construction -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 50,654 46,226 43,378 44,323
PRI -- -- -- --
-----------------------------------------------
Total Project Debt Service 50,654 46,226 43,378 44,323
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- --
-----------------------------------------------
Total Releases -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 29,361 29,864 28,438 36,373
Falcon Power Operating Company 2,464 2,531 2,599 2,669
Falcon Seaboard Gas Company (3) -- -- -- --
-----------------------------------------------
Total Other Revenues 31,825 32,395 31,037 39,042
LESS: LOC / TRUSTEE FEES 433 464 438 523
TOTAL CASH AVAILABLE FOR DEBT SERVICE 94,318 103,142 96,064 121,246
CE GENERATING DEBT SERVICE
Interest 23,464 22,204 20,824 19,111
Principal Repayment 14,800 19,200 18,000 28,200
-----------------------------------------------
Total Debt Service 38,264 41,404 38,824 47,311
CE GENERATING DEBT COVERAGE 2.46 2.49 2.47 2.56
</TABLE>
Minimum DCR (1999 - 2018) 2.13
Average DCR (1999 - 2018) 2.73
(1) Changes in accounts held at PRI related to PRI debt (final year data
provided by CEG)
(2) Saranac cash flow based on partnership allocations after capital
expenditures and debt service
(3) Data provided by CC Pace
A-14
<PAGE>
EXHIBIT 1
CE GENERATION, LLC
Pro Forma Financial Projections ($'000s)
Reduced Availability Case
<TABLE>
<CAPTION>
2009 2010 2011 2012 2013 2014
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $178,760 $182,128 $181,309 $181,781 $186,836 $189,782
PRI -- -- -- -- -- --
Yuma 22,997 21,767 21,786 21,738 22,505 22,584
-----------------------------------------------------------------
Total Revenues 201,757 203,895 203,095 203,519 209,341 212,366
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 52,442 54,720 55,173 54,711 58,190 57,962
PRI -- -- -- -- -- --
Yuma 16,200 15,401 18,177 16,382 16,898 17,433
-----------------------------------------------------------------
Total Expenses 68,642 70,121 73,350 71,093 75,088 75,395
OPERATING INCOME FROM CONSOLIDATED PROJECTS 133,115 133,774 129,745 132,426 134,253 136,971
LESS: CAPITAL EXPENDITURES
Imperial Valley 17,666 10,456 14,570 8,944 18,198 7,529
PRI -- -- -- -- -- --
Yuma 40 40 40 40 40 40
-----------------------------------------------------------------
Total Capital Expenditures 17,706 10,496 14,610 8,984 18,238 7,569
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- -- -- --
Proceeds from Financing -- -- -- -- -- --
Equity Contributions -- -- -- -- -- --
-----------------------------------------------------------------
Total Imperial Valley Construction -- -- -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 40,294 38,551 29,749 25,106 21,951 23,477
PRI -- -- -- -- -- --
-----------------------------------------------------------------
Total Project Debt Service 40,294 38,551 29,749 25,106 21,951 23,477
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- -- -- --
-----------------------------------------------------------------
Total Releases -- -- -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 36,583 -- -- -- -- --
Falcon Power Operating Company 1,371 -- -- -- -- --
Falcon Seaboard Gas Company (3) -- -- -- -- -- --
-----------------------------------------------------------------
Total Other Revenues 37,954 -- -- -- -- --
LESS: LOC / TRUSTEE FEES 468 349 348 388 372 409
TOTAL CASH AVAILABLE FOR DEBT SERVICE 112,601 84,379 85,037 97,948 93,692 105,516
CE GENERATING DEBT SERVICE
Interest 17,153 15,715 14,624 13,301 11,786 10,072
Principal Repayment 24,600 14,200 15,200 20,480 20,400 25,800
-----------------------------------------------------------------
Total Debt Service 41,753 29,915 29,824 33,781 32,186 35,872
CE GENERATING DEBT COVERAGE 2.70 2.82 2.85 2.90 2.91 2.94
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2015 2016 2017 2018
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $193,391 $192,903 $189,976 $189,676
PRI -- -- -- --
Yuma 23,101 23,209 23,650 24,025
------------------------------------------
Total Revenues 216,492 216,112 213,626 213,701
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 59,458 58,756 59,628 59,632
PRI -- -- -- --
Yuma 17,109 23,281 19,134 19,709
------------------------------------------
Total Expenses 76,567 82,037 78,762 79,341
OPERATING INCOME FROM CONSOLIDATED PROJECTS 139,925 134,076 134,863 134,360
LESS: CAPITAL EXPENDITURES
Imperial Valley 6,427 8,828 10,036 8,315
PRI -- -- -- --
Yuma 40 40 40 40
------------------------------------------
Total Capital Expenditures 6,467 8,868 10,076 8,355
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- --
Proceeds from Financing -- -- -- --
Equity Contributions -- -- -- --
------------------------------------------
Total Imperial Valley Construction -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 23,740 23,743 21,725 10,528
PRI -- -- -- --
------------------------------------------
Total Project Debt Service 23,740 23,743 21,725 10,528
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- --
------------------------------------------
Total Releases -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) -- -- -- --
Falcon Power Operating Company -- -- -- --
Falcon Seaboard Gas Company (3) -- -- -- --
------------------------------------------
Total Other Revenues -- -- -- --
LESS: LOC / TRUSTEE FEES 402 403 391 427
TOTAL CASH AVAILABLE FOR DEBT SERVICE 109,316 101,061 102,671 115,049
CE GENERATING DEBT SERVICE
Interest 8,113 6,025 3,818 1,348
Principal Repayment 27,040 29,280 30,240 36,360
------------------------------------------
Total Debt Service 35,153 35,305 34,058 37,708
CE GENERATING DEBT COVERAGE 3.11 2.86 3.01 3.05
</TABLE>
Minimum DCR (1999 - 2018) 2.13
Average DCR (1999 - 2018) 2.73
(1) Changes in accounts held at PRI related to PRI debt (final year data
provided by CEG)
(2) Saranac cash flow based on partnership allocations after capital
expenditures and debt service
(3) Data provided by CC Pace
A-15
<PAGE>
EXHIBIT 1
CE GENERATION, LLC
Pro Forma Financial Projections ($'000s)
Low Power Price 2 Case
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $ 222,320 $ 167,959 $ 162,755 $ 164,637 $ 169,543 $ 176,429
PRI 83,498 86,128 88,997 91,887 71,866 --
Yuma 20,817 21,130 19,108 20,009 20,669 20,486
--------------------------------------------------------------------------
Total Revenues 326,635 275,217 270,860 276,533 262,078 196,915
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 55,448 49,721 50,420 51,716 51,332 50,882
PRI 51,081 51,687 53,094 54,503 42,015 --
Yuma 13,731 16,220 13,276 13,420 15,609 13,080
--------------------------------------------------------------------------
Total Expenses 120,260 117,628 116,790 119,639 108,956 63,962
OPERATING INCOME FROM CONSOLIDATED PROJECTS 206,376 157,589 154,070 156,894 153,122 132,953
LESS: CAPITAL EXPENDITURES
Imperial Valley 21,525 21,159 17,305 7,334 17,779 15,598
PRI 1,409 1,002 715 516 351 --
Yuma 179 9 6 23 40 40
--------------------------------------------------------------------------
Total Capital Expenditures 23,113 22,170 18,026 7,873 18,170 15,638
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures (142,812) (23,546) -- -- -- --
Proceeds from Financing 118,681 -- -- -- -- --
Equity Contributions 24,131 23,546 -- -- -- --
--------------------------------------------------------------------------
Total Imperial Valley Construction -- -- -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 82,740 51,546 53,451 55,115 53,349 53,433
PRI 21,561 23,381 23,796 23,975 23,188 --
--------------------------------------------------------------------------
Total Project Debt Service 104,301 74,927 77,247 79,090 76,537 53,433
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) (85) (128) (67) 183 12,328 --
--------------------------------------------------------------------------
Total Releases (85) (128) (67) 183 12,328 --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 23,810 30,031 34,951 34,791 36,563 38,304
Falcon Power Operating Company 3,271 3,361 3,452 3,547 3,317 2,399
Falcon Seaboard Gas Company (3) 8,959 9,226 9,530 9,847 3,435 --
--------------------------------------------------------------------------
Total Other Revenues 36,040 42,618 47,933 48,185 43,315 40,703
LESS: LOC / TRUSTEE FEES 299 447 460 528 488 442
TOTAL CASH AVAILABLE FOR DEBT SERVICE 114,618 102,536 106,204 117,770 113,570 104,143
CE GENERATING DEBT SERVICE
Interest 24,869 29,278 28,426 27,194 25,763 24,554
Principal Repayment -- 10,400 12,600 20,600 18,000 14,600
--------------------------------------------------------------------------
Total Debt Service 24,869 39,678 41,026 47,794 43,763 39,154
CE GENERATING DEBT COVERAGE 4.61 2.58 2.59 2.46 2.60 2.66
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2005 2006 2007 2008
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $ 179,294 $ 173,202 $ 172,030 $ 173,653
PRI -- -- -- --
Yuma 21,778 22,003 22,231 22,456
-----------------------------------------------
Total Revenues 201,072 195,205 194,261 196,109
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 52,439 52,227 52,803 53,541
PRI -- -- -- --
Yuma 13,479 13,664 18,097 14,751
-----------------------------------------------
Total Expenses 65,918 65,891 70,900 68,292
OPERATING INCOME FROM CONSOLIDATED PROJECTS 135,154 129,314 123,361 127,817
LESS: CAPITAL EXPENDITURES
Imperial Valley 26,092 14,562 16,215 7,609
PRI -- -- -- --
Yuma 40 40 40 40
-----------------------------------------------
Total Capital Expenditures 26,132 14,602 16,255 7,649
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- --
Proceeds from Financing -- -- -- --
Equity Contributions -- -- -- --
-----------------------------------------------
Total Imperial Valley Construction -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 50,654 46,226 43,378 44,323
PRI -- -- -- --
-----------------------------------------------
Total Project Debt Service 50,654 46,226 43,378 44,323
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- --
-----------------------------------------------
Total Releases -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 40,549 41,525 40,605 49,062
Falcon Power Operating Company 2,464 2,531 2,599 2,669
Falcon Seaboard Gas Company (3) -- -- -- --
-----------------------------------------------
Total Other Revenues 43,013 44,056 43,204 51,731
LESS: LOC / TRUSTEE FEES 433 464 438 523
TOTAL CASH AVAILABLE FOR DEBT SERVICE 100,948 112,078 106,494 127,053
CE GENERATING DEBT SERVICE
Interest 23,464 22,204 20,824 19,111
Principal Repayment 14,800 19,200 18,000 28,200
-----------------------------------------------
Total Debt Service 38,264 41,404 38,824 47,311
CE GENERATING DEBT COVERAGE 2.64 2.71 2.74 2.69
</TABLE>
Minimum DCR (1999 - 2018) 2.46
Average DCR (1999 - 2018) 2.78
(1) Changes in accounts held at PRI related to PRI debt (final year data
provided by CEG)
(2) Saranac cash flow based on partnership allocations after capital
expenditures and debt service
(3) Data provided by CC Pace
A-16
<PAGE>
EXHIBIT I
CE GENERATION, LLC
Pro Forma Financial Projections ($'000s)
Low Power Price 2 Case
<TABLE>
<CAPTION>
2009 2010 2011 2012 2013 2014
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $173,813 $176,093 $175,760 $177,681 $178,750 $181,259
PRI -- -- -- -- -- --
Yuma 22,684 21,298 21,436 21,576 21,717 21,859
----------------------------------------------------------------
Total Revenues 196,497 197,391 197,196 199,257 200,467 203,118
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 52,244 54,417 54,927 54,536 57,757 57,555
PRI -- -- -- -- -- --
Yuma 15,199 14,483 17,476 15,392 15,872 16,095
----------------------------------------------------------------
Total Expenses 67,443 68,900 72,403 69,928 73,629 73,650
OPERATING INCOME FROM CONSOLIDATED PROJECTS 129,054 128,491 124,793 129,329 126,837 129,468
LESS: CAPITAL EXPENDITURES
Imperial Valley 17,666 10,456 14,570 8,944 18,198 7,529
PRI -- -- -- -- -- --
Yuma 40 40 40 40 40 40
----------------------------------------------------------------
Total Capital Expenditures 17,706 10,496 14,610 8,984 18,238 7,569
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- -- -- --
Proceeds from Financing -- -- -- -- -- --
Equity Contributions -- -- -- -- -- --
----------------------------------------------------------------
Total Imperial Valley Construction -- -- -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 40,294 38,551 29,749 25,106 21,951 23,477
PRI -- -- -- -- -- --
----------------------------------------------------------------
Total Project Debt Service 40,294 38,551 29,749 25,106 21,951 23,477
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- -- -- --
----------------------------------------------------------------
Total Releases -- -- -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 43,219 -- -- -- -- --
Falcon Power Operating Company 1,371 -- -- -- -- --
Falcon Seaboard Gas Company (3) -- -- -- -- -- --
----------------------------------------------------------------
Total Other Revenues 44,590 -- -- -- -- --
LESS: LOC / TRUSTEE FEES 468 349 348 388 372 409
TOTAL CASH AVAILABLE FOR DEBT SERVICE 115,176 79,095 80,086 94,851 86,277 98,014
CE GENERATING DEBT SERVICE
Interest 17,153 15,715 14,624 13,301 11,786 10,072
Principal Repayment 24,600 14,200 15,200 20,480 20,400 25,800
----------------------------------------------------------------
Total Debt Service 41,753 29,915 29,824 33,781 32,186 35,872
CE GENERATING DEBT COVERAGE 2.76 2.64 2.69 2.81 2.68 2.73
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2015 2016 2017 2018
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $183,359 $183,751 $179,898 $178,317
PRI -- -- -- --
Yuma 22,132 22,436 22,728 23,017
------------------------------------------
Total Revenues 205,491 206,187 202,626 201,334
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 58,955 58,329 59,128 59,074
PRI -- -- -- --
Yuma 20,950 17,401 17,946 18,477
------------------------------------------
Total Expenses 79,905 75,730 77,074 77,551
OPERATING INCOME FROM CONSOLIDATED PROJECTS 125,585 130,457 125,553 123,783
LESS: CAPITAL EXPENDITURES
Imperial Valley 6,427 8,828 10,036 8,315
PRI -- -- -- --
Yuma 40 40 40 40
------------------------------------------
Total Capital Expenditures 6,467 8,868 10,076 8,355
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- --
Proceeds from Financing -- -- -- --
Equity Contributions -- -- -- --
------------------------------------------
Total Imperial Valley Construction -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 23,740 23,743 21,725 10,528
PRI -- -- -- --
------------------------------------------
Total Project Debt Service 23,740 23,743 21,725 10,528
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- --
------------------------------------------
Total Releases -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) -- -- -- --
Falcon Power Operating Company -- -- -- --
Falcon Seaboard Gas Company (3) -- -- -- --
------------------------------------------
Total Other Revenues -- -- -- --
LESS: LOC / TRUSTEE FEES 402 403 391 427
TOTAL CASH AVAILABLE FOR DEBT SERVICE 94,977 97,443 93,360 104,473
CE GENERATING DEBT SERVICE
Interest 8,113 6,025 3,818 1,348
Principal Repayment 27,040 29,280 30,240 36,360
------------------------------------------
Total Debt Service 35,153 35,305 34,058 37,708
CE GENERATING DEBT COVERAGE 2.70 2.76 2.74 2.77
</TABLE>
Minimum DCR (1999 - 2018) 2.46
Average DCR (1999 - 2018) 2.78
(1) Changes in accounts held at PRI related to PRI debt (final year data
provided by CEG)
(2) Saranac cash flow based on partnership allocations after capital
expenditures and debt service
(3) Data provided by CC Pace
A-17
<PAGE>
EXHIBIT 1
CE GENERATION, LLC
Pro Forma Financial Projections ($'000s)
SCE Low Case
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $ 222,318 $ 170,790 $ 171,231 $ 177,615 $ 180,513 $ 184,216
PRI 83,498 86,128 88,997 91,887 71,866 --
Yuma 20,006 20,794 21,546 22,025 22,427 21,888
--------------------------------------------------------------------------
Total Revenues 325,822 277,712 281,774 291,527 274,806 206,104
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 55,448 49,886 50,879 52,392 51,848 51,242
PRI 51,081 51,687 53,094 54,503 42,015 --
Yuma 13,731 16,472 13,797 14,230 16,725 14,432
--------------------------------------------------------------------------
Total Expenses 120,260 118,045 117,770 121,125 110,588 65,674
OPERATING INCOME FROM CONSOLIDATED PROJECTS 205,563 159,667 164,004 170,402 164,218 140,431
LESS: CAPITAL EXPENDITURES
Imperial Valley 21,525 21,159 17,305 7,334 17,779 15,598
PRI 1,409 1,002 715 516 351 --
Yuma 179 9 6 23 40 40
--------------------------------------------------------------------------
Total Capital Expenditures 23,113 22,170 18,026 7,873 18,170 15,638
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures (142,812) (23,546) -- -- -- --
Proceeds from Financing 118,681 -- -- -- -- --
Equity Contributions 24,131 23,546 -- -- -- --
--------------------------------------------------------------------------
Total Imperial Valley Construction -- -- -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 82,740 51,546 53,451 55,115 53,349 53,433
PRI 21,561 23,381 23,796 23,975 23,188 --
--------------------------------------------------------------------------
Total Project Debt Service 104,301 74,927 77,247 79,090 76,537 53,433
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) (85) (128) (67) 183 12,328 --
--------------------------------------------------------------------------
Total Releases (85) (128) (67) 183 12,328 --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 23,810 30,031 34,951 34,791 36,563 38,304
Falcon Power Operating Company 3,271 3,361 3,452 3,547 3,317 2,399
Falcon Seaboard Gas Company (3) 8,959 9,226 9,530 9,847 3,435 --
--------------------------------------------------------------------------
Total Other Revenues 36,040 42,618 47,933 48,185 43,315 40,703
LESS: LOC / TRUSTEE FEES 299 447 460 528 488 442
TOTAL CASH AVAILABLE FOR DEBT SERVICE 113,805 104,613 116,138 131,278 124,666 111,621
CE GENERATING DEBT SERVICE
Interest 24,869 29,278 28,426 27,194 25,763 24,554
Principal Repayment -- 10,400 12,600 20,600 18,000 14,600
--------------------------------------------------------------------------
Total Debt Service 24,869 39,678 41,026 47,794 43,763 39,154
CE GENERATING DEBT COVERAGE 4.58 2.64 2.83 2.75 2.85 2.85
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2005 2006 2007 2008
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $ 183,879 $ 178,620 $ 179,076 $ 182,181
PRI -- -- -- --
Yuma 22,266 22,679 23,132 23,544
-----------------------------------------------
Total Revenues 206,145 201,299 202,208 205,725
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 52,640 52,512 53,169 53,979
PRI -- -- -- --
Yuma 14,880 15,118 19,613 16,310
-----------------------------------------------
Total Expenses 67,520 67,630 72,782 70,289
OPERATING INCOME FROM CONSOLIDATED PROJECTS 138,625 133,669 129,426 135,437
LESS: CAPITAL EXPENDITURES
Imperial Valley 26,092 14,562 16,215 7,609
PRI -- -- -- --
Yuma 40 40 40 40
-----------------------------------------------
Total Capital Expenditures 26,132 14,602 16,255 7,649
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- --
Proceeds from Financing -- -- -- --
Equity Contributions -- -- -- --
-----------------------------------------------
Total Imperial Valley Construction -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 50,654 46,226 43,378 44,323
PRI -- -- -- --
-----------------------------------------------
Total Project Debt Service 50,654 46,226 43,378 44,323
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- --
-----------------------------------------------
Total Releases -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 40,549 41,525 40,605 49,062
Falcon Power Operating Company 2,464 2,531 2,599 2,669
Falcon Seaboard Gas Company (3) -- -- -- --
-----------------------------------------------
Total Other Revenues 43,013 44,056 43,204 51,731
LESS: LOC / TRUSTEE FEES 433 464 438 523
TOTAL CASH AVAILABLE FOR DEBT SERVICE 104,419 116,433 112,559 134,673
CE GENERATING DEBT SERVICE
Interest 23,464 22,204 20,824 19,111
Principal Repayment 14,800 19,200 18,000 28,200
-----------------------------------------------
Total Debt Service 38,264 41,404 38,824 47,311
CE GENERATING DEBT COVERAGE 2.73 2.81 2.90 2,85
</TABLE>
Minimum DCR (1999 - 2018) 2.64
Average DCR (1999 - 2018) 3.14
(1) Changes in accounts held at PRI related to PRI debt (final year data
provided by CEG)
(2) Saranac cash flow based on partnership allocations after capital
expenditures and debt service
(3) Data provided by CC Pace
A- 18
<PAGE>
EXHIBIT 1
CE GENERATION, LLC
Pro Forma Financial Projections ($'000s)
SCE Low Case
<TABLE>
<CAPTION>
2009 2010 2011 2012 2013 2014
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $183,925 $188,105 $189,866 $194,486 $198,002 $203,235
PRI -- -- -- -- -- --
Yuma 23,996 22,695 23,098 23,565 24,000 24,470
------------------------------------------------------------------
Total Revenues 207,921 210,800 212,964 218,051 222,002 227,705
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 52,771 55,057 55,668 55,420 58,745 58,675
PRI -- -- -- -- -- --
Yuma 16,817 15,971 19,020 16,993 17,531 17,817
------------------------------------------------------------------
Total Expenses 69,588 71,028 74,688 72,413 76,276 76,492
OPERATING INCOME FROM CONSOLIDATED PROJECTS 138,333 139,773 138,276 145,639 145,726 151,213
LESS: CAPITAL EXPENDITURES
Imperial Valley 17,666 10,456 14,570 8,944 18,198 7,529
PRI -- -- -- -- -- --
Yuma 40 40 40 40 40 40
------------------------------------------------------------------
Total Capital Expenditures 17,706 10,496 14,610 8,984 18,238 7,569
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- -- -- --
Proceeds from Financing -- -- -- -- -- --
Equity Contributions -- -- -- -- -- --
------------------------------------------------------------------
Total Imperial Valley Construction -- -- -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 40,294 38,551 29,749 25,106 21,951 23,477
PRI -- -- -- -- -- --
------------------------------------------------------------------
Total Project Debt Service 40,294 38,551 29,749 25,106 21,951 23,477
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- -- -- --
------------------------------------------------------------------
Total Releases -- -- -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) 43,219 -- -- -- -- --
Falcon Power Operating Company 1,371
Falcon Seaboard Gas Company (3) -- -- -- -- -- --
------------------------------------------------------------------
Total Other Revenues 44,590 -- -- -- -- --
LESS: LOC / TRUSTEE FEES 468 349 348 388 372 409
TOTAL CASH AVAILABLE FOR DEBT SERVICE 124,455 90,377 93,569 111,160 105,165 119,758
CE GENERATING DEBT SERVICE
Interest 17,153 15,715 14,624 13,301 11,786 10,072
Principal Repayment 24,600 14,200 15,200 20,480 20,400 25,800
------------------------------------------------------------------
Total Debt Service 41,753 29,915 29,824 33,781 32,186 35,872
CE GENERATING DEBT COVERAGE 2.98 3.02 3.14 3.29 3.27 3.34
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2015 2016 2017 2018
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FROM PROJECTS
REVENUES FROM CONSOLIDATED PROJECTS
Imperial Valley $207,181 $209,662 $207,850 $208,974
PRI -- -- -- --
Yuma 24,953 25,425 25,890 26,368
------------------------------------------
Total Revenues 232,134 235,087 233,740 235,342
LESS: EXPENSES FROM CONSOLIDATED PROJECTS
Imperial Valley 60,144 59,624 60,523 60,615
PRI -- -- -- --
Yuma 22,643 19,254 19,864 20,464
------------------------------------------
Total Expenses 82,787 78,878 80,387 81,079
OPERATING INCOME FROM CONSOLIDATED PROJECTS 149,347 156,209 153,353 154,263
LESS: CAPITAL EXPENDITURES
Imperial Valley 6,427 8,828 10,036 8,315
PRI -- -- -- --
Yuma 40 40 40 40
------------------------------------------
Total Capital Expenditures 6,467 8,868 10,076 8,355
LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS
Construction Expenditures -- -- -- --
Proceeds from Financing -- -- -- --
Equity Contributions -- -- -- --
------------------------------------------
Total Imperial Valley Construction -- -- -- --
LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE
Imperial Valley 23,740 23,743 21,725 10,528
PRI -- -- -- --
------------------------------------------
Total Project Debt Service 23,740 23,743 21,725 10,528
PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS
PRI (1) -- -- -- --
------------------------------------------
Total Releases -- -- -- --
PLUS: OTHER REVENUE CASH FLOWS
Saranac (2) -- -- -- --
Falcon Power Operating Company
Falcon Seaboard Gas Company (3) -- -- -- --
------------------------------------------
Total Other Revenues -- -- -- --
LESS: LOC / TRUSTEE FEES 402 403 391 427
TOTAL CASH AVAILABLE FOR DEBT SERVICE 118,739 123,194 121,161 134,952
CE GENERATING DEBT SERVICE
Interest 8,113 6,025 3,818 1,348
Principal Repayment 27,040 29,280 30,240 36,360
------------------------------------------
Total Debt Service 35,153 35,305 34,058 37,708
CE GENERATING DEBT COVERAGE 3.38 3.49 3.56 3.58
</TABLE>
Minimum DCR (1999 - 2018) 2.64
Average DCR (1999 - 2018) 3.14
(1) Changes in accounts held at PRI related to PRI debt (final year data
provided by CEG)
(2) Saranac cash flow based on partnership allocations after capital
expenditures and debt service
(3) Data provided by CC Pace
A-19
<PAGE>
APPENDIX B
INDEPENDENT ENGINEER'S REPORT
CE GENERATION LLC
NATURAL GAS PROJECTS
[R.W. Beck LOGO]
<PAGE>
[THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]
<PAGE>
APPENDIX B
INDEPENDENT ENGINEER'S REPORT
CE GENERATION LLC NATURAL GAS PROJECTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRI PROJECT.....................................................................................................B-4
Project Operator.............................................................................................B-4
The Project..................................................................................................B-4
The Project Site..........................................................................................B-4
Environmental Site Conditions.............................................................................B-4
Description of the Project................................................................................B-5
Review of Technology......................................................................................B-8
Reliability and Availability..............................................................................B-8
Status of Permits and Approvals...........................................................................B-8
Operating History............................................................................................B-9
Performance History.......................................................................................B-9
Operating Programs and Procedures........................................................................B-10
Regulatory Compliance....................................................................................B-10
Projected Operating Results.................................................................................B-12
Annual Operating Revenues................................................................................B-12
Annual Operating Expenses................................................................................B-13
Senior Debt Service......................................................................................B-14
Distributions to CE Generation...........................................................................B-14
SARANAC PROJECT................................................................................................B-14
Project Operator............................................................................................B-14
The Project.................................................................................................B-14
The Project Site.........................................................................................B-14
Environmental Site Conditions............................................................................B-15
Description of the Project...............................................................................B-15
Review of Technology.....................................................................................B-18
Reliability and Availability.............................................................................B-18
Status of Permits and Approvals..........................................................................B-18
Operating History...........................................................................................B-19
Performance History......................................................................................B-19
Operating Programs and Procedures........................................................................B-20
Regulatory Compliance....................................................................................B-20
Projected Operating Results.................................................................................B-22
Annual Operating Revenues................................................................................B-22
Annual Operating Expenses................................................................................B-23
Senior Debt Service......................................................................................B-24
Distributions to CE Generation...........................................................................B-24
YUMA PROJECT...................................................................................................B-24
Project Operator............................................................................................B-25
The Project.................................................................................................B-25
The Project Site.........................................................................................B-25
Environmental Site Conditions............................................................................B-25
Description of the Project...............................................................................B-25
Review of Technology.....................................................................................B-28
Reliability and Availability.............................................................................B-28
</TABLE>
B-i
<PAGE>
APPENDIX B
INDEPENDENT ENGINEER'S REPORT
CE GENERATION LLC NATURAL GAS PROJECTS
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Status of Permits and Approvals..........................................................................B-28
Operating History...........................................................................................B-29
Performance History......................................................................................B-29
Operating Programs and Procedures........................................................................B-30
Regulatory Compliance....................................................................................B-30
Projected Operating Results.................................................................................B-32
Annual Operating Revenues................................................................................B-32
Annual Operating Expenses................................................................................B-34
Distributions to CE Generation...........................................................................B-34
NORCON PROJECT.................................................................................................B-34
Project Operator............................................................................................B-35
The Project.................................................................................................B-35
The Project Site.........................................................................................B-35
Environmental Site Conditions............................................................................B-35
Description of the Project...............................................................................B-36
Review of Technology.....................................................................................B-38
Status of Permits and Approvals..........................................................................B-38
Regulatory Compliance.......................................................................................B-39
Projected Operating Results.................................................................................B-40
SUMMARY PROJECTED OPERATING RESULTS............................................................................B-41
Distributions from the Natural Gas Projects.................................................................B-41
Sensitivity Analyses........................................................................................B-41
Summary Comparison of Projected Operating Results...........................................................B-41
PRINCIPAL CONSIDERATIONS AND ASSUMPTIONS
USED IN THE PROJECTION OF OPERATING RESULTS....................................................................B-42
CONCLUSIONS....................................................................................................B-43
EXHIBITS
EXHIBIT B-1 Base Case Projected Operating Results...........................................................B-46
EXHIBIT B-2 Sensitivity A - Increased Operating Expenses....................................................B-52
EXHIBIT B-3 Sensitivity B - Increased Heat Rate.............................................................B-57
EXHIBIT B-4 Sensitivity C - Reduced Availability............................................................B-62
EXHIBIT B-5 Sensitivity D - Yuma Low Gas 1..................................................................B-67
EXHIBIT B-6 Sensitivity E - Yuma Low Gas 2..................................................................B-70
EXHIBIT B-7 Sensitivity F - Yuma SCE Low SRAC...............................................................B-73
EXHIBIT B-8 Sensitivity G - Yuma SCE Median SRAC............................................................B-76
EXHIBIT B-9 Sensitivity H - Yuma SCE High SRAC..............................................................B-79
EXHIBIT B-10 Sensitivity I - Yuma Breakeven Electricity Price.................................................B-82
</TABLE>
Copyright (C)1999 R. W. Beck, Inc.
All rights reserved.
B-ii
<PAGE>
[R.W. Beck LOGO]
February 24, 1999
CE Generation LLC
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
Subject: INDEPENDENT ENGINEER'S REPORT ON THE
CE GENERATION LLC NATURAL GAS PROJECTS
Ladies and Gentlemen:
Presented herein is the report (the "Report") of our review
and analyses of the Saranac Power Partners, L.P. Project located in Plattsburgh,
New York (the "Saranac Project"), the Yuma Cogeneration Associates Project
located in Yuma, Arizona (the "Yuma Project"), the Power Resources Inc. ("PRI")
Project located in Big Spring, Texas (the "PRI Project") and the NorCon Power
Partners, L.P. ("NorCon") Project located in Erie, Pennsylvania (the "NorCon
Project" and, collectively with the Saranac, Yuma and PRI Projects, the "Natural
Gas Projects"). The PRI, Saranac, and NorCon Projects are operated by Falcon
Power Operating Company ("FPOC"), a wholly-owned subsidiary of CE Generation.
The Natural Gas Projects are gas-fired combined-cycle electric generating
facilities currently in operation.
This Report has been prepared in connection with the issuance
by CE Generation LLC ("CE Generation") of approximately $400,000,000 principal
amount of 7.416% Senior Secured Bonds Due December 15, 2018 (the "Securities").
CE Generation is wholly-owned by CalEnergy Company, Inc. ("CalEnergy").
The PRI Project is a nominal 200 megawatt ("MW")
combined-cycle cogeneration facility located in Big Spring, Texas. The PRI
Project consists of two General Electric ("GE") Frame 7EA combustion turbine
generators ("CTGs") exhausting into individual heat recovery steam generators
("HRSGs") which provide steam to a single steam turbine generator ("STG") and to
Fina as process steam. Fina has a standby boiler which operates as the backup
steam source for process steam supply. The PRI Project is a Qualifying Facility
("QF") in accordance with Federal Energy Regulatory Commission ("FERC")
requirements and has been in operation since June 1988. The PRI Project sells
electric energy and capacity on a dispatchable basis to Texas Utilities Electric
Company ("TUEC") pursuant to the PRI Power Purchase Agreement dated July 30,
1986 (the "PRI PPA"), which has a term ending in September 2003. The PRI Project
sells steam to the adjacent Fina Oil and Chemical Company ("Fina") under a
Purchase and Steam Sales Agreement between PRI and Fina dated November 21, 1986
(the "PRI Steam Sales Agreement"), which has an initial term ending in September
2003. The PRI Project is operated by FPOC (the "PRI Operator") pursuant to the
PRI Operations and Maintenance Agreement between PRI and FPOC dated September 1,
1988 (the "PRI O&M Agreement"), which expires in January 2004.
The PRI Project has several fuel contracts in place. The PRI
Project has a fuel purchase agreement in place with Fina dated November 21, 1986
under which it is obligated to purchase an average of 3,600 million Btu per day
("MMBtu/day") of refinery gas (the "PRI Refinery Gas Contract"). The PRI
Refinery Gas Contract terminates on September 30, 2003, with the provision that
the PRI Refinery Gas Contract can be extended for a period of two years.
- -----------------------------------------------------------------------------
1125 Seventeenth Street, Suite 1900 Denver, CO 80202-2615
Phone (303) 299-5200 Fax (303) 297-2811
B-1
<PAGE>
Additional natural gas is delivered to the PRI Project
pursuant to a Gas Supply Agreement with Falcon Seaboard Gas Company ("FSGC")
dated December 30, 1988 (the "PRI Gas Supply Agreement"). FSGC is a wholly-owned
subsidiary of CE Generation. FSGC has a gas contract with Louis Dreyfus Natural
Gas Corporation ("Louis Dreyfus") dated December 1, 1988 (the "Louis Dreyfus Gas
Contract"), which expires October 1, 2003. The Louis Dreyfus Gas Contract
provides for FSGC to receive gas on a firm basis in accordance with a tiered
arrangement with Louis Dreyfus. FSGC has two Gas Transportation Contracts with
Westar, formerly Cabot Gas Supply, for interstate and intrastate transportation
dated December 1, 1988, as amended, (the "FSGC Gas Transportation Contracts").
The FSGC Gas Transportation Contracts expire on September 30, 2003.
The Saranac Project is a nominal 240 MW combined-cycle
cogeneration facility located in Plattsburgh, New York. The Saranac Project
consists of two GE Frame 7EA CTGs exhausting into individual HRSGs which provide
steam to a single STG and to the steam customers as process steam. A single
auxiliary boiler operates as the backup steam source for process steam supply.
It is a QF and has been in operation since June 1994. The Saranac Project sells
electric energy and capacity to New York State Electric and Gas Corporation
("NYSEG") pursuant to the Saranac Power Purchase Agreement, as amended, dated
April 27, 1990 (the "Saranac PPA"), which has a term ending in June 2009. The
Saranac Project sells steam to Georgia-Pacific under a 15-year steam sales
agreement dated December 21, 1992 (the "Georgia-Pacific Steam Sales Agreement")
and Tenneco Packaging ("Tenneco") under a steam sales agreement dated February
27, 1996 (the "Tenneco Steam Sales Agreement") which ends in June 2009. The
Saranac Project is operated by FPOC (the "Saranac Operator") pursuant to the
Saranac O&M Agreement dated September 30, 1994, as amended,(the "Saranac O&M
Agreement"). Natural gas is delivered to the Saranac Project pursuant to the
Saranac Gas Supply Agreement with Shell Canada dated May 20, 1992, as amended
(the "Saranac Gas Supply Agreement"), which expires in June 2009 and the
TransCanada Saranac Gas Transportation Agreement with TransCanada dated December
24, 1992 (the "Saranac Gas Transportation Agreement").
The Yuma Project is a nominal 50 MW combined-cycle
cogeneration facility located in Yuma, Arizona. It is a QF and has been in
operation since May 28, 1994. The Yuma Project consists of a single dual fuel
capable GE model 6B CTG, exhausting to a single Nooter-Eriksen three-pressure
HRSG which provides steam to a GE STG for additional electric generation, as
well as process steam and chiller steam to Queen Carpet, Inc. ("Queen Carpet").
One gas-fired auxiliary boiler is operated to provide process steam to Queen
Carpet when the HRSG is not operating. The Yuma Project sells electric energy
and capacity on a dispatchable basis to San Diego Gas and Electric ("SDG&E")
under the Yuma Standard Offer No. 2 Power Purchase Agreement dated March 7,
1990, as amended, (the "Yuma PPA"), which expires May 1, 2024. The Yuma Project
also sells process and chiller steam to Queen Carpet under two energy services
agreements. Process steam is sold under the Energy Services Agreement between
America-West Industries, Inc. and Yuma Cogeneration Associates dated April 2,
1993 (the "Yuma Process ESA"). Chiller steam is sold under the Energy Services
Agreement (Absorption Chiller Steam) between America-West Industries, Inc. and
Yuma Cogeneration Associates dated May 3, 1993 (the "Yuma Chiller ESA"). The
Yuma Process ESA and the Yuma Chiller ESA each have an initial term ending May
1, 2024. The Yuma Project is operated by Yuma Cogeneration Associates (the "Yuma
Operator"), a wholly-owned subsidiary of CE Generation.
Natural gas is supplied to the Yuma Project pursuant to the
Gas Supply and Transportation Services Master Agreement between Yuma
Cogeneration Associates and Southwest Gas Corporation ("SWG") dated November 21,
1992 (the "SWG Gas Supply and Transportation Agreement"). The initial term of
the SWG Gas Supply and Transportation Agreement expires December 31, 2008. Fuel
oil is purchased on a spot market basis.
The NorCon Project is a nominal 80 MW combined-cycle
cogeneration facility located near Erie, Pennsylvania. The NorCon Project
utilizes two GE LM5000 CTGs, each one exhausting to a Deltak HRSG which provides
steam for one Elliott STG. Each HRSG has a carbon monoxide ("CO") catalyst to
reduce CO emissions and each CTG uses steam injection to reduce nitrogen oxides
("NOx") emissions. Process steam is extracted from the STG and sent to the
facility owned by Welch Foods Inc. ("Welch") adjacent to the NorCon Project.
Additional steam is extracted and sent to an ammonia refrigeration plant ("ARP")
which cools ammonia for use as a
B-2
<PAGE>
refrigerant in the Welch facility. The NorCon Project has an auxiliary boiler
that can supply back-up process steam while Welch maintains its own centrifugal
refrigeration unit to back up the ARP. It is a QF and has been in operation
since December 1992. The NorCon Project sells electric energy and capacity to
Niagara Mohawk Power Corporation ("Niagara Mohawk") pursuant to the Power
Purchase Agreement dated April 28, 1989 (the "NorCon PPA"), which has an initial
term ending December 2017, and steam to Welch pursuant to the NorCon Thermal
Energy Purchase Agreement dated July 31, 1991 (the "NorCon Thermal Energy
Agreement"), which has an initial term ending in July 2011. The NorCon Project
is operated and maintained by FPOC (the "NorCon Operator"), a wholly-owned
subsidiary of CE Generation, pursuant to the Amended and Restated Operations and
Maintenance Agreement dated June 1, 1991 (the "NorCon O&M Agreement").
The NorCon Project's base fuel requirement of 16,480 MMBtu/day
is purchased from Louis Dreyfus pursuant to the Gas Sale and Purchase Agreement
dated January 29, 1992 (the "NorCon Gas Supply Agreement"), which has an initial
term ending in 2007. Small amounts of spot market gas are supplied either by
Louis Dreyfus or local suppliers. Natural gas is transported by National Fuel
Gas Supply Corporation pursuant to the Gas Transportation Letter Agreement dated
November 19, 1991 (the "NorCon Gas Transportation Agreement"), which has an
initial term ending in 2011.
During the preparation of this Report, we have reviewed the
various agreements related to the development of the Natural Gas Projects. These
agreements set forth the obligations of each of the parties with respect to the
operation of those Natural Gas Projects. As Independent Engineer, we have made
no determination as to the validity and enforceability of these agreements;
however, for the purposes of this Report, we have assumed these agreements will
be fully enforceable in accordance with their terms and that all parties will
comply with the provisions of their respective agreements.
During the course of our review, we have visited and made
general field observations of the Natural Gas Project sites as described later
herein (collectively, the "Natural Gas Project Sites"). The general field
observations were visual, above-ground examinations of selected areas, which we
deemed adequate to comment on the existing condition of those Natural Gas
Projects and the Natural Gas Project Sites and which were not in the detail
which would be necessary to reveal conditions with respect to safety, geological
or environmental conditions, the internal physical condition of any equipment,
or the conformance with agreements, codes, permits, rules, or regulations of any
party having jurisdiction with respect to the Natural Gas Projects or the
Natural Gas Project Sites.
In addition, with the exception of the NorCon Project, we have
reviewed: (1) the status of permits and approvals for the Natural Gas Projects
and compliance with those permits; (2) the historic and projected levels of
production of the Natural Gas Projects; (3) the historic and projected O&M
expenses of the Natural Gas Projects; (4) the historic and projected revenues of
the Natural Gas Projects; and (5) historical operating records of the Natural
Gas Projects. Based on our review, we have prepared a series of projections of
net operating revenue of the Natural Gas Projects and distributions to CE
Generation, which are attached as Exhibit B-1 to this Report (the "Projected
Operating Results"). The Projected Operating Results are based on the
assumptions described in this Report and the footnotes to Exhibits B-1. With
respect to the NorCon Project, we have reviewed only the status of permits and
compliance with those permits.
Certain analyses and projections relied upon for the purposes
of this Report were prepared by others. In developing the Projected Operating
Results, we have relied upon projections market prices for the Yuma Project
prepared by Henwood Energy Services, Inc. ("Henwood"), whose report is included
as Appendix E to the Confidential Offering Circular (the "Henwood Report"), and
a review of fuel supply and transportation contracts and projections of fuel
commodity and transportation costs for the Natural Gas Projects performed by
C.C. Pace Consulting, L.L.C. ("C.C. Pace"). In addition, Fluor Daniel, Inc.
("Fluor Daniel") has prepared a projection of sensitivity case electricity
pricing for the Yuma Project for one of the sensitivity cases. Based on their
experience in developing similar projections and performing similar reviews, we
believe it is reasonable to rely upon the review and projections prepared by
Henwood, C.C. Pace, and Fluor Daniel.
B-3
<PAGE>
PRI PROJECT
The PRI Project is a nominal 200 MW combined-cycle
cogeneration facility which commenced commercial operation in June 1988. The PRI
Project sells electric energy and capacity to TUEC pursuant to the PRI PPA while
selling process steam to Fina under the PRI Steam Sales Agreement.
The PRI Project consists of two dual fuel fired GE Frame 7EA
CTGs exhausting to separate HRSGs. The PRI Project uses natural gas as the
primary fuel. One CTG has been up-rated from a firing temperature of 2,020
degrees Fahrenheit ("(degree)F") to a firing temperature of 2,035(degree)F, and
the remaining Unit will be upgraded during its next major maintenance outage.
The two pressure level HRSGs produce high pressure ("HP") and low pressure
("LP") steam which is directed to a single STG for additional power generation.
Low pressure steam is extracted from the steam turbine for process steam to Fina
and for use in a common feedwater deaerator. HP steam is also injected into the
CTGs for NOx emissions control. Duct firing of the HRSGs is provided to generate
additional steam. Some jet "A" liquid fuel is stored on site for CTG backup
operation, testing, and diesel generator use. Jet "A" is produced in the Fina
steam host facility adjacent to the PRI Project.
PROJECT OPERATOR
The PRI Project is operated under the PRI O&M Agreement by the
PRI Operator. The PRI Operator commenced commercial operation and maintenance of
the PRI Project in June 1988.
THE PROJECT
THE PROJECT SITE
The PRI Project is located on 5.74 acres leased from Fina near
Big Spring, Texas adjacent to the existing Fina plant (the "PRI Project Site")
(see Figure B-1, PRI Project Site Plan). The PRI Project also owns approximately
20 acres adjacent to the leased site. The other wastewater disposal well is
located on a 4-acre tract about 4 miles away. The general area is industrial in
nature with the Sid Richardson, Ltd. carbon plant located nearby. The PRI
Project Site is easily accessible from Interstate 20 and the site elevation is
approximately 2,500 feet above sea level. The PRI Project Site is part of an
Industrial District Agreement with the City of Big Spring whereby the city
agrees not to annex the PRI Project Site and the PRI Project makes payments to
the city in lieu of annexation. The term of the Industrial District Agreement
expires on December 31, 2003.
ENVIRONMENTAL SITE CONDITIONS
We have not reviewed any reports of previous or recent
environmental investigations regarding the potential for site contamination
issues at the PRI Project Site. Because we did not conduct or review such
environmental reports, we can offer no opinion with respect to potential site
contamination at the PRI Project Site or potential future remediation costs
should contamination be found.
As of February 1999, the PRI Project was not listed on United
States Environmental Protection Agency's ("USEPA's") National Priorities List of
Superfund Sites or USEPA's Comprehensive Environmental Response Compensation
Liability Information System ("CERCLIS") List.
Visual inspections during our PRI Project Site visit of
January 28, 1999 indicated that the PRI Operator is following "good
housekeeping" procedures. We did not observe any unusual stained or soiled areas
and the PRI Operator maintains spill cleanup kits at various locations on the
PRI Project Site. The transformers, acid, and caustic tanks all have adequate
secondary containment.
We are not aware of any groundwater or soil contamination. The
PRI Operator stated that there are no soil or groundwater monitoring
requirements for the PRI Project Site, however, Fina has installed, monitors and
operates a number of groundwater monitoring wells in the area. There are two
groundwater monitoring wells near the PRI Project Site close to the north and
south leased boundaries.
B-4
<PAGE>
DESCRIPTION OF THE PROJECT
MECHANICAL EQUIPMENT AND SYSTEMS
The PRI Project utilizes two GE Frame 7EA CTGs firing natural
gas, steam injection to control NOx emissions and a blend of refinery off gas
produced by Fina. The generator is totally enclosed water air-cooled. The CTGs
are capable of firing jet "A" liquid fuel. The CTGs are supplied by GE with
auxiliary equipment required for an indoor installation.
Each CTG exhausts to a dedicated Deltak two-pressure level HRSG.
Each HRSG incorporates a Coen natural gas-fired duct burner to supplement steam
production during hot ambient temperatures or when one CTG is shut down. The PRI
Project delivers up to 150,000 pounds per hour ("pph") of steam at 650 pounds
per square inch, absolute ("psia") and 770(degree)F to Fina. No steam condensate
is returned by Fina to the PRI Project. TrEated water is returned for cooling
tower makeup.
The Hitachi-supplied STG is an induction/extraction condensing
unit capable of generating 75,000 kilowatts ("kW") at a throttle pressure of
1,200 pounds per square inch-gauge ("psig") and 940(Degree)F. The STG exhaust
steam is condensed in a water-cooled condenser located under the steam turbine.
Cooling water is provided by a three-cell induced draft cooling tower, and three
50 percent capacity circulating water pumps.
ENVIRONMENTAL CONTROL SYSTEMS
Steam injection is utilized in the CTGs to limit NOx emissions
to the permitted levels. No other emissions reduction equipment is utilized or
required.
The PRI Project wastewater, including boiler and cooling tower
blowdown, demineralizer wastes, and water recovered from the oily water
separation system, discharges to the west holding pond before being injected
into one of two underground formations with deepwell injection pumps.
Non-contaminated stormwater and reverse osmosis reject discharges to the east
holding pond for use as cooling tower makeup. Facility floor drains discharge to
oil/water separators and then to the west holding pond. PRI signed a water
transfer agreement with the Sid Richardson, Ltd. carbon plant dated April 28,
1997 (the "PRI Water Transfer Agreement") to take a specified amount of
wastewater from the PRI Project. This water is rarely supplied and when it is
supplied, the water flows into the east holding pond which is used for cooling
tower makeup. The PRI Water Transfer Agreement expires in April 2007.
ELECTRICAL AND CONTROL SYSTEMS
The electrical interface with the electric transmission grid
is at the substation located on the PRI Project Site. The generator outputs are
stepped up by 138 kV via step-up transformers located near the generators and
the 138 kV transformers are connected to a 345 kV switchyard located on the PRI
Project Site switchyard. The PRI Project output is connected to the TUEC system
on the high side of the 345 kV transformers.
The PRI Project has two diesel generators, one rated 1,350 kW
for "black start" capability, connected to the 4,160 volt switchgear and a
smaller maintenance generator connected to the 480 volt motor control center.
The 480 volt generator is used for emergency backup and startup. Jet "A" fuel
for the diesels is obtained from Fina.
The instrumentation and control system is a Foxboro Spectrum
Multistation distributed control system ("DCS") and is budgeted for replacement
with the Foxboro IA system beginning in April 1999 with completion scheduled in
October 1999. The existing Hitachi, HISEC 04-M dual processing unit, steam
turbine control system will be replaced and integrated into the new Foxboro IA
system. The CTGs are controlled by GE Mark IV speedtronic control systems. Water
Plant controls are Modicon programmable logic controllers ("PLCs"), which are
micoprocessor based with math functions.
B-5
<PAGE>
Figure B-1
PRI PROJECT
SITE PLAN
[GRAPHIC SHOWING SITE PLAN OF THE PRI PROJECT OMITTED]
B-6
<PAGE>
Every organization in the country is faced with a potential
problem on January 1, 2000, when the calendars on the millions of computers and
microprocessors in the country change from the year 99 to 00 and certain other
dates (for example, but not limited to, Leap Year and 9/9/99)(the "Y2K Issue").
The Y2K Issue occurs when computers or processors which use two-digit years
misinterpret the year 2000 to be "00," zero, 1900, or some other erroneous date.
The Y2K Issue has the potential to impact organizations like those of the
Natural Gas Projects in several different ways. First, it could impact the
instruments and controls within the major operating facilities such as the
Natural Gas Projects. Although the Y2K Issue has received considerable publicity
as it relates to computer information systems such as billing and financial
systems, the problems regarding process control or embedded systems in
operational equipment have received limited attention. This includes instrument
and control systems for power plants and SCADA systems for substation,
transmission and distribution facilities. The potential problems with these
operational facilities are significant as is the effort required to identify and
correct the problems.
Evaluation of the actual status of the Natural Gas Projects,
as well as other entities with whom the Natural Gas Projects have business or
operational relations, relative to the Y2K Issue is beyond the scope of this
Report. We have not conducted any independent evaluation or on-site testing of
the aforesaid entities in any way to independently ascertain the actual hardware
and software status. We caution that it is entirely possible that presently
unknown conditions could arise, which lead to significant operational and/or
administrative problems, and that these problems could have an adverse impact on
the Natural Gas Projects.
Additionally, the Y2K Issue has the potential to affect
organizations other than those of the Natural Gas Projects, the continued
performance of which is also critical to continued operation of the Natural Gas
Projects. These other organizations may be located either up or downstream of
the Natural Gas Projects in the production or transmission of electrical power.
The PRI Operator stated that that it believes that the Y2K
deficiencies with the plant DCS system will be resolved with the installation of
the new Foxboro IA control system. The PRI Operator has prepared a "Year 2000
Contingency Planning and Preparations Guide" Draft Version 2.0 dated January 7,
1998, and plans to use this document to make and implement their preparations
for all other Y2K issues at the PRI Project.
This plan calls for complete implementation by July 31, 1999.
OFF-SITE REQUIREMENTS
Makeup water for the PRI Project is supplied from two local
lakes under a contract with the Colorado River Municipal Water District which
expires on September 30, 2003. Water from the lakes is clarified on site and
filtered before being utilized by the plant demineralized water equipment and
cooling tower makeup. Potable water for plant general use is supplied by Fina as
part of the site lease agreement, however the plant utilizes bottled water for
drinking water. A septic tank located near the warehouse handles the PRI Project
sanitary waste.
The 345 kV electric transmission lines extend approximately 7
miles from the PRI Project Site to the TUEC transmission system.
Natural gas is obtained from FSGC, a wholly owned subsidiary
of CE Generation, via pipeline into the PRI Project Site. Refinery gas is
obtained from the Fina refinery adjacent to the PRI Project Site. Jet "A" fuel
is obtained from Fina.
Based on C.C. Pace's review of the PRI Gas Supply Agreement,
the FSGC Gas Transportation Contracts, the Louis Dreyfus Gas Contract, the PRI
Refinery Gas Contract, C.C. Pace's fuel cost projections, and our estimate of
the fuel requirements of the PRI Project, we are of the opinion that the PRI
Project possesses sufficient contract or spot natural gas commodity supplies to
meet the requirements of the PRI PPA and that its contracted natural gas
transportation capacity is adequate to deliver the natural gas supply
requirements over the term of the PRI PPA.
B-7
<PAGE>
REVIEW OF TECHNOLOGY
The GE Frame 7EA is proven technology and in general has
exhibited the qualities of a reliable mature gas turbine technology.
GE has issued Technical Information Letters ("TILs") with
recommendations for the 17-stage compressor for the CTG. The PRI Project
implemented the GE-recommended 17th stage compressor revisions prior to any
failure at the PRI Project and, according to the PRI Operator, has kept up to
date with TILs issued by GE.
In June 1998 CTG No. 1 experienced a field failure. The
failure was caused by thermal expansion and contraction of the generator rotor
bars which obstructed the cooling holes resulting in inadequate cooling. The
generator rotor failure was repaired, however, according to the PRI Operator, GE
has not issued a TIL to address the cause of this failure.
During the June 1998 generator repair, the PRI Project decided
to proceed with the latest turbine up-rate for unit No. 1, which increased the
turbine firing temperature from 2,020(degree)F to 2,035(degree)F. The plant made
the decision to up-rate the turbine to decrease the use of the HRSG duct burner
during peak periods, thus achieving fuel savings due to improved over all plant
heat rate. CTG No. 2 is to be up-rated to the new firing temperature during the
outage scheduled in October 1999.
Based on our review, we are of the opinion that the PRI
Project utilizes sound technology and proven methods of electric and thermal
generation and has generally been designed and constructed in accordance with
generally accepted industry practices. If operated and maintained consistent
with generally accepted industry practices, the PRI Project should be capable of
meeting the requirements of the PRI PPA, the PRI Steam Sales Agreement and
current environmental permits throughout the term of the PRI PPA. Further, the
PRI Project has adequately provided for all off-site requirements, including
fuel, water supply, wastewater disposal and electrical interconnections.
RELIABILITY AND AVAILABILITY
Based on historical performance, review of O&M procedures and
general observation of the PRI Project, we are of the opinion that the PRI
Project is capable of maintaining an annual average availability, inclusive of
curtailed hours, of 92 percent throughout the term of the PRI PPA. This
availability includes the average annual "backdown", or curtailment, hours since
the PRI Project must be available to run during all curtailment periods. The
average capacity factor, which reflects the actual amount of generation, has
been assumed to be 80 percent for the purposes of the Projected Operating
Results, based on the allowed amount of curtailment. The stipulated annual
average capacity factor is the projected average over the term of the PRI PPA.
There may be years when the capacity factor is either above or below the
projected annual average.
STATUS OF PERMITS AND APPROVALS
All of the major permits and approvals required to operate the
PRI Project have been obtained. With respect to its Operating Permit, a new
requirement under Title V of the Clean Air Act, has been applied for with the
Texas Natural Resources Conservation Commission ("TNRCC"). While most of the
permits required for operation must be renewed periodically, we know of no
technical reason that such renewals would not be obtainable. Table 1 summarizes
the status of the major permits and approvals issued for the PRI Project.
B-8
<PAGE>
TABLE 1
PRI PROJECT
STATUS OF KEY PERMITS AND APPROVALS
<TABLE>
<CAPTION>
PERMIT OR APPROVAL RESPONSIBLE AGENCY STATUS COMMENTS
------------------ ------------------ ------ --------
<S> <C> <C> <C>
FEDERAL
QF Status FERC In compliance Noticed 12/29/88
Prevention of Significant USEPA Approved October 14, The PRI Project submitted an
Deterioration ("PSD") Permit 1986 application for amendments to
the Air Quality Permit and the
PSD Permit to the TNRCC on
October 8, 1998
NPDES Storm Water Permit USEPA Approved 11/17/97
STATE
Air Quality Permit TNRCC Approved September 29, Permit No. 17411
1986
Federal Operating Permit TNRCC
Permit Application
Approval Pending
Underground Injection Permits TNRCC Approved 08/29/89 Permit No. WDW-280
Amended 06/23/95 Permit No. WDW-281
Expires: 08/29/99
Solid Waste Registration TNRCC Expires: 11/17/02
</TABLE>
OPERATING HISTORY
PERFORMANCE HISTORY
The PRI Project's historical operating results have been
compiled from data reports provided by the PRI Operator. The PRI Project has
been in full commercial operation since June 1988 and has been operating at an
average availability of 92.3 percent since full commercial operation. The PRI
Project originally operated for a few months in simple-cycle mode until the
HRSGs, steam turbine and other ancillary components were installed for full
combined-cycle operation. The operating history since commercial operation is
summarized in Table 2. Availability shown in Table 2 is defined as the sum of
the total energy delivered to TUEC plus curtailment energy credited by TUEC
divided by the product of the demonstrated capacity of 200 MW times the number
of hours in a year.
TABLE 2
PRI PROJECT OPERATING HISTORY
<TABLE>
<CAPTION>
PRI PPA FUEL STEAM SALES AVAILABILITY(1) CAPACITY
YEAR CAPACITY (MW) NET MWh (MMBtu) (Mlb) (%) FACTOR (%)
---- ------------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
1998 200 1,341,719 12,469,848 716,224 93.7 82.3
1997 200 1,305,333 12,396,779 944,902 91.2 79.7
1996 200 1,286,959 12,208,578 753,783 88.7 77.0
1995 200 1,406,121 13,396,194 847,122 97.4 85.9
1994 200 1,292,641 12,312,121 780,237 91.0 79.5
</TABLE>
(1) The source of the data and calculations in the above table was the TUEC and
PRI monthly reports and the Fina invoices for refinery fuel and steam
sales.
B-9
<PAGE>
Based upon the operating history of the PRI Project and with
an allowance for future degradation, we are of the opinion that, for the purpose
of developing the Projected Operating Results, the PRI Project is capable of
delivering net electrical capability of 200 MW at an annual average heat rate of
approximately 9,500 Btu per kWh on a higher heating value ("HHV") basis and an
availability, inclusive of curtailed hours, of 92 percent for the term of the
PRI PPA.
OPERATING PROGRAMS AND PROCEDURES
We have reviewed with the PRI Operator the various operations
and maintenance programs and procedures, training programs and performance
monitoring systems. We did not review all aspects of these plans and procedures.
However, we verified that the PRI Operator had in place all of the usual and
necessary plans, procedures and documentation normally required to operate
facilities of this type.
The PRI Operator has implemented computer-based maintenance
management systems at the PRI Project which schedule and track regularly
scheduled preventive maintenance activities. The PRI Operator reported that
equipment vendor maintenance recommendations were followed when setting up the
maintenance management systems. These systems are also used to track corrective
and emergency work orders and to keep equipment-specific records of maintenance
activities, parts use, and labor requirements. All but minor maintenance on the
CTGs is subcontracted to GE. The PRI Operator utilizes the computer software
program Mainsaver(R) to assist it in its preventive and corrective maintenance
programs.
We did not review in detail the operations and maintenance
procedures for major equipment and systems. However, the plant does have in
place operating and procedural manuals.
Spare parts are stored in both the in-plant warehouse area and
a separate yard warehouse. Items stored on the PRI Project Site are those items
requiring climatized storage. Items stored in the warehouse adjacent to the PRI
Project Site are items not requiring climatized storage and large bulky items.
Items are referenced by computer storage number in accordance with the software
program Mainsaver(R).
The PRI Operator's training programs provide an initial
two-year employee training, however, refresher training is not currently
provided.
We have reviewed the organizational structure for the
operation and maintenance for the PRI Project. There is a total of 24 operation
and maintenance personnel.
REGULATORY COMPLIANCE
The PRI Project is subject to various permits and approvals
issued by the TNRCC, USEPA, FERC. These permits and approvals establish design
criteria, performance standards, monitoring, recordkeeping and reporting
requirements for the CTGs, HRSGs, and ancillary equipment at the PRI Project.
Although we did not conduct a detailed environmental audit,
the following describes our understanding of the status of the PRI Project with
respect to requirements set forth in its permits and approvals, pending
regulations, and applicable environmental management laws and regulations based
on review of documents provided for our on-site review and discussions with the
PRI Operator. Based on our review, we are of the opinion, the PRI Project
appears to be operating in general compliance with applicable environmental
permits, approvals, laws, rules and regulations.
AIR QUALITY PERMITS
Before initiating construction on the PRI Project, PRI
obtained an Air Quality Permit from the TNRCC and a PSD Permit from the USEPA.
These permits specify design criteria, emission limitations and compliance
monitoring requirements for the CTGs, HRSGs, and emergency diesel generators.
On October 8, 1998, the PRI Project submitted an application
for amendments to the Air Quality and PSD permits previously approved by the
TNRCC. The amendments were necessitated as a result of the CTG
B-10
<PAGE>
up-rate which increased the output and firing temperature on CTG No. 1. As a
result, the PRI Project must amend the previously approved permits to reflect
the attendant increase in potential emissions. The increase in potential
emissions, however, will not constitute a major modification under the PSD
Rules.
Based on the initial stack tests, the CTGs and HRSGs comply
with the emission limitations specified in the Air Quality and PSD Permits. The
last four quarterly reports submitted for the CTGs also demonstrated general
compliance with the operating criteria specified in the permits.
FEDERAL OPERATING PERMIT
The PRI Project submitted an administratively complete
application for a Federal Operating Permit to the TNRCC by the deadline
specified in 30 TAC ss.122.130. The permit application cites the emission
limitations and monitoring, recordkeeping and reporting requirements stipulated
in the previously approved Air Quality and PSD Permits. If the application is
approved as submitted to the TNRCC, no new requirements will be imposed on the
CTGs, HRSGs, or emergency diesel generators in the Federal Operating Permit.
NEW SOURCE PERFORMANCE STANDARDS
Because the CTGs and HRSG duct burners have maximum heat input
greater than 100 MMBtu per hour ("MMBtu/hr"), they are subject to the New Source
Performance Standards ("NSPS") for Stationary Gas Turbines (40 CFR, Subpart GG)
and Industrial Steam Generating Units (40 CFR, Subpart Db). Immediately after
startup, the PRI Project was required to conduct stack test to demonstrate
compliance with the NSPS. The PRI Project is also required to continuously
record the electrical generation, fuel consumption, and steam-to-fuel ratio in
each CTG and to report excess emissions from the CTGs quarterly to the USEPA.
Based on the initial stack tests, the CTGs and HRSGs were
shown to readily comply with the emission limitations specified in the
applicable NSPS. The last four quarterly reports submitted for the gas turbines
also demonstrated general compliance with the applicable standards.
UNDERGROUND INJECTION PERMITS
The PRI Project disposes of industrial wastewater, including
regenerative wastes and cooling tower blowdown, in two injection wells located
near the PRI Project Site. The TNRCC issued the original permits to conduct
Class I underground injection for the two disposal wells on August 29, 1989. The
PRI Project applied for amended permits before expiration of the original
permits on August 29, 1994. The amended permits were issued on January 3, 1995
and will expire on August 29, 1999.
HAZARDOUS AND SOLID WASTE REGISTRATION
In accordance with 30 TAC 331, the PRI Project reports and, as
necessary, updates solid waste generation at the PRI Project on Notice of
Registration ("NOR") Forms submitted to the TNRCC. An annual report documenting
the generation, transportation, disposal and recycling of both hazardous and
Class I non-hazardous waste is also filed with the TNRCC. Based on the annual
waste summary, a waste generation fee is assessed on the waste stored on site or
disposed of off site at the end of each reporting year by the TNRCC. Waste that
is recycled is exempt from the waste generation fee.
STORMWATER PERMIT
The PRI Project previously operated under an NPDES baseline
general permit for stormwater discharges associated with industrial activities
issued by the USEPA on September 25, 1992. Before expiration of the NPDES
baseline general permit on September 25, 1997, the PRI Project submitted a
Notice of Intent ("NOI") for coverage under the NPDES multi-sector general
permit associated with industrial activities to the USEPA. The USEPA
subsequently issued a notice of coverage under the NPDES multi-sector general
permit to the PRI Project on November 17, 1997.
B-11
<PAGE>
QF STATUS
The PRI Project is required by the PRI PPA to be a QF. On
December 29, 1988, the PRI Project filed a notice with FERC of the qualifying
status as a cogeneration facility for the PRI Project. Actual average Operating
Standards and Efficiency Standards required for a QF, as provided by the PRI
Operator, are listed in Table 3.
TABLE 3
PRI PROJECT QF STATISTICS
<TABLE>
<CAPTION>
OPERATING EFFICIENCY
YEAR STANDARD (%) STANDARD (%)
---- ------------ ------------
<S> <C> <C>
1998 18.91 49.22
1997 20.24 43.95
1996 20.27 48.74
1995 19.04 49.05
</TABLE>
PROJECTED OPERATING RESULTS
We have reviewed the historical operating information,
estimates and projections of electrical generating capacity, steam generation
capacity, fuel consumption, and operating costs of the PRI Project made
available to us by CE Generation. On the basis of such data, we have prepared
the Projected Operating Results. The Projected Operating Results are presented
for each calendar year beginning January 1, 1999, representing the beginning of
the quarterly distributions which will be available to CE Generation, through
September 30, 2003, the expiration date of the PRI PPA. Revenues for the PRI
Project are derived primarily from the sale of electricity to TUEC and steam to
Fina. Expenses consist of the cost of fuel, including transportation, as
estimated by C.C. Pace, and operating and maintenance expenses, based on the
information provided by CE Generation, and existing senior debt service, as
provided by CE Generation. Projected sources of revenues and expenses have been
set for the PRI Project in the Projected Operating Results presented in Exhibit
B-1. The Projected Operating Results are based on current contractual
commitments as described herein and have been prepared using assumptions and
considerations set forth in this Report and in the footnotes to Exhibit B-1.
ANNUAL OPERATING REVENUES
REVENUES FROM THE SALE OF ELECTRICITY
The PRI PPA with TUEC expires September 30, 2003. TUEC is
required to purchase all of the output from the PRI Project up to 200 MW per
hour except when they elect to curtail the PRI Project down to a minimum of 79
MW. In any 12 consecutive months, the aggregate amount of all curtailments
cannot be of such magnitude as to jeopardize the PRI Project's QF status. TUEC
history of curtailments has not exceeded 300,000 MWh for any 12-month period.
The PRI PPA specifies pricing for capacity and energy
delivered to TUEC. The capacity payment is based on a firm capacity of 200 MW
with an annual capacity factor greater than 65 percent. If the annual capacity
factor falls below 65 percent, the capacity payment is zero. In addition,
capacity billing adjustments can occur if the peak month capacity factor is less
than 75 percent or if the peak period capacity factor is less than 82 percent.
For the purposes of the Projected Operating Results, we have assumed that the
PRI Project will achieve a peak period capacity factor such that no adjustments
to the capacity payments will be made. Based on the maximum level of curtailment
allowed under the PRI PPA, for the purposes of the Projected Operating Results,
we have assumed an annual average capacity factor of 80 percent over the term of
the PRI PPA.
The PRI PPA specifies energy rates for energy produced under a
72.5 percent capacity factor. When the PRI Project has a monthly capacity factor
at or above 72.5 percent, the energy rate is equal to 99 percent of TUEC's
Weighted Average Cost of Gas ("WACOG"). The WACOG is determined using a heat
rate of
B-12
<PAGE>
10,300 Btu per kWh and TUEC's average cost of gas for the applicable month,
which has been estimated by C.C. Pace. The capacity and energy pricing for
energy produced under a 72.5 percent capacity factor pursuant to the PRI PPA are
presented in Table 4.
TABLE 4
PRI PPA CAPACITY AND ENERGY PRICES
<TABLE>
<CAPTION>
CAPACITY PRICE ENERGY PRICE
YEAR ($/KW-MO) ($/MWH)
---- -------------- ------------
<S> <C> <C>
1999 $16.24 $31.70
2000 16.81 32.80
2001 17.40 34.00
2002 18.00 35.20
2003 18.63 36.40
</TABLE>
REVENUE FROM THE SALE OF STEAM
The PRI Project has entered into the PRI Steam Sales Agreement
for the sale of steam to Fina expiring September 30, 2003. The volume of steam
Fina is required to purchase must be sufficient to allow the PRI Project to
maintain its QF status under PURPA. The steam capacity available to Fina is
between 51,000 pph and 115,000 pph. The minimum capacity Fina is required to
purchase is 440,000 Mlb of steam annually. For the purposes of the Projected
Operating Results, we have assumed that Fina will purchase 830,000 Mlb of steam
per year, as estimated by CE Generation. Under the terms of the PRI Steam Sales
Agreement, the price of steam is equal to $2.45 in 1991 dollars, escalating at a
rate of 2.0 percent each June 1 beginning June 1, 1992.
INTEREST INCOME
We have included interest income on the senior debt service
reserve and major maintenance reserve funds required under the Restated Term
Loan Agreement dated December 30, 1988. CE Generation reports that the debt
service reserve fund requirement is currently funded at $5,917,000 and is
required to be maintained at a level equal to the next quarter's debt service
payment. The major maintenance reserve fund has a minimum requirement, which we
have assumed, of $1,000,000. CE Generation has estimated interest income on
these reserve funds at a rate of 5.5 percent per year. The debt service reserve
fund is assumed to be distributed to CE Generation upon the final payment of the
term loan.
ANNUAL OPERATING EXPENSES
FUEL COSTS
The PRI Refinery Gas Contract obligates the purchase of an
average of 3,600 MMBtu/day of refinery gas. The PRI Refinery Gas Contract
terminates on September 30, 2003 with the provision that it can be extended for
a period of two years. For the purposes of the Projected Operating Results, we
have assumed that the PRI Project will use approximately 1,051,000 MMBtu year.
Under the terms of the PRI Refinery Gas Contract, the price of refinery gas is
equal to $2.20 per MMBtu in 1987 dollars and escalates each January 1 at a rate
of 2 percent annually.
Natural gas is delivered to the PRI Project pursuant to the
PRI Gas Supply Agreement with FSGC. FSGC provides gas through a separate
contract with Louis Dreyfus, which expires October 1, 2003. The contractual
rates under the Louis Dreyfus Gas Contract are fixed at $2.81 per MMBtu, which
escalates by 3 percent per year each June 1 beginning June 1, 1997. Portions of
the gas supplied under the Louis Dreyfus Gas Contract are priced on a spot
basis. For the purpose of the Projected Operating Results, we have assumed a
spot price of gas to the PRI Project as estimated by C.C. Pace. An annual
reservation fee of $547,500, which is escalated at 3 percent per year starting
in July 1, 1996, is also applied.
B-13
<PAGE>
Under the PRI Gas Supply Agreement, the PRI Project pays
$0.075 per MMBtu in transportation charges. For deliveries above 25,000
MMBtu/day, an additional $0.06 per MMBtu is charged.
OPERATION AND MAINTENANCE EXPENSES
The PRI Project is operated by FPOC, a wholly-owned subsidiary
of CE Generation, (the "PRI Operator") in accordance with the PRI O&M Agreement,
which expires January 2004. The PRI Operator is reimbursed for direct costs for
operations and maintenance and receives payment for an operator fee, management
fee, operator's incentive fee, and any applicable sales or use tax. Pursuant to
the PRI O&M Agreement, the annual PRI Operator's fee is $660,000 in 1989 dollars
and escalates each January 1 at a rate of 3.5 percent and the annual management
fee is fixed at $240,000. The PRI Operator's incentive fee is equal to 1.125
percent of gross revenue if the PRI Project operates at an annual capacity
factor in excess of 82 percent. Base on the assumed capacity factor of 80
percent in the Projected Operating Results, the PRI Operator would not receive
an incentive fee.
SENIOR DEBT SERVICE
Based on information provided by CE Generation, we have
included a senior debt service payment based on the term loan principal amount
of $90,529,000 as of January 1, 1999 and an interest rate of 10.385 percent per
year in 1999 and 2000 and 10.635 percent per year from 2001 through 2003. The
remaining balance of the term loan is payable in quarterly installments and
matures on December 31, 2003.
DISTRIBUTIONS TO CE GENERATION
CE Generation indirectly owns 100 percent of the PRI Project
and therefore it has been assumed that 100 percent of the cash available for
distributions will be available to CE Generation.
SARANAC PROJECT
The Saranac Project is a nominal 240 MW combined-cycle
cogeneration facility which commenced commercial operation in June 1994. The
Saranac Project sells electric energy and capacity to NYSEG pursuant to the
Saranac PPA while selling process steam to Georgia-Pacific and Tenneco.
The Saranac Project consists of two natural gas-fired GE Frame
7EA CTGs exhausting to separate HRSGs. The HRSGs produce HP steam which is
directed to a single STG for additional power generation, IP steam as process
steam and STG admission, and LP steam for use in the integral HRSG deaerators.
Duct firing of the HRSGs is provided to generate additional steam. Propane is
stored on site for use when natural gas is unavailable.
PROJECT OPERATOR
The Saranac Project is operated under the Saranac O&M
Agreement by FPOC (the "Saranac Operator"). The Saranac Operator commenced
operation and maintenance of its first combined-cycle cogeneration facility in
1987.
THE PROJECT
THE PROJECT SITE
The Saranac Project is located in the Town of Plattsburgh, New
York near the existing Georgia-Pacific tissue plant and adjacent to the D&H
railroad (the "Saranac Project Site") (see Figure B-2, Saranac Project Site
Plan). The general area is industrial in nature with Tenneco and Georgia-Pacific
being the closest neighbors to the Saranac Project Site. The Saranac Project
Site is easily accessible from highway I-87.
B-14
<PAGE>
ENVIRONMENTAL SITE CONDITIONS
We have not reviewed any reports of previous or recent
environmental investigations regarding the potential for site contamination
issues at the Saranac Project Site. Because we did not conduct or review such
environmental reports, we can offer no opinion with respect to potential site
contamination at the Saranac Project Site or potential future remediation costs
should contamination be found.
As of February 1999, the Saranac Project was not listed on
USEPA's National Priorities List of Superfund Sites or USEPA's CERCLIS List. The
Saranac Project is not listed on the Inactive Hazardous Waste Disposal Sites
list, dated April 1998, published by NYSDEC.
The Saranac Operator reported that there have been three
relatively minor reportable spills over the last three years of operation. As
required, NYSDEC was notified in all cases and the Saranac Operator took
appropriate remedial action. NYSDEC has not required any further action.
Visual inspections during our Saranac Project Site visit of
February 4, 1999 indicated that the Saranac Operator is following "good
housekeeping" procedures. We did not observe any unusual stained or soiled areas
and the Saranac Operator maintains spill cleanup kits at various locations on
the Saranac Project Site. The transformers, acid, caustic and ammonia storage
tanks all have adequate secondary containment.
We are not aware of any potential groundwater or soil
contamination. The Saranac Operator stated that there are no soil or groundwater
monitoring requirements for the Saranac Project Site.
DESCRIPTION OF THE PROJECT
MECHANICAL EQUIPMENT AND SYSTEMS
The Saranac Project utilizes two dry low NOx ("DLN") GE Frame
7EA CTGs firing natural gas with a hydrogen-cooled generator. The CTGs are
supplied by GE with auxiliary equipment required for an indoor installation.
Each CTG exhausts to a dedicated Deltak three pressure level
HRSG with an integral deaerator and feedwater heater. Each HRSG incorporates a
natural gas fired duct burner to supplement steam production. The Saranac
Project delivers up to 144,000 pph of steam at 250 psia and 450(degree)F to
Georgia-Pacific.
The GE-supplied STG is a single automatic extraction
condensing unit with a controlled automatic induction/extraction, capable of
generating 77,614 kW at an inlet steam flow rate of 549,400 pph of 1,265 psia
and 925(Degree)F steam and a back pressure of 2 inches of mercury ("in. HgA").
The STG exhaust steam is condensed in an air-cooled condenser
located to the north of the main facility building. A 3,000 psi water wash
system has been added for once-a-year high pressure spray type washing to clear
springtime poplar seed strings and other airborne fouling items.
The A frame, all galvanized fin and tube air-cooled condenser
is manufactured by GEA Power Cooling Systems, Inc. The air-cooled condenser
package includes required air removal equipment (two 100 percent redundant steam
jet air ejectors and one hogging ejector), fans with two speed motor drives, a
condenser support structure, a condensate collection tank, an exhaust duct,
certain piping and controls.
ENVIRONMENTAL CONTROL SYSTEMS
A DLN combustor system is utilized in the CTGs to limit NOx
emissions. A selective catalytic reduction ("SCR") and a CO catalyst are
installed in the HRSG to meet the air permit emission limits. SCR controls the
NOx emissions from the CTGs and the duct burners to below 9 parts per million
("ppm"). The production of CO is controlled by the use of a CO catalyst.
B-15
<PAGE>
The Saranac Project wastewater, including boiler and cooling
tower blowdown, discharges to the Town of Plattsburgh wastewater treatment
facility after on-site pretreatment as required, which consists of automatic pH
adjustment. Stormwater discharges to a swale running alongside the Saranac
Project Site and subsequently to Scomotion Creek.
Facility floor drains discharge to oil/water separators and
then to the Town of Plattsburgh sanitary system. Drains in the acid/caustic tank
area flow to a neutralization tank prior to discharge to the oil/water
separators and to the town of Plattsburgh sanitary system.
ELECTRICAL AND CONTROL SYSTEMS
The electrical interface with the electric transmission grid
is at the substation located approximately two miles from the Saranac Project
Site. The connecting 115 kV underground cable is run in a connected duct and the
SF-6 breakers are inspected every time the unit is down for a maintenance
outage.
The Saranac Project has two 1,500 kW gas-fired standby
generators, one in the main powerhouse and one in the auxiliary boiler building.
There is also a 1,500 kW No. 2 oil-fired emergency diesel generator. These
generators are capable of black-starting the Saranac Project. An additional 400
kW No. 2 oil-fired generator is available for emergency lighting and other
emergency/maintenance requirements.
The instrumentation and control system is a Foxboro DCS and
provides for custom graphics, system diagnostics, historical trending and report
generation. Redundant multi-loop and microprocessors are provided for process
protection, control and monitoring.
We have reviewed the Y2K Issue with the Saranac Operator. The
Saranac Operator reports that its Y2K compliance review is approximately 80
percent complete. The balance of the review is scheduled for completion by late
March 1999. For a description of the Y2K Issue and the scope of our review
relative to the Y2K Issue, please refer to the corresponding subsection of the
PRI Project section of this Report.
OFF-SITE REQUIREMENTS
The Saranac Project utilizes the Town of Plattsburgh water
supply and wastewater disposal systems. Both process and sanitary wastewater
discharge to the Town of Plattsburgh sewer system.
The 115 kV electric transmission lines extend from the Saranac
Project Site to the NYSEG Northend substation. One 115 kV transmission line
continues on to the NYPA Plattsburgh substation and the other continues on to
the proposed NYSEG Ashley Road substation.
The gas pipeline route is 22 miles long and extends from the
Canadian border near the town of Chazy, where the line pressure is approximately
1,000 psi, to the Saranac Project Site. The route generally parallels highway
I-87; however, only a small portion directly abuts the right-of-way of I-87.
Based on C.C. Pace's review of the Saranac Gas Supply
Agreement, the Saranac Gas Transportation Contracts, C.C. Pace's fuel cost
projections, and our estimate of the fuel requirements of the Saranac Project,
we are of the opinion that the Saranac Project possesses sufficient firm
contract natural gas commodity supplies to meet the requirements of the Saranac
PPA and that its contracted firm natural gas transportation capacity is adequate
to deliver the natural gas supply requirements over the term of the Saranac PPA.
B-16
<PAGE>
FIGURE B-2
SARANAC PROJECT
SITE PLAN
[Graphic Showing Site Plan of the Saranac Project Omitted]
B-17
<PAGE>
REVIEW OF TECHNOLOGY
While the operating experience of the GE Frame 7EA CTG is
extensive, it has experienced some problems recently at facilities similar to
the Saranac Project. These problems have been addressed at the Saranac Project
and solutions have been incorporated as follows:
o The GE Frame 7EA electric generators have been found to have out-of-phase
vibration which over time has caused fatigue failure at certain stress
points within the generator. The Saranac Project's electric generators Nos.
1 and 2 have been upgraded by GE and this problem has not occurred.
o An apparent manufacturing defect has been found in certain electric
generators regarding an inadequate number of side ripple springs. The
insufficient number of ripple springs could lead over time to the
degradation of the electric generator insulation and cause generator bar
stator default. The Saranac Project's electric generators have had the
generator wedges reglazed and this problem is not expected to occur.
o The combustion turbines 17th stage compressor vanes failed and caused
limited compressor and combustor damage in previous units of this
generation. GE corrected this situation with an upgrade and the problem is
not expected to occur at the Saranac Project.
o Risk of potential damage to first stage compressor blades due to icing.
Potential icing conditions are understood and watched for by the Saranac
Operator. An air inlet icing situation has not been reported to have
occurred at the Saranac Project.
Based on our review, we are of the opinion that the Saranac
Project utilizes sound technology and proven methods of electric and thermal
generation and has generally been designed and constructed in accordance with
generally accepted industry practices. If operated and maintained consistently
with generally accepted industry practices, the Saranac Project should be
capable of meeting the requirements of the Saranac PPA, the Georgia-Pacific
Steam Sales Agreement, the Tenneco Steam Sales Agreement, and current
environmental permits throughout the term of the Saranac PPA. Further, the
Saranac Project has adequately provided for all off-site requirements, including
fuel, water supply, wastewater disposal and electrical interconnections.
RELIABILITY AND AVAILABILITY
Based on historical performance, review of O&M practices and
procedures and general observation of the Saranac Project, we are of the opinion
that the Saranac Project is capable of maintaining an annual average
availability of 94 percent. The stipulated annual average capacity factor is the
projected average over the term of the Saranac PPA. There will be years when the
availability is either above or below the projected annual average.
STATUS OF PERMITS AND APPROVALS
All of the major permits and approvals required to operate the
Saranac Project have been obtained. While most of the permits required for
operation must be renewed periodically, we know of no technical reason that such
renewals would not be obtainable.
A draft Title V Operating Permit was issued by NYSDEC on
January 15, 1999. After the 30-day public comment period, the NYSDEC has another
45 days to comment and, assuming no problems arise, issue a final permit. The
draft permit does not contain any new or more restrictive conditions or
limitations, and essentially duplicates the conditions and limitations found in
the PSD Permit Modification dated October 6, 1998, as described later herein.
B-18
<PAGE>
A list of key permits and approvals required for operation,
and a summary of their status, is provided in Table 5. This represents our
understanding based on our Saranac Project Site visit, discussions with the
Saranac Operator, and a brief review of selected documents.
TABLE 5
SARANAC PROJECT
STATUS OF KEY PERMITS AND APPROVALS
<TABLE>
<CAPTION>
PERMIT OR APPROVAL RESPONSIBLE AGENCY STATUS COMMENTS
------------------ ------------------ ------ --------
<S> <C> <C> <C>
FEDERAL
QF Status FERC In compliance Refer to text
Wetlands Permit U.S. Corps of Obtained prior to Compensatory wetlands
Engineers (joint construction monitoring has been
with NYSDEC) completed
STATE
Air Quality Certificate to Operate NYSDEC Issued: December 20, 1994
Expires: December 20, 1999
Title V Operating Permit NYSDEC Received draft permit Currently in 30-day public
January 15, 1999 comment period
State Pollution Discharge NYSDEC Issued: November 1, 1998 A general permit for
Elimination System ("SPDES") stormwater discharge
LOCAL
Wastewater Discharge Permit for Town of Plattsburgh Issued: November 1, 1996 Revised July 1, 1997
discharge to Town of Plattsburgh Expires: October 31, 2001 Requires weekly, monthly,
sewer system quarterly monitoring and
reporting
</TABLE>
OPERATING HISTORY
PERFORMANCE HISTORY
The Saranac Project's historical operating results have been
compiled from monthly operating reports provided by CE Generation. The Saranac
Project has been in commercial operation since June 1994 and has been operating
at an average availability of 94.9 percent since commercial operation. The
operating history since commercial operation is summarized in Table 6.
TABLE 6
SARANAC PROJECT OPERATING HISTORY
<TABLE>
<CAPTION>
FUEL STEAM SALES AVAILABILITY CAPACITY
YEAR AVERAGE MW NET MWh (MMBtu) (Mlb) (%) FACTOR (%)
---- ---------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
1998 207 1,680,912 14,563,522 778,039 92.8 85.4
1997 223 1,855,184 15,890,597 742,698 97.7 95.0
1996 227 1,886,894 15,869,553 628,175 95.2 97.0
1995 237 1,971,795 16,419,574 499,237 98.4 95.1
1994 235 937,931 7,964,336 128,792 90.7 89.4
</TABLE>
Based upon the operating history of the Saranac Project and
with an allowance for future degradation, we are of the opinion that, for the
purpose of developing the Projected Operating Results, the Saranac
B-19
<PAGE>
Project is capable of delivering net electrical capability of 240 MW at an
annual average heat rate of approximately 8,550 Btu per kWh (HHV) and an
availability of 94 percent for the term of the Saranac PPA.
OPERATING PROGRAMS AND PROCEDURES
We have reviewed with the Saranac Operator the various
operations and maintenance programs and procedures, training programs and
performance monitoring systems. We did not review all aspects of these plans and
procedures. However, we verified that the Saranac Operator had in place all of
the usual and necessary plans, procedures and documentation normally required to
operate facilities of this type. Specific documents reviewed included: Standard
Operating Guidelines, Technician Qualification Program, Plant Start-up/Shut-down
Checklist, and Control Room Operator Qualification.
The Saranac Operator has implemented computer-based
maintenance management systems at the Saranac Project which schedule and track
regularly scheduled preventive maintenance activities. The Saranac Operator
reported that equipment vendor maintenance recommendations were followed when
setting up the maintenance management systems. These systems are also used to
track corrective and emergency work orders and to keep equipment-specific
records of maintenance activities, parts use, and labor requirements. All but
minor maintenance is subcontracted to GE. The Saranac Operator utilizes the
computer software program Mainsaver(R) to assist it in its preventive and
corrective maintenance programs.
We reviewed operations and maintenance procedures for major
equipment and systems. The procedures appeared complete and included drawings
and vendor manuals as well as step-by-step operating instructions and
maintenance schedules. Normal daily maintenance is performed by the Saranac
Operator's on-site personnel.
Spare parts are stored in both the in-plant warehouse area and
a separate yard warehouse. Items are stored by computer storage number in
accordance with the software program Mainsaver(R). Larger items requiring a fork
lift are stored in the yard warehouse, a five-level rack storage facility.
The Saranac Operator's training programs provide initial
employee training as well as periodic training to maintain competency of the
Saranac Operator's on-site personnel.
We have reviewed the organizational structure for the
operation and maintenance for the Saranac Project. There is a total of 24
operation and maintenance personnel.
REGULATORY COMPLIANCE
The Saranac Project must be operated in accordance with all
applicable environmental permits, approvals, laws, rules and regulations.
Although we did not conduct a detailed environmental audit, the following
describes our understanding of the status of the Saranac Project with respect to
requirements set forth in its permits and approvals, pending regulations, and
applicable environmental management laws and regulations based on review of
documents provided for our on-site review and discussions with NYSDEC. Based on
our review, we are of the opinion that the Saranac Project appears to be
operating in general compliance with applicable environmental permits,
approvals, laws, rules and regulations with the exceptions noted below.
AIR PERMIT
Review of the last four quarterly summary reports for the
Saranac Project indicates that it has demonstrated satisfactory compliance with
permitted emission limits and that monitoring systems are being properly
maintained.
Saranac performed emissions testing to demonstrate compliance
with all applicable emissions requirements at low load operation. A PSD Permit
Modification was issued by NYSDEC on October 6, 1998, which allows for gas
turbine operation as low as 43 MW at 50(Degree)F, down from the original
operating limit of 64.5 MW at 50(Degree)F. The draft Title V Operating Permit
contains the same restrictions with respect to gas turbine
B-20
<PAGE>
operation to 50 percent load, defined as 43 MW at 50(Degree)F. Further, both the
PSD Permit Modification and the draft Title V Operating Permit extend the
allowable startup/shutdown time from 3 to 6 hours.
QF STATUS
The Saranac Project is required by the Saranac PPA to be a QF.
Actual average Operating Standards and Efficiency Standards as provided by the
Saranac Operator are listed in Table 7.
TABLE 7
SARANAC PROJECT QF STATISTICS
<TABLE>
<CAPTION>
OPERATING EFFICIENCY
YEAR STANDARD (%) STANDARD (%)
---- ------------ ------------
<S> <C> <C>
1998 12.43 46.72
1997 11.98 46.92
1996 7.47 46.77
1995 6.35 47.63
</TABLE>
NOx BUDGET RULE
As a further measure to bring all areas of the State of New
York into compliance with the National Air Quality Standard for ozone, NYSDEC
developed a NOx Budget Rule 6NYCRR27-3 that set up a NOx cap, allowance and
trading system similar, on a state level, to the Federal SO2 allowance program
under Title IV of the Clean Air Act Amendments of 1990. Each facility in
operation by 1997 was allocated a certain number of allowances. If, in a given
year's ozone season beginning in 1999, a facility emits more than its available
allowances, it will have to purchase further allowances from other sources at
market prices. If a facility emits less than its allowances, it may sell the
excess allowances on the open market. The Saranac Project was allocated 177 tons
per year of NOx allowance for the ozone season. Saranac submitted a plan to
NYSDEC in December 1998 to modify their CEMS data acquisition system to support
NOx trading. The Saranac Project is awaiting approval before implementing the
modifications.
WASTEWATER AND STORMWATER DISCHARGE
Documents reviewed indicate that the Saranac Project has been
operating in compliance with requirements of the wastewater and stormwater
permits. As required under the wastewater discharge permit, the Saranac Operator
submits weekly, monthly and quarterly reports to the Town of Plattsburgh. Review
of these documents indicated they are comprehensive and demonstrate the Saranac
Project's compliance with applicable limits. The Saranac Operator reports there
have been no exceedances of wastewater limits during 1996, 1997, and 1998.
WETLANDS
The Saranac Project is required to monitor a wetlands
mitigation area the size of 1.5 times the area of wetlands disturbed by the
Saranac Project for 5 years after commercial operation. This monitoring was
completed in November 1999.
GENERAL COMPLIANCE
Although we did not conduct a detailed environmental audit,
the following observations are based on our review of related documentation and
a Saranac Project Site visit and walkover conducted in February 1999. In
general, the Saranac Project appeared to be using good housekeeping procedures
and appropriate handling practices.
B-21
<PAGE>
The Saranac Operator reported that a noise monitoring survey,
performed in 1994, did not reveal any significant problems. Two public
complaints during the summer of 1997 have been resolved. A nearby facility, and
not the Saranac Project, was determined to be the source of excessive noise.
According to the Saranac Operator, there have been no further noise complaints
since then.
As required by the SPDES permit, the Saranac Operator
maintains a Spill Prevention Countermeasure and Control ("SPCC") plan detailing
spill cleanup procedures and appropriate plant personnel responsible for
completing such procedures. CE Generation reported that the SPCC plan was
completed on March 30, 1998.
We understand that the Saranac Project is classified as a
"small quantity generator" of hazardous waste under the applicable regulations.
The Saranac Operator maintains a log of all manifests for hazardous materials
shipped from the Saranac Project Site. Review of these manifests indicates
shipments consist primarily of oily rags, used oil, and cleanup material from
the three spills: sulfuric acid, polyethylene and ethylene glycol.
A review of Saranac Project logs indicates the Saranac
Operator has submitted the appropriate Superfund Amendments and Reauthorization
Act of 1986 ("SARA") Title II notifications, as required under the Emergency
Planning and Community Right-to-Know Act ("EPCRA") regarding hazardous materials
on-site, to the Town of Plattsburgh and other appropriate parties.
The Saranac Operator reported that internal environmental
audits have been performed in recent years, but these were not made available
for our review.
PROJECTED OPERATING RESULTS
We have reviewed the historical operating information,
estimates and projections of electrical generating capacity, steam generation
capacity, fuel consumption, and operating costs of the Saranac Project made
available to us by CE Generation. On the basis of such data, we have prepared
the Projected Operating Results. The Projected Operating Results are presented
for each calendar year beginning January 1, 1999, representing the beginning of
the quarterly distributions which will be available to CE Generation, through
June 30, 2009, based on the term of the Saranac PPA. Revenues for the Saranac
Project are derived primarily from the sale of electricity to NYSEG and steam to
Georgia-Pacific and Tenneco. Expenses consist of the cost of fuel, including
transportation, as estimated by C.C. Pace, and operating and maintenance
expenses, based on information provided by CE Generation, and existing senior
debt service, as provided by CE Generation. Projected sources of revenues and
expenses have been set forth in the Projected Operating Results presented in
Exhibit B-1. The Projected Operating Results are based on current contractual
commitments as described herein and have been prepared using assumptions and
considerations set forth in this Report and in the footnotes to Exhibit B-1.
ANNUAL OPERATING REVENUES
REVENUES FROM THE SALE OF ELECTRICITY
The Saranac PPA with NYSEG expires in June 2009. NYSEG is
required to purchase all of the output from the Saranac Project up to 240 MW per
hour except for limited curtailment rights. The Saranac PPA specifies annual
on-peak and off-peak variable capacity and energy prices for actual energy
delivered. On-peak hours extend from 7:00 a.m. to 10:00 p.m. weekdays except for
holidays. There is also a price for generation that is available but not
delivered, which is equal to the variable energy rate plus the variable capacity
component less 95 percent of the lesser of (1) 105 percent of sum of the
variable energy rate plus the variable capacity component, or (2) the price of
natural gas times the estimated heat rate. The effective Saranac PPA on-peak and
off-peak prices, excluding the available generation rate, are presented in
Table 8.
B-22
<PAGE>
TABLE 8
SARANAC PPA ELECTRICITY PRICE
($/MWH)
<TABLE>
<CAPTION>
YEAR ON-PEAK PRICE(1) OFF-PEAK PRICE
---- ------------- --------------
<S> <C> <C>
1999 $103.4 $60.9
2000 107.9 63.6
2001 112.5 66.4
2002 117.4 69.3
2003 122.5 72.5
2004 127.9 75.6
2005 133.4 79.0
2006 139.1 82.5
2007 145.3 86.1
2008 151.6 89.9
2009 158.2 93.9
</TABLE>
(1) Includes variable capacity component of electricity price.
REVENUE FROM THE SALE OF STEAM
The Saranac Project has entered into the Georgia-Pacific Steam
Sales Agreement and the Tenneco Steam Sales Agreement for the sale of steam,
both expiring in June 2009. The volume of steam required to be purchased is
sufficient to allow the Saranac Project to maintain its QF status under PURPA.
The total amount of steam assumed to be purchased under these contracts is
713,000 Mlb of steam per year. The average steam price is equal to $3.04 per Mlb
in 1998 dollars and escalates at 4 percent per year thereafter.
INTEREST INCOME
We have included interest income on the debt service reserve
required under the term loan agreement. The debt service reserve fund
requirement is equal to $7,000,000. CE Generation has estimated interest income
on the debt service reserve fund at a rate of 5.5 percent per year. The debt
service reserve fund is assumed to be distributed to CE Generation upon the
final payment of the term loan.
ANNUAL OPERATING EXPENSES
FUEL COSTS
The Saranac Project has entered into the Saranac Gas
Transportation Agreement for the delivery of up to 51,000 MMBtu/day of natural
gas on a firm basis along TransCanada's system. The total contract price for the
gas is fixed in the Saranac Gas Supply Agreement, but is separated into
transportation and commodity components. The transportation component has been
assumed to be equal to approximately $0.88 per MMBtu and the remaining portion
of the contract price is used as the commodity component. The transportation
component is paid for the full 51,000 MMBtu/day at all times (excluding cost
mitigation provided for in the Saranac Gas Supply Agreement). The commodity
component is paid for the actual quantity of gas consumed. The total contract
price is set at $2.97 per MMBtu through October 31, 1994, escalating by 4
percent on each subsequent November 1. The Saranac Project is required to
purchase a minimum annual quantity equal to the annual aggregate of 80 percent
of the maximum daily quantity. To the extent that the Saranac Project uses less
than 51,000 MMBtu/day, certain rebates are made. These price of these rebates
vary monthly, but have been assumed to be equal to approximately $0.56 per MMBtu
and applied to the gas in excess of the average daily consumption.
Under the Gas Transportation Agreement dated December 18, 1992
between North Country Gas Pipeline Corporation ("North Country") and Saranac
(the "North Country Gas Transportation Agreement"), the
B-23
<PAGE>
Saranac Project has contracted with North Country to transport the gas from the
TransCanada system at the Canada- U.S. border to the Saranac Project. Saranac
pays demand charges to North Country; however, North Country is a wholly-owned
subsidiary of Saranac. North Country also receives revenue from other pipeline
customers. For the purposes of the Projected Operating Results, we have included
a credit to the cost of gas transportation for the Saranac Project equal to the
estimated net operating revenue of North Country, as estimated by C.C. Pace.
OPERATION AND MAINTENANCE EXPENSES
Pursuant to the Saranac O&M Agreement, the Saranac Operator
will be compensated for its operations and maintenance services on both a
monthly management fee basis plus reimbursement for its direct costs of
performance. The monthly management fee is adjusted by the Employment Cost Index
for Private Industry White Collar Wages and Salaries. Amendment No. 1 to the
Saranac O&M Agreement agrees to a plan for reduction or increase in the
management fee based on annual availability and heat rate of the Saranac
Project.
The operation and maintenance projections are derived from
operating history provided by the Saranac Operator. Operation and maintenance
expenses are assumed to escalate at inflation with the exception of property
taxes, which have been assumed to remain flat, and labor costs, which have been
assumed to escalate at a rate 2.0 percent above inflation, as estimated by CE
Generation.
SENIOR DEBT SERVICE
Based on information provided by CE Generation, we have
included a senior debt service payment based on the term loan principal amount
of $189,288,000 as of January 1, 1999 and an interest rate of 8.185 percent per
year, as reported by CE Generation. The term loan is payable in quarterly
installments and matures on March 31, 2008. The senior debt service is paid out
of the level 1 distributions and therefore has not been deducted in the
Projected Operating Results from the cash available for distributions.
DISTRIBUTIONS TO CE GENERATION
Saranac's distributable cash flow has two levels of
distribution. The level 1 distribution is paid on a pre-determined schedule. The
level 2 distribution is the remaining portion of distributable cash flow after
the level 1 distribution has been satisfied. Of the level 1 distribution, 99
percent is distributed to General Electric Capital Corporation ("GE Capital")
and 0.3585 percent is available for distribution to a Tomen Power Corporation
subsidiary ("TPC Saranac"). TPC Saranac receives 35.49 percent of the level 2
distributions prior to achieving an 8.35 percent after-tax return. After
achieving an 8.35 percent after-tax return, TPC Saranac's share of the level 2
distributions is reduced to 17.82 percent. GE Capital receives 1 percent of the
level 2 distributions. CE Generation receives all remaining level 1 and level 2
distributions. The TPC Saranac's historic internal rate of return and the
calculation of TPC Saranac's after-tax income have been based on tax and
depreciation assumptions provided by CE Generation.
YUMA PROJECT
The Yuma Project is a nominal 50 MW combined-cycle
cogeneration facility which commenced commercial operation under the Yuma PPA on
May 28, 1994, under which the Yuma Project sells electric energy and capacity to
SDG&E. The Yuma Project sells process steam and steam for chilled water to Queen
Carpet, formerly American-West Industries, Inc., under the Yuma Process ESA and
the Yuma Chiller ESA.
The Yuma Project consists of one dual fuel (natural gas and
fuel oil) Frame 6B CTG exhausting to a separate Nooter-Eriksen three-pressure
HRSG. The HRSG produce HP steam which is directed to a single STG for additional
power generation, IP steam as process steam, CTG for NOx control and auxiliary
boiler heating, and LP steam for use in the integral HRSG deaerators and chiller
steam. Natural gas duct firing of the HRSG is provided to generate additional
steam. Fuel oil is stored on site for use when natural gas is unavailable. The
fuel oil tank capacity is 535,000 gallons or approximately 14 days at full load.
B-24
<PAGE>
PROJECT OPERATOR
The Yuma Project is operated by the Yuma Operator utilizing
Yuma Cogeneration Associates ("YCA") employees without an O&M agreement. YCA is
a wholly-owned, indirect subsidiary of CE Generation. The Yuma Operator has been
operating and maintaining the Yuma Project since 1994.
THE PROJECT
THE PROJECT SITE
The 42.5-acre Yuma Project is located on the northwest
boundary of Yuma, Arizona near the existing Queen Carpet plant and adjacent to
the Santa Clara By-Pass Canal (the "Yuma Project Site") (see Figure C-3, Yuma
Project Site Plan). The Yuma Project Site is located at First Street just west
of B Avenue with the Colorado River to the north. The Yuma Project Site is owned
by YCA. The general area is industrial in nature with some agricultural areas.
The Yuma Project Site is easily accessible by highway.
ENVIRONMENTAL SITE CONDITIONS
We have not reviewed any reports of previous or recent
environmental investigations regarding the potential for site contamination
issues at the Yuma Project Site. Because we did not conduct or review such
environmental reports, we can offer no opinion with respect to potential site
contamination at the Yuma Project Site or potential future remediation costs
should contamination be found.
Visual inspections during our Yuma Project Site visit of
January 28, 1999 indicated that the Yuma Operator is following "good
housekeeping" procedures. We did not observe any unusual stained or soiled areas
and the Yuma Operator maintains spill cleanup kits at the Yuma Project Site. The
transformers, fuel oil, acid, caustic and ammonia storage tanks all have
adequate secondary containment.
As of February 1999, the Yuma Project was not listed on the
USEPA's National Priorities List of Superfund Sites or USEPA's CERCLIS List.
We are not aware of any potential groundwater or soil
contamination. The Yuma Operator stated that there are no soil or groundwater
monitoring requirements for the Yuma Project Site.
DESCRIPTION OF THE PROJECT
MECHANICAL EQUIPMENT AND SYSTEMS
The Yuma Project utilizes a GE Frame 6 PG8541B CTG firing
either natural gas or fuel oil capable of generating approximately 37 MW (gross)
at design conditions (110(degree)F and 23 percent relative humidity). The
combustion turbine is in the process of being "up-rated" to increase firing
temperature which in turn may increase efficiency. The CTG package was
manufactured by GE with the auxiliary equipment required for outdoor operation
but is located in a sound enclosure. An evaporative cooler is included to
increase CTG performance.
The CTG exhausts to a Nooter-Eriksen three-pressure HRSG
integral deaerator and feedwater heater. The HRSG includes a natural gas fired
duct burner to supplement steam-generating capabilities. The HP steam system
delivers HP steam to the STG at conditions discussed below. The HRSG IP steam
system is designed to supply 23,580 pph of CTG NOx control steam at a pressure
of 330 psig and 545(degree)F plus process steam to Queen Carpet (15,000 pph, 130
psig, 375(degree)F). The LP steam system delivers 35,000 pph of LP steam to the
chiller at a pressure of 28 psig and 259(degree)F.
The STG was manufactured by GE and is a dual extraction,
bottom exhaust, condensing unit capable of generating approximately 18 MW
(gross) at a HP steam flow of 158,990 pph at 1,250 psig and 950(degree)F and
back pressure of 2.9 in. HgA. The STG is also located in a sound enclosure and
mounted above the Type 304 stainless steel, single shell, two-pass condenser.
B-25
<PAGE>
The cooling tower supplies the condenser with cooling water at
a design temperature of 91(degree)F. The cooling tower utilizes make-up water
directly from the Colorado River or from the City of Yuma sewage treatment plant
effluent. The cooling tower is a two-cell wooden structure (with PVC fill),
induced mechanical draft, counter flow, evaporative tower.
The chiller system is made up of two steam absorption type
liquid chillers with a respective cooling capacity of 800 tons and 1,100 tons of
refrigeration in the form of chilled water. The chiller system utilizes LP steam
from the Yuma Project and returns the steam in the form of condensate. The
chiller system is owned by Queen Carpet but is operated and maintained by the
Yuma Operator.
The auxiliary boiler provides process steam to Queen Carpet
during SDG&E curtailments and CTG outages. The auxiliary boiler is maintained in
a hot standby condition with steam from the process steam supply header. The
auxiliary boiler system is a stand alone system with its own dedicated
deaerator, feedwater pumps, blowdown separator, and hot water heat exchanger.
The auxiliary boiler has a design steam flow rate of 17,000 pph at 125 psig and
353(degree)F. The auxiliary boiler is designed to operate on natural gas only.
ENVIRONMENTAL CONTROL SYSTEMS
A steam injected CTG system is utilized to limit NOx
emissions. No SCR nor CO catalyst is installed in the HRSG to meet the air
permit emission limits. Steam injection controls the NOx emissions from the CTGs
and the duct burners to below 25 ppm on natural gas and 42 ppm while burning
fuel oil.
The Yuma Project utilizes raw water from the Colorado River
for boiler/steam cycle make-up and evaporative cooling. Potable water is
supplied by the City of Yuma.
In compliance with environmental permits, the Yuma Project
wastewater, including boiler blowdown, cooling tower blowdown, and neutralized
water treatment wastewater is discharged to the Main Outlet Drain Extension
("MODE") canal. Stormwater run-off is discharged to an unlined evaporation
retention pond. The Yuma Project floor and equipment drains also discharge into
the retention pond. The Yuma Project does not include an oily water separator.
Sanitary sewage is discharged to the City of Yuma sewer system.
ELECTRICAL AND CONTROL SYSTEMS
The electrical interface with the electrical transmission grid
occurs at the Arizona Public service ("APS") Riverside 69 kV substation. The
substation located approximately 500 yards from the Yuma Project property
boundary and is connected by an overhead 69 kV transmission line to the Yuma
Project switchyard. Electricity generated by the CTG and STG flows through a
13.8 switchgear to dedicated step-up transformers feeding the switchyard. The
switchyard consists of a dead-end structure with two 69 kV circuit switches and
two 69 kV air break disconnect switches. Yuma Project auxiliary power is taken
from the 13.8 switchgear to feed 4,160 volt and 480 volt station service
transformers which in turn feed 4,160 volt and 480 volt motor control centers.
During curtailment periods, the Yuma Project receives backfeed power from APS
through the step-up transformers. The Yuma Project has no "black-start"
capabilities.
Control for the Yuma Project is provided by a Bailey Controls
INFI 90 microprocessor DCS. The DCS performs/controls plant regulatory systems,
motor systems, monitoring, alarms, operations trending, and events data
recording. The DCS also provides interface with the combustion turbine, CTG,
steam turbine, STG, and HRSG.
We have reviewed the Y2K Issue with the Yuma Operator. The
Yuma Operator reports it has completed an assessment of Y2K problems and these
are predominantly corrected at the Yuma Project Site. The remaining items will
be corrected this spring during the annual outage. Their inventory included
hand-held instruments and they are actually testing the items after correction.
For a description of the Y2K Issue and the scope of our review relative to the
Y2K Issue, please refer to the corresponding subsection of the PRI Project
section of this Report.
B-26
<PAGE>
FIGURE B-3
YUMA PROJECT
SITE PLAN
[GRAPHIC SHOWING SITE PLAN OF THE YUMA PROJECT OMITTED]
B-27
<PAGE>
OFF SITE REQUIREMENTS
The Yuma Project's primary source water is from the Colorado
River as arranged with the City of Yuma. A secondary source is available to the
Yuma Project by taking the tertiary discharge from an adjacent wastewater clean
up facility. The primary source is 300 acre feet per year with an additional 500
acre feet per year available. The option on the additional volume is renewed
every five years.
Natural gas is obtained from SWG via a pipeline into the Yuma
Project Site. Fuel oil is purchased on a spot market basis.
Based on C.C. Pace's review of the SWG Gas Supply and
Agreement, C.C. Pace's fuel cost projections, and our estimate of the fuel
requirements of the Yuma Project, we are of the opinion that the Yuma Project
possesses sufficient contract natural gas commodity supplies to meet the
requirements of the Yuma PPA and that its contracted natural gas transportation
capacity is adequate to deliver the natural gas supply requirements over the
term of the Securities.
REVIEW OF TECHNOLOGY
GE originally developed the Frame 6B as a heavy-duty gas
turbine in 1978. Since its inception, 450 units have been placed in service
worldwide. Problems to date with Frame 6B include premature failure of a limited
number of first stage turbine blades. These failures were blamed on high
temperature deformation in combination with local corrosion. In 1993, GE
developed a new metallurgical process to reduce blade deformation. The Yuma
Project replaced the original first stage turbine blades with the
metallurgically improved blades in 1997.
Based on our review, we are of the opinion the Yuma Project
utilizes sound technology and proven methods of electric and thermal generation
and has been generally designed and constructed in accordance with generally
accepted industry practices. If operated and maintained consistently with
generally accepted industry practices, the Yuma Project should be capable of
meeting the requirements of the Yuma PPA, the Yuma Chiller ESA, the Yuma Process
ESA, and current environmental permits throughout the term of the Securities.
Further, the Yuma Project has adequately provided for all off-site requirements,
including fuel, water supply, wastewater disposal and electrical
interconnections.
RELIABILITY AND AVAILABILITY
Based on historical performance, review of O&M practices and
procedures and general observation of the Yuma Project, we are of the opinion
that the Yuma Project is capable of maintaining an annual average contract
availability of 96 percent. The contract availability is based on the Yuma PPA
which allows major outage type maintenance to occur during the "block" periods
of curtailment. The Yuma PPA specifically prohibits maintenance from occurring
during the "flexible" curtailment periods. Block periods of curtailment are
allocated in either 200 or 400 hour increments. The flexible curtailment periods
are 8 to 10 continuous hour increments. The stipulated annual average capacity
factor is the projected average over the term of the Securities. There will be
years when the availability is either above or below the projected annual
average.
STATUS OF PERMITS AND APPROVALS
All of the major permits and approvals required to operate the
Yuma Project have been obtained. While most of the permits required for
operation must be renewed periodically, we know of no technical reason that such
renewals would not be obtainable.
A list of key permits and approvals required for operation,
and a summary of their status, is provided in Table 9. This represents our
understanding based on our Yuma Project Site visit, discussions with the Yuma
Operator, and a brief review of selected documents.
B-28
<PAGE>
TABLE 9
YUMA PROJECT
STATUS OF KEY PERMITS AND APPROVALS
<TABLE>
<CAPTION>
PERMIT OR APPROVAL RESPONSIBLE AGENCY STATUS COMMENTS
------------------ ------------------ ------ --------
<S> <C> <C> <C>
FEDERAL
QF Status FERC In compliance Refer to text
Waste Water Discharge Permit U.S. Department of Issued March 6, 1993 Does not require renewal
the Interior, Bureau
of Land Reclamation
STATE
Air Permit Arizona Department Issued October 13, 1993 Superseded by Title V
of Environmental Revised September 15, 1995 Operating Permit
Quality ("ADEQ")
Title V Operating Permit ADEQ Draft Permit Issued in Public Notice February
February 1999 1999, expect issuance of
Final April 1999
Aquifer Protection Permit ADEQ Issued September 18, 1996; Backup permit for
valid for the life of the wastewater discharge when
project MODE is out of service
LOCAL
Conditional Use Permit City of Yuma Issued December 12, 1990 Valid for life of
Amended October 14, 1992 project. Covers sanitary
and August 11, 1993 wastewater discharges
Discharge Permit No. 0010 City of Yuma Issued June 13, 1990 Backup for wastewater
Modified June 3, 1994 discharge when MODE is out
of service. Has been
allowed to expire.
</TABLE>
OPERATING HISTORY
PERFORMANCE HISTORY
The Yuma Project's historical operating results have been
compiled from monthly or annual operating reports provided by CE Generation. The
Yuma Project has been in commercial operation since June 1994 and has been
operating at an average contract availability of 96.7 percent since commercial
operation. The operating history since commercial operation is summarized in
Table 10.
TABLE 10
YUMA PROJECT OPERATING HISTORY
<TABLE>
<CAPTION>
FUEL STEAM SALES AVAILABILITY(1) CAPACITY(2)
YEAR AVERAGE MW NET MWh (MMBtu) (Mlb) (%) FACTOR (%)
---- ---------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
1998 54.5 406,765 3,578,741 214,339 96.0 93.0
1997 50.1 373,626 3,357,027 195,098 96.2 85.3
1996 50.8 378,715 3,316,320 159,963 97.0 86.5
1995 53.4 398,442 3,437,576 206,076 97.8 91.0
</TABLE>
(1) Based on total hours out of service and not during a curtailments.
(2) Based on 7,460 non-curtailed hours in a year and 50 MW.
B-29
<PAGE>
Based upon the operating history of the Yuma Project and with
an allowance for future degradation, we are of the opinion that, for the purpose
of developing the Projected Operating Results the Yuma Project is capable of
delivering net electrical capability of 56.5 MW at an annual average heat rate
of approximately 8,830 Btu per kWh (HHV) and a contract availability of 96
percent (assuming current curtailment practices continue) for the term of the
Securities.
OPERATING PROGRAMS AND PROCEDURES
We have reviewed with the Yuma Operator the various operations
and maintenance programs and procedures, training programs and performance
monitoring systems. We did not review all aspects of these plans and procedures.
However, we verified that the Yuma Operator had in place all of the usual and
necessary plans, procedures and documentation normally required to operate
facilities of this type. Specific documents reviewed included: Standard
Operating Guidelines, Technician Qualification Program, Operator Training
Programs, and Control Room Operator Qualification.
The Yuma Operator has implemented computer-based maintenance
management systems at the Yuma Project which schedule and track regularly
scheduled preventive maintenance activities. CE Generation reported that
equipment vendor maintenance recommendations were followed when setting up the
maintenance management systems, plus utilizing their own experiences. These
systems are also used to track corrective and emergency work orders and to keep
equipment-specific records of maintenance activities, parts use, and labor
requirements. The Yuma Operator utilizes the computer software program
Mainsaver(R) to assist it in its preventive and corrective maintenance programs.
We reviewed operations and maintenance procedures for major
equipment and systems. The procedures appeared complete and included drawings
and vendor manuals as well as step-by-step operating instructions and
maintenance schedules. Normal daily maintenance is performed by the Yuma
Operator's on-site personnel.
Spare parts are stored in both the in-plant warehouse area
and a separate yard shipping containers. Items are stored by computer storage
number in accordance with the software program Mainsaver(R). The warehouse and
maintenance shop are fork lift accessible.
The Yuma Operator's training programs provide initial employee
training as well as periodic training to maintain competency of the Yuma
Operator's on-site personnel. The core training program was designed and is
maintained by the Yuma Operator and consists of ten modules. Specific special
training is addressed based on needs.
We have reviewed the organizational structure for the
operation and maintenance for the Yuma Project. There is a total of 15 operation
and maintenance personnel.
REGULATORY COMPLIANCE
The Yuma Project must be operated in accordance with all
applicable environmental permits, approvals, laws, rules and regulations.
Although we did not conduct a detailed environmental audit, the following
describes our understanding of the status of the Yuma Project with respect to
requirements set forth in its permits and approvals, pending regulations, and
applicable environmental management laws and regulations based on review of
documents provided for our review and discussions with the Yuma Operator. Based
on our review, we are of the opinion that the Yuma Project appears to be
operating in general compliance with applicable environmental permits,
approvals, laws, rules and regulations.
AIR PERMIT
The Yuma Project is currently operating under ADEQ Permit,
dated October 13, 1993, as revised via Minor Permit Revision, dated September
15, 1995. The Yuma Project has recently received a Draft Title V Operating
Permit which is scheduled for Public Comment notice on February 18, 1999. The
Public Comment
B-30
<PAGE>
period will expire by the end of March 1999, and a final permit is anticipated
to be issued by the end of April 1999. The Draft Title V Permit essentially
duplicates the original air permit, with all operating, emissions, monitoring
and recordkeeping requirements remaining the same as in the existing permit.
QF STATUS
The Yuma Project is required by the Yuma PPA to be a QF.
Actual operating results provided by the Yuma Operator indicate that the Yuma
Project is achieving average Operating Standards and Efficiency Standards
required for QF status as listed in Table 11.
TABLE 11
YUMA PROJECT QF STATISTICS
<TABLE>
<CAPTION>
OPERATING EFFICIENCY
YEAR STANDARD (%) STANDARD (%)
---- ------------ ------------
<S> <C> <C>
1998 13.4 46.5
1997 13.0 46.9
1996 10.9 46.5
1995 13.3 47.4
</TABLE>
WASTEWATER AND STORMWATER DISCHARGE PERMITS
Plant wastewater is discharged to the Bureau of Land
Reclamation's MODE under a permit with the Bureau of Land Reclamation, which
requires wastewater sampling and analysis to be performed every 6 months.
Documents reviewed containing the results of this ongoing sampling and analysis
indicate that the Yuma Project has been operating in compliance with its
wastewater discharge permit. The Yuma Project also has an evaporation pond which
serves as a backup in the event the MODE is unavailable for discharge due to
scheduled service requirements. The evaporation pond, which has never been used,
has an Aquifer Protection Permit from the ADEQ.
Sanitary wastes from the Yuma Project are discharged to the
City of Yuma publicly-owned treatment works in accordance with the City of Yuma
Conditional Approval, dated June 13, 1990.
The Yuma Project's stormwater is collected in a
retention/evaporation pond. Since the stormwater is not discharged to waters of
the United States, the stormwater system does not require a discharge permit.
GENERAL COMPLIANCE
Although we did not conduct a detailed environmental audit,
the following observations are based on our review of related documentation and
a site visit on January 28, 1999. In general, the Yuma Project appeared to be
using good housekeeping procedures and appropriate materials handling practices.
The SPCC Plan was up to date and covered the appropriate areas
expected to be addressed in this type of document for these types of plants.
There have been no reportable spills documented for the entire operating history
of the project.
The Yuma Project is classified as a Small Quantity Generator
of Hazardous Wastes under applicable regulations. The Yuma Project maintains a
log of all manifests for hazardous wastes shipped from the site. There were two
manifests in 1997; one for lab packs of expired chemicals; and one for 4,000
pounds of soil contaminated with sulfuric acid. There were no manifests for
1998.
B-31
<PAGE>
A review of the Yuma Project documentation indicates that the
appropriate SARA Tier II Reports and notifications under EPCRA regarding
hazardous materials stored on-site have been submitted to the City of Yuma and
the other appropriate parties.
PROJECTED OPERATING RESULTS
We have reviewed the historical operating information,
estimates and projections of electrical generating capacity, steam generation
capacity, fuel consumption, and operating costs of the Yuma Project made
available to us. On the basis of such data, we have prepared the Projected
Operating Results. The Projected Operating Results are presented for each
calendar year beginning January 1, 1999, representing the beginning of the
quarterly distributions which will be available to CE Generation, through
December 31, 2018. Although the Securities have a final maturity of December 15,
2018, CE Generation has stated that a full year of revenues will be available to
pay the debt service on the Securities in 2018. Revenues for the Yuma Project
are derived primarily from the sale of electricity and steam. Expenses consist
of the cost of fuel, including transportation, as estimated by C.C. Pace, and
operating and maintenance expenses, based on information provided by CE
Generation. Projected sources of revenues and expenses have been set forth in
the Projected Operating Results presented in Exhibit B-1. The Projected
Operating Results are based on current contractual commitments as described
herein and have been prepared using assumptions and considerations set forth in
this Report and in the footnotes to Exhibit B-1.
ANNUAL OPERATING REVENUES
REVENUES FROM THE SALE OF ELECTRICITY
The Yuma Project sells capacity and energy to SDG&E under the
terms of the Yuma PPA. The term of the Yuma PPA is for 30 years from the firm
capacity operation date, and thus expires May 1, 2024. Under the Yuma PPA, the
Yuma Project sells 50 MW of firm capacity to SDG&E at the fixed (unescalated)
rate of $140.00 per kW-year. In addition, the Yuma Project is entitled to a
capacity bonus if it delivers firm capacity during the on-peak hours (11 a.m. to
6 p.m., weekdays) of the peak months (May to September) at a capacity factor of
85 percent or greater. Based on historical operating data and projections by CE
Generation, for the purposes of the Projected Operating Results, we have assumed
the on-peak availability factor to be 92 percent.
Under the terms of the Yuma PPA, SDG&E purchases energy at
their schedule of time-differentiated payments and conditions for purchase of
energy from QFs. These energy prices are derived from SDG&E's full avoided
operating costs. For the purpose of the Projected Operating Results, we have
assumed the energy prices projected by Henwood. Henwood has projected that
energy prices will be equal to SDG&E's short-run avoided costs in 1999 and 2000
and thereafter will be equal to the California Power Exchange ("PX") prices. It
should be noted that the prices projected by Henwood range from 1.3 percent to
17.4 percent higher than those projected by the California Energy Commission
("CEC"). On average, Henwood's projected PX prices are approximately 10 percent
higher than those projected by CEC.
Under Amendment Two to the Yuma PPA, SDG&E will accept up to
56.5 MW of energy from the Yuma Project. However, SDG&E has the option to
schedule a block curtailment of one 400 hour block or two 200 hour blocks with
not less then three weeks notice. In addition, in years one through nine of the
Yuma PPA, SDG&E may schedule up to 900 hours of flexible curtailment with at
least two hours notice. Each flexible curtailment period has a duration of no
less than eight consecutive hours, and the maximum number of these curtailments
in a calendar year is 125. In years 10 through 15 of the contract (i.e., May 1,
2004 to April 30, 2010), the number of flexible curtailment hours is increased
to 1,400 per year. After May 1, 2010, the flexible curtailment hours is
increased to 2,200 per year with the maximum number of curtailments increased to
150. For the purposes of the Projected Operating Results, we have assumed that
SDG&E schedules the maximum number of curtailment hours it is entitled to in any
year. Based on historical operating results and the amount of curtailment
allowed in the Yuma PPA, we have assumed energy delivered to SDG&E to be 387,400
MWh in years one to nine, 361,400 MWh in years 10 to 16, and 319,900 MWh
thereafter.
B-32
<PAGE>
REVENUE FROM THE SALE OF STEAM
ABSORPTION CHILLER STEAM. The Yuma Project sells absorption
chiller steam to Queen Carpet under the terms of the Yuma Chiller ESA. The term
of the Yuma Chiller ESA is for 30 years from the firm capacity availability
date, and thus expires May 1, 2024. Under the Yuma Chiller ESA, the Yuma Project
delivers to Queen Carpet sufficient steam to operate their equipment, up to a
maximum of 35,000 pph. Chiller steam deliveries are not required when the Yuma
Project is curtailed or otherwise on outage. Based on CE Generation's 1998
budget, we have assumed the chiller steam deliveries to be 116,540,000 pounds
per year.
The Yuma Chiller ESA sets the purchase price of the chiller
steam at 60 percent of the equivalent cost to Queen Carpet of producing chilled
water at the electrical energy price per Arizona Public Service's ("APS") tariff
E-34. The chiller steam price is based on 60 percent of Queen Carpet's avoided
cost of operating its own chillers. Its avoided cost is calculated in the Yuma
Chiller ESA as the product of the assumed steam absorption chiller efficiency of
47.62 and the sum of the avoided electricity and operating and maintenance cost.
The electricity cost is calculated based on Queen Carpet's chiller efficiency
constant of 0.78 kW/ton-hour and APS's rate E-34, which was reported by CE
Generation to be $40.00 per MWh in 1998 and which we have assumed to escalate
with the PX price. Queen Carpet's avoided cost of operation and maintenance for
its chillers is defined as $0.0130 per ton in 1993 and adjusted each January 1
by the U.S City Average Consumers Price Index for All Urban Consumers ("CPI").
At the end of each year, Queen Carpet pays CE Generation a
true up amount in addition to the above purchase price. The true up steam is all
steam above the minimum thermal usage, defined in the Yuma Chiller ESA to be an
annual average during actual operation of 10,731 pph of steam delivered. The
true up steam price is 25 percent of the chiller steam price.
PROCESS STEAM. The Yuma Project sells process steam to Queen
Carpet under the terms of the Yuma Process ESA. The term of the Yuma Process ESA
is for 30 years from the firm capacity availability date, and thus expires May
1, 2024. Under the Yuma Process ESA, the Yuma Project delivers to Queen Carpet
sufficient steam to operate their equipment, up to a maximum of 15,000 pph.
Process steam deliveries are required when the Yuma Project is curtailed or
otherwise on outage. Such steam is produced in the standby boilers and is
referred to as supplemental steam. Based on projections prepared by CE
Generation, we have assumed the process steam deliveries to be 49,500 Mlb per
year (an average of 6,911 pph while operating), and the supplemental steam
deliveries to be 9,200 Mlb per year (an average of 5,735 pph while curtailed or
on outage).
The Yuma Process ESA sets the purchase price of the process
steam at 75 percent of net avoided cost to Queen Carpet of producing process
steam at the price of natural gas purchased from the nearest available gas
utility by an industrial customer. The process steam price is calculated as 75
percent of Queen Carpet's avoided cost of process steam. The avoided cost of
process steam is calculated as the sum of the nearest available gas utility
price of natural gas in dollars per MMBtu for large industrial users divided by
the efficiency of Queen Carpet's existing standby boilers of 63 percent and the
operation and maintenance costs of existing standby boilers, multiplied by the
difference in the enthalpy of the steam delivered and the condensate returned.
The cost of gas was reported by CE Generation to be $4.02 per MMBtu in 1998 and
has been assumed to escalate with the Yuma Project price of natural gas. The
operation and maintenance costs of existing standby boilers is set contractually
at $1.41 per Mlb of steam in 1992, adjusted each January 1 by the CPI. The
enthalpy of the steam delivered is estimated by CE Generation to be 1,197 Btu
per pound ("Btu/lb") and the condensate return is estimated to be zero.
The price paid for supplemental steam is the lesser of (i) CE
Generation's actual cost of producing the supplemental steam, or (ii) 100
percent of Queen Carpet's avoided cost of process steam, as described above.
B-33
<PAGE>
ANNUAL OPERATING EXPENSES
FUEL COSTS
YCA has entered into a Gas Supply and Transportation Services
Master Agreement with SWG. The master agreement combines several earlier
agreements (including a supply agreement and a transportation agreement) into
one agreement with common terms and conditions. The primary term of the
agreement is to December 31, 2008, and continues year to year thereafter. The
maximum daily quantity under the agreement is 20,000 MMBtu per day.
Under the agreement, YCA pays a monthly service charge which
is currently $15,000 per month, and which we have assumed to escalate at half
the rate of inflation. The rate per MMBtu of the delivered gas is based on SWG's
average cost of gas plus $0.25 per MMBtu. For the purposes of our Projected
Operating Results, we have used the natural gas commodity prices as projected by
Henwood and reviewed by C.C. Pace and transportation cost as projected by C.C
Pace. We have also included use and sales taxes, which include county, state,
city, and Arizona energy assessment taxes, of 7.86 percent, as estimated by CE
Generation.
OPERATION AND MAINTENANCE EXPENSES
The operation and maintenance projections are derived from
historical data and 1999 projections provided by CE Generation. Operation and
maintenance expenses are assumed to escalate at the rate of general inflation.
The schedule of major maintenance expenses has been projected by CE Generation.
YCA has entered into a Firm Transmission Service Agreement
with APS and SDG&E dated February 4, 1993 (the "Yuma Firm Transmission Service
Agreement") for the transmission of 50.85 MW of electricity from the Yuma
Project to SDG&E. The wheeling cost is $1.52 per kW-month, unescalated. Under
the terms of the Yuma Firm Transmission Service Agreement, the Yuma Project
delivers one percent of the scheduled capacity and associated energy to APS as
reimbursement for electrical losses on APS' electric system. The term of the
Yuma Firm Transmission Service Agreement is from the initial operation date of
the Yuma Project through December 31, 2024.
YCA has also entered into an Interruptible Transmission
Service Agreement with APS dated June 15, 1994 (the "YCA Interruptible
Transmission Service Agreement") for the transmission of energy above the firm
transmission capacity. The wheeling cost is $2.082 per MWh, which does not
escalate. Under the terms of the YCA Interruptible Transmission Service
Agreement, the Yuma Project delivers one percent of the scheduled energy
delivered to APS as reimbursement for electrical losses on APS' electric system.
The term of the YCA Interruptible Transmission Service Agreement is concurrent
with the term of the YCA Firm Transmission Service Agreement.
OTHER EXPENSES
Other expenses, including operating fees, water, audit, legal,
finance, insurance, and property and other taxes, are as estimated by CE
Generation for 1999 and are assumed to escalate at the rate of general
inflation.
DISTRIBUTIONS TO CE GENERATION
CE Generation owns 100 percent of the Yuma Project and
therefore it has been assumed that 100 percent of the cash available for
distributions will be available to CE Generation.
NORCON PROJECT
The NorCon Project is a nominal 80 MW combined-cycle
cogeneration facility which began commercial operation in December, 1992. The
NorCon Project sells electric energy to Niagara Mohawk pursuant
B-34
<PAGE>
to the NorCon PPA while selling process steam and chilled ammonia to Welch under
the NorCon Steam Agreement.
The NorCon Project consists of two natural gas-fired GE LM5000
CTGs exhausting to separate HRSGs. The HRSGs produce HP steam, which is sent to
either the CTG's combustors to control NOx emissions or to a single STG for
additional power generation; IP steam, which is used as process steam and STG
admission; and LP steam for use in the integral HRSG deaerators. Duct firing of
the HRSGs is provided to generate additional steam when needed.
PROJECT OPERATOR
The NorCon Project is operated under the NorCon O&M Agreement
by the NorCon Operator. The NorCon Operator commenced operation and maintenance
of its first combined-cycle cogeneration facility in 1987.
THE PROJECT
THE PROJECT SITE
The NorCon Project is located in the Township of North East
approximately 13 miles northeast of Erie, Pennsylvania (the "NorCon Project
Site") (see Figure B-4, NorCon Project Site Plan). The NorCon Project facilities
are located on 12.1 acres in an industrial zone adjacent to Welch property and
about 2.5 miles south of downtown North East.
ENVIRONMENTAL SITE CONDITIONS
We have reviewed two reports prepared by others for CE
Generation regarding the NorCon Project Site investigations at the subject
property including: (1) the Phase I Environmental Site Assessment (June 1991)
prepared by Hill Engineering for Northern Consolidated Power, Inc.; and (2) the
Phase I Environmental Site Assessment for NorCon Cogeneration Plant and Related
Properties (August 1996) prepared by Black & Veatch, Inc. ("Black & Veatch") for
CE Generation. These assessments identified prior NorCon Project Site uses
including agricultural/orchard production, a dairy farm, and a small portion of
the property previously used to store junked automobiles. The Hill Phase I ESA
identified "no obvious signs of conditions that would suggest the presence of
hazardous wastes at the site." Limited soil sampling by Hill did not identify
any concerns. Black & Veatch's Phase I ESA addressed the NorCon Project Site,
the ARP plant, a 3.84-acre parcel (currently in grape production) adjacent to
the plant site, and the 9.5-acre Ripley substation site located approximately
four miles to the east. Black & Veatch concluded that their investigation
"revealed no evidence of recognized environmental conditions in connection with
these properties."
In addition, we conducted a site reconnaissance of the NorCon
Project Site, the ARP site and the substation site on February 2, 1999. The
NorCon Project maintains a 4,200-gallon aboveground diesel fuel storage tank and
four 30,000-gallon propane tanks at the NorCon Project Site. We observed no
on-site spills, stains or other evidence of potential site contamination issues.
Further, we did not observe any off-site areas that would appear to present a
significant contamination potential to the NorCon Project. The NorCon Project is
not listed on any current state or federal database that typically list
contaminated sites or hazardous waste sites, including the National Priorities
List of Superfund Sites or the CERCLIS List dated January 26, 1999, prepared by
the USEPA and the Hazardous Sites Cleanup Act Site List dated November 3, 1998,
prepared by the Pennsylvania Department of Environmental Protection ("PDEP").
Further, there are no off-site areas documented on the above lists that would
have any impact upon the NorCon Project Site. The NorCon Operator stated that no
significant spills had ever occurred at the property, and that there are no soil
or groundwater monitoring requirements for the NorCon Project. This is
consistent with our review of files at the PDEP Regional Office on February 3,
1999 that did not identify any significant spills or potential site
contamination issues at the NorCon Project Site resulting from on-site
operations or off-site sources. In our opinion the likelihood of significant
contamination impacts to the subject property is extremely low.
B-35
<PAGE>
DESCRIPTION OF THE PROJECT
MECHANICAL EQUIPMENT AND SYSTEMS
The NorCon Project utilizes two GE LM5000 PC CTGs firing
natural gas. The CTGs were supplied by Stewart & Stevenson, Inc. and GE with all
auxiliary equipment required for an indoor installation. The electric generators
were manufactured by Brush and are air-cooled.
Each CTG exhausts to a dedicated Deltak three pressure level
HRSG with an integral deaerator and feedwater heater. Each HRSG incorporates a
natural gas-fired duct burner to supplement steam production when needed. The
NorCon Project delivers up to 151,000 pph of saturated steam at approximately
135 psig to Welch.
The Elliot STG is a single automatic extraction condensing
unit with a controlled automatic induction/extraction, capable of generating
9,850 kW at an HP inlet steam flow rate of 89,000 pph of 665 psia and
675(degree)F steam, an IP inlet steam flow rate of 61,000 pph of 100 psia,
385(degree)F steam, a process steam extraction of 32,500 pph of 190 psia steam,
and a back-pressure of 2.5 in. HgA.
The STG exhaust steam is condensed in an air-cooled condenser.
A high pressure (3,000 psi) water wash system has been added to reduce fouling
which improves heat transfer, reduces back-pressure on the STG and increases STG
output.
The NorCon Project also includes the 1,200-ton ARP supplied by
Babcock Borsig that uses process steam extracted from the STG to convert low
pressure ammonia vapor from the Welch plant into chilled pressurized ammonia
liquid which is returned to the plant. The ARP replaced a standard centrifugal
refrigeration system which is maintained by Welch in standby and used when the
ARP is out of service.
An auxiliary boiler and a natural gas compression station are
also included in the NorCon Project. The auxiliary boiler can be fired on either
natural gas or propane and is capable of meeting Welch's process steam load when
the CTGs are out of service. The gas compression station is composed of four
motor-driven gas compressors capable of increasing gas pressure from 300 psi to
the 650 psi required by the aeroderivative LM5000 CTGs.
ENVIRONMENTAL CONTROL SYSTEMS
The NorCon Project's air emission sources include two natural
gas-fired combustion turbines, two natural gas-fired duct burners, three
diesel-fired emergency generators, and one natural gas- or propane-fired
auxiliary boiler. A steam injection system in each gas turbine is used to
control emissions of NOx and an oxidation catalyst system is used to reduce
volatile organic compound ("VOC") and CO emissions. The NorCon Project is
required to maintain a continuous emissions monitoring system ("CEMS") for NOx
and CO emissions.
The NorCon Project generates wastewater from demineralization
backwash, boiler blowdown, cooling tower blowdown, plant floor washdowns, and
sanitary wastewaters. The ARP produces cooling tower blowdown. These wastewaters
are discharged to the publicly-owned treatment works owned by the North East
Borough Sewer Authority (the "POTW"). NorCon Project floor drains discharge to
an oil/water separator prior to discharge to the sewer system. The NorCon
Project's process wastewaters are pretreated for pH control prior to discharge.
Stormwater discharges from the cogeneration plant are directed to an on-site
settling basin prior to discharge to an unnamed tributary to Sixteen Mile Creek.
ELECTRICAL AND CONTROL SYSTEMS
The NorCon Project transports electricity to Niagara Mohawk
via a dedicated, 8 mile, 115 kV transmission line to a remote substation located
just over the state line in Ripley, New York, where voltage is increased to 230
kV and fed into Niagara Mohawk's system. The facility also includes a 13.8 kV
feed to the ARP
B-36
<PAGE>
FIGURE B-4
NORCON PROJECT
SITE PLAN
[Graphic Showing Site Plan of the NorCon Project Omitted]
B-37
<PAGE>
at Welch's plant.
The NorCon Project has two 900 kW diesel engine generators
that are capable of black-starting the facility. A 500 kW emergency diesel
generator is also included at the ARP. The NorCon Project also has a 125 volt dc
uninterruptible power supply ("UPS") system.
The two CTGs use a Woodward 501 control system. The plant has
a DCS supplied by Foxboro.
We have reviewed the Y2K Issue with the NorCon Operator. The
NorCon Operator reports that its Y2K compliance review is approximately 80
percent complete, including an extensive evaluation of all Y2K issues associated
with the NorCon Project. The NorCon Operator has contacted all relevant
equipment manufacturers and intends to update the DCS and controllers for the
ARP and STG. The NorCon operator is planning to perform the majority of Y2K
related modifications during the next scheduled major outage in August 1999. The
NorCon Project Y2K compliance program is scheduled to be completed by September
1999. For a description of the Y2K Issue and the scope of our review relative to
the Y2K Issue, please refer to the corresponding subsection of the PRI Project
section of this Report.
OFF-SITE FACILITIES
The NorCon Project includes the following off-site facilities:
an 8-mile, 115 kV power interconnection to Niagara Mohawk at a remote substation
in Ripley, New York; a 13.8 kV power feed to the APR, a process steam line and a
condensate return line between the NorCon Project Site and the Welch plant; a
natural gas distribution line that delivers 300 psi gas to the plant fence; and
North East Township raw water supply and wastewater discharge lines.
REVIEW OF TECHNOLOGY
The LM5000 CTGs used in the NorCon Project were first
introduced by GE in 1988. Several of GE's LM5000s installed since 1988 have
experienced problems that have resulted in extended unit forced outages.
According to the NorCon Operater, Unit No. 2 has experienced two separate blade
failures on the fourth stage of the HP compressor: one in January 1997 and
another in November 1998. However, since the NorCon Project has a lease engine
agreement with GE, the longest downtime due to these blade failures was nine
days. Due to these and other LM5000 CTG failures, GE has developed and highly
recommends an aggressive preventative maintenance program for all its LM5000 CTG
Users including taking each LM5000 off-line every six weeks for preventive
maintenance and adding an updated vibration monitoring system. The NorCon
Operator reported a reduction in spurious trips due to implementation of this
program.
Based on our discussions with the NorCon Operator, we are of
the opinion that the NorCon Project utilizes sound technology and proven methods
of electric and thermal generation and has generally been designed and
constructed in accordance with generally accepted industry practices. Further,
the NorCon Project has adequately provided for all off-site requirements,
including fuel, water supply, wastewater disposal and electrical
interconnections.
STATUS OF PERMITS AND APPROVALS
All of the major permits and approvals required to operate the
NorCon Project have been obtained. The NorCon Project's emissions are permitted
by a Title V Operating Permit issued by the PDEP on June 4, 1998. The Title V
Permit is the only operating air permit required and expires June 30, 2003.
Permitted air contaminants emitted from the NorCon Project include NOx, CO,
particulate matter 10 microns and larger ("PM-10"), SO2 and VOCs.
The NorCon Project's process wastewaters have been authorized
for discharge to the local sewer system by an Industrial Wastewater Discharge
Agreement ("IWDA") between NorCon and the POTW dated
B-38
<PAGE>
September 4, 1991. The NorCon Project has made application for renewal of the
IWDA with the Borough of North East. According to a representative of the
Borough, the new permit will reflect new permit limitations for zinc and copper
that are less restrictive than the current permit. According to the Borough
representative, the new permit is expected to be issued by April 9, 1999.
A list of key permits and approvals required for operation,
and a summary of their status, is provided in Table 12. This represents our
understanding based on a site visit on February 2, 1999, discussions with the
NorCon Operator, an on-site review of NorCon Project documents, and discussions
with the PDEP and North East Borough representatives.
TABLE 12
NORCON PROJECT
STATUS OF KEY PERMITS AND APPROVALS
<TABLE>
<CAPTION>
PERMIT OR APPROVAL RESPONSIBLE AGENCY STATUS COMMENTS
------------------ ------------------ ------ --------
<S> <C> <C> <C>
FEDERAL
QF Status FERC Refer to text
Stormwater Discharge Permit USEPA Issued January 12, 1998 In compliance. General
NPDES Permit for
stormwater discharges
STATE
Title V Operating Permit PDEP Issued June 4, 1998 In compliance
RACT Approval PDEP Issued: September 21, 1995 In compliance
LOCAL
Industrial Wastewater Discharge Borough of North Issued September 4, 1991 In compliance. Permit
Agreement Permit for discharge to East, Pennsylvania renewal anticipated to be
local sewer system issued by April 9, 1999.
</TABLE>
REGULATORY COMPLIANCE
The NorCon Project must be operated in accordance with all
applicable environmental permits, approvals, laws, rules and regulations. The
following describes our understanding of the status of the NorCon Project with
respect to regulatory compliance issues.
AIR PERMIT
Our review of NorCon Project and PDEP files and interviews
with the NorCon Operator and the PDEP indicate that the NorCon Project is in
compliance with its Title V Operating Permit. Our review of 1997-1998 emissions
data indicates that the NorCon Project has had occasional minor excursions of
permit limitations for excess NOx emissions during startup/shutdown and during
normal operations. Based on our discussions with the PDEP, the excursions are
insignificant and do not present a significant long-term environmental concern.
According to the NorCon Operator there have been no notices of violation
("NOVs") issued by the PDEP for these exceedances. The PDEP stated that the
NorCon Project has a good compliance record and expressed no concerns regarding
current NorCon Project management.
NOx RACT RULE
Title I of the Clean Air Act Amendments of 1990 requires state
regulatory agencies to implement Reasonably Available Control Technology
("RACT") to reduce ozone levels. The NorCon Project is located within an area
classified as a moderate nonattainment zone for ozone, since it is located
within the Ozone Transport
B-39
<PAGE>
Region. The NorCon Project is classified as a major stationary source for NOx
and CO emissions, thus RACT must be implemented to reduce NOx emissions. The
NorCon Project has received a RACT Approval, dated September 21, 1995.
NOx BUDGET RULE
In accordance with the September 27, 1994 Memorandum of
Understanding ("MOU") among Northeast Ozone Transport States, the PDEP
promulgated regulations to limit NOx emissions from fossil-fired units. These
regulations are designed to ensure that by May 1, 1999, affected facilities in
the "outer zone" (including the NorCon Project) must reduce their combined rate
of NOx emissions by 55 percent of the 1990 baseline or emit NOx at a rate no
greater than 0.20 pounds per MMBtu. Under the PDEP's current regulations,
beginning in 1999, each affected source must hold by December 31 of each year a
quantity of "NOx allowances" equal to or greater than the total NOx emitted from
the source during the "NOx allowance control period" (May 1 through September
30) for the year. The NorCon Project was allocated an initial allowance of 50
tons per unit. Our review of actual 1997 and 1998 NOx emissions data indicates
that the NorCon Project should meet its NOx emission limits during the
five-3month ozone transport period.
WASTEWATER AND STORMWATER DISCHARGES
Our review of NorCon Project files and interviews with NorCon
Project and North East Borough representatives indicates that the NorCon Project
is in compliance with its IWDA. Our review of 1997-1998 discharge monitoring
reports indicates that the NorCon Project has had occasional non-significant
exceedances of zinc, copper, and oil and grease, relative to permit limitations.
Most of these exceedances were for higher than permitted levels of zinc and
copper in the cooling tower blowdown at the ARP. A discussion with a Borough
representative indicates that the exceedances have not been a concern to the
POTW, and that new permit limitations are expected to become effective for zinc,
copper, and oil and grease when the IWDA renewal is issued in approximately
eight weeks. Our review of NorCon Project discharge monitoring reports indicates
that the NorCon Project would have met all discharge limitations if the
anticipated new permit limitations had been in effect during 1998. The NorCon
Operator stated they will be able to maintain compliance with the wastewater
discharge permit.
GENERAL COMPLIANCE
Although we did not conduct a detailed environmental audit,
the following observations are based on our review of related documentation, our
site visit conducted February 2, 1999, and interviews with the NorCon Operator.
In general, the NorCon Project appeared to be using good housekeeping practices
and appropriate handling procedures for fuels and hazardous chemicals. The
NorCon Operator indicated that no complaints had been received from the public
since construction and initial startup in the early 1990s. The NorCon Project is
registered as a small quantity generator of hazardous waste, and appears to be
in compliance with hazardous waste regulations.
The NorCon Project is aware of their obligations to prepare a
Risk Management Plan per Section 112-R of the Clean Air Act, summarizing the
NorCon Project's accidental release prevention program, and indicated that they
would meet the June 21, 1999 deadline for plan submittal.
PROJECTED OPERATING RESULTS
CE Generation has indicated that the estimated distributions
from the NorCon Project are immaterial in comparison to the total distributions
available to service the debt service associated with the Securities. Therefore,
for the purposes of this Report, we have assumed that no distributions from the
NorCon Project will be made to CE Generation during the term of the Securities.
B-40
<PAGE>
SUMMARY PROJECTED OPERATING RESULTS
DISTRIBUTIONS FROM THE NATURAL GAS PROJECTS
The distributions to CE Generation from the Natural Gas
Projects are presented for the terms of the respective power purchase agreements
in Exhibit B-1. It should be noted that the distributions to CE Generation from
the Natural Gas Projects are dependent primarily on the sale of electricity
under contracts with electric utilities. The Energy Policy Act fundamentally
changed the Federal regulation of the electric utility industry. At this time we
cannot predict what impact changes in legislation, regulation or market
conditions will have on the ability or willingness of the power purchasers to
pay the stipulated capacity costs contained in the Natural Gas Projects' power
purchase agreements. Accordingly, we have therefore assumed that the capacity
pricing provisions contained in the Natural Gas Projects' power purchase
agreements will remain effective throughout their respective terms. For further
discussion of the potential impact of the restructuring of the electric utility
industry on the projected electricity rates and CE Generation, please refer to
the section entitled "Regulatory Matters" contained in the Confidential Offering
Circular.
SENSITIVITY ANALYSES
Due to the uncertainties necessarily inherent in relying on
assumptions and projections, it should be anticipated that certain circumstances
and events may differ from those assumed and described herein and that such will
affect the results of our Base Case Projected Operating Results. In order to
demonstrate the impact of certain circumstances on the Base Case Projected
Operating Results, certain sensitivity analyses were developed. It should be
noted that other examples could have been considered and those presented are not
intended to reflect the full extent of possible impacts on the Natural Gas
Projects.
These sensitivity analyses, labeled as Sensitivity Case A
through I in Exhibits B-2 through B-10, present the Projected Operating Results
assuming, respectively, that (a) operating and maintenance expenses increase by
10 percent over that assumed in the Base Case Projected Operating Results; (b)
the fuel consumption of the Natural Gas Projects increases by 5 percent over
that assumed in the Base Case Projected Operating Results: (c) the
availabilities of the Natural Gas Projects are reduced by 5 percentage points
from that as assumed in the Base Case Projected Operating Results; (d) the
electricity prices and cost of fuel to the Yuma Project increase according to
the "Low Gas 1" case described in the Henwood Report; (e) the electricity prices
and cost of fuel to the Yuma Project increase according to the "Low Gas 2" case
described in the Henwood Report; (f) the electricity prices and cost of fuel to
the Yuma Project increase according to the "SCE Low SRAC" case described in the
Henwood Report; (g) the electricity prices and cost of fuel to the Yuma Project
increase according to the "SCE Median SRAC" case described in the Henwood
Report; (h) the electricity prices and cost of fuel to the Yuma Project increase
according to the "SCE High SRAC" case described in the Henwood Report; and (i)
the electricity prices to the Yuma Project are equal to the level sufficient to
maintain an annual debt service coverage of 1.00 in all years, as projected by
Fluor Daniel. Exhibits B-5 through B-10 contain only the Projected Operating
Results for the Yuma Project. Since the PRI and Saranac Projects are not
impacted by the change in assumptions for these sensitivity cases, the Projected
Operating Results for the PRI and Saranac Projects for these cases are the same
as the Base Case Projected Operating Results.
SUMMARY COMPARISON OF PROJECTED OPERATING RESULTS
The estimated distributions to CE Generation from the Natural
Gas Projects for selected fiscal years of operation for the Base Case and each
sensitivity case are presented in Table 13. The Base Case and each of the
sensitivity cases are presented in Exhibits B-1 through B-10.
B-41
<PAGE>
TABLE 13
PROJECTED NATURAL GAS PROJECT DISTRIBUTIONS
($000)
<TABLE>
<CAPTION>
YUMA
YUMA YUMA YUMA BREAKEVEN
INCREASED INCREASED REDUCED YUMA YUMA SCE LOW SCE MEDIAN SCE HIGH ELECTRICITY
YEAR BASE CASE O&M HEAT RATE AVAILABILITY LOW GAS 1 LOW GAS 2 SRAC SRAC SRAC PRICE
---- --------- --- --------- ------------ --------- --------- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $40,079 $36,952 $36,430 $32,670 $40,079 $40,079 $39,268 $39,578 $40,702 $33,172
2000 44,620 41,010 40,488 32,778 44,908 44,862 44,274 44,700 46,172 39,961
2001 52,255 48,784 47,852 42,077 52,728 52,102 54,019 54,639 56,382 46,276
2002 55,693 52,147 51,144 45,199 55,232 54,433 55,639 56,298 58,390 47,867
2003 54,703 51,154 50,365 45,668 54,631 53,909 54,551 55,326 57,806 48,889
2004 46,080 43,575 42,811 32,612 46,250 45,670 45,720 46,659 49,298 38,304
2005 49,088 46,510 45,679 37,231 49,491 48,808 47,895 49,305 52,015 40,549
2010 6,948 6,454 6,410 6,326 6,869 6,775 6,684 8,539 13,977 233
2015 1,682 672 1,069 5,952 1,591 1,142 2,270 4,733 16,410 0
</TABLE>
PRINCIPAL CONSIDERATIONS AND ASSUMPTIONS
USED IN THE PROJECTION OF OPERATING RESULTS
In the preparation of our Report and the opinions that follow,
we have made certain assumptions with respect to conditions that may exist or
events that may occur in the future. While we believe these assumptions to be
reasonable for the purpose 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. While we believe the use of such information and
assumptions to be reasonable for the purposes of our Report, we offer no other
assurances with respect thereto and some assumptions may vary significantly due
to unanticipated events and circumstances. To the extent that 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 based upon the extent of such changes.
The principal considerations and assumptions made by us in
developing the input to the Projected Operating Results 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 Natural Gas Projects and their operations.
However, for purposes of this Report, we have assumed that all such
contracts, agreements, rules, and regulations will be fully enforceable
in accordance with their terms and that all parties will comply with
the provisions of their respective agreements.
2. Our review of the design of the Natural Gas Projects was
based on information provided by CE Generation and our visual
observations during our site visits.
3. The operators will maintain the Natural Gas Projects in
accordance with good engineering practice, will perform all required
major maintenance in a timely manner, and will not operate the
equipment to cause it to exceed the equipment manufacturers'
recommended maximum ratings.
4. The operators will employ qualified and competent personnel
and will generally operate the Natural Gas Projects in a sound and
businesslike manner.
B-42
<PAGE>
5. The Natural Gas Projects will identify and implement
solutions to the Y2K Problem in a manner which will not impact the
projected net revenues of the Natural Gas Projects.
6. Inspections, overhauls, repairs and modifications are
planned for and conducted in accordance with manufacturers'
recommendations, and with special regard for the need to monitor
certain operating parameters to identify early signs of potential
problems.
7. Proposed restructuring of the electric utility industry
will not significantly impact the projected electricity revenues of the
PRI, Saranac, and Yuma Projects.
8. All licenses, permits and approvals, and permit
modifications necessary to operate the Natural Gas Projects have been,
or will be, obtained on a timely basis and any changes in required
licenses, or permits and approvals will not require reduced operation
of, or increased costs to, the Natural Gas Projects.
9. The CPI and general inflation, used variously to escalate
various revenues and expenses, will increase at an average annual rate
of 2.7 percent.
10. The performance of the PRI, Saranac, and Yuma Projects
will be as assumed in the Projected Operating Results.
11. The price of electricity and natural gas for the Yuma
Project will be as estimated by Henwood.
12. The cost of natural gas to the PRI and Saranac Projects
and the cost of natural gas transportation of the Yuma Project will be
as estimated by C.C. Pace. The Yuma natural gas contracts will be
extended at pricing provision equal to the current agreements through
the term of the Securities.
13. The steam sales to the various steam hosts will be as
assumed in the Projected Operating Results.
14. The non-fuel operating and maintenance expenses, including
the cost of major maintenance, will be consistent with the information
provided by CE Generation, and will increase thereafter at the assumed
change in the general inflation rate, except as noted otherwise in this
Report.
15. The senior debt service requirements and interest income
of the PRI and Saranac Projects will be as reported by CE Generation.
16. There will be no additional capital improvements to the
PRI, Saranac, and Yuma Projects other than those assumed in the
Projected Operating Results.
17. The will be no distributions made to CE Generation from
the Natural Gas Projects after the expiration of the respective power
purchase agreements.
18. There will be no distributions made to CE Generation from
the NorCon Project.
19. A full year of revenues from the Yuma Project will be
available to pay the debt service on the Securities in 2018, as
estimated by CE Generation.
CONCLUSIONS
Set forth below are the principal opinions we have reached
after our review of the Natural Gas Projects. For a complete understanding of
the estimates, assumptions, and calculations upon which these opinions
B-43
<PAGE>
are based, the Report should be read in its entirety. On the basis of our review
and analyses of the Natural Gas Projects and the assumptions set forth in this
Report, we are of the opinion that:
1. The operators of the Natural Gas Projects have demonstrated
the ability to discharge their responsibilities under the respective
O&M agreements.
2. The Natural Gas Project sites are suitable for the
operation of the Natural Gas Projects.
3. The Natural Gas Projects utilize sound technology and
proven methods of electric and thermal generation and have generally
been designed and constructed in accordance with generally accepted
industry practices.
4. The Natural Gas Projects adequately provide for all
off-site requirements, including fuel, water supply, wastewater
disposal and electrical interconnections.
5. The PRI, Saranac, and Yuma Projects possess sufficient
contract or access to spot natural gas commodity supply to meet the
requirements of the respective power purchase agreements and the
contracted natural gas transportation capacity for these projects is
adequate to deliver the natural gas supply requirements.
6. If the PRI, Saranac, and Yuma Projects are operated and
maintained consistent with generally accepted industry practices, these
projects should be capable of meeting the requirements of their
respective power purchase agreements, current environmental permits
and, where applicable, steam sales agreements, throughout the term of
the respective power purchase agreements.
7. If the operators operate the PRI, Saranac, and Yuma
Projects in accordance with generally accepted industry practices,
these projects should have useful lives extending through the final
maturity of the Securities.
8. All of the major permits and approvals required to operate
the Natural Gas Projects have been or are currently in the process of
being obtained. While most operating permits must be renewed
periodically, we know of no technical reason that such renewals would
not be obtainable.
9. Based on the historical performance, operation and
maintenance practices and observed conditions of the PRI, Saranac, and
Yuma Projects, these projects should be capable of achieving the
average annual availabilities, net electrical capabilities, capacity
factors, steam supply requirements and heat rates assumed in the
Projected Operating Results.
10. The operation and maintenance procedures and practices at
the PRI, Saranac, and Yuma Projects are consistent with good
engineering practices and generally accepted industry practices and
take into consideration existing environmental and permit requirements
applicable to these projects. The operators' organizational structures
for these projects are comparable to other facilities using similar
technologies with which we are familiar.
11. The Natural Gas Projects appear to be operating in general
compliance with applicable environmental permits, approvals, laws,
rules and regulations.
12. The basis for the estimates provided by CE Generation of
the costs of operating and maintaining the PRI, Saranac, and Yuma
Projects, including the cost of major maintenance, is reasonable.
Respectfully submitted,
/S/ R. W. BECK, INC.
B-44
<PAGE>
[THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]
B-45
<PAGE>
Exhibit B-1
CE Generation Gas Projects
Projected Operating Results
Base Case
<TABLE>
<CAPTION>
Year Ending December 31, 1999(1) 2000 2001 2002 2003(1)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PRI PROJECT
PERFORMANCE
Contract Capacity (kW)(2) 200,000 200,000 200,000 200,000 200,000
Capacity Factor (%)(3) 80.0% 80.0% 80.0% 80.0% 80.0%
Energy Sales (MWh) 1,401,600 1,401,600 1,401,600 1,401,600 1,051,200
Steam Sales (Mlb)(4) 830,000 830,000 830,000 830,000 830,000
Heat Rate (Btu/Wh)(5) 9,500 9,500 9,500 9,500 9,500
Fuel Consumption (BBtu)(6) 13,315 13,315 13,315 13,315 9,986
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(8) $194.88 201.72 208.80 216.00 223.56
Energy Component
Tier 1 Energy Price ($/MWh)(9) $31.70 32.80 34.00 35.20 36.40
Tier 2 Energy Price ($/MWh)(9) $24.82 25.06 25.52 25.98 26.79
Steam Price ($/Mlb)(10) $2.85 2.90 2.96 3.02 3.08
Natural Gas Price ($/MMBtu)(11) $2.892 2.968 3.050 3.135 3.227
Gas Transportation Cost ($/MMBtu)(12) $0.102 0.102 0.102 0.102 0.102
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Capacity $38,976 40,344 41,760 43,200 33,534
Energy $41,779 42,989 44,386 45,783 35,485
Steam Revenue $2,363 2,410 2,459 2,508 2,558
Interest Income (13) $380 385 392 396 289
---------- ---------- ---------- ---------- ----------
Total Operating Revenues $83,498 86,128 88,997 91,887 71,866
OPERATING EXPENSES ($000)(14)
Fuel Expense $38,510 39,525 40,618 41,741 32,230
Fuel Transportation Expense $1,360 1,360 1,360 1,360 1,020
Auxiliary Fuel $48 30 30 30 23
Operator's Fee $1,171 1,204 1,237 1,272 981
Plant Operations $3,131 3,216 3,302 3,392 2,612
Major Maintenance $3,337 3,427 3,520 3,615 2,784
Other O&M $904 1,014 1,087 1,142 882
Insurance $347 380 405 412 326
Administrative Fees $886 144 148 152 117
Property Taxes $1,387 1,387 1,387 1,387 1,040
Capital Expenditures $1,409 1,002 715 516 351
---------- ---------- ---------- ---------- ----------
Total Operating Expenses $52,490 52,689 53,809 55,019 42,366
NET OPERATING REVENUES ($000) $31,008 33,439 35,188 36,868 29,500
SENIOR DEBT SERVICE (15)
Balance Outstanding (Jan 1) $90,529 76,261 60,174 42,055 21,743
Principal $14,268 16,088 18,119 20,313 21,743
Interest $8,044 8,561 6,940 4,989 1,459
---------- ---------- ---------- ---------- ----------
Total Senior Debt Service $21,561 23,381 23,796 23,975 23,188
Payments into Debt Reserve Fund $85 128 67 (183) (6,014)
Debt Service Reserve Fund Balance (16) $6,002 6,130 6,196 6,014 0
Major Maintenance Reserve Fund Balance (17) $1,000 1,000 1,000 1,000 1,000
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $9,362 9,930 11,325 13,076 12,326
DISTRIBUTIONS TO
CE GENERATION ($000)(18) $9,362 9,930 11,325 13,076 12,326
</TABLE>
B-46
<PAGE>
Exhibit B-1
CE Generation Gas Projects
Projected Operating Results
Base Case
<TABLE>
<CAPTION>
Year Ending December 31, 1999(1) 2000 2001 2002 2003 2004
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SARANAC PROJECT
PERFORMANCE
Net Plant Capacity (kW)(19) 240,000 240,000 240,000 240,000 240,000 240,000
Availability Factor (%)(20) 94.00% 94.00% 94.00% 94.00% 94.00% 94.00%
Capacity Factor (%)(21) 85.54% 85.54% 85.54% 85.54% 85.54% 85.54%
Energy Sales (MWh)(22) 1,798,400 1,798,400 1,798,400 1,798,400 1,798,400 1,798,400
Available Generation (MWh)(23) 177,900 177,900 177,900 177,900 177,900 177,900
Steam Sales (Mlb)(24) 713,000 713,000 713,000 713,000 713,000 713,000
Heat Rate (Btu/kWh)(25) 8,550 8,550 8,550 8,550 8,550 8,550
Fuel Consumption (BBtu)(26) 15,466 15,466 15,466 15,466 15,466 15,466
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(27) $76.91 80.50 83.76 87.02 90.28 94.51
Energy Price ($/MWh)(28) $68.03 70.96 74.04 77.30 80.81 84.27
Steam Price ($/Mlb)(29) $3.16 3.29 3.42 3.56 3.70 3.85
Natural Gas Price ($/MMBtu)(30) $2.760 2.906 3.057 3.215 3.378 3.548
Gas Transportation Cost ($/MMBtu)(31) $0.977 0.978 0.978 0.979 0.979 0.980
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Capacity $18,459 19,320 20,102 20,884 21,666 22,683
Energy $134,438 140,243 146,328 152,777 159,713 166,545
Steam Revenue $2,256 2,346 2,440 2,538 2,639 2,745
Interest Income (32) $385 385 385 385 385 385
--------- --------- --------- --------- --------- ---------
Total Operating Revenues $155,538 162,294 169,255 176,584 184,403 192,358
OPERATING EXPENSES ($000)(33)
Fuel Expense $42,691 44,942 47,282 49,716 52,248 54,880
Fuel Transportation Expense $15,110 15,120 15,129 15,138 15,146 15,156
Operation & Maintenance $2,376 2,488 2,605 2,727 2,855 2,989
Operator's Fee $2,100 2,157 2,215 2,275 2,336 2,399
Repair & Maintenance $5,930 6,090 6,255 6,424 6,597 6,775
Water & Chemicals $386 396 407 418 429 441
Consumables $476 489 502 516 530 544
State Excise Tax on Steam Revenues (34) $79 82 85 89 92 96
Insurance $767 788 809 831 853 876
Administrative & General $975 1,001 1,028 1,056 1,084 1,114
Property Taxes $3,016 3,016 3,016 3,016 3,016 3,016
Wheeling Charges (35) $5,424 5,695 5,980 6,279 6,593 6,923
Letter-of-Credit Fees $275 282 289 297 304 312
--------- --------- --------- --------- --------- ---------
Total Operating Expenses $79,605 82,546 85,602 88,782 92,083 95,521
NET OPERATING REVENUES ($000) $75,933 79,748 83,653 87,802 92,320 96,837
SENIOR DEBT SERVICE (36)
Balance Outstanding (Jan 1) $189,282 181,097 170,047 156,951 141,399 122,573
Principal $8,185 11,050 13,096 15,552 18,826 22,100
Interest $15,242 14,484 13,516 12,369 10,996 9,354
--------- --------- --------- --------- --------- ---------
Total Senior Debt Service $23,427 25,534 26,612 27,921 29,822 31,454
Payments into Base Reserve Fund $0 0 0 0 0 0
Base Reserve Fund Balance (37) $7,000 7,000 7,000 7,000 7,000 7,000
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $75,933 79,748 83,653 87,802 92,320 96,837
DISTRIBUTIONS TO OTHER PARTNERS (38) $52,123 49,717 48,703 53,011 55,757 58,533
DISTRIBUTIONS TO
CE GENERATION ($000)(38) $23,810 30,031 34,951 34,791 36,563 38,304
<CAPTION>
Year Ending December 31, 2005 2006 2007 2008 2009(1)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SARANAC PROJECT
PERFORMANCE
Net Plant Capacity (kW)(19) 240,000 240,000 240,000 240,000 240,000
Availability Factor (%)(20) 94.00% 94.00% 94.00% 94.00% 94.00%
Capacity Factor (%)(21) 85.54% 85.54% 85.54% 85.54% 85.54%
Energy Sales (MWh)(22) 1,798,400 1,798,400 1,798,400 1,798,400 899,200
Available Generation (MWh)(23) 177,900 177,900 177,900 177,900 88,900
Steam Sales (Mlb)(24) 713,000 713,000 713,000 713,000 356,600
Heat Rate (Btu/kWh)(25) 8,550 8,550 8,550 8,550 8,550
Fuel Consumption(BBtu)(26) 15,466 15,466 15,466 15,466 7,733
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(27) 97.77 101.68 106.57 110.48 115.38
Energy Price ($/MWh)(28) 88.06 91.91 95.91 100.17 104.59
Steam Price ($/Mlb)(29) 4.00 4.16 4.33 4.50 4.68
Natural Gas Price ($/MMBtu)(30) 3.725 3.910 4.101 4.300 4.472
Gas Transportation Cost ($/MMBtu)(31) 0.981 0.981 0.982 0.982 0.971
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Capacity 23,465 24,404 25,577 26,516 13,845
Energy 174,035 181,647 189,550 197,973 103,343
Steam Revenue 2,855 2,969 3,088 3,211 1,670
Interest Income (32) 385 385 385 385 0
--------- --------- --------- --------- ---------
Total Operating Revenues 200,740 209,405 218,600 228,085 118,858
OPERATING EXPENSES ($000)(33)
Fuel Expense 57,618 60,465 63,427 66,506 34,579
Fuel Transportation Expense 15,165 15,175 15,184 15,193 7,511
Operation & Maintenance 3,130 3,277 3,431 3,592 1,881
Operator's Fee 2,464 2,531 2,599 2,669 1,371
Repair & Maintenance 6,958 7,146 7,339 7,537 3,870
Water & Chemicals 453 465 478 491 252
Consumables 559 574 589 605 311
State Excise Tax on Steam Revenues (34) 100 104 108 112 58
Insurance 900 924 949 975 501
Administrative & General 1,144 1,175 1,206 1,239 636
Property Taxes 3,016 3,016 3,016 3,016 1,508
Wheeling Charges (35) 7,269 7,632 8,014 8,415 4,418
Letter-of-Credit Fees 321 330 339 179 0
--------- --------- --------- --------- ---------
Total Operating Expenses 99,097 102,814 106,679 110,529 56,896
NET OPERATING REVENUES ($000) 101,643 106,591 111,921 117,556 61,962
SENIOR DEBT SERVICE (36)
Balance Outstanding (Jan 1) 100,473 74,281 43,177 8,799 0
Principal 26,193 31,104 34,378 8,799 0
Interest 7,420 5,125 2,479 180 0
--------- --------- --------- --------- ---------
Total Senior Debt Service 33,613 36,229 36,857 8,979 0
Payments into Base Reserve Fund 0 0 0 (7,000) 0
Base Reserve Fund Balance (37) 7,000 7,000 7,000 0 0
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 101,643 106,591 111,921 124,556 61,962
DISTRIBUTIONS TO OTHER PARTNERS (38) 61,094 65,066 71,316 75,494 18,744
DISTRIBUTIONS TO
CE GENERATION ($000)(38) 40,549 41,525 40,605 49,062 43,219
</TABLE>
B-47
<PAGE>
Exhibit B-1
CE Generation Gas Projects
Projected Operating Results
Base Case
<TABLE>
<CAPTION>
Year Ending December 31, 1999(1) 2000 2001 2002 2003 2004
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4%
Energy Generated (MWh)(42) 391,300 391,300 391,300 391,300 391,300 365,100
Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700
Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400
Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200
Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900
Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 3,474 3,474 3,474 3,474 3,474 3,248
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92
Energy ($/MWh)(50) $30.90 31.70 28.16 33.99 35.23 36.82
Process Steam Price ($/Mlb)(51) $7.81 8.01 8.22 8.44 8.65 8.88
Supplemental Steam Price ($/Mlb)(51) $10.42 10.68 10.96 11.25 11.54 11.84
Chilling Steam Price ($/Mlb)(52) $1.32 1.33 1.34 1.54 1.59 1.65
True-up Steam Price ($/Mlb)(52) $0.33 0.33 0.34 0.38 0.40 0.41
Natural Gas Price ($/MMBtu)(53) $2.15 2.23 2.31 2.40 2.48 2.57
Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196
Energy Payment $11,971 12,281 10,909 13,168 13,648 13,307
Steam Revenue
Process Steam $387 397 407 418 428 410
Supplemental Steam $96 98 101 103 106 141
Chilling Steam $154 155 156 179 185 179
True-up Steam $13 13 13 15 16 15
-------- -------- -------- -------- -------- --------
Total Operating Revenues $20,817 21,140 19,782 22,079 22,579 22,248
OPERATING EXPENSES ($000)
Natural Gas $8,251 8,546 8,852 9,175 9,498 9,198
Natural Gas Use/Sales Taxes (54) $648 672 696 721 746 723
Natural Gas Service Fees (55) $182 185 187 190 192 195
Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557
Major Maintenance (57) $183 3,278 193 198 2,262 209
Other Operating Fees/Water (56) $443 455 467 480 493 506
Audit, Legal & Finance (56) $762 12 13 13 13 14
Insurance (56) $157 161 166 170 175 179
Property & Other Taxes (56) $779 800 822 844 867 890
Capital Expenditures (56) $179 9 6 23 40 40
Wheeling (58) $963 963 963 963 963 961
-------- -------- -------- -------- -------- --------
Total Operating Expenses $13,910 16,481 13,803 14,253 16,765 14,472
NET OPERATING REVENUES ($000) $6,907 4,659 5,979 7,826 5,814 7,776
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $6,907 4,659 5,979 7,826 5,814 7,776
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $6,907 4,659 5,979 7,826 5,814 7,776
<CAPTION>
Year Ending December 31, 2005 2006 2007 2008 2009
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 1,800 1,800 1,800 1,800 1,800
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 83.4% 83.4% 83.4% 83.4% 83.4%
Energy Generated (MWh)(42) 365,100 365,100 365,100 365,100 365,100
Transmission Losses (MWh)(45) 3,700 3,700 3,700 3,700 3,700
Energy Delivered (MWh) 361,400 361,400 361,400 361,400 361,400
Process Steam Sales (Mlb)(46) 46,200 46,200 46,200 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 11,900 11,900 11,900 11,900 11,900
Chilling Steam Demand (Mlb)(46) 108,700 108,700 108,700 108,700 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 3,248 3,248 3,248 3,248 3,248
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92 163.92 163.92
Energy ($/MWh)(50) 40.09 39.91 40.19 43.05 42.04
Process Steam Price ($/Mlb)(51) 9.11 9.35 9.63 9.85 10.11
Supplemental Steam Price ($/Mlb)(51) 12.15 12.47 12.84 13.14 13.48
Chilling Steam Price ($/Mlb)(52) 1.77 1.78 1.80 1.90 1.89
True-up Steam Price ($/Mlb)(52) 0.44 0.44 0.45 0.48 0.47
Natural Gas Price ($/MMBtu)(53) 2.67 2.77 2.89 2.97 3.08
Gas Transportation Cost ($/MMBtu)(53) 0.27 0.27 0.28 0.29 0.30
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment 7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment 1,196 1,196 1,196 1,196 1,196
Energy Payment 14,489 14,423 14,525 15,558 15,193
Steam Revenue
Process Steam 421 432 445 455 467
Supplemental Steam 145 148 153 156 160
Chilling Steam 192 193 195 207 205
True-up Steam 16 16 17 18 17
-------- -------- -------- -------- --------
Total Operating Revenues 23,459 23,408 23,531 24,590 24,238
OPERATING EXPENSES ($000)
Natural Gas 9,526 9,864 10,283 10,579 10,952
Natural Gas Use/Sales Taxes (54) 749 775 808 831 861
Natural Gas Service Fees (55) 198 200 203 206 209
Operating & Maintenance (56) 1,599 1,642 1,687 1,732 1,779
Major Maintenance (57) 215 0 3,950 233 239
Other Operating Fees/Water (56) 520 534 548 563 578
Audit, Legal & Finance (56) 14 14 15 I5 16
Insurance (56) 184 189 194 200 205
Property & Other Taxes (56) 914 939 964 990 1,017
Capital Expenditures (56) 40 40 40 40 40
Wheeling (58) 961 961 961 961 961
-------- -------- -------- -------- --------
Total Operating Expenses 14,920 15,158 19,653 16,350 16.857
NET OPERATING REVENUES ($000) 8,539 8,250 3,878 8,240 7,381
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 8,539 8,250 3,878 8,240 7,381
DISTRIBUTIONS TO
CE GENERATION ($000)(59) 8,539 8,250 3,878 8,240 7,381
</TABLE>
B-48
<PAGE>
Exhibit B-1
CE Generation Gas Projects
Projected Operating Results
Base Case
<TABLE>
<CAPTION>
Year Ending December 31 2010 2011 2012 2013 2014 2015
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600 2,600
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8% 73.8%
Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 323,100 323,100
Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200 3,200
Energy Delivered (MWh) 319,900 319,900 319,900 319,900 319,900 319,900
Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900 40,900
Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 16,300 16,300
Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200 96,200
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 2,886 2,886
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) $43.48 43.48 43.26 45.70 45.89 47.57
Process Steam Price ($/Mlb)(51) $10.38 10.66 10.95 11.25 11.56 11.59
Supplemental Steam Price ($/Mlb)(51) $13.84 14.21 14.60 15.00 15.41 15.45
Chilling Steam price ($/Mlb)(52) $1.95 1.96 1.97 2.06 2.09 2.16
True-up Steam Price ($/Mlb)(52) $0.49 0.49 0.49 0.52 0.52 0.54
Natural Gas Price ($/MMBtu)(53) $3.19 3.31 3.43 3.56 3.69 3.62
Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34 0.35
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196
Energy Payment $13,909 13,909 13,839 14,619 14,680 15,218
Steam Revenue
Process Steam $425 436 448 460 473 474
Supplemental Steam $226 232 238 244 251 252
Chilling Stream $187 189 190 199 201 207
True-up Steam $16 16 16 17 17 18
-------- -------- -------- -------- -------- --------
Total Operating Revenues $22,959 22,978 22,927 23,735 23,818 24,365
OPERATING EXPENSES ($000)
Natural Gas $10,075 10,439 10,817 11,209 11,616 11,457
Natural Gas Use/Sales Taxes (54) $792 820 850 881 913 900
Natural Gas Service Fees (55) $211 214 217 220 223 226
Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033 2,087
Major Maintenance (57) $245 2,799 259 266 0 4,887
Other Operating Fees/Water (56) $594 610 626 643 661 678
Audit, Legal & Finance (56) $16 17 17 17 18 18
Insurance (56) $210 216 222 228 234 240
Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162 1,193
Capital Expenditures (56) $40 40 40 40 40 40
Wheeling (58) $957 957 957 957 957 957
-------- -------- -------- -------- -------- --------
Total Operating Expenses $16,011 19,060 17,033 17,571 l7,857 22,683
NET OPERATING REVENUES ($000) $6,948 3,918 5,894 6,164 5,961 1,682
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $6,948 3,918 5,894 6,164 5,961 1,682
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $6,948 3,918 5,894 6,164 5,961 1,682
<CAPTION>
Year Ending December 31 2016 2017 2018
-------- -------- --------
<S> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000
Curtailment Hours (41) 2,600 2,600 2,600
Availability Factor (42) 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 73.8% 73.8% 73.8%
Energy Generated (MWh)(42) 323,100 323,100 323,100
Transmission Losses (MWh)(45) 3,200 3,200 3,200
Energy Delivered (MWh) 319,900 319,900 319,900
Process Steam Sales (Mlb)(46) 40,900 40,900 40,900
Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300
Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 2,886 2,886 2,886
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92
Energy Rate ($/MWh)(50) 47.79 49.16 50.31
Process Steam Price ($/Mlb)(51) 12.20 12.53 12.86
Supplemental Steam Price ($/Mlb)(51) 16.26 16.71 17.15
Chilling Steam price ($/Mlb)(52) 2.18 2.24 2.30
True-up Steam Price ($/Mlb)(52) 0.55 0.56 0.57
Natural Gas Price ($/MMBtu)(53) 3.97 4.11 4.25
Gas Transportation Cost ($/MMBtu)(53) 0.36 0.37 0.38
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment 7,000 7,000 7,000
Bonus Capacity Payment 1,196 1,196 1,196
Energy Payment 15,288 15,726 16,094
Steam Revenue
Process Steam 499 512 526
Supplemental Steam 265 272 280
Chilling Stream 210 216 221
True-up Steam 18 18 19
-------- -------- --------
Total Operating Revenues 24,476 24,940 25,336
OPERATING EXPENSES ($000)
Natural Gas 12,468 12,915 13,351
Natural Gas Use/Sales Taxes(54) 980 1,015 1,049
Natural Gas Service Fees (55) 229 232 235
Operating & Maintenance (56) 2,144 2,202 2,261
Major Maintenance (57) 288 296 304
Other Operating Fees/Water (56) 697 716 735
Audit, Legal & Finance (56) 19 19 20
Insurance (56) 247 254 260
Property & Other Taxes (56) 1,225 1,258 1,292
Capital Expenditures (56) 40 40 40
Wheeling (58) 957 957 957
-------- -------- --------
Total Operating Expenses 19,294 19,904 20,504
NET OPERATING REVENUES ($000) 5,182 5,036 4,832
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 5,182 5,036 4,832
DISTRIBUTIONS TO
CE GENERATION ($000)(59) 5,182 5,036 4,832
</TABLE>
B-49
<PAGE>
Footnotes to Exhibit B-1
1. Represents twelve months for 1999, representing the beginning of the
quarterly distributions which will be available to CE Generation, and 12
months for 2018, except for the PRI Project and the Saranac Project, for
which no distributions are assumed after the expiration of the PRI PPA and
Saranac PPA on September 30, 2003 and June 30, 2009, respectively.
Although the Securities have a final maturity of December 15, 2018, CE
Generation has stated that a full year of revenues will be available to
pay the debt service on the Securities in 2018.
2. Net plant capacity of 200,000 kW as set forth in the PPI PPA.
3. Capacity factor based on an assumed dispatch factor of 100 percent less
the contractually allowed curtailment during the term of the PRI PPA.
4. Based on the historic level of steam sales to Fina at 830,000 Mlb per
year.
5. As estimated by R.W. Beck based on the historic level of net plant heat
rate.
6. Includes fuel based on the average annual heat rate.
7. Based on projections prepared by Blue Chip Economic Indicators dated
October 10, 1998.
8. Capacity rate as set forth in the PRI PPA.
9. As set forth in the PRI PPA, the energy rate for energy produced monthly
above a 72.5 percent capacity factor is equal to the product of TUEC's
monthly weighted average cost of gas, as estimated by C.C. Pace, the
monthly energy produced above a 72.5 percent capacity factor and 0.99.
Below a 72.5 percent capacity factor, the energy pricing is as set forth
in the PRI PPA.
10. Fina steam price is $2.45 per Mlb of steam beginning in 1991 and escalated
each June 1 beginning June 1, 1992 at 2.0 percent per contract year
thereafter pursuant to the PRI Steam Sales Agreement.
11. As projected by C.C. Pace in accordance with the PRI Gas Supply Agreement.
The reservation fee is equal to $547,500 per year beginning July 1, 1989
and escalates at 3 percent beginning on July 1, 1996. The fuel prices
under the Louis Dreyfus Gas Contract change each June 1. Spot gas pricing
has been projected by C.C. Pace.
12. As set forth in the PRI Gas Supply Agreement.
13. Estimated based on the debt service reserve fund and major maintenance
reserve fund balances required under the Amended and Restated Term Loan
Agreement dated December 30, 1988 and a reinvestment rate of 5.5 percent,
as estimated by CE Generation.
14. Based on information provided by CE Generation. Non-fuel operating
expenses assumed to escalate at the rate of general inflation.
15. As set forth in the PRI Amended and Restated Term Loan Agreement provided
by CE Generation.
16. The debt service reserve fund balance is to be maintained at the next
quarter's debt service payment pursuant to the PRI Amended and Restated
Term Loan Agreement.
17. The maintenance reserve account maintains a $1,000,000 balance in
accordance with the PRI operating budget for periodic overhauls, repairs
and spare parts.
18. One hundred percent of cash available for distribution is distributed to
CE Generation.
19. Net plant capacity of 240,000 kW as set forth in the Saranac PPA.
20. As estimated by R.W. Beck.
21. Capacity factor based on an assumed dispatch factor of 100 percent less
certain contractually allowed curtailment during the term of the Saranac
PPA.
22. Calculated as set forth in the Saranac PPA.
23. Based on the historical energy curtailment by NYSEG under the Saranac PPA.
24. Based on historic level of steam sales. Assumes 520,300 Mlb per year of
steam sales to Georgia-Pacific and 192,700 Mlb per year of steam sales to
Tenneco.
25. As estimated by R.W. Beck.
26. Includes generation fuel based on an average annual beat rate and
auxiliary boiler fuel at a rate of 1,400 Btu/lb of steam.
27. As set forth in the Saranac PPA, capacity rate is equal to the weighted
average of the schedule of on-peak and off-peak variable capacity prices
based on on-peak hours of 3,810 and 4,950 hours per year, respectively.
28. As set forth in the Saranac PPA, energy rate is equal to the weighted
average of the schedule of on-peak and off-peak variable energy prices.
Scheduled pricing based on a commercial operation date of May 1994.
Includes available generation revenue calculated as variable energy rate
plus variable capacity component less 95 percent of the lesser of (1) 105
percent of sum of the variable energy rate plus the variable capacity
component, or (2) the price of natural gas times the estimated heat rate
times the available generation.
29. Represents average steam price under Georgia-Pacific and Tenneco Steam
Sales Agreements. Average steam price is equal to $3.04 per Mlb in 1998
escalated at 4.0 percent per year thereafter.
30. As set forth in the Saranac Gas Arrangements, natural gas price is equal
to a contract price of $2.97 per MMBtu through October 31, 1994 and
escalating by 4.0 percent each November 1 thereafter. Demand component is
based on TransCanada's firm transportation rate and the contract quantity
based on a 100 percent load factor. Commodity charge is the remaining
portion of the contract price and is assessed only for actual fuel burned.
31. As set forth in the Saranac Gas Transportation Agreements.
32. Estimated based on the debt service reserve fund and major maintenance
reserve fund balances and a reinvestment rate of 5 percent, as estimated
by CE Generation.
33. Based on information provided by CE Generation. Non-fuel operating
expenses assumed to escalate at the rate of general inflation, except
where noted.
34. Equal to 3.5 percent of annual steam revenue.
B-50
<PAGE>
Footnotes to Exhibit B-1
(Continued)
35. As set forth in the Saranac PPA, equal to $4,250,000 per year in 1994
dollars escalated at 5.0 percent per year.
36. Based on information provided by CE Generation. Not deducted from cash
available for distributions since senior debt service is paid out of level
1 distributions.
37. As required under senior credit agreement. Based on information provided
by CE Generation.
38. Based on distributions to GE Capital equal to 99 percent of scheduled
level 1 distributions and 1 percent of level 2 distributions and
distributions to TPC Saranac equal to 0.3585 percent of scheduled level 1
distributions plus of 35.49 percent of level 2 distributions until an
after-tax return of 8.35 percent is achieved. After achieving an 8.35
after-tax return, which is projected in the Base Case to occur in the
first quarter of 2000, TPC Saranac's share is reduced from 35.49 to 17.82
percent. CE Generation receives all remaining level 1 and level 2
distributions.
39. Maximum energy deliverable to SDG&E under the Yuma PPA.
40. Contracted firm capacity under the Yuma PPA.
41. Curtailment hours assumed at contract maximums and consist of a block
curtailment of 400 hours plus 900 hours of flexible curtailment through
May 1, 2004, 1,400 hours of flexible curtailment from May 1, 2004 through
May 1, 2009, and 2,200 hours of flexible curtailment each year thereafter.
42. Estimated by R.W. Beck based on historical operating data.
43. Estimated by R.W. Beck based on historical operating data. Peak hours
under the Yuma PPA are defined as 11 A.M. to 6 P.M. weekdays, May through
September.
44. Based on contracted firm capacity.
45. Pursuant to transmission agreements with APS, losses are equal to one
percent of scheduled capacity and associated energy.
46. As estimated by CE Generation.
47. Includes auxiliary boiler.
48. Pursuant to the Yuma PPA.
49. Pursuant to the Yuma PPA. Assumes 92 percent on-peak availability and one
percent losses from the point of delivery to the designated point of
interconnection with SDG&E.
50. As estimated by Henwood.
51. As estimated by C.C. Pace.
52. Calculated pursuant to the Yuma Process ESA. Supplemental steam is steam
produced in the auxiliary boiler.
53. Calculated pursuant to Yuma Chiller ESA. True-up steam is steam in excess
of an annual average of 10,721 pounds per hour.
54. Gas use and sales taxes assumed to be equal to 7.86 percent of gas
expenses, as estimated by CE Generation.
55. SWG special gas procurement tariff is $15,000 per month in 1998, as
provided by CE Generation. Assumed by R.W. Beck to escalate at one half
the general rate of inflation.
56. Estimated for 1999 by CE Generation and assumed to escalate at the assumed
rate of general inflation of 2.7 percent per year thereafter.
57. Major maintenance schedule as estimated by CE Generation.
58. Includes firm and interruptible transmission costs based on firm
transmission service charge of $1.52 per kW-month, and interruptible
transmission service charge of $2.082 per MWh, unescalated pursuant to
transmission agreements with APS.
59. One hundred percent of cash available for distribution is distributed to
CE Generation.
B-51
<PAGE>
Exhibit B-2
CE Generation Gas Projects
Projected Operating Results
Sensitivity A: Increased Operating Expenses
<TABLE>
<CAPTION>
Year Ending December 31, 1999(1) 2000 2001 2002 2003(1)
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PRI PROJECT
PERFORMANCE
Contract Capacity (kW)(2) 200,000 200,000 200,000 200,000 200,000
Capacity Factor (%)(3) 80.0% 80.0% 80.0% 80.0% 80.0%
Energy Sales (MWh) 1,401,600 1,401,600 1,401,600 1,401,600 1,051,200
Steam Sales (Mlb)(4) 830,000 830,000 830,000 830,000 830,000
Heat Rate (Btu/kWh)(5) 9,500 9,500 9,500 9,500 9,500
Fuel Consumption (BBtu)(6) 13,315 13,315 13,315 13,315 9,986
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(8) $194.88 201.72 208.80 216.00 223.56
Energy Component
Tier 1 Energy Price ($/MWh)(9) $31.70 32.80 34.00 35.20 36.40
Tier 2 Energy Price ($/MWh)(9) $24.82 25.06 25.52 25.98 26.79
Steam Price ($/Mlb)(10) $2.85 2.90 2.96 3.02 3.08
Natural Gas Price ($/MMBtu)(11) $2.892 2.968 3.050 3.135 3.227
Gas Transportation Cost ($/MMBtu)(12) $0.102 0.102 0.102 0.102 0.102
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Capacity $38,976 40,344 41,760 43,200 33,534
Energy $41,779 42,989 44,386 45,783 35,485
Steam Revenue $2,363 2,410 2,459 2,508 2,558
Interest Income (13) $380 385 392 396 289
---------- --------- --------- ---------- ----------
Total Operating Revenues $83,498 86,128 88,997 91,887 71,866
OPERATING EXPENSES ($000)(14)
Fuel Expense $38,510 39,525 40,618 41,741 32,230
Fuel Transportation Expense $1,360 1,360 1,360 1,360 1,020
Auxiliary Fuel $48 30 30 30 23
Operator's Fee $1,288 1,324 1,361 1,399 1,079
Plant Operations $3,444 3,537 3,633 3,731 2,874
Major Maintenance $3,671 3,770 3,872 3,976 3,063
Other O&M $994 1,115 1,196 1,256 970
Insurance $382 418 446 453 358
Administrative Fees $975 158 163 167 129
Property Taxes $1,526 1,526 1,526 1,526 1,144
Capital Expenditures $1,550 1,102 787 568 386
---------- --------- --------- ---------- ----------
Total Operating Expenses $53,748 53,865 54,992 56,207 43,276
NET OPERATING REVENUES ($000) $29,750 32,263 34,005 35,680 28,590
SENIOR DEBT SERVICE (15)
Balance Outstanding (Jan 1) $90,529 76,261 60,174 42,055 21,743
Principal $14,268 16,088 18,119 20,313 21,743
Interest $8,044 8,561 6,940 4,989 1,459
---------- --------- --------- ---------- ----------
Total Senior Debt Service $21,561 23,381 23,796 23,975 23,188
Payments into Debt Reserve Fund $85 128 67 (183) (6,014)
Debt Service Reserve Fund Balance (16) $6,002 6,130 6,196 6,014 0
Major Maintenance Reserve Fund Balance (17) $1,000 1,000 1,000 1,000 1,000
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $8,104 8,754 10,142 11,888 11,416
DISTRIBUTIONS TO
CE GENERATION ($000)(18) $8,104 8,754 10,142 11,888 11,416
</TABLE>
B-52
<PAGE>
Exhibit B-2
CE Generation Gas Projects
Projected Operating Results
Sensitivity A: Increased Operating Expenses
<TABLE>
<CAPTION>
Year Ending December 31, 1999(1) 2000 2001 2002 2003
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SARANAC PROJECT
PERFORMANCE
Net Plant Capacity (kW)(19) 240,000 240,000 240,000 240,000 240,000
Availability Factor (%)(20) 94.00% 94.00% 94.00% 94.00% 94.00%
Capacity Factor (%)(21) 85.54% 85.54% 85.54% 85.54% 85.54%
Energy Sales (MWh)(22) 1,798,400 1,798,400 1,798,400 1,798,400 1,798,400
Available Generation (MWh)(23) 177,900 177,900 177,900 177,900 177,900
Steam Sales (Mlb)(24) 713,000 713,000 713,000 713,000 713,000
Heat Rate (Btu/kWh)(25) 8,550 8,550 8,550 8,550 8,550
Fuel Consumption (BBtu)(26) 15,466 15,466 15,466 15,466 15,466
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(27) $76.91 80.50 83.76 87.02 90.28
Energy Price ($/MWh)(28) $68.03 70.96 74.04 77.30 80.81
Steam Price ($/Mlb)(29) $3.16 3.29 3.42 3.56 3.70
Natural Gas Price ($/MMBtu)(30) $2.760 2.906 3.057 3.215 3.378
Gas Transportation Cost ($/MMBtu)(31) $0.977 0.978 0.978 0.979 0.979
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Capacity $18,459 19,320 20,102 20,884 21,666
Energy $134,438 140,243 146,328 152,777 159,713
Steam Revenue $2,256 2,346 2,440 2,538 2,639
Interest Income (32) $385 385 385 385 385
---------- ---------- ---------- ---------- ----------
Total Operating Revenues $155,538 162,294 169,255 176,584 184,403
OPERATING EXPENSES ($000)(33)
Fuel Expense $42,691 44,942 47,282 49,716 52,248
Fuel Transportation Expense $15,110 15,120 15,129 15,138 15,146
Operation & Maintenance $2,614 2,737 2,865 3,000 3,141
Operator's Fee $2,310 2,372 2,436 2,502 2,570
Repair & Maintenance $6,523 6,699 6,880 7,066 7,257
Water & Chemicals $425 436 448 460 472
Consumables $524 538 552 567 582
State Excise Tax on Steam Revenues (34) $87 90 94 98 102
Insurance $844 867 890 914 939
Administrative & General $1,072 1,101 1,131 1,162 1,193
Property Taxes $3,318 3,318 3,318 3,318 3,318
Wheeling Charges (35) $5,967 6,265 6,578 6,907 7,252
Letter-of-Credit Fees $303 310 318 326 335
---------- ---------- ---------- ---------- ----------
Total Operating Expenses $81,788 84,795 87,92l 91,174 94,555
NET OPERATING REVENUES ($000) $73,750 77,499 81,334 85,410 89,848
SENIOR DEBT SERVICE (36)
Balance Outstanding (Jan 1) $189,282 181,097 170,047 156,951 141,399
Principal $8,185 11,050 13,096 15,552 18,826
Interest $15,242 14,484 13,516 12,369 10,996
---------- ---------- ---------- ---------- ----------
Total Senior Debt Service $23,427 25,534 26,612 27,921 29,822
Payments into Base Reserve Fund $0 0 0 0 0
Base Reserve Fund Balance (37) $7,000 7,000 7,000 7,000 7,000
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $73,750 77,499 81,334 85,410 89,848
DISTRIBUTIONS TO OTHER PARTNERS (38) $51,327 49,195 48,266 52,561 55,292
DISTRIBUTIONS TO
CE GENERATION ($000)(38) $22,424 28,305 33,068 32,849 34,556
<CAPTION>
Year Ending December 31, 2004 2005 2006 2007 2008 2009(1)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SARANAC PROJECT
PERFORMANCE
Net Plant Capacity (kW)(19) 240,000 240,000 240,000 240,000 240,000 240,000
Availability Factor (%)(20) 94.00% 94.00% 94.00% 94.00% 94.00% 94.00%
Capacity Factor (%)(21) 85.54% 85.54% 85.54% 85.54% 85.54% 85.54%
Energy Sales (MWh)(22) 1,798,400 1,798,400 1,798,400 1,798,400 1,798,400 899,200
Available Generation (MWh)(23) 177,900 177,900 177,900 177,900 177,900 88,900
Steam Sales (Mlb)(24) 713,000 713,000 713,000 713,000 713,000 356,600
Heat Rate (Btu/kWh)(25) 8,550 8,550 8,550 8,550 8,550 8,550
Fuel Consumption (BBtu)(26) 15,466 15,466 15,466 15,466 15,466 7,733
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(27) 94.51 97.77 101.68 106.57 110.48 115.38
Energy Price ($/MWh)(28) 84.27 88.06 91.91 95.91 100.17 104.59
Steam Price ($/Mlb)(29) 3.85 4.00 4.16 4.33 4.50 4.68
Natural Gas Price ($/MMBtu)(30) 3.548 3.725 3.910 4.101 4.300 4.472
Gas Transportation Cost ($/MMBtu)(31) 0.980 0.981 0.981 0.982 0.982 0.971
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Capacity 22,683 23,465 24,404 25,577 26,516 13,845
Energy 166,545 174,035 181,647 189,550 197,973 103,343
Steam Revenue 2,745 2,855 2,969 3,088 3,211 1,670
Interest Income (32) 385 385 385 385 385 0
---------- ---------- ---------- ---------- ---------- ----------
Total Operating Revenues 192,358 200,740 209,405 218,600 228,085 118,858
OPERATING EXPENSES ($000)(33)
Fuel Expense 54,880 57,618 60,465 63,427 66,506 34,579
Fuel Transportation Expense 15,156 15,165 15,175 15,184 15,193 7,511
Operation & Maintenance 3,288 3,443 3,605 3,774 3,952 2,069
Operator's Fee 2,639 2,710 2,784 2,859 2,936 1,508
Repair & Maintenance 7,453 7,654 7,861 8,073 8,291 4,257
Water & Chemicals 485 498 512 525 540 277
Consumables 598 614 631 648 665 342
State Excise Tax on Steam Revenues (34) 106 110 114 119 124 64
Insurance 964 990 1,017 1,044 1,073 551
Administrative & General 1,225 1,258 1,292 1,327 1,363 700
Property Taxes 3,318 3,318 3,318 3,318 3,318 1,659
Wheeling Charges (35) 7,615 7,996 8,396 8,815 9,256 4,859
Letter-of-Credit Fees 344 353 363 373 197 0
---------- ---------- ---------- ---------- ---------- ----------
Total Operating Expenses 98,071 101,727 105,533 109,486 113,414 58,376
NET OPERATING REVENUES ($000) 94,287 99,013 103,872 109,114 114,671 60,482
SENIOR DEBT SERVICE (36)
Balance Outstanding (Jan 1) 122,573 100,473 74,281 43,177 8,799 0
Principal 22,100 26,193 31,104 34,378 8,799 0
Interest 9,354 7,420 5,125 2,479 180 0
---------- ---------- ---------- ---------- ---------- ----------
Total Senior Debt Service 31,454 33,613 36,229 36,857 8,979 0
Payments into Base Reserve Fund 0 0 0 0 (7,000) 0
Base Reserve Fund Balance (37) 7,000 7,000 7,000 7,000 0 0
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 94,287 99,013 103,872 109,114 121,671 60,482
DISTRIBUTIONS TO OTHER PARTNERS (38) 58,053 60,599 64,554 70,788 74,951 18,465
DISTRIBUTIONS TO
CE GENERATION ($000)(38) 36,234 38,414 39,318 38,326 46,720 42,017
</TABLE>
B-53
<PAGE>
Exhibit B-2
CE Generation Gas Projects
Projected Operating Results
Sensitivity A: Increased Operating Expenses
<TABLE>
<CAPTION>
Year Ending December 31, 1999(1) 2000 2001 2002 2003 2004 2005
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4% 83.4%
Energy Generated (MWh)(42) 391,300 391,300 391,300 391,300 391,300 365,100 365,100
Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700 3,700
Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400 361,400
Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900 11,900
Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 3,474 3,474 3,474 3,474 3,474 3,248 3,248
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price $140.00 140.00 140.00 140.00 140.00 140.00 140.00
Capacity Price ($/kW-yr)(48)
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) $30.90 31.70 28.16 33.99 35.23 36.82 40.09
Process Steam Price ($/Mlb)(51) $7.81 8.01 8.22 8.44 8.65 8.88 9.11
Supplemental Steam Price ($/Mlb)(51) $10.42 10.68 10.96 11.25 11.54 11.84 12.15
Chilling Steam Price ($/Mlb)(52) $1.32 1.33 1.34 1.54 1.59 1.65 1.77
True-up Steam Price ($/Mlb)(52) $0.33 0.33 0.34 0.38 0.40 0.41 0.44
Natural Gas Price ($/MMBtu)(53) $2.15 2.23 2.31 2.40 2.48 2.57 2.67
Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196
Energy Payment $11,971 12,281 10,909 13,168 13,648 13,307 14,489
Steam Revenue
Process Steam $387 397 407 418 428 410 421
Supplement Steam $96 98 101 103 106 141 145
Chilling Steam $154 155 156 179 185 179 192
True-up Steam $13 13 13 15 16 15 16
-------- -------- -------- -------- -------- -------- --------
Total Operating Revenues $20,817 21,140 19,782 22,079 22,579 22,248 23,459
OPERATING EXPENSES ($000)
Natural Gas $8,251 8,546 8,852 9,175 9,498 9,198 9,526
Natural Gas Use/Sales Taxes (54) $648 672 696 721 746 723 749
Natural Gas Service Fees (55) $182 185 187 190 192 195 198
Operating & Maintenance (56) $1,499 1,540 1,581 1,624 1,668 1,713 1,759
Major Maintenance (57) $201 3,606 212 218 2,488 230 237
Other Operating Fees/Water (56) $487 500 514 528 542 557 572
Audit, Legal & Finance (56) $838 l4 14 14 15 15 15
Insurance (56) $173 177 182 187 192 197 203
Property & Other Taxes (56) $857 880 904 928 953 979 1,005
Capital Expenditures (56) $197 10 7 25 44 44 44
Wheeling (58) $1,059 1,059 1,059 1,059 1,059 1,056 1,056
-------- -------- -------- -------- -------- -------- --------
Total Operating Expenses $14,392 17,189 14,208 14,669 17,397 14,907 15,364
NET OPERATING REVENUES ($000) $6,425 3,951 5,574 7,410 5,182 7,341 8,096
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $6,425 3,951 5,574 7,410 5,182 7,341 8,096
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $6,425 3,951 5,574 7,410 5,182 7,341 8,096
<CAPTION>
Year Ending December 31, 2006 2007 2008 2009
-------- -------- -------- --------
<S> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000
Curtailment Hours (41) 1,800 1,800 1,800 1,800
Availability Factor (42) 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 83.4% 83.4% 83.4% 83.4%
Energy Generated (MWh)(42) 365,100 365,100 365,100 365,100
Transmission Losses (MWh)(45) 3,700 3,700 3,700 3,700
Energy Delivered (MWh) 361,400 361,400 361,400 361,400
Process Steam Sales (Mlb)(46) 46,200 46,200 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 11,900 11,900 11,900 11,900
Chilling Steam Demand (Mlb)(46) 108,700 108,700 108,700 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 3,248 3,248 3,248 3,248
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70
Electricity Price 140.00 140.00 140.00 140.00
Capacity Price ($/kW-yr)(48)
Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) 39.91 40.19 43.05 42.04
Process Steam Price ($/Mlb)(51) 9.35 9.63 9.85 10.11
Supplemental Steam Price ($/Mlb)(51) 12.47 12.84 13.14 13.48
Chilling Steam Price ($/Mlb)(52) 1.78 1.80 1.90 1.89
True-up Steam Price ($/Mlb)(52) 0.44 0.45 0.48 0.47
Natural Gas Price ($/MMBtu)(53) 2.77 2.89 2.97 3.08
Gas Transportation Cost ($/MMBtu)(53) 0.27 0.28 0.29 0.30
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment 7,000 7,000 7,000 7,000
Bonus Capacity Payment 1,196 1,196 1,196 1,196
Energy Payment 14,423 14,525 15,558 15,193
Steam Revenue
Process Steam 432 445 455 467
Supplement Steam 148 153 156 160
Chilling Steam 193 195 207 205
True-up Steam 16 17 18 17
-------- -------- -------- --------
Total Operating Revenues 23,408 23,531 24,590 24,238
OPERATING EXPENSES ($000)
Natural Gas 9,864 10,283 10,579 10,952
Natural Gas Use/Sales Taxes (54) 775 808 831 861
Natural Gas Service Fees (55) 200 203 206 209
Operating & Maintenance (56) 1,807 1,855 1,906 1,957
Major Maintenance (57) 0 4,345 256 263
Other Operating Fees/Water (56) 587 603 619 636
Audit, Legal & Finance (56) 16 16 17 17
Insurance (56) 208 214 219 225
Property & Other Taxes (56) 1,033 1,060 1,089 1,118
Capital Expenditures (56) 44 44 44 44
Wheeling (58) 1,056 1,056 1,056 1,056
-------- -------- -------- --------
Total Operating Expenses 15,590 20,487 16,822 17,338
NET OPERATING REVENUES ($000) 7,818 3,044 7,768 6,900
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 7,818 3,044 7,768 6,900
DISTRIBUTIONS TO
CE GENERATION ($000)(59) 7,818 3,044 7,768 6,900
</TABLE>
B-54
<PAGE>
Exhibit B-2
CE Generation Gas Projects
Projected Operating Results
Sensitivity A: Increased Operating Expenses
<TABLE>
<CAPTION>
Year Ending December 31, 2010 2011 2012 2013 2014 2015 2016
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600 2,600 2,600
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8%
Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 323,100 323,100 323,100
Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200 3,200 3,200
Energy Delivered (MWh) 319,900 319,900 319,900 319,900 319,900 319,900 319,900
Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900 40,900 40,900
Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 16,300 16,300 16,300
Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200 96,200 96,200
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 2,886 2,886 2,886
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) $43.48 43.48 43.26 45.70 45.89 47.57 47.79
Process Steam Price ($/Mlb)(51) $10.38 10.66 10.95 11.25 11.56 11.59 12.20
Supplemental Steam Price ($/Mlb)(51) $13.84 14.21 14.60 15.00 15.41 15.45 16.26
Chilling Steam Price($/Mlb)(52) $1.95 1.96 1.97 2.06 2.09 2.16 2.18
True-up Steam Price ($/Mlb)(52) $0.49 0.49 0.49 0.52 0.52 0.54 0.55
Natural Gas Price ($/MMBtu)(53) $3.19 3.31 3.43 3.56 3.69 3.62 3.97
Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34 0.35 0.36
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196
Energy Payment $13,909 13,909 13,839 14,619 14,680 15,218 15,288
Steam Revenue
Process Steam $425 436 448 460 473 474 499
Supplemental Steam $226 232 238 244 251 252 265
Chilling Stream $187 189 190 199 201 207 210
True-up Steam $16 16 16 17 17 18 18
-------- -------- -------- -------- -------- -------- --------
Total Operating Revenues $22,959 22,978 22,927 23,735 23,818 24,365 24,476
OPERATING EXPENSES ($000)
Natural Gas $10,075 10,439 10,817 11,209 11,616 11,457 12,468
Natural Gas Use/Sales Taxes (54) $792 820 850 881 913 900 980
Natural Gas Service Fees (55) $211 214 217 220 223 226 229
Operating & Maintenance (56) $2,010 2,064 2,120 2,177 2,236 2,296 2,358
Major Maintenance (57) $270 3,079 285 293 0 5,376 317
Other Operating Fees/Water (56) $653 671 689 708 727 746 766
Audit, Legal & Finance (56) $18 18 19 19 20 20 21
Insurance (56) $232 238 244 251 258 264 272
Property & Other Taxes (56) $1,149 1,180 1,212 1,244 1,278 1,312 1,348
Capital Expenditures (56) $44 44 44 44 44 44 44
Wheeling (58) $1,052 1,052 1,052 1,052 1,052 1,052 1,052
-------- -------- -------- -------- -------- -------- --------
Total Operating Expenses $16,506 19,819 17,549 18,098 18,367 23,693 19,855
NET OPERATING REVENUES ($000) $6,454 3,159 5,378 5,637 5,451 672 4,621
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $6,454 3,159 5,378 5,637 5,451 672 4,621
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $6,454 3,159 5,378 5,637 5,451 672 4,621
<CAPTION>
Year Ending December 31, 2017 2018
-------- --------
<S> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000
Curtailment Hours (41) 2,600 2,600
Availability Factor (42) 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0%
Capacity Factor (%)(44) 73.8% 73.8%
Energy Generated (MWh)(42) 323,100 323,100
Transmission Losses (MWh)(45) 3,200 3,200
Energy Delivered (MWh) 319,900 319,900
Process Steam Sales (Mlb)(46) 40,900 40,900
Supplemental Steam Sales (Mlb)(46) 16,300 16,300
Chilling Steam Demand (Mlb)(46) 96,200 96,200
Heat Rate (Btu/kWh)(42) 8,830 8,830
Fuel Consumption (BBtu)(47) 2,886 2,886
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92
Energy Rate ($/MWh)(50) 49.16 50.31
Process Steam Price ($/Mlb)(51) 12.53 12.86
Supplemental Steam Price ($/Mlb)(51) 16.71 17.15
Chilling Steam Price($/Mlb)(52) 2.24 2.30
True-up Steam Price ($/Mlb)(52) 0.56 0.57
Natural Gas Price ($/MMBtu)(53) 4.11 4.25
Gas Transportation Cost ($/MMBtu)(53) 0.37 0.38
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment 7,000 7,000
Bonus Capacity Payment 1,196 1,196
Energy Payment 15,726 16,094
Steam Revenue
Process Steam 512 526
Supplemental Steam 272 280
Chilling Stream 216 221
True-up Steam 18 19
-------- --------
Total Operating Revenues 24,940 25,336
OPERATING EXPENSES ($000)
Natural Gas 12,915 13,351
Natural Gas Use/Sales Taxes (54) 1,015 1,049
Natural Gas Service Fees (55) 232 235
Operating & Maintenance (56) 2,422 2,487
Major Maintenance (57) 326 334
Other Operating Fees/Water (56) 787 808
Audit, Legal & Finance (56) 21 22
Insurance (56) 279 287
Property & Other Taxes (56) 1,384 1,422
Capital Expenditures (56) 44 44
Wheeling (58) 1,052 1,052
-------- --------
Total Operating Expenses 20,477 21,091
NET OPERATING REVENUES ($000) 4,463 4,245
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 4,463 4,245
DISTRIBUTIONS TO
CE GENERATION ($000)(59) 4,463 4,245
</TABLE>
B-55
<PAGE>
Footnotes to Exhibit B-2
The footnotes to Exhibit B-2 are the same as the footnotes for Exhibit
B-1, except:
14. All non-fuel related operating costs are assumed to be 10 percent higher
than that assumed in the Base Case.
33. All non-fuel related operating costs are assumed to be 10 percent higher
than that assumed in the Base Case.
56. All non-fuel related operating costs are assumed to be 10 percent higher
than that assumed in the Base Case.
B-56
<PAGE>
Exhibit B-3
CE Generation Gas Projects
Projected Operating Results
Sensitivity B: Increased Heat Rate
<TABLE>
<CAPTION>
Year Ending December 31, 1999(1) 2000 2001 2002 2003(1)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PRI PROJECT
PERFORMANCE
Contract Capacity (kW)(2) 200,000 200,000 200,000 200,000 200,000
Capacity Factor (%)(3) 80.0% 80.0% 80.0% 80.0% 80.0%
Energy Sales (MWh) 1,401,600 1,401,600 1,401,600 1,401,600 1,051,200
Steam Sales (Mlb)(4) 830,000 830,000 830,000 830,000 830,000
Heat Rate (Btu/kWh)(5) 9,975 9,975 9,975 9,975 9,975
Fuel Consumption (BBtu)(6) 13,981 13,981 13,981 13,981 10,486
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(8) $194.88 201.72 208.80 216.00 223.56
Energy Component
Tier 1 Energy Price ($/MWh)(9) $31.70 32.80 34.00 35.20 36.40
Tier 2 Energy Price ($/MWh)(9) $24.82 25.06 25.52 25.98 26.79
Steam Price ($/Mlb)(10) $2.85 2.90 2.96 3.02 3.08
Natural Gas Price ($/MMBtu)(11) $2.852 2.926 3.005 3.087 3.179
Gas Transportation Cost ($/MMBtu)(12) $0.104 0.104 0.104 0.104 0.104
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Capacity $38,976 40,344 41,760 43,200 33,534
Energy $41,779 42,989 44,386 45,783 35,485
Steam Revenue $2,363 2,410 2,459 2,508 2,558
Interest Income (13) $380 385 392 396 289
---------- ---------- ---------- ---------- ----------
Total Operating Revenues $83,498 86,128 88,997 91,887 71,866
OPERATING EXPENSES ($000)(14)
Fuel Expense $39,877 40,902 42,017 43,163 33,331
Fuel Transportation Expense $1,449 1,449 1,449 1,449 1,087
Auxiliary Fuel $48 30 30 30 23
Operator's Fee $1,171 1,204 1,237 1,272 981
Plant Operations $3,131 3,216 3,302 3,392 2,612
Major Maintenance $3,337 3,427 3,520 3,615 2,784
Other O&M $904 1,014 1,087 1,142 882
Insurance $347 380 405 412 326
Administrative Fees $886 144 148 152 117
Property Taxes $1,387 1,387 1,387 1,387 1,040
Capital Expenditures $1,409 1,002 715 516 351
---------- ---------- ---------- ---------- ----------
Total Operating Expenses $53,946 54,155 55,297 56,530 43,534
NET OPERATING REVENUES ($000) $29,552 31,973 33,700 35,357 28,332
SENIOR DEBT SERVICE (15)
Balance Outstanding (Jan 1) $90,529 76,261 60,174 42,055 21,743
Principal $14,268 16,088 18,119 20,313 21,743
Interest $8,044 8,561 6,940 4,989 1,459
---------- ---------- ---------- ---------- ----------
Total Senior Debt Service $21,561 23,381 23,796 23,975 23,188
Payments into Debt Reserve Fund $85 128 67 (183) (6,014)
Debt Service Reserve Fund Balance (16) $6,002 6,130 6,196 6,014 0
Major Maintenance Reserve
Fund Balance (17) $1,000 1,000 1,000 1,000 1,000
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $7,906 8,464 9,837 11,565 11,158
DISTRIBUTIONS TO
CE GENERATION ($000)(18) $7,906 8,464 9,837 11,565 11,158
</TABLE>
B-57
<PAGE>
Exhibit B-3
CE Generation Gas Projects
Projected Operating Results
Sensitivity B: Increased Heat Rate
<TABLE>
<CAPTION>
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004
---------- ---------- ---------- ---------- ---------- ----------
SARANAC PROJECT
PERFORMANCE
Net Plant Capacity (kW)(19) 240,000 240,000 240,000 240,000 240,000 240,000
Availability Factor (%)(20) 94.00% 94.00% 94.00% 94.00% 94.00% 94.00%
Capacity Factor (%)(21) 85.54% 85.54% 85.54% 85.54% 85.54% 85.54%
Energy Sales (MWh)(22) 1,798,400 1,798,400 1,798,400 1,798,400 1,798,400 1,798,400
Available Generation (MWh)(23) 177,900 177,900 177,900 177,900 177,900 177,900
Steam Sales (Mlb)(24) 713,000 713,000 713,000 713,000 713,000 713,000
Heart Rate (Btu/kWh)(25) 8,978 8,978 8,978 8,978 8,978 8,978
Fuel Consumption (BBtu)(26) 16,236 16,236 16,236 16,236 16,236 16,236
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(27) $76.91 80.50 83.76 87.02 90.28 94.51
Energy Price ($/MWh)(28) $67.92 70.86 73.93 77.19 80.69 84.14
Steam Price ($/Mlb)(29) $3.16 3.29 3.42 3.56 3.70 3.85
Natural Gas Price ($/MMBtu)(30) $2.760 2.906 3.057 3.215 3.378 3.548
Gas Transportation Cost ($/MMBtu)(31) $0.957 0.958 0.958 0.959 0.959 0.960
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Capacity $18,459 19,320 20,102 20,884 21,666 22,683
Energy $134,239 140,033 146,106 152,546 159,468 166,288
Steam Revenue $2,256 2,346 2,440 2,538 2,639 2,745
Interest Income (32) $385 385 385 385 385 385
---------- ---------- ---------- ---------- ---------- ----------
Total Operating Revenues $155,339 162,084 169,033 176,353 184,158 192,101
OPERATING EXPENSES ($000)(33)
Fuel Expense $44,816 47,178 49,635 52,190 54,848 57,611
Fuel Transportation Expense $15,540 15,550 15,559 15,568 15,576 15,586
Operation & Maintenance $2,376 2,488 2,605 2,727 2,855 2,989
Operator's Fee $2,100 2,157 2,215 2,275 2,336 2,399
Repair & Maintenance $5,930 6,090 6,255 6,424 6,597 6,775
Water & Chemicals $386 396 407 418 429 441
Consumables $476 489 502 516 530 544
State Excise Tax on Steam Revenues (34) $79 82 85 89 92 96
Insurance $767 788 809 831 853 876
Administrative & General $975 1,001 1,028 1,056 1,084 1,114
Property Taxes $3,016 3,016 3,016 3,016 3,016 3,016
Wheeling Charges (35) $5,424 5,695 5,980 6,279 6,593 6,923
Letter-of-Credit Fees $275 282 289 297 304 312
---------- ---------- ---------- ---------- ---------- ----------
Total Operating Expenses $82,160 85,212 88,385 91,686 95,113 98,682
NET OPERATING REVENUES ($000) $73,179 76,872 80,648 84,667 89,045 93,419
SENIOR DEBT SERVICE (36)
Balance Outstanding (Jan 1) $189,282 181,097 170,047 156,951 141,399 122,573
Principal $8,185 11,050 13,096 15,552 18,826 22,100
Interest $15,242 14,484 13,516 12,369 10,996 9,354
---------- ---------- ---------- ---------- ---------- ----------
Total Senior Debt Service $23,427 25,534 26,612 27,921 29,822 31,454
Payments into Base Reserve Fund $0 0 0 0 0 0
Base Reserve Fund Balance (37) $7,000 7,000 7,000 7,000 7,000 7,000
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $73,179 76,872 80,648 84,667 89,045 93,419
DISTRIBUTIONS TO OTHER PARTNERS (38) $51,118 49,049 48,137 52,421 55,141 57,890
DISTRIBUTIONS TO
CE GENERATION ($000)(38) $22,061 27,824 32,511 32,246 33,904 35,530
<CAPTION>
Year Ending December 31 2005 2006 2007 2008 2009(1)
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
SARANAC PROJECT
PERFORMANCE
Net Plant Capacity (kW)(19) 240,000 240,000 240,000 240,000 240,000
Availability Factor (%)(20) 94.00% 94.00% 94.00% 94.00% 94.00%
Capacity Factor (%)(21) 85.54% 85.54% 85.54% 85.54% 85.54%
Energy Sales (MWh)(22) 1,798,400 1,798,400 1,798,400 1,798,400 899,200
Available Generation (MWh)(23) 177,900 177,900 177,900 177,900 88,900
Steam Sales (Mlb)(24) 713,000 713,000 713,000 713,000 356,600
Heart Rate (Btu/kWh)(25) 8,978 8,978 8,978 8,978 8,978
Fuel Consumption (BBtu)(26) 16,236 16,236 16,236 16,236 8,118
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(27) 97.77 101.68 106.57 110.48 115.38
Energy Price ($/MWh)(28) 87.92 91.77 95.76 100.02 104.42
Steam Price ($/Mlb)(29) 4.00 4.16 4.33 4.50 4.68
Natural Gas Price ($/MMBtu)(30) 3.725 3.910 4.101 4.300 4.472
Gas Transportation Cost ($/MMBtu)(31) 0.961 0.961 0.962 0.962 0.952
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Capacity 23,465 24,404 25,577 26,516 13,845
Energy 173,765 181,365 189,253 197,662 103,182
Steam Revenue 2,855 2,969 3,088 3,211 1,670
Interest Income (32) 385 385 385 385 0
---------- ---------- ---------- ---------- --------
Total Operating Revenues 200,470 209,123 218,303 227,774 118,697
OPERATING EXPENSES ($000)(33)
Fuel Expense 60,485 63,474 66,583 69,816 36,299
Fuel Transportation Expense 15,595 15,605 15,614 15,623 7,726
Operation & Maintenance 3,130 3,277 3,431 3,592 1,881
Operator's Fee 2,464 2,531 2,599 2,669 1,371
Repair & Maintenance 6,958 7,146 7,339 7,537 3,870
Water & Chemicals 453 465 478 491 252
Consumables 559 574 589 605 311
State Excise Tax on Steam Revenues (34) 100 104 108 112 58
Insurance 900 924 949 975 501
Administrative & General 1,144 1,175 1,206 1,239 636
Property Taxes 3,016 3,016 3,016 3,016 1,508
Wheeling Charges (35) 7,269 7,632 8,014 8,415 4,418
Letter-of-Credit Fees 321 330 339 179 0
---------- ---------- ---------- ---------- --------
Total Operating Expenses 102,394 106,253 110,265 114,269 58,831
NET OPERATING REVENUES ($000) 98,076 102,870 108,038 113,505 59,866
SENIOR DEBT SERVICE (36)
Balance Outstanding (Jan 1) 100,473 74,281 43,177 8,799 0
Principal 26,193 31,104 34,378 8,799 0
Interest 7,420 5,125 2,479 180 0
---------- ---------- ---------- ---------- --------
Total Senior Debt Service 33,613 36,229 36,857 8,979 0
Payments into Base Reserve Fund 0 0 0 (7,000) 0
Base Reserve Fund Balance (37) 7,000 7,000 7,000 0 0
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 98,076 102,870 108,038 120,505 59,866
DISTRIBUTIONS TO OTHER PARTNERS (38) 60,422 64,366 70,586 74,731 18,349
DISTRIBUTIONS TO
CE GENERATION ($000)(38) 37,653 38,505 37,453 45,774 41,516
</TABLE>
B-58
<PAGE>
Exhibit B-3
CE Generation Gas Projects
Projected Operating Results
Sensitivity B: Increased Heat Rate
<TABLE>
<CAPTION>
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004 2005
-------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4% 83.4%
Energy Generated (MWh)(42) 391,300 391,300 391,300 391,300 391,300 365,100 365,100
Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700 3,700
Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400 361,400
Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900 11,900
Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700
Heat Rate (Btu/kWh)(42) 9,272 9,272 9,272 9,272 9,272 9,272 9,272
Fuel Consumption (BBtu)(47) 3,647 3,647 3,647 3,647 3,647 3,410 3,410
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) $30.90 31.70 28.16 33.99 35.23 36.82 40.09
Process Steam Price ($/Mlb)(51) $7.81 8.01 8.22 8.44 8.65 8.88 9.11
Supplemental Steam Price ($/Mlb)(51) $10.42 10.68 10.96 11.25 11.54 11.84 12.15
Chilling Steam Price ($/Mlb)(52) $1.32 1.33 1.34 1.54 1.59 1.65 1.77
True-up Steam Price ($/Mlb)(52) $0.33 0.33 0.34 0.38 0.40 0.41 0.44
Natural Gas Price ($/MMBtu)(53) $2.15 2.23 2.31 2.40 2.48 2.57 2.67
Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196
Energy Payment $11,971 12,281 10,909 13,168 13,648 13,307 14,489
Steam Revenue
Process Steam $387 397 407 418 428 410 421
Supplemental Steam $96 98 101 103 106 141 145
Chilling Steam $154 155 156 179 185 179 192
True-up Steam $13 13 13 15 16 15 16
-------- ------- ------- ------- ------- ------- -------
Total Operating Revenues $20,817 21,140 19,782 22,079 22,579 22,248 23,459
OPERATING EXPENSES ($000)
Natural Gas $8,662 8,972 9,293 9,632 9,971 9,657 10,002
Natural Gas Use/Sales Taxes (54) $681 705 730 757 784 759 786
Natural Gas Service Fees (55) $182 185 187 190 192 195 198
Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557 1,599
Major Maintenance (57) $183 3,278 193 198 2,262 209 215
Other Operating Fees/Water (56) $443 455 467 480 493 506 520
Audit, Legal & Finance (56) $762 12 13 13 13 14 14
Insurance (56) $157 161 166 170 175 179 184
Property & Other Taxes (56) $779 800 822 844 867 890 914
Capital Expenditures (56) $179 9 6 23 40 40 40
Wheeling (58) $963 963 963 963 963 961 961
-------- ------- ------- ------- ------- ------- -------
Total Operating Expenses $14,354 16,940 14,278 14,746 17,276 14,967 15,433
NET OPERATING REVENUES ($000) $6,463 4,200 5,504 7,333 5,303 7,281 8,026
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $6,463 4,200 5,504 7,333 5,303 7,281 8,026
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $6,463 4,200 5,504 7,333 5,303 7,281 8,026
<CAPTION>
Year Ending December 31 2006 2007 2008 2009
-------- ------- ------- -------
<S> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000
Curtailment Hours (41) 1,800 1,800 1,800 1,800
Availability Factor (42) 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 83.4% 83.4% 83.4% 83.4%
Energy Generated (MWh)(42) 365,100 365,100 365,100 365,100
Transmission Losses (MWh)(45) 3,700 3,700 3,700 3,700
Energy Delivered (MWh) 361,400 361,400 361,400 361,400
Process Steam Sales (Mlb)(46) 46,200 46,200 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 11,900 11,900 11,900 11,900
Chilling Steam Demand (Mlb)(46) 108,700 108,700 108,700 108,700
Heat Rate (Btu/kWh)(42) 9,272 9,272 9,272 9,272
Fuel Consumption (BBtu)(47) 3,410 3,410 3,410 3,410
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) 39.91 40.19 43.05 42.04
Process Steam Price ($/Mlb)(51) 9.35 9.63 9.85 10.11
Supplemental Steam Price ($/Mlb)(51) 12.47 12.84 13.14 13.48
Chilling Steam Price ($/Mlb)(52) 1.78 1.80 1.90 1.89
True-up Steam Price ($/Mlb)(52) 0.44 0.45 0.48 0.47
Natural Gas Price ($/MMBtu)(53) 2.77 2.89 2.97 3.08
Gas Transportation Cost ($/MMBtu)(53) 0.27 0.28 0.29 0.30
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment 7,000 7,000 7,000 7,000
Bonus Capacity Payment 1,196 1,196 1,196 1,196
Energy Payment 14,423 14,525 15,558 15,193
Steam Revenue
Process Steam 432 445 455 467
Supplemental Steam 148 153 156 160
Chilling Steam 193 195 207 205
True-up Steam 16 17 18 17
-------- ------- ------- -------
Total Operating Revenues 23,408 23,531 24,590 24,238
OPERATING EXPENSES ($000)
Natural Gas 10,356 10,796 11,106 11,499
Natural Gas Use/Sales Taxes (54) 814 848 873 904
Natural Gas Service Fees (55) 200 203 206 209
Operating & Maintenance (56) 1,642 1,687 1,732 1,779
Major Maintenance (57) 0 3,950 233 239
Other Operating Fees/Water (56) 534 548 563 578
Audit, Legal & Finance (56) 14 15 15 16
Insurance (56) 189 194 200 205
Property & Other Taxes (56) 939 964 990 1,017
Capital Expenditures (56) 40 40 40 40
Wheeling (58) 961 961 961 961
-------- ------- ------- -------
Total Operating Expenses 15,689 20,206 16,919 17,447
NET OPERATING REVENUES ($000) 7,719 3,325 7,671 6,791
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 7,719 3,325 7,671 6,791
DISTRIBUTIONS TO
CE GENERATION ($000)(59) 7,719 3,325 7,671 6,791
</TABLE>
B-59
<PAGE>
Exhibit B-3
CE Generation Gas Projects
Projected Operating Results
Sensitivity B: Increased Heat Rate
<TABLE>
<CAPTION>
Year Ending December 31 2010 2011 2012 2013 2014 2015 2016
-------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600 2,600 2,600
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8%
Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 323,100 323,100 323,100
Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200 3,200 3,200
Energy Delivered (MWh) 319,900 319,900 319,900 319,900 319,900 319,900 319,900
Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900 40,900 40,900
Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 16,300 16,300 16,300
Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200 96,200 96,200
Heat Rate (Btu/kWh)(42) 9,272 9,272 9,272 9,272 9,272 9,272 9,272
Fuel Consumption (BBtu)(47) 3,029 3,029 3,029 3,029 3,029 3,029 3,029
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) $43.48 43.48 43.26 45.70 45.89 47.57 47.79
Process Steam Price ($/Mlb)(51) $10.38 10.66 10.95 11.25 11.56 11.59 12.20
Supplemental Steam Price ($/Mlb)(51) $13.84 14.21 14.60 15.00 15.41 15.45 16.26
Chilling Steam Price ($/Mlb)(52) $1.95 1.96 1.97 2.06 2.09 2.16 2.18
True-up Steam Price ($/Mlb)(52) $0.49 0.49 0.49 0.52 0.52 0.54 0.55
Natural Gas Price ($/MMBtu)(53) $3.19 3.31 3.43 3.56 3.69 3.62 3.97
Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34 0.35 0.36
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196
Energy Payment $13,909 13,909 13,839 14,619 14,680 15,218 15,288
Steam Revenue
Process Steam $425 436 448 460 473 474 499
Supplemental Steam $226 232 238 244 251 252 265
Chilling Steam $187 189 190 199 201 207 210
True-up Steam $16 16 16 17 17 18 18
-------- ------- ------- ------- ------- ------- -------
Total Operating Revenues $22,959 22,978 22,927 23,735 23,818 24,365 24,476
OPERATING EXPENSES ($000)
Natural Gas $10,574 10,956 11,353 11,765 12,192 12,025 13,085
Natural Gas Use/Sales Taxes (54) $831 861 892 925 958 945 1,028
Natural Gas Service Fees (55) $211 214 217 220 223 226 229
Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033 2,087 2,144
Major Maintenance (57) $245 2,799 259 266 0 4,887 288
Other Operating Fees/Water (56) $594 610 626 643 661 678 697
Audit, Legal & Finance (56) $16 17 17 17 18 18 19
Insurance (56) $210 216 222 228 234 240 247
Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162 1,193 1,225
Capital Expenditures (56) $40 40 40 40 40 40 40
Wheeling (58) $957 957 957 957 957 957 957
-------- ------- ------- ------- ------- ------- -------
Total Operating Expenses $16,549 19,618 17,611 18,171 18,478 23,296 19,959
NET OPERATING REVENUES ($000) $6,410 3,360 5,316 5,564 5,340 1,069 4,517
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $6,410 3,360 5,316 5,564 5,340 1,069 4,517
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $6,410 3,360 5,316 5,564 5,340 1,069 4,517
<CAPTION>
Year Ending December 31 2017 2018
-------- -------
<S> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000
Curtailment Hours (41) 2,600 2,600
Availability Factor (42) 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0%
Capacity Factor (%)(44) 73.8% 73.8%
Energy Generated (MWh)(42) 323,100 323,100
Transmission Losses (MWh)(45) 3,200 3,200
Energy Delivered (MWh) 319,900 319,900
Process Steam Sales (Mlb)(46) 40,900 40,900
Supplemental Steam Sales (Mlb)(46) 16,300 16,300
Chilling Steam Demand (Mlb)(46) 96,200 96,200
Heat Rate (Btu/kWh)(42) 9,272 9,272
Fuel Consumption (BBtu)(47) 3,029 3,029
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92
Energy Rate ($/MWh)(50) 49.16 50.31
Process Steam Price ($/Mlb)(51) 12.53 12.86
Supplemental Steam Price ($/Mlb)(51) 16.71 17.15
Chilling Steam Price ($/Mlb)(52) 2.24 2.30
True-up Steam Price ($/Mlb)(52) 0.56 0.57
Natural Gas Price ($/MMBtu)(53) 4.11 4.25
Gas Transportation Cost ($/MMBtu)(53) 0.37 0.38
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment 7,000 7,000
Bonus Capacity Payment 1,196 1,196
Energy Payment 15,726 16,094
Steam Revenue
Process Steam 512 526
Supplemental Steam 272 280
Chilling Steam 216 221
True-up Steam 18 19
-------- -------
Total Operating Revenues 24,940 25,336
OPERATING EXPENSES ($000)
Natural Gas 13,555 14,012
Natural Gas Use/Sales Taxes (54) 1,065 1,101
Natural Gas Service Fees (55) 232 235
Operating & Maintenance (56) 2,202 2,261
Major Maintenance (57) 296 304
Other Operating Fees/Water (56) 716 735
Audit, Legal & Finance (56) 19 20
Insurance (56) 254 260
Property & Other Taxes (56) 1,258 1,292
Capital Expenditures (56) 40 40
Wheeling (58) 957 957
-------- -------
Total Operating Expenses 20,594 21,217
NET OPERATING REVENUES ($000) 4,346 4,119
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 4,346 4,119
DISTRIBUTIONS TO
CE GENERATION ($000)(59) 4,346 4,119
</TABLE>
B-60
<PAGE>
Footnotes to Exhibit B-3
The footnotes to Exhibit B-3 are the same as the footnotes for Exhibit
B-1, except:
5. Assumes fuel consumption is 5 percent higher than that assumed in the Base
Case.
25. Assumes fuel consumption is 5 percent higher than that assumed in the Base
Case.
42. Assumes fuel consumption is 5 percent higher than that assumed in the Base
Case.
B-61
<PAGE>
Exhibit B-4
CE Generation Gas Projects
Projected Operating Results
Sensitivity C: Reduced Availability
<TABLE>
<CAPTION>
Year Ending December 31, 1999(1) 2000 2001 2002 2003(1)
--------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
PRI PROJECT
PERFORMANCE
Contract Capacity (kW)(2) 200,000 200,000 200,000 200,000 200,000
Capacity Factor (%)(3) 75.0% 75.0% 75.0% 75.0% 75.0%
Energy Sales (MWh) 1,314,000 1,314,000 1,314,000 1,314,000 985,500
Steam Sales (Mlb)(4) 830,000 830,000 830,000 830,000 830,000
Heat Rate (Btu/kWh)(5) 9,500 9,500 9,500 9,500 9,500
Fuel Consumption (BBtu)(6) 12,483 12,483 12,483 12,483 9,362
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(8) $194.88 201.72 208.80 216.00 223.56
Energy Component
Tier 1 Energy Price ($/MWh)(9) $31.70 32.80 34.00 35.20 36.40
Tier 2 Energy Price ($/MWh)(9) $24.82 25.06 25.52 25.98 26.79
Steam Price ($/Mlb)(10) $2.85 2.90 2.96 3.02 3.08
Natural Gas Price ($/MMBtu)(11) $2.895 2.972 3.054 3.138 3.231
Gas Transportation Cost ($/MMBtu)(12) $0.102 0.102 0.102 0.102 0.102
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Capacity $38,976 40,344 41,760 43,200 33,534
Energy $39,168 40,303 41,612 42,922 33,268
Steam Revenue $2,363 2,410 2,459 2,508 2,558
Interest Income (13) $380 385 392 396 289
--------- --------- --------- --------- -------
Total Operating Revenues $80,887 83,442 86,223 89,026 69,649
OPERATING EXPENSES ($000)(14)
Fuel Expense $36,141 37,095 38,120 39,174 30,248
Fuel Transportation Expense $1,275 1,275 1,275 1,275 956
Auxiliary Fuel $48 30 30 30 23
Operator's Fee $1,171 1,204 1,237 1,272 981
Plant Operations $3,131 3,216 3,302 3,392 2,612
Major Maintenance $3,337 3,427 3,520 3,615 2,784
Other O&M $904 1,014 1,087 1,142 882
Insurance $347 380 405 412 326
Administrative Fees $886 144 148 152 117
Property Taxes $1,387 1,387 1,387 1,387 1,040
Capital Expenditures $1,409 1,002 715 516 351
--------- --------- --------- --------- -------
Total Operating Expenses $50,036 50,174 51,226 52,367 40,320
NET OPERATING REVENUES ($000) $30,851 33,268 34,997 36,659 29,329
SENIOR DEBT SERVICE (15)
Balance Outstanding (Jan 1) $90,529 76,261 60,174 42,055 21,743
Principal $14,268 16,088 18,119 20,313 21,743
Interest $8,044 8,561 6,940 4,989 1,459
--------- --------- --------- --------- -------
Total Senior Debt Service $21,561 23,381 23,796 23,975 23,188
Payments into Debt Reserve Fund $85 128 67 (183) (6,014)
Debt Service Reserve Fund Balance (16) $6,002 6,130 6,196 6,014 0
Major Maintenance Reserve Fund Balance (17) $1,000 1,000 1,000 1,000 1,000
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $9,205 9,759 11,134 12,867 12,155
DISTRIBUTIONS TO
CE GENERATION ($000)(18) $9,205 9,759 11,134 12,867 12,155
</TABLE>
B-62
<PAGE>
Exhibit B-4
CE Generation Gas Projects
Projected Operating Results
Sensitivity C: Reduced Availability
<TABLE>
<CAPTION>
Year Ending December 31, 1999(1) 2000 2001 2002 2003 2004
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SARANAC PROJECT
PERFORMANCE
Net Plant Capacity (kW)(19) 240,000 240,000 240,000 240,000 240,000 240,000
Availability Factor (%)(20) 89.00% 89.00% 89.00% 89.00% 89.00% 89.00%
Capacity Factor (%)(21) 80.99% 80.99% 80.99% 80.99% 80.99% 80.99%
Energy Sales (MWh)(22) 1,702,700 1,702,700 1,702,700 1,702,700 1,702,700 1,702,700
Available Generation (MWh)(23) 74,800 74,800 74,800 74,800 74,800 74,800
Steam Sales (Mlb)(24) 713,000 713,000 713,000 713,000 713,000 713,000
Heat Rate (Btu/kWh)(25) 8,550 8,550 8,550 8,550 8,550 8,550
Fuel Consumption (BBtu)(26) 14,648 14,648 14,648 14,648 14,648 14,648
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(27) $72.82 76.22 79.30 82.39 85.47 89.48
Energy Price ($/MWh)(28) $68.61 71.58 74.70 78.00 81.55 85.05
Steam Price ($/Mlb)(29) $3.16 3.29 3.42 3.56 3.70 3.85
Natural Gas Price ($/MMBtu)(30) $2.760 2.906 3.057 3.215 3.378 3.548
Gas Transportation Cost ($/MMBtu)(31) $1.000 1.001 1.002 1.002 1.003 1.003
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Capacity $17,477 18,292 19,032 19,773 20,513 21,476
Energy $121,952 127,232 132,771 138,644 144,959 151,172
Steam Revenue $2,256 2,346 2,440 2,538 2,639 2,745
Interest Income (32) $385 385 385 385 385 385
--------- --------- --------- --------- --------- ---------
Total Operating Revenues $142,070 148,255 154,628 161,340 168,496 175,778
OPERATING EXPENSES ($000)(33)
Fuel Expense $40,433 42,564 44,780 47,086 49,484 51,977
Fuel Transportation Expense $14,652 14,662 14,671 14,680 14,688 14,698
Operation & Maintenance $2,376 2,488 2,605 2,727 2,855 2,989
Operator's Fee $2,100 2,157 2,215 2,275 2,336 2,399
Repair & Maintenance $5,930 6,090 6,255 6,424 6,597 6,775
Water & Chemicals $386 396 407 418 429 441
Consumables $476 489 502 516 530 544
State Excise Tax on Steam Revenues (34) $79 82 85 89 92 96
Insurance $767 788 809 831 853 876
Administrative & General $975 1,001 1,028 1,056 1,084 1,114
Property Taxes $3,016 3,016 3,016 3,016 3,016 3,016
Wheeling Charges (35) $5,424 5,695 5,980 6,279 6,593 6,923
Letter-of-Credit Fees $275 282 289 297 304 312
--------- --------- --------- --------- --------- ---------
Total Operating Expenses $76,889 79,710 82,642 85,694 88,861 92,160
NET OPERATING REVENUES ($000) $65,181 68,545 71,986 75,646 79,635 83,618
SENIOR DEBT SERVICE (36)
Balance Outstanding (Jan 1) $189,282 181,097 170,047 156,951 141,399 122,573
Principal $8,185 11,050 13,096 15,552 18,826 22,100
Interest $15,242 14,484 13,516 12,369 10,996 9,354
--------- --------- --------- --------- --------- ---------
Total Senior Debt Service $23,427 25,534 26,612 27,921 29,822 31,454
Payments into Base Reserve Fund $0 0 0 0 0 0
Base Reserve Fund Balance (37) $7,000 7,000 7,000 7,000 7,000 7,000
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $65,181 68,545 71,986 75,646 79,635 83,618
DISTRIBUTIONS TO OTHER PARTNERS (38) $48,199 49,581 46,507 50,724 53,370 56,045
DISTRIBUTIONS TO
CE GENERATION ($000)(38) $16,981 18,964 25,479 24,923 26,265 27,573
<CAPTION>
Year Ending December 31, 2005 2006 2007 2008 2009(1)
--------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
SARANAC PROJECT
PERFORMANCE
Net Plant Capacity (kW)(19) 240,000 240,000 240,000 240,000 240,000
Availability Factor (%)(20) 89.00% 89.00% 89.00% 89.00% 89.00%
Capacity Factor (%)(21) 80.99% 80.99% 80.99% 80.99% 80.99%
Energy Sales (MWh)(22) 1,702,700 1,702,700 1,702,700 1,702,700 851,400
Available Generation (MWh)(23) 74,800 74,800 74,800 74,800 37,400
Steam Sales (Mlb)(24) 713,000 713,000 713,000 713,000 356,600
Heat Rate (Btu/kWh)(25) 8,550 8,550 8,550 8,550 8,550
Fuel Consumption (BBtu)(26) 14,648 14,648 14,648 14,648 7,324
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(27) 92.57 96.27 100.90 104.60 109.24
Energy Price ($/MWh)(28) 88.89 92.78 96.83 101.14 105.59
Steam Price ($/Mlb)(29) 4.00 4.16 4.33 4.50 4.68
Natural Gas Price ($/MMBtu)(30) 3.725 3.910 4.101 4.300 4.472
Gas Transportation Cost ($/MMBtu)(31) 1.004 1.005 1.005 1.006 0.994
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Capacity 22,217 23,105 24,216 25,105 13,109
Energy 157,995 164,925 172,110 179,777 93,849
Steam Revenue 2,855 2,969 3,088 3,211 1,670
Interest Income (32) 385 385 385 385 0
--------- --------- --------- --------- -------
Total Operating Revenues 183,452 191,384 199,799 208,478 108,628
OPERATING EXPENSES ($000)(33)
Fuel Expense 54,569 57,266 60,071 62,988 32,751
Fuel Transportation Expense 14,707 14,717 14,726 14,735 7,282
Operation & Maintenance 3,130 3,277 3,431 3,592 1,881
Operator's Fee 2,464 2,531 2,599 2,669 1,371
Repair & Maintenance 6,958 7,146 7,339 7,537 3,870
Water & Chemicals 453 465 478 491 252
Consumables 559 574 589 605 311
State Excise Tax on Steam Revenues (34) 100 104 108 112 58
Insurance 900 924 949 975 501
Administrative & General 1,144 1,175 1,206 1,239 636
Property Taxes 3,016 3,016 3,016 3,016 1,508
Wheeling Charges (35) 7,269 7,632 8,014 8,415 4,418
Letter-of-Credit Fees 321 330 339 179 0
--------- --------- --------- --------- -------
Total Operating Expenses 95,590 99,157 102,865 106,553 54,839
NET OPERATING REVENUES ($000) 87,862 92,227 96,934 101,925 53,789
SENIOR DEBT SERVICE (36)
Balance Outstanding (Jan 1) 100,473 74,281 43,177 8,799 0
Principal 26,193 31,104 34,378 8,799 0
Interest 7,420 5,125 2,479 180 0
--------- --------- --------- --------- -------
Total Senior Debt Service 33,613 36,229 36,857 8,979 0
Payments into Base Reserve Fund 0 0 0 (7,000) 0
Base Reserve Fund Balance (37) 7,000 7,000 7,000 0 0
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 87,862 92,227 96,934 108,925 53,789
DISTRIBUTIONS TO OTHER PARTNERS (38) 58,500 62,362 68,496 72,552 17,205
DISTRIBUTIONS TO
CE GENERATION ($000)(38) 29,361 29,864 28,438 36,373 36,583
</TABLE>
B-63
<PAGE>
Exhibit B-4
CE Generation Gas Projects
Projected Operating Results
Sensitivity C: Reduced Availability
<TABLE>
<CAPTION>
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004 2005
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800
Availability Factor (42) 91.0% 91.0% 91.0% 91.0% 91.0% 91.0% 91.0%
On-Peak Availability Factor (43) 87.0% 87.0% 87.0% 87.0% 87.0% 87.0% 87.0%
Capacity Factor (%)(44) 84.7% 84.7% 84.7% 84.7% 84.7% 79.0% 79.0%
Energy Generated (MWh)(42) 370,900 370,900 370,900 370,900 370,900 346,100 346,100
Transmission Losses (MWh)(45) 3,700 3,700 3,700 3,700 3,700 3,500 3,500
Energy Delivered (MWh) 367,200 367,200 367,200 367,200 367,200 342,600 342,600
Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,300 11,300
Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 3,294 3,294 3,294 3,294 3,294 3,079 3,079
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $155.01 155.01 155.01 155.01 155.01 155.01 155.01
Energy Rate ($/MWh)(50) $30.90 31.70 28.16 33.99 35.23 36.82 40.09
Process Steam Price ($/Mlb)(51) $7.81 8.01 8.22 8.44 8.65 8.88 9.11
Supplemental Steam Price ($/Mlb)(51) $10.42 10.68 10.96 11.25 11.54 11.84 12.15
Chilling Steam Price ($/Mlb)(52) $1.32 1.33 1.34 1.54 1.59 1.65 1.77
True-up Steam Price ($/Mlb)(52) $0.33 0.33 0.34 0.38 0.40 0.41 0.44
Natural Gas Price ($/MMBtu)(53) $2.15 2.23 2.31 2.40 2.48 2.57 2.67
Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $751 751 751 751 751 751 751
Energy Payment $11,346 11,640 10,340 12,481 12,936 12,615 13,735
Steam Revenue
Process Steam $387 397 407 418 428 410 421
Supplemental Steam $96 98 101 103 106 134 137
Chilling Steam $154 155 156 179 185 179 192
True-up Steam $14 15 15 17 17 17 18
------- ------- ------- ------- ------- ------- -------
Total Operating Revenues $19,748 20,056 18,770 20,949 21,423 21,106 22,254
OPERATING EXPENSES ($000)
Natural Gas $7,823 8,103 8,393 8,699 9,006 8,720 9,031
Natural Gas Use/Sales Taxes (54) $615 637 660 684 708 685 710
Natural Gas Service Fees (55) $182 185 187 190 192 195 198
Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557 1,599
Major Maintenance (57) $0 3,278 193 0 204 2,322 215
Other Operating Fees/Water (56) $443 455 467 480 493 506 520
Audit, Legal & Finance (56) $762 12 13 13 13 14 14
Insurance (56) $157 161 166 170 175 179 184
Property & Other Taxes (56) $779 800 822 844 867 890 914
Capital Expenditures (56) $179 9 6 23 40 40 40
Wheeling (58) $961 961 961 961 961 959 959
------- ------- ------- ------- ------- ------- -------
Total Operating Expenses $13,264 16,001 13,306 13,540 14,175 16,067 14,384
NET OPERATING REVENUES ($000) $6,484 4,055 5,464 7,409 7,248 5,039 7,870
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $6,484 4,055 5,464 7,409 7,248 5,039 7,870
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $6,484 4,055 5,464 7,409 7,248 5,039 7,870
<CAPTION>
Year Ending December 31 2006 2007 2008 2009
------- ------- ------- -------
<S> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000
Curtailment Hours (41) 1,800 1,800 1,800 1,800
Availability Factor (42) 91.0% 91.0% 91.0% 91.0%
On-Peak Availability Factor (43) 87.0% 87.0% 87.0% 87.0%
Capacity Factor (%)(44) 79.0% 79.0% 79.0% 79.0%
Energy Generated (MWh)(42) 346,100 346,100 346,100 346,100
Transmission Losses (MWh)(45) 3,500 3,500 3,500 3,500
Energy Delivered (MWh) 342,600 342,600 342,600 342,600
Process Steam Sales (Mlb)(46) 46,200 46,200 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 11,300 11,300 11,300 11,300
Chilling Steam Demand (Mlb)(46) 108,700 108,700 108,700 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 3,079 3,079 3,079 3,079
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) 155.01 155.01 155.01 155.01
Energy Rate ($/MWh)(50) 39.91 40.19 43.05 42.04
Process Steam Price ($/Mlb)(51) 9.35 9.63 9.85 10.11
Supplemental Steam Price ($/Mlb)(51) 12.47 12.84 13.14 13.48
Chilling Steam Price ($/Mlb)(52) 1.78 1.80 1.90 1.89
True-up Steam Price ($/Mlb)(52) 0.44 0.45 0.48 0.47
Natural Gas Price ($/MMBtu)(53) 2.77 2.89 2.97 3.08
Gas Transportation Cost ($/MMBtu)(53) 0.27 0.28 0.29 0.30
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment 7,000 7,000 7,000 7,000
Bonus Capacity Payment 751 751 751 751
Energy Payment 13,673 13,769 14,749 14,403
Steam Revenue
Process Steam 432 445 455 467
Supplemental Steam 141 145 148 152
Chilling Steam 193 195 207 205
True-up Steam 18 18 19 19
------- ------- ------- -------
Total Operating Revenues 22,208 22,323 23,329 22,997
OPERATING EXPENSES ($000)
Natural Gas 9,351 9,748 10,028 10,382
Natural Gas Use/Sales Taxes (54) 735 766 788 816
Natural Gas Service Fees (55) 200 203 206 209
Operating & Maintenance (56) 1,642 1,687 1,732 1,779
Major Maintenance (57) 221 3,950 233 239
Other Operating Fees/Water (56) 534 548 563 578
Audit, Legal & Finance (56) 14 15 15 16
Insurance (56) 189 194 200 205
Property & Other Taxes (56) 939 964 990 1,017
Capital Expenditures (56) 40 40 40 40
Wheeling (58) 959 959 959 959
------- ------- ------- -------
Total Operating Expenses 14,824 19,074 15,754 16,240
NET OPERATING REVENUES ($000) 7,384 3,249 7,575 6,757
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 7,384 3,249 7,575 6,757
DISTRIBUTIONS TO
CE GENERATION ($000)(59) 7,384 3,249 7,575 6,757
</TABLE>
B-64
<PAGE>
Exhibit B-4
CE Generation Gas Projects
Projected Operating Results
Sensitivity C: Reduced Availability
<TABLE>
<CAPTION>
Year Ending December 31 2010 2011 2012 2013 2014
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600
Availability Factor (42) 91.0% 91.0% 91.0% 91.0% 91.0%
On-Peak Availability Factor (43) 87.0% 87.0% 87.0% 87.0% 87.0%
Capacity Factor (%)(44) 69.9% 69.9% 69.9% 69.9% 69.9%
Energy Generated (MWh)(42) 306,300 306,300 306,300 306,300 306,300
Transmission Losses (MWh)(45) 3,100 3,100 3,100 3,100 3,100
Energy Delivered (MWh) 303,200 303,200 303,200 303,200 303,200
Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900
Supplemental Steam Sales (Mlb)(46) 14,700 14,700 14,700 14,700 14,700
Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 2,735 2,735 2,735 2,735 2,735
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $155.01 155.01 155.01 155.01 155.01
Energy Rate ($/MWh)(50) $43.48 43.48 43.26 45.70 45.89
Process Steam Price ($/Mlb)(51) $10.38 10.66 10.95 11.25 11.56
Supplemental Steam Price ($/Mlb)(51) $13.84 14.21 14.60 15.00 15.41
Chilling Steam Price ($/Mlb)(52) $1.95 1.96 1.97 2.06 2.09
True-up Steam Price ($/Mlb)(52) $0.49 0.49 0.49 0.52 0.52
Natural Gas Price ($/MMBtu)(53) $3.19 3.31 3.43 3.56 3.69
Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $751 751 751 751 751
Energy Payment $13,183 13,183 13,116 13,856 13,914
Steam Revenue
Process Steam $425 436 448 460 473
Supplemental Steam $203 209 215 220 226
Chilling Steam $187 189 190 199 201
True-up Steam $18 18 18 19 19
------- ------- ------- ------- -------
Total Operating Revenues $21,767 21,786 21,738 22,505 22,584
OPERATING EXPENSES ($000)
Natural Gas $9,548 9,892 10,251 10,623 11,008
Natural Gas Use/Sales Taxes (54) $750 777 806 835 865
Natural Gas Service Fees (55) $211 214 217 220 223
Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033
Major Maintenance (57) $245 2,547 259 266 273
Other Operating Fees/Water (56) $594 610 626 643 661
Audit, Legal & Finance (56) $16 17 17 17 18
Insurance (56) $210 216 222 228 234
Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162
Capital Expenditures (56) $40 40 40 40 40
Wheeling (58) $956 956 956 956 956
------- ------- ------- ------- -------
Total Operating Expenses $15,441 18,217 16,422 16,938 17,473
NET OPERATING REVENUES ($000) $6,326 3,569 5,316 5,567 5,111
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $6,326 3,569 5,316 5,567 5,111
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $6,326 3,569 5,316 5,567 5,111
<CAPTION>
Year Ending December 31 2015 2016 2017 2018
------- ------- ------- -------
<S> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000
Curtailment Hours (41) 2,600 2,600 2,600 2,600
Availability Factor (42) 91.0% 91.0% 91.0% 91.0%
On-Peak Availability Factor (43) 87.0% 87.0% 87.0% 87.0%
Capacity Factor (%)(44) 69.9% 69.9% 69.9% 69.9%
Energy Generated (MWh)(42) 306,300 306,300 306,300 306,300
Transmission Losses (MWh)(45) 3,100 3,100 3,100 3,100
Energy Delivered (MWh) 303,200 303,200 303,200 303,200
Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900
Supplemental Steam Sales (Mlb)(46) 14,700 14,700 14,700 14,700
Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 2,735 2,735 2,735 2,735
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) 155.01 155.01 155.01 155.01
Energy Rate ($/MWh)(50) 47.57 47.79 49.16 50.31
Process Steam Price ($/Mlb)(51) 11.59 12.20 12.53 12.86
Supplemental Steam Price ($/Mlb)(51) 15.45 16.26 16.71 17.15
Chilling Steam Price ($/Mlb)(52) 2.16 2.18 2.24 2.30
True-up Steam Price ($/Mlb)(52) 0.54 0.55 0.56 0.57
Natural Gas Price ($/MMBtu)(53) 3.62 3.97 4.11 4.25
Gas Transportation Cost ($/MMBtu)(53) 0.35 0.36 0.37 0.38
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment 7,000 7,000 7,000 7,000
Bonus Capacity Payment 751 751 751 751
Energy Payment 14,423 14,490 14,905 15,254
Steam Revenue
Process Steam 474 499 512 526
Supplemental Steam 227 239 246 252
Chilling Steam 207 210 216 221
True-up Steam 19 20 20 21
------- ------- ------- -------
Total Operating Revenues 23,101 23,209 23,650 24,025
OPERATING EXPENSES ($000)
Natural Gas 10,858 11,815 12,239 12,652
Natural Gas Use/Sales Taxes (54) 853 929 962 994
Natural Gas Service Fees (55) 226 229 232 235
Operating & Maintenance (56) 2,087 2,144 2,202 2,261
Major Maintenance (57) 0 5,020 296 304
Other Operating Fees/Water (56) 678 697 716 735
Audit, Legal & Finance (56) 18 19 19 20
Insurance (56) 240 247 254 260
Property & Other Taxes (56) 1,193 1,225 1,258 1,292
Capital Expenditures (56) 40 40 40 40
Wheeling (58) 956 956 956 956
------- ------- ------- -------
Total Operating Expenses 17,149 23,321 19,174 19,749
NET OPERATING REVENUES ($000) 5,952 (112) 4,476 4,276
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 5,952 0 4,476 4,276
DISTRIBUTIONS TO
CE GENERATION ($000)(59) 5,952 0 4,476 4,276
</TABLE>
B-65
<PAGE>
Footnotes to Exhibit B-4
The footnotes to Exhibit B-4 are the same as the footnotes for Exhibit
B-1, except:
3. Assumes availability of the Natural Gas Projects is 5 percent less than
that assumed in the Base Case.
20. Assumes availability of the Natural Gas Projects is 5 percent less than
that assumed in the Base Case.
42. Assumes availability of the Natural Gas Projects is 5 percent less than
that assumed in the Base Case.
B-66
<PAGE>
Exhibit B-5
CE Generation Gas Projects
Projected Operating Results
Sensitivity D: Yuma Low Gas 1
<TABLE>
<CAPTION>
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004 2005
------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4% 83.4%
Energy Generated (Mwh)(42) 391,300 391,300 391,300 391,300 391,300 365,100 365,100
Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700 3,700
Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400 361,400
Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900 11,900
Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 3,474 3,474 3,474 3,474 3,474 3,248 3,248
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 l40.00 140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 l63.92 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) $30.90 31.70 27.86 30.57 32.73 34.88 38.70
Process Steam Price ($/Mlb)(51) $7.81 7.90 7.99 8.09 8.30 8.51 8.73
Supplemental Steam Price ($/Mlb)(51) $10.42 10.53 10.65 10.79 11.07 11.35 11.64
Chilling Steam Price ($/Mlb)(52) $1.32 1.32 1.33 1.43 1.51 1.59 1.72
True-up Steam Price ($/Mlb)(52) $0.33 0.33 0.33 0.36 0.38 0.40 0.43
Natural Gas Price ($/MMBtu)(53) $2.15 2.15 2.15 2.16 2.24 2.32 2.40
Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196
Energy Payment $11,971 12,281 10,793 11,843 12,678 12,606 13.986
Steam Revenue
Process Steam $387 391 396 401 411 393 403
Supplemental Steam $96 97 98 99 102 135 139
Chilling Steam $154 154 155 166 176 173 187
True-up Steam $13 13 13 14 15 15 16
------- ------ ------ ------ ------ ------ ------
Total Operating Revenues $20,817 21,132 19,651 20,719 21,578 21,518 22,927
OPERATING EXPENSES ($000)
Natural Gas $8,251 8,272 8,292 8,341 8,636 8,364 8,659
Natural Gas Use/Sales Taxes (54) $648 650 652 656 679 657 681
Natural Gas Service Fees (55) $182 185 187 190 192 195 198
Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557 1,599
Major Maintenance (57) $183 3,278 193 198 2,262 209 215
Other Operating Fees/Water (56) $443 455 467 480 493 506 520
Audit, Legal & Finance (56) $762 12 13 13 13 14 14
Insurance (56) $157 161 166 170 175 179 184
Property & Other Taxes (56) $779 800 822 844 867 890 914
Capital Expenditures (56) $179 9 6 23 40 40 40
Wheeling (58) $963 963 963 963 963 961 961
------- ------ ------ ------ ------ ------ ------
Total Operating Expenses $13,910 16,185 13,199 13,354 15,836 13,572 13,985
NET OPERATING REVENUES ($000) $6,907 4,947 6,452 7,365 5,742 7,946 8,942
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $6,907 4,947 6,452 7,365 5,742 7,946 8,942
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $6,907 4,947 6,452 7,365 5,742 7,946 8,942
<CAPTION>
Year Ending December 31 2006 2007 2008 2009
---- ---- ---- ----
<S> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000
Curtailment Hours (41) 1,800 1,800 1,800 1,800
Availability Factor (42) 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 83.4% 83.4% 83.4% 83.4%
Energy Generated (Mwh)(42) 365,100 365,100 365,100 365,100
Transmission Losses (MWh)(45) 3,700 3,700 3,700 3,700
Energy Delivered (MWh) 361,400 361,400 361,400 361,400
Process Swam Sales (Mlb)(46) 46,200 46,200 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 11,900 11,900 11,900 11,900
Chilling Steam Demand (Mlb)(46) 108,700 108,700 108,700 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 3,248 3,248 3,248 3,248
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) 39.01 39.32 39.63 39.94
Process Steam Price ($/Mlb)(51) 8.96 9.22 9.43 9.67
Supplemental Steam Price ($/Mlb)(51) 11.95 12.29 12.57 12.90
Chilling Steam Price ($/Mlb)(52) 1.75 1.77 1.79 1.82
True-up Steam Price ($/Mlb)(52) 0.44 0.44 0.45 0.45
Natural Gas Price ($/MMBtu)(53) 2.49 2.60 2.67 2.77
Gas Transportation Cost ($/MMBtu)(53) 0.27 0.28 0.29 0.30
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment 7,000 7,000 7,000 7,000
Bonus Capacity Payment 1,196 1,196 1,196 1,196
Energy Payment 14,098 14,210 14,322 14,434
Steam Revenue
Process Steam 414 426 436 447
Supplemental Steam 142 146 150 153
Chilling Steam 190 192 195 198
True-up Steam 16 16 17 17
------ ------ ------ ------
Total Operating Revenues 23,056 23,186 23,316 23,445
OPERATING EXPENSES ($000)
Natural Gas 8,968 9,344 9,614 9,952
Natural Gas Use/Sales Taxes (54) 705 734 756 782
Natural Gas Service Fees (55) 200 203 206 209
Operating & Maintenance (56) 1,642 1,687 1,732 1,779
Major Maintenance (57) 0 3,950 233 239
Other Operating Fees/Water (56) 534 548 563 578
Audit, Legal & Finance (56) 14 15 15 16
Insurance (56) 189 194 200 205
Property & Other Taxes (56) 939 964 990 1,017
Capital Expenditures (56) 40 40 40 40
Wheeling (58) 961 961 961 961
------ ------ ------ ------
Total Operating Expenses 14,192 18,640 15,310 15,778
NET OPERATING REVENUES ($000) 8,864 4,546 8,006 7,667
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 8,864 4,546 8,006 7,667
DISTRIBUTIONS TO
CE GENERATION ($000)(59) 8,864 4,546 8,006 7,667
</TABLE>
B-67
<PAGE>
Exhibit B-5
CE Generation Gas Projects
Projected Operating Results
Sensitivity D: Yuma Low Gas 1
<TABLE>
<CAPTION>
Year Ending December 31 2010 2011 2012 2013 2014
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8%
Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 323,100
Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200
Energy Delivered (MWh) 319,900 319,900 319,900 319,900 319,900
Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900
Supplemental Steam Sales (Mlb)(46) 16,300 l6,300 16,300 16,300 16,300
Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 2,886
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92
Energy Rate ($MWh)(50) $40.25 40.91 41.57 42.13 42.89
Process Steam Price ($/Mlb)(51) $9.93 10.19 10.46 10.74 11.03
Supplemental Steam Price ($/Mlb)(51) $13.23 13.58 13.95 14.32 14.71
Chilling Steam Price ($/Mlb)(52) $1.84 1.88 1.92 1.95 1.99
True-up Steam Price ($/Mlb)(52) $0.46 0.47 0.48 0.49 0.50
Natural Gas Price ($/MMBtu)(53) $2.87 2.98 3.09 3.20 3.32
Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196
Energy Payment $12,876 13,087 13,298 13,509 13,721
Steam Revenue
Process Steam $406 417 428 439 451
Supp1ement Steam $216 22l 227 233 240
Chilling Steam $177 181 184 188 192
True-up Steam $15 15 16 16 16
------- ------ ------ ------ ------
Total Operating Revenues $21,886 22,117 22,349 22,581 22,816
OPERATING EXPENSES ($000)
Natural Gas $9,154 9,483 9,827 10,182 10,55l
Natural Gas Use/Sales Taxes (54) $719 745 772 800 829
Natural Gas Service Fees (55) $211 214 217 220 223
Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033
Major Maintenance (57) $245 2,799 259 266 0
Other Operating Fees/Water (56) $594 610 626 643 661
Audit, Legal & Finance (56) $16 17 17 17 18
Insurance (56) $210 216 222 228 234
Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162
Capital Expenditures (56) $40 40 40 40 40
Wheeling (58) $957 957 957 957 957
------- ------ ------ ------ ------
Total Operating Expenses $15,017 18,029 15,965 16,463 16,708
NET OPERATING REVENUES ($000) $6,869 4,088 6,384 6,118 6,108
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $6,869 4,088 6,384 6,118 6,108
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $6,869 4,088 6,384 6,118 6,108
<CAPTION>
Year Ending December 31 2015 2016 2017 2018
---- ---- ---- ----
<S> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000
Curtailment Hours (41) 2,600 2,600 2,600 2,600
Availability Factor (42) 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8%
Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100
Transmission Losses (MWhx45) 3,200 3,200 3,200 3,200
Energy Delivered (MWh) 319,900 319,900 319,900 319,900
Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900
Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300
Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00
Bonus Capacity Price($/kW-yr)(49) 163.92 163.92 163.92 163.92
Energy Rate ($MWh)(50) 43.91 44.92 45.94 46.95
Process Steam Price ($/Mlb)(51) 11.07 11.63 11.94 12.26
Supplemental Steam Price ($/Mlb)(51) 14.76 15.51 15.93 16.34
Chilling Steam Price ($/Mlb)(52) 2.04 2.09 2.14 2.19
True-up Steam Price ($/Mlb)(52) 0.51 0.52 0.54 0.55
Natural Gas Price ($/MMBtu)(53) 3.26 3.57 3.70 3.83
Gas Transportation Cost ($/MMBtu)(53) 0.35 0.36 0.37 0.38
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment 7,000 7,000 7,000 7,000
Bonus Capacity Payment 1,196 1,196 1,196 1,196
Energy Payment 14,045 14,370 14,695 15,019
Steam Revenue
Process Steam 453 476 489 501
Supp1ement Steam 241 253 260 266
Chilling Steam 196 201 206 211
True-up Steam 17 17 18 18
------ ------ ------ ------
Total Operating Revenues 23,148 23,513 23,864 24,211
OPERATING EXPENSES ($000)
Natural Gas 10,413 11325 11,729 12,124
Natural Gas Use/Sales Taxes (54) 818 890 922 953
Natural Gas Service Fees (55) 226 229 232 235
Operating & Maintenance (56) 2,087 2,144 2,202 2,261
Major Maintenance (57) 4,887 288 296 304
Other Operating Fees/Water (56) 678 697 716 735
Audit, Legal & Finance (56) 18 19 19 20
Insurance (56) 240 247 254 260
Property & Other Taxes (56) 1,193 1,225 1,258 1,292
Capital Expenditures (56) 40 40 40 40
Wheeling (58) 957 957 957 957
------ ------ ------ ------
Total Operating Expenses 21,557 18,061 18,625 19,181
NET OPERATING REVENUES ($000) 1,591 5,452 5,239 5,030
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 1,591 5,452 5,239 5,030
DISTRIBUTIONS TO
CE GENERATION ($000)(59) 1,591 5,452 5,239 5,030
</TABLE>
B-68
<PAGE>
Footnotes to Exhibit B-5
The footnotes to Exhibit B-5 are the same as the footnotes for Exhibit
B-1, except:
50. Assumes prices consistent with the Low Gas 1 case as described in the
Henwood Report.
53. Assumes prices consistent with the Low Gas 1 case as described in the
Henwood Report.
B-69
<PAGE>
Exhibit B-6
CE Generation Gas Projects
Projected Operating Results
Sensitivity E: Yuma Low Gas 2
<TABLE>
<CAPTION>
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004 2005
------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4% 83.4%
Energy Generated (Mwh)(42) 391,300 391,300 391,300 391,300 391,300 365,100 365,100
Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700 3,700
Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400 361,400
Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900 11,900
Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 3,474 3,474 3,474 3,474 3,474 3,248 3,248
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) $30.90 31.70 26.47 28.75 30.42 32.09 35.58
Process Steam Price ($/Mlb)(51) $7.81 7.92 8.02 8.13 8.23 8.33 8.54
Supplemental Steam Price ($/Mlb)(51) $10.42 10.56 10.70 10.84 10.97 11.11 11.39
Chilling Steam Price ($/Mlb)(52) $1.32 1.30 1.29 1.37 1.44 1.50 1.63
True-up Steam Price ($/Mlb)(52) $0.33 0.32 0.32 0.34 0.36 0.38 0.41
Natural Gas Price ($/MMBtu)(53) $2.15 2.16 2.17 2.18 2.19 2.19 2.27
Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196
Energy Payment $11,971 12,281 10,254 11,137 11,784 11,596 12,859
Steam Revenue
Process Steam $387 392 397 402 407 385 395
Supplemental Steam $96 97 98 100 101 132 136
Chilling Steam $154 151 150 160 167 163 177
True-up Steam $13 13 13 14 14 14 15
------- ------ ------ ------ ------ ------ ------
Total Operating Revenues $20,817 21,130 19,108 20,009 20,669 20,486 21,778
OPERATING EXPENSES ($000)
Natural Gas $8,251 8,313 8,369 8,424 8,463 7,945 8,227
Natural Gas Use/Sales Taxes (54) $648 653 658 662 665 624 647
Natural Gas Service Fees (55) $182 185 187 190 192 195 198
Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557 1,599
Major Maintenance (57) $183 3,278 193 198 2,262 209 215
Other Operating Fees/Water (56) $443 455 467 480 493 506 520
Audit, Legal & Finance (56) $762 12 13 13 13 14 14
Insurance (56) $157 161 166 170 175 179 184
Property & Other Taxes (56) $779 800 822 844 867 890 914
Capital Expenditures (56) $179 9 6 23 40 40 40
Wheeling (58) $963 963 963 963 963 961 961
------- ------ ------ ------ ------ ------ ------
Total Operating Expenses $13,910 16,229 13,282 13,443 15,649 13,120 13,519
NET OPERATING REVENUES ($000) $6,907 4,901 5,826 6,566 5,020 7,366 8,259
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $6,907 4,901 5,826 6,566 5,020 7,366 8,259
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $6,907 4,901 5,826 6,566 5,020 7,366 8,259
<CAPTION>
Year Ending December 31 2006 2007 2008 2009
---- ---- ---- ----
<S> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000
Curtailment Hours (41) 1,800 1,800 1,800 1,800
Availability Factor (42) 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 83.4% 83.4% 83.4% 83.4%
Energy Generated(Mwh)(42) 365,100 365,100 365,100 365,100
Transmission Losses (MWh(45) 3,700 3,700 3,700 3,700
Energy Delivered (MWh) 361,400 361,400 361,400 361,400
Process Steam Sales (Mlb)(46) 46,200 46,200 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 11,900 11,900 11,900 11,900
Chilling Steam Demand (Mlb)(46) 108,700 108,700 108,700 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 3,248 3,248 3,248 3,248
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) 36.16 36.74 37.31 37.89
Process Steam Price ($/Mlb)(51) 8.76 9.01 9.22 9.45
Supplemental Steam Price ($/Mlb)(51) 11.68 12.02 12.29 12.61
Chilling Steam Price ($/Mlb)(52) 1.66 1.69 1.72 1.75
True-up Steam Price ($/Mlb)(52) 0.41 0.42 0.43 0.44
Natural Gas Price ($/MMBtu)(53) 2.35 2.45 2.53 2.62
Gas Transportation Cost ($/MMBtu)(53) 0.27 0.28 0.29 0.30
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment 7,000 7,000 7,000 7,000
Bonus Capacity Payment 1,196 1,196 1,196 1,196
Energy Payment 13,068 13,276 13,485 13,694
Steam Revenue
Process Steam 405 416 426 437
Supplemental Steam 139 143 146 150
Chilling Steam 180 184 187 191
True-up Steam 15 16 16 16
------ ------ ------ ------
Total Operating Revenues 22,003 22,231 22,456 22,684
OPERATING EXPENSES ($000)
Natural Gas 8,516 8,877 9,133 9,452
Natural Gas Use/Sales Taxes (54) 669 698 718 743
Natural Gas Service Fees (55) 200 203 206 209
Operating & Maintenance (56) 1,642 1,687 1,732 1,779
Major Maintenance (57) 0 3,950 233 239
Other Operating Fees/Water (56) 534 548 563 578
Audit, Legal & Finance(56) 14 15 15 16
Insurance (56) 189 194 200 205
Property & Other Taxes(56) 939 964 990 1,017
Capital Expenditures (56) 40 40 40 40
Wheeling (58) 961 961 961 961
------ ------ ------ ------
Total Operating Expenses 13,704 18,137 14,791 15,239
NET OPERATING REVENUES ($000) 8,299 4,094 7,665 7,445
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 8,299 4,094 7,665 7,445
DISTRIBUTIONS TO
CE GENERATION ($000)(59) 8,299 4,094 7,665 7,445
</TABLE>
B-70
<PAGE>
Exhibit B-6
CE Generation Gas Projects
Projected Operating Results
Sensitivity E: Yuma Low Gas 2
<TABLE>
<CAPTION>
Year Ending December 31 2010 2011 2012 2013 2014
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8%
Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 323,100
Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200
Energy Delivered (MWh) 319,900 19,900 319,900 319,900 319,900
Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900
Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 16,300
Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 2,886
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) $38.47 38.85 39.23 39.60 39.98
Process Steam Price ($/Mlb)(51) $9.70 9.95 10.22 10.49 10.77
Supplemental Steam Price($/Mlb)(51) $12.93 13.27 13.62 13.98 14.36
Chilling Steam Price ($/Mlb)(52) $1.79 1.82 1.84 1.87 1.90
True-up Steam Price ($/Mlb)(52) $0.45 0.45 0.46 0.47 0.48
Natural Gas Price ($/MMBtu)(53) $2.71 2.81 2.92 3.02 3.14
Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196
Energy Payment $12,307 12,427 12,548 12,669 12,790
Steam Revenue
Process Steam $397 407 418 429 440
Supplement Steam $211 216 222 228 234
Chilling Steam $172 175 177 180 183
True-up Steam $15 15 15 15 16
------- ------ ------ ------ -----
Total Operating Revenues $21,298 21,436 2l,576 21,717 21,859
OPERATING EXPENSES ($000)
Natural Gas $8,696 9,007 9,333 9,671 10,020
Natural Gas Use/Sales Taxes (54) $683 708 733 760 787
Natural Gas Service Fees (55) $211 214 217 220 223
Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033
Major Maintenance (57) $245 2,799 259 266 0
Other Operating Fees/Water (56) $594 610 626 643 661
Audit, Legal & Finance (56) $16 17 17 17 18
Insurance (56) $210 216 222 228 234
Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162
Capital Expenditures (56) $40 40 40 40 40
Wheeling (58) $957 957 957 957 957
------- ------ ------ ------ -----
Total Operating Expenses $14,523 17,516 15,432 15,912 l6,135
NET OPERATING REVENUES ($000) $6,775 3,920 6,144 5,805 5,724
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $6,775 3,920 6,l44 5,805 5,724
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $6,775 3920 6,144 5,805 5,724
<CAPTION>
Year Ending December 31 2015 2016 2017 2018
---- ---- ---- ----
<S> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000
Curtailment Hours (41) 2,600 2,600 2,600 2,600
Availability Factor (42) 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8%
Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100
Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200
Energy Delivered (MWh) 319,900 319,900 319,900 319,900
Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900
Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300
Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) 40.81 41.65 42.48 43.31
Process Steam Price ($/Mlb)(51) 10.81 11.35 11.65 11.95
Supplemental Steam Price($/Mlb)(51) 14.41 15.13 15.54 15.94
Chilling Steam Price ($/Mlb)(52) 1.94 1.99 2.03 2.08
True-up Steam Price ($/Mlb)(52) 0.49 0.50 0.51 0.52
Natural Gas Price ($/MMBtu)(53) 3.08 3.37 3.49 3.61
Gas Transportation Cost ($/MMBtu)(53) 0.35 0.36 0.37 0.38
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment 7,000 7,000 7,000 7,000
Bonus Capacity Payment 1,196 1,196 1,196 1,196
Energy Payment 13,056 13,322 13,589 13,855
Steam Revenue
Process Steam 442 464 477 489
Supplement Steam 235 247 253 260
Chilling Steam 187 191 196 200
True-up Steam 16 16 17 17
------ ------ ------ ------
Total Operating Revenues 22,132 22,436 22,728 23,017
OPERATING EXPENSES ($000)
Natural Gas 9,887 10,750 11,137 11,509
Natural Gas Use/Sales Taxes (54) 777 845 875 904
Natural Gas Service Fees(55) 226 229 232 235
Operating & Maintenance (56) 2,087 2,144 2,202 2,261
Major Maintenance (57) 4,887 288 296 304
Other Operating Fees/Water (56) 678 697 716 735
Audit, Legal & Finance(56) 18 19 19 20
Insurance (56) 240 247 254 260
Property & Other Taxes (56) 1,193 1,225 1,258 1,292
Capital Expenditures (56) 40 40 40 40
Wheeling (58) 957 957 957 957
------ ------ ------ ------
Total Operating Expenses 20,990 17,441 17,986 18,517
NET OPERATING REVENUES ($000) 1,142 4,995 4,742 4,500
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) l,142 4,995 4,742 4,500
DISTRIBUTIONS TO
CE GENERATION ($000)(59) 1,142 4,995 4,742 4,500
</TABLE>
B-71
<PAGE>
Footnotes to Exhibit B-6
The footnotes to Exhibit B-6 are the same as the footnotes for Exhibit
B-1, except:
50. Assumes prices consistent with the Low Gas 2 case as described in the
Henwood Report.
53. Assumes prices consistent with the Low Gas 2 case as described in the
Henwood Report.
B-72
<PAGE>
Exhibit B-7
CE Generation Gas Projects
Projected Operating Results
Sensitivity F: Yuma SCE Low SRAC
<TABLE>
<CAPTION>
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004 2005
------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4% 83.4%
Energy Generated (MWh)(42) 391,300 391,300 391,300 391,300 391,300 365,100 365,100
Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700 3,700
Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400 361,400
Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900 11,900
Chilling Steam Demand (MIb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBTu)(47) 3,474 3,474 3,474 3,474 3,474 3,248 3,248
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) $29.10 31.10 33.00 34.20 35.20 36.20 37.20
Process Steam Price ($/Mlb)(51) $7.81 8.01 8.22 8.44 8.65 8.88 9.11
Supplemental Steam Price ($/Mlb)(51) $10.42 10.68 10.96 11.25 11.54 11.84 12.15
Chilling Steam Price ($/Mlb)(52) $0.43 0.44 0.45 0.47 0.48 0.49 0.50
True-up Steam Price ($/Mlb)(52) $0.11 0.11 0.11 0.12 0.12 0.12 0.13
Natural Gas Price ($/MMBtu)(53) $2.15 2.23 2.31 2.40 2.48 2.57 2.67
Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196
Energy Payment $11,273 12,048 12,784 13,249 13,636 13,083 13,444
Steam Revenue
Process Steam $387 397 407 418 428 410 421
Supplemental Steam $96 98 101 103 106 141 145
Chilling Steam $50 51 53 54 56 53 55
True-up Steam $4 4 5 5 5 5 5
------- ------ ------ ------ ------ ------ ------
Total Operating Revenues $20,006 20,794 21,546 22,025 22,427 21,888 22,266
OPERATING EXPENSES ($000)
Natural Gas $8,251 8,546 8,852 9,175 9,498 9,198 9,526
Natural Gas Use/Sales Taxes (54) $648 672 696 721 746 723 749
Natural Gas Service Fees (55) $182 185 187 190 192 195 198
Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557 1,599
Major Maintenance (57) $183 3,278 193 198 2,262 209 215
Other Operating Fees/Water (56) $443 455 467 480 493 506 520
Audit, Legal & Finance (56) $762 12 13 13 13 14 14
Insurance (56) $157 161 166 170 175 179 184
Property & Other Taxes (56) $779 800 822 844 867 890 914
Capital Expenditures (56) $179 9 6 23 40 40 40
Wheeling (58) $963 963 963 963 963 961 961
------- ------ ------ ------ ------ ------ ------
Total Operating Expenses $13,910 16,481 13,803 14,253 16,765 14,472 14,920
NET OPERATING REVENUES ($000) $6,096 4,313 7,743 7,772 5,662 7,416 7,346
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $6,096 4,313 7,743 7,772 5,662 7,416 7,346
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $6,096 4,313 7,743 7,772 5,662 7,416 7,346
<CAPTION>
Year Ending December 31 2006 2007 2008 2009
---- ---- ---- ----
<S> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000
Curtailment Hours (41) 1,800 1,800 1,800 1,800
Availability Factor (42) 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 83.4% 83.4% 83.4% 83.4%
Energy Generated (MWh)(42) 365,100 365,100 365,100 365,100
Transmission Losses (MWh)(45) 3,700 3,700 3,700 3,700
Energy Delivered (MWh) 361,400 361,400 361,400 361,400
Process Steam Sales (Mlb)(46) 46,200 46,200 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 11,900 11,900 11,900 11,900
Chilling Steam Demand (Mlb)(46) 108,700 108,700 108,700 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830
Fuel Consumption (BBTu)(47) 3,248 3,248 3,248 3,248
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) 38.30 39.50 40.60 41.80
Process Steam Price ($/Mlb)(51) 9.35 9.63 9.85 10.11
Supplemental Steam Price ($/Mlb)(51) 12.47 12.84 13.14 13.48
Chilling Steam Price ($/Mlb)(52) 0.52 0.53 0.55 0.56
True-up Steam Price ($/Mlb)(52) 0.13 0.13 0.14 0.14
Natural Gas Price ($/MMBtu)(53) 2.77 2.89 2.97 3.08
Gas Transportation Cost ($/MMBtu)(53) 0.27 0.28 0.29 0.30
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment 7,000 7,000 7,000 7,000
Bonus Capacity Payment 1,196 1,196 1,196 1,196
Energy Payment 13,842 14,275 14,673 15,107
Steam Revenue
Process Steam 432 445 455 467
Supplemental Steam 148 153 156 160
Chilling Steam 56 58 59 61
True-up Steam 5 5 5 5
------ ------ ------ ------
Total Operating Revenues 22,679 23,132 23,544 23,996
OPERATING EXPENSES ($000)
Natural Gas 9,864 10,283 10,579 10,952
Natural Gas Use/Sales Taxes (54) 775 808 831 861
Natural Gas Service Fees (55) 200 203 206 209
Operating & Maintenance (56) 1,642 1,687 1,732 1,779
Major Maintenance (57) 0 3,950 233 239
Other Operating Fees/Water (56) 534 548 563 578
Audit, Legal & Finance (56) 14 15 15 16
Insurance (56) 189 194 200 205
Property & Other Taxes (56) 939 964 990 1,017
Capital Expenditures (56) 40 40 40 40
Wheeling (58) 961 961 961 961
------ ------ ------ ------
Total Operating Expenses 15,158 19,653 16,350 16,857
NET OPERATING REVENUES ($000) 7,521 3,479 7,194 7,139
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 7,521 3,479 7,194 7,139
DISTRIBUTIONS TO
CE GENERATION ($000)(59) 7,521 3,479 7,194 7,139
</TABLE>
B-73
<PAGE>
Exhibit B-7
CE Generation Gas Projects
Projected Operating Results
Sensitivity F: Yuma SCE Low SRAC
<TABLE>
<CAPTION>
Year Ending December 31 2010 2011 2012 2013 2014
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8%
Energy Generated (Mwh)(42) 323,100 323,100 323,100 323,100 323,100
Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200
Energy Delivered (MWh) 319,900 319,900 319,900 319,900 319,900
Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900
Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 16,300
Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 2,886
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) $43.10 44.30 45.70 47.00 48.40
Process Steam Price ($/Mlb)(51) $10.38 10.66 10.95 11.25 11.56
Supplemental Steam Price ($/Mlb)(51) $13.84 14.21 14.60 15.00 15.41
Chilling Steam Price ($/Mlb)(52) $0.58 0.59 0.61 0.62 0.64
True-up Steam Price ($/Mlb)(52) $0.14 0.15 0.15 0.16 0.16
Natural Gas Price ($/MMBtu)(53) $3.19 3.31 3.43 3.56 3.69
Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196
Energy Payment $13,788 14,172 14,619 15,035 15,483
Steam Revenue
Process Steam $425 436 448 460 473
Supplement Steam $226 232 238 244 251
Chilling Steam $55 57 59 60 62
True-up Steam $5 5 5 5 5
------- ------ ------ ------ ------
Total Operating Revenues $22,695 23,098 23,565 24,000 24,470
OPERATING EXPENSES ($000)
Natural Gas $10,075 10,439 10,817 11,209 11,616
Natural Gas Use/Sales Taxes (54) $792 820 850 881 913
Natural Gas Service Fees (55) $211 214 217 220 223
Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033
Major Maintenance (57) $245 2,799 259 266 0
Other Operating Fees/Water (56) $594 610 626 643 661
Audit, Legal & Finance (56) $16 17 17 17 18
Insurance (56) $210 216 222 228 234
Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162
Capital Expenditures (56) $40 40 40 40 40
Wheeling (58) $957 957 957 957 957
------- ------ ------ ------ ------
Total Operating Expenses $16,011 19,060 17,033 17,571 17,857
NET OPERATING REVENUES ($000) $6,684 4,038 6,532 6,429 6,613
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $6,684 4,038 6.532 6,429 6,613
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $6,684 4,038 6,532 6,429 6,613
<CAPTION>
Year Ending December 31 2015 2016 2017 2018
---- ---- ---- ----
<S> <C> <C> <C> <C>
YUMA PROJECT
PERFORMANCE
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000
Curtailment Hours (41) 2,600 2,600 2,600 2,600
Availability Factor (42) 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8%
Energy Generated (Mwh)(42) 323,100 323,100 323,100 323,100
Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200
Energy Delivered (MWh) 319,900 319,900 319,900 319,900
Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900
Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300
Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) 49.90 51.25 52.63 54.05
Process Steam Price($/Mlb)(51) 11.59 12.20 12.53 12.86
Supplemental Steam Price ($/Mlb)(51) 15.45 16.26 16.71 17.15
Chilling Steam Price ($/Mlb)(52) 0.66 0.68 0.70 0.71
True-up Steam Price($/Mlb)(52) 0.16 0.17 0.17 0.18
Natural Gas Price ($/MMBtu)(53) 3.62 3.97 4.11 4.25
Gas Transportation Cost ($/MMBtu)(53) 0.35 0.36 0.37 0.38
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment 7,000 7,000 7,000 7,000
Bonus Capacity Payment 1,196 1,196 1,196 1,196
Energy Payment 15,963 16,394 16,837 17,291
Steam Revenue
Process Steam 474 499 512 526
Supplement Steam 252 265 272 280
Chilling Steam 63 65 67 69
True-up Steam 5 6 6 6
------ ------ ------ ------
Total Operating Revenues 24,953 25,425 25,890 26,368
OPERATING EXPENSES ($000)
Natural Gas 11,457 12,468 12,915 13,351
Natural Gas Use/Sales Taxes (54) 900 980 1,015 1,049
Natural Gas Service Fees (55) 226 229 232 235
Operating & Maintenance (56) 2,087 2,144 2,202 2,261
Major Maintenance (57) 4,887 288 296 304
Other Operating Fees/Water (56) 678 697 716 735
Audit, Legal & Finance (56) 18 19 19 20
Insurance (56) 240 247 254 260
Property & Other Taxes (56) 1,193 1,225 1,258 1,292
Capital Expenditures (56) 40 40 40 40
Wheeling (58) 957 957 957 957
------ ------ ------ ------
Total Operating Expenses 22,683 19,294 19,904 20,504
NET OPERATING REVENUES ($000) 2,270 6,131 5,986 5,864
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 2,270 6,131 5,986 5,864
DISTRIBUTIONS TO
CE GENERATION ($000)(59) 2,270 6,131 5,986 5,864
</TABLE>
B-74
<PAGE>
Footnotes to Exhibit B-7
The footnotes to Exhibit B-7 are the same as the footnotes for Exhibit
B-1, except:
50. Assumes prices consistent with the SCE Low SRAC case as described in the
Henwood Report.
53. Assumes prices consistent with the SCE Low SRAC case as described in the
Henwood Report.
B-75
<PAGE>
Exhibit B-8
CE Generation Gas Projects
Projected Operating Results
Sensitivity G: Yuma SCE Median SRAC
<TABLE>
<CAPTION>
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004 2005 2006 2007
------- ---- ---- ---- ---- ---- ---- ---- ----
YUMA PROJECT
PERFORMANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800 1,800 1,800
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4% 83.4% 83.4% 83.4%
Energy Generated (MWh)(42) 391,300 391,300 391,300 391,300 391,300 365,100 365,100 365,100 365,100
Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700 3,700 3,700 3,700
Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400 361,400 361,400 361,400
Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900 11,900 11,900 11,900
Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700 108,700 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 3,474 3,474 3,474 3,474 3,474 3,248 3,248 3,248 3,248
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) $29.90 32.20 34.60 35.90 37.20 38.80 41.10 43.10 44.40
Process Steam Price ($/Mlb)(51) $7.81 8.01 8.22 8.44 8.65 8.88 9.11 9.35 9.63
Supplemental Steam Price ($/Mlb)(51) $10.42 10.68 10.96 11.25 11.54 11.84 12.15 12.47 12.84
Chilling Steam Price ($/Mlb)(52) $0.43 0.44 0.45 0.47 0.48 0.49 0.50 0.52 0.53
True-up Steam Price ($/Mlb)(52) $0.11 0.11 0.11 0.12 0.12 0.12 0.13 0.13 0.13
Natural Gas Price ($/MMBtu)(53) $2.15 2.23 2.31 2.40 2.48 2.57 2.67 2.77 2.89
Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27 0.27 0.28
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196
Energy Payment $11,583 12,474 13,404 13,908 14,411 14,022 14,854 15,576 16,046
Steam Revenue
Process Steam $387 397 407 418 428 410 421 432 445
Supplemental Steam $96 98 101 103 106 141 145 148 153
Chilling Steam $50 51 53 54 56 53 55 56 58
True-up Steam $4 4 5 5 5 5 5 5 5
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating Revenues $20,316 21,220 22,166 22,684 23,202 22,827 23,676 24,413 24,903
OPERATING EXPENSES ($000)
Natural Gas $8,251 8,546 8,852 9,175 9,498 9,198 9,526 9,864 10,283
Natural Gas Use/Sales Taxes (54) $648 672 696 721 746 723 749 775 808
Natural Gas Service Fees (55) $182 185 187 190 192 195 198 200 203
Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557 1,599 1,642 1,687
Major Maintenance (57) $183 3,278 193 198 2,262 209 215 0 3,950
Other Operating Fees/Water (56) $443 455 467 480 493 506 520 534 548
Audit, Legal & Finance (56) $762 12 13 13 13 14 14 14 15
Insurance (56) $157 161 166 170 175 179 184 189 194
Property & Other Taxes (56) $779 800 822 844 867 890 914 939 964
Capital Expenditures (56) $179 9 6 23 40 40 40 40 40
Wheeling (58) $963 963 963 963 963 961 961 961 961
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating Expenses $13,910 16,481 13,803 14,253 16,765 14,472 14,920 15,158 19,653
NET OPERATING REVENUES ($000) $6,406 4,739 8,363 8,431 6,437 8,355 8,756 9,255 5,250
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $6,406 4.739 8,363 8,431 6,437 8,355 8,756 9,255 5,250
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $6,406 4,739 8,363 8,431 6,437 8,355 8,756 9,255 5,250
Year Ending December 31 2008 2009
---- ----
YUMA PROJECT
PERFORMANCE
<S> <C> <C>
Nameplate Capacity (kW)(39) 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000
Curtailment Hours (41) 1,800 1.800
Availability Factor (42) 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0%
Capacity Factor (%)(44) 83.4% 83.4%
Energy Generated (MWh)(42) 365,100 365,100
Transmission Losses (MWh)(45) 3,700 3,700
Energy Delivered (MWh) 361,400 361,400
Process Steam Sales (Mlb)(46) 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 11,900 11,900
Chilling Steam Demand (Mlb)(46) 108,700 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830
Fuel Consumption (BBtu)(47) 3,248 3,248
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92
Energy Rate ($/MWh)(50) 45.90 47.40
Process Steam Price ($/Mlb)(51) 9.85 10.11
Supplemental Steam Price ($/Mlb)(51) 13.14 13.48
Chilling Steam Price ($/Mlb)(52) 0.55 0.56
True-up Steam Price ($/Mlb)(52) 0.14 0.14
Natural Gas Price ($/MMBtu)(53) 2.97 3.08
Gas Transportation Cost ($/MMBtu)(53) 0.29 0.30
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment 7,000 7,000
Bonus Capacity Payment 1,196 1,196
Energy Payment 16,588 17,130
Steam Revenue
Process Steam 455 467
Supplemental Steam 156 160
Chilling Steam 59 61
True-up Steam 5 5
------ ------
Total Operating Revenues 25,459 26,019
OPERATING EXPENSES ($000)
Natural Gas 10,579 10,952
Natural Gas Use/Sales Taxes (54) 831 861
Natural Gas Service Fees (55) 206 209
Operating & Maintenance (56) 1,732 1,779
Major Maintenance (57) 233 239
Other Operating Fees/Water (56) 563 578
Audit, Legal & Finance (56) 15 16
Insurance (56) 200 205
Property & Other Taxes (56) 990 1,017
Capital Expenditures (56) 40 40
Wheeling (58) 961 961
------ ------
Total Operating Expenses 16,350 16,857
NET OPERATING REVENUES ($000) 9,109 9,162
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 9,109 9,162
DISTRIBUTIONS TO
CE GENERATION ($000)(59) 9,109 9,162
</TABLE>
B-76
<PAGE>
Exhibit B-8
CE Generation Gas Projects
Projected Operating Results
Sensitivity G: Yuma SCE Median SRAC
<TABLE>
<CAPTION>
Year Ending December 31 2010 2011 2012 2013 2014 2015 2016 2017 2018
---- ---- ---- ---- ---- ---- ---- ---- ----
YUMA PROJECT
PERFORMANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8%
Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 323,100 323,100 323,100 323,100 323,100
Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200
Energy Delivered (MWh) 319,900 319,900 319,900 319,900 319,900 319,900 319,900 319,900 319,900
Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900 40,900 40,900 40,900 40,900
Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 16,300 16,300 16,300 16,300 16,300
Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200 96,200 96,200 96,200 96,200
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 2,886 2,886 2,886 2.886 2,886
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) $48.90 50.60 42.20 54.00 55.80 57.60 59.16 60.75 62.39
Process Steam Price ($/Mlb)(51) $10.38 10.66 10.95 11.25 11.56 11.59 12.20 12.53 12.86
Supplemental Steam Price ($/Mlb)(51) $13.84 14.21 14.60 15.00 15.41 15.45 16.26 16.71 17.15
Chilling Steam Price ($/Mlb)(52) $0.58 0.59 0.61 0.62 0.64 0.66 0.68 0.70 0.71
True-up Steam Price ($/Mlb)(52) $0.14 0.15 0.15 0.16 0.16 0.16 0.17 0.17 0.18
Natural Gas Price ($/MMBtu)(53) $3.19 3.31 3.43 3.56 3.69 3.62 3.97 4.11 4.25
Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34 0.35 0.36 0.37 0.38
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196
Energy Payment $15,643 16,187 13,500 17,275 17,850 18,426 18,924 19,435 19,959
Steam Revenue
Process Steam $425 436 448 460 473 474 499 512 526
Supplemental Steam $226 232 238 244 251 252 265 272 280
Chilling Steam $55 57 59 60 62 63 65 67 69
True-up Steam $5 5 5 5 5 5 6 6 6
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating Revenues $24,550 25,113 22,446 26,240 26,837 27,416 27,955 28,488 29,036
OPERATING EXPENSES ($000)
Natural Gas $10,075 10,439 10,817 11,209 11,616 11,457 12,468 12,915 13,351
Natural Gas Use/Sales Taxes (54) $792 820 850 881 913 900 980 1,015 1,049
Natural Gas Service Fees (55) $211 214 217 220 223 226 229 232 235
Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033 2,087 2,144 2,202 2,261
Major Maintenance (57) $245 2,799 259 266 0 4,887 288 296 304
Other Operating Fees/Water (56) $594 610 626 643 661 678 697 716 735
Audit, Legal & Finance (56) $16 17 17 17 18 18 19 19 20
Insurance (56) $210 216 222 228 234 240 247 254 260
Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162 1,193 1,225 1,258 1,292
Capital Expenditures (56) $40 40 40 40 40 40 40 40 40
Wheeling (58) $957 957 957 957 957 957 957 957 957
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating Expenses $16,011 19,060 17,033 17,571 17,857 22,683 19,294 19,904 20,504
NET OPERATING REVENUES ($000) $8,539 6,053 5,413 8,669 8,980 4,733 8,661 8,584 8,532
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $8,539 6,053 5,413 8,669 8,980 4,733 8,661 8,584 8,532
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $8,539 6,053 5,413 8,669 8,980 4,733 8,661 8,584 8,532
</TABLE>
B-77
<PAGE>
Footnotes to Exhibit B-8
The footnotes to Exhibit B-8 are the same as the footnotes for Exhibit
B-1, except:
50. Assumes prices consistent with the SCE Median SRAC case as described in
the Henwood Report.
53. Assumes prices consistent with the SCE Median SRAC case as described in
the Henwood Report.
B-78
<PAGE>
Exhibit B-9
CE Generation Gas Projects
Projected Operating Results
Sensitivity H: Yuma SCE High SRAC
<TABLE>
<CAPTION>
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004 2005 2006 2007
------- ---- ---- ---- ---- ---- ---- ---- ----
YUMA PROJECT
PERFORMANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800 1,800 1,800
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4% 83.4% 83.4% 83.4%
Energy Generated (MWh)(42) 391,300 391,300 391,300 391,300 391,300 365,100 365,100 365,100 365,100
Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700 3,700 3,700 3,700
Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400 361,400 361,400 361,400
Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900 11,900 11,900 11,900
Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700 108,700 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8.830 8,830 8,830
Fuel Consumption (BBtu)(47) 3,474 3,474 3,474 3,474 3,474 3,248 3,248 3,248 3,248
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) $32.80 36.00 39.10 41.30 43.60 46.10 48.60 51.60 54.80
Process Steam Price ($/Mlb)(51) $7.81 8.01 8.22 8.44 8.65 8.88 9.11 9.35 9.63
Supplemental Steam Price ($/Mlb)(51) $10.42 10.68 10.96 11.25 11.54 11.84 12.15 12.47 12.84
Chilling Steam Price ($/Mlb)(52) $0.43 0.44 0.45 0.47 0.48 0.49 0.50 0.52 0.53
True-up Steam Price ($/Mlb)(52) $0.11 0.11 0.11 0.12 0.12 0.12 0.13 0.13 0.13
Natural Gas Price ($/MMBtu)(53) $2.15 2.23 2.31 2.40 2.48 2.57 2.67 2.77 2.89
Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27 0.27 0.28
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196
Energy Payment $12,707 13,946 15,147 16,000 16,891 16,661 17,564 18,648 19,805
Steam Revenue
Process Steam $387 397 407 418 428 410 421 432 445
Supplemental Steam $96 98 101 103 106 141 145 148 153
Chilling Steam $50 51 53 54 56 53 55 56 58
True-up Steam $4 4 5 5 5 5 5 5 5
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating Revenues $21,440 22,692 23,909 24,776 25,682 25,466 26,386 27,485 28,662
OPERATING EXPENSES ($000)
Natural Gas $8,251 8,546 8,852 9,175 9,498 9,198 9,526 9,864 10,283
Natural Gas Use/Sales Taxes (54) $648 672 696 721 746 723 749 775 808
Natural Gas Service Fees (55) $182 185 187 190 192 195 198 200 203
Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557 1,599 1,642 1,687
Major Maintenance (57) $183 3,278 193 198 2,262 209 215 0 3,950
Other Operating Fees/Water (56) $443 455 467 480 493 506 520 534 548
Audit, Legal & Finance (56) $762 12 13 13 13 14 14 14 15
Insurance (56) $157 161 166 170 175 179 184 189 194
Property & Other Taxes (56) $779 800 822 844 867 890 914 939 964
Capital Expenditures (56) $179 9 6 23 40 40 40 40 40
Wheeling (58) $963 963 963 963 963 961 961 961 961
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating Expenses $13,910 16,481 13,803 14,253 16,765 14,472 14,920 15,158 19,653
NET OPERATING REVENUES ($000) $7,530 6,211 10,106 10,523 8,917 10,994 11,466 12,327 9,009
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $7,530 6,211 10,106 10,523 8,917 10,994 11,466 12,327 9,009
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $7,530 6,211 10,106 10,523 8,917 10,994 11,466 12,327 9,009
Year Ending December 31 2008 2009
---- ----
YUMA PROJECT
PERFORMANCE
<S> <C> <C>
Nameplate Capacity (kW)(39) 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000
Curtailment Hours (41) 1,800 1,800
Availability Factor (42) 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0%
Capacity Factor (%)(44) 83.4% 83.4%
Energy Generated (MWh)(42) 365,100 365,100
Transmission Losses (MWh)(45) 3,700 3,700
Energy Delivered (MWh) 361,400 361,400
Process Steam Sales (Mlb)(46) 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 11,900 11,900
Chilling Steam Demand (Mlb)(46) 108,700 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830
Fuel Consumption (BBtu)(47) 3,248 3,248
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92
Energy Rate ($/MWh)(50) 58.20 61.90
Process Steam Price ($/Mlb)(51) 9.85 10.11
Supplemental Steam Price ($/Mlb)(51) 13.14 13.48
Chilling Steam Price ($/Mlb)(52) 0.55 0.56
True-up Steam Price ($/Mlb)(52) 0.14 0.14
Natural Gas Price ($/MMBtu)(53) 2.97 3.08
Gas Transportation Cost ($/MMBtu)(53) 0.29 0.30
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment 7,000 7,000
Bonus Capacity Payment 1,196 1,196
Energy Payment 21,033 22,371
Steam Revenue
Process Steam 455 467
Supplemental Steam 156 160
Chilling Steam 59 61
True-up Steam 5 5
------ ------
Total Operating Revenues 29,904 31,260
OPERATING EXPENSES ($000)
Natural Gas 10,579 10,952
Natural Gas Use/Sales Taxes (54) 831 861
Natural Gas Service Fees (55) 206 209
Operating & Maintenance (56) 1,732 1,779
Major Maintenance (57) 233 239
Other Operating Fees/Water (56) 563 578
Audit, Legal & Finance (56) 15 16
Insurance (56) 200 205
Property & Other Taxes (56) 990 1,017
Capital Expenditures (56) 40 40
Wheeling (58) 961 961
------ ------
Total Operating Expenses 16,350 16,857
NET OPERATING REVENUES ($000) 13,554 14,403
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 13,554 14,403
DISTRIBUTIONS TO
CE GENERATION ($000)(59) 13,554 14,403
</TABLE>
B-79
<PAGE>
Exhibit B-9
CE Generation Gas Projects
Projected Operating Results
Sensitivity H: Yuma SCE High SRAC
<TABLE>
<CAPTION>
Year Ending December 31 2010 2011 2012 2013 2014 2015 2016 2017 2018
---- ---- ---- ---- ---- ---- ---- ---- ----
YUMA PROJECT
PERFORMANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8%
Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 323,100 323,100 323,100 323,100 323,100
Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200
Energy Delivered (MWh) 319,900 319,900 319,900 319,900 319,900 319,900 319,900 319,900 319,900
Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900 40,900 40,900 40,900 40,900
Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 16,300 16,300 16,300 16,300 16,300
Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200 96,200 96,200 96,200 96,200
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 2,886 2,886 2,886 2,886 2,886
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) $65.90 70.70 76.00 81.60 87.60 94.10 96.64 99.25 101.93
Process Steam Price ($/Mlb)(51) $10.38 10.66 10.95 11.25 11.56 11.59 12.20 12.53 12.86
Supplemental Steam Price ($/Mlb)(51) $13.84 14.21 14.60 15.00 15.41 15.45 16.26 16.71 17.15
Chilling Steam Price ($/Mlb)(52) $0.58 0.59 0.61 0.62 0.64 0.66 0.68 0.70 0.71
True-up Steam Price ($/Mlb)(52) $0.14 0.15 0.15 0.16 0.16 0.16 0.17 0.17 0.18
Natural Gas Price ($/MMBtu)(53) $3.19 3.31 3.43 3.56 3.69 3.62 3.97 4.11 4.25
Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34 0.35 0.36 0.37 0.38
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1.196 1,196 1,196 1,196 1,196 1,196 1,196 1,196
Energy Payment $21,081 22,617 24,312 26,104 28,023 30,103 30,915 31,750 32,607
Steam Revenue
Process Steam $425 436 448 460 473 474 499 512 526
Supplemental Steam $226 232 238 244 251 252 265 272 280
Chilling Steam $55 57 59 60 62 63 65 67 69
True-up Steam $5 5 5 5 5 5 6 6 6
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating Revenues $29,988 31,543 33,258 35,069 37,010 39,093 39,946 40,803 41,684
OPERATING EXPENSES ($000)
Natural Gas $10,075 10,439 10,817 11,209 11,616 11,457 12,468 12,915 13,351
Natural Gas Use/Sales Taxes (54) $792 820 850 881 913 900 980 1,015 1,049
Natural Gas Service Fees (55) $211 214 217 220 223 226 229 232 235
Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033 2,087 2,144 2,202 2,261
Major Maintenance (57) $245 2,799 259 266 0 4,887 288 296 304
Other Operating Fees/Water (56) $594 610 626 643 661 678 697 716 735
Audit, Legal & Finance (56) $16 17 17 17 18 18 19 19 20
Insurance (56) $210 216 222 228 234 240 247 254 260
Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162 1,193 1,225 1,258 1,292
Capital Expenditures (56) $40 40 40 40 40 40 40 40 40
Wheeling (58) $957 957 957 957 957 957 957 957 957
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating Expenses $16,011 19,060 17,033 17,571 17,857 22,683 19,294 19,904 20,504
NET OPERATING REVENUES ($000) $13,977 12,483 16,225 17,498 19,153 16,410 20,652 20,899 21,180
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $13,977 12,483 16,225 17,498 19,153 16,410 20,652 20,899 21,180
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $13,977 12,483 16,225 17,498 19,153 16,410 20,652 20,899 21,180
</TABLE>
B-80
<PAGE>
Footnotes to Exhibit B-9
The footnotes to Exhibit B-9 are the same as the footnotes for Exhibit
B-1, except:
50. Assumes prices consistent with the SCE High SRAC case as described in the
Henwood Report.
53. Assumes prices consistent with the SCE High SRAC case as described in the
Henwood Report.
B-81
<PAGE>
Exhibit B-10
CE Generation Gas Projects
Projected Operating Results
Sensitivity I: Yuma Breakeven Electricity Price
<TABLE>
<CAPTION>
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004 2005 2006 2007
------- ---- ---- ---- ---- ---- ---- ---- ----
YUMA PROJECT
PERFORMANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800 1,800 1,800
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4% 83.4% 83.4% 83.4%
Energy Generated (MWh)(42) 391,300 391,300 391,300 391,300 391,300 365,100 365,100 365,100 365,100
Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700 3,700 3,700 3,700
Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400 361,400 361,400 361,400
Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900 11,900 11,900 11,900
Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700 108,700 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 3,474 3,474 3,474 3,474 3,474 3,248 3,248 3,248 3,248
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) $0.00 0.00 0.00 3.40 7.80 11.30 14.40 12.60 14.90
Process Steam Price ($/Mlb)(51) $7.81 8.01 8.22 8.44 8.65 8.88 9.11 9.35 9.63
Supplemental Steam Price ($/Mlb)(51) $10.42 10.68 10.96 11.25 11.54 11.84 12.15 12.47 12.84
Chilling Steam Price ($/Mlb)(52) $0.43 0.44 0.45 0.57 0.72 0.85 0.96 0.92 1.00
True-up Steam Price ($/Mlb)(52) $0.11 0.11 0.11 0.14 0.18 0.21 0.24 0.23 0.25
Natural Gas Price ($/MMBtu)(53) $2.15 2.23 2.31 2.40 2.48 2.57 2.67 2.77 2.89
Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27 0.27 0.28
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196
Energy Payment $0 0 0 1,317 3,022 4,084 5,204 4,554 5,385
Steam Revenue
Process Steam $387 397 407 418 428 410 421 432 445
Supplemental Steam $96 98 101 103 106 141 145 148 153
Chilling Steam $50 51 53 67 84 92 104 99 109
True-up Steam $4 4 5 6 7 8 9 8 9
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating Revenues $8,733 8,746 8,762 10,107 11,843 12,931 14,079 13,437 14,297
OPERATING EXPENSES ($000)
Natural Gas $8,251 8,546 8,852 9,175 9,498 9,198 9,526 9,864 10,283
Natural Gas Use/Sales Taxes (54) $648 672 696 721 746 723 749 775 808
Natural Gas Service Fees (55) $182 185 187 190 192 195 198 200 203
Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557 1,599 1,642 1,687
Major Maintenance (57) $183 3,278 193 198 2,262 209 215 0 3,950
Other Operating Fees/Water (56) $443 455 467 480 493 506 520 534 548
Audit, Legal & Finance (56) $762 12 13 13 13 14 14 14 15
Insurance (56) $157 161 166 170 175 179 184 189 194
Property & Other Taxes (56) $779 800 822 844 867 890 914 939 964
Capital Expenditures (56) $179 9 6 23 40 40 40 40 40
Wheeling (58) $963 963 963 963 963 961 961 961 961
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating Expenses $13,910 16,481 13,803 14,253 16,765 14,472 14,920 15,158 19,653
NET OPERATING REVENUES ($000) ($5,177) (7,735) (5,041) (4,146) (4,922) (1,541) (841) (1,721) (5,356)
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $0 0 0 0 0 0 0 0 0
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $0 0 0 0 0 0 0 0 0
Year Ending December 31 2008 2009
---- ----
YUMA PROJECT
PERFORMANCE
<S> <C> <C>
Nameplate Capacity (kW)(39) 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000
Curtailment Hours (41) 1,800 1,800
Availability Factor (42) 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0%
Capacity Factor (%)(44) 83.4% 83.4%
Energy Generated (MWh)(42) 365,100 365,100
Transmission Losses (MWh)(45) 3,700 3,700
Energy Delivered (MWh) 361,400 361,400
Process Steam Sales (Mlb)(46) 46,200 46,200
Supplemental Steam Sales (Mlb)(46) 11,900 11,900
Chilling Steam Demand (Mlb)(46) 108,700 108,700
Heat Rate (Btu/kWh)(42) 8,830 8,830
Fuel Consumption (BBtu)(47) 3,248 3,248
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92
Energy Rate ($/MWh)(50) 9.20 12.90
Process Steam Price ($/Mlb)(51) 9.85 10.11
Supplemental Steam Price ($/Mlb)(51) 13.14 13.48
Chilling Steam Price ($/Mlb)(52) 0.84 0.97
True-up Steam Price ($/Mlb)(52) 0.21 0.24
Natural Gas Price ($/MMBtu)(53) 2.97 3.08
Gas Transportation Cost ($/MMBtu)(53) 0.29 0.30
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment 7,000 7,000
Bonus Capacity Payment 1,196 1,196
Energy Payment 3,325 4,662
Steam Revenue
Process Steam 455 467
Supplemental Steam 156 160
Chilling Steam 91 105
True-up Steam 8 9
------ ------
Total Operating Revenues 12,231 13,599
OPERATING EXPENSES ($000)
Natural Gas 10,579 10,952
Natural Gas Use/Sales Taxes (54) 831 861
Natural Gas Service Fees (55) 206 209
Operating & Maintenance (56) 1,732 1,779
Major Maintenance (57) 233 239
Other Operating Fees/Water (56) 563 578
Audit, Legal & Finance (56) 15 16
Insurance (56) 200 205
Property & Other Taxes (56) 990 1,017
Capital Expenditures (56) 40 40
Wheeling (58) 961 961
------ ------
Total Operating Expenses 16,350 16,857
NET OPERATING REVENUES ($000) (4,119) (3,258)
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) 0 0
DISTRIBUTIONS TO
CE GENERATION ($000)(59) 0 0
</TABLE>
B-82
<PAGE>
Exhibit B-10
CE Generation Gas Projects
Projected Operating Results
Sensitivity I: Yuma Breakeven Electricity Price
<TABLE>
<CAPTION>
Year Ending December 31 2010 2011 2012 2013 2014 2015 2016 2017 2018
---- ---- ---- ---- ---- ---- ---- ---- ----
YUMA PROJECT
PERFORMANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500
Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600
Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0%
On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0%
Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8%
Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 323,100 323,100 323,100 323,100 323,100
Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200
Energy Delivered (MWh) 319,900 319,900 319,900 319,900 319,900 319,900 319,900 319,900 319,900
Process Steam Sales (Mlb)(46) 40,900 40.900 40,900 40,900 40,900 40,900 40,900 40,900 40,900
Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 16,300 16,300 16,300 16,300 16,300
Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200 96,200 96,200 96,200 96,200
Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830
Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 2,886 2,886 2,886 2,886 2,886
COMMODITY PRICES
General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70
Electricity Price
Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00
Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92
Energy Rate ($/MWh)(50) $22.70 20.80 17.00 21.00 17.20 19.70 19.50 21.80 19.20
Process Steam Price ($/Mlb)(51) $10.38 10.66 10.95 11.25 11.56 11.59 12.20 12.53 12.86
Supplemental Steam Price ($/Mlb)(51) $13.84 14.21 14.60 15.00 15.41 15.45 16.26 16.71 17.15
Chilling Steam Price ($/Mlb)(52) $1.29 1.25 1.14 1.29 1.18 1.28 1.29 1.38 1.32
True-up Steam Price ($/Mlb)(52) $0.32 0.31 0.29 0.32 0.30 0.32 0.32 0.35 0.33
Natural Gas Price ($/MMBtu)(53) $3.19 3.31 3.43 3.56 3.69 3.62 3.97 4.11 4.25
Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34 0.35 0.36 0.37 0.38
OPERATING REVENUES ($000)
Revenue from Electricity Sales
Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000
Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196
Energy Payment $7,262 6,654 5,438 6,718 5,502 6,302 6,238 6,974 6,142
Steam Revenue
Process Steam $425 436 448 460 473 474 499 512 526
Supplemental Steam $226 232 238 244 251 252 265 272 280
Chilling Steam $124 120 110 124 114 123 124 133 127
True-up Steam $11 10 9 11 10 10 11 11 11
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating Revenues $16,244 15,648 14,439 15,753 14,546 15,357 15,333 16,098 15,282
OPERATING EXPENSES ($000)
Natural Gas $10,075 10,439 10,817 11,209 11,616 11,457 12,468 12,915 13,351
Natural Gas Use/Sales Taxes (54) $792 820 850 881 913 900 980 1,015 1,049
Natural Gas Service Fees (55) $211 214 217 220 223 226 229 232 235
Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033 2,087 2,144 2,202 2,261
Major Maintenance (57) $245 2,799 259 266 0 4,887 288 296 304
Other Operating Fees/Water (56) $594 610 626 643 661 678 697 716 735
Audit, Legal & Finance (56) $16 17 17 17 18 18 19 19 20
Insurance (56) $210 216 222 228 234 240 247 254 260
Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162 1,193 1,225 1,258 1,292
Capital Expenditures (56) $40 40 40 40 40 40 40 40 40
Wheeling (58) $957 957 957 957 957 957 957 957 957
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating Expenses $16,011 19,060 17,033 17,571 17,857 22,683 19,294 19,904 20,504
NET OPERATING REVENUES ($000) $233 (3,412) (2,594) (1,818) (3,311) (7,326) (3,961) (3,806) (5,222)
CASH AVAILABLE
FOR DISTRIBUTIONS ($000) $233 0 0 0 0 0 0 0 0
DISTRIBUTIONS TO
CE GENERATION ($000)(59) $233 0 0 0 0 0 0 0 0
</TABLE>
B-83
<PAGE>
Footnotes to Exhibit B-10
The footnotes to Exhibit B-10 are the same as the footnotes for Exhibit
B-1, except:
50. Assumes prices projected by Fluor Daniel which result in a debt
service coverage ratio on the Securities of 1.00 in all years.
B-84
<PAGE>
APPENDIX C
GEOTHERMAL PROJECTS
INDEPENDENT ENGINEER'S REPORT
CE GENERATION PROJECT ANALYSIS
PREPARED FOR
CE GENERATION, LLC
FEBRUARY 17, 1999
FLUOR DANIEL, INC.
IRVINE, CALIFORNIA
C-1
<PAGE>
TABLE OF CONTENTS
1.0 EXECUTIVE SUMMARY AND CONCLUSIONS .................................. 3
1.1 EXECUTIVE SUMMARY .................................................. 3
1.2 CONCLUSIONS ........................................................ 6
2.0 SCOPE OF SERVICES .................................................. 9
3.0 FACILITIES OVERVIEW ................................................ 10
3.1 GENERAL DESCRIPTION ................................................ 10
3.2 MANAGEMENT AND ORGANIZATION ........................................ 11
3.3 SALTON SEA PROJECTS ................................................ 12
3.4 PARTNERSHIP PROJECTS ............................................... 13
3.5 ROYALTY PROJECTS ................................................... 13
3.6 pH MODIFICATION PROCESS ............................................ 13
4.0 NEW PROJECTS ....................................................... 13
4.1 GENERAL DESCRIPTION -- SALTON SEA UNIT V PROJECT ................... 13
4.2 GENERAL DESCRIPTION -- REGION II BRINE FACILITIES CONSTRUCTION ..... 14
4.3 MATERIALS OF CONSTRUCTION .......................................... 15
4.4 NEW PROJECTS MANAGEMENT ORGANIZATION ............................... 15
4.5 PROJECT SITE GEOTECHNICAL DESCRIPTION .............................. 15
4.6 SCHEDULE ........................................................... 16
4.7 CAPITAL COST ANALYSIS .............................................. 17
5.0 PROJECT OPERATIONS ................................................. 17
6.0 PERMITTING AND ENVIRONMENTAL ....................................... 17
6.1 ENVIRONMENTAL COMPLIANCE ........................................... 17
6.2 APPLICABLE ENVIRONMENTAL PERMIT AND LICENSING REQUIREMENTS ......... 18
6.3 ENVIRONMENTAL REQUIREMENT COMPLIANCE, DEFICIENCIES AND
LIMITATIONS ........................................................ 18
7.0 ASSESSMENT OF FINANCIAL PROJECTIONS ................................ 18
7.1 BASE CASE PROJECTION ASSUMPTIONS ................................... 18
C-2
<PAGE>
SECTION 1.0
1.0 EXECUTIVE SUMMARY AND CONCLUSIONS
1.1 EXECUTIVE SUMMARY
Fluor Daniel, Inc. (Fluor Daniel) prepared an Independent Engineer's
report for the Salton Sea Funding Corporation, dated September 23, 1998, in
connection with Salton Sea Funding Corporation's Bond Offering Circular (the
Salton Sea Project Analysis). The analysis and conclusions contained in that
report are incorporated herein, except as hereinafter modified. Specifically,
CE Generation, LLC has requested Fluor Daniel to update the Salton Sea Project
Analysis to remove references to the Zinc Recovery Project and to report on the
construction status of Salton Sea Unit V and the CE Turbo Project (hereinafter
the Updated Events).
Presented herein is Fluor Daniel's, review and analyses (the Report) of
eight operating geothermal power plants (the Existing Projects), and two new
geothermal power plants (the New Projects), as listed below. The geothermal
resource production facilities (wellheads and related brine delivery system)
were not reviewed by Fluor Daniel.
o Salton Sea Units I, II, III and IV, including brine modification (pH
Modification) and a planned capacity increase via a new Salton Sea
Unit V (collectively the Salton Sea Projects).
o Vulcan, Del Ranch, Elmore and Leathers, including the Region II Brine
Facilities Construction, the CE Turbo Project (collectively the
Partnership Projects).
o Royalty and other payments received from the Del Ranch, Elmore, and
Leathers Projects (the Royalty Projects). The Salton Sea Projects,
Partnership Projects and the Royalty Projects are collectively
referred to herein as the Projects.
NEW PROJECTS -- OVERVIEW
Salton Sea Power LLC (Power LLC) is constructing a 49.0 MW net geothermal
power plant (Salton Sea Unit V Project) using proven technology designed to
produce electrical energy primarily from the Salton Sea Region I injection
brine. This brine is currently reinjected and contains over 40 MW of available
thermal energy to be used by Salton Sea Unit V. Additional power will be
produced utilizing minimal increased brine flows through the existing brine
handling facilities located at the Salton Sea Projects. Therefore, Salton Sea
Unit V will produce electrical energy by increasing the thermal efficiency of
Region I with only a limited increase in the quantity of brine production, as
well as providing a consistent supply of brine suitable for the ion exchange
zinc recovery process.
The Region II Brine Processing Construction will include the installation
of modern brine processing facilities to service the total brine flow to be
provided to Vulcan and Del Ranch. It is intended that these facilities will be
designed with the appropriate technology, developed and proven at the Salton
Sea, to provide for reliable steam production for power generation, and a
consistent supply of brine suitable for the ion exchange zinc recovery process.
CE Turbo LLC is constructing the CE Turbo Project which is designed to
provide electrical power output of 10.0 MW net. This power output will result
from increased efficiencies in the steam field and brine handling facilities
and no new production or injection wells are required.
C-3
<PAGE>
A summary overview of the current and intended features of the Projects is
presented in Table 1-1.
TABLE 1-1
OVERVIEW OF THE PROJECTS
<TABLE>
<CAPTION>
FACILITY (1) NET
NET OWNERSHIP COMMERCIAL POWER
CAPACITY INTEREST OPERATION CONTRACT CONTRACT POWER
(MW) (MW) (YEARS) EXPIRATION TYPE PURCHASER
-------------- ----------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
SALTON SEA PROJECTS
Salton Sea Unit I ....... 10.0 10.0 16 6/2017 Negotiated SCE
Salton Sea Unit II ...... 20.0 20.0 8 4/2020 SO4 SCE
Salton Sea Unit III ..... 49.8 49.8 9 2/2019 SO4 SCE
Salton Sea Unit IV ...... 39.6 39.6 2 5/2026 Negotiated SCE
Salton Sea Unit V ....... 49.0 49.0 0 N/A SPOT Zinc Recovery
----- ----- Project and PX
Subtotal ............... 168.4 168.4
PARTNERSHIP PROJECTS
Elmore .................. 38.0 38.0 10 12/2018 SO4 SCE
Del Ranch ............... 38.0 38.0 10 12/2018 SO4 SCE
Leathers ................ 38.0 38.0 8 12/2019 SO4 SCE
Vulcan .................. 34.0 34.0 12 2/2016 SO4 SCE
CE Turbo ................ 10.0 10.0 0 N/A N/A PX
----- -----
Subtotal ............... 158.0 158.0
===== =====
Total ................... 326.4 326.4
</TABLE>
- ----------
(1) Power Project capacity is a nominal number that varies with operating and
reservoir conditions.
PROJECT LOCATION
The Salton Sea and Partnership Projects are located in Imperial County
California in the Salton Sea Area. A map showing the general location of the
Projects is provided in Figure 1-1.
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FIGURE 1-1
PLANT LOCATION MAP
[MAP SHOWING THE GENERAL LOCATION OF THE PROJECTS]
GEOTHERMAL PROJECT AGREEMENTS
As shown in Table 1-1, the Existing Projects sell power to Southern
California Edison Company (SCE) in accordance with power purchase agreements
and related agreements for transmission system interconnection. Salton Sea Unit
V will sell approximately one-third of its net output to the CalEnergy Minerals
LLC Zinc Recovery Project and also sell power through the Power Exchange (PX).
CE Turbo will sell all its power through the PX.
It is understood that the Salton Sea and Partnership Projects are, and
will continue to be, operated by CalEnergy Operating Corporation (CEOC). The
Existing Projects have been in commercial operation for numerous years.
Construction of a portion of the facilities is being performed under
Engineering, Procurement and Construction (EPC) contracts, with completion and
cost guarantees. The Salton Sea Unit V, CE Turbo and Region II Brine Processing
Construction Projects are being constructed by Stone and Webster Engineering
Corporation (S&W) under two separate guaranteed price contracts.
GEOTHERMAL PROJECT PARTICIPANTS
The Salton Sea Units I, II and III are owned by Salton Sea Power
Generation L.P. (SSPG). SSPG and Fish Lake Power Company (FLPC) are owners of
the Salton Sea Unit IV Project. Salton Sea
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Unit V will be owned by Salton Sea Power L.L.C. (Power LLC). SSPG, SSBP FLPC,
and Power LLC are referred to collectively as the "Salton Sea Guarantors".
The improvements to the brine processing facility part of the Region II
Brine Processing Construction will be owned by certain of the Existing
Projects. The CE Turbo Project will be owned by CE Turbo LLC. Agreements were
reviewed that indicate that the Salton Sea Royalty Company (the Royalty
Guarantor) receives royalties and other payments from Leathers, Elmore, and Del
Ranch.
SCHEDULE
The commercial operation date for Salton Sea Unit V is currently scheduled
for mid 2000. The commercial operation dates for the CE Turbo Project and the
Region II Brine Processing Construction are currently scheduled for the first
half of 2000.
1.2 CONCLUSIONS
On the basis of Fluor Daniel's review of the information provided by CE
Generation (CEG), and in reliance thereon, Fluor Daniel provides the following
opinions:
1.2.1 EXISTING PROJECTS -- OPERATIONS AND PERFORMANCE
o The Projects use commercially proven technology and are operated in
accordance with recognized electric utility industry practices.
o The useful life of the surface facilities are expected to exceed the
final maturity date of the debt Securities.
o Principal project participants possess the necessary experience to
successfully fulfill their project obligations.
o Operating plant capacity factors (expected forced and scheduled
outages) used in the projections are based on the operating results
for the operating years 1995, 1996, 1997 and 1998, and these are felt
to be reasonable. For the years 1995 through 1998, selected highlights
of the operating history reported by the CEG are as follows:
o Revenue increased 83 percent.
o Site operating costs decreased from 3.53 cents/net kWh to 1.77
cents/net kWh for the Salton Sea Units I-IV Projects, and from
3.17 cents/net kWh to 2.19 cents/net kWh for the Partnership
Projects. For the Existing Projects as a whole, operating costs
decreased from 3.28 cents/net kWh to 2.01 cents/net kWh.
o Nominal capacity factors in 1998 were maintained at 94.2 percent
for the Salton Sea I-IV Projects, 101.4 percent for the
Partnership Projects, and 98.2 percent on a combined basis.
o The pH Modification technology is proven and reliable, as has been
shown by the eight year operating history at Salton Sea Unit II and
the two years of operating history of this technology at Salton Sea
Units I, III, and IV. The pH Modification program should continue to
increase availability and decrease costs consistent with assumptions
in the financial projections.
o The Existing Projects are expected to continue operations in
accordance with all relevant existing permits and environmental laws.
1.2.2 NEW PROJECTS
SALTON SEA UNIT V
o The technology upon which the Salton Sea Unit V is based, is proven
and reliable. The scope of work is within demonstrated capabilities of
the principal project participants. The EPC
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contract for the Salton Sea Unit V Project provides for a guaranteed
completion date. It appears that the completion of the Salton Sea Unit
V Project can be achieved within the guaranteed date in the EPC
contract.
o The pH Modification technology is proven and reliable. Similar
technology has been installed and has operated successfully throughout
Salton Sea Units I -- IV. As demonstrated by the eight year operating
history at Salton Sea Unit II, and the more recent operating history
of Salton Sea Units I, III, and IV, the pH Modification program should
continue to operate at the same or improved levels of reliability.
o Reasonable selections have been made in selecting the EPC Contractor
for this work, and in preparing the list of equipment suppliers. Major
equipment suppliers approved by Power LLC are recognized as qualified
suppliers in the geothermal power industry.
o The Salton Sea Unit V Project should meet the guaranteed performance
criteria contained in the EPC contracts and should comply with all
applicable environmental regulations.
o Based upon a review of the EPC contract for the Salton Sea Unit V
Project, the capital cost budget appears adequate for the facilities
provided under the contract. The guaranteed price in the S&W contract,
plus S&W's substantial prior experience with geothermal plants, should
mitigate the risk of cost overruns and schedule delays, and should
thus adequately protect both the Bondholders and Owners. Power LLC
should have adequate Contractor resources available to cover the
possibility of performance shortfalls by S&W for the Salton Sea Unit V
Project . The contractual Liquidated Damages provisions provided in
the EPC contract are typical for securing contractor completion of
projects utilizing proven technology such as that utilized on the
Salton Sea Unit V Project.
o Construction on the Salton Sea V Project has just started with
grubbing and site clearing. At this point construction appears to be
on schedule. The Permit-to-Construct for this work is also in place.
o Based on Fluor Daniel's knowledge of conventional power project
financing, Owner's costs, such as administration costs, insurance,
financing costs, contingency funds, working capital, etc., estimated
by the Power LLC appear to be reasonable.
o All discretionary permit approvals have been obtained for
construction.
o The useful life of the Salton Sea Unit V Project can be expected to
exceed the final maturity date of the Securities.
REGION II BRINE PROCESSING CONSTRUCTION
o The technology upon which brine processing is based has been
demonstrated to be proven and reliable. The EPC contract for the
Region II Brine Processing Construction provides for a guaranteed
completion date. It appears that the completion of the Region II Brine
Processing Construction can be achieved within the guaranteed date in
the EPC contract.
o The pH Modification technology has been demonstrated to be proven and
reliable at the Existing Projects. Similar technology has been serving
Salton Sea Units I -- V and has a proven operating history. The pH
Modification system should increase availability and decrease
operating costs and maintenance consistent with assumptions in the
financial projections.
o Reasonable selections have been made in selecting the EPC Contractor
for this work, and in preparing the list of equipment suppliers. Major
equipment suppliers approved for this project are recognized as
qualified suppliers in the geothermal field.
o A review of the EPC contract for the Region II Brine Processing
Construction provided confidence that the capital cost budget should
be adequate for the facilities provided under the contract. The
guaranteed price in the S&W EPC contract, plus S&W's substantial prior
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experience with geothermal installations, should mitigate the risk of
cost overruns and schedule delays. The contractual Liquidated Damage
provisions in the EPC contract are typical for securing contractor
completion of projects utilizing proven technology such as that
utilized, and should adequately protect both the Bondholders and the
Owners.
o The Region II Brine Processing Construction should meet the guaranteed
performance criteria contained in the EPC contract and should comply
with all applicable environmental regulations.
o All discretionary permit approvals have been obtained for
construction.
o Construction on the Region II Brine Processing Project has yet to
begin, but is scheduled to begin as planned. A Permit-to-Construct for
this work is in place.
CE TURBO PROJECT
o The CE Turbo Project uses technology which has been demonstrated to be
proven and reliable. The scope of work is within demonstrated
capabilities of the principal project participants which should make
the currently scheduled completion during the first quarter of 2000
achievable.
o The EPC Contract for the Region II Brine Processing Construction,
which also encompasses the CE Turbo Project provides for a guaranteed
completion date. It appears that the completion of the CE Turbo
Project can be achieved within the guaranteed date in the EPC
contract.
o S&W, the EPC contractor for this work, is recognized as an experienced
contractor in this field. The major equipment suppliers that have been
approved for S&W's selection are recognized as qualified suppliers to
the industry.
o The CE Turbo Project should meet the guaranteed performance criteria
contained in the EPC contract and should comply with all current
applicable environmental regulations.
o On the basis of the EPC contract reviewed for the CE Turbo Project,
the capital cost budget appears adequate for the facilities provided
under those contracts. The guaranteed price in the S&W contract, plus
S&W's substantial prior experience with geothermal power plants,
should mitigate the risk of cost overruns and schedule delays. CE
Turbo LLC should have adequate contractor resources available to cover
the possibility of performance shortfalls by S&W for the CE Turbo
Project. The contractual Liquidated Damages provisions in the EPC
contract are typical for securing contractor completion of projects
utilizing proven technology such as that utilized in CE Turbo Project,
and should adequately protect both the Bondholders and the Owners.
o Based on Fluor Daniel's knowledge of conventional power project
financing, the Owner's costs, such as administration costs, insurance,
financing costs, contingency funds, working capital, etc., estimated
by CE Turbo LLC appear to be reasonable.
o All required discretionary permit approvals have been obtained for the
construction of the CE Turbo Project.
o The useful life of the CE Turbo Project can be expected to exceed the
final maturity date of the Securities.
o Construction on the CE Turbo Project has yet to begin, but is
scheduled to begin as planned. The Permit-to-Construct for this work
is in place.
ENVIRONMENTAL PERMITTING AND LICENSING
o The reviewed records show no environmental Notices of Violation for
any media (air emissions, wastewater, solid/hazardous waste) have been
filed against the Existing Projects in the last two years.
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o The Existing Projects appeared to be neat and well maintained.
o The H2S abatement systems consist of existing biofilters for Salton
Sea Units I, II, III and IV. A review of the preliminary design
indicated that sufficient capacity appears to exist to handle any
anticipated increase of H2S loads resulting from the operation of
Salton Sea Unit V.
o The water and brine pond designs appear adequate to minimize or
eliminate the potential for water and brine release into the
underlying soil and groundwater.
o Solid waste handling and disposal appears adequate.
o Dust control in the solid waste handling operation should be improved
by planned dust handling equipment and dust abatement measures.
o All discretionary environmental permit approvals have been received
for the proposed new construction.
PROJECT AGREEMENTS
o Major project agreements (as listed in Attachment 2-1) for the Salton
Sea Projects and Partnership Projects, including Power Purchase
agreements, EPC contracts, major subcontracts, Zinc Extraction
Services Agreement, O&M Services Agreement, and related contracts for
transmission system interconnection appear reasonable from a technical
perspective and are consistent with the financial projections reviewed
herein.
FINANCIAL PROJECTIONS
o An economic/financial model, presented in Exhibit 1, has been
developed by CEG which represents the projected performance of the
Salton Sea and Partnership Projects. The assumptions underlying the
economic/financial model appear to be reasonable, and the projected
operating results reasonably represent the future financial profile of
CEG.
o Fluor Daniel has confirmed that the input assumptions regarding
revenues in the Imperial Valley model are reasonably consistent with
the Power Purchase and Royalty documents provided to Fluor Daniel.
o Projected operating and maintenance costs and capital expenditures for
major maintenance projects appear to be reasonable and representative
of the planned operations of the Salton Sea and Partnership Projects.
o Financial projections, based on the Base Case assumptions recommended
by CEG, appear to be reasonable and indicate that revenues should be
adequate to pay operations and maintenance expenses and provide cash
flow for debt service and distributions.
SECTION 2.0
2.0 SCOPE OF SERVICES
On the basis of information and documents provided by CEG, Fluor Daniel,
as Independent Engineer, has reviewed certain technical, environmental and
economic aspects of the Projects as listed below:
o Current status of Existing Projects
o Project participants
o Plant designs and projected performance
o Project capital cost estimates
o Operations and maintenance
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o Project agreements
o Environmental permitting and licensing
o Financial projections (Exhibit 1)
o Project completion testing
Fluor Daniel conducted this analysis, and prepared this report, utilizing
reasonable care and skill in applying methods of analysis consistent with
normal industry practice. In the preparation of this report and the opinions
expressed, Fluor Daniel 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 Fluor Daniel in the preparation of
this report are provided in Attachment 2-1. The information set forth herein
has been obtained from sources which are believed to be reliable, but it is not
guaranteed as to accuracy or completeness by, and is not construed as a
representation by, Fluor Daniel or the Project sponsors.
SECTION 3.0
3.0 FACILITIES OVERVIEW
3.1 GENERAL DESCRIPTION
The Existing Projects consist of eight operating geothermal power plants
near the Salton Sea in the Imperial Valley of Southern California. These plants
produce net power generation of approximately 288 MW from high temperature
geothermal brines produced by drilling deep production wells into the Salton
Sea Known Geothermal Resource Area (SSKGRA). Imperial Valley brines are
characterized by heavy concentrations of compounds of silica, zinc, manganese
and other metals. Over twenty million pounds of brine per hour are produced and
flashed to supply the steam for electric power generation. After the brine is
flashed to produce steam, it is reinjected into the subsurface reservoir
through separate injection wells constructed for that purpose.
As mentioned above, the Salton Sea and Partnership Projects are located in
the SSKGRA and are within a central radius of approximately five miles. A
representative map showing approximate plant locations is provided in Figure
1-1.
Hot brine from the geothermal resource is flashed into high pressure,
standard pressure, and low pressure steam which is expanded through steam
turbine generators to produce electric power. The steam is condensed and then
used for cooling tower make-up. Excess condensate is injected back into the
geothermal reservoir. Brine from the steam flash process is further processed
to remove solids, or maintain them in solution, and is injected back into the
geothermal reservoir. The Existing Projects employ proven geothermal resource
flash technology which has been commercially operated worldwide for over 30
years.
Plant design and operation are affected by the geothermal resource which,
in the SSKGRA, is relatively high in solids content at approximately 250,000 to
300,000 parts per million. Leathers, Elmore, Del Ranch, and Vulcan utilize the
crystallizer-reactor-clarifier (CRC) process to control scaling and to
precipitate solids. The majority of the solids are disposed of in an
appropriately licensed landfill and the remainder are recycled to the
crystallizers to promote crystal growth (seeding) to control scaling on vessel
walls.
Salton Sea Units I, II, III, and IV utilize the pH Modification process to
control scaling. This process involves injection of a pH modification agent
into the liquid brine resource to maintain solids in solution so that the brine
may be injected directly into the reservoir without precipitation and removal
of the solids. Implementation of this process as part of the Region II Brine
Processing Construction is expected to simplify resource handling in a similar
fashion, thus improving availability and reducing costs.
Noncondensible gases from the Existing Projects are removed from the
condensers for efficient power generation and turbine operation using a
combination of steam jet ejectors and vacuum pumps.
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Systems for abatement of hydrogen sulfide present in the noncondensible gases
are not currently required for the Partnership Projects since ambient hydrogen
sulfide concentrations are at acceptable levels. However, hydrogen sulfide
abatement systems were installed for Salton Sea Units I, II, III and IV as part
of an earlier Salton Sea expansion project. The technology for such abatement
systems is proven and reliable.
The cooling systems for all operating projects consist of surface
condensers and wet mechanical draft cooling towers. Utility systems are
provided to support each operating plant. Fire protection systems are also
provided, including cooling tower wetdown systems which keep the tower wet
during shutdown periods, and fire monitors which are provided at grade around
the perimeter of each tower. Standby diesel generators are available to support
plant safety systems during shutdowns.
Brine is injected into the reservoir by injection pumps after solids
processing. Brine ponds are provided at each plant for temporary storage of
brine during startup/shutdown periods and for emergency use.
3.2 MANAGEMENT AND ORGANIZATION
An Operations Manager is responsible for operations, maintenance, and
plant performance of the Existing Projects. The Salton Sea Projects, Vulcan and
Del Ranch, and Elmore and Leathers each have a Region Supervisor who is
responsible for operations, maintenance, and plant performance. The plant's
Control Operators are trained to operate the plants, perform routine lab tests
and supervise the Outside Operators. The plant's onsite staff is trained to
conduct routine maintenance activities.
In support of these Project sites, CEOC provides centralized
administrative support, engineering support, maintenance support, and
analytical lab support. A Maintenance Supervisor is responsible for the
Mechanics as well as the Instrument and Electrical Technicians. When additional
manpower is required at the Project sites, the Central Maintenance shop
provides the necessary staff. This organization and staffing procedure is
typical for these types of plants.
Fluor Daniel is of the opinion that the overall operating and maintenance
organization is adequate to support operation of the Salton Sea and Partnership
Projects and should continue to provide operating and maintenance cost
reductions.
SAFETY
CEOC has an established safety program based on a Corporate Safety Manual
and Imperial Valley Site Specific Safety Procedures. These safety procedures
appear to be generally consistent with general industry practices.
CEOC is staffed with a Safety Manager and two Safety Engineers. All are
trained in Safety procedures as well as environmental response, pursuant to
stated procedures. The Safety personnel conduct ongoing safety reviews at each
of the Project sites and monthly training sessions for all-hands. These
sessions are designed to emphasize compliance with current CEOC Safety
Procedures in place and to convey new safety procedures and execution methods.
CEOC utilizes a "Safe Work Permit" procedure that must be implemented by
maintenance and operating personnel prior to starting any work. CEOC also has a
plant lockout/tagout procedure for isolating systems for maintenance and
personnel protection.
All procedures were found to be sound and in line with safety procedures
normally found in this type of industry.
TRAINING
CEOC has a very comprehensive training program, which includes Operator
and Maintenance Technician certification. There are five classifications of
Operators: Operator 1, 2, and 3, Control Operator, and Senior Operator. Each
classification, except Senior Operator, has a Certification
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Manual. The manual contents and associated tests have been developed in
accordance with CEOC's organizational structure. The certification program
includes written tests administered by the CEOC Training Department and a plant
walk-through test conducted by the Training Review Board.
The CEOC Senior Operator classification was recently implemented, but no
certification program is currently in place. A job description and
certification testing procedure is being prepared for this new classification
In Fluor Daniel's opinion, the program appears to be in line with training
programs found in the power industry.
OPERATING PROCEDURES
Operating Procedures are in place for the Salton Sea and Partnership
Projects. They included step-by-step methods for start-up, normal operation,
and shutdown of the Projects. Fluor Daniel is of the opinion that the operating
procedures are satisfactory.
MAINTENANCE PROGRAM
Maintenance at each plant is supervised by a Maintenance Supervisor. Most
of the routine maintenance is performed in the centralized maintenance shop
with specialty maintenance being performed by specialty contractors on a
subcontract basis. The Salton Sea and Partnership Projects are using a
commercially available Central Maintenance Management System (CMMS) software
package, which has reportedly improved management of plant maintenance
activities.
Since the Salton Sea Projects are using the pH modification process which
results in cleaner equipment than the CRC process, these plants are currently
on a four-year major turnaround cycle. Major turnarounds are generally
scheduled for twelve days and include process valve maintenance, cleaning, and
descaling of process pipe and vessels. Mini-outages (three to five days) are
scheduled each spring in preparation for the summer peak runs.
For the Partnership Projects, major overhaul planning is also performed by
Central Maintenance with input from the sites. Major twelve day overhauls are
scheduled every two years with mini-outages (three to five days) scheduled each
spring in preparation for the summer peak runs.
In all plants, specialized maintenance such as turbine overhaul and
electrical protective relay calibration is performed by outside contractors.
The plants historically operate reliably as a result of these maintenance and
overhaul scheduling practices.
Fluor Daniel's review of the plants during a site walk-through found the
plants to be well maintained. Plant personnel indicated that spare parts were
available when required.
3.3 SALTON SEA PROJECTS
Salton Sea Units I and II are located adjacent to the Salton Sea; the
shoreline has appropriate dikes and levies designed to protect these units from
increases in the Salton Sea water level. The dikes appear to be adequately
maintained. Salton Sea Unit III and IV are located approximately 0.5 miles from
the Salton Sea.
Salton Sea Unit I has been in service since 1982. Power generation
equipment consists of a 10 MW Fuji steam turbine operating with standard
pressure (SP) steam originally produced by CRC technology. This process also
produces high pressure (HP) and low pressure (LP) steam. The generation voltage
of 13.8 kV is stepped up to 34.5 kV for transmission to Southern California
Edison (SCE).
Salton Sea Unit II was placed in service in 1990. A total of three steam
turbines produce electrical power. Salton Sea Unit II was the original plant to
operate on the pH Modification process and has done so successfully for eight
years. The Mitsubishi turbine-generator produces electrical power at 4,160
volts which is stepped-up to 13.8 kV; the other generators produce power at
13.8 kV. One transformer steps-up power from these three generators to 92 kV
for transmission by the Imperial Irrigation District (IID) to the Rancho Mirage
substation for sale to SCE.
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Salton Sea Unit III is a 49.8 MW plant with a Mitsubishi turbine that
operates on SP and LP steam. The turbine is a 5-stage, dual flow, condensing
turbine. Three stages of steam jet air ejectors remove noncondensible gases
from the steam. Operational flexibility provided by steam jet air ejector
trains are used to respond to varying noncondensible gas content. Commercial
operation was declared on February 14, 1989. Power is stepped up to 92 kV for
transmission by the IID to the Rancho Mirage substation for sale to SCE.
Salton Sea Unit IV is a General Electric steam turbine generator installed
next to the Salton Sea Unit III site to provide additional capacity of 39.6 MW.
Salton Sea Unit IV's design involved modification of existing steam and brine
processing equipment and related systems. All of the steam used is processed
through this system.
3.4 PARTNERSHIP PROJECTS
The Vulcan Project was commissioned in February 1986. It generates
electrical power for transmission to SCE via IID lines. Noncondensible gases
are directed to the cooling tower using two stages of steam jet air ejectors
and a vacuum pump. Each of these components has at least one spare. A standby
diesel generator is available to provide emergency power. Solids precipitated
from the CRC process are monitored for metals concentrations and hauled by
truck to a permitted landfill. Covered solids storage is provided onsite on a
concrete slab for emergency purposes.
Electrical power is generated at 14.4 kV and is transmitted to SCE over 92
kV IID lines. The Del Ranch and the Vulcan Projects are connected via an
electrical tie-line.
The Del Ranch Project achieved commercial operation in October 1988. The
plant is very similar to the Vulcan Project. A dual pressure nine-stage Fuji
turbine produces electrical power for transmission to SCE via IID.
Commercial operation was achieved at the Elmore Project in December 1988
and at the Leathers Project in January 1990. These two plants are identical in
all major design respects to the Del Ranch Project, including the main turbine.
Three spare turbine rotors and two spare sets of diaphragms are available for
the Del Ranch, Elmore, and Leathers Projects.
3.5 ROYALTY PROJECTS
Magma receives royalties, fees and other payments ("Royalties") from the
Leathers, Del Ranch and Elmore Projects based on a percentage of each project's
annual revenue. Total Royalties from these Partnership Projects paid to Magma
annually are projected to be $21,766,000 in 1999, stepping down to $9,427,000
in 2000 as revenues from the three Partnership Projects revert to avoided cost
pricing. The Royalties from the Leathers, Del Ranch and Elmore Projects are
included in the financial projections.
3.6 PH MODIFICATION PROCESS
The pH Modification process currently used for Salton Sea Unit I, II, III
and IV lowers the pH of the geothermal resource by injection of a pH
modification agent into the liquid brine stream. As a result, solids remain in
solution rather than precipitate out of solution as in the CRC process
previously used at Salton Sea Units I and III, and at the Partnership Projects.
Therefore, scaling is minimized and solids in solution can be injected into the
reservoir. Certain aspects of the process were a proprietary process developed
by Unocal and subsequently licensed to Magma, which was purchased in 1995 by
CalEnergy. The pH Modification process has operated successfully since 1990.
SECTION 4.0
4.0 NEW PROJECTS
4.1 GENERAL DESCRIPTION -- SALTON SEA UNIT V PROJECT
4.1.1 DESIGN CONSIDERATIONS
The Salton Sea Unit V geothermal power plant (49.0 MW net) is being
designed to produce electrical energy from the spent brine that would otherwise
be reinjected following usage in Salton
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Sea Units I -- IV. This brine is currently reinjected at a temperature of
approximately 360 degreesF and at the current rate contains over 40 MW of
available thermal energy to be used by Salton Sea Unit V. Additional power will
be produced utilizing minimal increased brine flows through the existing Salton
Sea Units I -- IV brine handling facilities. Therefore, the Salton Sea Unit V
Project will produce electrical energy by significantly increasing the thermal
efficiency of existing brine usage with only a minor increase in the quantity
of brine production.
The Salton Sea Unit V Project will include a multiple inlet pressure
turbine utilizing standard pressure (SP) steam, low pressure (LP) steam, and
very low pressure (VLP) steam, operating at approximately 110/30/10 psig,
respectively. The SP steam will be provided from additional production from the
existing Region I facilities. The LP and VLP steam will be produced at the
Salton Sea Unit V Project by flashing the brine delivered from the Salton Sea
Units I -- IV brine processing facilities (producing LP steam) and subsequent
flashing of the brine (producing VLP steam). Other equipment necessary for the
Salton Sea Unit V Project includes a pH modification agent handling system, wet
cooling tower, surface condenser, non-condensable gas system, electrical
switchgear, and associated cooling water pumps, condensate pumps, and brine
pumps. Auxiliary equipment includes a lube oil system, expanding the existing
fire protection system, and plant air.
Salton Sea Units I -- IV are using pH Modification of the geothermal brine
to prevent precipitation of silica dissolved in the brine during the power
production cycle. The Salton Sea Unit V Project will utilize refinements in pH
Modification technology. Additional pH modification agent will be injected into
the brine prior to flashing/cooling the brine below 360 degreesF. This has been
shown to prevent precipitation of silica at the lower temperatures, which would
otherwise cause scaling/plugging of brine handling equipment. The brine will
then be flashed to produce LP and VLP steam for conversion into electrical
power. Just before being delivered to the Zinc Recovery Plant, the remaining
brine passes through an atmospheric flash/reactor vessel which removes residual
heat and most of the silica. The silica will initially be disposed of in a
licensed landfill but may later be marketed to potential consumers such as
cement and tire manufacturers.
The facilities will produce a significant quantity of steam as part of the
brine cooling process. A majority of this steam will normally be utilized by
Salton Sea Unit V, with very low pressure steam being used by the Zinc Recovery
Project as process heat.
4.2 GENERAL DESCRIPTION -- REGION II BRINE FACILITIES CONSTRUCTION
4.2.1 CE TURBO PROJECT
The CE Turbo Project is being designed to produce 10.0 MW net of
electrical power output. The CE Turbo Project will use existing unutilized
geothermal energy and additional geothermal energy made available through
efficiency improvements via the Region II Brine Processing Construction; no new
production or injection wells or associated pipelines will be required. The new
power generation will be transmitted through IID power lines.
The new turbine will be an Atlas Copco Rotoflow design. The system will
consist of a turbo-expander, a gearbox, and a generator coupled together in a
power delivery train. All auxiliary equipment required to operate the turbine
will be included in the package.
4.2.2 REGION II BRINE FACILITIES CONSTRUCTION
PROJECT SUMMARY
The Region II Brine Processing Construction upgrade project is installing
modern brine processing facilities designed to service the total brine flow now
provided to Vulcan and Del Ranch. This centralized brine plant will service the
total brine demand for both Vulcan and Del Ranch. These Facilities are being
designed with technology developed and proven at the Salton Sea Projects, to
provide steam production for power generation. Process design and equipment
specifications have been developed and are intended to minimize the long term
cost of plant operations. The existing
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<PAGE>
brine gathering system, and upgraded cement lined production and injection
systems, should facilitate the conversion to a the new facilities. It is
intended that proven existing designs, and equipment where possible, will be
used to minimize cost, schedule and project risk.
SILICA CONTROL PROCESS
The silica control process for this development combines features common
to the pH Modification process and the CRC process. This process is designed to
be lower in capital cost and in projected operating cost than a traditional CRC
process. The pH Modification technology is designed to increase the service
interval between shutdowns of its respective equipment. This technology also
allows a smaller, more efficient standard pressure brine-steam separator vessel
to be used in place of the two SP crystallizers required for the current Region
II SP brine flow. Two low pressure crystallizer and atmospheric flash tank
trains, a primary clarifier, a secondary clarifier, filter press, and brine
booster pump system complete the major equipment. These are traditional CRC
components, but upgraded for long term reliability and performance.
H2S ABATEMENT
The high pressure steam from the turbo-expander will flow through various
standard pressure steam components to arrive at the SP Turbine's condenser,
where the additional noncondensible gas stream must be removed. An H2S
abatement unit will be added downstream of this condenser to ensure the
projected air quality standards are met. This unit will be a biofilter type
device, similar to the ones used at Salton Sea Units I -- IV.
4.3 MATERIALS OF CONSTRUCTION
A review of the design documents and specifications for the mechanical
components revealed that the New Projects have specified design requirements
typically found in the geothermal industry. In some cases, the specifications
and design criteria further defined very specific requirements that are based
on the operating history and proven experience with similar equipment that has
been in similar service for a number of years. As presented on the reviewed
documents, the materials of construction are appropriate for these facilities.
4.4 NEW PROJECTS MANAGEMENT ORGANIZATION
Salton Sea Unit V will be managed as part of the Salton Sea Units I, II,
III, and IV group of units (Region I). These units are managed by a Region
Supervisor and the combined units are operated by three Control Operators and
Outside Operators. The operations program includes a safety program, a training
program, and operating procedures. Maintenance programs include CMMS, training,
and spare parts inventory control.
Fluor Daniel considers the overall operating and maintenance organization
planned for these new facilities to be adequate to support expanded operations.
4.5 PROJECT SITE GEOTECHNICAL DESCRIPTION
The project sites are located in the Salton Trough geologic region. This
region is a result of extensive tectonic activity due to three active or
potentially active faults in the area. The site area is classified by Uniform
Building Code (UBC) as an earthquake zone of 4.
The subsurface geologic site conditions typically consist of stiff to firm
silty clay at shallow depth. At depth, loose to medium dense silty sand exists
with a potential for liquefaction. The silty clay exists with the potential for
long term settlements. The depth to groundwater at the site varies, but is in
the range of 5 to 6 feet below grade.
On the basis of geotechnical reports prepared by Southland Geotechnical,
the project sites are believed to be suitable for the proposed new Projects.
Foundation designs proposed in the report are similar to designs previously
used on other geothermal projects in this area which have operated for numerous
years and are believed to be adequate for these facilities.
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<PAGE>
4.6 SCHEDULE
4.6.1 SALTON SEA UNIT V PROJECT
Stone & Webster Engineering Corporation (S&W) was selected as the
Contractor to engineer, procure, construct, and startup the Salton Sea Unit V
Project and is currently executing this work. S&W is a world-wide EPC power
project Contractor with a background in, and experience with geothermal
projects. S&W has engineering and construction experience with some of the
Existing Projects, including the original design for Salton Sea Unit III and is
familiar with the site conditions and resources of the Imperial Valley.
Additionally, S&W previously worked for the Salton Sea Funding Corporation as
consultant for the existing Bondholders. Belmont Construction (a subsidiary of
S&W) is being utilized for the construction phase, having previously performed
construction services for Salton Sea Unit IV.
The project schedule milestones require:
o Notice to Proceed October 13, 1998
o Startup Commissioning March 16, 2000
o Substantial Completion July 12, 2000
Under the EPC contract, S&W guarantees that substantial completion will be
attained by July 12, 2000, or S&W will be assessed for delay damages.
S&W acknowledged that the procurement, fabrication, delivery and erection
of the Turbine Generator is the critical path of the Salton Sea Unit V Project.
In support of this understanding they have awarded the Turbine Generator and
other critical equipment. The overall schedule duration is approximately 7
months for engineering, 18 months for construction, and 4 months for startup
and testing. This schedule provides that the project be substantially complete
approximately 6 weeks prior to the guaranteed Substantial Completion milestone.
Fluor Daniel has reviewed the current Salton Sea Unit V Project EPC
schedule. To date, planned progress has been achieved and it appears that the
EPC schedule can be achieved as indicated, subject to customary permitted
delays under the contract. S&W has identified and addressed the major project
components, allowing for sufficient time and interface to meet the schedule
objectives such as tie-ins and support to other facilities. Critical equipment
purchases have been made and the deliveries support the current scheduled
delivery dates. Construction is also underway with grubbing and grading of the
site.
Given S&W's qualifications and past experience at the Existing Projects
and elsewhere, the EPC project schedule should be achievable.
4.6.2 REGION II BRINE PROCESSING CONSTRUCTION
S&W was selected as the contractor to engineer, procure, construct, and
startup the CE Turbo Project and Region II Brine Processing Construction, and
is currently executing the work. S&W has engineering and construction
experience with some of the Existing Projects, including the original design
for Salton Sea Unit III and is familiar with the site conditions and resources
of the Imperial Valley. Additionally, S&W previously worked for the Salton Sea
Funding Corporation as consultant for the existing Bondholders. Belmont
Construction (a subsidiary of S&W) is being utilized for the construction
phase, having previously performed construction services for Salton Sea Unit
IV.
The Project Schedule Milestones require:
o Notice to Proceed October 13. 1998
o Startup Commissioning November 17, 1999
o Substantial Completion -- Brine Facilities
Construction February 22, 2000
o Substantial Completion CE Turbo Project April 13, 2000
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<PAGE>
Under its EPC contract, S&W guarantees that substantial completion will be
attained by February 22, 2000 for the Brine Facilities Construction and by
April 13, 2000 for the CE Turbo Project, or S&W will be assessed for delay
damages.
S&W has acknowledged that the procurement, fabrication, delivery and
erection of the CE Turbo is the critical path of the Region II facilities
construction. They have awarded the CE Turbo and other critical equipment. Even
though construction has not begun, Fluor Daniel has reviewed the current Region
II Construction Schedule and believes that Substantial Completion as planned
should be achievable, subject to customary permitted delays under the contract.
4.7 CAPITAL COST ANALYSIS
4.7.1 SALTON SEA UNIT V PROJECT
The fixed price of $91.8 million equates to approximately $1,874 per net
kilowatt of new installed capacity, which is consistent with the cost of
similar geothermal facilities requiring solids removal technology. Currently,
S&W is executing the project under a fixed price contract with no change orders
having been identified. To date, S&W has invoiced for 22 percent of the fixed
price.
4.7.2 REGION II BRINE FACILITIES CONSTRUCTION
The fixed price of $49.8 million appears reasonable for this project.
Currently, S&W is executing the project under a fixed price contract with no
change orders having been identified. To date, S&W has invoiced 15 percent of
the fixed price.
4.7.3 CAPITAL IMPROVEMENTS
Proceeds from the October 7, 1998 Salton Sea Funding Corporation debt
offering and equity will be used to fund certain capital expenditures involving
plant and wellfield facilities at Elmore and Leathers. These costs are
presented below:
<TABLE>
<CAPTION>
1998 1999 2000 TOTAL ($000'S)
---- ---- ---- --------------
<S> <C> <C> <C> <C>
Elmore ............ $9,858 $7,109 0 $16,967
Leathers .......... 0 $ 977 $3,393 $ 4,370
------ ------ ------ -------
Total ............. $9,858 $8,086 $3,393 $21,337
</TABLE>
At Elmore, approximately $9.9 million of the total was used in 1998 for a
regularly scheduled plant overhaul and various other capital expenditure items.
At Leathers, approximately $2.3 million will be spent in 2000 for an overhaul.
The remaining expenditures in that year are for various other plant capital
expenditure items. On the basis of past expenditures for this type of similar
installations, Fluor Daniel finds these expenditures to be reasonable.
The remaining capital expenditure amounts are wellfield-related and are
separately analyzed by GeothermEx.
SECTION 5.0
5.0 PROJECT OPERATIONS
The Salton Sea and Partnership Projects use proven technology and have
operated reliably since initiating commercial operation. The most significant
operating and maintenance activities for the Salton Sea and Partnership
Projects are caused by the geothermal resource which corrodes and deposits
solids in the geothermal resource processing systems. These activities were
significantly reduced at the Salton Sea Projects with the implementation of the
pH Modification program and should be significantly reduced at Vulcan and Del
Ranch with the same system. This should result in similar decreases in cost at
Vulcan and Del Ranch.
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<PAGE>
SECTION 6.0
6.0 PERMITTING AND ENVIRONMENTAL
6.1 ENVIRONMENTAL COMPLIANCE
Fluor Daniel has conducted a walk through of the Existing Projects in the
Imperial Valley. This walk through included an environmental overview of the
facilities. Facilities' inspections included Salton Sea Units I -- IV, and the
proposed sites for the New Projects. The environmental overview focused on the
H2S air emissions abatement systems; water and brine ponds design and
operation; stormwater control; solid waste handling and disposal; general noise
environment; and the associated solvent extraction sites.
The plants appeared neat and well maintained. The H2S abatement systems
consisted of existing biofilters for Salton Sea Units I, II, III and IV. A
review of the design indicated that there should be sufficient capacity to
handle any anticipated increase of H2S loads from Salton Sea Unit V. The water
and brine ponds design appeared adequate to minimize or eliminate the potential
for water and brine release into the underlying soil and groundwater. The
build-up of brine solids in the brine pond and subsequent land disposal should
be minimized in the future by enhanced solids retention in the brine injected
into the geothermal reservoir by project pH modification features.
Stormwater onsite is collected and injected into the geothermal reservoir.
Solid waste handling and disposal appear to be adequate. Dust control in the
solid waste handling operation should be improved by proposed dust handling
equipment and dust abatement measures.
The noise environment encountered appears to be comparable to other
similar power plant designs. Noise was qualitatively experienced within
acceptable OSHA limits near equipment. Excessive noise was not experienced at
the nearest residence. The preliminary design of the proposed ion exchange
units, central solvent extraction and electrowinning plant appeared feasible
and environmentally protective, evidenced by the pilot plant walk-through and
review of system process flow diagrams.
In reviewing two years worth of available files, Fluor Daniel has found no
environmental Notices of Violation for any media (air emissions, wastewater,
solid/hazardous waste).
6.2 APPLICABLE ENVIRONMENTAL PERMIT AND LICENSING REQUIREMENTS
All Existing Projects and the New Projects have received appropriate
regulatory approvals/exemptions in all media (air emissions,
stormwater/wastewater, brine injection), and have appropriate solid and
hazardous waste transportation and disposal contracts or agreements in place.
The New Projects have received the required Imperial County Conditional Use
Permits and Imperial County Air Pollution Control District air permits.
6.3 ENVIRONMENTAL REQUIREMENT COMPLIANCE, DEFICIENCIES AND LIMITATIONS
It is the opinion of Fluor Daniel that the New Projects have appropriate
designs and have or plan to have trained personnel to comply with all
environmental laws and regulations, have received all environmental permits and
approvals, and have contracts and agreements in place with licensed waste
transportation and disposal companies. If operated in accordance with the
provided design, and good utility practices the projects should not have any
environmental deficiencies or limitations.
SECTION 7.0
7.0 ASSESSMENT OF FINANCIAL PROJECTIONS
7.1 BASE CASE PROJECTION ASSUMPTIONS
7.1.1 CONSTRUCTION EXPENDITURES
CEG provided what we believe to be reasonable assumptions regarding new
capital expenditures to be funded in accordance with the October 7, 1998
issuance of Salton Sea Funding Corporation
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<PAGE>
securities, including the construction cost of the Salton Sea Unit V Project,
the CE Turbo Project, Region II Brine Facilities Construction and the Capital
Improvements. As used in the summary, the Project construction costs include
certain owner's administration costs, owner's contingency funds and other costs
for construction and services not included in the fixed price EPC contracts.
These assumptions along with the financing plan, are shown below.
USES AND SOURCES OF FUNDS
(X$000'S)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1999 2000 TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salton Sea Unit V Project 15,983 77,284 13,596 106,863
- --------------------------------------------------------------------------------
Zinc Recovery Project 31,779 104,640 43,911 180,330
- --------------------------------------------------------------------------------
CE Turbo Project 1,502 8,504 215 10,221
- --------------------------------------------------------------------------------
Region II Brine Processing 6,908 39,097 987 46,992
Construction
- --------------------------------------------------------------------------------
Capital Improvements 10,817 7,127 3,393 21,337
- --------------------------------------------------------------------------------
Interest and Financing Cost 9,908 21,305 10,564 41,770
- --------------------------------------------------------------------------------
TOTAL USES $76,897 $257,957 $76,666 $407,513
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Bond Proceeds 76,897 208,110 0 285,000
- --------------------------------------------------------------------------------
Equity 0 49,847 72,666 122,513
- --------------------------------------------------------------------------------
TOTAL SOURCES $76,897 $257,957 $72,666 $407,513
- --------------------------------------------------------------------------------
</TABLE>
7.1.2 POWER PRODUCTION
Existing operations at the Salton Sea consist of eight power plants:
Salton Sea Units I, II, III, and IV, Vulcan, Del Ranch, Elmore, and Leathers.
These facilities have demonstrated reliable operation in the range of 95-100
percent average plant availability . The assumptions regarding future
operations are shown in the table below. The capacity factors for the Existing
Projects are shown for 1998.
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<PAGE>
PROFORMA OPERATING ASSUMPTIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
NAMEPLATE AVERAGE AVAILABILITY
LOCATION CAPACITY (KW) FACTOR (1)
- -----------------------------------------------------------------
<S> <C> <C>
Salton Sea Unit I 10,000 92%
- -----------------------------------------------------------------
Salton Sea Unit II 20,000 96%
- -----------------------------------------------------------------
Salton Sea Unit III 49,800 98%
- -----------------------------------------------------------------
Salton Sea Unit IV 39,650 99%
- -----------------------------------------------------------------
Leathers 41,000 98%
- -----------------------------------------------------------------
Elmore 41,000 98%
- -----------------------------------------------------------------
Vulcan 34,000 98%
- -----------------------------------------------------------------
Del Ranch 38,000 99%
- -----------------------------------------------------------------
Salton Sea Unit V 49,000 95%
- -----------------------------------------------------------------
CE Turbo 10,000 95%
- -----------------------------------------------------------------
TOTAL 332,450
- -----------------------------------------------------------------
</TABLE>
- ----------
(1) For years 2000 through 2004.
On the basis of past plant performance, Fluor Daniel finds the capacity
factor assumptions used in the financial projections to be reasonable.
7.1.3 REVENUES
All of the Existing Projects sell power under contract to Southern
California Edison Company. Six of the eight Existing Projects have a 10-year
provision for fixed energy pricing at rates that are now considered to be
substantially above market. These six Existing Projects have already reached,
or by 2000 will reach the expiration of the 10-year fixed energy price period
by 2000 causing a drop in project revenue. Pricing for electrical energy beyond
these fixed price termination dates will be subject to pricing under the new
deregulated wholesale power market in California. The chart showing the
forecast of gross revenues for the Projects is shown below.
CEG PROJECTED REVENUES -- GEOTHERMAL PROJECTS
[LINE CHART SHOWING PROJECTED REVENUES OF THE GEOTHERMAL PROJECTS]
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<PAGE>
7.1.4 OPERATING EXPENSES
CEOC presently operates the Existing Projects under contract to the
various ownership entities. As evidenced by the information provided by the
CEG, over the last three years operating expenses have been reduced through
consolidation of operations. Projected operating costs have been developed in
detail by CEOC and appear to be reasonable.
A significant annual expense associated with operation of each facility is
the payment of royalties for use of the geothermal brine. Under the present
ownership arrangement, the majority of royalties paid by each project flow back
to the Royalty Guarantor. This impact is captured in the cash flow analysis.
7.1.5 ONGOING CAPITAL EXPENDITURE
The CE Generation has prepared a ten-year plan for ongoing geothermal
capital expenditures. This plan was reviewed by Fluor Daniel, was determined to
be reasonable, and is used as the basis for projecting future capital
expenditures in the forecasting model (Exhibit 1). Categories of expenditure
include such items as geothermal well drilling, power plant improvements, and
power plant overhaul.
7.1.6 ESCALATION
All expenses in the financial projection (Exhibit 1) have been escalated
at an assumed rate of 2.5 percent. Unless specified otherwise.
7.1.7 CASH FLOW
The cash flow model (Exhibit 1) computes cash flow available for
distribution. Operating expenditures, capital expenditures, and debt service
are then calculated and subtracted from total receipts to determine cash flow
available for distribution.
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<PAGE>
ATTACHMENT 2-1
ASSUMPTIONS, QUALIFICATIONS AND REVIEW DOCUMENTS
THIS REPORT WAS PREPARED BY FLUOR DANIEL, INC. EXPRESSLY FOR USE BY CE
GENERATION. IT IS FLUOR DANIEL'S UNDERSTANDING THAT THIS REPORT WILL BE
INCLUDED IN THE PUBLIC OFFERING MEMORANDUM AND SUBSEQUENT PROSPECTUS FOR THE
OFFERING OF THE BONDS, AS DESCRIBED HEREIN. NEITHER FLUOR DANIEL NOR CE
GENERATION NOR ANY PERSON ACTING IN THEIR BEHALF, MAKES ANY WARRANTY, EXPRESS
OR IMPLIED, OR ASSUMES ANY LIABILITY WITH RESPECT TO THE USE OF ANY
INFORMATION, TECHNOLOGY, ENGINEERING, OR METHODS DISCLOSED IN THIS REPORT.
It is believed that the information contained in the Salton Sea Project
Analysis is reliable under conditions and subject to the limitations set forth
therein. Except only as to the revisions to the Salton Sea Project Analysis
required to reflect the Updated Events, the analysis or conclusions contained
in that report are incorporated herein. This Report therefore summarizes our
work as of September 23, 1998, modified to reflect the Updated Events and
information contained in Attachment 2-1, up to the date of the Report. Thus,
changed conditions occurring or becoming known after such date could affect the
material presented to the extent of such changes.
In the preparation of this Report and the opinions contained therein,
Fluor Daniel 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 for the purpose of this Report, they are dependent
upon future events and actual conditions may differ from those assumed. In
addition, we have used and relied exclusively upon the information specified in
the list of Review documents. Neither CE Generation nor Fluor Daniel Inc. has
made an analysis, verified, or rendered an independent judgment of the validity
of the information provided by others. While it is believed that the
information contained herein will be reliable under the conditions and subject
to the limitations set forth herein, neither CE Generation nor Fluor Daniel,
Inc. guarantee the accuracy thereof. Further, 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. The principal
assumptions and considerations utilized by Fluor Daniel in developing the
results and conclusions presented in this report include the following:
o Only the power plants and above ground geothermal resource piping and
processing facilities were evaluated. The adequacy, reliability, and
costs of geothermal resources and wells were assessed by GeothermEx.
o The projected interest rates on the Securities, reinvestment rates,
cost of arranging the financing and the amortization schedule of the
Securities used in the debt service coverage analysis have been
provided to Fluor Daniel.
o Fluor Daniel's inspection of the existing Salton Sea operations were
limited to a visit of personnel on July 24, 1998 and February 9, 1999.
o CE Generation provided 1998 financial statements for the CE Generation
and other cost accounting information as well as future projections of
cost, expenses, prices, and other key assumptions.
o Brine quantities and depletion rates were provided by GeothermEx.
o The electricity pricing forecast was provided by Henwood Energy
Services.
o Fluor Daniel has not undertaken an independent review with all
regulatory agencies which could under any circumstances have
jurisdictions over or interests pertaining to the project.
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<PAGE>
REVIEW DOCUMENTS
<TABLE>
<CAPTION>
DOCUMENT
DATE DOCUMENT
- ---- --------
<S> <C>
7/18/95 Salton Sea Funding Corporation Confidential Offering Circular
6/17/96 Salton Sea Funding Corporation Confidential Offering Circular
3/31/93 Technology Transfer Agreement -- Units I, II, & III
7/28/98 Second Amended and Restated Waste Disposal Agreement -- Units I, II, III, & IV
11/24/93 Ground Lease -- Units I & II
9/25/90 Plant Connection Agreement -- Unit II
7/20/88 Plant Connection Agreement -- Unit III
3/31/93 Ground Lease -- Units III & IV
7/14/95 Plant Connection Agreement -- Unit IV
6/9/88 Plant Connection Agreement -- Del Ranch, L.P.
3/14/88 Ground Lease -- Del Ranch, L.P.
3/14/88 Technology Transfer Agreement -- Del Ranch, L.P.
6/9/88 Plant Connection Agreement -- Elmore, L.P.
3/14/88 Ground Lease -- Elmore, L.P.
3/14/88 Technology Transfer Agreement -- Elmore, L.P.
9/25/89 Plant Connection Agreement -- Leathers, L.P.
10/26/88 Ground Lease -- Leathers, L.P.
8/15/88 Technology Transfer Agreement -- Leathers, L.P.
12/6/88 Plant Connection Agreement -- Vulcan Power Company
4/14/98 IID Construction Agreement -- Salton Sea Unit V
4/1/98 IID Plant Connection Agreement -- Salton Sea Unit V
4/14/98 IID Transmission Services Agreement -- Salton Sea Unit V
7/30/98 Lump Sum Cost Proposal -- Salton Sea Unit V Project Schedule
9/11/98 Conditional Use Permit G91-0001 -- Region II Power Plant Modification Project
4/98 Geotechnical Report -- Salton Sea Unit V & Zinc Extraction Facilities
8/98 Geotechnical Investigation -- Upgrade To Vulcan Power Plant
8/5/98 Imperial Valley Operating Statistics
8/5/98 Excerpts from 5 Year Operating Plan
8/98 GeothermEx Report -- Assessment of the Resource Supply
8/5/98 BHP Royalty Agreement and Amendment
8/5/98 California Energy Commission, State of California Energy Resources Conservation
and Development Commission Clearance/Acknowledgement that the Desert
Valley/Salton Sea Unit V Project is not subject to the Commission's jurisdiction.
6/26/98 Conditional Use Permit (#G94-0001) Second Amendment, Granted by Imperial
County and Recorded on 6/26/98 to Allow Brine Flow Increase to Accommodate New
49 MW Power Plant Site.
6/25/98 Conditional Use Permit (#G98-0001) Granted by Imperial County and Recorded on
6/25/98 for a New 23 acre, 49 MW Power Plant generating 0.35 Tons Filter Cake per
Net Megawatt.
7/22/98 Agreement To Conditional Use Permit (G91-0001) Del Ranch, L.P. -- Region 2
(dated July 22, 1998)
7/22/98 Agreement To Conditional Use Permit (G84-0001) Vulcan/BN Geo. Power CO/CE
Turbo LLC -- Region 2 (dated July 22, 1998)
7/1/98 Imperial County Air Pollution Control District, Amended Conditions For Authority
To Construct and Permit To Operate #1894C. Amended Conditions Issued 7/1/98.
This permit is for amended conditions for construction and operation of the elements
in Region I, Unit III.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
DOCUMENT
DATE DOCUMENT
- ---- --------
<S> <C>
9/17/98 Imperial County Air Pollution Control District, Amended Conditions For Authority
To Construct and Permit To Operate #1672B. Amended Conditions Issued 9/17/98.
This permit is for amended conditions for construction and operation of the elements
at the Vulcan Power Plant.
9/17/98 Imperial County Air Pollution Control District, Amended Conditions For Authority
To Construct and Permit To Operate #1891E. Amended Conditions Issued 9/17/98.
This permit is for amended conditions for construction and operation of the elements
at the A. W. Hoch Power Plant.
8/5/98 Imperial County Air Pollution Control District Permit to Construct # 2743 -- Permit
to construct Unit V
8/5/98 Imperial County Public Health Department Water System Permit for 1998, Permit
Number 637
4/1/96 Laidlaw Environmental Services Contract for Facilities Waste Removal and Disposal
Services, dated April 1, 1996, expiring April 1, 2001. Contract NO. 963093.
6/13/96 State of California, Department of Conservation, Division of Oil, Gas, and
Geothermal Resources, Unit 3 Permanent Injection Project Approval.
4/1/98 Cal/EPA State Water Resources Control Board, Letters of Receipt and Processing of
Notices of Intent (2) to Comply with the General Permit to Discharge Stormwater
Associated with Construction Activity, dated April 1, 1998 effective 9/1/98 through
7/1/2000.
9/13/94 California Regional Water Quality control Board, Colorado River Basin, Region 7
Waste Discharge Order (Permit) NO. 94-081for the Injection of Brine and operation
of a brine pond and Holding Basin, effective 9/13/94.
8/5/98 Material Safety Data Sheet, Nalco 1387 Scale Inhibitor (phosphonomethylated amine).
9/2/98 Salton Sea Unit V Engineering, Procurement, and Construction Contract
9/11/98 Region II Upgrade Engineering, Procurement, and Construction Contract
8/12/98 Draft Amendments to Power Purchase Agreement
3/31/98 Salton Sea Funding Corp. Securities and Exchange Commission Form 10-Q
12/31/97 Salton Sea Funding Corp. Securities and Exchange Commission Form 10-K
02/10/99 Draft Amended and Restated Zinc Extraction Services Agreement
</TABLE>
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<PAGE>
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<PAGE>
EXHIBIT 1
CE GENERATION IMPERIAL VALLEY
Projected Operating Results ($'000s)
Base Case
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004
--------- --------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
RECEIPTS:
Revenue $ 216,272 $ 164,994 $ 160,363 $ 171,989 $ 176,884 $181,718
Magma and other revenues 1,000 1,000 1,000 1,000 1,000 1,000
Interest income 5,048 2,264 2,252 2,758 2,603 2,804
--------------------------------------------------------------------------
Total Receipts 222,320 168,258 163,615 175,747 180,487 185,522
OPERATING EXPENDITURES:
Royalty Expense (26,313) (14,356) (14,715) (16,236) (16,823) (17,339)
Operations (12,095) (11,193) (11,445) (11,458) (11,743) (12,036)
Maintenance (4,280) (3,816) (3,505) (3,477) (3,564) (3,653)
Machine shop (439) (451) (462) (474) (487) (499)
Engineering (326) (599) (617) (634) (650) (665)
Well workovers (4,639) (3,496) (3,687) (4,378) (3,055) (1,564)
Services, general & administrative (5,757) (5,570) (5,391) (5,718) (5,853) (5,997)
Accounting, legal & land (1,317) (1,589) (1,630) (1,682) (1,721) (1,760)
Management fees (5,029) (3,377) (3,306) (3,576) (3,641) (3,758)
Guaranteed capacity (3,199) (1,333) (1,389) (1,591) (1,782) (1,735)
Insurance (2,119) (2,286) (2,457) (2,489) (2,551) (2,613)
Property tax (7,561) (5,743) (6,061) (6,049) (5,928) (5,866)
IID transmission line fee (5,068) (6,003) (6,007) (6,085) (6,165) (6,252)
Magma Expenses/Obligations (1,089) (1,040) (903) (903) (903) (903)
Adjustment - Royalties / Fees Paid to Magma 23,783 11,160 11,191 12,469 13,099 13,406
Other 0 (44) (78) (84) (85) (85)
--------------------------------------------------------------------------
Total Operating Expenditures (55,448) (49,737) (50,462) (52,366) (51,852) (51,319)
CAPITAL EXPENDITURES:
Ongoing Capital Expenditures (21,525) (21,159) (17,305) (7,334) (17,779) (15,598)
Construction Expenditures (142,812) (23,546) -- -- -- --
--------------------------------------------------------------------------
Total Capital Expenditures (164,337) (44,705) (17,305) (7,334) (17,779) (15,598)
FINANCING PROCEEDS:
Bond Proceeds 118,681 -- -- -- -- --
Equity Contributions 24,131 23,546 -- -- -- --
--------------------------------------------------------------------------
Total Financing Proceeds 142,812 23,546 -- -- -- --
DEBT SERVICE
Project loan interest payments (24,904) (26,473) (30,424) (28,651) (26,667) (24,602)
Project loan principal payments (57,836) (25,073) (23,027) (26,465) (26,682) (28,832)
--------------------------------------------------------------------------
Total Debt Service (82,740) (51,546) (53,451) (55,115) (53,349) (53,433)
CASH AVAILABLE FOR DISTRIBUTION $ 62,608 $ 45,816 $ 42,397 60,931 $ 57,507 $ 65,172
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2005 2006 2007 2008
--------- --------- --------- -------
<S> <C> <C> <C> <C>
RECEIPTS:
Revenue $ 186,591 $ 179,658 $ 177,732 $ 183,985
Magma and other revenues 1,000 1,000 1,000 1,000
Interest income 2,565 2,733 2,586 2,949
------------------------------------------------
Total Receipts 190,156 183,391 181,318 187,934
OPERATING EXPENDITURES:
Royalty Expense (18,602) (17,504) (17,643) (18,469)
Operations (12,336) (12,646) (12,963) (13,286)
Maintenance (3,744) (3,839) (3,935) (4,034)
Machine shop (511) (524) (536) (549)
Engineering (680) (697) (714) (731)
Well workovers (2,097) (2,080) (2,130) (2,175)
Services, general & administrative (6,166) (6,296) (6,451) (6,609)
Accounting, legal & land (1,799) (1,840) (1,882) (1,924)
Management fees (3,933) (3,924) (3,930) (4,127)
Guaranteed capacity (2,028) (1,852) (2,033) (2,029)
Insurance (2,679) (2,748) (2,817) (2,887)
Property tax (5,778) (5,682) (5,427) (5,280)
IID transmission line fee (6,339) (6,429) (6,519) (6,610)
Magma Expenses/Obligations (903) (903) (903) (903)
Adjustment - Royalties / Fees Paid to Magma 14,685 14,322 14,708 15,395
Other (86) (86) (87) (87)
------------------------------------------------
Total Operating Expenditures (52,997) (52,726) (53,260) (54,305)
CAPITAL EXPENDITURES:
Ongoing Capital Expenditures (26,092) (14,562) (16,215) (7,609)
Construction Expenditures -- -- -- --
------------------------------------------------
Total Capital Expenditures (26,092) (14,562) (16,215) (7,609)
FINANCING PROCEEDS:
Bond Proceeds -- -- -- --
Equity Contributions -- -- -- --
------------------------------------------------
Total Financing Proceeds -- -- -- --
DEBT SERVICE
Project loan interest payments (22,037) (20,310) (18,289) (16,257)
Project loan principal payments (28,618) (25,916) (25,090) (28,067)
------------------------------------------------
Total Debt Service (50,654) (46,226) (43,378) (44,323)
CASH AVAILABLE FOR DISTRIBUTION $ 60,413 $ 69,877 68,464 $ 81,697
</TABLE>
C-26
<PAGE>
EXHIBIT I
CE GENERATION IMPERIAL VALLEY
Projected Operating Results ($'000s)
Base Case
<TABLE>
<CAPTION>
2009 2010 2011 2012 2013 2014
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
RECEIPTS:
Revenue $ 181,895 $ 185,178 $ 184,499 $ 184,817 $ 190,380 $ 193,049
Magma and other revenues 1,000 1,000 1,000 1,000 1,000 1,000
Interest income 2,655 2,877 2,724 2,884 2,657 3,037
--------------------------------------------------------------------------
Total Receipts 185,550 189,055 188,223 188,701 194,037 197,086
OPERATING EXPENDITURES:
Royalty Expense (18,102) (18,524) (18,534) (18,416) (19,433) (19,442)
Operations (13,618) (13,958) (14,307) (14,664) (15,031) (15,407)
Maintenance (4,133) (4,238) (4,344) (4,453) (4,564) (4,679)
Machine shop (562) (574) (587) (602) (616) (631)
Engineering (750) (770) (791) (811) (831) (852)
Well workovers (256) (1,532) (1,391) (1,000) (3,407) (2,361)
Services, general & administrative (6,774) (6,944) (7,117) (7,295) (7,478) (7,664)
Accounting, legal & land (1,967) (2,014) (2,061) (2,109) (2,156) (2,208)
Management fees (4,062) (4,165) (4,153) (4,163) (4,309) (4,337)
Guaranteed capacity (2,127) (2,017) (2,200) (2,039) (2,312) (2,129)
Insurance (2,959) (3,033) (3,109) (3,187) (3,267) (3,348)
Property tax (5,131) (5,037) (4,885) (4,751) (4,536) (4,275)
IID transmission line fee (6,704) (6,797) (6,893) (6,991) (7,089) (7,189)
Magma Expenses/Obligations (903) (903) (903) 0 0 0
Adjustment - Royalties / Fees Paid to Magma 15,332 15,486 15,807 15,485 16,553 16,281
Other (88) (89) (89) (90) (91) (92)
--------------------------------------------------------------------------
Total Operating Expenditures (52,804) (55,109) (55,556) (55,087) (58,568) (58,332)
CAPITAL EXPENDITURES:
Ongoing Capital Expenditures (17,666) (10,456) (14,570) (8,944) (18,198) (7,529)
Construction Expenditures -- -- -- -- -- --
--------------------------------------------------------------------------
Total Capital Expenditures (17,666) (10,456) (14,570) (8,944) (18,198) (7,529)
FINANCING PROCEEDS:
Bond Proceeds -- -- -- -- -- --
Equity Contributions -- -- -- -- -- --
--------------------------------------------------------------------------
Total Financing Proceeds -- -- -- -- -- --
DEBT SERVICE
Project loan interest payments (14,085) (11,809) (9,758) (8,491) (7,286) (6,140)
Project loan principal payments (26,210) (26,741) (19,991) (16,615) (14,665) (17,338)
--------------------------------------------------------------------------
Total Debt Service (40,294) (38,551) (29,749) (25,106) (21,951) (23,477)
CASH AVAILABLE FOR DISTRIBUTION $ 74,786 $ 84,940 $ 88,348 $ 99,564 $ 95,319 $ 107,747
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2015 2016 2017 2018
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
RECEIPTS:
Revenue $ 196,809 $ 196,491 $ 193,806 $ 193,582
Magma and other revenues 1,000 1,000 1,000 1,000
Interest income 3,106 3,045 2,909 2,939
------------------------------------------------
Total Receipts 200,915 200,536 197,715 197,521
OPERATING EXPENDITURES:
Royalty Expense (20,227) (20,616) (20,750) (21,002)
Operations (15,792) (16,188) (16,592) (17,008)
Maintenance (4,795) (4,915) (5,038) (5,164)
Machine shop (647) (663) (681) (699)
Engineering (873) (894) (915) (937)
Well workovers (2,930) (1,270) (1,627) (980)
Services, general & administrative (7,856) (8,053) (8,253) (8,459)
Accounting, legal & land (2,259) (2,311) (2,363) (2,419)
Management fees (4,427) (4,372) (4,314) (4,344)
Guaranteed capacity (2,407) (2,558) (2,560) (2,656)
Insurance (3,432) (3,518) (3,606) (3,697)
Property tax (3,983) (3,728) (3,339) (2,987)
IID transmission line fee (7,290) (7,394) (7,498) (7,604)
Magma Expenses/Obligations 0 0 0 0
Adjustment - Royalties / Fees Paid to Magma 17,169 17,427 17,611 18,017
Other (93) (93) (94) (95)
------------------------------------------------
Total Operating Expenditures (59,839) (59,145) (60,019) (60,035)
CAPITAL EXPENDITURES:
Ongoing Capital Expenditures (6,427) (8,828) (10,036) (8,315)
Construction Expenditures -- -- -- --
------------------------------------------------
Total Capital Expenditures (6,427) (8,828) (10,036) (8,315)
FINANCING PROCEEDS:
Bond Proceeds -- -- -- --
Equity Contributions -- -- -- --
------------------------------------------------
Total Financing Proceeds -- -- -- --
DEBT SERVICE
Project loan interest payments (4,814) (3,372) (1,859) (559)
Project loan principal payments (18,926) (20,371) (19,866) (9,969)
------------------------------------------------
Total Debt Service (23,740) (23,743) (21,725) (10,528)
CASH AVAILABLE FOR DISTRIBUTION 110,909 $ 108,820 $ 105,934 $ 118,642
</TABLE>
C-27
<PAGE>
APPENDIX D
THE SOUTHERN CALIFORNIA
ELECTRICITY MARKET AND
PRICE FORECAST
1999 -- 2018
PREPARED FOR:
CE GENERATION, LLC
FEBRUARY 11, 1999
PREPARED BY:
HENWOOD ENERGY SERVICES, INC.
2710 GATEWAY OAKS WAY, SUITE 300 NORTH
SACRAMENTO, CA 95833
D-1
<PAGE>
TABLE OF CONTENTS
THE SOUTHERN CALIFORNIA
ELECTRICITY MARKET AND
PRICE FORECAST
1999 -- 2018
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
EXECUTIVE SUMMARY ........................................... D-4
1 THE U.S. ELECTRIC POWER MARKET .............................. D-6
1.1 INTRODUCTION ................................................ D-6
1.2 FEDERAL LEGISLATIVE AND REGULATORY INITIATIVES .............. D-6
1.2.1 Public Utility Regulatory Policies Act -- 1978 .............. D-6
1.2.2 Energy Policy Act -- 1992 ................................... D-6
1.2.3 FERC Order 888 -- 1996 ...................................... D-6
1.3 CALIFORNIA LEGISLATIVE INITIATIVES .......................... D-7
1.3.1 Assembly Bill 1890 .......................................... D-7
2 THE CALIFORNIA WHOLESALE POWER MARKET ....................... D-8
2.1 THE MARKET 1998 AND BEYOND .................................. D-8
2.1.1 Diversity of Energy Supply .................................. D-8
2.1.2 California Investor Owned Utilities ......................... D-9
2.1.3 Treatment of Qualifying Facilities (QFs) .................... D-9
2.2 CALIFORNIA MUNICIPAL UTILITIES AND AUTHORITIES .............. D-10
2.3 SYSTEM RELIABILITY .......................................... D-10
2.4 PX MARKET ................................................... D-10
2.4.1 PX Prices ................................................... D-10
2.4.2 Short Run Avoided Costs ..................................... D-11
2.5 PX PRICES AS A MEASURE OF AVOIDED COST ...................... D-12
3 PX PRICE FORECAST: KEY ASSUMPTIONS AND METHODOLOGY .......... D-13
3.1 MODELING METHODOLOGY AND TECHNIQUES ......................... D-13
3.2 ASSUMPTIONS REGARDING THE CALIFORNIA MARKET TRANSITION
PERIOD ..................................................... D-13
3.3 KEY ASSUMPTIONS FOR MODELING CALIFORNIA MARKET .............. D-14
3.3.1 Forecast Horizon ............................................ D-14
3.3.2 Market Structure ............................................ D-14
3.3.3 Existing Resource Base ...................................... D-14
3.3.4 Resource Retirements ........................................ D-14
3.3.5 Generic Resource Additions .................................. D-14
3.3.6 Loads ....................................................... D-15
3.3.7 Load Shape .................................................. D-15
3.3.8 Load Growth ................................................. D-15
3.3.9 Inflation ................................................... D-15
3.3.10 Fuel Prices ................................................. D-15
3.3.11 Operations & Maintenance .................................... D-17
3.3.12 Property Taxes .............................................. D-17
3.3.13 Insurance ................................................... D-17
3.3.14 Other Costs ................................................. D-17
</TABLE>
D-2
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
3.4 WSCC TRANSMISSION SYSTEM CONFIGURATION ........................................... D-17
3.5 HYDRO POWER ...................................................................... D-18
3.5.1 Median Year Case ................................................................. D-18
3.5.2 Transactions ..................................................................... D-19
4 PX PRICE FORECAST: RESULTS ....................................................... D-20
4.1 BASE CASE 1999-2018 .............................................................. D-20
4.2 SENSITIVITY CASES ................................................................ D-21
4.2.1 Low Gas 1 Case ................................................................... D-21
4.2.2 Low Gas 2 Case ................................................................... D-21
5 THE POWER PROJECTS AND THE CALIFORNIA MARKET ..................................... D-22
5.1 MARKET ANALYSIS RESULTS .......................................................... D-22
5.2 PX PRICES AND THE MARKET POSITION OF THE POWER PROJECTS .......................... D-24
6 THE CALIFORNIA GREEN POWER MARKET AND ITS IMPLICATIONS
FOR THE POWER PROJECTS .......................................................... D-26
6.1 CEC RENEWABLE RESOURCE FUNDING ................................................... D-26
6.2 EXISTING RENEWABLE RESOURCE ACCOUNT .............................................. D-26
6.3 NEW RENEWABLE RESOURCE ACCOUNT ................................................... D-27
6.4 EMERGING RENEWABLES ACCOUNT ...................................................... D-28
6.5 CONSUMER-SIDE INCENTIVES ......................................................... D-28
6.6 DISCUSSION OF GREEN POWER MARKET BENEFITS ........................................ D-28
LIST OF TABLES
Table 2-1 1996 Net System Power (Electric Generation) ...................................... D-9
Table 2-2 Monthly Average California PX Prices -- April 1998 to January 1999 ($/MWh) ....... D-11
Table 2-3 SCE and SDG&E Annual Average Short-Run Avoided Costs of Energy ................... D-12
Table 3-1 Generic Resource Characteristics (1996 dollars) .................................. D-15
Table 4-1 Base Case PX Price Forecast 1999 -- 2018, $/MWh................................... D-20
Table 4-2 PX Prices Under Low Gas Case 1 ................................................... D-21
Table 4-3 PX Prices Under Low Gas Case 2 ................................................... D-21
Table 5-1 Average Operating Costs by Plant Type in the WSCC from Prosym Model Simulation
in 2005 ......................................................................... D-22
Table 5-2 PX Price Frequency Analysis in Southern California Transmission Area, 2005 ....... D-25
Table 6-1 AB 1890 Accounts -- Total Funding Allocations by Technology, $Millions ........... D-26
Table 6-2 Existing Renewable Resource Account Allocations by Tier, $Millions................ D-27
Table 6-3 New Renewable Resource Account Allocations by Year, $Millions .................... D-27
LIST OF FIGURES
Figure 2-1 California PX Daily Prices -- High, Low and Average .............................. D-12
Figure 3-1 WSCC Transmission System Configuration ........................................... D-18
Figure 5-1 PX Prices and Project Operating Costs, Units I to IV ............................. D-23
Figure 5-2 PX Prices and Project Operating Costs, Other Units ............................... D-23
Figure 5-3 PX Prices and New Power Project Operating Costs .................................. D-24
Figure 5-4 PX Prices and Yuma Operating Costs ............................................... D-24
LIST OF APPENDICES
A SCE SRAC FORECAST ................................................................ D-30
</TABLE>
D-3
<PAGE>
EXECUTIVE SUMMARY
BACKGROUND
CE GENERATION, LLC ("CEG") will issue securities to finance, among other
things, two new geothermal power plants -- Salton Sea Unit V and the CE Turbo
Project(the "New Power Projects"), which will have a combined net generation
capacity of 59 MW. The New Power Projects are located in the Salton Sea area of
California. The financing will encompass further investment in eight existing
geothermal units which sell power to Southern California Edison under Standard
Offer contracts authorized by the California Public Utilities Commission (the
"CPUC"). In addition, the financing includes a 50 MW gas-fired project, "Yuma",
in Yuma Arizona, which sells power to San Diego Gas and Electric under a
Standard Offer contract. The New Power Projects, the Existing Projects and Yuma
together comprise the "Power Projects". The financing requires an in-depth
assessment of the regulatory issues and electric energy markets in California
including information on the structure and operation of the California market
and an assessment of the competitive position of the Power Projects in the
market.
Henwood Energy Services, Inc (HESI) has developed an independent
assessment of (i) the wholesale electricity market in California for the 20
year period 1999 through 2018; (ii) the competitive position of the Power
Projects in the California market, and; (iii) the outlook for renewable energy
in the emerging Green Power market.
This assessment is presented in both quantitative and qualitative fashion
as listed below:
1. A brief description of the California wholesale electricity market.
2. The key assumptions used in assessing the market and as inputs into
the HESI Electric Market Simulation System.
3. Forecasts of average electricity prices in the California market and
the methodology to develop them. HESI used its proprietary Electric
Market Simulation System (EMSS) to produce the forecasts of market
clearing prices. The base case scenario was developed using
assumptions developed and tested by HESI. Two low gas price scenarios
were developed to assess the Power Projects' sensitivity to market
prices.
4. A specific competitive assessment of the Power Projects on a
stand-alone basis using revenue and variable cost estimates generated
by HESI.
5. An assessment of the Power Projects within the context of the
competitive market and how the Power Projects compare with other
generators.
6. An assessment of the Green Power and renewable energy markets.
7. An analysis of the changes to Qualifying Facility (QF) payments, the
transition formula for calculating such payments, and forecasts of the
payments for the Power Projects.
Based on these analyses, our report contains the following conclusions:
1. Our Base Case forecast indicates that the Southern California annual
Power Exchange (PX) market clearing price (MCP) will increase from
$28.3/MWh in 1999 to $50.3/MWh by 2018 in nominal dollars -- which
translates into an average annual rate of increase of 3.1 percent over
that period.
2. We expect all of the Power Projects to be low cost producers in all
years of the study. The annual average operating cost of the Power
Projects in 2005 is $17.5/MWh (excluding Yuma). In fact, about 66
percent of the electricity produced in the WSCC in 2005 -- the first
year of full competition -- is generated from units with higher costs,
a strong indication that the Power Projects will be dispatched as
baseload. The new units, Salton Sea Unit V and the CE Turbo Project,
are even better positioned with operating costs of $10.0 and $9.3 per
MWh respectively. Of all the generation in the region, only
hydroelectric generators have lower operating costs.
D-4
<PAGE>
3. The annual average operating costs of the Power Projects, in $/MWh,
are below the annual average PX prices. In fact, the Power Projects'
operating costs are close to the off-peak PX price in 1999 through
2002 and significantly below that in all years thereafter.
4. The low-cost relationship between PX prices and the Power Projects'
operating costs also prevails with the Low Gas Price sensitivity
cases. In these cases, operating costs are also well below the PX
prices. The range of annual average PX prices in the Low Gas Case 1 is
$27.9/MWh in 2000 to $47.0/MWh in 2018.
5. A significant finding of the study is that Salton Sea Unit V and the
CE Turbo Project will have operating costs lower than all other
generator types, except hydro, and will be extremely well-positioned
to be dispatched any hour in the year. The operating costs of these
units are about $18.5 to $20/MWh lower than PX prices in 2000 and
2001. The difference increases to $30/MWh by 2005 and to nearly
$40/MWh by 2018. The margin is so significant it is extremely unlikely
that any new significant capacity with lower operating costs will be
built. The Yuma plant appears very cost competitive compared to HESI
estimates of natural gas cogeneration. Yuma operating costs are about
$9.0/MWh below power market prices in 2000 and $15 to $17/MWh below
forecast PX prices in all years after 2005.
6. We also find that the PX price will be greater than or equal to
$20.3/MWh in 96 percent of all hours in 2005. This means that the
Power Projects, with an average operating cost of $17.5/MWh, will be
below the PX price in each of those hours and will be dispatched
accordingly.
7. The transition of short--run avoided cost determination to
competitively determined pricing, while subject to regulatory and
market dynamics, is expected to be complete by the beginning of 2000.
We forecast the Southern California Edison SRAC to be $30.3/MWh in
1999 and $31.1/MWh in 2000, on an annual average basis. SRAC prices
for QF sales to San Diego Gas and Electric are estimated at $30.9/MWh
in 1999 and $31.7/MWh in 2000.
8. In addition to being low cost producers, the Power Projects have the
added competitive advantage of being a renewable and environmentally
preferred (or "green") energy resource.
o Surveys indicate that 40 to 70 percent of California residential
consumers are willing to pay a 5 to 15 percent premium for green
power products. Current retail premiums for green power products
range from 0.7 to 3.1 cents per kWh.
o California is a world leader in the promotion and development of
clean renewable energy and its energy consumers are
environmentally aware. While the traditional power utilities are
cutting back on renewable expenditures, the State of California
has established a $543 million fund to subsidize existing and new
sources of renewable energy. HESI's analysis of the disbursement
criteria and delivery mechanisms, as well as CalEnergy's own
demonstrated expertise in acquiring such funds, all suggest that
the Power Projects will derive substantial benefits from
generating clean and renewable energy.
D-5
<PAGE>
SECTION 1.0
THE U.S. ELECTRIC POWER MARKET
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.
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
D-6
<PAGE>
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 in California
is Assembly Bill 1890, which achieves a number of goals, including:
o An immediate 10 percent rate reduction for residential and small
commercial users.
o A new power market structure with an Oversight Board (OB), an
Independent System Operator (ISO) and a PX.
o Limits the amount of costs (e.g. stranded assets) that are recoverable
in the transition to a deregulated market.
o Preserves public programs supporting energy efficiency, research &
development and low-income households.
o Provides approximately $540 million in subsidies to support renewable
energy programs, including geothermal power generation, such as the
Power Projects.
D-7
<PAGE>
SECTION 2.0
THE CALIFORNIA WHOLESALE POWER MARKET
In September 1996, the California legislature passed Assembly Bill 1890
("AB 1890") that deregulated parts of the electric power business in
California. The California market, originally scheduled to begin on January 1,
1998, was delayed to March 31, 1998. At that time, the PX and ISO began
operation. AB 1890 permits a fully competitive electric generation market to
phase in over a four-year transition period between January 1998 and March 2002
(the "Transition"). 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 shop for 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, 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. 2.1.1 Market Size
California's energy market is very large, with a non-coincident peak
energy demand of 51,280 MW(1) in 1996 and total energy consumption of 245,900
GWh. The average retail cost of electricity is 9.4 cents/kWh (1996 $), with
total electric revenue accounting for over $20 billion. Peak demand for
electricity is forecast to reach 68,100 megawatts by 2015 -- a growth rate of
1.5 percent per year between 1996 and 2015.
California's three largest IOU's -- PG&E, SCE, and SDG&E account for
188,470 GWh, or approximately 77 percent, of California's statewide energy
consumption.
2.1.1 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 gigawatt-hours 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.
- ----------
(1) "Electricity Report," California Energy Commission, August 1997.
D-8
<PAGE>
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. Demand for natural gas in 1990
exceeded 2,025 trillion cubic feet and one-third of California's electrical
energy is generated by natural gas. According to the California Energy
Commission, natural gas will account for 38 percent of energy used for power
generation by 2009.
TABLE 2-1
1996 NET SYSTEM POWER
(ELECTRIC GENERATION)
<TABLE>
<CAPTION>
FUEL TYPE GIGAWATT-HOURS PERCENT
- ------------------------------- ---------------- ----------
<S> <C> <C>
Coal * ...................... 40,283 15.6%
Large Hydro * ............... 64,958 25.1%
Natural Gas * ............... 84,110 32.5%
Nuclear ..................... 39,753 15.4%
Other(Oil, Diesel) .......... 693 0.3%
Biomass & Waste ............. 5,848 2.3%
Geothermal .................. 13,541 5.2%
Small Hydro ................. 5,767 2.2%
Solar ....................... 807 0.3%
Wind ........................ 3,041 1.2%
------ ----
Total ....................... 258,801 100%
======= ====
</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.(2)
2.1.2 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
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.
2.1.3 TREATMENT OF QUALIFYING FACILITIES (QFS)
Qualifying Facilities are currently compensated under a Transition Formula
- -- the Short Run Avoid Cost (SRAC) -- that in its current form is tied directly
to changes in the price of natural gas.
- ----------
(2) Deliverability on the Interstate Natural Gas Pipeline System, Energy
Information Administration, May 1998.
D-9
<PAGE>
However, this relationship is not likely to persist much longer. The 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 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 turn-over its transmission system to ISO control.
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. 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 PX MARKET
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, 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.
D-10
<PAGE>
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 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.
TABLE 2-2
MONTHLY AVERAGE CALIFORNIA PX PRICES -- APRIL 1998 TO JANUARY 1999
($/MWH)
<TABLE>
<CAPTION>
AVERAGE AVERAGE
MONTH ON-PEAK AVERAGE OFF-PEAK ALL HOURS
- ----- ------- ---------------- ---------
<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 Power Projects' QFs currently receive payment under the SRAC
"Transition Formula" for Southern California Edison (SCE) and San Diego Gas and
Electric (SDG&E). 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 and SDG&E. The gas prices (southern California
border prices) used to make this calculation are the same as the gas prices
used in the HESI model to produce the forecast of PX prices.
D-11
<PAGE>
FIGURE 2-1
CALIFORNIA PX DAILY PRICES -- HIGH, LOW AND AVERAGE
[GRAPH SHOWING CALIFORNIA PX PRICES DURING APRIL THROUGH DECEMBER PERIOD]
TABLE 2-3
SCE AND SDG&E ANNUAL AVERAGE
SHORT-RUN AVOIDED COSTS OF ENERGY
<TABLE>
<CAPTION>
PRICE OF GAS SCE AVOIDED SDG&E AVOIDED
YEAR ($/MMBTU) COST ($/MWH) COST ($/MWH)
- ---- --------- ------------ ------------
<S> <C> <C> <C>
1999 ......... 2.30 30.3 30.9
2000 ......... 2.38 31.2 31.7
2001 ......... 2.46 32.0 32.4
</TABLE>
- ----------
Note: The SRAC prices shown are weighted averages with the weights based on the
number of hours in each "time-of use" period.
While the SRAC is projected through 2001, we believe PX pricing will
replace SRAC pricing as early as the start of 2000.
SCE's 1995 forecast of avoided costs of energy is included in Appendix A
for comparison purposes, containing low, medium, and high forecasts.
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 is the divestiture by California IOUs of their
California fossil-fired generation, a process expected to be completed in the
next twelve months for all major utilities. 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 at least
several more months before determining the PX is functioning properly, a
determination which could be subject to several months of regulatory delay.
However, if PX market prices are substantially below transition SRAC prices,
utilities will be motivated to seek a change in SRAC pricing through the CPUC
more quickly. PX trading prices through June 1998 were substantially lower than
SRAC payments, a situation that was reversed in July. HESI's market price
forecasting supports the notion that the trend of annual average PX prices
being lower than SRAC will likely continue through the Transition years
(1999-2001) of California restructuring.
Given the above considerations, the change from Transition Formula to PX
pricing should occur at the beginning of Year 2000.
D-12
<PAGE>
SECTION 3.0
PX PRICE FORECAST: KEY ASSUMPTIONS AND METHODOLOGY
3.1 MODELING METHODOLOGY AND TECHNIQUES
To develop a forecast of PX 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 (Trade Mark) 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:
o individual power plant characteristics;
o transmission line interconnections, ratings, losses, and wheeling
rates;
o forecasts of resource additions and fuel costs; and
o forecasts of loads for each utility in the region.
MULTISYM (Trade Mark) 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.
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
Transition. Must-Take includes power from QF resources -- including the
Existing Power Projects -- nuclear units, and existing purchase power
agreements that have minimum-take provisions, is not subject to competition and
will be scheduled with the ISO on a must-take basis. Must-Run contracts are
between IOU generators and the ISO for the purposes of system reliability and
provide a capacity payment to the owners during all, or part, of the
Transition.
Must-Take units owned by municipal and public power agencies are assumed
to continue operating as they did in the past. Other Must-Take units, like QFs,
will continue to operate under existing contracts.
Units identified on the ISO's must-run 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" which allows the generators to cover
its fixed costs of operation through the ISO's payment. 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, like hydroelectric. There will be few
Must-Run "C" contracts which dedicate the units 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
with a 90 day 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
D-13
<PAGE>
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, 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, 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 CALIFORNIA MARKET
3.3.1 FORECAST HORIZON
The forecast period covers a twenty-year period beginning January 1,1999
and ending December 31, 2018.
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
2018 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 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.
D-14
<PAGE>
Table 3-1 lists the cost and performance assumptions for these resources.
TABLE 3-1
GENERIC RESOURCE CHARACTERISTICS (1996 DOLLARS)
<TABLE>
<CAPTION>
COMBUSTION COMBINED
UNIT CHARACTERISTIC TURBINE 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
Capital Cost ($/kW) ................... 300.00 500.00
Cost of Money (%) ..................... 10% 10%
Capital Amort. Period (years) ......... 15 15
</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.
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, the cost of new
resource additions, and is combined with expectations of real escalation to
result in future fuel prices. For this study inflation was assumed to be 2.5
percent.
3.3.10 FUEL PRICES
There are two principal fuels that drive electricity prices in the WSCC
region -- natural gas and coal.
NATURAL GAS
The natural gas price forecast utilized in this study was developed based
on the price of gas futures contracts for the 1999 period and estimates of gas
transportation costs associated with moving gas from the relevant gas basin to
the power plant. Each power plant in EMSS is assigned a fuel group. Each fuel
group is comprised of two components: a commodity price and a gas
transportation price.
D-15
<PAGE>
Gas Commodity Prices
Gas Commodity prices are tied to the San Juan basin in the southwest and
to the AECO C Hub in Canada, the two main gas-producing basins in the WSCC
region. The price of a series of gas futures contracts for gas delivered to the
San Juan Basin was used as the basis for the study's southwest gas basin price.
Gas basin prices at the AECO C Hub were based on forward gas futures at Henry
Hub plus the price of a financial swap tying Henry Hub prices to the AECO C
Hub. Although generators within the WSCC often use gas from more than one of
these basins, it is assumed that only one gas basin will set the key marginal
gas price for each generator. Each gas basin is mapped to generation regions
within the WSCC as discussed below:
San Juan
This basin is assumed to be the dominant gas basin supply generating
stations in the New Mexico, southern Nevada, Arizona, and California.
Additional pipeline and Local Distribution Company (LDC) charges must be added
to the San Juan price to yield the delivered price of gas to each generating
unit.
Alberta
This basin is assumed to supply generating stations within Alberta; the
same gas price is also applied to generators in British Columbia. Alberta gas
is also assumed to supply electric generators located in the following states:
Washington, Oregon, Idaho, Montana, Wyoming, Utah, and Northern Nevada. Again,
gas transportation costs are added to yield the gas prices to generators in
those states.
Gas Transport Prices
Pipeline transportation costs are added to basin prices to determine
Citygate gas prices. The gas transportation price is a combination of gas
pipeline charges and the cost to move gas across a gas LDC. In many areas,
Citygate prices are the relevant marginal gas costs used by electric generators
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 intrastate or LDC
transportation must be added to yield the dispatch price of gas. These costs
are based on the difference in historic Citygate and basin prices.
Additionally, the monthly price profile of the referenced basin's natural gas
futures contract is used to approximate the seasonality of the gas
transportation price.
Local Distribution Company Charges
For those generators with gas delivered by an LDC, additional charges must
be added. These charges were again estimated using data developed from relevant
regulatory filings and other publicly available company information. The key
generators receiving LDC gas service are California's electric generators. The
LDC charges for each of these were estimated using 1996 charges. These charges
were assumed to remain flat in nominal terms through the study horizon, based
on data that has been published by the California Energy Commission. HESI
assumes the utilities will not continue their current practice of recognizing
only a small portion of their total transportation costs in their dispatch
decisions; rather, the utilities will likely recognize their average
transportation cost in each dispatch decision, or run the risk of substantial
under-recovery of their transportation costs.
Total Gas Costs
The total cost of gas for each "gas price region" within the WSCC is
developed by combining the above costs to yield a forecast of delivered gas
prices.
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
D-16
<PAGE>
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.
3.3.11 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.
3.3.12 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.
3.3.13 INSURANCE
Insurance is calculated as 0.2 percent of the remaining, undepreciated
book value of the power plant.
3.3.14 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.
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 3-1. This characterization reflects the zones
proposed by the California IOUs in their PX applications to FERC.
D-17
<PAGE>
FIGURE 3-1
WSCC TRANSMISSION SYSTEM CONFIGURATION
[GRAPHIC SHOWING WSCC TRANSMISSION SYSTEM CONFIGURATION]
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.
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.
D-18
<PAGE>
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.
D-19
<PAGE>
SECTION 4
PX PRICE 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 will continue to be marginal cost producers
and therefore a major influence on the PX price. Any additional baseload
capacity, including the New Power Projects, would be low cost producers and
price takers. 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 the PX 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 1999-2018
The Base Case annual average PX price forecast for the Southern California
transmission area is presented in Table 4-1.
Annual average PX prices decrease at an annual average of 0.18 percent per
year from 1999 through 2001. This is the Transition period during which most
market players bid selling prices into the market which reflect their short run
marginal fuel 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 PX price increasing from
$28.16/MWh in 2001 to $33.99/MWh in 2002.
TABLE 4-1
BASE CASE PX PRICE FORECAST 1999 -- 2018, $/MWH
<TABLE>
<CAPTION>
ANNUAL AVERAGE AVERAGE
AVERAGE OFF-PEAK ON-PEAK
YEAR MCP $/MWH MCP $/MWH MCP $/MWH
---- --------- --------- ---------
<S> <C> <C> <C>
1999 28.31 23.18 33.94
2000 28.19 23.49 33.42
2001 28.16 22.71 34.16
2002 33.99 26.73 41.98
2003 35.23 27.79 43.43
2004 36.82 28.80 45.65
2005 40.09 30.97 50.14
2006 39.91 31.02 49.68
2007 40.19 31.02 50.30
2008 43.05 32.17 55.02
2009 42.04 31.77 53.35
2010 43.48 33.03 54.99
2011 43.48 33.08 54.93
2012 43.26 33.10 54.45
2013 45.70 34.37 58.18
2014 45.89 34.95 57.93
2015 47.57 35.87 60.46
2016 47.79 35.67 61.12
2017 49.16 36.78 62.79
2018 50.31 37.19 64.75
</TABLE>
D-20
<PAGE>
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 PX price increases at an annual average rate of 5.7
percent during this period.
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 PX price increases from $40.09/MWh in 2005
to $50.31/MWh by 2018 -- an average rate of increase of 1.8% per year, which is
less than the assumed rate of inflation.
4.2 SENSITIVITY CASES
4.2.1 LOW GAS 1 CASE
In the Low Gas Case 1, the inflation rate is set at zero, thereby keeping
the gas price flat relative to the Base Case. The gas price decreases each year
to the point it is 10 percent below the Base Case. It was held at a constant 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 period of recovery
and market demand.
A total of 6 simulations, representing the sample years listed in Table
4-2, were run to calculate the annual average PX prices for those years
(intervening years can be interpolated).
TABLE 4-2
PX PRICES UNDER LOW GAS CASE 1
<TABLE>
<CAPTION>
BASE CASE LOW GAS 1
ANNUAL AVE ANNUAL AVE PERCENT BELOW BASE
SAMPLE YEAR MCP $/MWH MCP $/MWH CASE PRICE
----------- --------- --------- ----------
<S> <C> <C> <C>
2000 28.19 27.92 1.0
2001 28.16 27.86 1.1
2005 40.09 38.70 3.5
2010 43.48 40.25 7.4
2014 45.89 42.89 6.5
2018 50.31 46.95 6.7
</TABLE>
4.2.2 LOW GAS 2 CASE
In the Low Gas Case 2, the Base Case gas price forecast is reduced by
three percent each year from 1999 through 2004, so that by 2004 the gas price
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 analysis. This scenario also requires an oversupply of
gas or a dramatic decline in demand followed by a lengthy period of recovery.
A total of 6 simulations, representing the sample years listed in Table
4-3, were run to calculate the annual average PX prices for those years.
TABLE 4-3
PX PRICES UNDER LOW GAS CASE 2
<TABLE>
<CAPTION>
BASE CASE LOW GAS 2
ANNUAL AVE ANNUAL AVE PERCENT BELOW BASE
SAMPLE YEAR MCP $/MWH MCP $/MWH CASE PRICES
----------- --------- --------- -----------
<S> <C> <C> <C>
2000 28.19 27.23 3.4
2001 28.16 26.47 6.0
2005 40.09 35.58 11.0
2010 43.48 38.47 12.0
2014 45.89 39.98 13.0
2018 50.31 43.31 14.0
</TABLE>
D-21
<PAGE>
SECTION 5
THE POWER PROJECTS AND THE CALIFORNIA MARKET
5.1 MARKET ANALYSIS RESULTS
This section presents an analysis of the Power Projects and their position
in the competitive California market and consists of two sets of comparisons:
1) a comparison of unit operating cost estimates provided by CEG and operating
costs of other types of generation; 2) a comparison of Power Project operating
costs and forecasted PX prices. The latter set of comparisons were performed
using the Base Case and two Low Gas price cases.
We expect all of the Power Projects to be low cost producers 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 Power
Projects. We selected the year 2005 for this analysis as it is the first year
in which we assumed a fully competitive market. The average operating cost of
the Power Projects in 2005 is $17.50/MWh -- which makes them low cost
producers. In fact, about 66 percent of the electricity produced in the WSCC in
2005 is generated from units with higher costs, a strong indication that the
Power Projects will be dispatched as baseload. The new units, Salton Sea Unit V
and the CE Turbo Project, are even better positioned at $10.00 and $9.30 per
MWh respectively. Of all the generation in the region, only hydroelectric
generators have lower operating costs.
TABLE 5-1
AVERAGE OPERATING COSTS BY PLANT TYPE IN THE WSCC FROM PROSYM MODEL SIMULATION
IN 20051
<TABLE>
<CAPTION>
ELECTRICITY AVERAGE OPERATING
PLANT TYPE GENERATION (GWH) COST ($/MWH)2
- ---------- ---------------- -------------
<S> <C> <C>
Internal Combustion Engines ......... 62 62.22
Gas Turbine ......................... 26,177 39.94
Geothermal (3)....................... 18,890 37.49
Gas/Cogeneration .................... 21,917 26.85
Gas/Combined Cycle .................. 151,804 25.41
YUMA COGENERATION ................... 351 23.70
Other Renewables (4)................. 6,737 23.29
Steam Plants ........................ 335,527 18.21
THE POWER PROJECTS (5)............... 2,879 17.50
Nuclear ............................. 35,885 13.33
Wind ................................ 3,435 10.45
SALTON SEA UNIT V (5)................ 421 10.00
CE Turbo Project (5)................. 82 9.30
Hydroelectric ....................... 246,434 4.91(7)
Total ............................... 846,867(8)
</TABLE>
- ----------
[1] 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.
[2] Cost based on fuel and variable O&M in nominal dollars.
[3] 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. In the case of the Power Projects, the steam supply
and facility owners are all Guarantors.
[4] Includes solar, biomass, and other renewables.
[5] Based on weighted facility operating cost (includes fuel, variable O&M and
fixed O&M) and consists of Salton Sea Units 1-5, Elmore, Leathers, Del
Ranch, Vulcan, and CE Turbo Project. Source: IPP Co.
[6] Cost based on average aggregated operating expenses of hydroelectric
facilities in the WSCC as reported to FERC on FERC Form 1.
[7] The generation totals in bold are not included in the total, but are
included in the total geothermal production. They are listed here to
provide relative scale to the market.
D-22
<PAGE>
Operating Costs of the Power Projects, in $/MWh, are compared to the Base
Case annual average PX prices in the figures below. All units have operating
costs below the annual average PX price, with the exception of the Leathers
unit, which has an operating cost above the annual average PX price in the
first year. This occurrence is because 1) Leathers is still in the S04 fixed
price energy period, and 2) certain costs such as geothermal royalties are
directly linked to revenues. In fact, all of the Power Projects' operating
costs are close to the off-peak PX price in 1999 through 2002 and significantly
below that in all years thereafter.
FIGURE 5-1
PX PRICES AND PROJECT OPERATING COSTS, UNITS I TO IV
[LINE CHART SHOWING PX PRICES AND OPERATING COSTS FOR UNITS I TO IV]
FIGURE 5-2
PX PRICES AND PROJECT OPERATING COSTS, OTHER UNITS
[LINE CHART SHOWING PX PRICES AND OPERATING COSTS FOR OTHER UNITS]
D-23
<PAGE>
FIGURE 5-3
PX PRICES AND NEW POWER PROJECT OPERATING COSTS
[LINE CHART SHOWING PX PRICES AND OPERATING COSTS FOR NEW PROJECTS]
FIGURE 5-4
PX PRICES AND YUMA OPERATING COSTS
[LINE CHART SHOWING PX PRICES AND OPERATING COSTS FOR YUMA PROJECT]
Most important is the comparison between the PX prices and the New Power
Projects, Salton Sea Unit V and CE Turbo Project as shown in Figure 5-3. These
units are about $20/MWh lower than the PX prices in 2000 and 2001, a difference
that increases to $30/MWh in 2005 and to nearly $40/MWh by 2018. The margin is
so significant it is extremely unlikely that any new generators with lower
operating costs will be built. It is very unlikely that any significant hydro
generation capacity, even with lower operating costs, due to siting and
licensing difficulties. Thus, we conclude that the New Power Projects will have
operating costs lower than all other generator types, except hydro, and will be
extremely well-positioned to be dispatched any hour in the year.
The differential between PX prices and operating costs is perpetuated in
the Low Gas Price Cases -- namely, operating costs are well below the PX
prices. PX prices in the Low Gas Case 1 range between $27.92/MWh in 2000 to
$46.95/MWh in 2018. In Low Gas Case 2, forecast PX prices range from $27.23/MWh
in 2000 to $43.31/MWh by 2018.
5.2 PX PRICES AND THE MARKET POSITION OF THE POWER PROJECTS
For an additional perspective of the relative position of the Power
Projects in the market, a table summarizing the frequency of PX prices
(Marginal Prices) is developed. This approach captures more
D-24
<PAGE>
of the hour by hour price variability than the preceding results. First, the
hourly PX 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 PX price is greater
than, or equal to, $20.30/MWh. This means that the Power Projects, with an
average operating cost of $17.50/MWh will be below the PX price 96 percent of
the time.
TABLE 5-2
PX PRICE FREQUENCY ANALYSIS IN SOUTHERN CALIFORNIA TRANSMISSION AREA, 2005
<TABLE>
<CAPTION>
MINIMUM% OF PX PRICE
TIME $/MWH
---- -----
<S> <C>
70 28.73
75 25.65
80 24.12
85 23.15
90 21.73
95 20.68
96 20.30
</TABLE>
D-25
<PAGE>
SECTION 6
THE CALIFORNIA GREEN POWER MARKET AND
ITS IMPLICATIONS FOR THE POWER PROJECTS
The sweeping regulatory changes initiated by Federal and California
regulators present significant opportunities for providers of electricity from
renewable energy sources. HESI believes a number of emerging market factors
bode well for the most efficient renewable energy projects in general including
the Existing Projects and the New Power Projects in particular. These factors
are listed and discussed below. First, however, this section presents a brief
summary of the renewable funding programs.
6.1 CEC RENEWABLE RESOURCE FUNDING
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, including the New and Existing Projects. 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. Existing facilities that are substantially
refurbished on or after September 23, 1996 can apply for funding from the new
technology category. 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 most of the consumer-side funds, and secondly, a consumer
information account.
6.2 EXISTING RENEWABLE RESOURCE ACCOUNT
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.
D-26
<PAGE>
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 3 --
TIER 1- BIOMASS, TIER 2 -- GEOTHERMAL, SMALL
SOLAR, THERMAL WIND HYDRO, OTHERS 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.
The amount of funds available annually to each tier declines over the four
year period. The CEC expects renewable generation facilities to become more
cost efficient and therefore more competitive as the unregulated market
evolves.
The subsidy is distributed monthly to renewable energy suppliers through a
cents per kWh payment. However, the payment is based on the lowest of three
possible calculations: 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), a pre-determined cents per kWh price cap, and a
funds adjusted price (the adjustment ensures that the amount disbursed does not
exceed the amount of funds available). The CEC designated target price and
price cap for existing technology tier 3 geothermal facilities are 3.0 and 1.0
cents per kWh, respectively. Thus the Existing Projects benefit from these
subsidies on a cent per kWh basis to the extent that the SRAC is below 3 cents
per kWh. SRAC prices applicable to Southern California Edison have recently
been in the 2.7 to 3.1 per kWh range.
6.3 NEW RENEWABLE RESOURCE ACCOUNT
The New Renewable Resources Account contains $162 million to support new
renewable electricity generation projects. According to the AB 1890
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.
TABLE 6-3
NEW RENEWABLE RESOURCE ACCOUNT ALLOCATIONS BY YEAR, $MILLIONS
<TABLE>
<CAPTION>
1998 1999 2000 2001 TOTAL
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
New Renewables .......... $ 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.
The New Power Projects were awarded $31.3 million in this auction, one of
the largest subsidies granted by the CEC. This subsidy directly and positively
impacts the ability of the New Power
D-27
<PAGE>
Projects to produce competitively priced power. HESI also notes that the award
is a strong indication that the New Power Projects are among the lowest unit
cost producers of new renewable energy in California.
6.4 EMERGING RENEWABLES ACCOUNT
The purpose of the emerging renewable subsidy or Buy-Down 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 kilowatts or less, fuel cells that convert renewable fuels
such as methane gas into electricity, 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.
6.5 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' electricity
bill who purchase renewable energy will automatically be credited up to 1.5
cents for every kilowatt-hour of renewable electricity 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. This program directly reduces
the retail cost of renewable energy and thus makes power produced by the New
Power Projects more attractive to customers who otherwise would not have
purchased renewable-based power.
The $5.4 million consumer information account is to fund a renewable
energy public information program. The objective of the program is to help
build a viable customer-driver market for renewable energy through consumer
education.
6.6 DISCUSSION OF GREEN POWER MARKET BENEFITS
The New Power Projects can earn the market clearing price by selling power
directly into the PX. However, an alternative marketing strategy exists --
tapping into the retail market by selling directly to green power marketers.
Based on our analysis, we believe this option may reap additional benefits for
the New Power Projects. This section of the report discusses the potential
benefits to the New Power Projects from participation in the California green
power energy market.
Surveys consistently show that 40 to 70 percent of California residential
customers are willing to pay a 5 to 15 percent premium for green power
products.(1)(3) Current retail premiums for green power products range from
about 0.7 to 3.1 cents per kWh, depending upon the percentage of renewable
energy contained in the resource mix. Assuming that 50 percent of the New Power
Projects' output is sold into the green power market and that 2.5 cents per kWh
can be obtained from such sales, assumptions we believe to be reasonable, the
New Power Projects would earn additional revenue of approximately $6.5 million a
year.
- ----------
(3) See, for example a summary of customer survey results in "Selling Green
Power in California: Product, Industry, and Market Trends," by Ryan H.
Wiser and Steven J. Pickle, Ernest Orlando LawrenceBerkeley National
Laboratory, University of California, Berkeley, California, May 1998,
page 5.
D-28
<PAGE>
A study by the Lawrence Berkeley Laboratory2(4) estimates that between 25
to 60 thousand households will have switched to a green power energy source by
the end of 1998.(3) However, expectations among renewable energy marketers are
much higher. In proceedings before the California Energy Commission, marketers
suggested that the number of customers switching to a renewable energy source
could reach as high as 175,000 households within the first twelve months.
The study also suggests that a combination of rising consumer demand for
renewable energy and a scarcity of renewable energy projects will result in a
higher renewable energy price premium in the near future. This situation is
likely to continue until higher cost renewable projects are developed and
eventually brought on-line.
While California possesses a large amount of renewable generation, the
significant majority of it is either tied up in long term contracts with the
IOUs or is owned outright by them and thus not available to the green power
market in the near term. Consequently, the short-term supply of non-utility
renewable energy available to marketers is very small -- perhaps no more than
200 MW.(4) Because of this situation, new renewable resource projects that can
offer competitively priced power, such as the New Power Projects, will likely be
in a position to capture a significant portion of the rising premiums that are
excepted in the near future. Further, the improved market position of low cost
renewable energy providers is also likely to be reflected in more attractive
contract terms. According to the Lawrence Berkeley Laboratory report, the
majority of green power marketers expect contracts of one to five years to
become the standard within 5 years.(5) Contracts with existing renewable energy
providers are, in contrast, generally two years at a maximum.
In conclusion, the California green power market can potentially provide
significant additional benefits to the New Power Projects above and beyond the
proven financial return these plants can earn dealing through the PX market.
CEG has indicated to HESI that while it intends to fully exploit the green
power market, none of the anticipated benefits discussed in this section have
been reflected in its analysis.
- ----------
(4) The Ernest Orlando Lawrence Berkeley National Laboratory (Berkeley Lab) is
a multi-program national research facility operated by the University of
California for the Department of Energy (DOE). Its fundamental mission is
to provide national scientific leadership and technological innovation in
support of DOE's objectives. Founded in 1931, it is the oldest of the
national laboratories. The Laboratory specializes in research related to
technology and the environment, such as advanced materials science, life
sciences, energy efficiency and energy supply, and nuclear physics. The
Berkeley Lab has been awardednine Nobel prizes in the fields of physics and
chemistry for this research.
(5) IBID, page 5.
(6) IBID, page 26. In comparison, the CEC estimates about 500 MW. See "Policy
Report on AB 1890 Renewables Funding:Report to the Legislature," 1997.
(7) IBID, page 27.
D-29
<PAGE>
APPENDIX A
SCE SRAC FORECAST
SCE'S SRAC FORECAST
FOR 1995 THROUGH 2015
CENTS/KWH
<TABLE>
<CAPTION>
YEAR LOW MEDIAN HIGH
- ---- --- ------ ----
<S> <C> <C> <C>
1995 .......... 2.41 2.41 2.41
1996 .......... 2.48 2.51 2.54
1997 .......... 2.55 2.60 2.68
1998 .......... 2.72 2.83 2.97
1999 .......... 2.91 2.99 3.28
2000 .......... 3.11 3.22 3.60
2001 .......... 3.30 3.46 3.91
2002 .......... 3.42 3.59 4.13
2003 .......... 3.52 3.72 4.36
2004 .......... 3.62 3.88 4.61
2005 .......... 3.72 4.11 4.86
2006 .......... 3.83 4.31 5.16
2007 .......... 3.95 4.44 5.48
2008 .......... 4.06 4.59 5.82
2009 .......... 4.18 4.74 6.19
2010 .......... 4.31 4.89 6.59
2011 .......... 4.43 5.06 7.07
2012 .......... 4.57 5.22 7.60
2013 .......... 4.70 5.40 8.16
2014 .......... 4.84 5.58 8.76
2015 .......... 4.99 5.76 9.41
</TABLE>
D-30
<PAGE>
APPENDIX E
ASSESSMENT OF THE RESOURCE SUPPLYING
GEOTHERMAL FACILITIES
AT SALTON SEA, CALIFORNIA
FOR
CE GENERATION, LLC
OMAHA, NEBRASKA
BY
GEOTHERMEX, INC.
RICHMOND, CALIFORNIA
FEBRUARY 1999
E-1
<PAGE>
EXECUTIVE SUMMARY
Introduction
Presented herein are the review and analyses (the "Report") by GeothermEx,
Inc. ("GeothermEx") of the long-term resource sufficiency of the Salton Sea
Known Geothermal Resource Area (the "Salton Sea Field") to supply geothermal
resource to existing and proposed power plants and a proposed zinc recovery
facility. CalEnergy Company, Inc. ("CECI"), has established CE Generation, LLC
("CEG") to issue notes and bonds to investors which are supported by revenue
produced by the power plants which are as follows:
o Salton Sea Guarantors: Salton Sea Units I, II, III and IV ("Salton Sea
Projects"), including the construction of Salton Sea Unit V;
o Partnership Guarantors: partnership interests in the Vulcan, Del Ranch
(Hoch), Elmore and Leathers Projects (the "Partnership Projects"),
including certain royalty and other payments; and
o Royalty Guarantor: Royalty interests paid by the Royalty Projects
consisting of three of the Partnership Projects.
Affiliates of CEG are constructing two additional power facilities at the
Salton Sea: 1) Unit V, a 49 MW (net) facility; and 2) the CE Turbo Project, a
10 MW (net) facility. A third project, a zinc recovery facility, is being
constructed by a CECI affiliate. Collectively, these are the "New Projects."
GeothermEx has prepared this report as an independent resource consultant for
CEG and for future potential bondholders.
Scope of Work and Assumptions
GeothermEx has reviewed the behavior of the wells and resource supplying
the existing geothermal power plants in the Salton Sea Field, located in
Imperial County, California. Well locations are shown in figure 1. The purposes
of this report are: 1) to assess the long-term resource sufficiency and
suitability for supplying the existing plants and the proposed additional
facilities mentioned above and 2) to assess the reasonableness of the projected
workover and wellfield capital budget for the program.
In the preparation of this report and the opinions expressed, GeothermEx
has made certain assumptions about conditions which may exist or events which
may occur in the future. The principal assumptions and considerations made and
the database used by GeothermEx in developing the results and conclusions
presented in this report are described below.
GeothermEx has provided several due-diligence evaluations for the Salton
Sea Projects and the Partnership Projects. These have included evaluations
prepared in 1995 and 1998 in support of the first and third bond offerings of
Salton Sea Funding Corporation ("Funding Corporation"). As such, GeothermEx
holds a large amount of information on the Salton Sea wells, which has been
presented in numerous technical reports in the past.
For the current study, CEG provided updated production and injection
histories from the California Division of Oil, Gas, and Geothermal Resources
(CDOGGR), new chemical analyses, information on the drilling and logging of
recent wells, and budget information for future wellfield expenditures.
Together, all of this information constitutes the database used in the present
study. Reports that have formed a significant part of GeothermEx's current
evaluation are included in the document list in section 5.
GeothermEx has independently reviewed and relied upon data from the Salton
Sea Field supplied by CEG, in addition to other data mentioned above. In our
opinion, the data is reliable and accurate, based on our extensive knowledge of
the resource and the history of operations at the Salton Sea Field.
E-2
<PAGE>
Conclusions
Based upon our review and the considerations and assumptions set forth
above, we have reached the following conclusions:
o The Salton Sea Field is highly productive and wells have historically
behaved favorably with minimal flow rate or pressure declines.
o The proposed Unit V will utilize the heat energy in reinjection brine
which is presently separated from the steam supplying Units I -- IV.
The nominal additional production fluid needed for Salton Sea Unit V
will be supplied from existing wellhead capacity.
o The nominal additional production fluid needed for the CE Turbo
Project can be supplied by spare capacity at existing wells. In
addition, a new production well is planned and budgeted for drilling
in 1999.
o Numerical simulation studies undertaken to date forecast acceptable
well behavior for the existing and planned level of power generation
and zinc recovery. Well behavior has historically been consistent with
results predicted by earlier simulation models; therefore, future well
behavior is expected to be adequate to support the Salton Sea,
Partnership and New Projects.
o The recoverable geothermal energy reserves from the reservoir are more
than sufficient to support existing projects and the planned
additional increments of capacity resulting in a total capacity of
326.4 MW. We estimate that 1,200 MW of reserves are available within
the portion of the Salton Sea Field dedicated to the Salton Sea,
Partnership and New Projects.
o The recoverable reserves of geothermal energy will not be affected by
either the planned capacity expansion or the zinc recovery project.
o In unescalated dollars, CEG's projected budget through 2020 includes
$70.4 million for wellfield capital (new wells, re-drills, and
tie-ins) and $38.4 million for well workovers. The budget for
wellfield costs is reasonable and should allow the CEG facilities to
achieve the forecasted levels of electrical generation and zinc
production.
1. OVERVIEW AND DESCRIPTION OF THE SALTON SEA GEOTHERMAL FIELD
1.1 DEVELOPMENT HISTORY AND PRESENT STATUS
CEG and its subsidiaries own and operate eight geothermal power plants and
propose to develop two additional power plants in the Salton Sea Field. The
plant names, capacities and start-up dates are listed below.
<TABLE>
<CAPTION>
PLANT NAME CAPACITY (NET MW) START-UP DATE
- ---------- ----------------- -------------
<S> <C> <C>
Vulcan 34.0 1986
Del Ranch (Hoch) 38.0 1989
Elmore 38.0 1989
Leathers 38.0 1990
Unit I 10.0 1982
Unit II 20.0 1990
Unit III 49.8 1989
Unit IV 39.6 1996
Unit V 49.0 2000(planned)
CE Turbo Project 10.0 2000(planned)
-----
Total 326.4
</TABLE>
E-3
<PAGE>
1.2 NEW PLANTS
Salton Sea Unit V is scheduled to start-up in 2000, concurrently with a
facility to recover zinc from the geothermal brine. The CE Turbo Project is
scheduled for start-up in mid-2000. The third of the New Projects is the
30,000-metric-tonne zinc recovery facility. Satellite process facilities will
be located at four existing power plant facilities: Leathers, Elmore,
Vulcan/Hoch and the Region 1 (Units I -- V) brine processing facility. These
sites will be connected by pipelines to the central processing facility, which
will process the solution from the satellite plants into a final marketable
product of metallic zinc.
2. WELL BEHAVIOR
2.1 HISTORICAL
A total of about 130 production or injection wells have been drilled
within the Salton Sea field to date. Production and injection histories were
obtained from the archives of the CDOGGR, which receives monthly average flow
rate (or injection rate), wellhead pressure and wellhead temperature from the
field operators. GeothermEx has adjusted the production and injection rates
from the CDOGGR archives to reflect actual steam usage rates as reported by the
CEG facilities. To the best of our knowledge, this information represents the
most consistent and complete production and injection database available.
There are 31 active production wells in the Salton Sea field with an
average capacity of 9 MW per well, which exceeds the US industry average. The
plants are often operated at higher levels than their net capacity ratings, and
many of the wells are routinely operated in a throttled condition that does not
draw on their full capacity.
Both the production and injection wells have been worked over periodically
because of scaling and corrosion. In general, these workovers have helped to
maintain the productivity and injectivity of the wells; however, as in most
geothermal projects, it has been necessary to redrill some wells because of
mechanical problems which sometimes occur during a workover operation, or
because of other mechanical damage.
Despite the need for workovers and/or redrills, the project wells have
behaved very favorably to date. Flow rate declines have been small, and many
wells have excess capacity.
In May 1996, output from the field was increased when new wells were
brought on line to supply Unit IV. As shown in figure 2, production and
injection rates have been relatively stable since then.
2.2 ANTICIPATED WELL AND FIELD BEHAVIOR
It will be shown in the following chapter of this report that the
recoverable geothermal energy reserves are more than sufficient to support the
existing projects and the New Projects. While it is a necessary condition,
adequacy of geothermal reserves by itself does not guarantee commercial success
of a geothermal project. Future behavior of the field, in general, and the
wells, in particular, will dictate how much of these reserves can be
economically recovered. As mentioned above, the wells have behaved very
favorably to date, and CEG is using numerical modeling to forecast and optimize
future well and field behavior under various operating scenarios.
GeothermEx independently developed a numerical simulation model of the
Salton Sea field in 1997and 1998, and CEG independently developed a numerical
simulation of the Salton Sea Field in 1998. These models are used to evaluate
future well and reservoir behavior in response to production and injection
under specified scenarios, including the modification of injection well
locations to optimize zinc recovery, and the additional production required to
supply Unit V and the CE Turbo project. CEG developed and utilizes its model as
a reservoir management tool, to maximize both power production and zinc
recovery from the field. The CEG model incorporates the most recent production
and injection data, as well as current development and operational plans. The
results of
E-4
<PAGE>
both modeling efforts indicate that the existing and planned production
facilities can be supported by the existing wells (maintained as needed) and by
those budgeted wells which may be drilled in the near future.
3. RECOVERABLE GEOTHERMAL ENERGY RESERVES
This study confirms that there are sufficient geothermal energy reserves
to support the existing projects and the New Projects. For calculating the
reserves, the area under consideration includes the acreage dedicated to Units
I -- V, and the Vulcan, Del Ranch (Hoch), Elmore and Leathers units. This is
referred to herein as the "Subject Area".
The first step in making a volumetric reserve estimate is to calculate the
heat energy in place within the subject area using the subsurface temperature
distribution. The volume considered is an irregular block confined by the
downward vertical projections of the boundaries of the subject area between
elevations of -1,500 feet and -6,500 feet (msl). The volume of reservoir
considered is also limited by temperature constraints; the minimum acceptable
temperature used herein is 380 degreesF. Certain assumptions were then made
regarding the recoverability of the heat-in-place, the efficiency of converting
heat energy to electrical energy, and the annual plant capacity factor. The
methodology is described in detail below.
Reserves in a geothermal area can be expressed as the maximum electric
power plant capacity that can be supplied commercially for 30 years. Volumetric
calculation of reserves requires estimation of four parameters:
1. Gross thermal energy in place (H, Btu);
2. Fraction of the gross in-place thermal energy that can be recovered
commercially (recovery factor, R);
3. Fraction of recoverable thermal energy that can be converted to
electrical energy (conversion efficiency, E); and
4. Power plant load factor (F).
Using the above-defined quantities, the maximum sustainable power plant
capacity is expressed as:
H o R o E
MW = 1.11 x 10-12 ---------
F (1)
where MW= average gross MWe over 30 years.
We can calculate the gross heat in place as:
H = (Cvr + Cvb) V (T -- To) (2)
where Cvr = volumetric specific heat of rock (Btu/ft3/degreesF)
Cvb = volumetric specific heat of brine (Btu/ft3/degreesF)
V = reservoir bulk volume (ft3),
T = average reservoir temperature (degreesF), and
To = a reference or base temperature (degreesF).
Within the Subject Area, the volume of rock with temperatures exceeding
380 degreesF (parameter V in equation 2 above) was calculated to be
1.26 x 10(12) cubic feet. Average temperature (T) was estimated to be
522 degreesF on the basis of the subsurface temperature distribution.
In equation (2),
Cvr = Pr Cr (1-- o NS) (3),
and Cvb = Pf Cf - o NS (4),
where Pf = bulk density of reservoir fluid,
E-5
<PAGE>
= 60 lbs/ft(3)
Cf = specific heat capacity of reservoir brine,
= 0.85 Btu/lb/ degreesF,
P = reservoir porosity,
= 20%;
Pr = bulk density of rock matrix,
= 168 lbs/ft3;
Cr = specific heat capacity of rock matrix,
= 0.255 Btu/lb/ degreesF; and
NS = net sand fraction
= 0.35.
Using the above estimates of the various parameters, the heat in place (H)
is calculated for the subject area using equation 2:
H = 5.84 x 10(13) (522 -- To) Btu for the subject area. (5).
Now the parameters R (recovery factor), E (conversion efficiency) and F
(power plant capacity factor) need to be estimated to complete the calculation
of gross MW available for 30 years. We assume a conversion efficiency of 15%,
which is typical for power plants like those presently in operation at Salton
Sea, and a capacity factor of 85%. The recovery factor (R) cannot be readily
estimated as it depends critically on the degree of heterogeneity in the
reservoir, whereas the model used for volumetric reserve estimation is assumed
to be homogeneous.
For the purpose of volumetric reserve estimation, the following approach
was considered to estimate an approximate value for R. In this case, R is
estimated to be 0.35, based on the reasonable assumptions that: (a) 35% of the
reservoir bulk volume is permeable because the average sand fraction in the
Salton Sea reservoir is 35%; (b) there is no in-situ boiling; and (c) the
injected water can cool the entire porous and permeable volume (sand layers) of
the reservoir (including the sand grains) to T0 (here assumed to be the
temperature of the power plant waste water, or 225 degreesF). We have
conservatively assumed essentially no heat recovery from shale for our
single-phase heat extraction model. This assumption is balanced to some degree
by assuming that there is 100% sweep of all sand layers by injection water.
Our analysis is that 30-year energy reserves of 1,200 MW were calculated
for the subject area. A total capacity of 267.4 MW has been installed to date
and another 59 additional MW (Salton Sea Unit V and the CE Turbo Project) are
planned, resulting in a total capacity of 326.4 MW. Accordingly, our analysis
indicates that the energy reserves are more than sufficient to support the
existing and planned facilities within the subject property.
4. REVIEW OF FUTURE WELLFIELD COSTS
CEG's estimate of projected wellfield costs includes two components. The
first component is wellfield capital, which comprises new production wells, new
injection wells, and tie-ins for these wells (that is, connections from the
wellheads to the gathering system pipelines). The second component is workovers
(that is, repairs of existing wells to correct such problems as wellbore
scaling or casing damage). Figure 3 shows the projected annual expenditures for
these components through the year 2020. The dollar values in figure 3 and in
the following discussion are in unescalated 1998 dollars.
The total projected budget for wellfield costs from 1999 to 2020 is $108.8
million, of which $70.4 million is for wellfield capital and $38.4 million is
for workovers. Wellfield costs are expected to be higher in the first three
years (through 2001), reflecting the planned drilling of several new production
wells with titanium casing and several new injection wells. Workover costs are
also
E-6
<PAGE>
somewhat higher in the first few years, reflecting continuing repairs to older
wells with carbon steel casing that are being gradually replaced by new wells.
The titanium casing in the new production wells is less prone to wellbore
scaling, and the injection water after start-up of the zinc extraction
facilities is expected to have less entrained solids, which should extend the
lives of the injection wells. For these reasons, annual workover expenditures
after the first few years of the project life are expected to be lower.
GeothermEx agrees with this conclusion.
New production wells with titanium casing are expected to cost about $4
million each. New injection wells are expected to cost somewhat less (about
$2.5 million each) because they do not require titanium casing. A re-drill
(that is, a well drilled to a new down-hole location from an existing wellhead)
is expected to cost about $0.8 million. The number, timing, and location of new
wells during the project life will depend on field performance. However, the
projected budget contains sufficient funds for roughly 10 new producers, 10 new
injectors, and 8 re-drills, including the costs of tie-ins for these wells. In
GeothermEx's opinion, the budget amounts are reasonable estimates for the
forecasted levels of electrical generation and zinc production over the next 20
years.
5. DOCUMENT LIST
ADA International Consulting, Ltd., "TETRAD Version 12.0 User's Manual."
Calgary, Alberta, Canada. Reservoir simulation software.
California Division of Oil, Gas, and Geothermal Resources, "Monthly
Reports of Geothermal Operations." Production and injection statistics for
Salton Sea wells.
CE Generation, LLC
-- maps of existing and proposed well locations in Salton Sea Field
-- recent production and injection statistics for Salton Sea wells
-- database of chemical analyses from Salton Sea wells
-- input deck for CEG's numerical simulation of Salton Sea Field using
TETRAD software
-- Imperial Valley Capital Expenditures by Year (budget forecast of
wellfield costs)
GeothermEx (1995), "Assessment of the Geothermal Resource Underlying
Geothermal Power Projects, Salton Sea Geothermal Field, California." Report
prepared for Salton Sea Funding Corporation, Omaha, Nebraska.
GeothermEx (1998), "Assessment of the Resource Supplying Geothermal
Facilities at Salton Sea, California." Report prepared for Salton Sea Funding
Corporation, Omaha, Nebraska.
E-7
<PAGE>
[MAP OF THE SALTON SEA GEOTHERMAL AREA]
E-8
<PAGE>
[LINE CHART SHOWING HISTORICAL PRODUCTION RATE]
[LINE CHART SHOWING HISTORICAL INJECTION RATE]
E-9
<PAGE>
FIGURE 3. PROJECTED EXPENDITURES FOR WELLFIELD CAPITAL AND WORKOVERS AT
CE GENERATION'S GEOTHERMAL FACILITIES AT SALTON SEA, CALIFORNIA
[BAR GRAPH SHOWING PROJECTED EXPENDITURES FOR WELLFIELD CAPITAL AND WORKOVERS]
E-10
<PAGE>
ADDRESS OF EXCHANGE AGENT:
CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION
101 CALIFORNIA STREET, NO. 2725
SAN FRANCISCO, CALIFORNIA 94111
TELEPHONE: (415) 954-9508
FAX: (415) 693-8850
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
CE Generation, LLC, a Delaware limited liability company, is empowered by
Section 18-108 of the Delaware Limited Liability Company Act, subject to the
procedures and limitations stated therein, to indemnify any person against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with any
threatened, pending or completed action, suit or proceeding in which such
person is made a party by reason of his being or having been a director,
officer, employee or agent of CE Generation, LLC. The statute provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any agreement, vote of
members or disinterested directors or otherwise. The limited liability company
operating agreement of CE Generation, LLC provides for indemnification of the
managers, officers and directors of CE Generation, LLC to the full extent
permitted by the Delaware Limited Liability Company Act.
MidAmerican Energy Holdings Company maintains an insurance policy
providing for indemnification of the officers and directors of its subsidiaries
against liabilities and expenses incurred by any of them in certain stated
proceedings and under stated conditions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
3.1 Certificate of Formation of CE Generation, LLC
3.2 Limited Liability Company Operating Agreement of CE Generation, LLC
4.1 Indenture, dated as of March 2, 1999, by and between CE Generation, LLC and Chase
Manhattan Bank and Trust Company, National Association
4.2 Form of First Supplemental Indenture to be entered into by and between CE Generation,
LLC and Chase Manhattan Bank and Trust Company, National Association, Trustee
4.3 Purchase Agreement, dated February 24, 1999, by and among CE Generation, LLC,
Credit Suisse First Boston Corporation and Lehman Brothers, Inc.
4.4 Exchange and Registration Rights Agreement, dated as of March 2, 1999, by and among
CE Generation, LLC, Credit Suisse First Boston Corporation and Lehman Brothers, Inc.
4.5 Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as of
March 2, 1999, by and among CE Generation, LLC, the banks named therein and Credit
Suisse First Boston, as Agent
4.6 Deposit and Disbursement Agreement, dated as of March 2, 1999, by and among CE
Generation, LLC, Magma Power Company, Salton Sea Power Company, Falcon Seaboard
Resources, Inc., Falcon Seaboard Power Corporation, Falcon Seaboard Oil Company,
California Energy Development Corporation, CE Texas Energy LLC and Chase
Manhattan Bank and Trust Company, National Association, as Collateral Agent and
Depositary Bank
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
4.7 Intercreditor Agreement, dated as of March 2, 1999, by and among CE Generation, LLC,
Magma Power Company, Salton Sea Power Company, Falcon Seaboard Resources, Inc.,
Falcon Seaboard Power Corporation, Falcon Seaboard Oil Company, California Energy
Development Corporation, CE Texas Energy LLC, Credit Suisse First Boston and Chase
Manhattan Bank and Trust Company, National Association, as Trustee, Collateral Agent
and Depositary Bank
4.8 Assignment and Security Agreement, dated as of March 2, 1999, by and among Magma
Power Company, Salton Sea Power Company, Falcon Seaboard Resources, Inc., Falcon
Seaboard Power Corporation, Falcon Seaboard Oil Company, California Energy
Development Corporation, CE Texas Energy LLC, Credit Suisse First Boston and Chase
Manhattan Bank and Trust Company, National Association, as Collateral Agent
4.9 Assignment and Security Agreement, dated as of March 2, 1999, by and between CE
Generation, LLC and Chase Manhattan Bank and Trust Company, National Association,
as Collateral Agent
4.10 Pledge Agreement (SSPC Stock), dated as of March 2, 1999, by Magma Power Company
in favor of Chase Manhattan Bank and Trust Company, National Association, as
Collateral Agent
4.11 Pledge Agreement (FSRI Stock and CEDC Stock), dated as of March 2, 1999, by CE
Generation, LLC in favor of Chase Manhattan Bank and Trust Company, National
Association, as Collateral Agent
4.12 Securities Account Control Agreement, dated as of March 2, 1999, by and among CE
Generation, LLC, Magma Power Company, Salton Sea Power Company, Falcon Seaboard
Resources, Inc., Falcon Seaboard Power Corporation, Falcon Seaboard Oil Company,
California Energy Development Corporation, CE Texas Energy LLC, Credit Suisse First
Boston and Chase Manhattan Bank and Trust Company, National Association, as
Collateral Agent and Depositary Bank
5.1 Opinion of Latham & Watkins regarding the validity of the new Securities
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Fluor Daniel, Inc.
23.4 Consent of R.W. Beck, Inc.
23.5 Consent of Henwood Energy Services, Inc.
23.6 Consent of GeothermEx, Inc.
25.1 Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of
1939 of Chase Manhattan Bank and Trust Company, National Association
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal to tender unregistered 7.416% Senior Secured Bonds Due
December 15, 2018 of CE Generation, LLC
99.2 Form of Letter to Registered Holders and DTC Participants from CE Generation, LLC
regarding the exchange offer
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
99.3 Form of Instruction to Registered Holder or DTC Participant from Beneficial Owner of
7.416% Senior Secured Bonds Due December 15, 2018 of CE Generation, LLC
99.4 Form of Letter to Clients from Registered Holder or DTC Participant regarding the
exchange offer
99.5 Form of Notice of Guaranteed Delivery
</TABLE>
(b) Financial Statement Schedules
Financial statement schedules are not included because the required
information is inapplicable or is presented in the financial statements or the
notes thereto.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes 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.
The undersigned registrant hereby undertakes as follows: prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
Items of the application form.
The undersigned registrant hereby undertakes that every prospectus (i)
that is filed pursuant to the immediately preceding paragraph or (ii) that
purports to meet the requirements of Section l0(a)(3) of the Securities Act of
1933 and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment will be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time will be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act 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
or paid by 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 the issue.
The undersigned registrant hereby undertakes to file an application of the
purpose of determining the eligibility of the trustee to act under subsection
(a) of section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Securities and Exchange Commission under
section305(b)(2) of the Trust Indenture Act.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this registration statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the City of
Omaha, State of Nebraska, on October 22, 1999.
CE GENERATION, LLC
By: /s/ Douglas L. Anderson
--------------------------------
Name: Douglas L. Anderson
Title: Vice President and General
Counsel
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Douglas L. Anderson his
attorney-in-fact, with the power of substitution, for him in any and all
capacities, to sign any amendments to this registration statement (including
post-effective amendments), and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may 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, as of the dates and in the cities and states indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE CITY AND STATE
--------- ----- ---- --------------
<S> <C> <C> <C>
/s/ Robert S. Silberman President and Chief October 22, 1999 Omaha, Nebraska
- -------------------------- Operating Officer;
Robert S. Silberman Director
/s/ Brian K. Hankel Vice President and October 22, 1999 Des Moines, Iowa
- -------------------------- Treasurer
Brian K. Hankel
/s/ Douglas L. Anderson Vice President and October 22, 1999 Omaha, Nebraska
- -------------------------- General Counsel;
Douglas L. Anderson Director
/s/ Richard P. Johnston Vice President and October 22, 1999 Houston, Texas
- -------------------------- Commercial Officer
Richard P. Johnston
/s/ Patrick J. Goodman Director October 22, 1999 Des Moines, Iowa
- --------------------------
Patrick J. Goodman
/s/ Larry Kellerman Director October 22, 1999 Houston, Texas
- --------------------------
Larry Kellerman
/s/ John L. Harrison Director October 22, 1999 Houston, Texas
- --------------------------
John L. Harrison
/s/ Steven M. Pike Director October 22, 1999 Houston, Texas
- --------------------------
Steven M. Pike
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
3.1 Certificate of Formation of CE Generation, LLC
3.2 Limited Liability Company Operating Agreement of CE Generation, LLC
4.1 Indenture, dated as of March 2, 1999, by and between CE Generation, LLC and Chase
Manhattan Bank and Trust Company, National Association
4.2 Form of First Supplemental Indenture to be entered into by and between CE Generation,
LLC and Chase Manhattan Bank and Trust Company, National Association, Trustee
4.3 Purchase Agreement, dated February 24, 1999, by and among CE Generation, LLC,
Credit Suisse First Boston Corporation and Lehman Brothers, Inc.
4.4 Exchange and Registration Rights Agreement, dated as of March 2, 1999, by and among
CE Generation, LLC, Credit Suisse First Boston Corporation and Lehman Brothers, Inc.
4.5 Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as of
March 2, 1999, by and among CE Generation, LLC, the banks named therein and Credit
Suisse First Boston, as Agent
4.6 Deposit and Disbursement Agreement, dated as of March 2, 1999, by and among CE
Generation, LLC, Magma Power Company, Salton Sea Power Company, Falcon Seaboard
Resources, Inc., Falcon Seaboard Power Corporation, Falcon Seaboard Oil Company,
California Energy Development Corporation, CE Texas Energy LLC and Chase
Manhattan Bank and Trust Company, National Association, as Collateral Agent and
Depositary Bank
4.7 Intercreditor Agreement, dated as of March 2, 1999, by and among CE Generation, LLC,
Magma Power Company, Salton Sea Power Company, Falcon Seaboard Resources, Inc.,
Falcon Seaboard Power Corporation, Falcon Seaboard Oil Company, California Energy
Development Corporation, CE Texas Energy LLC, Credit Suisse First Boston and Chase
Manhattan Bank and Trust Company, National Association, as Trustee, Collateral Agent
and Depositary Bank
4.8 Assignment and Security Agreement, dated as of March 2, 1999, by and among Magma
Power Company, Salton Sea Power Company, Falcon Seaboard Resources, Inc., Falcon
Seaboard Power Corporation, Falcon Seaboard Oil Company, California Energy
Development Corporation, CE Texas Energy LLC, Credit Suisse First Boston and Chase
Manhattan Bank and Trust Company, National Association, as Collateral Agent
4.9 Assignment and Security Agreement, dated as of March 2, 1999, by and between CE
Generation, LLC and Chase Manhattan Bank and Trust Company, National Association,
as Collateral Agent
4.10 Pledge Agreement (SSPC Stock), dated as of March 2, 1999, by Magma Power Company
in favor of Chase Manhattan Bank and Trust Company, National Association, as
Collateral Agent
4.11 Pledge Agreement (FSRI Stock and CEDC Stock), dated as of March 2, 1999, by CE
Generation, LLC in favor of Chase Manhattan Bank and Trust Company, National
Association, as Collateral Agent
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
4.12 Securities Account Control Agreement, dated as of March 2, 1999, by and among CE
Generation, LLC, Magma Power Company, Salton Sea Power Company, Falcon Seaboard
Resources, Inc., Falcon Seaboard Power Corporation, Falcon Seaboard Oil Company,
California Energy Development Corporation, CE Texas Energy LLC, Credit Suisse First
Boston and Chase Manhattan Bank and Trust Company, National Association, as
Collateral Agent and Depositary Bank
5.1 Opinion of Latham & Watkins regarding the validity of the new Securities
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Fluor Daniel, Inc.
23.4 Consent of R.W. Beck, Inc.
23.5 Consent of Henwood Energy Services, Inc.
23.6 Consent of GeothermEx, Inc.
25.1 Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of
1939 of Chase Manhattan Bank and Trust Company, National Association
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal to tender unregistered 7.416% Senior Secured Bonds Due
December 15, 2018 of CE Generation, LLC
99.2 Form of Letter to Registered Holders and DTC Participants from CE Generation, LLC
regarding the exchange offer
99.3 Form of Instruction to Registered Holder or DTC Participant from Beneficial Owner of
7.416% Senior Secured Bonds Due December 15, 2018 of CE Generation, LLC
99.4 Form of Letter to Clients from Registered Holder or DTC Participant regarding the
exchange offer
99.5 Form of Notice of Guaranteed Delivery
</TABLE>
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF FORMATION
OF
CE GENERATION, LLC
1. The name of the limited liability company is CE Generation, LLC.
2. The address of its registered office in the State of Delaware is Corporation
Trust Center, 1219 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
3. This Certificate of formation shall be effective February 8, 1999.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation of CE Generation, LLC this 8th day of February, 1999.
/s/ Douglas L. Anderson
------------------------------
Douglas L. Anderson
Authorized Person
<PAGE>
EXHIBIT 3.2
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
CE GENERATION, LLC
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I......................................................................1
DEFINITIONS AND CHARACTERIZATION...............................................1
1.1. Definitions............................................................1
1.2. Tax Characterization...................................................4
ARTICLE II.....................................................................4
FORMATION......................................................................4
2.1. Organization...........................................................4
2.2. Name...................................................................4
2.3. Term...................................................................4
2.4. Registered Agent and Office............................................4
2.5. Principal Office.......................................................4
2.6. Qualified in Other Jurisdictions.......................................5
ARTICLE III....................................................................5
PURPOSE; NATURE OF BUSINESS....................................................5
3.1. Purpose................................................................5
ARTICLE IV.....................................................................5
ACCOUNTING AND RECORDS.........................................................5
4.1. Records to be Maintained...............................................5
4.2. Tax Returns and Reports; Accounting....................................6
4.3. Information............................................................6
4.4. Confidentiality........................................................6
ARTICLE V......................................................................7
MEMBERS........................................................................7
5.1. Membership Classes.....................................................7
5.2. Names and Addresses....................................................7
5.3. Admission of New Members...............................................7
ARTICLE VI.....................................................................7
MANAGEMENT; RIGHTS AND DUTIES OF MEMBERS.......................................7
6.1. Management.............................................................7
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6.2. Operations............................................................10
6.3. Other Opportunities...................................................12
6.4. Liability ............................................................12
6.5. Exculpation and Indemnification.......................................13
ARTICLE VII...................................................................13
CONTRIBUTIONS AND CAPITAL ACCOUNTS............................................13
7.1. Contributions.........................................................14
7.2. No Obligation to Restore Deficit Balance..............................14
7.3. Withdrawal; Successors................................................14
7.4. Interest ............................................................14
7.5. No Personal Liability.................................................14
ARTICLE VIII..................................................................14
DISTRIBUTIONS.................................................................14
ARTICLE IX....................................................................14
TRANSFER OF INTERESTS.........................................................14
9.1. Transfer of Interests.................................................14
9.2. Conditions to Transfer................................................15
9.3. Electric Utility......................................................15
9.4. QF True Up............................................................15
ARTICLE X.....................................................................16
DISSOLUTION AND WINDING UP....................................................16
10.1. Dissolution..........................................................16
10.2. Effect of Dissolution................................................16
10.3. Distribution of Assets on Dissolution................................16
10.4. Winding Up and Filing Articles of
Cancellation.......................................................17
ARTICLE XI....................................................................18
MISCELLANEOUS.................................................................18
11.1. Notices ............................................................18
11.2. Amendment; Waiver; Decisions.........................................18
11.3. Resolution of Disputes...............................................18
11.4. Headings ............................................................18
11.5. Binding Agreement....................................................18
11.6. Enforcement..........................................................19
11.7. Saving Clause........................................................19
11.8. Counterparts.........................................................19
11.9. Governing Law........................................................19
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11.10. No Rights of Creditors and Third
Parties under Agreement............................................19
11.11. General Interpretive Principles......................................19
11.12. Entire Agreement.....................................................20
iii
<PAGE>
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
CE GENERATION, LLC
This Limited Liability Company Operating Agreement of CE Generation,
LLC, a Delaware limited liability company (the "COMPANY"), is made by and
between the Company and CalEnergy Company, Inc., a Delaware corporation
("CALENERGY"), as of February 9, 1999.
WHEREAS, CalEnergy has formed a limited liability company pursuant to
the Delaware Limited Liability Company Act, 6 Del C. ss.18-101, et seq., as
amended from time to time (the "ACT"), by filing a Certificate of Formation of
the Company with the office of the Secretary of State of the State of Delaware
and entering into this Agreement; and
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and intending to be legally bound,
the Company and CalEnergy, the sole Member, hereby adopt the following
provisions:
ARTICLE I.
DEFINITIONS AND CHARACTERIZATION
1.1. DEFINITIONS. In addition to the other terms defined elsewhere in this
Agreement (as defined below), the following terms shall have the meanings set
forth below:
ACT. Delaware Limited Liability Company Act, as amended.
AFFILIATE. Any Person, directly or indirectly, controlling, controlled
by or under common control with such Person and any director, officer, employee,
consultant or agent of such Person.
AGREEMENT. This Limited Liability Company Operating Agreement including
all amendments adopted in accordance with this Agreement and the Act.
BOARD. The Board of Directors of the Company.
BUSINESS DAY. Any day other than Saturday, Sunday or such other day on
which banking institutions in New York, New York, are authorized or obligated to
close.
CAPITAL ACCOUNT. The account maintained for a Member determined in
accordance with Article VII.
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CAPITAL CONTRIBUTION. Any contribution of Property to the Company made
by or on behalf of a Member.
CERTIFICATE. The Certificate of Formation of the Company, as amended
from time to time and filed in the Office of the Secretary of State of the State
of Delaware.
CLASS A INTERESTS. The Class A Interests representing 50% of the Common
Equity of the Company and entitling the holder to the rights described herein.
CLASS B INTERESTS. The Class B Interests representing 50% of the Common
Equity of the Company and entitling the holder to the rights described herein.
CODE. The Internal Revenue Code of 1986, as amended.
COMPANY. CE Generation, LLC, a limited liability company formed under
the laws of the State of Delaware, and any successor limited liability company.
DEVELOPMENT AGREEMENT. The certain agreement by and among the Company,
CalEnergy and El Paso Power Holding Company to be executed as of the Closing
Date as defined in the Purchase Agreement.
DIRECTOR. A person duly appointed to the Board of the Company in
accordance with Section 6.1.
DISSOLUTION EVENT. An event, the occurrence of which will result in the
dissolution of the Company under Article X.
ELECTRIC UTILITY. An "electric utility," "electric utility holding
company" or a combination thereof, as such terms are used in 18 C.F.R.ss.292.206
or any successor provision, any Subsidiary of any of the foregoing, or any other
Person in which any of the foregoing holds an interest which, if such Person
owned a Class A Interest, would be deemed to result in any portion of such Class
A Interest being held by any of the foregoing. Any determination of who is an
Electric Utility shall be made by the Board.
FERC. The Federal Energy Regulatory Commission, or any successor
agency.
FISCAL YEAR. The calendar year.
IMPERIAL VALLEY PROJECTS. The meaning set forth in the Purchase
Agreement.
INTERESTS. The Class A Interests and Class B Interests taken together
or individually as the context may require.
INVESTOR. The Person acquiring the Class A Interest from CalEnergy and
such Persons successors and permitted assigns.
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IPPCO DEBT. shall mean the $400 million indebtedness of the Company
issued prior to the Closing as defined in the Purchase Agreement.
MEMBER. The Persons, other than the Company, executing this Agreement
as Members and any new Members added in accordance with this Agreement.
MEMBERSHIP ADMISSION. The sale or issuance by the Company of any
Interest to any Person, whether or not such Person, immediately prior to the
time of such sale or issuance, was a Member.
OFFICER. The Persons appointed pursuant to Section 6.1(f).
PERSON. An individual, trust, estate, corporation, partnership, joint
venture, limited liability company, business trust, unincorporated association,
or a government or agency or political subdivision thereof.
POWER PURCHASE AGREEMENTS. The Power sale contracts pursuant to which
each Project sells electricity.
PROJECTS. The Company's interests in certain generating facilities,
commonly known as Salton Sea Units I, II, III, IV and V, CE Turbo, Del Ranch,
Elmore, Vulcan, Leathers, PRI, Yuma, NorCon and Saranac.
PROPERTY. Any property, real or personal, tangible or intangible,
including money and securities, and any legal or equitable interest in such
property, but excluding services and promises to perform services in the future.
PURCHASE AGREEMENT. The Equity Purchase Agreement dated February 21,
1999 between CalEnergy, as Seller, and Investor, as Buyer, for the purchase of
the Class A Interests.
PURPA. The Public Utility Regulatory Policies Act of 1978, as amended.
QF. A power plant which has qualified as a "small power production
facility" or a "cogeneration facility" as such terms are defined in PURPA.
QF PROJECT. Any Project which has obtained the status of a QF until
such time as the Board determines to terminate the QF status, or such Project is
otherwise determined not to be a QF by FERC.
SECURITIES ACT. The Securities Act of 1933, as amended.
SUBSIDIARY. Any corporation or other entity (including partnerships and
other business associations and joint ventures) in which the Company directly or
indirectly owns 10% or more of the equity securities.
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TAX REGULATIONS. The federal income tax regulations promulgated by the
United States Treasury Department under the Code as such Tax Regulations may be
amended from time to time. All references herein to a specific section of the
Tax Regulations shall be deemed also to refer to any corresponding provision of
succeeding Tax Regulations.
TRANSFER. Any sale assignment, pledge, hypothecation, abandonment or
other disposition or encumbrance whether or not for consideration.
ZINC RECOVERY PROJECT. That certain zinc extraction facility located in
Imperial Valley, California, owned by CalEnergy Minerals LLC and all future
expansions thereof and future minerals extraction facilities developed in the
vicinity of the Projects located in Imperial Valley, California.
1.2. TAX CHARACTERIZATION. It is intended that the Company be characterized
and treated for federal, state and local income tax purposes as the Directors
shall determine from time to time.
ARTICLE II.
FORMATION
2.1. ORGANIZATION. The Members hereby organize the Company as a Delaware
limited liability company pursuant to the provisions of the Act.
2.2. NAME. The name of the Company is CE Generation, LLC, and all business
of the Company shall be conducted under that name, or one or more fictitious
names as the Board may determine from time to time.
2.3. TERM. The existence of the Company shall be perpetual, unless the
Company shall be sooner dissolved and its affairs wound up in accordance with
the Act or this Agreement.
2.4. REGISTERED AGENT AND OFFICE. The registered agent for the service of
process and the registered office of the Company shall be that Person and
location set forth in the Certificate. The Members or the Board may, from time
to time, change the registered agent or office through appropriate filings with
the Office of the Secretary of State of the State of Delaware. In the event the
registered agent ceases to act as such for any reason or the registered office
shall change, the Members or Board shall promptly designate a replacement
registered agent or file a notice of change of address, as the case may be.
2.5. PRINCIPAL OFFICE. The Principal Office of the Company shall be located
at: c/o CalEnergy Company, Inc., 302 South 36th Street, Suite 400, Omaha,
Nebraska 68131, Attn: General Counsel, or at such other address as the Company
may have furnished in writing.
4
<PAGE>
2.6. QUALIFIED IN OTHER JURISDICTIONS. The Members shall cause the Company
to be qualified, formed or registered under assumed or fictitious name statutes
or similar laws in any jurisdiction in which the Company transacts business. Any
member of the Board, any Officer or any person appointed by the Board as an
authorized person within the meaning of the Delaware Act, shall execute, deliver
and file any certificates (and any amendments and/or restatements thereof)
necessary for the Company to qualify to do business in a jurisdiction in which
the Company may wish to conduct business.
ARTICLE III.
PURPOSE; NATURE OF BUSINESS
3.1. PURPOSE. The Company's business and purpose is to (i) to engage in the
ownership and operation of the Projects, (ii) to issue the IPPCo Debt, (iii) if
approved by the Board, to construct new projects, (iv) if approved by the Board,
to pursue new generation facilities, to engage in activities incidental to the
foregoing (including financing activities), and any and all lawful business
activities which may be approved by the Board from time to time for which
limited liability companies may be organized under the Act.
ARTICLE IV.
ACCOUNTING AND RECORDS
4.1. RECORDS TO BE MAINTAINED. The Company shall maintain the following
records at the Principal Office:
(a) a current list of the full name set forth in alphabetical order and
last known mailing address of each Member, together with information relating to
each Member's Capital Contributions and Membership Interest;
(b) a copy of the Certificate and all amendments thereto, together with
executed copies of any powers of attorney pursuant to which the Certificate or
any such amendment has been executed;
(c) a copy of the Company's federal, state and local income or
information tax returns and reports for the three most recent Fiscal Years; and
(d) the Company's books and records, including financial statements,
permits and insurance of the Company, which shall be open to inspection by the
Members or their agents at reasonable times.
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<PAGE>
4.2. TAX RETURNS AND REPORTS; ACCOUNTING. The Company, at its own expense,
shall cause its accountants to prepare and timely file income tax returns of the
Company in all jurisdictions where such filings are required, and the Company
shall cause its accountants to prepare and deliver to each Member, within ninety
(90) days after the expiration of each Fiscal Year or as soon as practicable
thereafter, at the Company's expense, all information with respect to the
Company required by the Code and the Tax Regulations for the preparation of the
Members' federal income tax returns. The Company shall use the accrual method of
accounting in the preparation of its financial reports and for tax purposes and
shall keep its books and records accordingly.
4.3. INFORMATION.
(a) Requested Information. With reasonable promptness, the Company
shall furnish each Member or Director with such other data and information as
from time to time may be reasonably requested. The Company acknowledges that its
obligations under this Section 4.3(a) shall not limit the rights of its Members
or Directors under applicable law to obtain information and other materials from
the Company.
(b) Management Reporting. The officers of the Company shall cause to be
prepared and delivered to the Board of Directors or a designated officer of each
Member, within thirty (30) days after the end of each quarter (and monthly to
the extent such reports are available), reports which are conventional for the
power generation industry presenting timely and relevant information on the
financial and operational performance of the Company and its assets. In addition
to the foregoing, the officers of the Company shall prepare and deliver to the
Board of Directors (i) within sixty (60) days after the end of each Fiscal Year,
a balance sheet of the Company and its Subsidiaries as at the end of such year
and statements of income and cash flows of the Company and its Subsidiaries for
such year, setting forth in comparative form the figures for the previous Fiscal
Year, audited and certified by a nationally recognized accounting firm acting as
the independent public accountants of the Company; (ii) within thirty (30) days
after the end of each fiscal quarter (other than year-end), an unaudited balance
sheet of the Company and its Subsidiaries as at the end of such quarter and
statements of income and cash flows for the Company and its Subsidiaries for
such quarter, setting forth in comparative form the figures for the same fiscal
quarter for the previous year; (iii) with reasonable promptness, such other
financial information and reports as from time to time may be requested by the
Board of Directors, including, without limitation, production reports,
management reports and efficiency data.
(c) Inspection. From and after the date hereof, the Company will
permit, upon reasonable prior notice and at such members sole cost and expense,
each holder of more than 5% of the outstanding Interests, its nominee, assignee
or its representative to visit and inspect any of the properties of the Company
and its Subsidiaries, to examine all their books of account, records, reports
(including tax records and returns) and other papers and to make copies and
extracts therefrom, during normal business hours, subject to appropriate
confidentiality requirements.
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4.4. CONFIDENTIALITY. As much of the information and other material
furnished under or in connection with this Agreement (whether furnished before,
on or after the date hereof) constitutes or contains confidential business,
financial or other information of the Company, its Subsidiaries or the Projects,
each Member covenants for itself and its directors, officers, partners and
stockholders that it will not disclose such confidential information and will
cause its respective officers, directors, employees, counsel, accountants and
other representatives to abide by such confidentiality obligations; provided,
however, that such Member may disclose or deliver any information or other
material disclosed to or received by the Member should such disclosure or
delivery be required by law or regulation provided that it provides prior notice
to the Company so that the Company may seek an appropriate protective order, if
applicable.
ARTICLE V.
MEMBERS
5.1. MEMBERSHIP CLASSES. The Company shall have two classes of Member
Interests, Class A Interests and Class B Interests. The Class A Interests and
Class B Interests shall each represent 50% of the common equity of the Company
and shall each be entitled to 50% of the voting rights and 50% of any
distributions, and otherwise have the rights as set forth in this Agreement.
5.2. NAMES AND ADDRESSES. The names and addresses of the Initial Members of
each class are as stated on Schedule 1.
5.3. ADMISSION OF NEW MEMBERS. The Members may effect, at their sole
discretion, a Membership Admission by the prior written consent of both (i) the
holders of a majority of the Class A Interests and (ii) the holders of a
majority of the Class B Interests; provided, however, that at no time while any
Project remains a QF may such Membership Admission be effected if it will cause
an Electric Utility, or more than one Electric Utility in the aggregate, to own
more than 50% of the equity of the Company or cause any Project to lose its QF
status.
ARTICLE VI.
MANAGEMENT; RIGHTS AND DUTIES OF MEMBERS
6.1. MANAGEMENT. (a) Board of Directors. The Company shall be managed
exclusively by or under the direction of a Board of Directors (the "BOARD"),
consisting of four Directors, two of whom shall be appointed by the holders of
the Class A Interests and two of whom shall be appointed by the holders of the
Class B Interests; provided, that, no person appointed by the holders of the
Class A Interests shall be an Electric Utility. Each Director and Officer of the
Company is not a "manager" (within the meaning of the Act) of the Company.
Following their appointment, Directors shall serve until (i) removal, (ii)
resignation or (iii) election of a successor by the holders of the applicable
class of Interests, whichever occurs first. Directors may be removed at any
time, with or without cause, by the holders of the class of Interests appointing
such Director.
7
<PAGE>
(b) Authority of the Board. Except as provided in Section 6.2,
(i) The Board, acting as a group or through the officers, has sole authority
to manage the Company and is authorized to make any contracts, enter into any
transactions, make and obtain any commitments and take any and all actions on
behalf of the Company to conduct or further the Company's business. Any action
taken by the Directors or Officers on behalf of the Company in accordance with
the foregoing provisions shall constitute the act of and shall serve to bind the
Company;
(ii) Each Director has one vote in Board decisions;
(iii) Action by the Board requires either
(A) a resolution approved by the affirmative vote of at least three of
the Directors present at a meeting of the Board, (1) scheduled by a prior
act of the Directors or called upon at least two business days' written
notice signed by at least two Directors or the Chairman or President, and
(2) with a quorum present of at least three of the Directors, or
(B) a written action, signed by at least three of the Directors.
(c) Meetings of the Board of Directors. The Board of Directors shall
hold annual meetings at such time and at such place as shall be designated by
the President and stated in the notice of the meeting. Notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
Director not less than ten (10) days before the date of such annual meeting,
either personally, by telephone, by mail, by telegram or by any other means of
communication. Special meetings of the Board of Directors may be called by the
Chairman, if any, or the President on three (3) days' notice to each Director,
either personally, by telephone, by mail, by telegram or by any other means of
communication; special meetings shall be called by the Chairman, if any, or the
President or Secretary in like manner and on like notice on the written request
of one or more of the Directors.
(d) Quorum and Acts of the Board of Directors. At all meetings of the
Board of Directors a majority of the Directors shall constitute a quorum for the
transaction of business and the act of a majority of the Directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by this Agreement.
If a quorum shall not be present at any meeting of the Board of Directors, the
Directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Any action required or permitted to be taken at any meting of the Board of
Directors may be taken without a meeting, if all members of the Board of
Directors consent thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of the Board of Directors.
(e) Electronic Communications. Directors may participate in a meeting
of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
8
<PAGE>
(f) Officers. The Board of Directors shall appoint officers of the
Company (the "Officers") and assign in writing titles (including, without
limitation, President, Vice President, Secretary, and Treasurer) to such
persons. Any number of offices may be held by the same person. The Board of
Directors at its annual meetings may appoint such other Officers as it shall
deem necessary who shall hold their offices for such terms and shall exercise
such powers and perform such duties as shall be determined from time to time by
the Board of Directors. The salaries, if any, of all Officers shall be fixed by
or in the manner prescribed by the Board of Directors.
(1) The President. The President shall be the chief executive
officer of the Company, shall preside at all meetings of the Board of Directors,
shall have general and active management of the business of the Company and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. The President shall execute bonds, mortgages and other contracts,
except where required or permitted by law to be otherwise signed and executed
and except where signing and execution thereof shall be expressly delegated by
the Board of Directors or by this Agreement to some other Officer.
(2) The Vice President and Commercial Officer. In the absence of
the President or in the event of the President's inability to act, the Vice
President shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Subject to the direction of the President or the Board, the Vice
President shall be responsible for overseeing activities related to optimizing
the commercial contracts and optimization of project economic value, including
power sales and fuel management. The President shall work with the Vice
President in developing and implementing the Annual Budget. Subject to Board
ratification, the holders of the Class A Interests shall appoint the initial
Vice President and Commercial Officer.
(3) The Treasurer. The Treasurer shall have the custody of the
Company funds and securities and shall keep full and accurate accounts or
receipts and disbursements in books belonging to the Company and shall deposit
all moneys and other valuable effects in the name and to the credit of the
Company in such depositories as may be designated by the Board of Directors. The
Treasurer shall disburse the funds of the Company as may be ordered by the Board
of Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors, at its annual meetings, or when the
Board of Directors so requires, an account of all of the Treasurer's
transactions and of the financial condition of the Company.
(4) The Secretary. The Secretary shall attend all meetings of the
Board of Directors and record all proceedings of the meetings of the Board of
Directors in books to be kept for that purpose. The Secretary shall give, or
cause to be given, notice of all meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or the
President, under whose supervision the Secretary shall be.
(g) Binding. Unless otherwise determined by the Board of Directors or
as otherwise set forth in this Agreement, each Officer has the authority to bind
the Company.
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(h) Nonliability of Directors and Officers for Acts or Omissions in
Their Official Capacity. To the full extent permitted by the Act, all Directors
and Officers appointed thereby are released from liability for damages and other
monetary relief on account of any act, omission, or conduct in the Director's or
such Officer's Managerial capacity. No amendment or repeal of this section
affects any liability or alleged liability of any Director or Officer for any
acts, omission, or conduct that occurred prior to the amendment or repeal.
6.2. OPERATIONS. (a) Restrictions. Without the approval of a majority of the
Board (including at least one Director appointed by the holders of the Class A
Interests and at least one Director appointed by the holders of the Class B
Interests) or the approval of the holders of a majority of the Interests, the
Company shall not take (and, subject to paragraph (b) below, shall cause its
Subsidiaries and controlled Affiliates not to take) the following actions:
(i) provide guarantees, indemnities, loans or other forms of financial
or credit support in favor of any Member or any of their Affiliates, other
than pursuant to arrangements existing as of the date hereof;
(ii) enter into any other transaction, agreement or arrangement with
any Member or any of their Affiliates other than the Administrative Services
Agreement, the Fuel Management Services Agreement and the Power Marketing
Services Agreement;
(iii) adopt the annual operating, capital and maintenance budget (the
"ANNUAL BUDGET") for any Project other than changes reasonably necessary in
the case of emergencies including the Company's 1999 operating budget which
shall be presented to the Board of Directors on or before May 1, 1999 and
approved by May 31, 1999. This budget shall include all existing project
capital expenditure requirements, all direct project revenues, costs and
expenses as well as the direct costs of Services as addressed in agreements
with Affiliates of a Member which are included in the existing 1999 Project
Annual Budgets. Any other costs shall only be included in the Annual Budget
with the approval of the Board of Directors;
(iv) make any capital expenditures, acquire any assets or expand or
modify any Project at a cost of more than $100,000 for any single capital
expenditure, acquisition, expansion or modification, or $500,000 in the
aggregate per Project for any series of capital expenditures, acquisitions,
expansions or modifications (or such other amounts as may be fixed from time
to time by the Board), in each case, other than pursuant to the Annual
Budget for such Project or relating to the replacement or repair of such
Project in the ordinary course of business or such as are reasonably
necessary in the case of emergencies;
(v) liquidate, file for bankruptcy, reorganize, dissolve or wind up;
(vi) merge or consolidate with or into any other Person;
(vii) transfer, sell, lease or otherwise dispose of its assets other
than in the ordinary course of business) having a value in excess of
$250,000 to or in favor of a third party unless included in an approved
budget;
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(viii) issue, repurchase or redeem any Interest in the Company or any
securities convertible or exchangeable for any such Interest;
(ix) incur indebtedness for borrowed money (or enter into any related
guarantee, pledge or security arrangement) in excess of $1 million, except
for refinancings of existing debt outstanding principle and accrued interest
plus transaction and closing costs on commercially reasonable terms;
(x) enter into any contractual or other agreement or commitment that
would exceed $100,000 in any year (or $500,000 over the life of the
contract) (or such other amount as may be fixed from time to time by the
Board), other than in the ordinary course of business or pursuant to the
Annual Budget;
(xi) adopt, or modify in any material respect, the Company's
distribution policy, as described in Article VIII hereof, other than
pursuant to the Company's financing documents, its organizational documents
or rating agency requirements;
(xii) enter into any material amendment to the Company's organizational
documents;
(xiii) make any material modification to or enter into any material
amendment of any Power Purchase Agreement or any other material Project
agreement;
(xiv) initiate or settle any litigation or other adversary or
regulatory proceeding involving claims in excess of $100,000 and will
provide at least three Business Days prior notice to the Directors before
initiating any litigation, adversarial or regulatory proceeding, and will
provide as much notice as reasonably practicable prior to settling any such
proceeding.
(xv) take any action with respect to a change in the QF status of any
Project;
(xvi) make any material tax election settle any material tax litigation
or controversy, select any agents or employees to manage any material tax
litigation or controversy, file any material tax returns (including any
amendments thereto), or make any material tax payments;
(xvii) establish or modify material accounting practices and
procedures;
(xviii) select independent accountants;
(xix) make any determination as to the amount and timing of any
additional Capital Contributions to the Company;
(xx) enter into any joint venture or any new project other than
pursuant to the Purchase Agreement and Development Agreement (as defined in
the Purchase Agreement); and
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(xxi) waive any material rights the Company or any of its Subsidiaries
may have in respect of any Member
(xxi) make any other material decision not in the ordinary course of
business.
(b) Subsidiaries. The above clauses (other than clauses (viii),
(xi), (xii) and (xix)) shall apply to all Subsidiaries and controlled Affiliates
of the Company as well as to the Company itself.
(c) Annual Budget. The officers of the Company shall prepare and
deliver to the Board of Directors, no later than September 30 of each year a
proposed budget for the next Fiscal Year of the Company and a meeting of the
Board of Directors shall be held prior to October 31 or such early date as may
be required by project documents to take action to approve the budget for the
forthcoming year (each, an "Annual Budget"). In the event the Board cannot reach
agreement as to the Annual Budget with respect to any Project prior to the end
of any Fiscal Year, such Project shall continue to be run in accordance with the
Annual Budget for the previous year until a new Budget is agreed upon or reached
pursuant to the dispute resolution mechanisms set forth in Section 11.3 below;
provided that all the items in the last Annual Budget shall be increased for
inflation based on the change in the Consumer Price Index - All Urban Consumer,
as reported by the U.S. Department of Labor for the most recent 12-month period
for which figures are available.
(d) Additional Actions. Each Member agrees to take all steps
reasonably necessary to cause the Company to comply with the provisions of this
Section 6.2.
6.3. OTHER OPPORTUNITIES. Except as expressly provided under the Development
Agreement, the Company shall have the right to pursue all ventures, activities
and opportunities relating to the expansion of its existing Projects at existing
sites and all new projects developed on leasehold or fee interests owned by the
Company or any of the Subsidiaries, other than with respect to the Zinc Recovery
Project and the other mineral recovery and processing rights or projects at the
Imperial Valley Projects or at other locations. Except for the rights provided
to the Company in the preceding sentence, no Member shall be restricted from
independently pursuing any competing or other ventures, activities or
opportunities in the independent power production business or any other
business. The Board shall evaluate from time to time the feasibility of the
Project Subsidiaries that own various Projects becoming "exempt wholesale
generators" ("EWG") as defined in PUHCA. In the event that the Board determines
that such an event is beneficial and in the best interest of the Company with
respect to any or all of the Projects, without violating the terms of any
material contracts of the Company or any of the Project Subsidiaries, the
Company shall apply to FERC for EWG status for the applicable Project
Subsidiaries.
6.4. LIABILITY. No Member, Director or Officer shall be liable as such for
any debts, obligations or liabilities of the Company.
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6.5. EXCULPATION AND INDEMNIFICATION. (a) No Member, Director or Officer
appointed thereby shall be liable, directly or indirectly, to the Company or to
any other Member for any loss, claim, damage or liability arising from any act
or omission performed or omitted by it in connection with this Agreement or in
its capacity as a Member, Director or Officer of the Company, except to the
extent any such losses, claims, damages or liabilities are primarily
attributable to such Member's, Director's or Officer's gross negligence, fraud
or willful misconduct.
(b) The Company shall, to the fullest extent permitted by applicable
law, indemnify and hold harmless each Member, Director and Officer against all
losses, claims, damages or liabilities to which such Member, Director or
Officer, as such, may become subject in connection with any matter arising out
of or related to the Company's business or affairs, except (i) to the extent any
such loss, claim, damage or liability is finally judicially determined to be
primarily attributable to such Member's, Director's or Officer's gross
negligence, fraud or willful misconduct or (ii) for economic loss to such
Member's membership interest. If a Member, Director or Officer becomes involved
in any capacity in any action, proceeding or investigation in connection with
any matter arising out of or related to the Company's business or affairs, the
Company will periodically reimburse such Member, Director or Officer for its
legal and other expenses incurred in connection therewith, provided that such
Member, Director or Officer shall promptly repay to the Company the amount of
any such reimbursed expenses paid to it if it shall be finally judicially
determined that such Member, Director or Officer is not entitled to be
indemnified by the Company in connection with such action proceeding or
investigation. If for any reason (other than the gross negligence, fraud or
willful misconduct of such Member, Director or Officer) the foregoing
indemnification is unavailable to such Member, Director or Officer, or
insufficient to hold it harmless, then the Company shall contribute to the
amount paid or payable by such Member, Director or Officer as a result of such
loss, claim, damage or liability in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and such Member,
Director or Officer on the other hand or, if such allocation is not permitted by
applicable law, to reflect not only the relative benefits (if permitted by
applicable law to be taken into account in respect of such contribution)
referred to above but also any other relevant equitable consideration.
(c) The reimbursement, indemnity and contribution provisions of this
Section 6.5 shall (i) extend upon the same terms and conditions (but only to the
extent any loss, claim, damage or liability relates to the business or affairs
of the Company) to the directors, officers, employees and Affiliates and agents
of the applicable Member and (ii) be reduced (and, if applicable, refunded) by
the amount of any insurance or other payments from third parties in respect of
an indemnifiable claim hereunder.
ARTICLE VII.
CONTRIBUTIONS AND CAPITAL ACCOUNTS
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7.1. CONTRIBUTIONS. Each Member has made a Capital Contribution to the
Company as described on Schedule A hereto as of the date hereof in exchange for
the issuance of its Class A Interests or Class B Interests, as applicable.
7.2. NO OBLIGATION TO RESTORE DEFICIT BALANCE. Except as required by law, no
Member shall be required to restore any deficit balance in its Capital Account.
7.3. WITHDRAWAL; SUCCESSORS. A Member shall not be entitled to withdraw any
part of its Capital Account or to receive any distribution from the Company,
except as specifically provided in this Agreement. No Member holding Class A
Interests may withdraw from membership without the consent of the Board.
7.4. INTEREST. No Member shall be entitled to earn interest on such Member's
Capital Contribution or on any profits retained by the Company.
7.5. NO PERSONAL LIABILITY. No Member shall have any personal liability for
the repayment of any Capital Contributions of any other Member.
ARTICLE VIII.
DISTRIBUTIONS
Except as modified in accordance with Section 6.2(a)(xi) above, the
Company's distribution policy shall be to pay quarterly distributions (except as
otherwise required by financing documents) on the Interests equal to the
Company's net after-tax cash flow after operating expenses and all payments of
principal, interest and premiums on the Company's indebtedness and related debt
service obligations, in each case, less such amounts the Board determines is
required for working capital or applicable reserves. Distributions shall be made
equally as between the Class A Interests and the Class B Interests.
ARTICLE IX.
TRANSFER OF INTERESTS
9.1. TRANSFER OF INTERESTS. No holder of Interests shall Transfer any
Interests, or any beneficial interest therein, without the consent of the holder
or holders of a majority of the Interests of the class other than those proposed
to be so Transferred; provided, that (i) such consent may not be unreasonably
withheld in connection with the Transfer of all or substantially all of the
Interests owned by such holder, (ii) the foregoing shall not prohibit (a) any
Transfer to an Affiliate of such transferor unless, with respect to a Transfer
of Class A Interests, such Affiliate is an Electric Utility, or such Transfer of
Class A Interests would violate a Project's QF status, (b) any Transfer
resulting from any merger or consolidation of CalEnergy (or any successor) with
or into any other Person, the sale of all or substantially all of its
independent
14
<PAGE>
power production assets or other change in beneficial ownership of CalEnergy (or
any successor) and (c) any pledge of Interests by CalEnergy (or any successor)
in connection with a financing; and (iii) the withholding of such consent shall
be deemed reasonable with respect to the proposed Transfer of any Class A
Interests to an Electric Utility or an Affiliate of an Electric Utility or any
other Transfer of Class A Interests that would violate a Project's QF status.
Any Transfer or purported Transfer made in violation of this Article IX shall be
null and void and of no effect.
9.2. CONDITIONS TO TRANSFER. No Member shall Transfer any portion of its
Interest unless (i) the transferee (if other than another Member) agrees to be
bound by this Agreement and executes a counterpart hereof and such further
documents as may be necessary, in the opinion of the Company and its counsel, to
make it a party hereto (and any such transferee shall then be deemed a Member
for all purposes of this Agreement but no such agreement shall relieve the
transferor from liability herein); (ii) the permitted transferee (including an
Affiliate of the transferor) has executed a Joinder Agreement in the form
attached hereto as Exhibit A; and (iii) such transfer is made pursuant to either
an effective registration statement under the Securities Act and any applicable
state securities laws or an available exemption from the registration
requirements of the Securities Act and such laws.
9.3. ELECTRIC UTILITY. Any holder of the Class A Interests shall not become
an Electric Utility or take any other action that would violate any Project's QF
status for as long as the Company owns any direct or indirect interest in any
QF. Any such holder of Class A Interests who breaches the foregoing restriction
shall indemnify and hold harmless the Company and the other holders of Interests
from any losses, costs, damages (including consequential damages), expenses and
liabilities resulting from such breach, including, without limitation, any
liability to holders of Class B Interests resulting from the application of the
provisions of Section 9.4 hereof as a result of such breach.
9.4. QF TRUE UP.
(a) If, during the period during which any of the QF Projects remains a
QF, there is a sale of the Class B Interests, a QF Project is sold or a QF
Project owner or the Company is dissolved, the Board shall have an analysis
performed in accordance with the procedures and practices mandated by FERC to
determine if such event will result in the loss of QF status for any QF Project.
In addition, the Board will have such an analysis performed if at any time facts
come to its attention that indicate that entitlement to QF Project benefits
through the Company has caused or will cause the aggregate interest of Electric
Utilities in any QF Project to exceed fifty percent (50%) of the equity
interests in such Project (calculated in accordance with FERC regulations),
thereby jeopardizing such Project's QF status.
(b) If, based on such analysis, the Company is advised by counsel that
the QF status of a QF Project is likely to be lost, and the Board concludes that
loss of QF status will cause an economic loss to the Company, the parties hereto
and the Company shall take the following steps:
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(i) The holders of the Class B Interests will pay any distributions
received from each affected QF Project to the holders of the Class A Interests
to the extent required to maintain the QF status for the affected QF Projects.
If excess distributions have already been paid by the Company, the holders of
the Class B Interests will pay an amount sufficient to eliminate such excess to
the holders of the Class A Interests (together with interest thereon at an
annual rate of 7%). In the event distributions derived from a QF Project which
would otherwise be paid to and retained by the holders of the Class B Interests
are payable to the holders of the Class A Interests in accordance with the
foregoing, distributions payable from other business activities of the Company
which, upon advice of counsel or an order from FERC, are determined not to
constitute benefits of any affected QF Project, shall be payable by the holders
of the Class A Interests to the holders of the Class B Interests to offset,
insofar as possible, the loss of distributions otherwise payable on the Class B
Interests from the QF Projects.
(ii) If the foregoing procedure is inadequate to protect the QF status
of an affected QF Project, the Board may direct the holder of the Class B
Interest to sell Class B Interests to an entity which is not an Electric
Utility.
ARTICLE X.
DISSOLUTION AND WINDING UP
10.1. DISSOLUTION. The Company shall be dissolved and its affairs wound up,
upon the first to occur of any of the following events (each of which shall
constitute a Dissolution Event):
(a) the disposition for cash and/or liquid Securities of all the
securities and substantially all of the other Property held by the Company,
unless the Company is continued with the consent of the Members;
(b) the written consent of the Members; and
(c) the dissolution, expulsion, or withdrawal, if permitted, of any
Member unless, within 90 days after such event, the Company is continued by the
written consent of the remaining Members.
10.2. EFFECT OF DISSOLUTION. Upon dissolution, the Company shall not be
terminated and shall continue until the winding up of the affairs of the Company
is completed and a certificate of cancellation has been issued by the Secretary
of State of Delaware.
10.3. DISTRIBUTION OF ASSETS ON DISSOLUTION. Upon the winding up of the
Company, the remaining Members shall take full account of the assets and
liabilities of the Company and shall liquidate the assets of the Company as
promptly as is consistent with obtaining the fair value thereof. The proceeds of
any liquidation shall be applied and distributed in the following order:
16
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(a) first, to the payment of the debts and liabilities of the Company
to creditors, including Members who are creditors, to the extent permitted by
law, in satisfaction of such debts and liabilities and to the payment of
necessary expenses of liquidation;
(b) second, to the setting up of any reserves which such Members may
deem necessary or appropriate for any anticipated obligations or contingencies
of the Company arising out of or in connection with the operation or business of
the Company. Such reserves may be paid over by such Members to an escrow agent
or trustee selected by such Members to be disbursed by such escrow agent or
trustee in payment of any of the aforementioned obligations or contingencies
and, if any balance remains at the expiration of such period as such Members
shall deem advisable, shall be distributed by such escrow agent or trustee in
the manner hereinafter provided;
(c) then, to the Members equally as between the Class A Interests and
the Class B Interests.
10.4. WINDING UP AND FILING ARTICLES OF CANCELLATION. Upon the commencement
of the winding up of the Company, articles of cancellation shall be delivered by
the Company to the Secretary of State of Delaware for filing. The articles of
cancellation shall set forth the information required by the Act. The winding up
of the Company shall be completed when all debts, liabilities, and obligations
of the Company have been paid and discharged or reasonably adequate provision
therefor has been made and all the remaining Property of the Company has been
distributed to the Members.
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ARTICLE XI.
MISCELLANEOUS
11.1. NOTICES. Notices to the Company shall be sent to the Principal Office
of the Company. Notices to the Members shall be sent to their addresses as set
forth on the signature page hereof. Any Member may require notices to be sent to
a different address by giving notice to the Company and the other Members in
accordance with this Section 11.1. Any notice or other communication required or
permitted hereunder shall be in writing, and shall be deemed to have been given
with receipt confirmed if and when delivered personally, given by prepaid
telegram or mailed first class, postage prepaid, delivered by courier, or sent
by facsimile, to such Members at such addresses.
11.2. AMENDMENT; WAIVER; DECISIONS. Amendments to this Agreement may be made
from time to time, provided, however, that, except as otherwise provided in the
last sentence of this Section 11.2 or elsewhere in this Agreement, no amendment,
modification or waiver of this Agreement or any provision hereof shall be valid
or effective unless in writing and signed by (i) the holder or holders of a
majority of the Class A Interests and (ii) the holder or holders of a majority
of the Class B Interests. No waiver of any breach or condition of this Agreement
shall be deemed to be a waiver of any other subsequent breach or condition,
whether of like or different nature. The Members may amend this Agreement in any
way necessary, in their reasonable judgment, to effectuate a Membership
Admission. Notwithstanding anything in this Agreement to the contrary, any
decision to be made or action to be taken by the Members hereunder shall be made
or taken by (i) the holder or holders of a majority of the Class A Interests and
(ii) the holder or holders of a majority of the Class B Interests.
11.3. RESOLUTION OF DISPUTES. In the event of any failure of the Board or
the Members to reach agreement on any material decision (including, without
limitation, those described in Section 9.2 hereof), the chief executive officers
and/or chief operating officers of each of the Members shall meet to attempt to
resolve any such dispute in good faith. If agreement cannot be reached between
the parties within 45 days, the parties shall submit the dispute to non-binding
arbitration under the rules of the American Arbitration Association. If, 60 days
after such 45-day period, such dispute is still not resolved, the parties shall
be free to pursue any other remedy they may have.
11.4. HEADINGS. All Article and Section headings in this Agreement are for
convenience of reference only and are not intended to qualify the meaning of any
Article or Section.
11.5. BINDING AGREEMENT. This Agreement shall be binding upon, and inure to
the benefit of, the parties hereto, their successors, and permitted assigns,
except as otherwise provided herein.
18
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11.6. ENFORCEMENT. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of New York or in New York state court, this being in
addition to any other remedy to which they are entitled at law or in equity. The
Company and the Members shall have the right to specific performance of such
obligations, and if any party hereto shall institute any action or proceeding to
enforce the provisions hereof, each of the Company and the Members hereby waives
the claim or defense that the party instituting such action or proceeding has an
adequate remedy at law. In addition, each of the parties hereto (a) consents to
submit itself to the personal jurisdiction of any federal court located in the
State of New York or any New York state court in the event any dispute arises
out of this Agreement or any of the transactions contemplated by this Agreement,
(b) agrees that it will not attempt to deny such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a federal or state court
sitting in the State of New York.
11.7. SAVING CLAUSE. If any provision of this Agreement shall be held
invalid, illegal or unenforceable in any jurisdiction in any respect, then the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired, and the parties shall use
their best efforts to amend or substitute such invalid, illegal or unenforceable
provision with enforceable and valid provisions which would produce as nearly as
possible the rights and obligations previously intended by the parties without
renegotiation of any material terms and conditions stated herein.
11.8. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
11.9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
conflicts of laws or provisions thereof.
11.10. NO RIGHTS OF CREDITORS AND THIRD PARTIES UNDER AGREEMENT. This
Agreement is entered into among the Company and the Members for the exclusive
benefit of the Company, its Members, and their successors and permitted
assignees. This Agreement is expressly not intended for the benefit of any
creditor of the Company or any other Person. Except and only to the extent
provided by applicable statute, no such creditor or any third party shall have
any rights under this Agreement or any agreement between the Company and any
Member with respect to any Capital Contribution or otherwise.
11.11. GENERAL INTERPRETIVE PRINCIPLES. For purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
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(a) the terms defined in this Agreement include the plural as well as
the singular, and the use of any gender herein shall be deemed to include the
other gender;
(b) accounting terms not otherwise defined herein have the meanings
given to them in the United States in accordance with generally accepted
accounting principles;
(c) references herein to "Articles", "Sections" and other subdivisions
without reference to a document are to designated Articles, Sections and other
subdivisions of this Agreement;
(d) a reference to a paragraph without further reference to a Section
is a reference to such paragraph as contained in the same Section in which the
reference appears, and this rule shall also apply to other subdivisions;
(e) the words "herein", "hereof", "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
provision;
(f) where any provision in this Agreement refers to action to be taken
by any Person, or which such Person is prohibited from taking, such provision
shall be applicable whether such action is taken directly or indirectly by such
Person; and
(g) the term "include" or "including" shall mean without limitation by
reason of enumeration.
11.12. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
between the parties hereto with respect to the subject matter hereof and
supersedes any prior agreements, written or oral, with respect thereto.
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IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as
of the date hereof.
CE GENERATION, LLC CALENERGY COMPANY, INC.
By: /s/ Douglas L. Anderson By: /s/ Douglas L. Anderson
-------------------------- --------------------------
Name: Douglas L. Anderson Name: Douglas L. Anderson
Title: Assistant Secretary Title: Assistant Secretary
21
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SCHEDULE 1
CalEnergy Company, Inc.
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
<PAGE>
EXHIBIT A
JOINDER AGREEMENT
Joinder Agreement, dated as of this 3rd day of March 1999, by and among
CE Generation, LLC., a Delaware limited liability company (the "Company"), and
the undersigned (the "New Investor").
Reference is made to that certain Limited Liability Company Operating
Agreement (the "Operating Agreement"), dated as of February 9, 1999, by and
between the Company and, CalEnergy Company, Inc. and the other holders of
interests in the Company from time to time party thereto, as the same may from
time to time be amended.
By executing this Joinder Agreement, the New Investor hereby agrees to
be bound by the terms of the Operating Agreement as if it were an original
signatory to such Agreement and shall be entitled to all of the rights and
benefits afforded to, and shall be subject to all the restrictions and
obligations of the Members thereunder.
The New Investor hereby represents and warrants that (i) it is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware and has the power and authority to execute and deliver this
Agreement and perform its obligations hereunder, (ii) the execution, delivery
and performance of this Agreement has been authorized by the board of directors
of the New Investor and no other approval or authorization is necessary and
(iii) the execution, delivery and performance of this Agreement does not
conflict with or violate the terms of its Certificate of Incorporation or
By-laws or any agreement to which it is a party or may be bound.
IN WITNESS WHEREOF, the parties hereto have executed this Joinder
Agreement as of the date first above written.
El Paso Power Holding Company
By:
---------------------------------
Name:
Title:
Agreed to and Accepted by:
CE Generation, LLC
- ---------------------------------
Name:
Title:
1
<PAGE>
EXHIBIT 4.1
================================================================================
INDENTURE
between
CE GENERATION, LLC,
as Issuer
and
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION,
as Trustee
---------------------------
Dated as of March 2, 1999
---------------------------
7.416% Senior Secured Bonds Due December 15, 2018
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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ARTICLE 1: DEFINITIONS AND CONSTRUCTION; INDENTURE TO
<S> <C>
CONSTITUTE CONTRACT..............................................................................2
Section 1.1 Definitions; Construction...........................................................2
Section 1.2 Indenture to Constitute Contract....................................................3
ARTICLE 2: THE SECURITIES...........................................................................3
Section 2.1 Authorization, Amount, Terms and Issuance of Securities.............................3
Section 2.2 Authorization and Terms of the Initial Securities...................................3
Section 2.3 Additional Securities...............................................................5
Section 2.4 Record Dates........................................................................8
Section 2.5 Form of Securities..................................................................9
Section 2.6 Maintenance of Offices and Agencies................................................11
Section 2.7 Transfer and Exchange of Securities................................................14
Section 2.8 Execution..........................................................................24
Section 2.9 Authentication and Delivery........................................................24
Section 2.10 Mutilated, Destroyed, Lost or Stolen Securities...................................24
Section 2.11 Temporary Securities..............................................................25
Section 2.12 Cancellation and Destruction of Surrendered Securities............................25
ARTICLE 3: REDEMPTION OF SECURITIES................................................................26
Section 3.1 Redemption at the Option of CE Generation..........................................26
Section 3.2 Mandatory Redemption...............................................................26
Section 3.3 Redemption Fund....................................................................29
Section 3.4 Notice of Redemption...............................................................29
Section 3.5 Securities Payable on Redemption Date..............................................31
Section 3.6 Selection of Securities to be Redeemed.............................................31
Section 3.7 Securities Redeemed in Part........................................................31
ARTICLE 4: REPRESENTATIONS AND WARRANTIES..........................................................32
Section 4.1 Organization, Power and Status of CE Generation....................................32
Section 4.2 Authorization; Enforceability; Execution and Delivery..............................32
Section 4.3 No Conflicts; Laws and Contracts; No Default;
Representations and Warranties...........................................................33
Section 4.4 Governmental Approvals.............................................................33
Section 4.5 Litigation.........................................................................34
Section 4.6 Utility Regulation.................................................................34
Section 4.7 Employee Benefit Plans.............................................................34
Section 4.8 Business of CE Generation..........................................................34
Section 4.9 Investment Company Act.............................................................34
Section 4.10 Disclosure........................................................................35
ARTICLE 5: COVENANTS...............................................................................35
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Page
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Section 5.1 Payment of Principal of and Interest on Securities.................................35
Section 5.2 Reporting Requirements.............................................................35
Section 5.3 Existence; Compliance with Applicable Laws.........................................36
Section 5.4 Payment of Taxes and Claims........................................................36
Section 5.5 Books and Records..................................................................37
Section 5.6 Right of Inspection................................................................37
Section 5.7 Use of Proceeds....................................................................37
Section 5.8 Performance of Financing Documents.................................................38
Section 5.9 Title..............................................................................38
Section 5.10 Rule 144A Information; Other Information..........................................38
Section 5.11 Preservation of Collateral........................................................38
Section 5.12 Auditors..........................................................................39
Section 5.13 Permitted Indebtedness............................................................39
Section 5.14 Permitted Liens...................................................................40
Section 5.15 Guarantees........................................................................40
Section 5.16 Business Activities...............................................................40
Section 5.17 Fundamental Changes; Sale of Assets...............................................41
Section 5.18 Transactions with Affiliates......................................................41
Section 5.19 Restricted Payments...............................................................41
Section 5.20 Financing Documents...............................................................41
Section 5.21 Investments.......................................................................42
Section 5.22 Formation Documents...............................................................42
Section 5.23 Investment Company Act............................................................42
Section 5.24 Magma Stock.......................................................................42
Section 5.25 Tax Status........................................................................42
ARTICLE 6: EVENTS OF DEFAULT; REMEDIES.............................................................42
Section 6.1 Events of Default..................................................................42
Section 6.2 Remedies Upon an Event of Default..................................................45
Section 6.3 Judicial Proceedings Instituted by Trustee.........................................47
Section 6.4 Control by Holders.................................................................50
Section 6.5 Waiver of Defaults and Events of Default...........................................50
Section 6.6 Limitation on Suits by Holders.....................................................50
Section 6.7 Undertaking to Pay Court Costs.....................................................51
Section 6.8 Unconditional Right to Receive Payment.............................................51
Section 6.9 Application of Monies Collected by Trustee.........................................51
Section 6.10 Waiver of Appraisement, Valuation, Stay and Right to Marshalling..................53
Section 6.11 Remedies Cumulative; Delay or Omission Not Waiver.................................53
Section 6.12 The Intercreditor Agreement.......................................................54
ARTICLE 7: ACTS OF HOLDERS.........................................................................54
Section 7.1 Acts of Holders....................................................................54
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Section 7.2 Purposes for Which Holders' Meeting May Be Called..................................56
Section 7.3 Call of Meetings by Trustee........................................................57
Section 7.4 CE Generation and Holders May Call Meeting.........................................57
Section 7.5 Persons Entitled to Vote at Meeting................................................57
Section 7.6 Determination of Voting Rights; Conduct and Adjournment of Meeting.................58
Section 7.7 Counting Votes and Recording Action of Meeting.....................................59
Section 7.8 Securities Owned by Certain Persons Deemed NotOutstanding..........................59
Section 7.9 Right of Revocation of Action Taken; Acts of Holders Binding.......................60
ARTICLE 8: SUPPLEMENTAL INDENTURES.................................................................60
Section 8.1 Amendments and Supplements to Indenture Without Consent of Holders.................60
Section 8.2 Amendments and Supplements to Indenture With Consent of Holders....................61
Section 8.3 Trustee Authorized to Join in Amendments and Supplements; Reliance on Counsel......62
Section 8.4 Effect of Supplemental Indentures..................................................62
Section 8.5 Reference in Securities to Supplemental Indentures.................................62
ARTICLE 9: SATISFACTION AND DISCHARGE; DEFEASANCE..................................................63
Section 9.1 Satisfaction and Discharge of Indenture............................................63
Section 9.2 Defeasance.........................................................................63
Section 9.3 Survival of Obligations............................................................66
Section 9.4 Application of Trust Money.........................................................66
Section 9.5 Unclaimed Monies...................................................................66
Section 9.6 Indemnity for US Government Obligations............................................67
Section 9.7 Reinstatement......................................................................67
ARTICLE 10: THE TRUSTEE............................................................................67
Section 10.1 Certain Duties and Responsibilities of Trustee....................................67
Section 10.2 Certain Rights of Trustee.........................................................69
Section 10.3 Notice of Defaults................................................................70
Section 10.4 Not Responsible for Recitals or Issuance of Securities............................71
Section 10.5 May Hold Securities...............................................................71
Section 10.6 Monies Held in Trust..............................................................71
Section 10.7 Compensation; Reimbursement; Indemnification......................................72
Section 10.8 Eligibility.......................................................................72
Section 10.9 Resignation and Removal; Appointment of Successor.................................73
Section 10.10 Acceptance of Appointment by Successor Trustee...................................74
Section 10.11 Merger, Conversion, Consolidation or Succession to Business......................75
Section 10.12 Authorization....................................................................75
iii
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Page
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ARTICLE 11: HOLDERS' LISTS AND REPORTS BY TRUSTEE..................................................76
Section 11.1 Names and Addresses of Holders....................................................76
ARTICLE 12: MISCELLANEOUS PROVISIONS...............................................................76
Section 12.1 Third Party Beneficiaries.........................................................76
Section 12.2 Severability......................................................................76
Section 12.3 Substitute Notice.................................................................77
Section 12.4 Notice to Rating Agencies.........................................................77
Section 12.5 Notices...........................................................................77
Section 12.6 Successors and Assigns............................................................78
Section 12.7 Section Headings..................................................................78
Section 12.8 Counterparts......................................................................78
Section 12.9 Governing Law; Submission to Jurisdiction.........................................78
Section 12.10 Legal Holidays...................................................................79
Section 12.11 Limitation of Liability..........................................................79
Section 12.12 Entire Agreement.................................................................80
Section 12.13 Survival.........................................................................80
Section 12.14 All Payments in US Dollars.......................................................80
Section 12.15 Officers' Certificates and Opinions of Counsel...................................80
Section 12.16 Form of Certificates and Opinions Delivered to Trustee...........................81
</TABLE>
SCHEDULE I: PURCHASED ASSETS
SCHEDULE II: AMORTIZATION OF PRINCIPAL
SCHEDULE III: INVESTMENTS AS OF THE CLOSING DATE
SCHEDULE IV: NOTICE ADDRESSES
SCHEDULE V: DEBT SERVICE RESERVE REQUIREMENT
APPENDIX A: DEFINITIONS
EXHIBIT A: FORM OF FACE OF SECURITIES
EXHIBIT B: FORM OF TERMS AND CONDITIONS OF SECURITIES
EXHIBIT C: FORM OF TRANSFER INSTRUMENT
EXHIBIT D: FORM OF TRANSFER RESTRICTION LEGEND
EXHIBIT E: FORM OF RULE 144A TRANSFER CERTIFICATE
EXHIBIT F: FORM OF RULE 144A EXCHANGE CERTIFICATE
EXHIBIT G: FORM OF REGULATION S TRANSFER CERTIFICATE
EXHIBIT H: FORM OF REGULATION S EXCHANGE CERTIFICATE
EXHIBIT I: FORM OF RULE 144 TRANSFER CERTIFICATE
EXHIBIT J: FORM OF PLEDGE AND SECURITY AGREEMENT
EXHIBIT K: FORM OF SUBORDINATION PROVISIONS
iv
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INDENTURE
---------
This INDENTURE, dated as of March 2, 1999 (this "Indenture"), is by and
between CE GENERATION, LLC, a Delaware limited liability company ("CE
Generation"), and CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION,
as trustee (in such capacity, together with its successors in such capacity,
the "Trustee").
W I T N E S S E T H:
WHEREAS, CE Generation has determined to issue $400,000,000 in principal
amount of its 7.416% Senior Secured Bonds Due December 15, 2018 (the "Initial
Securities"), the proceeds of which will be used to: (i) effect repayment on
behalf of Magma Power Company ("Magma") of all outstanding principal of the
Magma Note, together with all premium (if any) and accrued interest thereon;
(ii) make payments to CalEnergy Company, Inc. ("CalEnergy") in an aggregate
amount of $122,000,000 as consideration for the transfer by CalEnergy to CE
Generation of the assets listed on Schedule I hereto, which payments will be
used by CalEnergy to satisfy its obligations under the SSFC Equity Commitment
Agreement; (iii) make a capital contribution to Yuma Cogeneration Associates
("Yuma") in the amount necessary for Yuma to repay in full all outstanding
principal of the Yuma Note, together with all premium (if any) and accrued
interest thereon; (iv) make payments to CalEnergy in an aggregate amount of up
to $4,000,000 as consideration for the transfer by CalEnergy to CE Generation of
the assets listed on Schedule I hereto, which payments relate to CalEnergy's
development costs for Salton Sea Unit V, the CE Turbo Project and the Zinc
Facility; and (v) pay the transaction costs associated with the offer and sale
of the Initial Securities;
WHEREAS, the execution and delivery of the Initial Securities and of this
Indenture have been duly authorized and all things necessary to make the Initial
Securities, when executed by CE Generation and authenticated by the Trustee,
valid and binding legal obligations of CE Generation and to make this Indenture
a valid and binding agreement have been done.
NOW, THEREFORE, for and in consideration of the premises, the covenants
herein contained and the purchase of the Initial Securities by the Holders
thereof, it is mutually covenanted and agreed, for the benefit of the parties
hereto and the equal and proportionate benefit of all Holders, as follows:
ARTICLE 1
<PAGE>
DEFINITIONS AND CONSTRUCTION;
INDENTURE TO CONSTITUTE CONTRACT
Section 1.1 Definitions; Construction. (a) Capitalized terms used in this
Indenture shall have the respective meanings given to such terms in Appendix A
attached hereto, which Appendix A is hereby incorporated by reference herein.
(b) The following principles of construction shall apply to this Indenture:
(i) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(ii) all references in this Indenture to designated "Articles,"
"Sections," "Exhibits" and other subdivisions are to the designated Articles,
Sections, Exhibits and other subdivisions of this Indenture;
(iii) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(iv) unless otherwise expressly specified, any agreement, contract
or document defined or referred to herein shall mean such agree ment,
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 this Indenture and the
other Financing Documents and including any agreement, contract or document
in substitution or replacement of any of the foregoing;
(v) unless the context clearly intends the contrary, pronouns having
a masculine or feminine gender shall be deemed to include the other gender;
and
(vi) any reference to any Person shall include its successors and
assigns, and in the case of any Governmental Authority, any Person succeeding
to its functions and capacities.
Section 1.2 Indenture to Constitute Contract. In consideration of the
purchase and acceptance of any or all of the Securities by those who shall hold
the same from time to time, the provisions of this Indenture shall be part of
the contract
2
<PAGE>
of CE Generation with the Holders of the Securities, and shall be deemed to be
and shall constitute contracts between CE Generation, the Trustee and the
Holders from time to time of the Securities. The provisions, covenants and
agreements herein set forth to be performed by or on behalf of CE Generation
shall be for the equal and ratable benefit, protection and security of the
Holders of any and all of the Securities. All of the Securities, regardless of
the time or times of their issuance or maturity, shall be of equal rank without
preference, priority or distinction of any of the Securities over any other
except as expressly provided in or pursuant to this Inden ture.
ARTICLE 2
THE SECURITIES
Section 2.1 Authorization, Amount, Terms and Issuance of Securities. (a)
Securities may be issued hereunder from time to time. No Securities may be
issued under this Indenture except in accordance with this Article 2. The
maximum principal amount of Securities which may be issued hereunder is not
limited. The Securities shall be issued in denominations of $100,000 or any
amount in excess thereof that is an integral multiple of $1,000.
(b) "CUSIP" numbers (if then generally in use) may be printed on the
Securities and, if so, the Trustee shall use CUSIP numbers in notices of
redemption as a convenience to the Holders. Neither CE Generation nor the
Trustee shall have any responsibility for any defect in the CUSIP number that
appears on any bond, check, advice of payment or redemption notice, and any such
document may contain a statement to the effect that CUSIP numbers have been
assigned by an independent service for convenience of reference and that neither
CE Generation nor the Trustee shall be liable for any inaccuracy in such
numbers. CE Generation shall promptly notify the Trustee of any change in CUSIP
numbers with respect to the Securities.
Section 2.2 Authorization and Terms of the Initial Securities. (a) The
Initial Securities to be issued under this Indenture are hereby created and CE
Genera tion may issue the Initial Securities upon execution of this Indenture.
The Initial Securities shall (i) be known and designated as the "CE Generation,
LLC 7.416% Senior Secured Bonds Due 2018", (ii) be substantially in the form set
forth in Exhibit Trustee shall, at CE Generation's written request, authenticate
the Initial Securities and deliver them as specified in such request.
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<PAGE>
(b) The Initial Securities shall be dated as of the Closing Date, shall be
issued in the aggregate principal amount set forth below and shall have a stated
maturity date and bear interest as set forth below; provided that, pursuant to
the terms and provisions of the Registration Rights Agreement, the interest rate
of the Initial Securities shall be increased by one half of one percent (0.50%)
per annum from and after the date that an Illiquidity Event occurs, and shall
accrue to but not including the date on which such Illiquidity Event shall cease
to exist. Notwithstanding that an Illiquidity Event may cease to exist, if a
Registration Statement (as defined in the Registration Rights Agreement) has not
become effective within two (2) years after the Closing Date, such increased
interest rate shall become permanent, pursuant to the terms and provisions of
the Registration Rights Agreement. Notice of the occurrence and cessation of any
Illiquidity Event and the date, if any, that a Registration State ment is
declared effective shall be set forth in an Officer's Certificate of the Funding
Corporation delivered to the Trustee and the Depositary Bank within ten (10)
Business Days after CE Generation has obtained knowledge of such event. If an
Illiquidity Event occurs subsequent to any Regular Record Date, the Person
entitled to receive the increased amount of interest payable as a result of such
Illiquidity Event shall receive such additional interest on the Interest Payment
Date relating to the next subsequent Regular Record Date. Initial Securities
subsequently issued pursuant to Section 2.7 shall be dated as of the date of
authentication thereof.
Interest Rate Stated Maturity Date Principal Amount
------------- -------------------- ----------------
7.416% December 15, 2018 $400,000,000
(c) Interest on the Initial Securities shall accrue from the Closing Date
and shall be paid semi-annually in arrears on each June 15 and December 15, com
mencing June 30, 1999 and concluding on the Maturity Date for the Initial
Securities. Interest on the Initial Securities shall be computed on the basis of
a three hundred sixty (360) day year consisting of twelve (12) thirty (30) day
months.
(d) Principal of the Initial Securities shall be paid in an amount, and on
the Payment Dates, as set forth on Schedule II hereto.
(e) The principal of, premium (if any) and interest on the Initial
Securities shall be payable in immediately available funds and in such coin or
currency of the United States which, at the respective dates of payment thereof,
is legal tender for the payment of public and private debts. Payment of
principal of, premium (if any) and interest on any Initial Security shall be
made (i) by check or draft drawn on a bank having an office located in the
United States and mailed on the relevant Payment Date
4
<PAGE>
to the Person in whose name such Initial Security is registered at the close of
business on the Regular Record Date immediately preceding such Payment Date, at
such Person's address as it appears on the Securities Register, or (ii) by wire
transfer to an account maintained by such Person in the continental United
States if the Trustee shall have received written notice from such Person
requesting such wire transfer and providing the appropriate wire transfer
information at least fifteen (15) days prior to the relevant Regular Record
Date; provided, however, that if and to the extent there shall be a default in
the payment of principal, premium (if any) or interest due with respect to any
Initial Security on any Payment Date, such defaulted interest, premium (if any)
and/or principal shall be paid to the Holder in whose name such Initial Security
is registered at the close of business on the Special Record Date determined by
the Trustee as provided in Section 2.4. CE Generation shall pay any
administrative costs imposed by banks in connection with the making of payments
by wire transfer.
Section 2.3 Additional Securities. (a) Additional Securities may, upon
satisfaction of the conditions set forth in this Section 2.3, be issued in the
amounts permitted in this Section 2.3. All Additional Securities shall (i) rank
pari passu with the Initial Securities in all respects (including, without
limitation, with respect to allocation of funds received in connection with any
mandatory redemption under Section 3.2 or disposition of the Collateral pursuant
to Article VI of this Indenture) and (ii) be secured by the Collateral. All
Additional Securities shall bear such date or dates, bear such interest rate or
rates, have such maturity dates, redemption dates and redemption premiums, be in
such form and be issued at such prices as approved in writing by CE Generation.
(b) Upon (i) satisfaction of the applicable conditions set forth in this
Section 2.3, (ii) the execution and delivery of an appropriate Supplemental
Indenture in compliance with clause (d) of this Section 2.3, (iii) the execution
and delivery of appropriate supplements, amendments or modifications to or of
the Financing Docu ments (in respect of which the consent of the Trustee and the
Holders shall not be required; provided, however, that CE Generation shall make
available to the Trustee each such supplement, amendment or modification prior
to the execution and delivery thereof and if any of such supplements, amendments
or modifications change the rights or obligations of the Trustee, as determined
by the Trustee in its sole discretion, the prior written consent of the Trustee
shall be required in connection with any such supplements, amendments or
modifications) and (iv) receipt by the Depositary Bank of an Officer's
Certificate from CE Generation confirming that moneys on deposit in the Debt
Service Reserve Account or otherwise available to be drawn on any Debt Service
Reserve Letter of Credit shall, in the aggregate, after giving effect to the
issuance of such Additional Securities, be equal to the Debt Service Reserve
Require-
5
<PAGE>
ment (as such shall be increased to reflect payments due on the Additional
Securities) and, if any Debt Service Reserve Letter of Credit is to be available
for amounts payable in respect of Additional Securities, as provided in such
Debt Service Reserve Letter of Credit or the Depositary Agreement, the consent
of the Debt Service Reserve LOC Provider which issued such Debt Service Reserve
Letter of Credit and the requisite amount of financial institutions under the
Debt Service Reserve LOC Reimbursement Agreement pursuant to which such Debt
Service Reserve Letter of Credit was issued, if so required under such Debt
Service Reserve LOC Reimburse ment Agreement for such availability, shall have
been obtained and be in full force and effect, CE Generation shall execute
Additional Securities and deliver them to the Trustee, and the Trustee, upon the
written request of CE Generation, shall authenticate such Additional Securities
and deliver them to the purchasers thereof as may be directed by CE Generation
in writing; provided, however, that, notwithstanding anything to the contrary
contained herein, no Additional Securities shall be issued hereunder:
(A) without the written consent of CE Generation; or
(B) at any time when a Default or an Event of Default shall have
occurred and be continuing or if such proposed issuance would, upon notice or
passage of time, cause a Default or an Event of Default.
(c) Upon the issuance of any Additional Securities, CE Generation shall
promptly provide the Trustee with a revised Schedule II to this Indenture that
will set forth the requirements for the payment of principal of and interest on
such Additional Securities.
(d) Additional Securities may be issued by CE Generation; provided that:
the Trustee shall have received prior to such issuance an Officer's Certificate
from CE Generation certifying that (i) each of the conditions set forth in
Section 2.3(b) has been satisfied, (ii) no Default or Event of Default exists at
the time of the issuance of the Additional Securities and such issuance will not
cause a Default or an Event of Default and (iii) the incurrence of Indebtedness
pursuant to the issuance of Additional Securities shall comply with Section
5.13, subject to the applicable conditions described in such Section.
(e) Prior to the issuance of Additional Securities hereunder, the following
shall be established in one or more Supplemental Indentures:
6
<PAGE>
(i) the title of the Additional Securities (which shall distinguish
the Additional Securities from all other Securities) and the form or forms of
such Securities;
(ii) any limit upon the aggregate principal amount of the Additional
Securities that may be authenticated and delivered under this Indenture
(except for Additional Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Securities and except for Additional Securities that are deemed never to have
been authenticated and delivered hereunder);
(iii) the date or dates on or as of which the Additional Securities
shall be dated;
(iv) the date or dates on which the principal of the Additional
Securities is payable, the amounts of principal payable on such date or dates
and the Regular Record Date for the determination of Holders to whom
principal is payable;
(v) the rate or rates at which the Additional Securities shall bear
interest or the method by which such rate or rates shall be determined, the
date or dates from which such interest shall accrue, the scheduled payment
dates on which such interest shall be payable (which shall correspond to the
Payment Dates set forth herein) and the Regular Record Date for the
determination of Holders to whom interest is payable;
(vi) the place or places where the principal of, premium (if any)
and interest on the Additional Securities shall be payable, Additional
Securities may be surrendered for registration of transfer or exchange and
notices and demands to or upon CE Generation in respect of the Additional
Securities and this Indenture may be served;
(vii) the price or prices at which, the period or periods within
which and the terms and conditions upon which the Additional Securities may
be redeemed, in whole or in part, at the option of CE Generation;
(viii) the obligation (if any) of CE Generation to redeem, purchase
or repay Additional Securities pursuant to any sinking fund or analogous
provision or at the option of a Holder thereof and the price or prices at
which, the period or periods within which and the terms and conditions upon
7
<PAGE>
which Additional Securities shall be redeemed, purchased or repaid, in
whole or in part, pursuant to such obligations;
(ix) if other than denominations of $100,000 and any integral
multiple of $1,000 in excess thereof, the denominations in which Additional
Securities shall be issuable;
(x) the restrictions or limitations (if any) on the transfer or
exchange of the Additional Securities;
(xi) the obligation (if any) of CE Generation to file a registra
tion statement with respect to the Additional Securities or to exchange the
Additional Securities for Securities registered pursuant to the Securities
Act; and
(xii) any trustees, authenticating agents, paying agents, warrant
agents, transfer agents or registrars with respect to the Additional
Securities.
Section 2.4 Record Dates. The Person in whose name any Security is
registered at the close of business on any Regular Record Date with respect to
any Payment Date shall be entitled to receive the principal, premium (if any)
and/or interest payable on such Payment Date notwithstanding the cancellation of
such Security upon any transfer or exchange thereof subsequent to such Regular
Record Date and prior to such Payment Date; provided, however, that if and to
the extent there is a default in the payment of the principal, premium (if any)
and/or interest due on such Payment Date, such defaulted principal, premium (if
any) and/or interest shall be paid to the Persons in whose names Outstanding
Securities are registered at the close of business on a subsequent date (each
such date, a "Special Record Date"), which shall not be less than five (5) days
preceding the date of payment of such defaulted principal, premium (if any)
and/or interest, established by a notice mailed by the Trustee to the registered
owners of the Securities in accordance with Section 12.5(b) not less than
fifteen (15) days prior to the Special Record Date or, if the Special Record
Date is less than fifteen (15) days after the applicable Payment Date, such
shorter period.
Section 2.5 Form of Securities.
2.5.1 Form Generally. The Initial Securities and the Trustee's
certificate of authentication thereon shall be substantially in the form set
forth in Exhibit A and shall contain substantially the terms and conditions set
forth in Exhibit
8
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B, which exhibits are hereby incorporated in and expressly made a part of this
Indenture. The Initial Securities shall be issued in fully registered form,
without interest coupons. Additional Securities shall be in the form and shall
contain the terms established in one or more Supplemental Indentures. Any
Security may have such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture and may have
imprinted or otherwise reproduced thereon such legends or endorsements, not
inconsistent with the provisions of this Indenture, as may be required to comply
with Applicable Law or with any rules or regulations pursuant thereto, or with
any rules of any securities exchange or to conform to general usage, all as may
be determined by the officers executing such Security with the approval of the
Trustee, such determination and approval to be evidenced by the execution and
authentication thereof. The Securities shall be numbered, lettered or otherwise
distinguished in such manner or in accordance with such plan as the officers
executing the Securities may determine with the approval of the Trustee, as
evidenced by the execution and authentication thereof. Certificated Securities
may be printed, lithographed or engraved on steel engraved borders or may be
produced in any other manner, all as determined by the officers executing such
Certificated Securities with the approval of the Trustee, as evidenced by the
execution and authentication thereof.
2.5.2 Securities Sold Pursuant to Rule 144A. The Securities offered
and sold in their initial distribution in reliance on Rule 144A to Qualified
Institutional Buyers shall be issued in the form of a permanent global security
(the "Restricted Global Security") (which may be represented by more than one
certificate, if so required by the Depositary's rules regarding the maximum
principal amount to be represented by a single certificate), duly executed by CE
Generation and authenticated by the Trustee as hereinafter provided. The
Restricted Global Security shall be registered in the name of the Depositary or
its nominee and deposited with the Trustee, at its corporate trust office, as
custodian for the Depositary.
2.5.3 Securities Sold Pursuant to Regulation S. The Securities
offered and sold in their initial distribution in reliance on Regulation S shall
be issued in the form of a permanent global security (the "Unrestricted Global
Security" and, together with the Restricted Global Security, the "Global
Securities") (which may be represented by more than one certificate, if so
required by the Depositary's rules regarding the maximum principal amount to be
represented by a single certificate), duly executed by CE Generation and
authenticated by the Trustee as hereinafter provided. The Unrestricted Global
Security shall be registered in the name of the Depositary or its nominee and
deposited with the Trustee, at its corporate trust office, as custodian for the
Depositary, for credit to the respective accounts of Euroclear and Cedel. Prior
to the termination of the Regulation S Restricted Period, beneficial
9
<PAGE>
interests in the Unrestricted Global Security may be held only through Euroclear
and Cedel.
2.5.4 Depositary. (a) CE Generation hereby appoints DTC to act as
depositary (in such capacity, together with its successors in such capacity, the
"Depositary") with respect to the Global Securities. The Trustee shall act as
custodian of the Global Securities for the Depositary. So long as the Depositary
or its nominee is the registered owner of the Global Securities, it shall be
considered the Holder of the Securities represented thereby for all purposes
hereunder and under the Global Securities, and neither any members of, or
participants in, the Depositary ("Agent Members") nor any other Persons on whose
behalf Agent Members may act shall have any rights hereunder with respect to the
Global Securities or under the Global Securities. Notwithstanding the
foregoing, nothing herein shall (i) prevent CE Generation, the Trustee or any
agent of CE Generation or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Depositary or its
nominee, as the case may be, or (ii) impair, as between the Depositary, its
Agent Members and any other Person on whose behalf an Agent Member may act, the
operation of customary practices of such Persons governing the exercise of the
rights of a Holder of any Security.
(b) CE Generation may remove or replace DTC or any successor as Depositary
for any reason upon thirty (30) days' notice to DTC or such successor (with a
copy thereof to the Trustee). The Holders shall have no right to a depositary
for the Securities.
(c) Notwithstanding any other provision of this Indenture or the
Securities, so long as DTC or its nominee is the registered owner of the
Securities:
(i) the provisions of the DTC Letter of Representations shall
control over the provisions of this Indenture with respect to the matters
covered thereby;
(ii) presentation of Securities to the Trustee at redemption or at
maturity shall be deemed made to the Trustee when the right to exercise
ownership rights in the Securities through DTC or Agent Members is trans
ferred by DTC on its books; and
(iii) DTC may present notices, approvals, waivers or other
communications required or permitted to be made by Holders under this
Indenture on a fractionalized basis on behalf of some or all of those Persons
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<PAGE>
entitled to exercise ownership rights in the Securities through DTC or Agent
Members.
Section 2.6 Maintenance of Offices and Agencies.
2.6.1 Registrar and Paying Agent. (a) CE Generation shall maintain
in the Borough of Manhattan, the City of New York, an office or agency (the
"Registrar") where Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon CE Generation in respect of
the Securities or under this Indenture may be served. CE Generation shall cause
a register for the registration of the Securities and of their transfer and
exchange (the "Securities Register") to be kept at the office of the Registrar.
CE Generation hereby initially appoints the Trustee at its corporate trust
office as Registrar, and the Trustee hereby accepts such appointment.
(b) There shall at all times be maintained in the Borough of Manhattan, the
City of New York, and in such other places of payment, if any, as shall be speci
fied for the Securities in a related Supplemental Indenture, an office or agency
(the "Paying Agent") where Securities may be presented for payment of principal,
premium (if any) and interest. CE Generation hereby initially appoints the
Trustee at its corporate trust office as Paying Agent, and the Trustee hereby
accepts such appointment.
(c) Whenever CE Generation shall appoint a Paying Agent other than the
Trustee, it shall cause, prior to such appointment, each such Paying Agent to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section 2.6.1,
that such Paying Agent shall:
(i) hold all sums held by such Paying Agent for the payment of the
principal of, premium (if any) or interest on the Securities in trust for the
benefit of the Holders or the Trustee;
(ii) give the Trustee within five (5) days thereafter written notice
of any default by CE Generation (or any other obligor upon the Securities)
in the making of any such payment of principal, premium (if any) or interest;
and
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(iii) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
(d) Notwithstanding any other provision of this Indenture, any payment
required to be made to or received or held by the Trustee may, to the extent
authorized by written instructions of the Trustee, be made to or received or
held by any Paying Agent for the account of the Trustee.
(e) CE Generation shall give prompt written notice to the Trustee of the
location, and any change in the location, of the Registrar and Paying Agent. If
at any time CE Generation shall fail to maintain a Registrar and/or Paying Agent
or shall fail to furnish the Trustee with the location thereof, presentation or
surrender of Securities for registration of transfer or exchange or for payment
may be made or served at the corporate trust office of the Trustee in New York
City.
2.6.2 Authenticating Agent. At any time when any Securities remain
Outstanding, the Trustee may appoint an authenticating agent or agents (each an
"Authenticating Agent") which shall be authorized to act on behalf of the
Trustee to authenticate Securities issued upon original issuance, exchange,
registration of transfer or partial redemption thereof or pursuant to Section
2.10, and Securities so authenticated shall be entitled to the benefits of this
Indenture and shall be valid and obligatory for all purposes as if authenticated
by the Trustee hereunder (it being understood that wherever reference is made in
this Indenture to the authentication and delivery of Securities by the Trustee
or the Trustee's certificate of authentication, such reference shall be deemed
to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent). If an appointment of an Authenticating
Agent shall be made pursuant to this Section 2.6.2, the Securities may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternate certificate of authentication in the following form:
This Security is one of the Securities
referred to in the within-mentioned Indenture.
------------------------------
Trustee
By:
------------------------------
Authenticating Agent
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By:
------------------------------
Authorized Officer
2.6.3 Authorized Agents Generally. (a) Any Registrar, Paying Agent
or Authenticating Agent (each an "Authorized Agent") shall (i) be a corporation
organized and doing business under the laws of the United States, of any state
or territory thereof or of the District of Columbia, (ii) be authorized under
such laws to act as Registrar, Paying Agent or Authenticating Agent, as the case
may be, (iii) be subject to supervision or examination by federal, state,
territorial or District of Columbia authority and (iv) either (A) have a
combined capital and surplus of at least $50,000,000 or (B) have a combined
capital and surplus of at least $10,000,000 and be a wholly-owned subsidiary of
a corporation having a combined capital and surplus of at least $50,000,000. If
such corporation publishes reports of condition at least annually, pursuant to
Applicable Law or to the requirements of said supervising or examining
authority, then for purposes of this Section 2.6.3, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time an Authorized Agent shall cease to be eligible in accordance with the
provisions of this Section 2.6.3, it shall resign immediately in the manner and
with the effect hereinafter specified in clause (c) of this Section 2.6.3.
(b) Any corporation into which any Authorized 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 any Authorized Agent shall
be a party, or any corporation succeeding to all or substantially all of the
corporate agency or corporate trust business of any Authorized Agent, shall be
the successor of such Authorized Agent hereunder, provided such corporation
shall be otherwise qualified and eligible under this Section 2.6.3, without the
execution and filing of any instrument or any further act on the part of any of
the parties hereto or such Authorized Agent or successor corporation.
(c) Any Authorized Agent may at any time resign by giving written notice of
resignation to the Trustee and CE Generation. CE Generation may, and at the
request of the Trustee shall, terminate the agency of any Authorized Agent by
giving written notice of such termination to such Authorized Agent and to the
Trustee. Upon the resignation or termination of any Authorized Agent or in case
at any time any Authorized Agent shall cease to be eligible to hold its position
under this Section 2.6.3 (when, in either case, no other Authorized Agent
performing the functions of such former Authorized Agent shall have been
appointed), CE Generation (or the Trustee in the case of any Authenticating
Agent) shall promptly appoint one or more
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qualified successor Authorized Agents approved by the Trustee to perform the
functions of the Authorized Agent which has resigned or whose agency has been
terminated or who shall have ceased to be eligible under this Section 2.6.3. CE
Generation (or the Trustee in the case of any Authenticating Agent) shall give
written notice of any such appointment to all Holders in the manner provided in
Section 12.5(b).
(d) CE Generation shall pay to each Authorized Agent from time to time
reasonable compensation for its services hereunder.
Section 2.7 Transfer and Exchange of Securities. Unless and until a
Security is transferred or exchanged pursuant to an effective registration
statement under the Securities Act, the provisions set forth in this Section 2.7
shall apply to the transfer and exchange of such Security.
2.7.1 Transfer and Exchange Generally. (a) The Securities are
transferable only upon the surrender thereof for registration of transfer. When
a Security is presented to the Registrar with a duly executed Transfer
Instrument substantially in the form of Exhibit C, the Registrar shall register
the transfer as requested if such transfer complies with the provisions of this
Section 2.7. Prior to the due presentation for registration of transfer of any
Security, the Person in whose name such Security is registered shall be treated
as the absolute owner of such Security for the purpose of receiving payment of
principal of, premium (if any) and interest on such Security (whether or not
such payment is overdue) and for all other purposes whatsoever, notwithstanding
any notice to the contrary. Registration of transfer of any Security by the
Registrar shall be deemed to be an acknowledgment of such transfer by CE
Generation.
(b) When Securities are presented to the Registrar with a written request
to exchange such Securities for Securities of any authorized denominations and
of a like aggregate principal amount, the Registrar shall make the exchange as
requested if such exchange complies with the provisions of this Section 2.7.
(c) Following any request for transfer or exchange of one or more
Securities made in compliance with clause (a) or (b), as the case may be, of
this Section 2.7.1, CE Generation shall execute, and the Trustee shall
authenticate and deliver, one or more new Securities of a like principal amount
and in such authorized denominations as may be requested. No service charge
shall be made for any registra tion of transfer or exchange of Securities, but
CE Generation may require payment of a sum sufficient to pay all taxes,
assessments or other governmental charges that may be
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imposed in connection with any transfer or exchange of Securities; provided,
however, that no such requirement of payment shall apply to exchanges made
pursuant to Section 2.11 or Section 8.5.
(d) Transfers or exchanges of the Global Securities and beneficial
interests therein shall be subject to the provisions of Section 2.7.2 and the
rules of the Depositary. Transfers or exchanges of Certificated Securities shall
be subject to the provisions of Section 2.7.3.
(e) Except as otherwise provided herein, the Global Securities and each
Certificated Security shall bear the Transfer Restriction Legend. By its
acceptance of any Security bearing the Transfer Restriction Legend, whether upon
original issuance or subsequent transfer, each Holder of such a Security
acknowledges the restrictions on transfer of such Security set forth in this
Indenture and in the Transfer Restriction Legend and agrees that it will
transfer such Security only as provided in this Indenture. Upon the specific
written request of a Holder to remove the Transfer Restriction Legend, the
Trustee shall authenticate and deliver a Security with an equivalent principal
amount not bearing the Transfer Restriction Legend if there is provided to CE
Generation (which CE Generation shall confirm in writing to the Trustee)
evidence reasonably satisfactory to CE Generation (which may, at CE Generation's
request, include an Opinion of Counsel) that neither the Transfer Restriction
Legend nor the restrictions on transfer set forth therein are required to ensure
compliance with the Securities Act. Upon a written request for the registration
of transfer or exchange of a Security bearing the Transfer Restriction Legend
pursuant to an effective registration statement under the Securities Act and in
accordance with any applicable securities laws of any state of the United
States, the Registrar shall authenticate and deliver a Security with an
equivalent principal amount not bearing the Transfer Restriction Legend. If the
Transfer Restriction Legend has been removed from a Security as provided in this
clause (e), the transfer of such Security shall not be subject to the
restrictions on transfer set forth in the Transfer Restriction Legend, and no
other Security issued in exchange for all or any part of such Security shall
bear the Transfer Restriction Legend unless CE Generation has reasonable cause
to believe that such other Security is a "restricted security" within the
meaning of Rule 144 and instructs the Registrar in writing to cause the Transfer
Restriction Legend to appear thereon.
(f) All Securities issued upon any transfer or exchange pursuant to the
terms hereof shall be the valid obligations of CE Generation, evidencing the
same debt, and shall be entitled to the same benefits under this Indenture as
the Securities surrendered upon such transfer or exchange.
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2.7.2 Transfers and Exchanges of the Global Securities and
Beneficial Interests Therein. (a) Transfers of the Global Securities shall be
limited to transfers in whole, but not in part, to the Depositary, its
successors or their respective nominees. So long as any Global Security remains
outstanding and is held by or on behalf of the Depositary, transfers and
exchanges of beneficial interests in such Global Security shall be made in
accordance with the provisions of this Section 2.7.2 and in accordance with the
rules and procedures of the Depositary to the extent applicable (the "Applicable
Procedures").
(b) Any transfer of a beneficial interest in the Restricted Global Security
to a transferee that will take delivery in the form of a beneficial interest in
the Unrestricted Global Security prior to the termination of the Regulation S
Restricted Period shall be registered, subject to the Applicable Procedures,
only in accordance with this clause (b). At any time prior to the termination of
the Regulation S Restricted Period, upon (i) receipt by the Registrar of (A)
instructions given in accordance with the Applicable Procedures from the
Depositary or its nominee on behalf of an owner of a beneficial interest in the
Restricted Global Security to transfer such beneficial interest to a Person
that will take delivery in the form of a beneficial interest in the Unrestricted
Global Security, (B) a written order of the Depositary or its nominee given in
accordance with the Applicable Procedures containing account and other
information with respect to such transfer and (C) a certificate of the
transferor of the beneficial interest in the Restricted Global Security
substantially in the form of Exhibit G, and (ii) satisfaction of all other
conditions imposed by the Applicable Procedures, the Registrar shall (1) reflect
in the Securities Register a decrease in the principal amount of the Restricted
Global Security and an increase in the principal amount of the Unrestricted
Global Security, each such adjustment to equal the principal amount of the
beneficial interest transferred pursuant to this clause (b), and (2) instruct
the Depositary to make the corresponding adjustment to its records and debit and
credit the accounts of the appropriate Agent Members in accordance with the
Applicable Procedures.
(c) Any transfer of a beneficial interest in the Restricted Global Security
to a transferee that will take delivery in the form of a beneficial interest in
the Unrestricted Global Security subsequent to the termination of the Regulation
S Restricted Period shall be registered, subject to the Applicable Procedures,
only in accordance with this clause (c). At any time subsequent to the
termination of the Regulation S Restricted Period, upon (i) receipt by the
Registrar of (A) instructions given in accordance with the Applicable Procedures
from the Depositary or its nominee on behalf of an owner of a beneficial
interest in the Restricted Global Security to transfer such beneficial interest
to a Person that will take delivery in the form of a beneficial
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interest in the Unrestricted Global Security, (B) a written order of the
Depositary or its nominee given in accordance with the Applicable Procedures
containing account and other information with respect to such transfer and (C) a
certificate of the transferor of the beneficial interest in the Restricted
Global Security substantially in the form of Exhibit G (if transfer is made in
reliance on Regulation S) or Exhibit I (if transfer is made in reliance on Rule
144), and (ii) satisfaction of all other conditions imposed by the Applicable
Procedures, the Registrar shall (1) reflect in the Securities Register a
decrease in the principal amount of the Restricted Global Security and an
increase in the principal amount of the Unrestricted Global Security, each such
adjustment to equal the principal amount of the beneficial interest transferred
pursuant to this clause (c), and (2) instruct the Depositary to make the
corresponding adjustment to its records and debit and credit the accounts of the
appropriate Agent Members in accordance with the Applicable Procedures.
(d) Any transfer of a beneficial interest in the Unrestricted Global
Security to a transferee that will take delivery in the form of a beneficial
interest in the Restricted Global Security, either prior or subsequent to the
termination of the Regulation S Restricted Period, shall be registered, subject
to the Applicable Procedures, only in accordance with this clause (d). At any
time upon (i) receipt by the Registrar of (A) instructions given in accordance
with the Applicable Procedures from the Depositary or its nominee on behalf of
an owner of a beneficial interest in the Unrestricted Global Security to
transfer such beneficial interest to a Person that will take delivery in the
form of a beneficial interest in the Restricted Global Security, (B) a written
order of the Depositary or its nominee given in accordance with the Applicable
Procedures containing account and other information with respect to such
transfer and (C) a certificate of the transferor of the beneficial interest in
the Unrestricted Global Security substantially in the form of Exhibit E, and
(ii) satisfaction of all other conditions imposed by the Applicable Procedures,
the Registrar shall (1) reflect in the Securities Register a decrease in the
principal amount of the Unrestricted Global Security and an increase in the
principal amount of the Restricted Global Security, each such adjustment to
equal the principal amount of the beneficial interest trans ferred pursuant to
this clause (d), and (2) instruct the Depositary to make the corresponding
adjustment to its records and debit and credit the accounts of the appropriate
Agent Members in accordance with the Applicable Procedures.
(e) No restrictions shall apply with respect to the transfer or
registration of transfer of (i) a beneficial interest in the Restricted Global
Security to a transferee that takes delivery in the form of a beneficial
interest in the Restricted Global Security or (ii) a beneficial interest in the
Unrestricted Global Security to a transferee that takes delivery in the form of
a beneficial interest in the Unrestricted Global
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Security; provided that any transfer described in this clause (e) shall be made
in accordance with the Applicable Procedures. The Trustee shall not be deemed to
have knowledge of any such transfers.
(f) Any transfer of a beneficial interest in the Restricted Global Security
to a transferee that will take delivery in the form of one or more Certificated
Securities shall be registered, subject to the Applicable Procedures, only in
accordance with this clause (f). At any time upon (i) receipt by the Registrar
of (A) instructions given in accordance with the Applicable Procedures from the
Depositary or its nominee on behalf of an owner of a beneficial interest in the
Restricted Global Security to transfer such beneficial interest to a Person that
will take delivery in the form of one or more Certificated Securities, (B) a
written order of the Depositary or its nominee given in accordance with the
Applicable Procedures containing account and other information with respect to
such transfer and (C) a certificate of the transferor of the beneficial interest
in the Restricted Global Security substantially in the form of Exhibit G (if
transfer is made in reliance on Regulation S), Exhibit I (if transfer is made in
reliance on Rule 144) or Exhibit E (if the transfer is made in reliance on Rule
144A), and (ii) satisfaction of all other conditions imposed by the Applicable
Procedures, (1) the Registrar shall (x) reflect in the Securities Register a
decrease in the principal amount of the Restricted Global Security in an amount
equal to the beneficial interest transferred pursuant to this clause (f) and (y)
instruct the Depositary to make the corresponding adjustment to its records and
debit the account of the appropriate Agent Member in accordance with the
Applicable Procedures, and (2) CE Generation shall execute and the Trustee shall
authenticate and deliver one or more Certificated Securities of like tenor and
amount bearing the Transfer Restriction Legend.
(g) Any transfer of a beneficial interest in the Unrestricted Global
Security to a transferee that will take delivery in the form of one or more
Certificated Securities prior to the termination of the Regulation S Restricted
Period shall be registered, subject to the Applicable Procedures, only in
accordance with this clause (g). At any time prior to the termination of the
Regulation S Restricted Period, upon (i) receipt by the Registrar of (A)
instructions given in accordance with the Applicable Procedures from the
Depositary or its nominee on behalf of an owner of a beneficial interest in the
Unrestricted Global Security to transfer such beneficial interest to a Person
that will take delivery in the form of one or more Certificated Securities, (B)
a written order of the Depositary or its nominee given in accordance with the
Applicable Procedures containing account and other information with respect to
such transfer and (C) a certificate of the transferor of the beneficial interest
in the Unrestricted Global Security substantially in the form of Exhibit G (if
transfer is made in reliance on Regulation S), Exhibit I (if transfer is made in
reliance on Rule 144) or Exhibit E (if
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transfer is made in reliance on Rule 144A), and (ii) satisfaction of all other
conditions imposed by the Applicable Procedures, (1) the Registrar shall (x)
reflect in the Securities Register a decrease in the principal amount of the
Unrestricted Global Security in an amount equal to the beneficial interest
transferred pursuant to this clause (g) and (y) instruct the Depositary to make
the corresponding adjustment to its records and debit the account of the
appropriate Agent Member in accordance with the Applicable Procedures, and (2)
CE Generation shall execute and the Trustee shall authenticate and deliver one
or more Certificated Securities of like tenor and amount bearing the Transfer
Restriction Legend.
(h) Any transfer of a beneficial interest in the Unrestricted Global
Security to a transferee that will take delivery in the form of one or more
Certificated Securities subsequent to the termination of the Regulation S
Restricted Period shall be registered, subject to the Applicable Procedures,
only in accordance with this clause (h). At any time subsequent to the
termination of the Regulation S Restricted Period, upon (i) receipt by the
Registrar of (A) instructions given in accordance with the Applicable Procedures
from the Depositary or its nominee on behalf of an owner of a beneficial
interest in the Unrestricted Global Security to transfer such beneficial
interest to a Person that will take delivery in the form of one or more
Certificated Securities and (B) a written order of the Depositary or its nominee
given in accordance with the Applicable Procedures containing account and other
information with respect to such transfer, and (ii) satisfaction of all other
conditions imposed by the Applicable Procedures, (1) the Registrar shall (x)
reflect in the Securities Register a decrease in the principal amount of the
Unrestricted Global Security in an amount equal to the beneficial interest
transferred pursuant to this clause (h) and (y) instruct the Depositary to make
the corresponding adjustment to its records and debit the account of the
appropriate Agent Member in accordance with the Applicable Procedures, and (2)
CE Generation shall execute and the Trustee shall authenticate and deliver one
or more Certificated Securities of like tenor and amount. Unless determined
otherwise in accordance with Applicable Law, Certificated Securities delivered
pursuant to this clause (h) shall not be required to bear the Transfer
Restriction Legend.
(i) Persons holding beneficial interests in the Global Securities may
exchange such beneficial interests for one or more Certificated Securities upon
satisfaction of the conditions set forth in this clause (i). At any time upon
receipt by the Registrar of instructions given in accordance with the Applicable
Procedures from the Depositary or its nominee on behalf of an owner of a
beneficial interest in a Global Security to exchange such beneficial interest
for one or more Certificated Securities and a written order of the Depositary or
its nominee given in accordance with the Applicable Procedures containing
account and other information with respect to such
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exchange, and satisfaction of all other conditions imposed by the Applicable
Procedures, the Registrar shall (x) reflect in the Securities Register a
decrease in the principal amount of the appropriate Global Security in an amount
equal to the beneficial interest exchanged pursuant to this clause (i) and (y)
instruct the Depositary to make the corresponding adjustment to its records and
debit the account of the appropriate Agent Member in accordance with the
Applicable Procedures, and CE Generation shall execute and the Trustee shall
authenticate and deliver one or more Certificated Securities of like tenor and
amount bearing the Transfer Restriction Legend. At such time as all interests in
a Global Security have been exchanged for Certificated Securities or canceled,
such Global Security shall be canceled by the Trustee.
(j) Notwithstanding any contrary provision contained herein, Certificated
Securities shall be issued in exchange for the beneficial interests in the
Global Securities if at any time: CE Generation advises the Trustee in writing
that the Depositary is unwilling or unable to continue as depositary for the
Global Securities or is no longer eligible to act as such and in each case a
successor depositary is not appointed by CE Generation within ninety (90) days
of receipt by CE Generation of notice of such inability; CE Generation, at its
option, elects to terminate the book-entry system through the Depositary with
respect to the Global Securities; or after the occurrence of an Event of
Default, beneficial owners holding interests representing an aggregate principal
amount of Securities of not less than fifty-one percent (51%) of the Securities
represented by the Global Securities advise the Trustee in writing through the
Depositary that the continuation of a book-entry system through the Depositary
is no longer in such beneficial owners' best interests. Upon the occurrence of
any of the events set forth in clauses (i) through (iii) immediately above, the
Trustee, upon receipt of written notice thereof and a list of all Persons that
hold a beneficial interest in the Global Securities, shall notify, through the
appropriate Agent Members at the expense of CE Generation, all Persons that hold
a beneficial interest in the Global Securities of the issuance of Certificated
Securities. Upon surrender by the Trustee, as custodian for the Depositary, of
the Global Securities and receipt from the Depositary of instructions for
re-registration, CE Generation shall execute and the Trustee, upon the written
instructions of in the case of the events set forth in clauses (i) and (ii)
immediately above, CE Generation, or in the case of the events set forth in
clause (iii) immediately above, beneficial owners holding interests representing
an aggregate principal amount of Securities of not less than fifty-one percent
(51%) of the Securities represented by the Global Securities, authenticate and
deliver Certificated Securities bearing the Transfer Restriction Legend.
Certificated Securities issued in exchange for beneficial interests in the
Global Securities pursuant to this clause (j) shall be registered in such names
and in such authorized denominations as the Depositary, pursuant to instructions
from Agent Members or otherwise, shall instruct the Trustee.
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2.7.3 Transfers and Exchanges of Certificated Securities. (a) Any
transfer of a Certificated Security bearing the Transfer Restriction Legend to a
transferee that takes delivery in the form of one or more Certificated
Securities shall be registered only in accordance with this clause (a). Upon
surrender of any Certificated Security bearing the Transfer Restriction Legend
at the office of the Registrar, together with (A) an executed instrument of
assignment and transfer of such Certificated Security substantially in the form
of Exhibit C and (B) a certificate of the transferor of such Certificated
Security substantially in the form of Exhibit G (if transfer is made pursuant to
Regulation S), Exhibit I (if such transfer is made pursuant to Rule 144) or
Exhibit E (if such transfer is made pursuant to Rule 144A), (1) the Trustee
shall register such transfer and (2) CE Generation shall execute and the Trustee
shall authenticate and deliver in the name of the transferee one or more
Certificated Securities of any authorized denomination in the same aggregate
principal amount and of the same maturity as the transferred Certificated
Security, each such new Certificated Security bearing the Transfer Restriction
Legend; provided, however, that Certificated Securities so delivered shall not
be required to bear the Transfer Restriction Legend if there is provided to CE
Generation (which CE Generation shall confirm in writing to the Trustee)
evidence reasonably satisfactory to CE Generation (which may, at CE Generation's
request, include an Opinion of Counsel) that neither the Transfer Restriction
Legend nor the restrictions on transfer set forth therein are required to ensure
compliance with the Securities Act.
(b) Any transfer of a Certificated Security not bearing the Transfer
Restriction Legend to a transferee that takes delivery in the form of one or
more Certificated Securities shall be registered only in accordance with this
clause (b). Upon surrender of any Certificated Security not bearing the Transfer
Restriction Legend at the office of the Registrar, together with an executed
Transfer Instrument substantially in the form of Exhibit C, (i) the Trustee
shall register such transfer and (ii) CE Generation shall execute and the
Trustee shall authenticate and deliver in the name of the transferee one or more
Certificated Securities of any authorized denomination in the same aggregate
principal amount and of the same maturity as the transferred Certificated
Security. Each such new Certificated Security may at the request of the
transferee, but shall not be required to, bear the Transfer Restriction Legend.
(c) Any transfer of a Certificated Security bearing the Transfer
Restriction Legend to a transferee that takes delivery in the form of a
beneficial interest in a Global Security shall be registered only in accordance
with this clause (c). Upon (i) surrender of any Certificated Security bearing
the Transfer Restriction Legend at the office of the Registrar, together with
(A) an executed Transfer Instrument substantially
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in the form of Exhibit C, (B) written instructions from the transferor that such
Certificated Security shall be registered in the name of the Depositary or its
nominee and (C) a certificate of the transferor of such Certificated Security
substantially in the form of Exhibit G (if the transferee will take delivery in
the form of a beneficial interest in the Unrestricted Global Security) or
Exhibit E (if the transferee will take delivery in the form of a beneficial
interest in the Restricted Global Security) and (ii) satisfaction of all other
conditions imposed by the Applicable Procedures, the Registrar shall (x)
register such transfer and cancel such Certificated Security, (y) reflect in the
Securities Register an increase in the appropriate Global Security in an amount
equal to the Certificated Security transferred pursuant to this clause (c) and
(z) instruct the Depositary to make the corresponding adjustment to its records
and credit the account of the appropriate Agent Member in accordance with the
Applicable Procedures.
(d) Any transfer of a Certificated Security not bearing the Transfer
Restriction Legend to a transferee that takes delivery in the form of a
beneficial interest in a Global Security shall be registered only in accordance
with this clause (d). Upon (i) surrender of a Certificated Security not bearing
the Transfer Restriction Legend at the office of the Registrar, together with
(A) an executed Transfer Instrument substantially in the form of Exhibit C and
(B) written instructions from the transferor that such Certificated Security
shall be registered in the name of the Depositary or its nominee, and (ii)
satisfaction of all other conditions imposed by the Applicable Procedures, the
Registrar shall (x) register such transfer and cancel such Certificated
Security, (y) reflect in the Securities Register an increase in the appropriate
Global Security in an amount equal to the Certificated Security transferred
pursuant to this clause (d) and (z) instruct the Depositary to make the
corresponding adjustment to its records and credit the account of the
appropriate Agent Member in accordance with the Applicable Procedures.
(e) Any exchange of a Certificated Security for one or more Certificated
Securities in different authorized denominations shall be registered only in
accordance with this clause (e). Upon surrender of a Certificated Security at
the office of the Registrar, together with a written request to exchange such
Certificated Security for one or more Certificated Securities in different
authorized denominations, (i) the Registrar shall register such exchange and
(ii) CE Generation shall execute and the Trustee shall authenticate and deliver
in the name of the registered owner one or more Certificated Securities in any
authorized denomination with the same aggregate principal amount and maturity
date.
(f) Any exchange of a Certificated Security for a beneficial interest in a
Global Security shall be registered only in accordance with this clause (f).
Upon (i)
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surrender of a Certificated Security at the office of the Registrar, together
with (A) a written request to exchange such Certificated Security for a
beneficial interest in a Global Security, (B) written instructions from the
registered owner that such Certificated Security shall be registered in the
name of the Depositary or its nominee and (C) a certificate of the registered
owner of such Certificated Security substantially in the form of Exhibit H (if
the Certificated Security is being exchanged for a beneficial interest in the
Unrestricted Global Security) or Exhibit F (if the Certificated Security is
being exchanged for a beneficial interest in the Restricted Global Security) and
(ii) satisfaction of all other conditions imposed by the Applicable Procedures,
the Registrar shall (x) register such exchange and cancel such Certificated
Security, (y) reflect in the Securities Register an increase in the appropriate
Global Security in an amount equal to the Certificated Security exchanged
pursuant to this clause (f) and (z) instruct the Depositary to make the
corresponding adjustment to its records and credit the account of the
appropriate Agent Member in accordance with the Applicable Procedures.
Section 2.8 Execution. (a) The Securities shall be executed by an
Authorized Officer of CE Generation and shall be attested by an Authorized
Officer of CE Generation. Typographical and other minor errors or defects in any
signature executing or purporting to execute the Securities shall not affect the
validity or enforceability of any Security that has been duly authenticated and
delivered by the Trustee.
(b) Any Security executed pursuant to clause (a) of this Section 2.8 may be
issued and shall be authenticated by the Trustee, notwithstanding that any
officer signing such Security or whose facsimile signature appears thereon shall
have ceased to hold office at the time of issuance or authentication or shall
not have held office at the date of such Security.
Section 2.9 Authentication and Delivery. A Security, or any exchange,
transfer or replacement thereof, shall not be valid for any purpose until an
Authorized Officer of the Trustee or the Authenticating Agent manually signs the
certificate of authentication on such Security substantially in the form set
forth in Exhibit A. Subject to the requirements set forth in this Section 2.9,
such authentication shall be conclusive proof that such Security has been duly
authenticated and delivered under this Indenture and that the Holder thereof is
entitled to the benefit of the trust hereby created. The Trustee shall, in
accordance with a written order of CE Generation signed by two Authorized
Officers, authenticate the Securities at the initial issuance thereof and
deliver them to the purchaser thereof upon payment to the Trustee of the
purchase price therefor. Any Securities subsequently issued under this Indenture
may,
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in accordance with a written order of CE Generation signed by two Authorized
Officers, be authenticated by the Trustee or any Authenticating Agent appointed
by the Trustee, and such authentication shall, for all purposes of this
Indenture, be deemed to be the authentication of and delivery by the Trustee.
Section 2.10 Mutilated, Destroyed, Lost or Stolen Securities. (a) If any
Security shall become mutilated, CE Generation shall execute, and the Trustee
shall authenticate and deliver, a new Security of like tenor, maturity and
denomination in exchange and substitution for the Security so mutilated, but
only upon surrender to the Trustee of such mutilated Security for cancellation,
and CE Generation or the Trustee may require indemnity therefor. If any Security
shall be reported lost, stolen or destroyed, evidence as to the ownership and
the loss, theft or destruction thereof shall be submitted to the Trustee. If
such evidence shall be satisfactory to both the Trustee and CE Generation and
indemnity satisfactory to both shall be given, CE Generation shall execute, and
thereupon the Trustee shall authenticate and deliver, a new Security of like
tenor, maturity and denomination. The cost of providing any substitute Security
under the provisions of this Section 2.10 shall be borne by the Holder for whose
benefit such substitute Security is provided. If any such mutilated, lost,
stolen or destroyed Security shall have matured or be about to mature, CE
Generation may, with the consent of the Trustee, pay to the Holder thereof the
principal amount of such Security upon the maturity thereof and compliance with
the aforesaid conditions by such Holder, without the issuance of a substitute
Security therefor, and likewise pay to the Holder the amount of the unpaid
interest, if any, which would have been paid on a substitute Security had one
been issued.
(b) Every substitute Security issued pursuant to this Section 2.10 shall
constitute an additional contractual obligation of CE Generation, whether or not
the Security alleged to have been mutilated, destroyed, lost or stolen shall be
at any time enforceable by anyone, and shall be entitled to all the benefits of
this Indenture equally and proportionally with any and all other Securities duly
issued hereunder.
(c) All Securities shall be held and owned upon the express condition that
the foregoing provisions are, to the extent permitted by Applicable Law,
exclusive with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Securities, and shall preclude any and all other rights and
remedies with respect thereto.
Section 2.11 Temporary Securities. Pending preparation of definitive
Securities, CE Generation may issue, and upon a written order of CE Generation
signed by two Authorized Officers the Trustee shall authenticate and deliver, in
lieu of
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definitive Securities, one or more temporary printed or typewritten Securities
in the form recited in this Indenture, in any authorized denomination. If
temporary Securities are issued, CE Generation shall cause definitive Securities
to be prepared without unreasonable delay. The Trustee shall, in accordance with
a written order of CE Generation signed by two Authorized Officers, authenticate
and deliver definitive Securities in exchange for and upon surrender of an equal
principal amount of temporary Securities, without charge to the Holder of such
Securities. Until so exchanged, temporary Securities shall in all respects be
entitled to the same rights, remedies, security and other benefits under this
Indenture as definitive Securities.
Section 2.12 Cancellation and Destruction of Surrendered Securities. All
Securities surrendered for payment, redemption or registration of transfer or
exchange shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee. CE Generation may at any time deliver to the Trustee
for cancellation any Securities previously authenticated and delivered hereunder
which CE Generation may have acquired in any manner whatsoever. The Trustee (and
no one else) shall cancel all Securities surrendered for payment, redemption or
registration of transfer or exchange, and all Securities surrendered for
cancellation by CE Generation. All canceled Securities held by the Trustee shall
be disposed of in accordance with the customary procedures of the Trustee in
effect from time to time. No Securities shall be authenticated in lieu of or in
exchange for any Securities canceled as provided in this Section 2.12, except as
expressly permitted by this Indenture.
ARTICLE 3
REDEMPTION OF SECURITIES
Section 3.1 Redemption at the Option of CE Generation. (a) CE Generation
may redeem the Securities, in whole or in part, at any time on any Business
Day, at a price equal to the Redemption Price plus the Yield Maintenance
Premium.
(b) If CE Generation elects to redeem the Securities pursuant to clause (a)
of this Section 3.1, it shall deliver to the Trustee, at least thirty (30) days
prior to the latest date upon which notice of redemption is required to be given
to the Holders pursuant to Section 3.4 (unless a shorter notice period shall be
satisfactory to the Trustee), an Officer's Certificate specifying the Redemption
Date upon which such redemption shall occur and the principal amount of
Securities to be redeemed.
Section 3.2 Mandatory Redemption.
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3.2.1 Mandatory Redemption With Yield Maintenance Premium. The
Securities shall be redeemed, in whole or in part, at a price equal to the
Redemption Price plus the Yield Maintenance Premium, as follows:
(a) if any Assignor receives Available Cash Flow in excess of $15,000,000
from one or more distributions by a Project Company of Financing Proceeds in
connection with one or more Project Financings or Project Debt Refinancings with
respect to such Assignor's Project Company, an amount of such Available Cash
Flow equal to the lesser of (i) one hundred percent (100%) of such Available
Cash Flow or (ii) the amount which shall cause each Rating Agency to confirm in
writing that, after giving effect to such redemption, the Rating assigned to the
Securities by such Rating Agency will be equal to or better than the higher of
(x) the Existing Rating assigned to the Securities by such Rating Agency or (y)
the Initial Rating assigned to the Securities by such Rating Agency shall be
used to redeem the Securities in accordance with this Section 3.2.1;
(b) if any Assignor receives Available Cash Flow in excess of $15,000,000
from one or more distributions by a Project Company of the Asset Sale Proceeds
in connection with one or more Asset Sales with respect to such Assignor's
Project Company, an amount of such Available Cash Flow equal to the lesser of
(i) one hundred percent (100%) of such Available Cash Flow or (ii) the amount
which shall cause each Rating Agency to confirm in writing that, after giving
effect to such redemption, the Rating assigned to the Securities by such Rating
Agency will be equal to or better than the higher of (x) the Existing Rating
assigned to the Securities by such Rating Agency or (y) the Initial Rating
assigned to the Securities by such Rating Agency shall be used to redeem the
Securities in accordance with this Section 3.2.1;
(c) if CE Generation sells all or any portion of its interest in any
Assignor (other than a Permitted Transfer) and receives proceeds in excess of
$15,000,000 in connection with such sale, an amount of such proceeds equal to
the lesser of (i) one hundred percent (100%) of such proceeds or (ii) the amount
which shall cause each Rating Agency to confirm in writing that, after giving
effect to such redemption, the Rating assigned to the Securities by such Rating
Agency will be equal to or better than the higher of (x) the Existing Rating
assigned to the Securities by such Rating Agency or (y) the Initial Rating
assigned to the Securities by such Rating Agency shall be used to redeem the
Securities in accordance with this Section 3.2.1; or
(d) if any Assignor sells all or any portion of its interest in any Project
Company (other than a Permitted Transfer) and receives proceeds in excess of
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$15,000,000 in connection therewith, an amount of such proceeds equal to the
lesser of (i) one hundred percent (100%) of such proceeds or (ii) the amount
which shall cause each Rating Agency to confirm in writing that, after giving
effect to such redemption, the Rating assigned to the Securities by such Rating
Agency will be equal to or better than the higher of (x) the Existing Rating
assigned to the Securities by such Rating Agency or (y) the Initial Rating
assigned to the Securities by such Rating Agency shall be used to redeem the
Securities in accordance with this Section 3.2.1.
3.2.2 Mandatory Redemption Without Yield Maintenance Premium. The
Securities shall be redeemed, in whole or in part, at a price equal to the
Redemption Price, as follows:
(a) if any Assignor receives Available Cash Flow in excess of $15,000,000
from one or more distributions by a Project Company of Loss Proceeds in
connection with one or more Events of Loss with respect to such Project
Company's Project, such Available Cash Flow shall be used to redeem the
Securities in accor dance with this Section 3.2.2;
(b) if any Assignor receives Available Cash Flow in excess of $15,000,000
from one or more distributions by a Project Company of Expropriation Proceeds in
connection with one or more Expropriation Events with respect to such Project
Company's Project, such Available Cash Flow shall be used to redeem the
Securities in accordance with this Section 3.2.2;
(c) if any Assignor receives Available Cash Flow in excess of $15,000,000
from one or more distributions by a Project Company of Title Proceeds in
connection with one or more Title Events with respect to such Project Company's
Project, such Available Cash Flow shall be used to redeem the Securities in
accor dance with this Section 3.2.2; or
(d) if any Assignor receives Available Cash Flow in excess of $15,000,000
from one or more distributions by a Project Company of Buy-Out Proceeds in
connection with one or more Permitted Power Contract Buy-Outs, an amount of such
Available Cash Flow equal to the lesser of (i) one hundred percent (100%) of
such Available Cash Flow or (ii) the amount which shall cause each Rating Agency
to confirm in writing that, after giving effect to such redemption, the Rating
assigned to the Securities by such Rating Agency will be equal to or better than
the higher of (x) the Existing Rating assigned to the Securities by such Rating
Agency or (y) the Initial Rating assigned to the Securities by such Rating
Agency shall be used to redeem the Securities in accordance with this Section
3.2.2.
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3.2.3 Mandatory Redemption Generally. (a) The Initial Securities and
the Additional Securities shall be redeemed on a pro rata basis in accordance
with the aggregate outstanding principal amount of such Securities (except to
the extent that the Supplemental Indenture providing for the issuance of
Additional Securities provides that such Additional Securities are to be
redeemed on less than a pro rata basis).
(b) If CE Generation is required to redeem the Securities in accordance
with this Section 3.2, it shall deliver to the Trustee, immediately upon the
occurrence of the event resulting in such obligation to redeem, an Officer's
Certificate specifying the principal amount of Securities to be redeemed, the
Redemption Price, the applicable Yield Maintenance Premium (if any), the
paragraph of the Securities pursuant to which the Securities are being redeemed
and, subject to the requirements of Section 3.4, the Redemption Date for such
redemption, which Redemption Date shall be within ninety (90) days of the
occurrence of the event resulting in CE Generation's obligation to redeem the
Securities in accordance with this Section 3.2.
Section 3.3 Redemption Fund. Upon receipt from CE Generation of an
Officer's Certificate in respect of a redemption of Securities pursuant to this
Article 3, the Trustee shall establish a special purpose trust fund (the
"Redemption Fund"), which shall at all times be in the exclusive possession of,
and under the exclusive dominion and control of, the Trustee. At least one (1)
Business Day prior to the Redemption Date for any redemption of Securities
pursuant to this Article 3, CE Generation shall deposit or cause to be deposited
in the Redemption Fund an amount (in immediately available funds) which,
together with monies received by the Trustee for such purpose from the
Collateral Agent or the Depositary Bank in accordance with the Intercreditor
Agreement and the Depositary Agreement, is sufficient to redeem on such
Redemption Date the Securities called for redemption in accordance with this
Article 3.
Section 3.4 Notice of Redemption. (a) Notice of redemption shall be given
in the manner provided in Section 12.5(b) to the Holders of any Securities to be
redeemed pursuant to this Article 3 at least thirty (30) days but not more than
sixty (60) days prior to the Redemption Date for such redemption. All notices of
redemption shall state the following:
(i) the Redemption Date;
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(ii) the Redemption Price and any applicable Yield Maintenance
Premium;
(iii) if less than all Outstanding Securities are to be redeemed,
the identification of the particular Securities to be redeemed and the
aggregate principal amount of Securities to be redeemed;
(iv) in the case of Securities to be redeemed in part, the princi
pal amount of such Securities to be redeemed and a statement to the effect
that after the Redemption Date, upon surrender of such Securities, new
Securities in the aggregate principal amount equal to the unredeemed portion
thereof will be issued;
(v) the name and address of the Paying Agent;
(vi) that Securities called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price and any applicable Yield
Maintenance Premium;
(vii) that on the Redemption Date the Redemption Price and any
applicable Yield Maintenance Premium will become due and payable upon each
Security to be redeemed or portion thereof, and that (unless CE Genera tion
shall default in the payment of the Redemption Price and such Yield
Maintenance Premium) interest thereon shall cease to accrue on and after said
date;
(viii) a statement to the effect that the availability in the
Redemption Fund on the Redemption Date of an amount of immediately available
funds to pay the Redemption Price and any applicable Yield Maintenance
Premium in full is a condition precedent to the redemption;
(ix) the paragraph of the Securities pursuant to which the
Securities are being redeemed; and
(x) the CUSIP number, if any, relating to the Securities being
redeemed.
(b) Notice of redemption of Securities to be redeemed at the election of CE
Generation pursuant to Section 3.1 shall be given by CE Generation or, at CE
Generation's written request to the Trustee, by the Trustee in the name and at
the expense of CE Generation. Notice of a mandatory redemption pursuant to
Section 3.2 shall be given by the Trustee in the name and at the
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expense of CE Generation. Any notice of redemption given in accordance with this
Section 3.4 shall be conclusively presumed to have been given whether or not a
Holder receives such notice. In any case, failure to give such notice as herein
provided or any defect in the notice given to a Holder of any Security
designated for redemption in whole or in part shall not affect the validity of
the proceedings for the redemption of any other Security.
Section 3.5 Securities Payable on Redemption Date. Upon the giving of
notice pursuant to Section 3.4 and the satisfaction of the conditions, if any,
set forth in such notice, the Securities or portions thereof called for
redemption in such notice shall become due and payable on the Redemption Date
and at the Redemption Price (plus any applicable Yield Maintenance Premium)
specified in such notice, and from and after the Redemption Date (unless CE
Generation shall default in the payment of such Securities at the Redemption
Price plus any applicable Yield Maintenance Premium) such Securities or portions
thereof shall cease to bear interest. Upon surrender of any such Security for
redemption in accordance with such notice, such Security or portions thereof
shall be paid and redeemed by CE Generation at the Redemption Price therefor
plus any applicable Yield Maintenance Premium; provided, however, that any
payment of interest on any Security the Payment Date of which is on or prior to
the Redemption Date shall be payable to the Holder of such Security registered
as such at the close of business on the relevant Regular Record Date in
accordance with the terms of this Indenture and such Security.
Section 3.6 Selection of Securities to be Redeemed. If less than all the
Securities are to be redeemed pursuant to this Article 3, the Trustee shall
redeem the Securities on a pro rata basis among the Outstanding Securities not
previously called for redemption in whole. The Trustee shall notify CE
Generation promptly of the Securities selected for redemption and, in the case
of any Securities selected for partial redemption, the principal amount thereof
to be redeemed.
Section 3.7 Securities Redeemed in Part. (a) For all purposes of this
Indenture, unless the context otherwise requires, all provisions relating to the
redemption of Securities shall relate, in the case of any Securities redeemed
or to be redeemed only in part, to the portion of the principal amount of such
Securities that has or is to be redeemed.
(b) Any Security that is to be redeemed only in part shall be surrendered
at the place of payment therefor and, upon such surrender, CE Generation shall
execute, and the Trustee shall authenticate and make available for delivery to
the
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Holder of such Security (at the expense of CE Generation), a new Security, of
any authorized denomination requested by such Holder and of like tenor and in
aggregate principal amount equal to and in exchange for the remaining unpaid
principal amount of the surrendered Security.
(c) Upon any partial redemption of Securities in accordance with this
Article 3, the scheduled principal amortization of the Securities as set forth
on Schedule II shall be reduced by an amount equal to the product of the
scheduled principal amortization of the Securities then in effect and a
fraction, the numerator of which is equal to the principal amount of the
Outstanding Securities to be redeemed and the denominator of which is the
principal amount of the Outstanding Securities immediately prior to such
redemption. In connection with any such partial redemption, CE Generation shall
furnish the Trustee, prior to such redemption, with an Officer's Certificate
setting forth the amortization schedule for the remaining Securities after
giving effect to such redemption. Notwithstanding any other provision of this
Indenture, if any Security called for redemption shall not be paid upon
surrender thereof for redemption, the principal of such Security shall, until
paid or provided for, bear interest from the date fixed for redemption at the
interest rate specified in such Security.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
CE Generation represents and warrants to the Trustee as follows:
Section 4.1 Organization, Power and Status of CE Generation. CE Generation
(a) is a limited liability company duly formed, validly existing and in good
standing under the laws of the State of Delaware and (b) is duly qualified as a
foreign limited liability company in each jurisdiction where the nature of its
activities makes such qualification necessary. CE Generation has all requisite
limited liability company power and authority to carry on its business as now
being conducted and as proposed to be conducted.
Section 4.2 Authorization; Enforceability; Execution and Delivery. (a) CE
Generation has all necessary limited liability company power and authority to
execute, deliver and perform its obligations under this Indenture, the
Securities and each other Financing Document to which it is a party.
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(b) All action on the part of CE Generation that is required for the
authorization, execution, delivery and performance of this Indenture, the
Securities and each other Financing Document to which CE Generation is a party
have been duly and effectively taken; and the execution, delivery and
performance of this Indenture, the Securities and each such other Financing
Document to which it is a party do not require the approval or consent of any
holder or trustee of any Indebtedness or other obligations of CE Generation.
(c) This Indenture, the Securities and each other Financing Document to
which CE Generation is a party have been duly authorized, executed and delivered
by CE Generation. Each of this Indenture, the Securities and each other
Financing Document to which CE Generation is a party constitutes a legal, valid
and binding obligation of CE Generation enforceable against CE Generation 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 4.3 No Conflicts; Laws and Contracts; No Default; Representations
and Warranties. (a) Neither the execution, delivery and performance of this
Indenture, the Securities and each other Financing Document to which CE
Generation is a party, nor the consummation of any of the transactions
contemplated hereby or thereby (i) contravenes any provision of Applicable Law,
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 or results in the
acceleration of, any obligation under the certificate of formation or limited
liability company operating agreement of CE Generation, or of any other terms of
any other Financing Document or any other agreement or instrument to which CE
Generation is a party or by which CE Generation or any of its property or assets
is bound or to which CE Generation may be subject, except any such conflict,
inconsistency, default or violation which, individually or in the aggregate,
could not reason ably 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 and Permitted Assignor Liens) on
the Collateral.
(b) CE Generation is in compliance with any and all Applicable Laws, except
any such noncompliance which, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
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Section 4.4 Governmental Approvals. All Governmental Approvals which are
required to be obtained by, in the name of or on behalf of CE Generation, in
connection with (a) the issuance of the Securities and (b) the execution,
delivery and performance by CE Generation 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 4.5 Litigation. There are no claims, actions, suits, investiga
tions or proceedings at law or in equity or by or before any arbitrator or
Governmental Authority now pending against CE Generation or, to the knowledge of
CE Generation, threatened against CE Generation or any property or other assets
or rights of CE Generation that could reasonably be expected to result in a
Material Adverse Effect.
Section 4.6 Utility Regulation. CE Generation 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 4.7 Employee Benefit Plans. Each Plan (including without limitation
each Plan of a Commonly Controlled Entity) as to which CE Generation may have
any liability complies with all applicable requirements of Applicable Law, and
(i) no "reportable event" (as defined in Section 4043 of ERISA (other than an
event not subject to the notice requirement 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, (iii) no Plan has been terminated or
has commenced to be terminated, (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 and (v) no condition exists or event or
transaction has occurred with respect to any Plan, in each case, that could
reasonably be expected to result in a Material Adverse Effect.
Section 4.8 Business of CE Generation. CE Generation is a special purpose
limited liability company and is not and has not engaged in any activities other
than (a) its formation, (b) issuing the Securities and other Permitted
Indebtedness and other activities expressly permitted by the Financing
Documents, (c) the owner ship of its Subsidiaries, (d) other activities which
could not reasonably be expected to result in a Material Adverse Effect and
which the Rating Agencies confirm in writing will not result in a Ratings
Downgrade, and (e) activities incidental to those described in clauses (a)
through (d).
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Section 4.9 Investment Company Act. CE Generation is not, and
following the issuance and sale of the Securities, will not be, an "investment
company" or, to the knowledge of CE Generation, an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended.
Section 4.10 Disclosure. Each of the Preliminary Offering Circular and the
Final Offering Circular as of its date did not, and the Final Offering Circular
(as the same may have been amended or supplemented) as of the Closing Date will
not, contain any 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.
ARTICLE 5
COVENANTS
Section 5.1 Payment of Principal of and Interest on Securities. (a) CE
Generation shall promptly pay or cause to be paid the principal of, premium (if
any) and interest on every Security issued hereunder according to the terms
hereof and thereof.
Section 5.2 Reporting Requirements. CE Generation shall furnish or cause to
be furnished to the Trustee, each Rating Agency and, in the case of clauses
(i)(a) and (ii)(a) below, any Holder or any owner of a beneficial interest in
any Global Security upon written request of such Holder or beneficial owner
(which request may be a Continuing Request):
(i) as soon as available and in any event within forty-five (45)
days after the end of the first, second and third quarters of CE Generation's
fiscal year (commencing with the quarter ending March 31, 1999), (a) Unau
dited Financial Statements (consolidated) of CE Generation for such period,
each accompanied by (b) an Officer's Certificate of CE Generation (1) to the
effect that such Unaudited Financial Statements fairly present the financial
condition and results of operations of CE Generation and its Subsidiaries on
the dates and for the periods indicated in accordance with GAAP (other than
with respect to the notes and normally recurring year-end adjustments) and
(2) stating that no Default or Event of Default has occurred and is
continuing, or, if a Default or an Event of Default has occurred and is
continuing, a statement as to the nature thereof;
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(ii) as soon as available and in any event within ninety (90) days
after the end of each fiscal year of CE Generation (commencing with the
fiscal year ended December 31, 1999), (a) Annual Audited Financial State
ments (consolidated) of CE Generation for such fiscal year, accompanied by an
audit opinion thereon by the Auditors, which opinion shall state that said
financial statements of CE Generation present fairly, in all material
respects, the financial condition and results of operations of CE Generation
and its Subsidiaries at the end of, and for, such fiscal year in accordance
with GAAP, and (b) an Officer's Certificate of CE Generation stating that no
Default or Event of Default has occurred and is continuing, or, if a Default
or an Event of Default has occurred and is continuing, a statement as to the
nature thereof; and
(iii) promptly and in any event within fifteen (15) days after an
Authorized Officer of CE Generation has actual knowledge thereof, written
notice of the occurrence of any event or condition which constitutes a
Default or an Event of Default, specifically stating that such event or
condition has occurred and describing it and any action being or proposed to
be taken with respect thereto.
Section 5.3 Existence; Compliance with Applicable Laws. Other than as
permitted under Section 5.16 and Section 5.17(a), (a) CE Generation shall at all
times preserve and maintain in full force and effect (i) its existence as a
limited liability company in good standing under the laws of the State of
Delaware and (ii) its qualification to do business in each other jurisdiction in
which the character of 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, except in each case as expressly permitted under the
Financing Documents.
(b) CE Generation shall maintain and renew all of the powers, rights,
privileges and franchises necessary for the transaction of its business as
conducted or proposed to be conducted, except where the failure to do so could
not reasonably be expected to result in a Material Adverse Effect.
(c) CE Generation shall comply with all Applicable Laws and Govern mental
Approvals applicable to it, and all other acts, rules, regulations, permits,
orders and requirements of any legislative, executive, administrative or
judicial body relating to the issuance of the Securities by CE Generation and
performance by CE
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Generation of its obligations hereunder, except where the failure to do so could
not reasonably be expected to result in a Material Adverse Effect.
Section 5.4 Payment of Taxes and Claims. CE Generation shall, prior to the
time penalties shall attach thereto, pay and discharge or cause to be paid or
discharged all taxes, assessments and governmental charges or levies imposed
upon it or its income or profits ("Taxes"); provided that CE Generation shall
not be required to pay any such obligation if (a) such Taxes are being
diligently contested in good faith by appropriate proceedings, (b) during the
period of such contest the enforcement of any contested item is effectively
stayed, (c) adequate reserves are established with respect to the contested
items (in accordance with GAAP) and (d) such contest could not reasonably be
expected to result in the sale, forfeiture or loss of any material amount of the
Collateral. CE Generation shall promptly pay or cause to be paid any valid,
final non-appealable judgment enforcing any such Taxes and shall cause the same
to be satisfied of record, as applicable.
Section 5.5 Books and Records. CE Generation shall at all times keep proper
books of record and account adequate to reflect truly and fairly the financial
condition and results of operations of CE Generation in which full, true and
correct entries in conformity with GAAP and all Applicable Laws shall be made of
all dealings and transactions in relation to its business and activities.
Section 5.6 Right of Inspection. CE Generation shall permit officers and
designated representatives of the Trustee, the Collateral Agent and the
Depositary Bank to visit and inspect any of the properties of CE Generation, to
examine and make copies of the books of record and accounts of CE Generation and
to discuss the affairs, finances and accounts of CE Generation with, and be
advised as to the same by, its officers, all at such reasonable times during
normal business hours and intervals and to such reasonable extent as the
Trustee, the Collateral Agent and the Depositary Bank may request.
Section 5.7 Use of Proceeds. CE Generation shall use the proceeds from the
issuance and sale of the Initial Securities to: (a) make payments to effect
repayment in full of all outstanding principal of the Magma Note, together with
all premium (if any) and accrued interest thereon; (b) make payments to
CalEnergy in an aggregate amount of $122,000,000 as consideration for the
transfer by CalEnergy to CE Generation of the assets listed on Schedule I
hereto, which payments will be used by CalEnergy to satisfy its obligations
under the SSFC Equity Commitment Agree ment (except to the extent such
obligations are satisfied by payments from an owner of an equity interest in CE
Generation); (c) make a capital contribution to Yuma
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in the amount necessary for Yuma to repay in full all outstanding principal of
the Yuma Note, together with all premium (if any) and accrued interest thereon;
(d) make payments to CalEnergy in an aggregate amount of up to $4,000,000 as
consideration for the transfer by CalEnergy to CE Generation of the assets
listed on Schedule I hereto, which payments relate to CalEnergy's development
costs for Salton Sea Unit V, the CE Turbo Project and the Zinc Facility; and (e)
pay the transaction costs associated with the offer and sale of the Initial
Securities.
Section 5.8 Performance of Financing Documents. CE Generation shall perform
all of its material covenants and agreements contained in any of the Financing
Documents to which it is a party and shall take all reasonable and necessary
actions to prevent the termination or cancellation of any such Financing
Document as against CE Generation or any Assignor or any Affiliate thereof,
except where the failure to do so could not reasonably be expected to result in
a Material Adverse Effect.
Section 5.9 Title. CE Generation shall preserve and maintain good and valid
title to all of its properties and assets subject to no Liens other than
Permitted Liens, except where the failure to do so could not reasonably be
expected to result in a Material Adverse Effect.
Section 5.10 Rule 144A Information; Other Information. At any time when CE
Generation is not subject to the reporting requirements of Section 13 or Section
15(d) of the Exchange Act, upon the request of any Holder or any owner of a
beneficial interest in a Global Security, CE Generation shall promptly furnish
to such Holder or beneficial owner, to a prospective purchaser of a Security or
beneficial interest therein designated by such Holder or beneficial owner, or to
the Trustee for delivery to such Holder, beneficial owner or prospective
purchaser, as the case may be, all information specified in, and meeting the
requirements of, paragraph (d)(4) of Rule 144A in order to permit compliance by
such Holder or beneficial owner with Rule 144A in connection with a resale of
Securities pursuant to Rule 144A.
Section 5.11 Preservation of Collateral. (a) CE Generation shall preserve
and maintain the Liens on the Collateral and the priority thereof and, without
limiting the generality of the foregoing, shall cause the Security Documents to
which it is a party, all supplements thereto and any instruments of conveyance,
transfer, assignment or further assurance, or appropriate certificates,
financing statements or other statements with respect thereto, at all times to
be recorded and filed and rerecorded and refiled, in such manner and in such
places as may be required by
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Applicable Law in order to fully preserve and protect the rights of the
Collateral Agent, the Holders and the Trustee.
(b) CE Generation shall defend its title to the Collateral against the
claims of all Persons, except where the failure to do so could not reasonably be
expected to result in a Material Adverse Effect.
Section 5.12 Auditors. CE Generation shall retain a nationally recognized
independent accounting firm (the "Auditors") and permit the Trustee, the
Collateral Agent and the Depositary Bank to discuss the affairs, finances and
accounts of CE Generation with the Auditors upon reasonable notice and at
reasonable times following and during the continuance of a Default or an Event
of Default.
Section 5.13 Permitted Indebtedness. CE Generation shall not create or
incur or suffer to exist any Indebtedness except the following (collectively,
"Permitted Indebtedness"):
(a) Indebtedness incurred pursuant to this Indenture and the Initial
Securities;
(b) Indebtedness incurred in excess of the Indebtedness incurred pursuant
to clause (d) below, provided that after giving effect to the incurrence of
such Indebtedness, (i) no Default or Event of Default shall have occurred and
be continuing, and (ii) the Rating Agencies shall confirm in writing that the
Securities shall have a Rating equivalent to or better than an Investment
Grade Rating;
(c) Indebtedness incurred under the Debt Service Reserve LOC Reimbursement
Agreement;
(d) Indebtedness in an aggregate principal amount not to exceed
$10,000,000, provided that, after giving effect to the incurrence of such
Indebtedness, no Default or Event of Default shall have occurred and be
continuing; and
(e) Subordinated Indebtedness loaned to CE Generation by Affiliates of CE
Generation (other than any majority-owned Subsidiary of CE Genera tion) in an
aggregate principal amount not to exceed $200,000,000, provided that such
Subordinated Indebtedness is used to finance (i) capital expenditures or
Operation and Maintenance Costs for, or expansions of, the
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Projects, or (ii) the construction, development, acquisition or operation of
Additional Projects.
Section 5.14 Permitted Liens. CE Generation shall not create or suffer to
exist or permit any Lien upon or with respect to any of its properties except
the following (collectively, "Permitted Liens"):
(a) Liens specifically permitted or required by, or created by, any
Security Document;
(b) Liens to secure Permitted Indebtedness; provided that the holder of
such Permitted Indebtedness, or a representative thereof, shall have entered
into the Intercreditor Agreement;
(c) Liens for taxes, assessments or governmental charges which are either
not yet due or which are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves are established in
accordance with GAAP;
(d) other Liens incidental to the conduct of CE Generation's business 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 of the encumbered assets in the operation of CE Genera tion's
business; and
(e) Liens existing on the Closing Date.
Section 5.15 Guarantees. CE Generation shall not contingently or otherwise
be or become liable, directly or indirectly, in connection with any Guarantee
Obligation; provided that CE Generation may issue guarantees of Permitted
Subsidiary Indebtedness which is not incurred by an Affiliate of CE Generation
(other than a wholly-owned Subsidiary of CE Generation).
Section 5.16 Business Activities. CE Generation shall not at any time
engage in any activities other than (a) the ownership of its Subsidiaries and
activities incidental thereto, (b) the activities contemplated by this Indenture
and the other Financing Documents and activities incidental thereto and (c) any
other activity which could not reasonably be expected to result in a Material
Adverse Effect and which the Rating Agencies confirm in writing will not result
in a Ratings Downgrade.
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Section 5.17 Fundamental Changes; Sale of Assets. (a) CE Genera tion 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 suffer
any liquidation or dissolution) or discontinue its business, unless (i) CE
Generation is the surviving or continuing company or the surviving or continuing
company is a company formed under the laws of the United States, one of the
States thereof or the District of Columbia or Canada and assumes CE Generation's
obligations under the Securities and the other Financing Documents, (ii)
immediately before and after such transaction, no Event of Default shall have
occurred and be continuing and (iii) the Rating Agencies confirm in writing that
such transaction will not result in a Ratings Downgrade.
(b) CE Generation shall not sell, transfer, assign, hypothecate, pledge,
lease, sublease or otherwise dispose of (in one transaction or in a series of
transactions) any of its assets, except that CE Generation may sell, transfer
or convey any portion of its interest in any Assignor if (i) no Event of Default
shall have occurred and be continuing and (ii) (a) such sale, transfer or
conveyance is for fair market value and the proceeds thereof are in the form of
cash or cash equivalents and are used to redeem the Securities in accordance
with Section 3.2.1(c), if required, or (b) such sale, transfer or conveyance is
a Permitted Transfer.
Section 5.18 Transactions with Affiliates. CE Generation shall not enter
into any transaction or series of related transactions, whether or not in the
ordinary course of business, with any Affiliate of CE Generation which is not on
terms and conditions at least as favorable as would be obtained in a comparable
arm's-length transaction with a Person other than an Affiliate of CE Generation,
except that CE Generation may perform its obligations and engage in transactions
permitted by the Financing Documents.
Section 5.19 Restricted Payments. CE Generation shall not make any
Restricted Payments except for Restricted Payments from the Distribution
Suspense Account permitted under and made in accordance with Section 3.4 of the
Depositary Agreement.
Section 5.20 Financing Documents. CE Generation shall not assign any of its
rights or obligations under any Financing Document and shall not enter into any
additional contract, agreement or undertaking if the transactions contemplated
by such assignment or additional contract, agreement or undertaking could
reasonably be expected to result in a Material Adverse Effect.
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Section 5.21 Investments. CE Generation shall not form or have any
subsidiaries, make investments, loans or advances or acquire the stock,
obligations or securities of any Person, other than (a) those that exist on the
Closing Date and are set forth on Schedule III, (b) Permitted Investments, (c)
investments, loans or advances made with monies which do not constitute
Collateral and (d) subsidiaries the forma tion of which the Rating Agencies
confirm in writing will not result in a Ratings Downgrade, in each case in
accordance with Section 5.16.
Section 5.22 Formation Documents. CE Generation shall not amend its
certificate of formation or any other formation or governance document if such
action could reasonably be expected to result in a Material Adverse Effect.
Section 5.23 Investment Company Act. CE Generation shall not undertake any
action which will cause it to be in violation of the Investment Company Act of
1940, as amended.
Section 5.24 Magma Stock. CE Generation shall (i) within ten (10) days
after the date on which the Liens on the Pledged Shares (as defined in the 9
7/8% Indenture) created pursuant to Article Thirteen of the 9 7/8% Indenture are
released, whether or not the 9 7/8% Notes have been repaid in full as of such
date, pledge all of the capital stock of Magma to the Collateral Agent for the
benefit of the Secured Parties pursuant to a pledge and security agreement
substantially in the form of Exhibit J, and (ii) promptly take all other actions
necessary or desirable in the reason able opinion of the Collateral Agent to
establish and maintain the Collateral Agent's security interest in all of the
capital stock of Magma as a valid, enforceable, first priority security interest
(subject to Permitted Liens).
Section 5.25 Tax Status. CE Generation shall make an election to be treated
as an association taxable as a corporation for United States tax purposes for
all periods commencing on or after the Closing Date.
ARTICLE 6
EVENTS OF DEFAULT; REMEDIES
Section 6.1 Events of Default. The term "Event of Default," whenever used
herein, shall mean any of the following events (whatever the reason for such
event and whether it shall be voluntary or involuntary or shall come about or be
affected by operation of law, or be pursuant to or in compliance with any
Applicable
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Law), and any such event shall continue to be an Event of Default if and for so
long as it shall not have been remedied:
(a) CE Generation shall fail to pay any principal of, premium (if
any) or interest on any Security when the same becomes due and payable,
whether by scheduled maturity or required prepayment or redemption or by
acceleration or otherwise;
(b) any representation or warranty made by CE Generation in this
Indenture or in any other Financing Document to which it is a party, or any
representation, warranty or statement in any certificate or other document
furnished to the Trustee or any other Person by or on behalf of CE Generation
thereunder, shall prove to have been false or misleading in any material
respect as of the time made, confirmed or furnished and such fact, event or
circum stance that gave rise to such inaccuracy has resulted in, or could
reasonably be expected to result in, a Material Adverse Effect and such fact,
event or circum stance shall continue uncured for thirty (30) or more days
from the date an Authorized Officer of CE Generation obtains actual knowledge
thereof; provided that if CE Generation commences and diligently pursues
efforts to cure such fact, event or circumstance within such thirty (30) day
period and delivers written notice thereof to the Trustee, CE Generation 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 CE
Generation is diligently pursuing such cure;
(c) CE Generation shall fail to perform or observe any covenant or
agreement contained in Section 5.3(a), Section 5.4, Section 5.13, Section
5.14, Section 5.15, Section 5.16, Section 5.17 and Section 5.19 and such
failure shall continue uncured for thirty (30) or more days from the date an
Authorized Officer of CE Generation obtains actual knowledge of such failure;
(d) CE Generation shall fail to perform or observe any of its
covenants contained in this Indenture (other than those referred to in clause
(c) of this Section 6.1) and such failure shall continue uncured for sixty
(60) or more days from the date an Authorized Officer of CE Generation
obtains actual knowledge of such failure; provided that if CE Generation
commences and diligently pursues efforts to cure such default within such
sixty (60) day period and delivers written notice thereof to the Trustee, CE
Generation may continue to effect such cure of the default and such default
shall not be deemed
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an "Event of Default" for an additional thirty (30) days so long as CE
Genera tion is diligently pursuing such cure;
(e) CE Generation shall (i) apply for or consent to the appoint ment
of, or the taking of possession by, a receiver, custodian, trustee or
liquidator of itself or all or a substantial part of its property, (ii)
admit in writing its inability or be generally unable to pay its debts as
such debts become due, (iii) make a general assignment for the benefit of its
creditors, (iv) commence a voluntary case under the Federal Bankruptcy Code,
(v) file a petition seeking to take advantage of any other Debtor Relief Law,
(vi) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case under the
Federal Bankruptcy Code or any other Debtor Relief Law or (vii) take any
action for the purpose of effecting any of the foregoing;
(f) a proceeding or case shall be commenced without the application
or consent of CE Generation in any court of competent jurisdiction, seeking
its liquidation, reorganization, dissolution, winding-up or the composition
or readjustment of debts or the appointment of a trustee, receiver,
custodian, liquidator or the like of CE Generation or all or a substantial
part of its property under any Debtor Relief Law and such proceeding or case
shall continue undismissed, or any order, judgment or decree approving any of
the foregoing shall be entered and continue unstayed and in effect, for a
period of sixty (60) or more consecutive days, or any order for relief
against CE Genera tion shall be entered in any involuntary case under the
Federal Bankruptcy Code or any other Debtor Relief Law;
(g) any Security Document shall in any material respect cease to be
in full force and effect or any material Lien purported to be granted thereby
shall cease 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 that CE
Generation shall have ten (10) days from the date an Authorized Officer of CE
Generation obtains actual knowledge thereof to cure such cessation (if
curable) or to furnish to the Collateral Agent all documents or instruments
required to cure any such cessation (if curable);
(h) Indebtedness of CE Generation in excess of $5,000,000 (other
than Indebtedness incurred hereunder or the Debt Service Reserve LOC
Reimbursement Agreement) shall be required to be prepaid, or shall be
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declared to be due and payable, other than by regularly scheduled required
repayment, prior to the stated maturity thereof, as the result of the
acceleration of the stated maturity thereof following an event of default
thereunder;
(i) one or more final and non-appealable judgment or judgments for
the payment of money in excess of $5,000,000 shall be entered against CE
Generation and shall remain unpaid or unstayed for a period of ninety (90) or
more consecutive days other than any judgment which is being contested in
good faith by appropriate proceedings and for which adequate cash reserves
are established;
(j) any party to any Financing Document (other than a Secured Party)
shall fail to perform or observe any covenant contained in such Financing
Document (subject to any applicable grace period) and such failure could
reasonably be expected to result in a Material Adverse Effect; and
(k) CalEnergy shall fail to call for redemption all of the then
outstanding 9 7/8% Notes within ten (10) days of the first day on which such
redemption is permitted under the 9 7/8% Indenture.
Section 6.2 Remedies Upon an Event of Default. (a) Subject to Section 6.12,
if one or more Events of Default shall have occurred and be continuing, then:
(i) in the case of an Event of Default described in clause (a) of
Section 6.1, the One-Third Holders may, by written notice to the Trustee and
CE Generation, declare the entire principal amount of the Outstanding Securi
ties, all interest accrued and unpaid thereon, all premium (if any) and all
other amounts payable in respect thereof, to be due and payable, whereupon
the same shall become immediately due and payable without presentment, de
mand, protest or further notice of any kind, all of which are hereby waived;
(ii) in the case of an Event of Default described in clause (e) or
(f) of Section 6.1, the entire principal amount of the Outstanding
Securities, all interest accrued and unpaid thereon, all premium (if any) and
all other amounts payable in respect thereof shall automatically become due
and payable without presentment, demand, protest or notice of any kind, all
of which are hereby waived;
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(iii) in the case of all other Events of Default described in
Section 6.1, the Majority Holders may, by written notice to the Trustee and
CE Generation, declare the entire principal amount of the Outstanding
Securities, all interest accrued and unpaid thereon, all premium (if any) and
all other amounts payable in respect thereof, to be due and payable,
whereupon the same shall become immediately due and payable without
presentment, de mand, protest or further notice of any kind, all of which are
hereby waived.
(b) At any time after the principal of all or a portion of the Securities
shall have become due and payable upon a declared acceleration as provided in
this Section 6.2, and before any judgment or decree for the payment of the money
so due, or any portion thereof, shall be entered, the Majority Holders, by
written notice to the Trustee and CE Generation, may rescind and annul such
declaration and its conse quences if:
(i) there shall have been paid to or deposited with the Trustee a
sum sufficient to pay:
(A) all overdue installments of interest on such Securities;
(B) the principal of and premium (if any) on the Securities that
have become due other than by such declaration of acceleration and interest
thereon at the respective rates provided in the Securities for late payments
of principal;
(C) to the extent that payment of such interest is lawful, interest
upon overdue interest at the respective rates provided in the Securities for
late payments of interest; and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee
and its agents and counsel; and
(ii) all Events of Default, other than the nonpayment of principal
of the Securities that has become due solely by such acceleration, have been
cured or waived as provided in Section 6.5;
provided that no such rescission shall affect any subsequent Default or Event of
Default or impair any right consequent thereon.
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Section 6.3 Judicial Proceedings Instituted by Trustee.
6.3.1 Collection of Indebtedness; Trustee Entitled to Bring Suit. If
an Event of Default shall have occurred and be continuing, then the Trustee, in
its own name and as trustee of an express trust, subject to Section 6.2, shall
be entitled and empowered to institute any suits, actions or other proceedings
at law and in equity or otherwise for the collection of the sums due and unpaid
in respect of the Securities, and may prosecute such claim or proceeding to
judgment or final decree, and may enforce any such judgment or final decree and
collect the monies adjudged or decreed to be payable in any manner provided by
Applicable Law, whether before or after or during the pendency of any
proceedings for the enforcement of any of the Trustee's rights or the rights of
the Holders under this Indenture, and such power of the Trustee shall not be
affected by any sale hereunder or by the exercise of any other right, power or
remedy for the enforcement of the provisions of this Indenture.
6.3.2 Trustee May Recover Unpaid Debt After Sale of Collat eral. In
the case of a sale of the Collateral and the application of the proceeds of such
sale to the payment of Indebtedness under this Indenture, the Trustee, in its
own name and as trustee of an express trust, shall be entitled and empowered to
institute any suits, actions or other proceedings at law and in equity or
otherwise to enforce payment of, and to receive all amounts remaining due and
unpaid upon, all or any of the Securities for the benefit of the Holders
thereof, and upon any other portion of the Securities remaining unpaid, with
interest at the rates specified in the respective Securities on the overdue
principal thereof, premium (if any) and interest thereon (to the extent the
payment of such interest is legally enforceable).
6.3.3 Recovery of Judgment Does Not Affect Rights. No recovery of
any judgment or final decree by the Trustee and no levy of any execution under
any such judgment upon any of the Collateral, or upon any other property, shall
in any manner or to any extent affect any rights, powers or remedies of the
Trustee, or any Liens, rights, powers or remedies of the Holders, but all such
Liens, rights, powers or remedies shall continue unimpaired as before.
6.3.4 Trustee May File Proofs of Claim; Appointment of Trustee as
Attorney-in-Fact in Judicial Proceedings. (a) The Trustee, in its own name, as
trustee of an express trust or as attorney-in-fact for the Holders, or in any
one or more of such capacities (irrespective of whether the principal of the
Securities shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
for the payment of overdue principal, premium (if any) or interest), shall be
entitled and empowered to
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file such proofs of claim and other papers or documents and take any other
actions authorized under the Trust Indenture Act as necessary or advisable in
order to have the claims of the Trustee and of the Holders (whether such claims
be based upon the provisions of the Securities or of this Indenture) allowed in
any judicial proceeding (including, without limitation, any equity,
receivership, insolvency, bankruptcy, liquidation, readjustment or
reorganization) relating to CE Generation or any other obligor on the Securities
(within the meaning of the Trust Indenture Act), the creditors of CE Generation
or any such obligor, the Collateral or any other property of CE Generation or
such obligor (each such proceeding, for purposes of this Section 6.3.4, a
"Proceeding") and collect and receive any monies or other property payable or
deliverable on any such claims and distribute the same. Any receiver, assignee,
trustee, liquidator, sequestrator or other similar official in any such
Proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event 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.
(b) The Trustee is hereby irrevocably appointed (and the successive
respective Holders of the Securities, by taking and holding the same, shall be
conclusively deemed to have so appointed the Trustee) the true and lawful
attorney-in-fact of the respective Holders, with authority to:
(i) make and file in the names of the Holders (subject to deduction
from any such claims of the amounts of any claims filed by any of the Holders
themselves) any claim, proof of claim or amendment thereof, debt, proof of
debt or amendment thereof, petition or other document in any Proceeding, and
receive payment of any amounts distributable on account thereof;
(ii) execute any and all papers and documents and do and perform any
and all acts and things for and on behalf of the Holders as may be necessary
or advisable in order to have the respective claims of the Trustee and the
Holders against CE Generation or any other obligor on the Securities (within
the meaning of the Trust Indenture Act), the Collateral or any other property
of CE Generation or such obligor allowed in any Proceeding; and
(iii) receive payment of or on account of such claims and debt.
(c) No provision of this Indenture shall be deemed to give the Trustee any
right to authorize or consent to or accept or adopt on behalf of any Holder any
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plan of reorganization, arrangement, adjustment or composition affecting the
Securi ties or the rights of any Holder, to vote in respect of the claim of any
Holder in any Proceeding or to otherwise change or waive in any way the rights
of any Holder in any Proceeding; provided, however, that the Trustee may,
subject to Applicable Law, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
(d) Any monies collected by the Trustee under this Section 6.3.4 shall be
applied as provided in Section 6.9.
6.3.5 Trustee Need Not Have Possession of Securities. All proofs of
claim, rights of action and rights to assert claims under this Indenture or
under any of the Securities may be enforced by the Trustee without the
possession of the Securities or the production thereof at any trial or other
proceedings instituted by the Trustee. In any proceedings brought by the Trustee
(and any proceedings involving the interpretation of any provision of this
Indenture or the Securities to which the Trustee shall be a party), the Trustee
shall be held to represent all of the Holders and it shall not be necessary to
make any such Holders parties to such proceedings.
6.3.6 Suit to be Brought for the Ratable Benefit of Holders. Subject
to the other provisions of this Indenture and to the Intercreditor Agreement,
any suit, action or other proceeding at law, in equity or otherwise which shall
be instituted by the Trustee under any of the provisions of this Indenture or
the Securities shall be for the equal, ratable and common benefit of all of the
Holders.
6.3.7 Restoration of Rights and Remedies. In case the Trustee shall
have instituted any proceeding to enforce any right, power or remedy under this
Indenture or the Securities by foreclosure, entry or otherwise and such
proceedings shall have been determined adversely to the Trustee, then and in
every such case CE Generation and the Trustee shall be restored to their former
positions hereunder, and all rights, powers and remedies of the Trustee and the
Holders shall continue as if no such proceeding had been instituted.
Section 6.4 Control by Holders. The Majority Holders shall have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture; provided that such direction shall not be in
conflict with any rule of law or with this Indenture, the Trustee may take any
other action deemed proper by the Trustee which is not inconsistent with such
direction and subject to
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Section 10.1, the Trustee need not follow any such direction if doing so would
in its reasonable discretion either involve it in personal liability or be
unduly prejudicial to Holders not joining in such direction, it being understood
that, subject to Section 10.1 and Section 10.2, the Trustee shall have no
obligation to make any determination with respect to any such conflict, personal
liability or undue prejudice.
Section 6.5 Waiver of Defaults and Events of Default. The Majority Holders
may on behalf of the Holders of all Securities waive any Default or Event of
Default and its consequences, except that only the One Hundred Percent Holders
may waive a Default or Event of Default in respect of a covenant or provision
hereof that under Section 8.2 cannot be modified or amended without the consent
of the Holder of each Outstanding Security affected. Upon any waiver of any
Default pursuant to this Section 6.5, such Default shall cease to exist and any
Event of Default arising there from 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 Event of Default or impair any consequent right in respect
thereof.
Section 6.6 Limitation on Suits by Holders. (a) Subject to the other
provisions of this Article 6, a Holder shall not have the right to institute any
suit, action or proceeding at law or in equity or otherwise for the appointment
of a receiver or for the enforcement of any other remedy under or upon this
Indenture, unless:
(i) such Holder shall have previously given written notice to the
Trustee of a continuing Event of Default;
(ii) Holders representing the percentage of aggregate principal
amount of Outstanding Securities needed to initiate the exercise of remedies
shall have requested the Trustee in writing to institute such suit, action or
proceeding;
(iii) the Trustee shall have refused or neglected to institute any
such suit, action or proceeding for sixty (60) days after receipt of such
notice by the Trustee; and
(iv) no direction inconsistent with such written request has been
given to the Trustee during such sixty (60) day period by the Majority
Holders.
(b) It is understood and intended that one or more of the Holders shall not
have any right in any manner whatsoever hereunder or under the Securities to
surrender, impair, waive, affect, disturb or prejudice the Lien of the Security
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Documents on any property subject thereto or the rights of any other Holders,
obtain or seek to obtain priority or preference over any other Holders or
enforce any right under this Indenture, except in the manner herein provided and
for the equal, ratable and common benefit of all of the Holders.
Section 6.7 Undertaking to Pay Court Costs. All parties to this Indenture,
and each Holder by its acceptance of a Security, shall be deemed to have agreed
that any court may in its discretion require, in any suit for the enforcement of
any right or remedy hereunder, or in any suit against the Trustee for any action
taken or omitted by it as Trustee, the filing by any party litigant in such suit
of an undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; provided that
the provisions of this Section 6.7 shall not apply to any suit instituted by the
Trustee, any suit instituted by a Holder or group of Holders holding in the
aggregate more than ten percent (10%) in principal amount of the Outstanding
Securities or any suit instituted by a Holder pursuant to Section 6.8 for the
enforcement of the payment of the principal of, premium (if any) or interest on
any Security on or after the respective due dates expressed in such Security.
Section 6.8 Unconditional Right to Receive Payment. Notwithstanding any
other provision of this Indenture (other than Section 6.5), the right of any
Holder to receive payment of the principal of, premium (if any) or interest on
any Security on or after the respective due dates expressed in such Security
(or, in the case of redemption, on the Redemption Date fixed for such Security),
or to institute 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 6.9 Application of Monies Collected by Trustee. Following the
application of funds pursuant to the Intercreditor Agreement, any money
collected by the Trustee pursuant to this Article 6 in respect of the
Securities, together with any other monies which may then be held by the Trustee
under any of the provisions of this Indenture as security for the Securities
(other than monies at the time required to be held for the payment of specific
Securities at their stated maturities or at a time fixed for the redemption
thereof) shall be applied in the following order from time to time, on the date
or dates fixed by the Trustee and, in the case of a distribution of such monies
on account of principal, premium (if any) or interest, upon presentation of the
Outstanding Securities, and stamping thereon of payment, if only partially paid,
or upon surrender thereof, if fully paid:
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FIRST: To the payment of all amounts due the Trustee or any
predecessor Trustee under Section 10.7;
SECOND: In case the unpaid principal amount of the Outstanding
Securities shall not have become due, to the payment of any interest in
default, in the order of the maturity of the payments thereof, together with
interest (at the rates specified in the Securities in respect of overdue
payments and to the extent that payment of such interest shall be legally
enforceable) on such payments of overdue interest;
THIRD: In case the unpaid principal amount of a portion of the
Outstanding Securities shall have become due, first to the payment of premium
(if any) and accrued interest on all Outstanding Securities in the order of
the maturity of the payments thereof, together with interest (at the rates
specified in the respective Securities in respect of overdue payments and to
the extent that payment of such interest shall be legally enforceable) on
such payments of overdue premium (if any) and interest, and next to the
payment of the unpaid principal amount of all Securities then due;
FOURTH: In case the unpaid principal amount of all the Outstanding
Securities shall have become due, to the payment of the whole amount then due
and unpaid upon the Outstanding Securities for principal, premium (if any)
and interest, together with interest (at the rates specified in the
respective Securities in respect of overdue payments and to the extent that
payment of such interest shall be legally enforceable) on such overdue princi
pal, premium (if any) and interest; and
FIFTH: In case the unpaid principal amount of all of the Outstanding
Securities shall have become due, and all of the Outstanding Securities shall
have been indefeasibly paid in full in cash or cash equivalents, any surplus
then remaining shall be paid to CE Generation or to whomsoever may be
lawfully entitled to receive the same, or as a court of competent
jurisdiction may direct;
provided, however, that all payments in respect of the Securities to be made
pursuant to priorities "SECOND" through "FOURTH" of this Section 6.9 shall be
made ratably to the Holders of Securities entitled thereto, without
discrimination or preference, based upon the ratio of (x) the unpaid principal
amount of the Securities in respect of which such payments are to be made that
are held by each such Holder and (y) the unpaid principal amount of all
Outstanding Securities.
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Section 6.10 Waiver of Appraisement, Valuation, Stay and Right to
Marshalling. To the full extent it may lawfully do so, CE Generation, for itself
and for any other Person who may claim through or under it, hereby:
(a) agrees that neither it nor any such Person will set up, plead, claim or
in any manner whatsoever take advantage of any appraisal, valuation, stay, exten
sion or redemption laws, now or hereafter in force in any jurisdiction which may
delay, prevent or otherwise hinder (i) the performance or enforcement of this
Indenture or the Securities, (ii) the foreclosure of the Security Documents,
(iii) the sale of any of the Collateral or (iv) the putting of the purchaser or
purchasers thereof into possession of the Collateral immediately after the sale
thereof;
(b) waives the benefit or advantage of any appraisal, valuation, stay,
extension or redemption laws, now or hereafter in force in any jurisdiction;
(c) consents and agrees that the Collateral may be sold by the Collat eral
Agent, upon instructions from the Collateral Agent, acting pursuant to the
Intercreditor Agreement, as an entirety or in parts; and
(d) waives and releases all rights to have the Collateral marshaled upon
any foreclosure, sale or other enforcement of this Indenture or the Security
Documents.
Section 6.11 Remedies Cumulative; Delay or Omission Not Waiver. Each and
every right, power and remedy herein specifically given to the Trustee shall be
cumulative and shall be in addition to every other right, power and remedy
herein specifically given or now or hereafter existing at law, in equity or by
statute, and each and every right, power and remedy whether specifically herein
given or otherwise existing may be exercised from time to time and as often and
in such order as may be deemed expedient by the Trustee, and the exercise or
commencement of the exercise of any right, power or remedy shall not be
construed to be a waiver of the right to exercise at the same time or thereafter
any other right, power or remedy, and no delay or omission by the Trustee in the
exercise of any right, power or remedy or in the pursuance of any remedy shall
impair any such right, power or remedy or be construed to be a waiver of any
default on the part of CE Generation or be an acquiescence therein.
Section 6.12 The Intercreditor Agreement. (a) Simultaneously with the
execution and delivery of this Indenture, the Trustee shall enter into the
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Intercreditor Agreement acting for itself and on behalf of all Holders of the
Outstanding Securities and all future Holders of any of the Securities.
(b) Notwithstanding any other provision of this Indenture, all rights,
powers and remedies available to the Trustee and the Holders, and all future
Holders, shall be subject to the Intercreditor Agreement. In the event of any
conflict or inconsistency between the terms and provisions of this Indenture and
the terms and provisions of the Intercreditor Agreement, the terms and
provisions of the Intercreditor Agreement shall govern and control.
(c) In the event that a Trigger Event shall have occurred and the Trustee
is called upon by the Collateral Agent to participate in any intercreditor vote
pursuant to Section 5 of the Intercreditor Agreement, the Trustee shall duly
convene a meeting of any Holders in accordance with Article 7 to request
instructions from the Holders as to the vote to be cast. The Trustee shall vote
in any intercreditor vote in accordance with Article 7.
ARTICLE 7
ACTS OF HOLDERS
Section 7.1 Acts of Holders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders (collectively, an "Act" of such Holders, which term
also shall refer to the instruments or record evidencing or embodying the same),
including any Act for which a specified percentage of the principal amount of
the Securities is required, may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by an agent duly appointed in writing or, alternatively, may be embodied in and
evidenced by the record of Holders of Securities voting in favor thereof, either
in person or by proxies duly appointed in writing, at any meeting of Holders
duly called and held in accordance with the provisions of this Article 7, or a
combination of such instruments and any such record. Except as herein otherwise
expressly provided, such action shall become effective when such instrument or
instruments or record are delivered to the Trustee and, when specifically
required herein, to CE Generation. Proof of execution of any such instrument or
of a writing appointing any such agent shall be sufficient for any purpose of
this Indenture and conclusive in favor of the Trustee and CE Generation, if made
in the manner provided in this Section 7.1. Any record of any meeting of Holders
shall be proved in the manner set forth in Section 7.7.
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(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the certificate of any public or other officer of
any jurisdiction authorized to take acknowledgments of deeds or administer oaths
that the Person executing such instrument acknowledged to him the execution
thereof, or by an affidavit of a witness to such execution sworn to before any
such notary or other such officer, and where such execution is by an officer of
a corporation, limited liability company, association or partnership, on behalf
of such corporation, limited liability company, association or partnership, such
certificate or affidavit shall also constitute sufficient proof of such
officer's authority. The fact and date of the execution of any such instrument
or writing, or the authority of the Person executing the same, may also be
proved in any other manner which the Trustee deems sufficient.
(c) The principal amount and serial numbers of Securities held by any
Person, and the date or dates of holding the same, shall be proved by the
Securities Register and the Trustee shall not be affected by notice to the
contrary.
(d) Any Act by the Holder of any Security (i) shall bind every future
Holder of the same Security and the Holder of every Security issued upon the
transfer thereof or the exchange therefor or in lieu thereof, whether or not
notation of such action is made upon such Security and (ii) shall be valid
notwithstanding that such Act is taken in connection with the transfer of such
Security to any other Person, including CE Generation or any Affiliate thereof.
(e) Until such time as written instruments shall have been delivered with
respect to the requisite percentage of principal amount of Securities for the
Act contemplated by such instruments, any such instrument executed and delivered
by or on behalf of a Holder of Securities may be revoked with respect to any or
all of such Securities by written notice by such Holder (or its duly appointed
agent) or any subsequent Holder (or its duly appointed agent), proven in the
manner in which such instrument was proven unless such instrument is by its
terms expressly irrevocable. In determining whether the requisite percentage or
a majority in principal amount of Holders of Securities has joined in any Act of
Holders, (i) the percentage of Holders of Securities voting and (ii) the manner
in which such Holders of Securities have voted shall be as notified to the
Trustee by CE Generation.
(f) Securities authenticated and delivered after any Act of Holders may,
and shall if required by the Trustee, bear a notation in form approved by the
Trustee as to any action taken by such Act of Holders. If CE Generation shall so
determine, new Securities so modified as to conform, in the opinion of the
Trustee and CE Generation, to such action, may be prepared and executed by CE
Generation and
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authenticated and delivered by the Trustee in exchange for
Outstanding Securities, each at no cost to the Holders of such Securities.
(g) CE Generation may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to sign any instrument
evidencing or embodying an Act of Holders; provided that, if an Event of Default
or a Trigger Event shall have occurred and be continuing, the Trustee shall fix
such record date. Promptly after any record date is set pursuant to this clause
(g), CE Generation, at its own expense, shall cause notice of such record date
to be given to the Trustee (unless the Trustee has fixed such record date) in
writing and to each Holder of Securities in the manner set forth in Section
12.5(b). If a record date is fixed, those Persons who were Holders at such
record date (or their duly appointed agents), and only those Persons, shall be
entitled to sign any such instrument evidencing or embodying an Act of Holders
or to revoke any such instrument previously signed, whether or not such Persons
continue to be Holders after such record date. No such instrument shall be valid
or effective if signed more than ninety (90) days after such record date, and
may be revoked as provided in clause (e) of this Section 7.1.
Section 7.2 Purposes for Which Holders' Meeting May Be Called. A meeting of
Holders may be called at any time and from time to time pursuant to this Article
7 for any of the following purposes:
(a) to give any notice to CE Generation or to the Trustee, or to give any
directions to the Trustee, or to waive or to consent to the waiving of any
default hereunder and its consequences;
(b) to remove the Trustee and appoint a successor Trustee pursuant to
Article 10;
(c) to consent to the execution of an indenture or indentures supple mental
hereto pursuant to Article 8;
(d) to instruct the Trustee as to the vote to be cast by the Trustee in any
intercreditor vote pursuant to the Intercreditor Agreement; or
(e) to take any other action authorized to be taken by or on behalf of the
Holders of any specified aggregate principal amount of the Securities under any
other provision of this Indenture or under Applicable Law.
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Section 7.3 Call of Meetings by Trustee. The Trustee may at any time call a
meeting of Holders of Securities for any of the purposes set forth in Section
7.2 to be in the Borough of Manhattan, the City of New York, or San Francisco,
California, as the Trustee shall determine. Notice of every meeting of Holders,
setting forth the time and place of such meeting and in general terms the action
proposed to be taken at such meeting, shall be given by the Trustee, in the
manner provided in Section 12.5(b), not less than twenty (20) nor more than one
hundred eighty (180) days prior to the date fixed for the meeting, to the
Holders of the Securities.
Section 7.4 CE Generation and Holders May Call Meeting. In case CE
Generation or the Holders of at least ten percent (10%) in aggregate principal
amount of the Outstanding Securities shall have requested the Trustee to call a
meeting of Holders of Securities, by written request setting forth in general
terms the action proposed to be taken at the meeting, and the Trustee shall not
have mailed notice of such meeting within twenty (20) days after receipt of such
request or shall not thereafter proceed to cause the meeting to be held as
provided herein, then CE Generation or the Holders of Securities in the amount
above specified may determine the time and place in the Borough of Manhattan,
the City of New York, or San Francisco, California, for such meeting and may
call such meeting to take any action authorized in Section 7.2 by giving notice
thereof as provided in Section 12.5(b).
Section 7.5 Persons Entitled to Vote at Meeting. To be entitled to vote at
any meeting of Holders, a Person shall be (a) a Holder of one or more Securities
with respect to which such meeting is being held or (b) a Person appointed by an
instrument in writing as proxy for the Holder or Holders of such Securities by a
Holder of one or more such Securities. The only Persons who shall be entitled to
be present or to speak at any meeting of Holders shall be the Persons entitled
to vote at such meeting and their counsel and any representatives of the Trustee
and its counsel and any representatives of CE Generation and its counsel.
Section 7.6 Determination of Voting Rights; Conduct and Adjournment of
Meeting. (a) Notwithstanding any other provision of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any meeting of
Holders, in regard to proof of the holding of Securities and of the appointment
of proxies, and in regard to the appointment and duties of inspectors of votes,
the submission and examination of proxies, certificates and other evidence of
the right to vote, and such other matters concerning the conduct of the meeting
as it shall deem appropriate. Such regulations may provide that written
instruments appointing proxies, regular on their face, may be presumed valid and
genuine without the proof specified in Section 7.1 or other proof. Except as
otherwise permitted or
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required by any such regulations, the holding of Securities shall be proved in
the manner specified in Section 7.1 and the appointment of any proxy shall be
proved in the manner specified in said Section 7.1 or by having the signature of
the Person executing the proxy witnessed or guaranteed by any bank, banker,
trust company or firm satisfactory to the Trustee.
(b) The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by CE
Generation or by Holders as provided in Section 7.4, in which case CE Generation
or the Holders calling the meeting, as the case may be, shall in like manner
appoint a temporary chairman. A permanent chairman and a permanent secretary of
the meeting shall be elected by vote of the Holders of a majority in principal
amount of the Securities represented at the meeting and entitled to vote.
(c) Subject to the provisions of Section 7.8, at any meeting each Holder of
a Security or a proxy shall be entitled to one vote for each $100,000 principal
amount of Securities held or represented by it; provided, however, that no vote
shall be cast or counted at any meeting in respect of any Security challenged as
not Outstanding and ruled by the chairman of the meeting to be not Outstanding.
The chairman of the meeting shall have no right to vote other than by virtue of
Securities held by him or instruments in writing as aforesaid duly designating
him as the Person to vote on behalf of other Holders of Securities. Any meeting
of Holders duly called pursuant to Section 7.3 or Section 7.4 may be adjourned
from time to time, and the meeting may be held as so adjourned without further
notice. At any meeting, the presence of Persons holding or representing
Securities with respect to which such meeting is being held in an aggregate
principal amount sufficient to take action upon the business for the transaction
of which such meeting was called shall be necessary to constitute a quorum;
provided, however, that if less than a quorum shall be present at any meeting,
the Persons holding or representing a majority of the Securities represented at
the meeting may adjourn such meeting with the same effect, for all intents and
purposes, as though a quorum had been present.
Section 7.7 Counting Votes and Recording Action of Meeting. The vote upon
any resolution submitted to any meeting of Holders of Securities shall be by
written ballots on which shall be subscribed the signatures of the Holders of
Securities or of their representatives by proxy and the serial numbers and
principal amounts of the Securities held or represented by them. The permanent
chairman of the meeting shall appoint two (2) inspectors of votes who shall
count all votes cast at the meeting for or against any resolution and who shall
make and file with the secretary of the meeting their verified written reports
in duplicate of all votes cast at the meeting. A
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record in duplicate of the proceedings of each meeting of Holders shall be
prepared by the secretary of the meeting and there shall be attached to said
record the original reports of the inspectors of votes on any vote by ballot
taken at such meeting and affidavits by one or more persons having knowledge of
the facts setting forth a copy of the notice of the meeting and showing that
said notice was given as provided in Section 7.3. The record shall show the
serial numbers of the Securities voting in favor of or against any resolution.
The record shall be signed and verified by the affidavits of the permanent
chairman and secretary of the meeting and one of the duplicates shall be
delivered to CE Generation and the other to the Trustee to be preserved by the
Trustee, the latter to have attached thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the matters
therein stated.
Section 7.8 Securities Owned by Certain Persons Deemed Not Outstanding. In
determining whether the Holders of the requisite aggregate principal amount of
Securities have concurred in any request, demand, authorization, direction,
notice, consent, waiver or other act under this Indenture, Securities which are
owned by CE Generation, the Assignors, CalEnergy or any of their respective
Affiliates shall be disregarded and deemed not to be Outstanding for the purpose
of any such determination except that for the purposes of determining whether
the Trustee shall be protected in relying on any such direction, consent or
waiver, only Securities for which the Trustee has received written notice of
such ownership as conclusively evidenced by the Securities Register shall be so
disregarded. CE Generation shall furnish the Trustee, upon its reasonable
request, with an Officer's Certificate listing and identifying all Securities,
if any, known by CE Generation to be owned or held by or for the account of any
of the above-described Persons, and the Trustee shall be entitled to accept such
Officer's Certificate as conclusive evidence of the facts therein set forth and
of the fact that the Securities not listed therein are Outstanding for the
purpose of any such determination. Securities so owned which have been pledged
in good faith may be regarded as Outstanding for the purposes of this Section
7.8 if the pledgee shall establish to the satisfaction of the Trustee that the
pledgee has the right to vote such Securities and that the pledgee is not an
Affiliate of CE Generation, any Assignor or CalEnergy.
Section 7.9 Right of Revocation of Action Taken; Acts of Holders Binding.
At any time prior to (but not after) the evidencing to the Trustee, as provided
in Section 7.1, of the taking of any action by the Holders of the percentage in
aggre gate principal amount of the Securities specified in this Indenture in
connection with such action, any Holder of a Security the serial number of which
is shown by the evidence to be included in the Securities the Holders of which
have consented to such action may, by filing written notice with the Trustee and
upon proof of holding as
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provided in Section 7.1, revoke such action so far as concerns such Security.
Except as aforesaid, any such action taken by the Holder of any Security shall
be conclusive and binding upon such Holder and upon all future Holders and
owners of such Security, and of any Security issued in exchange therefor or in
place thereof, irrespective of whether or not any notation in regard thereto is
made upon such Security or any Security issued in exchange therefor or in place
thereof. Any action taken by the Holders of the percentage in aggregate
principal amount of the Securities specified in this Indenture in connection
with such action shall be conclusively binding upon CE Generation, the Trustee
and the Holders of all the Securities affected by such action.
ARTICLE 8
SUPPLEMENTAL INDENTURES
Section 8.1 Amendments and Supplements to Indenture Without Consent of
Holders. This Indenture may be amended or supplemented (together with necessary
conforming amendments to the Intercreditor Agreement, the Depositary Agreement
and any other Financing Document the terms of which affect the rights of the
Holders hereunder or thereunder) by CE Generation and the Trustee at any time
and from time to time without the consent of the Holders by a Supplemental
Indenture authorized by a resolution of the Board of Directors of CE Generation
filed with, and in form satisfactory to, the Trustee, solely for one or more of
the following purposes:
(a) to add additional covenants of CE Generation, to surrender any right or
power herein conferred upon CE Generation or to confer upon the Holders any
additional rights, remedies, benefits, powers or authorities that may lawfully
be conferred;
(b) to increase the assets securing CE Generation's obligations under this
Indenture;
(c) to provide for the issuance of Additional Securities on the conditions
set forth in Section 2.3;
(d) for any purpose not inconsistent with the terms of this Indenture to
cure any ambiguity or to correct or supplement any provision contained herein or
in any Supplemental Indenture which may be defective or inconsistent with any
other provision contained herein or in any Supplemental Indenture;
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(e) in connection with, and to reflect, any amendments to the provisions
hereof required by the Rating Agencies in circumstances where confirmation of
the Ratings are required under this Indenture in connection with the issuance of
Additional Securities or the taking of other actions by CE Generation; provided,
however, that such amendments are not, in the judgment of the Trustee, to the
prejudice of the Trustee or the Holders; or
(f) to provide for the issuance of Exchange Securities, as contemplated by
the Registration Rights Agreement or similar exchange securities in respect of
Additional Securities.
Section 8.2 Amendments and Supplements to Indenture With Consent of
Holders. This Indenture may be amended or supplemented (together with necessary
conforming amendments to the Intercreditor Agreement, the Depositary Agreement
and any other Financing Document the terms of which affect the rights of the
Holders hereunder or thereunder) by CE Generation and the Trustee at any time
and from time to time, with the consent of the Majority Holders, for the purpose
of adding any mutually agreeable provisions to or changing in any manner or
eliminating any of the provisions of, this Indenture, except with respect to (a)
the principal, premium (if any) or interest payable upon any Securities, (b) the
dates on which interest on or principal of any Securities is paid, (c) the dates
of maturity of any Securities and (d) this Article 8. The matters of this
Indenture described in clauses (a) through (d) of the preceding sentence may be
amended or supplemented by CE Generation and the Trustee at any time and from
time to time only with the consent of the One Hundred Percent Holders. Notice of
any such amendment shall be given by CE Generation to any Rating Agency then
maintaining a Rating for the Securities. It shall not be necessary for any Act
of Holders under this Section 8.2 to approve the particular form of any proposed
Supplemental Indenture, but it shall be sufficient if such Act shall approve
the substance thereof.
Section 8.3 Trustee Authorized to Join in Amendments and Supplements;
Reliance on Counsel. The Trustee is authorized to join with CE Generation in the
execution and delivery of any Supplemental Indenture or amendment permitted by
this Article 8 and in so doing shall be fully protected in relying upon an
Opinion of Counsel stating that such Supplemental Indenture or amendment is so
permitted and has been duly authorized by CE Generation and that all things
necessary to make it a valid and binding agreement have been done.
Section 8.4 Effect of Supplemental Indentures. Upon the execution of any
Supplemental Indenture under this Article 8, this Indenture shall be modified in
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accordance therewith, and such Supplemental Indenture shall form a part of this
Indenture for all purposes, and every Holder of Securities therefor or
thereafter authenticated and delivered hereunder shall be bound thereby.
Section 8.5 Reference in Securities to Supplemental Indentures. Securities
authenticated and delivered after the execution of any Supplemental Indenture
pursuant to this Article 8 may, and shall if required by CE Generation or the
Trustee, bear a notation in form approved by CE Generation and the Trustee as to
any matter provided for in such Supplemental Indenture and, in such case,
suitable notation may be made upon Outstanding Securities after proper
presentation and demand. If CE Generation or the Trustee shall so determine, new
Securities so modified as to conform, in the opinion of CE Generation and the
Trustee, to any such Supplemental Indenture may be prepared and executed by CE
Generation and authenticated and delivered by the Trustee in exchange for
Outstanding Securities, each at the expense of CE Generation.
ARTICLE 9
SATISFACTION AND DISCHARGE; DEFEASANCE
Section 9.1 Satisfaction and Discharge of Indenture. (a) Except as set
forth in Section 9.3, this Indenture shall cease to be of further effect and the
Trustee, on written demand and at the expense of CE Generation, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture,
when:
(i) either:
(A) all Securities theretofore authenticated and delivered (other
than (1) Securities which have been destroyed, lost or stolen and which have
been replaced or paid as set forth in Section 2.10 and (2) Securities deemed
to have been paid in accordance with clause (B) immediately below) have been
delivered to the Trustee for cancellation; or
(B) (1) all Securities not theretofore delivered to the Trustee for
cancellation (x) have become due and payable, (y) shall become due and
payable within one year or (z) are to be called for redemption within one
year under arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of CE
Generation, and (2) CE Generation shall have deposited or caused to be
deposited with the Trustee as trust funds in trust an amount sufficient to
pay when due at maturity
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or upon redemption all principal of, premium (if any), interest on and other
amounts in respect of such Securities not theretofore delivered to the
Trustee for cancellation;
(ii) CE Generation shall have paid or caused to be paid all other
sums due and payable by it hereunder; and
(iii) CE Generation shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture have been complied with and the satisfaction and discharge of
this Indenture pursuant to this Section 9.1 shall not be deemed to be, and
shall not result in, a taxable event with respect to the Holders for purposes
of United States federal income taxation.
Section 9.2 Defeasance. (a) Subject to clause (d) of this Section 9.2,
Section 9.3 and Section 9.7, CE Generation may at any time terminate:
(i) all of its obligations under the Securities and this Indenture
(the "Legal Defeasance Option"); or
(ii) (A) its obligations under any provision of Article 5 (except
with respect to Section 5.3(a)) and (B) the operation of clauses (c) (except
with respect to Section 5.3(a)) and (d) of Section 6.1 (the "Covenant
Defeasance Option");
provided that CE Generation may exercise the Legal Defeasance Option
notwithstanding the prior exercise of the Covenant Defeasance Option.
(b) If CE Generation elects to exercise the Legal Defeasance Option and all
applicable conditions set forth in clause (d) of this Section 9.2 are satisfied,
payment of the Securities may not be accelerated because of any Event of
Default. If CE Generation elects to exercise the Covenant Defeasance Option and
all applicable conditions set forth in clause (d) of this Section 9.2 are
satisfied, payment of the Securities may not be accelerated because of an Event
of Default specified in clause (c) (except with respect to Section 5.3(a)) or
(d) of Section 6.1.
(c) If CE Generation elects to exercise the Legal Defeasance Option or the
Covenant Defeasance Option and all applicable conditions set forth in clause (d)
of this Section 9.2 are satisfied, the Trustee shall, upon request of CE
Generation,
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acknowledge in writing the discharge of such obligations that CE
Generation terminates pursuant to this Section 9.2.
(d) CE Generation may exercise its Legal Defeasance Option or its Covenant
Defeasance Option only if the following conditions are satisfied:
(i) CE Generation irrevocably deposits (such deposit, the
"Defeasance Deposit") in trust with the Trustee monies or US Government
Obligations for the payment of principal of, premium (if any) and interest on
the Securities to the final maturity date thereof or the Redemption Date
therefor, as the case may be;
(ii) CE Generation delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment of the deposited US Government Obligations plus any deposited
monies without investment will provide cash at such times and in such amounts
as will be sufficient to pay principal, premium (if any) and interest when
due on all of the Securities to the final maturity date thereof or the
Redemption Date there for, as the case may be;
(iii) no Default or Event of Default (other than a Default or an
Event of Default resulting from the incurrence of Indebtedness all or a
portion of the proceeds of which will be used to defease the Securities)
shall have occurred and be continuing on the date of and after giving effect
to the Defeasance Deposit;
(iv) the Defeasance Deposit does not constitute a default under any
other material agreement binding on CE Generation;
(v) in the case of the Legal Defeasance Option, CE Generation shall
have delivered to the Trustee an Opinion of Counsel to the effect that, or a
court should hold that, the Holders will not recognize income, gain or loss
for United States federal income tax purposes as a result of such defeasance
and will be subject to United States federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred, which Opinion of Counsel shall be based upon an
Internal Revenue Service ruling or a change in the applicable United States
federal income tax law or United States Treasury regulations since the
Closing Date;
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(vi) in the case of the Covenant Defeasance Option, CE Generation
shall have delivered to the Trustee an Opinion of Counsel to the effect that
the Holders will not recognize income, gain or loss for United States federal
income tax purposes as a result of such defeasance and will be subject to
United States federal income tax purposes on the same amounts, in the same
manner and at the same times as would have been the case if such defeasance
had not occurred; and
(vii) CE Generation delivers to the Trustee an Officer's Certificate
and an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated in this Section
9.2 have been complied with;
provided, however, that, notwithstanding the foregoing provisions of this
Section 9.2, the conditions set forth in clauses (ii), (iii), (iv), (v) and (vi)
need not be satisfied so long as, at the time CE Generation makes the Defeasance
Deposit, (1) no Default under clause (a), (e) or (f) of Section 6.1 shall have
occurred and be continuing on the date of and after giving effect to the
Defeasance Deposit and (2) either (x) a notice of redemption has been mailed
pursuant to Section 3.4 providing for redemption of all the Securities not more
than forty (40) days after such mailing and the provisions of Article 3 with
respect to such redemption shall have been complied with or (y) the final
maturity date of the Securities will occur within forty (40) days. If the
conditions set forth in the foregoing proviso are satisfied, CE Generation shall
be deemed to have exercised the Covenant Defeasance Option.
Section 9.3 Survival of Obligations. Notwithstanding (a) the satisfaction
and discharge of this Indenture pursuant to Section 9.1 or (b) any defeasance
pursuant to Section 9.2, the obligations of CE Generation and the Trustee under
this Article 9 and under Section 2.5, Section 2.6, Section 2.7, Section 2.10,
Article 10 and Section 11.1 shall survive.
Section 9.4 Application of Trust Money. (a) The Trustee shall hold in trust
all monies and US Government Obligations deposited with it pursuant to this
Article 9 and shall apply such deposited monies and the monies derived from such
US Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of the principal of, premium (if any) and interest on
the Securities.
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(b) The Trustee and the Paying Agent shall deliver or pay to CE Generation
from time to time upon request by CE Generation any monies or US Government
Obligations deposited with it pursuant to this Article 9 which, in the opinion
of a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, are in excess of the
amount thereof required to effect defeasance pursuant to this Article 9 with
respect to the Outstanding Securities.
Section 9.5 Unclaimed Monies. Monies deposited with the Trustee pursuant to
this Article 9 which remain unclaimed two (2) years following the date payment
thereof becomes due shall, at the request of CE Generation, if at such time to
the knowledge of the Trustee no Event of Default shall have occurred and be
continuing, be paid to CE Generation, and the Holders of the Securities for
which such deposit was made shall thereafter be limited to a claim against CE
Generation; provided, however, that the Trustee, prior to making payment to CE
Generation pursuant to this Section 9.5, may, at the expense of CE Generation,
cause a notice to be published once in a newspaper or financial journal of
general circulation in the Borough of Manhattan, the City of New York, stating
that the monies remaining unclaimed will be returned to CE Generation after a
specified date.
Section 9.6 Indemnity for US Government Obligations. CE Generation shall
pay and shall indemnify the Trustee against any tax, fee or other charge imposed
or assessed against US Government Obligations deposited pursuant to this Article
9 or the principal and interest received with respect to such US Government
Obligations, other than any such tax, fee or other charge that by law is for the
account of the Holders of the Outstanding Securities.
Section 9.7 Reinstatement. If the Trustee or the Paying Agent is unable to
apply any monies or US Government Obligations in accordance with this Article 9
by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, CE
Generation's obligations under this Indenture and the Securities shall be
revived and reinstated as though no deposit of monies or US Government
Obligations shall have occurred pursuant to this Article 9 until such time as
the Trustee or the Paying Agent is permitted to apply such monies or US
Government Obligations in accordance with this Article 9; provided, however,
that, if CE Generation has made any payment of principal of, premium or interest
on any Securities following the reinstatement of its obligations, CE Generation
shall be subrogated to the rights of the Holders of such Securities to receive
such payment from the monies or US Government Obligations held by the Trustee or
the Paying Agent.
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ARTICLE 10
THE TRUSTEE
Section 10.1 Certain Duties and Responsibilities of Trustee. (a) Except
during the continuance of an Event of Default:
(i) the Trustee shall undertake to perform such duties and only such
duties as are specifically set forth in this Indenture, 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; provided,
however, that, in the case of any such certificates or opinions which by any
provision hereof are specifically required to be furnished to the Trustee,
the Trustee shall be under a duty to examine the same to determine whether
they conform to the requirements of this Indenture.
(b) In case an Event of Default 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 their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own grossly negligent acts or omissions, or its
own willful misconduct, except that:
(i) this clause (c) shall not be construed to limit the effect of
clause (a) of this Section 10.1;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by one or more Responsible Officers of the Trustee, unless it
shall be proved that the Trustee was grossly negligent in ascertaining the
pertinent facts;
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(iii) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
Intercreditor Agreement or the direction of the Majority Holders relating to
the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture; and
(iv) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability 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
repay ment of such funds or indemnity against such risk or liability is not
assured to it.
(d) Whether or not herein or therein expressly so provided, every provision
of this Indenture and the other Financing Documents to which it is a party
relating to the conduct or affecting the liability of or affording protection to
the Trustee (and its officers, directors, employees, agents, successors and
assigns) shall be subject to the provisions of this Section 10.1. The Trustee
shall not be responsible for insuring any Project or for collecting any
insurance moneys and shall have no responsibility for the financial, physical
or other condition of the Projects.
Section 10.2 Certain Rights of Trustee. (a) The Trustee may rely and shall
be protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, notice, other evidence of Indebtedness or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) Any request or direction of CE Generation shall be sufficiently
evidenced by a written instrument signed by an Authorized Officer of CE
Generation and any resolution of the Board of Directors of CE Generation shall
be sufficiently evidenced by a copy thereof certified by the Secretary or
Assistant Secretary of CE Generation;
(c) Whenever in the administration of this Indenture the Trustee shall deem
it desirable that a matter be proved or established prior to taking, suffering
or omitting to take any action hereunder, the Trustee (unless other evidence is
herein specifically prescribed to be relied upon) may, in the absence of bad
faith on its part, request and rely upon an Officer's Certificate;
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(d) The Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) 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 pursuant to this Indenture, unless such Holders shall have offered
to the Trustee security or indemnity (acceptable to such Trustee) against the
costs, expenses and liabilities which might be incurred by it in compliance with
such request or direction;
(f) The Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
notice, other evidence of Indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit;
(g) The Trustee may execute any of the trusts or powers thereunder or
perform any duties hereunder either directly or by agents or attorneys and the
Trustee shall not be responsible for any misconduct or negligence on the part of
any agent or attorney appointed in good faith by it hereunder;
(h) The Trustee shall be under no obligation to take any action pursuant to
any request or direction, if it shall receive conflicting requests or directions
from any party so authorized; provided that the Trustee informs such parties as
to the existence of conflicting requests or directions;
(i) The Trustee shall be under no obligation to take any
action which is discretionary with the Trustee under this Indenture or any other
Financing Document; and
(j) The Trustee shall have no responsibility with respect to the record
ing, re-recording, filing or re-filing under the laws of any jurisdiction of
this Indenture or any other Security Document, or any document or statement that
may be recorded, re-recorded, filed or re-filed under any such laws to perfect
or protect the security interests created by or pursuant to this Indenture, any
other Security Document or any other document or to the payment of fees,
charges, or taxes in connection therewith or to give any notice thereof.
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Section 10.3 Notice of Defaults. (a) If payment on any Security is not made
when it becomes due and payable, the Trustee shall promptly notify CE Genera
tion that it has failed to make such payment. Within thirty (30) days after the
occurrence of any Event of Default of which a Responsible Officer of the
Trustee has actual knowledge, the Trustee shall give to all Holders, in the
manner provided for in Section 12.5(b), notice of such Event of Default, unless
such Event of Default shall have been cured or waived; provided, however, that,
except in the case of an Event of Default in respect of payment of the principal
of, premium (if any) or interest on any Security, the Trustee shall be protected
in withholding such notice if and so long as the Board of Directors, the
executive committee or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determine that the withholding of such
notice is in the interests of the Holders.
(b) Except as otherwise expressly provided herein, the Trustee shall not be
bound to ascertain or inquire as to the performance or observance of any of the
terms, conditions, covenants or agreements herein, or of any other documents
executed in connection with the Securities, or as to the existence of an event
of default thereunder, and shall not be deemed to have notice of an Event of
Default unless and until a Responsible Officer of the Trustee shall have (i)
been notified in writing in accordance with the terms hereof or (ii) shall have
received notice thereof from the Collateral Agent pursuant to Section 2.2 of the
Intercreditor Agreement. The occurrence of either clause (i) or clause (ii)
shall constitute for purposes of this Indenture "actual knowledge" on behalf of
the Trustee.
(c) The Trustee shall give to all Holders any notices received by it
pursuant to the Intercreditor Agreement (other than those specifically for the
Trustee only and those which the Trustee determines should not, in the interests
of the Holders, be given to the Holders).
Section 10.4 Not Responsible for Recitals or Issuance of Securities. The
recitals, representations, warranties, and other statements contained herein, in
the other Financing Documents, and in the Securities, except the Trustee's
certificate of authentication, shall be taken as the statements of CE
Generation, and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or any of the other Financing Docu ments or of the Securities. The
Trustee shall not be accountable for the use or application by CE Generation of
the Securities or the proceeds of the issuance and sale thereof.
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Section 10.5 May Hold Securities. The Trustee or any agent of CE
Generation, in its individual or any other capacity, may become the owner or
pledgee of Securities and may deal with CE Generation with the same rights it
would have if it were not Trustee or such agent.
Section 10.6 Monies Held in Trust. Money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by Applicable Law. The Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed with CE Generation.
Section 10.7 Compensation; Reimbursement; Indemnification. (a) CE
Generation hereby agrees:
(i) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder or in connection with the Financing
Documents (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust);
(ii) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture or in connection with the Financing Documents (including the
reasonable compensation and the expenses and disbursements of its agents and
counsel), except any such expense, disbursement or advance as may be attrib
utable to its gross negligence or bad faith; and
(iii) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without gross negligence or bad faith
on its part, arising out of or in connection with the acceptance or adminis
tration of the trust or trusts hereunder, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder.
(b) All indemnifications and releases from liability granted hereunder to
the Trustee shall extend to its officers, directors, employees, agents,
successors and assigns.
Section 10.8 Eligibility. There shall at all times be a Trustee hereunder
which shall (a) be a corporation organized and doing business under the laws of
the United States, of any state or territory thereof or of the District of
Columbia, (b) be
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authorized under such laws to exercise corporate trust powers, (c) be subject to
supervision or examination by federal, state, territorial or District of
Columbia authority, (d) either (i) have a combined capital and surplus of at
least $50,000,000 or (ii) have a combined capital and surplus of at least
$10,000,000 and be a wholly-owned subsidiary of a corporation having a combined
capital and surplus of at least $50,000,000 and (e) have a corporate trust
office in the Borough of Manhattan, the City of New York, to the extent there is
such an institution eligible and willing to serve. If such corporation publishes
reports of condition at least annually, pursuant to Applicable Law or to the
requirements of said supervising or examining authority, then for purposes of
this Section 10.8, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 10.8, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article 10. None of CE Generation, any other obligor upon the Securities or any
Affiliate of any of the foregoing shall serve as Trustee hereunder.
Section 10.9 Resignation and Removal; Appointment of Successor. (a) No
resignation or removal of the Trustee and no appointment of a successor Trustee
pursuant to this Article 10 shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the applicable
requirements of Section 10.10.
(b) The Trustee may resign at any time by giving written notice thereof to
CE Generation. If the instrument of acceptance by a successor Trustee required
by Section 10.10 shall not have been delivered to the Trustee within thirty (30)
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the Majority Holders,
delivered to the Trustee and CE Generation.
(d) If at any time any of the following shall occur:
(i) the Trustee shall cease to be eligible under Section 10.8 and
shall fail to resign after written request therefor by CE Generation or by
any Holder of a Security; or
(ii) the Trustee shall be adjudged a bankrupt or insolvent or a
receiver of the Trustee or of its property shall be appointed or any public
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officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation;
then, in any such case, (A) CE Generation by a resolution of its Board of
Directors may remove the Trustee, or (B) any Holder who has been a bona fide
Holder of a Security for at least six (6) Months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of action,
or if a vacancy shall occur in the office of Trustee for any reason, CE Genera
tion, by a resolution of its Board of Directors, shall promptly appoint a
successor Trustee and shall comply with the applicable requirements of Section
10.10. If, within thirty (30) days after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee is
appointed by Act of the Majority Holders delivered to CE Generation and the
retiring Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment in accordance with the applicable requirements of
Section 10.10, become the successor Trustee with respect to the Securities and
to that extent supersede the successor Trustee appointed by CE Generation. If no
successor Trustee shall have been so appointed by CE Generation or the Holders
and have accepted appointment in the manner required by Section 10.10, any
Holder who has been a bona fide Holder of a Security for at least six (6) months
may, on behalf of itself and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor Trustee.
(f) CE Generation shall, at its own expense, give notice of each
resignation and each removal of the Trustee and each appointment of a successor
Trustee to all Holders in the manner provided in Section 12.5(b) and shall give
such notice to each of the Rating Agencies. Each notice required to be given
pursuant to this Section 10.9(f) shall include the name of the successor Trustee
and the address of its principal corporate trust office.
(g) Notwithstanding anything herein to the contrary, CE Generation and the
Trustee acknowledge that the Trustee is acting as trustee both under this
Indenture and under any indenture in connection with the issuance of debt
securities by SSFC relating to the Imperial Valley Projects and that upon a
default or an event of default under either or both indentures, a conflict of
interest may arise which would require the Trustee to resign as trustee from
either or both indentures.
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Section 10.10 Acceptance of Appointment by Successor Trustee. (a) In case
of the appointment hereunder of a successor Trustee, every such successor
Trustee so appointed shall execute, acknowledge and deliver to CE Generation and
to the retiring Trustee an instrument accepting such appointment, and thereupon
the resignation or removal of the retiring Trustee shall become effective and
such successor Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of the retiring
Trustee; provided that, on the request of CE Generation or the successor
Trustee, such retiring Trustee shall execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of the
retiring Trustee and shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder.
(b) Upon request of the Collateral Agent or CE Generation, any successor
Trustee shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts under the other Financing Documents to which the Trustee is a party.
(c) Upon request of any successor Trustee, CE Generation shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor Trustee all such rights, powers and trusts referred to in clause
(a) of this Section 10.10.
(d) No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article 10.
Section 10.11 Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee 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 Trustee shall be a party, or any corporation
succeeding to all or substantially all the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be other wise qualified and eligible under this Article 10,
without the execution and filing of any instrument or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
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Section 10.12 Authorization. The Trustee is hereby authorized to execute,
deliver and perform on behalf of the Holders the Intercreditor Agreement and
each of the other Financing Documents to which the Trustee is or is intended to
be a party, and each Holder agrees to be bound by all of the agreements of the
Trustee contained therein.
ARTICLE 11
HOLDERS' LISTS AND REPORTS BY TRUSTEE
Section 11.1 Names and Addresses of Holders. (a) If the Trustee is at any
time not the Registrar, CE Generation shall furnish or cause to be furnished to
the Trustee:
(i) Semiannually, not more than fifteen (15) days after each Regular
Record Date, a list, in such form as the Trustee may reasonably require, of
the names and addresses of the Holders as of such Regular Record Date; and
(ii) at such other times as the Trustee may request in writing,
within thirty (30) days after the receipt by CE Generation of any such
request, a list of similar form and content as of a date not more than
fifteen (15) days prior to the time such list is furnished.
(b) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in clause (a) of this Section 11.1 and
the names and addresses of Holders received by the Trustee in its capacity as
Registrar. The Trustee may destroy any list furnished to it as provided in
clause (a) of this Section 11.1 upon receipt of a new list so furnished.
ARTICLE 12
MISCELLANEOUS PROVISIONS
Section 12.1 Third Party Beneficiaries. Except as provided in Section 12.6,
nothing in this Indenture or in the Securities, express or implied, shall give
or be construed to give any Person, other than the parties hereto and the
Holders of the Securities, any benefit or any legal or equitable right, remedy
or claim under this Indenture.
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Section 12.2 Severability. In case any provision in or obligation under
this Indenture or the Securities shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
Section 12.3 Substitute Notice. If for any reason it shall be impossible to
make publication of any notice required hereby in a newspaper or financial
journal of general circulation in the Borough of Manhattan, the City of New
York, then such publication or other notice in lieu thereof as shall be made
with the approval of the Trustee shall constitute a giving of such notice.
Section 12.4 Notice to Rating Agencies. Upon the occurrence of any Event of
Default of which a Responsible Officer of the Trustee has actual knowledge
hereunder, the Trustee shall promptly given notice thereof to CE Generation and
each Rating Agency then assigning a Rating to the Securities.
Section 12.5 Notices. (a) Except as otherwise expressly provided herein,
(i) all notices and other communications provided for hereunder shall be
provided in writing (including telegraphic, telex, facsimile or cable
communication) and shall be sent by telecopy, telex, telegraph or cable with the
original of such communication dispatched by registered airmail (or, if inland,
registered first-class mail) with postage prepaid to CE Generation, the Trustee,
the Collateral Agent and the Rating Agencies at their respective addresses
specified on Schedule IV hereto, or at such other address as shall be designated
by such Person in a written notice to the other parties hereto and (ii) all such
notices and communications shall, when mailed, telegraphed, telexed, telecopied,
cabled or sent by overnight courier, be effective seven (7) days after being
deposited in the mails in the manner as aforesaid, when delivered to the
telegraph company or cable company (if inland), one (1) day or (if overseas)
three (3) days after delivery to a courier in the manner as aforesaid, as the
case may be, or when sent by telex (with the correct answer back) or telecopier
(after confirmation of receipt).
(b) Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder, at its
address as it appears in the Securities Register, not later than the latest date
(if any) and not earlier than the earliest date (if any) prescribed for the
giving of such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by
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the Person entitled to receive such notice, either before or after the event,
and such waiver shall be the equivalent of such notice. Waivers of notice by
Holders shall be filed with the Trustee, but such filing shall not be a
condition precedent to the validity of any action taken in reliance upon such
waiver. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders, and any notice that is mailed in the matter herein provided shall
be conclusively presumed to have been duly given.
Section 12.6 Successors and Assigns. All of the covenants, promises and
agreements in this Indenture by or on behalf of CE Generation or the Trustee
shall bind and inure to the benefit of their respective successors and assigns,
regardless of whether so expressed.
Section 12.7 Section Headings. Captions and section headings appearing
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Indenture.
Section 12.8 Counterparts. This Indenture may be executed in any number of
counterparts, all of which, taken together, shall constitute one and the same
instrument and any of the parties hereto may execute this Indenture by signing
any such counterpart.
Section 12.9 Governing Law; Submission to Jurisdiction. (a) THIS INDENTURE
IS A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK OF THE UNITED STATES
AND SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF SUCH STATE WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF (OTHER
THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
(b) Any legal action or proceeding against CE Generation with respect to
this Indenture may be brought in the courts of the State of New York in the
County of New York or of the United States for the Southern District of New York
and, by execution and delivery of this Indenture, CE Generation hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. CE Generation hereby
irrevocably designates, appoints and empowers CT Corporation System, with
offices on the date hereof at 1633 Broadway, New York, New York 10019, as its
designee, appointee and agent to receive and accept for and on its behalf
service of any and all legal process, summons, notices and
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documents which may be served in any such action or proceeding. If for any
reason such designee, appointee and agent shall cease to be available to act as
such, CE Generation agrees to designate a new designee, appointee and agent in
New York City on the terms and for the purposes of this provision satisfactory
to the Trustee and the Collateral Agent. CE Generation agrees that a judgment,
after exhaustion of all available appeals, in any such action or proceeding
shall be conclusive and binding upon CE Generation, and may be enforced in any
other jurisdiction, by a suit upon such judgment, a certified copy of which
shall be conclusive evidence of the judgment. CE Generation irrevocably consents
to the service of process out of any of the aforementioned courts in any such
action or proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, to CE Generation, at its address referred to in Section
12.5(a), such service to become effective thirty (30) days after such mailing.
Nothing herein shall affect the right of the Trustee or any other Person to
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against CE Generation in any other
jurisdiction.
(c) CE Generation hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Indenture in the courts
referred to in clause (b) above and hereby further irrevocably waives and agrees
not to plead or claim in any such court that any such action or proceeding
brought in any such court has been brought in an inconvenient forum.
Section 12.10 Legal Holidays. If any date for the payment of principal of,
premium (if any) or interest on the Securities is not a Business Day, such
payment shall be due on the first Business Day thereafter.
Section 12.11 Limitation of Liability. (a) Notwithstanding any other
provision hereof, the obligations of CE Generation hereunder are solely the
obligations of CE Generation and no recourse shall be had against any Assignor,
employee, officer, director, member, shareholder, Affiliate, agent or servant of
CE Generation (each a "Non-Recourse Person") with respect to the Securities or
this Indenture, any of the obligations of CE Generation hereunder or any
obligation of CE Generation for the payment of any amount payable hereunder for
any claim based on, arising out of or relating to the Securities or this
Indenture; provided, however, that nothing in this Section 12.11 shall be deemed
to affect or diminish (i) the express obligations of any such Non-Recourse
Person under any Transaction Document to which such Non- Recourse Person is
party, (ii) the rights and remedies of the Trustee and the Holders against any
such Non-Recourse Person under any Transaction Document to which any
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such Non-Recourse Person is a party or (iii) the rights and remedies of the
Trustee and the Holders with respect to the Collateral.
(b) Anything in this Indenture to the contrary notwithstanding, in no event
shall the Trustee (or its officers, directors, employees, agents, successors and
assigns) be liable under or in connection with this Indenture for any special,
indirect or consequential loss or damage of any kind whatsoever, including lost
profits, whether or not the likelihood of such loss or damage was known to the
Trustee and regardless of the form of action.
Section 12.12 Entire Agreement. This Indenture, together with any other
agreements executed in connection herewith, is intended by the parties hereto as
a final expression of their agreement as to the matters covered hereby and is
intended as a complete and exclusive statement of the terms and conditions
hereof.
Section 12.13 Survival. The representations and warranties of CE Generation
contained herein shall survive the execution and delivery of this Indenture.
Section 12.14 All Payments in US Dollars. All payments under this Indenture
or the Securities shall be made exclusively in such coin or currency of the
United States which, at the time of payment thereof, is legal tender for the
payment of public and private debts.
Section 12.15 Officers' Certificates and Opinions of Counsel. (a) Except as
otherwise expressly provided in this Indenture, upon any application or request
by CE Generation to the Trustee that the Trustee take any action under any
provision of this Indenture, CE Generation shall furnish to the Trustee (i) an
Officer's Certificate stating that all conditions precedent (if any) provided
for in this Indenture relating to the proposed action have been complied with
and (ii) an Opinion of Counsel stating that in the opinion of such counsel all
such conditions precedent (if any) have been complied with; provided, however,
that, in the case of any particular application or request as to which the
furnishing of documents, certificates or opinions is specifically required by
any provision of this Indenture relating to such particular application or
request, no additional certificate or opinion need be furnished.
(b) Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each Authorized Representative signing such
certificate or opinion has read such covenant or condition;
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(ii) a brief statement as to the nature and scope of the examina
tion or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(iii) a statement that, in the opinion of each such Authorized
Representative, such examination or investigation has been made as is neces
sary to enable each such individual to express an informed opinion as to
whether such covenant or condition has been complied with;
(iv) a statement as to whether, in the opinion of each such
Authorized Representative, such condition or covenant has been complied with;
and
(v) in the case of an Officer's Certificate of CE Generation, a
statement that no Default or Event of Default has occurred and is continuing
(unless such Officer's Certificate relates to a Default or an Event of
Default).
Section 12.16 Form of Certificates and Opinions Delivered to Trustee. (a)
In any case where several matters are required to be certified by, or covered by
an opinion of, any specified Person, it is not necessary that all such matters
be certified by, or covered by the opinion of, only one such Person, or that
they be so certified by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
may certify or give an opinion as to other matters, and any such Person may
certify or give an opinion as to such matters in one or several documents. Where
any Person is required to make, give or execute two or more applications,
requests, consents, certificates, statements, opinions or other instruments
under this Indenture, they may, but shall not be required to, be consolidated
and form one instrument.
(b) Any Officer's Certificate or opinion of an Authorized Representative
of CE Generation may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows or has reason to believe that the certificate or opinion of or
representations by such counsel with respect to the matters upon which such
Officer's Certificate or opinion of such officer is based are erroneous.
(c) Any certificate of counsel or Opinion of Counsel may be based, insofar
as it relates to factual matters, information with respect to which is in the
possession of CE Generation, upon a certificate or opinion of, or
representations by, an
79
<PAGE>
Authorized Representative of CE Generation, unless such counsel knows or in the
exercise of reasonable care should know that the certificate or opinion of or
representations by such Authorized Representative with respect to the matters
upon which such certificate or such Opinion of Counsel is based are erroneous.
Any Opinion of Counsel stated to be based on another Opinion of Counsel shall be
accompanied by such other Opinion of Counsel.
80
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first above written.
CE GENERATION, LLC
By: /s/ Steven A. McArthur
---------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION, as Trustee
By: /s/ Rose T. Maravilla
---------------------------------
Name: R. T. Maravilla
Title: Assistant Vice President
Signature page to Indenture
<PAGE>
SCHEDULE I
ACQUIRED ASSETS
Capital stock of Magma Power Company, Falcon Seaboard Resources, Inc. and
California Energy Development Corporation.
Schedule I-1
<PAGE>
SCHEDULE II
AMORTIZATION OF PRINCIPAL
Percentage of
Principal
Payment Date Amount Payable
- ------------ --------------
June 15, 1999...................................... 0.000%
December 15, 1999.................................. 0.000%
June 15, 2000...................................... 1.300%
December 15, 2000.................................. 1.300%
June 15, 2001...................................... 1.575%
December 15, 2001.................................. 1.575%
June 15, 2002...................................... 2.575%
December 15, 2002.................................. 2.575%
June 15, 2003...................................... 2.250%
December 15, 2003.................................. 2.250%
June 15, 2004...................................... 1.825%
December 15, 2004.................................. 1.825%
June 15, 2005...................................... 1.850%
December 15, 2005.................................. 1.850%
June 15, 2006...................................... 2.400%
December 15, 2006.................................. 2.400%
June 15, 2007...................................... 2.250%
December 15, 2007.................................. 2.250%
June 15, 2008...................................... 3.525%
Schedule II-1
<PAGE>
Percentage of
Principal
Payment Date Amount Payable
- ------------ --------------
December 15, 2008...................................... 3.525%
June 15, 2009.......................................... 3.075%
December 15, 2009...................................... 3.075%
June 15, 2010.......................................... 1.775%
December 15, 2010...................................... 1.775%
June 15, 2011.......................................... 1.900%
December 15, 2011...................................... 1.900%
June 15, 2012.......................................... 2.560%
December 15, 2012...................................... 2.560%
June 15, 2013.......................................... 2.550%
December 15, 2013...................................... 2.550%
June 15, 2014.......................................... 3.225%
December 15, 2014...................................... 3.225%
June 15, 2015.......................................... 3.380%
December 15, 2015...................................... 3.380%
June 15, 2016.......................................... 3.660%
December 15, 2016...................................... 3.660%
June 15, 2017.......................................... 3.780%
December 15, 2017...................................... 3.780%
June 15, 2018.......................................... 4.545%
December 15, 2018...................................... 4.545%
Schedule II-2
<PAGE>
SCHEDULE III
INVESTMENTS AS OF THE CLOSING DATE
----------------------------------
CE Generation owns 100% of the capital stock of Magma Power Company
(subject to the Liens securing the 9 7/8% Notes), Falcon Seaboard Resources,
Inc. and California Energy Development Corporation.
Schedule III-1
<PAGE>
SCHEDULE IV
NOTICE ADDRESSES
Name of Party Address for Notices
- ------------- -------------------
CE Generation, LLC 302 South 36th Street
Suite 400
Omaha, Nebraska 68131
Chase Manhattan Bank and Trust
Company, National Association 101 California Street, #2725
San Francisco, California 94111
Standard & Poor's Ratings Services 25 Broadway
New York, New York 10004
Moody's Investors Service, Inc. 99 Church Street
New York, New York 10007
Duff & Phelps Credit Rating Co. 55 East Monroe Street
Chicago, Illinois 60603
Schedule V-1
<PAGE>
SCHEDULE V
DEBT SERVICE RESERVE REQUIREMENT
PART I
Set forth below for each period indicated is the Debt Service Reserve
Requirement. In the event that the interest rate on the Securities is adjusted
pursuant to Section 2.2(b) of this Indenture, the Debt Service Reserve
Requirement shall be automatically revised for the period during which such
interest rate adjustment is in effect as set forth in Part II of this Schedule
V. In the event of any prepayment or redemption of the Securities pursuant to
Article III of this Indenture, the Debt Service Reserve Requirement for the
remainder of the period in which such prepayment or redemption takes place and
for each subsequent period shall be adjusted to take into account the effect of
such prepayment or redemption on the remaining debt service payments on the
Securities. In the event that any Additional Securities are issued, the Debt
Service Reserve Requirement for the remainder of the period in which such
issuance takes place and for each subsequent period shall be adjusted, if
applicable, to take into account the effect of such issuance on the remaining
debt service payments on the Securities. Promptly upon the occurrence of any
such adjustment to the Debt Service Reserve Requirement, CE Generation shall
prepare a revised version of this Schedule V to reflect such adjustment and
distribute a copy thereof to the Trustee, the Collateral Agent, the Depositary
Bank and the Debt Service Reserve LOC Provider. Notwithstanding anything to the
contrary contained herein, no increase in the Debt Service Reserve Requirement
occasioned by the issuance of Additional Securities shall result in an increase
in the outstanding amount under the Debt Service Reserve Letter of Credit in
effect on the date of the issuance of the Initial Securities without the consent
of the banks in accordance with the Debt Service Reserve LOC Reimbursement
Agreement.
Period
- ----------------------------------------------------
From and including To and including Requirement*
- ------------------ ---------------- ------------
June 16, 1999 December 15, 1999 $24,279,160
December 16, 1999 June 15, 2000 $24,279,160
June 16, 2000 December 15, 2000 $24,279,160
- --------
* Prior to giving effect to any drawings under the Debt Service Reserve Letter
of Credit or reinstatement pursuant to the Debt Service Reserve LOC
Reimbursement Agreement.
Schedule V-1
<PAGE>
December 16, 2000 June 15, 2001 $24,279,160
June 16, 2001 December 15, 2001 $24,279,160
December 16, 2001 June 15, 2002 $24,279,160
June 16, 2002 December 15, 2002 $24,279,160
December 16, 2002 June 15, 2003 $24,178,344
June 16, 2003 December 15, 2003 $24,178,344
December 16, 2003 June 15, 2004 $24,178,344
June 16, 2004 December 15, 2004 $24,178,344
December 16, 2004 June 15, 2005 $24,178,344
June 16, 2006 December 15, 2005 $24,178,344
December 16, 2005 June 15, 2006 $24,178,344
June 16, 2006 December 15, 2006 $24,178,344
December 16, 2006 June 15, 2007 $24,178,344
June 16, 2007 December 15, 2007 $24,178,344
December 16, 2007 June 15, 2008 $24,178,344
June 16, 2008 December 15, 2008 $24,178,344
December 16, 2008 June 15, 2009 $23,655,516
June 16, 2009 December 15, 2009 $21,332,688
December 16, 2009 June 15, 2010 $20,876,604
June 16, 2010 December 15, 2010 $19,528,229
December 16, 2010 June 15, 2011 $19,528,229
June 16, 2011 December 15, 2011 $19,528,229
December 16, 2011 June 15, 2012 $19,528,229
June 16, 2012 December 15, 2012 $19,528,229
December 16, 2012 June 15, 2013 $19,528,229
June 16, 2013 December 15, 2013 $19,528,229
December 16, 2013 June 15, 2014 $19,528,229
June 16, 2014 December 15, 2014 $19,528,229
December 16, 2014 June 15, 2015 $19,528,229
June 16, 2015 December 15, 2015 $19,528,229
December 16, 2015 June 15, 2016 $19,528,229
June 16, 2016 December 15, 2016 $19,528,229
December 16, 2016 June 15, 2017 $19,528,229
June 16, 2017 December 15, 2017 $19,528,229
December 16, 2017 June 15, 2018 $19,528,229
June 16, 2018 December 15, 2018 $18,854,114
Schedule V-2
<PAGE>
PART II
The following table of the outstanding Amount of the Debt Service Reserve
Letter of Credit shall be utilized at any time that the interest rate on the
Securities has been adjusted pursuant to Section 2.2(b) of this Indenture, and
shall be subject to adjustment as described in Part I above.
Period
- -----------------------------------------------
From and including To and including Requirement*
- ------------------ ---------------- ------------
June 16, 1999 December 15, 1999 $25,221,660
December 16, 1999 June 15, 2000 $25,221,660
June 16, 2000 December 15, 2000 $25,221,660
December 16, 2000 June 15, 2001 $25,221,660
June 16, 2001 December 15, 2001 $25,221,660
December 16, 2001 June 15, 2002 $25,221,660
June 16, 2002 December 15, 2002 $25,221,660
December 16, 2002 June 15, 2003 $24,857,844
June 16, 2003 December 15, 2003 $24,857,844
December 16, 2003 June 15, 2004 $24,857,844
June 16, 2004 December 15, 2004 $24,857,844
December 16, 2004 June 15, 2005 $24,857,844
June 16, 2006 December 15, 2005 $24,857,844
December 16, 2005 June 15, 2006 $24,857,844
June 16, 2006 December 15, 2006 $24,857,844
December 16, 2006 June 15, 2007 $24,857,844
June 16, 2007 December 15, 2007 $24,857,844
December 16, 2007 June 15, 2008 $24,857,844
June 16, 2008 December 15, 2008 $24,857,844
December 16, 2008 June 15, 2009 $24,299,766
June 16, 2009 December 15, 2009 $21,941,688
December 16, 2009 June 15, 2010 $21,454,854
June 16, 2010 December 15, 2010 $19,619,129
December 16, 2010 June 15, 2011 $19,619,129
June 16, 2011 December 15, 2011 $19,619,129
- --------
* Prior to giving effect to any drawings under the Debt Service Reserve Letter
of Credit or reinstatement pursuant to the Debt Service Reserve LOC
Reimbursement Agreement.
Schedule V-3
<PAGE>
December 16, 2011 June 15, 2012 $19,619,129
June 16, 2012 December 15, 2012 $19,619,129
December 16, 2012 June 15, 2013 $19,619,129
June 16, 2013 December 15, 2013 $19,619,129
December 16, 2013 June 15, 2014 $19,619,129
June 16, 2014 December 15, 2014 $19,619,129
December 16, 2014 June 15, 2015 $19,619,129
June 16, 2015 December 15, 2015 $19,619,129
December 16, 2015 June 15, 2016 $19,619,129
June 16, 2016 December 15, 2016 $19,619,129
December 16, 2016 June 15, 2017 $19,619,129
June 16, 2017 December 15, 2017 $19,619,129
December 16, 2017 June 15, 2018 $19,619,129
June 16, 2018 December 15, 2018 $18,899,564
Schedule V-4
<PAGE>
APPENDIX A
DEFINITIONS
"Act" when used with respect to any Holder, shall have the meaning given to
that term in Section 7.1.
"Accounts" (i) other than as set forth in clause (ii) immediately below,
shall have the meaning given to that term in Section 2.2 of the Depositary
Agreement, and (ii) when used in the CE Generation Security Agreement, shall
mean all accounts now or hereafter established by CE Generation, including
without limitation the Accounts referred to in clause (i) immediately above,
and all cash, securities, Investment Property, Financial Assets, Security
Entitlements and other property on deposit therein or credited thereto.
"Additional Projects" shall mean any of the following other than the
Projects: (i) an electric power or thermal energy generation or cogeneration
facility or related facilities (including residual waste management and
facilities that use thermal energy from a cogeneration facility), and its or
their related electric power transmission, fuel supply and fuel transportation
facilities, together with its or their related power supply, thermal energy and
fuel contracts and other facilities, services or goods that are ancillary,
incidental, necessary or reasonably related to the marketing, development,
construction, management, servicing, ownership or operation of the foregoing,
owned by a utility or otherwise, as well as other contractual arrangements with
customers, suppliers and contractors; or (ii) any infrastructure facilities
related to (a) the treatment of water for municipal and other uses, (b) the
treatment and/or management of waste water, (c) the treatment, management and/or
remediation of waste, pollution and/or potential pollutants and (d) any other
process or environmental purpose.
"Additional Securities" shall mean any Securities issued pursuant to
Section 2.3.
"Additional Shares" shall have the meaning given to that term in Section
2.1(a)(ii) of each Pledge Agreement.
"Administrative Costs" shall mean all obligations of CE Generation and the
Assignors, now or hereafter existing, to pay administrative fees, costs and
expenses to any trustee or agent of any Secured Party, including, without
limitation, the Trustee, the Collateral Agent and the Depositary Bank.
Appendix A-1
<PAGE>
"Affiliate" shall mean, with respect to a Person, any other
Person that, directly or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with such first Person.
The term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
"Agent Members" shall have the meaning given to that term in Section
2.5.4(a).
"Allocation Certificate" shall mean each certificate provided by CE
Generation or, pursuant to Section 6(c) of the Intercreditor Agreement, the
Required Secured Parties, as applicable, setting forth the allocation of (i)
Available Cash Flow representing Refinancing Proceeds, Asset Sale Proceeds, Loss
Proceeds, Expropriation Proceeds, Title Proceeds or Buy-Out Proceeds, (ii)
proceeds from the sale by CE Generation of its interest in an Assignor or the
sale by an Assignor of its interest in a Project Company or (iii) cash proceeds
resulting from liquidation of the Collateral among the Secured Parties (to the
extent the Secured Obligations of such Secured Par ties may be redeemed or
prepaid under the applicable Financing Documents).
"Annual Audited Financial Statements" shall mean, for any Person, audited
financial statements of such Person, including a statement of equity, a balance
sheet as of the close of the applicable fiscal year and an income and expense
statement.
"Applicable Law" shall mean, with respect to any Person, property or
matter, any of the following applicable thereto: any statute, law, regulation,
ordinance, rule, judgment, rule of common law, order, decree, arbitral decision,
Governmental Approval, approval, concession, grant, franchise, license,
agreement or other govern mental restriction, or any voluntary restraint, policy
or guideline with which such Person has formally agreed to comply, whether in
effect as of the date of this Inden ture or thereafter and in each case as
amended.
"Applicable Procedures" shall have the meaning given to that term in
Section 2.7.2(a).
"Asset Sale" shall mean any sale of assets by a Project Company (other than
a sale of assets in the ordinary course of business).
"Asset Sale Proceeds" shall mean all net amounts and net proceeds actually
received in connection with any Asset Sale.
Appendix A-2
<PAGE>
"Assignor" shall mean any of Magma, SSPC, FSRI, FSPC, FSOC, CEDC and CETE.
"Assignor Security Agreement" shall mean the Assignment and Security
Agreement, dated as of the Closing Date, among each of the Assignors and the
Collateral Agent.
"Auditors" shall have the meaning given to that term in Section 5.12.
"Authenticating Agent" shall have the meaning given to that term in Section
2.6.2.
"Authorized Agent" shall have the meaning given to that term in Section
2.6.3(a).
"Authorized Officer" of any Person shall mean any of the president, chief
executive officer, chief financial officer, treasurer, any vice president or any
manager or director of such Person.
"Available Cash Flow" shall mean, (i) with respect to any Assignor, all
amounts received or receivable by such Assignor as equity distributions from
such Assignor's Project Company(ies), to the extent such Assignor is entitled to
receive such distributions in accordance with the applicable Project Documents
and Project Financing Documents, including without limitation those entered into
by or on behalf of such Assignor's Project Company(ies), and such distributions
are no longer subject to the Liens imposed by the Project Financing Documents
applicable to such As signor's Project Company(ies), and (ii) with respect to
Magma, all fees, royalties and other payments received by Magma to the extent
not required to be used for Magma Project Costs or otherwise pursuant to a
Project Financing Document or Project Document.
"Board of Directors" shall mean, with respect to any corporation or limited
liability company, either the board of directors of such corporation or other
management body of such limited liability company or any committee of such board
of directors or management body duly authorized to act therefor.
"Business Day" shall mean any day that is not a Saturday, Sunday or legal
holiday in the State of New York, or a day on which banking institutions
chartered by the State of New York, or the United States, are legally required
or authorized to close.
Appendix A-3
<PAGE>
"Buy-Out Proceeds" shall mean all net amounts and net proceeds actually
received in connection with any Permitted Power Contract Buy-Out.
"CalEnergy" shall mean CalEnergy Company, Inc., a Delaware corporation, and
its successors.
"Cash Flow Collateral" shall have the meaning given to that term in Section
2.1(a) of the Assignor Security Agreement.
"CEDC" shall mean California Energy Development Corporation, a Delaware
corporation.
"CE Generation" shall mean CE Generation, LLC, a Delaware limited liability
company.
"CE Generation Collateral" shall have the meaning given to that term in
Section 2.1(a) of the CE Generation Security Agreement.
"CE Generation Security Agreement" shall mean the Assignment and Security
Agreement, dated as of the Closing Date, between CE Generation and the
Collateral Agent.
"CEOC" shall mean CalEnergy Operating Corporation, a Delaware corporation.
"CEYC" shall mean California Energy Yuma Corporation, a Utah corporation.
"Certificated Securities" shall mean a Security issued in certificated form
to a Person other than the Depositary.
"CE Salton Sea" shall mean CE Salton Sea Inc., a Delaware corporation.
"CETE" shall mean CE Texas Energy LLC, a Delaware limited liability
company.
"CETG" shall mean CE Texas Gas LLC, a Delaware limited liability company.
Appendix A-4
<PAGE>
"CE Turbo Project" shall mean the 10 MW turbo expander 100% owned by Turbo
LLC, located in the Salton Sea Known Geothermal Resource Area.
"Chattel Paper" shall have the meaning assigned to that term under the
Uniform Commercial Code as in effect from time to time in the State of New York.
"Closing Date" shall mean the date of issuance and delivery of the Initial
Securities.
"Collateral" shall mean all property and interests in property now owned or
hereafter acquired in or upon which a Lien has been or is purported or intended
to have been granted to the Collateral Agent under the Security Documents.
"Collateral Agent" shall mean Chase Manhattan Bank and Trust Company,
National Association, in its capacity as collateral agent under the
Intercreditor Agreement and the other Financing Documents to which it is a
party, and its permitted successors and assigns.
"Collateral Agent Claims" shall mean all obligations of the Secured
Parties, now or hereafter existing, to pay fees, costs and expenses to the
Collateral Agent pursuant to Sections 10(e) and 12 of the Intercreditor
Agreement and pursuant to the other Security Documents.
"Collateral Agent's Office" shall mean 101 California Street, #2725, San
Francisco, California, 94111, or such other office as the Collateral Agent may
hereafter designate in writing as such to the other parties hereto.
"Combined Exposure" shall mean, as of any date of calculation, the sum
(calculated without duplication) of the following, to the extent the same is
held by or represented by a Secured Party: (i) the aggregate principal amount of
all Permitted Indebtedness (other than Subordinated Indebtedness); (ii) the
aggregate amount of all available undrawn financing commitments under the
documents governing Permitted Indebtedness which the creditors party thereto
have no right to terminate; and (iii) the maximum amount available to be drawn
under the Debt Service Reserve Letter of Credit issued pursuant to the Debt
Service Reserve LOC Reimbursement Agreement.
"Commonly Controlled Entity" shall mean, as applied to CE Genera tion, any
Person who is a member of a group which is under common control with CE
Generation, who together with CE Generation, is treated as a single employer
Appendix A-5
<PAGE>
within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section
400(b) of ERISA.
"Commission" shall mean the United States Securities and Exchange
Commission or, if at any time after the date of this Indenture such Commission
is not existing and performing the duties now assigned to it under applicable
law, the body performing such duties at such time.
"Conejo" shall mean Conejo Energy Company, a California corporation.
"Continuing Request" shall mean a written notice from a Holder or
beneficial owner of a Security delivered to the Trustee and CE Generation
requesting that all financial statements furnished by CE Generation to the
Trustee pursuant to this Indenture be provided to such Holder or beneficial
owner until further notice from such Holder or beneficial owner to the contrary;
provided, however, that any such request shall be renewed by such Holder or
beneficial owner every two (2) years.
"Contract Rights" shall have the meaning given to that term in Section
6.1(c) of the CE Generation Security Agreement.
"Contracts" shall mean all contracts and agreements to which CE Generation
now is, or hereafter will be, bound, or a party, beneficiary or assignee.
"Covenant Defeasance Option" shall have the meaning given to that term in
Section 9.2(a)(ii).
"Debt Payment Account" shall mean the Account of such name established
pursuant to Section 2.2 of the Depositary Agreement and held under the following
account number: C28710 B.
"Debt Service Coverage Ratio" shall mean for any period the ratio of (i)
(a) all Available Cash Flow for such period plus (b) all interest and other
investment income earned on Monies on deposit in or credited to the Accounts
during such period minus (c) all Administrative Costs, Operating and
Administrative Costs (other than Operating and Administrative Costs that are
subordinate to debt service on the Securities and other senior Indebtedness, if
any, of CE Generation) and other expenses due and payable during such period to
(ii) the aggregate of principal and interest payments (and any other amounts
due) on the Securities and all other Permitted Indebtedness (excluding
Subordinated Indebtedness) for such period.
Appendix A-6
<PAGE>
"Debt Service Reserve Account" shall mean the Account of such name
established pursuant to Section 2.2 of the Depositary Agreement and held under
the following account number: C28710 C.
"Debt Service Reserve Bond" shall mean each bond issued by CE Generation in
exchange for a Debt Service Reserve LOC Loan in accordance with, and pursuant to
the terms and provisions of, the Debt Service Reserve LOC Reimburse ment
Agreement.
"Debt Service Reserve Letter of Credit" shall mean one or more irrevocable,
direct pay letters of credit issued by the Debt Service LOC Provider in favor of
the Depositary Bank.
"Debt Service Reserve LOC Loan" shall mean each loan made to CE Generation
pursuant to the Debt Service Reserve LOC Reimbursement Agreement.
"Debt Service Reserve LOC Provider" shall mean the commercial bank or
financial institution issuing the Debt Service Reserve Letter of Credit.
"Debt Service Reserve LOC Reimbursement Agreement" shall mean the Debt
Service Reserve Letter of Credit and Reimbursement Agreement, dated as of the
Closing Date, between CE Generation and the Debt Service Reserve LOC Provider,
or any similar agreement supplementing, refinancing or replacing, in whole or in
part, such Debt Service Reserve Letter of Credit and Reimbursement Agreement or
any other then existing Debt Service Reserve LOC Reimbursement Agreement which
provides for credit facilities in an aggregate principal amount equal to or less
than (i) the Debt Service Reserve Requirement, as the same may be adjusted from
time to time in accordance with Schedule V, less (ii) the aggregate principal
amount of credit facilities under the then existing Debt Service Reserve LOC
Reimbursement Agree ment which are not being replaced so long as any such
refinancing or replacement is effected in accordance with the terms of any then
existing Debt Service Reserve LOC Reimbursement Agreement.
"Debt Service Reserve Requirement" shall mean the amount set forth on
Schedule V, as such amount may be adjusted from time to time in accordance with
the provisions set forth in such Schedule.
"Debt Termination Date" shall mean the date on which all Secured
Obligations, other than contingent liabilities and obligations which are
unasserted at
Appendix A-7
<PAGE>
such date, have been paid and satisfied in full and all Financing Commitments
have been terminated.
"Debtor Relief Law" shall mean any applicable liquidation, dissolution,
conservatorship, bankruptcy, moratorium, rearrangement, insolvency,
reorganization, readjustment of debt or similar law affecting the rights or
remedies of creditors generally, as in effect from time to time.
"Default" shall mean an event or condition that, with the giving of notice,
the passage of time or both, would become an Event of Default.
"Default Rate" shall mean the rate of interest on the Securities at the
time of determination (determined without reference to the Default Rate) plus
two percent (2%).
"Defeasance Deposit" shall have the meaning given to that term in Section
9.2(d).
"Del Ranch" shall mean Del Ranch, L.P., a California limited partnership.
"Del Ranch Project" shall mean the 38 MW contract nameplate geothermal
power plant owned by Del Ranch, located in the Salton Sea Known Geo thermal
Resource Area.
"Depositary" shall have the meaning given to that term in Section 2.5.4(a).
"Depositary Agreement" shall mean the Deposit and Disbursement Agreement,
dated as of the Closing Date, among CE Generation, the Assignors, the Collateral
Agent and the Depositary Bank.
"Depositary Bank" shall mean Chase Manhattan Bank and Trust Company,
National Association, as depositary bank under the Depositary Agreement or any
successor thereto pursuant to the terms thereof.
"Designation Letter" shall mean any letter executed and delivered pursuant
to Section 8 of the Intercreditor Agreement and substantially in the form of
Schedule 8 thereto.
Appendix A-8
<PAGE>
"Distribution Suspense Account" shall mean the Account of such name
established pursuant to Section 2.2 of the Depositary Agreement and held under
the following account number: C28710 D.
"Document" shall have the meaning assigned to that term under the Uniform
Commercial Code as in effect from time to time in the State of New York.
"DTC" shall mean The Depository Trust Company, having a principal office at
55 Water Street, New York, New York, 10041-0099, together with any Person
succeeding thereto by merger, consolidation or acquisition of all or substan
tially all of its assets, including substantially all of its securities payment
and transfer operations.
"DTC Letter of Representations" shall mean the Letter of Representations,
dated the date hereof, among CE Generation, DTC and the Trustee.
"Duff & Phelps" shall mean Duff & Phelps Credit Rating Co., a corporation
organized and existing under the laws of the State of Illinois.
"Eligible Facility" shall mean an "eligible facility" owned by an "exempt
wholesale generator", as such terms are defined in PUHCA and the rules and
regulations of FERC thereunder.
"Elmore" shall mean Elmore, L.P., a California limited partnership.
"Elmore Project" shall mean the 38 MW nameplate geothermal power plant
owned by Elmore, located in the Salton Sea Known Geothermal Resource Area.
"Equipment" shall mean any "equipment," as such term is defined in the
Uniform Commercial Code as in effect on the date hereof in the State of New
York, now or hereafter owned or leased by CE Generation, wherever located,
together with all improvements thereon and all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto.
"Equity Agreement" shall mean, with respect to any Assignor, the limited or
general partnership agreement or operating agreement, as the case may be, of
such Assignor.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time. Section references to ERISA are to ERISA as in
Appendix A-9
<PAGE>
effect at the date of this Indenture and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"Event of Default" (i) when used in the Intercreditor Agreement shall mean
an "event of default" (or correlative term) under any Financing Document, and
(ii) other than when used in the Intercreditor Agreement as set forth in clause
(i) immediately above, shall have the meaning given to that term in Section 6.1
of this Indenture.
"Event of Loss" shall mean an event that 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 Expropriation Event.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Exchange Offer" shall mean the "Exchange Offer" as defined in the
Registration Rights Agreement.
"Exchange Securities" shall mean the "Exchange Securities" as defined in
the Registration Rights Agreement.
"Exempt Wholesale Generator" shall mean an "exempt wholesale generator" as
defined in Section 32(a)(1) of PUHCA.
"Existing Rating" shall mean, for any Rating Agency on any date of
determination, the Rating assigned to the Securities by such Rating Agency as of
such date.
"Expropriation Event" shall mean any compulsory transfer or taking, or
transfer under threat of compulsory transfer or taking, of any material part of
a Project by any Governmental Authority.
"Expropriation Proceeds" shall mean all amounts and proceeds actually
received in connection with any Expropriation Event.
"Federal Bankruptcy Code" shall mean Title 11 of the United States Code, as
amended from time to time, and any successor statute thereto.
Appendix A-10
<PAGE>
"Final Offering Circular" shall mean the Confidential Offering Circular of
CE Generation, dated February 24, 1999, with respect to the Initial Securities.
"Financial Asset" shall have the meaning assigned to that term under the
Uniform Commercial Code as in effect from time to time in the State of New York.
"Financing Commitment" shall mean any commitment pursuant to the Financing
Documents to provide credit to CE Generation.
"Financing Documents" shall mean, collectively, this Indenture, the
Purchase Agreement, the Securities, the Debt Service Reserve LOC Reimbursement
Agreement, the Security Documents, the Registration Rights Agreement, the
Irrevocable Instructions and any other document executed in connection with the
issuance of the Securities.
"Financing Proceeds" shall mean all amounts and proceeds actually received
in respect of a Project Financing Project Debt Refinancing.
"Financing Statements" shall mean all financing statements,
recordings, filings, continuation statements or other instruments of
registration or amendments thereto necessary and appropriate to perfect a
security interest or Lien by filing in any appropriate filing or recording
office in accordance with the Uniform Commercial Code as enacted in any and all
relevant jurisdictions or any other relevant applicable law.
"FERC" shall mean the Federal Energy Regulatory Commission.
"Fish Lake" shall mean Fish Lake Power LLC, a Delaware limited liability
company.
"Fixtures" shall mean any "fixtures," as such term is defined in the
Uniform Commercial Code as in effect from time to time in the State of New York,
now or hereafter owned by CE Generation.
"FPOC" shall mean Falcon Power Operating Company, a Texas corporation.
"FSOC" shall mean Falcon Seaboard Oil Company, a Texas corporation.
Appendix A-11
<PAGE>
"FSRI" shall mean Falcon Seaboard Resources, Inc., a Texas corporation.
"FSPC" shall mean Falcon Seaboard Power Corporation, a Texas corporation.
"Funding Date" shall mean any business day of a month, as determined by CE
Generation in an Officer's Certificate received by the Depositary Bank at least
three (3) business days prior to such Funding Date, provided that there shall
only be a single Funding Date for any month.
"Funds Transfer Certificate" has the meaning specified in Section 3.1(c) of
the Depositary Agreement.
"GAAP" shall mean generally accepted accounting principles as in effect in
the United States from time to time.
"General Intangibles" shall mean any "general intangibles," as such term is
defined in the Uniform Commercial Code as in effect from time to time in the
State of New York, now or hereafter owned by CE Generation and shall include,
but shall not be limited to, all trademarks, trademark applications, trademark
registrations, tradenames, fictitious business names, business names, business
identifiers, prints, labels, trade styles and service marks (whether or not
registered), trade dress, including logos and/or designs, copyrights, patents,
patent applications, goodwill of CE Genera tion's business symbolized by any of
the foregoing, trade secrets, license rights, license agreements, permits,
franchises and any rights to tax refunds to which CE Generation is now or
hereafter may be entitled.
"Global Securities" shall have the meaning given to that term in Section
2.5.3.
"Governmental Approval" shall mean any action, order, authorization,
consent, approval, license, lease, ruling, permit, tariff, rate, certification,
exemption, filing or registration by or with any Governmental Authority.
"Governmental Authority" shall mean any government, governmental
department, commission, board, bureau, agency, regulatory authority,
instrumentality, judicial or administrative body, federal, state or local,
having jurisdiction over the matter or matters in question.
Appendix A-12
<PAGE>
"Guarantee Obligation" shall mean, with respect to any Person, any
obligation, contingent or otherwise, of such Person directly or indirectly
guaranteeing in any manner any Indebtedness or similar obligation of any other
Person.
"Holder" shall mean, with respect to any Security, the Person in whose name
such Security is registered in the Securities Register; provided that CE Genera
tion or any Affiliate thereof shall not be deemed a Holder with respect to any
matter herein or any other Financing Document requiring a vote of the Holders.
"Illiquidity Event" shall mean an "Illiquidity Event" as defined in the
Registration Rights Agreement.
"Imperial Magma" shall mean Imperial Magma LLC, a Delaware limited
liability company.
"Imperial Valley Guarantors" shall mean, collectively, SSBP, SSPG, Fish
Lake, CE Salton Sea, Power LLC, VPC, VPC Geothermal, Vulcan, CEOC, Niguel, San
Felipe, Conejo, Leathers, Del Ranch, Elmore, Turbo LLC, Minerals Corp., Minerals
LLC and SSRLLC.
"Imperial Valley Projects" shall mean, collectively, Salton Sea Unit I,
Salton Sea Unit II, Salton Sea Unit III, Salton Sea Unit IV, Salton Sea Unit V,
the Vulcan Project, the Leathers Project, the Del Ranch Project, the Elmore
Project and the CE Turbo Project.
"Indebtedness" of any Person shall mean, at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, 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 will not be included as Indebtedness) and
(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.
"Indemnified Depositary Bank Party" has the meaning specified in Section
5.2 of the Depositary Agreement.
"Initial Purchasers" shall mean Credit Suisse First Boston Corporation and
Lehman Brothers Inc.
Appendix A-13
<PAGE>
"Initial Ratings" shall mean, for any Rating Agency, the Rating assigned to
the Initial Securities by such Rating Agencies as of the Closing Date.
"Initial Security" or "Initial Securities" shall mean any of the
$400,000,000 CE Generation, LLC 7.416% Senior Secured Bonds Due December 15,
2018, issued by CE Generation.
"Instrument" shall have the meaning assigned that term under the Uniform
Commercial Code as in effect from time to time in the State of New York.
"Insurance Policies" shall mean all insurance policies to which CE
Generation now is, or hereafter will be, a party, including without limitation
all insurance policies required pursuant to the CE Generation Security Agreement
and the other Financing Documents.
"Intercreditor Agreement" shall mean the Collateral Agency and
Intercreditor Agreement, dated as of the Closing Date, among the Trustee, the
Collat eral Agent, the Depositary Bank, CE Generation and the Assignors.
"Intermediate Holding Companies" shall mean, collectively, SECI Holdings
and CEYC.
"Inventory" shall mean any "inventory," as such term is defined under the
Uniform Commercial Code as in effect from time to time in the State of New York,
now or hereafter owned by CE Generation.
"Investment Grade Ratings" shall mean ratings of "Baa3" from Moody's,
"BBB-" from S&P and "BBB-" from Duff & Phelps.
"Investment Property" shall have the meaning assigned to that term under
the Uniform Commercial Code as in effect from time to time in the State of New
York.
"Irrevocable Instructions" shall mean, collectively, the Instructions
Regarding Available Cash Flow, dated the Closing Date, executed by each
Assignor.
"Leathers" shall mean Leathers, L.P., a California limited partnership.
"Leathers Project" shall mean the 38 MW nameplate geothermal power plant
owned by Leathers, located in the Salton Sea Known Geothermal Resource Area.
Appendix A-14
<PAGE>
"Legal Defeasance Option" shall have the meaning given to that term in
Section 9.2(a)(i).
"Lien" shall mean 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.
"Loan Life Coverage Ratio" shall mean, at any date, the ratio of (i) the
sum of (a) the net present value (at a discount rate equal to the interest rate
for the Securities) of the projected Available Cash Flow (other than Available
Cash Flow of an Assignor for which there has occurred a default or an event of
default under the Project Financing Documents for such Assignor's Project
Company) from such date to the final maturity date of the Securities plus (b)
the then remaining balance in the Debt Service Reserve Account plus (c) all
interest and other investment income then on deposit in or credited to the
Revenue Account and the Debt Service Reserve Account to (ii) the sum of (a) the
aggregate principal amount of the Securities and all other Permitted
Indebtedness which is repayable during the period from such date up to and
including the final maturity date of the Securities plus (b) all Administrative
Costs and other expenses due and payable during the period from such date up to
and including the final maturity date of the Securities.
"Loss Proceeds" shall mean all amounts and proceeds actually received in
respect of any Event of Loss.
"Magma" shall mean Magma Power Company, a Nevada corporation.
"Magma Land" shall mean Magma Land Company I, a Nevada corporation.
"Magma Note" shall mean the $200,000,000 Secured Note Due 2003, dated July
21, 1995, issued by Magma to CalEnergy.
Appendix A-15
<PAGE>
"Magma Project Costs" shall mean any payments required to be made in
connection with Magma's performance of its obligations under the Project Docu
ments.
"Majority Holders" shall mean Holders holding greater than fifty percent
(50%) in aggregate principal amount of the Outstanding Securities.
"Material Adverse Effect" shall mean a material adverse effect on (i) the
financial condition or results of operation of CE Generation or the Assignors
(taken as a whole), (ii) the validity or priority of the Liens on the
Collateral, (iii) the ability of CE Generation to perform its material
obligations under this Indenture, the Securities or any of the other Financing
Documents to which it is a party, or (iv) the ability of the Assignors (taken as
a whole) to perform any of the material obligations under the Financing
Documents to which any of them is a party.
"Maturity Date" shall mean, with respect to any Security, the date on which
the principal of such Security or an installment of principal becomes due and
payable as herein or therein provided, whether at stated maturity, acceleration,
redemption or otherwise.
"Membership Interests" shall have the meaning given to that term in Section
2.1(a)(i) of each Pledge Agreement pursuant to which limited liability company
membership interests are pledged.
"Minerals LLC" shall mean CalEnergy Minerals L.L.C., a Delaware limited
partnership.
"Monies" shall mean all cash, payments, Permitted Investments and other
amounts (including instruments evidencing such amounts) on deposit in or
credited to any Account.
"Moody's" shall mean Moody's Investors Service, Inc., a corporation
organized and existing under the laws of the State of Delaware.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"MW" shall mean a unit of electrical energy equal to one million watts of
power.
Appendix A-16
<PAGE>
"Niguel" shall mean Niguel Energy Company, a California corporation.
"9 7/8% Indenture" shall mean the Indenture, dated as of July 21, 1995,
between CalEnergy and The Bank of New York, as trustee.
"9 7/8% Notes" shall mean the 9 7/8% Limited Recourse Senior Notes Due 2003
issued by CalEnergy.
"9 7/8% Notes Account" shall mean the Account of such name established
pursuant to Section 2.2 of the Depositary Agreement and held under the following
account number: C28710 F.
"9 7/8% Notes Payment Date" shall have the meaning given to that term in
Section 3.6 of the Depositary Agreement.
"Non-Recourse Person" shall have the meaning given to that term in Section
12.11.
"NorCon" shall mean NorCon Power Partners, LP, a Delaware limited
partnership.
"NorCon Holdings" shall mean NorCon Holdings, Inc., a Delaware corporation.
"NorCon Project" shall mean the 80 MW natural gas-fired combined cycle
cogeneration facility owned by NorCon, located in North East, Pennsylvania.
"Northern Consolidated" shall mean Northern Consolidated Power, Inc., a
Delaware corporation.
"Obligor Parties" shall mean, collectively, CE Generation and each of the
Assignors.
"Officer's Certificate" shall mean, with respect to any Person, a
certificate executed by an Authorized Officer of such Person.
"One-Third Holders" shall mean Holders holding more than thirty-three and
one-third percent (33 1/3%) in aggregate principal amount of the Outstanding
Securities.
Appendix A-17
<PAGE>
"One Hundred Percent Holders" shall mean Holders holding one hundred
percent (100%) in aggregate principal amount of the Outstanding Securities.
"Operating and Administrative Costs" shall mean all amounts disbursed by or
on behalf of the CE Generation, the Assignors or the Intermediate Holding
Companies for the day-to-day operation and administration of their businesses,
including, without limitation, premiums on insurance policies, lease payments
and ordinary course legal and accounting fees.
"Operation and Maintenance Costs" shall mean all amounts disbursed by or on
behalf of the Project Companies for operation, maintenance, repair or
improvement of the Projects, including, without limitation, premiums on
insurance policies, property and other taxes, and payments under, or in
connection with the performance of, the relevant operation and maintenance
agreements, leases, royalty and other land use agreements, and any other
payments required to be made under the Project Documents.
"Opinion of Counsel" shall mean a written opinion of counsel for any Person
either expressly referred to herein or otherwise reasonably satisfactory to the
Trustee, which may include, without limitation, counsel for CE Generation,
whether or not such counsel is an employee of CE Generation.
"Outstanding Securities" or "Outstanding" when used in connection with any
Securities shall mean, as of the time in question, all Securities authenticated
and delivered under this Indenture, except (i) Securities theretofore cancelled
or required to be cancelled under Section 2.12, (ii) Securities for which
provision for payment shall have been made pursuant to this Indenture and (iii)
Securities in substitution for which other Securities have been authenticated
and delivered pursuant to this Indenture.
"Paying Agent" shall have the meaning given to that term in Section
2.6.1(b).
"Payment Date" shall mean, with respect to the Securities or any other
Secured Obligations, any date on which any principal of, premium (if any),
interest on or fees, indemnities, costs and other amounts payable in connection
with the Securities or such other Secured Obligations are due and payable to the
Holders or to the Secured Parties holding such other Secured Obligations.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
Appendix A-18
<PAGE>
"Permitted Assignor Indebtedness" shall have the meaning given to that term
in Section 4.14(a) of the Assignor Security Agreement.
"Permitted Assignor Liens" shall have the meaning given to that term in
Section 4.15 of the Assignor Security Agreement.
"Permitted Project Company Indebtedness" shall have the meaning given to
that term in Section 4.14(b) of the Assignor Security Agreement.
"Permitted Indebtedness" shall have the meaning given to that term in
Section 5.13.
"Permitted Investments" shall mean investments in securities that are: (i)
direct obligations of the United States or any agency thereof; (ii) obligations
fully guaranteed by the United States or any agency thereof; (iii) certificates
of deposit or bankers acceptances issued by commercial banks (including the
Trustee or any of its affiliates) organized under the laws of the United States
or of any political subdivision thereof or under the laws of Canada, Japan,
Switzerland or any country that is a member of the European Economic Community
having a combined capital and surplus of at least $250 million and having
long-term unsecured debt securities then rated "A" or better by S&P or "A-2" or
better by Moody's (but at the time of invest ment not more than $25,000,000 may
be invested in such certificates of deposit from any one bank); (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (i) and (ii) above, entered into with any
financial institution meeting the qualifications specified in clause (iii)
above; (v) open market commercial paper of any corporation (other than CalEnergy
or any of its Affiliates) incorporated or doing business under the laws of the
United States or of any political subdivision thereof having a rating of at
least "A-1" from S&P and "P-1" from Moody's (but at the time of investment not
more than $25,000,000 may be invested in such commercial paper from any one
company); (vi) auction rate securities or money market preferred stock (other
than securities issued by CalEnergy or any of its Affiliates) having one of the
two highest ratings obtainable from either S&P or Moody's (or, if at any time
neither S&P nor Moody's is rating such obligations, then from another nationally
recognized rating service acceptable to the Trustee); and (vii) investments in
money market funds or money market mutual funds sponsored by any securities
broker dealer of recognized national standing (or an affiliate thereof), having
an investment policy that requires substantially all the invested assets of such
fund to be invested in investments described in any one or more of the foregoing
clauses having a rating of "A" or better by S&P or "A-2" or
Appendix A-19
<PAGE>
better by Moody's (including money market funds for which the Depositary Bank in
its individual capacity or any of its affiliates is investment manager or
adviser).
"Permitted Liens" shall have the meaning given to that term in Section
5.14.
"Permitted Power Contract Buy-Out" shall mean any partial or complete
buy-out, early termination, restructuring, novation, or similar event with
respect to a Project Company's power purchase agreement (other than any
agreement entered into in connection with sales of power (x) through a power
exchange or (y) in the spot market) which the Rating Agencies have confirmed in
writing will not result in a Ratings Downgrade.
"Permitted Project Company Indebtedness" shall have the meaning given to
that term in Section 4.13(e) of the Assignor Security Agreement.
"Permitted Project Company Liens" shall have the meaning given to that term
in Section 4.13(f) of the Assignor Security Agreement.
"Permitted Subsidiary Indebtedness" shall mean any of Permitted Project
Company Indebtedness, Permitted Holding Company Indebtedness and Permitted
Assignor Indebtedness.
"Permitted Transfer" shall mean (x) any transfer by CE Generation of its
interest in any Assignor or (y) any transfer by any Assignor of its interest in
any Project Company or its right to receive Available Cash Flow, in each case
(i) that does not result in any reduction of Available Cash Flow, (ii) in which
the transferred interest remains subject to the Lien of the Secured Parties and
(iii) that (a) is a transfer to CE Generation or any wholly-owned Subsidiary of
CE Generation or (b) the Rating Agencies confirm in writing will not result in a
Ratings Downgrade.
"Person" shall mean any individual, sole proprietorship, corporation,
limited liability company, partnership, joint venture, limited liability
partnership, limited liability corporation, trust, unincorporated association,
institution, Governmental Authority or any other entity.
"Plan" shall mean an employee benefit or other plan established or
maintained by CE Generation or any Commonly Controlled Entity and which is
covered by Title IV of ERISA, other than a Multiemployer Plan.
Appendix A-20
<PAGE>
"Pledge Agreements" shall mean, collectively:
(i) when executed and delivered, the Pledge Agreement (Magma Stock)
to be executed by CE Generation in favor of the Collateral Agent pursuant to
Section 5.24;
(ii) the Pledge Agreement (SSPC Stock), dated as of the Closing
Date, executed by Magma in favor of the Collateral Agent;
(iii) the Pledge Agreement (FSRI Stock and CEDC Stock), dated as of
the Closing Date, executed by CE Generation in favor of the Collateral Agent;
(iv) the Pledge Agreement (FSPC Stock and FSOC Stock), dated as of
the Closing Date, executed by FSRI in favor of the Collateral Agent;
(v) the Pledge Agreement (CETE Membership Interests), dated as of
the Closing Date, executed by FSRI in favor of the Collateral Agent;
(vi) the Pledge Agreement (CETG Membership Interests), dated as of
the Closing Date, executed by CETE in favor of the Collateral Agent;
(vii) when executed and delivered, the Pledge Agreement (SECI
Holdings Stock) to be executed by FSPC in favor of the Collateral Agent
pursuant to Section 4.24 of the Assignor Security Agreement; and
(vii) the Pledge Agreement (CEYC Stock), dated as of the Closing
Date, executed by CEDC in favor of the Collateral Agent.
"Pledged Collateral" shall have the meaning given to that term in Section
2.1(a) of each Pledge Agreement.
"Pledged Shares" shall have the meaning given to that term in Section
2.1(a)(i) of each Pledge Agreement pursuant to which shares of stock are
pledged.
"Power LLC" shall mean Salton Sea Power L.L.C., a Delaware limited
liability company.
Appendix A-21
<PAGE>
"Preliminary Offering Circular" shall mean the Preliminary Confidential
Offering Circular of CE Generation, dated February 18, 1999, with respect to the
Initial Securities.
"PRI" shall mean Power Resources, Inc., a Texas corporation.
"PRI Project" shall mean the 200 MW natural gas-fired combined cycle
cogeneration facility owned by PRI, located near Big Spring, Texas.
"Proceeds" shall mean any "proceeds," as such term is defined in the
Uniform Commercial Code as in effect from time to time in the State of New York
or under other applicable law, and, in any event, shall include, but shall not
be limited to, (i) any and all proceeds of, or amounts (in any form whatsoever,
whether cash, securities, property or other assets) received under or with
respect to, any insurance, indemnity, warranty or guaranty payable to the
Collateral Agent or CE Generation from time to time, and claims for insurance,
indemnity, warranty or guaranty effected or held for the benefit of CE
Generation, with respect to any of the Collateral, (ii) any and all pay ments
(in any form whatsoever, whether cash, securities, property or other assets)
made or due and payable to the Collateral Agent or CE Generation from time to
time in connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any Governmental Authority
(or any person acting under color of Governmental Authority), and (iii) any and
all other amounts (in any form whatsoever, whether cash, securities, property or
other assets) from time to time paid or payable under or in connection with any
of the Collateral (whether or not in connection with the sale, lease or other
disposition of the Collateral).
"Project" shall mean:
(i) with respect to SSPG, Salton Sea Unit I, Salton Sea Unit II,
Salton Sea Unit III and Salton Sea Unit IV;
(ii) with respect to Fish Lake, Salton Sea Unit IV;
(iii) with respect to Power LLC, Salton Sea Unit V;
(iv) with respect to VPC and Vulcan, the Vulcan Project;
(v) with respect to CEOC, the Leathers Project, the Del Ranch
Project and the Elmore Project;
Appendix A-22
<PAGE>
(vi) with respect to Leathers, the Leathers Project;
(vii) with respect to Del Ranch, the Del Ranch Project;
(viii) with respect to Elmore, the Elmore Project;
(ix) with respect to Turbo LLC, the CE Turbo Project;
(x) with respect to Saranac, the Saranac Project;
(xi) with respect to PRI, the PRI Project;
(xii) with respect to NorCon, the NorCon Project; and
(xiii) with respect to Yuma, the Yuma Project.
"Project Company" shall mean:
(i) with respect to Magma, SSPG, Fish Lake, Power LLC, VPC, CEOC,
Vulcan, Leathers, Del Ranch, Elmore, Turbo LLC, SSRLLC, Magma Land and
Imperial Magma;
(ii) with respect to SSPC, SSPG;
(iii) with respect to FSRI, Saranac, PRI, NorCon, FPOC and CETG;
(iv) with respect to FSPC, Saranac, NorCon and FPOC;
(v) with respect to FSOC, PRI;
(vi) with respect to CEDC, Yuma; and
(vii) with respect to CETE and CETG.
"Project Debt Refinancing" shall mean the refinancing of the existing
Project Financing Debt of a Project Company.
"Project Document" shall mean any power contract, operation and maintenance
agreement, administrative services agreement, construction contract, fuel
Appendix A-23
<PAGE>
supply contract, transmission agreement, partnership agreement, membership agree
ment or other agreement related to the ownership, maintenance or operation of a
Project, in each case that is material to a Project.
"Projected Debt Service Coverage Ratio" shall mean for any period, on any
date of determination, a projection of the Debt Service Coverage Ratio for such
time period prepared by CE Generation and certified to the Trustee by an
Authorized Officer of CE Generation as being reasonable based on the facts and
circumstances in existence on the date of such projection.
"Project Financing" shall mean the financing of a Project Company's
Project.
"Project Financing Debt" shall mean any Indebtedness outstanding under any
Project Financing Document.
"Project Financing Documents" shall mean, with respect to any Project
Company, any loan agreements, indentures, notes, security agreements, pledge
agreements, disbursement agreements and other similar agreements executed in
connection with any financing of such Project Company's Project, including
without limitation all such documents and agreements relating to the issuance of
debt securities by SSFC pursuant to the Trust Indenture, dated as of July 21,
1995, as amended and supplemented, between SSFC and Chase Manhattan Bank and
Trust Company, National Association, as trustee.
"Project Financing Proceeds" shall mean all amounts and proceeds actually
received in respect of a Project Financing Project Debt Refinancing.
"Project Holding Companies" shall mean SSBP, SSFC, CE Salton Sea, VPC
Geothermal, Conejo, Niguel, San Felipe, SECI, NorCon Holdings and Northern
Consolidated.
"Purchase Agreement" shall mean the Purchase Agreement dated February 24,
1999 among the Initial Purchasers and CE Generation.
"PUHCA" shall mean the Public Utility Holding Company Act of 1935, as
amended.
"PURPA" shall mean the Public Utility Regulatory Policies Act of 1978, as
amended.
Appendix A-24
<PAGE>
"Qualified Institutional Buyer" shall mean a "qualified institutional
buyer" within the meaning of Rule 144A.
"Qualifying Facility" shall mean a "small power production facility" or a
"qualifying cogeneration facility" in accordance with PURPA and the rules and
regulations of FERC thereunder.
"Rating" shall mean, for each Rating Agency, the credit rating assigned to
the Securities by such Rating Agency.
"Rating Agency" shall mean Moody's, S&P and/or Duff & Phelps and any
successor thereto.
"Rating Downgrade" shall mean a lowering by any Rating Agency of the
Existing Rating assigned to the Securities by such Rating Agency.
"Receivables" shall mean any "account," as such term is defined in the
Uniform Commercial Code as in effect from time to time in the State of New York,
and, in any event, shall include, but shall not be limited to, all of CE
Generation's rights to payment, whether now in existence or arising from time to
time hereafter, of any kind evidenced by or arising under or with respect to any
account, note, Contract, security agreement, Chattel Paper or other evidence of
indebtedness or security, together with (i) all security pledged, assigned,
hypothecated or granted to or held by CE Generation to secure the foregoing,
(ii) all of CE Generation's right, title and interest in and to any goods,
General Intangibles or other CE Generation Collateral, the sale of which gave
rise thereto, (iii) all letters of credit, guarantees, credit support
agreements, endorsements and indemnifications on, or of, any of the foregoing,
(iv) all powers of attorney for the execution of any evidence of indebtedness or
security or other writing in connection therewith, (v) all books,
correspondence, credit files, re cords, ledger cards, invoices and other papers
relating thereto, including, without limitation, all similar information stored
on a magnetic medium or other similar storage device and other papers and
documents in the possession or under the control of CE Generation or any
computer bureau from time to time acting for CE Generation, (vi) all evidences
of the filing of Financing Statements and other statements and the registration
of other instruments in connection therewith and amendments thereto, notices to
other creditors or secured parties, and certificates from filing or other
registration officers, (vii) all credit information, reports and memoranda
relating thereto, and (viii) all other writings related in any way to the
foregoing.
Appendix A-25
<PAGE>
"Redemption Account" shall mean the Account of such name established
pursuant to Section 2.2 of the Depositary Agreement and held under the following
account number: C28710 E.
"Redemption Date" shall mean any date for redemption of Securities
established pursuant to Article 3.
"Redemption Fund" shall have the meaning given to that term in Section 3.3.
"Redemption Price" shall mean an amount equal to the sum of (i) the
principal amount of Securities being redeemed pursuant to Article 3 and (ii) all
interest accrued thereon through the Redemption Date.
"Registrar" shall have the meaning given to that term in Section 2.6.1(a).
"Registration Rights Agreement" shall mean the Exchange and Registration
Rights Agreement, dated as of the Closing Date, among CE Generation and the
Initial Purchasers, for the benefit of the Holders of the Initial Securities.
"Regular Record Date" shall mean, (i) with respect to each Payment Date
except a Payment Date in connection with an optional or mandatory redemption,
the first (1st) day of June or December, as the case may be, whether or not a
Business Day, immediately preceding such Payment Date, and (ii) with respect to
each Payment Date in connection with an optional or mandatory redemption, the
fifteenth (15th) day, whether or not such day is a Business Day, preceding such
Payment Date.
"Regulation S" shall mean Regulation S under the Securities Act.
"Regulation S Restricted Period" shall mean the period of forty (40)
consecutive days beginning on and including the first day after the later of (i)
the day on which the Securities are first offered to Persons other than
distributors (as defined in Regulation S) in reliance on Regulation S and (ii)
the closing date of the offering of the Securities.
"Required Secured Parties" shall mean, at any time, Persons that at such
time hold at least (x) with respect to a Trigger Event resulting from an Event
of Default under clause (a) of Section 6.1 hereof or any similar event of
default under any other Financing Document, 33 1/3% of the Combined Exposure, or
(y) with respect to
Appendix A-26
<PAGE>
any other Trigger Event or any other event or circumstance, 50% of the Combined
Exposure; provided that for purposes of directing actions of the Collateral
Agent, the Trustee shall be entitled to vote on all matters under this Indenture
according to the aggregate principal amount of the Outstanding Securities,
subject, however, in all events, to the terms and provisions of this Indenture.
"Responsible Officer" shall mean the president or any vice president,
assistant vice president or trust officer of the Trustee to whom any matter has
been referred because of such officer's knowledge and familiarity with the
particular subject.
"Restricted Global Security" shall have the meaning given to that term in
Section 2.5.2.
"Restricted Payment" shall mean, with respect to any Person, (i) the
declaration and payment of distributions, dividends or any other similar payment
made on account of the equity of such Person in cash, property, obligations or
other securities, (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.
"Revenue Account" shall mean the Account of such name established pursuant
to Section 2.2 of the Depositary Agreement and held under the following account
number: C28710 A.
"Rule 144" shall mean Rule 144 under the Securities Act.
"Rule 144A" shall mean Rule 144A under the Securities Act.
"Salton Sea Known Geothermal Resource Area" shall mean the geothermal
resource area located in Imperial County, California, known as the "Salton Sea
KGRA," as designated by the United States Bureau of Land Management.
"Salton Sea Unit I" shall mean the 10 MW nameplate geothermal power plant
100% owned by SSPG, located in the Salton Sea Known Geothermal Re source Area.
"Salton Sea Unit II" shall mean the 20 MW nameplate geothermal power plant
100% owned by SSPG, located in the Salton Sea Known Geothermal Resource Area.
Appendix A-27
<PAGE>
"Salton Sea Unit III" shall mean the 50 MW nameplate geothermal power plant
100% owned by SSPG, located in the Salton Sea Known Geothermal Resource Area.
"Salton Sea Unit IV" shall mean the 39.6 MW nameplate geothermal power
plant 100% owned by SSPG and Fish Lake, located in the Salton Sea Known
Geothermal Resource Area.
"Salton Sea Unit V" shall mean the 49 MW nameplate geothermal power plant
100% owned by Power LLC, located in the Salton Sea Known Geothermal Resource
Area.
"S&P" shall mean Standard & Poor's Ratings Services, a division of
McGraw-Hill Companies Inc.
"San Felipe" shall mean San Felipe Energy Company, a California
corporation.
"Saranac" shall mean Saranac Power Partners, L.P., a Delaware limited
partnership.
"Saranac Project" shall mean the 240 MW natural gas-fired combined cycle
cogeneration facility owned by Saranac, located in Plattsburgh, New York.
"SECI" shall mean Saranac Energy Company, Inc., a Delaware corporation.
"SECI Holdings" shall mean SECI Holdings, Inc., a Delaware corporation.
"Secured Obligations" shall mean all indebtedness, liabilities and
obligations of the Obligor Parties (including, but not limited to, principal,
interest, fees, reimbursement obligations, penalties, indemnities and legal and
other expenses, whether due after acceleration or otherwise) to the Secured
Parties (of whatsoever nature and howsoever evidenced) under or pursuant to this
Indenture, the Securities, the Security Documents and any other applicable
Financing Documents, to the extent arising on or prior to the Debt Termination
Date, in each case, direct or indirect, primary or secondary, fixed or
contingent, now or hereafter arising out of or relating to any such agreements;
and also shall mean all interest owed to the Secured Parties and
Appendix A-28
<PAGE>
accrued following the commencement of a case (whether voluntary or involuntary)
under the Federal Bankruptcy Code with respect to any of the Obligor Parties.
"Secured Parties" shall mean the Holders, the Debt Service Reserve LOC
Provider, the Trustee (for itself and for the benefit of the Holders), the
Collateral Agent, the Depositary Bank and any other Person that becomes a
Secured Party under any Financing Document.
"Securities Account" shall have the meaning assigned to that term under the
Uniform Commercial Code as in effect from time to time in the State of New York.
"Securities Account Control Agreement" shall mean the Securities Account
Control Agreement, dated as of the Closing Date, among CE Generation, the
Assignor, the Collateral Agent and the Depositary Bank.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
"Securities Register" shall have the meaning given to that term in Section
2.6.1(a).
"Security" or "Securities" shall mean any of the Initial Securities and,
when issued, any of the Additional Securities issued pursuant to this Indenture.
"Security Documents" shall mean, collectively, the Pledge Agreements, the
Assignor Security Agreement, the CE Generation Security Agreement, the
Intercreditor Agreement, the Depositary Agreement and the Securities Account
Control Agreement.
"Security Entitlement" shall have the meaning assigned to that term under
the Uniform Commercial Code as in effect from time to time in the State of New
York.
"Security Interest" shall mean any perfected and enforceable Lien on the
Collateral granted to the Collateral Agent pursuant to the requirements of any
applicable Financing Document.
"Significant Project" shall mean any of the Saranac Project, the PRI
Project, the Yuma Project and the Imperial Valley Projects.
Appendix A-29
<PAGE>
"Special Record Date" shall have the meaning given to that term in Section
2.4.
"SSBP" shall mean Salton Sea Brine Processing, L.P., a California limited
partnership.
"SSFC" shall mean Salton Sea Funding Corporation, a Delaware corporation.
"SSFC Equity Commitment Agreement" shall mean the Equity Commitment
Agreement, dated as of October 13, 1998, among CalEnergy, SSFC, the Imperial
Valley Guarantors and Chase Manhattan Bank and Trust Company, National
Association, as collateral agent.
"SSPC" shall mean Salton Sea Power Company, a Nevada corporation.
"SSPG" shall mean Salton Sea Power Generation L.P., a California limited
partnership.
"SSRLLC" shall mean Salton Sea Royalty LLC, a Delaware limited liability
company.
"Stock Collateral" shall have the meaning given to that term in Section
2.1(a)(ii) of each Pledge Agreement.
"Subordinated Indebtedness" shall mean Indebtedness (and the note or other
instrument evidencing the same) which has been subordinated, on terms and
conditions substantially the same as those set forth in Exhibit K, to the prior
payment of amounts owing under this Indenture and the Securities and other
senior Permitted Indebtedness.
"Subsidiary" shall mean as to any Person, any now existing or
hereafter organized corporation, partnership, limited liability company,
unincorporated association, joint venture or other organization in which such
Person, directly or indirectly, (i) owns beneficially or of record equity
securities or interests (or securities or interests currently convertible into
equity securities) which give such Person directly or indirectly, upon
conversion, exercise or otherwise, an interest of fifty percent (50%) or more of
any of the profits, losses, capital or property of, or ordinary voting power in
respect of, such corporation, partnership, joint venture or other organization
or (ii) owns a majority of the capital stock or other ownership interests and
has ordinary
Appendix A-30
<PAGE>
voting power to elect a majority of the board of directors or other persons
performing similar functions.
"Supplemental Indenture" shall mean an indenture supplemental to this
Indenture entered into by CE Generation and the Trustee pursuant to Article 8.
"Taxes" shall have the meaning given to that term in Section 5.4.
"Termination Date" shall mean the date on which the Secured Obligations
have been indefeasibly paid in full in cash or cash equivalents.
"Title Event" shall mean the existence of any defect of title or Lien or
encumbrance on a Project (other than Liens permitted under the Project Financing
Documents for such Project) which entitles the collateral agent for the holders
of the Project Financing Debt for such Project to make a claim under the policy
or policies of title insurance required pursuant to the Project Financing
Documents.
"Title Proceeds" shall mean all amounts and proceeds actually received in
respect of any Title Event.
"Transaction Documents" shall mean the Project Documents, the Project
Financing Documents and the Financing Documents.
"Trigger Event" shall mean (i) an "Event of Default" under this Indenture
and an acceleration of all or a portion of the indebtedness issued thereunder or
(ii) an "event of default" under any other instrument evidencing Secured Obliga
tions the holder of which (or an agent thereof or a trustee therefor) is a party
to the Intercreditor Agreement and an acceleration of the Indebtedness issued
thereunder in an aggregate principal amount in excess of $5,000,000, and, in
each case, the Collat eral Agent shall have, upon direction from the Required
Secured Parties, declared such event to be a Trigger Event.
"Trigger Event Date" shall have the meaning given to that term in Section
6(a) of the Intercreditor Agreement.
"Trustee" shall mean Chase Manhattan Bank and Trust Company, National
Association, in its capacity as trustee under this Indenture, and its permitted
successors and assigns.
Appendix A-31
<PAGE>
"Transfer Restriction Legend" shall mean a legend substantially in the form
of Exhibit D.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as
amended.
"Turbo LLC" shall mean CE Turbo LLC, a Delaware limited partnership.
"Unaudited Financial Statements" shall mean, for any Person, with respect
to any fiscal period, the unaudited balance sheet of such Person as of the last
day of such fiscal period, the related statements of income and cash flows for
such period and (in the case of any period which does not terminate on the last
day of a fiscal year) for the portion of the fiscal year ending with the last
day of such period, setting forth, in each case, in comparative form,
corresponding unaudited figures from the preceding fiscal year.
"Uniform Commercial Code" or "UCC" shall mean the Uniform Commercial Code
as the same may, from time to time, be in effect in the State of New York.
"Unrestricted Global Security" shall have the meaning given to that term in
Section 2.5.3.
"US Government Obligations" shall mean direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
(including any agency or instrumentality thereof) for the payment of which the
full faith and credit of the United States is pledged and which are not callable
at the issuer's option.
"U.S. Person" shall mean a "U.S. Person" within the meaning of Rule 902(o)
under the Securities Act.
"VPC" shall mean Vulcan Power Company, a Nevada corporation.
"VPC Geothermal" shall mean VPC Geothermal LLC, a Delaware limited
liability company.
"Vulcan" shall mean Vulcan/BN Geothermal Power Company, a Nevada general
partnership.
Appendix A-32
<PAGE>
"Vulcan Project" shall mean the 34 MW contract nameplate geothermal power
plant 50% owned by Vulcan, located in the Salton Sea Known Geothermal Resource
Area.
"Yield Maintenance Premium" shall mean an amount equal to the Discounted
Present Value calculated for any Security subject to redemption pursuant to
Article 3 less the unpaid principal amount of such Security; provided that the
Yield Maintenance Premium shall not be less than zero. For purposes of this
definition, the "Discounted Present Value" of any Security subject to redemption
pursuant to Article 3 shall be equal to the discounted present value of all
principal and interest payments scheduled to become due in respect of such
Security after the date of such redemption, calculated using a discount rate
equal to the sum of (i) the yield to maturity on the United States treasury
security having an average life equal to the remaining average life of such
Security and trading in the secondary market at the price closest to par and
(ii) fifty (50) basis points; provided, however, that if there is no United
States treasury security having an average life equal to the remaining average
life of such Security, such discount rate shall be calculated using a yield to
maturity interpolated or extrapolated on a straight-line basis (rounding to the
nearest Month, if necessary) from the yields to maturity for two (2) United
States treasury securities having average lives most closely corresponding to
the remaining average life of such Security and trading in the secondary market
at the price closest to par.
"Yuma" shall mean Yuma Cogeneration Associates, an Arizona general
partnership.
"Yuma Project" shall mean the 50 MW natural gas-fired combined cycle
cogeneration facility owned by Yuma, located in Yuma, Arizona.
"Yuma Note" shall mean the $47,700,000 Promissory Note, dated January 1,
1994, issued by Yuma in favor of CalEnergy.
"Zinc Facility" shall mean the 30,000 tons/year zinc recovery facility 100%
owned by Minerals LLC, located in the Salton Sea Known Geothermal Resource
Area.
<PAGE>
EXHIBIT 4.2
================================================================================
FORM OF FIRST SUPPLEMENTAL INDENTURE
dated as of October [__], 1999
to
INDENTURE
dated as of March 2, 1999
between
CE GENERATION, LLC
and
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION, as Trustee
================================================================================
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
This FIRST SUPPLEMENTAL INDENTURE, dated as of October [__], 1999 (this
"First Supplemental Indenture"), by and between CE GENERATION, LLC, a limited
liability company organized under the laws of the state of Delaware ("CE
Generation"), and CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION
(together with its successors in such capacity, the "Trustee").
WITNESSETH:
WHEREAS, CE Generation and the Trustee are parties to the Indenture,
dated as of March 2, 1999, such Indenture, as amended and supplemented by this
First Supplemental Indenture, is referred to herein as the "Indenture";
WHEREAS, pursuant to the Indenture CE Generation has issued
$400,000,000 7.416% Senior Secured Bonds Due December 15, 2018 (the "Initial
Securities"); and
WHEREAS, as contemplated by Section 8.1 of the Indenture and by the
Registration Rights Agreement, CE Generation will effect an Exchange Offer for
the Initial Securities pursuant to which CE Generation will offer to exchange
7.416% Senior Secured Bonds Due December 15, 2018 ("Exchange Securities") for a
like aggregate principal amount of the Initial Securities; and
WHEREAS, Section 8.1 of the Indenture permits CE Generation and the
Trustee to amend the Indenture, without the consent of any of the Holders, by a
supplemental indenture authorized by a resolution of the Board of Directors of
CE Generation filed with, and in a form satisfactory to, the Trustee, to provide
for the issuance of the Exchange Securities;
NOW THEREFORE, in order to establish the designation, form, terms and
provisions of, and to authorize the authentication and delivery of, said
Exchange Securities, and in consideration of the premises and the covenants
herein contained and of the acceptance of said Exchange Securities by the
Holders thereof and of other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, it is mutually covenanted and
agreed, for the benefit of the parties hereto and the equal and proportionate
benefit of all Holders of the Securities, as follows:
ARTICLE I
DEFINITIONS
For purposes of the Indenture, the following terms shall have the
meanings specified unless the context otherwise requires. Capitalized terms not
otherwise defined herein shall have the meanings set forth in the Indenture.
"Authorized Denomination" means (i) with respect to the Initial
Securities, $100,000 or any integral multiple of $1,000 in excess thereof, and
(ii) with respect to any other
1
<PAGE>
series of Securities, the denomination set forth in the relevant Supplemental
Indenture. In the event of a conflict between the provisions of a Security and
the relevant Indenture provisions, the Indenture provisions shall control.
"Exchange Offer Consummation Date" means the date on which Initial
Securities are exchanged for Exchange Securities pursuant to an Exchange Offer.
"Exchange Securities" means the Securities issued from time to time
with a face in the form of Exhibit A to this First Supplemental Indenture and
with terms and conditions in the form of Exhibit B to this First Supplemental
Indenture.
"Initial Securities" means the Securities issued from time to time with
a face in the form of Exhibit A to the Indenture and with terms and conditions
in the form of Exhibit B to the Indenture.
"Security" or "Securities" means any of the Initial Securities,
Additional Securities and Exchange Securities.
ARTICLE II
THE SECURITIES
SECTION 2.1 Forms of Securities. The Exchange Securities shall have
faces substantially as contained in the form of face of Securities set forth in
Exhibit A and shall contain substantially the terms recited in the form of terms
and conditions of Securities set forth in Exhibit B and each Exchange Security
shall have and be subject to such other terms as provided in the Indenture.
SECTION 2.2 Authorization and Terms of the Exchange Securities. (a) The
Exchange Securities to be issued under this First Supplemental Indenture are
hereby created. CE Generation may issue the Exchange Securities with faces in
the form of Exhibit A and with terms and conditions in the form of Exhibit B and
as definitive Securities pursuant to the terms of the Indenture governing
definitive Securities, upon the execution of this First Supplemental Indenture,
and on or prior to the Exchange Offer Consummation Date, CE Generation may
execute and deliver to the Trustee, and upon delivery of a written request by CE
Generation to the Trustee in accordance with the provisions of Section 2.9 of
the Indenture, the Trustee shall authenticate and deliver the Exchange
Securities to be issued in connection with the Exchange Offer. Such CE
Generation order shall specify the amount of the Exchange Securities to be
authenticated and the date on which such Securities are to be authenticated. The
aggregate principal amount of the Exchange Securities together with the Initial
Securities outstanding at any time may not exceed $400,000,000 except as
provided in the Indenture.
(b) The Exchange Securities shall be dated as of the Exchange
Offer Consummation Date, shall be issued in an aggregate principal amount up to
the aggregate principal amount set forth below and shall have a final maturity
date and bear interest as set forth below:
2
<PAGE>
Interest Rate Maturity Date Principal Amount
- ------------- ------------- ----------------
7.416% December 15, 2018 $400,000,000
(c) The principal of, premium (if any) and interest on the
Exchange Securities shall be payable in immediately available funds in such coin
or currency of the United States of America which, at the respective dates of
payment thereof, is legal tender for the payment of public and private debts.
Payment of principal of, premium (if any) and interest on the Exchange
Securities shall be made (i) by check or draft drawn on a bank having an office
located in the United States and mailed on the relevant Payment Date to the
registered owner as of the close of business on the Regular Record Date
immediately preceding such Payment Date, at his address as it appears on the
Securities Register or (ii) by wire transfer to such registered owner as of the
close of business on such Regular Record Date upon written notice of such wire
transfer address in the continental United States given not less than fifteen
(15) days prior to such Regular Record Date; provided, however, that if and to
the extent that there shall be a default in the payment of the interest or
principal due on such Payment Date, such defaulted interest, premium (if any)
and/or principal shall be paid to the Holder in whose name any such Security is
registered at the close of business on the Special Record Date determined by the
Trustee as provided in Section 2.4 of the Indenture.
(d) The Exchange Securities will bear interest at the rate of
7.416% per annum from the most recent date on which interest has been paid on
the Initial Securities or, if no interest has been paid on the Initial
Securities, from March 2, 1999. Interest on the Exchange Securities shall be
computed upon the basis of a 360-day year, consisting of twelve (12) thirty (30)
day months.
(e) Except to the extent that principal has been paid on the
Initial Securities prior to the Exchange Offer Consummation Date, principal of
the Exchange Securities shall be paid on the Payment Dates as set forth with
respect to the Exchange Securities on Schedule I hereto. The principal payable
on the Payment Dates on the Exchange Securities shall be equal to the product of
(i) the aggregate principal amount of Initial Securities that are exchanged for
Exchange Securities as of the applicable Regular Record Date divided by the
aggregate principal amount of Initial Securities originally issued by CE
Generation on March 2, 1999, multiplied by (ii) the principal amount payable in
accordance with Schedule I hereto on that date.
(f) The Authorized Denomination with respect to the Exchange
Securities shall be $1,000 or any integral multiple thereof.
SECTION 2.3 Terms of the Initial Securities. Principal of Initial
Securities not exchanged for Exchange Securities shall be paid on the Payment
Dates as set forth with respect to the Initial Securities on Schedule I of the
Indenture. The principal payable on the Payment Dates on the Initial Securities
shall be equal to the product of (i) the aggregate principal amount of the
Initial Securities that are not exchanged for Exchange Securities as of the
applicable Regular Record Date divided by the amount of the Initial Securities
originally issued by CE Generation on March 2, 1999, multiplied by (ii) the
principal amount payable in accordance with Schedule I of the Indenture on that
date.
3
<PAGE>
SECTION 2.4 Actions to be Taken. Reference to actions to be taken in
connection with any Securities means to both the Initial Securities and the
Exchange Securities.
SECTION 2.5 Exchange Offer. CE Generation will issue the Exchange
Securities in exchange for a like principal amount of outstanding Initial
Securities tendered and accepted in connection with an Exchange Offer. Holders
may tender their Initial Securities in whole or in part in a principal amount of
$1,000 and integral multiples thereof, provided that if any Initial Securities
are tendered for exchange in part, the untendered principal amount thereof must
be $100,000 or any integral multiple of $1,000 in excess thereof; provided,
however, that the Initial Securities so surrendered for exchange shall be duly
endorsed and accompanied by a letter of transmittal or written instrument of
transfer in form satisfactory to CE Generation, the Trustee and the Registrar,
duly executed by the Holder thereof or his attorney who shall be duly authorized
in writing to execute such document or by means of a message transmitted through
electronic means in form satisfactory to CE Generation. Whenever any Initial
Securities are so surrendered for exchange, CE Generation shall execute, and the
Trustee shall authenticate and deliver to the Registrar, Exchange Securities in
the same aggregate principal amount as the principal amount of Initial
Securities that have been surrendered.
ARTICLE III
ACTS OF HOLDERS
SECTION 3.1 Determination of Voting Rights. For purposes of the
Indenture all Holders of Initial Securities and Exchange Securities shall vote
together under the Indenture.
ARTICLE IV
AMENDMENTS
SECTION 4.1 Authorization and Terms of the Initial Securities. Section
2.2(c) of the Indenture is hereby amended by replacing the date "June 30, 1999"
is the third line thereof with the date "June 15, 1999".
SECTION 4.2 Indebtedness. Section 5.13 of the Indenture is hereby
amended by (a) deleting the word "and" from the end of paragraph (d) thereof,
(b) replacing the period (".") at the end of paragraph (e) thereof with a
semicolon (";") and (c) adding the following to the end thereof:
and (f) Indebtedness represented by the Exchange Securities.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 Execution of Supplemental Indenture. This First
Supplemental Indenture is executed and shall be construed as an indenture
supplemental to the Indenture and, as provided in the Indenture, this First
Supplemental Indenture forms a part thereof. Except as amended and supplemented
hereby, the Indenture (as constituted prior to the date hereof) shall remain in
full force and effect.
4
<PAGE>
SECTION 5.2 Concerning the Trustee. The Trustee shall not be
responsible in any manner for or with respect to the validity or sufficiency of
this First Supplemental Indenture, or the due execution hereof by CE Generation,
or for or with respect to the recitals and statements contained herein, all of
which recitals and statements are made solely by CE Generation.
SECTION 5.3 Counterparts. This First Supplemental Indenture may be
executed in any number of counterparts, each of which when so executed shall be
deemed to be an original; but all such counterparts shall together constitute
but one and the same instrument.
SECTION 5.4 GOVERNING LAW. THIS FIRST SUPPLEMENTAL INDENTURE AND EACH
SECURITY ISSUED HEREUNDER 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 (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS
LAW).
5
<PAGE>
IN WITNESS WHEREOF, CE Generation, LLC has caused this First
Supplemental Indenture to be executed and its corporate seal to be hereunto
affixed and attested by one of its duly authorized officers, and Chase Manhattan
Bank and Trust Company, National Association, has caused this First Supplemental
Indenture to be executed by one of its duly authorized officers, all as of the
day and year first above written.
CE GENERATION, LLC
By:
--------------------------------------
Name:
Title:
Attest:
- --------------------------------------
Title:
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION,
as Trustee
By:
--------------------------------------
Name:
Title:
6
<PAGE>
Schedule I to
First Supplemental Indenture
PRINCIPAL AMORTIZATION
Except to the extent that principal has been paid on the Initial
Securities prior to the Exchange Offer Consummation Date, principal of the
Exchange Securities Due December 15, 2018 will be payable on the Payment Dates
listed below in an amount equal to the product of (i) the aggregate principal
amount of Initial Securities that are exchanged for Exchange Securities as of
the applicable Regular Record Date divided by the aggregate principal amount of
Initial Securities originally issued by CE Generation on March 2, 1999,
multiplied by (ii) the principal amount payable in accordance with this
Schedule I:
Percentage of
Principal
Payment Date Amount Payable
- ------------ --------------
December 15, 1999................................................. 0.000%
June 15, 2000..................................................... 1.300%
December 15, 2000................................................. 1.300%
June 15, 2001..................................................... 1.575%
December 15, 2001................................................. 1.575%
June 15, 2002..................................................... 2.575%
December 15, 2002................................................. 2.575%
June 15, 2003..................................................... 2.250%
December 15, 2003................................................. 2.250%
June 15, 2004..................................................... 1.825%
December 15, 2004................................................. 1.825%
June 15, 2005..................................................... 1.850%
December 15, 2005................................................. 1.850%
June 15, 2006..................................................... 2.400%
December 15, 2006................................................. 2.400%
June 15, 2007..................................................... 2.250%
December 15, 2007................................................. 2.250%
June 15, 2008..................................................... 3.525%
December 15, 2008................................................. 3.525%
June 15, 2009..................................................... 3.075%
December 15, 2009................................................. 3.075%
June 15, 2010..................................................... 1.775%
December 15, 2010................................................. 1.775%
June 15, 2011..................................................... 1.900%
December 15, 2011................................................. 1.900%
June 15, 2012..................................................... 2.560%
December 15, 2012................................................. 2.560%
June 15, 2013..................................................... 2.550%
December 15, 2013................................................. 2.550%
1
<PAGE>
June 15, 2014..................................................... 3.225%
December 15, 2014................................................. 3.225%
June 15, 2015..................................................... 3.380%
December 15, 2015................................................. 3.380%
June 15, 2016..................................................... 3.660%
December 15, 2016................................................. 3.660%
June 15, 2017..................................................... 3.780%
December 15, 2017................................................. 3.780%
June 15, 2018..................................................... 4.545%
December 15, 2018................................................. 4.545%
2
<PAGE>
EXHIBIT A
FORM OF FACE OF SECURITY
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS HELD BY THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), OR A NOMINEE OF DTC. THIS SECURITY IS EXCHANGEABLE FOR
SECURITIES HELD BY A PERSON OTHER THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY
(OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY DTC TO A NOMINEE OF DTC OR
BY A NOMINEE OF DTC TO DTC OR ANOTHER NOMINEE OF DTC OR BY DTC OR ANY SUCH
NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY) MAY
BE MADE EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS GLOBAL SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC TO CE GENERATION OR ITS AGENT FOR EXCHANGE OR PAYMENT, AND
ANY DEFINITIVE SECURITY IS ISSUED IN THE NAME OR NAMES AS DIRECTED IN WRITING BY
DTC, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, DTC OR ITS
NOMINEE, HAS AN INTEREST HEREIN.
A-1
<PAGE>
CE GENERATION, LLC
7.416% Senior Secured Bonds Due December 15, 2018
No. [__________] CUSIP Number: [__________]
ISIN Number: [__________]
Principal Amount: $[___________]
Maturity Date: December 15, 2018
Issue Date: October [__], 1999
Interest Rate: 7.416%
Registered Holder: [_________]
CE GENERATION LLC, a Delaware limited liability company ("CE
Generation", which term includes any successor or assign under the Indenture
referred to below), for value received hereby promises to pay to [NAME OF
REGISTERED HOLDER], or its registered assigns, on each date (each a "Scheduled
Payment Date") the principal sum corresponding to such Scheduled Payment Date
set forth on Schedule I to the Indenture (reduced by the amount of principal, if
any, paid or due, or to be paid or to become due, on the Initial Securities (as
defined in the First Supplemental Indenture dated October [__], 1999)), or on
such earlier date as the entire principal hereof may become due in accordance
with the provisions hereof, and to pay interest in arrears on June 15 and
December 15 (each an "Interest Payment Date"), commencing June 15, 1999, on the
unpaid portion of the principal of this Security at the rate of 7.416% per
annum. Interest shall accrue from and including the most recent date to which
interest has been paid or duly provided for, from the date of the last interest
payment on the Initial Securities (as defined in the First Supplemental
Indenture dated October [__],1999) occurring prior to the issue date set forth
above or, if no interest has been paid on the Initial Securities (as defined in
the First Supplemental Indenture dated October [__], 1999), from March 2, 1999
until payment of said principal sum has been made or duly provided for. The
interest payable on any such Interest Payment Date will, subject to certain
conditions set forth herein, be paid to the person in whose name this Security
is registered at the end of the first day of the month, whether or not a
Business Day, immediately preceding such Interest Payment Date. Such payments
shall be made exclusively in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
The statements in the legend set forth above, if any, are an integral
part of the terms of this Security and by acceptance hereof the holder of this
Security agrees to be subject to and bound by the terms and provisions set forth
in such legend, if any.
REFERENCE IS MADE TO THE FURTHER PROVISIONS SET FORTH UNDER THE TERMS
AND CONDITIONS OF THE SECURITIES ENDORSED ON THE REVERSE HEREOF. SUCH FURTHER
PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH
AT THIS PLACE.
A-2
<PAGE>
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
A-3
<PAGE>
IN WITNESS WHEREOF, CE Generation has caused this instrument to be duly
executed.
Dated: ___________
CE GENERATION, LLC
By:
---------------------------------
Name:
Title:
This is one of the Securities described in the within-mentioned
Indenture.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION,
as Trustee
By:
---------------------------------
Authorized Officer
A-4
<PAGE>
EXHIBIT B
FORM OF TERMS AND CONDITIONS OF SECURITIES
Principal Amount: $[__________]
Interest Rate: 7.416%
Payment Dates: June 15 and December 15
(commencing June 15, 1999)
Minimum Denominations: US$1,000 and any integral multiple thereof
Other Terms:
1. General. This Security is one of a duly authorized issue of debt
securities (the "Securities") of CE Generation, LLC ("CE Generation") issued
pursuant to an Indenture, dated as of March 2, 1999, as supplemented by the
First Supplemental Indenture dated as of October [__], 1999 (as so supplemented
and as the same may be further amended, modified or supplemented from time to
time, the "Indenture"), each between CE Generation and Chase Manhattan Bank and
Trust Company, National Association, as trustee ("Trustee"). All capitalized
terms used but not otherwise defined herein shall have the meanings given to
such terms in Appendix A to the Indenture. The holders of the Securities will be
entitled to the benefits of, be bound by, and be deemed to have notice of, all
of the provisions of the Indenture. A copy of the Indenture is on file and may
be inspected at the corporate trust office of the Trustee in San Francisco,
California, at the offices of the paying agents listed at the foot of this
Security and at the principal office of CE Generation set forth in Section 17
hereto.
2. Payments and Paying Agencies. (a) All payments on this Security
shall be made exclusively in immediately available funds and in such coin or
currency of the United States of America which, at the time of payment, is legal
tender for the payment of public and private debts.
(b) The Person in whose name any Security is registered at the close of
business on any Regular Record Date with respect to any Scheduled Payment Date
shall be entitled to receive the principal, premium (if any) and/or interest
payable on such Scheduled Payment Date notwithstanding the cancellation of such
Security upon any transfer or exchange thereof subsequent to such Regular Record
Date and prior to such Scheduled Payment Date; provided, however, that if and to
the extent there is a default in the payment of the principal, premium (if any)
and/or interest due on such Scheduled Payment Date, such defaulted principal,
premium (if any) and/or interest shall be paid to the Persons in whose names
Outstanding Securities are registered at the close of business on a subsequent
date (each such date, a "Special Record Date"), which shall not be less than
five (5) days preceding the date of payment of such defaulted principal, premium
(if any) and/or interest, established by a notice mailed by the Trustee to the
registered owners of the Securities in accordance with Section 12.5(b) of the
Indenture not less than fifteen (15) days prior to the Special Record Date.
Exhibit B-1
<PAGE>
(c) If any date for the payment of principal of, premium (if any) or
interest on the Securities is not a Business Day, such payment shall be due on
the first Business Day thereafter. Any payment made on such next succeeding
Business Day shall have the same force and effect as if made on the date on
which such payment is due, and no interest shall accrue for the period after
such date.
(d) Interest shall be calculated on the basis of a 360-day year of
twelve 30-day months.
3. Amendments and Supplements to Indenture.
(a) Without Consent of Holders. The Indenture may be amended or
supplemented by CE Generation and the Trustee at any time and from time to time,
without the consent of the Holders, by a Supplemental Indenture authorized by a
resolution of the Board of Directors of CE Generation filed with, and in form
satisfactory to, the Trustee, solely for one or more of the following purposes:
(i) to add additional covenants of CE Generation, to surrender any
right or power therein conferred upon CE Generation or to confer upon
the Holders any additional rights, remedies, benefits, powers or
authorities that may lawfully be conferred;
(ii) to increase the assets securing CE Generation's obligations
under the Indenture;
(iii) to provide for the issuance of Additional Securities on the
conditions set forth in Section 2.3 of the Indenture;
(iv) for any purpose not inconsistent with the terms of the
Indenture to cure any ambiguity or to correct or supplement any
provision contained therein or in any Supplemental Indenture which may
be defective or inconsistent with any other provision contained therein
or in any Supplemental Indenture;
(v) in connection with, and to reflect, any amendments to the
provisions hereof required by the Rating Agencies in circumstances
where confirmation of the Ratings is required under the Indenture in
connection with the issuance of Additional Securities or the taking of
other actions by CE Generation; provided, however, that such amendments
are not, in the judgment of the Trustee, to the prejudice of the
Trustee or the Holders; or
(vi) to provide for the issuance of Exchange Securities, as
contemplated by the Registration Rights Agreement.
(b) With Consent of Holders. The Indenture may be amended or
supplemented by CE Generation and the Trustee at any time and from time to time,
with the consent of the Majority Holders, for the purpose of adding any mutually
agreeable provisions to, or changing in any manner or eliminating any of the
provisions of, the Indenture, except with respect to (a) the principal, premium
(if any) or interest payable upon any Securities, (b) the
Exhibit B-2
<PAGE>
dates on which interest on or principal of any Securities is paid, (c) the dates
of maturity of any Securities and (d) Article 8 of the Indenture. The matters of
the Indenture described in clauses (a) through (d) of the preceding sentence may
be amended or supplemented by CE Generation and the Trustee at any time and from
time to time only with the consent of the One Hundred Percent Holders. Notice of
any such amendment shall be given by CE Generation to any Rating Agency then
maintaining a Rating for the Securities.
4. Replacement, Exchange and Transfer of Securities. (a) If any
Security shall become mutilated, CE Generation shall execute, and the Trustee
shall authenticate and deliver, a new Security of like tenor, maturity and
denomination in exchange and substitution for the Security so mutilated, but
only upon surrender to the Trustee of such mutilated Security for cancellation,
and CE Generation or the Trustee may require reasonable indemnity therefor. If
any Security shall be reported lost, stolen or destroyed, evidence as to the
ownership and the loss, theft or destruction thereof shall be submitted to the
Trustee. If such evidence shall be satisfactory to both the Trustee and CE
Generation and indemnity satisfactory to both shall be given, CE Generation
shall execute, and thereupon the Trustee shall authenticate and deliver, a new
Security of like tenor, maturity and denomination. The cost of providing any
substitute Security under the provisions of Section 2.10 of the Indenture shall
be borne by the Holder for whose benefit such substitute Security is provided.
If any such mutilated, lost, stolen or destroyed Security shall have matured or
be about to mature, CE Generation may, with the consent of the Trustee, pay to
the Holder thereof the principal amount of such Security upon the maturity
thereof and compliance with the aforesaid conditions by such Holder, without the
issuance of a substitute Security therefor, and likewise pay to the Holder the
amount of the unpaid interest, if any, which would have been paid on a
substitute Security had one been issued.
(b) Every substitute Security issued pursuant to Section 2.10 of the
Indenture shall constitute an additional contractual obligation of CE
Generation, whether or not the Security alleged to have been mutilated,
destroyed, lost or stolen shall be at any time enforceable by anyone, and shall
be entitled to all the benefits of this Indenture equally and proportionally
with any and all other Securities duly issued hereunder.
(c) All Securities shall be held and owned upon the express condition
that the foregoing provisions are, to the extent permitted by Applicable Law,
exclusive with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Securities, and shall preclude any and all other rights and
remedies with respect thereto.
5. Trustee. For a description of the duties and the immunities and
rights of the Trustee under the Indenture, reference is made to the Indenture,
and the obligations of the Trustee to the holder hereof are subject to such
immunities and rights.
6. Paying Agents; Transfer Agents; Registrars. CE Generation has
initially appointed the Trustee as paying agent, transfer agent and registrar.
CE Generation may, subject to the terms of the Indenture, at any time appoint
additional or other paying agents, transfer agents and registrars and terminate
the appointment thereof; provided that while the Securities are Outstanding CE
Generation will maintain offices or agencies for payment of principal of and
interest on this Security as herein provided in the Borough of Manhattan, the
City of New York. Notice of any such termination or appointment and of any
change in the office through which
Exhibit B-3
<PAGE>
any paying agent, transfer agent or registrar will act will be promptly given in
the manner described in Section 8 hereof.
7. Enforcement. (a) Subject to the Intercreditor Agreement and the
provisions of Article 6 of the Indenture, a Holder shall not have the right to
institute any suit, action or proceeding at law or in equity or otherwise for
the appointment of a receiver or for the enforcement of any other remedy under
or upon the Indenture, unless:
(i) such Holder shall have previously given written notice to the
Trustee of a continuing Event of Default;
(ii) Holders representing the percentage of aggregate principal
amount of Outstanding Securities needed to initiate the exercise of remedies
shall have requested the Trustee in writing to institute such suit, action
or proceeding;
(iii) the Trustee shall have refused or neglected to institute any
such suit, action or proceeding for sixty (60) days after receipt of such
notice by the Trustee; and
(iv) no direction inconsistent with such written request has been
given to the Trustee during such sixty (60) day period by the Majority
Holders.
(b) Subject to the Intercreditor Agreement, it is understood and
intended that one or more of the Holders shall not have any right in any manner
whatsoever hereunder or under the Indenture to (i) surrender, impair, waive,
affect, disturb or prejudice the Lien of the Security Documents on any property
subject thereto or the rights of any other Holders, (ii) obtain or seek to
obtain priority or preference over any other Holders or (iii) enforce any right
hereunder or under the Indenture, except in the manner provided herein or in the
Indenture and for the equal, ratable and common benefit of all of the Holders.
8. Notices. Notices will be mailed to Holders at their addresses as
they appear in the Securities Register. Notice sent by first class mail, postage
prepaid, shall be deemed to have been given on the date of such mailing. In
addition, CE Generation will cause all such other publications of such notices
as may be required from time to time by Applicable Law.
9. Redemption at the Option of CE Generation. The Securities are, under
certain conditions, subject to redemption at the option of CE Generation as set
forth in Section 3.1 of the Indenture.
10. Mandatory Redemption. The Securities are subject to mandatory
redemption under certain circumstances as set forth in Section 3.2 of the
Indenture.
11. Authentication. This Security shall not be valid for any purpose
until an Authorized Representative of the Trustee manually signs the certificate
of authentication hereon substantially in the form set forth in Exhibit A to the
Indenture.
Exhibit B-4
<PAGE>
12. Governing Law. THIS SECURITY IS A CONTRACT MADE UNDER THE LAWS OF
THE STATE OF NEW YORK OF THE UNITED STATES AND SHALL FOR ALL PURPOSES BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE WITHOUT
REGARD TO THE CONFLICT OF LAW RULES THEREOF (OTHER THAN SECTION 5-1401 OF THE
NEW YORK GENERAL OBLIGATIONS LAW).
13. Warranty by Issuer. Subject to Section 11, CE Generation hereby
certifies and warrants that all acts, conditions and things required to be done
and performed and to have happened precedent to the creation and issuance of
this Security, and to constitute the same a legal, valid and binding obligation
of CE Generation enforceable in accordance with its terms, have been done and
performed and have happened in due and strict compliance with all Applicable
Laws.
14. Trustee Dealings with CE Generation. Subject to certain limitations
imposed by the Securities Act, the Trustee under the Indenture, in its
individual or any other capacity, may become the owner or pledgee of Securities
and may otherwise deal with and collect obligations owed to it by CE Generation
or its Affiliates and may otherwise deal with CE Generation or its Affiliates
with the same rights it would have if it were not Trustee.
15. No Recourse Against Others. A director, officer, employee, partner,
member, affiliate, agent, servant or stockholder, as such, of CE Generation or
the Trustee shall not have any liability for any obligations of CE Generation
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. By accepting a Security,
each Holder waives and releases all such liability. Such waiver and release are
part of the consideration for the issue of the Securities.
16. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, CE Generation has
caused CUSIP numbers to be printed on the Securities and has directed the
Trustee to use CUSIP numbers in notices of redemption as a convenience to
Security holders. No representation is made as to the accuracy of such numbers
either as printed on the Securities or as contained in any notice of redemption.
17. Indentures. CE Generation will furnish to any Holder upon written
request and without charge a copy of the Indenture. Requests may be made to: CE
Generation, LLC, 302 South 36th Street, Suite 400, Omaha, Nebraska 68131,
Attention: General Counsel.
18. 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 Rights of Survivorship and not as
Tenants in Common), CUST (Custodian), and U/G/M/A (Uniform Gift to Minors Act).
19. Descriptive Headings. The descriptive headings appearing in these
Terms and Conditions are for convenience of reference only and shall not alter,
limit or define the provisions thereof.
Exhibit B-5
<PAGE>
EXHIBIT 4.3
$400,000,000
CE GENERATION LLC
$400,000,000 7.416% Senior Secured Bonds Due December 15, 2018
PURCHASE AGREEMENT
------------------
February 24, 1999
Credit Suisse First Boston Corporation
Lehman Brothers Inc.
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010
Dear Sirs:
1. Introductory. CE Generation LLC, a Delaware limited liability company
("CE Generation"), proposes, subject to the terms and conditions stated herein,
to issue and sell to Credit Suisse First Boston Corporation ("CSFB") and Lehman
Brothers Inc., as initial purchasers (the "Purchasers"), U.S.$400,000,000
principal amount of its 7.416% Senior Secured Bonds Due December 15, 2018 (the
"Securities"), to be issued under an Indenture dated as of March 2, 1999 (the
"Indenture"), by and between CE Generation and Chase Manhattan Bank and Trust
Company, as trustee (the "Trustee"). Capitalized terms used herein without being
defined herein shall have the meanings ascribed to such terms in the Indenture,
a form of which is attached hereto as Appendix A. CE Generation hereby agrees
with the Purchasers as follows:
2. Representations and Warranties of CE Generation. CE Generation represents
and warrants to, and agrees with, the Purchasers that:
(a) CE Generation has prepared a preliminary offering circular dated
February 18, 1999 (as it may be amended or supplemented, the "Preliminary
Offering Circular") and a final offering circular dated February 24, 1999 (as it
may be amended or supplemented, the "Final Offering Circular") relating to the
Securities. Copies of the Preliminary Offering Circular and the Final Offering
Circular have been delivered by CE Generation to the Purchasers. The Preliminary
Offering Circular was on the date thereof accurate in all material respects and
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
1
<PAGE>
statements therein, in the light of the circumstances under which they were
made, not misleading; and the Final Offering Circular is as of its date (and any
amendment or supplement thereto will be as of its date) accurate in all material
respects and does not (and will not) contain any 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; provided that CE Generation makes no representation or warranty as
to information contained in or omitted from the Preliminary Offering Circular or
the Final Offering Circular in reliance upon and in conformity with written
information furnished to CE Generation by any Purchaser through CSFB
specifically for inclusion therein, it being understood and agreed that the only
such information is that described as such in Section 7(b) hereof.
(b) CE Generation has been duly organized and is validly existing as a
limited liability company in good standing under the laws of the State of
Delaware, and is duly qualified to do business and is in good standing as a
foreign limited liability company in each jurisdiction in which its ownership or
lease of property or in which the conduct of its business requires such
qualification, except where the failure to so qualify would not have a material
adverse effect on CE Generation and the other Transaction Parties (as defined
below), taken as a whole. CE Generation has all necessary power and authority to
own or lease its properties and to conduct the business in which it is engaged
as described in the Final Offering Circular. All of the outstanding membership
interests in CE Generation are owned by CalEnergy Company, Inc. ("CalEnergy"),
free and clear of any claim, Lien, encumbrance or agreement, except as
contemplated by the Operative Documents. CE Generation owns, directly or
indirectly, all of the outstanding capital stock of each of the Assignors, free
and clear of any claim, Lien, encumbrance or agreement, except as contemplated
by the Operative Documents.
(c) Each of CE Generation and each Assignor (each such Person, a
"Transaction Party") has all power and authority necessary to execute and
deliver the documents listed on Schedule II hereto (the "Operative Documents")
to which it is a party and perform its obligations thereunder; each of the
Operative Documents to which any Transaction Party is a party has been or on the
Closing Date (as hereinafter defined) will have been duly authorized, executed
and delivered by such party or parties thereto and constitutes the legal, valid
and binding obligation of such party or parties, subject to the qualification
that the enforceability of such party's or parties' obligations thereunder may
be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally and by general
principles of equity and except as rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or principles of
public policy; the execution, delivery and performance by each Transaction Party
of each of the Operative Documents to which it is a party and its compliance
with the provisions thereof will not breach or (except as contemplated by the
Operative Documents) result in the creation or imposition of any
2
<PAGE>
lien, charge or encumbrance upon any asset which is material to CE Generation
and the other Transaction Parties, taken as a whole (a "Material Asset"),
pursuant to the terms of, or constitute a breach of, or default under, the
certificate of formation or operating agreement of CE Generation or the
corporate charter or bylaws of the other Transaction Parties or any agreement,
indenture (including, without limitation, the Indenture) or other instrument to
which any of the Transaction Parties is a party or by which any of the
Transaction Parties is bound (in each case which is material to CE Generation
and the other Transaction Parties, taken as a whole) or to which any Material
Asset is subject, or any law, order, rule, regulation, judgment or decree of any
court or governmental agency having jurisdiction over the Transaction Parties or
any Material Asset of the Transaction Parties; and, except as completed on or
prior to the Closing Date (as hereinafter defined) or as required by applicable
state securities laws, no consent, authorization or order of, or filing or
registration by any Transaction Party with, any court, governmental agency or
third party is required in connection with the execution, delivery and
performance of each of the Operative Documents to which any Transaction Party is
a party.
(d) No Transaction Party is in violation of its certificate of
formation or operating agreement, or its certificate of incorporation or bylaws,
as the case may be. Except as described in the Final Offering Circular, none of
the Transaction Parties, any Intermediate Holding Company, any Project Company
or any Project Holding Company (any such Person, a "Subject Company") (i) is in
default, and no event has occurred which, with notice or lapse of time or both,
would constitute a default by any Subject Company, in the due performance and
observance of any material term, representation, covenant or condition contained
in any lease, license, indenture, mortgage, deed of trust, note, bank loan or
other evidence of indebtedness or any other agreement, understanding or
instrument to which such Subject Company is a party or by which such Subject
Company or any asset of such Subject Company is bound, which default would have
a material adverse effect on the financial condition, business or results of
operations of CE Generation and the other Transaction Parties, taken as a whole,
or (ii) is in violation of any applicable law, ordinance, governmental rule or
regulation or court decree to which it may be subject, which violation would
have a material adverse effect on the financial condition, business or results
of operations of any Subject Company, which would in turn be reasonably likely
to have a material adverse effect on the financial condition, business or
results of operations of CE Generation and the other Transaction Parties, taken
as a whole.
(e) Except as described in or contemplated by the Final Offering
Circular, each Subject Company (i) has properly obtained each license, permit,
certificate, franchise or other governmental authorization necessary to the
ownership of its property or to the conduct of its business as described in the
Final Offering Circular, and (ii) is in compliance with all terms and conditions
of each such license, permit, certificate, franchise or other governmental
authorization, except (x) in either case where the failure to
3
<PAGE>
do so could not have a material adverse effect on the financial condition,
business or results of operations of CE Generation and the other Transaction
Parties, taken as a whole, (y) permits, consents and approvals that may be
required for future drilling or operating activities which are ordinarily deemed
to be ministerial in nature and which are anticipated to be obtained in the
ordinary course and (z) permits, consents and approvals for developmental or
construction activities which have not yet been obtained but which have been or
will be applied for in the course of development or construction and which are
anticipated to be obtained in the ordinary course.
(f) Except as described in or contemplated by the Final Offering
Circular, the Subject Companies hold good and valid title to, or valid and
enforceable leasehold or contractual interests in, all items of real and
personal property which are material to the business of CE Generation and the
other Transaction Parties, taken as a whole, free and clear of all liens,
encumbrances and claims which would materially interfere with the conduct of the
business of CE Generation and the other Transaction Parties, taken as a whole,
as described in the Final Offering Circular. Each Subject Company is presently
conducting its business as described in the Final Offering Circular and in
compliance with all applicable laws, rules and regulations, except where the
failure to do so could not have a material adverse effect on the financial
condition, business or results of operations of CE Generation or the other
Transaction Parties, taken as a whole.
(g) Deloitte & Touche LLP, whose report appears in the Final Offering
Circular, is and was, during the period covered by such report, independent with
respect to CE Generation within the meaning of the Securities Exchange Act of
1934, as amended, and the applicable rules and regulations thereunder (the
"Exchange Act").
(h) The Securities have been validly authorized and, when executed by
the proper officers of CE Generation (assuming the due authorization, execution
and delivery thereof by the Trustee) and delivered by CE Generation, will
constitute the legal, valid and binding obligation of CE Generation entitled to
the benefits of the Indenture, except as the enforceability thereof may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally and by general principles of equity. The summary descriptions
contained in the Final Offering Circular of the Securities, the Indenture and
the other Operative Documents conform in all material respects to these
documents.
(i) The execution and delivery of each of the Security Documents to
which the any Transaction Party is a party or will be a party on the Closing
Date (as hereinafter defined) is or will be effective to create in favor of the
Collateral Agent for the benefit of the Secured Parties, 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 filing of the UCC-1 financing statements
4
<PAGE>
naming the Transaction Parties as debtors and the Collateral Agent as secured
party (the "Financing Statements"), such security interests granted by the
Transaction Parties will have the priority purported to be created by such
Security Documents. The Financing Statements on the Closing Date (as hereinafter
defined) 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 create and perfect the lien and security interest described above.
(j) The Transaction Parties will own all of the Collateral on the
Closing Date (as hereinafter defined), free and clear of any Liens other than
Permitted Liens and Permitted Assignor Liens, as the case may be.
(k) Except as described in the Final Offering Circular, there is no
litigation or proceeding pending before or by any court or governmental agency,
authority or body or any arbitrator, or, to the knowledge of CE Generation,
threatened, to which any Subject Company is a party or of which any Material
Asset of any Subject Company is the subject, including, without limitation, any
audit by the Internal Revenue Service of the federal income tax returns of such
Subject Company, which, if an adverse decision were reached, would be likely to
have a material adverse effect on (x) the financial condition, business or
results of operations of CE Generation and the other Transaction Parties, taken
as a whole, or (y) the ability of CE Generation or any other Transaction Party
to perform in any material respect its material obligations under the
Transaction Documents to which it is a party.
(l) The financial statements (including the related notes) included on
pages F-1 through F-18 in the Final Offering Circular present fairly the
financial condition, results of operations and changes in financial position of
the entities purported to be shown thereby, at the dates and for the periods
indicated, and, except as otherwise described in the Final Offering Circular,
have been prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved, and the
capitalization of CE Generation, as set forth in the column labeled "Actual"
under the caption "CAPITALIZATION" in the Final Offering Circular, is accurately
described as of the date presented therein.
(m) Except as disclosed in the Final Offering Circular, since the date
of the latest audited financial statements included in the Final Offering
Circular there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the financial condition,
business or results of operations of CE Generation and the other Transaction
Parties, taken as a whole.
(n) The factual information provided by CE Generation to Fluor Daniel,
Inc. (the "Power Generation Projects Independent Engineer" and the "Geothermal
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Projects Independent Engineer"), R.W. Beck, Inc. (the "Natural Gas Projects
Independent Engineer"), Henwood Energy Services, Inc. (the "Power Market
Consultant") and GeothermEx, Inc. (the "Geothermal Resource Consultant") in the
preparation of their reports set forth at Appendices B, C, D, E and F to the
Final Offering Circular (which factual information is referenced in such report)
was provided in good faith; provided that the foregoing does not imply or
express any representation or warranty by CE Generation as to the accuracy of
the projections or conclusions contained in such report and does not constitute
any obligation to update such reports.
(o) No labor problem or disturbance exists with respect to Persons
employed in connection with the Projects, or is threatened which might
reasonably be expected to have a material adverse effect on the financial
condition, business or results of operations of CE Generation and the other
Transaction Parties, taken as a whole.
(p) Neither CE Generation nor any of its Affiliates nor (assuming the
accuracy of the representations of the Purchasers set forth herein) any Person
acting on their behalf has made offers or sales of securities under
circumstances that would require the registration of the Securities under the
Securities Act of 1933, as amended (the "Securities Act").
(q) The Securities meet the eligibility requirements of Rule 144A(d)(3)
under the Securities Act.
(r) CE Generation is not an open-end investment company, unit
investment trust or face-amount certificate company that is or is required to be
registered under Section 8 of the Investment Company Act of 1940, as amended
(the "Investment Company Act"), nor is it a closed-end investment company
required to be registered, but not registered, thereunder; and CE Generation is
not and, after giving effect to the offering and sale of the Securities and the
application of the proceeds thereof as described in the Final Offering Circular,
will not be, an "investment company" as defined in the Investment Company Act.
(s) No securities of the same class (within the meaning of Rule
144A(d)(3) under the Securities Act) as the Securities are listed on any
national securities exchange registered under Section 6 of the Securities
Exchange Act of 1934 ("Exchange Act") or quoted in a U.S. automated inter-dealer
quotation system.
(t) Assuming the accuracy of the representations of the Purchasers
herein, the offer and sale of the Securities in the manner contemplated by this
Agreement will be exempt from the registration requirements of the Securities
Act by reason of Section 4(2) thereof, Rule 144A thereunder and Regulation S
thereunder; and it is not necessary to
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qualify an indenture in respect of the Securities under the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act").
(u) Assuming the accuracy of the representations of the Purchasers
herein, neither CE Generation nor any of its Affiliates, nor any Person acting
on their behalf (i) has, within the six-month period prior to the date hereof,
offered or sold in the United States or to any U.S. Person (as such terms are
defined in Regulation S under the Securities Act) the Securities or any security
of the same class or series as the Securities or (ii) has offered or will offer
or sell the Securities (A) in the United States by means of any form of general
solicitation or general advertising within the meaning of Rule 502(c) under the
Securities Act or (B) with respect to any such securities sold in reliance on
Rule 903 of Regulation S ("Regulation S") under the Securities Act, by means of
any directed selling efforts within the meaning of Rule 902(b) of Regulation S.
Assuming the accuracy of the representations of the Purchasers herein, CE
Generation and any Person acting on its behalf have complied and will comply
with the offering restrictions requirement of Regulation S.
(v) The proceeds to CE Generation from the offering of the Securities
will not be used to purchase or carry any security, except as contemplated in
the Final Offering Circular.
(w) Each of the Projects is either (i) a "Qualifying Facility," as such
term is defined pursuant to the Public Utility Regulatory Policies Act of 1978,
as amended, and the regulations promulgated thereunder, or (ii) an "Eligible
Facility" that is owned by an "Exempt Wholesale Generator," as such terms are
defined pursuant to the Public Utility Holding Company Act of 1935, as amended.
Neither CE Generation nor any other Subject Company will, solely as a result of
the participation by the parties separately or as group in the transactions
contemplated by the Transaction Documents and the ownership, use or operation of
the Projects, 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
Applicable Law (including, without limitation, rules and regulations of the
Public Utility Holding Company Act of 1935 (other than Section 9(a)(2) thereof),
the Federal Power Act of 1920 and the Public Utility Regulatory Policies Act of
1978, each as amended).
(x) CE Generation is not a "party in interest" or a "disqualified
person" (within the meaning of Section 4975 of the Internal Revenue Code of
1986, as amended) with respect to any "employee benefit plan" (within the
meaning of Section 3(3) of the ERISA).
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(y) The proceeds from the sale of Securities will be utilized by CE
Generation as described under the section of the Final Offering Circular titled
"Use of Proceeds."
3 Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, CE Generation agrees to sell to the
Purchasers, and the Purchasers agree, severally and not jointly, to purchase
from CE Generation, at a purchase price of 99.125% of the principal amount of
the Securities, plus accrued interest from March 2, 1999 to the Closing Date (as
hereinafter defined), the respective principal amounts of the Securities set
forth opposite the names of the Purchasers on Schedule I.
CE Generation will deliver against payment of the purchase price the
Securities in the form of one or more permanent global Securities in definitive
form (the "Global Securities") deposited with the Trustee as custodian for The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
nominee for DTC. Interests in any permanent global Securities will be held only
in book-entry form through DTC, except in the limited circumstances described in
the Final Offering Circular. Payment for the Securities shall be made by the
Purchasers in Federal (same day) funds by official check or checks or wire
transfer to an account in New York previously designated to CSFB by CE
Generation drawn to the order of CE Generation at the office of Skadden, Arps,
Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022 at 10:00
a.m. (New York time), on March 2, 1999, or at such other time not later than
seven (7) full business days thereafter as CSFB and CE Generation determine,
such time being herein referred to as the "Closing Date", against delivery to
the Trustee as custodian for DTC of the Global Securities representing all of
the Securities. The Global Securities will be made available for checking at the
above offices of Skadden, Arps, Slate, Meagher & Flom LLP at least twenty-four
(24) hours prior to the Closing Date.
Notwithstanding the foregoing, any Securities sold to Institutional
Accredited Investors (as hereinafter defined) pursuant to Section 4(c) shall be
issued in definitive, fully registered form and shall bear the legend relating
thereto set forth under "TRANSFER RESTRICTIONS" in the Final Offering Circular,
but shall be paid for in the same manner as any Securities to be purchased by
the Purchasers hereunder and to be offered and sold by it in reliance on Rule
144A under the Securities Act.
4 Representations by Purchasers; Resale by Purchasers.
(a) Each Purchaser severally represents and warrants to CE Generation
that it is an "accredited investor" within the meaning of Regulation D under the
Securities Act.
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(b) Each Purchaser severally acknowledges that the Securities have not
been registered under the Securities Act and may not be offered or sold within
the United States or to, or for the account or benefit of, U.S. Persons except
in accordance with Regulation S or pursuant to an exemption from the
registration requirements of the Securities Act. Each Purchaser severally
represents and agrees that it has offered and sold the Securities, and will
offer and sell the Securities only in accordance with Rule 903 under the
Securities Act or Rule 144A under the Securities Act ("Rule 144A") or to a
limited number of Institutional Accredited Investors in accordance with clause
(c) of this Section 4. Accordingly, neither such Purchaser nor its Affiliates,
nor any Persons acting on its or their behalf, have engaged or will engage in
any directed selling efforts with respect to the Securities, and such Purchaser,
its Affiliates and all Persons acting on its or their behalf have complied and
will comply with the offering restrictions requirement of Regulation S and Rule
144A.
(c) Each Purchaser may offer and sell Securities in definitive, fully
registered form to a limited number of institutions, each of which is reasonably
believed by such Purchaser to be an "accredited investor" within the meaning of
Rule 501(a)(1), (2) or (3) under the Securities Act or an entity in which all of
the equity owners are accredited investors within the meaning of Rule 501(a)(1),
(2) or (3) under the Securities Act (each an "Institutional Accredited
Investor"); provided that each such Institutional Accredited Investor executes
and delivers to such Purchaser and CE Generation, prior to the consummation of
any sale of Securities to such Institutional Accredited Investor, a Purchaser's
Letter in substantially the form attached to the Final Offering Circular as
Annex G (a "Purchaser's Letter").
(d) Each Purchaser severally agrees that neither it nor any of its
Affiliates has entered into or will enter into any contractual arrangement with
respect to the distribution of the Securities except for any such arrangements
with the prior written consent of CE Generation.
(e) Each Purchaser severally agrees that neither it nor any of its
Affiliates has offered or sold the Securities or will offer or sell the
Securities in the United States by means of any form of general solicitation or
general advertising within the meaning of Rule 502(c) under the Securities Act,
including, but not limited to (i) any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio, or (ii) any seminar or meeting whose attendees have
been invited by any general solicitation or general advertising. Each Purchaser
severally agrees, with respect to resales made in reliance on Rule 144A of any
of the Securities, to deliver either with the confirmation of such resale or
otherwise prior to settlement of such resale a notice to the effect that the
resale of such Securities has been made in reliance upon the exemption from the
registration requirements of the Securities Act provided by Rule 144A.
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(f) Each Purchaser severally represents and agrees that (i) it has not
offered or sold and prior to the date six (6) months after the date of issue of
the Securities will not offer or sell any Securities to Persons in the United
Kingdom except to Persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the
Securities in, from or otherwise involving the United Kingdom; and (iii) it 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 Securities to a
Person who is of the kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a Person to
whom such document may otherwise lawfully be issued or passed on.
5 Certain Agreements of CE Generation. CE Generation agrees with the several
Purchasers that:
(a) CE Generation will advise CSFB promptly of any proposal to amend or
supplement the Final Offering Circular and will not effect such amendment or
supplementation without CSFB's consent. If at any time prior to the completion
of the resale of the Securities by the Purchasers any event occurs as a result
of which the Final Offering Circular as then amended or supplemented would
include an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, CE Generation promptly
will notify CSFB of such event and promptly will prepare, at its own expense, an
amendment or supplement which will correct such statement or omission. Neither
CSFB's consent to, nor the Purchasers' delivery to offerees or investors of, any
such amendment or supplement shall constitute a waiver of any of the conditions
set forth in Section 6 hereof.
(b) CE Generation will furnish to CSFB copies of the Preliminary
Offering Circular, the Final Offering Circular and all amendments and
supplements to such documents, in each case as soon as available and in such
quantities as CSFB reasonably requests, and CE Generation will furnish to CSFB
on the date hereof three (3) copies of the Final Offering Circular signed by a
duly authorized officer of CE Generation. At any time when CE Generation is not
subject to Section 13 or 15(d) of the Exchange Act, CE Generation will promptly
furnish or cause to be furnished to the Purchasers and, upon request of holders
and prospective purchasers of the Securities, to such holders and prospective
purchasers, copies of the information required to be
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delivered to holders and prospective purchasers of the Securities pursuant to
Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) in
order to permit compliance with Rule 144A in connection with resales by such
holders of the Securities. CE Generation will pay the expenses of printing and
distributing to the Purchasers and such holders and prospective purchasers all
such documents.
(c) CE Generation will arrange for the qualification of the Securities
for sale and the determination of their eligibility for investment under the
Applicable Laws of such jurisdictions in the United States and Canada as CSFB
designates and will continue such qualifications in effect so long as required
for the resale of the Securities by the Purchasers; provided that CE Generation
will not be required to qualify as a foreign corporation or to file a general
consent to service of process in any such jurisdiction.
(d) During the period of five (5) years hereafter, CE Generation will
furnish to the Purchasers, as soon as available after the end of each fiscal
year, a copy of its annual audited consolidated financial statements.
(e) During the period of two (2) years after the Closing Date, CE
Generation will, upon request, furnish to the Purchasers and any holder or
beneficial owner of Securities a copy of the restrictions on transfer applicable
to the Securities.
(f) During the period of two (2) years after the Closing Date, CE
Generation will not, and will not permit any of their Affiliates (as defined in
Rule 144 under the Securities Act) to, resell any of the Securities that have
been reacquired by any of them.
(g) During the period of two (2) years after the Closing Date, CE
Generation will not be or become an open-end investment company, unit investment
trust or face-amount certificate company that is or is required to be registered
under Section 8 of the Investment Company Act.
(h) CE Generation will pay all expenses incidental to the performance
of their obligations under this Agreement, the Indenture and the other Financing
Documents, including, without limitation (i) the fees and expenses of the
Trustee and its professional advisers, and (ii) all expenses in connection with
the execution, issue, authentication, packaging and initial delivery of the
Securities, the preparation and printing of this Agreement, the Securities, the
Indenture, the Preliminary Offering Circular, the Final Offering Circular and
amendments and supplements thereto, and any other document relating to the
issuance, offer, sale and delivery of the Securities. CE Generation will also
pay or reimburse the Purchasers (to the extent incurred by them) for any
expenses actually and reasonably incurred by the Purchasers in connection with
the purchase and sale of the Securities, including, without limitation, all
out-of-pocket expenses incurred by the Purchasers (such as, but not limited to,
travel, hotel, telephone and telecopy charges), all
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fees and disbursements of counsel to the Purchasers, expenses related to
qualification of the Securities for sale under the laws of such jurisdictions in
the United States and Canada as CSFB designates and the printing of memoranda
relating thereto, up to $1,000 ("blue sky fees"), fees charged by investment
rating agencies for the rating of the Securities ("rating agency fees"), all
travel expenses of the Purchasers' and CE Generation's officers and employees
and any other expenses of the Purchasers and CE Generation in connection with
attending or hosting meetings with prospective purchasers of the Securities from
the Purchasers and for expenses incurred in distributing Preliminary Offering
Circulars and Final Offering Circulars (including any amendments and supplements
thereto) to the Purchasers and prospective purchasers of the Securities from the
Purchasers; provided that such fees and expenses (other than rating agency fees,
blue sky fees and fees and disbursements of counsel to the Purchasers) are
estimated to be approximately $175,000 and will be subject to audit and
verification by CE Generation that such fees and expenses were reasonably
incurred in connection with the issuance and offering of the Securities.
(i) In connection with the offering, until the earlier of (x) one
hundred eighty (180) days following the Closing Date and (y) the date CSFB shall
have notified CE Generation of the completion of the resale of the Securities,
neither CE Generation nor any of its Affiliates has or will, either alone or
with one or more other Persons, bid for or purchase for any account in which it
or any of its Affiliates has a beneficial interest any Securities or attempt to
induce any Person to purchase any Securities; and neither CE Generation nor any
of its Affiliates will make bids or purchases for the purpose of creating
actual, or apparent, active trading in, or of raising the price of, the
Securities.
(j) CE Generation will not, until thirty (30) days following the
Closing Date, without the prior written consent of CSFB, pursuant to Rule 144A,
Regulation S or an offering registered under the Securities Act, offer, sell or
contract to sell, or otherwise dispose of, directly or indirectly, or announce
the offering of, any debt securities issued or guaranteed by CE Generation
(other than the Securities).
6 Conditions of the Obligations of the Purchaser. The obligations of the
Purchasers to purchase and pay for the Securities will be subject to the
accuracy of the representations and warranties made by CE Generation herein, to
the accuracy of the statements of officers of CE Generation pursuant to the
provisions hereof, to the performance by CE Generation of its obligations
hereunder and to the following additional conditions precedent:
(a) The Purchase shall have received a letter, dated the date of this
Agreement, of Deloitte & Touche LLP in form and substance reasonably
satisfactory to CSFB concerning the financial information with respect to CE
Generation set forth in the Final Offering Circular.
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(b) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred: (i) any change, or any development or event involving a
prospective change, in or affecting the financial condition, business or results
of operations of CE Generation and the other Transaction Parties, taken as a
whole, which, in the reasonable judgment of the Purchasers, materially impairs
the investment quality of the Securities or is material and adverse and makes it
impractical or inadvisable to proceed with the offering of the Securities; (ii)
any downgrading in the rating of any debt securities of CE Generation by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Securities Act) or any public announcement that such
organization has under surveillance or review its rating of any debt securities
of CE Generation (other than an announcement with positive implications of a
possible upgrading, and no implication of a possible downgrading, of such
rating); (iii) any material suspension or material limitation of trading in
securities generally on the New York Stock Exchange, or any setting of minimum
prices for trading on such exchange or any suspension of trading of any
securities of CalEnergy on any exchange or in the over the counter market; (iv)
any banking moratorium declared by U.S. federal or New York state authorities;
or (v) any outbreak or escalation of hostilities in which the United States is
involved, any declaration of war by the Congress of the United States or any
other change in the financial markets or substantial national calamity or
emergency if, in the judgment of the Purchasers, the effect of any such
outbreak, escalation, declaration, change, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the sale of and payment
for the Securities.
(c) (i) The representations and warranties of each of CE Generation and
the other Transaction Parties contained herein and in each other Operative
Document to which CE Generation or any of the other Transaction Parties is party
shall be true and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of the
Closing Date, (ii) each of CE Generation and the other Transaction Parties shall
have complied with all agreements and satisfied all conditions on its part to be
performed or satisfied hereunder or thereunder at or prior to the Closing Date,
and (iii) subsequent to the respective dates of the most recent financial
statements in the Final Offering Circular, there shall have been no material
adverse change in the financial position or results of operation of CE
Generation and the other Transaction Parties, taken as a whole, each of the
matters set forth in clauses (i) through (iii) immediately above as evidenced by
an Officer's Certificate of CE Generation, dated the Closing Date.
(d) On or prior to the Closing Date, each of the Operative Documents
shall have been fully executed and delivered in a manner reasonably satisfactory
to the Purchasers by each of the parties thereto and no provision thereof shall
have been amended, waived or otherwise modified. As of the Closing Date, each of
the Operative
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Documents shall be in full force and effect and all conditions precedent to any
parties' obligations thereunder shall have been satisfied.
(e) On the Closing Date, CE Generation shall have delivered to the
Trustee evidence reasonably satisfactory to the Purchasers that any irrevocable
letter of credit anticipated to be required in order to fund the Debt Service
Reserve Account up to the Debt Service Reserve Requirement has been obtained and
is in existence on the Closing Date or other arrangements with respect to such
obligations acceptable to the Purchasers shall have been made.
(f) UCC-1 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 granted thereby. All taxes and recording and filing
fees required to be paid with respect to the execution, recording or filing of
such UCC-1 Financing Statements shall have been paid or provided for. All
Collateral shall be subject to no Liens other than Permitted Liens or Permitted
Assignor Liens.
(g) On or prior to the Closing Date, each of the Project Documents, in
the forms as previously delivered to the Purchasers or their counsel and as they
exist as executed versions as of the date of this Agreement or in such forms as
shall be reasonably satisfactory in form and substance to the Purchasers and
their counsel shall have been executed and delivered. As of the Closing Date,
each of the Project Documents shall be 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 as of the Closing Date.
(h) The Purchasers shall have received a letter, dated the Closing
Date, of Deloitte & Touche LLP that meets the requirements of subsection (a)
above, except that the specified date referred to in such subsection will be a
date not more than three (3) days prior to the Closing Date for the purposes of
this subsection (i).
(i) The Power Generation Independent Engineer shall have consented to
the references to it in the Final Offering Circular and the use of the Power
Generation Independent Engineer's Report (as defined in the Final Offering
Circular) prepared by the Power Generation Independent Engineer and contained in
Appendix B to the Final Offering Circular; and since the date of the Power
Generation Independent Engineer's Report, no event affecting the Power
Generation 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
Power Generation Independent Engineer's Report or in the Final Offering Circular
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relating to matters referred to in the Power Generation Independent Engineer's
Report, or (B) which shall not be reflected in the Final Offering Circular but
should be reflected therein in order to make the statements and information
contained in the Power Generation Independent Engineer's Report, or in the Final
Offering Circular relating to matters referred to in the Power Generation
Independent Engineer's Report, in light of the circumstances under which they
were made, not misleading, as evidenced by a certificate reasonably satisfactory
to the Purchasers of an authorized officer of the Power Generation Independent
Engineer, dated the Closing Date.
(j) The Natural Gas Independent Engineer shall have consented to the
references to it in the Final Offering Circular and the use of the Natural Gas
Independent Engineer's Report (as defined in the Final Offering Circular)
prepared by the Natural Gas Independent Engineer and contained in Appendix C to
the Final Offering Circular; and since the date of the Natural Gas Independent
Engineer's Report, no event affecting the Natural Gas 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 Natural Gas Independent Engineer's
Report or in the Final Offering Circular relating to matters referred to in the
Natural Gas Independent Engineer's Report, or (B) which shall not be reflected
in the Final Offering Circular but should be reflected therein in order to make
the statements and information contained in the Natural Gas Independent
Engineer's Report, or in the Final Offering Circular relating to matters
referred to in the Natural Gas Independent Engineer's Report, in light of the
circumstances under which they were made, not misleading, as evidenced by a
certificate reasonably satisfactory to the Purchasers of an authorized officer
of the Natural Gas Independent Engineer, dated the Closing Date.
(k) The Geothermal Projects Independent Engineer shall have consented
to the references to it in the Final Offering Circular and the use of the
Geothermal Projects Independent Engineer's Report (as defined in the Final
Offering Circular) prepared by the Geothermal Projects Independent Engineer and
contained in Appendix D to the Final Offering Circular; and since the date of
the Geothermal Projects Independent Engineer's Report, no event affecting the
Geothermal Projects 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 Geothermal Projects Independent Engineer's Report or in the Final
Offering Circular relating to matters referred to in the Geothermal Projects
Independent Engineer's Report, or (B) which shall not be reflected in the Final
Offering Circular but should be reflected therein in order to make the
statements and information contained in the Geothermal Projects Independent
Engineer's Report, or in the Final Offering Circular relating to matters
referred to in the Geothermal Projects Independent Engineer's Report, in light
of the circumstances under which they were made, not misleading, as evidenced
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by a certificate reasonably satisfactory to the Purchasers of an authorized
officer of the Geothermal Projects Independent Engineer, dated the Closing Date.
(l) The Power Market Consultant shall have consented to the references
to it in the Final Offering Circular and the use of the Power Market
Consultant's Report (as defined in the Final Offering Circular) prepared by the
Power Market Consultant and contained in Appendix E to the Final Offering
Circular; and since the date of the Power Market Consultant's Report, no event
affecting the Power Market 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 the Power Market Consultant's Report or in the Final Offering Circular
relating to matters referred to in the Power Market Consultant's Report, or (B)
which shall not be reflected in the Final Offering Circular but should be
reflected therein in order to make the statements and information contained in
the Power Market Consultant's Report, or in the Final Offering Circular relating
to matters referred to in the Power Market Consultant's Report, in light of the
circumstances under which they were made, not misleading, as evidenced by a
certificate reasonably satisfactory to the Purchasers of an authorized officer
of the Power Market Consultant, dated the Closing Date.
(m) The Geothermal Resource Consultant shall have consented to the
references to it in the Final Offering Circular and the use of the Geothermal
Resource Consultant's Report (as defined in the Final Offering Circular)
prepared by the Geothermal Resource Consultant and contained in Appendix F to
the Final Offering Circular; and since the date of the Geothermal Resource
Consultant's Report, no event affecting the Geothermal Resource 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 the Geothermal Resource Consultant's
Report or in the Final Offering Circular relating to matters referred to in the
Geothermal Resource Consultant's Report, or (B) which shall not be reflected in
the Final Offering Circular but should be reflected therein in order to make the
statements and information contained in the Geothermal Resource Consultant's
Report, or in the Final Offering Circular relating to matters referred to in the
Natural Gas Independent Engineer's Report, in light of the circumstances under
which they were made, not misleading, as evidenced by a certificate reasonably
satisfactory to the Purchasers of an authorized officer of the Geothermal
Resource Consultant, dated the Closing Date.
(n) The Purchasers shall have received an opinion, dated the Closing
Date, of Willkie Farr & Gallagher, counsel for CE Generation, containing
opinions customary for transactions of the type described herein and otherwise
in form and substance reasonably satisfactory to the Purchasers.
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(o) The Purchasers shall have received an opinion, dated the Closing
Date, of Steven A. McArthur, Executive Vice President and General Counsel of CE
Generation, containing opinions customary for transactions of the type described
herein and otherwise in form and substance reasonably satisfactory to the
Purchasers.
(p) The Purchasers shall have received an opinion, dated the Closing
Date, of Lionel Sawyer & Collins, special Nevada counsel for CE Generation,
containing opinions customary for transactions of the type described herein and
otherwise in form and substance reasonably satisfactory to the Purchasers.
(q) The Purchasers shall have received an opinion, dated the Closing
Date, of Akin Gump Strauss Hauer & Feld, LLP, special Texas counsel for CE
Generation, containing opinions customary for transactions of the type described
herein and otherwise in form and substance reasonably satisfactory to the
Purchasers.
(r) The Purchasers shall have received an opinion, dated the Closing
Date, of White & Case LLP, special regulatory counsel for CE Generation,
containing opinions customary for transactions of the type described herein and
otherwise in form and substance reasonably satisfactory to the Purchasers.
(s) The Purchasers shall have received an opinion, dated the Closing
Date, from Lillick & Charles, counsel to the Trustee, the Collateral Agent and
the Depositary Agent, in respect of the enforceability of the Operative
Documents to which the Trustee, the Collateral Agent and the Depositary Agent
are parties and the authentication of the Securities by the Trustee, which
opinion shall be satisfactory in all respects to the Purchasers and their
counsel.
(t) The Purchasers shall have received from Skadden, Arps, Slate,
Meagher & Flom LLP, counsel for the Purchasers, such opinion or opinions as the
Purchasers may reasonably request, dated the Closing Date, with respect to the
validity of the Securities, the Final Offering Circular and other matters CSFB
may request, and CE Generation shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon such
matters.
(u) The Purchasers shall have received, in form and substance
satisfactory to the Purchasers, copies of such further opinions, certificates,
letters and documents as the Purchasers reasonably request.
7 Indemnification and Contribution.
(a) CE Generation will indemnify and hold harmless each Purchaser, its
partners, directors and officers and each person, if any, who controls such
Purchaser
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within the meaning of Section 15 of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such Purchaser may
become subject, under the Securities Act or the Exchange Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any breach of any of the representations
and warranties of CE Generation contained herein or any untrue statement or
alleged untrue statement of any material fact contained in the Final Offering
Circular, or any amendment or supplement thereto, or any related preliminary
offering circular, or arise out of or are based upon the omission or alleged
omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and will reimburse each Purchaser for any legal or other
expenses reasonably incurred by such Purchaser in connection with investigating
or defending any such loss, claim, damage, liability or action as such expenses
are incurred; provided, however, that CE Generation will not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement in or
omission or alleged omission from any of such documents in reliance upon and in
conformity with written information furnished to CE Generation by any Purchaser
through CSFB specifically for use therein, it being understood and agreed that
the only such information consists of the information described as such in
subsection (b) below; and provided, further that, with respect to any untrue
statement in or omission from the Preliminary Offering Circular, this indemnity
agreement shall not inure to the benefit of any Purchaser on account of any
loss, claim, damage, liability or action arising from the sale of any Securities
to any Person by such Purchaser, to the extent that such sale was an initial
resale by such Purchaser, and if such Purchaser failed to send or give a copy of
the Final Offering Circular, as the same may be amended or supplemented, to that
Person within the time required by the Securities Act, and the untrue statement
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact in the Preliminary Offering Circular was corrected in
the Final Offering Circular and the Final Offering Circular was made available
to such Purchaser prior to the sale of the Securities.
(b) Each Purchaser will severally and not jointly indemnify and hold
harmless CE Generation, its partners, directors and officers and each person, if
any, who controls CE Generation within the meaning of Section 15 of the
Securities Act, against any losses, claims, damages or liabilities to which CE
Generation may become subject, under the Securities Act or the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Final Offering Circular,
or any amendment or supplement thereto, or any related preliminary offering
circular, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or
18
<PAGE>
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to CE Generation by such Purchaser through CSFB
specifically for use therein, and will reimburse CE Generation for any legal or
other expenses reasonably incurred by CE Generation in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Purchasers consists of the following information in
the Final Offering Circular: the third paragraph, the fifth paragraph, the
second sentence of the seventh paragraph, the eighth paragraph and the last
paragraph under the caption "PLAN OF DISTRIBUTION."
(c) Promptly after receipt by an indemnified party under this Section 7
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; provided that the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a) or (b) above. In case any such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
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 will not be liable to such indemnified party
under this Section 7 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that the indemnified party
shall have the right to employ counsel to represent the indemnified party and
their respective controlling Persons who may be subject to liability arising out
of any claim in respect of which indemnity may be sought by the indemnified
party against the indemnifying party under this Section 7 if the employment of
such counsel shall have been authorized in writing by the indemnifying party in
connection with the defense of such action or, if in the written opinion of
counsel to either the indemnifying party or the indemnified party,
representation of both parties by the same counsel would be inappropriate due to
actual or likely conflicts of interest between them, and in that event the fees
and expenses of one firm of separate counsel (in addition to the fees and
expenses of local counsel) shall be paid by the indemnifying party. No
indemnifying party shall, without the prior written consent of the indemnified
party (which consent shall not be unreasonably withheld), effect any settlement
of any pending or threatened action in respect of which any indemnified party is
or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement (i) includes an unconditional
release of such indemnified party from all liability on any claims that are 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 an
indemnified party.
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(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
CE Generation on the one hand and the Purchasers on the other from the offering
of the Securities or (ii) if the allocation provided by clause (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 (i) above but also the relative
fault of CE Generation on the one hand and the Purchasers on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by CE Generation on the one hand
and the Purchasers on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by
CE Generation bear to the total discounts and commissions received by the
Purchasers from CE Generation under this Agreement. 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 CE Generation, on the one
hand, or the Purchaser, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of 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 action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), the
Purchasers shall not be required to contribute any amount in excess of the
amount by which the total price at which the Securities purchased by it were
resold exceeds the amount of any damages which the Purchasers have otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.
(e The obligations of CE Generation under this Section 7 shall be in
addition to any liability which CE Generation may otherwise have and shall
extend, upon the same terms and conditions, to each Person, if any, who controls
any Purchaser within the meaning of the Securities Act or the Exchange Act; and
the obligations of the Purchasers under this Section 7 shall be in addition to
any liability which the respective Purchasers may otherwise have and shall
extend, upon the same terms and conditions, to each officer, director, employee,
agent or shareholder of CE Generation and to each Person, if any, who controls
CE Generation within the meaning of the Securities Act or the Exchange Act.
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<PAGE>
8. Default by Purchasers. If any Purchaser defaults in its obligations to
purchase Securities hereunder and the aggregate principal amount of Securities
that such defaulting Purchaser agreed but failed to purchase does not exceed 10%
of the total principal amount of Securities, the remaining Purchaser may make
arrangements satisfactory to CE Generation for the purchase of such Securities
by other persons, including itself, but if no such arrangements are made by the
Closing Date, the non-defaulting Purchaser shall be obligated to purchase the
Securities that such defaulting Purchaser agreed but failed to purchase. If any
Purchaser so defaults and the aggregate principal amount of Securities with
respect to which such default occurs exceeds 10% of the total principal amount
of Securities and arrangements satisfactory to the remaining Purchaser and CE
Generation for the purchase of such Securities by other persons are not made
within 36 hours after such default, this Agreement will terminate without
liability on the part of the non-defaulting Purchaser or CE Generation, except
as provided in Section 9. As used in this Agreement, the term "Purchaser"
includes any person substituted for a Purchaser under this Section. Nothing
herein will relieve a defaulting Purchaser from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of CE
Generation or its officers and of the Purchasers set forth in or made pursuant
to this Agreement will remain in full force and effect, regardless of any
investigation, or statement as to the results thereof, made by or on behalf of
any Purchaser, CE Generation any of their respective representatives, officers
or directors or any controlling Person, and will survive delivery of and payment
for the Securities. If for any reason the purchase of the Securities by the
Purchaser is not consummated, CE Generation shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 hereof and the
respective obligations of CE Generation and the Purchasers pursuant to Section 7
shall remain in effect; provided that, notwithstanding the foregoing, in such
circumstances CE Generation shall not be obligated to reimburse the Purchasers
for their out-of-pocket expenses (excluding fees and disbursements of counsel
and rating agency fees) in excess of $175,000; and provided, further that if the
purchase of the Securities is not consummated solely because of the occurrence
of an event specified in Section 6(b)(iv), (v) or (vi), then CE Generation shall
have no obligation to reimburse the Purchasers for their out-of-pocket expenses
(including fees and disbursements of counsel), except for rating agency fees.
10. Notices. All communications hereunder will be in writing and, if sent to
any Purchaser will be mailed, delivered or telegraphed and confirmed to CSFB, at
Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, New
York 10010, Attention: Investment Banking Department-Transactions Advisory
Group; or, if sent to CE Generation, will be mailed, delivered or telegraphed
and confirmed to them at 302 South 36th Street, Suite 400, Omaha, Nebraska,
68131, Attention: General Counsel.
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11. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the controlling
Persons referred to in Section 7, and no other Person will have any right or
obligation hereunder.
12. Representation of Purchasers. CSFB will act for the several Purchasers
in connection with this purchase, and any action under this Agreement taken by
CSFB will be binding upon all the Purchasers.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW). CE Generation hereby submits to the non-exclusive jurisdiction
of the Federal and state courts in the Borough of Manhattan in The City of New
York in any suit or proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby.
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If the foregoing is in accordance with the Purchasers' understanding of
our agreement, kindly sign and return to us one of the counterparts hereof,
whereupon it will become a binding agreement between CE Generation and the
Purchasers in accordance with its terms.
Very truly yours,
CE GENERATION LLC
By: /s/ Steven A. McArthur
---------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
LEHMAN BROTHERS INC.
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ Jonathan Bram
-------------------------------------
Name: Jonathan Bram
Title: Managing Director
Signature Page to Purchase Agreement
<PAGE>
SCHEDULE I
PURCHASERS
Principal Amount
Manager of Securities
Credit Suisse First Boston Corporation $200,000,000
Lehman Brothers Inc. $200,000,000
------------
Total $400,000,000
============
<PAGE>
SCHEDULE II
OPERATIVE DOCUMENTS
Indenture
Securities
Purchase Agreement
Registration Rights Agreement
Pledge Agreements
Assignor Security Agreement
CE Generation Security Agreement
Intercreditor Agreement
Depositary Agreement
Irrevocable Instructions
Securities Account Control Agreement
Debt Service Reserve LOC Reimbursement Agreement
<PAGE>
EXHIBIT 4.4
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
CE GENERATION, LLC
$400,000,000 7.416% Senior Secured Bonds
Due December 15, 2018
March 2, 1999
Credit Suisse First Boston Corporation
Lehman Brothers Inc.
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010
Ladies and Gentlemen:
In connection with the issue and sale of $400,000,000 principal amount
of 7.416% Senior Secured Bonds Due December 15, 2018 (the "Initial Securities")
issued by CE Generation, LLC, a Delaware limited liability company (the
"Company") pursuant to the terms of the Indenture (as defined below) and as an
inducement to Credit Suisse First Boston Corporation and Lehman Brothers Inc.
(the "Initial Purchasers") to enter into the Purchase Agreement dated February
24, 1999 (the "Purchase Agreement"), among the Company and the Initial
Purchasers, the Company hereby agrees to provide the registration rights set
forth in this Registration Rights Agreement (this "Agreement") for the benefit
of the holders of the Initial Securities. The execution of this Agreement is a
condition to the purchase of the Initial Securities under the Purchase
Agreement.
SECTION 1. Definitions. Capitalized terms used herein without
definition shall have the respective meanings ascribed thereto, whether
expressly or by reference to another agreement or document, in the Indenture.
The definitions set forth in this Agreement shall equally apply to both the
singular and plural forms of the terms defined. As used in this Agreement, the
following terms shall have the following meanings:
<PAGE>
"Advice" shall have the meaning set forth in the last paragraph of
Section 5 of this Agreement.
"Affiliate", with respect to any Person, shall mean any other Person
that directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with such first Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities or by contract or otherwise. For
purposes of Section 2, an "Affiliate" of the Company shall mean and include, in
addition, any Person deemed an affiliate thereof under the Securities Act or the
Exchange Act in connection with the Exchange Offer.
"Closing Date" shall mean the date of the initial issuance and sale of
the Initial Securities.
"Commission" shall mean the United States Securities and Exchange
Commission.
"Company" shall have the meaning set forth in the first paragraph of
this Agreement.
"Cure Date" shall have the meaning set forth in Section 4(a) of this
Agreement.
"Effective Date" shall mean the date which is 270 days after the
Closing Date.
"Effective Period" shall have the meaning set forth in Section 3(a) of
this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"Exchange Offer" shall have the meaning set forth in Section 2(a) of
this Agreement.
"Exchange Offer Registration Statement" shall have the meaning set
forth in Section 2(a) of this Agreement.
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"Exchange Period" shall have the meaning set forth in Section 2(a) of
this Agreement.
"Exchange Securities" shall have the meaning set forth in Section 2(a)
of this Agreement.
A "holder" of Registrable Securities shall mean the registered holder
of such securities or any beneficial owner thereof.
"Holder Indemnified Party" shall have the meaning set forth in Section
8(a) of this Agreement.
"Holder Information" shall have the meaning set forth in Section 8(a)
of this Agreement.
"Illiquidity Event" with respect to the Initial Securities shall mean
any of the following events:
(a) as of the Effective Date, both (i) an Exchange Offer Registration
Statement (which, if applicable pursuant to Section 2(a), covers resales of
such Exchange Securities) has not become effective and (ii) the Registrable
Securities are not the subject of an Initial Shelf Registration Statement
which has become effective; or
(b) the Exchange Securities offered in exchange for the Registrable
Securities are the subject of an Exchange Offer Registration Statement which
was effective (and which, if applicable pursuant to Section 2(a), covered
resales of such Exchange Securities) but which ceased to be effective for
any reason prior to the end of the Exchange Period; or
(c) the Registrable Securities are the subject of an Initial Shelf
Registration Statement or Subsequent Shelf Registration Statement which was
effective but which has ceased to be effective for any reason prior to the
end of the Effective Period.
An Illiquidity Event shall be deemed to cease to exist on the date
subsequent to the occurrence of such Illiquidity Event on which:
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(i) in the case of an Illiquidity Event described in clause (a) above,
either (i) an Exchange Offer Registration Statement (which, if applicable
pursuant to Section 2(a), covers resales of the Exchange Securities
exchanged for such Registrable Securities) shall become effective and an
Exchange Offer for such Registrable Securities shall have commenced or (ii)
an Initial Shelf Registration Statement covering such Registrable Securities
shall become effective; or
(ii) in the case of an Illiquidity Event described in clause (b) above,
either (i) an Exchange Offer Registration Statement (which, if applicable
pursuant to Section 2(a), covers resales of the Exchange Securities offered
in exchange for such Initial Securities) shall become effective and an
Exchange Offer for such Registrable Securities shall have commenced pursuant
to an Exchange Offer Registration Statement or (ii) an Initial Shelf
Registration Statement covering such Registrable Securities shall become
effective; or
(iii) in the case of an Illiquidity Event described in clause (c)
above, a Subsequent Shelf Registration Statement covering such Registrable
Securities shall become effective.
"Indenture" shall mean the Indenture dated as of March 2, 1999, and as
further amended or supplemented from time to time in accordance with the terms
thereof, between the Company and the Trustee, and pursuant to which the Initial
Securities are to be issued.
"Initial Purchasers" shall have the meaning set forth in the first
paragraph of this Agreement.
"Initial Securities" shall have the meaning set forth in the first
paragraph of this Agreement.
"Initial Shelf Registration Statement" shall have the meaning set forth
in Section 3(a) of this Agreement.
"Inspectors" shall have the meaning set forth in Section 5(m) of this
Agreement.
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"Managing Underwriters" shall mean the investment banker or investment
bankers and manager or managers that shall administer an Underwritten Offering.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Prospectus" shall mean the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, and
all other amendments and supplements to the Prospectus, including post-effective
amendments and all material incorporated by reference into such prospectus.
"Purchase Agreement" shall have the meaning set forth in the first
paragraph of this Agreement.
"Records" shall have the meaning set forth in Section 5(m) of this
Agreement.
"Registrable Securities" shall mean the Initial Securities upon
original issuance thereof and at all times subsequent thereto until, in the case
of any such Initial Security, (i) a Registration Statement covering such Initial
Security, or the Exchange Security to be exchanged for such Initial Security
(and, in the case of any Resale Security, any resale thereof), has been declared
effective and such Initial Security has been disposed of or exchanged (or, in
any case where such Registration Statement covers the resale of Resale
Securities, such Initial Security has been exchanged and the Resale Security
received therefor has been resold), as the case may be, in accordance with such
effective Registration Statement, (ii) such Initial Security is sold in
compliance with Rule 144 or would be permitted to be sold pursuant to Rule
144(k), (iii) such Initial Security shall have been otherwise transferred and a
new certificate therefor not bearing a legend restricting further transfer shall
have been delivered by or on behalf of the Company and such Initial Security
shall be tradeable by each holder thereof without restriction under the
Securities Act or the Exchange Act and without material restriction under the
applicable blue sky or state securities laws or (iv) such Initial Security
ceases to be outstanding.
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"Registration Statement" shall mean any registration statement
(including any Shelf Registration Statement) of the Company that covers any of
the Registrable Securities or the Exchange Securities, as the case may be,
pursuant to the provisions of this Agreement, including the Prospectus which is
part of such Registration Statement, amendments (including post-effective
amendments) and supplements to such Registration Statement and all exhibits and
appendices to any of the foregoing. For purposes of the foregoing, unless the
context requires otherwise, a Registration Statement for an Exchange Offer shall
not be deemed to cover Registrable Securities held by a Restricted Person unless
such Registration Statement covers the resale of Resale Securities to be
received by such Restricted Person pursuant to such Exchange Offer and any such
Initial Securities shall continue to be Registrable Securities.
"Resale Initial Purchaser" shall have the meaning set forth in Section
8(a) of this Agreement.
"Resale Securities" shall mean any Exchange Security received by a
Restricted Person pursuant to an Exchange Offer, and at all times subsequent
thereto, until, subject to the time periods set forth herein, such Exchange
Security has been resold by such Restricted Person.
"Restricted Person" shall mean (a) any Affiliate of the Company, (b)
any Initial Purchaser or (c) any Affiliate of any Initial Purchaser (other than
Affiliates of such Initial Purchaser that (i) are acquiring Exchange Securities
in the ordinary course of business and do not have an arrangement with any
Person to distribute Exchange Securities and (ii) may trade such Exchange
Securities without restriction under the Securities Act).
"Rule 144" shall mean Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
"Rule 144A" shall mean Rule 144A under the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
"Rule 415" shall mean Rule 415 under the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
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"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Shelf Notice" shall have the meaning set forth in Section 2(b) of this
Agreement.
"Shelf Registration Statement" shall have the meaning set forth in
Section 3(b) of this Agreement.
"Special Counsel" shall mean Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel to the Initial Purchasers, or any other firm acceptable to the
Company, acting as special counsel to the holders of Registrable Securities or
Exchange Securities.
"Subsequent Shelf Registration Statement" shall have the meaning set
forth in Section 3(b) of this Agreement.
"TIA" shall mean the Trust Indenture Act of 1939, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Trustee" shall mean Chase Manhattan Bank and Trust Company, National
Association, its successors and any successor trustee under the Indenture.
"Underwritten Registration" or "Underwritten Offering" shall mean a
registration in which securities are sold to an underwriter or group of
underwriters for reoffering to the public.
SECTION 2. Exchange Offer.
(a) Unless the Company determines in good faith that the Exchange Offer
shall not be permissible under applicable law or Commission policy, the Company
shall prepare and cause to be filed with the Commission as soon as reasonably
practicable after the Closing Date, subject to Sections 2(b) and 2(c) of this
Agreement, a Registration Statement (an "Exchange Offer Registration Statement")
for an offer to exchange (an "Exchange Offer") the Registrable Securities
(subject to Section 2(c)) for a like aggregate principal amount of debt
securities of the Company that are in all material respects substantially
identical to the Initial Securities (the "Exchange Securities") (and which are
entitled to the benefits of the Indenture, which shall be qualified under the
TIA in connection with such registration, or a trust
7
<PAGE>
indenture which is substantially identical in all material respects to the
Indenture), other than (i) such changes to the Indenture or any such
substantially identical indenture as the Trustee and the Company may deem
necessary in connection with the Trustee's rights and duties or to comply with
any requirements of the Commission to effect or maintain the qualification
thereof under the TIA and (ii) such changes relating to restrictions on transfer
set forth in the Indenture. The Exchange Offer shall be registered under the
Securities Act on the appropriate form of Registration Statement and shall
comply with all applicable tender offer rules and regulations under the Exchange
Act and with all other applicable laws. Subject to the terms and limitations of
Section 2(c), such Exchange Offer Registration Statement may also cover any
resales of Exchange Securities by any Restricted Person, in the manner or
manners designated by them which, in any event, is reasonably acceptable to the
Company.
The Company shall use its reasonable best efforts to (i) cause the
Exchange Offer Registration Statement to become effective under the Securities
Act on or prior to the Effective Date, (ii) keep the Exchange Offer open for a
period of not less than the shorter of (A) the period ending when the last
remaining Initial Security is tendered into the Exchange Offer and (B) 30 days
from the date notice is mailed to the holders of Initial Securities (provided
that in no event shall such period be less than the period required under
applicable Federal and state securities laws), and (iii) maintain such Exchange
Offer Registration Statement continuously effective for a period (the "Exchange
Period") of not less than the longer of (A) the period until the consummation of
the Exchange Offer and (B) 120 days after effectiveness of the Exchange Offer
Registration Statement, provided however, that in the event that all resales of
Exchange Securities (including, subject to the time periods set forth herein,
any Resale Securities and including, subject to the time periods set forth
herein, any resales by broker-dealers that receive Exchange Securities for their
own account pursuant to the Exchange Offer) covered by such Exchange Offer
Registration Statement have been made, the Exchange Offer Registration Statement
need not remain continuously effective for the period set forth in clause (B)
above. Upon consummation of the Exchange Offer, the Company shall deliver to the
Trustee under the Indenture for cancellation all Initial Securities tendered by
the holders thereof pursuant to the Exchange Offer and not withdrawn prior to
the date of consummation of the Exchange Offer. Each Restricted Person shall
notify the Company promptly after reselling all Resale Securities held by such
Restricted Person which are covered by any such Registration Statement.
8
<PAGE>
Each holder of Registrable Securities to be exchanged in the Exchange
Offer (other than any Restricted Person) shall be required as a condition to
participating in the Exchange Offer to represent that (i) it is not an Affiliate
of the Company, (ii) any Exchange Securities to be received by it shall be
acquired in the ordinary course of its business and (iii) that at the time of
the consummation of the Exchange Offer it shall have no arrangement with any
person to participate in the distribution (within the meaning of the Securities
Act) of the Exchange Securities. Upon consummation of an Exchange Offer in
accordance with this Section 2 and compliance with the other provisions of this
Section 2, the Company shall, subject to Sections 2(b) and 2(c), have no further
obligation to register Registrable Securities pursuant to Section 3(a) of this
Agreement; provided that the other provisions of this Agreement shall continue
to apply as set forth in such provisions.
(b) In the event that the Company reasonably determines in good faith
that (i) the Exchange Securities would not, upon receipt in the Exchange Offer
by any holder of Registrable Securities (other than any Restricted Person and
other than any holder who is not acquiring such Exchange Securities in the
ordinary course of business or who has an arrangement with any person to
participate in the distribution of such Exchange Securities), be tradeable by
each holder thereof without restriction under the Securities Act and the
Exchange Act and without restriction under applicable blue sky or state
securities laws, (ii) after conferring with counsel, the Commission is unlikely
to permit the Exchange Offer Registration Statement to become effective prior to
the Effective Date (except in the circumstances set forth in Section 2(c)) or
(iii) the Exchange Offer may not be made in compliance with applicable laws,
then the Company shall promptly deliver notice thereof (the "Shelf Notice") to
the holders of the Registrable Securities and the Trustee and shall thereafter
file an Initial Shelf Registration Statement pursuant to, and otherwise comply
with, the provisions of Section 3(a). Following the delivery of a Shelf Notice
in accordance with this Section 2(b) and compliance with Section 3(a), the
Company shall not have any further obligation under this Section 2.
(c) In the event that the Company reasonably determines in good faith
that (i) the Exchange Securities would not, upon consummation of any resale
thereof by a Restricted Person to any Person other than another Restricted
Person, be tradeable by each holder thereof without restriction under the
Securities Act (other than applicable prospectus requirements) and the Exchange
Act and without restriction under applicable blue sky or state securities laws
or (ii) the Commission is unlikely to permit the Exchange Offer Registration
Statement to become effective prior to the Effective Date solely because such
Registration Statement covers resales
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of the Exchange Securities by Restricted Persons, then the Company shall
promptly deliver a Shelf Notice to the Restricted Persons who are holders of
Registrable Securities and to the Trustee, and the Company shall thereafter file
an Initial Shelf Registration Statement with respect to any such Registrable
Securities pursuant to, and otherwise comply with, the provisions of Section
3(a); provided that such Initial Shelf Registration Statement shall only cover
resales of Registrable Securities by Restricted Persons if a Shelf Notice is not
then otherwise required to be delivered pursuant to Section 2(b); and, provided,
further that such Initial Shelf Registration Statement covering Registrable
Securities held by Restricted Persons shall be kept effective for at least a
period of 120 days and is not required to remain effective with respect to
Registrable Securities held by Restricted Persons thereafter. Following the
delivery of a Shelf Notice in accordance with this Section 2(c) and compliance
with Section 3(a), the Company shall not have any further obligation under this
Section 2 with respect to the filing of an offer to exchange the Registrable
Securities held by the Restricted Persons (including, without limitation, any
obligation to provide that an Exchange Offer Registration Statement filed
pursuant to Section 2(a) cover resales of Exchange Securities by Restricted
Persons); provided that the provisions of this Section 2 shall otherwise remain
in full force and effect with respect to Registrable Securities held by any
person other than a Restricted Person.
SECTION 3. Shelf Registration; Registrable Securities. With respect to
the Registrable Securities, if a Shelf Notice is delivered in accordance with
Section 2(b) or 2(c) of this Agreement, then the Company shall comply with the
following provisions of this Section 3:
(a) Initial Shelf Registration. The Company shall prepare and cause to
be filed with the Commission a Registration Statement for an offering to be made
on a continuous basis other than pursuant to an Underwritten Offer pursuant to
Rule 415 covering all of the Registrable Securities (or, if a Shelf Notice is
delivered solely pursuant to Section 2(c), all of the Registrable Securities
held by any Restricted Persons) (the "Initial Shelf Registration Statement");
provided, however, that no holder shall be entitled to have its Registrable
Securities covered by such Initial Shelf Registration Statement unless such
holder agrees in writing, within 10 Business Days after actual receipt of a
request therefrom, to be bound by all the provisions of this Agreement
applicable to such holder. No holder shall be entitled to the benefits of
Section 4 of this Agreement unless and until such holder shall have provided all
information reasonably requested by the Company (after conferring with counsel),
and such holder shall not be entitled to such benefits with respect to any
period during which such information was not provided. Each holder to which any
Shelf
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Registration Statement is being effected agrees to furnish promptly to the
Company all information required to be disclosed in order to make the
information previously furnished to the Company by such holder not materially
misleading. The Initial Shelf Registration Statement shall be an appropriate
form permitting registration of such Registrable Securities for resale by the
holders thereof in the manner or manners reasonably designated by them (but
excluding any Underwritten Offerings). The Company shall use its reasonable best
efforts to (A) cause the Initial Shelf Registration Statement to be declared
effective under the Securities Act on or prior to the Effective Date and (B)
keep the Initial Shelf Registration Statement continuously effective under the
Securities Act for a period of two years after the Closing Date (subject to
extension pursuant to the last paragraph of Section 5 and subject, with respect
to Registrable Securities held by Restricted Persons, to the limitations set
forth in Section 2(c)) (such two-year period, as it may be extended, being the
"Effective Period"), or such shorter period ending when (1) all Registrable
Securities covered by the Initial Shelf Registration Statement have been sold or
(2) a Subsequent Shelf Registration Statement covering all of such Registrable
Securities remaining unsold has been declared effective under the Securities Act
or (3) all Registrable Securities may be sold pursuant to subsection (k) of Rule
144.
Notwithstanding any other provision hereof, the Company may postpone or
suspend the filing or the effectiveness of a Registration Statement (or any
amendments or supplements thereto), if (1) such action is required by applicable
law, or (2) such action is taken by the Company in good faith and for valid
business reasons (not including avoidance of the Company's obligations
hereunder), including the acquisition or divestiture of assets, other pending
corporate developments, public filings with the Commission or other similar
events, so long as the Company promptly thereafter complies with the
requirements of Section 5(b) hereof, if applicable. Notwithstanding the
occurrence of any event referred to in the immediately preceding sentence (a
"Suspension"), such event shall not suspend, postpone or in any other manner
affect the running of the time period after which an Illiquidity Event shall be
deemed to occur and, if the filing or effectiveness of a Registration Statement
is postponed or suspended as a result of a Suspension, an Illiquidity Event
shall nonetheless exist if all other requirements set forth for the occurrence
of an Illiquidity Event shall be satisfied, and the provisions of Section 4
requiring the accrual payment of additional interest, as set forth in such
Section, on the Registrable Securities, shall be applicable.
(b) Subsequent Shelf Registrations. If the Initial Shelf Registration
Statement or any Subsequent Shelf Registration Statement ceases to be effective
for
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<PAGE>
any reason at any time during the Effective Period after the Effective Date, the
Company may attempt to obtain the withdrawal of any order suspending the
effectiveness thereof, and may amend such Initial Shelf Registration Statement
or Subsequent Shelf Registration Statement in a manner reasonably expected to
obtain the withdrawal of the order suspending the effectiveness thereof, or file
an additional "shelf" Registration Statement applicable to the Initial
Securities pursuant to Rule 415 covering all of such Registrable Securities
remaining unsold (a "Subsequent Shelf Registration Statement"). If a Subsequent
Shelf Registration Statement is declared effective, the Company shall use its
reasonable best efforts to keep such Shelf Registration Statement continuously
effective for a period after the date of such effectiveness equal in length to
the length of the Effective Period plus the aggregate number of days from the
date of the order suspending the effectiveness of the Initial Shelf Registration
Statement or any Subsequent Shelf Registration Statement to the date of the
effectiveness of the Subsequent Shelf Registration Statement. As used herein,
the term "Shelf Registration Statement" means the Initial Shelf Registration
Statement and any Subsequent Shelf Registration Statement.
SECTION 4. Additional Interest for Illiquidity.
(a) The Company acknowledges and agrees that the Initial Purchasers
(and any subsequent holders of the Initial Securities) have acquired the Initial
Securities in reliance on the Company's covenant to use its reasonable best
efforts to (i) cause to become effective on or prior to the Effective Date (A)
the Exchange Offer Registration Statement or (B) an Initial Shelf Registration
Statement, and (ii) maintain the respective effectiveness of such Registration
Statements as described herein. The Company further acknowledges and agrees that
the failure of the Company to fulfill such covenants will have an adverse effect
on the holders of the Initial Securities. Therefore, the Company agrees that
from and after the date on which any Illiquidity Event occurs, additional
interest (in addition to the interest otherwise payable with respect to the
Registrable Securities) shall accrue with respect to the Initial Securities
until but not including the date on which such Illiquidity Event shall cease to
exist (and provided no other Illiquidity Event with respect to any Initial
Securities shall then be continuing), at the rate of one half of one percent
(0.50%) per annum, which additional interest shall be payable by the Company to
the holders of all Initial Securities at the times, in the manner and subject to
the same terms and conditions set forth in the Indenture, as nearly as may be,
as though the interest rates provided in such Initial Securities had been
increased by one half of one percent (0.50%) per annum. Notwithstanding that the
Illiquidity Event may cease to exist, in the event that an Exchange Offer
Registration Statement or an Initial Shelf Registra-
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tion Statement has not become effective within two years after the Closing Date,
the interest rates on the Initial Securities otherwise payable as provided in
the Indenture shall permanently remain increased by such one half of one percent
(0.50%) per annum. Subject to the provisions of this Section 4, the Company
agrees that it shall be liable to the holders of all Initial Securities for the
payment of any and all additional interest on the Initial Securities that shall
accrue pursuant to this Section 4.
Any such additional interest accrued on any such Initial Securities but
unpaid on the date on which such interest ceases to accrue (the "Cure Date")
shall be due and payable on the first interest payment date following the next
record date following such Cure Date (or the record date occurring on such Cure
Date, if such Cure Date is a record date) to the holders of record of such
Initial Securities on such record date.
(b) The Company shall promptly notify the holders of the Initial
Securities and the Trustee of the occurrence of any Illiquidity Event of which
it has knowledge.
Notwithstanding the foregoing, the Company shall not be required to pay
the additional interest described in clause (a) of this Section 4 to a holder
with respect to the Registrable Securities held by such holder if the applicable
Illiquidity Event arises by reason of the failure of such holder to provide such
information as (i) the Company may reasonably request, with reasonable prior
written notice, for use in the Shelf Registration Statement or any Prospectus
included therein to the extent the Company reasonably determines that such
information is required to be included therein by applicable law, (ii) the NASD
or the Commission may request in connection with such Shelf Registration
Statement, or (iii) is required to comply with the agreements of such holder
contained in clause (a) of Section 3 to the extent compliance thereof is
necessary for the Shelf Registration Statement to be declared effective.
SECTION 5. Registration Procedures. In connection with the registration
of any Registrable Securities or Exchange Securities pursuant to Sections 2 and
3 hereof, the Company shall use its reasonable best efforts to effect such
registration to permit the sale of such Registrable Securities or Exchange
Securities in accordance with any permitted intended method or methods of
disposition thereof, and pursuant thereto the Company shall:
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<PAGE>
(a) prepare and cause to be filed with the Commission a Registration
Statement or Registration Statements as prescribed by Sections 2 and 3 of this
Agreement, and use its best efforts to cause each such Registration Statement to
become effective and remain effective for the applicable period as provided
herein; provided, however, that (i) during the period in which the Initial
Registration Statement is open for the Restricted Persons, the Company shall
afford any Restricted Person which is a holder of Registrable Securities or
Exchange Securities and the Special Counsel, upon such holder's written request
to the Company, an opportunity to review copies of all such documents proposed
to be filed, and (ii) if such filing is pursuant to Section 3, before filing any
Registration Statement or Prospectus or any amendments or supplements thereto
(including documents that would be incorporated therein by reference after the
initial filing of the Registration Statement), the Company shall afford the
Special Counsel for all holders of the Registrable Securities covered by such
Registration Statement an opportunity to review copies of all such documents
proposed to be filed;
(b) prepare and cause to be filed with the Commission such amendments
and post-effective amendments to each Shelf Registration Statement as may be
necessary to keep such Registration Statement continuously effective for the
applicable period as provided herein; cause the related Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force) under the
Securities Act; and comply with the provisions of the Securities Act, the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder with respect to the disposition of all securities covered by such
Registration Statement as so amended or in such Prospectus as so supplemented in
accordance with the intended methods of disposition by the sellers of
Registrable Securities covered thereby set forth therein;
(c) if a Shelf Registration Statement is filed pursuant to Section 3
hereof, notify the selling holders of Registrable Securities promptly after the
Company becomes aware thereof, and confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the
Commission for amendments or supplements to the Registration Statement or the
Prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus or Prospectus or the initiation of any proceedings for that purpose,
(iv) of the receipt by the Company of any notification with respect to
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<PAGE>
the suspension of the qualification or exemption from qualification of a
Registration Statement or any of the Registrable Securities for offer or sale in
any jurisdiction, or the initiation of any proceeding for such purpose, (v) of
the existence of any fact known to the Company which results in such
Registration Statement or related Prospectus or any document incorporated
therein by reference containing any untrue statement of a material fact or
omitting to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading (which notice may be accompanied by an instruction
that such notice constitutes material non-public information and to suspend the
use of the prospectus until the requisite changes have been made, and which
instruction shall require that such holders shall not communicate such material
non-public information to any third party and shall not sell or purchase, or
offer to sell or purchase, any securities of the Company after receipt of such
notice) and (vi) if the Company reasonably determines that the filing of a
post-effective amendment to such Registration Statement would be appropriate;
(d) if a Shelf Registration Statement is filed pursuant to Section 3,
use its reasonable efforts to prevent the issuance of any order suspending the
effectiveness of a Registration Statement or of any order preventing or
suspending the use of a Prospectus or suspending the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction and, if any such order is issued, to obtain the withdrawal of any
such order at the earliest possible moment;
(e) if a Shelf Registration Statement is filed pursuant to Section 3,
furnish to each selling holder of Registrable Securities who so requests (at
such holder's address set forth in the Securities Register) without charge, one
conformed copy of the Registration Statement or Registration Statements and each
post-effective amendment thereto, including financial statements and schedules,
all documents incorporated therein by reference and all exhibits (including
those incorporated by reference);
(f) if a Shelf Registration Statement is filed pursuant to Section 3,
deliver to each selling holder of Registrable Securities without charge, as many
copies of the Prospectus (including each preliminary prospectus) and each
amendment or supplement thereto as such persons may reasonably request; and,
subject to the last paragraph of this Section 5, the Company hereby consents to
the use of such Prospectus and each amendment or supplement thereto by each of
the selling holders of Registrable Securities and the underwriters, if any, in
connection with the offering
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<PAGE>
and sale of the Registrable Securities covered by such Prospectus and any
amendment or supplement thereto;
(g) prior to any public offering of Registrable Securities, register or
qualify, or cooperate with the selling holders of Registrable Securities, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions within the United States as
the selling holders reasonably request in writing (provided that, if Registrable
Securities are offered other than through an Underwritten Offering, the Company
agrees to cause its counsel to perform blue sky investigations and file
registrations and qualifications required to be filed pursuant to this Section
5(g)); keep each such registration or qualification (or exemption therefrom)
effective during the period such Registration Statement is required to be kept
effective; and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by the applicable Registration Statement; provided, however, that the
Company will not be required to qualify as a foreign corporation, or to do
business, to file a general consent or take any action which would subject it to
service of process in any jurisdiction or take any action which would subject
itself to taxation in any such jurisdiction;
(h) if a Shelf Registration Statement is filed pursuant to Section 3,
cooperate with the Trustee and the selling holders of Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold, which certificates shall not bear any
restrictive legends and shall be in a form eligible for deposit with The
Depository Trust Company, and enable such Registrable Securities to be in such
authorized denominations and registered in such names as the holders may
reasonably request at least three Business Days prior to any such sale;
(i) if a Shelf Registration Statement is filed pursuant to Section 3,
upon the occurrence of any event contemplated by Section 5(c), prepare a
supplement or post-effective amendment to the Registration Statement or a
supplement to the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, such Prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. If the Company so notifies the holders to
suspend the use of the Prospectus after the
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<PAGE>
occurrence of such an event, the holders shall suspend use of the Prospectus,
and not communicate such material non-public information to any third party, and
not sell or purchase, or offer to sell or purchase, any securities of the
Company, until the Company has amended or supplemented the Prospectus to correct
such misstatement or omission;
(j) use its reasonable best efforts to cause the Registrable Securities
covered by the Registration Statement to continue to be rated by the rating
agencies that initially rated the Initial Securities during the period that the
Registration Statement is required hereunder to remain effective (it being
acknowledged, however, that the foregoing shall not be deemed to require the
Company to maintain the rating of such Registrable Securities at the rating
given the Initial Securities);
(k) prior to the effective date of the first Registration Statement
relating to the Registrable Securities or the Exchange Securities, as the case
may be, (i) provide the Trustee with printed certificates for such securities in
definitive form or in a global form eligible for deposit with The Depository
Trust Company and (ii) provide a CUSIP number for such Registrable Securities or
Exchange Securities represented by such certificates;
(l) if a Shelf Registration Statement is filed pursuant to Section 3,
enter into such reasonably required agreements and take all other appropriate
actions in order to expedite or facilitate the registration or the disposition
of such Registrable Securities;
(m) in the event of any Underwritten Offering (which shall only be
undertaken at the option of the Company), if a Shelf Registration Statement is
filed pursuant to Section 3, make available prior to the filing thereof for
inspection by a representative of the holders of a majority in aggregate
principal amount of the Registrable Securities being sold, and the Special
Counsel, on the one hand, or underwriter on the other hand (collectively, the
"Inspectors"), during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries (collectively, the "Records"), and cause the officers, directors
and employees of the Company and its subsidiaries to supply all relevant
information as shall be reasonably necessary to enable them to exercise any
applicable due diligence responsibilities; provided, however, that, as a
condition to supplying such information, the Company shall receive an agreement
in writing from the Special Counsel agreeing that any information that is
designated in writing by the Company, in good faith, as confidential at the time
of delivery of such
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<PAGE>
information shall be kept confidential by such Inspector (other than as to
holders of Registrable Securities) and by any holders of Registrable Securities
receiving such information, unless (i) disclosure of such information is
required pursuant to applicable law or by court or administrative order, (ii)
disclosure of such information is, in the reasonable opinion of counsel to the
Company, necessary to avoid or correct a misstatement or omission of a material
fact in the Registration Statement, Prospectus or any supplement or
post-effective amendment thereto or disclosure is otherwise required by law,
(iii) such information becomes generally available to the public other than as a
result of a disclosure by any Inspector or any such holder of Registrable
Securities in violation of this Section 5(m) or (iv) such information is
approved for release by the Company, in writing;
(n) use its best efforts to cause the Indenture or the trust indenture
provided for in Section 2, as the case may be, to be qualified under the TIA not
later than the effective date of such Registration Statement; and, in connection
therewith, cooperate with the Trustee under the Indenture and the holders of the
Registrable Securities to effect such changes to the Indenture as may be
required for the Indenture to be so qualified in accordance with the terms of
the TIA and execute, and use its best efforts to cause such Trustee to execute,
all documents as may be required to effect such changes, and all other forms and
documents required to be filed with the Commission to enable the Indenture or
the trust indenture provided for in Section 2 to be so qualified in a timely
manner;
(o) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission.
For purposes of the covenants set forth in this Section 5, references
to a Shelf Registration Statement, including a Shelf Registration Statement
filed pursuant to Section 3, shall be deemed to include any Registration
Statement, filed pursuant to Section 2, which covers, for the period set forth
therein, resales of Exchange Securities held by Restricted Persons as provided
in Section 2, and, in connection with such resales such Restricted Persons shall
be entitled to exercise all rights, receive all notices and copies of documents,
and otherwise receive all benefits afforded to sellers or holders of Registrable
Securities under this Section 5 in connection with a Shelf Registration
Statement. Without limiting the generality of the foregoing, the Company agrees
to fulfill its obligations set forth in Sections 5(a), (b), (c), (d), (e), (f),
(h), (i), (l) and (m) with respect to any such Registration Statement filed
pursuant to Section 2 insofar as it covers such resales.
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<PAGE>
The Company may require each seller of Registrable Securities as to
which any registration is being effected, as a condition thereto, to furnish to
the Company such information regarding the holder and the distribution of such
Registrable Securities as the Company may, from time to time, request in
writing, including without limitation stating that (i) it is not an Affiliate of
the Company, (ii) the amount of Registrable Securities held by such holder prior
to the Exchange Offer, (iii) the amount of Registrable Securities owned by such
holder to be exchanged in the Exchange Offer and representing that such holder
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 Exchange
Securities to be issued, and (iv) it is acquiring the Exchange Securities in its
ordinary course of business and to covenant and agree to promptly notify the
Company if any such information so provided by such seller ceases to be true and
correct and will promptly thereafter furnish the Company with corrected
information. The Company may exclude from such registration the Registrable
Securities of any Person who fails to furnish such information within a
reasonable time after receiving such request.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii),
5(c)(v) or 5(c)(vi) hereof, such holder shall forthwith discontinue disposition
of such Registrable Securities covered by such Registration Statement or
Prospectus until such holder is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and has received
copies of any amendments or supplements thereto and, if so directed by the
Company, such holder will deliver to the Company (at its expense) all copies in
its possession, other than permanent file copies then in such holder's
possession, of the prospectus covering such Registrable Securities current at
the time of receipt of such notice, or certify in writing as to the destruction
thereof. In the event the Company shall give any such notice, the length of the
Effective Period shall be extended by the number of days during such period from
and including the date of the giving of such notice to and including the date
when each seller of Registrable Securities covered by such Registration
Statement shall have received (x) the copies of the supplemented or amended
Prospectus contemplated by Section 5(i) or (y) the Advice.
SECTION 6. Delivery of Prospectus; Notification Upon Resale. The
Initial Purchasers acknowledge that it is the position of the staff of the
Commission that any broker-dealer that receives Exchange Securities for its own
account in exchange for Registrable Securities pursuant to the Exchange Offer
must deliver a
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prospectus in connection with any resale of such Resale Securities. By so
acknowledging, such Initial Purchasers shall not be deemed to admit that, by
delivering a prospectus, it is an underwriter within the meaning of the
Securities Act.
The Initial Purchasers shall notify the Company promptly upon the
completion of the resale of the Resale Securities received by such Initial
Purchasers pursuant to the Exchange Offer.
SECTION 7. Registration Expenses.
The Company shall bear all expenses incurred in connection with the
performance of its obligations under Sections 2, 3 and 4; provided, however,
that the Company shall bear or reimburse the holders for the reasonable fees and
disbursements of only one counsel, the Special Counsel, in accordance with the
terms of the Purchase Agreement; provided, further, however, that if the Company
permits an Underwritten Offering, the Company shall not be responsible for any
fees and expenses of any underwriter, including any underwriting discounts and
commissions or any legal fees and expenses of counsel to the underwriters
(except for the reasonable fees and disbursements of counsel in connection with
state securities or blue sky qualification of any of the Registrable Securities
or the Exchange Securities).
SECTION 8. Indemnification and Contribution.
(a) The Company agrees to (A) indemnify and hold harmless each holder
of Registrable Securities (including any Initial Purchaser which holds
Registrable Securities, including Resale Securities, for its own account (each,
a "Resale Initial Purchaser") and each Person, if any, who controls any such
Person within the meaning of either the Securities Act or the Exchange Act and
each director, officer, employee or agent of each such Person (each a "Holder
Indemnified Party") against any and all losses, claims, damages or liabilities,
joint or several, to which they or any of them are subject under the Securities
Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement covering Registrable Securities held by such person
or any Prospectus relating to any such Registration Statement, or any amendment
thereof or supplement thereto and all documents incorporated by reference
therein, or arise out of or are based upon the omission or alleged omission to
state therein a material fact necessary in order to make the statements therein,
in
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light of the circumstances in which they were made, not misleading, and (B)
reimburse each such Holder Indemnified Party for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement or Prospectus, or in any
amendment thereof or supplement thereto, in reliance upon and in conformity with
written information relating to such holder provided by such holder to the
Company specifically for use therein (collectively, the "Holder Information");
provided, further, however, that the indemnity obligations arising out of this
Section 8 with respect to any untrue statement or alleged untrue statement or
omission or alleged omission made in any preliminary Prospectus shall not inure
to the benefit of any holder or any controlling Person of such holder if such
holder failed to send or deliver to the Person asserting any such losses a copy
of the final Prospectus with or prior to the delivery of the written
confirmation of the sale of the Registrable Securities or the Exchange
Securities, as the case may be, and such final Prospectus would have cured the
untrue statement or omission giving rise to such losses if the Company had
previously furnished copies thereof to such holder. This indemnity agreement
will be in addition to any liability which the Company may otherwise have.
(b) As a condition to the inclusion of a holder's Registrable
Securities in a Registration Statement, such holder shall agree to (i) indemnify
and hold harmless the Company and each person who controls the Company within
the meaning of either the Securities Act or the Exchange Act, and each director,
officer, employee or agent of each such person, against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
are subject under the Securities Act, the Exchange Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in a Registration Statement covering Registrable
Securities held by such holder or any Prospectus relating to any such
Registration Statement or in any amendment thereof or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact necessary in order to make the statements therein, in light of
the circumstances in which they were made, not misleading, and (ii) reimburse
each such indemnified party for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; in each and every
case under clause
21
<PAGE>
(i) and (ii) above to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in such Registration Statement or Prospectus or in any amendment thereof or
supplement thereto, in reliance upon and in conformity with the Holder
Information. This indemnity agreement will be in addition to any liability which
any such holder may otherwise have. In no event shall the liability of any
selling holder of Registrable Securities hereunder be greater in amount than the
dollar amount of the proceeds (net of payment of all expenses) received by such
holder upon the sale (or, in the case of Resale Securities, the resale) of the
Registrable Securities giving rise to such indemnification obligation.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof
(enclosing a copy of all papers served); but the omission to so notify the
indemnifying party (i) shall not relieve it from liability under paragraph (a)
or (b) above unless and to the extent it did not otherwise learn of such action
and such omission results in the forfeiture by the indemnifying party or
material impairment of substantial rights and defenses and (ii) shall not, in
any event, relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligations provided in
paragraph (a) or (b) above. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party. After notice from the indemnifying party to such
indemnified party of its election to so assume the defense of such claim or
action, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than costs
of investigation; provided that if (i) the defendants in any such action include
both the indemnified party and the indemnifying party, the indemnified party
shall have received the written opinion of counsel reasonably acceptable to the
indemnifying party that representation of both parties by the same counsel would
be inappropriate due to actual or likely conflicts of interest between them, or
(ii) the indemnifying party shall not have employed counsel for the indemnified
party to represent the indemnified party within a reasonable time after notice
of the institution of such action, then the indemnified party or parties shall
have the right to select one firm of separate counsel (in addition to the fees
and
22
<PAGE>
expenses of local counsel) to assert any separate legal defenses and to
otherwise defend such action on behalf of such indemnified party or parties. No
indemnifying party shall be liable for any settlement of any action or claim for
monetary damages which an indemnified party may effect without the written
consent of the indemnifying party, which consent shall not be unreasonably
withheld.
(d) If the indemnification provided for in Section 8(a) or (b) hereof
is for any reason, other than as specified in such provisions, unavailable to or
insufficient to hold harmless an indemnified party, then each indemnifying party
shall contribute to the aggregate losses, claims, damages or liabilities (or
actions in respect thereof) referred to in Section 8(a) or (b) hereof in such
proportion as is appropriate to reflect the relative fault and benefits to the
Company on the one hand and such 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 of the Company and such holders
shall be determined by reference to, among other things, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
any untrue statement or omission. The obligations of the holders in this Section
8(d) are several in proportion to their respective obligations hereunder and not
joint. Notwithstanding the provisions of this Section 8(d), in no event shall
any holder of Registrable Securities be required to contribute any amount which
is in excess of (i) the aggregate principal amount of Initial Securities sold or
exchanged by such holder less (ii) the amount of any damages that such person
has otherwise been required to pay by reason of such alleged untrue statement or
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 8, each Holder Indemnified Party shall have the same rights to
contribution as a holder, and each person who controls the Company within the
meaning of either the Securities Act or the Exchange Act and each officer,
director, employee and agent of such person, shall have the same rights to
contribution as the Company, subject in each case to the applicable terms and
conditions of this Section 8(d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Section 8(d), notify such
party or parties from whom contribution may be sought; but the omission to so
notify such party or parties (x) shall not relieve the party or parties from
whom contribution may be sought from any liability under this paragraph (d)
unless and to the extent it did not otherwise learn of such action and such
omission results in the forfeiture by the
23
<PAGE>
party or parties from whom contribution may be sought or material impairment of
substantial rights and defenses and (y) shall not, in any event, relieve such
party or parties from any obligations other than under this Section 8(d).
(e) The provisions of this Section 8 will remain in full force and
effect, regardless of any investigation made by or on behalf of any holder of
Registrable Securities, the Initial Purchasers, the Company or any of the
officers, directors or controlling persons referred to in this Section 8 and
will survive the sale (or, in the case of Resale Securities, the resale) by a
holder of Registrable Securities of such Registrable Securities.
SECTION 9. Underwritten Registrations (If Any). No holder may
participate in any Underwritten Registration, which Underwritten Registration
shall only be undertaken at the option of the Company, unless such holder (a)
agrees to sell such holder's Initial Securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
SECTION 10. Termination. In the event that no Initial Securities are
sold to the Initial Purchasers pursuant to the Purchase Agreement, this
Agreement shall automatically terminate, without liability on the part of any
party. Upon the fulfillment of all obligations on the part of the Company to
register the Initial Securities as set forth herein (including maintaining the
effectiveness of any applicable Registration Statements), this Agreement shall
terminate; provided that the provisions of Sections 7 and 8 hereof shall survive
any termination and remain in full force and effect.
SECTION 11. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not, as of the date
hereof, entered into, and shall not, on or after the date hereof, enter into,
any agreement with respect to its securities that is inconsistent with the
rights granted to the holders of Registrable Securities herein or otherwise
conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supple-
24
<PAGE>
mented, and waivers or consents to departures from the provisions hereof may not
be given, unless the Company has obtained the written consent of holders of at
least a majority of the then outstanding aggregate principal amount of the
Registrable Securities (or, after the consummation of any Exchange Offer in
accordance with Section 2, of Exchange Securities); provided that, with respect
to any matter that directly or indirectly affects the rights of any Restricted
Person hereunder occurring within the period in which the Initial Registration
Statement is open for the Restricted Persons, the Company shall obtain the
written consent of each such Restricted Person against which such amendment,
modification, supplement, waiver or consent is to be effective. Notwithstanding
the foregoing (except for the foregoing proviso), a waiver or consent to
departure from the provisions hereof with respect to a matter that relates
exclusively to the rights of holders of Registrable Securities whose securities
are being sold or exchanged pursuant to a Registration Statement and that does
not directly or indirectly affect the rights of other holders of Registrable
Securities may be given by holders of at least a majority in aggregate principal
amount of the Registrable Securities being sold or exchanged by such holders
pursuant to such Registration Statement; provided, however, that the provisions
of this sentence may not be amended, modified or supplemented except in
accordance with the provisions of the immediately preceding sentence.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Resale Initial Purchasers and that does not directly or indirectly
affect the rights of holders of Registrable Securities or Exchange Securities
may be given by each of the Resale Initial Purchasers affected thereby.
(c) Notices. All notices and other communications (including, without
limitation, any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing and delivered by hand delivery,
registered first-class mail, next-day air courier or telecopier:
(i) if to a holder of Registrable Securities, at the most current
address given by such holder to the Company in accordance with the
provisions of this Section 11(c), which address initially is, with respect
to the Initial Purchasers, at the address set forth in the Purchase
Agreement and thereafter at the address for such holders of Registrable
Securities set forth in the Security Register applicable to such Registrable
Securities; and
25
<PAGE>
(ii) if to the Company, initially at the address set forth in the
Purchase Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 11(c).
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five Business Days after
being deposited in the mail, postage prepaid, if mailed; one Business Day after
being timely delivered to a next-day air courier; and when received, if
telecopied.
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.
(d) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties hereto,
including without limitation and without the need for an express assignment or
any consent by the Company thereto, subsequent holders of Registrable
Securities.
(e) 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.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS. Each of the parties hereto hereby submits to the
non-exclusive jurisdiction of the Federal and State Courts of the Borough of
Manhattan in the City of New York in any suit or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby.
(h) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired or affected
thereby, it being
26
<PAGE>
intended that all of the rights and privileges of the parties shall be
enforceable to the fullest extent permitted by law.
(i) Entire Agreement. This Agreement, together with the Purchase
Agreement, is intended by the parties as a final expression of their agreement,
and is 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 and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This
Agreement, together with the Purchase Agreement, supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
(j) Securities Held by the Company, etc. Whenever the consent or
approval of holders of a specified percentage of principal amount of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
any of its Affiliates (other than subsequent holders of Registrable Securities
if such subsequent holders are deemed to be Affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the holders of such required
percentage.
27
<PAGE>
Please confirm that the foregoing correctly sets forth this agreement
between the Company and you.
Very truly yours,
CE GENERATION, LLC
By: /s/ Steven A. McArthur
------------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Accepted in New York, New York
March 2, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
LEHMAN BROTHERS INC.
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ Jonathan Bram
------------------------------------
Name: Jonathan Bram
Title: Managing Director
<PAGE>
EXHIBIT 4.5
- --------------------------------------------------------------------------------
DEBT SERVICE RESERVE LETTER OF CREDIT
AND REIMBURSEMENT AGREEMENT
among
CE GENERATION, LLC,
as Borrower
and
THE BANKS NAMED HEREIN
and
CREDIT SUISSE FIRST BOSTON,
as Agent
dated as of March 2, 1999
- --------------------------------------------------------------------------------
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I: DEFINITIONS; CONSTRUCTION....................................................1
SECTION 1.1 Definitions.....................................................1
SECTION 1.2 Construction....................................................6
ARTICLE II: DEBT SERVICE RESERVE LETTER OF CREDIT........................................7
SECTION 2.1 Commitments.....................................................7
SECTION 2.2 Amount and Term of Debt Service Reserve Letter of
Credit.......................................................................7
SECTION 2.3 Participations in Debt Service Reserve Letter of
Credit.......................................................................9
SECTION 2.4 Drawing and Reimbursement.......................................9
SECTION 2.5 Fees...........................................................10
SECTION 2.6 Interest.......................................................11
SECTION 2.7 Repayment......................................................12
SECTION 2.8 Prepayments....................................................13
SECTION 2.9 Security.......................................................14
SECTION 2.10 Payments......................................................14
SECTION 2.11 Computation of Interest and Fees..............................15
SECTION 2.12 Payments on Non-Business Days.................................15
SECTION 2.13 Sharing of Payments, Etc......................................15
SECTION 2.14 Evidence of Debt..............................................15
SECTION 2.15 Increased Debt Service Reserve Letter of Credit
Costs.......................................................................16
SECTION 2.16 Capital Adequacy..............................................17
SECTION 2.17 Taxes.........................................................17
SECTION 2.18 Change of Law.................................................21
SECTION 2.19 Non-Availability..............................................21
SECTION 2.20 Assignments by Banks..........................................22
SECTION 2.20A. Mitigation Provision........................................22
SECTION 2.21 Reduction in Commitments/Loans................................23
SECTION 2.22 Right of Set-off..............................................23
SECTION 2.23 Minimum Amounts...............................................24
ARTICLE III: CONDITIONS PRECEDENT........................................................24
i
<PAGE>
Page
----
SECTION 3.1 Conditions Precedent to Issuance of Debt Service
Reserve Letter of Credit....................................................24
ARTICLE IV: REPRESENTATIONS AND WARRANTIES..............................................25
SECTION 4.1 Representations and Warranties.................................25
ARTICLE V: COVENANTS...................................................................26
SECTION 5.1 Covenants......................................................26
ARTICLE VI: DEFAULTS AND REMEDIES.......................................................27
SECTION 6.1 Defaults and Remedies..........................................27
ARTICLE VII: CHARACTER OF OBLIGATIONS....................................................29
SECTION 7.1 Obligations Absolute...........................................29
SECTION 7.2 Limited Liability of Agent and Banks...........................30
ARTICLE VIII: THE AGENT..................................................................31
SECTION 8.1 Authorization and Action.......................................31
SECTION 8.2 Agent's Reliance, Etc..........................................32
SECTION 8.3 Initial Bank and Affiliates....................................32
SECTION 8.4 Bank Credit Decision...........................................32
SECTION 8.5 Indemnification................................................33
SECTION 8.6 Successor Agent................................................33
SECTION 8.7 Collateral.....................................................34
ARTICLE IX: MISCELLANEOUS...............................................................34
SECTION 9.1 Amendments, Etc................................................34
SECTION 9.2 Notices, Etc...................................................35
SECTION 9.3 No Waiver; Remedies............................................35
SECTION 9.4 Costs and Expenses.............................................35
SECTION 9.5 Application of Moneys..........................................36
SECTION 9.6 Severability...................................................36
SECTION 9.7 Limitation of Liability........................................36
SECTION 9.8 Binding Effect.................................................37
SECTION 9.9 Assignments and Participations.................................37
SECTION 9.10 Indemnification...............................................39
SECTION 9.11 Governing Law.................................................40
SECTION 9.12 Consent to Jurisdiction and Venue.............................40
ii
<PAGE>
Page
----
SECTION 9.13 Headings......................................................41
SECTION 9.14 Execution in Counterparts.....................................41
SECTION 9.15 Waiver of Jury Trial..........................................41
</TABLE>
Exhibit A Form of Debt Service Reserve Letter of Credit
Exhibit B Debt Service Reserve Letter of Credit Promissory Note
Exhibit C Form of Commitment Transfer Supplement
Exhibit D Reserve Bond Note
iii
<PAGE>
DEBT SERVICE RESERVE LETTER OF CREDIT
AND REIMBURSEMENT AGREEMENT
This Debt Service Reserve Letter of Credit and Reimbursement Agreement
(this "Agreement"), dated as of March 2, 1999, is entered into by and among (1)
CE GENERATION, LLC, a Delaware limited liability company (the "Borrower"), (2)
CREDIT SUISSE FIRST BOSTON (in its individual capacity, "Initial Bank"), (3)
LEHMAN COMMERCIAL PAPER INC., as a Bank (as defined below), (4) each other bank
or other entity that becomes a party hereto pursuant to Section 9.9
(collectively, the "Banks") and (5) CREDIT SUISSE FIRST BOSTON, as agent (in
such capacity, together with its successors in such capacity, the "Agent") for
the Banks.
A. Pursuant to an Indenture dated as of March 2, 1999 (the "Indenture")
between the Borrower and Chase Manhattan Bank and Trust Company, National
Association, as trustee (in such capacity, together with its successors in such
capacity, the "Trustee"), the Borrower has authorized the creation of issues of
nonrecourse bonds, debentures, promissory notes and other evidences of indebted
ness to be issued in one or more series (collectively, the "Securities"), the
sale proceeds of which are to be advanced to the Borrower pursuant to the
Indenture.
B. The Borrower has requested that Initial Bank issue and the Banks
participate in, and Initial Bank is willing to issue and the Banks are willing
to participate in, the Debt Service Reserve Letter of Credit upon the terms and
conditions hereinafter set forth.
ARTICLE I
DEFINITIONS; CONSTRUCTION
SECTION 1.1 Definitions. (a) Terms defined in the Indenture (in the form of
such terms as they exist on the date of this Agreement and as they may hereafter
be amended from time to time, but only to the extent that the incorporation of
any such amendments into this Agreement has been consented to by the Required
Banks in writing) have, unless the same are defined herein or the context
otherwise requires, the same meaning when used herein (with appropriate
substitutions including without limitation the following: (i) the word
"Indenture" as it appears in the definition of Governmental Approvals shall be
replaced by the words "this Agree-
<PAGE>
ment" and (ii) the word "Trustee" as it appears in the definition of Officers'
Certificate shall be replaced by the word "Agent").
(b) The following terms are used in this Agreement with the following
respective meanings:
"Adjusted Base Rate" means the higher of (i) the Federal Funds Rate plus
.375% and (ii) the Prime Rate.
"Adjusted Base Rate Loan" means a Loan bearing interest at the Adjusted
Base Rate.
"Business Day" means a day (other than a Saturday or Sunday) on which banks
are open for business in New York, New York, and, in matters relating to the
determination of a LIBOR Rate or Interest Period, a day on which the London
interbank market deals in U.S. Dollar deposits.
"Closing Date" means the date on which the conditions precedent set forth
in Section 3.1 have been fulfilled.
"Commitment" has the meaning set forth in Section 2.1.
"Commitment Transfer Supplement" means a Commitment Transfer Supplement
entered into by a Bank and another Person substantially in the form of Exhibit
C.
"Credit Documents" means this Agreement, the Notes and the Debt Service
Reserve Letter of Credit.
"DSR LOC Note Repayment Date" means, in respect of each Loan, the later of
(i) ten (10) years from the Closing Date or (ii) five (5) years from the date of
the Drawing giving rise to such Loan.
"Debt Service Reserve Letter of Credit" means a letter of credit
substantially in the form of Exhibit A, issued or to be issued by the Initial
Bank, or any letter of credit issued by the Initial Bank in replacement thereof.
"Default" means an event that with the giving of any required notice and/or
the lapse of any required time would constitute an Event of Default.
2
<PAGE>
"Depositary Bank" means Chase Manhattan Bank and Trust Company, National
Association, as depositary bank under the Depositary Agreement or any successor
thereto pursuant to the terms thereof.
"Drawing" means a drawing under the Debt Service Reserve Letter of Credit.
"Event of Default" has the meaning set forth in Section 6.1.
"Excluded Taxes" has the meaning set forth in Section 2.17(a).
"Expiration Date" means the earliest of (a) three hundred sixty-four (364)
days from the Closing Date, or (b) the date on which the Debt Service Reserve
Letter of Credit is terminated on the terms set forth herein.
"Federal Funds Rate" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York or, if such rate is not so published for any day that
is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three federal funds brokers of
recognized standing selected by it.
"Final Maturity Date" means the latest Stated Maturity date of any series
of Securities.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Indemnified Party" has the meaning set forth in Section 9.10.
"Indenture" has the meaning set forth in Recital A.
"Interest Payment Date" means with respect to any (i) Debt Service Reserve
LOC Loan, each June 15th and December 15th, or any other date as may be agreed
from time to time by Borrower and Agent hereunder, commencing on the first such
date after the applicable drawing, and any date on which interest on such Debt
Service Reserve LOC Loan becomes due and payable at redemption, the final
3
<PAGE>
maturity date or declaration of acceleration, or otherwise, and (ii) Debt
Service Reserve Bond, each June 15th and December 15th, commencing on the first
such date after the applicable conversion date, and any date on which interest
on such Debt Service Reserve Bond becomes due and payable at redemption, the
final maturity date or declaration of acceleration, or otherwise.
"Interest Period" means, with respect to any Loan bearing interest at the
LIBOR Rate, an interest period of one (1), two (2), three (3) or six (6) months
(or, such other period as mutually agreed between the Borrower and the Agent);
provided, however, that such Interest Period shall, in all events, end no later
than the next Principal Payment Date to occur.
"LIBOR Rate" means, for any Loan bearing interest at the LIBOR Rate, a rate
per annum equal to the offered rate for deposits in United States dollars (in
the approximate amount and having approximately the same maturity as the LIBOR
Rate Loan to be made) which appears on the Reuters Screen LIBOR Page as of 11:00
a.m. (London time), two (2) Business Days prior to the first day of the Interest
Period for such LIBOR Rate Loan, and in case of variations in rates, the
arithmetic average thereof rounded upwards, if necessary, to the nearest 1/100
of 1%, calculated by the Agent.
"LIBOR Rate Loan" means a Loan bearing interest at the LIBOR Rate.
"Loan" has the meaning set forth in Section 2.4.
"Mortgage Basis" means, in respect of each Reserve Bond, an amortization
schedule which, taking into account the interest rate applicable to such Reserve
Bond determined in accordance with Section 2.7(f) and assuming payments are made
on Interest Payment Dates, results in levelized payment of the principal of and
interest on such Reserve Bond to and including the maturity date applicable to
such Reserve Bond determined in accordance with Section 2.7(f).
"Note" has the meaning set forth in Section 2.14(a).
"Obligations" means all of the obligations of the Borrower to the Banks and
the Agent under this Agreement, the Notes and the Reserve Bonds, whether for
principal (including reimbursement of amounts drawn under the Debt Service
Reserve Letter of Credit), interest, fees, expenses, indemnification or
otherwise.
4
<PAGE>
"Outstanding Amount" means an amount not in excess of $24,500,000 at any
time as set forth on Schedule VI to the Indenture and as the same may be
reduced, increased or reinstated from time to time in accordance with the terms
and provisions hereof and of the Debt Service Reserve Letter of Credit.
"Participant" has the meaning set forth in Section 9.9(b) .
"Prime Rate" means the variable rate of interest per annum officially
announced or published by the Agent from time to time as its "prime rate," such
rate being set by the Agent as a general reference rate of interest, taking into
account such factors as the Agent may deem appropriate, it being understood that
many of the Agent's commercial or other loans are priced in relation to such
rate, that it is not necessarily the lowest or best rate actually charged to any
customer and that the Agent may make various commercial or other loans at rates
of interest having no relationship to such rate. For purposes of this Agreement,
each change in the Prime Rate shall be effective as of the opening of business
on the date announced as the effective date of the change in such "prime rate."
"Principal Payment Date" means with respect to (i) any Debt Service Reserve
LOC Loan, each June 15th and December 15th, or any other date as may be agreed
from time to time by Borrower and Agent hereunder, commencing on the first such
date after the applicable drawing, and the date on which all or a portion of the
principal of such Debt Service Reserve LOC Loan becomes due and payable at
redemption, the final maturity date or declaration of acceleration, or
otherwise, and (ii) any Debt Service Reserve Bond, each June 15th and December
15th, commencing on the first such date after the applicable conversion date,
and any date on which principal of such Debt Service Reserve Bond becomes due
and payable at redemption, the final maturity date or declaration of
acceleration, or otherwise.
"Purchasing Bank" has the meaning set forth in Section 9.9(a).
"Quarterly Date" has the meaning set forth in Section 2.5(c).
"Regulatory Change" means, subsequent to the date of this Agree ment, any
adoption or change in United States Federal, state or municipal or foreign law
or regulations (including without limitation Regulation D) or the adoption or
change or making of any application, interpretation, directive, request or
guideline of or under any United States Federal, state or municipal or foreign
law or regulations by any court, central bank or Governmental Authority.
5
<PAGE>
"Required Banks" means, at any time, Banks (one of which shall be the
Agent) owed at least 66 2/3% of the sum of Obligations then outstanding and/or
the Commitments; provided, however, that, if and so long as there are only two
Banks, then "Required Banks" shall mean both of such Banks.
"Reserve Bond" has the meaning set forth in Section 2.7(e).
"Reserve Bond Note" has the meaning set forth in Section 2.7(g).
"Reserve Requirement" means, for Loans bearing interest at the LIBOR Rate,
the rate (expressed as a percentage) at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during the
Interest Period therefor under Regulation D by member banks of the Federal
Reserve System in New York City with deposits exceeding one billion Dollars
against "Eurocurrency liabilities" (as such term is used in Regulation D).
"Securities" has the meaning set forth in Recital A.
"Taxes" means any and all present or future income, stamp, transfer,
turnover and other taxes, levies, imposts, duties, charges, fees, deductions or
with holdings now or hereafter imposed, levied, collected, withheld or assessed
by any Governmental Authority, and any and all interest, penalties, claims or
other liabilities arising under or relating thereto, including those on any of
the Banks or on payments to be made to or received by any of them from Borrower
hereunder.
"Termination Notice" has the meaning set forth in Section 2.2(h).
"Trustee" has the meaning set forth in Recital A.
SECTION 1.2 Construction. In this Agreement, unless expressly specified to
the contrary: the singular includes the plural and the plural the singular;
words importing any gender include the other genders; references to statutes are
to be construed as including all statutory provisions consolidating, amending or
replacing the statute referred to; references to "writing" include printing,
typing, lithography and other means of reproducing words in a tangible, visible
form; the words "including," "includes" and "include" shall be deemed to be
followed by the words "without limitation"; references to articles, sections (or
subdivisions of sections), recitals, appendices, exhibits, annexes or schedules
are to those of this Agreement; references to agreements and other instruments
shall be deemed to include all amendments and other modifications to such
agreements and instruments, but only to the extent such
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amendments and other modifications are not prohibited by the terms of this Agree
ment; references to Persons include their respective permitted successors and
assigns and, in the case of Governmental Authorities, Persons succeeding to
their respective functions and capacities; and all accounting terms used in this
Agreement shall be interpreted, all accounting determinations under this
Agreement shall be made and all financial statements required to be delivered
under this Agreement shall be prepared in accordance with generally accepted
accounting principles as in effect from time to time.
ARTICLE II
DEBT SERVICE RESERVE LETTER OF CREDIT
SECTION 2.1 Commitments. Each Bank irrevocably agrees sever ally, on the
terms and conditions contained in this Agreement, to participate in the Debt
Service Reserve Letter of Credit in an aggregate amount not to exceed at any
time outstanding the amount set forth opposite such Bank's name on the signature
pages hereof or, if such Bank has entered into one or more Commitment Transfer
Supplements, set forth for such Bank in the register maintained by the Agent
(such agreement by such Bank, as the same may be reduced from time to time
pursuant to the terms of this Agreement, herein called such Bank's
"Commitment").
SECTION 2.2 Amount and Term of Debt Service Reserve Letter of Credit. (a)
Subject to the terms and conditions contained in this Agreement, Initial Bank
irrevocably agrees to issue the Debt Service Reserve Letter of Credit on the
Closing Date for the account of the Borrower in favor of the Depositary Bank and
in the face amount of $24,500,000, subject to reduction, increase and
reinstatement as provided hereinafter and in the Debt Service Reserve Letter of
Credit. The Debt Service Reserve Letter of Credit shall be issued on the Closing
Date.
(b) [Reserved]
(c) [Reserved]
(d) The Debt Service Reserve Letter of Credit shall not be available for
any Debt Service Reserve Requirement applicable to Additional Securities without
the prior written consent of the Required Banks.
(e) If the Debt Service Reserve Requirement shall be reduced or increased
in accordance with the Indenture and the Depositary Agreement, the
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Outstanding Amount of the Debt Service Reserve Letter of Credit shall be reduced
or increased, as the case may be, by an amount equal to the amount of such
reduction or increase in the Debt Service Reserve Requirement; provided,
however, that in no event shall the Outstanding Amount exceed $24,500,000 at any
time. Subject to Section 6.1, the Outstanding Amount of the Debt Service Reserve
Letter of Credit, as so reduced or increased, shall be reinstated to the extent
that Loans are repaid, provided that such reinstatement shall not cause the
Outstanding Amount (when added to the balance in the Debt Service Reserve
Account) to exceed the Debt Service Reserve Requirement.
(f) [Reserved]
(g) The Borrower shall deliver, or cause to be delivered, (i) to each of
the Agent and the Trustee, prompt notice of the occurrence of any event
resulting in an adjustment to the Debt Service Reserve Requirement, including,
in each case, without limitation, pursuant to Section 3.3(c) of the Depositary
Agree ment, and (ii) to each of the Agent and the Depositary Bank, the
calculation of the Outstanding Amount resulting from the adjustment referred to
in clause (i), together with all information reasonably necessary to make such
calculation. The Initial Bank shall deliver to the Depositary Bank a notice in
the form of Annex 5 to the Debt Service Reserve Letter of Credit to effect a
change in the Outstanding Amount of the Debt Service Reserve Letter of Credit.
Notwithstanding the foregoing, no notice hereunder need be delivered in the case
of any reduction or increase scheduled to occur as set forth on Schedule I to
the Depositary Agreement, in effect at the time of such change.
(h) The Initial Bank shall have the right, upon the occurrence and during
the continuance of an Event of Default, to deliver a notice in the form of Annex
2 to the Debt Service Reserve Letter of Credit (a "Termination Notice"). The
Outstanding Amount shall not be reinstated upon repayment of any Loans after the
delivery by the Initial Bank of a Termination Notice.
(i) The Agent shall, solely for informational purposes, deliver to the
Borrower a copy of any termination notice given to the beneficiary under the
Debt Service Reserve Letter of Credit, provided, however, that the Banks'
ability to terminate the Debt Service Reserve Letter of Credit shall not be
contingent upon the Agent's delivery to the Borrower of such notice and that
neither the Agent nor the Banks shall incur any liability whatsoever as a result
of the Agent's failure to deliver such notice to the Borrower.
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SECTION 2.3 Participations in Debt Service Reserve Letter of Credit.
Immediately upon the issuance of the Debt Service Reserve Letter of Credit,
Initial Bank shall be deemed to have sold and transferred to each Bank, and each
Bank shall be deemed to have purchased and received from Initial Bank, in each
case irrevocably and without any further action by any party, an undivided
interest and participation in the Debt Service Reserve Letter of Credit, each
Drawing and the other Obligations in respect thereof in an amount equal to the
product of (a) a fraction the numerator of which is the amount of the Commitment
of such Bank and the denominator of which is the aggregate amount of all of the
Commitments and (b) the maximum amount available to be drawn under the Debt
Service Reserve Letter of Credit plus outstanding LOC Loans. The Agent shall
promptly advise each Bank of any change in the Outstanding Amount or Expiration
Date in respect of the Debt Service Reserve Letter of Credit, the cancellation
or other termination of the Debt Service Reserve Letter of Credit and any
Drawing, provided, however, that failure to provide such notice shall not limit
or impair the rights of the Agent hereunder or under the Financing Documents.
SECTION 2.4 Drawing and Reimbursement. The payment by Initial Bank of a
Drawing shall constitute the making by Initial Bank of a loan in the amount of
such payment. In the event that a Drawing is not repaid by the Borrower by 10:00
a.m., New York time, on the day of such Drawing, the Agent shall promptly notify
each other Bank. Each such Bank shall, on the day of such notification, make a
loan to the Borrower, which shall be used to repay the applicable portion of
Initial Bank's loan with respect to such Drawing, in an amount equal to the
amount of such Bank's participation in such Drawing, for application to repay
Initial Bank, and shall deliver to the Agent for Initial Bank's account, on the
day of such notification and in immediately available funds, the amount of such
loan. In the event that any Bank fails to make available to the Agent for the
account of Initial Bank the amount of such loan, Initial Bank shall be entitled
to recover such amount on demand from such Bank together with interest thereon
at (i) for the first three (3) days of nonpayment, the Federal Funds Rate and
(ii) thereafter, the Federal Funds Rate plus 3%. Each loan by a Bank pursuant to
this Section 2.4 shall be deemed a "Loan" under this Agreement.
SECTION 2.5 Fees. The Borrower shall pay the following fees to the Agent
for the respective accounts of the Persons specified below:
(a) for the account of the Initial Bank, the fee set forth in that certain
letter agreement of even date herewith between the Borrower and the Initial Bank
payable on the Closing Date;
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(b) if there is more than one (1) Bank, for the account of the Agent, an
annual administration fee of $25,000, payable on the Funding Date next
succeeding the first date on which there is more than one Bank and on each
anniversary thereof;
(c) to the Agent for the respective accounts of the Banks, an annual letter
of credit fee equal to (i) from and including the Closing Date to and excluding
the Expiration Date, 2.00% of the Outstanding Amount, and (ii) during the
continuance of an Event of Default or following a DSR LOC Note Repayment Date,
the rate that would otherwise apply pursuant to clause (i) plus 2.00%,
one-fourth of which each such payment is payable in arrears on the Funding Date
in each December, March, June and September (each such Funding Date, a
"Quarterly Date") following the Closing Date;
(d) for the account of the Initial Bank, such additional administrative
fees and charges (including cable charges) as are generally associated with
letters of credit, in accordance with the Initial Bank's standard internal
charge guidelines, payable on the next Funding Date under the Depositary
Agreement; and
(e) for the account of the Initial Bank, an annual letter of credit
fronting fee equal to 0.20% of the amount by which the Outstanding Amount of the
Debt Service Reserve Letter of Credit exceeds the Commitment of the Initial
Bank, one-fourth of which is payable on each Quarterly Date.
Each Bank shall pay to the Agent for the account of the Initial Bank, its
pro rata portion (calculated by dividing such Bank's Commitment by the aggre
gate of all Commitments) of an annual letter of credit fronting fee equal to
0.20% of the amount by which the Outstanding Amount of the Debt Service Reserve
Letter of Credit exceeds the Commitment of the Initial Bank, one-fourth of which
is payable on each Quarterly Date.
SECTION 2.6 Interest. (a) The Borrower shall pay interest on the unpaid
principal amount of each Loan resulting from a Drawing, from the date of such
Loan until such principal amount has been repaid in full. Such interest shall be
paid at a rate per annum equal to (i) so long as no Event of Default has
occurred and is continuing, either (x) the sum of the Adjusted Base Rate in
effect from time to time plus 1.375% or (y) the sum of the LIBOR Rate in effect
from time to time plus 2.00%, and (ii) so long as an Event of Default is
continuing, the Adjusted Base Rate plus 3.00% per annum (the "Default Rate"). If
the principal amount of a Loan is not
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repaid in full by the applicable DSR LOC Note Repayment Date and no Event of
Default has occurred and is continuing, the Borrower shall pay interest on the
unpaid principal amount of such Loan at the Adjusted Base Rate plus 3.00% per
annum. Such interest shall be payable semiannually in arrears on each Interest
Payment Date pursuant to Sections 3.1(c)(iii) and 3.2 of the Depositary
Agreement.
(b) Each Drawing and each Loan made pursuant to Section 2.4 shall initially
bear interest based on the Adjusted Base Rate as in effect from time to time
plus 1.375%; provided, however, that prior to the making of any Loan, the
Borrower may give the Agent written notice of the Borrower's election that such
Loan shall bear interest based on the LIBOR Rate. Such notice shall be
irrevocable and shall be effective only if received by the Agent not later than
10:00 a.m. (New York time) three (3) Business Days prior to the occurrence of
the Drawing giving rise to such Loan. The Agent shall promptly notify the Banks
of the contents of each such notice. Subject to Sections 2.6(d), 2.19 and 2.23,
such Loan shall then bear interest based on the LIBOR Rate from the date of such
Loan.
(c) Subject to Sections 2.6(d), 2.19 and 2.23, unless an Event of Default
shall have occurred, the Borrower may at any time, upon three Business Days'
irrevocable written notice to the Agent, convert (i) any Adjusted Base Rate Loan
to a LIBOR Rate Loan or (ii) any LIBOR Rate Loan to an Adjusted Base Rate Loan,
provided that a LIBOR Rate Loan may be converted only on the last day of the
applicable Interest Period. The Agent shall promptly notify the Banks of the
contents of each such notice. In the event that Borrower fails to select the
applicable interest rate, within the time period and otherwise as provided in
this Section 2.6(c), such Loan (if outstanding as a LIBOR Rate Loan) will be
automatically converted into an Adjusted Base Rate Loan on the last day of the
then current Interest Period for such Loan or (if outstanding as an Adjusted
Base Rate Loan) will remain as, or (if not then outstanding) will be made as, an
Adjusted Base Rate Loan.
(d) The Borrower shall pay to the Agent for the account of each Bank, upon
the request of such Bank through the Agent, such amount or amounts as shall be
sufficient (in the reasonable opinion of such Bank) to compensate it for any
loss, cost or expense which such Bank determines is attributable to any failure
for any reason (i) of any LIBOR Rate Loan, pursuant to a notice given under
Section 2.6(b) to occur or (ii) of the Borrower to convert an Adjusted Base Rate
Loan from such Bank to a LIBOR Rate Loan as and when specified in the relevant
notice given pursuant to Section 2.6(b) or 2.6(c).
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SECTION 2.7 Repayment. (a) The Borrower shall repay the principal amount of
each Loan as, when and to the extent monies are available for such purpose
pursuant to Section 3.1(c), 3.2 or 3.5 of the Depositary Agreement or Section 3
or 6 of the Intercreditor Agreement. Each Loan shall mature on the applicable
DSR LOC Note Repayment Date; provided that the outstanding principal of each
such Loan shall only be due and payable as, when and to the extent that monies
are available for the purpose of repayment of principal pursuant to Section
3.1(c), 3.2 or 3.5 of the Depositary Agreement and Section 3 or 6 or the
Intercreditor Agreement, as applicable.
(b) Subject to Section 2.7(c), the Initial Bank shall reduce the
Outstanding Amount by the outstanding principal amount of each Loan.
(c) Subject to Sections 2.2 and 6.1, the Initial Bank shall, upon receipt
of written notice from the Borrower, reinstate the Outstanding Amount to the
extent of any repayment or prepayment of the principal amount of any Loan.
(d) [Reserved]
(e) Notwithstanding the foregoing provisions of this Section 2.7, if (i)
50% or more of the principal amount of any Loan remains outstanding on or after
the fifth (5th) anniversary of the Drawing giving rise to such Loan or (ii) the
principal amount of any Loan remains outstanding on or after ten (10) years from
the Closing Date, the Agent may, subject to the approval of the Required Banks
and upon thirty (30) days' prior written notice to the Borrower, the Depositary
Bank and the Trustee, convert any Loan into a substitute loan (such converted
Loan, a "Reserve Bond").
(f) Each Reserve Bond shall (i) amortize on a Mortgage Basis, (ii) finally
mature on the Final Maturity Date and (iii) bear interest at a fixed rate equal
to the higher of (x) the interest rate last applicable to the Loan converted
into such Reserve Bond and (y) the then current (at the time of conversion of
the Loan to such Reserve Bond) rate of interest on U.S. Treasury Notes with an
average life most comparable to the remaining average life of the Securities
plus the higher of (A) 2.50% and (B) the spread over U.S. Treasury Notes
applicable to the Securities on the Closing Date.
(g) Upon the expiration of the thirty (30) day period specified in Section
2.7(e), or such shorter period agreed to by the Agent and the Borrower, the
Agent shall deliver to the Borrower the Note (marked canceled) evidencing the
Loan
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which is to be converted into a Reserve Bond and the Borrower shall deliver to
the Agent an appropriately completed Reserve Bond Note substantially in the form
of Exhibit D (each a "Reserve Bond Note").
(h) The Borrower shall pay interest and principal on each
Reserve Bond in arrears on each Payment Date in accordance with Sections
3.1(c)(iii) and 3.2 of the Depositary Agreement.
(i) Upon any prepayment of a Reserve Bond, whether due to an
optional or mandatory redemption, acceleration or otherwise, the Borrower shall
pay to the Agent for the benefit of the Banks such amount as will be sufficient
to compensate all the Banks for any breakage costs incurred in connection with
any interest rate protection agreement or similar arrangement entered into with
respect to the Reserve Bonds being repaid in accordance with Section 3.1(c) of
the Depositary Agreement.
SECTION 2.8 Prepayments. (a) The Borrower may, at any time and from time to
time on any Business Day, upon prior written notice to the Agent not later than
11:00 a.m., New York time, at least two (2) Business Days before the day of any
prepayment of the Loans, such notice stating the proposed date and aggregate
principal amount of the prepayment, and if such notice is given the Borrower
shall, prepay without premium or penalty (except as provided in Section 2.7(i))
the outstanding principal amounts of the Loans in whole or in part, together
with accrued interest to the date of such prepayment on the principal amount
prepaid. The Loans (including Reserve Bonds) are subject to prepayment pursuant
to Sections 3.1(c) and 3.5 of the Depositary Agreement and Sections 3 and 6 of
the Intercreditor Agreement.
(b) The Borrower agrees to indemnify each Bank and hold each Bank harmless
from any direct loss (but excluding any indirect, consequential or incidental
loss or damage), cost or out-of-pocket expense which such Bank incurs as a
result of a prepayment of any Loan bearing interest at the LIBOR Rate on a date
which is not the last day of an Interest Period applicable thereto.
(c) All prepayments made hereunder shall be applied by the Agent and the
Banks against the principal amount of outstanding Loans (i) as long as no Event
of Default has occurred and is continuing, in the order as specified by Bor
rower or, in the absence of such specification, in the order such Loans were
made, and (ii) after an Event of Default has occurred in the order as specified
by the Agent or, in the absence of such specification, in the order such Loans
were made.
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SECTION 2.9 Security. The Obligations shall be secured by the Security
Documents, the rights and remedies in respect of which shall be exercised
pursuant to the Intercreditor Agreement.
SECTION 2.10 Payments. (a) The Borrower shall make each payment hereunder
and under the Notes and the Reserve Bond Notes not later than 10:00 a.m., New
York time, on the day when due in United States dollars to the Agent at its
address set forth in Section 9.2, in immediately available funds. The Agent will
promptly thereafter cause to be distributed like funds relating to the payment
of principal (including reimbursement of Drawings), interest or fees ratably
(other than amounts payable for the account of the Agent or the Initial Bank
pursuant to Section 2.5(a), (b), (d) or (e) or payable pursuant to Section 9.4)
to the Banks and like funds relating to the payment of any other amount payable
to any Bank to such Bank, in each case to be applied in accordance with the
terms of this Agreement.
(b) Unless the Agent receives notice from the Borrower before the date on
which any payment is due to the Banks hereunder that the Borrower will not make
such payment in full, the Agent may assume that the Borrower has made such
payment in full to the Agent on such date, and the Agent may, in reliance upon
such assumption, cause to be distributed to each Bank on such due date an amount
equal to the amount then due to such Bank. If and to the extent that the
Borrower has not so made such payment in full to the Agent, each Bank shall
repay to the Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date on which such Bank repays such amount to
the Agent (i) for the first three (3) days of non-repayment, at the Federal
Funds Rate and (ii) thereafter, at the Federal Funds Rate plus 3%.
SECTION 2.11 Computation of Interest and Fees. All computations of interest
and fees hereunder shall be made on the basis of a year of three hundred sixty
(360) days for the actual number of days (including the first day but excluding
the last day) occurring in the period for which such interest or fees are
payable. Each calculation and each determination by the Agent of an interest
rate hereunder shall be conclusive and binding for all purposes, absent manifest
error.
SECTION 2.12 Payments on Non-Business Days. Whenever any payment hereunder
or under any Note or Reserve Bond Note is stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the
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computation of payment of interest or fees, as the case may be. If no due date
is specified for the payment of any amount payable by Borrower hereunder, such
amount shall be due and payable not later than ten (10) Business Days after
receipt by Borrower of written demand from Agent for payment thereof.
SECTION 2.13 Sharing of Payments, Etc. If any Bank obtains any payment
(whether voluntary, involuntary, through the exercise of any right of setoff, or
otherwise) on account of its Commitment or the Loans made by it (other than
pursuant to Section 9.4) in excess of its ratable share of such payments
obtained by all of the Banks, then such Bank shall be deemed to have received
such payment as agent for and on behalf of all the Banks and shall immediately
advise the Agent of the receipt of such funds and promptly transmit the amount
thereof to the Agent for prompt distribution among the Banks as provided for in
this Agreement and such funds transmitted to the Agent shall be credited as a
payment by the Borrower under this Agreement; provided that such Bank so
transmitting funds to the Agent shall not be deemed to have received, and the
Borrower shall be deemed not to have made to such Bank (to the extent funds are
transmitted to the Agent) any payment transmitted to the Agent by such Bank
pursuant to this Section 2.13.
SECTION 2.14 Evidence of Debt. (a) The indebtedness of the Borrower
resulting from all Loans made by each Bank from time to time shall be evidenced
by an appropriate notation on the schedule, or a continuation thereof, to the
Debt Service Reserve Letter of Credit Promissory Note substantially in the form
of Exhibit B (each a "Note"), delivered by the Borrower to such Bank.
(b) The books and accounts of the Agent shall be conclusive evidence,
absent manifest error, of the amounts of all Drawings, Loans, fees, interest and
other amounts advanced, due, outstanding, payable or paid pursuant to this
Agreement or any Note.
SECTION 2.15 Increased Debt Service Reserve Letter of Credit Costs. If,
after the date hereof, any introduction of or change in any Applicable Law
(including for purposes hereof, any directive guideline or requirement of any
Governmental Authority (whether or not having the force of law)) or in the
interpretation thereof by any Governmental Authority charged with the
administration thereof either (a) imposes, modifies or makes applicable any
reserve, special deposit or similar requirement against letters of credit issued
by, or assets held by, or deposits or other liabilities in or for the account
of, the Agent or any Bank or (b) imposes on the Agent or any Bank any other
condition regarding this Agreement, the Agent, such Bank or the Debt Service
Reserve Letter of Credit, and the result of any event
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referred to in the preceding clause (a) or (b) is to increase the cost to the
Agent or such Bank of issuing or maintaining the Debt Service Reserve Letter of
Credit, reduce the amount of any payment receivable by the Agent or such Bank
hereunder or reduce the rate of return on any Bank's capital as a consequence of
its obligations hereunder below that which such Bank would have achieved but for
such circumstance, then, in each such case, upon demand by the Agent or such
Bank, the Borrower shall pay to the Agent or such Bank, from time to time as
specified thereby, on the appropriate Funding Dates under the Depositary
Agreement, additional amounts sufficient to compensate the Agent or such Bank
for such increased costs, reduction in payments receivable or reduction in rate
of return. A certificate as to any such additional amount or amounts submitted
by a Bank, through Agent, to Borrower and the other Banks shall certify that
similar demands have been made to other customers of such Bank which are subject
to similar provisions and shall, in the absence of manifest error, be final and
conclusive. In determining such amount, a Bank may use any reasonable averaging
and attribution methods. Notwithstanding the foregoing, Borrower shall only be
obligated to compensate any Bank or Agent for any amount described in this
Section 2.15 arising or occurring during (i) any time period commencing not more
than 90 days prior to the date on which such Bank notifies Agent and Borrower
that such Bank or Agent proposes to demand such compensation and (ii) any time
period during which, because of the unannounced retroactive application of such
statute, regulation or other basis, such Bank could not have known that such
amount might arise or accrue.
SECTION 2.16 Capital Adequacy. If the Agent or any Bank reason ably
determines that compliance with any Applicable Law (including for purposes
hereof, any directive guideline or requirement of any Governmental Authority
(whether or not having the force of law)) affects or would affect the amount of
capital required or expected to be maintained by the Agent or such Bank or any
corporation controlling the Agent or such Bank and that the amount of such
capital is increased by or based upon the existence of such Bank's Commitment or
the issuance of the Debt Service Reserve Letter of Credit or outstanding Loans,
then, upon demand by the Agent or such Bank, the Borrower shall pay to the Agent
or such Bank, from time to time as specified thereby, additional amounts
sufficient to compensate the Agent or such Bank in light of such circumstances,
to the extent that the Agent or such Bank reasonably determines such increase in
capital to be allocable to the existence of such Bank's Commitment or the
issuance of the Debt Service Reserve Letter of Credit or such Loans. A
certificate as to any such additional amount or amounts submitted by a Bank,
through Agent, to Borrower and the other Banks shall certify that similar
demands have been made to other customers of such Bank which are subject to
similar provisions and shall, in the absence of manifest
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error, be final and conclusive. In determining such amount, a Bank may use any
reasonable averaging and attribution methods. Notwithstanding the foregoing,
Borrower shall only be obligated to compensate any Bank or Agent for any amount
described in this Section 2.16 arising or occurring during (i) any time period
commencing not more than 90 days prior to the date on which such Bank notifies
Agent and Borrower that such Bank or Agent proposes to demand such compensation
and (ii) any time period during which, because of the unannounced retroactive
application of such statute, regulation or other basis, such Bank could not
have known that such amount might arise or accrue.
SECTION 2.17 Taxes. (a) Payments by Borrower to each of the Banks under
this Agreement and the Notes will be made free and clear of and without
deduction for Taxes, other than Taxes based on or measured by the net income or
receipts of such Bank (including franchise taxes imposed in lieu of net income
or receipts taxes) imposed by (x) the United States federal government, (y) the
jurisdiction where such Bank is organized or has its principal office or
transacts business or (z) the jurisdiction of the branch of such Bank
maintaining any Loan or the branch of Agent through which it renders its
services as Agent ("Excluded Taxes"). If Borrower is required by law to deduct
Taxes (other than Excluded Taxes) from such a payment, then the sum payable
under the instrument to which the payment relates will be increased so that
there is no diminution in the amount any Bank actually receives on account of
the deduction.
(b) Borrower hereby indemnifies and holds harmless each Bank from and
against, and agrees to reimburse each Bank on an after-tax basis (computed
taking into account any deductions or other benefits available for federal
income tax purposes for the Bank if it is a United States taxpayer and any
deductions and benefits available for income tax purposes in any jurisdiction in
which such Bank is a taxpayer) on demand for, any and all Taxes paid or incurred
by such Bank in connection with the transactions contemplated by this Agreement;
provided, how ever, that the foregoing indemnity does not cover Excluded Taxes.
Reimbursement on an "after-tax basis" means on a basis such that the Bank is
made whole after taking into account income taxes that the Bank will owe on the
indemnity or reimbursement payment in any jurisdiction and any related tax
benefits. Nothing in this paragraph shall interfere with the right of any Bank
to arrange its tax affairs in whatever manner it thinks fit and, in particular,
no Bank is under any obligation to claim a deduction or other benefit relating
to these transactions ahead of any other claim, relief, credit, deduction or
other benefit to which it is entitled. The applicable Bank shall promptly give
written notice to Borrower (but in no event later than sixty (60) days) after
such Bank has actual knowledge of the imposition of any Taxes subject to
indemnification
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hereunder; provided, however, that failure to give such notice within such sixty
(60) day period will not relieve Borrower of the obligation to indemnify such
Bank in accordance with the terms hereof, except to the extent of interest that
would have been avoided had the notice been given prior to the end of such sixty
(60) day period.
(c) All payments made by the Borrower to each of the Banks under this
Agreement and the Notes will be made without setoff, counterclaim or other
defense.
(d) (i) Borrower will provide evidence that all Taxes imposed on payments
under this Agreement, any Loan or the Notes have been fully paid to the
appropriate authorities by delivering official receipts or notarized copies to
Agent within thirty (30) days after payment. Borrower will compensate any Bank
that has to pay any Taxes because Borrower failed to timely furnish such
evidence; provided, that prior to paying such Taxes, such Bank shall have
notified Borrower of its intent to make such payment.
(ii) If Borrower so requests promptly in writing after receipt of any
notice under this Section 2.17, such Bank will contest in good faith the Taxes
at Borrower's expense, keep Borrower fully informed about the progress of the
contest, consult in good faith with Borrower's counsel regarding conduct of the
contest, and not compromise or otherwise settle the contest without Borrower's
consent (which shall not be unreasonably withheld or delayed); provided that the
Bank may in its sole discretion select the forum for the contest and determine
whether the contest will be by resisting payment of the Taxes or by paying the
Taxes and seeking a refund; provided, further, that the Bank will be under no
obligation to contest unless (V) if the Bank requests, Borrower has provided the
Bank an opinion of independent tax counsel selected by Borrower and reasonably
acceptable to the Bank to the effect that there is a reasonable basis for the
contest, (W) the amount in controversy is at least $75,000, (X) the Bank has
received satisfactory indemnification and security for any liability, loss,
cost or expense arising out of the contest (including, but not limited to, all
reasonable legal and accounting fees and expenses, penalties, interest and
additions to tax), (Y) if requested by the Bank, Borrower has admitted in
writing its duty to indemnify the Bank for the Taxes if the contest is lost (but
such admission shall not preclude Borrower from raising a defense to liability
if a court of competent jurisdiction has rendered a decision articulating the
cause of such Taxes, and the cause is not one for which Borrower is responsible
under this Section 2.17), and (Z) if the contest is conducted in a manner that
requires paying all or part of the Taxes, Borrower has paid the amount required.
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(iii) If Borrower so requests within ten (10) days of notice to
Borrower of the imposition of any Taxes on payments to any of the Banks of a
type not generally imposed on United States or foreign lenders making loans of
the types contemplated hereunder, such Banks shall (consistent with legal and
regulatory restrictions) comply with Section 2.20 hereof.
(e) Prior to the first Interest Payment Date, each Bank agrees that it will
deliver to Agent and Borrower (A) either (i) a letter stating that it is incorpo
rated under the laws of the United States of America or a state thereof or (ii)
if it is not so incorporated, two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the
case may be, certifying in each case that such Bank is entitled to receive
payments under this Agreement without deduction or withholding of any United
States federal income taxes and (B) an Internal Revenue Service Form W-8 or W-9
or successor applicable form, as the case may be, to establish an exemption from
United States backup withholding tax. If any Bank delivers to Borrower and Agent
a Form 1001 or 4224 and Form W-8 or W-9 pursuant to the immediately preceding
sentence, it shall deliver to Borrower and Agent two further copies of such Form
1001 or 4224, and Form W-8 and W-9, or successor applicable forms, or other
manner of certification, as the case may be, on or before the date that any such
form expires or becomes obsolete or after the occurrence of any event requiring
a change in the most recent form previously delivered by it to Borrower, and
such extensions or renewals thereof as may reasonably be requested by Borrower,
certifying in the case of a Form 1001 or 4224 that such Bank is entitled to
receive payments under this Agreement without deduction or withholding of any
United States federal income taxes, unless in any such case an event (including,
without limitation, any change in treaty, law or regulation) has occurred prior
to the date on which any such delivery would other wise be required that renders
all such forms inapplicable or that would prevent such Bank from duly completing
and delivering any such form with respect to it and such Bank advises Borrower
that it is not capable of receiving payments without any deduction or
withholding of United States federal income tax, and in the case of a Form W-8
or W-9, establishing an exemption from United States backup withholding tax.
The provisions of this Section 2.17(e) shall apply to any successor holder of a
Note.
(f) Notwithstanding the foregoing, if (A)(i) any Bank has previously
delivered to Borrower and Agent a Form 4224 or successor applicable form and
(ii) by virtue of any action taken or not taken voluntarily by such Bank, such
Bank is not lawfully entitled to deliver a subsequent Form 4224 or applicable
successor form solely as a result of such Bank's failure to be engaged in the
active
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conduct of a trade or business in the United States or a determination that all
amounts to be paid to such Bank hereunder are not effectively connected to such
trade or business or (B) any Bank fails to provide any form required under
Section 2.17(e) hereof at a time when such Bank is qualified to provide such
form, Borrower shall be under no obligation to compensate or indemnify such Bank
under this Section 2.17 or otherwise with respect to any Tax required to be paid
or withheld under United States federal income tax law that would not have been
required to be paid or withheld had such Bank so delivered such Form 4224,
applicable successor form or other form.
(g) Notwithstanding anything contained in this Section 2.17, Borrower shall
not be required to indemnify or reimburse any Bank who has failed to make
available to Agent its portion of any Loan on the date required to be made
available to Agent pursuant to this Agreement after Agent has made written
demand upon such Bank for such payment for any additional documentary stamp
taxes or intangibles taxes incurred by such Bank solely as a result of such
failure.
SECTION 2.18 Change of Law. (a) Notwithstanding any other provision of this
Agreement, if any Regulatory Change, or compliance by any Bank with any
Regulatory Change, makes it unlawful or impossible for any Bank to make,
maintain or continue its proportionate interest in any Debt Service Reserve
Letter of Credit, then such Bank shall promptly give notice together with
evidence thereof to Borrower and Agent, and Borrower shall pay forthwith all
amounts outstanding, accrued or payable under this Agreement to such Bank and
cause such Bank to be released from all obligations of such Bank under this
Agreement.
(b) A Bank shall (consistent with legal and regulatory restrictions)
designate a different lending office for the Loans (or commitments therefor) or
its participation in the Debt Service Reserve Letter of Credit affected pursuant
to this Section 2.18 before giving any notice to Borrower and Agent pursuant to
this Section 2.18 if such designation will avoid the need for giving such notice
and will not, in the sole opinion of such Bank, be disadvantageous to such Bank,
except that such Bank shall have no obligation to designate a lending office
located in the United States of America. If Borrower so requests within ten (10)
days of receipt of the notice referred to above (which notice is based on
circumstances not generally applicable to United States or foreign lenders
making loans of the types contemplated hereunder), such Bank shall (consistent
with legal and regulatory restrictions) comply with Section 2.20 hereof.
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SECTION 2.19 Non-Availability. (a) If at any time dollar deposits in the
principal amount of any Bank's proportionate interest in, or obligation under,
any Loan bearing interest at the LIBOR Rate are not available to such Bank in
the London interbank market for the next Interest Period, such Bank shall so
notify Agent, who shall so notify Borrower, and the obligation of such affected
Bank to make or continue, or to convert Loans into Loans bearing interest based
on the LIBOR Rate shall be immediately suspended and during such suspension be
converted into an obligation to do the same with respect to Loans bearing
interest at the Adjusted Base Rate; provided, however, that outstanding Loans
bearing interest at the LIBOR Rate shall be converted into Loans bearing
interest at the Adjusted Base Rate on the last day of the then current Interest
Period applicable to such Loans.
(b) If at any time the Interest Rate then in effect based on the LIBOR Rate
does not adequately and fairly reflect, in the reasonable judgment of any Bank,
the cost for such Bank of advancing or maintaining its respective proportionate
interest in any Loan bearing interest at the LIBOR Rate during any Interest
Period, then such Bank shall notify Agent, who shall so notify Borrower, and
interest on such Bank's proportionate share of the Loans shall for any
subsequent Interest Period accrue at the Adjusted Base Rate.
(c) If Borrower so requests after the suspension of a Bank's obligation to
make Loans bearing interest at the LIBOR Rate under this Section 2.19 for at
least ten (10) consecutive Business Days based on circumstances not generally
applicable to United States or foreign lenders making loans of the types contem
plated hereunder, such Bank shall (consistent with legal and regulatory
restrictions) comply with Section 2.20 hereof.
SECTION 2.20 Assignments by Banks. If (i) a Bank is required to comply with
this Section 2.20 after a request from Borrower pursuant to Section 2.17, 2.18
or 2.19 or (ii) Borrower requests that the provisions of this Section 2.20 apply
to a Bank within ten (10) days after it receives a notice from Agent that (A)
such Bank has failed to make available to Agent its portion of any Loan on the
date required to be made available to Agent pursuant to this Agreement after
Agent has made written demand upon such Bank for such payment or (B) such Bank
has provided Agent with notice that such Bank shall not make available to Agent
such portion of any Loan required to be made available to Agent pursuant to this
Agree ment or (C) such Bank has failed to reimburse the Agent pursuant to the
terms of this Agreement, such Bank shall assign all or a part of its
proportionate share of the Loans and its commitment to make Loans to a
replacement Bank (which may be, but is not required to be, one of the other
Banks) designated by Borrower; provided
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that any assignment or transfer made by a Bank to a replacement Bank shall
satisfy the following conditions: (i) Borrower shall promptly pay when due all
reasonable fees and expenses which such Bank incurs in connection with such
transfer or assignment and (ii) any assignment of all or part of the Loans or
obligations shall be made without recourse, representation or warranty, and
Borrower shall cause the replace ment Bank to pay to Agent for the account of
the assigning Bank in immediately available funds all amounts outstanding or
payable under this Agreement to each Bank assigning its interest in the Loans.
SECTION 2.20A. Mitigation Provision. Each Bank and the Initial Bank agree
that as promptly as practicable after it has made a determination to make a
claim for amounts under Section 2.7(i), 2.8(b), 2.15, 2.16 or 2.17 with respect
to events or conditions arising after the date hereof, it shall notify the
Borrower of the same and use commercially reasonable efforts (consistent with
legal and regulatory restrictions and such Bank's or the Initial Bank's, as
relevant, internal policies) to mitigate the effect of such provisions on the
Borrower, including (i) in the case of Sections 2.15, 2.16 or 2.17, efforts to
make, fund, issue or maintain its Loans or the Debt Service Reserve Letter of
Credit, as relevant, through another office of such Bank or the Initial Bank as
relevant and (ii) in the case of Sections 2.7(i) or 2.8(b), efforts to reemploy
amounts held by such Bank, (x) if as a result thereof the additional moneys
which would otherwise be required to be paid to such Bank pursuant to any of
such provisions of this Agreement would be reduced, or the illegality or other
adverse circumstances which would otherwise require a prepayment of such Loans
or the suspension of the issuance of, or of drawings under, the Debt Service
Reserve Letter of Credit pursuant to any of such provisions would cease to
exist, and (y) if, as determined by such Bank or the Initial Bank, as relevant,
in good faith, the making, funding, issuing or maintaining of such Loan or the
Debt Service Reserve Letter of Credit, or the making of drawings under the Debt
Service Reserve Letter of Credit as relevant, through such other office would
not otherwise adversely affect such Bank or the Initial Bank, as relevant.
SECTION 2.21 Reduction in Commitments/Loans. The Borrower shall have the
right to refinance all Commitments and all of the outstanding Loans, if any, and
all of the outstanding Reserve Bonds, if any, in whole but not in part, without
premium or penalty upon at least ten (10) days' prior written notice to the
Agent; provided, however, that the Borrower agrees to indemnify each Bank and
hold each Bank harmless from any direct loss (but excluding any indirect, conse
quential or incidental loss or damage), cost or out-of-pocket expense which such
Bank incurs as a result of a refinancing pursuant to this Section 2.21 of any
Loan bearing interest at the LIBOR Rate on a date which is not the last day of
an
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Interest Period applicable thereto. In any refinancing of such Commitments, the
Borrower shall cause the Debt Service Reserve Letter of Credit to be released
and returned to the Initial Bank.
SECTION 2.22 Right of Set-off. Borrower hereby authorizes Agent and only
Agent, upon the occurrence and during the continuance of any Event of Default,
at any time and from time to time, without notice to Borrower or any Person
other than the Collateral Agent (any such notice being hereby expressly waived
by Borrower to the extent it may legally do so) to set off and appropriate and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held, and other indebtedness at any time owing, by any Banks
in any of their offices, wherever located (whether such deposits or indebtedness
be in dollars or in any other currency), to or for the credit or the account of
Borrower against any and all of the Obligations and liabilities of Borrower now
or hereafter existing under this Agree ment, irrespective of whether or not the
Agent shall have made any demand hereunder or thereunder and although such
Obligations may be contingent or unmatured.
SECTION 2.23 Minimum Amounts. (a) Anything in this Agreement to the
contrary notwithstanding, the aggregate principal amount of Loans bearing
interest based on the LIBOR Rate shall be in an amount at least equal to
$1,000,000 or in multiples of $500,000 in excess thereof and, if any Loans
bearing interest based on the LIBOR Rate would otherwise be in a lesser
principal amount for any period, such Loans shall bear interest based on the
Adjusted Base Rate during such period.
(b) Not more than six (6) Loans bearing interest at the LIBOR Rate may be
outstanding at one time.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.1 Conditions Precedent to Issuance of Debt Service Reserve Letter
of Credit. The obligation of the Initial Bank to issue the Debt Service Reserve
Letter of Credit is subject to the follow conditions precedent:
(a) the Agent shall have received the following, each dated on or before
the Closing Date unless otherwise specified below, in form and substance
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satisfactory to the Agent and in the number of originals or photostatic copies
reasonably required by the Agent:
(i) this Agreement and the Notes duly executed by the Borrower;
(ii) the Indenture duly executed by the parties thereto;
(iii) the Depositary Agreement, the Intercreditor Agreement and each of
the other Security Documents duly executed by the parties thereto;
(iv) written opinions of counsel, as to such matters as the Agent may
reasonably request; and
(v) a certificate of the Depositary Bank as to the incumbency and
specimen signatures of the officers of the Depositary Bank authorized to make
drawings, to execute and present certificates under the Debt Service Reserve
Letter of Credit, and otherwise communicate with the Agent with respect thereto;
(b) all agreements referred to in Sections 3.1(a)(i), (ii) and (iii) remain
in full force and effect;
(c) the Borrower shall have paid all accrued fees and expenses (as provided
in Sections 2.5 and 9.4) of the Agent and the Banks (including the reason able
accrued fees and disbursements of counsel to the Agent and the Banks), to the
extent that one or more statements for such fees and expenses have been
presented for payment, provided that no such statement shall be required to be
delivered in connection with any fee payable on the Closing Date pursuant to
Section 2.5(a);
(d) all conditions precedent under the Purchase Agreement have been
satisfied; and
(e) the Agent shall have received such other approvals, opinions, evidence
and documents as it may reasonably request and which are customary for
transactions of the type contemplated by this Agreement.
ARTICLE IV
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REPRESENTATIONS AND WARRANTIES
SECTION 4.1 Representations and Warranties. The Borrower hereby makes for
the benefit of the Agent and the Banks all of the representations and warranties
of the Borrower made in the Indenture, in the form of such representations and
warranties as they exist on the date of this Agreement and as they may hereafter
be amended from time to time, but only to the extent that the incorporation of
any such amendments into this Agreement has been consented to in accordance with
Section 9.1. Such representations and warranties are incorporated herein by
reference as if set forth at length in this Agreement; provided that any
reference to "CE Generation" shall be deemed to be a reference to "Borrower";
each reference to the term "Securities" shall be deemed to include the
Obligations; and each reference to the term "Indenture" shall be deemed to be a
reference to this Agreement.
ARTICLE V
COVENANTS
SECTION 5.1 Covenants. So long as any Commitment is in effect, the Debt
Service Reserve Letter of Credit is outstanding or the Obligations remain
unpaid, unless compliance has been waived in accordance with Section 9.1:
(a) all of the covenants of the Borrower contained in Article V of the
Indenture, together with any schedules referred to therein (in the form of such
covenants and schedules as they exist as of the date of this Agreement and as
they may hereafter be amended from time to time, but only to the extent that the
incorpo ration of any such amendments into this Agreement has been consented to
in accordance with Section 9.1), are hereby incorporated and made applicable by
reference as if set forth at length in this Agreement; provided that any
reference to "CE Generation" shall be deemed to be a reference to "Borrower";
each reference to the term "Securities" shall be deemed to include the
Obligations; each reference to the term "Indenture" shall be deemed to be a
reference to this Agreement; the phrase "the principal of, premium (if any) and
interest on every Security issued hereunder in accordance with the terms hereof
and thereof" in Section 5.1 of the Indenture shall be deemed to refer to all
Obligations; and each reference to the Trustee shall be deemed to be a reference
to the Agent and the Banks, and the Borrower shall observe and perform all of
such incorporated covenants; and
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(b) the Borrower will not without the prior written approval of the
Required Banks terminate, amend or otherwise modify any provision of the Inden
ture, the Depositary Agreement or any Security Document if such termination,
amendment or other modification would affect the priority of payments from the
Revenue Account under the Depositary Agreement in a manner adverse to the Agent
or any Bank (it being acknowledged that the issuance of Additional Securities
and the execution and delivery of a Supplemental Indenture in connection
therewith shall not be deemed to affect the priority of payments from the
Revenue Account), increase the interest rate on the Initial Securities (or any
Additional Securities after their issuance) other than in accordance with
Section 2.2(b) of the Indenture or any comparable provision relating to said
Additional Securities, amend the principal payment dates of the Initial
Securities (or any Additional Securities after the date of their issuance) in a
manner adverse to the Agent or any Bank, or change the voting requirements under
the Intercreditor Agreement in a manner adverse to the Agent or any Bank.
ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.1 Defaults and Remedies. If any one of the following events (each
an "Event of Default") shall occur and be continuing:
(a) any amount in respect of fees, costs or expenses due by Borrower under
this Agreement shall not be paid in full within fifteen (15) days following
delivery of notice thereof to Borrower;
(b) any amount due by Borrower in respect of interest on any Loan shall not
be paid in full within fifteen (15) days after its due date;
(c) any amount due by Borrower in respect of the principal of or interest
on any Reserve Bond shall not be paid in full within fifteen (15) days after its
due date (taking into account the applicable amortization of such Reserve Bond);
(d) any amount due by Borrower in respect of principal of any Loan shall
not be paid to the Agent within fifteen (15) days after its due date as provided
in Section 2.7(a);
(e) [Reserved]
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(f) any representation or warranty made by or on behalf of the Borrower in
this Agreement (including by incorporation by reference), or in any certificate
furnished to the Agent or the Banks shall prove to have been false or misleading
in any respect as of the time made, confirmed or furnished and the inaccuracy
has had or is reasonably expected to have a Material Adverse Effect and such
misrepresentation shall continue uncured for thirty (30) or more days from the
date an Authorized Officer of Borrower obtains actual knowledge thereof;
provided that if the Borrower commences and diligently pursues efforts to cure
the factual situation resulting in such misrepresentation within such thirty
(30) day period, the Borrower may continue to effect such cure of the
misrepresentation and such misrepresentation shall not be deemed an Event of
Default for an additional sixty (60) days so long as the Borrower is diligently
pursuing such cure;
(g) any provision of the Indenture, the Depository Agreement or any
Security Document is terminated, amended or otherwise modified without the prior
written approval of the Required Banks if such termination, amendment or other
modification would affect the priority of payments from the Revenue Account
under the Depositary Agreement in a manner adverse to the Agent or any Bank (it
being acknowledged that the issuance of Additional Securities and the execution
and delivery of a Supplemental Indenture in connection therewith shall not be
deemed to affect the priority of payments from the Revenue Account), increase
the interest rate on the Initial Securities (or any Additional Securities after
their issuance) other than in accordance with Section 2.2(b) of the Indenture or
any comparable provision relating to said Additional Securities, amend the
principal payment dates of the Initial Securities (or any Additional Securities
after the date of their issuance) in a manner adverse to the Agent or any Bank,
or change the voting requirements under the Intercreditor Agreement in a manner
adverse to the Agent or any Bank and the same shall continue uncured for sixty
(60) or more days after an Authorized Officer or the Borrower has actual
knowledge of the same; provided that if the Borrower commences and diligently
pursues efforts to cure such default within such sixty (60) day period, the
Borrower may continue to effect such cure of the default (and such default shall
not be deemed an "Event of Default" hereunder) for an additional thirty (30)
days so long as the Borrower is diligently pursuing such cure;
(h) the Borrower shall fail to perform or observe any covenant or agreement
contained in Sections 5.3(a), 5.13, 5.14, 5.15, 5.16, 5.17 and 5.19 of the
Indenture as incorporated in Section 5.1(a) of this Agreement or in Section
5.1(b) of this Agreement, and such failure shall continue uncured for thirty
(30) or more days after an Authorized Officer of the Borrower has actual
knowledge of such failure at
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any time after all outstanding amounts due in respect of the Securities shall
have been paid in full and the Indenture is no longer in effect;
(i) the Borrower shall fail to perform or observe any of its covenants
contained (including by incorporation by reference) in any other provision of
this Agreement (other than those referred to in paragraphs (a), (b), (c), (e),
(f), (g) and (h) above) and such failure shall continue uncured for sixty (60)
or more days after an Authorized Officer of the Borrower has actual knowledge of
such failure; provided that if the Borrower commences and diligently pursues
efforts to cure such default within such sixty (60) day period, the Borrower may
continue to effect such cure of the default (and such default shall not be
deemed an "Event of Default" hereunder) for an additional thirty (30) days so
long as the Borrower is diligently pursuing such cure; or
(j) an "Event of Default" under clause (b), (c), (d), (e), (f), (g), (h),
(i), (j) or (k) of Section 6.1 of the Indenture shall occur and be continuing
until the earlier of the expiration of thirty (30) days or an acceleration under
the Indenture;
then, and in any such event, the Agent shall at the request of the Required
Banks take one or more of the following actions, (i) by notice to the Borrower
and the Secured Parties, declare the Commitments to be terminated, whereupon the
same shall forthwith terminate and after giving forty five (45) days' written
notice to the beneficiary of such outstanding Debt Service Reserve Letter of
Credit and the lapse of the time period required prior to termination by such
Debt Service Reserve Letter of Credit, terminate the Debt Service Reserve Letter
of Credit, or (ii) declare the Obligations, all interest thereon and all other
amounts payable under this Agreement, the Notes and the Reserve Bonds to be
forthwith due and payable, whereupon the Obligations, all such interest and all
such amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower or (iii) terminate the ability of the Borrower to cause
reinstatement of the Outstanding Amount through the reimbursement of Drawings,
as contemplated by the terms hereof.
ARTICLE VII
CHARACTER OF OBLIGATIONS
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SECTION 7.1 Obligations Absolute. The Obligations shall be absolute,
unconditional and irrevocable and shall not be affected or impaired under any
circumstances whatsoever, including the following circumstances:
(a) any lack of validity or enforceability of any provision of any
Transaction Document;
(b) any amendment or waiver of, or any consent to departure from, any
provision of any Transaction Document;
(c) the existence of any claim, setoff, defense or other right that the
Borrower may have at any time against the Trustee, any other beneficiary of the
Debt Service Reserve Letter of Credit (or any Person for whom the Trustee or any
such beneficiary may be acting), any Bank, the Agent or any other Person,
whether in connection with any Transaction Document, the transactions
contemplated thereby or any unrelated transaction;
(d) any statement or signature in any certificate or other document
presented under the Debt Service Reserve Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect, or any such statement being
untrue or inaccurate in any respect whatsoever;
(e) any exchange, release or nonperfection of any Collateral or other
collateral, or any release, amendment or waiver of or consent to departure from
any Transaction Document or any guaranty for any of the Obligations;
(f) payment by a Bank under the Debt Service Reserve Letter of Credit
against presentation of a draft or certificate that does not comply with the
terms of the Debt Service Reserve Letter of Credit;
(g) any issuance of additional Permitted Indebtedness (including Additional
Securities) under the Indenture; and
(h) any other circumstance or happening whatsoever, whether or not similar
to any of the foregoing.
SECTION 7.2 Limited Liability of Agent and Banks. As among the Borrower,
the Agent and the Banks, Borrower assumes all risks of the acts or omissions of
the beneficiaries of the Debt Service Reserve Letter of Credit with respect to
the use of the Debt Service Reserve Letter of Credit. Neither the Agent
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nor any Bank nor any of their respective officers, directors, employees or
agents shall be liable or responsible for (a) the use that may be made of the
Debt Service Reserve Letter of Credit or any acts or omissions of any
beneficiaries of the Debt Service Reserve Letter of Credit in connection with
the Debt Service Reserve Letter of Credit; (b) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted in connection
with the Debt Service Reserve Letter of Credit or of any endorsement thereon,
even if such document or endorsement should prove to be in any or all respects
invalid, insufficient, inaccurate, fraudulent or forged; (c) payment by Initial
Bank against presentation of any document that does not comply with the terms of
the Debt Service Reserve Letter of Credit, including failure of any document to
bear any reference or adequate reference to the Debt Service Reserve Letter of
Credit; or (d) any other circumstance whatsoever in making, delaying to make or
failing to make payment under the Debt Service Reserve Letter of Credit;
provided, however, that the Borrower shall have a claim against Initial Bank,
and Initial Bank shall be liable to the Borrower, to the extent of any direct,
as opposed to consequential, damages suffered by the Borrower that the Borrower
proves were the result of Initial Bank's willful misconduct or gross negligence
in paying under the Debt Service Reserve Letter of Credit or Initial Bank's
willful or grossly negligent failure to pay under the Debt Service Reserve
Letter of Credit after the presentation to it by the beneficiary of a draft and
certificate strictly complying with the terms and conditions of the Debt Service
Reserve Letter of Credit (unless Initial Bank in good faith believed itself
(based upon an opinion of counsel) to be prohibited by law or legal authority
from making such payment). In furtherance and not in limitation of the
foregoing, Initial Bank may accept any document that appears on its face to be
in order, without responsibility for further investigation, regardless of any
notice or information to the contrary.
ARTICLE VIII
THE AGENT
SECTION 8.1 Authorization and Action. Each Bank hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto. As to
any matters not expressly provided for by the Credit Documents (including
enforcement of and collection under any Credit Document), the Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the
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instructions of the Required Banks, and such instructions shall be binding upon
all Banks and all holders of Notes; provided, however, that the Agent shall not
be required to take any action that exposes the Agent to personal liability or
that is contrary to any Credit Document or applicable law. In performing its
function and duties hereunder, Agent shall act solely as the agent of the Banks
and does not assume and shall not be deemed to have assumed any obligation
towards or relationship of agency or trust with or for the Borrower or any other
party to any Transaction Document.
SECTION 8.2 Agent's Reliance, Etc. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with any Credit
Document, except for its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, the Agent (a) may treat
any Bank that has signed a Commitment Transfer Supplement as the holder of the
applicable portion of the Obligations; (b) may consult with legal counsel
(including counsel for the Borrower or any Affiliate), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (c) makes no warranty or
representation to any Bank and shall not be responsible to any Bank for any
statements, warranties or representations made in or in connection with any
Transaction Document; (d) shall not have any duty to ascertain or to inquire as
to the performance or observance of any of the terms, covenants or conditions of
any Transaction Document on the part of the Borrower or any Affiliate or to
inspect the property (including the books and records) of the Borrower or any
Affiliate thereof; (e) shall not be responsible to any Bank for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of any Transaction Document or any other instrument or document furnished
pursuant hereto or thereto; and (f) shall incur no liability under or in respect
of any Transaction Document by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telecopier or otherwise) believed
by it to be genuine and signed or sent by the proper party or parties.
SECTION 8.3 Initial Bank and Affiliates. With respect to its Commitment and
participation in the Debt Service Reserve Letter of Credit, the Initial Bank
shall have the same rights and powers under this Agreement as any other Bank and
may exercise the same as though it were not the Agent; and the term "Bank" or
"Banks" shall, unless otherwise expressly indicated, include Initial Bank in its
individual capacity. Initial Bank and its Affiliates may accept deposits from,
lend money to, act as trustee under indentures of, and generally engage in any
kind of
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business with, the Borrower, any Affiliate thereof and any Person that may do
business with or own securities of the Borrower or any Affiliate thereof, all as
if Initial Bank were not the Agent and without any duty to account therefor to
the Banks.
SECTION 8.4 Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance on the Agent or any other Bank and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also acknowledges
that it will, independently and without reliance on the Agent or any other Bank
and based on such documents and information as it deems appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement.
SECTION 8.5 Indemnification. The Banks agree to indemnify the Agent (to the
extent not promptly reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so), ratably according to the respective
principal amounts of the Obligations then held by each of them and/or the
respective amounts of their Commitments, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements of any kind or nature whatsoever that may at
any time (including without limitation at any time following the payment of any
Obligations or termination of this Agreement) be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of any
Transaction Document or any action taken or omitted by the Agent under any
Transaction Document; provided, however, that no Bank shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
Agent's gross negligence or willful misconduct. Without limitation of the
foregoing, each Bank agrees to reimburse the Agent promptly upon demand for its
ratable share of any costs and expenses payable by the Borrower under Section
9.4, to the extent that the Agent is not reimbursed for such costs and expenses
by the Borrower.
SECTION 8.6 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Banks and the Borrower and may be removed at any
time with or without cause with the written approval of the Required Banks. Upon
any such resignation or removal, the Required Banks shall have the right to
appoint a successor Agent with the consent of the Borrower, which shall not be
unreasonably withheld. If no successor Agent has been so appointed by the
Required Banks, and has accepted such appointment, within thirty (30) days after
the retiring Agent's giving of notice of resignation or the Required Banks'
removal of the retiring
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Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor
Agent with the consent of the Borrower (which shall not be unreasonably
withheld), which successor Agent shall be a commercial bank organized under the
laws of the United States of America or of any state thereof and having a
combined capital and surplus of at least five hundred million dollars
($500,000,000). Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all of the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations under the Transaction Documents. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Article 8
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was agent under this Agreement.
SECTION 8.7 Collateral. (a) Except as expressly provided herein, the Agent
shall have no duty to take any affirmative steps with respect to the collection
of amounts payable in respect of the Collateral. The Agent shall incur no
liability as a result of any private sale of the Collateral.
(b) The Banks hereby consent, and agree upon written request by the Agent
to execute and deliver such instruments and other documents as the Agent may
deem desirable to confirm such consent, to the release of the Liens on the
Collateral, including any release in connection with any sale, transfer or other
disposition of the Collateral or any part thereof, in accordance with the
Financing Documents.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Amendments, Etc. No amendment or waiver of any provision of
this Agreement or any Note, or consent to any departure by the Bor rower
therefrom, shall be effective unless in writing and signed or consented to (in
writing) by the Required Banks (and, in the case of amendments, the Borrower),
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given; provided, however, that no
amendment, waiver or consent shall, unless in writing and signed or consented to
(in writing) by all of the Banks, do any of the following: (a) waive any of the
conditions specified in Article III; (b) increase the Commitments of the Banks
or subject the Banks to any additional obligations; (c) reduce the principal
of, or interest on, the Loans or any
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fees or other amounts payable hereunder; (d) postpone any date fixed for (i)
payment of principal of, or interest on, the Loans, (ii) reimbursement of
Drawings under the Debt Service Reserve Letter of Credit or (iii) payment of
fees or other amounts payable hereunder; (e) change the percentage of the
Commitments or of the Loans outstanding, or the number of Banks, required for
the Banks or any of them to take any action hereunder; or (f) amend this Section
9.1; and provided further, however, that no amendment, waiver or consent shall,
unless in writing and signed by the Agent in addition to the Persons required
above to take such action, affect the rights or duties of the Agent under this
Agreement or any other Credit Document.
SECTION 9.2 Notices, Etc. All notices and other communications provided for
hereunder shall be in writing (including by telecopier) and shall be mailed,
telecopied or delivered, if to the Borrower, to it at 302 South 36th Street,
Suite 400, Omaha, Nebraska 68131, Attention: Chief Financial Officer, with a
copy to General Counsel, telephone (402) 231-1560, telecopier (402) 231-1578; if
to any Bank other than the Initial Bank, to it at the address or telecopier
number set forth below its name in the Commitment Transfer Supplement by which
it became a party hereto; if to the Agent or the Initial Bank, to it at Eleven
Madison Avenue, New York, New York, telephone (212) 325-_____, telecopier, (212)
325-_____, Attention: _______________; or, as to each party, to it at such
other address or telecopier number as designated by such party in a written
notice to the other parties. All such notices and communications shall be deemed
received, (a) if personally delivered, upon delivery, (b) if sent by first-class
mail, on the third Business Day following deposit into the mails and (c) if sent
by telecopier, upon acknowledgment of receipt thereof by the recipient, except
that notices and communications to the Agent pursuant to Article 2 or 8 shall
not be effective until received by the Agent.
SECTION 9.3 No Waiver; Remedies. No failure on the part of any Bank or the
Agent to exercise, and no delay in exercising, any right hereunder shall operate
as a waiver thereof, and no single or partial exercise of any such right shall
preclude any other or further exercise thereof or the exercise of any other
right. The remedies provided herein are cumulative and not exclusive of any
remedies provided by law.
SECTION 9.4 Costs and Expenses. The Borrower agrees to pay on demand on the
appropriate Funding Date under the Depositary Agreement (a) all reasonable costs
and expenses of the Agent and the Banks in connection with the preparation,
execution, delivery, syndication, administration, modification and amendment of
this Agreement, the Notes and the other documents to be delivered hereunder,
including (i) the reasonable fees and out-of-pocket expenses of one
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counsel for the Banks with respect thereto and with respect to advising the
Agent and the Banks as to their rights and responsibilities, or the perfection,
protection or reservation of rights or interests, under this Agreement, the
other Transaction Documents and the other documents to be delivered hereunder;
and (ii) the reason able fees and expenses of any consultants, auditors or
accountants engaged by the Agent with the written consent (which shall not be
unreasonably withheld) of the Borrower pursuant hereto and (b) all reasonable
costs and expenses of the Agent and the Banks (including reasonable counsel fees
and expenses of the Agent and the Banks) in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this
Agreement, the other Transaction Documents and the other documents to be
delivered hereunder, whether in any action, suit or litigation, any bankruptcy,
insolvency or similar proceeding. In addition, the Borrower shall pay any and
all stamp and other taxes and fees payable or determined to be payable in
connection with the execution, delivery, filing and recording of the
aforementioned documents, and the Borrower agrees to indemnify and hold the
Agent and the Banks harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay any of the
foregoing to the extent the Borrower had notice thereof.
SECTION 9.5 Application of Moneys. If any sum paid or recovered in respect
of the Obligations is less than the amount then due, the Agent may apply that
sum to principal, interest, fees or any other amount due under this Agreement in
such proportions and order and generally in such manner as the Agent shall
reasonably determine.
SECTION 9.6 Severability. Any provision of this Agreement that is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or nonauthorization without invalidating the remaining
provisions of this Agreement or affecting the validity, enforceability or
authorization of such provision in any other jurisdiction.
SECTION 9.7 Limitation of Liability. Notwithstanding anything to the
contrary contained in this Agreement and the Transaction Documents, the
liability and obligation of the Borrower to perform and observe and make good
the obligations contained in this Agreement and the Security Documents shall not
be enforced by any action or proceeding wherein damages or any money judgment or
any deficiency judgment or any judgment establishing any personal obligation or
liability shall be sought, collected or otherwise obtained against any officer,
director or shareholder or related Person of Borrower or any Secured Party, and
the Collateral
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Agent, for itself and its successors and assigns, and on behalf of the Secured
Parties, irrevocably waives any and all right to sue for, seek or demand any
such damages, money judgment, deficiency judgment or personal judgment against
any officer, director or shareholder or related Person of the Borrower under or
by reason of or in connection with this Agreement and agrees to look solely to
the Borrower and the security and Collateral held under or in connection with
the Security Documents for the enforcement of such liability and obligation of
the Borrower.
SECTION 9.8 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the Borrower, the Agent and the Banks and their respective
successors and assigns, except that the Borrower shall not have the right to
assign any of its rights and obligations hereunder without the prior written
consent of the Required Banks, and, except as provided in Section 9.9, no Bank
other than Initial Bank shall have the right to assign any of its rights and
obligations hereunder.
SECTION 9.9 Assignments and Participations. (a) Any Bank may at any time
(with the consent of the Borrower, such consent not to be unreasonably withheld
or delayed, the consent of the Agent, such consent not to be unreasonably
withheld or delayed, and the consent of the Initial Bank) sell to one or more
banks or other entities (a "Purchasing Bank") all or any part of its rights and
obligations under this Agreement and the Notes (which, except in the case of an
assignment to a Person that, immediately before such assignment, was a Bank,
shall be equal to at least $5,000,000) pursuant to a Commitment Transfer
Supplement, executed by such Purchasing Bank, such transferor Bank, the Agent
and the Initial Bank (and, in the case of a Purchasing Bank that is not then a
Bank or an Affiliate thereof, the Bor rower). Upon (x) such execution of such
Commitment Transfer Supplement, and (y) delivery of a copy thereof to the
Borrower and payment of the amount of its participation to the Agent or such
transferor Bank, such Purchasing Bank shall for all purposes be a Bank party to
this Agreement and shall have all the rights and obliga tions of a Bank under
this Agreement, to the same extent as if it were an original party hereto with
the commitment percentage as set forth in such Commitment Transfer Supplement,
which shall be deemed to amend this Agreement to the extent, and only to the
extent, necessary to reflect the addition of such Purchasing Bank and the
resulting adjustment of commitment percentages arising from the purchase by such
Purchasing Bank of all or a portion of the rights and obligations of such
transferor Bank under this Agreement and the Notes. Upon the consummation of any
transfer pursuant to this Section 9.9, the transferor Bank, the Agent and the
Borrower shall make appropriate arrangements so that, if required, replacement
Notes are issued to such transferor Bank and new Notes or, as
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appropriate, replace ment Notes, are issued to such Purchasing Bank, in each
case, in principal amounts reflecting their Commitment.
(b) Any Bank may, from time to time, sell or offer to sell participating
interests in any Loans owing to such Bank, any Notes held by such Bank, any
Commitment of such Bank or any other interests and obligations of such Bank
hereunder, to one or more banks or other entities (each, a "Participant"), on
such terms and conditions as may be determined by the selling Bank, without the
consent of or notice to the Borrower, and the grant of such participation shall
not relieve any Bank of its obligations, or impair the rights of any Bank,
hereunder. In the event of any such sale by a Bank of a participating interest
to a Participant, such Bank shall remain solely responsible for the performance
of such Bank's obligations under this Agreement, such Bank shall remain the
holder of any such Notes for all purposes under this Agreement, the Borrower,
the Agent and the Initial Bank will continue to deal solely and directly with
such Bank in connection with such Bank's rights and obligations under this
Agreement and such Bank shall retain the sole right and responsibility to
exercise the rights of such Bank, and enforce the obligations of the Borrower,
including, without limitation, the right to approve any amendment, modification,
supplement or waiver of any provision of any Credit Document and the right to
take action under Article 6 hereof and such Bank shall not grant any such
Participant any voting rights or veto power over any such action by such Bank
under this Agreement (provided that such Bank may agree not to consent to any
modification, amendment or waiver of this Agreement, without the consent of the
Participant, that would alter the principal of or interest on the Loans,
postpone the date fixed for any payment of principal of or interest thereon or
extend the term of any Commit ment; provided further that if any Participant
refuses to consent to any such modification, amendment or waiver of this
Agreement, such Bank may purchase the participating interests from such
non-consenting Participant). No Participant shall have any rights under this
Agreement to receive payment of principal of or interest on any Loan except
through a Bank and as provided in this Section 9.9. The Bor rower agrees that,
upon the occurrence and during the continuance of any Event of Default, each
Participant shall have the right of set-off in respect of its participating
interest in amounts owing under this Agreement and any Notes as set forth in
Section 2.22 hereof to the same extent as if the amount of its participating
interest was owing directly to it as a Bank under this Agreement or any Notes.
The Borrower also agrees that each Participant shall be entitled to the benefits
of Sections 2.15, 2.16 and 2.17 hereof with respect to its participation granted
hereunder; provided that no Participant shall be entitled to receive any greater
amount pursuant to such Sections than the Bank transferring such
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participation would have been entitled to receive in respect of the amount of
the participation transferred to such Participant had no such transfer occurred.
(c) Any Bank may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 9.9, disclose to
the Purchasing Bank or Participant or proposed Purchasing Bank or Participant
any information relating to the Borrower furnished to such Bank by or on behalf
of the Borrower; provided, however, that prior to any such disclosure, the
Person receiving such disclosure shall sign such confidentiality agreements as
the Borrower may reasonably request.
SECTION 9.10 Indemnification. The Borrower agrees to indemnify and hold
harmless the Agent and each Bank and, in their capacity as such, each of their
respective officers, directors, shareholders, controlling persons, employees,
agents and servants (each an "Indemnified Party") from and against any and all
claims, damages, losses, liabilities, obligations, penalties, actions, causes of
action, judgments, suits, costs, expenses or disbursements (including, without
limitation, reasonable attorneys and consultants' fees and expenses)
(collectively, "Damages") whatsoever that such Indemnified Party may incur (or
that may be claimed against such Indemnified Party by any Person) by reason of
(a) any untrue statement or alleged untrue statement of any material fact
concerning the Borrower or the Collat eral, or the omission or alleged omission
to state any fact concerning the Borrower or the Collateral necessary to make
any such statement, in light of the circumstances under which it was made, not
misleading; (b) the issuance, sale or delivery of the Securities and the Notes;
(c) the use of the proceeds of the Securities or any Drawing; (d) any
reasonable action taken by such Indemnified Party in protecting and enforcing
the rights and remedies of the Agent and the Banks under the Transaction
Documents; (e) subject to Section 7.2, the execution, delivery or transfer of,
or payment or failure to pay under, the Debt Service Reserve Letter of Credit;
(f) any claim of any Person with respect to any finder's fee, brokerage
commission or other similar sum due in connection with any Transaction Document;
or (g) any failure by the Borrower to comply with any environmental laws;
provided, however, that the Borrower shall not be required to indemnify Initial
Bank for any Damages to the extent caused by Initial Bank's willful misconduct
or gross negligence in (x) paying under the Debt Service Reserve Letter of
Credit or (y) failing to pay under the Debt Service Reserve Letter of Credit
after the presentation to it by the Depositary Bank of a draft and certificate
strictly complying with the terms and conditions of the Debt Service Reserve
Letter of Credit (unless Initial Bank in good faith believed itself (based upon
an opinion of counsel) to be prohibited by law or legal authority from making
such payment). If any action, suit
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or proceeding arising from any of the foregoing is brought against any
Indemnified Party, such Indemnified Party shall promptly notify the Borrower in
writing, enclosing a copy of all papers served, but the omission so to notify
the Borrower of any such action shall not relieve it of any liability that it
may have to any Indemnified Party otherwise than under this Section 9.10;
provided, however, that the Borrower shall not be liable for any settlement of
any such action effected without the Borrower's prior written consent. In case
any such action shall be brought against any Indemnified Party and it shall
notify the Borrower of the commencement thereof, the Borrower shall be entitled
to participate in and, to the extent that it shall wish, to assume the defense
thereof with counsel reasonably satisfactory to such Indemnified Party, and
after notice from the Borrower to such Indemnified Party of the Borrower's
election so to assume the defense thereof, the Borrower shall not be liable to
such Indemnified Party for any subsequent legal or other expenses attributable
to such defense, except as provided below, other than reasonable costs of
investigation subsequently incurred by such Indemnified Party in connection
with the defense thereof. The Indemnified Party shall have the right to employ
its own counsel in any such action, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the employ ment of
counsel by such Indemnified Party has been authorized by the Borrower, (ii) the
Indemnified Party shall have reasonably concluded that there may be a conflict
of interest between the Borrower and the Indemnified Party in the conduct of the
defense of such action (in which case the Borrower shall not have the right to
direct the defense of such action on behalf of the Indemnified Party) or (iii)
the Borrower shall not in fact have employed counsel reasonably satisfactory to
the Indemnified Party to assume the defense of such action. Recoveries under
this Section 9.10 shall be subject in all respects to Section 7 of the
Intercreditor Agreement to the same extent as if the indemnification provisions
herein had been included in Section 12(b) of the Intercreditor Agreement.
SECTION 9.11 Governing Law. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO THE CHOICE-OF-LAW PRINCIPLES THEREOF.
SECTION 9.12 Consent to Jurisdiction and Venue. Each of the parties hereto
irrevocably (i) agrees that any suit, action or other legal proceeding arising
out of or relating to this Agreement may be brought in any court of the State of
New York or any court of the United States of America located in the State of
New York, (ii) consents, for itself and in respect of its property, to the
jurisdiction of each such court in any such suit, action or proceeding and (iii)
waives any objection which it may have to the laying of venue of any such suit,
action or proceeding in any
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of such courts and any claim that any such suit, action or proceeding has been
brought in an inconvenient forum. Each of the parties agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Section 9.12 shall affect the right of any
party hereto to serve legal process in any other manner permitted by law.
SECTION 9.13 Headings. The section and subsection headings used herein have
been inserted for convenience of reference only and do not constitute matters to
be considered in interpreting this Agreement.
SECTION 9.14 Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different 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.
SECTION 9.15 Waiver of Jury Trial. THE BORROWER, THE AGENT AND THE BANKS
HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY OF THE CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized, as of the
day and year first above written.
CE GENERATION, LLC
By: /s/ Steven A. McArthur
------------------------------
Commitment
- ----------
$12,250,000.00 CREDIT SUISSE FIRST BOSTON,
as Agent, Initial Bank and as a Bank
By: /s/ Sarah Z. Wu
------------------------------
By: /s/ Markus Christen
------------------------------
$12,250,000.00 LEHMAN COMMERCIAL PAPER INC.
By: /s/ William J. Gallagher
------------------------------
By:
------------------------------
Signature Page to Debt Service Reserve LOC Reimbursement Agreement
<PAGE>
Exhibit A
Form of Debt Service Reserve Letter of Credit
Credit Suisse First Boston Letter of Credit No. TS-06001031
Eleven Madison Avenue Irrevocable Standby Credit
New York, New York 10010
Date and Place of Issue: Date and Place of Expiry:
New York, New York Credit Suisse First Boston,
March 2, 1999 New York, New York
February 29, 2000
Applicant:
CE Generation, LLC
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
Beneficiary: Amount: Up to an aggregate
Chase Manhattan Bank and Trust of Twenty-four Million Five
Company, National Association, Hundred Thousand Dollars
as Depositary Bank (US$24,500,000)
101 California Street, #2725
San Francisco, California 94111
Attn: Corporate Trust Department
Credit Available With:
Credit Suisse First Boston
By: Negotiation, Against
Presentation of the Documents
Detailed Herein Drawn on
Credit Suisse First Boston
Ladies and Gentlemen:
We irrevocably authorize you to draw on us for the account of the Applicant in
any amount up to an aggregate amount as of any date as set forth on Schedule I
hereto but in no event to exceed TWENTY-FOUR MILLION FIVE HUNDRED THOUSAND
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<PAGE>
UNITED STATES DOLLARS (US$24,500,000.00) (as reduced or reinstated from time to
time as set forth in this Letter of Credit, the "Outstanding Amount") available
against presentation of a dated drawing request drawn on Credit Suisse First
Boston, New York Office, manually signed by an authorized officer of the
Beneficiary (who is identified as such) appropriately completed in the form of
Annex 1 hereto and sent by the Beneficiary's authorized officer.
The above drawing request and all communications with respect to this Letter of
Credit shall be in writing, addressed to us at 5 World Trade Center, 8th Floor,
New York, New York, telephone (212) 322-0046, telecopier, (212) 322-2079,
Attention: Trade Services, telex no. ___________, referencing this Letter of
Credit No. TS- 06001031 and presented to us by tested telex, delivery in person
or facsimile transmission at such address, provided that the original of the
above drawing request or such communications, as the case may be, shall be sent
to us at such address by overnight courier for receipt by us within three (3)
Business Days of the date of any such facsimile transmission.
If the drawing request is presented in compliance with the terms of this Letter
of Credit to us at such address by 12:00 noon New York City time on any Business
Day, payment will be made not later than 3:00 p.m. New York City time on such
day and if such drawing request is so presented to us after 12:00 noon New York
City time on any Business Day, payment will be made on the following Business
Day not later than 1:00 p.m. New York City time. Payment under this Letter of
Credit shall be made in immediately available funds by wire transfer to such
account as may be designated by the Beneficiary in the applicable drawing
request.
As used in this Letter of Credit, "Business Day" means any day on which commer
cial banks located in New York, New York are not required or authorized to
remain closed.
This Letter of Credit shall expire on the date of expiry set forth above (the
"Stated Expiration Date").
Notwithstanding the foregoing, we may at any time, subject to the provisions of
the Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as
of March 2, 1999, among the Applicant, the Banks party thereto and Credit Suisse
First Boston, as Agent (the "Debt Service Reserve Letter of Credit and
Reimbursement Agreement"), terminate this Letter of Credit by giving the
Beneficiary and Chase Manhattan Bank and Trust Company, National Association, as
Trustee (in such capacity, the "Trustee") under the Indenture referred to in the
Debt Service Reserve
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Letter of Credit and Reimbursement Agreement, written notice thereof in the form
of Annex 2 hereto by delivery in person or facsimile transmission (with written
confirmation by overnight courier for receipt by the Beneficiary and the
Trustee within two (2) Business Days) addressed to Chase Manhattan Bank and
Trust Company, National Association, at 101 California Street, #2725, San
Francisco, California 94111, Attn: Corporate Trust Department, [include telex,
telephone and fax numbers], at least forty-five (45) days prior to termination,
whereupon the Beneficiary is authorized to draw on us prior to such termination
the Outstanding Amount of this Letter of Credit by presentation to us, in the
manner and at the address specified in the fourth preceding paragraph, of a
drawing request appropriately completed in the form of Annex 1 hereto and sent
and signed by the Beneficiary's authorized officer.
This Letter of Credit is effective immediately.
In the event that a drawing request fails to comply with the terms of this
Letter of Credit, we shall provide the Beneficiary prompt notice of same stating
the reasons therefor and shall upon your instructions hold any non-conforming
drawing request and other documents at your disposal or return any
non-conforming drawing request and other documents to the Beneficiary at the
address set forth above by delivery in person or facsimile transmission (with
originals thereof sent by overnight courier for receipt within two (2) Business
Days). Upon being notified that the drawing was not effected in compliance with
this Letter of Credit, the Beneficiary may attempt to correct such non-complying
drawing request in accordance with the terms of this Letter of Credit.
This Letter of Credit sets forth in full the terms of our undertaking and this
undertaking shall not in any way be modified, amended, limited or amplified by
reference to any document, instrument or agreement referred to herein, except
only defined terms used herein and the drawing requests and certificates
referred to herein; and any such reference shall not be deemed to incorporate
herein by reference any document, instrument or agreement except for such
defined terms, drawing requests and certificates.
This Letter of Credit may be assigned upon presentation to us of a signed
transfer certificate in the form of Annex 3 accompanied by this Letter of
Credit, in which the Beneficiary irrevocably transfers to such transferee all of
its rights hereunder, whereupon we agree to either issue a substitute letter of
credit to such successor or endorse such transfer on the reverse of this Letter
of Credit.
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Partial drawings under this Letter of Credit are allowed and each such partial
drawing shall reduce the amount thereafter available hereunder for drawings
under this Letter of Credit. This Letter of Credit shall be reinstated as
provided in Sections 2.2(e) and 2.7(c) of the Debt Service Reserve Letter of
Credit and Reimbursement Agreement and we shall so advise the Beneficiary in a
certificate in the form of Annex 4 hereto. The Outstanding Amount shall be
reduced or increased as provided in Sections 2.7(b) and 2.7(c) of the Debt
Service Reserve Letter of Credit and Reimbursement Agreement, subject to
reinstatement as provided in the Debt Service Reserve Letter of Credit and
Reimbursement Agreement. In addition, the Outstanding Amount shall be reduced
as provided in Sections 2.2(e) and 2.2(g) of the Debt Service Reserve Letter of
Credit and Reimbursement Agreement to the extent that we so advise the
Beneficiary pursuant to a certificate in the form of Annex 5 hereto.
All banking charges, including any advising and negotiating bank charges, are
for the account of the Applicant.
All drawing requests under this Letter of Credit must bear the clause:
"Drawn under Credit Suisse First Boston Letter of Credit Number TS-
06001031 dated March 2, 1999."
This Letter of Credit shall not be amended except with the written concurrence
of Credit Suisse, the Applicant and the Beneficiary.
We hereby engage with you that a drawing request drawn strictly in compliance
with the terms of this Letter of Credit and amendments thereto shall meet with
due honor upon presentation.
This Letter of Credit is subject to the Uniform Customs and Practice for Documen
tary Credits (1993 Revision in force as from 1st of January 1994), International
Chamber of Commerce Publication Number 500 (the "Uniform Customs"). This Letter
of Credit shall be deemed to be a contract made under the laws of the State of
New York and shall, as to matters not governed by the Uniform Customs, be
governed by and construed in accordance with the laws of such State.
We irrevocably agree with you that any legal action or proceeding with respect
to this Letter of Credit shall be brought in the courts of the State of New York
in the County of New York or of the United States of America in the Southern
District of New York. By signing this Letter of Credit, we irrevocably submit to
the jurisdiction of such courts solely for the purposes of this Letter of
Credit. We hereby waive, to the
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fullest extent permitted by law, any objection we may now or hereafter have to
the laying of venue in any such action or proceeding in any such court.
CREDIT SUISSE FIRST BOSTON
- ---------------------------
Authorized signature
- ---------------------------
Authorized signature
A-5
<PAGE>
SCHEDULE I
OUTSTANDING AMOUNT OF DEBT SERVICE
RESERVE LETTER OF CREDIT
PART I
Set forth below for each period indicated is the Outstanding Amount of the
Debt Service Reserve Letter of Credit which shall be adjusted in accordance with
the terms of the Debt Service Reserve Letter of Credit and Reimbursement
Agreement, including, without limitation, Sections 2.2(e), 2.7(b), 2.7(c) and
6.1 thereof. Promptly upon the occurrence of any such adjustment to the
Outstanding Amount (other than pursuant to Section 2.7(b) and 2.7(c) of the Debt
Service Reserve Letter of Credit and Reimbursement Agreement), the Initial Bank
shall prepare a revised version of this Schedule I to reflect such adjustment
and a copy of which shall be annexed to the notice delivered pursuant to Section
2.2(g) of the Debt Service Reserve Letter of Credit and Reimbursement Agreement.
Notwithstanding anything to the contrary contained herein, no increase in the
Debt Service Reserve Requirement occasioned by the issuance of Additional
Securities shall result in an increase in the Outstanding Amount without the
consent of the banks in accordance with the Debt Service Reserve Letter of
Credit and Reimbursement Agreement.
Period
- ----------------------------------------------------
From and including To and including Outstanding Amount*
- ------------------ ---------------- -------------------
June 16, 1999 December 15, 1999 $24,279,160
December 16, 1999 June 15, 2000 $24,279,160
June 16, 2000 December 15, 2000 $24,279,160
December 16, 2000 June 15, 2001 $24,279,160
June 16, 2001 December 15, 2001 $24,279,160
December 16, 2001 June 15, 2002 $24,279,160
June 16, 2002 December 15, 2002 $24,279,160
December 16, 2002 June 15, 2003 $24,178,344
June 16, 2003 December 15, 2003 $24,178,344
December 16, 2003 June 15, 2004 $24,178,344
- --------
* Prior to giving effect to any drawings hereunder or reinstatement pursuant
to the Debt Service Reserve Letter of Credit and Reimbursement Agreement.
<PAGE>
June 16, 2004 December 15, 2004 $24,178,344
December 16, 2004 June 15, 2005 $24,178,344
June 16, 2006 December 15, 2005 $24,178,344
December 16, 2005 June 15, 2006 $24,178,344
June 16, 2006 December 15, 2006 $24,178,344
December 16, 2006 June 15, 2007 $24,178,344
June 16, 2007 December 15, 2007 $24,178,344
December 16, 2007 June 15, 2008 $24,178,344
June 16, 2008 December 15, 2008 $24,178,344
December 16, 2008 June 15, 2009 $23,655,516
June 16, 2009 December 15, 2009 $21,332,688
December 16, 2009 June 15, 2010 $20,876,604
June 16, 2010 December 15, 2010 $19,528,229
December 16, 2010 June 15, 2011 $19,528,229
June 16, 2011 December 15, 2011 $19,528,229
December 16, 2011 June 15, 2012 $19,528,229
June 16, 2012 December 15, 2012 $19,528,229
December 16, 2012 June 15, 2013 $19,528,229
June 16, 2013 December 15, 2013 $19,528,229
December 16, 2013 June 15, 2014 $19,528,229
June 16, 2014 December 15, 2014 $19,528,229
December 16, 2014 June 15, 2015 $19,528,229
June 16, 2015 December 15, 2015 $19,528,229
December 16, 2015 June 15, 2016 $19,528,229
June 16, 2016 December 15, 2016 $19,528,229
December 16, 2016 June 15, 2017 $19,528,229
June 16, 2017 December 15, 2017 $19,528,229
December 16, 2017 June 15, 2018 $19,528,229
June 16, 2018 December 15, 2018 $18,854,114
2
<PAGE>
PART II
The following table of the outstanding Amount of the Debt Service Reserve
Letter of Credit shall be utilized at any time that the interest rate on the
Securities has been adjusted pursuant to Section 2.2(b) of the Indenture, and
shall be subject to adjustment as described in Part I above.
Period
- -------------------------------------------------
From and including To and including Outstanding Amount*
- ------------------ ---------------- -------------------
June 16, 1999 December 15, 1999 $25,221,660
December 16, 1999 June 15, 2000 $25,221,660
June 16, 2000 December 15, 2000 $25,221,660
December 16, 2000 June 15, 2001 $25,221,660
June 16, 2001 December 15, 2001 $25,221,660
December 16, 2001 June 15, 2002 $25,221,660
June 16, 2002 December 15, 2002 $25,221,660
December 16, 2002 June 15, 2003 $24,857,844
June 16, 2003 December 15, 2003 $24,857,844
December 16, 2003 June 15, 2004 $24,857,844
June 16, 2004 December 15, 2004 $24,857,844
December 16, 2004 June 15, 2005 $24,857,844
June 16, 2006 December 15, 2005 $24,857,844
December 16, 2005 June 15, 2006 $24,857,844
June 16, 2006 December 15, 2006 $24,857,844
December 16, 2006 June 15, 2007 $24,857,844
June 16, 2007 December 15, 2007 $24,857,844
December 16, 2007 June 15, 2008 $24,857,844
June 16, 2008 December 15, 2008 $24,857,844
December 16, 2008 June 15, 2009 $24,299,766
June 16, 2009 December 15, 2009 $21,941,688
December 16, 2009 June 15, 2010 $21,454,854
June 16, 2010 December 15, 2010 $19,619,129
December 16, 2010 June 15, 2011 $19,619,129
- --------
* Prior to giving effect to any drawings hereunder or reinstatement pursuant
to the Debt Service Reserve Letter of Credit and Reimbursement Agreement.
3
<PAGE>
June 16, 2011 December 15, 2011 $19,619,129
December 16, 2011 June 15, 2012 $19,619,129
June 16, 2012 December 15, 2012 $19,619,129
December 16, 2012 June 15, 2013 $19,619,129
June 16, 2013 December 15, 2013 $19,619,129
December 16, 2013 June 15, 2014 $19,619,129
June 16, 2014 December 15, 2014 $19,619,129
December 16, 2014 June 15, 2015 $19,619,129
June 16, 2015 December 15, 2015 $19,619,129
December 16, 2015 June 15, 2016 $19,619,129
June 16, 2016 December 15, 2016 $19,619,129
December 16, 2016 June 15, 2017 $19,619,129
June 16, 2017 December 15, 2017 $19,619,129
December 16, 2017 June 15, 2018 $19,619,129
June 16, 2018 December 15, 2018 $18,899,564
4
<PAGE>
ANNEX 1
"Drawn under Credit Suisse First Boston Letter of Credit Number
TS-06001031 dated March 2, 1999"
DRAWING REQUEST
[Date]
Credit Suisse First Boston
Eleven Madison Avenue
New York, New York 10010
Attention: Trade Services
Ladies and Gentlemen:
The undersigned hereby draws on Credit Suisse First Boston Letter of Credit
No. TS-06001031 Irrevocable Standby Letter of Credit (the "Letter of Credit")
dated March 2, 1999, issued by you in favor of us. Any capitalized term used
herein and not defined herein shall have its respective meaning as set forth in
the Letter of Credit.
In connection with this drawing, we hereby certify that:
A) "This drawing in the amount of US$_________________ is being made pursuant
to Credit Suisse First Boston Letter of Credit No. TS-06001031 Irrevocable
Standby Letter of Credit issued to the Depositary Bank pursuant to Section
3.3 of the Deposit and Disbursement Agreement, dated as of March 2, 1999,
among CE Generation, LLC, the Assignors, Chase Manhattan Bank and Trust
Company, National Association, as Collateral Agent, and Chase Manhattan
Bank and Trust Company, National Association, as Depositary Bank (as the
same may be amended, supplemented or modified from time to time, the
"Depositary Agreement")";
[Use one or more of the following forms of paragraph B, as applicable]
<PAGE>
B) "After the transfer of monies on deposit in the Debt Service Reserve
Account, there are insufficient monies in the Debt Payment Account on the
Payment Date occurring _______________, _____ to pay the [interest] [and]
[or] [principal] due on the Securities on such date (each capitalized word
being used as defined in the Indenture) (whether due on a Payment Date, at
Stated Maturity, at acceleration or otherwise)";
or
B) "You have delivered notice to CE Generation, LLC and the Trustee that the
long-term debt rating of Credit Suisse First Boston has fallen below "A" as
determined by Standard & Poor's Ratings Group or "A2" as determined by
Moody's Investor Services, Inc. and CE Generation, LLC has failed to
provide us with a substitute letter of credit from another letter of credit
provider within forty-five (45) days of receipt of such notice."
or
B) "The Stated Expiration Date will occur within forty-five (45) days of the
date hereof and CE Generation, LLC has failed to deliver a replacement or
renewal letter of credit or other security reasonably acceptable to
Depositary Bank and security is still required under the terms of the
Depositary Agreement."
or
B) "You have delivered to us notice that the Letter of Credit will terminate
prior to its stated expiry date of [insert Stated Expiration Date] and CE
Generation, LLC has failed to deliver a replacement or renewal letter of
credit or other security reasonably acceptable to Depositary Bank not less
than five (5) Business Days prior to the termination date as provided in
such notice of termination and security is still required under the terms
of the Depositary Agreement."
or
B) "You have delivered to us notice that interest on loans made by Credit
Suisse First Boston in respect of drawings under the Credit Suisse First
Boston Letter of Credit No. TS-06001031 Irrevocable Standby Letter of
Credit is now due and payable, and the drawing requested hereunder,
together with all
2
<PAGE>
drawings under the Letter of Credit in the current calendar year do not
exceed $5,000,000 in the aggregate."
C) "The amount requested to be drawn does not exceed the Outstanding Amount";
and
D) "You are directed to make payment of the requested drawing to account no.
_______ at _____________________________ [insert bank name, address and
account number]."
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and delivered this request
on this ___ day of ______________________, ____.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
By:______________________________
Name:
Title:
4
<PAGE>
ANNEX 2
NOTICE OF TERMINATION OF LETTER OF CREDIT
[Date]
Chase Manhattan Bank and Trust Company,
National Association
101 California Street, #2725
San Francisco, California 94111
Attn: Corporate Trust Department
Ladies and Gentlemen:
Reference is made to Credit Suisse First Boston Letter of Credit No.
TS-06001031 Irrevocable Standby Letter of Credit (the "Letter of Credit") dated
March 2, 1999, issued by us in your favor.
This constitutes our notice to you pursuant to the Letter of Credit that
the Letter of Credit shall terminate on _________________, ____ [insert a date
which is 45 or more days after the date of this notice of termination] (the
"Termination Date").
Pursuant to the terms of the Letter of Credit, you are authorized to draw
(pursuant to one or more drawings), prior to the Termination Date, on the Letter
of Credit in an aggregate amount that does not exceed the Outstanding Amount (as
defined in the Letter of Credit).
Very truly yours,
CREDIT SUISSE FIRST BOSTON
By:
-------------------------------
By:
-------------------------------
<PAGE>
ANNEX 3
TRANSFER OF LETTER OF CREDIT
[Date]
Credit Suisse First Boston
Eleven Madison Avenue
New York, New York 10010
Attention: Trade Services
Gentlemen:
Reference is made to Credit Suisse First Boston Letter of Credit No. TS-06001031
Irrevocable Standby Letter of Credit dated March 2, 1999 originally issued by
you in favor of Chase Manhattan Bank and Trust Company, National Association, as
Depositary Bank (the "Letter of Credit"). Any capitalized term used herein and
not defined shall have its respective meaning as set forth in the Letter of
Credit.
For value received, the undersigned, as beneficiary under the Letter of Credit,
hereby irrevocably transfers to ____________ (the "Transferee") all rights of
the under signed to draw under the Letter of Credit in their entirety.
The Transferee is the successor to the Beneficiary, as Depositary Bank under the
Deposit and Disbursement Agreement, dated as of March 2, 1999, among CE
Generation, LLC, the Assignors, Chase Manhattan Bank and Trust Company, National
Association, as Collateral Agent, Chase Manhattan Bank and Trust Company,
National Association, as Depositary Bank (as the same may be amended,
supplemented or modified from time to time, the "Depositary Agreement") and all
conditions to appointment of such successor set forth in the Depositary
Agreement have been satisfied.
By this transfer, all rights of the undersigned, as beneficiary under the Letter
of Credit, are transferred to the Transferee, and the Transferee shall have the
sole rights with respect to the Letter of Credit relating to any amendments
thereof and any notices thereunder. All amendments to the Letter of Credit are
to be consented to by the Transferee without necessity of any consent of or
notice to the undersigned.
1
<PAGE>
Simultaneously with the delivery of this notice to you, copies of this notice
are being transmitted to the Transferee.
The Letter of Credit is returned herewith, and we ask you to either issue a
substitute letter of credit for the benefit of the Transferee or endorse the
transfer on the reverse thereof, and forward it directly to the Transferee with
your customary notice of transfer.
Very truly yours,
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
By:
--------------------------------
Name:
Title:
2
<PAGE>
ANNEX 4
CERTIFICATE OF REINSTATEMENT OF OUTSTANDING AMOUNT
[Date]
Chase Manhattan Bank and Trust Company,
National Association
101 California Street, #2725
San Francisco, California 94111
Attn: Corporate Trust Department
Ladies and Gentlemen:
Reference is made to Credit Suisse First Boston Letter of Credit No.
TS-06001031 Irrevocable Standby Letter of Credit (the "Letter of Credit") dated
March 2, 1999, issued by us in your favor. Any capitalized term used herein and
not defined shall have its respective meaning as set forth in the Letter of
Credit.
This constitutes our notice to you pursuant to the Letter of Credit that:
[use one or more of the following paragraphs]
We have received repayment of a Loan in accordance with the provisions of
the Debt Service Reserve Letter of Credit and Reimburse ment Agreement in
the amount of $_______, and, pursuant to Section 2.7(c) of the Debt Service
Reserve Letter of Credit and Reimburse ment Agreement, the Outstanding
Amount is therefore increased by such amount to $________.
or
We have received payment of a Loan in accordance with the provisions of
the Debt Service Reserve Letter of Credit and Reimburse ment Agreement in
the amount of $________. The Debt Service Reserve Requirement has been
previously reduced (each capitalized term being used as defined in the
Indenture, dated as of
<PAGE>
March 2, 1999, by and between CE Generation, LLC, and ________________, as
Trustee (as the same may be amended, supplemented or modified from time to
time, the "Indenture")). Accordingly, the Outstanding Amount is hereby
increased by $ _____ to $_______ to the extent that such increase shall not
cause the Outstanding Amount when added to the aggregate balance in the
Debt Service Reserve Account to exceed the Debt Service Reserve
Requirement.
Very truly yours,
CREDIT SUISSE FIRST BOSTON
By:
--------------------------------
By:
--------------------------------
2
<PAGE>
ANNEX 5
CERTIFICATE OF CHANGE OF OUTSTANDING AMOUNT
[Date]
Chase Manhattan Bank and Trust Company,
National Association
101 California Street, #2725
San Francisco, California 94111
Attn: Corporate Trust Department
Ladies and Gentlemen:
Reference is made to Credit Suisse First Boston Letter of Credit No.
TS-06001031 Irrevocable Standby Letter of Credit (the "Letter of Credit") dated
March 2, 1999 issued by us in your favor. Any capitalized term used herein and
not defined shall have its respective meaning as set forth in the Letter of
Credit. Reference is also made to that certain Deposit and Disbursement
Agreement, dated as of March 2, 1999 (as the same may be amended, supplemented
or modified from time to time, the "Depositary Agreement"), among, among others,
us and you, in your capacity as Depositary Bank.
This constitutes our notice to you pursuant to the Letter of Credit that we
have been advised by the Applicant that:
The Debt Service Reserve Requirement (as defined in the Depositary
Agreement) has been [reduced/increased] by the amount of $__________.
Accordingly, pursuant to Section 2.2(e) of the Debt Service Reserve Letter
of Credit and Reimbursement Agreement, the Outstanding Amount is
[reduced/increased] by $____________ to $_____________ as set forth on
Schedule I annexed hereto.
Very truly yours,
CREDIT SUISSE FIRST BOSTON
<PAGE>
By:_______________________________
By:_______________________________
<PAGE>
EXHIBIT B
DEBT SERVICE RESERVE LETTER OF CREDIT PROMISSORY NOTE
$24,500,000.00 New York, New York
____________, 1999
FOR VALUE RECEIVED, the undersigned, CE GENERATION, LLC, a Delaware limited
liability company (the "Borrower"), hereby unconditionally promises to pay to
the order of Credit Suisse First Boston (the "Bank") the lesser of (i) the
principal sum of Twenty-four million five hundred thousand dollars
($24,500,000.00) and (ii) the aggregate unpaid principal amount of the Loans
made by the Bank to the Borrower under the Debt Service Reserve LOC
Reimbursement Agreement referred to below, on the dates and in the amounts
specified therein.
The Borrower further promises to pay interest on the daily unpaid principal
amount hereof from time to time outstanding on the dates and at the rates
specified in the Debt Service Reserve LOC Reimbursement Agreement (as herein
defined). This Note is hereby expressly limited so that in no contingency or
event, whether by reason of acceleration of the maturity of any indebtedness
evidenced hereby or otherwise, shall the interest contracted for or charged or
received by the Bank exceed the maximum amount permissible under applicable law.
If, from any circumstance whatsoever, interest would otherwise be payable to the
Bank in excess of the maximum lawful amount, the interest payable to the Bank
shall be reduced to the maximum amount permitted under applicable law, and the
amount of interest for any subsequent period, to the extent less than that
permitted by applicable law, shall to that extent be increased by the amount of
such reduction.
Each holder hereof is irrevocably authorized to endorse on the schedule
attached hereto, or on a continuation thereof, the date each such interest
payment is due and the amount of each such interest payment determined in accor
dance with the Debt Service Reserve LOC Reimbursement Agreement. All such
notations shall constitute prima facie evidence of the accuracy of the
information so recorded and be enforceable against the Borrower with the same
force and effect as if such amounts were each set forth in a separate note
executed by the Borrower.
B-1
<PAGE>
All payments due hereunder shall be made without setoff, counter claim or
deduction of any nature to Credit Suisse First Boston, as Agent, at Eleven
Madison Avenue, New York, New York 10010, in lawful money of the United States
of America and in immediately available funds, or at such other place and in
such other manner as may be specified by the Agent pursuant to the Debt Service
Reserve LOC Reimbursement Agreement.
Each holder hereof is irrevocably authorized to endorse on the schedule
attached hereto, or on a continuation thereof, the date and amount of each Loan
made to the Borrower and each payment or prepayment of principal thereof,
provided that the failure of such holder to make, or any error in making, any
such recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Debt Service Reserve LOC Reimbursement Agreement. All
such notations shall constitute prima facie evidence of the accuracy of the
information so recorded and be enforceable against the Borrower with the same
force and effect as if such amounts were each set forth in a separate note
executed by the Borrower.
This Note is the "Note" of the Borrower to the Bank referred to in,
evidences each Loan made by the Bank to the Borrower under, is subject to the
provisions of, and entitles its holder to the benefits of, the Debt Service
Reserve Letter of Credit and Reimbursement Agreement, dated as of March 2, 1999
(the "Debt Service Reserve LOC Reimbursement Agreement"), among the Borrower,
the Bank and the other banks parties thereto, and Credit Suisse First Boston, as
agent for the Bank and such other banks, as the same may be amended,
supplemented or otherwise modified from time to time and to which reference is
hereby made for a more complete statement of the terms and conditions under
which each Loan evidenced hereby is to be made and repaid. Capitalized terms in
this Note that are not specifically defined herein shall have the meanings
ascribed to them in the Debt Service Reserve LOC Reimbursement Agreement.
The Debt Service Reserve LOC Reimbursement Agreement provides for, among
other things, the acceleration of the maturity of the unpaid principal amount
hereof upon the occurrence of certain stated events and for voluntary
prepayments in certain circumstances and upon certain terms and conditions. The
obligations of the Borrower under the Debt Service Reserve LOC Reimbursement
Agreement and this Note are secured by, and the holder hereof is entitled to the
benefit of, the Security Documents.
In addition to any and all costs, fees and expenses for which the Borrower
is liable under the Debt Service Reserve LOC Reimbursement Agreement,
B-2
<PAGE>
the Borrower promises to pay all reasonable costs and expenses, including reason
able attorneys' fees and disbursements, incurred in the collection and
enforcement hereof or any appeal of any judgment rendered hereon.
The Borrower hereby expressly waives diligence, presentment, protest,
demand, dishonor, nonpayment and notice of every kind to the fullest extent
permitted by applicable law. No failure or delay by any holder of this Note to
exercise any right or remedy under this Note or any other document or instrument
entered into pursuant to the Debt Service Reserve LOC Reimbursement Agreement
shall operate or be construed as a waiver or modification hereof or thereof.
This Note shall be binding upon the successors and assigns of the Borrower
and shall inure to the Bank and its successors, endorsees and assigns. If any
term or provision of this Note shall be held invalid, illegal or unenforceable,
the validity of all other terms and provisions hereof shall in no way be
affected thereby.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK WITH OUT REFERENCE TO THE CHOICE-OF-LAW PRINCIPLES
THEREOF.
Borrower hereby expressly and irrevocably agrees and consents that any
suit, action or proceeding arising out of or related to this Note may be
instituted in any state or federal court (at Bank's option) sitting in the
County of New York, State of New York, and, by the execution and delivery of
this Note, Borrower expressly waives any objection which it may have now or
hereafter to 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.
All excise tax due on this Note has been paid by the Borrower.
CE GENERATION, LLC
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
B-3
<PAGE>
SCHEDULE
<TABLE>
<CAPTION>
Amount Total
and Date Date Interest Principal
Principal of Principal Unpaid payment Amount Amount
Amount Paid or Principal is of Interest of Loans Notation
Date of Loan Prepaid Balance Due Due Outstanding Made By
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
B-4
<PAGE>
EXHIBIT C
Form of Commitment Transfer Supplement
COMMITMENT TRANSFER SUPPLEMENT, dated as of the date set forth in Item 1 of
Schedule I hereto, among each Transferor Bank set forth in Item 2 of Schedule I
hereto (each, a "Transferor Bank"), each Purchasing Bank set forth in Item 3 of
Schedule I hereto (each, a "Purchasing Bank"), and Credit Suisse First Boston,
as the Initial Bank and as Agent under the Debt Service Reserve Letter of Credit
and Reimbursement Agreement described below.
W I T N E S S E T H
WHEREAS, this Commitment Transfer Supplement being executed and delivered
in accordance with Section 9.9 of the Debt Service Reserve Letter of Credit and
Reimbursement Agreement, dated as of March 2, 1999, by and among (i) CE
Generation, LLC, a Delaware limited liability company ("Borrower"), (ii) Credit
Suisse First Boston, in its individual capacity as initial bank (the "Initial
Bank"), and the other Banks named therein (collectively, the "Banks"), and (iii)
Credit Suisse First Boston, as agent for the Banks ("Agent") (as from time to
time amended, supplemented or otherwise modified in accordance with the terms
thereof, the "Debt Service Reserve LOC Reimbursement Agreement"; terms defined
therein being used herein as therein defined); and
WHEREAS, each Purchasing Bank (if it is not already a Bank party to the
Debt Service Reserve LOC Reimbursement Agreement) desires to become a Bank party
to the Debt Service Reserve LOC Reimbursement Agreement; and
WHEREAS, each Transferor Bank is selling and assigning to its respective
Purchasing Bank, certain rights, obligations and commitments under the Debt
Service Reserve LOC Reimbursement Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Upon receipt by Agent of [ ] ([ ]) fully executed originals of this
Commitment Transfer Supplement, to each of which is attached a fully completed
Schedule I, Schedule II and Schedule III, and each of which has been executed by
each Transferor Bank, each Purchasing Bank and any other Person required by the
Debt Service Reserve LOC Reimbursement Agreement to execute
C-1
<PAGE>
this Commitment Transfer Supplement, Agent will transmit to Borrower, each
Transferor Bank and each Purchasing Bank a Transfer Effective Notice,
substantially in the form of Schedule IV hereto (a "Transfer Effective Notice").
Such Transfer Effective Notice shall set forth inter alia, the date on which the
transfer effected by this Commitment Transfer Supplement shall become effective
(the "Transfer Effective Date"), which date shall be the date hereof. From and
after the Transfer Effective Date each Purchasing Bank shall be a Bank party to
the Debt Service Reserve LOC Reimbursement Agreement for all purposes thereof.
2. Each Purchasing Bank shall pay to each of its respective Transferor
Banks an amount equal to the purchase price, as agreed between such Transferor
Bank and each such Purchasing Bank and set forth on Schedule II hereto (the
"Purchase Price"), of the portion being purchased (such Purchasing Bank's
"Purchased Percentage") by such Purchasing Bank of the outstanding Loans and
other amounts owing to the respective Transferor Bank under the Debt Service
Reserve LOC Reimbursement Agreement and the Notes (the "Outstanding Obliga
tions"). Each Purchasing Bank shall pay the appropriate Purchase Price to each
of its respective Transferor Banks, in immediately available funds, at or before
12:00 noon, local time of the appropriate Transferor Bank, on the first Business
Day of the month in which the Transfer Effective Date occurs. Effective upon the
Transfer Effective Date each Transferor Bank hereby irrevocably sells, assigns
and transfers to each of its respective Purchasing Banks, without recourse,
representation or warranty other than as set forth in Section 8 hereof, and each
such Purchasing Bank hereby irrevocably purchases, takes and assumes from each
of its respective Trans feror Banks, such Purchasing Bank's Purchased Percentage
of the Commitment, presently outstanding Loans and other amounts owing to each
such Transferor Bank under the Debt Service Reserve LOC Reimbursement Agreement
and the Notes, together with all instruments, documents and collateral security
pertaining thereto.
3. Each Transferor Bank has made arrangements with each of its respective
Purchasing Banks with respect to (a) the portion, if any, to be paid, and the
date or dates for payment, by such Transferor Bank to each of its respective
Purchasing Banks of any fees heretofore received by such Transferor Bank
pursuant to the Debt Service Reserve LOC Reimbursement Agreement prior to the
Transfer Effective Date and (b) the portion, if any, to be paid, and the date or
dates for payment, by each such Purchasing Bank to each Transferor Bank, or by
each such Transferor Bank to each Purchasing Bank, of fees or interest received
by each such Purchasing Bank or each such Transferor Bank, as the case may be,
pursuant to the Debt Service Reserve LOC Reimbursement Agreement from and after
the Transfer Effective Date. Any interest, accrued from and after the Transfer
Effective Date,
C-2
<PAGE>
with respect to principal of the Loans for which the Purchase Price has yet to
be paid under Section 2 above, shall accrue for the benefit of the appropriate
Transferor Bank to the extent of the Adjusted Base Rate and shall accrue for the
benefit of the appropriate Purchasing Bank to the extent of the applicable
interest rate less the Adjusted Base Rate.
4. (a) All principal payments that would otherwise be payable from and
after the Transfer Effective Date to or for the account of any Transferor Bank
pursuant to the Debt Service Reserve LOC Reimbursement Agree ment and the Notes
shall, instead, be payable to or for the account of the appropriate Transferor
Banks and the appropriate Purchasing Banks, as the case may be, in accordance
with their respective interests as reflected in this Commitment Transfer
Supplement.
(b) Except as otherwise agreed as set forth in Section 3 hereof, all
interest, fees and other amounts that would otherwise accrue for the account of
any Transferor Bank from and after the Transfer Effective Date pursuant to the
Debt Service Reserve LOC Reimbursement Agreement and the Notes shall, instead,
accrue for the account of, and be payable to, the appropriate Transferor Banks
and the appropriate Purchasing Banks, as the case may be, in accordance with
their respective interests as reflected in this Commitment Transfer Supplement.
In the event that any amount of interest, fees, or other amounts accruing prior
to the Transfer Effective Date was included in the Purchase Price paid by any
Purchasing Bank, the appropriate Transferor Bank and such Purchasing Bank will
make appro priate arrangements for payment by such Transferor Bank to such
Purchasing Bank of such amount upon receipt thereof from Borrower.
5. On or prior to the Transfer Effective Date, each Transferor Bank will
deliver to Agent its Note[s]. On or prior to the Transfer Effective Date,
Borrower will deliver to Agent new Notes for each Purchasing Bank and each
Transferor Bank, in each case in principal amounts reflecting, in accordance
with the Debt Service Reserve LOC Reimbursement Agreement, their respective
"Revised Commitment Percentage" or "New Commitment Percentage", as the case may
be and as set forth in Schedule III hereto, of the Commitment or, as
appropriate, their then outstanding shares of the Outstanding Obligations (as
adjusted pursuant to this Commitment Transfer Supplement). Promptly after the
Transfer Effective Date, Agent will send to each Transferor Bank and Purchasing
Bank its new Notes[s] with the superseded Note[s] of each Transferor Bank
attached to the new Note[s] (or if more than one new Note[s], the superseded
Note[s] attached to one of such new Note(s) and copies thereof attached to all
other new Note[s]).
C-3
<PAGE>
6. Concurrently with the execution and delivery hereof, the Transferor
Banks will provide to each Purchasing Bank (if it is not already a Bank party to
the Debt Service Reserve LOC Reimbursement Agreement) copies of all documents
delivered to the Transferor Banks evidencing satisfaction of the condi tions
precedent set forth in the Debt Service Reserve LOC Reimbursement Agreement.
7. Each of the parties to this Commitment Transfer Supplement agrees that
at any time and from time to time upon the written request of any other party,
it will execute and deliver such further documents and do such further acts and
things as such other party may reasonably request in order to effect the
purposes of this Commitment Transfer Supplement.
8. By executing and delivering this Commitment Transfer Supplement, each
Transferor Bank and each of its respective Purchasing Banks confirm to and agree
with each other, Agent, the Initial Bank and Banks as follows: (a) other than
the representation and warranty that it is the legal and beneficial owner of the
interest being assigned hereby free and clear of any adverse claim, each such
Transferor Bank makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connec tion with the Debt Service Reserve LOC Reimbursement
Agreement or the execu tion, legality, validity, enforceability, genuineness,
sufficiency or value of the Debt Service Reserve LOC Reimbursement Agreement,
the Notes or any other instrument or document furnished pursuant thereto, (b)
each such Transferor Bank makes no representation or warranty and assumes no
responsibility with respect to the financial condition of Borrower or the
performance or observance by Borrower of any of its obligations under the Debt
Service Reserve LOC Reimbursement Agreement, the Notes or any other instrument
or document furnished pursuant hereto, (c) each such Purchasing Bank confers
that it has received a copy of the Debt Service Reserve LOC Reimbursement
Agreement, together with copies of such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to enter
into this Commitment Transfer Supplement, (d) each such Purchasing Bank will,
independently and without reliance upon Agent, its respective Transferor Banks
or any other Bank or the Initial Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Debt Service Reserve
LOC Reimbursement Agreement, (e) each such Purchasing Bank appoints and
authorizes Agent to take such action as agent on its behalf and to exercise such
powers under the Debt Service Reserve LOC Reimbursement Agreement as are
C-4
<PAGE>
delegated to the Agent by the terms thereof together with such powers as are
reasonably incidental thereto and (f) each such Purchasing Bank agrees that it
will perform in accordance with their terms all of the obligations which by the
terms of the Debt Service Reserve LOC Reimbursement Agreement are required to be
performed by it as a Bank.
9. Schedule III hereto sets forth for each Transferor Bank and each
Purchasing Bank the revised Commitment, and/or Commitment Percentage, as the
case may be, of each Transferor Bank and each Purchasing Bank, as well as
certain administrative information with respect to each Purchasing Bank.
10. Notwithstanding anything to the contrary in this Commitment Transfer
Supplement, if the long-term debt rating of any Purchasing Bank shall, at any
time, be less than a rating of A or the equivalent thereof by S&P or A2 or the
equivalent thereof by Moody's, then the Initial Bank may, in its sole and
absolute discretion, purchase all or any part (as designated by the Initial
Bank) of such Purchasing Bank's participating interest hereunder (the "Purchased
Interests") (which, if in part, may be limited to the Purchasing Bank's
participating interest in the rights and obligations of the Initial Bank under,
and in connection with, one or more Debt Service Reserve Letters of Credit,
including, without limitation, the obligations to pay the Initial Bank if it is
not reimbursed by Borrower in immediately available funds for any drawings under
such Debt Service Reserve Letter of Credit and to make certain loans, if any,
provided to be made under the Debt Service Reserve LOC Reimbursement Agreement
in the event of certain drawings under such Debt Service Reserve Letter of
Credit, all in accordance with the Debt Service Reserve LOC Reimbursement
Agreement) by providing such Purchasing Bank with at least two Banking Days'
prior notice of such purchase and making a payment to such Purchasing Bank for
all outstanding amounts owing to it hereunder or pursuant to the Debt Service
Reserve LOC Reimbursement Agreement in respect of the Purchased Interests on the
date of such purchase as set forth in such notice. Upon any such purchase of all
of a Purchasing Bank's participating interest hereunder, such Purchasing Bank
shall no longer have any rights or obligations as a Purchasing Bank hereunder or
as a Bank under the Debt Service Reserve LOC Reimbursement Agreement or under
any other instruments or documents furnished pursuant thereto. The Initial Bank
may, in its sole and absolute discretion, retain for its own account and/or sell
its interest in all or any portion of the Purchased Interests.
11. THIS COMMITMENT TRANSFER SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
C-5
<PAGE>
12. This Commitment Transfer Supplement 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 document.
13. Execution of this Commitment Transfer Supplement by Agent and Borrower
as set forth below shall constitute any consent of such Person required pursuant
to Section 9.9 of the Debt Service Reserve LOC Reimbursement Agree ment.
IN WITNESS WHEREOF, the parties hereto have caused this Commitment Transfer
Supplement to be executed by their respective duly authorized officers on
Schedule I hereto as of the date set forth in Item 1 of Schedule I hereto.
C-6
<PAGE>
SCHEDULE I TO COMMITMENT
TRANSFER SUPPLEMENT
COMPLETION OF INFORMATION AND
SIGNATURES FOR COMMITMENT
TRANSFER SUPPLEMENT
Re: Debt Service Reserve Letter of Credit
and Reimbursement Agreement, dated as
of March 2, 1999, with CE Generation, LLC,
as Borrower.
Item 1 Date of Commitment [Insert date of
Transfer Supplement: Commitment
Transfer Supplement]
Item 2 Transferor: [Insert names of
Transferor Banks]
Item 3 Purchasing Banks: [Insert names of
Purchasing Banks]
Item 4 Signatures of Parties
to Commitment Transfer
Supplement:
---------------------------------,
as a Transferor Bank
By:
---------------------------------
Name:
Title:
---------------------------------,
as a Purchasing Bank
By:
---------------------------------
Name:
Title:
C-7
<PAGE>
SCHEDULE I
(Continued)
Credit Suisse First Boston,
as the Initial Bank and Agent
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
CONSENTED TO AND ACKNOWLEDGED:
CE GENERATION, LLC
By:
---------------------------------
Name:
Title:
ACCEPTED FOR RECORDATION IN REGISTER:
CREDIT SUISSE FIRST BOSTON,
as Agent
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
C-8
<PAGE>
SCHEDULE II TO COMMITMENT
TRANSFER SUPPLEMENT
PURCHASE PRICES
Names of
Transfer Banks
<TABLE>
<CAPTION>
=========================================================================================================
- --------------------------------------------------------------------------------
Names of [Insert name of [Insert name of [Insert name of
Purchasing Banks Transferor Bank] Transferor Bank] Transferor Bank]
- ---------------- ---------------- ---------------- ----------------
- -------------------------- ------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
[Insert name of $[Insert Purchase Price] $[Insert Purchase Price] $[Insert Purchase Price]
Purchasing Bank]
- -------------------------- ------------------------- ------------------------- -------------------------
- -------------------------- ------------------------- ------------------------- -------------------------
=========================================================================================================
</TABLE>
C-9
<PAGE>
SCHEDULE III TO COMMITMENT
TRANSFER SUPPLEMENT
LIST OF LENDING OFFICES, ADDRESSES FOR NOTICES,
COMMITMENT AMOUNTS, AND PROPORTIONATE SHARES
======================================================================
Names of Transferor Banks Revised Maximum Commitment
- ------------------------- --------------------------
- ---------------------------------------------------------------------
[ ] $
- ---------------------------------------------------------------------
[ ] $
- ---------------------------------------------------------------------
Names of Transferor Banks Revised Commitment Percentage
- ------------------------- -----------------------------
- ---------------------------------------------------------------------
[ ] %
- ---------------------------------------------------------------------
%
- ---------------------------------------------------------------------
Names of Purchasing Banks New Maximum Commitment
- ------------------------- ----------------------
- ---------------------------------------------------------------------
[ ] %
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Names of Purchasing Banks Commitment Percentage
- ------------------------- ---------------------
- ---------------------------------------------------------------------
[ ] %
======================================================================
C-10
<PAGE>
SCHEDULE III
(Continued)
[NAME PURCHASING BANK(S)]
Address for Notices:
Attention:
Telex:
Answerback:
Telephone:
Telecopier:
Clearing Account:
- -----------------
[Insert Acct. #]
Eurodollar Lending Office:
- --------------------------
[Insert Address]
Domestic Lending Office:
- ------------------------
[Insert Address]
C-11
<PAGE>
SCHEDULE IV TO COMMITMENT
TRANSFER SUPPLEMENT
TRANSFER EFFECTIVE NOTICE
_________________________, 199_
Transferor Banks: [ ]
Purchasing Banks: [ ]
Borrower: CE Generation, LLC
The undersigned, as Agent under the Debt Service Reserve Letter of Credit
and Reimbursement Agreement, dated as of March 2, 1999 by and among (i) CE
Generation, LLC, a Delaware limited liability company ("Borrower"), (ii) Credit
Suisse First Boston, as initial bank (the "Initial Bank"), and the other Banks
named therein (collectively, the "Banks"), and (iii) Credit Suisse First Boston,
as agent for the Banks ("Agent") (as from time to time amended, supplemented or
otherwise modified in accordance with the terms thereof, the "Debt Service
Reserve LOC Reimbursement Agreement") acknowledge receipt of [ ] ([ ]) copies of
the Commit ment Transfer Supplement as described in Annex I hereto, each fully
executed. Terms defined in such Commitment Transfer Supplement are used herein
as therein defined.
1. Pursuant to such Commitment Transfer Supplement, you are advised that
the Transfer Effective Date will be the date hereof.
2. Pursuant to such Commitment Transfer Supplement, each Transferor Bank is
required to deliver to Agent on or before the Transfer Effective Date its
Note[s].
3. Pursuant to such Commitment Transfer Supplement, Borrower is required to
deliver to Agent on or before the Transfer Effective Date the following Notes:
[Describe each new Note for Transferor Bank and Purchasing Bank as to principal
amount and payee.]
C-12
<PAGE>
4. Pursuant to such Commitment Transfer Supplement each Purchasing Bank is
required to pay its Purchase Price, in immediately available funds, to the
appropriate Transferor Bank at or before 12:00 noon, local time of the
appropriate Transferor Bank, on the first Business Day of the month in which the
Transfer Effective Date occurs.
Very truly yours,
Credit Suisse First Boston,
as Agent
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
C-13
<PAGE>
ANNEX I
INFORMATION FOR
COMMITMENT TRANSFER SUPPLEMENT
Re: Debt Service Reserve Letter of Credit and
Reimbursement Agreement, dated as of
March 2, 1999, with CE Generation, LLC,
as Borrower
Item 1 Date of Commitment
Transfer Supplement: __________________, 199_
Item 2 Transferor Banks: [ ]
Item 3 Purchasing Banks: [ ]
C-14
<PAGE>
EXHIBIT D
RESERVE BOND NOTE
$____________________ New York, New
York
_________________, 1999
FOR VALUE RECEIVED, the undersigned, CE GENERATION, LLC, a Delaware limited
liability company (the "Borrower"), hereby unconditionally promises to pay to
the order of Credit Suisse First Boston (the "Bank") the principal sum of
________________________ dollars ($____________________ ) in respect of Reserve
Bonds advanced by the Bank to the Borrower on the dates and in the amounts
specified in the Debt Service Reserve LOC Reimbursement Agreement referred to
below.
The Borrower further promises to pay interest on the daily unpaid principal
amount hereof from time to time outstanding on the dates and at the rates
specified in the Debt Service Reserve LOC Reimbursement Agreement. This Note is
hereby expressly limited so that in no contingency or event, whether by reason
of acceleration of the maturity of any indebtedness evidenced hereby or
otherwise, shall the interest contracted for or charged or received by the Bank
exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, interest would otherwise be payable to the Bank in
excess of the maximum lawful amount, the interest payable to the Bank shall be
reduced to the maximum amount permitted under applicable law, and the amount of
interest for any subsequent period, to the extent less than that permitted by
applicable law, shall to that extent be increased by the amount of such
reduction.
Each holder hereof is irrevocably authorized to endorse on the schedule
attached hereto, or on a continuation thereof, the date each such interest
payment is due and the amount of each such interest payment determined in accor
dance with the Debt Service Reserve LOC Reimbursement Agreement. All such
notations shall constitute prima facie evidence of the accuracy of the
information so recorded and be enforceable against the Borrower with the same
force
D-1
<PAGE>
and effect as if such amounts were each set forth in a separate note executed by
the Borrower.
All payments due hereunder shall be made without setoff, counter claim or
deduction of any nature to Credit Suisse First Boston, as Agent, at Eleven
Madison Avenue, New York, New York 10010, in lawful money of the United States
of America and in immediately available funds, or at such other place and in
such other manner as may be specified by the Agent pursuant to the Debt Service
Reserve LOC Reimbursement Agreement.
Each holder hereof is irrevocably authorized to endorse on the schedule
attached hereto, or on a continuation thereof, the date and amount of each
Reserve Bond made to the Borrower and each payment or prepayment of principal
thereof, provided that the failure of such holder to make, or any error in
making, any such recordation or endorsement shall not affect the obligations of
the Borrower hereunder or under the Debt Service Reserve LOC and Reimbursement
Agreement. All such notations shall constitute prima facie evidence of the
accuracy of the information so recorded and be enforceable against the Borrower
with the same force and effect as if such amounts were each set forth in a
separate note executed by the Borrower.
This Note is the "Reserve Bond Note" of the Borrower to the Bank referred
to in, evidences each Reserve Bond made by the Bank to the Borrower under, is
subject to the provisions of, and entitles its holder to the benefits of, the
Debt Service Reserve Letter of Credit and Reimbursement Agreement dated as of
March 2, 1999 (the "Debt Service Reserve LOC Reimbursement Agreement") among the
Borrower, the Bank and the other banks parties thereto, and Credit Suisse First
Boston, as agent for the Bank and such other banks, as the same may be amended,
supplemented or otherwise modified from time to time and to which reference is
hereby made for a more complete statement of the terms and conditions under
which each Reserve Bond evidenced hereby is to be made and repaid. Capitalized
terms in this Note that are not specifically defined herein shall have the
meanings ascribed to them in the Debt Service Reserve LOC Reimbursement
Agreement.
The Debt Service Reserve LOC Reimbursement Agreement provides for, among
other things, the acceleration of the maturity of the unpaid principal amount
hereof upon the occurrence of certain stated events and for voluntary
prepayments in certain circumstances and upon certain terms and conditions. The
obligations of the Borrower under the Debt Service Reserve LOC Reimbursement
Agreement and this Note are secured by, and the holder hereof is entitled to the
benefit of, the Security Documents.
D-2
<PAGE>
In addition to any and all costs, fees and expenses for which the Borrower
is liable under the Debt Service Reserve LOC Reimbursement Agreement, the
Borrower promises to pay all reasonable costs and expenses, including reason
able attorneys' fees and disbursements, incurred in the collection and
enforcement hereof or any appeal of any judgment rendered hereon.
The Borrower hereby expressly waives diligence, presentment, protest,
demand, dishonor, nonpayment and notice of every kind to the fullest extent
permitted by applicable law. No failure or delay by any holder of this Note to
exercise any right or remedy under this Note or any other document or instrument
entered into pursuant to the Debt Service Reserve LOC Reimbursement Agreement
shall operate or be construed as a waiver or modification hereof or thereof.
This Note shall be binding upon the successors and assigns of the Borrower
and shall inure to the Bank and its successors, endorsees and assigns. If any
term or provision of this Note shall be held invalid, illegal or unenforceable,
the validity of all other terms and provisions hereof shall in no way be
affected thereby.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE CHOICE-OF-LAW PRINCIPLES
THEREOF.
Borrower hereby expressly and irrevocably agrees and consents that any
suit, action or proceeding arising out of or related to this Note may be
instituted in any state or federal court (at Bank's option) sitting in the
County of New York, State of New York, and by the execution and delivery of this
Note, Borrower expressly waives any objection which it may have now or hereafter
to 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.
All excise tax due on this Note has been paid by the Borrower.
CE GENERATION, LLC
By:_________________________________
Name:____________________________
Title:_____________________________
D-3
<PAGE>
SCHEDULE
<TABLE>
<CAPTION>
Total
Amount Principal
Principal and Date Date Interest Amount
Amount of Principal Unpaid Payment Amount of Reserve
Date of Reserve Paid or Principal is of Interest Bond Notation
Made Bond Prepaid Balance Due Due Outstanding Made By
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
D-4
<PAGE>
EXHIBIT 4.6
================================================================================
DEPOSIT AND DISBURSEMENT AGREEMENT
dated as of March 2, 1999
among
CE GENERATION, LLC,
MAGMA POWER COMPANY,
SALTON SEA POWER COMPANY,
FALCON SEABOARD RESOURCES, INC.,
FALCON SEABOARD POWER CORPORATION,
FALCON SEABOARD OIL COMPANY,
CALIFORNIA ENERGY DEVELOPMENT CORPORATION and
CE TEXAS ENERGY LLC
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
as Collateral Agent
and
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION,
as Depositary Bank
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................4
SECTION 1.1 Capitalized Terms..............................................4
SECTION 1.2 Uniform Commercial Code Terms..................................4
ARTICLE II PROCEDURES, GOVERNMENT AND ESTABLISHMENT
OF ACCOUNTS...................................................................4
SECTION 2.1 Procedures Governing Accounts..................................4
SECTION 2.2 Establishment of Accounts and Sub-Accounts.....................6
SECTION 2.3 Security Interest..............................................6
SECTION 2.4 Termination....................................................7
ARTICLE III THE ACCOUNTS..................................................................7
SECTION 3.1 Revenue Account................................................7
SECTION 3.2 Debt Payment Account; DSR LOC Principal
Sub-Account...................................................12
SECTION 3.3 Debt Service Reserve Account..................................13
SECTION 3.4 Distribution Suspense Account.................................16
SECTION 3.5 Redemption Account............................................18
SECTION 3.6 9 7/8% Notes Account..........................................20
SECTION 3.7 Investment of Monies..........................................20
SECTION 3.8 Disposition of Monies Upon Retirement of Securities
and Additional Securities.....................................21
SECTION 3.9 Account Balance Statements....................................22
SECTION 3.10 Trigger Events................................................22
ARTICLE IV DEPOSITARY BANK..............................................................22
SECTION 4.1 Appointment of Depositary Bank; Powers and
Immunities....................................................22
SECTION 4.2 Reliance by Depositary Bank...................................24
SECTION 4.3 Court Orders..................................................24
SECTION 4.4 Resignation or Removal........................................25
ARTICLE V EXPENSES; INDEMNIFICATION; FEES..............................................26
SECTION 5.1 Expenses......................................................26
SECTION 5.2 Indemnification...............................................26
SECTION 5.3 Fees..........................................................26
ARTICLE VI MISCELLANEOUS................................................................26
i
<PAGE>
Page
----
SECTION 6.1 Amendments: Etc...............................................27
SECTION 6.2 Notices.......................................................27
SECTION 6.3 Governing Law.................................................27
SECTION 6.4 Headings......................................................27
SECTION 6.5 No Third Party Beneficiaries..................................27
SECTION 6.6 No Waiver.....................................................27
SECTION 6.7 Severability..................................................28
SECTION 6.8 Successors and Assigns........................................28
SECTION 6.9 Execution in Counterparts.....................................28
SECTION 6.10 Consequential Damages.........................................28
SECTION 6.11 Conflict with other Agreements................................28
SECTION 6.12 Notice of Adverse Claims......................................29
SECTION 6.13 Waiver of Jury Trial..........................................29
</TABLE>
ii
<PAGE>
DEPOSIT AND DISBURSEMENT AGREEMENT
This DEPOSIT AND DISBURSEMENT AGREEMENT (this "Agreement"), dated as of
March 2, 1999, is by and among (1) CE GENERATION, LLC ("CE Generation"), a
Delaware limited liability company, (2) MAGMA POWER COMPANY, a Nevada
corporation, SALTON SEA POWER COMPANY, a Nevada corporation, FALCON SEABOARD
RESOURCES, INC., a Texas corporation, FALCON SEABOARD POWER CORPORATION, a Texas
corporation, FALCON SEABOARD OIL COMPANY, a Texas corporation, CALIFORNIA
ENERGY DEVELOPMENT CORPORATION, a Delaware corporation, and CE TEXAS ENERGY LLC,
a Delaware limited liability company (each individually an "Assignor" and
collectively the "Assignors"), (3) solely as to Section 3.6 and Section 6.14,
CALENERGY COMPANY, INC., a Delaware corporation (together with its successors,
"CalEnergy"), (4) CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION,
as Collateral Agent for the Secured Parties (as defined in the Indenture
referred to below) under the Collateral Agency and Intercreditor Agreement,
dated as of the date hereof (the "Intercreditor Agree ment"), among CE
Generation, the Assignors, the Trustee, the Collateral Agent and the other
Secured Parties, and (5) CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL
ASSOCIATION, as depositary bank for the Trustee, the Collateral Agent and the
other Secured Parties hereunder (together with its successors in such capacity,
the "Depositary Bank").
W I T N E S S E T H:
WHEREAS, CE Generation is issuing $400,000,000 in principal amount of its
7.416% Senior Secured Bonds Due December 15, 2018 (the "Initial Securities")
pursuant to the Indenture, dated as of the date hereof (the "Indenture"),
between CE Generation and Chase Manhattan Bank and Trust Company, National
Association, as trustee (the "Trustee");
WHEREAS, CE Generation owns, directly or indirectly, one hundred percent
(100%) of the outstanding capital stock of each of the Assignors;
WHEREAS, the Assignors own, directly or indirectly, equity interests in
various Project Companies (as defined in the Indenture) and, accordingly, have
the right to receive Available Cash Flow (as defined in the Indenture) from such
Project Companies;
3
<PAGE>
WHEREAS, the Available Cash Flow received by the Assignors will be used to
pay principal of, premium (if any) and interest on the Securities;
WHEREAS, it is a condition precedent to the issuance of the Securities
under the Indenture that CE Generation and the Assignors execute and deliver
this Agreement;
NOW THEREFORE, in consideration of the premises and the covenants and
agreements as herein set forth and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto
hereby 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 Uniform Commercial Code Terms. All terms defined in the Uniform
Commercial Code shall have the respective meanings given to those terms in the
Uniform Commercial Code, except where the context otherwise requires.
ARTICLE II
PROCEDURES, GOVERNMENT AND ESTABLISHMENT OF ACCOUNTS
SECTION 2.1 Procedures Governing Accounts. (a) The Depositary Bank hereby
agrees to act as such and to accept all Monies to be delivered to or held by the
Depositary Bank pursuant to the terms of this Agreement and the other Financing
Documents, and to promptly deposit all such Monies into the Accounts established
hereunder. The Depositary Bank shall hold and safeguard the Accounts during the
term of this Agreement and shall treat the Monies, and all rights related
thereto, now or hereafter deposited in or credited to the Accounts as "financial
assets" (as defined in Section 8-102(a)(9) of the Uniform Commercial Code)
pledged by CE Generation and the Assignors to the Collateral Agent for the
benefit of the Secured Parties, to be held by the Depositary Bank acting as a
"securities intermediary" (as defined in the Uniform Commercial Code).
(b) The Accounts and sub-Accounts established pursuant to Section 2.2 shall
be in the name of the Collateral Agent for the benefit of the Secured
4
<PAGE>
Parties and shall be located in the State of New York. All Monies from time to
time on deposit in or credited to each Account shall be (i) registered in the
name of the Depositary Bank for the benefit of the Secured Parties, (ii) held in
the custody of the Depositary Bank for the purposes and on the terms set forth
in this Agreement and the other Financing Documents and (iii) endorsed to the
Depositary Bank. All such Monies shall constitute a part of the Collateral and
shall not constitute payment of any Indebtedness or any other obligation of CE
Generation or any Assignor until applied as hereinafter provided. The Depositary
Bank shall maintain the Accounts and all Monies on deposit therein or credited
thereto in the State of New York.
(c) Each of the Accounts shall at all times be in the exclusive possession
of, and under the exclusive dominion and control of, the Depository Bank, acting
at the direction of the Collateral Agent. CE Generation and each of the
Assignors agree that their rights to Monies on deposit in or credited to the
Accounts are subject to and controlled by the terms of this Agreement. In no
case will any Monies deposited in or credited to any Account be registered in
the name of CE Generation or any Assignor, be payable to the order of CE
Generation or any Assignor or be specially endorsed to CE Generation or any
Assignor, except to the extent the foregoing have been specially endorsed to the
Depositary Bank or in blank.
(d) The Depositary Bank hereby agrees that, notwithstanding any other
provision herein or in any other Financing Document, it will comply only with
"entitlement orders" (within the meaning of Section 8-102(a)(8) of the Uniform
Commercial Code, including, without limitation, any notification to the
Depositary Bank directing transfer or redemption of any securities or other
financial assets in any Account) issued by the Collateral Agent and relating to
any Account without the requirement of further consent by CE Generation, any
Assignor or any other Person. The Depositary Bank hereby represents that it has
not entered into, and hereby agrees that until the termination of each of the
Financing Documents it will not enter into, any agreement with any other Person
(other than CE Generation and the Assignors) (i) relating to the Accounts (or
the Monies deposited therein or credited thereto) pursuant to which it has
agreed to comply with entitlement orders made by such Person or (ii) that is
inconsistent with the provisions of this Agree ment. The Depositary Bank hereby
represents that it has not entered into any other agreement with CE Generation,
any Assignor or the Collateral Agent purporting to limit or condition the
obligation of the Depositary Bank to comply with entitlement orders as set forth
in this Section 2.1(d). The Depositary Bank hereby represents that it is a
"securities intermediary" and each Account is a "securities account" as such
terms are defined in the Uniform Commercial Code. The Depositary Bank hereby
5
<PAGE>
acknowledges that, as a result of Section 6.3 of this Agreement, the "securities
intermediary's jurisdiction" of it with respect to the Accounts (and the Monies
deposited therein or credited thereto) is the State of New York.
SECTION 2.2 Establishment of Accounts and Sub-Accounts. The Depositary Bank
hereby establishes the following accounts (the "Accounts") in the form of
non-interest bearing accounts and sub-accounts thereof (and each such Account
shall be a "securities account" as such term is defined in Section 8-501(a) of
the Uniform Commercial Code), which shall be maintained at all times in
accordance with Section 2.1 until the termination of this Agreement:
(a) Revenue Account;
(b) Debt Payment Account, including the DSR LOC Principal Sub-Account;
(c) Debt Service Reserve Account;
(d) Distribution Suspense Account;
(e) Redemption Account; and
(f) 9 7/8% Notes Account.
The Depositary Bank shall not change the name or account number of any of the
foregoing Accounts without the prior written consent of the Collateral Agent.
Certain sub-accounts within certain of the Accounts may be established and
created from time to time in accordance with this Agreement.
SECTION 2.3 Security Interest. (a) As collateral security for the prompt
and complete payment and performance when due (whether at stated maturity, by
acceleration or otherwise) of the Secured Obligations, each of CE Generation and
each Assignor hereby pledges, assigns, hypothecates and transfers to the Collat
eral Agent for the benefit of the Secured Parties, and grants to the Collateral
Agent a Lien on and security interest in and to, each Account and all Financial
Assets from time to time credited thereto, including all Monies and all
Permitted Investments at any time on deposit in or credited to any Account,
including all income or gain earned thereon and any proceeds thereof.
(b) The Depositary Bank hereby waives any right of set-off or
recoupment, or security interest or Lien, that it may have or obtain with
respect to or in or on the Accounts or any Monies deposited therein or credited
thereto.
SECTION 2.4 Termination. The rights and powers granted herein to the
Collateral Agent have been granted in order to perfect its security interests in
the
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Accounts, are powers coupled with an interest and will not be affected by the
bankruptcy of CE Generation or any Assignor or by the lapse of time. The obliga
tions of the Depositary Bank hereunder shall continue in effect until the
termination of the Intercreditor Agreement pursuant to Section 24 thereof.
ARTICLE III
THE ACCOUNTS
SECTION 3.1 Revenue Account. (a) The following amounts shall be deposited
into the Revenue Account directly, or if received by CE Generation or any
Assignor, as soon as practicable upon receipt, in either case in accordance with
this Section 3.1(a):
(i) all Available Cash Flow (other than Available Cash Flow required to
be deposited in the Redemption Account pursuant to Section 3.5(a)) received
by the Assignors;
(ii) all proceeds received by CE Genera tion in connection with a sale
of all or any portion of its ownership interest in any Assignor (other than
proceeds required to be deposited in the Redemption Account pursuant to
Section 3.5(a));
(iii) all proceeds received by the Assignors in connection with a sale
of all or any portion of their respective ownership interests in the Project
Companies or their right to receive Available Cash Flow (other than proceeds
required to be deposited in the Redemption Account pursuant to Section
3.5(a));
(iv) to the extent the Debt Service Reserve Account is fully funded or
the Monies on deposit in or credited to such Account, together with any Debt
Service Reserve Letter of Credit, equals the Debt Service Reserve
Requirement, any income from the investment of Monies on deposit in or
credited to any of the Accounts pursuant to Section 3.7; and
(v) all other Monies required to be transferred to the Revenue Account
from any other Account as contemplated under this Agreement or as provided
in Section 7 of the Intercreditor Agreement.
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If any of the foregoing amounts required to be deposited with the Depositary
Bank in accordance with the terms of this Agreement are received by CE
Generation, any Assignor or any Affiliate thereof, CE Generation or such
Assignor shall or shall cause any such Affiliate to hold such payments in trust
for the Collateral Agent and shall promptly remit such payments to the
Depositary Bank for deposit in the Revenue Account in the form received (with
any necessary endorsements).
(b) In the event the Depositary Bank receives Monies without adequate
instruction with respect to the source or proper Account in which such Monies
are to be deposited, the Depositary Bank shall deposit such Monies into the
Revenue Account and segregate such Monies from all other Monies on deposit in or
credited to the Revenue Account and notify CE Generation and the Assignors of
the receipt and source of such Monies. Upon receipt of written instructions from
CE Generation, the Depositary Bank shall transfer such Monies from the Revenue
Account to the Account specified in such instructions in accordance with the
terms of this Agreement.
(c) The Collateral Agent, CE Generation and each Assignor hereby
irrevocably authorize the Depositary Bank to make withdrawals and transfers of
Monies (via wire transfer or otherwise in the discretion of the Depositary
Bank), to the extent then on deposit in or credited to the Revenue Account, upon
the delivery of an Officer's Certificate of CE Generation (a "Funds Transfer
Certificate") to the Depositary Bank setting forth the Monies to be withdrawn
from the Revenue Account and the Monies to be transferred pursuant to this
clause (c) pursuant to the terms of this Agreement in the following order of
priority:
(i) FIRST: Transfer on each Funding Date from the Revenue Account to
the Persons entitled to such pay ments an amount (as set forth in such Funds
Transfer Certificate) equal to the sum of (A) all Operating and
Administrative Costs of CE Generation, the Assignors and the Intermediate
Holding Companies incurred on or prior to such Funding Date or reasonably
expected to be incurred within the next thirty (30) days and (B) any taxes,
assess ments and governmental charges or levies imposed on CE Generation, any
Assignor or any Intermediate Holding Company on or prior to such Funding
Date; provided that no Operating and Administrative Costs payable to an
Affiliate of any of CE Generation, any Assignor or any Intermediate Holding
Company shall be paid pursuant to this clause (i), other than Operating and
Administrative Costs payable by such Affiliate to Persons other than any such
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Affiliate and that are incurred by such Affiliate on behalf of CE Generation,
any Assignor or any Intermediate Holding Company; and provided, further that
if Monies then on deposit in or credited to the Revenue Account are
insufficient on such Funding Date to make the transfers specified in this
clause (i), transfer of Monies shall be made ratably to the specified
recipients in accordance with the respective amounts owed to such recipients;
(ii) SECOND: After making each applicable transfer specified in clause
(i) immediately above, transfer on each Funding Date from the Revenue Account
to the Depositary Bank, the Collateral Agent, the Trustee and the Debt
Service Reserve LOC Provider an amount (as set forth in such Funds Transfer
Certificate) equal to all Administrative Costs due and payable to such
parties on such Funding Date; provided that if Monies then on deposit in or
credited to the Revenue Account are insufficient on such Funding Date to make
the transfers specified in this clause (ii), transfer of Monies shall be made
ratably to the specified recipients in accordance with the respective amounts
owed to such recipients;
(iii) THIRD: After making each applicable transfer specified in
clauses (i) and (ii) immediately above, transfer on each Funding Date from
the Revenue Account to the Debt Payment Account an amount (as set forth in
such Funds Transfer Certificate) which, together with the Monies then on
deposit therein or credited thereto, is equal to the sum of (A) all principal
of and interest on the Securities and all other amounts payable under the
Indenture due and payable on the next succeeding Payment Date, (B) all
principal of and interest on any Debt Service Reserve Bonds due and payable
on the next succeeding Payment Date, (C) all commit ment, letter of credit
and fronting fees payable under the Debt Service Reserve LOC Reimbursement
Agreement due and payable on the next succeeding Payment Date and (D) all
interest on any Debt Service Reserve LOC Loans due and payable on the next
succeeding Payment Date;
(iv) FOURTH: After making each applicable transfer specified in
clauses (i), (ii) and (iii) above, transfer on each Funding Date from the
Revenue Account to the DSR LOC Principal Sub-Account an amount (as set forth
in such Funds Transfer
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Certificate) which, together with the Monies then on deposit therein or
credited thereto, is equal to the sum of (A) all of the principal of any Debt
Service Reserve LOC Loans due and payable on the next succeeding Payment
Date, (B) any direct loss (but excluding any indirect, consequential or
incidental loss or damage), cost or out-of-pocket expense which the Debt
Service Reserve LOC Provider or any other financial institution providing a
Debt Service Reserve LOC Loan incurs as a result of a prepayment of any Debt
Service Reserve LOC Loan bearing interest at a London interbank offered rate
on a date which is not the last day of the applicable interest period, to the
extent that such loss, cost or expense is required to be paid to the Debt
Service Reserve LOC Provider and any such other financial institution under
the agreement evidencing such Debt Service Reserve LOC Loan on the next
succeeding Payment Date, and (C) any amounts certified by the Debt Service
Reserve LOC Provider or any other financial institution providing a Debt
Service Reserve LOC Loan to be required to compensate such lender for amounts
due under Sections 2.15, 2.16 and/or 2.17 of the Debt Service Reserve LOC
Reimbursement Agreement on the next succeeding Payment Date (as in effect on
the Closing Date, or any such corresponding section of any similar agreement
refinancing or replacing such Debt Service Reserve LOC Reimbursement
Agreement);
(v) FIFTH: After making each applicable transfer specified in clauses
(i), (ii), (iii) and (iv) immediately above, transfer on each Funding Date
from the Revenue Account to the Debt Service Reserve Account an amount (as
set forth in such Funds Transfer Certificate) which, together with the sum of
(x) the Monies then on deposit therein or credited thereto and (y) the amount
avail able for drawing under any Debt Service Reserve Letter of Credit, is
equal to the then current Debt Service Reserve Requirement;
(vi) SIXTH: After making each applicable withdrawal and transfer
specified in clauses (i), (ii), (iii), (iv) and (v) above, transfer on each
Funding Date from the Revenue Account to the Secured Parties an amount (as
set forth in such Funds Transfer Certificate) equal to any indemnification
expenses or other amounts heretofore not paid and required to be paid to any
of the Secured Parties, to the extent due and payable on such Funding Date,
including, without limitation, amounts due under Section 2.7(i) of the
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Debt Service Reserve LOC Reimbursement Agreement (as in effect on the Closing
Date, or any such corresponding section of any similar agree ment refinancing
or replacing such Debt Service Reserve LOC Reimbursement Agreement);
provided, however, that if Monies in the Revenue Account are insufficient on
any date to make the payments specified in this clause (vi), distribution of
Monies shall be made ratably to the specified recipients based on the
respective amounts owed such recipients;
(vii) SEVENTH: After making each applicable withdrawal and transfer
specified in clauses (i), (ii), (iii), (iv), (v) and (vi) above, transfer on
each Funding Date from the Revenue Account to the Persons entitled to such
payments an amount (as set forth in such Funds Transfer Certificate) equal to
all Operating and Administrative Costs of CE Generation, the Assignors and
the Intermediate Holding Companies incurred on or prior to such Funding Date
or reasonably expected to be incurred within the next thirty (30) days, other
than Operating and Maintenance Costs paid pursuant to clause (i) above;
provided that if Monies then on deposit in or credited to the Revenue Account
are insufficient on such Funding Date to make the transfers specified in this
clause (vii), transfer of Monies shall be made ratably to the specified
recipients in accordance with the respective amounts owed to such recipients;
and
(viii) EIGHTH: After making each applicable withdrawal and transfer
specified in clauses (i), (ii), (iii), (iv), (v), (vi) and (vii) above,
transfer on each Funding Date from the Revenue Account to the Distribution
Suspense Account any amounts then remaining in the Revenue Account;
provided, however, that in the event the Securities are accelerated and no
foreclosure occurs within one hundred eighty (180) days thereafter, then
principal of the Debt Service Reserve LOC Loans shall be paid equally and
ratably in priority THIRD in lieu of priority FOURTH above until such time as
such foreclosure has occurred or such acceleration has been rescinded or
otherwise remedied.
SECTION 3.2 Debt Payment Account; DSR LOC Principal Sub- Account. (a)
Monies on deposit in or credited to the Debt Payment Account shall be used to
pay (i) principal of and interest on the Securities and all other amounts
payable under the Indenture, (ii) principal of and interest on any Debt Service
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Reserve Bonds, (iii) commitment, letter of credit and fronting fees payable
under the Debt Service Reserve LOC Reimbursement Agreement and (iv) interest on
any Debt Service Reserve LOC Loans. On any Payment Date that any of the amounts
described in the preceding sentence are due and payable (or if such day is not
a Business Day, then on the next succeeding Business Day), the Depositary Bank
shall remit Monies on deposit in or credited to the Debt Payment Account to the
Persons entitled thereto for the payment of such amounts; provided that if
Monies then on deposit in or credited to the Debt Payment Account are
insufficient on such Payment Date to make the payments specified in this Section
3.2(a), distribution of Monies shall be made ratably to the specified recipients
in accordance with the respective amounts owed to such recipients.
(b) Monies on deposit in or credited to the DSR LOC Principal
Sub-Account shall used to pay (i) principal of any Debt Service Reserve LOC
Loans, (ii) any direct loss (but excluding any indirect, consequential or
incidental loss or damage), cost or out-of-pocket expense which the Debt Service
Reserve LOC Provider or any other financial institution providing a Debt Service
Reserve LOC Loan incurs as a result of a prepayment of any Debt Service Reserve
LOC Loan bearing interest at a London interbank offered rate on a date which is
not the last day of the applicable interest period, to the extent that such
loss, cost or expense is required to be paid to the Debt Service Reserve LOC
Provider and any such other financial institution under the agreement evidencing
such Debt Service Reserve LOC Loan, and (iii) any amounts certified by the Debt
Service Reserve LOC Provider or any other financial institution providing a Debt
Service Reserve LOC Loan to be required to compensate such lender for amounts
due under Sections 2.15, 2.16 and/or 2.17 of the Debt Service Reserve LOC
Reimbursement Agreement (as in effect on the Closing Date, or any such
corresponding section of any similar agreement refinancing or replacing such
Debt Service Reserve LOC Reimbursement Agree ment). On any Payment Date that any
of the amounts described in the preceding sentence are due and payable (or if
such day is not a Business Day, then on the next succeeding Business Day), the
Depositary Bank shall remit Monies on deposit in or credited to the DSR LOC
Principal Sub-Account to the Persons entitled thereto for the payment of such
amounts; provided that if Monies then on deposit in or credited to the DSR LOC
Principal Sub-Account are insufficient on such Payment Date to make the payments
specified in this Section 3.2(b), distribution of Monies shall be made ratably
to the specified recipients in accordance with the respective amounts owed to
such recipients.
(c) If on any Payment Date Monies on deposit in or credited to the Debt
Payment Account exceed the amount required to be on deposit therein or
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credited thereto after giving effect to the payments made on such Payment Date
pursuant to clause (a) above, the Depositary Bank shall transfer such excess
Monies from the Debt Payment Account to the Revenue Account on such Payment
Date. If on any Payment Date Monies on deposit in or credited to the DSR LOC
Principal Sub-Account exceed the amount required to be on deposit therein or
credited thereto after giving effect to the payments made on such Payment Date
pursuant to clause (b) above, the Depositary Bank shall transfer such excess
Monies from the DSR LOC Principal Sub-Account to the Debt Payment Account on
such Payment Date.
SECTION 3.3 Debt Service Reserve Account. (a) On the Closing Date CE
Generation will furnish to the Depositary Bank one or more of the following in
the aggregate amount of the then current Debt Service Reserve Requirement: (i)
one or more Debt Service Reserve Letters of Credit; and (ii) United States
dollars in immediately available funds. Any Debt Service Reserve Letter of
Credit will be issued pursuant to a Debt Service Reserve LOC Reimbursement
Agreement. After the Closing Date the Debt Service Reserve Account may
accumulate cash deposits from (i) net interest and other investment income
earned on Monies deposited therein or credited thereto, (ii) transfers of Monies
into the Debt Service Reserve Account made pursuant to Section 3.1(c)(v) and
(iii) direct cash deposits. Upon the making of deposits pursuant to clauses (ii)
and (iii) of the preceding sentence, the amount outstanding under any Debt
Service Reserve Letter of Credit shall, at the written election of CE
Generation, be reduced by the excess of (x) the sum of Monies on deposit in or
credited to the Debt Service Reserve Account and the amount available for
drawing under any Debt Service Reserve Letter of Credit (before giving effect to
such reduction) over (y) the then current Debt Service Reserve Requirement.
(b) On each date on which the Depositary Bank is required to withdraw
or transfer Monies from the Debt Payment Account to pay principal of, premium
(if any) and interest on the Securities and any other amounts payable under the
Indenture pursuant to Section 3.2(a), the Depositary Bank shall first withdraw
or transfer for such purpose (and only for such purpose) Monies then on deposit
in or credited to the Debt Payment Account. To the extent that Monies then on
deposit in or credited to the Debt Payment Account are insufficient to fund such
withdrawal and transfer, the Depositary Bank shall (i) transfer Monies on
deposit in or credited to the Debt Service Reserve Account (if any) in an amount
equal to such insufficiency to the Debt Payment Account and (ii) to the extent
of any remaining insufficiency, deliver to any Debt Service Reserve LOC
Provider on such date (i) a draft on the Debt Service Reserve Letter of Credit
issued by such Debt Service Reserve LOC Provider in an amount equal to the
lesser of (A) the amount available to be
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drawn under such Debt Service Reserve Letter of Credit or (B) the amount of such
remaining insufficiency and (ii) an appropriate certificate with respect
thereto if required under such Debt Service Reserve Letter of Credit. The
Depositary Bank shall deposit the Monies received from such Debt Service Reserve
LOC Provider in the Debt Payment Account and use such Monies to pay principal
of, premium (if any) and interest on the Securities and any other amounts due
under the Indenture in accordance with Section 3.2(a).
(c) A determination as to (i) the Monies on deposit in or credited to
the Debt Service Reserve Account, (ii) the aggregate maximum amount at the time
available to be drawn under any Debt Service Reserve Letter of Credit and (iii)
the then current Debt Service Reserve Requirement shall be made by CE Generation
on each Funding Date and immediately following any withdrawal or transfer of
Monies from the Debt Service Reserve Account pursuant to clause (b) immediately
above. As soon as practicable after making any such determination, CE Generation
shall deliver to the Depositary Bank and the Collateral Agent an Officer's
Certificate setting forth such determination. If such determination indicates
that the Monies on deposit in or credited to the Debt Service Reserve Account,
together with the amount available for drawing under any Debt Service Reserve
Letter of Credit, at such time exceeds the then current Debt Service Reserve
Requirement, the Depositary Bank shall transfer such excess Monies to the
Revenue Account on such date.
(d) Forty-five (45) days prior to the expiration of any Debt Service
Reserve Letter of Credit, or promptly thereafter, provided that such Debt
Service Reserve Letter of Credit has not been previously renewed, extended or
replaced, the Depositary Bank shall deliver to the Debt Service Reserve LOC
Provider providing such Debt Service Reserve Letter of Credit on such date (i) a
draft on such Debt Service Reserve Letter of Credit in an amount equal to the
lesser of (A) the maximum amount available to be drawn under the such Debt
Service Reserve Letter of Credit or (B) an amount which, together with the
Monies then on deposit in or credited to the Debt Service Reserve Account,
equals the then current Debt Service Reserve Requirement, and (ii) an
appropriate certificate with respect thereto if required by such Debt Service
Reserve Letter of Credit. The Depositary Bank shall deposit the Monies received
from the Debt Service Reserve LOC Provider providing such Debt Service Reserve
Letter of Credit in payment of such draft in the Debt Service Reserve Account to
be applied in accordance with this Section 3.3.
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(e) Forty-five (45) days after receipt of notice that the long- term
debt of any Debt Service Reserve LOC Provider is rated less than "A" or better
by S&P and "A2" or better by Moody's, or promptly thereafter, provided that the
Debt Service Reserve Letter of Credit issued by such Debt Service Reserve LOC
Provider has not been replaced with a Debt Service Reserve Letter of Credit
issued by a new Debt Service Reserve LOC Provider, the Depositary Bank shall
deliver to such Debt Service Reserve LOC Provider on such date (i) a draft on
such Debt Service Reserve Letter of Credit in an amount equal to the lesser of
(A) the maximum amount available to be drawn under such Debt Service Reserve
Letter of Credit or (B) an amount which, together with the Monies then on
deposit in or credited to the Debt Service Reserve Account, equals the then
current Debt Service Reserve Requirement, and (ii) an appropriate certificate
with respect thereto if required by such Debt Service Reserve Letter of Credit.
The Depositary Bank shall deposit the Monies received from such Debt Service
Reserve LOC Provider in payment of such draft in the Debt Service Reserve
Account to be applied in accordance with this Section 3.3.
(f) Upon receipt of a notice from any Debt Service Reserve LOC Provider
that the Debt Service Reserve Letter of Credit issued by such Debt Service
Reserve LOC Provider will be terminated prior to its stated expiration date, if,
thirty (30) Business Days prior to the termination date as provided in such
notice of termination, such Debt Service Reserve Letter of Credit has not been
replaced with a new Debt Service Reserve Letter of Credit, the Depositary Bank
shall, prior to the termination date set forth in such notice, deliver to such
Debt Service Reserve LOC Provider (i) a draft on such Debt Service Reserve
Letter of Credit in an amount equal to the lesser of (A) the maximum amount
available to be drawn under such Debt Service Reserve Letter of Credit or (B) an
amount which, together with the Monies then on deposit in or credited to the
Debt Service Reserve Account, equals the then current Debt Service Reserve
Requirement, and (ii) an appropriate certificate with respect thereto if
required by such Debt Service Reserve Letter of Credit. The Depositary Bank
shall deposit the Monies received from such Debt Service Reserve LOC Provider in
payment of such draft in the Debt Service Reserve Account to be applied in
accordance with this Section 3.3.
(g) Upon receipt of a written notice from the Debt Service Reserve LOC
Provider that interest is due and payable, but unpaid, with respect to any
outstanding Debt Service Reserve LOC Loans, the Depositary Bank shall deliver to
the Debt Service Reserve LOC Provider on the date of such notice or as soon as
practicable thereafter (i) a draft on the Debt Service Reserve LOC Provider in
an amount equal to the amount of interest due and payable (which, together with
all
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drawings under the Debt Service Reserve Letter of Credit in the then-current
calendar year, shall not exceed $5,000,000 in the aggregate) and (ii) an
appropriate certificate with respect thereto if required by the Debt Service
Reserve Letter of Credit. The Depositary Bank shall apply monies received from
the Debt Service Reserve LOC Provider in payment of such amount of interest due
and payable.
(h) The Collateral Agent and CE Generation hereby authorize the
Depositary Bank to exchange or substitute a Debt Service Reserve Letter of
Credit, as requested by CE Generation, so long as any exchanged or substituted
Debt Service Reserve Letter of Credit has a term of at least the lesser of (i)
three hundred sixty-four (364) days and (ii) the period remaining through the
final maturity date of the Securities, and such exchange or substitution does
not result in a reduction of the amount available for drawing under the Debt
Service Reserve Letter of Credit being exchanged or substituted, except to the
extent permitted under Section 3.3(a).
SECTION 3.4 Distribution Suspense Account. (a) On any Funding Date on which
all of the conditions set forth in clause (b) of this Section 3.4 (the
"Distribution Conditions") are satisfied, upon delivery to the Trustee, the
Collateral Agent and the Depositary Bank of an Officer's Certificate of CE
Generation certifying as such, the Depositary Bank shall withdraw and transfer
Monies then on deposit in or credited to the Distribution Suspense Account to
such Persons as may be directed in writing by CE Generation, and the security
interests created hereunder in such Monies shall be released. The Depositary
Bank may conclusively rely on such Officer's Certificate certifying that all of
the Distributions Conditions have been satisfied as of such Funding Date.
(b) The Distribution Suspense Account will be funded from Monies
transferred from the Revenue Account pursuant to Section 3.1(c)(viii).
Distributions from the Distribution Suspense Account by CE Generation may be
made only from and to the extent of Monies on deposit in or credited to the
Distribution Suspense Account. Such Restricted Payments are subject to the
prior satisfaction of the following Distribution Conditions:
(i) (A) the Monies on deposit in or credited to the Debt Payment
Account, prior to the making of any payments from the Debt Payment Account
pursuant to Section 3.2(a) on the Funding Date on which a distribution from
the Distribution Suspense Account is to be made, shall be greater than or
equal to the amount of Monies required to be on deposit therein or credited
thereto on such Funding Date under Section 3.1(c)(iii) and
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(iv), (B) the Monies on deposit in or credited to the Debt Service Reserve
Account, together with the amount available for drawing under any Debt
Service Reserve Letter of Credit, shall be greater than or equal to the
amount of Monies required to be on deposit therein or credited thereto on
such Funding Date under Section 3.1(c)(v) and (C) all transfers and payments
required to be made pursuant to Section 3.1(c)(i), (ii), (vi) and (vii) shall
have been satisfied in full;
(ii) no Default or Event of Default shall have occurred and be
continuing or shall result from the making of the distribution from the
Distribution Suspense Account;
(iii) the Debt Service Coverage Ratio for the preceding four (4)
fiscal quarters ending on or prior to such Funding Date, measured as one (1)
annual period, shall be greater than or equal to 1.5 to 1.0, as certified by
an Authorized Officer of CE Generation; provided that, for periods prior to
the first anniversary of the Closing Date, (x) the Debt Service Coverage
Ratio shall be calculated and applied for purposes of this clause (iii) for
each complete calendar quarter ending since the Closing Date and (y) the
Projected Debt Service Coverage Ratio shall be calculated and applied for
purposes of this clause (iii) for each remaining calendar quarter ending on
or prior to such first anniversary;
(iv) the Projected Debt Service Coverage Ratio for the succeeding
four (4) fiscal quarters (including the quarter in which such distribution
from the Distribution Suspense Account is to be made), measured as one (1)
annual period, shall be greater than or equal to 1.5 to 1.0, as certified by
an Authorized Officer of CE Generation; and
(v) if a material default or an event of default shall have occurred
and be continuing under any Project Financing Document for a Significant
Project, the Loan Life Coverage Ratio shall, as certified by an Authorized
Officer of CE Generation, be greater than or equal to 1.7 to 1.0.
(c) If on any Payment Date the amount of Monies on deposit in or credited
to the Revenue Account (after taking into account any interest or other
investment income earned on Monies on deposit in or credited to the Revenue
Account) is insufficient to make the withdrawals and transfers required to be
made under clauses (i) through (vii) of Section 3.1(c), Monies then on deposit
in or credited to the Distribution Suspense Account shall be transferred to the
Revenue
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Account in the amount of such insufficiency and applied in accordance with
clauses (i) through (vii) of Section 3.1(c) prior to the making of any
distribution from the Distribution Suspense Account pursuant to clauses (a) and
(b) immediately above.
SECTION 3.5 Redemption Account. (a) CE Generation and the Assignors shall
cause the following amounts to be deposited into the Redemption Account as soon
as practicable upon receipt:
(i) all Available Cash Flow in excess of $15,000,000 received by an
Assignor from one or more distributions of Financing Pro ceeds by such
Assignor's Project Company in connection with one or more Project Financings
or Project Debt Refinancings with respect to such Assignor's Project
Company;
(ii) all Available Cash Flow in excess of $15,000,000 received by an
Assignor from one or more distributions of Asset Sale Pro ceeds by such
Assignor's Project Company in connection with one or more Asset Sales with
respect to such Assignor's Project Company;
(iii) all proceeds in excess of $15,000,000 received by CE
Generation in connection with the sale of all or any portion of its owner
ship interests in an Assignor (other than a Permitted Transfer);
(iv) all proceeds in excess of $15,000,000 received by an Assignor
in connection with the sale of all or any portion of (x) its owner ship
interests in one or more Project Companies (other than a Permitted Transfer)
or (y) its right to receive Available Cash Flow;
(v) all Available Cash Flow in excess of $15,000,000 received by an
Assignor from one or more distributions of Loss Proceeds by such Assignor's
Project Company in connection with one or more Events of Loss with respect to
such Project Company's Project;
(vi) all Available Cash Flow in excess of $15,000,000 received by an
Assignor from one or more distributions of Expropriation Proceeds by such
Assignor's Project Company in connection with one or more Expropriation
Events with respect to such Project Company's Project;
(vii) all Available Cash Flow in excess of $15,000,000 received by
an Assignor from one or more distributions of Buy-Out Proceeds
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by such Assignor's Project Company in connection with one or more Permitted
Power Contract Buy-Outs with respect to such Project Company's Project; and
(viii) all Available Cash Flow in excess of $15,000,000 received by
an Assignor from one or more distributions of Title Proceeds by such
Assignor's Project Company in connection with one or more Title Events with
respect to such Project Company's Project.
If any of the foregoing amounts required to be deposited in the Redemption
Account are received by CE Generation, any Assignor or any Affiliate thereof, CE
Generation or such Assignor shall, or shall cause such Affiliate to, shall hold
such payments in trust for the Collateral Agent and shall promptly remit such
payments to the Depositary Bank for deposit in the Redemption Account in the
form received, with any necessary endorsements, and shall promptly notify the
Collateral Agent and Depositary Bank of any such deposits.
(c) Upon the receipt of any of the Monies described in Section 3.5(a)
which are required to be applied to a redemption of Securities pursuant to
Section 3.2 of the Indenture, the Depositary Bank shall so notify the Collateral
Agent and the Trustee and shall separately segregate such Monies, and the
Collateral Agent shall deliver to the Depositary Bank the Allocation Certificate
delivered to the Collateral Agent by CE Generation in accordance with Section 3
of the Intercreditor Agreement. Upon receipt of such Allocation Certificate, the
Depositary Bank shall withdraw, transfer or distribute such Monies as instructed
by such Allocation Certificate.
(d) The Depositary Bank shall transfer any Monies on deposit in or
credited to the Redemption Account which are not required to be applied to a
redemption of Securities in accordance with Section 3.2 of the Indenture to the
Revenue Account for application in accordance with Section 3.1(c).
SECTION 3.6 9 7/8% Notes Account. On the Closing Date CalEnergy shall
deliver $4,235,000 from the net proceeds of the Initial Securities to the
Depositary Bank, which shall be deposited in the 9 7/8% Notes Account. Until the
repayment in full of the 9 7/8% Notes, Monies on deposit in or credited to the 9
7/8% Notes Account shall be applied solely for the payment of outstanding
principal of and interest on the 9 7/8% Notes and related transaction costs.
Upon delivery to the Depositary Bank of an Officer's Certificate of CE
Generation or CalEnergy stating that an amount of principal of and interest on
the 9 7/8% Notes is due and
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payable on a date (a "9 7/8% Notes Payment Date") not less than three (3)
Business Days after the date of such Officer's Certificate, the Depositary Bank
shall withdraw such amount of Monies from the 9 7/8% Notes Account on the 9 7/8%
Notes Payment Date and transfer it to the Persons entitled thereto, as stated in
such Officer's Certificate, for the payment of such principal and interest.
Upon the repayment in full of the 9 7/8% Notes, all Monies remaining on deposit
in or credited to the 9 7/8% Notes Account shall be transferred to CalEnergy and
all security interests therein shall be released.
SECTION 3.7 Investment of Monies. Monies on deposit in or credited to any
Account shall be invested and reinvested in Permitted Investments (a) if no
Event of Default shall have occurred and be continuing, at the specific written
direction (which may be in the form of a standing instruction) of an Authorized
Officer of CE Generation and (b) if an Event of Default shall have occurred and
be continuing, at the written direction of the Collateral Agent; provided,
however, that (i) if an Event of Default shall not have occurred and be
continuing and an Authorized Officer of CE Generation shall not have timely
furnished such a written direction or (ii) if an Event of Default shall have
occurred and be continuing and the Collateral Agent shall not have timely
furnished such a written direction, the Depositary Bank shall invest such Monies
only in Permitted Investments described in clause (i) of the definition of
Permitted Investments with a maturity of thirty (30) days or less. Such
investments shall mature in such amounts and have maturity dates, or be subject
to redemption or capable of being sold or otherwise liquidated at the option of
the holder thereof, on or prior to maturity as needed for the purposes described
herein, but in no event shall such investments mature more than one (1) year
after the date acquired. The Depositary Bank shall at any time and from time to
time liquidate any or all of such investments prior to the maturity thereof as
needed in order to effect the transfers and withdrawals contemplated by this
Agreement in accordance with an Officer's Certificate of CE Generation; provided
that, in the absence of timely receipt of such an Officer's Certificate, the
Depositary Bank shall liquidate any or all of such investments as so needed. In
the event any such invest ments are redeemed prior to the maturity thereof, the
Depositary Bank shall not be liable for any loss or penalty relating thereto in
the absence of its gross negligence or willful misconduct. Any income or gain
realized from such investments shall be deposited (i) first, into the Debt
Service Reserve Account until the Monies on deposit therein or credited thereto,
together with the amount available for drawing under any Debt Service Reserve
Letter of Credit, are equal to the then current Debt Service Reserve
Requirement, and (ii) second, if the Monies on deposit in or credited to the
Debt Service Reserve Account, together with the amount available for drawing
under any Debt Service Reserve Letter of Credit, equal or exceed the then
current Debt
20
<PAGE>
Service Reserve Requirement, into the Revenue Account. Any loss shall be charged
to the applicable Account. The Depositary Bank shall not be liable for any loss,
fee, tax or other charge other than by reason of its gross negligence or willful
misconduct. For purposes of any income tax payable on account of any income or
gain on any investment in Permitted Investments, such income or gain shall be
for the account of CE Generation or the applicable Assignor.
SECTION 3.8 Disposition of Monies Upon Retirement of Securities and
Additional Securities. (a) Upon the payment in full of the principal of, premium
(if any) and interest on any series of Securities or any issuance of Additional
Securities such that such series of Securities or issuance of Additional
Securities is no longer outstanding, all Monies on deposit in or credited to the
Debt Payment Account and the Debt Service Reserve Account allocated to such
series of Securities or issuance of Additional Securities shall upon the written
direction of CE Genera tion be transferred to the Revenue Account.
(b) Upon termination of the Intercreditor Agreement and after payment
in full of the principal of, premium (if any), interest on and all other amounts
due in respect of all Secured Obligations and all other amounts required to be
paid hereunder and under the other Financing Documents, all Monies remaining on
deposit in or credited to any Account shall at the written direction of CE
Genera tion be paid by the Depositary Bank to CE Generation.
SECTION 3.9 Account Balance Statements. The Depositary Bank shall, on a
monthly basis and at such other times as the Collateral Agent or CE Generation
may from time to time reasonably request, provide to the Collateral Agent, the
Trustee and CE Generation account balance statements in respect of each of the
Accounts, all sub-accounts contained therein and all amounts segregated in the
Accounts or such sub-accounts. Such balance statements shall also include
deposits and transfers to, withdrawals from and the net investment income or
gain received and collected for, each Account, sub-account and segregated
amount.
SECTION 3.10 Trigger Events. (a) On and after any date on which the
Depositary Bank shall receive written notice from the Collateral Agent pursuant
to Section 6(a) of the Intercreditor Agreement that a Trigger Event has
occurred, the Depositary Bank shall thereafter accept all notices and
instructions required to be given to the Depositary Bank pursuant to the terms
of this Agreement only from the Collateral Agent and not from any other Person
and the Depositary Bank shall not withdraw, transfer, pay or otherwise
distribute any Monies on deposit in or credited
21
<PAGE>
to any of the Accounts except pursuant to such notices and instructions from the
Collateral Agent.
(b) On any Trigger Event Date, the Depositary Bank shall provide a
statement of all Monies on deposit in or credited to the Accounts as of such
Trigger Event Date to the Collateral Agent, the Trustee and CE Generation.
(c) On and after any Trigger Event Date until the Depositary Bank has
received notice from the Collateral Agent that the subject Trigger Event has
been cured or waived in accordance with the Intercreditor Agreement, the
Depositary Bank shall distribute all Monies then on deposit in or credited to
any Account in accordance with the terms of this Agreement and the Intercreditor
Agreement.
ARTICLE IV
DEPOSITARY BANK
SECTION 4.1 Appointment of Depositary Bank; Powers and Immunities. (a) The
Depositary Bank may execute any of its duties under this Agreement by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining hereto.
(b) The Collateral Agent on behalf of the Secured Parties under the
Intercreditor Agreement hereby appoints the Depositary Bank to act as depositary
bank and "securities intermediary" hereunder, with such powers as are expressly
delegated to the Depositary Bank by the terms of this Agreement. The Depositary
Bank shall not have any duties or responsibilities except those expressly set
forth in this Agreement. Without limiting the generality of the foregoing, the
Depositary Bank shall take all actions as the Collateral Agent shall direct it
to perform in accordance with the express provisions of this Agreement or the
Intercreditor Agreement or as the Collateral Agent may otherwise direct it to
perform in accordance with the provisions of this Agreement or the Intercreditor
Agreement. Notwithstanding anything to the contrary contained herein (other than
the provisions of Section 2.1(d)), the Depositary Bank shall not be required to
take any action which is contrary to this Agreement, the Intercreditor Agreement
or Applicable Law. Neither the Depositary Bank nor any of its Affiliates shall
be responsible to any Secured Party for (a) any recitals, statements,
representations or warranties made by CE Generation or any of the Assignors
contained in this Agreement or any other Financing Document or in any
certificate or other document referred to or provided for in, or received by any
Secured Party under, this Agreement or any other
22
<PAGE>
Financing Document, (b) the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other document referred
to or provided for herein or therein or (c) any failure by CE Generation or any
Assignor to perform its obligations hereunder or thereunder. The Depositary Bank
shall not be required to ascertain or inquire as to the performance by CE
Generation or any Assignor of any of its obligations under this Agreement, any
other Financing Document or any other document or agreement contemplated hereby
or thereby. The Depositary Bank shall not (a) be required to initiate or conduct
any litigation or collection proceeding hereunder or under any other Financing
Document or (b) be responsible for any action taken or omitted to be taken by it
hereunder (except for its own gross negligence or willful misconduct) or under
any other Financing Document. Except as otherwise provided under this Agreement,
the Depositary Bank shall take action under this Agreement only as it shall be
directed in writing by the Collateral Agent. Whenever in the administration of
this Agreement the Depositary Bank shall deem it necessary or desirable that a
factual matter be proved or established in connection with the Depositary Bank
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 conclusively proved or established by an Officer's Certificate of
CE Generation or the Collateral Agent, if appropriate. The Depositary Bank shall
have the right at any time to seek instructions concerning the administration
of this Agreement from the Collateral Agent or any court of competent jurisdic
tion. The Depositary Bank 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.
SECTION 4.2 Reliance by Depositary Bank. The Depositary Bank shall be
entitled to rely upon and shall not be bound to make any investigation into the
facts or matters stated in any Officer's Certificate of CE Generation,
Collateral Agent's certificate or any other certificate, 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 or statements of legal counsel, independent accountants
and other experts selected by the Depositary Bank and shall have no liability
for its actions taken thereupon, unless due to the Depositary Bank's willful
misconduct or gross negligence. Without limiting the foregoing, the Depositary
Bank shall be required to make payments to the Secured Parties only as set forth
herein. The Depositary Bank shall be fully justified in failing or refusing to
take any action under this Agreement or any other Financing Document (i) if such
action would, in the reasonable opinion of the Depositary Bank, be contrary to
Applicable Law or the terms of this Agreement or, subject to Section 2.1(d), any
other Financing Document, (ii) if such action is not
23
<PAGE>
specifically provided for in this Agreement or any other Financing Document, it
shall not have received any such advice or concurrence of the Collateral Agent
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 Agreement or any
other Financing Document (whether such action is or is intended to be an action
of the Depositary Bank or the Collateral Agent), it shall not first be
indemnified to its satisfaction by the Secured Parties (other than the
Collateral Agent (in its individual capacity) or any other agent or trustee
under any of the Financing Documents (in their respective individual
capacities)) 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
Bank shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement or any other Financing Document in accordance with
a request of the Collateral Agent, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all of the Secured
Parties.
SECTION 4.3 Court Orders. The Depositary Bank 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 Monies,
documents or things held by the Depositary Bank. The Depositary Bank shall not
be liable to any of the parties hereto or any other Secured Party, their
successors, heirs or personal representatives by reason of the Depositary Bank's
compliance with such writs, orders, judgments or decrees, notwithstanding that
any 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 Bank as provided below, the Depositary Bank
may resign at any time by giving thirty (30) days' written notice thereof to the
Collateral Agent and CE Generation; provided that in the event the Depositary
Bank is also the Collateral Agent, it must also at the same time resign as
Collateral Agent. The Depositary Bank may be removed at any time with cause by
the Collateral Agent, and may be removed at any time with or without cause by
the Majority Holders. CE Generation shall have the right to remove the
Depositary Bank upon thirty (30) days' notice to the Secured Parties with or
without cause, effective upon the appointment of a successor Depositary Bank
under this Section 4.4 which is reasonably acceptable to the Collateral Agent.
In the event the Depositary Bank shall decline to take any action without first
receiving adequate indemnity from CE Generation, the Secured Parties or the
Collateral Agent, as the case may be, and, having received an indemnity, shall
continue to decline to take such action, the Collateral Agent shall be deemed to
have sufficient cause to remove the Depositary Bank. Upon any such resignation
or removal, the Collateral Agent shall have the
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<PAGE>
right to appoint a successor Depositary Bank, which Depositary Bank shall be
reasonably acceptable to CE Generation. If no successor Depositary Bank shall
have been appointed by the Collateral Agent and shall have accepted such
appointment within thirty (30) days after the retiring Depositary Bank's giving
of notice of resignation or the removal of the retiring Depositary Bank, then
(i) the retiring Depositary Bank may petition a court of competent jurisdiction
for the appointment of a successor Depositary Bank or (ii) the retiring
Depositary Bank may appoint a successor Depositary Bank, which shall be a bank
or trust company reasonably acceptable to the Collateral Agent and CE
Generation. Upon the acceptance of any appointment as Depositary Bank hereunder
by any successor Depositary Bank, (a) such successor Depositary Bank shall
thereupon succeed to and become vested with all of the rights, powers,
privileges and duties of the retiring Depositary Bank, and the retiring
Depositary Bank shall be discharged from any further duties and obliga tions
hereunder and (b) the retiring Depositary Bank shall promptly transfer all
Accounts within its possession or control to the possession or control of the
successor Depositary Bank and shall execute and deliver such notices,
instructions and assignments as may be necessary or desirable to transfer the
rights of the Depositary Bank with respect to the Accounts to the successor
Depositary Bank. After the retiring Depositary Bank's resignation or removal
hereunder as Depositary Bank, 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 the Depositary Bank.
ARTICLE V
EXPENSES; INDEMNIFICATION; FEES
SECTION 5.1 Expenses. CE Generation agrees to pay or reimburse all
out-of-pocket expenses of the Depositary Bank (including reasonable fees and
expenses for legal services) in respect of, or incident to, the execution,
administration or enforcement of any of the provisions of this Agreement or in
connection with any amendment, waiver or consent relating to this Agreement. The
obligations contained in this Section 5.1 shall survive the termination of this
Agreement or the resignation or removal of the Depositary Bank in accordance
with Section 4.4.
SECTION 5.2 Indemnification. CE Generation agrees to indemnify the
Depositary Bank in its capacity as such, and, in their respective capacities as
such, its officers, directors, shareholders, controlling persons, employees,
agents and servants (each an "Indemnified Depositary Bank Party"), from and
against any and all claims, losses, liabilities and expenses (including the
reasonable fees and expenses of counsel) arising out of or resulting from this
Agreement (including,
25
<PAGE>
without limitation, performance under or enforcement of this Agreement, but
excluding any such claims, losses or liabilities resulting from the Indemnified
Depositary Bank Party's gross negligence or willful misconduct). This indemnity
shall survive the termination of this Agreement and the resignation or removal
of the Depositary Bank in accordance with Section 4.4. This indemnity is
extended in addition to, and not in derogation or limitation of, the provisions
of Section 12(b) of the Intercreditor Agreement.
SECTION 5.3 Fees. On the Closing Date CE Generation shall pay to the
Depositary Bank a fee in an amount mutually agreed on by CE Generation and the
Depositary Bank.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Amendments: Etc. No amendment or waiver of any provision of
this Agreement nor consent to any departure by CE Generation or any Assignor
herefrom shall in any event be effective unless the same shall be in writing and
signed by the Collateral Agent, the Depositary Bank, CE Generation and each
Assignor. 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 Notices. Except as otherwise expressly provided herein, all
notices, requests and demands to or upon the respective parties hereto shall be
deemed to have been duly given when delivered by hand, or five (5) days after
being deposited in the United States mail, postage prepaid, or, in the case of
telex notice, when sent, answerback received, or, in the case of telecopy
notice, when sent, or, in the case of a nationally recognized overnight courier
service, one (1) Business Day after delivery to such courier service, addressed,
in the case of each party hereto, at its address specified below its signature
hereto or to such other address as may be designated by any party in a written
notice to the other parties hereto.
SECTION 6.3 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO ANY CONFLICTS OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 OF THE NEW
YORK GENERAL OBLIGATIONS LAW) THAT MIGHT CAUSE THIS AGREEMENT TO BE GOVERNED BY
OR CONSTRUED OR ENFORCED IN ACCORDANCE WITH THE LAWS OF ANY OTHER JURISDICTION.
26
<PAGE>
SECTION 6.4 Headings. Headings used in this Agreement are for convenience
of reference only and do not constitute part of this Agreement for any purpose.
SECTION 6.5 No Third Party Beneficiaries. The agreements of the parties
hereto are solely for the benefit of CE Generation, the Assignors, CalEnergy,
the Collateral Agent, the Depositary Bank and the other Secured Parties and
their respective successors and assigns and no Person (other than the parties
hereto and such other Secured Parties) shall have any rights hereunder.
SECTION 6.6 No Waiver. No failure on the part of the Depositary Bank, the
Collateral Agent or any other Secured Party or any of their nominees or
representatives to exercise, 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 Bank, the
Collateral Agent or any other Secured Party or any of their nominees or
representatives of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder or under any other Financing Document.
SECTION 6.7 Severability. If any provision of this Agreement or the
application thereof shall be invalid or unenforceable to any extent, the
remainder of this Agreement and the application of such remaining provisions
shall not be affected thereby and 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 Agreement by the Depositary Bank, the
Collateral Agent, CE Generation and the Assignors 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; provided that
neither CE Generation nor any Assignor may assign any of its rights or
obligations hereunder.
SECTION 6.9 Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which when so executed shall be deemed to be
an original, but all such counterparts shall together constitute but one and the
same instrument.
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<PAGE>
SECTION 6.10 Consequential Damages. In no event (other than with respect to
its own gross negligence or willful misconduct) shall the Depositary Bank 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
Bank has been advised of the likelihood of such loss or damage and regardless of
the form of action.
SECTION 6.11 Conflict with other Agreements. There are no other agreements
entered into between the Depositary Bank and CE Generation or any of the
Assignors with respect to the Accounts, except for the Intercreditor Agreement.
In the event of any conflict between this Agreement (or any portion thereof) and
any other agreement now existing or hereafter entered into with respect to the
Accounts, the terms of this Agreement shall prevail.
SECTION 6.12 Notice of Adverse Claims. Except for the claims and interests
of the Collateral Agent and of CE Generation and the Assignors in the Accounts,
the Depositary Bank does not know of any claim to, or interest in, the Accounts
or any Monies deposited therein or credited thereto. If any person asserts any
Lien, encumbrance or adverse claim against the Accounts or in any Monies
deposited therein or credited thereto, the Depositary Bank will promptly notify
the Collateral Agent and CE Generation thereof.
SECTION 6.13 Waiver of Jury Trial. WITH REGARD TO THIS AGREEMENT, THE
COLLATERAL AGENT, THE DEPOSITARY BANK, CE GENERATION AND EACH OF THE ASSIGNORS
HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY.
SECTION 6.14 Limitation of Liability. Notwithstanding anything to the
contrary contained in this Agreement and the other Transaction Documents, the
liability and obligation of CE Generation, the Assignors and CalEnergy to
perform and observe and make good the obligations contained in this Agreement
and the other Security Documents shall not be enforced by any action or
proceeding wherein damages or any money judgment or any deficiency judgment or
any judgment establishing any personal obligation or liability shall be sought,
collected or other wise obtained against any officer, director or shareholder or
related Person of CE Generation, the Assignors or CalEnergy or any Secured
Party, and the Depositary Bank and the Collateral Agent, for themselves and
their respective successors and assigns, and on behalf of the Secured Parties,
irrevocably waive any and all right to sue for, seek or demand any such damages,
money judgment, deficiency judgment or personal judgment against any officer,
director or shareholder or related Person of
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CE Generation, the Assignors or CalEnergy under or by reason of or in connection
with this Agreement and agrees to look solely to CE Generation and the Assignors
and the security and Collateral held under or in connection with the Security
Docu ments for the enforcement of such liability and obligation of CE
Generation, the Assignors and CalEnergy; provided, however, that notwithstanding
any other provision hereof, the Collateral Agent and the Depositary Bank each
agree that its only remedy against CalEnergy hereunder shall be to proceed
against the Monies on deposit in or credited to the 9 7/8% Notes Account and
that there shall be no other recourse to CalEnergy, its shareholders, officers,
directors or employees.
29
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
CE GENERATION, LLC
By: /s/ Steven A. McArthur
-------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
MAGMA POWER COMPANY
By: /s/ Steven A. McArthur
-------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
SALTON SEA POWER COMPANY
By: /s/ Steven A. McArthur
-------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
Signature page to Depositary Agreement
<PAGE>
FALCON SEABOARD RESOURCES, INC.
By: /s/ Steven A. McArthur
-------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
FALCON SEABOARD POWER CORPORATION
By: /s/ Steven A. McArthur
-------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
FALCON SEABOARD OIL COMPANY
By: /s/ Steven A. McArthur
-------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
Signature page to Depositary Agreement
<PAGE>
CALIFORNIA ENERGY DEVELOPMENT CORPORATION
By: /s/ Steven A. McArthur
-------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
CE TEXAS ENERGY LLC
By: /s/ Steven A. McArthur
-------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
CALENERGY COMPANY, INC.
By: /s/ Steven A. McArthur
-------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
Signature page to Depositary Agreement
<PAGE>
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Rose T. Maravilla
-------------------------------
Name: R. T. Maravilla
Title: Assistant Vice President
Address for Notices:
--------------------
101 California Street, #2725
San Francisco, California 94111
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION,
as Depositary Bank
By: /s/ Rose T. Maravilla
-------------------------------
Name: R. T. Maravilla
Title: Assistant Vice President
Address for Notices:
--------------------
101 California Street, #2725
San Francisco, California 94111
Signature page to Depositary Agreement
<PAGE>
EXHIBIT 4.7
---------------------
COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT
Dated as of March 2, 1999
among
CE GENERATION, LLC,
MAGMA POWER COMPANY,
SALTON SEA POWER COMPANY,
FALCON SEABOARD RESOURCES, INC.,
FALCON SEABOARD POWER CORPORATION,
FALCON SEABOARD OIL COMPANY,
CALIFORNIA ENERGY DEVELOPMENT CORPORATION, and
CE TEXAS ENERGY LLC
THE DEBT SERVICE RESERVE LOC PROVIDER
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION,
as Trustee
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION,
as Depositary Bank
and
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
as Collateral Agent
---------------------
<PAGE>
TABLE OF CONTENTS
Page
----
Section 1. Definitions...................................................2
Section 2. Priority of Security Interests................................2
Section 3. Application of Available Cash Flow and Other Proceeds.........3
Section 4. Exercise of Rights............................................4
Section 5. Actions Upon A Trigger Event..................................5
Section 6. Exercise of Remedies and Application of Proceeds..............6
Section 7. Receipt of Money or Proceeds..................................8
Section 8. Additional Secured Parties....................................8
Section 9. Appointment and Duties of Collateral Agent....................8
Section 10. Rights of Collateral Agent...................................10
Section 11. Lack of Reliance on the Collateral Agent.....................12
Section 12. Indemnification; Bankruptcy..................................13
Section 13. Resignation or Removal of the Collateral Agent...............14
Section 14. Agreement for Benefit of Parties Hereto......................15
Section 15. Severability.................................................15
Section 16. Notices......................................................15
Section 17. Successors and Assigns.......................................16
Section 18. Counterparts.................................................16
i
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Page
----
Section 19. Governing Law................................................16
Section 20. Waiver of Jury Trial.........................................16
Section 21. No Impairments of Other Rights...............................16
Section 22. Amendment; Waiver............................................16
Section 23. Headings.....................................................17
Section 24. Termination..................................................17
Section 25. Entire Agreement.............................................17
Section 26. Execution in Lieu of Agent...................................17
Section 27. Limitation of Liability......................................17
Section 28. Conflicts With Other Security Documents......................18
Section 29. Pledged Shares...............................................18
Schedule 3 Allocation Certificate....................................
Schedule 6(c) Allocation Certificate....................................
Schedule 8 Form of Designation Letter................................
ii
<PAGE>
COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT
This COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT (this "Agreement"),
dated as of March 2, 1999, among (1) CE GENERATION, LLC ("CE Generation"), (2)
MAGMA POWER COMPANY, SALTON SEA POWER COMPANY, FALCON SEABOARD RESOURCES, INC.,
FALCON SEABOARD POWER CORPORATION, FALCON SEABOARD OIL COMPANY, CALIFORNIA
ENERGY DEVELOPMENT CORPORATION and CE TEXAS ENERGY LLC (collectively, the
"Assignors" and, together with CE Generation, the "Obligor Parties"), (3) the
commercial bank providing the Debt Service Reserve Letter of Credit under the
Debt Service Reserve LOC Agreement (each as defined in the Indenture referred to
below) (together with its successors and assigns, the "Debt Service Reserve LOC
Provider"), (4) CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION,
acting in its capacity as trustee under the Indenture referred to below)
(together with its successors and assigns, the "Trustee"), (5) CHASE MANHATTAN
BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, acting in its capacity as the
depositary bank under the Depositary Agreement (as defined in the Indenture
referred to below) (together with its successors and assigns, the "Depositary
Bank"), (6) any trustees or agents under any other Financing Documents (as
defined in the Indenture referred to below) on behalf of the holders of the
indebtedness or obligations evidenced by such Financing Documents, and (7) CHASE
MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, acting in its capacity
as the collateral agent appointed hereunder for the Secured Parties (as defined
in the Indenture referred to below) (together with its successors and assigns,
the "Collateral Agent"). Capitalized terms not otherwise defined herein shall
have the meanings set forth in the Indenture referred to below.
W I T N E S S E T H :
WHEREAS, CE Generation is issuing $400,000,000 in principal amount of its
7.416% Senior Secured Bonds Due December 15, 2018 pursuant to the Indenture,
dated as of the date hereof (the "Indenture"), between CE Generation and the
Trustee;
WHEREAS, CE Generation owns, directly or indirectly, one hundred percent
(100%) of the outstanding capital stock of each of the Assignors;
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WHEREAS, the Assignors own equity interest, in various Project Companies
(as defined in the Indenture) and, accordingly, have the right to receive
Available Cash Flow (as defined in the Indenture) from such Project Companies;
WHEREAS, the Available Cash Flow received by the Assignors will be used to
pay principal of, premium (if any) and interest on the Securities;
WHEREAS, the Securities and the other Secured Obligations (as defined in
the Indenture) will be secured by the Collateral (as defined in the Indenture)
pursuant to the Security Documents (as defined in the Indenture);
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto,
intending to be legally bound, do hereby covenant and agree as follows:
Section 1. Definitions. All terms used herein which are not defined herein
or in the Indenture and are defined in the Uniform Commercial Code shall have
the meanings therein stated. Unless otherwise stated, any agreement, contract or
document defined or referred to herein shall mean such agreement, contract or
document and all schedules, exhibits and attachments thereto as in effect as of
the date hereof, as the same may thereafter be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof and of
the Financing Documents. Any reference to any Person shall include its permitted
successors and assigns, and in the case of any Governmental Authority, any
Persons succeeding to its functions and capacities.
Section 2. Priority of Security Interests. (a) Except as contemplated by
the Financing Documents, each Secured Party agrees that the Security Interest of
each Secured Party in any Collateral ranks and will rank equally in priority
with the Security Interest of the other Secured Parties in the same Collateral.
(b) Notwithstanding anything to the contrary in clause (a), the priori ties
specified in this Agreement and in the Depositary Agreement with respect to (i)
the Collateral and all proceeds thereof, (ii) all Available Cash Flow including
Financing Proceeds, Asset Sale Proceeds, Loss Proceeds, Expropriation Proceeds,
Title Proceeds or Buy-Out Proceeds, (iii) all proceeds from (A) the sale by CE
Generation of all or any portion of its interest in any Assignor or (B) the sale
by an Assignor of its interest in any Project Company and (iv) all amounts and
funds retained in accordance with the Depositary Agreement, in each case are
applicable
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irrespective of any statement to the contrary in any Security Document, any
other Financing Document or any other agreement, the time or order or method of
attach ment or perfection of Liens, the time or order of the filing of financing
statements, or the giving or failure to give notice of the acquisition or
expected acquisition of purchase money or other security interests, and to the
extent not provided for in this Agreement, the rights and priorities of the
Secured Parties shall be determined in accordance with applicable law.
Section 3. Application of Available Cash Flow and Other Proceeds. The
Collateral Agent shall instruct the Depositary Bank to allocate, to the extent
such proceeds may be allocated after giving effect to the limitations and
deductions permitted under the Indenture and the Depositary Agreement with
respect to such proceeds, (a) all Available Cash Flow representing Loss
Proceeds, Expropriation Proceeds, Title Proceeds, Buy-Out Proceeds, Financing
Proceeds or Asset Sale Proceeds and (b) all proceeds from (i) the sale by CE
Generation of all or any portion of its interest in any Assignor or (ii) the
sale by an Assignor of all or any portion of its interest in any Project
Company, in each case which are required to be applied to a redemption of
Securities pursuant to Section 3.2 of the Indenture, in the following order of
priorities pursuant to and in accordance with an Allocation Certificate in the
form of Schedule 3 attached hereto received by the Collateral Agent from CE
Generation:
(i) to the Trustee, the Debt Service Reserve LOC Provider, the
Collateral Agent and the Depositary Bank, ratably, in an amount equal to
the Administrative Costs due and payable to such parties as of the date of
such distribution;
(ii) to the Secured Parties, ratably, an amount equal to the unpaid
amount of all Secured Obligations constituting principal, interest, premium
(if any) and fees (including commitment fees and fronting fees, if any, due
and owing in respect of the Debt Service Reserve Letter of Credit) due and
payable to the Secured Parties as of the date of such distribution;
(iii) to the Secured Parties, ratably, an amount equal to the unpaid
amount of all other Secured Obligations due and payable to the Secured
Parties as of the date of such distribution; and
(iv) to the Obligor Parties or their respective successors or assigns
or to whomever may be lawfully entitled to receive the same or
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as a court of competent jurisdiction may direct, any surplus remaining
after giving effect to clauses (i) through (iii) immediately above.
At the time the Collateral Agent is to make a distribution pursuant to
clause (ii) above, and with the same priority as such distribution, the
Collateral Agent shall deposit into a separate interest-bearing trust account to
be maintained by the Collateral Agent an amount up to the amount equal to the
then outstanding amount of the Debt Service Reserve Letter of Credit (which
outstanding amount of the Debt Service Reserve Letter of Credit shall be
calculated after giving effect to the redemption of Securities from such
distribution in clause (ii) above). The Collateral Agent shall hold the monies
in such account until receipt of a written notice or notices from the Debt
Service Reserve LOC Provider to the effect that either (x) the Depositary Bank
has made a drawing on the Debt Service Reserve Letter of Credit, which notice
shall specify the amount or amounts of such drawings or (y) the Debt Service
Reserve Letter of Credit has expired or terminated. Upon receipt of a notice
specified in (x) above, the Collateral Agent shall distribute to the Debt
Service Reserve LOC Provider the amount equal to such drawing's proportionate
share of the Debt Service Reserve Letter of Credit collateralized by such
account as specified in the notice. Upon re ceipt of a notice specified in (y)
above, the Collateral Agent shall distribute from the relevant separate account
(in accordance with clauses (ii), (iii) and (iv) above and without regard to
this paragraph) to the appropriate Persons an amount equal to the balance in
such account.
Section 4. Exercise of Rights. So long as any Secured Obligations remain
outstanding, each of the Secured Parties hereby acknowledges and agrees as
follows:
(a) The Collateral Agent shall administer the Collateral in the manner
contemplated by this Agreement and the other Security Documents, and only upon
the occurrence and during the continuance of a Trigger Event the Collateral
Agent shall exercise, upon the written instruction of, and on behalf of, the
Required Secured Parties in accordance with Sections 4, 5 and 6 hereof, such
rights and remedies with respect to the Collateral as are granted to it under
this Agreement, the other Security Documents and applicable law.
(b) No Secured Party and no class or classes of Secured Parties shall have
any right, other than in accordance with Sections 4, 5 and 6 hereof, to (i)
sell, exchange, release, not perfect and otherwise deal with any property at any
time pledged, assigned or mortgaged to secure the Secured Obligations in
accordance with the Security Documents, (ii) exercise or refrain from exercising
any rights to direct
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the Collateral Agent to take any action in respect of the Collateral or (iii)
take any other action with respect to the Collateral (A) independently of the
Collateral Agent or (B) other than to direct the Collateral Agent to take action
in accordance with Sections 4, 5 and 6 hereof. The Collateral Agent or any
other Secured Party may, at any time and from time to time, (i) amend in any
manner any Financing Documents to which such Secured Party is a party in
accordance with the terms thereof, (ii) release anyone liable in any manner
under or in respect of such Secured Party's Secured Obligations in accordance
with the terms of the applicable Financing Documents and (iii) apply any sums
from time to time received for payment or satisfaction of such Secured Party's
Secured Obligations except as otherwise provided in Section 7 hereof.
(c) Each Secured Party hereby agrees that upon the request of the
Collateral Agent it will promptly provide the Collateral Agent (i) notice of the
amount of outstanding Secured Obligations owed by the Obligor Parties to such
Secured Party under the Financing Documents and (ii) any other information that
the Collateral Agent may reasonably request.
(d) The Trustee shall vote in any intercreditor vote in accordance with
Section 6.12 of the Indenture.
Section 5. Actions Upon A Trigger Event. So long as any Secured Obligations
remain outstanding, the following provisions shall apply:
(a) Each Secured Party hereby agrees to give CE Generation, each other
Secured Party and the Collateral Agent written notice of the occurrence of an
Event of Default under such Secured Party's Financing Documents and of the
occurrence of an acceleration under such Secured Party's Financing Documents
wherein such Secured Party's Secured Obligations have been declared to be or
have automatically become due and payable earlier than the scheduled maturity
thereof and setting forth the aggregate amount of Secured Obligations that have
been so accelerated under such Financing Documents, in each case as soon as
practicable after the occurrence thereof; provided, however, that the failure to
provide such notice shall not limit or impair the rights of the Secured Parties
hereunder or under the other Financing Documents.
(b) The Obligor Parties hereby agree that if a Trigger Event shall have
occurred and so long as such Trigger Event shall be continuing, the Collateral
Agent is hereby irrevocably authorized and empowered to act as the
attorney-in-fact for the Obligor Parties with respect to the giving of any
instructions or notices under the Depositary Agreement; provided, however, that
if a bankruptcy event set forth in
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clause (e) or (f) of Section 6.1 of the Indenture in respect of any Obligor
Party has caused the Trigger Event, the Collateral Agent shall automatically and
irrevocably be authorized and empowered to act as the attorney-in-fact for the
Obligor Parties with respect to the giving of such instructions or notices. The
Collateral Agent hereby agrees that, upon the written request of the Required
Secured Parties, it shall give such notices and instructions under the
Depositary Agreement to the Depositary Bank. The Depositary Bank hereby agrees
that it shall accept such notices and instructions from the Collateral Agent.
Section 6. Exercise of Remedies and Application of Proceeds. So long as any
Secured Obligations remain outstanding to more than one Secured Party, the
following provisions shall apply:
(a) If a Trigger Event shall have occurred and be continuing, upon the
written request of the Required Secured Parties the Collateral Agent, on behalf
of the Secured Parties, shall give the Depositary Bank, the Trustee and CE
Generation a written notice that a Trigger Event has occurred (the date of such
notice, the "Trigger Event Date") and direct the Depositary Bank to render an
accounting of the current balance of each Account and of any other monies of the
Obligor Parties administered by the Depositary Bank. No Secured Party shall be
deemed to have knowledge or notice of the occurrence of any Event of Default
until such Secured Party has received written notice of such Event of Default
from CE Generation, the Collateral Agent, any other Secured Party or any Person
for whom such Secured Party is acting as agent or trustee.
(b) If a Trigger Event shall have occurred and be continuing, and only in
such event, upon the written request of the Required Secured Parties the
Collateral Agent shall be authorized to take any and all actions and to exercise
any and all rights, remedies and options which it may have under the Security
Documents and which the Required Secured Parties direct it to take under this
Agreement, including realization and foreclosure on the Collateral; provided,
however, that if a bankruptcy event set forth in clause (e) or (f) of Section
6.1 of the Indenture in respect of any Obligor Party has caused the Trigger
Event, the Collateral Agent shall automatically be authorized to take such
action without the written request of the Required Secured Parties.
(c) The proceeds of any sale, disposition or other realization or
foreclosure by the Collateral Agent upon the Collateral or any portion thereof
pursuant to the Security Documents shall be governed by this Section 6(c). Any
non-cash proceeds resulting from such liquidation of the Collateral shall be
held by the Collateral Agent for the benefit of the Secured Parties until later
sold or otherwise
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converted into cash, at which time the Collateral Agent shall apply such cash in
accordance with the next sentence of this Section 6(c). The Collateral Agent
shall transfer any cash proceeds net of expenses resulting from liquidation of
the Collateral to the Depositary Bank which shall be distributed by the
Depositary Bank in accordance with Section 3.10(c) of the Depositary Agreement
pursuant to an Allocation Certificate in the form of Schedule 6c delivered to
the Collateral Agent by the Required Secured Parties in the following order of
priority:
(i) to the Trustee, the Debt Service Reserve LOC Provider, the
Collateral Agent and the Depositary Bank, ratably, all Administrative Costs
due and payable to such parties under this Agreement and the other
Financing Documents;
(ii) to the Secured Parties, ratably, an amount equal to the unpaid
amount of all Secured Obligations constituting principal, interest, premium
(if any) and fees (including commitment fees and fronting fees, if any, due
and owing in respect of the Debt Service Reserve Letter of Credit) due and
payable to the Secured Parties;
(iii) to the Secured Parties, ratably, an amount equal to the unpaid
amount of all other Secured Obligations due and payable to the Secured
Parties; and
(iv) to the Obligor Parties or their respective successors or assigns
or to whomever may be lawfully entitled to receive the same or as a court
of competent jurisdiction may direct, any surplus remaining after giving
effect to clauses (i) through (iii) immediately above.
At the time the distribution is to be made pursuant to clause (ii) above,
the Collateral Agent will set aside available monies (on a ratable basis with
such distribution) in a separate interest-bearing trust account in an amount up
to the then outstanding amount of the Debt Service Reserve Letter of Credit
(which outstanding amount of Debt Service Reserve Letter of Credit shall be
calculated after giving effect to the redemption of Securities from such
distribution in clause (ii) above). Upon a subsequent draw on the Debt Service
Reserve Letter of Credit, the Collateral Agent will as soon as practicable
transfer monies from the separate account to the Debt Service Reserve LOC
Provider up to the amount so drawn, to the extent not reimbursed, on such Debt
Service Letter of Credit. Upon an expiration or termination of the Debt Service
Letter of Credit, monies in such separate account collateralizing
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such Debt Service Reserve Letter of Credit shall be released and applied as set
forth above in clauses (ii), (iii) and (iv) above.
The proceeds of any sale, disposition or other realization with respect to
Collateral held for the benefit of some but not all of the Secured Parties shall
be applied to the payment of obligations owed to the Secured Parties for whose
benefit the specific Collateral was held.
Section 7. Receipt of Money or Proceeds. The Secured Parties and the
Depositary Bank hereby agree that if at any time during the term of this Agree
ment any Secured Party receives any payment or distribution of assets of the
Obligor Parties of any kind or character, whether monies or cash proceeds
resulting from liquidation of the Collateral, other than in accordance with the
terms of this Agree ment and the Depositary Agreement, such Secured Party shall
hold such payment or distribution in trust for the benefit of the Secured
Parties and shall immediately remit such payment or distribution to the
Depositary Bank, and the Depositary Bank shall deposit such monies or proceeds
in the Revenue Account for application or distribution, as the case may be, in
accordance with the terms of this Agreement and the Depositary Agreement.
Section 8. Additional Secured Parties. Each Person replacing any of the
Secured Parties and each Person (or trustee therefor or agent thereof) providing
senior secured Indebtedness to any of the Obligor Parties is required to become
a party to this Agreement; and any Person which executes and delivers a
counterpart to this Agreement and is designated as a Secured Party pursuant to
the terms of a Designation Letter, shall become a party hereto and shall be
bound by and subject to the terms and conditions hereof and the covenants,
stipulations and agreements contained herein.
Section 9. Appointment and Duties of Collateral Agent. (a) The Secured
Parties hereby designate and appoint Chase Manhattan Bank and Trust Company,
National Association to act as the Collateral Agent under this Agreement and the
other Security Documents, and each of the Secured Parties hereby authorizes
Chase Manhattan Bank and Trust Company, National Association, as the Collateral
Agent, to take such actions on its behalf under the provisions of this Agreement
and the other Security Documents, and to exercise such powers and perform such
duties as are expressly delegated to the Collateral Agent by the terms of this
Agreement and the other Security Documents, together with such other powers as
are reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement or in the other Security Documents, the Collateral
Agent shall not have
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any duties or responsibilities, except those expressly set forth in this
Agreement and in the other Security Documents, or any fiduciary relationship
with any of the Secured Parties, and no implied covenants, functions or
responsibilities shall be read into this Agreement or the other Security
Documents, or otherwise exist against the Collateral Agent. The Collateral Agent
shall not be liable for any action taken or omitted to be taken by it hereunder
or under any other Security Document, or in connection herewith or therewith, or
in connection with the Collateral, unless caused by its gross negligence or
willful misconduct.
(b) The Secured Parties hereby authorize the Collateral Agent to appoint
Chase Manhattan Bank and Trust Company, National Association to act as the
Depositary Bank under the Depositary Agreement. The Secured Parties hereby
authorize and empower the Collateral Agent to remove and replace the Depositary
Bank pursuant to the terms and conditions of Article IV of the Depositary
Agreement and to direct the Depositary Bank according to the terms of this
Agreement.
(c) Notwithstanding anything to the contrary in this Agreement or any other
Security Document, the Collateral Agent shall not exercise any rights or reme
dies under this Agreement or any other Security Document or give any consent
under this Agreement or any other Security Document or enter into any agreement
amending, modifying, supplementing or waiving any provision of this Agreement
or any other Security Document unless it shall have been directed to do so in
writing by the Required Secured Parties; provided, however, that the Collateral
Agent shall consent to the release of Collateral the release of which is
permitted by each of the Financing Documents and shall enter into any
amendments, waivers or supplements with respect to the Security Documents to the
extent not inconsistent with the provisions of the Financing Documents and which
would not result in a Material Adverse Effect (as evidenced by an Officer's
Certificate signed by an Authorized Officer of CE Generation and each Assignor
party to any such document).
Section 10. Rights of Collateral Agent. (a) The Collateral Agent may
execute any of its duties under this Agreement or any other Security Document by
or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties.
(b) Neither the Collateral Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates shall (i) be liable for any
action lawfully taken or omitted to be taken by it under or in connection with
this Agreement or any other Security Document (except for its gross negligence
or willful misconduct), or (ii) be responsible in any manner to any of the
Secured Parties for any
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recitals, statements, representations or warranties made by any Obligor Party or
any representative thereof contained in this Agreement or any other Security
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Collateral Agent under or in connection
with, this Agreement or any other Security Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of the Collateral,
this Agreement or any other Security Document or for any failure of any Obligor
Party to perform its obligations thereunder. The Collateral Agent shall not be
under any obligation to any other Secured Party to ascertain or to inquire as to
the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Security Document, or to inspect the
properties, books or records of the Obligor Parties.
(c) The Collateral Agent shall be entitled to 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 the Obligor Parties), independent accountants and other
experts selected by the Collateral Agent. In connection with any request of the
Required Secured Parties, the Collateral Agent shall be entitled to rely and
shall be fully protected in relying on a certificate of any Person, signed by an
Authorized Officer of such Person, setting forth the Combined Exposure held by
such Person as of the date of such certificate, which certificate shall state
that the Person signing such certificate is an Authorized Officer of such Person
and shall state specifically the Security Document and provision thereof
pursuant to which the Collateral Agent is being directed to act. The Collateral
Agent shall be fully justified in failing or refusing to take any action under
this Agreement or any other Security Document (i) if such action would, in the
reasonable opinion of the Collateral Agent, be contrary to law or the terms of
this Agreement or the other Security Documents, (ii) if such action is not
specifically provided for in this Agree ment or any other Security Document it
shall not have received any such advice or concurrence of the Required Secured
Parties 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
Agreement or such other Security Document, it shall not first be indemnified to
its satisfaction by the Secured Parties (other than the Trustee (in its
individual capacity), the Collateral Agent (in its individual capacity), the
Depositary Bank (in its individual capacity) or any other agent or trustee under
any of the Financing Documents (in their individual capacities)) 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 Collateral Agent shall in all cases be
fully protected in acting, or in
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refraining from acting, under this Agreement or any other Security Document in
accordance with a request of the Required Secured Parties (to the extent that
the Required Secured Parties are expressly authorized to direct the Collateral
Agent 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 of the
Secured Parties.
(d) The Collateral Agent shall not be deemed to have actual, constructive,
direct or indirect knowledge or notice of the occurrence of any Event of Default
or Trigger Event unless and until a Responsible Officer of the Collateral Agent
has received a written notice or a certificate from any Secured Party stating
that an Event of Default or a Trigger Event has occurred under such Secured
Party's Financing Documents. The Collateral Agent shall have no obligation
whatsoever either prior to or after receiving such notice or certificate to
inquire whether a Trigger Event has in fact occurred and shall be entitled to
rely conclusively, and shall be fully protected in so relying, on any such
notice or certificate so furnished to it. No provision of this Agreement or any
other Financing Document shall require the Collateral Agent to expend or risk
its own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder or under any other Security Document 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 adequate indemnity against such risk
or liability is not reasonably assured to it. In the event that the Collateral
Agent receives a notice of or certificate regarding the occurrence of any
Trigger Event, the Collateral Agent shall give notice thereof to the other
Secured Parties. The Collateral Agent shall take such action with respect to
such Trigger Event as so requested pursuant to Sections 4, 5 and 6 hereof.
(e) CE Generation will pay to the Collateral Agent upon demand the amount
of any and all reasonable out-of-pocket expenses, including the reasonable fees
and expenses of its counsel (and any local counsel) and of any experts and
agents, which the Collateral Agent may reasonably incur in connection with (i)
the administration of this Agreement and the other Security Documents, (ii) the
custody or preservation of, or the sale of, collection from or other realization
upon, any of the Collateral, (iii) the exercise or enforcement (whether through
negotiations, legal proceedings or otherwise) of any of the rights of the
Collateral Agent or the Secured Parties hereunder or under the other Security
Documents or (iv) the failure by any Obligor Party to perform or observe any of
the provisions hereof or of any of the other Security Documents.
(f) In no event, except for its gross negligence or willful misconduct,
shall the Collateral Agent hereunder be liable for special, indirect or
consequential
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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 such action.
Section 11. Lack of Reliance on the Collateral Agent. Each of the Secured
Parties expressly acknowledges that neither the Collateral Agent nor any of its
officers, directors, employees, agents or attorneys-in-fact has made any
representations or warranties to it and that no act by the Collateral Agent
hereinafter taken, including, without limitation, any review of the affairs of
the Obligor Parties, shall be deemed to constitute any representation or
warranty by the Collateral Agent to any Secured Party. Each Secured Party
represents to the Collateral Agent that it has, independently and without
reliance upon the Collateral Agent or any other Secured Party, and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, operations, property, financial and
other condition and creditworthiness of the Obligor Parties. Each Secured Party
also represents that it will, independently and without reliance upon the
Collateral Agent or any other Secured Party, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement, and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, financial and other condition
and creditworthiness of the Obligor Parties. Except for notices, reports and
other documents expressly required to be furnished to the Secured Parties by the
Collateral Agent hereunder, the Collateral Agent shall not have any duty or
responsibility to provide any Secured Party with any credit or other information
concerning the business, operations, property, financial and other condition or
creditworthiness of the Obligor Parties which may come into the possession of
the Collateral Agent or any of its officers, directors, employees, agents or
attorneys-in-fact.
Section 12. Indemnification; Bankruptcy. (a) The Secured Parties severally
agree to indemnify the Collateral Agent in its capacity as such (to the extent
not reimbursed by CE Generation and without limiting the obligation of CE Genera
tion to do so), ratably according to the aggregate amounts of their respective
Secured Obligations on the date the activities giving rise to the Collateral
Agent's demand for indemnification occurred, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time be
imposed on, incurred by or asserted against the Collateral Agent in its capacity
as such in any way relating to or arising out of this Agreement or the other
Security Documents, or the performance of its duties as Collateral Agent
hereunder or thereunder or any action taken or omitted by
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the Collateral Agent in its capacity as such under or in connection with any of
the foregoing; provided that the Secured Parties shall not be liable for the
payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements to the
extent that any of the foregoing result from the Collateral Agent's gross
negligence or willful misconduct. The agreements in this Section 12(a) shall
survive the payment or satisfaction in full of the Secured Obligations and the
resignation or removal of the Collateral Agent or the termination of this
Agreement.
(b) CE Generation hereby agrees to indemnify the Collateral Agent and each
Secured Party and, in their capacities as such, their officers, directors,
shareholders, controlling persons, employees, agents and servants (each an
"Indemnified Party") from and against any and all claims, damages, losses,
liabilities, obligations, penalties, actions, causes of action, judgments,
suits, costs, expenses or disbursements (including, without limitation,
reasonable attorneys' and consultants' fees and expenses) (collectively
"Damages") of any kind or nature whatsoever which may at any time be imposed on,
incurred by or asserted against any Indemnified Party (or which may be claimed
against any Indemnified Party by any Person) by reason of, in connection with or
in any way relating to or arising out of, any Financing Document, any
Collateral or any other documents or transactions in connection with or relating
thereto, unless due to the gross negligence or willful misconduct of such
Indemnified Party. CE Generation further shall, upon demand by any Indemnified
Party, pay to such Indemnified Party all reasonable costs and expenses incurred
by such Indemnified Party in enforcing any rights under the Financing Documents,
including reasonable fees and expenses of counsel. The agreements in this
Section 12(b) shall survive the payment or satisfaction in full of the Secured
Obligations and the resignation or removal of the Collateral Agent or the
termination of this Agree ment.
(c) The Secured Parties hereby agree that, except upon the written consent
of the Required Secured Parties, (i) no Secured Party shall authorize CE
Generation to commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to CE Generation or its debts under
any bankruptcy, insolvency or other similar Law now or hereafter in effect in
any jurisdiction or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of CE Generation or any substantial part of
its property or 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 CE Generation, or to make a general assignment for the benefit
of any Secured Party or any other creditor of CE Generation, and (ii) none of
the Secured Parties shall commence or join with
13
<PAGE>
any other Person (other than upon the written consent of the Required Secured
Parties) in commencing any proceeding against CE Generation under any
bankruptcy, reorganization, liquidation or insolvency Law or statute now or
hereafter in effect in any jurisdiction.
Section 13. Resignation or Removal of the Collateral Agent. The Collateral
Agent may resign as Collateral Agent upon thirty (30) days' notice to the
Secured Parties and may be removed at any time with or without cause by the
Required Secured Parties, with any such resignation or removal to become
effective only upon the appointment of a successor Collateral Agent under this
Section 13; provided, however, that in the event that the Collateral Agent is
also the Depositary Bank and/or the Trustee, it must also resign its role as
Depositary Bank and Trustee. If no successor Collateral Agent shall have been so
appointed within thirty (30) days, the resigning Collateral Agent may petition
any court of competent jurisdiction for the appointment of a new Collateral
Agent. CE Generation shall have the right to remove the Collateral Agent upon
thirty (30) days' notice to the Secured Parties with or without cause, effective
upon the appointment of a successor Collateral Agent under this Section 13 which
is reasonably acceptable to the Required Secured Parties. If the Collateral
Agent shall resign or be removed as Collateral Agent by the Required Secured
Parties or CE Generation, as applicable, then the Required Secured Parties shall
(and if no such successor shall have been appointed within thirty (30) days of
the Collateral Agent's resignation or removal, the Collateral Agent may) appoint
a successor agent for the Secured Parties, which successor agent shall be
reasonably acceptable to CE Generation, whereupon such successor agent shall
succeed to the rights, powers and duties of the "Collateral Agent", and the term
"Collateral Agent" shall mean such successor agent effective upon its
appointment, and except as provided in Sections 12(a) and 12(b) above, the
former Collateral Agent's rights, powers and duties as Collateral Agent shall be
terminated without any other or further act or deed on the part of such former
Collateral Agent (except that the resigning Collateral Agent shall deliver all
Collateral then in its possession to the successor Collateral Agent) or any of
the other Secured Parties. After any retiring Collateral Agent's resignation or
removal hereunder as Collateral Agent, the provisions of this Agreement shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Collateral Agent.
Section 14. Agreement for Benefit of Parties Hereto. Nothing in this
Agreement, express or implied, is intended 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 Persons for whom the parties hereto are acting as
agents or representatives, any right, remedy or claim under or by reason of
this Agreement or any
14
<PAGE>
covenant, condition or stipulation hereof; and the covenants, stipulations and
agreements contained in this Agreement are and shall be for the sole and
exclusive benefit of the parties hereto and their respective successors and
assigns and Persons for whom the parties hereto are acting as agents or
representatives. The Trustee shall enter into this Agreement on behalf of itself
and all Holders of Outstanding Securities and all future Holders of any of the
Securities as provided in Section 6.12 of the Indenture.
Section 15. Severability. In case any one or more of the provisions
contained in this Agreement shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected and/or impaired thereby.
Section 16. Notices. Except as otherwise expressly provided herein, all
notices, requests and demands to or upon the respective parties hereto shall be
deemed to have been duly given when delivered by hand, or five days after being
deposited in the United States mail, postage prepaid, or, in the case of telex
notice, when sent, answerback received, or, in the case of telecopy notice, when
sent, or, in the case of a nationally recognized overnight courier service, one
Business Day after delivery to such courier service, addressed, in the case of
each party hereto, at its address or telecopy number specified below its
signature hereto or to such other address or telecopy number as may be
designated by any party in a written notice to the other parties hereto.
Section 17. Successors and Assigns. Whenever in this Agreement any of the
parties hereto is named or referred to, the successors and assigns of such party
shall be deemed to be included and all covenants, promises and agreements in
this Agreement by or 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 18. Counterparts. This Agreement may be executed in any number of
counterparts, each executed counterpart constituting an original but all
counterparts together constituting only one instrument.
Section 19. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAW PROVISIONS (OTHER THAN SECTION
5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW) THAT MIGHT CAUSE
15
<PAGE>
THIS AGREEMENT TO BE GOVERNED BY OR CONSTRUED OR ENFORCED IN ACCORDANCE WITH THE
LAWS OF ANY OTHER JURISDICTION.
Section 20. Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, SUIT OR COUNTER CLAIM ARISING IN CONNECTION WITH THIS AGREEMENT.
Section 21. No Impairments of Other Rights. Nothing in this Agree ment is
intended or shall be construed to impair, diminish or otherwise adversely affect
any other rights the Secured Parties may have or may obtain against any of the
Obligor Parties.
Section 22. Amendment; Waiver. No amendment or waiver of, or consent to
departure from, any provision of this Agreement shall be effective unless the
same shall be in writing and signed by all of the Secured Parties and all other
parties hereto, which consents from all such parties shall not be unreasonably
withheld, and any such waiver or consent shall be effective only in the specific
in stance and for the specific purpose for which given. No delay on the part of
any Secured Party in the exercise of any right, power or remedy shall operate
as a waiver thereof, nor shall any single or partial waiver by any Secured Party
of any right, power or remedy preclude any further exercise thereof, or the
exercise of any other right, power or remedy.
Section 23. Headings. Headings herein are for convenience only and shall
not be relied upon in interpreting or enforcing this Agreement.
Section 24. Termination. This Agreement shall remain in full force and
effect until the Debt Termination Date. Following the Debt Termination Date,
Sections 12(a) and 12(b) of this Agreement shall continue in full force and
effect.
Section 25. Entire Agreement. This Agreement, including the documents
referred to herein, embodies the entire agreement and understanding of the
parties hereto, and supersedes all prior agreements and understandings of the
parties hereto, relating to the subject matter herein contained.
Section 26. Execution in Lieu of Agent. To the extent that any bank or
other holder of additional Secured Obligations is not represented by an agent or
a trustee, such bank or other holder of additional Secured Obligations shall be
permitted
16
<PAGE>
to execute this Agreement and a Designation Letter on its own behalf in lieu of
any agent or trustee on its behalf.
Section 27. Limitation of Liability. Notwithstanding anything to the
contrary contained in this Agreement and the other Transaction Documents, the
liability and obligation of CE Generation and the Assignors to perform and
observe and make good the obligations contained in this Agreement and the other
Security Documents shall not be enforced by any action or proceeding wherein
damages or any money judgment or any deficiency judgment or any judgment
establishing any personal obligation or liability shall be sought, collected or
otherwise obtained against any officer, director or shareholder or related
Person of CE Generation or the Assignors or any Secured Party, and the
Depositary Bank and the Collateral Agent, for themselves and their respective
successors and assigns, and on behalf of the Secured Parties, irrevocably waive
any and all right to sue for, seek or demand any such damages, money judgment,
deficiency judgment or personal judgment against any officer, director or
shareholder or related Person of CE Generation or the Assignors under or by
reason of or in connection with this Agreement and agrees to look solely to CE
Generation and the Assignors and the security and Collateral held under or in
connection with the Security Documents for the enforcement of such liability and
obligation of CE Generation and the Assignors.
Section 28. Conflicts With Other Security Documents. Notwithstanding any
other provision hereof, in the event of a conflict between the terms of this
Agreement and the other Security Documents, the provisions of this Agreement
shall control.
Section 29. Pledged Shares. The Collateral Agent hereby agrees to hold the
certificates representing the Pledged Shares in the State of the New York.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
17
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agree ment to be duly
executed by their duly authorized officers, all as of the date first written
above.
CE GENERATION, LLC
By: /s/ Steven A. McArthur
--------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
Telecopy: 402-231-_____
MAGMA POWER COMPANY
By: /s/ Steven A. McArthur
--------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400-W
Omaha, Nebraska 68131
Telecopy: 402-231-_____
SALTON SEA POWER COMPANY
By: /s/ Steven A. McArthur
--------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Signature Page to Intercreditor Agreement
<PAGE>
Address for Notices:
--------------------
302 South 36th Street
Suite 400-C
Omaha, Nebraska 68131
Telecopy: 402-231-_____
FALCON SEABOARD RESOURCES, INC.
By: /s/ Steven A. McArthur
--------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
Telecopy: 402-231-_____
FALCON SEABOARD POWER
CORPORATION
By: /s/ Steven A. McArthur
--------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
Telecopy: 402-231-_____
FALCON SEABOARD OIL COMPANY
Signature Page to Intercreditor Agreement
<PAGE>
By: /s/ Steven A. McArthur
--------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
Telecopy: 402-231-_____
CALIFORNIA ENERGY DEVELOPMENT
CORPORATION
By: /s/ Steven A. McArthur
--------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
Telecopy: 402-231-_____
CE TEXAS ENERGY LLC
By: /s/ Steven A. McArthur
--------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
Signature Page to Intercreditor Agreement
<PAGE>
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
Telecopy: 402-231-_____
CREDIT SUISSE FIRST BOSTON,
as Debt Service Reserve LOC Provider
By: /s/ Sarah Z. Wu
--------------------------------
Name: Sarah Z. Wu
Title: Associate
By: /s/ Markus Christen
--------------------------------
Name: Markus Christen
Title: Managing Director
Address for Notices:
--------------------
11 Madison Avenue
New York, New York, 10010
Telecopy: 212-325-_____
CHASE MANHATTAN BANK AND
TRUST COMPANY, NATIONAL
ASSOCIATION,
as Trustee
By: /s/ Rose T. Maravilla
--------------------------------
Name: R. T. Maravilla
Title: Assistant Vice President
Address for Notices:
--------------------
101 California Street, #2725
San Francisco 94111
Telecopy: 415-693-8850
CHASE MANHATTAN BANK AND
TRUST COMPANY, NATIONAL
ASSOCIATION,
Signature Page to Intercreditor Agreement
<PAGE>
as Collateral Agent
By: /s/ Rose T. Maravilla
--------------------------------
Name: R. T. Maravilla
Title: Assistant Vice President
Address for Notices:
--------------------
101 California Street, #2725
San Francisco 94111
Telecopy: 415-693-8850
CHASE MANHATTAN BANK AND
TRUST COMPANY, NATIONAL
ASSOCIATION,
as Depositary Bank
By: /s/ Rose T. Maravilla
--------------------------------
Name: R. T. Maravilla
Title: Assistant Vice President
Address for Notices:
--------------------
101 California Street #2725
San Francisco 94111
Telecopy: 415-693-8850
Signature Page to Intercreditor Agreement
<PAGE>
Schedule 3 to
Intercreditor Agreement
-----------------------
ALLOCATION CERTIFICATE
Pursuant to Section 3 of the Collateral Agency and Intercreditor Agreement,
dated as of March 2, 1999 among the Obligor Parties, the Debt Service Reserve
LOC Provider, the Trustee, the Depositary Bank and the Collateral Agent (the
"Intercreditor Agreement"; capitalized terms used herein and not defined herein
are being used as defined in the Intercreditor Agreement), the undersigned
hereby certifies as follows:
1. As of the date hereof, (x) Available Cash Flow representing Financing Pro
ceeds, Asset Sale Proceeds, Loss Proceeds, Expropriation Proceeds, Title
Proceeds or Buy-Out Proceeds or (y) proceeds from (i) the sale by CE Genera
tion of all or any portion of its interest in any Project Company or (ii)
the sale by any Assignor of all or any of its interest in any Project
Company have been received in the amount of: $[_____]
2. Such Available Cash Flow or such proceeds shall be allocated as follows:
(a) For the payment of Administrative Costs
due and payable as of the date hereof:
(i) to the Trustee: $[_____]
(ii) to the Collateral Agent: $[_____]
(iii) to the Depositary Bank: $[_____]
(iv) to the Debt Service Reserve LOC
Provider: $[_____]
<PAGE>
(b) to the Secured Parties, ratably, an amount
equal to the unpaid amount of all Secured
Obligations constituting principal, interest,
premium (if any) and fees (including com
mitment fees and fronting fees, if any, due
and owing in respect of the Debt Service
Reserve Letter of Credit) due and payable
to the Secured Parties as of the date hereof:
(i) to the Trustee for the ratable benefit
of the Holders: $[_____]
(ii) to the Debt Service Reserve LOC
Provider: $[_____]
(c) To the Secured Parties, ratably, an amount
equal to the unpaid amount of all other
Secured Obligations due and payable to the
Secured Parties as of the date hereof:
(i) to the Trustee for the ratable benefit
of the Holders: $[_____]
(ii) to the Debt Service Reserve LOC
Provider: $[_____]
(d) To the Obligor Parties: $[_____]
Total amount to be distributed: $[_____]
IN WITNESS WHEREOF, the undersigned has, on behalf of CE Generation,
executed and delivered this certificate as of the [___] day of [______],
[_____].
By:
-----------------------
Name:
Title:
<PAGE>
Schedule 6c to
Intercreditor Agreement
ALLOCATION CERTIFICATE
Pursuant to Section 6(c) of the Collateral Agency and Intercreditor Agree
ment, dated as of March 2, 1999 among the Obligor Parties, the Debt Service
Reserve LOC Provider, the Trustee, the Depositary Bank and the Collateral Agent
(the "Intercreditor Agreement"; capitalized terms used herein and not defined
herein are being used as defined in the Intercreditor Agreement), the
undersigned hereby certifies as follows:
1. As of the date hereof, the following proceeds have been received with
respect to the sale, disposition or other realization or foreclosure upon
the Collateral: $[ ]
2. Such proceeds shall be allocated as follows:
(a) For the payment of Administrative Costs due and
payable as of the date hereof:
(i) to the Trustee: $[ ]
(ii) to the Collateral Agent: $[ ]
(iii) to the Depositary Bank: $[ ]
(iv) to the Debt Service Reserve LOC Provider $[ ]
(b) To the Secured Parties, ratably, an amount equal to the
unpaid amount of all Secured Obligations constituting
principal, interest, premium (if any) and fees (including
commitment fees and fronting fees, if any, due and owing in
respect of the Debt Service Reserve Letter of Credit) due
and payable to the Secured Parties as of the date hereof:
<PAGE>
(i) to the Trustee for the ratable benefit of the
Holders: $[ ]
(ii) to the Debt Service Reserve LOC Provider: $[ ]
(c) To the Secured Parties, ratably, an amount equal to the
unpaid amount of all other Secured Obligations due and
payable to the Secured Parties as of the date hereof:
(i) To the Trustee for the ratable benefit of the
Holders: $[ ]
(ii) To the Debt Service Reserve LOC Provider $[ ]
(d) To the Obligor Parties: $[ ]
Total amount to be distributed: $[ ]
IN WITNESS WHEREOF, the undersigned has, on behalf of the Required Secured
Parties, executed and delivered this certificate as of the [__] day of
[ ] , [ ].
By:
----------------------------
Name:
Title:
<PAGE>
Schedule 8 to
Intercreditor Agreement
[FORM OF DESIGNATION LETTER]
[Date]
Chase Manhattan Bank and Trust Company, National Association,
as Collateral Agent
101 California Street, #2725
San Francisco, California 94111
Re: CE Generation, LLC
Ladies and Gentlemen:
Reference is made to (i) the Collateral Agency and Intercreditor Agreement
(the "Intercreditor Agreement") dated as of March 2, 1999 among the Obligor
Parties, the Trustee, the Debt Service Reserve LOC Provider, the Depositary Bank
and the Collateral Agent and (ii) [describe New Credit Documents]. Capitalized
terms used herein and not defined herein shall have the meanings set forth in
the Intercreditor Agreement.
The undersigned is the [Bank/Lender][Agent for the [Banks][Lenders]] under
the [New Credit Document].
The undersigned is delivering this Designation Letter pursuant to Section 8
of the Intercreditor Agreement in order to permit the undersigned [and the
[Banks][Lenders] under the New Credit Document] to become [a Secured Party]
[Secured Parties] under the Intercreditor Agreement and the other Security Docu
ments and to benefit from the Collateral under the Security Documents in
accordance with the terms of the Intercreditor Agreement and the other Security
Documents.
Attached hereto is a copy of the certificate to be delivered
by CE Generation.
<PAGE>
The undersigned [on behalf of itself and the [Banks][Lenders]] accedes to
and agrees to be bound by all of the terms and provisions of the Intercreditor
Agreement and the other Security Documents. In furtherance thereof, the under
signed [on behalf of itself and the [Banks][Lenders]] agrees to execute a
counterpart to the Intercreditor Agreement.
Our address for notices is:
[Insert Information]
Our wire transfer instructions are:
[Insert Information]
This Designation Letter may be executed in any number of counter parts,
each executed counterpart constituting an original but all counterparts together
constituting only one instrument.
<PAGE>
THIS DESIGNATION LETTER SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY
CONFLICTS OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW) THAT MIGHT CAUSE THIS DESIGNATION LETTER TO BE GOVERNED BY OR
CONSTRUED OR ENFORCED IN ACCORDANCE WITH THE LAWS OF ANY OTHER JURISDICTION.
[CREDITOR]
By:
------------------------------
Name:
Title:
Consented to by:
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION,
as Collateral Agent
By:
------------------------------
Name:
Title:
<PAGE>
CERTIFICATE OF CE GENERATION, LLC
I, [Name], [Title] of CE Generation, LLC, a Delaware limited liability
company (the "Borrower"), DO HEREBY CERTIFY on behalf of CE Generation that
(capitalized terms used herein and not defined herein shall have the meanings as
signed thereto in the [NAME OF RELEVANT DOCUMENT]:
Indebtedness incurred pursuant to [New Credit Document] is permitted to be
incurred in accordance with Section [ ] of the [NAME OF RELEVANT DOCUMENT] and
will be secured pursuant to [NAME OF RELEVANT DOCUMENT].
WITNESS my hand this [__] day of [________, [____].
By:
---------------------------
Name:
Title:
<PAGE>
EXHIBIT 4.8
================================================================================
ASSIGNMENT AND SECURITY AGREEMENT
dated as of March 2, 1999
among
MAGMA POWER COMPANY
SALTON SEA POWER COMPANY
FALCON SEABOARD RESOURCES, INC.
FALCON SEABOARD POWER CORPORATION
FALCON SEABOARD OIL COMPANY
CALIFORNIA ENERGY DEVELOPMENT CORPORATION
CE TEXAS ENERGY LLC
and
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION,
as Collateral Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINED TERMS AND PRINCIPLES OF CONSTRUCTION....................2
ARTICLE 2 GRANT OF SECURITY INTERESTS.....................................2
Section 2.1 Assignment and Grant of Security Interest.........2
Section 2.2 Security Interest Absolute........................3
Section 2.3 Power of Attorney.................................3
Section 2.4 Assignors' Duties.................................4
Section 2.5 Effective as a Financing Statement................4
ARTICLE 3 REPRESENTATIONS AND WARRANTIES..................................4
Section 3.1 Necessary Filings.................................5
Section 3.2 No Liens..........................................5
Section 3.3 Other Financing Statements........................5
Section 3.4 Legal Name; Chief Executive Office................5
Section 3.5 Status. .........................................5
Section 3.6 Power and Authority. .............................6
Section 3.7 No Violation. ...................................6
Section 3.8 Litigation........................................6
Section 3.9 Governmental Approvals. .........................7
Section 3.10 No Default. .....................................7
Section 3.11 Licenses, etc. ..................................7
Section 3.12 Compliance With Law. ............................7
Section 3.13 Tax Returns and Payments..........................7
Section 3.14 Investment Company Act; Public Utility Holding
Company Act.......................................7
Section 3.15 Representations and Warranties in Relevant
Documents.........................................8
Section 3.16 Environmental Matters.............................8
Section 3.17 ERISA.............................................8
Section 3.18 Insurance.........................................8
ARTICLE 4 COVENANTS.......................................................9
Section 4.1 No Other Liens....................................9
Section 4.2 Chief Executive Office............................9
Section 4.3 Supplements; Further Assurances, etc..............9
i
<PAGE>
Section 4.4 Financing Statements.............................10
Section 4.5 Deposit of Available Cash Flow...................10
Section 4.6 Information Covenants............................10
Section 4.7 Books, Records and Inspections. ................10
Section 4.8 Taxes............................................11
Section 4.9 Maintenance of Existence.........................11
Section 4.10 Compliance with Laws; Governmental Approvals.....11
Section 4.11 Performance of Obligations. ....................12
Section 4.12 Maintenance of Title.............................12
Section 4.13 Project Companies................................12
Section 4.14 Indebtedness.....................................13
Section 4.15 Liens............................................14
Section 4.16 Restriction on Fundamental Changes...............14
Section 4.17 Sale of Interest in Project Company..............15
Section 4.18 Restricted Payments..............................15
Section 4.19 Transactions with Affiliates.....................15
Section 4.20 Modifications; Additional Contracts..............15
Section 4.21 Changes in Business..............................16
Section 4.22 Investments......................................16
Section 4.23 Guarantee Obligations............................16
Section 4.24 SECI Holdings Stock..............................16
Section 4.25 Project Company Distributions....................17
Section 4.26 Turnover of Available Cash Flow..................17
ARTICLE 5 REMEDIES UPON OCCURRENCE OF AN EVENT OF
DEFAULT........................................................17
Section 5.1 Remedies Generally...............................17
Section 5.2 Sale of Cash Flow Collateral.....................17
Section 5.3 Purchase of Cash Flow Collateral.................18
Section 5.4 Application of Proceeds..........................18
Section 5.5 Expenses.........................................18
ARTICLE 6 MISCELLANEOUS..................................................19
Section 6.1 Notices..........................................19
Section 6.2 Continuing Security Interest.....................19
Section 6.3 Release..........................................19
Section 6.4 Reinstatement....................................19
Section 6.5 Independent Security.............................20
Section 6.6 Amendments.......................................20
ii
<PAGE>
Section 6.7 Successors and Assigns...........................20
Section 6.8 Third Party Beneficiaries........................20
Section 6.9 Survival.........................................21
Section 6.10 No Waiver; Remedies Cumulative...................21
Section 6.11 Counterparts.....................................21
Section 6.12 Headings Descriptive.............................21
Section 6.13 Severability.....................................21
Section 6.14 Governing Law; Submission to Jurisdiction and
Venue; Waiver of Jury Trial......................22
Section 6.15 Entire Agreement.................................23
Section 6.16 Independent Obligations..........................23
Section 6.17 Waiver of Defenses...............................23
Section 6.18 Subrogation, Etc.................................23
Section 6.19 Joint and Several Liability......................24
iii
<PAGE>
Exhibit A-1: Form of Pledge and Security Agreement
Exhibit A-2: Form of Opinion of Counsel
Schedule 3.1: Financing Statements
Schedule 3.4: Chief Executive Offices
Schedule 3.19: Environmental Matters
Schedule 4.14: Project Company Indebtedness and Liens
Schedule 4.15: Indebtedness
Schedule 4.16: Liens
iv
<PAGE>
EXHIBIT 4.8
ASSIGNMENT AND SECURITY AGREEMENT
This ASSIGNMENT AND SECURITY AGREEMENT (this "Agreement"), dated as of
March 2, 1999, is entered into by MAGMA POWER COMPANY, a Nevada corporation,
SALTON SEA POWER COMPANY, a Nevada corporation, FALCON SEABOARD RESOURCES, INC.,
a Texas corporation, FALCON SEABOARD POWER CORPORATION, a Texas corporation,
FALCON SEABOARD OIL COMPANY, a Texas corporation, CALIFORNIA ENERGY DEVELOPMENT
CORPORATION, a Delaware corporation, and CE TEXAS ENERGY LLC, a Delaware limited
liability company (each individually an "Assignor" and collectively the
"Assignors"), in favor of CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL
ASSOCIATION, as Collateral Agent for the Secured Parties (as defined in the
Indenture referred to below) under the Collateral Agency and Intercreditor
Agreement, dated as of the date hereof (the "Intercreditor Agreement"), among CE
Generation, LLC ("CE Generation"), the Assignors, the Collateral Agent and the
other Secured Parties.
W I T N E S S E T H:
WHEREAS, CE Generation is issuing $400,000,000 in principal amount of
its 7.416% Senior Secured Bonds Due December 15, 2018 (the "Initial Securities")
pursuant to the Indenture, dated as of the date hereof (the "Indenture"),
between CE Generation and Chase Manhattan Bank and Trust Company, National
Association, as trustee (the "Trustee");
WHEREAS, CE Generation owns, directly or indirectly, one hundred
percent (100%) of the outstanding capital stock of each of the Assignors;
WHEREAS, the Assignors own equity interests in various Project
Companies (as defined in the Indenture) and, accordingly, have the right to
receive Available Cash Flow (as defined in the Indenture) from such Project
Companies;
WHEREAS, the Available Cash Flow received by the Assignors will be used
to pay principal of, premium (if any) and interest on the Securities;
WHEREAS, it is a condition precedent to the issuance of the Securities
under the Indenture that the Assignors execute and deliver this Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINED TERMS AND PRINCIPLES OF CONSTRUCTION
(a) Unless otherwise defined herein, all capitalized terms used herein
but not defined herein shall have the meanings set forth in the Indenture.
(b) Commercial terms used but not otherwise defined herein shall have
the meanings specified for such terms in the Uniform Commercial Code as in
effect from time to time in the State of New York.
ARTICLE 2
GRANT OF SECURITY INTERESTS
Section 2.1 Assignment and Grant of Security Interest. (a) As collateral
security for the prompt and complete payment and performance when due (whether
at stated maturity, by acceleration or otherwise) of all of the Secured
Obligations, whether now existing or hereafter arising and howsoever evidenced,
each Assignor hereby assigns, transfers and grants to the Collateral Agent and
hereby creates in favor of the Collateral Agent, for the benefit of the Secured
Parties, a continuing Lien on and security interest of first priority (subject
to Permitted Assignor Liens and Permitted Project Company Liens) in all of the
right, title and interest of such Assignor in, to and under all of the
following, whether now existing or hereafter from time to time acquired
(collectively, the "Cash Flow Collateral"):
(i) all of such Assignor's Available Cash Flow; and
(ii) any and all substitutions and replacements for the foregoing and
all products and Proceeds thereof.
(b) The security interest granted to the Collateral Agent pursuant to
this Agreement extends to all Cash Flow Collateral of the kind which is the
subject of this Agreement which any Assignor may acquire at any time during the
continuation of this Agreement, whether such Cash Flow Collateral is in transit
or in such Assignor's, the Collateral Agent's, any Secured Party's or any other
Person's constructive, actual or exclusive occupancy or possession.
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(c) Notwithstanding the foregoing, monies distributed from the
Distribution Suspense Account in accordance with the requirements of the
Depositary Agreement shall be released from the security interests created
hereunder and shall not constitute Cash Flow Collateral.
Section 2.2 Security Interest Absolute. All rights of the Collateral Agent
and all security interests created hereunder shall be absolute and unconditional
irrespective of any circumstance or occurrence whatsoever, including, without
limitation:
(i) any lack of validity or enforceability of all or any part of
the Secured Obligations or of any security therefor or of any of the
Financing Documents or any other agreement or instrument relating thereto
(other than against the Collateral Agent);
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from or exercise or
non-exercise of any right under any of the Financing Documents or any other
agreement or instrument relating thereto;
(iii) any exchange, release or non-perfection of any other
collateral for, or any release or amendment or waiver of or consent to any
departure from any guaranty for, all or any of the Secured Obligations; or
(iv) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, any Assignor.
Section 2.3 Power of Attorney. (a) Each Assignor hereby appoints the
Collateral Agent, on behalf of the Secured Parties, or any Person, officer or
agent whom the Collateral Agent may designate, as its true and lawful
attorney-in-fact, with full irrevocable power and authority in the place and
stead of such Assignor and in the name of such Assignor or in its own name, at
such Assignor's cost and expense, from time to time in the Collateral Agent's
reasonable discretion to execute and deliver and, if appropriate, to file with
the appropriate filing officer or office such security agreements, financing
statements, continuation statements or other instruments as the Collateral Agent
may reasonably deem necessary or advisable to impose, perfect or continue the
perfection of the Liens created by such Assignor
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hereby and to take any and all action to execute any and all instruments which
may be necessary to accomplish the purposes of this Agreement.
(b) Each Assignor hereby ratifies all that said attorney shall lawfully
do or cause to be done by virtue hereof, in each case pursuant to the powers
granted hereunder. Each Assignor hereby acknowledges and agrees that in acting
pursuant to this power-of-attorney the Collateral Agent shall be acting in its
own interest and on behalf of the Secured Parties, and each Assignor
acknowledges and agrees that the Collateral Agent and the Secured Parties shall
have no fiduciary duties to such Assignor and such Assignor hereby waives any
claims to the rights of a beneficiary of a fiduciary relationship hereunder.
Section 2.4 Assignors' Duties. Anything herein contained to the contrary
notwithstanding, the Collateral Agent shall not have any obligations or
liabilities under or with respect to any Cash Flow Collateral by reason of or
arising out of this Agreement, nor shall the Collateral Agent be required or
obligated in any manner to perform or fulfill any of the obligations of any
Assignor under or with respect to any Cash Flow Collateral.
Section 2.5 Effective as a Financing Statement. This Agreement shall also be
effective as a Financing Statement covering any Cash Flow Collateral and may be
filed in any appropriate filing or recording office. A carbon, photographic,
facsimile or other reproduction of this Agreement or of any Financing Statement
relating to this Agreement shall be sufficient as a Financing Statement for any
of the purposes referred to in the preceding sentence.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Each Assignor represents and warrants, as of the date of this Agreement
and the Closing Date, as follows, which representations and warranties shall
survive execution and delivery of this Agreement and the making and repayment of
the Secured Obligations:
Section 3.1 Necessary Filings. Upon the filing of the Financing Statements
in the form attached as Schedule 3.1 hereto in the jurisdictions noted on such
Financing Statements, all filings, registrations and recordings necessary or
appropriate to create, preserve, protect and perfect the security interest
granted to the Collateral Agent hereby in respect of the Cash Flow Collateral
owned by such
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Assignor have been accomplished and the security interest granted to the
Collateral Agent pursuant to this Agreement in and to such Cash Flow Collateral
constitutes a valid and enforceable perfected security interest therein superior
and prior to the rights of all other Persons therein and, in each case, subject
to no other Liens, sales, assignments, conveyances, settings over or transfers
(except that such Cash Flow Collateral may be subject to Permitted Assignor
Liens and Permitted Project Company Liens).
Section 3.2 No Liens. Such Assignor is the owner of all of its right, title
and interest in the Cash Flow Collateral assigned by it hereunder free from any
Lien or other right, title or interest of any Person (other than Permitted
Assignor Liens).
Section 3.3 Other Financing Statements. There is no Financing Statement (or
similar statement or instrument of registration under the applicable law of any
jurisdiction) executed by such Assignor, or, to the knowledge of such Assignor
after due inquiry, by any other Person covering or purporting to cover any
interest of any kind in the Cash Flow Collateral assigned by such Assignor
hereunder (other than Permitted Assignor Liens), except Financing Statements
filed or to be filed in respect of and covering the security interests granted
hereby by such Assignor.
Section 3.4 Legal Name; Chief Executive Office. Such Assignor's legal name
is set forth on Schedule 3.4 hereto. The chief executive office of such Assignor
and the office where such Assignor keeps its records concerning the Cash Flow
Collateral assigned by such Assignor hereunder is located at the address set
forth opposite such Assignor's name on Schedule 3.4 hereto.
Section 3.5 Status. Such Assignor (i) is a duly organized and validly
existing corporation or limited liability company, as the case may be, in good
standing under the applicable laws of the jurisdiction of its incorporation or
formation, as the case may be, (ii) has the corporate or other power and
authority to own its property and assets and to transact the business in which
it is engaged or presently proposes to engage and (iii) is duly qualified and is
authorized to do business and is in good standing as a foreign corporation or
limited liability company, as the case may be, in every jurisdiction in which it
owns or leases real property or in which the nature of its business requires it
to be so qualified, except where the failure to so qualify, individually or in
the aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
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Section 3.6 Power and Authority. Such Assignor has the corporate or other
power and authority to execute, deliver and carry out the terms and provisions
of each of the Financing Documents to which it is a party and has taken all
necessary corporate or other action to authorize the execution, delivery and
performance by it of such Financing Documents. Such Assignor has duly executed
and delivered each such Financing Document, and each such Financing Document
constitutes its legal, valid and binding obligation, enforceable in accordance
with its terms. except as the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other similar Applicable Laws relating to or affecting creditors' rights
generally and by general equitable principles.
Section 3.7 No Violation. Neither the execution, delivery or performance by
such Assignor of the Financing Documents to which it is a party, nor compliance
by it with the terms and provisions thereof nor the consummation of the
transactions contemplated thereby, (i) will contravene any applicable provision
of any Applicable Law, statute, rule, regulation, order, writ, injunction or
decree of any court or Governmental Authority, (ii) will conflict or be
inconsistent with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien
(other than Permitted Assignor Liens) upon any of the property or assets of such
Assignor pursuant to the terms of, any indenture, mortgage, deed of trust,
agreement or other instrument to which such Assignor is a party or by which it
or any of its property or assets is bound or to which it may be subject, or
(iii) will violate any provision of the certificate of incorporation or the
bylaws, or the certificate of formation or the operating agreement, as the case
may be, of such Assignor, except in the case of clauses (i) and (ii) any
contravention, conflict, breach, default, Lien or violation which could not
reasonably be expected to result in a Material Adverse Effect.
Section 3.8 Litigation. There are no actions, suits or proceedings pending
or, to the knowledge of such Assignor, threatened, against such Assignor (a)
with respect to any of the Financing Documents to which such Assignor is a party
or the transactions contemplated thereby or otherwise related to such Assignor's
Available Cash Flow, or (b) that could, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
Section 3.9 Governmental Approvals. Other than the filings, registrations
and recordings described in Section 3.1, no order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption
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by, any governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with, (i) the execution,
delivery and performance by such Assignor of any Financing Document to which it
is party or the consummation of any of the transactions contemplated thereby,
(ii) the legality, validity, binding effect or enforceability of any such
Financing Document with respect to such Assignor, (iii) the pledge by such
Assignor of the Cash Flow Collateral owned by such Assignor, or (iv) the
exercise by the Collateral Agent of the rights provided for in this Agreement or
of the remedies in respect of such Cash Flow Collateral pursuant to this
Agreement, in each case other than those the absence of which could not
reasonably be expected to result in a Material Adverse Effect.
Section 3.10 No Default. Such Assignor is not in default under or with
respect to any agreement, instrument or undertaking to which it is a party or by
which it or any of its property is bound in any respect which could reasonably
be expected to result in a Material Adverse Effect.
Section 3.11 Licenses, etc. Such Assignor has obtained and holds in full
force and effect, all franchises, licenses, permits, certificates,
authorizations, qualifications, accreditations, easements, rights of way and
other rights, consents and approvals which are necessary for the operation of
its business as presently conducted, except where the failure to so obtain the
foregoing could not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect.
Section 3.12 Compliance With Law. Such Assignor is in compliance with all
Applicable Laws, rules, regulations, orders, judgments, writs and decrees,
except where the failure to so comply, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect.
Section 3.13 Tax Returns and Payments. Such Assignor has filed all tax
returns required to be filed by it and has paid all taxes and assessments
payable by it which have become due, other than those not yet delinquent or
those that are reserved against in accordance with GAAP which are being
diligently contested in good faith by appropriate proceedings.
Section 3.14 Investment Company Act; Public Utility Holding Company Act.
Such Assignor is not (x) an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended, (y) a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of either a "holding company" or a "subsidiary
company"
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within the meaning of the Public Utility Holding Company Act of 1935, as
amended, or (z) subject to any other federal or state law or regulation which
purports to restrict or regulate its ability to borrow money (other than usury
laws).
Section 3.15 Representations and Warranties in Relevant Documents. All
representations and warranties made by such Assignor in such Assignor's
Transaction Documents (other than the Financing Documents) and, to such
Assignor's knowledge, all representations and warranties made by each other
Person in such Transaction Documents, are true and correct in all material
respects. None of such representations and warranties are inconsistent in any
material respect with the representations and warranties of such Assignor made
herein or in any other Financing Document.
Section 3.16 Environmental Matters. Except as set forth in Schedule 3.19,
neither such Assignor nor, to the knowledge of such Assignor, such Assignor's
Project Company, (i) is in violation of any Applicable Law, domestic or foreign,
relating to the use, disposal or release of hazardous or toxic substances
(collectively, "environmental laws"), (ii) owns or operates any real property
contaminated with any substance that is subject to any environmental laws, (iii)
is liable for any off-site disposal or contamination pursuant to any
environmental laws, or (iv) is subject to any claim relating to environmental
laws, which violation, contamination, liability or claim could individually or
in the aggregate reasonably be expected to have a Material Adverse Effect.
Section 3.17 ERISA. Such Assignor is not a "party in interest" or a
"disqualified person" (within the meaning of Section 4975 of the Internal
Revenue Code of 1986, as amended) with respect to any "employee benefit plan"
(within the meaning of Section 3(3) of ERISA), except with respect to the
"employee benefit plans" (within the meaning of Section 3(3) of ERISA) of its
Affiliates.
Section 3.18 Insurance. Such Assignor and, to such Assignor's knowledge,
such Assignor's Project Company have obtained and maintains in full force and
effect all insurance coverages required to be maintained by such Assignor or
Project Company, as the case may be, under the applicable Project Documents or
pursuant to applicable law.
ARTICLE 4
COVENANTS
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Each Assignor hereby covenants and agrees from and after the date of this
Agreement until the indefeasible payment in full in cash or Cash Equivalents of
the Secured Obligations and the termination of this Agreement in accordance with
the provisions of Section 6.3:
Section 4.1 No Other Liens. Such Assignor shall not create, incur or permit
to exist, shall defend the Cash Flow Collateral owned by it against and shall
take such other action as is necessary to remove, any Lien or claim on or to
such Cash Flow Collateral (other than Permitted Assignor Liens), and shall
defend the right, title and interest of the Collateral Agent in and to any of
such Cash Flow Collateral against the claims and demands of all Persons
whomsoever.
Section 4.2 Chief Executive Office. Such Assignor shall not establish a new
location for its chief executive office or change its name until (i) it has
given to the Collateral Agent not less than thirty (30) days prior written
notice of its intention so to do, clearly describing such new location or
specifying such new name, as the case may be, and (ii) with respect to such new
location or such new name, as the case may be, it shall have taken all action,
reasonably satisfactory to the Collateral Agent, to maintain the security
interest of the Collateral Agent in the Cash Flow Collateral owned by such
Assignor intended to be granted hereby at all times fully perfected and in full
force and effect.
Section 4.3 Supplements; Further Assurances, etc. Such Assignor shall at any
time and from time to time, at the expense of such Assignor, promptly execute
and deliver all further instruments and documents, and take all further action,
that may be necessary or desirable, or that the Collateral Agent may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Collateral Agent to exercise and
enforce its rights and remedies hereunder with respect to any Cash Flow
Collateral owned by such Assignor.
Section 4.4 Financing Statements. Such Assignor shall sign and deliver to
the Collateral Agent and the other Secured Parties such Financing Statements (or
similar statements or instruments of registration under the law of any
jurisdiction), in form acceptable to the Collateral Agent, as the Collateral
Agent may from time to time reasonably request or as are necessary or desirable
in the reasonable opinion of the Collateral Agent to establish and maintain the
security interests contemplated hereunder as valid, enforceable, first priority
security interests (subject to Permitted Assignor Liens) as provided herein and
the other rights and security contemplated
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herein, all in accordance with the Uniform Commercial Code as enacted in any and
all relevant jurisdictions or any other applicable law. Such Assignor shall pay
any applicable filing fees and related expenses. Such Assignor authorizes the
Collateral Agent to file any such Financing Statements (or similar statements or
instruments of registration under the law of any jurisdiction) without the
signature of such Assignor.
Section 4.5 Deposit of Available Cash Flow. Such Assignor shall irrevocably
direct, subject to Applicable Law, that all of its Available Cash Flow be
deposited directly into the Revenue Account pursuant to Section 3.1(a)(i) of the
Depositary Agreement or the Redemption Account pursuant to Section 3.5(a) of the
Depositary Agreement, as the case may be.
Section 4.6 Information Covenants. (a) Such Assignor shall furnish to the
Collateral Agent, the Trustee and each Rating Agency, promptly and in any event
within fifteen (15) days after an Authorized Officer of such Assignor obtains
knowledge thereof, notice of (i) any material litigation or regulatory events
with respect to such Assignor's Project(s) and (ii) any default or event of
default under the Project Documents or Project Financing Documents for such
Assignor's Project Company(ies), except in each such case with respect to any
Project that is not a Significant Project.
(b) Such Assignor shall furnish to CE Generation all information
regarding such Assignor, its Project Company(ies) and its Project(s) which is
necessary to enable CE Generation to satisfy its information provision
obligations under the Indenture.
Section 4.7 Books, Records and Inspections. (a) Such Assignor shall keep
proper books of record and account in which full, true and correct entries in
conformity with GAAP and all requirements of law shall be made of all dealings
and transactions in relation to its business and activities, including, without
limitation, records of the Cash Flow Collateral owned by such Assignor.
(b) Such Assignor shall permit officers and designated representatives
of the Trustee, the Collateral Agent and the Depositary Bank to visit and
inspect any of the properties of such Assignor, to examine and make copies of
the books of record and accounts of such Assignor and to discuss the affairs,
finances and accounts of such Assignor with, and be advised as to the same by,
its officers, all at such reasonable times during normal business hours and
intervals and to such reasonable extent as the Trustee, the Collateral Agent and
the Depositary Bank may request.
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Section 4.8 Taxes. Such Assignor shall pay or cause to be paid all taxes,
charges and assessments and all other lawful claims required to be paid by such
Assignor, except as contested in good faith and by appropriate proceedings
diligently conducted, if adequate reserves have been established with respect
thereto in accordance with GAAP.
Section 4.9 Maintenance of Existence. (a) Such Assignor shall at all times
preserve and maintain in full force and effect (i) except as permitted under
Section 4.16, its existence as a corporation or limited liability company, as
the case may be, in good standing under the laws of the jurisdiction of its
incorporation or formation, as the case may be, and (ii) its qualification to do
business in each other jurisdiction in which the character of 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, except, in the case
of clause (ii), where the failure to do so could not reasonably be expected to
result in a Material Adverse Effect.
(b) Such Assignor shall maintain and renew all of the powers, rights,
privileges and franchises necessary for the transaction of its business as
conducted or proposed to be conducted, except where the failure to do so could
not reasonably be expected to result in a Material Adverse Effect.
Section 4.10 Compliance with Laws; Governmental Approvals. (a) Such Assignor
shall comply with all Applicable Laws and Governmental Approvals applicable to
it, and all other acts, rules, regulations, permits, orders and requirements of
any legislative, executive, administrative or judicial body relating to the
operation of such Assignor's business or the performance by such Assignor of its
obligations under the Financing Documents to which it is a party, except, in
each case, where the failure to do so could not reasonably be expected to result
in a Material Adverse Effect.
(b) Such Assignor shall obtain in a timely manner and maintain in full
force and effect (or where appropriate, renew) all Governmental Approvals
required at any time or advisable (i) in connection with the operation of such
Assignor's business and (ii) to execute and deliver the Financing Documents to
which it is a party and to perform its obligations thereunder, unless in each
case the failure to so obtain or maintain such Governmental Approvals could not
reasonably be expected to result in a Material Adverse Effect.
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Section 4.11 Performance of Obligations. (a) Such Assignor shall perform all
of its obligations under the terms of (i) each mortgage, indenture, security
agreement, debt instrument, lease, undertaking and contract by which it or any
of its properties is bound or to which it is a party, if the failure to so
perform, individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Effect, and (ii) the certificate of incorporation
(including certificates of designation) and the bylaws, or the certificate of
formation and the operating agreement, as the case may be, of such Assignor.
(b) Such Assignor shall take all reasonable and necessary actions to
prevent the termination or cancellation as against such Assignor of any
Financing Document to which it is a party, except where the result of such
termination or cancellation could not reasonably be expected to result in a
Material Adverse Effect.
Section 4.12 Maintenance of Title. Except as permitted under Section 4.17,
such Assignor shall preserve and maintain good and valid title to its properties
and assets (subject to no Liens other than Permitted Assignor Liens), except
where the failure to do so could not reasonably be expected to result in a
Material Adverse Effect.
Section 4.13 Project Companies. Such Assignor shall cause each of its
Project Companies: (a) to perform all of its covenants under its Project
Documents and Project Financing Documents, except where the failure to do so
could not reasonably be expected to result in a Material Adverse Effect; (b) not
to amend, terminate or otherwise modify any of its Project Documents or Project
Financing Documents, except (i) any Permitted Power Contract Buy-Out or (ii) if
such amendment, termination or other modification could not reasonably be
expected to result in a Material Adverse Effect; (c) to maintain (i) the
Qualifying Facility status of its Project or (ii) maintain its status as an
Exempt Wholesale Generator and its Project's status as an Eligible Facility,
except, in each case, where the failure to do so could not reasonably be
expected to result in a Material Adverse Effect; (d) not to enter into any
additional Project Documents or Project Financing Documents, except where doing
so could not reasonably be expected to result in a Material Adverse Effect; (e)
not to create, incur, assume, suffer to exist or otherwise become or remain
directly or indirectly liable with respect to, any Indebtedness other than (i)
if the Rating Agencies confirm in writing that the incurrence of such
Indebtedness (and the creation of any Liens securing such Indebtedness) will not
result in a Ratings Downgrade, (ii) Indebtedness existing on the Closing Date,
or (iii) except with respect to Magma and FSRI and so long as no Default or
Event of Default has
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occurred and is continuing, Indebtedness in an aggregate amount not to exceed,
together with the aggregate of all Indebtedness outstanding under this clause
(iii), Section 4.13(a)(iii) and Section 4.14(b)(iii), $15,000,000 (clauses (i),
(ii) and (iii) collectively, "Permitted Project Company Indebtedness"); and (f)
not to create, incur, assume or suffer to exist, directly or indirectly, any
Lien on or with respect to any of its property now owned or hereafter acquired,
other than (i) Liens to secure Indebtedness incurred in accordance with clause
(e) immediately above, (ii) Liens existing on the Closing Date, (iii) Liens for
taxes not yet due or which are being contested in good faith by appropriate
proceedings diligently conducted and with respect to which adequate reserves are
being maintained in accordance with GAAP, or (iv) Liens incidental to the
conduct of such Project Company's business which are 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 such Project Company's business (clauses (i), (ii), (iii) and (iv),
collectively, "Permitted Project Company Liens").
Section 4.14 Indebtedness. (a) Such Assignor shall not create, incur,
assume, suffer to exist or otherwise become or remain directly or indirectly
liable with respect to, any Indebtedness other than (i) the Secured Obligations,
(ii) Indebtedness existing on the Closing Date, (iii) Indebtedness owed to CE
Generation or (iv) except with respect to Magma and FSRI and so long as no
Default or Event of Default has occurred and is continuing, Indebtedness owed to
an Affiliate of CE Generation which owns, directly or indirectly, a majority of
the ownership interests in such Assignor, in an amount not to exceed, together
with the aggregate of all Indebtedness outstanding under this clause (iii),
Section 4.13(e)(iii) and Section 4.14(b)(iii), $15,000,000 (clauses (i), (ii)
and (iii) collectively, "Permitted Assignor Indebtedness").
(b) Such Assignor shall not permit any of its Intermediate Holding
Companies, Project Holding Companies or other Subsidiaries (other than its
Project Companies) to create, incur, assume or otherwise become or remain
directly or indirectly liable with respect to, any Indebtedness other than (i)
if the Rating Agencies confirm in writing that the incurrence of such
Indebtedness (and the creation of any Liens securing such Indebtedness) will not
result in a Ratings Downgrade, (ii) Indebtedness existing on the Closing Date,
or (iii) except with respect to Magma and FSRI and so long as no Default or
Event of Default has occurred and is continuing, Indebtedness in an aggregate
amount not to exceed, together with the aggregate of all Indebtedness
outstanding under this clause (iii), Section 4.13(e)(iii) and Section
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4.14(a)(iii), $15,000,000 (clauses (i), (ii) and (iii) collectively, "Permitted
Holding Company Indebtedness").
Section 4.15 Liens. Such Assignor shall not create, incur, assume or suffer
to exist, directly or indirectly, any Lien on or with respect to any of its
property now owned or hereafter acquired, other than the following Liens (such
Liens, "Permitted Assignor Liens"):
(a) Liens existing on the Closing Date;
(b) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings diligently conducted and with respect to which
adequate reserves are being maintained in accordance with GAAP;
(c) Liens incidental to the conduct of such Assignor's business which
are 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 such Assignor's business; and
(d) Liens granted to the Collateral Agent pursuant to the Security
Documents securing the Secured Obligations.
Section 4.16 Restriction on Fundamental Changes.ERROR! BOOKMARK NOT DEFINED.
Such Assignor shall not enter into any merger or consolidation, or liquidate,
wind-up or dissolve (or suffer any liquidation or dissolution) or discontinue
its business, unless (i) such Assignor is the surviving or continuing company or
the surviving or continuing company is a company formed under the laws of the
United States, one of the States thereof or the District of Columbia or Canada
and assumes Assignor's obligations under the Financing Documents, (ii)
immediately before and after such transaction, no Event of Default shall have
occurred and be continuing and (iii) the Rating Agencies confirm in writing that
such transaction will not result in a Ratings Downgrade.
Section 4.17 Sale of Interest in Project Company. Such Assignor shall not
sell, transfer or convey any portion of its equity interest in its Project
Company, other than, so long as no Event of Default has occurred and is
continuing, (a) any such sale for fair market value the proceeds of which are in
the form of cash or cash equiva-
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lents and are used to redeem all or a portion of the Securities in accordance
with Section 3.2.1(d) of the Indenture, if required, or (b) a Permitted
Transfer.
Section 4.18 Restricted Payments. Such Assignor shall not make any
Restricted Payments, except that such Assignor may (a) deposit its Available
Cash Flow into the Revenue Account in accordance with Section 3.1(a)(i) of the
Depositary Agreement or into the Redemption Account in accordance with Section
3.5(a) of the Depositary Agreement, as the case may be, and (b) make Restricted
Payments from monies distributed from the Distribution Suspense Account in
accordance with Section 3.4 of the Depositary Agreement.
Section 4.19 Transactions with Affiliates. Other than pursuant to
contractual arrangements existing as of the Closing Date, such Assignor shall
not enter into any transaction or series of related transactions, whether or not
in the ordinary course of business, with any Affiliate, other than on terms and
conditions substantially as favorable to such Assignor as would be obtainable at
the time in a comparable arm's-length transaction with a Person other than an
Affiliate, except that such Assignor may perform its obligations and engage in
transactions permitted by the Transaction Documents.
Section 4.20 Modifications; Additional Contracts. (a) Such Assignor shall
not amend, modify or waive, or permit the amendment, modification or waiver of,
any provision of any material contracts to which it is a party or by which it or
any of its properties is bound, including without limitation, the certificate of
incorporation, bylaws or other organizational documents of such Assignor, if
such amendment, modification or waiver could reasonably be expected to result in
a Material Adverse Effect.
(b) Such Assignor shall not assign any of its rights or obligations
under any Financing Document to which it is a party or enter into any additional
contract, agreement or undertaking if the transactions contemplated by such
assignment or additional contract, agreement or undertaking could reasonably be
expected to result in a Material Adverse Effect.
Section 4.21 Changes in Business. Such Assignor shall not engage in any
activities other than (a) the ownership of a direct or an interest in its
respective Project Company(ies) and activities incidental thereto, (b) with
respect to Magma, (i) its ownership of its existing assets and the ownership of
real property rights and assets in Imperial County, California and activities
related thereto, and (ii) its
15
<PAGE>
performance of its obligations under the Project Documents to which it is a
party, (c) the activities contemplated by the Indenture and the other Financing
Documents and activities incidental thereto and (d) other activities which could
not reasonably be expected to result in a Material Adverse Effect and which the
Rating Agencies confirm in writing will not result in a Ratings Downgrade.
Section 4.22 Investments. Such Assignor shall not form or have any
subsidiaries, make investments, loans or advances or acquire the stock,
obligations or securities of any Person, other than (a) Permitted Investments,
(b) investments, loans or advances made with monies which do not constitute
Collateral and (c) subsidiaries the formation of which the Rating Agencies
confirm in writing will not result in a Ratings Downgrade, in each case in
accordance with Section 4.21.
Section 4.23 Guarantee Obligations. Such Assignor shall not contingently or
otherwise be or become liable, directly or indirectly, in connection with any
Guarantee Obligation, except for guarantees of Permitted Subsidiary Indebtedness
which is not incurred by an Affiliate of such Assignor (other than a
wholly-owned Subsidiary of such Assignor).
Section 4.24 SECI Holdings Stock. FSPC shall (i) on the date on which the
Liens on the capital stock of SECI Holdings created pursuant to the FSPC Term
Loan Stock Pledge Agreement, dated September 30, 1994, between FSPC and General
Electric Capital Corporation, are released, pledge all of the capital stock of
SECI Holdings to the Collateral Agent for the benefit of the Secured Parties
pursuant to a pledge and security agreement substantially in the form of Exhibit
A, and (ii) promptly take all other actions necessary or desirable in the
reasonable opinion of the Collateral Agent to establish and maintain the
Collateral Agent's security interest in all of the capital stock of SECI
Holdings as a valid, enforceable, first priority security interest (subject to
Permitted Assignor Liens).
Section 4.25 Project Company Distributions. Such Assignor shall use its
reasonable best efforts to cause each of its Project Companies, and each of its
Subsidiaries which owns an interest in any of such Project Companies, in each
case subject to the legal and fiduciary responsibilities of the boards of
directors and other governing bodies of such Project Companies and Subsidiaries
in respect of the declaration and payment of dividends and distributions, to
declare and pay dividends to such Assignor with all Available Cash Flow then
available for distribution in accordance with the organizational documents of
the Project Companies; provided,
16
<PAGE>
however, that the foregoing shall not apply with respect to the declaration or
payment of dividends or distributions related to any Project that is not a
Significant Project.
Section 4.26 Turnover of Available Cash Flow. Such Assignor shall hold all
Available Cash Flow received by it in trust for the Secured Parties and
immediately deliver such Available Cash Flow to the Depositary Bank for
application in accordance with the Depositary Agreement.
ARTICLE 5
REMEDIES UPON OCCURRENCE OF AN EVENT OF DEFAULT
Section 5.1 Remedies Generally. If an Event of Default shall have occurred
and be continuing, the Collateral Agent may exercise, in addition to all other
rights and remedies granted in this Agreement and in any other instrument or
agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the Uniform Commercial Code in
effect from time to time in any relevant jurisdiction and all other rights and
remedies available at law or in equity.
Section 5.2 Sale of Cash Flow Collateral. Without limiting the generality of
Section 5.1, upon the occurrence and during the continuance of an Event of
Default and subject to the Intercreditor Agreement, the Collateral Agent may in
its sole discretion, without notice except as specified below, sell the Cash
Flow Collateral or any part thereof at public or private sale or at the
Collateral Agent's Office or elsewhere, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as the
Collateral Agent may reasonably deem commercially reasonable, irrespective of
the impact of any such sales on the market price of the Cash Flow Collateral at
any such sale. Each purchaser at any such sale shall hold the property sold
absolutely, free from any claim or right on the part of any Assignor, and each
Assignor hereby waives (to the extent permitted by law) all rights of
redemption, stay and/or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.
The Collateral Agent agrees to provide at least ten (10) days' notice to each
Assignor of the time and place of any public sale or the time after which any
private sale is to be made and each Assignor agrees that such ten (10) days'
notice shall constitute reasonable notification. The Collateral Agent shall not
be obligated to make any sale of Cash Flow Collateral regardless of notice of
sale having been given. The 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
17
<PAGE>
the time and place to which it was so adjourned. The Collateral Agent shall
incur no liability as a result of the sale of the Cash Flow Collateral, or any
part thereof, at any public or private sale. Each Assignor hereby waives any
claims against the Collateral Agent arising by reason of the fact that the price
at which any Cash Flow Collateral may have been sold at such a private sale, if
commercially reasonable, was less than the price which might have been obtained
at a public sale, even if the Collateral Agent accepts the first offer received
and does not offer such Cash Flow Collateral to more than one offeree.
Section 5.3 Purchase of Cash Flow Collateral. Any purchaser of all or any
part of the Cash Flow Collateral shall, upon any such purchase, acquire good
title to the Cash Flow Collateral so purchased, free of the security interests
created by this Agreement.
Section 5.4 Application of Proceeds. The Collateral Agent shall apply any
proceeds from time to time held by it and the net proceeds of any collection,
recovery, receipt, appropriation, realization or sale with respect to the Cash
Flow Collateral in accordance with the relevant provisions of the Intercreditor
Agreement. For avoidance of doubt, it is understood that CE Generation shall
remain liable to the extent of any deficiency between the amount of proceeds of
the Cash Flow Collateral and the aggregated amount of the Secured Obligations.
Section 5.5 Expenses. The Assignors shall upon demand pay to the Collateral
Agent the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, and any transfer
taxes, in each case payable upon sale of the Cash Flow Collateral, which the
Collateral Agent may incur in connection with (a) the custody or preservation
of, or the sale of, collection from or other realization upon, any of the Cash
Flow Collateral pursuant to the exercise or enforcement of any of the rights of
the Collateral Agent hereunder or (b) the failure by the Assignors to perform or
observe any of the provisions hereof, together with interest thereon from the
date of demand at the rate per annum equal to the Default Rate. Any amount
payable by the Assignors pursuant to this Section 5.5 shall be payable on demand
and shall constitute Secured Obligations secured hereby.
ARTICLE 6
MISCELLANEOUS
18
<PAGE>
Section 6.1 Notices. Except as otherwise expressly provided herein, all
notices, requests and demands to or upon the respective parties hereto shall be
deemed to have been duly given when delivered by hand, or five days after being
deposited in the United States mail, postage prepaid, or, in the case of telex
notice, when sent, answerback received, or, in the case of telecopy notice, when
sent, or, in the case of a nationally recognized overnight courier service, one
Business Day after delivery to such courier service, addressed, in the case of
each party hereto, at its address specified below its signature hereto or to
such other address as may be designated by any party in a written notice to the
other parties hereto.
Section 6.2 Continuing Security Interest. This Agreement shall create a
continuing Lien on the Cash Flow Collateral until the release thereof pursuant
to Section 6.3.
Section 6.3 Release. Upon the indefeasible payment or other satisfaction in
full in cash or Cash Equivalents of all of the Secured Obligations, the
Collateral Agent, upon the request, and at the expense, of the Assignors, shall
execute and deliver all such documentation necessary to release the Liens
created pursuant to this Agreement.
Section 6.4 Reinstatement. This Agreement shall continue to be effective or
be reinstated, as the case may be, if at any time any amount received by the
Collateral Agent or any other Secured Party hereunder or pursuant hereto is
rescinded or must otherwise be restored or returned by the Collateral Agent or
such Secured Party, as the case may be, upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the any of the Assignors or CE
Generation or upon the appointment of any intervenor or conservator of, or
trustee or similar official for, any of the Assignors or CE Generation or any
substantial part of any of the Assignors' or CE Generation's assets, or upon the
entry of an order by any court avoiding the payment of such amount, or
otherwise, all as though such payments had not been made.
Section 6.5 Independent Security. The security provided for in this
Agreement shall be in addition to and shall be independent of every other
security which the Secured Parties may at any time hold for any of the Secured
Obligations hereby secured, whether or not under the Security Documents. The
execution of any other Security Document shall not modify or supersede the
security interest or any rights or obligations contained in this Agreement and
shall not in any way affect, impair or invalidate the effectiveness and validity
of this Agreement or any term or condition hereof. The Assignors hereby waive
their rights to plead or claim in any court that
19
<PAGE>
the execution of any other Security Document is a cause for extinguishing,
invalidating, impairing or modifying the effectiveness and validity of this
Agreement or any term or condition contained herein. The Collateral Agent shall
be at liberty to accept further security from the Assignors or from any third
party and/or release such security without notifying the Assignors and without
affecting in any way the obligations of the Assignors under the Security
Documents or the other Financing Documents. The Collateral Agent shall determine
if any security conferred upon the Secured Parties under the Security Documents
shall be enforced by the Collateral Agent, as well as the sequence of securities
to be so enforced. Notwithstanding any of the foregoing, this Agreement is
subject to the Intercreditor Agreement.
Section 6.6 Amendments. No waiver, amendment, modification or termination of
any provision of this Agreement, or consent to any departure by the Assignors
therefrom, shall in any event be effective without the prior written consent of
the Collateral Agent and, except as provided in the Depositary Agreement, none
of the Cash Flow Collateral shall be released without the written consent of the
Collateral Agent. Any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
Section 6.7 Successors and Assigns. This Agreement shall be binding upon the
Assignors and their respective successors and assigns and shall inure to the
benefit of the Collateral Agent and the other Secured Parties and their
respective successors and assigns. The Assignors may not assign or otherwise
transfer any of their rights or obligations under this Agreement without the
written consent of the Collateral Agent.
Section 6.8 Third Party Beneficiaries. The agreements of the parties hereto
are intended to benefit the Secured Parties and their respective successors and
assigns.
Section 6.9 Survival. All agreements, statements, representations and
warranties made by the Assignors herein or in any certificate or other
instrument delivered by the Assignors or on their behalf under this Agreement
shall be considered to have been relied upon by the Collateral Agent and the
Secured Parties and shall survive the execution and delivery of this Agreement
and the other Financing Documents until termination thereof or the indefeasible
payment in full in cash or Cash Equivalents of all of the Secured Obligations
regardless of any investigation made by the Collateral Agent or the Secured
Parties, or made on their behalf.
20
<PAGE>
Section 6.10 No Waiver; Remedies Cumulative. No failure or delay on the part
of the Collateral Agent in exercising any right, power or privilege hereunder
and no course of dealing between the Assignors and the Collateral Agent shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder or
thereunder. The rights and remedies herein expressly provided are cumulative and
not exclusive of any rights or remedies which the Collateral Agent would
otherwise have.
Section 6.11 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
Section 6.12 Headings Descriptive. The headings of the several Sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
Section 6.13 Severability. In case any provision contained in or obligation
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
Section 6.14 Governing Law; Submission to Jurisdiction and Venue; Waiver of
Jury Trial. (a) THIS AGREEMENT IS A CONTRACT MADE UNDER THE LAWS OF THE STATE OF
NEW YORK OF THE UNITED STATES AND SHALL FOR ALL PURPOSES BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW).
(b) Any legal action or proceeding against the Assignors with respect
to this Agreement may be brought in the courts of the State of New York in the
County of New York or of the United States for the Southern District of New York
and, by execution and delivery of this Agreement, each Assignor hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each Assignor agrees
that a judgment, after exhaustion of all available appeals, in any such action
or proceeding shall be conclusive
21
<PAGE>
and binding upon such Assignor and may be enforced in any other jurisdiction by
a suit upon such judgment, a certified copy of which shall be conclusive
evidence of the judgment. Each Assignor hereby irrevocably designates, appoints
and empowers CT Corporation System, with offices on the date hereof at 1633
Broadway, New York, New York 10019, as its designee, appointee and agent to
receive and accept for and on its behalf service of any and all legal process,
summons, notices and documents which may be served in any such action or
proceeding. If for any reason such designee, appointee and agent shall cease to
be available to act as such, such Assignor agrees to designate a new designee,
appointee and agent in New York City on the terms and for the purposes of this
provision satisfactory to the Collateral Agent. Each Assignor further
irrevocably consents to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such Assignor at its address
referred to in Section 6.1, such service to become effective thirty (30) days
after such mailing. Nothing herein shall affect the right of the Collateral
Agent to serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against any Assignor in any other jurisdiction.
(c) Each Assignor hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Financing Document brought in the courts referred to in clause (b) above and
hereby further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.
(d) WITH REGARD TO THIS AGREEMENT, THE ASSIGNORS AND THE COLLATERAL
AGENT HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY.
Section 6.15 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 as to the matters covered hereby and is intended
as a complete and exclusive statement of the terms and conditions thereof.
Section 6.16 Independent Obligations. The Assignors' obligations under this
Agreement are independent of those of CE Generation. The Collateral Agent may
bring a separate action against the Assignors without first proceeding against
CE
22
<PAGE>
Generation or any other Person or any other security held by the Collateral
Agent and without pursuing any other remedy.
Section 6.17 Waiver of Defenses. The Assignors hereby waive: (a) any defense
of a statute of limitations; (b) any defense based on the legal disability of CE
Generation or any discharge or limitation of the liability of CE Generation to
the Collateral Agent or the Secured Parties, whether consensual or arising by
operation of law; (c) presentment, demand, protest and notice of any kind (other
than as expressly provided by the Financing Documents); and (d) any defense
based upon or arising out of any defense which CE Generation may have to the
payment or performance of any part of the Secured Obligations.
Section 6.18 Subrogation, Etc. Notwithstanding any payment or payments made
by the Assignors or the exercise by the Collateral Agent of any of the remedies
provided under this Agreement or any other Financing Document, until the Secured
Obligations have been indefeasibly paid in full in cash or Cash Equivalents, the
Assignors shall have no claim (as defined in 11 U.S.C. ss. 101(5)) of
subrogation to any of the rights of the Collateral Agent against CE Generation,
the Cash Flow Collateral or any guaranty held by the Collateral Agent for the
satisfaction of any of the Secured Obligations, nor shall the Assignors have any
claims (as defined in 11 U.S.C. ss. 101(5)) for reimbursement, indemnity,
exoneration or contribution from CE Generation in respect of payments made by
the Assignors hereunder. Notwithstanding the foregoing, if any amount shall be
paid to the Assignors on account of such subrogation, reimbursement, indemnity,
exoneration or contribution rights at any time, such amount shall be held by the
Assignors in trust for the Collateral Agent segregated from other funds of the
Assignors, and shall be turned over to the Collateral Agent in the exact form
received by the Assignors (duly endorsed by the Assignors to the Collateral
Agent if required) to be applied against the Secured Obligations in such amounts
and in such order as the Collateral Agent may elect.
Section 6.19 Joint and Several Liability. Except for the obligations of each
Assignor with respect to its Cash Flow Collateral, which shall be several only,
the obligations of the Assignors under this Agreement shall be joint and
several.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Assignment and Security
Agreement as of the day and year first above written.
MAGMA POWER COMPANY
Name: /s/ Steven A. McArthur
---------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400-W
Omaha, Nebraska 68131
SALTON SEA POWER COMPANY
Name: /s/ Steven A. McArthur
---------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400-C
Omaha, Nebraska 68131
FALCON SEABOARD RESOURCES, INC.
Name: /s/ Steven A. McArthur
---------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Signature Page to Assignor Security Agreement
<PAGE>
Suite 400
Omaha, Nebraska 68131
FALCON SEABOARD POWER CORPORATION
Name: /s/ Steven A. McArthur
---------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
FALCON SEABOARD OIL COMPANY
Name: /s/ Steven A. McArthur
---------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
CALIFORNIA ENERGY DEVELOPMENT CORPORATION
Name: /s/ Steven A. McArthur
---------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Signature Page to Assignor Security Agreement
<PAGE>
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
CE TEXAS ENERGY LLC
Name: /s/ Steven A. McArthur
---------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
as Collateral Agent
By: /s/ Rose T. Maravilla
------------------------------------
Name: R.T. Maravilla
Title: Assistant Vice President
Address for Notices:
--------------------
101 California Street, #2725
San Francisco, California 94111
Signature Page to Assignor Security Agreement
<PAGE>
Schedule 3.1
FINANCING STATEMENTS
Copies on file with Latham & Watkins.
<PAGE>
Schedule 3.4
CHIEF EXECUTIVE OFFICES
Legal Name of Assignor Chief Executive Office
---------------------- ----------------------
Magma Power Company 302 South 36th Street
Suite 400-W
Omaha, Nebraska 68131
Salton Sea Power Company 302 South 36th Street
Suite 400-C
Omaha, Nebraska 68131
Falcon Seaboard Resources, Inc. 302 South 36th Street
Suite 400
Omaha, Nebraska 68131
Falcon Seaboard Power
Corporation 302 South 36th Street
Suite 400
Omaha, Nebraska 68131
Falcon Seaboard Oil Company 302 South 36th Street
Suite 400
Omaha, Nebraska 68131
California Energy Development
Corporation 302 South 36th Street
Suite 400
Omaha, Nebraska 68131
CE Texas Energy LLC 302 South 36th Street
Suite 400
Omaha, Nebraska 68131
<PAGE>
Schedule 3.19
ENVIRONMENTAL MATTERS
None.
<PAGE>
Exhibit A
FORM OF PLEDGE AND SECURITY AGREEMENT
Copy on file with Latham & Watkins.
<PAGE>
EXHIBIT 4.9
================================================================================
ASSIGNMENT AND SECURITY AGREEMENT
dated as of March 2, 1999
between
CE GENERATION, LLC
and
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION,
as Collateral Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINED TERMS AND PRINCIPLES OF CONSTRUCTION..........................1
ARTICLE 2
GRANT OF SECURITY INTERESTS.......................................2
Section 2.1 Assignment and Grant of Security Interest....................2
Section 2.2 Security Interest Absolute...................................3
Section 2.3 Power of Attorney............................................4
Section 2.4 CE Generation's Duties.......................................6
Section 2.5 Effective as a Financing Statement...........................6
Section 2.6 CE Generation Operations.....................................7
ARTICLE 3
GENERAL REPRESENTATIONS AND WARRANTIES...............................7
Section 3.1 Necessary Filings............................................7
Section 3.2 No Liens.....................................................7
Section 3.3 Other Financing Statements...................................7
Section 3.4 Legal Name; Chief Executive Office...........................8
ARTICLE 4
GENERAL COVENANTS..............................................8
Section 4.1 No Other Liens...............................................8
Section 4.2 Chief Executive Office.......................................8
Section 4.3 Supplements; Further Assurances, etc.........................8
Section 4.4 Financing Statements.........................................9
Section 4.5 Maintenance of Records.......................................9
Section 4.6 Protection of Collateral Agent's Interests...................9
Section 4.7 Control.....................................................10
ARTICLE 5
SPECIAL PROVISIONS CONCERNING RECEIVABLES...........................10
Section 5.1 Payments Under Receivables..................................10
Section 5.2 Direction to Account Debtors; Actions Taken
i
<PAGE>
Upon Event of Default.......................................10
Section 5.3 CE Generation Remains Liable Under Receivables..............11
ARTICLE 6
SPECIAL PROVISIONS CONCERNING CONTRACTS.............................11
Section 6.1 Security Interest in Contract Rights........................11
Section 6.2 Further Protection..........................................12
Section 6.3 Payments Under Contracts....................................12
Section 6.4 Direction to Account Debtors; Actions Taken
Upon Event of Default.......................................12
Section 6.5 CE Generation Remains Liable Under Contracts................13
Section 6.6 Cure of Default Under Contracts.............................13
Section 6.7 Remedies....................................................13
ARTICLE 7
SPECIAL PROVISIONS CONCERNING GENERAL INTANGIBLES.....................14
Section 7.1 Patents.....................................................14
Section 7.2 Remedies....................................................14
ARTICLE 8
REMEDIES UPON OCCURRENCE OF AN EVENT OF DEFAULT.......................14
Section 8.1 Events of Default; Obtaining the CE Generation
Collateral Upon Default.....................................14
Section 8.2 Remedies; Disposition of the CE Generation Collateral.......17
Section 8.3 Purchase of the CE Generation Collateral....................17
Section 8.4 Waiver......................................................18
Section 8.5 Discontinuance of Proceedings...............................19
Section 8.6 Limitation on Duties Regarding Preservation
of CE Generation Collateral.................................19
Section 8.7 Application of Proceeds.....................................19
Section 8.8 Expenses....................................................19
ARTICLE 9
MISCELLANEOUS................................................20
ii
<PAGE>
Section 9.1 Notices.....................................................20
Section 9.2 Continuing Security Interest................................20
Section 9.3 Release.....................................................20
Section 9.4 Reinstatement...............................................20
Section 9.5 Independent Security........................................21
Section 9.6 Amendments..................................................21
Section 9.7 Successors and Assigns......................................21
Section 9.8 Third Party Beneficiaries...................................22
Section 9.9 Survival....................................................22
Section 9.10 No Waiver; Remedies Cumulative..............................22
Section 9.11 Counterparts................................................22
Section 9.12 Headings Descriptive........................................22
Section 9.13 Severability................................................22
Section 9.14 Governing Law; Submission to Jurisdiction and
Venue; Waiver of Jury Trial.................................22
Section 9.15 Entire Agreement............................................24
Section 9.16 Limitation of Liability.....................................24
iii
<PAGE>
ASSIGNMENT AND SECURITY AGREEMENT
---------------------------------
This ASSIGNMENT AND SECURITY AGREEMENT (this "Agreement"), dated as
of March 2, 1999, is entered into by CE Generation, LLC ("CE Generation"), a
Delaware limited liability company, in favor of Chase Manhattan Bank and Trust
Company, National Association, as Collateral Agent (together with its successors
in such capacity, the "Collateral Agent") for the Secured Parties (as defined in
the Indenture referred to below) under the Collateral Agency and Intercreditor
Agreement, dated as of the date hereof (the "Intercreditor Agreement"), among CE
Generation, the Assignors (as defined in the Indenture referred to below), Chase
Manhattan Bank & Trust Company, National Association, as trustee (together with
its successors in such capacity, the "Trustee") and as depositary bank (together
with its successors in such capacity, the "Depositary Bank"), and the other
Secured Parties.
W I T N E S S E T H:
WHEREAS, CE Generation is issuing $400,000,000 in principal amount
of its 7.416% Senior Secured Bonds Due December 15, 2018 (the "Initial
Securities") pursuant to the Indenture, dated as of the date hereof (the
"Indenture"), between CE Generation and the Trustee;
WHEREAS, it is a condition precedent to the issuance of the
Securities under the Indenture that CE Generation execute and deliver this
Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the undersigned hereby agree as follows:
ARTICLE 1
DEFINED TERMS AND PRINCIPLES OF CONSTRUCTION
(a) Unless otherwise defined herein, all capitalized terms used
herein but not defined herein shall have the meanings set forth in the
Indenture.
(b) Commercial terms used but not otherwise defined herein shall
have the meanings specified for such terms in the Uniform Commercial Code as in
effect from time to time in the State of New York.
<PAGE>
ARTICLE 2
GRANT OF SECURITY INTERESTS
Section 2.1 Assignment and Grant of Security Interest. (a) As
collateral security for the prompt and complete payment and performance when due
(whether at stated maturity, by acceleration or otherwise) of all of the Secured
Obligations, whether now existing or hereafter arising and howsoever evidenced,
CE Generation hereby assigns, transfers and grants to the Collateral Agent and
hereby creates in favor of the Collateral Agent, for the benefit of the Secured
Parties, a continuing Lien on and security interest of first priority (subject
to Permitted Liens) in all of the right, title and interest of CE Generation in,
to and under all of the following, whether now existing or hereafter from time
to time acquired (collectively, the "CE Generation Collateral"):
(i) all Accounts;
(ii) all Receivables;
(iii) all Inventory;
(iv) all Equipment;
(v) all General Intangibles;
(vi) all Financial Assets;
(vii) all Investment Property, provided that the CE Generation Collateral
shall not include the capital stock of Magma Power Company, a Nevada
corporation, owned by CE Generation;
(viii) all Contracts and all Contract Rights;
(ix) all Governmental Approvals, provided that any Governmental Approval
which by its terms or by operation of law would become void,
voidable, terminable or revocable if mortgaged, pledged or assigned
hereunder or if a security interest therein were granted hereunder
is expressly excepted and excluded from such Lien and the terms of
this Agreement to the extent, and only to the extent, necessary so
as to avoid such voidness, voidability, terminability or
revocability;
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(x) all Fixtures;
(xi) all Insurance Policies;
(xii) all bank accounts, Securities Accounts and trust accounts of CE
Generation, all cash, securities, instruments, Investment Property,
Financial Assets, Security Entitlements and other property from time
to time held in, or credited to, such accounts and all interest and
income earned on any such cash, securities, instruments, Investment
Property, Financial Assets, Security Entitlements and other
property;
(xiii) without limiting the generality of the foregoing, all other personal
property, goods, Instruments, Chattel Paper, Documents, credits,
claims, demands and assets of CE Generation, whether now existing or
hereafter acquired from time to time and whether or not of a type
which may be subject to a security interest under the Uniform
Commercial Code as in effect from time to time in the State of New
York; and
(xiv) any and all additions and accessions to any of the foregoing, all
improvements thereto, all substitutions and replacements therefor
and all products and Proceeds thereof;
(b) The security interest granted to the Collateral Agent pursuant
to this Agreement extends to all CE Generation Collateral of the kind which is
the subject of this Agreement which CE Generation may acquire at any time during
the continuation of this Agreement, whether such CE Generation Collateral is in
transit or in CE Generation's, the Collateral Agent's, any Secured Party's or
any other Person's constructive, actual or exclusive occupancy or possession.
(c) Notwithstanding the foregoing, monies distributed from the
Distribution Suspense Account in accordance with the requirements of the
Depositary Agreement shall be released from the security interests created
hereunder and shall not constitute CE Generation Collateral.
Section 2.2 Security Interest Absolute. All rights of the Collateral
Agent and all security interests created hereunder shall be absolute and
unconditional irrespective of any circumstance or occurrence whatsoever,
including, without limitation:
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(i) any lack of validity or enforceability of all or any part of the
Secured Obligations or of any security therefor or of any of the
Financing Documents or any other agreement or instrument relating
thereto (other than against the Collateral Agent);
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from or exercise
or non-exercise of any right under any of the Financing Documents or
any other agreement or instrument relating thereto;
(iii) any exchange, release or non-perfection of any other
collateral for, or any release or amendment or waiver of or consent to
any departure from any guaranty for, all or any of the Secured
Obligations; or
(iv) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, CE Generation.
Section 2.3 Power of Attorney. (a) Without limiting any other rights or
powers granted to the Collateral Agent hereunder, CE Generation hereby
constitutes and appoints the Collateral Agent, or any Person or agent whom the
Collateral Agent may designate, as CE Generation's attorney-in-fact, at CE
Generation's cost and expense, (x) in the case of the powers listed in clause
(vii) below, to exercise such powers at any time, or (y) in the case of any
other powers listed below, to exercise all or any of such powers in accordance
with Section 8.1 upon the occurrence and during the continuance of an Event of
Default, which powers, in either case, being coupled with an interest, shall be
irrevocable until the Termination Date:
(i) To receive, take, endorse, sign, assign and deliver, all in the
Collateral Agent's name or CE Generation's name, any and all checks,
notes, drafts and other documents or instruments relating to the CE
Generation Collateral;
(ii) To receive, open and dispose of all mail addressed to CE
Generation and to notify postal authorities to change the ad dress for
delivery thereof to such address as the Collateral Agent designates;
(iii) To request from account debtors of CE Generation in CE
Generation's name or in the Collateral Agent's
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name, information concerning the Receivables and the amounts owing
thereon;
(iv) To transmit to account debtors indebted on Receivables notice
of the Collateral Agent's interest therein;
(v) To notify account debtors indebted on Receivables to make
payment directly to the Collateral Agent;
(vi) To take or bring, in CE Generation's name or the Collateral
Agent's name, all steps, actions, suits or proceedings deemed by the
Collateral Agent to be necessary or desirable to enforce or effect
collection of the Receivables;
(vii) To prepare, sign and file any Financing Statements in the
name of CE Generation as debtor for the purpose of perfecting Liens;
(viii) To take or cause to be taken all actions necessary to perform
or comply or cause performance or compliance with the covenants of CE
Generation contained in the Financing Documents;
(ix) To sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection
with any of the CE Generation Collateral;
(x) To defend any suit, action or proceeding brought against CE
Generation;
(xi) To settle, compromise or adjust any suit, action or proceeding
described in the preceding clause and, in connection therewith, to give
such discharges or releases as the Collateral Agent may deem
appropriate;
(xii) Generally, to sell or transfer and make any agreement with
respect to or otherwise deal with any of the CE Generation Collateral
as fully and completely as though the Collateral Agent were the
absolute owner thereof for all purposes, and to do, at the Collateral
Agent's option and CE Generation's expense, at any
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time, or from time to time, all acts and things which the Collateral
Agent deems reasonably necessary to protect, preserve or realize upon
the CE Generation Collateral and the Liens of the Collateral Agent
thereon;
(xiii) To execute, in connection with any foreclosure, any
endorsements, assignments or other instruments of conveyance or
transfer with respect to the CE Generation Collateral;
(xiv) To exercise any and all of CE Generation's rights, powers and
remedies under any Contract in accordance with Section 6.7; and
(xv) To exercise any and all other rights, remedies, powers and
privileges of CE Generation with respect to the CE Generation
Collateral.
(b) CE Generation hereby ratifies all that said attorney shall
lawfully do or cause to be done by virtue hereof, in each case pursuant to the
powers granted hereunder. CE Generation hereby acknowledges and agrees that in
acting pursuant to this power-of-attorney the Collateral Agent shall be acting
in its own interest and on behalf of the Secured Parties, and CE Generation
acknowledges and agrees that the Collateral Agent and the Secured Parties shall
have no fiduciary duties to CE Generation and CE Generation hereby waives any
claims to the rights of a beneficiary of a fiduciary relationship hereunder.
Section 2.4 CE Generation's Duties. Anything herein contained to the
contrary notwithstanding, the Collateral Agent shall not have any obligations or
liabilities under or with respect to any CE Generation Collateral by reason of
or arising out of this Agreement, nor shall the Collateral Agent be required or
obligated in any manner to perform or fulfill any of the obligations of CE
Generation under or with respect to any CE Generation Collateral.
Section 2.5 Effective as a Financing Statement. This Agreement shall
also be effective as a Financing Statement covering any CE Generation Collateral
and may be filed in any appropriate filing or recording office. A carbon,
photographic, facsimile or other reproduction of this Agreement or of any
Financing Statement relating to this Agreement shall be sufficient as a
Financing Statement for any of the purposes referred to in the preceding
sentence.
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Section 2.6 CE Generation Operations. Nothing contained herein shall
prevent CE Generation from undertaking its operations in the ordinary course in
accordance with the terms of the Financing Documents prior to the exercise by
the Collateral Agent of any of its rights to the contrary.
ARTICLE 3
GENERAL REPRESENTATIONS AND WARRANTIES
CE Generation represents and warrants, as of the date of this Agreement
and the Closing Date, as follows, which representations and warranties shall
survive execution and delivery of this Agreement and the making and repayment of
the Secured Obligations:
Section 3.1 Necessary Filings. Upon the filing of the Financing
Statements in the form attached as Schedule I hereto in the jurisdictions noted
on such Financing Statements, all filings, registrations and recordings
necessary or appropriate to create, preserve, protect and perfect the security
interest granted by to the Collateral Agent hereby in respect of the CE
Generation Collateral have been accomplished and the security interest granted
to the Collateral Agent pursuant to this Agreement in and to the CE Generation
Collateral constitutes a valid and enforceable perfected security interest
therein superior and prior to the rights of all other Persons therein and, in
each case, subject to no other Liens, sales, assignments, conveyances, settings
over or transfers (except that the CE Generation Collateral may be subject to
Permitted Liens).
Section 3.2 No Liens. CE Generation is the owner of all of its right,
title and interest in the CE Generation Collateral free from any Lien or other
right, title or interest of any Person (other than Permitted Liens).
Section 3.3 Other Financing Statements. There is no Financing Statement
(or similar statement or instrument of registration under the law of any
jurisdiction) executed by CE Generation, or, to the knowledge of CE Generation,
by any other Person covering or purporting to cover any interest of any kind in
the CE Generation Collateral (other than Permitted Liens), except Financing
Statements filed or to be filed in respect of and covering the security
interests granted hereby.
Section 3.4 Legal Name; Chief Executive Office. The legal name of CE
Generation is "CE Generation, LLC." The chief executive office of CE Generation
and the office where CE Generation keeps its records concerning the CE
Generation Collateral is located at:
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302 South 36th Street
Suite 400
Omaha, Nebraska 68131
ARTICLE 4
GENERAL COVENANTS
CE Generation hereby covenants and agrees from and after the date of
this Agreement until the indefeasible payment in full in cash or cash
equivalents of the Secured Obligations and the termination of this Agreement in
accordance with the provisions of Section 9.3:
Section 4.1 No Other Liens. CE Generation shall not create, incur or
permit to exist, shall defend the CE Generation Collateral against and shall
take such other action as is necessary to remove, any Lien or claim on or to the
CE Generation Collateral (other than Permitted Liens), and shall defend the
right, title and interest of the Collateral Agent in and to any of the CE
Generation Collateral against the claims and demands of all Persons whomsoever.
Section 4.2 Chief Executive Office. CE Generation shall not establish a
new location for its chief executive office or change its name until (i) it has
given to the Collateral Agent not less than thirty (30) days prior written
notice of its intention to do so, clearly describing such new location or
specifying such new name, as the case may be, and (ii) with respect to such new
location or such new name, as the case may be, it shall have taken all action,
reasonably satisfactory to the Collateral Agent, to maintain the security
interest of the Collateral Agent in the CE Generation Collateral intended to be
granted hereby at all times fully perfected and in full force and effect.
Section 4.3 Supplements; Further Assurances, etc. CE Generation shall
at any time and from time to time, at the expense of CE Generation, promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Collateral Agent may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Collateral Agent to
exercise and enforce its rights and remedies hereunder with respect to the CE
Generation Collateral.
Section 4.4 Financing Statements. CE Generation agrees to sign and
deliver to the Collateral Agent and the other Secured Parties such Financing
Statements (or similar statements or instruments of registration under the law
of any jurisdiction), in form acceptable to the Collateral Agent, as the
Collateral Agent may from time to
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time reasonably request or as are necessary or desirable in the reasonable
opinion of the Collateral Agent to establish and maintain the security interests
contemplated hereunder as valid, enforceable, first priority security interests
as provided herein and the other rights and security contemplated herein, all in
accordance with the Uniform Commercial Code as enacted in any and all relevant
jurisdictions or any other applicable law. CE Generation shall pay any
applicable filing fees and related expenses. CE Generation authorizes the
Collateral Agent to file any such Financing Statements (or similar statements or
instruments of registration under the law of any jurisdiction) without the
signature of CE Generation.
Section 4.5 Maintenance of Records. CE Generation shall keep and
maintain, at its own cost and expense, records of the CE Generation Collateral,
including, but not limited to, records of all payments received and all credits
granted thereon (subject to customary record retention policies for similar
companies located in the United States), and CE Generation shall make the same
available to the Collateral Agent and the Secured Parties for inspection at CE
Generation's chief executive office, at CE Generation's own cost and expense, at
any and all reasonable times upon reasonable prior notice. If an Event of
Default occurs and continues, and if the Collateral Agent, in accordance with
Section 8.1 so directs, CE Generation shall, at its own cost and expense, (a)
deliver all tangible evidence that the Collateral Agent may request of the CE
Generation Collateral and books and records to the Collateral Agent or to its
representatives (copies of which evidence and books and records may be retained
by CE Generation) and (b) legend in form and substance reasonably satisfactory
to the Collateral Agent, the CE Generation Collateral, as well as books, records
and documents of CE Generation evidencing or pertaining to the CE Generation
Collateral, with an appropriate reference to the fact that the items
constituting the CE Generation Collateral have been assigned to the Collateral
Agent and that the Collateral Agent has a security interest therein.
Section 4.6 Protection of Collateral Agent's Interests. CE Generation
shall do nothing to impair the rights of the Collateral Agent or any other
Secured Party in the CE Generation Collateral; provided that CE Generation may
dispose of any Collateral subject to the requirements of the Indenture and the
other Financing Documents. CE Generation assumes all liability and
responsibility in connection with the CE Generation Collateral and the liability
of CE Generation with respect to the Secured Obligations shall in no way be
affected or diminished by reason of the fact that the CE Generation Collateral
may be lost, destroyed, stolen, damaged or for any reason whatsoever unavailable
to CE Generation.
ARTICLE 5
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SPECIAL PROVISIONS CONCERNING RECEIVABLES
Section 5.1 Payments Under Receivables. (a) If CE Generation shall
receive directly from any account debtor or other obligor under any Receivable
any payments under the Receivables, CE Generation shall receive such payments
in a constructive trust in the name of the Collateral Agent for the benefit of
the Secured Parties, shall segregate such payments from CE Generation's other
funds and shall forthwith transmit and deliver such payments to the Collateral
Agent in the same form as so received (with any necessary endorsement).
(b) All amounts received by the Collateral Agent pursuant to this
Section 5.1 shall be applied as set forth in this Agreement or the Depositary
Agreement, as appropriate.
Section 5.2 Direction to Account Debtors; Actions Taken Upon Event of
Default. (a) CE Generation agrees that, upon the occurrence and during the
continuance of an Event of Default, the Collateral Agent may, at its option,
directly notify the account debtors or obligors with respect to any Receivables
to make payments with respect thereto directly to it.
(b) CE Generation agrees to be bound by any collection, compromise,
forgiveness, extension or other action taken by the Collateral Agent pursuant to
the terms of this Agreement with respect to the Receivables following the
occurrence and during the continuance of an Event of Default.
Section 5.3 CE Generation Remains Liable Under Receivables. Anything
herein to the contrary notwithstanding (including, without limitation, the grant
of any rights to the Collateral Agent), neither the Collateral Agent nor any
other Secured Party shall have any obligation or liability under any Receivable
(or any agreement giving rise thereto) by reason of or arising out of this
Agreement or the receipt by the Collateral Agent of any payment relating to such
Receivable pursuant hereto, nor shall the Collateral Agent or any other Secured
Party be obligated in any manner to perform any of the obligations of CE
Generation under or pursuant to any Receivable (or any agreement giving rise
thereto), to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any Receivable (or any agreement giving rise
thereto), to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.
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ARTICLE 6
SPECIAL PROVISIONS CONCERNING CONTRACTS
Section 6.1 Security Interest in Contract Rights. CE Generation's grant
to the Collateral Agent, pursuant to Section 2.1, of a security interest in all
of its right, title and interest in and to each and all of the Contracts and the
contract rights thereunder, includes, but is not limited to:
(a) all (i) rights to payment under or with respect to any Contract
and (ii) payments due and to become due under or with respect to any
Contract, in each case whether as contractual obligations, damages,
indemnity payments or otherwise;
(b) all of CE Generation's claims, rights, powers, privileges and
remedies under any Contract including, but not limited to, all of the
representations and guarantees contained in the Contracts; and
(c) all of CE Generation's rights under any Contract to make
determinations, to exercise any election (including, but not limited
to, election of remedies) or option or to give or receive any notice,
consent, waiver or approval together with full power and authority with
respect to any Contract to demand, receive, enforce or collect any of
the foregoing rights or any property the subject of any of the
Contracts, to enforce or execute any checks or other instruments or
orders, to file any claims and to take any action which, in the opinion
of the Collateral Agent, may be necessary or advisable in connection
with any of the foregoing (the Contracts, together with all of the
foregoing in this Section 6.1, the "Contract Rights");
provided, however, that until the occurrence and continuance of an Event of
Default, notwithstanding anything else herein to the contrary, CE Generation may
exercise all of its rights, powers, privileges and remedies under the Contracts
in accordance with the Financing Documents; provided, further that if an Event
of Default has occurred and is continuing, the Collateral Agent shall be
entitled to perform (including, without limitation, by satisfying any payment
obligation), or cause the performance of, any Contract in accordance with
Section 8.1.
Section 6.2 Further Protection. CE Generation warrants and shall defend
the title to the Contract Rights against the claims and demands of any Person
(other than with respect to Permitted Liens) and hereby grants the Collateral
Agent full power and authority, upon the occurrence or during the continuance of
an Event of Default,
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to take all actions in accordance with Section 8.1 as the Collateral Agent deems
necessary or advisable to effectuate the provisions set forth in this Section
6.2.
Section 6.3 Payments Under Contracts. (a) If CE Generation shall
receive directly from any party to any of the Contracts any payments under any
of the Contracts, CE Generation shall receive such payments in a constructive
trust in the name of the Collateral Agent for the benefit of the Secured
Parties, shall segregate such payments from CE Generation's other funds and
shall forthwith transmit and deliver such payments to the Collateral Agent in
the same form as so received (with any necessary endorsement).
(b) All amounts received by the Collateral Agent pursuant to this
Section 6.3 shall be applied as set forth in this Agreement or the Depositary
Agreement as appropriate.
Section 6.4 Direction to Account Debtors; Actions Taken Upon Event of
Default. (a) CE Generation agrees that, upon the occurrence and during the
continuance of an Event of Default, the Collateral Agent may, at its option,
directly notify any party under any Contract to make payments with respect
thereto directly to it.
(b) CE Generation agrees to be bound by any collection, compromise,
forgiveness, extension or other action taken by the Collateral Agent pursuant to
the terms of this Agreement with respect to the Contracts following the
occurrence and during the continuance of an Event of Default.
Section 6.5 CE Generation Remains Liable Under Contracts. Anything
herein to the contrary notwithstanding (including, without limitation, the grant
of any rights to the Collateral Agent), neither the Collateral Agent nor any
other Secured Party shall have any obligation or liability under any Contract by
reason of or arising out of this Agreement or the receipt by the Collateral
Agent of any payment relating to such Contract pursuant hereto, nor shall the
Collateral Agent or any other Secured Party be obligated in any manner to
perform any of the obligations of CE Generation under or pursuant to any
Contract, to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any Contract, to present or file any claim, to
take any action to enforce any performance or to collect the payment of any
amounts which may have been assigned to it or to which it may be entitled at any
time or times.
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Section 6.6 Cure of Default Under Contracts. If any default by CE
Generation under any Contract that has given rise to an Event of Default shall
occur and be continuing, the Collateral Agent shall in accordance with Section
8.1 be permitted (but shall not be obligated) to remedy any such default by
giving written notice of such intent to CE Generation and to the parties to the
Contract or Contracts for which the Collateral Agent intends to remedy the
default. Any cure by the Collateral Agent of CE Generation's default under any
of the Contracts shall not be construed as an assumption by the Collateral Agent
or any Secured Party of any obligations, covenants or agreements of CE
Generation under such Contract, and neither the Collateral Agent nor any Secured
Party shall be liable to CE Generation or any other Person as a result of any
actions undertaken by the Collateral Agent incuring or attempting to cure any
such default, except in the case of gross negligence or willful misconduct of
the Collateral Agent. This Agreement shall not be deemed to release or to affect
in any way the obligations of CE Generation under the Contracts.
Section 6.7 Remedies. Upon the occurrence of any Event of Default and
the continuance thereof, the Collateral Agent shall have the rights set forth in
Article 8 and shall be entitled to (i) enforce all remedies, rights, powers and
privileges of CE Generation under any or all of the Contracts, and/or (ii)
substitute itself or any nominee or trustee of the Collateral Agent in lieu of
CE Generation as party to any of the Contracts and notify the obligor of any
Contract Right (CE Generation hereby agreeing to deliver any such notice at the
request of the Collateral Agent) that all payments and performance under the
relevant Contract shall be made or rendered to the Collateral Agent or such
other Person as the Collateral Agent may designate.
ARTICLE 7
SPECIAL PROVISIONS CONCERNING GENERAL INTANGIBLES
Section 7.1 Patents. If CE Generation hereafter acquires rights in any
patent, CE Generation shall deliver to the Collateral Agent within thirty (30)
days of such acquisition a copy of such patent.
Section 7.2 Remedies. If an Event of Default shall occur and be
continuing, the Collateral Agent, by written notice to CE Generation (provided
that if any Event of Default under clause (e) or (f) of Section 6.1 of the
Indenture or any similar event of default under any other Financing Document
shall have occurred, the declaration described in this Section 7.2 shall not be
required and shall be deemed to have been made upon the occurrence of such Event
of Default), may (a) declare the entire right, title and interest of CE
Generation in any patents to be vested in the Collateral Agent,
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in which event such right, title and interest immediately shall vest in the
Collateral Agent, in which case CE Generation agrees to execute an assignment,
in form and substance satisfactory to the Collateral Agent, of all of its
rights, title and interest in and to such patents such patent rights to the
Collateral Agent; (b) take and practice or sell such other patents, or take and
use or sell CE Generation's assets secured under this Agreement and all other
elements of CE Generation's ongoing business secured under this Agreement, and
the right to carry on the business of CE Generation in connection with which
such patents have been used; and (c) direct CE Generation to refrain, in which
event CE Generation shall refrain, from practicing under such patent rights
directly or indirectly, and if requested by the Collateral Agent, CE Generation
shall change execute any other and further documents which the Collateral Agent
may request further to confirm the foregoing and to transfer to the Collateral
Agent ownership of CE Generation's rights to such patents.
ARTICLE 8
REMEDIES UPON OCCURRENCE OF AN EVENT OF DEFAULT
Section 8.1 Events of Default; Obtaining the CE Generation Collateral
Upon Default. If an Event of Default has occurred and is continuing, the
Collateral Agent, in addition to its other rights and remedies hereunder and the
rights of the Secured Parties under the Financing Documents, shall be entitled
to do any of the following:
(a) exercise any rights or remedies granted to a secured party under
the Uniform Commercial Code as in effect in any relevant jurisdiction
or under any other relevant law to enforce this Agreement and the
security interests contained herein;
(b) proceed to protect and enforce the rights vested in it by this
Agreement, including, but not limited to, the right to substitute
itself or any of its nominees or trustees in lieu of CE Generation, 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 Contracts, 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 whether in
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CE Generation's name, in the Collateral Agent's name or in the name of
any of the Collateral Agent's designees;
(c) cause any action at law or suit in equity or other proceeding
to be instituted and prosecuted to collect or enforce any of the
Secured Obligations or any rights hereunder or included in the CE
Generation Collateral, or to foreclose or enforce any other agreement
or other instrument by or under or pursuant to which such Secured
Obligations are issued or secured, subject in each case to the
provisions and requirements thereof;
(d) sell, assign or otherwise liquidate any or all of the CE
Generation Collateral or cause the CE Generation Collateral to be sold
or otherwise disposed of and take possession of the proceeds of any
such sale or liquidation;
(e) incur reasonable expenses, including reasonable attorneys' fees,
consultants' fees and other costs appropriate to the exercise of any
right or power under this Agreement;
(f) perform any obligation of CE Generation 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;
(g) take possession of the CE Generation Collateral and render it
usable, and repair and renovate the same, without, however, any
obligation so to do, and enter upon any location where the same may be
located, control, manage, operate, rent or lease the CE Generation
Collateral, collect all rents and income from the CE Generation
Collateral and apply the same to reimburse the Secured Parties for any
costs or expenses incurred hereunder or under any of the Financing
Documents and to the payment or performance of CE Generation's
obligations hereunder or under any of the Financing Documents and apply
the balance to the Secured Obligations;
(h) secure the appointment of a receiver of the CE Generation
Collateral or any part thereof; or
(i) take possession of the CE Generation Collateral or any part
thereof by directing CE Generation in writing to turn over the CE
Generation Collateral to the Collateral Agent at any reasonable place
or places designated
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by the Collateral Agent, in which event CE Generation shall at its own
expense
(1) forthwith cause the same to be moved to the place or places
so designated by the Collateral Agent and there delivered to the
Collateral Agent,
(2) store and keep any CE Generation Collateral so delivered to
the Collateral Agent at such place or places pending further action
by the Collateral Agent, and
(3) while CE Generation Collateral shall be so stored and kept,
provide such guards and maintenance services as shall be reasonably
necessary to protect the same and to preserve and maintain such CE
Generation Collateral in good condition.
The parties hereto hereby agree that CE Generation's obligation to deliver the
CE Generation Collateral as set forth above is of the essence of this Agreement
and that, accordingly, upon application to a court of equity having
jurisdiction, the Collateral Agent shall be entitled to a decree requiring
specific performance by CE Generation of such obligation.
Section 8.2 Remedies; Disposition of the CE Generation Collateral. (a)
If an Event of Default has occurred and is continuing, any CE Generation
Collateral, whether or not repossessed by the Collateral Agent pursuant to
Section 8.1, may be sold, leased or otherwise disposed of under one or more
contracts or as an entirety, and without the necessity of gathering at the place
of sale the property to be sold, and in general in such manner, at such time or
times, at such place or places and on such terms as the Collateral Agent may, in
compliance with any mandatory requirements of applicable law, determine to be
commercially reasonable, as fully and completely as though the Collateral Agent
were the absolute owner thereof.
(b) If an Event of Default has occurred and is continuing, subject
to clause (a) of this Section 8.2, any CE Generation Collateral may be sold,
leased or otherwise disposed of, in the condition in which the same existed when
taken by the Collateral Agent or after any overhaul or repair which the
Collateral Agent, upon consultation with such Persons, including independent
consultants and engineers, as it shall deem appropriate, shall determine to be
commercially reasonable. Any such disposition shall be made upon not less than
ten (10) Business Days' written notice to CE Generation specifying the time such
disposition is to be made and, if such
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disposition shall be a public sale, specifying the place of such sale. Any such
sale may be adjourned 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. CE Generation hereby waives any claims against the Collateral
Agent arising by reason of the fact that the price at which CE Generation
Collateral may have been sold at a private sale was less than the price that
might have been obtained at a public sale or was less than the aggregate amount
of the Secured Obligations, even if the Collateral Agent accepts the first offer
received or does not offer the CE Generation Collateral to more than one
offeree. All fees of the Collateral Agent and all expenses (including court
costs and reasonable attorneys' fees, expenses and disbursements) of, or
incident to, the enforcement of any of the provisions hereof shall be
recoverable from the proceeds of the sale or other disposition of the CE
Generation Collateral.
Section 8.3 Purchase of the CE Generation Collateral. Any purchaser
of all or any part of the CE Generation Collateral shall, upon any such
purchase, acquire good title to the CE Generation Collateral so purchased, free
of the security interests created by this Agreement.
Section 8.4 Waiver. (a) EXCEPT AS OTHERWISE PROVIDED IN THIS
AGREEMENT, CE GENERATION HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, NOTICE OR JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT'S TAKING
POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE CE GENERATION
COLLATERAL PURSUANT TO THE TERMS OF THIS AGREE MENT, INCLUDING, WITHOUT
LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR
REMEDIES AND ANY SUCH RIGHT WHICH CE GENERATION WOULD OTHERWISE HAVE UNDER THE
CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE OR UNDER ANY
OTHER RELEVANT LAW AND CE GENERATION HEREBY FURTHER WAIVES:
(i) all damages occasioned by such taking of possession, except
any damages which are finally judicially determined to have been the
direct result of the Collateral Agent's gross negligence or willful
misconduct;
(ii) all other requirements as to the time, place and terms of
sale or other requirements with respect to the enforcement of the
Collateral Agent's rights hereunder; and
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(iii) all rights of redemption, appraisement, valuation, stay,
extension or moratorium now or hereafter in force under any applicable
law in order to prevent or delay the enforcement of this Agreement or
the absolute sale of the CE Generation Collateral or any portion
thereof pursuant to the terms of this Agreement, and CE Generation, for
itself and all who may claim under it, insofar as it or they may now or
hereafter lawfully do so, hereby waives the benefit of such laws.
(b) Without limiting the generality of the foregoing, CE Generation
hereby waives and releases any and all rights to require the Collateral Agent or
the Secured Parties to collect any of the Secured Obligations from any specific
item or items of CE Generation Collateral or from any other party liable as
guarantor or in any other manner in respect of any of the Secured Obligations or
from any collateral (other than the CE Generation Collateral) for any of the
Secured Obligations.
(c) Any sale of, or the grant of options to purchase, or any other
realization upon, any CE Generation Collateral pursuant to the terms of this
Agreement shall operate to divest all right, title, interest, claim and demand,
either at law or in equity, of CE Generation therein and thereto, and shall be a
perpetual bar both at law and in equity against CE Generation and against any
and all Persons claiming or attempting to claim the CE Generation Collateral so
sold, optioned or realized upon, or any part thereof, from, through or under CE
Generation.
Section 8.5 Discontinuance of Proceedings. In case the Collateral Agent
shall have instituted any proceeding to enforce any right, power or remedy under
this Agreement by foreclosure, sale, entry or otherwise, and such proceeding
shall have been discontinued or abandoned for any reason, then, in every such
case, CE Generation, the Collateral Agent and each holder of any of the Secured
Obligations shall be restored to their former positions and rights hereunder
with respect to the CE Generation Collateral, subject to the security interest
created under this Agreement, and all rights, remedies and powers of the
Collateral Agent shall continue as if no such proceeding had been instituted.
Section 8.6 Limitation on Duties Regarding Preservation of CE
Generation Collateral. The Collateral Agent's sole duty with respect to the
custody, safekeeping and physical preservation of the CE Generation Collateral
in its possession, under Section 9-207 of the Uniform Commercial Code as in
effect from time to time in the State of New York or otherwise, shall be to deal
with it in the same manner as the Collateral Agent deals with similar property
for its own account. In any event, (i) the Collateral Agent shall have no
obligation hereunder to take any steps to preserve
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rights against prior parties to any CE Generation Collateral and (ii) none of
the Collateral Agent, any Secured Party or any of their respective directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon all or any part of the CE Generation Collateral or for any delay in
doing so or be under any obligation to sell or otherwise dispose of any CE
Generation Collateral upon the request of CE Generation or otherwise.
Section 8.7 Application of Proceeds. The Collateral Agent shall apply
any proceeds from time to time held by it and the net proceeds of any
collection, recovery, receipt, appropriation, realization or sale with respect
to the CE Generation Collateral in accordance with the relevant provisions of
the Intercreditor Agreement. For the avoidance of doubt, it is understood that
CE Generation shall remain liable to the extent of any deficiency between the
amount of the proceeds of the CE Generation Collateral and the aggregated
amount of the Secured Obligations.
Section 8.8 Expenses. CE Generation shall upon demand pay to the
Collateral Agent the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts and agents, and
any transfer taxes, in each case payable upon sale of the CE Generation
Collateral, which the Collateral Agent may incur in connection with (i) the
custody or preservation of, or the sale of, collection from or other realization
upon, any of the CE Generation Collateral pursuant to the exercise or
enforcement of any of the rights of the Collateral Agent hereunder or (ii) the
failure by CE Generation to perform or observe any of the provisions hereof,
together with interest thereon from the date of demand at a rate per annum equal
to the Default Rate. Any amount payable by CE Generation pursuant to this
Section 8.8 shall be payable on demand and shall constitute Secured Obligations
secured hereby.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Notices. Except as otherwise expressly provided herein, all
notices, requests and demands to or upon the respective parties hereto shall be
deemed to have been duly given when delivered by hand, or five days after being
deposited in the United States mail, postage prepaid, or, in the case of telex
notice, when sent, answerback received, or, in the case of telecopy notice, when
sent, or, in the case of a nationally recognized overnight courier service, one
Business Day after delivery to such courier service, addressed, in the case of
each party hereto, at its address specified below its signature hereto or to
such other address as may be designated by any party in a written notice to the
other parties hereto.
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Section 9.2 Continuing Security Interest. This Agreement shall create a
continuing Lien on the CE Generation Collateral until the release thereof
pursuant to Section 9.3.
Section 9.3 Release. Upon the indefeasible payment in full in cash or
cash equivalents of all of the Secured Obligations, the Collateral Agent, upon
the request, and at the expense, of CE Generation, shall execute and deliver all
such documentation necessary to release the Liens created pursuant to this
Agreement.
Section 9.4 Reinstatement. This Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any amount
received by the Collateral Agent or any other Secured Party hereunder or
pursuant hereto is rescinded or must otherwise be restored or returned by the
Collateral Agent or such Secured Party, as the case may be, upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of CE Generation or upon
the appointment of any intervenor or conservator of, or trustee or similar
official for, CE Generation or any substantial part of CE Generation's assets,
or upon the entry of an order by any court avoiding the payment of such amount,
or otherwise, all as though such payments had not been made.
Section 9.5 Independent Security. The security provided for in this
Agreement shall be in addition to and shall be independent of every other
security which the Secured Parties may at any time hold for any of the Secured
Obligations hereby secured, whether or not under the Security Documents. The
execution of any other Security Document shall not modify or supersede the
security interest or any rights or obligations contained in this Agreement and
shall not in any way affect, impair or invalidate the effectiveness and validity
of this Agreement or any term or condition hereof. CE Generation hereby waives
its rights to plead or claim in any court that the execution of any other
Security Document is a cause for extinguishing, invalidating, impairing or
modifying the effectiveness and validity of this Agreement or any term or
condition contained herein. The Collateral Agent shall be at liberty to accept
further security from CE Generation or from any third party and/or release such
security without notifying CE Generation and without affecting in any way the
obligations of CE Generation under the Security Documents or the other Financing
Documents. The Collateral Agent shall determine if any security conferred upon
the Secured Parties under the Security Documents shall be enforced by the
Collateral Agent, as well as the sequence of securities to be so enforced.
Notwithstanding the foregoing, this Agreement is subject to the Intercreditor
Agreement.
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Section 9.6 Amendments. No waiver, amendment, modification or
termination of any provision of this Agreement, or consent to any departure by
CE Genera tion therefrom, shall in any event be effective without the prior
written consent of the Collateral Agent and none of the CE Generation Collateral
shall be released without the written consent of the Collateral Agent. Any such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
Section 9.7 Successors and Assigns. This Agreement shall be binding
upon CE Generation and its successors and assigns and shall inure to the benefit
of the Collateral Agent and the other Secured Parties and their respective
successors and assigns. CE Generation may not assign or otherwise transfer any
of its rights or obligations under this Agreement without the written consent of
the Collateral Agent.
Section 9.8 Third Party Beneficiaries. The agreements of the parties
hereto are intended to benefit the Secured Parties and their respective
successors and assigns.
Section 9.9 Survival. All agreements, statements, representations and
warranties made by CE Generation herein or in any certificate or other
instrument delivered by CE Generation or on its behalf under this Agreement
shall be considered to have been relied upon by the Collateral Agent and the
Secured Parties and shall survive the execution and delivery of this Agreement
and the other Financing Documents until termination thereof or the indefeasible
payment in full in cash or cash equivalents of all of the Secured Obligations
regardless of any investigation made by the Collateral Agent or the Secured
Parties, or made on their behalf.
Section 9.10 No Waiver; Remedies Cumulative. No failure or delay on the
part of the Collateral Agent in exercising any right, power or privilege
hereunder and no course of dealing between CE Generation and the Collateral
Agent shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights or remedies which the Collateral
Agent would otherwise have.
Section 9.11 Counterparts. This Agreement may be executed in any number
of counterparts and by the different parties hereto on separate counterparts,
each of
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which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
Section 9.12 Headings Descriptive. The headings of the several Sections
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.
Section 9.13 Severability. In case any provision contained in or
obligation under this Agreement shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
Section 9.14 Governing Law; Submission to Jurisdiction and Venue;
Waiver of Jury Trial. (a) This Agreement is a contract made under the laws of
the State of New York of the United States and shall for all purposes be
governed by and construed in accordance with the laws of such State without
regard to the conflict of law rules thereof (other than Section 5-1401 of the
New York General Obligations Law).
(b) Any legal action or proceeding against CE Generation with
respect to this Agreement may be brought in the courts of the State of New York
in the County of New York or of the United States for the Southern District of
New York and, by execution and delivery of this Agreement, CE Generation hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. CE Generation agrees
that a judgment, after exhaustion of all available appeals, in any such action
or proceeding shall be conclusive and binding upon CE Generation and may be
enforced in any other jurisdiction by a suit upon such judgment, a certified
copy of which shall be conclusive evidence of the judgment. CE Generation hereby
irrevocably designates, appoints and empowers CT Corporation System, with
offices on the date hereof at 1633 Broadway, New York, New York 10019, as its
designee, appointee and agent to receive and accept for and on its behalf
service of any and all legal process, summons, notices and documents which may
be served in any such action or proceeding. If for any reason such designee,
appointee and agent shall cease to be available to act as such, CE Generation
agrees to designate a new designee, appointee and agent in New York City on the
terms and for the purposes of this provision satisfactory to the Collateral
Agent. CE Generation further irrevocably consents to the service of process out
of any of the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail,
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postage prepaid, to CE Generation at its address referred to in Section 9.1,
such service to become effective thirty (30) days after such mailing. Nothing
herein shall affect the right of the Collateral Agent to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against CE Generation in any other jurisdiction.
(c) CE Generation hereby irrevocably waives any objection which it
may now or hereafter have to the laying of venue of any of the aforesaid actions
or proceedings arising out of or in connection with this Agreement or any other
Financing Document brought in the courts referred to in clause (b) above and
hereby further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.
(d) WITH REGARD TO THIS AGREEMENT, CE GENERATION AND THE COLLATERAL
AGENT HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY.
Section 9.15 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 as to the matters covered hereby and is intended
as a complete and exclusive statement of the terms and conditions thereof.
Section 9.16 Limitation of Liability. Notwithstanding anything to the
contrary contained in this Agreement and the other Transaction Documents, the
liability and obligation of CE Generation to perform and observe and make good
the obligations contained in this Agreement and the other Security Documents
shall not be enforced by any action or proceeding wherein damages or any money
judgment or any deficiency judgment or any judgment establishing any personal
obligation or liability shall be sought, collected or otherwise obtained against
any officer, director or shareholder or related Person of CE Generation or any
Secured Party, and the Collateral Agent, for itself and its successors and
assigns, and on behalf of the Secured Parties, irrevocably waives any and all
right to sue for, seek or demand any such damages, money judgment, deficiency
judgment or personal judgment against any officer, director or shareholder or
related Person of CE Generation under or by reason of or in connection with this
Agreement and agrees to look solely to CE Generation and the security and
Collateral held under or in connection with the Security Documents for the
enforcement of such liability and obligation of CE Generation.
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[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amended and Restated Assignment
and Security Agreement as of the day and year first above written.
CE GENERATION, LLC
By: /s/ Steven A. McArthur
-------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
Telecopy: 402-231-_____
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
as Collateral Agent
By: /s/ Rose T. Maravilla
-------------------------------
Name: R. T. Maravilla
Title: Assistant Vice President
Address for Notices:
--------------------
101 California Street, #2725
San Francisco, California 94111
Telecopy: 415-693-8850
Signature Page to CE Generation Security Agreement
<PAGE>
SCHEDULE I
----------
FINANCING STATEMENTS
--------------------
Copies on file with Latham & Watkins.
<PAGE>
EXHIBIT 4.10
================================================================================
PLEDGE AND SECURITY AGREEMENT
dated as of March 2, 1999
between
MAGMA POWER COMPANY,
as Pledgor
and
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION,
as Collateral Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 DEFINED TERMS; PRINCIPLES OF CONSTRUCTION
Section 1.1 Defined Terms.........................................1
ARTICLE 2 PLEDGE
Section 2.1 Pledged Collateral....................................2
Section 2.2 Delivery of Stock Collateral..........................3
Section 2.3 Pledgor's Rights......................................3
Section 2.4 Secured Parties Not Liable............................5
Section 2.5 Attorney-in-Fact......................................5
Section 2.6 Collateral Agent May Perform..........................6
Section 2.7 Reasonable Care.......................................6
Section 2.8 Security Interest Absolute............................6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
Section 3.1 Pledged Shares........................................7
Section 3.2 Ownership of Pledged Collateral.......................7
Section 3.3 Nature of Security Interest...........................7
Section 3.4 Consents, etc.........................................7
Section 3.5 Chief Executive Office................................7
ARTICLE 4 COVENANTS
Section 4.1 Sale of Pledged Collateral............................8
Section 4.2 No Other Liens........................................8
Section 4.3 Issuance of Shares....................................8
Section 4.4 Chief Executive Office................................8
Section 4.5 Supplements; Further Assurances, etc..................9
Section 4.6 Stock Certificates....................................9
Section 4.7 Records; Statements and Schedules.....................9
Section 4.8 Bankruptcy............................................9
ARTICLE 5 EXERCISE OF REMEDIES UPON AN EVENT OF DEFAULT
Section 5.1 Remedies Generally...................................10
Section 5.2 Sale of Pledged Collateral...........................10
Section 5.3 Purchase of Pledged Collateral.......................11
Section 5.4 Application of Proceeds..............................11
Section 5.5 Expenses.............................................12
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Page
----
ARTICLE 6 MISCELLANEOUS PROVISIONS
Section 6.1 Notices..............................................12
Section 6.2 Continuing Security Interest.........................12
Section 6.3 Release..............................................12
Section 6.4 Reinstatement........................................13
Section 6.5 Independent Security.................................13
Section 6.6 Amendments...........................................13
Section 6.7 Successors and Assigns...............................14
Section 6.8 Third Party Beneficiaries............................14
Section 6.9 Survival.............................................14
Section 6.10 No Waiver; Remedies Cumulative.......................14
Section 6.11 Counterparts.........................................14
Section 6.12 Headings Descriptive.................................15
Section 6.13 Severability.........................................15
Section 6.14 Governing Law; Submission to Jurisdiction
and Venue; Waiver of Jury Trial......................15
Section 6.15 Entire Agreement.....................................16
Section 6.16 Non-Recourse.........................................16
ii
<PAGE>
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT (this "Agreement"), dated as of
March 2, 1999, is made by Magma Power Company, a Nevada corporation
("Pledgor"), to Chase Manhattan Bank and Trust Company, National Association,
as Collateral Agent (together with its successors in such capacity, the
"Collateral Agent") for the Secured Parties (as defined in the Indenture
referred to below) under the Collateral Agency and Intercreditor Agreement,
dated as of the date hereof (the "Intercreditor Agreement"), among CE
Generation, LLC, ("CE Generation"), the Assignors (as defined in the Indenture
referred to below), the Collateral Agent, Chase Manhattan Bank and Trust
Company, National Association, as trustee (together with its successors in such
capacity, the "Trustee") and as depositary bank (together with its successors
in such capacity, the "Depositary Bank"), and the other Secured Parties.
W I T N E S S E T H :
WHEREAS, CE Generation is issuing $400,000,000 in principal amount of
its 7.416% Senior Secured Bonds Due December 15, 2018 (the "Initial Securities")
pursuant to the Indenture, dated as of the date hereof (the "Indenture"),
between CE Generation and the Trustee;
WHEREAS, Pledgor owns ninety-nine percent (99%) of the outstanding
capital stock of Salton Sea Power Company (the "Pledged Company");
WHEREAS, it is a condition precedent to the issuance of the Securities
under the Indenture that Pledgor execute and deliver this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the undersigned hereby agree as follows:
ARTICLE 1
DEFINED TERMS; PRINCIPLES OF CONSTRUCTION
Section 1.1 Defined Terms. Unless otherwise defined herein, terms
defined in the Indenture shall have such defined meanings when used herein.
<PAGE>
ARTICLE 2
PLEDGE
Section 2.1 Pledged Collateral. (a) As collateral security for the
prompt and complete payment and performance when due, whether at stated
maturity, by acceleration or otherwise (including the payment of amounts which
would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code, 11 U.S.C. (Section) 362(a)), of all of the
Secured Obligations, whether now existing or hereafter arising and howsoever
evidenced, Pledgor hereby pledges, grants, assigns, hypothecates, transfers and
delivers to the Collateral Agent, for its benefit and the benefit of the other
Secured Parties, a first priority security interest in the following, whether
now existing or hereafter from time to time acquired (collectively, the "Pledged
Collateral"):
(i) all of Pledgor's right, title and interest in and to all
shares (the "Pledged Shares") of capital stock described in Schedule I
hereto and the certificates, if any, representing the Pledged Shares,
and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares;
(ii) all additional shares (the "Additional Shares") of capital
stock of any issuer of any Pledged Shares from time to time acquired by
Pledgor in any manner (including, without limitation, any shares of
preferred stock issued by any such issuer) and the certificates, if
any, representing such additional shares), and all dividends, cash,
instruments and other property from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all of
such shares (the certificates representing the shares referred to in
clause (i) above and this clause (ii), the "Stock Collateral");
(iii) all other rights appurtenant to the property described in
clauses (i) and (ii) above (including, without limitation, voting
rights, to the extent provided in Section 2.3(b)); and
(vi) all proceeds of any and all of the foregoing, and in
addition, all dividends, distributions, cash, instruments and other
property or proceeds, from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of
the foregoing.
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<PAGE>
(b) As used herein, the term "proceeds" shall be construed in its
broadest sense and shall include whatever is received or receivable when any of
the Stock Collateral, or any proceeds thereof, is sold, collected, exchanged or
otherwise disposed of, whether voluntarily or involuntarily, and shall include,
without limitation, all rights to payment, including interest and premiums,
with respect to any of the Stock Collateral or any proceeds thereof.
(c) Notwithstanding the foregoing, monies distributed from the
Distribution Suspense Account in accordance with the requirements of the
Depositary Agreement shall be released from the security interests created
hereunder and shall not constitute Pledged Collateral.
Section 2.2 Delivery of Stock Collateral. All certificates or
instruments representing or evidencing the Stock Collateral shall be delivered
to and held by or on behalf of the Collateral Agent pursuant hereto and shall be
in suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Collateral Agent. The Collateral Agent shall have
the right, at any time in its discretion and without notice to Pledgor to
transfer to or to register in its name or in the name of any of its nominees any
or all of the Stock Collateral. In addition, the Collateral Agent shall have the
right at any time to exchange certificates or instruments representing or
evidencing any of the Stock Collateral for certificates or instruments of
smaller or larger denominations.
Section 2.3 Pledgor's Rights.
(a) Distributions. Unless an Event of Default shall have occurred
and be continuing, Pledgor shall be entitled to receive and retain any and all
distributions paid in respect of the Stock Collateral in compliance with the
terms of the other Financing Documents; provided, however, that any and all
(i) distributions paid or payable in respect of any Stock
Collateral (whether paid in cash, securities or other property) in
connection with (A) any partial or total liquidation or dissolution of
the Pledged Company, (B) any distribution of capital of the Pledged
Company, (C) any recapitalization or reclassification of the capital of
the Pledged Company or (D) any reorganization of the Pledged Company,
and
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(ii) all property (whether cash, securities or other property)
paid, payable or otherwise distributed in redemption of, or in exchange
for, the property described in clause (i) immediately above,
shall be, and shall be forthwith delivered to the Collateral Agent to hold as,
Stock Collateral and shall, if received by Pledgor, be received in trust for the
benefit of the Collateral Agent, be segregated from the other property or funds
of Pledgor, be forthwith delivered to the Collateral Agent as Stock Collateral
in the same form as so received (with any necessary endorsement) and, if elected
by Pledgor, applied to the payment of the Secured Obligations. Upon the
occurrence and during the continuance of an Event of Default, all rights of
Pledgor to receive the distributions which it would otherwise be authorized to
receive and retain pursuant to the preceding sentence shall cease, and all such
rights shall thereupon become vested in the Collateral Agent which shall
thereupon have the sole right to receive and hold as Stock Collateral such
distributions.
(b) Other Rights. Unless an Event of Default shall have occurred and
be continuing, Pledgor shall be entitled to exercise all voting and other rights
with respect to the Stock Collateral; provided, however, that no vote shall be
cast, right exercised or other action taken which could materially impair the
Stock Collateral or which would be inconsistent with or result in any violation
of any provision of this Agreement or any other Financing Document. Upon the
occurrence and during the continuance of an Event of Default, all voting and
other rights of Pledgor with respect to the Stock Collateral which Pledgor
would otherwise be entitled to exercise pursuant to the terms of this Agreement
shall cease, and all such rights shall be vested in the Collateral Agent which
shall thereupon have the sole right to exercise such rights.
(c) Turnover. All distributions and other amounts which are received
by Pledgor contrary to the provisions of this Agreement shall be received in
trust for the benefit of the Collateral Agent, shall be segregated from other
funds of Pledgor and shall be forthwith paid over to the Collateral Agent as
Stock Collateral in the same form as so received (with any necessary
endorsement).
(d) Proxies, etc. Pledgor shall, if necessary to permit the
Collateral Agent to exercise the voting and other rights which it may be
entitled to exercise pursuant to clause (b) above and to receive all dividends
and distributions which it may be entitled to receive under clause (a) above,
execute and deliver to the Collateral Agent, from time to time and upon written
notice of the Collateral Agent, appropriate proxies, dividend payment orders
and other instruments as the Collateral
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<PAGE>
Agent may reasonably request. The foregoing shall not in any way limit the
Collateral Agent's power and authority granted pursuant to Section 2.5.
Section 2.4 Secured Parties Not Liable. None of the Collateral Agent,
any other Secured Party or any of their respective directors, officers,
employees or agents shall have any obligations or liability under or with
respect to any Pledged Collateral by reason of or arising out of this Agreement,
except as set forth in Section 9-207 of the Uniform Commercial Code as in effect
from time to time in the State of New York, or the receipt by the Collateral
Agent of any payment relating to any Pledged Collateral, nor shall any of the
Collateral Agent, any other Secured Party or any of their respective directors,
officers, employees or agents be obligated in any manner to (a) perform any of
the obligations of Pledgor under or pursuant to any agreement to which Pledgor
is a party, (b) make any payment or to inquire as to the nature or sufficiency
of any payment or performance with respect to any Pledged Collateral, (c)
present or file any claim or collect the payment of any amounts or take any
action to enforce any performance with respect to the Pledged Collateral or (d)
take any other action whatsoever with respect to the Pledged Collateral.
Section 2.5 Attorney-in-Fact. (a) Pledgor hereby appoints the
Collateral Agent, on behalf of the Secured Parties, or any Person, officer or
agent whom the Collateral Agent may designate, as their true and lawful
attorney-in-fact and proxy, with full irrevocable power and authority in the
place and stead of Pledgor and in the name of Pledgor or in its own name, at
Pledgor's cost and expense, from time to time upon the occurrence and during the
continuance of an Event of Default in the Collateral Agent's reasonable
discretion to take any action and to execute any instrument which the
Collateral Agent may reasonably deem necessary or advisable to enforce its
rights under this Agreement, including, without limitation, authority to
receive, endorse and collect all instruments made payable to Pledgor
representing any distribution, interest payment or other payment in respect of
the Pledged Collateral or any part thereof to be paid over to the Collateral
Agent pursuant to Section 2.3(c) and to give full discharge for the same, and to
vote or grant any consent in respect of the Pledged Shares authorized by Section
2.3(b).
(b) Pledgor hereby ratifies all that said attorney shall lawfully do
or cause to be done by virtue hereof, in each case pursuant to the powers
granted hereunder. Pledgor hereby acknowledges and agrees that the Collateral
Agent shall have no fiduciary duties to Pledgor and Pledgor hereby waives any
claims or rights of a beneficiary of a fiduciary relationship hereunder.
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Section 2.6 Collateral Agent May Perform. If Pledgor fails to perform
any agreement contained herein after receipt of a written request to do so from
the Collateral Agent, the Collateral Agent may itself perform, or cause
performance of, such agreement, and the reasonable expenses of the Collateral
Agent, including the reasonable fees and expenses of its counsel, incurred in
connection therewith shall be payable by Pledgor under Section 5.5; provided
that if a bankruptcy, insolvency or similar event shall have occurred with
respect to Pledgor, the notice described in this Section 2.6 shall not be
required and shall be deemed to have been delivered upon the failure of Pledgor
to perform such agreement.
Section 2.7 Reasonable Care. The Collateral Agent shall be deemed to
have exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equivalent to that which the Collateral Agent accords its own
property of the type of which the Pledged Collateral consists, it being
understood that the Collateral Agent shall have no responsibility for (a)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Pledged Collateral,
whether or not the Collateral Agent has or is deemed to have knowledge of such
matters, or (b) taking any necessary steps to preserve rights against any
parties with respect to any Pledged Collateral.
Section 2.8 Security Interest Absolute. All rights of the Collateral
Agent and security interests hereunder, and all obligations of Pledgor
hereunder, shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of any of the
Financing Documents or any other agreement or instrument relating
thereto (other than against the Collateral Agent);
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Secured Obligations, or any
other amendment or waiver of or any consent to any departure from the
Financing Documents or any other agreement or instrument relating
thereto;
(c) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to any
departure from any guaranty, for all or any of the Secured Obligations;
or
(d) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, Pledgor.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Pledgor represents and warrants, as of the date of this Agreement and
the Closing Date, as follows, which representations and warranties shall survive
the execution and delivery of this Agreement and the making and repayment of the
Secured Obligations:
Section 3.1 Pledged Shares. The Pledged Shares (a) have been duly
authorized and validly issued, (b) are fully paid and non-assessable and (c)
constitute ninety-nine percent (99%) of the issued and outstanding shares of
stock of the Pledged Company.
Section 3.2 Ownership of Pledged Collateral. Pledgor is the sole legal
and beneficial owners of the Pledged Shares, free and clear of any Lien other
than the Lien created pursuant to this Agreement.
Section 3.3 Nature of Security Interest. The pledge and grant of the
Pledged Collateral pursuant to this Agreement creates a valid and perfected
first priority security interest in the Pledged Collateral in favor of the
Collateral Agent, acting on behalf of the Secured Parties, securing the payment
of all of the Secured Obligations.
Section 3.4 Consents, etc. No consent, authorization, approval, or
other action by, and no notice to or filing with, any governmental authority is
required either (i) for the pledge by Pledgor of the Collateral owned by Pledgor
pursuant to this Agreement or for the due execution, delivery or performance of
this Agreement by Pledgor, or (ii) for the exercise by the Collateral Agent of
the voting or other rights provided for in this Agreement or of the remedies in
respect of the Collateral pursuant to this Agreement, except as may be required
in connection with the disposition of the Stock Collateral by laws affecting the
offering and sale of the securities generally.
Section 3.5 Chief Executive Office. The chief executive office of
Pledgor and the office where Pledgor keeps its records concerning the Pledged
Collateral is located at:
Magma Power Company
302 South 36th Street
Suite 400-W
Omaha, Nebraska 68131.
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ARTICLE 4
COVENANTS
Pledgor hereby covenants and agrees from and after the date of this
Agreement until the termination of this Agreement in accordance with the
provisions of Section 6.3:
Section 4.1 Sale of Pledged Collateral. Pledgor shall not sell or
otherwise dispose of, or grant any option or warrant with respect to, any of the
Pledged Collateral; provided, however, that Pledgor shall be permitted to sell
or otherwise dispose of the Pledged Collateral if such sale or other disposition
is contemplated by the other Financing Documents.
Section 4.2 No Other Liens. Pledgor shall not create, incur or permit
to exist, shall defend the Pledged Collateral against and shall take such other
action as is necessary to remove, any Lien or claim on or to the Pledged
Collateral (other than Permitted Liens), and shall defend the right, title and
interest of the Collateral Agent in and to any of the Pledged Collateral against
the claims and demands of all Persons whomsoever.
Section 4.3 Issuance of Shares. Pledgor agrees that it will cause the
Pledged Company not to issue to Pledgor any shares of stock or other securities
in addition to or in substitution for the Pledged Shares, except (i) if pledged
to the Collateral Agent hereunder or (ii) with the written consent of the
Collateral Agent.
Section 4.4 Chief Executive Office. Pledgor shall not establish a new
location for its chief executive office or change its name until (i) it have
given to the Collateral Agent not less than thirty (30) days prior written
notice of their intention to do so, clearly describing such new location or
specifying such new name, as the case may be, and (ii) with respect to such new
location or such new name, as the case may be, it shall have taken all action,
satisfactory to the Collateral Agent, to maintain the security interest of the
Collateral Agent in the Pledged Collateral intended to be granted hereby at all
times fully perfected and in full force and effect.
Section 4.5 Supplements; Further Assurances, etc. Pledgor shall at any
time and from time to time, at the expense of Pledgor, promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that the Collateral Agent may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to
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enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder with respect to any Pledged Collateral.
Section 4.6 Stock Certificates. Pledgor shall deliver all certificates
or other documents representing the Pledged Collateral to the Collateral Agent
with all necessary stock transfer or other powers duly indorsed in blank. In the
event Pledgor obtains possession of any other stock certificates, or other
securities or instruments forming a part of the Pledged Collateral, Pledgor
shall promptly deliver same to the Collateral Agent together with all necessary
stock transfer or other powers duly indorsed in blank. Prior to any such
delivery, any Pledged Collateral in Pledgor's possession shall be held by
Pledgor in trust for the Collateral Agent.
Section 4.7 Records; Statements and Schedules. Pledgor shall keep and
maintain, at its own cost and expense, records of the Pledged Collateral,
including, but not limited to, records of all payments received with respect
thereto, and Pledgor shall make the same available to the Collateral Agent for
inspection at Pledgor's chief executive office, at Pledgor's own cost and
expense, at any and all times upon reasonable prior notice and at reasonable
times. Pledgor shall furnish to the Collateral Agent from time to time
statements and schedules further identifying and describing the Pledged
Collateral and such other reports in connection with the Pledged Collateral as
the Collateral Agent may reasonably request, all in reasonable detail.
Section 4.8 Bankruptcy. Pledgor shall not authorize or permit the
Pledged Company to (a) commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to the Pledged Company
or the Pledged Company's debts under any bankruptcy, insolvency or similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of the Pledged Company or any
substantial part of the Pledged Company's property, (b) 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 the Pledged Company or
(c) make a general assignment for the benefit of the Pledged Company's
creditors. Pledgor shall not commence or join with any other Person (other than
the Collateral Agent) in commencing any proceeding against the Pledged Company
under any bankruptcy, reorganization, liquidation or insolvency law or statute
now or hereafter in effect in any jurisdiction.
ARTICLE 5
EXERCISE OF REMEDIES UPON AN EVENT OF DEFAULT
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Section 5.1 Remedies Generally. If an Event of Default shall have
occurred and be continuing, the Collateral Agent may exercise, in addition to
all other rights and remedies granted in this Agreement and in any other
instrument or agreement securing, evidencing or relating to the Secured
Obligations, all rights and remedies of a secured party under the Uniform
Commercial Code in effect from time to time in any relevant jurisdiction and all
other rights and remedies available at law or in equity.
Section 5.2 Sale of Pledged Collateral. (a) Without limiting the
generality of Section 5.1, the Collateral Agent may in its sole discretion,
without notice except as specified below, sell the Pledged Collateral or any
part thereof in one or more parcels at public or private sale or at any of the
Collateral Agent's Office or elsewhere, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as the
Collateral Agent may reasonably deem commercially reasonable, irrespective of
the impact of any such sales on the market price of the Pledged Collateral at
any such sale. Each purchaser at any such sale shall hold the property sold
absolutely, free from any claim or right on the part of Pledgor, and Pledgor
hereby waives (to the extent permitted by law) all rights of redemption, stay
and/or appraisal which it now has or may at any time in the future have under
any rule of law or statute now existing or hereafter enacted. The Collateral
Agent agrees to provide at least ten (10) days' notice to Pledgor of the time
and place of any public sale or the time after which any private sale is to be
made and Pledgor agrees that such ten (10) days' notice to Pledgor shall
constitute reasonable notification. The Collateral Agent shall not be obligated
to make any sale of Pledged Collateral regardless of notice of sale having been
given. The 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. Assuming that such sales are made in compliance with federal and
state securities Laws and the Uniform Commercial Code, the Collateral Agent
shall incur no liability as a result of the sale of the Pledged Collateral, or
any part thereof, at any public or private sale. Pledgor hereby waives any
claims against the Collateral Agent arising by reason of the fact that the price
at which any Pledged Collateral may have been sold at such a private sale, if
commercially reasonable, was less than the price which might have been obtained
at a public sale, even if the Collateral Agent accepts the first offer received
and does not offer such Pledged Collateral to more than one offeree.
(b) Pledgor recognizes that the Collateral Agent may elect in its
sole discretion to sell all or any part of the Stock Collateral to one or more
purchasers in privately negotiated transactions in which the purchasers will be
obligated to agree,
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among other things, to acquire the Stock Collateral for their own account, for
investment and not with a view to the distribution or resale thereof. Pledgor
acknowledges that any such private sales may be at prices and on terms less
favorable than those obtainable through a public sale (including, without
limitation, a public offering made pursuant to a registration statement under
the Securities Act of 1933, as amended (the "Securities Act")), and Pledgor and
the Collateral Agent agree that such private sales shall be made in a
commercially reasonable manner and that the Collateral Agent has no obligation
to engage in public sales and no obligation to delay sale of any Stock
Collateral to permit the issuer thereof to register the Stock Collateral for a
form of public sale requiring registration under the Securities Act. If the
Collateral Agent determines to exercise its right to sell any or all of the
Stock Collateral, upon written request, Pledgor shall, from time to time,
furnish to the Collateral Agent all such information as the Collateral Agent may
request in order to determine the number of shares and other instruments
included in the Stock Collateral which may be sold by the Collateral Agent as
exempt transactions under the Securities Act and rules of the Securities and
Exchange Commission thereunder, as the same are from time to time in effect.
Section 5.3 Purchase of Pledged Collateral. Any purchaser of all or any
part of the Pledged Collateral shall, upon any such purchase, acquire good title
to the Pledged Collateral so purchased, free of the security interests created
by this Agreement.
Section 5.4 Application of Proceeds. (a) The Collateral Agent shall
apply any proceeds from time to time held by it and the net proceeds of any
collection, recovery, receipt, appropriation, realization or sale with respect
to the Pledged Collateral in accordance with the relevant provisions of the
Intercreditor Agreement. For avoidance of doubt, it is understood that Pledgor
shall remain liable to the extent of any deficiency between the amount of
proceeds of the Pledged Collateral and the aggregated amount of the Secured
Obligations.
Section 5.5 Expenses. Pledgor shall upon demand pay to the Collateral
Agent the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, and any transfer
taxes, in each case payable upon sale of the Pledged Collateral, which the
Collateral Agent may incur in connection with (a) the custody or preservation
of, or the sale of, collection from or other realization upon, any of the
Pledged Collateral pursuant to the exercise or enforcement of any of the rights
of the Collateral Agent hereunder or (b) the failure by Pledgor to perform or
observe any of the provisions hereof, together with interest thereon from the
date of demand at the rate per annum equal to the
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Default Rate. Any amount payable by Pledgor pursuant to this Section 5.5 shall
be payable on demand and shall constitute Secured Obligations secured hereby.
ARTICLE 6
MISCELLANEOUS PROVISIONS
Section 6.1 Notices. Except as otherwise expressly provided herein, all
notices, requests and demands to or upon the respective parties hereto shall be
deemed to have been duly given when delivered by hand, or five days after being
deposited in the United States mail, postage prepaid, or, in the case of telex
notice, when sent, answerback received, or, in the case of telecopy notice, when
sent, or, in the case of a nationally recognized overnight courier service, one
Business Day after delivery to such courier service, addressed, in the case of
each party hereto, at its address specified below its signature hereto or to
such other address as may be designated by any party in a written notice to the
other parties hereto.
Section 6.2 Continuing Security Interest. This Agreement shall create a
continuing security interest in the Pledged Collateral until the release thereof
pursuant to Section 6.3.
Section 6.3 Release. Upon the indefeasible payment in full of the
Secured Obligations in cash or cash equivalents, the Collateral Agent, upon the
request, and at the expense, of Pledgor, shall execute and deliver all such
documentation necessary to release the security interest created pursuant to
this Agreement.
Section 6.4 Reinstatement. This Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any amount
received by the Collateral Agent or any other Secured Party hereunder or
pursuant hereto is rescinded or must otherwise be restored or returned by the
Collateral Agent or such Secured Party upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of Pledgor or the Pledged Company or
upon the appointment of any intervenor or conservator of, or trustee or similar
official for, Pledgor or the Pledged Company or any substantial part of
Pledgor's or the Pledged Company's assets, or upon the entry of an order by any
court avoiding the payment of such amount, or otherwise, all as though such
payments had not been made.
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Section 6.5 Independent Security. The security provided for in this
Agreement shall be in addition to and shall be independent of every other
security which the Secured Parties may at any time hold for any of the Secured
Obligations hereby secured, whether or not under the Security Documents. The
execution of any other Security Document shall not modify or supersede the
security interest or any rights or obligations contained in this Agreement and
shall not in any way affect, impair or invalidate the effectiveness and validity
of this Agreement or any term or condition hereof. Pledgor hereby waives their
right to plead or claim in any court that the execution of any other Security
Document is a cause for extinguishing, invalidating, impairing or modifying the
effectiveness and validity of this Agreement or any term or condition contained
herein. The Collateral Agent shall be at liberty to accept further security from
Pledgor or from any third party and/or release such security without notifying
Pledgor and without affecting in any way the obligations of Pledgor under the
Security Documents or the other Financing Documents. The Collateral Agent shall
determine if any security conferred upon the Secured Parties under the Security
Documents shall be enforced by the Collateral Agent, as well as the sequence of
securities to be so enforced. Notwithstanding the foregoing, this Agreement is
subject to the Intercreditor Agreement.
Section 6.6 Amendments. No waiver, amendment, modification or
termination of any provision of this Agreement, or consent to any departure by
Pledgor therefrom, shall in any event be effective without the prior written
consent of the Collateral Agent and none of the Pledged Collateral shall be
released without the written consent of the Collateral Agent. Any such waiver
or consent shall be effective only in the specific instance and for the
specific purpose for which given.
Section 6.7 Successors and Assigns. This Agreement shall be binding
upon Pledgor and its successors and assigns and shall inure to the benefit of
the Collateral Agent and the other Secured Parties and its successors and
assigns. Pledgor may not assign or otherwise transfer any of their respective
rights or obligations under this Agreement without the written consent of the
Collateral Agent.
Section 6.8 Third Party Beneficiaries. The agreements of the parties
hereto are intended to benefit the Secured Parties and their respective
successors and assigns.
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Section 6.9 Survival. All agreements, statements, representations and
warranties made by Pledgor herein or in any certificate or other instrument
delivered by Pledgor or on its behalf under this Agreement shall be considered
to have been relied upon by the Collateral Agent and the other Secured Parties
and shall survive the execution and delivery of this Agreement and the other
Financing Documents until termination thereof or the indefeasible payment in
full in cash or cash equivalents of all of the Secured Obligations regardless of
any investigation made by the Collateral Agent or the other Secured Parties or
made on their behalf.
Section 6.10 No Waiver; Remedies Cumulative. No failure or delay on the
part of the Collateral Agent in exercising any right, power or privilege
hereunder and no course of dealing between Pledgor and the Collateral Agent
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder or
thereunder. The rights and remedies herein expressly provided are cumulative and
not exclusive of any rights or remedies which the Collateral Agent would
otherwise have.
Section 6.11 Counterparts. This Agreement may be executed in any number
of counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
Section 6.12 Headings Descriptive. The headings of the several Sections
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.
Section 6.13 Severability. In case any provision contained in or
obligation under this Agreement shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
Section 6.14 Governing Law; Submission to Jurisdiction and Venue;
Waiver of Jury Trial. (a) THIS AGREEMENT IS A CONTRACT MADE UNDER THE LAWS OF
THE STATE OF NEW YORK OF THE UNITED STATES AND SHALL FOR ALL PURPOSES BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE WITHOUT
REGARD TO THE CONFLICT OF LAW RULES THEREOF (OTHER THAN SECTION 5-1401 OF THE
NEW YORK GENERAL OBLIGATIONS LAW).
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(b) Any legal action or proceeding against Pledgor with respect to
this Agreement may be brought in the courts of the State of New York in the
County of New York or of the United States for the Southern District of New York
and, by execution and delivery of this Agreement, Pledgor hereby irrevocably
accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Pledgor agrees that a
judgment, after exhaustion of all available appeals, in any such action or
proceeding shall be conclusive and binding upon Pledgor and may be enforced in
any other jurisdiction by a suit upon such judgment, a certified copy of which
shall be conclusive evidence of the judgment. Pledgor hereby irrevocably
designates, appoints and empowers CT Corporation System, with offices on the
date hereof at 1633 Broadway, New York, New York 10019, as its designee,
appointee and agent to receive and accept for and on its behalf service of any
and all legal process, summons, notices and documents which may be served in any
such action or proceeding. If for any reason such designee, appointee and agent
shall cease to be available to act as such, Pledgor agrees to designate a new
designee, appointee and agent in New York City on the terms and for the purposes
of this provision satisfactory to the Collateral Agent. Pledgor further
irrevocably consents to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to Pledgor at its address
referred to in Section 6.1, such service to become effective thirty (30) days
after such mailing. Nothing herein shall affect the right of the Collateral
Agent to serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against Pledgor in any other jurisdiction.
(c) Pledgor hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Financing Document brought in the courts referred to in clause (b) above and
hereby further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.
(d) WITH REGARD TO THIS AGREEMENT, PLEDGOR AND THE COLLATERAL AGENT
HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY.
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Section 6.15 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 as to the matters covered hereby and is intended
as a complete and exclusive statement of the terms and conditions thereof.
Section 6.16 Non-Recourse. Notwithstanding any other provision hereof,
the Collateral Agent agrees that its only remedy hereunder shall be to proceed
against the Collateral and that there shall be no recourse hereunder against the
Pledgor, its shareholders, officers, directors or employees.
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IN WITNESS WHEREOF, the parties hereto have caused this Pledge and
Security Agreement to be duly executed and delivered by their officers thereunto
duly authorized as of the date first above written.
MAGMA POWER COMPANY
By: /s/ Steven A. McArthur
--------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
Magma Power Company
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Rose T. Maravilla
--------------------------------
Name: R.T. Maravilla
Title: Assistant Vice President
Address for Notices:
--------------------
101 California Street, #2725
San Francisco, California 94111
Signature Page to Pledge Agreement (SSPC Stock)
<PAGE>
SCHEDULE I
PLEDGED SHARES
--------------
99% of the shares of capital stock of Salton Sea Power Company, a
Nevada corporation.
<PAGE>
EXHIBIT 4.11
================================================================================
PLEDGE AND SECURITY AGREEMENT
dated as of March 2, 1999
between
CE GENERATION, LLC,
as Pledgor
and
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION,
as Collateral Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINED TERMS; PRINCIPLES OF CONSTRUCTION
Section 1.1 Defined Terms......................................1
ARTICLE 2 PLEDGE
Section 2.1 Pledged Collateral.................................2
Section 2.2 Delivery of Stock Collateral.......................3
Section 2.3 Pledgor's Rights...................................3
Section 2.4 Secured Parties Not Liable.........................5
Section 2.5 Attorney-in-Fact...................................5
Section 2.6 Collateral Agent May Perform.......................6
Section 2.7 Reasonable Care....................................6
Section 2.8 Security Interest Absolute.........................6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
Section 3.1 Pledged Shares.....................................7
Section 3.2 Ownership of Pledged Collateral....................7
Section 3.3 Nature of Security Interest........................7
Section 3.4 Consents, etc......................................7
Section 3.5 Chief Executive Office.............................7
ARTICLE 4 COVENANTS
Section 4.1 Sale of Pledged Collateral.........................8
Section 4.2 No Other Liens.....................................8
Section 4.3 Issuance of Shares.................................8
Section 4.4 Chief Executive Office.............................8
Section 4.5 Supplements; Further Assurances, etc...............9
Section 4.6 Stock Certificates.................................9
Section 4.7 Records; Statements and Schedules..................9
Section 4.8 Bankruptcy.........................................9
ARTICLE 5 EXERCISE OF REMEDIES UPON AN EVENT OF DEFAULT
Section 5.1 Remedies Generally................................10
Section 5.2 Sale of Pledged Collateral........................10
Section 5.3 Purchase of Pledged Collateral....................11
Section 5.4 Application of Proceeds...........................11
Section 5.5 Expenses..........................................12
i
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ARTICLE 6 MISCELLANEOUS PROVISIONS
Section 6.1 Notices...........................................12
Section 6.2 Continuing Security Interest......................12
Section 6.3 Release...........................................12
Section 6.4 Reinstatement.....................................13
Section 6.5 Independent Security..............................13
Section 6.6 Amendments........................................13
Section 6.7 Successors and Assigns............................14
Section 6.8 Third Party Beneficiaries.........................14
Section 6.9 Survival..........................................14
Section 6.10 No Waiver; Remedies Cumulative....................14
Section 6.11 Counterparts......................................14
Section 6.12 Headings Descriptive..............................15
Section 6.13 Severability......................................15
Section 6.14 Governing Law; Submission to Jurisdiction
and Venue; Waiver of Jury Trial...................15
Section 6.15 Entire Agreement..................................16
Section 6.16 Non-Recourse......................................16
ii
<PAGE>
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT (this "Agreement"), dated as of
March 2, 1999, is made by CE Generation, LLC ("CE Generation"), a Delaware
limited liability company ("Pledgor"), to Chase Manhattan Bank and Trust
Company, National Association, as Collateral Agent (together with its successors
in such capacity, the "Collateral Agent") for the Secured Parties (as defined in
the Indenture referred to below) under the Collateral Agency and Intercreditor
Agreement, dated as of the date hereof (the "Intercreditor Agreement"), among
CE Generation, the Assignors (as defined in the Indenture referred to below),
the Collateral Agent, Chase Manhattan Bank and Trust Company, National
Association, as trustee (together with its successors in such capacity, the
"Trustee") and as depositary bank (together with its successors in such
capacity, the "Depositary Bank"), and the other Secured Parties.
W I T N E S S E T H :
WHEREAS, CE Generation is issuing $400,000,000 in principal amount of
its 7.416% Senior Secured Bonds Due December 15, 2018 (the "Initial Securities")
pursuant to the Indenture, dated as of the date hereof (the "Indenture"),
between CE Generation and the Trustee;
WHEREAS, Pledgor owns one hundred percent (100%) of the outstanding
capital stock of each of Falcon Seaboard Resources, Inc., a Texas corporation,
and California Energy Development Corporation, a Delaware corporation (each a
"Pledged Company" and, collectively the "Pledged Companies");
WHEREAS, it is a condition precedent to the issuance of the Securities
under the Indenture that Pledgor execute and deliver this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the undersigned hereby agree as follows:
ARTICLE 1
DEFINED TERMS; PRINCIPLES OF CONSTRUCTION
Section 1.1 Defined Terms. Unless otherwise defined herein, terms
defined in the Indenture shall have such defined meanings when used herein.
1
<PAGE>
ARTICLE 2
PLEDGE
Section 2.1 Pledged Collateral. (a) As collateral security for the
prompt and complete payment and performance when due, whether at stated
maturity, by acceleration or otherwise (including the payment of amounts which
would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code, 11 U.S.C. (Section) 362(a)), of all of the
Secured Obligations, whether now existing or hereafter arising and howsoever
evidenced, Pledgor hereby pledges, grants, assigns, hypothecates, transfers and
delivers to the Collateral Agent, for its benefit and the benefit of the other
Secured Parties, a first priority security interest in the following, whether
now existing or hereafter from time to time acquired (collectively, the "Pledged
Collateral"):
(i) all of Pledgor's right, title and interest in and
to all shares (the "Pledged Shares") of capital stock described in
Schedule I hereto and the certificates, if any, representing the
Pledged Shares, and all dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares;
(ii) all additional shares (the "Additional Shares")
of capital stock of any issuer of any Pledged Shares from time to time
acquired by Pledgor in any manner (including, without limitation, any
shares of preferred stock issued by any such issuer) and the
certificates, if any, representing such additional shares), and all
dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares (the certificates representing
the shares referred to in clause (i) above and this clause (ii), the
"Stock Collateral");
(iii) all other rights appurtenant to the property
described in clauses (i) and (ii) above (including, without limitation,
voting rights, to the extent provided in Section 2.3(b)); and
(iv) all proceeds of any and all of the foregoing,
and in addition, all dividends, distributions, cash, instruments and
other property or proceeds, from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of
the foregoing.
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(b) As used herein, the term "proceeds" shall be construed in its
broadest sense and shall include whatever is received or receivable when any of
the Stock Collateral, or any proceeds thereof, is sold, collected, exchanged or
otherwise disposed of, whether voluntarily or involuntarily, and shall include,
without limitation, all rights to payment, including interest and premiums,
with respect to any of the Stock Collateral or any proceeds thereof.
(c) Notwithstanding the foregoing, monies distributed from the
Distribution Suspense Account in accordance with the requirements of the
Depositary Agreement shall be released from the security interests created
hereunder and shall not constitute Pledged Collateral.
Section 2.2 Delivery of Stock Collateral. All certificates or
instruments representing or evidencing the Stock Collateral shall be delivered
to and held by or on behalf of the Collateral Agent pursuant hereto and shall be
in suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Collateral Agent. The Collateral Agent shall have
the right, at any time in its discretion and without notice to Pledgor to
transfer to or to register in its name or in the name of any of its nominees any
or all of the Stock Collateral. In addition, the Collateral Agent shall have the
right at any time to exchange certificates or instruments representing or
evidencing any of the Stock Collateral for certificates or instruments of
smaller or larger denominations.
Section 2.3 Pledgor's Rights.
(a) Distributions. Unless an Event of Default shall have occurred
and be continuing, Pledgor shall be entitled to receive and retain any and all
distributions paid in respect of the Stock Collateral in compliance with the
terms of the other Financing Documents; provided, however, that any and all
(i) distributions paid or payable in respect of any
Stock Collateral (whether paid in cash, securities or other property)
in connection with (A) any partial or total liquidation or dissolution
of any of any Pledged Company, (B) any distribution of capital of any
Pledged Company, (C) any recapitalization or reclassification of the
capital of any Pledged Company or (D) any reorganization of any Pledged
Company, and
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(ii) all property (whether cash, securities or other
property) paid, payable or otherwise distributed in redemption of, or
in exchange for, the property described in clause (i) immediately
above,
shall be, and shall be forthwith delivered to the Collateral Agent to hold as,
Stock Collateral and shall, if received by Pledgor, be received in trust for the
benefit of the Collateral Agent, be segregated from the other property or funds
of Pledgor, be forthwith delivered to the Collateral Agent as Stock Collateral
in the same form as so received (with any necessary endorsement) and, if elected
by Pledgor, applied to the payment of the Secured Obligations. Upon the
occurrence and during the continuance of an Event of Default, all rights of
Pledgor to receive the distributions which it would otherwise be authorized to
receive and retain pursuant to the preceding sentence shall cease, and all such
rights shall thereupon become vested in the Collateral Agent which shall
thereupon have the sole right to receive and hold as Stock Collateral such
distributions.
(b) Other Rights. Unless an Event of Default shall have occurred and
be continuing, Pledgor shall be entitled to exercise all voting and other rights
with respect to the Stock Collateral; provided, however, that no vote shall be
cast, right exercised or other action taken which could materially impair the
Stock Collateral or which would be inconsistent with or result in any violation
of any provision of this Agreement or any other Financing Document. Upon the
occurrence and during the continuance of an Event of Default, all voting and
other rights of Pledgor with respect to the Stock Collateral which Pledgor
would otherwise be entitled to exercise pursuant to the terms of this Agreement
shall cease, and all such rights shall be vested in the Collateral Agent which
shall thereupon have the sole right to exercise such rights.
(c) Turnover. All distributions and other amounts which are received
by Pledgor contrary to the provisions of this Agreement shall be received in
trust for the benefit of the Collateral Agent, shall be segregated from other
funds of Pledgor and shall be forthwith paid over to the Collateral Agent as
Stock Collateral in the same form as so received (with any necessary
endorsement).
(d) Proxies, etc. Pledgor shall, if necessary to permit the
Collateral Agent to exercise the voting and other rights which it may be
entitled to exercise pursuant to clause (b) above and to receive all dividends
and distributions which it may be entitled to receive under clause (a) above,
execute and deliver to the Collateral Agent, from time to time and upon written
notice of the Collateral Agent, appropriate proxies, dividend payment orders
and other instruments as the Collateral
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Agent may reasonably request. The foregoing shall not in any way limit the
Collateral Agent's power and authority granted pursuant to Section 2.5.
Section 2.4 Secured Parties Not Liable. None of the Collateral Agent,
any other Secured Party or any of their respective directors, officers,
employees or agents shall have any obligations or liability under or with
respect to any Pledged Collateral by reason of or arising out of this Agreement,
except as set forth in Section 9-207 of the Uniform Commercial Code as in effect
from time to time in the State of New York, or the receipt by the Collateral
Agent of any payment relating to any Pledged Collateral, nor shall any of the
Collateral Agent, any other Secured Party or any of their respective directors,
officers, employees or agents be obligated in any manner to (a) perform any of
the obligations of Pledgor under or pursuant to any agreement to which Pledgor
is a party, (b) make any payment or to inquire as to the nature or sufficiency
of any payment or performance with respect to any Pledged Collateral, (c)
present or file any claim or collect the payment of any amounts or take any
action to enforce any performance with respect to the Pledged Collateral or (d)
take any other action whatsoever with respect to the Pledged Collateral.
Section 2.5 Attorney-in-Fact. (a) Pledgor hereby appoints the
Collateral Agent, on behalf of the Secured Parties, or any Person, officer or
agent whom the Collateral Agent may designate, as its true and lawful
attorney-in-fact and proxy, with full irrevocable power and authority in the
place and stead of Pledgor and in the name of Pledgor or in its own name, at
Pledgor's cost and expense, from time to time upon the occurrence and during the
continuance of an Event of Default in the Collateral Agent's reasonable
discretion to take any action and to execute any instrument which the
Collateral Agent may reasonably deem necessary or advisable to enforce its
rights under this Agreement, including, without limitation, authority to
receive, endorse and collect all instruments made payable to Pledgor
representing any distribution, interest payment or other payment in respect of
the Pledged Collateral or any part thereof to be paid over to the Collateral
Agent pursuant to Section 2.3(c) and to give full discharge for the same, and to
vote or grant any consent in respect of the Pledged Shares authorized by Section
2.3(b).
(b) Pledgor hereby ratifies all that said attorney shall lawfully do
or cause to be done by virtue hereof, in each case pursuant to the powers
granted hereunder. Pledgor hereby acknowledges and agrees that the Collateral
Agent shall have no fiduciary duties to Pledgor and Pledgor hereby waives any
claims or rights of a beneficiary of a fiduciary relationship hereunder.
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Section 2.6 Collateral Agent May Perform. If Pledgor fails to perform
any agreement contained herein after receipt of a written request to do so from
the Collateral Agent, the Collateral Agent may itself perform, or cause
performance of, such agreement, and the reasonable expenses of the Collateral
Agent, including the reasonable fees and expenses of its counsel, incurred in
connection therewith shall be payable by Pledgor under Section 5.5; provided
that if a bankruptcy, insolvency or similar event shall have occurred with
respect to Pledgor, the notice described in this Section 2.6 shall not be
required and shall be deemed to have been delivered upon the failure of Pledgor
to perform such agreement.
Section 2.7 Reasonable Care. The Collateral Agent shall be deemed to
have exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equivalent to that which the Collateral Agent accords its own
property of the type of which the Pledged Collateral consists, it being
understood that the Collateral Agent shall have no responsibility for (a)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Pledged Collateral,
whether or not the Collateral Agent has or is deemed to have knowledge of such
matters, or (b) taking any necessary steps to preserve rights against any
parties with respect to any Pledged Collateral.
Section 2.8 Security Interest Absolute. All rights of the Collateral
Agent and security interests hereunder, and all obligations of Pledgor
hereunder, shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of any of the
Financing Documents or any other agreement or instrument relating
thereto (other than against the Collateral Agent);
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Secured Obligations, or any
other amendment or waiver of or any consent to any departure from the
Financing Documents or any other agreement or instrument relating
thereto;
(c) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to any
departure from any guaranty, for all or any of the Secured Obligations;
or
(d) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, Pledgor.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Pledgor represents and warrants, as of the date of this Agreement and
the Closing Date, as follows, which representations and warranties shall survive
the execution and delivery of this Agreement and the making and repayment of the
Secured Obligations:
Section 3.1 Pledged Shares. The Pledged Shares (a) have been duly
authorized and validly issued, (b) are fully paid and non-assessable and (c)
constitute all of the issued and outstanding shares of stock of each of the
Pledged Companies.
Section 3.2 Ownership of Pledged Collateral. Pledgor is the sole legal
and beneficial owner of the Pledged Shares, free and clear of any Lien other
than the Lien created pursuant to this Agreement.
Section 3.3 Nature of Security Interest. The pledge and grant of the
Pledged Collateral pursuant to this Agreement creates a valid and perfected
first priority security interest in the Pledged Collateral in favor of the
Collateral Agent, acting on behalf of the Secured Parties, securing the payment
of all of the Secured Obligations.
Section 3.4 Consents, etc. No consent, authorization, approval, or
other action by, and no notice to or filing with, any governmental authority is
required either (i) for the pledge by Pledgor of the Collateral owned by Pledgor
pursuant to this Agreement or for the due execution, delivery or performance of
this Agreement by Pledgor, or (ii) for the exercise by the Collateral Agent of
the voting or other rights provided for in this Agreement or of the remedies in
respect of the Collateral pursuant to this Agreement, except as may be required
in connection with the disposition of the Stock Collateral by laws affecting the
offering and sale of the securities generally.
Section 3.5 Chief Executive Office. The chief executive office of
Pledgor and the office where Pledgor keeps its records concerning the Pledged
Collateral is located at:
CE Generation, LLC
302 South 36th Street
Suite 400
Omaha, Nebraska 68131.
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ARTICLE 4
COVENANTS
Pledgor hereby covenants and agrees from and after the date of this
Agreement until the termination of this Agreement in accordance with the
provisions of Section 6.3:
Section 4.1 Sale of Pledged Collateral. Except as otherwise permitted
by the Financing Documents, Pledgor shall not sell or otherwise dispose of, or
grant any option or warrant with respect to, any of the Pledged Collateral;
provided, however, that Pledgor shall be permitted to sell or otherwise dispose
of the Pledged Collateral if such sale or other disposition is contemplated by
the other Financing Documents.
Section 4.2 No Other Liens. Pledgor shall not create, incur or permit
to exist, shall defend the Pledged Collateral against and shall take such other
action as is necessary to remove, any Lien or claim on or to the Pledged
Collateral (other than Permitted Liens), and shall defend the right, title and
interest of the Collateral Agent in and to any of the Pledged Collateral against
the claims and demands of all Persons whomsoever.
Section 4.3 Issuance of Shares. Pledgor agrees that it will cause each
of the Pledged Companies not to issue to Pledgor any shares of stock or other
securities in addition to or in substitution for the Pledged Shares, except (i)
if pledged to the Collateral Agent or (ii) with the written consent of the
Collateral Agent.
Section 4.4 Chief Executive Office. Pledgor shall not establish a new
location for its chief executive office or change its name until (i) it has
given to the Collateral Agent not less than thirty (30) days prior written
notice of its intention so to do, clearly describing such new location or
specifying such new name, as the case may be, and (ii) with respect to such new
location or such new name, as the case may be, it shall have taken all action,
satisfactory to the Collateral Agent, to maintain the security interest of the
Collateral Agent in the Pledged Collateral intended to be granted hereby at all
times fully perfected and in full force and effect.
Section 4.5 Supplements; Further Assurances, etc. Pledgor shall at any
time and from time to time, at the expense of Pledgor, promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that the Collateral Agent may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to
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enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder with respect to any Pledged Collateral.
Section 4.6 Stock Certificates. Pledgor shall deliver all certificates
or other documents representing the Pledged Collateral to the Collateral Agent
with all necessary stock transfer or other powers duly indorsed in blank. In the
event Pledgor obtains possession of any other stock certificates, or other
securities or instruments forming a part of the Pledged Collateral, Pledgor
shall promptly deliver same to the Collateral Agent together with all necessary
stock transfer or other powers duly indorsed in blank. Prior to any such
delivery, any Pledged Collateral in Pledgor's possession shall be held by
Pledgor in trust for the Collateral Agent.
Section 4.7 Records; Statements and Schedules. Pledgor shall keep and
maintain, at its own cost and expense, records of the Pledged Collateral,
including, but not limited to, records of all payments received with respect
thereto, and Pledgor shall make the same available to the Collateral Agent for
inspection at Pledgor's chief executive office, at Pledgor's own cost and
expense, at any and all times upon reasonable prior notice and at reasonable
times. Pledgor shall furnish to the Collateral Agent from time to time
statements and schedules further identifying and describing the Pledged
Collateral and such other reports in connection with the Pledged Collateral as
the Collateral Agent may reasonably request, all in reasonable detail.
Section 4.8 Bankruptcy. Pledgor shall not authorize or permit any
Pledged Company to (a) commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to any Pledged Company
or any such Pledged Company's debts under any bankruptcy, insolvency or similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of any Pledged Company
or any substantial part of any such Pledged Company's property, (b) 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 any
Pledged Company or (c) make a general assignment for the benefit of any Pledged
Company's creditors. Pledgor shall not commence or join with any other Person
(other than the Collateral Agent) in commencing any proceeding against any
Pledged Company under any bankruptcy, reorganization, liquidation or insolvency
law or statute now or hereafter in effect in any jurisdiction.
ARTICLE 5
EXERCISE OF REMEDIES UPON AN EVENT OF DEFAULT
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Section 5.1 Remedies Generally. If an Event of Default shall have
occurred and be continuing, the Collateral Agent may exercise, in addition to
all other rights and remedies granted in this Agreement and in any other
instrument or agreement securing, evidencing or relating to the Secured
Obligations, all rights and remedies of a secured party under the Uniform
Commercial Code in effect from time to time in any relevant jurisdiction and all
other rights and remedies available at law or in equity.
Section 5.2 Sale of Pledged Collateral. (a) Without limiting the
generality of Section 5.1, the Collateral Agent may in its sole discretion,
without notice except as specified below, sell the Pledged Collateral or any
part thereof in one or more parcels at public or private sale or at any of the
Collateral Agent's Office or elsewhere, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as the
Collateral Agent may reasonably deem commercially reasonable, irrespective of
the impact of any such sales on the market price of the Pledged Collateral at
any such sale. Each purchaser at any such sale shall hold the property sold
absolutely, free from any claim or right on the part of Pledgor, and Pledgor
hereby waives (to the extent permitted by law) all rights of redemption, stay
and/or appraisal which it now has or may at any time in the future have under
any rule of law or statute now existing or hereafter enacted. The Collateral
Agent agrees to provide at least ten (10) days' notice to Pledgor of the time
and place of any public sale or the time after which any private sale is to be
made and the Pledgor agrees that such ten (10) days' notice to Pledgor shall
constitute reasonable notification. The Collateral Agent shall not be obligated
to make any sale of Pledged Collateral regardless of notice of sale having been
given. The 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. Assuming that such sales are made in compliance with federal and
state securities Laws and the Uniform Commercial Code, the Collateral Agent
shall incur no liability as a result of the sale of the Pledged Collateral, or
any part thereof, at any public or private sale. Pledgor hereby waives any
claims against the Collateral Agent arising by reason of the fact that the price
at which any Pledged Collateral may have been sold at such a private sale, if
commercially reasonable, was less than the price which might have been obtained
at a public sale, even if the Collateral Agent accepts the first offer received
and does not offer such Pledged Collateral to more than one offeree.
(b) Pledgor recognizes that the Collateral Agent may elect in its
sole discretion to sell all or any part of the Stock Collateral to one or more
purchasers in
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privately negotiated transactions in which the purchasers will be obligated to
agree, among other things, to acquire the Stock Collateral for their own
account, for investment and not with a view to the distribution or resale
thereof. Pledgor acknowledges that any such private sales may be at prices and
on terms less favorable than those obtainable through a public sale (including,
without limitation, a public offering made pursuant to a registration statement
under the Securities Act of 1933, as amended (the "Securities Act")), and
Pledgor and the Collateral Agent agree that such private sales shall be made in
a commercially reasonable manner and that the Collateral Agent has no obligation
to engage in public sales and no obligation to delay sale of any Stock
Collateral to permit the issuer thereof to register the Stock Collateral for a
form of public sale requiring registration under the Securities Act. If the
Collateral Agent determines to exercise its right to sell any or all of the
Stock Collateral, upon written request, Pledgor shall, from time to time,
furnish to the Collateral Agent all such information as the Collateral Agent may
request in order to determine the number of shares and other instruments
included in the Stock Collateral which may be sold by the Collateral Agent as
exempt transactions under the Securities Act and rules of the Securities and
Exchange Commission thereunder, as the same are from time to time in effect.
Section 5.3 Purchase of Pledged Collateral. Any purchaser of all or any
part of the Pledged Collateral shall, upon any such purchase, acquire good title
to the Pledged Collateral so purchased, free of the security interests created
by this Agreement.
Section 5.4 Application of Proceeds. (a) The Collateral Agent shall
apply any proceeds from time to time held by it and the net proceeds of any
collection, recovery, receipt, appropriation, realization or sale with respect
to the Pledged Collateral in accordance with the relevant provisions of the
Intercreditor Agreement. For avoidance of doubt, it is understood that Pledgor
shall remain liable to the extent of any deficiency between the amount of
proceeds of the Pledged Collateral and the aggregated amount of the Secured
Obligations.
Section 5.5 Expenses. Pledgor shall upon demand pay to the Collateral
Agent the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, and any transfer
taxes, in each case payable upon sale of the Pledged Collateral, which the
Collateral Agent may incur in connection with (a) the custody or preservation
of, or the sale of, collection from or other realization upon, any of the
Pledged Collateral pursuant to the exercise or enforcement of any of the rights
of the Collateral Agent hereunder or (b) the failure by Pledgor to perform or
observe any of the provisions hereof, together
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with interest thereon from the date of demand at the rate per annum equal to the
Default Rate. Any amount payable by Pledgor pursuant to this Section 5.5 shall
be payable on demand and shall constitute Secured Obligations secured hereby.
ARTICLE 6
MISCELLANEOUS PROVISIONS
Section 6.1 Notices. Except as otherwise expressly provided herein, all
notices, requests and demands to or upon the respective parties hereto shall be
deemed to have been duly given when delivered by hand, or five days after being
deposited in the United States mail, postage prepaid, or, in the case of telex
notice, when sent, answerback received, or, in the case of telecopy notice, when
sent, or, in the case of a nationally recognized overnight courier service, one
Business Day after delivery to such courier service, addressed, in the case of
each party hereto, at its address specified below its signature hereto or to
such other address as may be designated by any party in a written notice to the
other parties hereto.
Section 6.2 Continuing Security Interest. This Agreement shall create a
continuing security interest in the Pledged Collateral until the release thereof
pursu ant to Section 6.3.
Section 6.3 Release. Upon the indefeasible payment in full of the
Secured Obligations in cash or cash equivalents, the Collateral Agent, upon the
request, and at the expense, of Pledgor, shall execute and deliver all such
documentation necessary to release the security interest created pursuant to
this Agreement.
Section 6.4 Reinstatement. This Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any amount
received by the Collateral Agent or any other Secured Party hereunder or
pursuant hereto is rescinded or must otherwise be restored or returned by the
Collateral Agent or such Secured Party upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of Pledgor or any Pledged Company or
upon the appointment of any intervenor or conservator of, or trustee or similar
official for, Pledgor or any Pledged Company or any substantial part of
Pledgor's or any Pledged Company's assets, or upon the entry of an order by any
court avoiding the payment of such amount, or otherwise, all as though such
payments had not been made.
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Section 6.5 Independent Security. The security provided for in this
Agreement shall be in addition to and shall be independent of every other
security which the Secured Parties may at any time hold for any of the Secured
Obligations hereby secured, whether or not under the Security Documents. The
execution of any other Security Document shall not modify or supersede the
security interest or any rights or obligations contained in this Agreement and
shall not in any way affect, impair or invalidate the effectiveness and validity
of this Agreement or any term or condition hereof. Pledgor hereby waives its
right to plead or claim in any court that the execution of any other Security
Document is a cause for extinguishing, invalidating, impairing or modifying the
effectiveness and validity of this Agreement or any term or condition contained
herein. The Collateral Agent shall be at liberty to accept further security from
Pledgor or from any third party and/or release such security without notifying
Pledgor and without affecting in any way the obligations of Pledgor under the
Security Documents or the other Financing Documents. The Collateral Agent shall
determine if any security conferred upon the Secured Parties under the Security
Documents shall be enforced by the Collateral Agent, as well as the sequence of
securities to be so enforced. Notwithstanding the foregoing, this Agreement is
subject to the Intercreditor Agreement.
Section 6.6 Amendments. No waiver, amendment, modification or
termination of any provision of this Agreement, or consent to any departure by
Pledgor therefrom, shall in any event be effective without the prior written
consent of the Collateral Agent and none of the Pledged Collateral shall be
released without the written consent of the Collateral Agent. Any such waiver
or consent shall be effective only in the specific instance and for the
specific purpose for which given.
Section 6.7 Successors and Assigns. This Agreement shall be binding
upon Pledgor and its successors and assigns and shall inure to the benefit of
the Collateral Agent and the other Secured Parties and its successors and
assigns. Pledgor may not assign or otherwise transfer any of their respective
rights or obligations under this Agreement without the written consent of the
Collateral Agent.
Section 6.8 Third Party Beneficiaries. The agreements of the parties
hereto are intended to benefit the Secured Parties and their respective
successors and assigns.
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Section 6.9 Survival. All agreements, statements, representations and
warranties made by Pledgor herein or in any certificate or other instrument
delivered by Pledgor or on its behalf under this Agreement shall be considered
to have been relied upon by the Collateral Agent and the other Secured Parties
and shall survive the execution and delivery of this Agreement and the other
Financing Documents until termination thereof or the indefeasible payment in
full in cash or cash equivalents of all of the Secured Obligations regardless of
any investigation made by the Collateral Agent or the other Secured Parties or
made on their behalf.
Section 6.10 No Waiver; Remedies Cumulative. No failure or delay on the
part of the Collateral Agent in exercising any right, power or privilege
hereunder and no course of dealing between Pledgor and the Collateral Agent
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder or
thereunder. The rights and remedies herein expressly provided are cumulative and
not exclusive of any rights or remedies which the Collateral Agent would
otherwise have.
Section 6.11 Counterparts. This Agreement may be executed in any number
of counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
Section 6.12 Headings Descriptive. The headings of the several Sections
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.
Section 6.13 Severability. In case any provision contained in or
obligation under this Agreement shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
Section 6.14 Governing Law; Submission to Jurisdiction and Venue;
Waiver of Jury Trial. (a) THIS AGREEMENT IS A CONTRACT MADE UNDER THE LAWS OF
THE STATE OF NEW YORK OF THE UNITED STATES AND SHALL FOR ALL PURPOSES BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE WITHOUT
REGARD TO THE CONFLICT OF LAW RULES THEREOF (OTHER THAN SECTION 5-1401 OF THE
NEW YORK GENERAL OBLIGATIONS LAW).
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(b) Any legal action or proceeding against Pledgor with respect to
this Agreement may be brought in the courts of the State of New York in the
County of New York or of the United States for the Southern District of New York
and, by execution and delivery of this Agreement, Pledgor hereby irrevocably
accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Pledgor agrees that a
judgment, after exhaustion of all available appeals, in any such action or
proceeding shall be conclusive and binding upon Pledgor and may be enforced in
any other jurisdiction by a suit upon such judgment, a certified copy of which
shall be conclusive evidence of the judgment. Pledgor hereby irrevocably
designates, appoints and empowers CT Corporation System, with offices on the
date hereof at 1633 Broadway, New York, New York 10019, as its designee,
appointee and agent to receive and accept for and on its behalf service of any
and all legal process, summons, notices and documents which may be served in any
such action or proceeding. If for any reason such designee, appointee and agent
shall cease to be available to act as such, Pledgor agrees to designate a new
designee, appointee and agent in New York City on the terms and for the purposes
of this provision satisfactory to the Collateral Agent. Pledgor further
irrevocably consents to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to Pledgor at its address
referred to in Section 6.1, such service to become effective thirty (30) days
after such mailing. Nothing herein shall affect the right of the Collateral
Agent to serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against Pledgor in any other jurisdiction.
(c) Pledgor hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Financing Document brought in the courts referred to in clause (b) above and
hereby further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.
(d) WITH REGARD TO THIS AGREEMENT, PLEDGOR AND THE COLLATERAL AGENT
HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY.
15
<PAGE>
Section 6.15 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 as to the matters covered hereby and is intended
as a complete and exclusive statement of the terms and conditions thereof.
Section 6.16 Non-Recourse. Notwithstanding any other provision hereof,
the Collateral Agent agrees that its only remedy hereunder shall be to proceed
against the Collateral and that there shall be no recourse hereunder against the
Pledgor, its shareholders or employees.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge and
Security Agreement to be duly executed and delivered by their officers thereunto
duly authorized as of the date first above written.
CE GENERATION, LLC
By: /s/ Steven A. McArthur
--------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
Address for Notices:
--------------------
CE Generation, LLC
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Rose T. Maravilla
--------------------------------
Name: R.T. Maravilla
Title: Assistant Vice President
Address for Notices:
--------------------
101 California Street, #2725
San Francisco, California 94111
Signature Page to Pledge Agreement (FSRI Stock and CEDC Stock)
<PAGE>
SCHEDULE I
PLEDGED SHARES
--------------
All of the shares of capital stock of Falcon Seaboard Resources,
Inc., a Texas corporation.
All of the shares of capital stock of California Energy Development
Corporation, a Delaware corporation.
<PAGE>
EXHIBIT 4.12
SECURITIES ACCOUNT CONTROL AGREEMENT
This SECURITIES ACCOUNT CONTROL AGREEMENT, dated as of March 2, 1999
(this "Agreement"), among CE Generation LLC, a Delaware limited liability
company ("CE Generation"), Magma Power Company, a Nevada corporation ("Magma"),
Salton Sea Power Company, a Nevada corporation ("SSPC"), Falcon Seaboard
Resources, Inc., a Texas corporation ("FSRI"), Falcon Seaboard Power
Corporation, a Texas corporation ("FSPC"), Falcon Seaboard Oil Company, a Texas
corporation ("FSOC"), California Energy Development Corporation, a Delaware
corporation ("CEDC"), and CE Texas Energy LLC, a Delaware limited liability
company ("CETE" and collectively with CE Generation, Magma, SSPC, FSRI, FSPC,
FSOC and CEDC, the "Debtors"), Chase Manhattan Bank and Trust Company, National
Association, in its capacity as collateral agent (the "Collateral Agent"), and
Chase Manhattan Bank and Trust Company, National Association, in its capacity as
depositary bank (the "Depositary Bank"). All references herein to the "UCC"
shall mean the Uniform Commercial Code as in effect in the State of New York.
RECITALS
A. CE Generation was formed solely for the initial purpose of issuing
its bonds, debentures, promissory notes or other evidences of indebtedness (the
"Securities") under the Indenture, dated as of the date hereof, and as amended,
supplemented or otherwise modified from time to time, the "Indenture"), between
CE Generation and Chase Manhattan Bank and Trust Company, National Association,
as trustee (the "Trustee"),
B. In connection with the issuance of Securities under the Indenture
and the other transactions contemplated therein and in the other Financing
Documents, the Debtors, the Collateral Agent and the Depositary Bank have
entered into the Deposit and Disbursement Agreement, dated as of the date hereof
(the "Depositary Agreement"), pursuant to which each Debtor has granted a Lien
on and security interest in and to, and has pledged, assigned, hypothecated and
transferred to the Collateral Agent for the benefit of the Secured Parties, each
of the Accounts (as defined in the Depositary Agreement) and all cash,
investments and securities at any time on deposit in any Account, including all
income or gain earned thereon and any proceeds thereof.
C. Unless otherwise specified herein, capitalized terms used but
<PAGE>
not defined herein shall have the meanings given to such terms in the Depositary
Agreement (including terms incorporated therein by reference from the
Indenture).
AGREEMENT
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 hereby agree as follows:
Section 1. Establishment of Securities Accounts. The Depositary Bank
hereby confirms and agrees that:
(a) The Depositary Bank has established the accounts set forth on
Schedule I hereto (such accounts and any other successor accounts, collectively,
the "Securities Accounts") and the Depositary Bank shall not change the name or
account number of any of the Securities Accounts without the prior written
consent of the Collateral Agent;
(b) All securities or other property underlying any financial assets
credited to any of the Securities Accounts shall be registered in the name of
the Depositary Bank, indorsed to the Depositary Bank or in blank or credited to
another securities account maintained in the name of the Depositary Bank and in
no case will any financial asset credited to any of the Securities Accounts be
registered in the name of the Debtors, payable to the order of the Debtors or
specially indorsed to the Debtors except to the extent the foregoing have been
specially indorsed to the Depositary Bank or in blank;
(c) All property delivered to the Depositary Bank pursuant to the
Depositary Agreement will be promptly credited to the appropriate Securities
Account; and
(d) Each Securities Account is, and the Depositary Bank will treat each
Securities Account as, a "securities account" as such term is defined in Section
8-501-(a) of the UCC.
(e) The Depositary Bank shall, subject to the terms of this Agreement,
treat the Collateral Agent, for the benefit of the Secured Parties, as (i)
entitled to exercise the rights that comprise any financial asset credited to
any of the Securities Accounts and (ii) the "entitlement holder" (within the
meaning of Section 8-102 of
2
<PAGE>
the UCC) with respect to the Securities Accounts on the books and records of the
Depositary Bank.
Section 2. "Financial Assets" Election. The Depositary Bank hereby
agrees that each item of property (whether investment property, financial asset,
security, instrument or cash) credited to any of the Securities Accounts shall
be treated as a "financial asset" within the meaning of Section 8-102(a)(9) of
the UCC.
Section 3. Entitlement Orders. If at any time the Depositary Bank shall
receive any order from the Collateral Agent directing transfer or redemption of
any financial asset relating to any of the Securities Accounts, the Depositary
Bank shall comply with such entitlement order without further consent by the
Debtors or any other person.
Section 4. Subordination of Lien; Waiver of Set-Off. In the event that
the Depositary Bank has or subsequently obtains by agreement, by operation of
law or otherwise a security interest in any of the Securities Accounts or any
security entitlement credited thereto, the Depositary Bank hereby agrees that
such security interest shall be subordinate to the security interest of the
Collateral Agent. The financial assets and other items deposited to the
Securities Accounts will not be subject to deduction, set-off, banker's lien or
any other right in favor of any person other than the Collateral Agent (except
that the Depositary Bank may set off (i) all amounts due to the Depositary Bank
in respect of customary fees and expenses for the routine maintenance and
operation of the Securities Accounts and (ii) the face amount of any checks
which have been credited to any of the Securities Accounts but are subsequently
returned unpaid because of uncollected or insufficient funds).
Section 5. Choice of Law. Both this Agreement and each of the
Securities Accounts (as well as the securities entitlements related thereto)
shall be governed by the laws of the State of New York. Regardless of any
provision in any other agreement, for purposes of the UCC, New York shall be
deemed to be the Depositary Bank's jurisdiction.
Section 6. Conflict with Other Agreements.
(a) In the event of any conflict between this Agreement (or any portion
thereof) and any other agreement (including the Depositary Agreement and the
Intercreditor Agreement) now existing or hereafter entered into, the terms of
this Agreement shall prevail.
3
<PAGE>
(b) No amendment or modification of this Agreement or waiver of any
right hereunder shall be binding on any party hereto unless it is in writing and
is signed by all of the parties hereto.
(c) The Depositary Bank hereby confirms and agrees that:
(i) There are no agreements entered into between the Depositary
Bank and the Debtors with respect to the issuance of or compliance with
entitlement orders (as defined below) with respect to any of the Securities
Accounts other than the Depositary Agreement and the Intercreditor
Agreement;
(ii) It has not entered into, and until the termination of this
Agreement will not enter into, any agreement with any other person relating
to any of the Securities Accounts and/or any financial assets credited
thereto pursuant to which it has agreed or will agree to comply with
entitlement orders (as defined in Section 8-102(a)(8) of the UCC) of such
other person; and
(iii) It has not entered into, and until the termination of this
Agreement will not enter into, any agreement with the Debtors or the
Collateral Agent purporting to limit or condition the obligation of the
Depositary Bank to comply with entitlement orders as set forth in Section 3
hereof.
Section 7. Adverse Claims. Except for the claims and interest of the
Collateral Agent (for the benefit of the Secured Parties) and the Debtors in the
Securities Accounts, the Depositary Bank does not know of any claim to, or
interest in, any of the Securities Accounts or in any "financial asset" (as
defined in Section 8-102(a) of the UCC) credited thereto. If any person asserts
any lien, encumbrance or adverse claim (including any writ, garnishment,
judgment, warrant of attachment, execution or similar process) against any of
the Securities Accounts or in any financial asset carried therein, the
Depositary Bank will promptly notify the Collateral Agent and the Debtors
thereof.
Section 8. Representations, Warranties and Covenants of the Depositary
Bank. The Depositary Bank hereby makes the following representations, warranties
and covenants:
(a) The Securities Accounts have been established as set forth in
Section 1 above and the Securities Accounts will be maintained in the manner set
4
<PAGE>
forth herein until termination of this Agreement;
(b) This Agreement is the valid and legally binding obligation of the
Depositary Bank; and
(c) The Depositary Bank shall, during the term of this Agreement, act
as a "securities intermediary" and have the obligations of a "securities
intermediary" under Article 8 of the UCC with respect to the Securities
Accounts.
Section 10. Indemnification of Depositary Bank. The Debtors and the
Collateral Agent hereby agree that (a) the Depositary Bank is released from any
and all liabilities to the Debtors and the Collateral Agent arising from the
terms of this Agreement and the compliance of the Depositary Bank with the terms
hereof, except to the extent that such liabilities arise from the Depositary
Bank's gross negligence, and (b) each Debtor and its successors and assigns
shall at all times indemnify and save harmless the Depositary Bank from and
against any and all claims, actions and suits of others arising out of the terms
of this Agreement or the compliance of the Depositary Bank with the terms
hereof, except to the extent that such arises from the Depositary Bank's gross
negligence, and from and against any and all liabilities, losses, damages,
costs, charges, counsel fees and other expenses of every nature and character,
whether actual, special, indirect, consequential or punitive, arising by reason
of the same, until the termination of this Agreement. The indemnification
obligations of the Debtors contained herein shall survive the termination of
this Agreement.
Section 11. Successors; Assignment. The terms of this Agreement shall
be binding upon, and shall inure to the benefit of, the parties hereto and their
respective successors and permitted assigns. The Collateral Agent may assign its
rights hereunder to any successor collateral agent in accordance with the
Depositary Agreement, the Intercreditor Agreement and the other Financing
Documents. Any other assignment by the Collateral Agent shall be effective only
with the express written consent of the Depositary Bank and by sending written
notice of such assignment to the Debtors.
Section 12. Notices. Any notice, request or other communication
required or permitted to be given under this Agreement shall be given in
accordance with, and at the addresses specified in, Section 6.2 of the
Depositary Agreement.
Section 13. Termination. The obligations of the Depositary Bank to the
Collateral Agent pursuant to this Agreement shall continue in effect until the
5
<PAGE>
security interests of the Collateral Agent in the Securities Accounts have been
terminated pursuant to the terms of the Depositary Agreement and the Collateral
Agent has notified the Depositary Bank of such termination in writing. The
Collateral Agent agrees to provide a Notice of Termination in substantially the
form of Exhibit A hereto to the Depositary Bank upon the request of the Debtors
on or after the termination of the Collateral Agent's security interest in the
Securities Accounts pursuant to the terms of the Depositary Agreement. The
termination of this Agreement shall not terminate the Securities Accounts or
alter the obligations of the Depositary Bank to the Debtors pursuant to any
other agreement with respect to the Securities Accounts.
Section 14. Counterparts. This Agreement may be executed in any number
of counterparts, all of which shall constitute one and the same instrument, and
any party hereto may execute this Agreement by signing and delivering one or
more counterparts.
Section 15. Limitation of Liability. Notwithstanding anything to the
contrary contained in this Agreement and the other Transaction Documents, the
liability and obligation of CE Generation, the Assignors and CalEnergy to
perform and observe and make good the obligations contained in this Agreement
and the other Security Documents shall not be enforced by any action or
proceeding wherein damages or any money judgment or any deficiency judgment or
any judgment establishing any personal obligation or liability shall be sought,
collected or otherwise obtained against any officer, director or shareholder or
related Person of CE Generation, the Assignors or CalEnergy or any Secured
Party, and the Depositary Bank and the Collateral Agent, for themselves and
their respective successors and assigns, and on behalf of the Secured Parties,
irrevocably waive any and all right to sue for, seek or demand any such damages,
money judgment, deficiency judgment or personal judgment against any officer,
director or shareholder or related Person of CE Generation, the Assignors or
CalEnergy under or by reason of or in connection with this Agreement and agrees
to look solely to CE Generation and the Assignors and the security and
Collateral held under or in connection with the Security Documents for the
enforcement of such liability and obligation of CE Generation, the Assignors and
CalEnergy; provided, however, that notwithstanding any other provision hereof,
the Collateral Agent and the Depositary Bank each agree that its only remedy
against CalEnergy hereunder shall be to proceed against the Monies on deposit in
or credited to the 9 7/8% Notes Account and that there shall be no other
recourse to CalEnergy, its shareholders, officers, directors or employees.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Account Control Agreement to be executed by their respective officers or
representatives hereunto duly authorized as of the day and year first above
written.
CE GENERATION, LLC
Name: /s/ Steven A. McArthur
----------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
MAGMA POWER COMPANY
Name: /s/ Steven A. McArthur
----------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
SALTON SEA POWER COMPANY
Name: /s/ Steven A. McArthur
----------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
FALCON SEABOARD RESOURCES, INC.
Name: /s/ Steven A. McArthur
----------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
<PAGE>
FALCON SEABOARD POWER CORPORATION
Name: /s/ Steven A. McArthur
----------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
FALCON SEABOARD OIL COMPANY
Name: /s/ Steven A. McArthur
----------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
CALIFORNIA ENERGY DEVELOPMENT CORPORATION
Name: /s/ Steven A. McArthur
----------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
CE TEXAS ENERGY LLC
Name: /s/ Steven A. McArthur
----------------------------------
Name: Steven A. McArthur
Title: Executive Vice President
<PAGE>
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION,
as Depositary Bank
By: /s/ Rose T. Maravilla
------------------------------------
Name: R. T. Maravilla
Title: Assistant Vice President
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Rose T. Maravilla
------------------------------------
Name: R. T. Maravilla
Title: Assistant Vice President
Schedule I
<PAGE>
SECURITIES ACCOUNTS
- --------------------------------------------------------------------------------
Account Number Name of Account
- --------------------------------------------------------------------------------
C28710 A Revenue Account
- --------------------------------------------------------------------------------
C28710 B Debt Payment Account
- --------------------------------------------------------------------------------
C28710 C Debt Service Reserve Account
- --------------------------------------------------------------------------------
C28710 D Distribution Suspense Account
- --------------------------------------------------------------------------------
C28710 E Redemption Account
- --------------------------------------------------------------------------------
C28710 F 9 7/8% Notes Account
- --------------------------------------------------------------------------------
<PAGE>
Exhibit A
[Letterhead of Collateral Agent]
[Date]
Chase Manhattan Bank and Trust Company, National Association,
as Depositary Bank
101 California Street, #2725
San Francisco, California 94111
Attention: Corporation Trust Department
Re: Termination of Securities Account Control Agreement
You are hereby notified that the Securities Account Control Agreement
between you, CE Generation, LLC ("CE Generation"), Magma Power Company
("Magma"), Salton Sea Power Company ("SSPC"), Falcon Seaboard Resources, Inc.,
("FSRI"), Falcon Seaboard Power Corporation ("FSPC"), Falcon Seaboard Oil
Company ("FSOC"), California Energy Development Corporation ("CEDC") and CE
Texas Energy LLC ("CETE" and, collectively with CE Generation, Magma, SSPC,
FSRI, FSPC, FSOC and CEDC, the "Debtors") and the undersigned (a copy of which
is attached) is terminated and you have no further obligations to the
undersigned pursuant to the Securities Account Control Agreement.
Notwithstanding any previous instructions to you, you are hereby instructed to
accept all future directions with respect to the accounts listed on Schedule I
to the Securities Account Control Agreement from the Debtors. This notice
terminates any obligations you may have to the undersigned with respect to such
accounts, however nothing contained in this notice shall alter any obligations
which you may otherwise owe to the Debtors pursuant to any other agreement.
You are instructed to deliver a copy of this notice by facsimile
transmission to the Debtors.
<PAGE>
Very truly yours,
Chase Manhattan Bank and Trust Company,
National Association,
as Collateral Agent
By:
-----------------------
Name:
Title:
<PAGE>
[Latham & Watkins Letterhead]
---------
October __, 1999
EXHIBIT 5.1
CE Generation, LLC
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
Re: Registration Statement on Form S-4;
$400,000,000 Aggregate Principal
Amount of Senior Secured Bonds
------------------------------
Ladies and Gentlemen:
In connection with the registration of $400,000,000 7.416% Senior
Secured Bonds Due December 15, 2018 (the "Securities") by CE Generation, a
Delaware limited liability company (the "Registrant"), under the Securities Act
of 1933, as amended (the "Act"), on Form S-4 filed with the Securities and
Exchange Commission (the "Commission") on October __, 1999 the "Registration
Statement"), you have requested our opinion with respect to the matters set
forth below.
In our capacity as your special counsel in connection with such
registration, we are familiar with the proceedings taken by the Registrant in
connection with the authorization and issuance of the Securities. In addition,
we have made such legal and factual examinations and inquiries, including an
examination of originals or copies certified or otherwise identified to our
satisfaction of such documents, corporate records and instruments, as we have
deemed necessary or appropriate for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.
<PAGE>
CE Generation, LLC
Page 2
We are opining herein as to the effect on the subject transaction only
of the internal laws of the State of New York and the Limited Liability Company
Act of the State of Delaware, including statutory and reported decisional law
thereunder, and we express no opinion with respect to the applicability thereto,
or the effect thereon, of the laws of any other jurisdiction or, in the case of
Delaware, any other laws, or as to any matters of municipal law or the laws of
any local agencies within any state.
Capitalized terms used herein without definition have the meanings
ascribed to them in the Registration Statement.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that as of the date hereof:
The Securities have been duly authorized by all necessary limited
liability company action of the Registrant, and when executed, authenticated and
delivered by or on behalf of the Registrant will constitute legally valid and
binding obligations of the Registrant, enforceable against the Registration in
accordance with their terms.
The opinions rendered in the preceding paragraph relating to the
enforceability of the Securities are subject to the following exceptions,
limitations and qualifications: (i) the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the rights and remedies of creditors; and (ii) the
effect of general principles of equity, whether enforcement is considered in a
proceeding in equity or law, and the discretion of the court before which any
proceeding therefor may be brought.
We have not been requested to express, and with your knowledge and
consent do not render, any opinion as to the applicability to the obligations of
the Companies under the Indenture and the Securities of Section 548 of the
United States Bankruptcy Code or applicable state law (including, without
limitation, Article 10 of the New York Debtor and Creditor Law) relating to
fraudulent transfers and obligations.
To the extent that the obligations of the Registrant under the
Indenture may be dependent upon such matters, we assume for purposes of this
opinion that the Trustee is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization; that the Trustee is
duly qualified to engage in the activities contemplated by the Indenture; that
the Indenture has been duly authorized, executed and delivered by the Trustee
and constitutes the legally valid, binding and enforceable obligation of the
Trustee enforceable against the Trustee in accordance with its terms; that the
Trustee is in compliance, generally and with respect to acting as a trustee
under the Indenture, with all applicable laws and regulations; and that the
Trustee has the requisite organizational and legal power and authority to
perform its obligations under the Indenture.
<PAGE>
CE Generation, LLC
Page 3
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters" in the Prospectus.
Very truly yours,
<PAGE>
EXHIBIT 12.1
CE GENERATION, LLC
RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS, EXCEPT RATIO)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income from continuing operations 58,381 39,479 61,698 113,374 145,996 109,344 79,686
Income on equity investment in unconsolidated
subsidiaries - - (4,263) (14,542) (10,732) (8,635) (17,718)
Distributed income of equity investee - - 8,295 23,960 16,903 13,455 22,841
Capitalized interest (708) (5,776) (4,805) - (347) - (2,614)
Amortization of capitalized interest - - 192 331 303 227 227
-------------------------------------------------------- ----------------------
Capitalized interest, net (708) (5,776) (4,613) 331 (44) 227 (2,387)
57,673 33,703 61,117 123,123 152,123 114,391 82,422
Fixed charges:
Interest expense and amortization of deferred
finance charges on all indebtedness 13,177 65,997 77,669 80,907 74,653 54,784 58,343
Total fixed charges 13,177 65,997 77,669 80,907 74,653 54,784 58,343
Earnings before income taxes and fixed charges 70,850 99,700 138,786 204,030 226,776 169,175 140,765
Ratio of earnings to fixed charges 5.38 1.51 1.79 2.52 3.04 3.09 2.41
</TABLE>
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of CE Generation, LLC on
Form S-4 of our report dated January 28, 1999 (February 22, 1999 as to the first
paragraph in Note 1), appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
October 22, 1999
<PAGE>
EXHIBIT 23.3
[Letterhead of Fluor Daniel, Inc.]
POWER GENERATION PROJECTS INDEPENDENT ENGINEER'S AND
GEOTHERMAL PROJECTS INDEPENDENT ENGINEER'S CONSENT
October 22, 1999
CE Generation, LLC
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
This letter is furnished in connection with the exchange of $400,000,000
principal amount of unregistered 7.416% Senior Secured Bonds Due December 15,
2018 (the "Old Securities") for $400,000,000 principal amount of registered
7.416% Senior Secured Bonds Due December 15, 2018 (the "New Securities").
We consent to the inclusion of our (1) CE Generation Consolidated Pro
Forma Analysis dated February 24, 1999 and (2) CE Generation Project Analysis
dated February 17, 1999 in the Registration Statement being filed by CE
Generation, LLC in respect of the New Securities and to the other references to
us contained in the Prospectus which is part of such Registration Statement.
FLUOR DANIEL, INC.
By: /s/ W. Mack Torrence
----------------------------------
Name: W. Mack Torrence
Title: Vice President & Head of
Project Finance
<PAGE>
EXHIBIT 23.4
[LETTERHEAD OF R.W. BECK, INC.]
October 22, 1999
CE Generation, LLC
302 South 36th Street
Suite 400
Omaha, Nebraska 68131
Ladies and Gentlemen:
SUBJECT: CE GENERATION LLC
$400,000,000 7.416% SENIOR SECURED BONDS DUE DECEMBER 15, 2018
This letter is furnished relating to the exchange by CE Generation LLC (the
"Registrant") of $400,000,000 principal amount of unregistered 7.416% Senior
Secured Bonds Due December 15, 2018 (the "Old Securities") for $400,000,000
principal amount of registered 7.416% Senior Secured Bonds Due December 15, 2018
(the "New Securities"), as more fully described in the Registration Statement on
Form S-4 dated October 13, filed with the Securities and Exchange Commission by
the Registrant (the "Registration Statement"), and prepared in connection with
the exchange of the Old Securities.
R. W. Beck, Inc. ("Beck") was retained by the Registrant to act under
the direction of Lehman Brothers and Credit Suisse First Boston Corporation as
the Natural Gas Projects Independent Engineer and it has prepared a Natural Gas
Projects Independent Engineer's Report dated February 24, 1999 (the "Report")
included as Appendix B to the Registration Statement. Concurrence is given to
the inclusion of the Report in the Registration Statement and the references to
Beck in the Registration Statement under the captions "Risk Factors" and
"Natural Gas Projects Independent Engineer".
Nothing has come to the attention of Beck in relation to the
preparation of our Report which would cause it to believe that the Report was,
as of its date, inaccurate in any material respect. Changed conditions occurring
or becoming known after such date could affect the information presented to the
extent of such changes.
Very truly yours,
R. W. BECK, INC.
/s/ Kenneth V. Marino
Principal
<PAGE>
EXHIBIT 23.5
[Letterhead of Henwood Energy Services, Inc.]
POWER MARKET CONSULTANT'S CONSENT
October 22, 1999
CE Generation, LLC
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
This letter is furnished relating to the exchange of $400,000,000
principal amount of unregistered 7.416% Senior Secured Bonds Due December 15,
2018 (the "Old Securities") for $400,000,000 principal amount of registered
7.416% Senior Secured Bonds Due December 15, 2018 (the "New Securities").
We consent to the inclusion of our Southern California Electricity
Market and Price Forecast 1999-2018 dated February 11, 1999 in the Registration
Statement being filed by CE Generation, LLC in respect of the New Securities and
to the other references to us contained in the Prospectus which is part of such
Registration Statement.
HENWOOD ENERGY SERVICES, INC.
By: /s/ Kevin D. Woodruff
--------------------------
Name: Kevin D. Woodruff
Title: Principal Consultant
<PAGE>
EXHIBIT 23.6
[Letterhead of GeothermEx, Inc.]
GEOTHERMAL RESOURCE CONSULTANT'S Consent
October 22, 1999
CE Generation, LLC
302 South 36th Street,
Suite 400 Omaha,
Nebraska 68131
This letter is furnished relating to the exchange of $400,000,000
principal amount of unregistered 7.416% Senior Secured Bonds Due December 15,
2018 (the "Old Securities") for $400,000,000 principal amount of registered
7.416% Senior Secured Bonds Due December 15, 2018 (the "New Securities").
We consent to the inclusion of our Assessment of the Resource Supplying
Geothermal Facilities at Salton Sea, California dated February 1999 in the
Registration Statement being filed by CE Generation, LLC in respect of the New
Securities and to the other references to us contained in the Prospectus which
is part of such Registration Statement.
GEOTHERMEX, INC.
By: /s/ Subir K. Sanyal
-----------------------
Name: Subir K. Sanyal
Title: President
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM T-1
Statement of Eligibility and Qualification Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
-----------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2)____
-------------------------
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
95-4655078
(I.R.S. Employer Identification No.)
101 California Street, San Francisco, California
(Address of principal executive offices)
94111
(Zip Code)
------------------
CE Generation, LLC
(Exact name of Obligor as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
47-0818523
(I.R.S. Employer Identification No.)
302 South 36th Street, Suite 400-A
Omaha, Nebraska
(Address of principal executive offices)
68131
(Zip Code)
--------------------------------
7.416% Senior Secured Bonds Due December 15, 2018
(Title of Indenture securities)
<PAGE>
ITEM 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, D.C.
Board of Governors of the Federal Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
None.
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of eligibility.
Exhibit 1. Articles of Association of the Trustee as Now in Effect.
Exhibit 2. Certificate of Authority of the Trustee to Commence
Business.
Exhibit 3. Authorization of the Trustee to Exercise Corporate Trust
Powers (Contained in Exhibit 2.)
Exhibit 4. Existing By-Laws of the Trustee.
Exhibit 5. Not Applicable
Exhibit 6. The consent of the Trustee required by Section 321 (b)
of the Act.
Exhibit 7. A copy of the latest report of condition of the Trustee,
published pursuant to law or the requirements of its
supervising or examining authority.
Exhibit 8. Not Applicable
Exhibit 9. Not Applicable
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Chase Manhattan Bank and Trust Company, National Association, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of San
Francisco, and State of California, on the _____ day of October, 1999.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
By /s/ Rose T. Maravilla
------------------------------
Rose T. Maravilla
Assistant Vice President
<PAGE>
EXHIBIT 1. Articles of Association of the Trustee as now in Effect.
- --------------------------------------------------------------------------------
EXHIBIT 1
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
CHARTER NO. 23470
ARTICLES OF ASSOCIATION
For the purpose of organizing an Association to perform any lawful activities of
national banks, the undersigned do enter into the following Articles of
Association:
FIRST. The title of this Association shall be Chase Manhattan Bank and Trust
Company, National Association (the "Association").
SECOND. The main office of the Association shall be in the City of Los Angeles,
County of Los Angeles, State of California. The general business of the
Association shall be conducted at its main office and its branches.
THIRD. The board of directors of this Association shall consist of not less than
five nor more than twenty-five persons, the exact number to be fixed and
determined from time to time by resolution of a majority of the full board of
directors or by resolution of a majority of the shareholders at any annual or
special meeting thereof. Each director, during the full term of his
directorship, shall own common or preferred stock of the Association or of a
holding company owning the Association, with an aggregate par, fair market or
equity value of not less than $1,000. Any vacancy in the board of directors may
be filled by action of the shareholders or a majority of the remaining
directors.
Terms of directors, including directors selected to fill vacancies, shall expire
at the next regular meeting of shareholders at which directors are elected,
unless the directors resign or are removed from office.
<PAGE>
Despite the expiration of a director's term, the director shall continue to
serve until his or her successor is elected and qualifies or until there is a
decrease in the number of directors and his or her position is eliminated.
FOURTH. There shall be an annual meeting of the shareholders to elect directors
and transact whatever other business may be brought before the meeting. It shall
be held at the main office or any other convenient place the board of directors
may designate, on the day of each year specified therefore in the by-laws, or if
that day falls on a legal holiday in the state in which the Association is
located, on the next following banking day. If no election is held on the day
fixed or in event of a legal holiday, on the following banking day, an election
may be held on any subsequent day within 60 days of the day fixed, to be
designated by the board of directors, or, if the directors fail to fix the day,
by shareholders representing two-thirds of the shares issued and outstanding.
Advance notice of the meeting may be waived duly waived by the sole shareholder
in accordance with 12 C.F.R. (section) 7.2001.
A director may resign at any time by delivering written notice to the board of
directors, its Chairperson, or to the Association, which resignation shall be
effective when the notice is delivered unless the notice specifies a later
effective date.
A director may be removed by shareholders at a meeting called to remove him or
her, when notice of the meeting stating that the purpose or one of the purposes
is to remove him or her is provided, if there is a failure to fulfill one of the
affirmative requirements for qualification, or for cause.
FIFTH. The authorized amount of capital stock of this Association shall be Six
Hundred Thousand ($600,000), divided into Six Thousand (6,000) shares of common
stock of the par value of One Hundred dollars ($100) each; but said capital
stock may be increased or decreased from time to time, according to the
provisions of the laws of the United States.
No holder of shares of the capital stock of any class of the Association shall
have any preemptive or preferential right of subscription to any shares of any
class of stock of the Association, whether now or hereafter authorized, or to
any obligations convertible into stock of the Association, issued, or sold, nor
any right to subscription to any thereof other than such, if any, as the board
of directors, in its discretion may from time to time determine and at such
price as the board of directors may from time to time fix.
Unless otherwise specified in the Articles of Association or required by law,
(1) all matters requiring shareholder action, including amendments to the
Articles of Association, must be approved by shareholders owning a majority
voting interest in the outstanding voting stock, and (2) each shareholder shall
be entitled to one vote per share.
The Association, at any time and from time to time, may authorize and issue debt
obligations, whether or not subordinated, without the approval of the
shareholders.
<PAGE>
SIXTH. The board of directors may appoint one of its members President of this
Association, and one of its members Chairperson of the board or two of its
members as Co-Chairpersons of the board, and shall have the power to appoint one
or more Vice Presidents, a Secretary who shall keep minutes of the directors'
and shareholders' meetings and be responsible for authenticating the records of
the Association, and such other officers and employees as may be required to
transact the business of this Association. A duly appointed officer may appoint
one or more officers or assistant officers if authorized by the board of
directors in accordance with the by-laws.
The board of directors shall have the power to:
(1) Define the duties of the officers, employees, and agents of the
Association.
(2) Delegate the performance of its duties, but not the responsibility for its
duties, to the officers, employees, and agents of the Association.
(3) Fix the compensation and enter into employment contracts with its officers
and employees upon reasonable terms and conditions consistent with
applicable law.
(4) Dismiss officers and employees.
(5) Require bonds from officers and employees and fix the penalty thereof.
(6) Ratify written policies authorized by the Association's management or
committees of the board.
(7) Regulate the manner in which any increase or decrease of the capital of
the Association shall be made, provided that nothing herein shall restrict
the power of shareholders to increase or decrease the capital of the
Association in accordance with law.
(8) Manage and administer the business and affairs of the Association.
(9) Adopt initial by-laws, not inconsistent with law or the Articles of
Association, for managing the business and regulating the affairs of the
Association.
(10) Amend or repeal by-laws, except to the extent that the Articles of
Association reserve this power in whole or in part to shareholders.
<PAGE>
(11) Make contracts.
(12) Generally perform all acts that are legal for a board of directors to
perform.
SEVENTH. The board of directors shall have the power to change the location of
the main office to any other location permitted under applicable law, without
the approval of the shareholders, and shall have the power to establish or
change the location of any branch or branches of the Association to any other
location permitted under applicable law, without the approval of the
shareholders subject to approval by the Office of the Comptroller of the
Currency.
EIGHTH. The corporate existence of this Association shall continue until
termination according to the laws of the United States.
NINTH. These Articles of Association may be amended at any regular or special
meeting of the shareholders by the affirmative vote of the holders of a majority
of the stock of this Association, unless the vote of the holders of a greater
amount of stock is required by law, and in that case by the vote of the holders
of such greater amount. The Association's board of directors may propose one or
more amendments to the Articles of Association for submission to the
shareholders.
<PAGE>
EXHIBIT 2. Certificate of Authority of the Trustee to Commence Business.
- --------------------------------------------------------------------------------
EXHIBIT 2
- --------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
- --------------------------------------------------------------------------------
Northeastern District Licensing
1114 Avenue of the Americas, Suite 3900 Telephone: (212) 790-4055
New York, New York 10036 Fax:(212) 790-4098
November 14, 1997
Mr. Joseph R. Bielawa
Vice President and Assistant
General Counsel
THE CHASE MANHATTAN BANK
270 Park Avenue, 39th Floor
New York, New York 10017-2070
Re; Final Authorization to charter a national trust bank, Chase Trust
Company, National Association, Los Angeles, California ("Bank"), Charter
No.: 23470
Dear Mr. Bielawa:
The Comptroller of the Currency (OCC) has found that you have met all conditions
imposed by the OCC and completed all steps necessary to commence the business of
a national trust bank. This letter constitutes OCC authorization to exercise
fiduciary powers. Your charter certificate is enclosed. You are authorized to
commence business on November 15, 1997.
You are reminded that several of the standard conditions contained in the
preliminary approval letter dated August 12, 1997 will continue to apply once
the bank opens and by opening, you agree to subject your association to these
conditions of operation. Some of the conditions bear reiteration here:
1. The trust company's financial statements must be prepared on an
accrual basis, if applicable, according to generally accepted accounting
principles.
2. For a period of two years after the trust company has opened for
business, the OCC must review and have no objection to any new executive officer
or director prior to that person assuming such position. The proposed individual
may not assume the position until the OCC has issued a letter of no objection.
3. The president must serve as a member of the board of directors.
<PAGE>
Mr. Joseph R. Bielawa
THE CHASE MANHATTAN BANK
Page two
4. The board of directors is responsible for regular review and update
of policies and procedures and for assuring ongoing compliance with them. This
includes maintaining an internal control system that ensures compliance with the
currency reporting and record keeping requirements of the Bank Secrecy Act
(BSA). The board is expected to train its personnel in BSA procedures and
designate one person or a group to monitor day-to-day compliance.
5. Stock certificates must not be issued prior to the date the trust
company opens for business, but must be issued immediately following the opening
of the bank.
Following the commencement of operations, bank management is urged to become
familiar with the requirements of the Securities Exchange Act of 1934 and Part
11 of the Comptroller's regulations relative to the registration of the bank's
equity securities and related periodic reports. These requirements will be
applicable to your bank when the number of shareholders of record is maintained
at 500 or more. Such registration may be subsequently terminated pursuant to the
Act, only when the number of shareholders of record is reduced to fewer than
300.
Should you have any questions regarding the supervision of your bank, please
contact National Bank Examiner Mr. Anthony DiLorenzo who will be responsible for
OCC's ongoing supervisory effort at your institution.
Sincerely,
/S/ Michael G. Tiscia
Licensing Manager
Enclosure
cc: Official File
Field File
<PAGE>
- --------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
- --------------------------------------------------------------------------------
Northeastern District Licensing
1114 Avenue of the Americas, Suite 3900 Telephone: (212) 790-4055
New York, New York 10036 Fax:(212) 790-4098
November 14, 1997
Mr. Joseph R. Bielawa
Vice President and Assistant
General Counsel
THE CHASE MANHATTAN BANK
270 Park Avenue, 39th Floor
New York, New York 10017-2070
Re: 1) Application to consolidate The Chase Manhattan Trust Company of
California , National Association, San Francisco, California, Charter
No. 20435, and Chase Trust Company of California, San Francisco,
California, and Chase Trust Company, National Association, Los Angeles,
California, Charter No. 23470, under the charter number of the latter
and with the title of "Chase Manhattan Bank and Trust Company, National
Association" ("Resulting Bank"), 2) Amendment to the Articles of
Association of the Resulting Bank, and 3) Purchase and assumption of the
assets and liabilities of the Los Angeles branch of Chase Manhattan
Private Bank, National Association, Tampa, Florida, Charter No. 21177,
by Chase Manhattan Bank and Trust Company, National Association.
Dear Mr. Bielawa:
This letter is the official certification of the Office of the Comptroller of
the Currency (OCC) for the consolidation of three uninsured trust banks, The
Chase Manhattan Trust Company of California, National Association, San
Francisco, California, Charter No. 20435, and Chase Trust Company of California,
San Francisco, California, and Chase Trust Company, National Association, Los
Angeles, California, Charter No. 23470, under the charter number of the latter
and with the title of "CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL
ASSOCIATION", ("Resulting bank"), effective November 15, 1997. The former San
Francisco head offices of the consolidating banks will not be retained as
branches of the Resulting Bank.
<PAGE>
Mr. Joseph R. Bielawa
THE CHASE MANHATTAN BANK
Page two
Also, receipt is acknowledged of the Secretary Certificate of Shareholder
Approval which amends the Resulting Bank's Article Second of its Articles of
Association by expanding the Resulting Bank's activities to those of a full
service bank, upon the receipt of FDIC insurance and effective November 15, 1997
("Insured Resulting Bank").
The amendment was filed pursuant to OCC approval dated August 12, 1997. Attached
is a copy of the accepted Amendment for the Bank's files. Finally, this letter
is also the official certification of the OCC to the Insured Resulting Bank to
purchase certain assets and assume certain liabilities of the LOS ANGELES BRANCH
of Chase Manhattan Private Bank, National Association, Tampa, Florida, effective
November 15, 1997.
The Los Angeles Branch, located at 1800 Century Park East, Los Angeles,
California will not be operated as a separate branch of the Insured Resulting
Bank. The Los Angeles Branch Certificate (#104350A) should be returned to this
Office as soon as possible.
Very truly yours,
/s/ Michael G. Tiscia
Michael G. Tiscia
Licensing Manager
Charter No. 23470
Control No. 97 NE 02 0027
97 NE 02 0028
***OCC SEAL***
<PAGE>
EXHIBIT 2
COMPTROLLER OF THE CURRENCY
TREASURY DEPARTMENT OF THE UNITED STATES
WASHINGTON, D.C.
Whereas, satisfactory evidence has been presented by the Comptroller of the
Currency that Chase Trust Company, National Association located in Los Angeles
State of California has complied with all provisions of the statutes of the
United States required to be complied with before being authorized to commence
the business of banking as a National Banking Association;
Now therefore, I hereby certify that the above-named association is authorized
to commence the business of banking as a National Banking Association.
SEAL In testimony whereof, witness my signature
and seal of office this 15th day of November 1997
Charter No. 23470
Deputy Comptroller of the Currency
<PAGE>
EXHIBIT 3. Authorization of the Trustee to Exercise Corporate Trust Powers.
- --------------------------------------------------------------------------------
(Contained in Exhibit 2.)
<PAGE>
EXHIBIT 4. Existing By-laws of the Trustee.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 4
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
BY-LAWS
ARTICLE I
Meetings of Shareholders
Section 1.1. Annual Meeting. The regular annual meeting of the shareholders to
elect directors and transact whatever other business may properly come before
the meeting, shall be held at the main office of the Association, or such other
place as the board may designate, and at such time in each year as may be
designated by the board of directors. Unless otherwise provided by law, notice
of the meeting may be waived by the Association's sole shareholder in accordance
with 12 C.F.R. (section) 7.2001. If, for any cause, an election oF directors is
not made on that date, or in the event of a legal holiday, on the next following
banking day, an election may be held on any subsequent day within 60 days of the
date fixed, to be designated by the board, or, if the directors fail to fix the
date, by shareholders representing two thirds of the shares issued and
outstanding.
Section 1.2. Special Meetings. Except as otherwise specifically provided by
statute, special meetings of the shareholders may be called for any purpose at
any time by a majority of the board of directors or by any one or more
shareholders owning, in the aggregate, not less than twenty-five percent of the
stock of the Association or by the Chairperson of the board of directors or the
President. Unless otherwise provided by law, advance notice of a special meeting
may be waived by the Association's Sole Shareholder in accordance with 12 C.F.R.
(section) 7.2001.
Section 1.3. Nominations of Directors. Nominations for election to the board of
directors may be made by the board of directors or by any stockholder of any
outstanding class of capital stock of the Association entitled to vote for the
election of directors. Nominations, other than those made by or on behalf of the
existing management of the Association, shall be made in writing and shall be
delivered or mailed to the President of the Association and to the Comptroller
of the Currency, Washington, D.C., not less than 14 days nor more than 50 days
prior to any meeting of shareholders called for the election of directors,
provided, however, that if less than 21 days' notice of the meeting is given to
shareholders, such nomination shall be mailed or delivered to the President of
the Association and to the Comptroller of the Currency not later than the close
of business on the seventh (7th) day following the day on which the notice of
meeting
<PAGE>
was mailed. Such notification shall contain the following information to
the extent known to the notifying shareholder.
(1) The name and address of each proposed nominee.
(2) The principal occupation of each proposed nominee.
(3) The total number of shares of capital stock of the Association that will
be voted for each proposed nominee.
(4) The name and residence address of the notifying shareholder.
(5) The number of shares of capital stock of the Association owned by the
notifying shareholder.
Nominations not made in accordance herewith may, in his/her discretion, be
disregarded by the Chairperson of the meeting, and upon his/her instructions,
the vote tellers may disregard all votes cast for each such nominee.
Section 1.4. Proxies. Shareholders may vote at any meeting of the shareholders
by proxies duly authorized in writing, but no officer or employee of this
Association shall act as proxy. Proxies shall be valid only for one meeting to
be specified therein, and any adjournments of such meeting. Proxies shall be
dated and filed with the records of the meeting. Proxies with rubber stamped
facsimile signatures may be used and unexecuted proxies may be counted upon
receipt of a confirming telegram from the shareholder. Proxies meeting above
requirements submitted at any time during a meeting shall be accepted.
Section 1.5 Quorum. A majority of the outstanding capital stock, represented in
person or by proxy, shall constitute a quorum at any meeting of shareholders,
unless otherwise provided by law, or by the shareholders or directors pursuant
to Section 10.2, but less than a quorum may adjourn any meeting, from time to
time, and the meeting may be held, as adjourned, without further notice. A
majority of the votes cast shall decide every question or matter submitted to
the shareholders at any meeting, unless otherwise provided by law or by the
Articles of Association, or by the shareholders or directors pursuant to Section
10.2. Any action required or permitted to be taken by the shareholders may be
taken without a meeting by unanimous written consent of the shareholders to a
resolution authorizing the action. The resolution and the written consent shall
be filed with the minutes of the proceedings of the shareholders.
<PAGE>
ARTICLE II
Directors
Section 2.1. Board of Directors. The board of directors ("board") shall have the
power to manage and administer the business and affairs of the Association.
Except as expressly limited by law, all corporate powers of the Association
shall be vested in and may be exercised by the board.
Section 2.2. Number. The board shall consist of not less than five nor more than
twenty-five persons, the exact number within such minimum and maximum limits to
be fixed and determined from time to time by resolution of a majority of the
full board or by resolution of a majority of the shareholders at any meeting
thereof; provided, however, that a majority of the full board may not increase
the number of directors to a number which: (1) exceeds by more than two the
number of directors last elected by shareholders where such number was 15 or
less; and (2) exceeds by more than four the number of directors last elected by
shareholders where such number was 16 or more, but in no event shall the number
of directors exceed 25.
Section 2.3. Organization Meeting. The Secretary shall notify the
directors-elect of their election and of the time at which they are required to
meet at the main office of the Association to organize the new board and elect
and appoint officers of the Association for the succeeding year. Such meeting
shall be held on the day of the election or as soon thereafter as practicable,
and, in any event, within 30 days thereof. If, at the time fixed for such
meeting, there shall not be a quorum, the directors present may adjourn the
meeting, from time to time, until a quorum is obtained.
Section 2.4. Regular Meetings. The time and location of regular meetings of the
board shall be set by the board. Such meetings may be held without notice. Any
business may be transacted at any regular meeting. The board may adopt any
procedures for the notice and conduct of any meetings as are not prohibited by
law.
Section 2.5. Special Meetings. Special meetings of the board may be called at
the request of the Chairperson or Co-Chairperson of the board, the President, or
three or more directors. Each member of the board shall be given notice stating
the time and place, by telegram, telephone, letter or in person, of each such
special meeting at least one day prior to such meeting. Any business may be
transacted at any special meeting.
Section 2.6. Action by the Board. Except as otherwise provided by law, corporate
action to be taken by the board shall mean such action at a meeting of the
board. Any action required or permitted to be taken by the board or any
committee of the board may be taken without a meeting if all members of the
board or the committee consent in writing to a resolution authorizing the
action. The resolution and the written consents thereto shall be filed with the
minutes of the proceedings of the board or committee. Any one or more members of
the board or any committee may participate in a meeting of the board or
committee by means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other at the same
time. Participation by such means shall constitute presence in person at such
meeting.
<PAGE>
Section 2.7. Waiver of Notice. Notice of a special meeting need not be given to
any director who submits a signed waiver of notice, whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him or her.
Section 2.8. Quorum and Manner of Acting. Except as otherwise required by law,
the Articles of Association or these by-laws, a majority of the directors shall
constitute a quorum for the transaction of any business at any meeting of the
board and the act of a majority of the directors present and voting at a meeting
at which a quorum is present shall be the act of the board. In the absence of a
quorum, a majority of the directors present may adjourn any meeting, from time
to time, until a quorum is present and no notice of any adjourned meeting need
be given. At any such adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called.
Section 2.9. Vacancies. In the event a majority of the full board increases the
number of directors to a number which exceeds the number of directors last
elected by shareholders, as permitted by Section 2.2, directors may be appointed
to fill the resulting vacancies by vote of such majority of the full board. In
the event of a vacancy in the board for any other cause, a director may be
appointed to fill such vacancy by vote of a majority of the remaining directors
then in office.
Section 2.10. Removal of Directors. The vacancy created by the removal of a
director pursuant to this Section may be filled by the board in accordance with
Section 2.9 of these by-laws or by the shareholders.
ARTICLE III
Committees
Section 3.1. Executive Committee. There may be an executive committee consisting
of the Chairperson or Co-Chairperson of the board and not less than two other
directors appointed by the board annually or more often. Subject to the
limitations in Section 3.4(g) of these by-laws, the executive committee shall
have the maximum authority permitted by law.
Section 3.2. Audit Committee. There may be an audit committee composed of not
less than two directors, exclusive of any active officers, appointed by the
board annually or more often, whose duty it shall be to make an examination at
least once during each calendar year and within fifteen months of the last
examination into the affairs of the Association, or cause continuous suitable
examinations to be made, by auditors responsible only to the board, and to
report the results of any such examinations in writing to the board from time to
time. Such examinations shall include audits of the fiduciary business of the
Association as may be required by law or regulation.
Section 3.3. Other Committees. The board may appoint, from time to time, other
committees of one or more persons, for such purposes and with such powers as the
board may determine.
<PAGE>
Section 3.4. General.
(a) Each committee shall elect a Chairperson from among the members
thereof and shall also designate a Secretary of the committee, who shall keep a
record of its proceedings.
(b) Vacancies occurring from time to time in the membership of any
committee shall be filled by the board for the unexpired term of the member
whose departure causes such vacancy. The board may designate one or more
alternate members of any committee, who may replace any absent member or members
at any meeting of such committee.
(c) Each committee shall adopt its own rules of procedure and shall meet
at such stated times as it may, by resolution, appoint. It shall also meet
whenever called together by its Chairperson or the Chairperson of the board.
(d) No notice of regular meetings of any committee need be given. Notice
of every special meeting shall be given either by mailing such notice to each
member of such committee at his or her address, as the same appears in the
records of the Association, at least two days before the day of such meeting, or
by notifying each member on or before the day of such meeting by telephone or by
personal notice, or by leaving a written notice at his or her residence or place
of business on or before the day of such meeting. Waiver of notice in writing of
any meeting, whether prior or subsequent to such meeting, or attendance at such
meeting, shall be equivalent to notice of such meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at any
special meeting.
(e) All committees shall, with respect to all matters, be subject to the
authority and direction of the board and shall report to it when required.
(f) Unless otherwise required by law, the Articles of Association or
these by-laws, a quorum at any meeting of any committee shall be one-third of
the full membership and the act of a majority of members present and voting at a
meeting at which a quorum is present shall be the act of the committee.
(g) No committee shall have authority to take any action which is
expressly required by law or regulation to be taken at a meeting of the board or
by a specified proportion of directors.
ARTICLE IV
Officers and Employees
Section 4.1. Chairperson of the Board. The board shall appoint one of its
members to be the Chairperson of the board, or two persons to serve as
Co-Chairperson of the board to serve at its pleasure. Such person
<PAGE>
shall preside at all meetings of the board. The Chairperson or Co-Chairpersons
of the board shall supervise the carrying out of the policies adopted or
approved by the board; shall have general executive powers, as well as the
specific powers conferred by these by-laws; and shall also have and may exercise
such further powers and duties as from time to time may be conferred upon, or
assigned by the board.
Section 4.2. President. The board may appoint one of its members to be the
President of the Association. In the absence of the Chairperson or
Co-Chairpersons, the President shall preside at any meeting of the board. The
President shall have general executive powers, and shall have and may exercise
any and all other powers and duties pertaining by law, regulation, or practice
to the office of President, or imposed by these by-laws. The President shall
also have and may exercise such further powers and duties as from time to time
may be conferred, or assigned by the board.
Section 4.3. Vice President. The board may appoint one or more Vice Presidents.
Each Vice President shall have such powers and duties as may be assigned by the
board.
Section 4.4. Secretary. The board shall appoint a Secretary, Cashier, or other
designated officer who shall be Secretary of the board and of the Association,
and shall keep accurate minutes of all meetings. The Secretary shall attend to
the giving of all notices required by these by-laws; shall be custodian of the
corporate seal, records, documents and papers of the Association; shall provide
for the keeping of proper records of all transactions of the Association; shall
have and may exercise any and all other powers and duties pertaining by law,
regulation or practice, to the office of Cashier, or imposed by these by-laws;
and shall also perform such other duties as may be assigned from time to time,
by the board.
Section 4.5. Other Officers. The board may appoint one or more Assistant Vice
Presidents, one or more Trust Officers, one or more Assistant Secretaries, one
or more Assistant Cashiers, one or more Managers and Assistant Managers of
branches and such other officers and attorneys in fact as from time to time may
appear to the board to be required or desirable to transact the business of the
Association. Such officers shall respectively exercise such powers and perform
such duties as pertain to their several offices, or as may be conferred upon, or
assigned to, them by the board, the Chairperson or Co-Chairpersons of the board,
or the President. The board may authorize an officer to appoint one or more
officers or assistant officers.
Section 4.6. Resignation. An officer may resign at any time by delivering notice
to the Association. A resignation is effective when the notice is given unless
the notice specifies a later effective date.
<PAGE>
ARTICLE V
Fiduciary Activities
Section 5.1. Trust Committee. There shall be a Trust Committee of this
Association composed of four or more members, who shall be capable and
experienced officers or directors of the Association. The Committee is charged
with the responsibility for the investment, retention, or disposition of assets
held in accounts with respect to which the Association has investment authority;
for the review of the assets of accounts for which the Association has
investment authority promptly after the acceptance of such an account and at
least once during every calendar year thereafter to determine the advisability
of retaining or disposing of such assets; for the determination of the manner in
which proxies received for accounts for which the Association has responsibility
for the voting of proxies shall be voted; for the determination of all
substantial questions involving discretionary authority of the Association of a
non-investment nature, including, but not limited to, distribution of principal
and/or income in respect of any account; for providing advice as to the
investment, retention, or disposition of assets in investment advisory accounts
maintained by the Association; for the making of such reports as this board
shall require; and for such other responsibilities as may be assigned by this
board. The Trust Committee, in discharging its aforementioned responsibilities,
may authorize officers of the Association to exercise such powers and under such
conditions as the Committee may from time to time prescribe.
Section 5.2. Trust Investments. Funds held in a fiduciary capacity shall be
invested according to the instrument establishing the fiduciary relationship and
local law. Where such instrument does not specify the character and class of
investments to be made and does not vest in the Association a discretion in the
matter, funds held pursuant to such instrument shall be invested in investments
in which corporate fiduciaries may invest under applicable law.
Section 5.3. Trust Audit Committee. The board shall appoint a committee of at
least two directors, exclusive of any active officer of the association, which
shall, at least once during each calendar year make suitable audits of the
association's fiduciary activities or cause suitable audits to be made by
auditors responsible only to the board, and at such time shall ascertain whether
fiduciary powers have been administered according to law, Part 9 of the
Regulations of the Comptroller of the Currency, and sound fiduciary principles.
Section 5.4. Fiduciary Files. There shall be maintained by the association all
fiduciary records necessary to assure that its fiduciary responsibilities have
been properly undertaken and discharged.
<PAGE>
ARTICLE VI
Stock and Stock Certificates
Section 6.1. Transfers. Shares of stock shall be transferable on the books of
the Association, and a transfer book shall be kept in which all transfers of
stock shall be recorded. Every person becoming a shareholder by such transfer
shall, in proportion to his or her shares, succeed to all rights of the prior
holder of such shares.
The board may impose conditions upon the transfer of the stock reasonably
calculated to simplify the work of the Association with respect to stock
transfers, voting at shareholder meetings, and related matters and to protect it
against fraudulent transfers.
Section 6.2. Stock Certificates. Certificates of stock shall bear the signature
of the Chairperson or Co-Chairpersons of the board or President (which may be
engraved, printed or impressed), and shall be signed manually or by facsimile
process by the Secretary, Assistant Secretary, Cashier, Assistant Cashier, or
any other officer appointed by the board for that purpose, to be known as an
authorized officer, and the seal of the Association shall be engraved thereon.
Each certificate shall recite on its face that the stock represented thereby is
transferable only upon the books of the Association properly endorsed. In case
any such officer who has signed or whose facsimile signature has been placed
upon such certificate shall have ceased to be such before such certificate is
issued, it may be issued by the Association with the same effect as if such
officer had not ceased to be such at the time of its issue. The corporate seal
may be a facsimile, engraved or printed.
ARTICLE VII
Corporate Seal
The Chairperson, the President, the Cashier, the Secretary or any Assistant
Cashier or Assistant Secretary, or other officer thereunto designated by the
board, shall have authority to affix the corporate seal to any document
requiring such seal, and to attest the same. Such seal shall be substantially in
the following form: A circle, with the words "Chase Manhattan Bank and Trust
Company, National Association" within such circle.
IMPRESSION
OF SEAL
<PAGE>
ARTICLE VIII
Miscellaneous Provisions
Section 8.1. Fiscal Year. The fiscal year of the Association shall be the
calendar year.
Section 8.2. Execution of Instruments. All agreements, indentures, mortgages,
deeds, conveyances, transfers, certificates, declarations, receipts, discharges,
releases, satisfactions, settlements, petitions, schedules, accounts,
affidavits, bonds, undertakings, proxies and other instruments or documents may
be signed, executed, acknowledged, verified, delivered or accepted on behalf of
the Association by the Chairperson or Co-Chairpersons of the board, or the
President, or any Vice Chairperson, or any Managing Director, or any Vice
President, or any Assistant Vice President, or the Chief Financial Officer, or
the Controller, or the Secretary, or the Cashier, or, if in connection with
exercise of fiduciary powers of the Association, by any of those officers or by
any Trust Officer. Any such instruments may also be executed, acknowledged,
verified, delivered or accepted on behalf of the Association in such other
manner and by such other officers as the board may from time to time direct. The
provisions of this Section 8.2 are supplementary to any other provision of these
by-laws.
Section 8.3. Records. The Articles of Association, the by-laws and the
proceedings of all meetings of the shareholders, the board, and standing
committees of the board, shall be recorded in appropriate minute books provided
for that purpose. The minutes of each meeting shall be signed by the Secretary,
Cashier or other officer appointed to act as Secretary of the meeting.
Section 8.4. Corporate Governance Procedures. To the extent not inconsistent
with applicable Federal banking law, bank safety and soundness or these by-laws,
the corporate governance procedures found in the Delaware General Corporation
Law shall be followed by the Association.
ARTICLE IX
Indemnification
Section 9.1. Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director or an officer of the Association or is or was serving at the request of
the Association as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Association to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent
<PAGE>
that such amendment permits the Association to provide broader indemnification
rights than such law permitted the Association to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith; provided, however, that, except as provided in Section 9.3 of these
by-laws with respect to proceedings to enforce rights to indemnification, the
Association shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the board.
Section 9.2. Right to Advancement of Expenses. The right to indemnification
conferred in Section 9.1 of these by-laws shall include the right to be paid by
the Association the expenses (including attorney's fees) incurred in defending
any such proceeding in advance of its final disposition (hereinafter an
"advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Association of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section 9.2 or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections 9.1 and 9.2 of these by-laws shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
Section 9.3. Right of Indemnitee to Bring Suit. If a claim under Section 9.1 or
9.2 of these by-laws is not paid in full by the Association within sixty (60)
days after a written claim has been received by the Association except in the
case of a claim for an advancement of expenses, in which case the applicable
period shall be twenty (20) days, the indemnitee may at any time thereafter
bring suit against the Association to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by the
Association to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (1) any suit brought by the indemnitee to
enforce a right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (2) any suit brought by the Association to recover an
advancement of expenses pursuant to the terms of an undertaking, the Association
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Association
(including the board, the Association's independent legal counsel, or its
shareholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Association (including the board, the Association's independent legal counsel,
or its shareholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the Association to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article IX or otherwise shall be on the Association.
Section 9.4. Non-Exclusivity of Rights. The rights to indemnification and to the
advancement of expenses conferred in this Article IX shall not be exclusive of
any other right which any person may have or hereafter
<PAGE>
acquire under any statute, the Association's Articles of Association, by-laws,
agreement, vote of shareholders or disinterested directors or otherwise.
Section 9.5. Insurance. The Association may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Association or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Association would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
Section 9.6. Indemnification of Employees and Agents of the Association. The
Association may, to the extent authorized from time to time by the board, grant
rights to indemnification and to the advancement of expenses to any employee or
agent of the Association to the fullest extent of the provisions of this Article
IX with respect to the indemnification and advancement of expenses of directors
and officers of the Association.
ARTICLE X
By-laws
Section 10.1. Inspection. A copy of the by-laws, with all amendments, shall at
all times be kept in a convenient place at the main office of the Association,
and shall be open for inspection to all shareholders during banking hours.
Section 10.2. Amendments. The by-laws may be amended, altered or repealed, at
any regular meeting of the board by a vote of a majority of the total number of
the directors except as provided below. The Association's shareholders may amend
or repeal the by-laws even though the by-laws may be amended or repealed by its
board.
--------------------------------------
<PAGE>
EXHIBIT 6. Consent of the Trustee.
- --------------------------------------------------------------------------------
Chase Manhattan Bank and Trust Company, National Association hereby
consents, in accordance with the provisions of Section 321(b) of the Trust
Indenture Act of 1939, that reports of examinations by Federal, State,
Territorial and District of Columbia authorities may be furnished by such
authorities to the Securities and Exchange Commission upon its request therefor.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
BY: /s/ Francis J. Farrell
----------------------------
Francis J. Farrell
Vice President
<PAGE>
EXHIBIT 7. Report of Condition of the Trustee.
- --------------------------------------------------------------------------------
CONSOLIDATED REPORT OF CONDITION OF Chase Manhattan Bank and Trust Company, N.A.
---------------------------------------------
(Legal Title)
LOCATED AT 1800 Century Park East, Ste. 400 Los Angeles, CA 94111
---------------------------------------------------------------------
(Street) (City) (State) (Zip)
AS OF CLOSE OF BUSINESS ON June 30, 1999
------------------------------------------------------
ASSETS DOLLAR AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
<S> <C> <C>
1. Cash and balances due from
a. Noninterest-bearing balances and currency and coin (1,2) 1,910
b. Interest bearing balances (3) 0
2. Securities
a. Held-to-maturity securities (from Schedule RC-B, column A) 0
b. Available-for-sale securities (from Schedule RC-B, column D) 1,266
3. Federal Funds sold (4) and securities purchased agreements to resell 60,200
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C) 50
b. LESS: Allowance for loan and lease losses 0
c. LESS: Allocated transfer risk reserve 0
d. Loans and leases, net of unearned income, allowance, and
reserve (item 4.a minus 4.b and 4.c) 50
5. Trading assets 0
6. Premises and fixed assets (including capitalized leases) 233
7. Other real estate owned (from Schedule RC-M) 0
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M) 0
9. Customers liability to this bank on acceptances outstanding 0
10. Intangible assets (from Schedule RC-M) 1,203
11. Other assets (from Schedule RC-F) 2,064
12a. TOTAL ASSETS 66,926
</TABLE>
(1) includes cash items in process of collection and unposted debits.
(2) The amount reported in this item must be greater than or equal to the sum of
Schedule RC-M, items 3.a and 3.b
(3) includes time certificates of deposit not held for trading.
(4) Report "term federal funds sold" in Schedule RC, item 4.a "Loans and leases,
net of unearned income" and in Schedule RC-C, part 1.
<PAGE>
LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from
Schedule RC-E) 37,379
(1) Noninterest-bearing 5,680
(2) Interest-bearing 31,699
b. In foreign offices, Edge and Agreement subsidiaries, and IBF'
(1) Noninterest-bearing
(2) Interest-bearing
14. Federal funds purchased (2) and securities sold under agreements to
repurchase 0
15. a. Demand notes issued to the U.S. Treasury 0
b. Trading liabilities 0
16. Other borrowed money (includes mortgage indebtedness and obligations
under capitalized leases):
a. With a remaining maturity of one year or less 0
b. With a remaining maturity of more than one year through three years 0
c. With a remaining maturity of more than three years 0
17. Not applicable
18. Bank's liability on acceptances executed and outstanding 0
19. Subordinated notes and Debentures (3) 0
20. Other liabilities (from Schedule RC-G) 4,218
21. Total liabilities (sum of items 13 through 20) 41,597
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus 0
24. Common stock-- 600
25. Surplus (exclude all surplus related to preferred stock) 12,590
26. a. Undivided profits and capital reserves 12,139
b. Net unrealized holding gains (losses) on available-for-sale securities 0
27. Cumulative foreign currency translation adjustments
28. a. Total equity capital (sum of items 23 through 27) 25,329
29. Total liabilities, equity capital, and losses deferred pursuant to
12 U.S.C. 1823 (j) (sum of items 21 and 28.c) 66,926
</TABLE>
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 136,792
<SECURITIES> 0
<RECEIVABLES> 61,971
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,295,198
<DEPRECIATION> 312,940
<TOTAL-ASSETS> 1,772,853
<CURRENT-LIABILITIES> 0
<BONDS> 1,077,726
0
0
<COMMON> 0
<OTHER-SE> 379,467
<TOTAL-LIABILITY-AND-EQUITY> 1,772,853
<SALES> 231,613
<TOTAL-REVENUES> 266,996
<CGS> 0
<TOTAL-COSTS> 84,848
<OTHER-EXPENSES> 3,333
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,729
<INCOME-PRETAX> 79,686
<INCOME-TAX> 30,520
<INCOME-CONTINUING> 49,166
<DISCONTINUED> 0
<EXTRAORDINARY> (17,478)
<CHANGES> 0
<NET-INCOME> 31,688
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER
UNREGISTERED 7.416% SENIOR SECURED BONDS DUE DECEMBER 15, 2018
AND (INCLUDING THOSE IN BOOK-ENTRY FORM)
OF
CE GENERATION, LLC
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED [____________], 1999
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON [____________], 1999 (THE "EXPIRATION DATE"), UNLESS THE
EXCHANGE OFFER IS EXTENDED BY THE REGISTRANT.
- -------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
CHASE MANHATTAN BANK AND
TRUST COMPANY, NATIONAL ASSOCIATION
DELIVER TO:
<TABLE>
<CAPTION>
<S> <C>
By Registered or Certified Mail By Hand Delivery:
or Overnight Delivery:
Chase Manhattan Bank
Chase Manhattan Bank and Trust Company, National Association
and Trust Company, National Association c/o The Chase Manhattan Bank
c/o Chase Bank of Texas, National Association 55 Water Street, Room 234 North Building
Corporate Trust Services New York, NY 10041
1201 Main Street, 18th Floor
Dallas, TX 75202
Attention: Frank Ivins (Personal and Confidential)
</TABLE>
By Facsimile
(for Eligible Institutions Only):
(214) 672-5746
For Information or
Confirmation by Telephone:
(415) 954-9508
ORIGINALS OF ALL DOCUMENTS SENT BY FACSIMILE SHOULD BE SENT
PROMPTLY BY REGISTERED OR CERTIFIED MAIL, BY HAND
OR BY OVERNIGHT DELIVERY SERVICE.
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
IF YOU WISH TO EXCHANGE UNREGISTERED 7.416% SENIOR SECURED BONDS DUE
DECEMBER 15, 2018 (THE "OLD SECURITIES") FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT
OF REGISTERED 7.416% SENIOR SECURED BONDS DUE DECEMBER 15, 2018 (THE "NEW
SECURITIES") PURSUANT TO THE EXCHANGE OFFER, YOU MUST VALIDLY TENDER (AND NOT
WITHDRAW) OLD SECURITIES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
<PAGE>
SIGNATURES MUST BE PROVIDED.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY BEFORE
COMPLETING THIS LETTER OF TRANSMITTAL
<PAGE>
This Letter of Transmittal is to be completed by holders of Old
Securities either if Old Securities are to be forwarded herewith or if tenders
of Old Securities are to be made by book-entry transfer to an account maintained
by Chase Manhattan Bank and Trust Company, National Association (the "Exchange
Agent"), at The Depository Trust Company pursuant to the procedures set forth in
"The Exchange Offer -- Procedures for Tendering" in the Prospectus (as defined).
Holders of Old Securities whose certificates for such Old Securities
are not immediately available or who cannot deliver their certificates and all
other required documents to the Exchange Agent on or prior to the Expiration
Date or who cannot complete the procedures for book-entry transfer on a timely
basis, must tender their Old Securities according to the guaranteed delivery
procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures"
in the Prospectus.
DESCRIPTION OF TENDERED OLD SECURITIES
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------- ------------------ -------------------
AGGREGATE
NAMES(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) CERTIFICATE PRINCIPAL AMOUNT
AS IT APPEARS ON THE 7.416% SECURED BONDS DUE DECEMBER 15, 2018 NUMBER(S) OF OLD SECURITIES
(PLEASE FILL IN, IF BLANK) OF OLD TENDERED
SECURITIES
- ------------------------------------------------------------------------------- ------------------ -------------------
------------------ -------------------
------------------ -------------------
------------------ -------------------
------------------ -------------------
TOTAL PRINCIPAL
AMOUNT OF OLD
SECURITIES
TENDERED
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED OLD SECURITIES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
------------------------------------------
Account Number
---------------------------------------------------------
Transaction Code Number
-------------------------------------------------
[ ] CHECK HERE AND ENCLOSE A COPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD SECURITIES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)
--------------------------------------------
Window Ticket Number (if any)
-------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
----------------------
Name of Institution which Guaranteed Delivery
---------------------------
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution
------------------------------------------
Account Number
----------------------------------------------------------
Transaction Code Number
-------------------------------------------------
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD
SECURITIES ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER
FACILITY ACCOUNT NUMBER SET FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD SECURITIES FOR
ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES
(A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
------------------------------------------------------------------
Address:
----------------------------------------------------------------
4
<PAGE>
LADIES AND GENTLEMEN:
1. The undersigned hereby tenders to CE Generation, LLC (the "Registrant")
the Old Securities described above pursuant to the Registrant's offer of $1,000
principal amount of New Securities in exchange for each $1,000 principal amount
of Old Securities upon the terms and subject to the conditions contained in the
Prospectus dated [_________], 1999 (the "Prospectus"), receipt of which is
hereby acknowledged, and in this Letter of Transmittal (which together
constitute the "Exchange Offer").
2. The undersigned hereby represents and warrants that it has full
authority to tender the Old Securities described above. The undersigned will,
upon request, execute and deliver any additional documents deemed by the
Registrant to be necessary or desirable to complete the tender of Old
Securities.
3. The undersigned understands that the tender of the Old Securities
pursuant to all of the procedures set forth in the Prospectus will constitute an
agreement between the undersigned and the Registrant as to the terms and
conditions set forth in the Prospectus.
4. Unless the box under the heading "Special Registration Instructions" is
checked, the undersigned hereby represents and warrants that:
(i) the New Securities acquired pursuant to the Exchange Offer in
exchange for Old Securities are being obtained in the ordinary course of
business of the undersigned and any beneficial owner(s) of such Old
Securities or interests therein, whether or not the undersigned is the
holder;
(ii) neither the undersigned nor any such other person is engaging in
or intends to engage in a distribution of such New Securities;
(iii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of such New Securities;
(iv) if the undersigned or such other person is a resident of the
State of California, it falls under the self-executing institutional
investor exemption set forth under Section 25102(i) of the Corporate
Securities Law of 1968 and Rules 260.102.10 and 260.105.14 of the
California Blue Sky Regulations;
(v) if the undersigned or such other person is a resident of the
Commonwealth of Pennsylvania, it falls under the self-executing
institutional investor exemption set forth under Sections 203(c), 102(d)
and (k) of the Pennsylvania Securities Act of 1972, Section 102.111 of the
Pennsylvania Blue Sky Regulations and an interpretive opinion dated
November 16, 1985;
(vi) the undersigned acknowledges and agrees that any person who is a
broker-dealer registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or is participating in the Exchange Offer for
the purpose of distributing the New
5
<PAGE>
Securities must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the New Securities or interests therein acquired by such
person and cannot rely on the position of the staff of the Commission set
forth in certain no-action letters;
(vii) the undersigned understands that a secondary resale transaction
described in clause (vi) above and any resales of New Securities or
interests therein obtained by such holder in exchange for Old Securities or
interests therein originally acquired by such holder directly from the
Registrant should be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
Item 508, as applicable, of Regulation S-K of the Commission; and
(viii) neither the holder nor any such other person is an "affiliate,"
as such term is defined under Rule 405 promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), of the Registrant.
5. The undersigned may, if and only if unable to make all of the
representations and warranties contained in Item 4 above, elect to have its Old
Securities registered in the shelf registration described in the Exchange and
Registration Rights Agreement, dated as of March 2, 1999, among Credit Suisse
First Boston Corporation, Lehman Brothers Inc. and the Registrant, in the form
filed as an exhibit to the registration statement of which the Prospectus is a
part. Such election may be made by checking the box under "Special Registration
Instructions" on page 9. By making such election, the undersigned agrees,
jointly and severally, as a holder of transfer restricted securities
participating in a shelf registration, to indemnify and hold harmless the
Registrant, their respective directors and officers and each Person who controls
the Registrant, within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, against any and all losses, claims, damages and
liabilities whatsoever (including, without limitation, the reasonable legal and
other expenses actually incurred in connection with any suit, action or
proceeding or any claim asserted) caused by, arising out of or based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the shelf registration statement filed with respect to such Old Securities or
the Prospectus or in any amendment thereof or supplement thereto or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in each case to the
extent, but only to the extent, that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made therein in reliance upon and in conformity
with information relating to the undersigned furnished to the Registrant in
writing by or on behalf of the undersigned expressly for use therein. Any such
indemnification shall be governed by the terms and subject to the conditions set
forth in the Exchange and Registration Rights Agreement, including, without
limitation, the provisions regarding notice, retention of counsel, contribution
and payment of expenses set forth therein. The above summary of the
indemnification provision of the Exchange and Registration Rights Agreement is
not intended to be exhaustive and is qualified in its entirety by reference to
the Exchange and Registration Rights Agreement.
6
<PAGE>
6. If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Securities . If the undersigned is a broker-dealer that will receive New
Securities for its own account in exchange for Old Securities that were acquired
as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such New Securities, however, by so acknowledging and delivering a prospectus,
the undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. If the undersigned is a broker-dealer and Old
Securities held for its own account were not acquired as a result of
market-making or other trading activities, such Old Securities cannot be
exchanged pursuant to the Exchange Offer.
7. Any obligation of the undersigned hereunder shall be binding upon the
successors, assigns, executors, administrators, trustees in bankruptcy and legal
and personal representatives of the undersigned.
8. Unless otherwise indicated herein under "Special Delivery Instructions,"
the certificates for the New Securities will be issued in the name of the
undersigned.
7
<PAGE>
- -------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 1)
To be completed ONLY IF the New Securities are to be issued or sent to
someone other than the undersigned or to the undersigned at an address other
than that provided above.
Mail [ ] Issue [ ] (check appropriate boxes) certificates to:
Name:
-----------------------------------------------------------------------
(PLEASE PRINT)
Address:
-----------------------------------------------------------------------
(INCLUDING ZIP CODE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SPECIAL REGISTRATION INSTRUCTIONS
(See Item 5)
To be completed ONLY IF (i) the undersigned satisfies the conditions set
forth in Item 5 above, (ii) the undersigned elects to register its Old
Securities in the shelf registration described in the Exchange and Registration
Rights Agreement and (iii) the undersigned agrees to indemnify certain entities
and individuals as set forth in the Exchange and Registration Rights Agreement
and summarized in Item 5 above.
[ ] By checking this box the undersigned hereby (i) represents that it is
unable to make all of the representations and warranties set forth in Item 4
above, (ii) elects to have its Old Securities registered pursuant to the shelf
registration described in the Exchange and Registration Rights Agreement and
(iii) agrees to indemnify certain entities and individuals identified in, and to
the extent provided in, the Exchange and Registration Rights Agreement and
summarized in Item 5 above.
- -------------------------------------------------------------------------------
8
<PAGE>
- -------------------------------------------------------------------------------
SIGNATURE
To be completed by all exchanging bondholders. Must be signed by
registered holder exactly as name appears on the Old Securities. If signature
is by trustee, executor, administrator, guardian, attorney-in-fact, officer of
a corporation or other person acting in a fiduciary or representative
capacity, please set forth full title. See Instruction 3.
X
-----------------------------------------------------------------------------
X
-----------------------------------------------------------------------------
SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATURE
Dated:
-------------------------------------------------------------------------
Names(s):
----------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
----------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(INCLUDING ZIP CODE)
Area Code and Telephone
No.:
-------------------------------------------------------------------------
SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 1)
Certain Signatures Must be Guaranteed by an Eligible Institution
- -------------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
- -------------------------------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE)
OF FIRM)
- -------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- -------------------------------------------------------------------------------
(PRINTED NAME)
(TITLE)
Dated:
------------------------------------------------------------------------
PLEASE READ THE FOLLOWING INSTRUCTIONS,
WHICH FORM A PART OF THIS LETTER OF TRANSMITTAL
9
<PAGE>
INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal must
be guaranteed by an eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or by an "eligible guarantor
institution" within the meaning of Rule l7Ad-15 promulgated under the Exchange
Act (an "Eligible Institution") unless the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" above has not been completed or
the Old Securities described above are tendered for the account of an Eligible
Institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD SECURITIES. The Old
Securities, together with a properly completed and duly executed Letter of
Transmittal (or copy thereof), should be mailed or delivered to the Exchange
Agent at the address set forth above.
THE METHOD OF DELIVERY OF OLD SECURITIES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD SECURITIES SHOULD BE SENT TO THE REGISTRANT.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES, OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
3. SIGNATURE ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by a person other than a registered holder
of any Old Securities, such Old Securities must be endorsed or accompanied by
appropriate bond powers, signed by such registered holder exactly as such
registered holder's name appears on such Old Securities.
If this Letter of Transmittal or any Old Securities 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
the Registrant, proper evidence satisfactory to the Issuers of their authority
to so act must be submitted with this Letter of Transmittal.
4. MISCELLANEOUS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance, and withdrawal of tendered Old
Securities will be determined by the Registrant in its sole discretion, which
determination will be final and binding on all parties. The Registrant reserves
the absolute right to reject any or all Old Securities not properly tendered or
any Old Securities the Registrant's acceptance of which would, in the opinion of
counsel for the Registrant, be unlawful. The Registrant also reserves the right
to waive any defects, irregularities, or conditions of tender as to particular
Old Securities. The Registrant's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in
10
<PAGE>
this Letter of Transmittal) will be final and binding. Unless waived, any
defects or irregularities in connection with tenders of Old Securities must be
cured within such time as the Issuers shall determine. Neither the Registrant,
the Exchange Agent, nor any other person shall be under any duty to give
notification of defects in such tenders or shall incur any liability for failure
to give such notification. Tenders of Old Securities will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
Old Securities received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holder thereof as soon as
practicable following the Expiration Date.
11
<PAGE>
EXHIBIT 99.2
LETTER TO REGISTERED HOLDERS AND DTC PARTICIPANTS
REGARDING THE OFFER TO EXCHANGE
$400,000,000 PRINCIPAL AMOUNT OF REGISTERED 7.416%
SENIOR SECURED BONDS DUE DECEMBER 15, 2018 FOR ANY AND
ALL OUTSTANDING $400,000,000 PRINCIPAL AMOUNT OF
UNREGISTERED 7.416% SENIOR SECURED BONDS DUE DECEMBER 15, 2018
OF
CE GENERATION, LLC
TO REGISTERED HOLDERS AND THE DEPOSITORY TRUST COMPANY PARTICIPANTS:
We are enclosing herewith the materials listed below relating to the
offer by CE Generation, LLC (the "Registrant") to exchange $1000 principal
amount of their registered 7.416% Senior Secured Bonds Due December 15, 2018
(the "Old Securities"), pursuant to an offering registered under the Securities
Act of 1933, as amended (the "Securities Act"), for each $1000 principal amount
of their outstanding unregistered 7.416% Senior Secured Bonds Due December 15,
2018 (the "New Securities"), of which a total of $400,000,000 in aggregate
principal amount was issued on March 2, 1999 and is outstanding as of the date
hereof, upon the terms and subject to the conditions set forth in the
Registrant's Prospectus, dated [___________], 1999, and the related Letter of
Transmittal (which together constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated [____________], 1999;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Registered Holder or DTC Participant
from Beneficial Owner; and
5. Letter which may be sent to your clients for whose account
you hold definitive registered bonds or book-entry interests
representing Old Securities in your name or in the name of your
nominee, to accompany the instruction form referred to above, for
obtaining such client's instruction with regard to the Exchange Offer.
- -------------------------------------------------------------------------------
WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE
EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
[_______________], 1999, UNLESS EXTENDED.
- -------------------------------------------------------------------------------
The Exchange Offer is not conditioned upon any minimum number of Old
Securities being tendered.
To participate in the Exchange Offer, a beneficial holder must either
(i) cause to be delivered to Chase Manhattan Bank and Trust Company, National
Association (the "Exchange Agent"), at the address
<PAGE>
set forth in the Letter of Transmittal, definitive registered bonds representing
Old Securities in proper form for transfer together with a properly executed
Letter of Transmittal or (ii) cause a DTC participant to tender such holder's
Old Securities to the Exchange Agent's account maintained at the Depository
Trust Company ("DTC") for the benefit of the Exchange Agent through DTC's
Automated Tender Offer Program ("ATOP"), including transmission of a
computer-generated message that acknowledges and agrees to be bound by the terms
of the Letter of Transmittal. By complying with DTC's ATOP procedures with
respect to the Exchange Offer, the DTC participant confirms on behalf of itself
and the beneficial owners of tendered Old Securities all provisions of the
Letter of Transmittal applicable to it and such beneficial owners as fully as if
it completed, executed and returned the Letter of Transmittal to the Exchange
Agent.
Pursuant to the Letter of Transmittal, each holder of Old Securities
will represent to the Registrant that: (i) the New Securities or book-entry
interests therein to be acquired by such holder and any beneficial owner(s) of
the Old Securities or interests therein ("Beneficial Owner(s)") in connection
with the Exchange Offer are being acquired by such holder and any Beneficial
Owner(s) in the ordinary course of business of the holder and any Beneficial
Owner(s), (ii) the holder and each Beneficial Owner are not participating, do
not intend to participate, and have no arrangement or understanding with any
person to participate, in the distribution of the New Securities, (iii) if the
holder or Beneficial Owner is a resident of the State of California, it falls
under the self-executing institutional investor exemption set forth under
Section 25102(i) of the Corporate Securities Law of 1968 and Rules 260.102.10
and 260.105.14 of the California Blue Sky Regulations, (iv) if the holder or
Beneficial Owner is a resident of the Commonwealth of Pennsylvania, it falls
under the self-executing institutional investor exemption set forth under
Sections 203(c), 102(d) and (k) of the Pennsylvania Securities Act of 1972,
Section 102.111 of the Pennsylvania Blue Sky Regulations and an interpretive
opinion dated November 16, 1985, (v) the holder and each Beneficial Owner
acknowledge and agree that any person who is a broker-dealer registered under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") or is
participating in the Exchange Offer for the purpose of distributing the New
Securities must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the New Securities or interests therein acquired by such person
and cannot rely on the position of the staff of the Commission set forth in
certain no-action letters, (vi) the holder and each Beneficial Owner understand
that a secondary resale transaction described in clause (v) above and any
resales of New Securities or interests therein obtained by such holder in
exchange for Old Securities or interests therein originally acquired by such
holder directly from the Registrant should be covered by an effective
registration statement containing the selling security holder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission and (vii) neither the holder nor any Beneficial Owner(s) is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Registrant.
Upon a request by the Registrant, a holder or Beneficial Owner will deliver to
the Registrant a legal opinion confirming its representation made in clause
(vii) above. If the tendering holder of Old Securities is (1) a broker-dealer
(whether or not it is also an "affiliate") or (2) a Beneficial Owner(s) that
will receive New Securities pursuant to the Exchange Offer, the tendering holder
will represent on behalf of itself and, if such Old Securities are being held on
behalf of Beneficial Owner(s), on behalf of such Beneficial Owner(s) that the
Old Securities to be exchanged for the New Securities were acquired as a result
of market-making activities or other trading activities, and acknowledge on its
own behalf and, if such Old Securities are held on behalf of Beneficial
Owner(s), on behalf of such Beneficial Owner(s) that it or they will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Securities; however, by so acknowledging and by delivering a
prospectus, such tendering holder will not be deemed to admit that it or any
Beneficial Owner is an "underwriter" within the meaning of the Securities Act.
2
<PAGE>
The enclosed "Instruction to Registered Holder or DTC Participant from
Beneficial Owner" form contains an authorization by the beneficial owners of Old
Securities for you to make the foregoing representations.
The Registrant will not pay any fee or commission to any broker or
dealer or to any other persons (other than the Exchange Agent) in connection
with the solicitation of tenders of Old Securities pursuant to the Exchange
Offer. The Registrant will pay or cause to be paid any transfer taxes payable on
the transfer of Old Securities to them, except as otherwise provided in the
section "The Exchange Offer--Fees and Expenses" of the enclosed Prospectus.
Additional copies of the enclosed material may be obtained from the
Exchange Agent.
Very truly yours,
CE Generation, LLC
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE
YOU THE AGENT OF THE REGISTRANT OR THE EXCHANGE AGENT OR AUTHORIZE YOU TO USE
ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE
EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS
CONTAINED THEREIN.
3
<PAGE>
EXHIBIT 99.3
INSTRUCTION TO REGISTERED HOLDER OR DTC PARTICIPANT
FROM BENEFICIAL OWNER
FOR
7.416% SENIOR SECURED BONDS DUE DECEMBER 15, 2018
OF
CE GENERATION, LLC
The undersigned hereby acknowledges receipt of the Prospectus dated
[__________], 1999 (the "Prospectus"), of CE Generation, LLC (the "Registrant"),
and the accompanying Letter of Transmittal (the "Letter of Transmittal") that
together constitute the Registrant's offer (the "Exchange Offer"). Capitalized
terms used but not defined herein have the meanings assigned to them in the
Prospectus and the Letter of Transmittal.
This will instruct you as to the action to be taken by you relating to
the Exchange Offer with respect to the 7.416% Senior Secured Bonds Due December
15, 2018 (the "Old Securities") held by you for the account of the undersigned.
The principal amount of the Old Securities held by you for the account
of the undersigned is (fill in amount) $___________.
With respect to the Exchange Offer, the undersigned hereby instructs
you (check appropriate box):
[ ] To TENDER the following principal amount of Old Securities
held by you for the account of the undersigned (insert amount
of Old Securities to be tendered, if any): $_____________.
[ ] NOT to TENDER any Old Securities held by you for the account
of the undersigned.
If the undersigned instructs you to tender the Old Securities held by
you for the account of the undersigned, it is understood that you are
authorized:
(a) to make, on behalf of the undersigned (and the
undersigned, by its signature below, hereby makes to you), the
representations and warranties contained in the Letter of Transmittal
that are to be made with respect to the undersigned as a beneficial
owner, including but not limited to the representations that (i) the
7.416% Senior Secured Bonds Due December 15, 2018 (the "New
Securities") or book-entry interests therein to be acquired by the
undersigned in connection with the Exchange Offer are being acquired by
the undersigned in the ordinary course of business of the undersigned,
(ii) the undersigned is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the New Securities, (iii) if the
undersigned is a resident of the State of California, it falls under
the self-executing institutional investor exemption set forth under
Section 25102(i) of the Corporate Securities Law of 1968 and Rules
260.102.10 and 260.105.14 of the California Blue Sky Regulations, (iv)
if the undersigned is a resident of the Commonwealth of Pennsylvania,
it falls under the self-executing institutional investor exemption set
forth under Sections 203(c), 102(d) and (k) of the Pennsylvania
Securities Act of 1972, Section 102.111 of the Pennsylvania Blue Sky
Regulations and an interpretive opinion dated November 16, 1985, (v)
the undersigned acknowledges and agrees that any person who is a
broker-dealer registered under
<PAGE>
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or is participating in the Exchange Offer for the purpose of
distributing the New Securities must comply with the registration and
prospectus delivery requirements of the Securities Act in connection
with a secondary resale transaction of the New Securities or interests
therein acquired by such person and cannot rely on the position of the
staff of the Commission set forth in certain no-action letters, (vi)
the undersigned understands that a secondary resale transaction
described in clause (v) above and any resales of New Securities or
interests therein obtained by such holder in exchange for Old
Securities or interests therein originally acquired by such holder
directly from the Registrant should be covered by an effective
registration statement containing the selling security holder
information required by Item 507 or Item 508, as applicable, of
Regulation S-K of the Commission and (vii) the undersigned is not an
"affiliate," as defined in Rule 405 under the Securities Act, of the
Registrant. Upon a request by the Registrant, the undersigned will
deliver to the Registrant a legal opinion confirming its
representation made in clause (vii) above. If the undersigned is a
broker-dealer (whether or not it is also an "affiliate") that will
receive New Securities for its own account pursuant to the Exchange
Offer, the undersigned represents that the Old Securities to be
exchanged for the New Securities were acquired by it as a result of
market-making activities or other trading activities, and acknowledges
that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Securities;
however, by so acknowledging and by delivering a prospectus, the
undersigned does not and will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act;
(b) to agree, on behalf of the undersigned, as set forth
in the Letter of Transmittal; and
(c) to take such other action as necessary under the
Prospectus or the Letter of Transmittal to effect the valid tender of
such Old Securities.
- -------------------------------------------------------------------------------
SIGN HERE
Name of Beneficial Owner(s):
---------------------------------------------------
Signature(s):
-----------------------------------------------------------------
Name(s) (please print):
--------------------------------------------------------
Address:
-----------------------------------------------------------------------
----------------------------------------------------------------------
Telephone Number:
--------------------------------------------------------------
Taxpayer Identification or Social Security Number:
-----------------------------
Date:
-------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2
<PAGE>
EXHIBIT 99.4
LETTER TO CLIENTS
REGARDING THE OFFER TO EXCHANGE
$400,000,000 PRINCIPAL AMOUNT OF REGISTERED 7.416%
SENIOR SECURED BONDS DUE DECEMBER 15, 2018 FOR ANY AND
ALL OUTSTANDING UNREGISTERED $400,000,000 PRINCIPAL AMOUNT
OF 7.416% SENIOR SECURED BONDS DUE DECEMBER 15, 2018
OF
CE GENERATION, LLC
To Our Clients:
We are enclosing herewith a Prospectus, dated [___________],1999, of CE
Generation, LLC (the "Registrant") and a related Letter of Transmittal (which
together constitute the "Exchange Offer") relating to the offer by the
Registrant to exchange $1000 principal amount of their 7.416% Senior Secured
Bonds Due December 15, 2018 (the "New Securities"), pursuant to an offering
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for each $1000 principal amount of their outstanding 7.416% Senior Secured Bonds
Due December 15, 2018 (the "Old Securities"), of which a total of $400,000,000
in aggregate principal amount was issued on March 2, 1999 and is outstanding as
of the date hereof, upon the terms and subject to the conditions set forth in
the Exchange Offer.
- -------------------------------------------------------------------------------
PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON [____________], 1999, UNLESS EXTENDED.
- -------------------------------------------------------------------------------
The Exchange Offer is not conditioned upon any minimum number of Old
Securities being tendered.
We are the Registered Holder or DTC participant through which you hold
an interest in the Old Securities. A tender of such Old Securities can be made
only by us pursuant to your instructions. The Letter of Transmittal is furnished
to you for your information only and cannot be used by you to tender your
beneficial ownership of Old Securities held by us for your account.
We request instructions as to whether you wish to tender any or all of
your Old Securities held by us for your account pursuant to the terms and
subject to the conditions of the Exchange Offer. We also request that you
confirm that we may on your behalf make the representations contained in the
Letter of Transmittal that are to be made with respect to you as beneficial
owner.
Pursuant to the Letter of Transmittal, each holder of Old Securities
must make certain representations and warranties that are set forth in the
Letter of Transmittal and in the attached form that we have provided to you for
your instructions regarding what action we should take in the Exchange Offer
with respect to your interest in the Old Securities.
<PAGE>
EXHIBIT 99.5
NOTICE OF GUARANTEED DELIVERY
TO TENDER
UNREGISTERED 7.416% SENIOR SECURED BONDS DUE DECEMBER 15, 2018
(INCLUDING THOSE IN BOOK-ENTRY FORM)
OF
CE GENERATION, LLC
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED [___________], 1999
As set forth in the Prospectus (as defined), this form or one
substantially equivalent hereto must be used to accept the Exchange Offer (i) if
certificates for unregistered 7.416% Senior Secured Bonds Due December 15, 2018
and (the "Old Securities") of CE Generation, LLC (the "Registrant"), are not
immediately available, (ii) time will not permit a holder's Old Securities or
other required documents to reach Chase Manhattan Bank and Trust Company,
National Association (the "Exchange Agent"), on or prior to the Expiration Date
(as defined) or (iii) the procedure for book-entry transfer cannot be completed
on a timely basis. This form may be delivered by facsimile transmission,
registered or certified mail, by hand or by overnight delivery service to the
Exchange Agent. See "The Exchange Offer--Procedures for Tendering" in the
Prospectus.
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON [____________], 1999 (THE "EXPIRATION DATE"), UNLESS THE
EXCHANGE OFFER IS EXTENDED BY THE ISSUERS.
- -------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATIONS
DELIVER TO:
<TABLE>
<CAPTION>
By Registered or Certified Mail: By Hand or Overnight Delivery:
<S> <C>
Chase Manhattan Bank and Trust Company, Chase Manhattan Bank and Trust Company,
National Associations National Associations
101 California Street, #2725 101 California Street, #2725
San Francisco, CA 94111 San Francisco, CA 94111
Attention: Corporate Trust Department Attention: Corporate Trust Department
</TABLE>
By Facsimile:
(Eligible Institutions Only)
(415) 693-8850
For Information or
Confirmation by Telephone:
(415) 954-9508
Originals of all documents sent by facsimile
should be sent promptly by registered
or certified mail, by hand or by
overnight delivery service.
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OR
TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
EXHIBIT 99.5
Ladies and Gentlemen:
The undersigned hereby tenders to the Registrant, upon the terms and
subject to the conditions set forth in the Prospectus dated [__________], 1999
(as the same may be amended or supplemented from time to time, the
"Prospectus"), and the related Letter of Transmittal, receipt of which is hereby
acknowledged, the aggregate principal amount of Old Securities set forth below
pursuant to the guaranteed delivery procedures set forth in the Prospectus under
the caption "The Exchange Offer--Guaranteed Delivery Procedures."
- -------------------------------------------------------------------------------
Name(s) of Registered Holder(s):
--------------------------------------
Aggregate Principal
Amount Tendered: $
---------------------------------------------------
Certificate No.(s)
(if available):
-------------------------------------------------------
(Total Principal Amount Represented by
Old Securities Certificate(s)):
---------------------------------------
$
---------------------------------------------------------------------
If Old Securities will be tendered by book-entry transfer, provide the
following information;
DTC Account Number:
--------------------------------------------------
Date:
-----------------------------------------------------------------
* Must be in denominations of $1,000 and any integral multiple thereof.
- -------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
<PAGE>
- -------------------------------------------------------------------------------
PLEASE SIGN HERE
X__________________________________ ____________________________________
X__________________________________ ____________________________________
Signature(s) or Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:
--------------------------------------------
Must be signed by the holder(s) of the Old Securities as their name(s)
appear(s) on certificates for Old Securities or on a security position
listing, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Notice of Guaranteed
Delivery. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title
below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
Capacity:
-----------------------------------------------------------------
Address(es):
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THE GUARANTEE ON THE NEXT PAGE MUST BE COMPLETED.
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EXHIBIT 99.5
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of or participant in the Securities Transfer
Agents Medallion Program, the New York Stock Exchange Signature Program or a
firm or other entity identified in Rule 17Ad-15 under the Securities Exchange
Act of 1934, as amended, as an "eligible guarantor institution," including (as
such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal
securities broker, municipal securities dealer, government securities broker or
government securities dealer; (iii) a credit union; (iv) a national securities
exchange, registered securities association or clearing agency; or (v) a savings
association that is a participant in a Securities Transfer Association
recognized program (each of the foregoing being referred to as an "Eligible
Institution"), hereby guarantees to deliver to the Exchange Agent, at one of its
addresses set forth above, either the Old Securities tendered hereby in proper
form for transfer, or confirmation of the book-entry transfer of such Old
Securities to the Exchange Agent's account at The Depositary Trust Company,
pursuant to the procedures for book-entry transfer set forth in the Prospectus,
within three New York Stock Exchange, Inc. trading days after the date of
execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Old Securities
tendered hereby to the Exchange Agent within the time period set forth above and
that failure to do so could result in a financial loss to the undersigned.
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Name of Firm Authorized Signature
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Address Title
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Zip Code (Please Type or Print)
Area Code and Telephone No.:_______ Dated:______________________________
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NOTE: DO NOT SEND CERTIFICATES FOR OLD SECURITIES WITH THIS FORM.
