REGISTRATION NO. 333-07527
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
--------------------
SALTON SEA FUNDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 4911 47-0790493
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
SALTON SEA BRINE PROCESSING L.P. California 4911 33-0601721
Salton Sea Power Generation L.P. California 4911 33-0567411
Fish Lake Power Company Delaware 4911 33-0453364
Vulcan Power Company Nevada 4911 95-3992087
CalEnergy Operating Company Delaware 4911 33-0268085
Salton Sea Royalty Company Delaware 4911 47-0790492
BN Geothermal Inc. Delaware 4911 91-1244270
San Felipe Energy Company California 4911 33-0315787
Conejo Energy Company California 4911 33-0268500
Niguel Energy Company California 4911 33-0268502
Vulcan/BN Geothermal Power Company Nevada 4911 95-3992087
Leathers, L.P. California 4911 33-0305342
Del Ranch, L.P. California 4911 33-0278290
Elmore, L.P. California 4911 33-0278294
(Exact name of Registrants (State or other (Primary Standard (I.R.S. Employer
as specified in their charters) jurisdiction of incorporation Industrial Classification Identification No.)
or organization) Code Number)
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302 SOUTH 36TH STREET, SUITE 400-A, OMAHA, NEBRASKA 68131 (402) 231-1641
(Address, including zip code, and telephone number, including area code, of
the Salton Sea Funding Corporation's principal executive offices)
--------------------
STEVEN A. MCARTHUR, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
SALTON SEA FUNDING CORPORATION
302 SOUTH 36TH STREET, SUITE 400-A
OMAHA, NEBRASKA 68131 (402) 231-1641
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
--------------------
WITH COPIES TO:
PETER J. HANLON, ESQ.
WILLKIE FARR & GALLAGHER
ONE CITICORP CENTER, 153 EAST 53RD STREET
NEW YORK, NEW YORK 10022 (212) 821-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE
SECURITIES TO THE PUBLIC: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this form are to be
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box.[ ]
--------------------
THE REGISTRANTS HEREBY AMEND 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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
<PAGE>
SALTON SEA FUNDING CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
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S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
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1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus............... Facing Page; Cross Reference Sheet; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus........................................ Inside Front and Outside Back Cover Pages of
Prospectus; Available Information
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information........................ Prospectus Summary; Risk Factors; Selected
Historical Financial and Operating Data of the
Salton Sea Funding Corporation; Selected
Historical Combined Financial and Operating
Data of Salton Sea Guarantors; Selected Historical
and Pro Forma Combined Financial and
Operating Data of the Partnership Guarantors;
Selected Historical Combined Financial and
Operating Data of the Royalty Guarantor
4. Terms of the Transaction............................. Prospectus Summary; Risk Factors; The Exchange
Offer; Summary Description of the Series D and
Series E Securities; Summary Description of
Principal Financing Documents; The Exchange
Offer; Ownership
5. Pro Forma Financial Information...................... Prospectus Summary; Capitalization; Selected
Historical and Pro Forma Combined Financial
and Operating Data of the Partnership
Guarantors; Pro Forma Condensed Combined
Unaudited Financial Data
6. Material Contacts with the Company Being
Acquired............................................. Not applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters................................... Not applicable
8. Interests of Named Experts and Counsel............... Legal Matters; Independent Accountants;
Independent Engineer
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.......................................... Not applicable
S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
10. Information with Respect to S-3
Registrants.......................................... Not applicable
11. Incorporation of Certain Information by
Reference............................................ Not applicable
12. Information with Respect to S-2 or S-3
Registrants.......................................... Not applicable
13. Incorporation of Certain Information by
Reference............................................ Not applicable
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants.................... Cover of Registration Statement; Prospectus
Summary; Risk Factors; Use of Proceeds; The
Exchange Offer; Capitalization; Selected
Historical Financial and Operating Data of the
Salton Sea Funding Corporation; Selected
Historical Combined Financial and Operating
Data of the Salton Sea Guarantors; Selected
Historical and Pro Forma Combined Financial
and Operating Data of the Partnership
Guarantors; Selected Historical Combined
Financial and Operating Data of the Royalty
Guarantor; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Certain Relationships and Related
Transactions; Business of the Guarantors;
Management
15. Information with Respect to S-3
Companies............................................ Not applicable
16. Information with Respect to S-2 or S-3
Companies............................................ Not applicable
17. Information with Respect to Companies
Other Than S-3 or S-2 Companies...................... Not applicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited................... Not applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in
an Exchange Offer.................................... Available Information; Prospectus Summary; The
Exchange Offer; Management; Executive
Compensation; Ownership; Certain Relationships
and Related Transactions
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PROSPECTUS
SALTON SEA FUNDING CORPORATION
Offer to Exchange 7.02% Senior Secured Series D Notes Due
May 30, 2000 for any and all of its outstanding 7.02% Senior
Secured Series D Notes Due May 30, 2000; and Offer to
Exchange 8.30% Senior Secured Series E Bonds Due May 30,
2011 for any and all of its outstanding 8.30% Senior Secured
Series E Bonds Due May 30, 2011.
At May 31, 1996, the Guarantors' proportionate share of project-level
indebtedness was approximately $96.6 million, which indebtedness is
effectively senior to the Securities (as defined below). Such indebtedness was
repaid in full out of the proceeds of the offering of the Old Securities (as
defined below). The Funding Corporation has not issued, and does not have any
present expectation to issue, any significantindebtedness to which the New
Securities would be senior.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON September 10, 1996, UNLESS EXTENDED.
Salton Sea Funding Corporation (the "Funding Corporation"), a special
purpose corporation and a wholly owned indirect subsidiary of CalEnergy
Company, Inc. ("CalEnergy"), hereby offers, upon the terms and subject to the
conditions set forth in the Prospectus and the accompanying letter of
transmittal (the "Letter of Transmittal" and together with this Prospectus,
the "Exchange Offer"), to exchange (i) its 7.02% Senior Secured Series D Notes
Due May 30, 2000 ("New Series D Securities") which have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for an equal
principal amount of its outstanding 7.02% Senior Secured Series D Notes Due
May 30, 2000 ("Old Series D Securities"), of which $70,000,000 aggregate
principal amount is outstanding, and (ii) its 8.30% Senior Secured Series E
Bonds Due May 30, 2011 ("New Series E Securities" and collectively with the
New Series D Securities, "New Securities") which have been registered under
the Securities Act pursuant to a Registration Statement of which this
Prospectus is a part, for an equal principal amount of its outstanding 8.30%
Senior Secured Series E Bonds Due May 30, 2011 ("Old Series E Securities" and
collectively with the Old Series D Securities, "Old Securities"), of which
$65,000,000 aggregate principal amount is outstanding. The New Securities, the
Old Securities, the Initial Securities (defined herein) and the Additional
Securities (defined herein) are collectively referred to herein as the
"Securities."
The Funding Corporation will accept for exchange any and all Old
Securities that are validly tendered and not withdrawn on or prior to 5:00
p.m., New York City time, on September 10, 1996, unless the Exchange Offer is
extended (the "Expiration Date"). Tenders of Old Securities may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
The Exchange Offer is not conditioned upon any minimum principal amount of Old
Securities being tendered for exchange. However, the Exchange Offer is subject
to certain customary conditions which may be waived by the Funding
Corporation. The Funding Corporation has agreed to pay the expenses of the
Exchange Offer. See "THE EXCHANGE OFFER." There will be no cash proceeds to
the Funding Corporation from the Exchange Offer. See "USE OF PROCEEDS."
(Cover continued on following page)
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FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
HOLDERS OF OLD SECURITIES WHO TENDER THEIR OLD SECURITIES IN THE EXCHANGE
OFFER, SEE "RISK FACTORS" ON PAGE 31 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
The date of this Prospectus is July 29, 1996
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<PAGE>
The New Securities are being offered for exchange in order to satisfy
certain obligations of the Funding Corporation under the Exchange and
Registration Rights Agreement, dated June 20, 1996 (the "Registration Rights
Agreement"), among the Funding Corporation and the Initial Purchaser (as
defined below). The New Securities will be obligations of the Funding
Corporation evidencing the same indebtedness as the Old Securities and will be
entitled to the benefits of the same Indenture (as defined herein), which
governs both the Old Securities and the New Securities. The form and terms
(including principal amount, interest rate, maturity and ranking) of the New
Securities are the same as the form and terms of the Old Securities, except
that (i) the New Securities have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer applicable
to the Old Securities and (ii) the New Securities will not provide for any
increase in the interest rate thereon. The Old Securities provide that under
certain circumstances, including if the Exchange Offer has not commenced by,
and a shelf registration statement has not been declared effective by, March
17, 1997, the respective interest rates on the Old Securities will increase by
0.50% per annum following March 17, 1997, until the Exchange Offer is
commenced 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 thereon. See "THE EXCHANGE
OFFER" and "SUMMARY DESCRIPTION OF PRINCIPAL FINANCING DOCUMENTS--
Registration Rights Agreement."
Prior to the Exchange Offer, there has been no established trading
market for the Old Securities or the New Securities. The Funding Corporation
does not intend to apply for listing or quotation of the New Securities on any
securities exchange or stock market. Therefore, there can be no assurance as
to the liquidity of any trading market for the New Securities or that an
active public market for the New Securities will develop. Any Old Securities
not tendered and accepted in the Exchange Offer will remain outstanding. To
the extent that Old Securities are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered, or tendered but unaccepted, Old
Securities could be adversely affected. Following consummation of the Exchange
Offer, the holders of Old Securities will continue to be subject to the
existing restrictions on transfer thereof and the Funding Corporation will
have no further obligations to such holders to provide for the registration of
the Old Securities under the Securities Act. See "SUMMARY DESCRIPTION OF
PRINCIPAL FINANCING DOCUMENTS-- Registration Rights Agreement."
The Old Securities were originally issued and sold on June 20, 1996
to CS First Boston Corporation (the "Initial Purchaser") in a transaction not
registered under the Securities Act in reliance upon the exemption provided in
Section 4(2) of the Securities Act (the "Initial Offering"). Accordingly, the
Old Securities may not be reoffered, resold or otherwise pledged, hypothecated
or transferred in the United States unless so registered or unless an
applicable exemption from the registration requirements of the Securities Act
is available. The Funding Corporation is making the Exchange Offer in reliance
on the position of the staff (the "Staff") of the Division of Corporation
Finance of the Securities and Exchange Commission (the "Commission") as set
forth in certain interpretive letters addressed to third parties in other
transactions. However, the Funding Corporation has not sought its own
interpretive letter and there can be no assurance that the Staff would make a
similar determination with respect to the Exchange Offer. Based on
interpretations by the Staff, the Funding Corporation believes that New
Securities issued pursuant to the Exchange Offer in exchange for Old
Securities may be offered for resale, resold and otherwise transferred by a
holder thereof (other than (i) an "affiliate" of the Funding Corporation
within the meaning of Rule 405 under the Securities Act, (ii) the Initial
Purchaser to the extent it acquired Old Securities directly from the Funding
Corporation solely in order to resell pursuant to Rule 144A of the Securities
Act or any other available exemption under the Securities Act or (iii) a
broker-dealer (which may include the Initial Purchaser) who acquired Old
Securities as a result of market-making or other trading activities) without
further compliance with the registration and prospectus delivery requirements
of the Securities Act, provided that such New Securities are acquired in the
ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Securities.
Based on the position taken by the Staff, the Funding Corporation
believes that broker-dealers who acquired Old Securities as a result of
market-making activities or other trading activities ("Participating
Broker-Dealers") may fulfill their prospectus delivery requirements with
respect to the New Securities received
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<PAGE>
upon exchange of such Old Securities with a prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such New Securities. Accordingly, 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 such New Securities.
See "PLAN OF DISTRIBUTION." Any holder that cannot rely upon such
interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction unless such sale is made pursuant to an exemption from such
requirements.
AVAILABLE INFORMATION
The Funding Corporation has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-4 (the
"Registration Statement," which term shall include all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act, and the rules
and regulations promulgated thereunder, covering the New Securities being
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Funding Corporation and the New Securities,
reference is hereby made to the Registration Statement. Statements made in
this Prospectus as to the contents of any contract, agreement or other
document referred to in the Registration Statement are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Funding Corporation is subject to the periodic and other informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and in accordance therewith files annual and quarterly reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information filed by the Funding Corporation may be
inspected at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional
offices located at Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, New York, New York
10048. The Commission also maintains a Website (http://www.sec.gov.) that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
The Funding Corporation is required by the terms of the indenture,
dated as of July 21, 1995 (the "Indenture"), between the Funding Corporation
and Chemical Trust Company of California, as trustee (the "Trustee"), under
which the Securities are issued, to furnish the Trustee with annual reports
containing condensed financial statements audited by their independent
certified public accountants and with quarterly reports containing unaudited
condensed financial statements for each of the first three quarters of each
fiscal year.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS.
IF GIVEN OR MADE SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUNDING CORPORATION. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE NEW
SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATIONS THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE FUNDING CORPORATION SINCE THE DATE HEREOF.
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FOR NEW HAMPSHIRE RESIDENTS ONLY
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR
A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE UNIFORM
SECURITIES ACT WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT, NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY
OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON
THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY
PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE,
TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
5
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TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION 4
DEFINED TERMS 7
PROSPECTUS SUMMARY 8
RISK FACTORS 31
USE OF PROCEEDS 35
THE EXCHANGE OFFER 35
CAPITALIZATION 44
SELECTED HISTORICAL FINANCIAL AND OPERATING
DATA OF THE FUNDING CORPORATION 45
SELECTED HISTORICAL COMBINED FINANCIAL AND
OPERATING DATA OF THE SALTON SEA GUARANTORS 46
SELECTED HISTORICAL AND PRO FORMA COMBINED
FINANCIAL AND OPERATING DATA OF THE PARTNERSHIP
GUARANTORS 47
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
OF THE ROYALTY GUARANTOR 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 51
BUSINESS OF THE GUARANTORS 61
MANAGEMENT 73
EXECUTIVE COMPENSATION 74
OWNERSHIP 74
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 75
SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS 76
SUMMARY DESCRIPTION OF THE SERIES D AND
SERIES E SECURITIES 96
SUMMARY DESCRIPTION OF PRINCIPAL FINANCING DOCUMENTS 99
PLAN OF DISTRIBUTION 137
LEGAL MATTERS 138
EXPERTS 138
INDEPENDENT ENGINEER 139
PART II II-I
INDEX TO FINANCIAL STATEMENTS F-1
INDEX TO PRO FORMA CONDENSED COMBINED
UNAUDITED FINANCIAL DATA P-1
APPENDIX A GLOSSARY OF DEFINED TERMS A-1
APPENDIX B INDEPENDENT ENGINEER'S REPORT B-1
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6
TAL PRINTING SYSTEMS]
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DEFINED TERMS
All capitalized terms used in this Prospectus and not otherwise
defined have the meanings assigned thereto in Appendix A hereto.
7
7
RINTING SYSTEMS]
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Certain capitalized terms used but not defined in this summary are
used herein as defined elsewhere in this Prospectus and in the Glossary
included as Appendix A. See also the "RISK FACTORS" included in this
Prospectus which holders of the Old Securities should carefully consider
before tendering their Old Securities in the Exchange Offer.
FUNDING CORPORATION
The Funding Corporation is a special purpose Delaware corporation and
an indirect wholly-owned subsidiary of CalEnergy formed for the sole purpose
of issuing the Securities in its individual capacity as principal and as agent
acting on behalf of the Guarantors. The following chart illustrates the
corporate structure of the Funding Corporation and the Guarantors. The
principal executive office of the Funding Corporation is located at 302 South
36th Street, Suite 400-A, Omaha, Nebraska 68131 and its telephone number is
(402) 341-1641.
OWNERSHIP STRUCTURE
GRAPHIC OMITTED
INITIAL OFFERING
On July 21, 1995 (the "Initial Closing Date"), the Funding
Corporation issued an aggregate of $475,000,000 of its unregistered Initial
Securities, consisting of Series A Securities, Series B Securities and Series
C Securities. On February 13, 1996, the Funding Corporation consummated an
exchange offer pursuant to which it issued substantially identical Initial
Securities which had been registered under the Securities Act in exchange for
such unregistered Initial Securities. On June 1, 1996, the aggregate principal
amount of the Initial Securities then outstanding was $428,035,000.
On the Initial Closing Date, the Funding Corporation loaned the
proceeds of the Initial Securities to the Initial Guarantors in consideration
for which (i) such Guarantors issued their Initial Guarantees and (ii) the
Salton Sea Guarantors, jointly and severally, the Initial Partnership
Guarantors, jointly and severally, and the Royalty Guarantor issued their
respective Project Notes to the Funding Corporation in the initial principal
amounts of $325,000,000, $75,000,000 and $75,000,000, respectively.
The Initial Securities, the Old Securities and the New Securities
shall rank pari passu. For a more complete description of the terms and
conditions of the Project Notes and the Securities, see "PROSPECTUS
SUMMARY--Structure of and Collateral for the Securities", "THE EXCHANGE OFFER"
and "SUMMARY DESCRIPTION Of PRINCIPAL FINANCING DOCUMENTS."
CALENERGY
CalEnergy was formed in 1971 and is engaged in the exploration for,
and development and operation of, environmentally responsible independent
power production facilities worldwide utilizing geothermal resources or other
energy sources, such as hydroelectric, natural gas, oil and coal. CalEnergy
owns all of the capital stock of Magma Power Company ("Magma"). CalEnergy has
an aggregate net ownership interest of 432 MW of electrical generating
capacity in power plants in operation or under construction in the United
States and overseas, which have an aggregate net capacity of 575 MW (including
its interests in the Salton Sea Projects and the Partnership Projects). As of
March 31, 1996, CalEnergy had over $2.7 billion in assets and its common stock
is publicly traded on the New York, Pacific and London Stock Exchanges under
the symbol "CE." Approximately 34% of CalEnergy's common stock is beneficially
owned, through indirect subsidiaries, by Peter
8
8
NG SYSTEMS]
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Kiewit Sons, Inc., a privately held construction, mining and telecommunications
company headquartered in Omaha, Nebraska.
In February 1995, CalEnergy completed the acquisition of all the
outstanding stock of Magma (the "Magma Acquisition"). Magma had previously
owned or controlled substantially all of the assets of the Initial Guarantors,
including the three Salton Sea Projects then in operation and 50% partnership
interests in each of the four Partnership Projects. At the time of the Magma
Acquisition, Magma's interest in the Initial Guarantors generated
substantially all of Magma's earnings. The purchase price for the Magma
Acquisition was $957 million, of which $457 million was funded by CalEnergy
and $500 million was provided by an interim bank facility which was borrowed
on a non recourse basis to CalEnergy and secured by the stock of Magma. The
Magma Acquisition loan was subsequently refinanced with a portion of the
proceeds of the Initial Offering and other cash provided by CalEnergy and
Magma.
Since the Magma Acquisition, the operations of the Salton Sea
Projects and the Partnership Projects acquired in such acquisition have
substantially improved, and significant cost savings and efficiencies have
been realized. On April 17, 1996, a subsidiary of CalEnergy acquired all of
the stock of BN Geothermal, Inc. ("BNG"), Niguel Energy Company ("Niguel"),
San Felipe Energy Company ("San Felipe") and Conejo Energy Company ("Conejo")
from Edison Mission Energy ("Mission") for $70 million. Such Acquired
Partnership Companies owned 50% partnership interests in each of the
Partnership Projects. See "BUSINESS OF THE GUARANTORS--Partnership
Projects--Recent Partnership Acquisition." As a result of such acquisition
(the "Partnership Acquisition"), CalEnergy has obtained full operating and
ownership control of all of the Partnership Projects. In order to realize the
benefits of the Partnership Acquisition and to further consolidate the
financial structure of the Guarantors, the Funding Corporation issued and sold
the Old Securities in order to (i) refinance all existing project-level debt
at the Partnership Projects, (ii) fund certain capital improvements at the
Partnership Projects and the Salton Sea Projects and (iii) fund a portion of
the purchase price for the Acquired Partnership Companies.
Magma directly or indirectly owns all of the capital stock of or
partnership interests in the Funding Corporation and the Guarantors. CalEnergy
Operating Company ("CEOC"), a subsidiary in which Magma owns a 99% interest
and the Funding Corporation owns a 1% interest, currently operates each of the
Salton Sea Projects and the Partnership Projects. Affiliates of Magma control,
through a variety of fee, leasehold, and royalty interests, rights to
geothermal resources for power production in the Salton Sea Known Geothermal
Resource Area ("SSKGRA"). The Funding Corporation believes that such resources
will be sufficient to operate the Salton Sea Projects and the Partnership
Projects at contract capacity under their respective power purchase agreements
through the Final Maturity Date. See "BUSINESS OF THE GUARANTORS--General
Description of the Projects."
GUARANTORS
Each of the Salton Sea Guarantors, the Partnership Guarantors and the
Royalty Guarantor is an indirect wholly-owned subsidiary of CalEnergy.
Salton Sea Brine Processing L.P. ("SSBP"), Salton Sea Power
Generation L.P. ("SSPG") and Fish Lake Power Company ("Fish Lake")
(collectively, the "Salton Sea Guarantors") own four geothermal power plants
located in Imperial Valley, California known as Salton Sea Unit I, Salton Sea
Unit II, Salton Sea Unit III and Salton Sea Unit IV (collectively, the "Salton
Sea Projects"). See "BUSINESS OF THE GUARANTORS--Salton Sea Projects."
Each of Vulcan/BN Geothermal Power Company ("Vulcan"), Elmore, L.P.
("Elmore"), Leathers, L.P. ("Leathers") and Del Ranch, L.P. ("Del Ranch" and,
collectively with Vulcan, Elmore and Leathers, the "Partnership Project
Companies") owns a geothermal power plant located in Imperial Valley,
California known as the Vulcan Project, the Elmore Project, the Leathers
Project and the Del Ranch Project, respectively (such projects, collectively,
the "Partnership Projects"). As is more fully described below, the other
Partnership
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9
STEMS]
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Guarantors collectively own or have the right to receive cash flow
from 100% of the equity in such Partnership Project Companies.
Vulcan Power Company ("VPC") and its wholly-owned subsidiary, BNG,
own 100% of the partnership interests in Vulcan. CEOC and its wholly-owned
subsidiaries, Niguel, San Felipe and Conejo, collectively own 90% partnership
interests in each of Elmore, Leathers and Del Ranch, respectively. Magma owns
all of the remaining 10% interests in each of Elmore, Leathers and Del Ranch.
CEOC is entitled to receive from Magma, as payment for certain data and
services provided by CEOC, all of the partnership distributions Magma receives
with respect to such 10% ownership interests in each of Elmore, Leathers and
Del Ranch and Magma's special distributions equal to 4.5% of total energy
revenues from the Leathers Project.
Vulcan, Elmore, Leathers, Del Ranch, BN Geothermal, Niguel, San
Felipe and Conejo (collectively, the "Additional Partnership Guarantors"),
together with CEOC and VPC (collectively, the "Initial Partnership
Guarantors"), are collectively referred to as the "Partnership Guarantors".
See "BUSINESS OF THE GUARANTORS--Partnership Projects."
Salton Sea Royalty Company (the "Royalty Guarantor") has received an
assignment of certain fees and royalties ("Royalties") paid by three
Partnership Projects, Elmore, Leathers and Del Ranch. In addition, the Royalty
Guarantor has received an assignment of certain Royalties payable by certain
geothermal power plants located in Imperial Valley, California which are owned
by an unaffiliated third party (the "East Mesa Project", and together with the
Salton Sea Projects and the Partnership Projects, the "Projects"). Such
Royalties are subject to netting and reduction from time to time to reflect
various operating costs, as reflected in the financial statements herein. See
"BUSINESS OF THE GUARANTORS--Royalty Projects."
THE EXCHANGE OFFER
<TABLE>
<CAPTION>
<S> <C>
Registration Rights Agreement............ The Old Securities were sold by the Funding Corporation on June 20,
1996 to CS First Boston Corporation (the "Initial Purchaser"), which
placed the Old Securities with "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) and "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act). In connection therewith, the Funding Corporation
executed and delivered for the benefit of the holders of Old Securities
the Registration Rights Agreement, providing for, among other things,
the Exchange Offer.
The Exchange Offer....................... The Funding Corporation is offering to exchange (i) $70,000,000
aggregate principal amount of Old Series D Securities for an equal
principal amount of New Series D Securities and (ii) $65,000,000
aggregate principal amount of Old Series E Securities for an equal
principal amount of New Series E Securities. The New Securities will
be obligations of the Funding Corporation evidencing the same
indebtedness as the Old Securities and will be entitled to the benefits
of the Indenture, which governs both the Old Securities and the New
Securities. The form and terms (including principal amount, interest
rate, maturity and ranking) of the New Securities are the same as the
form and terms of the Old Securities, except that (i) the New Securities
have been registered under the Securities Act and therefore will not be
subject to certain restrictions on transfer applicable to the Old
Securities and (ii) the New Securities will not provide for any increase
in the interest rate thereon. The Old Securities provide that under
certain circumstances, including if the Exchange Offer has not
commenced by, and a shelf registration
10
10
]
<PAGE>
statement has not been declared effective by, March 17, 1997, the respective
interest rates on the Old Securities will increase by 0.50% per annum
following March 17, 1997 until the Exchange Offer is commenced. Upon
consummation of the Exchange Offer, holders of Old Securities will
not be entitled to any increase in the rate of interest thereon under the
Registration Rights Agreement.
Resales of New Securities................. New Securities issued pursuant to the Exchange Offer in exchange for the
Old Securities may be offered for resale, resold and otherwise transferred
by holders thereof (other than any holder which is (i) an "affiliate" of
the Funding Corporation within the meaning of Rule 405 under the Securities
Act, (ii) the Initial Purchaser to the extent it acquired Old Securities
directly from the Funding Corporation solely in order to resell pursuant
to Rule 144A of the Securities Act or any other available exemption under
the Securities Act or (iii) a broker-dealer (which may include the Initial
Purchaser) who acquired Old Securities as a result of market-making or
other trading activities), without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that
such New Securities are acquired in the ordinary course of such holder's
business and that such holder is not participating, and has no arrangement or
understanding with any person to participate, in a distribution (within the
meaning of the Securities Act) of such New Securities.
Each broker-dealer that receives New Securities for its own account as a result
of market-making or trading activities pursuant to the Exchange Offer must acknowledge
that it acquired the Old Securities as the result of such activities and must
agree that it will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such New Securities. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Based on the position taken by the Staff, the Funding Corporation
believes that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the New Securities received upon exchange of such Old
Securities with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such New Securities. Accordingly, this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of such New
Securities. Subject to certain provisions set forth in the Registration Rights
Agreement, the Funding Corporation has 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 such New Securities for a period
ending 120 days after the effectiveness of the Registration Statement of which
this Prospectus is a part (subject to extension
11
11
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<PAGE>
under certain limited circumstances described herein) or, if earlier,
when all such New Securities have been disposed of by the Participating
Broker-Dealer. See "THE EXCHANGE OFFER" and "PLAN OF DISTRIBUTION."
Minimum Condition........................ The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Securities being tendered for exchange.
Expiration Date.......................... The Exchange Offer will expire at 5:00 p.m., New York City time, on
September 10, 1996 (the "Expiration Date"), unless the Exchange
Offer is extended, in which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is extended.
Withdrawal Rights........................ Tenders may be withdrawn at any time prior to the Expiration Date.
Any Old Securities which have been tendered for exchange but which
are not exchanged for any reason will be returned to the holder thereof
(or credited to the appropriate account) without cost to such holder as
soon as practicable after withdrawal, rejection of tender or termination
of the Exchange Offer.
Interest on the New Securities........... The New Series D Securities will bear interest at the rate of 7.02% per
annum from the most recent date to which interest has been paid on
the Old Series D Securities or, if no interest has been paid on the Old
Series D Securities, from June 20, 1996. The New Series E Securities
will bear interest at the rate of 8.30% per annum from the most recent
date to which interest has been paid on the Old Series E Securities or,
if no interest has been paid on the Old Series E Securities, from June
20, 1996. Interest on the New Securities is payable semiannually on
May 30 and November 30 of each year, commencing on the first such
date following the issuance of the New Securities. Holders of Old
Securities whose Old Securities are accepted for exchange will not
receive any payment in respect of accrued and unpaid interest on such
Old Securities.
Conditions to the Exchange Offer......... The obligation of the Funding Corporation to consummate the
Exchange Offer is subject to certain conditions. See "THE
EXCHANGE OFFER--Conditions to the Exchange Offer." The
Funding Corporation may terminate, waive or amend the Exchange
Offer at any time prior to the Expiration Date.
Procedures for Tendering................. Tendering holders of Old Securities must complete and sign the Letter
of Transmittal in accordance with the instructions contained therein
and forward the same by mail, facsimile or hand delivery, together
with any other required documents, to the Exchange Agent, either
with the Old Securities to be tendered or in compliance with the
specified procedures for guaranteed delivery of Old Securities. Certain
brokers, dealers, commercial banks, trust companies and other
nominees may also effect tenders by an Agent's Message (defined
herein) in case of book-entry delivery to the Exchange Agent prior to
the Expiration Date. Holders of Old Securities registered in the name
of a broker, dealer, commercial bank, trust
12
12
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<PAGE>
company or other nominee are urged to contact such person promptly if
they wish to tender Old Securities pursuant to the Exchange Offer. See
"THE EXCHANGE OFFER--Procedures for Tendering." Letters of Transmittal
and certificates representing Old Securities should not be sent to the
Funding Corporation. Such documents should only be sent to the Exchange
Agent. Questions regarding how to tender and requests for information
should be directed to the Exchange Agent. See "THE EXCHANGE OFFER--
Exchange Agent."
Acceptance of Old Securities and
Delivery of New Securities............ Subject to certain conditions, the Funding Corporation will accept for
exchange any and all Old Securities which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Securities issued pursuant to the Exchange
Offer will be delivered promptly following the Expiration Date. See
"THE EXCHANGE OFFER--Terms of the Exchange Offer."
Certain Federal Income Tax
Consequences.......................... The exchange of Old Securities for New Securities by holders should
not be a sale or exchange or otherwise a taxable event for federal
income tax purposes, and holders should not recognize any taxable
gain or loss or any interest income as a result of such exchange.
Exchange Agent........................... Chemical Trust Company of California is serving as exchange agent
(the "Exchange Agent") in connection with the Exchange Offer.
Effect on Holders of
Old Securities........................ Holders of Old Securities who do not tender their Old Securities in the
Exchange Offer will continue to hold such Old Securities and will be
entitled to all the rights and limitations applicable thereto under the
Indenture. All untendered, and tendered but unaccepted, Old Securities will
continue to be subject to the restrictions on transfer provided for in the
Old Securities and the Indenture. To the extent that Old Securities
are tendered and accepted in the Exchange Offer, the trading market, if
any, for the Old Securities could be adversely affected. See "RISK FACTORS
--Consequences of Exchange and Failure to Exchange."
</TABLE>
STRUCTURE OF AND COLLATERAL FOR THE SECURITIES
The Securities will be payable from the proceeds of payments made in
respect of principal of and interest on the Project Notes by the Guarantors to
the Funding Corporation. The Securities are secured by the capital stock of
the Funding Corporation and guaranteed by the Guarantors. The Guarantees
(which are unlimited in the case of the Salton Sea Guarantors and which are
limited to Available Cash Flow, in the case of the Partnership Guarantors and
the Royalty Guarantor) are secured:
(i) in the case of the Salton Sea Guarantee, by a senior first
priority Lien on substantially all of the assets of the Salton
Sea Guarantors, a pledge of the equity interests in the Salton
Sea Guarantors and an assignment of the cost overrun funding
commitment provided by CalEnergy to the Salton Sea Guarantors
in connection with the Substantial Completion of the Salton Sea
Expansion (the "Cost Overrun Commitment");
13
:\EDGAR\GENERAL\67182\67182X2.OUT]
<PAGE>
(ii) in the case of the Partnership Guarantee, by a senior first
priority Lien on substantially all of the assets of the
Partnership Project Companies, a senior first priority Lien on
the Equity Cash Flowsand Royalties of the Initial Partnership
Guarantors and a pledge of the stock of and other equity
interests in the Partnership Guarantors; and
(iii) in the case of the Royalty Guarantee, by a senior first
priority Lien on all Royalties paid to the Royalty Guarantor
and a pledge of the capital stock of the Royalty Guarantor.
As is more fully described elsewhere in this Prospectus, CEOC, VPC
and the Royalty Guarantor receive various Royalties and Equity Cash Flows from
the Partnership Project Companies and an unaffiliated third party. At the time
of the Initial Offering, CEOC and VPC owned or had the right to receive (among
other things) equity distributions relating to 50% of the Partnership Project
Companies. In connection with the Initial Offering, CEOC, VPC and the Royalty
Guarantor pledged all such Royalties and Equity Cash Flows as Collateral for
their obligations under the Project Notes and Guarantees (the "Existing
Partnership Collateral"). Similarly, in connection with the Initial Offering,
CEOC, VPC and the Royalty Guarantor agreed to deposit all such Royalties and
Equity Cash Flows with the Depositary Agent pursuant to the Depositary
Agreement for purposes of paying, inter alia, their obligations under the
Project Notes (the "Existing Partnership Cash Flow Deposits").
In connection with the offering of the Old Securities, CEOC and VPC
acquired the remaining 50% equity interests in the Partnership Project
Companies and retired existing non-recourse debt of the Partnership Project
Companies. As security for the Partnership Project Note and the Partnership
Guarantee, the Partnership Project Companies pledged all of their revenues and
assets as Collateral for their obligations under the Partnership Project Note
and the Partnership Guarantee (the "Additional Partnership Collateral") and
agreed to deposit all of their revenues with the Depositary Agent pursuant to
the Depositary Agreement for purposes of paying, inter alia, their obligations
under the Project Notes (the "Additional Partnership Revenue Deposits"). The
Funding Corporation believes that these changes benefit Securityholders by
increasing the revenues available to pay the Securities, and, by refinancing
existing Del Ranch, Elmore and Leathers indebtedness, removing the structural
subordination of the Securities to such indebtedness and providing holders
with a direct first priority lien on the Partnership Project assets. However,
since the Royalties and Equity Cash Flows constituting the Existing
Partnership Collateral (other than the East Mesa Royalties) are payable solely
out of the revenues of the Partnership Project Companies pledged as Additional
Partnership Collateral, the supplemental benefits of such Existing Partnership
Collateral and Existing Partnership Cash Flow Deposits are, as a practical
matter, largely subsumed and included within the grant of the Additional
Partnership Collateral and Additional Partnership Revenue Deposits.
Accordingly, the Additional Partnership Collateral and Additional Partnership
Revenue Deposits should be viewed as comprising all of the material
Partnership Collateral and sources of revenue available as security for, or
payment of, the Partnership Project Note and Partnership Guarantee.
The structure has been designed to cross-collateralize cash flows
from each Guarantor without cross-collateralizing all of the Guarantors'
assets. Therefore, if a Guarantor defaults on its Credit Agreement, Project
Note or Notes or its Guarantee, without causing a payment default on the
Securities, then the Trustee may direct the Collateral Agent to exercise
remedies only with respect to the Collateral securing such Credit Agreement,
Project Note or Notes and Guarantee. If, however, such default causes a
payment default on the Securities, then the Trustee may accelerate the
Securities and direct the Collateral Agent to exercise remedies against all
such Collateral and, if different, the Collateral from the Salton Sea
Guarantors.
The Funding Corporation and the Guarantors are obligated to maintain
a Debt Service Reserve Fund and/or a Debt Service Reserve Fund Letter of
Credit in an aggregate initial amount equal to the maximum remaining
semiannual scheduled debt service on the Securities. After January 1, 2000,
the Debt Service Reserve Fund Required Balance will increase to the maximum
remaining annual scheduled debt service on the Securities.
14
<PAGE>
THE PROJECTS
Set forth below is a table describing certain characteristics of the
Salton Sea Projects and the Partnership Projects, and the Guarantors'
collective interests therein.
15
<PAGE>
THE SALTON SEA PROJECTS AND THE PARTNERSHIP PROJECTS
<TABLE>
<CAPTION>
FACILITY CAPACITY AND NET
OWNERSHIP INTEREST OF
PROJECT GUARANTORS (In MW)(1)(2) LOCATION
------- ------------------------ --------
<S> <C> <C>
Salton Sea Projects
Salton Sea Unit I............................................. 10.0 Imperial Valley, CA
Salton Sea Unit II............................................ 20.0 Imperial Valley, CA
Salton Sea Unit III........................................... 49.8 Imperial Valley, CA
Salton Sea Unit IV............................................ 40.0 Imperial Valley, CA
-------
Subtotal............................................... 119.8
-------
Partnership Projects
Vulcan........................................................ 34.0 Imperial Valley, CA
Elmore........................................................ 38.0 Imperial Valley, CA
Leathers...................................................... 38.0 Imperial Valley, CA
Del Ranch..................................................... 38.0 Imperial Valley, CA
-------
Subtotal............................................... 148.0
--------
Total.............................................. 267.8
=====
<FN>
- -------------------
(1) Facility Capacity does not necessarily reflect full electric output available for sale to SCE.
(2) CEOC and its wholly-owned subsidiaries collectively own an aggregate 90%
interest in, and CEOC is entitled to receive the additional 10% equity
distribution payable to Magma by, each of Elmore, Leathers and Del Ranch.
VPC and its wholly-owned subsidiary own Vulcan.
</TABLE>
<TABLE>
<CAPTION>
DATE OF COMMERCIAL CONTRACT
PROJECT OPERATION EXPIRATION CONTRACT TYPE POWER PURCHASER
------- ------------------ ---------- ------------- ---------------
<S> <C> <C> <C> <C>
Salton Sea Projects
Salton Sea Unit I....................... 7/1987 6/2017 Negotiated SCE
Salton Sea Unit II...................... 4/1990 4/2020 SO4 SCE
Salton Sea Unit III..................... 2/1989 2/2019 SO4 SCE
Salton Sea Unit IV...................... 6/1996 (est.) 6/2026 (est.) Negotiated SCE
Partnership Projects
Vulcan.................................. 2/1986 2/2016 SO4 SCE
Elmore.................................. 1/1989 12/2018 SO4 SCE
Leathers................................ 1/1990 12/2019 SO4 SCE
Del Ranch............................... 1/1989 12/2018 SO4 SCE
</TABLE>
TRANSACTION STRUCTURE(1)
GRAPHIC OMITTED
- -------------------
(1) This chart reflects loans made to the Guarantors in connection with
the offering of the Initial Securities and the Old Securities. See
"USE OF PROCEEDS."
SALTON SEA PROJECTS
The Salton Sea Guarantors collectively own the four Salton Sea
Projects with an aggregate net generating capacity of approximately 119.8 MW.
All of the Salton Sea Projects have executed long term power purchase
agreements, providing for the sale of capacity and energy to SCE.
Salton Sea Unit II and Salton Sea Unit III have modified SO4
Agreements with SCE. These contracts provide for fixed price capacity payments
for the life of the contract, and fixed price energy payments for the first 10
years. Thereafter, the energy payments paid by SCE will be based on SCE's
then-current, published
16
<PAGE>
short-run avoided cost of energy (the "Avoided Cost of Energy"). The fixed
price energy periods expire on April 4, 2000 and February 13, 1999 for Salton
Sea Unit II and Salton Sea Unit III, respectively.
Salton Sea Unit I and Salton Sea Unit IV have negotiated contracts
with SCE.The Salton Sea Unit I contract provides for a capacity payment and
energy payment for the life of the contract. Both payments are based upon an
initial value that is subject to quarterly adjustment by reference to various
inflation-related indices. The Salton Sea Unit IV contract also provides for
fixed price capacity payments for the life of the contract. Approximately 56%
of the kWhs are sold under the Salton Sea Unit IV PPA at a fixed energy price,
which is subject to quarterly adjustment by reference to various
inflation-related indices, through June 20, 2017 (and at SCE's Avoided Cost of
Energy thereafter), while the remaining 44% of the Salton Sea Unit IV kWhs are
sold according to a 10-year fixed price schedule followed by payments based on
a modified Avoided Cost of Energy for the succeeding 5 years and at SCE's
Avoided Cost of Energy thereafter.
All of the Salton Sea Projects, other than Salton Sea Unit IV, have
been operating for at least 5 years. The three operating Salton Sea Projects
operated at a combined Contract Capacity Factor of 98.6% in the 5 years ended
December 31, 1995.
The Salton Sea Guarantors have recently expanded the capacity of the
Salton Sea Projects through the construction of Salton Sea Unit IV adjacent to
the site where Salton Sea Unit III is currently located. As of the end of May
1996, construction of Salton Sea Unit IV was substantially completed and the
facility had commenced deliveries of electrical energy to SCE. On May 24,
1996, Salton Sea Unit IV commenced its 30-day capacity demonstration test
under the Salton Sea Unit IV PPA. The test is proceeding without difficulties
and the facility is currently producing in excess of 40 MW. In addition, on
June 6, 1996, the facility satisfactorily completed its 24- hour reliability
test. The 30-day test with respect to Salton Sea Unit IV was completed by the
end of June 1996, and, accordingly, under the Salton Sea IV PPA, SCE is now
obligated to pay full contract rates. The Funding Corporation now plans to
seek confirmation from the Independent Engineer that Substantial Completion
under the Indenture has occurred, which will result in CalEnergy having no
further obligation under the Cost Overrun Commitment. See "SUMMARY DESCRIPTION
OF PRINCIPAL PROJECT DOCUMENTS--Salton Sea Guarantor Project Contracts--Salton
Sea Unit IV--Cost Overrun Commitment."
In October 1995, the Salton Sea Guarantors completed the installation
of the pH Modification Process at Salton Sea Units I and III. The pH
Modification Process has been in use at Salton Sea Unit II for over 5 years.
The process lowers the pH of the geothermal resource, thereby significantly
reducing the amount of solids in the geothermal fluid which precipitate out of
solution. This is expected to result in significantly lower operation and
maintenance costs. See "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
The budget for the Salton Sea Expansion was $135 million (including a
$10 million contingency). In connection with the Initial Offering, CalEnergy
provided the Cost Overrun Commitment to fund any costs of construction of the
Salton Sea Expansion, which, if applicable, may be required to be incurred in
excess of the budgeted amount of $135 million in order to cause Substantial
Completion by January 1, 1998. This commitment is expected to be satisfied in
June 1996 upon Substantial Completion of Salton Sea Unit IV but in any event
would expire on the earlier of (i) January 1, 1998, (ii) the mandatory
redemption (if any) of Series B and Series C Securities having an aggregate
principal amount of at least $150 million or (iii) under certain circumstances
involving a confirmation of the Investment Grade Rating for the Securities.
See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Salton Sea Unit IV"
and "SUMMARY DESCRIPTION OF THE SERIES D AND SERIES E SECURITIES--Mandatory
Redemption."
PARTNERSHIP PROJECTS
The Partnership Projects have an aggregate facility generating
capacity of 148 MW. The Partnership Guarantors collectively own 100% of the
Vulcan Project and 90% partnership interests in each of the Elmore, Leathers
and Del Ranch Projects. Magma owns the remaining 10% interests in each of the
Elmore, Leathers and Del Ranch Projects and, in connection with the Initial
Offering, agreed to pay to CEOC the partnership
17
<PAGE>
distributions it receives from such interests in exchange for certain
proprietary data and services provided by CEOC. Magma has assigned to CEOC
Magma's right to such payments and such payments are collateral for the
Securities. These payments are made from revenues which constitute Partnership
Collateral. See "PROSPECTUS SUMMARY--Structure of and Collateral for the
Securities." The 50% interest in each of the Partnership Projects previously
owned by certain affiliates of SCE were acquired by a subsidiary of CalEnergy
on April 17, 1996 and transferred to CEOC and VPC on the Closing Date. See
"BUSINESS OF THE GUARANTORS--Partnership Projects."
All of the Partnership Projects have executed SO4 Agreements for the
sale of capacity and energy to SCE which contracts provide for fixed price
capacity payments for the life of the contract and fixed price energy payments
for the first 10 years. Thereafter, the energy payments paid by SCE will be
based on SCE's Avoided Cost of Energy. The fixed price energy period for the
Vulcan Project expired on February 9, 1996 and will expire on December 31,
1998 for the Del Ranch and Elmore Projects and December 31, 1999 for the
Leathers Project. See "SUMMARY OF PRINCIPAL PROJECT CONTRACTS--Partnership
Project Contracts."
All of the Partnership Projects have been operating for at least 5
years. The Partnership Projects operated at a combined Contract Capacity
Factor of 113.1% in the 5 years ended on December 31, 1995.
ROYALTIES AND ROYALTY PROJECTS
The Royalty Guarantor has received an assignment from Magma of
certain Royalties received from the Leathers, Del Ranch and Elmore Projects
and the East Mesa Project in exchange for the provision to those Projects of
the rights to use certain geothermal resources, as well as the assignment of a
power purchase agreement. Substantially all of the assigned Royalties are
based on a percentage of energy and capacity revenues of the Projects.
Pursuant to the assignment, the Royalty Guarantor is entitled to receive the
aggregate percentages of such Project's energy and capacity revenues as
illustrated in the chart below. The Partnership Guarantors are also entitled
to receive Royalties from the Partnership Projects as illustrated in the chart
below. Royalties are subject to netting and reduction from time to time to
reflect various operating costs, as reflected in the financial statements
herein. All such Royalties (other than the East Mesa Royalties) are payable
from revenues which will constitute Partnership Collateral. See "PROSPECTUS
SUMMARY--Structure of and Collateral for the Securities."
<TABLE>
<CAPTION>
ROYALITIES TO BE PAID TO ROYALTY ROYALTIES TO BE PAID TO
GUARANTOR PARTNERSHIP GUARANTORS(1)
-------------------------------- -------------------------
FACILITY % ENERGY % CAPACITY % ENERGY % CAPACITY
PROJECT CAPACIYTY REVENUES REVENUES REVENUES REVENUES
------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Del Ranch........................... 38 23.33 1.00 5.67 3.00
Elmore.............................. 38 23.33 1.00 5.67 3.00
Leathers............................ 38 21.50 0.00 7.50 3.00
Vulcan.............................. 34 0.00 0.00 4.17 0.00
East Mesa Sr. Royalty(2)............ 37 4.00 4.00 0.00 0.00
East Mesa Jr. Royalty(2)............ -- 10.00 10.00 0.00 0.00
---
Total.......................... 185
===
</TABLE>
- -----------------------
(1) CEOC is also entitled to receive Royalties as hereinafter described. See
"SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Partnership Project
Contracts." Such Royalties are payable from revenues that will constitute
Partnership Collateral. See "PROSPECTUS SUMMARY--Structure of and
Collateral for the Securities."
(2) The East Mesa Junior Royalties (which are due but have not been paid to
date), are junior to debt service of the East Mesa Project. The East
Mesa Senior Royalties are senior to debt service of the East Mesa
Project.
The East Mesa Project has executed long term power sales agreements
with SCE providing for fixed price capacity payments for the life of the
agreement and fixed price energy payments for the first 10 years. Thereafter,
the energy payments will be based on SCE's Avoided Cost of Energy. The fixed
price energy period for the East Mesa Project expires on December 31, 1999.
The East Mesa Project has been operating for over 5
18
<PAGE>
years. See "BUSINESS OF THE GUARANTORS--Royalty Project Contracts" and "SUMMARY
DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Royalty Project Contracts--East
Mesa Project Contracts."
19
<PAGE>
TERMS OF THE NEW SECURITIES AND THE OLD SECURITIES
The Exchange Offer applies to $135,000,000 aggregate principal amount
of the Old Securities. The New Securities will be obligations of the Funding
Corporation evidencing the same indebtedness as the Old Securities and will be
entitled to the benefits of the Indenture, which governs both the Old
Securities and the New Securities. The form and terms (including principal
amount, interest rate, maturity and ranking) of the New Securities are the
same as the form and terms of the Old Securities, except that (i) the New
Securities have been registered under the Securities Act and therefore will
not be subject to certain restrictions on transfer applicable to the Old
Securities and (ii) the New Securities will not provide for any increase in
the interest rate thereon. See "THE EXCHANGE OFFER" and "SUMMARY DESCRIPTION
OF PRINCIPAL FINANCING DOCUMENTS--Registration Rights Agreement." The Old
Series D Securities and the New Series D Securities are collectively referred
to herein as the "Series D Securities," and the Old Series E Securities and
the New Series E Securities are collectively referred to herein as the "Series
E Securities."
<TABLE>
<CAPTION>
THE SERIES D AND SERIES E SECURITIES:
<S> <C>
Issuer................................... Salton Sea Funding Corporation.
Guarantors............................... Salton Sea Guarantors, Partnership Guarantors and Royalty
Guarantor.
Guarantees............................... The Salton Sea Guarantors will guarantee payment of the Securities.
The Partnership Guarantors and the
Royalty Guarantor will guarantee,
to the extent of their respective
Available Cash Flow, payment of
the Securities.
Series D Securities...................... $70,000,000 7.02% Senior Secured Series D Notes due May 30, 2000.
Series E Securities...................... $65,000,000 8.30% Senior Secured Series E Bonds due May 30, 2011.
Interest Payment Dates................... May 30 and November 30, commencing November 30, 1996.
Ratings.................................. "Baa3" by Moody's Investors Service, Inc. ("Moody's") and "BBB-" by
Standard & Poor's Ratings Group ("S&P").
Denominations............................ The Old Securities have been sold initially in authorized
denominations of (i) if to Qualified Institutional Buyers, $100,000 or
any integral multiple of $1,000 in excess thereof and (ii) if to
Accredited Investors, $200,000 or any integral multiple of $1,000 in
excess thereof.
Initial Average Life..................... The initial average life of the Series D Securities is 2.01 years. The
initial average life of the Series E Securities is 10.01 years.
Scheduled Principal Payments............. The principal of the Series D Securities due May 30, 2000 will be
payable in semiannual installments, commencing May 30, 1997, as
follows:
20
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
PERECENTAGE OF PRINCIPAL
PAYMENT DATE AMOUNT PAYABLE
------------ --------------
<S> <C>
May 30, 1997................... 18.4642857143%
November 30, 1997.............. 18.4642857143%
May 30, 1998................... 22.8571428571%
November 30, 1998.............. 22.8571428571%
May 30, 1999................... 7.6071428571%
November 30, 1999.............. 7.6071428571%
May 30, 2000................... 2.1428571430%
The principal of the Series E Securities due May 30, 2011
will be payable in semiannual installments, commencing
May 30, 1999, as follows:
</TABLE>
<TABLE>
<CAPTION>
PERECENTAGE OF PRINCIPAL
PAYMENT DATE AMOUNT PAYABLE
------------ --------------
<S> <C>
May 30, 1999................... 9.2907692308%
November 30, 1999.............. 9.2907692308%
May 30, 2000................... 3.0769230769%
November 30, 2000.............. 3.0769230769%
May 30, 2001................... 0.7692307692%
November 30, 2001.............. 0.7692307692%
May 30, 2002................... 1.2307692308%
November 30, 2002.............. 1.2307692308%
May 30, 2003................... 2.3076923077%
November 30, 2003.............. 2.3076923077%
May 30, 2004................... 2.5000000000%
November 30, 2004.............. 2.5000000000%
May 30, 2005................... 2.6923076923%
November 30, 2005.............. 2.6923076923%
May 30, 2006................... 1.9230769231%
November 30, 2006.............. 1.9230769231%
May 30, 2007................... 1.9230769231%
November 30, 2007.............. 1.9230769231%
May 30, 2008................... 2.6923076923%
November 30, 2008.............. 2.6923076923%
May 30, 2009................... 2.5000000000%
November 30, 2009.............. 2.5000000000%
May 30, 2010................... 10.3846153846%
November 30, 2010.............. 10.3846153846%
May 30, 2011................... 17.4184615384%
Priority of Payments..................... All revenues received by the Salton Sea Guarantors from the Salton
Sea Projects, all revenues received by the Partnership Project
Companies from the Partnership Projects, all Equity Cash Flows and
Royalties of the Initial Partnership Guarantors and all Royalties
received by the Royalty Guarantor shall be paid into the Revenue Fund
maintained by the Depositary. See "PROSPECTUS
SUMMARY--Structure of and Collateral for the Securities." Amounts
paid into the Revenue Fund shall be distributed in the
21
<PAGE>
following order of priority: (a) to pay Operating and Maintenance Costs
of the Guarantors; (b) to pay certain administrative costs of the agents
for the Secured Parties under the Financing Documents; (c) to pay principal
of, premium (if any) and interest on the Securities and the Debt Service
Reserve Bonds, if any, and interest and certain fees payable to the Debt
Service Reserve LOC Provider; (d) to pay principal of Debt Service Reserve
LOC Loans and certain related fees and charges; (e) to replenish any shortfall
in the Debt Service Reserve Fund; (f) to pay certain breakage costs in respect
of Debt Service Reserve LOC Loans, and indemnification and other expenses to
the Secured Parties and (g) to the Distribution Fund or Distribution Suspense
Fund, as applicable.
Debt Service Reserve Fund................ A Debt Service Reserve Fund for the benefit of the Security Holders
and the Debt Service Reserve LOC Provider has been established
under the Depositary Agreement. The amounts available to be drawn
under the Debt Service Reserve Letter of Credit and all other amounts
held in the Debt Service Reserve Fund shall at all times (a) on or prior
to December 31, 1999, be required to equal the remaining maximum
semiannual scheduled principal and interest payments on the
Securities and (b) subsequent to December 31, 1999, be required to
equal the remaining maximum annual scheduled principal and interest
payments on the Securities. The Debt Service Reserve Letter of Credit
must be issued by a financial institution rated at least "A" by S&P and
"A2" by Moody's. Drawings on the Debt Service Reserve Letter of
Credit will be available to pay principal of and interest on the
Securities and interest on loans created by drawings on such Debt
Service Reserve Letter of Credit.
Optional Redemption...................... The Series E Securities are subject to optional redemption, in whole or
in part, pro rata at par plus accrued interest to the Redemption Date
plus a premium calculated to "make whole" to comparable U.S.
Treasury securities plus 50 basis points. The Series B Securities and
Series C Securities are subject to optional redemption, in whole or in
part, pro rata at par plus accrued interest to the Redemption Date plus
a premium calculated to "make whole" to comparable U.S. treasury
securities plus 50 basis points. The Series A Securities and Series D
Securities are not subject to optional redemption.
Mandatory Redemption..................... The Securities are subject to mandatory redemption, pro rata within
each maturity, at par plus accrued interest to the Redemption Date, (a)
if a Permitted Power Contract Buy-Out occurs unless the Rating
Agencies confirm the then current Rating of the Securities; (b) upon
the acceleration of a Project Note in an amount equal to the principal
amount of such note plus accrued interest; (c) upon the occurrence of
certain events of loss, condemnation, title defects or similar events
related to the Salton Sea Projects or the Partnership Projects or (d)
upon the foreclosure by the Collateral Agent of Collateral securing the
Guarantors' obligations under the Salton Sea Guarantee, the
Partnership Guarantee or Royalty Guarantee.
22
<PAGE>
Distributions............................. Distributions may be made only from and to the extent of monies on deposit in
the Distribution Fund. Such distributions are subject to the prior satisfaction
of the following conditions:
(a) the amounts contained in the Principal Fund and the Interest Fund shall be
equal to or greater than the aggregate scheduled principal and interest
payments next due on the Securities;
(b) no Default or Event of Default under the Indenture shall have occurred and
be continuing;
(c) the Debt Service Coverage Ratio for the preceding four fiscal quarters,
measured as one annual period (or, with respect to any proposed distribution
date prior to the first anniversary of the Closing Date, using a combination
of historical and projected results, as provided in the Indenture), is equal
to or greater than 1.4 to 1, if such distribution date occurs prior to the
year 2000, and, if in or subsequent to the year 2000, is equal to or greater
than 1.5 to 1, as certified by an officer of the Funding Corporation;
(d) the projected Debt Service Coverage Ratio of the Securities for the
succeeding four fiscal quarters measured as one annual period is equal to or
greater than 1.4 to 1, if such distribution date occurs prior to the year
2000, and, if such distribution date occurs in or subsequent to the year 2000,
is equal to or greater than 1.5 to 1, as certified by an officer of the
Funding Corporation;
(e) the Debt Service Reserve Fund shall have a balance equal to or greater
than the Debt Service Reserve Fund Required Balance or the Debt Service
Reserve Letter (or Letters) of Credit shall be equal to or greater than
(collectively with the balance, if any, in the Debt Service Reserve Fund) the
Debt Service Reserve Fund Required Balance;
(f) an officer of the Funding Corporation provides a certificate (based on
customary assumptions) that there are sufficient geothermal resources to
operate the Salton Sea Projects and the Partnership Projects at contract
capacity through the Final Maturity Date; and
(g) Substantial Completion of the Salton Sea Expansion has occurred on or
prior to January 1, 1997; provided that, if such condition is not satisfied,
no distributions shall be made unless and until (i) Substantial Completion of
the Salton Sea Expansion occurs prior to January 1, 1998, or (ii) Series B
Securities and Series C Securities having an aggregate principal amount of
$150 million are redeemed or (iii) the Funding Corporation and the Guarantors
take such actions as the Rating Agencies require to confirm the Investment
Grade Rating of the Securities; provided further, that this condition to
distribution shall only apply after January 1, 1997, unless the Salton Sea
Guarantors have previously notified the Trustee that the Salton Sea Expansion
has been abandoned.
23
<PAGE>
Ranking and Security for
the Securities.......................... The Securities shall be senior debt of the Funding Corporation.
Payment of the Securities is provided for by payments to be made by
the Guarantors under their Project Notes, and the Initial Securities and
the Series D and Series E Securities are secured by a pledge to the
Collateral Agent of all of the outstanding capital stock of the Funding
Corporation and the Guarantees.
Recourse Only to the Funding
Corporation and the Guarantors....... The obligations to pay principal, premium, if any, and interest on the
Securities are obligations solely of the Funding Corporation, secured
by a pledge of the capital stock of the Funding Corporation and
entitled to the benefits of the Guarantees. None of CalEnergy or
Magma (nor any stockholder, officer, director or employee thereof or
of the Funding Corporation, or of the Guarantors nor any affiliate
thereof other than the Guarantors pursuant to their Guarantees) will
guarantee the payment of the Securities or has any obligation with
respect to the payment of the Securities.
Incurrence of Additional Debt............ The Funding Corporation shall not incur any Debt other than
"Permitted Debt." "Permitted Debt" means:
(a) The Securities;
(b) Debt incurred to acquire the East Mesa Project in whole or in part;
provided that no such Debt may be incurred unless at the time of such
incurrence (i) no Default or Event of Default has occurred and is
continuing and (ii) the Rating Agencies confirm that the incurrence of
such Debt will not result in a Rating Downgrade;
(c) Debt incurred to develop, construct, own, operate or acquire
additional Permitted Facilities in the Imperial Valley ("Additional
Projects"); provided that no such debt may be incurred unless at the
time of such incurrence (i) no Default or Event of Default has occurred
and is continuing and (ii) the Rating Agencies confirm that the Securities
will maintain an Investment Grade Rating after giving effect to such Debt;
(d) Debt incurred to finance the making of capital improvements to the
Salton Sea Projects, the Partnership Projects or Additional Projects
required to maintain compliance with applicable law or anticipated changes
therein; provided that no such Debt may be incurred unless at the time
of such incurrence the Independent Engineer confirms as reasonable (i) a
certification by the Funding Corporation (containing customary
qualifications) that the proposed capital improvements are reasonably
expected to enable such Project to comply with applicable or anticipated
legal requirements and (ii) the calculations of the Funding Corporation
that demonstrate, after giving effect to the incurrence of such Debt, the
minimum projected Debt Service Coverage Ratio (x) for the next four
consecutive fiscal quarters, commencing with the quarter in which such
Debt is
24
<PAGE>
incurred, taken as one annual period, and (y) for each subsequent fiscal year
through the Final Maturity Date, will not be less than 1.2 to 1;
(e) Debt incurred to finance the making of capital improvements to the Salton
Sea Projects, the Partnership Projects or Additional Projects not required by
applicable law so long as after giving effect to the incurrence of such Debt
(i) no Default or Event of Default has occurred and is continuing, and (ii)
(A) the Independent Engineer confirms as reasonable (x) the calculations of
the Funding Corporation that demonstrate that the minimum projected Debt
Service Coverage Ratio for the next four consecutive quarters, taken as one
annual period, and each subsequent fiscal year, will not be less than 1.4 to
1, and (y) the calculations of the Funding Corporation that demonstrate the
average projected Debt Service Coverage Ratio for all succeeding fiscal years
until the Final Maturity Date will not be less than 1.7 to 1 or (B) the Rating
Agencies confirm that the incurrence of such Debt will not result in a Rating
Downgrade;
(f) Working Capital Debt in an aggregate amount not to exceed $15,000,000;
(g) Debt incurred under the Debt Service Reserve LOC Reimbursement Agreement;
(h) Debt incurred in connection with certain permitted interest rate swap
arrangements;
(i) Debt incurred by the Funding Corporation in an aggregate amount not to
exceed $30,000,000, in connection with the development, construction,
ownership, operation, maintenance or acquisition of Permitted Facilities;
(j) Subordinated Debt from Affiliates in an aggregate amount not to exceed
$200,000,000 which shall be used to finance capital, operating or other costs
with respect to the Projects or Additional Projects; and
(k) Debt incurred to support a Working Capital Facility.
All Permitted Debt incurred by the Funding Corporation shall be loaned to the
Guarantors and guaranteed by the Guarantors.
Principal Covenants...................... Principal covenants under the Indenture require the Funding
Corporation to agree, subject to certain exceptions and qualifications,
(a) not to exercise any remedies or waive any defaults under the Credit
Agreements and the Project Notes, except as otherwise permitted
under the Indenture; (b) not to incur (i) any Debt except Permitted
Debt or (ii) any Lien upon any of its properties
25
<PAGE>
except Permitted Liens; and (c) not to enter into any transaction of
merger or consolidation or change its form of organization or its
business. See "SUMMARY DESCRIPTION OF PRINCIPAL
FINANCING DOCUMENTS--Indenture."
Form..................................... The Series D and Series E Securities (other than those held by Persons
who request them in definitive form or those held by Accredited
Investors) will initially be issued in book-entry form through the
facilities of The Depository Trust Company ("DTC") which will act as
depositary for the Series D and Series E Securities. Such Securities
will be issued in global form ("DTC Securities"), and interests in DTC
Securities will be shown on, and transfers will be effected only
through, records maintained by DTC and its participants. See
"SUMMARY DESCRIPTION OF THE SERIES D AND SERIES E
SECURITIES."
THE PROJECT NOTES:
Salton Sea Project Notes................. On the Initial Closing Date, the Salton Sea Guarantors jointly and
severally issued the Salton Sea Project Note in an initial principal
amount of $325,000,000, of which $310,670,000 remained
outstanding as of June 1, 1996.
Partnership Project Note................. On the Initial Closing Date, the Initial Partnership Guarantors jointly
and severally issued the Initial Partnership Project Note in an initial
principal amount of $75,000,000, of which $54,956,000 remained
outstanding as of June 1, 1996. On the Closing Date, all of the
Partnership Guarantors jointly and severally re-issued the Initial
Partnership Project Note in a principal amount of $54,956,000 and
issued the Additional Partnership Project Note in an initial principal
amount of $135,000,000.
Royalty Project Note..................... On the Initial Closing Date, the Royalty Guarantor issued the Royalty
Project Note in an initial principal amount of $75,000,000, of which
$62,409,000 remained outstanding as of June 1, 1996.
Ranking and Security for the Project
Notes and Guarantee Issued by the
Salton Sea Guarantors................... The Guarantee and the Project Note issued by the Salton Sea
Guarantors are senior secured Debt of the Salton Sea Guarantors.
Security for payment of the Guarantee and the Project Note issued by
the Salton Sea Guarantors includes: (a) an assignment of all revenues
received by the Salton Sea Guarantors from the Salton Sea Projects
which will be applied in accordance with the priorities of payment
established under the Depositary Agreement; (b) a Lien on
substantially all of the assets of each of the Salton Sea Guarantors and
the Salton Sea Projects; (c) a collateral assignment of certain material
contracts; (d) a pledge of the equity interests in the Salton Sea
Guarantors; and (e) a Lien on the Expansion Fund and any other funds
of the Salton Sea Guarantors on deposit under the Depositary
Agreement. The assets described in clauses (a) through (e) and any
other assets securing the Guarantee and Project Note issued by the
26
<PAGE>
Salton Sea Guarantors at any time are collectively referred to herein as
the "Salton Sea Collateral."
Ranking and Security for the Project
Notes and Guarantee Issued by the
Partnership Guarantors................... The Guarantees and Project Notes issued by the Partnership
Guarantors are or will be senior secured Debt of the Partnership
Guarantors. Security for payment of the Guarantees and Project Notes
issued by the Partnership Guarantors includes: (a) an assignment of all
revenues received by the Partnership Project Companies from the
Partnership Projects and of all Equity Cash Flows and Royalties of the
Initial Partnership Guarantors which will be applied in accordance
with the priorities of payment established under the Depositary
Agreement; (b) a Lien on substantially all of the assets of each of the
Partnership Project Companies and the Partnership Projects; (c) a
collateral assignment of certain material contracts and payment rights;
(d) a pledge of the capital stock of (or other equity interests in) the
Partnership Guarantors; and (e) a Lien on the Capital Expenditure
Fund and any other funds of the Partnership Guarantors on deposit
under the Depositary Agreement. The assets described in clauses (a)
through (e) and any other assets securing the Guarantee and the
Project Notes issued by the Partnership Guarantors at any time are
collectively referred to herein as the "Partnership Collateral." See
"PROSPECTUS SUMMARY--Structure of and Collateral for the
Securities" for a description of certain aspects of the relationship
between the Additional Partnership Collateral and Additional
Partnership Revenue Deposits and the other Partnership Collateral.
Ranking and Security for the Project
Note and Guarantee Issued by the
Royalty Guarantor....................... The Guarantee and Project Note issued or to be issued by the Royalty
Guarantor are senior secured Debt of the Royalty Guarantor. Security
for the payment of the Guarantee and Project Note or Notes issued by
the Royalty Guarantor includes: (a) an assignment of all Royalties paid
to the Royalty Guarantor which will be applied in accordance with the
priorities of payment established under the Depositary Agreement; (b)
a collateral assignment of certain material contracts; (c) a pledge of
the capital stock of the Royalty Guarantor; and (d) a Lien on any funds
of the Royalty Guarantor on deposit under the Depositary Agreement.
The assets described in clauses (a) through (d) and any other assets
securing the Guarantee and Project Note issued by the Royalty
Guarantor at any time are collectively referred to herein as the
"Royalty Collateral." See "PROSPECTUS SUMMARY--Structure of
and Collateral for the Securities" for a description of certain aspects of
the relationship between the Additional Partnership Collateral and
Additional Partnership Revenue Deposits and such Royalty Collateral.
Principal Covenants...................... Principal covenants under the Credit Agreements require each
Guarantor to agree, subject to certain exceptions and qualifications, (a)
not to enter into any transaction of merger or consolidation,
27
<PAGE>
change its form of organization, liquidate, wind-up or dissolve itself; (b)
not to enter into non-arm's length transactions or agreements with Affiliates;
(c) not to incur (i) any Debt except Permitted Guarantor Debt and (ii) any
Liens except for Permitted Liens; (d) not to engage in any business other than
as contemplated by the respective Credit Agreement; and (e) not to amend,
terminate or otherwise modify certain of the Project Documents to which they
are a party except as permitted under the respective Credit Agreements. In
addition to these principal covenants, in the Salton Sea Credit Agreement and
the Partnership Credit Agreement, the Salton Sea Guarantors and the
Partnership Guarantors have agreed (a) not to sell, lease or transfer any
property or assets material to the Salton Sea Projects or the Partnership
Projects, as applicable, except in the ordinary course of business; and (b) to
maintain insurance as is generally carried by companies engaged in similar
businesses and owning similar properties. See "SUMMARY DESCRIPTION OF
PRINCIPAL FINANCING DOCUMENTS--Salton Sea Credit Agreement"; "--Partnership
Credit Agreement"; and "--Royalty Credit Agreement."
28
</TABLE>
<PAGE>
INDEPENDENT ENGINEER'S REPORT
Stone & Webster Engineering Corporation (referred to herein as "Stone
& Webster" or the "Independent Engineer") has prepared the Independent
Engineer's Report concerning certain technical, environmental and economic
aspects of the Projects. The Independent Engineer's Report was prepared in
June 1996 in connection with the offering of the Old Securities and is
attached as Appendix B to this Prospectus. Stone & Webster is an engineering
consulting firm which provides services related to the technical,
environmental and economic aspects of power projects. The Independent
Engineer's Report includes, among other things, the operating history and
performance of the Projects, a review of the material Project Documents, and
projections, adopted by Stone & Webster of annual revenues, expenses and debt
service coverage for the Funding Corporation and the Guarantors for the term
of the Securities (the "Projections"). For purposes of preparing such
projections, Stone & Webster relied on certain assumptions regarding material
contingencies and several other matters that are not within the control of the
Funding Corporation, the Guarantors, Stone & Webster or any other Person.
Subject to the information contained, and the assumptions made, in
the Independent Engineer's Report, Stone & Webster expressed the opinions
that:
OPERATIONS AND PERFORMANCE
o The Projects use commercially proven technology and are operated in
accordance with recognized utility industry practices.
o The Projects can be expected to operate commercially beyond the final
maturity of the Securities.
o Principal project participants possess the necessary experience to
successfully fulfill their project obligations.
o Operating plant capacity factors used in the Projections are
reasonable based on actual performance for the operating years
commencing in 1991.
o The Salton Sea Projects and Partnership Projects should continue to
operate in accordance with all relevant current permit conditions and
environmental laws.
FINANCIAL PROJECTIONS
o Stone & Webster's economic/financial analysis reasonably represents
projected performance. The assumptions underlying the
economic/financial model are reasonable, and the projected operating
results reasonably represent the future financial profile.
o The projected operating and maintenance costs and capital expenditures
for major maintenance are reasonable and representative of the
planned operations of the Salton Sea and Partnership Projects.
o Basecase Projections indicate that revenues are adequate to pay
operations and maintenance expenses and provide sufficient cash flow
available for debt service with base case debt service coverage
ratios of 1.57 minimum and 2.04 average.
o The Projections remain stable across a wide range of sensitivities and
avoided cost assumptions.
SALTON SEA EXPANSION
o The recently completed Salton Sea Expansion technology is proven and
reliable.
29
<PAGE>
o The Salton Sea Expansion meets expected performance criteria and
should comply with all applicable environmental regulations.
o All necessary discretionary permit approvals were obtained for the
completion of the Salton Sea Expansion.
o The pH Modification technology is proven and reliable. It has been
installed and has operated successfully for six years at Salton Sea
Unit II and is operating successfully at the Region I plants. As
proven by the operating history at Salton Sea Unit II, the pH
Modification program as installed should increase availability and
decrease costs consistent with assumptions in the Projections.
PROJECT CONTRACTS
o Major project contracts for the Salton Sea Projects and Partnership
Projects, including power purchase agreements and related contracts
for transmission system interconnection appear reasonable from a
technical perspective and are consistent with the Projections.
o Power purchase agreements and transmission contract terms extend well
beyond the term of the Securities.
30
<PAGE>
RISK FACTORS
Holders of the Old Securities should carefully consider the following
risk factors, as well as other information set forth in this Prospectus,
before tendering their Old Securities in the Exchange Offer. The risk factors
set forth below (other than "Consequences of Exchange and Failure to Exchange"
and "Absence of Public Market") are generally applicable to the Old Securities
as well as the New Securities.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Old Securities who do not exchange their Old Securities
for New Securities pursuant to the Exchange Offer will continue to be subject
to the restrictions on transfer of such Old Securities as set forth in the
legend thereon as a consequence of the issuance of the Old Securities pursuant
to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Old Securities may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Funding Corporation does not currently anticipate that it will
register the Old Securities under the Securities Act. In addition, upon the
consummation of the Exchange Offer holders of Old Securities which remain
outstanding will not be entitled to any rights to have such Old Securities
registered under the Securities Act or to any similar rights under the
Registration Rights Agreement. To the extent that Old Securities are tendered
and accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Old Securities could be adversely affected. The Old
Securities provide that if the Exchange Offer has not commenced by, nor a
shelf registration statement has been declared effective by, March 17, 1997,
the respective interest rates on the Old Securities will increase by 0.50% per
annum following March 17, 1997 until the Exchange Offer is commenced or the
shelf registration statement is declared effective. Upon consummation of the
Exchange Offer, the Old Securities will not be entitled to any increase in the
interest rate thereon. The New Securities are not entitled to any such
increase in the interest rate.
Based on interpretations by the Staff of the Commission, the Funding
Corporation believes that New Securities issued pursuant to the Exchange Offer
in exchange for Old Securities may be offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) an "affiliate" of the Funding
Corporation within the meaning of Rule 405 under the Securities Act, (ii) the
Initial Purchaser to the extent it acquired Old Securities directly from the
Funding Corporation solely in order to resell pursuant to Rule 144A of the
Securities Act or any other available exemption under the Securities Act or
(iii) a broker-dealer (which may include the Initial Purchaser) who acquired
Old Securities as a result of market-making or other trading activities)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Securities are
acquired in the ordinary course of such holder's business and that such holder
is not participating, and has no arrangement or understanding with any person
to participate, in a distribution (within the meaning of the Securities Act)
of such New Securities. Each broker-dealer that receives New Securities for
its own account as a result of market-making activities or other trading
activities pursuant to the Exchange Offer must acknowledge that it acquired
the Old Securities as the result of such activities and must agree that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Securities. Any holder that cannot rely
upon such interpretations must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction unless such sale is made pursuant to an exemption from such
requirements.
ABSENCE OF PUBLIC MARKET
The New Securities are being offered to the holders of the Old
Securities. There is no existing trading market for the New Securities and
there can be no assurance regarding the future development of such a market
for the New Securities or the ability of holders of the New Securities to sell
their New Securities or the price at which such holders may be able to sell
their New Securities. If such a market were to develop, future trading prices
will depend on many factors, including, among other things, prevailing
interest rates, the operating
31
<PAGE>
results of the Funding Corporation and the Guarantors, and the market for
similar securities. The Funding Corporation does not intend to apply for
listing or quotation of the New Securities on any securities exchange or stock
market.
NON-RECOURSE PROJECT FINANCING
The Funding Corporation is a special purpose finance subsidiary of
Magma. Its ability to make payments on the Securities will be entirely
dependent on the Guarantors' performance of their obligations under the
Project Notes and the Guarantees. As is common in non-recourse, project
finance structures, the assets and cash flows of the Guarantors are the sole
source of repayment of the Project Notes and the Guarantees. The Salton Sea
Guarantors conduct no other business and own no other significant assets
except those related to the ownership or operation of the Salton Sea Projects.
The Partnership Project Companies conduct no business and own no significant
assets except those related to the ownership or operation of the Partnership
Projects. The other Partnership Guarantors (CEOC, VPC, BNG, San Felipe, Conejo
and Niguel) conduct no business except those related to the ownership or
operation of the Partnership Projects and providing operation, maintenance,
administrative and technical services for Magma, the Salton Sea Projects and
the Partnership Projects. The Royalty Guarantor has been organized solely to
receive royalty payments owed by the Partnership Projects and the East Mesa
Project and conducts no other business and owns no other assets. In the event
of a default by any Guarantor under a Project Note, Credit Agreement or
Guarantee, there is no assurance that the exercise of remedies under such
Project Note, Credit Agreement or Guarantee, including foreclosure on the
assets of such Guarantor, would provide sufficient funds to pay such
Guarantor's obligation under the Project Notes and the Guarantees. Moreover,
unless such default causes a payment default under the Indenture (in which
case remedies may be exercised against the defaulting Guarantor's and, if
different, the Salton Sea Guarantors' assets), remedies may be exercised only
against the assets of the defaulting Guarantors. No shareholders, partners or
affiliates of the Funding Corporation (other than the Guarantors) and no
directors, officers or employees of the Funding Corporation or the Guarantors
will guarantee or be in any way liable for the payment of the Securities, the
Project Notes or the Guarantees. In addition, the obligations of the
Partnership Guarantors and the Royalty Guarantor under the Guarantees are
limited to the Available Cash Flow of such Guarantor. As a result, payment of
amounts owed pursuant to the Project Notes, the Guarantees and the Securities
is dependent upon the availability of sufficient revenues from the Guarantors'
businesses or holdings, after the payment of operating expenses and the
satisfaction of certain other obligations.
UNCERTAINTIES RELATING TO EXPLORATION AND DEVELOPMENT OF GEOTHERMAL ENERGY
RESOURCES
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 of geothermal reservoirs 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 generation of the electrical
power capacity desired.
In addition, both the cost of operations and the operating
performance of geothermal power plants may be adversely affected 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
certain equipment, vessels or pipelines. New production and injection wells
may be required for the maintenance of current operating levels, thereby
requiring substantial capital expenditures.
RELIANCE ON SINGLE UTILITY CUSTOMER
Each of the Projects relies on an agreement with SCE to generate 100%
of its operating revenues. The payments under these agreements have
constituted 100% of the operating revenues of each Project since its
32
<PAGE>
inception, and are expected to continue to do so for the life of the
Securities. Any material failure of SCE to fulfill its contractual obligations
under the Power Purchase Agreements could have a material adverse effect on
the ability of the Funding Corporation to pay principal of and interest on the
Securities.
CONTRACT UNCERTAINTY; POTENTIAL IMPACT OF AVOIDED COST PRICING
The power purchase agreements pursuant to which all of the Projects
(other than Salton Sea Unit I and Salton Sea Unit IV) sell electricity to SCE
are SO4 Agreements. The SO4 Agreements provide for both capacity payments and
energy payments for a term of 30 years. While the basis for the capacity
payment of each SO4 Agreement is fixed for the entire 30-year term, the price
of energy payments is fixed only for the first ten years of the term (the
"Fixed Price Period"). Thereafter, the required energy payment converts to
SCE's Avoided Cost of Energy, as determined by the California Public Utility
Commission ("CPUC"). The Fixed Price Period expired in 1996 for Vulcan, and
will expire in 1999 for Salton Sea Unit III, Del Ranch and Elmore and in 2000
for Salton Sea Unit II, Leathers and East Mesa.
Estimates of SCE's future Avoided Cost of Energy vary substantially
from year to year. The Funding Corporation and the Guarantors cannot predict
the likely level of Avoided Cost of Energy prices under the SO4 Agreements
with SCE at the expiration of the Fixed Price Periods. SCE's Avoided Cost of
Energy as determined by the CPUC is currently substantially below the
scheduled energy prices for the Fixed Price Periods under the respective SO4
Agreements agreed to by SCE at the time such agreements were executed and is
expected to remain so over at least the near term. For example, for the
twelve-month period from January to December 1995, the time period weighted
average of SCE's Avoided Cost of Energy was 2.1 cents per kWh, compared to the
time period weighted average for the first quarter of 1996 scheduled energy
selling prices of approximately 11.2 cents per kWh, for the combined Salton
Sea and Partnership Projects. Thus, the revenues generated by each of the
Projects operating under SO4 Agreements are likely to decline significantly
after the expiration of the relevant Fixed Price Period.
UNCERTAINTIES ASSOCIATED WITH ENVIRONMENTAL, ENERGY AND OTHER REGULATIONS
The Guarantors are subject to a number of environmental laws and
regulations affecting many aspects of their present and future operations,
including the disposal of various forms of materials resulting from geothermal
reservoir production and the drilling and operation of new wells. Such laws
and regulations generally require the Guarantors to obtain and comply with a
wide variety of licenses, permits and other approvals. The Guarantors also
remain subject to a varied and complex body of environmental and energy
regulations that both public officials and private individuals may seek to
enforce. There can be no assurance that existing regulations will not be
revised or that new regulations will not be adopted or become applicable to
the Guarantors which could have an adverse impact on their operations. In
particular, the independent power market in the United States is dependent on
the existing energy regulatory structure, including the Public Utility
Regulatory Policies Act ("PURPA") and its implementation by utility
commissions in the various states. The structure of such federal and state
energy regulations has in the past, and may in the future, be the subject of
various challenges and restructuring proposals by utilities and other industry
participants. The implementation of regulatory changes in response to such
challenges or restructuring proposals could result in the imposition of more
comprehensive or stringent requirements on the Guarantors, which would result
in increased compliance costs and could otherwise have an adverse effect on
the Guarantors' results of operations. See "BUSINESS OF THE
GUARANTORS--Regulatory and Environmental Matters."
UNCERTAINTIES ASSOCIATED WITH INSURANCE
The Salton Sea Projects and the Partnership Projects currently
possess property, business interruption, catastrophic and general liability
insurance. Proceeds of insurance received in connection with the Salton Sea
Projects and the Partnership Projects will be payable to the Depositary for
the account of the Salton Sea Guarantors and the Partnership Guarantors and
will be applied as required under the Financing Documents. See "BUSINESS OF
THE GUARANTORS--Insurance." There can be no assurance that such comprehensive
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insurance coverage will be available in the future at commercially reasonable
costs or terms or that the amounts for which the Salton Sea Guarantors and the
Partnership Guarantors are or will be insured will cover all potential losses.
Because geothermally active areas such as the area in which the
Projects are located are subject to frequent low-level seismic disturbances,
and serious seismic disturbances are possible, the power generating plants and
other facilities at the Projects are designed and built to withstand
relatively significant levels of seismic disturbance. However, there is no
assurance that seismic disturbances of a nature and magnitude so as to cause
material damage to the Projects or gathering systems or a material change in
the nature of the geothermal resource will not occur, that insurance with
respect to seismic disturbances will be maintained by or on behalf of all of
the Projects, that insurance proceeds will be adequate to cover all potential
losses sustained, or that insurance will continue to be available in the
future in amounts adequate to insure against such seismic disturbances.
CONSIDERATIONS REGARDING LIMITATION ON REMEDIES
At the time of the Initial Offering, a significant portion of the
proceeds of the Initial Offering were distributed to CalEnergy to repay
certain non-recourse indebtedness incurred by CalEnergy in connection with the
Magma Acquisition. At that time, the Royalty Guarantor also purchased an
assignment of the Royalties from Magma pursuant to the Magma Assignment
Agreement. Pursuant to such agreement, Magma agreed to make certain payments
to CEOC and to secure such payment obligation with a collateral assignment of
certain cash flows. At the time of the Initial Offering, the Initial
Guarantors also executed Guarantees with respect to the entire amount of the
Securities. In connection with the offering of the Old Securities, the
Additional Partnership Guarantors executed the Partnership Guarantee with
respect to the entire amount of Securities. Under certain circumstances
(including a proceeding under Title 11 of the United States Code or any
similar proceeding), it is possible that a creditor of a Guarantor or Magma
could make a claim, under federal or state fraudulent conveyance laws, that
the Funding Corporation's claims under the Credit Agreements, the Security
Holders' claims under the Guarantees, the Royalty Guarantor's interest
pursuant to the Magma Assignment Agreement or CEOC's rights under the Magma
Services Agreement should be subordinated or not enforced in accordance with
such instruments' terms or that payments thereunder (including payments to the
Holders of the Securities) should be recovered. In order to prevail on such a
claim, a claimant would have to demonstrate that the obligations incurred
under any Guarantor's Credit Agreement or Guarantee or the transfers made
under the Magma Assignment Agreement or the Magma Services Agreement were not
incurred in good faith or that any Guarantor or Magma did not receive fair
consideration in connection with such obligations and transfers, and that any
Guarantor or Magma was insolvent at the time of entering into the Credit
Agreement, Guarantee, the Magma Assignment Agreement and/or the Magma Service
Agreement or amending or otherwise increasing their obligations under the
Credit Agreement or Guarantee or that, at any such time, it 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.
UNCERTAINTIES REGARDING RELIANCE ON PROJECTIONS AND UNDERLYING ASSUMPTIONS
The Indenture, the Securities, the Project Notes, the Credit
Agreements and the Guarantees reflect certain assumptions with respect to the
Guarantors' and the Projects' revenue generating capacity and the costs
associated therewith over the term of the Securities. Stone & Webster has
evaluated and provided a report on the technical, environmental and economic
aspects of the Projects in the Independent Engineer's Report. The Independent
Engineer's Report also contains cash flow projections adopted by Stone &
Webster and a discussion of the many assumptions utilized in preparing these
projections, which investors should review carefully.
All projections of future operations and the economic results thereof
included in the Independent Engineer's Report have been adopted by Stone &
Webster. Deloitte & Touche LLP and Coopers & Lybrand L.L.P., the Funding
Corporation's and the Guarantors' independent auditors, have neither examined
nor compiled the projections and, accordingly, do not express an opinion or
any other form of assurance with
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respect thereto. None of the Funding Corporation, the Guarantors, Stone &
Webster or any other Person have any obligation to, nor do they intend to
provide the holders of the Securities with updated reports or revised
projections comparing the projections and actual operating results later
achieved by the Funding Corporation and the Guarantors.
For purposes of preparing the projections, certain assumptions were
made, of necessity, with respect to general business and economic conditions,
the revenues the Guarantors will earn in their respective businesses, the
Avoided Cost of Energy in the future and several other material contingencies
and other matters that are not within the control of the Guarantors and the
outcome of which cannot be predicted by the Funding Corporation, the
Guarantors, Stone & Webster or any other Person with any certainty of
accuracy. These assumptions and the other assumptions used in the projections
are inherently subject to significant uncertainties and actual results may
differ, perhaps materially, from those projected. None of the Funding
Corporation, the Guarantors, Stone & Webster or any other Person assumes any
responsibility for the accuracy of such projections. Therefore, no
representation is made or intended, nor should any be inferred, with 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, the Funding Corporation's
ability to make payments under the Securities and the Guarantors' ability to
make payments under the Project Notes and the Guarantees may be adversely
affected.
USE OF PROCEEDS
There will be no proceeds to the Funding Corporation from the
exchange pursuant to the Exchange Offer. The net proceeds received by the
Funding Corporation from the issuance of the Old Securities to the Initial
Purchaser (after deduction of certain transaction costs) was approximately
$134 million and was used for the following purposes: (a) approximately $96
million to refinance all of the existing project-level indebtedness under
credit agreements of the Partnership Project Companies; (b) approximately $15
million to fund the Capital Expenditure Fund to be used for certain capital
improvements to the Partnership Projects and the Salton Sea Projects; and (c)
approximately $23 million to fund a portion of the purchase price payable by
the Initial Partnership Guarantors for the Acquired Partnership Companies. See
"SUMMARY OF PRINCIPAL PROJECT CONTRACTS--Partnership Project Contracts--Elmore
Project--Credit Agreement", "--Leathers Project--Credit Agreement" and "--Del
Ranch Project--Credit Agreement" and "BUSINESS OF THE GUARANTORS-- Partnership
Projects--Recent Partnership Acquisition."
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Securities to the Initial
Purchasers on June 20, 1996, the Funding Corporation executed and delivered
for the benefit of the holders of the Old Securities the Registration Rights
Agreement. The Exchange Offer is being made by the Funding Corporation to
satisfy its obligations pursuant to the Registration Rights Agreement, which
requires the Funding Corporation to (i) use its 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 Commission prior to
March 17, 1997, (ii) 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 (iii) 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 under certain limited circumstances), provided that in the event
that all resales of New Securities covered by the Registration Statement has
been made, the Registration Statement need not remain continuously effective.
The Old Securities provide that under certain circumstances, including if the
Exchange Offer has not commenced by, nor a shelf registration statement has
been declared effective by, March 17, 1997, the respective interest rates on
the Old Securities will increase by 0.50% per annum following March 17, 1997
until the Exchange Offer is commenced. Upon consummation of the Exchange
Offer, holders of Old
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Securities will not be entitled to any increase in the rate of interest
thereon, but will be entitled to the benefits of the Indenture. See "SUMMARY
DESCRIPTION OF PRINCIPAL FINANCING DOCUMENTS--Registration Rights Agreement."
TERMS OF THE EXCHANGE
The Funding Corporation hereby offers, upon the terms and subject to
the conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, to exchange (i) New Series D Securities for a like aggregate
principal amount of Old Series D Securities and (ii) New Series E Securities
for a like aggregate principal amount of Old Series E Securities, properly
tendered on or prior to the Expiration Date and not properly withdrawn in
accordance with the procedures described below. The Funding Corporation 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. Holders may tender their 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, $70,000,000
aggregate principal amount of the Old Series D Securities is outstanding and
$65,000,000 of the Old Series E Securities is outstanding.
If any tendered Old Securities are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth herein
or otherwise, certificates for any such unaccepted Old Securities will be
returned, without expense, to the tendering holder thereof promptly after the
Expiration Date.
Holders who tender Old Securities in connection with the Exchange
Offer 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 in connection with the Exchange Offer. The
Funding Corporation will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the Exchange Offer. See
"--Solicitation of Tenders; Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE FUNDING CORPORATION NOR THE
FUNDING CORPORATION MAKES ANY RECOMMENDATION TO HOLDERS OF OLD SECURITIES AS
TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OLD
SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN
AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD SECURITIES MUST
MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND,
IF SO, THE AGGREGATE AMOUNT OF OLD SECURITIES TO TENDER AFTER READING THIS
PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR ADVISERS,
IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term
"Expiration Date" means 5:00 p.m., New York City time, on September 10, 1996,
unless the Funding Corporation in its sole discretion extends the period during
which the Exchange Offer is open, in which case the term "Expiration Date"
means the latest time and date to which the Exchange Offer is extended. The
Funding Corporation 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 the Funding
Corporation may choose to make any public announcement and subject to
applicable law, the Funding Corporation shall 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.
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The Funding Corporation reserves the right (i) 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,
including if any of the events set forth herein under "--Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by the
Funding Corporation, or (ii) 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, the Funding
Corporation 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 the Funding Corporation waives any material condition to the
Exchange Offer, or amends the Exchange Offer in any other material respect,
and if at the time that notice of such waiver or amendment is first published,
sent or given to holders of Old Securities in the manner specified above, the
Exchange Offer is scheduled to expire at any time earlier than the expiration
of a period ending on the fifth business day from, and including, the date
that such notice is first so published, sent or given, then the Exchange Offer
will be extended until the expiration of such period of five business days.
This Prospectus and the related Letter of Transmittal and other
relevant materials will be mailed by the Funding Corporation to record holders
of Old Securities and will be furnished to brokers, banks and similar persons
whose names, or the names of whose nominees, appear on the lists of holders
for subsequent transmittal to beneficial owners of Old Securities.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and
date the Letter of Transmittal, or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof), have the signatures thereon guaranteed if required by the Letter of
Transmittal and mail or otherwise deliver such Letter of Transmittal or such
facsimile, 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 (i) certificates for such Old
Securities must be received by the Exchange Agent along with the Letter of
Transmittal on or prior to the Expiration Date, (ii) a timely confirmation of
a book-entry transfer (a "Book-Entry Confirmation") of such Old Securities, if
such procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") 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 (iii) the holder 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 THE OPTION AND SOLE RISK
OF THE TENDERING HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL (RETURN
RECEIPT REQUESTED AND PROPERLY INSURED) OR AN OVERNIGHT DELIVERY SERVICE IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD SECURITIES SHOULD BE SENT TO THE
FUNDING CORPORATION. To be tendered effectively, the Old Securities, Letter of
Transmittal and all other required documents, or, in the case of a participant
in the Book-Entry Transfer Facility, 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 Book-Entry Transfer Facility
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. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect such tender for such
holders.
The tender by a holder of Old Securities will constitute an agreement
between such holder and the Funding Corporation in accordance with the terms
and subject to the conditions set forth herein and in the Letter of
Transmittal. If less than all of the Old Securities are tendered, a tendering
holder 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 otherwise indicated.
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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 the books of the Funding
Corporation or any other person who has obtained a properly completed bond
power from the registered holder.
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 such registered holder promptly and instruct
such registered holder to tender on his behalf. If such beneficial owner
wishes to tender on his own behalf, such 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 such 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 (i) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) 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, such 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 or holders appears on the
Old Securities. If the Letter of Transmittal or any Old Securities 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 the Funding Corporation, evidence satisfactory to the Funding
Corporation of their authority to so act must be submitted with the Letter of
Transmittal.
All questions as to the validity, form, eligibility (including time
of receipt) and withdrawal of the tendered Old Securities will be determined
by the Funding Corporation in its sole discretion, which determination will be
final and binding. The Funding Corporation reserves the absolute right to
reject any and all Old Securities not properly tendered or any Old Securities
which, if accepted by the Funding Corporation, would be unlawful. The Funding
Corporation also reserves the right to waive any irregularities or conditions
of tender as to particular Old Securities. The Funding Corporation's
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 the Funding
Corporation shall determine. None of the Funding Corporation, the Exchange
Agent or any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Old Securities, nor shall
any of them incur any liability for failure to give such notification. Tenders
of Old Securities will not be deemed to have been made until such
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 timely cured or waived will be returned without
cost to such holder by the Exchange Agent to the tendering holders of Old
Securities, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In addition, the Funding Corporation reserves the right in its sole
discretion (i) to purchase or make offers for any Old Securities that remain
outstanding subsequent to the Expiration Date or, as set forth under "--
Conditions to the Exchange Offer," to terminate the Exchange Offer and (ii) to
the extent permitted by applicable law, to purchase Old Securities in the open
market, in privately negotiated transactions or otherwise. The Funding
Corporation has no present plan to acquire any Old Securities which are not
tendered in the Exchange Offer. The terms of any such purchases or offers
could differ from the terms of the Exchange Offer.
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Book Entry Transfer. The Exchange Agent will make a request to
establish an account with respect to the Old Securities at the Book-Entry
Transfer Facility for purposes of the Exchange Offer within two business days
after the date of this Prospectus. Any financial institution that is a
participant in the Book-Entry Transfer Facility's systems may book-entry
deliver Old Securities by causing the Book-Entry Transfer Facility to transfer
such Old Securities into the Exchange Agent's account at the Book-Entry
Transfer Facility in accordance with such Book-Entry Transfer Facility's
procedures for transfer on or prior to the Expiration Date. A holder who is a
participant in the Book-Entry Transfer Facility and transfers the Securities
by an Agent's Message need not transmit the Letter of Transmittal to the
Exchange Agent to consummate the exchange.
The term "Agent's Message" means a message transmitted through
electronic means by a Book-Entry Transfer Facility to and received by the
Exchange Agent and forming a part of a book-entry confirmation, which states
that such Book-Entry Transfer Facility has received an express acknowledgment
from the participant in such Book-Entry Transfer Facility tendering the
Securities that such participant
has received and agrees to be bound by the Letter of Transmittal and/or the
Notice of Guaranteed Delivery (as discussed below), where applicable.
Guaranteed Delivery Procedures. If a registered holder of the Old
Securities desires to tender such Old Securities, and the Old Securities are
not immediately available, or time will not permit such holder's Old
Securities or other required documents to reach the Exchange Agent before the
Expiration Date, or the procedure for book-entry transfer cannot be completed
on a timely basis, a tender may be effected if (i) the tender is made through
an Eligible Institution, (ii) on or prior to the Expiration Date, the Exchange
Agent received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof, or in the case of a
participant in the Book-Entry Transfer Facility, an Agent's Message) and
Notice of Guaranteed Delivery, substantially in the form provided by the
Funding Corporation (by facsimile transmission, mail or hand delivery, or, in
the case of a participant in the Book-Entry Transfer Facility, by an Agent's
Message), setting forth the name and address of the holder of Old Securities
and the amount of Old Securities tendered, stating that the tender is being
made thereby and guaranteeing that within three New York Stock Exchange
("NYSE") 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 (iii) 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 NYSE 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 the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Securities is received by the Exchange Agent, or in the
case of a participant in the Book-Entry Transfer Facility, as of the date when
an Agent's Message from the participant has been received by the Exchange
Agent. Issuances of New Securities in exchange for Old Securities tendered
pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) 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
The Letter of Transmittal contains, among other things, the following
terms and conditions, which are part of the Exchange Offer.
The party tendering Old Securities for exchange (the "Transferor")
exchanges, assigns and transfers the Old Securities to the Funding Corporation
and irrevocably constitutes and appoints the Exchange Agent as the
Transferor's agent and attorney-in-fact to cause the Old Securities to be
assigned, transferred and exchanged. The Transferor represents and warrants
that it has full power and authority to tender, exchange, assign and transfer
the Old Securities and to acquire New Securities issuable upon the exchange of
such tendered Old Securities, and that, when the same are accepted for
exchange, the Funding Corporation will acquire good and
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unencumbered title to the tendered Old Securities, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim.
The Transferor also warrants that it will, upon request, execute and deliver
any additional documents deemed by the Funding Corporation to be necessary or
desirable to complete the exchange, assignment and transfer of tendered Old
Securities. The Transferor further agrees that acceptance of any tendered Old
Securities by the Funding Corporation and the issuance of New Securities in
exchange therefor shall constitute performance in full by the Funding
Corporation of its obligations under the Registration Rights Agreement and that
the Funding Corporation shall have no further obligations or liabilities
thereunder (except in certain limited circumstances). All authority conferred
by the Transferor will survive the death or incapacity of the Transferor and
every obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
By tendering Old Securities, the Transferor certifies that (i) it is
not an "affiliate" of the Funding Corporation within the meaning of Rule 405
under the Securities Act, that it is not a broker-dealer that owns Old
Securities acquired directly from the Funding Corporation, that it is
acquiring the New Securities offered hereby in the ordinary course of such
Transferor's business and that such Transferor has no arrangement with any
person to participate in the distribution of such New Securities or (ii) it is
an "affiliate" (as defined above) of the Funding Corporation or of the Initial
Purchaser and that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable to it. 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. See "PLAN OF DISTRIBUTION."
WITHDRAWAL RIGHTS; NONEXCHANGED OLD SECURITIES
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
such 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 (including the principal amount of such Old Securities), and (where
certificates for Old Securities have been transmitted) specify the name in
which such Old Securities are registered if different from that of the
withdrawing holder, accompanied by evidence satisfactory to the Funding
Corporation 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 such certificates, the withdrawing holder
must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If 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 Book-Entry Transfer Facility to be credited with
the withdrawn Old Securities and otherwise comply with the procedures of such
facility. 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, such unaccepted or
nonexchanged Old Securities will be returned to the holder thereof without
cost to such holder (or, in the case of Old Securities tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described above, such Old
Securities will be credited to an account maintained with such Book-Entry
Transfer Facility for the Old Securities) as soon as practicable after
withdrawal, rejection of tender, termination of the Exchange Offer or
submission of nonexchanged Old Securities. 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 under "--Procedures for
Tendering."
40
<PAGE>
All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by the Funding
Corporation, in its sole discretion, whose determination shall be final and
binding on all parties. Neither the Funding Corporation, any affiliates or
assigns of the Funding Corporation, the Exchange Agent nor any other person
shall 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.
INTEREST ON THE NEW SECURITIES
The New Series D Securities will bear interest at the rate of 7.02%
per annum from the most recent date to which interest has been paid on the Old
Series D Securities or, if no interest has been paid on the Old Series D
Securities, from June 20, 1996. The New Series E Securities will bear interest
at the rate of 8.30% per annum from the most recent date to which interest has
been paid on the Old Series E Securities or, if no interest has been paid on
the Old Series E Securities, from June 20, 1996. Interest on the New
Securities is payable semiannually on May 30 and November 30 of each year,
commencing on the first such date following the issuance of the New
Securities. Holders of Old Securities whose Old Securities are accepted for
exchange will not receive any payment in respect of accrued and unpaid
interest on such Old Securities.
ACCEPTANCE OF OLD SECURITIES FOR EXCHANGE; DELIVERY OF NEW SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer,
the Funding Corporation 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, the Funding
Corporation shall be deemed to have accepted for exchange validly tendered Old
Securities when and if the Funding Corporation has 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 the Funding Corporation 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 such Old Securities into the
Exchange Agent's account at the Book-Entry Transfer Facility, 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.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Funding Corporation 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 have occurred or exists or have not been satisfied: (a) 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
Commission; (b) in the reasonable judgment of the Funding Corporation, there
shall be threatened, instituted or pending any action or proceeding before, or
any injunction, order or decree shall have been issued by, any court or
governmental agency or other governmental regulatory or administrative agency
or commission, (i) seeking to restrain or prohibit the making or consummation
of the Exchange Offer or any other transaction contemplated by the Exchange
Offer, (ii) assessing or seeking any damages as a result thereof, or (iii)
resulting in a material delay in the ability of the Funding Corporation to
accept for exchange or exchange some or all of the Old Securities pursuant to
the Exchange Offer; (c) any statute, rule, regulation, order or injunction
shall be 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 shall have been taken, proposed or threatened, by any
government, governmental authority, agency or court, domestic or foreign, that
in the reasonable judgment of the Funding Corporation might directly or
indirectly result in any of the consequences referred to in clauses (b)(i),
(ii) or (iii) above or, in the reasonable judgment of the Funding Corporation,
might result in the holders of New Securities having
41
<PAGE>
obligations with respect to resales and transfers of New Securities which are
greater than those described in the interpretations of the Staff referred to in
this Prospectus, or would otherwise make it inadvisable to proceed with the
Exchange Offer; (d) there shall have occurred (i) any general suspension of
trading in, or general limitation on prices for securities on the New York
Stock Exchange, (ii) 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 the Funding Corporation, or (iii) a commencement of a war, armed hostilities
or other similar international 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 (e) a material adverse change shall have occurred or be threatened
in the business, condition (financial or otherwise), operations, stock
ownership or prospects of the Funding Corporation.
The foregoing conditions are for the sole benefit of the Funding
Corporation and may be asserted by it with respect to all or any portion of
the Exchange Offer regardless of the circumstances (including any action or
inaction by the Funding Corporation) giving rise to such condition or may be
waived by the Funding Corporation in whole or in part at any time or from time
to time in their sole discretion. The failure by the Funding Corporation 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, the Funding
Corporation has reserved the right, notwithstanding the satisfaction of each
of the foregoing conditions, to amend the Exchange Offer.
Any determination by the Funding Corporation concerning the
fulfillment or non-fulfillment of any conditions will be final and binding
upon all parties.
In addition, the Funding Corporation 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 shall be threatened or
in effect with respect to (i) the Registration Statement of which this
Prospectus constitutes a part or (ii) the qualification of the Indenture under
the Trust Indenture Act of 1939.
EXCHANGE AGENT
Chemical Trust Company of California has been appointed as the
Exchange Agent for the Exchange Offer. Chemical Trust Company of California
also acts as trustee under the Indenture.
Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of 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 Book-Entry Transfer
Facility 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.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Funding Corporation has 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. The Funding Corporation 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. The Funding
Corporation 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 the Funding Corporation and are estimated at
approximately $100,000.
42
<PAGE>
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 such
tendering holder.
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 the
Funding Corporation. Neither the delivery of this Prospectus nor any exchange
made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Funding Corporation 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 such jurisdiction. However, the Funding Corporation may, at their
discretion, take such action as it may deem necessary to make the Exchange
Offer in any such jurisdiction and extend the Exchange Offer to holders of Old
Securities in such jurisdiction. In any jurisdiction the securities laws or
blue sky laws of which require the Exchange Offer to be made by a licensed
broker or dealer, the Exchange Offer is being made on behalf of the Funding
Corporation by one or more registered brokers or dealers which are licensed
under the laws of such jurisdiction.
APPRAISAL RIGHTS
HOLDERS OF OLD SECURITIES WILL NOT HAVE DISSENTERS' RIGHTS OR
APPRAISAL RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Old Securities for New Securities by holders 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 such
exchange.
43
<PAGE>
CAPITALIZATION
The following tables set forth the individual capitalization of the
Funding Corporation and the Guarantors and the combined capitalization of the
Guarantors, as adjusted to reflect the acquisition by the Initial Partnership
Guarantors of the 50% interest in each of the Partnership Projects previously
owned by a third party and to give effect to the issuance of the Project Notes
and the application of a portion of the proceeds thereof to refinance
outstanding project-level debt of the Partnership Project Companies. The
registration of the Series D and Series E Securities will have no effect on
the capitalization of the Funding Corporation and the Guarantors.
<TABLE>
<CAPTION> MARCH 31, 1996
-------------------------------
ACTUAL AS ADJUSTED
-------- -------------
(Dollars in Thousands)
<S> <C> <C>
CAPITALIZATION OF FUNDING CORPORATION:
Senior Secured Notes and Bonds (2).............................................. $ 452,088 $ 587,088
-------------- --------------
Total Indebtedness......................................................... 452,088 587,088
------------- -------------
CAPITAL:
Common Stock................................................................. -- --
Additional paid-in capital................................................... 5,554 6,254
Retained earnings............................................................ 2,020 2,020
----------- -----------
Total capital.............................................................. 7,574 8,274
----------- -----------
$ 459,662 $ 595,362
============== ==============
CAPITALIZATION OF SALTON SEA GUARANTORS:
Senior Secured Project Note (2)................................................. $ 321,500 $ 321,500
-------------- --------------
Total Indebtedness......................................................... 321,500 321,500
------------- -------------
CAPITAL:
Partners' capital............................................................... 174,460 174,460
------------- -------------
$ 495,960 $ 495,960
============== ==============
CAPITALIZATION OF PARTNERSHIP GUARANTORS:
Project Finance Bank Debt (1)................................................... $ 38,633 $ --
Senior Secured Project Note (2)................................................. 62,706 197,706
------------ -------------
Total Indebtedness......................................................... 101,339 197,706
------------- -------------
CAPITAL:
Common Stock................................................................. 3 3
Additional paid-in capital................................................... 375,593 445,593
Retained earnings............................................................ 17,782 17,782
------------ -------------
Total capital.............................................................. 393,378 463,378
------------- -------------
$ 494,717 $ 661,084
============= ==============
CAPITALIZATION OF ROYALTY GUARANTOR:
Senior Secured Project Note (2)................................................. $ 67,882 $ 67,882
------------- -------------
Total Indebtedness......................................................... 67,882 67,882
------------ ------------
CAPITAL:
Common Stock................................................................. -- --
Additional paid-in capital................................................... 19,182 19,182
Retained earnings............................................................ 4,338 4,338
----------- -----------
Total capital.............................................................. 23,520 23,520
----------- ------------
$ 91,402 $ 91,402
============= =============
COMBINED CAPITALIZATION OF THE GUARANTORS:
Project Finance Bank Debt (1)................................................... $ 38,633 $ --
Senior Secured Project Note (2)................................................. 452,088 587,088
----------- -------------
Total Indebtedness......................................................... 490,721 587,088
----------- -------------
CAPITAL:
Common Stock................................................................. 3 3
Additional paid-in capital................................................... 394,775 464,775
Retained earnings............................................................ 22,120 22,120
Partners' capital............................................................ 174,460 174,460
----------- -------------
Total capital.............................................................. 591,358 661,358
----------- -------------
$ 1,082,079 $ 1,248,446
============= =============
</TABLE>
- --------------------------
(1) See the notes to the respective Guarantors' financial statements for a
description of the terms of the debt.
(2) For terms of the Project Notes, see "Summary Descriptions of Principal
Financing Documents."
44
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OPERATING
DATA OF THE FUNDING CORPORATION
The following tables set forth selected historical financial and
operating data of the Funding Corporation. The historical summary statement of
operations data for the period from June 20, 1995 (inception date) through
December 31, 1995 and the historical balance sheet data as of December 31,
1995 and June 20, 1995 (inception date) have been derived from the audited
historical financial statements of the Funding Corporation. The historical
summary statement of operations for the three months ended March 31, 1996 and
the historical balance sheet data as of March 31, 1996 have been derived from
the unaudited historical financial statements of the Funding Corporation,
which in the opinion of management of the Funding Corporation, include all
adjustments (consisting only of recurring accruals) necessary to present
fairly the information set forth therein. The data should be read in
conjunction with the financial statements and related notes and other
financial information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FROM JUNE 20, 1995 (INCEPTION DATE) THREE MONTHS ENDED
THROUGH DECEMBER 31, 1995 MARCH 31, 1996(1)
---------------------------------- ------------------
(Dollars in Thousands)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total Revenues....................................... $ 17,577 $ 9,041
General and administrative expenses.................. -- 181
Interest expense..................................... 15,022 7,990
Provision for income taxes........................... 1,048 357
Net income........................................... 1,507 513
Ratio of earnings to fixed charges (2)............... 1.15 1.11
OTHER FINANCIAL DATA:
EBITDA(3)............................................ 7,599 8,503
Ratio of combined EBITDA to fixed charges............ 1.17 1.06
</TABLE>
<TABLE>
<CAPTION>
JUNE 20, 1995
(INCEPTION DATE) DECEMBER 31, 1995 MARCH 31, 1996
---------------- ----------------- ----------------------------
Actual As Adjusted (4)
-------- ----------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Total assets............................. $ 3,267 $ 522,521 $ 523,293 $ 658,993
Senior secured notes and bonds........... -- 452,088 452,088 587,088
Total indebtedness....................... -- 452,088 452,088 587,088
Stockholders' equity..................... 3,267 6,950 7,574 8,274
</TABLE>
- ---------------
(1) The Funding Corporation has a one percent investment in the
Guarantors whose operations are seasonal in nature, with a
disproportionate percentage of income earned in the quarter ending
September 30; therefore operating results and ratios for interim
periods are not indicative of the results for a full fiscal year.
(2) For purposes of computing historical ratios of earnings to fixed
charges, earnings are divided by fixed charges. "Earnings" represent
the aggregate of pretax income of the Funding Corporation plus fixed
charges, less capitalized interest. "Fixed Charges" represent
interest (whether expensed or capitalized) and amortization of
deferred financing fees.
(3) Earnings before interest, taxes, depreciation and amortization
(EBITDA) is presented here not as a measure of operating results, but
rather as a measure of the Funding Corporation's ability to service
debt. EBITDA should not be construed as an alternative either (i) to
operating income (determined in accordance with generally accepted
accounting principles) or (ii) to cash flows from operating
activities (determined in accordance with generally accepted
accounting principles).
(4) The as adjusted amounts reflect the issuance of the Old Securities and
the Funding Corporation's equity interest in the Partnership
Acquisition.
45
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL AND
OPERATING DATA OF THE SALTON SEA GUARANTORS
The following tables set forth selected historical combined financial
and operating data of the Salton Sea Guarantors. The information contained
therein was extracted from certain historical information of Magma Power
Company and certain of its affiliates. The historical summary statement of
operations for 1995, 1994 and the nine months ended December 31, 1993 and the
historical balance sheet data as of December 31, 1995 and 1994 have been
derived from the audited historical financial statements of the Salton Sea
Guarantors. The historical summary statement of operations for the three
months ended March 31, 1996 and 1995 and the historical balance sheet data as
of March 31, 1996 have been derived from the unaudited historical financial
statements of the Salton Sea Guarantors which, in the opinion of management of
the Salton Sea Guarantors, include all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the information set forth
therein. The data should be read in conjunction with the financial statements
and related notes and other financial information appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ENDED MARCH 31,(1)
---------------------- DECEMBER 31, --------------------
1995 1994 1993 1996 1995
---- ---- ----- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues..................... $71,605 $74,998 $60,158 $16,289 $15,611
Operating revenues................. 71,605 74,576 60,158 16,221 15,611
Operating, general administrative costs 26,096 24,766 19,335 5,789 5,488
Depreciation and amortization...... 10,556 10,049 7,425 2,682 3,043
Income from operations............. 34,953 40,183 33,398 7,818 7,080
Interest expense, net of capitalized
interest......................... 15,605 8,240 4,267 2,957 4,256
Net income(2)...................... 17,955 31,943 29,131 4,861 1,431
Ratio of earnings to fixed charges(3) 1.41 4.88 7.83 1.25 1.66
OTHER FINANCIAL DATA:
Capital expenditures............. 68,677 4,493 -- 30,623 16,380
Combined EBITDA(4)............... 45,509 50,232 40,823 10,500 10,123
Ratio of combined EBITDA to
combined fixed charges.......... 1.84 6.10 9.57 1.68 1.78
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------- MARCH 31,
1995 1994 1993 1996
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Property, plant, contracts and equipment, net $417,287 $204,329 $211,409 $445,554
Total assets............................. 500,400 232,914 223,066 531,420
Senior secured project note.............. 321,500 -- -- 321,500
Project finance loans.................... -- 114,308 140,000 --
Total indebtedness....................... 321,500 114,308 140,000 321,500
Guarantors' equity....................... 169,599 117,978 82,500 174,460
</TABLE>
- -----------------
(1) The Salton Sea Guarantors' operations are seasonal in nature, with a
disproportionate percentage of income earned in the quarter ending
September 30; therefore operating results and ratios for interim
periods are not indicative of the results for a full fiscal year.
(2) As described in Note 1 to the financial statements, the Salton Sea
Guarantors are comprised primarily of a combination of partnership
interests. The income or loss of each partnership for income tax
purposes, along with any associated tax credits, is the responsibility
of the individual partners. Accordingly, no recognition has been given
to federal or state income taxes in the combined historical financial
statements.
(3) For purposes of computing historical ratios of earnings to fixed
charges, earnings are divided by fixed charges. "Earnings" represent
the aggregate of pretax income of the Salton Sea Guarantors plus fixed
charges, less capitalized interest. "Fixed Charges" represent interest
(whether expensed or capitalized) and amortization of deferred
financing fees.
(4) Earnings before interest, taxes, depreciation and amortization (EBITDA)
is presented here not as a measure of operating results, but rather as
a measure of the Salton Sea Guarantors' ability to service debt. EBITDA
should not be construed as an alternative either (i) to operating
income (determined in accordance with generally accepted accounting
principles) or (ii) to cash flows from operating activities (determined
in accordance with generally accepted accounting principles).
46
<PAGE>
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL AND
OPERATING DATA OF THE PARTNERSHIP GUARANTORS
The following tables set forth selected historical combined financial
and operating data and pro forma data of the Partnership Guarantors. The
information contained therein was extracted from certain historical
information of Magma Power Company and certain of its Affiliates. The
historical summary statement of operations for 1995, 1994, 1993, 1992 and 1991
and the historical balance sheet data as of December 31, 1995, 1994, 1993,
1992 and 1991 have been derived from the historical financial statements of
the Partnership Guarantors. The historical summary statement of operations for
the three months ended March 31, 1996 and 1995 and the historical balance
sheet data as of March 31, 1996 have been derived from the unaudited
historical financial statements of the Partnership Guarantors which, in the
opinion of management of the Partnership Guarantors, include all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
information set forth therein. The unaudited pro forma statement of operations
data reflects (i) the acquisition by the Initial Partnership Guarantors of the
50% interest in each of the Partnership Projects previously owned by a third
party as if it had occurred at the beginning of the period presented and has
been derived from pro forma condensed combined unaudited financial data
appearing elsewhere in this Prospectus and (ii) the application of a portion
of the Additional Partnership Project Note to refinance outstanding project
finance debt of the Partnership Project Companies. The data should be read in
conjunction with the financial statements and related notes, and other
financial information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA(5)
--------------
THREE
YEAR MONTHS
THREE MONTHS ENDED ENDED ENDED
YEAR ENDED DECEMBER 31, MARCH 31,(1) DECEMBER MARCH
--------------------------------------------------- --------------------- 31, 31,
1995 1994 1993 1992 1991 1996 1995 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues....... $87,483 $76,050 $70,057 $65,523 $61,056 $17,379 $18,033 $180,084 $36,019
Operating revenues.... 76,909 70,692 65,579 60,979 55,680 15,159 16,717 167,879 33,409
Operating, general
administrative costs 32,143 35,306 35,597 34,357 28,746 7,612 7,602 75,175 17,523
Depreciation and
amortization....... 18,958 9,037 9,249 8,597 8,427 4,373 2,438 37,226 8,204
Income from operations 36,382 31,707 25,211 22,569 23,883 5,394 7,993 67,683 10,292
Interest expense, net of
capitalized interest 8,826 3,285 3,712 4,782 6,374 -- 3,209 16,681 1,708
Provision for income
taxes(2)........... 11,492 11,284 8,405 6,973 3,082 2,249 1,885 21,501 3,579
Cumulative effect of
accounting change(2) -- -- -- (4,194) -- -- -- -- --
Net income............ 14,637 17,138 13,094 6,620 14,428 3,145 1,472 29,501 5,005
Ratio of earnings to fixed
charges(3)......... 2.18 9.88 7.00 4.88 3.87 2.69 2.49 2.66 2.58
OTHER FINANCIAL DATA:
Capital expenditures.. 4,066 10,495 4,852 6,802 4,584 3,736 1,051
Combined EBITDA(4).... 55,340 40,744 34,460 31,166 32,311 9,767 10,431
Ratio of combined
EBITDA to combined fixed
charges............. 3.31 12.40 9.28 6.52 5.07 4.87 3.25
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1996
------------------------------------------------- ---------------------------
1995 1994 1993 1992 1991 ACTUAL AS ADJUSTED(5)
---- ---- ---- ---- ---- ------ --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Property, plant, contracts and
equipment, net .................. $298,956 $137,265 $138,664 $145,060 $149,756 $299,210 $377,196
Total assets ...................... 602,172 180,443 178,894 183,899 186,720 603,840 775,472
Project finance loans ............. 43,766 52,340 60,119 67,365 74,326 38,633 --
Senior secured project note ....... 62,706 -- -- -- -- 62,706 197,706
Total indebtedness ................ 106,472 52,340 60,119 67,365 74,326 101,339 197,706
Guarantors' equity ................ 373,732 106,395 103,387 105,707 106,888 393,378 463,378
</TABLE>
- ---------------
(1) The Partnership Guarantors' operations are seasonal in nature, with a
disproportionate percentage of income earned in the quarter ending
September 30; therefore operating results and ratios for interim periods
are not indicative of the results for a full fiscal year.
(2) During the year ended December 31, 1991, the Partnership Guarantors
provided for income taxes based upon Magma's effective tax rate for the
year. Effective January 1, 1992, the Partnership Guarantors adopted the
provisions of Statement of Financial Accounting Standards 109,
Accounting for Income Taxes. The cumulative effect of the change was a
$4,194,000 charge to earnings during the year ended December 31, 1992.
(3) For purposes of computing historical ratios of earnings to fixed
charges, earnings are divided by fixed charges. "Earnings" represents
the aggregate of pretax income of the Partnership Guarantors plus fixed
charges, less capitalized interest. "Fixed Charges" represents interest
(whether expensed or capitalized) and amortization of deferred financing
fees. The deficiency in the pro forma ratio of earnings to fixed charges
for the year ended December 31, 1994 is $2,382.
(4) Earnings before interest, taxes, depreciation and amortization (EBITDA)
is presented here not as a measure of operating results, but rather as a
measure of the Partnership Guarantors' ability to service debt. EBITDA
should not be construed as an alternative either (i) to operating income
(determined in accordance with generally accepted accounting principles)
or (ii) to cash flows from operating activities (determined in
accordance with generally accepted accounting principles).
(5) The pro forma amounts of the Partnership Guarantors reflect the
Partnership Acquisition, the allocation of the Securities and the
repayment of all existing project-level debt at the beginning of each
period presented.
48
<PAGE>
SELECTED HISTORICAL FINANCIAL AND
OPERATING DATA OF THE ROYALTY GUARANTOR
The following tables set forth selected historical financial and
operating data of the Royalty Guarantor on the basis of the assignment in June
1995 of certain royalties and fees to the Royalty Guarantor by Magma;
accordingly, this presentation is a "carve out" of information from Magma and
certain of its affiliates. The information contained therein was extracted
from certain historical information of Magma Power Company and certain of its
Affiliates. The historical summary statements of operations for 1995, 1994,
1993, 1992 and 1991 and the historical balance sheet data as of December 31,
1995 have been derived from audited historical financial
statements of the Royalty Guarantor. The historical statement of operations
for the three months ended March 31, 1996 and 1995 and the historical balance
sheet data as of March 31, 1996 have been derived from the unaudited financial
statements of the Royalty Guarantor which, in the opinion of management of the
Royalty Guarantor, include all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the information set forth
therein. The data should be read in conjunction with the financial statements
and related notes and other financial information appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31,(2)(3) MARCH 31,(1)
----------------------------------------------- -------------------------
1995 1994 1993 1992 1991 1996(3) 1995(2)(3)
---- ---- ---- ---- ---- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues(2)................... $ 28,383 $29,410 $26,942 $29,355 $19,401 $ 6,941 $6,751
Operating revenues(2).............. 28,383 29,410 26,942 29,355 19,401 6,941 6,751
Operating, general administrative
costs (2)(6) ..................... 6,822 20,753 5,710 5,203 4,524 1,707 1,594
Amortization ....................... 11,239 N/A N/A N/A N/A 2,570 1,232
Income from operations(2)(6)........ 10,322 8,657 21,232 24,152 14,877 2,664 3,925
Interest expense.................... 4,757 -- -- -- -- 1,358 1,540
Provision for income taxes(3)....... 963 N/A N/A N/A N/A 478 830
Net income (2)(6) .................. 3,510 8,657 21,232 24,152 14,877 828 463
Ratio of earnings to fixed
charges(4) ....................... 2.17 N/A N/A N/A N/A 1.96 2.55
OTHER FINANCIAL DATA:
Capital expenditures................ -- N/A N/A N/A N/A -- --
EBITDA(5) ......................... 21,561 N/A N/A N/A N/A 5,234 5,157
Ratio of EBITDA to fixed charges.... 4.53 N/A N/A N/A N/A 3.85 3.35
MARCH 31,
1996
---------
BALANCE SHEET DATA (AT PERIOD END):
Royalty Stream ..................... $ 53,744 N/A N/A N/A N/A $ 51,401
Total assets ....................... 117,341 N/A N/A N/A N/A 114,424
Senior secured project note......... 67,882 N/A N/A N/A N/A 67,882
Total indebtedness ................. 67,882 N/A N/A N/A N/A 67,882
Guarantors' equity ................. 28,051 N/A N/A N/A N/A 23,520
</TABLE>
- -----------------
(1) The Royalty Guarantor operations are seasonal in nature, with a
disproportionate percentage of income earned in the quarter ending
September 30; therefore, operating results and ratios for interim
periods are not indicative of the results for a full fiscal year.
(2) The historical summaries of revenues and related expenses for periods
prior to 1995, which were prepared on the basis described in Note 2 to
the financial statements appearing elsewhere herein, are not intended to
be a complete presentation of the predecessor's assets, liabilities,
revenues and expenses.
(3) For periods prior to 1995, the predecessor's summaries of revenues and
related expenses do not include a provision for income taxes; further,
there were no assets, liabilities or equity prior to 1995.
(4) For purposes of computing historical ratios of earnings to fixed
charges, earnings are divided by fixed charges. "Earnings" represent the
aggregate of pretax income of the Royalty Guarantor plus fixed charges,
less capitalized interest. "Fixed Charges" represent interest (whether
expensed or capitalized) and amortization of deferred financing fees.
(Footnotes on following page)
49
<PAGE>
(footnotes continued)
(5) Earnings before interest, taxes, depreciation and amortization (EBITDA)
is presented here not as a measure of operating results, but rather as a
measure of the Royalty Guarantor's ability to service debt. EBITDA
should not be construed as an alternative either (i) to operating income
(determined in accordance with generally accepted accounting principles)
or (ii) to cash flows from operating activities (determined in
accordance with generally accepted accounting principles).
(6) During 1994, the Royalty Guarantor charged off its entire outstanding
accrued Junior S04 royalty receivable from East Mesa. The charge
amounted to $14,502 and is included in operating expenses. Excluding the
one time charge, operating expenses would have been $6,251 and the
excess of revenues over expenses would have been $23,159.
50
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FACTORS AFFECTING RESULTS OF OPERATIONS
The periodic results of operations for the Guarantors are influenced
to varying degrees by a number of factors, principally the level of revenues
received under the power purchase agreements, Project capacity utilization,
the level of operating expenses and capital expenditures requirements. See
"BUSINESS OF THE GUARANTORS--General Description of Projects" for a
description of the nature and business of the Guarantors and related Projects.
POWER PURCHASE AGREEMENTS
Each of the Projects sells electricity to SCE pursuant to a separate
SO4 Agreement or a negotiated power purchase agreement. Each power purchase
agreement is independent of the others, and performance requirements specified
within each such agreement apply only to the Project which is subject to that
agreement. The power purchase agreements provide for three basic types of
payments: energy payments, capacity payments and, in certain cases, capacity
bonus payments. Each type of payment is described more fully in the discussion
that follows. See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS."
CAPACITY UTILIZATION
Each Project's revenue is influenced to the extent it can utilize its
maximum electricity production capacity. A Project's annual "Operating
Capacity Factor" is calculated by dividing the actual number of kWhs sold
during the course of a year by the product of (1) the Project's rated
operating capacity (which is greater than the Contract Capacity for such
Project, as stated in its related SO4 Agreement) and (2) the number of hours
in the year. For consistency in stating Operating Capacity Factors in the
table that follows, the Projects have utilized a rated operating capacity
equal to each facility's contract nameplate capacity. The operating capacity
factors have not been adjusted for scheduled maintenance. Each Project can
operate at Operating Capacity Factors in excess of 100% from time to time,
depending upon various operating conditions.
The following data includes the Operating Capacity Factors and
electricity production of Salton Sea Unit I, Salton Sea Unit II, Salton Sea
Unit III, and the operating Salton Sea Projects combined:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31,
----------------------- ----------- ------------------
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Salton Sea Unit I:(1)
Operating Capacity Factor....... 67.3% 65.9% 70.9% 66.2% 56.0%
Contract Capacity (NMW)......... 10.0 10.0 10.0 10.0 10.0
kWh Produced (000's omitted).... 58,943 57,700 46,800 14,300 12,100
Salton Sea Unit II:
Operating Capacity Factor....... 84.6% 65.9% 91.1% 89.4% 75.2%
Contract Capacity (NMW)......... 20.0 10.0 20.0 20.0 20.0
kWh Produced (000's omitted).... 148,157 57,700 120,200 38,600 32,500
Salton Sea Unit III:
Operating Capacity Factor....... 91.1% 65.9% 100.1% 95.0% 97.6%
Contract Capacity (NMW)......... 49.8 10.0 49.8 49.8 49.8
kWh Produced (000's omitted).... 397,200 57,700 328,900 103,300 105,000
Combined:
Operating Capacity Factor....... 86.5% 65.9% 94.2% 89.6% 86.8%
Contract Capacity (NMW)......... 79.8 10.0 79.8 79.8 79.8
kWh Produced (000's omitted).... 604,300 57,700 495,900 156,200 149,600
</TABLE>
(Footnotes on following page)
51
<PAGE>
- -----------------------------
(1) For purposes of financial presentation, Salton Sea Unit I power
production results reflect increased parasitic load. Following the
expected mid-year 1996 completion of the Salton Sea Expansion,
management of the Salton Sea Guarantors expects Salton Sea Unit I's
operating capacity factor to approximate the combined Salton Sea
capacity factor.
The following data includes the full Operating Capacity Factors and
electricity production of Vulcan, Del Ranch, Elmore, Leathers, and the
Partnership Project Companies combined:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- --------------------
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Vulcan:
Operating Capacity Factor................ 110.1% 102.2% 99.1% 104.1% 111.5%
Contract Capacity (NMW).................. 34.0 34.0 34.0 34.0 34.0
kWh Produced (000's omitted)............. 327,900 304,300 295,300 77,300 81,900
Del Ranch:
Operating Capacity Factor................ 103.6% 106.7% 100.5% 104.7% 89.4%
Contract Capacity (NMW).................. 38.0 38.0 38.0 38.0 38.0
kWh Produced (000's omitted)............. 345,000 355,100 334,600 86,900 73,400
Elmore: (1)
Operating Capacity Factor................ 106.2% 103.4% 102.7% 92.2% 105.5%
Contract Capacity (NMW).................. 38.0 38.0 38.0 38.0 38.0
kWh Produced (000's omitted)............. 353,400 344,300 342,000 76,500 86,600
Leathers: (1)
Operating Capacity Factor................ 104.2% 102.8% 100.3% 90.3% 103.8%
Contract Capacity (NMW).................. 38.0 38.0 38.0 38.0 38.0
kWh Produced (000's omitted)............. 347,010 342,300 333,800 74,900 85,200
Combined:
Operating Capacity Factor................ 105.9% 103.8% 100.7% 97.6% 102.3%
Contract Capacity (NMW).................. 148.0 148.0 148.0 148.0 148.0
kWh Produced (000's omitted)............. 1,373,310 1,346,000 1,305,700 315,600 327,100
</TABLE>
- ---------------------
(1) The lower production for the three months ended March 31, 1996, is a
result of scheduled overhauls for Elmore and Leathers.
52
<PAGE>
HISTORICAL FINANCIAL DATA AND COMBINED INFORMATION
The table includes selected historical financial data of the Salton
Sea Guarantors, the Initial Partnership Guarantors and the Royalty Guarantor,
separately and on a combined basis. The financial data presented on a combined
basis is the aggregate amount of each of the Guarantors to which no
adjustments for intercompany transactions have been made, accordingly, there
is no basis in Generally Accepted Accounting Principles for combining the
information, nor is such combined information intended to reflect the
financial condition or results of operations in accordance with Generally
Accepted Accounting Principles. The historical financial data is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, (1)(2) MARCH 31,
----------------------------------- -----------------------
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Sales of Electricity (3):
Salton Sea Guarantors............. $ 71,605 $ 74,576 $ 60,158 $ 16,221 $ 15,611
Partnership Guarantors............ 76,909 70,692 65,579 15,159 16,717
Royalty Guarantor................. N/A N/A N/A N/A N/A
----------- ------------ ----------- ----------- --------
Combined....................... 148,514 145,268 125,737 31,380 32,328
Royalty Income:
Salton Sea Guarantors............. N/A N/A N/A N/A N/A
Partnership Guarantors............ N/A N/A N/A N/A N/A
Royalty Guarantor................. 28,383 29,410 26,942 6,941 6,751
----------- ------------ ----------- ----------- --------
Combined....................... 28,383 29,410 26,942 6,941 6,751
Other Income:
Salton Sea Guarantors............. -- 422 N/A 68 --
Partnership Guarantors............ 10,574 5,358 4,478 2,220 1,316
Royalty Guarantor................. N/A N/A N/A N/A N/A
----------- ------------ ----------- ----------- --------
Combined....................... 10,574 5,780 4,478 2,288 1,316
Plant Royalties, Operations, General
& Administrative Expenses:
Salton Sea Guarantors............. 26,096 24,766 19,335 5,789 5,488
Partnership Guarantors............ 32,143 35,306 35,597 7,612 7,602
Royalty Guarantor (4)............. 6,822 20,753 5,710 1,707 1,594
----------- ------------ ----------- ----------- --------
Combined....................... 65,061 80,825 60,642 15,108 14,684
Income Before Depreciation,
Amortization, Interest & Taxes:
Salton Sea Guarantors............. 45,509 50,232 40,823 10,500 10,123
Partnership Guarantors............ 55,340 40,744 34,460 9,767 10,431
Royalty Guarantor (4)............. 21,561 8,657 21,232 5,234 5,157
----------- ------------ ----------- ----------- --------
Combined....................... 122,410 99,633 96,515 25,501 25,711
Depreciation and Amortization:
Salton Sea Guarantors............. 10,556 10,049 7,425 2,682 3,043
Partnership Guarantors............ 18,958 9,037 9,249 4,373 2,438
Royalty Guarantor................. 11,239 N/A N/A 2,570 1,232
----------- ------------ ----------- ----------- --------
Combined....................... 40,753 19,086 16,674 9,625 6,713
Interest Expense, net:
Salton Sea Guarantors............. 15,605 8,240 4,267 2,957 4,256
Partnership Guarantors............ 8,826 3,285 3,712 -- 3,209
Royalty Guarantor................. 4,757 N/A N/A 1,358 1,540
----------- ------------ ----------- ----------- --------
Combined....................... 29,188 11,525 7,979 4,315 9,005
Income before minority interest:
Salton Sea Guarantors............. 19,348 31,943 29,131 4,861 2,824
Partnership Guarantors............ 16,064 17,138 13,094 3,145 2,899
Royalty Guarantor................. 4,602 8,657 21,232 828 1,555
----------- ------------ ----------- ----------- --------
Combined....................... 40,014 57,738 63,457 8,834 7,278
Net Income (5):
Salton Sea Guarantors............. 17,955 31,943 29,131 4,861 1,431
Partnership Guarantors............ 14,637 17,138 13,094 3,145 1,472
Royalty Guarantor (4)............. 3,510 8,657 21,232 828 463
----------- ------------ ------------- ----------- --------
Combined....................... 36,102 57,738 63,457 8,834 3,366
</TABLE>
(Footnotes on following page)
53
<PAGE>
- --------------------------
(1) The historical summaries of revenues and related expenses for periods
prior to 1995, which were prepared on the basis described in Note 2 to
the financial statements appearing elsewhere herein, are not intended to
be a complete presentation of the predecessor's assets, liabilities,
revenues and expenses. The information of the Royalty Guarantor is
presented on the basis of the assignment in June 1995 of certain
royalties and fees to the Royalty Guarantor by Magma; accordingly, this
presentation is a "carve out" of information from Magma and certain of
its affiliates.
(2) For periods prior to 1995, the predecessor Royalty Guarantor summaries
of revenues and related expenses do not include a provision for income
taxes.
(3) Includes energy, capacity and bonus payments, and excludes interest
income.
(4) The 1994 income has been reduced for the establishment of a reserve in
the amount of $14,502 relating to earned but not yet collected East Mesa
Junior Royalties.
(5) Income taxes are provided for by the Guarantors which include corporate
entities. However, the corporate entities will be included with its
parent's tax return and affiliates and tax payments will be the parent's
responsibility. See the notes to the respective financial statements.
The following table sets forth selected historical financial data on
a cents-per-kWh basis for the Salton Sea Guarantors and the Partnership
Guarantors. The concept of cents-per-kWh is not applicable to the Royalty
Guarantor because it does not operate any electrical generating facilities.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- ------------------------
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
(Cents Per KWH)
<S> <C> <C> <C> <C> <C>
Sales of Electricity:
Salton Sea Guarantors............ 11.85 11.74 12.13 10.38 10.44
Partnership Guarantors........... 13.21 12.43 11.88 11.32 12.02
Combined..................... 12.52 12.06 12.00 10.81 11.20
Other Income:
Salton Sea Guarantors............ -- 0.07 N/A -- --
Partnership Guarantors........... 1.82 0.94 0.81 1.66 0.95
Combined..................... 0.89 0.48 0.43 0.77 0.46
Plant Royalties, Operations, General
and Administrative Expenses:
Salton Sea Guarantors............ 4.32 3.90 3.90 3.66 3.67
Partnership Guarantors........... 5.52 6.21 6.45 5.68 5.47
Combined..................... 4.91 4.99 5.24 4.59 4.54
Income Before Depreciation,
Amortization, Interest and Taxes:
Salton Sea Guarantors............ 7.53 7.91 8.23 6.72 6.77
Partnership Guarantors........... 9.51 7.16 6.24 7.29 7.50
Combined..................... 8.50 7.56 7.19 6.98 7.12
Depreciation and Amortization:
Salton Sea Guarantors............ 1.75 1.58 1.50 1.72 2.03
Partnership Guarantors........... 3.26 1.59 1.68 3.26 1.75
Combined..................... 2.49 1.59 1.59 2.43 1.90
Interest Expense, net:
Salton Sea Guarantors............ 2.58 1.30 0.86 1.89 2.84
Partnership Guarantors........... 1.52 0.58 0.67 -- 2.31
Combined..................... 2.06 0.96 0.76 1.02 2.59
Income before minority interest:
Salton Sea Guarantors............ 3.20 5.03 5.87 3.11 1.89
Partnership Guarantors........... 2.76 3.01 2.37 2.35 2.09
Combined..................... 2.98 4.08 4.03 2.76 1.98
Net Income:
Salton Sea Guarantors............ 2.97 5.03 5.87 3.11 0.96
Partnership Guarantors........... 2.51 3.01 2.37 2.35 1.06
Combined..................... 2.75 4.08 4.03 2.76 1.50
</TABLE>
54
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
Revenues. The Salton Sea Guarantors' sales of electricity increased
to $16,221 for the three months ended March 31, 1996 from $15,611 for the same
period of 1995. This 3.9% increase was due primarily to a 4.4% increase in
electric kWh sales to 156.2 million kWh from 149.6 million kWh.
The Initial Partnership Guarantors' sales of electricity decreased to
$15,159 for the three months ended March 31, 1996 from $16,717 for the same
period in 1995. This 9.3% decrease was due primarily to a 3.5% decrease in
electric kWh sales to 315.6 million kWh from 327.1 kWh and a decreased price
per kWh for the Vulcan project as a result of the expiration of the scheduled
price period on February 9, 1996.
The Royalty Guarantor's revenue increased to $6,941 for the three
months ended March 31, 1996 from $6,751 for the same period last year. This
2.8% increase was due primarily to higher energy sales at Del Ranch, Elmore
and Leathers during the three months ended March 31, 1996 compared to the same
period of 1995.
Expenses. The Salton Sea Guarantors' operating expenses, which
include royalty, operating, and general and administrative expenses, decreased
to $5,789, for the three months ended March 31, 1996 from $5,488 for the same
period in 1995.
The Initial Partnership Guarantors' operating expenses, which include
royalty, operating, and general and administrative expenses, increased to
$7,612 for the three months ended March 31, 1996 from $7,602 for the same
period in 1995.
The Royalty Guarantor's operating expenses increased to $1,707 for
the three months ended March 31, 1996 from $1,594 for the same period in 1995,
a 7.1% increase. This increase was due to a scheduled increase in third party
lessor royalties related to the increase in the Partnership Projects' sales of
electricity.
The Salton Sea Guarantors' depreciation and amortization decreased to
$2,682 for the three months ended March 31, 1996 from $3,043 for the same
period of 1995. This 11.9% decrease was due primarily to the allocation of
purchase accounting which related to the Magma Acquisition.
The Initial Partnership Guarantors' depreciation and amortization
increased to $4,373 for the three months ended March 31, 1996 from $2,438 for
the same period in 1995. This 79.4% increase was due primarily to the
allocation of purchase accounting which related to the Magma Acquisition.
The Royalty Guarantor's amortization increased to $2,570 for the
three months ended March 31, 1996 from $1,232 for the same period of 1995.
This 108.6% increase was due primarily to the allocation of purchase
accounting which related to the Magma Acquisition.
The Salton Sea Guarantors' interest expense, net of capitalized
amounts, decreased to $2,957 for the three months ended March 31, 1996 from
$4,256 for the same period in 1995. The 30.5% decrease was due primarily to
the capitalization of interest to projects under construction and development
partially offset by increased indebtedness from the issuance of the Salton Sea
Project Note.
The Initial Partnership Guarantors' interest expense, net of
capitalized amounts, decreased to $0 for the three months ended March 31, 1996
from $3,209 for the same period in 1995. The decrease is a result of reduced
indebtedness and capitalization of interest to properties under development.
The Royalty Guarantor's interest expense decreased to $1,358 for the
three months ended March 31, 1996 from $1,540 from the same period in 1995.
The decrease is a result of reduced indebtedness.
55
<PAGE>
Income Taxes. The Salton Sea Guarantors are comprised of partnerships
and one company which has a partial interest in the Salton Sea expansion.
Income taxes are the responsibility of the partners and Salton Sea Guarantors
have no obligation to provide funds to the partners for payment of any tax
liabilities. Accordingly, the Salton Sea Guarantors have no tax obligations.
The Initial Partnership Guarantors' income tax provision increased to
$2,249 for the three months ended March 31, 1996 from $1,885 for the same
period in 1995. This 19.3% increase was primarily due to a 12.8% increase in
income before income taxes. Income taxes will be paid by the parent of the
Partnership Guarantors, from distributions to the parent company by the
Guarantors which occur after operating expenses and debt service.
The Royalty Guarantor's income tax provision was $478 for the three
months ended March 31, 1996 compared to $830 for the same period in 1995.
Income taxes will be paid by the parent of the Royalty Guarantor from
distributions to the parent company which occur after operating expenses and
debt service.
Net Income. The Salton Sea Funding Corporation's net income for the
three months ended March 31, 1996 was $526 which primarily represented
interest income and expense, net of applicable tax, and the Salton Sea Funding
Corporation's 1% equity in earnings of the Guarantors. The Funding Corporation
was formed on June 20, 1995 for the sole purpose of acting as issuer of the
Securities.
The Salton Sea Guarantors' net income increased to $4,861 for the
three months ended March 31, 1996 compared to $1,431 for the same period of
1995.
The Initial Partnership Guarantors' net income increased to $3,145
for the three months ended March 31, 1996 compared to $1,472 for the same
period of 1995.
The Royalty Guarantor's net income increased to $828 for the three
months ended March 31, 1996 compared to $463 for the same period of 1995.
RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)
Revenues. The Salton Sea Guarantors' sales of electricity decreased
to $71,605 for the year ended December 31, 1995 from $74,576 for the same
period last year, a 4.0% decrease. This was due to a 4.8% decrease in electric
kWh sales to 604.3 million kWh from 634.9 million kWh, which was a result of
the scheduled overhauls at Salton Sea Units I, II and III, partially offset by
an increase in the energy price for Salton Sea Unit I.
The Initial Partnership Guarantors' sales of electricity increased to
$76,909 for the year ended December 31, 1995 from $70,692 for the same period
in 1994, an 8.8% increase. This was due to a 2.0% increase in electric kWh
sales to 1,373.3 million kWh from 1,346.0 million kWh and an increased energy
price per kWh in accordance with the Power Purchase Agreements.
The Royalty Guarantor's revenue decreased to $28,383 for the year
ended December 31, 1995 from $29,410 for the same period in 1994. The decrease
in royalty revenue is the result of the Royalty Guarantor no longer recording
the earned but unpaid East Mesa Junior Royalties, which is a result of the
uncertainty related to the East Mesa Project obtaining the long-term financing
which is a prerequisite to the payment of these royalties. See "--Results of
Operations for the Years Ended December 31, 1994 and 1993" below for
additional analysis.
Interest and other income for the Initial Partnership Guarantors
increased to $10,574 for the year ended December 31, 1995 from $5,358 for the
same period in 1994. The increase was attributable to higher cash
56
<PAGE>
balances and the Magma Services Agreement which went into effect on July 20,
1995. Fee income related to the Magma Services Agreement for the year ended
December 31, 1995 was $4,457.
Expenses. The Salton Sea Guarantors' operating expenses, which include
royalty, operating, and general and administrative expenses, increased to
$26,096, or 4.32 cents per kWh, for the year ended December 31, 1995, from
$24,766 or 3.90 cents per kWh for the same period in 1994. The increase in
expenses was due to scheduled overhauls at Salton Sea Units I, II and III.
The Initial Partnership Guarantors' operating expenses, which include
royalty, operating and general and administrative expenses, decreased to
$32,143, or 5.52 cents per kWh, for the year ended December 31, 1995, from
$35,306 or 6.21 cents per kWh for the same period in 1994. The 9.0% decrease
in costs was primarily due to the implementation of certain cost savings
measures at the partnership level, including a reduction in labor costs at the
time of the Magma Acquisition.
The Royalty Guarantor's operating expenses increased to $6,822 for
the year ended December 31, 1995 from $6,251 for the same period of 1994, a
9.1% increase. This increase was due to a scheduled increase in third party
lessor royalties related to the increases in the Partnership Projects' sales
of electricity.
The Salton Sea Guarantors' depreciation and amortization increased to
$10,556 for the year ended December 31, 1995 from $10,049 for the year ended
December 31, 1994, an increase of 5.0%. Depreciation and amortization for the
year ended December 31, 1995 was 1.75 cents per kWh compared to 1.58 cents per
kWh in the year ended December 31, 1994.
The Initial Partnership Guarantors' depreciation and amortization
increased to $18,958 for the year ended December 31, 1995 from $9,037 for the
same period in 1994, a 110% increase. This increase was due to the Magma
Acquisition purchase accounting effect which results in the allocation of
goodwill, including amortization, and the additional depreciation due to the
excess of fair market value assigned to assets over the previous book value.
The Royalty Guarantor's amortization totaled $11,239 for the year
ended December 31, 1995 and represented amortization of the royalty stream and
goodwill.
The Salton Sea Guarantors' interest expense, net of capitalized
amounts, increased to $15,605 for the year ended December 31, 1995 from $8,240
for the same period in 1994. The increase is a result of increased
indebtedness from the issuance of the Salton Sea Project Note and the purchase
accounting allocation of the indebtedness incurred in conjunction with the
Magma Acquisition.
The Initial Partnership Guarantors' interest expense, net of
capitalized amounts, increased to $8,826 for the year ended December 31, 1995
from $3,285 for the same period in 1994. The increase is a result of increased
indebtedness from the issuance of the Partnership Project Note and the
purchase accounting allocation of the indebtedness incurred in conjunction
with the Magma Acquisition.
The Royalty Guarantor's interest expense for the year ended December
31, 1995 was $4,757 which related to the issuance of the Royalty Project Note
and the aforementioned allocation of indebtedness incurred in conjunction with
the Magma Acquisition.
Income Taxes. The Salton Sea Guarantors are comprised of partnerships
and one company which has a partial interest in the Salton Sea Expansion.
Income taxes are the responsibility of the partners and Salton Sea Guarantors
have no obligation to provide funds to the partners for payment of any tax
liabilities. Accordingly, the Salton Sea Guarantors have no tax obligations.
The Initial Partnership Guarantors' income tax provision increased to
$11,492 for the year ended December 31, 1995 from $11,284 for the same period
in 1994. The increase in the provision is a result of a
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slightly higher effective tax rate. Income taxes will be paid by the parent of
the Guarantors from distributions to the parent company by the Guarantors which
occur after operating expenses and debt service.
The Royalty Guarantor's income tax provision was $963 for the year
ended December 31, 1995. Income taxes will be paid by the parent of the Royalty
Guarantor from distributions to the parent company by the Royalty Guarantor
which occur after operating expenses and debt service.
Net Income. The Salton Sea Funding Corporation's net income for the
period June 20, 1995 (inception date) to December 31, 1995 was $1,507 which
represented interest income and expense, net of applicable tax, and the Salton
Sea Funding Corporation's 1% equity in earnings of the Guarantors.
The Salton Sea Guarantors' net income decreased to $17,955 for the
year ended December 31, 1995, compared to $31,943 for the year ended December
31, 1994 due primarily to increased interest expense and depreciation and
amortization resulting from the Magma Acquisition.
The Initial Partnership Guarantors' net income decreased to $14,637
for the year ended December 31, 1995, compared to $17,138 for the year ended
December 31, 1994 due primarily to increased interest expense and depreciation
and amortization resulting from the Magma Acquisition.
The Royalty Guarantor's net income decreased to $3,510 for the year
ended December 31, 1995, compared to $8,657 for the year ended December 31,
1994 due primarily to increased interest expense and amortization resulting
from the Magma Acquisition.
RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS)
Revenues. The Salton Sea Guarantors' sales of electricity increased
to $74,576 for the year ended December 31, 1994 from $60,158 in the year ended
December 31, 1993, a 24.0% increase. This increase is due to an increase in
electric kWh sales to 635.3 million kWh in 1994 from the 1993 partial year
level of 495.9 million kWh as the Salton Sea Projects were owned by the
Guarantors for nine months of 1993. The sales of electricity on a per kWh
decreased in 1994 to 11.74 cents per kWh from 12.13 cents per kWh. This was
because the 1993 nine month period included June through September, the period
when Salton Sea Guarantors earn significantly higher capacity payments,
compared to 1994 in which the higher capacity payments were averaged over
production for a full twelve months.
The Initial Partnership Guarantors' sales of electricity increased to
$70,692 in the year ended December 31, 1994 from $65,579 in the year ended
December 31, 1993, a 7.8% increase. This increase was due to a 3.0% increase
in electric kWh sales to 1,345.6 million kWh from 1,305.7 million kWh and an
increase in the energy price per kWh to 12.43 cents per kWh from 11.88 cents
per kWh. The increase in kWh sales was primarily due to the completion of new
production wells.
For the Salton Sea Guarantors and Initial Partnership Guarantors
combined, sales of electricity increased 15.5% to $145,268 in the year ended
December 31, 1994 from $125,737 in the year ended December 1993.
The Royalty Guarantor's revenues increased to $29,410 in 1994 from
$26,942 in 1993. Royalties included recognition of earned but unpaid East Mesa
Junior Royalties of $3,412 and $3,190 in 1994 and 1993, respectively. In 1994,
a reserve was established, and a related charge incurred, for the then entire
outstanding accrued Junior Royalties receivable. This charge amounted to
$14,502 and is included in "operating expenses." The charge was deemed
necessary due to the inability of the East Mesa Project to convert its
construction loans into term loans, which was expected to occur in 1994 and is
a prerequisite to the collection of the Junior Royalties. Since 1989, Magma
has received Senior Royalty payments from East Mesa on a current basis.
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Interest and other income for the Salton Sea Projects was $422 for
the year ended December 31, 1994 and $-0- for the year ended December 31,
1993. During 1993, all excess cash flows were utilized to finance plant
operations and service debt financing requirements during the interim
financing loan.
Interest and other income for the Initial Partnership Guarantors
increased for the year ended December 31, 1994 to $5,358 from $4,478 for the
year ended December 31, 1993. This increase was primarily due to higher cash
balances as a result of stronger operating results.
For the Salton Sea Guarantors and Initial Partnership Guarantors
combined, interest and other income for the year ended December 31, 1994 was
$5,780, compared with $4,478 for the year ended December 31, 1993.
Expenses. The increase in the Salton Sea Guarantors' royalty,
operating, and general and administrative expenses to $24,766 for the year
ended December 31, 1993 from $19,335 for the year ended December 31, 1994 was
primarily due to 1993 representing a nine month period of operation. These
costs on a per kWh basis were 3.9 cents for both periods.
The Initial Partnership Guarantors' royalties, operating, and general
and administrative expenses decreased to $35,306 for the year ended December
31, 1994 from $35,597 for the year ended December 31, 1993. The Partnership
Projects' royalties, operating and general and administrative expenses on a
per kWh basis decreased to 6.21 cents for the year ended December 31, 1994
from 6.45 cents for the year ended December 31, 1993.
The Royalty Guarantor's operating expenses increased to $20,753 for
the year ended December 31, 1994 from $5,710 for year ended 1993. The increase
is directly attributable to the aforementioned charge of $14,502 resulting
from the establishment of a reserve against previously recorded revenue for
the East Mesa Junior Royalty.
Combined, the Guarantors' royalties, operating, and general and
administrative expenses was $80,825 and $60,642 for 1994 and 1993,
respectively.
The Salton Sea Guarantors' depreciation and amortization increased to
$10,049 for the year ended December 31, 1994 from $7,425 for the year ended
December 31, 1993. The 1993 amount represents nine months of operations. On a
per kWh basis, the Salton Sea Guarantors' depreciation expense and
amortization increased to 1.58 cents for the year ended December 31, 1994 from
1.50 cents for the year ended December 31, 1993. The increase is a result of
(i) higher capital expenditures being incurred in 1994, and (ii) the operating
capacity factor being 90.9% for the twelve months in 1994 versus 94.2% for the
nine months in 1993 reflecting a lower average electrical production.
The Initial Partnership Guarantors' depreciation and amortization
decreased to $9,037 for the year ended December 31, 1994 from $9,249 for the
year ended December 31, 1993. The increase in 1993 depreciation and
amortization can be attributable to one-time charges for replacing a
production header at the Elmore Project. The Initial Partnership Guarantors'
depreciation and amortization on a per kWh basis for the years ended December
31, 1994 and 1993 was 1.59 cents and 1.68 cents, respectively.
Combined, the Guarantors' depreciation and amortization expense was
$19,086 and $16,674 in 1994 and 1993, respectively.
The Salton Sea Projects' interest expense increased to $8,240 for the
year ended December 31, 1994 from $4,267 for the year ended December 31, 1993.
Interest expense was 1.3 cents per kWh for the year ended December 31, 1994
compared to 0.86 cents per kWh for the year ended December 31, 1993. This
increase reflects higher interest rates on a greater loan balance.
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The Partnership Projects' interest expense decreased to $3,285 or
0.58 cents per kWh for the year ended December 31, 1994 from $3,712 or 0.67
cents per kWh for the year ended December 31, 1993. This decrease was due to
lower outstanding principal balances.
The Royalty Guarantor was unleveraged for the years ended December
31, 1994 and 1993.
In March 1993, the Salton Sea Guarantors' entered into a one-year term
loan with a variable interest rate of LIBOR plus .675%. In February 1994, this
loan was replaced by a secured credit agreement which provided for direct loans
at a variable interest rate of LIBOR plus 1.25%.
The Partnership Projects have issued commercial paper and medium term
notes, which are secured, in turn, by the project debt facility. The weighted
average effective interest rates for the outstanding borrowings was 6.3% in
1994, as compared to 5.6% for 1993.
Income Taxes. The Salton Sea Guarantors are comprised of partnerships
and one company which has a partial interest in the Salton Sea Expansion.
Income taxes are the responsibility of the partners. Accordingly the Salton
Sea Guarantors have no tax obligations.
The Initial Partnership Guarantors' income tax provision was $11,284
and $8,405 for 1994 and 1993, respectively. The increase in the provision was
a result of the higher income before taxes. Income taxes will be paid by the
parent of the Guarantors from distributions to the Parent company by the
Guarantors which occur after operating expenses and debt service.
Net Income. The Salton Sea Guarantors' net income was $31,943 for the
year ended December 31, 1994 compared to $29,131 for the nine month period
from date of acquisition to December 31, 1993.
The Initial Partnership Guarantors' net income was $17,138 for the
year ended December 31, 1994, compared with net income of $13,094 for 1993.
The Royalty Guarantor's net income was $8,657 and $21,232 for 1994
and 1993, respectively.
Combined net income for all Guarantors was $57,738 and $63,457 for
the years ended December 31, 1994 and 1993, respectively. The 1994 net income
reflects the charge in the amount of $14,502 resulting from the establishment
of a reserve against previously recorded East Mesa Junior royalties.
CAPITAL RESOURCES AND LIQUIDITY
Salton Sea Funding Corporation. The Funding Corporation was organized
for the purpose of issuing Securities, including $475 million aggregate
principal amount of the Initial Securities, consisting of $232,750, 6.69%
Senior Secured Series A Notes due May 30, 2000, $133,000 7.37% Senior Secured
Series B Bonds due May 30, 2005 and $109,250, 7.84% Senior Secured Series C
Bonds due May 30, 2010 initially issued on July 21, 1995, and $70,000, 7.02%
Senior Secured Series D Notes due May 30, 2000 and $65,000, 8.30% Senior
Secured Series E Bonds due May 30, 2011 initially issued on June 20, 1996.
Repayment of the Securities will be funded by repayments of the Guarantors'
Project Notes, payments under the Guarantees, amounts deposited in the Debt
Service Reserve Funds, and amounts paid by the Guarantors from time to time to
fund or replenish any shortfall in the Debt Service Reserve Funds from
Available Cash Flow. See "SUMMARY DESCRIPTION OF PRINCIPAL FINANCING
DOCUMENTS--The Security."
The Salton Sea Guarantors' only source of revenue is payments
received pursuant to long term power sales agreements with SCE, other than
interest earned on funds on deposit. The Partnership Guarantors' primary
source of revenue is payments received pursuant to long term power sales
agreements with SCE. The Partnership Guarantors also receive Royalties from
the Partnership Projects. The Royalty Guarantor's only source of revenue is
Royalties received pursuant to resource lease agreements with the Partnership
Projects and
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the East Mesa Project. With the exception of the East Mesa Royalties, such
Royalties are payable out of revenues that will constitute Partnership
Collateral. See "PROSPECTUS SUMMARY--Structure of and Collateral for the
Securities." These payments, for each of the Guarantors, are expected
to be sufficient to fund operating and maintenance expenses, payments of
interest and principal on the Securities, projected capital expenditures and
Debt Service Reserve Fund requirements.
All available cash of the Salton Sea Guarantors is transferred to the
Funding Corporation or Affiliates.
On February 28, 1994, the Salton Sea Guarantors secured a $130,000
non-recourse project-level term loan which is collateralized by substantially
all of the assets of the Salton Sea Projects. Proceeds from the Initial
Securities were utilized to repay the project loan.
The Salton Sea Guarantors commenced construction of an additional 40
net MW electric generating facility ("Salton Sea Unit IV") in 1995 pursuant to
an amended and restated 30-year power purchase agreement with SCE.
Construction of Salton Sea Unit IV is substantially complete at an estimated
capital construction cost of $135,000. As of March 31, 1996, the Salton Sea
Guarantors had invested $91,209 in Salton Sea Unit IV. The Depositary holds
the cash for the construction of Salton Sea Unit IV and as of March 31, 1996
the balance of this cash totaled $54,346.
The Initial Partnership Guarantors' cash and marketable securities
were $11,042 and $11,146 at March 31, 1996 and December 31, 1995,
respectively. In addition to these liquid instruments, the Initial Partnership
Guarantors recorded separately restricted cash of $10,576 and $9,859 at March
31, 1996 and December 31, 1995, respectively. Distributions out of the
Partnerships' project control accounts are made monthly for management fees,
Royalties, and reimbursement of operating costs and partnership distributions
for the Del Ranch, Elmore and Leathers Projects and quarterly for the Vulcan
Project.
As of March 31, 1996, the Initial Partnership Guarantors' share of
the Leathers, Del Ranch and Elmore project-level debt was $38,633.
CHANGING PRICES AND THE EFFECT OF INFLATION
The capacity and bonus payments the Guarantors receive for
electricity sold are fixed under the SO4 Agreements, and the energy payment
component of the SO4 Agreements are at a scheduled rate during the fixed price
period. As a result inflation has not had a significant effect on the
Guarantors' revenues. Although management of the Guarantors believe that
operating and management expenses may change over time in response to
inflation, generally, it is difficult to assess the impact of inflation over
the periods covered by this discussion since operating efficiencies generally
improve over time.
BUSINESS OF THE GUARANTORS
GEOTHERMAL ENERGY
Geothermal energy is a clean, renewable and generally sustainable
energy source that, because it does not utilize combustion in the production
of electricity, releases significantly lower levels of emissions than result
from energy generation based on the burning of fossil fuels. Geothermal energy
is derived from the natural heat of the earth when water comes sufficiently
close to hot molten rock to heat the water to temperatures of 400 degrees
Fahrenheit or more. The heated water then ascends toward the surface of the
earth where it, if geological conditions are suitable for its commercial
extraction, can be extracted by drilling geothermal wells. The energy
necessary to operate a geothermal power plant is typically obtained from
several such wells, which are drilled using established technology similar to
that employed in the oil and gas industry. Geothermal production wells are
normally located within approximately one to two miles of the power plant as
geothermal fluids cannot be transported economically over longer distances.
The geothermal reservoir is a renewable source of energy if natural ground
water sources and re-injection of extracted geothermal fluids are adequate
over the
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long term to replenish the geothermal reservoir after the withdrawal
of geothermal fluids. Geothermal energy facilities typically have higher
capital costs (primarily as a result of wellfield development) but tend to
have significantly lower variable costs than fossil fuel based power plants.
THE SSKGRA GEOTHERMAL RESOURCE
The area in which the Salton Sea Projects and the Partnership
Projects are located has been designated as a "Known Geothermal Resource Area"
("KGRA") by the Bureau of Land Management pursuant to the Geothermal Steam Act
of 1970. Areas are designated as KGRAs when the Bureau of Land Management
determines that a commercially viable geothermal resource is likely to exist.
There are over 100 other KGRAs in the United States, which are predominately
located in the western states in tectonically active regions.
The Salton Sea KGRA ("SSKGRA") is located in Imperial County,
California, approximately 90 miles east of San Diego and is one of the world's
largest geothermal resource areas. The SSKGRA is a liquid-dominated geothermal
resource. The operations in the SSKGRA benefit from, among other things, the
relatively high temperature of the geothermal fluid, as well as relatively
high pressures which naturally force the geothermal fluid to flow up into the
Salton Sea Project plants and the Partnership Project plants without the
expense of pumping the geothermal fluid to the surface. The Funding
Corporation believes that such resources will be sufficient to operate the
Salton Sea Projects and the Partnership Projects at contract capacity under
their respective power purchase agreements through the Final Maturity Date.
GENERAL DESCRIPTION OF THE PROJECTS
Project Ownership. The Salton Sea Guarantors collectively own 100% of
four geothermal power plants, Salton Sea Units I, II, III and IV, and related
geothermal wells and gathering systems, which are all located in the SSKGRA.
Three of these plants have been in commercial operation for at least 5 years.
The fourth geothermal power plant, Salton Sea Unit IV, commenced operation in
May 1996 and has recently successfully completed the 30-day capacity
demonstration test required under the Salton Sea Unit IV PPA.
The Partnership Guarantors collectively own, or have the right to
receive all equity cash flow from, 100% of the equity interests in four
geothermal power plants (the Vulcan Project, the Elmore Project, the Leathers
Project and the Del Ranch Project) and related geothermal wells and gathering
systems in the SSKGRA. All four plants have been in commercial operation for
at least 5 years. Specifically, four of the Partnership Guarantors, Vulcan,
Elmore, Leathers and Del Ranch, own the Vulcan Project, Elmore Project,
Leathers Project and Del Ranch Project, respectively. Four of the other
Partnership Guarantors, CEOC, Niguel, San Felipe and Conejo, collectively own
90% of the partnership interests in each of Leathers, Del Ranch, and Elmore,
and Magma, an Affiliate of the Funding Corporation, owns the remaining 10%
limited partnership interest in each of these three partnerships. Magma has
agreed to pay to CEOC the partnership distributions it receives from its 10%
interest in each of these three partnerships and the special distributions of
4.5% of Leathers' energy revenues it receives under the Leathers Partnership
Agreement. Such payments will be made from revenues that will constitute
Partnership Collateral. See "PROSPECTUS SUMMARY--Structure of and Collateral
for the Securities." Two other Partnership Guarantors, VPC and BN Geothermal,
collectively own 100% of the fourth partnership, Vulcan/BN Geothermal Power
Company.
The East Mesa Project is owned by a third party unaffiliated with the
Funding Corporation and has been in commercial operation for at least 5 years.
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Production Process. The physical facilities and power generation
process used for geothermal energy production are similar at each of the Salton
Sea Projects and the Partnership Projects. The following diagram generally
illustrates the geothermal energy production process:
GRAPHIC OMITTED
Geothermal fluid is extracted from the underground reservoir by a
series of production wells and piped into the Projects. The geothermal fluids
produced at the wellhead consist of a mixture of hot brine and steam. The
heated mixture flows from the wellhead through a gathering system of insulated
steel pipes to separation vessels or separators. There, additional steam is
generated by converting liquid to steam via a pressure reduction process
(generally referred to as "flashing"). The steam is then separated from the
brine and is sent to a demister in the power plant, where any remaining water
droplets are removed. This produces a stream of dry steam, which is used by a
turbine generator to produce electricity. In some cases, the steam is used
again at a lower pressure to produce additional electricity.
The hot brine remaining after separation of steam is injected back
into the geothermal resource via a series of injection wells. Steam exhausted
from the steam turbine is passed to a surface condenser through which cold
water circulates. Moisture in the steam leaving the turbine generators
condenses on the tubes and after being cooled further in a cooling tower, is
used to provide cold circulating water for the condenser or injected back into
the geothermal resource.
The SSKGRA geothermal fluids contain a relatively high concentration
of total dissolved solids ("TDS"). As pressure is reduced in the flashing
process, solids tend to precipitate and cause scaling and mineral buildup
throughout the system. The Salton Sea Projects and the Partnership Projects
use certain processes to counteract the effects of such high TDS geothermal
fluid. The Partnership Projects currently use the "crystallizer/clarifier
process" ("CRC Process") developed by Magma in the late 1970's and early
1980's. The CRC Process removes solids from the geothermal brine, resulting in
a reduction in the amount of scale buildup in pipe and vessels and the
reduction of congestion within the reinjection wells. The Salton Sea Projects
use the alternative pH Modification Process to avoid scale buildup. This
process was developed by Union Oil Company of California ("Unocal") and is now
licensed to Magma. It inhibits precipitation of geothermal solids by modifying
the "pH" of the fluid. This process eliminates the need for crystalizers,
clarifiers and associated equipment and results in performance standards
similar to those achieved by the CRC Process at significantly reduced
operating costs.
Sale of Power. Each of the Projects sells its net electrical output
to SCE under a separate long-term power purchase agreement. These contracts
are similar to each other in many respects. Each of these contracts, except
for two (Salton Sea Unit I and Salton Sea Unit IV), are SO4 Agreements which
provide for fixed capacity payments over the term of the contracts, capacity
bonus payments and fixed escalating energy prices for the first 10 years of
each Project, after which energy payments are paid at SCE's Avoided Cost of
Energy.
Transmission. Except for Salton Sea Unit I, which delivers its power
to SCE at the Salton Sea Unit I site, the power sold to SCE by the Salton Sea
Projects and the Partnership Projects is delivered to SCE after
interconnection/wheeling over the local transmission system owned by the
Imperial Irrigation District, a public agency of the State of California
("IID"), pursuant to long-term transmission agreements and plant
interconnection agreements.
Operations, Maintenance and Administrative Services. Affiliates of
the Funding Corporation provide operations and maintenance services and
administrative services for the Salton Sea Projects and the Partnership
Projects pursuant to long-term operations and maintenance agreements and
administrative services agreements. These services include operations,
maintenance and testing of the plants, wells and gathering and reinjection
systems, the training of personnel, obtaining parts and supplies, preparing
reports for third parties, enforcing all warranties and claims and maintaining
compliance with permits, licensing and insurance standards.
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Geothermal Resources. Magma and other affiliates of the Funding
Corporation who are not Guarantors control the land on which the Salton Sea
Projects and the Partnership Projects are located and certain rights to
geothermal fluids in the SSKGRA through a combination of fee, leasehold and
royalty interests. The Salton Sea Projects and the Partnership Projects have
entered into long-term agreements with these affiliates to obtain the
necessary surface rights and geothermal resource rights necessary to operate
their projects. The Funding Corporation believes that these projects have the
rights to all of the geothermal resources necessary to operate those plants at
contract capacity until Final Maturity. Royalties received by Magma for
granting such rights to Elmore, Leathers and Del Ranch are paid to the Royalty
Guarantor.
Qualifying Facilities. Geothermal power plants in the United States
are eligible to be qualifying facilities ("QFs") under PURPA, which provides
for certain beneficial Federal regulatory treatment. All of the Salton Sea and
Partnership Projects are QFs.
SALTON SEA PROJECTS
The four Salton Sea Projects (Salton Sea Units I, II, III and IV) are
100% owned by the Salton Sea Guarantors collectively. The Salton Sea
Guarantors are wholly owned, directly and indirectly, by Magma.
Ownership. SSBP is a limited partnership, with Magma owning a 99%
limited partnership interest, and Salton Sea Power Company ("SSPC"), owning a
1% general partnership interest therein. SSPG is also a limited partnership,
with SSPC owning a 1% general partnership interest and SSBP owning a 99%
limited partnership interest therein. SSPC and Fish Lake are each 99% owned by
Magma and 1% owned by the Funding Corporation.
Salton Sea Units I, II and III were purchased by Magma on March 31,
1993 from Unocal. At the time of the acquisition, SSBP became the owner of the
wellfields and brine facilities associated with the Salton Sea Projects and
SSPG became the owner of all such geothermal power plants. Fish Lake and SSPG
own Salton Sea Unit IV.
Project Structure. CEOC operates and maintains the Salton Sea
Projects under an operating and maintenance agreement with the Salton Sea
Guarantors. Magma provides day-to-day administrative, management and technical
services under an administrative services agreement with the Salton Sea
Guarantors.
Magma Land, a wholly owned subsidiary of Magma, has granted SSBP the
right, under an easement grant deed and agreement regarding rights for
geothermal development, to extract and utilize, for purposes of power
production at the Salton Sea Projects, certain geothermal resources in the
SSKGRA which are believed to be sufficient to enable the Salton Sea Projects
to operate on a commercially viable basis at least through the term of their
respective power purchase agreements. SSBP extracts and sells brine and steam
for all of the Salton Sea Projects to SSPG under a geothermal sales agreement.
SSPG produces and sells electric capacity and energy from
Salton Sea Units I, II and III to SCE under three power purchase agreements
and, with Fish Lake, will sell Salton Sea Unit IV's capacity and energy to SCE
under a fourth power purchase agreement. The IID provides transmission
services under plant connection agreements and transmission service agreements
for Salton Sea Units II, III and IV. Salton Sea Unit I sells power to SCE at
the project site.
Desert Valley Company ("DVC"), a wholly owned subsidiary of Magma,
operates a storage and disposal site in Imperial County, California for
geothermal material. DVC has been granted a permit allowing the storage and
disposal of the Salton Sea Projects' non-hazardous geothermal materials.
SALTON SEA UNIT I
Salton Sea Unit I has been in service since 1982. Salton Sea Unit I
is nominally a 10 MW net output plant. SCE is required to purchase 10 MW of
capacity of, and the electricity delivered from, Salton Sea Unit I under a
30-year negotiated power purchase agreement (the "Salton Sea Unit I PPA").
Under the Salton Sea Unit
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I PPA, SCE pays SSPG a capacity payment and an energy payment. The contract
energy payment adjusts quarterly based on specified inflation-related indices.
The energy payment price was 4.7 cents per kWh in the first quarter of
1996. See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Salton Sea
Guarantor Project Contracts--Salton Sea Unit I--Salton Sea Unit I PPA."
The plant availability and Contract Capacity Factors for Salton Sea
Unit I have been in excess of 87% and 64%, respectively, for each of the
operating years 1991-1995. The average plant availability and Contract
Capacity Factors for Salton Sea Unit I for such period have been 94% and 68%.
For additional information regarding the operating history of Salton Sea Unit
I, see "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
SALTON SEA UNIT II
Salton Sea Unit II has been in service since 1990. Salton Sea Unit II
is currently operating with the pH Modification Process. Salton Sea Unit II is
nominally a 20 MW net output plant. SCE is required to purchase 15 MW of
capacity of, and the electricity delivered from, Salton Sea Unit II under a
30-year SO4 power purchase agreement (the "Salton Sea Unit II PPA"). Under the
Salton Sea Unit II PPA, SCE pays SSPG a fixed price capacity payment, a
capacity bonus payment and an energy payment. The contract energy payment
price is levelized at a time period weighted average of 10.6 cents per kWh in
each year of the Fixed Price Period, which period expires on April 4, 2000.
Thereafter, the energy payments will be based on SCE's Avoided Cost of Energy.
See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Salton Sea Guarantor
Project Contracts--Salton Sea Unit II--Salton Sea Unit II PPA."
The plant availability and Contract Capacity Factors of Salton Sea
Unit II have been in excess of 90% and 106%, respectively, for each of the
operating years 1991-1995. The average plant availability and Contract
Capacity Factors for such period have been 96% and 112%, respectively. Salton
Sea Units I and II generated gross electricity revenues of $23.0 million in
1995. For additional information regarding the operating history of Salton Sea
Unit II, see "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
SALTON SEA UNIT III
Salton Sea Unit III has been in service since 1989. Salton Sea Unit
III is nominally a 49.8 MW net output plant. SCE is required to purchase 47.5
MW of capacity of, and the electricity delivered from, Salton Sea Unit III
under a 30-year SO4 power purchase agreement (the "Salton Sea Unit III PPA").
Under the Salton Sea Unit III PPA, SCE pays SSPG a fixed price capacity
payment, a capacity bonus payment and an energy payment. The contract energy
payment price is levelized at a time period weighted average of 9.8 cents per
kWh in each year of the Fixed Price Period, which period expires on February
13, 1999. Thereafter, the energy payment will be based on SCE's Avoided Cost
of Energy. See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Salton Sea
Guarantor Project Contracts--Salton Sea Unit III--Salton Sea Unit III PPA."
The plant availability and Contract Capacity Factors of Salton Sea
Unit III have been in excess of 92% and 95%, respectively, for each of the
operating years 1991-1995. The average plant availability and Contract
Capacity Factors for such period have been 97% and 101%, respectively. In
1995, Salton Sea Unit III generated gross electricity revenues of $48.6
million. For additional information regarding the operating history of Salton
Sea Unit III, see "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
SALTON SEA EXPANSION
The Salton Sea Guarantors have recently (i) expanded the capacity of
the Salton Sea Projects through the construction of Salton Sea Unit IV at a
site adjacent to Salton Sea Unit III and (ii) incorporated the pH Modification
Process in Salton Sea Units I and III. Such pH Modification, together with the
construction of Salton Sea Unit IV, is referred to herein as the Salton Sea
Expansion.
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Salton Sea Unit IV. SSPG had an option to supply an additional 20 MW
of power to SCE under the Salton Sea Unit I PPA. Fish Lake acquired an SO4
Agreement (the "Fish Lake PPA") in 1992 to supply electric power to SCE from a
16 MW geothermal power plant proposed to be built at Fish Lake in Esmeralda
County, Nevada (the "Fish Lake Project"). The CPUC has approved the
restructuring of (i) the Salton Sea Unit I PPA and (ii) the Fish Lake PPA,
whereby the originally contemplated Fish Lake Project would not be
developed at its originally proposed site in Nevada and, instead, Salton Sea
Unit IV would be developed to generate and sell power to SCE under an amended
and restated 30-year power purchase agreement which combines and consolidates
the optional capacity in the Salton Sea Unit I PPA and the capacity in the
Fish Lake PPA.
The Salton Sea Unit IV PPA 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 Unit I 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 price
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 SCE is not required to
purchase the 20 MW of capacity and energy originally attributable to the
Salton Sea Unit I PPA option after June 30, 2017, the original termination
date of the Salton Sea Unit I PPA.
At the end of May 1996, construction of Salton Sea Unit IV was
substantially completed and the facility had commenced deliveries of
electrical energy to SCE. On May 24, 1996, Salton Sea Unit IV commenced its
30-day capacity demonstration test under the Salton Sea Unit IV PPA. The test
is proceeding without difficulties and the facility is currently producing in
excess of 40 MW. In addition, on June 6, 1996, the facility satisfactorily
completed its 24-hour reliability test. The 30-day test with respect to Salton
Sea Unit IV was completed by the end of June 1996, and, accordingly, under the
Salton Sea IV PPA, SCE is now obligated to pay full contract rates. The
Funding Corporation now plans to seek confirmation from the Independent
Engineer that Substantial Completion under the Indenture has occurred, which
will result in CalEnergy having no further obligation under the Cost Overrun
Commitment. See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT DOCUMENTS--Salton
Sea Guarantor Project Contracts--Salton Sea Unit IV--Cost Overrun Commitment."
Salton Sea Unit IV employs the pH Modification Process. The necessary
permits for the construction and use of Salton Sea Unit IV have been issued or
are expected to be obtained in the ordinary course.
The Salton Sea Expansion includes, among other things, the
installation of three new production wells, four new injection wells,
associated production and injection pipelines, and a new 47.5 MW turbine. The
incorporation of the pH Modification Process (described below) in Salton Sea
Units I, III and IV is expected to reduce operating and maintenance costs and
increase unit availability. As part of the Salton Sea Expansion, IID
constructed a short (approximately 10 mile) transmission line and upgraded a
portion of its existing system to interconnect Salton Sea Unit IV to the IID
Midway substation, each of which are owned by IID.
pH Modification. The pH Modification Process at Salton Sea Unit II
has operated successfully since Salton Sea Unit II began operations in 1990.
The Salton Sea Guarantors believe that incorporating the pH Modification
Process will enable Salton Sea Units I, III and IV to achieve a reduction in
operating and maintenance costs and increased unit availability. The Funding
Corporation has estimated that operating and maintenance costs for plants
utilizing the pH Modification Process are approximately 50% less than for
plants utilizing the CRC Process.
The pH Modification Process was developed by Unocal and is licensed
to Magma. It lowers the pH of the geothermal resource by injection of a pH
modification agent into the liquid brine stream. As a result, solids largely
remain in solution, rather than precipitate out as in the CRC Process; scaling
is minimized, and the spent brine can be directly reinjected into the
reservoir. Significant overall operating and maintenance cost savings are
expected to be realized in the elimination of the CRC processing of the
resource and associated solids handling and disposal.
See "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
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The total budgeted cost of the Salton Sea Expansion is approximately
$135 million. For a further discussion and analysis of the Salton Sea
Expansion, see "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
PARTNERSHIP PROJECTS
The Partnership Projects are four geothermal power plants (the Vulcan
Project, the Elmore Project, the Leathers Project and the Del Ranch Project)
located in Imperial Valley, California, in the SSKGRA.
Ownership. The Partnership Guarantors collectively own 100% of the
partnership interests in the Vulcan Project and 90% of the partnership
interests in the three other Partnership Projects. Magma owns the remaining
10% limited partnership interests in such three Partnership Projects and has
agreed to pay to CEOC the partnership distributions it receives from such
partnership interests. Such payments are made from revenues that will
constitute Partnership Collateral. See "PROSPECTUS SUMMARY -- Structure of and
Collateral for the Securities."
The ownership structure of these projects is as follows:
(i) VULCAN PROJECT. Magma has a 99% ownership in VPC with the
Funding Corporation owning the remaining 1% interest. VPC owns a 50%
general partnership interest in Vulcan/BN Geothermal Power Company, a
Nevada general partnership ("Vulcan"), which is the owner of the Vulcan
Project. VPC, as of the Closing Date, will own BN Geothermal, which owns
the remaining 50% general partnership interest in Vulcan.
(ii) ELMORE PROJECT, LEATHERS PROJECT AND DEL RANCH PROJECT. CEOC
directly owns a 40% general partnership interest in each of Elmore, the
owner of the Elmore Project, Leathers, the owner of the Leathers Project
and Del Ranch, the owner of the Del Ranch Project. Magma owns a 10%
limited partnership interest in each of Elmore, Leathers and Del Ranch.
As of the Closing Date CEOC will own Niguel, San Felipe and Conejo, which
each own a 40% general partnership interest and a 10% limited partnership
interest in Elmore, Leathers and Del Ranch, respectively.
Recent Partnership Acquisition. On April 17, 1996, CalEnergy Imperial
Valley Company, Inc., a wholly-owned subsidiary of CalEnergy ("CE Imperial
Valley") acquired 100% of the capital stock of each of BNG, Niguel, San Felipe
and Conejo from Mission for an aggregate cash purchase price of $70,000,000.
At the time of such Partnership Acquisition, such acquired companies conducted
no business other than owning 40% general partnership interests and 10%
limited partnership interests (collectively, the "Mission Partnership Project
Interests") in each of Vulcan, Elmore, Leathers and Del Ranch, respectively.
On the Closing Date, CE Imperial Valley sold the stock of BNG to VPC and the
stock of Niguel, San Felipe and Conejo to CEOC for an aggregate consideration
of $70,000,000 payable in cash by VPC and CEOC. VPC and CEOC will use a
portion of the proceeds of the Offering to fund approximately $23,000,000 of
such acquisition price.
Project Structure. CEOC (or VPC, in the case of the Vulcan Project)
operates and maintains the Partnership Projects under operating and
maintenance agreements with the respective Partnership Project Companies, and
additionally provides day-to-day administrative, management and technical
services under administrative services agreements with the respective
Partnership Project Companies.
Vulcan owns the surface land on which the Vulcan Project is located.
Magma has granted to VPC the right to extract and utilize the resource for the
production of power by the Vulcan Project and VPC sells geothermal brine to
Vulcan for such power production purposes. With respect to the Leathers, Del
Ranch and Elmore Projects, Magma has granted to each such project the right
under resource easement agreements to extract and utilize the geothermal
resource for the production of power by their respective power projects, and
receives royalty payments from each such project. The Royalty payments to be
received by Magma have been
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assigned to the Royalty Guarantor. Such payments are payable from revenues that
will constitute Partnership Collateral. See "PROSPECTUS SUMMARY-- Structure of
and Collateral for the Securities."
VULCAN PROJECT
The Vulcan Project has been in service since 1986. The Vulcan Project
is nominally a 34 MW net output plant. SCE is required to purchase 29.5 MW of
capacity of, and the electricity delivered from, the Vulcan Project under a
30-year SO4 power purchase agreement (the "Vulcan PPA"). Under the Vulcan PPA,
SCE pays Vulcan a fixed price capacity payment, a capacity bonus payment and
an energy payment. The contract energy payment price increased each year of
the Fixed Price Period, which period expired on February 9, 1996. Since that
date, the energy payments have been based on SCE's Avoided Cost of Energy. The
energy payment price per kWh was 12.6 cents for 1996 (until February 9, 1996,
the date of termination of the Fixed Price Period). See "SUMMARY DESCRIPTION
OF PRINCIPAL PROJECT CONTRACTS--Partnership Project Contracts--Vulcan
Project--Vulcan PPA."
The plant availability and Contract Capacity Factors of the Vulcan
Project have been in excess of 91% and 104%, respectively, for each of the
operating years 1991-1995. The average plant availability and Contract
Capacity Factors for such period have been 95% and 115%, respectively. In
1995, the Vulcan Project generated gross electricity revenues of $41.3
million. For additional information regarding the operating history of the
Vulcan Project, see "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
ELMORE PROJECT
The Elmore Project has been in service since 1989. The Elmore Project
is nominally a 38 MW net output plant. SCE is required to purchase 34 MW of
capacity of, and the electricity delivered from, the Elmore Project under a
30-year SO4 power purchase agreement (the "Elmore PPA"). Under the Elmore PPA,
SCE pays a fixed capacity payment, a capacity bonus payment and an energy
payment. The contract energy payment price increases each year of the Fixed
Price Period, which period expires on December 31, 1998. Thereafter, the
energy payments will be based on Avoided Cost of Energy. The energy payment
price per kWh is 12.6 cents for 1996, 13.6 cents for 1997 and 14.6 cents for
1998. See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Partnership
Project Contracts--Elmore Project--Elmore PPA."
The plant availability and Contract Capacity Factors for the Elmore
Project have been in excess of 91% and 104%, respectively, for each of the
years 1991-1995. The average plant availability and the Contract Capacity
Factors for such period have been 96% and 112%, respectively. In 1995, the
Elmore Project generated gross revenues of $47.4 million. For additional
information regarding history of the Elmore Project, see "APPENDIX
B--INDEPENDENT ENGINEER'S REPORT."
LEATHERS PROJECT
The Leathers Project has been in service since 1990. The Leathers
Project is nominally a 38 MW net output plant. SCE is required to purchase 34
MW of capacity of, and the electricity delivered from, the Leathers Project
under a 30-year SO4 power purchase agreement (the "Leathers PPA"). Under the
Leathers PPA, SCE pays Leathers a fixed price capacity payment, a capacity
bonus payment and an energy payment. The contract energy payment price
increases each year of the Fixed Price Period, which period expires on
December 31, 1999. Thereafter, the energy payments will be based on SCE's
Avoided Cost of Energy. The energy payment price per kWh is 12.6 cents for
1996, 13.6 cents for 1997, 14.6 cents for 1998 and 15.7 cents for 1999. See
"SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Partnership Project
Contracts--Leathers Project--Leathers PPA."
The plant availability and Contract Capacity Factors of the Leathers
Project have been in excess of 94% and 108%, respectively, for each of the
operating years 1991-1995. The average plant availability and Contract
Capacity Factors for such period have been 97% and 115%, respectively. In 1995
the Leathers Project
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generated gross electricity revenues of $46.8 million. For additional
information regarding the operating history of the Leathers
Project, see "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
DEL RANCH PROJECT
The Del Ranch Project has been in service since 1989. The Del Ranch
Project is nominally a 38 MW net output plant. SCE is required to purchase 34
MW of capacity of, and the electricity generated by, the Del Ranch Project
under a 30-year SO4 power purchase agreement (the "Del Ranch PPA"). Under the
Del Ranch PPA, SCE pays Del Ranch a fixed price capacity payment, a capacity
bonus payment and an energy payment. The contract energy payment price
increases each year of the Fixed Price Period, which period expires on December
31, 1998. Thereafter, the energy payments will be based on SCE's Avoided Cost
of Energy. The energy payment price per kWh is 12.6 cents for 1996, 13.6 cents
for 1997 and 14.6 cents for 1998. See "SUMMARY DESCRIPTION OF PRINCIPAL
PROJECT CONTRACTS-- Partnership Project Contracts--Del Ranch Project--Del
Ranch PPA."
The plant availability and Contract Capacity Factors for the Del
Ranch Project have been in excess of 94% and 103%, respectively, for each of
the years 1991-1995. The average plant availability and the Contract Capacity
Factors for such period have been 96% and 112%, respectively. In 1995, the Del
Ranch Project generated gross electricity revenues of $46.4 million. For
additional information regarding the operating history of the Del Ranch
Project, see "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
ROYALTY PROJECTS
The Royalty Guarantor is a single purpose entity which was
established in connection with the Initial Offering to receive Royalties from
Magma. Magma owns 99% and the Funding Corporation owns 1% of the Royalty
Guarantor. Magma has assigned the Royalties it receives under the Leathers
Easement, the Del Ranch Easement, the Elmore Easement and the East Mesa
Assignment and Security Agreement (as modified by the East Mesa Master
Agreement) to the Royalty Guarantor. The East Mesa Junior Royalties payable to
the Royalty Guarantor (which are due but have not been paid to date), are
junior to the debt service of the East Mesa Project. The East Mesa Senior
Royalties payable to the Royalty Guarantor are senior to the debt service of
the East Mesa Project. The Royalties paid with respect to the Leathers
Easement, the Del Ranch Easement and the Elmore Easement are paid prior to the
operating and maintenance expenses of the respective Partnership Projects and
are payable from revenues which will constitute Partnership Collateral. See
"PROSPECTUS SUMMARY--Structure of and Collateral for the Securities."
Royalties paid with respect to the East Mesa Assignment and Security Agreement
are paid after the operating and maintenance expenses of the East Mesa
Project.
ROYALTIES OBTAINED FROM THE PARTNERSHIP PROJECTS
Pursuant to the Magma Assignment Agreement, the Royalty Guarantor
receives Royalties of an aggregate amount of 21.5% of the energy revenues of
Leathers and 23.333% of the energy revenues and 1% of the capacity revenues of
each of Del Ranch and Elmore. In addition, Magma receives a special
distribution of 4.5% of Leathers' energy revenues which it pays over to CEOC
pursuant to a data and services agreement with CEOC. Vulcan also receives
Royalties equal to 4.167% of the energy revenues of the Vulcan Project. CEOC
receives royalties on energy payments equal to 5.667%, 3.0%, and 5.667% for
Elmore, Leathers, and Del Ranch, respectively. CEOC also receives royalties
equal to 3% of capacity revenues for Elmore, Leathers, and Del Ranch. All of
the foregoing revenues and Royalties are paid from revenues that constitute
Partnership Collateral. See "--Partnership Projects," "SUMMARY DESCRIPTION OF
PRINCIPAL PROJECT CONTRACTS--Partnership Project Contracts--Royalty Project
Contracts--Partnership Royalty Contracts" and "PROSPECTUS SUMMARY--Structure
of and Collateral for the Securities."
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ROYALTIES OBTAINED FROM THE EAST MESA PROJECT
Pursuant to the Magma Assignment Agreement, the Royalty Guarantor
receives Royalties which Magma receives from East Mesa. East Mesa is a
California limited partnership owned by subsidiaries of Geothermal Resources
International, Inc. East Mesa owns and operates two geothermal power plants
(the "East Mesa Project") in East Mesa, Imperial Valley, California, with
total nominal net output of approximately 37 MW.
Under the East Mesa Assignment and Security Agreement, Magma has
leased land to East Mesa and assigned an SO4 Agreement (the "East Mesa PPA")
to East Mesa. SCE is required to purchase 25 MW of capacity of, and the
electricity delivered from, the East Mesa Project under the East
Mesa PPA which has a term of 30 years. Under the East Mesa PPA, SCE pays a
fixed capacity payment, a capacity bonus payment and an energy payment. The
contract energy payment price increases each year of the Fixed Price Period,
which expires on December 31, 1999. Thereafter, energy payments will be based
on Avoided Cost of Energy. The energy payment per kWh is 12.6 cents for 1996,
13.6 cents for 1997, 14.6 cents for 1998 and 15.7 cents for 1999.
Under the East Mesa Assignment and Security Agreement, as modified by
the East Mesa Master Agreement, Magma is entitled to 14% of East Mesa's
combined capacity and energy revenues. The royalties consist of "Senior
Royalties" (4% of combined capacity and energy revenue) and "Junior Royalties"
(10% of combined capacity and energy revenue). The Senior Royalties are paid
prior to East Mesa's debt service, but after operating expenses. The Junior
Royalties are paid after Senior Royalties and debt service. To date, no Junior
Royalties have been paid to Magma. In 1995, the royalties paid by East Mesa to
Magma amounted to $1.6 million. See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT
CONTRACTS--Royalty Project Contracts--East Mesa Project Contracts."
BRPU AWARD
Pursuant to an order of the CPUC dated June 22, 1994 (confirmed on
December 21, 1994) (the "BRPU Award"), Magma was awarded 163 MW of power
production through a bidding process adopted by the CPUC under its 1992
Biennial Resource Plan Update ("BRPU"). According to the BRPU Award,
subsidiaries of Magma have the right to sell 69 MW to SCE and 94 MW to SDG&E,
with in-service dates in 1997 and 1998. The FERC has held that the BRPU Award
violates PURPA, and both SCE and SDG&E have to date challenged and may
continue to challenge the BRPU Award on both substantive and procedural
grounds. Accordingly, there can be no assurance that power purchase agreements
will be executed in respect of the BRPU Award or whether any of such projects
will be completed.
In light of the uncertainty concerning the BRPU Award, in March 1995,
Magma entered into a buyout and capacity option agreement with SCE regarding
the 69 MW of capacity awarded to Magma as a winning bidder in the BRPU
solicitation. The agreement (which is subject to CPUC approval) provides for
three lump sum termination payments by SCE in lieu of signing a power purchase
agreement for the 69 MW of BRPU capacity. The amount of the termination
payments is subject to a confidentiality agreement but provides SCE's
ratepayers with substantial savings when compared to payments that would
otherwise be made to Magma over the life of the BRPU power purchase agreement.
The agreement also provides SCE with an option, which can be exercised at any
time prior to February 2, 2002 to negotiate with Magma a power purchase
agreement for 69 MW of geothermal capacity and energy on commercially
reasonable terms, without giving effect to the termination payments previously
paid.
INSURANCE
The Salton Sea Projects and the Partnership Projects are currently
insured under a corporate umbrella insurance program. The program consists of
$600 million for general property damage with broad form coverages. The
deductible is $25,000 per occurrence except for damage to a turbine generator
and machinery
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breakdown which is $500,000 per occurrence. Business interruption and
contingent business interruption coverages are included in the limits, subject
to a 25-day deductible. Catastrophic insurance (earthquake and flood) consists
of $200 million limits with a deductible that is the higher of: 5% of the loss
or $2.5 million per occurrence. General liability insurance consists of $51
million (occurrence based) with a broad based policy form and a deductible of
$20,000 per occurrence. Control of well insurance has a limit of $10 million
with a deductible of $25,000. The policies are issued by international and
domestic syndicates with each domestic company rated A minus or better by A.M.
Best Co. Inc.
Under the Salton Sea Credit Agreement and the Partnership Credit
Agreement, the Salton Sea Guarantors and the Partnership Guarantors are
obligated to maintain or cause to be maintained certain insurance with respect
to the Salton Sea Projects and the Partnership Projects, respectively. However
there can be no assurances that any specific insurance will continue to be
available in the future on commercially reasonable terms.
EMPLOYEES
Employees necessary for the operation of the Salton Sea Projects and
the Partnership Projects are provided by CEOC, under the operation and
maintenance agreements described below. As of March 31, 1996, CEOC employed
approximately 225 people at the Salton Sea Projects and the Partnership
Projects, collectively. CEOC employees are not covered by any collective
bargaining agreement. The Funding Corporation believes that CEOC's employee
relations are good. See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT
CONTRACTS--Salton Sea Guarantor Project Contracts" and "--Partnership Project
Contracts."
CEOC maintains a qualified technical staff of approximately 45
people, covering a broad range of disciplines including geology, geophysics,
geochemistry, hydrology, volcanology, drilling technology, reservoir
engineering, plant engineering, construction management, maintenance services,
production management and electric power operation.
Administrative services for the Salton Sea Guarantors and the
Partnership Project Companies are provided pursuant to the administrative
services agreements described below. CalEnergy employees provide corporate
level managerial, financial, accounting, technical and other administrative
services and CEOC employees provide certain accounting, purchasing and payroll
services. See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Salton Sea
Guarantor Project Contracts" and "--Partnership Project Contracts."
LEGAL PROCEEDINGS
Currently, the Projects are parties to various minor items of
litigation, none of which, if determined adversely, would have a material
adverse effect on such Projects. Set forth below are descriptions of one
settled action with a pending regulatory proceeding and one pending action in
which the Partnership Project Companies are plaintiffs.
In May 1996, the Partnership Project Companies settled a lawsuit
against SCE relating to the rates to be paid under the SO4 Agreements for
deliveries over nameplate (Vulcan BN Geothermal Power Co., et al. v. Southern
California Edison Co. in the Superior Court for Los Angeles County,
California) (the "SCE Litigation"). Pursuant to the settlement, which is
subject to a confidentiality agreement, SCE paid the Partnership Project
Companies approximately $10 million in respect of claims for energy
underpayments for the period prior to January 1, 1996 and, subject to
obtaining CPUC approval, which the parties have agreed to jointly seek, SCE
has agreed to increase payments under the four Power Purchase Agreements to
which the Partnership Project Companies are parties for specified deliveries
above nameplate for each of the Partnership Projects from January 1, 1996
through the remainder of their respective 10-year initial fixed price periods
under the SO4 Agreements.
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In addition, the Partnership Project Companies are part of a larger
group of plaintiffs in a lawsuit against Irby Construction Co., Burns and
McDonnell Engineering and Hyundai Corporation (Red Hill Geothermal Inc. v.
Irby Constr., et al. in the Superior Court for Imperial County, California)
claiming damages relating to the transmission line that was constructed to
interconnect the Partnership Projects with SCE that occurred and which were
either rebuilt or repaired in 1992. The Partnership Projects' share of such
damage claim is currently approximately $17 million in property damage and
other historical repair costs and approximately $17 million for lost
historical profits. The case is still in the discovery phase and a trial date
has been scheduled for September, 1996. The Partnership Projects intend to
vigorously pursue this litigation.
REGULATORY AND ENVIRONMENTAL MATTERS
Permits and Approvals. Each of the Projects are 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 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.
The Funding Corporation believes that each of the Salton Sea
Guarantors and the Partnership Project Companies are 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 enforcement policies thereunder, could
affect the costs of and the manner in which the Salton Sea Guarantors and the
Partnership Project Companies conduct their business.
Federal Energy Regulations/PURPA. Each of the Salton Sea Projects and
the Partnership Projects meets the requirements promulgated under PURPA to be
Qualifying Facilities. 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 ("PUHCA"), most provisions
of the Federal Power Act (the "FPA") and state laws concerning rates of
electric utilities, and financial and organizational regulation of electrical
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.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the current executive officers of the Funding
Corporation and the Guarantors and their positions with the Funding
Corporation and each of the Guarantors (or general partner thereof):
<TABLE>
<CAPTION>
EXECUTIVE OFFICER POSITION
- ----------------- --------
<S> <C>
David L. Sokol Director, Chairman of the Board and Chief Executive Officer
Thomas R. Mason Director, President and Chief Operating Officer
Gregory E. Abel Senior Vice President, Controller and Chief Accounting Officer
Edward F. Bazemore Vice President, Human Resources
Vincent R. Fesmire Vice President, Construction
Frederick L. Manuel Vice President, U.S. Operations
Steven A. McArthur Director, Senior Vice President, General Counsel and Secretary
Dale R. Schuster Vice President, Administration
John G. Sylvia Director, Senior Vice President, Chief Financial Officer and Treasurer
Jonathan M. Weisgall Vice President, Legislative & Regulatory Affairs
</TABLE>
DAVID L. SOKOL, 39. Mr. Sokol has been a director of CalEnergy since
March 1991 and is currently the Chairman and Chief Executive Officer of
CalEnergy, the Funding Corporation and each Guarantor (or general partner
thereof). Mr. Sokol also held the title of President of CalEnergy from April 19,
1993 until January 21, 1995. Mr. Sokol was Chairman, President and Chief
Executive Officer of CalEnergy from February 1991 until January 1992. Mr. Sokol
was the President and Chief Operating Officer of, and a director of, JWP, Inc.,
from January 27, 1992 to October 1, 1992. From November 1990 until February
1991, Mr. Sokol was the President and Chief Executive Officer of Kiewit Energy.
From 1983 to November 1990, Mr. Sokol was the President and Chief Executive
Officer of Ogden Projects, Inc.
THOMAS R. MASON, 52, President and Chief Operating Officer of
CalEnergy, the Funding Corporation and each Guarantor (or general partner
thereof). Mr. Mason joined CalEnergy in March 1991. From October 1989 to March
1991, Mr. Mason was Vice President and General Manager of Kiewit Energy Company.
Prior to that Mr. Mason was Director of Marketing for Energy Factors, Inc. (now
Sithe Energies U.S.A., Inc.), a non-utility developer of power facilities. Prior
to that Mr. Mason was a worldwide Market Manager of power generation for Solar
Gas Turbines, a gas turbine manufacturer.
GREGORY E. ABEL, 34, Senior Vice President, Controller and Chief
Accounting Officer of CalEnergy, the Funding Corporation and each Guarantor (or
general partner thereof). Mr. Abel joined CalEnergy in 1992. Mr. Abel is a
Chartered Accountant and from 1984 to 1992 he was employed by Price Waterhouse.
As a Manager in the San Francisco office of Price Waterhouse, he was responsible
for clients in the energy industry.
EDWARD F. BAZEMORE, 59, Vice President, Human Resources of CalEnergy,
the Funding Corporation and each Guarantor (or general partner thereof). Mr.
Bazemore joined CalEnergy in July 1991. From 1989 to 1991, he was Vice
President, Human Resources, at Ogden Projects, Inc. in New Jersey. Prior to
that, Mr. Bazemore was Director of Human Resources for Ricoh Corporation, also
in New Jersey. Previously, he was Director of Industrial Relations for Scripto,
Inc. in Atlanta, Georgia.
VINCENT R. FESMIRE, 55, Vice President, Construction of CalEnergy, the
Funding Corporation and each Guarantor (or general partner thereof). Mr. Fesmire
joined CalEnergy in October 1993. In January 1995 Mr. Fesmire's responsibilities
were realigned to provide a concentrated focus on the critical domestic
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development projects that were in part obtained with the Magma Acquisition.
Prior to joining CalEnergy, Mr. Fesmire was employed for 19 years with Stone &
Webster, an engineering firm, serving in various management level capacities
with an expertise in geothermal design engineering.
FREDERICK L. MANUEL, 38, Vice President, U.S. Operations. Mr. Manuel
joined CalEnergy in November 1991. From November 1991 to February 1995, Mr.
Manuel Held the positions of Manager of Operations, Acting General Manager and
General Manager at the Coso geothermal project. In February 1995, Mr. Manuel
was named Vice President and General Manager of CalEnergy's newly acquired
Salton Sea Projects and Partnership Projects and in July 1995 was named Vice
President, U.S. Operations. Prior to joining CalEnergy Mr. Manuel held various
engineering positions at Chevron Corporation.
STEVEN A. McARTHUR, 38, Senior Vice President, General Counsel and
Secretary of CalEnergy, the Funding Corporation and each Guarantor (or general
partner thereof). Mr. McArthur joined CalEnergy in February 1991. From 1988 to
1991 he was an attorney in the Corporate Finance Group at Shearman & Sterling
in San Francisco. From 1984 to 1988 he was an attorney in the Corporate
Finance Group at Winthrop, Stimson, Putnam & Roberts in New York.
DALE R. SCHUSTER, 44, Vice President, Administration of CalEnergy,
the Funding Corporation and each Guarantor (or general partner thereof). Mr.
Schuster joined CalEnergy in July 1994. From 1991 until joining CalEnergy he
was Senior Vice President and General Manager of AutoInfo, Inc., a software
development and information systems company, and prior to that, Vice President
and General Manager of ValCom, Inc.
JOHN G. SYLVIA, 38, Senior Vice President, Chief Financial Officer and
Treasurer of CalEnergy, the Funding Corporation and each Guarantor (or general
partner thereof). Mr. Sylvia joined CalEnergy in 1988. From 1985 to 1988, Mr.
Sylvia was a Vice President in the San Francisco office of the Royal Bank of
Canada, with responsibility for corporate and capital markets banking. From
1986 to 1990, Mr. Sylvia served as an Adjunct Professor of Applied Economics at
the University of San Francisco. From 1982 to 1985, Mr. Sylvia was a Vice
President with Bank of America.
JONATHAN M. WEISGALL, 47, Vice President, Legislative and Regulatory
Affairs of CalEnergy, the Funding Corporation and each Guarantor (or general
partner thereof). Mr. Weisgall joined CalEnergy in May, 1995 and is an
attorney in private practice with extensive energy and regulatory experience
and is Adjunct Professor of Energy Law at Georgetown University Law Center.
EXECUTIVE COMPENSATION
Individuals who were serving as executive officers of the Funding
Corporation as of the last day of 1995 were compensated by CalEnergy. The
Funding Corporation's and the Guarantors' executive officers will not receive
any additional remuneration for serving as executive officers of the Funding
Corporation and the Guarantors.
OWNERSHIP
DESCRIPTION OF CAPITAL STOCK
As of March 31, 1996, the authorized capital stock of the Funding
Corporation consisted of 1,000 shares of common stock, par value $.01 per
share (the "Common Stock"), of which 100 shares were outstanding. There is no
public trading market for the Common Stock. As of March 31, 1996, there was
one holder of record of the Common Stock. Holders of Common Stock are entitled
to one vote per share on any matter coming before the stockholders for a vote.
The Indenture contains certain restrictions on the payment of dividends with
respect to the Common Stock.
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PRINCIPAL HOLDERS
Since the formation of the Funding Corporation in June 1995, all of
the outstanding shares of Common Stock have been owned by Magma. Magma directly
or indirectly owns all of the capital stock of or partnership interests in the
Funding Corporation and the Guarantors. CalEnergy owns all of the capital
stock of Magma. CalEnergy's common stock is publicly traded on the New York,
Pacific and London Stock Exchanges, and approximately 34% of the common stock
is beneficially owned, on a fully-diluted basis through indirect subsidiaries,
by Kiewit.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OTHER RELATIONSHIPS AND RELATED TRANSACTIONS
The Salton Sea Projects' and the Partnership Projects' geothermal
power plants are wholly-owned, administered and operated by Magma or
Subsidiaries of Magma. Geothermal fluid supplying these facilities is provided
from Magma's (or a subsidiary's) geothermal resource holdings in the SSKGRA.
In so providing rights to geothermal resources and/or geothermal
fluids for purposes of power production, administering and operating the
geothermal power plants, and disposing of solids from these facilities, Magma
(directly and through subsidiaries) receives certain royalties, cost
reimbursements and fees for its services and the rights it provides. See the
financial statements attached hereto.
The Funding Corporation believes that the transactions with related
parties described above, taking into consideration all of the respective terms
and conditions of each of the relevant contracts and agreements, are at least
as favorable to the Guarantors as those which could have been obtained from
unrelated parties in arms length negotiations. See "SUMMARY DESCRIPTION OF
PRINCIPAL PROJECT CONTRACTS."
RELATIONSHIP OF THE FUNDING CORPORATION AND THE GUARANTORS TO MAGMA AND
CALENERGY
The Funding Corporation is a wholly owned direct subsidiary of Magma
organized for the sole purpose of acting as issuer of Securities. The Funding
Corporation is restricted, pursuant to the terms of the Indenture, to acting
as issuer of Securities and other indebtedness as permitted under the
Indenture, making loans to the Guarantors pursuant to the Credit Agreements,
and transactions related thereto. The Funding Corporation and each of the
Guarantors (and, in the case of SSBP and SSPG, the general partners thereof)
have been organized and are operated as legal entities separate and apart from
CalEnergy, Magma and any other Affiliates of CalEnergy or Magma, and,
accordingly, the assets of the Funding Corporation and the Guarantors (and, in
the case of SSBP and SSPG, the general partners thereof) will not be generally
available to satisfy the obligations of CalEnergy, Magma or any other
Affiliates of CalEnergy or Magma; provided, however, that unrestricted cash of
the Funding Corporation and the Guarantors or other assets which are available
for distribution may, subject to applicable law and the terms of financing
arrangements of such parties, be advanced, loaned, paid as dividends or
otherwise distributed or contributed to CalEnergy, Magma or Affiliates
thereof. The Securities are non-recourse to CalEnergy or Magma. See "SUMMARY
DESCRIPTION OF THE SERIES D AND SERIES E SECURITIES--Nature of Recourse on the
Securities."
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SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS
The following is a summary of selected provisions of certain
principal agreements related to the Projects and the business of the
Guarantors and is not considered to be a full statement of the terms of such
agreements. Accordingly, the following summaries 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 shall mean such agreement and all schedules, exhibits and
attachments thereto as amended, supplemented or otherwise modified and in
effect as of the date hereof. Copies of all such agreements may be obtained
from the Funding Corporation (subject to certain confidentiality
restrictions).
STANDARD TERMS OF SO4 AGREEMENT
All of the power purchase agreements between the Project Companies
and SCE are SO4 Agreements, except the Salton Sea Unit I PPA and the Salton
Sea Unit IV PPA. Although such SO4 Agreements differ in certain respects from
the standard SO4 Agreement, many of the provisions in each Project Company's
power purchase agreement are the same as in the standard SO4 Agreement. Set
forth below is a summary of certain terms and provisions contained in each SO4
Agreement.
Term and Termination. Each of the Project Companies' SO4 Agreements
have contract terms of 30 years from the Firm Operation Date of such
agreements. Upon expiration of the contract term, the SO4 Agreement remains in
effect until either party terminates the agreement upon 90 days prior written
notice.
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.
Construction, Design, Operation and Ownership of the Project. The SO4
Agreement sets forth terms for the construction, design, ownership, and
operation and maintenance of the relevant Project. In the SO4 Agreement, the
Project Company warrants that the Project will comply with applicable law and
meet the requirements of a Qualifying Facility as of the date of initial
delivery of energy and throughout the contract term. The Project Company
indemnifies SCE for any losses which SCE incurs due to the Project Company's
failure to maintain any necessary government approvals.
Power Purchase Provisions. The SO4 Agreement provides for (i)
capacity payments as described below and (ii) energy payments either at an
annually escalating rate or at a levelized rate for the Fixed Rate Period and
energy payments at SCE's Avoided Cost of Energy for the Avoided Cost of Energy
Period.
Capacity Payments. Under the SO4 Agreements, a Project must qualify
for a fixed annual capacity payment (the "Firm Capacity Payment") by meeting
specified performance requirements on a monthly basis during an approximately
four month on-peak period, during the months of June through September of each
year. The Project must deliver an average kWh 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 (the "Performance Requirement"). The "Contract
Capacity Factor" equals (i) a plant's actual electricity output, divided by
(ii) 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 during the
applicable reference period, then SCE must pay a Firm Capacity Payment equal
to the product of the Contract Capacity Price set forth in the agreement and
the Project's Contract Capacity. The Firm Capacity Payment is paid in monthly
installments, and the monthly installment of the Firm Capacity Payment may be
reduced if the relevant Project has a Contract Capacity Factor of less than
80% for such month. Capacity payments are weighted toward the on-peak months.
The Project Company is required to annually demonstrate its ability
to provide the specified Contract Capacity by satisfying the Performance
Requirement. If the Project Company does not satisfy the Performance
Requirement, it may be placed on probation for up to 15 months, and, if the
Project Company cannot satisfy the
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Performance Requirement during the probationary period, the Contract Capacity
will be reduced to a capacity equal to the greater of (i) what has been
delivered during the probationary period or (ii) what can reasonably be
delivered by the Project Company. 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 SCE to
reduce delivery, SCE must continue to pay the full Firm Capacity Payment. If
the Project Company is unable to provide Contract Capacity due to
Uncontrollable Forces, SCE 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
kWhs 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 if the Project Company gives SCE specified notice. The Project
Company must refund SCE an amount of money equal to the difference between the
accumulated monthly capacity payments paid by SCE prior to the receipt of the
reduction notice and the total monthly capacity payments SCE would have paid
based on the Adjusted Capacity Price, as well as interest at the prime rate on
such amount. If the Project Company fails to give notice, it can reduce
Contract Capacity, as long as the Project Company refunds said amount plus a
penalty equal to the product of (i) the Contract Capacity being reduced, (ii)
the difference between the Contract Capacity Price and the Adjusted Capacity
Price and (iii) the number of years and fractions thereof (not less than one
year) by which the Project Company has been deficient in giving prescribed
notice, but if the Adjusted Capacity Price is less than the Contract Capacity
Price, then no such penalty is due.
Energy Payments. In addition to capacity payments, each SO4 Agreement
provides that SCE must make monthly energy payments based on the number of kWh
of energy delivered by the relevant plant in such month.
Energy payments are weighted toward on-peak months and on-peak hours.
Annual Forecast Energy Payments. Under the East Mesa, Vulcan,
Leathers, Del Ranch and Elmore SO4 Agreements (the "Annual Forecast Energy
Payment SO4 Agreements"), during the Fixed Price Period, the Project Company
is paid a monthly energy payment (the "Annual Forecast Energy Payment") based
on the Forecast of Annual Marginal Cost of Energy Schedule as follows:
YEAR PRICE PER KWH
---- -------------
1996 12.6(cent)
1997 13.6(cent)
1998 14.6(cent)
1999 15.7(cent)
Levelized Energy Payments. Under the Salton Sea Unit II and Salton
Sea Unit III SO4 Agreements (the "Levelized Energy Payment SO4 Agreements"),
during the Fixed Price Period, the energy payments (the "Levelized Energy
Payments") are levelized to yield a time weighted average of 10.6 cents per
kWh for Salton Sea Unit II and 9.8 cents per kWh for Salton Sea Unit III.
During later years in the Fixed Price Period, when the Forecast of Annual
Marginal Cost of Energy price is greater than the Levelized Energy Payment
price, the relevant Project must deliver to SCE at least 70% of the average
annual kWh delivered to SCE during periods when the Levelized Energy Payment
Price was greater than the energy price in the Forecast of the Annual
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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 Agreements, 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 SCE of any such refund. If the Project Company
fails to post such security or SCE deems the security inadequate, the Project
Company will be required to refund any difference immediately and accept
payment under the Forecast of Annual Marginal Cost of Energy Schedule until
the security is reinstated.
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 SCE's Avoided Cost of Energy. SCE's Avoided Cost of Energy
is the product of SCE's incremental energy rate ("IER") (system efficiency)
and its avoided fuel rate, plus various additions that have been adopted by
the CPUC. The IER and the additions are determined yearly in SCE's energy cost
adjustment clause proceeding before the CPUC. SCE's avoided fuel and the
corresponding fuel rate are determined monthly by the CPUC. For most months,
SCE's avoided fuel has historically been gas, although in some winter months
the avoided fuel has been oil. When the avoided fuel is oil, SCE's fuel rate
is based on the actual average cost of the most recent period's oil purchase.
Consequently, during the Avoided Cost of Energy Period, energy payments under
the SO4 Agreements will fluctuate based on average fuel costs in the
California energy market.
The time period weighted average of SCE's Avoided Cost of Energy was
2.3 cents per kWh for the first quarter of 1996. In April 1995, SCE forecast
its future Avoided Cost of Energy as follows:
YEAR LOW MEDIAN HIGH
---- --- ------ ----
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
Neither the Funding Corporation nor any Guarantor has prepared or
relied upon such forecast. The Funding Corporation and the Guarantors believe
that all forecasts of Avoided Cost of Energy are speculative in nature and
that there can be no assurance that SCE's actual future Avoided Cost of Energy
will be equal to any of the above forecasts. SCE's actual Avoided Cost of
Energy will be dependent upon, among other factors, SCE's future fuel costs,
system operation characteristics and regulatory action.
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Curtailment. SCE is not required to accept or purchase energy
generated by the Project, and may request the Project Company to discontinue
or reduce delivery of energy, for not more than 300 hours per year during
off-peak hours if either the purchase (i) would cost more than the costs SCE
would incur if it utilized energy from another source or (ii) would cause SCE
hydro-energy to be spilled under certain CPUC mandated conditions.
Abandonment of Project. The Project Company is deemed to have
abandoned the Project if it discontinues operation of the Project with the
intent to discontinue operation permanently. Such intent is conclusively
presumed if either the Project Company gives notice to SCE of such intent or
the Project Company operates the plant such that no energy is generated
therefrom for 200 consecutive days. However, if the Project is prevented from
generating energy due to an Uncontrollable Force, then such period is extended
for the duration of the Uncontrollable Force, not to exceed one year. If the
Project Company abandons the Project, SCE or any entity designated by SCE has
a right of first refusal to purchase the Project.
Insurance. The Project Company must obtain and maintain comprehensive
general liability insurance. If the Project Company fails to maintain such
insurance, it must indemnify SCE for any liabilities which would have been
covered by the insurance.
Uncontrollable Force. Each party is relieved from its obligations
under the SO4 Agreement, other than payment obligations, when and to the
extent that the failure of performance is caused by an Uncontrollable Force;
provided that the nonperforming party, within 2 weeks after the occurrence of
an Uncontrollable Force, gives the other party written notice describing the
particulars of the occurrence, and the nonperforming party uses its best
efforts to remedy its inability to perform.
Indemnification. Each party to the SO4 Agreement has indemnified the
other party for liability for property damage or personal injury arising out
of the indemnifying parties' operation, use or ownership of its facilities,
other than for liability resulting from the indemnified parties' sole
negligence or willful misconduct.
TRANSMISSION SERVICE AGREEMENTS
Salton Sea Unit I delivers electricity to SCE at the Salton Sea Unit
I site. Each of the other Salton Sea Projects and Partnership Projects
delivers electricity to SCE on transmission lines owned by IID. These
transmission lines interconnect the operating plants with SCE's transmission
system. Transmission service charges are paid monthly to IID pursuant to
Transmission Service Agreements, each of which has a termination date which
extends beyond the Final Maturity Date. Each Project which delivers
electricity on the IID transmission lines has a remaining credit against the
payment of its transmission service charge as consideration for its
contribution towards the construction of IID's transmission facilities.
SALTON SEA GUARANTOR PROJECT CONTRACTS
SALTON SEA UNIT I
SALTON SEA UNIT I PPA
Salton Sea Unit I sells electricity to SCE pursuant to a negotiated
power purchase agreement, dated May 8, 1987, between SCE and SSPG.
The Salton Sea Unit I PPA is not an SO4 Agreement, although as
described below it contains many of the provisions customarily found in an SO4
Agreement. See "--Standard Terms of SO4 Agreement" above. Certain specific
terms of the Salton Sea Unit I PPA and the primary differences between the
Salton Sea Unit I PPA and the terms of the standard SO4 Agreement are
described below.
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Terms. The contract term of the Salton Sea Unit I PPA is 30 years
from the Firm Operation Date of July 1, 1987. The Contract Capacity is 10 MW.
The Salton Sea Unit I PPA originally provided for the option to increase
contract capacity up to an additional 20 MW. However, this additional capacity
has effectively been transferred to the Salton Sea Unit IV PPA.
Capacity Payments. The Salton Sea Unit I PPA capacity payment is
based on a firm capacity price which adjusts quarterly based on various
inflation-related indices for the term of the agreement. Salton Sea Unit I
earns its minimum monthly contract capacity payment in each month of the year
if it is able to deliver 100% of the Contract Capacity set forth in the
agreement. If Salton Sea Unit I meets this performance requirement, Salton Sea
Unit I receives a monthly performance payment based on the agreement's then
current firm capacity price multiplied by the Contract Capacity and the energy
delivered from the Salton Sea Unit I Project up to the Contract Capacity.
Based on the current capacity price of $127.80 per kW-year, the annual maximum
capacity payment is $1,278,000. The Salton Sea Unit I PPA does not provide for
bonus capacity payments.
If Salton Sea Unit I does not meet the Salton Sea Unit I performance
requirement, SCE may, in its sole discretion, place the plant on probation for
a period not to exceed 15 months. If the Salton Sea Unit I performance
requirement is not met during the probationary period, SCE may derate the
Contract Capacity of the plant.
Energy Payments. Salton Sea Unit I receives a monthly energy payment
calculated using a Base Price (defined as the initial value of the energy
payment (4.056 cents per kWh)), which is subject to quarterly adjustments
based on various inflation-related indices. The time period weighted average
energy payment for Salton Sea Unit I was 5.4 cents per kWh in the first
quarter of 1996. The energy payments under the Salton Sea Unit I PPA never
revert to SCE's Avoided Cost of Energy.
SALTON SEA UNIT I GEOTHERMAL SALES CONTRACT
SSBP and SSPG are currently parties to a Geothermal Sales Contract,
dated as of September 6, 1988 (the "Salton Sea Units I and II Geothermal Sales
Contract"), which requires SSBP to supply geothermal energy to SSPG for Salton
Sea Unit I. The agreement has a term of 30 years, commencing on July 1, 1987.
SALTON SEA UNIT I GROUND LEASE
SSBP and SSPG entered into a Ground Lease with IID, dated as of
November 24, 1993 (the "Salton Sea Units I and II Ground Lease"). Pursuant to
the Salton Sea Units I and II Ground Lease, IID leases the real property on
which Salton Sea Units I and II are located, consisting of approximately 117
acres, to SSBP and SSPG 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 to increase capacity. The rights of SSBP and SSPG under the lease
are junior and subordinate to (i) the rights of Magma Land under the Amended
and Restated Geothermal Lease and Agreement dated as of November 24, 1993
between IID and Magma Land and (ii) the right, title and interest of Magma
Land and SSBP under the Salton Sea Resource Easement.
Defaults and Remedies. The following constitute material defaults
under the Salton Sea Units I and II Ground Lease: (i) failure to pay rent when
due where such failure continues for 30 business days after written notice;
(ii) failure to observe or perform any material covenants under the lease
where such failure continues for 60 days after written notice; and (iii)
either of SSBP or SSPG is adjudged bankrupt or insolvent, files a petition for
bankruptcy, discontinues business, makes a general arrangement for the benefit
of creditors or has substantially all of its assets attached for greater than
60 days. Upon the occurrence of any of the above, IID may terminate SSBP's and
SSPG's right to possession of the premises and the Salton Sea Units I and II
Ground
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Lease shall be terminated. IID is entitled to recover various damages
enumerated in the Salton Sea Units I and II Ground Lease in the event of early
termination of the lease.
SALTON SEA RESOURCE EASEMENT
SSBP and Magma Land entered into an Amended and Restated Easement
Grant Deed and Agreement Regarding Rights for Geothermal Development dated as
of February 23, 1994, and further amended as of July 21, 1995 (the "Salton Sea
Resource Easement"), pursuant to which Magma Land grants to SSBP a
first-priority, non-exclusive right to extract and utilize for power
production purposes the geothermal resource underlying specific properties in
the SSKGRA. These resources supply all of the geothermal energy requirements
that are used by Salton Sea Units I, II, III and IV. In the easement, Magma
Land has reserved the right to use any excess or unused geothermal resources,
including brine minerals.
Term. The Salton Sea Resource Easement became effective on February
23, 1994 and expires on November 24, 2026.
Obligations. SSBP must reimburse Magma Land for amounts Magma Land is
obligated to pay to those landowners who own the underlying rights to the
geothermal resources under various geothermal lease agreements. SSBP is
obligated to pay all costs and expenses associated with the maintenance,
repair and operation of the geothermal brine facilities. SSBP is required to
comply with all laws, pay utilities and all real and personal property taxes
and maintain insurance.
Termination. Magma Land may terminate the Salton Sea Resource
Easement if (i) SSBP fails to make a payment when due and fails to cure the
default within 5 days of receiving notice of such default or (ii) SSBP fails
to perform or observe any other material covenant under the Salton Sea
Resource Easement and such failure continues unremedied for a period of 30
days after notice thereof is given by Magma Land.
SALTON SEA O&M AGREEMENT
The Salton Sea Guarantors and CEOC entered into a Second Amended and
Restated Operating and Maintenance Agreement, dated as of July 15, 1995 (the
"Salton Sea O&M Agreement"), under which CEOC is responsible for the
day-to-day operations and maintenance of the Salton Sea Projects.
Term. The term of the Salton Sea O&M Agreement became effective on
July 15, 1995, and expires on July 15, 2028.
Obligations of CEOC. CEOC has agreed to provide and employ qualified
plant management personnel for the operation, maintenance and repair of the
Salton Sea Projects, and personnel for general administrative functions. CEOC
is authorized to collect revenues on behalf of the Salton Sea Guarantors and
make payments as specified in the Salton Sea O&M Agreement.
Reimbursement. The Salton Sea Guarantors pay CEOC for all actual
costs and expenses incurred by CEOC under the Salton Sea O&M Agreement. Actual
costs and expenses include, without limitation, (i) the actual costs to CEOC
of goods and materials, (ii) the cost to CEOC of providing labor or services
to the Salton Sea Projects which shall be computed as the total costs incurred
by CEOC in providing labor or services to the Projects apportioned, pro rata,
based on the number of MWs the Salton Sea Projects generate compared to the
total MWs of all Projects serviced by CEOC, (iii) the portion of the cost of
invested capital incurred by CEOC for the purchase of machinery and equipment
used in connection with services fairly allocable to the Salton Sea Projects
and (iv) the actual cost to CEOC of retaining subcontractors.
Indemnification. The Salton Sea Guarantors agree to defend, indemnify
and hold CEOC harmless against any and all liabilities, claims, damages,
losses and expenses arising out of the course of performance of the Salton Sea
O&M Agreement by CEOC.
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Force Majeure. Neither the Salton Sea Guarantors nor CEOC are liable
for any failure or inability to perform (other than to make payments due)
under the Salton Sea O&M Agreement due to the occurrence of an event of force
majeure. Events of force majeure are defined in the Salton Sea O&M Agreement
in a manner usual and customary for agreements of this type.
Termination. The Salton Sea O&M Agreement may be terminated (i) in
the event of a material default by either party that is not cured within 30
days after notice is given, or (ii) if the Salton Sea Guarantors are adjudged
bankrupt or insolvent, file a petition for bankruptcy or discontinue business.
Should any event of force majeure remain in existence for a period of 6
months, the agreement may be terminated upon the giving of written notice;
provided, however, that such 6-month period shall be extended for a reasonable
time so long as the party claiming suspension of the agreement has diligently
proceeded to terminate the event of force majeure and continues to do so
throughout such extension.
SALTON SEA ADMINISTRATIVE SERVICES AGREEMENT
The Salton Sea Guarantors and Magma entered into a Second Amended and
Restated Administrative Services Agreement, dated as of July 15, 1995 (the
"Salton Sea ASA"), whereby Magma agrees to provide administrative, management
and technical services with respect to the Salton Sea Projects.
Term. The term of the agreement is 33 years from July 15, 1995.
Obligations. Magma agrees to provide day-to-day administrative and
management services, including general bookkeeping and personnel
administration, and technical services such as structural engineering.
Disclaimer of Liability; Indemnity. Magma agrees to use its good
faith efforts to provide the services described in the agreement, but Magma
will not be liable to the Salton Sea Guarantors for damages arising out of the
performance of ordinary and extraordinary services or for consequential
damages under any circumstance. The Salton Sea Guarantors agree to defend,
indemnify and hold Magma harmless against any and all liabilities, arising out
of the course of performance of the agreement by Magma.
TECHNOLOGY TRANSFER AGREEMENT
SSBP and SSPG entered into a 33-year Technology Transfer Agreement,
dated as of March 31, 1993 (the "Salton Sea Technology Transfer Agreement")
with Magma pursuant to which Magma grants to the Salton Sea Guarantors the
right to use Magma's proprietary and non-proprietary technology, leases and
patents for the Salton Sea Projects. Magma has granted these rights to SSBP
and SSPG at no cost. The agreement also allows SSBP and SSPG to benefit from
improvements and modifications to the technology for the life of the
agreement.
SALTON SEA UNIT II
SALTON SEA UNIT II PPA
Salton Sea Unit II sells electricity to SCE pursuant to a modified
SO4 Agreement dated April 16, 1985 between SCE and SSPG. The standard and
principal terms which are generally contained in an SO4 Agreement are
described in "--Standard Terms of SO4 Agreement" above. Certain specific terms
of the Salton Sea Unit II PPA and the primary differences between the Salton
Sea Unit II PPA and the terms of the standard SO4 Agreement are described
below.
Terms. The contract term of the Salton Sea Unit II PPA is for 30
years from the Firm Operation Date of April 5, 1990. The Contract Capacity is
15 MW.
Capacity Payments. Salton Sea Unit II has a Contract Capacity Price
of $187 per kW-year and, based on the Contract Capacity of 15 MW, the annual
maximum capacity payment is $2,805,000.
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Energy Payments. The Salton Sea Unit II PPA is a Levelized Energy
Payment SO4 Agreement. The Fixed Price Period for Salton Sea Unit II expires
on April 4, 2000. During the Fixed Price Period, the energy payment is a time
weighted average of 10.6 cents per kWh. After the Fixed Price Period, energy
payments will be based on SCE's Avoided Cost of Energy. For the period from
April 1, 1994 through March 31, 2004, SCE is entitled to receive, at no cost,
5% of all energy delivered in excess of Contract Capacity.
SALTON SEA UNIT II GEOTHERMAL SALES CONTRACT
The sale of geothermal resources to Salton Sea Unit II is governed by
the Salton Sea Units I and II Geothermal Sales Contract. See "--Salton Sea
Unit I."
SALTON SEA UNIT II GROUND LEASE
The lease of real property by Salton Sea Unit II is governed by the
Salton Sea Units I and II Ground Lease. See "--Salton Sea Unit I."
SALTON SEA UNIT II RESOURCE EASEMENT
The right to use geothermal resources with respect to Salton Sea Unit
II is governed by the Salton Sea Resource Easement. See "--Salton Sea Unit I."
SALTON SEA UNIT II O&M AGREEMENT
The operation and maintenance of Salton Sea Unit II is governed by
the Salton Sea O&M Agreement. See "--Salton Sea Unit I."
SALTON SEA UNIT II ASA
The provision of administrative services to Salton Sea Unit II is
governed by the Salton Sea ASA. See "--Salton Sea Unit I."
SALTON SEA UNIT II TECHNOLOGY TRANSFER AGREEMENT
The right to use Magma's proprietary and non-proprietary technology
in Salton Sea Unit II is governed by the Salton Sea Technology Transfer
Agreement. See "--Salton Sea Unit I."
SALTON SEA UNIT III
SALTON SEA UNIT III PPA
Salton Sea Unit III sells electricity to SCE pursuant to a modified
SO4 Agreement dated April 16, 1985 between SCE and SSPG. The standard and
principal terms which are generally contained in an SO4 Agreement are
described in "--Standard Terms of SO4 Agreement" above. Certain specific terms
of the Salton Sea Unit III PPA and the primary differences between the Salton
Sea Unit III PPA and the terms of the standard SO4 Agreement are described
below.
Term. The contract term of the Salton Sea Unit III PPA is for 30
years from the Firm Operation Date of February 14, 1989.
Capacity Payments. Salton Sea Unit III has a Contract Capacity Price
of $175 per kW-year and, based on the Contract Capacity of 47.5 MW, the annual
maximum capacity payment is $8,312,500.
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Energy Payments. The Salton Sea Unit III PPA is a Levelized Energy Payment SO4
Agreement. The Fixed Price Period for Salton Sea Unit III expires on February
13, 1999. During the Fixed Price Period, the energy payment is a time weighted
average of 9.8 cents per kWh. After the Fixed Price Period, energy payments
will be based on SCE's Avoided Cost of Energy.
SALTON SEA UNIT III GEOTHERMAL SALES CONTRACT
SSBP and SSPG are currently parties to a Geothermal Sales Contract,
dated as of June 1, 1989 (the "Salton Sea Unit III Geothermal Sales
Contract"), which requires SSBP to supply geothermal energy to SSPG for Salton
Sea Unit III. The terms of the Salton Sea Unit III Geothermal Sales Contract
are identical in all material respects to the Salton Sea Units I and II
Geothermal Sales Contract. See "--Salton Sea Unit I."
SALTON SEA UNIT III GROUND LEASE
SSBP and SSPG are currently parties to a Ground Lease with Magma
Land, dated as of March 31, 1993 pursuant to which Magma Land leases the real
property on which Salton Sea Units III and IV are located to SSBP and SSPG
(the "Salton Sea Unit III Ground Lease"). Many of the terms of the lease are
substantially similar to the Salton Sea Units I and II Ground Lease. See
"--Salton Sea Unit I."
SALTON SEA UNIT III RESOURCE EASEMENT
The right to use geothermal resources with respect to Salton Sea Unit
III is governed by the Salton Sea Resource Easement. See "--Salton Sea Unit
I."
SALTON SEA UNIT III O&M AGREEMENT
The operation and maintenance of Salton Sea Unit III is governed by
the Salton Sea O&M Agreement. See "--Salton Sea Unit I."
SALTON SEA UNIT III ASA
The provision of administrative services to Salton Sea Unit III is
governed by the Salton Sea ASA. See "--Salton Sea Unit I."
SALTON SEA UNIT III TECHNOLOGY TRANSFER AGREEMENT
The right to use Magma's proprietary and non-proprietary technology
in Salton Sea Unit III is governed by the Salton Sea Technology Transfer
Agreement. See "--Salton Sea Unit I."
SALTON SEA UNIT IV
SALTON SEA UNIT IV PPA
Salton Sea Unit IV will sell electricity to SCE pursuant to a
negotiated SO4 Agreement, dated November 29, 1994 between SCE and SSPG. Many
of the terms of the Salton Sea Unit IV PPA are similar to those terms
customarily found in an SO4 Agreement. See "--Standard Terms of SO4 Agreement"
above. Certain specific terms of the Salton Sea Unit IV PPA and the primary
differences between the Salton Sea Unit IV PPA and the terms of the standard
SO4 Agreement are described below.
Terms. The contract term of the Salton Sea Unit IV PPA is 30 years
from the Firm Operation Date. Firm Operation is required to occur prior to
June 12, 1998. The Contract Capacity is 34 MW.
Ownership, Design and Construction. In addition to the standard terms
of the SO4 Agreement, the Salton Sea Unit IV PPA requires Salton Sea Unit IV
to maintain site control and file progress reports.
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Capacity Payments. Salton Sea Unit IV shall be paid a monthly
capacity payment for satisfying certain performance requirements. From the
Firm Operation Date through June 30, 2017 (the original termination date of
the Salton Sea Unit I PPA), Salton Sea Unit IV shall be paid under the Salton
Sea Unit IV PPA $121.72/kW-year plus quarterly inflation-related adjustments
for 58.8% (or 20/34ths) of the Contract Capacity delivered by Salton Sea Unit
IV which capacity was originally attributable to the Salton Sea Unit I PPA.
After June 30, 2017, SCE will not be obligated to purchase the 58.8% of
capacity which was originally attributable to the Salton Sea Unit I PPA. From
the Firm Operation Date until the end of the contract term, Salton Sea Unit IV
shall be paid $158/kW-year for 41.2% (or 14/34ths) of the Contract Capacity
delivered by Salton Sea Unit IV. Based on the prices set forth above and the
Contract Capacity of 34 MW, the first year's annual maximum capacity payment,
will be approximately $4,646,690. Capacity bonus payments may be earned based
on the same criteria set forth in the "--Standard Terms of the SO4 Agreement"
described above. The capacity bonus payment is based on a formula set forth in
the Salton Sea Unit IV PPA.
Energy Payments. Salton Sea Unit IV shall be paid a monthly energy
payment equal to the sum of the on-peak, mid-peak, off-peak and super-off-peak
period energy payments. From the Firm Operation Date until June 30, 2017, the
energy payments for 55.6% (or 20/36ths) 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 kWh, adjusted pursuant to various
inflation-related indices. From the Firm Operation Date until the end of the
contract term, the energy payments for 44.4% (or 16/36ths) of the total energy
delivered will be calculated according to a Fixed Price, based on an energy
payment schedule, for the first 10 years, SCE's Avoided Cost of Energy plus a
predetermined spread per kWh for years 11 through 15 and SCE's Avoided Cost of
Energy thereafter. After June 30, 2017, all energy payments will be calculated
as provided in the chart below; however, SCE will not be obliged to purchase
any energy attributable to the 55.6% of Salton Sea Unit IV's capacity derived
from the Salton Sea Unit I PPA. The Fixed Price per year for the first 10
years depends upon the year in which the Firm Operation Date occurs. Assuming
Salton Sea Unit IV enters Commercial Operation in 1996, the energy payments
for such 44% portion of the agreement and, after June 30, 2017, all energy
delivered under the agreement, will be as follows:
<TABLE>
<CAPTION>
YEARS 1-10 -- FIXED ENERGY PAYMENTS: YEARS 11-15 -- FIXED ENERGY PAYMENT PLUS AVOIDED COST OF ENERGY:
- ------------------------------------ ----------------------------------------------------------------
YEAR ENERGY PAYMENT ((CENT)/KWH) YEAR ENERGY PAYMENT ((CENT)/KWH)
---- --------------------------- ---- ---------------------------
<S> <C> <C> <C> <C>
1996 8.8 2006 3.5+Avoided Cost of Energy
1997 9.4 2007 2.9+Avoided Cost of Energy
1998 10.1 2008 2.2+Avoided Cost of Energy
1999 10.7 2009 1.2+Avoided Cost of Energy
2000 10.9 2010 1.0+Avoided Cost of Energy
2001 11.2
2002 11.7
2003 12.1 YEARS 16-30 -- ENERGY PAYMENTS AT AVOIDED COST OF ENERGY:
2004 12.2 ---------------------------------------------------------
2005 12.4 YEAR ENERGY PAYMENT
---- --------------
2011-2025 Avoided Cost of Energy
</TABLE>
SALTON SEA UNIT IV GEOTHERMAL SALES CONTRACT
SSBP, SSPG and Fish Lake are currently parties to the Salton Sea Unit
IV Geothermal Sales Contract, dated February 5, 1996 (the "Salton Sea Unit IV
Geothermal Sales Contract"), which requires SSBP to supply geothermal energy
to SSPG and Fish Lake for Salton Sea Unit IV. The terms of the Salton Sea Unit
IV Geothermal Sales Contract are identical in all material respects to the
Salton Sea Units I and II Geothermal Sales Contract. See "--Salton Sea Unit I."
SALTON SEA UNIT IV GROUND LEASE
The lease of real property by Salton Sea Unit IV is provided by the
Salton Sea Unit III Ground Lease. See "--Salton Sea Unit I" and "--Salton Sea
Unit III."
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SALTON SEA UNIT IV RESOURCE EASEMENT
The right to use geothermal resources with respect to Salton Sea Unit
IV is governed by the Salton Sea Resource Easement. See "--Salton Sea Unit I."
SALTON SEA UNIT IV O&M AGREEMENT
The operation and maintenance of Salton Sea Unit IV is governed by
the Salton Sea O&M Agreement. See "--Salton Sea Unit I."
SALTON SEA UNIT IV ASA
The provision of administrative services to Salton Sea Unit IV is
governed by the Salton Sea ASA. See "--Salton Sea Unit I."
SALTON SEA UNIT IV TECHNOLOGY TRANSFER AGREEMENT
The right to use Magma's proprietary and non-proprietary technology
in Salton Sea Unit IV is governed by the Salton Sea Unit IV Technology
Transfer Agreement dated as of February 15, 1996, among Magma, SSBP, SSPG and
Fish Lake the terms of which are substantially similar to the Salton Sea
Technology Transfer Agreement. See "--Salton Sea Unit I."
COST OVERRUN COMMITMENT
CalEnergy has entered into a Cost Overrun Commitment with the Salton
Sea Guarantors for the construction of the Salton Sea Expansion. Under the
Cost Overrun Commitment, CalEnergy has agreed, in the event the $135 million
engineering, procurement, construction and resource development budget for
Salton Sea Expansion is insufficient, that it will fund or cause its
subsidiaries or Affiliates to fund all construction costs in excess of such
amount required to be incurred to cause Substantial Completion of the Salton
Sea Expansion to occur by mid-year 1996 or, if not by that date, before
January 1, 1998. The Cost Overrun Commitment is expected to be satisfied
shortly upon the Independent Engineer's confirming Substantial Completion of
Salton Sea Unit IV but, in any event, would expire on the earliest of (a)
January 1, 1998, (b) the earlier mandatory redemption (if any) of the Series B
and Series C Securities having a principal amount of $150 million or (c) under
certain circumstances involving a confirmation of the Investment Grade Rating
of the Securities. See "SUMMARY DESCRIPTION OF THE SERIES D AND SERIES E
SECURITIES-Mandatory Redemption." The 30-day test with respect to Salton Sea
Unit IV was completed in June 1996 and, accordingly, the Company plans to seek
confirmation from the Independent Engineer under the Indenture, which is
expected shortly.
SUPPORT LETTER
Magma has issued a Support Letter in favor of the Guarantors and the
Funding Corporation pursuant to which Magma has agreed (a) not to develop new
geothermal energy facilities at the SSKGRA (except the Salton Sea Expansion)
if utilization of the geothermal resource for such facilities could reasonably
be expected to materially adversely impact the geothermal resource for the
Salton Sea Projects or the Partnership Projects, (b) not to sell, transfer,
lease, sublease, assign or otherwise dispose of any Royalty Document to which
it is a party, (c) not to create, incur, assume or permit to exist any lien,
pledge, security interest or encumbrance on any Royalty Document to which it
is a party, (d) not to amend, terminate, or consent to any waiver or
modification of, or otherwise modify, any Royalty Document, (e) not to sell,
transfer, assign, consign or dispose of any of its interest in the Partnership
Project Companies or the cash flows receivable therefrom and (f) to promptly
deposit or cause to be deposited in the Redemption Fund any net cash proceeds
actually received by Magma or any of its subsidiaries from any settlement or
buy-out of the BRPU Award or a lump sum settlement (whether payable in one
payment or a series of lump sum installments) of the SCE Litigation, provided
that no proceeds shall be deposited subsequent to the earlier of (i)
Substantial Completion of the Salton Sea Expansion or (ii) termination
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of the Cost Overrun Commitment; except, in the case of (b), (c), (d) or (e),
as contemplated by the Magma Assignment Agreement or the Financing Documents
and if the taking of such action could not reasonably be expected to result in
a Material Adverse Effect.
SSBP PARTNERSHIP AGREEMENT
Salton Sea Power Company holds a 1% general partnership interest and
Magma holds a 99% limited partnership interest in SSBP pursuant to a Limited
Partnership Agreement dated as of March 31, 1993, as amended.
SSPG PARTNERSHIP AGREEMENT
Salton Sea Power Company holds a 1% general partnership interest and
SSBP holds a 99% limited partnership interest in SSPG pursuant to a Limited
Partnership Agreement dated as of March 31, 1993, as amended.
PARTNERSHIP PROJECT CONTRACTS
ELMORE PROJECT
ELMORE PPA
Elmore sells electricity to SCE pursuant to an SO4 Agreement dated
June 15, 1984 between SCE and Elmore. The standard and principal terms which
are generally contained in an SO4 Agreement are described in "--Standard Terms
of SO4 Agreement" above. Certain specific terms of the Elmore PPA and the
primary differences between the Elmore PPA and the terms of the standard SO4
Agreement are described below.
Term. The contract term of the Elmore PPA is 30 years from the Firm
Operation Date of January 1, 1989.
Capacity Payments. Elmore has a Contract Capacity Price of $198 per
kW-year and, based on the Contract Capacity of 34 MW, the annual maximum
capacity payment is $6,732,000.
Energy Payments. The Elmore PPA is an Annual Forecast Energy Payment
SO4 Agreement. The Fixed Price Period expires on December 31, 1998. After the
Fixed Price Period, energy payments will be based on SCE's Avoided Cost of
Energy.
GROUND LEASE
Elmore entered into a Ground Lease with Magma, dated as of March 14,
1988, as amended as of June 17, 1996 (the "Elmore Ground Lease"). Pursuant to
the Elmore Ground Lease, Magma leases the real property on which the Elmore
Project is located to Elmore for a period of 32 years.
Magma retains under the lease the right to use the land surface to
extract and develop geothermal brine and geothermal brine scale. This includes
the right to construct, operate and maintain pipelines, buildings, equipment
and other improvements to the land, including additional geothermal power
plants.
The lease permits minor alterations or additions to any improvements
on the land at a construction cost not exceeding $7,500,000. Additions or
improvements costing in excess of $7,500,000 require Magma's prior written
consent. Elmore is not permitted to assign, transfer, mortgage, sublet or
otherwise transfer or encumber any part of its interest in the lease or
premises without Magma's prior written consent, which shall not be
unreasonably withheld.
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CREDIT AGREEMENT
Elmore is party to a senior secured credit facility which provides
for the issuance of commercial paper and medium term notes, each to be
supported by letters of credit, in an aggregate amount not to exceed $66
million. The obligations of Elmore under the credit facility are secured by
substantially all of the assets of the Elmore Project. The credit facility is
scheduled to terminate on September 15, 2001. As of March 31, 1996, the
aggregate amount of commercial paper and medium term notes outstanding was
$25,010,000. Debt service payments by Elmore totaled $8,988,000 in 1995. A
portion of the proceeds of the Offering will be used to (i) effectively
defease approximately $12 million of such commercial paper and medium term
notes through the deposit of cash equivalents with a bank for payment at
maturity ($7 million on July 10, 1996 and $5 million on September 16, 1996)
and (ii) repay all of the balance of such outstanding indebtedness under such
credit agreement on the Closing Date, whereupon such credit agreement shall be
terminated and all liens thereunder released by the lenders. See "USE OF
PROCEEDS."
PARTNERSHIP AGREEMENT
CEOC and its wholly-owned subsidiary, Niguel Energy Company, each own
a 40% general partnership interest in, and Magma and Niguel Energy Company
each own a 10% limited partnership interest in, Elmore pursuant to the Amended
and Restated Limited Partnership Agreement, dated as of March 14, 1988, as
amended as of April 14, 1989 (the "Elmore Partnership Agreement"). See
"BUSINESS OF THE GUARANTORS--Description of the Projects--Partnership
Projects--Ownership." The term of the partnership agreement is 33 years.
On a monthly basis, an amount equal to 2.667% of all energy revenues
received under the Elmore PPA is required to be distributed to CEOC prior to
the payment of project-level debt service, if any (the "special
distribution"). Such special distribution is payable from revenues that
constitute collateral for the Partnership Project Note and Partnership
Guarantee. See "PROSPECTUS SUMMARY--Structure of and Collateral for the
Securities."
ADMINISTRATIVE SERVICES AGREEMENT
CEOC and Elmore have entered into an Amended and Restated
Administrative Services Agreement, dated as of June 17, 1996 (the "Elmore
ASA"), whereby CEOC agrees to provide day-to-day administrative, management
and technical services with respect to the Elmore Project.
Term. The term of the agreement is 32 years.
Compensation. Elmore is required to pay CEOC a monthly fee equal to
3% of combined capacity and energy revenues received under the Elmore PPA;
provided that such administration fee shall not be less than $800,000 per
year, as adjusted for inflation, as well as reimburse CEOC for any
extraordinary expenses incurred.
Other Principal Terms. CEOC has the right to subcontract with or
otherwise retain the services of other Persons to provide services under the
agreement. CEOC also agrees to perform other extraordinary services which may
be required, for which Elmore agrees to pay CEOC its actual costs and expenses
incurred plus a reasonable profit. In the event of a material default under
the agreement either party has the right to terminate the agreement upon 40
days prior written notice. CEOC can terminate the agreement immediately upon
the occurrence of certain events related to the bankruptcy or insolvency of
Elmore. Elmore agrees to defend, indemnify and hold CEOC harmless against any
and all liabilities arising out of the course of performance of the agreement
by CEOC.
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OPERATING AND MAINTENANCE AGREEMENT
The Amended and Restated Operating and Maintenance Agreement, dated
as of June 17, 1996 (the "Elmore O&M Agreement"), by and between CEOC and
Elmore, provides for the operation and maintenance of the Elmore Project.
Term. The term of the agreement is 32 years.
Obligations of CEOC. CEOC has agreed to provide all operations and
maintenance services associated with the Elmore Project, including the
supervision of any and all personnel and subcontractors necessary for the
continuous operation of the facility.
Compensation. Elmore pays CEOC for all actual costs and expenses
incurred by CEOC under the Elmore O&M Agreement. Actual costs include (i) the
actual cost to CEOC of goods and materials, (ii) cost to CEOC of providing
labor or services to the Elmore Project based, pro rata, on the number of MWs
the Elmore Project generates compared to the total MWs of all Projects
serviced by CEOC, (iii) the portion of the cost of invested capital incurred
by CEOC for the purchase of machinery and equipment used in connection with
the provision of services fairly allocable to Elmore and (iv) the actual cost
to CEOC of retaining subcontractors.
In addition, Elmore is required to pay a "guaranteed capacity
payment" to CEOC each year equal to the sum of (i) 10% of the combined
capacity and energy revenues received under the Elmore PPA in such year in
excess of a specified target level, plus (ii) 25% of the amount of combined
capacity and energy revenues received under the Elmore PPA in such year in
excess of a specified maximum target level.
Indemnification/Limitation on Liability/Arbitration. Each party to
the Elmore O&M Agreement has agreed to indemnify the other against any and all
liabilities arising out of the course of performance of the agreement,
provided that such liability is not attributable to the gross negligence or
willful misconduct of such party. All disputes arising under the Elmore O&M
Agreement shall be settled by arbitration.
Force Majeure. Neither CEOC nor Elmore is liable for any failure or
inability to perform (other than to make payments due) under the Elmore O&M
Agreement due to the occurrence of an event of force majeure. Events of force
majeure include those usual and customary for agreements of this type.
ELMORE EASEMENT
The Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development, dated as of March 14, 1988, as amended as of June 17, 1996 (the
"Elmore Easement"), between Elmore and Magma, provides for royalty payments to
be paid by Elmore to Magma for the extraction and utilization of the
geothermal resource for power production purposes by the Elmore Project.
Description of Easement. Elmore has been granted by Magma a
non-exclusive right to use certain land and geothermal resources for the
purpose of producing geothermal energy from the Elmore Project. In the
easement, Magma has reserved the right to use any excess or unused geothermal
resources, including brine minerals.
Royalty. Elmore is obligated to pay Magma a royalty equal to 21.5% of
any energy (but not capacity) revenues it receives under the Elmore PPA. The
royalty consists of two components, the Grantors Fuel Charge which is 17.333%
of energy revenues and the Geothermal Lessor's Fee which is 4.167% of energy
revenues. In addition, Elmore must pay Magma a Resource Development Fee of 1%
of combined capacity and energy revenues and 0.833% of energy revenues. These
royalties are paid prior to the payment of project-level debt service
(including the Project Notes and the Guarantees) and are payable from revenues
that will constitute Partnership Collateral. See "PROSPECTUS
SUMMARY--Structure of and Collateral for Securities."
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Elmore is obligated to pay Magma the royalty regardless of whether
there is a defect in the Elmore Project, a defect in or lien on Magma's title
to the leased land or the Elmore Project, any claim by Elmore against Magma,
any failure by Magma to comply with the terms of the easement or any other
agreement, invalidity of the easement or force majeure.
Term and Termination. The Elmore easement has a term of 32 years.
Magma has the right to terminate the easement if (i) Elmore fails to make any
payments within 3 business days of being due and fails to cure such default
within 2 business days of notice thereof, (ii) during the last 5 years of the
term of the agreement, the Elmore Facility is damaged or destroyed, with
damages over $7,500,000 and Magma chooses to decommission the plant, or (iii)
Elmore fails to perform or observe any material covenant or condition in the
agreement and fails to remedy or commence to remedy such default within 30
days.
LEATHERS PROJECT
LEATHERS PPA
Leathers sells electricity to SCE pursuant to an SO4 Agreement which
is identical in all material respects to the Elmore PPA. Certain specific
terms of the Leathers PPA and the primary differences between the Leathers PPA
and the Elmore PPA are described as follows.
Term. The contract term of the Leathers PPA is 30 years from the Firm
Operation Date of January 1, 1990.
Capacity Payments. Leathers has a contract Capacity Price of $187
kW-year and, based on the Contract Capacity of 34 MW, the annual maximum
capacity payment is $6,358,000.
Energy Payments. The Leathers PPA is an Annual Forecast Energy
Payment SO4 Agreement. The Fixed Price Period expires on December 31, 1999.
After the Fixed Price Period, energy payments will be based on SCE's Avoided
Cost of Energy.
GROUND LEASE
Leathers entered into a Ground Lease, dated as of October 26, 1988,
as amended as of June 17, 1996 (the "Leathers Ground Lease"), with Magma.
Pursuant to the Leathers Ground Lease, Magma leases the real property on which
the Leathers Project is located from Magma to Leathers. The provisions of this
lease are identical in most material respects to the Ground Lease applicable
to the Elmore Project. See "--Elmore Project."
CREDIT AGREEMENT
Leathers is party to a senior secured credit facility. The credit
facility is scheduled to terminate on September 15, 2002. As of March 31,
1996, the aggregate amount of commercial paper and medium term notes
outstanding was $47,700,000. Debt service payments by Leathers under such
agreement totaled $11,880,000 in 1995. A portion of the proceeds of the
Offering will be used to (i) effectively defease $5 million of such medium
term notes through the deposit of cash equivalents with a bank for payment at
maturity on September 16, 1996 and (ii) repay all the balance of the
outstanding indebtedness under such credit agreement on the Closing Date,
whereupon such credit agreement shall be terminated and all liens thereunder
released by the lender. See "USE OF PROCEEDS."
PARTNERSHIP AGREEMENT
CEOC and its wholly-owned subsidiary, San Felipe Energy Company, each
own a 40% general partnership interest in, and Magma and San Felipe Energy
Company each own a 10% limited partnership
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interest in, Leathers pursuant to the Limited Partnership Agreement, dated as
of August 15, 1988, as amended as of April 14, 1989 (the "Leathers Partnership
Agreement"). See "BUSINESS OF THE GUARANTORS--General Description of the
Projects--Partnership Projects--Ownership." The term of the partnership
agreement is 33 years.
On a monthly basis, an amount equal to the sum of (i) 4.5% of all
energy revenues received under the Leathers PPA and (ii) 1% of the difference
between energy revenues received and specified energy revenues, is required to
be distributed to CEOC prior to the payment of project-level debt service, if
any (the "special distribution"). Such special distribution is payable from
revenues that will constitute Partnership Collateral. See "PROSPECTUS
SUMMARY--Structure of and Collateral for the Securities."
ADMINISTRATIVE SERVICES AGREEMENT
Leathers and CEOC have entered into an Amended and Restated
Administrative Services Agreement, dated as of June 17, 1996 (the "Leathers
ASA"), whereby CEOC agrees to provide day-to-day administrative, management
and technical services with respect to the Leathers Project. The term of this
agreement is 33 years. The provisions of this agreement are otherwise
identical in all material respects to the Administrative Services Agreement
applicable to the Elmore Project. See "--Elmore Project."
OPERATING AND MAINTENANCE AGREEMENT
Leathers and CEOC have entered into an Amended and Restated Operating
and Maintenance Agreement, dated as of June 17, 1996, (the "Leathers O&M
Agreement"), which provides for the operation and maintenance of the Leathers
Project. The provisions of this agreement are otherwise identical in all
material respects to the Elmore O&M Agreement. See "--Elmore Project."
LEATHERS EASEMENT
The Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development, dated as of August 15, 1988, as amended as of June 17, 1996 (the
"Leathers Easement"), between Leathers and Magma, provides for royalty
payments to be paid by Leathers to Magma for the extraction and utilization of
the geothermal resource for power production purposes.
The provisions of this agreement are identical in all material
respects to those of the Elmore Easement, except that Leathers is not required
to pay Magma a continuing Resource Development Fee. Leathers is only obligated
to pay Magma 21.5% of its energy revenues, consisting of a Grantor's Fuel
Charge, which is 17.333% of energy revenues, and a Geothermal Lessor's Fee,
which is 4.167% of energy revenues.
DEL RANCH PROJECT
DEL RANCH PPA
Del Ranch sells electricity to SCE pursuant to an SO4 Agreement which
is identical in all material respects to the Elmore PPA. Certain specific
terms of the Del Ranch PPA and the primary differences between the Del Ranch
PPA and the Elmore PPA are described as follows.
Term. The Firm Operation Date of the Del Ranch Project was January 2,
1989.
Capacity Payments. Del Ranch has a Contract Capacity Price of $198
kW-year and, based on the Contract Capacity of 34MW, the annual maximum
capacity payment is $6,732,000.
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Energy Payments. The Del Ranch PPA is an Annual Forecast Energy
Payment SO4 Agreement. The Fixed Price Period expires on December 31, 1998.
After the Fixed Price Period, energy payments will be based on SCE's Avoided
Cost of Energy.
CREDIT AGREEMENT
Del Ranch is party to a senior secured credit facility. As of March
31, 1996, the aggregate amount of commercial paper and medium term notes
outstanding was $23,873,000. Debt service payments by Del Ranch totaled
$8,656,000 in 1995. A portion of the proceeds of the Offering will be used to
(i) effectively defease $5 million of such medium term notes through the
deposit of cash equivalents with a bank for payment at maturity on September
16, 1996 and (ii) repay all the balance of the outstanding indebtedness under
such credit agreement on the Closing Date, whereupon such credit agreement
shall be terminated and all liens thereunder released by the lender. See "USE
OF PROCEEDS."
GROUND LEASE
Del Ranch entered into a Ground Lease, dated as of March 14, 1988, as
amended as of June 17, 1996 (the "Del Ranch Ground Lease"), with Magma,
pursuant to which Del Ranch leases the real property on which the Del Ranch
Facility is located from Magma. The provisions of this lease are identical in
all material respects to the Ground Lease applicable to the Elmore Project.
See "--Elmore Project."
PARTNERSHIP AGREEMENT
General. CEOC and its wholly-owned subsidiary Conejo Energy Company,
each own a 40% general partnership interest in, and Magma and Conejo Energy
Company each own a 10% limited partnership interest in, Del Ranch pursuant to
the Amended and Restated Limited Partnership Agreement, dated as of March 14,
1988, as amended as of April 14, 1989 (the "Del Ranch Partnership Agreement").
See "BUSINESS OF THE GUARANTORS--General Description of the
Projects--Partnership Projects--Project Ownership." The term of the
partnership agreement is 33 years.
On a monthly basis, an amount equal to 2.667% of the energy revenues
received under the Del Ranch PPA is required to be distributed to CEOC prior
to the payment of project-level debt service, if any (the "special
distribution"). Such special distribution is payable from revenues that will
constitute Partnership Collateral. See "PROSPECTUS SUMMARY--Structure of and
Collateral for the Securities."
ADMINISTRATIVE SERVICES AGREEMENT
General. Del Ranch and CEOC have entered into an Amended and Restated
Administrative Services Agreement dated as of June 17, 1996 (the "Del Ranch
ASA"), whereby CEOC agrees to provide day-to-day administrative, management
and technical services with respect to the Del Ranch Project. The provisions
of this agreement are identical in all material respects to the Administrative
Services Agreement applicable to the Elmore Project. See "--Elmore Project."
OPERATING AND MAINTENANCE AGREEMENT
General. Del Ranch and CEOC have entered into an Amended and Restated
Operating and Maintenance Agreement, dated as of June 17, 1996 (the "Del Ranch
O&M Agreement"), which provides for the operation and maintenance of the Del
Ranch Project by CEOC. The provisions of this agreement are otherwise
identical in all material respects to the Elmore O&M Agreement. See "--Elmore
Project."
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DEL RANCH EASEMENT
The Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development, dated as of March 14, 1988, as amended as of June 17, 1996 (the
"Del Ranch Easement"), between Del Ranch and Magma, provides for royalty
payments to be paid by Del Ranch to Magma for the extraction and utilization
of the geothermal resource for power production purposes. The provisions of
this agreement are identical in all material respects to those of the Elmore
Easement.
MAGMA SERVICES AGREEMENT
Pursuant to the Magma Services Agreement, Magma has agreed to pay
CEOC all Equity Cash Flows and certain Royalties payable by Elmore, Leathers
and Del Ranch in exchange for providing data and services to Magma. As
security for the obligations of Magma under the Magma Services Agreement,
Magma has collaterally assigned to CEOC its rights to such Equity Cash Flows
and certain Royalties. All such Equity Cash Flows and Royalties are payable
from revenues that will constitute Partnership Collateral. See "PROSPECTUS
SUMMARY--Structure of and Collateral for the Securities."
VULCAN PROJECT
VULCAN PPA
Vulcan sells electricity to SCE pursuant to an SO4 Agreement dated
March 1, 1984 between SCE and Vulcan. The standard and principal terms which
are generally contained in an SO4 Agreement are described in "--Standard Terms
of SO4 Agreement" above. Certain specific terms of the Vulcan PPA and the
primary differences between the Vulcan PPA and the terms of the standard SO4
Agreement are described below.
Term. The contract term of the Vulcan PPA is 30 years from the Firm
Operation Date of February 10, 1986.
Capacity Payments. Vulcan has a Contract Capacity Price of $158 per
kW-year and, based on the Contract Capacity of 29.5 MW, the annual maximum
capacity payment is $4,661,000.
Energy Payments. The Vulcan PPA is an Annual Forecast Energy Payment
SO4 Agreement. 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
SCE's Avoided Cost of Energy.
CONSTRUCTION, OPERATING AND ACCOUNTING AGREEMENT
The Construction, Operating and Accounting Agreement, dated as of
August 30, 1985, as amended as of June 17, 1996 (the "Vulcan Construction,
Operating and Accounting Agreement"), by and between VPC and Vulcan, provides
for the operation and maintenance of the Vulcan Project. VPC is designated as
the operator of the Vulcan Project with control over operation of the Vulcan
Project.
Term. The term of the agreement extends for an initial period of one
year, and thereafter from year to year, terminable by either VPC or Vulcan
upon 30 days' prior written notice.
Compensation. VPC is paid on a monthly basis for its actual and
allocated supervision and labor costs, including appropriate fringe costs, as
well as other additional actual and allocated costs or expenses.
ADMINISTRATIVE SERVICES AGREEMENT
CEOC and Vulcan have entered into an Administrative Services
Agreement, dated as of June 17, 1996 (the "Vulcan ASA"), whereby CEOC agrees
to provide day-to-day administrative, management and technical
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services with respect to the Vulcan Project. Vulcan pays CEOC the actual costs
and expenses incurred by CEOC under the Vulcan ASA. The provisions of this
agreement are otherwise similar in all material respects to the Elmore ASA.
BRINE SALES AGREEMENT
General. VPC entered into a Brine Sales Agreement with Vulcan, dated
as of August 30, 1985, as amended as of June 17, 1996 (the "Brine Sales
Agreement"), pursuant to which VPC has agreed to supply brine for
power production purposes to the Vulcan Project for a 30-year period. Vulcan
is required to operate and maintain pipelines and brine handling and
transportation facilities, and to transport spent brine from the Vulcan
Project to injection wells. Vulcan is required to supply whatever power is
required for handling and transporting the brine and to handle and dispose of
all mineral residue, sludge and waste produced.
Fees. Vulcan is required to pay VPC monthly fees equal to the sum of:
(i) 4.167% of the energy revenues received under the Vulcan PPA, (ii) all
actual charges for surface use of land and other payments to landowners under
applicable agreements and (iii) an administrative fee equal to the portion of
Magma's overhead costs attributable to the Vulcan Project. The fees referred
to in clauses (i), (ii) and (iii) above will be paid from the Additional
Partnership Revenue Deposits as Operating and Maintenance Costs and will not
constitute Collateral.
EASEMENT GRANT DEED
Rights to geothermal resources have been granted to VPC by Magma
pursuant to an Easement Grant Deed and Agreement Regarding Rights for
Geothermal Development, dated as of January 19, 1988, as amended as of June
17, 1996. Magma has reserved the right to use excess or unused geothermal
resources, including brine minerals.
ROYALTY PROJECT CONTRACTS
MAGMA
Magma receives certain Royalties from the Elmore Project, the
Leathers Project, the Del Ranch Project and the East Mesa Project in exchange
for leasing or subleasing certain of Magma's land and/or geothermal resources
to such entities for power production purposes and, in the case of the East
Mesa Project, licensing certain technology and assigning a power purchase
agreement.
In connection with the Initial Offering, Magma assigned such
Royalties to the Royalty Guarantor pursuant to the Magma Assignment Agreement.
However, all such Royalties (other than Royalties from the East Mesa Project)
will be made from revenues that will constitute Partnership Collateral. See
"PROSPECTUS SUMMARY--Structure of and Collateral for the Securities."
Such Royalties payable from the Elmore, Leathers and Del Ranch
Projects are payable pursuant to the Elmore Easement, the Leathers Easement
and the Del Ranch Easement. See "--Elmore Project," "--Leathers Project" and
"--Del Ranch Project." Set forth below is a description of each of the Royalty
Documents in respect of which the Royalty Guarantor receives an assignment of
such Royalties from the East Mesa Project.
EAST MESA PROJECT CONTRACTS
ASSIGNMENT AND SECURITY AGREEMENT
The Assignment and Security Agreement, dated as of May 12, 1988 (the
"East Mesa Assignment and Security Agreement"), between East Mesa and Magma
provides that, in exchange for, among other things, the assignment by Magma of
its rights in the East Mesa PPAs, East Mesa shall pay Magma a royalty of 14%
of
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combined capacity and energy revenues, received under the East Mesa PPAs (the
"East Mesa Royalty), regardless of whether such revenues are earned by the
East Mesa Project. The East Mesa Royalty is computed on the basis of gross
electricity revenues without deductions for expenses other than the cost of
electricity purchased by East Mesa in operating the East Mesa Project and any
ad valorem taxes on the geothermal resources allocable to the Project or the
sale of such resources. If there are insufficient revenues in a certain month
to pay the East Mesa Royalty after payment of royalties to senior lessors and
other operating expenses, East Mesa is not obligated to pay Magma in such
month. Any unpaid East Mesa Royalties accrue and are payable, plus interest
thereon, when sufficient revenues are available.
The obligation to pay East Mesa Royalties remains in effect for as
long as the East Mesa Project generates, or is capable of generating,
electricity and the East Mesa PPAs remain in effect. The obligations survive
any transfer of the plant or the East Mesa PPA.
Covenants. Any transferee of the East Mesa Project or the East Mesa
PPAs must assume East Mesa's obligations under the East Mesa Assignment and
Security Agreement. East Mesa must notify Magma if the East Mesa PPAs are to
be renewed, extended, terminated or otherwise modified. Magma has the right to
approve or disapprove modifications or terminations, but may not disapprove
any commercially reasonable modification, including any reasonable termination
of the East Mesa PPAs in the event that continued operations thereunder are
not commercially feasible. If East Mesa abandons the Project or terminates the
power purchase agreements, East Mesa must offer to transfer its interest in
the project or the agreements to Magma in exchange for the salvage value of
any property exchanged, whereupon the royalty obligations are terminated.
Security Agreement. East Mesa has also granted a security interest in
the East Mesa PPAs to Magma in order to secure its obligations to pay East
Mesa Royalties.
Modification. The East Mesa Assignment and Security Agreement has
been modified by the East Mesa Master Agreement, which will remain in effect
until a certain credit facility between East Mesa and Credit Suisse has
terminated. The Master Lease divides the East Mesa Royalties into a senior
payment of 4% (the "Senior Royalty") and a junior payment of 10% (the "Junior
Royalty"). The Senior Royalty is paid prior to East Mesa's debt service, but
after operating and maintenance expenses. The Junior Royalty is payable after
the Senior Royalty, operating and maintenance expenses and debt service. To
date, Junior Royalties are due but have not been paid.
EAST MESA PPA
East Mesa sells electricity to SCE pursuant to two SO4 Agreements
(the "East Mesa PPA"). The standard and principal terms which are generally
contained in an SO4 Agreement are described in "--Standard Terms of SO4
Agreement" above. Certain specific terms of the East Mesa PPA and the primary
differences between the East Mesa PPA and the terms of the standard SO4
Agreement are described below.
Term. The East Mesa PPA has a term of 30 years from the Firm
Operation Date of January 1, 1990.
Capacity Payments. East Mesa has a Contract Capacity Price of $187
per kW-year and, based on the Contract Capacity of 25 MW, an annual maximum
capacity payment of $4,675,000.
Energy Payments. The East Mesa PPA is an Annual Forecast Energy
Payment SO4 Agreement. The Fixed Price Period of the East Mesa PPA expires on
December 31, 1999. After the Fixed Price Period, energy payments will be based
on SCE's Avoided Cost of Energy.
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SUMMARY DESCRIPTION OF THE SERIES D AND SERIES E SECURITIES
GENERAL
The New Securities will be, and the Initial Securities and the Old
Securities have been, issued under the Indenture. The following is a
description of certain provisions of the Series D and Series E Securities and,
to the extent indicated, the Initial Securities and does not purport to be
complete and is subject to, and qualified in its entirety by, reference to the
Series D and Series E Securities, the Initial Securities and the Indenture.
Unless otherwise specified, the description applies to all the Securities
(including, without limitation, the Series D and Series E Securities and the
Initial Securities.)
The Old Securities have been, and the New Securities will be, offered
in two series as set forth below. The Old Securities were issued in book-entry
form and, if to Qualified Institutional Buyers, in denominations of $100,000
and any integral multiple of $1,000 in excess thereof and, if to Accredited
Investors, in denominations of $200,000 or any integral multiple of $1,000 in
excess thereof.
The Indenture provides for the issuance of other series of senior
secured bonds or notes as from time to time may be authorized by the Funding
Corporation, subject to the limitations in the Indenture. See "SUMMARY
DESCRIPTION OF PRINCIPAL FINANCING DOCUMENTS--Indenture--Additional
Securities" and "--Amendments and Supplements."
The Securities are direct obligations of the Funding Corporation,
secured by the Funding Corporation Collateral and guaranteed by the Guarantors
pursuant to the Guarantees. The obligations of the Guarantors under the
Guarantees are secured by the Guarantors' Collateral.
At May 31, 1996, the Guarantors' proportionate share of project level
indebtedness was approximately $96.6 million, which indebtedness was
effectively senior to the Securities. A portion of the proceeds of the
offering of the Old Securities was used to repay all existing project-level
indebtedness for borrowed money incurred by the Partnership Project Companies
and it is not presently expected that any such project-level indebtedness will
be incurred in the future. See "USE OF PROCEEDS". The Funding Corporation has
not issued, and does not have any current firm arrangements to issue, any
significant indebtedness to which the Securities would be senior.
PRINCIPAL AMOUNT, INTEREST RATE, FINAL MATURITY AND PAYMENT
The Old Securities have been, and the New Securities will be, issued
in two series in the aggregate principal amount of $135,000,000, will bear
interest from their date of issuance at the rates per annum and have the final
maturities of principal as set forth below:
SERIES PRINCIPAL AMOUNT INEREST RATE FIANL MATURITY
------ ---------------- ------------ --------------
D $70,000,000 7.02% May 30, 2000
E $65,000,000 8.30% May 30, 2011
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PAYMENT OF PRINCIPAL AND INTEREST
The principal of the Series D Securities is payable in semiannual
installments, commencing May 30, 1997, as follows:
PERCENTAGE OF PRINCIPAL
PAYMENT DATE AMOUNT PAYABLE
------------ --------------
May 30, 1997 18.4642857143%
November 30, 1997 18.4642857143%
May 30, 1998 22.8571428571%
November 30, 1998 22.8571428571%
May 30, 1999 7.6071428571%
November 30, 1999 7.6071428571%
May 30, 2000 2.1428571430%
The principal of the Series E Securities is payable in semiannual
installments, commencing May 30, 1999, as follows:
PERCENTAGE OF PRINCIPAL
PAYMENT DATE AMOUNT PAYABLE
------------ --------------
May 30, 1999 9.2907692308%
November 30, 1999 9.2907692308%
May 30, 2000 3.0769230769%
November 30, 2000 3.0769230769%
May 30, 2001 0.7692307692%
November 30, 2001 0.7692307692%
May 30, 2002 1.2307692308%
November 30, 2002 1.2307692308%
May 30, 2003 2.3076923077%
November 30, 2003 2.3076923077%
May 30, 2004 2.5000000000%
November 30, 2004 2.5000000000%
May 30, 2005 2.6923076923%
November 30, 2005 2.6923076923%
May 30, 2006 1.9230769231%
November 30, 2006 1.9230769231%
May 30, 2007 1.9230769231%
November 30, 2007 1.9230769231%
May 30, 2008 2.6923076923%
November 30, 2008 2.6923076923%
May 30, 2009 2.5000000000%
November 30, 2009 2.5000000000%
May 30, 2010 10.3846153846%
November 30, 2010 10.3846153846%
May 30, 2011 17.4184615384%
Interest on the Series D and Series E Securities is payable
semiannually on each May 30 and November 30, commencing November 30, 1996, to
the registered owners thereof at the close of business on the May 15 and
November 15, as the case may be, preceding such Interest Payment Date.
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OPTIONAL REDEMPTION
The Series D and Series A Securities are not subject to optional
redemption.
The Series E Securities may be redeemed, in whole or in part on a pro
rata basis, prior to maturity, at the option of the Funding Corporation, at
par plus accrued interest to the Redemption Date plus a premium calculated to
"make-whole" to comparable U.S. treasury securities plus 50 basis points.
The Series B and Series C Securities may be redeemed, in whole or in
part on a pro rata basis, prior to maturity at the option of the Funding
Corporation, at par plus accrued interest to the Redemption Date plus a
premium calculated to "make whole" to comparable U.S. treasury securities plus
50 basis points.
MANDATORY REDEMPTION
The Series D and Series E Securities, as well as the Initial
Securities, are subject to mandatory redemption, in whole or in part, ratably
among each series (except as provided below in connection with a delay in
completing the Salton Sea Expansion) at a redemption price equal to the
principal amount thereof plus accrued interest to the Redemption Date, (a)
upon the receipt of Loss Proceeds or Eminent Domain Proceeds by the Salton Sea
Guarantors or the Partnership Project Companies if the Salton Sea Guarantors
or the Partnership Project Companies, as applicable, determine that (i) the
affected Salton Sea Project or Partnership Project cannot be rebuilt, repaired
or restored to permit operations on a commercially reasonable basis, or the
Salton Sea Guarantors or the Partnership Project Companies, as the case may
be, determine not to rebuild, repair or restore the affected Project, and the
Loss Proceeds or Eminent Domain Proceeds exceed $15 million, in which case the
amount of such Loss Proceeds or Eminent Domain Proceeds shall be available for
such redemption, or (ii) only a portion of the affected Salton Sea Project or
Partnership Project is capable of being rebuilt, repaired or restored and the
amount of Loss Proceeds or Eminent Domain Proceeds exceed the cost of
rebuilding, repair or replacement by more than $15 million, in which case only
the amount of such excess Loss Proceeds or Eminent Domain Proceeds shall be
made available for such redemption; (b) upon the receipt by the Salton Sea
Guarantors or the Partnership Project Companies of proceeds in connection with
a Title Event in excess of $5,000,000, in which case the amount of such Title
Event Proceeds shall be made available for such redemption, subject to
reduction by the costs expended in connection with collecting any Title Event
Proceeds and any additional costs or expenses not to exceed $25,000,000 that
the Salton Sea Guarantors or the Partnership Project Companies, as the case
may be, will be subject to as a result of the Title Event; (c) upon the
receipt by the Salton Sea Guarantors or Partnership Guarantors of net proceeds
realized in connection with a Permitted Power Contract Buy-Out, in which case
the amount of such proceeds shall be made available for such redemption,
unless the Rating Agencies confirm that such Permitted Power Contract Buy-Out
will not result in a Rating Downgrade; (d) upon the receipt by the Partnership
Guarantors of the proceeds of a borrowing by the Partnership Project Companies
which are used to fund an equity distribution, in which case the amount of
such proceeds received by the Partnership Guarantors shall be made available
for such redemption unless the Rating Agencies confirm that such borrowing and
distribution will not result in a Rating Downgrade; (e) upon the acceleration
of a Project Note, in an amount equal to the principal amount thereof plus
accrued interest and (f) upon the receipt of proceeds in excess of $5 million
arising out of foreclosure by the Collateral Agent of Collateral securing the
Guarantors' obligations under the Salton Sea Guarantee, the Royalty Guarantee
or Partnership Guarantee upon an event of default thereunder. The amounts
available for redemption described in clauses (a) through (d), and (f), above,
shall also be subject to reduction by the amount of certain fees and expenses,
the amount of any Senior Debt owed under the Working Capital Facility and the
pro rata amount of any obligations in favor of the Debt Service Reserve LOC
Provider and in respect of other Permitted Senior Debt as provided in the
Intercreditor Agreement. See "SUMMARY DESCRIPTION OF PRINCIPAL FINANCING
DOCUMENTS--Depositary Agreement--Redemption Fund."
In the event that Substantial Completion of the Salton Sea Expansion
has not occurred by January 1, 1998 or has been abandoned, the Funding
Corporation must redeem, on a pro rata basis, Series B and Series C Securities
having an aggregate principal amount of $150,000,000 for a redemption price
equal to the principal
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amount thereof plus accrued interest to the Redemption Date; provided that
such redemption will not be required if the Funding Corporation and the
Guarantors take such actions as the Rating Agencies require in order for the
Rating Agencies to confirm in writing that the Securities will maintain their
Investment Grade Rating notwithstanding such failure to achieve Substantial
Completion of the Salton Sea Expansion by January 1, 1998 or such abandonment
and the Rating Agencies issue such written confirmation.
RATINGS
Moody's Investors Service, Inc. and Standard & Poor's Ratings Group
have assigned the Series D and Series E Securities ratings of "Baa3" and
"BBB-," respectively. There is no assurance that any such credit rating will
remain in effect for any given period of time or that such rating will not be
lowered, suspended or withdrawn entirely by the applicable Rating Agency, if,
in such Rating Agency's judgment, circumstances so warrant. Any such lowering,
suspension or withdrawal of any rating may have a material adverse effect on
the market price or marketability of the Series D and Series E Securities.
NATURE OF RECOURSE ON THE SECURITIES
The Funding Corporation's obligations to make payments of principal
of, premium, if any, and interest on the Securities are obligations solely of
the Funding Corporation secured solely by the Funding Corporation Collateral
and guaranteed by the Guarantors pursuant to the Guarantees. Neither the
shareholders of the Funding Corporation nor any Affiliate, incorporator,
officer, director or employee thereof or of the Funding Corporation will
guarantee the payment of the Securities or has any obligation with respect to
the payment of the Securities (other than the Guarantors and with respect to
obligations of such Persons under the Transaction Documents they are parties
to).
SUMMARY DESCRIPTION OF PRINCIPAL FINANCING DOCUMENTS
The following summaries of certain provisions of the Depositary
Agreement, the Indenture, the Guarantees, the Credit Agreements and Project
Notes, the Debt Service Reserve LOC Reimbursement Agreement, the Security
Documents and the Intercreditor Agreement (collectively, with the Securities,
the Working Capital Facility, any Interest Rate Protection Agreements, the
Support Letter and the Cost Overrun Commitment, the "Financing 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 each of the Financing Documents have been
or will be filed as exhibits to the Registration Statement of which this
Prospectus is a part and may be obtained from the Commission. See "AVAILABLE
INFORMATION." Capitalized terms used herein and not otherwise defined in this
Prospectus have the meanings ascribed to them in the Financing Documents.
DEPOSITARY AGREEMENT
The Collateral Agent, on behalf of the Secured Parties, has, pursuant
to the Depositary Agreement, appointed the Depositary as security agent for
the Secured Parties with respect to funds of the Guarantors in which the
Depositary has been granted a security interest. Pursuant to the terms of the
Depositary Agreement, the Depositary will hold, invest and disburse monies in
which the Depositary and/or the Collateral Agent, on behalf of the Secured
Parties and the Funding Corporation, has been granted a security interest.
Neither the Funding Corporation nor any Guarantor shall have any right of
withdrawal under any Fund except under circumstances to be established in the
Depositary Agreement.
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THE DEPOSITARY AGREEMENT FUNDS
The following funds (collectively, "Funds") have been established and
created with the Depositary and pledged as security for the benefit of the
Depositary and the Collateral Agent acting on behalf of all the Secured
Parties and the Funding Corporation:
(i) Capital Expenditure Fund
(ii) Expansion Fund
(iii) Revenue Fund
(iv) Principal Fund
(v) Interest Fund
(vi) Debt Service Reserve Fund
(vii) Distribution Fund
(viii) Distribution Suspense Fund
(ix) Redemption Fund
(x) Loss Proceeds Fund.
All amounts deposited with the Depositary, at the written request and
direction of the Funding Corporation, will be invested by the Depositary in
Permitted Investments. The Funds referred to in clauses (iv), (v), (vii) and
(viii) are not required to be separate accounts but may be maintained as
subaccounts of the Revenue Fund. To the extent the Debt Service Reserve Fund
is fully funded or the amounts in such Fund, together with the Debt Service
Reserve Letter of Credit, equal the Debt Service Reserve Fund Required
Balance, interest earned on the amount in other Funds shall be transferred to
the Revenue Fund.
CAPITAL EXPENDITURE FUND
The Capital Expenditure Fund was funded with $15,000,000 of the net
proceeds from the sale of the Old Securities.
Upon the Depositary's receipt of a complete and properly executed
requisition from an authorized officer of the relevant Partnership Guarantor
or Salton Sea Guarantor, the Depositary will apply the amounts in the Capital
Expenditure Fund to the payment, or reimbursement to the extent the same have
been paid or satisfied by such Partnership Guarantor or Salton Sea Guarantor,
of costs incurred or reasonably expected to be incurred during the subsequent
30 days, in connection with the modification, improvement, reworking,
maintenance and replacement from time to time of wells, pipelines, gathering
systems, equipment, facilities and other capital expenditures in connection
with or located at the Partnership Projects or the Salton Sea Projects
(collectively, the "Permitted Capital Expenditures"). Each requisition
certificate submitted by such an authorized officer shall include the
following:
(i) a statement specifying the costs that are due and payable or
that are reasonably expected to be due and payable within the next thirty
days;
(ii) a confirmation that no Default or Event of Default has occurred
and is continuing; and
(iii) a confirmation that such expenditures are Permitted Capital
Expenditures and are in accordance with the then current capital
expenditure budget.
Funds in the Capital Expenditure Fund must be used for Permitted Capital
Expenditures and, until all Securities are paid in full, cannot be transferred
to the Revenue Fund for distribution to other Funds.
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EXPANSION FUND
The Expansion Fund was funded with $115,000,000 of the net proceeds
from the sale of the Initial Securities.
Upon the Depositary's receipt of a complete and properly executed
requisition from an authorized officer of the relevant Salton Sea Guarantor,
the Depositary will apply the amounts in the Expansion Fund to the payment, or
reimbursement to the extent the same have been paid or satisfied by such
Salton Sea Guarantor, of costs incurred or reasonably expected to be incurred
during the subsequent 30 days, in connection with the Salton Sea Expansion.
Each requisition certificate submitted by such an authorized officer shall
include the following:
(i) a statement specifying the costs that are due and payable or
that are reasonably expected to be due and payable within the next thirty
days;
(ii) a confirmation that no Default or Event of Default has occurred
and is continuing; and
(iii) a confirmation that the construction activities are proceeding
in accordance with the then current expansion budget and schedule.
Following final completion, excess funds in the Expansion Fund shall be
transferred to the Revenue Fund for distribution to other Funds, as provided
below under "Revenue Fund; Priority of Payments."
REVENUE FUND; PRIORITY OF PAYMENTS
All revenues actually received by the Salton Sea Guarantors from the
Salton Sea Projects, all revenues actually received by the Partnership Project
Companies from the Partnership Projects (net of any Royalties paid to the
Royalty Guarantor), all Equity Cash Flows and Royalties of the Partnership
Guarantors other than the Partnership Project Companies, and all Royalties
received by the Royalty Guarantor shall be paid into the Revenue Fund
maintained by the Depositary for the account of each of the Guarantors. The
Guarantors will arrange for the direct payment of all such revenues into the
Revenue Fund, and no Guarantor shall have any right of withdrawal under the
Revenue Fund except pursuant to the priority of payments set forth below. All
such Equity Cash Flows and Royalties of the Partnership Guarantors and
Royalties received by the Royalty Guarantor (other than Royalties related to
the East Mesa Project) which are to be paid into the Revenue Fund are made
from revenues that will constitute Partnership Collateral. See "PROSPECTUS
SUMMARY--Structure of and Collateral for the Securities."
The Revenue Fund shall be funded:
(i) from all revenues actually received by the Salton Sea Guarantors
from the Salton Sea Projects;
(ii) from all revenues actually received by the Partnership Project
Companies from the Partnership Projects;
(iii) from all Equity Cash Flows and Royalties received by CEOC and
VPC;
(iv) to the extent not included in clause (iii), all Equity Cash
Flows and Royalties received by CEOC under the Magma Services Agreement
and by VPC in respect of the Vulcan Project;
(v) from all Royalties received by the Royalty Guarantor;
(vi) from the Expansion Fund, to the extent that, following final
completion of the Salton Sea Expansion, there are excess funds in the
Expansion Fund;
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(vii) to the extent the Debt Service Reserve Fund is fully funded or
the amounts in such Fund, together with the Debt Service Reserve Letter
of Credit, equal the Debt Service Reserve Fund Required Balance, any
income from the investment of monies in any of the Funds; and
(viii) from other Funds as required to be transferred to the Revenue
Fund pursuant to the Depositary Agreement.
Upon receipt of a certificate from the relevant Guarantor (or its
duly authorized agent for such purposes) detailing the amounts to be paid,
funds in the Revenue Fund shall be transferred via wire transfer by the
Depositary:
First, as and when required, to pay Operating and Maintenance Costs
(including Working Capital Debt and Debt incurred in connection with Interest
Rate Protection Agreements) of all the Guarantors and the Funding Corporation,
provided that, if the cumulative Operating and Maintenance Costs of the
Guarantors in any fiscal year exceed the projected Operating and Maintenance
Costs in the applicable annual Operating Budget of the Guarantors by more than
25%, then no amounts may be withdrawn on behalf of the Guarantors to pay
non-budgeted operating costs unless (a) the Guarantors certify that (i) such
additional non-budgeted costs are reasonably designed to permit the Guarantors
to satisfy their obligations in respect of the Project Notes and maximize
their revenue and net income and (ii) it is reasonable to expect that (A) a
Debt Service Coverage Ratio of at least 1.4 to 1 will be maintained for the
next 12-month period if such period ends prior to 2000 or (B) a Debt Service
Coverage Ratio of at least 1.5 to 1 will be maintained for the next 12-month
period if such period ends after January 1, 2000 or (b) the Independent
Engineer certifies that the additional cost is prudent and reasonable;
Second, on a monthly basis, to the Depositary, the Trustee, the Debt
Service Reserve LOC Provider agent, the Working Capital Facility agent, and
the Collateral Agent any amounts then due and payable to each of them as fees,
costs and expenses; provided, however, that if monies in the Revenue Fund are
insufficient on any date to make the payments specified in this paragraph
Second, distribution of monies shall be made ratably to the specified
recipients based on the respective amounts owed such recipients;
Third, on a monthly basis (i) to the Interest Fund an amount which,
together with the amount then in such fund, equals all of the interest due or
becoming due on the Securities and (without duplication) the Project Notes on
the next succeeding Interest Payment Date; (ii) to the Principal Fund an
amount which, together with the amount then in such fund, equals all of the
principal and, premium (if any) due or becoming due on the Securities and
(without duplication) the Project Notes on the next succeeding Principal
Payment Date; (iii) to the Debt Service Reserve LOC Provider an amount which
equals all of the commitment, letter of credit and fronting fees becoming due
and payable under the Debt Service Reserve LOC Reimbursement Agreement on the
next succeeding payment date; (iv) to a Debt Service Reserve sub-fund an
amount which, together with the amounts then in such sub-fund, equals all of
the interest due or becoming due on any Debt Service Reserve LOC Loans on the
next succeeding Interest Payment Date; and (v) to a Debt Service Reserve
sub-fund an amount which, together with the amounts then in such sub-fund,
equals all of the principal, premium (if any) and interest due or becoming due
under any Debt Service Reserve Bond on the next succeeding Principal Payment
Date; provided, however, that if monies in the Revenue Fund are insufficient
on any date to make the payments specified in this paragraph Third,
distribution of monies shall be made ratably to the specified recipients based
on the respective amounts owed such recipients;
Fourth, on a monthly basis,
(i) to a Debt Service Reserve sub-fund an amount which, together
with the amount then in such sub-fund, equals all of the principal and
certain related fees and charges related to tax gross-ups, capital
adequacy costs and certain breakage costs, in each case due or becoming
due on the next Principal Payment Date on any Debt Service Reserve LOC
Loans and
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(ii) if no Debt Service Reserve Letter of Credit is in place, to the
Debt Service Reserve Fund an amount as necessary to fund the Debt Service
Reserve Fund up to the Debt Service Reserve Fund Required Balance; and
Fifth, as and when required, (i) to the Debt Service Reserve LOC
Provider, or any other financial institution providing a Debt Service Reserve
LOC Loan, certain other breakage costs which are due and payable in connection
with Debt Service Reserve LOC Loans and (ii) any indemnification expenses or
other amounts not otherwise paid and required to be paid to any of the Secured
Parties;
Sixth, on a monthly basis, any remaining amounts to the Distribution
Fund; and
Seventh, any amounts in the Distribution Fund which cannot be
distributed because of the failure to satisfy certain conditions to
distributions, to the Distribution Suspense Fund.
However, in the event the Securities are accelerated and no
foreclosure occurs within 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.
Notwithstanding the foregoing provisions of priority Fourth above, if
the Debt Service Reserve Letter of Credit has not been renewed or reinstated
by a date 3.5 years prior to its stated expiration date, monies withdrawn and
transferred as specified in priority Fourth above for application in priority
Fourth shall, during such 3.5 year period and until either (i) the outstanding
amount of the Debt Service Reserve Letter of Credit is reduced to zero and no
Debt Service Reserve LOC Loans are outstanding or (ii) a replacement Debt
Service Reserve Letter of Credit issued by a Debt Service Reserve LOC Provider
is provided to the Trustee, be distributed ratably as follows: (a) to the Debt
Service Reserve LOC Loan principal sub-fund for application against the
principal on any Debt Service Reserve LOC Loans due or becoming due on the
next succeeding Principal Payment Date, and (b) to the Debt Service Reserve
Fund until the amount deposited therein equals the Debt Service Reserve Fund
Required Balance.
PRINCIPAL FUND AND INTEREST FUND
Funds in the Interest Fund and the Principal Fund shall be utilized
to make interest and principal payments on the Project Notes and the
Securities.
DEBT SERVICE RESERVE FUND
A Debt Service Reserve Fund for the benefit of the Holders has been
established under the Depositary Agreement and was funded on the Closing Date
with a letter of credit (the "Debt Service Reserve Letter of Credit") in an
amount of approximately $71,250,000 from Credit Suisse. The Debt Service
Reserve Letter of Credit was issued pursuant to a Debt Service Reserve LOC
Reimbursement Agreement which has terms substantially as described below. See
"--Debt Service Reserve LOC Reimbursement Agreement."
The Debt Service Reserve Fund may accumulate cash deposits from:
(i) the Revenue Fund, as provided above under "Revenue Fund;
Priority of Payments"; and
(ii) net interest earned on amounts deposited in the Debt Service
Reserve Fund.
The sum of amounts available to be drawn under the Debt Service Reserve Letter
of Credit and all cash and other Permitted Investments held in the Debt
Service Reserve Fund shall, at all times on or prior to December 31, 1999 be
required to equal the maximum semi-annual scheduled principal and interest
payments on the Securities and, at all times subsequent to December 31, 1999,
be required to equal the maximum annual
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scheduled principal and interest payments on the Securities (the "Debt Service
Reserve Fund Required Balance"). These deposits, in conjunction with the Debt
Service Reserve Letter of Credit, will be available in the event the Revenue
Fund, the Principal Fund and the Interest Fund lack sufficient funds on a
Payment Date to meet principal and interest payments on the Securities and
interest payments on Debt Service Reserve LOC Loans. Once the Debt Service
Reserve Fund Required Balance is reached, interest income in excess of such
amount shall be transferred to the Revenue Fund.
DISTRIBUTION FUND
The Distribution Fund will be funded from monies transferred from the
Revenue Fund, as specified in the Depositary Agreement, after all other then
required amounts have been paid as provided below under "Revenue
Fund; Priority of Payments." Distributions may be made only from and to the
extent of monies on deposit in the Distribution Fund. Such distributions are
subject to the prior satisfaction of the following conditions:
(i) the amounts deposited in the Principal and Interest Funds shall
be equal to or greater than the aggregate principal and interest payments
next due on the Securities and (without duplication) the Project Notes;
(ii) no Default or Event of Default has occurred and is continuing;
(iii) the Debt Service Coverage Ratio for the preceding four fiscal
quarters, measured as one annual period (with respect to any proposed
distribution date prior to the first anniversary of the Closing Date, for
the period commencing with the Closing Date and ending on the first
anniversary of the Closing Date, projected results for any portion of
such period (certified by an officer of the Funding Corporation) shall be
used when actual results are not available), is equal to or greater than
1.4 to 1, if such distribution date occurs prior to the year 2000, and,
if such distribution date occurs in or subsequent to the year 2000, is
equal to or greater than 1.5 to 1, as certified by an authorized officer
of the Funding Corporation;
(iv) the projected Debt Service Coverage Ratio for the succeeding
four fiscal quarters, taken as one annual period, is equal to or greater
than 1.4 to 1, if such distribution date occurs prior to the year 2000,
and, if such distribution date occurs in or subsequent to the year 2000,
is equal to or greater than 1.5 to 1, as certified by an authorized
officer of the Funding Corporation;
(v) the Debt Service Reserve Fund shall have a balance equal to or
greater than the Debt Service Reserve Fund Required Balance or a Debt
Service Reserve Letter or Letters of Credit at least equal to
(collectively with the balance, if any, then in such Debt Service Reserve
Fund) the Debt Service Reserve Fund Required Balance shall be
outstanding;
(vi) an officer of the Funding Corporation provides a certificate
(based on customary assumptions) stating that there are sufficient
geothermal resources to operate the Salton Sea Projects and the
Partnership Projects at contract capacity through the Final Maturity
Date; and
(vii) Substantial Completion of the Salton Sea Expansion has
occurred on or prior to January 1, 1997; provided that, if such condition
is not satisfied, no distributions shall be made unless and until (A)
Substantial Completion of the Salton Sea Expansion occurs prior to
January 1, 1998, as certified by an authorized officer of the Funding
Corporation, or (B)(1) Series B and Series C Securities having an
aggregate principal amount of $150,000,000 are redeemed for a redemption
price equal to the principal amount thereof plus accrued interest thereon
or (2) the Funding Corporation and the Guarantors take such actions as
the Rating Agencies require to confirm the Investment Grade Rating of the
Securities, notwithstanding the failure of Substantial Completion of the
Salton Sea Expansion to occur; provided, further, that this condition to
distribution shall only apply after January 1, 1997, unless the Salton
Sea Guarantors have previously notified the Trustee that the Salton Sea
Expansion has been abandoned.
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DISTRIBUTION SUSPENSE FUND
Funds in the Distribution Fund which may not be distributed because
of a failure to satisfy certain conditions to distributions will be
transferred to the Distribution Suspense Fund. Funds in the Distribution
Suspense Fund may be transferred back to the Distribution Fund and distributed
when (i) all conditions are satisfied and (ii) no Default or Event of Default
has occurred and is continuing. At any time that funds in the Revenue Fund are
not sufficient to pay any amounts which are due and payable and required to be
paid with proceeds of the Revenue Fund, then funds in the Distribution
Suspense Fund shall be transferred to the Revenue Fund for distribution as
required.
REDEMPTION FUND
A Redemption Fund will be established under the Depositary Agreement.
The Redemption Fund will be funded from (i) certain proceeds received in
connection with an Event of Loss, an Event of Eminent Domain or a Title Event,
(ii) proceeds realized in connection with a Permitted Power Contract Buy-Out,
(iii) net cash proceeds received from a settlement or buy-out of the BRPU
Award or a lump sum settlement (whether payable in one payment or a series of
lump sum installments) of the SCE Litigation which occurs prior to completion
of the Salton Sea Expansion and (iv) proceeds in excess of $5 million received
as a result of foreclosure by the Collateral Agent of the Collateral securing
the obligations of the Guarantors following a Trigger Event caused by an event
of default under the Salton Sea Guarantee, the Partnership Guarantee or the
Royalty Guarantee.
All proceeds received in connection with an Event of Loss or a Title
Event will be deposited in the Loss Proceeds Fund and proceeds in excess of
$15 million will be transferred to the Redemption Fund if not used to repair
or replace the affected project or remediate the title deficiency, as
permitted under the Indenture, and shall be distributed to the Collateral
Agent for distribution after giving effect to the provisions of the Indenture,
the Intercreditor Agreement and the Depositary Agreement with respect to such
proceeds. See "--Intercreditor Agreement" and "SUMMARY DESCRIPTION OF THE
SERIES D AND SERIES E SECURITIES--Mandatory Redemption."
The net lump sum proceeds received in connection with the May 1996
settlement of the SCE Litigation, of approximately $10 million have been
deposited in the Redemption Fund. Such proceeds will be transferred to the
Revenue Fund for distribution to other funds as described below upon
Substantial Completion of the Salton Sea Expansion; provided that, if
Substantial Completion of the Salton Sea Expansion does not occur by January
1, 1998 and, as a result thereof, Series B and Series C Securities are
required to be redeemed, then such proceeds shall be used to partially fund
such redemption. See "SUMMARY DESCRIPTION OF THE SERIES D AND SERIES E
SECURITIES--Mandatory Redemption."
LOSS PROCEEDS FUND
All Loss Proceeds and Eminent Domain Proceeds received by the Salton
Sea Guarantors or the Partnership Guarantors shall be deposited in the Loss
Proceeds Fund subject to disbursement for repair or replacement of the assets
affected, or otherwise, as follows.
Upon the Depositary's receipt of a complete and properly executed
requisition from an authorized officer of the relevant Salton Sea Guarantor or
Partnership Guarantor and approved by the Independent Engineer, the Depositary
will apply the amounts in the Loss Proceeds Fund to the payment, or
reimbursement to the extent the same have been paid or satisfied by such
Salton Sea Guarantor or Partnership Guarantor, of the costs of repair or
replacement of the relevant Salton Sea Project or Partnership Project or any
part thereof that has been affected due to an Event of Loss or Event of
Eminent Domain; provided, however, that no such approval of the Independent
Engineer shall be required if less than $30 million in the aggregate for all
plants affected by such occurrence is requested pursuant to such requisition
or requisitions in any fiscal year.
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If the Salton Sea Guarantors or the Partnership Guarantors, as
applicable, determine that the affected Salton Sea Project or Partnership
Project is not capable of being rebuilt or replaced to permit operation on a
commercially reasonable basis, or determine not to rebuild, repair or restore
the affected Project (or the Loss Proceeds and Eminent Domain Proceeds,
together with any other amounts available to such Guarantors for such
rebuilding or replacement, are not sufficient to permit such rebuilding or
replacement), and the Loss Proceeds and Eminent Domain Proceeds exceed $15
million, the Depositary shall transfer the Loss Proceeds and Eminent Domain
Proceeds to the Collateral Agent for distribution to the Redemption Fund in
accordance with the Indenture, the Depositary Agreement and the Intercreditor
Agreement. If only a portion of the affected Project is capable of being
rebuilt or replaced, the Depositary shall transfer the Loss Proceeds and
Eminent Domain Proceeds in excess of the cost of repairing or replacing the
affected Project to the Redemption Fund in accordance with the Indenture, the
Depositary Agreement and the Intercreditor Agreement; provided that, such Loss
Proceeds and Eminent Domain Proceeds exceed the cost of such repair and
replacement by $15 million. If the Salton Sea Guarantors or the Partnership
Guarantors, as applicable, do not rebuild or replace the affected Project and
the Loss Proceeds and Eminent Domain Proceeds are equal to or are less than
$15 million or the excess Loss Proceeds and Eminent Domain Proceeds after
rebuilding and replacement of the affected Project are equal to or are less
than $15 million, funds in the Loss Proceeds Fund shall be transferred to the
Revenue Fund for distribution to other Funds, as provided below under "Revenue
Fund; Priority of Payments." See "--Intercreditor Agreement" and "SUMMARY
DESCRIPTION OF THE SERIES D AND SERIES E SECURITIES--Mandatory Redemption."
All Title Event Proceeds received by the Salton Sea Guarantors or the
Partnership Guarantors, as applicable, shall be deposited in the Loss Proceeds
Fund subject to disbursement in connection with remedying such Title Event in
an amount not to exceed $25,000,000 and for payment of expenses incurred in
collecting such proceeds. Any Title Event Proceeds not so expended shall be
transferred to the Redemption Fund, to the extent such proceeds exceed
$5,000,000. If such proceeds are equal to or are less than $5,000,000, then
such proceeds shall be transferred to the Revenue Fund.
INVESTMENT OF MONIES
Amounts deposited in the accounts and funds under the Depositary
Agreement, at the written request and direction of the Funding Corporation or
any Guarantor, shall be invested by the Depositary in Permitted Investments.
Such investments shall generally mature in such amounts and not later than
such times as may be necessary to provide monies when needed to make payments
from such monies as provided in the Depositary Agreement. Net interest or gain
received from such investments shall be applied as provided in the Depositary
Agreement. Absent written instructions from the Funding Corporation, the
Depositary shall invest the amounts held in the accounts and funds under the
Depositary Agreement in Permitted Investments described in clause (i) of such
definition. So long as an outstanding balance shall remain in any of the
accounts and funds under the Depositary Agreement, the Depositary shall
provide the Funding Corporation and the Guarantors with monthly statements
showing the amount of all receipts, the net investment income or gain received
and collected, all disbursements and the amount then available in each such
account and fund.
INDENTURE
GENERAL
The New Securities and Additional Securities, if any, will be, and
the Initial Securities and Old Securities have been, issued under the
Indenture between the Funding Corporation and the Trustee. The Funding
Corporation has issued and will issue the Securities in its individual
capacity as principal and as agent on behalf of the Guarantors. The Securities
will be issued in series pursuant to one or more supplemental indentures which
will set forth the terms of such series including (i) the title of such
series, (ii) any limit on the aggregate principal amount of such series that
may be authenticated and delivered under the Indenture, (iii) the dates on
which the principal of the Securities of such series is payable and the amount
of principal payable on such dates, (iv) the interest rate on such series and
the dates interest will accrue and be payable, (v) the place where
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payments under such series will be payable, (vi) the terms of any redemption
provisions related to such series and (vii) other terms of such series.
ADDITIONAL SECURITIES
The Indenture provides that Additional Securities may be issued
thereunder subject to the satisfaction of certain conditions set forth in the
Indenture. All Additional Securities (as well as the Initial Securities) shall
rank pari passu with the Series D and Series E Securities, shall be secured by
the Funding Corporation Collateral and guaranteed pursuant to the Guarantees
and shall have such terms, be in such form and be issued at such prices as
shall be approved in writing by the Funding Corporation. No Additional
Securities (other than those used to finance certain capital improvements in
certain circumstances when required for the Salton Sea Projects, the
Partnership Projects or Additional Projects to maintain compliance with
applicable law) may be issued at any time if a Default or Event of Default
shall result from such issuance. All net proceeds of Additional Securities
must be loaned to the Guarantors and must be utilized by the Guarantors for
one or more of the purposes for which Permitted Debt may be incurred.
CERTAIN COVENANTS
Actions with Respect to Credit Agreements
The Funding Corporation will enforce all of its rights under the
Credit Agreements and the Project Notes for the benefit of the Trustee and the
Security Holders. The Funding Corporation will not grant any consents or
waivers thereunder, amend or modify any provisions thereof or otherwise modify
the Credit Agreements or the Project Notes, except as provided below. See
"--Amendment of Credit Agreements and Project Notes."
Limitations on Debt/Liens
The Funding Corporation will not create or incur or suffer to exist
any Debt except Permitted Debt. The Funding Corporation will not grant,
create, incur or suffer to exist any Liens upon any of its properties except
for Permitted Liens.
Limitations on Guarantees
The Funding Corporation will not contingently or otherwise be or
become liable in connection with any guarantee, except for endorsements and
similar obligations in the ordinary course of business.
Restricted Payments
The Funding Corporation shall not make any Restricted Payments or
direct any Restricted Payments to be made on behalf of any Guarantor except
for payments permitted under the Depositary Agreement.
Prohibitions on Other Obligations or Assignments
The Funding Corporation may not assign any of its rights or
obligations under any Financing Document, and may not enter into additional
contracts if it would be reasonably expected to cause a Material Adverse
Effect and otherwise only as contemplated under the Indenture.
Prohibitions on Fundamental Changes
The Funding Corporation may not enter into any transaction of merger
or consolidation, change its form of organization or its business, liquidate,
wind-up or dissolve itself or discontinue its business, except as may be
contemplated by the Financing Documents. The Funding Corporation is also
restricted from engaging in
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any business other than in connection with the issuance of the Securities, the
incurrence of Permitted Debt and the performance of its obligations under the
Transaction Documents. The Funding Corporation may not lease (as lessor) or
sell, transfer, assign, hypothecate, pledge or otherwise dispose of any of its
property or assets, except as may be contemplated by the Financing Documents.
ADDITIONAL COVENANTS
In addition to the covenants described above, the Indenture also
contains covenants of the Funding Corporation regarding (i) maintenance of
existence, (ii) payment of taxes, (iii) maintenance of books and records, (iv)
compliance with laws, (v) delivery to the Trustee of compliance certificates
and of notices of Credit Agreement Events of Default and Guarantee Events of
Default, (vi) delivery to the Trustee of unaudited quarterly reports of the
Funding Corporation and the Guarantors for the first three quarters of each
fiscal year containing condensed financial information and audited annual
reports of the Funding Corporation and the Guarantors, and (vii) delivery to
the Trustee of all other information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act in order to permit compliance by a Holder
with Rule 144A in connection with the resale of the Securities.
REDEMPTION OF SECURITIES; NOTICE
Notice to Trustee
The election or requirement of the Funding Corporation to redeem any
Securities will be evidenced by a written request of the Funding Corporation
(a "Funding Order"). If the Funding Corporation determines or is required to
redeem any Securities, the Funding Corporation will, at least 30 days prior to
the date upon which notice of redemption is required to be given to the
Holders (or such shorter period as may be agreed by the Trustee), deliver to
the Trustee a Funding Order specifying the date on which such redemption will
occur (the "Redemption Date"), the series and principal amount of Securities
to be redeemed.
Notice of Redemption
Notice of redemption will be given to the Holders of Securities of
such series to be redeemed at least 30 days but not more than 60 days prior to
the Redemption Date. All notices of redemption will state the Redemption Date,
the premium payable on redemption, if any, the portion of the principal amount
of each Security of such series to be redeemed, that on the Redemption Date
interest thereon will cease to accrue on and after said date, the place of
payment where such Securities are to be surrendered for payment of the amount
in respect of such redemption, and that the availability in the Mandatory
Redemption Fund of an amount of immediately available funds to pay the
Securities to be redeemed in full is a condition precedent to the redemption.
Securities Payable on Redemption Date
The Securities or portions thereof to be redeemed will, on the
Redemption Date, become due and payable, and from and after such date such
Securities or portions thereof will cease to bear interest. Upon surrender of
any such Security for redemption, an amount in respect of such Security or
portion thereof will be paid as provided therein; provided, however, that any
payment of interest on any Security the scheduled payment date of which is on
or prior to the Redemption Date will be payable to the Holder of such
Security, at the close of business on the record date according to the terms
of such Security and the Indenture.
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EVENTS OF DEFAULT
Certain Events
The following events constitute "Events of Default" under the
Indenture:
(a) Failure to pay any principal, interest or other amounts owed on
any Security when the same becomes due and payable, whether by scheduled
maturity or required prepayment or redemption or by acceleration or otherwise,
and such failure continues for 15 days or more following the due date for
payment;
(b) A Credit Agreement Event of Default or a Guarantee Event of
Default has occurred and is continuing (other than a Credit Agreement Event of
Default related to failure to pay Project Notes or a Guarantee Event of
Default related to failure to make payments owed under the Guarantees);
(c) Any representation or warranty made by the Funding Corporation in
the Indenture or in any other Financing Document or any representation,
warranty or statement in any certificate, financial statement or other
document furnished to the Trustee or any other Person by or on behalf of the
Funding Corporation proves to have been untrue or misleading in any material
respect as of the time made, confirmed or furnished and the fact, event or
circumstance that gave rise to such inaccuracy has resulted in, or could
reasonably be expected to result in, a Material Adverse Effect and that fact,
event or circumstance continues uncured for 30 or more days from the date a
Responsible Officer of the Funding Corporation obtains actual knowledge
thereof; provided that, if the Funding Corporation commences and diligently
pursues efforts to cure such fact, event or circumstance within such 30-day
period and delivers written notice to the Trustee thereof, the Funding
Corporation may continue to effect such cure, and such misrepresentation shall
not be deemed an "Event of Default" for an additional 60 days so long as the
Funding Corporation is diligently pursuing such cure;
(d) The Funding Corporation fails to perform or observe any covenant
or agreement contained in the Indenture regarding maintenance of existence or
restrictions on Debt, Liens, Restricted Payments, guarantees, disposition of
assets, amendments to Credit Agreements or Project Notes or taking of actions
thereunder as directed by the Required Holders, fundamental changes or nature
of business and such failure continues uncured for 30 or more days from the
date a Responsible Officer of the Funding Corporation obtains actual knowledge
thereof;
(e) The Funding Corporation fails to perform or observe any of its
covenants contained in the Indenture (other than those contained in (d) above)
and such failure continues uncured for 60 or more days from the date a
Responsible Officer of the Funding Corporation obtains actual knowledge of
such failure; provided that if the Funding Corporation commences and
diligently pursues efforts to cure such default within such 60-day period, the
Funding Corporation may continue to effect such cure of the default and such
default will not be deemed an "Event of Default" for an additional 30 days so
long as the Funding Corporation is diligently pursuing such cure;
(f) Certain events involving the bankruptcy, insolvency, receivership
or reorganization of the Funding Corporation;
(g) The Funding Pledge Agreement ceases to be in full force and
effect or there is a Material Adverse Effect on the Lien purported to be
granted in the Funding Pledge Agreement such that it ceases to be a valid and
perfected Lien in favor of the Collateral Agent for the benefit of the Secured
Parties on the Funding Corporation Collateral described therein with the
priority purported to be created thereby; provided, however, that the Funding
Corporation has 10 days to cure any such cessation, if curable, or to furnish
to the Collateral Agent all documents or instruments required to cure any such
cessation, if curable;
(h) Any event of default under any Permitted Debt of Funding
Corporation which results in Permitted Debt in excess of $10,000,000 becoming
due and payable prior to its stated maturity;
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(i) CalEnergy fails to perform or breaches any of its obligations
under the Cost Overrun Commitment and such failure or breach continues for 15
days or more;
(j) Magma fails to perform or breaches its obligations under the
Support Letter and such failure or breach continues for 15 days or more; or
(k) CalEnergy fails to maintain direct or indirect beneficial
ownership of (i) 100% of CEOC and VPC or (ii) at least 51% of each of the
Salton Sea Guarantors and the Partnership Project Companies.
Control By Holders
The Holders of not less than a majority (the "Required Holders") in
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 in the Indenture. The Required Holders, acting through the
Trustee, have the right to direct the time, place and method for exercising
any right or remedy available to the Funding Corporation under the Credit
Agreements and the Project Notes; provided that upon the occurrence of an
Event of Default related to failure to make payments on the Securities,
Holders of 33 1/3 % in aggregate principal amount of the Outstanding
Securities have the right to cause the acceleration of any Project Note
pursuant to which a payment default related to such Event of Default has
occurred.
Subject to the above paragraph, if an Event of Default has occurred
and is continuing and as a result thereof or in connection therewith or
pursuant to an acceleration of the Securities arising therefrom, payments on
the Securities are not made when due, the Trustee is required to enforce the
Guarantees and the rights of the Security Holders thereunder.
Enforcement of Remedies
(a) If one or more Events of Default have occurred and are
continuing, then:
(i) in the case of an Event of Default described in clause
(f) above, the entire principal amount of the Securities Outstanding,
all interest accrued and unpaid thereon, and all premium and other
amounts payable under the Securities and the Indenture, if any, will
automatically become due and payable without presentment, demand,
protest or notice of any kind; or
(ii) in the case of an Event of Default described in clause
(b) above relating to certain events involving the bankruptcy,
insolvency, receivership or reorganization of any of the Guarantors,
a principal amount of the Securities Outstanding (on a pro rata
basis) which is equal to the principal amount of the Project Notes
automatically accelerated in connection with such Event of Default
under the Credit Agreements, all interest accrued and unpaid thereon,
and all premium and other amounts payable under the Securities and
the Indenture, if any, will automatically become due and payable
without presentment, demand, protest or notice of any kind; or
(iii) in the case of an Event of Default described in:
(A) clause (a) above, upon the direction of the
Holders of no less than 33 1/3 % in aggregate principal
amount of the Outstanding Securities, the Trustee will, by
notice to the Funding Corporation, declare the entire
principal amount of the Securities Outstanding, all interest
accrued and unpaid thereon, and all premium and other
amounts payable under the Securities and the Indenture, if
any, to be due and payable,
(B) clause (b) above (except as described in clause
(ii) immediately above), upon the direction of the Holders
of no less than 50% in aggregate principal amount of the
Outstanding Securities, the Trustee will, by notice to the
Funding Corporation, declare a principal amount
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of the Securities Outstanding which is equal to the
principal amount of the Project Notes related to such
Credit Agreement to be accelerated in connection with such
Credit Agreement Event of Default, all interest accrued
and unpaid thereon, and all premium and other amounts
payable under the Securities and the Indenture, if any, to
be due and payable, or
(C) clauses (c), (d), (e), (g), (h), (i), (j), or
(k) above, upon the direction of the Holders of no less than
50% in aggregate principal amount of the Outstanding
Securities, the Trustee will, by notice to the Funding
Corporation, declare the entire principal amount of the
Securities Outstanding, all interest accrued and unpaid
thereon, and all premium and other amounts payable under the
Securities and the Indenture, if any, to be due and payable.
If an Event of Default occurs and is continuing and is known to the
Trustee, the Trustee will mail to each Holder notice of the Event of Default
within 30 days after the occurrence thereof. Except in the case of an Event of
Default in payment of principal of or interest on any Security, the Trustee
may withhold the notice to the Holders if the Trustee in good faith determines
that withholding the notice is in the interest of the Holders.
If an Event of Default relating to failure to pay amounts owed on the
Securities has occurred and is continuing, the Trustee may declare the
principal amount of the Securities Outstanding, all interest accrued and
unpaid thereon, and all premium and other amounts payable under the Securities
and the Indenture, if any, to be due and payable notwithstanding the absence
of direction from Holders of at least 33 1/3 % in aggregate principal amount
of the Securities Outstanding directing the Trustee to accelerate the maturity
of the Securities unless Holders of more than 66 2/3 % in aggregate principal
amount of the Securities Outstanding direct the Trustee not to accelerate the
maturity of such Securities, if in the good faith exercise of its discretion
the Trustee determines that such action is necessary to protect the interests
of the Holders.
If an Event of Default relating to a Credit Agreement Event of
Default or a Guarantee Event of Default (other than a Credit Agreement Event
of Default related to failure to pay Project Notes or a Guarantee Event of
Default related to failure to make payments under the Guarantees) has occurred
and is continuing, the Trustee may declare the principal amount of the
Securities Outstanding referred to in clause (iii)(B) immediately above, all
interest accrued and unpaid thereon, and all premium and other amounts payable
under the Securities and the Indenture, if any, to be due and payable
notwithstanding the absence of direction from Holders of at least 50% in
aggregate principal amount of the Securities Outstanding directing the Trustee
to accelerate the maturity of such amount of Securities unless Holders of more
than 50% in aggregate principal amount of the Securities Outstanding direct
the Trustee not to accelerate the maturity of such Securities, if in the good
faith exercise of its discretion the Trustee determines that such action is
necessary to protect the interests of the Holders.
In addition, if one or more of the Events of Default referred to in
clause (iii)(C) immediately above has occurred and is continuing, the Trustee
may declare the entire principal amount of the Securities outstanding, all
interest accrued and unpaid thereon, and all premium and other amounts payable
under the Securities and the Indenture, if any, to be due and payable
notwithstanding the absence of direction from the Holders of at least 50% in
aggregate principal amount of the Securities Outstanding directing the Trustee
to accelerate the maturity of the Securities unless Holders of more than 50%
in aggregate principal amount of the Securities Outstanding direct the Trustee
not to accelerate the maturity of the Securities if in the good faith exercise
of its discretion the Trustee determines that such action is necessary to
protect the interests of the Holders.
(b) At any time after the principal of the Securities has become due
and payable upon a declared acceleration, and before any judgment or decree
for the payment of the money so due, or any portion thereof, has been entered,
the Holders of not less than a majority in aggregate principal amount of the
Outstanding Securities, by written notice to the Funding Corporation and the
Trustee, may rescind and annul such declaration and its consequences if:
(i) there has been paid to or deposited with the Trustee a
sum sufficient to pay
(A) all overdue interest on the Securities,
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(B) the principal of and premium, if any, on any
Securities that have become due (including overdue
principal) other than by such declaration of acceleration
and interest thereon at the respective rates provided in the
Securities for overdue principal,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the respective
rates provided in the Securities for overdue interest, and
(D) all sums paid or advanced by the Trustee and
the reasonable compensation, expenses, disbursements, and
advances of the Trustee, its agents and counsel, and
(ii) all Events of Default, other than the nonpayment of the
principal of the Securities that has become due solely by such
acceleration, have been cured or waived in accordance with the
Indenture.
(c) If an Event of Default relating to failure to pay amounts owed on
the Securities has occurred and is continuing and an acceleration has
occurred, the Trustee may (as the Holders of 33 1/3 % in aggregate principal
amount of the Securities Outstanding request) direct the Collateral Agent to
take possession of all Collateral pledged to secure the Project Notes to be
accelerated in connection with such Event of Default and all Collateral
pledged to secure any Guarantee under which a payment default has occurred in
connection with such failure to pay amounts owed on the Securities and,
pursuant to the Intercreditor Agreement, to sell pursuant to the procedures
contained in the Intercreditor Agreement, such Collateral, as and to the
extent permitted under the Intercreditor Agreement.
(d) If an Event of Default relating to a Credit Agreement Event of
Default or a Guarantee Event of Default (other than a Credit Agreement Event
of Default related to failure to pay Project Notes or a Guarantee Event of
Default related to failure to pay amounts owed on the Securities) has occurred
and is continuing and an acceleration has occurred, the Trustee may (as the
Holders of 50% in aggregate principal amount of the Securities Outstanding
request) direct the Collateral Agent to take possession of all Collateral
pledged to secure the Project Note or Project Notes to be accelerated in
connection with such Event of Default and all Collateral pledged to secure any
Guarantee pursuant to which such Guarantee Event of Default has occurred and,
pursuant to the Intercreditor Agreement, to sell pursuant to the procedures
contained in the Intercreditor Agreement, such Collateral, as and to the
extent permitted under the Intercreditor Agreement.
(e) If an Event of Default other than those referred to in clauses
(c) and (d) above has occurred and is continuing and an acceleration has
occurred, the Trustee may (as the Holders of 50% in aggregate principal amount
of the Securities Outstanding request) direct the Collateral Agent to take
possession of all Collateral and Funding Corporation Collateral and, pursuant
to the Intercreditor Agreement, to sell pursuant to the procedures contained
in the Intercreditor Agreement, the Collateral and Funding Corporation
Collateral, as and to the extent permitted under the Intercreditor Agreement.
(f) If one or more Guarantee Events of Default shall have occurred
and be continuing under the Royalty Guarantee or the Partnership Guarantee,
the Trustee may (as the Holders of a majority in aggregate principal amount of
the Securities Outstanding request) direct the Collateral Agent to take
possession of all Collateral pledged to secure the obligations of the
defaulting Guarantor under the Royalty Guarantee or the Partnership Guarantee
in connection with such Guarantee Event of Default and, pursuant to the
Intercreditor Agreement, to sell such Collateral, as and to the extent
permitted under the Intercreditor Agreement. Pursuant to the Intercreditor
Agreement, all monies received by the Trustee resulting from such sale shall
be made available for redemption of Securities.
Application of Monies Collected by Trustee
Any money collected or to be applied by the Trustee after an Event of
Default in respect of the Securities will be applied to amounts owed with
respect to all Securities on a pro rata basis and, in respect of Securities of
a series, will be applied ratably to the Holders of Securities in the
following order from time to time, on the date or dates fixed by the Trustee:
(i) first, to the payment of all amounts due to the Trustee or any
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predecessor Trustee under the Indenture; (ii) second, (A) in case the unpaid
principal amount of the Outstanding Securities of such series has not become
due, to the payment of any overdue interest, in the order of the maturity of
the payments thereof, with interest at the rates specified in the respective
Securities of such series in respect of overdue interest, (B) in case the
unpaid principal amount of a portion of the Outstanding Securities of such
series has become due, first to the payment of accrued interest on all
Outstanding Securities of such series in the order of the maturity of the
payments thereof, with interest at the respective rates specified in the
Securities of such series for overdue principal, premium, if any, and overdue
interest, and next to the payment of the overdue principal on all Securities
of such series then due or (C) in case the unpaid principal amount of all the
Outstanding Securities of such series has become due, first to the payment of
the whole amount then due and unpaid upon the Outstanding Securities of such
series for principal, premium, if any, and interest, together with interest at
the respective rates specified in the Securities of such series for overdue
principal, premium, if any, and overdue interest; and (iii) third, in case the
unpaid principal amount of all the Outstanding Securities of such series has
become due, and all of the outstanding principal, premium, if any, interest
and other amounts owed in connection with Securities of such series have been
fully paid, any surplus then remaining will be paid to the Funding
Corporation, or to whomsoever may be lawfully entitled to receive the same, or
as a court of competent jurisdiction may direct.
AMENDMENTS AND SUPPLEMENTS
The Funding Corporation and the Trustee may amend or supplement the
Indenture without the consent of the Security Holders (i) to add additional
covenants of the Funding Corporation, to surrender rights conferred upon the
Funding Corporation, or to confer additional benefits upon the Security
Holders, (ii) to increase the assets securing the Funding Corporation's
obligations under the Indenture, (iii) to provide for the issuance of
Additional Securities on the conditions described herein, (iv) for any purpose
not inconsistent with the terms of the Indenture or to cure any ambiguity,
defect or inconsistency or (v) to reflect any amendments required by a Rating
Agency in circumstances where confirmation of the Ratings is required or
permitted under the Indenture.
The Indenture may be otherwise amended or supplemented by the Funding
Corporation and the Trustee with the consent of Holders of not less than 51%
in aggregate principal amount of the Securities then Outstanding; provided
that no such amendment or supplement may, without the consent of all Holders
of Outstanding Securities, modify: (i) the principal, premium (if any) or
interest payable upon any Securities, (ii) the dates on which interest or
principal on any Securities is paid, (iii) the dates of maturity of any
Securities, and (iv) the procedures for amendment by a supplemental indenture.
AMENDMENT OF CREDIT AGREEMENTS AND PROJECT NOTES
The Funding Corporation and the Trustee may, without the consent of
or notice to the Security Holders, consent to any amendment or modification of
any Credit Agreements or Project Notes (i) as permitted by the provisions of
such Credit Agreements, Project Notes or the Indenture, (ii) to cure any
ambiguity or formal defect, (iii) to add additional rights in favor of the
Funding Corporation, or (iv) in connection with any other amendment to the
Credit Agreements or Project Notes, including any amendment required by a
Rating Agency in circumstances where confirmation of the Ratings are required
or permitted under the Indenture or the Credit Agreements. Except as described
above, neither the Funding Corporation nor the Trustee shall consent to any
other amendment or modification of a Credit Agreement or Project Note or grant
any waiver or consent thereunder without the consent of the Holders of not
less than 51% in aggregate principal amount of the Securities then
Outstanding. An amendment to a Credit Agreement or Project Note which changes
the amounts of payments due thereunder, the Person to whom such payments are
to be made or the dates on which such payments are to be made shall not be
made without the unanimous consent of the Security Holders.
SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
The Funding Corporation may terminate the Indenture and the
Guarantees by delivering all Outstanding Securities to the Trustee for
cancellation and by paying all other sums payable under the Indenture.
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Legal and covenant defeasance shall be permitted upon terms and
conditions customary for transactions of this nature.
TRUSTEE
There shall at all times be a Trustee under the Indenture, which
shall be a corporation having either (a) a combined capital and surplus of at
least $50 million, or (b) having a combined capital and surplus of at least
$10,000,000 and being a wholly owned subsidiary of a corporation having a
combined capital and surplus of at least $50,000,000, in each case subject to
supervision or examination by a Federal or State or District of Columbia
authority and having a corporate trust office in New York, New York and
California, to the extent there is such an institution eligible and willing to
serve. The Funding Corporation agrees 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, bad faith or
willful misconduct of the Trustee.
The Trustee may resign at any time by giving written notice thereof
to the Funding Corporation. The Trustee may be removed at any time by act of
the Holders of a majority in principal amount of the Outstanding Securities,
delivered to the Trustee and to the Funding Corporation. The Funding
Corporation shall give notice of each resignation and removal of the Trustee
and each appointment of a successor Trustee to all Security Holders.
INFORMATION AVAILABLE TO SECURITY HOLDERS
Pursuant to the Indenture, the Funding Corporation has agreed to
provide to Security Holders and owners of beneficial interests in Securities
in global form, upon written request, such information as is appropriate under
Rule 144A(d)(4) under the Securities Act to enable resales of the Securities
to be made pursuant to Rule 144A, including, but not limited to, the quarterly
and the audited annual financial reports for the Funding Corporation and for
each Guarantor.
AGENT RELATIONSHIP
Each of the Guarantors has designated the Funding Corporation as its
agent under the Indenture for the sole purpose of (i) issuing the Securities
to the extent of each such Guarantor's obligations thereunder and (ii)
otherwise carrying out each Guarantor's obligations and duties and exercising
each Guarantor's rights and privileges under the Indenture. Each Guarantor
will indemnify Funding Corporation against all claims arising in connection
with the Funding Corporation's performance of its obligations.
GUARANTEES
GUARANTEE OF THE SALTON SEA GUARANTORS
Pursuant to the Guarantee issued by the Salton Sea Guarantors in
favor of the Collateral Agent for the benefit of the Secured Parties, the
Salton Sea Guarantors have each, on a joint and several basis, unconditionally
and irrevocably guaranteed the payment of principal of, premium, if any, and
interest on the Securities and the other Senior Debt. Such Guarantee is a
guarantee of payment and the Trustee and the Collateral Agent shall be
entitled to make demands for payment thereunder at any time that amounts due
and payable on the Senior Debt have not been paid.
Under the Salton Sea Guarantee, the Salton Sea Guarantors each have
agreed to be bound by and to perform all of their obligations under covenants
contained in the Salton Sea Credit Agreement in favor of the Trustee and the
Collateral Agent from and after the date that the Salton Sea Project Note is
repaid in full. Failure to perform such covenants will result in a Guarantee
Event of Default, after the expiration of any applicable grace period.
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GUARANTEE OF THE PARTNERSHIP GUARANTORS
Pursuant to the Guarantee issued by the Partnership Guarantors in
favor of the Collateral Agent for the benefit of the Secured Parties, each of
the Partnership Guarantors, on a joint and several basis, unconditionally and
irrevocably have guaranteed the payment of principal of, premium, if any, and
interest on the Securities and the other Senior Debt; provided that each
Partnership Guarantor shall only be required to make payments under such
Guarantee in amounts which do not exceed the Available Cash Flow of such
Guarantor. Such Guarantee is or will be a guarantee of payment and the Trustee
and the Collateral Agent shall be entitled to make demands for payment
thereunder at any time that amounts due and payable on the Senior Debt have
not been paid.
Under the Partnership Guarantee, the Partnership Guarantors each have
agreed or will agree to be bound by and to perform all of their obligations
under covenants contained in the Partnership Credit Agreement in favor of the
Trustee and the Collateral Agent from and after the date that the Partnership
Project Note is repaid in full. Failure to perform such covenants will result
in a Guarantee Event of Default, after the expiration of any applicable grace
period.
GUARANTEE OF THE ROYALTY GUARANTOR
Pursuant to a Guarantee issued by the Royalty Guarantor on the
Initial Closing Date in favor of the Collateral Agent for the benefit of the
Secured Parties, the Royalty Guarantor has unconditionally and irrevocably
guaranteed the payment of principal of, premium, if any, and interest on the
Securities and the other Senior Debt; provided that the Royalty Guarantor
shall only be required to make payments under such Guarantee in amounts which
do not exceed the Available Cash Flow of the Royalty Guarantor. Such Guarantee
is a guarantee of payment and the Trustee and the Collateral Agent shall be
entitled to make demands for payment thereunder at any time that amounts due
and payable on the Senior Debt have not been paid.
Under the Royalty Guarantee, the Royalty Guarantor has agreed to be
bound by and to perform all of its obligations under covenants contained in
the Royalty Credit Agreement in favor of the Trustee and the Collateral Agent
from and after the date that the Royalty Project Note is repaid in full.
Failure to perform such covenants will result in a Guarantee Event of Default,
after the expiration of any applicable grace period.
SALTON SEA CREDIT AGREEMENT
GENERAL
Pursuant to the Credit Agreement, dated as of the Initial Closing
Date, between the Salton Sea Guarantors and the Funding Corporation (the
"Salton Sea Credit Agreement"), the Salton Sea Guarantors have issued the
Salton Sea Project Note payable to the Funding Corporation and have agreed to
make payments on the Salton Sea Project Note in amounts which, when aggregated
together with the other Project Notes, are sufficient to enable the Funding
Corporation to pay scheduled principal of, and interest on, the Securities.
The Salton Sea Guarantors have absolutely and unconditionally agreed
to make payments on the Salton Sea Project Note in scheduled installments and
to pay interest, in arrears, on the unpaid principal amount of each
installment. If the proceeds received from the issuance of Additional
Securities by the Funding Corporation are loaned to the Salton Sea Guarantors,
then an additional Salton Sea Project Note having a principal amount equal to
the amount of such proceeds so loaned to the Salton Sea Guarantors shall be
issued by the Salton Sea Guarantors and such principal shall be payable in
scheduled installments which correspond to the repayment of principal of such
Additional Securities. The Salton Sea Guarantors' obligations to make payments
on the Salton Sea Project Note are joint and several with respect to each
Salton Sea Guarantor.
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OPTIONAL PREPAYMENT
Optional prepayment of the Salton Sea Project Note shall be permitted
so long as the proceeds thereof are utilized by the Funding Corporation to
ratably redeem Series B or C Securities or in connection with the defeasance
of the Securities.
MANDATORY PREPAYMENT
The Salton Sea Guarantors are required to prepay the Salton Sea
Project Note or Notes with proceeds received by the Salton Sea Guarantors in
connection with an Event of Loss, a Title Event, an Event of Eminent Domain, a
Permitted Power Contract Buy-Out or a settlement or buy-out of the BRPU Award,
as and to the extent the Securities are required to be redeemed in connection
with the receipt of such proceeds in an amount as provided in the
Intercreditor Agreement. See "--Depositary Agreement," "--Intercreditor
Agreement" and "SUMMARY DESCRIPTION OF THE SERIES D AND SERIES E
SECURITIES--Mandatory Redemption."
CERTAIN COVENANTS
Set forth below are certain covenants of the Salton Sea Guarantors
contained in the Salton Sea Credit Agreement.
Reporting Requirements. The Salton Sea Guarantors shall provide to
the Funding Corporation (i) unaudited quarterly reports for the first three
quarters of each fiscal year containing condensed financial information and
audited annual reports, (ii) all other information in respect of the Salton
Sea Guarantors or Salton Sea Projects requested by the Funding Corporation to
enable the Funding Corporation to meet its obligations under the Indenture,
(iii) copies of material notices delivered in connection with any Salton Sea
Project Documents, and (iv) written notice of any Credit Agreement Default or
Event of Default under the Salton Sea Credit Agreement or any event or
condition that could reasonably be expected to result in a Material Adverse
Effect.
Sale of Assets. Except as contemplated by the Salton Sea Project
Documents, none of the Salton Sea Guarantors shall sell, lease (as lessor) or
transfer (as transferor) any property or assets material to the operation of
the Salton Sea Projects except in the ordinary course of business to the
extent that such property is no longer useful or necessary in connection with
the operation of the Salton Sea Projects; provided, however, that the Salton
Sea Guarantors shall be allowed to loan useful spare parts to the Partnership
Project Companies for use in the Partnership Projects.
Insurance. The Salton Sea Guarantors have the benefit of the
insurance in effect with respect to the Salton Sea Projects and as is
generally carried by companies engaged in similar businesses and owning
similar properties in the same general areas and financed in a similar manner.
The Salton Sea Guarantors have business interruption insurance, casualty
insurance, including flood and earthquake coverage, and primary and excess
liability insurance, as well as customary worker's compensation and automobile
insurance. The Salton Sea Guarantors shall not reduce or cancel insurance
coverages (or permit any such coverages to be reduced or cancelled) if the
Insurance Consultant determines that such reduction or cancellation would not
be reasonable under the circumstances and the insurance coverages sought to be
reduced or cancelled are available on commercially reasonable terms or that
another level of coverage greater than that proposed by the Salton Sea
Guarantors is available on commercially reasonable terms (in which case such
coverage may be reduced to the higher of such available levels).
QF Status. The Salton Sea Guarantors shall operate and maintain the
Salton Sea Projects as Qualifying Facilities unless the failure to so operate
and maintain such Projects as Qualifying Facilities would not cause or result
in (i) a breach of the power purchase agreements that the Salton Sea
Guarantors are party to or (ii) an adverse effect on the revenues to be
received under such power purchase agreements.
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Governmental Approvals; Title. Each of the Salton Sea Guarantors
shall at all times (i) obtain and maintain in full force and effect all
material Governmental Approvals and other consents and approvals required at
any time in connection with its business and (ii) preserve and maintain good
and valid title to its properties and assets (subject to no Liens other than
Permitted Liens), except in each case where the failure to do so in clause (i)
or (ii) could not reasonably be expected to have a Material Adverse Effect.
Nature of Business. Neither of the Salton Sea Guarantors shall engage
in any business other than their existing businesses and the development,
acquisition, construction, operation and financing of the Salton Sea Projects
as contemplated by the Transaction Documents; provided, however, that the
Salton Sea Guarantors may engage in Permitted Facilities at the SSKGRA (a) (i)
for which Permitted Debt may be incurred and (ii) if the Independent Engineer
certifies that such other projects could not reasonably be expected to have an
adverse impact on the geothermal resources for the Salton Sea Projects or the
Partnership Projects or (b) if the Funding Corporation and the Guarantors take
such action as the Rating Agencies require to confirm the Investment Grade
Rating of the Securities.
Compliance with Laws. Each of the Salton Sea Guarantors shall comply
with all applicable laws, except where non-compliance could not reasonably be
expected to have a Material Adverse Effect.
Prohibition on Fundamental Changes. None of the Salton Sea Guarantors
shall enter into any transaction of merger or consolidation, change its form
of organization or its business, liquidate or dissolve itself (or suffer any
liquidation or dissolution); provided that any Guarantor shall be able to
merge with or into any other Guarantor so long as no Default or Event of
Default exists or will occur as a result thereof and subject to the
satisfaction of other customary conditions. None of the Salton Sea Guarantors
shall purchase or otherwise acquire all or substantially all of the assets of
any other Person; provided however, that the Salton Sea Guarantors may engage
in Permitted Facilities at the SSKGRA (a)(i) for which Permitted Debt may be
incurred and (ii) if the Independent Engineer certifies that such other
projects could not reasonably be expected to have an adverse impact on the
geothermal resource for the Salton Sea Projects or the Partnership Projects or
(b) if the Funding Corporation and the Guarantors take such action as the
Rating Agencies require to confirm the Investment Grade Rating of the
Securities.
Revenue Fund. The Salton Sea Guarantors shall take all actions as may
be necessary to cause all revenues of the Salton Sea Guarantors to be
deposited in the Revenue Fund.
Transactions with Affiliates. None of the Salton Sea Guarantors shall
enter into any transaction or agreement with any Affiliate of the Salton Sea
Guarantors other than (i) as contemplated under the Transaction Documents or
(ii) transactions in the ordinary course of business and on terms no less
favorable to the Salton Sea Guarantors than the Salton Sea Guarantors would
obtain in an arms length transaction with a Person that is not an Affiliate of
the Salton Sea Guarantors.
Restricted Payments. The Salton Sea Guarantors shall not make any
Restricted Payments, except as permitted under the Depositary Agreement.
Exercise of Rights Under Project Documents. None of the Salton Sea
Guarantors shall exercise, or fail to exercise, their rights under the Salton
Sea Project Documents in a manner which could reasonably be expected to result
in a Material Adverse Effect.
Amendments to Contracts. None of the Salton Sea Guarantors shall
terminate, amend, replace or modify (other than immaterial amendments or
modifications as certified by the Salton Sea Guarantors) any of the Salton Sea
Project Documents to which it is a party unless (i) (A) such Salton Sea
Guarantor certifies that such termination, amendment, replacement or
modification could not reasonably be expected to have a Material Adverse
Effect and (B) in the case of any amendment, termination or modification of a
Salton Sea Project Power Purchase Agreement which affects the revenues derived
by any of the Salton Sea Guarantors, the Independent Engineer certifies that
such amendment, termination or modification could not reasonably be
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expected to have a Material Adverse Effect or (ii) the Salton Sea Guarantors
provide a letter from the Rating Agencies confirming that such amendment,
termination or modification will not result in a Rating Downgrade.
Limitations on Debt/Liens. The Salton Sea Guarantors shall not create
or incur or suffer to exist any Debt except Permitted Guarantor Debt. The
Salton Sea Guarantors shall not grant, create, incur or suffer to exist any
Liens upon any of their properties, except for Permitted Liens.
Books and Records. The Salton Sea Guarantors shall maintain their
books and records and give the Funding Corporation, the Trustee, the
Collateral Agent and the Independent Engineer inspection rights.
Additional Project Documents. The Salton Sea Guarantors shall perform
and observe their respective covenants and obligations under all of the Salton
Sea Project Documents in all material respects, except where the failure to do
so could not reasonably be expected to result in a Material Adverse Effect.
The Salton Sea Guarantors shall not be permitted to enter into any Additional
Project Documents if entering into such document would result in a Material
Adverse Effect.
Additional Covenants. In addition to the covenants described above,
the Salton Sea Credit Agreement also contains covenants of the Salton Sea
Guarantors regarding (i) maintenance of existence, (ii) payment of taxes and
claims unless being contested in good faith and (iii) the preservation and
maintenance of Liens on the Collateral and the priority thereof.
EVENTS OF DEFAULT
The following events constitute "Credit Agreement Events of Default"
under the Salton Sea Credit Agreement:
(a) the failure by the Salton Sea Guarantors to pay or cause to be
paid any principal of, premium, if any, or interest, fees or any other
obligations on the Salton Sea Project Note for 15 or more days after the same
becomes due and payable, whether by scheduled maturity or required prepayment
or by acceleration or otherwise, or the failure by the Funding Corporation to
pay or cause to be paid any principal of, premium, if any, or interest on the
Securities for 15 or more days after the same becomes due and payable, whether
by scheduled maturity or required prepayment or by acceleration or otherwise;
(b) any representation or warranty made by the Salton Sea Guarantors
under the Salton Sea Credit Agreement shall prove to have been untrue or
misleading in any material respect as of the time made, confirmed or furnished
and the fact, event or circumstance that gave rise to such inaccuracy could
reasonably be expected to result in a Material Adverse Effect and such fact,
event or circumstance shall continue to be uncured for 30 or more days from
the date a Responsible Officer of the Salton Sea Guarantors has actual
knowledge thereof; provided that if the Salton Sea Guarantors commence efforts
to cure such fact, event or circumstance within such 30-day period, the Salton
Sea Guarantors may continue to effect such cure and such misrepresentation
shall not be deemed a Credit Agreement Event of Default for an additional 60
days so long as the Salton Sea Guarantors are diligently pursuing such cure;
(c) the failure by any of the Salton Sea Guarantors to perform or
observe any covenant under the Salton Sea Credit Agreement relating to
maintenance of existence, Debt, Permitted Liens, Restricted Payments,
guarantees, disposition of assets, maintenance of insurance, amendments to the
Salton Sea Project Documents, fundamental changes, or nature of business and
such failure shall continue uncured for 30 or more days after a Responsible
Officer of the Salton Sea Guarantors has actual knowledge of such failure;
(d) the failure by the Salton Sea Guarantors to perform or observe
any of the other covenants contained in the Salton Sea Credit Agreement or in
the other Financing Documents the Salton Sea Guarantors are party to (other
than such failures described in clause (c) above) and such failure shall
continue uncured for 60 or more days after a Responsible Officer of the Salton
Sea Guarantors has actual knowledge of such failure;
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provided that if the Salton Sea Guarantors commence and diligently pursue
efforts to cure such default within such 60-day period, the Salton Sea
Guarantors may continue to effect such cure of the default and such default
will not be deemed a "Credit Agreement Event of Default" for an additional 30
days so long as the Salton Sea Guarantors are diligently pursuing such cure;
(e) certain events involving the bankruptcy, insolvency, receivership
or reorganization of either of the Salton Sea Guarantors;
(f) the entry of one or more final and non-appealable judgment or
judgments for the payment of money in excess of $10,000,000 (exclusive of
judgment amounts fully covered by insurance or indemnity) against the Salton
Sea Guarantors, which remain unpaid or unstayed for a period of 90 or more
consecutive days;
(g) an event of default under any Permitted Guarantor Debt of the
Salton Sea Guarantors in excess of $10,000,000 becomes due and payable prior
to its stated maturity;
(h) the Salton Sea Guarantors fail to perform any of their respective
payment obligations under the Salton Sea Guarantee for 15 or more days after
the same becomes due and payable;
(i) any Governmental Approval required for the operation of a Project
owned by the Salton Sea Guarantors is revoked, terminated, withdrawn or ceases
to be in full force and effect if such revocation, termination, withdrawal or
cessation could reasonably be expected to have a Material Adverse Effect and
such revocation, termination, withdrawal or cessation is not cured for 60 days
following the occurrence thereof;
(j) any Salton Sea Project Document ceases to be valid and binding
and in full force and effect other than as a result of an amendment,
termination or Permitted Power Contract Buy-Out permitted under the Salton Sea
Credit Agreement, or any third party thereto fails to perform its material
obligations thereunder or makes any material misrepresentation thereunder and
any such event results in a Material Adverse Effect; provided that no such
event shall be a Credit Agreement Event of Default if within 180 days from the
occurrence of any such event, the Salton Sea Guarantors (i) cause the third
party to resume performance or cure such misrepresentation or (ii) enter into
an Additional Project Document in replacement thereof, as permitted under the
Salton Sea Credit Agreement;
(k) the failure of each of the Salton Sea Guarantors or any other
party to perform or observe any of its covenants or obligations contained in
any of the Salton Sea Project Documents to which it is a party if such failure
shall result in the receipt of a notice of termination of such Salton Sea
Project Document or otherwise result in a Material Adverse Effect;
(l) any of the Salton Sea Security Documents ceases to be effective
or any Lien granted therein ceases to be a valid and perfected Lien in favor
of the Collateral Agent on the Collateral described therein with the priority
purported to be created thereby; provided, however, that the Salton Sea
Guarantors shall have 10 days to cure any such cessation or to furnish to the
Trustee, the Collateral Agent or the Depositary all documents or instruments
required to cure any such cessation; or
(m) an Event of Default described under clauses (c), (d), (e), (f),
(g), (h), (i), (j) or (k) of the summary of the Event of Default provisions of
the Indenture occurs. See "--Indenture--Events of Default."
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ENFORCEMENT OF REMEDIES
(a) If one or more Credit Agreement Events of Default under the
Salton Sea Credit Agreement have occurred and are continuing, then:
(i) in the case of a Credit Agreement Event of Default under the
Salton Sea Credit Agreement described in clause (e) above the entire
outstanding principal amount of the Salton Sea Project Note or Notes, all
interest accrued and unpaid thereon, and all premium and other amounts payable
under such Salton Sea Project Note or Notes and the Salton Sea Credit
Agreement, if any, will automatically become due and payable without
presentment, demand, protest or notice of any kind; or
(ii) in the case of a Credit Agreement Event of Default described
in:
(A) clauses (a) and (h) above, upon the direction of the
Holders of no less than 33 1/3 % in aggregate principal amount of the
Outstanding Securities, the Funding Corporation will declare the
outstanding principal amount of the Salton Sea Project Note to be
accelerated and due and payable and all interest accrued and unpaid
thereon, and all premium and other amounts payable under the Salton
Sea Credit Agreement, if any, to be due and payable; or
(B) clauses (b), (c), (d), (f), (g), (i), (j), (k), (l) and
(m) above, upon the direction of the Holders of no less than 50% in
aggregate principal amount of the Outstanding Securities, the Funding
Corporation will declare the outstanding principal amount of the
Salton Sea Project Note or Notes to be accelerated and due and
payable and all interest accrued and unpaid thereon, and all premium
and other amounts payable under the Salton Sea Credit Agreement, if
any, to be due and payable.
PARTNERSHIP CREDIT AGREEMENT
GENERAL
Pursuant to the Credit Agreement between the Partnership Guarantors
and the Funding Corporation, as amended on the Closing Date (the "Partnership
Credit Agreement"), (i) the Initial Partnership Guarantors issued the
Partnership Project Note on the Initial Closing Date, payable to the Funding
Corporation, which such note will be amended and restated and issued by all of
the Partnership Guarantors on the Closing Date, (ii) the Partnership
Guarantors will issue the Additional Partnership Project Note on the Closing
Date, payable to the Funding Corporation, and (iii) the Partnership Guarantors
have agreed to make payments on the Partnership Project Note in
amounts which, when aggregated together with the other Project Notes, are
sufficient to enable the Funding Corporation to pay scheduled principal of and
interest on the Securities.
The Partnership Guarantors have absolutely and unconditionally agreed
to make payments on the Partnership Project Note in scheduled installments and
to pay interest, in arrears, on the unpaid principal amount of each
installment. If the proceeds received from the issuance of Additional
Securities by the Funding Corporation are loaned to the Partnership
Guarantors, then an additional Partnership Project Note having a principal
amount equal to the amount of such proceeds so loaned to the Partnership
Guarantors shall be issued by the Partnership Guarantors and such principal
shall be payable in scheduled installments which correspond to the repayment
of principal of such Additional Securities. The Partnership Guarantors'
obligations to make payments on the Partnership Project Note are joint and
several with respect to each Partnership Guarantor.
OPTIONAL PREPAYMENT
Optional prepayment of the Additional Partnership Project Note shall
be permitted so long as the proceeds thereof are utilized by the Funding
Corporation to ratably redeem the Series E Securities or in connection with
the defeasance of the Securities. Optional prepayment of the Initial
Partnership Project Note
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shall be permitted so long as the proceeds thereof are utilized by the Funding
Corporation to ratably redeem Series B or C Securities or in connection with
the defeasance of the Securities.
MANDATORY PREPAYMENT
The Partnership Guarantors are required to prepay the Partnership
Project Note with proceeds received by the Partnership Guarantors in
connection with an Event of Loss, a Title Event, an Event of Eminent Domain, a
Permitted Power Contract Buy-Out, a settlement or buy-out of the BRPU Award,
or the incurrence of Debt by Partnership Project Companies in order to fund
equity distributions to the Partnership Guarantors, as and to the extent the
Securities are required to be redeemed in connection with the receipt of such
proceeds in an amount as provided in the Intercreditor Agreement. See
"--Depositary Agreement", "--Intercreditor Agreement" and "SUMMARY DESCRIPTION
OF THE SERIES D AND SERIES E SECURITIES--Mandatory Redemption."
CERTAIN COVENANTS
Set forth below are certain covenants of the Partnership Guarantors
contained in the Partnership Credit Agreement.
Reporting Requirements. Each of the Partnership Guarantors shall
provide to the Funding Corporation (i) unaudited quarterly reports for the
first three quarters of each fiscal year containing condensed financial
information and audited annual reports, (ii) all other information in respect
of the Partnership Guarantors requested by the Funding Corporation to enable
the Funding Corporation to meet its obligations under the Indenture, (iii)
copies of material notices delivered in connection with any Partnership
Project Documents and (iv) written notice of any Credit Agreement Default or
Event of Default under the Partnership Credit Agreement or any event or
condition that could reasonably be expected to result in a Material Adverse
Effect.
Sale of Assets. Except as contemplated by the Partnership Project
Documents, none of the Partnership Project Companies shall sell, lease (as
lessor) or transfer (as transferor) any property or assets material to the
operation of the Partnership Projects except in the ordinary course of
business to the extent that such property is no longer useful or necessary in
connection with the operation of the Partnership Projects; provided, however,
that the Partnership Guarantors shall be allowed to loan useful spare parts to
the Salton Sea Guarantors for use in the Salton Sea Projects.
Sale of Partnership Interests. Neither of the Initial Partnership
Guarantors shall sell, transfer or convey any of their partnership interests
in the Partnership Project Companies.
Insurance. The Partnership Project Companies shall maintain or cause
to be maintained insurance as is generally carried by companies engaged in
similar businesses and owning similar properties in the same general areas and
financed in a similar manner. The Partnership Project Companies have business
interruption insurance, casualty insurance, including flood and earthquake
coverage, and primary and excess liability insurance, as well as customary
worker's compensation and automobile insurance. The Partnership Project
Companies shall not reduce or cancel insurance coverages (or permit any such
coverages to be reduced or cancelled) if the Insurance Consultant determines
that such reduction or cancellation would not be reasonable under the
circumstances and the insurance coverages sought to be reduced or cancelled
are available on commercially reasonable terms or that another level of
coverage greater than that proposed by the Partnership Project Companies is
available on commercially reasonable terms (in which case such coverage may be
reduced to the higher of such available levels).
QF Status. The Partnership Project Companies shall operate and
maintain the Partnership Projects as Qualifying Facilities unless the failure
to so operate and maintain such Projects as Qualifying Facilities would not
cause or result in (i) a breach of the power purchase agreements that the
Partnership Project Companies are party to or (ii) an adverse effect on the
revenues to be received under such power purchase agreements.
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Governmental Approvals; Title. Each of the Partnership Guarantors
shall at all times (i) obtain and maintain in full force and effect all
material Governmental Approvals and other consents and approvals required at
any time in connection with its business and (ii) preserve and maintain good
and valid title to its properties and assets (subject to no liens other than
Permitted Liens), except in each case where the failure to do so in clause (i)
or (ii) could not reasonably be expected to have a Material Adverse Effect.
Nature of Business. None of the Partnership Guarantors shall engage
in any business other than their existing businesses and, in the case of the
Additional Partnership Guarantors, the development, acquisition, construction,
operation and financing of the Partnership Projects as contemplated by the
Transaction Documents, provided, however, that (i) CEOC shall be permitted to
enter into agreements to provide operating and maintenance services,
administrative services or technical services for Permitted Facilities owned
in whole or in part by CalEnergy (directly or indirectly) and located in
Imperial County, California and (ii) the Additional Partnership Guarantors may
engage in Permitted Facilities at the SSKGRA (a)(1) for which Permitted Debt
may be incurred and (2) if the Independent Engineer certifies that such other
projects could not reasonably be expected to have an adverse impact on the
geothermal resources for the Salton Sea Projects or the Partnership Projects
or (b) if the Funding Corporation and the Guarantors take such action as the
Rating Agencies require to confirm the Investment Grade Rating of the
Securities.
Compliance with Laws. Each of the Partnership Guarantors shall comply
with all applicable laws, except where non-compliance could not reasonably be
expected to have a Material Adverse Effect.
Prohibition on Fundamental Changes. None of the Partnership
Guarantors shall enter into any transaction of merger or consolidation, change
its form of organization or its business, liquidate or dissolve itself (or
suffer any liquidation or dissolution); provided that any Guarantor shall be
able to merge with or into any other Guarantor so long as no Default or Event
of Default exists or will occur as a result thereof and subject to the
satisfaction of other customary conditions. None of the Partnership Guarantors
shall purchase or otherwise acquire all or substantially all of the assets of
any other Person, except for the purchase or acquisition by any of the
Partnership Guarantors of the partnership interests or assets of the
Partnership Projects not currently owned by such Partnership Guarantors.
Revenue Fund. Each of the Partnership Guarantors shall take all
actions as may be necessary to cause all revenues of the Partnership
Guarantors to be deposited in the Revenue Fund to the extent required by the
Depositary Agreement.
Transactions with Affiliates. None of the Partnership Guarantors
shall enter into any transaction or agreement with any Affiliate of the
Partnership Guarantors other than (i) as contemplated under the Transaction
Documents or (ii) transactions in the ordinary course of business and on terms
no less favorable to the Partnership Guarantors than the Partnership
Guarantors would obtain in an arms length transaction with a Person that is
not an Affiliate of the Partnership Guarantors.
Restricted Payments. Neither of the Partnership Guarantors shall make
any Restricted Payments, except as permitted under the Depositary Agreement.
Exercise of Rights Under Partnership Agreements. None of the
Partnership Guarantors shall exercise, or fail to exercise, their rights under
the Partnership Agreements or any of the Partnership Project Documents in a
manner which could reasonably be expected to result in a Material Adverse
Effect.
Amendments to Contracts. Neither of the Partnership Guarantors shall
terminate, amend, replace or modify (other than immaterial amendments or
modifications as certified by the Partnership Guarantors) any of the
Partnership Agreements or Partnership Project Documents to which it is a party
unless (i)(A) such Partnership Guarantor certifies that such termination,
amendment, replacement or modification could not reasonably be expected to
have a Material Adverse Effect and (B) in the case of any amendment,
termination or modification of a Partnership Project Power Purchase Agreement
which affects the revenues derived by any of the Partnership Guarantors, the
Independent Engineer certifies that such amendment, termination or
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modification could not reasonably be expected to have a Material Adverse
Effect or (ii) the Partnership Guarantors provide a letter from the Rating
Agencies confirming that such amendment, termination or modification will not
result in a Rating Downgrade.
Limitations on Debt/Liens. None of the Partnership Guarantors shall
create or incur or suffer to exist any Debt except Permitted Guarantor Debt or
Debt of the Partnership Project Companies in existence on the Closing Date
that has been effectively defeased in connection with the Offering. None of
the Partnership Guarantors shall grant, create, incur or suffer to exist any
Liens upon any of its properties, except for Permitted Liens.
Books and Records. The Partnership Guarantors shall maintain their
books and records and give the Funding Corporation, the Trustee, the
Collateral Agent and the Independent Engineer inspection rights.
Additional Project Documents. The Partnership Guarantors shall
perform and observe their respective covenants and obligations under all of
the Partnership Project Documents in all material respects, except where the
failure to do so could not reasonably be expected to result in a Material
Adverse Effect. The Partnership Guarantors shall not be permitted to enter
into any Additional Project Documents if entering into such document would
result in a Material Adverse Effect.
Additional Covenants. In addition to the covenants described above,
the Partnership Credit Agreement also contains covenants of the Partnership
Guarantors regarding (i) maintenance of existence, (ii) payment of taxes and
claims unless being contested in good faith and (iii) preservation and
maintenance of Liens on the Collateral and the priority thereof.
EVENTS OF DEFAULT
The following events constitute "Credit Agreement Events of Default"
under the Partnership Credit Agreement:
(a) the failure by the Partnership Guarantors to pay or cause to be
paid any principal of, premium, if any, or interest, fees or any other
obligations on the Partnership Project Note for 15 or more days after the same
becomes due and payable, whether by scheduled maturity or required prepayment
or by acceleration or otherwise;
(b) any representation or warranty made by the Partnership Guarantors
under the Partnership Credit Agreement shall prove to have been untrue or
misleading in any material respect as of the time made, confirmed or furnished
and the fact, event or circumstance that gave rise to such inaccuracy could
reasonably be expected to result in a Material Adverse Effect and such fact,
event or circumstance shall continue to be uncured for 30 or more days from
the date a Responsible Officer of the Partnership Guarantors has actual
knowledge thereof; provided that if the Partnership Guarantors commence
efforts to cure such fact, event or circumstance within such 30-day period,
the Partnership Guarantors may continue to effect such cure and such
misrepresentation shall not be deemed a Credit Agreement Event of Default for
an additional 60 days so long as the Partnership Guarantors are diligently
pursuing such cure;
(c) the failure by any of the Partnership Guarantors to perform or
observe any covenant under the Partnership Credit Agreement relating to
maintenance of existence, Debt, Permitted Liens, Restricted Payments,
guarantees, disposition of assets, maintenance of insurance, amendments to the
Partnership Project Documents, fundamental changes, or nature of business and
such failure shall continue uncured for 30 or more days after a Responsible
Officer of either of the Partnership Guarantors has actual knowledge of such
failure;
(d) the failure by any of the Partnership Guarantors to perform or
observe any of the other covenants under the Partnership Credit Agreement or
in the other Financing Documents the Partnership Guarantors are party to
(other than such failures described in clause (c) above) and such failure
shall continue
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uncured for 60 or more days after a Responsible Officer of the Partnership
Guarantors has actual knowledge of such failure; provided that if the
Partnership Guarantors commence efforts to cure such default within such
60-day period, the Partnership Guarantors may continue to effect such cure of
the default and such default shall not be deemed a Credit Agreement Event of
Default for an additional 30 days so long as the Partnership Guarantors are
diligently pursuing such cure;
(e) certain events involving the bankruptcy, insolvency, receivership
or reorganization of any of the Partnership Guarantors;
(f) the entry of one or more final and non-appealable judgment or
judgments for the payment of money in excess of $10,000,000 (exclusive of
judgment amounts fully covered by insurance or indemnity) against either of
the Partnership Guarantors, which remain unpaid or unstayed for a period of 90
or more consecutive days;
(g) any event of default under any Permitted Guarantor Debt of the
Partnership Guarantors in excess of $10,000,000 becomes due and payable prior
to its stated maturity;
(h) the Partnership Guarantors fail to perform any of their
respective payment obligations under the Partnership Guarantee for 15 or more
days after the same becomes due and payable;
(i) any Governmental Approval required for the operation of a Project
owned by the Partnership Guarantors is revoked, terminated, withdrawn or
ceases to be in full force and effect if such revocation, termination,
withdrawal or cessation could reasonably be expected to have a Material
Adverse Effect and such revocation, termination, withdrawal or cessation is
not cured for 60 days following the occurrence thereof;
(j) any Partnership Project Document ceases to be valid and binding
and in full force and effect other than as a result of an amendment,
termination or Permitted Power Contract Buy-Out permitted under the
Partnership Credit Agreement or any third party thereto fails to perform its
material obligations thereunder or makes any material misrepresentation
thereunder and such event results in a Material Adverse Effect; provided that
no such event shall be a Credit Agreement Event of Default if within 180 days
from the occurrence of any such event, the Partnership Guarantors (i) cause
the third party to resume performance or cure such misrepresentation or (ii)
enter into an Additional Project Document in replacement thereof, as permitted
under the Partnership Credit Agreement;
(k) the failure of the Partnership Guarantors or any other party to
perform or observe any of its covenants or obligations contained in any of the
Partnership Project Documents to which it is a party if such failure shall
result in the termination of such Partnership Project Document or otherwise
result in a Material Adverse Effect; provided, however, that such event shall
not be a Credit Agreement Event of Default if within one hundred eighty (180)
days from the occurrence of any such event, the Partnership Guarantors enter
into an Additional Project Document in replacement thereof as permitted under
the Partnership Credit Agreement;
(l) any of the Partnership Security Documents ceases to be effective
or any Lien granted therein ceases to be a valid and perfected Lien in favor
of the Collateral Agent on the Collateral described therein with the priority
purported to be created thereby; provided, however, that the Partnership
Guarantors shall have 10 days to cure any such cessation or to furnish to the
Trustee, the Collateral Agent or the Depositary all documents or instruments
required to cure any such cessation; or
(m) an Event of Default described under clauses (c), (d), (e), (f),
(g), (h), (i), (j) or (k) of the summary of the Event of Default provisions of
the Indenture occurs. See "--Indenture--Events of Default."
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ENFORCEMENT OF REMEDIES
If one or more Credit Agreement Events of Default under the
Partnership Credit Agreement have occurred and are continuing, then:
(i) in the case of a Credit Agreement Event of Default
under the Partnership Credit Agreement described in clause (e) above,
the entire outstanding principal amount of the Partnership Project
Note issued under the Partnership Credit Agreement, all interest
accrued and unpaid thereon, and all premium and other amounts payable
under the Partnership Project Note and Partnership Credit Agreement,
if any, will automatically become due and payable without
presentment, demand, protest or notice of any kind; or
(ii) in the case of a Credit Agreement Event of Default
described in:
(A) clause (a) and (h) above, upon the direction
of the Holders of no less than 33 1/3 % in aggregate
principal amount of the Outstanding Securities, the Funding
Corporation will declare the outstanding principal amount of
the Partnership Project Note to be accelerated and due and
payable and all interest accrued and unpaid thereon, and all
premium and other amounts payable under the Partnership
Credit Agreement, if any, to be due and payable; or
(B) clauses (b), (c), (d), (f), (g), (i), (j),
(k), (l) and (m) above, upon the direction of the Holders of
no less than 50% in aggregate principal amount of the
Outstanding Securities, the Funding Corporation will declare
the outstanding principal amount of the Partnership Project
Note to be accelerated and due and payable and all interest
accrued and unpaid thereon, and all premium and other
amounts payable under the Partnership Credit Agreement, if
any, to be due and payable.
ROYALTY CREDIT AGREEMENT
GENERAL
Pursuant to the Credit Agreement, dated as of the Initial Closing
Date between the Royalty Guarantor and the Funding Corporation (the "Royalty
Credit Agreement"), the Royalty Guarantor has issued the Royalty Project Note
payable to the Funding Corporation and has agreed to make payments on such
Royalty Project Note in amounts which, when aggregated with the other Project
Notes, are sufficient to enable the Funding Corporation to pay scheduled
principal of and interest on the Securities.
The Royalty Guarantor has absolutely and unconditionally agreed to
make payments on the Royalty Project Note in scheduled installments and to pay
interest in arrears, on the unpaid principal amount of each installment. If
the proceeds received from the issuance of Additional Securities by the
Funding Corporation are loaned to the Royalty Guarantor, then an additional
Royalty Project Note having a principal amount equal to the amount of such
proceeds so loaned to the Royalty Guarantor shall be issued by the Royalty
Guarantor and such principal shall be payable in scheduled installments which
correspond to the repayment of principal of such Additional Securities.
OPTIONAL PREPAYMENT
Optional prepayment of the Royalty Project Note shall be permitted so
long as the proceeds thereof are utilized by the Funding Corporation to
ratably redeem Series B Securities or in connection with defeasance of the
Securities.
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MANDATORY PREPAYMENT
The Royalty Project Note is not subject to mandatory prepayment,
except in connection with an acceleration of the maturity thereof.
CERTAIN COVENANTS
Set forth below are certain covenants of the Royalty Guarantor
contained in the Royalty Credit Agreement.
Reporting Requirements. The Royalty Guarantor shall provide to the
Funding Corporation (i) unaudited quarterly reports for the first three
quarters of each fiscal year containing condensed financial information and
audited annual reports, (ii) all other information in respect of the Royalty
Guarantor requested by the Funding Corporation to enable the Funding
Corporation to meet its obligations under the Indenture and (iii) written
notice of any Credit Agreement Default or Event of Default or any event or
condition that could reasonably be expected to result in a Material Adverse
Effect.
Governmental Approvals; Title. The Royalty Guarantor shall at all
times (i) obtain and maintain in full force and effect all material
Governmental Approvals (including, without limitation, maintaining compliance
with Environmental Requirements) and other consents and approvals required at
any time in connection with its business and (ii) preserve and maintain good
and valid title to its properties and assets (subject to no liens other than
Permitted Liens); except in each case where the failure to do so could not
reasonably be expected to have a Material Adverse Effect.
Nature of Business. The Royalty Guarantor shall not engage in any
business other than its existing business.
Compliance with Laws. The Royalty Guarantor shall comply with all
applicable laws, except where non-compliance could not reasonably be expected
to have a Material Adverse Effect.
Prohibition on Fundamental Changes. The Royalty Guarantor shall not
enter into any transaction of merger or consolidation, change its form of
organization or its business, liquidate, dissolve itself (or suffer any
liquidation or dissolution) or purchase or otherwise acquire all or
substantially all of the assets of any other Person; provided that any
Guarantor shall be able to merge with or into any other Guarantor so long as
no Default or Event of Default exists or will occur as a result thereof and
subject to the satisfaction of other customary conditions.
Revenue Fund. The Royalty Guarantor shall take all actions as may be
necessary to cause all revenues of the Royalty Guarantor to be deposited in
the Revenue Fund.
Transactions with Affiliates. The Royalty Guarantor shall not enter
into any transaction or agreement with any Affiliate of the Royalty Guarantor
other than (i) as contemplated under the Transaction Documents or (ii)
transactions in the ordinary course of business and on terms no less favorable
to the Royalty Guarantor than the Royalty Guarantor would obtain in an arms
length transaction with a Person that is not an Affiliate of the Royalty
Guarantor.
Restricted Payments. The Royalty Guarantor shall not make any
Restricted Payments, except as permitted under the Depositary Agreement.
Amendments to Contracts. The Royalty Guarantor shall not terminate,
amend, replace or modify (other than immaterial amendments or modifications as
certified by the Royalty Guarantor) any of the Royalty Project Documents to
which it is a party unless (i) the Royalty Guarantor certifies that such
termination, amendment, replacement or modification could not reasonably be
expected to have a Material Adverse Effect or (ii) the
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Royalty Guarantor provides a letter from the Rating Agencies confirming that
such amendment, termination or modification will not result in a Rating
Downgrade. Notwithstanding the foregoing, in the case of any amendment,
termination or modification of the Magma Assignment Agreement which affects
the revenues derived by the Royalty Guarantor, no amendment, termination or
modification shall be permitted if such amendment, termination or modification
could reasonably be expected to have a Material Adverse Effect on the Royalty
Guarantor's ability to meet its obligations under the Royalty Project Note or
Notes or the Royalty Guarantee. The Royalty Guarantor shall not sell, transfer
or assign any of its rights under any of the Royalty Project Documents.
Limitations on Debt/Liens. The Royalty Guarantor shall not create or
incur or suffer to exist any Debt other than Permitted Guarantor Debt. The
Royalty Guarantor shall not grant, create, incur or suffer to exist any Liens
upon any of its properties other than Permitted Liens.
Additional Covenants. In addition to the covenants described above,
the Royalty Credit Agreement also contains covenants of the Royalty Guarantor
regarding (i) maintenance of existence, (ii) payment of taxes and claims
unless being contested in good faith and (iii) preservation and maintenance of
Liens on the Collateral and the priority thereof.
EVENTS OF DEFAULT
The following events constitute "Credit Agreement Events of Default"
under the Royalty Credit Agreement:
(a) the failure by the Royalty Guarantor to pay or cause to be paid
any principal of, premium, if any, or interest, fees or any other obligations
on the Royalty Project Note for 15 or more days after the same becomes due and
payable, whether by scheduled maturity or required prepayment or by
acceleration or otherwise;
(b) any representation or warranty made by the Royalty Guarantor
under the Royalty Credit Agreement shall prove to have been untrue or
misleading in any material respect as of the time made, confirmed or furnished
and the fact, event or circumstance that gave rise to such inaccuracy could
reasonably be expected to result in a Material Adverse Effect and such fact,
event or circumstance shall continue to be uncured for 30 or more days from
the date a Responsible Officer of the Royalty Guarantor has actual knowledge
thereof; provided that if the Royalty Guarantor commences efforts to cure such
fact, event or circumstance within such 30-day period, the Royalty Guarantor
may continue to effect such cure and such misrepresentation shall not be
deemed a Credit Agreement Event of Default for an additional 90 days so long
as the Royalty Guarantor is diligently pursuing such cure;
(c) the failure by the Royalty Guarantor to perform or observe any
covenant under the Royalty Credit Agreement relating to maintenance of
existence, Debt, Liens, Restricted Payments, guarantees, disposition of
assets, amendments to the Magma Assignment Agreement, fundamental changes or
nature of business and such failure shall continue uncured for 30 or more days
after a Responsible Officer of the Royalty Guarantor has actual knowledge of
such failure;
(d) the failure by the Royalty Guarantor to perform or observe any of
the other covenants contained in the Royalty Credit Agreement or in the other
Financing Documents the Royalty Guarantor is party to (other than such
failures described in clause (c) above) and such failure shall continue
uncured for 60 or more days after the Royalty Guarantor has actual knowledge
of such failure; provided that if the Royalty Guarantor commences efforts to
cure such default within such 60 day period, the Royalty Guarantor may
continue to effect such cure of the default and such default shall not be
deemed a Credit Agreement Event of Default for an additional 30 days so long
as the Royalty Guarantor is diligently pursuing such cure;
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(e) certain events involving the bankruptcy, insolvency, receivership
or reorganization of the Royalty Guarantor;
(f) the entry of one or more final and non-appealable judgment or
judgments for the payment of money in excess of $10,000,000 (exclusive of
judgment amounts fully covered by insurance or indemnity) against the Royalty
Guarantor, which remain unpaid or unstayed for a period of 90 or more
consecutive days;
(g) the Royalty Guarantor fails to perform any of its payment
obligations under the Royalty Guarantee for 15 or more days after the same
becomes due and payable;
(h) any Royalty Project Document ceases to be valid and binding and
in full force and effect, other than as a result of an amendment or
termination permitted under the Royalty Credit Agreement and such event
results in a Material Adverse Effect; provided that such event shall not be a
Credit Agreement Event of Default if within 180 days from the occurrence of
such event, the Royalty Guarantor enters into an Additional Project Document
in replacement thereof, as permitted under the Royalty Credit Agreement;
(i) any of the Royalty Security Documents ceases to be effective or
any Lien granted therein ceases to be a valid and perfected Lien to the
Collateral Agent on the Collateral described therein with the priority
purported to be created thereby; provided, however, that the Royalty Guarantor
shall have 10 days to cure any such cessation or to furnish to the Trustee,
the Collateral Agent or the Depositary all documents or instruments required
to cure any such cessation; or
(j) an Event of Default described under clauses (c), (d), (e), (f),
(g), (h), (i), (j) or (k) of the summary of the Event of Default provisions of
the Indenture occurs. See "--Indenture--Events of Default."
ENFORCEMENT OF REMEDIES
If one or more Credit Agreement Events of Default under the Royalty
Credit Agreement have occurred and are continuing, then:
(i) in the case of a Credit Agreement Event of Default
described in clause (e) above, the entire outstanding principal
amount of the Royalty Project Note or Notes, all interest accrued and
unpaid thereon, and all premium and other amounts payable under the
Royalty Project Note or Notes and the Royalty Credit Agreement, if
any, will automatically become due and payable without presentment,
demand, protest or notice of any kind; or
(ii) in the case of a Credit Agreement Event of Default
described in:
(A) clauses (a) and (g) above, upon the direction
of the Holders of no less than 33 1/3 % in aggregate
principal amount of the Outstanding Securities, the Funding
Corporation will declare the outstanding principal amount of
the Royalty Project Note or Notes to be accelerated and all
interest accrued and unpaid thereon, and all premium and
other amounts payable under the Royalty Credit Agreement, if
any, to be due and payable; or
(B) clauses (b), (c), (d), (f), (h), (i) and (j)
above upon the direction of the Holders of no less than 50%
in aggregate principal amount of the Outstanding Securities
the Funding Corporation will declare the outstanding
principal amount of the Royalty Project Note or Notes to be
accelerated and all interest accrued and unpaid thereon, and
all premium and other amounts payable under the Royalty
Credit Agreement, if any, to be due and payable.
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DEBT SERVICE RESERVE LOC REIMBURSEMENT AGREEMENT
The Debt Service Reserve LOC Provider, pursuant to a Debt Service
Reserve Letter of Credit and Reimbursement Agreement (the "Debt Service
Reserve LOC Reimbursement Agreement"), will provide a Debt Service Reserve
Letter of Credit, for use by the Funding Corporation in funding the Debt
Service Reserve Fund.
On the Initial Closing Date, the Debt Service Reserve LOC Provider
issued a Debt Service Reserve Letter of Credit for the account of the Funding
Corporation in the amount of $50,000,000 in favor of the Depositary, as
security agent for the Secured Parties. On the Closing Date, the Debt Service
Reserve Letter of Credit Provider issued a replacement Debt Service Reserve
Letter of Credit for the account of the Funding Corporation in the amount of
approximately $71,250,000 in favor of the Depositary, as security agent for
the Secured Parties.
The Depositary may make drawings under any Debt Service Reserve
Letter of Credit upon the occurrence of the following events: (i) there being
insufficient monies in the Interest or Principal Fund on any Payment Date to
pay interest or principal then due on the Securities (after application of
funds from the Debt Service Reserve Fund); (ii) upon failure of the Funding
Corporation 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
Debt Service Reserve Letter of Credit Provider that the long-term debt of such
Debt Service Letter of Credit Provider is less than "A" as determined by S&P
or "A2" as determined by Moody's; (iii) upon receipt of a notice from the Debt
Service Reserve LOC Provider that such Debt Service Reserve Letter of Credit
will be terminated prior to its stated expiration date; (iv) upon failure of
the Funding Corporation to obtain an extension or provide a replacement Debt
Service Reserve Letter of Credit at least 45 days before the expiration of
such Debt Service Reserve Letter of Credit; and (v) upon receipt of a notice
from the Debt Service Reserve LOC Provider that interest is due and payable,
but unpaid, with respect to outstanding Debt Service Reserve LOC Loans
(provided that the drawing pursuant to this clause (v), together with all
other drawings under the Debt Service Reserve Letter of Credit in the same
fiscal year, does not exceed $5,000,000 in the aggregate). The Depositary will
apply the proceeds of each such drawing: (x) in the case of clauses (i), and
(v) of the preceding sentence, to payment of the relevant obligation, and (y)
in the case of clauses (ii), (iii) and (iv) of the preceding sentence, to the
Debt Service Reserve Fund until there shall be deposited therein an aggregate
amount equal to the Debt Service Reserve Fund Required Balance.
The amount available for drawing under the Debt Service Reserve
Letter of Credit will be reduced upon (i) the making of draws thereunder, (ii)
the reduction of the Debt Service Reserve Fund Required Balance and (iii) upon
certain deposits of cash in the Debt Service Reserve Fund.
DEBT SERVICE RESERVE LOC LOANS
Each drawing on the Debt Service Reserve Letter of Credit submitted
by the Trustee shall be converted into a loan (each converted drawing, a "Debt
Service Reserve LOC Loan").
Each Debt Service Reserve LOC Loan will be evidenced by a note (each,
a "Debt Service Reserve LOC Note") and will mature on the later of (i) 10
years from the Initial Closing Date or (ii) 5 years from the drawing giving
rise to such Debt Service Reserve LOC Loan. The Funding Corporation shall
repay the principal amount of each Debt Service Reserve LOC Loan as, when, and
to the extent monies are made available from the Revenue Fund pursuant to the
Depositary Agreement.
CONVERSION TO DEBT SERVICE RESERVE BOND
Notwithstanding the foregoing, if (i) 50% or more of the principal
amount of any Debt Service Reserve LOC Loan remains outstanding on or after 5
years from the drawing giving rise to such loans or (ii) the principal amount
of any Debt Service Reserve LOC Loan under the Debt Service Reserve Letter of
Credit
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remains outstanding on or after 10 years from the Initial Closing Date the
Debt Service Reserve LOC Provider may, upon 30 days' prior written notice to
the Funding Corporation and the Trustee, convert any such Debt Service Reserve
LOC Loan into a substitute loan (such converted loan, a "Debt Service Reserve
Bond"). Each Debt Service Reserve Bond shall amortize on a basis which results
in levelized payment of the principal of and interest on such Debt Service
Reserve Bond to and including the maturity date applicable to such Debt
Service Reserve Bond, which shall be the Final Maturity Date of the Securities
and shall bear interest at a fixed rate equal to the higher of (x) the
interest rate last applicable to the Debt Service Reserve LOC Loan converted
into such Debt Service Reserve Bond and (y) the then current (at the time of
conversion of the Debt Service Reserve LOC Loan into such Debt Service Reserve
Bond) 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 (A)
2.50% and (B) the spread over U.S. Treasury Notes applicable to the Securities
on the Closing Date. The Funding Corporation shall pay interest and principal
on each Debt Service Reserve Bond on each Principal Payment Date on a pro rata
basis with payments of interest and principal on the Securities.
EVENTS OF DEFAULT
The following events constitute "Reimbursement Agreement Events of
Default" under the Debt Service Reserve LOC Reimbursement Agreement:
(i) the Funding Corporation fails to pay any principal, interest or
other amounts due under or in connection with the Debt Service Reserve LOC
Reimbursement Agreement or any Debt Service Reserve LOC 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 thereof to the Funding Corporation;
(ii) any representation or warranty made by or on behalf of the
Funding Corporation in the Debt Service Reserve LOC Reimbursement Agreement
(including by incorporation by reference) shall prove to have been untrue or
misleading in any material respect as of the time made, confirmed or furnished
and the fact, event or circumstance that gave rise to such inaccuracy 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 a Responsible Officer of the Funding Corporation obtains
actual knowledge thereof; provided that, if the Funding Corporation commences
and diligently pursues efforts to cure such fact, event or circumstance or
such Material Adverse Effect within such 30 day period, the Funding
Corporation may continue to effect such cure and such misrepresentation shall
not be deemed a Reimbursement Agreement Event of Default for an additional 60
days so long as the Funding Corporation is diligently pursuing such cure;
(iii) any provision of the Indenture, the Depositary Agreement, the
Deeds of Trust, the Guarantees, or any Security Documents is terminated,
amended or otherwise modified without the prior written approval of the LOC
Banks (as defined herein) holding at least 66 2/3 % of the obligations due
thereunder and/or the commitments thereunder if such termination, amendment or
other modification would affect the priority of payments from the Revenue Fund
under the Depositary Agreement in a manner adverse to the agent under the Debt
Service Reserve LOC Reimbursement Agreement (the "LOC Agent") or any bank
party to the Debt Service Reserve LOC Reimbursement Agreement (each, an "LOC
Bank"), increase the interest rate on the Securities other than in accordance
with the Indenture, amend the Principal Payment Dates of the Securities in a
manner adverse to the LOC Agent or any LOC Bank, or change the voting
requirements under the Intercreditor Agreement in a manner adverse to the LOC
Agent or any LOC Bank; provided that the same shall continue uncured for 60 or
more days after an authorized officer of the Funding Corporation has actual
knowledge of the same; and provided further that, if the Funding Corporation
commences and diligently pursues efforts to cure such default within such
60-day period, the Funding Corporation may continue to effect such cure of the
default, and such default shall not be deemed an "Event of Default" under the
Debt Service Reserve LOC Reimbursement Agreement for an additional 30 days so
long as the Funding Corporation is diligently pursuing such cure; or
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(iv) the Funding Corporation shall fail to perform certain covenants
of the Indenture incorporated by reference in the Debt Service Reserve LOC
Reimbursement Agreement, and such failure continues for 30 days after
knowledge by an Authorized Officer of the Funding Corporation at 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;
(v) the Funding Corporation fails to perform or observe certain of
its covenants contained (including by incorporation by reference) in any other
provision of the Debt Service Reserve LOC Reimbursement Agreement and such
failure continues for 60 or more days after the Funding Corporation has actual
knowledge of such failure; provided that if the Funding Corporation commences
and diligently pursues efforts to cure such default within such 60-day period,
the Funding Corporation may continue to effect such cure of the default and
such default will not be deemed an "Event of Default" for an additional 30
days so long as the Funding Corporation is diligently pursuing such cure;
(vi) an Event of Default as described under clauses (c), (d), (e),
(f), (g), (h), (i), (j), (k) or (l) of the summary of Event of Default
provisions of the Indenture occurs and is continuing until the earlier of the
expiration of 30 days or an acceleration under the Indenture. See
"--Indenture--Events of Default";
(vii) a Credit Agreement Event of Default or a Guarantee Event of
Default shall occur and be continuing after all outstanding amounts due in
respect of the Securities shall have been paid in full and the Indenture is no
longer in effect.
REMEDIES
Upon the occurrence of a Reimbursement Agreement Event of Default,
the Debt Service Reserve LOC Provider may terminate the Debt Service Reserve
Letter of Credit following notice as provided in the Debt Service Reserve
Letter of Credit (in which case the Depositary may draw the full amount
available thereunder), accelerate any outstanding Debt Service Reserve LOC
Loans or Debt Service Reserve Bonds and terminate its commitment.
GUARANTEES
Pursuant to the Guarantees in favor of the Trustee and the Collateral
Agent for the benefit of the Secured Parties, the Guarantors each, on a joint
and several basis, unconditionally and irrevocably guarantee the payment of
all amounts owed by the Funding Corporation under the Debt Service Reserve LOC
Reimbursement Agreement; provided that the Partnership Guarantors and the
Royalty Guarantor shall only be required to make payments under such guarantee
in amounts from their Available Cash Flow. Such guarantees are guarantees of
payment and the Collateral Agent shall be entitled to make demand for payments
thereunder at any time that amounts which are due and payable have not been
paid under the Debt Service Reserve LOC Reimbursement Agreement. See
"--Guarantees."
THE SECURITY
SHARING OF SECURITY
The Trustee, the Collateral Agent, the Depositary, the Debt Service
Reserve LOC Provider, the Guarantors and the Funding Corporation have entered
into the Intercreditor Agreement designating the Collateral Agent as the agent
for each of the Secured Parties and the Funding Corporation and describing,
inter alia, (i) the preservation and administration of the Funding Corporation
Collateral and the Collateral and (ii) the disposition of the Funding
Corporation Collateral and the Collateral among the Secured Parties upon
acceleration and foreclosure. The Collateral shall be shared among the Secured
Parties as provided in the Intercreditor Agreement and the Depositary
Agreement. See "--Depositary Agreement" and "--Intercreditor Agreement." Any
entity that becomes a bank providing for working capital loans pursuant to the
Working
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Capital Facility or enters into an Interest Rate Protection Agreement with the
Funding Corporation must agree to be bound by the terms of the Intercreditor
Agreement.
The Funding Corporation has procured title insurance in the amount of
$332 million and shall at all times maintain title insurance in such amount or
the outstanding principal amount of the Securities, if lower. Title insurance
proceeds shall be shared among the Secured Parties as provided in the
Intercreditor Agreement and the Depositary Agreement.
FUNDING CORPORATION COLLATERAL
Pursuant to the Funding Pledge Agreement, Magma assigned and pledged
to the Collateral Agent, a security interest in all of the capital stock of
the Funding Corporation (the "Funding Corporation Collateral") now owned by
Magma or hereafter acquired and all dividends, cash, instruments and other
property and proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any of the foregoing.
The security interest in the Funding Corporation Collateral is a
first priority security interest. However, absent any Trigger Event, Magma
will be able to vote, in its sole discretion, the capital stock of the Funding
Corporation; provided that no vote may be cast, and no consent, waiver or
ratification given or action taken, which would violate any provision of the
Indenture, the Securities or the Credit Agreements.
Upon satisfaction by the Funding Corporation of the conditions to
discharge the Indenture and all Senior Debt, the Lien of the Collateral Agent
on all the Funding Corporation Collateral will terminate and all the Funding
Corporation Collateral will be released without any further action by the
Collateral Agent or any other Person.
DESCRIPTION OF COLLATERAL
SALTON SEA GUARANTORS
DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING
On the Initial Closing Date, the Salton Sea Guarantors, as
co-grantees or lessees, entered into a Deed of Trust, Assignment of Rents,
Security Agreement and Fixture Filing and related security documents with the
Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation providing for the grant of a lien on and a security interest in
all of the Salton Sea Guarantors' material real and personal property,
including, but not limited to, all real property interests (including fee
interests, leasehold interests and easement interests) of the Salton Sea
Guarantors held in the Salton Sea Project sites and all fixtures, equipment
and improvements thereon, all of the Salton Sea Guarantors' rights under the
Salton Sea Project Documents, all of the Salton Sea Guarantors' equipment,
receivables, insurance proceeds, rights pursuant to any assignable
governmental approval and funds and accounts established pursuant to the
Depositary Agreement (to be held by the Depositary as agent for the Collateral
Agent) including all proceeds thereon and all documents evidencing all funds
and investments held therein.
PARTNERSHIP INTEREST PLEDGE AGREEMENTS
On the Initial Closing Date, each of Magma and SSPC entered into a
Partnership Interest Pledge Agreement with the Collateral Agent for the
benefit of the Secured Parties providing for the grant of a security interest
in 100% of the partnership interests of SSBP, the right to receive
distributions thereon and the right to receive any other proceeds therefrom.
At such time, each of SSPC and SSBP also entered into a Partnership Interest
Pledge Agreement with the Collateral Agent for the benefit of the Secured
Parties, providing for the grant of a security interest in 100% of the
partnership interests of SSPG, the right to receive distributions thereon and
the right to receive any other proceeds therefrom.
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PLEDGE AGREEMENT
Pursuant to a pledge agreement, on the Initial Closing Date, Magma
and the Funding Corporation assigned and pledged to the Collateral Agent for
the benefit of the Secured Parties, a security interest in all of the capital
stock of Fish Lake Power Company now owned or hereafter acquired and all
dividends, cash, instruments and other property and proceeds from time to time
received, receivable or otherwise distributed in respect of or exchange for
any of the foregoing.
PARTNERSHIP GUARANTORS
ADDITIONAL DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE
FILING
On the Closing Date, the Partnership Project Companies, as
co-grantees or lessees, will enter into a Deed of Trust, Assignment of Rents,
Security Agreement and Fixture Filing and related security documents with the
Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation providing for the grant of a lien on and a security interest in
all of the Partnership Project Companies' material real and personal property,
including, but not limited to, all real property interests (including fee
interests, leasehold interests and easement interests) of the Partnership
Project Companies held in the Partnership Project sites and all fixtures,
equipment and improvement thereon, all of the Partnership Project Companies'
rights under the Partnership Project Documents, all of the Partnership Project
Companies' equipment, receivables, insurance proceeds, rights pursuant to any
assignable governmental approval and funds and accounts established pursuant
to the Depositary Agreement (to be held by the Depositary as agent for the
Collateral Agent) including all proceeds thereon and all documents evidencing
all funds and investments held therein.
ADDITIONAL PARTNERSHIP INTEREST PLEDGE AGREEMENTS
On the Closing Date, each of Magma and the Partnership Guarantors
other than the Partnership Project Companies will enter into an Additional
Partnership Interest Pledge Agreement with the Collateral Agent for the
benefit of the Secured Parties providing for the grant of a security interest
in 100% of the partnership interests in Del Ranch, Elmore, Leathers and
Vulcan, the right to receive distributions thereon and the right to receive
any other proceeds therefrom.
PLEDGE AGREEMENTS
Pursuant to a pledge agreement, Magma and the Funding Corporation
have assigned and pledged to the Collateral Agent for the benefit of the
Secured Parties, a security interest in all of the capital stock of the
Initial Partnership Guarantors now owned or hereafter acquired by such pledgor
and all dividends, cash, instruments, and other property and proceeds from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any of the foregoing. In addition, pursuant to a pledge
agreement, CEOC and VPC have assigned and pledged to the Collateral Agent for
the benefit of the Secured Parties, a security interest in all of the
outstanding capital stock of BNG, Conejo, Niguel and San Felipe, now owned or
hereafter acquired by such pledgor and all dividends, cash, instruments and
other property and proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any of the foregoing.
CEOC and VPC entered into a Security Agreement with the Collateral
Agent for the benefit of the Secured Parties and the Funding Corporation
providing for the grant of a security interest in all of CEOC's and VPC's
respective rights to receive payments made with respect to Equity Cash Flows
and Royalties.
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ROYALTY GUARANTOR
SECURITY AGREEMENT
On the Initial Closing Date, the Royalty Guarantor entered into a
Security Agreement with the Collateral Agent for the benefit of the Secured
Parties and the Funding Corporation providing for the grant of a security
interest in all of the Royalty Guarantor's rights to receive Royalties.
PLEDGE AGREEMENT
Pursuant to a pledge agreement, on the Initial Closing Date, Magma
and the Funding Corporation assigned and pledged to the Collateral Agent for
the benefit of the Secured Parties, a security interest in 100% of the capital
stock of the Royalty Guarantor now owned or hereafter acquired and all
dividends, cash, instruments, and other property and proceeds from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any of the foregoing.
Pursuant to each of the Security Documents, the Collateral Agent may,
upon the occurrence of a Trigger Event and satisfaction of certain conditions
contained in the Intercreditor Agreement discussed below, take possession of
all Collateral and Funding Corporation Collateral (other than the Funds being
held by the Depositary) except as remedies may be limited with respect to
certain Collateral and Funding Corporation Collateral in connection with
payment defaults and Credit Agreement Event of Defaults. Such repossessed
collateral may, subject to applicable contract terms or laws (in the case of
governmental approvals and permits), be sold, leased or otherwise disposed of
by the Collateral Agent. The proceeds of such sale, lease or disposition shall
be applied to the payment of costs and expenses of the Collateral Agent
incurred in connection therewith and to the payment of Secured Obligations
pursuant to the Intercreditor Agreement.
INTERCREDITOR AGREEMENT
The Secured Parties, the Guarantors, the Funding Corporation, the
Depositary and the Collateral Agent have entered into the Intercreditor
Agreement designating the Collateral Agent the agent for each of the Secured
Parties and the Funding Corporation. The affirmative vote of Secured Parties
holding at least 33 1/3 % of the Combined Exposure (the "Required Secured
Parties") shall be sufficient to direct certain actions of the Collateral
Agent, including the exercise of remedies following a Trigger Event (as
defined herein); provided that, for purposes of directing such actions, (i)
the Funding Corporation shall convey, transfer and assign its right to vote on
all matters under the Intercreditor Agreement to the Trustee and (ii) the
Trustee shall be entitled to vote on all matters under the Intercreditor
Agreement according to the aggregate principal amount of the Securities
Outstanding subject, however, in all events to the terms and provisions of the
Indenture. Each Person replacing any of the Secured Parties and each Person
(or trustee or agent thereof) providing Senior Debt to the Funding Corporation
will be required to become a party to the Intercreditor Agreement, which shall
be amended to the extent necessary to accommodate the replacement or addition
of such Persons.
APPLICATION OF LOSS PROCEEDS AND OTHER EXTRAORDINARY PROCEEDS
The Intercreditor Agreement provides that the Collateral Agent shall
instruct the Depositary to allocate, to the extent such funds may be
allocated, after giving effect to the limitations and deductions permitted
under the Indenture and the Depositary Agreement with respect to such
proceeds, all Loss Proceeds, Eminent Domain Proceeds, Title Event Proceeds and
proceeds received in connection with a Permitted Power Contract Buy-Out, in
each case received by the Depositary, in the following order of priorities
pursuant to an Allocation Certificate: first, to the Collateral Agent, the
Debt Service Reserve LOC Provider agent, the Trustee and the Depositary,
ratably, in an amount equal to the amounts due in respect of administrative
fees and expenses due and payable as of the date of such distribution; second,
to the banks providing for working capital loans pursuant to the Working
Capital Facility, if any, an amount equal to the unpaid Senior Debt
constituting principal, interest and commitment fees due and owing under the
Working Capital Facility; third, to the Secured Parties,
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ratably, an amount equal to the unpaid amount of all Senior Debt constituting
principal, interest and premium (if any) due and owing to such Secured Parties
and commitment fees and fronting fees, if any, due and owing in respect of the
Debt Service Reserve Letter of Credit; fourth, to the Secured Parties,
ratably, an amount equal to all other unpaid amounts then due and payable in
respect of all Senior Debt due and owing to such Secured Parties; fifth to the
holders of Subordinated Debt, an amount equal to the unpaid amount of all
Subordinated Debt due and owing to such holders, if any; and sixth, to the
Funding Corporation or its 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 then remaining from such proceeds. See "DESCRIPTION OF
THE SERIES D AND SERIES E SECURITIES--Mandatory Redemption."
At the time the Collateral Agent is to make a distribution pursuant
to clause third in the immediately preceding paragraph, 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 Debt
Service Reserve Letter of Credit shall be calculated after giving effect to
the redemption of Securities from such distribution in clause third 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 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 specified in the notice. Upon receipt
of a notice specified in (y) above, the Collateral Agent shall distribute from
the relevant separate account (in accordance with clauses third, fourth, fifth
and sixth above and without regard to this paragraph) to the appropriate
Persons an amount equal to the balance in such account.
TRIGGER EVENTS
Each of the following shall be an event of default (a "Trigger
Event") under the Intercreditor Agreement: (i) an "Event of Default" under the
Indenture and an acceleration of all or a portion of the indebtedness issued
thereunder; (ii) an "Event of Default" under the Debt Service Reserve LOC
Reimbursement Agreement and an acceleration of the indebtedness incurred
thereunder; (iii) an "Event of Default" under a Senior Debt instrument and an
acceleration of all or a portion of the Debt issued thereunder in an aggregate
amount in excess of $10,000,000; and (iv) certain Guarantee Events of Default
under the Salton Sea Guarantee, the Partnership Guarantee or the Royalty
Guarantee; and, in each case, the Collateral Agent shall have, upon direction
from the Required Secured Parties, declared such event to be a Trigger Event.
If a Trigger Event shall have occurred and be continuing, and only in
such event, upon the written request of the Required Secured Parties (subject
to the requirement that the Collateral Agent shall have given written notice
of the occurrence of such Trigger Event to the Funding Corporation and
provided the Funding Corporation a period of 60 days from its receipt of such
notice to cure such Trigger Event), 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; provided, however,
that, if a bankruptcy event in respect of the Funding Corporation 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;
and provided further that, if such Trigger Event relates to a payment default
on the Securities or a Credit Agreement Event of Default which is not a
payment default which has resulted in an acceleration of a portion of the
Securities or a comparable Guarantee Event of Default, the Collateral Agent
shall be authorized only to take such actions and exercise such rights,
remedies and options under the Security Documents which relate to the Project
Note or Notes which have or could have been automatically accelerated or
requested by the Trustee to be accelerated in connection with such default or
such Credit Agreement Event of Default or the Guarantee pursuant to which such
Guarantee Event of Default has occurred.
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EXERCISE OF REMEDIES AND APPLICATION OF PROCEEDS
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 and Funding Corporation Collateral shall be distributed
in the following order of priority (except for amounts held under the
Indenture which shall be distributed to the Trustee): first, to the Trustee,
the Collateral Agent, any Debt Service Reserve LOC Provider and the
Depositary, ratably, all administrative fees, costs and expenses due and owing
to such parties under the Financing Documents and the Intercreditor Agreement;
second, to the Secured Parties, ratably, an amount equal to the unpaid amount
of all Senior Debt constituting principal, interest, premium (if any) and
certain fees due and owing to such Secured Parties (including commitment fees
and fronting fees, if any, owed in respect of the Debt Service Reserve Letter
of Credit and commitment fees due and owing in respect of the Working Capital
Facility) by the Funding Corporation and the Guarantors; third, to the Secured
Parties, ratably, an amount equal to all other unpaid amounts then due and
payable in respect of all Senior Debt owed to such Secured Parties; fourth to
the holders of Subordinated Debt, an amount equal to the unpaid amount of all
Subordinated Debt due and owing to such holders; and fifth, to the Funding
Corporation (or its successors or assigns) or to whomever a court of competent
jurisdiction may direct, any surplus remaining after giving effect to clauses
first, second, third, and fourth above. At the time the distribution is to be
made pursuant to clause second 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 second above).
Upon a subsequent draw on the Debt Service Reserve Letter of Credit, the
Collateral Agent will transfer monies from the separate account to the Debt
Service Reserve LOC Provider up to the amount so drawn 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 such Debt Service
Reserve Letter of Credit shall be released and applied as set forth in clauses
second, third, fourth and fifth above.
The proceeds of any sale, disposition or other realization with
respect to Collateral or Funding Corporation 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 parties for whose benefit the specific Collateral or
Funding Corporation Collateral was held.
REGISTRATION RIGHTS AGREEMENT
In connection with the sale of the Old Securities to the Initial
Purchaser, the Funding Corporation executed and delivered for the benefit of
the holders of the Old Securities the Registration Rights Agreement, which
provides that the Funding Corporation will file and cause to become effective,
at its cost, a registration statement with respect to a registered offer to
exchange the Old Securities for two series of debt securities of the Funding
Corporation (the "New Securities") which are in all material respects
identical to the Old Series D Securities and Old Series E Securities,
respectively. Upon such registration statement being declared effective, the
Funding Corporation agreed to offer the New Securities in return for surrender
of the Old Securities. The Exchange Offer is being made by the Funding
Corporation to satisfy its obligations pursuant to the Registration Rights
Agreement, which also requires the Funding Corporation to (i) use its
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 Commission prior to March 17, 1997, (ii) 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 (iii) 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 under certain limited circumstances), provided
that in the event that all resales of New Securities covered by the
Registration Statement has been made, the Registration Statement need not
remain continuously effective. For each Old Security surrendered to the
Funding Corporation under the Exchange Offer, the Holder will receive New
Securities of the appropriate series aggregating an equal principal
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amount. Interest on each New Security shall accrue from the last Interest
Payment Date on which interest was paid on the Old Security so surrendered or,
if no interest has been paid, since June 20, 1996.
In the event that the Funding Corporation determines in good faith
that applicable interpretations of the Staff of the Commission or other
circumstances specified in the Registration Rights Agreement do not permit the
Funding Corporation to effect the Exchange Offer, the Funding Corporation has
agreed to use its reasonable best efforts (subject to customary
representations and agreements of the Holders) to have a shelf registration
statement covering resale of the Old Securities declared effective and kept
effective until three years after the Closing Date, subject to certain
exceptions. In addition, the Funding Corporation may postpone or suspend the
filing or the effectiveness of any registration statement if such action is
taken by the Funding Corporation in good faith and for valid business reasons,
including the acquisition or divestiture of assets, other pending corporate
developments, public filings with the Commission or other similar events. The
Funding Corporation has agreed to, in the event of such a shelf registration,
provide to each Security Holder copies of the prospectus, notify each such
Holder when a registration statement for the Old Securities had become
effective and take certain other actions as are appropriate to permit such
resales of the Old Securities.
In the event that the Exchange Offer has not commenced or such
registration statement has not been declared effective within 270 days
following the Closing Date, the respective interest rates on the Old
Securities shall increase by one-half of one percent per annum (50 basis
points) effective on the 271st day following the Closing Date until the date
on which the Exchange Offer is commenced or such registration statement shall
have become effective. If a registration statement has not been declared
effective within two years after the Closing Date, such increase in interest
rates will become permanent.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all provisions of the Registration Rights
Agreement, a copy of which has been or will be filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
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 such Old Securities were acquired by such Participating
Broker-Dealers for their own accounts as a result of such activities. The
Funding Corporation has 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 such 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 under certain limited circumstances)
or, if earlier, when all such New Securities have been disposed of by the
Participating Broker-Dealer. See "THE EXCHANGE OFFER--Resales of New
Securities" and "SUMMARY DESCRIPTION OF PRINCIPAL FINANCING
DOCUMENTS--Registration Rights Agreement."
The Funding Corporation will not receive any proceeds from the
issuance of the New Securities offered hereby. 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 such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such 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 or dealer that
participates in a distribution of
137
<PAGE>
such New Securities may be deemed to be an "underwriter" within the meaning of
the Securities Act, and any profit on any such resale of New Securities and
any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is a "underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the New Securities will be
passed upon for the Funding Corporation and the Guarantors by Willkie Farr &
Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York and
by Steven A. McArthur, Senior Vice President and General Counsel of the
Funding Corporation.
EXPERTS
The combined predecessor balance sheet of Partnership Guarantors as
of December 31, 1994, and the related combined predecessor statements of
operations, guarantors' equity, and cash flows for each of the two years in
the period ended December 31, 1994; the combined predecessor balance sheet of
Salton Sea Guarantors as of December 31, 1994 and the related combined
predecessor statements of operations, guarantors' equity and cash flows for
the year ended December 31, 1994 and for the nine month period from April 1,
1993 (date of acquisition) to December 31, 1993; and the predecessor summaries
of revenues and related expenses of Salton Sea Royalty Company for each of the
two years of the period ended December 31, 1994 on the basis of presentation
described in the notes thereto, all of which are included in this Prospectus,
have been included herein in reliance on the reports of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The balance sheets of Salton Sea Funding Corporation as of June 20,
1995 (inception date) and December 31, 1995 and the related statements of
operations, stockholder's equity and cash flows for the period from June 20,
1995 through December 31, 1995 and the balance sheets as of December 31, 1995
of each of the Salton Sea Guarantors, the Partnership Guarantors and the
Salton Sea Royalty Company and the related statements of operations, equity
and cash flows for the year then ended which are included herein have been
audited by Deloitte & Touche LLP independent accountants, as stated in their
reports appearing in this Prospectus given on the authority of that firm as
experts in accounting and auditing.
With respect to the unaudited interim financial information for the
three months ended March 31, 1996 and 1995 for each of the Salton Sea
Guarantors, the Partnership Guarantors, and Salton Sea Royalty Company, and
the three months ended March 31, 1996 for the Salton Sea Funding Corporation
which are included herein, Deloitte & Touche LLP have applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their reports included herein for the three
months ended March 31, 1996, they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their reports on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP are
not subject to the liability provisions of Section 11 of the Securities Act
for their reports on the unaudited interim financial information because those
reports are not "reports" or a "part" of a registration statement prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the
Securities Act.
The balance sheets of BN Geothermal Inc., Conejo Energy Company, San
Felipe Energy Company and Niguel Energy Company as of December 31, 1995 and
December 31, 1994 and the related statements of operations, shareholder's
equity and cash flows for the three years ended December 31, 1995,
incorporated by reference into this Registration Statement on Form S-4, have
been audited by Arthur Andersen LLP, independent public accountants, as stated
in their reports, and have been referred to herein in reliance upon the
authority of said firm as experts in giving said reports.
138
<PAGE>
INDEPENDENT ENGINEER
Stone & Webster Engineering Corporation, 7677 East Berry Avenue,
Englewood, Colorado has prepared the Independent Engineer's Report dated June
17, 1996, included as Appendix B to this Prospectus. The Independent
Engineer's Report should be read in its entirety by all investors for
information with respect to the Projects and the related subjects discussed
therein. The Independent Engineer's Report has been included in this
Prospectus in reliance upon the conclusions therein of Stone & Webster
Engineering Corporation and upon such firm's experience in preparing
independent engineer's reports for independent power projects.
139
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
SALTON SEA FUNDING CORPORATION FINANCIAL STATEMENTS
Independent Accountants' Report--Deloitte & Touche LLP ...................................... F-3
Independent Accountants' Report--Deloitte & Touche LLP ...................................... F-4
Balance Sheets as of June 20, 1995 (inception date), December 31, 1995 and March 31, 1996
(unaudited) ................................................................................ F-5
Statements of operations for the period from June 20, 1995 (inception date) through
December 31, 1995 and for the three month period ended March 31, 1996 (unaudited) ......... F-6
Statement of stockholder's equity for the period from June 20, 1995 (inception date)
through December 31, 1995 and for the three month period ended March 31, 1996 (unaudited) .. F-7
Statements of cash flows for the period from June 20, 1995 (inception date) through
December 31, 1995 and for the three month period ended March 31, 1996 (unaudited) ......... F-8
Notes to financial statements ............................................................... F-9
SALTON SEA GUARANTORS--COMBINED FINANCIAL STATEMENTS
Independent Accountants' Report--Deloitte & Touche LLP ...................................... F-11
Report of Independent Accountants--Coopers & Lybrand L.L.P. ................................. F-12
Independent Accountants' Report--Deloitte & Touche LLP ...................................... F-13
Combined predecessor balance sheets as of December 31, 1994, and successor as of December
31, 1995 and March 31, 1996 (unaudited) .................................................... F-14
Combined predecessor statements of operations for the year ended December 31, 1994 and for
the nine month period from April 1, 1993 (date of acquisition) to December 31, 1993, and
successor for the year ended December 31, 1995 and three months ended March 31, 1996 and
1995 (unaudited) ........................................................................... F-15
Combined predecessor statement of Guarantors' equity for the year ended December 31, 1994
and for the nine month period from April 1, 1993 (date of acquisition) to December 31,
1993, and successor for the year ended December 31, 1995 and for the three months ended
March 31, 1996 (unaudited) ................................................................. F-16
Combined predecessor statements of cash flows for the year ended December 31, 1994 and for
the nine months from April 1, 1993 (date of acquisition) to December 31, 1993 and successor
for the year ended December 31, 1995 and for the three months ended March 31, 1996 and 1995
(unaudited) ................................................................................ F-17
Notes to combined financial statements ...................................................... F-18
PARTNERSHIP GUARANTORS--COMBINED FINANCIAL STATEMENTS
Independent Accountants' Report--Deloitte & Touche LLP ...................................... F-25
Report of Independent Accountants--Coopers & Lybrand L.L.P. ................................. F-26
Independent Accountants' Report--Deloitte & Touche LLP ...................................... F-27
Combined predecessor balance sheets as of December 31, 1994 and successor as of
December 31, 1995 and March 31, 1996 (unaudited) ........................................... F-28
Combined predecessor statements of operations for the years ended December 31, 1994 and
1993 and successor for the year ended December 31, 1995 and for the three months ended
March 31, 1996 and 1995 (unaudited) ........................................................ F-29
Combined predecessor statement of Guarantor's equity for the years ended December 31, 1994
and 1993 and successor for the year ended December 31, 1995 and the three months ended
March 31, 1996 (unaudited) ................................................................. F-30
Combined predecessor statements of cash flows for the years ended December 31, 1994 and
1993 and successor for the year ended December 31, 1995 and for the three months ended
March 31, 1996 and 1995 (unaudited) ........................................................ F-31
Notes to combined financial statements ...................................................... F-32
SALTON SEA ROYALTY COMPANY--SUCCESSOR FINANCIAL STATEMENTS
Independent Accountants' Report--Deloitte & Touche LLP ...................................... F-42
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Independent Accountants' Report--Deloitte & Touche LLP ...................................... F-43
Balance sheets as of December 31, 1995 and March 31, 1996 (unaudited) ....................... F-44
Statements of operations for the year ended December 31, 1995 and for the three months
ended March 31, 1996 and 1995 (unaudited) .................................................. F-45
Statement of equity for the year ended December 31, 1995 and the three months ended March
31, 1996 (unaudited) ....................................................................... F-46
Statements of cash flows for the year ended December 31, 1995 and for the three months
ended March 31, 1996 and 1995 (unaudited) .................................................. F-47
Notes to combined financial statements ...................................................... F-48
SALTON SEA ROYALTY COMPANY--PREDECESSOR FINANCIAL STATEMENTS
Report of Independent Accountants--Coopers & Lybrand L.L.P. ................................. F-52
Predecessor summaries of revenues and related expenses for the years ended December 31,
1994 and 1993 .............................................................................. F-53
Notes to summaries of revenues and related expenses ......................................... F-54
</TABLE>
F-2
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Salton Sea Funding Corporation
Omaha, Nebraska
We have audited the accompanying balance sheets of Salton Sea Funding
Corporation (the "Company") as of December 31, 1995 and June 20, 1995
(inception date) and the related statements of operations, Stockholder's
equity and cash flows for the period from June 20, 1995 through December 31,
1995. 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 financial statements present fairly, in all material
respects, the financial position of Salton Sea Funding Corporation as of
December 31, 1995 and June 20, 1995 and the results of its operations and its
cash flows for the period from June 20, 1995 through December 31, 1995 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 26, 1996
F-3
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Salton Sea Funding Corporation
Omaha, Nebraska
We have reviewed the accompanying balance sheet of the Salton Sea Funding
Corporation ("the Company") as of March 31, 1996, and the related statements
of operations, stockholder's equity and cash flows for the three-month period
ended March 31, 1996. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such financial statements for them to be in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 25, 1996
F-4
<PAGE>
SALTON SEA FUNDING CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995 JUNE 20, 1995
----------- -------------- --------------
(INCEPTION
(UNAUDITED) DATE)
<S> <C> <C> <C>
ASSETS
Cash ............................................. $ 10,130 $ 4,393 $ --
Restricted cash .................................. 44,216 57,256 --
Prepaid expenses and other assets ................ 10,945 3,070 --
Notes receivables from affiliates ................ 452,088 452,088 --
Investment in 1% of net assets of Guarantors .... 5,914 5,714 3,267
----------- -------------- --------------
$523,293 $522,521 $ 3,267
=========== ============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued liabilities ............................. $ 10,831 $ 3,889 $ --
Due to affiliates ............................... 52,800 59,594 --
Senior secured notes and bonds .................. 452,088 452,088 --
----------- -------------- --------------
Total liabilities .............................. 515,719 515,571 --
Stockholder's Equity:
Common stock--authorized 1,000 shares, par value
$.01 per share; issued and outstanding 100
shares ......................................... -- -- --
Additional paid-in capital ...................... 5,554 5,443 3,267
Retained Earnings ............................... 2,020 1,507 --
----------- -------------- --------------
Total Stockholder's equity ..................... 7,574 6,950 3,267
----------- -------------- --------------
$523,293 $522,521 $ 3,267
=========== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SALTON SEA FUNDING CORPORATION
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FROM JUNE 20, 1995
THREE MONTHS (INCEPTION DATE)
ENDED MARCH THROUGH DECEMBER
31, 1996 31, 1995
-------------- ------------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Interest income .................... $8,953 $17,306
Equity in earnings of subsidiaries 88 271
-------------- ------------------
9,041 17,577
Expenses:
General and administrative expenses 181 --
Interest expense ................... 7,990 15,022
-------------- ------------------
Total expenses ..................... 8,171 15,022
-------------- ------------------
Income before income taxes .......... 870 2,555
Income tax expense .................. 357 1,048
-------------- ------------------
Net income ......................... $ 513 $ 1,507
============== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SALTON SEA FUNDING CORPORATION
STATEMENT OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED TOTAL
SHARES AMOUNT CAPITAL EARNINGS EQUITY
-------- -------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Issuance of $.01 par value per share common stock 100 $ -- $ -- $ -- $ --
Investment in 1% of net assets of Guarantors at
inception ........................................ -- -- 3,267 -- 3,267
-------- -------- ------------ ---------- --------
Balance, June 20, 1995 (inception date) .......... 100 -- 3,267 -- 3,267
Adjustments resulting from capital transactions of
Guarantors ....................................... -- -- 2,176 -- 2,176
Net income ........................................ -- -- -- 1,507 1,507
-------- -------- ------------ ---------- --------
Balance, December 31, 1995 ........................ 100 -- 5,443 1,507 6,950
Adjustments resulting from capital transactions of
Guarantors (unaudited) ........................... -- -- 111 -- 111
Net income (unaudited) ............................ -- -- -- 513 513
-------- -------- ------------ ---------- --------
Balance, March 31, 1996 (unaudited) ............... 100 $ -- $5,554 $2,020 $7,574
======== ======== ============ ========== ========
</TABLE>
The accompanying notes are in integral part of these financial statements.
F-7
<PAGE>
SALTON SEA FUNDING CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FROM JUNE 20, 1995
THREE MONTHS (INCEPTION DATE)
ENDED MARCH 31, TO DECEMBER 31,
1996 1995
--------------- ------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................. $ 513 $ 1,507
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in earnings of subsidiaries ......................... (88) (271)
Changes in assets and liabilities:
Prepaid expenses and other assets ......................... (7,875) (3,070)
Accrued liabilities ....................................... 6,942 3,889
--------------- ------------------
Net cash flows from operating activities .................. (508) 2,055
--------------- ------------------
Cash flows from investing activities:
Restricted cash ............................................ 13,040 (57,256)
Secured project notes of Guarantors ........................ -- (475,000)
Principal repayments of secured project notes of Guarantors -- 22,912
--------------- ------------------
Net cash flows from investing activities ................... 13,040 (509,344)
--------------- ------------------
Cash flows from financing activities:
Proceeds from offering of senior project notes and bonds .. -- 475,000
Repayments of senior secured project notes and bonds ...... -- (22,912)
Due to affiliates .......................................... (6,795) 59,594
--------------- ------------------
Net cash flows from financing activities .................. (6,795) 511,682
--------------- ------------------
Net change in cash ........................................ 5,737 4,393
Cash at the beginning of period ............................. 4,393 --
--------------- ------------------
Cash at the end of period ................................... $10,130 $ 4,393
=============== ==================
Non-cash investing and financing activities:
Adjustments resulting from capital transactions of
Guarantors ................................................ $ 111 $ 2,176
=============== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
SALTON SEA FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996)
1. THE PURPOSE AND BUSINESS OF SALTON SEA FUNDING CORPORATION
Salton Sea Funding Corporation (the "Company"), which was formed on June
20, 1995, is a special purpose Delaware Corporation and a wholly-owned,
special purpose finance subsidiary of Magma Power Company, which in turn is
wholly-owned by CalEnergy Company, Inc. The Company was organized for the
sole purpose of acting as issuer of Senior Secured Notes and
Bonds (collectively, the "Securities").
The Securities are payable from the proceeds of payments made of principal
and interest on the Senior Secured Notes and Bonds by the Guarantors, as
defined, to the Company. The Securities are guaranteed on a joint and several
basis by the Salton Sea Guarantors, the Partnership Guarantors and Salton Sea
Royalty Company ("Guarantors"). The guarantees of the Partnership Guarantors
and Salton Sea Royalty Company are limited to available cash flow. The
Company does not conduct any operations apart from issuing the Securities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In the opinion of management of the Company, the accompanying unaudited
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position as of
March 31, 1996 and the results of operations and cash flows for the three
months ended March 31, 1996.
The results of operations for the three months ended March 31, 1996 are
not necessarily indicative of the results to be expected for the full year.
Investment in Guarantors
Since the Company has the ability to assert significant influence over the
operations of the Guarantors, it accounts for its one percent investment in
the Guarantors using the equity method of accounting.
Income Taxes
The Company will be included in the consolidated income tax returns with
its parent and affiliates. Income taxes are provided on a separate return
basis in accordance with the requirements of Statement of Financial
Accounting Standards No. 109, however, tax obligations of the Company will be
remitted to the parent only to the extent of cash flows available after
operating expenses and debt service.
Fair Values of Financial Instruments
Fair values have been estimated based on quoted market prices for debt
issues listed on exchanges. Fair values of financial instruments that are not
actively traded are based on market prices of similar instruments and/or
valuation techniques using market assumptions. Unless otherwise noted, the
estimated fair value amounts do not differ significantly from recorded
values. 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.
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
F-9
<PAGE>
SALTON SEA FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
3. SENIOR SECURED NOTES AND BONDS
On July 21, 1995, the Company issued $475 million of Senior Secured Notes
and Bonds, consisting of $232,750,000, 6.69% Senior Secured Series A Notes,
due May 30, 2000, $133,000,000, 7.37% Senior Secured Series B Bonds, due May
30, 2005 and $109,250,000, 7.84% Senior Secured Series C Bonds, due May 30,
2010.
Principal maturities of the Senior Secured Notes and Bonds are as follow
(dollars in thousands):
1996 .................................. $ 48,106
1997 .................................. 64,378
1998 .................................. 74,938
1999 .................................. 35,108
2000 .................................. 19,572
Thereafter ........................... 209,986
---------
$452,088
=========
The estimated fair value of the Senior Secured Notes and Bonds was
$459,629,000 at December 31, 1995.
4. SUBSEQUENT EVENT (UNAUDITED)
On June 20, 1996, the Company issued $135 million of Senior
Secured Notes and Bonds, consisting of $70,000,000, 7.02% Senior
Secured Series D Notes, due May 30, 2000, and $65,000,000, 8.30%
Senior Secured Series E Bonds, due May 30, 2011, with maturities
of $25,850,000, $32,000,000, $22,728,000, $5,500,000, $1,000,000
and $47,922,000 for 1997, 1998, 1999, 2000, 2001 and thereafter,
respectively.
F-10
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying combined successor balance sheet of the
Salton Sea Guarantors as of December 31, 1995, and the related combined
successor statements of operations, Guarantors' equity and cash flows for the
year ended December 31, 1995. These financial statements are the
responsibility of the Salton Sea Guarantors' management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 audit provides a
reasonable basis for our opinion.
In our opinion, such combined successor financial statements present fairly,
in all material respects, the financial position of the Salton Sea Guarantors
as of December 31, 1995 and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 26, 1996
F-11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying combined predecessor balance sheet of Salton
Sea Guarantors (the "Guarantors") as of December 31, 1994 and the related
combined predecessor statements of operations, Guarantors' equity and cash
flows for the year ended December 31, 1994 and for the nine month period from
April 1, 1993 (date of acquisition) to December 31, 1993. These combined
financial statements are the responsibility of the Guarantors' 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, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Salton
Sea Guarantors as of December 31, 1994 and the combined results of its
operations and its cash flows for the year ended December 31, 1994 and for
the nine month period from April 1, 1993 (date of acquisition) to December
31, 1993, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Diego, California
June 19, 1995
F-12
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have reviewed the accompanying combined successor balance sheet of the
Salton Sea Guarantors as of March 31, 1996, and the related combined
successor statements of operations and cash flows for the three-month periods
ended March 31, 1996 and 1995 and Guarantors' equity for the three-month
period ended March 31, 1996. These financial statements are the
responsibility of the Salton Sea Guarantors' management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such combined successor financial statements for them to be
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 25, 1996
F-13
<PAGE>
SALTON SEA GUARANTORS
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------------------------- --------------
MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash .............................................. $ -- $ 454 || $ 4,215
Restricted cash and short term ||
investments ...................................... -- -- || 3,400
Marketable securities ............................. -- -- || 4,988
Accounts receivable ............................... 16,245 10,436 || 10,605
Prepaid expenses and other assets ................. 17,853 20,129 || 4,978
Due from affiliates ............................... -- -- || 399
Property, plant, contracts and equipment, net .... 445,554 417,287 || 204,329
Goodwill, net ..................................... 51,768 52,094 || --
----------- --------------||--------------
$531,420 $500,400 || $232,914
=========== ==============||==============
||
LIABILITIES AND GUARANTORS' EQUITY ||
Liabilities: ||
Accounts payable ................................. $ 841 $ 939 || $ 273
Accrued liabilities .............................. 12,137 4,043 || 355
Due to affiliates ................................ 22,482 4,319 || --
Loan payable ..................................... -- -- || 114,308
Senior secured project note ...................... 321,500 321,500 || --
----------- --------------||--------------
Total liabilities ................................ 356,960 330,801 || 114,936
Commitments and contingencies (Notes 2, 3, 6 and ||
7) ||
Total Guarantors' equity .......................... 174,460 169,599 || 117,978
----------- --------------||--------------
$531,420 $500,400 || $232,914
=========== ==============||==============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-14
<PAGE>
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------------------------------ ------------------------------
THREE MONTHS ENDED NINE MONTHS
MARCH 31, YEAR ENDED YEAR ENDED ENDED
---------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993
--------- --------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales of Electricity ........... $16,221 $15,611 $71,605 || $74,576 $60,158
Interest and other income ..... 68 -- -- || 422 --
--------- --------- --------------||-------------- --------------
16,289 15,611 71,605 || 74,998 60,158
--------- --------- --------------||-------------- --------------
Costs and expenses: ||
Operating, general and ||
administrative costs .......... 5,789 5,488 26,096 || 24,766 19,335
Depreciation and amortization . 2,682 3,043 10,556 || 10,049 7,425
Interest expense ............... 6,257 5,668 15,605 || 8,240 4,267
Less capitalized interest ..... (3,300) (1,412) -- || -- --
--------- --------- --------------||-------------- --------------
Total expenses ................ 11,428 12,787 52,257 || 43,055 31,027
--------- --------- --------------||-------------- --------------
Income before minority interest 4,861 2,824 19,348 || 31,943 29,131
Minority interest .............. -- 1,393 1,393 || -- --
--------- --------- --------------||-------------- --------------
Net income ...................... $ 4,861 $ 1,431 $17,955 || $31,943 $29,131
========= ========= ==============||============== ==============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-15
<PAGE>
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF GUARANTORS' EQUITY
(DOLLARS IN THOUSANDS)
Predecessor:
Balance, April 1, 1993, date of acquisition ........ $ --
Net contributions ................................... 81,250
Cash distributions .................................. (27,881)
Net income, nine month period ended December 31,
1993 ............................................... 29,131
----------
Balance, December 31, 1993 .......................... 82,500
Net contributions ................................... 12,285
Cash distributions .................................. (8,750)
Net income, year ended December 31, 1994 ............ 31,943
----------
Balance, December 31, 1994 .......................... 117,978
Net income in 1995 prior to acquisition (Note 2) ... 1,393
Successor:
Net contributions ................................... 10,606
Cash distributions .................................. (5,000)
Purchase accounting push-down adjustment, net ...... 26,667
Net income .......................................... 17,955
----------
Balance, December 31, 1995 .......................... 169,599
Net income (unaudited) .............................. 4,861
----------
Balance, March 31, 1996 (unaudited) ................. $174,460
==========
The accompanying notes are an integral part of the combined financial
statements.
F-16
<PAGE>
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------------------------------------- ---------------------------
THREE MONTHS ENDED YEAR ENDED NINE MONTHS
MARCH 31, DECEMBER 31, YEAR ENDED ENDED
----------------------- ------------- DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993
---- ---- ---- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income .......................... $ 4,861 $ 1,431 $ 17,955 || $ 31,943 $ 29,131
---------- ----------- --------------||------------ -------------
Adjustments to reconcile net income ||
to net cash provided by operating ||
activities: ||
Minority interest .................. -- 1,393 1,393 || -- --
Depreciation and amortization ..... 2,682 3,043 10,556 || 10,049 7,425
Changes in assets and liabilities: ||
Accounts receivable ............... (5,809) 106 169 || (993) (9,613)
Prepaid expenses and other assets 2,276 (4,758) (19,236) || (1,706) (2,044)
Due to (from) affiliates .......... 18,163 2,241 4,718 || (399) --
Accounts payable and accrued ||
liabilities ...................... 7,996 2,105 4,354 || 62 566
Other ............................. -- -- -- || 51 --
---------- ----------- --------------||------------ -------------
Net cash flows from operating ||
activities ....................... 30,169 5,561 19,909 || 39,007 25,465
---------- ----------- --------------||------------ -------------
Cash flows from investing activities: ||
Acquisition of assets from Unocal .. -- -- -- || -- (218,834)
Purchase of Guarantors by CalEnergy, ||
net of cash ........................ -- (167,240) (171,964) || -- --
Capital expenditures ................ (30,623) (16,380) (68,677) || (4,493) --
Net decrease (increase) in ||
marketable securities .............. -- 4,988 4,988 || (4,945) --
Restricted cash ..................... -- 2,501 3,400 || (3,400) --
Other ............................... -- -- -- || 203 --
---------- ----------- --------------||------------ -------------
Net cash flows from investing ||
activities ........................ (30,623) (176,131) (232,253) || (12,635) (218,834)
---------- ----------- --------------||------------ -------------
Cash flows from financing activities: ||
Repayments on loans payable ......... -- (12,536) (302,172) || (155,692) --
Loan proceeds ....................... -- 179,640 509,364 || 130,000 140,000
Contributions ....................... -- 11,776 10,606 || 12,285 81,250
Cash distributions .................. -- (5,000) (5,000) || (8,750) (27,881)
---------- ----------- --------------||------------ -------------
Net cash flows from financing ||
activities ........................ -- 173,880 212,798 || (22,157) 193,369
---------- ----------- --------------||------------ -------------
Net change in cash ................. (454) 3,310 454 || 4,215 --
Cash at beginning of period .......... 454 -- -- || -- --
---------- ----------- --------------||------------ -------------
Cash at end of period ................ $ -- $ 3,310 $ 454 || $ 4,215 $ --
========== =========== ==============||============ =============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-17
<PAGE>
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
1. ORGANIZATION AND OPERATIONS
Salton Sea Guarantors (the "Guarantors") (not a legal entity) is comprised
of 100% interests in three geothermal electric power generating plants
("Salton Sea Units I, II and III") and a fourth plant ("Salton Sea Unit IV"
or the "Salton Sea Expansion") which is under construction (collectively, the
"Salton Sea Projects"). All three plants and the expansion facility are
located in the Imperial Valley of California. The Salton Sea Projects will
serve to guarantee loans from Salton Sea Funding Corporation, an indirect
wholly-owned subsidiary of CalEnergy Company, Inc. ("CECI"). (See Note 3).
The combined financial statements consist of the combination of (1) Salton
Sea Brine Processing, L.P., a California limited partnership between Magma
Power Company ("Magma"), as a 99% limited partner and Salton Sea Power
Company ("SSPC"), a wholly-owned subsidiary of Magma, as a 1% general
partner, (2) Salton Sea Power Generation, L.P., a California limited
partnership between Salton Sea Brine Processing, L.P., as a 99% limited
partner, and Salton Sea Power Company, as a 1% general partner and (3) assets
and liabilities attributable to Salton Sea Unit IV which are held 59% by
Salton Sea Power Generation, L.P. and 41% by Fish Lake Power Company
("FLPC"). Effective in June of 1995, 1% interests in SSPC and FLPC were
transferred to Funding Corporation. All of the entities in the combination
are affiliates of Magma.
Salton Sea Unit IV was created upon combining and consolidating the Salton
Sea Unit I power purchase agreement and the Fish Lake modified SO4. Salton
Sea Unit IV is presently expected to be completed by mid-year 1996. Failure
to complete the construction of Salton Sea Unit IV by June 12, 1998 could
result in the Salton Sea Unit IV power purchase agreement being terminated by
Southern California Edison Company ("SCE"). Engineering and construction
services have been contracted to date on a cost reimbursable and time and
materials basis. CECI has provided a cost overrun commitment to fund any
costs of construction in excess of certain budgeted amounts.
During the year ended December 31, 1994 and the nine month period ended
December 31, 1993, the three plants and the expansion facility currently held
by CECI were held, directly or indirectly by Magma. In February 1995, CECI
completed its acquisition of Magma, which is currently a wholly-owned
subsidiary of CECI (see Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements present the combined accounts of the
Salton Sea Projects described above. All significant intercompany
transactions and accounts have been eliminated.
In the opinion of management of the Guarantors, the accompanying unaudited
combined financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the financial position
as of March 31, 1996 and the results of operations and cash flows for the
three months ended March 31, 1996 and 1995. The results of operations for the
three months ended March 31, 1996 are not necessarily indicative of the
results to be expected for the full year.
The December 31, 1995 successor financial statements reflect the
acquisition of Magma (see Note 3), the resulting push down to the Guarantors
of the accounting as a purchase business combination and minority interest
for the non-owned periods consisting of 100% for the period January 1-9, 1995
and 49% for the period January 10, 1995-February 23, 1995.
Due to the restrictions on cash distributions resulting from the Secured
Credit Agreement (see Note 5), all amounts due to and from the partners as of
February 28, 1994 were offset to the respective Guarantors' equity account as
a net contribution from partners in the accompanying combined historical
statements of Guarantors' equity.
F-18
<PAGE>
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
The Guarantors recognize revenues and related accounts receivable with
respect to their three operating facilities from sales of electricity to SCE
on an accrual basis using stated contract prices under its two Interim
Standard Offer No. 4 power purchase agreements ("ISO4s") for Salton Sea Units
II and III and its negotiated contract for Salton Sea Unit I. The ISO4s and
the negotiated contract provide for the payment of both capacity payments and
energy payments for a 30-year term. SCE is the sole customer of the
Guarantors.
The capacity payments for the ISO4s are a fixed amount for the entire
30-year contract and are based on the plant's contract capacity, as specified
in the agreement. The Guarantors earn the maximum contract capacity payment
in each month of the year they are able, after excluding scheduled
maintenance hours, to deliver 80% of its contract capacity. In addition, the
Guarantors are eligible to earn a monthly bonus capacity payment if they
operate at levels in excess of capacity levels specified in their ISO4s.
Under the negotiated contract, the capacity payment adjusts quarterly based
on a basket of indices for the term of the agreement. For the period from
April 1, 1994 through March 31, 2004, SCE is entitled to receive, at no cost,
5% of all energy delivered in excess of 80% of contract capacity on Salton
Sea Unit III.
The Guarantors earn energy payments based on kilowatt hours ("kWhs") of
energy provided to SCE. During the first 10 years, the Guarantors earn
payments for energy as scheduled in their ISO4s. After the 10-year scheduled
payment period has expired (in 1999 for Salton Sea Unit III and 2000 for
Salton Sea Unit II), the energy payment per kWh throughout the remainder of
the contract period will be at SCE's Avoided Cost of Energy. For the year
ended December 31, 1995, SCE's average Avoided Cost of Energy was 2.1 cents
per kWh which is substantially below the contract energy prices earned in
1995. Estimates of SCE's future Avoided Cost of Energy vary substantially
from year to year. The Guarantors cannot predict the likely level of Avoided
Cost of Energy prices under the ISO4s at the expiration of the scheduled
payment periods. The revenues generated by each of the units operating under
ISO4s could decline significantly after the expiration of the relevant
scheduled payment period. Under the negotiated contract, the energy payment
is calculated using a base price, as defined, which is subject to quarterly
adjustments based on a basket of indices for the term of the agreement.
Property, Plant, Contracts and Equipment
Property, plant, contracts and equipment are carried at cost less
accumulated depreciation. The Guarantors follow the full cost method of
accounting for costs incurred in connection with the exploration and
development of geothermal resources. The Guarantors provide depreciation and
amortization of property, plants, contracts and equipment upon the
commencement of revenue production over the estimated useful life of the
assets and periodically assess the carrying value of such assets for possible
impairment in accordance with the provisions of Statement of Financial
Accounting Standards No. 121.
F-19
<PAGE>
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciable lives for the periods through 1994 were as follows:
Plant and plant equipment ............. 20 years
Office furniture and equipment ....... 5-10 years
Other equipment ....................... 7-10 years
Exploration and development costs .... 20 years
Power purchase contracts were amortized on the straight line method over
20 years which is the lesser of the remaining life of the contract or the
remaining useful life of plant and plant equipment.
As a result of the purchase business combination, the assets and
liabilities were adjusted to fair value and are depreciated over the
remaining useful lives. See Note 2, "Purchase Accounting," and Note 4,
"Property, Plant, Contracts and Equipment."
When plant and equipment is sold or abandoned, the cost and related
accumulated depreciation/ amortization are removed from the accounts and the
resulting gain or loss is recognized.
On January 1, 1996, the Guarantor adopted Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The adoption
of SFAS 121 did not have material effect on the Guarantor's financial
statements.
Purchase Accounting
As a result of the purchase business combination (see Note 3) accounted
for on a push down basis by the Guarantors during the year ended December 31,
1995, all identifiable assets and liabilities were stated at fair value.
The fair value of property and equipment, net of salvage value, and
exploration and development costs is depreciated on the straight line method
over the remaining portion (approximately 23 years) of the original 30 year
life.
Power sale agreements have been assigned values separately for each of (1)
the remaining portion of the scheduled price periods of the power sales
agreements and (2) the 20 year avoided cost periods of the power sales
agreements and are being amortized separately over such periods using the
straight line method; and (3) the 163 net MW BRPU Award for which the related
plants will either be constructed or the contract rights will be bought out;
amortization of such values has been deferred until the plants have been
constructed and production commences or the buyout proceeds have been applied
against such values.
The Salton Sea reservoir contains commercial quantities of extractable
minerals. The fair value allocated to mineral extraction was based on the
estimated net cash flows generated from producing such minerals. The fair
value assigned to the mineral reserves will be amortized on the units of
production method upon commencement of commercial production.
Fair value has been assigned to a contract for which the plant is
presently under construction and energy production is not expected to
commence before mid-year 1996. Accordingly, revenues, period operating costs,
depreciation of future costs to be incurred for the completion of such
facility and amortization of this allocation of acquisition costs are not
presently included in the Salton Sea Guarantor statements of operations.
Total acquisition costs in excess of the fair values assigned to the net
assets acquired are amortized over a 40-year period using the straight line
method. Deferred finance costs are amortized using the level yield method
over the term of the related debt.
F-20
<PAGE>
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Guarantors are comprised of a combination of partnership interests and
one company. The income or loss of each partnership for income tax purposes,
along with any associated tax credits, is the responsibility of the
individual partners. The company is currently constructing its project and
has no tax obligations. Accordingly, no recognition has been given to federal
or state income taxes in the accompanying combined financial statements.
Restricted Cash, Short-term Investments and Marketable Securities
At December 31, 1994, the Guarantors adopted the provisions of Statements
of Financial Accounting Standards No. 115 ("SFAS 115") "Accounting for
Certain Investments in Debt and Equity Securities." Adoption of SFAS 115 had
no material effect on the Guarantor's financial position or results of
operation. In accordance with the provisions of SFAS 115, debt securities
that the Guarantors have the positive intent and ability to hold to maturity
are classified as held-to-maturity securities and reported at amortized cost.
As of December 31, 1995, all of the Guarantors' investments were classified
as held-to-maturity.
The restricted cash and investments balance represents primarily a debt
reserve fund which is legally restricted as to its use and which requires the
maintenance of a specified minimum balance. The Guarantors invest in
commercial paper with a rating of A1 or better and generally having
maturities of three months or less.
Statements of Cash Flows
For purposes of the statements of cash flows, the Guarantors consider only
demand deposits at banks to be cash. Cash paid for interest during the years
ended December 31, 1995 and 1994 and the period from April 1, 1993 (date of
acquisition) to December 31, 1993, was $4,716,000, $7,163,000 and $4,265,000
respectively. Cash paid for interest for the three months ended March 31,
1996 and 1995 was $4,716,000 and $5,663,000, respectively.
Fair Values of Financial Instruments
Fair values of financial instruments that are not actively traded are
based on market prices of similar instruments and/or valuation techniques
using market assumptions. Unless otherwise noted, the estimated fair value
amounts do not differ significantly from recorded values. 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 Guarantors could realize in a current
transaction.
The Guarantors assume that the carrying amount of short-term financial
instruments approximates their fair value. For these purposes, short-term is
defined as any item that matures, reprices, or represents a cash transaction
between willing parties within six months or less of the measurement date.
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.
F-21
<PAGE>
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
3. PURCHASE OF MAGMA POWER COMPANY
On January 10, 1995, CECI acquired approximately 51% of the outstanding
shares of common stock of Magma (the "Magma Common Stock") through a cash
tender offer (the "Magma Tender Offer") and completed the Magma acquisition
on February 24, 1995 by acquiring approximately 49% of the outstanding shares
of Magma Common Stock not owned by CECI through a merger.
Magma is engaged in independent power operations similar to those of CECI.
The transaction was accounted for as a purchase business combination.
Unaudited pro forma combined revenue and net income of the Guarantors on a
purchase, push down basis of accounting, for the year ended December 31,
1995, as if the acquisition had occurred at the beginning of the period after
giving effect to certain pro forma adjustments related to the acquisition,
were $71,605,000 and $18,465,000, respectively, compared to $74,998,000 and
$21,281,000, respectively, for the year ended December 31, 1994.
The adjustments which have been made to the net assets of the Guarantors
to reflect the effect of the acquisition of Magma accounted for as a purchase
business combination pushed down to the Guarantors are as follows (dollars in
thousands):
Property, plant, contracts and equipment .... $ 153,660
Goodwill ..................................... 53,271
Deferred financing cost ...................... 6,412
Severance, relocation and litigation reserve (2,312)
Debt ......................................... (184,364)
-----------
Net increase in assets ....................... $ 26,667
===========
4. PROPERTY, PLANT, CONTRACTS AND EQUIPMENT
Property, plant, contracts and equipment consisted of the following
(dollars in thousands):
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------------------------- --------------
MARCH 31, DECEMBER 31, DECEMBER 31,
----------- -------------- --------------
1996 1995 1994
----------- -------------- --------------
<S> <C> <C> <C>
Plant and equipment ............................ $174,030 $173,509 $186,119
Salton Sea Unit 4 .............................. 137,119 108,632 --
Power sale agreements .......................... 64,609 64,609 --
Mineral extraction ............................. 61,680 60,577 --
Exploration and development costs .............. 18,305 17,793 35,649
----------- -------------- --------------
455,743 425,120 221,768
Less accumulated depreciation and amortization (10,189) (7,833) (17,439)
----------- -------------- --------------
$445,554 $417,287 $204,329
=========== ============== ==============
</TABLE>
5. LOANS PAYABLE
On April 1, 1993, the Guarantors entered into a one-year, $140,000,000
note agreement with Magma (the "Magma Loan") to finance the acquisition of
Salton Sea Units I, II and III from Unocal. The interest terms of the note,
LIBOR plus .675%, are identical to the terms of a $140,000,000 secured credit
agreement between Magma and Morgan Guaranty Trust Company of New York dated
March 19, 1993.
In February 1994, the Guarantors replaced the Magma Loan with a
$130,000,000 non-recourse project-level term loan which is collateralized by
substantially all the assets of Salton Sea Units I, II and
F-22
<PAGE>
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
5. LOANS PAYABLE (CONTINUED)
III. A secured agreement (the "Secured Credit Agreement") with a group of
international banks, with Credit Suisse as the agent bank, provides for
direct loans at LIBOR plus 1.25%.
In June 1994, a cash distribution of $8,750,000 was made which represented
a portion of January and February 1994 electricity sales collected from SCE
subsequent to February 28, 1994. The cash collected was for operational
activity occurring prior to the consummation of the Secured Credit Agreement
and the distribution was approved by the creditors.
The Guarantors repaid the loans with proceeds from the offering of
investment grade securities (see Note 6).
6. SENIOR SECURED PROJECT NOTE
The Guarantors assumed their proportionate share of the secured bank
financing incurred in connection with the purchase of Magma (see Note 3). On
July 21, 1995, CECI recapitalized Magma and the related Merger Facilities
from proceeds received through a $200 million high yield offering and a $475
million investment grade offering of the Salton Sea Funding Corporation.
Proceeds from the offering of Salton Sea Funding Corporation investment grade
securities were used to repay certain loans of the Guarantors. The Guarantors
issued a project note in the amount of $325 million payable to Salton Sea
Funding Corporation with interest rates ranging from 6.69% to 7.84%, and
guaranteed the investment grade securities. The guarantee issued is
collateralized by a lien on substantially all the assets of and a pledge of
the equity interests in the Guarantors.
Principal maturities of the Senior Secured Project Notes are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 ................................... $ 21,660
1997 ................................... 33,632
1998 ................................... 39,450
1999 ................................... 16,076
2000 ................................... 9,737
Thereafter ............................ 200,945
---------
$321,500
=========
</TABLE>
The estimated fair value of the Senior Secured Project Notes was
$326,337,000 at December 31, 1995.
7. RELATED PARTY TRANSACTIONS
The Guarantors entered into the following agreements:
o Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development dated April 1, 1993, as amended, whereby the Guarantors
acquired from Magma Land I, a wholly- owned subsidiary of Magma,
rights to extract geothermal brine from the geothermal lease rights
property which is necessary to operate the Salton Sea Power Generation,
L.P. facilities in return for 5% of all electricity revenues received by
the Guarantors. The amount expensed for the periods ended December 31,
1995, 1994 and 1993 was $3,579,000, $3,732,000 and $3,008,000,
respectively. The amount expensed for the three months ended March 31,
1996 and 1995 was $812,000 and $777,000, respectively.
o Administrative Services Agreement dated April 1, 1993, as amended, with
Magma, whereby Magma will provide to the Guarantors administrative and
management services. The amount expensed for the periods ended December
31, 1995 and 1994 was $2,153,000 and $2,239,000,
F-23
<PAGE>
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
respectively, and $1,805,000 for the nine months ended December 31,
1993. The amount expensed for the three months ended March 31, 1996
and 1995 was $488,000 and $466,00, respectively.
o Operating and Maintenance Agreement dated April 1, 1993, as amended,
with California Energy Operating Company ("CEOC") (formerly Magma
Operating Co.), whereby the Guarantors retain CEOC to operate the
Salton Sea facilities for a period of 32 years. Payment is made to
CEOC in the form of reimbursements of expenses incurred. The Guarantors
in 1995, 1994 and 1993 reimbursed CEOC for expenses of $6,939,000,
$5,973,000 and $4,474,000, respectively. The amount reimbursed for the
three months ended March 31, 1996 and 1995 was $1,344,000 and $2,093,000,
respectively.
8. ACQUISITION
In December 1992, Magma signed a definitive agreement with Unocal to
purchase all of Unocal's geothermal interests in the Imperial Valley of
California, including Salton Sea Units, I, II and III and certain geothermal
leases. On March 31, 1993, the Guarantors consummated their acquisition of
the Imperial Valley geothermal interest. Total cost includes (i) payments to
Unocal consisting of the purchase price of $224,000,000, working capital of
$7,300,000 and an interest charge of $3,500,000, and (ii) advisory fees and
transaction costs totaling $3,400,000. The total cost of the acquisition
attributable to the Guarantors is allocated as follows (dollars in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Land .............................. $ 383
Property, plant and equipment .... 142,188
Exploration and development costs 46,514
Power purchase contracts .......... 22,217
Transmission line credits ......... 6,254
Other ............................. 1,278
---------
$218,834
=========
</TABLE>
In addition to the initial acquisition price, the Company will make
payments to Unocal contingent on future development of new power generating
capacity.
F-24
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying combined successor balance sheet of the
Partnership Guarantors as of December 31, 1995, and the related combined
successor statements of operations, Guarantors' equity and cash flows for the
year ended December 31, 1995. These financial statements are the
responsibility of the Guarantors' management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 audit provides a
reasonable basis for our opinion.
In our opinion, such combined successor financial statements present fairly,
in all material respects, the financial position of the Partnership
Guarantors as of December 31, 1995 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 26, 1996
F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying combined predecessor balance sheet of
Partnership Guarantors (the "Guarantors") as of December 31, 1994 and the
related combined predecessor statements of operations, Guarantors' equity and
cash flows for each of the two years in the period ended December 31, 1994.
These combined financial statements are the responsibility of the Guarantors'
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, the combined financial statements referred to above present
fairly, in all material respects, the combined historical financial position
of Partnership Guarantors at December 31, 1994 and the combined historical
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
San Diego, California
June 19, 1995
F-26
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have reviewed the accompanying combined successor balance sheet of the
Partnership Guarantors as of March 31, 1996, and the related combined
successor statements of operations and cash flows for the three-month periods
ended March 31, 1996 and 1995 and Guarantors' equity for the three-month
period ended March 31, 1996. These financial statements are the
responsibility of the Guarantors' management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such combined successor financial statements for them to be
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 25, 1996
F-27
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------------------------- --------------
MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash ............................................... $ 11,042 $ 11,146 || $ 5,661
Restricted cash and short-term investments ........ 10,576 9,859 || 8,653
Marketable securities .............................. -- -- || 7,457
Accounts receivable ................................ 9,615 11,841 || 10,848
Prepaid expenses and other assets .................. 12,077 9,651 || 6,451
Due from affiliates ................................ 55,863 54,949 || 4,108
Property, plant, contracts and equipment, net ..... 299,210 298,956 || 137,265
Management fee ..................................... 64,098 63,520 || --
Goodwill, net ...................................... 141,359 142,250 || --
----------- --------------||--------------
$603,840 $602,172 || $180,443
=========== ==============||==============
LIABILITIES AND GUARANTOR'S EQUITY ||
Liabilities: ||
Accounts payable .................................. $ 3,167 $ 3,566 || $ 2,679
Accrued liabilities ............................... 8,560 19,995 || 5,522
Loans payable ..................................... 38,633 43,766 || 52,340
Deferred income taxes ............................. 97,396 98,407 || 13,507
Senior secured project note ....................... 62,706 62,706 || --
----------- --------------||--------------
Total liabilities ................................. 210,462 228,440 || 74,048
Commitments and contingencies (Notes 2, 3, 6 and 7) ||
Guarantors' Equity: ||
Common stock ...................................... 3 3 || 3
Additional paid-in capital ........................ 375,593 359,092 || 106,392
Retained earnings ................................. 17,782 14,637 || --
----------- --------------||--------------
Total Guarantors' equity .......................... 393,378 373,732 || 106,395
----------- --------------||--------------
$603,840 $602,172 || $180,443
=========== ==============||==============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-28
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------------------------------ --------------------
THREE MONTHS ENDED YEAR ENDED YEAR ENDED DECEMBER
MARCH 31, DECEMBER 31, 31,
-------------------- -------------- --------------------
1996 1995 1995 1994 1993
--------- --------- -------------- --------- ---------
(UNAUDITED)
REVENUES:
<S> <C> <C> <C> <C> <C>
Sales of electricity ..................... $15,159 $16,717 $76,909 || $70,692 $65,579
Interest and other income ................ 2,220 1,316 10,574 || 5,358 4,478
--------- --------- --------------||--------- ---------
17,379 18,033 87,483 || 76,050 70,057
Costs and expenses: ||
Operating general and administrative ||
costs ................................... 7,612 7,602 32,143 || 35,306 35,597
Depreciation and amortization ............ 4,373 2,438 18,958 || 9,037 9,249
Interest expense ......................... 2,007 3,209 16,726 || 3,285 3,712
Less capitalized interest ................ (2,007) -- (7,900) || -- --
--------- --------- --------------||--------- ---------
Total expenses .......................... 11,985 13,249 59,927 || 47,628 48,558
--------- --------- --------------||--------- ---------
Income before income taxes ................ 5,394 4,784 27,556 || 28,422 21,499
Provision for income taxes ............... 2,249 1,885 11,492 || 11,284 8,405
--------- --------- --------------||--------- ---------
Income before minority interest ........... 3,145 2,899 16,064 || 17,138 13,094
Minority interest ......................... -- 1,427 1,427 || -- --
--------- --------- --------------||--------- ---------
Net income ................................ $ 3,145 $ 1,472 $14,637 || $17,138 $13,094
========= ========= ==============||========= =========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-29
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED STATEMENT OF GUARANTORS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID IN RETAINED TOTAL
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
PREDECESSOR:
Balance, January 1, 1993 .......... 3 $ 3 $102,103 $ 3,597 $105,703
Cash distributions to Magma ...... -- -- -- (12,600) (12,600)
Other distributions ............... -- -- (3,862) (4,091) (7,953)
Contribution for income taxes .... -- -- 5,143 -- 5,143
Net income, 1993 .................. -- -- -- 13,094 13,094
------ ------ ------------ ---------- --------
Balance, December 31, 1993 ....... 3 3 103,384 -- 103,387
Cash distributions to Magma ...... -- -- (1,062) (17,138) (18,200)
Other distributions ............... -- -- (3,315) -- (3,315)
Contribution for income taxes .... -- -- 7,385 -- 7,385
Net income, 1994 .................. -- -- -- 17,138 17,138
------ ------ ------------ ---------- --------
Balance, December 31, 1994 ....... 3 3 106,392 -- 106,395
Net income in 1995 prior to
acquisition (Note 2) ............. -- -- -- 1,427 1,427
SUCCESSOR:
Purchase accounting push-down
adjustment, net .................. -- -- 68,617 (1,427) 67,190
Distributions ..................... -- -- (13,860) -- (13,860)
Contributions ..................... -- -- 197,943 -- 197,943
Net income ........................ -- -- -- 14,637 14,637
------ ------ ------------ ---------- --------
Balance, December 31, 1995 ....... 3 3 359,092 14,637 373,732
Contributions (unaudited) ......... -- -- 16,501 -- 16,501
Net income (unaudited) ............ -- -- -- 3,145 3,145
------ ------ ------------ ---------- --------
Balance, March 31, 1996
(unaudited) ...................... 3 $ 3 $375,593 $ 17,782 $393,378
====== ====== ============ ========== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-30
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------------------------------------- ----------------------
THREE MONTHS YEAR ENDED YEAR ENDED DECEMBER
ENDED MARCH 31, DECEMBER 31, 31,
----------------------- ----------------------
1996 1995 1995 1994 1993
---------- ----------- -------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ........................... $ 3,145 $ 1,472 $ 14,637 || $ 17,138 $ 13,094
---------- ----------- --------------||---------- ----------
Adjustments to reconcile net income to ||
net cash provided by operating ||
activities: ||
Minority interests ................... -- 1,427 1,427 || -- --
Depreciation and amortization ....... 4,373 2,438 18,958 || 9,037 9,249
Deferred taxes ....................... -- -- 1,011 || 3,899 3,262
Other, net ........................... -- (8,966) -- || 8,251 417
Changes in assets and liabilities: ||
Accounts receivable ................. 2,226 4,355 (993) || (3,103) 2,517
Amounts due affiliates .............. (914) 3,264 (50,841) || 4,077 (5,066)
Prepaid expenses and other assets .. (3,004) 1,066 (5,779) || 178 (508)
Accounts payable and accrued ||
liabilities ........................ (12,845) 2,365 12,047 || 2,421 1,275
---------- ----------- --------------||---------- ----------
Net cash flows from operating ||
activities ....................... (7,019) 7,421 (9,533) || 41,898 24,240
---------- ----------- --------------||---------- ----------
Cash flows from investing activities: ||
Capital expenditures ................. (3,736) (1,051) (4,066) || (10,495) (4,852)
Purchase of Guarantors by CalEnergy, ||
net of cash ......................... -- (116,290) (197,810) || -- --
Net (increase) decrease in marketable ||
securities .......................... -- 4,729 7,457 || (4,826) (2,980)
Restricted cash ...................... (717) (133) (1,206) || (3,058) 2,988
Management fee ....................... -- -- (30,485) || -- --
---------- ----------- --------------||---------- ----------
Net cash flows from investing ||
activities ....................... (4,453) (112,745) (226,110) || (18,379) (4,844)
---------- ----------- --------------||---------- ----------
Cash flows from financing activities: ||
Loan repayments ...................... (5,133) (4,437) (225,479) || (7,779) (7,223)
Loan proceeds ........................ -- 127,773 288,185 || -- --
Net contribution (distribution) ..... 16,501 (9,850) 184,083 || (18,200) (12,600)
---------- ----------- --------------||---------- ----------
Net cash flows from financing ||
activities ....................... 11,368 113,486 246,789 || (25,979) (19,823)
---------- ----------- --------------||---------- ----------
Net change in cash ................ (104) 8,162 11,146 || (2,460) (427)
Cash at beginning of period ........... 11,146 -- -- || 8,121 8,548
---------- ----------- --------------||---------- ----------
Cash at the end of period ............. $ 11,042 $ 8,162 $ 11,146 || $ 5,661 $ 8,121
========== =========== ==============||========== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-31
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
1. ORGANIZATION AND OPERATIONS
Partnership Guarantors (the "Guarantors") (not a legal entity) consists of
the combination of Vulcan Power Company ("VPC") and California Energy
Operating Company ("CEOC"), both 99% owned by Magma Power Company ("Magma")
and 1% owned by Salton Sea Funding Corporation (the "Funding Corporation").
VPC's and CEOC's principal assets are interests in certain partnerships which
are engaged in the operation of geothermal power plants in the Imperial
Valley of California. The Guarantors will serve to guarantee loans to such
partnerships from Salton Sea Funding Corporation, a wholly-owned subsidiary
of CalEnergy Company, Inc. ("CECI"). VPC holds a 50% interest in Vulcan/BN
Geothermal Power Company, a Nevada general partnership, and CEOC holds a 40%
general partner interest in Leathers, L.P., a California limited partnership,
Del Ranch, L.P., a California limited partnership and Elmore, L.P. a
California limited partnership (collectively, the "Partnerships"). Magma owns
a 10% limited partnership interest in each of Leathers L.P., Elmore L.P. and
Del Ranch L.P. and has entered into an agreement to pay to the Guarantors the
distributions it receives related to such 10% interests, in addition to a
special distribution equal to 4.5% of total energy sales from the Leathers
Project.
The remaining 50% interest in the Partnerships is owned indirectly by
Mission Energy Company ("Mission") (See Note 10--Subsequent Event). Mission
is a wholly-owned subsidiary of SCE Corporation ("SCEcorp"). Southern
California Edison Company ("SCE") is the sole customer of the Partnerships
and is an affiliate of SCEcorp.
In February 1995, CECI completed its acquisition of Magma, which is
currently a wholly-owned subsidiary of CECI (see Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements of the Guarantors present the
accounts of CEOC, VPC and their pro rata share of the accounts of the
Partnerships as described above on a combined basis. All significant
intercompany balances and transactions have been eliminated.
In the opinion of management of the Guarantors, the accompanying unaudited
combined financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the financial position
as of March 31, 1996 and the results of operations and cash flows for three
months ended March 31, 1996 and 1995. The results of operations for the three
months ended March 31, 1996 are not necessarily indicative of the results to
be expected for the full year.
The December 31, 1995 successor financial statements reflect the
acquisition of Magma (see Note 3), the resulting push down to the Guarantors
of the accounting as a purchase business combination and minority interest
for the non-owned periods consisting of 100% for the period January 1-9, 1995
and 49% for the period January 10, 1995--February 23, 1995.
Revenue Recognition
The Guarantors recognize revenues and related accounts receivable from
sales of electricity on an accrual basis using stated contract prices under
their Interim Standard Offer No. 4 power purchase agreements ("ISO4s") with
SCE. The ISO4s provide for the payment of both capacity payments and energy
payments for a 30-year term.
The capacity payments for the ISO4s are a fixed amount for the entire
30-year contract period and are based on the plant's contract capacity, as
specified in the agreement. The Guarantors earn their
F-32
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
maximum contract capacity payment in each month of the year they are able,
after excluding scheduled maintenance hours, to deliver 80% of its contract
capacity. In addition, the Guarantors are eligible to earn a monthly bonus
capacity payment if they operate at levels in excess of capacity levels
specified in their ISO4s.
The Guarantors earn energy payments based on kilowatt hours ("kWhs") of
energy provided to SCE. During the first 10 years, the Guarantors earn
payments for energy as scheduled in their ISO4s. After the 10-year scheduled
payment period has expired (on February 9, 1996 for Vulcan, in 1998 for Del
Ranch and Elmore and in 1999 for Leathers), the energy payment per kWh
throughout the remainder of the contract period will be at SCE's Avoided Cost
of Energy. For the year ended December 31, 1995, SCE's average Avoided Cost
of Energy was 2.1 cents per kWh which is substantially below the contract
energy prices earned in 1995. Estimates of SCE's future Avoided Cost of
Energy vary substantially from year to year. The Guarantors cannot predict
the likely level of Avoided Cost of Energy prices under the ISO4s at the
expiration of the scheduled payment periods. The revenues generated by each
of the projects operating under ISO4s could decline significantly after the
expiration of the relevant scheduled payment periods.
Property, Plant, Contracts and Equipment
Property, plant, contracts and equipment are carried at cost less
accumulated depreciation. The Guarantors follow the full cost method of
accounting for costs incurred in connection with the exploration and
development of geothermal resources. The Guarantors provide depreciation and
amortization of property, plants, contracts and equipment upon the
commencement of revenue production over the estimated useful life of the
assets and periodically assess the carrying value of such assets for possible
impairment in accordance with the provisions of Statement of Financial
Accounting Standards No. 121.
Depreciable lives for the periods through 1994 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Plant and plant equipment ............. 20 years
Office furniture and equipment ....... 5-10 years
Other equipment ....................... 7-10 years
Exploration and development costs .... 20 years
</TABLE>
Power purchase contracts were amortized on the straight line method over
20 years which is the lesser of the remaining life of the contract or the
remaining useful life of plant and plant equipment.
As a result of the purchase business combination, the assets and
liabilities were adjusted to fair value and are depreciated over the
remaining useful lives. See Note 2, "Purchase Accounting", and Note 4,
"Property, Plant, Contracts and Equipment." When plant and equipment is sold
or abandoned, the cost and related accumulated depreciation amortization are
removed from the accounts and the resulting gain or loss is recognized.
On January 1, 1996, the Guarantor adopted Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The adoption
of SFAS 121 did not have a material effect on the Guarantor's financial
statements.
Purchase Accounting
As a result of the purchase business combination (see Note 3) accounted
for on a push down basis by the Guarantors during the year ended December 31,
1995, all identifiable assets and liabilities were stated at fair value.
F-33
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The fair value of property and equipment, net of salvage value, and
exploration and development costs is being depreciated using the straight
line method over the remaining portion (approximately 23 years) of the
original 30-year life.
Power sale agreements have been assigned values separately for each of (1)
the remaining portion of the scheduled price periods of the power sales
agreements and (2) the 20 year avoided cost periods of the power sales
agreements and are being amortized separately over such periods using the
straight line method.
The Salton Sea reservoir contains commercial quantities of extractable
minerals. The fair value allocated to mineral extraction was based on the
estimated net cash flows generated from such production. The fair value
assigned to the mineral reserves will be amortized using the units of
production method commencing in 1998 which is the date upon which the benefit
of this item is anticipated to commence.
A process license was allocated fair value which represents the economic
benefits expected to be realized from the installation of the license and
related technology at the Imperial Valley. The fair value assigned to the
process license is amortized using the straight-line method over the
remaining estimated useful life of the license.
Total acquisition costs in excess of the fair values assigned to the net
assets acquired is being amortized over a 40 year period using the straight
line method. Deferred financing costs are amortized using the level yield
method over the term of the related debt.
Income Taxes
The entities comprising the Guarantors will be included in consolidated
income tax returns with their parent and affiliates. Tax obligations of the
Guarantors will be remitted to the parent only to the extent of cash flows
available after operating expenses and debt service.
Restricted Cash, Short-term Investments and Marketable Securities
At December 31, 1994, the Guarantors adopted the provisions of Statements
of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for
Certain Investments in Debt and Equity Securities." Adoption of SFAS 115 had
no material effect on the partnership's financial position or results of
operation. In accordance with the provisions of SFAS 115, debt securities
that the Guarantors have the positive intent and ability to hold to maturity
are classified as held-to-maturity securities and reported at amortized cost.
As of December 31, 1995, all of the Guarantors' investments were classified
as held-to-maturity.
The restricted cash and investments balance represents primarily a debt
reserve fund which is legally restricted as to its use and which requires the
maintenance of a specified minimum balance. The Guarantors invest in
commercial paper with a rating of A1 or better and generally having
maturities of three months or less.
Management Fee
Pursuant to the Magma Services Agreement. Magma has agreed to pay CEOC all
equity cash flows and certain royalties payable by the Guarantors in exchange
for providing data and services to Magma.
Statements of Cash Flows
For purposes of the statement of cash flows, the Guarantors consider only
demand deposits at banks to be cash. Cash paid for interest during 1995, 1994
and 1993 was $3,235,000, $2,949,000 and $3,453,000, respectively. Cash paid
for interest for the three months ended March 31, 1996 and 1995 was $839,000
and $1,087,000, respectively.
F-34
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Values of Financial Instruments
Fair values of financial instruments that are not actively traded are
based on market prices of similar instruments and/or valuation techniques
using market assumptions. Unless otherwise noted, the estimated fair value
amounts do not differ significantly from recorded values. 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 Guarantors could realize in a current
transaction.
The Guarantors assume that the carrying amount of short-term financial
instruments approximates their fair value. For these purposes, short-term is
defined as any item that matures, reprices, or represents a cash transaction
between willing parties within six months or less of the measurement date.
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.
3. PURCHASE OF MAGMA POWER COMPANY
On January 10, 1995, CECI acquired approximately 51% of the outstanding
shares of common stock of Magma (the "Magma Common Stock") through a cash
tender offer (the "Magma Tender Offer") and completed the Magma acquisition
on February 24, 1995 by acquiring approximately 49% of the outstanding shares
of Magma Common Stock not owned by CECI through a merger. Magma is engaged in
independent power operations similar to those of CECI. The transaction was
accounted for as a purchase business combination.
Unaudited pro forma combined revenue and net income of the Guarantors on a
purchase, push down basis of accounting, for the year ended December 31,
1995, as if the acquisition had occurred at the beginning of the period after
giving effect to certain pro forma adjustments related to the acquisition,
were $87,483,000 and $15,099,000, respectively, compared to $76,050,000 and
$2,312,000, respectively, for the year ended December 31, 1994.
F-35
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
3. PURCHASE OF MAGMA POWER COMPANY (CONTINUED)
The adjustments which have been made to the net assets of the Guarantors
to reflect the effect of the acquisition of Magma accounted for as a purchase
business combination pushed down to the Guarantors are as follows (dollars in
thousands):
Property, plant, contracts and equipment .... $ 214,513
Goodwill ..................................... 145,487
Deferred financing cost ...................... 9,714
Other assets ................................. (2,137)
Severance, relocation and litigation reserve.. (3,313)
Deferred income taxes ........................ (83,889)
Debt ......................................... (213,185)
-----------
Net increase in assets ....................... $ 67,190
===========
4. PROPERTY, PLANT, CONTRACTS AND EQUIPMENT
Property, plant, contracts and equipment assets consisted of the following
(dollars in thousands):
<TABLE>
<CAPTION>
SUCCESSOR || PREDECESSOR
-------------------------- ||--------------
MARCH 31, DECEMBER 31, || DECEMBER 31,
1996 1995 || 1994
----------- --------------||--------------
<S> <C> <C> ||<C>
Plant and equipment ............................ $ 58,489 $ 58,532 || $164,830
Power sale agreements .......................... 44,966 44,966 || --
Process license ................................ 46,290 46,290 || --
Mineral reserves ............................... 114,357 112,350 || --
Exploration and development costs .............. 55,221 53,449 || 44,276
----------- --------------||--------------
319,323 315,587 || 209,106
Less accumulated depreciation and amortization (20,113) (16,631) || (71,841)
----------- --------------||--------------
$299,210 $298,956 || $137,265
</TABLE>
5. LOANS PAYABLE
Loans payable include the Guarantors' pro rata share of the debt of the
Del Ranch, Elmore and Leathers partnerships which is non-recourse, but
collateralized by substantially all the assets of these partnerships. A
secured credit agreement with a group of international banks provides for
direct bank loans at specified premiums over a choice of either the bank's
prime rate, the London Interbank Offered Rate ("LIBOR") or the CD Base rate.
As an alternative, each partnership may elect to issue commercial paper
and medium-term notes supported by letters of credit issued by Fuji Bank,
Limited, which are collateralized, in turn, by the project debt facility with
the banks. The fair value of the commercial paper and medium-term notes
approximates their carrying value.
The Partnerships had no direct bank borrowings at December 31, 1995 and
1994. The weighted average effective interest rates of the commercial paper
and medium-term notes outstanding at December 31 was 6.4% in 1995 and 6.6% in
1994. During 1995, 1994 and 1993, the Guarantors' pro rata share of the
Partnership's weighted average borrowings was $48,053,000, $55,039,000 and
$62,093,000, respectively, with weighted average effective interest rates of
6.3%, 6.3% and 5.6% for the corresponding periods.
F-36
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
5. LOANS PAYABLE (CONTINUED)
The loans are reduced by 25 semi-annual principal payments in March and
September of each year.
The Guarantors' annual maturities of project debt for the five years
beginning January 1, 1996, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 ................................ $10,265
1997 ................................ 10,678
1998 ................................ 10,678
1999 ................................ 6,862
Thereafter ......................... 5,283
---------
$43,766
=========
</TABLE>
Provisions of the Guarantors' Secured Credit Agreements require the
maintenance of minimum working capital requirements of $720,000, $880,000 and
$880,000 and specific debt reserves of $3,320,000, $2,660,000 and $2,640,000,
on Leathers, Del Ranch and Elmore respectively, that must be maintained
before cash distributions can be paid to the Partners.
6. SENIOR SECURED PROJECT NOTE
The Guarantors assumed their proportionate share of the secured bank
financing incurred in connection with the purchase of Magma (see Note 3). On
July 21, 1995, CECI recapitalized Magma and the related Merger Facilities
from proceeds received through a $200 million high yield offering and a $475
million investment grade offering of Salton Sea Funding Corporation. The
Guarantors issued a project note in the amount of $75 million payable to
Salton Sea Funding Corporation at an interest rate of 6.69%, and guaranteed,
to the extent of available cash flow, the investment grade securities. The
guarantee is collateralized by a lien on the available cash flow of and a
pledge of stock in the Guarantors.
Principal maturities of the senior secured project note at December 31,
1995 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 ................................ $15,502
1997 ................................ 12,744
1998 ................................ 19,762
1999 ................................ 9,636
2000 ................................ 5,062
---------
$62,706
=========
</TABLE>
The estimated fair value of the Senior Secured Project Note was
$64,348,000 at December 31, 1995.
7. RELATED PARTY TRANSACTIONS
The Guarantors are party to a 30-year brine supply agreement through the
Vulcan/BN Geothermal Power Company partnership and a technology license
agreement for the rights to use the technology necessary for the construction
and operation of the Vulcan Plant. Under the brine supply agreement, the
Guarantors will pay VPC 4.167% of the contract energy component of the price
of electricity provided by the Vulcan Plant. In addition, VPC has been
designated as operator of the Vulcan Plant and receives agreed-upon
compensation for such services.
Charges to the Guarantors related to the brine supply agreement and
operator's fees on a pro rata basis amounted to $745,000 and $620,000,
respectively, for the year ended December 31, 1995, $516,000
F-37
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
and $438,000, respectively, for the year ended December 31, 1994, $474,000
and $408,000, respectively, for the year ended December 31, 1993; $107,000
and $84,000, respectively, for the three months ended March 31, 1996 and
$186,000 and $141,000, respectively, for the three months ended March 31,
1995.
Leathers, L.P., Del Ranch, L.P. and Elmore, L.P. have entered into the
following agreements:
o Easements Grants Deeds and Agreements Regarding Rights for Geothermal
Development, whereby these partnerships acquired from Magma rights to
extract geothermal brine from the geothermal lease rights property which
is necessary to operate the Leathers, Del Ranch and Elmore Plants in
return for 17.333%, on a pro rata basis, of all energy revenues received
by each plant. Amounts expensed under these agreements for 1995, 1994
and 1993 were $8,115,000, $7,488,000 and $6,806,000, respectively, and
for the three months ended March 31, 1996 and 1995 were $2,001,000 and
$1,955,000, respectively.
o Ground Leases dated March 15 and August 15, 1988 with Magma whereby
these partnerships lease from Magma for 32 years the surface of the land
as described in the Imperial County Assessor's official records. Amounts
expensed under the ground leases were $30,000 in each of 1995, 1994 and
1993, and for the three months ended March 31, 1996 and 1995 were $8,000
each.
o Administrative Services Agreements whereby CEOC will provide to these
partnerships administrative and management services for a period of 32
years through 2020. Fees payable to CEOC amount to the greater of 3% of
total electricity revenues or $67,000 per month. The minimum monthly
payments for years subsequent to 1989 are increased based on the
consumer price index of the Bureau of Labor and Statistics. Amounts
expensed related to these agreements for 1995, 1994 and 1993 amounted to
$1,687,000, $1,573,000 and $1,457,000, respectively, and for the three
months ended March 31, 1996 and 1995 were $371,000 and $361,000,
respectively.
o Operating and Maintenance Agreements whereby these partnerships retain
CEOC to operate the plants for a period of 32 years through 2020.
Payment is made to CEOC in the form of reimbursements of expenses
incurred and a guaranteed capacity payment ranging from 10% to 25% of
energy revenues over stated amounts. The Guarantors in 1995, 1994 and
1993 reimbursed CEOC for expenses of $4,471,000, $2,391,000 and
$3,074,000, respectively, and accrued a guaranteed capacity payment of
$1,731,000, $1,548,000 and $1,273,000 at December 31, 1995, 1994 and
1993, respectively, and for the three months ended March 31, 1996 and
1995, reimbursed $1,317,000 and $966,000, respectively, and at March 31,
1996 accrued a guaranteed capacity payment of $372,000.
F-38
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
8. CONDENSED FINANCIAL INFORMATION
Condensed balance sheet information of the Guarantors' pro rata interest
in the respective entities as of March 31, 1996, December 31, 1995 and 1994
is as follows (dollars in thousands):
<TABLE>
<CAPTION>
VULCAN VULCAN ADJUSTMENTS/ COMBINED
POWER CEOC ELMORE DEL RANCH LEATHERS BNG ELIMINATIONS TOTAL
--------- ---------- --------- --------- ---------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MARCH 31, 1996 SUCCESSOR
Assets:
Cash and marketable securities $ -- $ -- $ 5,820 $ 7,098 $ 5,339 $ 3,361 $ -- $ 21,618
Accounts receivable and other 45,358 29,193 5,114 4,474 4,316 5,380 (16,280) 77,555
Property, plant, contracts and
equipment, net ............... 258 1,850 27,468 25,033 32,777 28,589 183,235 299,210
Management fee ................ -- -- -- -- -- -- 64,098 64,098
Goodwill, net ................. -- -- -- -- -- -- 141,359 141,359
Investments in Partnerships .. 37,059 76,820 -- -- -- -- (113,879) --
--------- ---------- --------- --------- ---------- --------- -------------- ----------
$82,675 $107,863 $38,402 $36,605 $42,432 $37,330 $ 258,533 $603,840
========= ========== ========= ========= ========== ========= ============== ==========
Liabilities and equity:
Accounts payable and accrued
liabilities .................. $ 467 $ 4,145 $ 434 $ 832 $ 720 $ 271 $ 102,254 $109,123
Project loans ................. -- -- 10,004 9,549 19,080 -- -- 38,633
Other debt .................... -- -- -- -- -- -- 62,706 62,706
--------- ---------- --------- --------- ---------- --------- -------------- ----------
Total liabilities ............ 467 4,145 10,438 10,381 19,800 271 164,960 210,462
Guarantors' equity ............ 82,208 103,718 27,964 26,224 22,632 37,059 93,573 393,378
--------- ---------- --------- --------- ---------- --------- -------------- ----------
$82,675 $107,863 $38,402 $36,605 $42,432 $37,330 $ 258,533 $603,840
========= ========== ========= ========= ========== ========= ============== ==========
DECEMBER 31, 1995 SUCCESSOR
Assets:
Cash and investments .......... $ -- $ -- $ 7,060 $ 6,896 $ 6,772 $ 277 $ -- $ 21,005
Accounts receivable and other -- 792 4,899 4,951 5,631 6,826 (1,607) 21,492
Due from affiliates ........... (232) 71,976 (988) (763) (1,066) 116 (14,094) 54,949
Property, plant, contracts and
equipment, net ............... 265 1,294 27,744 25,508 32,466 29,224 182,455 298,956
Management fee ................ -- -- -- -- -- -- 63,520 63,520
Goodwill, net ................. -- -- -- -- -- -- 142,250 142,250
Investments in partnerships .. 36,074 73,455 -- -- -- -- (109,529) --
--------- ---------- --------- --------- ---------- --------- -------------- ----------
$36,107 $147,517 $38,715 $36,592 $43,803 $36,443 $ 262,995 $602,172
========= ========== ========= ========= ========== ========= ============== ==========
Liabilities and Equity:
Accounts payable and accrued
liabilities .................. $ 369 $ 8,557 $ 443 $ 794 $ 652 $ 369 $ 110,784 $121,968
Project loans ................. -- -- 11,450 10,930 21,386 -- -- 43,766
Other debt .................... -- -- -- -- -- -- 62,706 62,706
--------- ---------- --------- --------- ---------- --------- -------------- ----------
Total liabilities ............ 369 8,557 11,893 11,724 22,038 369 173,490 228,440
Guarantors' equity ............ 35,738 138,960 26,822 24,868 21,765 36,074 89,505 373,732
--------- ---------- --------- --------- ---------- --------- -------------- ----------
$36,107 $147,517 $38,715 $36,592 $43,803 $36,443 $ 262,995 $602,172
========= ========== ========= ========= ========== ========= ============== ==========
F-39
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
8. CONDENSED FINANCIAL INFORMATION (CONTINUED)
</TABLE>
<TABLE>
<CAPTION>
VULCAN VULCAN ADJUSTMENTS/ COMBINED
POWER CEOC ELMORE DEL RANCH LEATHERS BNG ELIMINATIONS TOTAL
--------- ---------- --------- --------- ---------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1994 PREDECESSOR
Assets:
Cash and marketable securities $ (4) $ (822) $ 6,566 $ 6,320 $ 8,677 $ 1,034 $ -- $ 21,771
Accounts receivable and other . 166 2,001 3,989 4,130 4,097 3,675 (759) 17,299
Due from affiliates ........... 55 5,995 -- -- -- -- (1,942) 4,108
Property, plant and equipment,
net .......................... 123 9,917 30,816 28,319 34,139 33,951 -- 137,265
Investments in Partnerships .. 33,602 71,428 -- -- -- -- (105,030) --
--------- ---------- --------- --------- ---------- --------- -------------- ----------
$33,942 $88,519 $41,371 $38,769 $46,913 $38,660 $(107,731) $180,443
========= ========== ========= ========= ========== ========= ============== ==========
Liabilities and equity:
Accounts payable and accrued
liabilities .................. $ 4,676 $14,907 $ 331 $ 345 $ 1,017 $ 432 $ -- $ 21,708
Amounts due affiliates ........ -- -- 158 671 764 349 (1,942) --
Loans payable ................. -- -- 14,210 13,564 24,566 -- -- 52,340
--------- ---------- --------- --------- ---------- --------- -------------- ----------
Total liabilities ............ 4,676 14,907 14,699 14,580 26,347 781 (1,942) 74,048
Guarantors' equity ............ 29,266 73,612 26,672 24,189 20,566 37,879 (105,789) 106,395
--------- ---------- --------- --------- ---------- --------- -------------- ----------
$33,942 $88,519 $41,371 $38,769 $46,913 $38,660 $(107,731) $180,443
========= ========== ========= ========= ========== ========= ============== ==========
</TABLE>
Condensed combining statements of operations including information of the
Guarantors' pro rata interest in the respective entities for the three months
ended March 31, 1996 and years ended December 31, 1995, 1994 and 1993 is as
follows (dollars in thousands):
<TABLE>
<CAPTION>
VULCAN VULCAN COMBINED
POWER CEOC ELMORE DEL RANCH LEATHERS BNG ELIMINATIONS TOTAL
--------- --------- --------- --------- ---------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MARCH 31, 1996
SUCCESSOR
Revenues ........ $ 1,369 $ 5,800 $ 4,049 $ 4,554 $ 4,055 $ 2,816 $ (5,264) $17,379
Expenses ........ 228 -- 2,908 3,198 3,188 1,831 2,881 14,234
--------- --------- --------- --------- ---------- --------- -------------- ----------
Net income ..... $ 1,141 $ 5,800 $ 1,141 $ 1,356 $ 867 $ 985 $ (8,145) $ 3,145
========= ========= ========= ========= ========== ========= ============== ==========
DECEMBER 31, 1995
SUCCESSOR
Revenues ........ $15,634 $24,121 $19,336 $18,941 $19,101 $20,878 $(30,528) $87,483
Expenses ........ 1,547 -- 12,866 12,523 14,161 7,974 23,775 72,846
--------- --------- --------- --------- ---------- --------- -------------- ----------
Net income ..... $14,087 $24,121 $ 6,470 $ 6,418 $ 4,940 $12,904 $(54,303) $14,637
========= ========= ========= ========= ========== ========= ============== ==========
DECEMBER 31, 1994
PREDECESSOR
Revenues ........ $10,423 $19,290 $17,611 $18,116 $17,538 $18,430 $(25,358) $76,050
Expenses ........ 4,901 7,674 12,973 12,908 14,241 10,395 (4,180) 58,912
--------- --------- --------- --------- ---------- --------- -------------- ----------
Net income ..... $ 5,522 $11,616 $ 4,638 $ 5,208 $ 3,297 $ 8,035 $(21,178) $17,138
========= ========= ========= ========= ========== ========= ============== ==========
DECEMBER 31, 1993
PREDECESSOR
Revenues ........ $ 8,298 $14,385 $16,689 $16,424 $15,987 $17,079 $(18,805) $70,057
Expenses ........ 3,959 5,630 13,662 13,408 13,173 10,986 (3,855) 56,963
--------- --------- --------- --------- ---------- --------- -------------- ----------
Net income ..... $ 4,339 $ 8,755 $ 3,027 $ 3,016 $ 2,814 $ 6,093 $(14,950) $13,094
========= ========= ========= ========= ========== ========= ============== ==========
</TABLE>
F-40
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
9. INCOME TAXES
The provision for income taxes for the years ended December 31, 1995, 1994
and 1993 consisted of the following:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS) CURRENT DEFERRED TOTAL
--------- ---------- ---------
<S> <C> <C> <C>
SUCCESSOR:
1995
- ----
Federal ............. $ 6,697 $ 2,264 $ 8,961
State ............... 3,784 (1,253) 2,531
--------- ---------- ---------
Total ............... $10,481 $ 1,011 $11,492
========= ========== =========
PREDECESSOR:
1994
- ----
Federal ............. $ 6,277 $ 3,314 $ 9,591
State ............... 1,108 585 1,693
--------- ---------- ---------
Total ............... $ 7,385 $ 3,899 $11,284
========= ========== =========
1993
- ----
Federal ............. $ 4,372 $ 2,773 $ 7,145
State ............... 771 489 1,260
--------- ---------- ---------
Total ............... $ 5,143 $ 3,262 $ 8,405
========= ========== =========
</TABLE>
Deferred tax liabilities and assets at December 31, 1995 and 1994, as
calculated in accordance with SFAS 109, consisted of the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1995 1994
----------- -------------
(SUCCESSOR) (PREDECESSOR)
<S> <C> <C>
Deferred Liabilities:
Depreciation and amortization $106,238 $28,037
Deferred Assets:
Tax credits ................... 7,831 14,530
----------- -------------
Net deferred tax liability .... $ 98,407 $13,507
=========== =============
</TABLE>
The effective tax rate differs from the federal statutory tax rate due
primarily to amortization, depreciation and the realization for income tax
purposes of certain tax credits.
10. SUBSEQUENT EVENTS (UNAUDITED)
On April 17, 1996 CECI completed the acquisition of Edison Mission
Energy's partnership interests in the Vulcan, Hoch (Del Ranch), Leathers and
Elmore geothermal operating facilities. Wholly-owned subsidiaries of CECI
operate these facilities and owns the remaining 50% interest in these
facilities of which 40% of this interest related to Del Ranch, Leathers and
Elmore and 50% of this interest related to Vulcan is assigned to the
Partnership Guarantors.
On June 20, 1996, the Guarantors issued $135 million of Senior Secured
Project Notes consisting of $70,000,000, 7.02% Senior Secured Notes, due May
30, 2000 and $65,000,000, 8.30% Senior Secured Notes, due May 30, 2011, with
maturities of $25,850,000, $32,000,000, $22,728,000, $5,500,000, $1,000,000
and $47,922,000 for 1997, 1998, 1999, 2000, 2001 and thereafter,
respectively.
Proceeds from these Senior Secured Project Notes were used to repay
approximately $96,000,000 in existing project level loans of the Guarantors,
provide approximately $15,000,000 to fund the Capital Expenditure Fund and
provide approximately $23,000,000 of the cost of the acquisition of Edison
Mission Energy's partnership interests described above.
F-41
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying successor balance sheet of the Salton Sea
Royalty Company (the "Company") as of December 31, 1995, and the related
successor statements of operations, equity and cash flows for the year ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on those
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 audit provides a
reasonable basis for our opinion.
In our opinion, such successor financial statements present fairly, in all
material respects, the financial position of the Salton Sea Royalty Company
as of December 31, 1995 and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 26, 1996
F-42
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have reviewed the accompanying successor balance sheet of the Salton Sea
Royalty Company as of March 31, 1996, and the related successor statements of
operations and cash flows for the three-month periods ended March 31, 1996
and 1995 and equity for the three-month period ended March 31, 1996. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such successor financial statements for them to be in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 25, 1996
F-43
<PAGE>
SALTON SEA ROYALTY COMPANY
SUCCESSOR BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Due from affiliates .............................. $ 24,985 $ 25,110
Royalty stream, net .............................. 51,401 53,744
Goodwill, net .................................... 35,685 35,912
Prepaid expenses and other assets ................ 2,353 2,575
------------ --------------
$114,424 $117,341
============ ==============
LIABILITIES AND EQUITY
Liabilities:
Accrued liabilities ............................. $ 8,593 $ 5,948
Senior secured project note ..................... 67,882 67,882
Deferred income taxes ........................... 14,429 15,460
------------ --------------
Total liabilities .............................. 90,904 89,290
------------ --------------
Commitments and Contingencies (Notes 2, 3, and 4)
Guarantor's equity:
Common stock .................................... -- --
Additional paid-in capital ...................... 19,182 24,541
Retained earnings ............................... 4,338 3,510
------------ --------------
Total Guarantor's equity ......................... 23,520 28,051
------------ --------------
$114,424 $117,341
============ ==============
</TABLE>
The accompanying notes are an integral part of the combined successor
financial statements.
F-44
<PAGE>
SALTON SEA ROYALTY COMPANY
SUCCESSOR STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED
------------------------ DECEMBER 31,
1996 1995 1995
---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Royalty income ............................. $6,941 $6,751 $28,383
Expenses:
Operating expenses ......................... 1,707 1,594 6,822
Amortization of royalty stream and goodwill 2,570 1,232 11,239
Interest expense ........................... 1,358 1,540 4,757
-------- -------- --------------
Total expenses ............................ 5,635 4,366 22,818
-------- -------- --------------
Income before income taxes .................. 1,306 2,385 5,565
Income tax expense .......................... 478 830 963
-------- -------- --------------
Income before minority interest ............. 828 1,555 4,602
Minority interest ........................... -- 1,092 1,092
-------- -------- --------------
Net income ................................ $ 828 $ 463 $ 3,510
======== ======== ==============
</TABLE>
The accompanying notes are an integral part of the combined successor
financial statements.
F-45
<PAGE>
SALTON SEA ROYALTY COMPANY
STATEMENT OF EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN RETAINED TOTAL
SHARES AMOUNT CAPITAL EARNINGS EQUITY
-------- --------- ----------------------------------
<S> <C> <C> <C> <C> <C>
Predecessor:
Balance, January 1, 1995 ......................... -- $-- $ 5,300 $ -- $ 5,300
Net income in 1995 prior to acquisition (Note 2) -- -- -- 1,092 1,092
Successor:
Purchase accounting push-down adjustment, net ... -- -- 38,043 (1,092) 36,951
Distribution to parent ........................... -- -- (20,501) -- (20,501)
Contribution from parent ......................... -- -- 1,699 -- 1,699
Issuance of $.01 par value per share common stock 100 -- -- -- --
Net income ....................................... -- -- 3,510 3,510
-------- -------- ------------ ---------- ----------
Balance, December 31, 1995 ....................... 100 -- 24,541 3,510 28,051
Distributions (unaudited) ........................ -- -- (5,359) -- (5,359)
Net income (unaudited) ........................... -- -- -- 828 828
-------- -------- ------------ ---------- ----------
Balance, March 31, 1996 (unaudited) .............. 100 $-- $ 19,182 $ 4,338 $ 23,520
======== ======== ============ ========== ==========
</TABLE>
The accompanying notes are an integral part of the combined successor
financial statements.
F-46
<PAGE>
SALTON SEA ROYALTY COMPANY
SUCCESSOR STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED
-------------------------- DECEMBER 31,
1996 1995 1995
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flow from operating activities:
Net income ......................................... $ 828 $ 463 $ 3,510
Adjustments to reconcile net income to cash flow
from operating activities:
Minority interest ................................. -- 1,092 1,092
Amortization of royalty stream and goodwill ...... 2,570 1,232 11,239
Deferred income taxes ............................. -- -- (4,581)
Changes in assets and liabilities:
Prepaid expenses and other assets ................. 222 -- (2,575)
Accrued liabilities ............................... 1,614 (1,413) 5,948
--------- ---------- --------------
Net cash flows from operating activities ............ 5,234 1,374 14,633
--------- ---------- --------------
Net cash flow from investing activities:
Purchase of Company by CalEnergy, net of cash ..... -- (79,239) (38,603)
--------- ---------- --------------
Net cash flows from investing activities ............ -- (79,239) (38,603)
--------- ---------- --------------
Net cash flows from financing activities:
Proceeds from issuance of debt ..................... -- 83,022 115,446
Increase in due from affiliates .................... 125 -- (25,110)
Distribution to parent ............................. (5,359) (5,157) (21,436)
Capital contributions .............................. -- -- 2,634
Loan repayments .................................... -- -- (47,564)
--------- ---------- --------------
Net cash flows from financing activities ............ (5,234) 77,865 23,970
--------- ---------- --------------
Net change in cash .................................. -- -- --
Cash at beginning of period ......................... -- -- --
--------- ---------- --------------
Cash at end of period ............................... $ -- $ -- $ --
========= ========== ==============
</TABLE>
The accompanying notes are an integral part of the combined successor
financial statements.
F-47
<PAGE>
SALTON SEA ROYALTY COMPANY
NOTES TO SUCCESSOR FINANCIAL STATEMENTS
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
1. ORGANIZATION
Salton Sea Royalty Company (the "Company") is a single-purpose entity, 99%
owned by Magma Power Company ("Magma") and 1% owned by Salton Sea Funding
Corporation (the "Funding Corporation"). Effective February 24, 1995, Magma
became a wholly-owned subsidiary of CalEnergy Company, Inc. ("CECI") (see
Note 3).
In June 1995, the Company received an assignment of royalties and certain
fees paid by three partnership projects, Del Ranch, Elmore and Leathers
(collectively, the "Partnership Projects"). Magma and its affiliates have a
50% interest in the Partnership Projects. In addition, the Company has
received an assignment of certain resource-related royalties and contract
assignment royalties payable by the geothermal power plant located in
Imperial Valley, California which is owned by an unaffiliated third party
(East Mesa, together with the Partnership Projects, the "Projects"). All of
the Projects are engaged in the operation of geothermal power plants in the
Imperial Valley in Southern California. Substantially all of the assigned
royalties are based on a percentage of energy and capacity revenues of the
Projects. With the exception of royalties from East Mesa, the royalties are
senior to debt service and are pari passu with other operating and
maintenance expenses of the Projects.
All of the Projects have executed long-term Interim Standard Offer No. 4
power purchase agreements ("ISO4s") providing for capacity and energy sales
to Southern California Edison Company ("SCE"). Each of these agreements
provides for fixed price capacity payments for the life of the contract.
The Projects earn energy payments based on kilowatt hours ("kWhs") of
energy provided to SCE. During the first 10 years of the agreement, the
Projects earn payments for energy as scheduled in the ISO4s. After the
10-year scheduled payment period has expired (1998 for Del Ranch and Elmore;
1999 for Leathers and East Mesa), the energy payment per kWh throughout the
remainder of the contract period will be at SCE's Avoided Cost of Energy. For
the year ended December 31, 1995, SCE's average Avoided Cost of Energy was
2.1 cents per kWh which is substantially below the contract energy prices
earned in 1995. Estimates of SCE's future Avoided Cost of Energy vary
substantially from year to year. The Company cannot predict the likely level
of Avoided Cost of Energy prices under the ISO4s at the expiration of the
scheduled payment periods. SCE's Avoided Cost of Energy as determined by the
CPUC is currently substantially below the scheduled energy prices for the
scheduled payment period under the respective ISO4s and may remain so over at
least the near term. The revenues generated by each of the units operating
under ISO4s could decline significantly after the expiration of the relevant
scheduled payment period.
As discussed above, all revenues except those derived from East Mesa are
from, and all operating expenses are paid by, related parties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited statement of operations presents revenues and
expenses for the period indicated which have been assigned to the Company
under the arrangements described above on the accrual method of accounting.
This presentation is a "carve out" of information from Magma and certain of
its affiliates. Such revenues, net of related expenses, will serve to
guarantee loans from Salton Sea Funding Corporation, a wholly-owned
subsidiary of CECI.
In the opinion of management of the Company, the accompanying unaudited
combined financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the financial position
as of March 31, 1996 and the results of operations and cash flows for the
three months ended March 31, 1996 and 1995. The results of operations for the
three months ended March 31, 1996 are not necessarily indicative of the
results to be expected for the full year.
F-48
<PAGE>
SALTON SEA ROYALTY COMPANY
NOTES TO SUCCESSOR FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Purchase Accounting
As a result of the purchase business combination (see Note 3) accounted
for on a push down basis by the Company during the year ended December 31,
1995, the royalty stream was stated at fair value.
The Guarantors' policy is to provide depreciation and amortization expense
beginning upon the commencement of revenue production over the estimated
remaining useful life of the identifiable assets.
The royalty streams have been assigned values separately for each of (1)
the remaining portion of their scheduled price periods and (2) the 20 year
avoided cost periods and are being amortized separately over such periods
using the straight line method.
Total acquisition costs in excess of the fair values assigned to the net
assets acquired is being amortized over a 40 year period using the straight
line method. Deferred financing costs are amortized using the level yield
method over the term of the related debt.
Income Taxes
The Company will be included in consolidated income tax returns with its
parent and affiliates. Income taxes are provided on a separate return basis
in accordance with the requirements of Statement of Financial Accounting
Standards No. 109, however, tax obligations of the Company will be remitted
to the parent only to the extent of cash flows available after operating
expenses and debt service.
Fair Values of Financial Instruments
Fair values of financial instruments that are not actively traded are
based on market prices of similar instruments and/or valuation techniques
using market assumptions. Unless otherwise noted, the estimated fair value
amounts do not differ significantly from recorded values. 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.
SFAS 121
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". The adoption of SFAS 121
did not have a material effect on the Company's financial statements.
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.
3. PURCHASE OF MAGMA POWER COMPANY
On January 10, 1995, CECI acquired approximately 51% of the outstanding
shares of common stock of Magma (the "Magma Common Stock") through a cash
tender offer (the "Magma Tender Offer") and
F-49
<PAGE>
SALTON SEA ROYALTY COMPANY
NOTES TO SUCCESSOR FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
3. PURCHASE OF MAGMA POWER COMPANY (CONTINUED)
completed the Magma acquisition on February 24, 1995 by acquiring
approximately 49% of the outstanding shares of Magma Common Stock not owned
by CECI through a merger. Magma is engaged in independent power operations
similar to those of CECI. The transaction was accounted for as a purchase
business combination.
Unaudited pro forma revenue and net income of the Company on a purchase,
push down basis of accounting, for the year ended December 31, 1995, as if
the acquisition had occurred at the beginning of the period after giving
effect to certain pro forma adjustments related to the acquisition, were
$28,383,000 and $3,753,000, respectively, compared to $29,410,000 and
$7,532,000 (pre-tax), respectively, for the year ended December 31, 1994.
The adjustments which have been made to the net assets of the Company to
reflect the effect of the acquisition of Magma accounted for as a purchase
business combination pushed down to the Company are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Royalty stream ........... $ 64,155
Goodwill ................. 36,740
Deferred financing costs 1,843
Deferred income taxes ... (25,341)
Debt ..................... (40,446)
----------
Net increase in assets $ 36,951
==========
</TABLE>
4. SENIOR SECURED PROJECT NOTE
The Company assumed its proportionate share of the secured bank financing
incurred in connection with the purchase of Magma (see Note 3). On July 21,
1995, CECI recapitalized Magma and the related Merger Facilities from
proceeds received through a $200 million high yield offering and a $475
million investment grade offering of the Salton Sea Funding Corporation. The
Company issued a project note in the amount of $75 million payable to Salton
Sea Funding Corporation at interest rates ranging from 6.69% to 7.37%, and
guaranteed to the extent of available cash flow, the investment grade
securities. The guarantee issued is collateralized by a lien on substantially
all the assets of and a pledge of stock in the Guarantor.
Principal maturities of the senior secured project note at December 31,
1995 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 ......... $10,946
1997 ......... 18,001
1998 ......... 15,726
1999 ......... 9,396
2000 ......... 4,773
Thereafter .. 9,040
---------
$67,882
=========
</TABLE>
The estimated fair value of the senior secured project note was
$68,944,000 at December 31, 1995.
F-50
<PAGE>
SALTON SEA ROYALTY COMPANY
NOTES TO SUCCESSOR FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
5. INCOME TAXES
The provision for income taxes for the year ended December 31, 1995,
consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- ---------- -------
<S> <C> <C> <C>
Federal .. $4,323 $(3,644) $679
State ..... 1,221 (937) 284
--------- ---------- -------
Total ..... $5,544 $(4,581) $963
========= ========== =======
</TABLE>
The Company's effective tax rate differs from the statutory federal income
tax rate due primarily to percentage depletion in excess of cost depletion
and goodwill amortization.
Deferred tax liabilities and assets at December 31, 1995, consisted of the
following (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
Deferred liabilities:
Depreciation and amortization $20,760
Deferred assets:
Jr. SO4 royalty receivable .. 5,300
---------
Net deferred tax liability .... $15,460
=========
</TABLE>
F-51
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying Predecessor Summaries of Revenues and
Related Expenses (the "Predecessor Summaries") of Salton Sea Royalty Company
(the "Company") for each of the two years in the period ended December 31,
1994. The Predecessor Summaries are the responsibility of the Company's
management. Our responsibility is to express an opinion on these Predecessor
Summaries 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 Predecessor Summaries are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Predecessor Summaries.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the Predecessor Summaries. We believe that our audits provide
a reasonable basis for our opinion.
The accompanying Predecessor Summaries were prepared for inclusion in the
Prospectus of Salton Sea Funding Corporation on the basis of presentation as
described in Note 2, and are not intended to be a complete presentation of the
Company's assets, liabilities, revenues and expenses.
In our opinion, the Predecessor Summaries referred to above present fairly,
in all material respects, the revenues and related expenses described in
Notes 1 and 2 of the Company for each of the two years in the period ended
December 31, 1994, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
San Diego, California
June 19, 1995
F-52
<PAGE>
SALTON SEA ROYALTY COMPANY
PREDECESSOR SUMMARIES OF REVENUES AND RELATED EXPENSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993
--------- ---------
<S> <C> <C>
Royalty Income ................... $29,410 $26,942
Operating expenses ............... 20,753 5,710
--------- ---------
Excess of revenues over expenses $ 8,657 $21,232
========= =========
</TABLE>
F-53
<PAGE>
SALTON SEA ROYALTY COMPANY
NOTES TO PREDECESSOR SUMMARIES OF REVENUES
AND RELATED EXPENSES
1. ORGANIZATION
Salton Sea Royalty Company (the "Company") is a newly formed
single-purpose entity, 99% owned by Magma Power Company ("Magma") and 1%
owned by Salton Sea Funding Corporation (the "Funding Corporation").
Effective February 24, 1995, Magma became a wholly-owned subsidiary of
CalEnergy Company, Inc. ("CECI") (see Note 3).
In June 1995, the Company received an assignment of royalties and certain
fees paid by three partnership projects, Del Ranch, Elmore and Leathers
(collectively, the "Partnership Projects"). Magma and its affiliates have a
50% interest in the Partnership Projects. In addition, the Company has
received an assignment of certain resource-related royalties and contract
assignment royalties payable by the geothermal power plant located in
Imperial Valley, California which is owned by an unaffiliated third party
(East Mesa, together with the Partnership Projects, the "Projects"). All of
the Projects are engaged in the operation of geothermal power plants in the
Imperial Valley in Southern California. Substantially all of the assigned
royalties are based on a percentage of energy and capacity revenues of the
Projects. With the exception of royalties from East Mesa (Note 2), the
royalties are senior to debt service and are pari passu with other operating
and maintenance expenses of the Projects.
All of the Projects have executed long-term Interim Standard Offer No. 4
power purchase agreements ("ISO4s") providing for capacity and energy sales
to Southern California Edison Company ("SCE"). Each of these agreements
provides for fixed price capacity payments for the life of the contract.
The Projects earn energy payments based on kilowatt hours ("kWhs") of
energy provided to SCE. During the first 10 years of the agreement, the
Projects earn payments for energy as scheduled in their ISO4s. After the
10-year scheduled payment period has expired (1998 for Del Ranch and Elmore;
1999 for Leathers and East Mesa), the energy payment per kWh throughout the
remainder of the contract period will be at SCE's Avoided Cost of Energy. For
the year ended December 31, 1994, SCE's average Avoided Cost of Energy was
2.5 cents per kWh which is substantially below the contract energy prices
earned in 1994. Estimates of SCE's future Avoided Cost of Energy vary
substantially from year to year. The Company cannot predict the likely level
of Avoided Cost of Energy prices under the ISO4s at the expiration of the
scheduled payment periods. The revenues generated by each of the units
operating under ISO4s could decline significantly after the expiration of the
relevant scheduled payment period.
As discussed above, all revenues except those derived from East Mesa are
from or through related parties.
2. BASIS OF PRESENTATION
The accompanying Predecessor Summaries of Revenues and Related Expenses
present predecessor revenues and expenses for the periods indicated which
have been assigned to the Company under the arrangements described above on
the accrual method of accounting. This presentation is a "carve out" of
historical information from Magma and certain of its affiliates. The basis of
presentation described herein is not intended to be a complete presentation
of the Company's assets, liabilities, revenues and expenses. Such revenues,
net of related expenses, will serve to guarantee loans from Salton Sea
Funding Corporation, a wholly-owned subsidiary of CECI (see Note 4).
During 1994, the entire $14,502,000 balance due from junior royalties from
East Mesa was written off due to uncertainty as to their collectibility. The
write-off was considered necessary due to the inability of the East Mesa
plant to convert its construction loans to term loans as had been expected
during 1994. The timing of such conversion, which is a prerequisite to the
collection of the junior royalties, is uncertain. Revenues related to the
East Mesa junior royalties for the years ended December 31, 1994 and 1993
were $3,412,000 and $3,190,000, respectively.
F-54
<PAGE>
SALTON SEA ROYALTY COMPANY
NOTES TO PREDECESSOR SUMMARIES OF REVENUES
AND RELATED EXPENSES -- (CONTINUED)
3. PURCHASE OF MAGMA POWER COMPANY (UNAUDITED)
On January 10, 1995, CECI acquired approximately 51% of the outstanding
shares of common stock of Magma (the "Magma Common Stock") through a cash
tender offer (the "Magma Tender Offer") and completed the Magma acquisition
on February 24, 1995 by acquiring approximately 49% of the outstanding shares
of Magma Common Stock not owned by CECI through a merger. Magma is engaged in
independent power operations similar to those of CECI. The transaction was
accounted for as a purchase business combination.
F-55
<PAGE>
INDEX TO PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL DATA
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Pro Forma Condensed Combined Unaudited Balance Sheet:
Partnership Guarantors as of March 31, 1996 ............................. P-3
Pro Forma Condensed Combined Unaudited Statements of Earnings:
Partnership Guarantors for the Year Ended December 31, 1995 ............ P-4
Partnership Guarantors for the Three Months Ended March 31, 1996 ....... P-5
Notes to Pro Forma Condensed Combined Unaudited Financial Data of the
Partnership Guarantors ................................................. P-6
</TABLE>
P-1
<PAGE>
PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL DATA
The following Pro Forma Condensed Combined Unaudited Balance Sheet as of
March 31, 1996 and the Pro Forma Condensed Combined Unaudited Statements of
Earnings for the year ended December 31, 1995 and the three months ended
March 31, 1996 of the Partnership Guarantors combine the historical
consolidated balance sheets of the Partnership Guarantors and Mission
Edison's interest in Vulcan, Del Ranch, Elmore and Leathers (the "Mission
Edison interests") acquired by CalEnergy Company, Inc. ("CalEnergy") as if
the acquisition had been effected on March 31, 1996 and the historical
statements of income as if the acquisition had been effected at the beginning
of each of the periods presented. The acquisition of Mission Edison's
interest in Vulcan, Del Ranch, Elmore and Leathers by CalEnergy is recorded
under the purchase method of accounting, pushed down to the Partnership
Guarantors after giving effect to the pro forma adjustments and assumptions
described in the accompanying notes. This Pro Forma Condensed Combined
Unaudited Financial Data should be read in conjunction with the financial
data appearing in, and are qualified in their entirety by, the consolidated
financial statements, including the notes thereto, of the Partnership
Guarantors, included in this document.
CalEnergy has completed its preliminary assessment of the fair values of
Mission Edison's interest in Vulcan's, Del Ranch's, Elmore's and Leathers'
assets and liabilities. CalEnergy expects to finalize its fair value
assessment in 1996. Accordingly, the final pro forma combined amounts may
differ from those set forth herein.
The pro forma condensed combined unaudited financial data are intended for
information purposes only and are not intended to present the results that
would have actually occurred if the acquisition had been in effect on the
assumed dates and for the assumed periods, and are not necessarily indicative
of the results that may be obtained in the future.
P-2
<PAGE>
PRO FORMA CONDENSED COMBINED UNAUDITED BALANCE SHEET
PARTNERSHIP GUARANTORS
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PARTNERSHIP ADJUSTMENTS PRO FORMA
GUARANTORS (2A & B) COMBINED
------------- ------------- -----------
<S> <C> <C> <C>
ASSETS
Cash and short term investments .............. $ 11,042 $ 12,962 $ 24,004
Restricted cash and short term investments .. 10,576 13,220 23,796
Accounts receivable -- trade and other ...... 9,615 11,736 21,351
Prepaid expenses and other assets ............ 12,077 8,572 20,649
Due from affiliates .......................... 55,863 47,156 103,019
Property, plant, contracts and equipment, net 299,210 77,986 377,196
Management fee ............................... 64,098 -- 64,098
Goodwill ..................................... 141,359 -- 141,359
------------- ------------- -----------
Total Assets ............................... $603,840 $171,632 $775,472
============= ============= ===========
LIABILITIES AND GUARANTORS' EQUITY
LIABILITIES
Accounts payable ............................. $ 3,167 $ 1,062 $ 4,229
Accrued liabilities .......................... 8,560 4,203 12,763
Project loans ................................ 38,633 (38,633) --
Senior secured project note .................. 62,706 135,000 197,706
Deferred income taxes ........................ 97,396 -- 97,396
------------- ------------- -----------
Total liabilities .......................... 210,462 101,632 312,094
Equity ....................................... 393,378 70,000 463,378
------------- ------------- -----------
Total liabilities and guarantors' equity .. $603,840 $171,632 $775,472
============= ============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-3
<PAGE>
PRO FORMA CONDENSED COMBINED UNAUDITED STATEMENTS OF EARNINGS
THE PARTNERSHIP GUARANTORS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PARTNERSHIP ADJUSTMENT PRO FORMA
GUARANTORS (2C) COMBINED
------------- ------------ -----------
<S> <C> <C> <C>
REVENUES:
Sales of electricity and steam .... $76,909 $90,970 $167,879
Interest and other income .......... 10,574 1,631 12,205
------------- ------------ -----------
Total revenue .................... 87,483 92,601 180,084
------------- ------------ -----------
COSTS AND EXPENSES:
Plant operations ................... 32,143 43,032 75,175
Depreciation and amortization ..... 18,958 18,268 37,226
Interest expense ................... 16,726 8,231 24,957
Less interest capitalized .......... (7,900) (867) (8,767)
------------- ------------ -----------
Total costs and expenses ......... 59,927 68,664 128,591
------------- ------------ -----------
INCOME BEFORE INCOME TAXES .......... 27,556 23,937 51,493
PROVISION FOR INCOME TAXES .......... 11,492 10,214 21,706
------------- ------------ -----------
NET INCOME BEFORE MINORITY INTEREST 16,064 13,723 29,787
MINORITY INTEREST ................... 1,427 (1,427) --
------------- ------------ -----------
NET INCOME .......................... $14,637 $15,150 $ 29,787
============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-4
<PAGE>
PRO FORMA CONDENSED COMBINED UNAUDITED STATEMENTS OF EARNINGS
THE PARTNERSHIP GUARANTORS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PARTNERSHIP ADJUSTMENT PRO FORMA
GUARANTORS (2C) COMBINED
------------- ------------ -----------
<S> <C> <C> <C>
REVENUES:
Sales of electricity and steam $15,159 $18,250 $33,409
Interest and other income ..... 2,220 390 2,610
------------- ------------ -----------
Total revenue ................. 17,379 18,640 36,019
------------- ------------ -----------
COSTS AND EXPENSES:
Plant operations ............... 7,612 9,911 17,523
Depreciation and amortization . 4,373 3,831 8,204
Interest expense ............... 2,007 1,862 3,869
Less interest capitalized ..... (2,007) (277) (2,284)
------------- ------------ -----------
Total costs and expenses ..... 11,985 15,327 27,312
------------- ------------ -----------
INCOME BEFORE INCOME TAXES ..... 5,394 3,313 8,707
PROVISION FOR INCOME TAXES ..... 2,249 1,381 3,630
------------- ------------ -----------
NET INCOME ...................... $ 3,145 $ 1,932 $ 5,077
============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-5
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED UNAUDITED
FINANCIAL DATA
PARTNERSHIP GUARANTORS
(TABLES IN THOUSANDS)
On April 17, 1996, a subsidiary of CalEnergy acquired all of the stock of
BN Geothermal, Inc. ("BNG"), Niguel Energy Company ("Niguel"), San Felipe
Energy Company ("San Felipe") and Conejo Energy Company from Edison Mission
Energy ("Mission") for $70 million. Such acquired companies owned 50%
partnership interests in each of the Partnership Projects. The Partnership
Acquisition has been accounted for as a purchase business combination
pursuant to the principles of APB Opinion No. 16, "Business Combinations."
The purchase accounting adjustments have been pushed down to the Partnership
Guarantors. In applying APB No. 16, all identifiable assets acquired and
liabilities assumed are assigned a portion of the cost of acquiring the
acquired companies, equal to their fair values at the date of the
acquisition. The net cash flow projections used for determining the fair
values in the purchase accounting were those used for the acquisition as
prepared by CalEnergy and reflect estimated cost reductions which were not
necessarily considered by the independent engineer whose independent
evaluation is included in Exhibit B of this Offering Circular. The resulting
purchase accounting adjustments are based on the historical financial
statements of the acquired companies.
The Pro Forma Condensed Combined Unaudited Financial Data are based on the
following assumptions:
1. The Acquisition and the resulting push down to the Partnership
Guarantors of the accounting as a purchase business combination
occurred at the beginning of the periods presented for statements
of earnings purposes.
2. The pro forma adjustments to reflect the effect of the transaction
are as follows:
A. The adjustments which have been made to the net assets of the
Partnership Guarantors to reflect the effect of the Partnership
acquisition accounted for as a purchase business combination
pushed down to the Partnership Guarantors follow:
<TABLE>
<CAPTION>
PROPERTY AND PLANT .......... $(101,999)
<S> <C>
Power sale agreements ....... 44,797
Other assets and liabilities (4,882)
------------
Net decrease in assets ..... $ (62,084)
============
</TABLE>
B. The Securities being offered by this Offering Circular were
issued and all existing project-level debt was paid off at the
date of the pro forma balance sheet.
C. The pro forma adjustments to the Pro Forma Condensed Combined
Unaudited Statements of Earnings of the Guarantors are as
follows:
i. Reflect the operating income and expenses of the acquired
companies.
ii. Provide depreciation and amortization of the fair values
assigned to all identifiable assets as described below and
capitalize interest on costs allocated to projects under
development and construction. The Guarantors' policy is to
provide depreciation and amortization expense upon the
commencement of revenue production over the estimated remaining
useful life of the identifiable assets and to periodically
assess the carrying value of such assets for possible
impairment in accordance with the provisions of Statement of
Financial Accounting Standards No. 121.
The fair value of property and equipment, net of salvage value,
and exploration and development cost is depreciated using the
straight line method over the remaining portion (approximately
23 years) of the original 30-year life.
P-6
<PAGE>
Power sales agreements have been assigned values separately for
each of (1) the remaining portion of the scheduled price
periods of the power sales agreements and (2) the 20 year
avoided cost periods of the power sales agreements and are
being amortized separately over such periods using the straight
line method.
iii. Increase interest expense relating to the allocation of the
Securities and the repayment of all existing project-level
debt.
iv. For the year ended December 31, 1995, reflect the Magma
Acquisition and the resulting push down to the Guarantors of
the accounting as a purchase business combination beginning
January 1, 1995.
v. Change in income tax expense as a result of pro forma
adjustments which affect taxable income.
P-7
<PAGE>
APPENDIX A
GLOSSARY OF DEFINED TERMS
Unless the context requires otherwise, any reference in this
Prospectus to any agreement shall mean such agreement and all schedules,
exhibits and attachments thereto as amended, supplemented or otherwise
modified and in effect as of the date of this Prospectus, and as the same may
thereafter be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof and of the Transaction Documents. All terms
defined herein used in the singular shall have the same meanings when used in
the plural and vice versa.
CERTAIN TERMS DEFINED BELOW ARE SUMMARIES OF TERMS DEFINED IN, AND
ARE DEFINED MORE SPECIFICALLY IN, THE PROJECT DOCUMENTS AND THE FINANCING
DOCUMENTS. SUCH SUMMARIES DO NOT PURPORT TO BE COMPLETE AND ARE SUBJECT TO,
AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO, ALL OF THE PROVISIONS OF
THE PROJECT DOCUMENTS AND THE FINANCING DOCUMENTS.
"ACCREDITED INVESTOR" means an institutional "accredited investor"
within the meaning of Subparagraph (a)(1), (2), (3) or (7) of Rule 501 under
the Securities Act.
"ACQUIRED PARTNERSHIP COMPANIES" means BNG, Conejo, Niguel and San
Felipe.
"ADDITIONAL PARTNERSHIP COLLATERAL" means the revenues and assets
pledged as collateral by the Partnership Project Companies in connection with
the Offering.
"ADDITIONAL PARTNERSHIP GUARANTORS" means BNG, Conejo, Niguel, San
Felipe and the Partnership Project Companies.
"ADDITIONAL PARTNERSHIP PROJECT NOTE" means the promissory note in
the initial principal amount of $135,000,000 issued by the Partnership
Guarantors in favor of the Funding Corporation under the Partnership Credit
Agreement on the Closing Date.
"ADDITIONAL PARTNERSHIP REVENUE DEPOSITS" means the revenues of the
Partnership Project Companies that are deposited in the Revenue Fund pursuant
to the Depositary Agreement.
"ADDITIONAL PROJECT DOCUMENT" means (a) any contract or undertaking
relating to the purchase or sale of electricity from the Projects entered into
by the Guarantors after the Closing Date, (b) any consent or security
instrument entered into by the Guarantors or any other relevant party in
connection with an Additional Project Document, or (c) any contract or
undertaking to which Funding Corporation or any Guarantor is a party entered
into after the Closing Date, relating to (i) the supply, procurement, handling
or transportation of brine to the Projects, or (ii) the design, construction,
operation or maintenance of the Projects; in each case which is material to
the applicable Project.
"ADDITIONAL PROJECTS" means Permitted Facilities, developed, owned,
operated, acquired or constructed after the Initial Closing Date as may be
permitted in accordance with the terms of the Financing Documents.
"ADDITIONAL SECURITIES" means any Securities issued pursuant to the
Indenture, other than the Initial Securities, the Old Securities and the New
Securities.
"ADJUSTED CAPACITY PRICE" means the capacity payment per kWh for a
Project which has changed its Contract Capacity in accordance with the terms
of its respective Power Purchase Agreement.
A-1
<PAGE>
"AFFILIATE" means, 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'S MESSAGE" means a message transmitted through electronic
means by a Book-Entry Transfer Facility to and received by the Depositary and
forming a part of a book-entry confirmation, which states that such Book-Entry
Transfer Facility has received an express acknowledgment from the participant
in such Book-Entry Transfer Facility tendering the Securities that such
participant has received and agrees to be bound by the Letter of Transmittal.
"ALLOCATION CERTIFICATE" means each certificate provided by the
Funding Corporation or one of the Guarantors or, pursuant to the Intercreditor
Agreement, the Required Secured Parties (as defined in the Intercreditor
Agreement), as applicable, setting forth the allocation of Loss Proceeds,
Eminent Domain Proceeds, Title Event Proceeds, or cash proceeds resulting from
liquidation of the Collateral and Funding Corporation Collateral, as the case
may be, among the Secured Parties (to the extent the Secured Obligations of
such Secured Parties may be redeemed or prepaid under the applicable Financing
Documents).
"ANNUAL FORECAST ENERGY PAYMENT" means an energy payment based on
predetermined, escalating energy prices as set forth in the Forecast of Annual
Marginal Cost of Energy.
"ANNUAL FORECAST ENERGY PAYMENT SO4 AGREEMENTS" means an SO4
Agreement pursuant to which the respective Project Company receives Annual
Forecast Energy Payments from SCE.
"AVAILABLE CASH FLOW" means, for any period and (a) for the Initial
Partnership Guarantors and the Royalty Guarantor, as applicable, the total
Equity Cash Flows and Royalties received by such Guarantor, minus, without
duplication, (i) any Royalties paid, (ii) all Operating and Maintenance Costs,
(iii) all capital expenditures for such Guarantor and its respective Projects
and (iv) debt service; all as computed by such Guarantor for such period and
(b) for the Additional Partnership Guarantors, as applicable, the total
revenues received by such Guarantor, minus, without duplication, (i) any
Royalties paid, (ii) all Operating and Maintenance Costs, (iii) all capital
expenditures for such Guarantor and its respective Projects and (iv) debt
service; all as computed by such Guarantor for such period.
"AVOIDED COST OF ENERGY" means SCE's then-current, published,
short-run avoided cost of energy.
"AVOIDED COST OF ENERGY PERIOD" means the last 20-year period of the
SO4 Agreements to which the Project Companies are parties, during which the
Project Companies receive energy payments based on SCE's Avoided Cost of
Energy.
"BASE PRICE" means the initial value of the energy payment price
(4.056 cents per kWh) in the Salton Sea Unit I PPA. The Base Price is adjusted
quarterly pursuant to various indices to determine the energy payment price
under the Salton Sea Unit I PPA.
"BNG" means BN Geothermal Inc., a Delaware corporation.
"BOARD OF DIRECTORS," when used with respect to a corporation, means
either the board of directors of such corporation or any committee of that
board duly authorized to act for that board.
"BRINE SALES AGREEMENT" means the Brine Sales Agreement, dated August
30, 1985 as amended as of June 17, 1996, between VPC and Vulcan.
"BRPU" means the "Biennial Resource Plan Update" established by
the CPUC.
A-2
<PAGE>
"BRPU AWARD" means the order of CPUC, dated June 22, 1994 (confirmed on
December 21, 1994), awarding Magma the right to enter into a contract to sell
69 MW of power to SCE and 94 MW of power to SDG&E.
"CALENERGY" means CalEnergy Company, Inc., a Delaware corporation.
"CAPITAL EXPENDITURE FUND" means the fund of such name created under
the Depositary Agreement.
"CE" means the symbol for CalEnergy's publicly-traded common stock on
the New York, Pacific and London Stock Exchanges.
"CEDEL" means Cedel Bank, Societe Anonyme.
"CEOC" means CalEnergy Operating Company, a Delaware corporation.
"CEOC AGREEMENTS" means, collectively, the Del Ranch Agreements, the
Elmore Agreements and the Leathers Agreements.
"CLOSING DATE" means June 20, 1996, the date of issuance and delivery
of the Old Securities.
"COLLATERAL" means the Salton Sea Collateral, the Partnership
Collateral and the Royalty Collateral.
"COLLATERAL AGENT" means Chemical Trust Company of California, as
collateral agent for the benefit of the Secured Parties and Funding
Corporation under the Intercreditor Agreement, together with its successors
and assigns.
"COMBINED EXPOSURE" means, 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 Outstanding Securities, (ii) the aggregate principal amount of all
Permitted Debt outstanding (other than Subordinated Debt), (iii) the aggregate
amount of all available undrawn financing commitments under the documents
governing the Permitted Debt which the creditors party to such documents have
no right to terminate, (iv) 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 (if any) and (v) the termination payment
due and owing as of such calculation date or which the Permitted Counterparty
thereunder has a right to cause to be due and owing as of such calculation
date under any Interest Rate Protection Agreement.
"COMMERCIAL OPERATION" means, in connection with any Project, the
achievement by the Project of certain operational criteria under the relevant
Power Purchase Agreement and the capability of such Project of delivering
electricity in accordance therewith.
"COMMISSION" means the United States Securities and Exchange
Commission.
"CONEJO" means Conejo Energy Company, a California corporation.
"CONSUMER PRICE INDEX" means the Consumer Price Index published by
the Bureau of Labor Statistics of the Department of Labor or, in the event
that the publication of the Consumer Price Index shall be transferred to any
other governmental agency or shall be discontinued, then the index most nearly
the same as the Consumer Price Index, as determined in good faith by IID.
"CONTRACT CAPACITY" means the electric power producing capability of
the relevant Project which is committed to SCE on a firm basis under its Power
Purchase Agreement.
A-3
<PAGE>
"CONTRACT CAPACITY FACTOR" means, with respect to a particular Project,
(i) the Project's actual electricity output divided by (ii) the product of the
Project's Contract Capacity and the number of hours in the measurement period
(less applicable maintenance hours).
"CONTRACT CAPACITY PRICE" means the particular capacity payment price
per kWh stated in the relevant SO4 Agreement.
"COST OVERRUN COMMITMENT" means the Cost Overrun Commitment, dated as
of the Closing Date, by CalEnergy in favor of the Salton Sea Guarantors.
"CPUC" means the California Public Utilities Commission.
"CRC PROCESS" means the "crystallizer/clarifier" process developed by
Magma to counteract the effects of high TDS geothermal fluid and decrease
scaling and mineral buildup in the geothermal resource gathering system, which
process uses seed crystals to promote crystal growth and precipitate solids in
crystallizer reactors.
"CREDIT AGREEMENT EVENT OF DEFAULT" means an "Event of Default" as
defined in a Credit Agreement.
"CREDIT AGREEMENTS" means the Salton Sea Credit Agreement, the
Partnership Credit Agreement and the Royalty Credit Agreement.
"CUSTODIAN" means, initially, the Trustee, and its successors and
assigns or any other custodian performing similar functions.
"DEBT" of any Person means, at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by 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 shall not be included herein), (iv)
all obligations of such Person as lessee under capital leases to the extent
required to be capitalized on the books of such Person in accordance with GAAP
and (v) all obligations of others of the type referred to in clause (i)
through (iv) above guaranteed by such Person, whether or not secured by a lien
or other security interest on any asset of such Person.
"DEBT SERVICE COVERAGE RATIO" means for any period, without
duplication, the ratio of (i) (A) the sum of all revenues (including interest
and fee income but excluding any insurance proceeds and other similar
non-recurring receipts) of the Guarantors for such period, minus (B) the
aggregate amount of Operating and Maintenance Costs of the Guarantors for such
period to (ii) the sum of (A) all principal, premium (if any) and interest
payable with respect to Permitted Debt outstanding (other than Subordinated
Debt) for such period, plus (B) the aggregate amount of overdue principal,
premium (if any) and interest payments owed with respect to Permitted Debt
outstanding (other than Subordinated Debt) from previous periods; all as
determined on a cash basis in accordance with GAAP.
"DEBT SERVICE RESERVE BOND" means a bond substituted for a Debt
Service Reserve LOC Loan, which bond is amortized to result in levelized
payment of the principal of and interest on such bond to and including the
Final Maturity Date, and which bears interest at a fixed rate equal to the
higher of (a) the interest rate applicable to the Debt Service Reserve LOC
Loan converted into the Debt Service Reserve Bond; 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 (i) 2.50% and (ii) the spread over U.S. Treasury Notes
applicable to the Securities on the Closing Date.
"DEBT SERVICE RESERVE FUND" means the fund of such name created under
the Depositary Agreement.
A-4
<PAGE>
"DEBT SERVICE RESERVE FUND REQUIRED BALANCE" means (i) at any given
time, on or prior to December 31, 1999, an amount equal to the maximum
semiannual scheduled payment of principal, premium (if any) and interest due on
the Securities Outstanding and (ii) at any given time subsequent to December 31,
1999, an amount equal to the maximum annual scheduled payment of principal,
premium (if any) and interest due on the Securities outstanding, in each case
as set forth in Schedule I to the Depositary Agreement.
"DEBT SERVICE RESERVE LETTER OF CREDIT" means one or more
irrevocable, direct pay letters of credit issued by the Debt Service LOC
Provider in favor of the Depositary.
"DEBT SERVICE RESERVE LOC LOAN" means each loan made by a Debt
Service Reserve LOC Provider to the Funding Corporation pursuant to the Debt
Service Reserve LOC Reimbursement Agreement.
"DEBT SERVICE RESERVE LOC NOTE" means the promissory note issued by
the Funding Corporation pursuant to the Debt Service Reserve LOC Reimbursement
Agreement.
"DEBT SERVICE RESERVE LOC PROVIDER" means the commercial bank(s) or
financial institution(s) issuing the Debt Service Reserve Letter of Credit.
"DEBT SERVICE RESERVE LOC REIMBURSEMENT AGREEMENT" means the Credit
and Reimbursement Agreement, dated as of the Initial Closing Date, as amended
and restated as of the Closing Date, between the Funding Corporation and the
Debt Service Reserve LOC Provider.
"DEEDS OF TRUST" means, collectively, the Salton Sea Deed of Trust,
the Partnership Project Deed of Trust, and the Royalty Deed of Trust.
"DEFAULT" means an event or condition that, with the giving of
notice, lapse of time or failure to satisfy certain specified conditions, or
any combination thereof, would become an Event of Default.
"DEFINITIVE SECURITIES" means definitive Securities, without coupons,
issued to Holders of Securities or their nominees.
"DEL RANCH" means Del Ranch, L.P., a California limited partnership.
"DEL RANCH AGREEMENTS" means, collectively, the Del Ranch ASA, the
Del Ranch Operating and Maintenance Agreement, the Del Ranch PPA, the Del
Ranch Transmission Service Agreement, the Del Ranch Easement, the Del Ranch
Ground Lease, the Del Ranch Partnership Agreement and any Additional Project
Document entered into by CEOC or Del Ranch with respect to the Del Ranch
Project.
"DEL RANCH ASA" means the Administrative Services Agreement, dated as
of March 14, 1988, as amended as of June 17, 1996, between CEOC and Del Ranch.
"DEL RANCH CREDIT AGREEMENT" means the Amended and Restated Credit
Agreement, dated April 18, 1990, among Del Ranch, the financial institutions
party thereto and Morgan Guaranty Trust Company, as agent.
"DEL RANCH EASEMENT" means the Easement Grant Deed and Agreement
Regarding Rights for Geothermal Development, dated March 14, 1988, as amended
as of June 17, 1996, between Del Ranch and Magma.
"DEL RANCH GROUND LEASE" means the Ground Lease, dated as of March
14, 1988, as amended as of June 17, 1996, between Magma and Del Ranch.
"DEL RANCH O&M AGREEMENT" means the Operating and Maintenance
Agreement, dated March 14, 1988, as amended as of June 17, 1996, between Del
Ranch and CEOC.
A-5
<PAGE>
"DEL RANCH PARTNERSHIP AGREEMENT" means the Amended and Restated
Limited Partnership Agreement of Del Ranch, L.P., dated as of March 14, 1988, as
amended as of April 14, 1989, between CEOC, Magma and Conejo.
"DEL RANCH PPA" means the Long Term Power Purchase Agreement, dated
February 22, 1984, as amended, between SCE and Del Ranch, as successor to
Magma.
"DEL RANCH PROJECT" means the 38 MW contract nameplate geothermal
power plant, owned by Del Ranch, located in the SSKGRA.
"DEL RANCH TRANSMISSION SERVICE AGREEMENT" means the Transmission
Service Agreement, dated as of August 2, 1988, between Del Ranch and IID.
"DEPOSITARY" means Chemical Trust Company of California, as
depositary under the Depositary Agreement.
"DEPOSITARY AGREEMENT" means the Deposit and Disbursement Agreement,
dated as of the Initial Closing Date, between the Funding Corporation, the
Collateral Agent, the Depositary and the Initial Guarantors as amended by
Amendment No. 1 thereto, dated the Closing Date, between the Funding
Corporation, the Collateral Agent, the Depositary and the Guarantors.
"DISTRIBUTION FUND" means the fund of such name created under the
Depositary Agreement.
"DISTRIBUTION SUSPENSE FUND" means the fund of such name created
under the Depositary Agreement.
"DOW" means Dow Engineering Company, a Delaware corporation.
"DTC" means 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
substantially all of its assets, including substantially all of its securities
payment and transfer operations.
"DTC PARTICIPANTS" means the securities brokers and dealers, banks,
trust companies and clearing corporations who participate in DTC.
"DTC SECURITIES" means the Securities represented by the Global
Security held in book-entry form by DTC.
"DVC" means the Desert Valley Company, a California corporation.
"EAST MESA" means Geo East Mesa, L.P, a California limited partnership.
"EAST MESA ASSIGNMENT AND SECURITY AGREEMENT" means the Assignment
and Security Agreement, dated May 12, 1988, between East Mesa and Magma.
"EAST MESA MASTER AGREEMENT" means the Master Agreement, dated May 12,
1988, among Geothermal Resources International, Inc., Geo East Mesa, Inc.,
Geo East Mesa No. 3, Inc., East Mesa, Magma, Pacificorp Credit, Inc. and
Credit Suisse.
"EAST MESA PPAS" means one or more power purchase agreements between
SCE and East Mesa.
"EAST MESA PROJECT" means the 37 MW nameplate geothermal power plant
owned by East Mesa.
A-6
<PAGE>
"EAST MESA ROYALTY" is the payment owed to Magma by East Mesa pursuant
to the East Mesa Assignment and Security Agreement which payment amounts to 14%
of East Mesa's combined capacity and energy revenues.
"ELMORE" means Elmore L.P., a California limited partnership.
"ELMORE AGREEMENTS" means, collectively, the Elmore ASA, the Elmore
Operating and Maintenance Agreement, the Elmore PPA, the Elmore Transmission
Service Agreement, the Elmore Easement, the Elmore Ground Lease, the Elmore
Partnership Agreement and any Additional Project Document entered into by CEOC
or Elmore with respect to the Elmore Project.
"ELMORE ASA" means the Administrative Services Agreement, dated as of
March 14, 1988, as amended as of June 17, 1996, between CEOC and Elmore.
"ELMORE CREDIT AGREEMENT" means the Amended and Restated Credit
Agreement, dated as of April 18, 1990, among Elmore, the financial
institutions party thereto and Morgan Guaranty Trust Company, as agent.
"ELMORE EASEMENT" means the Easement Grant Deed and Agreement
Regarding Rights for Geothermal Development, dated March 14, 1988, as amended
as of June 17, 1996, between Elmore and Magma.
"ELMORE GROUND LEASE" means the Ground Lease, dated March 14, 1988,
as amended as of June 17, 1996, between Elmore and Magma.
"ELMORE O&M AGREEMENT" means the Operating and Maintenance Agreement,
dated March 14, 1988, as amended as of June 17, 1996, between CEOC and Elmore.
"ELMORE PARTNERSHIP AGREEMENT" means the Amended and Restated Limited
Partnership Agreement, dated March 14, 1988, as amended as of April 14, 1989,
between CEOC, Niguel Energy Company and Magma.
"ELMORE PPA" means the Long Term Power Purchase Agreement, dated June
15, 1984, as amended, between SCE and Elmore, as successor to Magma.
"ELMORE PROJECT" means the 38 MW contract nameplate geothermal power
plant owned by Elmore, located in the SSKGRA.
"ELMORE TECHNOLOGY TRANSFER AGREEMENT" means the Technology Transfer
Agreement, dated March 14, 1988, between Elmore and Magma.
"ELMORE TRANSMISSION SERVICE AGREEMENT" means the Transmission
Service Agreement, dated August 2, 1988, between IID and Elmore.
"EMINENT DOMAIN PROCEEDS" means all amounts and proceeds (including
instruments) received (to the extent, if any, in the case of a Partnership
Guarantor other than a Partnership Project Company, as Equity Cash Flows) in
respect of any Event of Eminent Domain, after deducting all reasonable
expenses incurred in litigating, arbitrating, compromising, settling or
consenting to the settlement of any claims against the appropriate
Governmental Authority.
"ENGINEERING SERVICES AGREEMENT" means the Engineering Services
Agreement, dated February 17, 1994, between Magma and Dow.
"EQUITY CASH FLOWS" means, with respect to the Initial Partnership
Guarantors, the cash flow available to such Guarantor from equity
distributions made by the Partnership Project Companies and not otherwise
A-7
<PAGE>
required to be used (x) for Operating and Maintenance Costs or (y) otherwise
pursuant to a Partnership Project project document or financing document.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EUROCLEAR" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System, or any successor to Morgan
Guaranty Trust Company of New York, Brussels office, as operator thereof.
"EURODOLLAR RATE" means the rate of interest per annum equal to the
quotient (rounded upward, if necessary, to the nearest one-sixteenth of one
percent (0.0625%)) of (i) the rate of interest equal to the arithmetic average
(rounded upward, if necessary to the next higher 1/100 of 1%) of the rates at
which deposits in dollars are offered by reference banks to prime banks in the
London interbank market two banking days before the first day of the
applicable interest period for a period equal to such interest period and in
an amount as to each reference bank substantially equal to the Eurodollar Rate
loan of such reference bank divided by (ii) a percentage equal to 100% minus
the eurodollar rate reserve percentage for such interest period.
"EVENT OF DEFAULT" means the occurrence of an event of default under
the Indenture.
"EVENT OF EMINENT DOMAIN" means any compulsory transfer or taking or
transfer under threat of compulsory transfer or taking of any material part of
the Collateral or Projects by any Governmental Authority.
"EVENT OF LOSS" means an event which causes all or a portion of a
Project to be damaged, destroyed or rendered unfit for normal use for any
reason whatsoever, other than an Event of Eminent Domain or a Title Event.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE OFFER" means the terms and conditions set forth in the
Letter of Transmittal and the Prospectus.
"EXPANSION FUND" means the fund of such name created under the
Depositary Agreement.
"EXISTING PARTNERSHIP COLLATERAL" means the Royalties and Equity Cash
Flows received by CEOC, VPC and the Royalty Guarantor from the Partnership
Project Companies.
"EXISTING PARTNERSHIP CASH FLOW DEPOSITS" means the Royalties and
Equity Cash Flows received by CEOC, VPC and the Royalty Guarantor from the
Partnership Project Companies and deposited into the Revenue Fund pursuant to
the Depositary Agreement.
"FACILITY GROSS CAPACITY" means, with respect to a Project, the gross
electric output of such facility prior to subtraction of the parasitic load.
"FERC" means the United States Federal Energy Regulatory Commission,
or any successor thereto.
"FINAL MATURITY DATE" means the latest stated maturity date of any
series of the Securities.
"FINANCING DOCUMENTS" means, collectively, the Credit Agreements, the
Guarantees, the Indenture, the Project Notes, the Registration Rights
Agreement, the Depositary Agreement, any Interest Rate Protection Agreements,
the Intercreditor Agreement, the Securities, the Debt Service Reserve LOC
Reimbursement Agreement, the Working Capital Facility, the Security Documents,
the Support Letter and the Cost Overrun Commitment.
A-8
<PAGE>
"FIRM CAPACITY PAYMENT" means an annual capacity payment which is equal
to the product of the relevant Project's Contract Capacity Price and Contract
Capacity as set forth in such Project's Power Purchase Agreement.
"FIRM OPERATION" means, with respect to a Project, that such Project
has been determined to be a reliable source of generation, and that such
Project can be reasonably expected to operate continuously at its effective
rating.
"FIRM OPERATION DATE" means the date a Project achieves Firm
Operation.
"FISH LAKE" means Fish Lake Power Company, a Delaware corporation.
"FISH LAKE PLEDGE AGREEMENT" means the Stock Pledge Agreement, dated
as of the Initial Closing Date, by Magma and the Funding Corporation, pledging
the stock of Fish Lake, in favor of the Collateral Agent for the benefit of
the Secured Parties and the Funding Corporation.
"FISH LAKE PPA" means the Fish Lake contract, dated June 6, 1991,
among SCE, Geo-Energy Partners-1993 Ltd., Geothermal Drilling, Ltd., and Steam
Reserve Corporation.
"FISH LAKE PROJECT" means the geothermal power plant proposed to be
built at Fish Lake in Esmeralda County, Nevada.
"FIXED PRICE PERIOD" means the initial ten-year period of the SO4
Agreements to which the Project Companies are parties during which the Project
Companies receive either Annual Forecast Energy Payments or Levelized Energy
Payments, as applicable.
"FORECAST OF ANNUAL MARGINAL COST OF ENERGY SCHEDULE" means the
schedule of such name prepared by SCE in the Annual Forecast Energy Payment
SO4 Agreements which provides that the energy payment price payable by SCE per
kWh is equal to:
<TABLE>
<CAPTION>
YEAR PRICE PER KWH
- ---- --------------
<S> <C>
1996.......................................................... 12.6 cents
1997.......................................................... 13.6 cents
1998.......................................................... 14.6 cents
1999.......................................................... 15.7 cents
</TABLE>
"FPA" means the Federal Power Act (the Public Utility Act of 1935),
as amended.
"FUNDING CORPORATION" means Salton Sea Funding Corporation, a
Delaware corporation.
"FUNDING CORPORATION COLLATERAL" means the pledge of the capital
stock of the Funding Corporation.
"FUNDING ORDER" means a written request of the Funding Corporation to
redeem any Securities, whether by optional or mandatory redemption, in
accordance with the Indenture.
"FUNDING PLEDGE AGREEMENT" means the Stock Pledge Agreement, dated as
of the Initial Closing Date, by Magma, pledging the stock of the Funding
Corporation, in favor of the Collateral Agent for the benefit of the Secured
Parties and the Funding Corporation.
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<PAGE>
"FUNDS" means the funds established under the Depositary Agreements.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"GEOTHERMAL LESSOR'S FEE" means the charge of such name payable under
each of the Vulcan Easement, the Elmore Easement, the Leather's Easement and
the Del Ranch Easement, which charge amounts to 4.167% of the relevant
Project's energy revenues.
"GLOBAL SECURITIES" means, collectively, in respect of each series of
Securities, (a) the single global Security in registered form for each series
of Securities issued to QIBs and (b) the Regulation S Global Security.
"GOVERNMENTAL APPROVALS" means all governmental approvals,
authorizations, consents, decrees, permits, waivers, privileges and filings
with all Governmental Authorities required to be obtained by a Project Company
for construction, operation and maintenance of a Project.
"GOVERNMENTAL AUTHORITY" means the government of any federal, state,
municipal or other political subdivision in which the Projects are located,
and any other government or political subdivision thereof exercising
jurisdiction over the Projects or any party to any of the Project Documents,
including all agencies and instrumentalities of such governments and political
subdivisions.
"GRANTOR'S FUEL CHARGE" means the charge of such name payable under
each of the Elmore Easement, the Leather's Easement and the Del Ranch
Easement, which charge amounts to 17.333% of the relevant Project's energy
revenues.
"GUARANTEE EVENT OF DEFAULT" means an "Event of Default" under and as
defined in a Guarantee.
"GUARANTEES" means, collectively, the Salton Sea Guarantee, the
Partnership Guarantee and the Royalty Guarantee.
"GUARANTORS" means, collectively, the Salton Sea Guarantors, the
Partnership Guarantors and the Royalty Guarantor.
"HOLDER" means the registered holder of any Security from time to
time.
"IER" means SCE's incremental energy rate.
"IID" means the Imperial Irrigation District, a public agency of the
State of California.
"INDENTURE" means the Trust Indenture, dated as of the Initial
Closing Date, as supplemented by the First Supplemental Indenture thereto
dated as of October 18, 1995 and as further supplemented by the Supplemental
Indenture, dated as of the Closing Date, each by and among the Funding
Corporation and the Trustee.
"INDEPENDENT ENGINEER" means Stone & Webster Engineering Corporation
or another widely recognized independent engineering firm or engineer retained
as independent engineer by the Funding Corporation.
"INDEPENDENT ENGINEER'S REPORT" means the Independent Engineer's
Report prepared by Stone & Webster Engineering Corporation and attached to
this Prospectus as Appendix B.
"INDIRECT PARTICIPANTS" means banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant either directly or indirectly.
A-10
<PAGE>
"INITIAL GUARANTORS" means, collectively, the Salton Sea Guarantors,
the Initial Partnership Guarantors and the Royalty Guarantor.
"INITIAL OFFERING" means the offering and sale of the Unregistered
Initial Securities to CS First Boston and Lehman Brothers Inc., as initial
purchasers, on the Initial Closing Date.
"INITIAL CLOSING DATE" means July 21, 1995.
"INITIAL EXCHANGE OFFER PROSPECTUS" means the Prospectus, dated
January 10, 1996, included in the Initial Registration Statement.
"INITIAL PARTNERSHIP CREDIT AGREEMENT" means the credit agreement,
dated as of the Initial Closing Date, between the Funding Corporation and the
Initial Partnership Guarantors.
"INITIAL PARTNERSHIP GUARANTORS" means CEOC and VPC.
"INITIAL PARTNERSHIP PROJECT NOTE" means the promissory note in the
initial principal amount of $75,000,000 issued by the Initial Partnership
Guarantors in favor of the Funding Corporation under the Partnership Credit
Agreement on the Initial Closing Date, and reissued by the Partnership
Guarantors on the Closing Date.
"INITIAL PURCHASER" means CS First Boston Corporation.
"INITIAL REGISTRATION STATEMENT" means the registration statement on
Form S-4, which includes all amendments, exhibits, annexes and schedules
thereto, pursuant to the Securities Act and the rules and regulations
promulgated thereunder, covering the Registered Initial Securities.
"INITIAL SECURITY" or "INITIAL SECURITIES" means any Registered
Initial Security or any Unregistered Initial Security.
"INSURANCE CONSULTANT" means Sedgwick James of Tennessee, Inc. or
another widely recognized insurance consulting firm retained as insurance
consultant by the Funding Corporation.
"INTERCREDITOR AGREEMENT" means the Collateral Agency and
Intercreditor Agreement, dated as of the Initial Closing Date, among the
Collateral Agent, the Depositary, the Secured Parties, the Funding
Corporation and the Initial Guarantors, as amended pursuant to Amendment
No. 1 thereto, dated as of the Closing Date, among the Collateral Agent,
the Depositary, the Secured Parties, the Funding Corporation and the
Guarantors.
"INTEREST FUND" means the fund of such name created under the
Depositary Agreement.
"INTEREST PAYMENT DATE" means with respect to (i) any Initial
Security, each May 30th and November 30th, commencing November 30, 1995 and
concluding on the Final Maturity Date of such Initial Securities, (ii) any
Series D and Series E Security, each May 30th and November 30th, commencing
November 30, 1996 and concluding on the Final Maturity Date of such Series D
and Series E Securities and (iii) any Debt Service Reserve LOC Loan or Debt
Service Reserve Bond, each regularly scheduled date on which interest is due
and payable, as such date may be established from time to time, commencing on
the first such date after the applicable drawing, and any date on which
interest of such Debt Service Reserve LOC Loan or Debt Service Reserve Bond
becomes due and payable at redemption, the final maturity date or declaration
of acceleration, or otherwise.
"INTEREST RATE PROTECTION AGREEMENTS" means any agreements providing
for swaps, ceiling rates, ceiling and floor rates, contingent participation or
other hedging mechanisms with respect to the payment of interest.
A-11
<PAGE>
"INVESTMENT GRADE RATING" means a rating of "BBB-" or higher from
S&P and "Baa3" or higher from Moody's (or an equivalent rating by another
nationally recognized credit rating agency if none of such corporations is
rating the Securities).
"JUNIOR ROYALTY" is the payment owed to Magma by East Mesa pursuant
to the East Mesa Assignment and Security Agreement, as modified by the East
Mesa Master Agreement, which is paid after East Mesa's debt service, which
payment amounts to 10% of East Mesa's combined capacity and energy revenues.
"KGRA" means a known geothermal resource area designated by the
Bureau of Land Management.
"KW" means a unit of electrical energy equal to one thousand watts
of power.
"KWH" means a unit of electrical energy equal to one kW of power
supplied or taken from an electric circuit steadily for one hour.
"LEATHERS" means Leathers, L.P., a California limited partnership.
"LEATHERS AGREEMENTS" means, collectively, the Leathers ASA, the
Leathers Operating and Maintenance Agreement, the Leathers PPA, the Leathers
Transmission Service Agreement, the Leathers Easement, the Leathers Ground
Lease, the Leathers Partnership Agreement and any Additional Project Document
entered into by CEOC or Leathers with respect to the Leathers Project.
"LEATHERS ASA" means the Administrative Services Agreement, dated as
of August 15, 1988, between CEOC and Leathers.
"LEATHERS CREDIT AGREEMENT" means the Amended and Restated Credit
Agreement, dated April 18, 1990, as amended as of June 17, 1996, among
Leathers, the financial institutions party thereto and Morgan Guaranty Trust
Company, as agent.
"LEATHERS EASEMENT" means the Easement Grant Deed and Agreement
Regarding Rights for Geothermal Development, dated August 15, 1988, as amended
as of June 17, 1996, between Leathers and Magma.
"LEATHERS GROUND LEASE" means the Ground Lease, dated October 26,
1988, as amended as of June 17, 1996, between Magma and Leathers.
"LEATHERS O & M AGREEMENT" means the Operating and Maintenance
Agreement, dated August 15, 1988, as amended as of June 17, 1996, between
Leathers and CEOC.
"LEATHERS PARTNERSHIP AGREEMENT" means the Limited Partnership
Agreement of Leathers, L.P., dated August 15, 1988, as amended as of April 14,
1989, among CEOC, Magma and San Felipe.
"LEATHERS PPA" means the Long Term Power Purchase Agreement, dated as
of April 16, 1985, as amended, between SCE and Leathers, as successor to
Magma.
"LEATHERS PROJECT" means the 38 MW contract nameplate geothermal
power plant owned by Leathers, located in the SSKGRA.
"LEATHERS TRANSMISSION SERVICE AGREEMENT" means the Transmission
Service Agreement, dated as of October 3, 1989, between Leathers and IID.
"LETTER OF TRANSMITTAL" means the letter of transmittal which
accompanies the Prospectus and which is filed as an exhibit to the
Registration Statement.
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"LEVELIZED ENERGY PAYMENT" means a monthly energy payment based on a
predetermined, levelized energy price, which price equals 10.6 cents per kWh
for the Salton Sea Unit II PPA and 9.8 cents per kWh for the Salton Sea Unit
III PPA.
"LEVELIZED ENERGY PAYMENT SO4 AGREEMENT" means an SO4 Agreement
pursuant to which the respective Project Company receives Levelized Energy
Payments from SCE.
"LIENS" means any mortgage, pledge, hypothecation, assignment,
mandatory deposit arrangement with any Person owning Debt 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.
"LOC AGENT" means the agent bank under the Debt Service Reserve LOC
Reimbursement Agreement.
"LOC BANK" means any bank or financial institution party to the Debt
Service Reserve LOC Reimbursement Agreement.
"LOSS PROCEEDS" means all net proceeds from an Event of Loss,
including, without limitation, insurance proceeds or other amounts actually
received (to the extent, in the case of an Initial Partnership Guarantor or
BNG, Conejo, Niguel and San Felipe, received in the form of Equity Cash
Flows), except proceeds of delayed opening or business interruption insurance,
on account of an event which causes all or a substantial portion of the
relevant Project to be damaged, destroyed or rendered unfit for normal use.
"LOSS PROCEEDS FUND" means the fund of such name created under the
Depositary Agreement.
"MAGMA" means Magma Power Company, a Nevada corporation.
"MAGMA ACQUISITION" means the acquisition of Magma by CalEnergy in
February 1995 for $957 million, including expenses.
"MAGMA ASSIGNMENT AGREEMENT" means the Assignment Agreement, dated as
of June 30, 1995, by Magma in favor of the Royalty Guarantor.
"MAGMA LAND" means the Magma Land Company I, a Nevada corporation.
"MAGMA SERVICES AGREEMENT" means the Services Agreement, dated as of
the Initial Closing Date, between Magma and CEOC.
"MANDATORY REDEMPTION FUND" means the fund of such name created under
the Indenture.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
financial position or results of operation of the Funding Corporation and the
Salton Sea Guarantors, taken as a whole, (ii) the validity or priority of the
Liens on the Collateral and the Funding Corporation Collateral, (iii) the
ability of the Funding Corporation to perform its material obligations under
the Indenture, the Securities or any of the Financing Documents to which it is
a party, (iv) the ability of the Trustee to enforce any of the payment
obligations of the Funding Corporation under the Indenture or the Securities,
or (v) the ability of the Guarantors to perform any of their material
obligations under their respective Project Notes or the Financing Documents to
which they are a party.
"MISSION" means Edison Mission Energy, a California corporation, and
an Affiliate of SCE.
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"MOODY'S" means Moody's Investors Service, Inc., a corporation
organized and existing under the laws of the State of Delaware, its
successors and assigns.
"MW" means a unit of electrical energy equal to one million watts
of power.
"NEW SECURITY" or "NEW SECURITIES" means any of the New Series D
Securities and the New Series E Securities, issued by the Funding Corporation
pursuant to this Prospectus.
"NEW SERIES D SECURITY" or "NEW SERIES D SECURITIES" means any of the
$70,000,000 7.02% Series D Senior Secured Notes due May 30, 2000, issued by
the Funding Corporation pursuant to this Prospectus.
"NEW SERIES E SECURITY" or "NEW SERIES E SECURITIES" means any of the
$65,000,000 8.30% Series E Senior Secured Bonds due May 30, 2011, issued by
the Funding Corporation pursuant to this Prospectus.
"NIGUEL" means Niguel Energy Company, a California corporation.
"OLD SECURITY" or "OLD SECURITIES" means any of the Old Series D
Securities and Old Series E Securities, initially issued by the Funding
Corporation to the Initial Purchaser on the Closing Date.
"OLD SERIES D SECURITY" or "OLD SERIES D SECURITIES" means any of the
$70,000,000 7.02% Series D Senior Secured Notes due May 30, 2000, initially
issued by the Funding Corporation to the Initial Purchaser on the Closing
Date.
"OLD SERIES E SECURITY" or "OLD SERIES E SECURITIES" means any of the
$65,000,000 8.30% Series E Senior Secured Bonds due May 30, 2011, initially
issued by the Funding Corporation to the Initial Purchaser on the Closing
Date.
"OPERATING AND MAINTENANCE COSTS" means all amounts disbursed by or
on behalf of the Guarantors for operation, maintenance, repair, or improvement
of their Projects, including, without limitation, premiums on insurance
policies, property and other taxes, and payments under the relevant operating
and maintenance agreements, leases, royalty and other land use agreements, and
any other payments required under the Project project documents.
"OPERATING BUDGET" means a budget of Operating and Maintenance Costs,
and a long-term maintenance program with respect to the Guarantors and the
Projects owned and operated by the Guarantors for any given fiscal year, or
part thereof, and prepared on the basis of estimated requirements, showing
such costs by category for such fiscal year.
"OPERATING COSTS" means, with respect to a Guarantor, for any period,
the operating and maintenance costs of its respective Projects for such
period, calculated on a cash basis in accordance with GAAP, both paid or
required to be paid during such period.
"OUTSTANDING," in connection with Securities, means, as of the time
in question, all Securities authenticated and delivered under the Indenture,
except (i) Securities theretofore cancelled or required to be cancelled under
the Indenture; (ii) Securities for which provision for payment shall have been
made in accordance with the Indenture; and (iii) Securities in substitution
for which other Securities have been authenticated and delivered pursuant to
the Indenture.
"OWNERS" means, with respect to DTC Securities, the beneficial owners
of such Securities.
"PARTNERSHIP ACQUISITION" means the acquisition by a subsidiary of
CalEnergy of all the stock of BNG, Niguel, San Felipe and Conejo from Mission
for $70 million. Such acquired companies own 50% partnership interests in each
of the Partnership Projects.
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"PARTNERSHIP AGREEMENTS" means the Del Ranch Partnership Agreement,
the Elmore Partnership Agreement, the Leathers Partnership Agreement and the
Vulcan Partnership Agreement.
"PARTNERSHIP COLLATERAL" means (i) an assignment of all Equity Cash
Flows and Royalties of CEOC, VPC and all revenues of the Partnership Project
Companies which will be applied in accordance with the priorities of payment
established under the Depositary Agreement, (ii) a deed of trust on
substantially all of the assets of each of the Partnership Project Companies,
(iii) a collateral assignment of certain material contracts of each of the
Partnership Guarantors, (iv) a pledge of the capital stock of the Partnership
Guarantors (other than the Partnership Project Companies), (v) a pledge of the
partnership interests in the Partnership Project Companies, (vi) a Lien on the
Capital Expenditure Fund and any other funds of the Partnership Guarantors on
deposit under the Depositary Agreement and (vii) a collateral assignment of
CEOC's rights to receive payments under the Magma Services Agreement.
"PARTNERSHIP CREDIT AGREEMENT" means the amended Credit Agreement,
dated as of the Closing Date, between the Funding Corporation and the
Partnership Guarantors.
"PARTNERSHIP DEED OF TRUST" means the Deed of Trust, Assignment of
Rents, Security Agreement and Fixture Filing, dated as of the Closing Date, by
the Partnership Project Companies in favor of the Collateral Agent for the
benefit of the Secured Parties.
"PARTNERSHIP EASEMENTS" means the Del Ranch Easement, the Elmore
Easement and the Leathers Easement.
"PARTNERSHIP GUARANTEE" means the Guarantee by the Initial
Partnership Guarantors and the Additional Partnership Guarantors in favor of
the Trustee and the Collateral Agent for the benefit of the Secured Parties.
"PARTNERSHIP GUARANTORS" means, collectively, the Initial Partnership
Guarantors and the Additional Partnership Guarantors.
"PARTNERSHIP GUARANTORS PLEDGE AGREEMENTS" means (i) the Stock Pledge
Agreement, dated as of the Initial Closing Date, by Magma and the Funding
Corporation, pledging the stock of CEOC, in favor of the Collateral Agent for
the benefit of the Secured Parties and Funding Corporation, (ii) the Stock
Pledge Agreement, dated as of the Initial Closing Date, by Magma and Funding
Corporation, pledging the stock of VPC, in favor of the Collateral Agent for
the benefit of the Secured Parties and Funding Corporation, (iii) the Stock
Pledge Agreement, dated as of the Closing Date, by VPC, pledging the stock of
BNG in favor of the Collateral Agent for the benefit of the Secured Parties
and Funding Corporation, (iv) the Stock Pledge Agreement, dated as of the
Closing Date, by CEOC pledging the stock of Conejo, Niguel and San Felipe in
favor of the Collateral Agent for the benefit of the Secured Parties and
Funding Corporation, (v) the Partnership Interest Pledge Agreement, dated as
of the Closing Date, by VPC and BNG pledging the partnership interests in
Vulcan in favor of the Collateral Agent for the benefit of the Secured Parties
and Funding Corporation and (vi) the Partnership Interest Pledge Agreement,
dated as of the Closing Date, by and among Magma, CEOC and each of Conejo,
Niguel and San Felipe, respectively, pledging the partnership interests in Del
Ranch, Elmore and Leathers, respectively, in favor of the Collateral Agent for
the benefit of the Secured Parties and Funding Corporation.
"PARTNERSHIP GUARANTORS SECURITY AGREEMENT" means the Partnership
Guarantors Security Agreement and Assignment of Revenues, dated as of the
Initial Closing Date, by CEOC and VPC.
"PARTNERSHIP PROJECT COMPANIES" means, collectively, Del Ranch,
Elmore, Leathers and Vulcan.
"PARTNERSHIP PROJECT DOCUMENTS" means, collectively, the Vulcan
Agreements and the CEOC Agreements.
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"PARTNERSHIP PROJECT NOTE" means the Initial Partnership Project Note
and the Additional Partnership Project Note.
"PARTNERSHIP PROJECTS" means, collectively, the Del Ranch Project,
the Elmore Project, the Leathers Project and the Vulcan Project.
"PARTNERSHIP SECURITY DOCUMENTS" means the Partnership Deed of Trust,
the Partnership Guarantors Security Agreement, the Partnership Guarantors
Pledge Agreements, and all other Security Documents securing the obligations
of the Partnership Guarantors under the Partnership Guarantee and the
Partnership Project Note.
"PAYMENT DATE" means any Interest Payment Date or Principal Payment
Date.
"PERFORMANCE REQUIREMENT" means, with respect to a Project, the
average kWh output (equal to at least an 80% Contract Capacity Factor) during
specified on-peak hours that the Project must deliver under Firm Capacity
Payment SO4 Agreements.
"PERMITTED CAPITAL EXPENDITURES" means expenditures in connection
with the modification, improvement, reworking, maintenance and replacement
from time to time of wells, pipelines, gathering systems, equipment and
facilities and other capital expenditures in connection with or located at the
Partnership Projects or the Salton Sea Projects.
"PERMITTED COUNTERPARTY" means, in connection with an Interest Rate
Protection Agreement, a financial institution whose long-term senior debt is
rated at least "BBB+" by S&P and "Baa1" by Moody's or the equivalent by the
Rating Agencies.
"PERMITTED DEBT" means: (a) the Securities; (b) Debt incurred to
acquire the East Mesa Project in whole or in part; provided that no such Debt
may be incurred unless at the time of such incurrence (i) no Default or Event
of Default has occurred and is continuing and (ii) the Rating Agencies confirm
that the incurrence of such Debt will not result in a Rating Downgrade; (c)
Debt incurred to develop, construct, own, operate or acquire Permitted
Facilities in the Imperial Valley of California; provided that no such debt
may be incurred unless at the time of such incurrence (i) no Default or Event
of Default has occurred and is continuing and (ii) the Rating Agencies confirm
that the Securities will maintain an Investment Grade Rating after giving
effect to such Debt; (d) Debt incurred to finance the making of capital
improvements to the Salton Sea Projects, the Partnership Projects or
Additional Projects required to maintain compliance with applicable law or
anticipated changes therein; provided that no such Debt may be incurred unless
at the time of such incurrence the Independent Engineer confirms as reasonable
(i) a certification by the Funding Corporation (containing customary
qualifications) that the proposed capital improvements are reasonably expected
to enable such Project to comply with applicable or anticipated legal
requirements and (ii) the calculations of the Funding Corporation that
demonstrate, after giving effect to the incurrence of such Debt, the minimum
projected Debt Service Coverage Ratio (x) for the next four consecutive fiscal
quarters, commencing with the quarter in which such Debt is incurred, taken as
one annual period, and (y) for each subsequent fiscal year through the Final
Maturity Date, will not be less than 1.2 to 1; (e) Debt incurred to finance
the making of capital improvements to the Salton Sea Projects, the Partnership
Projects or Additional Projects not required by applicable law so long as
after giving effect to the incurrence of such Debt (i) no Default or Event of
Default has occurred and is continuing, and (ii) (A) the Independent Engineer
confirms as reasonable (x) the calculations of the Funding Corporation that
demonstrate that the minimum projected Debt Service Coverage Ratio for the
next four consecutive quarters, taken as one annual period, and each
subsequent fiscal year, will not be less than 1.4 to 1, and (y) the
calculations of the Funding Corporation that demonstrate that the average
projected Debt Service Coverage Ratio for all succeeding fiscal years until
the Final Maturity Date will not be less than 1.7 to 1 or (B) the Rating
Agencies confirm that the incurrence of such Debt will not result in a Rating
Downgrade; (f) Working Capital Debt in an aggregate amount not to exceed
$15,000,000, (g) Debt incurred under the Debt Service Reserve LOC
Reimbursement Agreement (or a replacement therefor on substantially similar
terms and amounts); (h) Debt incurred in connection with certain permitted
interest rate swap arrangements; (i) Debt
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incurred by the Funding Corporation in an aggregate amount not to exceed
$30,000,000, in connection with the development, construction, ownership,
operation, maintenance or acquisition of Permitted Facilities; (j)
Subordinated Debt from Affiliates in an aggregate amount not to exceed
$200,000,000, which shall be used to finance capital, operating or other
costs with respect to the Projects or Additional Projects; and (k) Debt
incurred to support a Working Capital Facility.
"PERMITTED FACILITY" means (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.
"PERMITTED GUARANTOR DEBT" means (a) proceeds of Permitted Debt
loaned to Guarantors by the Funding Corporation, (b) guarantees by one or more
of the Guarantors of Permitted Debt, (c) the Guarantees and (d) the Project
Notes.
"PERMITTED INVESTMENTS" means 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 investment 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 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 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 may be rating such obligations, then from another
nationally recognized rating service acceptable to the Trustee) or (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 better by Moody's (including money market funds for which the
Depositary Agent in its individual capacity or any of its affiliates is
investment manager or adviser).
"PERMITTED LIEN" means, collectively, (i) Liens specifically
permitted, required by or created by, any Security Document; (ii) Liens to
secure Permitted Debt and Permitted Guarantor Debt (other than Subordinated
Debt); (iii) 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; (iv) any exceptions to title which are contained in the
Title Policy delivered to the Collateral Agent; (v) Liens in connection with
workmen's compensation, unemployment insurance or other social security or
pension obligations; (vi) mechanic's, workmen's, materialmen's, supplier's,
construction or other like Liens arising in the ordinary course of business or
incident to the construction of the Salton Sea Expansion or any other
Permitted Facilities permitted to be developed or
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expanded under the Transaction Documents; (vii) servitudes, easements,
rights-of-way, restrictions, minor defects or irregularities in title and
such other encumbrances or charges against real property or interests
therein as are of a nature generally existing with respect to properties
of a similar character and which do not in any material way interfere in
any material way with the use thereof in the business of the Guarantors;
and (viii) other Liens incidental to the conduct of the Guarantors'
business or the ownership of properties and assets which were not incurred
in connection with the borrowing of money or the obtaining of advances or
credit (other than vendor's liens for accounts payable in the ordinary
course of business), and which do not in the aggregate materially impair
the use thereof in the operation of their business.
"PERMITTED POWER CONTRACT BUY-OUT" means the termination of a Power
Purchase Agreement or the negotiated reduction of capacity and energy to be
sold under a Power Purchase Agreement other than pursuant to such agreement's
terms and the payment by SCE made in connection therewith.
"PERSON" means any individual, sole proprietorship, corporation,
partnership, joint venture, limited liability partnership, limited liability
corporation, trust, unincorporated association, institution, Governmental
Authority or any other entity.
"PH" means the negative logarithm of the effective hydrogen-ion
concentration or hydrogen-ion activity in gram equivalents per liter used in
expressing both acidity and alkalinity on a scale whose values run from 0 to
14 with 7 representing neutrality, numbers less than 7 increasing acidity and
numbers greater than 7 increasing alkalinity.
"PH MODIFICATION" means the construction of facilities to implement
the pH Modification Process at Salton Sea Units I and III.
"PH MODIFICATION PROCESS" means the proprietary process owned by
Unocal and licensed to Magma whereby the pH of liquid brine is reduced by
injection of a pH modification agent into the liquid brine. The pH
Modification Process results in decreased scaling and mineral buildup because
solids in the more acidic liquid brine remain in solution rather than
precipitating out, as occurs if the brine is untreated.
"POWER PURCHASE AGREEMENTS" means the Del Ranch PPA, the East Mesa
PPA, the Elmore PPA, the Leathers PPA, the Salton Sea Unit I PPA, the Salton
Sea Unit II PPA, the Salton Sea Unit III PPA, the Salton Sea Unit IV PPA and
the Vulcan PPA.
"PRINCIPAL FUND" means the fund of such name created under the
Depositary Agreement.
"PRINCIPAL PAYMENT DATE" when used with respect to (i) any Security
means the date on which all or a portion of the principal of such Security
becomes due and payable as provided therein or in the Indenture, whether on a
scheduled date for payment of principal at a Redemption Date, the Final
Maturity Date, a date of declaration of acceleration, or otherwise, (ii) any
Debt Service Reserve Bond means each May 30th and November 30th, commencing on
the first such date after the relevant conversion, and the date on which all
or a portion of the principal of such Debt Service Reserve Bond becomes due
and payable at redemption, the final maturity date or declaration of
acceleration, or otherwise or (iii) any Debt Service Reserve LOC Loan means
each regularly scheduled date on which principal is due and payable, as such
date may be established from time to time, commencing on the first such date
after the applicable drawing, and any date on which principal of such Debt
Service Reserve LOC Loan becomes due and payable at redemption, the final
maturity or declaration of acceleration, or otherwise.
"PROJECT" means the respective generating facility and
interconnection facilities, associated materials, equipment, structures and
systems required to produce electric power for sale.
"PROJECT COMPANIES" means, collectively, the Salton Sea Guarantors,
the Partnership Project Companies and East Mesa.
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"PROJECT DOCUMENTS" means, collectively, the Partnership Project
Documents, the Salton Sea Project Documents and the Magma Assignment Agreement.
"PROJECT NOTES" mean the Partnership Project Note, the Royalty Project
Note and the Salton Sea Project Note and any additional notes issued under the
Partnership Credit Agreement, the Royalty Credit Agreement or the Salton Sea
Credit Agreement.
"PROJECTIONS" means projections, adopted by Stone & Webster, of
annual revenues, expenses and debt service coverage for the Funding
Corporation and the Guarantors for the term of the Series D and Series E
Securities.
"PROJECTS" means, individually or collectively, the Del Ranch
Project, the East Mesa Project, the Elmore Project, the Leathers Project,
Salton Sea Unit I, Salton Sea Unit II, Salton Sea Unit III, Salton Sea Unit
IV, the Vulcan Project and any other power plant or power plants the
acquisition, construction, operation or maintenance of which is financed in
whole or in part with Permitted Debt.
"PROSPECTUS" means this document in its entirety.
"PUHCA" means the Public Utilities Holding Company Act of 1935, as
amended.
"PURCHASE AGREEMENT" means the Purchase Agreement, entered into on or
about the Closing Date, between the Initial Purchaser and the Funding
Corporation, providing for the sale of the Old Securities to the Initial
Purchaser.
"PURPA" means the Public Utility Power Regulatory Policies Act
of 1978.
"QF" or "QUALIFYING FACILITY" means a "small power production
facility" or a "qualifying cogeneration facility" in accordance with PURPA and
the rules and regulations of FERC under PURPA relating thereto.
"QUALIFIED INSTITUTIONAL BUYERS" means "qualified institutional
buyers" as defined in Rule 144A of the Securities Act.
"RATING" means the rating of the Securities by the Rating Agencies.
"RATING AGENCY" means any of Moody's and S&P.
"RATING DOWNGRADE" means a lowering by the Rating Agencies of the
then current credit ratings of the Securities.
"REDEMPTION DATE" means the date on which Funding Corporation redeems
or shall redeem any Securities in accordance with the Indenture.
"REDEMPTION FUND" means the fund of such name created under the
Depositary Agreement.
"REGISTERED INITIAL SECURITY" or "REGISTERED INITIAL SECURITIES"
means any of the Registered Series A Securities, the Registered Series B
Securities and the Registered Series C Securities, issued by the Funding
Corporation pursuant to the Initial Exchange Offer Prospectus.
"REGISTERED SERIES A SECURITY" or "REGISTERED SERIES A SECURITIES"
means any of the $232,750,000 6.69% Series A Senior Secured Notes due May 30,
2000, issued by the Funding Corporation pursuant to the Initial Exchange Offer
Prospectus.
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"REGISTERED SERIES B SECURITY" or "REGISTERED SERIES B SECURITIES"
means any of the $133,000,000 7.37% Series B Senior Secured Bonds due May 30,
2005, issued by the Funding Corporation pursuant to the Initial Exchange Offer
Prospectus.
"REGISTERED SERIES C SECURITY" or "REGISTERED SERIES C SECURITIES" means
any of the $109,250,000 7.84% Series C Senior Secured Bonds due May 30, 2010,
issued by the Funding Corporation pursuant to the Initial Exchange Offer
Prospectus.
"REGISTRATION RIGHTS AGREEMENT" means the Exchange and Registration
Rights Agreement dated, as of the Closing Date, between the Funding
Corporation and the Initial Purchaser for the benefit of the Holders of the
Old Securities.
"REGULATION S" means Regulation S under the Securities Act.
"REGULATION S GLOBAL SECURITY" means a single global security in
registered form for each series of Securities representing all or a portion of
such series of Securities sold in reliance on Regulation S under the
Securities Act.
"REGISTRATION STATEMENT" means the registration statement on Form
S-4, which includes all amendments, exhibits, annexes and schedules thereto,
pursuant to the Securities Act and the rules and regulations promulgated
thereunder, covering the New Securities.
"REIMBURSEMENT AGREEMENT EVENT OF DEFAULT" means an "Event of
Default" as defined in the Debt Service Reserve LOC Reimbursement Agreement.
"REQUIRED HOLDERS" means those Holders holding at least 50% in an
aggregate principal amount of the Outstanding Securities.
"REQUIRED SECURED PARTIES" means, at any time, Persons that at such
time hold at least 33 1/3 % of the Combined Exposure.
"RESOURCE DEVELOPMENT FEE" means the charge of such name payable
under each of the Elmore Easement and the Del Ranch Easement, which charge
amounts to 1% of the relevant Project's combined capacity and energy revenues
and .833% of the relevant Project's energy revenues.
"RESPONSIBLE OFFICER" means, with respect to knowledge of any default
under the Indenture or any of the Credit Agreements, the chief executive
officer, president, chief financial officer, general counsel, principal
accounting officer, treasurer, or any vice president of the Funding
Corporation or a Guarantor, as applicable, or other officer of such
corporation who in the normal performance of his or her operational duties
would have knowledge of the subject matter relating to such default.
"RESTRICTED PAYMENT" means, with respect to any Person, (i) the
declaration and payment of distributions, dividends or any other payment made
in cash, property, obligations or other securities, (ii) any payment of the
principal of or interest on any Subordinated Debt, or (iii) the making of any
loans or advances to any Affiliate (other than Permitted Debt); in each case
from cash, investments, securities or other funds from time to time in the
Distribution Suspense Fund or Distribution Fund.
"REVENUE FUND" means the fund of such name created under the
Depositary Agreement.
"ROYALTIES" means (i) with respect to the Royalty Guarantor, any and
all royalties received by Magma pursuant to the Partnership Easements and the
East Mesa Assignment and Security Agreement, in each case, to the extent not
otherwise required to be used for Operating and Maintenance Costs and (ii)
with respect to the Initial Partnership Guarantors, certain royalties, fees
and other payments received by VPC under the Brine Sales
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Agreement and by CEOC under the Leathers Agreements, Del Ranch Agreements and
Elmore Agreements to the extent not otherwise required to be used for (A)
Operating and Maintenance Costs or (B) pursuant to a Partnership Project
document or financing document.
"ROYALTY COLLATERAL" means (i) an assignment of all Royalties paid to of
the Royalty Guarantor which will be applied in accordance with the priorities of
payment established under the Depository Agreement, (ii) a collateral
assignment of certain material contracts of the Royalty Guarantor, (iii) a
pledge of the capital stock of the Royalty Guarantor, and (iv) a Lien on any
funds of the Royalty Guarantor on deposit under the Depositary Agreement.
"ROYALTY CREDIT AGREEMENT" means the Credit Agreement, dated as of
the Initial Closing Date, between Funding Corporation and the Royalty
Guarantor.
"ROYALTY DEED OF TRUST" means the Deed of Trust and Assignment of
Rents, dated as of the Initial Closing Date, by the Royalty Guarantor in favor
of the Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation.
"ROYALTY DOCUMENTS" means, collectively, the Leathers Easement, the
Del Ranch Easement, the Elmore Easement, and the East Mesa Assignment and
Security Agreement.
"ROYALTY GUARANTEE" means the Guarantee by the Royalty Guarantor in
favor of the Trustee and the Collateral Agent for the benefit of the Secured
Parties.
"ROYALTY GUARANTOR" means Salton Sea Royalty Company, a Delaware
corporation.
"ROYALTY PLEDGE AGREEMENT" means the Stock Pledge Agreement, dated as
of the Initial Closing Date, by Magma and the Funding Corporation, pledging
the stock of the Royalty Guarantor, in favor of the Collateral Agent for the
benefit of the Secured Parties and the Funding Corporation.
"ROYALTY PROJECT NOTE" means the promissory note in the principal
amount of $75,000,000 issued by the Royalty Guarantor in favor of the Funding
Corporation under the Royalty Credit Agreement on the Initial Closing Date.
"ROYALTY SECURITY AGREEMENT" means the Security Agreement and
Assignment of Revenues, dated as of the Initial Closing Date, by the Royalty
Guarantor in favor of the Collateral Agent for the benefit of the Secured
Parties and the Funding Corporation.
"ROYALTY SECURITY DOCUMENTS" means the Royalty Deed of Trust, the
Royalty Security Agreement, the Royalty Pledge Agreement, and all other
Security Documents securing the obligations of the Royalty Guarantor under the
Royalty Guarantee and the Royalty Project Note.
"RULE 144A" means Rule 144A under the Securities Act.
"RULES" means the rules, regulations and procedures creating and
affecting DTC and its operations.
"S&P" means Standard & Poor's Rating Group, a corporation organized
and existing under the laws of the State of New York, its successors and
assigns.
"SALTON SEA ASA" means the Second Amended and Restated Administrative
Services Agreement, dated as of July 15, 1995, among Magma, SSPG, SSBP and
Fish Lake.
"SALTON SEA COLLATERAL" means (i) an assignment of all Salton Sea
Guarantor revenues which will be applied in accordance with the priorities of
payment established under the Depositary Agreement, (ii) a deed of
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<PAGE>
trust on substantially all of the assets of each of the Salton Sea Guarantors
and the Salton Sea Projects, (iii) a collateral assignment of certain material
contracts of each of the Salton Sea Guarantors, (iv) a pledge of the
partnership interests in the Salton Sea Guarantors, and (v) a Lien on the
Expansion Fund and any other funds of the Salton Sea Guarantors on deposit
under the Depositary Agreement.
"SALTON SEA COLLATERAL ASSIGNMENTS" means the Collateral Assignment
(IID Agreements), dated as of the Initial Closing Date, by SSPG in favor of the
Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation; the Collateral Assignment (SCE Agreements), dated as of the
Initial Closing Date, by SSPG in favor of the Collateral Agent for the benefit
of the Secured Parties and the Funding Corporation; and the Collateral
Assignment, dated as of the Closing Date, by SSBP, SSPG and Fish Lake in favor
of the Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation.
"SALTON SEA CREDIT AGREEMENT" means the Credit Agreement, dated as of
the Initial Closing Date, between the Salton Sea Guarantors and the Funding
Corporation.
"SALTON SEA DEED OF TRUST" means the Deed of Trust, Assignment of
Rents, Security Agreement and Fixture Filing, dated as of the Initial Closing
Date, by the Salton Sea Guarantors in favor of the Collateral Agent for the
benefit of the Secured Parties.
"SALTON SEA EXPANSION" means, collectively, (i) the construction of
Salton Sea Unit IV and (ii) the pH Modification.
"SALTON SEA GEOTHERMAL SALES CONTRACTS" means, collectively, the
Salton Sea Units I and II Geothermal Sales Contract, the Salton Sea Unit III
Geothermal Sales Contract and any similar geothermal sales contract among
SSBP, SSPG and Fish Lake, relating to Salton Sea Unit IV.
"SALTON SEA GUARANTEE" means the Guarantee, dated as of the Initial
Closing Date, by the Salton Sea Guarantors in favor of the Trustee and the
Collateral Agent for the benefit of the Secured Parties.
"SALTON SEA GUARANTORS" means SSPG, SSBP and Fish Lake.
"SALTON SEA O&M AGREEMENT" means the Second Amended and Restated
Operating and Maintenance Agreement, dated as of July 15, 1995, between the
Salton Sea Guarantors and CEOC.
"SALTON SEA PARTNERSHIP INTEREST PLEDGE AGREEMENTS" means (i) the
Partnership Interest Pledge Agreement, dated as of the Initial Closing Date,
by Magma and SSPC, pledging the partnership interests in SSBP, in favor of the
Collateral Agent for the benefit of the Secured Parties and Funding
Corporation, and (ii) the Partnership Interest Pledge Agreement, dated as of
the Initial Closing Date, by SSPC and SSBP, pledging the partnership interests
in SSPG, in favor of the Collateral Agent for the benefit of the Secured
Parties and Funding Corporation.
"SALTON SEA POWER COMPANY" means Salton Sea Power Company, a Nevada
corporation.
"SALTON SEA PROJECT DOCUMENTS" means the Engineering Services
Agreement, the Salton Sea Geothermal Sales Contracts, the Salton Sea O&M
Agreement, the Salton Sea Resource Easement, the Salton Sea Technology
Transfer Agreement, the Salton Sea ASA, the Salton Sea Unit I and Unit II
Ground Lease, the Salton Sea Unit III Ground Lease, the Salton Sea Unit I PPA,
the Salton Sea Unit II PPA, the Salton Sea Unit III PPA, the Salton Sea Unit
IV PPA, the SSBP Partnership Agreement, the SSPG Partnership Agreement, the
SSPG Unit III Transmission Service Agreement, the SSPG Unit II Transmission
Service Agreement, the Waste Disposal Agreement, the Salton Sea Unit IV
Transmission Service Agreement and any Additional Project Document entered
into with respect to the Salton Sea Projects.
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<PAGE>
"SALTON SEA PROJECT NOTE" means the promissory note in the principal
amount of $325,000,000 issued by the Salton Sea Guarantors in favor of the
Funding Corporation under the Salton Sea Credit Agreement on the Initial
Closing Date.
"SALTON SEA PROJECTS" means, collectively, Salton Sea Unit I, Salton
Sea Unit II, Salton Sea Unit III and Salton Sea Unit IV.
"SALTON SEA RESOURCE EASEMENT" means the Amended and Restated
Easement Grant Deed and Agreement Regarding Rights for Geothermal Development,
dated as of February 23, 1994 between SSBP and Magma Land, as further amended.
"SALTON SEA SECURITY DOCUMENTS" means the Salton Sea Deed of Trust,
the Salton Sea Collateral Assignments, the Salton Sea Partnership Interest
Pledge Agreements, the Fish Lake Pledge Agreement, and all other Security
Documents securing the obligations of the Salton Sea Guarantors under the
Salton Sea Guarantee and the Salton Sea Project Note.
"SALTON SEA TECHNOLOGY TRANSFER AGREEMENT" means the Technology
Transfer Agreement, dated March 31, 1993, between SSBP, SSPG and Magma.
"SALTON SEA UNIT I" means the 10 MW nameplate geothermal power plant
100% owned by SSBP and SSPG, located in SSKGRA.
"SALTON SEA UNIT I PPA" means the Amended and Restated Power Purchase
Agreement, dated May 8, 1987, between SSPG and SCE.
"SALTON SEA UNIT II" means the 20 MW nameplate geothermal power plant
100% owned by SSBP and SSPG, located in the SSKGRA.
"SALTON SEA UNIT II PPA" means the Power Purchase Agreement, dated
April 16, 1985, between SSPG and SCE.
"SALTON SEA UNIT III" means the 50 MW contract nameplate geothermal
power plant 100% owned by SSBP and SSPG, located in the SSKGRA.
"SALTON SEA UNIT III GEOTHERMAL SALES CONTRACT" means the Geothermal
Sales Contract dated as of June 1, 1989, between SSBP and SSPG.
"SALTON SEA UNIT III GROUND LEASE" means the Ground Lease, dated
March 31, 1993, between SSBP, SSPG and Magma Land.
"SALTON SEA UNIT III PPA" means the Power Purchase Agreement, dated
April 16, 1985, between SCE and SSPG.
"SALTON SEA UNIT IV" means the geothermal power plant currently under
construction in the SSKGRA to be 100% owned by the Salton Sea Guarantors.
"SALTON SEA UNIT IV GEOTHERMAL SALES CONTRACT" means the Geothermal
Sales Contract, dated February 15, 1996, between SSBP and SSPG.
"SALTON SEA UNIT IV PPA" means the Consolidated, Amended and Restated
Power Purchase Agreement, dated November 29, 1994, among SCE, Fish Lake Power
and SSPG.
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<PAGE>
"SALTON SEA UNITS I AND II GEOTHERMAL SALES CONTRACT" means the
Geothermal Sales Contract dated as of September 6, 1988, between SSBP and
SSPG.
"SALTON SEA UNITS I AND II GROUND LEASE" means the Salton Sea Units I
and II Ground Lease, dated November 24, 1993, between SSBP, SSPG and IID.
"SALTON SEA UNIT IV TRANSMISSION SERVICE AGREEMENT" means the
Transmission Service Agreement, dated as of July 14, 1995, among IID, SSPG and
Fish Lake.
"SAN FELIPE" means San Felipe Energy Company, a California corporation.
"SCE" means Southern California Edison Company, a California
corporation.
"SCE ELECTRIC SYSTEM INTEGRITY" means the operation of SCE's electric
system in a manner which is deemed to minimize the risk of injury to persons
and/or property consistent with California utility standards and good
engineering practice.
"SCE LITIGATION" means the Vulcan/BN Geothermal Power Co., et al. v.
Southern California Edison Co. case pending in the Superior Court for
Los Angeles, California.
"SDG&E" means San Diego Gas and Electric, a California corporation.
"SECURED OBLIGATIONS" means all indebtedness, liabilities and
obligations, of whatsoever nature and howsoever evidenced (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, in each case, direct or indirect, primary
or secondary, fixed or contingent, now or hereafter arising.
"SECURED PARTIES" means the Trustee, the Collateral Agent, the
Depositary, the Debt Service Reserve LOC Provider, any party that becomes a
Permitted Counterparty under an Interest Rate Protection Agreement, any party
that becomes the Working Capital Facility Agent and any other Person that
becomes a Secured Party under any Financing Document.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY" or "SECURITIES" means any of the Initial Securities, the
Old Securities, the New Securities and any Additional Securities issued
pursuant to the Indenture.
"SECURITY DOCUMENTS" means, collectively, the Depositary Agreement,
the Funding Pledge Agreement, the Intercreditor Agreement, the Partnership
Security Documents, the Royalty Security Documents, the Salton Sea Security
Documents and any other document providing for any lien, pledge, encumbrance,
mortgage or security interest on any or all of the Collateral or Funding
Corporation Collateral.
"SENIOR DEBT" means all of the Permitted Debt of Funding Corporation
other than the Subordinated Debt.
"SENIOR ROYALTY" is the payment owed to Magma by East Mesa pursuant
to the East Mesa Assignment and Security Agreement, as modified by the East
Mesa Master Agreement, which is paid prior to East Mesa's debt service, which
payment amounts to 4% of East Mesa's combined capacity and energy revenues.
"SERIES A SECURITY" means any Registered Series A Security or any
Unregistered Series A Security.
"SERIES B SECURITY" means any Registered Series B Security or any
Unregistered Series B Security.
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<PAGE>
"SERIES C SECURITY" means any Registered Series C Security or any
Unregistered Series C Security.
"SERIES D SECURITY" means any Old Series D Security or New Series D
Security.
"SERIES E SECURITY" means any Old Series E Security or New Series E
Security.
"SO4 AGREEMENT" means an Interim Standard Offer No. 4 long-term power
purchase agreement or a modified Interim Standard Offer No. 4 long-term power
purchase agreement.
"SSBP" means Salton Sea Brine Processing L.P, a California limited
partnership.
"SSBP PARTNERSHIP AGREEMENT" means the Limited Partnership Agreement,
dated March 31, 1993, between SSPC and Magma.
"SSKGRA" means the Salton Sea KGRA.
"SSPC" means Salton Sea Power Company, a Nevada corporation.
"SSPG" means Salton Sea Power Generation L.P., a California limited
partnership.
"SSPG PARTNERSHIP AGREEMENT" means the Limited Partnership Agreement,
dated March 31, 1993, between SSPC and SSBP.
"SSPG UNIT II TRANSMISSION SERVICE AGREEMENT" means the Transmission
Service Agreement dated October 3, 1989 between SSPG and IID.
"SSPG UNIT III TRANSMISSION SERVICE AGREEMENT" means the Transmission
Service Agreement dated August 2, 1988 between SSPG and IID.
"STANDARD OFFER NO. 1 CAPACITY PAYMENT SCHEDULE" means such schedule
as approved and published by CPUC from time to time.
"SUBORDINATED DEBT" means Debt (and the note or other instrument
evidencing the same) which has been subordinated, on terms and conditions
substantially the same as those permitted under the Indenture, to the prior
payment of amounts owing under the Indenture and the Securities.
"SUBSTANTIAL COMPLETION" occurs upon the Funding Corporation's
determination that (i) the Salton Sea Expansion (including, without
limitation, the pH Modification) is substantially complete in accordance with
the construction contracts and all applicable laws and permits, (ii) all
services and equipment required to be furnished by the contractors are
substantially completed and all material equipment has been delivered and
properly incorporated, (iii) all necessary performance and start up testing
and other pre commissioning activities has been conducted, (iv) a punchlist of
items to be finished or completed has been prepared, and (v) all events
necessary to allow Commercial Operation to be declared have been met.
"SUPPORT LETTER" means the letter agreement, dated as of the Initial
Closing Date, among Magma, the Funding Corporation and the Initial Guarantors.
"TDS" means total dissolved solids.
"TIC" means The Industrial Company.
"TITLE EVENT" means the existence of any defect of title or lien or
encumbrance on a Salton Sea Project or a Partnership Project (in each case,
other than certain permitted liens) in effect on the Initial Closing Date or
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<PAGE>
the Closing Date, as applicable, that entitles the Collateral Agent to make a
claim under the policy or policies of title insurance required pursuant to the
Financing Documents.
"TITLE EVENT PROCEEDS" means all amounts and proceeds (including
instruments) in respect of any Title Event.
"TITLE POLICY" means the policy or policies of title insurance
required pursuant to the Credit Agreements.
"TRANSACTION DOCUMENTS" means the Project Documents and the Financing
Documents.
"TRANSMISSION SERVICE AGREEMENTS" means, collectively, the Del Ranch
Transmission Service Agreement, the Elmore Transmission Service Agreement, the
Leathers Transmission Service Agreement, the Vulcan Transmission Service
Agreement, the SSPG Unit II Transmission Service Agreement and the SSPG Unit
III Transmission Service Agreement and the Salton Sea Unit IV Transmission
Service Agreement.
"TRIGGER EVENT" means (i) an "Event of Default" under the Indenture
and an acceleration of all or a portion of the indebtedness issued thereunder,
(ii) an "Event of Default" under the Debt Service Reserve LOC Reimbursement
Agreement and an acceleration of the indebtedness incurred thereunder, (iii)
an "Event of Default" under a Senior Debt instrument and an acceleration of
all or a portion of the Debt issued thereunder in an aggregate principal
amount in excess of $10,000,000 and (iv) certain Guarantee Events of Default
under the Salton Sea Guarantee, the Partnership Guarantee or the Royalty
Guarantee; and, in each case, the Collateral Agent shall have, upon direction
from the Required Secured Parties, declared such event to be a Trigger Event.
"TRUSTEE" means Chemical Trust Company of California, as trustee
under the Indenture, together with its successors and assigns.
"UNCONTROLLABLE FORCE," with respect to any Power Purchase Agreement,
means any occurrence beyond the control of a party which causes that party to
be unable to perform its obligations under the relevant agreement and which a
party has been unable to overcome by the exercise of due diligence, including
but not limited to flood, drought, earthquake, storm, fire, pestilence,
lightning and other natural catastrophes, epidemic, war, riot, civil
disturbance or disobedience, strike, labor dispute, action or inaction of
government or other proper authority which may conflict with the terms of the
agreement, or failure, threat of failure or sabotage of facilities which have
been maintained in accordance with good engineering and operating practices in
California. The failure of the interconnecting utility to deliver electrical
energy generated by a Project to the point of interconnection is not
considered an Uncontrollable Force under the relevant Power Purchase
Agreement.
"UNOCAL" means Union Oil Company of California, a California
corporation.
"UNREGISTERED INITIAL SECURITY" or "UNREGISTERED INITIAL SECURITIES"
means any of the Unregistered Series A Securities, Unregistered Series B
Securities and Unregistered Series C Securities, initially issued by the
Funding Corporation to CS First Boston and Lehman Brothers Inc., as initial
purchasers in the Initial Offering.
"UNREGISTERED SERIES A SECURITY" or "UNREGISTERED SERIES A
SECURITIES" means any of the $232,750,000 6.69% Series A Senior Secured Notes
due May 30, 2000, initially issued by the Funding Corporation to the initial
purchasers in the Initial Offering.
"UNREGISTERED SERIES B SECURITY" or "UNREGISTERED SERIES B
SECURITIES" means any of the $133,000,000 7.37% Series B Senior Secured Bonds
due May 30, 2005, initially issued by the Funding Corporation to the initial
purchasers in the Initial Offering.
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<PAGE>
"UNREGISTERED SERIES C SECURITY" or "UNREGISTERED SERIES C
SECURITIES" means any of the $109,250,000 7.84% Series C Senior Secured Bonds
due May 30, 2010, initially issued by the Funding Corporation to the initial
purchasers in the Initial Offering.
"VPC" means Vulcan Power Company, a Nevada corporation.
"VULCAN AGREEMENTS" means, collectively, the Brine Sales Agreement,
the Vulcan Transmission Service Agreement, the Vulcan Construction, Operating
and Accounting Agreement, the Vulcan Partnership Agreement, the Vulcan PPA and
any Additional Project Document entered into by VPC or Vulcan with respect to
the Vulcan Project.
"VULCAN" means Vulcan/BN Geothermal Power Company, a Nevada general
partnership.
"VULCAN CONSTRUCTION, OPERATING AND ACCOUNTING AGREEMENT" means the
Construction, Operating and Accounting Agreement dated as of August 30, 1985,
as amended as of June 17, 1996, between VPC and Vulcan.
"VULCAN PARTNERSHIP AGREEMENT" means the Partnership Agreement, dated
as of August 30, 1985, as amended as of December 15, 1988, between VPC and
BNG.
"VULCAN PPA" means the Long Term Power Purchase Agreement, dated
March 1, 1984, as amended, between SCE and Vulcan, as successor to Magma
Electric Company, a Nevada corporation.
"VULCAN PROJECT" means the 34 MW contract nameplate geothermal power
plant 50% owned by VPC, located in the SSKGRA.
"VULCAN TRANSMISSION SERVICE AGREEMENT" means the Transmission
Service Agreement, dated as of December 1, 1988, between VPC and IID.
"WASTE DISPOSAL AGREEMENT" means the Second Amended and Restated
Waste Disposal Agreement, dated as of July 15, 1995, among SSBP, SSPG, Fish
Lake and DVC.
"WORKING CAPITAL DEBT" means the working capital loans provided under
the Working Capital Facility in an aggregate principal amount not to exceed
$15,000,000.
"WORKING CAPITAL FACILITY" means any agreement or agreements from
time to time in effect among Funding Corporation and banks providing for the
availability of working capital loans to the Funding Corporation and the
Guarantors.
A-27
APPENDIX B
INDEPENDENT ENGINEER'S REPORT
ANALYSIS OF SALTON SEA GUARANTORS, PARTNERSHIP GUARANTORS
AND ROYALTY GUARANTOR
PREPARED FOR
SALTON SEA FUNDING CORPORATION
JUNE 17, 1996
COPYRIGHT 1996
STONE & WEBSTER ENGINEERING CORPORATION
DENVER, COLORADO
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION TITLE PAGE
- ------- ----- ----
<S> <C> <C>
1.0 Executive Summary and Conclusions .......................... B-1
1.1 Executive Summary .......................................... B-1
1.2 Scope of Work .............................................. B-3
1.3 Conclusions ................................................ B-3
2.0 Project Overview ........................................... B-4
2.1 General Description of Magma Projects and Processes ....... B-4
2.2 Management and Organization ................................ B-5
2.3 Salton Sea Projects ........................................ B-5
2.4 Partnership Projects ....................................... B-6
2.5 Royalty Projects ........................................... B-7
3.0 Salton Sea Expansion ....................................... B-8
3.1 Capacity Expansion ......................................... B-8
3.2 pH Modification Process .................................... B-8
4.0 Project Operations ......................................... B-9
4.1 Salton Sea Projects ........................................ B-10
4.2 Partnership Projects ....................................... B-11
5.0 Project Contracts .......................................... B-13
5.1 Power Purchase Agreements and Related Agreements .......... B-13
5.2 Geothermal Sales Contracts ................................. B-17
5.3 Solids Disposal Agreements ................................. B-18
5.4 Operating and Maintenance and Administration Agreements ... B-18
6.0 Funding Corporation Affiliates and Participants ........... B-19
6.1 CalEnergy Company, Inc. (CalEnergy) ........................ B-19
6.2 Magma Power Company (Magma) ................................ B-20
6.3 Southern California Edison (SCE) ........................... B-20
7.0 Permitting and Environmental ............................... B-20
7.1 Operating Plants ........................................... B-20
7.2 Salton Sea Expansion ....................................... B-20
8.0 Assessment of Financial Projections ........................ B-20
8.1 Base Case Assumptions ...................................... B-20
8.2 Base Case Financial Projections ............................ B-21
8.3 Sensitivity Analysis ....................................... B-25
</TABLE>
i
<PAGE>
ATTACHMENTS
<TABLE>
<CAPTION>
NO. TITLE
--- -----
<S> <C>
1 Assumptions and Documents Reviewed
2 Financial Projections
</TABLE>
ii
<PAGE>
SECTION 1.0
EXECUTIVE SUMMARY AND CONCLUSIONS
1.1 EXECUTIVE SUMMARY
Presented herein are the review and analyses (the Report) by Stone &
Webster Engineering Corporation (Stone & Webster) for the proposed issuance
of securities by Salton Sea Funding Corporation (Funding Corporation or
Company). Magma Power Company (Magma), a wholly owned subsidiary of CalEnergy
Company, Inc. (CalEnergy), has established Funding Corporation to issue notes
and bonds to investors guaranteed by, and to make loans to, each of the
Salton Sea Guarantors, the Partnership Guarantors, and the Royalty Guarantor
(Guarantors) secured by assets relating to eight operating power plants
consisting of the following:
o The Salton Sea Units I, II, III and IV (Salton Sea Projects, or
Region I),
o The Vulcan, Del Ranch, Elmore, and Leathers Projects (the
Partnership Projects, or Regions II and III), and
o Royalty and other payments received through Magma, Vulcan Power
Company, and CalEnergy Operating Company (CEOC) from the Vulcan,
Del Ranch, Elmore, Leathers, and East Mesa Projects (the Royalty
Projects). The Salton Sea Projects, Partnership Projects and the
Royalty Projects are collectively referred to herein as the
Projects.
The Salton Sea Units I, II and III are owned by Salton Sea Power
Generation L.P. (SSPG) and purchase geothermal brine and steam from Salton
Sea Brine Processing L.P. (SSBP). SSPG and Fish Lake Power Company (FLPC) are
owners of the Salton Sea Unit IV Project. SSPG, SSBP and FLPC are referred to
collectively as the "Salton Sea Guarantors." Magma owns a 99 percent limited
partnership interest in SSBP and the Salton Sea Power Company (SSPC) owns a
one percent general partnership interest in each of SSBP and SSPG. SSBP owns
a 99 percent limited partnership interest in SSPG.
The Partnership Guarantors are Vulcan Power Company, CEOC, Vulcan/BN
Geothermal Power Company, Elmore L.P., Leathers L.P., Del Ranch L.P., BN
Geothermal Inc., Niguel Energy Company (Niguel), San Felipe Energy Company
(San Felipe) and Conejo Energy Company (Conejo). Vulcan Power Company is 99
percent owned by Magma and 1 percent owned by the Funding Corporation and
together with its wholly owned subsidiary BN Geothermal Power Company, own
100% of the partnership interest in Vulcan/BN Geothermal Power Company (the
Vulcan Project). CEOC which is 99 percent owned by Magma and 1 percent owned
by Funding Corporation, together with its wholly-owned subsidiaries, Niguel,
San Felipe, and Conejo collectively own 90% of the partnership interests in
each of Elmore L.P. (the Elmore Project), Leathers L.P. (the Leathers
Project), and Del Ranch L.P. (the Del Ranch Project). Magma owns all of the
remaining 10 percent partnership interests in each of Elmore, Leathers and
Del Ranch.
Salton Sea Royalty Company, the Royalty Guarantor, is 99 percent owned by
Magma and 1 percent owned by the Funding Corporation. The Royalty Guarantor
will receive royalties and other payments from each of the Royalty Projects,
except Vulcan.
Funding Corporation intends to issue $135 million of senior secured notes
and bonds (Securities). The net proceeds of the Securities will be used to
(i) refinance all existing project-level indebtedness of the Partnership
Projects, (ii) fund certain capital improvements to the Partnership Projects,
and (iii) fund a portion of the purchase price for the recent acquisition by
the Initial Guarantors of the 50% interest in each of the Partnership
Projects previously owned by a third party.
The Salton Sea Projects and the Partnership Projects are located in
Imperial County, California in the Salton Sea area and sell power to Southern
California Edison Company (SCE) in accordance with power purchase contracts
and related agreements for transmission system interconnection (see Project
Contracts). A map showing the location of the Salton Sea and Partnership
Projects is provided in Figure 1-1 and an overview of the Projects is
presented in Table 1-1. The pH modification plan (pH Modification),
B-1
<PAGE>
which was recently completed as part of the Salton Sea Expansion, enables
Magma to reduce operating and maintenance costs and increase unit
availability at the Salton Sea Projects. Dow Engineering Company (Dow) is the
engineering, procurement, and construction management contractor for the
Salton Sea Expansion. The Salton Sea Expansion is nearly complete. The 30-day
reliability test commenced on May 24, 1996, and the 24-hour capacity test was
completed on June 6, 1996. The Salton Sea Projects and Partnership Projects
are operated by CEOC and have been in commercial operation for several years
using brine purchased in accordance with certain geothermal sales contracts.
The Salton Sea Projects were originally developed, owned, and operated by
Union Oil Company of California (Unocal) and were commissioned in 1982, 1990,
and 1989 respectively.
The Salton Sea Expansion includes a new Salton Sea Unit IV which enables
Magma to sell an additional 39.6 MW of power to SCE under a 30 year power
purchase agreement (Salton Sea Unit IV PPA).
The commercial operation dates for the Partnership Projects range from
1986 to 1990. The Partnership Projects pay royalties to third parties that
own interests in the geothermal resources for the Partnership Projects and to
Magma. Magma also receives royalty revenues from the East Mesa Project.
Royalty payments are based on each Project's revenues.
TABLE 1-1
OVERVIEW OF THE PROJECTS TABLE 1-1
<TABLE>
<CAPTION>
FACILITY NET
NET OWNERSHIP YEARS OF
CAPACITY INTEREST COMMERCIAL CONTRACT CONTRACT POWER
(IN MW) (IN MW) OPERATION EXPIRATION TYPE PURCHASE
---------- ----------- ------------ --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
SALTON SEA PROJECTS
Salton Sea I ........ 10 10 9 6/2017 Negotiated SCE
Salton Sea II ....... 20 20 6 4/2020 SO4 SCE
Salton Sea III ...... 49.8 49.8 7 2/2019 SO4 SCE
Salton Sea IV ....... 39.6 39.6 0 (est.)6/2026 Negotiated SCE
---------- -----------
Subtotal ......... 119.4 119.4
PARTNERSHIP PROJECTS
Elmore .............. 38 38 7 12/2018 SO4 SCE
Del Ranch ........... 38 38 7 12/2018 SO4 SCE
Leathers ............ 38 38 6 12/2019 SO4 SCE
Vulcan .............. 34 34 10 2/2016 SO4 SCE
---------- -----------
Subtotal ......... 148 148
THIRD PARTY ROYALTY CO+30 SO4 SCE
East Mesa ........... 37 0 7
---------- -----------
Total ............... 304.4 267.4
========== ===========
</TABLE>
B-2
<PAGE>
1.2 SCOPE OF WORK
Stone & Webster has reviewed certain technical, environmental and economic
aspects of the Projects as listed below:
o Status of environmental permitting and compliance
o Plant design
o Plant performance
o Operations and maintenance
o Financial projections
o Plant management
o Contracts
o Salton Sea Expansion construction and performance
Stone & Webster 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, Stone & Webster has made certain assumptions with respect to
conditions which may exist or events which may occur in the future.
Assumptions and documentation relied upon by Stone & Webster in the
preparation of this report are provided in Attachment 1.
1.3 CONCLUSIONS
Based on our review of generally available information and additional
information presented by Funding Corporation, we have reached the following
conclusions:
Operations and Performance
o The Projects use commercially proven technology and are operated in
accordance with recognized utility industry practices.
o The Projects can be expected to operate commercially beyond the
final maturity of the Securities.
o Principal project participants possess the necessary experience to
successfully fulfill their project obligations.
o Operating plant capacity factors used in the Projections are
reasonable based on actual performance for the operating years
commencing in 1991.
o The Salton Sea Projects and Partnership Projects should continue to
operate in accordance with all relevant current permit conditions
and environmental laws.
Financial Projections
o Stone & Webster's economic/financial analysis reasonably represents
projected performance. The assumptions underlying the
economic/financial model are reasonable, and the projected
operating results reasonably represent the future financial
profile.
o The projected operating and maintenance costs and capital
expenditures for major maintenance are reasonable and
representative of the planned operations of the Salton Sea and
Partnership Projects.
o Base case Projections indicate that revenues are adequate to pay
operations and maintenance expenses and provide sufficient cash
flow available for debt service with base case debt service
coverage ratios of 1.57 minimum and 2.04 average.
o The Projections remain stable across a wide range of sensitivities
and avoided cost assumptions.
B-3
<PAGE>
Salton Sea Expansion
o The recently completed Salton Sea Expansion technology is proven
and reliable.
o The Salton Sea Expansion meets expected performance criteria and
should comply with all applicable environmental regulations.
o All necessary discretionary permit approvals were obtained for the
completion of the Salton Sea Expansion.
o The pH Modification technology is proven and reliable. It has been
installed and has operated successfully for six years at Salton Sea
Unit II and is operating successfully at the Region I plants. As
proven by the operating history at Salton Sea Unit II, the pH
Modification program as installed should increase availability and
decrease costs consistent with assumptions in the Projections.
Project Contracts
o Major project contracts for the Salton Sea Projects and Partnership
Projects, including power purchase agreements and related contracts
for transmission system interconnection appear reasonable from a
technical perspective and are consistent with the Projections.
o Power purchase agreements and transmission contract terms extend
well beyond the term of the Securities.
SECTION 2.0
PROJECT OVERVIEW
2.1 GENERAL DESCRIPTION OF MAGMA PROJECTS AND PROCESSES
The Salton Sea and Partnership Projects are located in the Salton Sea
Known Geothermal Resource Area (SSKGRA) and are within a central radius of
approximately five miles. A map showing plant locations is provided in Figure
1-1.
Hot brine from a 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. Noncondensible gases are removed from the condenser and
dispersed to the atmosphere through the cooling tower plume. 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 Salton Sea
and Partnership 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. With the exception of the Region I plants, the
operating plants utilize the crystallizer reactor clarifier (CRC) process to
control scaling and to remove solids. The majority of the solids are disposed
of in a landfill and the remainder are recycled to the crystallizers to
promote crystal growth ("seeding") to control scaling on vessel walls. The
Region I Plants utilize the pH Modification resource production 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 removal of the
solids.
Noncondensable gases from the Salton Sea and Partnership Projects are
removed from the condensers for efficient power generation and turbine
operation using a combination of steam jet ejectors and vacuum pumps. Systems
for abatement of hydrogen sulfide present in the noncondensable gases have
not been required for the Salton Sea and Partnership Projects since ambient
hydrogen sulfide
B-4
<PAGE>
concentrations are at acceptable levels. However, due to additional resource
required by the Salton Sea Expansion, the Authority to Construct Permits
require hydrogen sulfide abatement systems for Salton Sea Units I, II, III
and IV which were installed as part of the Salton Sea Expansion. 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. Balance-of-plant systems
are provided to support each operating plant. The necessary fire protection
systems are 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. Brine is injected into the
reservoir with 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, with the exception of Salton Sea IV, which
uses an abandoned clarifier tank at Salton Sea III for temporary brine
storage. Standby diesel generators are available to support plant safety
systems during shutdowns.
2.2 MANAGEMENT AND ORGANIZATION
A Manager of Operations is responsible for the overall operation of the
Salton Sea Projects and the Partnership Projects. The Salton Sea Projects
have an Operations Supervisor, a lab technician administratively reporting to
the Central Lab but on-site full time, and a secretary. There are two sets of
four operating crews, one set operating Salton Sea Units I and II, and one
set operating Salton Sea Units III and IV. Each set consists of four rotating
shifts comprised of a Control Operator and three plant outside operators. A
reduction in total plant operating personnel for these plants will occur by
the end of 1996 as a result of the Salton Sea Expansion Project.
Maintenance for the four units comprising the Salton Sea Projects is
performed by the Central Maintenance department. A maintenance supervisor is
responsible for coordinating all maintenance activities at those units. These
organizations and staffings are typical of efficiently operated plants of
these types.
All of the plants utilize the same organizational structure. There is an
ongoing effort to standardize plant staffing and operations. As part of this
plan, maintenance and spare parts were optimized in April 1995 to reduce
cost.
Stone & Webster considers the overall operating and maintenance
organization adequate to support operation of the Salton Sea and Partnership
Projects. The regional concept appears to be effective and should continue to
provide operating and maintenance cost reductions. The Computerized
Maintenance Management System (CMMS), implemented in 1995, allowed work order
control and inventory control to be further optimized resulting in reduced
costs.
2.3 SALTON SEA PROJECTS
All Salton Sea plants operate with steam produced by the pH Modification
process (see Section 3.2). 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. The generation voltage of 13.8 kV is
stepped up to 34.5 kV providing electrical power to SCE.
Salton Sea Unit II was placed in service in 1990. A total of three steam
turbines produce electrical power. A 4 MW Rotoflow turbine utilizes HP steam
and exhausts to the SP steam header. In addition, an 11 MW Mitsubishi turbine
operates on SP steam, and a 5 MW steam turbine utilizes LP steam from an LP
extraction point on the Salton Sea IV turbine. The Mitsubishi
turbine-generator produces electrical power at 4160 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.
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 is provided by steam jet air ejector
trains
B-5
<PAGE>
used to respond to varying non-condensible 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 39.6 MW plant with a General Electric turbine that
operates on HP steam. This unit is a single inlet, dual extraction turbine
that provides SP and LP steam to Units I, II, and III. The power from Unit IV
is transmitted by the IID to Rancho Mirage substation for sale to SCE.
Start-up testing to establish capacity and the firm operation date began on
May 24, 1996.
Salton Sea Units I, II, III, and IV are managed by a Region Supervisor.
The operations programs include safety, training, and operating procedures.
Maintenance programs include a CMMS, training, and spare parts inventory
control.
Safety
CEOC, the Operator of the Salton Sea Projects and the Vulcan, Del Ranch,
Elmore, and Leathers Projects, has an established safety program based on a
corporate safety manual. Several safety procedures were reviewed and found to
be consistent with general industry practices. CEOC utilizes a "Safe Work
Permit" that must be obtained by maintenance personnel prior to starting any
work and a plant lockout/tagout procedure for isolating systems for
maintenance and personnel protection.
Training
The Salton Sea Projects have a comprehensive training and operator
certification program. There are four classifications of operators: 1, 2, 3,
and control operator. Each classification has a Certification Manual. The
manual, tests, and information are developed according to the organizational
structure of the individual plant. The program includes tests conducted by a
training department and plant walk-through test conducted by the Training
Review Board. In Stone & Webster's opinion, the program is generally better
than that found in most plants.
Operating Procedures
Operating Procedures are in place for the Salton Sea Projects. They
included step-by-step methods for startup, normal operation, and shutdown of
the Projects. Stone & Webster's review determined that the operating
procedures were satisfactory.
Maintenance Programs
Maintenance at each plant is supervised by a Maintenance Supervisor. The
maintenance is performed by the centralized maintenance shop. The Salton Sea
Projects have already begun using the CMMS which is improving management of
plant maintenance activities.
Stone & Webster'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. Spare parts tracing is further improved with
the CMMS.
Salton Sea Units I and II are located adjacent to the Salton Sea; the
shoreline has appropriate dikes and levies (installed and maintained jointly
by the project operating company and the Imperial Irrigation District) to
protect these units from increases in the Salton Sea water level. The dikes
are adequately maintained. Salton Sea Units III and IV are located
approximately 0.5 miles from the Salton Sea.
2.4 PARTNERSHIP PROJECTS
The Vulcan Project was commissioned in February 1986. An HP and LP turbine
generate 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 one 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 storage
on a concrete slab is provided on-site.
B-6
<PAGE>
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 Vulcan Project operating and maintenance programs, safety program,
training program, and operating procedures are similar to those programs and
procedures in place at the Salton Sea Projects. There is an ongoing effort to
centralize and optimize all plant spare parts and control inventory with the
CMMS. Consumable spares such as pipe fittings, nuts and bolts are currently
stored on-site. Plans to implement centralized spare parts storage are in
progress which should result in significant cost savings.
Outage planning for major overhauls is performed by central maintenance
and operations under the direction of a major overhaul project planner. Major
overhauls are scheduled every two years with mini-outages (three to five
days) scheduled each spring in preparation for the summer peak runs.
Specialized maintenance such as electrical protective relay calibration is
done by local contractors. The plant operates reliably primarily as a result
of this preventative maintenance program and overhaul scheduling practice.
The Del Ranch Project achieved commercial operation in October 1988. The
plant is very similar to the Vulcan Project. A dual pressure 9 stage Fuji
turbine produces electrical power for transmission to SCE via IID. A heat
recovery system is employed in the steam production cycle which utilizes
steam from the initial flash of the resource as the heat source to a reboiler
which, in turn, produces clean HP steam from condensate. This clean HP steam
is combined with HP steam from the HP crystallizer and is directed to the
turbine. LP steam is also produced from the LP crystallizer. Steam scrubbers
are used for both the HP and the LP steam supplies to the turbine to ensure a
clean, dry supply of steam. Noncondensible gases are removed from the
condenser by one steam jet air ejector followed by a vacuum pump and are
dispersed to the atmosphere by the cooling tower plume. Spare non-condensible
gas removal equipment is available. Solids are handled in a similar manner to
the Vulcan Project. One 480 volt and one 4160 volt diesel generator are
available to provide emergency power and black start capabilities.
Stone & Webster reviewed the safety program, training program, operating
procedures, and maintenance programs and found them to be similar to those
implemented at the Vulcan Project.
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
stored for the Del Ranch, Elmore, and Leathers Projects.
The safety programs, training programs, and operating procedures at both
plants are also similar to the Salton Sea Projects. Stone & Webster considers
these programs satisfactory and supportive of prudent plant operations.
The Elmore Project is the first of the Partnership Projects to use a
computer based system for preventative and routine maintenance planning. This
system and knowledge base are now utilized by all plants providing for
increased efficiency and resource utilization resulting in reduced costs.
2.5 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, which have been assigned to the Royalty Guarantor.
Total Royalties from these Partnership Projects payable to the Royalty
Guarantor annually are projected to be $43,775,000 in 1996 increasing to
$48,960,000 in 1999. Thereafter Royalties are projected to step-down as
revenues from the three Partnership Projects experience avoided cost pricing.
The Royalties from the Leathers, Del Ranch and Elmore Projects are included
in the Projections.
Magma also receives Royalties based on a percentage of revenue from the
East Mesa Project. Royalties from the East Mesa Project paid to Magma
annually are projected to be $1,229,000 in 1996 increasing to $1,465,000 in
1998. Thereafter Royalties are projected to step-down as variable energy
revenues from the East Mesa Project experience avoided cost pricing.
B-7
<PAGE>
SECTION 3.0
SALTON SEA EXPANSION
3.1 CAPACITY EXPANSION
A new steam turbine generator was recently installed near the Salton Sea
Unit III site to provide additional capacity of 39.6 MW pursuant to the
combined Salton Sea Unit IV PPA. The new steam turbine generator is located
near the Salton Sea Unit III site in order to optimize the capacity expansion
design. The capacity expansion design is based on the use of HP, SP, and LP
steam for electrical power production. In addition to the installation of new
steam and brine process equipment, piping, wells, and power generation
equipment, the capacity expansion involved modification of existing steam and
brine processing equipment, piping, and control systems at Salton Sea Units
I, II, and III and interconnection of various steam lines.
Three new resource wells, three new brine injection wells, and associated
piping were installed to provide additional HP and SP steam and brine
injection capability to support the installation of the new turbine
generator. Modifications to existing steam and brine injection systems at
Salton Sea Units I, II, and III were made to provide two HP and SP steam
processing and brine injection trains that were designed to accommodate pH
Modification of the brine prior to injection back into the geothermal
resource. The pH Modification process is described in Section 3.2.
The pH Modification process was installed in conjunction with the capacity
expansion and together required the installation of the following major
equipment and systems:
o New steam plant including a 47.5 MW gross steam turbine generator,
cooling tower, condenser, pumps, air ejector system, hydrogen
sulfide abatement system, and associated piping and valves.
o Electrical interconnection equipment including a new transformer,
switchgear building, and electrical switchyard.
o Three new resource wells, three new brine injection wells, pumps,
and associated piping, and separator vessels.
o Corrosion resistant piping, tanks, pumps, and injection system for
brine pH Modification.
o Instrumentation and control systems.
o Equipment foundations and process piping.
Performance data for the capacity expansion was reviewed to ensure that
contract capacity can be achieved given adequate geothermal resource. The
results support the capacity levels used in the Projections.
Train 1 consists of a new resource well and associated piping, the three
existing HP steam separator vessels and a new SP steam separator vessel.
Train 2 consists of two new resource wells and associated piping, new brine
injection piping, a new HP steam separator vessel, and a new SP steam
separator vessel.
The capacity expansion geothermal processes and power generation
technology for the capacity expansion are well proven. The General Electric
turbine generator, balance-of-plant equipment, and process equipment selected
for the capacity expansion is of a type used successfully in geothermal and
industrial applications and the overall design is satisfactory.
The technology for the new noncondensable gas hydrogen sulfide removal
system for Salton Sea Units I, II, III, and IV required by the capacity
expansion permits was selected as part of the Salton Sea Expansion.
3.2 PH MODIFICATION PROCESS
The pH Modification process originally used at Salton Sea Unit II lowers
the pH of the geothermal resource by injection of a pH modification agent
into the liquid brine stream. As a result, solids remain
B-8
<PAGE>
in solution rather than precipitate out of solution as in the CRC process
used at the Partnership Projects. Therefore, scaling is minimized and solids
in solution can be injected into the reservoir. The process is a proprietary
process developed by Unocal and subsequently purchased by Magma. The pH
Modification process was part of Unocal's original design of Unit II and has
been operating successfully since 1990. The pH Modification process has been
installed at the Salton Sea Expansion, and is operating successfully for all
the Salton Sea plants.
The geothermal resource at the Salton Sea Projects and the Partnership
Projects is unique in that it contains high solids as compared to other
geothermal resources. Consequently, the concept of reducing brine pH to a
level where solids remain in solution reduces operating costs at these plants
since this entire solution can be injected back into the resource as brine,
significantly reducing precipitated solids handling costs. The process has
been developed specifically for application at the Salton Sea and Partnership
Projects and has been successfully demonstrated and operated reliably at
Salton Sea Unit II, and more recently at Salton Sea III. Significant benefits
in the form of operating and maintenance savings are realized as a result of
pH Modification in the elimination of equipment associated with the
processing of the resource and solid waste handling and disposal. Projected
operating and maintenance costs for the pH Modification process are
approximately half that of the CRC process. pH Modification also has the
following impacts:
a. The process must inject brine at a higher temperature to ensure
that solids remain in solution; therefore, less heat energy is
available for conversion to electricity thus decreasing overall
plant thermal efficiency.
b. The design must provide for adequate LP steam for existing plants.
c. The process results in increased plant availability realized
through elimination of CRC downtime.
d. Piping and equipment materials associated with pH Modification must
be corrosion resistant. Use of titanium piping in the new wells is
planned. Liquid brine piping will be cement lined steel.
Cost versus benefits analyses support installation of the pH Modification
process for the Salton Sea Projects. The process is proven and reliable and
is operating successfully at the Salton Sea Projects.
SECTION 4.0
PROJECT OPERATIONS
The Salton Sea and Partnership Projects use proven technology and have
operated reliably since commercial operation. The most significant operating
and maintenance activities for the Salton Sea and Partnership Projects are
caused by geothermal resource corrosion and production of solids in the
geothermal resource processing systems. These activities at the Salton Sea
Projects have been reduced by the implementation of the pH Modification
program.
The tables in the following sections summarize the operating history for
each of the Salton Sea and Partnership Projects. Two capacity factor values
are reported in the operating summaries for each plant. One expresses
production relative to the Contract Capacity and the other expresses
production relative to the plants' nominal capacity. The nominal capacity
factors were used in the Projections.
B-9
<PAGE>
4.1 SALTON SEA PROJECTS
Salton Sea Unit I Performance Summary
Salton Sea Unit I is nominally a 10 megawatt (MW) net output plant. Salton
Sea Unit I entered commercial operation in 1982 and is not able to produce
power at the 100 percent power purchase contract power output level because
of steam limitations and an increase in house power load. The capacity factor
for Salton Sea Unit I should increase after completion of new brine
facilities and pH modification. The Salton Sea Unit I operating history is
summarized below:
<TABLE>
<CAPTION>
NOMINAL
GROSS MW MW HRS AVAIL CONTRACT CAPACITY
HRS AVG. MW DELIVERED AVG. NET FACTOR CAPACITY FACTOR
YEAR GENERATED GENERATED TO SCE MW TO SCE (%) FACTOR (%) (%)*
- ------ ----------- ----------- ----------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1986 89,208 10.38 84,066 9.78 98.08 95.97 119.96
1987 67,824 9.34 63,744 8.78 82.89 82.26 90.96
1988 89,604 10.63 84,164 9.98 95.99 96.29 120.10
1989 69,354 10.50 65,171 9.87 75.38 75.17 93.00
1990 83,160 9.93 60,766 7.26 95.56 69.36 86.71
1991 82,962 10.86 61,667 8.07 87.20 70.78 87.61
1992 90,270 10.46 66,540 7.71 98.20 75.75 94.95
1993 78,515 9.96 55,707 7.07 89.98 64.13 79.48
1994 83,844 9.59 57,637 6.59 99.82 65.81 82.24
1995 83,696 10.2 56,998 6.90 93.73 65.07 81.33
</TABLE>
- ------------
* Nominal capacity is calculated after parasitic load and may vary
from time to time based on operating conditions.
The plant availability for Salton Sea Unit I for the last five years of
operation has been in the 87 to 99 percent range.
Salton Sea Unit II Performance Summary
Salton Sea Unit II is nominally a 20 MW net output plant. Salton Sea Unit
II first went into commercial operation in 1990 and is meeting power purchase
contract power output requirements. The Salton Sea Unit II operating history
is summarized below:
<TABLE>
<CAPTION>
NOMINAL
GROSS MW MW HRS MW HRS AVAIL CONTRACT CAPACITY
HRS AVG. MW DELIVERED AVG. NET DELIVERED FACTOR CAPACITY FACTOR
YEAR GENERATED GENERATED TO IID** MW TO IID TO SCE* (%) FACTOR (%) (%)*
- ------ ----------- ----------- ----------- ---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 106,509 16.30 106,506 16.30 101,447 74.59 77.20 64.34
1991 146,090 18.40 143,910 18.13 138,729 90.63 106.06 87.98
1992 156,897 17.97 155,892 17.85 150,710 99.42 114.38 95.58
1993 152,673 18.63 152,130 18.56 147,314 93.57 112.46 93.43
1994 157,593 18.07 150,868 17.30 150,914 99.55 114.85 95.71
1995 155,859 18.7 155,024 18.6 148,056 95.22 112.68 93.90
</TABLE>
- ------------
* The megawatt hours delivered to the SCE substation which is the
basis for power purchase contract are shown. The difference
between the energy delivered to IID and the energy delivered to
SCE account for the transmission line losses in the IID
distribution system.
** Nominal capacity is calculated after parasitic load and may vary
from time to time based on operating conditions.
The plant availability and power purchase contract capacity factors since
commercial operations have averaged 91.6 percent and 105 percent,
respectively.
B-10
<PAGE>
Salton Sea Unit III Performance Summary
Salton Sea Unit III is nominally a 49.8 MW net output plant. Salton Sea
Unit III first went into commercial operation in February 1989 and is meeting
power purchase contract output requirements. The Salton Sea Unit III
operating history is summarized below:
<TABLE>
<CAPTION>
NOMINAL
GROSS MW MW HRS MW HRS AVAIL CONTRACT CAPACITY
HRS AVG. MW DELIVERED AVG. NET DELIVERED FACTOR CAPACITY FACTOR
YEAR GENERATED GENERATED TO IID** MW TO IID TO SCE* (%) FACTOR (%) (%)*
- ------ ----------- ----------- ----------- ---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 405,792 50.13 388,342 47.98 377,407 92.40 90.83 86.51
1991 463,372 53.03 444,392 50.86 430,614 99.74 103.49 98.71
1992 433,152 52.91 414,322 50.61 402,211 93.47 96.53 92.20
1993 470,304 54.04 448,694 51.56 435,247 99.34 104.60 99.77
1994 462,912 53.11 438,324 50.29 426,911 99.49 102.60 97.86
1995 433,440 53.4 407,476 50.2 397,178 92.65 95.45 91.04
</TABLE>
- ------------
* The megawatt hours delivered to the SCE substation which is the
basis for power purchase contract payments are shown. The
difference between the energy delivered to IID and the energy
delivered to SCE accounts for the transmission line losses in
the IID distribution system.
** Nominal capacity is calculated after parasitic load and may vary
from time to time based on operating conditions.
The plant availability and contract capacity factors have averaged 97
percent and 99 percent respectively since 1990.
4.2 PARTNERSHIP PROJECTS
Vulcan Project Performance Summary
The Vulcan Project is nominally a 34 MW net output plant. The Vulcan
Project first went into commercial operation in February 1986 and is meeting
the power purchase contract power output requirements. The Vulcan Project
operating history is summarized below:
<TABLE>
<CAPTION>
NOMINAL
GROSS MW MW HRS MW HRS AVAIL CONTRACT CAPACITY
HRS AVG. MW DELIVERED AVG. NET DELIVERED FACTOR CAPACITY FACTOR
YEAR GENERATED GENERATED TO IID** MW TO IID TO SCE* (%) FACTOR (%) (%)*
- ------ ----------- ----------- ----------- ---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 325,732 37.2 287,952 32.9 279,788 89.94 NA 93.94
1991 313,394 39.2 279,442 35.0 270,736 91.21 104.77 90.89
1992 335,842 40.2 300,684 36.0 292,066 95.13 112.71 97.8
1993 334,919 40.8 303,392 37.0 295,308 93.70 114.27 99.15
1994 342,371 40.1 310,656 36.4 304,325 97.55 117.76 102.18
1995 366,670 42.4 334,700 38.7 327,454 98.68 126.71 109.94
</TABLE>
- ------------
* The megawatt hours delivered to the SCE substation which is the
basis for power purchase contract payments are shown. The
difference between the energy delivered to IID and the energy
delivered to SCE accounts for the transmission line losses in
the IID distribution system.
** Nominal capacity is calculated after parasitic load and may vary
from time to time based on operating conditions.
Plant availability and contract capacity factors have averaged 94 percent
and 115 percent respectively since commercial operation.
B-11
<PAGE>
Del Ranch Project Performance Summary
The Del Ranch Project is nominally a 38 MW net output plant. The Del Ranch
Project first went into commercial operation in January 1989 and is meeting
the power purchase contract power output requirements. The Del Ranch Project
operating history is summarized below:
<TABLE>
<CAPTION>
NOMINAL
GROSS MW MW HRS MW HRS AVAIL CONTRACT CAPACITY
HRS AVG. MW DELIVERED AVG. NET DELIVERED FACTOR CAPACITY FACTOR
YEAR GENERATED GENERATED TO IID** MW TO IID TO SCE* (%) FACTOR (%) (%)*
- ------ ----------- ----------- ----------- ---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 359,775 42.9 327,050 39.0 318,391 95.73 106.90 95.65
1991 349,574 41.5 316,572 37.6 307,051 96.22 103.09 92.24
1992 375,290 44.2 338,680 39.9 329,075 96.60 110.19 98.6
1993 380,439 46.0 343,704 41.5 334,589 94.44 112.34 100.51
1994 398,665 46.2 362,472 42.0 355,088 98.43 119.22 106.67
1995 386,155 46.1 352,752 42.1 344,975 95.62 115.83 103.63
</TABLE>
- ------------
* The megawatt hours delivered to the SCE substation which is the
basis for power purchase contract payments are shown. The
difference between the energy delivered to IID and the energy
delivered to SCE accounts for the transmission line losses in
the IID distribution system.
** Nominal capacity is calculated after parasitic load and may vary
from time to time based on operating conditions.
Plant availability and contract capacity factors have averaged 95 percent
and 109 percent respectively since commercial operation.
Elmore Project Performance Summary
The Elmore Project is nominally a 38 MW net output plant. The Elmore
Project first went into commercial operation in January 1989 and is meeting
the power purchase contract power output requirements. The Elmore Project
operating history is summarized below:
<TABLE>
<CAPTION>
NOMINAL
GROSS MW MW HRS MW HRS AVAIL CONTRACT CAPACITY
HRS AVG. MW DELIVERED AVG. NET DELIVERED FACTOR CAPACITY FACTOR
YEAR GENERATED GENERATED TO IID** MW TO IID TO SCE* (%) FACTOR (%) (%)*
- ------ ----------- ----------- ----------- ---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 359,882 43.6 331,744 40.2 323,228 94.31 108.5 97.10
1991 369,459 42.0 336,144 39.7 326,379 96.56 109.6 97.73
1992 352,363 40.1 319,990 36.4 311,255 90.86 104.2 93.32
1993 384,539 43.9 351,166 40.1 341,979 97.04 114.8 102.73
1994 385,503 46.4 350,526 42.2 344,338 94.75 115.61 103.44
1995 393,584 45.6 358,658 41.6 350,941 98.46 117.83 105.43
</TABLE>
- ------------
* The megawatt hours delivered to the SCE substation which is the
basis for power purchase contract payments are shown. The
difference between the energy delivered to IID and the energy
delivered to SCE accounts for the transmission line losses in
the IID distribution system.
** Nominal capacity is calculated after parasitic load and may vary
from time to time based on operating conditions.
Plant availability and capacity factors have averaged 95 percent and 111
percent respectively since commercial operation.
B-12
<PAGE>
Leathers Project Performance Summary
The Leathers Project is nominally a 38 MW net output plant. The Leathers
Project first went into commercial operation in January 1990 and is meeting
the power purchase contract power output requirements. The Leathers Project
operating history is summarized below:
<TABLE>
<CAPTION>
NOMINAL
GROSS MW MW HRS MW HRS AVAIL CONTRACT CAPACITY
HRS AVG. MW DELIVERED AVG. NET DELIVERED FACTOR CAPACITY FACTOR
YEAR GENERATED GENERATED TO IID** MW TO IID TO SCE* (%) FACTOR (%) (%)*
- ------ ----------- ----------- ----------- ---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 358,046 44.4 330,076 40.9 321,000 92.11 111.8 96.43
1991 352,707 42.7 324,629 39.3 315,710 94.20 108.8 94.84
1992 377,770 44.6 349,824 41.3 340,785 96.79 118.0 102.10
1993 371,821 44.8 342,129 41.2 333,794 99.53 117.1 100.27
1994 377,550 44.1 349,740 40.9 342,247 97.69 114.91 102.81
1995 386,488 45.3 354,646 41.6 347,493 97.35 116.67 104.39
</TABLE>
- ------------
* The megawatt hours delivered to the SCE substation which is the basis for
power purchase contract payments are shown. The difference between the energy
delivered to IID and the energy delivered to SCE accounts for the
transmission line losses in the IID distribution system.
** Nominal capacity is calculated after parasitic load and may vary from time
to time based on operating conditions.
Plant availability and contract capacity factors have averaged 96 percent
and 115 percent respectively since commercial operation.
SECTION 5.0
PROJECT CONTRACTS
5.1 POWER PURCHASE AGREEMENTS AND RELATED AGREEMENTS
Stone & Webster reviewed technical adequacy of the contracts and
agreements discussed below. Stone & Webster is of the opinion that Funding
Corporation affiliates are capable of satisfying their contractual
obligations which set forth the requirements for operation of the Salton Sea
and Partnership Projects. The pertinent technical obligations of the
contracts are presented in this section.
5.1.1 OPERATING PLANTS
Each of the operating Salton Sea and Partnership Projects is subject to
terms and conditions as specified in its associated power purchase agreement.
All of the contracts include a number of identical conditions related to
operation, maintenance, metering, and other commercial terms which are
reasonable and consistent with the Projections assumptions for the respective
power plants. Each contract is unique in certain aspects, such as contract
capacity, payments, or contract term. Tables 5-1A and 5-1B provide a summary
of Magma's ownership interest and contractual terms for each power plant.
These are accurately included in the Projections.
Based upon the capacity and energy payment rates summarized in Tables 5-1A
and 5-1B, actual billing rates for some plants are calculated for On-Peak,
Mid-Peak, Off-Peak, and Super Off-Peak for Summer and Winter seasons as
defined by Time of Use Schedules published by the California Public Utilities
Commission (CPUC). These billing rates provide for higher payments than shown
on the Projections during Summer Peak, Summer Mid-Peak and Winter Mid-Peak
periods, which total 3465 hours per year and lower payments than shown during
Winter Super Off-Peak which total 1434 hours per year. Payment rates during
Summer and Winter Off-Peak periods, which include 3861 hours, equal or are
close to the rates shown in Tables 5-1A and 5-1B. Average energy rates
received in any year could vary below the Projections assumptions if the
capacity factor of the power plants were significantly reduced during the
Summer Period between June 1 and October 1, when energy payments equal or
exceed the average rates shown on Tables 5-1A and 5-1B.
B-13
<PAGE>
The Projections include energy payments during Phase I as specified in
Table 5-1A for energy generated up to the nameplate capacity. Payment for
energy generated at capacity in excess of nameplate capacity is included
based on compensation at avoided cost which is conservative since facilities
owned by others with similar contracts reportedly are paid full contract
energy rates rather than avoided cost energy rates by SCE. Magma and SCE are
currently attempting to resolve this issue.
Capacity payments specified in Tables 5-1A and 5-1B are included in the
Projections. Capacity factors for Salton Sea Unit III and the Partnership
Projects have been well in excess of the contractual requirements. Salton Sea
Units I and II should meet 100 percent of their respective power purchase
contract power requirements since pH Modification and brine processing
expansion projects were recently completed.
Stone & Webster has reviewed Salton Sea Unit I performance summary
statistics for 1994. The unit generated 4,180,000 kWh during the Summer Peak
period, which corresponds to 80.1 percent of the contract capacity during
those hours. Accordingly, Salton Sea Unit I met the performance requirements.
The Salton Sea Expansion increased brine processing capabilities thereby
providing further assurance that contract capacity requirements can be met in
the future.
Salton Sea Unit II is capable of meeting its contract capacity requirement
taking into account the 20 percent allowance for forced outages. The Salton
Sea Expansion has increased brine processing capabilities thereby providing
assurance that contract capacity requirements can be met in the future.
TABLE 5-1A
SUMMARY OF TERMS -- POWER PURCHASE CONTRACT
SALTON SEA PROJECTS
<TABLE>
<CAPTION>
UNIT 1 UNIT 2 UNIT 3 UNIT 4
------------------ ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Contract Capacity (kW) 10,000 15,000 47,500 34,000
As Available Capacity Not Applicable 0 0 2,000
Capacity Payment ($/kW-year) 121.71 (1) 187 175 (7)
Capacity Bonus ($/kW-year) (2) (6) (6) (7)
As Available Capacity Not Applicable Not Applicable Not Applicable Not Applicable
Payment ($/kW-yr)
Energy Payment ($/kWh) 0.04701 (3) 0.106 (Phase 1) 0.098 (Phase 1) (7)
(4)(Phase 2) (4) (Phase 2)
Dispatchability Price Not Applicable (5) Not Applicable Not Applicable
Adjustment
Contract Term July 2017 April 2000 January 1999 May 2026 (Est.)
(Phase 1) (Phase 1)
April 2020 January 2019
(Phase 2) (Phase 2)
</TABLE>
B-14
<PAGE>
NOTES:
1. Capacity payment as of 2nd Quarter 1992, subject to quarterly
adjustments based on Bureau of Labor Statistics.
2. Payment for capacity in excess of contract capacity is based on as
available capacity price in Standard Offer No. 1 Capacity Payment
Schedule. Pro forma does not include bonus payments.
3. Energy payment as of 2nd Quarter 1992, subject to quarterly adjustments
based on Bureau of Labor Statistics, Rate applies to all energy
delivered at specified point of delivery.
4. Energy payments in Phase 2 to be equal to 100% of Tariff Schedule No.
TOU-8 published avoided cost of energy rates as periodically updated.
5. Utility receives 5% of all kWh delivered in excess of 80% of Contract
Capacity at no cost which is appropriately accounted for in pro forma.
6. For capacity factors greater than 85%, monthly payment = [(1.2 X On
Peak Capacity Factor) - 1.02] [Capacity Payment] [Contract Capacity]
[1/12]. Pro formas appropriately indicate bonuses of 18% of capacity
payment.
7. See "Summary Description of Principal Project Contracts" in the
Confidential Offering Circular.
TABLE 5-1B
SUMMARY OF TERMS -- POWER PURCHASE CONTRACT
PARTNERSHIP PROJECTS
<TABLE>
<CAPTION>
VULCAN DEL RANCH ELMORE LEATHERS
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Contract Capacity (kW) 29,500 34,000 34,000 34,000
As Available Capacity 4,500 4,000 4,000 4,000
Capacity Payment ($/kW-year) 158 198 198 187
Capacity Bonus ($/kW-year) (2) (2) (2) (2)
As Available Capacity Payment 8 8 8 8
($/kW-yr)
Energy Payment ($/kWh) 0.109-0.126 0.109-0.146 0.109-0.146 0.109-0.156
(Phase 1)(1) (Phase 1)(1) (Phase 1)(1) (Phase 1)(1)
(Phase 2) (Phase 2) (Phase 2) (Phase 2)
Dispatchability Price Not Applicable Not Applicable Not Applicable Not Applicable
Adjustment
Contract Term February 1996 January 1999 Janaury 1999 January 2000
(Phase 1) (Phase 1) (Phase 1) (Phase 1)
February 2016 January 2019 January 2019 January 2020
(Phase 2) (Phase 2) (Phase 2) (Phase 2)
<FN>
NOTES:
1. Energy payments in Phase 2 to be equal to 100% of Tariff Schedule No.
TOU-8 published avoided cost of energy rates as periodically updated.
2. For capacity factors greater than 85%, monthly payment = [(1.2 X On
Peak Capacity Factor) - 1.02][Capacity Payment][Contract Capacity]
[1/12]. Pro formas appropriately indicate bonuses of 18% of capacity
payment.
3. Expected annual production is not a contract limit.
</TABLE>
B-15
<PAGE>
5.1.2 SALTON SEA CAPACITY EXPANSION
Under the existing Salton Sea Unit I power purchase agreement, Magma was
entitled to add 20,000 kW of generating capacity. Magma, through its
subsidiary, Fish Lake Power Company, had also executed a power purchase
agreement for the 16,000 kW Fish Lake project in Nevada. On November 29,
1994, Fish Lake Power Company and another Magma subsidiary, the Salton Sea
Power Generation L.P., which were signatories to the Fish Lake power purchase
agreement and Salton Sea Unit I power purchase agreements, respectively,
executed a consolidated power purchase agreement with SCE (the Salton Sea IV
PPA). This contract consolidates the allowable capacity increase at Salton
Sea Unit I of 20,000 kW and the Fish Lake project capacity of 16,000 kW into
a single contract which provides for a contract capacity of 34,000 kW and an
as available capacity of 2000 kW to be added at the Salton Sea Unit III site
for a total of 36,000 kW. Contract capacity must be demonstrated annually.
The Salton Sea IV PPA was approved by the CPUC on April 26, 1995. The
contract term is 30 years commencing on the Firm Operation Date.
The Salton Sea IV PPA provides for capacity payments for firm and
as-available capacity. Payments for 20,000 kW corresponding to all of the
capacity of the Salton Sea Unit I addition are $121.72/kW-year adjusted
quarterly based on Bureau of Labor Statistics using the second quarter of
1992 as reference. The capacity payments continue until June 30, 2017. As of
the first quarter 1996, these payments had been escalated to $132.85/kW-year
based on these indices. Payments for 14,000 kW corresponding to most of the
16,000 kW capacity of the Fish Lake project are set at $158/kW-year with no
adjustment. Payments for additional capacity (including the 2000 kW of
as-available capacity) will be calculated based on SCE's published avoided
cost of energy as periodically revised.
The Salton Sea IV PPA provides for energy payments for all energy
delivered to SCE up to 110 percent of the nameplate rating of 36,000 kW.
Energy payments are calculated by blending rates associated with generation
of 20,000 kW corresponding to the Salton Sea Unit I addition and 16,000 kW
corresponding to the Fish Lake project. The energy payments associated with
the Salton Sea Unit I addition continue until June 30, 2017, and are
established using a base rate of 4.701 cents/kWh as of the second quarter of
1992 and escalated quarterly based on Bureau of Labor Statistics. As of the
first quarter 1995, these payments had been escalated to 4.90 cents/kWh based
on these indices. The energy payments associated with the Fish Lake project
continue for the contract term of 30 years and range from 8.8 in 1996 to 12.4
cents/kWh through 2005, and are based on SCE's published avoided cost
thereafter with an incremental addition of from 1.0 to 3.5 cents/kWh between
2006 and 2010, and no additional increment thereafter. Energy in excess of
110 percent of nameplate rating prior to June 30, 2017 and in excess of 110
percent of 16/36 of nameplate rating thereafter through the term of the
contract will be priced at SCE's published avoided cost of energy.
5.1.3 TRANSMISSION INTERCONNECTION AGREEMENTS
Transmission lines owned and operated by IID are used to interconnect each
of the Partnership Projects and the Salton Sea Projects except Salton Sea
Unit I with SCE. Salton Sea Unit I delivers power directly to SCE which uses
the IID transmission lines. The durations of the interconnection agreements
differ from those of the power purchase agreements, although interconnection
agreements are in place for the term of the proposed financing.
The capacity increase associated with project development at Salton Sea
Unit IV, described in Section 5.1.2 herein, is interconnected through a
transmission line owned by IID. An agreement to acquire transmission
entitlement has been executed with IID and an interconnection and
transmission agreement has been executed. Transmission service charges are
included in the Projections.
A portion of the construction cost of the transmission line was paid for
each power plant except Salton Sea Unit I in accordance with the Funding and
Construction Agreement of June 29, 1987 and separate agreements for each of
the plants with IID. (SCE is responsible for the Salton Sea Unit I
transmission cost on the IID lines.) Magma currently has transmission line
entitlements for 288.6 MW on this line, which is in excess of existing
combined capacity of 244 MW for the Salton Sea Units I, II, III, and IV,
Vulcan, Del Ranch, Elmore, and Leathers operating power plants. The Funding
and Construction
B-16
<PAGE>
Agreement provides for credits equal to contributions and other financing
costs to be applied against Transmission Service Agreement charges. These
credits are included in the Projections. SCE is responsible for transmission
of power from Salton Sea Unit I.
5.2 GEOTHERMAL SALES CONTRACTS
5.2.1 SALTON SEA UNITS I, II, III, AND IV
Magma Land Company I provides to Salton Sea Brine Processing L.P. the
right to extract and utilize geothermal resources for the Salton Sea Units
pursuant to an Amended and Restated Easement Grant Deed, dated as of February
23, 1994, as further amended.
The geothermal royalties to be paid to Magma Land Company I for such
rights as a percentage of the energy revenues of the Salton Sea Units are
summarized below.
<TABLE>
<CAPTION>
YEAR TOTAL
---- -----
<S> <C>
1994 .......................... 3.9338%
1995 .......................... 4.0139%
1996 .......................... 4.0959%
1997 .......................... 4.2362%
1998 .......................... 4.2643%
1999 .......................... 4.4076%
2000 .......................... 4.5245%
2001 .......................... 4.6531%
2002 .......................... 4.6074%
thereafter ................... N/A*
<FN>
- ------------
* The percentage royalty payments will increase by approximately 1.75% per
annum.
The payments do not include additional non-material payments to be made by
Magma Land Company I (e.g., surface rentals and rent for undeveloped
parcels). All payments are included in the Projections.
5.2.2 VULCAN PROJECT
Geothermal energy sales for the Vulcan Project are subject to terms and
conditions as specified in the Brine Sales Agreement dated August 30, 1985,
as amended as of June 17, 1996, between Vulcan Power Company and Vulcan/BN
Geothermal Power Company. Vulcan Power Company provides resources as
specified in the Brine Sales Agreement and receives in return 4.167 percent
of the energy component of the price of electricity sold in accordance with
the power purchase agreement and an Administrative Fee which is subject to
negotiation at unspecified intervals. The Projections include the 4.167
percent royalty and include an Administrative Fee.
Pursuant to underlying resource documents Magma pays a royalty to resource
owners equal to 4.167 percent of energy revenues. There are also other
payments for use of surface rights and leases for the plants. These royalty
payments are included in the Projections.
5.2.3 DEL RANCH, ELMORE, AND LEATHERS PROJECTS
Del Ranch, L.P., Elmore, L.P. and Leathers, L.P. have each entered into an
Easement Grant Deed and Agreement with Magma. These agreements provide for
sale of geothermal energy for use by the Del Ranch, Elmore, and Leathers
Projects. Magma receives as payment a Grantors Fuel Charge equal to 17.333
percent of all energy revenues received by the facilities pursuant to the
power purchase agreements and a Geothermal Lessor's Fee equal to 4.167
percent of all energy revenues received by the facilities. Magma also
receives a Resource Development Fee equal to 0.833 percent of all energy
revenues for the Del Ranch and Elmore Projects, but not for the Leathers
Project. The Projections accurately include these payments based on projected
energy sales.
B-17
<PAGE>
Pursuant to underlying resource documents Magma pays a royalty to
resource owners equal to 4.167 percent of energy revenues. There are also
other payments for use of surface rights and leases for the plants. These
royalty payments are included in the Projections.
5.3 SOLIDS DISPOSAL AGREEMENTS
Solid geothermal end products are disposed of in the Magma owned Desert
Valley Company monofill in accordance with the Amended and Restated Waste
Disposal Agreement of February 23, 1994. Contract term is 10 years. Tipping
fees were set at $51.50 per ton subject to annual adjustment based on
specified indices.
Other solid geothermal scale, pipe, filter cake, and other materials which
are characterized as hazardous waste are transported and disposed of by
Laidlaw Environmental Services in accordance with an Environmental Services
Agreement in effect through March 31, 1996. This contract will be extended to
allow disposal until the pH Modification project is complete. Costs for
disposal of bulk solids requiring no treatment range from $77 to $100 per ton
depending on quantity. Disposal costs for wastes requiring solidification
range from $145 to $185 per ton. Disposal cost for wastes requiring
stabilization range from $175 to $215 per ton. An additional 10 percent
county tax and transportation costs of $14 per ton are also assessed.
In 1994, 21,613 tons of solids were disposed of with Laidlaw, of which
8,143 tons were attributable to non-routine facility cleanout operations.
Approximately 14,000 tons/year of solids would normally be disposed of with
Laidlaw at an average cost of $80/ton subject to escalation. The appropriate
portion of these costs is allocated in the Projections for Vulcan, Del Ranch,
Elmore, and Leathers Projects. The Projections do not include significant
solids disposal costs for Salton Sea Units I, II, and III, since solids
generation has been significantly reduced by implementation of the pH
Modifications. Approximately 33,000 tons of filter cake were disposed of at
Desert Valley in 1994 at rates as specified in the Waste Disposal Agreement
from all plants excluding Salton Sea Unit II, which incorporates pH
Modification in its design to eliminate precipitation and disposal of brine
solids. The Projections for the Vulcan, Del Ranch, Elmore, and Leathers
Projects include their portion of these costs for disposal based on the
specified tipping fee. Costs for filter cake disposal for Salton Sea Units I
and III are not included since the pH Modification program has been
implemented.
5.4 OPERATING AND MAINTENANCE AND ADMINISTRATION AGREEMENTS
5.4.1 SALTON SEA UNITS I, II, III, AND IV
An Amended and Restated Operating and Maintenance Agreement was executed
on of July 15, 1995, between CEOC, Salton Sea Power Generation L.P., and
Salton Sea Brine Processing L.P. The Operating and Maintenance Agreement
provides for CEOC to perform or, when necessary, subcontract the performance
of all necessary operations, maintenance, and repairs, with specific
responsibilities comprehensively described. The agreement also provides for
performance of administrative services and maintenance of specified reserve
accounts. The term of the agreement is 33 years. CEOC is reimbursed for
actual incurred costs and expenses, which are included as part of operating
expenses in the Projections. The agreement does not provide for any
additional fees. Administrative services for the Salton Sea Projects are
provided pursuant to an Administrative Services Agreement between Magma and
the Salton Sea Guarantors.
5.4.2 VULCAN PROJECT
A Construction, Operating, and Accounting Agreement was executed on August
30, 1985, as amended as of June 17, 1996, between Vulcan/BN Geothermal Power
Company and Vulcan Power Company. The agreement is similar to the Operating
and Maintenance Agreement for Del Ranch, Elmore, and Leathers. Vulcan Power
Company is reimbursed for actual incurred costs and expenses which are
included as part of operating expenses in the Projections. The agreement does
not provide for any additional fees. Administration services and costs are
covered by an Administrative Services Agreement between CEOC and Vulcan.
B-18
<PAGE>
5.4.3 DEL RANCH, ELMORE, AND LEATHERS PROJECTS
Del Ranch, L.P., Elmore L.P., and Leathers, L.P. entered into Operating
and Maintenance Agreements with CEOC. The agreements provide for operation of
the Del Ranch, Elmore, and Leathers Projects. The agreements, as amended, are
all very similar to each other and provide for CEOC to perform or, when
necessary, subcontract the performance of all necessary operations,
maintenance, and repairs. Included in the scope of work are budget
development, implementation of preventive maintenance, safety and loss
prevention, and spare parts programs. Also included are performance of
administrative functions including billing, revenue collection and
disbursement, and maintenance of working capital and reserve accounts. The
term of the contract is 32 years.
CEOC is reimbursed for actual costs and expenses incurred. In addition,
the contracts provide for payments to CEOC of a Guaranteed Capacity Payment
and Special Priority Distribution pursuant to the applicable Limited
Partnership Agreements. The Projections include these base and incentive
payments based on projected energy sales.
A separate Administrative Services Agreement between the same parties has
been entered into for each facility. The term of each contract is 32 years.
Each agreement provides that CEOC will perform administrative and management
activities not covered by the respective Operating and Maintenance Agreement
for the facility. The contracts provide for payment of an Administration Fee
equal to three percent of total electricity revenues, but in no event less
than a floor amount of $800,000 per year per facility which is subject to
escalation based on the Consumer Price Index based on its value in August
1988. These fees are included in the Projections.
SECTION 6.0
FUNDING CORPORATION AFFILIATES AND PARTICIPANTS
6.1 CALENERGY COMPANY, INC. (CALENERGY)
CalEnergy Company, Inc. formerly known as California Energy Company, Inc.
(the Company), was founded in 1971 and is primarily engaged in the
development and operation of environmentally responsible independent power
production facilities worldwide utilizing geothermal resources or other
energy sources, such as hydroelectric, natural gas, oil and coal.
The Company is the largest independent geothermal power producer in the
world (on the basis of the Company's estimate of the aggregate megawatts (MW)
of electric generating capacity in operation and under construction). The
Company has an aggregate net ownership interest of 432 MW of electric
generating capacity in power production facilities in the United States
having an aggregate net capacity of 575 MW. All of these facilities are
managed and operated by the Company and are principally located in Southern
California. In addition to the electricity sales revenue earned from its net
ownership position in such facilities, the Company receives significant fee
and royalty income from operating such plants and certain power plants which
are owned by unaffiliated third parties and from managing the production from
the geothermal resources for such facilities. Additionally, the Company has
an aggregate net ownership interest of 449 MW of electric generating capacity
in four geothermal power projects in the Philippines and the United States,
having an aggregate net capacity of 540 MW, and has a net ownership interest
of 52 MW of electric generating capacity in a hydroelectric power project in
the Philippines, having an aggregate net capacity of 150 MW, which projects
are financed and under construction. Recently a notice to proceed was issued
with respect to construction of a 55 net MW geothermal project in Indonesia
in which the Company has an aggregate net ownership interest of 26 MW of
electric generating capacity. The Company is also developing seven additional
projects with executed or awarded power sales contracts in the Philippines,
Indonesia and the United States. The Company is expected to have an
approximate net ownership interest of 760 MW in these development projects
(which represent an aggregate net capacity of 1,423 MW of additional
potential electric generating capacity). Substantial contingencies exist with
respect to development projects, including, without limitation, the need to
obtain financing, permits and licenses and the satisfactory completion of
construction.
B-19
<PAGE>
6.2 MAGMA POWER CORPORATION (MAGMA)
Magma, prior to its acquisition by CalEnergy, was a U.S. based independent
power producer specializing in geothermal energy. Magma was in the business
of generating electricity from seven operating geothermal power plants, and
acquiring, exploring, and developing geothermal resources. Magma was a
successor to a business founded in 1954 that pioneered geothermal development
at the Geysers in Northern California, which is the largest geothermal
development in the U.S.
6.3 SOUTHERN CALIFORNIA EDISON (SCE)
SCE is a public utility regulated by the California Public Utilities
Commission. SCE's service area includes approximately 50,000 square miles
with a population of more than 11 million.
SCE added approximately 30,000 customer accounts in 1994, compared with
about 10,000 new accounts in 1993. This brings the total number of customer
accounts served to 4.15 million. SCE's customer base has grown by
approximately three percent or 0.75 percent per year, over the past four
years. Customer growth in the near term is expected to increase reflecting
the projected expansion of California's population. Peak system demand in
1994 was 18,044 MW and system generating capacity was 20,615 MW. According to
its 1994 Annual Report, SCE's energy mix in 1994 consisted of 20 percent
nuclear, 26 percent gas, 13 percent coal, 4 percent hydro, and 37 percent
purchased power. The majority of power purchased by SCE comes from
non-utility generators.
SECTION 7.0
PERMITTING AND ENVIRONMENTAL
7.1 OPERATING PLANTS
Stone & Webster discussed permit status with Magma's Environmental Manager
during the site visit. He indicated that all permits are in good standing for
the plants. It appears that project operations are conducted in compliance in
all material respects with applicable environmental regulations.
The Desert Valley Monofill Operating Permit issued by the Integrated Solid
Waste Management Board is current, and the plan for closing one of the two
Monofill storage cells has been submitted to the Board for review. The
Monofill can be expanded if necessary to provide additional waste storage
capacity.
7.2 SALTON SEA EXPANSION
Amendments to the Conditional Use Permits for Salton Sea Units I, II, and
III were approved by the Imperial County Planning Commission on November 23,
1994. These amendments provide county authorization for installation of the
pH Modification and construction of Salton Sea Unit IV. Authority to
Construct Permits were issued by the Imperial County Air Pollution Control
District on April 10, 1995 will be closed out after startup when the
Operating Permit is issued.
The Authority to Construct Permit required reduction of hydrogen sulfide
emissions for Salton Sea Units I and II from non-condensable gases by 90
percent or to a maximum of 0.95 lbs/hr. Salton Sea Unit III similarly is
required to reduce emissions in accordance with the Authority to Construct
Permit by 90 percent or maximum of 7.2 lbs/hr. These reductions should be
readily achievable using the recently installed hydrogen sulfide abatement
technology. The Salton Sea and Partnership Projects currently comply and
should continue to comply with applicable Authority to Construct permit
emission limits.
SECTION 8.0
ASSESSMENT OF FINANCIAL PROJECTIONS
8.1 BASE CASE ASSUMPTIONS
Stone & Webster conducted a financial analysis using projections provided
by Funding Corporation. Stone & Webster reviewed the projections and
confirmed the results (the "Projections"). The assumptions and data used in
the Projections are consistent with Project documents and data provided by
Funding Corporation.
B-20
<PAGE>
Stone & Webster's review is based on the following project structure and
financial details, as described by Funding Corporation.
o Funding Corporation is wholly-owned by Magma.
o Magma indirectly owns the Salton Sea Projects, the Royalty
Guarantor, and the Partnership Projects.
o The Salton Sea Guarantors receive project cash flows from the
Salton Sea Projects. The Partnership Guarantors receive project
cash flows and equity distributions from the Partnership Projects,
royalties and other payments, if any, which are received by Vulcan
Power Company and CEOC from the Partnership Projects, and the
Royalty Guarantor receives royalties and other payments which have
been assigned to the Royalty Guarantor by Magma from the Royalty
Projects and East Mesa Project except Vulcan.
o The $135 million investment-grade bonds will be obligations of
Funding Corporation guaranteed by each of the Salton Sea
Guarantors, the Partnership Guarantors, and the Royalty Guarantor.
o The $135 million proceeds will be used to (i) refinance all
existing project-level indebtedness of the Partnership Projects,
(ii) fund certain capital improvements to the Partnership Projects,
and (iii) fund a portion of the purchase price for the acquisition
of the 50% interest in each of the Partnership Projects previously
owned by a third party.
Beginning with 1996 and continuing through 2012, the Projections forecast
revenues and expenses, assuming certain operating conditions, maintenance
schedules, O&M costs, and escalation rates. The base case Projections
indicate that the Project revenues from the sale of electrical energy and
capacity pursuant to the terms of the power purchase agreements for the
Salton Sea and Partnership Projects, and royalties from the Royalty Projects
are adequate to pay for the annual operating expenses, and debt service of
the investment-grade bonds. The average debt service coverage ratio is 2.04
and the minimum debt service coverage ratio is 1.57.
8.2 BASE CASE FINANCIAL PROJECTIONS
Power Production
The Projections were modeled using a total annual energy production of
1,959 GWh from Salton Sea Units I, II, and III, and the Partnership Plants,
based on the average production for the period 1992 through 1995. The Salton
Sea Expansion (Salton Sea IV) project adds 39.6 MW of production capacity at
an assumed 95 percent capacity factor. These values have been proven to be
technically feasible and are consistent with the power purchase agreements.
Capacity factors based on nominal plant capacity for the Salton Sea and
Partnership Projects were based on historical data and are shown in Table
8-1.
TABLE 8-1
CAPACITY FACTORS
</TABLE>
<TABLE>
<CAPTION>
DEL
SS#I SS#II SS#III SS#IV VULCAN RANCH ELMORE LEATHERS
------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nominal Capacity
Factor 86.07 93.17 97.13 95.0 102.37 102.42 101.46 102.43
Nominal Capacity
(kW) 8,000 18,000 49,800 39,600 34,000 38,000 38,000 38,000
</TABLE>
With the exception of Salton Sea IV, the plants have proven operating
history. Stone & Webster believes that these levels of capacity and energy
production of the plants can be maintained, provided that adequate resource
is available.
B-21
<PAGE>
Revenues
SCE is obligated to pay energy payments and capacity payments pursuant to
the power purchase agreements as summarized in Table 5-1A and 5-1B. The power
contracts for Salton Sea Units II, III, and IV and the Partnership Projects
also specify bonus capacity payments if the capacity factors during peak
periods exceed 85 percent.
The energy payments for Salton Sea Unit I are based on the actual billing
rate of 4.79 cents/kWh in 1994, escalating at an assumed rate of 3.5 percent.
Energy payments for Salton Sea Units II and III and Partnership Projects are
based on a defined schedule of rates for the first ten years (Phase I) of
each project's life, then at SCE's avoided cost of energy. A portion of the
energy payments for Unit IV are based on the Unit I formula with the
remainder based on a formula similar to Units II and III. The projected
energy payments during Phase I are consistent with the power purchase
agreements and the capacities of the plants. During Phase II, the revenues
are less certain because future avoided costs are unknown. SCE's avoided cost
of energy was based on an SCE forecast published in 1995. A sensitivity
analysis to 1996 avoided costs was performed to assess the impact on debt
service coverage (see Section 8.3).
The capacity payments are comprised of firm capacity payments and, in some
cases, as-available capacity payments and bonus capacity payments. The fixed
capacity payments and as-available capacity payments are calculated as the
product of the appropriate capacity rate defined in the power purchase
agreements and the respective contract capacity or as-available capacity. The
bonus capacity is available for all of the plants except Salton Sea Unit I,
and is based on the on peak capacity factor for each plant. The capacity
payments are consistent with the power purchase agreements and the
capabilities of the plants.
Magma owns the Desert Valley Landfill Company, which is used for disposal
of filter cake. Magma pays fees to that company and receives its net
proceeds.
Partnership Royalty Revenues
Each of the Initial Partnership Guarantors and the Royalty Guarantor will
receive Royalties from the Partnership Projects. These Royalties are paid by
each partnership under various easement and operating agreements. The
Royalties are calculated as a function of revenues as summarized below. These
royalties do not impact the cash flows available for debt service. These
percentages all apply to energy payments except the administration fees and
total revenue royalties, which are based on total revenues.
<TABLE>
<CAPTION>
ROYALTY VULCAN DEL RANCH ELMORE LEATHERS
------- ------ --------- ------ --------
<S> <C> <C> <C> <C>
Brine Fee ............ 0.0% 17.333% 17.333% 17.333%
Priority Distribution 0.0% 2.667% 2.667% 4.5%
Administration Fee .. 3.0% 3.0% 3.0% 3.0%
Priority Payment .... 0.0% 0.0% 0.0% 1.0%
Lessor Fee ........... 0.0% 4.167% 4.167% 4.167%
Total Revenue ........ 0.0% 1.0% 1.0% 0.0%
Energy ............... 0.0% 0.83% 0.83% 0.0%
</TABLE>
Other Royalty Revenues
Magma is entitled to a royalty payment from the East Mesa Project, in
which Magma does not have an ownership interest. Magma has assigned the
royalties it is entitled to receive to the Royalty Guarantor. These are
determined as 4.0 percent of the capacity and energy payments of the East
Mesa Project and are included in the Projections.
Capital Costs
The plants require ongoing capital expenditures to maintain the brine
supply and handling systems, replace components, and make improvements. The
Salton Sea Projects are expected to require approximately $1.1 million
annually for capital expenditure in 1996 dollars, escalating at 3.0 percent
per year. This reflects the implementation of pH Modification at those
plants.
B-22
<PAGE>
Approximately $8.6 million is allocated in 1996 in the pro forma for
capital expenditures at the Partnership plants plus the Funding Corporation
has stated that $15 million of the proceeds from the bond offering will be
used to fund capital expenditures. Funding Corporation anticipates that the
capital expenditures at the Partnership Projects will include installation of
cement-lined brine pipe on brine production piping of the Region II plants
and titanium well liners at selected wells. These improvements should reduce
O&M costs by reducing the periodic replacement of carbon steel piping and
well liners.
The Projections assume that the capital expenditures will escalate at 3.0
percent per year.
Operating Expenses
Stone & Webster reviewed Funding Corporation's operating cost projections
for the Salton Sea and Partnership Projects in its report dated July 18,
1995, as described therein. That report is incorporated in the Funding
Corporation's Offering Circular of the same date. Since the acquisition of
Magma by CalEnergy in February 1995, operations and maintenance functions for
the Salton Sea and Partnership Projects have been consolidated, redundant
personnel have been eliminated and procedures have been streamlined to
improve efficiency and reduce overall operating costs.
Due to the cost savings reflected in the Salton Sea and Partnership
Projects' accounting reports and achieved through major changes in operating
practices and management and administrative structures, project costs prior
to 1995 do not necessarily represent a base for future cost estimates. Stone
& Webster has not prepared an analysis to reconcile 1995 actual costs with
1994 or prior years' actual costs. Thus, Stone & Webster has relied upon 1995
actual costs, as reflected in the Salton Sea and Partnership Projects'
accounting reports, discussions with project operating and management
personnel, its review of the condition of the plants and present operating
procedures, and an O&M sensitivity analysis to evaluate the projects future
operating costs.
The projected 1996 operating and maintenance costs reviewed by Stone &
Webster represent a 23 percent real cost reduction relative to 1995 actual
costs as a result of staff reductions achieved through consolidation and
integration of facility operations and other changes in operations and
maintenance procedures. Funding Corporation expects to realize additional
real cost reductions of 14 percent by 1999 by making further improvements in
operations and additional capital investments.
These operational improvements and capital investments will address the
specific characteristics of the brine fluids, and the requirements for their
production since the SSKGRA is unique in the combination of high temperature
and its concentration of dissolved solids. Brine processing costs at the
SSKGRA are generally higher and not directly comparable to other geothermal
fields with lower concentrations of dissolved solids. Therefore, the cost
reductions which are shown in the Projections are based upon both the further
utilization of special brine processing materials and the continued
implementation of CalEnergy's operating procedures, which prior to 1995 had
not been utilized at the Salton Sea Projects and the Partnership Projects,
but had been utilized at CalEnergy's Coso geothermal projects since 1991. The
cost reductions are intended to be achieved in the following ways:
o Maintaining optimal and efficient staffing and wage levels.
o Consolidating control rooms at Region II
o Obtaining quantity discounts on material purchases by combining
purchases with purchases by other CalEnergy-owned or operated
plants.
o Reducing turbine overhaul frequency on the Salton Sea plants as a
result of converting to the pH Modification system
o Reducing cooling tower chemical consumption
o Reducing waste disposal cost by controlling plant processes to
minimize precipitation of heavy metals
o Aggressively controlling operating and maintenance expenses and
capital expenditures
o Utilization of titanium well liners in selected wells to reduce
well downtime and workover costs
B-23
<PAGE>
o Replacing certain steel pipe with cement-lined pipe to reduce
downtime and maintenance and scale disposal cost.
The annual per-well capital expenditures for titanium well liners and
cement-lined brine piping and the attendant savings will depend upon the
specific per-well estimates and installation schedule. Based upon advances in
metallurgy and actual experience of the Salton Sea plants with titanium well
liner and cement-lined brine piping, the Company believes that titanium well
liners and cement-lined pipe should result in less scale that is also easier
and less costly to remove. This is because steel in the well casings and
brine piping has been found to promote the rapid formation of very hard scale
that adheres strongly to the steel. Therefore, the effort and cost required
for scale removal and disposal should be reduced. In addition, certain
minerals in the brine are corrosive to steel, requiring periodic repair, and
eventual replacement every two to six years of steel well liners or brine
piping. Repairs not only take time and materials, but cooling during the
required plant outage can cause scale to separate from the steel piping and
vessels and accumulate or prevent normal operation of the CRC systems,
thereby increasing downtime and costs. By reducing downtime, the proposed
improvements of replacing steel pipe with cement-lined pipe and using
titanium rather than steel well liners could thereby increase revenues, but
that was not taken into account in the Projections.
The Partnership Plants, which utilize the CRC process, require major
maintenance every two years, so the turbines are overhauled during those
outages. In 1995 CEOC overhauled turbines representing approximately 122 MW
of capacity. Thus far in 1996 overhauls have been performed on turbines with
approximately 84 MW of capacity with another 38 MW anticipated during the
remainder of 1996. Since the Salton Sea turbines are no longer supplied by a
CRC system their overhaul interval is planned to be extended from two years
to four years, a schedule similar to that utilized by CalEnergy for the nine
turbines at the Coso plant. The turbines are equipped with water-wash systems
to remove scale deposits from the blading, which reduces the need for major
maintenance. Stone & Webster believes that this is a reasonable maintenance
plan which is not likely to be detrimental to the turbines.
The Company provided extensive accounting reports for the Partnership
Plants, including 1995 actual costs and 1996 budget and year-to-date
variances through April. The variances indicated that the plant costs are on
budget and the Company believes that the costs can be maintained on budget
for the remainder of 1996. The Company provided staffing levels at both the
start and end of 1995 as well as the current levels. Those numbers indicate
that the labor force has been reduced by 80 personnel from the beginning of
1995 to date. In comparing the 1995 actual labor costs to the 1996 budget, a
labor cost reduction of $5.1 million is expected.
Funding Corporation affiliates began to realize operating and maintenance
cost reductions in November 1995 associated with shutting down the CRC
process and using the pH Modification process at the Salton Sea Projects.
Sensitivity analyses were performed to determine sensitivity to operating and
maintenance costs (see Section 8.3).
Funding Corp. expects the cost of well workovers to decrease due to the
installation of titanium well casing in the future. GeothermEx, Inc., Funding
Corporation's resource consultant, has performed an initial review of Funding
Corporation's plans and costs associated with installing titanium well liners
and performing future workovers, with a preliminary conclusion that they are
reasonable and technically viable.
Funding Corporation Securities
The debt service coverage ratios for the Securities were calculated for
1996 through 2011. The ratio is calculated as the total revenues of each of
the Guarantors less the total expenses of each of the Guarantors (including
senior bond payments and necessary capital expenditures), divided by the debt
service of the Securities to be paid by Funding Corporation. The debt service
coverage ratios are calculated on an annual basis. Principal and interest
payments are made every six months based on interest rates and principal
amortization of the Securities as described in the Offering Circular. The
original outstanding balance is $135 million.
B-24
<PAGE>
The base case Projections result in debt service coverage ratios that
vary from 1.57 to 3.14, with an average of 2.04.
8.3 SENSITIVITY ANALYSIS
Stone & Webster assessed the sensitivity of the debt service coverage
ratios to a number of conditions which could affect project performance. The
sensitivity of the average debt service coverage ratios to the following
parameters was investigated using the base case Projections.
o Avoided cost
o Cost escalation rate
o Increased O&M costs
The results of the sensitivity analysis are shown in Table 8-2.
Avoided Cost Sensitivity
SCE's avoided cost of energy tends to track fuel prices, but can be
impacted by the efficiency of SCE's plants and changes in the methodology
approved by the CPUC for calculating the avoided cost. A sensitivity analysis
to an avoided cost of 2.2 cents/kWh (in 1995$) was performed to assess the
impact on debt service coverage ratios. At an escalation rate of 3.0 percent,
the average and minimum debt service coverage ratios for this case are 1.71
and 1.50 respectively. A sensitivity analysis to an avoided cost of 2.9
cents/kWh (which is comparable to the base case assumption for the initial
offering) with 3.0 percent escalation was also performed resulting in average
and minimum debt service coverage ratios of 2.13 and 1.59 respectively.
Finally, a "high" avoided cost sensitivity analysis to an avoided using the
"SCE Median Case" was also performed resulting in average and minimum debt
service coverage ratios of 2.21 and 1.58 respectively.
In addition to the above avoided cost sensitivity analysis, a "break-even"
avoided cost analysis was conducted, which solved for the avoided cost in
each year beyond 2000 which would yield a debt service coverage of 1.0x in
that year. The maximum of these break-even avoided costs is 1.98 cents/kWh in
2009 (or 1.31 cents/kWh in 1995$ using an escalation rate of 3%). The results
of this analysis containing the break-even avoided costs in then current year
and 1995$ are shown in Table 8-3.
Cost Escalation Sensitivity
A general cost escalation rate of 3.0 percent was used to escalate all
expenses except property tax. This rate was calculated as a percentage of
general inflation assumed to be 3.5 percent. A sensitivity analysis was
performed with a cost escalation rate of 4.0 percent, with resulting average
and minimum debt service coverage ratios of 1.88 and 1.55 respectively.
O&M Cost Increase Sensitivity
An O&M cost increase of 15 percent relative to the assumed cost
projections was investigated, with resulting average and minimum debt service
coverage ratios of 1.96 and 1.54 respectively.
Sensitivity Summary
The results from the sensitivity analyses that were conducted to determine
the susceptibility of the economics of the Projects to changes in future
avoided cost, operating and maintenance cost levels, and cost escalation
rates showed that revenues are more than adequate to pay operating and
maintenance costs and cover debt service.
B-25
<PAGE>
TABLE 8-2
SENSITIVITY ANALYSIS SUMMARY
<TABLE>
<CAPTION>
AVERAGE DEBT
MINIMUM DEBT SERVICE
SERVICE COVERAGE
SENSITIVITY PARAMETER COVERAGE RATIOS RATIOS
- --------------------- --------------- --------------
<S> <C> <C>
Base Case ..................... 1.57 2.04
Avoided Cost (2.2 cents/kWh) . 1.50 1.71
Avoided Cost (2.9 cents/kWh) . 1.59 2.13
Avoided Cost (SCE Median Case) 1.58 2.21
Cost Excalation 4.0% .......... 1.55 1.88
Increased Operating Costs .... 1.54 1.96
</TABLE>
TABLE 8-3
BREAK-EVEN AVOIDED COSTS ANALYSIS SUMMARY
<TABLE>
<CAPTION>
CURRENT YEAR
(CENTS/KWH) (1995$)
-------------- -------
<S> <C> <C>
MAX ........ 1.98 1.31
AVG ........ 1.66 1.22
2000 ...... 1.19 1.03
2001 ...... 1.47 1.23
2002 ...... 1.53 1.24
2003 ...... 1.55 1.23
2004 ...... 1.54 1.18
2005 ...... 1.55 1.16
2006 ...... 1.81 1.30
2007 ...... 1.86 1.31
2008 ...... 1.92 1.31
2009 ...... 1.98 1.31
2010 ...... 1.79 1.15
2011 ...... 1.85 1.15
</TABLE>
B-26
ATTACHMENT 1
ASSUMPTIONS AND DOCUMENTS REVIEWED
<PAGE>
ATTACHMENT 1
ASSUMPTIONS AND DOCUMENTS REVIEWED
The principal assumptions and considerations made by Stone & Webster 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. Plant
performance data provided in the Report assume no decline in geothermal
resource production or injection capability from current levels.
o The estimated interest rates on the securities, estimated reinvestment
rates and the amortization schedule of the securities used in the debt
service coverage analysis have been provided to Stone & Webster.
o The avoided cost used in the base case Projections was based on SCE's
projections contained in the Confidential Offering Circular for the Initial
Offering.
o Stone & Webster personnel visited the operating plants on several occasions
in 1994 and 1995 to inspect the plants and obtain information.
o Stone & Webster personnel visited the operating plants on May 29 and 30,
1996 to assess current operating conditions and completion of the Salton
Sea Expansion. The Report addresses the condition of the plants based upon
this examination.
o Funding Corporation provided 1995 cost accounting information and future
cost projections.
o Certain other assumptions identified in the text, including paragraphs 8.1
and 8.3 thereof.
1-1
<PAGE>
DOCUMENTS REVIEWED
DATE
RECEIVED DOCUMENT
- ------------- ---------------------------------------------------------------
5/1/95 SCE statements for the last 12 months for Units I, II, and III
5/1/95 Historical 1993 Monthly Income Statements for Units I and II,
and III (April through December).
5/1/95 Historical 1994 Monthly Income Statements for Units I and II,
and III
5/1/95 Detail on Transmission Credits
5/1/95 Engineering Services Agreement between Magma Power Company and
Dow Engineering dated February 1994
5/1/95 Consolidated and Amended PPA among Southern California Edison
Company, Fish Lake Power Company, and Salton Sea Power
Generation L.P.
5/1/95 Approval Order directed to the PUC by SCE
5/1/95 Salton Sea and Partnership Projects Power Purchase Agreements
5/1/95 Transmission Service Agreements
5/1/95 Salton Sea and Partnership Projects Geothermal Sales Contracts
5/1/95 Waste Disposal Agreement
5/1/95 Operation and Maintenance and Administration Agreements
5/1/95 Plant Connection Agreements
5/5/95 Dow Schedule for Expansion Project
5/5/95 Expansion Turbine Specification
5/5/95 PUC Approval
5/5/95 Authority to Construct Permit
5/5/95 Dow Estimates for the pH Mod Conversion and the Expansion Plant
5/9/95 Transmission Line Credits
5/10/95 Complete Amortization Schedules for each of the Partnership
Project Loans
5/10/95 Sinking Fund Schedule for the Desert Valley Pollution Control
Bonds
5/10/95 Summary of Contingency Support for the Project Financing
5/10/95 1992 Costs by Unit
5/10/95 pH Mod Conversion Tie-in Description
5/10/95 Vulcan, Del Ranch, and Leathers Process Flow Diagrams
5/10/95 Leathers P&IDs
5/10/95 Vulcan P&IDs
5/10/95 Del Ranch P&IDs
5/10/95 Salton Sea Plants Process Flow Diagrams
5/10/95 Salton Sea Plants P&IDs
5/15/95 Elmore Process Flow Sheets
5/15/95 PUC Decision 95-04-057
5/19/95 Transmission Agreement Payment Acknowledgment
5/19/95 Combined Fish Lake and Salton Sea Power Purchase Agreement
5/19/95 Preliminary Drawings
o Expanded Master Development Plan, Salton Sea 1, 2, 3
o Overall Layout Plan & Project Notes
o Civil Grid Plan & General Notes
o Site Development Rough Grading Plan Expansion Area
o Site Layout Plan Expansion Area
5/19/95 Salton Sea and Partnership Projects Operating Data
5/30/96 Plant MVh production summaries and graphs
1-2
<PAGE>
6/6/96 Salton Sea Funding Corp II Cost Analysis
6/7/96 Capital expenditure estimates
6/7/96 Unit overhaul history and schedule
6/7/96 Faxes to SCE of May 22, 1996 and from SCE on 5/29/96 indicating
the start of the 30-day and 24-hour tests
(various) In addition, other information provided by the Company and
other information on file with Stone & Webster
1-3
<PAGE>
ATTACHMENT 2
FINANCIAL PROJECTIONS
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
BASE CASE
<TABLE>
<CAPTION>
CASH FROM PROJECTS 1996* 1997 1998 1999 2000 2001 2002 2003
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I 2,216 4,578 4,739 4,904 5,086 5,254 5,438 5,628
Salton Sea Unit II 9,333 18,623 18,623 18,623 10,310 8,077 8,251 8,395
Salton Sea Unit III 25,725 51,336 51,336 21,303 23,023 23,792 24,301 24,725
Salton Sea Unit IV 8,578 30,617 32,110 33,473 33,864 34,617 35,896 37,045
Vulcan 8,199 13,317 13,836 14,415 15,051 15,604 15,970 16,275
Del Ranch 25,121 53,460 56,803 17,904 18,615 19,234 19,643 19,984
Elmore 25,079 53,376 56,713 17,808 18,513 19,126 19,531 19,869
Leathers 24,900 53,020 56,362 59,706 18,175 18,794 19,203 19,544
--------- --------- --------- --------- --------- --------- --------- ---------
Total Revenues 129,151 278,328 290,522 188,138 142,636 144,498 148,232 151,464
EXPENSES
Salton Sea Units I&II 3,820 6,917 7,122 7,419 7,604 7,729 7,967 8,214
Salton Sea Unit III 5,518 11,268 11,565 10,594 10,988 11,346 11,697 12,060
Salton Sea Unit IV 1,679 5,446 5,139 5,768 5,418 6,372 5,962 6,118
Vulcan 3,614 7,168 6,751 6,703 6,964 7,184 7,559 7,705
Del Ranch 5,173 10,457 9,828 7,649 7,958 8,213 8,666 8,825
Elmore 5,632 10,467 9,903 8,040 8,300 9,027 9,064 9,707
Leathers 5,631 10,209 9,709 9,583 8,075 8,561 9,179 9,946
--------- --------- --------- --------- --------- --------- --------- ---------
Total Expenses 31,068 61,931 60,018 55,757 55,306 58,433 60,095 62,575
Project Operating Income 98,083 216,397 230,504 132,381 87,330 86,065 88,137 88,890
PROJECT ROYALTY EXPENSES
(ROYALTIES TO MAGMA)
Vulcan 246 400 415 433 452 468 479 489
Del Ranch 6,699 14,363 15,392 3,966 4,213 4,424 4,583 4,725
Elmore 6,678 14,320 15,346 3,920 4,164 4,372 4,530 4,670
Leathers 7,115 15,253 16,342 17,434 4,484 4,706 4,873 5,021
--------- --------- --------- --------- --------- --------- --------- ---------
Royalty Expenses 20,738 44,335 47,495 25,753 13,314 13,971 14,465 14,904
Cash After Royalty Payments 77,345 172,062 183,009 106,628 74,016 72,094 73,671 73,986
CAPITAL EXPENDITURES
Salton Sea Units I, II & III 530 1,093 1,126 1,159 1,194 1,230 1,267 1,305
Salton Sea Unit IV 0 337 347 357 368 379 390 402
Vulcan 1,068 2,200 2,266 2,334 2,404 2,476 2,550 2,627
Del Ranch 1,061 2,185 2,251 2,319 2,388 2,460 2,534 2,610
Elmore 1,118 2,303 2,373 2,444 2,517 2,593 2,670 2,750
Leathers 1,061 2,185 2,251 2,319 2,388 2,460 2,534 2,610
--------- --------- --------- --------- --------- --------- --------- ---------
Total Capital Expenditures 4,838 10,304 10,613 10,931 11,259 11,597 11,945 12,303
OTHER
Interest Income 1,008 206 69 0 0 0 0 0
Changes in Working Capital (1,707) (1,881) (990) 8,837 3,623 (132) (355) (306)
--------- --------- --------- --------- --------- --------- --------- ---------
Total Other (699) (1,675) (921) 8,837 3,623 (132) (355) (306)
Cash Available for Debt Service 71,807 160,083 171,475 104,534 66,381 60,365 61,372 61,377
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
*Note: Six months ending December 31, 1996
2-1
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
BASE CASE
<TABLE>
<CAPTION>
CASH FROM PROJECTS 2004 2005 2006 2007 2008 2009 2010 2011
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I 5,836 6,029 6,240 6,458 6,697 6,918 7,160 7,411
Salton Sea Unit II 8,554 8,684 8,843 9,016 9,191 9,349 9,536 9,710
Salton Sea Unit III 25,190 25,572 26,038 26,547 27,060 27,521 28,072 28,581
Salton Sea Unit IV 37,861 38,670 31,869 31,813 31,686 31,022 31,636 31,088
Vulcan 16,610 16,885 17,220 17,586 17,955 18,287 18,684 19,049
Del Ranch 20,359 20,666 21,041 21,450 21,863 22,234 22,677 23,087
Elmore 20,240 20,544 20,916 21,321 21,730 22,098 22,537 22,942
Leathers 19,919 20,226 20,601 21,010 21,423 21,794 22,238 22,647
--------- --------- --------- --------- --------- --------- --------- ---------
Total Revenues 154,569 157,276 152,768 155,202 157,606 159,223 162,541 164,515
EXPENSES
Salton Sea Units I&II 8,470 8,731 9,002 9,283 9,573 9,869 10,177 10,494
Salton Sea Unit III 12,435 12,818 13,216 13,628 14,053 14,488 14,940 15,404
Salton Sea Unit IV 5,983 7,324 5,373 5,691 5,733 6,811 5,822 5,808
Vulcan 8,021 8,258 8,683 8,853 8,931 9,391 9,474 9,962
Del Ranch 9,199 9,475 9,986 10,173 10,242 10,795 10,869 11,457
Elmore 9,748 10,562 10,612 10,518 10,979 10,869 11,198 11,535
Leathers 9,485 9,637 10,329 10,778 10,674 10,551 11,322 11,660
--------- --------- --------- --------- --------- --------- --------- ---------
Total Expenses 63,340 66,804 67,202 68,925 70,184 72,775 73,802 76,320
Project Operating Income 91,229 90,472 85,566 86,277 87,422 86,449 88,738 88,195
PROJECT ROYALTY EXPENSES
(ROYALTIES TO MAGMA)
Vulcan 499 507 517 528 539 549 561 572
Del Ranch 4,884 5,013 5,169 5,336 5,514 5,667 5,849 6,024
Elmore 4,827 4,954 5,108 5,274 5,450 5,601 5,782 5,955
Leathers 5,187 5,321 5,484 5,659 5,845 6,004 6,195 6,377
--------- --------- --------- --------- --------- --------- --------- ---------
Royalty Expenses 15,398 15,795 16,278 16,797 17,348 17,821 18,387 18,929
Cash After Royalty Payments 75,831 74,678 69,288 69,480 70,073 68,628 70,351 69,266
CAPITAL EXPENDITURES
Salton Sea Units I, II & III 1,344 1,384 1,426 1,469 1,513 1,558 1,605 1,653
Salton Sea Unit IV 414 426 439 452 466 480 494 509
Vulcan 2,706 2,787 2,871 2,957 3,045 3,137 3,231 3,328
Del Ranch 2,688 2,768 2,852 2,937 3,025 3,116 3,209 3,306
Elmore 2,833 2,918 3,006 3,096 3,189 3,284 3,383 3,484
Leathers 2,688 2,768 2,852 2,937 3,025 3,116 3,209 3,306
--------- --------- --------- --------- --------- --------- --------- ---------
Total Capital Expenditures 12,672 13,052 13,444 13,847 14,263 14,691 15,131 15,585
OTHER
Interest Income 0 0 0 0 0 0 0 0
Changes in Working Capital (286) (253) 547 (210) (203) (125) (302) (157)
--------- --------- --------- --------- --------- --------- --------- ---------
Total Other (286) (253) 547 (210) (203) (125) (302) (157)
Cash Available for Debt Service 62,872 61,372 56,391 55,423 55,608 53,812 54,919 53,524
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
2-2
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
BASE CASE
<TABLE>
<CAPTION>
MAGMA CASH FLOW STATEMENT 1996* 1997 1998 1999 2000 2001 2002 2003
-------- --------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash From Projects 71,807 160,083 171,475 104,534 66,381 60,365 61,372 61,377
Monofill Revenues 500 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 246 400 415 433 452 468 479 489
Royalties from Del Ranch 6,699 14,363 15,392 3,966 4,213 4,424 4,583 4,725
Royalties from Elmore 6,678 14,320 15,346 3,920 4,164 4,372 4,530 4,670
Royalties from Leathers 7,115 15,253 16,342 17,434 4,484 4,706 4,873 5,021
Other Royalties 650 1,381 1,465 479 497 512 522 531
-------- --------- --------- --------- -------- -------- -------- --------
Total Magma Revenues 93,695 206,799 221,435 131,766 81,191 75,848 77,359 77,811
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 153 305 237 164 85 0 0 0
Pollution Control Debt Principal 0 890 960 1,035 1,115 0 0 0
Installment Obligations 697 1,321 1,101 137 137 0 0 0
Debt Service Reserve LC Fees 241 703 703 703 703 703 703 703
-------- --------- --------- --------- -------- -------- -------- --------
Total Magma Expenses/Obligations 1,090 3,219 3,001 2,038 2,039 703 703 703
Cash Available for Funding Corp
Debt 92,605 203,580 218,434 129,728 79,152 75,146 76,657 77,108
======== ========= ========= ========= ======== ======== ======== ========
</TABLE>
*Note: Six months ending December 31, 1996
2-3
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
BASE CASE
<TABLE>
<CAPTION>
MAGMA CASH FLOW STATEMENT 2004 2005 2006 2007 2008 2009 2010 2011
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash From Projects 62,872 61,372 56,391 55,423 55,608 53,812 54,919 53,524
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 499 507 517 528 539 549 561 572
Royalties from Del Ranch 4,884 5,013 5,169 5,336 5,514 5,667 5,849 6,024
Royalties from Elmore 4,827 4,954 5,108 5,274 5,450 5,601 5,782 5,955
Royalties from Leathers 5,187 5,321 5,484 5,659 5,845 6,004 6,195 6,377
Other Royalties 540 547 557 567 577 586 597 607
-------- -------- -------- -------- -------- -------- -------- --------
Total Magma Revenues 79,810 78,714 74,226 73,787 74,533 73,219 74,903 74,060
MAGMA EXPENSES
Pollution Control Debt Interest 0 0 0 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0 0 0 0
Installment Obligations 0 0 0 0 0 0 0 0
Debt Service Reserve LC Fees 703 703 703 703 703 703 351 0
-------- -------- -------- -------- -------- -------- -------- --------
Total Magma Obligations 703 703 703 703 703 703 351 0
Cash Available for Funding Corp
Debt 79,108 78,012 73,523 73,084 73,830 72,516 74,551 74,060
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
2-4
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
BASE CASE
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR
BOND PAYMENTS 1996* 1997 1998 1999 2000 2001 2002 2003
--------- --------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 7,463 15,739 15,677 15,529 7,195 4,988 5,088 5,157
Salton Sea Unit III 19,941 39,522 39,208 10,129 11,438 11,831 11,970 12,012
Salton Sea Unit IV 6,899 24,835 26,624 27,348 28,078 27,866 29,544 30,526
Vulcan 3,523 3,601 4,420 4,945 5,231 5,475 5,381 5,455
Del Ranch 12,439 26,506 29,349 3,971 4,056 4,137 3,860 3,824
Elmore 11,903 26,337 29,109 3,405 3,531 3,134 3,267 2,742
Leathers 11,346 25,425 28,077 30,371 3,228 3,066 2,617 1,967
Changes in Working Capital (1,707) (1,881) (990) 8,837 3,623 (132) (355) (306)
--------- --------- --------- --------- -------- -------- -------- --------
Total Cash From Projects 71,807 160,083 171,475 104,534 66,381 60,365 61,372 61,377
OTHER REVENUE CASH FLOWS
Monofill Revenue 500 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 246 400 415 433 452 468 479 489
Royalties from Del Ranch 6,699 14,363 15,392 3,966 4,213 4,424 4,583 4,725
Royalties from Elmore 6,678 14,320 15,346 3,920 4,164 4,372 4,530 4,670
Royalties from Leathers 7,115 15,253 16,342 17,434 4,484 4,706 4,873 5,021
Other Royalties 650 1,381 1,465 479 497 512 522 531
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Revenues 21,888 46,716 49,960 27,232 14,811 15,483 15,988 16,434
OTHER EXPENDITURES
Installments/Pollution Control
Debt Service 849 2,516 2,298 1,335 1,337 0 0 0
Debt Service Reserve LC Fees 241 703 703 703 703 703 703 703
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Expenditures 1,090 3,219 3,001 2,038 2,039 703 703 703
Net Cash Available for SSFC Debt
Service 92,605 203,580 218,434 129,728 79,152 75,146 76,657 77,108
========= ========= ========= ========= ======== ======== ======== ========
Interest (Series A/B/C) 15,398 28,110 23,583 19,094 16,667 15,596 13,996 12,323
Principal (Series A/B/C) 24,054 64,378 74,938 35,108 19,573 21,377 22,698 22,237
Interest (Series D/E) 5,155 9,855 7,933 5,810 4,362 4,040 3,944 3,782
Principal (Series D/E) 0 25,850 32,000 22,728 5,500 1,000 1,600 3,000
--------- --------- --------- --------- -------- -------- -------- --------
Project Debt Service 44,606 128,194 138,453 82,740 46,102 42,012 42,238 41,343
========= ========= ========= ========= ======== ======== ======== ========
Project Debt Coverages 2.08 1.59 1.58 1.57 1.72 1.79 1.81 1.87
Minimum DCR 1.57
Average DCR 2.04
Maximum DCR 3.14
</TABLE>
*Note: Six months ending December 31, 1996
2-5
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
BASE CASE
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR
BOND PAYMENTS 2004 2005 2006 2007 2008 2009 2010 2011
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 5,248 5,290 5,368 5,458 5,560 5,619 5,717 5,800
Salton Sea Unit III 12,083 12,062 12,109 12,184 12,251 12,255 12,330 12,351
Salton Sea Unit IV 31,464 30,920 26,057 25,670 25,488 23,731 25,320 24,771
Vulcan 5,385 5,333 5,150 5,248 5,440 5,210 5,418 5,188
Del Ranch 3,587 3,410 3,035 3,004 3,081 2,656 2,750 2,299
Elmore 2,832 2,110 2,190 2,433 2,112 2,344 2,175 1,968
Leathers 2,558 2,500 1,937 1,636 1,879 2,123 1,511 1,303
Changes in Working Capital (286) (253) 547 (210) (203) (125) (302) (157)
-------- -------- -------- -------- -------- -------- -------- --------
Total Cash From Projects 62,872 61,372 56,391 55,423 55,608 53,812 54,919 53,524
OTHER REVENUE CASH FLOWS
Monofill Revenue 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 499 507 517 528 539 549 561 572
Royalties from Del Ranch 4,884 5,013 5,169 5,336 5,514 5,667 5,849 6,024
Royalties from Elmore 4,827 4,954 5,108 5,274 5,450 5,601 5,782 5,955
Royalties from Leathers 5,187 5,321 5,484 5,659 5,845 6,004 6,195 6,377
Other Royalties 540 547 557 567 577 586 597 607
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Revenues 16,938 17,342 17,835 18,364 18,925 19,407 19,984 20,536
OTHER EXPENDITURES
Installments/Pollution Control
Debt Service 0 0 0 0 0 0 0 0
Debt Service Reserve LC Fees 703 703 703 703 703 703 351 0
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Expenditures 703 703 703 703 703 703 351 0
Net Cash Available for SSFC Debt
Service 79,108 78,012 73,523 73,084 73,830 72,516 74,551 74,060
======== ======== ======== ======== ======== ======== ======== ========
Interest (Series A/B/C) 10,626 8,471 7,150 5,462 3,766 2,041 377 0
Principal (Series A/B/C) 23,776 23,312 21,537 21,505 22,037 21,876 9,630 0
Interest (Series D) 3,528 3,253 2,984 2,776 2,548 2,263 1,780 470
Principal (Series D) 3,250 3,500 2,500 2,500 3,500 3,250 13,500 11,322
-------- -------- -------- -------- -------- -------- -------- --------
Project Debt Service 41,181 38,536 34,171 32,244 31,850 29,430 25,287 11,792
======== ======== ======== ======== ======== ======== ======== ========
Project Debt Coverages 1.92 2.02 2.15 2.27 2.32 2.46 2.95 3.14
</TABLE>
2-6
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
AVOIDED COST (2.2 CENTS/KWH) SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND PAYMENTS 1996* 1997 1998 1999 2000 2001 2002 2003
--------- --------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 7,463 15,739 15,677 15,529 6,946 4,060 4,104 4,148
Salton Sea Unit III 19,941 39,522 39,208 9,171 9,168 9,110 9,084 9,053
Salton Sea Unit IV 6,899 24,835 26,624 27,348 28,064 27,812 29,487 30,467
Vulcan 3,251 2,989 3,526 3,717 3,643 3,570 3,359 3,380
Del Ranch 12,436 26,499 29,338 2,981 2,776 2,601 2,230 2,152
Elmore 11,900 26,333 29,102 2,408 2,244 1,588 1,626 1,058
Leathers 11,342 25,417 28,067 30,357 1,970 1,556 1,015 323
Changes in Working Capital (1,642) (1,874) (957) 9,216 4,058 128 (283) (273)
--------- --------- --------- --------- -------- -------- -------- --------
Total Cash From Projects 71,591 159,460 170,586 100,726 58,869 50,426 50,623 50,306
OTHER REVENUE CASH FLOWS
Monofill Revenue 500 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 237 380 386 393 401 407 414 422
Royalties from Del Ranch 6,695 14,354 15,378 3,549 3,673 3,777 3,897 4,020
Royalties from Elmore 6,675 14,314 15,338 3,510 3,633 3,736 3,854 3,976
Royalties from Leathers 7,110 15,243 16,328 17,415 3,909 4,017 4,142 4,270
Other Royalties 650 1,381 1,465 442 449 455 462 469
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Revenues 21,867 46,672 49,896 26,309 13,064 13,392 13,768 14,156
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 849 2,516 2,298 1,335 1,337 0 0 0
Debt Service Reserve LC Fees 241 703 703 703 703 703 703 703
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Expenditures 1,090 3,219 3,001 2,038 2,039 703 703 703
Net Cash Available for SSFC Debt Service 92,367 202,914 217,481 124,997 69,894 63,116 63,688 63,760
========= ========= ========= ========= ======== ======== ======== ========
Interest (Series A/B/C) 15,398 28,110 23,583 19,094 16,667 15,596 13,996 12,323
Principal (Series A/B/C) 24,054 64,378 74,938 35,108 19,573 21,377 22,698 22,237
Interest (Series D/E) 5,155 9,855 7,933 5,810 4,362 4,040 3,944 3,782
Principal (Series D/E) 0 25,850 32,000 22,728 5,500 1,000 1,600 3,000
--------- --------- --------- --------- -------- -------- -------- --------
Project Debt Service 44,606 128,194 138,453 82,740 46,102 42,012 42,238 41,343
========= ========= ========= ========= ======== ======== ======== ========
Project Debt Coverages 2.07 1.58 1.57 1.51 1.52 1.50 1.51 1.54
Minimum DCR 1.50
Average DCR 1.71
Maximum DCR 2.39
</TABLE>
* Note: Six months ending December 31, 1996
2-7
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
AVOIDED COST (2.2 CENTS/KWH) SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND PAYMENTS 2004 2005 2006 2007 2008 2009 2010 2011
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 4,215 4,241 4,291 4,342 4,420 4,452 4,511 4,571
Salton Sea Unit III 9,052 8,986 8,950 8,913 8,909 8,833 8,790 8,746
Salton Sea Unit IV 31,404 30,859 24,891 24,461 24,252 22,464 24,009 23,434
Vulcan 3,258 3,172 2,929 2,946 3,086 2,798 2,920 2,641
Del Ranch 1,874 1,668 1,244 1,148 1,186 711 736 247
Elmore 1,107 357 387 565 204 387 148 (98)
Leathers 874 787 176 (189) 16 211 (469) (715)
Changes in Working Capital (254) (232) 710 (155) (169) (85) (244) (124)
-------- -------- -------- -------- -------- -------- -------- --------
Total Cash From Projects 51,530 49,839 43,578 42,032 41,905 39,770 40,401 38,702
OTHER REVENUE CASH FLOWS
Monofill Revenue 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 430 437 445 454 463 471 480 490
Royalties from Del Ranch 4,160 4,279 4,414 4,554 4,713 4,847 5,001 5,159
Royalties from Elmore 4,115 4,232 4,366 4,505 4,662 4,795 4,947 5,104
Royalties from Leathers 4,416 4,539 4,680 4,826 4,992 5,131 5,291 5,456
Other Royalties 476 483 490 498 507 514 523 531
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Revenues 14,598 14,970 15,397 15,837 16,337 16,759 17,242 17,741
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 0 0 0 0 0 0 0 0
Debt Service Reserve LC Fees 703 703 703 703 703 703 351 0
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Expenditures 703 703 703 703 703 703 351 0
Net Cash Available for SSFC Debt Service 65,426 64,107 58,272 57,166 57,539 55,827 57,292 56,443
======== ======== ======== ======== ======== ======== ======== ========
Interest (Series A/B/C) 10,626 8,471 7,150 5,462 3,766 2,041 377 0
Principal (Series A/B/C) 23,776 23,312 21,537 21,505 22,037 21,876 9,630 0
Interest (Series D) 3,528 3,253 2,984 2,776 2,548 2,263 1,780 470
Principal (Series D) 3,250 3,500 2,500 2,500 3,500 3,250 13,500 11,322
-------- -------- -------- -------- -------- -------- -------- --------
Project Debt Service 41,181 38,536 34,171 32,244 31,850 29,430 25,287 11,792
======== ======== ======== ======== ======== ======== ======== ========
Project Debt Coverages 1.59 1.66 1.71 1.77 1.81 1.90 2.27 2.39
</TABLE>
2-8
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
AVOIDED COST (2.9 CENTS/KWH) SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND PAYMENTS 1996* 1997 1998 1999 2000 2001 2002 2003
--------- --------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 7,463 15,739 15,677 15,529 7,776 5,212 5,290 5,368
Salton Sea Unit III 19,941 39,522 39,208 12,363 12,460 12,489 12,562 12,632
Salton Sea Unit IV 6,899 24,835 26,624 27,348 28,112 27,879 29,555 30,538
Vulcan 4,166 5,091 5,691 5,947 5,946 5,936 5,796 5,890
Del Ranch 12,448 26,525 29,365 4,778 4,631 4,508 4,194 4,175
Elmore 11,908 26,349 29,119 4,218 4,111 3,508 3,604 3,095
Leathers 11,354 25,442 28,092 30,383 3,794 3,431 2,946 2,312
Changes in Working Capital (1,859) (1,905) (964) 8,426 3,714 53 (327) (318)
--------- --------- --------- --------- -------- -------- -------- --------
Total Cash From Projects 72,321 161,597 172,812 108,992 70,544 63,016 63,621 63,691
OTHER REVENUE CASH FLOWS
Monofill Revenue 500 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 267 448 456 465 475 483 493 503
Royalties from Del Ranch 6,710 14,385 15,411 4,306 4,457 4,581 4,724 4,873
Royalties from Elmore 6,685 14,333 15,357 4,255 4,404 4,526 4,668 4,815
Royalties from Leathers 7,126 15,276 16,362 17,449 4,743 4,873 5,023 5,178
Other Royalties 650 1,381 1,465 509 518 526 534 543
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Revenues 21,937 46,822 50,051 27,985 15,597 15,989 16,443 16,912
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 849 2,516 2,298 1,335 1,337 0 0 0
Debt Service Reserve LC Fees 241 703 703 703 703 703 703 703
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Expenditures 1,090 3,219 3,001 2,038 2,039 703 703 703
Net Cash Available for SSFC Debt Service 93,167 205,201 219,862 134,938 84,102 78,303 79,362 79,900
========= ========= ========= ========= ======== ======== ======== ========
Interest (Series A/B/C) 15,398 28,110 23,583 19,094 16,667 15,596 13,996 12,323
Principal (Series A/B/C) 24,054 64,378 74,938 35,108 19,573 21,377 22,698 22,237
Interest (Series D/E) 5,155 9,855 7,933 5,810 4,362 4,040 3,944 3,782
Principal (Series D/E) 0 25,850 32,000 22,728 5,500 1,000 1,600 3,000
--------- --------- --------- --------- -------- -------- -------- --------
Project Debt Service 44,606 128,194 138,453 82,740 46,102 42,012 42,238 41,343
========= ========= ========= ========= ======== ======== ======== ========
Project Debt Coverages 2.09 1.60 1.59 1.63 1.82 1.86 1.88 1.93
Minimum DCR 1.59
Average DCR 2.13
Maximum DCR 3.33
</TABLE>
* Note: Six months ending December 31, 1996
2-9
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
AVOIDED COST (2.9 CENTS/KWH) SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND PAYMENTS 2004 2005 2006 2007 2008 2009 2010 2011
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 5,474 5,533 5,621 5,711 5,833 5,901 6,002 6,106
Salton Sea Unit III 12,746 12,777 12,851 12,927 13,052 13,084 13,164 13,247
Salton Sea Unit IV 31,478 30,934 26,331 25,944 25,784 24,037 25,629 25,103
Vulcan 5,850 5,835 5,671 5,771 6,004 5,795 6,007 5,821
Del Ranch 3,962 3,815 3,455 3,425 3,536 3,127 3,225 2,810
Elmore 3,209 2,518 2,613 2,857 2,569 2,818 2,653 2,482
Leathers 2,927 2,898 2,350 2,050 2,326 2,586 1,978 1,805
Changes in Working Capital (305) (276) 505 (211) (231) (139) (305) (187)
-------- -------- -------- -------- -------- -------- -------- --------
Total Cash From Projects 65,340 64,033 59,397 58,476 58,872 57,210 58,353 57,187
OTHER REVENUE CASH FLOWS
Monofill Revenue 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 514 523 534 545 557 568 580 592
Royalties from Del Ranch 5,043 5,183 5,346 5,514 5,706 5,865 6,049 6,239
Royalties from Elmore 4,983 5,122 5,283 5,449 5,639 5,796 5,978 6,166
Royalties from Leathers 5,356 5,503 5,673 5,848 6,049 6,216 6,408 6,606
Other Royalties 554 562 572 582 594 604 615 626
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Revenues 17,449 17,893 18,407 18,938 19,546 20,049 20,631 21,231
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 0 0 0 0 0 0 0 0
Debt Service Reserve LC Fees 703 703 703 703 703 703 351 0
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Expenditures 703 703 703 703 703 703 351 0
Net Cash Available for SSFC Debt Service 82,087 81,224 77,102 76,711 77,716 76,556 78,632 78,418
======== ======== ======== ======== ======== ======== ======== ========
Interest (Series A/B/C) 10,626 8,471 7,150 5,462 3,766 2,041 377 0
Principal (Series A/B/C) 23,776 23,312 21,537 21,505 22,037 21,876 9,630 0
Interest (Series D) 3,528 3,253 2,984 2,776 2,548 2,263 1,780 470
Principal (Series D) 3,250 3,500 2,500 2,500 3,500 3,250 13,500 11,322
-------- -------- -------- -------- -------- -------- -------- --------
Project Debt Service 41,181 38,536 34,171 32,244 31,850 29,430 25,287 11,792
======== ======== ======== ======== ======== ======== ======== ========
Project Debt Coverages 1.99 2.11 2.26 2.38 2.44 2.60 3.11 3.33
</TABLE>
2-10
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
AVOIDED COST (SCE MID) SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND
PAYMENTS 1996* 1997 1998 1999 2000 2001 2002 2003
--------- --------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 7,463 15,739 15,677 15,529 7,195 5,208 5,322 5,432
Salton Sea Unit III 19,941 39,522 39,208 10,129 11,884 12,478 12,657 12,820
Salton Sea Unit IV 6,899 24,835 26,624 27,348 28,078 27,879 29,557 30,542
Vulcan 3,561 3,742 4,731 5,172 5,544 5,928 5,862 6,021
Del Ranch 12,440 26,508 29,353 4,153 4,307 4,502 4,248 4,281
Elmore 11,903 26,339 29,111 3,588 3,785 3,501 3,657 3,201
Leathers 11,346 25,426 28,081 30,374 3,475 3,425 2,999 2,416
Changes in Working Capital (1,716) (1,889) (1,010) 8,805 3,518 (238) (373) (359)
--------- --------- --------- --------- -------- -------- -------- --------
Total Cash From Projects 71,838 160,221 171,776 105,098 67,785 62,684 63,930 64,353
OTHER REVENUE CASH FLOWS
Monofill Revenue 500 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 247 404 425 440 462 483 495 507
Royalties from Del Ranch 6,700 14,365 15,396 4,043 4,320 4,578 4,747 4,917
Royalties from Elmore 6,678 14,321 15,348 3,996 4,269 4,524 4,690 4,859
Royalties from Leathers 7,115 15,255 16,347 17,437 4,597 4,870 5,047 5,226
Other Royalties 650 1,381 1,465 486 506 525 536 547
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Revenues 21,891 46,726 49,982 27,402 15,154 15,980 16,516 17,056
OTHER EXPENDITURES
Installments/Pollution Control Debt
Service 849 2,516 2,298 1,335 1,337 0 0 0
Debt Service Reserve LC Fees 241 703 703 703 703 703 703 703
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Expenditures 1,090 3,219 3,001 2,038 2,039 703 703 703
Net Cash Available for SSFC Debt
Service 92,638 203,729 218,758 130,462 80,900 77,962 79,743 80,706
========= ========= ========= ========= ======== ======== ======== ========
Interest (Series A/B/C) 15,398 28,110 23,583 19,094 16,667 15,596 13,996 12,323
Principal (Series A/B/C) 24,054 64,378 74,938 35,108 19,573 21,377 22,698 22,237
Interest (Series D/E) 5,155 9,855 7,933 5,810 4,362 4,040 3,944 3,782
Principal (Series D/E) 0 25,850 32,000 22,728 5,500 1,000 1,600 3,000
--------- --------- --------- --------- -------- -------- -------- --------
Project Debt Service 44,606 128,194 138,453 82,740 46,102 42,012 42,238 41,343
========= ========= ========= ========= ======== ======== ======== ========
Project Debt Coverages 2.08 1.59 1.58 1.58 1.75 1.86 1.89 1.95
Minimum DCR 1.58
Average DCR 2.21
Maximum DCR 3.66
</TABLE>
*Note: Six months ending December 31, 1996
2-11
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
AVOIDED COST (SCE MID) SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND
PAYMENTS 2004 2005 2006 2007 2008 2009 2010 2011
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 5,607 5,826 6,027 6,130 6,288 6,385 6,510 6,661
Salton Sea Unit III 13,135 13,634 14,042 14,155 14,386 14,503 14,656 14,875
Salton Sea Unit IV 31,485 30,951 26,770 26,398 26,278 24,563 26,182 25,707
Vulcan 6,123 6,437 6,508 6,635 6,944 6,795 7,059 6,971
Del Ranch 4,182 4,300 4,130 4,122 4,293 3,934 4,073 3,737
Elmore 3,430 3,006 3,292 3,558 3,331 3,630 3,507 3,415
Leathers 3,143 3,375 3,014 2,735 3,071 3,379 2,812 2,717
Changes in Working Capital (392) (480) 312 (229) (282) (180) (340) (253)
-------- -------- -------- -------- -------- -------- -------- --------
Total Cash From Projects 66,712 67,048 64,094 63,505 64,309 63,009 64,460 63,830
OTHER REVENUE CASH FLOWS
Monofill Revenue 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 523 543 561 573 588 600 614 630
Royalties from Del Ranch 5,136 5,388 5,630 5,807 6,026 6,205 6,407 6,630
Royalties from Elmore 5,075 5,323 5,562 5,737 5,954 6,131 6,330 6,551
Royalties from Leathers 5,455 5,721 5,976 6,161 6,390 6,578 6,789 7,023
Other Royalties 562 580 597 608 622 633 646 660
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Revenues 17,749 18,554 19,326 19,886 20,580 21,147 21,786 22,493
OTHER EXPENDITURES
Installments/Pollution Control Debt
Service 0 0 0 0 0 0 0 0
Debt Service Reserve LC Fees 703 703 703 703 703 703 351 0
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Expenditures 703 703 703 703 703 703 351 0
Net Cash Available for SSFC Debt
Service 83,759 84,900 82,718 82,688 84,186 83,454 85,895 86,324
======== ======== ======== ======== ======== ======== ======== ========
Interest (Series A/B/C) 10,626 8,471 7,150 5,462 3,766 2,041 377 0
Principal (Series A/B/C) 23,776 23,312 21,537 21,505 22,037 21,876 9,630 0
Interest (Series D) 3,528 3,253 2,984 2,776 2,548 2,263 1,780 470
Principal (Series D) 3,250 3,500 2,500 2,500 3,500 3,250 13,500 11,322
-------- -------- -------- -------- -------- -------- -------- --------
Project Debt Service 41,181 38,536 34,171 32,244 31,850 29,430 25,287 11,792
======== ======== ======== ======== ======== ======== ======== ========
Project Debt Coverages 2.03 2.20 2.42 2.56 2.64 2.84 3.40 3.66
</TABLE>
2-12
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
COST ESCALATION AT 4.0% SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND
PAYMENTS 1996* 1997 1998 1999 2000 2001 2002 2003
--------- --------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 7,418 15,556 15,417 15,185 6,763 4,461 4,461 4,423
Salton Sea Unit III 19,882 39,281 38,858 9,660 10,844 11,104 11,100 10,991
Salton Sea Unit IV 6,899 24,817 26,594 27,303 28,019 27,792 29,453 30,418
Vulcan 3,533 3,544 4,284 4,729 4,920 5,062 4,860 4,819
Del Ranch 12,439 26,440 29,217 3,772 3,777 3,773 3,405 3,273
Elmore 11,903 26,269 28,973 3,202 3,243 2,754 2,790 2,161
Leathers 11,325 25,294 27,856 30,058 2,805 2,526 1,952 1,169
Changes in Working Capital (1,707) (1,881) (990) 8,837 3,623 (132) (355) (306)
--------- --------- --------- --------- -------- -------- -------- --------
Total Cash From Projects 71,692 159,320 170,208 102,747 63,994 57,340 57,666 56,947
OTHER REVENUE CASH FLOWS
Monofill Revenue 500 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 246 400 415 433 452 468 479 489
Royalties from Del Ranch 6,699 14,363 15,392 3,966 4,213 4,424 4,583 4,725
Royalties from Elmore 6,678 14,320 15,346 3,920 4,164 4,372 4,530 4,670
Royalties from Leathers 7,115 15,253 16,342 17,434 4,484 4,706 4,873 5,021
Other Royalties 650 1,381 1,465 479 497 512 522 531
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Revenues 21,888 46,716 49,960 27,232 14,811 15,483 15,988 16,434
OTHER EXPENDITURES
Installments/Pollution Control
Debt Service 849 2,516 2,298 1,335 1,337 0 0 0
Debt Service Reserve LC Fees 241 703 703 703 703 703 703 703
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Expenditures 1,090 3,219 3,001 2,038 2,039 703 703 703
Net Cash Available for SSFC
Debt Service 92,490 202,817 217,167 127,941 76,766 72,121 72,951 72,679
--------- --------- --------- --------- -------- -------- -------- --------
Interest (Series A/B/C) 15,398 28,110 23,583 19,094 16,667 15,596 13,996 12,323
Principal (Series A/B/C) 24,054 64,378 74,938 35,108 19,573 21,377 22,698 22,237
Interest (Series D/E) 5,155 9,855 7,933 5,810 4,362 4,040 3,944 3,782
Principal (Series D/E) 0 25,850 32,000 22,728 5,500 1,000 1,600 3,000
--------- --------- --------- --------- -------- -------- -------- --------
Project Debt Service 44,606 128,194 138,453 82,740 46,102 42,012 42,238 41,343
========= ========= ========= ========= ======== ======== ======== ========
Project Debt Coverages 2.07 1.58 1.57 1.55 1.67 1.72 1.73 1.76
Minimum DCR 0.00
Average DCR 1.88
Maximum DCR 2.63
</TABLE>
*Note: Six months ending December 31, 1996
2-13
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
COST ESCALATION AT 4.0% SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND
PAYMENTS 2004 2005 2006 2007 2008 2009 2010 2011
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 4,400 4,321 4,270 4,224 4,182 4,088 4,025 3,936
Salton Sea Unit III 10,901 10,709 10,575 10,457 10,320 10,107 9,953 9,731
Salton Sea Unit IV 31,338 30,774 25,890 25,481 25,275 23,493 25,056 24,479
Vulcan 4,626 4,443 4,122 4,073 4,108 3,712 3,744 3,327
Del Ranch 2,932 2,645 2,153 1,999 1,945 1,380 1,326 718
Elmore 2,141 1,303 1,257 1,368 907 990 663 289
Leathers 1,619 1,410 687 217 280 333 (482) (904)
Changes in Working Capital (286) (253) 547 (210) (203) (125) (302) (157)
-------- -------- -------- -------- -------- -------- -------- --------
Total Cash From Projects 57,672 55,352 49,501 47,609 46,813 43,977 43,982 41,420
OTHER REVENUE CASH FLOWS
Monofill Revenue 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 499 507 517 528 539 549 561 572
Royalties from Del Ranch 4,884 5,013 5,169 5,336 5,514 5,667 5,849 6,024
Royalties from Elmore 4,827 4,954 5,108 5,274 5,450 5,601 5,782 5,955
Royalties from Leathers 5,187 5,321 5,484 5,659 5,845 6,004 6,195 6,377
Other Royalties 540 547 557 567 577 586 597 607
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Revenues 16,938 17,342 17,835 18,364 18,925 19,407 19,984 20,536
OTHER EXPENDITURES
Installments/Pollution Control Debt
Service 0 0 0 0 0 0 0 0
Debt Service Reserve LC Fees 703 703 703 703 703 703 351 0
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Expenditures 703 703 703 703 703 703 351 0
Net Cash Available for SSFC Debt
Service 73,907 71,992 66,633 65,270 65,036 62,682 63,615 61,956
======== ======== ======== ======== ======== ======== ======== ========
Interest (Series A/B/C) 10,626 8,471 7,150 5,462 3,766 2,041 377 0
Principal (Series A/B/C) 23,776 23,312 21,537 21,505 22,037 21,876 9,630 0
Interest (Series D) 3,528 3,253 2,984 2,776 2,548 2,263 1,780 470
Principal (Series D) 3,250 3,500 2,500 2,500 3,500 3,250 13,500 11,322
-------- -------- -------- -------- -------- -------- -------- --------
Project Debt Service 41,181 38,536 34,171 32,244 31,850 29,430 25,287 11,792
======== ======== ======== ======== ======== ======== ======== ========
Project Debt Coverages 1.79 1.87 1.95 2.02 2.04 2.13 2.52 2.63
</TABLE>
2-14
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
INCREASED PLANT O&M SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND PAYMENTS 1996* 1997 1998 1999 2000 2001 2002 2003
--------- --------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 7,463 15,739 15,677 15,529 7,195 4,988 5,088 5,157
Salton Sea Unit III 19,941 39,522 39,208 10,129 11,438 11,831 11,970 12,012
Salton Sea Unit IV 6,899 24,835 26,624 27,348 28,078 27,866 29,544 30,526
Vulcan 3,211 2,990 3,821 4,359 4,627 4,853 4,740 4,794
Del Ranch 12,074 25,791 28,648 3,284 3,348 3,408 3,109 3,051
Elmore 11,518 25,584 28,371 2,681 2,786 2,366 2,476 1,928
Leathers 10,973 24,694 27,362 29,670 2,506 2,322 1,851 1,178
Changes in Working Capital (1,707) (1,881) (990) 8,837 3,623 (132) (355) (306)
--------- --------- --------- --------- -------- -------- -------- --------
Total Cash From Projects 70,374 157,274 168,722 101,836 63,602 57,502 58,423 58,340
OTHER REVENUE CASH FLOWS
Monofill Revenue 500 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 246 400 415 433 452 468 479 489
Royalties from Del Ranch 6,699 14,363 15,392 3,966 4,213 4,424 4,583 4,725
Royalties from Elmore 6,678 14,320 15,346 3,920 4,164 4,372 4,530 4,670
Royalties from Leathers 7,115 15,253 16,342 17,434 4,484 4,706 4,873 5,021
Other Royalties 650 1,381 1,465 479 497 512 522 531
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Revenues 21,888 46,716 49,960 27,232 14,811 15,483 15,988 16,434
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 849 2,516 2,298 1,335 1,337 0 0 0
Debt Service Reserve LC Fees 241 703 703 703 703 703 703 703
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Expenditures 1,090 3,219 3,001 2,038 2,039 703 703 703
Net Cash Available for SSFC Debt Service 91,171 200,771 215,681 127,030 76,373 72,283 73,708 74,071
========= ========= ========= ========= ======== ======== ======== ========
Interest (Series A/B/C) 15,398 28,110 23,583 19,094 16,667 15,596 13,996 12,323
Principal (Series A/B/C) 24,054 64,378 74,938 35,108 19,573 21,377 22,698 22,237
Interest (Series D/E) 5,155 9,855 7,933 5,810 4,362 4,040 3,944 3,782
Principal (Series D/E) 0 25,850 32,000 22,728 5,500 1,000 1,600 3,000
--------- --------- --------- --------- -------- -------- -------- --------
Project Debt Service 44,606 128,194 138,453 82,740 46,102 42,012 42,238 41,343
========= ========= ========= ========= ======== ======== ======== ========
Project Debt Coverages 2.04 1.57 1.56 1.54 1.66 1.72 1.75 1.79
Minimum DCR 1.54
Average DCR 1.96
Maximum DCR 2.98
</TABLE>
* Note: Six months ending December 31, 1996
2-15
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
INCREASED PLANT O&M SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND PAYMENTS 2004 2005 2006 2007 2008 2009 2010 2011
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 5,248 5,290 5,368 5,458 5,560 5,619 5,717 5,800
Salton Sea Unit III 12,083 12,062 12,109 12,184 12,251 12,255 12,330 12,351
Salton Sea Unit IV 31,464 30,920 26,057 25,670 25,488 23,731 25,320 24,771
Vulcan 4,705 4,632 4,428 4,505 4,674 4,422 4,606 4,351
Del Ranch 2,791 2,590 2,190 2,134 2,185 1,733 1,799 1,320
Elmore 1,993 1,247 1,300 1,516 1,168 1,372 1,173 937
Leathers 1,746 1,662 1,074 748 964 1,181 540 304
Changes in Working Capital (286) (253) 547 (210) (203) (125) (302) (157)
-------- -------- -------- -------- -------- -------- -------- --------
Total Cash From Projects 59,745 58,150 53,073 52,005 52,087 50,186 51,184 49,677
OTHER REVENUE CASH FLOWS
Monofill Revenue 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 499 507 517 528 539 549 561 572
Royalties from Del Ranch 4,884 5,013 5,169 5,336 5,514 5,667 5,849 6,024
Royalties from Elmore 4,827 4,954 5,108 5,274 5,450 5,601 5,782 5,955
Royalties from Leathers 5,187 5,321 5,484 5,659 5,845 6,004 6,195 6,377
Other Royalties 540 547 557 567 577 586 597 607
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Revenues 16,938 17,342 17,835 18,364 18,925 19,407 19,984 20,536
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 0 0 0 0 0 0 0 0
Debt Service Reserve LC Fees 703 703 703 703 703 703 351 0
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Expenditures 703 703 703 703 703 703 351 0
Net Cash Available for SSFC Debt Service 75,980 74,790 70,205 69,666 70,310 68,890 70,816 70,213
======== ======== ======== ======== ======== ======== ======== ========
Interest (Series A/B/C) 10,626 8,471 7,150 5,462 3,766 2,041 377 0
Principal (Series A/B/C) 23,776 23,312 21,537 21,505 22,037 21,876 9,630 0
Interest (Series D) 3,528 3,253 2,984 2,776 2,548 2,263 1,780 470
Principal (Series D) 3,250 3,500 2,500 2,500 3,500 3,250 13,500 11,322
-------- -------- -------- -------- -------- -------- -------- --------
Project Debt Service 41,181 38,536 34,171 32,244 31,850 29,430 25,287 11,792
======== ======== ======== ======== ======== ======== ======== ========
Project Debt Coverages 1.85 1.94 2.05 2.16 2.21 2.34 2.80 2.98
</TABLE>
2-16
Salton Sea Funding Corporation
All tendered Old Securities, executed Letters of Transmittal, and other
related documents should be directed to the Exchange Agent.
The Exchange Agent for the Exchange Offer is:
CHEMICAL TRUST COMPANY OF CALIFORNIA
Facsimile Transmissions:
(214) 672-5746
To Confirm by Telephone or for Information:
(415) 954-9508
By Hand Delivery: By Mail/Courier Service:
Chemical Bank Texas Commerce Bank
Corporate Tellers Corporate Trust Services
55 Water St., Rm. 234 North Bldg. 1201 Main St., 18th Fl.
New York, N.Y. 10041 Dallas, TX 75202
Attention: Frank Ivins
Personal & Confidential
Any question or requests for assistance may be directed to the Information
Agent at its address and telephone number set forth below. Requests for
additional copies of the Prospectus, the Letter of Transmittal and the Notice of
Guaranteed Delivery may be directed to the Information Agent. Beneficial owners
may also contact their own broker, dealer, commercial bank, trust company or
other personal advisor for assistance concerning the Exchange Offer.
The Information Agent for the Exchange Offer is:
MacKenzie
Partners, Inc.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500
or
(800) 322-2885 (Toll Free)
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Each of the Funding Corporation (a Delaware corporation),
Fish Lake (a Delaware corporation), CEOC (a Delaware corporation), the Royalty
Guarantor (a Delaware corporation) and BNG (a Delaware corporation) is
empowered by Section 145 of the Delaware General Corporation Law, subject to
the procedures and limitations stated therein, VPC (a Nevada corporation) is
empowered by Section 78.751 of the Nevada General Corporation Law, subject to
the procedures and limitations stated therein, and each of San Felipe (a
California corporation), Conejo (a California corporation), and Niguel (a
California corporation) is empowered by Section 317 of California
General Corporation Law, 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 the Funding
Corporation, Fish Lake, CEOC, the Royalty Guarantor, BNG or VPC, respectively.
The statutes provide that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors,
or otherwise. The Certificates of Incorporation and/or by-laws of the Funding
Corporation, Fish Lake, CEOC, the Royalty Guarantor and BNG provide for
indemnification of the directors and officers of such entities to the full
extent permitted by the Delaware General Corporation Law. The by-laws of VPC
provide for indemnification of the directors and officers of such entities to
the full extent permitted by the Nevada General Corporation Law. The
Certificates of Incorporation and/or by-laws of San Felipe, Conejo and Niguel
provide for indemnification of the directors and officers of such entities to
the full extent permitted by the California General Corporation Law. Section
15643 of the California Revised Limited Partnership Act empowers SSBP (a
California limited partnership), SSPG (a California limited partnership),
Leathers (a California limited partnership), Del Ranch (a California limited
partnership), and Elmore (a California limited partnership), to indemnify a
general partner who has paid more than his share of partnership obligations.
Section 87.180 of the Uniform Partnership Act of Nevada, absent an agreement to
the contrary, empowers Vulcan (a Nevada general partnership) to indemnify its
partners for acts or omissions taken in good faith. The general partnership
agreement of Vulcan does not contain provisions to the contrary.
Section 102(b)(7) of the Delaware General Corporation Law
permits a provision in the certificate of incorporation of each corporation
incorporated thereunder, such as the Funding Corporation, Fish Lake, CEOC, the
Royalty Guarantor and BNG, eliminating or limiting, with certain exceptions,
the personal liability of a director to the corporation or its stockholders
for monetary damages for certain breaches of fiduciary duty as a director. The
Certificates of Incorporation of the Funding Corporation, Fish Lake, CEOC, the
Royalty Guarantor and BNG provide for eliminating the personal liability of
directors to the full extent permitted by the Delaware General Corporation
Law.
CalEnergy maintains an insurance policy providing for
indemnification of the officers and directors of its subsidiaries and certain
other persons against liabilities and expenses incurred by any of them in
certain stated proceedings and under certain stated conditions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
Exhibit No. DESCRIPTION OF EXHIBIT
3.1* Articles of Incorporation of the Funding Corporation.
II-1
<PAGE>
3.2* By-laws of the Funding Corporation.
3.3* Limited Partnership Agreement of SSBP.
3.4* Limited Partnership Agreement of SSPG.
3.5* Articles of Incorporation of Fish Lake.
3.6* By-laws of Fish Lake.
3.7* Articles of Incorporation of VPC.
3.8* By-laws of VPC.
3.9* Articles of Incorporation of CEOC.
3.10* By-laws of CEOC.
3.11* Articles of Incorporation of the Royalty Guarantor.
3.12* By-laws of the Royalty Guarantor.
3.13 Articles of Incorporation of BNG.
3.14 By-laws of BNG.
3.15 Articles of Incorporation of San Felipe.
3.16 By-laws of San Felipe.
3.17 Articles of Incorporation of Conejo.
3.18 By-laws of Conejo.
3.19 Articles of Incorporation of Niguel.
3.20 By-laws of Niguel.
3.21 General Partnership Agreement of Vulcan.
3.22 Limited Partnership Agreement of Leathers.
3.23 Amended and Restated Limited Partnership Agreement of Del
Ranch.
3.24 Amended and Restated Limited Partnership Agreement of Elmore.
4.1(a)* Indenture, dated as of July 21, 1995, between Chemical Trust
Company of California and the Funding Corporation.
II-2
<PAGE>
4.1(b)* First Supplemental Indenture, dated as of October 18, 1995,
between Chemical Trust Company of California and the
Funding Corporation.
4.1(c) Second Supplemental Indenture, dated as of June 20, 1996,
between Chemical Trust Company of California and the
Funding Corporation.
4.1(d) Third Supplemental Indenture, between Chemical Trust Company
of California and the Funding Corporation.
4.2* Salton Sea Secured Guarantee, dated as of July 21, 1995, by
SSBP, SSPG and Fish Lake in favor of Chemical Trust Company
of California.
4.3 Amended and Restated Partnership Guarantors Secured Limited
Guarantee, dated as of June 20, 1996, by CEOC, and VPC,
Conejo, Niguel, San Felipe, BNG, Del Ranch, Elmore, Leathers
and Vulcan in favor of Chemical Trust Company of California.
4.4* Royalty Guarantor Secured Limited Guarantee, dated as of
July 21, 1995, by the Royalty Guarantor in favor of Chemical
Trust Company of California.
4.5 Exchange and Registration Rights Agreement, dated June 20,
1996, by and between CS First Boston Corporation and the
Funding Corporation.
4.6(a)* Collateral Agency and Intercreditor Agreement, dated as of
July 21, 1995, by and among Credit Suisse, Chemical Trust
Company of California, the Funding Corporation and the
Initial Guarantors.
4.6(b) First Amendment to the Collateral Agency and
Intercreditor Agreement, dated as of June 20, 1996,
by and among Credit Suisse, Chemical Trust Company of
California, the Funding Corporation and the
Guarantors.
4.7* Stock Pledge Agreement, dated as of July 21, 1995, by Magma
Power Company in favor of Chemical Trust Company of
California.
4.8 Purchase Agreement, dated June 17, 1996, by and among CS
First Boston Corporation, the Guarantors and the Funding
Corporation.
4.9* Support Letter, dated as of July 21, 1995, by and among
Magma Power Company, the Funding Corporation and the
Initial Guarantors.
4.10* Debt Service Reserve Letter of Credit and Reimbursement
Agreement, dated as of July 21, 1995, by and among the
Funding Corporation, certain banks and Credit Suisse, as
agent.
4.11* Revolving Credit Agreement, dated as of July 21, 1995, by
and among Credit Suisse and the Funding Corporation.
4.12* Salton Sea Credit Agreement, dated July 21, 1995, by and
among SSBP, SSPG, Fish Lake and the Funding Corporation.
4.13* Salton Sea Project Note, dated July 21, 1995, by SSBP,
SSPG and Fish Lake in favor of the Funding Corporation.
II-3
<PAGE>
4.14(a)* Deposit and Disbursement Agreement, dated as of July 21,
1995, by and among the Funding Corporation, Chemical Trust
Company of California and the Initial Guarantors.
4.14(b) Amendment No. 1 to Deposit and Disbursement Agreement,
dated as of June 20, 1996, by and among the Funding
Corporation, Chemical Trust Company of California and the
Guarantors.
4.15* Partnership Interest Pledge Agreement, dated as of July 21,
1995, by Magma Power Company and Salton Sea Power Company
in favor of Chemical Trust Company of California.
4.16* Partnership Interest Pledge Agreement, dated as of July 21,
1995, by SSBP and Salton Sea Power Company in favor of
Chemical Trust Company of California.
4.17* Stock Pledge Agreement (Pledge of Stock of Fish Lake by
Magma Power Company and the Funding Corporation), dated as
of July 21, 1995, by Magma Power Company and the Funding
Corporation in favor of Chemical Trust Company of
California.
4.18* Cost Overrun Commitment, dated as of July 21, 1995, between
CalEnergy, SSPG, SSBP and Fish Lake.
4.19 Amended and Restated Partnership Guarantors Credit
Agreement, dated June 20, 1996, by and among the
Partnership Guarantors and the Funding Corporation.
4.20* Partnership Guarantors Security Agreement and Assignment of
Rights, dated as of July 21, 1995, by CEOC and VPC in favor
of Chemical Trust Company of California.
4.21* Stock Pledge Agreement (Pledge of Stock of CEOC by Magma
Power Company and the Funding Corporation), dated as of
July 21, 1995, by Magma Power Company and Funding
Corporation in favor of Chemical Trust Company of
California.
4.22* Stock Pledge Agreement (Pledge of Stock of VPC by Magma
Power Company and the Funding Corporation), dated as of
July 21, 1995, by Magma Power Company and the Funding
Corporation in favor of Chemical Trust Company of
California.
4.23* Royalty Guarantor Credit Agreement, among the Royalty
Guarantor and the Funding Corporation, dated as of July 21,
1995.
4.24* Royalty Project Note, dated as of July 21, 1995, by the
Royalty Guarantor in favor of the Funding Corporation.
4.25* Royalty Security Agreement and Assignment of Revenues,
dated as of July 21, 1995, by the Royalty Guarantor in
favor of Chemical Trust Company of California.
II-4
<PAGE>
4.26(a)* Royalty Deed of Trust, dated as of July 21, 1995, by the
Royalty Guarantor to Chicago Title Company for the use and
benefit of Chemical Trust Company of California.
4.26(b) First Amendment to Royalty Deed of Trust dated as of June
20, 1996, by the Royalty Guarantor to Chicago Title Company
for the use and benefit of Chemical Trust Company of
California.
4.27* Stock Pledge Agreement (Pledge of Stock of Royalty
Guarantor by Magma Power Company and the Funding
Corporation), dated as of July 21, 1995, by Magma Power
Company and the Funding Corporation in favor of Chemical
Trust Company of California.
4.28* Collateral Assignment of the Imperial Irrigation District
Agreements, dated as of July 21, 1995, by SSBP, SSPG and
Fish Lake in favor of Chemical Trust Company of California.
4.29 Collateral Assignment of the Imperial Irrigation District
Agreements, dated as of June 20, 1996, by Vulcan, Elmore,
Leathers, VPC and Del Ranch in favor of Chemical Trust
Company of California.
4.30* Collateral Assignments of Certain Salton Sea Agreements,
dated as of July 21, 1995, by SSBP, SSPG and Fish Lake in
favor of Chemical Trust Company of California.
4.31 Collateral Assignments of Certain Partnership Agreements,
dated as of June 20, 1996, by Vulcan, Elmore, Leathers and
Del Ranch in favor of Chemical Trust Company of California.
4.32 Debt Service Reserve Letter of Credit by Credit Suisse in
favor of Chemical Trust Company of California.
4.33 Partnership Project Note, dated June 20, 1996, by the
Partnership Guarantors in favor of the Funding Corporation
in the principal amount of $54,956,000.
4.34 Partnership Project Note, dated June 20, 1996, by the
Partnership Guarantors in favor of the Funding Corporation
in the principal amount of $135,000,000.
4.35 Deed of Trust, dated as of June 20, 1996, by Vulcan to
Chicago Title Company for the use and benefit of Chemical
Trust Company of California.
4.36 Deed of Trust, dated as of June 20, 1996, by Elmore to
Chicago Title Company for the use and benefit of Chemical
Trust Company of California.
4.37 Deed of Trust, dated as of June 20, 1996, by Leathers to
Chicago Title Company for the use and benefit of Chemical
Trust Company of California.
4.38 Deed of Trust, dated as of June 20, 1996, by Del Ranch to
Chicago Title Company for the use and benefit of Chemical
Trust Company of California.
II-5
<PAGE>
4.39 Stock Pledge Agreement, dated as of June 20, 1996, by CEOC,
pledging the stock of Conejo, Niguel and San Felipe in
favor of Chemical Trust Company of California for the
benefit of the Secured Parties and the Funding Corporation.
4.40 Stock Pledge Agreement, dated as of June 20, 1996, by VPC,
pledging the stock of BNG in favor of Chemical Trust
Company of California for the benefit of the Secured
Parties and the Funding Corporation.
4.41 Partnership Interest Pledge Agreement, dated as of June 20,
1996, by VPC and BNG, pledging the partnership interests in
Vulcan in favor of Chemical Trust Company of California for
the benefit of the Secured Parties and the Funding
Corporation.
4.42 Partnership Interest Pledge Agreement, dated as of June 20,
1996, by Magma, CEOC and Niguel pledging the partnership
interests in Elmore in favor of Chemical Trust Company of
California for the benefit of the Secured Parties and the
Funding Corporation.
4.43 Partnership Interest Pledge Agreement, dated as of
June 20, 1996, by Magma, CEOC and Conejo, pledging the
partnership interests in Del Ranch in favor of Chemical
Trust Company of California for the benefit of the Secured
Parties and the Funding Corporation.
4.44 Partnership Interest Pledge Agreement, dated as of
June 20, 1996, by Magma, CEOC and San Felipe, pledging the
partnership interests in Leathers in favor of the Chemical
Trust Company of California for the benefit of the Secured
Parties and the Funding Corporation.
4.45 Agreement regarding Security Documents, dated as of June
20, 1996, by and among the Initial Guarantors, Magma, SSPC,
the Funding Corporation and Chemical Trust Company of
California.
5.1 Opinion of Willkie Farr & Gallagher.
5.2 Opinion of Latham & Watkins.
5.3 Opinion of Lionel Sawyer & Collins.
10.1* Salton Sea Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing, dated as of July 21, 1995, by
SSBP, SSPG and Fish Lake to Chicago Title Company for the
use and benefit of Chemical Trust Company of California.
10.2 First Amendment to Salton Sea Deed of Trust, Assignment of
Rents, Security Agreement and Fixed Filing, dated as of
June 20, 1996, by SSBP, SSPG and Fish Lake to Chicago Title
Company for the use and benefit of Chemical Trust Company
of California.
10.3* Collateral Assignment of Southern California Edison Company
Agreements, dated as of July 21, 1995, by SSPG and Fish
Lake in favor of Chemical Trust Company of California.
10.4* Contract for the Purchase and Sale of Electric Power from
the Salton Sea Geothermal Facility, dated May 8, 1987 (the
"Unit 1 Power Purchase Agreement"), between Southern
California Edison Company and Earth Energy, Inc.
10.5* Amendment No. 1 to the Unit 1 Power Purchase Agreement,
dated as of March 30, 1993, between Southern California
Edison Company and Earth Energy, Inc.
II-6
<PAGE>
10.6* Amendment No. 2 to Unit 1 Power Purchase Agreement, dated
November 29, 1994, between Southern California Edison
Company and SSPG.
10.7* Contract for the Purchase and Sale of Electric Power, dated
April 16, 1985 (the "Unit 2 Power Purchase Agreement"),
between Southern California Edison Company and Westmorland
Geothermal Associates.
10.8* Amendment No. 1 to Unit 2 Power Purchase Agreement, dated
as of December 18, 1987, between Southern California Edison
Company and Earth Energy, Inc.
10.9* Power Purchase Contract, dated April 16, 1985 (the "Unit 3
Power Purchase Agreement"), between Southern California
Edison Company and Union Oil Company of California.
10.10* Power Purchase Contract (the "Unit 4 Power Purchase
Agreement"), dated November 29, 1994, between Southern
California Edison Company, SSPG and Fish Lake.
10.11* Plant Connection Agreement (Unit 2), dated October 3, 1989,
between the Imperial Irrigation District and Earth Energy,
Inc.
10.12* Plant Connection Agreement, dated August 2, 1988 (Unit 3),
between the Imperial Irrigation District and Desert Power
Company.
10.13* Imperial Irrigation District Funding and Construction
Agreements as amended (Units 2 and 3), dated as of June 29,
1987, among the Imperial Irrigation District, Earth Energy,
Inc., Chevron Geothermal Company of California, Geo East
Mesa No. 3, Inc., Magma Power Company, Desert Power
Company, Geo East Mesa No. 2, Inc., Heber Geothermal
Company, Ormesa Geothermal, Ormesa Geothermal II, Vulcan/BN
Geothermal Power Company, Union Oil Company of California,
Del Ranch L.P., Elmore L.P., Leathers L.P., Geo East Mesa
Limited Partnership and Imperial Resource Recovery
Associates, L.P.
10.14* Transmission Service Agreement, dated as of October 3, 1989
(Unit 2), between the Imperial Irrigation District and
Earth Energy, Inc.
10.15* Transmission Service Agreement, dated as of August 2, 1988
(Unit 3), between the Imperial Irrigation District and
Desert Power Company.
10.16* Plant Connection Agreement (Unit 4), dated as of July 14,
1995, by and between the Imperial Irrigation District, SSPG
and Fish Lake.
10.17* Letter Agreement, dated February 2, 1995, between Magma
Power Company and the Imperial Irrigation District.
10.18* Transmission Service Agreement (Unit 4), dated as of July
14, 1995, by and between the Imperial Irrigation District,
SSPG and Fish Lake.
10.19* Transmission Line Construction Agreement (Unit 4), dated
July 14, 1995, between the Imperial Irrigation District,
SSPG and Fish Lake.
II-7
<PAGE>
10.20* Funding Agreement, dated June 15, 1988 (Unit 2), between
Southern California Edison Company and Earth Energy, Inc.
10.21* Second Amended and Restated Administrative Services
Agreement, by and among CEOC, SSBP, SSPG and Fish Lake,
dated as of July 15, 1995.
10.22* Second Amended and Restated Operating and Maintenance
Agreement, dated as of July 15, 1995, by and among Magma
Power Company, SSBP, SSPG and Fish Lake.
10.23 Collateral Assignment of Southern California Edison Company
Agreements, dated as of June 20, 1996, by Vulcan, Elmore,
Leathers and Del Ranch in favor of Chemical Trust Company
of California.
10.24 Administrative Services Agreement, dated as of June 17,
1996, between CEOC and Vulcan.
10.25 Amended and Restated Construction, Operating and Accounting
Agreement, dated as of June 17, 1996, between VPC and
Vulcan.
10.26 Long Term Power Purchase Contract, dated March 1, 1984, as
amended, between SCE and Vulcan, as successor to Magma
Electric Company.
10.27 Transmission Service Agreement, dated as of December 1,
1988, between VPC and IID.
10.28 Plant Connection Agreement, dated as of December 1, 1988,
between VPC and IID.
10.29 Amended and Restated Administrative Services Agreement,
dated as of June 17, 1996, between CEOC and Elmore.
10.30 Amended and Restated Operating and Maintenance Agreement,
dated as of June 17, 1996, between CEOC and Elmore.
10.31 Long Term Power Purchase Contract, dated June 15, 1984, as
amended, between SCE and Elmore, as successor to Magma
Electric Company.
10.32 Transmission Service Agreement, dated as of August 2, 1988,
as amended, between Elmore and IID.
10.33 Plant Connection Agreement, dated as of August 2, 1988,
between Elmore and IID.
10.34 Amended and Restated Administrative Services Agreement,
dated as of June 17, 1996, between CEOC and Leathers.
10.35 Amended and Restated Operating and Maintenance Agreement,
dated as of June 17, 1996, between CEOC and Leathers.
10.36 Long Term Power Purchase Contract, dated August 16, 1985,
as amended, between SCE and Leathers, as successor to
Imperial Energy Corporation.
II-8
<PAGE>
10.37 Transmission Service Agreement, dated as of October 3,
1989, as amended, between Leathers and IID.
10.38 Plant Connection Agreement, dated as of October 3, 1989,
between Leathers and IID.
10.39 Amended and Restated Administrative Services Agreement,
dated as of June 17, 1996, between CEOC and Del Ranch.
10.40 Amended and Restated Operating and Maintenance Agreement,
dated as of June 17, 1996, between CEOC and Del Ranch.
10.41 Long Term Power Purchase Contract, dated February 22, 1984,
as amended, between SCE and Del Ranch, as successor to
Magma.
10.42 Transmission Service Agreement, dated as of August 2, 1988,
as amended, between Del Ranch and IID.
10.43 Plant Connection Agreement, dated as of August 2, 1988,
between Del Ranch and IID.
10.44 Funding Agreement, dated May 18, 1990, between SCE and Del
Ranch.
10.45 Funding Agreement, dated May 18, 1990, between SCE and
Elmore.
10.46 Funding Agreement, dated June 15, 1990, between SCE and
Leathers.
10.47 Funding Agreement, dated May 18, 1990, between SCE and
Leathers.
10.48 Funding Agreement, dated May 18, 1990, between SCE and
Vulcan.
12.1** Statement regarding computation of Salton Sea Funding
Corporation ratio of earnings to fixed charges.
12.2** Statement regarding computation of Salton Sea Guarantors
ratio of earnings to fixed charges.
12.3** Statement regarding computation of Partnership Guarantors
ratio of earnings to fixed charges.
12.4** Statement regarding computation of Royalty Guarantor's
ratio of earnings to fixed charges.
15.1 Awareness letter of Deloitte & Touche LLP.
21.1 Subsidiaries of the Registrants.
23.1 Consent of Willkie Farr & Gallagher (included in their
opinion filed as Exhibit 5.1).
II-9
<PAGE>
23.2 Consent of Stone & Webster Engineering Corporation.
23.3 Consent of Coopers & Lybrand L.L.P., independent public
accountants.
23.4 Consent of Deloitte & Touche LLP, independent public
accountants.
23.5 Consent of Arthur Andersen LLP, independent public
accountants.
23.6 Consent of Latham & Watkins (included in their opinion
filed as Exhibit 5.2).
23.7 Consent of Lionel Sawyer & Collins (included in their
opinion filed as Exhibit 5.3).
24.1** Power of Attorney (included on signature page).
25.1** Statement on Form T-1 of Eligibility of Trustee.
27.1+ Financial Data Schedules relating to BNG, Niguel, San
Felipe and Conejo.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Letter to Clients.
99.4 Letter to Securities Dealers, Commercial Banks, Trust
Companies and Other Nominees.
- -----------------------
* Incorporated by reference to the similarly described
exhibit filed as part of the Registration Statement on Form
S-4, Registration No. 33-95538, declared effective on
January 10, 1996.
** Previously filed.
+ Incorporated by reference to the current Report on Form
8-K, File No. 001-0987, filed by CalEnergy with the
Commission on July 1, 1996.
II-10
<PAGE>
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrants pursuant to the provisions described under Item 20 above,
or otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrants of expenses incurred or paid by a
director, officer or controlling person of the Registrants 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 Registrants will, unless in the opinion of their 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 Securities Act and will be governed
by the final adjudication of such issue.
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.
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on July 29, 1996.
SALTON SEA FUNDING CORPORATION
By: /s/ Steven A. McArthur
Steven A. McArthur
Director, Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, each thereunto duly
authorized in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*
- --------------------- Director, Chairman of the Board of Directors July 29, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
*
- --------------------- Director, Senior Vice President, Chief July 29, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
* Senior Vice President, Controller July 29, 1996
- --------------------- and Chief Accounting Officer
Gregory E. Abel (Principal Accounting Officer)
*
- --------------------- Director, President and Chief Operating July 29, 1996
Thomas R. Mason Officer
II-12
<PAGE>
/s/ Steven A. McArthur Director, Senior Vice President, General July 29, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
* By: /s/ Steven A. McArthur
--------------------------
Steven A. McArthur
Attorney-in-fact
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on July 29, 1996.
1
SALTON SEA BRINE PROCESSING L.P.
BY: Salton Sea Power Company
as its general partner
By: /s/ Steven A. McArthur
Steven A. McArthur
Director, Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, each thereunto duly
authorized in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*
- --------------------- Director, Chairman of the Board of Directors July 29, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
*
- --------------------- Director, Senior Vice President, Chief July 29, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
* Senior Vice President, Controller July 29, 1996
- --------------------- and Chief Accounting Officer
Gregory E. Abel (Principal Accounting Officer)
*
- --------------------- Director, President and Chief Operating July 29, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 29, 1996
Steven A. McArthur Counsel and Secretary
* By: /s/ Steven A. McArthur
----------------------------
Steven A. McArthur
Attorney-in-fact
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on July 29, 1996.
SALTON SEA POWER GENERATION L.P.
By: Salton Sea Power Company
as its general partner
By: /s/ Steven A. McArthur
Steven A. McArthur
Director, Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, each thereunto duly
authorized in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*
- --------------------- Director, Chairman of the Board of Directors July 29, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
*
- --------------------- Director, Senior Vice President, Chief July 29, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
* Senior Vice President, Controller July 29, 1996
- --------------------- and Chief Accounting Officer
Gregory E. Abel (Principal Accounting Officer)
*
- --------------------- Director, President and Chief Operating July 29, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 29, 1996
Steven A. McArthur Counsel and Secretary
* By: /s/ Steven A. McArthur
----------------------------
Steven A. McArthur
Attorney-in-fact
</TABLE>
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on July 29, 1996.
FISH LAKE POWER COMPANY
By: /s/ Steven A. McArthur
Steven A. McArthur
Director, Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, each thereunto duly
authorized in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*
- --------------------- Director, Chairman of the Board of Directors July 29, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
*
- --------------------- Director, Senior Vice President, Chief July 29, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
* Senior Vice President, Controller July 29, 1996
- --------------------- and Chief Accounting Officer
Gregory E. Abel (Principal Accounting Officer)
*
- --------------------- Director, President and Chief Operating July 29, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 29, 1996
Steven A. McArthur Counsel and Secretary
* By: /s/ Steven A. McArthur
----------------------------
Steven A. McArthur
Attorney-in-fact
</TABLE>
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on July 29, 1996.
VULCAN POWER COMPANY
By: /s/ Steven A. McArthur
Steven A. McArthur
Director, Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, each thereunto duly
authorized in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*
- --------------------- Director, Chairman of the Board of Directors July 29, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
*
- --------------------- Director, Senior Vice President, Chief July 29, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
* Senior Vice President, Controller July 29, 1996
- --------------------- and Chief Accounting Officer
Gregory E. Abel (Principal Accounting Officer)
*
- --------------------- Director, President and Chief Operating July 29, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 29, 1996
Steven A. McArthur Counsel and Secretary
* By: /s/ Steven A. McArthur
----------------------------
Steven A. McArthur
Attorney-in-fact
</TABLE>
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on July 29, 1996.
CALENERGY OPERATING COMPANY
By: /s/ Steven A. McArthur
Steven A. McArthur
Director, Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, each thereunto duly
authorized in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*
- --------------------- Director, Chairman of the Board of Directors July 29, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
*
- --------------------- Director, Senior Vice President, Chief July 29, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
* Senior Vice President, Controller July 29, 1996
- --------------------- and Chief Accounting Officer
Gregory E. Abel (Principal Accounting Officer)
*
- --------------------- Director, President and Chief Operating July 29, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 29, 1996
Steven A. McArthur Counsel and Secretary
* By: /s/ Steven A. McArthur
----------------------------
Steven A. McArthur
Attorney-in-fact
</TABLE>
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on July 29, 1996.
SALTON SEA ROYALTY COMPANY
By: /s/ Steven A. McArthur
Steven A. McArthur
Director, Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, each thereunto duly
authorized in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*
- --------------------- Director, Chairman of the Board of Directors July 29, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
*
- --------------------- Director, Senior Vice President, Chief July 29, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
* Senior Vice President, Controller July 29, 1996
- --------------------- and Chief Accounting Officer
Gregory E. Abel (Principal Accounting Officer)
*
- --------------------- Director, President and Chief Operating July 29, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 29, 1996
Steven A. McArthur Counsel and Secretary
* By: /s/ Steven A. McArthur
----------------------------
Steven A. McArthur
Attorney-in-fact
</TABLE>
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on July 29, 1996.
BN GEOTHERMAL INC.
By: /s/ Steven A. McArthur
Steven A. McArthur
Director, Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, each thereunto duly
authorized in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*
- --------------------- Director, Chairman of the Board of Directors July 29, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
*
- --------------------- Director, Senior Vice President, Chief July 29, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
* Senior Vice President, Controller July 29, 1996
- --------------------- and Chief Accounting Officer
Gregory E. Abel (Principal Accounting Officer)
*
- --------------------- Director, President and Chief Operating July 29, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 29, 1996
Steven A. McArthur Counsel and Secretary
* By: /s/ Steven A. McArthur
----------------------------
Steven A. McArthur
Attorney-in-fact
</TABLE>
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on July 29, 1996.
SAN FELIPE ENERGY COMPANY
By: /s/ Steven A. McArthur
Steven A. McArthur
Director, Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, each thereunto duly
authorized in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*
- --------------------- Director, Chairman of the Board of Directors July 29, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
*
- --------------------- Director, Senior Vice President, Chief July 29, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
* Senior Vice President, Controller July 29, 1996
- --------------------- and Chief Accounting Officer
Gregory E. Abel (Principal Accounting Officer)
*
- --------------------- Director, President and Chief Operating July 29, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 29, 1996
Steven A. McArthur Counsel and Secretary
* By: /s/ Steven A. McArthur
----------------------------
Steven A. McArthur
Attorney-in-fact
</TABLE>
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on July 29, 1996.
CONEJO ENERGY COMPANY
By: /s/ Steven A. McArthur
Steven A. McArthur
Director, Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, each thereunto duly
authorized in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*
- --------------------- Director, Chairman of the Board of Directors July 29, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
*
- --------------------- Director, Senior Vice President, Chief July 29, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
* Senior Vice President, Controller July 29, 1996
- --------------------- and Chief Accounting Officer
Gregory E. Abel (Principal Accounting Officer)
*
- --------------------- Director, President and Chief Operating July 29, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 29, 1996
Steven A. McArthur Counsel and Secretary
* By: /s/ Steven A. McArthur
----------------------------
Steven A. McArthur
Attorney-in-fact
</TABLE>
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on July 29, 1996.
NIGUEL ENERGY COMPANY
By: /s/ Steven A. McArthur
Steven A. McArthur
Director, Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, each thereunto duly
authorized in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*
- --------------------- Director, Chairman of the Board of Directors July 29, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
*
- --------------------- Director, Senior Vice President, Chief July 29, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
* Senior Vice President, Controller July 29, 1996
- --------------------- and Chief Accounting Officer
Gregory E. Abel (Principal Accounting Officer)
*
- --------------------- Director, President and Chief Operating July 29, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 29, 1996
Steven A. McArthur Counsel and Secretary
* By: /s/ Steven A. McArthur
----------------------------
Steven A. McArthur
Attorney-in-fact
</TABLE>
II-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on July 29, 1996.
VULCAN/BN GEOTHERMAL POWER COMPANY
By: Vulcan Power Company as its general partner
By: /s/ Steven A. McArthur
Steven A. McArthur
Director, Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, each thereunto duly
authorized in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*
- --------------------- Director, Chairman of the Board of Directors July 29, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
*
- --------------------- Director, Senior Vice President, Chief July 29, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
* Senior Vice President, Controller July 29, 1996
- --------------------- and Chief Accounting Officer
Gregory E. Abel (Principal Accounting Officer)
*
- --------------------- Director, President and Chief Operating July 29, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 29, 1996
Steven A. McArthur Counsel and Secretary
* By: /s/ Steven A. McArthur
----------------------------
Steven A. McArthur
Attorney-in-fact
</TABLE>
II-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on July 29, 1996.
LEATHERS, L.P.
By: CalEnergy Operating Company
as its general partner
By: /s/ Steven A. McArthur
Steven A. McArthur
Director, Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, each thereunto duly
authorized in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*
- --------------------- Director, Chairman of the Board of Directors July 29, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
*
- --------------------- Director, Senior Vice President, Chief July 29, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
* Senior Vice President, Controller July 29, 1996
- --------------------- and Chief Accounting Officer
Gregory E. Abel (Principal Accounting Officer)
*
- --------------------- Director, President and Chief Operating July 29, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 29, 1996
Steven A. McArthur Counsel and Secretary
* By: /s/ Steven A. McArthur
----------------------------
Steven A. McArthur
Attorney-in-fact
</TABLE>
II-25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on July 29, 1996.
DEL RANCH, L.P.
By: CalEnergy Operating Company
as its general partner
By: /s/ Steven A. McArthur
Steven A. McArthur
Director, Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, each thereunto duly
authorized in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*
- --------------------- Director, Chairman of the Board of Directors July 29, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
*
- --------------------- Director, Senior Vice President, Chief July 29, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
* Senior Vice President, Controller July 29, 1996
- --------------------- and Chief Accounting Officer
Gregory E. Abel (Principal Accounting Officer)
*
- --------------------- Director, President and Chief Operating July 29, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 29, 1996
Steven A. McArthur Counsel and Secretary
* By: /s/ Steven A. McArthur
----------------------------
Steven A. McArthur
Attorney-in-fact
</TABLE>
II-26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on July 29, 1996.
ELMORE, L.P.
By: CalEnergy Operating Company
as its general partner
By: /s/ Steven A. McArthur
Steven A. McArthur
Director, Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, each thereunto duly
authorized in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*
- --------------------- Director, Chairman of the Board of Directors July 29, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
*
- --------------------- Director, Senior Vice President, Chief July 29, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
* Senior Vice President, Controller July 29, 1996
- --------------------- and Chief Accounting Officer
Gregory E. Abel (Principal Accounting Officer)
*
- --------------------- Director, President and Chief Operating July 29, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 29, 1996
Steven A. McArthur Counsel and Secretary
* By: /s/ Steven A. McArthur
----------------------------
Steven A. McArthur
Attorney-in-fact
</TABLE>
II-27
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
3.1* Articles of Incorporation of the Funding Corporation.
3.2* By-laws of the Funding Corporation.
3.3* Limited Partnership Agreement of SSBP.
3.4* Limited Partnership Agreement of SSPG.
3.5* Articles of Incorporation of Fish Lake.
3.6* By-laws of Fish Lake.
3.7* Articles of Incorporation of VPC.
3.8* By-laws of VPC.
3.9* Articles of Incorporation of CEOC.
3.10* By-laws of CEOC.
3.11* Articles of Incorporation of the Royalty Guarantor.
3.12* By-laws of the Royalty Guarantor.
3.13 Articles of Incorporation of BNG.
3.14 By-laws of BNG.
3.15 Articles of Incorporation of San Felipe.
3.16 By-laws of San Felipe.
3.17 Articles of Incorporation of Conejo.
3.18 By-laws of Conejo.
3.19 Articles of Incorporation of Niguel.
3.20 By-laws of Niguel.
3.21 General Partnership Agreement of Vulcan.
3.22 Limited Partnership Agreement of Leathers.
3.23 Amended and Restated Limited Partnership Agreement of Del
Ranch.
3.24 Amended and Restated Limited Partnership Agreement of Elmore.
4.1(a)* Indenture, dated as of July 21, 1995, between Chemical Trust
Company of California and the Funding Corporation.
4.1(b)* First Supplemental Indenture, dated as of October 18, 1995,
between Chemical Trust Company of California and the
Funding Corporation.
4.1(c) Second Supplemental Indenture, dated as of June 20, 1996,
between Chemical Trust Company of California and the
Funding Corporation.
4.1(d) Third Supplemental Indenture, between Chemical Trust Company
of California and the Funding Corporation.
4.2* Salton Sea Secured Guarantee, dated as of July 21, 1995, by
SSBP, SSPG and Fish Lake in favor of Chemical Trust Company
of California.
4.3 Amended and Restated Partnership Guarantors Secured Limited
Guarantee, dated as of June 20, 1996, by CEOC, and VPC,
Conejo, Niguel, San Felipe, BNG, Del Ranch, Elmore, Leathers
and Vulcan in favor of Chemical Trust Company of California.
4.4* Royalty Guarantor Secured Limited Guarantee, dated as of
July 21, 1995, by the Royalty Guarantor in favor of Chemical
Trust Company of California.
4.5 Exchange and Registration Rights Agreement, dated June 20,
1996, by and between CS First Boston Corporation and the
Funding Corporation.
4.6(a)* Collateral Agency and Intercreditor Agreement, dated as of
July 21, 1995, by and among Credit Suisse, Chemical Trust
Company of California, the Funding Corporation and the
Initial Guarantors.
4.6(b) First Amendment to the Collateral Agency and
Intercreditor Agreement, dated as of June 20, 1996,
by and among Credit Suisse, Chemical Trust Company of
California, the Funding Corporation and the
Guarantors.
4.7* Stock Pledge Agreement, dated as of July 21, 1995, by Magma
Power Company in favor of Chemical Trust Company of
California.
4.8 Purchase Agreement, dated June 17, 1996, by and among CS
First Boston Corporation, the Guarantors and the Funding
Corporation.
4.9* Support Letter, dated as of July 21, 1995, by and among
Magma Power Company, the Funding Corporation and the
Initial Guarantors.
4.10* Debt Service Reserve Letter of Credit and Reimbursement
Agreement, dated as of July 21, 1995, by and among the
Funding Corporation, certain banks and Credit Suisse, as
agent.
4.11* Revolving Credit Agreement, dated as of July 21, 1995, by
and among Credit Suisse and the Funding Corporation.
4.12* Salton Sea Credit Agreement, dated July 21, 1995, by and
among SSBP, SSPG, Fish Lake and the Funding Corporation.
4.13* Salton Sea Project Note, dated July 21, 1995, by SSBP,
SSPG and Fish Lake in favor of the Funding Corporation.
4.14(a)* Deposit and Disbursement Agreement, dated as of July 21,
1995, by and among the Funding Corporation, Chemical Trust
Company of California and the Initial Guarantors.
4.14(b) Amendment No. 1 to Deposit and Disbursement Agreement,
dated as of June 20, 1996, by and among the Funding
Corporation, Chemical Trust Company of California and the
Guarantors.
4.15* Partnership Interest Pledge Agreement, dated as of July 21,
1995, by Magma Power Company and Salton Sea Power Company
in favor of Chemical Trust Company of California.
4.16* Partnership Interest Pledge Agreement, dated as of July 21,
1995, by SSBP and Salton Sea Power Company in favor of
Chemical Trust Company of California.
4.17* Stock Pledge Agreement (Pledge of Stock of Fish Lake by
Magma Power Company and the Funding Corporation), dated as
of July 21, 1995, by Magma Power Company and the Funding
Corporation in favor of Chemical Trust Company of
California.
4.18* Cost Overrun Commitment, dated as of July 21, 1995, between
CalEnergy, SSPG, SSBP and Fish Lake.
4.19 Amended and Restated Partnership Guarantors Credit
Agreement, dated June 20, 1996, by and among the
Partnership Guarantors and the Funding Corporation.
4.20* Partnership Guarantors Security Agreement and Assignment of
Rights, dated as of July 21, 1995, by CEOC and VPC in favor
of Chemical Trust Company of California.
4.21* Stock Pledge Agreement (Pledge of Stock of CEOC by Magma
Power Company and the Funding Corporation), dated as of
July 21, 1995, by Magma Power Company and Funding
Corporation in favor of Chemical Trust Company of
California.
4.22* Stock Pledge Agreement (Pledge of Stock of VPC by Magma
Power Company and the Funding Corporation), dated as of
July 21, 1995, by Magma Power Company and the Funding
Corporation in favor of Chemical Trust Company of
California.
4.23* Royalty Guarantor Credit Agreement, among the Royalty
Guarantor and the Funding Corporation, dated as of July 21,
1995.
4.24* Royalty Project Note, dated as of July 21, 1995, by the
Royalty Guarantor in favor of the Funding Corporation.
4.25* Royalty Security Agreement and Assignment of Revenues,
dated as of July 21, 1995, by the Royalty Guarantor in
favor of Chemical Trust Company of California.
4.26(a)* Royalty Deed of Trust, dated as of July 21, 1995, by the
Royalty Guarantor to Chicago Title Company for the use and
benefit of Chemical Trust Company of California.
4.26(b) First Amendment to Royalty Deed of Trust dated as of June
20, 1996, by the Royalty Guarantor to Chicago Title Company
for the use and benefit of Chemical Trust Company of
California.
4.27* Stock Pledge Agreement (Pledge of Stock of Royalty
Guarantor by Magma Power Company and the Funding
Corporation), dated as of July 21, 1995, by Magma Power
Company and the Funding Corporation in favor of Chemical
Trust Company of California.
4.28* Collateral Assignment of the Imperial Irrigation District
Agreements, dated as of July 21, 1995, by SSBP, SSPG and
Fish Lake in favor of Chemical Trust Company of California.
4.29 Collateral Assignment of the Imperial Irrigation District
Agreements, dated as of June 20, 1996, by Vulcan, Elmore,
Leathers, VPC and Del Ranch in favor of Chemical Trust
Company of California.
4.30* Collateral Assignments of Certain Salton Sea Agreements,
dated as of July 21, 1995, by SSBP, SSPG and Fish Lake in
favor of Chemical Trust Company of California.
4.31 Collateral Assignments of Certain Partnership Agreements,
dated as of June 20, 1996, by Vulcan, Elmore, Leathers and
Del Ranch in favor of Chemical Trust Company of California.
4.32 Debt Service Reserve Letter of Credit by Credit Suisse in
favor of Chemical Trust Company of California.
4.33 Partnership Project Note, dated June 20, 1996, by the
Partnership Guarantors in favor of the Funding Corporation
in the principal amount of $54,956,000.
4.34 Partnership Project Note, dated June 20, 1996, by the
Partnership Guarantors in favor of the Funding Corporation
in the principal amount of $135,000,000.
4.35 Deed of Trust, dated as of June 20, 1996, by Vulcan to
Chicago Title Company for the use and benefit of Chemical
Trust Company of California.
4.36 Deed of Trust, dated as of June 20, 1996, by Elmore to
Chicago Title Company for the use and benefit of Chemical
Trust Company of California.
4.37 Deed of Trust, dated as of June 20, 1996, by Leathers to
Chicago Title Company for the use and benefit of Chemical
Trust Company of California.
4.38 Deed of Trust, dated as of June 20, 1996, by Del Ranch to
Chicago Title Company for the use and benefit of Chemical
Trust Company of California.
4.39 Stock Pledge Agreement, dated as of June 20, 1996, by CEOC,
pledging the stock of Conejo, Niguel and San Felipe in
favor of Chemical Trust Company of California for the
benefit of the Secured Parties and the Funding Corporation.
4.40 Stock Pledge Agreement, dated as of June 20, 1996, by VPC,
pledging the stock of BNG in favor of Chemical Trust
Company of California for the benefit of the Secured
Parties and the Funding Corporation.
4.41 Partnership Interest Pledge Agreement, dated as of June 20,
1996, by VPC and BNG, pledging the partnership interests in
Vulcan in favor of Chemical Trust Company of California for
the benefit of the Secured Parties and the Funding
Corporation.
4.42 Partnership Interest Pledge Agreement, dated as of June 20,
1996, by Magma, CEOC and Niguel pledging the partnership
interests in Elmore in favor of Chemical Trust Company of
California for the benefit of the Secured Parties and the
Funding Corporation.
4.43 Partnership Interest Pledge Agreement, dated as of June 20,
1996, by Magma, CEOC and Conejo, pledging the partnership
interests in Del Ranch in favor of Chemical Trust Company of
California for the benefit of the Secured Parties and the
Funding Corporation.
4.44 Partnership Interest Pledge Agreement, dated as of June 20,
1996, by Magma, CEOC and San Felipe, pledging the partnership
interests in Leathers in favor of Chemical Trust Company of
California for the benefit of the Secured Parties and the
Funding Corporation.
4.45 Agreement regarding Security Documents, dated as of June
20, 1996, by and among the Initial Guarantors, Magma, SSPC,
the Funding Corporation and Chemical Trust Company of
California.
5.1 Opinion of Willkie Farr & Gallagher.
5.2 Opinion of Latham & Watkins.
5.3 Opinion of Lionel Sawyer & Collins.
10.1* Salton Sea Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing, dated as of July 21, 1995, by
SSBP, SSPG and Fish Lake to Chicago Title Company for the
use and benefit of Chemical Trust Company of California.
10.2 First Amendment to Salton Sea Deed of Trust, Assignment of
Rents, Security Agreement and Fixed Filing, dated as of
June 20, 1996, by SSBP, SSPG and Fish Lake to Chicago Title
Company for the use and benefit of Chemical Trust Company
of California.
10.3* Collateral Assignment of Southern California Edison Company
Agreements, dated as of July 21, 1995, by SSPG and Fish
Lake in favor of Chemical Trust Company of California.
10.4* Contract for the Purchase and Sale of Electric Power from
the Salton Sea Geothermal Facility, dated May 8, 1987 (the
"Unit 1 Power Purchase Agreement"), between Southern
California Edison Company and Earth Energy, Inc.
10.5* Amendment No. 1 to the Unit 1 Power Purchase Agreement,
dated as of March 30, 1993, between Southern California
Edison Company and Earth Energy, Inc.
10.6* Amendment No. 2 to Unit 1 Power Purchase Agreement, dated
November 29, 1994, between Southern California Edison
Company and SSPG.
10.7* Contract for the Purchase and Sale of Electric Power, dated
April 16, 1985 (the "Unit 2 Power Purchase Agreement"),
between Southern California Edison Company and Westmorland
Geothermal Associates.
10.8* Amendment No. 1 to Unit 2 Power Purchase Agreement, dated
as of December 18, 1987, between Southern California Edison
Company and Earth Energy, Inc.
10.9* Power Purchase Contract, dated April 16, 1985 (the "Unit 3
Power Purchase Agreement"), between Southern California
Edison Company and Union Oil Company of California.
10.10* Power Purchase Contract (the "Unit 4 Power Purchase
Agreement"), dated November 29, 1994, between Southern
California Edison Company, SSPG and Fish Lake.
10.11* Plant Connection Agreement (Unit 2), dated October 3, 1989,
between the Imperial Irrigation District and Earth Energy,
Inc.
10.12* Plant Connection Agreement, dated August 2, 1988 (Unit 3),
between the Imperial Irrigation District and Desert Power
Company.
10.13* Imperial Irrigation District Funding and Construction
Agreements as amended (Units 2 and 3), dated as of June 29,
1987, among the Imperial Irrigation District, Earth Energy,
Inc., Chevron Geothermal Company of California, Geo East
Mesa No. 3, Inc., Magma Power Company, Desert Power
Company, Geo East Mesa No. 2, Inc., Heber Geothermal
Company, Ormesa Geothermal, Ormesa Geothermal II, Vulcan/BN
Geothermal Power Company, Union Oil Company of California,
Del Ranch L.P., Elmore L.P., Leathers L.P., Geo East Mesa
Limited Partnership and Imperial Resource Recovery
Associates, L.P.
10.14* Transmission Service Agreement, dated as of October 3, 1989
(Unit 2), between the Imperial Irrigation District and
Earth Energy, Inc.
10.15* Transmission Service Agreement, dated as of August 2, 1988
(Unit 3), between the Imperial Irrigation District and
Desert Power Company.
10.16* Plant Connection Agreement (Unit 4), dated as of July 14,
1995, by and between the Imperial Irrigation District, SSPG
and Fish Lake.
10.17* Letter Agreement, dated February 2, 1995, between Magma
Power Company and the Imperial Irrigation District.
10.18* Transmission Service Agreement (Unit 4), dated as of July
14, 1995, by and between the Imperial Irrigation District,
SSPG and Fish Lake.
10.19* Transmission Line Construction Agreement (Unit 4), dated
July 14, 1995, between the Imperial Irrigation District,
SSPG and Fish Lake.
10.20* Funding Agreement, dated June 15, 1988 (Unit 2), between
Southern California Edison Company and Earth Energy, Inc.
10.21* Second Amended and Restated Administrative Services
Agreement, by and among CEOC, SSBP, SSPG and Fish Lake,
dated as of July 15, 1995.
10.22* Second Amended and Restated Operating and Maintenance
Agreement, dated as of July 15, 1995, by and among Magma
Power Company, SSBP, SSPG and Fish Lake.
10.23 Collateral Assignment of Southern California Edison Company
Agreements, dated as of June 20, 1996, by Vulcan, Elmore,
Leathers and Del Ranch in favor of Chemical Trust Company
of California.
10.24 Administrative Services Agreement, dated as of June 17,
1996, between CEOC and Vulcan.
10.25 Amended and Restated Construction, Operating and Accounting
Agreement, dated as of June 17, 1996, between VPC and
Vulcan.
10.26 Long Term Power Purchase Contract, dated March 1, 1984, as
amended, between SCE and Vulcan, as successor to Magma
Electric Company.
10.27 Transmission Service Agreement, dated as of December 1,
1988, between VPC and IID.
10.28 Plant Connection Agreement, dated as of December 1, 1988,
between VPC and IID.
10.29 Amended and Restated Administrative Services Agreement,
dated as of June 17, 1996, between CEOC and Elmore.
10.30 Amended and Restated Operating and Maintenance Agreement,
dated as of June 17, 1996, between CEOC and Elmore.
10.31 Long Term Power Purchase Contract, dated June 15, 1984, as
amended, between SCE and Elmore, as successor to Magma
Electric Company.
10.32 Transmission Service Agreement, dated as of August 2, 1988,
as amended, between Elmore and IID.
10.33 Plant Connection Agreement, dated as of August 2, 1988,
between Elmore and IID.
10.34 Amended and Restated Administrative Services Agreement,
dated as of June 17, 1996, between CEOC and Leathers.
10.35 Amended and Restated Operating and Maintenance Agreement,
dated as of June 17, 1996, between CEOC and Leathers.
10.36 Long Term Power Purchase Contract, dated August 16, 1985,
as amended, between SCE and Leathers, as successor to
Imperial Energy Corporation.
10.37 Transmission Service Agreement, dated as of October 3,
1989, as amended, between Leathers and IID.
10.38 Plant Connection Agreement, dated as of October 3, 1989,
between Leathers and IID.
10.39 Amended and Restated Administrative Services Agreement,
dated as of June 17, 1996, between CEOC and Del Ranch.
10.40 Amended and Restated Operating and Maintenance Agreement,
dated as of June 17, 1996, between CEOC and Del Ranch.
10.41 Long Term Power Purchase Contract, dated February 22, 1984,
as amended, between SCE and Del Ranch, as successor to
Magma.
10.42 Transmission Service Agreement, dated as of August 2, 1988,
as amended, between Del Ranch and IID.
10.43 Plant Connection Agreement, dated as of August 2, 1988,
between Del Ranch and IID.
10.44 Funding Agreement, dated May 18, 1990, between SCE and Del
Ranch.
10.45 Funding Agreement, dated May 18, 1990, between SCE and
Elmore.
10.46 Funding Agreement, dated June 15, 1990, between SCE and
Leathers.
10.47 Funding Agreement, dated May 18, 1990, between SCE and
Leathers.
10.48 Funding Agreement, dated May 18, 1990, between SCE and
Vulcan.
12.1** Statement regarding computation of Salton Sea Funding
Corporation ratio of earnings to fixed charges.
12.2** Statement regarding computation of Salton Sea Guarantors
ratio of earnings to fixed charges.
12.3** Statement regarding computation of Partnership Guarantors
ratio of earnings to fixed charges.
12.4** Statement regarding computation of Royalty Guarantor's
ratio of earnings to fixed charges.
15.1 Awareness letter of Deloitte & Touche LLP.
21.1 Subsidiaries of the Registrants.
23.1 Consent of Willkie Farr & Gallagher (included in their
opinion filed as Exhibit 5.1).
23.2 Consent of Stone & Webster Engineering Corporation.
23.3 Consent of Coopers & Lybrand L.L.P., independent public
accountants.
23.4 Consent of Deloitte & Touche LLP, independent public
accountants.
23.5 Consent of Arthur Andersen LLP, independent public
accountants.
23.6 Consent of Latham & Watkins (included in their opinion
filed as Exhibit 5.2).
23.7 Consent of Lionel Sawyer & Collins (included in their
opinion filed as Exhibit 5.3).
24.1** Power of Attorney (included on signature page).
25.1** Statement on Form T-1 of Eligibility of Trustee.
27.1+ Financial Data Schedules relating to BNG, Niguel, San
Felipe and Conejo by CalEnergy
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Letter to Clients.
99.4 Letter to Securities Dealers, Commercial Banks, Trust
Companies and Other Nominees.
- -----------------------
* Incorporated by reference to the similarly described
exhibit filed as part of the Registration Statement on Form
S-4, Registration No. 33-95538, declared effective on
January 10, 1996.
** Previously filed
+ Incorporated by reference to the current Report on Form
8-K, File No. 001-0987, filed by CalEnergy with the
Commission on July 1, 1996.
EXHIBIT 3.13
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Intermodal Transportation of America Inc., a corporation organized
and existing under the General Corporation Law of the State of Delaware, does
hereby certify:
1. A resolution setting forth the following amendment to Article I of
the corporation's Certificate of Incorporation was duly adopted by the
corporation's Board of Directors by the unanimous written consent of its
members, filed with the minutes of the Board, in accordance with the
applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware:
"The name of this corporation is BN Geothermal Inc."
2. In lieu of a meeting of the stockholders, unanimous written
consent has been given for the adoption of said amendment in accordance with
the applicable provisions of Section 228 and Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Intermodal Transportation of America Inc. has
caused this Certificate to be signed and attested by its duly authorized
officers this 11th day of September, 1985.
INTERMODAL TRANSPORTATION OF AMERICA INC.
By /s/ Gregory J. Terry
-----------------------------------
Gregory J. Terry, Vice President
ATTEST:
/s/ James W. Becker
- ------------------------------
James W. Becker, Secretary
<PAGE>
CERTIFICATE OF INCORPORATION
OF
Intermodal Transportation of America Inc.
* * * * *
1. The name of the corporation is
Intermodal Transportation of America Inc.
2. The address of its registered office in the State of
Delaware is No. 100 West Tenth 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. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation
shall have authority to issue is one thousand (1,000) and the par value of
each of such shares is One Dollars ($1.00) amounting in the aggregate to One
Thousand Dollars ($1,000.00).
-2-
<PAGE>
5. The name and mailing address of each incorporator is as
follows:
NAME MAILING ADDRESS
D. A. Hampton 100 West Tenth Street
Wilmington, Delaware 19801
S. M. Chapman 100 West Tenth Street,
Wilmington, Delaware 19801
S. K. Zimmerman 100 West Tenth Street,
Wilmington, Delaware 19801
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers
conferred by statute, the board of directors is expressly authorized:
To make, alter or repeal the by-laws of the corporation.
To authorize and cause to be executed mortgages and liens
upon the real and personal property of the corporation.
To set apart out of any of the funds of the corporation
available for dividends a reserve or reserves for any proper purpose and to
abolish any such reserve in the manner in which it was created.
By a majority of the whole board, to designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as alternate
members of any committee, who may
-3-
<PAGE>
replace any absent or disqualified member at any meeting of the committee. The
by-laws may provide that in the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors,
or in the by-laws of the corporation, shall have and may exercise all the
powers and authority of the board of directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution or by-laws, expressly so provide, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock.
When and as authorized by the stockholders in accordance
with statute, to sell, lease or exchange all or substantially all of the
property and assets of the corporation,
-4-
<PAGE>
including its good will and its corporate franchises, upon such terms and
conditions and for such consideration, which may consist in whole or in part
of money or property including shares of stock in, and/or other securities of,
any other corporation or corporations, as its board of directors shall deem
expedient and for the best interests of the corporation.
8. Elections of directors need not be by written ballot
unless the by-laws of the corporation shall so provide.
Meetings of stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the corporation
may be kept (subject to any provision contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time to
time by the board of directors or in the by-laws of the corporation.
9. Cumulative voting is expressly prohibited. At each
election of directors every shareholder entitled to vote at such election
shall have the right to vote, in person or by proxy, the number of shares
owned by him for as many persons as there are directors to be elected and for
whose election he has a right to vote. No shareholder shall be entitled to
cumulate his votes by giving one candidate as many votes as the number of each
directors multiplied by his shares shall equal, or by distributing such votes
on the same principle among any number of such candidates.
-5-
<PAGE>
10. No holder of any stock of the Corporation shall be
entitled as a matter of right to purchase or subscribe for any portion of any
stock of the Corporation authorized by these Articles or of any additional
stock of any class to be issued by reason of any increase in the authorized
stock of the Corporation, or of any bonds, certificates of indebtedness,
debentures, warrants, options or other securities convertible into any class
of stock of the Corporation, but any stock authorized by these Articles or any
such additional authorized issue of any stock or securities convertible into
any stock may be issued and disposed of by the Board of Directors to such
persons, firms, corporations or associations for such consideration and upon
such terms and in such manner as the Board of Directors may in its discretion
determine without offering any thereof on the same terms or on any terms to
the shareholders then of record or to any class of shareholders, provided only
that such issuance may not be inconsistent with any provision of law or with
any other of the provisions of these Articles.
11. The corporation reserves the right to amend, alter,
change or repeal any provision contained in this certificate of incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
WE, THE UNDERSIGNED, being each of the incorporators
hereinbefore named, for the purpose of forming a corporation pursuant to the
General Corporation Law of the State of Delaware,
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<PAGE>
do make this certificate, hereby declaring and certifying that this is our act
and deed and the facts herein stated are true, and accordingly have hereunto
set our hands this 27th day of January, 1984.
/s/ D. A. Hampton
--------------------------------------------
D. A. Hampton
/s/ S. M. Chapman
---------------------------------------------
S. M. Chapman
/s/ S. K. Zimmerman
---------------------------------------------
S. K. Zimmerman
EXHIBIT 3.14
BYLAWS
OF
BN GEOTHERMAL INC.
(A DELAWARE CORPORATION)
AS AMENDED TO AND INCLUDING
JUNE 10, 1993
<PAGE>
BN GEOTHERMAL INC.
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I -- OFFICES
Section 1.1 Registered Office.......................................................... 1
-----------------
Section 1.2 Other Offices.............................................................. 1
-------------
ARTICLE II -- MEETINGS OF STOCKHOLDERS
Section 2.1 Annual Meeting............................................................. 1
--------------
Section 2.2 Special Meetings........................................................... 1
----------------
Section 2.3 Place of Meetings.......................................................... 2
-----------------
Section 2.4 Notice of Meetings......................................................... 2
------------------
Section 2.5 Stockholder List........................................................... 2
----------------
Section 2.6 Quorum..................................................................... 2
------
Section 2.7 Proxies.................................................................... 3
-------
Section 2.8 Voting..................................................................... 3
------
Section 2.9 Voting of Certain Shares................................................... 3
------------------------
Section 2.10 Action Without Meeting..................................................... 3
----------------------
Section 2.11 Treasury Stock............................................................. 4
--------------
ARTICLE III -- DIRECTORS
Section 3.1 Number and Election........................................................ 4
-------------------
Section 3.2 Resignations and Vacancies................................................. 4
--------------------------
Section 3.3 Removal.................................................................... 5
-------
Section 3.4 Management of Affairs of the Corporation................................... 5
----------------------------------------
Section 3.5 Dividends and Reserves..................................................... 5
----------------------
Section 3.6 Regular Meetings........................................................... 6
----------------
Section 3.7 Special Meetings........................................................... 6
----------------
Section 3.8 Notice of Special Meetings................................................. 6
--------------------------
Section 3.9 Quorum..................................................................... 6
------
Section 3.10 Presumption of Assent...................................................... 6
---------------------
Section 3.11 Action Without Meeting..................................................... 7
----------------------
Section 3.12 Presiding Officer.......................................................... 7
-----------------
Section 3.13 Executive Committee........................................................ 7
-------------------
Section 3.14 Other Committee............................................................ 7
---------------
Section 3.15 Committee Alternates....................................................... 7
--------------------
Section 3.16 Committee Quorum and Manner of Acting...................................... 8
-------------------------------------
Section 3.17 Committee Chairman, Books and Records, Etc................................ 8
------------------------------------------
Section 3.18 Fees and Compensation of Directors......................................... 8
----------------------------------
Section 3.19 Reliance Upon Records...................................................... 8
---------------------
ARTICLE IV -- NOTICES
Section 4.1 Manner of Notice........................................................... 9
----------------
Section 4.2 Waiver of Notice........................................................... 9
----------------
ARTICLE V -- OFFICERS
Section 5.1 Elected Officers........................................................... 10
----------------
Section 5.2 Appointed Officers......................................................... 10
------------------
Section 5.3 Election................................................................... 10
--------
i
<PAGE>
Section 5.4 Removal and Resignation.................................................... 10
-----------------------
Section 5.5 Vacancies.................................................................. 11
---------
Section 5.6 President.................................................................. 11
---------
Section 5.7 Vice Presidents............................................................ 11
---------------
Section 5.8 Secretary.................................................................. 11
---------
Section 5.9 Salaries................................................................... 12
--------
ARTICLE VI -- DIVISIONS
Section 6.1 Divisions of the Corporation............................................... 12
----------------------------
Section 6.2 Official Positions Within a Division....................................... 12
------------------------------------
ARTICLE VII -- CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 7.1 Contracts and Other Instruments............................................ 12
-------------------------------
Section 7.2 Checks, Drafts, Etc........................................................ 13
-------------------
Section 7.3 Deposits................................................................... 13
--------
ARTICLE VIII -- CERTIFICATES OF STOCK AND THEIR TRANSFER
Section 8.1 Certificates of Stock...................................................... 13
---------------------
Section 8.2 Lost, Stolen or Destroyed Certificates..................................... 14
--------------------------------------
Section 8.3 Transfers of Stock......................................................... 14
------------------
Section 8.4 Restrictions on Transfer................................................... 14
------------------------
Section 8.5 No Fractional Share Certificates........................................... 15
--------------------------------
Section 8.6 Fixing Record Date......................................................... 15
------------------
Section 8.7 Stockholders of Record..................................................... 15
----------------------
ARTICLE IX -- INDEMNIFICATION
Section 9.1 In General................................................................. 15
----------
ARTICLE X -- GENERAL PROVISIONS
Section 10.1 Fiscal Year................................................................ 16
-----------
ARTICLE XI -- AMENDMENTS
Section 11.1 In General................................................................. 16
----------
</TABLE>
ii
<PAGE>
BYLAWS
Bylaws for the regulation, except
as otherwise provided by statute
or its Articles of Incorporation
of
BN GEOTHERMAL INC.
AS AMENDED THROUGH JUNE 10, 1993
ARTICLE I -- OFFICES
Section 1.1 Registered Office.
The registered office of the corporation in the State of
Delaware shall be located at 100 West 1Oth Street in the City of Wilmington,
County of New Castle and the name of its registered agent is The Corporation
Trust Company.
Section 1.2 Other Offices.
The corporation may also have offices at such other places
both within or without the State of Delaware as the Board of Directors may
from time to time determine or the business of the corporation may require.
ARTICLE II -- MEETINGS OF STOCKHOLDERS
Section 2.1 Annual Meeting.
The annual meeting of the stockholders shall be held at the
general offices of the corporation in Irvine, California, or at such other
place in the United States as may be stated in the notice of the meeting on
the second Tuesday in June in each year, if not a legal holiday, or, if a
legal holiday, then on the next succeeding business day, or on the day of any
meeting the shareholders shall designate by unanimous consent as the annual
meeting for the purpose of electing directors and for the transaction of such
other business as may come before the meeting. If the election of directors
shall not be held for a period of fifteen (15) months, the Board of Directors
shall cause such election to be held at a special meeting of stockholders as
soon thereafter as convenient.
Section 2.2 Special Meetings.
Except as otherwise prescribed by statute, special meetings
of the stockholders for any purpose of purposes, may be called and the
location thereof designated by the Board of Directors or by the President and
shall be called and the location thereof designated by the Secretary at the
request in
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<PAGE>
writing of a majority of the Board of Directors or of stockholders
owning capital stock of the corporation having not less than one-third of the
total voting power. Such request shall state the purposes of the proposed
meeting.
Section 2.3 Place of Meetings.
Each meeting of the stockholders for the election of
directors shall be held at the office of the corporation in Irvine,
California, unless the Board of Directors shall by resolution designate any
other place as the place of such meeting, provided, however, that the
shareholders may meet anywhere by unanimous consent. Meetings of stockholders
for any other purpose may be held at such place and at such time as shall be
determined pursuant to Section 2.2 and stated in the notice of the meeting or
in a duly executed waiver of notice thereof.
Section 2.4 Notice of Meetings.
Written or printed notice stating the place and time of each
annual or special meeting of the stockholders and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
given not less than ten (10) days nor more than sixty (60) days before the
date of the meeting.
When a meeting is adjourned to another time or place, no
notice of the adjourned meeting other than an announcement at the meeting need
by given unless the adjournment is for more than thirty (30) days or a new
record date is fixed for the adjourned meeting after such adjournment.
Section 2.5 Stockholder List.
At least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at such meeting, arranged
in alphabetical order, and showing the address of each such stockholder and
the number of shares registered in the name of each such stockholder, shall be
prepared by the Secretary. Such list shall be open to examination of any
stockholder of the corporation during ordinary business hours, for any purpose
germane to the meeting, for a period of at least ten (10) days prior to the
meeting, at the office of the corporation in Irvine, California, and the list
shall be produced and kept at the time and place of meeting during the whole
time thereof, and subject to the inspection for any purpose germane to the
meeting of any stockholder who may be present.
Section 2.6 Quorum.
The holders of capital stock of the corporation having a
majority of the voting power thereof, present in person or represented by
proxy, shall be requisite for, and shall constitute, a quorum at all meetings
of the stockholders of the corporation for the transaction of business, except
as otherwise
2
<PAGE>
provided by statute, the Certificate of Incorporation or the
Bylaws.
If, however, such quorum shall not be present or represented
at any meeting of the stockholders, the stockholders entitled to vote thereat
present in person or represented by proxy shall have power to adjourn and
reconvene the meeting from time to time until a quorum shall be present or
represented. At such reconvened meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted
at the meeting as originally notified.
Section 2.7 Proxies.
At every meeting of the stockholders, each stockholder
having the right to vote thereat shall be entitled to vote in person or by
proxy. Such proxy shall be appointed by an instrument in writing subscribed by
such stockholder and bearing a date not more than three (3) years prior to
such meeting, unless such proxy provides for a longer period; and it shall be
filed with the Secretary of the corporation before, or at the time of, the
meeting.
Section 2.8. Voting.
Unless the Certificate of Incorporation or a resolution of
the Board creating a series of stock provides otherwise, at every meeting of
stockholders, each stockholder shall be entitled to one vote for each share of
stock of the corporation entitled to vote thereat and registered in the name
of such stockholder on the books of the corporation on the pertinent record
date. When a quorum is present at any meeting of the stockholders, all matters
shall be decided by a majority of the votes cast, except as otherwise required
by statute, the Certificate of Incorporation, or the Bylaws.
Section 2.9 Voting of Certain Shares.
Shares standing in the name of another corporation, domestic
or foreign, and entitled to vote may be voted by such officer, agent, or proxy
as the Bylaws of such corporation may prescribe or, in the absence of such
provision, as the Board of Directors of such corporation may determine. Shares
standing in the name of a deceased person, a minor or an incompetent and
entitled to vote may be voted by his administrator, executor, guardian or
conservator, as the case may be, either in person or by proxy. Shares standing
in the name of a trustee, receiver or pledgee and entitled to vote may be
voted by such trustee, receiver or pledgee either in person or by proxy as
provided by Delaware law.
Section 2.10 Action Without Meeting.
Unless otherwise restricted by the Certificate of
Incorporation or the Bylaws, whenever the vote of stockholders at
3
<PAGE>
a meeting thereof is required or permitted to be taken for or in connection
with any corporate action, the meeting and vote of stockholders may be
dispensed with if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented thereto in writing. Such consent shall be
filed with the minutes of proceedings of the stockholders and shall have the
same force and effect as a unanimous vote of stockholders.
Section 2.11 Treasury Stock.
Shares of its own stock belonging to the corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held by this corporation,
shall not be voted at any meeting and shall not be counted in determining the
total number of outstanding shares for the purpose of determining whether a
quorum is present. Nothing in this section shall be construed to limit the
right of this corporation to vote shares of its own stock held by it in a
fiduciary capacity.
ARTICLE III -- DIRECTORS
Section 3.1 Number and Election.
The number of directors which shall constitute the whole
Board shall not be less than one nor more than seven Directors. The Board
shall from time to time by a vote of the majority of the Directors then in
office fix within the maximum and minimum limits the number of Directors to
constitute the Board. Directors shall be elected annually by the stockholders
as provided in Section 2.1 or in accordance with Section 3.2 of the Bylaws and
each director elected shall hold office until his successor is elected and
qualified or until his death or resignation or until he shall have been
removed in the manner hereinafter provided.
Directors need not be residents of the State of Delaware or
stockholders of this corporation.
Section 3.2 Resignations and Vacancies.
Any director may resign at any time by giving written notice
to the Secretary of the corporation. Any such resignation shall take effect at
the date of the receipt of such notice or at any later time specified therein;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective. If, at any other time than the
4
<PAGE>
annual meeting of stockholders, any vacancy occurs in the Board of Directors
caused by resignation, death, retirement, disqualification or removal from
office of any director or otherwise, or any new directorship is created by an
increase in the authorized number of directors in accordance with Section 3.1
of the Bylaws, a majority of the directors then in office, although less than
a quorum, may choose a successor, or fill the newly created directorship, and
the director so chosen shall hold office until the next annual election of
directors by the stockholders and until his successor shall be duly elected
and qualified, unless sooner displaced.
Section 3.3 Removal.
Any director may be removed, with or without cause, at any
meeting of the stockholders, by the affirmative vote of the holders of a
majority of the stock of the corporation having voting power, and the vacancy
in the Board of Directors caused by such removal may be filled by the
stockholders at such meeting.
Section 3.4 Management of Affairs of the Corporation.
The property and business of the corporation shall be
managed by its Board of Directors, which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by the Bylaws directed or required to be
exercised or done by stockholders. In case the corporation shall transact any
business or enter into any contract with a director, or with any firm of which
one or more of its directors are members, or with any trust, firm, corporation
or association in which any director is a stockholder, director or officer or
otherwise interested, the officers of the corporation and directors in
question shall be severally under the duty of disclosing all material facts as
to their interest to the remaining directors promptly, if and when such
interested officers or such interested directors in question shall become
advised of the circumstances. In the case of continuing relationships in the
normal course of business such disclosure shall be deemed effective, when once
given, as to all subsequently entered into transactions and contracts.
Section 3.5 Dividends and Reserves.
Dividends upon stock of the corporation may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid cash, in property, in shares of stock, or otherwise in
the form, and to the extent, permitted by law. The Board of Directors may set
apart, out of any funds of the corporation available for dividends, a reserve
or reserves for working capital or for any other lawful purpose, and also may
abolish any such reserve in the manner in which it was created.
5
<PAGE>
Section 3.6 Regular Meetings.
An annual meeting of the Board of Directors shall be held,
without other notice than this Bylaw, immediately after, and at the same
place, as the annual meeting of the stockholders. The Board of Directors may
provide, by resolution, the time and place, either within or without the State
of Delaware, for the holding of additional regular meetings without other
notice than such resolution.
Section 3.7 Special Meetings.
Special meetings of the Board of Directors may be called by
the President and shall be called by the Secretary at the request of any
director, to be held at such time and place as shall be designated by the call
and specified in the notice of such meeting and notice thereof shall be given
as provided in Section 3.8 of the Bylaws.
Section 3.8 Notice of Special Meetings.
Except as otherwise prescribed by statute, written or actual
oral notice of the time and place of each special meeting of the Board of
Directors shall be given at least two (2) days prior to the time of holding
the meeting. Any director may waive notice of any meeting.
Section 3.9 Quorum.
At each meeting of the Board of Directors, the presence of
not less than a majority of the whole Board shall be necessary and sufficient
to constitute a quorum for the transaction of business, and the act of a
majority of 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 statute or the Bylaws. If a quorum shall not be present at any
meeting 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.
Unless otherwise restricted by the Certificate of
Incorporation, any member of the Board of Directors or of any committee
designated by the Board of Directors or of any committee designated by the
Board may participate in a meeting of the directors or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
a meeting by means of such equipment shall constitute presence in person at
such meeting.
Section 3.10 Presumption of Assent.
Unless otherwise provided by statute, a director of the
corporation who is present at a meeting of the Board of Directors at which
action is taken on any corporate matter shall be
6
<PAGE>
presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as Secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered
mail to the Secretary of the corporation immediately after the adjournment of
the meeting. Such right to dissent shall not apply to a director who voted in
favor of such action.
Section 3.11 Action Without Meeting.
Unless otherwise restricted by the Certificate of
Incorporation or the Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors, or of any committee thereof, may be
taken without a meeting, if a written consent thereto is signed by all members
of the Board or of such committee, as the case may be, and such written
consent is filed with the minutes of proceedings of the Board or committee.
Section 3.12 Presiding Officer.
The presiding officer at any meeting of the Board of
Directors shall be the President or, in his absence, any director elected
chairman by vote of a majority of the directors present at the meeting.
Section 3.13 Executive Committee.
The Board of Directors may, by resolution passed by a
majority of the number of directors fixed by the Bylaws, designate two or more
directors of the corporation to constitute an Executive Committee, which, to
the extent provided in the resolution and by Delaware law, shall have and may
exercise all the power and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize
the seal of the corporation to be affixed to all papers which may require it.
Section 3.14 Other Committees.
The Board of Directors may, by resolution passed by a
majority of the number of directors fixed by the Bylaws, designate such other
committees as it may from time to time determine. Each such committee shall
consist of two or more directors, shall serve for such term and shall have and
may exercise, during intervals between meetings of the Board of Directors,
such duties, functions and powers as the Board of Directors may from time to
time prescribe.
Section 3.15 Committee Alternates.
The Board of Directors may from time to time designate from
among the directors alternates to serve on one or more committees as occasion
may require. Whenever a quorum cannot be secured for any meeting of any
committee from among the regular
7
<PAGE>
members thereof and designated alternates, the member or members of such
committee present at such meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in place of such absent or
disqualified member.
Section 3.16 Committee Quorum and Manner of Acting.
The presence of a majority of members of any committee shall
constitute a quorum for the transaction of business at any meeting of such
committee, and the act of a majority of those present shall be necessary for
the taking of any such action thereat, provided that no action may be taken by
any such committee without the favorable vote of members of the committee, if
any, who are not officers or full-time employees of the corporation at least
equal to the favorable vote of members of such committee who are officers or
full-time employees of the corporation.
Section 3.17 Committee Chairman, Books and Records, Etc.
The chairman of each committee shall be selected from among
the members of the committee by the Board of Directors.
Each committee shall keep a record of its acts and
proceedings, and all actions of each committee shall be reported to the Board
of Directors at its next meeting.
Each committee shall fix its own rules of procedure not
inconsistent with the Bylaws or the resolution of the Board of Directors
designating such committee and shall meet at such times and places and upon
such call or notice as shall by provided by such rules.
Section 3.18 Fees and Compensation of Directors.
Directors shall not receive any stated salary for their
services as such; but, by resolution of the Board of Directors, a fixed fee,
with or without expenses of attendance may be allowed for attendance at each
regular or special meeting of the Board. Members of the Board shall be allowed
their reasonable traveling expenses when actually engaged in the business of
the corporation. Members of any committee may be allowed like fees and
expenses for attending committee meetings. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 3.19 Reliance Upon Records.
Every director of the corporation, or member of any
committee designated by the Board of Directors pursuant to authority conferred
by Section 3.14 of the Bylaws, shall, in the performance of his duties, be
fully protected in relying in good
8
<PAGE>
faith upon the books of account or reports made to the corporation by any of
its officials, or by an independent certified public accountant or by an
appraiser selected with reasonable care by the Board of Directors or by such
committee, or in relying in good faith upon other records of the corporation,
including, without limiting the generality of the foregoing, records setting
forth or relating to the value and amount of assets, liabilities and profits
of the corporation or any other facts pertinent to the existence and amount of
surplus or other funds from which dividends might properly be declared or paid
or with which stock of the corporation might lawfully be purchased or
redeemed.
ARTICLE IV -- NOTICES
Section 4.1 Manner of Notice.
Whenever under the provisions of the statutes, the
Certificate of Incorporation or the Bylaws notice is required to be given to
any stockholder, director or member of any committee designated by the Board
of Directors, it shall not be construed to require personal delivery and such
notice may be given in writing by depositing it in a sealed envelope in the
United States mails, air mail or first class, postage prepaid, addressed (or
by delivering it to a telegraph company, charges prepaid, for transmission) to
such stockholder, director or member either at the address of such
stockholder, director or member as it appears on the books of the corporation
or, in the case of such a director or member, at his business address; and
such notice shall be deemed to be given at the time when it is thus deposited
in the United States mails (or delivered to the telegraph company). Such
requirement for notice shall be deemed satisfied, except in the case of
stockholder meetings with respect to which written notice is mandatorily
required by law, if actual notice is received orally or in writing by the
person entitled thereto as far in advance of the event with respect to which
notice is given as the minimum notice period required by law or the Bylaws.
Section 4.2 Waiver of Notice.
Whenever any notice is required to be given under the
provisions of the statues, the Certificate of Incorporation, or the Bylaws, a
waiver thereof in writing signed by the person or persons entitled to such
notice, whether before, at or after the time stated therein, shall be deemed
equivalent thereto. Attendance by a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or committee of
directors need be
9
<PAGE>
specified in any written waiver of notice unless so required by statutes, the
Certificate of Incorporation or the Bylaws.
ARTICLE V -- OFFICERS
Section 5.1 Elected Officers.
The elected officers of the corporation shall be a
President, a Secretary, a Treasurer and such other officers as may be elected
annually by the Board of Directors. Any number of offices may be held by the
same person. Each officer elected by the Board of Directors, unless removed in
the manner hereinafter provided, shall hold office until his successor shall
have been duly elected and qualified or until he shall have died, resigned or
been removed in the manner hereinafter provided.
Section 5.2 Appointed Officers.
In addition to the elected officers of the corporation, the
corporation shall have such Vice Presidents and other officers as may be
appointed by the President. Any number of offices may be held by the same
person. Each appointed officer, unless removed in the manner hereinafter
provided, shall hold office until his successor shall have been duly appointed
and qualified or until he shall have died, resigned or been removed in the
manner hereinafter provided.
Section 5.3 Election.
The officers of the corporation shall be elected annually by
the Board of Directors at their first meeting held after each regular annual
meeting of the stockholders. If the election of officers shall not be held at
such meeting of the Board, such election shall be held at a regular or special
meeting of the Board of Directors as soon thereafter as may be convenient.
Section 5.4 Removal and Resignation.
Any officer elected by the Board of Directors may be
removed, either with or without cause by a majority of the directors, then in
office at any regular or special meeting of the Board; but such removal shall
be without prejudice to the contract rights, if any, of such person so
removed. Any officer or agent appointed by any officer or committee may be
removed, either with or without cause, by such appointing officer or
committee; but such removal shall be without prejudice to the contract rights,
if any, of such person so removed. Any officer may resign at any time by
giving written notice to the President or to the Secretary of the corporation.
Any such resignation shall take effect at the date of the receipt of such
notice or at any later time specified therein; and, unless otherwise specified
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therein, the acceptance of such resignation shall not be necessary to make it
effective.
Section 5.5 Vacancies.
A vacancy in any office because of death, resignation,
removal, or any other cause may be filled for the unexpired portion of the
term by the Board of Directors.
Section 5.6 President.
The President of the corporation shall preside at all
meetings of the stockholders, the Board of Directors or any committee of the
Board if he is a member. He shall have the overall supervision of the business
of the corporation and shall direct the affairs and policies of the
corporation, subject to such policies and directions as may be provided by the
Board of Directors. He shall have authority to designate the duties and powers
of other officers and delegate special powers and duties to specific officers,
so long as such designation shall not be inconsistent with the statutes, the
Bylaws or action of the Board of Directors. He shall also have power to
execute, and shall execute, deeds, mortgages, bonds, contracts or other
instruments of the corporation except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by the
President to some other officer or agent of the corporation. The President may
sign with the Secretary or an Assistant Secretary or the Treasurer,
certificates for shares of stock of the corporation the issuance of which
shall have been duly authorized by the Board of Directors, and shall vote, or
give a proxy to any other person to vote, all shares of the stock of any other
corporation standing in the name of the corporation. The President in general
shall have all other power and shall perform all other duties which are
incident to the President of a corporation or as may be prescribed by the
Board of Directors from time to time.
Section 5.7 Vice Presidents.
A Vice President designated by the Board of Directors or by
the President shall, during the absence or disability of the President,
perform such powers and duties of that officer and such other duties as may be
assigned to him or her by the Board of Directors or by the President.
Section 5.8 Secretary.
The Secretary shall: (a) keep the minutes of the meetings
of the stockholders, the Board of Directors and committees of directors, in
one or more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of the Bylaws or as required by law;
(c) have charge of the corporate records and of the seal of the corporation;
(d) affix the seal of the corporation or a facsimile
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thereof, or cause it to be affixed, to all certificates for shares prior to
the issue thereof and to all documents the execution of which on behalf of the
corporation under its seal is duly authorized by the Board of Directors or
otherwise in accordance with the provisions of the Bylaws; (e) keep a register
of the post office address of each stockholder, director and committee member
which shall from time to time be furnished to the Secretary by such
stockholder, director or member; (f) sign with the President certificates of
shares of stock of the corporation, the issuance of which shall have been duly
authorized by resolution of the Board of Directors; (g) have general charge of
the stock transfer books of the corporation; and (h) in general, perform all
duties incident to the office of Secretary and such other duties as from time
to time may be assigned to him by the President or by the Board of Directors.
He may delegate such details of the performance of duties of his office as may
be appropriate in the exercise of reasonable care to one or more persons in
his stead, but shall thereby be relieved of responsibility for the performance
of such duties.
Section 5.9 Salaries.
The salaries of the officers shall be fixed from time to
time by the Board of Directors or by such officer as it shall designate for
such purpose or as it shall otherwise direct. No officer shall be prevented
from receiving a salary or other compensation by reason of the fact that he is
also a director of the corporation.
ARTICLE VI -- DIVISIONS
Section 6.1 Divisions of the Corporation.
The Board of Directors shall have the power to create and
establish such operating divisions of the corporation as they may from time to
time deem advisable.
Section 6.2 Official Positions Within a Division.
The President may appoint individuals, whether or not they
are officers of the corporation, to, and may, with or without cause, remove
them from, official positions established within a division.
ARTICLE VII -- CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 7.1 Contracts and Other Instruments.
The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name and on behalf of the
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corporation, and such authority may be general or confined to specific
instances.
Section 7.2 Checks, Drafts, Etc.
All checks, demands, drafts or other orders for the payment
of money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of
the corporation, and in such manner, as shall from time to time be authorized
by the Board of Directors.
Section 7.3 Deposits.
All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositories as the Board of Directors may select.
ARTICLE VIII -- CERTIFICATES OF STOCK AND THEIR TRANSFER
Section 8.1 Certificates of Stock.
The certificates of stock of the corporation shall be in
such form as may be determined by the Board of Directors, shall be numbered
and shall be entered in the books of the corporation as they are issued. They
shall exhibit the holder's name and number of shares and shall be signed by
the President and by the Secretary. If any stock certificate is signed (a) by
a transfer agent or an assistant transfer agent or (b) by a transfer clerk
acting on behalf of the corporation and a registrar, the signature of any
officer of the corporation may be facsimile. In case any such officer whose
facsimile signature has thus been used on any such certificate shall cease to
be such officer, whether because of death, resignation or otherwise before
such certificate has been delivered by the corporation, such certificate may
nevertheless be delivered by the corporation, as though the person whose
facsimile signature has been used thereon had not ceased to be such officer.
All certificates properly surrendered to the corporation for transfer shall be
cancelled and no new certificate shall be issued to evidence transferred
shares until the former certificate for at least a like number of shares shall
have been surrendered and cancelled and the corporation reimbursed for any
applicable taxes on the transfer, except that in the case of a lost, destroyed
or mutilated certificate a new one may be issued therefor upon such terms, and
with such indemnity (if any) to the corporation, as the Board of Directors may
prescribe specifically or in general terms or by delegation to a transfer
agent for the corporation.
13
<PAGE>
Section 8.2 Lost, Stolen or Destroyed Certificates.
The Board of Directors in individual cases, or by general
resolution or by delegation to the transfer agent, may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificates or
his legal representative, to advertise the same in such manner as it shall
require and/or to give the corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
Section 8.3 Transfers of Stock.
Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, and upon
payment of applicable taxes with respect to such transfer, and in compliance
with any restrictions on transfer applicable to the certificate or shares
represented thereby of which the corporation shall have notice and subject to
such rules and regulations as the Board of Directors may from time to time
deem advisable concerning the transfer and registration of certificates for
shares of capital stock of the corporation, the corporation shall issue a new
certificate to the person entitled thereto, cancel the old certificates and
record the transaction upon its books. Transfers of shares shall be made only
on the books of the corporation by the registered holders thereof or by his
attorney or successor duly authorized as evidenced by documents filed with the
Secretary or transfer agent of the corporation.
Section 8.4 Restrictions on Transfer.
Any stockholder may enter into an agreement with other
stockholders or with the corporation providing for reasonable limitation or
restriction on the right of such stockholder to transfer shares of capital
stock of the corporation held by him, including, without limiting the
generality of the foregoing, agreements granting to such other stockholders or
to the corporation the right to purchase for a given period of time any of
such shares on terms equal to terms offered such stockholders by any third
party. Any such limitation or restriction on the transfer of shares of this
corporation may be set forth on certificates representing shares of capital
stock or notice thereof may be otherwise given to the corporation or the
transfer agent, in which case the corporation of the transfer agent shall not
be required to transfer such shares upon the books of the
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corporation without receipt of satisfactory evidence of compliance with the
terms of such limitation or restriction.
Section 8.5 No Fractional Share Certificates.
Certificates shall not be issued representing fractional
shares of stock.
Section 8.6 Fixing Record Date.
The Board of Directors may fix in advance a date, not
exceeding sixty (60) days, nor less than ten (10) days, preceding the date of
any meeting of stockholders, or the date for the payment of any dividend, or
the date for the allotment of rights, or the date when any change or
conversion or exchange of capital stock shall go into effect, or a date in
connection with obtaining any consent, as a record date for the determination
of the stockholders entitled to notice of, and to vote at, any such meeting,
or adjournment thereof, or entitled to receive payment of any such dividend,
or to any such allotment of right, or to exercise the rights in respect of any
such change, conversion or exchange of capital stock, or to give such consent,
and in such case such stockholders and only such stockholders as shall be
stockholders of record on the date so fixed shall be entitled to notice of,
and to vote at, such meeting and any adjournment thereof, or to receive
payment of such dividend, or to receive such allotment of rights, or to
exercise such rights, or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the corporation
after any such record date fixed as aforesaid.
Section 8.7 Stockholders of Record.
The corporation shall be entitled to treat the holder of
record of any share or shares as the holder in fact thereof and accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
ARTICLE IX -- INDEMNIFICATION
Section 9.1 In General.
Each person who at any time is or shall have been a director
or officer of this corporation, or is or shall have been serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
and his heirs, executors and administrators, shall be indemnified by this
corporation in accordance with and to the full extent permitted by the
Delaware General Corporation Law as in effect at the time of adoption of
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this Bylaw or as amended from time to time. The foregoing right of
indemnification shall not be deemed exclusive of any other rights to which a
person seeking indemnification may be entitled under any Bylaw, agreement,
vote of stockholders or disinterested directors or otherwise. If authorized by
the Board of Directors the corporation may purchase and maintain insurance on
behalf of any person to the full extent permitted by the Delaware General
Corporation Law as in effect at the time of the adoption of this Bylaw or as
amended from time to time.
ARTICLE X -- GENERAL PROVISIONS
Section 10.1 Fiscal Year.
The fiscal year of the corporation shall begin on January
1st of each year and end on December 31st of each year.
ARTICLE XI -- AMENDMENTS
Section 11.1 In General.
Any provision of the Bylaws may be altered, amended or
repealed from time to time by the affirmative vote of a majority of the
stockholders having voting power present in person or by proxy at any annual
meeting of stockholders at which a quorum is present, or at any special
meeting of stockholders at which a quorum is present, if notice of the
proposed alteration, amendment or repeal be contained in the notice of such
special meeting, or by the affirmative vote of a majority of the directors
then qualified and acting at any regular or special meeting of the Board;
provided, however, that the stockholders may provide specifically for
limitations on the power of directors to amend particular Bylaws and, in such
event, the directors' power of amendment shall be so limited; and further
provided that no reduction in the number of directors shall have the effect of
removing any director prior to the expiration of his term of office.
[End of Bylaws]
EXHIBIT 3.15
ARTICLES OF INCORPORATION
OF
SAN FELIPE ENERGY COMPANY
I
The name of the corporation is San Felipe Energy Company.
II
The purpose of the corporation is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of
California other than a banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III
The name and address in the State of California of the corporation's initial
agent for service of process are:
Alan M. Fenning
18872 MacArthur Boulevard, Suite 400
Irvine, California 92715-1448
IV
This corporation is authorized to issue only class of shares, which shall be
designated "common" shares. The total authorized number of such shares
authorized to be issued is ten thousand (10,000) shares.
Dated: August 8, 1988.
/s/ Douglas B. Whiting
-------------------------------
Douglas B. Whiting
<PAGE>
EXHIBIT 3.16
BYLAWS
OF
SAN FELIPE ENERGY COMPANY
AS AMENDED THROUGH MAY 12,1994
<PAGE>
TABLE OF CONTENTS
ARTICLE I -- OFFICES..................................................1
Section 1.1 Principal Executive Office.............................1
Section 1.2 Other Offices..........................................1
ARTICLE II -- SHAREHOLDERS............................................1
Section 2.1 Meeting Locations......................................1
Section 2.2 Annual Meetings........................................1
Section 2.3 Special Meetings.......................................2
Section 2.4 Notice of Annual or Special Meeting....................2
Section 2.5 Quorum; Adjournment....................................3
Section 2.6 Adjourned Meeting and Notice Thereof...................3
Section 2.7 Voting.................................................3
Section 2.8 Record Date............................................4
Section 2.9 Consent of Absentees; Waiver of Notice.................5
Section 2.10 Action Without Meeting................................5
Section 2.11 Proxies...............................................5
ARTICLE III -- DIRECTORS..............................................6
Section 3.1 Powers.................................................6
Section 3.2 Number of Directors....................................6
Section 3.3 Election and Term of Office............................7
Section 3.4 Vacancies..............................................7
Section 3.5 Place of Meeting.......................................8
Section 3.6 Organization Meeting...................................8
Section 3.7 Special Meetings.......................................8
Section 3.8 Quorum.................................................8
Section 3.9 Participation in Meetings by Conference
Telephone............................................9
Section 3.10 Waiver of Notice......................................9
Section 3.11 Adjournment...........................................9
Section 3.12 Fees and Compensation.................................9
Section 3.13 Action Without Meeting................................9
ARTICLE IV -- OFFICERS...............................................10
Section 4.1 Officers..............................................10
Section 4.2 Election..............................................10
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Section 4.3 Eligibility of Chairman of the Board or
President...........................................10
Section 4.4 Removal and Resignation...............................10
Section 4.5 Appointment of Other Officers.........................11
Section 4.6 Vacancies.............................................11
Section 4.7 Salaries..............................................11
Section 4.8 Chairman of the Board.................................11
Section 4.9 President.............................................11
Section 4.10 Vice President.......................................12
Section 4.11 Chief Operating Officer..............................12
Section 4.12 General Manager......................................12
Section 4.13 General Counsel......................................12
Section 4.14 Assistant General Counsel............................12
Section 4.15 Controller...........................................12
Section 4.16 Secretary............................................13
Section 4.17 Assistant Secretary..................................13
Section 4.18 Secretary Pro Tempore................................13
Section 4.19 Treasurer............................................13
Section 4.20 Assistant Treasurer..................................14
Section 4.21 Performance of Duties................................14
ARTICLE V -- OTHER PROVISIONS........................................14
Section 5.1 Inspection of Bylaws..................................14
Section 5.2 Contracts and Other Instruments, Loans, Notes and
Deposit of Funds....................................14
Section 5.3 Representation of Shares of Other Corporations........15
Section 5.4 Annual Report to Shareholders.........................15
Section 5.5 Fiscal Year and Subdivisions..........................15
Section 5.6 Construction and Definitions..........................15
ARTICLE VI -- INDEMNIFICATION........................................16
Section 6.1 Indemnification of Directors and Officers.............16
Section 6.2 Indemnification of Employees and Agents...............17
Section 6.3 Right of Directors and Officers to Bring Suit.........18
Section 6.4 Successful Defense....................................18
Section 6.5 Nonexclusivity of Rights..............................18
Section 6.6 Insurance.............................................18
Section 6.7 Expenses as a Witness.................................18
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Section 6.8 Indemnity Agreements..................................19
Section 6.9 Severability..........................................19
Section 6.10 Effect of Repeal or Modification.....................19
ARTICLE VII -- AMENDMENTS............................................19
Section 7.1 Amendments............................................19
iii
<PAGE>
EXHIBIT 3.16
BYLAWS
Bylaws for the regulation, except
as otherwise provided by statute
or its Articles of Incorporation
of
SAN FELIPE ENERGY COMPANY
AS AMENDED THROUGH MAY 12, 1994
ARTICLE I -- OFFICES
Section 1.1 Principal Executive Office.
--------------------------
The principal executive office of the corporation is hereby
fixed and located at 18101 Von Karman Avenue, Suite 1700, in the City of
Irvine, County of Orange, State of California. The Board of Directors (the
"Board") is hereby granted full power and authority to change the principal
executive office from one location to another.
Section 1.2 Other Offices.
-------------
Branches or subordinate offices may be established at any
time by the Board of Directors or the President at any place within or without
the State of California.
ARTICLE II -- SHAREHOLDERS
Section 2.1 Meeting Locations.
-----------------
All meetings of shareholders shall be held at the principal
executive office, or at such other office or places within or without the
State of California as may be designated by either the Board or by the person
or persons giving notice of the meeting pursuant to Section 2.4.
Section 2.2 Annual Meetings.
---------------
The annual meeting of shareholders shall be held on the 2nd
Thursday in the month of May of each year, at the hour of 10:30 a.m. on said
day, or at such other time on such other day as shall be fixed by the Board,
to elect directors to hold office for the year next ensuing and until their
successors shall be elected, and to consider and act upon such other matters
as may lawfully be presented to such meeting; provided, however, that should
said day fall upon a legal holiday observed by this corporation, then any such
annual meeting of shareholders shall be held at the same time and place on the
next day thereafter ensuing which is a full business day.
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Section 2.3 Special Meetings.
----------------
Special meetings of the shareholders may be called at any
time by the Board, the Chairman of the Board, if any, the President, the
Executive Vice President, if any, the Senior Vice President, if any, or the
holders of shares entitled to cast not less than ten percent of the votes at
such meeting. Upon request to the Chairman of the Board, if any, the
President, the Executive Vice President, the Senior Vice President, the
Secretary or Assistant Secretary by any person entitled to call a special
meeting of shareholders, the officer forthwith shall cause notice to be given
to the shareholders entitled to vote that a meeting will be held at a time
requested by the person or persons calling the meeting, not less than
thirty-five nor more than sixty days after the receipt of the request. If the
notice is not given within twenty days after receipt of the request, the
persons entitled to call the meeting may give the notice.
Section 2.4 Notice of Annual or Special Meeting.
-----------------------------------
Written notice of each annual or special meeting of
shareholders shall be given not less than ten nor more than sixty days before
the date of the meeting to each shareholder entitled to vote thereat. Such
notice shall state the place, date and hour of the meeting and (i) in the case
of a special meeting, the general nature of the business to be transacted, and
no other business may be transacted, or (ii) in the case of the annual
meeting, those matters which the Board, at the time of the mailing of the
notice, intends to present for action by the shareholders, but subject to the
provisions of applicable law, any proper matter may be presented at the
meeting for such action. The notice of any meeting at which directors are to
be elected shall include the name of nominees intended at the time of the
notice to be presented by the Board for election.
Notice of a shareholders' meeting or any report to the
shareholders shall be given either personally to the recipient or to a person
in the office of the recipient or by first-class United States mail, by
private mail or messenger service, by telephone facsimile transmission, or by
any other means of written communication, addressed to the shareholder at the
address of such shareholder appearing on the books of the corporation or given
by the shareholder to the corporation for the purpose of notice; or if no such
address appears or is given, at the place where the principal executive office
of the corporation is located or by publication at least once in a newspaper
of general circulation in the county in which the principal executive office
is located. Such notice or report shall be deemed to have been given at the
time when delivered personally, deposited in the United States mail or sent by
private mail or messenger service, by telephone facsimile transmission or sent
by any other means of written or electronic communication.
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Section 2.5 Quorum; Adjournment.
-------------------
(a) A majority of the shares entitled to vote, represented
in person or by proxy, shall constitute a quorum at any meeting of the
shareholders.
(b) Except as provided in subsection (c) below, the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act
of the shareholders, unless the vote of a greater number or voting by classes
is required by the Articles.
(c) The shareholders present at a duly called or held
meeting at which a quorum is present may continue to transact business until
adjournment notwithstanding the withdrawal of enough shareholders to leave
less than a quorum, if any action taken (other than adjournment) is approved
by at least a majority of the shares required to constitute a quorum.
(d) In the absence of a quorum, any meeting of shareholders
may be adjourned from time to time by the vote of a majority of the shares
represented either in person or by proxy, but no other business may be
transacted, except as provided in subsection (c) above.
Section 2.6 Adjourned Meeting and Notice Thereof.
------------------------------------
Any shareholders' meeting, whether or not a quorum is
present, may be adjourned from time to time by the vote of a majority of the
shares, the holders of which are either present in person or represented by
proxy thereat, but in the absence of a quorum (except as permitted by
applicable law in the case of withdrawals by shareholders to reduce the number
remaining to less than a quorum) no other business may be transacted at such
meeting.
With exceptions under Section 601(d) of the California
Corporations Code and any other applicable law, it shall not be necessary to
give any notice of the time and place of the adjourned meeting or of the
business to be transacted thereat, other than by announcement at the meeting
at which such adjournment is taken. At the adjourned meeting, the corporation
may transact any business which might have been transacted at the original
meeting.
Section 2.7 Voting.
------
The shareholders entitled to notice of any meeting or to
vote at any such meeting shall be only persons in whose name shares stand on
the stock records of the corporation on the record date determined in
accordance with Section 2.8.
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Voting shall in all cases be subject to the provisions of
Chapter 7 of the California General Corporation Law, including the following
provisions:
(a) Shares standing in the name of another corporation,
domestic or foreign, may be voted by an officer,
agent, or proxyholder as the bylaws of the other
corporation may prescribe or, in the absence of such
provision, as the Board of the other corporation may
determine or, in the absence of that determination,
by the chairman of the board, president or any vice
president of the other corporation, or by any other
person authorized to do so by the chairman of the
board, president, or any vice president of the
other corporation. Shares which are purported to be
voted or any proxy purported to be executed in the
name of a corporation (whether or not any title of
the person signing is indicated) shall be presumed
to be voted or the proxy executed in accordance
with the provisions of the California General
Corporation Law, unless the contrary is shown.
(b) Shares of this corporation owned by its subsidiary
shall not be entitled to vote on any matter.
(c) Shares of this corporation held by this corporation
in a fiduciary capacity, and shares of this
corporation held in a fiduciary capacity by its
subsidiary, shall not be entitled to vote on any
matter, except as follows: (i) to the extent that
the settlor or beneficial owner possesses and
exercises a right to vote or to give this
corporation binding instructions as to how to vote
such shares; or (ii) where there are one or more
cotrustees who are not affected by the prohibition
of this subsection, in which case the shares may be
voted by the cotrustees as if it or they are the
sole trustees.
Section 2.8. Record Date.
-----------
The Board may fix, in advance, a record date for the
determination of the shareholders entitled to notice of any meeting or to vote
or entitled to receive payment of any dividend or other distribution, or any
allotment of any rights or entitled to exercise any rights, in respect of any
other lawful action. The record date so fixed shall be not more than sixty
days nor less than ten days prior to the date of the meeting nor more than
sixty days prior to any other action. When a record date is so fixed, only
shareholders of record at the close of business on that date are entitled to
notice of and to vote at the meeting or to receive the dividend, distribution,
or allotment of rights, or to exercise the rights, as the case may be,
notwithstanding any
4
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transfer of shares on the books of the corporation after the record date, except
as otherwise provided by law or these Bylaws.
Section 2.9 Consent of Absentees; Waiver of Notice.
--------------------------------------
The transactions of any meeting of shareholders, however
called and noticed, and wherever held, are as valid as though had at a meeting
duly held after regular call and notice, if a quorum is present either in
person or by proxy, and if, either before or after the meeting, each of the
persons entitled to vote, not present in person or by proxy, signs a written
waiver of notice or a consent to the holding of the meeting or an approval of
the minutes thereof. All such waivers, consents and approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of notice of and
presence at such meeting, except when the person objects, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by this
division to be included in the notice but not so included, if such objection
is expressly made at the meeting. Neither the business to be transacted at nor
the purpose of any regular or special meeting of shareholders need be
specified in any written waiver of notice, consent to the holding of the
meeting or approval of the minutes thereof, unless otherwise provided in the
Articles or Bylaws, except as provided in the California General Corporation
Law.
Section 2.10 Action Without Meeting.
----------------------
Subject to Section 603 of the California General Corporation
Law, any action which, under any provision of the California General
Corporation Law, may be taken at any annual or special meeting of shareholders
may be taken without a meeting and without prior notice, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
Section 2.11 Proxies.
-------
Every person entitled to vote shares has the right to do so
either in person or by one or more persons authorized by a written proxy
executed by such shareholder and filed with the Secretary. No proxy shall be
valid after the expiration of eleven (11) months from the date thereof, unless
otherwise provided in the proxy.
5
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ARTICLE III -- DIRECTORS
Section 3.1 Powers.
------
Subject to any limitations of the Articles, of these Bylaws
and of the California General Corporation Law relating to action required to
be approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the Board. The Board may delegate the
management of the day-to-day operation of the business of the corporation
provided that the business and affairs of the corporation shall be managed and
all corporate powers shall be exercised under the ultimate direction of the
Board. Without prejudice to such general powers, but subject to the same
limitations, it is hereby expressly declared that the Board shall have the
following powers in addition to the other powers enumerated in these Bylaws:
(a) To select and remove all the other officers, agents
and employees of the corporation, prescribe the
powers and duties for them as may not be
inconsistent with law, with the Articles or these
Bylaws, fix their compensation and require from
them security for faithful service.
(b) To conduct, manage and control the affairs and
business of the corporation and to make such rules
and regulations therefor not inconsistent with law,
or with the Articles or these Bylaws, as they may
deem best.
(c) To adopt, make and use a corporate seal, and to
prescribe the forms of certificates of stock, and
to alter the form of such seal and of such
certificates from time to time as in their judgment
they deem best.
(d) To authorize the issuance of shares of stock of the
corporation from time to time, upon such terms and
for such consideration as may be lawful.
(e) To borrow money and incur indebtedness for the
purposes of the corporation, and to cause to be
executed and delivered therefor, in the corporate
name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations or other
evidences of debt and securities therefor.
Section 3.2 Number of Directors.
-------------------
The authorized number of directors shall not be less than
three (3) nor more than six (6) until changed by amendment of the Articles or
by a Bylaw duly adopted by the shareholders.
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The exact number of directors shall be fixed, within the limits specified, by
the Board or the shareholders in the same manner provided in these Bylaws for
the amendment thereof. The exact number of authorized directors shall be six
(6) until changed as provided in these Bylaws.
Section 3.3 Election and Term of Office.
---------------------------
The directors shall be elected at each annual meeting of the
shareholders, but if any such annual meeting is not held or the directors are
not elected thereat, the directors may be elected at any special meeting of
shareholders held for that purpose. Each director shall hold office until the
next annual meeting and until a successor has been elected and qualified.
Section 3.4 Vacancies.
---------
Any director may resign effective upon giving written notice
to the Chairman of the Board, if any, the President, the Secretary, or the
Board, unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to take office when the resignation becomes effective.
Vacancies in the Board, except those existing as a result of
a removal of a director, may be filled by a majority of the remaining
directors, whether or not less than a quorum, or by a sole remaining director,
and each director so elected shall hold office until the next annual meeting
and until such director's successor has been elected and qualified. Vacancies
existing as a result of a removal of a director may be filled by the
shareholders as provided by law.
A vacancy or vacancies in the Board shall be deemed to exist
in case of the death, resignation or removal of any director, or if the
authorized number of directors be increased, or if the shareholders fail, at
any annual or special meeting of shareholders at which any director or
directors are elected, to elect the full authorized number of directors to be
voted for at that meeting.
The shareholders may elect a director or directors at any
time to fill any vacancy not filled by the directors. Any such election by
written consent other than to fill a vacancy created by removal requires the
consent of a majority of the outstanding shares entitled to vote. If the Board
accepts the resignation of a director tendered to take effect at a future
time, the Board or the shareholders shall have power to elect a successor to
take office when the resignation is to become effective.
No reduction of the authorized number of directors shall
have the effect of removing any director prior to the expiration of the
director's term of office.
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Section 3.5 Place of Meeting.
----------------
Regular or special meetings of the Board shall be held at
any place within or without the State of California which has been designated
from time to time by the Board or as provided in these Bylaws. In the absence
of such designation, regular meetings shall be held at the principal executive
office.
Section 3.6 Organization Meeting.
--------------------
Promptly following each annual meeting of shareholders the
Board shall hold a regular meeting for the purpose of organization, election
of officers and the transaction of other business.
Section 3.7 Special Meetings.
----------------
Special meetings other than organization meetings of the
Board for any purpose or purposes may be called at any time by the Chairman of
the Board, if any, the President, any Executive Vice President, Senior Vice
President, the Secretary, an Assistant Secretary or by any two directors.
Such meetings of the Board shall be held upon four days'
written notice by mail or forty-eight hours' notice given personally or by
telephone, telephone facsimile transmission, telegraph, telex or other similar
means of communication. Any such notice shall be addressed or delivered to
each director at such director's address as it is shown upon the records of
the corporation or as may have been given to the corporation by the director
for purposes of notice or, if such address is not shown on such records or is
not readily ascertainable, at the place in which the meetings of the directors
are regularly held. The notice need not specify the purpose of such meeting.
Notice by first-class mail shall be deemed to have been
given at the time a written notice is deposited in the United States mail,
postage prepaid or sent by private mail or messenger service. Any other
written notice shall be deemed to have been given at the time it is personally
delivered to the recipient, to a person in the office of the recipient who the
person giving the notice has reason to believe will promptly communicate it to
the recipient, delivered to a common carrier for transmission, or actually
transmitted by the person giving the notice by electronic means to the
recipient. Oral notice shall be deemed to have been given at the time it is
communicated, in person, by telephone to the recipient or to a person at the
office of the recipient who the person giving the notice has reason to believe
will promptly communicate it to the recipient.
Section 3.8 Quorum.
------
One-third of the maximum number of authorized directors
constitutes a quorum of the Board for the transaction of
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business, except to adjourn as provided in Section 3.11 of this Article. As
defined in Article III, Section 3.2, the maximum number of authorized
directors is six. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the Board, unless a greater number is required by law
or by the Articles; provided, however, that a meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a
majority of the required quorum for such meeting.
Section 3.9 Participation in Meetings by Conference Telephone.
-------------------------------------------------
Members of the Board may participate in a meeting through
use of conference telephone or similar communications equipment, so long as
all members participating in such meeting can hear one another.
Such participation constitutes presence in person at such meeting.
Section 3.10 Waiver of Notice.
----------------
The transactions of any meeting of the Board, however called
and noticed or wherever held, are as valid as though had at a meeting duly
held after regular call and notice if a quorum is present and if, either
before or after the meeting, each of the directors not present signs a written
waiver of notice, a consent to holding such meeting or an approval of the
minutes thereof. All such waivers, consents or approvals shall be filed with
the corporate records or made a part of the minutes of the meeting.
Section 3.11 Adjournment.
-----------
A majority of the directors present, whether or not a quorum
is present, may adjourn any directors' meeting to another time and place.
Notice of the time and place of holding an adjourned meeting need not be given
to absent directors if the time and place is fixed at the meeting adjourned.
If the meeting is adjourned for more than twenty-four hours, notice of any
adjournment to another time or place shall be given prior to the time of the
adjourned meeting to the directors who were not present at the time of the
adjournment.
Section 3.12 Fees and Compensation.
---------------------
Directors and members of committees may receive such
compensation, if any, for their services, and such reimbursement for expenses,
as may be fixed or determined by the Board.
Section 3.13 Action Without Meeting.
----------------------
In accordance with the provisions of Section 307(8)(b) of
the California General Corporation Law, any action required or
9
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permitted to be taken by the Board may be taken without a meeting if all
members of the Board shall individually or collectively consent in writing to
such action. Such written consent or consents shall have the same force and
effect as a unanimous vote of the Board and shall be filed with the minutes of
the proceedings of the Board.
ARTICLE IV -- OFFICERS
Section 4.1 Officers.
--------
The officers of the corporation shall be a President, Vice
President, a Controller, a Secretary and a Treasurer. The corporation may also
have, at the discretion of the Board, a Chairman of the Board, one or more
additional Vice Presidents, a Chief Operating Officer, a General Manager,
General Counsel, one or more Assistant General Counsels, one or more Assistant
Controllers, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 4.5 of this Article.
Section 4.2 Election.
--------
The officers of the corporation, except such officers as may
be elected or appointed in accordance with the provisions of Section 4.5 or
Section 4.6 of this Article, shall be chosen annually by, and shall serve at
the pleasure of the Board, and shall hold their respective offices until their
resignation, removal, or other disqualification from service, or until their
respective successors shall be elected.
Section 4.3 Eligibility of Chairman of the Board or President.
-------------------------------------------------
No person shall be eligible for the office of Chairman of
the Board, if there shall be such an officer, or President unless such person
is a member of the Board of the corporation; any other officer may or may not
be a director.
Section 4.4 Removal and Resignation.
-----------------------
Any officer may be removed, either with or without cause, by
the Board at any time or by any officer upon whom such power of removal may be
conferred by the Board. Any such removal shall be without prejudice to the
rights, if any, of the officer under any contract of employment of the
officer.
Any officer may resign at any time by giving written notice
to the corporation, but without prejudice to the rights, if any, of the
corporation under any contract of employment to which the officer is a party.
Any such resignation shall take effect at the date of the receipt of such
notice or at any later time specified therein and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
10
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Section 4.5 Appointment of Other Officers.
-----------------------------
The Board may appoint such other officers as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority, and perform such duties as are provided in the Bylaws or
as the Board may from time to time determine. Notwithstanding the job title
for such person, no employee or other representative of this corporation shall
be an officer of this corporation unless elected by the Board.
Section 4.6 Vacancies.
---------
A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in these Bylaws for regular election or appointment to such office.
Section 4.7 Salaries.
--------
The salaries of the Chairman of the Board, if any,
President, General Manager, if any, Vice Presidents, Controller, Treasurer and
Secretary of the corporation shall be fixed by the Board. Salaries of all
other officers shall be approved from time to time by the chief executive
officer.
Section 4.8 Chairman of the Board.
---------------------
The Chairman of the Board, if there shall be such an
officer, shall preside at all meetings of the Board, and shall exercise such
powers and perform such duties as from time to time may be conferred upon or
assigned to him by the Board or the Bylaws.
Section 4.9 President.
---------
Subject to such supervisory powers, if any, as may be given
by the Board to the Chairman of the Board, if there be such an officer, the
President shall be the chief executive officer of the corporation and has,
subject to the control of the Board, general supervision, direction, and
control of the business and affairs of the corporation. The President shall
preside at all meetings of the shareholders and, in the absence of the
Chairman of the Board or if there be none, at all meetings of the Board. The
President has the general powers and duties of management usually vested in
the office of president of a corporation and has such other powers and duties
as may be prescribed by the Board or the Bylaws. The President may designate
from time to time the titles which the employees or other representatives of
this corporation shall use, including the appointment of agent for service of
process. Without limiting the foregoing, the President may designate one or
more employees as regional vice-presidents.
11
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Section 4.10 Vice President.
--------------
In the absence or disability of the President, the Vice
Presidents in order of their rank shall perform all 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. The Board of Directors may establish
the order of rank of the Vice Presidents. In the absence of such ranking, the
Vice Presidents shall be ranked as follows: Executive Vice President (if any),
Senior Vice President (if any). Vice Presidents holding identical titles shall
be ranked in order of election to that office by the Board.
Section 4.11 Chief Operating Officer.
-----------------------
The Chief Operating Officer, if there shall be such an
officer, must be a vice president of the corporation and shall be subject to
the exercise of the general powers of supervision, direction and control of
the business and officers of the corporation by the President, and supervise
the operations of the corporation.
Section 4.12 General Manager.
---------------
The General Manager, if there shall be such an officer, must
be a vice president of the corporation and shall, subject to the exercise of
the general powers of supervision, direction and control by the President, or
the Chief Operating Officer, if any, shall manage the operations of the
corporation. In the absence of the Chief Operating Officer, the General
Manager shall perform all the duties of the Chief Operating Officer and when
so acting shall have all the powers of, and be subject to, all the
restrictions upon the Chief Operating Officer.
Section 4.13 General Counsel.
---------------
The General Counsel shall be the chief consulting officer of
the corporation in all legal matters and, subject to the President, shall have
control over all matters of legal import concerning the corporation.
Section 4.14 Assistant General Counsel.
-------------------------
One or more Assistant General Counsels, if any, shall
perform such of the duties of the General Counsel as the General Counsel may
designate, and in the absence or disability of the General Counsel, any
Assistant General Counsel, in order of election to that office by the Board,
shall perform the duties of the General Counsel.
Section 4.15 Controller.
----------
The Controller shall be the chief accounting officer of the
corporation and shall have control over all accounting
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<PAGE>
matters concerning the corporation and shall perform such other duties as the
President or General Manager shall designate.
Section 4.16 Secretary.
---------
The Secretary shall keep or cause to be kept, at the
principal executive office and such other place as the Board may order, a book
of minutes of all meetings of the shareholders, the Board, and its committees,
and a share register or a duplicate share register.
The Secretary shall give, or cause to be given, notice of
all the meetings of the shareholders and of the Board and any committees
thereof required by the Bylaws or by law to be given, shall keep the seal of
the corporation in safe custody, shall from time to time issue such corporate
secretarial certificates as may be required for the business and affairs of
the corporation, and shall have such other general powers and duties of
management usually vested in the office of secretary of a corporation and as
may be prescribed by the Board, the President or the Bylaws.
Section 4.17 Assistant Secretary.
-------------------
One or more Assistant Secretaries, if any, shall perform
such of the duties of the Secretary as the Secretary shall designate, and in
the absence or disability of the Secretary, any Assistant Secretary, in order
of election to that office by the Board shall perform the duties of the
Secretary.
Section 4.18 Secretary Pro Tempore.
---------------------
At any meeting of the Board or of the shareholders from
which the Secretary and Assistant Secretary are absent, a Secretary pro
tempore may be appointed by the Board of Directors or shareholders as
appropriate and act.
Section 4.19 Treasurer.
---------
The Treasurer is the chief financial officer of the
corporation and shall keep and maintain, or cause to be kept and maintained,
adequate and correct accounts of the properties and business transactions of
the corporation. The books of account shall at all times be open to inspection
by any director.
The Treasurer shall deposit, or cause to be deposited, all
moneys and other valuables in the name and to the credit of the corporation
with such depositories as may be designated by the Board of Directors pursuant
to Section 5.2. The Treasurer shall disburse or cause to be disbursed, the
funds of the corporation as may be ordered by the President or the General
Manager, shall render to the President, the General Manager or the directors,
whenever they request it, an account of all transactions as Treasurer and of
the financial condition of the
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corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board, or the Bylaws.
Section 4.20 Assistant Treasurer.
-------------------
One or more Assistant Treasurers, if any, shall perform such
of the duties of the Treasurer as the Treasurer shall designate, and in the
absence or disability of the Treasurer, any Assistant Treasurer, in order of
election to that office by the Board, shall perform the duties of the
Treasurer.
Section 4.21 Performance of Duties.
---------------------
Officers shall perform the duties of their respective
offices as stated in these Bylaws, and such additional duties as the Board
shall designate.
ARTICLE V -- OTHER PROVISIONS
Section 5.1 Inspection of Bylaws.
--------------------
The corporation shall keep in its principal executive office
the original or a copy of these Bylaws, as amended to date, which shall be
open to inspection by shareholders at all reasonable times during office
hours.
Section 5.2 Contracts and Other Instruments, Loans, Notes and
Deposit of Funds.
-------------------------------------------------
The Chairman of the Board, if any, the President and any
Vice President of this corporation, either alone or with the Secretary or an
Assistant Secretary, shall execute in the name of the corporation such written
instruments as may be authorized by the Board and, without special direction
of the Board, such instruments as transactions of the ordinary business of the
corporation may require and, such officers without the special direction of
the Board may authenticate, attest or countersign any such instruments when
deemed appropriate. The Board may authorize any person, persons, entity,
entities, attorney, attorneys, attorney-in-fact, attorneys-in-fact, agent or
agents, to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the corporation, and such authority may be
general or confined to specific instances.
No loans shall be contracted on behalf of the corporation
and no evidences of indebtedness shall be issued in its name unless authorized
by resolution of the Board as it may direct. Such authority may be general or
confined to specific instances.
All checks, drafts, or other similar orders for the payment
of money, notes, or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of
the corporation and in
14
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such manner as the Board, Chief Executive Officer or Treasurer may direct.
Unless authorized by the Board or these Bylaws, no officer,
agent, employee or any other person or persons shall have any power or
authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or amount.
All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies, or other depositories as the Board may direct.
Section 5.3 Representation of Shares of Other Corporations.
---------------------------------------------
The President or any other officer or officers authorized by
the Board or the President are each authorized to vote, represent and exercise
on behalf of the corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of the corporation. The
authority herein granted may be exercised either by any such officer in person
or by any other person authorized so to do by proxy or power of attorney duly
executed by said officer.
Section 5.4 Annual Report to Shareholders.
-----------------------------
The annual report to shareholders referred to in Section
1501 of the California General Corporation Law is expressly waived, but
nothing herein shall be interpreted as prohibiting the Board from issuing
annual or other periodic reports to shareholders.
Section 5.5 Fiscal Year and Subdivisions.
----------------------------
The calendar year shall be the corporate fiscal year of the
corporation. For the purpose of paying dividends, for making reports and for
the convenient transaction of the business of the corporation, the Board may
divide the fiscal year into appropriate subdivisions.
Section 5.6 Construction and Definitions.
----------------------------
Unless the context otherwise requires, the general
provisions, rules of construction and definitions contained in the General
Provisions of the California Corporations Code and in the California General
Corporation Law shall govern the construction of these Bylaws.
15
<PAGE>
ARTICLE VI -- INDEMNIFICATION
Section 6.1 Indemnification of Directors and Officers.
-----------------------------------------
Each person who was or is a party or is threatened to be
made a party to or is involved in any threatened, pending or completed action,
suit or proceeding, formal or informal, whether brought in the name of the
corporation or otherwise and whether of a civil, criminal, administrative or
investigative nature (hereinafter a "proceeding"), by reason of the fact that
he or she, or a person of whom he or she is the legal representative, is or
was a director or officer of this corporation or is or was serving at the
request of this corporation 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 employee benefit plans, whether
the basis of such proceeding is an alleged action or inaction in an official
capacity or in any other capacity while serving as a director or officer
shall, subject to the terms of any agreement between this corporation and such
person, be indemnified and held harmless by this corporation to the fullest
extent permissible under California law and this corporation's Articles of
Incorporation, against all costs, charges, expenses, liabilities, and losses
(including attorneys' fees, judgments, fines, Employee Retirement Income
Security Act excise taxes or penalties, and amounts paid or to be paid in
settlement) actually and reasonably incurred or suffered by such person in
connection therewith, and such indemnification shall continue as to a person
who has ceased to be a director or officer and shall inure to the benefit of
his or her heirs, executors, and administrators; provided, however, that (A)
this corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of this
corporation other than a suit permitted by Section 6.3; (B) this corporation
shall indemnify any such person seeking indemnification in connection with
settlement of a proceeding (or part thereof) other than a proceeding by or in
the name of this corporation to procure a judgment in its favor only if any
settlement of such a proceeding is approved in writing by this corporation;
(C) that no such person shall be indemnified (i) except to the extent that the
aggregate of losses to be indemnified exceeds the amount of such losses for
which the director or officer is paid pursuant to any directors' and officers'
liability insurance policy maintained by the corporation; (ii) on account of
any suit in which judgment is rendered against such person for an accounting
of profits made from the purchase or sale by such person of securities of this
corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state, or local statutory law; (iii) if a court of competent
jurisdiction finally determines that any indemnification hereunder is
unlawful; and (iv) as to circumstances in which indemnity is expressly
prohibited by Section 317 of the General Corporation Law of California (the
16
<PAGE>
"Law"); and (D) that no such person shall be indemnified with regard to any
action brought by or in the right of this corporation for breach of duty to
this corporation and its shareholders (a) for acts or omissions involving
intentional misconduct or knowing and culpable violation of law; (b) for acts
or omissions that the director or officer believes to be contrary to the best
interests of this corporation or its shareholders or that involve the absence
of good faith on the part of the director or officer; (c) for any transaction
from which the director or officer derived an improper personal benefit; (d)
for acts or omissions that show a reckless disregard for the director's or
officer's duty to this corporation or its shareholders in circumstances in
which the director or officer was aware, or should have been aware, in the
ordinary course of performing his or her duties, of a risk of serious injury
to this corporation or its shareholders; (e) for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication
of the director's or officer's duties to this corporation or its shareholders;
and (f) for costs, charges, expenses, liabilities, and losses arising under
Section 310 or 316 of the Law. The right to indemnification conferred in this
Article shall include the right to be paid by this corporation expenses
incurred in defending any proceeding in advance of its final disposition;
provided, however, that if the Law permits the payment of such expenses
incurred by a director or officer 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 person while a director or officer, including, without limitation,
service to an employee benefit plan) in advance of the final disposition of a
proceeding, such advances shall be made only upon delivery to this corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts to this corporation if it shall be ultimately determined that such
person is not entitled to be indemnified."
Section 6.2 Indemnification of Employees and Agents.
---------------------------------------
A person who was or is a party or is threatened to be made a
party to or is involved in any proceeding by reason of the fact that he or she
is or was an employee or agent of this corporation or is or was serving at the
request of this corporation as an employee or agent of another enterprise,
including service with respect to employee benefit plans, whether the basis of
such action is an alleged action or inaction in an official capacity or in any
other capacity while serving as an employee or agent, may, subject to the
terms of any agreement between this corporation and such person, be
indemnified and held harmless by this corporation to the fullest extent
permitted by California law and this corporation's Articles of Incorporation,
against all costs, charges, expenses, liabilities, and losses, (including
attorneys' fees, judgments, fines, Employee Retirement Income Security Act
excise taxes or penalties, and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith.
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Section 6.3 Right of Directors and Officers to Bring Suit.
---------------------------------------------
If a claim under Section 6.1 of this Article is not paid in
full by this corporation within 30 days after a written claim has been
received by this corporation, the claimant may at any time thereafter bring
suit against this corporation to recover the unpaid amount of the claim and,
if successful in whole or in part, the claimant shall also be entitled to be
paid the expense of prosecuting such claim. Neither the failure of this
corporation (including its Board, independent legal counsel, or its
shareholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the
circumstances because he or she has met the applicable standard of conduct, if
any, nor an actual determination by this corporation (including its Board,
independent legal counsel, or its shareholders) that the claimant has not met
the applicable standard of conduct, shall be a defense to the action or create
a presumption for the purpose of an action that the claimant has not met the
applicable standard of conduct.
Section 6.4 Successful Defense.
------------------
Notwithstanding any other provisions of this Article, to the
extent that a director or officer has been successful on the merits in defense
of any proceeding referred to in Section 6.1 or in defense of any claim, issue
or matter therein, he or she shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred in connection therewith.
Section 6.5 Nonexclusivity of Rights.
------------------------
The right to indemnification provided by this Article shall
not be exclusive of any other right which any person may have or hereafter
acquire under any statute, bylaw, agreement, vote of shareholders, or
disinterested directors, or otherwise.
Section 6.6 Insurance.
---------
This corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee, or agent of this
corporation or another corporation, partnership, joint venture, trust, or
other enterprise against any expense, liability, or loss, whether or not this
corporation would have the power to indemnify such person against such
expense, liability, or loss under the Law.
Section 6.7 Expenses as a Witness.
---------------------
To the extent that any director, officer, employee, or agent
of this corporation is, by reason of such position or a position with another
entity at the request of this corporation, a witness in any action, suit, or
proceeding, he or she shall be indemnified against all costs and expenses
actually and
18
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reasonably incurred by him or her on his or her behalf in connection therewith.
Section 6.8 Indemnity Agreements.
--------------------
This corporation may enter into agreements with any
director, officer, employee, or agent of this corporation providing for
indemnification to the fullest extent permissible under the Law and this
corporation's Articles of Incorporation.
Section 6.9 Severability.
------------
Each and every paragraph, sentence, term, and provision of
this Article is separate and distinct so that if any paragraph, sentence,
term, or provision hereof shall be held to be invalid or unenforceable for any
reason, such invalidity or unenforceability shall not affect the validity or
enforceability of any other paragraph, sentence, term, or provision hereof. To
the extent required, any paragraph, sentence, term, or provision of this
Article may be modified by a court of competent jurisdiction to preserve its
validity and to provide the claimant with, subject to the limitations set
forth in this Article and any agreement between this corporation and claimant,
the broadest possible indemnification permitted under applicable law.
Section 6.10 Effect of Repeal or Modification.
--------------------------------
Any repeal or modification of this Article shall not
adversely affect any right of indemnification of a director or officer
existing at the time of such repeal or modification with respect to any action
or omission occurring prior to such repeal or modification.
ARTICLE VII -- AMENDMENTS
Section 7.1 Amendments.
----------
In accordance with Section 211 and subject to the provisions
contained in Section 212 of the California Corporation Law, these Bylaws may
be amended or repealed either by approval of the outstanding shares or by the
approval of the Board; provided, however, that a Bylaw specifying or changing
a fixed number of directors or the maximum or minimum number or changing from
a fixed to a variable Board or vice versa may only be adopted by approval of
the outstanding shares. The exact number of directors within the maximum and
minimum number specified in these Bylaws may be amended by the Board alone.
[End of Bylaws]
19
EXHIBIT 3.17
ARTICLES OF INCORPORATION
OF
CONEJO ENERGY COMPANY
I
The name of the corporation is Conejo Energy Company.
II
The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than a banking business, the trust company
business or the practice of a profession permitted to be incorporated by the
California Corporations Code.
III
The name and address in the State of California of the corporation's
initial agent for service of process are:
Douglas B. Whiting
18872 MacArthur Boulevard, Suite 400
Irvine, California 92715
IV
This corporation is authorized to issue only one class of shares,
which shall be designated "common" shares. The total authorized number of such
shares authorized to be issued is ten thousand (10,000) shares.
Dated: July 31, 1987
----------------
/s/ Douglas B. Whiting
------------------------------
Douglas B. Whiting
EXHIBIT 3.18
BYLAWS
OF
CONEJO ENERGY COMPANY
AS AMENDED THROUGH MAY 10, 1994
<PAGE>
CONEJO ENERGY COMPANY
INDEX
Article I -- Offices
Section 1.1 Principal Executive Office......................1
Section 1.2 Other Offices...................................1
Article II -- Shareholders
Section 2.1 Meeting Locations...............................1
Section 2.2 Annual Meetings.................................1
Section 2.3 Special Meetings................................2
Section 2.4 Notice of Annual or Special Meeting.............2
Section 2.5 Quorum; Adjournment.............................3
Section 2.6 Adjourned Meeting and Notice Thereof............3
Section 2.7 Voting..........................................4
Section 2.8 Record Date.....................................5
Section 2.9 Consent of Absentees: Waiver of Notice..........5
Section 2.10 Action Without Meeting..........................5
Section 2.11 Proxies.........................................6
Article III -- Directors
Section 3.1 Powers..........................................6
Section 3.2 Number of Directors.............................7
Section 3.3 Election and Term of Office.....................7
Section 3.4 Vacancies.......................................7
Section 3.5 Place of Meeting................................8
Section 3.6 Organization Meeting............................8
Section 3.7 Special Meetings................................9
Section 3.8 Quorum..........................................9
Section 3.9 Participation in Meetings by Conference
Telephone ...................................9
Section 3.10 Waiver of Notice................................9
Section 3.11 Adjournment....................................10
Section 3.12 Fees and Compensation..........................10
Section 3.13 Action Without Meeting.........................10
Article IV -- Officers
Section 4.1 Officers.......................................10
Section 4.2 Election.......................................11
Section 4.3 Eligibility of Chairman of the Board
or President................................11
Section 4.4 Removal and Resignation........................11
Section 4.5 Appointment of Other Officers..................11
Section 4.6 Vacancies......................................11
Section 4.7 Salaries.......................................12
Section 4.8 Chairman of the Board..........................12
Section 4.9 President......................................12
Section 4.10 Vice President.................................12
Section 4.11 Chief Operating Officer........................13
Section 4.12 General Manager................................13
Section 4.13 General Counsel................................13
Section 4.14 Assistant General Counsel......................13
(i)
<PAGE>
Section 4.15 Controller.....................................13
Section 4.16 Secretary......................................14
Section 4.17 Assistant Secretary............................14
Section 4.18 Secretary Pro Tempore..........................14
Section 4.19 Treasurer......................................15
Section 4.20 Assistant Treasurer............................15
Section 4.21 Performance of Duties..........................15
Article V -- Other Provisions
Section 5.1 Inspection of Bylaws...........................15
Section 5.2 Contracts and Other Instruments, Loans, Notes
and Deposit of Funds........................15
Section 5.3 Representation of Shares of Other
Corporations................................16
Section 5.4 Annual Report to Shareholders..................16
Section 5.5 Fiscal Year and Subdivisions...................16
Section 5.6 Construction and Definitions...................16
Article VI -- Indemnification
Section 6.1 Indemnification of Directors and Officers......17
Section 6.2 Indemnification of Employees and Agents........18
Section 6.3 Right of Directors and Officers to Bring Suit..19
Section 6.4 Successful Defense.............................19
Section 6.5 Nonexclusivity of Rights.......................19
Section 6.6 Insurance......................................19
Section 6.7 Expenses as a Witness..........................20
Section 6.8 Indemnity Agreements...........................20
Section 6.9 Severability...................................20
Section 6.10 Effect of Repeal or Modification...............20
Article VII -- Amendments
Section 7.1 Amendments.....................................20
(ii)
<PAGE>
BYLAWS
Bylaws for the regulation, except
as otherwise provided by statute
or its Articles of Incorporation
of
CONEJO ENERGY COMPANY
As Amended Through May 10, 1994
Article I -- Offices
Section 1.1 Principal Executive Office.
The principal executive office of the corporation is hereby
fixed and located at 18101 Von Karman Avenue, Suite 1700, in the City of
Irvine, County of Orange, State of California. The Board of Directors ("the
Board") is hereby granted full power and authority to change the principal
executive office from one location to another.
Section 1.2 Other Offices.
Branches or subordinate offices may be established at any
time by the Board of Directors or the President at any place within or without
the State of California.
Article II -- Shareholders
Section 2.1 Meeting Locations.
All meetings of shareholders shall be held at the principal
executive office, or at such other office or places within or without the
State of California as may be designated by either the Board or by the person
or persons giving notice of the meeting pursuant to Section 2.4.
Section 2.2 Annual Meetings.
The annual meeting of shareholders shall be held on the 2nd
Tuesday in the month of May of each year, at the hour of 3:00 p.m. on said
day, or at such other time on such other day as shall be fixed by the Board,
to elect directors to hold office for the year next ensuing and until their
successors shall be elected, and to consider and act upon such other matters
as may lawfully be presented to such meeting; provided, however, that should
said day fall upon a legal holiday observed by this corporation, then any such
annual meeting of shareholders shall be held at the same time and place on the
next day thereafter ensuing which is a full business day.
<PAGE>
Section 2.3 Special Meetings.
Special meetings of the shareholders may be called at any
time by the Board, the Chairman of the Board, if any, the President, the
Executive Vice President, if any, the Senior Vice President, if any, or the
holders of shares entitled to cast not less than ten percent of the votes at
such meeting. Upon request to the Chairman of the Board, if any, the
President, the Executive Vice President, the Senior Vice President, the
Secretary or Assistant Secretary by any person entitled to call a special
meeting of shareholders, the officer forthwith shall cause notice to be given
to the shareholders entitled to vote that a meeting will be held at a time
requested by the person or persons calling the meeting, not less than
thirty-five nor more than sixty days after the receipt of the request. If the
notice is not given within twenty days after receipt of the request, the
persons entitled to call the meeting may give the notice.
Section 2.4 Notice of Annual or Special Meeting.
Written notice of each annual or special meeting of
shareholders shall be given not less than ten nor more than sixty days before
the date of the meeting to each shareholder entitled to vote thereat. Such
notice shall state the place, date and hour of the meeting and (i) in the case
of a special meeting, the general nature of the business to be transacted, and
no other business may be transacted, or (ii) in the case of the annual
meeting, those matters which the Board, at the time of the mailing of the
notice, intends to present for action by the shareholders, but subject to the
provisions of applicable law, any proper matter may be presented at the
meeting for such action. The notice of any meeting at which directors are to
be elected shall include the name of nominees intended at the time of the
notice to be presented by the Board for election.
Notice of a shareholders' meeting or any report to the
shareholders shall be given either personally to the recipient or to a person
in the office of the recipient or by first-class United States mail, by
private mail or messenger service, by telephone facsimile transmission, or by
any other means of written communication, addressed to the shareholder at the
address of such shareholder appearing on the books of the corporation or given
by the shareholder to the corporation for the purpose of notice; or if no such
address appears or is given, at the place where the principal executive office
of the corporation is located or by publication at least once in a newspaper
of general circulation in the county in which the principal executive office
is located. Such notice or report shall be deemed to have been given at the
time when delivered personally, deposited in the United States mail or sent by
private mail or messenger service, by telephone facsimile
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<PAGE>
transmission or sent by any other means of written or electronic communication.
Section 2.5 Quorum; Adjournment.
(a) A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute
a quorum at any meeting of the shareholders.
(b) Except as provided in subsection (c) below, the
affirmative vote of a majority of the shares
represented and voting at a duly held meeting at
which a quorum is present (which shares voting
affirmatively also constitute at least a majority
of the required quorum) shall be the act of the
shareholders, unless the vote of a greater number
or voting by classes is required by the Articles.
(c) The shareholders present at a duly called or held
meeting at which a quorum is present may continue
to transact business until adjournment
notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any
action taken (other than adjournment) is approved
by at least a majority of the shares required to
constitute a quorum.
(d) In the absence of a quorum, any meeting of
shareholders may be adjourned from time to time by
the vote of a majority of the shares represented
either in person or by proxy, but no other business
may be transacted, except as provided in subsection
(c) above.
Section 2.6 Adjourned Meeting and Notice Thereof.
Any shareholders' meeting, whether or not a quorum is
present, may be adjourned from time to time by the vote of a majority of the
shares, the holders of which are either present in person or represented by
proxy thereat, but in the absence of a quorum (except as permitted by
applicable law in the case of withdrawals by shareholders to reduce the number
remaining to less than a quorum) no other business may be transacted at such
meeting.
With exceptions under Section 601(d) of the California
Corporations Code and any other applicable law, it shall not be necessary to
give any notice of the time and place of the adjourned meeting or of the
business to be transacted thereat, other than by announcement at the meeting
at which such adjournment is taken. At the adjourned meeting, the corporation
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<PAGE>
may transact any business which might have been transacted at the original
meeting.
Section 2.7 Voting.
The shareholders entitled to notice of any meeting or to
vote at any such meeting shall be only persons in whose name shares stand on
the stock records of the corporation on the record date determined in
accordance with Section 2.8.
Voting shall in all cases be subject to the provisions of
Chapter 7 of the California General Corporation Law, including the following
provisions:
(a) Shares standing in the name of another corporation,
domestic or foreign, may be voted by an officer,
agent, or proxyholder as the bylaws of the
other corpo ration may prescribe or, in the
absence of such provision, as the Board of the
other corporation may determine or, in the absence
of that determination, by the chairman of the
board, president or any vice president of the
other corporation, or by any other person
authorized to do so by the chairman of the board,
president, or any vice president of the other
corporation. Shares which are purported to be
voted or any proxy purported to be executed
in the name of a corporation (whether or not any
title of the person signing is indicated)
shall be presumed to be voted or the proxy
executed in accordance with the provisions of the
California General Corporation Law, unless the
contrary is shown.
(b) Shares of this corporation owned by its
subsidiary shall not be entitled to vote on
any matter.
(c) Shares of this corporation held by this
corporation in a fiduciary capacity, and shares
of this corporation held in a fiduciary capacity
by its subsidiary, shall not be entitled to vote
on any matter, except as follows: (i) to the
extent that the settlor or beneficial owner
possesses and exercises a right to vote or to
give this corporation binding instructions as to
how to vote such shares; or (ii) where there
are one or more co-trustees who are not
affected by the prohibition of this
subsection, in which case the shares may be voted
by the co-trustees as if it or they are the sole
trustees.
-4-
<PAGE>
Section 2.8. Record Date.
The Board may fix, in advance, a record date for the
determination of the shareholders entitled to notice of any meeting or to vote
or entitled to receive payment of any dividend or other distribution, or any
allotment of any rights or entitled to exercise any rights, in respect of any
other lawful action. The record date so fixed shall be not more than sixty
days nor less than ten days prior to the date of the meeting nor more than
sixty days prior to any other action. When a record date is so fixed, only
shareholders of record at the close of business on that date are entitled to
notice of and to vote at the meeting or to receive the dividend, distribution,
or allotment of rights, or to exercise the rights, as the case may be,
notwithstanding any transfer of shares on the books of the corporation after
the record date, except as otherwise provided by law or these Bylaws.
Section 2.9 Consent of Absentees; Waiver of Notice.
The transactions of any meeting of shareholders, however
called and noticed, and wherever held, are as valid as though had at a meeting
duly held after regular call and notice, if a quorum is present either in
person or by proxy, and if, either before or after the meeting, each of the
persons entitled to vote, not present in person or by proxy, signs a written
waiver of notice or a consent to the holding of the meeting or an approval of
the minutes thereof. All such waivers, consents and approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of notice of and
presence at such meeting, except when the person objects, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by this
division to be included in the notice but not so included, if such objection
is expressly made at the meeting. Neither the business to be transacted at nor
the purpose of any regular or special meeting of shareholders need be
specified in any written waiver of notice, consent to the holding of the
meeting or approval of the minutes thereof, unless otherwise provided in the
Articles or Bylaws, except as provided in the California General Corporation
Law.
Section 2.10 Action Without Meeting.
Subject to Section 603 of the California General Corporation
Law, any action which, under any provision of the California General
Corporation Law, may be taken at any annual or special meeting of shareholders
may be taken without a meeting and without prior notice, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
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<PAGE>
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
Section 2.11 Proxies.
Every person entitled to vote shares has the right to do so
either in person or by one or more persons authorized by a written proxy
executed by such shareholder and filed with the Secretary. No proxy shall be
valid after the expiration of eleven (11) months from the date thereof, unless
otherwise provided in the proxy.
Article III -- Directors
Section 3.1 Powers.
Subject to any limitations of the Articles, of these Bylaws
and of the California General Corporation Law relating to action required to
be approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the Board. The Board may delegate the
management of the day-to-day operation of the business of the corporation
provided that the business and affairs of the corporation shall be managed and
all corporate powers shall be exercised under the ultimate direction of the
Board. Without prejudice to such general powers, but subject to the same
limitations, it is hereby expressly declared that the Board shall have the
following powers in addition to the other powers enumerated in these Bylaws:
(a) To select and remove all the other officers, agents
and employees of the corporation, prescribe the
powers and duties for them as may not be
inconsistent with law, with the Articles or these
Bylaws, fix their compensation and require from
them security for faithful service.
(b) To conduct, manage and control the affairs and
business of the corporation and to make such rules
and regulations therefor not inconsistent with law,
or with the Articles or these Bylaws, as they may
deem best.
(c) To adopt, make and use a corporate seal, and to
prescribe the forms of certificates of stock, and
to alter the form of such seal and of such
certificates from time to time as in their judgment
they deem best.
-6-
<PAGE>
(d) To authorize the issuance of shares of stock of the
corporation from time to time, upon such terms and
for such consideration as may be lawful.
(e) To borrow money and incur indebtedness for the
purposes of the corporation, and to cause to be
executed and delivered therefor, in the corporate
name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations or other
evidences of debt and securities therefor.
Section 3.2 Number of Directors.
The authorized number of directors shall not be less than
three (3) nor more than six (6) until changed by amendment of the Articles or
by a Bylaw duly adopted by the shareholders. The exact number of directors
shall be fixed, within the limits specified, by the Board or the shareholders
in the same manner provided in these Bylaws for the amendment thereof. The
exact number of authorized directors shall be six (6) until changed as
provided in these Bylaws.
Section 3.3 Election and Term of Office.
The directors shall be elected at each annual meeting of the
shareholders, but if any such annual meeting is not held or the directors are
not elected thereat, the directors may be elected at any special meeting of
shareholders held for that purpose. Each director shall hold office until the
next annual meeting and until a successor has been elected and qualified.
Section 3.4 Vacancies.
Any director may resign effective upon giving written notice
to the Chairman of the Board, if any, the President, the Secretary, or the
Board, unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to take office when the resignation becomes effective.
Vacancies in the Board, except those existing as a result of
a removal of a director, may be filled by a majority of the remaining
directors, whether or not less than a quorum, or by a sole remaining director,
and each director so elected shall hold office until the next annual meeting
and until such director's successor has been elected and qualified. Vacancies
existing as a result of a removal of a director may be filled by the
shareholders as provided by law.
A vacancy or vacancies in the Board shall be deemed to exist
in case of the death, resignation or removal of any
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<PAGE>
director, or if the authorized number of directors be increased, or if the
shareholders fail, at any annual or special meeting of shareholders at which
any director or directors are elected, to elect the full authorized number of
directors to be voted for at that meeting.
The shareholders may elect a director or directors at any
time to fill any vacancy not filled by the directors. Any such election by
written consent other than to fill a vacancy created by removal requires the
consent of a majority of the outstanding shares entitled to vote. If the Board
accepts the resignation of a director tendered to take effect at a future
time, the Board or the shareholders shall have power to elect a successor to
take office when the resignation is to become effective.
No reduction of the authorized number of directors shall
have the effect of removing any director prior to the expiration of the
director's term of office.
Section 3.5 Place of Meeting.
Regular or special meetings of the Board shall be held at
any place within or without the State of California which has been designated
from time to time by the Board or as provided in these Bylaws. In the absence
of such designation, regular meetings shall be held at the principal executive
office.
Section 3.6 Organization Meeting.
Promptly following each annual meeting of shareholders the
Board shall hold a regular meeting for the purpose of organization, election
of officers and the transaction of other business.
Section 3.7 Special Meetings.
Special meetings other than organization meetings of the
Board for any purpose or purposes may be called at any time by the Chairman of
the Board, if any, the President, any Executive Vice President, Senior Vice
President, the Secretary, an Assistant Secretary or by any two directors.
Such meetings of the Board shall be held upon four days'
written notice by mail or forty-eight hours' notice given personally or by
telephone, telephone facsimile transmission, telegraph, telex or other similar
means of communication. Any such notice shall be addressed or delivered to
each director at such director's address as it is shown upon the records of
the corporation or as may have been given to the corporation by the director
for purposes of notice or, if such address is not shown
-8-
<PAGE>
on such records or is not readily ascertainable, at the place in which the
meetings of the directors are regularly held. The notice need not specify the
purpose of such meeting.
Notice by first-class mail shall be deemed to have been
given at the time a written notice is deposited in the United States mail,
postage prepaid or sent by private mail or messenger service. Any other
written notice shall be deemed to have been given at the time it is personally
delivered to the recipient, to a person in the office of the recipient who the
person giving the notice has reason to believe will promptly communicate it to
the recipient, delivered to a common carrier for transmission, or actually
transmitted by the person giving the notice by electronic means to the
recipient. Oral notice shall be deemed to have been given at the time it is
communicated, in person, by telephone to the recipient or to a person at the
office of the recipient who the person giving the notice has reason to believe
will promptly communicate it to the recipient.
Section 3.8 Quorum.
One-third of the maximum number of authorized directors
constitutes a quorum of the Board for the transaction of business, except to
adjourn as provided in Section 3.1 1 of this Article. As defined in Article
111, Section 3.2, the maximum number of authorized directors is six. Every act
or decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the
Board, unless a greater number is required by law or by the Articles;
provided, however, that a meeting at which a quorum is initially present may
continue to transact business notwithstanding the withdrawal of directors, if
any action taken is approved by at least a majority of the required quorum for
such meeting.
Section 3.9 Participation in Meetings by Conference Telephone.
Members of the Board may participate in a meeting through
use of conference telephone or similar communications equipment, so long as
all members participating in such meeting can hear one another.
Such participation constitutes presence in person at such meeting.
Section 3.10 Waiver of Notice.
The transactions of any meeting of the Board, however called
and noticed or wherever held, are as valid as though had at a meeting duly
held after regular call and notice if a quorum is present and if, either
before or after the meeting, each of the directors not present signs a written
waiver of notice, a consent to holding such meeting or an approval of the
minutes
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<PAGE>
thereof. All such waivers, consents or approvals shall be filed with
the corporate records or made a part of the minutes of the meeting.
Section 3.11 Adjournment.
A majority of the directors present, whether or not a quorum
is present, may adjourn any directors' meeting to another time and place.
Notice of the time and place of holding an adjourned meeting need not be given
to absent directors if the time and place is fixed at the meeting adjourned.
If the meeting is adjourned for more than twenty-four hours, notice of any
adjournment to another time or place shall be given prior to the time of the
adjourned meeting to the directors who were not present at the time of the
adjournment.
Section 3.12 Fees and Compensation.
Directors and members of committees may receive such
compensation, if any, for their services, and such reimbursement for expenses,
as may be fixed or determined by the Board.
Section 3.13 Action Without Meeting.
In accordance with the provisions of Section 307(8)(b) of
the California General Corporation Law, any action required or permitted to be
taken by the Board may be taken without a meeting if all members of the Board
shall individually or collectively consent in writing to such action. Such
written consent or consents shall have the same force and effect as a
unanimous vote of the Board and shall be filed with the minutes of the
proceedings of the Board.
Article IV -- Officers
Section 4.1 Officers.
The officers of the corporation shall be a President, Vice
President, a Controller, a Secretary and a Treasurer. The corporation may also
have, at the discretion of the Board, a Chairman of the Board, one or more
additional Vice Presidents, a Chief Operating Officer, a General Manager,
General Counsel, one or more Assistant General Counsels, one or more Assistant
Controllers, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 4.5 of this Article.
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<PAGE>
Section 4.2 Election.
The officers of the corporation, except such officers as may
be elected or appointed in accordance with the provisions of Section 4.5 or
Section 4.6 of this Article, shall be chosen annually by, and shall serve at
the pleasure of the Board, and shall hold their respective offices until their
resignation, removal, or other disqualification from service, or until their
respective successors shall be elected.
Section 4.3 Eligibility of Chairman of the Board or President.
No person shall be eligible for the office of Chairman of
the Board, if there shall be such an officer, or President unless such person
is a member of the Board of the corporation; any other officer may or may not
be a director.
Section 4.4 Removal and Resignation.
Any officer may be removed, either with or without cause, by
the Board at any time or by any officer upon whom such power of removal may be
conferred by the Board. Any such removal shall be without prejudice to the
rights, if any, of the officer under any contract of employment of the
officer.
Any officer may resign at any time by giving written notice
to the corporation, but without prejudice to the rights, if any, of the
corporation under any contract of employment to which the officer is a party.
Any such resignation shall take effect at the date of the receipt of such
notice or at any later time specified therein and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
Section 4.5 Appointment of Other Officers.
The Board may appoint such other officers as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority, and perform such duties as are provided in the Bylaws or
as the Board may from time to time determine. Notwithstanding the job title
for such person, no employee or other representative of this corporation shall
be an officer of this corporation unless elected by the Board.
Section 4.6 Vacancies.
A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in
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<PAGE>
the manner prescribed in these Bylaws for regular election or appointment to
such office.
Section 4.7 Salaries.
The salaries of the Chairman of the Board, if any,
President, General Manager, if any, Vice Presidents, Controller, Treasurer and
Secretary of the corporation shall be fixed by the Board. Salaries of all
other officers shall be approved from time to time by the chief executive
officer.
Section 4.8 Chairman of the Board.
The Chairman of the Board, if there shall be such an
officer, shall preside at all meetings of the Board, and shall exercise such
powers and perform such duties as from time to time may be conferred upon or
assigned to him by the Board or the Bylaws.
Section 4.9 President.
Subject to such supervisory powers, if any, as may be given
by the Board to the Chairman of the Board, if there be such an officer, the
President shall be the chief executive officer of the corporation and has,
subject to the control of the Board, general supervision, direction, and
control of the business and affairs of the corporation. The President shall
preside at all meetings of the shareholders and, in the absence of the
Chairman of the Board or if there be none, at all meetings of the Board. The
President has the general powers and duties of management usually vested in
the office of president of a corporation and has such other powers and duties
as may be prescribed by the Board or the Bylaws. The President may designate
from time to time the titles which the employees or other representatives of
this corporation shall use, including the appointment of agent for service of
process. Without limiting the foregoing, the President may designate one or
more employees as regional vice-presidents.
Section 4.10 Vice President.
In the absence or disability of the President, the Vice
Presidents in order of their rank shall perform all 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. The Board of Directors may establish
the order of rank of the Vice Presidents. In the absence of such ranking, the
Vice Presidents shall be ranked as follows: Executive Vice President (if any),
Senior Vice President (if any). Vice Presidents holding
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identical titles shall be ranked in order of election to that office by the
Board.
Section 4.11 Chief Operating Officer.
The Chief Operating Officer, if there shall be such an
officer, must be a vice president of the corporation and shall be subject to
the exercise of the general powers of supervision, direction and control of
the business and officers of the corporation by the President, and supervise
the operations of the corporation.
Section 4.12 General Manager.
The General Manager, if there shall be such an officer, must
be a vice president of the corporation and shall, subject to the exercise of
the general powers of supervision, direction and control by the President, or
the Chief Operating Officer, if any, shall manage the operations of the
corporation. In the absence of the Chief Operating Officer, the General
Manager shall perform all the duties of the Chief Operating Officer and when
so acting shall have all the powers of, and be subject to, all the
restrictions upon the Chief Operating Officer.
Section 4.13 General Counsel.
The General Counsel shall be the chief consulting officer of
the corporation in all legal matters and, subject to the President, shall have
control over all matters of legal import concerning the corporation.
Section 4.14 Assistant General Counsel.
One or more Assistant General Counsels, if any, shall
perform such of the duties of the General Counsel as the General Counsel may
designate, and in the absence or disability of the General Counsel, any
Assistant General Counsel, in order of election to that office by the Board,
shall perform the duties of the General Counsel.
Section 4.15 Controller.
The Controller shall be the chief accounting officer of the
corporation and shall have control over all accounting matters concerning the
corporation and shall perform such other duties as the President or General
Manager shall designate.
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<PAGE>
Section 4.16 Secretary.
The Secretary shall keep or cause to be kept, at the
principal executive office and such other place as the Board may order, a book
of minutes of all meetings of the shareholders, the Board, and its committees,
and a share register or a duplicate share register.
The Secretary shall give, or cause to be given, notice of
all the meetings of the shareholders and of the Board and any committees
thereof required by the Bylaws or by law to be given, shall keep the seal of
the corporation in safe custody, shall from time to time issue such corporate
secretarial certificates as may be required for the business and affairs of
the corporation, and shall have such other general powers and duties of
management usually vested in the office of secretary of a corporation and as
may be prescribed by the Board, the President or the Bylaws.
Section 4.17 Assistant Secretary.
One or more Assistant Secretaries, if any, shall perform
such of the duties of the Secretary as the Secretary shall designate, and in
the absence or disability of the Secretary, any Assistant Secretary, in order
of election to that office by the Board, shall perform the duties of the
Secretary.
Section 4.18 Secretary Pro Tempore.
At any meeting of the Board or of the shareholders from
which the Secretary and Assistant Secretary are absent, a Secretary pro
tempore may be appointed by the Board of Directors or shareholders as
appropriate and act.
Section 4.19 Treasurer.
The Treasurer is the chief financial officer of the
corporation and shall keep and maintain, or cause to be kept and maintained,
adequate and correct accounts of the properties and business transactions of
the corporation. The books of account shall at all times be open to inspection
by any director.
The Treasurer shall deposit, or cause to be deposited, all
moneys and other valuables in the name and to the credit of the corporation
with such depositories as may be designated by the Board of Directors pursuant
to Section 5.2. The Treasurer shall disburse or cause to be disbursed, the
funds of the corporation as may be ordered by the President or the General
Manager, shall render to the President, the General Manager or the directors,
whenever they request it, an account of all transactions as Treasurer and of
the financial condition of the
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corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board, or the Bylaws.
Section 4.20 Assistant Treasurer.
One or more Assistant Treasurers, if any, shall perform such
of the duties of the Treasurer as the Treasurer shall designate, and in the
absence or disability of the Treasurer, any Assistant Treasurer, in order of
election to that office by the Board, shall perform the duties of the
Treasurer.
Section 4.21 Performance of Duties.
Officers shall perform the duties of their respective
offices as stated in these Bylaws, and such additional duties as the Board
shall designate.
Article V -- Other Provisions
Section 5.1 Inspection of Bylaws.
The corporation shall keep in its principal executive office
the original or a copy of these Bylaws, as amended to date, which shall be
open to inspection by shareholders at all reasonable times during office
hours.
Section 5.2 Contracts and Other Instruments, Loans, Notes and Deposit of Funds.
The Chairman of the Board, if any, the President and any
Vice President of this corporation, either alone or with the Secretary or an
Assistant Secretary, shall execute in the name of the corporation such written
instruments as may be authorized by the Board and, without special direction
of the Board, such instruments as transactions of the ordinary business of the
corporation may require and, such officers without the special direction of
the Board may authenticate, attest or countersign any such instruments when
deemed appropriate. The Board may authorize any person, persons, entity,
entities, attorney, attorneys, attorney-in-fact, attorneys-in-fact, agent or
agents, to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the corporation, and such authority may be
general or confined to specific instances.
No loans shall be contracted on behalf of the corporation
and no evidences of indebtedness shall be issued in its name unless authorized
by resolution of the Board as it may direct. Such authority may be general or
confined to specific instances.
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<PAGE>
All checks, drafts, or other similar orders for the payment
of money, notes, or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as the Board, Chief Executive Officer or
Treasurer may direct.
Unless authorized by the Board or these Bylaws, no officer,
agent, employee or any other person or persons shall have any power or
authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or amount.
All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies, or other depositories as the Board may direct.
Section 5.3 Representation of Shares of Other Corporations.
The President or any other officer or officers authorized by
the Board or the President are each authorized to vote, represent and exercise
on behalf of the corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of the corporation. The
authority herein granted may be exercised either by any such officer in person
or by any other person authorized so to do by proxy or power of attorney duly
executed by said officer.
Section 5.4 Annual Report to Shareholders.
The annual report to shareholders referred to in Section
1501 of the California General Corporation Law is expressly waived, but
nothing herein shall be interpreted as prohibiting the Board from issuing
annual or other periodic reports to shareholders.
Section 5.5 Fiscal Year and Subdivisions.
The calendar year shall be the corporate fiscal year of the
corporation. For the purpose of paying dividends, for making reports and for
the convenient transaction of the business of the corporation, the Board may
divide the fiscal year into appropriate subdivisions.
Section 5.6 Construction and Definitions.
Unless the context otherwise requires, the general
provisions, rules of construction and definitions contained in the General
Provisions of the California Corporations Code and in
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<PAGE>
the California General Corporation Law shall govern the construction of these
Bylaws.
Article VI -- Indemnification
Section 6.1 Indemnification of Directors and Officers.
Each person who was or is a party or is threatened to be
made a party to or is involved in any threatened, pending or completed action,
suit or proceeding, formal or informal, whether brought in the name of the
corporation or otherwise and whether of a civil, criminal, administrative or
investigative nature (hereinafter a "proceeding"), by reason of the fact that
he or she, or a person of whom he or she is the legal representative, is or
was a director or officer of this corporation or is or was serving at the
request of this corporation 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 employee benefit plans, whether
the basis of such proceeding is an alleged action or inaction in an official
capacity or in any other capacity while serving as a director or officer
shall, subject to the terms of any agreement between this corporation and such
person, be indemnified and held harmless by this corporation to the fullest
extent permissible under California law and this corporation's Articles of
Incorporation, against all costs, charges, expenses, liabilities, and losses
(including attorneys' fees, judgments, fines, Employee Retirement Income
Security Act excise taxes or penalties, and amounts paid or to be paid in
settlement) actually and reasonably incurred or suffered by such person in
connection therewith, and such indemnification shall continue as to a person
who has ceased to be a director or officer and shall inure to the benefit of
his or her heirs, executors, and administrators; provided, however, that (A)
this corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of this
corporation other than a suit permitted by Section 6.3; (B) this corporation
shall indemnify any such person seeking indemnification in connection with
settlement of a proceeding (or part thereof) other than a proceeding by or in
the name of this corporation to procure a judgment in its favor only if any
settlement of such a proceeding is approved in writing by this corporation;
(C) that no such person shall be indemnified (i) except to the extent that the
aggregate of losses to be indemnified exceeds the amount of such losses for
which the director or officer is paid pursuant to any directors' and officers'
liability insurance policy maintained by the corporation; (ii) on account of
any suit in which judgment is rendered against such person for an accounting
of profits made from the purchase or sale by such person of securities of this
corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state, or local statutory law; (iii)
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if a court of competent jurisdiction finally determines that any
indemnification hereunder is unlawful; and (iv) as to circumstances in which
indemnity is expressly prohibited by Section 317 of the General Corporation
Law of California (the "Law"); and (D) that no such person shall be
indemnified with regard to any action brought by or in the right of this
corporation for breach of duty to this corporation and its shareholders (a)
for acts or omissions involving intentional misconduct or knowing and culpable
violation of law; (b) for acts or omissions that the director or officer
believes to be contrary to the best interests of this corporation or its
shareholders or that involve the absence of good faith on the part of the
director or officer; (c) for any transaction from which the director or
officer derived an improper personal benefit; (d) for acts or omissions that
show a reckless disregard for the director's or officer's duty to this
corporation or its shareholders in circumstances in which the director or
officer was aware, or should have been aware, in the ordinary course of
performing his or her duties, of a risk of serious injury to this corporation
or its shareholders; (e) for acts or omissions that constitute an unexcused
pattern of inattention that amounts to an abdication of the director's or
officer's duties to this corporation or its shareholders; and (f) for costs,
charges, expenses, liabilities, and losses arising under Section 310 or 316 of
the Law. The right to indemnification conferred in this Article shall include
the right to be paid by this corporation expenses incurred in defending any
proceeding in advance of its final disposition; provided, however, that if the
Law permits the payment of such expenses incurred by a director or officer 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 person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, such advances shall be made only
upon delivery to this corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts to this corporation if it shall be
ultimately determined that such person is not entitled to be indemnified."
Section 6.2 Indemnification of Employees and Agents.
A person who was or is a party or is threatened to be made a
party to or is involved in any proceeding by reason of the fact that he or she
is or was an employee or agent of this corporation or is or was serving at the
request of this corporation as an employee or agent of another enterprise,
including service with respect to employee benefit plans, whether the basis of
such action is an alleged action or inaction in an official capacity or in any
other capacity while serving as an employee or agent, may, subject to the
terms of any agreement between this corporation and such person, be
indemnified and held harmless by this corporation to the fullest extent
permitted by California law and this corporation's Articles of Incorporation,
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<PAGE>
against all costs, charges, expenses, liabilities, and losses (including
attorneys' fees, judgments, fines, Employee Retirement Income Security Act
excise taxes or penalties, and amounts paid or to be paid in settlement),
reasonably incurred or suffered by such person in connection therewith.
Section 6.3 Right of Directors and Officers to Bring Suit.
If a claim under Section 6.1 of this Article is not paid in
full by this corporation within 30 days after a written claim has been
received by this corporation, the claimant may at any time thereafter bring
suit against this corporation to recover the unpaid amount of the claim and,
if successful in whole or in part, the claimant shall also be entitled to be
paid the expense of prosecuting such claim. Neither the failure of this
corporation (including its Board, independent legal counsel, or its
shareholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the
circumstances because he or she has met the applicable standard of conduct, if
any, nor an actual determination by this corporation (including its Board,
independent legal counsel, or its shareholders) that the claimant has not met
the applicable standard of conduct, shall be a defense to the action or create
a presumption for the purpose of an action that the claimant has not met the
applicable standard of conduct.
Section 6.4 Successful Defense.
Notwithstanding any other provisions of this Article, to the
extent that a director or officer has been successful on the merits in defense
of any proceeding referred to in Section 6.1 or in defense of any claim, issue
or matter therein, he or she shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred in connection therewith.
Section 6.5 Nonexclusivity of Rights.
The right to indemnification provided by this Article shall
not be exclusive of any other right which any person may have or hereafter
acquire under any statute, bylaw, agreement, vote of shareholders, or
disinterested directors, or otherwise.
Section 6.6 Insurance.
This corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee, or agent of this
corporation or another corporation, partnership, joint venture, trust, or
other enterprise against any expense, liability, or loss, whether or not this
corporation would have
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<PAGE>
the power to indemnify such person against such expense, liability, or loss
under the Law.
Section 6.7 Expenses as a Witness.
To the extent that any director, officer, employee, or agent
of this corporation is, by reason of such position or a position with another
entity at the request of this corporation, a witness in any action, suit, or
proceeding, he or she shall be indemnified against all costs and expenses
actually and reasonably incurred by him or her on his or her behalf in
connection therewith.
Section 6.8 Indemnity Agreements.
This corporation may enter into agreements with any
director, officer, employee, or agent of this corporation providing for
indemnification to the fullest extent permissible under the Law and this
corporation's Articles of Incorporation.
Section 6.9 Severability.
Each and every paragraph, sentence, term, and provision of
this Article is separate and distinct so that if any paragraph, sentence,
term, or provision hereof shall be held to be invalid or unenforceable for any
reason, such invalidity or unenforceability shall not affect the validity or
enforceability of any other paragraph, sentence, term, or provision hereof. To
the extent required, any paragraph, sentence, term, or provision of this
Article may be modified by a court of competent jurisdiction to preserve its
validity and to provide the claimant with, subject to the limitations set
forth in this Article and any agreement between this corporation and claimant,
the broadest possible indemnification permitted under applicable law.
Section 6.10 Effect of Repeal or Modification.
Any repeal or modification of this Article shall not
adversely affect any right of indemnification of a director or officer
existing at the time of such repeal or modification with respect to any action
or omission occurring prior to such repeal or modification.
Article VII -- Amendments
Section 7.1 Amendments.
In accordance with Section 211 and subject to the provisions
contained in Section 212 of the California Corporation
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<PAGE>
Law, these Bylaws may be amended or repealed either by approval of the
outstanding shares or by the approval of the Board; provided, however, that a
Bylaw specifying or changing a fixed number of directors or the maximum or
minimum number or changing from a fixed to a variable Board or vice versa may
only be adopted by approval of the outstanding shares. The exact number of
directors within the maximum and minimum number specified in these Bylaws may
be amended by the Board alone.
[End of Bylaws]
EXHIBIT 3.19
ARTICLES OF INCORPORATION
OF
NIGUEL ENERGY COMPANY
I
The name of the corporation is Niguel Energy Company.
II
The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than a banking business, the trust company
business or the practice of a profession permitted to be incorporated by the
California Corporations Code.
III
The name and address in the State of California of the corporation's
initial agent for service of process are:
Douglas B. Whiting
18872 MacArthur Boulevard, Suite 400
Irvine, California 92715
IV
This corporation is authorized to issue only one class of shares,
which shall be designated "common" shares. The total authorized number of such
shares authorized to be issued is ten thousand (10,000) shares.
Dated: July 31, 1987
--------------------------
/s/ Douglas B. Whiting
------------------------------
Douglas B. Whiting
EXHIBIT 3.20
BYLAWS
OF
NIGUEL ENERGY COMPANY
AS AMENDED THROUGH MAY 10, 1994
<PAGE>
NIGUEL ENERGY COMPANY
INDEX
Article I -- Offices
Section 1.1 Principal Executive Office................... 1
Section 1.2 Other Offices................................ 1
Article II -- Shareholders
Section 2.1 Meeting Locations............................ 1
Section 2.2 Annual Meetings.............................. 1
Section 2.3 Special Meetings............................. 2
Section 2.4 Notice of Annual or Special Meeting.......... 2
Section 2.5 Quorum; Adjournment.......................... 3
Section 2.6 Adjourned Meeting and Notice Thereof......... 3
Section 2.7 Voting....................................... 4
Section 2.8 Record Date.................................. 4
Section 2.9 Consent of Absentees; Waiver of Notice....... 5
Section 2.10 Action Without Meeting....................... 5
Section 2.11 Proxies...................................... 6
Article III -- Directors
Section 3.1 Powers....................................... 6
Section 3.2 Number of Directors.......................... 7
Section 3.3 Election and Term of Office.................. 7
Section 3.4 Vacancies.................................... 7
Section 3.5 Place of Meeting............................. 8
Section 3.6 Organization Meeting......................... 8
Section 3.7 Special Meetings............................. 8
Section 3.8 Quorum....................................... 9
Section 3.9 Participation in Meetings by
Conference Telephone......................... 9
Section 3.10 Waiver of Notice............................. 9
Section 3.11 Adjournment.................................. 10
Section 3.12 Fees and Compensation........................ 10
Section 3.13 Action Without Meeting....................... 10
Article IV -- Officers
Section 4.1 Officers..................................... 10
Section 4.2 Election..................................... 11
Section 4.3 Eligibility of Chairman of the
Board or President........................... 11
Section 4.4 Removal and Resignation...................... 11
Section 4.5 Appointment of Other Officers................ 11
Section 4.6 Vacancies.................................... 11
Section 4.7 Salaries..................................... 12
Section 4.8 Chairman of the Board........................ 12
Section 4.9 President.................................... 12
Section 4.10 Vice President............................... 12
Section 4.11 Chief Operating Officer...................... 13
Section 4.12 General Manager.............................. 13
Section 4.13 General Counsel.............................. 13
<PAGE>
Section 4.14 Assistant General Counsel.................... 13
Section 4.15 Controller................................... 13
Section 4.16 Secretary.................................... 14
Section 4.17 Assistant Secretary.......................... 14
Section 4.18 Secretary Pro Tempore........................ 14
Section 4.19 Treasurer.................................... 14
Section 4.20 Assistant Treasurer.......................... 15
Section 4.21 Performance of Duties........................ 15
Article V -- Other Provisions
Section 5.1 Inspection of Bylaws......................... 15
Section 5.2 Contracts and Other Instruments, Loans,
Notes and Deposit of Funds................... 15
Section 5.3 Representation of Shares of Other
Corporations................................. 16
Section 5.4 Annual Report to Shareholders................ 16
Section 5.5 Fiscal Year and Subdivisions................. 16
Section 5.6 Construction and Definitions................. 16
Article VI -- Indemnification
Section 6.1 Indemnification of Directors
and Officers................................. 17
Section 6.2 Indemnification of Employees and Agents...... 18
Section 6.3 Right of Directors and Officers to Bring
Suit......................................... 19
Section 6.4 Successful Defense........................... 19
Section 6.5 Nonexclusivity of Rights..................... 19
Section 6.6 Insurance.................................... 19
Section 6.7 Expenses as a Witness........................ 20
Section 6.8 Indemnity Agreements......................... 20
Section 6.9 Severability................................. 20
Section 6.10 Effect of Repeal or Modification............. 20
Article VII -- Amendments
Section 7.1 Amendments................................... 21
<PAGE>
BYLAWS
Bylaws for the regulation, except
as otherwise provided by statute
or its Articles of Incorporation
of
NIGUEL ENERGY COMPANY
AS AMENDED THROUGH MAY 10, 1994
ARTICLE I -- OFFICES
Section 1.1 Principal Executive Office
The principal executive office of the corporation is hereby fixed
and located at 18101 Von Karman Avenue, Suite 1700, in the City of Irvine,
County of Orange, State of California. The Board of Directors ("the Board") is
hereby granted full power and authority to change the principal executive
office from one location to another.
Section 1.2 Other Offices
Branches or subordinate offices may be established at any time by
the Board of Directors or the President at any place within or without the
State of California.
ARTICLE II -- SHAREHOLDERS
Section 2.1 Meeting Locations.
All meetings of shareholders shall be held at the principal
executive office, or at such other office or places within or without the
State of California as may be designated by either the Board or by the person
or persons giving notice of the meeting pursuant to Section 2.4.
Section 2.2 Annual Meetings.
The annual meeting of shareholders shall be held on the 2nd Tuesday
in the month of May of each year, at the hour of 4:00 p.m. on said day, or at
such other time on such other day as shall be fixed by the Board, to elect
directors to hold office for the year next ensuing and until their successors
shall be elected, and to consider and act upon such other matters as may
lawfully be presented to such meeting; provided, however, that should said day
fall upon a legal holiday observed by this corporation, then any such annual
meeting of shareholders shall
<PAGE>
be held at the same time and place on the next day thereafter ensuing which is
a full business day.
Section 2.3 Special Meetings
Special meetings of the shareholders may be called at any time by
the Board, the Chairman of the Board, if any, the President, the Executive
Vice President, if any, the Senior Vice President, if any, or the holders of
shares entitled to cast not less than ten percent of the votes at such
meeting. Upon request to the Chairman of the Board, if any, the President, the
Executive Vice President, the Senior Vice President, the Secretary or
Assistant Secretary by any person entitled to call a special meeting of
shareholders, the officer forthwith shall cause notice to be given to the
shareholders entitled to vote that a meeting will be held at a time requested
by the person or persons calling the meeting, not less than thirty-five nor
more than sixty days after the receipt of the request. If the notice is not
given within twenty days after receipt of the request, the persons entitled to
call the meeting may give the notice.
Section 2.4 Notice of Annual or Special Meeting.
Written notice of each annual or special meeting of shareholders
shall be given not less than ten nor more than sixty days before the date of
the meeting to each shareholder entitled to vote thereat. Such notice shall
state the place, date and hour of the meeting and (i) in the case of a special
meeting, the general nature of the business to be transacted, and no other
business may be transacted, or (ii) in the case of the annual meeting, those
matters which the Board, at the time of the mailing of the notice, intends to
present for action by the shareholders, but subject to the provisions of
applicable law, any proper matter may be presented at the meeting for such
action. The notice of any meeting at which directors are to be elected shall
include the name of nominees intended at the time of the notice to be
presented by the Board for election.
Notice of a shareholders' meeting or any report to the shareholders
shall be given either personally to the recipient or to a person in the office
of the recipient or by first-class United States mail, by private mail or
messenger service, by telephone facsimile transmission, or by any other means
of written communication, addressed to the shareholder at the address of such
shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice; or if no such
address appears or is given, at the place where the principal executive office
of the corporation is located or by publication at least once in a newspaper
of general circulation in the county in which the principal executive office
is located. Such notice or report shall be deemed to have been given at the
time when delivered
2
<PAGE>
personally, deposited in the United States mail or sent by private mail or
messenger service, by telephone facsimile transmission or sent by any other
means of written or electronic communication.
Section 2.5 Quorum; Adjournment.
(a) A majority of the shares entitled to vote, represented in person
or by proxy, shall constitute a quorum at any meeting of the shareholders.
(b) Except as provided in subsection (c) below, the affirmative vote
of a majority of the shares represented and voting at a duly held meeting at
which a quorum is present (which shares voting affirmatively also constitute
at least a majority of the required quorum) shall be the act of the
shareholders, unless the vote of a greater number or voting by classes is
required by the Articles.
(c) The shareholders present at a duly called or held meeting at
which a quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum.
(d) In the absence of a quorum, any meeting of shareholders may be
adjourned from time to time by the vote of a majority of the shares
represented either in person or by proxy, but no other business may be
transacted, except as provided in subsection (c) above.
Section 2.6 Adjourned Meeting and Notice Thereof.
Any shareholders' meeting, whether or not a quorum is present, may
be adjourned from time to time by the vote of a majority of the shares, the
holders of which are either present in person or represented by proxy thereat,
but in the absence of a quorum (except as permitted by applicable law in the
case of withdrawals by shareholders to reduce the number remaining to less
than a quorum) no other business may be transacted at such meeting.
With exceptions under Section 601(d) of the California Corporations
Code and any other applicable law, it shall not be necessary to give any
notice of the time and place of the adjourned meeting or of the business to be
transacted thereat, other than by announcement at the meeting at which such
adjournment is taken. At the adjourned meeting, the corporation may transact
any business which might have been transacted at the original meeting.
3
<PAGE>
Section 2.7 Voting.
The shareholders entitled to notice of any meeting or to vote at any
such meeting shall be only persons in whose name shares stand on the stock
records of the corporation on the record date determined in accordance with
Section 2.8.
Voting shall in all cases be subject to the provisions of Chapter 7
of the California General Corporation Law, including the following provisions:
(a) Shares standing in the name of another corporation, domestic or
foreign, may be voted by an officer, agent, or proxyholder as
the bylaws of the other corporation may prescribe or, in the
absence of such provision, as the Board of the other
corporation may determine or, in the absence of that
determination, by the chairman of the board, president or any
vice president of the other corporation, or by any other person
authorized to do so by the chairman of the board, president, or
any vice president of the other corporation. Shares which are
purported to be voted or any proxy purported to be executed in
the name of a corporation (whether or not any title of the
person signing is indicated) shall be presumed to be voted or
the proxy executed in accordance with the provisions of the
California General Corporation Law, unless the contrary is
shown.
(b) Shares of this corporation owned by its subsidiary shall not be
entitled to vote on any matter.
(c) Shares of this corporation held by this corporation in a
fiduciary capacity, and shares of this corporation held in a
fiduciary capacity by its subsidiary, shall not be entitled to
vote on any matter, except as follows: (i) to the extent that
the settlor or beneficial owner possesses and exercises a right
to vote or to give this corporation binding instructions as to
how to vote such shares; or (ii) where there are one or more
co-trustees who are not affected by the prohibition of this
subsection, in which case the shares may be voted by the
co-trustees as if it or they are the sole trustees.
Section 2.8 Record Date.
The Board may fix, in advance, a record date for the determination
of the shareholders entitled to notice of any meeting or to vote or entitled
to receive payment of any dividend
4
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or other distribution, or any allotment of any rights or entitled to exercise
any rights, in respect of any other lawful action. The record date so fixed
shall be not more than sixty days nor less than ten days prior to the date of
the meeting nor more than sixty days prior to any other action. When a record
date is so fixed, only shareholders of record at the close of business on that
date are entitled to notice of and to vote at the meeting or to receive the
dividend, distribution, or allotment of rights, or to exercise the rights, as
the case may be, notwithstanding any transfer of shares on the books of the
corporation after the record date, except as otherwise provided by law or
these Bylaws.
Section 2.9 Consent of Absentees; Waiver of Notice.
The transactions of any meeting of shareholders, however called and
noticed, and wherever held, are as valid as though had at a meeting duly held
after regular call and notice, if a quorum is present either in person or by
proxy, and if, either before or after the meeting, each of the persons
entitled to vote, not present in person or by proxy, signs a written waiver of
notice or a consent to the holding of the meeting or an approval of the
minutes thereof. All such waivers, consents and approvals shall be filed with
the corporate records or made a part of the minutes of the meeting. Attendance
of a person at a meeting shall constitute a waiver of notice of and presence
at such meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by this
division to be included in the notice but not so included, if such objection
is expressly made at the meeting. Neither the business to be transacted at nor
the purpose of any regular or special meeting of shareholders need be
specified in any written waiver of notice, consent to the holding of the
meeting or approval of the minutes thereof, unless otherwise provided in the
Articles or Bylaws, except as provided in the California General Corporation
Law.
Section 2.10 Action Without Meeting.
Subject to Section 603 of the California General Corporation Law,
any action which, under any provision of the California General Corporation
Law, may be taken at any annual or special meeting of shareholders may be
taken without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
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Section 2.11 Proxies.
Every person entitled to vote shares has the right to do so either
in person or by one or more persons authorized by a written proxy executed by
such shareholder and filed with the Secretary. No proxy shall be valid after
the expiration of eleven (11) months from the date thereof, unless otherwise
provided in the proxy.
ARTICLE III -- DIRECTORS
Section 3.1 Powers.
Subject to any limitations of the Articles, of these Bylaws and of
the California General Corporation Law relating to action required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the Board. The Board may delegate the
management of the day-to-day operation of the business of the corporation
provided that the business and affairs of the corporation shall be managed and
all corporate powers shall be exercised under the ultimate direction of the
Board. Without prejudice to such general powers, but subject to the same
limitations, it is hereby expressly declared that the Board shall have the
following powers in addition to the other powers enumerated in these Bylaws:
(a) To select and remove all the other officers, agents and
employees of the corporation, prescribe the powers and duties
for them as may not be inconsistent with law, with the Articles
or these Bylaws, fix their compensation and require from them
security for faithful service.
(b) To conduct, manage and control the affairs and business of the
corporation and to make such rules and regulations therefor not
inconsistent with law, or with the Articles or these Bylaws, as
they may deem best.
(c) To adopt, make and use a corporate seal, and to prescribe the
forms of certificates of stock, and to alter the form of such
seal and of such certificates from time to time as in their
judgment they deem best.
(d) To authorize the issuance of shares of stock of the corporation
from time to time, upon such terms and for such consideration
as may be lawful.
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(e) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered
therefor, in the corporate name, promissory notes, bonds,
debentures, deeds of trust, mortgages, pledges, hypothecations
or other evidences of debt and securities therefor.
Section 3.2 Number of Directors.
The authorized number of directors shall not be less than three (3)
nor more than six (6) until changed by amendment of the Articles or by a Bylaw
duly adopted by the shareholders. The exact number of directors shall be
fixed, within the limits specified, by the Board or the shareholders in the
same manner provided in these Bylaws for the amendment thereof. The exact
number of authorized directors shall be six (6) until changed as provided in
these Bylaws.
Section 3.3 Election and Term of Office.
The directors shall be elected at each annual meeting of the
shareholders, but if any such annual meeting is not held or the directors are
not elected thereat, the directors may be elected at any special meeting of
shareholders held for that purpose. Each director shall hold office until the
next annual meeting and until a successor has been elected and qualified.
Section 3.4 Vacancies.
Any director may resign effective upon giving written notice to the
Chairman of the Board, if any, the President, the Secretary, or the Board,
unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to take office when the resignation becomes effective.
Vacancies in the Board, except those existing as a result of a
removal of a director, may be filled by a majority of the remaining directors,
whether or not less than a quorum, or by a sole remaining director, and each
director so elected shall hold office until the next annual meeting and until
such director's successor has been elected and qualified. Vacancies existing
as a result of a removal of a director may be filled by the shareholders as
provided by law.
A vacancy or vacancies in the Board shall be deemed to exist in case
of the death, resignation or removal of any director, or if the authorized
number of directors be increased, or if the shareholders fail, at any annual
or special meeting of shareholders at which any director or directors are
elected, to
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elect the full authorized number of directors to be voted for at that meeting.
The shareholders may elect a director or directors at any time to
fill any vacancy not filled by the directors. Any such election by written
consent other than to fill a vacancy created by removal requires the consent
of a majority of the outstanding shares entitled to vote. If the Board accepts
the resignation of a director tendered to take effect at a future time, the
Board or the shareholders shall have power to elect a successor to take office
when the resignation is to become effective.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of the director's term
of office.
Section 3.5 Place of Meeting.
Regular or special meetings of the Board shall be held at any place
within or without the State of California which has been designated from time
to time by the Board or as provided in these Bylaws. In the absence of such
designation, regular meetings shall be held at the principal executive office.
Section 3.6 Organization Meeting.
Promptly following each annual meeting of shareholders the Board
shall hold a regular meeting for the purpose of organization, election of
officers and the transaction of other business.
Section 3.7 Special Meetings.
Special meetings other than organization meetings of the Board for
any purpose or purposes may be called at any time by the Chairman of the
Board, if any, the President, any Executive Vice President, Senior Vice
President, the Secretary, an Assistant Secretary or by any two directors.
Such meetings of the Board shall be held upon four days' written
notice by mail or forty-eight hours' notice given personally or by telephone,
telephone facsimile transmission, telegraph, telex or other similar means of
communication. Any such notice shall be addressed or delivered to each
director at such director's address as it is shown upon the records of the
corporation or as may have been given to the corporation by the director for
purposes of notice or, if such address is not shown on such records or is not
readily ascertainable, at the place in which the meetings of the directors are
regularly held. The notice need not specify the purpose of such meeting.
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Notice by first-class mail shall be deemed to have been given at the
time a written notice is deposited in the United States mail, postage prepaid
or sent by private mail or messenger service. Any other written notice shall
be deemed to have been given at the time it is personally delivered to the
recipient, to a person in the office of the recipient who the person giving
the notice has reason to believe will promptly communicate it to the
recipient, delivered to a common carrier for transmission, or actually
transmitted by the person giving the notice by electronic means to the
recipient. Oral notice shall be deemed to have been given at the time it is
communicated, in person, by telephone to the recipient or to a person at the
office of the recipient who the person giving the notice has reason to believe
will promptly communicate it to the recipient.
Section 3.8 Quorum.
One-third of the maximum number of authorized directors constitutes
a quorum of the Board for the transaction of business, except to adjourn as
provided in Section 3.11 of this Article. As defined in Article III, Section
3.2, the maximum number of authorized directors is six. Every act or decision
done or made by a majority of the directors present at a meeting duly held at
which a quorum is present shall be regarded as the act of the Board, unless a
greater number is required by law or by the Articles; provided, however, that
a meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for such meeting.
Section 3.9 Participation in Meetings by Conference Telephone.
Members of the Board may participate in a meeting through use of
conference telephone or similar communications equipment, so long as all
members participating in such meeting can hear one another. Such participation
constitutes presence in person at such meeting.
Section 3.10 Waiver of Notice.
The transactions of any meeting of the Board, however called and
noticed or wherever held, are as valid as though had at a meeting duly held
after regular call and notice if a quorum is present and if, either before or
after the meeting, each of the directors not present signs a written waiver of
notice, a consent to holding such meeting or an approval of the minutes
thereof. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
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Section 3.11 Adjournment.
A majority of the directors present, whether or not a quorum is
present, may adjourn any directors' meeting to another time and place. Notice
of the time and place of holding an adjourned meeting need not be given to
absent directors if the time and place is fixed at the meeting adjourned. If
the meeting is adjourned for more than twenty-four hours, notice of any
adjournment to another time or place shall be given prior to the time of the
adjourned meeting to the directors who were not present at the time of the
adjournment.
Section 3.12 Fees and Compensation.
Directors and members of committees may receive such compensation,
if any, for their services, and such reimbursement for expenses, as may be
fixed or determined by the Board.
Section 3.13 Action Without Meeting.
In accordance with the provisions of Section 307(8)(b) of the
California General Corporation Law, any action required or permitted to be
taken by the Board may be taken without a meeting if all members of the Board
shall individually or collectively consent in writing to such action. Such
written consent or consents shall have the same force and effect as a
unanimous vote of the Board and shall be filed with the minutes of the
proceedings of the Board.
ARTICLE IV -- OFFICERS
Section 4.1 Officers.
The officers of the corporation shall be a President, Vice
President, a Controller, a Secretary and a Treasurer. The corporation may also
have, at the discretion of the Board, a Chairman of the Board, one or more
additional Vice Presidents, a Chief Operating Officer, a General Manager,
General Counsel, one or more Assistant General Counsels, one or more Assistant
Controllers, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 4.5 of this Article.
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Section 4.2 Election.
The officers of the corporation, except such officers as may
be elected or appointed in accordance with the provisions of Section 4.5 or
Section 4.6 of this Article, shall be chosen annually by, and shall serve at
the pleasure of the Board, and shall hold their respective offices until their
resignation, removal, or other disqualification from service, or until their
respective successors shall be elected.
Section 4.3 Eligibility of Chairman of the Board or President.
No person shall be eligible for the office of Chairman of the Board,
if there shall be such an officer, or President unless such person is a member
of the Board of the corporation; any other officer may or may not be a
director.
Section 4.4 Removal and Resignation.
Any officer may be removed, either with or without cause, by the
Board at any time or by any officer upon whom such power of removal may be
conferred by the Board. Any such removal shall be without prejudice to the
rights, if any, of the officer under any contract of employment of the
officer.
Any officer may resign at any time by giving written notice to the
corporation, but without prejudice to the rights, if any, of the corporation
under any contract of employment to which the officer is a party. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 4.5 Appointment of Other Officers.
The Board may appoint such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in the Bylaws or as
the Board may from time to time determine. Notwithstanding the job title for
such person, no employee or other representative of this corporation shall be
an officer of this corporation unless elected by the Board.
Section 4.6 Vacancies.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in
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the manner prescribed in these Bylaws for regular election or appointment to
such office.
Section 4.7 Salaries.
The salaries of the Chairman of the Board, if any, President,
General Manager, if any, Vice Presidents, Controller, Treasurer and Secretary
of the corporation shall be fixed by the Board. Salaries of all other officers
shall be approved from time to time by the chief executive officer.
Section 4.8 Chairman of the Board.
The Chairman of the Board, if there shall be such an officer, shall
preside at all meetings of the Board, and shall exercise such powers and
perform such duties as from time to time may be conferred upon or assigned to
him by the Board or the Bylaws.
Section 4.9 President.
Subject to such supervisory powers, if any, as may be given by the
Board to the Chairman of the Board, if there be such an officer, the President
shall be the chief executive officer of the corporation and has, subject to
the control of the Board, general supervision, direction, and control of the
business and affairs of the corporation. The President shall preside at all
meetings of the shareholders and, in the absence of the Chairman of the Board
or if there be none, at all meetings of the Board. The President has the
general powers and duties of management usually vested in the office of
president of a corporation and has such other powers and duties as may be
prescribed by the Board or the Bylaws. The President may designate from time
to time the titles which the employees or other representatives of this
corporation shall use, including the appointment of agent for service of
process. Without limiting the foregoing, the President may designate one or
more employees as regional vice-presidents.
Section 4.10 Vice President.
In the absence or disability of the President, the Vice Presidents
in order of their rank shall perform all 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. The Board of Directors may establish the order of rank of
the Vice Presidents. In the absence of such ranking, the Vice Presidents shall
be ranked as follows: Executive Vice President (if any), Senior Vice President
(if any). Vice Presidents holding
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identical titles shall be ranked in order of election to that office by the
Board.
Section 4.11 Chief Operating Officer.
The Chief Operating Officer, if there shall be such an officer, must
be a vice president of the corporation and shall be subject to the exercise of
the general powers of supervision, direction and control of the business and
officers of the corporation by the President, and supervise the operations of
the corporation.
Section 4.12 General Manager.
The General Manager, if there shall be such an officer, must be a
vice president of the corporation and shall, subject to the exercise of the
general powers of supervision, direction and control by the President, or the
Chief Operating Officer, if any, shall manage the operations of the
corporation. In the absence of the Chief Operating Officer, the General
Manager shall perform all the duties of the Chief Operating Officer and when
so acting shall have all the powers of, and be subject to, all the
restrictions upon the Chief Operating Officer.
Section 4.13 General Counsel.
The General Counsel shall be the chief consulting officer of the
corporation in all legal matters and, subject to the President, shall have
control over all matters of legal import concerning the corporation.
Section 4.14 Assistant General Counsel.
One or more Assistant General Counsels, if any, shall perform such
of the duties of the General Counsel as the General Counsel may designate, and
in the absence or disability of the General Counsel, any Assistant General
Counsel, in order of election to that office by the Board, shall perform the
duties of the General Counsel.
Section 4.15 Controller.
The Controller shall be the chief accounting officer of the
corporation and shall have control over all accounting matters concerning the
corporation and shall perform such other duties as the President or General
Manager shall designate.
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Section 4.16 Secretary.
The Secretary shall keep or cause to be kept, at the principal
executive office and such other place as the Board may order, a book of
minutes of all meetings of the shareholders, the Board, and its committees,
and a share register or a duplicate share register.
The Secretary shall give, or cause to be given, notice of all the
meetings of the shareholders and of the Board and any committees thereof
required by the Bylaws or by law to be given, shall keep the seal of the
corporation in safe custody, shall from time to time issue such corporate
secretarial certificates as may be required for the business and affairs of
the corporation, and shall have such other general powers and duties of
management usually vested in the office of secretary of a corporation and as
may be prescribed by the Board, the President or the Bylaws.
Section 4.17 Assistant Secretary.
One or more Assistant Secretaries, if any, shall perform such of the
duties of the Secretary as the Secretary shall designate, and in the absence
or disability of the Secretary, any Assistant Secretary, in order of election
to that office by the Board, shall perform the duties of the Secretary.
Section 4.18 Secretary Pro Tempore.
At any meeting of the Board or of the shareholders from which the
Secretary and Assistant Secretary are absent, a Secretary pro tempore may be
appointed by the Board of Directors or shareholders as appropriate and act.
Section 4.19 Treasurer.
The Treasurer is the chief financial officer of the corporation and
shall keep and maintain, or cause to be kept and maintained, adequate and
correct accounts of the properties and business transactions of the
corporation. The books of account shall at all times be open to inspection by
any director.
The Treasurer shall deposit, or cause to be deposited, all moneys
and other valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors pursuant to
Section 5.2. The Treasurer shall disburse or cause to be disbursed, the funds
of the corporation as may be ordered by the President or the General Manager,
shall render to the President, the General Manager or the directors, whenever
they request it, an account of all transactions as Treasurer and of the
financial condition of the
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corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board, or the Bylaws.
Section 4.20 Assistant Treasurer.
One or more Assistant Treasurers, if any, shall perform such of the
duties of the Treasurer as the Treasurer shall designate, and in the absence
or disability of the Treasurer, any Assistant Treasurer, in order of election
to that office by the Board, shall perform the duties of the Treasurer.
Section 4.21 Performance of Duties.
Officers shall perform the duties of their respective offices as
stated in these Bylaws, and such additional duties as the Board shall
designate.
ARTICLE V -- OTHER PROVISIONS
Section 5.1 Inspection of Bylaws.
The corporation shall keep in its principal executive office the
original or a copy of these Bylaws, as amended to date, which shall be open to
inspection by shareholders at all reasonable times during office hours.
Section 5.2 Contracts and Other Instruments, Loans, Notes and Deposit of
Funds.
The Chairman of the Board, if any, the President and any Vice
President of this corporation, either alone or with the Secretary or an
Assistant Secretary, shall execute in the name of the corporation such written
instruments as may be authorized by the Board and, without special direction
of the Board, such instruments as transactions of the ordinary business of the
corporation may require, and such officers without the special direction of
the Board may authenticate, attest or countersign any such instruments when
deemed appropriate. The Board may authorize any person, persons, entity,
entities, attorney, attorneys, attorney-in-fact, attorneys-in-fact, agent or
agents, to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the corporation, and such authority may be
general or confined to specific instances.
No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by
resolution of the Board as it may direct. Such authority may be general or
confined to specific instances.
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All checks, drafts, or other similar orders for the payment of
money, notes, or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as the Board, Chief Executive Officer or
Treasurer may direct.
Unless authorized by the Board or these Bylaws, no officer, agent,
employee or any other person or persons shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or
to render it liable for any purpose or amount.
All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies, or other depositories as the Board may direct.
Section 5.3 Representation of Shares of Other Corporations.
The President or any other officer or officers authorized by the
Board or the President are each authorized to vote, represent and exercise on
behalf of the corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of the corporation. The
authority herein granted may be exercised either by any such officer in person
or by any other person authorized so to do by proxy or power of attorney duly
executed by said officer.
Section 5.4 Annual Report to Shareholders.
The annual report to shareholders referred to in Section 1501 of the
California General Corporation Law is expressly waived, but nothing herein
shall be interpreted as prohibiting the Board from issuing annual or other
periodic reports to shareholders.
Section 5.5 Fiscal Year and Subdivisions.
The calendar year shall be the corporate fiscal year of the
corporation. For the purpose of paying dividends, for making reports and for
the convenient transaction of the business of the corporation, the Board may
divide the fiscal year into appropriate subdivisions.
Section 5.6 Construction and Definitions.
Unless the context otherwise requires, the general provisions, rules
of construction and definitions contained in
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the General Provisions of the California Corporations Code and in the
California General Corporation Law shall govern the construction of these
Bylaws.
ARTICLE VI -- INDEMNIFICATION
Section 6.1 Indemnification of Directors and Officers.
Each person who was or is a party or is threatened to be made a
party to or is involved in any threatened, pending or completed action, suit
or proceeding, formal or informal, whether brought in the name of the
corporation or otherwise and whether of a civil, criminal, administrative or
investigative nature (hereinafter a "proceeding"), by reason of the fact that
he or she, or a person of whom he or she is the legal representative, is or
was a director or officer of this corporation or is or was serving at the
request of this corporation 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 employee benefit plans, whether
the basis of such proceeding is an alleged action or inaction in an official
capacity or in any other capacity while serving as a director or officer
shall, subject to the terms of any agreement between this corporation and such
person, be indemnified and held harmless by this corporation to the fullest
extent permissible under California law and this corporation's Articles of
Incorporation, against all costs, charges, expenses, liabilities, and losses
(including attorneys' fees, judgments, fines, Employee Retirement Income
Security Act excise taxes or penalties, and amounts paid or to be paid in
settlement) actually and reasonably incurred or suffered by such person in
connection therewith, and such indemnification shall continue as to a person
who has ceased to be a director or officer and shall inure to the benefit of
his or her heirs, executors, and administrators; provided, however, that (A)
this corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of this
corporation other than a suit permitted by Section 6.3; (B) this corporation
shall indemnify any such person seeking indemnification in connection with
settlement of a proceeding (or part thereof) other than a proceeding by or in
the name of this corporation to procure a judgment in its favor only if any
settlement of such a proceeding is approved in writing by this corporation;
(C) that no such person shall be indemnified (i) except to the extent that the
aggregate of losses to be indemnified exceeds the amount of such losses for
which the director or officer is paid pursuant to any directors' and officers'
liability insurance policy maintained by the corporation; (ii) on account of
any suit in which judgment is rendered against such person for an accounting
of profits made from the purchase or sale by such person of securities of this
corporation pursuant to the provisions of Section 16(b) of the
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Securities Exchange Act of 1934 and amendments thereto or similar provisions
of any federal, state, or local statutory law; (iii) if a court of competent
jurisdiction finally determines that any indemnification hereunder is
unlawful; and (iv) as to circumstances in which indemnity is expressly
prohibited by Section 317 of the General Corporation Law of California (the
"Law"); and (D) that no such person shall be indemnified with regard to any
action brought by or in the right of this corporation for breach of duty to
this corporation and its shareholders (a) for acts or omissions involving
intentional misconduct or knowing and culpable violation of law; (b) for acts
or omissions that the director or officer believes to be contrary to the best
interests of this corporation or its shareholders or that involve the absence
of good faith on the part of the director or officer; (c) for any transaction
from which the director or officer derived an improper personal benefit; (d)
for acts or omissions that show a reckless disregard for the director's or
officer's duty to this corporation or its shareholders in circumstances in
which the director or officer was aware, or should have been aware, in the
ordinary course of performing his or her duties, of a risk of serious injury
to this corporation or its shareholders; (e) for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication
of the director's or officer's duties to this corporation or its shareholders;
and (f) for costs, charges, expenses, liabilities, and losses arising under
Section 310 or 316 of the Law. The right to indemnification conferred in this
Article shall include the right to be paid by this corporation expenses
incurred in defending any proceeding in advance of its final disposition;
provided, however, that if the Law permits the payment of such expenses
incurred by a director or officer 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 person while a director or officer, including, without limitation,
service to an employee benefit plan) in advance of the final disposition of a
proceeding, such advances shall be made only upon delivery to this corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts to this corporation if it shall be ultimately determined that such
person is not entitled to be indemnified.
Section 6.2 Indemnification of Employees and Agents.
A person who was or is a party or is threatened to be made a party
to or is involved in any proceeding by reason of the fact that he or she is or
was an employee or agent of this corporation or is or was serving at the
request of this corporation as an employee or agent of another enterprise,
including service with respect to employee benefit plans, whether the basis of
such action is an alleged action or inaction in an official capacity or in any
other capacity while serving as an employee or agent, may, subject to the
terms of any agreement between this corporation and such person, be
indemnified and held
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harmless by this corporation to the fullest extent permitted by California law
and this corporation's Articles of Incorporation, against all costs, charges,
expenses, liabilities, and losses (including attorneys' fees, judgments,
fines, Employee Retirement Income Security Act excise taxes or penalties, and
amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith.
Section 6.3 Right of Directors and Officers to Bring Suit.
If a claim under Section 6.1 of this Article is not paid in full by
this corporation within 30 days after a written claim has been received by
this corporation, the claimant may at any time thereafter bring suit against
this corporation to recover the unpaid amount of the claim and, if successful
in whole or in part, the claimant shall also be entitled to be paid the
expense of prosecuting such claim. Neither the failure of this corporation
(including its Board, independent legal counsel, or its shareholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is permissible in the circumstances because he
or she has met the applicable standard of conduct, if any, nor an actual
determination by this corporation (including its Board, independent legal
counsel, or its shareholders) that the claimant has not met the applicable
standard of conduct, shall be a defense to the action or create a presumption
for the purpose of an action that the claimant has not met the applicable
standard of conduct.
Section 6.4 Successful Defense.
Notwithstanding any other provisions of this Article, to the extent
that a director or officer has been successful on the merits in defense of any
proceeding referred to in Section 6.1 or in defense of any claim, issue or
matter therein, he or she shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred in connection therewith.
Section 6.5 Nonexclusivity of Rights.
The right to indemnification provided by this Article shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, bylaw, agreement, vote of shareholders, or disinterested
directors, or otherwise.
Section 6.6 Insurance.
This corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee, or agent of this corporation or
another corporation, partnership,
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joint venture, trust, or other enterprise against any expense, liability, or
loss, whether or not this corporation would have the power to indemnify such
person against such expense, liability, or loss under the Law.
Section 6.7 Expenses as a Witness.
To the extent that any director, officer, employee, or agent of this
corporation is, by reason of such position or a position with another entity
at the request of this corporation, a witness in any action, suit, or
proceeding, he or she shall be indemnified against all costs and expenses
actually and reasonably incurred by him or her on his or her behalf in
connection therewith.
Section 6.8 Indemnity Agreements.
This corporation may enter into agreements with any direct or,
officer, employee, or agent of this corporation providing for indemnification
to the fullest extent permissible under the Law and this corporation's
Articles of Incorporation.
Section 6.9 Severability
Each and every paragraph, sentence, term, and provision of this
Article is separate and distinct so that if any paragraph, sentence, term, or
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of any other paragraph, sentence, term, or provision hereof. To
the extent required, any paragraph, sentence, term, or provision of this
Article may be modified by a court of competent jurisdiction to preserve its
validity and to provide the claimant with, subject to the limitations set
forth in this Article and any agreement between this corporation and claimant,
the broadest possible indemnification permitted under applicable law.
Section 6.10 Effect of Repeal or Modification.
Any repeal or modification of this Article shall not adversely affect any
right of indemnification of a director or officer existing at the time of such
repeal or modification with respect to any action or omission occurring prior
to such repeal or modification.
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ARTICLE VII -- AMENDMENTS
Section 7.1 Amendments.
In accordance with Section 211 and subject to the provisions
contained in Section 212 of the California Corporation Law, these Bylaws may
be amended or repealed either by approval of the outstanding shares or by the
approval of the Board; provided, however, that a Bylaw specifying or changing
a fixed number of directors or the maximum or minimum number or changing from
a fixed to a variable Board or vice versa may only be adopted by approval of
the outstanding shares. The exact number of directors within the maximum and
minimum number specified in these Bylaws may be amended by the Board alone.
[End of Bylaws]
PARTNERSHIP AGREEMENT
THIS PARTNERSHIP AGREEMENT is made and entered into as of the 30th day
of August, 1985, by and between VULCAN POWER COMPANY, 631 South Witmer Street,
P. O. Box 17760, Los Angeles, California 90017, a Nevada corporation
("Vulcan"), and BN GEOTHERMAL, INC., P.0. Box 1492, El Paso, Texas 79978, a
Delaware corporation ("BNG").
In consideration of the mutual convenants hereinafter set forth, the
parties hereto agree as follows:
ARTICLE I
FORMATION OF PARTNERSHIP
1.1 Formation.
Pursuant to the Uniform Partnership Act of the State of Nevada, the
parties hereto (the "Partners"), hereby associate themselves together
to form a partnership (the "Partnership"). The parties shall
immediately take such steps as are necessary to comply with all
requirements for the formation and continuation of a partnership under
said Act and to comply with the requirements of the assumed name or
similar statutes in effect in the State of Nevada.
1.2 Partnership Name.
The Partnership shall operate under the name of, and shall be known as,
VULCAN/BN GEOTHERMAL POWER COMPANY. The parties shall take such steps
as are necessary to terminate any prior use of this name and to secure
for the
<PAGE>
Partnership the rights to this name free of any earlier purposes and
any liabilities possibly associated therewith.
1.3 Purposes of Partnership.
The fundamental purpose of the Partnership is the acquisition,
construction, ownership and operation of a single geothermal-electric
generating facility now under construction near Calipatria, California
(the "Vulcan Facility"), and any activities incidental to such
fundamental purpose, as well as to carry on all such other activities
related thereto as are not forbidden by the laws of the State of
Nevada.
1.4 Place of Business.
The principal place of business and office of the Partnership shall be
located at 7001 Gentry Road, Calipatria, California 92233, and may
subsequently be moved to such other location as from time to time may
be determined by the Management Committee (as defined hereinafter) of
the Partnership and reflected in a duly filed amendment to the
Partnership certificate. The Partnership may maintain such other
offices at any other location or locations as the Management Committee
may from time to time deem advisable.
2
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ARTICLE II
CAPITAL AND DEBT FINANCING
2.1 Capital of the Partnership.
(a) Initial Capital Contributions.
The initial capital of the Partnership shall consist of the
following described assets (the "Partnership Assets"), an undivided
one-half (1/2) interest of which is to be contributed by each
Partner:
(1) The physical plant of the Vulcan Facility described in
Exhibit A attached hereto and incorporated herein by
reference; and
(2) The eighteen (18) completed wells (including intangible
drilling costs) associated with the Vulcan Facility described
in Exhibit B attached hereto and incorporated herein by
reference, along with rights of ingress and egress to said
wells, subject to Vulcan's right to repurchase described in
Section 9.1 hereof.
(b) Payment of Initial Capital Contributions. Immediately following the
execution of this Partnership Agreement, the Partners shall each
contribute to the Partnership an undivided one-half (1/2) interest
in the Partnership Assets and be credited the amount of capital
shown on Exhibit C, attached hereto and made a part hereof.
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(c) Additional Capital Contributions and Withdrawals. Equal
additional contributions to capital, whether needed to complete the
Vulcan Facility, to cover costs of operation, or to otherwise
accomplish the purposes of the Partnership, shall be made by the
Partners when, and in the manner and amount, requested by Vulcan
and approved by unanimous consent of the Management Committee.
Failure to make such additional capital contributions shall cause
an automatic adjustment in the distribution of profits and losses
in accordance with Section 3.2 below. Withdrawals of capital shall
be made only by unanimous decision of the Management Committee.
Both additional capital contributions and withdrawals shall be made
upon the following conditions:
(1) The preparation of a revised schedule of capital contributions
(similar in form to Exhibit C) showing the then aggregate
capital contributions of both Partners, which revised schedule
shall thereafter be attached hereto; and
(2) The filing of a properly revised partnership certificate in
the office of the clerk of the county where the principal
place of business of the Partnership is then located, if such
a revised partnership certificate is then required by law.
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2.2 Partner's Capital.
The Partner's capital for each Partner shall reflect its interest in the
net book value of the assets and liabilities of the Partnership. The
initial amount of each Partner's capital shall be the initial capital
contribution made by that Partner. Each Partner's capital shall
thereafter be increased by any additional capital contributions made by
such Partner and decreased by any withdrawals of capital made by such
Partner. Capital contributions or withdrawals made other than in cash
shall be reflected at the value of the property involved as agreed upon
by the Partners.
2.3 Interest in the Partnership Defined.
A Partner's "interest in the Partnership", as that term is used
throughout this Partnership Agreement, refers to its entire interest in
and with respect to the Partnership including its interest in the
capital and profits of the Partnership (unreduced by any amounts owed by
such Partner to the Partnership, but such interest shall constitute
security for the repayment of such debts). A Partner's interest in the
Partnership shall not include any amounts owed to that Partner by the
Partnership or to the Partnership by that Partner on written promissory
notes nor shall such expression include a Partner's right to participate
as a Partner in the management of the Partnership or any of its
property. No Partner in its individual capacity shall have any ownership
of the property of the Partnership.
5
<PAGE>
2.4 Partnership Distributions.
Distributions to Partners shall be made only to the extent that the
Partners acting jointly may determine from time to time that such
distributions are in the best interest of the Partnership; provided,
however, that proceeds received by the Partnership as a result of the
sale by the Partnership of its assets (or a portion thereof), whether
pursuant to a purchase agreement granted by the Partnership to a Partner
or otherwise, shall be first applied to retire the outstanding debts of
the Partnership and any residual shall be immediately distributed to the
Partners in equal proportion, unless the Partners shall agree otherwise.
No Interest shall be paid to a Partner on its capital in the
Partnership.
2.5 The Partnership's Anticipated Financial Needs.
(a) Financing of the Vulcan Facility.
It is the specific intent of the Partners that financing for the
acquisition and construction of the Vulcan Facility be obtained
solely from capital contributions made by the Partners, such
financing being presently estimated to be approximately Seventy-
three Million Dollars ($73,000,000), U.S.
(b) Additional-Funds Required for the Partnership.
It is the specific intent of the Partners to fund all other
financial needs of the Partnership solely from operations and/or
additional capital contributions made by the Partners. If at any
time or times the
6
<PAGE>
Partnership should require additional funds for such other needs
which it is unable to generate through its own operations and
which, for any reason, the Partnership does not wish to raise
through an increase in the Partnership capital pursuant to the
provisions of Section 2.1(c) above, the Management Committee, by
unanimous decision, may authorize such additional funds to be
borrowed by the Partnership, upon such terms as the Management
Committee may agree, using one or more of the following methods:
(1) From third parties based on the Partnership's own credit;
(2) From the Partners (in equal amounts);
(3) From third parties, by means of corporate guarantees of the
Partners, with the burden with respect to the amounts, form
and terms of such loans to be borne substantially equally by
the Partners, unless they otherwise agree.
ARTICLE III
PROFITS AND LOSSES
3.1 Profit and Losses Defined.
Throughout this Partnership Agreement, the term "profits and losses of
the Partnership" shall mean the net profits or net losses of the
Partnership, including realized capital gains and losses, as determined
in the Partnership's books of account. The Partnership's books of
account shall be kept
7
<PAGE>
using the accrual method of accounting, applying generally accepted
accounting principles. Commencing with the calendar year 1986, the
Partnership's fiscal year shall be the calendar year.
3.2 Division Between Partners.
The profits and losses of the Partnership shall be credited or charged
to the Partners in equal proportions. However, if a Partner fails to
make any additional capital contribution required by Section 2.1(c)
above, it is understood and agreed by the parties hereto that the
division of profits and losses specified herein shall be automatically
adjusted so as to allocate to each Partner a fraction of the profits and
losses, the numerator of which shall be (a) one-half of the total of
both Partners' capital accounts before any additional capital
contributions plus (b) any additional capital contributions made by the
individual Partner; and, the denominator of which shall be the total of
both Partners' capital accounts after all additional capital
contributions.
3.3 Consequences of Default in Capital Contributions.
A partner which fails to make additional capital contributions required
by Section 2.l(c) above shall be hereinafter referred to as a
"defaulting Partner". While any Partner is in default:
(a) No distributions shall be made to such defaulting Partner and any
interest or other earnings on amounts withheld from such defaulting
Partner shall accrue to
8
<PAGE>
the non-defaulting Partner; provided, however, that upon the
unanimous consent of the Management Committee, any counts withheld
from such defaulting Partner pursuant to this Section, together
with any interest or other earnings on such withheld amounts, may
be credited to the capital account of such defaulting partner;
(b) the non-defaulting Partner may, at its option, consider the sums
advanced by it (and not matched by the defaulting Partner) to be a
loan to the Partnership; and
(c) except as provided in this Section 3.3, and in Section 7.1 of this
Partnership Agreement, such defaulting Partner shall continue to be
a Partner subject to all of the terms and conditions of this
Partnership Agreement.
A defaulting Partner shall be liable to the Partnership and to the
non-defaulting Partner for all losses, damages and expenses sustained or
incurred by the Partnership and such non-defaulting Partner as a result of
such default, including, without limitation, any additional tax liabilities
and interest, and any allocation of Partnership losses resulting from such
default.
3.4 Compensation of Partners.
Each Partner shall receive reasonable compensation for any services
(such as bookkeeping services or tax return preparation services)
rendered by it to the Partnership, but
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<PAGE>
only after provision for such compensation has been made in a written
agreement between the Partners or between the Partner rendering such
services and the Partnership. Any such compensation shall be deducted
from Partnership income, as in the case of any other expense, in
determining the profit or loss allocable among the Partners under the
provisions of Section 3.2 above.
3.5 Reimbursement for Expenses.
Each Partner shall be entitled to be reimbursed by the Partnership, as
an expense of the Partnership, for its actual, reasonable and necessary
expenses authorized by the Partners and incurred in behalf of the
Partnership, upon filing an itemized account of such expenses in the
records of the Partnership.
ARTICLE IV
TAXES
4.1 Responsibilities for Income Taxes; Preparation of Partnership Returns.
AA soon as practicable following the end of each fiscal year of the
Partnership, the Partnership shall cause the Operator (as hereinafter
defined) to prepare and deliver to each Partner such federal, state and
local income tax returns and such other accounting information, tax
information and schedules as shall be necessary for the preparation by
each Partner of its income tax returns for such fiscal year. The
Operator shall submit copies of all returns to each Partner not less
than forty-five (45) days prior to the date upon
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<PAGE>
which such returns are required to be filed (including extensions of
time obtained by the Operator) to permit review and approval of the
returns prior to filing.
The Operator shall file or cause to be filed, subject to Management
Committee review and approval, such federal income tax returns as may be
required in respect of the Partnership.
4.2 Allocation of Tax Benefits and Burdens.
For income tax purposes, depreciation deductions shall be allocated to
the Partners based upon the value of the capital contributions of the
Partners stated as a percentage of total capital contributions. The
Partners shall share the investment and energy tax credits in accordance
with the applicable provisions of the Internal Revenue Code of 1954, as
amended, and the Treasury Regulations promulgated thereunder.
4.3 Elections in U.S. Income Tax Returns.
In preparing the federal U.S. Partnership income tax returns for the
Partnership, the following elections shall be made:
(a) A calendar taxable year;
(b) The accrual method of accounting;
(c) The depreciation method for each asset most beneficial to the
Partners as determined by the Partners;
(d) The full amount of credit under Internal Revenue Code Section 46(a)
; and
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<PAGE>
(e) in respect of any election not specified, the method providing
for the most immediate deduction shall be chosen.
4.4 Termination Within the Meaning of IRC Section 708.
No sale or exchange of any Partnership interest, or any fraction
thereof, may be made if the interest sought to be sold or exchanged,
when added to the total of all other interests sold or exchanged within
the period of 12 consecutive months prior thereto, would, in the opinion
of tax counsel for the Partnership (as selected by either Partner),
result in the Partnership being considered to have been terminated
within the meaning of Section 708 of the Internal Revenue Code of 1954,
as amended, or any similar provision enacted in lieu thereof.
4.5 IRC Section 754 Election.
The Operator or other party who is responsible for filing the
Partnership's federal tax return shall, if the Partners so desire, make
or attempt to revoke the election referred to in Section 754 of the
Internal Revenue Code of 1954, as amended, or any similar provision
enacted in lieu thereof. Each of the Partners shall, upon request,
supply the information necessary to properly give effect to any such
election.
4.6 State and Local Franchise and Income Tax Returns.
The Operator, on behalf of and for the account of the Partnership and
subject to review and approval of the Management Committee, shall file
(or cause to have filed)
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<PAGE>
all returns and make (or cause to be made) all payments for the
Partnership of all state and local franchise or income taxes levied
directly on the Partnership. All such tax payments made or caused to be
made for or on behalf of the Partnership shall be made from Partnership
funds.
The Operator shall render for ad valorem taxation all property subject
to this Agreement which by law should be returned for such taxes, and
shall pay (or cause to be paid) all such taxes assessed thereon before
they become delinquent. The Operator shall bring any unreasonable tax
assessment to the attention of the Management Committee and, so directed
by the Management Committee, shall protest any unreasonable tax
assessment within the time and manner prescribed by law, and prosecute
the protest to a final determination, unless the Management Committee
directs the Operator to abandon the protest prior to final
determination. When any such protested valuation shall have been finally
determined, the Operator shall pay (or cause to be paid) the assessment,
together with interest and penalty accrued. All ad valorem tax payments
shall be made from Partnership funds.
4.7 Access to Partnership Tax Returns, Etc.
Any tax returns which may be filed or any information concerning or upon
which payments for taxes may be made by a Partner respecting the
Partnership pursuant to this Article IV shall be subject to audit by the
other Partner and both
13
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0147747.01
Partners and any accountants or firms of accountants designated by such
Partners shall at all reasonable times have access thereto.
4.8 Designation of Tax Matters Partner.
Vulcan is designated the tax matters Partner as defined in Section
6231(a)(7) of the Internal Revenue Code of 1954, as amended.
ARTICLE V
MANAGEMENT
5.1 Partners' Rights and Responsibilities.
The Partners shall have equal rights in the direction and conduct of the
business and affairs of the Partnership. The Partners covenant with one
another that no action will be taken on behalf of or in the name of the
Partnership without the consent of both Partners, except as otherwise
expressly permitted herein.
5.2 Powers of the Partners.
The Partners acting jointly through their respective representatives on
the Management Committee shall possess all of the powers and rights of
Partners under the partnership law of the State of Nevada, including,
without limiting the generality of the foregoing, the power, on behalf
of the Partnership and in their discretion, to:
(a) Sell, assign, convey, or otherwise transfer title to any portion of
the real and personal property and other assets of the Partnership,
including any interest in
14
<PAGE>
any mortgage, lease, or other interest in real or personal property
owned by the Partnership;
(b) Construct or cause the construction of such buildings and other
improvements upon land owned or leased by the Partnership, and such
additions and alterations to existing improvements, as they deem
proper;
(c) Lease to any party, including a Partner, upon such terms as they
deem proper all or any portion of the real or personal property of
the Partnership, whether or not the space or facility so leased is
to be occupied by the lessee or, in turn, subleased in whole or in
part to others;
(d) Borrow money for the Partnership, and, as security therefor,
mortgage all or any part of the Partnership's real and personal
property and in conjunction therewith execute all necessary papers
and documents, including, but not limited to, bonds, notes,
mortgages, pledges, security agreements and confessions of judgment
for and on behalf of the Partnership;
(e) Open and close bank accounts, and name and change signatories
authorized to make deposits and withdrawals in relation thereto;
(f) Obtain replacements of mortgages of the Partnership's property;
(g) Prepay, in whole or in part, refinance, recast, increase, modify,
consolidate, correlate or extend on
15
<PAGE>
such terms as they deem proper any mortgages affecting the real or
personal property of the Partnership;
(h) Place record title to the Partnership's real or personal property
in the name or names of a nominee or nominees for the purpose of
mortgage financing or any other convenience or benefit to the
Partnership;
(i) Employ from time to time persons, firms, financial advisors and
corporations (including persons, firms and corporations which may
be otherwise affiliated with a Partner), on such terms and for such
compensation as they shall deem proper, to operate and manage the
Partnership's property, including, without limitation, management
agents, accountants and attorneys;
(j) Set aside investment funds of the Partnership for payment of past,
current and future liabilities of the Partnership including, but
not limited to, liabilities of the Partnership to individual
Partners; and
(k) Execute, acknowledge and deliver any and all instruments to
effectuate any of the foregoing powers.
No person, firm or corporation dealing with the Partnership shall be required
to inquire into the authority of the Partners acting through the Management
Committee to take any action or make any decision hereunder.
5.3 Delegation of Responsibility to Management Committee.
Each Partner shall appoint two natural persons to represent that Partner
on the Management Committee of the Partnership. The persons so appointed
by each Partner shall be from time
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to time herein called the "Partner's Representatives" on the Management
Committee and any one of such representatives shall be called "Partner's
Representative". The name of each such representative shall be notified
to the other Partner by the Partner appointing same and any such
representative may be removed by the appointing Partner, such removal
being likewise notified to the other Partner. The Partners hereby
delegate responsibility for the conduct of the business and affairs of
the Partnership to the Management Committee.
5.4 Power of a Partner's Representative.
Each Partner will take such action as is internally required within that
Partner to provide each of its Partner's Representatives on the
Management Committee sufficient authorization to bind and legally act on
behalf of that Partner so long as his appointment remains in effect.
Persons or entities dealing with the Partnership may rely upon the
signatures of one representative of each Partner as binding upon the
Partnership.
5.5 Management of the Partnership Business.
The Management Committee shall conduct the property, affairs and
business of the Partnership and shall make all decisions pertaining to
the kind of business to be transacted (including decisions which expand
or otherwise change the purpose of the Partnership as stated in Section
1.3 above), the establishment of budgets for the Partnership, and the
establishment of Partnership policies, including, but not
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limited to, tax policies. In addition, the Management Committee may
exercise on behalf of the Partners any of the powers of the Partners
specified in Section 5.2 hereof. Unless otherwise specifically provided
for herein, any decision of the Management Committee shall require the
consent of all representatives on such Committee.
5.6 Rules of Procedure; Minutes; Secretary.
The Management Committee may establish rules of procedure and policies
pursuant to which it shall conduct its operations and proceedings. Such
Committee may appoint a Secretary who shall be responsible for keeping
the minutes of the proceedings and Committee decisions and for giving
notice of the meetings of the Committee to each Partner's Representative
in the manner provided herein. Such Secretary shall serve at the
pleasure of the Partners, either one of which may cause his removal,
effective upon the appointment and qualification of his successor, by
the giving of written notice to the other Partner, in which event the
Partners shall agree on such successor.
5.7 Management Committee Meetings.
The Management Committee shall hold its meetings at such times, but at
least quarterly, and places as it determines and shall have the
Secretary specify by notice. Notice of each such meeting shall be
communicated to each Partner's Representative by telephone or by mail,
telegram or telex, addressed to him at his usual place of business at
least fourteen (14) days if by mail or three (3) days if by
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<PAGE>
telephone, telegram or telex before the day on which the meeting is to
be held; and such notice shall specify the time, place and general
purpose of the meeting. The meeting shall not take place if either
Partner is unable to be sufficiently represented and if that Partner
communicates same to the other Partner and specifies an alternative
date. In lieu of a formal meeting, any action required or permitted to
be taken by the Management Committee may be taken in the form of a
written consent thereto which shall have been signed by at least one
representative of each Partner and filed with the minutes of the
meetings of the Management Committee meetings.
5.8 Banking.
A11 funds of the Partnership which are to be deposited with any
financial institution shall be deposited in the name of the Partnership
in such account or accounts as shall be designated by the Management
Committee and withdrawals therefrom shall be made upon instruments
signed by persons authorized by the Management Committee to make
withdrawals.
5.9 Accounting and Auditors.
(a) Books of Account.
The Partnership shall cause the Operator to maintain accounting
records to show a true and complete record of the business, assets
and liabilities of the Partnership according to generally accepted
accounting principles in such form as the Management Committee
shall from time to time approve or direct and shall
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<PAGE>
make such accounting records available for inspection to the
Management Committee or to either Partner or any accountants or
accounting firms designated by the Management Committee or by
either Partner, at all reasonable times.
(b) Periodic Statements.
The Partnership shall cause the Operator to prepare annual and
quarterly financial statements (balance sheet and income statements
and statements of changes in financial position), both in form and
substance as dictated by generally accepted accounting principles,
plus estimated monthly accounting data sufficient to allow monthly
closings of Partnership accounting records. The annual financial
statements shall be audited and certified by a national accounting
firm selected by the Management Committee, and shall be submitted
for review and approval by the Management Committee on an estimated
basis not later than the end of February, and in final form not
later than the end of March, in the year following the year to
which they relate.
ARTICLE VI
CONSTRUCTION AND OPERATION OF THE VULCAN FACILITY
6.1 Construction and Operation of the Vulcan Facility.
The Partners hereby agree that the Partnership shall
designate Vulcan as the initial Operator to construct and
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operate the Vulcan Facility pursuant to a certain Construction,
Operating and Accounting Agreement between the Partnership and Vulcan
dated as of August 30, 1985. The initial and any successor Operator may
be removed from such position by unanimous vote of the Management
Committee. Upon removal of an Operator, a successor shall be designated
by unanimous vote of the Management Committee.
ARTICLE VII
PARTNERSHIP TERM
7.1 Term.
The term of the Partnership shall commence upon the date of this
Agreement and shall expire on August 30, 2015, unless extended to a
certain later date by mutual agreement of the Partners (such term and
any such extension thereof being hereinafter called "the Partnership
Term") or unless terminated earlier by the occurrence of any one or more
of the following events:
(a) The acquisition pursuant to Article VIII hereof, by one Partner
of the entire interest in the Partnership owned by the other Partner;
(b) The mutual written agreement of the Partners to dissolve the
Partnership; or
(c) The election, by a solvent Partner, to dissolve the Partnership
upon the other Partner becoming insolvent, which, for the purposes
hereof, shall be evidenced either by:
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<PAGE>
(1) The filing by the other Partner or any parent entity
thereof (hereinafter collectively the "Partner") of a voluntary
petition in bankruptcy or the entry of a decree or order by a
court having jurisdiction in the premises adjudging the Partner
a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Partner under the Federal
Bankruptcy Act or any other applicable federal or state law, or
appointing a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Partner or of
any substantial part of its property, or the ordering of the
winding-up or liquidation of its affairs, said order or decree
continuing unstayed and in effect for a period of sixty
consecutive days; or
(2) The failure of the other Partner to make an initial capital
contribution pursuant to Section 2.1(a) hereof or such
additional capital contributions as may from time to time be
called for pursuant to Section 2.1(c) hereof within ten (10)
business days of receipt of a notice from the solvent Partner
that such contribution has not been made within ten (10)
business days of when due.
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In order to be effective, such election must be made within thirty (30) days
after the default specified in this Section 7.1(c).
ARTICLE VIII
TRANSFER OF PARTNERSHIP INTEREST
8.1 Restriction on Transfer.
During the Partnership Term no Partner shall, directly or indirectly in
any manner, sell, transfer, assign, encumber or otherwise dispose of its
interest in the Partnership, or any interest in the assets of the
Partnership, without the prior written consent of the other Partner,
except as provided in this Article. Further, no Partner shall, except
with the prior written consent of the other Partner or except as
provided for in Section 7.1(c) above, cause the dissolution of the
Partnership.
8.2 Permitted Transfers.
(a) Mutually Agreed Transfers.
In the event that the Partners mutually agree that one Partner
("the Purchaser") is to acquire the entire interest in the
Partnership owned by the other ("the Seller") then, unless
otherwise agreed between the Seller and the Purchaser:
(1) The Seller shall sell its interest to the Purchaser for cash
at a mutually agreed upon price and under such terms as the
Partners may agree upon; and
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(2) Following consummation of the sale of its interest in the
Partnership, the Seller shall cease to have any further
interest in the assets, rights (except that the validity of
such other leases, service agreements, or other agreements to
which Seller is also a party shall remain unimpaired thereby),
or profits and losses of the Partnership and shall be
indemnified by the Purchaser in respect of all liabilities and
obligations of the Partnership as such exist as of said date of
consummation of sale.
(b) Transfer to Related Entity.
Each Partner shall have the right to transfer all (but not less
than all) of its interest in the Partnership to a wholly-owned
subsidiary thereof, to the corporate parent thereof, or to any
other wholly-owned subsidiary of its corporate parent. In the event
of such transfer, the Partner so transferring shall remain
primarily liable for the performance by such transferee of
transferor's Partnership obligations.
(c) Transfer to Third Parties.
Each Partner shall have the right to transfer all (but not less
than all) of its interest in the Partnership to a bona fide arms'
length purchaser, if all of the following conditions are met:
(1) The other Partner shall have been provided with a copy of the
bona fide offer of purchase from a
24
<PAGE>
third party and shall have been given, by written notice, a
first right of purchase of the transferor's interest on terms
equal to those of the proposed transfer, which terms shall be
specified in such notice, and the other Partner shall either
have declined same or have failed to have entered into, within
90 days of said notice, a written agreement with the transferor
Partner for the transfer of said interest on the terms
specified in such bona fide offer of purchase;
(2) The transferee is approved by the other Partner (which approval
shall not be unreasonably withheld);
(3) The transferee is acceptable to any entities which have
lent money or extended other credit facilities to the
Partnership; and
(4) The transferee enters into a written agreement providing for
said transfer which includes assumption by transferee of all of
transferor's obligations in and to the Partnership, and which
agreement has been approved by the other Partner (which
approval shall not be unreasonably withheld).
(d) Transfers Subject to Section 4.4.
Any transfer permitted pursuant to this Section 8.2 shall be subject
to the restrictions contained in Section 4.4 hereof, which
restrictions may require that
25
<PAGE>
the transfer of all (but not less than all) of a Partner's interest
in the Partnership be completed in one or more transactions.
8.3 Effect of Transfer.
A Partner which transfers its interest in the Partnership in accordance
with any provisions of this Article shall thereupon cease to be a party
to this Agreement and shall have no further obligations hereunder and
its transferee shall, by the agreement required in Section 8.2 above,
thereupon be substituted in its place.
ARTICLE IX
TRANSFER OF ASSETS OF PARTNERSHIP
9.1 Transfer of Goethermal Wells.
The Partners, on behalf of the Partnership and upon the unanimous
consent of the Management Committee, hereby agree to transfer to Vulcan,
upon its request, any or all unneeded wells identified as such by an
independent geothermal reservoir expert selected by Vulcan and approved
by the Management Committee (the "Unneeded Wells"). The purchase price
for the Unneeded Wells shall be equal to the original book value of such
wells on Vulcan's books, inflated from the Closing Date through the date
of purchase hereunder at a rate equal to the base rate on corporate
loans at large U.S. money center commercial banks published by The Wall
Street Journal plus one-half percent (l/2%), determined monthly in
arrears (the "Interest Rate"). Said purchase price shall be
26
<PAGE>
payable in sixty (60) equal monthly installments (or, at Vulcan's
option, in a lesser number of equal monthly installments, but, in any
event, with right of prepayment at any time without penalty), including
interest calculated at the Interest Rate, commencing at the end of the
month following the month of purchase hereunder.
ARTICLE X
WINDING UP OF THE AFFAIRS OF THE PARTNERSHIP
10.1 Procedure Upon Ending of Partnership Term. Upon the expiration or
termination of the Partnership Term, except pursuant to Section 7.1(c)
above (which termination shall be governed by Section 10.2 below), the
Partners, acting jointly through their respective representatives or, if
one of the Partners is then in bankruptcy or receivership, the Partner
who is not in bankruptcy or receivership, as the case may be, shall
forthwith commence to wind up the affairs of the Partnership and the
winding up shall be completed as promptly as possible. The proceeds from
the liquidation of the assets of the Partnership (including the
obligations of the Partners to the Partnership) shall be applied as
promptly as is reasonably possible to the payment of the following in
the order or priority in which they are listed:
(a) Debts of the Partnership, other than to Partners;
(b) Amounts owed to Partners, first on account of advances, and then on
account of loans;
27
<PAGE>
(c) The capital contributions of the Partners reduced by any current
net loss; and
(d) The share of each Partner in undivided net profits, if any.
Any profit or loss on disposition of Partnership properties or otherwise
in the process of liquidation shall be credited or charged to the
Partners in the manner provided in Section 3.2 above. Property shall be
distributed in kind in the dissolution only to the extent the Partners
(or their legal representatives, if any) agree upon such distribution
and on the then present fair market value of such property. Such a
distribution of property shall be treated for Partnership accounting
purposes as though each item of property had been sold for cash equal to
its value and the cash proceeds distributed to the Partner receiving
that item of property. The difference between the value of the property
distributed in kind and its book value shall be treated the same as a
profit or loss on the sale of such property and shall be credited or
charged to the Partners in the manner provided in Section 3.2 above. If
in the process of winding up the Partnership affairs, a Partner should
have a net debit balance in its capital account, whether by reason of
losses in liquidation or otherwise, said debit balance shall represent
an obligation from such Partner to the Partnership, which obligation
shall be paid in cash within 30 days.
28
<PAGE>
10.2 Procedure Upon Termination of Partnership Term by Solvent
Partner.
(a) In the event the Partnership is terminated pursuant to Section
7.1(c) above, then the solvent Partner shall have an option to
purchase the Partnership interest of the insolvent Partner and
shall pay as consideration therefor a price equal to the capital
contributions(s) of the insolvent Partner plus:
(1) Amounts owed to the insolvent Partner by the Partnership; plus
(2) In the case of undivided net profits, the insolvent
partner's share thereof; less
(3) In the case of undivided net losses, the insolvent Partner's
share thereof; and less
(4) Amounts owed by the insolvent Partner to the Partnership.
In order to be effective this option must be exercised by the
solvent Partner within 30 days after the date on which an election
has been made pursuant to Section 7.1(c) above.
(b) In the event the solvent Partner shall elect not to purchase the
Partnership interest of the insolvent Partner, then the assets of
Partnership shall be liquidated in accordance with the provisions
of Section 10.1.
29
<PAGE>
ARTICLE XI
MISCELLANEOUS
11.1 Amendment.
The parties hereto acknowledge that this Partnership Agreement contains
the entire agreement between them with respect to the Partnership, that
all prior documents, agreements and negotiations with respect to the
Partnership are merged herein and superseded hereby, and any amendment
to this Partnership Agreement shall be made in writing to and shall be
executed by all of the then Partners.
11.2 Notices.
Any notice or other instrument required or permitted to be given, made
or sent under this Partnership Agreement shall be in writing, signed by
the party giving or making the same, and shall be deemed duly given or
made when personally delivered or on the fifth day after being mailed by
prepaid registered or certified mail to the party entitled thereto at
the addresses set forth on the first page hereof, or at such other
addresses as the parties may specify by like notice.
11.3 Benefit.
This Partnership Agreement shall be binding upon and operate for the
benefit of the parties hereto and their respective successors and
assigns.
11.4 Counterparts.
This Partnership Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an
30
<PAGE>
original, and such counterparts together shall constitute but one and
the same Partnership Agreement. Anyone may rely upon a copy certified by
a notary public commissioned under the law of the states of either
Texas, Nevada or California to be a true copy of this Partnership
Agreement (and of the attachments hereto) to the same effect as if such
copy were an original. One copy of this Partnership Agreement and each
amendment and supplement thereto shall at all times be kept on file at
the principal place of business of the Partnership.
11.5 Applicable Law.
This Partnership Agreement and the rights and obligations of the parties
hereunder shall be interpreted in accordance with the laws of the State
of Nevada. The descriptive titles of articles, sections and paragraphs
of this Partnership Agreement are for convenience only and any
construction of this Partnership Agreement shall be made without
reference to such titles. In the event that any provisions of this
Partnership Agreement violate any rule of law, only such invalid
provisions and not this entire Partnership Agreement shall be considered
void and of no effect and all of the other provisions hereof shall
remain in full force and effect.
11.6 Injunctive Relief and-Specific Performance.
A Partner's interest in this Partnership cannot readily be purchased or
sold in the open market, and for that reason, among others, the parties
may be irreparably damaged in the
31
<PAGE>
event that this Partnership Agreement is not specifically enforced.
Should any dispute arise concerning any possible disposition of such an
interest in the Partnership, allegedly in violation of this Partnership
Agreement, an injunction may be issued restraining such disposition
pending the determination of such dispute. Likewise, any purchase and
sale of any interest in the Partnership required by this Partnership
Agreement, or any other transaction specified herein, shall be
enforceable in a court having equity jurisdiction by an appropriate
decree of specific performance.
11.7 Waiver of Terms.
No waiver of any term or condition of this Partnership Agreement shall
be effective unless made in a writing signed by the party against which
enforcement of the waiver is sought. No such waiver shall be deemed to
be a waiver of any subsequent breach of such term or condition, or of
any breach of any other term or condition of this Partnership Agreement.
32
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Partnership
Agreement as of the day and year first above written.
ATTEST: VULCAN POWER COMPANY
(Seal)
/s/ Joseph W. Aidlin By: /s/ Andrew W. Hoch
- ---------------------------------- ------------------------------
Secretary Its: President
Vulcan Power Company -----------------------------
ATTEST: BN GEOTHERMAL, INC.
(Seal)
/s/ Michael D. Ferguson By: /s/ Martin R. Engler, Jr.
- ---------------------------------- ------------------------------
Assistant Secretary Its: President
BN Geothermal, Inc. -----------------------------
33
<PAGE>
ACKNOWLEDGMENT
--------------
STATE OF CALIFORNIA )
)ss.
COUNTY OF LOS ANGELES )
On this 30th day of August, 1985, A.D., Joseph W. Audlin personally
appeared before me, a notary public in and for Los Angeles County, known or
proved to me to be the person described in and who executed the foregoing
instrument, who acknowledged to me that he or she executed the same freely and
voluntarily and for the uses and purposes therein mentioned.
/s/ April L. Taylor
------------------------------
Notary Public in and for said
County and State
Commission Expires: August 2, 1988
34
<PAGE>
AGREEMENT
AND
AMENDMENT NO. 1 TO PARTNERSHIP AGREEMENT
This Agreement and Amendment No. 1 to Partnership Agreement is made
and entered into as of the 15th day of December, 1988, by and between Vulcan
Power Company, a Nevada corporation ("Vulcan"), and BN Geothermal Inc., a
Delaware corporation ("BNG").
WHEREAS, Vulcan and BNG entered into the Partnership Agreement
dated as of August 30, 1985 (the "Partnership Agreement"), for the primary
purpose of acquiring, constructing, owning and operating a single
geothermal-electric generating facility;
WHEREAS, Burlington Resources Inc. ("BRI"), the owner of record of
all the issued and outstanding shares of capital stock of BNG (the "BNG
Shares"), has entered into an agreement with Mission Energy Company
("Mission") dated as of June 16, 1988 (the "Stock Purchase Agreement")
providing for the sale by BNI and the purchase by Mission of the BNG Shares;
WHEREAS, Mission has conditioned its obligations under the Stock
Purchase Agreement upon the execution of this Agreement;
WHEREAS, BNG has agreed to amend, and seek Vulcan's agreement to
amend, the Partnership Agreement as herein provided to facilitate the sale of
the BNG Shares to Mission; and
WHEREAS, Vulcan has agreed to so amend the Partnership Agreement;
NOW THEREFORE, consideration of the mutual covenants hereinafter
set forth and other good and valuable consideration, receipt of which is
hereby acknowledged, Vulcan and BNG agree as follows:
1. Default in Capital Contributions. Section 2.1(c) and Section 3.2
of the Partnership Agreement each shall be amended to delete the second
sentence thereof. Section 3.3 of the Partnership Agreement shall be amended in
its entirety to read as follows:
"3.3 Default in Capital Contributions
In the event that a partner does not make a timely additional
capital contribution as required by Section 2.1(c) above ("Defaulting
Partner"), the other general partner ("Non-Defaulting Partner"), at its
option, may pay to the Partnership an amount (the "Non-Defaulting
Partner Payment"), up to or equal to the unfunded amount, which
<PAGE>
payment shall be deemed to be a capital contribution from the Defaulting
Partner to the Partnership. Notwithstanding any other provision of this
Partnership Agreement, in the event that a Non-Defaulting Partner makes
a Non-Defaulting Partner Payment, the Partnership shall not make any
distribution to the Defaulting Partner, but shall pay all distributions
(the "Defaulting Partner Distributions") which would otherwise have been
paid to the Defaulting Partner to the Non-Defaulting Partner until (i)
the amount of all Defaulting Partner Distributions paid to the
Non-Defaulting Partner equals the amount of the Non-Defaulting Partner
Payment plus an amount equal to the maximum lawful rate of interest on
the unreimbursed balance thereof (the "Additional Amount") or (ii) the
Non-Defaulting Partner notifies the Partnership that it has received a
payment from the Defaulting Partner equal to the amount of the Non-
Defaulting Partner Payment plus the Additional Amount, less the amount
of any previous distributions to the Non- Defaulting Partner with
respect to such default. During any period in which Defaulting Partner
Distributions are being paid to the Non-Defaulting Partner, at the
Non-Defaulting Partner's option, the Defaulting Partner's members on the
Management Committee shall not have any voting rights and the vote of
the Non-Defaulting Partner shall be sufficient with regard to any matter
voted on by the Management Committee. The Defaulting Partner shall be
liable to the Partnership and to the Non-Defaulting Partner for all
losses, damages and expenses sustained or incurred by the Partnership
and such Non-Defaulting Partner as a result of the Defaulting Partner's
failure to fund its required contribution and such default, including,
without limitation, any additional tax liabilities and interest or
penalties thereon."
In addition, Section 7.1(c)(2) and Section 10.2 of the Partnership Agreement
shall be amended to substitute (i) the phrase "Non-Defaulting Partner" for the
phrase "solvent partner" or "solvent Partner" and (ii) the phrases "Defaulting
Partner['s]" for the phrases "insolvent Partner['s]".
2. Capital Accounts. Section 2.2 of the Partnership Agreement
shall be amended in its entirety to read as follows:
"2.2 Partners' Capital Accounts
(1) The Partners' capital accounts have been adjusted to reflect
the fair market value of the Partnership property in accordance with the
rules set forth in Treasury Regulation Section 1.704-1(b)(2)(iv)(r).
Partners' capital accounts shall be maintained in accordance with
Treasury Regulation Section 1.704-1(b)(2)(iv). The capital account of
each Partner shall be credited with (i) the dollar amount of any capital
contributions made by such Partner, (ii) the fair market value of
property contributed by such Partner to
2
<PAGE>
the Partnership (net of liabilities secured by such contributed property
that the Partnership is considered to assume or take subject to under
Internal Revenue Code Section 752), (iii) the amount of any income,
gain, profit, or tax exempt income allocated to such Partner pursuant to
Section 4.2 below, and (iv) the Partner's share of any basis increases
required by Internal Revenue Code Sections 48(q) and 1016(a)(22). The
capital account for each Partner shall be decreased by (i) the amount of
any loss or other deduction allocated to such Partner pursuant to
Section 4.2 below, (ii) the amount of money and the fair market value of
all property distributed to such Partner (net of liabilities assumed by
such Partner or to which the property is subject), (iii) any Internal
Revenue Code Section 705(a)(2)(B) expenditures and Section 709
nondeductible and nonamortizable items allocated to such Partner, and
(iv) the Partner's share of any basis decreases required by Internal
Revenue Code Sections 48(q) and 1016(a)(22).
At the discretion of the Management Committee, the Partners'
capital accounts will be adjusted to reflect a revaluation of
Partnership property (including intangible assets such as goodwill) on
the Partnership's books in accordance with Treasury Regulation Section
1.704(b)(2)(iv)(f) upon (i) the contribution of money or other property
(other than a de minimis amount) to the Partnership by a new or existing
Partner as consideration for an interest in the Partnership or (ii) in
connection with the liquidation (including a constructive liquidation)
of the Partnership or a distribution of money or other property (other
than a de minimis amount) by the Partnership to a retiring or continuing
Partner as consideration for an interest in the Partnership."
3. Distributions. Section 2.4 of the Partnership Agreement shall
be amended in its entirety to read as follows:
"Distributions to Partners shall be made quarterly on the 45th day
of each calendar quarter in such amounts as the Partners acting
jointly may determine to be in the best interest of the
Partnership; provided, however, that the net cash proceeds received
by the Partnership as a result of the sale by the Partnership of
its assets (or a portion thereof), whether pursuant to a purchase
agreement granted by the Partnership to a Partner or otherwise,
shall be first applied to retire the outstanding debts of the
Partnership and any residual amount (after provision considered
appropriate by the Partners for taxes, replacements and other
expenses of the partnership related to such sale) shall be
immediately distributed to the Partners in equal proportion, unless
the Partners shall agree otherwise. Except as provided in Section
3.3, no interest shall be paid to a Partner on its capital in the
Partnership."
3
<PAGE>
4. Tax Allocations. Section 4.2 of the Partnership Agreement
shall be amended in its entirety to read as follows:
"Each item of income, gain, loss or deduction shall be allocated to
each Partner in accordance with Internal Revenue Code Section
704(b) and the regulations promulgated thereunder, as follows:
(a) All amounts received by the Partnership constituting gross
income shall be allocated to the Partners in proportion to their
respective interests in profits and losses of the Partnership as
provided in Section 3.2;
(b) Exploration cost, intangible drilling cost ("IDC"), and
operating and maintenance costs shall be allocated to the Partners
in proportion to their respective interests in profits and losses
of the Partnership as provided in Section 3.2;
(c) With respect to depreciable assets purchased by the
Partnership, depreciation shall be allocated to the Partners in
proportion to their respective interests in profits and losses of
the Partnership as provided in Section 3.2;
(d) Amortization of intangible assets shall be allocated to
each Partner as follows:
(1) With respect to intangible assets which were contributed
by a Partner at the formation of the Partnership, any
amortization will be allocated entirely to such Partner;
and
(2) With respect to all other intangible assets, amortization
will be allocated to the Partners in proportion to their
respective interests in profits and losses of the
Partnership as provided in Section 3.2;
(e) Loss upon the sale, exchange, distribution, abandonment or
other disposition of property shall be allocated to the Partners in
proportion to their respective interests in profits and losses of
the Partnership as provided in section 3.2;
(f) Gain upon the sale, exchange, distribution, or other
disposition of property shall be allocated to the Partners in
proportion to their respective interests in profits and losses of
the Partnership as provided in Section 3.2;
4
<PAGE>
(g) Costs or expenses of any other kind shall be allocated to
the Partners in proportion to their respective interests in profits
and losses of the Partnership as provided in Section 3.2;
(h) All deductions and credits attributable to property
eligible for the regular investment tax credit or the energy tax
credit percentage shall be allocated to the Partners in proportion
to their respective interests in profits and losses of the
Partnership as provided in Section 3.2;
(i) Any recapture of depreciation, IDC, and any other item of
deduction or credit shall, to the extent possible, be allocated
among the Partners in accordance with their sharing of the
depreciation, IDC or other item of deduction or credit which is
recaptured; and
(j) Income, gain, loss and deduction with respect to property
contributed to the Partnership by a Partner shall be shared among
the Partners, pursuant to Treasurer Regulations promulgated under
Section 704(c) of the Code, so as to take account of the variation,
if any, between the basis of the property to the Partnership and
its fair market value at the time of the contribution."
5. Transfers of Partnership Interest. Section 8.2 of the
partnership Agreement shall be amended by changing the designation of
paragraph (d) of such Section to paragraph (f) and adding the following
paragraphs (d) and (3) after paragraphs (c) of such Section:
"(d) Transfer of Partial Interest to Third Party; Of Limitations.
(i) Notwithstanding anything in this Agreement to the
contrary, if the Federal Energy Regulatory Commission proposes to
decertify the Vulcan Facility as a Qualifying Small Power
Production Facility (a "Qualifying Facility") under the Federal
Power Act and the Public Utility Regulatory Policies Act of 1978,
each as amended, and the regulations promulgated thereunder, based
on the grounds that, as a result of an amendment or modification to
the ownership criteria of 18 C.F.R. Section 292.206 (the "Ownership
Criteria") or the interpretation thereof, which become effective
subsequent to the certification of the Vulcan Facility as a
Qualifying Facility, the Ownership Criteria are not satisfied
because of a Partner's interest in the Vulcan Facility, then such
Partner (the "Noncomplying Partner") shall have the right (a) to
convert the Partnership to a Nevada limited partnership, with the
consent of the other Partner (the "Complying Partner"),
5
<PAGE>
which consent shall not be unreasonably withheld, and (b) to
convert to limited partner interests in the Partnership ("Limited
Interests") the portion of its general partner interest in the
Partnership necessary to satisfy the Ownership Criteria (the
"Necessary Interest") and to transfer to a single third party such
Limited Interests. In the event the Noncomnlying Partner does not
elect to convert the Partnership to a Nevada limited partnership or
the Complying Partner does not consent to such election, the
Noncomplying Partner shall have the right to transfer to a single
third party the Necessary Interest, provided that all of the
Following conditions are satisfied:
(a) The Complying Partner shall have been provided with a copy
of the bona fide offer of purchase from any third party and shall
have been given, by written notice, a first right of purchase of
the Necessary Interest on terms equal to those of the proposed
transfer, which terms shall be specified in such notice, and the
Complying Partner shall have (1) declined to exercise such right of
first purchase, (2) failed to notify the Noncomplying Partner
within 5 days of such notice of its decision to exercise such right
or (3) failed to complete a purchase of the Necessary Interest
within 15 days of such notice;
(b) The transferee of the Necessary Interest enters into a
written agreement providing for said transfer which includes
assumption by such transferee of the Noncomplying Partner's
obligations, in proportion to the interest being transferred to
such transferee, in and to the Partnership; and
(c) Section 5.7 of this Agreement shall be amended to provide
for decisions of the Management Committee to be made by approval of
the representatives of partners holding 65% of the interests of the
Partnership.
(ii) Notwithstanding anything in this Agreement to the
contrary, if a Partner fails to make a timely capital contribution
as required by Section 2.1(c), then the other Partner shall have
the right, but not the obligation, in addition to its option
pursuant to Section 3.3, (a) to convert the Partnership to a Nevada
limited partnership and (b) to convert any portion of its general
partner interest in the Partnership to Limited Interests and to
transfer such Limited Interests to one or more third parties.
"(e) Restrictions on Encumbrances of Partnership Interests.
Notwithstanding the foregoing," in no event may any Partner
assign, convey, mortgage,
6
<PAGE>
pledge, sell, transfer or otherwise dispose of all or any part
of its interest in the Partnership under this Agreement to, or
merge with, sell assets to, sell stock to, consolidate with or
combine with, any person whose ownership of an interest in the
Partnership or under this Agreement would cause the Vulcan
Facility not to be a qualifying facility within the meaning of
18 C.F.R. Section 292.203."
Line 1 of Section 8.3 of the Partnership Agreement shall be amended to insert
the words "all of" after the word "transfers".
Article VIII of the Partnership Agreement shall be further amended by adding a
new Section 8.4 and Section 8.5 at the end thereof to read in its entirety as
follows:
"8.4 Change in Control. Except as otherwise permitted pursuant to
Section 8.2, no Partner may, without the consent of the other Partner,
(a) sell transfer, pledge, encumber, assign or otherwise hypothecate its
interest in the Partnership if such act would result in a change of
control of the Partnership, or (b) permit a change in control of such
Partner (other than in the course of a reorganization, merger,
consolidation or public offering involving (i) creation of a holding
company, or (ii) corporate spin-offs or split-offs). For purposes of
this subsection only, control shall mean ownership, direct or indirect,
of more than fifty percent (50%) of the outstanding voting securities of
a Partner by an entity which itself is not owned, directly or
indirectly, more than fifty percent (50%) by any other entity.
"8.5 Obligation to Restore Deficit Capital Account
Any transfer permitted under this Agreement of a Partner's interest
in the Partnership shall be subject to the provisions of Section 10.1."
6. Right of First Refusal to Purchase Electricity. The title of
Article IX shall be amended by adding the words "AND RIGHT OF FIRST REFUSAL TO
PURCHASE" after the words "TRANSFER OF". A new Section 9.2 shall be added
which shall read in its entirety as follows:
"9.2 Right of First Refusal to Purchase Electricity. In the event that
the Vulcan Facility produces electrical energy in excess of that which
can be sold to Southern California Edison Company ("SCE") (such excess,
the "Excess Electricity"), then Magma Power Company ("Magma") shall have
the right of first refusal to purchase the Excess Electricity or any
portion thereof on substantially similar price, terms and conditions
that the Partnership may sell to any third party in an arms length
transaction, f.o.b. the Partnership's generating facility. The
Partnership shall
7
<PAGE>
give Magma written notice of the price, terms and conditions of the
proposed sale of Excess Electricity. If Magma fails to exercise its
right of first refusal to purchase the Excess Electricity within 15 days
of the receipt of such written notice, said right of first refusal shall
expire. Any such sale of the Excess Electricity to Magma pursuant to
this Section 9.2 is expressly conditioned on the prior written consent
of SCE as required by the Partnership's power purchase contract with
SCE. Notwithstanding anything in this Section 9.2 to the contrary, Magma
shall not be given the right of first refusal to purchase the Excess
Electricity or any portion thereof and shall not be entitled to purchase
the Excess Electricity or any portion thereof if such right or such
purchase would contravene any law or agreement by which the Partnership
or its assets are bound, cause the Vulcan Facility to lose its status as
a Qualifying Small Power Production Facility under the Federal Power Act
and the Public Utility Regulatory Policies Act of 1978, each as amended,
and the regulations promulgated thereunder, cause the Partnership or the
Vulcan Facility to be regulated as a utility under state or federal law,
violate or conflict or interfere with any rights of third parties, or
impair any assets of the Partnership."
7. Procedure Upon Ending of Partnership Term.
Section 10.1 is amended to delete the last paragraph of such Section and add
the following in its place:
"Any profit or loss on disposition of Partnership Properties or
otherwise in the process of liquidation shall be credited or charged to
a Partner as follows:
(i) First, to each of the Partners to the extent of and in proportion
to the deficit balance, if any, in their capital accounts;
(ii) Second, to each of the Partners in proportion to and to the extent
of the minimum amount required to equalize the capital accounts of the
Partners in proportion to their interests in the Partnership as provided
in Section 3.2; and
(iii) Third, to the Partners in the manner provided in Section 3.2.
Property shall be distributed in kind in the dissolution only to the
extent the Partners (or their legal representatives, if any) agree upon
such distribution and on the then present fair market value of such
properties. Such distribution of property shall be treated for
Partnership accounting purposes as though each item of property has been
sold for cash equal to its value and the cash proceeds distributed to
the Partner receiving that item of property. The difference between the
value of property distributed in kind and its book value shall be
treated the same as a
8
<PAGE>
profit or loss on the sale of such properties and shall be credited or
charged to the Partners in the manner provided above. If a Partner has a
deficit balance in its capital account at the time of the liquidation of
the Partnership or the liquidation of its interest in the Partnership
(after crediting allocations of gross income and debiting allocations of
loss and deduction to its capital account) such Partner must pay to the
Partnership the amount of the deficit balance. This amount, upon the
liquidation of the Partnership, will be paid to the creditors of the
partnership or distributed to the other Partner in accordance with its
positive capital account balances in accordance with Section
1.704-1(b)(2)(ii)(b)(3) of the Treasury Regulations. The payment must be
made in readily available funds no later than the end of the taxable
year of the liquidation of a Partner's interest in the Partnership (or,
if later, within 30 days after the date of the liquidation). The
Partners intend that the provisions set forth in this paragraph will
constitute an unconditional obligation to restore deficit capital
accounts as described in Section 1.704-1(b)(2)(ii)(b)(3) of the Treasury
Regulations. The regulations will control in the case of any conflict
between those regulations and this Section 10.1."
8. Technical Amendments. All references in the Partnership
Agreement to the "Internal Revenue Code of 1954, as amended" shall be amended
to read the "Internal Revenue Code of 1986, as amended."
9. Miscellaneous.
(a) This Agreement may be executed in any number of counterparts,
each of which shall constitute an original, and all of which, when taken
together, shall constitute one agreement.
(b) All headings appearing in this Agreement are for convenience of
reference only and shall be disregarded in construing this Agreement.
(c) If any provision hereof is determined to be illegal or
unenforceable for any reason, the remaining provisions hereof shall not
be affected thereby.
(d) Capitalized terms not otherwise defined herein shall have the
meanings assigned to them in the Partnership Agreement.
(e) This Agreement is for the benefit of the respective parties
and of Mission.
(f) This Agreement shall be effective as of the Closing under the
Stock Purchase Agreement.
9
<PAGE>
IN WITNESS WHEREOF, Vulcan and BNG have executed this Agreement as
of the day and year first above written.
VULCAN POWER COMPANY
By /s/ John R. Peele
--------------------------------
Its Vice President
-------------------------------
ATTEST: /s/ Wallace D. Dieckman
----------------------
Assistant Secretary
BN GEOTHERMAL INC.
By /s/ L. Edward Parker
--------------------------------
Its President
-------------------------------
ATTEST: /s/ Wallace D. Dieckman
----------------------
Attorney
10
EXHIBIT 3.22
LIMITED PARTNERSHIP AGREEMENT
OF
LEATHERS, L.P.
August 15, 1988
<PAGE>
TABLE OF CONTENTS
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Page
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ARTICLE I ORGANIZATIONAL MATTERS............................... 2
1.1. Formation............................................ 2
1.2. Name................................................. 2
1.3. Business Purpose..................................... 2
1.4. Place of Business.................................... 2
1.5. Certificate of Limited Partnership................... 2
1.6. Agent for Service of Process......................... 3
1.7. Term................................................. 3
ARTICLE II DEFINED TERMS........................................ 3
ARTICLE III PARTNERS AND CAPITAL................................. 12
3.1. General Partners..................................... 12
3.2. Original Limited Partners............................ 12
3.3. Partnership Capital.................................. 12
3.4. Scheduled Capital Contributions...................... 13
3.5. Additional Funding................................... 15
3.6. Equity Refunds and Cutbacks.......................... 16
3.7. Liability of Partners................................ 17
3.8. Default in Capital Contributions..................... 18
ARTICLE IV DISTRIBUTIONS OF CASH................................ 19
4.1. Special Distributions................................ 19
4.2. Distributions of Distributable Cash.................. 19
4.3. Distributions of Sale or Financing Proceeds.......... 19
ARTICLE V ALLOCATIONS OF TAXABLE INCOME AND TAX LOSS........... 20
5.1. In General........................................... 20
5.2. Taxable Income and Tax Loss.......................... 20
5.3. Special Allocations.................................. 20
5.4. Gain and Loss Upon Liquidation....................... 23
5.5. Additional Allocation Provisions..................... 24
ARTICLE VI RIGHTS, POWERS AND DUTIES OF THE GENERAL
PARTNERS............................................. 27
6.1. Management of the Partnership; Managing
General Partner...................................... 28
6.2. Authority of the Management Committee................ 28
6.3. Authority of General Partners to Deal with
Partnership.......................................... 32
6.4. Authority to Pay Certain Fees and Expenses........... 32
6.5. Restrictions on Authority of General Partners........ 32
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6.6. Certain Duties and Obligations of General
Partners............................................. 33
6.7. Other Business of Partners........................... 35
6.8. Limitation on Liability of General Partners;
Indemnification...................................... 36
6.9. Rights of San Felipe................................. 36
6.10. Construction of Operating Agreements to
Which Red Hill and/or Its Affiliates
Are Parties.......................................... 36
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF RED HILL........... 37
7.1. Representations and Warranties....................... 37
7.2. Reciprocal Representations and Warranties............ 40
7.3. Representation and Warranties of
San Felipe........................................... 41
7.4. Affiliate Status..................................... 41
ARTICLE VIII TRANSFERS BY GENERAL PARTNERS AND ADMISSION
OF SUCCESSOR AND ADDITIONAL GENERAL PARTNERS;
WITHDRAWAL OF GENERAL PARTNERS....................... 42
8.1. Transfers By General Partners and Admission
of Successor or Additional General Partners.......... 42
8.2. Incapacity of General Partners....................... 43
8.3. Conversion of General Partners' Interest............. 44
8.4. Liability of a Withdrawn General Partner............. 44
ARTICLE IX TRANSFERS OF PARTNERS' INTERESTS; ADMISSION
OF SUBSTITUTED LIMITED PARTNER....................... 45
9.1. Restrictions on Transfers of Interests............... 45
9.2. Right of First Refusal............................... 46
9.3. Assignees and Substituted Partners................... 47
9.4. Section 754 Elections................................ 49
ARTICLE X DISSOLUTION AND LIQUIDATION OF THE
PARTNERSHIP.......................................... 49
10.1. Events Causing Dissolution........................... 49
10.2. Effect of Dissolution................................ 49
10.3. Capital Contribution upon Liquidation of the
Partnership or General Partner's Interest............ 49
10.4. Liquidation.......................................... 50
ARTICLE XI BOOKS AND RECORDS, ACCOUNTING, REPORTS,
TAX ELECTIONS, ETC................................... 51
11.1. Books and Records.................................... 51
11.2. Accounting and Fiscal Year........................... 51
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11.3. Bank Accounts and Investments........................ 51
11.4. Reports.............................................. 52
11.5. Depreciation and Elections........................... 52
11.6. Designation of Tax Matters Partner................... 53
ARTICLE XII MEETINGS AND VOTING RIGHTS OF
LIMITED PARTNERS..................................... 53
12.1. Meetings............................................. 53
12.2. Voting Rights of Limited Partners.................... 54
ARTICLE XIII MATTERS AFFECTING STATUS AS A QUALIFYING
FACILITY............................................. 55
ARTICLE XIV OTHER PROVISIONS..................................... 56
14.1. Appointment of General Partners as
Attorneys-in-Fact.................................... 56
14.2. Amendments........................................... 57
14.3. Security Interest and Right of Set-Off............... 59
14.4. Binding Provisions................................... 59
14.5. Applicable Law....................................... 59
14.6. Counterparts......................................... 59
14.7. Separability of Provisions and Savings
Provision............................................ 59
14.8. Article and Section Titles........................... 59
ARTICLE XV DISPUTES AND ARBITRATION............................. 59
15.1. Preliminary Dispute Resolution....................... 59
15.2. Arbitration.......................................... 60
15.3. San Felipe Request................................... 61
15.4. Exceptions........................................... 61
15.5. Attorneys' Fees...................................... 62
15.6. Arbitrators' Fees.................................... 62
15.7. Discovery............................................ 62
15.8. Expedited Procedure.................................. 62
15.9. Enforcement.......................................... 62
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TABLE OF EXHIBITS
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Section
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Exhibit "A" Original Limited Partners Preamble
Exhibit "B" Partners' Names, Addresses, Units, 2.2.39
and Initial Capital Contributions
Exhibit "C" Aggregate of Scheduled Capital 3.4.1
Contributions
Exhibit "D" Contribution of Intangible Drilling 3.4.2
Costs
Exhibit "E" Form of Opinion 5.3.5
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TABLE OF SCHEDULES
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Section
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Schedule "Z" Schedule of Defined Terms 2.1
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LIMITED PARTNERSHIP AGREEMENT
OF
LEATHERS, L.P.
PREAMBLE
--------
This Limited Partnership Agreement (the "Limited Partnership
Agreement") of LEATHERS, L.P. (the "Partnership"), is made and entered into as
of August 15, 1988, by and between RED HILL GEOTHERMAL, INC., a Delaware
corporation ("Red Hill"), and SAN FELIPE ENERGY COMPANY, a California
corporation ("San Felipe"), individually as the "General Partner," and
collectively as the "General Partners," and the Persons listed on Exhibit "A"
to this Limited Partnership Agreement as the Original Limited Partners, and
such other Limited Partners as may be substituted pursuant to the terms
hereof, for the purpose of forming a limited partnership under the Revised
Limited Partnership Act of the State of California.
RECITALS
--------
A. The Partnership is being formed for the purpose of
acquiring a partially constructed geothermal electrical generating facility in
the Salton Sea Known Geothermal Resource Area of Imperial County, California.
The Partnership intends to complete the Development of the Leathers Facility
under a Construction Management and Asset Transfer Agreement by and between
the Partnership and Magma Power Company ("Magma"), pursuant to which Magma
will provide certain construction management services to the Partnership. The
Partnership intends to finance the acquisition of the Leathers Facility and
the Development of the Leathers Facility by means of capital contributions of
the Partners, as more particularly described herein, and by means of project
financing which the Partnership anticipates it will obtain on terms
substantially identical to those contained in the Del Ranch Credit Agreement
and the Elmore Credit Agreement, except for such changes in such terms as may
be necessary to reflect the Project Costs and time periods associated with the
Development of the Leathers Facility.
B. The Partnership intends upon completion of the Leathers
Facility to operate the Leathers Facility under the following operating
agreements: (i) an Operating and Maintenance Agreement by and between the
Partnership and Red Hill, pursuant to which Red Hill will operate the Leathers
Facility on behalf of the Partnership; (ii) an Administrative Services
Agreement by and between the Partnership and Red Hill, pursuant to which Red
Hill will provide certain administrative services in connection with the
Development of the Leathers Facility and the Operation of the Leathers
Facility; (iii) a Technology Transfer Agreement by and between the Partnership
and Magma, pursuant to which Magma will provide the Partnership with the
nonexclusive right to use certain "Technology" and "Know-How" in connection
with the
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operation of the Leathers Facility; (iv) a Ground Lease by and between the
Partnership, as lessee, and Magma, as lessor, pursuant to which Magma will
lease to the Partnership the real property upon which the Leathers Facility is
located; (v) an Easement Grant Deed and Agreement Regarding Rights for
Geothermal Development by and between the Partnership and Magma pursuant to
which Magma will convey to the Partnership the right to extract Geothermal
Brine and use geothermal brine-derived steam which is necessary to operate the
Leathers Facility; and (vi) a Power Purchase Contract by and between Magma
(which will concurrently with the execution hereof, assign its rights under
the Power Purchase Contract to the Partnership) and Southern California Edison
Company, an Affiliate of San Felipe.
ARTICLE I
ORGANIZATIONAL MATTERS
1.1. Formation. The parties hereby form a partnership
as a limited partnership under the Revised Limited Partnership Act of the
State of California. The rights and liabilities of the Partners shall be as
provided in the Act, except as otherwise expressly provided herein.
1.2. Name. The name of the Partnership shall be
"Leathers, L.P." or such other name as the General Partners may hereafter
designate by Notice in writing to the Limited Partners.
1.3. Business Purpose. The business of the Partnership shall
be to invest in, acquire, finance, develop, improve, operate, maintain and
hold the Leathers Facility and other Property for the production and sale of
electricity from geothermal resources, to sell or otherwise dispose of the
Leathers Facility and other Property, and to engage in any other activities
related or incidental thereto.
1.4. Place of Business. The principal place of business of
the Partnership shall be 480 West Sinclair Road, Calipatria, California 92233,
or such other place as the General Partners may hereafter designate by Notice
in writing to the Limited Partners. The Partnership may maintain such other
offices and places of business as the General Partners may deem advisable.
1.5. Certificate of Limited Partnership. The General
Partners have executed a Certificate of Limited Partnership on Form LP-1 and
Red Hill has filed it in the office of the California Secretary of State as
required by Section 15621 of the Act. Red Hill shall record certified copies
of the Certificate of Limited Partnership in the official records of each
county in which the Partnership has a place of business or owns real property.
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1.6. Agent for Service of Process. The Partnership shall
continuously maintain in the State of California an agent for service of
process on the Partnership.
1.7. Term. The Partnership shall commence on the date on
which the Certificate of Limited Partnership is filed with the California
Secretary of State, and shall continue until the date which is thirty-three
(33) years thereafter, unless sooner terminated pursuant to this Limited
Partnership Agreement.
ARTICLE II
DEFINED TERMS
2.1. Unless the context shall otherwise require, capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings assigned thereto in Schedule Z hereto, which shall be incorporated by
reference herein.
2.2. In addition to the terms defined pursuant to Section
2.1 hereof, the following definitions shall apply for purposes of this Limited
Partnership Agreement:
2.2.1. "Accountants" means Coopers & Lybrand,
independent certified public accountants, or, subject to the provisions of
this Limited Partnership Agreement, such other firm of independent certified
public accountants as may be engaged from time to time by the General Partners
for the Partnership.
2.2.2. "Act" means the Revised Limited Partnership Act
of the State of California.
2.2.3. "Actual Magma IDC" has the meaning set forth in
Section 3.4.2 hereof.
2.2.4. "Additional Capital Contributions" means any and
all Priority Tax Capital Contributions, Priority Capital Contributions (as
those terms are defined in Section 3.5.2 hereof) and other Capital
Contributions made in accordance with Section 3.5.1 hereof.
2.2.5. "Bridge Loan" means any and all loans to the
Partnership pursuant to the Bridge Loan Agreement.
2.2.6. "Bridge Loan Agreement" means that Bridge Loan
Agreement between the Partnership and Morgan which the Partnership may execute
after the date hereof and pursuant to which the Partnership may obtain bridge
debt financing (convertible to a term loan) for the Development of the Leathers
Facility until such time as the Partnership obtains debt financing under the
Credit Facility. Until such time as such loan is repaid or is converted to a
secured term loan, Magma hereby agrees to guarantee repayment of 50%, and San
Felipe hereby agrees to take all actions necessary to cause Mission Energy
Company, a California corporation, to guarantee repayment of the other 50%, of
the outstanding loans under the Bridge Loan Agreement, through the execution of
all documents and instruments necessary or appropriate to evidence each such
guaranty.
2.2.7 "Budgeted Project Costs" means estimated total
Project Costs of $110,000,000 as budgeted and agreed to by the Partners as of
the date of this Limited Partnership Agreement.
2.2.8 "Capital Account" as to any Partner, means an
account maintained on the Partnership's books reflecting the excess (deficit) of
(a) the sum of (i) such Partner's Capital Contributions, (ii) such Partner's
share of Taxable Income and (iii) such Partner's share of tax-exempt income of
the Partnership, over (b) the sum of (1) such Partner's share of Tax Loss, (2)
such Partner's share of other Partnership expenditures (including "section
705(a)(2)(B) expenditures" within the meaning of Treasury Regulation Section
1.704-1(b)(2)(iv)(i)) that are not deductible for Federal income tax purposes
(not including payments on indebtedness or expenditures to the extent included
in the basis of any Partnership asset), (3) any distributions to such Partner of
Distributable Cash or Sale or Financing Proceeds and (4) any return of capital
to such Partner under Section 3.6 hereof.
2.2.8.1. Notwithstanding any other provision in this
Section 2.2.8 or elsewhere in this Limited Partnership Agreement, each Partner's
Capital Account shall be maintained and adjusted in accordance with the Code and
the Treasury Regulations thereunder, including Treasury Regulation Section
1.704-1(b)(2)(iv) and appropriate adjustments to capital accounts permitted in
the case of a Partner who receives the benefit or detriment of any special basis
adjustment under Sections 734, 743 and 754 of the Code. It is intended that
appropriate adjustments shall thereby be made to Capital Accounts to give effect
to any income, gain, loss or deduction (or items thereof) that is specially
allocated pursuant to this Limited Partnership Agreement. Subject to Section
2.2.8.5, each Partner's Capital Account shall include that of any predecessor
holders of the Interest of such Partner. A Partner who has more than one
interest in the Partnership shall have a single Capital Account that reflects
all such interests regardless of the class of interests owned by such Partner
and regardless of the time or manner in which such interests were acquired.
2.2.8.2. The General Partners, in their
discretion, may increase or decrease the Capital Accounts of the Partners to
reflect a revaluation of Partnership property on the
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Partnership's books and records. No adjustment to Capital Accounts shall,
however, be made unless all of the following conditions are satisfied:
(a) The adjustments are based on the fair market value
of Partnership property (taking Section 7701(g) of the Code into
account) on the date of adjustment;
(b) The adjustments reflect the manner in which the
unrealized income, gain, loss or deduction inherent in such property
(that has not been reflected in Capital Accounts previously) would be
allocated among the Partners under Article V of this Limited
Partnership Agreement if there were a taxable disposition of such
property for such fair market value on such date;
(c) Capital Accounts shall be adjusted in accordance with
Treasury Regulation Section 1.704- 1(b)(2)(iv)(g) for allocations to
the Partners of depreciation, depletion, amortization, and gain or
loss, as computed for book purposes, with respect to such property;
(d) The Partners' shares of depreciation, depletion,
amortization, and gain or loss, as computed for tax purposes, with
respect to such property shall be determined so as to take account of
the variation of the adjusted tax basis and book value of such
property in the same manner as under Section 704(c) of the Code and
the Treasury Regulations thereunder; and
(e) The adjustments are made principally for a substantial
non-tax business purpose (i) in connection with a contribution of
money or other property (other than an insignificant amount) to the
Partnership by a Partner as consideration for an interest in the
Partnership, (ii) in connection with the liquidation of the
Partnership or a distribution of money or other property (other than
an insignificant amount) by the Partnership to a retiring or
continuing Partner as consideration for an interest in the
Partnership or (iii) under generally accepted industry accounting
practices, provided that substantially all of the Partnership's
property (excluding money) consists of stock, securities,
commodities, options, warrants, futures or similar instruments that
are readily tradable on an established securities market.
Capital Accounts shall also be adjusted, (1) as required under Section
48(q)(6) of the Code and Treasury Regulation Section 1.704-1(b)(2)(iv)(j), in
regard to investment credits allowed with respect to property of the
Partnership and (2) as required under Treasury Regulation Section
1.704-1(b)(2)(iv)(k), for
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depletion and gain or loss with respect to oil or gas properties
of the Partnership.
2.2.8.3. In the event that property is contributed
to the Partnership with a basis to the Partnership different from such
property's fair market value at the time of its contribution, Capital Accounts
shall be adjusted, in accordance with Treasury Regulation Sections 1.704-
1(b)(2)(iv)(d)(3) and 1.704-1(b)(2)(iv)(g), for allocations to the Partners of
depreciation, depletion, amortization, and gain and loss, as computed for book
purposes, with respect to such contributed property. Book depreciation,
depletion and amortization with respect to such contributed Partnership
property shall be computed in accordance with a reasonable method selected by
the General Partners; under such method, (i) if the book value of such
contributed Partnership property exceeds the adjusted tax basis thereof, the
depreciation, depletion or amortization, as computed for book purposes, shall
be no less than the depreciation, depletion or amortization, as computed for
tax purposes, (ii) if the adjusted tax basis of such contributed Partnership
property exceeds the book value thereof, the depreciation, depletion or
amortization, as computed for book purposes, shall be no greater than the
depreciation, depletion or amortization, as computed for tax purposes, and
(iii) if the book value of such contributed Partnership property equals the
adjusted tax basis thereof, the depreciation, depletion or amortization, as
computed for book purposes, shall equal the depreciation, depletion or
amortization, as computed for tax purposes.
2.2.8.4. A Partner's Capital Account shall be
reduced by the fair market value (determined without regard to Section 7701(g)
of the Code) of any property distributed by the Partnership to such Partner,
whether in connection with a liquidation of the Partnership or of such
Partner's Interest or otherwise. Accordingly, Capital Accounts shall first be
adjusted to reflect the manner in which the unrealized income, gain, loss and
deduction inherent in such property (that has not been previously reflected in
Capital Accounts) would be allocated, pursuant to Article V of this Limited
Partnership Agreement, among the Partners if there were a taxable disposition
of such property for its fair market value (taking Section 7701(g) of the Code
into account) on the date of distribution.
2.2.8.5. Upon the transfer of all or any part
of an Interest, the transferor's Capital Account that is attributable to the
transferred interest shall carry over to the transferee Partner. If the
transfer of any interest in the Partnership causes a termination of the
Partnership under Section 708(b)(1)(B) of the Code, the Capital Account that
carries over to the transferee Partner shall be adjusted in accordance with
Section 2.2.8.4 of this Limited Partnership Agreement and Treasury Regulation
Section 1.704-1(b)(2)(iv)(e) in connection with the constructive liquidation
of the Partnership under
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Treasury Regulation Section 1.708-1(b)(1)(iv). The constructive reformation of
the Partnership shall be treated as the formation of a new partnership, and
the capital accounts of the partners of such new partnership shall be
determined and maintained accordingly.
2.2.8.6. Adjustments to Capital Accounts in
respect to Partnership income, gain, loss, deduction and non-deductible
expenditures (or item thereof) shall be made with reference to the Federal tax
treatment of such items (and in the case of book items, with reference to the
Federal tax treatment of the corresponding tax items) at the Partnership
level, without regard to any requisite or elective tax treatment of such items
at the Partner level.
2.2.8.7. If the foregoing rules fail to provide
guidance on how adjustments to Capital Accounts should be made to reflect
particular adjustments to Partnership capital on the books of the Partnership,
adjustments to Capital Accounts shall be made in a manner that (i) maintains
equality between the aggregate Capital Accounts of the Partners and the amount
of Partnership capital reflected on the Partnership's balance sheet, as
computed for book purposes, (ii) is consistent with the underlying economic
arrangement of the Partners and (iii) is based, wherever practicable, on
Federal tax accounting principles.
2.2.8.8. A separate accounting shall be made of
any item allocated for state or local income tax purposes in a manner
different from how the corresponding item under the Code is allocated for
Federal income tax purposes. Reference herein to Capital Accounts shall, to
the extent appropriate and as necessary for state or local income tax
purposes, be deemed to include the effects of such separate accounting.
2.2.9. "Capital Contribution" means the total amount of
money and the fair market value (determined consistent with Section 752(c) of
the Code and without regard to Section 7701(g) of the Code) of any property
contributed to the Partnership by any Partner (or the predecessor holders of
the Interest of any Partner).
2.2.10. "Distributable Cash" means, with respect to any
period between Distribution Dates, the amount of cash or property delivered by
Red Hill in its capacity as Operator under the Operating and Maintenance
Agreement, to the Partnership pursuant to Section 12.2(xvi) of the Operating
and Maintenance Agreement (other than amounts representing Capital
Contributions and the proceeds of the Project Lender's Loan) less any other
reimbursements or fees payable hereunder including, without limitation,
amounts reimbursed to Red Hill as "Tax Matter Partner" pursuant to the
provisions of Section 11.6 hereof.
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2.2.11. "Easement Consideration" means the consideration
to be paid to Magma by the Partnership pursuant to the Easement Agreement.
2.2.12. "FERC" means the Federal Energy Regulatory
Commission.
2.2.13. "Financing" means any financing, refinancing or
borrowing, whether or not secured by any Property, but excluding any loan made
by the Partnership.
2.2.14. "Incapacity" means the entry of any order for
relief in bankruptcy, of incompetence or of insanity, or the death,
dissolution or termination (other than by merger or consolidation), of any
Person.
2.2.15. "Intangible Drilling Costs" means costs with
respect to which deductions are allowed under Section 263(c) of the Code and
any corresponding provisions of state and local income tax laws.
2.2.16. "Interest" means the entire ownership interest of
a Partner in the Partnership at any particular time, including the right of
such Partner to any and all benefits to which a Partner may be entitled as
provided in this Limited Partnership Agreement, together with the obligations
of such Partner to comply with all of the terms and provisions of this Limited
Partnership Agreement.
2.2.17. "Limited Partner" means any Person admitted to the
Partnership as a limited partner, whether as an Original Limited Partner or a
Substituted Limited Partner.
2.2.18. "Limited Partnership Agreement" means this Limited
Partnership Agreement, as amended from time to time.
2.2.19. "Majority of the Limited Partners" means the
holders of more than 50% of the outstanding Units held by all of the Limited
Partners.
2.2.20. "Management Committee" has the meaning set forth
in Section 6.2 hereof.
2.2.21. "Managing General Partner" means Red Hill.
2.2.22. "Notice" means a writing, containing the
information required by this Limited Partnership Agreement to be communicated
to any Person, sent by registered, certified, first-class mail, telex or
telecopy to such Person at the last known mailing address of such Person;
provided, however, that any communication containing such information sent to
such Person and actually received by such Person shall constitute Notice for
all purposes of this Limited Partnership Agreement.
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2.2.23. "Operating Cash Expenses" means the amount of cash
disbursed by or on behalf of the Partnership in the ordinary course of
business including, without limitation, all cash expenses, such as property
management, insurance premiums, taxes, utilities, repair, maintenance, legal,
accounting, bookkeeping, computing, equipment use, travel on Partnership
business, telephone expenses, and salaries and direct expenses of Partnership
employees (if any) and agents and consultants while engaged in Partnership
business. Operating Cash Expenses shall include (i) fees or other amounts paid
by the Partnership to any General Partner, Limited Partner or any Affiliate
thereof permitted by this Limited Partnership Agreement including, but not
limited to, the Administration Fee, Guaranteed Capacity Payment, Technology
Fee, Construction Management Fee, Easement Consideration, rent under the
Ground Lease, Reimbursement Charges and any other amounts due and owing, as
reimbursement or otherwise, under this Limited Partnership Agreement and/or
any of the Operating Agreements, (ii) transmission line charges pursuant to
the IID Agreements, (iii) contributions to the Debt Service Reserve Account,
the Major Capital Expenditure Reserve Account, the Decommissioning Reserve
Account and such other Reserves as the General Partners, in their sole
discretion, shall deem necessary or desirable to the business of the
Partnership, including, without limitation, reserves for working capital, and
(iv) the cost of goods, labor, materials and administrative services used for
or by the Partnership, whether incurred by any General Partner, any Affiliate
thereof or any non-Affiliate in performing functions set forth in this Limited
Partnership Agreement reasonably requiring the use of such goods, labor,
materials or administrative services. Operating Cash Expenses shall not
include expenditures paid from Reserves or expenditures attributable to
obtaining Sale or Financing Proceeds.
2.2.24. "Original Limited Partners" means the Persons
listed on Exhibit "A" to this Limited Partnership Agreement.
2.2.25. "Partner" means any Limited Partner or General
Partner.
2.2.26. "Partnership" means the limited partnership formed
under this Limited Partnership Agreement.
2.2.27. "Partnership Holding Account" means that certain
segregated interest bearing account in the Partnership's name referenced in
Section 3.3 hereof into which the General Partners shall deposit all Capital
Contributions hereunder and all proceeds of draws under the Credit Facility
and the Bridge Loan.
2.2.28. "Priority Equity Account" has the meaning set
forth in Section 3.5.3 hereof.
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2.2.29. "Project Agreements" means, collectively, the
Operating Agreements and all other agreements to which the Partnership is or
becomes a party pursuant to the transactions contemplated hereby or hereafter
enters into in connection with the Development of the Leathers Facility or the
operation of the Leathers Facility.
2.2.30. "Project Costs" means, subject to any other
provision of this Limited Partnership Agreement, all expenditures or
commitments for expenditures with respect to the design, financing,
engineering, construction, and start-up of the Leathers Facility, whether
already incurred or to be incurred, or whether originally treated as capital
or expense, which, subject to any other provision of this Limited Partnership
Agreement, (i) are within the scope of the construction, development and
start-up of the Leathers Facility, and (ii) may properly be treated as capital
costs.
As used herein, "Project Costs" shall include, without
limitation or duplication but subject to the restrictions contained in the
foregoing clauses (i) and (ii), expenditures or commitments for expenditures
incurred in the following:
2.2.30.1. The Development of the Leathers Facility.
2.2.30.2. The acquisition or lease of real property
and rights of way to be held in the name of the Partnership and all cost
incurred, if any, in connection with any amendments to the Geothermal Leases
including, without limitation, all consideration paid to the lessors in
connection with such amendments. Prior to the Conversion Date, lease payments
made by the Partnership shall be treated as Project Costs.
2.2.30.3. The obtaining of permits and approvals for
the development, construction and start-up of the Leathers Facility, including
the geothermal exploratory, production and injection wells, and the
acquisition, construction and putting into operation of the Leathers Facility.
2.2.30.4. The acquisition of title reports and all
expenses incurred in connection therewith, including, without limitation,
legal fees and title consultant fees, and, where required, title insurance
with respect to real property, leases, including, without limitation, the
Geothermal Leases, and rights of way.
2.2.30.5. The acquisition of materials, supplies,
machinery, equipment or apparatus used (including rental charges for
machinery, equipment or apparatus hired) in connection with the acquisition,
construction or the start-up of the Leathers Facility, whether or not such
materials, supplies,
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machinery, equipment or apparatus are to be installed as part of the Leathers
Facility.
2.2.30.6. For costs of any financings relating to the
Leathers Facility, including the Credit Facility and the Bridge Loan.
2.2.30.7. For costs in connection with the financing,
acquisition, construction or start-up of the Leathers Facility, including,
without limitation, allowances or charges for taxes, licenses, excises,
assessments, engineering, accounting and legal expenses, superintendence,
casualties, surety bond and insurance premiums and interest and commitment
fees paid or payable with respect to indebtedness.
2.2.30.8. The Partnership's share of the costs of the
electrical transmission facilities to be built by the IID as provided in the
IID Agreements, and the electrical interconnection with IID and SCE, together
with all costs and expenses associated with the financing thereof.
2.2.30.9. For advance payments or deposits on account
of the cost of personal property acquired or to be acquired or services
performed or rendered or to be performed or rendered in connection with the
acquisition or the construction or the start-up of the Leathers Facility
including, without limitation, the invoiced cost of such personal property or
services notwithstanding that payment therefor is made with the capital stock
or other property of the payor.
2.2.30.10. All fees or charges paid to Morgan (or any
other bank or other lender) in connection with the financing of the
Partnership and the Leathers Facility.
2.2.31. "Property" means the Leathers Property together
with all interest in and rights to use the Geothermal Brine as provided in the
Easement Agreement, all improvements now or hereafter constructed on the
Leathers Property including, but not limited to, the Leathers Facility, and
all personal property used in connection therewith, including any interest of
the Partnership therein.
2.2.32. "Reserves" means funds set aside or amounts
allocated during such period to reserves which shall be maintained in amounts
deemed sufficient by the General Partners for working capital, to pay taxes,
insurance, debt service, repairs, replacements or renewals, Decommissioning,
and for other costs or expenses incident to the ownership or operation of the
Property including, but not limited to, the Debt Service Reserve, the Major
Capital Expenditure Reserve and the Decommissioning Reserve.
2.2.33. "Sale" means any Partnership transaction (other
than the receipt of Capital Contributions) not in the
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ordinary course of its business, including, without limitation, sales,
exchanges or other dispositions of real or personal property, condemnations,
recoveries of damage awards and insurance proceeds (other than business or
rental interruption insurance proceeds), and principal payments with respect
to loans made by the Partnership pursuant to this Limited Partnership
Agreement, but excluding any Financing.
2.2.34. "Sale or Financing Proceeds" means the net cash
receipts of or on behalf of the Partnership arising from a Sale or Financing
(other than the receipt of Capital Contributions and the proceeds of the
Credit Facility and the Bridge Loan), less the following:
2.2.34.1. The amount necessary for the
payment of all debts and obligations secured by any Property sold or otherwise
related to the particular Sale or Financing.
2.2.34.2. The amount of cash paid or to be paid in
connection with such Sale or Financing (which shall include, with regard to
damage recoveries or insurance or condemnation proceeds, cash paid or to be
paid in connection with repairs, replacements or renewals, in the discretion
of the General Partners, relating to damage to or partial condemnation of the
affected Property).
2.2.34.3. The amount considered appropriate by the
General Partners to pay taxes, insurance, debt service, repairs, replacements
or renewals, or other costs or expenses of the Partnership (including costs of
improvements or additions in connection with any Property) or to provide for
the purchase of land or other interests in connection with any Property, or to
provide Reserves therefor, other than the Debt Service Reserve and the Major
Capital Expenditure Reserve.
2.2.34.4. The amount necessary to repay any debt
under the Credit Facility and the Bridge Loan as a result of the effect of any
provision thereof which operates to require repayment of indebtedness
thereunder as a result of the receipt by the Partnership of Sale or Financing
Proceeds as defined in this Section 2.2.34.
2.2.35. "Scheduled Capital Contributions" has the meaning
set forth in Section 3.4.1 hereof.
2.2.36. "Substituted Limited Partner" means any Person
admitted to the Partnership as a Limited Partner pursuant to Section 9.3 of
this Limited Partnership Agreement.
2.2.37. "Taxable Income" or "Tax Loss" means the income or
loss of the Partnership for each fiscal year as determined for Federal, state
or local income tax purposes, including without limitation related tax items
such as capital
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gain or loss, tax preferences, credits, depreciation, depletion, deductions
and investment credit recapture.
2.2.38. "Transmission and Interconnection Costs" means all
costs and expenditures of the Partnership pursuant to the IID Agreements with
respect to the Development of the Leathers Facility, other than charges
thereunder by SCE for the Mirage to Devers transmission line upgrades.
2.2.39. "Units" means the respective Interests of the
Partners expressed in terms of the number of units held by them as set forth
in Exhibit "B" attached hereto, as amended from time to time.
2.3. Additional Defined Terms. For the convenience of the
parties, in addition to the defined terms set forth in Schedule Z hereto and
this Article II, certain other terms are defined throughout this Limited
Partnership Agreement.
ARTICLE III
PARTNERS AND CAPITAL
3.1. General Partners. The names, addresses, Capital
Contributions, and Units of the General Partners are set forth in
Exhibit "B" attached hereto.
3.2. Original Limited Partners. The names, addresses, Capital
Contributions, and Units of the Original Limited Partners are set forth in
Exhibit "B" attached hereto.
3.3. Partnership Capital.
3.3.1. As a portion of the total financing needed by the
Partnership for the Development of the Leathers Facility, the Partners hereby
acknowledge that the Partnership intends to secure nonrecourse project
financing under the Credit Facility from Morgan on terms substantially
identical to those contained in the Del Ranch Credit Agreement and the Elmore
Credit Agreement, except as set forth below and except for such changes in
such terms as may be necessary to reflect the Project Costs and time periods
associated with the acquisition of the Leathers Facility and the Development
of the Leathers Facility. The Partners further acknowledge and agree that (a)
the Budgeted Project Costs constitute the good faith estimate by the Partners
of the total Project Costs associated with the acquisition of the Leathers
Facility and the Development of the Leathers Facility and (b) the Partnership
shall attempt to structure the Credit Facility so as to enable the Partnership
(i) to borrow up to 70% of the Budgeted Project Costs and (ii) to borrow an
additional $5,000,000 to cover actual Project Costs between $110,000,000 and
$115,000,000. In the event actual Project Costs exceed $115,000,000, Magma
agrees to loan the Partnership up to $5,000,000 pursuant to the Magma
Undertaking, in accordance with the terms and conditions of Section 7.2 of the
Construction
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Management Agreement. In order to secure debt financing for the acquisition of
the Leathers Facility and the Development of the Leathers Facility for the
period prior to the entering into of the Credit Facility, the Partnership
intends to enter into the Bridge Loan, 50% of the repayment of which Magma
will guarantee and 50% of the repayment of which Mission Energy Company, a
California corporation, will guarantee, such guarantees to be terminated in
the event such loan converts to a secured term loan, and which the Partners
contemplate will be fully repaid with proceeds under the Credit Facility and
immediately thereafter, together with such guarantees, terminated.
3.3.2. In order to provide the equity financing for the
Partnership, the Partners shall make Capital Contributions in accordance with
the provisions of Sections 3.4 and 3.5 hereof. The General Partners shall
deposit the proceeds of all Capital Contributions and all draws under the
Credit Facility and the Bridge Loan in the Partnership Holding Account
promptly upon the General Partners' receipt thereof. The amounts held in the
Partnership Holding Account shall be used by the Partnership in a manner
consistent with this Limited Partnership Agreement including, without
limitation, for such purposes as may be contemplated by the Construction
Management Agreement. Subject to the provisions of Section 3.6 hereof, any
amounts held in the Partnership Holding Account, including any interest earned
thereon, in excess of the amounts necessary to fulfill the Partnership's
obligations under the Construction Management Agreement, shall be delivered to
Red Hill, in its capacity as Operator pursuant to the Operating and
Maintenance Agreement, to be placed in the Operating Account. The Partnership
shall not redeem or repurchase any Interest, and no Partner shall have the
right to withdraw, or receive any return of, its Capital Contribution or
Capital Account, except as specifically provided herein.
3.4. Scheduled Capital Contributions.
3.4.1. Each Partner shall make Capital Contributions in
the aggregate amount set forth opposite its name on Exhibit "C" attached
hereto ("Scheduled Capital Contributions") and the Partners hereby acknowledge
that the aggregate of such amounts represents 30% of Budgeted Project Costs.
Except as expressly provided to the contrary in Section 3.4.2 hereof, all
Capital Contributions shall be made in cash. Subject to the provisions of
Sections 3.4.2 through 3.4.4 hereof, Scheduled Capital Contributions shall be
made on such dates and in such increments as, in the discretion of the General
Partners, is sufficient to accomplish the purposes of the Partnership, subject
to such aggregate limitations described above, provided that San Felipe's
Scheduled Capital Contribution with respect to its Interest as a General
Partner shall equal 49.34% of the aggregate of Scheduled Capital Contributions
to be made by the Partners at any one time, San Felipe's Scheduled Capital
Contribution with respect to its interest as a Limited Partner
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shall equal 12.33% of all such aggregate Scheduled Capital Contributions, Red
Hill's Scheduled Capital Contribution shall equal 30.66% of all such aggregate
Scheduled Capital Contributions, and Magma's Scheduled Capital Contribution
shall equal 7.67% of all such aggregate Scheduled Capital
Contributions.
3.4.2. The Partners acknowledge that Magma has
incurred certain Intangible Drilling Costs in connection with its drilling and
development of the wells for the Leathers Facility, and that pursuant to the
terms and conditions of the Construction Management Agreement the Partnership
shall pay Magma for the transfer of such wells to the Partnership in an amount
equal to the total cost to Magma of such wells less the amount of such
Intangible Drilling Costs incurred by Magma. The Partners hereby agree that,
on the date hereof, a portion of the entire amount of such Intangible Drilling
Costs incurred by Magma shall be deemed to be contributed to the capital of
the Partnership as Scheduled Capital Contributions to be made by Magma
pursuant to the terms of Section 3.4.1 hereof and, in this regard, such amount
shall be credited against the amount set forth in Exhibit "C" hereto as being
payable by Magma on the date hereof. The partners further agree that the
remaining portion, if any, of the total amount of such Intangible Drilling
Costs incurred by Magma shall be deemed to be contributed to the capital of
the Partnership as all or a portion, as the case may be, of the Scheduled
Capital Contributions to be made by Red Hill pursuant to the terms of Section
3.4.1 hereof and, in this regard, such amount shall be credited against the
amount set forth in Exhibit "C" hereto as being payable by Red Hill and shall
be applied against such amount on the earliest practicable date or dates on
which the General Partners request such Capital Contributions pursuant to
Section 3.4.1 hereof until the amount of such credit has been fully depleted.
The amount to be credited to Magma by reason of the foregoing contribution and
the form of conveyance by Magma (and Red Hill, if applicable) of such
Intangible Drilling Costs is set forth on Exhibit "D" attached hereto, subject
to the adjustment of such amount by Magma within 30 days of the date hereof to
reflect the actual amount of Intangible Drilling Costs incurred by Magma
through the date hereof (the "Actual Magma IDC"). All such amounts and costs
shall be subject to subsequent audit by San Felipe at its expense and Magma
shall refund to the Partnership within 30 days after the completion of such
audit any excess amount credited therefor.
3.4.3. Concurrently with the contribution by Magma
to the Partnership of Intangible Drilling Costs as provided in Section 3.4.2
hereof, San Felipe, in its capacity as both a General Partner and a Limited
Partner, shall make an initial cash contribution to the Partnership as a
Scheduled Capital Contribution in an amount (not to exceed, when aggregated
with its other Scheduled Capital Contributions, the respective aggregate
limits set forth in Section 3.4.1 hereof) equal to 161%
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of the amount of Intangible Drilling Costs so contributed by Magma and Red
Hill to the Partnership.
3.4.4. In addition to the Scheduled Capital
Contributions set forth in Sections 3.4.2 and 3.4.3 hereof, on the date hereof
San Felipe, in its capacity as a General Partner, and Red Hill shall
contribute to the Partnership as a portion of their Scheduled Capital
Contributions the following amounts which, in the aggregate, and together with
the Scheduled Capital Contributions under Sections 3.4.2 and 3.4.3 hereof,
will be sufficient to enable the Partnership to pay to Magma all amounts due
and owing to Magma pursuant to the Bill of Sale referenced in Section 2 of the
Construction Management Agreement: San Felipe shall contribute $6,927,054;
and, Red Hill shall contribute $4,308,058.
3.5. Additional Funding.
3.5.1. Each of the Partners shall be obligated to
make its entire Scheduled Capital Contribution set forth on Exhibit "C" hereto
before the Partnership may borrow any proceeds under the Bridge Loan. In the
event the Partnership has not entered into the Credit Facility by the earlier
of the Firm Operation Date or the last day on which the Bridge Loan, if
obtained by the Partnership, can be converted into a term loan in accordance
with its terms, then, unless the General Partners otherwise agree, the
Partnership shall cause the Bridge Loan to be converted into a term loan in
accordance with its terms. Notwithstanding any provision of this Limited
Partnership Agreement to the contrary, the General Partners shall advance to
the Partnership, in such installments and at such times as the General
Partners shall deem necessary or appropriate for accomplishing the purposes of
the Partnership, the amount by which Project Costs up to $115,000,000 exceed
the sum of (a) all Scheduled Capital Contributions, plus (b) the total amount
of proceeds available to the Partnership pursuant to the Bridge Loan (a
"Funding Deficiency"). Each of the General Partners shall be obligated to
advance in cash to the Partnership 50% of any Funding Deficiency, but only to
the extent the other General Partner makes such contribution. Such advances
may be in the form of Capital Contributions or loans to the Partnership, the
terms and conditions of any such loan to be determined by the General Partners
pursuant to Section 6.2.25 hereof; provided, however, that no such advances
may be in the form of a loan to the Partnership until the General Partner
making such advance has made all of its Scheduled Capital Contributions
required under this Limited Partnership Agreement.
3.5.2. If the General Partners agree, in the
exercise of their respective sole discretion at any time after the Partnership
has borrowed all of the funds scheduled to be available to it under the Bridge
Loan or the Credit Facility, including all amounts representing overrun
amounts under the Credit Facility, or the amount of all required advances to
the
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Partnership pursuant to Section 3.5.1 hereof, as the case may be, and all of
the funds scheduled to be available to it under the Magma Undertaking and
prior to the Conversion Date, to contribute additional funds to carry out the
purposes of the Partnership for profit, San Felipe, in its capacity as a
general partner, shall contribute to the Partnership in cash as an additional
Capital Contribution 55% of such funds and Red Hill agrees to contribute to
the Partnership in cash as an additional Capital Contribution 45% of the
funds, up to an aggregate additional amount from both General Partners of
$10,000,000 ("Priority Tax Capital Contributions"). After all contributions of
such additional amounts or the Conversion Date, whichever first occurs, or if
for any reason such borrowed funds are not available and the General Partners
agree, in their respective sole discretion, to make such contributions, any
additional Capital Contributions shall be made 50% by San Felipe and 50% by
Red Hill ("Priority Capital Contributions"). Subject to Section 8.1.1 of this
Limited Partnership Agreement, each of the General Partners may elect to use
borrowed funds to supply all or any portion of their respective shares of any
additional Capital Contributions to the Partnership; provided, however, that
neither of the General Partners may use borrowed funds for such purposes if
the use of borrowed funds would result directly or indirectly in the breach of
any covenant, condition or representation or warranty contained in, or an
Event of Default under, the Credit Facility or the Bridge Loan or any
agreement, instrument or document related thereto.
3.5.3. In the event the General Partners are
required to make Additional Capital Contributions pursuant to Section 3.5 of
this Limited Partnership Agreement, a separate memorandum account (a "Priority
Equity Account") shall be established for each of the General Partners. Each
General Partner's Priority Equity Account shall be adjusted only in the
following manner:
(a) Increased by the amount of such General
Partner's Additional Capital Contributions; and
(b) Decreased, but in no event to an amount less than zero,
by the amount of all distributions to such General Partner pursuant
to Sections 4.2.1 and 4.3.1.1 of this Limited Partnership Agreement.
3.5.4. The provisions of this Section 3.5 in
respect of additional funding of the Partnership are intended to be, and shall
be, solely for the benefit of Red Hill and San Felipe, each as a General
Partner, and not the Partnership or the Limited Partners or any other third
party, nor may the Partnership, the Limited Partners or any such third party
seek to enforce such provisions.
3.6. Equity Refunds and Cutbacks. At all times after
the Partnership has entered into the Credit Facility and prior to
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the Conversion Date, the Partnership shall maintain the Partnership's ratio of
loans under the Credit Facility (exclusive of all "overrun" loan amounts
referenced in clause (b)(ii) of Section 3.3.1 hereof) ("Tranche A Loans") to
Scheduled Capital Contributions, at a level no greater than 2.333:1. In this
regard, on the date of the closing of the transactions under the Credit
Facility (or as soon thereafter as is reasonably practicable), the Partnership
shall draw such amount under the Credit Facility as is sufficient to both (a)
fund the continued Development of the Leathers Facility in accordance with the
provisions of the Credit Facility and this Limited Partnership Agreement and
(b) return to the Partners, as a return of capital, that portion of their
respective Scheduled Capital Contributions (in the same proportion as such
Scheduled Capital Contributions were made by the Partners) as, in the
aggregate, will increase the then ratio of Tranche A Loans to Scheduled
Capital Contributions to 2.333:1; provided, however, that the amount of such
return of capital to a Partner pursuant to this Section 3.6 shall not exceed
the amount of Scheduled Capital Contributions theretofore made in cash by such
Partner, and the amount of any such excess shall remain in the Partnership and
shall not be so returned to the Partners. In addition and notwithstanding
anything contained herein to the contrary, (x) on the Conversion Date, each of
the General Partners shall contribute to the Partnership all amounts, if any,
of their respective Scheduled Capital Contributions not yet made and (y) in
the event that the ratio of Tranche A Loans to Scheduled Capital Contributions
(after giving effect to the contribution referenced in clause (x)) is less
than 2.333:1 as of the Conversion Date, then the Partnership shall refund to
each Partner at such time as the General Partners shall determine but in no
event later than the first anniversary of the Conversion Date (or as soon
thereafter as is reasonably practicable) that portion of such Partner's
Capital Contribution (an "Incentive Capital Repayment") with such interest
thereon as may have accrued on such Incentive Capital Repayment while the
funds representing such amounts were in the Partnership Holding Account and/or
the Operating Account, as the case may be, which together with all other
Incentive Capital Repayments made to the other Partners, both (i) is in excess
of the costs incurred in the Development of the Leathers Facility during such
one-year period, and (ii) increases the ratio of Tranche A Loans outstanding
as of the Conversion Date to Scheduled Capital Contributions to a level as
close as possible to, but not greater than 2.333:1. The amount of each
Partner's Incentive Capital Repayment, if any, shall be as follows: Red Hill
shall receive 53.6% of the total amount of Incentive Capital Repayments; Magma
shall receive 13.4% of the total amount of Incentive Capital Repayments; and
San Felipe shall receive 33% of the total amount of Incentive Capital
Repayments.
3.7. Liability of Partners.
3.7.1. No Limited Partner shall be liable for the
debts, liabilities, contracts or any other obligations of the
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Partnership. A Limited Partner shall be liable only to make its Capital
Contributions on and after the date hereof in the aggregate amounts provided
in Exhibit "C" attached hereto. A Limited Partner shall not be required to
lend any funds to the Partnership or, after its Capital Contributions have
been paid in accordance with the terms hereof, to make any further Capital
Contribution to the Partnership.
3.7.2. In accordance with California law, a
Limited Partner may, under certain circumstances, be required to return to the
Partnership, for the benefit of Partnership creditors, amounts previously
distributed to it as a return of capital. It is the intent of the Partners
that no distribution to any Limited Partner of Distributable Cash or of Sale
or Financing Proceeds shall be deemed a return or withdrawal of capital for
purposes of this Limited Partnership Agreement, even if such distribution
represents, for Federal income tax purposes or otherwise (in whole or in
part), a return of capital, and that no Limited Partner shall be obligated to
pay any such amount to or for the account of the Partnership or any creditor
of the Partnership. However, if any court of competent jurisdiction holds
that, notwithstanding the provisions of this Limited Partnership Agreement,
any Limited Partner is obligated to make any such payment, such obligation
shall be the obligation of such Limited Partner and not of the General
Partners.
3.7.3. The General Partners shall have no personal
liability for repayment to the Limited Partners of their Capital
Contributions, or for repayment to the Partnership of the negative amounts of
such Limited Partners' Capital Accounts, if any.
3.8. Default in Capital Contributions. In the event that a
General Partner does not make a timely Capital Contribution as required by
this Article III ("Defaulting Partner"), the other General Partner
("Non-Defaulting Partner"), at its option, may pay to the Partnership an
amount (the "Non- Defaulting Partner Payment"), up to or equal to the unfunded
amount which shall be deemed to be a Capital Contribution from the Defaulting
Partner to the Partnership. Notwithstanding the provisions of Article IV of
this Limited Partnership Agreement, in the event that a Non-Defaulting Partner
makes a Non-Defaulting Partner Payment, the Partnership shall not make any
distributions to the Defaulting Partner, but shall pay all distributions (the
"Defaulting Partner Distributions") which would otherwise have been paid to
the Defaulting Partner to the Non-Defaulting Partner until (i) the amount of
all Defaulting Partner Distributions paid to the Non-Defaulting Partner equals
the amount of such unfunded Capital Contribution plus an amount equal to the
maximum lawful rate of interest on the unpaid balance (the "additional
amount") or (ii) the Non-Defaulting Partner notifies the Partnership that it
has received a payment from the Defaulting Partner equal to the amount of the
unfunded Capital Contribution plus the additional amount, less the amount of
any previous distributions
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to the Non-Defaulting Partner with respect to such default. During any period
in which Defaulting Partner Distributions are being paid to the Non-Defaulting
Partner, at the Non-Defaulting Partner's option, the Defaulting Partner's
members on the Management Committee shall not have any voting rights and the
vote of the Non-Defaulting Partner shall be sufficient with regard to any
matter voted on by the Management Committee. The Defaulting Partner shall be
liable to the Partnership and to the Non-Defaulting Partner for all losses,
damages and expenses sustained or incurred by the Partnership and such
Non-Defaulting Partner as a result of such unfunded contribution, including,
without limitation, any additional tax liabilities and interest.
ARTICLE IV
DISTRIBUTION OF CASH
4.1. Special Distributions.
4.1.1. On a monthly basis an amount equal to 4.5%
of Energy Revenues shall be distributed to Magma.
4.1.2. On a monthly basis an amount equal to 1% of
the difference between Total Electricity Revenues and Energy Revenues received
by the Partnership shall be distributed to Magma.
4.2. Distributions of Distributable Cash. All
Distributable Cash, subject to imitations under the Credit
Facility, shall be distributed to the Partners, on the
Distribution Dates, to the extent available:
4.2.1. First, to the General Partners to the
extent of and in proportion to the positive balance, if any, of
their Priority Equity Accounts.
4.2.2. Second, to the Partners in proportion to
their Units in the Partnership.
4.3. Distributions of Sale or Financing Proceeds.
4.3.1. Subject to Section 4.3.2 of this Limited
Partnership Agreement, except in the event of the liquidation of the
Partnership and distribution of proceeds pursuant to Article X of this Limited
Partnership Agreement, and subject to the limitations under the Credit
Facility, all Sale or Financing Proceeds shall be distributed to the Partners
on the Distribution Dates, to the extent available:
4.3.1.1. First, to the General Partners to
the extent of and in proportion to the positive balance, if any,
of their Priority Equity Accounts.
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4.3.1.2. Second, to the Partners in
proportion to their Units in the Partnership.
4.3.2. No Sale or Financing Proceeds shall be
distributed to any Limited Partner under Section 4.3.1.2 of this Limited
Partnership Agreement so as to create or increase any deficit balance in such
Limited Partner's Capital Account after adjustment for the allocation of any
income, gain, loss or deduction, pursuant to the provisions of Article V of
this Limited Partnership Agreement, resulting from the Sale or Financing
giving rise to such Sale or Financing Proceeds. Sale or Financing Proceeds
that would have been distributable to a Limited Partner but for the
application of the preceding sentence shall be distributed instead to the
General Partners in proportion to their Units in the Partnership.
ARTICLE V
ALLOCATIONS OF TAXABLE INCOME AND TAX LOSS
5.1. In General. Taxable Income and Tax Loss of the
Partnership shall be determined and allocated with respect to each fiscal year
of the Partnership as of the end of such year. Subject to the other provisions
of this Article V, an allocation to a Partner of a share of Taxable Income or
Tax Loss shall be treated as an allocation of the same share of each item of
income, gain, loss and deduction that is taken into account in computing
Taxable Income or Tax Loss.
5.2. Taxable Income and Tax Loss. Except as provided
in Sections 5.3, 5.4 and 5.5 of this Limited Partnership
Agreement:
5.2.1. Gross income shall be allocated to Magma in
an amount equal to distributions, if any, to Magma for such fiscal year under
Section 4.1 of this Limited Partnership Agreement.
5.2.2. All remaining items of Taxable Income for a
fiscal year shall be allocated to the Partners in proportion to
their Units in the Partnership.
5.2.3. All remaining items of Tax Loss for a
fiscal year shall be allocated to the Partners in proportion to
their Units in the Partnership.
5.3. Special Allocations.
5.3.1. Intangible Drilling Cost deductions allowed
under Section 263(c) of the Code and under corresponding provisions of state
and local income tax laws shall be allocated as follows:
5.3.1.1. Subject to Section 5.3.1.2 hereof,
such deductions shall be first allocated 100% to San Felipe until
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the total amount of such deductions so allocated is equal to 1.882 times the
amount of the Actual Magma IDC. Thereafter, such deductions shall be allocated
65.3% to San Felipe, 27.76% to Red Hill and 6.94% to Magma through and
including the Conversion Date.
5.3.1.2. In the event both (a) Project Costs
exceed $110,000,000 and (b) Intangible Drilling Costs exceed $15,000,000 then
deductions for such Intangible Drilling Costs shall be allocated as follows:
(a) If Project Costs are not in excess of $120,000,000 then
deductions for the portion of Intangible Drilling Costs between
$15,000,000 and the actual amount of such Intangible Drilling Costs
(an "IDC Overrun") shall be allocated 50% to San Felipe, 40% to Red
Hill and 10% to Magma;
(b) If Project Costs are in excess of $120,000,000 but not
in excess of $130,000,000, then the IDC Overrun shall be allocated to
San Felipe in an amount which equals the sum of (i) 50% of the IDC
Overrun times a fraction the numerator of which shall be $10,000,000
and the denominator of which shall be a number equal to the Project
Costs less $110,000,000 plus (ii) 55% of the IDC Overrun times a
fraction the numerator of which shall be a number equal to the
Project Costs less $120,000,000 and the denominator of which shall be
the Project Costs less $110,000,000; the remainder of the IDC Overrun
shall be allocated 80% to Red Hill and 20% to Magma; and
(c) If Project Costs are in excess of $130,000,000, then the
IDC Overrun shall be allocated to San Felipe in an amount which
equals the sum of (i) 50% of the IDC Overrun times a fraction the
numerator of which shall be $10,000,000 and the denominator of which
shall be a number equal to Project Costs less $110,000,000 plus (ii)
55% of the IDC Overrun times a fraction the numerator of which shall
be $10,000,000 and the denominator of which shall be a number equal
to Project Costs less $110,000,000 plus (iii) 50% of the IDC Overrun
times a fraction the numerator of which shall be a number equal to
Project Costs less $130,000,000 and the denominator of which shall be
Project Costs less $110,000,000; the remainder of the IDC Overrun
shall be allocated 80% to Red Hill and 20% to Magma.
5.3.2. Federal depreciation and other cost
recovery deductions, and amortization deductions for financing commitment fees
and other similar costs, start-up expenditures and organizational
expenditures, in each case with respect to
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Project Costs, but excluding Transmission and Interconnection Costs, shall be
allocated as follows:
(a) Such deductions attributable to Project Costs not to
exceed $110,000,000 (less Transmission and Interconnection Costs)
shall first be allocated 100% to San Felipe until the total amount of
such deductions so allocated to San Felipe is equal to 55% of all
such deductions available with respect to the first $110,000,000
(less Transmission and Interconnection Costs) of Project Costs.
Thereafter, the remainder of such deductions calculated under this
Section 5.3.2(a) shall be allocated 80% to Red Hill and 20% to Magma.
(b) Such deductions attributable to Project Costs in excess
of $120,000,000 (less Transmission and Interconnection Costs) and
less than $130,000,000 (less Transmission and Interconnection Costs)
resulting from Priority Tax Capital Contributions made pursuant to
the terms of Section 3.5.2 of this Limited Partnership Agreement
shall be allocated 55% to San Felipe, 36% to Red Hill and 9% to
Magma.
(c) Such deductions attributable to Project Costs in an
aggregate amount between $110,000,000 (less Transmission and
Interconnection Costs) and $120,000,000 (less Transmission and
Interconnection Costs) and to such Project Costs in excess of
$130,000,000 (less Transmission and Interconnection Costs) resulting
from Priority Capital Contributions made pursuant to Section 3.5.2 of
this Limited Partnership Agreement shall be allocated 50% to San
Felipe, 40% to Red Hill and 10% to Magma.
5.3.3. State and local tax deductions, if any,
corresponding to Section 167 or 168 of the Code shall not be specially
allocated under this Section 5.3, but rather shall be allocated pursuant to
Section 5.2 of this Limited Partnership Agreement.
5.3.4. In the event that FERC has failed to act to
certify that the Leathers Facility is a qualifying facility within the meaning
of 18 C.F.R. Section 292.203 ("Qualifying Facility"), or has not certified
that the Leathers Facility is a Qualifying Facility on the grounds that the
ownership criteria of 18 C.F.R. Section 292.206 ("Ownership Criteria") are not
satisfied because of San Felipe's ownership interest in the Leathers Facility,
on or before the close of business on March 15, 1989 or the day 15 days prior
to the date (the "Power Sale Date") on which power is then scheduled to be
both produced and delivered for sale from the Leathers Facility, whichever
occurs first (the "QF Determination Date"), then, notwithstanding anything in
this Section 5.3 to the contrary, all allocations of tax attributes of greater
than 50% to San Felipe set this Article
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V shall not apply and all such items shall be allocated as provided in
Sections 5.2.2 and 5.2.3. If at any time following any reallocation on the QF
Determination Date FERC issues an order certifying that the Leathers Facility
is a Qualifying Facility in a manner permitting all or certain of such special
allocations to San Felipe set forth in this Article V, the provisions of the
preceding sentence shall no longer apply and such special allocations shall be
reinstated to the extent permitted in accord with such FERC certification. In
such event, with respect to Intangible Drilling Costs deductions, any
allocation of Intangible Drilling Costs deductions lost by San Felipe in 1988
by operation of this Section 5.3.4 shall be restored from allocations of
Intangible Drilling Costs deductions incurred after 1988 and on or before the
Conversion Date, in a manner calculated to most rapidly give to San Felipe
such deductions lost in 1988, and thereafter to restore the Partners' share of
such deductions to the proportions set forth in Section 5.3.1 hereof.
5.3.5. If on or before the QF Determination Date,
FERC has failed to act to certify that the Leathers Facility is a Qualifying
Facility, or has not certified that the Leathers Facility is a Qualifying
Facility on the grounds that the Ownership Criteria are not satisfied because
of San Felipe's ownership interest in the Leathers Facility, (a) San Felipe
shall deliver to each of Red Hill and Magma and (if the Partnership has
entered into the Credit Facility) Morgan, or such other entity as may act as
agent under the Credit Facility, with sufficient copies for the other lenders
under the Credit Facility, an opinion of the general counsel to San Felipe
substantially in the form attached hereto as Exhibit "E" (the "Opinion"),
after giving effect to the provisions of Section 5.3.4 hereof and taking into
consideration any discussions that such counsel has had with FERC (or any
other discussions of representatives of San Felipe or the Partnership of which
such counsel is aware) concerning the certification of the Leathers Facility
as a Qualifying Facility and any other information known to such counsel to be
relevant thereto, or (b) if the general counsel to San Felipe is unable to
render the Opinion as of the QF Determination Date, after giving effect to the
provisions of Section 5.3.4 hereof, solely because of San Felipe's Ownership
Interest in the Leathers Facility, San Felipe shall within fifteen (15) days
after the QF Determination Date (but not less than seven (7) days prior to the
Power Sale Date), complete the transfers contemplated in Section 13.2
(including conversion of part of its Interest as a General Partner, if
necessary) to the extent necessary to enable the General counsel to San Felipe
to render such Opinion.
5.4. Gain and Loss Upon Liquidation.
5.4.1. Subject to Section 5.5 of this Limited
partnership Agreement, any gain realized upon liquidation of the
Partnership shall be allocated:
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(a) First, to each of the Partners to the extent
of and in proportion to the deficit balance, if any, in
their Capital Accounts.
(b) Second, to each of the Partners in proportion to and to
the extent of the minimum amount required to equalize the capital
accounts of such Partners in proportion to their Units in the
Partnership.
(c) Third, the balance to the Partners in
proportion to their Units in the Partnership.
5.4.2. Subject to Section 5.5 of this Limited
Partnership Agreement, any loss realized upon liquidation of the Partnership
shall be allocated to the Partners in proportion to their Units in the
Partnership.
5.5. Additional Allocation Provisions. Notwithstanding
the foregoing provisions of this Article V:
5.5.1. No Tax Loss shall be allocated to any
Limited Partner whose Capital Account has been reduced to zero until the
Capital Accounts of all Partners have been reduced to zero. If any Limited
Partner's Capital Account has been reduced to zero at any time when any other
Partner's Capital Account has a positive balance, then any such Tax Loss shall
be allocated as follows:
(a) First, to the Partner or Partners with
positive Capital Account balances, in the proportion
that such positive balances bear to each other; and
(b) Second, after the Capital Accounts of all Partners have
been reduced to zero, the balance of any such Tax Loss shall be
allocated as otherwise provided in this Article V.
5.5.2. Notwithstanding the provisions of Section
5.5.1, beginning in the Partnership's first taxable year in which there are
"nonrecourse deductions" (within the meaning of Treasury Regulation Section
1.704-1(b)(4)(iv)) and for all subsequent taxable years, if there is a net
decrease in the Partnership's "partnership minimum gain" (within the meaning
of Treasury Regulation Section 1.704-1(b)(4)(iv)(c)), there shall be allocated
to all Partners with a deficit balance in their Capital Accounts ((i) reduced
for the items described in Section 5.5.8(a), (b) and (c) of this Limited
Partnership Agreement, (ii) excluding from each Partner's Capital Account the
amount, if any, such Partner is obligated to contribute to the Partnership
under Section 10.3 of this Limited Partnership Agreement and (iii) as
otherwise adjusted as required under Treasury Regulation Section
1.704-1(b)(4)(iv)(e)), before any other allocation is made under this Article
V, gross income and gain for such year (and, if necessary, subsequent years)
in the amounts and in the
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proportions needed to eliminate such deficit balances as quickly as possible.
Such allocations shall be made first from gains realized upon disposition of
Partnership properties subject to one or more nonrecourse liabilities to the
extent of the decrease in "partnership minimum gain" attributable to the
disposition of such properties; the remainder of such allocations, if any,
shall be composed of a pro rata portion of the Partnership's other items of
gross income and gain. It is intended that this Section 5.5.2 qualify and be
construed as a "minimum gain chargeback" within the meaning of Treasury
Regulation Section 1.704- 1(b)(4)(iv).
5.5.3. In the event that any amount claimed by the
Partnership to constitute a deductible expense in any fiscal year is treated
for Federal income tax purposes as a distribution made to a Partner in its
capacity as a member of the Partnership and not a guaranteed payment as
defined in Section 707(c) of the Code or a payment to a Partner not acting in
his capacity as a partner under Section 707(a) of the Code, then the Partner
who is deemed to have received such distribution shall first be allocated an
amount of Partnership gross income equal to such payment, its Capital Account
shall be reduced to reflect the distribution, and for purposes of this Article
V, Taxable Income and Tax Loss shall be determined after making the allocation
required by this Section 5.5.3.
5.5.4. For any fiscal year during which a Unit is
assigned by a Partner (or by an assignee or successor in interest to a
Partner), the portion of the Taxable Income and Tax Loss of the Partnership
that is allocable in respect of such Unit shall be apportioned between the
assignor and the assignee of the Unit on the basis of the number of days
during such fiscal year that each is the owner thereof, without regard to (a)
the results of Partnership operations before or after such assignment or (b)
any payments or distributions made to the Partners before or after such
assignment, except as otherwise provided in and required by Section 706(d)(2)
of the Code.
5.5.5. In the event that the admission of any
Partner causes a reduction in cost recovery deductions allowed with respect to
any Property under Section 168(h)(6) of the Code, then the General Partners
may, in their sole discretion, separately allocate cost recovery deductions so
that (a) the reduction in cost recovery deductions resulting from the
application of Section 168(h)(6) will be allocated to the Partner whose
ownership of Units caused Section 168(h)(6) to apply and (b) the cost recovery
deductions of the remaining Partners will, to the extent possible, not be
diminished.
5.5.6. Notwithstanding the foregoing provisions of
this Article V, the General Partners' interests in each item of Partnership
income, gain, loss, deduction or credit shall equal at least one percent (1%)
of each of those items at all times during the existence of the Partnership.
In determining the
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General Partners' interest in those items, any Limited Partner's Interest
owned by either of the General Partners shall not be taken into account.
5.5.7. Notwithstanding the foregoing provisions of
this Article V, income, gain, loss and deduction with respect to property
contributed to the Partnership by a Partner shall be shared among the
Partners, pursuant to Treasury Regulations promulgated under Section 704(c) of
the Code, so as to take account of the variation, if any, between the basis of
the property to the Partnership and its fair market value at the time of
contribution.
5.5.8. Notwithstanding the foregoing provisions of
this Article V, no allocation of income, gain, loss or deduction shall be made
to any Limited Partner so as to cause a deficit balance in such Limited
Partner's Capital Account as of the end of the Partnership taxable year to
which such allocation relates. Solely for purposes of determining the extent
to which the previous sentence is satisfied, a Limited Partner's Capital
Account shall be increased by such Limited Partner's share, if any, of the
Partnership's "partnership minimum gain" (within the meaning of Treasury
Regulation Section 1.704-1(b)(4)(iv)(c)) and reduced for:
(a) Adjustments that, as of the end of such year, reasonably
are expected to be made to such Limited Partner's Capital Account
under Treasury Regulation Section 1.704-1(b)(2)(iv)(k) for depletion
allowances with respect to oil and gas properties of the
Partnership;
(b) Allocations of loss and deduction that, as of the end of
such year, reasonably are expected to be made to such Limited Partner
pursuant to Sections 704(e)(2) and 706(d) of the Code and Treasury
Regulation Section 1.751-1(b)(2)(iii); and
(c) Distributions that, as of the end of such year,
reasonably are expected to be made to such Limited Partner to the
extent they exceed offsetting increases to such Limited Partner's
Capital Account that reasonably are expected to occur during (or
prior to) the Partnership taxable years in which such distributions
reasonably are expected to be made (other than increases made
pursuant to the minimum gain chargeback provisions of Section 5.5.2
of this Limited Partnership Agreement). For such purposes, the
adjusted tax basis of Partnership property (or, if Partnership
property is properly reflected on the books of the Partnership at a
book value that differs from its adjusted tax basis, the book value
of such property) will be deemed to be the fair market value of such
property.
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Any Limited Partner who unexpectedly receives an adjustment, allocation or
distribution described in subparagraph (a), (b) or (c) of this Section 5.5.8
shall be allocated items of gross income and gain in an amount and manner
sufficient to eliminate the deficit balance in such Limited Partner's Capital
Account as quickly as possible. The provisions of this Section 5.5.8 shall be
implemented by the General Partners in a reasonable and equitable manner. It
is intended that this Section 5.5.8 qualify and be construed as a "qualified
income offset" within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(d).
5.5.9. In the event that the Code or any Treasury
Regulations promulgated thereunder or any applicable state or local income tax
laws or regulations require allocations of items of income, gain, loss,
deduction or credit different from those set forth in this Limited Partnership
Agreement, upon the advice of the Partnership's Accountants, the General
Partners are hereby authorized to make new allocations in reliance upon the
Code, the Treasury Regulations, such applicable state and local income tax
laws and regulations and such advice of the Partnership's Accountants, such
new allocations shall be deemed to be made pursuant to the fiduciary
obligations of the General Partners to the Partnership and the Limited
Partners, and no such new allocation shall give rise to any claim or cause of
action by any Limited Partner.
ARTICLE VI
RIGHTS POWERS AND DUTIES OF THE GENERAL PARTNERS
6.1. Management of the Partnership; Managing General
Partner.
6.1.1. Subject to the consent of the Limited
Partners where required by this Limited Partnership Agreement, the General
Partners shall have the powers and authority to manage the affairs of the
Partnership. The General Partners, within the authority granted to them under
this Limited Partnership Agreement, have determined to and hereby agree to
manage the business of the Partnership: (1) through a Management Committee
with respect to those matters set forth in Section 6.2 hereof or otherwise
reserved to the General Partners under other provisions of this Limited
Partnership Agreement and (2) with respect to the development, improvement,
operation, and maintenance of the Leathers Facility and other Property for the
production and sale of electricity from geothermal resources, through the
Managing General Partner.
6.1.2. The General Partners hereby appoint Red
Hill as the Managing General Partner. In addition to its other powers and
responsibilities hereunder, the Managing General Partner shall have the
authority and responsibility, on behalf of the Partnership, to manage the day
to day affairs of the Partnership including administration of the loans under
the
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Credit Facility and to carry out the decisions, policies and directives of the
Management Committee.
6.1.3. Any person dealing with the Partnership may
rely upon the signature of the Managing General Partner or the General
Partners as to the authority to make any undertaking on behalf of the
Partnership, and shall not be required to determine any facts or circumstances
bearing upon the existence of such authority.
6.1.4. No Limited Partner (except one who is also
a General Partner, and then only in its capacity as General Partner within the
scope of its authority hereunder) shall participate in control of, or have any
control over the Partnership business or any authority or right to act for or
bind the Partnership. The Limited Partners hereby consent to the exercise by
the General Partners and the Managing General Partner of the respective powers
conferred on them by this Limited Partnership Agreement.
6.2. Authority of the Management Committee. The General
Partners acting jointly through their respective representatives on the
Management Committee created hereby shall possess the powers and rights of the
General Partners under the Act and this Limited Partnership Agreement. The
management committee shall be comprised of four (4) members, two (2) of which
shall be designated by Red Hill and two (2) of which shall be designated by
San Felipe (the "Management Committee"). Each of San Felipe or Red Hill upon
appointing a member to the Management Committee shall notify the other General
Partner of the name of such member. A General Partner may remove such member
by giving notice to the other General Partner. San Felipe and Red Hill will
each take such action as is internally required within that Partner to provide
each of its members on the Management Committee sufficient authorization to
bind and legally act on behalf of that Partner so long as his or her
appointment remains in effect. The Management Committee shall have regular
meetings no less frequently than quarterly and at such times as the Management
Committee may fix. A majority of the members may call special meetings on at
least two days' advance written notice. The Management Committee shall
establish its rules of procedure subject to the terms hereof. The presence of
a representative of each General Partner shall be necessary to constitute a
quorum for the conduct of any meeting. The Management Committee will cause
minutes of each meeting to be prepared and submitted to the members for
approval.
The following actions or decisions by, on behalf of or with
respect to the Partnership or the General Partners shall require the prior
approval of both General Partners as evidenced by the vote of all members of
the Management Committee present at a meeting or, if action is taken by
written consent, by all of the authorized members of the Management Committee.
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6.2.1. Approval of the annual operating and
maintenance budgets and capital improvements and parts replacement budgets for
the Leathers Facility, which budgets shall be prepared by Red Hill as Operator
under the Operating and Maintenance Agreement.
6.2.2. Approval of capital expenditures not
covered in the operating and maintenance budgets or the capital improvements
budgets described in Section 6.2.1 hereof, in amounts in excess of $50,000 per
expenditure and $500,000 per fiscal year in the aggregate, except in the case
of an emergency in which event the Managing General Partner shall have the
right to take any and all actions reasonably required in response to the
emergency event.
6.2.3. Adoption of significant Partnership
policies.
6.2.4. Amendment of this Limited Partnership
Agreement, so as to affect the substantive rights or obligations of any party
hereto.
6.2.5. Approval of any significant agreements,
documents, instruments or arrangements between or involving the Partnership
and a General Partner or an Affiliate of a General Partner (apart from the
Operating Agreements, which are hereby deemed approved), and any amendment,
consent, or waiver with respect to any such agreements, documents, instruments
or arrangements (including under the Operating Agreements).
6.2.6. Approval of the sale, transfer, lease or
other disposition of any material item of Property or any other material asset
of the Partnership, or the creation of a "Lien" with respect to any such
property or asset (as used in this Section 6.2, "Lien" means any mortgage,
lien, pledge, charge, security interest or encumbrance), other than Liens
created in connection with the Credit Facility, and Liens incurred in the
ordinary course of the Partnership's business including, without limitation,
Liens incurred in the ordinary course of the Development of the Leathers
Facility, or, thereafter, in the ordinary course of the Partnership's
business, which are immaterial in amount and significance.
6.2.7. Dissolution of the Partnership, otherwise
than as provided in this Limited Partnership Agreement.
6.2.8. Approval of distributions of any cash or
property other than Distributable Cash, Sale or Financing Proceeds or amounts
to be distributed under Section 4.1 hereof or any decision not to distribute
Distributable Cash or Sale or Financing Proceeds.
6.2.9. Approval of the prepayment in whole or in
material part of any Partnership debt or other obligation, or any
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material change (including any extension, consolidation, modification,
refinancing or renewal) in the terms of any such obligations or any Lien on
any Property or material asset of the Partnership (except to the extent
contemplated by an approved budget).
6.2.10. Approval of long range financing plans
(except to the extent contemplated by an approved budget) other than the
Credit Facility and the Bridge Loan which shall be negotiated and obtained by
the Managing General Partner, subject to final approval by the General
Partners.
6.2.11. Approval of any borrowing of money, or
entering into any loan agreement, deferred purchase agreement, lease or other
financing arrangement, issuance of any evidence of indebtedness, or provision
of any other commitment of the credit of the Partnership, other than with
respect to trade payables and immaterial short-term equipment leases in the
ordinary course of the Partnership's business, not expressly authorized in
this Limited Partnership Agreement or in an approved budget.
6.2.12. Subject to the Operating and Maintenance
Agreement or the Administrative Services Agreement, removal of Red Hill under
the Operating and Maintenance Agreement or the Administrative Services
Agreement, or both.
6.2.13. A change in the selection of lawyers or
accountants of the Partnership, the retention of other
consultants to the Partnership or the employment of any employees
by the Partnership.
6.2.14. Approval of loans, guarantees or other
extensions of credit (other than normal payment terms under the Leathers Power
Purchase Contract) by the Partnership to or for the benefit of the Partners or
any of their respective Affiliates.
6.2.15. Approval of the minutes of meetings of the
Partnership and actions of the Partnership taken without meetings.
6.2.16. Approval of the engagement in any business
on behalf of the Partnership other than the ownership and
operation of the Leathers Facility.
6.2.17. Approval of the provision by Red Hill
under the Administrative Services Agreement of Extraordinary Services costing
the Partnership in excess of (a) $25,000 per service or related group of
services, or (b) $100,000 in the aggregate per fiscal year. Extraordinary
Services that are not in excess of these limits shall not require the approval
of the Management Committee.
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6.2.18. Any decision to revalue the Partnership's
property, or determination of the fair market value of assets where required
under this Limited Partnership Agreement.
6.2.19. Payment, extension, renewal, modification,
adjustment, submission to arbitration, prosecution, defense, settlement or
compromise of any debt, obligation, suit, liability, cause of action or claim,
including taxes, either in favor of or against the Partnership, and involving
a potential liability or recovery in excess of $450,000.
6.2.20. Any material change in the accounting
methods used by the Partnership.
6.2.21. Making or revoking any of the elections
referred to in Sections 48, 167, 168, 195, 263(c), 709, 732, 754 or 1017 of
the Code, or any similar provisions enacted in lieu thereof; provided,
however, that if such approval is not achieved, then all such elections and
other tax decisions shall be made in such a way as to reduce Partnership
taxable income to the maximum extent possible and take deductions in the
earliest taxable year possible.
6.2.22. Approval of the establishment and
maintenance of Reserves (except to the extent contemplated in an approved
budget, in which case the Managing General Partner shall establish and
maintain the budgeted Reserves and fixed nondiscretionary Reserves expressly
required by the Operating Agreements or the Credit Facility).
6.2.23. Approval of the replacement of or addition
of any geothermal well except as may be required on an emergency basis in the
event of damage to, destruction of, or other casualty to, any geothermal well.
6.2.24. Determination of the amount and times at
which Additional Capital Contributions will be required under
Section 3.5.2.
6.2.25. Approval of the terms and conditions of
any loan made to the Partnership pursuant to Section 3.5.1
hereof.
6.2.26. Decisions regarding allocations under
Sections 5.5.5 or 5.5.9 of this Limited Partnership Agreement.
Each Management Committee member's approval of any matter
will not be withheld without a reasonable basis. Any member of the Management
Committee may submit proposals for action to the committee. The Management
Committee shall not be involved in the day-to-day operations of the Leathers
Facility or the implementation of day-to-day operating practices and
decisions.
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6.3. Authority of General Partners to Deal with
Partnership. The Partnership may deal with and enter into
agreements with any General Partner or Affiliate subject to the
provisions hereof.
6.3.1. Any agreement, arrangement or transaction
between the Partnership and any General Partner or any of its Affiliates
permitted by this Limited Partnership Agreement shall be subject to the
following conditions:
(a) Any such agreement, arrangement or transaction shall be
embodied in a written contract which precisely describes the subject
matter thereof and all compensation to be paid therefor;
(b) No rebates or "give-ups" may be received by any General
Partner or any such Affiliate, nor may the General Partner or any
such Affiliate participate in any reciprocal business arrangement
which would have the effect of circumventing any of the provisions of
this Limited Partnership Agreement; provided, however, that any
refund or payment required by the terms of the Leathers Power
Purchase Contract shall not be deemed such a prohibited payment;
(c) Such agreements or arrangements shall be
fully disclosed to all Partners in one of the reports
provided for in Article XI of this Limited Partnership
Agreement; and
(d) The agreement, arrangement or transaction shall be
entered into principally for the benefit of the Partnership in the
ordinary course of Partnership business and on terms no less
favorable to the Partnership than available from unaffiliated third
persons.
6.4. Authority to Pay Certain Fees and Expenses. To
the extent not covered by and assumed under the provisions of the Operating
Agreements, the Partnership shall pay all other fees and expenses of the
Partnership including, without limitation, the fees and expenses related to
(i) Partnership operations, (ii) Partnership accounting, (iii) communications
with Partners, (iv) Partnership legal services, (v) Partnership tax services,
(vi) Partnership audit services, (vii) Partnership appraisal services, (viii)
Partnership commercial banking services, (ix) Partnership investment advisor
services, (x) Partnership computer services, (xi) Partnership organization
expenses, (xii) Partnership mileage and travel expenses and (xiii) such other
related operational and administrative expenses as are necessary for the
prudent organization and operation of the Partnership.
6.5. Restrictions on Authority of General Partners.
Without the consent of a Majority of the Limited Partners and the
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other General Partner, neither of the General Partners shall have any
authority to:
(a) Do any act in contravention of this Limited Partnership
Agreement which affects the rights or obligations of the Partners;
(b) Do any act which would make it impossible to carry on
the ordinary business of the Partnership;
(c) Possess Partnership property, or assign its rights in
specific Partnership property, for other than a Partnership purpose;
(d) Admit a Person as a General Partner, except as provided
in this Limited Partnership Agreement; or
(e) Knowingly perform any act that will subject any Limited
Partner to liability as a general partner in any jurisdiction.
6.6. Certain Duties and Obligations of General Partners.
6.6.1. The Managing General Partner shall take all
actions which may be necessary or appropriate (a) for the continuation of the
Partnership's existence as a limited partnership under the laws of the State
of California (and under the laws of each other jurisdiction in which such
existence is necessary to protect the limited liability of the Limited
Partners or to enable the Partnership to conduct the business in which it is
engaged or proposes to be engaged) and (b) for the acquisition, development,
maintenance, preservation and operation of the Property in accordance with the
provisions of this Limited Partnership Agreement and applicable laws and
regulations it being understood and agreed, however, that the provision of
day-to-day property management services for the Property is not an obligation
of the Managing General Partner as such, but rather such day-to-day services
shall be provided by Red Hill as Operator pursuant to the Operating and
Maintenance Agreement.
6.6.2. The Managing General Partner shall use its
best efforts to negotiate and obtain the Bridge Loan and the Credit Facility.
The Managing General Partner shall keep the other General Partner apprised of
its efforts in this regard on a regular basis.
6.6.3. The General Partners shall devote to the
Partnership such time as may be necessary for the proper performance of their
respective duties hereunder, but the officers and directors of the General
Partners shall not be required to devote their full time to the performance of
such duties.
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6.6.4. The Managing General Partner shall use its
best efforts to maintain its net worth at all times at a level sufficient to
meet all requirements of the Code and currently applicable regulations,
rulings and revenue procedures of the Internal Revenue Service, and to meet
any future requirements set by Congress, the Internal Revenue Service, any
agency of the Federal government or the courts, to assure that the Partnership
will be classified for Federal income tax purposes as a partnership and not as
an association taxable as a corporation.
6.6.5. The General Partners shall use their best
efforts to preclude the classification of the Partnership as a "publicly
traded partnership" to which Section 7704(a) of the Code applies.
6.6.6. The Managing General Partner shall take
such action as may be necessary or appropriate in order to form or qualify the
Partnership under the laws of any jurisdiction in which the Partnership does
business or in which such formation or qualification is necessary in order to
protect the limited liability of the Limited Partners or in order to continue
in effect such formation or qualification. The Managing General Partner shall
file or cause to be filed for recordation in the office of the appropriate
authorities of the State of California, and in each other jurisdiction in
which the Partnership is formed or qualified, such certificates (including
limited partnership and fictitious name certificates) and other documents as
are required by the statutes, rules or regulations of such jurisdictions.
6.6.7. The General Partners shall at all times
conduct their respective affairs and the affairs of the Partnership and all of
their Affiliates in such a manner that neither the Partnership nor any Partner
nor any Affiliate of any Partner will have any personal liability under any
mortgage on any Property.
6.6.8. The Managing General Partner shall prepare
or cause to be prepared and shall file on or before the due date (or any
extension thereof) any Federal, state and local tax returns required to be
filed by the Partnership. The Partnership shall pay any taxes payable by the
Partnership.
6.6.9. During the term of this Limited Partnership
Agreement (except as permitted by the next sentence), the Managing General
Partner shall procure and maintain, or cause to be procured and maintained, at
the sole expense of the Partnership, such policies of insurance, in such
amounts, as are necessary to comply with the Insurance Requirements and shall
cause the Partnership to comply with the other terms and conditions of the
Credit Facility. If the Credit Facility is obtained, then after such time as
the Credit Facility ceases to be a valid and binding obligation of the
Partnership or otherwise terminates in accordance with its terms, the Managing
General
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Partner shall procure and maintain, or cause to be procured and maintained, at
the sole expense of the Partnership, for the remainder of the term of the
Partnership, such policies of insurance, in such amounts, as the Managing
General Partner deems necessary or appropriate.
6.6.10. Each of the General Partners shall be
under a fiduciary duty to conduct the affairs of the Partnership in the best
interests of the Partnership and the Limited Partners, including the
safekeeping and use of all Partnership funds and assets and the use thereof
for the exclusive benefit of the Partnership.
6.6.11. The General Partners shall not in their
capacity as General Partners or as the Managing General Partner receive any
salary, fees, commissions, profits, distributions or allocations, except fees,
commissions, profits, distributions and allocations to which it may be
entitled as expressly permitted by this Limited Partnership Agreement.
6.7. Other Business of Partners. Any Partner or its
Affiliates may engage independently or with others in other business ventures
of every nature and description, including without limitation the ownership of
other properties and the making or management of other investments. Nothing in
this Limited Partnership Agreement shall be deemed to prohibit any Partner or
any Affiliate of any Partner from dealing, or otherwise engaging in business,
with Persons transacting business with the Partnership, or from providing
services related to the purchase, sale, financing, management, development or
operation of real or personal property including, without limitation,
geothermal or other competitive electrical generating or other power plants,
and receiving compensation therefor, not involving any rebate or reciprocal
arrangement which would have the effect of circumventing any restriction set
forth herein upon dealings with the General Partners or any Affiliate of the
General Partners. Without limiting the generality of the foregoing, the
General Partners will not be obligated to present to the Partnership any
particular investment opportunity which comes to either of their attention,
even if such opportunity is of a character which might be suitable for
investment by the Partnership. Neither the Partnership nor any Partner shall
have any right by virtue of this Limited Partnership Agreement or the
Partnership relationship created hereby in or to such other ventures or
activities or to the income or proceeds derived therefrom, and the pursuit of
such ventures, even if competitive with the business of the Partnership, shall
not be deemed wrongful or improper. Under no circumstances shall any Partner
engage in any activity or activities which would result in Leathers Facility's
inability to satisfy the criteria required to be satisfied in order to be a
"qualifying facility" as provided in 18 C.F.R. ss. 292.203, as the same may be
amended from time to time. In the event any Partner engages in any activity
prohibited by the immediately preceding sentence, such Partner
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shall be required to sell or otherwise transfer its Interest as provided in
Article XIII of this Limited Partnership Agreement; provided, however, that
any transfer of a Partner's Interest that would result in the Partnership's
failure to satisfy the criteria set forth in 18 C.F.R. ss. 292.203 shall be
void and of no force or effect.
6.8. Limitation on Liability of General Partners;
Indemnification. The General Partners shall not be liable, responsible or
accountable in damages or otherwise to any of the Partners for any act or
omission performed or omitted by either of them in good faith pursuant to the
authority granted to them by this Limited Partnership Agreement in a manner
reasonably believed by the General Partner acting or omitting to so act to be
within the scope of the authority granted to it by this Limited Partnership
Agreement and not opposed to the best interests of the Partnership or the
Limited Partners; provided, however, that the General Partners shall not be
relieved of liability with respect to any claim, issue or matter as to which
they or any Affiliate shall have been adjudged to be liable for gross
negligence, fraud or bad faith in the performance of their respective
fiduciary duties to the Limited Partners. Except in the case of any such
judgment of liability, the Partnership shall indemnify the General Partners,
their employees, agents and assigns against any loss or damage incurred by
them, and against expenses (including attorneys' fees) actually and reasonably
incurred by them in connection with the defense or settlement of any
threatened, pending or completed action or suit by any Person in connection
with any such act or omission. The satisfaction of any obligation to indemnify
and hold the General Partners, their employees, agents and assigns harmless
shall be from and limited to Partnership assets, and no Partner shall have any
personal liability on account thereof.
6.9. Rights of San Felipe. San Felipe, at its own expense,
shall have the right to reasonably audit the books and records of Magma and/or
its Affiliates (other than DCC) with respect to services furnished to the
Partnership other than on a fixed cost basis.
6.10. Construction of Operating Agreements to Which Red
Hill and/or Its Affiliates Are Parties.
6.10.1. Under the Operating Agreements pursuant to
which Red Hill and/or its Affiliates are parties required to provide services,
labor or materials to the Partnership, the Partners hereby agree for purposes
of this Limited Partnership Agreement and such Operating Agreements that any
reference to "good faith" efforts herein or therein shall be construed so as
not to permit repeated instances of negligent conduct.
6.10.2. Under the Operating Agreements pursuant to
which Red Hill and/or its Affiliates are parties required to provide services,
labor or materials to the Partnership, the
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Partners hereby agree for purposes of this Limited Partnership Agreement and
such Operating Agreements that any provisions contained therein which enable
Red Hill or such Affiliates to receive a reasonable profit for services, labor
or materials provided thereunder shall mean a profit that is typical for the
kind of service or labor rendered or material provided and the cost to the
Partnership of such services shall not exceed that which is available in a
competitive marketplace from unaffiliated third parties.
6.10.3. The Partners acknowledge that certain
services to be provided under the Administrative Services Agreement are
similar in nature to Services to be performed under the Operating and
Maintenance Agreement. By way of illustration only, certain accounting and
bookkeeping services under the Administrative Services Agreement are similar
in nature to the accounting and bookkeeping services under the Operating and
Maintenance Agreement. As such, only those of such costs and expenses incurred
by Red Hill at the Leathers Facility or at the Red Hill administrative
facility in Imperial County, California, in rendering the same shall be
reimbursable to Red Hill as Reimbursement Charges.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF RED HILL
7.1. Representations and Warranties. Red Hill represents and
warrants to San Felipe as of the date hereof, after giving effect to the
execution and delivery of this Agreement and the Operating Agreements and the
filing and recordation of the Certificate of Limited Partnership as set forth
in Section 1.5 hereof (to the extent not heretofore executed and delivered or
filed and recorded, as the case may be), as follows:
7.1.1. The Partnership is a limited partnership
duly formed, validly existing and in good standing under the laws of the State
of California, and has all powers under the Limited Partnership Agreement and
the laws of the State of California and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as
now conducted and proposed to be conducted. The Partnership has not conducted
any business or incurred or assumed any material liabilities or obligations
(whether fixed or contingent) prior to the date of this Limited Partnership
Agreement.
7.1.2. The execution, delivery and performance by
the Partnership of the Project Agreements in effect as of the date hereof are
within the powers of the Partnership, have been duly authorized by all
necessary actions on the part of the Partnership, Red Hill and its Affiliates,
require no action by any of such entities by or in respect of, or filing with,
any governmental body, agency or official other than such actions as have
already been taken, and do not contravene, or constitute a
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default under, any provision of applicable law or regulation or of this
Limited Partnership Agreement or of any agreement, judgment, injunction,
order, decree or other instrument (including any Geothermal Leases) binding
upon the Partnership, or, with respect to any Geothermal Leases, upon Magma or
result in the creation or imposition of any Lien on any asset of the
Partnership or, with respect to any Geothermal Leases, upon Magma.
7.1.3. There is no action, suit or proceeding
pending against, or to the knowledge of Red Hill, threatened against or
affecting the Partnership, or any of its rights or assets before any court or
arbitrator or any governmental body, agency or official in which there is a
reasonable possibility of an adverse decision which could materially adversely
affect the business, financial position or results of operations of the
Partnership or which in any manner draws into question the validity of this
Limited Partnership Agreement or any of the Project Agreements in effect as of
the date hereof.
7.1.4. Each of Red Hill and Magma has fulfilled
its obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and is in compliance in all material respects with the
presently applicable provisions of ERISA and the Code, and has not incurred
any liability to the PBGC or a Plan under Title IV of ERISA other than a
liability to the PBGC for premiums under Section 4007 of ERISA (as those terms
are defined in the Credit Facility).
7.1.5. The charges, accruals and reserves on the
books of the Partnership in respect of taxes or other governmental charges
are, in the opinion of Red Hill, adequate to cover the Partnership's liability
with respect to such taxes and charges.
7.1.6. To the best of Red Hill's knowledge after
inquiry and physical inspection, the Leathers Property does not contain any
hazardous wastes, hazardous substances, hazardous materials, toxic wastes,
toxic substances or toxic pollutants, as those terms are used in the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response
Compensation and Liability Act, the Hazardous Materials Transportation Act,
the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, the
California Hazardous Waste Control Act, the California Hazardous Substance
Act, the Porter-Cologne Water Quality Control Act, in any regulations
promulgated pursuant thereto, or in any other applicable law, ordinance, rule
or regulation, or any other substance, waste or material considered toxic or
hazardous under any applicable federal, state or local law, ordinance, rule or
regulation.
7.1.7. The Leathers Facility is not subject to the
jurisdiction of the CEC on the date of this Limited Partnership
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Agreement, and no CEC Event has occurred (as those terms are defined in the
Credit Facility).
7.1.8. The Partnership and the Leathers Facility
are in compliance in all material respects with all applicable laws,
ordinances, rules, regulations and requirements of governmental authorities
(including without limitation, the Geothermal Steam Act of 1970, those laws
identified in Section 7.1.6 above and any other laws relating to the
protection of the environment, ERISA, all relevant California state and local
laws, rules and regulations promulgated thereunder). The Partnership has
obtained (or has applied for as necessary to timely obtain) all material
permits and authorizations of any governmental body, agency or official
necessary for the Development of the Leathers Facility, operation of the
Leathers Facility or required for the Partnership to sell electricity to SCE
under the Leathers Power Purchase Contract and all of such permits and
authorizations obtained by the Partnership remain in full force and effect.
7.1.9. (a) Subject to the exceptions identified in
the Leathers Property Preliminary Title Report and the Resource Easement
Rights Properties Preliminary Title Report, all properties and rights and all
contractual arrangements (including, without limitation, rights and title to
land and geothermal properties, electricity transmission and interconnection
facilities, rights to use patents and other proprietary processes, designs and
information, and contracts for process design, engineering and construction
services) necessary in connection with the Development of the Leathers
Facility, the operation of the Leathers Facility on the Leathers Property and
the sale of electricity to SCE under the Leathers Power Purchase Contract (i)
if properties or rights, have been obtained and are held by the Partnership
subject to no Liens and no adverse claims that might, if proven to be correct,
individually or in the aggregate, have a material negative impact on the
feasibility of the Leathers Facility or the business prospects of the
Partnership and (ii) if contractual arrangements, are in full force and effect
with the relevant benefits thereunder accruing to the Partnership, and
constitute valid and binding agreements of the parties thereto.
(b) The budget set forth on Schedule I to the
Construction Management Agreement for Leathers Projected Project Costs and the
schedule for completion of the Leathers Facility previously delivered to San
Felipe are correct and complete based on all available information and
represent Red Hill's present best estimates of Leathers Projected Project
Costs and the schedule for completion of the Leathers Facility, and the budget
for Leathers Projected Project Costs includes a reasonable amount for Project
Contingency Costs and includes all costs to the Partnership associated with
the properties and rights and the contractual arrangements referred to in
subsection (a) above.
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(c) There are no services, materials or rights required for the construction
or operation of the Leathers Facility other than those that can reasonably be
expected to be commercially available at the site of the Leathers Facility or
are granted to the Partnership under the Ground Lease or Easement Agreement.
7.1.10. Since December 31, 1987 there has been no
material adverse change in the business, financial position, results of
operations or prospects of Magma and its Consolidated Subsidiaries considered
as a whole, or of Red Hill.
7.1.11. Neither Red Hill, any Affiliate of Red
Hill nor any agent or other Person acting on behalf of any of such entities or
the Partnership, directly or indirectly, offered any of the Interests or any
similar security of the Partnership for sale to or solicited offers to buy any
thereof from, or otherwise approached or negotiated with respect thereto with,
any person in a manner that would subject the offering of the Interests to the
registration requirements of the Securities Act of 1933, as amended.
7.1.12. The Partnership is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and neither the Partnership, Red Hill, nor any Affiliate of Red Hill is
subject to the Federal Power Act or Public Utility Holding Company Act of
1935.
7.1.13. Neither the Partnership, Red Hill, nor any
Affiliate of Red Hill will, as a result of the construction, ownership,
leasing or operation of the Leathers Facility, the sale of electricity
therefrom or the entering into any Project Agreement or any transaction
contemplated hereby or thereby, be subject to regulation under the Federal
Power Act or the Public Utility Holding Company Act of 1935 or under state
laws and regulations respecting the rates or the financial or organizational
regulation of electric utilities.
7.2. Reciprocal Representations and Warranties. Each
of the parties represents and warrants to the other parties
hereto as follows:
7.2.1. Its execution, delivery and performance of
this Agreement has been duly authorized by all necessary actions on its part,
and do not contravene, or constitute a default under, any provision of
applicable law or regulation or of this Limited Partnership Agreement or of
any material agreement, lease, judgment, injunction, order, decree or other
instrument binding upon it or any of its Affiliates or result in the creation
or imposition of any Lien on any of its assets or assets of any of its
Affiliates.
7.2.2. There is no action, suit or proceeding
pending against, or to its knowledge threatened against or
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affecting, it or any of its Affiliates or any of its or their rights or assets
before any court or arbitrator or any governmental body, agency or official in
which there is a reasonable possibility of an adverse decision which could
materially adversely affect the business, financial position or results of
operations of the Partnership or which in any manner draws into question the
validity of this Limited Partnership Agreement or any of the Operating
Agreements.
7.2.3. This Limited Partnership Agreement
represents its legally valid and binding agreement.
7.3. Representation and Warranties of San Felipe.
7.3.1. Neither San Felipe, any Affiliate of San
Felipe nor any other Person engaged to act on behalf of any of such entities,
directly or indirectly, offered any of the Interests or any similar security
of the Partnership for sale to or solicited offers to buy any thereof from, or
otherwise approached or negotiated with respect thereto with, any person in a
manner that would subject the offering of the Interests to the registration
requirements of the Securities Act of 1933, as amended.
7.3.2. Subject to the matters described in Section
5.3.4 and in Article XIII hereof, to the best of its knowledge neither the
construction, ownership, leasing or operation of the Leathers Facility, the
sale of electricity therefrom nor the entering into of this Limited
Partnership Agreement or any Operating Agreement or any transaction
contemplated hereby or thereby, will be subject to regulation under the
Federal Power Act, the Public Utility Holding Company Act of 1935, or under
state laws and regulations, respecting in each case the rates or the financial
or organizational regulation of electric utilities, solely as a result of the
acquisition of the interests in the Partnership by San Felipe as contemplated
hereby.
7.4. Affiliate Status. For purposes of this Article VII, San
Felipe and each of its other Affiliates shall be deemed to be not an Affiliate
of the Partnership, Red Hill or any person controlling, controlled by or under
common control with Red Hill, or any officer, director, partner or shareholder
thereof or relative of any thereof.
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ARTICLE VIII
TRANSFERS BY GENERAL PARTNERS AND
ADMISSION OF SUCCESSOR AND
ADDITIONAL GENERAL PARTNERS; WITHDRAWAL
OF GENERAL PARTNERS
8.1. Transfers By General Partners and Admission of
Successor or Additional General Partners.
8.1.1. Subject to the right of the General
Partners to convert their respective General Partner Interests into Limited
Partner Interests as provided in Section 8.3 of this Limited Partnership
Agreement, without the consent of both (a) such number of the Limited Partners
as are then required under the Act to consent to or ratify the admission of a
General Partner, but in no event with the consent of less than a Majority of
the Limited Partners, and (b) except as provided in Section 8.1.2, the other
General Partner, whose consent may be withheld for any reason so long as the
Credit Facility remains a valid and binding obligation of the Partnership (but
thereafter whose consent may not be unreasonably withheld), neither of the
General Partners may sell, transfer, pledge, encumber or otherwise assign its
Interest or designate a Person to be its successor or, without the written
consent of the other General Partner, to be an additional General Partner. Any
permitted designee shall become a successor or additional General Partner only
upon satisfying the additional conditions of Section 9.3.1 of this Limited
Partnership Agreement. Notwithstanding anything contained in this Limited
Partnership Agreement that may be construed to the contrary, no General
Partner may, without the consent of the other General Partner, (a) sell,
transfer, pledge, encumber, assign or otherwise hypothecate its Interest if
such act would result in a change of control of the Partnership or (b) to the
extent within its control permit a change in control of such General Partner
(other than in the course of a reorganization, merger or consolidation
involving creation of a holding company or a transaction described in Section
8.1.2), as such control existed as of the date of this Limited Partnership
Agreement, except as otherwise permitted by Section 8.1.2.
8.1.2. Except in connection with a transfer to a
successor or additional General Partner pursuant to Section 8.1.1 of this
Limited Partnership Agreement, the Managing General Partner shall not have any
right to retire or withdraw voluntarily from the Partnership, except that any
Partner may cause to be admitted to the Partnership as an additional Partner
or Partners of the same class, or substitute in its stead as the General
Partner, any entity which has, by merger, consolidation or otherwise, acquired
substantially all of such General Partner's assets or stock and continued its
business, provided that the Interests of the other Partners shall not be
affected thereby. San Felipe shall have a right to withdraw without violating
this Limited Partnership Agreement but subject to the provisions of Section
15662(b) of the Act and Section 8.4 hereof
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and in connection therewith or otherwise to convert all or part of its General
Partner Interest as provided in Section 8.3. No Limited Partner shall have the
right to withdraw. Each such successor or additional General Partner shall be
admitted as such to the Partnership upon satisfying the additional conditions
of Section 9.3.1 of this Limited Partnership Agreement.
8.1.3. By execution of this Limited Partnership
Agreement, each of the Limited Partners hereby consents to the admission of
any Person as a successor or additional General Partner pursuant to Sections
8.1.1 or 8.1.2 of this Limited Partnership Agreement where at the time the
express consent of such number (if any) of the Limited Partners as are then
required under the Act to consent to or ratify the admission of a General
Partner has been obtained. In each such case, such admission shall, without
any further consent or approval of the Limited Partners, be an act of all the
Limited Partners.
8.1.4. Any voluntary withdrawal or resignation by
a General Partner from the Partnership if there is no surviving General
Partner shall be effective only upon the admission in accordance with Sections
8.1.1 or 8.1.2 of this Limited Partnership Agreement of a successor General
Partner.
8.2. Incapacity of General Partners.
8.2.1. In the event of the retirement (including
the withdrawal of San Felipe under Section 8.1 or a conversion of its interest
under Section 8.3 of this Limited Partnership Agreement) or Incapacity of
either of the General Partners, the business of the Partnership shall be
continued by any remaining General Partner or Partners (pursuant to the right
to do so which is hereby granted to them) with Partnership property if the
retiring General Partner or the General Partner to which the Incapacity
relates is not then the sole General Partner, or upon the vote of all of the
Limited Partners within 60 days after the date of such retirement or
Incapacity to continue the business of the Partnership and to admit one or
more successor General Partners.
8.2.2. Upon the Incapacity of a General Partner,
such General Partner shall immediately cease to be a General Partner and its
Interest in the Partnership shall terminate; provided, however, that such
termination shall not affect any rights or liabilities of such General Partner
which matured prior to such Incapacity, or the value, if any, at the time of
such Incapacity of the Interest of such General Partner.
8.2.3. If, at the time of the Incapacity of a
General Partner, such General Partner is not the sole General Partner, then
the remaining Managing General Partner shall, or other General Partner or
General Partners may, continue the business of the Partnership and shall (a)
give Notice to the Limited Partners of such event and, if applicable, such
election
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and (b) make such amendments to this Limited Partnership Agreement and execute
and file for recordation such amendments and other documents as are necessary
to reflect the termination of the Interest of the General Partner to which
such Incapacity relates and such General Partner's having ceased to be a
General Partner.
8.3. Conversion of General Partners' Interest. Red
Hill may at any time convert all but 1% of, and San Felipe may at any time
convert all or any part of, their General Partner Interests to Limited Partner
Interests upon five (5) days' prior written notice to the other. The portion
of the General Partner Interest so converted, if any, shall become a Limited
Partner Interest hereunder and shall be subject to all of the terms and
conditions imposed upon Limited Partner Interests by this Limited Partnership
Agreement, except as otherwise provided in Article XIII. Any conversion of a
General Partner's Interest shall be on a Unit-by-Unit basis; provided that,
that portion of the Interest of a General Partner representing Additional
Capital Contributions shall be separate from the rights of holders of Units
and shall remain with the General Partner. If San Felipe shall withdraw as a
General Partner in accordance with the provisions hereof, such Interest shall
retain its rights hereunder and priority as to distributions notwithstanding
the termination of its status as a General Partner. The converted Limited
Partner Interest shall represent the same share of income, gain, loss,
deduction or credit as applied to the General Partner Interest prior to
conversion. The holder of any such converted Limited Partnership Interest
shall remain liable under Section 10.3 of this Limited Partnership Agreement
to the extent of any deficit in the Capital Account relating to such Units as
of the date of conversion. Notwithstanding any such conversion, the General
Partners shall remain responsible for their respective Scheduled Capital
Contributions set forth in Exhibit "C."
8.4. Liability of a Withdrawn General Partner. Any
General Partner who voluntarily or involuntarily for any reason (including
Incapacity) withdraws from the Partnership, or sells, transfers or assigns all
of its Interest, shall be and remain liable for all obligations and
liabilities incurred by it as a General Partner prior to the time that such
withdrawal, sale, transfer or assignment becomes effective as provided in
Section 8.1 of this Limited Partnership Agreement, but it shall be free of any
obligation or liability as a General Partner incurred on account of the
activities of the Partnership from and after the time that such withdrawal,
sale, transfer or conversion becomes effective.
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ARTICLE IX
TRANSFERS OF PARTNERS' INTERESTS;
ADMISSION OF SUBSTITUTED LIMITED PARTNER
9.1. Restrictions on Transfers of Interests.
9.1.1. Except as provided in Article XIII of this
Limited Partnership Agreement, a Limited Partner may not sell, transfer,
pledge, encumber or otherwise assign all or any portion of its Interest in the
Partnership without the prior written consent of both of the General Partners,
which consent may not be unreasonably withheld if the General Partner(s) (or
any designate) do not elect to exercise any of their rights under Section 9.2.
Any such consent shall be deemed to be a waiver of any rights under Section
9.2.
In no event may any Partner effect any sale, transfer, pledge,
encumbrance or assignment if, in the opinion of counsel for the Partnership
specializing in such matters, (a) such an assignment, when considered with all
other assignments of Units or Interests in the Partnership within the previous
12 months, would result in the Partnership's being considered to have been
terminated within the meaning of Section 708 of the Code or (b) such an
assignment would violate any applicable federal or state securities laws
(including any investor suitability standards) or (c) such an assignment would
result in the Leathers Facility's inability to satisfy the criteria required
to be satisfied in order to be a "qualifying facility" as provided in 18
C.F.R. ss. 292.203, as the same may be amended from time to time. Any
attempted sale, transfer, pledge, encumbrance or other assignment in
contravention of the provisions of this Article IX shall be void and
ineffectual and shall not be recognized by the Partnership.
9.1.2. The Partners acknowledge their intent that
the Partnership not be classified as a "publicly traded partnership" within
the meaning of Section 7704(b) of the Code, and, accordingly, that it is
necessary to restrict the transferability of Interests. Each Limited Partner
covenants and agrees, for itself and its successors and assigns, that it will
undertake no action to assign, transfer, sell, exchange, pledge or encumber
its Interest in the Partnership or to facilitate trading in Interests if such
action, when considered in the context of all relevant facts and
circumstances, might fairly result in the classification of the Partnership as
a "publicly traded partnership" within the meaning of Section 7704(b) of the
Code. The parties further acknowledge that legal remedies are likely to be
inadequate in the event of a breach of the covenants under this Section 9.1.2
and, therefore, that equitable remedies (including mandatory injunctive
relief) shall be available to the Partnership or any Partner in the event of
any actual or threatened breach.
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9.2. Right of First Refusal.
9.2.1. Except for sales, transfers or other
assignments of Limited Partner Interests under Article XIII hereof (in which
case the Interest so sold, transferred or otherwise assigned also shall not be
subject to this Section 9.2), if any Partner proposes to sell, transfer or
otherwise assign (other than as security) all or any portion of its Interest
in the Partnership for consideration, it shall give Notice thereof to the
General Partners or, in the case of a General Partner so desiring to sell,
transfer or otherwise assign its Interest, to the other General Partner. The
Notice shall include the name and identity of the prospective assignee, the
date upon which such assignment is to be consummated, which shall not be more
than 180 days after the date of the Notice, and a written copy of the offer
upon which such prospective assignee proposes to acquire such Interest
specifying the price and terms on which the Partner proposes to assign its
Interest. For a period of 30 days following their receipt of the Notice, the
General Partners or the other General Partner, as the case may be, shall have
an option to purchase the entire Interest offered at the price and on the
terms set forth in the Notice or, as to San Felipe, to designate, if
necessary, another entity to so acquire such interest. Each General Partner or
designate, as the case may be, shall be entitled to purchase an equal
percentage of the entire Interest so offered in the case of an Interest of a
Limited Partner. If a General Partner does not exercise its option to acquire
its ratable share of such Interest of a Limited Partner, the other General
Partner (or, if necessary, as to San Felipe a designate) shall be entitled to
purchase an equal percentage of the portion of such Interest so available. The
failure of the General Partners or designate, as the case may be (or the other
General Partner in the case of an Interest of a General Partner), to exercise
their option to acquire the entire Interest offered shall constitute a waiver
thereof by the General Partners (or the other General Partner in the case of
an Interest of a General Partner) with respect to the transaction described in
the Notice. Should the option be exercised, the sale to the General Partners
(or the other General Partner in the case of an Interest of a General Partner)
or designate, as the case may be, shall be consummated on or before the later
of (a) thirty (30) days after the date on which the option was exercised or
(b) the date specified in the Notice as the date upon which the proposed
assignment was to be consummated, for the price and on the terms set forth in
the Notice, and the Partners shall execute and deliver all documents necessary
to effectuate the assignment of the Interest to the acquiring Person(s).
Should the option not be so exercised by the General Partners, then the
Partner may assign the Interest so offered, on or before the date specified in
the Notice, for the price, on substantially the terms and to the assignee
specified in the Notice. Should such an assignment not be timely consummated
as aforesaid, then the Interest shall again become subject to the foregoing
option.
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9.2.2. If the option described in Section 9.2.1 of
this Limited Partnership Agreement is exercised by the General Partners (or
the other General Partner in the case of an Interest of a General Partner) or
designate, as the case may be, then the costs of the transaction, including
without limitation recording fees, escrow costs and attorneys' fees reasonably
incurred by the Partnership in connection with the assignment, shall be shared
equally by the acquiring General Partner (or the other General Partner in the
case of an Interest of a General Partner) and the assigning Partner. If the
assigning Partner conveys its Interest to an outside purchaser, all costs of
the transaction shall be borne by the assigning Partner. The assigning Partner
shall deliver all appropriate documents of assignment, which shall be in form
and content reasonably satisfactory to the General Partners (or the other
General Partner in the case of an Interest of a General Partner).
9.2.3. The General Partners' (or the other General
Partner in the case of an Interest of a General Partner) option described in
this Section 9.2 is (a) in addition to, and is not a limitation upon, their
right to consent or withhold consent to a proposed assignment pursuant to
Section 9.1.1 of this Limited Partnership Agreement (except as provided
therein) and (b) except as provided in Section 13.3 (including converted
interests), shall remain in full force and effect with respect to successive
assignees of Interests hereunder to the same extent and in the same manner as
it was applicable to any predecessor Partner.
9.3. Assignees and Substituted Partners.
9.3.1. The Partnership need not recognize for any
purpose any assignment of all or any portion of the Interest of a Partner
unless (a) there shall have been filed with the Partnership a duly executed
and acknowledged counterpart of the instrument making such assignment, which
(except as provided in Article V or XIII) has been consented to by the General
Partners and (b) such instrument (i) evidences the written acceptance by the
assignee of all of the terms and provisions of this Limited Partnership
Agreement (including the special power of attorney in Section 14.1 of this
Limited Partnership Agreement), (ii) represents that the assignment was made
in accordance with all applicable laws and regulations (including any investor
suitability standards) and (iii) except as provided in Article V or XIII in
all other respects is reasonably satisfactory in form and content to the
General Partners. Except as provided in Section 5.5.4 of this Limited
Partnership Agreement, assignees of Interests shall be recognized as such on
the first day of the calendar month following the month in which the
Partnership receives the instrument of assignment provided for herein.
9.3.2. If a Limited Partner dies, its executor,
administrator or trustee, or, if it is adjudicated incompetent or insane, its
committee, guardian or conservator, or, if it becomes bankrupt, the trustee or
receiver of its estate, shall have all
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of the rights of a Limited Partner for the purpose of settling or managing its
estate, and such power as the decedent or incompetent possessed to assign all
or any part of its Units and to join with the assignee thereof in satisfying
the conditions precedent to such assignee's becoming a Substituted Limited
Partner. The Incapacity of a Limited Partner shall not dissolve the
Partnership.
9.3.3. Any Limited Partner who assigns all of its
Interest in the Partnership shall cease to be a Limited Partner of the
Partnership, except that until a Substituted Limited Partner is admitted in
its stead, such assigning Limited Partner shall retain the statutory rights of
an assignor of a limited partnership interest under the Act. The rights of an
assignee of an Interest who does not become a Substituted Limited Partner
shall be limited to the receipt of its share of Distributable Cash, Sale or
Financing Proceeds, Taxable Income and Tax Loss as determined under this
Limited Partnership Agreement.
9.3.4. An assignee of a Limited Partner's Interest
may become a Substituted Limited Partner only upon compliance with the
following conditions:
(a) The instrument of assignment must state the
intent of the assignor that the assignee succeed to the
assignor's Interest as a Substituted Limited Partner;
(b) The assignee shall have fulfilled the requirements of
Section 9.3.1 of this Limited Partnership Agreement regarding the
execution, acknowledgment and delivery to the General Partners of the
instrument described therein;
(c) The assignee or assignor shall have paid all reasonable
legal fees and filing costs incurred by the Partnership in connection
with its substitution as a Limited Partner;
(d) Except as provided in Article V or XIII the
General Partners shall have consented to such
substitution, which consent may not be unreasonably
withheld; and
(e) This Limited Partnership Agreement shall be
amended to recognize the admission of the Substituted
Limited Partner.
9.3.5. An assignee of Interests who does not
become a Substituted Limited Partner and who desires to make a further
assignment of all or any portion of an Interest in the Partnership shall be
subject to all of the provisions of this Article IX to the same extent and in
the same manner as any predecessor Limited Partner desiring to make an
assignment of its Interests.
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9.4. Section 754 Elections. In the event of a transfer
of all or any part of the Interest of a Limited Partner, the
General Partners, in their sole discretion, may make an election
to adjust the basis of the Partnership's assets pursuant to
Section 754 of the Code.
ARTICLE X
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
10.1. Events Causing Dissolution. The Partnership
shall dissolve upon the happening of any one of the following
events:
10.1.1. The retirement or Incapacity of a sole
General Partner, unless the business of the Partnership is continued as
provided in Section 8.2 of this Limited Partnership Agreement.
10.1.2. The sale or other disposition of all of
the interests in and loans secured by the Leathers Property (including
purchase money security interests) of the Partnership.
10.1.3. The election by the Management Committee
to dissolve the Partnership.
10.1.4. The expiration of the term of the
Partnership.
10.1.5. The happening of any other event causing
the dissolution of the Partnership under the laws of the State of
California.
10.2. Effect of Dissolution. The dissolution of the
Partnership shall be effective on the day on which the event occurs giving
rise to the dissolution, but the Partnership shall not terminate until this
Limited Partnership Agreement has been cancelled and the assets of the
Partnership shall have been distributed as provided in Section 10.4 of this
Limited Partnership Agreement. Notwithstanding the dissolution of the
Partnership, prior to the termination of the Partnership, the business of the
Partnership and the affairs of the Partners, as such, shall continue to be
governed by this Limited Partnership Agreement.
10.3. Capital Contribution upon Liquidation of the
Partnership or the General Partner's Interest. Each Partner shall look solely
to the assets of the Partnership for all distributions with respect to the
Partnership, for return of its Capital Contribution thereto and its Capital
Account and for its share of Taxable Income or Tax Loss, and shall have no
recourse therefor (upon dissolution or otherwise) against the General Partners
or any Limited Partner; provided, however, that upon the complete liquidation
of a General Partner's Interest, upon the
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dissolution and termination of the Partnership or otherwise, the General
Partner whose Interest is liquidated shall contribute to the Partnership an
amount equal to the deficit balance in its Capital Account. Such contribution
shall be made within ten (10) days of Notice by the General Partners but in no
event later than the end of the Partnership's taxable year (determined without
regard to Section 706(c)(2)(A) of the Code) during which the liquidation of
the General Partners' Interests occurs (or, if later, ninety (90) days after
the date of such liquidation). Any amount so contributed by the General
Partners shall be distributed first to any creditors of the Partnership
entitled thereto, and the balance to the other Partners in proportion to the
then positive balances in their Capital Accounts.
10.4. Liquidation.
10.4.1. Upon dissolution of the Partnership, the
General Partners shall liquidate the assets of the Partnership, and after
allocating (pursuant to Article V of this Limited Partnership Agreement) all
income, gain, loss and deductions resulting therefrom, shall apply and
distribute the proceeds thereof (a) first, as contemplated by the definition
herein of the term "Sale or Financing Proceeds," to the payment of the
obligations of the Partnership to third parties, to the expenses of
liquidation, and to the setting up of any Reserves for contingencies which the
General Partners may consider necessary, and (b) then, to the Partners in
proportion to the positive balances in the Partners' respective Capital
Accounts.
10.4.2. Notwithstanding Section 10.4.1 of this
Limited Partnership Agreement, in the event that the General Partners
determine that an immediate sale of all or any portion of the Partnership's
assets would cause undue loss to the Partners, the General Partners, in order
to avoid such loss, may, after giving Notice to all of the Limited Partners,
to the extent not then prohibited by the Act, either defer liquidation of and
withhold from distribution for a reasonable time any assets of the Partnership
except those necessary to satisfy the Partnership's debts and obligations, or
distribute the assets to the Partners in kind.
10.4.3. If any assets of the Partnership are to be
distributed in kind, such assets shall be distributed on the basis of the fair
market value thereof, and any Partner entitled to any interest in such assets
shall receive an interest therein as a tenant-in-common with all other
Partners so entitled. The fair market value of such assets shall be determined
by an independent appraiser to be selected by the General Partners. Pursuant
to Section 2.2.8.4 of this Limited Partnership Agreement, the Capital Accounts
of all Partners shall be adjusted as of the date of distribution in kind as if
the assets were sold on such date for their fair market value (taking Section
7701(g) of the Code into account) and Taxable Income or Tax Loss arising
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from the sale were allocated in accordance with this Limited Partnership
Agreement.
10.4.4. The Managing General Partner or surviving
General Partner shall cause the cancellation of this Limited Partnership
Agreement following the liquidation and distribution of all of the
Partnership's assets.
ARTICLE XI
BOOKS AND RECORDS, ACCOUNTING,
REPORTS, TAX ELECTIONS, ETC.
11.1. Books and Records.
11.1.1. The books and records of the Partnership
shall be maintained in accordance with generally accepted accounting
principles at the principal office of the Partnership and shall be available
for examination there by any Partner or its duly authorized representatives at
any and all reasonable times upon prior Notice to the General Partners. To the
extent permitted by law, the General Partners will permit Limited Partners and
their assignees, at the expense of such Limited Partners and assignees, to
inspect and copy such books and records. The Partnership shall maintain such
books and records and provide such financial or other statements as the
Managing General Partner reasonably deems advisable and as may be required by
law, subject to the requirements of this Limited Partnership Agreement.
11.1.2. After the end of each fiscal year, the
Accountants shall review or prepare all tax returns of the Partnership, which
shall be executed by the General Partners.
11.2. Accounting and Fiscal Year. Subject to Section 448 of
the Code, the books of the Partnership shall be kept on such method of
accounting for tax and financial reporting purposes as may be determined by
the General Partners. The fiscal year of the Partnership shall end on December
31 of each year, or on such other date permitted under the Code as the General
Partners shall determine.
11.3. Bank Accounts and Investments. The bank accounts of
the Partnership shall be maintained at such banking institutions as the
Managing General Partner shall determine, and withdrawals shall be made only
in the regular course of Partnership business on such signature or signatures
as the Managing General Partner shall determine. All deposits and other funds
not needed in the operation of the business or not yet invested may be
invested by the Managing General Partner only in Permitted Investments or such
investments as the General Partners may (consistent with the terms of any
agreements of the Partners) expressly authorize. The Managing General Partner
may rely on the advice of independent investment advisors. The funds of the
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Partnership shall not be commingled with the funds of any other Person.
11.4. Reports.
11.4.1. Within 75 days after the end of each
calendar year, the Managing General Partner shall send to each Partner or
assignee at any time during the fiscal year ending during such calendar year
such tax information as shall be necessary for the preparation by such Limited
Partner or assignee of its Federal income tax return, and required state
income and other tax returns with regard to jurisdictions in which the
Partnership is formed or qualified or owns Property.
11.4.2. As soon as possible and in any event
within 105 days after the end of each fiscal year of the Partnership, the
Managing General Partner shall send to each Person who was a Partner or
assignee at any time during the fiscal year then ended (a) a balance sheet as
of the end of such fiscal year, and statements of income, Partners' equity and
changes in financial position for such fiscal year, all of which shall be
prepared in accordance with generally accepted accounting principles and
accompanied by an auditor's report containing an opinion of the Accountants
setting forth in each case in comparative form the figures for the previous
fiscal year, all reported on as to the fairness of the presentation, generally
accepted accounting principles and consistency, (b) a cash flow statement, (c)
a report summarizing the fees and other remuneration and reimbursed expenses
for such fiscal year from the Partnership to the General Partners or any
Affiliate of the General Partners and (d) a statement showing the
Distributable Cash and Sale or Financing Proceeds distributed to each Person
who was a Partner or assignee at any time during such fiscal year with respect
to such year.
11.4.3. As soon as possible and in any event
within 55 days after the end of each of its first three quarters of each
fiscal year of the Partnership, the Managing General Partner shall send to
each General Partner a balance sheet of the Partnership as of the end of such
quarter and related statements of operations, and cash flow for such quarters
and for a portion of the Partnership's fiscal year ended at the end of such
quarter, setting forth in each case in comparative form the figures for the
corresponding quarter and the corresponding portion of the Partnership's
previous fiscal year, all certified (subject to normal year-end adjustments)
as to the fairness of presentation, generally accepted accounting principles
and consistency in presentation with prior statements by the chief financial
officer or the chief accounting officer of the Managing General Partner.
11.5. Depreciation and Elections. With respect to any
depreciable assets of the Partnership, the Partnership may elect to use, so
far as permitted by the provisions of the Code, any
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depreciation method which is appropriate in the opinion of the General
Partners. The Partnership may, in the discretion of the General Partners, make
or elect not to make, and may revoke or elect not to revoke, any election
permitted or required to be made by the Partnership for Federal income or
state tax purposes.
11.6. Designation of Tax Matters Partner. Red Hill is hereby
designated as the "Tax Matters Partner" of the Partnership under Section
6231(a)(7) of the Code, to manage administrative tax proceedings conducted at
the Partnership level by the Internal Revenue Service with respect to
Partnership matters. Any Partner or assignee may participate in such
administrative proceedings relating to the determination of Partnership items
at the Partnership level, to the extent permitted by the Code. Expenses of
such administrative proceedings undertaken by the Tax Matters Partner shall be
paid from Partnership assets. Each Limited Partner or assignee who elects to
participate in such proceedings shall be responsible for its own expenses
incurred in connection with such participation. The cost of any adjustments to
a Limited Partner or assignee, and the cost of any resulting audits or
adjustments of a Limited Partner's or assignee's tax return, will be borne
solely by the affected Limited Partner or assignee.
ARTICLE XII
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
12.1. Meetings.
12.1.1. Meetings of the Partners for any matter on
which the Limited Partners may vote may be called by any General Partner, and
shall be called by the Managing General Partner upon receipt of a request in
writing signed by the holders of more than 10% of the outstanding Units of the
Limited Partners. Notice of any such meeting shall be sent by the General
Partners to the Limited Partners within 10 days after their receipt of such a
request. Such a request shall state the purpose of the proposed meeting and
the matters proposed to be acted upon thereat. The requested meeting shall be
held at the principal office of the Partnership. In addition, the General
Partners may submit any matter (upon which the Limited Partners are entitled
to act) to the Limited Partners for a vote by written consent without a
meeting, or upon receipt of a request in writing signed by the holders of more
than 10% of the outstanding Units of the Limited Partners, shall submit any
such matter (upon which the Limited Partners are entitled to act) to the
Limited Partners for a vote by written consent without a meeting.
12.1.2. Notice of any meeting shall be given
either personally or by mail, not less than 15 days nor more than 60 days
before the date of the meeting, to each Limited Partner at its record mailing
address. Such Notice shall be in writing, shall state the place, date, hour
and purpose of the meeting, and shall indicate that it is being issued at the
direction of the
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Partner or Partners calling the meeting. If a meeting is adjourned to another
time or place, and if any announcement of the adjournment of time and place is
made at the meeting, it shall not be necessary to give Notice of the adjourned
meeting. If the adjournment is for more than 45 days or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
adjourned meeting shall be given to each Partner of record entitled to vote at
the meeting. The presence in person or by proxy of the holders of a majority
of the outstanding Units of the Limited Partners shall constitute a quorum at
all meetings of the Limited Partners; provided, however, that if there be no
such quorum, the holders of a majority in interest of such Units who are
present or represented by proxy may adjourn the meeting from time to time
without further Notice, until a quorum shall have been obtained. No Notice of
the time, place or purpose of any meeting of the Limited Partners need be
given to any Limited Partner who attends in person or is represented by proxy
(except for a Limited Partner who attends a meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
on the ground that the meeting is not lawfully called or convened), or to any
Limited Partner entitled to such Notice who, in a writing executed and filed
with the records of the meeting, either before or after the time thereof,
waives such Notice.
12.1.3. For the purpose of determining the Limited
Partners entitled to vote at any meeting of the Partnership or any adjournment
thereof, the General Partners or the Limited Partners requesting such meeting
may fix, in advance, a date as the record date for any such determination. The
determination date shall be not more than 50 days nor less than 10 days before
any such meeting.
12.1.4. Each Limited Partner may authorize any
Person to act for it by proxy in all matters in which a Limited Partner is
entitled to participate, whether by waiving Notice of any meeting, or voting
or participating at a meeting. Every proxy must be signed by the Limited
Partner or its attorney-in-fact. No proxy shall be valid after the expiration
of 11 months from the date thereof unless otherwise provided in the proxy.
Every proxy shall be revocable at the pleasure of the Limited Partner
executing it.
12.1.5. At each meeting of the Limited Partners,
the General Partners shall appoint such officers and adopt such rules for the
conduct of such meeting as the General Partners shall deem appropriate.
12.2. Voting Rights of Limited Partners. The Limited
Partners shall have the right to vote only on:
12.2.1. Those matters specified in Sections 6.5,
8.2.1 and 14.2.2 of this Limited Partnership Agreement or the
last paragraph of Section 15636 of the Act incorporating the
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provisions specified in subparagraphs (H) and (I) of paragraph (5) of
subdivision (b) of Section 15632 of the Act.
12.2.2. Amendments to this Limited Partnership
Agreement which affect in a substantive way the rights, powers or duties of
the Limited Partners, subject to the provisions hereof, provided that such
amendments (a) shall not allow the Limited Partners to take part in the
management or control of the Partnership's business, and (b) shall not,
without the consent of the General Partners, alter the rights, powers or
duties of the General Partners as set forth herein.
ARTICLE XIII
MATTERS AFFECTING STATUS AS A QUALIFYING FACILITY
13.1. Within four weeks after the execution of this Limited
Partnership Agreement, San Felipe on behalf of the Partnership will file with
FERC an application for FERC certification that the Leathers Facility is a
qualifying facility within the meaning of 18 C.F.R. Section 292.203.
13.2. If FERC declines to certify the Leathers Facility on
the grounds that the Ownership Criteria are not satisfied because of San
Felipe's Ownership Interest in the Leathers Facility in light of the special
allocations set forth in Sections 5.3.1 and 5.3.2 or otherwise or does not act
to certify the Leathers Facility within ninety (90) days after a filing of an
application to certify, then San Felipe may transfer a portion of its Limited
Partnership Interest to satisfy the Ownership Criteria or to enable it to
receive the benefits of such allocations. If transfer of a Limited Partner
Interest greater than that then held by San Felipe is required to achieve such
result, San Felipe may convert a portion of its Interest as a General Partner
into a Limited Partner's Interest and so transfer that Interest. Any
transferee shall become a Substituted Limited Partner without consent of the
General Partner or General Partners.
13.3. Any transfers under this Article XIII or subsequent
transfers of Interests so transferred shall not be subject to Section 9.2, nor
require the consent of either General Partner under Section 8.1.
13.4. If FERC or any other person or entity commences a
proceeding to revoke the status of the Leathers Facility as a Qualifying
Facility because of San Felipe's ownership interest in the Leathers Facility,
in light of the special allocations set forth in Sections 5.3.1 and 5.3.2 or
otherwise, San Felipe may undertake the transfers contemplated in Section
13.2. If a FERC order to revoke the status of the Leathers Facility as a
Qualifying Facility because of San Felipe's ownership interest in the Leathers
Facility in light of the special allocations set forth in Sections 5.3.1 and
5.3.2 or otherwise, has been issued or is imminent, San Felipe shall, to the
extent necessary, do
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either or both of the following: (i) undertake the transfers contemplated in
Section 13.2 (including conversion of part of its Interest as a General
Partner, if necessary) or (ii) apply the provisions of Section 5.3.4 in the
same manner as would apply in the event that FERC fails to initially act or
certify the Leathers Facility in the manner set forth in Section 5.3.4.
13.5. In no event may any Partner assign, convey, mortgage,
pledge, sell, transfer or otherwise dispose of all or any part of its Interest
in the Partnership or interest in this Limited Partnership Agreement to any
person whose ownership of an interest in the Partnership or in this Limited
Partnership Agreement would cause the Leathers Facility not to be a qualifying
facility.
ARTICLE XIV
OTHER PROVISIONS
14.1. Appointment of General Partners as Attorneys-in-Fact.
14.1.1. Each Limited Partner, including each
Substituted Limited Partner, by its execution of this Limited Partnership
Agreement, irrevocably constitutes and appoints the General Partners and each
of them as its true and lawful attorneys-in-fact with full power and authority
in its name, place and stead to execute, acknowledge, deliver, swear to, file
and record at the appropriate public offices such documents as may be
necessary or appropriate to carry out the provisions of this Limited
Partnership Agreement, including but not limited to:
(a) All certificates and other instruments (including
counterparts of this Limited Partnership Agreement), and all
amendments thereto, which the General Partners deem appropriate to
form, qualify or continue the Partnership as a limited partnership
(or a partnership in which the Limited Partners will have limited
liability comparable to that provided in the Act), in the
jurisdictions in which the Partnership may conduct business or in
which such formation, qualification or continuation is, in the
opinion of either of the General Partners, necessary or desirable to
protect the limited liability of the Limited Partners;
(b) All amendments to this Limited Partnership Agreement
adopted in accordance with the terms hereof, and all instruments
which the General Partners deem appropriate to reflect a change or
modification of the Partnership in accordance with the terms of this
Limited Partnership Agreement; and
(c) All conveyances of Property, and other
instruments which either of the General Partners
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reasonably deem necessary in order to complete a dissolution and
termination of the Partnership pursuant to this Limited Partnership
Agreement.
14.1.2. The appointment by all Limited Partners of
the General Partners as attorneys-in-fact shall be deemed to be a power
coupled with an interest, in recognition of the fact that each of the Partners
under this Limited Partnership Agreement will be relying upon the power of the
General Partners to act as contemplated by this Limited Partnership Agreement
in any filing and other action by it on behalf of the Partnership, shall
survive the bankruptcy, death, adjudication of incompetence or insanity, other
Incapacity or dissolution of any Person hereby giving such power, and the
transfer or assignment of all or any portion of the Units of such Person, and
shall not be affected by the subsequent incapacity of the principal; provided,
however, that in the event of the assignment by a Limited Partner of all of
its Units, the foregoing power of attorney of an assignor Limited Partner
shall survive such assignment only until such time as the assignee shall have
been admitted to the Partnership as a Substituted Limited Partner and all
required documents and instruments shall have been duly executed, filed and
recorded to effect such substitution.
14.2. Amendments.
14.2.1. Each Substituted Limited Partner,
additional General Partner and successor General Partner shall become a
signatory hereto by signing such number of counterpart signature pages to this
Limited Partnership Agreement, a power of attorney to the General Partners,
and such other instruments, in such manner, as the General Partners shall
determine. By so signing, each Substituted Limited Partner, additional General
Partner or successor General Partner, as the case may be, shall be deemed to
have adopted and to have agreed to be bound by all of the provisions of this
Limited Partnership Agreement.
14.2.2. In addition to other amendments authorized
herein, amendments may be made to this Limited Partnership Agreement from time
to time by the General Partners; provided, however, that (i) without the
consent of the Partners to be adversely affected by an amendment, this Limited
Partnership Agreement may not be amended so as to (a) convert a Limited
Partner's Interest into a general partner's interest, (b) modify the limited
liability of a Limited Partner or (c) alter the interest of a Partner in
Taxable Income, Tax Loss, Distributable Cash or Sale or Financing Proceeds;
(ii) without the consent of the Management Committee, this Limited Partnership
Agreement may not be amended so as to affect the substantive rights or
obligations of any Partner; and (iii) without the approval of a Majority of
the Limited Partners, this Limited Partnership Agreement may not be amended so
as to affect any other rights, powers or duties of the Limited Partners.
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14.2.3. In addition to other amendments authorized
herein, amendments may be made to this Limited Partnership Agreement from time
to time by the General Partners, without the consent of any of the Limited
Partners but only with the consent of the Management Committee, (a) to cure
any ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provision herein, or to make any other provisions
with respect to matters or questions arising under this Limited Partnership
Agreement that are not inconsistent with the provisions of this Limited
Partnership Agreement; (b) to delete or add any provision of this Limited
Partnership Agreement required to be so deleted or added by any Federal or
state official, which addition or deletion is deemed by such official to be
for the benefit or protection of the Limited Partners; and (c) to take such
actions as may be necessary (if any) to insure that the Partnership will be
treated as a partnership, and that each Limited Partner will be treated as a
limited partner, for Federal income tax purposes; provided, however, that no
amendment shall be adopted pursuant to this Section 14.2.3 unless the adoption
thereof (i) is for the benefit of or not adverse to the interests of the
Limited Partners, (ii) does not affect the distribution of Distributable Cash
or Financing Proceeds or the Sale or allocation of Taxable Income or Tax Loss
among the Partners or between the Limited Partners as a class and the General
Partners as a class and (iii) does not affect the limited liability of the
Limited Partners or the status of the Partnership as a partnership for Federal
income tax purposes.
14.2.4. If this Limited Partnership Agreement is
amended as a result of substituting a Limited Partner or increasing the
investment of a Limited Partner, the amendment to this Limited Partnership
Agreement shall be sufficient when it is signed by the General Partners and by
the Person to be substituted or who is increasing its investment in the
Partnership, and, if a Limited Partner is to be substituted, by the assigning
Limited Partner. If this Limited Partnership Agreement is amended to reflect
the designation of an additional General Partner, the amendment to this
Limited Partnership Agreement shall be sufficient when it is signed by the
other General Partner or General Partners and by the additional General
Partner. If this Limited Partnership Agreement is amended to reflect the
withdrawal of a General Partner and if the business of the Partnership is to
be continued, the amendment to this Limited Partnership Agreement shall be
sufficient when it is signed by the withdrawing General Partner (and such
General Partner hereby so agrees) and by the remaining or successor General
Partner or General Partners.
14.2.5. In making any amendments, there shall be
prepared and filed by the General Partners such documents and certificates as
may be required under the Act and under the laws of any other jurisdiction
applicable to the Partnership.
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14.3. Security Interest and Right of Set-off. As security
for any withholding tax or other liability or obligation to which the
Partnership may be subject as a result of any act or status of any Limited
Partner, or to which the Partnership may become subject with respect to the
Interest of any Limited Partner, the Partnership shall have (and each Limited
Partner hereby grants to the Partnership) a security interest in all
Distributable Cash and Sale or Financing Proceeds distributable to such
Limited Partner to the extent of the amount of such withholding tax or other
liability or obligation. The Partnership shall have a right of set-off against
such distributions of Distributable Cash or Sale or Financing Proceeds, in the
amount of such withholding tax or other liability or obligation.
14.4. Binding Provisions. The covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
heirs, executors, administrators, personal representatives, successors and
assigns of the respective parties hereto.
14.5. Applicable Law. This Limited Partnership Agreement
shall be construed and enforced in accordance with the laws of the State of
California.
14.6. Counterparts. This Limited Partnership Agreement
may be executed in several counterparts, all of which together shall
constitute one agreement binding on all parties hereto, notwithstanding that
all of the parties have not signed the same counterpart.
14.7. Separability of Provisions and Savings Provision. Each
provision of this Limited Partnership Agreement shall be considered separable,
and if for any reason any provision or provisions hereof are determined to be
invalid and contrary to any existing or future law, such invalidity shall not
impair the operation of or effect those portions of this Limited Partnership
Agreement which are valid. Notwithstanding any other provision hereof, if the
grant or exercise of rights under Sections 3.8, 5.5.10, 8.2.3 or 9.2.1 would
result in the Partnership's failure to satisfy the Ownership criteria because
of San Felipe's interest in the Partnership, such rights shall be reduced to
the extent necessary to remedy such condition.
14.8. Article and Section Titles. Article and Section
titles are for descriptive purposes only and shall not control or alter the
meaning of this Limited Partnership Agreement as set forth in the text.
ARTICLE XV
DISPUTES AND ARBITRATION
15.1. Preliminary Dispute Resolution. Each of the General
Partners shall appoint an official liaison (an "Official
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Liaison") who shall be the chief executive officer of the Partner or, in the
event the Partner is not a corporation, a person of similar rank. In the event
that a dispute or a problem shall arise among the General Partners concerning
this Limited Partnership Agreement, such dispute or problem shall be submitted
to the Official Liaisons for their review and resolution. Each party shall set
forth in writing its respective position on the dispute or problem and a copy
of such written position shall be delivered to each of the Official Liaisons
and the other party. The Official Liaisons may hold such meetings and may
review such documents as they may consider necessary. Any resolution of the
dispute or problem agreed to by all of the Official Liaisons shall be set
forth in writing and initialed by all of the Official Liaisons and to the
extent permitted by law shall be final and binding on the parties. In the
event that the Official Liaisons are unable to agree on a resolution of the
dispute or problem within 30 days of submission to them, either Official
Liaison may submit the matter to binding arbitration.
15.2. Arbitration. Except as set forth in Section 15.1, all
disputes, controversies or unresolved questions (whether related to legal,
contractual, business, management, financial, technical, operational or other
issues) that arise under or with respect to this Agreement shall be settled by
arbitration under this Article XV. The Official Liaison desiring arbitration
shall give written notice to that effect to the other Official Liaison and in
such notice shall appoint as an arbitrator a disinterested person of
recognized competence in the area at issue. Within fifteen (15) days
thereafter, the other Official Liaison shall, by written notice to the
originating party, appoint a second person similarly qualified as the second
arbitrator. Within fifteen (15) days thereafter, the arbitrators thus
appointed shall appoint a third person similarly qualified as the third
arbitrator, and such three arbitrators shall as promptly as possible determine
such matter with the parties, each being entitled to present evidence and
argument to the arbitrators; provided, however, that:
(i) if the second arbitrator shall not have been
appointed as aforesaid, the first arbitrator shall determine
such matter; and
(ii) if the two arbitrators appointed by the parties shall
be unable to agree upon the appointment of the third arbitrator
within fifteen (15) days after the appointment of the second
arbitrator, they shall give written notice of such failure to agree
to the parties, and, if the parties fail to agree upon the selection
of such third arbitrator within fifteen (15) days thereafter, then
within ten (10) days thereafter, either of the parties upon written
notice to the other party may apply for such appointment to the
Federal District Court or County Superior Court in San Diego,
California.
-60-
<PAGE>
All selections of an arbitrator shall be subject to the
consent of the Project Lender, but only if the Project Lender notifies the
parties that it desires to approve the selection of an arbitrator, and such
consent shall not be unreasonably withheld.
The arbitrator or arbitrators shall only interpret and apply
the terms and provisions of this Agreement (and any other agreement at issue
pursuant to Section 15.2) and shall not change any such terms or provisions or
deprive either party of any right or remedy expressly or impliedly provided
for in this Agreement or such other agreement.
The determination of the majority of the arbitrators or the
sole arbitrator, as the case may be, shall, to the extent permitted by law, be
conclusive and binding upon the parties. The arbitrator or arbitrators shall
give written notice to the parties stating their determination, and shall
furnish to each a copy of such determination signed by them. In the event of
the failure, refusal or inability of any arbitrator to act, a new arbitrator
shall be appointed in his or her stead, which appointment shall be made in the
same manner as hereinbefore provided for the appointment of the arbitrator so
failing, refusing or unable to act.
15.3. San Felipe Request. If (a) the Official Liaison of San
Felipe requests arbitration under Section 15.2 and (b) the requested relief
includes the initiation by the Partnership of arbitration proceedings under
one or more operating Agreements or other agreements between the Partnership
and Red Hill or any of its Affiliates, and (c) the arbitrators agree that such
arbitration pursuant to the underlying agreement is appropriate, the
arbitrators appointed under this Agreement shall also resolve the issues
presented under such other agreement. Magma, by its signature to this
Agreement as a Limited Partner, expressly consents and agrees to the
implementation of this provision in its capacity as a party to any existing
and future separate agreements with the Partnership.
15.4. Exceptions. The requirement that all disputes
between the parties be resolved by arbitration shall not apply to
a dispute in which:
(a) a party, having given the other party at least ten (10)
days' notice of the other party's alleged breach, in good faith seeks
immediate equitable relief from a court of competent jurisdiction to
enable the instituting party to prevent irreparable harm (alleged to
arise from the alleged breach) pending arbitral relief; or
(b) any claim by one party against the other
party arises out of the subject matter of any court
litigation or proceeding commenced by any third party
-61-
<PAGE>
against one party in which the other party is an
indispensable party or third party defendant; or
(c) any claim is asserted with respect to which a third
party, which is not bound and will not, upon request of either party,
agree to arbitrate subject to the arbitration rules provided by this
Article XV, is an indispensable or necessary party.
15.5. Attorneys' Fees. Each party shall bear its own
expenses, including attorneys' fees, in connection with any dispute,
resolution or arbitration proceedings hereunder. Neither party in any such
action, trial, arbitration or appeal thereon shall be entitled to attorneys'
fees or court, arbitration and other costs incurred, unless otherwise decreed
by the court or arbitrators in the same or a separate suit.
15.6. Arbitrators' Fees. Subject to Section 15.5, each
party will compensate the arbitrator selected by it, and the
third arbitrator and expenses of the proceeding will be shared
equally by the General Partners.
15.7. Discovery. Upon request of either party, the
arbitrators will order such discovery (including third-party discovery) as the
arbitrators determine to be reasonable under the circumstances. The
arbitrators shall, however, impose reasonable schedules and deadlines to
ensure that discovery is conducted and concluded on a timely basis and shall
impose sanctions on either party for abuse or delay of discovery. Rules of
evidence may be applied, in the discretion of the arbitrators.
15.8. Expedited Procedure. Either party to the arbitration
may elect, by notice to the other party, to have the arbitration be conducted
on an expedited basis. Thereafter, the arbitrators shall be empowered to
expedite the proceedings by all reasonable means consistent with a fair
hearing of the dispute. Such means may include the imposition of accelerated
discovery and hearing schedules, requiring submissions within abbreviated time
periods and imposing limits on numbers of witnesses and the length of
hearings.
15.9. Enforcement. Judgment upon the decision of the
arbitrators may be entered in any court having jurisdiction over
the party against which enforcement is sought.
IN WITNESS WHEREOF, the undersigned have executed this
Limited Partnership Agreement as of the date first written above.
GENERAL PARTNERS:
RED HILL GEOTHERMAL, INC., a Delaware
corporation
-62-
<PAGE>
By: Russ L. Tenney
---------------------------------
Its: President
---------------------------
By: William
---------------------------------
Its: Assistant Secretary
---------------------------
SAN FELIPE ENERGY COMPANY, a California
corporation
By: Mark M. Roloman
---------------------------------
Its: Vice President
---------------------------
ORIGINAL LIMITED PARTNERS:
MAGMA POWER COMPANY, a Nevada corporation
By: Arnold L. Johnson
---------------------------------
Its: President
---------------------------
By: Jon R. Peele
---------------------------------
Its: Secretary
---------------------------
SAN FELIPE ENERGY COMPANY, a California
corporation
By: Mark M. Roloman
---------------------------------
Its: Vice President
---------------------------
-63-
<PAGE>
=============================================================================
FIRST AMENDMENT TO THE
LIMITED PARTNERSHIP AGREEMENT
OF
LEATHERS, L.P.
April 14, 1989
=============================================================================
<PAGE>
FIRST AMENDMENT TO THE
LIMITED PARTNERSHIP AGREEMENT
OF
LEATHERS, L.P.
PREAMBLE
--------
This First Amendment (the "Amendment") to the Limited
Partnership Agreement (the "Limited Partnership Agreement") of Leathers, L.P.
(the "Partnership"), is made and entered into as of April 14, 1989, by and
among Red Hill Geothermal, Inc., a Delaware corporation ("Red Hill"), Magma
Power Company, a Nevada corporation ("Magma"), and San Felipe Energy Company,
a California corporation ("San Felipe"), for the purpose of amending the
Limited Partnership Agreement of the Partnership under which the affairs of
the Partnership have been conducted to this date.
RECITALS
--------
A. Red Hill, Magma and San Felipe are all of the
parties to the Limited Partnership Agreement and all of the
partners of the Partnership as of the date hereof.
B. Red Hill, Magma and San Felipe desire to amend the
Limited Partnership Agreement as provided herein. The parties acknowledge that
such amendments are not attributable to the influx of new capital into the
Partnership but rather are intended to more accurately reflect the parties'
agreements.
NOW, THEREFORE, in consideration of the foregoing recitals
and the mutual covenants and agreements set forth herein, the parties hereto
agree as follows:
AGREEMENT
---------
1. Change of QF Determination Date. The reference to
"March 15, 1989" in Section 5.3.4 of the Limited Partnership
Agreement shall be changed to hereafter refer to "July 15, 1989."
2. Continued Effectiveness. Except as specifically provided
in this Amendment, the Limited Partnership Agreement shall remain in full
force and effect in accordance with its original terms and conditions, except
that the term "Limited Partnership Agreement" as used in the Limited
Partnership Agreement shall hereafter mean the Limited Partnership Agreement
as amended hereby.
3. Counter parts. This Amendment may be executed in two or
more counterparts, each of which shall be deemed an
<PAGE>
original, but all of which together shall constitute a single original
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be signed by their duly authorized officers as of the day and
year first above written.
RED HILL GEOTHERMAL, INC., a
Delaware corporation, a General
Partner
By: Jonathan Fish
---------------------------------
Its: Vice President
---------------------------
By: R. Peele
---------------------------------
Its: Vice President
---------------------------
MAGMA POWER COMPANY, a Nevada
corporation, a Limited Partner
By:
---------------------------------
Its: Secretary & Vice President
---------------------------
By:
---------------------------------
Its: Vice President
---------------------------
SAN FELIPE ENERGY COMPANY, a
California corporaation, a General
Partner and a Limited Partner
By: Mark M. Roloman
---------------------------------
Its: Vice President
---------------------------
By:
---------------------------------
Its:
---------------------------
-2-
<PAGE>
Exhibit "A"
Original Limited Partners
Name and Address
Magma Power Company,
a Nevada corporation
11770 Bernardo Plaza Court
Suite 366
San Diego, California 92128
San Felipe Energy Company,
a California corporation
18872 MacArthur Boulevard
Suite 400
Irvine, California 92715
<PAGE>
Exhibit "B"
-----------
Partners' Names, Addresses, Units,
and Initial Capital Contributions
-----------------------------------
Cash
Capital Fair Market
Name and Address Contribution Value Units
---------------- ------------ ----------- -----
General Partners:
- ----------------
Red Hill Geothermal, Inc. $4,308,058 40
480 West Sinclair Road (under ss. 3.4.4)
Calipatria, California 92233
San Felipe Energy Company $6,927,054 40
18872 MacArthur Boulevard (under ss. 3.4.4)
Suite 400 $1,872,946
Irvine, California 92715 (under ss. 3.4.3)
Limited Partners:
- ----------------
Magma Power Company $2,529,780 10
11770 Bernardo Plaza Court (under ss. 3.4.2)
Suite 366
San Diego, California 92128
San Felipe Energy Company $2,200,000 10
18872 MacArthur Boulevard (under ss. 3.4.3)
Suite 400
Irvine, California 92715
<PAGE>
Exhibit "C"
-----------
Aggregate of
Scheduled Capital Contributions
-------------------------------
Name Amount
- ---- ------
General Partners:
- ----------------
Red Hill Geothermal, Inc. $10,120,000
San Felipe Energy Company $16,280,000
Limited Partners:
- ----------------
Magma Power Company $ 2,530,000
San Felipe Energy Company $ 4,070,000
<PAGE>
Exhibit "D"
-----------
Contribution of
Intangible Drilling Costs
-------------------------
(Attached)
<PAGE>
Leathers
--------
ASSIGNMENT AS CAPITAL CONTRIBUTION
----------------------------------
THIS ASSIGNMENT AS CAPITAL CONTRIBUTION (the "Assignment")
is made as of the 15th day of August, 1988, by and between MAGMA POWER
COMPANY, a Nevada corporation ("Assignor"), and LEATHERS, L.P., a limited
partnership organized under the laws of the State of California ("Assignee").
Recitals
--------
A. Assigned Property. Assignor is currently developing a
power production geothermal electrical generating facility in the Salton Sea
Known Geothermal Resource Area in Imperial County, California (the "Leathers
Facility"). In connection with Assignor's development of the Leathers
Facility, Assignor has incurred certain tangible and intangible drilling and
development costs with respect to developing the geothermal production and
injection wells that will service the Leathers Facility (the "Geothermal
Wells"). As of the date hereof, in exchange for cash, Assignor is selling to
Assignee certain of Assignor's right, title and interest in and to the
Leathers Facility, including so much of the Geothermal Wells as is represented
by tangible drilling and development costs incurred to date. In addition,
Assignor is acquiring a limited partnership interest in Assignee pursuant to
that certain Limited Partnership Agreement of Assignee dated as of August 15,
1988 (the "Agreement"). As a portion of its total "Scheduled Capital
Contribution" (as defined in the Agreement) Assignor is contributing to
Assignee Assignor's right, title and interest in and to a portion of the
Geothermal Wells which was developed through the incurrence of costs which are
deductible by Assignor for Federal income tax purposes pursuant to Section
263(c) of the Internal Revenue Code of 1986, as amended (the "Code"), up to a
total amount of such costs of $2,529,780.
B. Purpose. Assignor now desires to assign to Assignee all
of its rights, title and interest in and to the Assigned Property. Assignee
desires to accept such rights, title and interest.
Agreement
---------
NOW, THEREFORE, for good and valuable consideration, the
receipt of which is hereby acknowledged, the parties agree as follows:
1. Assignment. Assignor hereby assigns and transfers all of
its right, title and interest in and to the Assigned Property to Assignee.
<PAGE>
2. Acceptance and Assumption. Assignee hereby accepts the
foregoing assignment as a Capital Contribution pursuant to Section 3.4.2 of
the Agreement.
3. Miscellaneous. This Assignment shall be binding upon and
shall inure to the benefit of the respective heirs, successors and assigns of
the parties hereto. Each party agrees to execute any and all other documents
reasonably necessary or appropriate in order to effect the assignment to
Assignee of the Assigned Property and any rights thereto in accordance with
the terms of this Assignment. This Assignment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The headings used
herein are inserted for purposes of reference and are not intended to be part
of or to affect the meaning or interpretation of this Assignment.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment to be duly executed on their respective behalf, by their respective
officers, thereunto duly authorized, all as of the day and year first above
written.
ASSIGNOR:
MAGMA POWER COMPANY, a Nevada
corporation
By:
-------------------------------
Its:
---------------------------
By:
-------------------------------
Its:
---------------------------
ASSIGNEE:
LEATHERS, L.P., a limited
partnership organized under the
laws of the State of California
By: RED HILL GEOTHERMAL, INC., a
Delaware corporation, its
General Partner
By:
----------------------------
Its:
------------------------
By:
----------------------------
Its:
------------------------
-2-
<PAGE>
Exhibit "E"
----------
FORM OF OPINION
---------------
[San Felipe Letterhead]
[Date]
TO: The Parties Specified in
Schedule A attached hereto
Ladies and Gentlemen:
I am a member of the California Bar and am the General
Counsel of San Felipe Energy Company (the "Company") and of Mission Energy
Company. The opinions expressed below are rendered in my capacity as General
Counsel of the Company. In that capacity, I am generally familiar with the
organization and history of the Company. This opinion is given pursuant to the
Limited Partnership Agreement of Leathers, L.P., dated August 15, 1988 (the
"Partnership Agreement") among Red Hill Geothermal, Inc. and the Company as
general partners and Magma Power Company and the Company as original limited
partners. Except as otherwise provided herein, the defined terms used herein
have the same meaning ascribed to them in the Partnership Agreement.
In rendering the opinions expressed below, I have examined
originals, or copies certified or otherwise identified to my satisfaction, of
the Partnership Agreement and all of such partnership or corporate records,
agreements and other instruments, certificates of public officials and of
officers and representatives of the Company and of Leathers, L.P. ("Leathers")
and such other documents as I have deemed necessary or appropriate for
purposes of this Opinion.
I have assumed, with your approval, that:
(i) the Partnership Agreement was duly authorized, executed and
delivered by, and constitutes the legally binding and valid
obligation of, all parties thereto and is enforceable against all
parties thereto in accordance with its terms; and
(ii) the [partially constructed] power production electrical
generating facility (the "Facility") that Leathers intends to
acquire, complete and operate would, except for any possible failure
to meet the ownership criteria set forth in 18 C.F.R. Section
292.206, be certified by the Federal Energy Regulatory Commission
("FERC") as a qualifying small power production facility ("QF") in
that the Facility meets all of the other requirements under the
Public Utility Regulatory Policies Act of 1978 ("PURPA") and the
<PAGE>
regulations promulgated thereunder, including but not limited to the
criteria for a geothermal qualifying small power production facility
set forth in 18 C.F.R. Section 294.204.
[In accordance with Article XIII of the Partnership Agreement, on
September _, 1988, Leathers filed an application with the FERC, pursuant to 18
C.F.R. Section 292.207(b), for certification that the Facility is a QF.] Among
the matters that the FERC will consider is whether the Facility meets the
ownership criteria for a QF contained in 18 C.F.R. Section 292.206. Section
292.206(a) sets forth the general rule that a ". . .small power production
facility may not be owned by a person primarily engaged in the generation or
sale of electric power . . . ." Section 292.206(b) provides that a " . . .
small power production facility shall be considered to be owned by a person
primarily engaged in the generation or sale of electric power, if more than 50
percent of the equity interest in the facility is held by . . . an electric
utility holding company . . ."
For purposes of Section 292.206, the Company's ownership interest (by
reason of the Partnership Agreement) in the Facility will be considered
ownership by an electric utility holding company because the Company's
ultimate parent is SCEcorp, a public utility holding company.
In its decision in Ultrapower 3, Docket No. QF 84-121-000, 27 FERC
Paragraph 61,094 (1984), the FERC stated that it would look to the "stream of
benefits" from a partnership to determine the equity interest of each partner.
The FERC has regarded the stream of benefits to consist of rights to the
profits, losses, and surplus of a partnership as opposed to the extent of
capital contributions and return thereof upon dissolution. See, e.g., Ultrapower
3; Beowawe Geothermal Power Company. Docket No. QF 85-527-000, 33 FERC Paragraph
62,205 (1985). Entitlement to not more than 50 percent of the profits, losses,
and surplus meets the ownership criteria of 18 C.F.R. Section 292.206.
Ultrapower 3.
Sections 3.1 and 3.2 of the Partnership Agreement and the
exhibits thereto provide that the Company will own 40% of the Units as a
general partner and 10% of the Units as a limited partner. Various provisions
of the Partnership Agreement prohibit activities, transactions or transfers
that would result in the Facility's inability to satisfy the criteria for a
qualifying facility as provided in 18 C.F.R. Section 292.203.
The Partnership Agreement generally provides for the profits
and losses of Leathers to be allocated to the partners in proportion to their
Units. Section 5.3 of the Partnership Agreement, however, provides for certain
tax attributes to be specially allocated to the Company. In James River
Cogeneration Company Docket No. QF 85-736-003, 43 FERC Paragraph 61,470 (June
14, 1988), which involved similar special allocations of tax
-2-
<PAGE>
attributes, the FERC found that such special allocations of tax attributes
should be included in the "stream of benefits."
Section 5.3.4 of the Partnership Agreement provides for
elimination of any special allocation of tax attributes if, by the date
specified therein, a favorable certification has not been obtained from the
FERC (subject to restoration to the extent allowed in Section 5.3.4). [Since
as of such date the FERC has not acted to certify that the Facility is a QF,
as a result of the operation of Section 5.3.4, all special allocations of tax
attributes have been eliminated as of such date and all tax attributes will be
allocated to the partners in proportion to their Units. Thus, notwithstanding
the fact that tax attributes are considered part of the stream of benefits for
purposes of determining entity interest in a partnership, the Company would
not receive more than 50 percent of those tax attributes.]1
Pursuant to Section 5.3.5 of the Partnership Agreement,
under the circumstances set forth therein, the Company may also be required to
dispose of that portion of its interest in Leathers in accordance with Article
XIII as is necessary to satisfy the ownership criteria of 18 C.F.R. Section
292.206.
Article VI provides that the general partners will manage
certain aspects of the business of Leathers through a management committee.
The approval of both general partners is required for management committee
action or decision, except in the case of a defaulting general partner. A
managing general partner, Red Hill Geothermal, Inc., is, appointed to manage
various aspects of the business of Leathers.
On the basis of the foregoing, of the analyses set forth
above, and of my consideration of such questions of law as I have deemed
relevant in the circumstances, I am of the opinion that the FERC should find
that the ownership interest criteria of 18 C.F.R. Section 292.206 are
satisfied.
This opinion is rendered to you in my capacity as counsel to
the Company and is solely for your benefit. It may not be relied on by any
person other than you, nor may copies be delivered to any person other than
you (except in complying with applicable laws, regulations, and ordinances)
without my prior written consent.
Respectfully submitted,
Alan M. Fenning
General Counsel,
San Felipe Energy Company
- -------------------------
1 Subject to revision if San Felipe has sold Units in lieu of
elimination of special allocations.
-3-
EXHIBIT 3.23
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
DEL RANCH, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
MARCH 14, 1988
<PAGE>
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
DEL RANCH, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
PREAMBLE
--------
This Amended and Restated Limited Partnership Agreement (the
"Limited Partnership Agreement") of DEL RANCH, LTD., A CALIFORNIA LIMITED
PARTNERSHIP (the "Partnership"), is made and entered into as of March 14,
1988, by and between RED HILL GEOTHERMAL, INC., a Delaware corporation ("Red
Hill"), and CONEJO ENERGY COMPANY, a California corporation ("Conejo"),
individually as the "General Partner," and collectively as the "General
Partners," and the Persons listed on Exhibit "A" to this Limited Partnership
Agreement as the Original Limited Partners, and such other Limited Partners as
may be substituted pursuant to the terms hereof, for the purpose of amending
and restating that certain limited partnership agreement of the Partnership
under which the affairs of the Partnership have been conducted to this date,
and for the purpose of continuing the affairs of the Partnership under the
Revised Limited Partnership Act of the State of California.
RECITALS
--------
A. The Partnership is a duly formed and validly existing
limited partnership which was formed and operated under the California Revised
Limited Partnership Act (Title 2, Chapter 3, of the California Corporations
Code), by virtue of a Certificate of Limited Partnership dated February 3,
1988, filed with the Secretary of State of the State of California on February
5, 1988, and recorded February 9, 1988 as Document No. 88-02090 in the Office
of the County Recorder of the County of Imperial and recorded February 9, 1988
as Document No. 88-060435 in the Office of the County Recorder of the County
of San Diego, and certain other documents which were not recorded including,
without limitation, a Limited Partnership Agreement of the Partnership dated
February 5, 1988 (the "Original Limited Partnership Agreement").
B. The Partnership was formed and is being continued for the
purpose of acquiring a partially constructed geothermal electrical generating
facility in the Salton Sea Known Geothermal Resource Area of Imperial County,
California. The Partnership intends to complete the Development of the Del
Ranch Facility under a Construction Management and Asset Transfer Agreement by
and between the partnership and Magma Power Company ("Magma"),
-2-
<PAGE>
pursuant to which Magma will provide certain construction management services
to the Partnership.
C. The Partnership intends upon completion of the Del Ranch
Facility to operate the Del Ranch Facility under the following operating
agreements: (i) an Operating and Maintenance Agreement by and between the
Partnership and Red Hill, pursuant to which Red Hill will operate the Del
Ranch Facility on behalf of the Partnership; (ii) an Administrative Services
Agreement by and between the Partnership and Red Hill, pursuant to which Red
Hill will provide certain administrative services in connection with the
development and operation of the Del Ranch Facility; (iii) a Technology
Transfer Agreement by and between the Partnership and Magma, pursuant to which
Magma will provide the Partnership with the nonexclusive right to use certain
"Technology" and "Know-How" in connection with the operation of the Del Ranch
Facility; (iv) a Ground Lease by and between the Partnership, as lessee, and
Magma, as lessor, pursuant to which Magma will lease to the Partnership the
real property upon which the Del Ranch Facility is located; (v) an Easement
Grant Deed and Agreement Regarding Rights for Geothermal Development by and
between the Partnership and Magma pursuant to which Magma will convey to the
Partnership the right to extract Geothermal Brine and use geothermal
brine-derived steam which is necessary to operate the Del Ranch Facility; and
(vi) a Power Purchase Contract by and between Magma (which has, as of March
14, 1988, assigned its rights under the Power Purchase Contract to the
Partnership) and Southern California Edison Company, an Affiliate of Conejo.
D. The parties now wish to amend and restate, in its entirety,
the Original Limited Partnership Agreement for various reasons affecting the
business and affairs of the Partnership including, without limitation, the
admission of Conejo as a general partner and the admission of Conejo as a
limited partner together with Magma to be referenced hereinafter as the
"Original Limited Partners."
ARTICLE I
ORGANIZATIONAL MATTERS
----------------------
1.1. Continuation. The parties hereby agree to continue the
Partnership as a limited partnership under the Revised Limited Partnership Act
of the State of California. The rights and liabilities of the Partners shall
be as provided in the Act, except as otherwise expressly provided herein.
1.2. Name. The name of the Partnership shall be "Del Ranch,
Ltd., a California limited partnership," or such other name as the General
Partners may hereafter designate by, Notice in writing to the Limited
Partners.
1.3. Business Purpose. The business of the Partnership shall be
to invest in, acquire, finance, develop,
-3-
<PAGE>
improve, operate, maintain and hold the Del Ranch Facility and other Property
(as that term is defined in Section 2.2.24 hereof) for the production and sale
of electricity from geothermal resources, to sell or otherwise dispose of the
Del Ranch Facility and other Property and to engage in any other activities
related or incidental thereto.
1.4. Place of Business. The principal place of business of the
Partnership shall be 480 West Sinclair Road, Calipatria, California 92233, or
such other place as the General Partners may hereafter designate by Notice in
writing to the Limited Partners. The Partnership may maintain such other
offices and places of business as the General Partners may deem advisable.
1.5. Certificate of Limited Partnership. Red Hill has heretofore
executed a Certificate of Limited Partnership on Form LP-1 and filed it in the
Office of the California Secretary of State as required by Section 15621 of
the Act. Red Hill has heretofore recorded certified copies of the Certificate
of Limited Partnership in the official records of each county in which the
Partnership has a place of business or owns real property. The Managing
General Partner shall cause an amendment to the Certificate of Limited
Partnership to be filed with the Secretary of State of the State of California
and recorded in the official records of each county within 30 days of the date
hereof so as to reflect the addition of Conejo as a general partner and any
other matters required to be stated therein.
1.6. Agent for Service of Process. The Partnership shall
continuously maintain in the State of California an agent for service of
process on the Partnership.
1.7. Term. The Partnership commenced on the date on which the
Certificate of Limited Partnership was filed with the California Secretary of
State, and shall continue until the date which is thirty-three (33) years
thereafter, unless sooner terminated pursuant to this Limited Partnership
Agreement.
ARTICLE II
DEFINED TERMS
-------------
2.1. Unless the context shall otherwise require, capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings assigned thereto in Schedule Z hereto, which shall be incorporated by
reference herein.
2.2. In addition to the terms defined pursuant to Section 2.1
hereof, the following definitions shall apply for purposes of this Limited
Partnership Agreement:
2.2.1. "Accountants" means Coopers & Lybrand,
independent certified public accountants, or, subject to the provisions of
this Limited Partnership Agreement, such other firm
-4-
<PAGE>
of independent certified public accountants as may be engaged from time to
time by the General Partners for the Partnership.
2.2.2. "Act" means the Revised Limited Partnership Act
of the State of California.
2.2.3. "Capital Account" as to any Partner, means an
account maintained on the Partnership's books reflecting the excess (deficit)
of (a) the sum of (i) such Partner's Capital Contributions, (ii) such
Partner's share of Taxable Income and (iii) such Partner's share of tax-exempt
income of the Partnership over (b) the sum of (i) such Partner's share of Tax
Loss, (2) such Partner's share of other Partnership expenditures (including
"section 705(a)(2)(B) expenditures" within the meaning of Treasury Regulation
Section 1.704-1(b)(2)(iv)(i)) that are not deductible for Federal income tax
purposes (not including payments on indebtedness or expenditures to the extent
included in the basis of any Partnership asset) and (3) any distributions to
such Partner of Distributable Cash or Sale or Financing Proceeds.
2.2.3.1. Notwithstanding any other provision in
this Section 2.2.3 or elsewhere in this Limited Partnership Agreement, each
Partner's Capital Account shall be maintained and adjusted in accordance with
the Code and the Treasury Regulations thereunder, including Treasury
Regulation Section 1.704-1(b)(2)(iv) and appropriate adjustments to capital
accounts permitted in the case of a Partner who receives the benefit or
detriment of any special basis adjustment under Sections 734, 743 and 754 of
the Code. It is intended that appropriate adjustments shall thereby be made to
Capital Accounts to give effect to any income, gain, loss or deduction (or
items thereof) that is specially allocated pursuant to this Limited
Partnership Agreement. Subject to Section 2.2.3.5, each Partner's Capital
Account shall include that of any predecessor holders of the Interest of such
Partner. A Partner who has more than one interest in the Partnership shall
have a single Capital Account that reflects all such interests regardless of
the class of interests owned by such Partner and regardless of the time or
manner in which such interests were acquired.
2.2.3.2. The General Partners, in their
discretion, may increase or decrease the Capital Accounts of the Partners to
reflect a revaluation of Partnership property on the Partnership's books and
records. No adjustment to Capital Accounts shall, however, be made unless all
of the following conditions are satisfied:
(a) The adjustments are based on the fair market value of
Partnership property (taking Section 7701(g) of the Code into
account) on the date of adjustment;
(b) The adjustments reflect the manner in which the
unrealized income, gain, loss or deduction inherent in such
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property (that has not been reflected in Capital Accounts previously)
would be allocated among the Partners under Article V of this Limited
Partnership Agreement if there were a taxable disposition of such
property for such fair market value on such date;
(c) Capital Accounts shall be adjusted in accordance with
Treasury Regulation Section 1.704-1(b)(2)(iv)(g) for allocations to
the Partners of depreciation, depletion, amortization, and gain or
loss, as computed for book purposes, with respect to such property;
(d) The Partners' shares of depreciation, depletion,
amortization, and gain or loss, as computed for tax purposes, with
respect to such property shall be determined so as to take account of
the variation of the adjusted tax basis and book value of such
property in the same manner as under Section 704(c) of the Code and
the Treasury Regulations thereunder; and
(e) The adjustments are made principally for a substantial
non-tax business purpose (i) in connection with a contribution of
money or other property (other than an insignificant amount) to the
Partnership by a Partner as consideration for an interest in the
Partnership, (ii) in connection with the liquidation of the
Partnership or a distribution of money or other property (other than
an insignificant amount) by the Partnership to a retiring or
continuing Partner as consideration for an interest in the
Partnership or (iii) under generally accepted industry accounting
practices, provided that substantially all of the Partnership's
property (excluding money) consists of stock, securities,
commodities, options, warrants, futures or similar instruments that
are readily tradable on an established securities market.
Capital Accounts shall also be adjusted, (1) as required under Section
48(q)(6) of the Code and Treasury Regulation Section 1.704-1(b)(2)(iv)(j), in
regard to investment credits allowed with respect to property of the
Partnership and (2) as required under Treasury Regulation Section
1.704-1(b)(2)(iv)(k), for depletion and gain or loss with respect to oil or
gas properties of the Partnership.
2.2.3.3. In the event that property is
contributed to the Partnership with a basis to the Partnership different from
such property's fair market value at the time of its contribution, Capital
Accounts shall be adjusted, in accordance with Treasury Regulation Sections
1.704-1(b)(2)(iv)(d)(3) and 1.704-1(b)(2)(iv)(g), for allocations to the
Partners of depreciation, depletion, amortization, and gain and loss, as
computed for book purposes, with respect to such contributed property. Book
depreciation, depletion and amortization with respect to such contributed
Partnership
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property shall be computed in accordance with a reasonable method selected by
the General Partners; under such method, (i) if the book value of such
contributed Partnership property exceeds the adjusted tax basis thereof, the
depreciation, depletion or amortization, as computed for book purposes, shall
be no less than the depreciation, depletion or amortization, as computed for
tax purposes, (ii) if the adjusted tax basis of such contributed Partnership
property exceeds the book value thereof, the depreciation, depletion or
amortization, as computed for book purposes, shall be no greater than the
depreciation, depletion or amortization, as computed for tax purposes, and
(iii) if the book value of such contributed Partnership property equals the
adjusted tax basis thereof, the depreciation, depletion or amortization, as
computed for book purposes, shall equal the depreciation, depletion or
amortization, as computed for tax purposes.
2.2.3.4. A Partner's Capital Account shall
be reduced by the fair market value (determined without regard to Section
7701(g) of the Code) of any property distributed by the Partnership to such
Partner, whether in connection with a liquidation of the Partnership or of
such Partner's Interest or otherwise. Accordingly, Capital Accounts shall
first be adjusted to reflect the manner in which the unrealized income, gain,
loss and deduction inherent in such property (that has not been previously
reflected in Capital Accounts) would be allocated, pursuant to Article V of
this Limited Partnership Agreement, among the Partners if there were a taxable
disposition of such property for its fair market value (taking Section 7701(g)
of the Code into account) on the date of distribution.
2.2.3.5. Upon the transfer of all or any part of
an Interest, the transferor's Capital Account that is attributable to the
transferred interest shall carry over to the transferee Partner. If the
transfer of any interest in the Partnership causes a termination of the
Partnership under Section 708 (b)(1)(B) of the Code, the Capital Account that
carries over to the transferee Partner shall be adjusted in accordance with
Section 2.2.3.4 of this Limited Partnership Agreement and Treasury Regulation
Section 1.704-1(b)(2)(iv)(e) in connection with the constructive liquidation
of the Partnership under Treasury Regulation Section 1.708-1(b)(1)(iv). The
constructive reformation of the Partnership shall be treated as the formation
of a new partnership, and the capital accounts of the partners of such new
partnership shall be determined and maintained accordingly.
2.2.3.6. Adjustments to Capital Accounts in
respect to Partnership income, gain, loss, deduction and non-deductible
expenditures (or item thereof) shall be made with reference to the Federal tax
treatment of such items (and in the case of book items, with reference to the
Federal tax treatment of the corresponding tax items) at the Partnership
level, without
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regard to any requisite or elective tax treatment of such items at the Partner
level.
2.2.3.7. If the foregoing rules fail to
provide guidance on how adjustments to Capital Accounts should be made to
reflect particular adjustments to Partnership capital on the books of the
Partnership, adjustments to Capital Accounts shall be made in a manner that
(i) maintains equality between the aggregate Capital Accounts of the Partners
and the amount of Partnership capital reflected on the Partnership's balance
sheet, as computed for book purposes, (ii) is consistent with the underlying
economic arrangement of the Partners and (iii) is based, wherever practicable,
on Federal tax accounting principles.
2.2.3.8. A separate accounting shall be made of
any item allocated for state or local income tax purposes in a manner
different from how the corresponding item under the Code is allocated for
Federal income tax purposes. Reference herein to Capital Accounts shall, to
the extent appropriate and as necessary for state or local income tax
purposes, be deemed to include the effects of such separate accounting.
2.2.4. "Capital Contribution" means the total
amount of money and the fair market value (determined consistent with Section
752(c) of the Code and without regard to Section 7701(g) of the Code) of any
property contributed to the Partnership by any Partner (or the predecessor
holders of the Interest of any Partner).
2.2.5. "Capital Contribution Installment Dates"
has the meaning set forth in Section 3.4.1 hereof.
2.2.6. "Distributable Cash" means, with respect to
any period between Distribution Dates, the amount of cash or property
delivered by Red Hill in its capacity as Operator under the Operating and
Maintenance Agreement, to the Partnership pursuant to Section 12.2(xv) of the
Operating and Maintenance Agreement (other than amounts representing Capital
Contributions and the proceeds of the Project Lender's Loan) less any other
reimbursements or fees payable hereunder including, without limitation,
amounts reimbursed to Red Hill as "Tax Matter Partner" pursuant to the
provisions of Section 11.6 hereof.
2.2.7. "Distribution Dates" means each March 31 and
September 30 occurring during the term of the Partnership.
2.2.8. "Easement Consideration" means the consideration
to be paid to Magma by the Partnership pursuant to the Easement Agreement.
2.2.9. "Financing" means any financing, refinancing
or borrowing, whether or not secured by any Property, but excluding any loan
made by the Partnership.
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2.2.10. "Incapacity" means the entry of any order for
relief in bankruptcy, of incompetence or of insanity, or the death,
dissolution or termination (other than by merger or consolidation), of any
Person.
2.2.11. "Interest" means the entire ownership interest
of a Partner in the Partnership at any particular time, including the right of
such Partner to any and all benefits to which a Partner may be entitled as
provided in this Limited Partnership Agreement, together with the obligations
of such Partner to comply with all of the terms and provisions of this Limited
Partnership Agreement.
2.2.12. "Limited Partner" means, solely for purposes
of this Limited Partnership Agreement, any Person admitted to the Partnership
as a limited partner, whether as an Original Limited Partner or a Substituted
Limited Partner.
2.2.13. "Limited Partnership Agreement" means this
Amended and Restated Limited Partnership Agreement, as amended from time to
time.
2.2.14. "Majority of the Limited Partners" means the
holders of more than 50% of the outstanding Units held by all of the Limited
Partners.
2.2.15. "Management Committee" has the meaning set
forth in Section 6.2 hereof.
2.2.16. "Managing General Partner" means Red Hill.
2.2.17. "Notice" means a writing, containing the
information required by this Limited Partnership Agreement to be communicated
to any Person, sent by registered, certified, first-class mail, telex or
telecopy to such Person at the last known mailing address of such Person;
provided, however, that any communication containing such information sent to
such Person and actually received by such Person shall constitute Notice for
all purposes of this Limited Partnership Agreement.
2.2.18. "Operating Cash Expenses" means the amount of
cash disbursed by or on behalf of the Partnership in the ordinary course of
business including, without imitation, all cash expenses, such as property
management, insurance premiums, taxes, utilities, repair, maintenance legal,
accounting, bookkeeping, computing, equipment use, travel on Partnership
business, telephone expenses and salaries, and direct expenses of Partnership
employees (if any) and agents and consultants while engaged in Partnership
business. Operating Cash Expenses shall include fees or other amounts paid by
the Partnership to any General Partner, Limited Partner or any Affiliate
thereof permitted by this Limited Partnership Agreement including, but
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not limited to the Administration Fee, Guaranteed Capacity Payment, Technology
Fee, Construction Management Fee, Easement Consideration, rent under the
Ground Lease, Reimbursement Charges and any other amounts due and owing, as
reimbursement or otherwise, under this Limited Partnership Agreement and/or
any of the Operating Agreements, transmission line charges pursuant to the IID
Agreements, contributions to the Debt Service Reserve Account, the Major
Capital Expenditure Reserve Account, the Decommissioning Reserve Account and
such other Reserves as the General Partners, in their sole discretion shall
deem necessary or desirable to the business of the Partnership, including,
without limitation, reserves for working capital, and the cost of goods,
labor, materials and administrative services used for or by the Partnership,
whether incurred by any General Partner, any Affiliate thereof or any
non-Affiliate in performing functions set forth in this Limited Partnership
Agreement reasonably requiring the use of such goods, labor, materials or
administrative services. Operating Cash Expenses shall not include
expenditures paid from Reserves or expenditures attributable to obtaining Sale
or Financing Proceeds.
2.2.19. "Original Limited Partners" means the Persons
listed on Exhibit "A" to this Limited Partnership Agreement.
2.2.20. "Partner" means any Limited Partner or General
Partner.
2.2.21. "Partnership" means the limited partnership
being continued under this Limited Partnership Agreement.
2.2.22. "Partnership Holding Account" means that
certain segregated interest bearing account in the Partnership's name
referenced in Section 3.3 hereof into which the General Partners shall deposit
all Capital Contributions hereunder and all proceeds of draws under the Credit
Facility.
2.2.23. "Project Costs" means, subject to any other
provision of this Limited Partnership Agreement, all expenditures or
commitments for expenditures with respect to the design, financing,
engineering, construction, and start-up of the Del Ranch Facility, whether
already incurred or to be incurred, or whether originally treated as capital
or expense, which, subject to any other provision of this Limited Partnership
Agreement, (i) are within the scope of the construction, development and
start-up of the Del Ranch Facility, and (ii) may properly be treated as
capital costs.
As used herein, "Project Costs" shall include, without
limitation or duplication but subject to the restrictions contained in the
foregoing clauses (i) and (ii), expenditures or commitments for expenditures
incurred in the following:
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2.2.23.1. The Development of the Del Ranch
Facility.
2.2.23.2. The acquisition or lease of real
property and rights of way to be held in the name of the Partnership and all
cost incurred, if any, in connection with any amendments to the Geothermal
Leases including, without limitation, all consideration paid to the lessors in
connection with such amendments. Prior to the Conversion Date, lease payments
made by the Partnership shall be treated as Project Costs.
2.2.23.3. The obtaining of permits and approvals
for the development, construction and start-up of the Del Ranch Facility,
including the geothermal exploratory, production and injection wells, and the
acquisition, construction and putting into operation of the Del Ranch
Facility.
2.2.23.4. The acquisition of title reports and
all expenses incurred in connection therewith, including, without limitation,
legal fees and Title Consultant fees, and, where required, title insurance
with respect to real property, leases, including, without limitation, the
Geothermal Leases, and rights of way.
2.2.23.5. The acquisition of materials, supplies,
machinery, equipment or apparatus used (including rental charges for
machinery, equipment or apparatus hired) in connection with the acquisition,
construction or the start-up of the Del Ranch Facility, whether or not such
materials, supplies, machinery, equipment or apparatus are to be installed as
part of the Del Ranch Facility.
2.2.23.6. For costs of any financings relating to
the Del Ranch Facility, including the Credit Facility and fees or other
charges allocable to the Development of the Del Ranch Facility in connection
with that certain $75,000,000 Credit Agreement dated as of September 1, 1987
between Magma and Morgan Guaranty Trust Company of New York ("Morgan"),
including interest during construction.
2.2.23.7. For costs in connection with the
financing, acquisition, construction or start-up of the Del Ranch Facility,
including, without limitation, allowances or charges for taxes, licenses,
excises, assessments, engineering, accounting and legal expenses,
superintendence, casualties, surety bond and insurance premiums and interest
and commitment fees paid or payable with respect to indebtedness.
2.2.23.8. The Partnership's share of the costs of
the electrical transmission facilities to be built by the IID as provided in
the IID Agreements, and the electrical interconnection with IID and SCE,
together with all costs and expenses associated with the financing thereof.
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2.2.23.9. For advance payments or deposits on
account of the cost of personal property acquired or to be acquired or
services performed or rendered or to be performed or rendered in connection
with the acquisition or the construction or the start-up of the Del Ranch
Facility including, without limitation, the invoiced cost of such personal
property or services notwithstanding that payment therefor is made with the
capital stock or other property of the payor.
2.2.23.10. All fees or charges paid to Morgan in
connection with the financing of the Partnership and the Del Ranch Facility.
2.2.24. "Property" means the Del Ranch Property
together with all interest in and rights to use the Geothermal Brine as
provided in the Easement Agreement, all improvements now or hereafter
constructed on the Del Ranch Property including, but not limited to, the Del
Ranch Facility, and all personal property used in connection therewith,
including any interest of the Partnership therein.
2.2.25. "Reserves" means funds set aside or amounts
allocated during such period to reserves which shall be maintained in amounts
deemed sufficient by the General Partners for working capital, to pay taxes,
insurance, debt service, repairs, replacements or renewals, Decommissioning,
and for other costs or expenses incident to the ownership or operation of the
Property including, but not limited to, the Debt Service Reserve, the Major
Capital Expenditure Reserve and the Decommissioning Reserve.
2.2.26. "Sale" means any Partnership transaction
(other than the receipt of Capital Contributions) not in the ordinary course
of its business, including, without limitation, sales, exchanges or other
dispositions of real or personal property, condemnations, recoveries of damage
awards and insurance proceeds (other than business or rental interruption
insurance proceeds), and principal payments with respect to loans made by the
Partnership pursuant to this Limited Partnership Agreement, but excluding any
Financing.
2.2.27. "Sale or Financing Proceeds" means the net
cash receipts of or on behalf of the Partnership arising from a Sale or
Financing (other than the receipt of Capital Contributions and the proceeds of
the Project Lender's Loan), less the following:
2.2.27.1. The amount necessary for the payment
of all debts and obligations secured by any Property sold or otherwise related
to the particular Sale or Financing.
2.2.27.2. The amount of cash paid or to be paid
in connection with such Sale or Financing (which shall
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include, with regard to damage recoveries or insurance or condemnation
proceeds, cash paid or to be paid in connection with repairs, replacements or
renewals, in the discretion of the General Partners, relating to damage to or
partial condemnation of the affected Property).
2.2.27.3. The amount considered appropriate
by the General Partners to pay taxes, insurance, debt service, repairs,
replacements or renewals, or other costs or expenses of the Partnership
(including costs of improvements or additions in connection with any Property)
or to provide for the purchase of land or other interests in connection with
any Property, or to provide Reserves therefor, other than the Debt Service
Reserve and the Major Capital Expenditure Reserve.
2.2.27.4. The amount necessary to repay any
debt under the Credit Facility as a result of the effect of Section 2.09(d) of
such Credit Facility.
2.2.28. "Scheduled Capital Contributions" has the
meaning set forth in Section 3.4.1 hereof.
2.2.29. "Substituted Limited Partner" means any Person
admitted to the Partnership as a Limited Partner pursuant to Section 9.3 of
this Limited Partnership Agreement.
2.2.30. "Taxable Income" or "Tax Loss" means the
income or loss of the Partnership for each fiscal year as determined for
Federal, state or local income tax purposes, including without limitation
related tax items such as capital gain or loss, tax preferences, credits,
depreciation, depletion, deductions and investment credit recapture.
2.2.31. "Units" means the respective Interests of the
Partners expressed in terms of the number of units held by them as set forth
in Exhibit "B" attached hereto, as amended from time to time.
2.3. Additional Defined Terms. For the convenience of the
parties, in addition to the defined terms set forth in Schedule Z hereto and
this Article II, certain other terms are defined throughout this Limited
Partnership Agreement.
ARTICLE III
PARTNERS AND CAPITAL
--------------------
3.1. General Partners. The names, addresses, Capital
Contributions, and Units of the General Partners are set forth in Exhibit "B"
attached hereto.
3.2. Original Limited Partners. The names, addresses,
Capital Contributions, and Units of the Original Limited Partners are set
forth in Exhibit "B" attached hereto.
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3.3. Partnership Capital. The Partners shall make Capital
Contributions in accordance with the provisions of Sections 3.4 and 3.5
hereof. The General Partners shall deposit the proceeds of all Capital
Contributions and all draws under the Credit Facility in the Partnership
Holding Account promptly upon the General Partners' receipt thereof. The
amounts held in the Partnership Holding Account shall be used by the
Partnership in a manner consistent with this Limited Partnership Agreement
including, without limitation, for such purposes as may be contemplated by the
Construction Management Agreement. Subject to the provisions of Section 3.6
hereof, any amounts held in the Partnership Holding Account, including any
interest earned thereon, in excess of the amounts necessary to fulfill the
Partnership's obligations under the Construction Management Agreement, shall
be delivered to Red Hill, in its capacity as Operator pursuant to the
Operating and Maintenance Agreement, to be placed in the Operating Account.
The Partnership shall not redeem or repurchase any Interest, and no Partner
shall have the right to withdraw, or receive any return of, its Capital
Contribution or Capital Account, except as specifically provided herein.
3.4. Scheduled Capital Contributions.
3.4.1. Each Partner shall make Capital Contributions
in the aggregate amount set forth opposite its name on Exhibit "C" attached
hereto ("Scheduled Capital Contributions"). Except as expressly provided to
the contrary in Section 3.4.2 hereof, all Capital Contributions shall be made
in cash. Scheduled Capital Contributions of the General Partners shall be made
in monthly installments with the first of such installments to be made on the
date hereof, and the remainder of such installments to be made on the
twentieth day of each month commencing April 20, 1988 through and including
the twentieth day of the month in which the Conversion Date occurs (the
"Capital Contribution Installment Dates"). The amount of each General
Partner's Scheduled Capital Contributions to be made on each of the Capital
Contribution Installment Dates shall be an amount which, in the discretion of
the General Partners, is sufficient both to maintain the ratio set forth in
Section 3.6 hereof and to accomplish the purposes of the Partnership, subject
to such aggregate limitations described above. Each of the Limited Partners
shall make its entire Scheduled Capital Contribution on the date of this
Limited Partnership Agreement.
3.4.2. The Partners acknowledge that Magma has
incurred certain intangible drilling and development costs in connection with
its drilling and development of the wells to be used by the Del Ranch
Facility, and that pursuant to the terms and conditions of the Construction
Management Agreement the Partnership shall pay Magma for the transfer of such
wells to the Partnership in an amount equal to the total cost to Magma of such
wells less the amount of such intangible drilling and development costs
incurred by Magma. The Partners hereby agree that a
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portion of the amount of such intangible drilling and development costs
incurred by Magma shall be deemed to be contributed to the capital of the
Partnership as the entire Scheduled Capital Contribution to be made by Magma
pursuant to the terms of Section 3.4.1 hereof and, in this regard, such amount
shall be credited against the amount set forth in Exhibit "C" hereto as being
payable by Magma on the date hereof. The Partners further agree that the
remaining portion of the amount of such intangible drilling and development
costs incurred by Magma shall be deemed to be contributed to the capital of
the Partnership as all or a portion, as the case may be, of the Scheduled
Capital Contributions to be made by Red Hill pursuant to the terms of Section
3.4.1 hereof and, in this regard, such amount shall be credited against the
amount set forth in Exhibit "C" hereto as being payable by Red Hill on the
first Capital Contribution Installment Date (and on the earliest subsequent
Capital Contribution Installment Dates to the extent of any excess over the
amount payable by Red Hill to the Partnership on the first Capital
Contribution Installment Date). The amount to be credited to Magma and Red
Hill by reason of the foregoing contribution and form of conveyance by Magma
and Red Hill of such intangible drilling and development costs is set forth on
Exhibit "D" attached hereto, subject to the adjustment of such amount by Magma
and Red Hill within 30 days of the date hereof to reflect the actual amount of
intangible drilling and development costs incurred by Magma. All such amounts
and costs shall be subject to subsequent audit by Conejo at its expense and
Magma shall refund to the Partnership within 30 days after the completion of
such audit any excess amount credited therefor.
3.5. Additional Funding.
3.5.1. If the General Partners agree, in the exercise
of their respective sole discretion at any time after the Partnership has
borrowed $71,000,000 under the Credit Facility and the Magma Undertaking and
prior to the Conversion Date, to contribute additional funds to carry out the
purposes of the Partnership for profit, Conejo, in its capacity as a general
partner, shall contribute to the Partnership in cash as an additional Capital
Contribution 57.5% of such funds and Red Hill agrees to contribute to the
Partnership in cash as an additional Capital Contribution 42.5% of the funds,
up to an aggregate additional amount from both General Partners of $11,153,846
("Priority Tax Capital Contributions"). After all contributions of such
additional amounts or the Conversion Date, whichever first occurs, or if for
any reason such borrowed funds are not available and the General Partners
agree, in their respective sole discretion, to make such contributions, such
additional Capital Contributions shall be made 50% by Conejo and 50% by Red
Hill ("Priority Capital Contributions"). The Priority Tax Capital
Contributions and Priority Capital Contributions, where appropriate, shall
hereinafter be collectively referred to as "Additional Capital Contributions."
Subject to Section 8.1.1 of this Limited Partnership Agreement, each of the
General Partners
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may elect to use borrowed funds to supply all or any portion of their
respective shares of any additional Capital Contributions to the Partnership;
provided, however, that neither of the General Partners may use borrowed funds
for such purposes if the use of borrowed funds would result directly or
indirectly in the breach of any covenant, condition or representation or
warranty contained in, or an Event of Default under, the Credit Facility or
any agreement, instrument or document related thereto. The provisions of this
Section 3.5.1 in respect of additional funding of the Partnership are intended
to be, and shall be, solely for the benefit of the Red Hill and Conejo and not
the Partnership or the Limited Partners. In addition to the Scheduled Capital
Contributions provided in this Article III, the Partnership on the date hereof
has entered into the Credit Facility and the Magma Undertaking for financing
of up to $71,000,000 for the development of the Del Ranch Facility.
3.5.2. In the event the General Partners are
required to make Additional Capital Contributions pursuant to Section 3.5.1 of
this Limited Partnership Agreement, a separate memorandum account (a "Priority
Equity Account") shall be established for each of the General Partners. Each
General Partner's Priority Equity Account shall be adjusted only in the
following manner:
(a) Increased by the amount of such General Partner's
Additional Capital Contributions; and
(b) Decreased, but in no event to an amount less than zero,
by the amount of all distributions to such General Partner pursuant
to Sections 4.2.1 and 4.3.1.1 of this Limited Partnership Agreement.
3.6. Debt to Equity Ratio. At all times prior to the
Conversion Date, the Partnership shall maintain the Partnership's ratio of
"Tranche A Loans" (as that term is defined in the Credit Facility) to
Scheduled Capital Contributions, at a level no greater than 1.85714:1.
Notwithstanding anything contained herein to the contrary, in the event that
the ratio of Tranche A Loans to Scheduled Capital Contributions of the
Partnership is less than 1.85714:1 as of the Conversion Date, the Partnership
shall refund to each Partner on the first anniversary of the Conversion Date
(or as soon thereafter as is reasonably practicable) that portion of such
Partner's Capital Contribution (a "Refunded Capital Contribution") with such
interest thereon as may have accrued on such Refunded Capital Contribution
while in the Partnership Holding Account and/or the Operating Account, as the
case may be, which, together with all other Refunded Capital Contributions
made to the Partners, both (a) is in excess of the costs incurred in the
Development of the Del Ranch Facility during such one-year period, and (b)
reduces the ratio of the Partnership's Tranche A Loans outstanding as of the
Conversion Date to Capital Contributions ratio to a level as close as possible
to, but not less than 1.85714:1. The amount of each
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Partner's Refunded Capital Contribution, if any, shall equal that portion of
the total Refunded Capital Contributions made by the Partnership which
represents such Partner's pro rata share of the Partnership's capital.
3.7. Liability of Partners.
3.7.1. No Limited Partner shall be liable for the
debts, liabilities, contracts or any other obligations of the Partnership. A
Limited Partner shall be liable only to make its Capital Contributions on the
date hereof in the amounts provided in Exhibits "B" and "C" attached hereto. A
Limited Partner shall not be required to lend any funds to the Partnership or,
after its Capital Contributions have been paid in accordance with the terms
hereof, to make any further Capital Contribution to the Partnership.
3.7.2. In accordance with California law, a Limited
Partner may, under certain circumstances, be required to return to the
Partnership, for the benefit of Partnership creditors, amounts previously
distributed to it as a return of capital. It is the intent of the Partners
that no distribution to any Limited Partner of Distributable Cash or of Sale
or Financing Proceeds shall be deemed a return or withdrawal of capital for
purposes of this Limited Partnership Agreement, even if such distribution
represents, for Federal income tax purposes or otherwise (in whole or in
part), a return of capital, and that no Limited Partner shall be obligated to
pay any such amount to or for the account of the Partnership or any creditor
of the Partnership. However, if any court of competent jurisdiction holds
that, notwithstanding the provisions of this Limited Partnership Agreement,
any Limited Partner is obligated to make any such payment, such obligation
shall be the obligation of such Limited Partner and not of the General
Partners.
3.7.3. The General Partners shall have no personal
liability for repayment to the Limited Partners of their Capital
Contributions, or for repayment to the Partnership of the negative amounts of
such Limited Partners' Capital Accounts, if any.
3.8. Default in Capital Contributions. In the event that a
General Partner ("Defaulting Partner") does not make a timely Capital
Contribution as required by this Article III, the other General Partner
("Non-Defaulting Partner"), at its option, may pay to the Partnership an
amount (the "Non-Defaulting Partner Payment"), up to or equal to the unfunded
amount which shall be deemed to be a Capital Contribution from the Defaulting
Partner to the Partnership. Notwithstanding the provisions of Article IV of
this Limited Partnership Agreement, in the event that a Non- Defaulting
Partner makes a Non-Defaulting Partner Payment, the Partnership shall not make
any distributions to the Defaulting Partner, but shall pay all distributions
(the "Defaulting Partner Distributions") which would otherwise have been paid
to the
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Defaulting Partner to the Non-Defaulting Partner until (i) the amount of all
Defaulting Partner Distributions paid to the Non- Defaulting Partner equals
the amount of such unfunded Capital Contribution plus an amount equal to the
maximum lawful rate of interest on the unpaid balance (the "additional
amount") or (ii) the Non-Defaulting Partner notifies the Partnership that it
has received a payment from the Non-Defaulting Partner equal to the amount of
the unfunded Capital Contribution plus the additional amount, less the amount
of any previous distributions to the Non- Defaulting Partner with respect to
such default. During any period in which Defaulting Partner Distributions are
being paid to the Non-Defaulting Partner, at the Non-Defaulting Partner's
option, the Defaulting Partner's members on the Management Committee shall not
have any voting rights and the vote of the Non-Defaulting Partner shall be
sufficient with regard to any matter voted on by the Management Committee. The
Defaulting Partner shall be liable to the Partnership and to the Non-
Defaulting Partner for all losses, damages and expenses sustained or incurred
by the Partnership and such Non-Defaulting Partner as a result of such
unfunded contribution, including, without limitation, any additional tax
liabilities and interest.
ARTICLE IV
DISTRIBUTIONS OF CASH
---------------------
4.1. Special Distributions. On a monthly basis an amount
equal to 2.667% of Energy Revenues shall be distributed to Red Hill.
4.2. Distributions of Distributable Cash. All Distributable
Cash, subject to limitations under the Credit Facility, shall be distributed
to the Partners, on the Distribution Dates, to the extent available:
4.2.1. First, to the General Partners to the extent of and
in proportion to the positive balance, if any, of their Priority Equity
Accounts.
4.2.2. Second, to the Partners in proportion to their Units
in the Partnership.
4.3. Distributions of Sale or Financing Proceeds.
4.3.1. Subject to Section 4.3.2 of this Limited
Partnership Agreement, except in the event of the liquidation of the
Partnership and distribution of proceeds pursuant to Article X of this Limited
Partnership Agreement, and subject to the limitations under the Credit
Facility, all Sale or Financing Proceeds shall be distributed to the Partners
on the Distribution Dates, to the extent available:
4.3.1.1. First, to the General Partners to the
extent of and in proportion to the positive balance, if any, of their Priority
Equity Accounts.
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4.3.1.2. Second, to the Partners in proportion to
their Units in the Partnership.
4.3.2. No Sale or Financing Proceeds shall be
distributed to any Limited Partner under Section 4.3.1.2 of this Limited
Partnership Agreement so as to create or increase any deficit balance in such
Limited Partner's Capital Account after adjustment for the allocation of any
income, gain, loss or deduction, pursuant to the provisions of Article V of
this Limited Partnership Agreement, resulting from the Sale or Financing
giving rise to such Sale or Financing Proceeds. Sale or Financing Proceeds
that would have been distributable to a Limited Partner but for the
application of the preceding sentence shall be distributed instead to the
General Partners in proportion to their Units in the Partnership.
ARTICLE V
ALLOCATIONS OF TAXABLE INCOME AND TAX LOSS
------------------------------------------
5.1. In General. Taxable Income and Tax Loss of the
Partnership shall be determined and allocated with respect to each fiscal year
of the Partnership as of the end of such year. Subject to the other provisions
of this Article V, an allocation to a Partner of a share of Taxable Income or
Tax Loss shall be treated as an allocation of the same share of each item of
income, gain, loss and deduction that is taken into account in computing
Taxable Income or Tax Loss.
5.2. Taxable Income and Tax Loss. Except as provided
in Sections 5.3, 5.4 and 5.5 of this Limited Partnership
Agreement:
5.2.1. Gross income shall be allocated to Red Hill in
an amount equal to distributions, if any, to Red Hill for such fiscal year
under Section 4.1 of this Limited Partnership Agreement.
5.2.2. All remaining items of Taxable Income for a
fiscal year shall be allocated to the Partners in proportion to their Units in
the Partnership.
5.2.3. All remaining items of Tax Loss for a fiscal
year shall be allocated to the Partners in proportion to their Units in the
Partnership.
5.3. Special Allocations.
5.3.1. Intangible drilling cost deductions allowed
under Section 263(c) of the Code and under corresponding provisions of state
and local income tax laws shall be allocated as follows:
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5.3.1.1. Subject to Section 5.3.2 hereof, such
deductions shall be allocated 100% to Conejo through and including the
Conversion Date.
5.3.1.2. In the event both (a) Project Costs
exceed $93,846,154 and (b) intangible drilling costs exceed $9,950,000, then
deductions for such intangible drilling costs shall be allocated as follows:
(a) If Project Costs are not in excess of $103,846,154 then
deductions for the portion of intangible drilling costs between
$9,950,000 and the actual amount of such costs (an "IDC Overrun")
shall be allocated 50% to Conejo, 40% to Red Hill and 10% to Magma;
(b) If Project Costs are in excess of $103,846,154 but not
in excess of $115,000,000, then the IDC Overrun shall be allocated to
Conejoin an amount which equals the sum of (i) 50% of the IDC Overrun
times a fraction the numerator of which shall be 10,000,000 and the
denominator of which shall be a number equal to the Project Costs
less 93,846,154, plus (ii) 57.5% of the IDC Overrun times a fraction
the numerator of which shall be a number equal to the Project Costs
less 103,846,154 and the denominator of which shall be the Project
Costs less 93,846,154; the remainder of the IDC Overrun shall be
allocated 80% to Red Hill and 20% to Magma; and
(c) If Project Costs are in excess of $115,000,000, then
the IDC Overrun shall be allocated to Conejo in an amount which
equals the sum of (i) 50% of the IDC Overrun times a fraction the
numerator of which shall be 10,000,000 and the denominator of which
shall be a number equal to Project Costs less 93,846,154, plus (ii)
57.5% of the IDC Overrun times a fraction the numerator of which
shall be 11,153,846 and the denominator of which shall be a number
equal to Project Costs less 93,846,154, plus (iii) 50% of the IDC
Overrun times a fraction the numerator of which shall be a number
equal to Project Costs less 115,000,000 and the denominator of which
shall be Project Costs less 93,846,154; the remainder of the IDC
Overrun shall be allocated 80% to Red Hill and 20% to Magma.
5.3.2. Federal depreciation, amortization and
other cost recovery deductions under Sections 167 and 168 of the Code shall be
allocated as follows:
(a) Such deductions attributable to Project Costs not to
exceed $93,846,154 shall be allocated (i) 100% to Conejo through and
including December 31, 1990 and (ii) commencing January 1, 1991
through and including December 31, 1992, 90% to Conejo, 8% to Red
Hill and 2% to Magma and (iii) thereafter, to the Partners in
proportion to their Units in the Partnership.
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(b) Such deductions attributable to Project Costs in excess
of $103,846,154 and less than $115,000,000 resulting from Priority
Tax Capital Contributions made pursuant to the terms of Section 3.5
of this Limited Partnership Agreement shall be allocated 57.5% to
Conejo, 34% to Red Hill and 8.5% to Magma.
(c) Such deductions attributable to Project Costs in an
aggregate amount between $93,846,154 and $103,846,154 and to Project
Costs in excess of $115,000,000 resulting from Priority Capital
Contributions made pursuant to Section 3.5 of this Limited
Partnership Agreement shall be allocated 50% to Conejo, 40% to Red
Hill and 10% to Magma.
5.3.3. State and local tax deductions, if any,
corresponding to Section 167 or 168 of the Code shall not be specially
allocated under this Section 5.3, but rather shall be allocated pursuant to
Section 5.2.2 of this Limited Partnership Agreement.
5.3.4. In the event that the Federal Energy Regulatory
Commission ("FERC") has failed to act to certify that the Del Ranch Facility
is a qualifying facility within the meaning of 18 C.F.R. Section 292.203
("Qualifying Facility"), or has not certified that the Del Ranch Facility is a
Qualifying Facility on the grounds that the ownership criteria of 18 C.F.R.
Section 292.206 ("Ownership Criteria") are not satisfied because of Conejo's
ownership interest in the Del Ranch Facility, on or before the close of
business on August 15, 1988 or the day 15 days prior to the date (the "Power
Sale Date") on which power is then scheduled to be both produced and delivered
for sale from the Del Ranch Facility, whichever occurs first (the "QF
Determination Date"), then, notwithstanding anything in this Section 5.3 to
the contrary, all allocations of tax attributes of greater than 50% to Conejo
set forth in this Article V shall not apply and all such items shall be
allocated as provided in Sections 5.2.2 and 5.2.3. If at any time following
any reallocation on the QF Determination Date the FERC issues an order
certifying that the Del Ranch Facility is a Qualifying Facility in a manner
permitting all or certain of such special allocations to Conejo set forth in
this Article V, the provisions of the preceding sentence shall no longer apply
and such special allocations shall be reinstated to the extent permitted in
accord with such FERC certification.
5.3.5. In the event that FERC has failed to act to
certify that the Del Ranch Facility is a Qualifying Facility, or has not
certified that the Del Ranch Facility is a Qualifying Facility on the grounds
that the Ownership criteria are not satisfied because of Conejo's ownership
interest in the Del Ranch Facility on or before the QF Determination Date,
Conejo shall deliver to the Agent with sufficient copies for the Banks, an
opinion of the general counsel to Conejo reaffirming such counsel's opinion to
the Agent and the Banks dated March 14, 1988
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delivered pursuant to the Secured Credit Agreement (the "Original Opinion"),
as of the QF Determination Date, after giving effect to the provisions of
Section 5.3.4 and taking into consideration any discussions that such counsel
has had with FERC (or any other discussions of representatives of Conejo or
the Partnership of which such counsel is aware) concerning the certification
of the Del Ranch Facility as a Qualifying Facility and any other information
known to such counsel to be relevant thereto. In the event that the general
counsel to Conejo is unable to reaffirm the Original Opinion as of the QF
Determination Date after giving effect to the provisions of Section 5.3.4
solely because of Conejo's Ownership Interest in the Del Ranch Facility,
Conejo shall within fifteen (15) days after the QF Determination Date (but not
less than seven (7) days prior to the Power Sale Date), complete the transfers
contemplated in Section 13.2 (including conversion of part of its Interest as
a General Partner, if necessary) to the extent necessary to enable the general
counsel to Conejo to reaffirm the Original Opinion.
5.4. Gain and Loss Upon Liquidation.
5.4.1. Subject to Section 5.5 of this Limited
Partnership Agreement, any gain realized upon liquidation of the Partnership
shall be allocated:
(a) First, to each of the Partners to the extent of and in
proportion to the deficit balance, if any, in their Capital Accounts.
(b) Second, to each of the Partners in proportion to and to
the extent of the minimum amount required to equalize the capital
accounts of such Partners in proportion to their Units in the
Partnership.
(c) Third, the balance to the Partners in proportion to
their Units in the Partnership.
5.4.2. Subject to Section 5.5 of this Limited
Partnership Agreement, any loss realized upon liquidation of the Partnership
shall be allocated to the Partners in proportion to their Units in the
Partnership.
5.5. Additional Allocation Provisions. Notwithstanding the
foregoing provisions of this Article V:
5.5.1. No Tax Loss shall be allocated to any Limited
Partner whose Capital Account has been reduced to zero until the Capital
Accounts of all Partners have been reduced to zero. If any Limited Partner's
Capital Account has been reduced to zero at any time when any other Partner's
Capital Account has a positive balance, then any such Tax Loss shall be
allocated as follows:
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(a) First, to the Partner or Partners with positive Capital
Account balances, in the proportion that such positive balances bear
to each other; and
(b) Second, after the Capital Accounts of all Partners have
been reduced to zero, the balance of any such Tax Loss shall be
allocated as otherwise provided in this Article V.
5.5.2. Notwithstanding the provisions of Section
5.5.1, beginning in the Partnership's first taxable year in which there are
"nonrecourse deductions" (within the meaning of Treasury Regulation Section
1.704-1(b)(4)(iv)) and for all subsequent taxable years, if there is a net
decrease in the Partnership's "partnership minimum gain" (within the ,meaning
of Treasury Regulation Section 1.704-1(b)(4)(iv)(c)), there shall be allocated
to all Partners with a deficit balance in their Capital Accounts ((i) reduced
for the items described in Section 5.5.9(a), (b) and (c) of this Limited
Partnership Agreement, (ii) excluding from each Partner's Capital Account the
amount, if any, such Partner is obligated to contribute to the Partnership
under Section 10.3 of this Limited Partnership Agreement and (iii) as
otherwise adjusted as required under Treasury Regulation Section
1.704-1(b)(4)(iv)(e)), before any other allocation is made under this Article
V, gross income and gain for such year (and, if necessary, subsequent years)
in the amounts and in the proportions needed to eliminate such deficit
balances as quickly as possible. Such allocations shall be made first from
gains realized upon disposition of Partnership properties subject to one or
more nonrecourse liabilities to the extent of the decrease in "partnership
minimum gain" attributable to the disposition of such properties; the
remainder of such allocations, if any, shall be composed of a pro rata portion
of the Partnership's other items of gross income and gain. It is intended that
this Section 5.5.2 qualify and be construed as a "minimum gain chargeback"
within the meaning of Treasury Regulation Section 1.704- 1(b)(4)(iv).
5.5.3. [This Section is intentionally omitted.]
5.5.4. In the event that any amount claimed by the
Partnership to constitute a deductible expense in any fiscal year is treated
for Federal income tax purposes as a distribution made to a Partner in its
capacity as a member of the Partnership and not a guaranteed payment as
defined in Section 707(c) of the Code or a payment to a Partner not acting in
his capacity as a partner under Section 707(a) of the Code, then the Partner
who is deemed to have received such distribution shall first be allocated an
amount of Partnership gross income equal to such payment, its Capital Account
shall be reduced to reflect the distribution, and for purposes of this Article
V, Taxable Income and Tax Loss shall be determined after making the allocation
required by this Section 5.5.4.
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5.5.5. For any fiscal year during which a Unit is
assigned by a Partner (or by an assignee or successor in interest to a
Partner), the portion of the Taxable Income and Tax Loss of the Partnership
that is allocable in respect of such Unit shall be apportioned between the
assignor and the assignee of the Unit on the basis of the number of days
during such fiscal year that each is the owner thereof, without regard to (a)
the results of Partnership operations before or after such assignment or (b)
any payments or distributions made to the Partners before or after such
assignment, except as otherwise provided in and required by Section 706(d)(2)
of the Code.
5.5.6. In the event that the admission of any Partner
causes a reduction in cost recovery deductions allowed with respect to any
Property under Section 168(h)(6) of the Code, then the General Partners may,
in their sole discretion, separately allocate cost recovery deductions so that
(a) the reduction in cost recovery deductions resulting from the application
of Section 168(h)(6) will be allocated to the Partner whose ownership of Units
caused Section 168(h)(6) to apply and (b) the cost recovery deductions of the
remaining Partners will, to the extent possible, not be diminished.
5.5.7. Notwithstanding the foregoing provisions of
this Article V, the General Partners' interests in each item of Partnership
income, gain, loss, deduction or credit shall equal at least one percent (1%)
of each of those items at all times during the existence of the Partnership.
In determining the General Partners' interest in those items, any Limited
Partner's Interest owned by either of the General Partners shall not be taken
into account.
5.5.8. Notwithstanding the foregoing provisions of
this Article V, income, gain, loss and deduction with respect to property
contributed to the Partnership by a Partner shall be shared among the
Partners, pursuant to Treasury Regulations promulgated under Section 704(c) of
the Code, so as to take account of the variation, if any, between the basis of
the property to the Partnership and its fair market value at the time of
contribution.
5.5.9. Notwithstanding the foregoing provisions
of this Article V, no allocation of income, gain, loss or deduction shall be
made to any Limited Partner so as to cause a deficit balance in such Limited
Partner's Capital Account as of the end of the Partnership taxable year to
which such allocation relates. Solely for purposes of determining the extent
to which the previous sentence is satisfied, a Limited Partner's Capital
Account shall be increased by such Limited Partner's share, if any, of the
Partnership's "partnership minimum gain" (within the meaning of Treasury
Regulation Section 1.704-1(b)(4)(iv)(c)) and reduced for:
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(a) Adjustments that, as of the end of such year,
reasonably are expected to be made to such Limited Partner's Capital
Account under Treasury Regulation Section 1.704- 1(b)(2)(iv)(k) for
depletion allowances with respect to oil and gas properties of the
Partnership;
(b) Allocations of loss and deduction that, as of the end
of such year, reasonably are expected to be made to such Limited
Partner pursuant to Sections 704(e)(2) and 706(d) of the Code and
Treasury Regulation Section 1.751-1(b)(2)(iii); and
(c) Distributions that, as of the end of such year,
reasonably are expected to be made to such Limited Partner to the
extent they exceed offsetting increases to such Limited Partner's
Capital Account that reasonably are expected to occur during (or
prior to) the Partnership taxable years in which such distributions
reasonably are expected to be made (other than increases made
pursuant to the minimum gain chargeback provisions of Section 5.5.2
of this Limited Partnership Agreement). For such purposes, the
adjusted tax basis of Partnership property (or, if Partnership
property is properly reflected on the books of the Partnership at a
book value that differs from its adjusted tax basis, the book value
of such property) will be deemed to be the fair market value of such
property.
Any Limited Partner who unexpectedly receives an adjustment, allocation or
distribution described in subparagraph (a), (b) or (c) of this Section 5.5.9
shall be allocated items of gross income and gain in an amount and manner
sufficient to eliminate the deficit balance in such Limited Partner's Capital
Account as quickly as possible. The provisions of this Section 5.5.9 shall be
implemented by the General Partners in a reasonable and equitable manner. It
is intended that this Section 5.5.9 qualify and be construed as a "qualified
income offset" within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(d).
5.5.10. In the event that the Code or any Treasury
Regulations promulgated thereunder or any applicable state or local income tax
laws or regulations require allocations of items of income, gain, loss,
deduction or credit different from those set forth in this Limited Partnership
Agreement, upon the advice of the Partnership's Accountants, the General
Partners are hereby authorized to make new allocations in reliance upon the
Code, the Treasury Regulations, such applicable state and local income tax
laws and regulations and such advice of the Partnership's Accountants, such
new allocations shall be deemed to be made pursuant to the fiduciary
obligations of the General Partners to the Partnership and the Limited
Partners, and no such new allocation shall give rise to any claim or cause of
action by any Limited Partner.
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ARTICLE VI
RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNERS
-------------------------------------------------
6.1. Management of the Partnership; Managing General Partner.
6.1.1. Subject to the consent of the Limited Partners
where required by this Limited Partnership Agreement, the General Partners
shall have the powers and authority to manage the affairs of the Partnership.
The General Partners, within the authority granted to them under this Limited
Partnership Agreement, have determined to and hereby agree to manage the
business of the Partnership: (1) through a Management Committee with respect
to those matters set forth in Section 6.2 hereof or otherwise reserved to the
General Partners under other provisions of this Limited Partnership Agreement
and (2) with respect to the development, improvement, operation, and
maintenance of the Del Ranch Facility and other Property for the production
and sale of electricity from geothermal resources, through the Managing
General Partner.
6.1.2. The General Partners hereby appoint Red Hill as
the Managing General Partner. In addition to its other powers and
responsibilities hereunder, the Managing General Partner shall have the
authority and responsibility, on behalf of the Partnership, to manage the day
to day affairs of the Partnership including administration of the Loans under
the Credit Facility and to carry out the decisions, policies and directives of
the Management Committee.
6.1.3. Any person dealing with the Partnership may
rely upon the signature of the Managing General Partner or the General
Partners as to its authority to make any undertaking on behalf of the
Partnership, and shall not be required to determine any facts or circumstances
bearing upon the existence of such authority.
6.1.4. No Limited Partner (except one who is also a
General Partner, and then only in its capacity as General Partner within the
scope of its authority hereunder) shall participate in control of, or have any
control over the Partnership business or any authority or right to act for or
bind the Partnership. The Limited Partners hereby consent to the exercise by
the General Partners and the Managing General Partner of the respective powers
conferred on them by this Limited Partnership Agreement.
6.2. Authority of the Management Committee. The General
Partners acting jointly through their respective representatives on the
Management Committee created hereby shall possess the powers and rights of the
General Partners under the Act and this Limited Partnership Agreement. The
management committee shall be comprised of four (4) members, two (2) of which
shall be designated by Red Hill and two (2) of which shall
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be designated by Conejo (the "Management Committee"). Each of Conejo or Red
Hill upon appointing a member to the Management Committee shall notify the
other General Partner of the name of such member. A General Partner may remove
such member by giving notice to the other General Partner. Conejo and Red Hill
will each take such action as is internally required within that Partner to
provide each of its members on the Management Committee sufficient
authorization to bind and legally act on behalf of that Partner so long as his
or her appointment remains in effect. The Management Committee shall have
regular meetings no less frequently than quarterly and at such times as the
Management Committee may fix. A majority of the members may call special
meetings on at least two days' advance written notice. The Management
Committee shall establish its rules of procedure subject to the terms hereof.
The presence of a representative of each General Partner shall be necessary to
constitute a quorum for the conduct of any meeting. The Management Committee
will cause minutes of each meeting to be prepared and submitted to the members
for approval.
The following actions or decisions by, on behalf of or with
respect to the Partnership or the General Partners shall require the prior
approval of both General Partners as evidenced by the vote of all members of
the Management Committee present at a meeting or, if action is taken by
written consent, by all of the authorized members of the Management Committee.
6.2.1. Approval of the annual operating and
maintenance budgets and capital improvements and parts replacement budgets for
the Del Ranch Facility, which budgets shall be prepared by Red Hill as
operator under the Operating and Maintenance Agreement.
6.2.2. Approval of capital expenditures not covered in
the operating and maintenance budgets or the capital improvements budgets
described in Section 6.2.1 hereof, in amounts in excess of $50,000 per
expenditure and $500,000 per fiscal year in the aggregate, except in the case
of an emergency in which event the Managing General Partner shall have the
right to take any and all actions reasonably required in response to the
emergency event.
6.2.3. Adoption of significant Partnership policies.
6.2.4. Amendment of this Limited Partnership
Agreement, so as to affect the substantive rights or obligations of any party
hereto.
6.2.5. Approval of any significant agreements,
documents, instruments or arrangements between or involving the Partnership
and a General Partner or an Affiliate of a General Partner (apart from the
Operating Agreements, which are hereby deemed approved), and any amendment,
consent, or waiver with
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respect to any such agreements, documents, instruments or arrangements.
6.2.6. Approval of the sale, transfer, lease or other
disposition of any material item of Property or any other material asset of
the Partnership, or the creation of a "Lien" with respect to any such property
or asset (as used in this Section 6.2, "Lien" means any mortgage, lien,
pledge, charge, security interest or encumbrance), other than Liens created in
connection with the Credit Facility, and Liens incurred in the ordinary course
of the Partnership's business including, without limitation, Liens incurred in
the ordinary course of the Development of the Del Ranch Facility, or,
thereafter, in the ordinary course of the Partnership's business, which are
immaterial in amount and significance.
6.2.7. Dissolution of the Partnership, otherwise than
as provided in this Limited Partnership Agreement.
6.2.8. Approval of distributions of any cash or
property other than Distributable Cash, Sale or Financing Proceeds or amounts
to be distributed under Section 4.1 hereof or any decision not to distribute
Distributable Cash or sale or Financing Proceeds.
6.2.9. Approval of the prepayment in whole or in
material part of any Partnership debt or other obligation, or any material
change (including any extension, consolidation, modification, refinancing or
renewal) in the terms of any such obligations or any Lien on any Property or
material asset of the Partnership (except to the extent contemplated by an
approved budget).
6.2.10. Approval of long range financing plans other
than the Credit Facility and the Magma Undertaking (except to the extent
contemplated by an approved budget).
6.2.11. Approval of any borrowing of money, or
entering into any loan agreement, deferred purchase agreement, lease or other
financing arrangement, issuance of any evidence of indebtedness, or provision
of any other commitment of the credit of the Partnership, other than with
respect to trade payables and immaterial short-term equipment leases in the
ordinary course of the Partnership's business, not expressly authorized in
this Limited Partnership Agreement or in an approved budget.
6.2.12. Subject to the Operating and Maintenance
Agreement or the Administrative Services Agreement, removal of Red Hill under
the Operating and Maintenance Agreement or the Administrative Services
Agreement, or both.
6.2.13. A change in the selection of lawyers or
accountants of the Partnership, the retention of other
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consultants to the Partnership or the employment of any employees by the
Partnership.
6.2.14. Approval of loans, guarantees or other
extensions of credit (other than normal payment terms under the Del Ranch
Power Purchase Contract) by the Partnership to or for the benefit of the
Partners or any of their respective Affiliates.
6.2.15. Approval of the minutes of meetings of the
Partnership and actions of the Partnership taken without meetings.
6.2.16. Approval of the engagement in any business on
behalf of the Partnership other than the ownership and operation of the Del
Ranch Facility.
6.2.17. Approval of the provision by Red Hill under
the Administrative Services Agreement of Extraordinary Services costing the
Partnership in excess of (a) $25,000 per service or related group of services,
or (b) $100,000 in the aggregate per fiscal year. Extraordinary Services that
are not in excess of these limits shall not require the approval of the
Management Committee.
6.2.18. Any decision to revalue the Partnership's
property, or determination of the fair market value of assets where required
under this Limited Partnership Agreement.
6.2.19. Payment, extension, renewal, modification,
adjustment, submission to arbitration, prosecution, defense, settlement or
compromise of any debt, obligation, suit, liability, cause of action or claim,
including taxes, either in favor of or against the Partnership, and involving
a potential liability or recovery in excess of $450,000.
6.2.20. Any material change in the accounting methods
used by the Partnership.
6.2.21. Making or revoking any of the elections
referred to in Sections 48, 167, 168, 195, 263(c), 709, 732, 754 or 1017 of
the Code, or any similar provisions enacted in lieu thereof; provided,
however, that if such approval is not achieved, then all such elections and
other tax decisions shall be made in such a way as to reduce Partnership
taxable income to the maximum extent possible and take deductions in the
earliest taxable year possible.
6.2.22. Approval of the establishment and maintenance
of Reserves (except to the extent contemplated in an approved budget, in which
case the Managing General Partner shall establish and maintain the budgeted
Reserves and fixed nondiscretionary Reserves expressly required by the
Operating Agreements or the Credit Facility).
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6.2.23. Approval of the replacement of or addition of
any geothermal well except as may be required on an emergency basis in the
event of damage to, destruction of, or other casualty to, any geothermal well.
6.2.24. Determination of the amount and times at which
Additional Capital Contributions will be required under Section 3.5.1 or
acceptance of any in-kind Capital Contribution under such section.
6.2.25. Decisions regarding allocations under Section
5.5.6 or 5.5.10 of this Limited Partnership Agreement.
Each Management Committee member's approval of any matter
will not be withheld without a reasonable basis. Any member of the Management
Committee may submit proposals for action to the committee. The Management
Committee shall not be involved in the day-to-day operations of the Del Ranch
Facility or the implementation of day-to-day operating practices and
decisions.
6.3. Authority of General Partners to Deal with
Partnership. The Partnership may deal with and enter into
agreements with any General Partner or Affiliate subject to the
provisions hereof.
6.3.1. Any agreement, arrangement or transaction
between the Partnership and any General Partner or any of its Affiliates
permitted by this Limited Partnership Agreement shall be subject to the
following conditions:
(a) Any such agreement, arrangement or transaction shall be
embodied in a written contract which precisely describes the subject
matter thereof and all compensation to be paid therefor;
(b) No rebates or "give-ups" may be received by any General
Partner or any such Affiliate, nor may the General Partner or any
such Affiliate participate in any reciprocal business arrangement
which would have the effect of circumventing any of the provisions of
this Limited Partnership Agreement; provided, however, that any
refund or payment required by the terms of the Del Ranch Power
Purchase Contract shall not be deemed such a prohibited payment;
(c) Such agreements or arrangements shall be fully
disclosed to all Partners in one of the reports provided for in
Article XI of this Limited Partnership Agreement; and
(d) The agreement, arrangement or transaction shall be
entered into principally for the benefit of the Partnership in the
ordinary course of Partnership business and on terms
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no less favorable to the Partnership than available from
unaffiliated third persons.
6.4. Authority to Pay Certain Fees and Expenses. To
the extent not covered by and assumed under the provisions of the Operating
Agreements, the Partnership shall pay all other fees and expenses of the
Partnership including, without limitation, the fees and expenses related to
(i) Partnership operations, (ii) Partnership accounting, (iii) communications
with Partners, (iv) Partnership legal services, (v) Partnership tax services,
(vi) Partnership audit services, (vii) Partnership appraisal services, (viii)
Partnership commercial banking services, (ix) Partnership investment advisor
services, (x) Partnership computer services, (xi) Partnership organization
expenses, (xii) Partnership mileage and travel expenses and (xiii) such other
related operational and administrative expenses as are necessary for the
prudent organization and operation of the Partnership.
6.5. Restrictions on Authority of General Partners.
Without the consent of a Majority of the Limited Partners and the
other General Partner, neither of the General Partners shall have
any authority to:
(a) Do any act in contravention of this Limited Partnership
Agreement which affects the rights or obligations of the Partners;
(b) Do any act which would make it impossible to carry on
the ordinary business of the Partnership;
(c) Possess Partnership property, or assign its rights in
specific Partnership property, for other than a Partnership purpose;
(d) Admit a Person as a General Partner, except as provided
in this Limited Partnership Agreement; or
(e) Knowingly perform any act that will subject any Limited
Partner to liability as a general partner in any jurisdiction.
6.6. Certain Duties and Obligations of General Partners.
6.6.1. The Managing General Partner shall take all
actions which may be necessary or appropriate (a) for the continuation of the
Partnership's existence as a limited partnership under the laws of the State
of California (and under the laws of each other jurisdiction in which such
existence is necessary to protect the limited liability of the Limited
Partners or to enable the Partnership to conduct the business in which it is
engaged or proposes to be engaged) and (b) for the acquisition, development,
maintenance, preservation and operation of the Property in accordance with the
provisions of this Limited
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Partnership Agreement and applicable laws and regulations it being understood
and agreed, however, that the provision of day-to-day property management
services for the Property is not an obligation of the Managing General Partner
as such, but rather such day-to-day services shall be provided by Red Hill as
operator pursuant to the Operating and Maintenance Agreement.
6.6.2. The General Partners shall devote to the
Partnership such time as may be necessary for the proper performance of their
respective duties hereunder, but the officers and directors of the General
Partners shall not be required to devote their full time to the performance of
such duties.
6.6.3. The Managing General Partner shall use its best
efforts to maintain its net worth at all times at a level sufficient to meet
all requirements of the Code and currently applicable regulations, rulings and
revenue procedures of the Internal Revenue Service, and to meet any future
requirements set by Congress, the Internal Revenue Service, any agency of the
Federal government or the courts, to assure that the Partnership will be
classified for Federal income tax purposes as a partnership and not as an
association taxable as a corporation.
6.6.4. The General Partners shall use their best
efforts to preclude the classification of the Partnership as a "publicly
traded partnership" to which Section 7704(a) of the Code applies.
6.6.5. The Managing General Partner shall take such
action as may be necessary or appropriate in order to form or qualify the
Partnership under the laws of any jurisdiction in which the Partnership does
business or in which such formation or qualification is necessary in order to
protect the limited liability of the Limited Partners or in order to continue
in effect such formation or qualification. The Managing General Partner shall
file or cause to be filed for recordation in the office of the appropriate
authorities of the State of California, and in each other jurisdiction in
which the Partnership is formed or qualified, such certificates (including
limited partnership and fictitious name certificates) and other documents as
are required by the statutes, rules or regulations of such jurisdictions.
6.6.6. The General Partners shall at all times conduct
their respective affairs and the affairs of the Partnership and all of their
Affiliates in such a manner that neither the Partnership nor any Partner nor
any Affiliate of any Partner will have any personal liability under any
mortgage on any Property.
6.6.7. The Managing General Partner shall prepare or
cause to be prepared and shall file on or before the due date (or any
extension thereof) any Federal, state and local tax
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returns required to be filed by the Partnership. The Partnership shall pay any
taxes payable by the Partnership.
6.6.8. So long as the Credit Facility remains a valid
and binding obligation of the Partnership, the Managing General Partner shall
procure and maintain, or cause to be procured and maintained, at the sole
expense of the Partnership, such policies of insurance, in such amounts, as
are necessary to comply with the Insurance Requirements and shall cause the
Partnership to comply with the other terms and conditions of the Credit
Facility. After such time as the Credit Facility ceases to be a valid and
binding obligation of the Partnership or otherwise terminates in accordance
with its terms, the Managing General Partner shall procure and maintain, or
cause to be procured and maintained, at the sole expense of the Partnership,
for the remainder of the term of the Partnership, such policies of insurance,
in such amounts, as the Managing General Partner deems necessary or
appropriate.
6.6.9. Each of the General Partners shall be under a
fiduciary duty to conduct the affairs of the Partnership in the best interests
of the Partnership and the Limited Partners, including the safekeeping and use
of all Partnership funds and assets and the use thereof for the exclusive
benefit of the Partnership.
6.6.10. The General Partners shall not in their
capacity as General Partners or as the Managing General Partner receive any
salary, fees, commissions, profits, distributions or allocations, except fees,
commissions, profits, distributions and allocations to which it may be
entitled as expressly permitted by this Limited Partnership Agreement.
6.7. Other Business of Partners. Any Partner or its
Affiliates may engage independently or with others in other business ventures
of every nature and description, including without limitation the ownership of
other properties and the making or management of other investments. Nothing in
this Limited Partnership Agreement shall be deemed to prohibit any Partner or
any Affiliate of any Partner from dealing, or otherwise engaging in business,
with Persons transacting business with the Partnership, or from providing
services related to the purchase, sale, financing, management, development or
operation of real or personal property including, without limitation,
geothermal or other competitive electrical generating or other power plants,
and receiving compensation therefor, not involving any rebate or reciprocal
arrangement which would have the effect of circumventing any restriction set
forth herein upon dealings with the General Partners or any Affiliate of the
General Partners. Without limiting the generality of the foregoing, the
General Partners will not be obligated to present to the Partnership any
particular investment opportunity which comes to either of their attention,
even if such opportunity is of a character which might be suitable for
investment by the
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Partnership. Neither the Partnership nor any Partner shall have any right by
virtue of this Limited Partnership Agreement or the Partnership relationship
created hereby in or to such other ventures or activities or to the income or
proceeds derived therefrom, and the pursuit of such ventures, even if
competitive with the business of the Partnership, shall not be deemed wrongful
or improper. Under no circumstances shall any Partner engage in any activity
or activities which would result in Del Ranch Facility's inability to satisfy
the criteria required to be satisfied in order to be a "qualifying facility"
as provided in 18 C.F.R. [section] 292.203, as the same may be amended from
time to time. In the event any Partner engages in any activity prohibited by
the immediately preceding sentence, such Partner shall be required to sell or
otherwise transfer its Interest as provided in Article XIII of this Limited
Partnership Agreement; provided, however, that any transfer of a Partner's
Interest that would result in the Partnership's failure to satisfy the
criteria set forth in 18 C.F.R. [section] 292.203 shall be void and of no
force or effect.
6.8. Limitation on Liability of General Partners;
Indemnification. The General Partners shall not be liable, responsible or
accountable in damages or otherwise to any of the Partners for any act or
omission performed or omitted by either of them in good faith pursuant to the
authority granted to them by this Limited Partnership Agreement in a manner
reasonably believed by the General Partner acting or omitting to so act to be
within the scope of the authority granted to it by this Limited Partnership
Agreement and not opposed to the best interests of the Partnership or the
Limited Partners; provided, however, that the General Partners shall not be
relieved of liability with respect to any claim, issue or matter as to which
they or any Affiliate shall have been adjudged to be liable for gross
negligence, fraud or bad faith in the performance of their respective
fiduciary duties to the Limited Partners. Except in the case of any such
judgment of liability, the Partnership shall indemnify the General Partners,
their employees, agents and assigns against any loss or damage incurred by
them, and against expenses (including attorneys' fees) actually and reasonably
incurred by them in connection with the defense or settlement of any
threatened, pending or completed action or suit by any Person in connection
with any such act or omission. The satisfaction of any obligation to indemnify
and hold the General Partners, their employees, agents and assigns harmless
shall be from and limited to Partnership assets, and no Partner shall have any
personal liability on account thereof.
6.9. Rights of Conejo. Conejo, at its own expense, shall
have the right to reasonably audit the books and records of Magma and/or its
Affiliates (other than DCC) with respect to services furnished to the
Partnership other than on a fixed cost basis.
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6.10. Construction of Operating Agreements to Which Red
Hill and/or Its Affiliates Are Parties.
6.10.1. Under the Operating Agreements pursuant to
which Red Hill and/or its Affiliates are parties required to provide services,
labor or materials to the Partnership, the Partners hereby agree for purposes
of this Limited Partnership Agreement and such Operating Agreements that any
reference to "good faith" efforts herein or therein shall be construed so as
not to permit repeated instances of negligent conduct.
6.10.2. Under the Operating Agreements pursuant to
which Red Hill and/or its Affiliates are parties required to provide services,
labor or materials to the Partnership, the Partners hereby agree for purposes
of this Limited Partnership Agreement and such Operating Agreements that any
provisions contained therein which enable Red Hill or such Affiliates to
receive a reasonable profit for services, labor or materials provided
thereunder shall mean a profit that is typical for the kind of service or
labor rendered or material provided and the cost to the Partnership of such
services shall not exceed that which is available in a competitive marketplace
from unaffiliated third parties.
6.10.3. The Partners acknowledge that certain services
to be provided under the Administrative Services Agreement are similar in
nature to Services to be performed under the Operating and Maintenance
Agreement. By way of illustration only, certain accounting and bookkeeping
services under the Administrative Services Agreement are similar in nature to
the accounting and bookkeeping services under the Operating and Maintenance
Agreement. As such, only those of such costs and expenses incurred by Red Hill
at the Del Ranch Facility or at the Red Hill administrative facility in
Imperial County, California, in rendering the same shall be reimbursable to
Red Hill as Reimbursement Charges.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF RED HILL
------------------------------------------
7.1. Representations and Warranties. Red Hill represents
and warrants to Conejo as of the date hereof, after giving effect to the
execution and delivery of the Operating Agreements (to the extent not
heretofore executed and delivered), as follows:
7.1.1. The Partnership is a limited partnership duly
formed, validly existing and in good standing under the laws of the State of
California, and has all powers under the Limited Partnership Agreement and the
laws of the State of California and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as
now conducted and proposed to be conducted. The Partnership has not conducted
any business or incurred or assumed any material liabilities or
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obligations (whether fixed or contingent) prior to the date of this Limited
Partnership Agreement.
7.1.2. The execution, delivery and performance by the
Partnership of the Credit Facility and the related Notes, Security Agreement
and Deed of Trust and the Project Agreements (as defined in the Credit
Facility) in effect as of the date hereof are within the powers of the
Partnership, have been duly authorized by all necessary actions on the part of
the Partnership, Red Hill and its Affiliates, require no action by any of such
entities by or in respect of, or filing with, any governmental body, agency or
official other than such actions as have already been taken, and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of this Limited Partnership Agreement or of any agreement,
judgment, injunction, order, decree or other instrument (including any
Geothermal Leases) binding upon the Partnership, or, with respect to any
Geothermal Leases, upon Magma or result in the creation or imposition of any
Lien, other than the Security Interests (as those terms are defined in the
Credit Facility), on any asset of the Partnership or, with respect to any
Geothermal Leases, upon Magma.
7.1.3. There is no action, suit or proceeding pending
against, or to the knowledge of Red Hill, threatened against or affecting the
Partnership, or any of its rights or assets before any court or arbitrator or
any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, financial position or results of operations of the Partnership or
which in any manner draws into question the validity of any of the Project
Agreements in effect as of the date hereof.
7.1.4. Each of Red Hill and Magma has fulfilled its
obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and is in compliance in all material respects with the
presently applicable provisions of ERISA and the Code, and has not incurred any
liability to the PBGC or a Plan under Title IV of ERISA other than a liability
to the PBGC for premiums under Section 4007 of ERISA (as those terms are defined
in the Credit Facility).
7.1.5. The charges, accruals and reserves on the book
of the Partnership in respect of taxes or other governmental charges are, in the
opinion of Red Hill, adaquate to cover the Partnership's liability with respect
to such taxes and charges.
7.1.6. To the best of Red Hill's knowledge after
inquiry and physical inspection, the Del Ranch Property does not contain any
hazardous wastes, hazardous substance, hazardous material, toxic wastes, toxic
substances or toxic pollutants, as those terms are used in the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response
Compensation and Liability Act, the Hazardous Materials Transportation Act, the
Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, the
California Hazardous Waste Control Act, the California Hazardous Substance Act,
the Porter-Cologne Water Quality Control Act, in any regulations promulgated
pursuant thereto, or in any other applicable law, ordinance, rule or regulation,
or any other substance, waste or material considered toxic or hazardous under
any applicable federal, state or local law, ordinance, rule or regulation.
7.1.7. The Del Ranch Facility is not subject to the
jurisdiction of the CEC on the date of this Limited
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Partnership Agreement, and no CEC Event has occurred (as those terms are defined
in the Credit Facility).
7.1.8. The Partnership and the Del Ranch Facility are
in compliance in all material respects with all applicable laws, ordinances,
rules, regulations and requirements of governmental authorities (including,
without limitation, the Geothermal Steam Act of 1970, those laws identified in
Section 7.1.6 above and any other laws relating to the protection of the
environment, ERISA, all relevant California state and local laws, rules and
regulations promulgated thereunder). The Partnership has obtained (or has
applied for as necessary to timely obtain) all material permits and
authorizations of any governmental body, agency or official necessary for the
Development of the Del Ranch Facility, operation of the Del Ranch Facility or
required for the Partnership to sell electricity to SCE under the Del Ranch
Power Purchase Contract and all of such permits and authorizations obtained by
the Partnership remain in full force and effect.
7.1.9. (a) Subject to the exceptions identified in the
Del Ranch Property Preliminary Title Report and the Geothermal Lease Rights
Properties Preliminary Title Report, all properties and rights and all
contractual arrangements (including, without limitation, rights and title to
land and geothermal properties, electricity transmission and interconnection
facilities, rights to use patent and other proprietary processes, designs and
information, and contracts for process design, engineering and construction
services) necessary in connection with the Development of the Del Ranch
Facility, the operation of the Del Ranch Facility on the Del Ranch Property
and the sale of electricity to SCE under the Del Ranch Power Purchase Contract
(i) if properties or rights have been obtained and are held by the Partnership
subject to no Liens (as defined in the Credit Facility) (other than the Liens
created by the Security Agreement and the Deed of Trust) and no adverse claims
that might, if proven to be correct, individually or in the aggregate, have a
material negative impact on the feasibility of the Del
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Ranch Facility or the business prospects of the Partnership and (ii) if
contractual arrangements, are in full force and effect with the relevant
benefits thereunder accruing to the Partnership, and constitute valid and
binding agreements of the parties thereto.
(b) The budget set forth on Schedule I to the
Construction Management Agreement for Del Ranch Projected Project Costs and
schedule for completion of the Del Ranch Facility previously delivered to the
Agent (as defined in the Credit Facility) and Conejo are correct and complete
based on all available information and represent Red Hill's present best
estimates of Del Ranch Projected Project Costs and the schedule for completion
of the Del Ranch Facility, and the budget for Del Ranch Projected Project
Costs includes a reasonable amount for Project Contingency Costs and includes
all costs to the Partnership associated with the properties and rights and the
contractual arrangements referred to in subsection (a) above.
(c) There are no services, materials or rights
required for the construction or operation of the Del Ranch Facility other
than those that can reasonably be expected to be commercially available at the
site of the Del Ranch Facility or are granted to the Partnership under the
Ground Lease or Easement Agreement.
7.1.10. The representations and warranties of the
Partnership contained in the Security Agreement and the Deed of Trust and in
Section 4.16 of the Credit Facility, are true and correct in all material
respects.
7.1.11. Since September 30, 1987 there has been no
material adverse change in the business, financial position, results of
operations or prospects of Magma and its Consolidated Subsidiaries considered
as a whole, of Red Hill or of the Partnership.
7.1.12. Neither Red Hill, the Partnership, any
Affiliate of Red Hill nor any agent or other Person acting on behalf of any of
such entities, directly or indirectly, offered any of the Interests or any
similar security of the Partnership for sale to or solicited offers to buy any
thereof from, or otherwise approached or negotiated with respect thereto with,
any person in a manner that would subject the offering of the Interests to the
registration requirements of the Securities Act of 1933, as amended, it being
understood that, insofar as such representation relates to the activities of
Morgan Guaranty Trust Company of New York in its capacity as sales agent for
the Partnership in connection with the offering and sale of the Interests,
such representation is based on the accuracy of information with respect to
such activities furnished by such sales agent to the Partnership.
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7.1.13. The Partnership is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, and
neither the Partnership, Red Hill, nor any Affiliate of Red Hill is subject to
the Federal Power Act or Public Utility Holding Company Act of 1935.
7.1.14. Neither the Partnership, Red Hill, nor any
Affiliate of Red Hill will, as a result of the construction, ownership,
leasing or operation of the Del Ranch Facility, the sale of electricity
therefrom or the entering into any Project Agreement or any transaction
contemplated hereby or thereby, be subject to regulation under the Federal
Power Act or the Public Utility Holding Company Act of 1935 or under state
laws and regulations respecting the rates or the financial or organizational
regulation of electric utilities.
7.1.15. The private placement memorandum dated January
1988 delivered to representatives of Conejo in connection with Red Hill,
Magma, the Partnership and the transactions contemplated hereby is true and
complete in all material respects and does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make any
statement therein not misleading.
7.2. Reciprocal Representations and Warranties. Each
of the parties represents and warrants to the other parties
hereto as follows:
7.2.1. Its execution, delivery and performance of this
Agreement has been duly authorized by all necessary actions on its part, and
do not contravene, or constitute a default under, any provision of applicable
law or regulation or of this Limited Partnership Agreement or of any material
agreement, lease, judgment, injunction, order, decree or other instrument
binding upon it or any of its Affiliates or result in the creation or
imposition of any Lien, other than the Security Interests (as those terms are
defined in the Credit Facility), on any of its assets or assets of any of its
Affiliates.
7.2.2. There is no action, suit or proceeding pending
against, or to its knowledge threatened against or affecting, it or any of its
Affiliates or any of its or their rights or assets before any court or
arbitrator or any governmental body, agency or official in which there is a
reasonable possibility of an adverse decision which could materially adversely
affect the business, financial position or results of operations of the
Partnership or which in any manner draws into question the validity of any of
the Project Agreements.
7.2.3. This Limited Partnership Agreement represents
its legally valid and binding agreement.
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7.3. Representation and Warranties of Conejo.
7.3.1. Neither Conejo, any Affiliate of Conejo nor any
other Person engaged to act on behalf of any of such entities, directly or
indirectly, offered any of the Interests or any similar security of the
Partnership for sale to or solicited offers to buy any thereof from, or
otherwise approached or negotiated with respect thereto with, any person in a
manner that would subject the offering of the Interests to the registration
requirements of the Securities Act of 1933, as amended, it being understood
that Conejo makes no representation with respect to any activities of Morgan
Guaranty Trust Company of New York or the Partnership in connection with the
offering and sale of the Interests.
7.3.2. Subject to the matters described in Section
5.3.4 and in Article XIII hereof, to the best of its knowledge neither the
construction, ownership, leasing or operation of the Del Ranch Facility, the
sale of electricity therefrom nor the entering into of any Project Agreement
or any transaction contemplated hereby or thereby, will be subject to
regulation under the Federal Power Act, the Public Utility Holding Company Act
of 1935, or under state laws and regulations, respecting in each case the
rates or the financial or organizational regulation of electric utilities,
solely as a result of the acquisition of the interests in the Partnership by
Conejo as contemplated hereby.
7.4. Affiliate Status. For purposes of this Article
VII, Conejo and each of its parent companies shall be deemed to be not an
Affiliate of the Partnership, Red Hill or any person controlling, controlled
by or under common control with Red Hill, or any officer, director or
shareholder thereof or relative of any thereof.
ARTICLE VIII
TRANSFERS BY GENERAL PARTNERS AND
ADMISSION OF SUCCESSOR AND
ADDITIONAL GENERAL PARTNERS; WITHDRAWAL
OF GENERAL PARTNERS
8.1. Transfers By General Partners and Admission of
Successor or Additional General Partners.
8.1.1. Subject to the right of the General Partners to
convert their respective General Partner Interests into Limited Partner
Interests as provided in Section 8.3 of this Limited Partnership Agreement,
without the consent of both (a) such number of the Limited Partners as are
then required under the Act to consent to or ratify the admission of a General
Partner, but in no event with the consent of less than a Majority of the
Limited Partners, and (b) except as provided in Section 8.1.2, the other
General Partner, whose consent may be withheld for any reason so long as the
Credit Facility remains a valid and
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binding obligation Of the Partnership (but thereafter whose consent may not be
unreasonably withheld), neither of the General Partners may sell, transfer,
pledge, encumber or otherwise assign its Interest or designate a Person to be
its successor or, without the written consent of the other General Partner, to
be an additional General Partner. Any permitted designee shall become a
successor or additional General Partner only upon satisfying the additional
conditions of Section 9.3.1 of this Limited Partnership Agreement.
Notwithstanding anything contained in this Limited Partnership Agreement that
may be construed to the contrary, no General Partner may, without the consent
of the other General Partner, (a) sell, transfer, pledge, encumber, assign or
otherwise hypothecate its Interest if such act would result in a change of
control of the Partnership or (b) to the extent within its control permit a
change in control of such General Partner (other than in the course of a
reorganization, merger or consolidation involving creation of a holding
company or a transaction described in Section 8.1.2), as such control existed
as of the date of this Limited Partnership Agreement, except as otherwise
permitted by Section 8.1.2.
8.1.2. Except in connection with a transfer to a
successor or additional General Partner pursuant to Section 8.1.1 of this
Limited Partnership Agreement, the Managing General Partner shall not have any
right to retire or withdraw voluntarily from the Partnership, except that any
Partner may cause to be admitted to the Partnership as an additional Partner
or Partners of the same class, or substitute in its stead as the General
Partner, any entity which has, by merger, consolidation or otherwise, acquired
substantially all of such General Partner's assets or stock and continued its
business, provided that the Interests of the other Partners shall not be
affected thereby. Conejo shall have a right to withdraw without violating this
Limited Partnership Agreement but subject to the provisions of Section
15662(b) of the Act and Section 8.4 hereof and in connection therewith or
otherwise to convert all or part of its General Partner Interest as provided
in Section 8.3. No Limited Partner shall have the right to withdraw. Each such
successor or additional General Partner shall be admitted as such to the
Partnership upon satisfying the additional conditions of Section 9.3.1 of this
Limited Partnership Agreement.
8.1.3. By execution of this Limited Partnership
Agreement, each of the Limited Partners hereby consents to the admission of
any Person as a successor or additional General Partner pursuant to Sections
8.1.1 or 8.1.2 of this Limited Partnership Agreement where at the time the
express consent of such number (if any) of the Limited Partners as are then
required under the Act to consent to or ratify the admission of a General
Partner has been obtained. In each such case, such admission shall, without
any further consent or approval of the Limited Partners, be an act of all the
Limited Partners.
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8.1.4. Any voluntary withdrawal or resignation by a
General Partner from the Partnership if there is no surviving General Partner
shall be effective only upon the admission in accordance with Sections 8.1.1
or 8.1.2 of this Limited Partnership Agreement of a successor General Partner.
8.2. Incapacity of General Partners.
8.2.1. In the event of the retirement (including the
withdrawal of Conejo under Section 8.1 or a conversion of its interest under
Section 8.3 of this Limited Partnership Agreement) or Incapacity of either of
the General Partners, the business of the Partnership shall be continued by
any remaining General Partner or Partners (pursuant to the right to do so
which is hereby granted to them) with Partnership property if the retiring
General Partner or the General Partner to which the Incapacity relates is not
then the sole General Partner, or upon the vote of all of the Limited Partners
within 60 days after the date of such retirement or Incapacity to continue the
business of the Partnership and to admit one or more successor General
Partners.
8.2.2. Upon the Incapacity of a General Partner, such
General Partner shall immediately cease to be a General Partner and its
Interest in the Partnership shall terminate; provided, however, that such
termination shall not affect any rights or liabilities of such General Partner
which matured prior to such Incapacity, or the value, if any, at the time of
such Incapacity of the Interest of such General Partner.
8.2.3. If, at the time of the Incapacity of a General
Partner, such General Partner is not the sole General Partner, then the
remaining Managing General Partner shall, or other General Partner or General
Partners may, continue the business of the Partnership and shall (a) give
Notice to the Limited Partners of such event and, if applicable, such election
and (b) make such amendments to this Limited Partnership Agreement and execute
and file for recordation such amendments and other documents as are necessary
to reflect the termination of the Interest of the General Partner to which
such Incapacity relates and such General Partner's having ceased to be a
General Partner.
8.3. Conversion of General Partners' Interest. Red Hill
may at any time convert all but 1% of, and Conejo may at any time convert all
or any part of, their General Partner Interests to Limited Partner Interests
upon five (5) days' prior written notice to the other. The portion of the
General Partner Interest so converted, if any, shall become a Limited Partner
Interest hereunder and shall be subject to all of the terms and conditions
imposed upon Limited Partner Interests by this Limited Partnership Agreement,
except as otherwise provided in Article XIII. Any conversion of a General
Partner's Interest shall be on a Unit-by-Unit basis; provided that, that
portion of the Interest of a General Partner representing Additional Capital
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Contributions shall be separate from the rights of holders of Units and shall
remain with the General Partner. If Conejo shall withdraw as a General Partner
in accordance with the provisions hereof, such Interest shall retain its
rights hereunder and priority as to distributions notwithstanding the
termination of its status as a General Partner. The converted Limited Partner
Interest shall represent the same share of income, gain, loss, deduction or
credit as applied to the General Partner Interest prior to conversion. The
holder of any such converted Limited Partnership Interest shall remain liable
under Section 10.3 of this Limited Partnership Agreement to the extent of any
deficit in the Capital Account relating to such Units as of the date of
conversion. Notwithstanding any such conversion, the General Partners shall
remain responsible for their respective Scheduled Capital Contributions set
forth in Exhibit "C."
8.4. Liability of a Withdrawn General Partner. Any General
Partner who voluntarily or involuntarily for any reason (including Incapacity)
withdraws from the Partnership, or sells, transfers or assigns all of its
Interest, shall be and remain liable for all obligations and liabilities
incurred by it as a General Partner prior to the time that such withdrawal,
sale, transfer or assignment becomes effective as provided in Section 8.1 of
this Limited Partnership Agreement, but it shall be free of any obligation or
liability as a General Partner incurred on account of the activities of the
Partnership from and after the time that such withdrawal, sale, transfer or
conversion becomes effective.
ARTICLE IX
TRANSFERS OF PARTNERS' INTERESTS;
ADMISSION OF SUBSTITUTED LIMITED PARTNER
9.1. Restrictions on Transfers of Interests.
9.1.1. Except as provided in Article XIII of this
Limited Partnership Agreement, a Limited Partner may not sell, transfer,
pledge, encumber or otherwise assign all or any portion of its Interest in the
Partnership without the prior written consent of both of the General Partners,
which consent may not be unreasonably withheld if the General Partner(s) (or
any designate) do not elect to exercise any of their rights under Section 9.2.
Any such consent shall be deemed to be a waiver of any rights under Section
9.2.
In no event may any Partner effect any sale, transfer,
pledge, encumbrance or assignment if, in the opinion of counsel for the
Partnership specializing in such matters, (a) such an assignment, when
considered with all other assignments of Units or Interests in the Partnership
within the previous 12 months, would result in the Partnership's being
considered to have been terminated within the meaning of Section 708 of the
Code or (b) such an assignment would violate any applicable federal or state
securities laws (including any investor
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suitability standards) or (c) such an assignment would result in the Del Ranch
Facility's inability to satisfy the criteria required to be satisfied in order
to be a "qualifying facility" as provided in 18 C.F.R. [section] 292.203, as
the same may be amended from time to time. Any attempted sale, transfer,
pledge, encumbrance or other assignment in contravention of the provisions of
this Article IX shall be void and ineffectual and shall not be recognized by
the Partnership.
9.1.2. The Partners acknowledge their intent that the
Partnership not be classified as a "publicly traded partnership" within the
meaning of Section 7704(b) of the Code, and, accordingly, that it is necessary
to restrict the transferability of Interests. Each Limited Partner covenants
and agrees, for itself and its successors and assigns, that it will undertake
no action to assign, transfer, sell, exchange, pledge or encumber its Interest
in the Partnership or to facilitate trading in Interests if such action, when
considered in the context of all relevant facts and circumstances, might
fairly result in the classification of the Partnership as a "publicly traded
partnership" within the meaning of Section 7704(b) of the Code. The parties
further acknowledge that legal remedies are likely to be inadequate in the
event of a breach of the covenants under this Section 9.1.2 and, therefore,
that equitable remedies (including mandatory injunctive relief) shall be
available to the Partnership or any Partner in the event of any actual or
threatened breach.
9.2. Right of First Refusal.
9.2.1. Except for sales, transfers or other
assignments of Limited Partner Interests under Article XIII hereof (in which
case the Interest so sold, transferred or otherwise assigned also shall not be
subject to this Section 9.2), if any Partner proposes to sell, transfer or
otherwise assign (other than as security) all or any portion of its Interest
in the Partnership for consideration, it shall give Notice thereof to the
General Partners or, in the case of a General Partner so desiring to sell,
transfer or otherwise assign its Interest, to the other General Partner. The
Notice shall include the name and identity of the prospective assignee, the
date upon which such assignment is to be consummated, which shall not be more
than 180 days after the date of the Notice, and a written copy of the offer
upon which such prospective assignee proposes to acquire such Interest
specifying the price and terms on which the Partner proposes to assign its
Interest. For a period of 30 days following their receipt of the Notice, the
General Partners or the other General Partner, as the case may be, shall have
an option to purchase the entire Interest offered at the price and on the
terms set forth in the Notice or, as to Conejo, to designate, if necessary,
another entity to so acquire such interest. Each General Partner or designate,
as the case may be, shall be entitled to purchase an equal percentage of the
entire Interest so offered in the case of an Interest of a
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Limited Partner. If a General Partner does not exercise its option to acquire
its ratable share of such Interest of a Limited Partner, the other General
Partner (or, if necessary, as to Conejo a designate) shall be entitled to
purchase an equal percentage of the portion of such Interest so available. The
failure of the General Partners or designate, as the case may be (or the other
General Partner in the case of an Interest of a General Partner), to exercise
their option to acquire the entire Interest offered shall constitute a waiver
thereof by the General Partners (or the other General Partner in the case of
an Interest of a General Partner) with respect to the transaction described in
the Notice. Should the option be exercised, the sale to the General Partners
(or the other General Partner in the case of an Interest of a General Partner)
or designate, as the case may be, shall be consummated on or before the later
of (a) thirty (30) days after the date on which the option was exercised or
(b) the date specified in the Notice as the date upon which the proposed
assignment was to be consummated, for the price and on the terms set forth in
the Notice, and the Partners shall execute and deliver all documents necessary
to effectuate the assignment of the Interest to the acquiring Person(s).
Should the option not be so exercised by the General Partners, then the
Partner may assign the Interest so offered, on or before the date specified in
the Notice, for the price, on substantially the terms and to the assignee
specified in the Notice. Should such an assignment not be timely consummated
as aforesaid, then the Interest shall again become subject to the foregoing
option.
9.2.2. If the option described in Section 9.2.1 of
this Limited Partnership Agreement is exercised by the General Partners (or
the other General Partner in the case of an Interest of a General Partner) or
designate, as the case may be, then the costs of the transaction, including
without limitation recording fees, escrow costs and attorneys' fees reasonably
incurred by the Partnership in connection with the assignment, shall be shared
equally by the acquiring General Partner (or the other General Partner in the
case of an Interest of a General Partner) and the assigning Partner. If the
assigning Partner conveys its Interest to an outside purchaser, all costs of
the transaction shall be borne by the assigning Partner. The assigning Partner
shall deliver all appropriate documents of assignment, which shall be in form
and content reasonably satisfactory to the General Partners (or the other
General Partner in the case of an Interest of a General Partner).
9.2.3. The General Partners' (or the other General
Partner in the case of an Interest of a General Partner) option described in
this Section 9.2 is (a) in addition to, and is not a limitation upon, their
right to consent or withhold consent to a proposed assignment pursuant to
Section 9.1.1 of this Limited Partnership Agreement (except as provided
therein) and (b) except as provided in Section 13.3 (including converted
interests), shall remain in full force and effect with respect to successive
assignees of Interests hereunder to the same extent
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and in the same manner as it was applicable to any predecessor Partner.
9.3. Assignees and Substituted Partners.
9.3.1. The Partnership need not recognize for any
purpose any assignment of all or any portion of the Interest of a Partner
unless (a) there shall have been filed with the Partnership a duly executed
and acknowledged counterpart of the instrument making such assignment, which
(except as provided in Article V or XIII) has been consented to by the General
Partners and (b) such instrument (i) evidences the written acceptance by the
assignee of all of the terms and provisions of this Limited Partnership
Agreement (including the special power of attorney in Section 14.1 of this
Limited Partnership Agreement), (ii) represents that the assignment was made
in accordance with all applicable laws and regulations (including any investor
suitability standards) and (iii) except as provided in Article V or XIII in
all other respects is reasonably satisfactory in form and content to the
General Partners. Except as provided in Section 5.4.5 of this Limited
Partnership Agreement, assignees of Interests shall be recognized as such on
the first day of the calendar month following the month in which the
Partnership receives the instrument of assignment provided for herein.
9.3.2. If a Limited Partner dies, its executor,
administrator or trustee, or, if it is adjudicated incompetent or insane, its
committee, guardian or conservator, or, if it becomes bankrupt, the trustee or
receiver of its estate, shall have all of the rights of a Limited Partner for
the purpose of settling or managing its estate, and such power as the decedent
or incompetent possessed to assign all or any part of its Units and to join
with the assignee thereof in satisfying the conditions precedent to such
assignee's becoming a Substituted Limited Partner. The Incapacity of a Limited
Partner shall not dissolve the Partnership.
9.3.3. Any Limited Partner who assigns all of its
Interest in the Partnership shall cease to be a Limited Partner of the
Partnership, except that until a Substituted Limited Partner is admitted in
its stead, such assigning Limited Partner shall retain the statutory rights of
an assignor of a limited partnership interest under the Act. The rights of an
assignee of an Interest who does not become a Substituted Limited Partner
shall be limited to the receipt of its share of Distributable Cash, Sale or
Financing Proceeds, Taxable Income and Tax Loss as determined under this
Limited Partnership Agreement.
9.3.4. An assignee of a Limited Partner's Interest may
become a Substituted Limited Partner only upon compliance with the following
conditions:
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(a) The instrument of assignment must state the intent of
the assignor that the assignee succeed to the assignor's Interest as
a Substituted Limited Partner;
(b) The assignee shall have fulfilled the requirements of
Section 9.3.1 of this Limited Partnership Agreement regarding the
execution, acknowledgment and delivery to the General Partners of the
instrument described therein;
(c) The assignee or assignor shall have paid all reasonable
legal fees and filing costs incurred by the Partnership in connection
with its substitution as a Limited Partner;
(d) Except as provided in Article V or XIII the General
Partners shall have consented to such substitution, which consent may
not be unreasonably withheld; and
(e) This Limited Partnership Agreement shall be amended to
recognize the admission of the Substituted Limited Partner.
9.3.5. An assignee of Interests who does not become a
Substituted Limited Partner and who desires to make a further assignment of
all or any portion of an Interest in the Partnership shall be subject to all
of the provisions of this Article IX to the same extent and in the same manner
as any predecessor Limited Partner desiring to make an assignment of its
Interests.
9.4. Section 754 Elections. In the event of a transfer of
all or any part of the Interest of a Limited Partner, the General Partners, in
their sole discretion, may make an election to adjust the basis of the
Partnership's assets pursuant to Section 754 of the Code.
ARTICLE X
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
10.1. Events Causing Dissolution. The Partnership shall
dissolve upon the happening of any one of the following events:
10.1.1. The retirement or Incapacity of a sole General
Partner, unless the business of the Partnership continued as provided in
Section 8.2 of this Limited Partnership Agreement.
10.1.2. The sale or other disposition of all of the
interests in and loans secured by the Del Ranch Property (including purchase
money security interests) of the Partnership.
10.1.3. The election by the Management Committee
to dissolve the Partnership.
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10.1.4. The expiration of the term of the Partnership.
10.1.5. The happening of any other event causing the
dissolution of the Partnership under the laws of the State of California.
10.2. Effect of Dissolution. The dissolution of Partnership
shall be effective on the day on which the event occurs giving rise to the
dissolution, but the Partnership shall not terminate until this Limited
Partnership Agreement has been cancelled and the assets of the Partnership
shall have been distributed as provided in Section 10.4 of this Limited
Partnership Agreement. Notwithstanding the dissolution of the Partnership,
prior to the termination of the Partnership, the business of the Partnership
and the affairs of the Partners, as such, shall continue to be governed by
this Limited Partnership Agreement.
10.3. Capital Contribution upon Liquidation of the
Partnership or General Partner's Interest. Each Partner shall look solely to
the assets of the Partnership for all distributions with respect to the
Partnership, for return of its Capital Contribution thereto and its Capital
Account and for its share of Taxable Income or Tax Loss, and shall have no
recourse therefor (upon dissolution or otherwise) against the General Partners
or any Limited Partner; provided, however, that upon the complete liquidation
of a General Partner's Interest, upon the dissolution and termination of the
Partnership or otherwise, the General Partner whose Interest is liquidated
shall contribute to the Partnership an amount equal to the deficit balance in
its Capital Account. Such contribution shall be made within ten (10) days of
Notice by the General Partners but in no event later than the end of the
Partnership's taxable year (determined without regard to Section 706(c)(2)(A)
of the Code) during which the liquidation of the General Partners' Interests
occurs (or, if later, ninety (90) days after the date of such liquidation).
Any amount so contributed by the General Partners shall be distributed first
to any creditors of the Partnership entitled thereto, and the balance to the
other Partners in proportion to the then positive balances in their Capital
Accounts.
10.4. Liquidation.
10.4.1. Upon dissolution of the Partnership, the
General Partners shall liquidate the assets of the Partnership, and after
allocating (pursuant to Article V of this Limited Partnership Agreement) all
income, gain, loss and deductions resulting therefrom, shall apply and
distribute the proceeds thereof (a) first, as contemplated by the definition
herein of the term "Sale or Financing Proceeds," to the payment of the
obligations of the Partnership to third parties, to the expenses of
liquidation, and to the setting up of any Reserves for contingencies which the
General Partners may consider necessary,
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and (b) then, to the Partners in proportion to the positive balances in the
Partners' respective Capital Accounts.
10.4.2. Notwithstanding Section 10.4.1 of this Limited
Partnership Agreement, in the event that the General Partners determine that
an immediate sale of all or any portion of the Partnership's assets would
cause undue loss to the Partners, the General Partners, in order to avoid such
loss, may, after giving Notice to all of the Limited Partners, to the extent
not then prohibited by the Act, either defer liquidation of and withhold from
distribution for a reasonable time any assets of the Partnership except those
necessary to satisfy the Partnership's debts and obligations, or distribute
the assets to the Partners in kind.
10.4.3. If any assets of the Partnership are to be
distributed in kind, such assets shall be distributed on the basis of the fair
market value thereof, and any Partner entitled to any interest in such assets
shall receive an interest therein as a tenant-in-common with all other
Partners so entitled. The fair market value of such assets shall be determined
by an independent appraiser to be selected by the General Partners. Pursuant
to Section 2.2.3.4 of this Limited Partnership Agreement, the Capital Accounts
of all Partners shall be adjusted as of the date of distribution in kind as if
the assets were sold on such date for their fair market value (taking Section
7701(g) of the Code into account) and Taxable Income or Tax Loss arising from
the sale were allocated in accordance with this Limited Partnership Agreement.
10.4.4. The Managing General Partner or surviving
General Partner shall cause the cancellation of this Limited Partnership
Agreement following the liquidation and distribution of all of the
Partnership's assets.
ARTICLE XI
BOOKS AND RECORDS, ACCOUNTING,
REPORTS, TAX ELECTIONS, ETC.
11.1. Books and Records.
11.1.1. The books and records of the Partnership shall
be maintained in accordance with generally accepted accounting principles at
the principal office of the Partnership and shall be available for examination
there by any Partner or its duly authorized representatives at any and all
reasonable times upon prior Notice to the General Partners. To the extent
permitted by law, the General Partners will permit Limited Partners and their
assignees, at the expense of such Limited Partners and assignees, to inspect
and copy such books and records. The Partnership shall maintain such books and
records and provide such financial or other statements as the Managing General
Partner reasonably deems advisable, subject to the requirements of this
Limited Partnership Agreement.
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11.1.2. After the end of each fiscal year, the
Accountants shall review or prepare all tax returns of the Partnership, which
shall be executed by the General Partners.
11.2. Accounting and Fiscal Year. Subject to Section 448 of
the Code, the books of the Partnership shall be kept on such method of
accounting for tax and financial reporting purposes as may be determined by
the General Partners. The fiscal year of the Partnership shall end on December
31 of each year, or on such other date permitted under the Code as the General
Partners shall determine.
11.3. Bank Accounts and Investments. The bank accounts of
the Partnership shall be maintained at such banking institutions as the
Managing General Partner shall determine, and withdrawals shall be made only
in the regular course of Partnership business on such signature or signatures
as the Managing General Partner shall determine. All deposits and other funds
not needed in the operation of the business or not yet invested may be
invested by the Managing General Partner only in Permitted Investments or such
investments as the General Partners may (consistent with the terms of any
agreements of the Partners) expressly authorize. The Managing General Partner
may rely on the advice of independent investment advisors. The funds of the
Partnership shall not be commingled with the funds of any other Person.
11.4. Reports.
11.4.1. Within 75 days after the end of each calendar
year, the Managing General Partner shall send to each Partner or assignee at
any time during the fiscal year ending during such calendar year such tax
information as shall be necessary for the preparation by such Limited Partner
or assignee of its Federal income tax return, and required state income and
other tax returns with regard to jurisdictions in which the Partnership is
formed or qualified or owns Property.
11.4.2. As soon as possible and in any event within
105 days after the end of each fiscal year of the Partnership, the Managing
General Partner shall send to each Person who was a Partner or assignee at any
time during the fiscal year then ended (a) a balance sheet as of the end of
such fiscal year, and statements of income, Partners' equity and changes in
financial position for such fiscal year, all of which shall be prepared in
accordance with generally accepted accounting principles and accompanied by an
auditor's report containing an opinion of the Accountants setting forth in
each case in comparative form the figures for the previous fiscal year, all
reported on as to the fairness of the presentation, generally accepted
accounting principles and consistency, (b) a cash flow statement, (c) a report
summarizing the fees and other remuneration and reimbursed expenses for such
fiscal year from
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the Partnership to the General Partners or any Affiliate of the General
Partners and (d) a statement showing the Distributable Cash and Sale or
Financing Proceeds distributed to each Person who was a Partner or assignee at
any time during such fiscal year with respect to such year.
11.4.3. As soon as possible and in any event within 55
days after the end of each of its first three quarters of each fiscal year of
the Partnership, the Managing General Partner shall send to each General
Partner a balance sheet of the Partnership as of the end of such quarter and
related statements of operations, and cash flow for such quarters and for a
portion of the Partnership's fiscal year ended at the end of such quarter,
setting forth in each case in comparative form the figures for the
corresponding quarter and the corresponding portion of the Partnership's
previous fiscal year, all certified (subject to normal year-end adjustments)
as to the fairness of presentation, generally accepted accounting principles
and consistency in presentation with prior statements by the chief financial
officer or the chief accounting officer of the Managing General Partner.
11.5. Depreciation and Elections. With respect to any
depreciable assets of the Partnership, the Partnership may elect to use, so
far as permitted by the provisions of the Code, any depreciation method which
is appropriate in the opinion of the General Partners. The Partnership may, in
the discretion of the General Partners, make or elect not to make, and may
revoke or elect not to revoke, any election permitted or required to be made
by the Partnership for Federal income or state tax purposes.
11.6. Designation of Tax Matters Partner. Red Hill is
hereby designated as the "Tax Matters Partner" of the Partnership under
Section 6231(a)(7) of the Code, to manage administrative tax proceedings
conducted at the Partnership level by the Internal Revenue Service with
respect to Partnership matters. Any Partner or assignee may participate in
such administrative proceedings relating to the determination of Partnership
items at the Partnership level, to the extent permitted by the Code. Expenses
of such administrative proceedings undertaken by the Tax Matters Partner shall
be paid from Partnership assets. Each Limited Partner or assignee who elects
to participate in such Proceedings shall be responsible for its own expenses
incurred in connection with such participation. The cost of any adjustments to
a Limited Partner or assignee, and the cost of any resulting audits or
adjustments of a Limited Partner's or assignee's tax return, will be borne
solely by the affected Limited Partner or assignee.
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ARTICLE XII
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
----------------------------------------------
12.1. Meetings.
12.1.1. Meetings of the Partners for any matter
on which the Limited Partners may vote may be called by any General Partner,
and shall be called by the Managing General Partner upon receipt of a request
in writing signed by the holders of more than 10% of the outstanding Units of
the Limited Partners. Notice of any such meeting shall be sent by the General
Partners to the Limited Partners within 10 days after their receipt of such a
request. Such a request shall state the purpose of the proposed meeting and
the matters proposed to be acted upon thereat. The requested meeting shall be
held at the principal office of the Partnership. In addition, the General
Partners may submit any matter (upon which the Limited Partners are entitled
to act) to the Limited Partners for a vote by written consent without a
meeting, or upon receipt of a request in writing signed by the holders of more
than 10% of the outstanding Units of the Limited Partners, shall submit any
such matter (upon which the Limited Partners are entitled to act) to the
Limited Partners for a vote by written consent without a meeting.
12.1.2. Notice of any meeting shall be given either
personally or by mail, not less than 15 days nor more than 60 days before the
date of the meeting, to each Limited Partner at its record mailing address.
Such Notice shall be in writing, shall state the place, date, hour and purpose
of the meeting, and shall indicate that it is being issued at the direction of
the Partner or Partners calling the meeting. If a meeting is adjourned to
another time or place, and if any announcement of the adjournment of time and
place is made at the meeting, it shall not be necessary to give Notice of the
adjourned meeting. If the adjournment is for more than 45 days or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
adjourned meeting shall be given to each Partner of record entitled to vote at
the meeting. The presence in person or by proxy of the holders of a majority
of the outstanding Units of the Limited Partners shall constitute a quorum at
all meetings of the Limited Partners; provided, however, that if there be no
such quorum, the holders of a majority in interest of such Units who are
present or represented by proxy may adjourn the meeting from time to time
without further Notice, until a quorum shall have been obtained. No Notice of
the time, place or purpose of any meeting of the Limited Partners need be
given to any Limited Partner who attends in person or is represented by proxy
(except for a Limited Partner who attends a meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
on the ground that the meeting is not lawfully called or convened), or to any
Limited Partner entitled to such Notice who, in a writing executed and filed
with the
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records of the meeting, either before or after the time thereof, waives such
Notice.
12.1.3. For the purpose of determining the Limited
Partners entitled to vote at any meeting of the Partnership or any adjournment
thereof, the General Partners or the Limited Partners requesting such meeting
may fix, in advance, a date as the record date for any such determination. The
determination date shall be not more than 50 days nor less than 10 days before
any such meeting.
12.1.4. Each Limited Partner may authorize any Person
to act for it by proxy in all matters in which a Limited Partner is entitled
to participate, whether by waiving Notice of any meeting, or voting or
participating at a meeting. Every proxy must be signed by the Limited Partner
or its attorney-in-fact. No proxy shall be valid after the expiration of 11
months from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the Limited Partner executing it.
12.1.5. At each meeting of the Limited Partners, the
General Partners shall appoint such officers and adopt such rules for the
conduct of such meeting as the General Partners shall deem appropriate.
12.2. Voting Rights of Limited Partners. The Limited
Partners shall have the right to vote only on:
12.2.1. Those matters specified in Sections 6.5, 8.2.1
and 14.2.2 of this Limited Partnership Agreement or the last paragraph of
Section 15636 of the Act incorporating the provisions specified in
subparagraphs (H) and (I) of paragraph (5) of subdivision (b) of Section 15632
of the Act.
12.2.2. Amendments to this Limited Partnership
Agreement which affect in a substantive way the rights, powers or duties of
the Limited Partners, subject to the provisions hereof, provided that such
amendments (a) shall not allow the Limited Partners to take part in the
management or control of the Partnership's business, and (b) shall not,
without the consent of the General Partners, alter the rights, powers or
duties of the General Partners as set forth herein.
ARTICLE XIII
MATTERS AFFECTING STATUS AS A QUALIFYING FACILITY
13.1. Within three weeks after the execution of this
Limited Partnership Agreement, Conejo on behalf of the Partnership will file
with FERC an application for FERC certification that the Del Ranch Facility is
a qualifying facility within the meaning of 18 C.F.R. Section 292.203.
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13.2. If FERC declines to certify the Del Ranch Facility on
the grounds that the Ownership Criteria are not satisfied because of Conejo's
Ownership Interest in the Del Ranch Facility in light of the special
allocations set forth in Sections 5.3.1 and 5.3.2 or otherwise, then Conejo
may transfer a portion of its Limited Partnership Interest to satisfy the
Ownership Criteria or to enable it to receive the benefits of such
allocations. If transfer of a Limited Partner Interest greater than that then
held by Conejo is required to achieve such result, Conejo may convert a
portion of its Interest as a General Partner into a Limited Partner's Interest
and so transfer that Interest. Any transferee shall become a Substituted
Limited Partner without consent of the General Partner or General Partners.
13.3. Any transfers under this Article XIII or subsequent
transfers of Interests so transferred shall not be subject to Section 9.2, nor
require the consent of either General Partner under Section 8.1.
13.4. If FERC or any other person or entity commences a
proceeding to revoke the status of the Del Ranch Facility as a Qualifying
Facility because of Conejo's ownership interest in the Del Ranch Facility, in
light of the special allocations set forth in Sections 5.3.1 and 5.3.2 or
otherwise, Conejo may undertake the transfers contemplated in Section 13.2. If
a FERC order to revoke the status of the Del Ranch Facility as a Qualifying
Facility because of Conejo's ownership interest in the Del Ranch Facility in
light of the special allocations set forth in Sections 5.3.1 and 5.3.2 or
otherwise, has been issued or is imminent, Conejo shall, to the extent
necessary, do either or both of the following: (i) undertake the transfers
contemplated in Section 13.2 (including conversion of part of its Interest as
a General Partner, if necessary) or (ii) apply the provisions of Section 5.3.4
in the same manner as would apply in the event that FERC fails to initially
act or certify the Del Ranch Facility in the manner set forth in Section
5.3.4.
13.5. In no event may any Partner assign, convey, mortgage,
pledge, sell, transfer or otherwise dispose of all or any part of its Interest
in the Partnership or interest in this Limited Partnership Agreement to any
person whose ownership of an interest in the Partnership or in this Limited
Partnership Agreement would cause the Del Ranch Facility not to be a
qualifying facility.
ARTICLE XIV
OTHER PROVISIONS
----------------
14.1. Appointment of General Partners as Attorneys-in-Fact.
14.1.1. Each Limited Partner, including each
Substituted Limited Partner, by its execution of this Limited
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Partnership Agreement, irrevocably constitutes and appoints the General
Partners and each of them as its true and lawful attorneys-in-fact with full
power and authority in its name, place and stead to execute, acknowledge,
deliver, swear to, file and record at the appropriate public offices such
documents as may be necessary or appropriate to carry out the provisions of
this Limited Partnership Agreement, including but not limited to:
(a) All certificates and other instruments (including
counterparts of this Limited Partnership Agreement), and all
amendments thereto, which the General Partners deem appropriate to
form, qualify or continue the Partnership as a limited partnership
(or a partnership in which the Limited Partners will have limited
liability comparable to that provided in the Act), in the
jurisdictions in which the Partnership may conduct business or in
which such formation, qualification or continuation is, in the
opinion of either of the General Partners, necessary or desirable to
protect the limited liability of the Limited Partners;
(b) All amendments to this Limited Partnership Agreement
adopted in accordance with the terms hereof, and all instruments
which the General Partners deem appropriate to reflect a change or
modification of the Partnership in accordance with the terms of this
Limited Partnership Agreement; and
(c) All conveyances of Property, and other instruments which
either of the General Partners reasonably deem necessary in order to
complete a dissolution and termination of the Partnership pursuant to
this Limited Partnership Agreement.
14.1.2. The appointment by all Limited Partners of the
General Partners as attorneys-in-fact shall be deemed to be a power coupled
with an interest, in recognition of the fact that each of the Partners under
this Limited Partnership Agreement will be relying upon the power of the
General Partners to act as contemplated by this Limited Partnership Agreement
in any filing and other action by it on behalf of the Partnership, shall
survive the bankruptcy, death, adjudication of incompetence or insanity, other
Incapacity or dissolution of any Person hereby giving such power, and the
transfer or assignment of all or any portion of the Units of such Person, and
shall not be affected by the subsequent incapacity of the principal; provided,
however, that in the event of the assignment by a Limited Partner of all of
its Units, the foregoing power of attorney of an assignor Limited Partner
shall survive such assignment only until such time as the assignee shall have
been admitted to the Partnership as a Substituted Limited Partner and all
required documents and instruments shall have been duly executed, filed and
recorded to effect such substitution.
-55-
<PAGE>
14.2. Amendments.
14.2.1. Each Substituted Limited Partner, additional
General Partner and successor General Partner shall become a signatory hereto
by signing such number of counterpart signature pages to this Limited
Partnership Agreement, a power of attorney to the General Partners, and such
other instruments, in such manner, as the General Partners shall determine. By
so signing, each Substituted Limited Partner, additional General Partner or
successor General Partner, as the case may be, shall be deemed to have adopted
and to have agreed to be bound by all of the provisions of this Limited
Partnership Agreement.
14.2.2. In addition to other amendments authorized
herein, amendments may be made to this Limited Partnership Agreement from time
to time by the General Partners; provided, however, that (i) without the
consent of the Partners to be adversely affected by an amendment, this Limited
Partnership Agreement may not be amended so as to (a) convert a Limited
Partner's Interest into a general partner's interest, (b) modify the limited
liability of a Limited Partner or (c) alter the interest of a Partner in
Taxable Income, Tax Loss, Distributable Cash or Sale or Financing Proceeds;
(ii) without the consent of the Management Committee, this Limited Partnership
Agreement may not be amended so as to affect the substantive rights or
obligations of any Partner; and (iii) without the approval of a Majority of
the Limited Partners, this Limited Partnership Agreement may not be amended so
as to affect any other rights, powers or duties of the Limited Partners.
14.2.3. In addition to other amendments authorized
herein, amendments may be made to this Limited Partnership Agreement from time
to time by the General Partners, without the consent of any of the Limited
Partners but only with the consent of the Management Committee, (a) to cure
any ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provision herein, or to make any other provisions
with respect to matters or questions arising under this Limited Partnership
Agreement that are not inconsistent with the provisions of this Limited
Partnership Agreement; (b) to delete or add any provision of this Limited
Partnership Agreement required to be so deleted or added by any Federal or
state official, which addition or deletion is deemed by such official to be
for the benefit or protection of the Limited Partners; and (c) to take such
actions as may be necessary (if any) to insure that the Partnership will be
treated as a partnership, and that each Limited Partner will be treated as a
limited partner, for Federal income tax purposes; provided, however, that no
amendment shall be adopted pursuant to this Section 14.2.3 unless the adoption
thereof (i) is for the benefit of or not adverse to the interests of the
Limited Partners, (ii) does not affect the distribution of Distributable Cash
or Sale or Financing Proceeds or the allocation of Taxable Income or Tax Loss
among the Partners or between the Limited Partners as a
-56-
<PAGE>
class and the General Partners as a class and (iii) does not affect the
limited liability of the Limited Partners or the status of the Partnership as
a partnership for Federal income tax purposes.
14.2.4. If this Limited Partnership Agreement is
amended as a result of substituting a Limited Partner or increasing the
investment of a Limited Partner, the amendment to this Limited Partnership
Agreement shall be sufficient when it is signed by the General Partners and by
the Person to be substituted or who is increasing its investment in the
Partnership, and, if a Limited Partner is to be substituted, by the assigning
Limited Partner. If this Limited Partnership Agreement is amended to reflect
the designation of an additional General Partner, the amendment to this
Limited Partnership Agreement shall be sufficient when it is signed by the
other General Partner or General Partners and by the additional General
Partner. If this Limited Partnership Agreement is amended to reflect the
withdrawal of a General Partner and if the business of the Partnership is to
be continued, the amendment to this Limited Partnership Agreement shall be
sufficient when it is signed by the withdrawing General Partner (and such
General Partner hereby so agrees) and by the remaining or successor General
Partner or General Partners.
14.2.5. In making any amendments, there shall be
prepared and filed by the General Partners such documents and certificates as
may be required under the Act and under the laws of any other jurisdiction
applicable to the Partnership.
14.3. Security Interest and Right of Set-Off. As security
for any withholding tax or other liability or obligation to which the
Partnership may be subject as a result of any act or status of any Limited
Partner, or to which the Partnership may become subject with respect to the
Interest of any Limited Partner, the Partnership shall have (and each Limited
Partner hereby grants to the Partnership) a security interest in all
Distributable Cash and Sale or Financing Proceeds distributable to such
Limited Partner to the extent of the amount of such withholding tax or other
liability or obligation. The Partnership shall have a right of set-off against
such distributions of Distributable Cash or Sale or Financing Proceeds, in the
amount of such withholding tax or other liability or obligation.
14.4. Binding Provisions. The covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
heirs, executors, administrators, personal representatives, successors and
assigns of the respective parties hereto.
14.5. Applicable Law. This Limited Partnership Agreement
shall be construed and enforced in accordance with the laws of the State of
California.
-57-
<PAGE>
14.6. Counterparts. This Limited Partnership Agreement may
be executed in several counterparts, all of which together shall constitute
one agreement binding on all parties hereto, notwithstanding that all of the
parties have not signed the same counterpart.
14.7. Separability of Provisions and Savings Provision.
Each provision of this Limited Partnership Agreement shall be considered
separable, and if for any reason any provision or provisions hereof are
determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or effect those portions of this
Limited Partnership Agreement which are valid. Notwithstanding any other
provision hereof, if the grant or exercise of rights under Section 3.8,
5.5.10, 8.2.3 or 9.2.1 would result in the Partnership's failure to satisfy
the Ownership Criteria, because of Conejo's interest in the Partnership such
rights shall be reduced to the extent necessary to remedy such condition.
14.8. Article and Section Titles. Article and Section
titles are for descriptive purposes only and shall not control or alter the
meaning of this Limited Partnership Agreement as set forth in the text.
ARTICLE XV
DISPUTES AND ARBITRATION
------------------------
15.1. Preliminary Dispute Resolution. Each of the General
Partners shall appoint an official liaison (an "Official Liaison") who shall
be the chief executive officer of the Partner or, in the event the Partner is
not a corporation, a person of similar rank. In the event that a dispute or a
problem shall arise among the General Partners concerning this Limited
Partnership Agreement, such dispute or problem shall be submitted to the
Official Liaisons for their review and resolution. Each party shall set forth
in writing its respective position on the dispute or problem and a copy of
such written position shall be delivered to each of the Official Liaisons and
the other party. The Official Liaisons may hold such meetings and may review
such documents as they may consider necessary. Any resolution of the dispute
or problem agreed to by all of the Official Liaisons shall be set forth in
writing and initialed by all of the Official Liaisons and to the extent
permitted by law shall be final and binding on the parties. In the event that
the Official Liaisons are unable to agree on a resolution of the dispute or
problem within 30 days of submission to them, either Official Liaison may
submit the matter to binding arbitration.
15.2. Arbitration. Except as set forth in Section 15.1, all
disputes, controversies or unresolved questions (whether related to legal,
contractual, business, management, financial, technical, operational or other
issues) that arise under or with respect to this Agreement shall be settled by
-58-
<PAGE>
arbitration under this Article XV. The Official Liaison desiring arbitration
shall give written notice to that effect to the other Official Liaison and in
such notice shall appoint as an arbitrator a disinterested person of
recognized competence in the area at issue. Within fifteen (15) days
thereafter, the other Official Liaison shall, by written notice to the
originating party, appoint a second person similarly qualified as the second
arbitrator. Within fifteen (15) days thereafter, the arbitrators thus
appointed shall appoint a third person similarly qualified as the third
arbitrator, and such three arbitrators shall as promptly as possible determine
such matter with the parties, each being entitled to present evidence and
argument to the arbitrators; provided, however, that:
(i) if the second arbitrator shall not have been
appointed as aforesaid, the first arbitrator shall determine
such matter; and
(ii) if the two arbitrators appointed by the parties shall
be unable to agree upon the appointment of the third arbitrator
within fifteen (15) days after the appointment of the second
arbitrator, they shall give written notice of such failure to agree
to the parties, and, if the parties fail to agree upon the selection
of such third arbitrator within fifteen (15) days thereafter, then
within ten (10) days thereafter, either of the parties upon written
notice to the other party may apply for such appointment to the
Federal District Court or County Superior Court in San Diego,
California.
All selections of an arbitrator shall be subject to the
consent of the Project Lender, but only if the Project Lender notifies the
parties that it desires to approve the selection of an arbitrator, and such
consent shall not be unreasonably withheld.
The arbitrator or arbitrators shall only interpret and
apply the terms and provisions of this Agreement (and any other agreement at
issue pursuant to Section 15.2) and shall not change any such terms or
provisions or deprive either party of any right or remedy expressly or
impliedly provided for in this Agreement or such other agreement.
The determination of the majority of the arbitrators or the
sole arbitrator, as the case may be, shall, to the extent permitted by law, be
conclusive and binding upon the parties. The arbitrator or arbitrators shall
give written notice to the parties stating their determination, and shall
furnish to each a copy of such determination signed by them. In the event of
the failure, refusal or inability of any arbitrator to act, a new arbitrator
shall be appointed in his or her stead, which appointment shall be made in the
same manner as hereinbefore provided for the appointment of the arbitrator so
failing, refusing or unable to act.
-59-
<PAGE>
15.3. Conejo Request. If (a) the Official Liaison of Conejo
requests arbitration under Section 15.2 and (b) the requested relief includes
the initiation by the Partnership of arbitration proceedings under one or more
Operating Agreements or other agreements between the Partnership and Red Hill
or any of its Affiliates, and (c) the arbitrators agree that such arbitration
pursuant to the underlying agreement is appropriate, the arbitrators appointed
under this Agreement shall also resolve the issues presented under such other
agreement. Magma, by its signature to this Agreement as a Limited Partner,
expressly consents and agrees to the implementation of this provision in its
capacity as a party to any existing and future separate agreements with the
Partnership.
15.4. Exceptions. The requirement that all disputes between
the parties be resolved by arbitration shall not apply to a dispute in which:
(a) a party, having given the other party at least ten (10)
days' notice of the other party's alleged breach, in good faith seeks
immediate equitable relief from a court of competent jurisdiction to
enable the instituting party to prevent irreparable harm (alleged to
arise from the alleged breach) pending arbitral relief; or
(b) any claim by one party against the other party arises
out of the subject matter of any court litigation or proceeding
commenced by any third party against one party in which the other
party is an indispensable party or third party defendant; or
(c) any claim is asserted with respect to which a third
party, which is not bound and will not, upon request of either party,
agree to arbitrate subject to the arbitration rules provided by this
Article XV, is an indispensable or necessary party.
15.5. Attorneys' Fees. Each party shall bear its own
expenses, including attorneys' fees, in connection with any dispute,
resolution or arbitration proceedings hereunder. Neither party in any such
action, trial, arbitration or appeal thereon shall be entitled to attorneys'
fees or court, arbitration and other costs incurred, unless otherwise decreed
by the court or arbitrators in the same or a separate suit.
15.6. Arbitrators' Fees. Subject to Section 15.5, each
party will compensate the arbitrator selected by it, and the third arbitrator
and expenses of the proceeding will be shared equally by the General Partners.
15.7. Discovery. Upon request of either party, the
arbitrators will order such discovery (including third-party discovery) as the
arbitrators determine to be reasonable under
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<PAGE>
the circumstances. The arbitrators, shall, however, impose reasonable
schedules and deadlines to ensure that discovery is conducted and concluded on
a timely basis and shall impose sanctions on either party for abuse or delay
of discovery. Rules of evidence may be applied, in the discretion of the
arbitrators.
15.8. Expedited Procedure. Either party to the arbitration
may elect, by notice to the other party, to have he arbitration be conducted
on an expedited basis. Thereafter, the arbitrators shall be empowered to
expedite the proceedings by all reasonable means consistent with a fair
hearing of the dispute. Such means may include the imposition of accelerated
discovery and hearing schedules, requiring submissions within abbreviated time
periods and imposing limits on numbers of witnesses and the length of
hearings.
-61-
<PAGE>
15.9. Enforcement. Judgment upon the decision of the
arbitrators may be entered in any court having jurisdiction over the party
against which enforcement is sought.
IN WITNESS WHEREOF, the undersigned have executed this
Limited Partnership Agreement as of the date first written above.
GENERAL PARTNERS:
RED HILL GEOTHERMAL, INC., a
Delaware corporation
By: /s/ Russ L. Tenney
--------------------------------------
Its: President
-------------------------------
By: /s/ Charles C. Bowles
--------------------------------------
Its: Assistant Secretary
-------------------------------
CONEJO ENERGY COMPANY, a California
corporation
By: /s/ Gregory C. Hoppe
--------------------------------------
Its: Vice President
-------------------------------
By: /s/ Alan N. Fenning
--------------------------------------
Its: Secretary
-------------------------------
ORIGINAL LIMITED PARTNERS:
MAGMA POWER COMPANY, a Nevada
corporation
By: /s/ Arnold L. Johnson
--------------------------------------
Its: President
-------------------------------
By: /s/ Jon R. Peele
--------------------------------------
Its: Secretary
-------------------------------
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<PAGE>
CONEJO ENERGY COMPANY, a California
corporation
By: /s/ Gregory C. Hoppe
--------------------------------------
Its: Vice President
-------------------------------
By: /s/ Alan N. Fenning
--------------------------------------
Its: Secretary
-------------------------------
-63-
<PAGE>
Exhibit "A"
-----------
Original Limited Partners
-------------------------
Name and Address
----------------
Magma Power Company,
a Nevada corporation
11770 Bernardo Plaza Court
Suite 366
San Diego, California 92128
Conejo Energy Company,
a California corporation
18872 MacArthur Boulevard
Suite 400
Irvine, California 92715
<PAGE>
Exhibit "B"
-----------
Partners' Names, Addresses, Units,
and Initial Capital Contributions
---------------------------------
Cash
Capital Fair Market
Name and Address Contribution Value Units
---------------- ------------ ----------- -----
General Partners:
- ----------------
Red Hill Geothermal, Inc. $6,377,427 40
480 West Sinclair Road
Calipatria, California 92233
Conejo Energy Company $9,807,693 40
18872 MacArthur Boulevard
Suite 400
Irvine, California 92715
Limited Partners:
- ----------------
Magma Power Company $1,876,923 10
11770 Bernardo Plaza Court
Suite 366
San Diego, California 92128
Conejo Energy Company $4,692,307 10
18872 MacArthur Boulevard
Suite 400
Irvine, California 92715
<PAGE>
Exhibit "C"
-----------
Aggregate of
Scheduled Capital Contributions
-------------------------------
Name Amount
- ---- ------
General Partners:
- ----------------
Red Hill Geothermal, Inc. $ 7,507,692
Conejo Energy Company $18,769,130
Limited Partners:
- ----------------
Magma Power Company $ 1,876,923
Conejo Energy Company $ 4,692,308
<PAGE>
Exhibit "D"
-----------
Contribution of
Intangible Drilling Costs
-------------------------
(Attached)
<PAGE>
Del Ranch
---------
ASSIGNMENT AS CAPITAL CONTRIBUTION
----------------------------------
THIS ASSIGNMENT AS CAPITAL CONTRIBUTION (the "Assignment")
is made as of the 14th day of March, 1988, by and between MAGMA POWER COMPANY,
a Nevada corporation ("Assignor"), and DEL RANCH, LTD., a California limited
partnership ("Assignee").
Recitals
--------
A. Assigned Property. Assignor is currently developing a
power production geothermal electrical generating facility in the Salton Sea
Known Geothermal Resource Area in Imperial County, California (the "Del Ranch
Facility"). In connection with Assignor's development of the Del Ranch
Facility, Assignor has incurred certain tangible and intangible drilling and
development costs with respect to developing the geothermal production and
injection wells that will service the Del Ranch Facility (the "Geothermal
Wells"). As of the date hereof, in exchange for cash, Assignor is selling to
Assignee certain of Assignor's right, title and interest in and to the Del
Ranch Facility, including so much of the Geothermal Wells as is represented by
tangible drilling and development costs incurred to date. In addition,
Assignor is acquiring a limited partnership interest in Assignee pursuant to
that certain Amended and Restated Limited Partnership Agreement of Assignee
dated as of March 14, 1988 (the "Agreement"). As its total "Capital
Contribution" (as defined in the Agreement) Assignor is contributing to
Assignee Assignor's right, title and interest in and to those portions of the
Geothermal Wells as have been developed through the incurrence of costs which
are deductible by Assignor for Federal income tax purposes pursuant to Section
263(c) of the Internal Revenue Code of 1986, as amended, up to a total amount
of such costs of $1,876,923 (the "Assigned Property").
B. Purpose. Assignor now desires to assign to Assignee all
of its rights, title and interest in and to the Assigned Property. Assignee
desires to accept such rights, title and interest.
Agreement
---------
NOW, THEREFORE, for good and valuable consideration, the
receipt of which is hereby acknowledged, the parties agree as follows:
1. Assignment. Assignor hereby assigns and transfers all of
its right, title and interest in and to the Assigned Property to Assignee.
<PAGE>
2. Acceptance and Assumption. Assignee hereby accepts the
foregoing assignment as a Capital Contribution pursuant to Section 3.4 of the
Agreement.
3. Miscellaneous. This Assignment shall be binding upon and
shall inure to the benefit of the respective heirs, successors and assigns of
the parties hereto. Each party agrees to execute any and all other documents
reasonably necessary or appropriate in order to effect the assignment to
Assignee of the Assigned Property and any rights thereto in accordance with
the terms of this Assignment. This Assignment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The headings used
herein are inserted for purposes of reference and are not intended to be part
of or to effect the meaning or interpretation of this Assignment.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment to be duly executed on their respective behalf, by their respective
officers, thereunto duly authorized, all as of the day and year first above
written.
ASSIGNOR:
MAGMA POWER COMPANY, a Nevada corporation
By:
--------------------------------------
Its:
-------------------------------
By:
--------------------------------------
Its:
-------------------------------
ASSIGNEE:
DEL RANCH, LTD., a California limited
partnership
By: RED HILL GEOTHERMAL, INC., a Delaware
corporation, its General Partner
By:
--------------------------------------
Its:
-------------------------------
By:
--------------------------------------
Its:
-------------------------------
-2-
<PAGE>
By: CONEJO ENERGY COMPANY, a California
corporation, its General Partner
By:
--------------------------------------
Its:
-------------------------------
By:
--------------------------------------
Its:
-------------------------------
By: MAGMA POWER COMPANY, a Nevada
corporation, its Limited Partner
By:
--------------------------------------
Its:
-------------------------------
By:
--------------------------------------
Its:
-------------------------------
By: CONEJO ENERGY COMPANY, a California
corporation, its Limited Partner
By:
--------------------------------------
Its:
-------------------------------
By:
--------------------------------------
Its:
-------------------------------
-3-
<PAGE>
Del Ranch
---------
ASSIGNMENT AS CAPITAL CONTRIBUTION
----------------------------------
THIS ASSIGNMENT AS CAPITAL CONTRIBUTION (the "Assignment")
is made as of the 14th day of March, 1988, by and between RED HILL GEOTHERMAL,
INC., a Delaware corporation ("Assignor"), and DEL RANCH, LTD., a California
limited partnership ("Assignee").
Recitals
--------
A. Assigned Property. Assignor is a wholly owned subsidiary
of Magma Power Company, a Nevada corporation ("Magma"). Magma is currently
developing a power production geothermal electrical generating facility in the
Salton Sea Known Geothermal Resource Area in Imperial County, California (the
"Del Ranch Facility"). In connection with Magma's development of the Del Ranch
Facility, Magma has incurred certain tangible and intangible drilling and
development costs with respect to developing the geothermal production and
injection wells that will service the Del Ranch Facility (the "Geothermal
Wells"). Pursuant to that certain Assignment as Capital Contribution of even
date herewith, by and between Magma and Assignee, Magma assigned to Assignor
its right, title and interest in and to a portion of the Geothermal Wells
represented by a portion of the total amount of such intangible drilling and
development costs incurred by Magma to date. As of even date herewith,
Assignor is acquiring a general partner interest in Assignee pursuant to that
certain Amended and Restated Limited Partnership Agreement of Assignee dated
as of March 14, 1988 (the "Agreement"). As a portion of its total "Scheduled
Capital Contribution" (as defined in the Agreement) Assignor is contributing
to Assignee Assignor's right, title and interest in and to those portions of
the Geothermal Wells so assigned to Assignee which have been developed through
the incurrence of costs which are deductible by Assignor for Federal income
tax purposes pursuant to Section 263(c) of the Internal Revenue Code of 1986,
as amended, which costs are equal to $6,377,427 (the "Assigned Property"),
subject to adjustment as provided in Section 3.4.2 of the Agreement. The other
portion of such Geothermal Wells as is represented by such deductible costs is
being contributed to Assignee by Magma on the date hereof.
B. Purpose. Assignor now desires to assign to Assignee all
of its rights, title and interest in and to the Assigned Property. Assignee
desires to accept such rights, title and interest.
<PAGE>
Agreement
---------
NOW, THEREFORE, for good and valuable consideration, the
receipt of which is hereby acknowledged, the parties agree as follows:
1. Assignment. Assignor hereby assigns and transfers all of
its right, title and interest in and to the Assigned Property to Assignee.
2. Acceptance and Assumption. Assignee hereby accepts the
foregoing assignment as a Scheduled Capital Contribution pursuant to Section
3.4 of the Agreement.
3. Miscellaneous. This Assignment shall be binding upon and
shall inure to the benefit of the respective heirs, successors and assigns of
the parties hereto. Each party agrees to execute any and all other documents
reasonably necessary or appropriate in order to effect the assignment to
Assignee of the Assigned Property and any rights thereto in accordance with
the terms of this Assignment. This Assignment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The headings used
herein are inserted for purposes of reference and are not intended to be part
of or to effect the meaning or interpretation of this Assignment.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment to be duly executed on their respective behalf, by their respective
officers, thereunto duly authorized, all as of the day and year first above
written.
ASSIGNOR:
RED HILL GEOTHERMAL, INC.,
a Delaware corporation
By:
--------------------------------------
Its:
-------------------------------
By:
--------------------------------------
Its:
-------------------------------
-2-
<PAGE>
ASSIGNEE:
DEL RANCH, LTD., a California limited
partnership
By: RED HILL GEOTHERMAL, INC., a
Delaware corporation, its General
Partner
By:
--------------------------------------
Its:
-------------------------------
By:
--------------------------------------
Its:
-------------------------------
By: CONEJO ENERGY COMPANY, a California
corporation, its General Partner
By:
--------------------------------------
Its:
-------------------------------
By:
--------------------------------------
Its:
-------------------------------
By: MAGMA POWER COMPANY, a Nevada
corporation, its Limited Partner
By:
--------------------------------------
Its:
-------------------------------
By:
--------------------------------------
Its:
-------------------------------
By: CONEJO ENERGY COMPANY, a California
corporation, its Limited Partner
By:
--------------------------------------
Its:
-------------------------------
By:
--------------------------------------
Its:
-------------------------------
-3-
<PAGE>
SCHEDULE "Z"
------------
"Additional Power Production Facilities" means power
production geothermal electrical generating facilities developed in the SSKGRA
which Process Reserved Geothermal Brine to produce electrical energy.
"Administration Fee" means the payments to be made to Red
Hill provided for in Section 6 of the Administrative Services Agreement.
"Administrative Services Agreement" means that certain
Administrative Services Agreement dated as of March 14, 1988, as the same may
be amended from time to time, by and between Red Hill and Del Ranch, Ltd.,
pursuant to which Red Hill will provide certain administrative and management
services to Del Ranch, Ltd. in connection with the operation of the Del Ranch
Facility.
"Affiliate" means, when used with reference to a specified
Person, (a) any Person who directly or indirectly controls, is controlled by
or is under common control with the specified Person, (b) any Person who is an
officer, partner or trustee of, or serves in a similar capacity with respect
to, the specified Person, or for which the specified Person is an officer,
partner or trustee or serves in a similar capacity, (c) any Person who,
directly or indirectly, is the beneficial owner of 10% or more of any class of
equity securities of the specified Person, or of which the specified Person,
directly or indirectly, is the owner of 10% or more of any class of equity
securities, and (d) any relative of the specified Person.
"Average Annual Energy Price" means an amount equal to the
sum of (i) 2/3 multiplied by the average of the quarterly Time Period Weighted
Average Proposed Avoided Cost Energy Winter Prices released by SCE for the
calendar year in which the calculation is being made, plus (ii) 1/3 multiplied
by the average of the quarterly Time Period Weighted Average Proposed Avoided
Cost Energy Summer Prices released by SCE for the calendar year in which the
calculation is being made. In the event that the Time Period Weighted Average
Proposed Avoided Cost Energy Winter Prices and the Time Period Weighted
Average Proposed Avoided Cost Energy Summer Prices are abandoned or changed
materially or otherwise cease to be released by SCE on a quarterly basis, the
parties shall select a substitute index to the end that the Average Annual
Energy Price will reflect SCE's average annual avoided cost energy prices. In
the event the parties fail to agree on a substitute index as provided in the
immediately preceding sentence, the matter shall be submitted to an arbitrator
in accordance with Section 21 of the Operating and Maintenance Agreement and
the arbitrator shall select the substitute index to be used.
<PAGE>
"Brine Minerals" means all mineral resources found in the
Geothermal Brine, including, without limitation, mineral resources found in
the Geothermal Brine Scale.
"BTU Energy" means the heat value in British Thermal Units
which can be extracted from Geothermal Brine.
"Capacity" shall have the same meaning as that term has in
the Del Ranch Power Purchase Contract.
"Capital Contribution" has the same meaning as that term
has in the Limited Partnership Agreement.
"Code" means the Internal Revenue Code of 1986, as amended
(or any corresponding provision or provisions of succeeding law).
"Construction Management Agreement" means that certain
Construction Management and Asset Transfer Agreement dated as of March 14,
1988, as the same may be amended from time to time, by and between Magma and
Del Ranch, Ltd., pursuant to which Magma will act as Del Ranch, Ltd.'s
construction manager for the construction of the Del Ranch Facility.
"Construction Management Fee" means the payments to be made
to Magma provided for in Section 9 of the Construction Management Agreement.
"Construction Manager" means Magma for purposes of the
Construction Management Agreement.
"Contract Capacity" shall have the same meaning as that
term has in the Del Ranch Power Purchase Contract.
"Conversion Date" shall have the same meaning as that term
has in the Credit Facility.
"Credit Facility" means that certain Secured Credit
Agreement dated as of March 14, 1988, as the same may be amended from time to
time, among Del Ranch, Ltd., the Banks listed on the signature pages thereto
and Morgan Guaranty Trust Company of New York, as Agent.
"Critical Parts and Equipment" means those certain
equipment and parts delineated on Exhibit "A" to the Operating and Maintenance
Agreement and such additional equipment and parts which the parties thereto
agree, from time to time, should be added to the Critical Parts and Equipment
listed on said Exhibit "A" to the Operating and Maintenance Agreement.
"DCC" means The Dow Chemical Company, a Delaware
corporation.
-2-
<PAGE>
"DEC" means Dow Engineering Company, a Delaware
corporation.
"Debt Service Reserve" means the reserve established
pursuant to Section 11.1 of the Operating and Maintenance Agreement.
"Debt Service Reserve Account" means the segregated bank
account established pursuant to Section 11.1 of the Operating and Maintenance
Agreement.
"Decommission," "Decommissioned" or "Decommissioning" means
the obligations on the part of Del Ranch, Ltd., among other things, to remove
all or a portion of the Del Ranch Facility and, with respect to production and
injection wells and only to the extent allowed by applicable law, to cap such
wells in lieu of removal from the Del Ranch Property and the Geothermal Lease
Rights Properties in the event Magma elects to require such removal pursuant
to Sections 8.11 and 8.13 of the Ground Lease and/or Section 3.1.4 of the
Easement Agreement.
"Decommissioning Reserve" means the reserve established
pursuant to Section 11.3 of the Operating and Maintenance Agreement.
"Decommissioning Reserve Account" means the segregated bank
account established pursuant to Section 11.3 of the operating and Maintenance
Agreement.
"Del Ranch Facility" means that certain power production
geothermal electrical generating facility being constructed pursuant to the
Plans and Specifications and any "as-built" plans on the Del Ranch Property
which, when completed, will have the capacity to convert BTU Energy from
Geothermal Brine into electrical energy, together with the Supporting
Equipment.
"Del Ranch Facility Brine Requirement" means that amount of
Geothermal Brine which, when Processed by the Del Ranch Facility, will yield
the amount of BTU Energy reasonably required to generate 332,880,000 kilowatt
hours per year of "Energy" as that term is defined in the Del Ranch Power
Purchase Contract.
"Del Ranch Facility Projected Project Cost", means the
total projected cost of construction and development of the Del Ranch Facility
as reflected on Exhibit "I" to the Construction Management Agreement.
"Del Ranch, Ltd." means Del Ranch, Ltd., a California
limited partnership, a limited partnership organized under the laws of the
State of California, the general partners of which are Red Hill and Conejo
Energy Company, a California corporation.
-3-
<PAGE>
"Del Ranch Power Purchase Contract" means that certain
Power Purchase Contract dated February 22, 1984, as amended, and as the same
may be amended from time to time, by and between Magma and SCE.
"Del Ranch Property" means the parcel of real property more
particularly described on Exhibit "A" to the Ground Lease, as that description
may be modified from time to time pursuant to Section 3.3 of the Ground Lease.
"Del Ranch Property Preliminary Title Report" means that
certain Preliminary Title Report No. 105342 dated February 16, 1988 a copy of
which is attached as Exhibit "L" to the Construction Management Agreement.
"Development of the Del Ranch Facility" means the design,
engineering, construction, testing and start-up of the Del Ranch Facility.
"Distribution Dates" means each March 31 and September 30.
"Dow Services Agreement" means that certain Financial and
Technical Services Agreement dated March 27, 1987 by and between Magma and
DCC, a copy of which is attached as Exhibit "A" to the Administrative Services
Agreement.
"Easement Agreement" means that certain Easement Grant Deed
and Agreement Regarding Rights for Geothermal Development dated as of March
14, 1988, as the same may be amended from time to time, by and between Magma
and Del Ranch, Ltd., pursuant to which the parties have provided for an
"Easement to Develop Geothermal Rights" and related rights and obligations as
described therein.
"Energy Revenues" means all payments received by Del Ranch,
Ltd. for the sale of electricity which payments represent the "Energy" (as
that term is defined in the Del Ranch Power Purchase Contract) component of
the payments received including, without limitation, (i) payments received by
Del Ranch, Ltd. from SCE pursuant to the Del Ranch Power Purchase Contract
(without deduction for payments made pursuant to the IID Transmission Line
Agreement), (ii) all payments for Energy delivered both before and after the
Firm Operation Date and below, at and above the "Contract Capacity" level (as
that term is defined in the Del Ranch Power Purchase Contract) and (iii) all
payments received by Del Ranch Ltd. in lieu of payments that would have been
received for the Energy component of electricity that would have been produced
but for the in lieu payments.
"Engineer" means R.W. Beck and Associates, or their
successors in the capacity of engineers and consultants with respect to the
Development of the Del Ranch Facility and the operation of the Del Ranch
Facility.
-4-
<PAGE>
"Excess Extracted Geothermal Brine" means Geothermal Brine
extracted by Del Ranch, Ltd. in connection with the operation of the Del Ranch
Facility which is in excess of the amount of Geothermal Brine needed to meet
the Del Ranch Facility Brine Requirement.
"Excess Unextracted Geothermal Brine" means all Geothermal
Brine which is not needed for the operation of the Vulcan Facility and the Del
Ranch Facility.
"Extraordinary Services" means all of the services,
materials, equipment and supplies to be performed or provided by Red Hill
pursuant to Section 3 of the Administrative Services Agreement.
"Firm Operation Date" means the first day on which Firm
Operation (as that term is defined in the Del Ranch Power Purchase Contract)
occurs under the Del Ranch Power Purchase Contract.
"Firm Operation Month" means the first month during which
Firm operation (as that term is defined in the Del Ranch Power Purchase
Contract) occurs under the Del Ranch Power Purchase Contract.
"Geothermal Brine" means the geothermal brine contained in
the Vulcan Geothermal Lease Unit.
"Geothermal Brine Scale" means all deposits and residue
including, without limitation, silica slurry, silica cake and sludge deposits
on or in vessels or equipment in which Geothermal Brine is transported to or
from, or Processed or stored in, the Del Ranch Facility.
"Geothermal Lease Rights" means the rights in the
Geothermal Lease Rights Properties held by Magma pursuant to the Geothermal
Leases including, without limitation, certain rights of Magma to (i) that
portion of the Geothermal Lease Rights Properties existing below the surface
of the land including, without limitation, the right to extract and take
Geothermal Brine therefrom and (ii) the Surface Properties including, without
limitation, the right to enter upon certain portions of the Surface Properties
for the purposes of (1) drilling exploratory, production and injection wells;
(2) installing pipelines for the extraction of Geothermal Brine; (3)
extracting Geothermal Brine; and (4) constructing facilities designed to
convert the heat energy in the Geothermal Brine to electrical energy for sale
to public utilities.
"Geothermal Lease Rights Properties" means the real
property located within the SSKGRA, as more particularly described in Exhibit
"A" to the Easement Agreement.
-5-
<PAGE>
"Geothermal Lease Rights Properties Preliminary Title
Report" means, collectively, those certain Preliminary Title Reports Nos.
105340 (Severe), 105341 (Del Ranch, Inc.), 105348 (Future Energy), 105344
(Ruchti/24 Leases), 105343 (Woolsey), 105345 (McKelvey), 105346 (Wiest) and
105347 (J.F. Baretta), dated February 16, 1988, copies of which are attached
as Exhibit "C" to the Easement Agreement.
"Geothermal Leases" means those certain geothermal leases
delineated on Exhibit "B" to the Easement Agreement.
"Geothermal Lessors" means the parties identified as the
"lessors," or their successors in interest, in each of the Geothermal Leases.
"Grantee" means Del Ranch, Ltd. for purposes of the
Easement Agreement.
"Grantor" means Magma for purposes of the Easement
Agreement.
"Ground Lease" means that certain Ground Lease dated as of
March 14, 1988, as the same may be amended from time to time, by and between
Magma and Del Ranch, Ltd., pursuant to which Magma leases to Del Ranch, Ltd.
the Del Ranch Property.
"Guaranteed Capacity Payment" means the payments to be made
to Red Hill provided for in Section 13 of the operating and Maintenance
Agreement.
"IID" means the Imperial Irrigation District, organized
under the Water Code of the State of California.
"IID Agreements" mean, collectively, (i) that certain
Funding and Construction Agreement dated June 29, 1987, by and among the
Imperial Irrigation District ("IID"), and certain "Participants" (as that term
is defined in said Funding and Construction Agreement) including Magma, (ii)
that certain Joint Funding Agreement dated June 29, 1987, by and among the
"Participants" (as that term is defined in said Joint Funding Agreement)
including Magma and (iii) any "IID Transmission Service Agreement For
Alternative Resources" which may be entered into between IID and Del Ranch,
Ltd., copies of which are attached as Exhibit "G" to the Construction
Management Agreement.
"Insurance Requirements" means policies of insurance,
maintained by or on behalf of Del Ranch, Ltd. with insurance companies rated
at least B+ by A.M. Best Company or such other insurance companies as may be
acceptable to the agent for the Project Lender, of the following type, in the
following amounts, and on the following terms:
(i) at all times after completion of construction of the
Del Ranch Facility, insurance on the Del Ranch Facility
-6-
<PAGE>
against all risks of physical loss or damage, including flood,
earthquake (to the extent possible) and collapse and all other risks
and perils normally covered in "all-risk" policies, for the full cost
of repair or replacement (excluding the costs of the transmission
lines, wells and Geothermal Brine pipelines);
(ii) as soon as possible in the course of construction of the
Del Ranch Facility and at all times after completion of construction
of the Del Ranch Facility, boiler and machinery insurance written on
a comprehensive form for the full repair and replacement value of the
equipment at and of the Del Ranch Facility;
(iii) at all times, comprehensive general liability insurance
with a limit of no less than $1,000,000, combined single limit,
bodily injury and property damage, for each occurrence;
(iv) at all times, excess public liability insurance in the
form of an umbrella policy which umbrella policy shall afford
coverage of not less than $10,000,000 per occurrence over and above
the coverage provided by the policies described above and the policy
described in Exhibit "N" to the Construction Management Agreement;
(v) on and after the Firm Operation Date, business interruption
insurance covering, for an annual term, only amounts due (including,
without limitation, interest, principal repayment and any other fees
and expenses) on the Project Lender's Loan; and
(vi) as soon as practicable after the agent for the Project
Lender shall request, such other insurance with respect to the Del
Ranch Facility in such amounts equal to the greater of such amount,
and against such insurable hazards, (x) as Magma maintains with
respect to other facilities similar to the Del Ranch Facility, which
Magma owns or operates, (y) as is usually carried by corporations of
established reputation operating similar properties and (z) as the
agent for the Project Lender may from time to time reasonably
request.
Each insurance policy set forth above (a) shall (except for
the liability insurance referred to in clause (iii) above, which shall name
the Project Lender as an additional insured) insure the Project Lender's
interests under the Project Lender's Lien and shall provide that all insurance
proceeds payable under such policy shall, until notice from the agent for the
Project Lender to the contrary, be paid over directly to such agent for the
benefit of the Project Lender, (b) shall provide that it cannot be cancelled
or terminated without thirty days' prior written notice to such agent, (c)
shall include waivers by the insurer of all claims for the payments by the
Project Lender and
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<PAGE>
such agent of insurance premiums, (d) shall (except for the liability
insurance referred to in clause (iii) above) provide for losses to be payable
to the Project Lender notwithstanding (i) any act or failure to act by the
insured or violation by the insured of warranties, declarations or conditions
contained in the policy, (ii) any foreclosure or sale or other proceeding
relating to the Del Ranch Facility or construction work in progress or (iii)
any change in the title to or ownership of the Del Ranch Facility or
construction work in progress, (e) shall (except for the liability insurance
referred to in clause (iv) above, which shall have no deductible) provide for
deductibles for (i) "all risk" coverage of no greater than $500,000 per
occurrence, and (ii) business interruption coverage of no greater than sixty
(60) days, and (f) shall be in all other respects satisfactory to the agent
for the Project Lender.
"Licensee" means Del Ranch, Ltd. for purposes of the
Technology Transfer Agreement.
"Licensor" means Magma for purposes of the Technology
Transfer Agreement.
"Limited Partner" means any of the Original Limited
Partners and Substituted Limited Partners as defined in the Limited
Partnership Agreement.
"Limited Partnership Agreement" means that certain Amended
and Restated Limited Partnership Agreement of Del Ranch, Ltd., dated as of
March 14, 1988, as the same may be amended from time to time.
"Magma" means Magma Power Company, a Nevada corporation.
"Magma Overrun Loan" means any loan made by Magma pursuant
to the Magma Undertaking.
"Magma Undertaking" means the undertaking of Magma,
substantially in the form of Exhibit "K" to the Construction Management
Agreement.
"Major Capital Expenditure Reserve" means the reserve
established pursuant to Section 11.2 of the Operating and Maintenance
Agreement.
"Major Capital Expenditure Reserve Account" means the
segregated bank account established pursuant to Section 11.2 of the Operating
and Maintenance Agreement.
"Operating Agreements" means the Easement Agreement, the
Administrative Services Agreement, the Construction Management Agreement, the
Del Ranch Power Purchase Contract, the Ground Lease, the Operating and
Maintenance Agreement, the Technology Transfer Agreement and the IID
Agreements.
-8-
<PAGE>
"Operating and Maintenance Agreement" means that certain
Operating and Maintenance Agreement dated as of March 14, 1988, as the same
may be amended from time to time, by and between Del Ranch, Ltd. and Red Hill,
pursuant to which Red Hill will provide day-to-day operational and maintenance
services for Del Ranch, Ltd. in connection with the operation of the Del Ranch
Facility.
"Operator" means Red Hill for purposes of the Operating and
Maintenance Agreement.
"Ordinary Services" means all of the services, materials,
equipment and supplies to be performed or provided by Red Hill on a normal
day-to-day basis pursuant to Section 2 of the Administrative Services
Agreement.
"Owner" means Del Ranch, Ltd. for purposes of the
Administrative Services Agreement, the Construction Management Agreement and
the Operating and Maintenance Agreement.
"Partially Spent Geothermal Brine" means the Geothermal
Brine in an amount not exceeding the Del Ranch Facility Brine Requirement
which has been extracted and Processed by Del Ranch, Ltd. for the purpose of
generating electrical energy in connection with the operation of the Del Ranch
Facility.
"Partnership Holding Account" has the same meaning as that
term has in the Limited Partnership Agreement.
"Permitted Investment" means any investment in (i) direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof, (ii) commercial paper
rated in the highest grade by a nationally recognized credit rating agency or
(iii) time deposits with, including certificates of deposit issued by, any
office located in the United States of any bank or trust company which is
organized under the laws of the United States or any state thereof and the
certificates of deposit of which are rated in one of the two highest grades by
a nationally recognized credit rating agency, provided in each case that such
investment matures within one year from the date of acquisition thereof by Del
Ranch, Ltd.
"Person" means an individual, a corporation, a partnership,
an association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Plans and Specifications" means those certain plans and
specifications for the construction of the Del Ranch Facility, as more
particularly described on Exhibit "H" to the Construction Management
Agreement.
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<PAGE>
"Principal Repayment Date" means the date on which a
portion of the principal of the Project Lender's Loan is scheduled to be
repaid pursuant to the Credit Facility.
"Process," "Processed" or "Processing" means the process by
which BTU Energy is extracted from the Geothermal Brine.
"Project Lender" means collectively the lender(s) advancing
all or a portion of the Project Lender's Loan, or the agent for such lenders.
"Project Lender's Lien" means the security interest or lien
evidenced by a first deed of trust granted by Del Ranch, Ltd. in Del Ranch,
Ltd.'s leasehold estate in the Del Ranch Property to the Project Lender to
secure repayment of any indebtedness and/or performance of any obligation
created by the Project Lender's Loan.
"Project Lender's Loan" means the financing provided by the
Project Lender for the Development of the Del Ranch Facility or the operation
of the Del Ranch Facility, the repayment of which is secured by the Project
Lender's Lien.
"Project Lender's Loan Documents" means all instruments,
agreements and other documents including, without limitation, the Credit
Facility, evidencing or related to the Project Lender's Loan and the security
therefor including, without limitation, the Project Lender's Lien.
"Red Hill" means Red Hill Geothermal, Inc., a Delaware
corporation, a general partner of Del Ranch, Ltd. Red Hill is a wholly owned
subsidiary of Magma.
"Refunded Capital Contribution" shall have the same meaning
as that term has in Section 3.6 of the Limited Partnership Agreement.
"Reimbursement Charges" means the payments to Red Hill
provided for in Section 14 of the Operating and Maintenance Agreement.
"Reserved Geothermal Brine" means the combination of
Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine and Excess
Unextracted Geothermal Brine.
"SCE" means Southern California Edison Company.
"SSKGRA" means Salton Sea Known Geothermal Resource
Area.
"Schedule of Projected Remaining Cost of Construction"
means the projected cost of completing construction and development of the Del
Ranch Facility as of the date of the
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<PAGE>
Construction Management Agreement, as reflected on Exhibit "J" to the
Construction Management Agreement.
"Services" means the services to be provided by Red Hill
pursuant to Section 2 of the Operating and Maintenance Agreement.
"Spare Parts" means all spare parts necessary for the
reliable, continuous operation of the Del Ranch Facility, other than the
Critical Parts and Equipment.
"Subcontractor" means a person or entity who performs any
duties for or supplies any equipment or material to Red Hill, directly or
indirectly, in the performance of the Services.
"Substantial Completion Month" means the month in which the
Construction Management Agreement terminates in accordance with its terms.
"Supporting Equipment" means all items described in
Sections 2.2.2 of the Easement Agreement, including all such items located on
the Del Ranch Property, and any real property interest associated therewith.
"Surface Properties" means that portion of the Geothermal
Lease Rights Properties existing above and upon the surface of the land.
"Technology Fee" means the payments to be made to Magma
provided for in Section 3 of the Technology Transfer Agreement.
"Technology Transfer Agreement" means that certain
Technology Transfer Agreement dated as of March 14, 1988, as the same may be
amended from time to time, by and between Magma and Del Ranch, Ltd., pursuant
to which Magma grants to Del Ranch, Ltd. the nonexclusive right to use certain
"Technology" and "Know-How" which will be utilized by Del Ranch, Ltd. only in
connection with the operation of the Del Ranch Facility.
"Total Electricity Revenues" means all payments received by
Del Ranch, Ltd. for the sale of electricity including, without limitation,
payments received by Del Ranch, Ltd. from SCE pursuant to the Del Ranch Power
Purchase Contract (without deduction for payments made pursuant to the IID
Agreements) including, without limitation, (i) all payments for "Energy,"
"capacity" and "Capacity Bonus Payments" delivered both before and after the
Firm Operation Date and below, at and above the "Contract Capacity" level (as
those terms are defined in the Del Ranch Power Purchase Contract) and (ii) all
payments received by Del Ranch, Ltd. in lieu of payments that would have been
received for electricity that would have been produced but for the in lieu
payments.
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<PAGE>
"Totally Spent Geothermal Brine" means Partially Spent
Geothermal Brine which (i) has been Processed by Magma, or a licensee of
Magma, for use in connection with the operation of Additional Power Production
Facilities; (ii) has been used by Magma, or a licensee of Magma, to extract
Brine Minerals; or (iii) has been used by Magma, or a licensee of Magma, for
any other use including, without limitation, the production of steam or heat
for sale to users of steam or heat.
"Vulcan Facility" means that certain power production
geothermal electrical generating facility located on the Vulcan Geothermal
Lease Unit on property contiguous to the Del Ranch Property more particularly
described on Exhibit "D" to the Easement Agreement. The Vulcan Facility is
owned by Vulcan/BN Geothermal Power Company, a Nevada general partnership, the
general partners of which are Vulcan Power Company, a Nevada corporation, and
BN Geothermal, Inc., a Delaware corporation. Vulcan Power Company is a wholly
owned subsidiary of Magma.
"Vulcan Facility Brine Sales Agreement" means that certain
Brine Sales Agreement dated August 30, 1985, as the same may be amended from
time to time, by and between Vulcan Power Company and Vulcan/BN Geothermal
Power Company, pursuant to which Vulcan Power Company has agreed to make
available to the Vulcan Facility certain amounts of geothermal brine from
certain portions of the Vulcan Geothermal Lease Unit for a thirty (30) year
period.
"Vulcan Geothermal Lease Unit" means that certain Vulcan
Plant Unit established pursuant to that certain Declaration and Notice of
Creation of Unit and Pooling of Lands Under Leases dated as of January 10,
1985, as amended by that certain First Amended and Restated Declaration and
Notice of Creation of Unit and Pooling of Lands Under Leases dated as of
January 18, 1988, which evidences Magma's Geothermal Lease Rights in and to
the Geothermal Lease Rights Properties.
"Working Capital" shall have the same meaning as that term
has in the Credit Facility.
"Working Capital Requirement" shall have the same meaning
as that term has in the Credit Facility.
Additional Defined Terms. For the convenience of the
parties, in addition to the defined terms set forth in this Schedule Z,
certain other terms are defined throughout the Operating Agreements.
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<PAGE>
=============================================================================
FIRST AMENDMENT TO THE
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
DEL RANCH, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
April 14, 1989
=============================================================================
<PAGE>
FIRST AMENDMENT TO THE
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
DEL RANCH, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
PREAMBLE
--------
This First Amendment (the "Amendment") to the Amended and
Restated Limited Partnership Agreement (the "Limited Partnership Agreement")
of Del Ranch, Ltd., a California Limited Partnership (the "Partnership"), is
made and entered into as of April 14, 1989, by and among Red Hill Geothermal,
Inc., a Delaware corporation ("Red Hill"), Magma Power Company, a Nevada
corporation ("Magma"), and Conejo Energy Company, a California corporation
("Conejo"), for the purpose of amending the Limited Partnership Agreement of
the Partnership under which the affairs of the Partnership have been conducted
to this date.
RECITALS
--------
A. Red Hill, Magma and Conejo are all of the parties to the
Limited Partnership Agreement and all of the partners of the Partnership as of
the date hereof.
B. Red Hill, Magma and Conejo desire to amend the Limited
Partnership Agreement as provided herein. The parties acknowledge that such
amendments are not attributable to the influx of new capital into the
Partnership but rather are intended to more accurately reflect the parties'
agreements.
NOW, THEREFORE, in consideration of the foregoing recitals
and the mutual covenants and agreements set forth herein, the parties hereto
agree as follows:
AGREEMENT
---------
1. Name Change. Section 1.2 of the Limited Partnership
Agreement is amended to provide that the name of the Partnership shall
hereafter be "Del Ranch, L.P." or such other name as may hereafter be
designated in accordance with Section 1.2 of the Limited Partnership
Agreement.
2. Testing Date. The following definition is added to
Article II of the Limited Partnership Agreement:
"2.2.32. 'Testing Date' means that date on which the Del
Ranch Facility is synchronized with and into the SCE
<PAGE>
grid and the Partnership begins delivering electricity to
SCE."
3. IID Costs. Section 2.2.23.8 of the Limited Partnership
Agreement is amended to read as follows:
"2.2.23.8. The Partnership's share of the costs of the
electrical transmission facilities to be built by the IID as provided
in the IID Agreements, and the electrical interconnection with IID
and SCE, together with all costs and expenses associated with the
financing thereof (collectively, IIID Costs')."
4. Special Allocations. Section 5.3.2 of the Limited
Partnership Agreement is amended to read as follows:
"5.3.2. Federal depreciation and other cost recovery
deductions, and amortization deductions for financing commitment fees
and other similar costs, start-up expenditures and organizational
expenditures, in each case with respect to Project Costs, but
excluding all IID Costs, shall be allocated as follows:
"(a) All such deductions for taxable periods
beginning before the Testing Date shall be allocated as
follows: (i) those deductions allocable to and attributable
to the complete calendar months in the period commencing
March 1, 1988 and ending on the Testing Date shall be
allocated 50% to Conejo, 40% to Red Hill and 10% to Magma;
and (ii) the remainder of such deductions shall be allocated
100% to Conejo.
"(b) Such deductions for taxable periods commencing
on or after the Testing Date and attributable to Project
Costs not to exceed $93,846,154 (less all IID Costs), shall
be allocated (i) 100% to Conejo through and including
December 31, 1990 and (ii) commencing January 1, 1991
through and including December 31, 1992, 90% to Conejo, 8%
to Red Hill and 2% to Magma and (iii) thereafter, to the
Partners in proportion to their Units in the Partnership.
"(c) Such deductions for taxable periods commencing
on or after the Testing Date and attributable to Project
Costs in excess of $103,846,154 (less all IID Costs) and
less than $115,000,000
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<PAGE>
(less all IID Costs) resulting from Priority Tax Capital
Contributions made pursuant to the terms of Section 3.5 of
this Limited Partnership Agreement shall be allocated 57.5%
to Conejo, 34% to Red Hill and 8.5% to Magma.
"(d) Such deductions for taxable periods commencing
on or after the Testing Date and attributable to Project
Costs in an aggregate amount between $93,846,154 (less all
IID Costs) and $103,846,154 (less all IID Costs) and to
Project Costs in excess of $115,000,000 (less all IID Costs)
resulting from Priority Capital Contributions made pursuant
to Section 3.5 of this Limited Partnership Agreement shall
be allocated 50% to Conejo, 40% to Red Hill and 10% to
Magma."
5. Continued Effectiveness. Except as specifically provided
in this Amendment, the Limited Partnership Agreement shall remain in full
force and effect in accordance with its original terms and conditions, except
that the term "Limited Partnership Agreement" as used in the Limited
Partnership Agreement shall hereafter mean the Limited Partnership Agreement
as amended hereby.
6. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall be deemed an
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<PAGE>
original, but all of which together shall constitute a single original
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be signed by their duly authorized officers as of the day and
year first above written.
RED HILL GEOTHERMAL, INC., a
Delaware corporation, a General
Partner
By:
--------------------------------------
Its: Vice President
-------------------------------
By: R. Peele
--------------------------------------
Its: Vice President
-------------------------------
MAGMA POWER COMPANY, a Nevada
corporation, a Limited Partner
By:
--------------------------------------
Its: Secretary & Vice President
-------------------------------
By:
--------------------------------------
Its: Vice President
-------------------------------
CONEJO ENERGY COMPANY, a California
corporation, a General Partner and a
Limited Partner
By: /s/ Mark M.
--------------------------------------
Its: Vice President
-------------------------------
By:
--------------------------------------
Its:
-------------------------------
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EXHIBIT 3.24
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
ELMORE, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
MARCH 14, 1988
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I ORGANIZATIONAL MATTERS.......................... 2
1.1. Continuation........................................... 2
1.2. Name .............................................. 2
1.3. Business Purpose....................................... 2
1.4. Place of Business...................................... 3
1.5. Certificate of Limited Partnership..................... 3
1.6. Agent for Service of Process........................... 3
1.7. Term .............................................. 3
ARTICLE II DEFINED TERMS................................. 3
ARTICLE III PARTNERS AND CAPITAL.......................... 13
3.1. General Partners....................................... 13
3.2. Original Limited Partners.............................. 13
3.3. Partnership Capital.................................... 13
3.4 Scheduled Capital Contributions........................ 13
3.5. Additional Funding..................................... 14
3.6. Debt to Equity Ratio................................... 15
3.7. Liability of Partners.................................. 16
3.8. Default in Capital Contributions....................... 17
ARTICLE IV DISTRIBUTIONS OF CASH......................... 17
4.1. Special Distributions.................................. 17
4.2. Distributions of Distributable Cash.................... 17
4.3. Distributions of Sale or Financing Proceeds............ 18
ARTICLE V ALLOCATIONS OF TAXABLE INCOME AND TAX LOSS.... 18
5.1. In General............................................. 18
5.2. Taxable Income and Tax Loss............................ 18
5.3. Special Allocations.................................... 19
5.4. Gain and Loss Upon Liquidation......................... 21
5.5 Additional Allocation Provisions....................... 22
ARTICLE VI RIGHTS, POWERS AND DUTIES OF THE GENERAL
PARTNERS...................................... 25
6.1. Management of the Partnership; Managing
General Partner........................................ 25
6.2. Authority of the Management Committee.................. 26
6.3. Authority of General Partners to Deal with
Partnership.......................................... 29
6.4. Authority to Pay Certain Fees and Expenses............. 30
6.5. Restrictions on Authority of General
Partners............................................. 30
i
<PAGE>
6.6. Certain Duties and Obligations of
General Partners..................................... 31
6.7. Other Business of Partners............................. 32
6.8. Limitation of Liability of General Partners;
Indemnification...................................... 33
6.9 Rights of Niguel....................................... 34
6.10. Construction of Operating Agreements to
Which Red Hill and/or Its Affiliates
Are Parties.......................................... 34
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF RED HILL.... 35
7.1. Representations and Warranties......................... 35
7.2. Reciprocal Representations and Warranties.............. 38
7.3. Representation and Warranties of Niguel................ 39
7.4. Affiliate Status....................................... 39
ARTICLE VIII TRANSFERS BY GENERAL PARTNERS AND ADMISSION
OF SUCCESSOR AND ADDITIONAL GENERAL PARTNERS;
WITHDRAWAL OF GENERAL PARTNERS................ 40
8.1. Transfers by General Partners and Admission
of Successor or Additional General Partners.......... 40
8.2. Incapacity of General Partners......................... 41
8.3. Conversion of General Partners' Interest............... 42
8.4. Liability of a Withdrawn General Partner............... 42
ARTICLE IX TRANSFERS OF PARTNERS' INTERESTS; ADMISSION
OF SUBSTITUTED LIMITED PARTNER................ 43
9.1. Restrictions on Transfers of Interests................. 43
9.2. Right of First Refusal................................. 44
9.3. Assignees and Substituted Partners..................... 45
9.4. Section 754 Elections.................................. 47
ARTICLE X DISSOLUTION AND LIQUIDATION OF
THE PARTNERSHIP............................... 47
10.1. Events Causing Dissolution............................. 47
10.2. Effect of Dissolution.................................. 47
10.3. Capital Contribution upon Liquidation of the
Partnership or General Partner's Interest............ 47
10.4. Liquidation............................................ 48
ARTICLE XI BOOKS AND RECORDS, ACCOUNTING, REPORTS,
TAX ELECTIONS, ETC............................ 49
11.1. Books and Records...................................... 49
11.2. Accounting and Fiscal Year............................. 49
11.3. Bank Accounts and Investments.......................... 49
11.4. Reports................................................ 50
11.5. Depreciation and Elections............................. 50
11.6. Designation of Tax Matters Partner..................... 51
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ARTICLE XII MEETINGS AND VOTING RIGHTS OF
LIMITED PARTNERS.............................. 51
12.1. Meetings............................................... 51
12.2. Voting Rights of Limited Partners...................... 52
ARTICLE XIII MATTERS AFFECTING STATUS AS A QUALIFYING
FACILITY...................................... 53
ARTICLE XIV OTHER PROVISIONS.............................. 54
14.1. Appointment of General Partners as
Attorneys-in-Fact.................................... 54
14.2 Amendments............................................. 55
14.3 Security Interest and Right of Set-Off................. 56
14.4 Binding Provisions..................................... 57
14.5. Applicable Law......................................... 57
14.6. Counterparts........................................... 57
14.7. Separability of Provisions and Savings
Provision............................................ 57
14.8. Article and Section Titles............................. 57
ARTICLE XV DISPUTES AND ARBITRATION...................... 57
15.1. Preliminary Dispute Resolution......................... 57
15.2. Arbitration............................................ 58
15.3. Niguel Request......................................... 59
15.4. Exceptions............................................. 59
15.5. Attorneys' Fees........................................ 60
15.6. Arbitrators' Fees...................................... 60
15.7. Discovery.............................................. 60
15.8. Expedited Procedure.................................... 60
15.9. Enforcement............................................ 61
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TABLE OF EXHIBITS
-----------------
Section
-------
Exhibit "A" Original Limited Partners Preamble
Exhibit "B" Partner's Names, Addresses, Units,
and Initial Capital Contributions 2.2.31
Exhibit "C" Aggregate of Scheduled Capital
Contributions 3.4.1
Exhibit "D" Contribution of Intangible
Drilling Costs 3.4.2
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TABLE OF SCHEDULES
------------------
Section
-------
Schedule "Z" Schedule of Defined Terms 2.1
v
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AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
ELMORE, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
PREAMBLE
This Amended and Restated Limited Partnership Agreement (the "Limited
Partnership Agreement") of ELMORE, LTD., A CALIFORNIA LIMITED PARTNERSHIP (the
"Partnership"), is made and entered into as of March 14, 1988, by and between
RED HILL GEOTHERMAL, INC., a Delaware corporation ("Red Hill"), and NIGUEL
ENERGY COMPANY, a California corporation ("Niguel"), individually as the
"General Partner," and collectively as the "General Partners," and the Persons
listed on Exhibit "A" to this Limited Partnership Agreement as the Original
Limited Partners, and such other Limited Partners as may be substituted
pursuant to the terms hereof, for the purpose of amending and restating that
certain limited partnership agreement of the Partnership under which the
affairs of the Partnership have been conducted to this date, and for the
purpose of continuing the affairs of the Partnership under the Revised Limited
Partnership Act of the State of California.
RECITALS
A. The Partnership is a duly formed and validly existing limited
partnership which was formed and operated under the California Revised Limited
Partnership Act (Title 2, Chapter 3, of the California Corporations Code), by
virtue of a Certificate of Limited Partnership dated February 3, 1988, filed
with the Secretary of State of the State of California on February 5, 1988,
and recorded February 9, 1988 as Document No. 88-02089 in the Office of the
County Recorder of the County of Imperial and recorded February 9, 1988 as
Document No. 88-060436 in the Office, of the County Recorder of the County of
San Diego, and certain other documents which were not recorded including,
without limitation, a Limited Partnership Agreement of the Partnership dated
February 5, 1988 (the "Original Limited Partnership Agreement").
B. The Partnership was formed and is being continued for the purpose of
acquiring a partially constructed geothermal electrical generating facility in
the Salton Sea Known Geothermal Resource Area of Imperial County, California.
The Partnership intends to complete the Development of the Elmore Facility
under a Construction Management and Asset Transfer Agreement by and
<PAGE>
between the Partnership and Magma Power Company ("Magma"), pursuant to which
Magma will provide certain construction management services to the
Partnership.
C. The Partnership intends upon completion of the Elmore Facility to
operate the Elmore Facility under the following operating agreements: (i) an
Operating and Maintenance Agreement by and between the Partnership and Red
Hill, pursuant to which Red Hill will operate the Elmore Facility on behalf of
the Partnership; (ii) an Administrative Services Agreement by and between the
Partnership and Red Hill, pursuant to which Red Hill will provide certain
administrative services in connection with the development and operation of
the Elmore Facility; (iii) a Technology Transfer Agreement by and between the
Partnership and Magma, pursuant to which Magma will provide the Partnership
with the nonexclusive right to use certain "Technology" and "Know-How" in
connection with the operation of the Elmore Facility; (iv) a Ground Lease by
and between the Partnership, as lessee, and Magma, as lessor, pursuant to
which Magma will lease to the Partnership the real property upon which the
Elmore Facility is located; (v) an Easement Grant Deed and Agreement Regarding
Rights for Geothermal Development by and between the Partnership and Magma
pursuant to which Magma will convey to the Partnership the right to extract
Geothermal Brine and use geothermal brine- derived steam which is necessary to
operate the Elmore Facility; and (vi) a Power Purchase Contract by and between
Magma (which has, as of March 14, 1988, assigned its rights under the Power
Purchase Contract to the Partnership) and Southern California Edison Company,
an Affiliate of Niguel.
D. The parties now wish to amend and restate, in its entirety, the
Original Limited Partnership Agreement for various reasons affecting the
business and affairs of the Partnership including, without limitation, the
admission of Niguel as a general partner and the admission of Niguel as a
limited partner together with Magma to be referenced hereinafter as the
"Original Limited Partners."
ARTICLE I
ORGANIZATIONAL MATTERS
1.1. Continuation. The parties hereby agree to continue the Partnership
as a limited partnership under the Revised Limited Partnership Act of the
State of California. The rights and liabilities of the Partners shall be as
provided in the Act, except as otherwise expressly provided herein.
1.2. Name. The name of the Partnership shall be "Elmore, Ltd., a
California limited partnership," or such other name as the General Partners
may hereafter designate by Notice in writing to the Limited Partners.
1.3. Business Purpose. The business of the Partnership shall be to invest
in, acquire, finance, develop,
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improve, operate, maintain and hold the Elmore Facility and other Property (as
that term is defined in Section 2.2.24 hereof) for the production and sale of
electricity from geothermal resources, to sell or otherwise dispose of the
Elmore Facility and other Property, and to engage in any other activities
related or incidental thereto.
1.4. Place of Business. The principal place of business of the
Partnership shall be 480 West Sinclair Road, Calipatria, California 92233, or
such other place as the General Partners may hereafter designate by Notice in
writing to the Limited Partners. The Partnership may maintain such other
offices and places of business as the General Partners may deem advisable.
1.5. Certificate of Limited Partnership. Red Hill has heretofore executed
a Certificate of Limited Partnership on Form LP-1 and filed it in the office
of the California Secretary of State as required by Section 15621 of the Act.
Red Hill has heretofore recorded certified copies of the Certificate of
Limited Partnership in the official records of each county in which the
Partnership has a place of business or owns real property. The Managing
General Partner shall cause an amendment to the Certificate of Limited
Partnership to be filed with the Secretary of State of the State of California
and recorded in the official records of each county within 30 days of the date
hereof so as to reflect the addition of Niguel as a general partner and any
other matters required to be stated therein.
1.6. Agent for Service of Process. The Partnership shall continuously
maintain in the State of California an agent for service of process on the
Partnership.
1.7. Term. The Partnership commenced on the date on which the Certificate
of Limited Partnership was filed with the California Secretary of State, and
shall continue until the date which is thirty-three (33) years thereafter,
unless sooner terminated pursuant to this Limited Partnership Agreement.
ARTICLE II
DEFINED TERMS
2.1. Unless the context shall otherwise require, capitalized terms used
herein and not otherwise defined herein shall have the respective meanings
assigned thereto in Schedule Z hereto, which shall be incorporated by
reference herein.
2.2. In addition to the terms defined pursuant to Section 2.1 hereof, the
following definitions shall apply for purposes of this Limited Partnership
Agreement:
2.2.1. "Accountants" means Coopers & Lybrand, independent certified
public accountants, or, subject to the provisions of this Limited Partnership
Agreement, such other firm
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of independent certified public accountants as may be engaged from time to
time by the General Partners for the Partnership.
2.2.2. "Act" means the Revised Limited Partnership Act of the State
of California.
2.2.3. "Capital Account" as to any Partner, means an account
maintained on the Partnership's books reflecting the excess (deficit) of (a)
the sum of (i) such Partner's Capital Contributions, (ii) such Partner's share
of Taxable Income and (iii) such Partner's share of tax-exempt income of the
Partnership over (b) the sum of (1) such Partner's share of Tax Loss, (2) such
Partner's share of other Partnership expenditures (including "section
705(a)(2)(B) expenditures" within the meaning of Treasury Regulation Section
1.704-1(b)(2)(iv)(i)) that are not deductible for Federal income tax purposes
(not including payments on indebtedness or expenditures to the extent included
in the basis of any Partnership asset) and (3) any distributions to such
Partner of Distributable Cash or Sale or Financing Proceeds.
2.2.3.1. Notwithstanding any other provision in this Section
2.2.3 or elsewhere in this Limited Partnership Agreement, each Partner's
Capital Account shall be maintained and adjusted in accordance with the Code
and the Treasury Regulations thereunder, including Treasury Regulation Section
1.704- 1(b)(2)(iv) and appropriate adjustments to capital accounts permitted
in the case of a Partner who receives the benefit or detriment of any special
basis adjustment under Sections 734, 743 and 754 of the Code. It is intended
that appropriate adjustments shall thereby be made to Capital Accounts to give
effect to any income, gain, loss or deduction (or items thereof) that is
specially allocated pursuant to this Limited Partnership Agreement. Subject to
Section 2.2.3.5, each Partner's Capital Account shall include that of any
predecessor holders of the Interest of such Partner. A Partner who has more
than one interest in the Partnership shall have a single Capital Account that
reflects all such interests regardless of the class of interests owned by such
Partner and regardless of the time or manner in which such interests were
acquired.
2.2.3.2. The General Partners, in their discretion, may
increase or decrease the Capital Accounts of the Partners to reflect a
revaluation of Partnership property on the Partnership's books and records. No
adjustment to Capital Accounts shall, however, be made unless all of the
following conditions are satisfied:
(a) The adjustments are based on the fair market value of
Partnership property (taking Section 7701(g) of the Code into account) on
the date of adjustment;
(b) The adjustments reflect the manner in which the unrealized
income, gain, loss or deduction inherent in such
4
<PAGE>
property (that has not been reflected in Capital Accounts previously)
would be allocated among the Partners under Article V of this
Limited Partnership Agreement if there were a taxable disposition of
such property for such fair market value on such date;
(c) Capital Accounts shall be adjusted in accordance with
Treasury Regulation Section 1.704-1(b)(2)(iv)(g) for allocations to the
Partners of depreciation, depletion, amortization, and gain or loss, as
computed for book purposes, with respect to such property;
(d) The Partners' shares of depreciation, depletion,
amortization, and gain or loss, as computed for tax purposes, with
respect to such property shall be determined so as to take account of the
variation of the adjusted tax basis and book value of such property in
the same manner as under Section 704(c) of the Code and the Treasury
Regulations thereunder; and
(e) The adjustments are made principally for a substantial
non-tax business purpose (i) in connection with a contribution of money
or other property (other than an insignificant amount) to the Partnership
by a Partner as consideration for an interest in the Partnership, (ii) in
connection with the liquidation of the Partnership or a distribution of
money or other property (other than an insignificant amount) by the
Partnership to a retiring or continuing Partner as consideration for an
interest in the Partnership or (iii) under generally accepted industry
accounting practices, provided that substantially all of the
Partnership's property (excluding money) consists of stock, securities,
commodities, options, warrants, futures or similar instruments that are
readily tradable on an established securities market.
Capital Accounts shall also be adjusted, (1) as required under Section
48(q)(6) of the Code and Treasury Regulation Section 1.704-1(b)(2)(iv)(j), in
regard to investment credits allowed with respect to property of the
Partnership and (2) as required under Treasury Regulation Section
1.704-1(b)(2)(iv)(k), for depletion and gain or loss with respect to oil or
gas properties of the Partnership.
2.2.3.3. In the event that property is contributed to the
Partnership with a basis to the Partnership different from such property's
fair market value at the time of its contribution, Capital Accounts shall be
adjusted, in accordance with Treasury Regulation Sections
1.704-1(b)(2)(iv)(d)(3) and 1.704-1(b)(2)(iv)(g), for allocations to the
Partners of depreciation, depletion, amortization, and gain and loss, as
computed for book purposes, with respect to such contributed property. Book
depreciation, depletion and amortization with respect to such contributed
Partnership
5
<PAGE>
property shall be computed in accordance with a reasonable method selected by
the General Partners; under such method, (i) if the book value of such
contributed Partnership property exceeds the adjusted tax basis thereof, the
depreciation, depletion or amortization, as computed for book purposes, shall
be no less than the depreciation, depletion or amortization, as computed for
tax purposes, (ii) if the adjusted tax basis of such contributed Partnership
property exceeds the book value thereof, the depreciation, depletion or
amortization, as computed for book purposes, shall be no greater than the
depreciation, depletion or amortization, as computed for tax purposes, and
(iii) if the book value of such contributed Partnership property equals the
adjusted tax basis thereof, the depreciation, depletion or amortization, as
computed for book purposes, shall equal the depreciation, depletion or
amortization, as computed for tax purposes.
2.2.3.4. A Partner's Capital Account shall be reduced by the
fair market value (determined without regard to Section 7701(g) of the Code)
of any property distributed by the Partnership to such Partner, whether in
connection with a liquidation of the Partnership or of such Partner's Interest
or otherwise. Accordingly, Capital Accounts shall first be adjusted to reflect
the manner in which the unrealized income, gain, loss and deduction inherent
in such property (that has not been previously reflected in Capital Accounts)
would be allocated, pursuant to Article V of this Limited Partnership
Agreement, among the partners if there were a taxable disposition of such
property for its fair market value (taking Section 7701(g) of the Code into
account) on the date of distribution.
2.2.3.5. Upon the transfer of all or any part of an Interest,
the transferor's Capital Account that is attributable to the transferred
interest shall carry over to the transferee Partner. If the transfer of any
interest in the Partnership causes a termination of the Partnership under
Section 708(b)(1)(B) of the Code, the Capital Account that carries over to the
transferee Partner shall be adjusted in accordance with Section 2.2.3.4 of
this Limited Partnership Agreement and Treasury Regulation Section
1.704-1(b)(2)(iv)(e) in connection with the constructive liquidation of the
Partnership under Treasury Regulation Section 1.708-1(b)(1)(iv). The
constructive reformation of the Partnership shall be treated as the formation
of a new partnership, and the capital accounts of the partners of such new
partnership shall be determined and maintained accordingly.
2.2.3.6. Adjustments to Capital Accounts in respect to
Partnership income, gain, loss, deduction and non-deductible expenditures (or
item thereof) shall be made with reference to the Federal tax treatment of
such items (and in the case of book items, with reference to the Federal tax
treatment of the corresponding tax items) at the Partnership level, without
6
<PAGE>
regard to any requisite or elective tax treatment of such items at the Partner
level.
2.2.3.7. If the foregoing rules fail to provide guidance on how
adjustments to Capital Accounts should be made to reflect particular
adjustments to Partnership capital on the books of the Partnership,
adjustments to Capital Accounts shall be made in a manner that (i) maintains
equality between the aggregate Capital Accounts of the Partners and the amount
of Partnership capital reflected on the Partnership's balance sheet, as
computed for book purposes, (ii) is consistent with the underlying economic
arrangement of the Partners and (iii) is based, wherever practicable, on
Federal tax accounting principles.
2.2.3.8. A separate accounting shall be made of any item
allocated for state or local income tax purposes in a manner different from
how the corresponding item under the Code is allocated for Federal income tax
purposes. Reference herein to Capital Accounts shall, to the extent
appropriate and as necessary for state or local income tax purposes, be deemed
to include the effects of such separate accounting.
2.2.4. "Capital Contribution" means the total amount of money and
the fair market value (determined consistent with Section 752(c) of the Code
and without regard to Section 7701(g) of the Code) of any property contributed
to the Partnership by any Partner (or the predecessor holders of the Interest
of any Partner).
2.2.5. "Capital Contribution Installment Dates" has the meaning set
forth in Section 3.4.1 hereof.
2.2.6. "Distributable Cash" means, with respect to any period
between Distribution Dates, the amount of cash or property delivered by Red
Hill in its capacity as Operator under the Operating and Maintenance
Agreement, to the Partnership pursuant to Section 12.2(xv) of the Operating
and Maintenance Agreement (other than amounts representing Capital
Contributions and the proceeds of the Project Lender's Loan) less any other
reimbursements or fees payable hereunder including, without limitation,
amounts reimbursed to Red Hill as "Tax Matter Partner" pursuant to the
provisions of Section 11.6 hereof.
2.2.7. "Distribution Dates" means each March 31 and September 30
occurring during the term of the Partnership.
2.2.8. "Easement Consideration" means the consideration to be paid
to Magma by the Partnership pursuant to the Easement Agreement.
2.2.9. "Financing" means any financing, refinancing or borrowing,
whether or not secured by any Property, but excluding any loan made by the
Partnership.
7
<PAGE>
2.2.10. "Incapacity" means the entry of any order for relief in
bankruptcy, of incompetence or of insanity, or the death, dissolution or
termination (other than by merger or consolidation), of any Person.
2.2.11. "Interest" means the entire ownership interest of a Partner
in the Partnership at any particular time, including the right of such Partner
to any and all benefits to which a Partner may be entitled as provided in this
Limited Partnership Agreement, together with the obligations of such Partner
to comply with all of the terms and provisions of this Limited Partnership
Agreement.
2.2.12. "Limited Partner" means, solely for purposes of this Limited
Partnership Agreement, any Person admitted to the Partnership as a limited
partner, whether as an Original Limited Partner or a Substituted Limited
Partner.
2.2.13. "Limited Partnership Agreement" means this Amended and
Restated Limited Partnership Agreement, as amended from time to time.
2.2.14. "Majority of the Limited Partners" means the holders of more
than 50% of the outstanding Units held by all of the Limited Partners.
2.2.15. "Management Committee" has the meaning set forth in Section
6.2 hereof.
2.2.16. "Managing General Partner" means Red Hill.
2.2.17. "Notice" means a writing, containing the information
required by this Limited Partnership Agreement to be communicated to any
Person, sent by registered, certified, first-class mail, telex or telecopy to
such Person at the last known mailing address of such Person; provided,
however, that any communication containing such information sent to such
Person and actually received by such Person shall constitute Notice for all
purposes of this Limited Partnership Agreement.
2.2.18. "Operating Cash Expenses" means the amount of cash disbursed
by or on behalf of the Partnership in the ordinary course of business
including, without limitation, all cash expenses, such as property management,
insurance premiums, taxes, utilities, repair, maintenance, legal, accounting,
bookkeeping, computing, equipment use, travel on Partnership business,
telephone expenses and salaries, and direct expenses of Partnership employees
(if any) and agents and consultants while engaged in Partnership business.
Operating Cash Expenses shall include fees or other amounts paid by the
Partnership to any General Partner, Limited Partner or any Affiliate thereof
permitted by this Limited Partnership Agreement
8
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including, but not limited to the Administration Fee, Guaranteed Capacity
Payment, Technology Fee, Construction Management Fee, Easement Consideration,
rent under the Ground Lease, Reimbursement Charges and any other amounts due
and owing, as reimbursement or otherwise, under this Limited Partnership
Agreement and/or any of the Operating Agreements, transmission line charges
pursuant to the IID Agreements, contributions to the Debt Service Reserve
Account, the Major Capital Expenditure Reserve Account, the Decommissioning
Reserve Account and such other Reserves as the General Partners, in their sole
discretion, shall deem necessary or desirable to the business of the
Partnership, including, without limitation, reserves or working capital, and
the cost of goods, labor, materials and administrative services used for or by
the Partnership, whether incurred by any General Partner, any Affiliate
thereof or any non-Affiliate in performing functions set forth in this Limited
Partnership Agreement reasonably requiring the use of such goods, labor,
materials or administrative services. Operating Cash Expenses shall not
include expenditures paid from Reserves or expenditures attributable to
obtaining Sale or Financing Proceeds.
2.2.19. "Original Limited Partners" means the Persons listed on
Exhibit "A" to this Limited Partnership Agreement.
2.2.20. "Partner" means any Limited Partner or General Partner.
2.2.21. "Partnership" means the limited partnership being continued
under this Limited Partnership Agreement.
2.2.22. "Partnership Holding Account" means that certain segregated
interest bearing account in the Partnership's name referenced in Section 3.3
hereof into which the General Partners shall deposit all Capital Contributions
hereunder and all proceeds of draws under the Credit Facility.
2.2.23. "Project Costs" means, subject to any other provision of
this Limited Partnership Agreement, all expenditures or commitments for
expenditures with respect to the design, financing, engineering, construction,
and start-up of the Elmore Facility, whether already incurred or to be
incurred, or whether originally treated as capital or expense, which, subject
to any other provision of this Limited Partnership Agreement, (i) are within
the scope of the construction, development and start-up of the Elmore
Facility, and (ii) may properly be treated as capital costs.
As used herein, "Project Costs" shall include, without limitation or
duplication but subject to the restrictions contained in the foregoing clauses
(i) and (ii), expenditures or commitments for expenditures incurred in the
following:
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2.2.23.1. The Development of the Elmore Facility.
2.2.23.2. The acquisition or lease of real property and rights
of way to be held in the name of the Partnership and all cost incurred, if
any, in connection with any amendments to the Geothermal Leases including,
without limitation, all consideration paid to the lessors in connection with
such amendments. Prior to the Conversion Date, lease payments made by the
Partnership shall be treated as Project Costs.
2.2.23.3. The obtaining of permits and approvals for the
development, construction and start-up of the Elmore Facility, including the
geothermal exploratory, production and injection wells, and the acquisition,
construction and putting into operation of the Elmore Facility.
2.2.23.4. The acquisition of title reports and all expenses
incurred in connection therewith, including, without limitation, legal fees
and Title Consultant fees, and, where required, title insurance with respect
to real property, leases, including, without limitation, the Geothermal
Leases, and rights of way.
2.2.23.5. The acquisition of materials, supplies, machinery,
equipment or apparatus used (including rental charges for machinery, equipment
or apparatus hired) in connection with the acquisition, construction or the
start-up of the Elmore Facility, whether or not such materials, supplies,
machinery, equipment or apparatus are to be installed as part of the Elmore
Facility.
2.2.23.6. For costs of any financings relating to the Elmore
Facility, including the Credit Facility and fees or other charges allocable to
the Development of the Elmore Facility in connection with that certain
$75,000,000 Credit Agreement dated as of September 1, 1987 between Magma and
Morgan Guaranty Trust Company of New York ("Morgan"), including interest
during construction.
2.2.23.7. For costs in connection with the financing,
acquisition, construction or start-up of the Elmore Facility, including,
without limitation, allowances or charges for taxes, licenses, excises,
assessments, engineering, accounting and legal expenses, superintendence,
casualties, surety bond and insurance premiums and interest and commitment
fees paid or payable with respect to indebtedness.
2.2.23.8. The Partnership's share of the costs of the
electrical transmission facilities to be built by the IID as provided in the
IID Agreements, and the electrical
10
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interconnection with IID and SCE, together with all costs and expenses
associated with the financing thereof.
2.2.23.9. For advance payments or deposits on account of the
cost of personal property acquired or to be acquired or services performed or
rendered or to be performed or rendered in connection with the acquisition or
the construction or the start-up of the Elmore Facility including, without
limitation, the invoiced cost of such personal property or services
notwithstanding that payment therefor is made with the capital stock or other
property of the payor.
2.2.23.10. All fees or charges paid to Morgan in connection
with the financing of the Partnership and the Elmore Facility.
2.2.24. "Property" means the Elmore Property together with all
interest in and rights to use the Geothermal Brine as provided in the Easement
Agreement, all improvements now or hereafter constructed on the Elmore
Property including, but not limited to, the Elmore Facility, and all personal
property used in connection therewith, including any interest of the
Partnership therein.
2.2.25. "Reserves" means funds set aside or amounts allocated during
such period to reserves which shall be maintained in amounts deemed sufficient
by the General Partners for working capital, to pay taxes, insurance, debt
service, repairs, replacements or renewals, Decommissioning, and for other
costs or expenses incident to the ownership or operation of the Property
including, but not limited to, the Debt Service Reserve, the Major Capital
Expenditure Reserve and the Decommissioning Reserve.
2.2.26. "Sale" means any Partnership transaction (other than the
receipt of Capital Contributions) not in the ordinary course of its business,
including, without limitation, sales, exchanges or other dispositions of real
or personal property, condemnations, recoveries of damage awards and insurance
proceeds (other than business or rental interruption insurance proceeds), and
principal payments with respect to loans made by the Partnership pursuant to
this Limited Partnership Agreement, but excluding any Financing.
2.2.27. "Sale of Financing Proceeds" means the net cash receipts of
or on behalf of the Partnership arising from a Sale or Financing (other than
the receipt of Capital Contributions and the proceeds of the Project Lender's
Loan), less the following:
2.2.27.1. The amount necessary for the payment of all debts and
obligations secured by any Property sold or otherwise related to the
particular Sale or Financing.
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2.2.27.2. The amount of cash paid or to be paid in connection
with such Sale or Financing (which shall include, with regard to damage
recoveries or insurance or condemnation proceeds, cash paid or to be paid in
connection with repairs, replacements or renewals, in the discretion of the
General Partners, relating to damage to or partial condemnation of the
affected Property).
2.2.27.3. The amount considered appropriate by the General
Partners to pay taxes, insurance, debt service, repairs, replacements or
renewals, or other costs or expenses of the Partnership (including costs of
improvements or additions in connection with any Property) or to provide for
the purchase of land or other interests in connection with any Property, or to
provide Reserves therefor, other than the Debt Service Reserve and the Major
Capital Expenditure Reserve.
2.2.27.4. The amount necessary to repay any debt under the
Credit Facility as a result of the effect of Section 2.09(d) of such Credit
Facility.
2.2.28. "Scheduled Capital Contributions" has the meaning set forth
in Section 3.4.1 hereof.
2.2.29. "Substituted Limited Partner" means any Person admitted to
the Partnership as a Limited Partner pursuant to Section 9.3 of this Limited
Partnership Agreement.
2.2.30. "Taxable Income" or "Tax Loss" means the income or loss of
the Partnership for each fiscal year as determined for Federal, state or local
income tax purposes, including without limitation related tax items such as
capital gain or loss, tax preferences, credits, depreciation, depletion,
deductions and investment credit recapture.
2.2.31. "Units" means the respective Interests of the Partners
expressed in terms of the number of units held by them as set forth in Exhibit
"B" attached hereto, as amended from time to time.
2.3. Additional Defined Terms. For the convenience of the parties, in
addition to the defined terms set forth in Schedule Z hereto and this Article
II, certain other terms are defined throughout this Limited Partnership
Agreement.
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ARTICLE III
PARTNERS AND CAPITAL
3.1. General Partners. The names, addresses, Capital Contributions, and
Units of the General Partners are set forth in Exhibit "B" attached hereto.
3.2. Original Limited Partners. The names, addresses, Capital
Contributions, and Units of the Original Limited Partners are set forth in
Exhibit "B" attached hereto.
3.3. Partnership Capital. The Partners shall make Capital Contributions
in accordance with the provisions of Sections 3.4 and 3.5 hereof. The General
Partners shall deposit the proceeds of all Capital Contributions and all draws
under the Credit Facility in the Partnership Holding Account promptly upon the
General Partners' receipt thereof. The amounts held in the Partnership Holding
Account shall be used by the Partnership in a manner consistent with this
Limited Partnership Agreement including, without limitation, for such purposes
as may be contemplated by the Construction Management Agreement. Subject to
the provisions of Section 3.6 hereof, any amounts held in the Partnership
Holding Account, including any interest earned thereon, in excess of the
amounts necessary to fulfill the Partnership's obligations under the
Construction Management Agreement, shall be delivered to Red Hill, in its
capacity as Operator pursuant to the operating and Maintenance Agreement, to
be placed in the Operating Account. The Partnership shall not redeem or
repurchase any Interest, and no Partner shall have the right to withdraw, or
receive any return of, its Capital Contribution or Capital Account, except as
specifically provided herein.
3.4. Scheduled Capital Contributions.
3.4.1. Each Partner shall make Capital Contributions in the
aggregate amount set forth opposite its name on Exhibit "C" attached hereto
("Scheduled Capital Contributions"). Except as expressly provided to the
contrary in Section 3.4.2 hereof, all Capital Contributions shall be made in
cash. Scheduled Capital Contributions of the General Partners shall be made in
monthly installments with the first of such installments to be made on the
date hereof, and the remainder of such installments to be made on the
twentieth day of each month commencing April 20, 1988 through and including
the twentieth day of the month in which the Conversion Date occurs (the
"Capital Contribution Installment Dates"). The amount of each General
Partner's scheduled Capital Contributions to be made on each of the Capital
Contribution Installment Dates shall be an amount which, in the discretion of
the General Partners, is sufficient both to maintain the ratio set forth in
Section 3.6 hereof and to accomplish the purposes of the partnership, subject
to such aggregate limitations described above. Each of the Limited
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Partners shall make its entire Scheduled Capital Contribution on the date of
this Limited Partnership Agreement.
3.4.2. The Partners acknowledge that Magma has incurred certain
intangible drilling and development costs in connection with its drilling and
development of the wells to be used by the Elmore Facility, and that pursuant
to the terms and conditions of the Construction Management Agreement the
Partnership shall pay Magma for the transfer of such wells to the Partnership
in an amount equal to the total cost to Magma of such wells less the amount of
such intangible drilling and development costs incurred by Magma. The Partners
hereby agree that a portion of the amount of such intangible drilling and
development costs incurred by Magma shall be deemed to be contributed to the
capital of the Partnership as the entire Scheduled Capital Contribution to be
made by Magma pursuant to the terms of Section 3.4.1 hereof and, in this
regard, such amount shall be credited against the amount set forth in Exhibit
"C" hereto as being payable by Magma on the date hereof. The Partners further
agree that the remaining portion of the amount of such intangible drilling and
development costs incurred by Magma shall be deemed to be contributed to the
capital of the Partnership as all or a portion, as the case may be, of the
Scheduled Capital Contributions to be made by Red Hill pursuant to the terms
of Section 3.4.1 hereof and, in this regard, such amount shall be credited
against the amount set forth in Exhibit "C" hereto as being payable by Red
Hill on the first Capital Contribution Installment Date (and on the earliest
subsequent Capital Contribution Installment Dates to the extent of any excess
over the amount payable by Red Hill to the Partnership on the first Capital
Contribution Installment Date). The amount to be credited to Magma and Red
Hill by reason of the foregoing contribution and form of conveyance by Magma
and Red Hill of such intangible drilling and development costs is set forth on
Exhibit "D" attached hereto, subject to the adjustment of such amount by Magma
and Red Hill within 30 days of the date hereof to reflect the actual amount of
intangible drilling and development costs incurred by Magma. All such amounts
and costs shall be subject to subsequent audit by Niguel at its expense and
Magma shall refund to the Partnership within 30 days after the completion of
such audit any excess amount credited therefor.
3.5. Additional Funding.
3.5.1. If the General Partners agree, in the exercise of their
respective sole discretion at any time after the Partnership has borrowed
$71,000,000 under the Credit Facility and the Magma Undertaking and prior to
the Conversion Date, to contribute additional funds to carry out the purposes
of the Partnership for profit, Niguel, in its capacity as a general partner,
shall contribute to the Partnership in cash as an additional Capital
Contribution 57.5% of such funds and Red Hill agrees to contribute to the
Partnership in cash as an additional Capital Contribution 42.5% of the funds,
up to an aggregate
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additional amount from both General Partners of $11,153,846 ("Priority Tax
Capital Contributions"). After all contributions of such additional amounts or
the Conversion Date, whichever first occurs, or if for any reason such
borrowed funds are not available and the General Partners agree, in their
respective sole discretion, to make such contributions, such additional
Capital Contributions shall be made 50% by Niguel and 50% by Red Hill
("Priority Capital Contributions"). The Priority Tax Capital Contributions and
Priority Capital Contributions, where appropriate, shall hereinafter be
collectively referred to as "Additional Capital Contributions." Subject to
Section 8.1.1 of this Limited Partnership Agreement, each of the General
Partners may elect to use borrowed funds to supply all or any portion of their
respective shares of any additional Capital Contributions to the Partnership;
provided, however, that neither of the General Partners may use borrowed funds
for such purposes if the use of borrowed funds would result directly or
indirectly in the breach of any covenant, condition or representation or
warranty contained in, or an Event of Default under, the Credit Facility or
any agreement, instrument or document related thereto. The provisions of this
Section 3.5.1 in respect of additional funding of the Partnership are intended
to be, and shall be, solely for the benefit of the Red Hill and Niguel and not
the Partnership or the Limited Partners. In addition to the Scheduled Capital
Contributions provided in this Article III, the Partnership on the date hereof
has entered into the Credit Facility and the Magma Undertaking for financing
of up to $71,000,000 for the development of the Elmore Facility.
3.5.2. In the event the General Partners are required to make
Additional Capital Contributions pursuant to Section 3.5.1 of this Limited
Partnership Agreement, a separate memorandum account (a "Priority Equity
Account") shall be established for each of the General Partners. Each General
Partner's Priority Equity Account shall be adjusted only in the following
manner:
(a) Increased by the amount of such General Partner's Additional
Capital Contributions; and
(b) Decreased, but in no event to an amount less than zero, by the
amount of all distributions to such General Partner pursuant to Sections
4.2.1 and 4.3.1.1 of this Limited Partnership Agreement.
3.6. Debt to Equity Ratio. At all times prior to the Conversion Date,
the Partnership shall maintain the Partnership's ratio of "Tranche A
Loans" (as that term is defined in the Credit Facility) to Scheduled Capital
Contributions, at a level no greater than 1.85714:1. Notwithstanding anything
contained herein to the contrary, in the event that the ratio of Tranche A
Loans to Scheduled Capital Contributions of the Partnership is less than
1.85714:1 as of the Conversion Date, the Partnership shall refund to each
Partner on the first anniversary of the
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Conversion Date (or as soon thereafter as is reasonably practicable) that
portion of such Partner's Capital Contribution (a "Refunded Capital
Contribution") with such interest thereon as may have accrued on such Refunded
Capital Contribution while in the Partnership Holding Account and/or the
Operating Account, as the case may be, which, together with all other Refunded
Capital Contributions made to the Partners, both (a) is in excess of the costs
incurred in the Development of the Elmore Facility during such one-year
period, and (b) reduces the ratio of the Partnership's Tranche A Loans
outstanding as of the Conversion Date to Capital Contributions ratio to a
level as close as possible to, but not less than 1.85714:1. The amount of each
Partner's Refunded Capital Contribution, if any, shall equal that portion of
the total Refunded Capital Contributions made by the Partnership which
represents such Partner's pro rata share of the Partnership's capital.
3.7. Liability of Partners.
3.7.1. No Limited Partner shall be liable for the debts,
liabilities, contracts or any other obligations of the Partnership. A Limited
Partner shall be liable only to make its Capital Contributions on the date
hereof in the amounts provided in Exhibits "B" and "C" attached hereto. A
Limited Partner shall not be required to lend any funds to the Partnership or,
after its Capital Contributions have been paid in accordance with the terms
hereof, to make any further Capital Contribution to the Partnership.
3.7.2. In accordance with California law, a Limited Partner may,
under certain circumstances, be required to return to the Partnership, for the
benefit of Partnership creditors, amounts previously distributed to it as a
return of capital. It is the intent of the Partners that no distribution to
any Limited Partner of Distributable Cash or of Sale or Financing Proceeds
shall be deemed a return or withdrawal of capital for purposes of this Limited
Partnership Agreement, even if such distribution represents, for Federal
income tax purposes or otherwise (in whole or in part), a return of capital,
and that no Limited Partner shall be obligated to pay any such amount to or
for the account of the Partnership or any creditor of the Partnership.
However, if any court of competent jurisdiction holds that, notwithstanding
the provisions of this Limited Partnership Agreement, any Limited Partner is
obligated to make any such payment, such obligation shall be the obligation of
such Limited Partner and not of the General Partners.
3.7.3. The General Partners shall have no personal liability for
repayment to the Limited Partners of their Capital Contributions, or for
repayment to the Partnership of the negative amounts of such Limited Partners'
Capital Accounts, if any.
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3.8. Default in Capital Contributions. In the event that a General Partner
("Defaulting Partner") does not make a timely Capital Contribution as required
by this Article III, the other General Partner ("Non-Defaulting Partner"), at
its option, may pay to the Partnership an amount (the "Non-Defaulting Partner
Payment"), up to or equal to the unfunded amount which shall be deemed to be a
Capital Contribution from the Defaulting Partner to the Partnership.
Notwithstanding the provisions of Article IV of this Limited Partnership
Agreement, in the event that a Non- Defaulting Partner makes a Non-Defaulting
Partner Payment, the Partnership shall not make any distributions to the
Defaulting Partner, but shall pay all distributions (the "Defaulting Partner
Distributions") which would otherwise have been paid to the Defaulting Partner
to the Non-Defaulting Partner until (i) the amount of all Defaulting Partner
Distributions paid to the Non- Defaulting Partner equals the amount of such
unfunded Capital Contribution plus an amount equal to the maximum lawful rate
of interest on the unpaid balance (the "additional amount") or (ii) the
Non-Defaulting Partner notifies the Partnership that it has received a payment
from the Non-Defaulting Partner equal to the amount of the unfunded Capital
Contribution plus the additional amount, less the amount of any previous
distributions to the Non- Defaulting Partner with respect to such default.
During any period in which Defaulting Partner Distributions are being paid to
the Non-Defaulting Partner, at the Non-Defaulting Partner's option, the
Defaulting Partner's members on the Management Committee shall not have any
voting rights and the vote of the Non-Defaulting Partner shall be sufficient
with regard to any matter voted on by the Management Committee. The Defaulting
Partner shall be liable to the Partnership and to the Non- Defaulting Partner
for all losses, damages and expenses sustained or incurred by the Partnership
and such Non-Defaulting Partner as a result of such unfunded contribution,
including, without limitation, any additional tax liabilities and interest.
ARTICLE IV
DISTRIBUTIONS OF CASH
4.1. Special Distributions. On a monthly basis an amount equal to 2.667%
of Energy Revenues shall be distributed to Red Hill.
4.2. Distributions of Distributable Cash. All Distributable Cash, subject
to limitations under the Credit Facility, shall be distributed to the Partners,
on the Distribution Dates, to the extent available:
4.2.1. First, to the General Partners to the extent of and in
proportion to the positive balance, if any, of their Priority Equity Accounts.
4.2.2. Second, to the Partners in proportion to their Units in the
Partnership.
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4.3. Distributions of Sale or Financing Proceeds.
4.3.1. Subject to Section 4.3.2 of this Limited Partnership
Agreement, except in the event of the liquidation of the Partnership and
distribution of proceeds pursuant to Article X of this Limited Partnership
Agreement, and subject to the limitations under the Credit Facility, all Sale
or Financing Proceeds shall be distributed to the Partners on the Distribution
Dates, to the extent available:
4.3.1.1. First, to the General Partners to the extent of and in
proportion to the positive balance, if any, of their Priority Equity Accounts.
4.3.1.2. Second, to the Partners in proportion to their Units
in the Partnership.
4.3.2. No Sale or Financing Proceeds shall be distributed to
any Limited Partner under Section 4.3.1.2 of this Limited Partnership
Agreement so as to create or increase any deficit balance in such Limited
Partner's Capital Account after adjustment for the allocation of any income,
gain, loss or deduction, pursuant to the provisions of Article V of this
Limited Partnership Agreement, resulting from the Sale or Financing giving
rise to such Sale or Financing Proceeds. Sale or Financing Proceeds that would
have been distributable to a Limited Partner but for the application of the
preceding sentence shall be distributed instead to the General Partners in
proportion to their Units in the Partnership.
ARTICLE V
ALLOCATIONS OF TAXABLE INCOME AND TAX LOSS
5.1. In General. Taxable Income and Tax Loss of the Partnership shall
be determined and allocated with respect to each fiscal year of the Partnership
as of the end of such year. Subject to the other provisions of this Article V,
an allocation to a Partner of a share of Taxable Income or Tax Loss shall be
treated as an allocation of the same share of each item of income, gain, loss
and deduction that is taken into account in computing Taxable Income or
Tax Loss.
5.2. Taxable Income and Tax Loss. Except as provided in Sections 5.3,
5.4 and 5.5 of this Limited Partnership Agreement:
5.2.1. Gross income shall be allocated to Red Hill in an amount
equal to distributions, if any, to Red Hill for such fiscal year under Section
4.1 of this Limited Partnership Agreement.
5.2.2. All remaining items of Taxable Income for a fiscal year shall
be allocated to the Partners in proportion to their Units in the Partnership.
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5.2.3. All remaining items of Tax Loss for a fiscal year shall be
allocated to the Partners in proportion to their Units in the Partnership.
5.3. Special Allocations.
5.3.1. Intangible drilling cost deductions allowed under Section
263(c) of the Code and under corresponding provisions of state and local
income tax laws shall be allocated as follows:
5.3.1.1. Subject to Section 5.3.2 hereof, such deductions shall
be allocated 100% to Niguel through and including the Conversion Date.
5.3.1.2. In the event both (a) Project Costs exceed $93,846,154
and (b) intangible drilling costs exceed $9,850,000, then deductions for such
intangible drilling costs shall be allocated as follows:
(a) If Project Costs are not in excess of $103,846,154 then
deductions for the portion of intangible drilling costs between
$9,850,000 and the actual amount of such costs (an "IDC Overrun") shall
be allocated 50% to Niguel, 40% to Red Hill and 10% to Magma;
(b) If Project Costs are in excess of $103,846,154 but not in
excess of $115,000,000, then the IDC Overrun shall be allocated to Niguel
in an amount which equals the sum of (i) 50% of the IDC Overrun times a
fraction the numerator of which shall be 10,000,000 and the denominator
of which shall be a number equal to the Project Costs less 93,846,154,
plus (ii) 57.5% of the IDC Overrun times a fraction the numerator of
which shall be a number equal to the Project Costs less 103,846,154 and
the denominator of which shall be the Project Costs less 93,846,154; the
remainder of the IDC Overrun shall be allocated 80% to Red Hill and 20%
to Magma; and
(c) If Project Costs are in excess of $115,000,000, then the
IDC Overrun shall be allocated to Niguel in an amount which equals the
sum of (i) 50% of the IDC Overrun times a fraction the numerator of which
shall be 10,000,000 and the denominator of which shall be a number equal
to Project Costs less 93,846,154, plus (ii) 57.5% of the IDC Overrun
times a fraction the numerator of which shall be 11,153,846 and the
denominator of which shall be a number equal to Project Costs less
93,846,154, plus (iii) 50% of the IDC overrun times a fraction the
numerator of which shall be a number equal to Project Costs less
115,000,000 and the denominator of which shall be Project Costs less
93,846,154; the remainder of the IDC overrun shall be allocated 80% to
Red Hill and 20% to Magma.
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5.3.2. Federal depreciation, amortization and other cost recovery
deductions under Sections 167 and 168 of the code shall be allocated as
follows:
(a) Such deductions attributable to Project Costs not to exceed
$93,846,154 shall be allocated (i) 100% to Niguel through and including
December 31, 1990 and (ii) commencing January 1, 1991 through and
including December 31, 1992, 90% to Niguel, 8% to Red Hill and 2% to
Magma and (iii) thereafter, to the Partners in proportion to their Units
in the Partnership.
(b) Such deductions attributable to Project Costs in excess of
$103,846,154 and less than $115,000,000 resulting from Priority Tax
Capital Contributions made pursuant to the terms of Section 3.5 of this
Limited Partnership Agreement shall be allocated 57.5% to Niguel, 34% to
Red Hill and 8.5% to Magma.
(c) Such deductions attributable to Project Costs in an aggregate
amount between $93,846,154 and $103,846,154 and to Project Costs in
excess of $115,000,000 resulting from Priority Capital Contributions made
pursuant to Section 3.5 of this Limited Partnership Agreement shall be
allocated 50% to Niguel, 40% to Red Hill and 10% to Magma.
5.3.3. State and local tax deductions, if any, corresponding to
Section 167 or 168 of the Code shall not be specially allocated under this
Section 5.3, but rather shall be allocated pursuant to Section 5.2.2 of this
Limited Partnership Agreement.
5.3.4. In the event that the Federal Energy Regulatory Commission
("FERC") has failed to act to certify that the Elmore Facility is a qualifying
facility within the meaning of 18 C.F.R. Section 292.203 ("Qualifying
Facility"), or has not certified that the Elmore Facility is a Qualifying
Facility on the grounds that the ownership criteria of 18 C.F.R. Section
292.206 ("Ownership Criteria") are not satisfied because of Niguel's ownership
interest in the Elmore Facility, on or before the close of business on August
15, 1988 or the day 15 days prior to the date (the "Power Sale Date") on which
power is then scheduled to be both produced and delivered for sale from the
Elmore Facility, whichever occurs first (the "QF Determination Date"), then,
notwithstanding anything in this Section 5.3 to the contrary, all allocations
of tax attributes of greater than 50% to Niguel set forth in this Article V
shall not apply and all such items shall be allocated as provided in Sections
5.2.2 and 5.2.3. If at any time following any reallocation on the QF
Determination Date the FERC issues an order certifying that the Elmore
Facility is a Qualifying Facility in a manner permitting all or certain of
such special allocations to Niguel set forth in this Article V, the provisions
of the preceding sentence shall no
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longer apply and such special allocations shall be reinstated to the extent
permitted in accord with such FERC certification.
5.3.5. In the event that FERC has failed to act to certify that the
Elmore Facility is a Qualifying Facility, or has not certified that the Elmore
Facility is a Qualifying Facility on the grounds that the Ownership Criteria
are not satisfied because of Niguel's ownership interest in the Elmore
Facility on or before the QF Determination Date, Niguel shall deliver to the
Agent with sufficient copies for the Banks, an opinion of the general counsel
to Niguel reaffirming such counsel's opinion to the Agent and the Banks dated
March 14, 1988 delivered pursuant to the Secured Credit Agreement (the
"Original Opinion"), as of the QF Determination Date, after giving effect to
the provisions of Section 5.3.4 and taking into consideration any discussions
that such counsel has had with FERC (or any other discussions of
representatives of Niguel or the Partnership of which such counsel is aware)
concerning the certification of the Elmore Facility as a Qualifying Facility
and any other information known to such counsel to be relevant thereto. In the
event that the general counsel to Niguel is unable to reaffirm the Original
Opinion as of the QF Determination Date after giving effect to the provisions
of Section 5.3.4 solely because of Niguel's Ownership Interest in the Elmore
Facility, Niguel shall within fifteen (15) days after the QF Determination
Date (but not less than seven (7) days prior to the Power Sale Date), complete
the transfers contemplated in Section 13.2 (including conversion of part of
its Interest as a General Partner, if necessary) to the extent necessary to
enable the general counsel to Niguel to reaffirm the Original Opinion.
5.4. Gain and Loss Upon Liquidation.
5.4.1. Subject to Section 5.5 of this Limited Partnership Agreement,
any gain realized upon liquidation of the Partnership shall be allocated:
(a) First, to each of the Partners to the extent of and in
proportion to the deficit balance, if any, in their Capital Accounts.
(b) Second, to each of the Partners in proportion to and to the
extent of the minimum amount required to equalize the capital accounts of
such Partners in proportion to their Units in the Partnership.
(c) Third, the balance to the Partners in proportion to their Units
in the Partnership.
5.4.2. Subject to Section 5.5 of this Limited Partnership Agreement,
any loss realized upon liquidation of the Partnership shall be allocated to
the Partners in proportion to their Units in the Partnership.
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5.5. Additional Allocation Provisions.
Notwithstanding the foregoing provisions of this Article V:
5.5.1. No Tax Loss shall be allocated to any Limited Partner whose
Capital Account has been reduced to zero until the Capital Accounts of all
Partners have been reduced to zero. If any Limited Partner's Capital Account
has been reduced to zero at any time when any other Partner's Capital Account
has a positive balance, then any such Tax Loss shall be allocated as follows:
(a) First, to the Partner or Partners with positive Capital Account
balances, in the proportion that such positive balances bear to each
other; and
(b) Second, after the Capital Accounts of all Partners have been
reduced to zero, the balance of any such Tax Loss shall be allocated as
otherwise provided in this Article V.
5.5.2. Notwithstanding the provisions of Section 5.5.1, beginning in
the Partnership's first taxable year in which there are "nonrecourse
deductions" (within the meaning of Treasury Regulation Section
1.704-1(b)(4)(iv)) and for all subsequent taxable years, if there is a net
decrease in the Partnership's "partnership minimum gain" (within the meaning
of Treasury Regulation Section 1.704-1(b)(4)(iv)(c)), there shall be allocated
to all Partners with a deficit balance in their Capital Accounts ((i) reduced
for the items described in Section 5.5.9 (a), (b) and (c) of this Limited
Partnership Agreement, (ii) excluding from each Partner's Capital Account the
amount, if any, such Partner is obligated to contribute to the Partnership
under Section 10.3 of this Limited Partnership Agreement and (iii) as
otherwise adjusted as required under Treasury Regulation Section
1.704-1(b)(4)(iv)(e)), before any other allocation is made under this Article
V, gross income and gain for such year (and, if necessary, subsequent years)
in the amounts and in the proportions needed to eliminate such deficit
balances as quickly as possible. Such allocations shall be made first from
gains realized upon disposition of Partnership properties subject to one or
more nonrecourse liabilities to the extent of the decrease in "partnership
minimum gain" attributable to the disposition of such properties; the
remainder of such allocations, if any, shall be composed of a pro rata portion
of the Partnership's other items of gross income and gain. It is intended that
this Section 5.5.2 qualify and be construed as a "minimum gain chargeback"
within the meaning of Treasury Regulation Section 1.704-1(b)(4)(iv).
5.5.3. (This Section is intentionally omitted.]
5.5.4. In the event that any amount claimed by the Partnership to
constitute a deductible expense in any fiscal year is treated for Federal
income tax purposes as a distribution
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made to a Partner in its capacity as a member of the Partnership and not a
guaranteed payment as defined in Section 707(c) of the Code or a payment to a
Partner not acting in his capacity as a partner under Section 707(a) of the
Code, then the Partner who is deemed to have received such distribution shall
first be allocated an amount of Partnership gross income equal to such
payment, its Capital Account shall be reduced to reflect the distribution, and
for purposes of this Article V, Taxable Income and Tax Loss shall be
determined after making the allocation required by this Section 5.5.4.
5.5.5. For any fiscal year during which a Unit is assigned by a
Partner (or by an assignee or successor in interest to a Partner), the portion
of the Taxable Income and Tax Loss of the Partnership that is allocable in
respect of such Unit shall be apportioned between the assignor and the
assignee of the Unit on the basis of the number of days during such fiscal
year that each is the owner thereof, without regard to (a) the results of
Partnership operations before or after such assignment or (b) any payments or
distributions made to the Partners before or after such assignment, except as
otherwise provided in and required by Section 706(d)(2) of the Code.
5.5.6. In the event that the admission of any Partner causes a
reduction in cost recovery deductions allowed with respect to any Property
under Section 168(h)(6) of the Code, then the General Partners may, in their
sole discretion, separately allocate cost recovery deductions so that (a) the
reduction in cost recovery deductions resulting from the application of
Section 168(h)(6) will be allocated to the Partner whose ownership of Units
caused Section 168(h)(6) to apply and (b) the cost recovery deductions of the
remaining Partners will, to the extent possible, not be diminished.
5.5.7. Notwithstanding the foregoing provisions of this Article V,
the General Partners' interests in each item of Partnership income, gain,
loss, deduction or credit shall equal at least one percent (1%) of each of
those items at all times during the existence of the Partnership. In
determining the General Partners' interest in those items, any Limited
Partner's Interest owned by either of the General Partners shall not be taken
into account.
5.5.8. Notwithstanding the foregoing provisions of this Article V,
income, gain, loss and deduction with respect to property contributed to the
Partnership by a Partner shall be shared among the Partners, pursuant to
Treasury Regulations promulgated under Section 704(c) of the Code, so as to
take account of the variation, if any, between the basis of the property to
the Partnership and its fair market value at the time of contribution.
5.5.9. Notwithstanding the foregoing provisions of this Article V,
no allocation of income, gain, loss or
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deduction shall be made to any Limited Partner so as to cause a deficit
balance in such Limited Partner's Capital Account as of the end of the
Partnership taxable year to which such allocation relates. Solely for purposes
of determining the extent to which the previous sentence is satisfied, a
Limited Partner's Capital Account shall be increased by such Limited Partner's
share, if any, of the Partnership's "partnership minimum gain" (within the
meaning of Treasury Regulation Section 1.704-1(b)(4)(iv)(c)) and reduced for:
(a) Adjustments that, as of the end of such year, reasonably are
expected to be made to such Limited Partner's Capital Account under
Treasury Regulation Section 1.704-1(b)(2)(iv)(k) for depletion allowances
with respect to oil and gas properties of the Partnership;
(b) Allocations of loss and deduction that, as of the end of such
year, reasonably are expected to be made to such Limited Partner pursuant
to Sections 704(e)(2) and 706(d) of the Code and Treasury Regulation
Section 1.751-1(b)(2)(iii); and
(c) Distributions that, as of the end of such year, reasonably are
expected to be made to such Limited Partner to the extent they exceed
offsetting increases to such Limited Partner's Capital Account that
reasonably are expected to occur during (or prior to) the Partnership
taxable years in which such distributions reasonably are expected to be
made (other than increases made pursuant to the minimum gain chargeback
provisions of Section 5.5.2 of this Limited Partnership Agreement). For
such purposes, the adjusted tax basis of Partnership property (or, if
Partnership property is properly reflected on the books of the
Partnership at a book value that differs from its adjusted tax basis, the
book value of such property) will be deemed to be the fair market value
of such property.
Any Limited Partner who unexpectedly receives an adjustment, allocation or
distribution described in subparagraph (a), (b) or (c) of this Section 5.5.9
shall be allocated items of gross income and gain in an amount and manner
sufficient to eliminate the deficit balance in such Limited Partner's Capital
Account as quickly as possible. The provisions of this Section 5.5.9 shall be
implemented by the General Partners in a reasonable and equitable manner. It
is intended that this Section 5.5.9 qualify and be construed as a "qualified
income offset" within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(d).
5.5.10. In the event that the Code or any Treasury Regulations
promulgated thereunder or any applicable state or local income tax laws or
regulations require allocations
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of items of income, gain, loss, deduction or credit different from those set
forth in this Limited Partnership Agreement, upon the advice of the
Partnership's Accountants, the General Partners are hereby authorized to make
new allocations in reliance upon the Code, the Treasury Regulations, such
applicable state and local income tax laws and regulations and such advice of
the Partnership's Accountants, such new allocations shall be deemed to be made
pursuant to the fiduciary obligations of the General Partners to the
Partnership and the Limited Partners, and no such new allocation shall give
rise to any claim or cause of action by any Limited Partner.
ARTICLE VI
RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNERS
6.1. Management of the Partnership; Managing General Partner.
6.1.1. Subject to the consent of the Limited Partners where required
by this Limited Partnership Agreement, the General Partners shall have the
powers and authority to manage the affairs of the Partnership. The General
Partners, within the authority granted to them under this Limited Partnership
Agreement, have determined to and hereby agree to manage the business of the
Partnership: (1) through a Management Committee with respect to those matters
set forth in Section 6.2 hereof or otherwise reserved to the General Partners
under other provisions of this Limited Partnership Agreement and (2) with
respect to the development, improvement, operation, and maintenance of the
Elmore Facility and other Property for the production and sale of electricity
from geothermal resources, through the Managing General Partner.
6.1.2. The General Partners hereby appoint Red Hill as the Managing
General Partner. In addition to its other powers and responsibilities
hereunder, the Managing General Partner shall have the authority and
responsibility, on behalf of the Partnership, to manage the day to day affairs
of the Partnership including administration of the Loans under the Credit
Facility and to carry out the decisions, policies and directives of the
Management Committee.
6.1.3. Any person dealing with the Partnership may rely upon the
signature of the Managing General Partner or the General Partners as to its
authority to make any undertaking on behalf of the Partnership, and shall not
be required to determine any facts or circumstances bearing upon the existence
of such authority.
6.1.4. No Limited Partner (except one who is also a General Partner,
and then only in its capacity as General Partner within the scope of its
authority hereunder) shall participate in control of, or have any control over
the Partnership business or any authority or right to act for or bind
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the Partnership. The Limited Partners hereby consent to the exercise by the
General Partners and the Managing General Partner of the respective powers
conferred on them by this Limited Partnership Agreement.
6.2. Authority of the Management Committee. The General Partners
acting jointly through their respective representatives on the Management
Committee created hereby shall possess the powers and rights of the General
Partners under the Act and this Limited Partnership Agreement. The management
committee shall be comprised of four (4) members, two (2) of which shall be
designated by Red Hill and two (2) of which shall be designated by Niguel (the
"Management Committee"). Each of Niguel or Red Hill upon appointing a member
to the Management Committee shall notify the other General Partner of the name
of such member. A General Partner may remove such member by giving notice to
the other General Partner. Niguel and Red Hill will each take such action as
is internally required within that Partner to provide each of its members on
the Management Committee sufficient authorization to bind and legally act on
behalf of that Partner so long as his or her appointment remains in effect.
The Management Committee shall have regular meetings no less frequently than
quarterly and at such times as the Management Committee may fix. A majority of
the members may call special meetings on at least two days' advance written
notice. The Management Committee shall establish its rules of procedure
subject to the terms hereof. The presence of a representative of each General
Partner shall be necessary to constitute a quorum for the conduct of any
meeting. The Management Committee will cause minutes of each meeting to be
prepared and submitted to the members for approval.
The following actions or decisions by, on behalf of or with respect
to the Partnership or the General Partners shall require the prior approval of
both General Partners as evidenced by the vote of all members of the
Management Committee present at a meeting or, if action is taken by written
consent, by all of the authorized members of the Management Committee.
6.2.1. Approval of the annual operating and maintenance budgets and
capital improvements and parts replacement budgets for the Elmore Facility,
which budgets shall be prepared by Red Hill as Operator under the Operating
and Maintenance Agreement.
6.2.2. Approval of capital expenditures not covered in the operating
and maintenance budgets or the capital improvements budgets described in
Section 6.2.1 hereof, in amounts in excess of $50,000 per expenditure and
$500,000 per fiscal year in the aggregate, except in the case of an emergency
in which event the Managing General Partner shall have the right to take any
and all actions reasonably required in response to the emergency event.
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6.2.3. Adoption of significant Partnership policies.
6.2.4. Amendment of this Limited Partnership Agreement, so as to
affect the substantive rights or obligations of any party hereto.
6.2.5. Approval of any significant agreements, documents,
instruments or arrangements between or involving the Partnership and a General
Partner or an Affiliate of a General Partner (apart from the Operating
Agreements, which are hereby deemed approved), and any amendment, consent, or
waiver with respect to any such agreements, documents, instruments or
arrangements.
6.2.6. Approval of the sale, transfer, lease or other disposition of
any material item of Property or any other material asset of the Partnership,
or the creation of a "Lien" with respect to any such property or asset (as
used in this Section 6.2, "Lien" means any mortgage, lien, pledge, charge,
security interest or encumbrance), other than Liens created in connection with
the Credit Facility, and Liens incurred in the ordinary course of the
Partnership's business including, without limitation, Liens incurred in the
ordinary course of the Development of the Elmore Facility, or, thereafter, in
the ordinary course of the Partnership's business, which are immaterial in
amount and significance.
6.2.7. Dissolution of the Partnership, otherwise than as provided in
this Limited Partnership Agreement.
6.2.8. Approval of distributions of any cash property other than
Distributable Cash, Sale or Financing Proceeds or amounts to be distributed
under Section 4.1 hereof or any decision not to distribute Distributable Cash
or Sale or Financing Proceeds.
6.2.9. Approval of the prepayment in whole or in material part of
any Partnership debt or other obligation, or any material change (including
any extension, consolidation, modification, refinancing or renewal) in the
terms of any such obligations or any Lien on any Property or material asset of
the Partnership (except to the extent contemplated by an approved budget).
6.2.10. Approval of long range financing plans other than the Credit
Facility and the Magma Undertaking (except to the extent contemplated by an
approved budget).
6.2.11. Approval of any borrowing of money, or entering into any
loan agreement, deferred purchase agreement, lease or other financing
arrangement, issuance of any evidence of indebtedness, or provision of any
other commitment of the credit of the Partnership, other than with respect to
trade payables and
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immaterial short-term equipment leases in the ordinary course of the
Partnership's business, not expressly authorized in this Limited Partnership
Agreement or in an approved budget.
6.2.12. Subject to the Operating and Maintenance Agreement or the
Administrative Services Agreement, removal of Red Hill under the Operating and
Maintenance Agreement or the Administrative Services Agreement, or both.
6.2.13. A change in the selection of lawyers or accountants of the
Partnership, the retention of other consultants to the Partnership or the
employment of any employees by the Partnership.
6.2.14. Approval of loans, guarantees or other extensions of credit
(other than normal payment terms under the Elmore Power Purchase Contract) by
the Partnership to or for the benefit of the Partners or any of their
respective Affiliates.
6.2.15. Approval of the minutes of meetings of the Partnership and
actions of the Partnership taken without meetings.
6.2.16. Approval of the engagement in any business on behalf of the
Partnership other than the ownership and operation of the Elmore Facility.
6.2.17. Approval of the provision by Red Hill under the
Administrative Services Agreement of Extraordinary Services costing the
Partnership in excess of (a) $25,000 per service or related group of services,
or (b) $100,000 in the aggregate per fiscal year. Extraordinary Services that
are not in excess of these limits shall not require the approval of the
Management Committee.
6.2.18. Any decision to revalue the Partnership's property, or
determination of the fair market value of assets where required under this
Limited Partnership Agreement.
6.2.19. Payment, extension, renewal, modification, adjustment,
submission to arbitration, prosecution, defense, settlement or compromise of
any debt, obligation, suit, liability, cause of action or claim, including
taxes, either in favor of or against the Partnership, and involving a
potential liability or recovery in excess of $450,000.
6.2.20. Any material change in the accounting methods used by the
Partnership.
6.2.21. Making or revoking any of the elections referred to in
Sections 48, 167, 168, 195, 263(c), 709, 732, 754 or 1017 of the Code, or any
similar provisions enacted in lieu thereof; provided, however, that if such
approval is not
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achieved, then all such elections and other tax decisions shall be made in
such a way as to reduce Partnership taxable income to the maximum extent
possible and take deductions in the earliest taxable year possible.
6.2.22. Approval of the establishment and maintenance of Reserves
(except to the extent contemplated in an approved budget, in which case the
Managing General Partner shall establish and maintain the budgeted Reserves
and fixed nondiscretionary Reserves expressly required by the Operating
Agreements or the Credit Facility).
6.2.23. Approval of the replacement of or addition of any geothermal
well except as may be required on an emergency basis in the event of damage
to, destruction of, or other casualty to, any geothermal well.
6.2.24. Determination of the amount and times at which Additional
Capital Contributions will be required under Section 3.5.1 or acceptance of
any in-kind Capital Contribution under such section.
6.2.25. Decisions regarding allocations under Sections 5.5.6 or
5.5.10 of this Limited Partnership Agreement.
Each Management Committee member's approval of any matter will not
be withheld without a reasonable basis. Any member of the Management Committee
may submit proposals for action to the committee. The Management Committee
shall not be involved in the day-to-day operations of the Elmore Facility or
the implementation of day-to-day operating practices and decisions.
6.3. Authority of General Partners to Deal with Partnership. The
Partnership may deal with and enter into agreements with any General Partner
or Affiliate subject to the provisions hereof.
6.3.1. Any agreement, arrangement or transaction between the
Partnership and any General Partner or any of its Affiliates permitted by this
Limited Partnership Agreement shall be subject to the following conditions:
(a) Any such agreement, arrangement or transaction shall be embodied
in a written contract which precisely describes the subject matter
thereof and all compensation to be paid therefor;
(b) No rebates or "give-ups" may be received by any General Partner
or any such Affiliate, nor may the General Partner or any such Affiliate
participate in any reciprocal business arrangement which would have the
effect of circumventing any of the provisions of this Limited Partnership
Agreement; provided, however,
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that any refund or payment required by the terms of the Elmore Power
Purchase Contract shall not be deemed such a prohibited payment;
(c) Such agreements or arrangements shall be fully disclosed to all
Partners in one of the reports provided for in Article XI of this Limited
Partnership Agreement; and
(d) The agreement, arrangement or transaction shall be entered into
principally for the benefit of the Partnership in the ordinary course of
Partnership business and on terms no less favorable to the Partnership
than available from unaffiliated third persons.
6.4. Authority to Pay Certain Fees and Expenses. To the extent not
covered by and assumed under the provisions of the Operating Agreements, the
Partnership shall pay all other fees and expenses of the Partnership
including, without limitation, the fees and expenses related to (i)
Partnership operations, (ii) Partnership accounting, (iii) communications with
Partners, (iv) Partnership legal services, (v) Partnership tax services, (vi)
Partnership audit services, (vii) Partnership appraisal services, (viii)
Partnership commercial banking services, (ix) Partnership investment advisor
services, (x) Partnership computer services, (xi) Partnership organization
expenses, (xii) Partnership mileage and travel expenses and (xiii) such other
related operational and administrative expenses as are necessary for the
prudent organization and operation of the Partnership.
6.5. Restrictions on Authority of General Partners. Without the consent
of a Majority of the Limited Partners and the other General Partner, neither
of the General Partners shall have any authority to:
(a) Do any act in contravention of this Limited Partnership
Agreement which affects the rights or obligations of the Partners;
(b) Do any act which would make it impossible to carry on the
ordinary business of the Partnership;
(c) Possess Partnership property, or assign its rights in specific
Partnership property, for other than a Partnership purpose;
(d) Admit a Person as a General Partner, except as provided in this
Limited Partnership Agreement; or
(e) Knowingly perform any act that will subject any Limited Partner
to liability as a general partner in any jurisdiction.
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6.6. Certain Duties and Obligations of General Partners.
6.6.1. The Managing General Partner shall take all actions which may
be necessary or appropriate (a) for the continuation of the Partnership's
existence as a limited partnership under the laws of the State of California
(and under the laws of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Limited Partners or to
enable the Partnership to conduct the business in which it is engaged or
proposes to be engaged) and (b) for the acquisition, development, maintenance,
preservation and operation of the Property in accordance with the provisions
of this Limited Partnership Agreement and applicable laws and regulations it
being understood and agreed, however, that the provision of day-to-day
property management services for the Property is not an obligation of the
Managing General Partner as such, but rather such day-to-day services shall be
provided by Red Hill as Operator pursuant to the Operating and Maintenance
Agreement.
6.6.2. The General Partners shall devote to the Partnership such
time as may be necessary for the proper performance of their respective duties
hereunder, but the officers and directors of the General Partners shall not be
required to devote their full time to the performance of such duties.
6.6.3. The Managing General Partner shall use its best efforts to
maintain its net worth at all times at a level sufficient to meet all
requirements of the Code and currently applicable regulations, rulings and
revenue procedures of the Internal Revenue Service, and to meet any future
requirements set by Congress, the Internal Revenue Service, any agency of the
Federal government or the courts, to assure that the Partnership will be
classified for Federal income tax purposes as a partnership and not as an
association taxable as a corporation.
6.6.4. The General Partners shall use their best efforts to preclude
the classification of the Partnership as a "publicly traded partnership" to
which Section 7704(a) of the Code applies.
6.6.5. The Managing General Partner shall take such action as may be
necessary or appropriate in order to form or qualify the Partnership under the
laws of any jurisdiction in which the Partnership does business or in which
such formation or qualification is necessary in order to protect the limited
liability of the Limited Partners or in order to continue in effect such
formation or qualification. The Managing General Partner shall file or cause
to be filed for recordation in the office of the appropriate authorities of
the State of California, and in each other jurisdiction in which the
Partnership is formed or qualified, such certificates (including limited
partnership
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and fictitious name certificates) and other documents as are required by the
statutes, rules or regulations of such jurisdictions.
6.6.6. The General Partners shall at all times conduct their
respective affairs and the affairs of the Partnership and all of their
Affiliates in such a manner that neither the Partnership nor any Partner nor
any Affiliate of any Partner will have any personal liability under any
mortgage on any Property.
6.6.7. The Managing General Partner shall prepare or cause to be
prepared and shall file on or before the due date (or any extension thereof)
any Federal, state and local tax returns required to be filed by the
Partnership. The Partnership shall pay any taxes payable by the Partnership.
6.6.8. So long as the Credit Facility remains a valid and binding
obligation of the Partnership, the Managing General Partner shall procure and
maintain, or cause to be procured and maintained, at the sole expense of the
Partnership, such policies of insurance, in such amounts, as are necessary to
comply with the Insurance Requirements and shall cause the Partnership to
comply with the other terms and conditions of the Credit Facility. After such
time as the Credit Facility ceases to be a valid and binding obligation of the
Partnership or otherwise terminates in accordance with its terms, the Managing
General Partner shall procure and maintain, or cause to be procured and
maintained, at the sole expense of the Partnership, for the remainder of the
term of the Partnership, such policies of insurance, in such amounts, as the
Managing General Partner deems necessary or appropriate.
6.6.9. Each of the General Partners shall be under a fiduciary duty
to conduct the affairs of the Partnership in the best interests of the
Partnership and the Limited Partners, including the safekeeping and use of all
Partnership funds and assets and the use thereof for the exclusive benefit of
the Partnership.
6.6.10. The General Partners shall not in their capacity as General
Partners or as the Managing General Partner receive any salary, fees,
commissions, profits, distributions or allocations, except fees, commissions,
profits, distributions and allocations to which it may be entitled as
expressly permitted by this Limited Partnership Agreement.
6.7. Other Business of Partners. Any Partner or its Affiliates may
engage independently or with others in other business ventures of every nature
and description, including without limitation the ownership of other
properties and the making or management of other investments. Nothing in this
Limited Partnership Agreement shall be deemed to prohibit any Partner or any
Affiliate of any Partner from dealing, or
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otherwise engaging in business, with Persons transacting business with the
Partnership, or from providing services related to the purchase, sale,
financing, management, development or operation of real or personal property
including, without limitation, geothermal or other competitive electrical
generating or other power plants, and receiving compensation therefor, not
involving any rebate or reciprocal arrangement which would have the effect of
circumventing any restriction set forth herein upon dealings with the General
Partners or any Affiliate of the General Partners. Without limiting the
generality of the foregoing, the General Partners will not be obligated to
present to the Partnership any particular investment opportunity which comes
to either of their attention, even if such opportunity is of a character which
might be suitable for investment by the Partnership. Neither the Partnership
nor any Partner shall have any right by virtue of this Limited Partnership
Agreement or the Partnership relationship created hereby in or to such other
ventures or activities or to the income or proceeds derived therefrom, and the
pursuit of such ventures, even if competitive with the business of the
Partnership, shall not be deemed wrongful or improper. Under no circumstances
shall any Partner engage in any activity or activities which would result in
Elmore Facility's inability to satisfy the criteria required to be satisfied
in order to be a "qualifying facility" as provided in 18 C.F.R. ss. 292.203,
as the same may be amended from time to time. In the event any Partner engages
in any activity prohibited by the immediately preceding sentence, such Partner
shall be required to sell or otherwise transfer its Interest as provided in
Article XIII of this Limited Partnership Agreement; provided, however, that
any transfer of a Partner's Interest that would result in the Partnership's
failure to satisfy the criteria set forth in 18 C.F.R. ss. 292.203 shall be
void and of no force or effect.
6.8. Limitation on Liability of General Partners; Indemnification.
The General Partners shall not be liable, responsible or accountable in
damages or otherwise to any of the Partners for any act or omission performed
or omitted by either of them in good faith pursuant to the authority granted
to them by this Limited Partnership Agreement in a manner reasonably believed
by the General Partner acting or omitting to so act to be within the scope of
the authority granted to it by this Limited Partnership Agreement and not
opposed to the best interests of the Partnership or the Limited Partners;
provided, however, that the General Partners shall not be relieved of
liability with respect to any claim, issue or matter as to which they or any
Affiliate shall have been adjudged to be liable for gross negligence, fraud or
bad faith in the performance of their respective fiduciary duties to the
Limited Partners. Except in the case of any such judgment of liability, the
Partnership shall indemnify the General Partners, their employees, agents and
assigns against any loss or damage incurred by them, and against expenses
(including attorneys' fees) actually and reasonably incurred by them in
connection with the defense or settlement of
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any threatened, pending or completed action or suit by any Person in
connection with any such act or omission. The satisfaction of any obligation
to indemnify and hold the General Partners, their employees, agents and
assigns harmless shall be from and limited to Partnership assets, and no
Partner shall have any personal liability on account thereof.
6.9. Rights of Niguel. Niguel, at its own expense, shall have the
right to reasonably audit the books and records of Magma and/or its Affiliates
(other than DCC) with respect to services furnished to the Partnership other
than on a fixed cost basis.
6.10. Construction of Operating Agreements to Which Red Hill and/or
Its Affiliates Are Parties.
6.10.1. Under the Operating Agreements pursuant to which Red Hill
and/or its Affiliates are parties required to provide services, labor or
materials to the Partnership, the Partners hereby agree for purposes of this
Limited Partnership Agreement and such Operating Agreements that any reference
to "good faith" efforts herein or therein shall be construed so as not to
permit repeated instances of negligent conduct.
6.10.2. Under the Operating Agreements pursuant to which Red Hill
and/or its Affiliates are parties required to provide services, labor or
materials to the Partnership, the Partners hereby agree for purposes of this
Limited Partnership Agreement and such Operating Agreements that any
provisions contained therein which enable Red Hill or such Affiliates to
receive a reasonable profit for services, labor or materials provided
thereunder shall mean a profit that is typical for the kind of service or
labor rendered or material provided and the cost to the Partnership of such
services shall not exceed that which is available in a competitive marketplace
from unaffiliated third parties.
6.10.3. The Partners acknowledge that certain services to be
provided under the Administrative Services Agreement are similar in nature to
Services to be performed under the Operating and Maintenance Agreement. By way
of illustration only, certain accounting and bookkeeping services under the
Administrative Services Agreement are similar in nature to the accounting and
bookkeeping services under the Operating and Maintenance Agreement. As such,
only those of such costs and expenses incurred by Red Hill at the Elmore
Facility or at the Red Hill administrative facility in Imperial County,
California, in rendering the same shall be reimbursable to Red Hill as
Reimbursement Charges.
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF RED HILL
7.1. Representations and Warranties. Red Hill represents and
warrants to Niguel as of the date hereof, after giving effect to the execution
and delivery of the Operating Agreements (to the extent not heretofore
executed and delivered), as follows:
7.1.1. The Partnership is a limited partnership duly formed, validly
existing and in good standing under the laws of the State of California, and
has all powers under the Limited Partnership Agreement and the laws of the
State of California and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted and
proposed to be conducted. The Partnership has not conducted any business or
incurred or assumed any material liabilities or obligations (whether fixed or
contingent) prior to the date of this Limited Partnership Agreement.
7.1.2. The execution, delivery and performance by the Partnership of
the Credit Facility and the related Notes, Security Agreement and Deed of
Trust and the Project Agreements (as defined in the Credit Facility) in effect
as of the date hereof are within the powers of the Partnership, have been duly
authorized by all necessary actions on the part of the Partnership, Red Hill
and its Affiliates, require no action by any of such entities by or in respect
of, or filing with, any governmental body, agency or official other than such
actions as have already been taken, and do not contravene, or constitute a
default under, any provision of applicable law or regulation or of this
Limited Partnership Agreement or of any agreement, judgment, injunction,
order, decree or other instrument (including any Geothermal Leases) binding
upon the Partnership, or, with respect to any Geothermal Leases, upon Magma or
result in the creation or imposition of any Lien, other than the Security
Interests (as those terms are defined in the Credit Facility), on any asset of
the Partnership or, with respect to any Geothermal Leases, upon Magma.
7.1.3. There is no action, suit or proceeding pending against, or to
the knowledge of Red Hill, threatened against or affecting the Partnership, or
any of its rights or assets before any court or arbitrator or any governmental
body, agency or official in which there is a reasonable possibility of an
adverse decision which could materially adversely affect the business,
financial position or results of operations of the Partnership or which in any
manner draws into question the validity of any of the Project Agreements in
effect as of the date hereof.
7.1.4. Each of Red Hill and Magma has fulfilled its obligations
under the minimum funding standards of ERISA and the Code with respect to each
Plan and is in compliance in all
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material respects with the presently applicable provisions of ERISA and the
Code, and has not incurred any liability to the PBGC or a Plan under Title IV
of ERISA other than a liability to the PBGC for premiums under Section 4007 of
ERISA (as those terms are defined in the Credit Facility).
7.1.5. The charges, accruals and reserves on the books of the
Partnership in respect of taxes or other governmental charges are, in the
opinion of Red Hill, adequate to cover the Partnership's liability with
respect to such taxes and charges.
7.1.6. To the best of Red Hill's knowledge after inquiry and
physical inspection, the Elmore Property does not contain any hazardous
wastes, hazardous substances, hazardous materials, toxic wastes, toxic
substances or toxic pollutants, as those terms are used in the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response
Compensation and Liability Act, the Hazardous Materials Transportation Act,
the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, the
California Hazardous Waste Control Act, the California Hazardous Substance
Act, the Porter-Cologne Water Quality Control Act, in any regulations
promulgated pursuant thereto, or in any other applicable law, ordinance, rule
or regulation, or any other substance, waste or material considered toxic or
hazardous under any applicable federal, state or local law, ordinance, rule or
regulation.
7.1.7. The Elmore Facility is not subject to the jurisdiction of the
CEC on the date of this Limited Partnership Agreement, and no CEC Event has
occurred (as those terms are defined in the Credit Facility).
7.1.8. The Partnership and the Elmore Facility are in compliance in
all material respects with all applicable laws, ordinances, rules, regulations
and requirements of governmental authorities (including, without limitation,
the Geothermal Steam Act of 1970, those laws identified in Section 7.1.6 above
and any other laws relating to the protection of the environment, ERISA, all
relevant California state and local laws, rules and regulations promulgated
thereunder). The Partnership has obtained (or has applied for as necessary to
timely obtain) all material permits and authorizations of any governmental
body, agency or official necessary for the Development of the Elmore Facility,
operation of the Elmore Facility or required for the Partnership to sell
electricity to SCE under the Elmore Power Purchase Contract and all of such
permits and authorizations obtained by the Partnership remain in full force
and effect.
7.1.9. (a) Subject to the exceptions identified in the Elmore
Property Preliminary Title Report and the Geothermal Lease Rights Properties
Preliminary Title Report, all properties and rights and all contractual
arrangements (including, without limitation, rights and title to land and
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geothermal properties, electricity transmission and interconnection
facilities, rights to use patents and other proprietary processes, designs and
information, and contracts for process design, engineering and construction
services) necessary in connection with the Development of the Elmore Facility,
the operation of the Elmore Facility on the Elmore Property and the sale of
electricity to SCE under the Elmore Power Purchase Contract (i) if properties
or rights have been obtained and are held by the Partnership subject to no
Liens (as defined in the Credit Facility) (other than the Liens created by the
Security Agreement and the Deed of Trust) and no adverse claims that might, if
proven to be correct, individually or in the aggregate, have a material
negative impact on the feasibility of the Elmore Facility or the business
prospects of the Partnership and (ii) if contractual arrangements, are in full
force and effect with the relevant benefits thereunder accruing to the
Partnership, and constitute valid and binding agreements of the parties
thereto.
(b) The budget set forth on Schedule I to the Construction
Management Agreement for Elmore Projected Project Costs and schedule for
completion of the Elmore Facility previously delivered to the Agent (as
defined in the Credit Facility) and Niguel are correct and complete based on
all available information and represent Red Hill's present best estimates of
Elmore Projected Project Costs and the schedule for completion of the Elmore
Facility, and the budget for Elmore Projected Project Costs includes a
reasonable amount for Project Contingency Costs and includes all costs to the
Partnership associated with the properties and rights and the contractual
arrangements referred to in subsection (a) above.
(c) There are no services, materials or rights required for the
construction or operation of the Elmore Facility other than those that can
reasonably be expected to be commercially available at the site of the Elmore
Facility or are granted to the Partnership under the Ground Lease or Easement
Agreement.
7.1.10. The representations and warranties of the Partnership
contained in the Security Agreement and the Deed of Trust and in Section 4.16
of the Credit Facility, are true and correct in all material respects.
7.1.11. Since September 30, 1987 there has been no material adverse
change in the business, financial position, results of operations or prospects
of Magma and its Consolidated Subsidiaries considered as a whole, of Red Hill
or of the Partnership.
7.1.12. Neither Red Hill, the Partnership, any Affiliate of Red Hill
nor any agent or other Person acting on behalf of any of such entities,
directly or indirectly, offered any of the Interests or any similar security
of the Partnership for sale to or solicited offers to buy any thereof from, or
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otherwise approached or negotiated with respect thereto with, any person in a
manner that would subject the offering of the Interests to the registration
requirements of the Securities Act of 1933, as amended, it being understood
that, insofar as such representation relates to the activities of Morgan
Guaranty Trust Company of New York in its capacity as sales agent for the
Partnership in connection with the offering and sale of the Interests, such
representation is based on the accuracy of information with respect to such
activities furnished by such sales agent to the Partnership.
7.1.13. The Partnership is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, and neither the
Partnership, Red Hill, nor any Affiliate of Red Hill is subject to the
Federal, Power Act or Public Utility Holding Company Act of 1935.
7.1.14. Neither the Partnership, Red Hill, nor any Affiliate of Red
Hill will, as a result of the construction, ownership, leasing or operation of
the Elmore Facility, the sale of electricity therefrom or the entering into
any Project Agreement or any transaction contemplated hereby or thereby, be
subject to regulation under the Federal Power Act or the Public Utility
Holding Company Act of 1935 or under state laws and regulations respecting the
rates or the financial or organizational regulation of electric utilities.
7.1.15. The private placement memorandum dated January 1988
delivered to representatives of Niguel in connection with Red Hill, Magma, the
Partnership and the transactions contemplated hereby is true and complete in
all material respects and does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make any statement therein
not misleading.
7.2. Reciprocal Representations and Warranties. Each of the parties
represents and warrants to the other parties hereto as follows:
7.2.1. Its execution, delivery and performance of this Agreement has
been duly authorized by all necessary actions on its part, and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of this Limited Partnership Agreement or of any material
agreement, lease, judgment, injunction, order, decree or other instrument
binding upon it or any of its Affiliates or result in the creation or
imposition of any Lien, other than the Security Interests (as those terms are
defined in the Credit Facility), on any of its assets or assets of any of its
Affiliates.
7.2.2. There is no action, suit or proceeding pending against, or to
its knowledge threatened against or affecting, it or any of its Affiliates or
any of its or their rights or assets before any court or arbitrator or any
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governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, financial position or results of operations of the Partnership or
which in any manner draws into question the validity of any of the Project
Agreements.
7.2.3. This Limited Partnership Agreement represents its legally
valid and binding agreement.
7.3. Representation and Warranties of Niguel.
7.3.1. Neither Niguel, any Affiliate of Niguel nor any other Person
engaged to act on behalf of any of such entities, directly or indirectly,
offered any of the Interests or any similar security of the Partnership for
sale to or solicited offers to buy any thereof from, or otherwise approached
or negotiated with respect thereto with, any person in a manner that would
subject the offering of the Interests to the registration requirements of the
Securities Act of 1933, as amended, it being understood that Niguel makes no
representation with respect to any activities of Morgan Guaranty Trust Company
of New York or the Partnership in connection with the offering and sale of the
Interests.
7.3.2. Subject to the matters described in Section 5.3.4 and in
Article XIII hereof, to the best of its knowledge neither the construction,
ownership, leasing or operation of the Elmore Facility, the sale of
electricity therefrom nor the entering into of any Project Agreement or any
transaction contemplated hereby or thereby, will be subject to regulation
under the Federal Power Act, the Public Utility Holding Company Act of 1935,
or under state law and regulations, respecting in each case the rates or the
financial or organizational regulation of electric utilities, solely as a
result of the acquisition of the interests in the Partnership by Niguel as
contemplated hereby.
7.4. Affiliate Status. For purposes of this Article VII, Niguel and
each of its parent companies shall be deemed to be not an Affiliate of the
Partnership, Red Hill or any person controlling, controlled by or under common
control with Red Hill, or any officer, director or shareholder thereof or
relative of any thereof.
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ARTICLE VIII
TRANSFERS BY GENERAL PARTNERS AND
ADMISSION OF SUCCESSOR AND
ADDITIONAL GENERAL PARTNERS; WITHDRAWAL
OF GENERAL PARTNERS
8.1. Transfers By General Partners and Admission of Successor or
Additional General Partners.
8.1.1. Subject to the right of the General Partners to convert their
respective General Partner Interests into Limited Partner Interests as
provided in Section 8.3 of this Limited Partnership Agreement, without the
consent of both (a) such number of the Limited Partners as are then required
under the Act to consent to or ratify the admission of a General Partner, but
in no event with the consent of less than a Majority of the Limited Partners,
and (b) except as provided in Section 8.1.2, the other General Partner, whose
consent may be withheld for any reason so long as the Credit Facility remains
a valid and binding obligation of the Partnership (but thereafter whose
consent may not be unreasonably withheld), neither of the General Partners may
sell, transfer, pledge, encumber or otherwise assign its interest or designate
a Person to be its successor or, without the written consent of the other
General Partner, to be an additional General Partner. Any permitted designee
shall become a successor or additional General Partner only upon satisfying
the additional conditions of Section 9.3.1 of this Limited Partnership
Agreement. Notwithstanding anything contained in this Limited Partnership
Agreement that may be construed to the contrary, no General Partner may,
without the consent of the other General Partner, (a) sell, transfer, pledge,
encumber, assign or otherwise hypothecate its Interest if such act would
result in a change of control of the Partnership or (b) to the extent within
its control permit a change in control of such General Partner (other than in
the course of a reorganization, merger or consolidation involving creation of
a holding company or a transaction described in Section 8.1.2), as such
control existed as of the date of this Limited Partnership Agreement, except
as otherwise permitted by Section 8.1.2.
8.1.2. Except in connection with a transfer to a successor or
additional General Partner pursuant to Section 8.1.1 of this Limited
Partnership Agreement, the Managing General Partner shall not have any right
to retire or withdraw voluntarily from the Partnership, except that any
Partner may cause to be admitted to the Partnership as an additional Partner
or Partners of the same class, or substitute in its stead as the General
Partner, any entity which has, by merger, consolidation or otherwise, acquired
substantially all of such General Partner's assets or stock and continued its
business, provided that the Interests of the other Partners shall not be
affected thereby. Niguel shall have a right to withdraw without violating this
Limited Partnership Agreement but subject to the provisions of Section
15662(b) of the Act and Section 8.4 hereof and in
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connection therewith or otherwise to convert all or part of its General
Partner Interest as provided in Section 8.3. No Limited Partner shall have the
right to withdraw. Each such successor or additional General Partner shall be
admitted as such to the Partnership upon satisfying the additional conditions
of Section 9.3.1 of this Limited Partnership Agreement.
8.1.3. By execution of this Limited Partnership Agreement, each of
the Limited Partners hereby consents to the admission of any Person as a
successor or additional General Partner pursuant to Sections 8.1.1 or 8.1.2 of
this Limited Partnership Agreement where at the time the express consent of
such number (if any) of the Limited Partners as are then required under the
Act to consent to or ratify the admission of a General Partner has been
obtained. In each such case, such admission shall, without any further consent
or approval of the Limited Partners, be an act of all the Limited Partners.
8.1.4. Any voluntary withdrawal or resignation by a General Partner
from the Partnership if there is no surviving General Partner shall be
effective only upon the admission in accordance with Sections 8.1.1 or 8.1.2
of this Limited Partnership Agreement of a successor General Partner.
8.2. Incapacity of General Partners.
8.2.1. In the event of the retirement (including the withdrawal of
Niguel under Section 8.1 or a conversion of its interest under Section 8.3 of
this Limited Partnership Agreement) or Incapacity of either of the General
Partners, the business of the Partnership shall be continued by any remaining
General Partner or Partners (pursuant to the right to do so which is hereby
granted to them) with Partnership property if the retiring General Partner or
the General Partner to which the Incapacity relates is not then the sole
General Partner, or upon the vote of all of the Limited Partners within 60
days after the date of such retirement or Incapacity to continue the business
of the Partnership and to admit one or more successor General Partners.
8.2.2. Upon the Incapacity of a General Partner, such General
Partner shall immediately cease to be a General Partner and its Interest in
the Partnership shall terminate; provided, however, that such termination
shall not affect any rights or liabilities of such General Partner which
matured prior to such Incapacity, or the value, if any, at the time of such
Incapacity of the Interest of such General Partner.
8.2.3. If, at the time of the Incapacity of a General Partner, such
General Partner is not the sole General Partner, then the remaining Managing
General Partner shall, or other General Partner or General Partners may,
continue the business of the Partnership and shall (a) give Notice to the
Limited Partners of such event and, if applicable, such election
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and (b) make such amendments to this Limited Partnership Agreement and execute
and file for recordation such amendments and other documents as are necessary
to reflect the termination of the Interest of the General Partner to which
such Incapacity relates and such General Partner's having ceased to be a
General Partner.
8.3. Conversion of General Partners' Interest. Red Hill may at any
time convert all but 1% of, and Niguel may at any time convert all or any part
of, their General Partner Interests to Limited Partner Interests upon five (5)
days' prior written notice to the other. The portion of the .General Partner
Interest so converted, if any, shall become a Limited Partner Interest
hereunder and shall be subject to all of the terms and conditions imposed upon
Limited Partner Interests by this Limited Partnership Agreement, except as
otherwise provided in Article XIII. Any conversion of a General Partner's
Interest shall be on a Unit-by-Unit basis; provided that, that portion of the
Interest of a General Partner representing Additional Capital Contributions
shall be separate from the rights of holders of Units and shall remain with
the General Partner. If Niguel shall withdraw as a General Partner in
accordance with the provisions hereof, such Interest shall retain its rights
hereunder and priority as to distributions notwithstanding the termination of
its status as a General Partner. The converted Limited Partner Interest shall
represent the same share of income, gain, loss, deduction or credit as applied
to the General Partner Interest prior to conversion. The holder of any such
converted Limited Partnership Interest shall remain liable under Section 10.3
of this Limited Partnership Agreement to the extent of any deficit in the
Capital Account relating to such Units as of the date of conversion.
Notwithstanding any such conversion, the General Partners shall remain
responsible for their respective Scheduled Capital Contributions set forth in
Exhibit "C."
8.4. Liability of a Withdrawn General Partner. Any General Partner
who voluntarily or involuntarily for any reason (including Incapacity)
withdraws from the Partnership, or sells, transfers or assigns all of its
Interest, shall be and remain liable for all obligations and liabilities
incurred by it as a General Partner prior to the time that such withdrawal,
sale, transfer or assignment becomes effective as provided in Section 8.1 of
this Limited Partnership Agreement, but it shall be free of any obligation or
liability as a General Partner incurred on account of the activities of the
Partnership from and after the time that such withdrawal, sale, transfer or
conversion becomes effective.
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ARTICLE IX
TRANSFERS OF PARTNERS' INTERESTS;
ADMISSION OF SUBSTITUTED LIMITED PARTNER
9.1. Restrictions on Transfers of Interests.
9.1.1. Except as provided in Article XIII of this Limited
Partnership Agreement, a Limited Partner may not sell, transfer, pledge,
encumber or otherwise assign all or any portion of its Interest in the
Partnership without the prior written consent of both of the General Partners,
which consent may not be unreasonably withheld if the General Partner(s) (or
any designate) do not elect to exercise any of their rights under Section 9.2.
Any such consent shall be deemed to be a waiver of any rights under Section
9.2.
In no event may any Partner effect any sale, transfer, pledge,
encumbrance or assignment if, in the opinion of counsel for the Partnership
specializing in such matters, (a) such an assignment, when considered with all
other assignments of Units or Interests in the Partnership within the previous
12 months, would result in the Partnership's being considered to have been
terminated within the meaning of Section 708 of the Code or (b) such an
assignment would violate any applicable federal or state securities laws
(including any investor suitability standards) or (c) such an assignment would
result in the Elmore Facility's inability to satisfy the criteria required to
be satisfied in order to be a "qualifying facility" as provided in 18 C.F.R.
ss. 292.203, as the same may be amended from time to time. Any attempted sale,
transfer, pledge, encumbrance or other assignment in contravention of the
provisions of this Article IX shall be void and ineffectual and shall not be
recognized by the Partnership.
9.1.2. The Partners acknowledge their intent that the Partnership
not be classified as a "publicly traded partnership" within the meaning of
Section 7704(b) of the Code, and, accordingly, that it is necessary to
restrict the transferability of Interests. Each Limited Partner covenants and
agrees, for itself and its successors and assigns, that it will undertake no
action to assign, transfer, sell, exchange, pledge or encumber its Interest in
the Partnership or to facilitate trading in Interests if such action, when
considered in the context of all relevant facts and circumstances, might
fairly result in the classification of the Partnership as a "publicly traded
partnership" within the meaning of Section 7704(b) of the Code. The parties
further acknowledge that legal remedies are likely to be inadequate in the
event of a breach of the covenants under this Section 9.1.2 and, therefore,
that equitable remedies (including mandatory injunctive relief) shall be
available to the Partnership or any Partner in the event of any actual or
threatened breach.
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9.2. Right of First Refusal.
9.2.1. Except for sales, transfers or other assignments of Limited
Partner Interests under Article XIII hereof (in which case the Interest so
sold, transferred or otherwise assigned also shall not be subject to this
Section 9.2), if any Partner proposes to sell, transfer or otherwise assign
(other than as security) all or any portion of its Interest in the Partnership
for consideration, it shall give Notice thereof to the General Partners or, in
the case of a General Partner so desiring to sell, transfer or otherwise
assign its Interest, to the other General Partner. The Notice shall include
the name and identity of the prospective assignee, the date upon which such
assignment is to be consummated, which shall not be more than 180 days after
the date of the Notice, and a written copy of the offer upon which such
prospective assignee proposes to acquire such Interest specifying the price
and terms on which the Partner proposes to assign its Interest. For a period
of 30 days following their receipt of the Notice, the General Partners or the
other General Partner, as the case may be, shall have an option to purchase
the entire Interest offered at the price and on the terms set forth in the
Notice or, as to Niguel, to designate, if necessary, another entity to so
acquire such interest. Each General Partner or designate, as the case may be,
shall be entitled to purchase an equal percentage of the entire Interest so
offered in the case of an Interest of a Limited Partner. If a General Partner
does not exercise its option to acquire its ratable share of such Interest of
a Limited Partner, the other General Partner (or, if necessary, as to Niguel a
designate) shall be entitled to purchase an equal percentage of the portion of
such Interest so available. The failure of the General Partners or designate,
as the case may be (or the other General Partner in the case of an Interest of
a General Partner), to exercise their option to acquire the entire Interest
offered shall constitute a waiver thereof by the General Partners (or the
other General Partner in the case of an Interest of a General Partner) with
respect to the transaction described in the Notice. Should the option be
exercised, the sale to the General Partners (or the other General Partner in
the case of an Interest of a General Partner) or designate, as the case may
be, shall be consummated on or before the later of (a) thirty (30) days after
the date on which the option was exercised or (b) the date specified in the
Notice as the date upon which the proposed assignment was to be consummated,
for the price and on the terms set forth in the Notice, and the Partners shall
execute and deliver all documents necessary to effectuate the assignment of
the Interest to the acquiring Person(s). Should the option not be so exercised
by the General Partners, then the Partner may assign the Interest so offered,
on or before the date specified in the Notice, for the price, on substantially
the terms and to the assignee specified in the Notice. Should such an
assignment not be timely consummated as aforesaid, then the Interest shall
again become subject to the foregoing option.
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9.2.2. If the option described in Section 9.2.1 of this Limited
Partnership Agreement is exercised by the General Partners (or the other
General Partner in the case of an Interest of a General Partner) or designate,
as the case may be, then the costs of the transaction, including without
limitation recording fees, escrow costs and attorneys' fees reasonably
incurred by the Partnership in connection with the assignment, shall be shared
equally by the acquiring General Partner (or the other General Partner in the
case of an Interest of a General Partner) and the assigning Partner. If the
assigning Partner conveys its Interest to an outside purchaser, all costs of
the transaction shall be borne by the assigning Partner. The assigning Partner
shall deliver all appropriate documents of assignment, which shall be in form
and content reasonably satisfactory to the General Partners (or the other
General Partner in the case of an Interest of a General Partner).
9.2.3. The General Partners' (or the other General Partner in the
case of an Interest of a General Partner) option described in this Section 9.2
is (a) in addition to, and is not a limitation upon, their right to consent or
withhold consent to a proposed assignment pursuant to Section 9.1.1 of this
Limited Partnership Agreement (except as provided therein) and (b) except as
provided in Section 13.3 (including converted interests), shall remain in full
force and effect with respect to successive assignees of Interests hereunder
to the same extent and in the same manner as it was applicable to any
predecessor Partner.
9.3. Assignees and Substituted Partners.
9.3.1. The Partnership need not recognize for any purpose any
assignment of all or any portion of the Interest of a Partner unless (a) there
shall have been filed with the Partnership a duly executed and acknowledged
counterpart of the instrument making such assignment, which (except as
provided in Article V or XIII) has been consented to by the General Partners
and (b) such instrument (i) evidences the written acceptance by the assignee
of all of the terms and provisions of this Limited Partnership Agreement
(including the special power of attorney in Section 14.1 of this Limited
Partnership Agreement), (ii) represents that the assignment was made in
accordance with all applicable laws and regulations (including any investor
suitability standards) and (iii) except as provided in Article V or XIII in
all other respects is reasonably satisfactory in form and content to the
General Partners. Except as provided in Section 5.4.5 of this Limited
Partnership Agreement, assignees of Interests shall recognized as such on the
first day of the calendar month following the month in which the Partnership
receives the instrument of assignment provided for herein.
9.3.2. If a Limited Partner dies, its executor, administrator or
trustee, or, if it is adjudicated incompetent or insane, its committee,
guardian or conservator, or, if it becomes
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bankrupt, the trustee or receiver of its estate, shall have all of the rights
of a Limited Partner for the purpose of settling or managing its estate, and
such power as the decedent or incompetent possessed to assign all or any part
of its Units and to join with the assignee thereof in satisfying the
conditions precedent to such assignee's becoming a Substituted Limited
Partner. The Incapacity of a Limited Partner shall not dissolve the
Partnership.
9.3.3. Any Limited Partner who assigns all of its Interest in the
Partnership shall cease to be a Limited Partner of the Partnership, except
that until a Substituted Limited Partner is admitted in its stead, such
assigning Limited Partner shall retain the statutory rights of an assignor of
a limited partnership interest under the Act. The rights of an assignee of an
Interest who does not become a Substituted Limited Partner shall be limited to
the receipt of its share of Distributable Cash, Sale or Financing Proceeds,
Taxable Income and Tax Loss as determined under this Limited Partnership
Agreement.
9.3.4. An assignee of a Limited Partner's Interest may become a
Substituted Limited Partner only upon compliance with the following
conditions:
(a) The instrument of assignment must state the intent of the
assignor that the assignee succeed to the assignor's Interest as a
Substituted Limited Partner;
(b) The assignee shall have fulfilled the requirements of Section
9.3.1 of this Limited Partnership Agreement regarding the execution,
acknowledgment and delivery to the General Partners of the instrument
described therein;
(c) The assignee or assignor shall have paid all reasonable legal
fees and filing costs incurred by the Partnership in connection with its
substitution as a Limited Partner;
(d) Except as provided in Article V or XIII the General Partners
shall have consented to such substitution, which consent may not be
unreasonably withheld; and
(e) This Limited Partnership Agreement shall be amended to recognize
the admission of the Substituted Limited Partner.
9.3.5. An assignee of Interests who does not become a Substituted
Limited Partner and who desires to make a further assignment of all or any
portion of an Interest in the Partnership shall be subject to all of the
provisions of this Article IX to the same extent and in the same manner as any
predecessor Limited Partner desiring to make an assignment of its Interests.
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9.4. Section 754 Elections. In the event of a transfer of all or any
part of the Interest of a Limited Partner, the General Partners, in their sole
discretion, may make an election to adjust the basis of the Partnership's
assets pursuant to Section 754 of the Code.
ARTICLE X
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
10.1. Events Causing Dissolution. The Partnership shall dissolve upon
the happening of any one of the following events:
10.1.1. The retirement or Incapacity of a sole General Partner,
unless the business of the Partnership is continued as provided in Section 8.2
of this Limited Partnership Agreement.
10.1.2. The sale or other disposition of all of the interests in and
loans secured by the Elmore Property (including purchase money security
interests) of the Partnership.
10.1.3. The election by the Management Committee to dissolve the
Partnership.
10.1.4. The expiration of the term of the Partnership.
10.1.5. The happening of any other event causing the dissolution of
the Partnership under the laws of the State of California.
10.2. Effect of Dissolution. The dissolution of the Partnership shall
be effective on the day on which the event occurs giving rise to the
dissolution, but the Partnership shall not terminate until this Limited
Partnership Agreement has been canceled and the assets of the Partnership
shall have been distributed as provided in Section 10.4 of this Limited
Partnership Agreement. Notwithstanding the dissolution of the Partnership,
prior to the termination of the Partnership, the business of the Partnership
and the affairs of the Partners, as such, shall continue to be governed by
this Limited Partnership Agreement.
10.3. Capital Contribution upon Liquidation of the Partnership or
General Partner's Interest. Each Partner shall look solely to the assets of
the Partnership for all distributions with respect to the Partnership, for
return of its Capital Contribution thereto and its Capital Account and for its
share of Taxable Income or Tax Loss, and shall have no recourse therefor (upon
dissolution or otherwise) against the General Partners or any Limited Partner;
provided, however, that upon the complete liquidation of a General Partner's
Interest, upon the
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dissolution and termination of the Partnership or otherwise, the General
Partner whose Interest is liquidated shall contribute to the Partnership an
amount equal to the deficit balance in its Capital Account. Such contribution
shall be made within ten (10) days of Notice by the General Partners but in no
event later than the end of the Partnership's taxable year (determined without
regard to Section 706(c)(2)(A) of the Code) during which the liquidation of
the General Partners' Interests occurs (or, if later, ninety (90) days after
the date of such liquidation). Any amount so contributed by the General
Partners shall be distributed first to any creditors of the Partnership
entitled thereto, and the balance to the other Partners in proportion to the
then positive balances in their Capital Accounts.
10.4. Liquidation.
10.4.1. Upon dissolution of the Partnership, the General Partners
shall liquidate the assets of the Partnership, and after allocating (pursuant
to Article V of this Limited Partnership Agreement) all income, gain, loss and
deductions resulting therefrom, shall apply and distribute the proceeds
thereof (a) first, as contemplated by the definition herein of the term "Sale
or Financing Proceeds," to the payment of the obligations of the Partnership
to third parties, to the expenses of liquidation, and to the setting up of any
Reserves for contingencies which the General Partners may consider necessary,
and (b) then, to the Partners in proportion to the positive balances in the
Partners' respective Capital Accounts.
10.4.2. Notwithstanding Section 10.4.l of this Limited Partnership
Agreement, in the event that the General Partners determine that an immediate
sale of all or any portion of the Partnership's assets would cause undue loss
to the Partners, the General Partners, in order to avoid such loss, may after
giving Notice to all of the Limited Partners, to the extent not then
prohibited by the Act, either defer liquidation of and withhold from
distribution for a reasonable time any assets of the Partnership except those
necessary to satisfy the Partnership's debts and obligations, or distribute
the assets to the Partners in kind.
10.4.3. If any assets of the Partnership are to be distributed in
kind, such assets shall be distributed on the basis of the fair market value
thereof, and any Partner entitled to any interest in such assets shall receive
an interest therein as a tenant-in-common with all other Partners so entitled.
The fair market value of such assets shall be determined by an independent
appraiser to be selected by the General Partners. Pursuant to Section 2.2.3.4
of this Limited Partnership Agreement, the Capital Accounts of all Partners
shall be adjusted as of the date of distribution in kind as if the assets were
sold on such date for their fair market value (taking Section 7701(g) of the
Code into account) and Taxable Income or Tax Loss arising
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from the sale were allocated in accordance with this Limited Partnership
Agreement.
10.4.4. The Managing General Partner or surviving General Partner
shall cause the cancellation of this Limited Partnership Agreement following
the liquidation and distribution of all of the Partnership's assets.
ARTICLE XI
BOOKS AND RECORDS, ACCOUNTING,
REPORTS, TAX ELECTIONS, ETC.
11.1. Books and Records.
11.1.1. The books and records of the Partnership shall be maintained
in accordance with generally accepted accounting principles at the principal
office of the Partnership and shall be available for examination there by any
Partner or its duly authorized representatives at any and all reasonable times
upon prior Notice to the General Partners. To the extent permitted by law, the
General Partners will permit Limited Partners and their assignees, at the
expense of such Limited Partners and assignees, to inspect and copy such books
and records. The Partnership shall maintain such books and records and provide
such financial or other statements as the Managing General Partner reasonably
deems advisable, subject to the requirements of this Limited Partnership
Agreement.
11.1.2. After the end of each fiscal year, the Accountants shall
review or prepare all tax returns of the Partnership, which shall be executed
by the General Partners.
11.2. Accounting and Fiscal Year. Subject to Section 448 of the Code,
the books of the Partnership shall be kept on such method of accounting
for tax and financial reporting purposes as may be determined by the General
Partners. The fiscal year of the Partnership shall end on December 31 of each
year, or on such other date permitted under the Code as the General Partners
shall determine.
11.3. Bank Accounts and Investments. The bank accounts of the
Partnership shall be maintained at such banking institutions as the Managing
General Partner shall determine, and withdrawals shall be made only in the
regular course of Partnership business on such signature or signatures as the
Managing General Partner shall determine. All deposits and other funds not
needed in the operation of the business or not yet invested may be invested by
the Managing General Partner only in Permitted Investments or such investments
as the General Partners may (consistent with the terms of any agreements of
the Partners) expressly authorize. The Managing General Partner may rely on
the advice of independent investment advisors. The funds of the Partnership
shall not be commingled with the funds of any other Person.
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11.4. Reports.
11.4.1. Within 75 days after the end of each calendar year, the
Managing General Partner shall send to each Partner or assignee at any time
during the fiscal year ending during such calendar year such tax information
as shall be necessary for the preparation by such Limited Partner or assignee
of its Federal income tax return, and required state income and other tax
returns with regard to jurisdictions in which the Partnership is formed or
qualified or owns Property.
11.4.2. As soon as possible and in any event within 105 days after
the end of each fiscal year of the Partnership, the Managing General Partner
shall send to each Person who was a Partner or assignee at any time during the
fiscal year then ended (a) a balance sheet as of the end of such fiscal year,
and statements of income, Partners' equity and changes in financial position
for such fiscal year, all of which shall be prepared in accordance with
general accepted accounting principles and accompanied by an auditor's report
containing an opinion of the Accountants setting forth in each case in
comparative form the figures for the previous fiscal year, all reported on as
to the fairness of the presentation, generally accepted accounting principles
and consistency, (b) a cash flow statement, (c) a report summarizing the fees
and other remuneration and reimbursed expenses for such fiscal year from the
Partnership to the General Partners or any Affiliate of the General Partners
and (d) a statement showing the Distributable Cash and Sale or Financing
Proceeds distributed to each Person who was a Partner or assignee at any time
during such fiscal year with respect to such year.
11.4.3. As soon as possible and in any event within 55 days after
the end of each of its first three quarters of each fiscal year of the
Partnership, the Managing General Partner shall send to each General Partner a
balance sheet of the Partnership as of the end of such quarter and related
statements of operations, and cash flow for such quarters and for a portion of
the Partnership's fiscal year ended at the end of such quarter, setting forth
in each case in comparative form the figures for the corresponding quarter and
the corresponding portion of the Partnership's previous fiscal year, all
certified (subject to normal year-end adjustments) as to the fairness of
presentation, generally accepted accounting principles and consistency in
presentation with prior statements by the chief financial officer or the chief
accounting officer of the Managing General Partner.
11.5. Depreciation and Elections. With respect to any depreciable
assets of the Partnership, the Partnership may elect to use, so far as
permitted by the provisions of the Code, any depreciation method which is
appropriate in the opinion of the General Partners. The Partnership may, in
the discretion of the
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General Partners, make or elect not to make, and may revoke or elect not to
revoke, any election permitted or required to be made by the Partnership for
Federal income or state tax purposes.
11.6. Designation of Tax Matters Partner. Red Hill is hereby designated
as the "Tax Matters Partner" of the Partnership under Section 6231(a)(7)
of the Code, to manage administrative tax proceedings conducted at the
Partnership level by the Internal Revenue Service with respect to Partnership
matters. Any Partner or assignee may participate in such administrative
proceedings relating to the determination of Partnership items at the
Partnership level, to the extent permitted by the Code. Expenses of such
administrative proceedings undertaken by the Tax Matters Partner shall be paid
from Partnership assets. Each Limited Partner or assignee who elects to
participate in such proceedings shall be responsible for its own expenses
incurred in connection with such participation. The cost of any adjustments to
a Limited Partner or assignee, and the cost of any resulting audits or
adjustments of a Limited Partner's or assignee's tax return, will be borne
solely by the affected Limited Partner or assignee.
ARTICLE XII
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
12.1. Meetings.
12.1.1. Meetings of the Partners for any matter on which the Limited
Partners may vote may be called by any General Partner, and shall be called by
the Managing General Partner upon receipt of a request in writing signed by
the holders of more than 10% of the outstanding Units of the Limited Partners.
Notice of any such meeting shall be sent by the General Partners to the
Limited Partners within 10 days after their receipt of such a request. Such a
request shall state the purpose of the proposed meeting and the matters
proposed to be acted upon thereat. The requested meeting shall be held at the
principal office of the Partnership. In addition, the General Partners may
submit any matter (upon which the Limited Partners are entitled to act) to the
Limited Partners for a vote by written consent without a meeting, or upon
receipt of a request in writing signed by the holders of more than 10% of the
outstanding Units of the Limited Partners, shall submit any such matter (upon
which the Limited Partners are entitled to act) to the Limited Partners for a
vote by written consent without a meeting.
12.1.2. Notice of any meeting shall be given either personally or by
mail, not less than 15 days nor more than 60 days before the date of the
meeting, to each Limited Partner at its record mailing address. Such Notice
shall be in writing, shall state the place, date, hour and purpose of the
meeting, and shall indicate that it is being issued at the direction of the
Partner or Partners calling the meeting. If a meeting is
51
<PAGE>
adjourned to another time or place, and if any announcement of the adjournment
of time and place is made at the meeting, it shall not be necessary to give
Notice of the adjourned meeting. If the adjournment is for more than 45 days
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of adjourned meeting shall be given to each Partner of
record entitled to vote at the meeting. The presence in person or by proxy of
the holders of a majority of the outstanding Units of the Limited Partners
shall constitute a quorum at all meetings of the Limited Partners; provided,
however, that if there be no such quorum, the holders of a majority in
interest of such Units who are present or represented by proxy may adjourn the
meeting from time to time without further Notice, until a quorum shall have
been obtained. No Notice of the time, place or purpose of any meeting of the
Limited Partners need be given to any Limited Partner who attends in person or
is represented by proxy (except for a Limited Partner who attends a meeting
for the express purpose of objecting at the beginning of the meeting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened), or to any Limited Partner entitled to such Notice who, in
a writing executed and filed with the records of the meeting, either before or
after the time thereof, waives such Notice.
12.1.3. For the purpose of determining the Limited Partners entitled
to vote at any meeting of the Partnership or any adjournment thereof, the
General Partners or the Limited Partners requesting such meeting may fix, in
advance, a date as the record date for any such determination. The
determination date shall be not more than 50 days nor less than 10 days before
any such meeting.
12.1.4. Each Limited Partner may authorize any Person to act for it
by proxy in all matters in which a Limited Partner is entitled to participate,
whether by waiving Notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Limited Partner or its
attorney-in-fact. No proxy shall be valid after the expiration of 11 months
from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it.
12.1.5. At each meeting of the Limited Partners, the General
Partners shall appoint such officers and adopt such rules for the conduct of
such meeting as the General Partners shall deem appropriate.
12.2. Voting Rights of Limited Partners. The Limited Partners shall
have the right to vote only on:
12.2.1. Those matters specified in Sections 6.5, 8.2.1 and 14.2.2 of
this Limited Partnership Agreement or the last paragraph of Section 15636 of
the Act incorporating the
52
<PAGE>
provisions specified in subparagraphs (H) and (I) of paragraph (5) of
subdivision (b) of Section 15632 of the Act.
12.2.2. Amendments to this Limited Partnership Agreement which
affect in a substantive way the rights, powers or duties of the Limited
Partners, subject to the provisions hereof, provided that such amendments (a)
shall not allow the Limited Partners to take part in the management or control
of the Partnership's business, and (b) shall not, without the consent of the
General Partners, alter the rights, powers or duties of the General Partners
as set forth herein.
ARTICLE XIII
MATTERS AFFECTING STATUS AS A QUALIFYING FACILITY
13.1. Within three weeks after the execution of this Limited
Partnership Agreement, Niguel on behalf of the Partnership will file with FERC
an application for FERC certification that the Elmore Facility is a qualifying
facility within the meaning of 18 C.F.R. Section 292.203.
13.2. If FERC declines to certify the Elmore Facility on the grounds
that the Ownership Criteria are not satisfied because of Niguel's Ownership
Interest in the Elmore Facility in light of the special allocations set forth
in Sections 5.3.1 and 5.3.2 or otherwise, then Niguel may transfer a portion
of its Limited Partnership Interest to satisfy the Ownership Criteria or to
enable it to receive the benefits of such allocations. If transfer of a
Limited Partner Interest greater than that then held by Niguel is required to
achieve such result, Niguel may convert a portion of its Interest as a General
Partner into a Limited Partner's Interest and so transfer that Interest. Any
transferee shall become a Substituted Limited Partner without consent of the
General Partner or General Partners.
13.3. Any transfers under this Article XIII or subsequent transfers
of Interests so transferred shall not be subject to Section 9.2, nor require
the consent of either General Partner under Section 8.1.
13.4. If FERC or any other person or entity commences a proceeding
to revoke the status of the Elmore Facility as a Qualifying Facility because
of Niguel's ownership interest in the Elmore Facility, in light of the special
allocations set forth in Sections 5.3.1 and 5.3.2 or otherwise, Niguel may
undertake the transfers contemplated in Section 13.2. If a FERC order to
revoke the status of the Elmore Facility as a Qualifying Facility because of
Niguel's ownership interest in the Elmore Facility in light of the special
allocations set forth in Sections 5.3.1 and 5.3.2 or otherwise, has been
issued or is imminent, Niguel shall, to the extent necessary, do either or
both of the following: (i) undertake the transfers contemplated in Section
13.2 (including conversion of part of its Interest as a General Partner, if
necessary) or (ii) apply the provisions of Section 5.3.4 in the
53
<PAGE>
same manner as would apply in the event that FERC fails to initially act or
certify the Elmore Facility in the manner set forth in Section 5.3.4.
13.5. In no event may any Partner assign, convey, mortgage, pledge,
sell, transfer or otherwise dispose of all or any part of its Interest in the
Partnership or interest in this Limited Partnership Agreement to any person
whose ownership of an interest in the Partnership or in this Limited
Partnership Agreement would cause the Elmore Facility not to be a qualifying
facility.
ARTICLE XIV
OTHER PROVISIONS
14.1. Appointment of General Partners as Attorneys-in-Fact.
14.1.1. Each Limited Partner, including each Substituted Limited
Partner, by its execution of this Limited Partnership Agreement, irrevocably
constitutes and appoints the General Partners and each of them as its true and
lawful attorneys-in-fact with full power and authority in its name, place and
stead to execute, acknowledge, deliver, swear to, file and record at the
appropriate public offices such documents as may be necessary or appropriate
to carry out the provisions of this Limited Partnership Agreement, including
but not limited to:
(a) All certificates and other instruments (including counterparts
of this Limited Partnership Agreement), and all amendments thereto, which
the General Partners deem appropriate to form, qualify or continue the
Partnership as a limited partnership (or a partnership in which the
Limited Partners will have limited liability comparable to that provided
in the Act), in the jurisdictions in which the Partnership may conduct
business or in which such formation, qualification or continuation is, in
the opinion of either of the General Partners, necessary or desirable to
protect the limited liability of the Limited Partners;
(b) All amendments to this Limited Partnership Agreement adopted in
accordance with the terms hereof, and all instruments which the General
Partners deem appropriate to reflect a change or modification of the
Partnership in accordance with the terms of this Limited Partnership
Agreement; and
(c) All conveyances of Property, and other instruments which either
of the General Partners reasonably deem necessary in order to complete a
dissolution and termination of the Partnership pursuant to this Limited
Partnership Agreement.
54
<PAGE>
14.1.2. The appointment by all Limited Partners of the General
Partners as attorneys-in-fact shall be deemed to be a power coupled with an
interest, in recognition of the fact that each of the Partners under this
Limited Partnership Agreement will be relying upon the power of the General
Partners to act as contemplated by this Limited Partnership Agreement in any
filing and other action by it on behalf of the Partnership, shall survive the
bankruptcy, death, adjudication of incompetence or insanity, other Incapacity
or dissolution of any Person hereby giving such power, and the transfer or
assignment of all or any portion of the Units of such Person, and shall not be
affected by the subsequent incapacity of the principal; provided, however,
that in the event of the assignment by a Limited Partner of all of its Units,
the foregoing power of attorney of an assignor Limited Partner shall survive
such assignment only until such time as the assignee shall have been admitted
to the Partnership as a Substituted Limited Partner and all required documents
and instruments shall have been duly executed, filed and recorded to effect
such substitution.
14.2. Amendments.
14.2.1. Each Substituted Limited Partner, additional General Partner
and successor General Partner shall become a signatory hereto by signing such
number of counterpart signature pages to this Limited Partnership Agreement, a
power of attorney to the General Partners, and such other instruments, in such
manner, as the General Partners shall determine. By so signing, each
Substituted Limited Partner, additional General Partner or successor General
Partner, as the case may be, shall be deemed to have adopted and to have
agreed to be bound by all of the provisions of this Limited Partnership
Agreement.
14.2.2. In addition to other amendments authorized herein,
amendments may be made to this Limited Partnership Agreement from time to time
by the General Partners; provided, however, that (i) without the consent of
the Partners to be adversely affected by an amendment, this Limited
Partnership Agreement may not be amended so as to (a) convert a Limited
Partner's Interest into a general partner's interest, (b) modify the limited
liability of a Limited Partner or (c) alter the interest of a Partner in
Taxable Income, Tax Loss, Distributable Cash or Sale or Financing Proceeds;
(ii) without the consent of the Management Committee, this Limited Partnership
Agreement may not be amended so as to affect the substantive rights or
obligations of any Partner; and (iii) without the approval of a Majority of
the Limited Partners, this Limited Partnership Agreement may not be amended so
as to affect any other rights, powers or duties of the Limited Partners.
14.2.3. In addition to other amendments authorized herein,
amendments may be made to this Limited Partnership Agreement from time to time
by the General Partners, without the consent of any of the Limited Partners
but only with
55
<PAGE>
the consent of the Management Committee, (a) to cure any ambiguity, to correct
or supplement any provision herein which may be inconsistent with any other
provision herein, or to make any other provisions with respect to matters or
questions arising under this Limited Partnership Agreement that are not
inconsistent with the provisions of this Limited Partnership Agreement; (b) to
delete or add any provision of this Limited Partnership Agreement required to
be so deleted or added by any Federal or state official, which addition or
deletion is deemed by such official to be for the benefit or protection of the
Limited Partners; and (c) to take such actions as may be necessary (if any) to
insure that the Partnership will be treated as a partnership, and that each
Limited Partner will be treated as a limited partner, for Federal income tax
purposes; provided, however, that no amendment shall be adopted pursuant to
this Section 14.2.3 unless the adoption thereof (i) is for the benefit of or
not adverse to the interests of the Limited Partners, (ii) does not affect the
distribution of Distributable Cash or Sale or Financing Proceeds or the
allocation of Taxable Income or Tax Loss among the Partners or between the
Limited Partners as a class and the General Partners as a class and (iii) does
not affect the limited liability of the Limited Partners or the status of the
Partnership as a partnership for Federal income tax purposes.
14.2.4. If this Limited Partnership Agreement is amended as a result
of substituting a Limited Partner or increasing the investment of a Limited
Partner, the amendment to this Limited Partnership Agreement shall be
sufficient when it is signed by the General Partners and by the Person to be
substituted or who is increasing its investment in the Partnership, and, if a
Limited Partner is to be substituted, by the assigning Limited Partner. If
this Limited Partnership Agreement is amended to reflect the designation of an
additional General Partner, the amendment to this Limited Partnership
Agreement shall be sufficient when it is signed by the other General Partner
or General Partners and by the additional General Partner. If this Limited
Partnership Agreement is amended to reflect the withdrawal of a General
Partner and if the business of the Partnership is to be continued, the
amendment to this Limited Partnership Agreement shall be sufficient when it is
signed by the withdrawing General Partner (and such General Partner hereby so
agrees) and by the remaining or successor General Partner or General Partners.
14.2.5. In making any amendments, there shall be prepared and filed
by the General Partners such documents and certificates as may be required
under the Act and under the laws of any other jurisdiction applicable to the
Partnership.
14.3. Security Interest and Right of Set-Off. As Security for any
withholding tax or other liability or obligation to which the Partnership may
be subject as a result of any act or status of any Limited Partner, or to
which the Partnership may
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<PAGE>
become subject with respect to the interest of any Limited Partner, the
Partnership shall have (and each Limited Partner hereby grants to the
Partnership) a security interest in all Distributable Cash and Sale or
Financing Proceeds distributable to such Limited Partner to the extent of the
amount of such withholding tax or other liability or obligation. The
Partnership shall have a right of set-off against such distributions of
Distributable Cash or Sale or Financing Proceeds, in the amount of such
withholding tax or other liability or obligation.
14.4. Binding Provisions. The covenants and agreements contained herein
shall be binding upon, and inure to the benefit of, the heirs, executors,
administrators, personal representatives, successors and assigns of the
respective parties hereto.
14.5. Applicable Law. This Limited Partnership Agreement shall be
construed and enforced in accordance with the laws of the State of California.
14.6. Counterparts. This Limited Partnership Agreement may be executed
in several counterparts, all of which together shall constitute one agreement
binding on all parties hereto, notwithstanding that all of the parties have
not signed the same counterpart.
14.7. Separability of Provisions and Savings Provision. Each provision
of this Limited Partnership Agreement shall be considered separable, and
if for any reason any provision or provisions hereof are determined to be
invalid and contrary to any existing or future law, such invalidity shall not
impair the operation of or effect those portions of this Limited Partnership
Agreement which are valid. Notwithstanding any other provision hereof, if the
grant or exercise of rights under Section 3.8, 5.5.10, 8.2.3 or 9.2.1 would
result in the Partnership's failure to satisfy the ownership criteria, because
of Niguel's interest in the Partnership such rights shall be reduced to the
extent necessary to remedy such condition.
14.8. Article and Section Titles. Article and Section titles are for
descriptive purposes only and shall not control or alter the meaning of this
Limited Partnership Agreement as set forth in the text.
ARTICLE XV
DISPUTES AND ARBITRATION
15.1. Preliminary Dispute Resolution. Each of the General Partners
shall appoint an official liaison (an "Official Liaison") who shall be the
chief executive officer of the Partner or, in the event the Partner is not a
corporation, a person of similar rank. In the event that a dispute or a
problem shall arise among the General Partners concerning this Limited
57
<PAGE>
Partnership Agreement, such dispute or problem shall be submitted to the
Official Liaisons for their review and resolution. Each party shall set forth
in writing its respective position on the dispute or problem and a copy of
such written position shall be delivered to each of the Official Liaisons and
the other party. The Official Liaisons may hold such meetings and may review
such documents as they may consider necessary. Any resolution of the dispute
or problem agreed to by all of the Official Liaisons shall be set forth in
writing and initialed by all of the Official Liaisons and to the extent
permitted by law shall be final and binding on the parties. In the event that
the Official Liaisons are unable to agree on a resolution of the dispute or
problem within 30 days of submission to them, either Official Liaison may
submit the matter to binding arbitration.
15.2. Arbitration. Except as set forth in Section 15.1, all disputes,
controversies or unresolved questions (whether related to legal, contractual,
business, management, financial, technical, operational or other issues) that
arise under or with respect to this Agreement shall be settled by arbitration
under this Article XV. The Official Liaison desiring arbitration shall give
written notice to that effect to the other official Liaison and in such notice
shall appoint as an arbitrator a disinterested person of recognized competence
in the area at issue. Within fifteen (15) days thereafter, the other Official
Liaison shall, by written notice to the originating party, appoint a second
person similarly qualified as the second arbitrator. Within fifteen (15) days
thereafter, the arbitrators thus appointed shall appoint a third person
similarly qualified as the third arbitrator, and such three arbitrators shall
as promptly as possible determine such matter with the parties, each being
entitled to present evidence and argument to the arbitrators; provided,
however, that:
(i) if the second arbitrator shall not have been appointed as
aforesaid, the first arbitrator shall determine such matter; and
(ii) if the two arbitrators appointed by the parties shall be unable
to agree upon the appointment of the third arbitrator within fifteen (15)
days after the appointment of the second arbitrator, they shall give
written notice of such failure to agree to the parties, and, if the
parties fail to agree upon the selection of such third arbitrator within
fifteen (15) days thereafter, then within ten (10) days thereafter,
either of the parties upon written notice to the other party may apply
for such appointment to the Federal District Court or County Superior
Court in San Diego, California.
All selections of an arbitrator shall be subject to the consent of the
Project Lender, but only if the Project Lender notifies the parties that it
desires to approve the selection of
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an arbitrator, and such consent shall not be unreasonably withheld.
The arbitrator or arbitrators shall only interpret and apply the terms
and provisions of this Agreement (and any other agreement at issue pursuant to
Section 15.2) and shall not change any such terms or provisions or deprive
either party of any right or remedy expressly or impliedly provided for in
this Agreement or such other agreement.
The determination of the majority of the arbitrators or the sole
arbitrator, as the case may be, shall, to the extent permitted by law, be
conclusive and binding upon the parties. The arbitrator or arbitrators shall
give written notice to the parties stating their determination, and shall
furnish to each a copy of such determination signed by them. In the event of
the failure, refusal or inability of any arbitrator to act, a new arbitrator
shall be appointed in his or her stead, which appointment shall be made in the
same manner as hereinbefore provided for the appointment of the arbitrator so
failing, refusing or unable to act.
15.3. Niguel Request. If (a) the Official Liaison of Niguel requests
arbitration under Section 15.2 and (b) the requested relief includes the
initiation by the Partnership of arbitration proceedings under one or more
Operating Agreements or other agreements between the Partnership and Red Hill
or any of its Affiliates, and (c) the arbitrators agree that such arbitration
pursuant to the underlying agreement is appropriate, the arbitrators appointed
under this Agreement shall also resolve the issues presented under such other
agreement. Magma, by its signature to this Agreement as a Limited Partner,
expressly consents and agrees to the implementation of this provision in its
capacity as a party to any existing and future separate agreements with the
Partnership.
15.4. Exceptions. The requirement that all disputes between the parties
be resolved by arbitration shall not apply to a dispute in which:
(a) a party, having given the other party at least ten (10) days'
notice of the other party's alleged breach, in good faith seeks immediate
equitable relief from a court of competent jurisdiction to enable the
instituting party to prevent irreparable harm (alleged to arise from the
alleged breach) pending arbitral relief; or
(b) any claim by one party against the other party arises out of the
subject matter of any court litigation or proceeding commenced by any
third party against one party in which the other party is an
indispensable party or third party defendant; or
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(c) any claim is asserted with respect to which a third party, which
is not bound and will not, upon request of either party, agree to
arbitrate subject to the arbitration rules provided by this Article XV,
is an indispensable or necessary party.
15.5. Attorneys' Fees. Each party shall bear its own expenses, including
attorneys' fees, in connection with any dispute, resolution or arbitration
proceedings hereunder. Neither party in any such action, trial, arbitration or
appeal thereon shall be entitled to attorneys' fees or court, arbitration and
other costs incurred, unless otherwise decreed by the court or arbitrators in
the same or a separate suit.
15.6. Arbitrators' Fees. Subject to Section 15.5, each party will
compensate the arbitrator selected by it, and the third arbitrator and
expenses of the proceeding will be shared equally by the General Partners.
15.7. Discovery. Upon request of either party, the arbitrators will order
such discovery (including third-party discovery) as the arbitrators determine
to be reasonable under the circumstances. The arbitrators, shall, however,
impose reasonable schedules and deadlines to ensure that discovery is
conducted and concluded on a timely basis and shall impose sanctions on either
party for abuse or delay of discovery. Rules of evidence may be applied, in
the discretion of the arbitrators.
15.8. Expedited Procedure. Either party to the arbitration may elect, by
notice to the other party, to have the arbitration be conducted on an
expedited basis. Thereafter, the arbitrators shall be empowered to expedite
the proceedings by all reasonable means consistent with a fair hearing of the
dispute. Such means may include the imposition of accelerated discovery and
hearing schedules, requiring submissions within abbreviated time periods and
imposing limits on numbers of witnesses and the length of hearings.
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15.9. Enforcement. Judgment upon the decision of the arbitrators may be
entered in any court having jurisdiction over the party against which
enforcement is sought.
IN WITNESS WHEREOF, the undersigned have executed this Limited
Partnership Agreement as of the date first written above.
GENERAL PARTNERS:
RED HILL GEOTHERMAL, INC., a
Delaware corporation
By:/s/ Russ L. Tenney
-----------------------------
Its: President
-------------------------
By:/s/ Charles C. Bowles
-----------------------------
Its: Assistant Secretary
-------------------------
NIGUEL ENERGY COMPANY,
a California corporation
By:/s/ Gregory C. Hoppe
-----------------------------
Its: Vice President
-------------------------
By:/s/ Alan N. Fenning
-----------------------------
Its: Secretary
-------------------------
ORIGINAL LIMITED PARTNERS:
MAGMA POWER COMPANY,
a Nevada corporation
By:/s/ Arnold L. Johnson
-----------------------------
Its: President
-------------------------
By:/s/ Jon R. Peele
-----------------------------
Its: Secretary
-------------------------
61
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NIGUEL ENERGY COMPANY,
a California corporation
By:/s/ Gregory C. Hoppe
-----------------------------
Its: Vice President
-------------------------
By:/s/ Alan N. Fenning
-----------------------------
Its: Secretary
-------------------------
62
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Exhibit "A"
Original Limited Partners
Name and Address
Magma Power Company,
a Nevada corporation
11770 Bernardo Plaza Court
Suite 366
San Diego, California 92128
Niguel Energy Company,
a California corporation
18872 MacArthur Boulevard
Suite 400
Irvine, California 92715
<PAGE>
Exhibit "B"
Partners' Names, Addresses, Units,
and Initial Capital Contributions
Cash
Capital Fair Market
Name and Address Contribution Value Units
---------------- ------------ ----- -----
General Partners:
- ----------------
Hill Geothermal, Inc. $1,335,000 $830,787 40
West Sinclair Road
__ipatria, California 92233
_____ Energy Company $5,507,598 40
72 MacArthur Boulevard
Suite 400
____, California
Limited Partners:
Magma Power $1,876,829 10
70 Bernardo Plaza Court
Suite 366
Diego, California 92128
Fuel Energy Company $4,692,402 10
72 MacArthur Boulevard
Suite 400
_____, California 92715
<PAGE>
Exhibit "D"
Contribution of
Intangible Drilling Costs
(Attached)
<PAGE>
Exhibit "C"
Aggregate of
Scheduled Capital Contributions
-------------------------------
Name Amount
- ---- ------
General Partners:
- ----------------
Red Hill Geothermal, Inc. $ 7,507,317
Niguel Energy Company $18,769,606
Limited Partners:
- ----------------
Magma Power Company $1,876,829
Niguel Energy Company $4,692,402
<PAGE>
Elmore
ASSIGNMENT AS CAPITAL CONTRIBUTION
THIS ASSIGNMENT AS CAPITAL CONTRIBUTION (the "Assignment") is made
as of the 14th day of March, 1988, by and between MAGMA POWER COMPANY, a
Nevada corporation ("Assignor"), and ELMORE, LTD., a California limited
partnership ("Assignee").
Recitals
A. Assigned Property. Assignor is currently developing a power
production geothermal electrical generating facility in the Salton Sea Known
Geothermal Resource Area in Imperial County, California (the "Elmore
Facility"). In connection with Assignor's development of the Elmore Facility,
Assignor has incurred certain tangible and intangible drilling and development
costs with respect to developing the geothermal production and injection wells
that will service the Elmore Facility (the "Geothermal Wells"). As of the date
hereof, in exchange for cash, Assignor is selling to Assignee certain of
Assignor's right, title and interest in and to the Elmore Facility, including
so much of the Geothermal Wells as is represented by tangible drilling and
development costs incurred to date. In addition, Assignor is acquiring a
limited partnership interest in Assignee pursuant to that certain Amended and
Restated Limited Partnership Agreement of Assignee dated as of March 14, 1988
(the "Agreement"). As its total "Capital Contribution" (as defined in the
Agreement) Assignor is contributing to Assignee Assignor's right, title and
interest in and to those portions of the Geothermal Wells as have been
developed through the incurrence of costs which are deductible by Assignor for
Federal income tax purposes pursuant to Section 263(c) of the Internal Revenue
Code of 1986, as amended, up to a total amount of such costs of $1,876,829
(the "Assigned Property").
B. Purpose. Assignor now desires to assign to Assignee all of its
rights, title and interest in and to the Assigned Property. Assignee desires
to accept such rights, title and interest.
Agreement
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. Assignment. Assignor hereby assigns and transfers all of its
right, title and interest in and to the Assigned Property to Assignee.
<PAGE>
2. Acceptance and Assumption. Assignee hereby accepts the foregoing
assignment as a Capital Contribution pursuant to Section 3.4 of the Agreement.
3. Miscellaneous. This Assignment shall be binding upon and shall
inure to the benefit of the respective heirs, successors and assigns of the
parties hereto. Each party agrees to execute any and all other documents
reasonably necessary or appropriate in order to effect the assignment to
Assignee of the Assigned Property and any rights thereto in accordance with
the terms of this Assignment. This Assignment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The headings used
herein are inserted for purposes of reference and are not intended to be part
of or to effect the meaning or interpretation of this Assignment.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
to be duly executed on their respective behalf, by their respective officers,
thereunto duly authorized, all as of the day and year first above written.
ASSIGNOR:
MAGMA POWER COMPANY, a Nevada Corporation
By:/s/
-----------------------------
Its:
-------------------------
By:/s/
-----------------------------
Its:
-------------------------
ASSIGNEE:
ELMORE, LTD., a California limited
partnership
By: RED HILL GEOTHERMAL, INC., a Delaware
corporation, its General Partner
By:/s/
-----------------------------
Its:
-------------------------
By:/s/
-----------------------------
Its:
-------------------------
2
<PAGE>
By: NIGUEL ENERGY COMPANY, a California
corporation, its General Partner
By:/s/
-----------------------------
Its:
-------------------------
By:/s/
-----------------------------
Its:
-------------------------
By: MAGMA POWER COMPANY, a Nevada
corporation, its Limited Partner
By:/s/
-----------------------------
Its:
-------------------------
By:/s/
-----------------------------
Its:
-------------------------
By: NIGUEL ENERGY COMPANY, a California
corporation, its Limited Partner
By:/s/
-----------------------------
Its:
-------------------------
By:/s/
-----------------------------
Its:
-------------------------
3
<PAGE>
Elmore
ASSIGNMENT AS CAPITAL CONTRIBUTION
THIS ASSIGNMENT AS CAPITAL CONTRIBUTION (the "Assignment") is made
as of the 14th day of March, 1988, by and between RED HILL GEOTHERMAL, INC., a
Delaware corporation ("Assignor"), and ELMORE, LTD., a California limited
partnership ("Assignee").
Recitals
A. Assigned Property. Assignor is a wholly owned subsidiary of Magma
Power Company, a Nevada corporation ("Magma"). Magma is currently developing a
power production geothermal electrical generating facility in the Salton Sea
Known Geothermal Resource Area in Imperial County, California (the "Elmore
Facility"). In connection with Magma's development of the Elmore Facility,
Magma has incurred certain tangible and intangible drilling and development
costs with respect to developing the geothermal production and injection wells
that will service the Elmore Facility (the "Geothermal Wells"). Pursuant to
that certain Assignment as Capital Contribution of even date herewith, by and
between Magma and Assignee, Magma assigned to Assignor its right, title and
interest in and to a portion of the Geothermal Wells represented by a portion
of the total amount of such intangible drilling and development costs incurred
by Magma to date. As of even date herewith, Assignor is acquiring a general
partner interest in Assignee pursuant to that certain Amended and Restated
Limited Partnership Agreement of Assignee dated as of March 14, 1988 (the
"Agreement"). As a portion of its total "Scheduled Capital Contribution" (as
defined in the Agreement) Assignor is contributing to Assignee Assignor's
right, title and interest in and to those portions of the Geothermal Wells so
assigned to Assignee which have been developed through the incurrence of costs
which are deductible by Assignor for Federal income tax purposes pursuant to
Section 263(c) of the Internal Revenue Code of 1986, as amended, which costs
are equal to $830,787 (the "Assigned Property"), subject to adjustment as
provided in Section 3.4.2 of the Agreement. The other portion of such
Geothermal Wells as is represented by such deductible costs is being
contributed to Assignee by Magma on the date hereof.
B. Purpose. Assignor now desires to assign to Assignee all of its
rights, title and interest in and to the Assigned Property. Assignee desires
to accept such rights, title and interest.
<PAGE>
Agreement
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. Assignment. Assignor hereby assigns and transfers all of its
right, title and interest in and to the Assigned Property to Assignee.
2. Acceptance and Assumption. Assignee hereby accepts the foregoing
assignment as a Scheduled Capital Contribution pursuant to Section 3.4 of the
Agreement.
3. Miscellaneous. This Assignment shall be binding upon and shall
inure to the benefit of the respective heirs, successors and assigns of the
parties hereto. Each party agrees to execute any and all other documents
reasonably necessary or appropriate in order to effect the assignment to
Assignee of the Assigned Property and any rights thereto in accordance with
the terms of this Assignment. This Assignment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The headings used
herein are inserted for purposes of reference and are not intended to be part
of or to effect the meaning or interpretation of this Assignment.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
to be duly executed on their respective behalf, by their respective officers,
thereunto duly authorized, all as of the day and year first above written.
ASSIGNOR:
RED HILL GEOTHERMAL, INC.,
a Delaware corporation
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Its:
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Its:
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2
<PAGE>
ASSIGNEE:
ELMORE, LTD., a California limited
partnership
By: RED HILL GEOTHERMAL, INC.,
a Delaware corporation, its
General Partner
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Its:
-------------------------
By:/s/
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Its:
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By: NIGUEL ENERGY COMPANY, a
California Corporation, its
General Partner
By:/s/
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Its:
-------------------------
By:/s/
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Its:
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By: MAGMA POWER COMPANY, a
Nevada corporation, its
Limited Partner
By:/s/
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Its:
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By:/s/
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Its:
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3
<PAGE>
By: NIGUEL ENERGY COMPANY, a
California corporation, its
Limited Partner
By:/s/
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Its:
-------------------------
By:/s/
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Its:
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4
<PAGE>
SCHEDULE "Z"
"Additional Power Production Facilities" means power production
geothermal electrical generating facilities developed in the SSKGRA which
Process Reserved Geothermal Brine to produce electrical energy.
"Administration Fee" means the payments to be made to Red Hill
provided for in Section 6 of the Administrative Services Agreement.
"Administrative Services Agreement" means that certain
Administrative Services Agreement dated as of March 14, 1988, as the same may
be amended from time to time, by and between Red Hill and Elmore, Ltd.,
pursuant to which Red Hill will provide certain administrative and management
services to Elmore, Ltd. in connection with the operation of the Elmore
Facility.
"Affiliate" means, when used with reference to a specified Person,
(a) any Person who directly or indirectly controls, is controlled by or is
under common control with the specified Person, (b) any Person who is an
officer, partner or trustee of, or serves in a similar capacity with respect
to, the specified Person, or for which the specified Person is an officer,
partner or trustee or serves in a similar capacity, (c) any Person who,
directly or indirectly, is the beneficial owner of 10% or more of any class of
equity securities of the specified Person, or of which the specified Person,
directly or indirectly, is the owner of 10% or more of any class of equity
securities, and (d) any relative of the specified Person.
"Average Annual Energy Price" means an amount equal to the sum of
(i) 2/3 multiplied by the average of the quarterly Time Period Weighted
Average Proposed Avoided Cost Energy Winter Prices released by SCE for the
calendar year in which the calculation is being made, plus (ii) 1/3 multiplied
by the average of the quarterly Time Period Weighted Average Proposed Avoided
Cost Energy Summer Prices released by SCE for the calendar year in which the
calculation is being made. In the event that the Time Period Weighted Average
Proposed Avoided Cost Energy Winter Prices and the Time Period Weighted
Average Proposed Avoided Cost Energy Summer Prices are abandoned or changed
materially or otherwise cease to be released by SCE on a quarterly basis, the
parties shall select a substitute index to the end that the Average Annual
Energy Price will reflect SCE's average annual avoided cost energy prices. In
the event the parties fail to agree on a substitute index as provided in the
immediately preceding sentence, the matter shall be submitted to an arbitrator
in accordance with Section 21 of the Operating and Maintenance Agreement and
the arbitrator shall select the substitute index to be used.
<PAGE>
"Brine Minerals" means all mineral resources found in the Geothermal
Brine, including, without limitation, mineral resources found in the
Geothermal Brine Scale.
"BTU Energy" means the heat value in British Thermal Units which can
be extracted from Geothermal Brine.
"Capacity" shall have the same meaning as that term has in the
Elmore Power Purchase Contract.
"Capital Contribution" has the same meaning as that term has in the
Limited Partnership Agreement.
"Code" means the Internal Revenue Code of 1986, as amended (or any
corresponding provision or provisions of succeeding law).
"Construction Management Agreement" means that certain Construction
Management and Asset Transfer Agreement dated as of March 14, 1988, as the
same may be amended from time to time, by and between Magma and Elmore, Ltd.,
pursuant to which Magma will act as Elmore, Ltd.'s construction manager for
the construction of the Elmore Facility.
"Construction Management Fee" means the payments to be made to Magma
provided for in Section 9 of the Construction Management Agreement.
"Construction Manager" means Magma for purposes of the Construction
Management Agreement.
"Contract Capacity" shall have the same meaning as that term has in
the Elmore Power Purchase Contract.
"Conversion Date" shall have the same meaning as that term has in
the Credit Facility.
"Credit Facility" means that certain Secured Credit Agreement dated
as of March 14, 1988, as the same may be amended from time to time, among
Elmore, Ltd., the Banks listed on the signature pages thereto and Morgan
Guaranty Trust Company of New York, as Agent.
"Critical Parts and Equipment" means those certain equipment and
parts delineated on Exhibit "A" to the Operating and Maintenance Agreement and
such additional equipment and parts which the parties thereto agree, from time
to time, should be added to the Critical Parts and Equipment listed on said
Exhibit "A" to the Operating and Maintenance Agreement.
"DCC" means The Dow Chemical Company, a Delaware corporation.
2
<PAGE>
"DEC" means Dow Engineering Company, a Delaware corporation.
"Debt Service Reserve" means the reserve established pursuant to
Section 11.1 of the Operating and Maintenance Agreement.
"Debt Service Reserve Account" means the segregated bank account
established pursuant to Section 11.1 of the Operating and Maintenance
Agreement.
"Decommission," "Decommissioned" or "Decommissioning" means the
obligations on the part of Elmore, Ltd., among other things, to remove all or
a portion of the Elmore Facility and, with respect to production and injection
wells and only to the extent allowed by applicable law, to cap such wells in
lieu of removal from the Elmore Property and the Geothermal Lease Rights
Properties in the event Magma elects to require such removal pursuant to
Sections 8.11 and 8.13 of the Ground Lease and/or Section 3.1.4 of the
Easement Agreement.
"Decommissioning Reserve" means the reserve established pursuant to
Section 11.3 of the Operating and Maintenance Agreement.
"Decommissioning Reserve Account" means the segregated bank account
established pursuant to Section 11.3 of the Operating and Maintenance
Agreement.
"Development of the Elmore Facility" means the design, engineering,
construction, testing and start-up of the Elmore Facility.
"Distribution Dates" means each March 31 and September 30.
"Dow Services Agreement" means that certain Financial and Technical
Services Agreement dated March 27, 1987 by and between Magma and DCC, a copy
of which is attached as Exhibit "A" to the Administrative Services Agreement.
"Easement Agreement" means that certain Easement Grant Deed and
Agreement Regarding Rights for Geothermal Development dated as of March 14,
1988, as the same may be amended from time to time, by and between Magma and
Elmore, Ltd., pursuant to which the parties have provided for an "Easement to
Develop Geothermal Rights" and related rights and obligations as described
therein.
"Elmore Facility" means that certain power production geothermal
electrical generating facility being constructed pursuant to the Plans and
Specifications and any "as-built" plans on the Elmore Property which, when
completed, will have the capacity to convert BTU Energy from Geothermal Brine
into electrical energy, together with the Supporting Equipment.
3
<PAGE>
"Elmore Facility Brine Requirement" means that amount of Geothermal
Brine which, when Processed by the Elmore Facility, will yield the amount of
BTU Energy reasonably required to generate 332,880,000 kilowatt hours per year
of "Energy" as that term is defined in the Elmore Power Purchase Contract.
"Elmore Facility Projected Project Cost" means the total projected
cost of construction and development of the Elmore Facility as reflected on
Exhibit "I" to the Construction Management Agreement.
"Elmore Geothermal Lease Unit" means that certain John J. Elmore
Unit No. 1 established pursuant to that certain Designation and Declaration of
Unit dated as of February 1, 1964, as amended by that certain First
Restatement and Partial Restructuring of Unit dated as of January 19, 1988,
which evidences Magma's Geothermal Lease Rights in and to the Geothermal Lease
Rights Properties.
"Elmore, Ltd." means Elmore, Ltd., a California limited partnership,
a limited partnership organized under the laws of the State of California, the
general partners of which are Red Hill and Niguel Energy Company, a California
corporation.
"Elmore Power Purchase Contract" means that certain Power Purchase
Contract dated June 15, 1984, as amended, and as the same may be amended from
time to time, by and between Magma Electric Company, a Nevada corporation and
SCE.
"Elmore Property" means the parcel of real property more
particularly described on Exhibit "A" to the Ground Lease, as that description
may be modified from time to time pursuant to Section 3.3 of the Ground Lease.
"Elmore Property Preliminary Title Report" means that certain
Preliminary Title Report No. 105141-A dated February 17, 1988 a copy of which
is attached as Exhibit L to the Construction Management Agreement.
"Energy Revenues" means all payments received by Elmore, Ltd. for
the sale of electricity which payments represent the "Energy" (as that term is
defined in the Elmore Power Purchase Contract) component of the payments
received including, without limitation, (i) payments received by Elmore, Ltd.
from SCE pursuant to the Elmore Power Purchase Contract (without deduction for
payments made pursuant to the IID Transmission Line Agreement), (ii) all
payments for Energy delivered both before and after the Firm Operation Date
and below, at and above the "Contract Capacity" level (as that term is defined
in the Elmore Power Purchase Contract) and (iii) all payments received by
Elmore, Ltd. in lieu of payments that would have been received for the Energy
component of electricity that would have been produced but for the in lieu
payments.
4
<PAGE>
"Engineer" means R.W. Beck and Associates, or their successors in
the capacity of engineers and consultants with respect to the Development of
the Elmore Facility and the operation of the Elmore Facility.
"Excess Extracted Geothermal Brine" means Geothermal Brine extracted
by Elmore, Ltd. in connection with the operation of the Elmore Facility which
is in excess of the amount of Geothermal Brine needed to meet the Elmore
Facility Brine Requirement.
"Excess Unextracted Geothermal Brine" means all Geothermal Brine
which is not needed for the operation of the Elmore Facility.
"Extraordinary Services" means all of the services, materials,
equipment and supplies to be performed or provided by Red Hill pursuant to
Section 3 of the Administrative Services Agreement.
"Firm Operation Date" means the first day on which Firm Operation
(as that term is defined in the Elmore Power Purchase Contract) occurs under
the Elmore Power Purchase Contract.
"Firm Operation Month" means the first month during which Firm
Operation (as that term is defined in the Elmore Power Purchase Contract)
occurs under the Elmore Power Purchase Contract.
"Geothermal Brine" means the geothermal brine contained in the
Elmore Geothermal Lease Unit.
"Geothermal Brine Scale" means all deposits and residue including,
without limitation, silica slurry, silica cake and sludge deposits on or in
vessels or equipment in which Geothermal Brine is transported to or from, or
Processed or stored in, the Elmore Facility.
"Geothermal Lease Rights" means the rights in the Geothermal Lease
Rights Properties held by Magma pursuant to the Geothermal Leases including,
without limitation, certain rights of Magma to (i) that portion of the
Geothermal Lease Rights Properties existing below the surface of the land
including, without limitation, the right to extract and take Geothermal Brine
therefrom and (ii) the Surface Properties including, without limitation, the
right to enter upon certain portions of the Surface Properties for the
purposes of (1) drilling exploratory, production and injection wells; (2)
installing pipelines for the extraction of Geothermal Brine; (3) extracting
Geothermal Brine; and (4) constructing facilities designed to convert the heat
energy in the Geothermal Brine to electrical energy for sale to public
utilities.
5
<PAGE>
"Geothermal Lease Rights Properties" means the real property located
within the SSKGRA, as more particularly described in Exhibit "A" to the
Easement Agreement.
"Geothermal Lease Rights Properties Preliminary Title Report" means,
collectively, those certain Preliminary Title Reports Nos. 105143 dated
February 16, 1988 (McCoy), 105142 dated February 16, 1988 (L. Baretta), and
105141-B dated February 17, 1988 (J. Elmore), copies of which are attached as
Exhibit "C" to the Easement Agreement.
"Geothermal Leases" means those certain geothermal leases delineated
on Exhibit "B" to the Easement Agreement.
"Geothermal Lessors" means the parties identified as the "lessors,"
or their successors in interest, in each of the Geothermal Leases.
"Grantee" means Elmore, Ltd. for purposes of the Easement Agreement.
"Grantor" means Magma for purposes of the Easement Agreement.
"Ground Lease" means that certain Ground Lease dated as of March 14,
1988, as the same may be amended from time to time, by and between Magma and
Elmore, Ltd., pursuant to which Magma leases to Elmore, Ltd. the Elmore
Property.
"Guaranteed Capacity Payment" means the payments to be made to Red
Hill provided for in Section 13 of the Operating and Maintenance Agreement.
"IID" means the Imperial Irrigation District, organized under the
Water Code of the State of California.
"IID Agreements" mean, collectively, (i) that certain Funding and
Construction Agreement dated June 29, 1987, by and among the Imperial
Irrigation District ("IID"), and certain "Participants" (as that term is
defined in said Funding and Construction Agreement) including Magma, (ii) that
certain Joint Funding Agreement dated June 29, 1987, by and among the
"Participants" (as that term is defined in said Joint Funding Agreement)
including Magma and (iii) any "IID Transmission Service Agreement For
Alternative Resources" which may be entered into between IID and Elmore, Ltd.,
copies of which are attached as Exhibit "G" to the Construction Management
Agreement.
"Insurance Requirements" means policies of insurance, maintained by
or on behalf of Elmore, Ltd. with insurance companies rated at least B+ by
A.M. Best Company or such other insurance companies as may be acceptable to
the agent for the Project Lender, of the following type, in the following
amounts, and on the following terms:
6
<PAGE>
(i) at all times after completion of construction of the
Elmore Facility, insurance on the Elmore Facility against all
risks of physical loss or damage, including flood, earthquake
(to the extent possible) and collapse and all other risks and
perils normally covered in "all-risk" policies, for the full
cost of repair or replacement (excluding the costs of the
transmission lines, wells and Geothermal Brine pipelines);
(ii) as soon as possible in the course of construction of
the Elmore Facility and at all times after completion of
construction of the Elmore Facility, boiler and machinery
insurance written on a comprehensive form for the full repair
and replacement value of the equipment at and of the Elmore
Facility;
(iii) at all times, comprehensive general liability
insurance with a limit of no less than $1,000,000, combined
single limit, bodily injury and property damage, for each
occurrence;
(iv) at all times, excess public liability insurance in
the form of an umbrella policy which umbrella policy shall
afford coverage of not less than $10,000,000 per occurrence
over and above the coverage provided by the policies described
above and the policy described in Exhibit "N" to the
Construction Management Agreement;
(v) on and after the Firm Operation Date, business
interruption insurance covering, for an annual term, only
amounts due (including, without limitation, interest, principal
repayment and any other fees and expenses) on the Project
Lender's Loan; and
(vi) as soon as practicable after the agent for the
Project Lender shall request, such other insurance with respect
to the Elmore Facility in such amounts equal to the greater of
such amount, and against such insurable hazards, (x) as Magma
maintains with respect to other facilities similar to the
Elmore Facility, which Magma owns or operates, (y) as is
usually carried by corporations of established reputation
operating similar properties and (z) as the agent for the
Project Lender may from time to time reasonably request.
Each insurance policy set forth above (a) shall (except for the
liability insurance referred to in clause (iii) above, which shall name the
Project Lender as an additional insured) insure the Project Lender's interests
under the Project Lender's Lien and shall provide that all insurance proceeds
payable under such policy shall, until notice from the agent for the Project
7
<PAGE>
Lender to the contrary, be paid over directly to such agent for the benefit of
the Project Lender, (b) shall provide that it cannot be canceled or terminated
without thirty days' prior written notice to such agent, (c) shall include
waivers by the insurer of all claims for the payments by the Project Lender
and such agent of insurance premiums, (d) shall (except for the liability
insurance referred to in clause (iii) above) provide for losses to be payable
to the Project Lender notwithstanding (i) any act or failure to act by the
insured or violation by the insured of warranties, declarations or conditions
contained in the policy, (ii) any foreclosure or sale or other proceeding
relating to the Elmore Facility or construction work in progress or (iii) any
change in the title to or ownership of the Elmore Facility or construction
work in progress, (e) shall (except for the liability insurance referred to in
clause (iv) above, which shall have no deductible) provide for deductibles for
(i) "all risk" coverage of no greater than $500,000 per occurrence, and (ii)
business interruption coverage of no greater than sixty (60) days, and (f)
shall be in all other respects satisfactory to the agent for the Project
Lender.
"Licensee" means Elmore, Ltd. for purposes of the Technology
Transfer Agreement.
"Licensor" means Magma for purposes of the Technology Transfer
Agreement.
"Limited Partner" means any of the Original Limited Partners and
Substituted Limited Partners as defined in the Limited Partnership Agreement.
"Limited Partnership Agreement" means that certain Amended and
Restated Limited Partnership Agreement of Elmore, Ltd., dated as of March 14,
1988, as the same may be amended from time to time.
"Magma" means Magma Power Company, a Nevada corporation.
"Magma Overrun Loan" means any loan made by Magma pursuant to the
Magma Undertaking.
"Magma Undertaking" means the undertaking of Magma, substantially in
the form of Exhibit "K" to the Construction Management Agreement.
"Major Capital Expenditure Reserve" means the reserve established
pursuant to Section 11.2 of the Operating and Maintenance Agreement.
"Major Capital Expenditure Reserve Account" means the segregated
bank account established pursuant to Section 11.2 of the Operating and
Maintenance Agreement.
8
<PAGE>
"Operating Agreements" means the Easement Agreement, the
Administrative Services Agreement, the Construction Management Agreement, the
Elmore Power Purchase Contract, the Ground Lease, the Operating and
Maintenance Agreement, the Technology Transfer Agreement and the IID
Agreements.
"Operating and Maintenance Agreement" means that certain Operating
and Maintenance Agreement dated as of March 14, 1988, as the same may be
amended from time to time, by and between Elmore, Ltd. and Red Hill, pursuant
to which Red Hill will provide day-to-day operational and maintenance services
for Elmore, Ltd. in connection with the operation of the Elmore Facility.
"Operator" means Red Hill for purposes of the Operating and
Maintenance Agreement.
"Ordinary Services" means all of the services, materials, equipment
and supplies to be performed or provided by Red Hill on a normal day-to-day
basis pursuant to Section 2 of the Administrative Services Agreement.
"Owner" means Elmore, Ltd. for purposes of the Administrative
Services Agreement, the Construction Management Agreement and the Operating
and Maintenance Agreement.
"Partially Spent Geothermal Brine" means the Geothermal Brine in an
amount not exceeding the Elmore Facility Brine Requirement which has been
extracted and Processed by Elmore, Ltd. for the purpose of generating
electrical energy in connection with the operation of the Elmore Facility.
"Partnership Holding Account" has the same meaning as that term has
in the Limited Partnership Agreement.
"Permitted Investment" means any investment in (i) direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof, (ii) commercial paper
rated in the highest grade by a nationally recognized credit rating agency or
(iii) time deposits with, including certificates of deposit issued by, any
office located in the United States of any bank or trust company which is
organized under the laws of the United States or any state thereof and the
certificates of deposit of which are rated in one of the two highest grades by
a nationally recognized credit rating agency, provided in each case that such
investment matures within one year from the date of acquisition thereof by
Elmore, Ltd.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
9
<PAGE>
"Plans and Specifications" means those certain plans and
specifications for the construction of the Elmore Facility, as more
particularly described on Exhibit "H" to the Construction Management
Agreement.
"Principal Repayment Date" means the date on which a portion of the
principal of the Project Lender's Loan is scheduled to be repaid pursuant to
the Credit Facility.
"Process," "Processed" or "Processing" means the process by which
BTU Energy is extracted from the Geothermal Brine.
"Project Lender" means collectively the lender(s) advancing all or a
portion of the Project Lender's Loan, or the agent for such lenders.
"Project Lender's Lien" means the security interest or lien
evidenced by a first deed of trust granted by Elmore, Ltd. in Elmore, Ltd.'s
leasehold estate in the Elmore Property to the Project Lender to secure
repayment of any indebtedness and/or performance of any obligation created by
the Project Lender's Loans.
"Project Lender's Loan" means the financing provided by the Project
Lender for the Development of the Elmore Facility or the operation of the
Elmore Facility, the repayment of which is secured by the Project Lender's
Lien.
"Project Lender's Loan Documents" means all instruments, agreements
and other documents including, without limitation, the Credit Facility,
evidencing or related to the Project Lender's Loan and the security therefor
including, without limitation, the Project Lender's Lien.
"Red Hill" means Red Hill Geothermal, Inc. , a Delaware corporation,
a general partner of Elmore, Ltd. Red Hill is a wholly owned subsidiary of
Magma.
"Refunded Capital Contribution" shall have the same meaning as that
term has in Section 3.6 of the Limited Partnership Agreement.
"Reimbursement Charges" means the payments to Red Hill provided for
in Section 14 of the Operating and Maintenance Agreement.
"Reserved Geothermal Brine" means the combination of partially Spent
Geothermal Brine, Excess Extracted Geothermal Brine and Excess Unextracted
Geothermal Brine.
"SCE" means Southern California Edison Company.
10
<PAGE>
"SSKGRA" means Salton Sea Known Geothermal Resource Area.
"Schedule of Projected Remaining Cost of Construction" means the
projected cost of completing construction and development of the Elmore
Facility as of the date of the Construction Management Agreement, as reflected
on Exhibit "J" to the Construction Management Agreement.
"Services" means the services to be provided by Red Hill pursuant to
Section 2 of the Operating and Maintenance Agreement.
"Spare Parts" means all spare parts necessary for the reliable,
continuous operation of the Elmore Facility, other than the Critical Parts and
Equipment.
"Subcontractor" means a person or entity who performs any duties for
or supplies any equipment or material to Red Hill, directly or indirectly, in
the performance of the Services.
"Substantial Completion Month" means the month in which the
Construction Management Agreement terminates in accordance with its terms.
"Supporting Equipment" means all items described in Section 2.2.2 of
the Easement Agreement, including all such items located on the Elmore
Property, and any real property interest associated therewith.
"Surface Properties" means that portion of the geothermal Lease
Rights Properties existing above and upon the surface of the land.
"Technology Fee" means the payments to be made to Magma provided for
in Section 3 of the Technology Transfer Agreement.
"Technology Transfer Agreement" means that certain Technology
Transfer Agreement dated as of March 14, 1988, as the same may be amended from
time to time, by and between Magma and Elmore, Ltd., pursuant to which Magma
grants to Elmore, Ltd. the nonexclusive right to use certain "Technology" and
"Know-How" which will be utilized by Elmore, Ltd. only in connection with the
operation of the Elmore Facility.
"Total Electricity Revenues" means all payments received by Elmore,
Ltd. for the sale of electricity including, without limitation, payments
received by Elmore, Ltd. from SCE pursuant to the Elmore Power Purchase
Contract (without deduction for payments made pursuant to the IID Agreements)
including, without limitation, (i) all payments for "Energy," "capacity" and
"Capacity Bonus Payments" delivered both before and after the Firm Operation
Date and below, at and above the "Contract Capacity" level (as those terms are
defined in the Elmore Power
11
<PAGE>
Purchase Contract) and (ii) all payments received by Elmore, Ltd. in lieu of
payments that would have been received for electricity that would have been
produced but for the in lieu payments.
"Totally Spent Geothermal Brine" means Partially Spent Geothermal
Brine which (i) has been Processed by Magma, or a licensee of Magma, for use
in connection with the operation of Additional Power Production Facilities;
(ii) has been used by Magma, or a licensee of Magma, to extract Brine
Minerals; or (iii) has been used by Magma, or a licensee of Magma, for any
other use including, without limitation, the production of steam or heat for
sale to users of steam or heat.
"Working Capital" shall have the same meaning as that term has in
the Credit Facility.
"Working Capital Requirement" shall have the same meaning as that
term has in the Credit Facility.
Additional Defined Terms. For the convenience of the parties, in
addition to the defined terms set forth in this Schedule Z, certain other
terms are defined throughout the Operating Agreements.
12
<PAGE>
FIRST AMENDMENT TO THE
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
ELMORE, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
PREAMBLE
This First Amendment (the "Amendment") to the Amended and Restated
Limited Partnership Agreement (the "Limited Partnership Agreement") of Elmore,
Ltd., a California Limited Partnership (the "Partnership"), is made and
entered into as of April 14, 1989, by and among Red Hill Geothermal, Inc., a
Delaware corporation ("Red Hill"), Magma Power Company, a Nevada corporation
("Magma"), and Niguel Energy Company, a California corporation ("Niguel"), for
the purpose of amending the Limited Partnership Agreement of the Partnership
under which the affairs of the Partnership have been conducted to this date.
RECITALS
A. Red Hill, Magma and Niguel are all of the parties to the Limited
Partnership Agreement and all of the partners of the Partnership as of the
date hereof.
B. Red Hill, Magma and Niguel desire to amend the Limited
Partnership Agreement as provided herein. The parties acknowledge that such
amendments are not attributable to the influx of new capital into the
Partnership but rather are intended to more accurately reflect the parties'
agreements.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements set forth herein, the parties hereto agree as
follows:
AGREEMENT
1. Name Change. Section 1.2 of the Limited Partnership Agreement is
amended to provide that the name of the Partnership shall hereafter be
"Elmore, L.P." or such other name as may hereafter be designated in accordance
with Section 1.2 of the Limited Partnership Agreement.
2. Testing Date. The following definition is added to Article II of
the Limited Partnership Agreement:
<PAGE>
"2.2.32. 'Testing Date' means that date on which the Elmore Facility
is synchronized with and into the SCE grid and the Partnership begins
delivering electricity to SCE."
3. IID Costs. Section 2.2.23.8 of the Limited Partnership Agreement
is amended to read as follows:
"2.2.23.8. The Partnership's share of the costs of the electrical
transmission facilities to be built by the IID as provided in the IID
Agreements, and the electrical interconnection with IID and SCE, together with
all costs and expenses associated with the financing thereof (collectively,
'IID Costs')."
4. Special Allocations. Section 5.3.2 of the Limited Partnership
Agreement is amended to read as follows:
"5.3.2. Federal depreciation and other cost recovery
deductions, and amortization deductions for financing commitment fees
and other similar costs, start-up expenditures and organizational
expenditures, in each case with respect to Project Costs, but
excluding all IID Costs, shall be allocated as follows:
"(a) All such deductions for taxable periods
beginning before the Testing Date shall be allocated as
follows: (i) those deductions allocable to and attributable
to the complete calendar months in the period commencing
March 1, 1988 and ending on the Testing Date shall be
allocated 50% to Niguel, 40% to Red Hill and 10% to Magma;
and (ii) the remainder of such deductions shall be allocated
100% to Niguel.
"(b) Such deductions for taxable periods commencing
on or after the Testing Date and attributable to Project
Costs not to exceed $93,846,154 (less all IID Costs), shall
be allocated (i) 100% to Niguel through and including
December 31, 1990 and (ii) commencing January 1, 1991
through and including December 31, 1992, 90% to Niguel, 8%
to Red Hill and 2% to Magma and (iii) thereafter, to the
Partners in proportion to their Units in the Partnership.
"(c) Such deductions for taxable periods commencing
on or after the Testing Date and attributable to Project
Costs in excess of $103,846,154 (less all IID Costs) and
less than $115,000,000 (less all IID Costs) resulting from
Priority Tax Capital Contributions made pursuant to the
terms of Section 3.5 of this Limited Partnership Agreement
shall be allocated 57.5% to Niguel, 34% to Red Hill and 8.5%
to Magma.
2
<PAGE>
"(d) Such deductions for taxable periods commencing
on or after the Testing Date and attributable to Project
Costs in an aggregate amount between $93,846,154 (less all
IID Costs) and $103,846,154 (less all IID Costs) and to
Project Costs in excess of $115,000,000 (less all IID Costs)
resulting from Priority Capital Contributions made pursuant
to Section 3.5 of this Limited Partnership Agreement shall be
allocated50% to Niguel, 40% to Red Hill and 10% to Magma."
5. Continued Effectiveness. Except as specifically provided in this
Amendment, the Limited Partnership Agreement shall remain in full force and
effect in accordance with its original terms and conditions, except that the
term "Limited Partnership Agreement" as used in the Limited Partnership
Agreement shall hereafter mean the Limited Partnership Agreement as amended
hereby.
6. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single original instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be signed by their duly authorized officers as of the day and year first above
written.
RED HILL GEOTHERMAL, INC.,
a Delaware corporation, a General
Partner
By:
---------------------------------
Its:
--------------------------------
By:
---------------------------------
Its:
--------------------------------
MAGMA POWER COMPANY, a Nevada
corporation, a Limited Partner
By:
---------------------------------
Its:
--------------------------------
By:
---------------------------------
Its:
--------------------------------
3
<PAGE>
NIGUEL ENERGY COMPANY, a California
corporation, a General Partner and
a Limited Partner
By:
---------------------------------
Its:
--------------------------------
By:
---------------------------------
Its:
--------------------------------
4
EXHIBIT 4.1(C)
SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTURE dated as of June 20, 1996 (this
"Supplemental Indenture") by and between SALTON SEA FUNDING CORPORATION, a
Delaware corporation (the "Funding Corporation"), and CHEMICAL TRUST COMPANY
OF CALIFORNIA, a California corporation, as Trustee (together with its
successors in such capacity, the "Trustee").
W I T N E S S E T H:
WHEREAS, the Funding Corporation and the Trustee have entered into
that certain Trust Indenture dated as of July 21, 1995 (as amended, modified
or supplemented by that certain First Supplemental Indenture dated as of
October 18, 1995 and this Supplemental Indenture and as subsequently amended,
modified or supplemented, the "Indenture") by and between the Funding
Corporation and the Trustee;
WHEREAS, the Funding Corporation has been formed for the sole
purpose of issuing securities under the Indenture, as principal and as agent
for the Guarantors (as defined in the Indenture) and for entering into those
transactions incidental thereto;
WHEREAS, the Indenture provides that the terms thereof may be
amended or supplemented from time to time by the Funding Corporation and the
Trustee, without the consent of the Holders (as defined in the Indenture),
pursuant to a supplemental indenture, for one or more of the purposes set
forth in Section 8.1 of the Indenture, which purposes include, without
limitation, to provide for the issuance of Additional Securities (as defined
in the Indenture) on the conditions set forth in Article 2 of the Indenture;
WHEREAS, the Funding Corporation has determined to issue $70,000,000
principal amount of 7.02% Series D Senior Secured Notes due 2000 (the "Series
D Securities") and $65,000,000 principal amount of 8.30% Series E Senior
Secured Bonds due 2011 (the "Series E Securities" and
<PAGE>
together with the Series D Securities, the "Series D and E Securities");
WHEREAS, the proceeds derived by the Funding Corporation from the
issuance of the Series D and E Securities will be loaned by the Funding
Corporation to the Partnership Guarantors (as defined in the Indenture) and
used by (i) CalEnergy Operating Company and Vulcan Power Company to acquire
interests in Del Ranch, L.P., Elmore, L.P., Leathers, L.P. and Vulcan/BN
Geothermal Power Company, (ii) Del Ranch, L.P., Elmore, L.P., and Leathers,
L.P. to repay existing Debt and (iii) Del Ranch, L.P., Elmore, L.P., Leathers,
L.P., Vulcan/BN Geothermal Power Company, Salton Sea Power Generation L.P.,
Salton Sea Brine Processing L.P., and Fish Lake Power Company to finance the
making of certain capital improvements to the Partnership Projects and Salton
Sea Projects (as defined in the Indenture); and
WHEREAS, the execution and delivery of the Series D and E Securities
and this Supplemental Indenture have been duly authorized and all things
necessary to make the Series D and E Securities, when executed by the Funding
Corporation and authenticated by the Trustee, valid and binding legal
obligations of the Funding Corporation and to make this Supplemental Indenture
a valid and binding agreement have been done.
NOW, THEREFORE, for and in consideration of the premises and of the
covenants herein contained and of the purchase of the Series D and E
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 of the Securities, as follows:
1. Definitions. Capitalized terms used in this Supplemental Indenture
and not otherwise defined herein shall have the meanings ascribed to such terms
in the Indenture.
2. Series D and E Securities.
(a) The Series D and E Securities to be issued under this
Supplemental Indenture and the Indenture are
2
<PAGE>
hereby created. The Funding Corporation may issue the Series D and E
Securities, in the respective forms of Exhibits A-1 and A-2 hereto, upon the
execution of this Supplemental Indenture, and the Trustee shall, at the Funding
Corporation's written request, authenticate the Series D and E Securities and
deliver them as specified in the request.
(b) The Series D Securities shall be dated June 20, 1996, shall be
issued in the aggregate principal amount of $70,000,000, shall have a final
maturity date of May 30, 2000 and bear interest at a rate per annum of 7.02%;
the Series E Securities shall be dated June 20, 1996, shall be issued in the
aggregate principal amount of $65,000,000, shall have a final maturity date of
May 30, 2011 and bear interest at a rate per annum of 8.30%; provided that,
pursuant to the terms and provisions of the Series D and E Registration Rights
Agreement, the interest rate of the Series D and E Securities shall be
increased by one half of one percent (0.50%) per annum from and after the date
that an "Illiquidity Event" (as defined in the Series D and E Registration
Rights Agreement) 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 Series D and E Registration Rights Agreement) has not become effective
within two years after the initial issuance of the Series D and E Securities,
such increased interest rate shall become permanent, pursuant to the terms and
provisions of the Series D and E Registration Rights Agreement. Notice of the
occurrence and cessation of any Illiquidity Event and the date, if any, that a
Registration Statement is declared effective shall be set forth in an
Officer's Certificate of the Funding Corporation delivered to the Trustee and
the Depositary Agent within ten Business Days after the Funding Corporation
has obtained knowledge of such event. If an Illiquidity Event occurs
subsequent to any 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 Record Date. Series D and E Securities subsequently issued pursuant
to Sec-
3
<PAGE>
tion 2.5(c) of the Indenture shall be dated as of the date of authentication
thereof.
(c) The principal of, premium (if any) and interest on, the Series D
and E Securities shall be payable in any 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 and interest
on the Series D and E Securities shall be made (i) by check or draft mailed on
the Scheduled Payment Date to the registered owner as of the close of business
on the Record Date immediately preceding the Scheduled Payment Date, at his
address as it appears on the registration books of the Trustee or (ii) by wire
transfer to such registered owner as of the close of business on such 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 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 Scheduled Payment Date,
such defaulted interest and/or principal shall be paid to the Holder in whose
name any such Security is registered at the close of business on the day
determined by the Trustee as provided in Section 2.4 of the Indenture.
(d) Interest on the Series D and E Securities shall be paid in
arrears on each May 30th and November 30th commencing November 30, 1996 and
concluding on the Final Maturity Date for the Series D and E Securities.
Interest on the Series D and E Securities shall be computed upon the basis of
a 360-day year, consisting of twelve (12) thirty (30) day months.
(e) Principal on the Securities shall be paid in an amount, and on
the Scheduled Payment Dates, as set forth with respect to the Series D and E
Securities on Schedule I hereto.
(f) The aggregate principal amount of the Series D Securities that
may be issued, authenticated and delivered under the Indenture is $70,000,000
and the aggregate principal amount of the Series E Securities that may be
issued, authenticated and delivered under the
4
<PAGE>
Indenture is $65,000,000 (except for Securities issued, authenticated and
delivered upon registration of, transfer of, or in exchange for, or in lieu of,
other Series D or E Securities).
(g) The Record Date for the determination of Holders for whom
principal and interest is payable shall be as provided in Section 2.4 of the
Indenture.
(h) Series D and E Securities may be surrendered for registration of
transfer or exchange as provided in Section 2.5 of the Indenture. Notices and
demands to or upon the Funding Corporation in respect of the Series D and E
Securities may be served as provided in Section 13.6 of the Indenture.
(i) The Series E Securities may be redeemed, pro-rata, at the
election of the Funding Corporation, as a whole or in part, at any time on any
Business Day, at the option of the Funding Corporation, subject to the
conditions and at the Redemption Price (which will include a Series E Yield
Maintenance Premium) specified in the form of Series E Security attached
hereto as Exhibit A-2.
(j) The Series D and E Securities shall be subject to mandatory
redemption and shall be redeemed, ratably with each other series of
Securities, in whole or in part, prior to maturity, at a redemption price
equal to the principal amount thereof with interest on the principal amount
thereof accrued through the Redemption Date, as provided in Section 3.3 of the
Indenture.
(k) Restrictions and limitations on the transfer or exchange of the
Series D and E Securities shall be as provided in the Indenture and the
respective forms of Series D Security and Series E Security attached hereto as
Exhibit A-1 and Exhibit A-2, respectively.
(l) The Funding Corporation has entered into a Registration Rights
Agreement dated June 20, 1996 with the Initial Purchaser named therein.
Pursuant to such agreement, the Funding Corporation has agreed to use its
reasonable best efforts to file and have declared effective a registration
statement with respect to an exchange
5
<PAGE>
offer to exchange the Series D and E Securities for a series of Securities
substantially identical to the Series D and E Securities.
(m) The Trustee shall act as Trustee, Custodian, Registrar and
Paying Agent for the Series D and E Securities, as and to the extent provided
in the Indenture.
(n) The Series D and E Securities shall be issuable in denominations
of $100,000 and any integral multiple of $1,000 in excess thereof.
3. Amendments to Indenture.
(a) Section 2.3(c)(i) of the Indenture shall be amended by inserting
the following at the end thereof:
"and provided further that, after giving effect to the issuance of
the Series D and E Securities, no further Additional Securities may be
issued pursuant to this clause (i) except to acquire any or all of the
East Mesa Project (and any Additional Securities issued for such purpose
remain subject to the immediately preceding proviso);"
(b) Section 3.1 of the Indenture shall be amended by inserting the
following at the end of such Section:
"The Series E Securities may be redeemed, pro rata within such
series, at the election of the Funding Corporation, as a whole or in
part, at any time on any Business Day, at the option of the Funding
Corporation, subject to the conditions and at the Redemption Prices
(which will include a Series E Yield Maintenance Premium) specified in
the form of Series E Security attached to that certain Second
Supplemental Indenture dated as of June 20, 1996, by and between the
Funding Corporation and the Trustee. The Series D Securities are not
subject to optional redemption."
6
<PAGE>
(c) Section 3.3(a) of the Indenture shall be amended by deleting
clauses (i), (ii) and (iii) of Section 3.3(a) and inserting the following in
lieu thereof:
"(i) the Salton Sea Guarantors or the Partnership Project Companies
receive more than $15,000,000 of Loss Proceeds or Eminent Domain Proceeds
and the Salton Sea Guarantors determine that the affected Salton Sea
Project cannot be rebuilt, repaired or restored to permit operations on a
commercially reasonable basis or the Partnership Guarantors determine
that the affected Partnership Project cannot be rebuilt, repaired or
restored to permit operations on a commercially reasonable basis, or the
Salton Sea Guarantors or the Partnership Project Companies do not
rebuild, repair or restore the affected Project, as the case may be, in
which case the amount of such Loss Proceeds or Eminent Domain Proceeds
shall be available for such redemption; (ii) the Salton Sea Guarantors or
the Partnership Project Companies receive Loss Proceeds or Eminent Domain
Proceeds and the Salton Sea Guarantors or the Partnership Project
Companies determine that only a portion of the affected Salton Sea
Project or Partnership Project, as the case may be, can be rebuilt,
repaired, or restored and that the amount of such Loss Proceeds or
Eminent Domain Proceeds exceeds the cost of rebuilding, repair or
replacement by more than $15,000,000, in which case only the amount of
such excess Loss Proceeds or Eminent Domain Proceeds shall be available
for such redemption; (iii) the Salton Sea Guarantors or the Partnership
Project Companies receive Title Event Proceeds of more than $5,000,000,
in which case such Title Event Proceeds shall be made available for such
redemption, subject to reduction by the amount of (x) the costs of
collection of such proceeds and (y) any additional costs or expenses
incurred or to be incurred (in an amount not to exceed $25,000,000) by
the Salton Sea Guarantors or the Partnership Project Companies as a
result of the Title Event giving rise to such Title Event Proceeds;"
7
<PAGE>
(d) Section 3.3(a)(iv) of the Indenture shall be amended by deleting
the parenthetical contained therein.
(e) Section 3.3(a)(viii) of the Indenture shall be amended by
inserting the following therein immediately following the phrase "a Guarantee
Event of Default under":
"the Salton Sea Guarantee,"
(f) Section 4.11 of the Indenture is hereby amended by inserting the
following sentence at the end of such section:
"Each of the Series D and E Preliminary Offering Circular and Series
D and E Final Offering Circular as of its date did not, and the Series D
and E Final Offering Circular (as the same may have been amended or
supplemented) as of the date of the issuance of the Series D and E
Securities 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,
misleading."
(g) Section 6.1(i) of the Indenture shall be amended by deleting
clause (ii) thereof and inserting the following in lieu thereof:
"(ii) at least 51% of the general partnership voting
interests and economic interests of each of Salton Sea Brine
Processing L.P., Salton Sea Power Generation L.P., Elmore, Leathers,
Del Ranch and Vulcan, or"
(h) Exhibit A of the Indenture shall be amended by:
(i) deleting the word "Guarantors" contained in the definition of
"Agency Agreements" and inserting the phrase "Initial Guarantors" in lieu
thereof.
(ii) inserting the following at the end of the definition of "Agency
Agreements": "and the Agency
8
<PAGE>
Agreement, dated as of June 20, 1996, between the Funding Corporation,
San Felipe, BN/Geothermal, Niguel, Conejo, Leathers, Del Ranch, Elmore
and Vulcan."
(iii) deleting the definition of "Available Cash Flow" and inserting
the following in lieu thereof:
""Available Cash Flow" means (a) with respect to CEOC, VPC and
the Royalty Guarantor, as applicable, the total Equity Cash Flows
and Royalties received by such Guarantor, minus without duplication
(i) any Royalties paid, (ii) all Operating and Maintenance Costs,
(iii) all capital expenditures for such Guarantor and its respective
Projects and (iv) debt service, all as computed by such Guarantor
for such period and (b) with respect to San Felipe, Conejo, Niguel,
BN/Geothermal, Vulcan, Leathers, Elmore and Del Ranch, as
applicable, the total revenues received by such Guarantor, minus
without duplication (i) any Royalties paid, (ii) all Operating and
Maintenance Costs, (iii) all capital expenditures for such Guarantor
and its respective Projects and (iv) debt service, all as computed
by such Guarantor for such period."
(iv) deleting the definition of "California Energy" and inserting
the following in lieu thereof:
""California Energy" means CalEnergy Company, Inc., a Delaware
corporation."
(v) deleting the definition of "CEOC" and inserting the following in
lieu thereof:
""CEOC" means CalEnergy Operating Company, Inc., a Delaware
corporation."
(vi) deleting the definition of "Credit Agreements" and inserting
the following in lieu thereof:
""Credit Agreements" means the Salton Sea Credit Agreement, the
Partnership Credit Agreement and the Royalty Credit Agreement."
9
<PAGE>
(vii) inserting the following at the end of the definition of "Debt
Service Reserve LOC Reimbursement Agreement":
"or any similar agreement supplementing, refinancing or
replacing, in whole or in part, such Credit and Reimbursement
Agreement or any other then existing Debt Service Reserve LOC
Reimbursement Agreement which provides for credit facilities in an
aggregate amount equal to or less than (i) the Debt Service Reserve
Fund Required Balance, as the same may be adjusted from time to time
in accordance with Schedule I to the Depositary Agreement, less (ii)
the aggregate amount of credit facilities under the then existing
Debt Service Reserve LOC Reimbursement Agreement 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."
(viii) inserting the following in the definition of "Deeds of Trust"
after the phrase "Salton Sea Deed of Trust" contained therein:
",Partnership Deed of Trust"
(ix) deleting the definition of "Del Ranch Agreements" and inserting
the following in lieu thereof:
""Del Ranch Agreements" means, collectively, the Del Ranch ASA,
the Del Ranch O & M Agreement, the Del Ranch PPA, the Del Ranch
Transmission Services Agreement, the Del Ranch Easement, the Del
Ranch Ground Lease, the Del Ranch Partnership Agreement, the Del
Ranch Technology Transfer Agreement and any Additional Project
Document entered into by the Partnership Guarantors with respect to
the Del Ranch Project."
(x) deleting the definition of "DTC Representation Letter" and
inserting the following in lieu thereof:
""DTC Representation Letter" means (i) the Letter of
Representations dated the Closing Date, among DTC, the Funding
Corporation, the Trustee and
10
<PAGE>
the Custodian, or any successor agreement providing for the
performance of similar functions, (ii) the Letter of Representations
relating to the Series D and E Securities among DTC, the Funding
Corporation, the Trustee and the Custodian, or any successor
agreement providing for the performance of similar functions and
(iii) any other letter or agreement similar to the foregoing
relating to any Securities entered into by, or among, DTC, the
Funding Corporation, the Trustee and the Custodian."
(xi) deleting the definition of "Elmore Agreements" and inserting
the following in lieu thereof:
""Elmore Agreements" means, collectively, the Elmore ASA, the
Elmore O & M Agreement, the Elmore PPA, the Elmore Transmission
Service Agreement, the Elmore Easement, the Elmore Ground Lease, the
Elmore Partnership Agreement, the Elmore Technology Transfer
Agreement and any Additional Project Document entered into by the
Partnership Guarantors with respect to the Elmore Project."
(xii) deleting the phrase "a Partnership Guarantor" from the definition
of "Equity Cash Flow" and inserting the following in lieu thereof:
"each of VPC and CEOC"
(xiii) deleting the following parenthetical from the definition of
"Eminent Domain Proceeds":
"(to the extent, in the case of a Partnership Guarantor, of
Equity Cash Flow)".
and replacing it with the following:
"(to the extent, if any, in the case of a Partnership Guarantor
other than a Partnership Project Company, received in the form of
Equity Cash Flows)"
(xiv) deleting the definition of "Leathers Agreements" and inserting
the following in lieu thereof:
""Leathers Agreements" means, collectively, the Leathers ASA,
the Leathers O & M Agreement, the Leathers
11
<PAGE>
PPA, the Leathers Transmission Service Agreement, the Leathers
Easement, the Leathers Ground Lease, the Leathers Partnership
Agreement, the Leathers Technology Transfer Agreement and any
Additional Project Document entered into by the Partnership
Guarantors with respect to the Leathers Project."
(xv) deleting the following parenthetical from the definition of
"Loss Proceeds":
"(to the extent, in the case of a Partnership Guarantor,
received in the form of Equity Cash Flows)"
and replacing it with the following:
"(to the extent, if any, in the case of a Partnership Guarantor
other than a Partnership Project Company, received in the form of
Equity Cash Flows)".
(xvi) deleting the definition of "Partnership Collateral" contained
therein and inserting the following in lieu thereof:
""Partnership Collateral": means (i) an assignment of all
Equity Cash Flows and Royalties of CEOC and VPC which will be
applied in accordance with the priorities of payment established
under the Depositary Agreement, (ii) a pledge of all of the capital
stock of or partnership interests in the Partnership Guarantors,
(iii) a Lien on the Capital Expenditure Fund and any other funds of
the Partnership Guarantors on deposit under the Depositary
Agreement, (iv) a collateral assignment of CEOC's rights to receive
payments under the Magma Services Agreement, (v) an assignment of
all Partnership Project Company revenues which will be applied in
accordance with the priorities of payment established under the
Depositary Agreement, (vi) a deed of trust on the geothermal
property interests and other material assets of each of the
Partnership Project Companies and the Partnership Projects and (vii)
a collateral assignment of certain material contracts of the
Partnership Guarantors."
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<PAGE>
(xvii) deleting the definition of "Partnership Credit Agreement" and
inserting the following in lieu thereof:
""Partnership Credit Agreement" means the Credit Agreement
between the Funding Corporation and each of the Partnership
Guarantors."
(xviii) deleting the phrase "the Closing Date" from the definition
of "Partnership Guarantee" and replacing it with "June 20, 1996":
(xix) deleting the definition of "Partnership Guarantors" and
inserting the following in lieu thereof:
""Partnership Guarantors" means each of CEOC, VPC,
BN/Geothermal, Niguel, San Felipe, Conejo, Vulcan, Elmore, Leathers
and Del Ranch."
(xx) deleting the definition of "Partnership Guarantors Pledge
Agreement" and inserting the following in lieu thereof:
""Partnership Guarantors Pledge Agreement" means (i) the Stock
Pledge Agreement by Magma and the Funding Corporation pledging the
stock of CEOC, in favor of the Collateral Agent for the benefit of
the Secured Parties, (ii) the Stock Pledge Agreement by Magma and
the Funding Corporation pledging the stock of VPC, in favor of the
Collateral Agent for the benefit of the Secured Parties, (iii) the
Stock Pledge Agreement by VPC pledging the stock of BN/Geothermal,
in favor of the Collateral Agent for the benefit of the Secured
Parties, (iv) the Stock Pledge Agreement by CEOC pledging the stock
of San Felipe, Conejo and Niguel, in favor of the Collateral Agent
for the benefit of the Secured Parties, (v) the Partnership Interest
Pledge Agreement by VPC and BN/Geothermal, pledging the partnership
interests in Vulcan, in favor of the Collateral Agent for the
benefit of the Secured Parties, (vi) the Partnership Interest Pledge
Agreement by Magma, CEOC and San Felipe, pledging the partnership
interests in Leathers, in favor of the Collateral Agent for the
benefit of the Secured Parties, (vii) the Partnership
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Interest Pledge Agreement by Magma, CEOC and Conejo, pledging the
partnership interests in Del Ranch, in favor of the Collateral Agent
for the benefit of the Secured Parties and (viii) the Partnership
Interest Pledge Agreement by Magma, CEOC and Niguel, pledging the
partnership interests in Elmore, in favor of the Collateral Agent
for the benefit of the Secured Parties."
(xxi) deleting the definition of "Paying Agent" and inserting the
following in lieu thereof:
""Paying Agent" means any Person acting as Paying Agent
pursuant to this Indenture and Section 11.12 hereof."
(xxii) inserting the following at the end of the definition of
"Registration Rights Agreement":
"and the Registration Rights Agreement dated as of June 20,
1996 between the Funding Corporation and the initial purchaser named
therein for the benefit of the holders of the Series D and E
Securities."
(xxiii) inserting the following in the definition of "Salton Sea
Project Documents" after the phrase "Waste Disposal Agreement":
", the SSPG IV Plant Connection Agreement, the SSPG IV
Transmission Service Agreement, the SSPG IV Technology Transfer
Agreement"
(xxiv) deleting the following parenthetical from the definition of
"Title Event Proceeds":
"(to the extent received by the Partnership Guarantor in the
form of Equity Cash Flows)"
(xxv) deleting the definition of "VPC Agreements" and inserting the
following in lieu thereof:
""VPC Agreements" means, collectively, the Brine Sales
Agreement, the VPC Transmission Service Agreement, the Vulcan
Construction, Operating and Accounting Agreement, the
Vulcan Partnership Agreement, the
14
<PAGE>
Vulcan PPA, the Vulcan Easement, and any Additional Project Document
entered into by the Partnership Guarantors with respect to the
Vulcan Project."
(i) Exhibit A to the Indenture is hereby amended by inserting
the following definitions in the appropriate alphabetical order:
""BN/Geothermal" means BN Geothermal Inc., a Delaware
corporation."
""Conejo" means Conejo Energy Company, a California
corporation."
""Del Ranch Ground Lease" means the Ground Lease, dated as of
March 14, 1988, as amended as of June 17, 1996, between Magma and
Del Ranch."
""Del Ranch Partnership Agreement" means the Amended and
Restated Limited Partnership Agreement of Del Ranch, L.P., dated as
of March 14, 1988, as amended as of April 14, 1989, between CEOC,
Magma and Conejo."
""Del Ranch Technology Transfer Agreement" means the Technology
Transfer Agreement, dated as of March 14, 1988, between Magma and
Del Ranch."
""Del Ranch Transmission Service Agreement" means the
Transmission Service Agreement, dated as of August 2, 1988, between
Del Ranch and IID."
""Elmore Ground Lease" means the Ground Lease, dated as of
March 14, 1988, as amended as of June 17, 1996, between Magma and
Elmore."
""Elmore Partnership Agreement" means the Amended and Restated
Limited Partnership Agreement of Elmore, L.P., dated as of March 14,
1988, as amended as of April 14, 1989, between CEOC, Niguel and
Magma."
""Elmore Technology Transfer Agreement" means the Technology
Transfer Agreement, dated as of March 14, 1988, between Magma and
Elmore."
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""Elmore Transmission Service Agreement" means the Transmission
Service Agreement, dated as of August 2, 1988, between Elmore and
IID."
""Initial Guarantors" means each of the Salton Sea Guarantors,
VPC, CEOC and the Royalty Guarantor."
""Leathers Ground Lease" means the Ground Lease, dated as of
October 26, 1988, as amended as of June 17, 1996, between Magma and
Leathers."
""Leathers Partnership Agreement" means the Limited Partnership
Agreement of Leathers, L.P., dated as of August 15, 1988, as amended
as of April 14, 1989, between CEOC, Magma, and San Felipe."
""Leathers Technology Transfer Agreement" means the Technology
Transfer Agreement, dated as of August 15, 1988, between Magma and
Leathers."
""Leathers Transmission Service Agreement" means the
Transmission Service Agreement, dated as of October 3, 1989, between
Leathers and IID."
""Niguel" means Niguel Energy Company, a California
corporation."
""Partnership Deed of Trust" means (i) the Deed of Trust,
Assignment of Rents, Security Agreement and Fixture Filing by Vulcan
and VPC in favor of the Collateral Agent, (ii) the Deed of Trust,
Assignment of Rents, Security Agreement and Fixture Filing by
Leathers in favor of the Collateral Agent, (iii) the Deed of Trust,
Assignment of Rents, Security Agreement and Fixture Filing by Elmore
in favor of the Collateral Agent and (iv) the Deed of Trust,
Assignment of Rents, Security Agreement and Fixture Filing by Del
Ranch in favor of the Collateral Agent."
""San Felipe" means San Felipe Energy Company, a California
corporation."
""Series D and E Final Offering Circular" means the
confidential offering circular of the Funding Corpo-
16
<PAGE>
ration, dated June 17, 1996, with respect to the Series D and E
Securities."
""Series D and E Preliminary Offering Circular" means the
confidential preliminary offering circular of the Funding
Corporation dated June 11, 1996, with respect to the Series D and E
Securities."
""Series D Securities" and "Series E Securities" means the
Securities issued pursuant to the Second Supplemental Indenture
dated as of June 20, 1996, in the respective forms of Exhibit A-1
and Exhibit A-2 thereto."
""Series E Yield Maintenance Premium" means an amount
calculated by the Funding Corporation or any Guarantor as of the
Redemption Date as follows;
(i) the average life of the remaining scheduled payments
of principal in respect of outstanding Series E Securities (the
"Series E Remaining Average Life") shall be calculated as of
the Redemption Date;
(ii) the yield to maturity shall be calculated for the
United States Treasury security having an average life equal to
the Series E Remaining Average Life and trading in the
secondary market at the price closest to par (the "Primary
Issue"); provided, however, that if no United States Treasury
security has an average life equal to the Series E Remaining
Average Life, the yields (the "Other Yields") for the two
maturities of United States Treasury securities having average
lives most closely corresponding to such Series E Remaining
Average Life and trading in the secondary market at the price
closest to par shall be calculated, and the yield to maturity
for the Primary Issue shall be the yield interpolated or
extrapolated from such Other Yields on a straight-line basis,
rounding in each of such relevant periods to the nearest month;
(iii) the discounted present value of the then remaining
scheduled payments of principal and interest (but excluding
that portion of any scheduled payment of interest that is
actually due and paid on
17
<PAGE>
the Redemption Date) in respect of outstanding Series E
Securities shall be calculated as of the Redemption Date using
a discount factor equal to the sum of (a) the yield to maturity
for the Primary Issue, plus (b) 50 basis points; and
(iv) the amount of Series E Yield Maintenance Premium in
respect of Series E Securities to be redeemed shall be an
amount equal to (a) the discounted present value of such Series
E Securities to be redeemed determined in accordance with
clause (iii) above minus (b) the unpaid principal amount of
such Series E Securities; provided, however, that the Series E
Yield Maintenance Premium shall not be less than zero."
""SSPG IV Plant Connection Agreement" means the Plant
Connection Agreement, dated as of July 14, 1995, between IID, SSPG
and Fish Lake."
""SSPG IV Technology Transfer Agreement" means the Technology
Transfer Agreement, dated as of February 15, 1996, between Magma,
SSPG, SSBP and Fish Lake."
""SSPG IV Transmission Service Agreement" means the
Transmission Service Agreement, dated as of July 14, 1995, between
IID, SSPG and Fish Lake."
""Vulcan Easement" means the Easement Grant Deed Agreement
dated as of January 19, 1988, between Magma and VPC, as amended,
modified or supplemented from time to time."
4. Schedule I to Indenture. Schedule I to the Indenture shall be
supplemented by adding the Amortization Schedule for the Series D and E
Securities set forth on Schedule I hereto to such Schedule I of the Indenture.
5. Effect of Supplemental Indenture. Upon the execution of this
Supplemental Indenture, the Indenture shall be modified in accordance
herewith, and this Supplemental Indenture shall form a part of the Indenture
for all purposes; and every Holder of Securities previously or thereafter
authenticated and delivered
18
<PAGE>
under the Indenture shall be bound by the terms hereof. This Supplemental
Indenture shall be construed as supplemental to the Indenture and shall form a
part thereof, and the Indenture is hereby incorporated by reference herein and
hereby ratified, approved and confirmed. From and after the date hereof,
whenever referred to in any Financing Document, the Indenture shall mean the
Indenture as modified, amended and supplemented by this Supplemental
Indenture.
6. Headings for Convenience Only. The descriptive headings in this
Supplemental Indenture are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
7. Counterparts. This Supplemental Indenture may be executed in any
number of counterparts, each of which when so executed and delivered shall be
an original; but such counterparts shall together constitute but one and the
same instrument.
8. APPLICABLE LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
19
<PAGE>
EXHIBIT 4.1(C)
IN WITNESS WHEREOF, Salton Sea Funding Corporation has caused this
Supplemental Indenture to be executed and its corporate seal to be hereunto
affixed, attested by one of its duly authorized officers and Chemical Trust
Company of California has caused this Supplemental Indenture to be executed by
one of its duly authorized officers, all as of the day and year first above
written.
[SEAL] SALTON SEA FUNDING CORPORATION,
as principal and agent for
the Guarantors
By: /s/ John G. Sylvia
___________________________
Name: John G. Sylvia
Title: Senior Vice President,
Chief Financial Officer
and Treasurer
Attest:
Title: Assistant Secretary
______________________
Assistant Law Counsel
CHEMICAL TRUST COMPANY OF
CALIFORNIA, Trustee
By: /s/ Rose Maravilla
___________________________
Name: Rose Maravilla
Title: Assistant Vice President
Exhibit 4.1(d)
THIRD SUPPLEMENTAL INDENTURE
dated as of July 29, 1996
to
TRUST INDENTURE
dated as of July 21, 1995
among
SALTON SEA FUNDING CORPORATION
and
CHEMICAL TRUST COMPANY OF CALIFORNIA, as Trustee
<PAGE>
THIRD SUPPLEMENTAL INDENTURE
This THIRD SUPPLEMENTAL INDENTURE, dated as of July 29, 1996,
(this "Third Supplemental Indenture"), by and between
SALTON SEA FUNDING CORPORATION, a corporation organized under the laws of the
state of Delaware (the "Funding Corporation"), and CHEMICAL TRUST COMPANY OF
CALIFORNIA, (together with its successors in such capacity, the "Trustee"), a
corporation organized and duly existing under the laws of the state of
California.
W I T N E S S E T H
WHEREAS, the Funding Corporation and the Trustee are parties
to the Trust Indenture, dated as of July 21, 1995, such Trust Indenture, as
amended and supplemented by the First Supplemental Indenture, dated as of
October 18, 1995, and the Second Supplemental Indenture, dated as of June 20,
1996 (the "Second Supplemental Indenture"), and this Third Supplemental
Indenture, is referred to herein as the "Indenture";
WHEREAS, pursuant to the Second Supplemental Indenture the
Funding Corporation has issued $70,000,000 7.02% Series D Senior Secured Notes
due May 30, 2000 ("Initial Series D Securities"), and $65,000,000 8.30% Series
E Senior Secured Bonds due May 30, 2011 ("Initial Series E Securities" and
together with the Initial Series D Securities, the "Initial Series D and E
Securities"); and
WHEREAS, as contemplated by Section 8.1 of the Indenture and
by the Registration Rights Agreement, the Funding Corporation has commenced an
Exchange Offer for the Initial Series D and E Securities pursuant to which the
Funding Corporation has offered to exchange (i) 7.02% Senior Secured Series D
Notes Due May 30, 2000 ("Exchange Series D Securities") for a like aggregate
principal amount of Initial Series D Securities, and (ii) 8.30% Senior Secured
Series E Bonds Due May 30, 2011 ("Exchange Series E Securities" and together
with the Exchange Series D Securities, the "Exchange Series D and E
Securities") for a like aggregate principal amount of Initial Series E
Securities; and
WHEREAS, Section 8.1 of the Indenture permits the Funding
Corporation 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 the Funding Corporation filed with, and in a form
satisfactory to the Trustee, to provide for the issuance of the Exchange
Series D and E Securities;
<PAGE>
NOW THEREFORE, in order to establish the designation, form,
terms and provisions of, and to authorize the authentication and delivery of,
said Exchange Series D and E Securities, and in consideration of the premises
and the covenants herein contained and of the acceptance of said Exchange
Series D and E 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, the Initial Series D Securities and the Initial Series E
Securities, $100,000 or any integral multiple of $1,000 in excess thereof,
(ii) with respect to the Exchange Series A Securities, the Exchange Series B
Securities and the Exchange Series C Securities, $1,000 or any integral multiple
thereof, (iii) with respect to any other 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 Series D Securities" means the Securities issued
from time to time in the form of Exhibit A-1 to this Third Supplemental
Indenture.
"Exchange Series E Securities" means the Securities issued
from time to time in the form of Exhibit A-2 to this Third Supplemental
Indenture.
"Initial Series D Securities" means the Securities
2
<PAGE>
issued from time to time in the form of Exhibit A-1 to the Second Supplemental
Indenture.
"Initial Series E Securities" means the Securities
issued from time to time in the form of Exhibit A-2 to the Second Supplemental
Indenture.
"Security" or "Securities" means any of the Initial
Securities, Additional Securities and Exchange Securities, including, without
limitation, any of the Exchange Series A Securities, Exchange Series B
Securities, Exchange Series C Securities, Initial Series D Securities,
Initial Series E Securities, Exchange Series D Securities and Exchange Series E
Securities, issued pursuant to the Indenture.
"Series D and E Exchange Offer Consummation Date" means the
date on which Initial Series D Securities and Initial Series E Securities are
exchanged for Exchange Series D Securities and Exchange Series E Securities,
respectively, pursuant to an Exchange Offer.
"Series D Securities" means, collectively, the Initial
Series D Securities and the Exchange Series D Securities.
"Series E Securities" means, collectively, the Initial
Series E Securities and the Exchange Series E Securities.
ARTICLE II
THE SECURITIES
SECTION 2.1 Forms of Securities. The Exchange Series D and E
Securities shall contain substantially the terms recited in the form of
Security set forth in Exhibits A-1 and A-2, as the case may be, and each shall
have and be subject to such other terms as provided in the Indenture.
SECTION 2.2 Authorization and Terms of the Exchange Series D
and E Securities. (a) The Exchange Series D and E Securities to be issued
under this Third Supplemental Indenture are hereby created. The Funding
Corporation may issue the
3
<PAGE>
Exchange Series D and E Securities in the form of Exhibits A-1 and A-2, as the
case may be, and as definitive Securities pursuant to the terms of the
Indenture governing definitive Securities, upon the execution of this Third
Supplemental Indenture, and on or prior to the Series D and E Exchange Offer
Consummation Date, the Funding Corporation may execute and deliver to the
Trustee, and upon delivery of a written request by the Funding Corporation to
the Trustee in accordance with the provisions of Section 2.7 of the Indenture,
the Trustee shall authenticate and deliver the Exchange Series D and E
Securities to be issued in connection with the applicable Exchange Offer. Such
Funding Corporation order shall specify the amount of the Exchange Series D
and E Securities to be authenticated and the date on which such Securities are
to be authenticated. The aggregate principal amount of the Exchange Series D
and E Securities together with the Initial Series D and E Securities
outstanding at any time may not exceed $135,000,000 except as provided in the
Indenture.
(b) The Exchange Series D and E Securities shall be dated as
of the Series D and E Exchange Offer Consummation Date, shall be issued in an
aggregate principal amount up to the aggregate principal amounts set forth
below and shall have a final maturity date and bear interest as set forth
below:
Interest Maturity Principal
Series Rate Date Amount
Series D Notes 7.02% May 30, 2000 $ 70,000,000
Series E Bonds 8.30% May 30, 2011 $ 65,000,000
(c) The principal of, premium (if any) and interest on, the
Exchange Series D and E Securities shall be payable in any 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 and interest on the Exchange Series D and E Securities shall be
made (i) by check or draft mailed on the Scheduled Payment Date to the
registered owner as of the close of business on the Record Date immediately
preceding the Scheduled Payment Date, at his address as it appears on the
registration books of the Trustee or (ii) by
4
<PAGE>
wire transfer to such registered owner as of the close of business on such
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
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 Scheduled
Payment Date, such defaulted interest and/or principal shall be paid to the
Holder in whose name any such Security is registered at the close of business
on the day determined by the Trustee as provided in Section 2.4 of the
Indenture.
(d) The Exchange Series D Securities will bear interest at
the rate of 7.02% per annum from the most recent date to which interest has
been paid on the Initial Series D Securities or, if no interest has been paid
on the Initial Series D Securities, from June 20, 1996. The Exchange Series E
Securities will bear interest at the rate of 8.30% per annum from the most
recent date to which interest has been paid on the Initial Series E Securities
or, if no interest has been paid on the Initial Series E Securities, from June
20, 1996. Interest on the Exchange Series D and E 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 Series D Securities prior to the Series D and E Exchange Offer
Consummation Date, principal on the Exchange Series D Securities shall be paid
on the Scheduled Payment Dates, as set forth with respect to the Exchange
Series D Securities on Schedule I hereto. Except to the extent that principal
has been paid on the Initial Series E Securities prior to the Series D and E
Exchange Offer Consummation Date, principal on the Exchange Series E
Securities shall be paid on the Scheduled Payment Dates, as set forth with
respect to the Exchange Series E Securities on Schedule I hereto. The
principal payable on the Scheduled Payment Dates on each series of Exchange
Series D and E Securities shall be equal to the product of (i) the aggregate
principal amount of Initial Series D and E Securities of that series that are
exchanged for Exchange Series D and E Securities as of the applicable Record
Date divided by the aggregate principal amount of Initial Series D and E
Securities of that series originally issued by the Funding Corporation on June
20,
5
<PAGE>
1996, multiplied by (ii) the principal amount payable in accordance with
Schedule I hereto on that date for that series.
(f) The Authorized Denomination with respect to the Exchange
Series D and E Securities shall be $1,000 or any integral multiple thereof.
SECTION 2.3 Terms of the Initial Series D and E Securities.
Principal on Initial Series D Securities not exchanged for
Exchange Series D Securities shall be paid on the Scheduled Payment Dates, as
set forth with respect to the Initial Series D Securities on Schedule I of the
Second Supplemental Indenture, and principal on Initial Series E Securities
not exchanged for Exchange Series E Securities shall be paid on the Scheduled
Payment Dates, as set forth with respect to the Initial Series E Securities on
Schedule I of the Second Supplemental Indenture. The principal payable on the
Scheduled Payment Dates on each series of Initial Series D and E Securities
shall be equal to the product of (i) the aggregate principal amount of Initial
Series D and E Securities of that series that are not exchanged for Exchange
Series D and E Securities as of the applicable Record Date divided by the
amount of Initial Series D and E Securities of that series originally issued
by the Funding Corporation on June 20, 1996, multiplied by (ii) the principal
amount payable in accordance with Schedule I of the Second Supplemental
Indenture on that date for that series.
SECTION 2.4. Actions to be Taken.
Reference to actions to be taken in connection with any
series means to both the securities of that series issued in connection with
the Initial Series D and E Securities and the securities of that series issued
in connection with the Exchange Series D and E Securities.
SECTION 2.5 Exchange Offer.
The Funding Corporation will issue the Exchange Series D and
E Securities in exchange for a like principal amount of outstanding Initial
Series D and E Securities tendered and
6
<PAGE>
accepted in connection with an Exchange Offer. Holders may tender their
Initial Series D and E Securities in whole or in part in a principal amount of
$1,000 and integral multiples thereof, provided that if any Initial Series D
and E 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 Series D and E 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 the
Funding Corporation, the Trustee and the Security 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 the Funding Corporation. Whenever any Initial
Series D and E Securities are so surrendered for exchange, the Funding
Corporation shall execute, and the Trustee shall authenticate and deliver to
the Security Registrar Exchange Series D and E Securities in the same
aggregate principal amount as the principal amount of Initial Series D and E
Securities that have been surrendered.
ARTICLE III
ACTS OF HOLDERS
SECTION 3.1 Determination of Voting Rights.
For purposes of this Indenture (i) all Holders of Initial
Series D Securities and Exchange Series D Securities shall vote together as
Holders of Series D Securities under this Indenture; and (ii) all Holders of
Initial Series E Securities and Exchange Series E Securities shall vote
together as Holders of Series E Securities under this Indenture.
7
<PAGE>
ARTICLE IV
COVENANTS
SECTION 4.1 Debt.
Section 5.11 of the Indenture is hereby amended by (A)
deleting the word "and" from the end of paragraph (e) thereof, (B) replacing
the period at the end of each of paragraphs (f) and (g) thereof with a
semicolon and (C) adding the following to the end thereof:
and (h) Debt represented by the Exchange Series D
Securities and the Exchange Series E Securities.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 Execution of Supplemental Indenture.
This Third Supplemental Indenture is executed and shall be
construed as an indenture supplemental to the Indenture and, as provided in
the Indenture, this Third 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.
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 Third Supplemental
Indenture, or the due execution hereof by the Funding Corporation, or for or
with respect to the recitals and statements contained herein, all of which
recitals and statements are made solely by the Funding Corporation.
SECTION 5.3 Counterparts.
8
<PAGE>
This Third 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 THIRD SUPPLEMENTAL INDENTURE AND EACH SECURITY ISSUED
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.
9
<PAGE>
IN WITNESS WHEREOF, Salton Sea Funding Corporation has
caused this Third Supplemental Indenture to be executed and its corporate seal
to be hereunto affixed and attested by one of its duly authorized officers,
and Chemical Trust Company of California has caused this Third Supplemental
Indenture to be executed by one of its duly authorized officers, all as of the
day and year first above written.
SALTON SEA FUNDING CORPORATION
as principal and as agent for the
Guarantors
By: /s/ Steven A. McArthur
_____________________________
Name: Steven A. McArthur
Title: Senior Vice Prresident
Attest:
/s/ Steven A. McArthur
- ------------------------
Title: Secretary
CHEMICAL TRUST COMPANY OF
CALIFORNIA, as Trustee
By: /s/ Rose T. Maravilla
_____________________________
Name: Rose T. Maravilla
Title: Assistant Vice President
<PAGE>
Schedule I to
Third Supplemental Indenture
PRINCIPAL AMORTIZATION
Except to the extent that principal has been paid on the Initial
Series D Securities prior to the Series D and E Exchange Offer Consummation
Date, principal of the Exchange Series D Securities due May 30, 2000 will be
payable on the Scheduled Payment Dates listed below in an amount equal to the
product of (i) the aggregate principal amount of Initial Series D Securities
that are exchanged for Exchange Series D Securities as of the applicable
Record Date divided by the aggregate principal amount of Initial Series D
Securities originally issued by the Funding Corporation on June 20, 1996,
multiplied by (ii) the principal amount payable in accordance with this
Schedule I:
Payment Principal
Date Amount Payable
May 30, 1997...........................................$12,925,000
November 30, 1997......................................$12,925,000
May 30, 1998...........................................$16,000,000
November 30, 1998......................................$16,000,000
May 30, 1999...........................................$ 5,325,000
November 30, 1999......................................$ 5,325,000
May 30, 2000...........................................$ 1,500,000
Except to the extent that principal has been paid on the
Initial Series E Securities prior to the Series D and E Exchange Offer
Consummation Date, principal of the Exchange Series E Securities due May 30,
2011 will be payable on the Scheduled Payment Dates listed below in an amount
equal to the product of (i) the aggregate principal amount of Initial Series E
Securities that are exchanged for Exchange Series E Securities as of the
applicable Record Date divided by the aggregate principal amount of Initial
Series E Securities originally issued by the Funding Corporation on June 20,
1996, multiplied by (ii) the principal amount payable in accordance with this
Schedule I:
1
<PAGE>
Payment Principal
Date Amount Payable
May 30, 1999.........................................$ 6,039,000
November 30, 1999....................................$ 6,039,000
May 30, 2000.........................................$ 2,000,000
November 30, 2000....................................$ 2,000,000
May 30, 2001.........................................$ 500,000
November 30, 2001....................................$ 500,000
May 30, 2002.........................................$ 800,000
November 30, 2002....................................$ 800,000
May 30, 2003.........................................$ 1,500,000
November 30, 2003....................................$ 1,500,000
May 30, 2004.........................................$ 1,625,000
November 30, 2004....................................$ 1,625,000
May 30, 2005.........................................$ 1,750,000
November 30, 2005....................................$ 1,750,000
May 30, 2006.........................................$ 1,250,000
November 30, 2006....................................$ 1,250,000
May 30, 2007.........................................$ 1,250,000
November 30, 2007....................................$ 1,250,000
May 30, 2008.........................................$ 1,750,000
November 30, 2008....................................$ 1,750,000
May 30, 2009.........................................$ 1,625,000
November 30, 2009....................................$ 1,625,000
May 30, 2010.........................................$ 6,750,000
November 30, 2010....................................$ 6,750,000
May 30, 2011.........................................$11,322,000
2
EXHIBIT A-1
[Form of Senior Secured Series D Note]
SALTON SEA FUNDING CORPORATION
7.02% Senior Secured Series D
Note due May 30, 2000
THIS SECURITY IS A REGISTERED GLOBAL SECURITY AND IS REGISTERED IN
THE NAME OF CEDE & CO., AS NOMINEE OF THE DEPOSITORY TRUST COMPA
NY ("DTC").
UNLESS THIS REGISTERED GLOBAL SECURITY IS PRESENTED BY AN AUTHO
RIZED REPRESENTATIVE OF DTC TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC AND ANY PAY MENT IS MADE TO CEDE & CO.,
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE REGISTERED FORM, THIS REGISTERED GLOBAL SECURITY MAY NOT BE
TRANSFERRED EXCEPT 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.
<PAGE>
CUSIP Number: 795770 AJ 5
Number R-1
Principal Amount Maturity Date Issue Date Interest Rate
$70,000,000 May 30, 2000 , 1996 7.02%
--
REGISTERED HOLDER: CEDE & CO.
PRINCIPAL AMOUNT: SEVENTY MILLION DOLLARS
($70,000,000)
SALTON SEA FUNDING CORPORATION, a Delaware corporation (hereinafter
called the "Company", which term includes any successor or assign under the
Trust Indenture referred to below), for value received hereby promises to pay
to CEDE & CO., or its regis tered assigns, the outstanding principal amount
hereof (reduced by the amount of principal, if any, paid or due, or to be paid
or to become due on the Initial Series D Securities (as defined in the Third
Supplemental Indenture dated July 29, 1996)), such payment to be made in
semiannual installments on May 30 and November 30 of each year (commencing May
30, 1997) and ending on the Maturity Date set forth above, each such
installment to be in an amount equal to the principal amount set forth
opposite the applicable payment date on Schedule I attached hereto (provided
that the portion of the principal amount remaining unpaid on the Maturity
Date, together with all interest accrued thereon, shall in any and all cases
be due and payable on the Maturity Date), and to pay interest on the unpaid
portion of the principal amount at the interest rate set forth above (the
"Interest Rate") from the most recent interest payment date to which interest
has been paid or duly provided for or, if no interest has been paid or duly
provided for, from the date of the last interest payment on the Initial Series D
Securities ocurring prior to the issue date set forth above or, if no interest
has been paid on the Initial Series D Securities, from June 20, 1996,
semiannually on May 30 and November 30 in each year (commencing November 30,
1996), until the principal amount is paid in full or payment thereof is duly
provided for. Any installment of principal and, to the extent permitted by
applicable law, any payment of interest not punctually paid or duly provided for
shall continue to bear interest at a rate equal to the Interest Rate set forth
above. The principal and interest so payable on any payment date shall, as
provided in the Trust Indenture, be paid to the Person in whose name this
Security (or one or more predecessor securities) is registered in the Securities
Register at the close of business on the Record Date for such payment of
principal and interest, which shall be the preceding May 15 and November 15,
respectively. Any such principal and interest not so punctually paid or duly
provided for shall forthwith cease to be payable to the Person in whose name
this Security (or one or more predecessor securities) was registered in the
Securities Register at the close of business on such Record Date, and may be
paid to the Person in whose name this Security is registered at the close of
business on a subsequent Record Date for the payment of such defaulted principal
and interest, to be fixed by the Trustee, notice of which shall be given to the
Holder hereof not less than 15 days prior to such subsequent Record Date, or may
be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which this Security may be listed,
A-1-2
<PAGE>
and upon such notice as may be required by such exchange, all as more fully
provided in the Trust Indenture. This being a Global Security (as that term is
defined in the Trust Indenture) deposited with the Custodian acting as
depository, and regis tered in the name of CEDE & CO., as nominee of DTC, CEDE &
CO., as holder of record of this Security shall be entitled to receive payment
of principal and interest by wire transfer of immediately available funds. All
payments in respect of this Security shall be made in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of debts.
Interest shall be computed upon the basis of a 360-day year,
consisting of twelve (12) thirty (30) day months.
This Security is one of an authorized series of Securities
of the Company known as its 7.02% Senior Secured Series D Notes Due May 30,
2000. The Securities are issued under the Trust Indenture dated as of July 21,
1995, as supplemented by the First Supplemental Indenture dated as of October
18, 1995, the Second Supplemental Indenture dated as of June 20, 1996 and the
Third Supplemental Indenture dated as of July , 1996 (as so supplemented and
as the same may be further amended, modified or supplemented from time to
time, the "Trust Indenture"), each among the Company and Chemical Trust
Company of California, as trustee (the "Trustee", which term includes any
successor Trustee under the Trust Indenture). All capitalized terms used
herein, unless defined herein, shall have the meanings ascribed to them in the
Trust Indenture.
All Securities are secured equally and ratably with one
another. Reference is hereby made to the Trust Indenture for a description of
the nature and extent of the Securities and the respective rights of the
Holders of the Securities and of the Trustee and the Company in respect of the
Securities and the terms upon which the Securities are made and are to be
authenticated and delivered.
The principal of, and interest on, this Security are payable
from, and secured by, assets subject to the Lien on the Funding Corporation
Collateral, in accordance with the terms of the Trust Indenture and the
Financing Documents.
The obligations of the Company to pay the principal of,
premium, if any, and interest on the Securities when due are unconditionally
guaranteed by (i) the Salton Sea Guarantors pursuant to the Salton Sea
Guarantee, and (ii) the Partnership Guarantors and the Royalty Guarantor (up
to an amount equal to, with respect to the Partnership Guarantors and the
Royalty Guarantor, such Guarantor's Available Cash Flow) pursuant to the
Partnership Guarantee and the Royalty Guarantee, respectively. The Guarantees
will be secured by the Lien on the Collateral, in accordance with the terms of
the Trust Indenture and the Financing Documents.
The Securities are subject to an Intercreditor Agreement
dated as of July 21, 1995, as amended as of June 20, 1996.
The Trust Indenture permits, with certain exceptions, as
therein provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities
under the Trust Indenture at any time by the Company with
A-1-3
<PAGE>
the consent of the Holders of not less than 51 percent in aggregate principal
amount of the Securities at the time Outstanding. The Trust Indenture also
contains provisions permitting the Holders of specified percentages in aggregate
principal amount of the Securities at the time Outstanding, on behalf of the
Holders of all the Securities, to waive compliance by the Company with certain
provisions of the Trust Indenture and certain past defaults under the Trust
Indenture and their consequences. Any such consent or waiver or direction by
the Holder of this Security shall be conclusive and binding upon the Holder
and upon all future Holders of this Security and of any security issued upon
the transfer hereof or in exchange hereof or in lieu hereof whether or not
notation of such consent or waiver is made upon this Security.
The Securities are, under certain conditions, subject to
mandatory redemption as set forth in Section 3.3 of the Trust Indenture.
Any payment of interest on any Security, the stated maturity
of which payment is on or prior to any Redemption Date, shall be payable to
the Holder of such Security, or one or more predecessor securities, registered
as such at the close of business on the related Record Date or subsequent
Record Date.
Notice of any redemption of Securities will be given at
least 30 days before the Redemption Date to each Holder at its registered
address.
Securities (or portions thereof as aforesaid) for the
redemption of which provision is made in accordance with the Trust Indenture
shall cease to bear interest from and after the Redemption Date.
The unpaid portion of principal, together with all interest
accrued thereon and all other amounts due hereunder, shall be due and payable,
as provided in the Trust Indenture, upon the occurrence of certain Events of
Default in full, or in such lesser amount in the case of an Event of Default
relating to the bankruptcy, insolvency, receivership or reorganization of any
of the Guarantors which has resulted in an automatic acceleration of any
Project Note.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN DEFINITIVE REGISTERED FORM, THIS REGISTERED GLOBAL SECURITY MAY
NOT BE TRANSFERRED EXCEPT 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.
A-1-4
<PAGE>
The Exchange Series D Securities are issuable in book entry form
in denomi nations of $1,000 and any integral multiple thereof.
No service charge will be made to any Holder of Securities
for any transfer or exchange, but the Registrar may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
The person in whose name this Security is registered shall
be deemed to be the owner and holder hereof for the purpose of receiving
payment as herein provided and for all other purposes whether or not this
Security be overdue regardless of any notice to anyone to the contrary.
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS
MADE AND TO BE PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK.
Unless the certificate of authentication hereon has been
executed by the Trustee by manual or facsimile signature, this Security shall
not be entitled to any benefit under such Trust Indenture, or be valid or
obligatory for any purpose.
Recourse under this Security is limited as set forth in
Section 13.12 of the Trust Indenture.
A-1-5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
SALTON SEA FUNDING CORPORATION
By:
Name:
Title:
Attested:
- -----------------
Title:
CERTIFICATE OF AUTHENTICATION
This Security is one of the Securities referred to in the
within-mentioned Trust Indenture.
CHEMICAL TRUST COMPANY OF
CALIFORNIA,
as Trustee
By:
Authorized Signatory
A-1-6
<PAGE>
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and
transfers) unto
Social Security Number or Other
Identifying Number of Assignee ____________________________________________
___________________________________________________________________________
(Please print or typewrite name and address,
including zip code of Assignee)
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing __________________________ attorney to transfer said Security
on the books of the Company, with full power of substitution in the premises.
Dated:_____________________
NOTICE: The signature to this assignment must correspond with the
name as written upon the first page of the within instrument
in every particular, without alteration or enlargement or
any change whatsoever
A-1-7
<PAGE>
SCHEDULE I
TO SENIOR SECURED SERIES D NOTE
Except to the extent that principal has been paid on the
Initial Series D Securities prior to the Exchange Offer Consummation Date,
principal of the Exchange Series D Securities due May 30, 2000 will be payable
on the Scheduled Payment Dates listed below in an amount equal to the product
of (i) the aggregate principal amount of Initial Series D Securities that are
exchanged for Exchange Series D Securities as of the applicable Record Date
divided by the aggregate principal amount of Initial Series D Securities
originally issued by the Funding Corporation on June 20, 1996, multiplied by
(ii) the principal amount payable in accordance with this Schedule I:
Payment Principal
Date Amount Payable
May 30, 1997.....................................$12,925,000
November 30, 1997................................$12,925,000
May 30, 1998.....................................$16,000,000
November 30, 1998................................$16,000,000
May 30, 1999......................................$5,325,000
November 30, 1999.................................$5,325,000
May 30, 2000......................................$1,500,000
8
EXHIBIT A-2
[Form of Senior Secured Series E Bond]
SALTON SEA FUNDING CORPORATION
8.30% Senior Secured Series E
Bond due May 30, 2011
THIS SECURITY IS A REGISTERED GLOBAL SECURITY AND IS REGISTERED IN
THE NAME OF CEDE & CO., AS NOMINEE OF THE DEPOSITORY TRUST
COMPANY ("DTC").
UNLESS THIS REGISTERED GLOBAL SECURITY IS PRESENTED BY AN AUTHO
RIZED REPRESENTATIVE OF DTC TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC AND ANY PAY MENT IS MADE TO CEDE & CO.,
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE REGISTERED FORM, THIS REGISTERED GLOBAL SECURITY MAY NOT BE
TRANSFERRED EXCEPT 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.
<PAGE>
CUSIP Number: 795770 AK 2
Number R-1
Principal Amount Maturity Date Issue Date Interest Rate
$65,000,000 May 30, 2011 __, 1996 8.30%
REGISTERED HOLDER: CEDE & CO.
PRINCIPAL AMOUNT: SIXTY FIVE MILLION DOLLARS
($65,000,000)
SALTON SEA FUNDING CORPORATION, a Delaware corporation
(hereinafter called the "Company", which term includes any successor or assign
under the Trust Indenture referred to below), for value received hereby
promises to pay to CEDE & CO., or its registered assigns, the outstanding
principal amount hereof (reduced by the amount of principal, if any, paid or
due, or to be paid or to become due on the Initial Series E Securities (as
defined in the Third Supplemental Indenture dated July 29, 1996)) such payment
to be made in semiannual installments on May 30 and November 30 of each year
(commencing May 30, 1999) and ending on the Maturity Date set forth above,
each such installment to be in an amount equal to the principal amount set
forth opposite the applicable payment date on Schedule I attached hereto
(provided that the portion of the principal amount remaining unpaid on the
Maturity Date, together with all interest accrued thereon, shall in any and
all cases be due and payable on the Maturity Date), and to pay interest on the
unpaid portion of the principal amount at the interest rate set forth above
(the "Interest Rate") from the most recent interest payment date to which
interest has been paid or duly provided for or, if no interest has been paid
or duly provided for, from the date of the last interest payment on the Initial
Series E Securities ocurring prior to the issue date set forth above or, if no
interest has been paid on the Initial Series E Securities, from June 20, 1996,
semiannually on May 30 and November 30 in each year (commencing November 30,
1996), until the principal amount is paid in full or payment thereof is duly
provided for. Any installment of principal and, to the extent permitted by
applicable law, any payment of interest not punctually paid or duly provided for
shall continue to bear interest at a rate equal to the Interest Rate set forth
above. The principal and interest so payable on any payment date shall, as
provided in the Trust Indenture, be paid to the Person in whose name this
Security (or one or more predecessor securities) is registered in the Securities
Register at the close of business on the Record Date for such payment of
principal and interest, which shall be the preceding May 15 and November 15,
respectively. Any such principal and interest not so punctually paid or duly
provided for shall forthwith cease to be payable to the Person in whose name
this Security (or one or more predecessor securities) was registered in the
Securities Register at the close of business on such Record Date, and may be
paid to the Person in whose name this Security is registered at the close of
business on a subsequent Record Date for the payment of such defaulted principal
and
A-2-2
<PAGE>
interest, to be fixed by the Trustee, notice of which shall be given to the
Holder hereof not less than 15 days prior to such subsequent Record Date, or may
be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which this Security may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in the Trust Indenture. This being a Global Security (as that term is
defined in the Trust Indenture) deposited with the Custodian acting as
depository, and regis tered in the name of CEDE & CO., as nominee of DTC, CEDE
& CO., as holder of record of this Security shall be entitled to receive
payment of principal and interest by wire transfer of immediately available
funds. All payments in respect of this Security shall be made in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of debts.
Interest shall be computed upon the basis of a 360-day year,
consisting of twelve (12) thirty (30) day months.
This Security is one of an authorized series of Securities
of the Company known as its 8.30% Senior Secured Series E Bonds Due May 30,
2011. The Securities are issued under the Trust Indenture dated as of July 21,
1995, as supplemented by the First Supplemental Indenture dated as of October
18, 1995, the Second Supplemental Indenture dated as of June 20, 1996 and the
Third Supplemental Indenture dated as of July __, 1996 (as so supplemented and
as the same may be further amended, modified or supplemented from time to
time, the "Trust Indenture"), each among the Company and Chemical Trust
Company of California, as trustee (the "Trustee", which term includes any
successor Trustee under the Trust Indenture). All capitalized terms used
herein, unless defined herein, shall have the meanings ascribed to them in the
Trust Indenture.
All Securities are secured equally and ratably with one
another. Reference is hereby made to the Trust Indenture for a description of
the nature and extent of the Securities and the respective rights of the
Holders of the Securities and of the Trustee and the Company in respect of the
Securities and the terms upon which the Securities are made and are to be
authenticated and delivered.
The principal of, and interest on, this Security are payable
from, and secured by, assets subject to the Lien on the Funding Corporation
Collateral, in accordance with the terms of the Trust Indenture and the
Financing Documents.
The obligations of the Company to pay the principal of,
premium, if any, and interest on the Securities when due are unconditionally
guaranteed by (i) the Salton Sea Guarantors pursuant to the Salton Sea
Guarantee, and (ii) the Partnership Guarantors and the Royalty Guarantor (up
to an amount equal to, with respect to the Partnership Guarantors and the
Royalty Guarantor, such Guarantor's Available Cash Flow) pursuant to the
Partnership Guarantee and the Royalty Guarantee, respectively. The Guarantees
will be secured by the Lien on the Collateral, in accordance with the terms of
the Trust Indenture and the Financing Documents.
The Securities are subject to an Intercreditor Agreement
dated as of July 21, 1995, as amended as of June 20, 1996.
The Trust Indenture permits, with certain exceptions, as
therein provided, the
A-2-3
<PAGE>
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Trust
Indenture at any time by the Company with the consent of the Holders of
not less than 51 percent in aggregate principal amount of the Securities at the
time Outstanding. The Trust Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the Securities
at the time Outstanding, on behalf of the Holders of all the Securities, to
waive compliance by the Company with certain provisions of the Trust Indenture
and certain past defaults under the Trust Indenture and their consequences. Any
such consent or waiver or direction by the Holder of this Security shall be
conclusive and binding upon the Holder and upon all future Holders of this
Security and of any security issued upon the transfer hereof or in exchange
hereof or in lieu hereof whether or not notation of such consent or waiver is
made upon this Security.
This Security is subject to optional redemption by the
Company at a redemption price equal to all or a portion of the principal
amount thereof, all interest accrued on such principal amount through the
Redemption Date and a Series E Yield Maintenance Premium (the "Premium")
calculated as of the Redemption Date as follows:
(i) the average life of the remaining scheduled
payments of principal in respect of outstanding Series E Securities
(the "Remaining Average Life") shall be calculated as of the
Redemption Date;
(ii) the yield to maturity shall be calculated for
the United States Treasury security having an average life equal to
the Remaining Average Life and trading in the secondary market at the
price closest to par (the "Primary Issue"); provided, however, that
if no United States Treasury security has an average life equal to
the Remaining Average Life, the yields (the "Other Yields") for the
two maturities of United States Treasury securities having average
lives most closely corresponding to such Remaining Average Life and
trading in the secondary market at the price closest to par shall be
calculated, and the yield to maturity for the Primary Issue shall be
the yield interpolated or extrapolated from such Other Yields on a
straight-line basis, rounding in each of such relevant periods to the
nearest month;
(iii) the discounted present value of the then
remaining scheduled payments of principal and interest (but excluding
that portion of any scheduled payment of interest that is actually
due and paid on the Redemption Date) in respect of outstand ing
Series E Securities shall be calculated as of the Redemption Date
using a discount factor equal to the sum of (a) the yield to maturity
for the Primary Issue, plus (b) 50 basis points; and
(iv) the amount of Premium in respect of Series E
Securities to be re deemed shall be an amount equal to (a) the
discounted present value of such Series E Securities to be redeemed
determined in accordance with clause (iii) above minus (b) the unpaid
principal amount of such Series E Securities; provided, however, that
the Premium shall not be less than zero.
The Securities are, under certain conditions, subject to
mandatory redemption as
A-2-4
<PAGE>
set forth in Section 3.3 of the Trust Indenture.
Any payment of interest on any Security, the stated maturity
of which payment is on or prior to any Redemption Date, shall be payable to
the Holder of such Security, or one or more predecessor securities, registered
as such at the close of business on the related Record Date or subsequent
Record Date.
Notice of any redemption of Securities will be given at
least 30 days before the Redemption Date to each Holder at its registered
address.
Securities (or portions thereof as aforesaid) for the
redemption of which provision is made in accordance with the Trust Indenture
shall cease to bear interest from and after the Redemption Date.
The unpaid portion of principal, together with all interest
accrued thereon and all other amounts due hereunder, shall be due and payable,
as provided in the Trust Indenture, upon the occurrence of certain Events of
Default in full, or in such lesser amount in the case of an Event of Default
relating to the bankruptcy, insolvency, receivership or reorganization of any
of the Guarantors which has resulted in an automatic acceleration of any
Project Note.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN DEFINITIVE REGISTERED FORM, THIS REGISTERED GLOBAL SECURITY MAY
NOT BE TRANSFERRED EXCEPT 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.
The Exchange Series E Securities are issuable in book entry
form in denomi nations of $1,000 and any integral thereof.
No service charge will be made to any Holder of Securities
for any transfer or exchange, but the Registrar may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
The person in whose name this Security is registered shall
be deemed to be the owner and holder hereof for the purpose of receiving
payment as herein provided and for all other purposes whether or not this
Security be overdue regardless of any notice to anyone to the contrary.
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN THE STATE OF NEW YORK.
Unless the certificate of authentication hereon has been
executed by the Trustee by manual or facsimile signature, this Security shall
not be entitled to any benefit under such Trust Indenture, or be valid or
obligatory for any purpose.
A-2-5
<PAGE>
Recourse under this Security is limited as set forth in
Section 13.12 of the Trust Indenture.
A-2-6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
SALTON SEA FUNDING CORPORATION
By:
Name:
Title:
Attest:
- ------------------
Title:
CERTIFICATE OF AUTHENTICATION
This Security is one of the Securities referred to in the
within-mentioned Trust Indenture.
CHEMICAL TRUST COMPANY OF CALIFORNIA,
as Trustee
By:
Authorized Signatory
A-2-7
<PAGE>
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and
transfers) unto
Social Security Number or Other
Identifying Number of Assignee
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please print or typewrite name and address,
including zip code of Assignee)
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing __________________________ attorney to transfer said Security
on the books of the Compa ny, with full power of substitution in the premises.
Dated:_____________________
NOTICE: The signature to this assignment must correspond with the
name as written upon the first page of the within instrument
in every particular, without alteration or enlargement or
any change whatsoever
A-2-8
<PAGE>
SCHEDULE I
TO SENIOR SECURED SERIES E BOND
Except to the extent that principal has been paid on the
Initial Series E Securities prior to the Exchange Offer Consummation Date,
principal of the Exchange Series E Securities due May 30, 2011 will be payable
on the Scheduled Payment Dates listed below in an amount equal to the product
of (i) the aggregate principal amount of Initial Series E Securities that are
exchanged for Exchange Series E Securities as of the applicable Record Date
divided by the aggregate principal amount of Initial Series E Securities
originally issued by the Funding Corporation on June 20, 1996, multiplied by
(ii) the principal amount payable in accordance with this Schedule I:
Payment Principal
Date Amount Payable
- -------------- --------------
May 30, 1999 $6,039,000
November 30, 1999 6,039,000
May 30, 2000 2,000,000
November 30, 2000 2,000,000
May 30, 2001 500,000
November 30, 2001 500,000
May 30, 2002 800,000
November 30, 2002 800,000
May 30, 2003 1,500,000
November 30, 2003 1,500,000
May 30, 2004 1,625,000
November 30, 2004 1,625,000
May 30, 2005 1,750,000
November 30, 2005 1,750,000
May 30, 2006 1,250,000
November 30, 2006 1,250,000
May 30, 2007 1,250,000
November 30, 2007 1,250,000
May 30, 2008 1,750,000
November 30, 2008 1,750,000
May 30, 2009 1,625,000
November 30, 2009 1,625,000
May 30, 2010 6,750,000
November 30, 2010 6,750,000
May 30, 2011 11,322,000
A-2-9
EXHIBIT 4.3
AMENDED AND RESTATED
PARTNERSHIP SECURED LIMITED GUARANTEE
This Amended and Restated Partnership Secured Limited
Guarantee (this "Amendment") is entered into as of June 20, 1996 by CALENERGY
OPERATING COMPANY, a Delaware corporation ("CEOC"), VULCAN POWER COMPANY, a
Nevada corporation ("VPC"), CONEJO ENERGY COMPANY, a California corporation
("Conejo"), NIGUEL ENERGY COMPANY, a California corporation ("Niguel"), SAN
FELIPE ENERGY COMPANY, a California corporation ("San Felipe"), BN GEOTHERMAL,
INC., a Delaware corporation ("BNG"), DEL RANCH, L.P., a California limited
partnership ("Del Ranch"), ELMORE, L.P., a California limited partnership
("Elmore"), LEATHERS, L.P., a California limited partnership ("Leathers"), and
VULCAN/BN GEOTHERMAL POWER COMPANY, a Nevada general partnership ("Vulcan",
and together with CEOC, VPC, Conejo, Niguel, San Felipe, BNG, Del Ranch,
Elmore and Leathers, the "Partnership Guarantors"), in favor of and for the
benefit of CHEMICAL TRUST COMPANY OF CALIFORNIA, a California corporation, as
trustee under that certain Indenture described in the recitals below, and as
Collateral Agent under the Intercreditor Agreement for the benefit of the
Secured Parties and Funding Corporation (in such capacities, the "Trustee").
All capitalized terms used herein but not specifically defined shall have the
respective meanings given to such terms in Exhibit A to the Indenture, which
Exhibit A is hereby incorporated by reference.
W I T N E S S E T H:
WHEREAS, Funding Corporation is a corporation established
for the sole purpose of making loans to the Guarantors from proceeds of the
issuance of notes and bonds (collectively, the "Securities") in its individual
capacity as principal and as agent acting on behalf of the Guarantors pursuant
to the Trust Indenture, dated as of July 21, 1995, between Funding Corporation
and the Trustee, as the same may be amended, modified or supplemented (as so
amended, modified or supplemented, including pursuant to that certain Second
Supplemental Indenture dated as of even date herewith, the "Indenture"); and
WHEREAS, the principal and interest payments on the
Securities will be serviced by repayment of loans made by Funding Corporation
to the Guarantors and guaranteed by the Guarantors, subject to the conditions
set forth in the Indenture; and
WHEREAS, on July 21, 1995 the Funding Corporation issued and
sold Securities in the aggregate principal amount of $475 Million; and
WHEREAS, Funding Corporation used a portion of the proceeds
from the sale of such Securities to make a loan to CEOC and VPC in the
aggregate amount of $75 Million; and
WHEREAS, in connection with the making of such loan to CEOC
and VPC, CEOC and VPC entered into the Partnership Secured Limited Guarantee
dated as of July 21, 1995 in favor of the Trustee (the "Original Secured
Limited Guarantee") whereby CEOC and VPC guaranteed certain of the obligations
of Funding Corporation under the Securities; and
<PAGE>
WHEREAS, Funding Corporation has simultaneously with the
execution and delivery of this Amendment issued and sold Securities in the
aggregate principal amount of $135 Million the net proceeds of which will be
loaned to the Partnership Guarantors; and
WHEREAS, each Partnership Guarantor is an affiliate of
Funding Corporation and anticipates benefiting directly and indirectly from
the issuance and sale of Securities by Funding Corporation, and each
Partnership Guarantor (including Conejo, Niguel, San Felipe, BNG, Del Ranch,
Elmore, Leathers and Vulcan) has therefore agreed to jointly and severally
guarantee certain of the obligations of Funding Corporation under the
Securities (including the Securities issued and sold on July 21, 1995) in
accordance with the terms hereof; and
WHEREAS, in order to evidence and implement such guarantee
by all of the Partnership Guarantors and the joint and several obligations of
all of the Partnership Guarantors thereunder, the parties hereto have agreed
to amend and restate the Original Secured Limited Guarantee as set forth
herein.
In consideration of the above premises and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. From and after the date hereof, the terms of the Original
Secured Limited Guarantee shall be amended to read in their entirety as set
forth in this Amendment and the terms of this Amendment shall govern and
control the rights and obligations of the parties in and with respect to the
matters set forth herein, notwithstanding any conflict between the terms of
this Amendment and the terms of the Original Secured Limited Guarantee. As
amended and restated by this Amendment, the Original Secured Limited Guarantee
is hereinafter referred to as the "Guarantee."
2. As set forth in this Guarantee, each Partnership
Guarantor jointly and severally guarantees the payment of the Indebtedness (as
hereafter defined) when due, upon maturity, acceleration or otherwise;
provided, however, that no obligation to pay all or any portion of the
Indebtedness shall exist, unless there also shall have occurred and be
continuing (a) an Event of Default under the Partnership Credit Agreement
between the Partnership Guarantors and Funding Corporation, (b) an Event of
Default under Section 6.1(a) of the Indenture or (c) an Event of Default under
Section 18 of this Guarantee; and provided further that each Partnership
Guarantor's obligation hereunder shall be limited to the Available Cash Flow
of such Partnership Guarantor.
3. "Indebtedness" as used herein shall mean all principal,
interest, premium (if any), fees, charges, penalties, expenses, payments, and
all other amounts due with respect to the Securities.
4. Subject to the conditions set forth in Section 2 of this
Guarantee, the liability of each Partnership Guarantor under this Guarantee in
respect of the Indebtedness shall be absolute and unconditional, and shall not
be affected or released in any way, irrespective of:
<PAGE>
(a) any lack of validity or enforceability of the
Securities, the Indenture, the Credit Agreements or any of the other
Transaction Documents;
(b) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Indebtedness or amendment or
waiver of, or any consent to any departure from, any Transaction Document,
including, without limitation, any increase in the Indebtedness or other
obligations of Funding Corporation under the Indenture;
(c) any enforcement of any Transaction Document,
including the taking, holding or sale of any collateral, or any termination or
release of any collateral from the liens created by any Transaction Document
or the non-perfection of any liens created by any Transaction Document;
(d) the failure by any one of the Partnership
Guarantors to fulfill its obligations under this Guarantee;
(e) any change, restructuring or termination of the
corporate structure or existence of Funding Corporation; or
(f) any Event of Default of Funding Corporation under
Sections 6.1(f) or (g) of the Indenture, of the Salton Sea Guarantors under
Section 5.1(e) of the Salton Sea Credit Agreement, of the Partnership
Guarantors under Section 5.1(e) of the Partnership Credit Agreement or of the
Royalty Guarantor under Section 5.1(e) of the Royalty Credit Agreement.
This Guarantee shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the
Indebtedness is rescinded or must otherwise be returned by the Trustee or any
other Person upon the insolvency, bankruptcy or reorganization of Funding
Corporation or the Partnership Guarantors, or otherwise, all as though such
payment had not been made.
5. Except to the extent provided in Section 2 of this
Guarantee, the obligations hereunder are independent of the obligations of
Funding Corporation or any other Guarantor, and a separate action or actions
may be brought and prosecuted against any of the Partnership Guarantors
whether action is brought against either Funding Corporation or any other
Guarantor or whether either Funding Corporation or any other Guarantor be
joined in any such action or actions; and the Partnership Guarantors waive the
benefit of any statute of limitations affecting its liability hereunder.
6. The Partnership Guarantors authorize the Trustee, acting
pursuant to the Indenture, without notice or demand and without affecting its
liability hereunder, from time to time, whether before or after termination of
this Guarantee, to (a) renew, compromise, extend, accelerate or otherwise
change the time for payment of the obligations of Funding Corporation under
the Indenture or any part thereof; (b) take and hold security for the payment
of this Guarantee or the Indebtedness, and exchange, enforce, waive, release,
fail to perfect, sell, or otherwise dispose of any such security; (c) apply
such security and direct the order or manner of sale thereof; and (d) release
or substitute any one or more of the endorsers or guarantors.
<PAGE>
7. The Partnership Guarantors hereby waive, to the extent
permitted by applicable law: (a) promptness, diligence, notice of acceptance
and any other notice with respect to any of the Indebtedness or any other
obligations under the Transaction Documents or this Guarantee; (b) any
requirement that the Trustee or any other Person protect, secure or insure any
lien or any collateral or other property subject thereto or exhaust any right
or take any action against either Funding Corporation or any other Person or
any collateral; (c) any defense arising by reason of any claim or defense
based upon an election of remedies by the Trustee which in any manner impairs,
reduces, releases or otherwise adversely affects its subrogation, contribution
or reimbursement rights or other rights to proceed against either Funding
Corporation or any other Person or any collateral; (d) any duty on the part of
the Trustee to disclose to the Partnership Guarantors any matter, fact or
thing relating to the business, operation or condition of either Funding
Corporation or any other party to any of the Transaction Documents and Funding
Corporation's assets now known or hereafter known by the Trustee; and (e) all
presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance of this
Guarantee and of the existence, creation, or incurrence of new or additional
Indebtedness.
8. The Partnership Guarantors hereby irrevocably waive any
claim or other rights which they may now or hereafter acquire against either
Funding Corporation or any other guarantor of any or all of the Indebtedness,
whether due or to become due, voluntary or involuntary, absolute or
contingent, liquidated or unliquidated, determined or undetermined, including,
without limitation, any right of subrogation, reimbursement, exoneration,
contribution, indemnification, any right to participate in any claim or remedy
of the Trustee against either Funding Corporation or any such guarantor or any
collateral which the Trustee now has or hereafter acquires, whether or not
such claim, remedy or right arises in equity, or under contract, statute or
common law, including without limitation, the right to take or receive from
Funding Corporation, directly or indirectly, in cash or other property or by
set-off or in any other manner, payment or security on account of such claim
or other rights. If any amount shall be paid to the Partnership Guarantors in
violation of the preceding sentence and the Indebtedness shall not have been
paid in full, such amount shall be deemed to have been paid to the Partnership
Guarantors for the benefit of, and held in trust for the benefit of, the
Trustee and shall forthwith be paid to the Trustee to be credited and applied
to the Indebtedness, whether matured or unmatured, in accordance with the
terms of the Indenture. The Partnership Guarantors acknowledge that they have
received and will receive direct and indirect benefits from the sales of the
Securities already completed and the sales of Securities currently
contemplated by the Indenture and that the waiver set forth in this Section 8
is knowingly made in contemplation of such benefits.
9. The Partnership Guarantors agree that, to the extent that
either Funding Corporation or the Partnership Guarantors makes a payment or
payments to the Trustee, or the Trustee receives any proceeds of collateral,
which payment or payments or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside or otherwise required to
be repaid to either Funding Corporation, its estate, trustee, receiver or any
other party, including, without limitation, under any bankruptcy law, state or
federal law, common law or equitable cause, then to the extent of such payment
or repayment, the obligation or part thereof which has been paid, reduced or
satisfied by such amount shall be reinstated and continued in full force and
effect as of the date such initial payment, reduction or satisfaction
occurred. The Partnership Guarantors shall defend and indemnify the Trustee
from and against any claim or loss under this Section 9 (including reasonable
attorneys' fees and expenses) in the defense of any such action or suit.
<PAGE>
10. The Partnership Guarantors acknowledge and agree that
they shall have the sole responsibility for obtaining from Funding Corporation
such information concerning Funding Corporation's financial conditions or
business operations as the Partnership Guarantors may require, and that the
Trustee has no duty at any time to disclose to the Partnership Guarantors any
information relating to the business operations or financial condition of
Funding Corporation.
11. To the extent that the waiver set forth in Section 8 is
or is deemed to be ineffective or inapplicable, any obligations of Funding
Corporation to the Partnership Guarantors, now or hereafter existing, are
hereby subordinated to the Indebtedness. If the Trustee so requests, after the
occurrence of an Event of Default under the Indenture, such obligations of
Funding Corporation to the Partnership Guarantors shall be enforced and
performance received by the Partnership Guarantors as trustee for the Trustee
and the proceeds thereof shall be paid over to the Trustee on account of the
Indebtedness, but without reducing or affecting in any manner the maximum
liability of the Partnership Guarantors under the other provisions of this
Guarantee.
12. The Trustee may, without notice to the Partnership
Guarantors and without affecting the Partnership Guarantors' obligations
hereunder, assign this Guarantee, in whole or in part in accordance with the
provisions of the Indenture. The Partnership Guarantors agree that the Trustee
may, subject to the provisions of the Indenture, disclose to any prospective
purchaser and any purchaser of all or part of the Indebtedness any and all
information in the Trustee's possession concerning the Partnership Guarantors,
this Guarantee and any security for this Guarantee.
13. The Partnership Guarantors agree to pay all reasonable
attorneys' fees and all other fees and expenses which may be incurred by the
Trustee in the enforcement of this Guarantee.
14. The Trustee agrees that no directors, officers,
shareholders (other than CEOC, VPC, Conejo, Niguel, San Felipe and BNG) or
employees of any Partnership Guarantor shall in any way be liable for the
payment of the Securities, the Project Notes or any sums now or hereafter
owing under the terms of, or for the performance of any obligation contained
in, this Guarantee.
15. This Guarantee shall be governed by and construed
according to the laws of the State of California.
16. This Guarantee embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements
and understandings relating to the subject matter hereof.
17. This Guarantee may be executed in any number of
counterparts, all of which together shall constitute one agreement.
<PAGE>
18. The Partnership Guarantors shall continue to be bound by
and perform all of their obligations under the terms and conditions set forth
in the Partnership Credit Agreement for the benefit of the Funding Corporation
and its legal successors and assigns, the terms of which are incorporated
herein by reference, from and after the date that the Partnership Project Note
is repaid and until the payment in full of all other obligations under the
Salton Sea Project Note and the Royalty Project Note. The Partnership
Guarantors' failure to perform such terms and conditions shall, from and after
the date that the Partnership Project Note has been repaid, be an Event of
Default hereunder.
19. The obligations hereunder are subject to the limitations
set forth in Section 6.11 of the Partnership Credit Agreement, the provisions
of which are hereby incorporated by reference.
[next page is signature page]
<PAGE>
The Partnership Guarantors have executed this Guarantee as
of the date and year first written above.
By: VULCAN POWER COMPANY,
a Nevada corporation
By: /s/ John G. Sylvia
--------------------------------
Name: John G. Sylvia
--------------------------------
Title: Senior Vice President
--------------------------------
By: CALIFORNIA ENERGY OPERATING COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
--------------------------------
Name: John G. Sylvia
--------------------------------
Title: Senior Vice President
--------------------------------
By: CONEJO ENERGY COMPANY,
a California corporation
By: /s/ John G. Sylvia
--------------------------------
Name: John G. Sylvia
--------------------------------
Title: Senior Vice President
--------------------------------
By: NIGUEL ENERGY COMPANY,
a California corporation
By: /s/ John G. Sylvia
--------------------------------
Name: John G. Sylvia
--------------------------------
Title: Senior Vice President
--------------------------------
By: SAN FELIPE ENERGY COMPANY,
a California corporation
By: /s/ John G. Sylvia
--------------------------------
Name: John G. Sylvia
--------------------------------
Title: Senior Vice President
--------------------------------
By: BN GEOTHERMAL INC.,
a Delaware corporation
By: /s/ John G. Sylvia
--------------------------------
Name: John G. Sylvia
--------------------------------
Title: Senior Vice President
--------------------------------
<PAGE>
By: DEL RANCH, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
as General Partner
By: /s/ John G. Sylvia
--------------------------------
Name: John G. Sylvia
--------------------------------
Title: Senior Vice President
--------------------------------
By: ELMORE, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
as General Partner
By: /s/ John G. Sylvia
--------------------------------
Name: John G. Sylvia
--------------------------------
Title: Senior Vice President
--------------------------------
By: LEATHERS, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
as General Partner
By: /s/ John G. Sylvia
--------------------------------
Name: John G. Sylvia
--------------------------------
Title: Senior Vice President
--------------------------------
By: VULCAN/BN GEOTHERMAL POWER COMPANY,
a Nevada general partnership
By: Vulcan Power Company,
a Nevada corporation,
as General Partner
By: /s/ John G. Sylvia
--------------------------------
Name: John G. Sylvia
--------------------------------
Title: Senior Vice President
--------------------------------
EXHIBIT 4.5
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
SALTON SEA FUNDING CORPORATION
$70,000,000 7.02% Senior Secured Series D Notes
Due May 30, 2000
$65,000,000 8.30% Senior Secured Series E Bonds
Due May 30, 2011
June 20, 1996
CS FIRST BOSTON CORPORATION
55 East 52nd Street
New York, NeW York 10055
Ladies and Gentlemen:
In connection with the issue and sale of $70,000,000
principal amount of 7.02% Senior Secured Series D Bonds Due May 30, 2000 and
the $65,000,000 principal amount of 8.30% Senior Secured Series E Bonds Due
May 30, 2011 (the "Additional Securities") issued by Salton Sea Funding
Corporation, a Delaware corporation (the "Company") pursuant to the terms of
the Indenture (as defined below) and as an inducement to CS First Boston
Corporation (the "Initial Purchaser") to enter into the Purchase Agreement
dated June 17, 1996 (the "Purchase Agreement") among the Company, Salton Sea
Brine Processing L.P., Salton Sea Power Generation L.P., Fish Lake Power
Company, CalEnergy Operating Company, Vulcan Power Company, BN Geothermal,
Inc., San Felipe Energy Company, Conejo Energy Company, Niguel Energy Company,
Vulcan/BN Geothermal Power Company, Leathers, L.P., Elmore, L.P., Del Ranch,
L.P., Salton Sea Royalty Company, and the Initial Purchaser, 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 Additional Securities. The execution of this Agreement is a
condition to the pur-
<PAGE>
chase of the Additional Securities under the Purchase Agreement.
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:
"Additional Securities" shall have the meaning set forth in
the first paragraph of this Agreement.
"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 Additional 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.
<PAGE>
"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.
"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 Additional
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
pursu-
<PAGE>
ant 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:
(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 Additional
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 Trust Indenture dated as of July
21, 1995, as supplemented by the First Supplemental Indenture dated as of
October 18, 1995, and
<PAGE>
by the Second Supplemental Indenture dated as of June 20, 1996, 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
Additional Securities are to be issued.
"Initial Purchaser" 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.
"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 Additional
Securities upon original issuance thereof and at all times subsequent thereto
until, in the case of any such Additional Security, (i) a Registration
Statement covering such Additional Security, or the Exchange Security to be
exchanged for such Additional Security (and,
<PAGE>
in the case of any Resale Security, any resale thereof), has been declared
effective and such Additional Security has been disposed of or exchanged (or,
in any case where such Registration Statement covers the resale of Resale
Securities, such Additional 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) it is sold in compliance with
Rule 144 or would be permitted to be sold pursuant to Rule 144(k), (iii) it
shall have been otherwise transferred and a new certificate for any such
Additional Security not bearing a legend restricting further transfer shall
have been delivered by or on behalf of the Company and such Additional
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) it ceases to be
outstanding.
"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 Additional 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
<PAGE>
Exchange Security has been resold by such Restricted Person.
"Restricted Person" shall mean (a) any Affiliate of the
Company, (b) the Initial Purchaser or (c) any Affiliate of the Initial
Purchaser (other than Affiliates of the 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.
"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, special counsel to the Initial Purchaser, 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.
<PAGE>
"TIA" shall mean the Trust Indenture Act of 1939, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Trustee" shall mean Chemical Trust Company of California,
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.
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 Additional 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 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
<PAGE>
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 Additional Security is tendered into the Exchange Offer and
(B) 30 days from the date notice is mailed to the holders of Additional
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 Additional Securities tendered by the
holders thereof pursuant to the Exchange Offer and not withdrawn prior to the
Consummation Date. 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.
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
<PAGE>
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
<PAGE>
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 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 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 such 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.
3. Shelf Registration; Registrable Securities.
With respect to the Registrable Securities, if a Shelf Notice is delivered in
accordance with Section 2(b) or (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
<PAGE>
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 a 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 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 three 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 three-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.
<PAGE>
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 immediate 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 the 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 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 Additional 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
<PAGE>
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.
4. Additional Interest for Illiquidity.
(a) The Company acknowledges and agrees that the Initial
Purchaser (and any subsequent holders of the Additional Securities) has
acquired Additional 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 Additional
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 Additional 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 Additional 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 Additional 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 Additional 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 Registration Statement has not
become effective within two years after the Closing Date, the interest rates
on the Additional 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,
<PAGE>
the Company agrees that it shall be liable to the holders of all Additional
Securities for the payment of any and all additional interest on the
Additional Securities that shall accrue pursuant to this Section 4.
Any such additional interest accrued on any such Additional
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 Additional Securities on such record date.
(b) The Company shall promptly notify the holders of the
Additional 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 (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.
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:
<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
writ-
<PAGE>
ing, (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 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;
<PAGE>
(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 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
<PAGE>
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 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 Additional 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
<PAGE>
Company to maintain the rating of such Registrable Securities at the rating
given the Additional 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 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,
<PAGE>
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 such 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 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
<PAGE>
to any such Registration Statement filed pursuant to Section 2 insofar
as it covers such resales.
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
<PAGE>
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.
6. Delivery of Prospectus; Notification Upon Resale. The
Initial Purchaser acknowledges 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 prospectus in connection with any resale of such Resale
Securities. By so acknowledging, such Initial Purchaser shall not be deemed to
admit that, by delivering a prospectus, it is an underwriter within the
meaning of the Securities Act.
The Initial Purchaser shall notify the Company promptly upon
the completion of the resale of the Resale Securities received by such Initial
Purchaser pursuant to the Exchange Offer.
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).
8. Indemnification and Contribution.
<PAGE>
(a) The Company agrees to (A) indemnify and hold harmless
each holder of Registrable Securities (including the 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 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 by
any holder 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
<PAGE>
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. 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 (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 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
<PAGE>
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 to assert
any separate legal defenses and to otherwise defend such action
<PAGE>
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 Additional 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
<PAGE>
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 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 Purchaser, 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.
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 Additional 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.
10. Termination. In the event that no Additional Securities
are sold to the Initial Purchaser 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 Additional Securities as set forth herein (including maintaining
the
<PAGE>
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.
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 supplemented, 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 provision of the immediately preceding sentence. Notwithstanding
<PAGE>
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 Purchaser, 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
(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, including
<PAGE>
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 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
<PAGE>
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.
<PAGE>
EXHIBIT 4.5
Please confirm that the foregoing correctly sets forth this
agreement between the Company and you.
Very truly yours,
SALTON SEA FUNDING CORPORATION
By: /s/ John G. Sylvia
----------------------------------
Name: John G. Sylvia
Title: Senior Vice President
Accepted in New York, New York
June 20, 1996
CS FIRST BOSTON CORPORATION
By: /s/ Jonathan Bram
------------------------------
Name: Jonathan Bram
Title: Director
EXHIBIT 4.6(B)
FIRST AMENDMENT
TO
COLLATERAL AGENCY AND
INTERCREDITOR AGREEMENT
First Amendment dated as of June 20, 1996 (this
"Amendment"), to the COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT dated as of
July 21, 1995 (the "Intercreditor Agreement"), among SALTON SEA FUNDING
CORPORATION, a Delaware corporation (together with its successors and assigns,
the "Funding Corporation"), the SALTON SEA GUARANTORS (as defined in the
Indenture referred to below), the PARTNERSHIP GUARANTORS (as defined in the
Indenture referred to below), the ROYALTY GUARANTOR (as defined in the
Indenture referred to below), the DEBT SERVICE RESERVE LOC PROVIDER (as
defined in the Intercreditor Agreement), the WORKING CAPITAL AGENT (as defined
in the Intercreditor Agreement), the PERMITTED COUNTERPARTY under any Interest
Rate Protection Agreement (each, as defined in the Indenture referred to
below), the TRUSTEE (as defined in the Intercreditor Agreement), the
DEPOSITARY AGENT (as defined in the Intercreditor Agreement) and the
COLLATERAL AGENT (as defined in the Intercreditor Agreement). Capitalized
terms used but not otherwise defined herein shall have the meanings assigned
to such terms in the Intercreditor Agreement.
WHEREAS, the Funding Corporation, the Salton Sea Guarantors,
certain of the Partnership Guarantors, the Royalty Guarantor, the Debt Service
Reserve LOC Provider, the Working Capital Agent, the Trustee, the Depositary
Agent and the Collateral Agent have entered into the Intercreditor Agreement;
WHEREAS, the Funding Corporation has issued Securities under
the Trust Indenture, dated as of July 21, 1995 (as supplemented and amended by
the First Supplemental Indenture dated as of October 18, 1995), between the
Funding Corporation, as principal and as agent for the Guarantors, and the
Trustee (the "Trust Indenture");
<PAGE>
WHEREAS, the Funding Corporation has determined to issue
$70,000,000 principal amount of 7.02% Series D Senior Secured Notes due 2000
and $65,000,000 principal amount of 8.30% Series E Senior Secured Bonds due
2011 (the "Series D and E Securities") pursuant to the Second Supplemental
Indenture, dated as of June 20, 1996 (the "Supplemental Indenture"), between
the Funding Corporation, as principal and as agent for the Guarantors, and the
Trustee (the Trust Indenture, as so supplemented and as otherwise amended,
modified or supplemented from time to time, the "Indenture");
WHEREAS, in connection with the issuance of additional
Securities pursuant to the Indenture, additional parties are becoming
Partnership Guarantors under the Indenture and related documents, and
additional parties are becoming obligors under the Partnership Credit
Agreement; and
WHEREAS, the terms of the Intercreditor Agreement must be
amended to reflect the additional Partnership Guarantors and additional
obligors under the Partnership Credit Agreement and to effect other changes in
connection with the issuance by the Funding Corporation of additional
Securities under the Indenture.
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows.
1. Amendment of the Intercreditor Agreement.
As of the date hereof, the Intercreditor Agreement shall be amended as follows:
(a) Section 1 is hereby amended by inserting
the following immediately after the phrase "paid in full" contained in clause
(iv)(y) of the definition of "Trigger Event" set forth in such Section 1:
"or (z) the Salton Sea Guarantee at a time when the Salton
Sea Project Note shall have been paid in full,"
2
<PAGE>
(b) Section 18 is hereby amended by adding the
following names above the notice address for Partnership Guarantors:
"BN Geothermal Inc.
Vulcan/BN Geothermal Power Company
San Felipe Energy Company
Leathers, L.P.
Conejo Energy Company
Del Ranch, L.P.
Niguel Energy Company
Elmore, L.P."
(c) Schedule 8(a) to the Intercreditor
Agreement is hereby amended (i) by adding the words "and amended as of June
20, 1996, and as further amended or otherwise modified from time to time,"
after the words "dated as of July __, 1995" (which date shall be completed to
read "July 21, 1995") in the first sentence thereof, and (ii) by adding the
words "and supplemented by the First Supplemental Indenture dated as of
October 18, 1995, and by the Supplemental Indenture dated as of June 20, 1996,
and as otherwise amended, supplemented or otherwise modified from time to
time" after the words "dated as of July __, 1995" (which date shall be
completed to read "July 21, 1995") in the second sentence thereof.
(d) Schedule 9a to the Intercreditor
Agreement is hereby amended by adding the words "and amended as of June 20,
1996, and as further amended or modified from time to time," after the words
"dated as of July __, 1995" (which date shall be completed to read "July 21,
1995") in the first paragraph thereof.
(e) Schedule 14a to the Intercreditor
Agreement is hereby amended by adding the words "and amended as of June 20,
1996, and as further amended or modified from time to time," after the words
"dated as of July __, 1995" (which date shall be completed to read "July 21,
1995") in the first paragraph thereof.
(f) The Certificate of Salton Sea
Funding Corporation, appearing directly after Schedule 14a to the
3
<PAGE>
Intercreditor Agreement, is hereby amended by adding the words ", and
supplemented by the First Supplemental Indenture dated as of October 18, 1995,
and by the Second Supplemental Indenture dated as of June 20, 1996, and as
further amended or modified from time to time," after the words "July , 1995"
(which date shall be completed to read "July 21, 1995") in such certificate.
2. Additional Partnership Guarantors. In
accordance with the terms of the Supplemental Indenture, from and after the
date hereof each of BN Geothermal Inc., Vulcan/BN Geothermal Power Company,
San Felipe Energy Company, Leathers, L.P., Conejo Energy Company, Del Ranch,
L.P., Niguel Energy Company and Elmore, L.P. (the "New Guarantors") shall be
"Partnership Guarantors" under the Intercreditor Agreement, as amended hereby
(as so amended, the "Amended Intercreditor Agreement"). Each New Guarantor
hereby acknowledges and agrees to the terms of the Amended Intercreditor
Agreement and consents to the exercise of remedies by the Collateral Agent
contained therein.
3. Intercreditor Agreement. Except as
specifically amended hereby, the Intercreditor Agreement shall continue in
full force and effect in accordance with the provisions thereof as in
existence on the date hereof. All references to "this Intercreditor Agreement"
in the Intercreditor Agreement shall be deemed to refer to the Amended
Intercreditor Agreement.
4. Governing Law. THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW
EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
5. Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but
one and the same instrument.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this
Amendment to be duly executed by their duly authorized officers, all as of the
date first written above.
SALTON SEA FUNDING CORPORATION
By: /s/ John G. Sylvia
-------------------------------
Name: John G. Sylvia
Title: Senior Vice President
SALTON SEA POWER GENERATION L.P.
By: SALTON SEA POWER COMPANY,
as its general partner
By: /s/ John G. Sylvia
-------------------------------
Name: John G. Sylvia
Title: Senior Vice President
SALTON SEA BRINE PROCESSING L.P.
By: SALTON SEA POWER COMPANY,
as its general partner
By: /s/ John G. Sylvia
-------------------------------
Name: John G. Sylvia
Title: Senior Vice President
FISH LAKE POWER COMPANY
By: /s/ John G. Sylvia
-------------------------------
Name: John G. Sylvia
Title: Senior Vice President
5
<PAGE>
VULCAN POWER COMPANY
By: /s/ John G. Sylvia
-------------------------------
Name: John G. Sylvia
Title: Senior Vice President
CALENERGY OPERATING COMPANY
By: /s/ John G. Sylvia
-------------------------------
Name: John G. Sylvia
Title: Senior Vice President
BN GEOTHERMAL INC.
By: /s/ John G. Sylvia
-------------------------------
Name: John G. Sylvia
Title: Senior Vice President
VULCAN/BN GEOTHERMAL POWER
COMPANY
By: VULCAN POWER COMPANY,
as its general partner
By: /s/ John G. Sylvia
-------------------------------
Name: John G. Sylvia
Title: Senior Vice President
SAN FELIPE ENERGY COMPANY,
By: /s/ John G. Sylvia
-------------------------------
Name: John G. Sylvia
Title: Senior Vice President
6
<PAGE>
LEATHERS, L.P.
By: CALENERGY OPERATING COMPANY,
as its general partner
By: /s/ John G. Sylvia
-------------------------------
Name: John G. Sylvia
Title: Senior Vice President
CONEJO ENERGY COMPANY
By: /s/ John G. Sylvia
-------------------------------
Name: John G. Sylvia
Title: Senior Vice President
DEL RANCH, L.P.
By: CALENERGY OPERATING COMPANY,
as its general partner
By: /s/ John G. Sylvia
-------------------------------
Name: John G. Sylvia
Title: Senior Vice President
NIGUEL ENERGY COMPANY
By: /s/ John G. Sylvia
-------------------------------
Name: John G. Sylvia
Title: Senior Vice President
7
<PAGE>
ELMORE, L.P.
By: CALENERGY OPERATING COMPANY,
as its general partner
By: /s/ John G. Sylvia
-------------------------------
Name: John G. Sylvia
Title: Senior Vice President
SALTON SEA ROYALTY COMPANY
By: /s/ John G. Sylvia
-------------------------------
Name: John G. Sylvia
Title: Senior Vice President
CREDIT SUISSE,
as the Debt Service
Reserve LOC Provider
By: /s/ Henry Park
-------------------------------
Name: Henry Park
Title: Associate
By: /s/ Suzanne Leon
-------------------------------
Name: Suzanne Leon
Title: Associate
CREDIT SUISSE,
as the Working Capital Agent
By: /s/ Henry Park
-------------------------------
Name: Henry Park
Title: Associate
By: /s/ Suzanne Leon
-------------------------------
Name: Suzanne Leon
Title: Associate
8
<PAGE>
CHEMICAL TRUST COMPANY
OF CALIFORNIA
as the Trustee
By: /s/ Rose Maravilla
-------------------------------
Name: Rose Maravilla
Title: Assistant Vice President
CHEMICAL TRUST COMPANY
OF CALIFORNIA
as the Collateral Agent
By: /s/ Rose Maravilla
-------------------------------
Name: Rose Maravilla
Title: Assistant Vice President
CHEMICAL TRUST COMPANY
OF CALIFORNIA
as the Depositary Agent
By: /s/ Rose Maravilla
-------------------------------
Name: Rose Maravilla
Title: Assistant Vice President
9
<PAGE>
EXHIBIT 4.8
$135,000,000
SALTON SEA FUNDING CORPORATION
$70,000,000 7.02% Senior Secured Series D Notes Due May 30, 2000
$65,000,000 8.30% Senior Secured Series E Bonds Due May 30, 2011
PURCHASE AGREEMENT
June 17, 1996
CS First Boston Corporation
Park Avenue Plaza,
New York, N.Y. 10055
Dear Sirs:
1. Introductory. Salton Sea Funding Corporation, a Delaware
corporation (the "Funding Corporation"), proposes, subject to the terms and
conditions stated herein, to issue and sell to CS First Boston Corporation, as
initial purchaser ("CSFBC" or the "Purchaser"), U.S.$70,000,000 principal
amount of its 7.02% Series D Senior Secured Notes due May 30, 2000 (the
"Series D Securities") and U.S.$65,000,000 principal amount of its 8.30%
Series E Senior Secured Bonds Due May 30, 2011 (the "Series E Securities" and,
collectively with the Series D Securities, the "Securities"), to be issued
under a Trust Indenture dated as of July 21, 1995, as supplemented by the
First Supplemental Indenture dated as of October 18, 1995 and the Second
Supplemental Trust Indenture to be dated as of the Closing Date (as
hereinafter defined) (as so supplemented, the "Indenture"), each by and
between the Funding Corporation and Chemical Trust Company of California, as
trustee (the "Trustee") on a private placement basis pursuant to an exemption
under Section 4(2) of the United States Securities Act of 1933, as amended
(the "Securities Act"). Payments owed under the Securities will be guaranteed
by Salton Sea Brine Processing L.P., a California limited partnership
("SSBP"), Salton Sea Power Generation L.P., a California limited partnership
("SSPG"), Fish Lake Power Company, a Delaware corporation ("Fish Lake" and,
collectively with SSBP and SSPG, the "Salton Sea Guarantors"), Vulcan Power
Company, a Delaware corporation ("VPC"), CalEnergy Operating Company, a
Delaware corporation ("CEOC"), BN Geothermal, Inc., a Delaware corporation
("BN/Geothermal"), San Felipe Energy Company, a California corporation ("San
Felipe"), Conejo Energy Company, a California corporation ("Conejo"), Niguel
Energy Company, a California corporation ("Niguel"), Vulcan/BN Geothermal
Power Company, a Nevada general partnership ("Vulcan"), Leathers, L.P., a
California limited partnership ("Leathers"), Elmore, L.P., a California
1
<PAGE>
limited partnership ("Elmore"), Del Ranch, L.P., a California limited
partnership ("Del Ranch" and, collectively with VPC, CEOC, BN/Geothermal, San
Felipe, Conejo, Niguel, Vulcan, Leathers and Elmore, the "Partnership
Guarantors") and Salton Sea Royalty Company, a Delaware corporation ("SSRC" or
the "Royalty Guarantor" and, collectively with the Salton Sea Guarantors and
the Partnership Guarantors, the "Guarantors"). Capitalized terms used herein
without being defined herein shall have the meanings ascribed to such terms in
the Indenture (as modified by the form of Second Supplemental Trust Indenture
attached as Annex A hereto). Each of the Funding Corporation and the
Guarantors hereby agrees with the Purchaser as follows:
2. Representations and Warranties of the Funding Corporation
and the Guarantors.
Each of the Funding Corporation and the Guarantors jointly
and severally represents and warrants to, and agrees with, the Purchaser that:
(a) The Funding Corporation and the Guarantors have prepared
a preliminary offering circular dated June 11, 1996 (as it may be amended or
supplemented, the "Preliminary Offering Circular") and a final offering
circular dated June 17, 1996 (as it may be amended or supplemented, the
"Offering Circular") relating to the Securities. Copies of the Preliminary
Offering Circular and the Offering Circular have been delivered by the Funding
Corporation and the Guarantors to the Purchaser. 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 statements
therein, in the light of the circumstances under which they were made, not
misleading; and the 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 the Funding Corporation and the Guarantors make no
representation or warranty as to information contained in or omitted from the
Preliminary Offering Circular or the Offering Circular in reliance upon and in
conformity with written information furnished to the Funding Corporation
through the Purchaser 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) The Funding Corporation has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
State of Delaware, is duly qualified to do business as a foreign corporation,
and is a corporation in good standing in each jurisdiction in which its
ownership or lease of property or the conduct of its business requires such
qualification (except where the failure to so
2
<PAGE>
qualify would not have a material adverse effect on the Funding Corporation
and the Guarantors, taken as a whole). Each of SSBP, SSPG, Leathers, Elmore
and Del Ranch is a limited partnership duly formed and validly existing in
good standing under the laws of the State of California, is duly qualified to
do business as a foreign limited partnership, and is a foreign limited
partnership in good standing in each jurisdiction in which its ownership or
lease of property or the conduct of its business requires such qualification
(except where the failure to so qualify would not have a material adverse
effect on the Funding Corporation and the Guarantors, taken as a whole). Each
of CEOC, Fish Lake, SSRC and BN/Geothermal has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of Delaware, is duly qualified to do business as a foreign corporation, and is
a corporation in good standing in each jurisdiction in which its ownership or
lease of property or the conduct of its business requires such qualification
(except where the failure to so qualify would not have a material adverse
effect on the Funding Corporation and the Guarantors, taken as a whole). VPC
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the State of Nevada, is duly qualified to do
business as a foreign corporation, and is a corporation in good standing in
each jurisdiction in which its ownership or lease of property or the conduct
of its business requires such qualification (except where the failure to so
qualify would not have a material adverse effect on the Funding Corporation
and the Guarantors, taken as a whole). Each of San Felipe, Conejo and Niguel
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the State of California, is duly qualified to do
business as a foreign corporation and is a corporation in good standing in
each jurisdiction in which its ownership or lease of property or the conduct
of its business requires such qualification (except where the failure to so
qualify would not have a material adverse effect on the Funding Corporation
and the Guarantors, taken as a whole). Vulcan is a general partnership duly
formed and validly existing in good standing under the laws of the State of
Nevada, is duly qualified to do business as a foreign general partnership and
is a foreign general partnership in good standing in each jurisdiction in
which its ownership or lease of property or the conduct of its business
requires such qualification (except where the failure to so qualify would not
have a material adverse effect on the Funding Corporation and the Guarantors,
taken as a whole). The Funding Corporation and each Guarantor have all
necessary power and authority to own or lease their respective properties and
to conduct the respective businesses in which they are engaged as described in
the Offering Circular. All of the outstanding shares of capital stock of the
Funding Corporation have been duly authorized and validly issued and are fully
paid and nonassessable and are owned by Magma Power Company ("Magma") free and
clear of any claim, lien, encumbrance or agreement, except as contemplated by
the Financing Documents; all of the partnership interests of each of SSBP and
SSPG represent valid partnership interests in such partnership; all of the
general partnership interests in SSBP and SSPG are owned by SSPC, free and
clear of any claim, lien, encumbrance or agreement except as contemplated by
the Financing Documents; all of the limited partnership interests in SSBP are
owned by Magma, free and clear of any claim, lien, encumbrance or agreement
except as contemplated by the Financing Documents; all of the limited
partnership interests in SSPG are owned by SSBP, free and clear of any claim,
lien, encumbrance or agreement except as contemplated by the Financing
Documents; 99% of the outstanding shares of capital stock of SSPC are owned by
Magma and 1% of such shares are owned by the Funding Corporation, in each case
free and clear of any claim, lien, encumbrance
3
<PAGE>
or agreement except as contemplated by the Financing Documents; all of the
outstanding shares of capital stock of each of VPC, CEOC, Fish Lake and SSRC
have been duly authorized and validly issued and are fully paid and
nonassessable; 99% of the outstanding shares of capital stock of each of VPC,
CEOC, Fish Lake and SSRC are owned by Magma and 1% of the outstanding shares
of capital stock of each of VPC, CEOC, Fish Lake and SSRC are owned by the
Funding Corporation, in each case, free and clear of any claim, lien,
encumbrance or agreement except as contemplated by the Financing Documents;
all of the outstanding shares of capital stock of BN/Geothermal, San Felipe,
Conejo and Niguel have been duly authorized and validly issued and are fully
paid and nonassessable; all of the outstanding shares of capital stock of
BN/Geothermal are owned by VPC, free and clear of any claim, lien, encumbrance
or agreement except as contemplated by the Financing Documents; all of the
outstanding shares of capital stock of San Felipe, Conejo and Niguel are owned
by CEOC, free and clear of any claim, lien, encumbrance or agreement except as
contemplated by the Financing Documents; all of the partnership interests in
Vulcan represent valid general partnership interests in Vulcan; 50% of such
partnership interests in Vulcan are owned by BN/Geothermal and 50% of such
partnership interests are owned by VPC, in each case, free and clear of any
claim, lien, encumbrance or agreement except as contemplated by the Financing
Documents; all of the partnership interests in each of Leathers, Del Ranch and
Elmore represent valid partnership interests in such partnership; a 40%
general partnership interest and a 10% limited partnership interest in
Leathers is owned by San Felipe, a 40% general partnership interest in
Leathers is owned by CEOC and a 10% limited partnership interest in Leathers
is owned by Magma, in each case, free and clear of any claim, lien,
encumbrance or agreement except as contemplated by the Financing Documents; a
40% general partnership interest and a 10% limited partnership interest in Del
Ranch is owned by Conejo, a 40% general partnership interest in Del Ranch is
owned by CEOC and a 10% limited partnership interest in Del Ranch is owned by
Magma, in each case, free and clear of any claim, lien, encumbrance or
agreement except as contemplated by the Financing Documents; a 40% general
partnership interest and a 10% general partnership interest in Elmore is owned
by Niguel, a 40% general partnership interest in Elmore is owned by CEOC and a
10% limited partnership interest in Elmore is owned by Magma, in each case,
free and clear of any claim, lien, encumbrance or agreement except as
contemplated by the Financing Documents.
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(c) Each of the Funding Corporation and the Guarantors has
all power and authority necessary to execute and deliver this Agreement, the
Stock Acquisition Agreement (the "Stock Acquisition Agreement") among
CalEnergy Imperial Valley Company, Inc., Magma, CEOC and VPC, the Agreement
Terminating Commitments (the "Agreement Terminating Commitments") among
Leathers, Elmore, Del Ranch, The Fuji Bank, Limited, Morgan Guaranty Trust
Company and the banks party thereto and each other Transaction Document to
which it is a party and perform its obligations hereunder and thereunder; each
of this Agreement, the Stock Acquisition Agreement, the Agreement Terminating
Commitments and the other Transaction Documents to which the Funding
Corporation or the Guarantors 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 hereunder or thereunder
may be limited by bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights generally and by general
equitable principles 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 of the Funding
Corporation and the Guarantors of this Agreement, the Stock Acquisition
Agreement, the Agreement Terminating Commitments, the Second Supplemental
Trust Indenture dated as of the Closing Date (the "Supplemental Indenture") by
and between the Funding Corporation and the Trustee, the Securities and the
other Transaction Documents to which it is a party and its compliance with the
provisions hereof and thereof will not breach or (except as contemplated by
the Financing Documents) result in the creation or imposition of any lien,
charge or encumbrance upon any asset which is material to the Funding
Corporation and the Guarantors, taken as a whole (a "Material Asset") pursuant
to the terms of, or constitute a breach of, or default under, the partnership
agreement or certificate of limited or general partnership of SSBP, SSPG,
Vulcan, Leathers, Elmore or Del Ranch, the corporate charter or by-laws of the
Funding Corporation, Fish Lake, VPC, CEOC, BN/Geothermal, San Felipe, Conejo,
Niguel or SSRC or any agreement, indenture (including, without limitation, the
Indenture) or other instrument to which the Funding Corporation or the
Guarantors is a party or by which the Funding Corporation or the Guarantors is
bound (in each case which is material to the Funding Corporation and the
Guarantors 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 Funding Corporation or the Guarantors or
any Material Asset of the Funding Corporation or the Guarantors; and, except
as completed on or prior to the Closing Date or as required by applicable
state securities laws, no consent, authorization or order of, or filing or
registration by the Funding Corporation or any Guarantor with, any court,
governmental agency or third party is required in connection with the
execution, delivery and performance of each of this Agreement and the other
Transaction Documents to which the Funding Corporation or any Guarantor is a
party.
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(d) The execution, delivery and performance by each of the
Funding Corporation and the Guarantors of this Agreement, the Stock
Acquisition Agreement, the Agreement Terminating Commitments and the other
Transaction Documents to which it is a party and its compliance with the
provisions hereof and thereof will not conflict with, result in the creation
or imposition (except as contemplated by the Financing Documents) of any lien,
charge or encumbrance upon any asset which is material to the business or
financial condition of CalEnergy Company, Inc. ("CalEnergy") or Magma pursuant
to the terms of, or constitute a breach of, or default under, the corporate
charter or by-laws of CalEnergy or Magma or any agreement, indenture or other
instrument material to the business or financial condition of CalEnergy and to
which CalEnergy or Magma is a party or by which CalEnergy or Magma is bound or
to which any asset which is material to the business or financial condition of
CalEnergy or Magma is subject, or any law, order, rule, regulation, judgment
or decree of any court or governmental agency having jurisdiction over
CalEnergy or Magma.
(e) Neither the Funding Corporation, Fish Lake, VPC, CEOC,
BN/Geothermal, San Felipe, Conejo, Niguel or SSRC is in violation of its
corporate charter or by-laws. None of Leathers, Elmore, Del Ranch, SSBP or
SSPG is in violation of its respective certificate of limited partnership or
partnership agreement. Vulcan is not in violation of its certificate of
general partnership or partnership agreement. Neither the Funding Corporation
nor any Guarantor (i) is in default, and no event has occurred which, with
notice or lapse of time or both, would constitute such a default, 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 the Funding Corporation or any Guarantor
is a party or by which the Funding Corporation or any Guarantor or any
property of the Funding Corporation or any Guarantor may be bound or affected,
which default would have a material adverse effect on the financial condition,
business or results of operations of the Funding Corporation and the
Guarantors taken as a whole, or (ii) is in violation of any 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 Guarantor, which would in
turn be reasonably likely to have a material adverse effect on the financial
condition, properties, business or results of operations of the Guarantors
taken as a whole.
(f) Except as described in or contemplated by the Offering
Circular, each Guarantor represents, after due inquiry, that it (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 Offering Circular, and (ii) is
in compliance with all terms and conditions of such license, permit,
certificate, franchise or other governmental authorization,
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except (x) in either case where the failure to do so would not have a material
adverse effect on the financial condition, business or results of operations
of the Funding Corporation and the Guarantors 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.
(g) Except as described in or contemplated by the Offering
Circular, each of the Funding Corporation and the Guarantors holds, as
applicable, 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 the Funding Corporation and the Guarantors taken
as a whole, free and clear of all liens, encumbrances and claims which would
materially interfere with the conduct of the business of the Funding
Corporation and the Guarantors taken as a whole, as described in the Offering
Circular. Each of Vulcan, Leathers, Elmore, Del Ranch, SSBP and SSPG carries
insurance in such amounts and covering such risks as is adequate for the
conduct of its business and the value of its properties and which is
consistent with what is customarily carried by similar companies engaged in
similar businesses. Each of the foregoing insurance policies is valid and in
full force and effect. The Funding Corporation and the Guarantors are
presently conducting their respective businesses as described in the Offering
Circular and in substantial compliance with all applicable rules, regulations
and laws.
(h) Deloitte & Touche LLP and Coopers & Lybrand, L.L.P.,
whose respective reports appear in the Offering Circular, are and were, during
the period covered by their respective reports, independent with respect to
the Funding Corporation and the Guarantors within the meaning of the
Securities Exchange Act of 1934, as amended, and the applicable rules and
regulations thereunder (the "Exchange Act").
(i) The Supplemental Indenture has been validly authorized
and, when executed by the proper officers of the Funding Corporation (assuming
the due authorization, execution and delivery thereof by the Trustee) and
delivered by the Funding Corporation, will constitute the legal, valid and
binding obligation of the Funding Corporation, 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 equitable principles; the
Securities have been validly authorized, and, upon payment therefor on the
Closing Date as provided herein, will be validly issued and outstanding, and
will constitute obligations of the Funding Corporation entitled to the
benefits of the Indenture, except as the enforceability thereof may be limited
by bankruptcy, insolvency,
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<PAGE>
fraudulent transfer, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally and by general equitable
principles; the summary descriptions contained in the Offering Circular of the
Securities, the Indenture and the other Financing Documents conform in all
material respect to these documents.
(j) This Agreement has been duly authorized, executed
and delivered by the Funding Corporation and the Guarantors.
(k) Each Financing Document to which the Funding Corporation
is a party (other than this Agreement, the Supplemental Indenture and the
Securities) has been duly authorized, executed and delivered by the Funding
Corporation and, assuming due authorization, execution and delivery by the
other Persons party thereto (other than such Persons which are Guarantors or
Affiliates thereof), constitutes the legal, valid and binding agreement of the
Funding Corporation, enforceable in accordance with its terms, except as
enforceability thereof may be subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, and by general principles of equity.
(l) The Agreement Terminating Commitments, the Stock
Acquisition Agreement and each Financing Document to which any of the
Guarantors is a party (other than this Agreement) has been duly authorized,
executed and delivered by the Guarantors party thereto and, assuming due
authorization, execution and delivery by the other Persons party thereto
(other than such Persons which are the Funding Corporation, other Guarantors
or Affiliates thereof), constitutes the legal, valid and binding agreement of
the Guarantors party thereto, enforceable in accordance with its terms, except
as enforceability thereof may be subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other similar laws of general
applicability relating to or affecting creditors' rights generally and general
principles of equity.
(m) Each Project Document to which any of the Guarantors is
a party has been duly authorized, executed and delivered by the Guarantors
party thereto and, assuming due authorization, execution and delivery by the
other parties thereto which are not Guarantors or Affiliates thereof,
constitutes a legal, valid and binding agreement of such Guarantor,
enforceable against such Guarantor in accordance with its respective terms,
except as enforceability thereof may be subject to bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general applicability
affecting creditors' rights generally and general principles of equity.
(n) The execution and delivery of each of the Security
Documents to which the Funding Corporation or any of the Guarantors is a party
or will be a party on the Closing Date is or will be effective to create in
favor of the Collateral Agent for the benefit of the Secured Parties and, in
certain circumstances, the Funding Corporation, as
8
<PAGE>
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. Such security interests granted by the Salton Sea
Guarantors, CEOC, VPC and the Royalty Guarantor have the priority purported to
be created by such Security Documents. All filings and recordings necessary to
protect, preserve and perfect such security interests have been made and are
in full force and effect. Upon recordation of each Deed of Trust, Assignment
of Rents, Security Agreement and Fixture Filing, dated as of the Closing Date
entered into by Vulcan, Elmore, Leathers and Del Ranch (collectively, the
"Partnership Deed of Trust") and filing of the UCC-1 financing statements
naming Vulcan, Elmore, Leathers and Del Ranch as debtors and the Collateral
Agent as secured party (the "Financing Statements"), such security interests
granted by such Guarantors will have the priority purported to be created by
such Security Documents. Each Partnership Deed of Trust is or, on the Closing
Date, will be in appropriate form for recording as a mortgage of real estate
and for filing as a fixture filing financing statement to protect, preserve
and perfect the liens and security interests created or to be created by the
Partnership Deed of Trust. The Financing Statements on the Closing Date will
be in appropriate form for filing (including the description of the Collateral
set forth therein) in each office and in each jurisdiction where required to
create and perfect the lien and security interest described above.
(o) Magma, the Funding Corporation, SSPC and the Guarantors
will own all of the Funding Corporation Collateral and the Collateral on the
Closing Date, free and clear of any Liens other than Permitted Liens.
(p) Except as described in the 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 the
Funding Corporation or any Guarantor, threatened, to which the Funding
Corporation or any Guarantor is a party or of which any Material Asset of the
Funding Corporation or any Guarantor is the subject, including, without
limitation, any audit by the Internal Revenue Service of the Federal income
tax returns of any Guarantor, 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 the Funding Corporation and
the Guarantors, taken as a whole, or (y) the ability of any of the Funding
Corporation or any Guarantor to perform in any material respect their
respective obligations under the Financing Documents and Project Documents to
which any of them is a party.
(q) The financial statements (including the related notes)
included on pages F-1 through F-55 in the 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
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<PAGE>
in the 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 the Funding Corporation and the
Guarantors, as set forth in the column labeled "Actual" under the caption
"Capitalization" in the Offering Circular, is accurately described as of the
date presented therein.
(r) Except as disclosed in the Offering Circular, since the
date of the latest audited financial statements included in the 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 the Funding Corporation and
the Guarantors taken as a whole.
(s) The factual information provided by the Funding
Corporation and the Guarantors to the Independent Engineer in the preparation
of its report set forth at Appendices B to the 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 the Funding Corporation and the Guarantors as to the accuracy of
the projections or conclusions contained in such report and does not
constitute any obligation to update such report.
(t) No labor problem or disturbance with the persons
employed in connection with the Projects exists or, to the knowledge of the
Funding Corporation or any Guarantor, is threatened which might reasonably be
expected to have a material adverse effect on the business, financial
condition or results of operations of the Funding Corporation and the
Guarantors taken as a whole.
(u) Neither the Funding Corporation nor any Guarantor nor
any of their respective 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").
(v) The Securities meet the eligibility requirements of
Rule 144A(d)(3) under the Securities Act.
(w) Neither the Funding Corporation nor any Guarantor is 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 United
States 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 neither the Funding Corporation nor any
Guarantor is and, after giving effect to the offering and sale of the
Securities and the application of the proceeds thereof as described in the
Offering Circular, neither the Funding Corporation nor any Guarantor will be
an "investment company" as defined in the Investment Company Act.
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<PAGE>
(x) 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 United States
Securities exchange Act of 1934 ("Exchange Act") or quoted in a U.S. automated
inter-dealer quotation system.
(y) Assuming the accuracy of the representations of the
Purchaser 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,
Regulation D thereunder and Regulation S thereunder; and it is not necessary
to qualify an indenture in respect of the Securities under the United States
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
(z) Assuming the accuracy of the representations of the
Purchaser herein, neither the Funding Corporation, any Guarantor, nor any of
their 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 (excluding the Exchange 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 Purchaser herein, the Funding Corporation, the Guarantors and any person
acting on their behalf have complied and will comply with the offering
restrictions requirement of Regulation S.
(aa) The proceeds to the Funding Corporation from the
offering of the Securities will not be used to purchase or carry any security,
except as contemplated in the Offering Circular.
(bb) Each of the Salton Sea Projects and Partnership
Projects is a "Qualifying Small Power Production Facility," as such term is
defined pursuant to the Public Utility Regulatory Policies Act of 1978, as
amended. None of the Guarantors or the Funding Corporation, will, solely as a
result of the participation by the parties separately or as a group in the
transactions contemplated by the Financing 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," and "electric utility
holding company," a "public utility holding company," a "holding company," or
an "electrical corporation" or a subsidiary or affiliate of any of the
foregoing under any Law (including, without limitation, rules and regulations
of the California State Energy Resources Conservation and
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Development Commission, the Public Utility Holding Company Act of 1935, the
Federal Power Act of 1920 and the Public Utility Regulatory Policies Act of
1978, each as amended).
(cc) None of the Funding Corporation or any of the
Guarantors is 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 Employee Retirement Income Security Act of 1974, as amended).
(dd) The proceeds from the sale of Securities will be loaned
by the Funding Corporation to the Partnership Guarantors and utilized by the
Partnership Guarantors as described under the section of the 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, the Funding Corporation agrees
to sell to the Purchaser, and the Purchaser agrees, to purchase from the
Funding Corporation, at a purchase price of 99.45% of the principal amount of
the Series D Securities and 99.25% of the principal amount of the Series E
Securities, plus accrued interest from June 20, 1996 to the Closing Date, the
entire principal amount of the Securities. The Funding Corporation will
deliver against payment of the purchase price the Securities to be offered and
sold by the Purchaser in reliance on Regulation S (the "Regulation S
Securities") in the form of one or more permanent global Securities for each
series in registered form without interest coupons (the "Regulation S Global
Securities") which will be deposited with the Trustee, as custodian for The
Depository Trust Company ("DTC") for the respective accounts of the DTC
participants for Morgan Guaranty Trust Company of New York, Brussels office,
as operator of the Euroclear System ("Euroclear"), and Cedel Societe Anonyme
("Cedel") and registered in the name of Cede & Co., as nominee for DTC. The
Funding Corporation will deliver against payment of the purchase price the
Securities to be purchased by the Purchaser hereunder and to be offered and
sold by the Purchaser in reliance on Rule 144A under the Securities Act (the
"144A Securities") in the form of one permanent global Security for each
series in definitive form without interest coupons (the "Restricted Global
Security") deposited with the Trustee as custodian for DTC and registered in
the name of Cede & Co., as nominee for DTC. The Regulation S Global Security
will have the following single ISIN number for each series: Series
D-USU79627AD47; and Series E-USU79627AE20. The Restricted Global Security will
have the following single CUSIP number for each series: Series D-US795770AG13;
and Series E-US795770AH95. Securities sold to institutional "accredited
investors" (within the meaning of Rule 501(a) (1), (2), (3) or (7) under the
Securities Act) will be issued in certificated form. The Restricted Global
Securities shall include the legend regarding restrictions on transfer set
forth under "Transfer Restrictions" in the Offering Circular. Interests in any
permanent
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global Securities will be held only in book-entry form through Euroclear,
Cedel or DTC, as the case may be, except in the limited circumstances
described in the Offering Circular. Any resales, pledges or other transfers by
a holder who acquired such Securities in an offshore transaction pursuant to
Regulation S shall be made outside the United States only to a non-U.S. Person
in a transaction meeting the requirements of Regulation S under the Securities
Act or in the United States only to Qualified Institutional Buyers (as defined
in Rule 144A under the Securities Act). Any resales, pledges or other
transfers by an institutional "accredited investor" who acquired such
Securities shall be made, within the United States, only to Qualified
Institutional Buyers.
Payment for the Securities shall be made by the Purchaser in
Federal (same day) funds by official check or checks or wire transfer to an
account in New York previously designated to CSFBC by the Funding Corporation
drawn to the order of the Funding Corporation, at the office of Skadden, Arps,
Slate, Meagher & Flom, 919 Third Avenue, New York, New York, 10022 at 10:00
A.M., (New York time), on June 20, 1996 or at such other date and time not
later than seven full business days thereafter as CSFBC and the Funding
Corporation determine, such time being herein referred to as the "Closing
Date", against delivery to the Trustee as custodian for DTC of (i) the
Regulation S Global Securities representing all of the Regulation S Securities
for the respective accounts of the DTC participants for Euroclear and Cedel,
(ii) the Restricted Global Securities representing all of the 144A Securities
and (iii) certificated securities representing all of the Securities sold to
institutional "accredited investors". The Regulation S Global Securities, the
Restricted Global Securities and such certificated securities will be made
available for checking at the above office of Skadden, Arps, Slate, Meagher &
Flom at least 24 hours prior to the Closing Date.
4. Representations by Purchaser; Resale by Purchaser.
(a) The Purchaser represents and warrants to the Company
that it is an "accredited investor" within the meaning of Regulation D under
the Securities Act.
(b) The Purchaser 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. The Purchaser represents and
agrees that it has offered and sold the Securities, and will offer and sell
the Securities, only in accordance with Rule 903, Rule 144 under the
Securities Act ("Rule 144") or Rule 144A under the Securities Act ("Rule
144A"). Accordingly, neither the 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 the Purchaser, its
affiliates and all
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<PAGE>
persons acting on its or their behalf have complied and will comply with the
offering restrictions requirement of Regulation S. The Purchaser severally
agrees that, at or prior to confirmation of sale of the Securities, other than
a sale pursuant to Rule 144A or Rule 144, the Purchaser will have sent to each
distributor, dealer or person receiving a selling concession, fee or other
remuneration that purchases the Securities from it a confirmation or notice to
substantially the following effect:
"The Securities covered hereby have not been registered under the
U.S. Securities Act of 1933 (the "Securities Act") and may not be
reoffered, sold, pledged, transferred, assigned, encumbered or
otherwise disposed of in the absence of registration under the
Securities Act except in an offshore transaction pursuant to
Regulation S under the Securities Act or to a qualified institutional
buyer (as defined in Rule 144A under the Securities Act)."
Terms used in this subsection (b) have the meanings given to them by
Regulation S.
(c) The Purchaser agrees that it and each of its affiliates
has not entered and will not enter into any contractual arrangement with
respect to the distribution of the Securities except for any such arrangements
with the prior written consent of the Funding Corporation.
(d) The Purchaser agrees that it and each of its affiliates
has not offered and sold the Securities and will not 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. The Purchaser 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.
(e) The Purchaser agrees that it will offer to sell the
Securities only to, and will solicit offers to buy the Securities from,
persons who in purchasing the Securities will be deemed to have represented
and agreed that such person (i)(A) is a Qualified Institutional Buyer, (B) is
aware that the sale to it is being made in reliance on Rule 144A and (C) is
acquiring such Securities for its own account or for the account of a
Qualified Institutional Buyer, (ii) is (A) an institutional "accredited
investor" (as defined in Rule 501 (a)(1),(2),(3) or (7) under the Securities
Act) and (B) concurrently
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with its purchase executing and delivering the purchaser's letter containing
certain representation and agreements in substantially the form attached as
Appendix D to the Offering Circular or (iii) is not a U.S. person and is
purchasing such Securities in an offshore transaction pursuant to Regulation S.
5. Certain Agreements of the Funding Corporation and
the Guarantors. The Funding Corporation and the Guarantors agree with the
Purchaser that:
(a) The Funding Corporation and the Guarantors will advise
CSFBC promptly of any proposal to amend or supplement the Offering Circular
and will not effect such amendment or supplementation without CSFBC's consent.
If, at any time prior to the completion of the resale of the Securities by the
Purchaser, any event occurs as a result of which the 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, the Funding Corporation and the Guarantors promptly will notify
CSFBC of such event and promptly will prepare, at their own expense, an
amendment or supplement which will correct such statement or omission. Neither
CSFBC's consent to, nor CSFBC's 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.
(b) The Funding Corporation and the Guarantors will furnish
to the Purchaser copies of the Preliminary Offering Circular, the Offering
Circular and all amendments and supplements to such documents, in each case as
soon as available and in such quantities as CSFBC requests, and the Funding
Corporation will furnish to CSFBC on the date hereof three copies of the
Offering Circular. At any time when the Funding Corporation is not subject to
Section 13 or 15(d) of the Exchange Act, the Funding Corporation will promptly
furnish or cause to be furnished to CSFBC and, upon request of holders and
prospective purchasers of the Securities, to such holders and purchasers,
copies of the information required to be 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. The
Funding Corporation and the Guarantors will pay the expenses of printing and
distributing to the Purchaser and such holders and purchasers all such
documents.
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(c) The Funding Corporation and the Guarantors will arrange
for the qualification of the Securities for sale and the determination of
their eligibility for investment under the laws of such jurisdictions in the
United States and Canada as CSFBC designates and will continue such
qualifications in effect so long as required for the resale of the Securities
by the Purchaser, provided that the Funding Corporation and the Guarantors
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 years hereafter, the Funding
Corporation will furnish to CSFBC, as soon as available after the end of each
fiscal year, a copy of its annual audited financial statements and the annual
audited financial statements of the Guarantors (on a combined basis).
(e) During the period of three years after the Closing Date,
the Funding Corporation will, upon request, furnish to CSFBC and any holder of
Securities a copy of the restrictions on transfer applicable to the
Securities.
(f) During the period of three years after the Closing Date,
the Funding Corporation and the Guarantors 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 three years after the Closing Date,
the Funding Corporation and the Guarantors 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, and none of the Funding Corporation nor any of the Guarantors is
or will become, a closed-end investment company required to be registered, but
not registered, under the Investment Company Act.
(h) The Funding Corporation and the Guarantors will pay all
expenses incidental to the performance of their obligations under this
Agreement, the Indenture and the other Financing Documents, including (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 Offering Circular and amendments and supplements thereto, and any other
document relating to the issuance, offer, sale and delivery of the Securities.
The Funding Corporation and the Guarantors will also pay or reimburse the
Purchaser (to the extent incurred by it) for any expenses actually and
reasonably incurred by the Purchaser in connection with the purchase and sale
of the Securities, including, without limitation, all out-of-pocket
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expenses incurred by the Purchaser (such as, but not limited to, travel,
hotel, telephone and telecopy charges) , all fees and disbursements of counsel
to the Purchaser, expenses related to qualification of the Securities for sale
under the laws of such jurisdictions in the United States and Canada as CSFBC
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 Purchaser's and
the Funding Corporation's or the Guarantors' officers and employees and any
other expenses of the Purchaser and the Funding Corporation or the Guarantors
in connection with attending or hosting meetings with prospective purchasers
of the Securities from the Purchaser and for expenses incurred in distributing
Preliminary Offering Circulars and Offering Circulars (including any
amendments and supplements thereto) to the Purchaser and prospective
purchasers of the Securities from the Purchaser; provided that such fees and
expenses (other than rating agency fees and blue sky fees) are estimated to be
approximately $225,000 and will be subject to audit and verification by the
Funding Corporation and the Guarantors that such fees and expenses were
reasonably incurred in connection with the issuance and offering of the
Securities. On the Closing Date, the Funding Corporation and the Guarantors
will pay to the Purchaser an amount equal to the additional costs of effecting
payment of the aggregate purchase price of the Securities purchased by the
Purchaser on the Closing Date in same day funds as compared with payment in
New York Clearing House (next day) funds.
(i) In connection with the offering, until the earlier of
(x) 180 days following the Closing Date and (y) the Purchaser shall have
notified the Funding Corporation of the completion of the resale of the
Securities, neither the Funding Corporation, the Guarantors nor any of their
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 the Funding Corporation, the Guarantors nor any of
their 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) The Funding Corporation will not, until 30 days
following the Closing Date, without the prior written consent of the
Purchaser, 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 the Funding Corporation or any of the Guarantors
(other than the Securities).
6. Conditions of the Obligations of the Purchaser. The obligations of
the Purchaser to purchase and pay for the Securities will be subject to the
accuracy of the representations and warranties made by the Funding Corporation
and the Guarantors herein, to the accuracy of
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the statements of officers of the Funding Corporation and the Guarantors made
pursuant to the provisions hereof, to the performance by the Funding
Corporation and the Guarantors of their obligations hereunder and to the
following additional conditions precedent:
(a) The Purchasers shall have received letters, dated the
date of this Agreement, of Deloitte & Touche LLP and Coopers & Lybrand L.L.P.
in form and substance satisfactory to the Purchaser concerning the financial
information with respect to the Funding Corporation and the Guarantors set
forth in the Offering Circular.
(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 the Funding Corporation or any of the
Guarantors which, in the judgment of the Purchaser, 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 the Securities, the Series A Securities,
the Series B Securities or the Series C Securities by Standard & Poor's
Ratings Group or Moody's Investors Service, Inc. or any public announcement
that such organization has under surveillance or review its rating of the
Securities, the Series A Securities, the Series B Securities or the Series C
Securities (other than an announcement with positive implications of a
possible upgrading, and no implication of a possible downgrading, of such
rating); (iii) any suspension or 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 authorities; (v) any outbreak or
escalation of major hostilities in which the United States is involved, any
declaration of war by Congress of the United States or any other change in
financial markets or substantial national calamity or emergency if, in the
judgment of the Purchaser, 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; or
(vi) any invalidation of Rule 144A or Regulation S by any court or any
amendment or proposed amendment of any rule or regulation under the Securities
Act or the Exchange Act by the Commission which in the Purchaser's judgment,
would materially impair the Purchaser's ability to purchase, hold or effect
resales of the Securities as contemplated hereby or the ability of holders of
the Securities to effect resales as currently contemplated by Rule 144A and
Regulation S.
(c) The Funding Corporation and the Guarantors shall have
furnished the Purchaser with such assurance and evidence as the Purchaser may
require to confirm that, as of the Closing Date, all Debt owed by the
Partnership Project Companies (other than Permitted
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Guarantor Debt) will be repaid in full or effectively defeased and all liens
and collateral securing such Debt shall be released.
(d) The representations and warranties of each of the
Funding Corporation and the Guarantors contained herein and in each
Transaction Document to which the Funding Corporation or any of the Guarantors
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, each of the Funding Corporation and the Guarantors 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, subsequent to the respective dates of the most recent financial
statements in the Offering Circular, there shall have been no material adverse
change in the financial position or results of operation of the Funding
Corporation and the Guarantors, taken as a whole, as evidenced by a
certificate, dated the Closing Date, of the President or any Vice-President
and a principal financial or accounting officer of the Funding Corporation and
the Guarantors.
(e) On or prior to the Closing Date, the Funding Corporation
and the Guarantors, as applicable shall have entered into the Supplemental
Indenture, Amendment No. 1 to the Depositary Agreement, Amendment No. 1 to the
Intercreditor Agreement, the Securities, an amended and restated Debt Service
Reserve LOC Reimbursement Agreement and such additional Financing Documents
and amendments or modifications thereto as may be reasonably required by the
Purchaser in connection with the issuance of Securities, all in such form as
shall be satisfactory to the Purchaser and its counsel, and such Financing
Documents and such amendments, modifications or supplements shall have been
fully executed and delivered and shall remain in full force and effect on the
Closing Date and all conditions precedent thereunder to the issuance of one or
more Debt Service Reserve Letters of Credit in an aggregate face amount equal
to the Debt Service Reserve Fund Required Balance (as defined in the
Depositary Agreement) as of the Closing Date shall have been satisfied on the
Closing Date and the Funding Corporation shall have delivered to the Trustee
evidence reasonably satisfactory to the Purchaser that the irrevocable letter
of credit currently anticipated to be required to be delivered to in order to
fund the Debt Service Reserve Fund at the Debt Service Reserve Fund Required
Balance (as defined in the Depositary Agreement) has been obtained and is in
existence on the Closing Date or other arrangements with respect to such
obligations acceptable to the Purchaser shall have been made.
(f) The Purchaser shall have received copies of all legal
opinions rendered in connection with the transactions contemplated by the
documents listed in paragraph (e) above and reliance letters in respect
thereof.
(g) On or prior to the Closing Date, the Funding Corporation
or the Guarantors shall have delivered to the Purchaser
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evidence satisfactory to the Purchaser and its counsel that a title policy or
policies in the aggregate amount of $96,000,000 insuring each Deed of Trust
executed by the Partnership Project Companies has been obtained, each of which
title policies shall be satisfactory in form and substance to the Purchaser
and its counsel.
(h) On or prior to the Closing Date, each Partnership Deed
of Trust shall have been delivered to Chicago Title Insurance Company (the
"Title Company") for due recordation as a mortgage of real estate, and any
required filings with respect to personal property and fixtures subject to the
liens of the Partnership Deed of Trust shall have been delivered to the Title
Company for filing, in each place in which such recording or filing is
required to protect, preserve and perfect the liens of the Partnership Deed of
Trust as a valid and enforceable lien on the real estate and as a valid and
enforceable security interest in the personal property and fixtures covered or
purported to be covered by the Partnership Deed of Trust, with the priority
purported to be created thereby, in each case subject only to Permitted Liens,
and except for such recordation or filing no further action shall be required
to create, preserve or perfect such liens and security interests. The
Financing Statements shall have been delivered for filing, recordation and/or
registration in each office and in each jurisdiction where required to create
and perfect a valid and enforceable security interest in the Collateral owned
by the Partnership Guarantors covered or purported to be covered by the
Security Documents, with the priority purported to be created thereby. All
taxes and recording and filing fees required to be paid with respect to the
execution, recording or filing of the Partnership Deed of Trust and the
Financing Statements shall have been paid or provided for. All Collateral and
Funding Corporation Collateral shall be subject to no Liens other than
Permitted Liens.
(i) On or prior to the Closing Date, each of the Project
Documents, in the forms as previously delivered to the Purchaser or its
counsel and as they exist as executed versions as of the date of this
Agreement or in such forms as shall be satisfactory in form and substance to
the Purchaser and its counsel, shall have been executed and delivered, shall
remain in full force and effect, no default shall have occurred thereunder,
all conditions precedent thereunder shall be satisfied and there shall not
have occurred any event of force majeure thereunder on the Closing Date.
(j) The Purchaser shall have received a letter, dated the
Closing Date, of Deloitte & Touche LLP and Coopers & Lybrand L.L.P. that meets
the requirements of subsection (a) of this Section, except that the specified
date referred to in such subsection will be a date not more than five days
prior to the Closing Date for the purposes of this subsection.
(k) The Independent Engineer shall have consented to the
references to it in the Offering Circular and the use of the Independent
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Engineer's Report (as defined in the Offering Circular) prepared by the
Independent Engineer and contained in Appendix B to the Offering Circular; and
since the date of the Independent Engineer's Report, no event affecting the
Independent Engineer's Report or the matters referred to therein shall have
occurred (A) which shall make untrue or incorrect in any material respect, as
of the Closing Date, any information or statement contained in the Independent
Engineer's Report or in the Offering Circular relating to matters referred to
in the Independent Engineer's Report, or (B) which shall not be reflected in
the Offering Circular but should be reflected therein in order to make the
statements and information contained in the Independent Engineer's Report, or
in the Offering Circular relating to matters referred to in the Independent
Engineer's Report, in light of the circumstances under which they were made,
not misleading, as evidenced by a certificate satisfactory to the Purchaser of
an authorized officer of the Independent Engineer, dated the Closing Date.
(l) The Purchaser shall have received a certificate, dated
the Closing Date, of any President or Vice President of the Funding
Corporation and the Guarantors, certifying, based on customary assumptions,
that there are sufficient geothermal resources to operate the Salton Sea
Projects and the Partnership Projects through the Final Maturity Date.
(m) The Purchaser shall have received opinions, dated the
Closing Date, of Willkie Farr & Gallagher, Latham & Watkins and Lionel Sawyer
& Collins, each counsel for the Funding Corporation and the Guarantors, and
Steven A. McArthur, Esq., General Counsel for the Funding Corporation and the
Guarantors, to the effect as set forth in Annexes B, C, D and E hereto and
satisfactory in all respects to the Purchaser and its counsel.
(n) The Purchaser 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
Financing 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 Purchaser
and its counsel.
(o) The Purchaser shall have received from Skadden, Arps,
Slate, Meagher & Flom, counsel for the Purchaser, such opinion or opinions as
the Purchaser may reasonably request, dated the Closing Date, with respect to
the Offering Circular and the Funding Corporation and the Guarantors shall
have furnished to such counsel such documents as they request for the purpose
of enabling them to pass upon such matters.
(p) The Purchaser shall have received, in form and substance
satisfactory to the Purchaser, copies of such opinions,
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certificates, letters and documents as the Purchaser reasonably requests.
7. Indemnification and Contribution.
(a) The Funding Corporation and the Guarantors will
indemnify and hold harmless the Purchaser against any losses, claims, damages
or liabilities, joint or several, to which the 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 the Funding Corporation and the Guarantors contained herein or
any untrue statement or alleged untrue statement of any material fact
contained in the 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 the Purchaser for any
legal or other expenses reasonably incurred by the Purchaser in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that the Funding
Corporation and the Guarantors 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 the Funding Corporation by the Purchaser
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 or
omission in the Preliminary Offering Circular, this indemnity agreement shall
not inure to the benefit of the Purchaser on account of any loss, claim,
damage, liability or action arising from the sale of any Securities to any
person by the Purchaser if the Purchaser failed to send or give a copy of the
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 Offering Circular and the Offering Circular was made available to the
Purchaser prior to the sale of the Securities.
(b) The Purchaser will indemnify and hold harmless the
Funding Corporation and the Guarantors against any losses, claims, damages or
liabilities to which the Funding Corporation and the Guarantors 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 Offering Circular, or any
amendment or supplement
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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 omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Funding Corporation by
the Purchaser specifically for use therein, and will reimburse any legal or
other expenses reasonably incurred by the Funding Corporation 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 the Purchaser consists of the following
information in the Offering Circular: the last paragraph at the bottom of the
cover page concerning the terms of the offering by the Purchaser and the
legend concerning stabilizing on the inside front cover page, the column in
the chart on the cover page titled "Discount to Initial Purchaser" and the
information under the caption "Plan of Distribution."
(c) Promptly after receipt by an indemnified party under
this Section 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; but 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 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; and provided, further
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that, with respect to any untrue statement or omission in the Preliminary
Offering Circular, this indemnity agreement shall not inure to the benefit of
the Purchaser on account of any loss, claim, damage, liability or action
arising from the sale of any Securities to any person by the Purchaser if the
Purchaser failed to send or give a copy of the 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 Offering Circular and the
Offering Circular was made available to the Purchaser prior to the sale of the
Securities. 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
includes an unconditional release of such indemnified party from all liability
on any claims that are the subject matter of such action.
(d) If the indemnification provided for in this Section 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 the Funding Corporation and the Guarantors on the one
hand and the Purchaser 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 the Funding Corporation and the Guarantors 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 the
Funding Corporation and the Guarantors on the one hand and the Purchaser 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 the Funding
Corporation and the Guarantors bear to the total discounts and commissions
received by the Purchaser from the Funding Corporation 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 the Funding Corporation or the Guarantors, 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
24
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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 Purchaser 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 Purchaser has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission.
(e) The obligations of the Funding Corporation and the
Guarantors under this Section shall be in addition to any liability which the
Funding Corporation and the Guarantors may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls the
Purchaser within the meaning of the Securities Act or the Exchange Act; and
the obligations of the Purchaser under this Section shall be in addition to
any liability which the Purchaser may otherwise have and shall extend, upon
the same terms and conditions, to each officer, director, employee, agent or
shareholder of the Funding Corporation and each Guarantor and to each officer,
director, employee, agent or shareholder of each person, if any, who controls
the Funding Corporation and the Guarantors within the meaning of the
Securities Act or the Exchange Act.
8. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties and other
statements of the Funding Corporation and the Guarantors or their officers and
of the Purchaser 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 the Purchaser, the Funding
Corporation and the Guarantors or 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, the Funding Corporation and
the Guarantors shall remain responsible for the expenses to be paid or
reimbursed by them pursuant to Section 5 and the respective obligations of the
Funding Corporation and the Guarantors and the Purchaser pursuant to Section 7
shall remain in effect; provided that, notwithstanding the foregoing, in such
circumstances the Funding Corporation and the Guarantors.shall not be
obligated to reimburse the Purchaser for its out-of-pocket expenses (including
fees and disbursements of counsel but excluding rating agency fees) in excess
of $225, 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 the Funding Corporation and the Guarantors
shall have no obligation to reimburse the Purchaser for its out-of-pocket
expenses (including fees and disbursements of counsel), except for rating
agency fees.
9. Notices. All communications hereunder will be in writing and, if
sent to the Purchaser will be mailed, delivered or telegraphed and confirmed
to the Purchaser, at CS First Boston Corporation, Park Avenue
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Plaza, New York, N.Y. 10055, Attention: Investment Banking Department
Transactions Advisory Group, or, if sent to the Funding Corporation and the
Guarantors, will be mailed, delivered or telegraphed and confirmed to them at
302 South 36th Street, Suite 400-A, Omaha, Nebraska 68131, Attention: General
Counsel; provided, however, that any notice to the Purchaser pursuant to
Section 7 will be mailed, delivered or telegraphed and confirmed to the
Purchaser.
10. 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.
11. 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.
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12. 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. The Funding Corporation and the Guarantors
hereby submit 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.
If the foregoing is in accordance with the Purchaser's
understanding of our agreement, kindly sign and return to us one of the
counterparts hereof, whereupon it will become a binding agreement between the
Funding Corporation, each of the Guarantors and the Purchaser in accordance
with its terms.
Very truly yours,
SALTON SEA FUNDING CORPORATION
By: /s/ John G. Sylvia
-------------------------
Name: John G. Sylvia
Title: Senior Vice President
SALTON SEA BRINE PROCESSING L.P.
By: SALTON SEA POWER COMPANY, as Managing
General Partner
By: /s/ John G. Sylvia
-------------------------
Name: John G. Sylvia
Title: Senior Vice President
SALTON SEA POWER GENERATION L.P.
By: SALTON SEA POWER COMPANY, as Managing
General Partner
By: /s/ John G. Sylvia
-------------------------
Name: John G. Sylvia
Title: Senior Vice President
FISH LAKE POWER COMPANY
By: /s/ John G. Sylvia
-------------------------
Name: John G. Sylvia
Title: Senior Vice President
27
<PAGE>
CALENERGY OPERATING
COMPANY
By: /s/ John G. Sylvia
-------------------------
Name: John G. Sylvia
Title: Senior Vice President
VULCAN POWER COMPANY
By: /s/ John G. Sylvia
-------------------------
Name: John G. Sylvia
Title: Senior Vice President
NIGUEL ENERGY COMPANY
By: /s/ John G. Sylvia
-------------------------
Name: John G. Sylvia
Title: Senior Vice President
SAN FELIPE ENERGY COMPANY
By: /s/ John G. Sylvia
-------------------------
Name: John G. Sylvia
Title: Senior Vice President
CONEJO ENERGY COMPANY
By: /s/ John G. Sylvia
-------------------------
Name: John G. Sylvia
Title: Senior Vice President
BN/GEOTHERMAL, INC.
By: CALENERGY OPERATING COMPANY,
as General Partner
By: /s/ John G. Sylvia
-------------------------
Name: John G. Sylvia
Title: Senior Vice President
28
<PAGE>
ELMORE, L.P.
By: CALENERGY OPERTAING COMPANY.
as General Partner
By: /s/ John G. Sylvia
-----------------------------
Name: John G. Sylvia
Title: Senior Vice President
LEATHERS, L.P.
By: CALENERGY OPERATING COMPANY,
as General Partner
By: /s/ John G. Sylvia
-----------------------------
Name: John G. Sylvia
Title: Senior Vice President
DEL RANCH, L.P.
By: CALENERGY OPERATING COMPANY,
as General Partner
By: /s/ John G. Sylvia
-----------------------------
Name: John G. Sylvia
Title: Senior Vice President
VULCAN/
BN GEOTHERMAL POWER COMPANY
By: VULCAN POWER COMPANY,
as General Partner
By: /s/ John G. Sylvia
-----------------------------
Name: John G. Sylvia
Title: Senior Vice President
SALTON SEA ROYALTY COMPANY
By: /s/ John G. Sylvia
-----------------------------
Name: John G. Sylvia
Title: Senior Vice President
29
<PAGE>
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
CS FIRST BOSTON CORPORATION
By: /s/ Adebayo O. Ogunlep
-------------------------
Name: Adebayo O. Ogunlep
Title: Managing Director
30
<PAGE>
ANNEX A
SUPPLEMENTAL INDENTURE
<PAGE>
ANNEX B
OPINION OF WILLKIE FARR & GALLAGHER
i) The Funding Corporation has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the State
of Delaware, has the full corporate power and authority to execute, deliver
and perform the Purchase Agreement and each of the Documents (as hereinafter
defined) and the Relevant California Documents (as hereinafter defined) it is
a party to and to carry on its business and to own, lease and operate its
properties as described in the Offering Circular, and is duly qualified and is
in good standing as a foreign corporation authorized to do business in the
State of California. "Documents," as used herein, shall mean collectively, the
Supplemental Indenture, the Registration Rights Agreement, the Debt Service
Reserve LOC Reimbursement Agreement, Amendment No. 1 to the Intercreditor
Agreement and the Agency Agreement. "Relevant California Documents," as used
herein, shall mean, collectively, the Amendment to Security Documents among
the Funding Corporation, certain of the Guarantors, Salton Sea Power Company,
and Magma, Amendment No. 1 to the Depositary Agreement and the Stock
Acquisition Agreement (the "Stock Acquisition Agreement") among Magma,
CalEnergy Imperial Valley Company, Inc., VPC and CEOC.
ii) Each of Magma, CalEnergy Imperial Valley Company, Inc.
CEOC, Fish Lake, SSRC and BN/Geothermal has the corporate power and authority
to execute, deliver and perform its obligations under the Purchase Agreement,
the Documents and the Relevant California Documents such Person is a party to.
iii) Each of CalEnergy and CalEnergy Imperial Valley
Company, Inc. has been duly organized, is validly existing as a corporation in
good standing under the laws of the State of Delaware, and is duly qualified
and is in good standing as a foreign corporation authorized to do business in
the State of California.
iv) Each of the Purchase Agreement and each other Document
to which the Funding Corporation or the Guarantors (collectively, "Parties")
is a party has been duly executed and delivered by such Party and constitutes
a valid and binding obligation of such Party enforceable in accordance with
its terms, except as the enforceability thereof may be limited by (a)
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or other similar laws now or
hereafter in effect relating to or affecting the rights and remedies of
creditors and (b) general principles of equity, whether enforcement is
considered in a proceeding in equity or at law.
v) The Securities have been duly authorized by the Funding
Corporation. The Securities have been issued and executed in accordance
B-1
<PAGE>
with the provisions of the Indenture and the Supplemental Indenture and
delivered to the Purchaser and constitute valid and binding obligations of the
Funding Corporation entitled to the benefits provided by the Indenture and the
Supplemental Indenture, enforceable against the Funding Corporation in
accordance with their terms, except as the enforceability thereof may be
limited by (a) bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting the rights and
remedies of creditors and (b) general principles of equity, whether
enforcement is considered in a proceeding in equity or at law.
vi) The execution and delivery of the Purchase Agreement,
the Stock Acquisition Agreement, the Agreement Terminating Commitments, all
Financing Documents (including, without limitation, any amendments,
modifications or supplements thereof) and Project Documents entered into on or
about the Closing Date by the Parties, the issuance and delivery of the
Securities to be sold by the Funding Corporation and the consummation by the
Parties of the transactions contemplated in the Purchase Agreement, such
Financing Documents and Project Documents, and the Consents (as defined
herein) (including, without limitation, the loans made by the Funding
Corporation to the Partnership Guarantors and the loans, dividends,
distributions or other payments made by the Partnership Guarantors to Magma,
CalEnergy or any affiliate thereof with certain of the proceeds of such loans,
as contemplated by the Offering Circular) will not conflict with or constitute
a breach or violation of any of the terms or provisions of, or constitute a
default under, (A) the certificate of incorporation or by-laws or certificate
of limited or general partnership and partnership agreement of the relevant
Party, (B) any existing federal or New York statute, rule or regulation (other
than the securities or blue sky laws of the various states and foreign
countries, as to all of which we express no opinion) of any governmental
agency or body having jurisdiction over the Parties or (C) those indentures or
agreements listed on Exhibit I attached hereto, in each case, except for such
conflicts, breaches or defaults that, in the aggregate, would not have a
material adverse effect on the financial condition of the Parties or the
enforceability of the Purchase Agreement, any Financing Document, any Consent
or any such Project Document, and the Funding Corporation has the requisite
corporate power and authority to authorize, issue and sell the Securities as
contemplated by the Purchase Agreement. "Consents," as used herein, shall
mean, collectively, any consents to assignment of any Project Documents to the
Collateral Agent, entered into on or about the Closing Date.
vii) Assuming the accuracy of the representations and
warranties, and compliance with the agreements, made by the Funding
Corporation and the Purchaser in the Purchase Agreement, the offer, sale and
delivery of the Securities by the Funding Corporation to the Purchaser
pursuant to the Purchase Agreement and the initial resales of the Securities
by the Purchaser in accordance with Section 4 of the Purchase Agreement and in
the manner contemplated by the Offering Circu-
B-2
<PAGE>
lar and the Purchase Agreement do not require registration of the Securities
under the Securities Act and the Indenture is not required to be qualified
under the Trust Indenture Act of 1939, as amended.
We have participated in conferences with officers and other
representatives of the Parties, some of which have been attended by the
Purchaser and their counsel, at which conferences the contents of the
Preliminary Offering Circular and the Offering Circular and related matters
were discussed, and, although we have not independently checked or verified
and are not passing upon and assume no responsibility for the factual
accuracy, completeness or fairness of the statements contained in the Offering
Circular, during the course of such participation no facts have come to our
attention which cause us to believe that (except for (i) the financial
statements, related schedules and other financial and statistical information
contained therein or omitted therefrom, (ii) the Independent Engineer's
Report, (iii) the Geothermal Resource Consultant's Report and (iv) the
information contained in (or omitted from) the Offering Circular under the
captions "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Guarantors", "Business of Guarantors", "Summary
Description of Principal Project Contracts" and the descriptions of the Credit
Agreements, Project Notes, Guarantees and Security Documents under the caption
"Summary Description of Principal Financing Documents", as to all of which we
do not express any belief) the Offering Circular, as of the date of the
Offering Circular and the Closing Date, contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
The Trustee, for the benefit of the Holders of the
Securities, may rely on our opinion dated July 21, 1995 issued in connection
with the initial sale of the Series A Securities, the Series B Securities and
the Series C Securities, it being acknowledged that such opinion is rendered
only as of the date thereof.
B-3
<PAGE>
EXHIBIT I
13. Stock Purchase Agreement dated as of February 18, 1991 (re:
common stock) between CalEnergy and Kiewit Energy Company.
14. Amendment #1 to February 18, 1991 Stock Purchase Agreement dated
as of June 19, 1991 between CalEnergy and Kiewit Energy Company.
15. Amendment #2 to February 18, 1991 Stock Purchase Agreement dated
as of January 8, 1992 between CalEnergy and Kiewit Energy Company.
16. Amendment #3 to February 18, 1991 Stock Purchase Agreement dated
as of April 2, 1993 between CalEnergy and Kiewit Energy Company.
17. Shareholder's Agreement dated as of February 18, 1991 between
CalEnergy and Kiewit Energy Company.
18. Amendment #1 to February 18, 1991 Shareholder's Agreement dated
as of June 19, 1991 between CalEnergy and Kiewit Energy Company.
19. Amendment #2 to February 18, 1991 Shareholder's Agreement dated
as of November 20, 1991 between CalEnergy and Kiewit Energy Company.
20. Amendment #3 to February 18, 1991 Shareholder's Agreement dated
as of April 2, 1992 between CalEnergy and Kiewit Energy Company.
21. Amendment #4 to February 18, 1991 Shareholder's Agreement dated
as of July 20, 1993 between CalEnergy and Kiewit Energy Company.
22. Stock Option Agreement dated as of February 18, 1991 (re: $9.00
and $12.00 options) between CalEnergy and Kiewit Energy Company.
23. Amendments #1 to February 18, 1991 Stock Option Agreement dated
as of June 19, 1991 between CalEnergy and Kiewit Energy Company.
24. Amendment #2 to February 18, 1991 Stock Option Agreement dated as
of May 12, 1994 between CalEnergy and Kiewit Energy Company.
25. Stock Option Agreement dated as of June 19, 1991 (re: $11 5/8
options) between CalEnergy and Kiewit Energy Company.
26. Registration Rights Agreement dated as of February 18, 1991
(re: common stock $9.00 and $12.00 options) between CalEnergy and
Kiewit Energy Company.
B-4
<PAGE>
27. Amendment #1 to February 18, 1991 Registration Rights Agreement
dated as of June 19, 1991 between CalEnergy and Kiewit Energy
Company.
28. Registration Rights Agreement dated as of June 19, 1991 (re: $11
5/8 options) between CalEnergy and Kiewit Energy Company.
29. Amendment #1 to June 19, 1991 Registration Rights Agreement dated
as of November 20, 1991 between CalEnergy and Kiewit Energy Company.
30. Securities Purchase Agreement dated as of November 20, 1991 (re:
Series C Preferred Stock and 9.5% Exchange Debenture) between
CalEnergy and Kiewit Energy Company.
31. Joint Venture Agreement dated as of December 14, 1993 between
CalEnergy and Kiewit Construction Group and Kiewit Diversified Group.
32. Indenture, dated as of March 24, 1994, relating to $529,640,000
10 1/4% Senior Discount Notes due 2004 between CalEnergy and IBJ
Schroder Bank and Trust Company, as Trustee.
33. Indenture, dated as June 24, 1993, relating to $100,000,000 5%
Convertible Subordinated Debentures due July 31, 2000 between
CalEnergy and Chemical Bank.
34. ___________% Limited Recourse Senior Secured Notes of CalEnergy,
due 2003.
35. Indenture, dated as of July 21, 1995 between CalEnergy and Bank
of New York, as Trustee.
36. 9.5% Convertible Subordinated Debenture Due 2003 of CalEnergy
dated March 15, 1995.
37. All Financing Documents.
B-5
<PAGE>
ANNEX C
OPINION OF LATHAM & WATKINS
i) Each of SSPG, SSBP, Leathers, Del Ranch and Elmore has
been duly formed and is validly existing and in good standing under the laws
of the State of California with partnership power and authority to conduct its
business as now conducted and to own, or hold under lease, its assets and to
enter into the Purchase Agreement, the Financing Documents and the Project
Documents (including, without limitation, any amendments, modifications or
supplements thereto) entered into on or about the Closing Date, the Stock
Acquisition Agreement among Magma, CalEnergy Imperial Valley Company, Inc.,
CEOC and VPC and the Consents (as defined herein)(collectively, "the
Documents") to which it is a party and perform its obligations thereunder.
"Consents," as used herein, shall mean, collectively, any consents to
assignment of any Project Document to the Collateral Agent.
ii) Each of Dessert Valley Company ("DVC"), San Felipe,
Conejo and Niguel has been duly incorporated and is validly existing and in
good standing under the laws of the State of California with corporate power
and authority to conduct its business as now conducted and to own, or hold
under lease, its assets and to enter into those Documents to which it is a
party and perform its obligations thereunder.
iii) Each of Funding Corporation, Fish Lake, CEOC,
BN/Geothermal and the Royalty Guarantor has been duly incorporated and is
validly existing and in good standing under the laws of the State of Delaware
with corporate power and authority to conduct its business as now conducted
and to own, or hold under lease, its assets and to enter into those Documents
which are governed by California law to which it is a party and perform its
obligations thereunder. Each of Funding Corporation, Fish Lake, CEOC and the
Royalty Guarantor is qualified to do business and is in good standing in the
State of California.
iv) Each of Magma, Magma Land Company, SSPC, Vulcan and VPC
is qualified to do business and is in good standing in the State of
California.
v) The execution, delivery and performance of each Document
(other than the Stock Acquisition Agreement) entered into by each of Funding
Corporation, SSPG, SSBP, Leathers, Del Ranch, Elmore, Fish Lake, CEOC,
BN/Geothermal, Royalty Guarantor, DVC, San Felipe, Conejo and Niguel have been
duly authorized by all necessary partnership or corporate action, as
applicable, of each such Party (as hereafter defined) and each such Document
has been duly executed and delivered by each such Party that is a party
thereto. "Party" means each of Magma, CalEnergy Imperial Valley Company, Inc.,
Magma Land Company, SSPC, Vulcan, VPC, Funding Corporation, SSPG, SSBP, Fish
Lake, Leathers, Del
C-1
<PAGE>
Ranch, Elmore, CEOC, Royalty Guarantor, San Felipe, Conejo, Niguel,
BN/Geothermal and DVC.
vi) Each Document which is governed by California law
constitutes a legally valid and binding obligation of each Party that is a
party thereto, enforceable against each such Party in accordance with the
terms of such Document.
vii) The execution and delivery of the Documents which are
governed by California law by the Parties, the borrowings by the Partnership
Guarantors pursuant to the Partnership Credit Agreement, the guarantee of the
Securities by the Guarantors pursuant to the Guarantees and the granting of
liens and security interests by the Parties in connection therewith, and the
payment of the indebtedness of the Guarantors evidenced by the Project Notes
do not: (a) violate any federal or California statute, rule or regulation
applicable to the Parties, (b) violate the provisions of the certificate of
incorporation, by-laws, certificate of limited or general partnership or
partnership agreement of any of the relevant Parties, or (c) to the best of
our knowledge, require any consents, approvals, authorizations, registrations,
declarations or filings by the Parties under any federal or California
statute, rule or regulation applicable to the Parties that has not been
obtained or made, as applicable. No opinion is expressed herein as to the
application of Section 548 of the federal Bankruptcy Code and comparable
provisions of state law or of any antifraud laws, trade regulation laws, or
environmental laws and regulations, or pension and employee benefit laws and
regulation, or land use laws and regulations.
viii) The provisions of the Security Documents are effective
to create valid security interests in favor of the Collateral Agent on behalf
of and for the benefit of the Secured Parties and the Funding Corporation in
that portion of the collateral described in the Security Documents which is
subject to Division 9 of the California Uniform Commercial Code (the
"Collateral") as security for the payment, to the extent set forth therein, of
all obligations of the Partnership Guarantors to the Funding Corporation and
the Secured Parties under the Credit Agreements, the Project Notes and the
Guarantees.
ix) The Amendments to the Security Documents do not
adversely affect the validity, perfection or priority of the security interest
of the Collateral Agent for the benefit of the Secured Parties and, in certain
circumstances, the Funding Corporation, in the Collateral and, after giving
effect to the Amendments to Security Documents, the security interest of the
Collateral Agent for the benefit of the Secured Parties and, in certain
circumstances, the Funding Corporation, in the Collateral will be entitled to
the same status as a valid and perfected security interest to which it would
otherwise have been entitled immediately prior to giving effect to the
Amendments to Security Documents. "Amendments to Security Documents" shall
mean collectively the Amendment to Security Documents among Magma, the
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<PAGE>
Funding Corporation, the Guarantors and Salton Sea Power Company, Amendment
No. 1 to the Salton Sea Deed of Trust and Amendment No. 1 to the Royalty Deed
of Trust.
x) The provisions of the Security Documents are effective to
create valid security interests in the Collateral in favor of the Collateral
Agent on behalf of and for the benefit of the Trustee, and the Holders of the
Securities, as security for the payment, to the extent set forth therein, of
all obligations of the Guarantors to the Funding Corporation and such Secured
Parties under the Credit Agreements, the Project Notes and the Guarantees. The
provisions of the Security Documents are effective to create valid security
interests in the Partnership Collateral in favor of the Collateral Agent on
behalf of and for the benefit of the Funding Corporation, as security for the
payment, to the extent set forth therein, of all obligations of the
Partnership Guarantors to the Funding Corporation under the Credit Agreement
and the Project Notes.
xi) Each UCC financing statement to be filed in California
is in appropriate form for filing in the Office of the Secretary of State of
the State of California. Upon the proper filing of each such UCC financing
statement in the Office of the Secretary of State of the State of California,
the security interest in favor of the Collateral Agent on behalf of and for
the benefit of the Secured Parties and the Funding Corporation in the
Collateral described in such Financing Statement which is subject to Division
9 of the California Uniform Commercial Code will be perfected to the extent a
security interest in such Collateral can be perfected by filing a financing
statement under the provisions of the UCC.
xii) Assuming the Collateral Agent takes and maintains
possession of the shares of capital stock (the "Pledged Shares") listed on
Schedule 2.1 of each agreement providing for the pledge of capital stock of
Niguel, San Felipe, BN/Geothermal or Conejo (the "Stock Pledge Agreement")
delivered to the Collateral Agent pursuant to the Stock Pledge Agreements,
with undated stock powers duly indorsed in blank, in the State of California,
each such Stock Pledge Agreement creates a valid and perfected security
interest in favor of the Collateral Agent in the rights in such Pledged Shares
which each pledgor has or has actual authority to convey as security for the
payment, to the extent set forth in the Stock Pledge Agreements, of all
obligations of the Partnership Guarantors to Funding Corporation and the
Secured Parties under the Credit Agreements, the Project Notes and the
Guarantees.
xiii) The provisions of the Depositary Agreement are
effective to create valid security interests in favor of the Depositary Agent
in the money, Funds, Permitted Investments and proceeds thereof which are
subject to the provisions thereof. Assuming the Depositary Agent takes and
maintains possession of money in the bank accounts specified in the notice of
security interest executed by Funding Corporation and the Guarantors of even
date herewith (the "Notice of
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<PAGE>
Security Interest"), the Collateral Agent will have a perfected security
interest therein upon the execution and delivery to the Depositary Agent of
the notice of security interest.
xiv) Each Partnership Deed of Trust is in an appropriate
form for recordation in California as a deed of trust encumbering real
property and interests in real property. The DOT Fixture Filing is in an
appropriate form for recordation in California as a fixture filing encumbering
interests in any "fixtures" (as such terms are defined in Section 9313(1) of
the California Uniform Commercial Code) described in such DOT Fixture Filing.
xv) The recording of each Partnership Deed of Trust and the
DOT Fixture Filing with the County Recorder of the County of Imperial,
California, is the only recording necessary to give constructive notice to
third parties of the lien of such Deed of Trust on the real property interests
described therein.
xvi) There are no mortgage taxes or filing fees payable to
the State of California or any of its political subdivisions as a consequence
of the execution or delivery of the Documents or the creation of the
indebtedness evidenced or secured by any of the Documents or the filing or
recording of any of the Documents, except (i) normal filing fees payable to
the Secretary of State of the State of California and normal recording fees
payable to the Imperial County Recorder; and (ii) any fee or charge payable to
any entity whose services may have been used to assist in such filing and
recordation. We express no opinion, however, with respect to any income,
franchise, sales, withholding, business license or other tax that may result
from the transactions contemplated by the Documents or the performance of the
obligations described therein, including the payments of the indebtedness
evidenced by the Documents.
xvii) To the best of our knowledge, based solely on docket
searches performed in the Superior Courts of Imperial County, California, and
San Diego, County, California, and in the United States District Court for the
Southern District of California, there is no action, suit, or proceeding
pending against or affecting any Party or any Party's properties or that
involves the Projects or the borrowing under the Credit Agreements.
xviii) Each of the Salton Sea Projects and the Partnership
Projects qualifies as a Qualifying Facility.
xix) Neither the Funding Corporation nor the Guarantors is
(a) subject to regulation as a "holding company" or a "subsidiary company" of
a holding company or an "affiliate" of a subsidiary or holding company or a
"public utility company" as defined in Section 2 of PUHCA, (b) subject to
regulation under the Federal Power Act of 1920, as amended, other than as
contemplated by 18 C.F.R. Section 292.601(c) or (c) subject to regulation
under any law of the state of California with
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<PAGE>
respect to the rates or the financial or organizational regulation of electric
utilities.
We have participated in conferences with officers and other
representatives of the Parties, and you and your representatives, at which the
contents of the Confidential Preliminary Offering Circular dated June 11, 1996
and the Final Offering Circular dated June __, 1996 (together, the "Offering
Circular") under the captions "Business of Guarantors", "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Guarantors", "Summary Description of Principal Project Contracts", "Summary
Description of Principal Financing Documents" (limited to the description of
the Credit Agreements, Project Notes, Guarantees and Security Documents)
(collectively, the "Subject Portions of the Offering Circular") and related
matters were discussed and, although we are not passing upon, and do not
assume any responsibility for, the accuracy, completeness or fairness of such
Subject Portions of the Offering Circular and have not made any independent
check or verification thereof, during the course of such participation, no
facts came to our attention that caused us to believe that (except for the
financial and statistical information contained therein or omitted therefrom)
the Subject Portions of the Offering Circular, as of the date thereof and
hereof, contain an untrue statement of 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; it being understood
that we express no belief with respect to any other statements or portions of
the Offering Circular, including without limitation, the financial statements,
schedules and other financial and statistical data included in the Offering
Circular or incorporated therein.
The Trustee, for the benefit of the Holders of the
Securities, may rely on our opinion dated July 21, 1995 issued in connection
with the initial sale of the Series A Securities, the Series B Securities and
the Series C Securities, it being acknowledged that such opinion is rendered
only as of the date thereof.
C-5
<PAGE>
ANNEX D
OPINION OF LIONEL SAWYER & COLLINS
38. Magma, Magma Land Company ("MLC"), SSPC and VPC are each
duly incorporated and validly existing and in good standing under the laws of
the State of Nevada, each with the corporate power and authority to conduct
its respective business, and to own, or hold under lease, its respective
assets as described in the Offering Circular, and to enter into the
"Documents" to which each is a party and perform its respective obligations
thereunder. "Documents" shall mean, for purposes of this opinion, the Stock
Acquisition Agreement among Magma, CalEnergy Imperial Valley Company, Inc.,
CEOC and VPC, the Purchase Agreement, the Partnership Deed of Trust, the
Partnership Note, the Partnership Credit Agreement, Amendment No. 1 to the
Depositary Agreement, Amendment No. 1 to the Intercreditor Agreement,
Collateral Assignment of IID Agreement, Collateral Assignment of other
Partnership Project Documents, Collateral Assignment of SCE Agreements,
Partnership Interest Pledge Agreement, Stock Pledge Agreement and the Consents
(as defined herein). "Consents" shall mean, for purposes of this opinion, any
and all consents to assignment of any Project Document to the Collateral
Agent. Vulcan has been duly formed and is validly existing and in good
standing under the laws of the State of Nevada with partnership power and
authority to conduct its business as now conducted and to own, or hold under
lease, its assets as described in the Offering Circular, and to enter into the
documents to which it is a party and to perform its obligations thereunder.
39. The execution, delivery and performance of each Document
entered into by each of Magma, MLC, SSPC and VPC, have been duly authorized by
all necessary corporate action on the part of each of them, and each such
Document has been duly executed and delivered by each of them. The execution,
delivery and performance of each Document entered into by Vulcan has been duly
authorized by all necessary partnership action on its part, and each such
Document has been duly executed and delivered by Vulcan.
40. The execution and delivery by Magma, MLC, SSPC, VPC and
Vulcan of the Documents to which they are a party, the borrowings by VPC and
Vulcan pursuant to the Partnership Credit Agreement, the guarantee of the
Securities by VPC and Vulcan pursuant to the Guarantee and the granting of
liens and security interests by Magma, SSPC, VPC and Vulcan in connection
therewith, and the payment of the indebtedness of VPC and Vulcan evidenced by
the Partnership Project Note do not: (a) violate any Nevada statute, rule or
regulation applicable to Magma, MLC, SSPC, VPC or Vulcan, (b) violate any
provisions of the articles of incorporation and bylaws of Magma, SSPC, VPC and
MLC or the partnership agreement of Vulcan, or (c) to the best of our
knowledge, require any consents, approvals, authorizations, registrations,
declarations or filings by
D-1
<PAGE>
Magma, SSPC, MLC, VPC or Vulcan under any Nevada statute, rule or regulation
applicable to them.
41. Each UCC financing statement is in appropriate form for
filing in the Office of the Secretary of State of the State of Nevada. Upon
the proper filing of each such UCC financing statement in the Office of the
Secretary of State of the State of Nevada, the security interest in favor of
the Collateral Agent on behalf of and for the benefit of the Secured Parties
and the Funding Corporation in the Collateral described in such financing
statement which is subject to Article 9 of the Nevada Uniform Commercial Code
(the "UCC") will be perfected to the extent a security interest in such
collateral can be perfected by filing a financing statement under the
provisions of the UCC.
42. There are no mortgage taxes or filing fees payable to
the State of Nevada or any of its political subdivisions as a consequence of
the execution or delivery of the Documents or the creation of the indebtedness
evidenced or secured by any of the Documents or the filing or recording of any
of the Documents, except (i) normal filing fees payable to the Secretary of
State of the State of Nevada; and (ii) any fee or charge payable to any entity
whose services may have been used to assist in such filing and recordation. We
express no opinion, however, with respect to any income, franchise, sales,
withholding, business license or other tax that may result from the
transactions contemplated by the Documents or the performance of the
obligations described therein, including the payments of the indebtedness
evidenced by the Documents.
The Trustee, for the benefit of the Holders of the Securities, may
rely on our opinion dated July 21, 1995 issued in connection with the initial
sale of the Series A Securities, the Series B Securities and the Series C
Securities, it being acknowledged that such opinion is rendered only as of the
date thereof.
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ANNEX E
OPINION OF GENERAL COUNSEL OF
CALIFORNIA ENERGY COMPANY, INC. AND SUBSIDIARIES
i) The Funding Corporation has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the State
of Delaware, has the corporate power and authority to execute, deliver and
perform its obligations under the Purchase Agreement, the Supplemental
Indenture, the Consents (as defined herein) and all Financing Documents and
Project Documents entered into on or about the Closing Date to which it is a
party (including, without limitation, all amendments, modifications or
supplements thereto) and to carry on its business and to own, lease and
operate its properties as described in the Offering Circular, and is duly
qualified and is in good standing as a foreign corporation authorized to do
business in the State of California and in each other jurisdiction in which
the nature of its business or its ownership or leasing of property requires
such qualification, except where the failure to so qualify or be in good
standing would not have a material adverse impact on the financial condition
or results of operations of the Funding Corporation and the Guarantors, taken
as a whole. "Consents," as used herein, shall mean collectively, any consents
to assignment to the Collateral Agent of any Project Document that the
Partnership Guarantors are party to.
ii) Each of SSBP, SSPG, Leathers, Elmore and Del Ranch has
been duly organized, is validly existing as a limited partnership in good
standing under the laws of the State of California, has the partnership power
and authority to execute, deliver and perform its obligations under the
Purchase Agreement, the Agreement Terminating Commitments (the "Agreement
Terminating Commitments") among Leathers, Elmore, Del Ranch, The Fuji Bank,
Limited, Morgan Guaranty Trust Company and the banks party thereto, the
Consents and all Financing Documents and Project Documents entered into on or
about the Closing Date to which it is a party (including, without limitation,
all amendments, modifications or supplements thereto) and to carry on its
business and to own, lease and operate its properties as described in the
Offering Circular, and is duly registered or has obtained a certificate of
authority and is in good standing as a foreign limited partnership authorized
to do business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such registration or authorization,
except where the failure to so qualify or be in good standing would not have a
material adverse impact on the financial condition or results of operations of
the Funding Corporation and the Guarantors, taken as a whole.
iii) Vulcan has been duly organized, is validly existing as
a general partnership in good standing under the laws of the State of
California, has the partnership power and authority to execute, deliver and
perform its obligations under the Purchase Agreement, the Consents,
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all Financing Documents and Project Documents entered into on or about the
Closing Date to which it is a party (including, without limitation, all
amendments, modifications or supplements thereto) and the Stock Acquisition
Agreement among Magma, CalEnergy Imperial Valley Company, Inc., Vulcan and
CEOC (the "Stock Acquisition Agreement") and to carry on its business and to
own, lease and operate its properties as described in the Offering Circular,
and is duly registered or has obtained a certificate of authority and is in
good standing as a foreign general partnership authorized to do business in
each jurisdiction in which the nature of its business or its ownership or
leasing of property requires such registration or authorization, except where
the failure to so qualify or be in good standing would not have a material
adverse impact on the financial condition or results of operations of the
Funding Corporation and the Guarantors, taken as a whole.
iv) Each of CalEnergy Imperial Valley Company, Inc., Fish
Lake, CEOC, BN/Geothermal and SSRC has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State of
Delaware, has the corporate power and authority to execute, deliver and
perform its obligations under the Purchase Agreement, the Consents, all
Financing Documents and Project Documents entered into on or about the Closing
Date to which it is a party (including, without limitation, all amendments,
modifications, or supplements thereto) and the Stock Acquisition Agreement and
to carry on its business as it is currently being conducted and to own, lease
and operate its properties, and is duly qualified and is in good standing as a
foreign corporation authorized to do business in each jurisdiction in which
the nature of its business or its ownership or leasing of property requires
such qualification, except where the failure to so qualify or be in good
standing would not have a material adverse impact on the financial condition
or results of operations of the Funding Corporation and the Guarantors, taken
as a whole.
v) SSPC has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Nevada, has the
power and authority to execute the Purchase Agreement, the Consents and all
Financing Documents and Project Documents entered into on or about the Closing
Date to which SSBP and SSPG are party (including, without limitation, all
amendments, modifications or supplements thereto) on behalf of each of SSBP
and SSPG, to execute, deliver and perform its obligations under the Consents
and all Financing Documents and Project Documents entered into on or about the
Closing Date (including, without limitation, all amendments, modifications or
supplements thereto) to which SSPC is party and to carry on its business as it
is currently being conducted and as proposed to be conducted and to own, lease
and operate its properties, and is duly qualified and is in good standing as a
foreign corporation authorized to do business in each jurisdiction in which
the nature of its business or its ownership or leasing of property requires
such qualification, except where the failure to so qualify or be in good
standing would not have a material
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adverse impact on the financial condition or results of operations of the
Funding Corporation and the Guarantors, taken as a whole.
vi) VPC has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Nevada, has the
corporate power and authority to execute, deliver and perform its obligations
under the Purchase Agreement, the Stock Acquisition Agreement, the Consents
and all Financing Documents and Project Documents entered into on or about the
Closing Date (including, without limitation, all amendments, modifications or
supplements thereto) to which such Person is a party and to carry on its
business as it is currently being conducted and is in good standing as a
foreign corporation authorized to do business in each jurisdiction in which
the nature of its business or its ownership or leasing of property requires
such qualification, except where the failure to so qualify or be in good
standing would not have a material adverse impact on the financial condition
or results of operations of the Funding Corporation and the Guarantors, taken
as a whole.
vii) Magma has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of Nevada, has
the corporate power and authority to execute, deliver and perform its
obligations under the Consents, the Stock Acquisition Agreement and all
Financing Documents and Project Documents entered into on or about the Closing
Date (including, without limitation, all amendments, modifications or
supplements thereto) to which it is a party and to carry on its business and
to own, lease and operate its properties as currently being conducted and is
duly qualified and is in good standing as a foreign corporation authorized to
do business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where the
failure to so qualify or be in good standing would not have a material adverse
impact on the financial condition or results of operations of the Funding
Corporation and the Guarantors, taken as a whole.
viii) Cal Energy has been duly organized, is validly
existing as a corporation in good standing under the laws of the State of
Delaware, has the power and authority to carry on its business and to own,
lease and operate its properties as currently being conducted, and is duly
qualified and is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where the
failure to so qualify or be in good standing would not have a material adverse
impact on the financial condition or results of operations of the Funding
Corporation and the Guarantors, taken as a whole.
ix) The Purchase Agreement, the Supplemental Indenture, and
each Financing Document and Project Document entered into on or about the
Closing Date to which the Funding Corporation is a party to has been duly
authorized, executed and delivered by the Funding Corporation and
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each such agreement (other than the Purchase Agreement) constitutes a valid
and binding obligation of the Funding Corporation enforceable against it in
accordance with its terms, except as the enforceability thereof may be limited
by (a) bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting the rights and
remedies of creditors and (b) general principles of equity, whether
enforcement is considered in a proceeding in equity or at law.
x) The Purchase Agreement, each Consent, the Agreement
Terminating Commitments, the Stock Acquisition Agreement and each Financing
Document and Project Document entered into on or about the Closing Date
(including, without limitation, all amendments, modifications or supplements
thereto) to which any of the Guarantors is a party has been duly authorized,
executed and delivered by or on behalf of the Guarantors party thereto and
each such agreement (other than the Purchase Agreement) constitutes a valid
and binding obligation of each of the Guarantors party thereto enforceable
against it in accordance with its terms, except as the enforceability thereof
may be limited by (a) bankruptcy, insolvency (including, without limitation,
all laws relating to fraudulent transfers), reorganization, moratorium or
other similar laws now or hereafter in effect relating to or affecting the
rights and remedies of creditors and (b) general principles of equity, whether
enforcement is considered in a proceeding in equity or at law.
xi) The Stock Acquisition Agreement, each Consent and each
Financing Document and Project Document entered into on or about the Closing
Date (including, without limitation, all amendments, modifications or
supplements thereto) to which Magma is a party has been duly authorized,
executed and delivered by Magma and constitutes a valid and binding obligation
of Magma enforceable against it in accordance with its terms, except as the
enforceability thereof may be limited by (a) bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the rights and remedies of creditors and (b) general
principles of equity, whether enforcement is considered in a proceeding in
equity or at law.
xii) Each Consent and each Financing Document and Project
Document entered into on or about the Closing Date (including, without
limitation, all amendments, modifications or supplements thereto) to which
SSPC is a party has been duly authorized, executed and delivered by SSPC and
constitutes a valid and binding obligation of SSPC enforceable against it in
accordance with its terms, except as the enforceability thereof may be limited
by (a) bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting the rights and
remedies of creditors and (b) general principles of equity, whether
enforcement is considered in a proceeding in equity or at law.
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xiii) The Securities have been duly authorized by the
Funding Corporation and have been issued and executed in accordance with the
provisions of the Indenture and the Supplemental Indenture and delivered to
the Purchaser and constitute valid and binding obligations of the Funding
Corporation entitled to the benefits provided by the Indenture, enforceable
against it in accordance with their terms, except as the enforceability
thereof may be limited by (a) bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting the rights and remedies of creditors and (b) general principles of
equity, whether enforcement is considered in a proceeding in equity or at law.
xiv) The execution, delivery and performance of the Purchase
Agreement, the Supplemental Indenture, the Consents and all Financing
Documents and Project Documents entered into on or about the Closing Date
(including, without limitation, all amendments, modifications or supplements
thereto) to which the Funding Corporation is a party and the issuance and sale
of the Securities by the Funding Corporation will not conflict with or violate
(A) the certificate of incorporation or by-laws of the Funding Corporation,
(B) to the best of my knowledge after due inquiry, any agreement or instrument
to which the Funding Corporation is a party or by which the Funding
Corporation is bound or to which any of the properties of the Funding
Corporation is subject, or result in the creation or imposition of any
mortgage, lien, charge or encumbrance upon any of the material properties or
assets of the Funding Corporation pursuant to the terms of any mortgage,
indenture, agreement or instrument to which the Funding Corporation is a party
or by which it is bound or (C) to the best of my knowledge after due inquiry,
result in a violation of any statute, rule, regulation, order, judgment or
decree of any court or governmental agency, body or authority having
jurisdiction over the Funding Corporation, except, in the case of clauses (B)
and (C), for such conflicts, breaches, encumbrances, violations or defaults
that, in the aggregate, would not have a material adverse effect on the
financial condition, business or results of operations of the Funding
Corporation and the Guarantors, taken as a whole or the enforceability of the
Financing Documents, Consents or Project Documents.
xv) The execution, delivery and performance of the Purchase
Agreement, the Consents, the Agreement Terminating Commitments, the Stock
Acquisition Agreement and all Financing Documents and Project Documents
entered into on or about the Closing Date to which the Guarantors, SSPC, Magma
or CalEnergy is a party will not (A) conflict with or violate the certificate
of incorporation or by-laws or certificate of limited or general partnership
or partnership agreement of any of the Guarantors, SSPC, Magma or CalEnergy or
(B) to the best of my knowledge after due inquiry, require any consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body or conflict with or
constitute a breach of
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any of the terms or provisions of, or a default under, any agreement,
indenture or other instrument to which any of the Guarantors, SSPC, Magma or
CalEnergy is a party or by which any of the Guarantors, SSPC, Magma or
CalEnergy or their respective properties is bound, or result in a violation of
any statute, rule, regulation, order, judgment or decree of any court or
governmental agency, body or authority having jurisdiction over any of the
Guarantors, SSPC, Magma or CalEnergy or their respective properties or (except
as contemplated by the Financing Documents) result in the creation or
imposition of any mortgage, lien, charge or encumbrance upon any of the
material properties or assets of any of the Guarantors, SSPC, Magma or
CalEnergy pursuant to the terms of any mortgage, indenture, agreement or
instrument to which any of the Guarantors, SSPC, Magma or CalEnergy is a party
or by which it or they are bound, except, in the case of clauses (B) and (C),
for such conflicts, breaches, encumbrances, violations or defaults that, in
the aggregate, would not have a material adverse effect on the financial
condition, business or results of operations of the Funding Corporation and
the Guarantors, taken as a whole or the enforceability of the Financing
Documents, Consents or Project Documents.
xvi) To the best of my knowledge after due inquiry, the
execution, delivery and performance of the Purchase Agreement, the Consents,
the Agreement Terminating Commitments, the Stock Acquisition Agreement and all
Financing Documents and Project Documents entered into on or about the Closing
Date, to which any of the Funding Corporation, the Guarantors, SSPC, Magma and
CalEnergy is a party (A) will not require any consent, approval, authorization
or other order of any court, regulatory body, administrative agency or other
governmental body, (B) will not conflict with or constitute a breach of any of
the terms or provisions of, or a default under, (1) the certificate of
incorporation or by-laws of CalEnergy or (2) any agreement, indenture or other
instrument to which CalEnergy or any of its subsidiaries is a party or by
which CalEnergy or any of its material property is bound, or (C) will not
violate or conflict with any laws, administrative regulations or rulings or
court decrees applicable to CalEnergy or any of its material properties or
result in the creation or imposition of any mortgage, lien, charge or
encumbrance of any nature whatsoever upon any of the material properties or
assets of CalEnergy pursuant to the terms of any mortgage, indenture,
agreement or instrument to which CalEnergy or any entity owned by CalEnergy is
a party or by which it or they are bound, except, in the case of clauses (A),
(B)(2) and (C), for such conflicts, breaches, encumbrances, violations or
defaults that, in the aggregate, would not have a material adverse effect on
the financial condition, business or results of operations of the Guarantors
and the Funding Corporation, taken as a whole or the enforceability of the
Financing Documents, Consents or Project Documents.
xvii) All partnership interests or other ownership interest
in SSBP and SSPG have been duly and validly authorized, and are owned of
record, to the best of my knowledge after due inquiry, beneficially by SSBP,
SSPC and Magma, and, to the best of my knowledge after due
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inquiry, there are no security interests, claims, liens, encumbrances or
adverse interests of any nature on the partnership interests in SSBP and SSPG
except for the liens contemplated by the Partnership Interest Pledge Agreement
and the other Financing Documents. To the best of my knowledge after due
inquiry, there are no outstanding subscriptions, warrants, conversion rights,
calls, options, rights, commitments or agreements by which SSBP, SSPG, SSPC
and Magma is bound calling for the issuance of ownership interests in SSBP and
SSPG except as contemplated by the Financing Documents.
xviii) All the outstanding shares of common stock (par value
$.01 per share), of the Funding Corporation, Fish Lake, VPC, CEOC and SSRC
have been duly authorized and validly issued, are fully paid, non-assessable
and, to the best of my knowledge after due inquiry, are not subject to any
preemptive or similar rights and are owned by Magma and the Funding
Corporation, free and clear of any security interest, claim, lien or
encumbrance, except for the liens contemplated by the Financing Documents, and
all such shares have been issued in accordance with applicable federal and
state securities laws. To the best of my knowledge after due inquiry, there
are no outstanding subscriptions, warrants, conversion rights, calls, options,
rights, commitments or agreements by which the Funding Corporation, Fish Lake,
VPC, CEOC and SSRC is bound calling for the issuance of shares of common stock
of the Funding Corporation, Fish Lake, VPC, CEOC and SSRC or for the issuance
of any securities convertible into shares of common stock of the Funding
Corporation, Fish Lake, VPC, CEOC and SSRC except as contemplated by the
Financing Documents.
xix) All partnership interests or other ownership interests
in Vulcan have been duly and validly authorized, and are owned of record, to
the best of my knowledge after due inquiry, beneficially by VPC and
BN/Geothermal and, to the best of my knowledge after due inquiry, there are no
security interests, claims, liens, encumbrances or adverse interests of any
nature on the partnership interests in Vulcan except for the liens
contemplated by the Partnership Interest Pledge Agreement and the other
Financing Documents. To the best of my knowledge after due inquiry, there are
no outstanding subscriptions, warrants, conversion rights, calls, options,
rights, commitments or agreements by which VPC, BN/Geothermal and Vulcan is
bound calling for the issuance of ownership interests in Vulcan except as
contemplated by the Financing Documents.
xx) All the outstanding shares of common stock (par value
$.01 per share), of BN/Geothermal have been duly authorized and validly
issued, are fully paid, non-assessable and, to the best of my knowledge after
due inquiry, are not subject to any preemptive or similar rights and are owned
by VPC, free and clear of any security interest, claim, lien or encumbrance,
except for the liens contemplated by the Financing Documents, and all such
shares have been issued in accordance with applicable federal and state
securities laws. To the best of my knowledge after due inquiry, there are no
outstanding subscriptions,
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warrants, conversion rights, calls, options, rights, commitments or agreements
by which BN/Geothermal is bound calling for the issuance of shares of common
stock of BN/Geothermal or for the issuance of any securities convertible into
shares of common stock of BN/Geothermal except as contemplated by the
Financing Documents.
xxi) All partnership interests or other ownership interests
in Leathers, Elmore and Del Ranch have been duly and validly authorized, and
are owned of record, to the best of my knowledge after due inquiry,
beneficially by CEOC, Niguel, Conejo, San Felipe and Magma, and, to the best
of my knowledge after due inquiry, there are no security interests, claims,
liens, encumbrances or adverse interests of any nature on the partnership
interests in Leathers, Elmore and Del Ranch except for the liens contemplated
by the Partnership Interest Pledge Agreement and the other Financing
Documents. To the best of my knowledge after due inquiry, there are no
outstanding subscriptions, warrants, conversion rights, calls, options,
rights, commitments or agreements by which Leathers, Elmore, Del Ranch, CEOC,
Niguel, Conejo, San Felipe and Magma is bound calling for the issuance of
ownership interests in Leathers, Elmore, and Del Ranch except as contemplated
by the Financing Documents.
xxii) All the outstanding shares of common stock (par value
$.01 per share), of Niguel, Conejo and San Felipe have been duly authorized
and validly issued, are fully paid, non-assessable and, to the best of my
knowledge after due inquiry, are not subject to any preemptive or similar
rights and are owned by CEOC free and clear of any security interest, claim,
lien or encumbrance, except for the liens contemplated by the Financing
Documents, and all such shares have been issued in accordance with applicable
federal and state securities laws. To the best of my knowledge after due
inquiry, there are no outstanding subscriptions, warrants, conversion rights,
calls, options, rights, commitments or agreements by which Niguel, Conejo and
San Felipe is bound calling for the issuance of shares of common stock of
Niguel, Conejo and San Felipe or for the issuance of any securities
convertible into shares of common stock of Niguel, Conejo and San Felipe
except as contemplated by the Financing Documents.
xxiii) Each UCC Financing Statement is in appropriate form
for filing in the Office of the Secretary of State of the State of Nebraska.
Upon the proper filing of each such UCC Financing Statement in the Office of
the Secretary of State of the State of Nebraska, the security interest in
favor of the Collateral Agent on behalf of and for the benefit of the Secured
Parties and the Funding Corporation in the Collateral described in such
financing statement which is subject to Article 9 of the Nebraska Uniform
Commercial Code will be perfected to the extent a security interest in such
Collateral can be perfected by filing a financing statement under the
provisions of the UCC. For purposes of this opinion, the General Counsel of
the Funding Corporation and the Guarantors may rely on the opinion of the
assistant general counsel of the Funding Corporation and the Guarantors.
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xxiv) To the best of my knowledge after due inquiry, except
as set forth in the Offering Circular, there are no pending or threatened
legal or governmental actions, suits or proceedings against or involving the
Funding Corporation or the Guarantors of any of their respective properties,
(i) of a character required to be disclosed in the Offering Circular which is
not adequately disclosed in the Offering Circular or (ii) that if determined
adversely to any such party, is reasonably likely to have, individually or in
the aggregate, a material adverse effect on the financial condition, business
or results of operations of the Funding Corporation and the Guarantors, taken
as a whole, or on the ability of the Funding Corporation or the Guarantors to
perform their respective material obligations under the Purchase Agreement,
the Financing Documents or the Project Documents.
xxv) Except as disclosed in the Offering Circular, the
Funding Corporation and each Guarantor (i) has obtained each license, permit,
certificate, franchise or other governmental authorization which is material
to the ownership of their properties or to the conduct of their businesses as
described in the Offering Circular and (ii) is in compliance with all terms
and conditions of such license, permit certificate, franchise or other
governmental authorization, except (x) in either case, where the failure to do
so is not reasonably likely to have, individually or in the aggregate, a
material adverse effect on the financial condition, business or results of
operations of the Funding Corporation and the Guarantors, 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 development 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.
xxvi) Neither the Funding Corporation nor any of the
Guarantors is, and neither such party owns or controls or, to the best of such
counsel's knowledge, is owned or controlled by an "investment company" that is
or is required to be registered under Section 8 of the Investment Company Act
of 1940, as amended.
xxvii) There are no mortgage taxes or filing fees payable to
the State of Nebraska or any of its political subdivisions as a consequence of
the execution or delivery of the Purchase Agreement, the Consents and/or the
Financing Documents and the Project Documents entered into on or about the
Closing Date (including, without limitation, all amendments, modifications or
supplements thereto) or the creation of the indebtedness evidenced or secured
by any of the Financing Documents entered into on or about the Closing Date or
the filing or recording of any of the Purchase Agreement, the Consents and/or
the Financing Documents and the Project Documents entered into on or about the
Closing Date (including, without limitation, all
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amendments, modifications or supplements thereto), except (i) normal filing
fees payable to the Secretary of State of the State of Nebraska; and (ii) any
fee or charge payable to any entity whose services may have been used to
assist in such filing and recordation. We express no opinion, however, with
respect to any income, franchise, sales, withholding, business license or
other tax that may result from the transactions contemplated by the Purchase
Agreement, the Consents and/or the Financing Documents and the Project
Documents entered into on or about the Closing Date or the performance of the
obligations described therein, including the payments of the indebtedness
evidenced by the Financing Documents entered into on or about the Closing
Date. For purposes of this opinion, the General Counsel of the Funding
Corporation and the Guarantors may rely on the opinion of the assistant
general counsel of the Funding Corporation and the Guarantors.
xxviii) Such counsel has participated in conferences with
representatives of the Funding Corporation and the Guarantors, some of which
have been attended by the Purchaser and its counsel, at which conferences the
contents of the Preliminary Offering Circular and the Offering Circular and
related matters were discussed, and, although such counsel has not
independently checked or verified and is not passing upon and assumes no
responsibility for the factual accuracy, completeness or fairness of the
statements contained in the Offering Circular, based on the foregoing, no
facts have come to such counsel's attention which cause such counsel to
believe that (except for the financial statements, related schedules and other
financial and statistical information and expert's reports contained therein
or omitted therefrom as to all of which such counsel does not express any
belief) the Offering Circular, as of the date of the Offering Circular and the
Closing Date, contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading.
The Trustee, for the benefit of the Holders of the
Securities, may rely on my opinion dated July 21, 1995 issued in connection
with the initial sale of the Series A Securities, the Series B Securities and
the Series C Securities, it being acknowledged that such opinion is rendered
only as of the date hereof.
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EXHIBIT 4.14(B)
AMENDMENT NO. 1
TO
DEPOSIT AND DISBURSEMENT AGREEMENT
AMENDMENT NO. 1, dated as of June 20, 1996 (this
"Amendment"), to the DEPOSIT AND DISBURSEMENT AGREEMENT, dated as of July 21,
1995 (as the same may be further amended or otherwise modified from time to
time, the "Depositary Agreement"), among Salton Sea Funding Corporation, a
Delaware corporation (the "Funding Corporation"), Salton Sea Brine Processing
L.P., a California limited partnership ("SSBP"), Salton Sea Power Generation
L.P., a California limited partnership ("SSPG"), Fish Lake Power Company, a
Delaware corporation ("Fish Lake"; and collectively with SSBP and SSPG, the
"Salton Sea Guarantors"), Vulcan Power Company, a Nevada corporation ("VPC"),
CalEnergy Operating Company, a Delaware corporation ("CEOC"), Salton Sea
Royalty Company, a Delaware corporation (the "Royalty Guarantor"), and
Chemical Trust Company of California, acting in its capacities as Collateral
Agent and Depositary Agent.
Capitalized terms used and not otherwise defined herein
shall have the meanings ascribed to them by the Depositary Agreement.
WHEREAS, the Funding Corporation has been formed for the
sole purpose of issuing bonds, debentures, promissory notes or other evidences
of indebtedness (the "Securities"), under the Trust Indenture dated as of July
21, 1995 (as supplemented by the First Supplemental Indenture dated as of
October 18, 1995 and as further supplemented by the Second Supplemental
Indenture dated as of June 20, 1996, between the Funding Corporation and the
Trustee and as otherwise amended, supplemented or otherwise modified from time
to time, the "Indenture") between the Funding Corporation and Chemical Trust
Company of California, in its capacity as Trustee;
WHEREAS, the Funding Corporation has determined to issue
$70,000,000 principal amount of 7.02% Series D Senior Secured Notes due 2000
and $65,000,000 principal
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amount of 8.30% Series E Senior Secured Bonds due 2011 (the "Series D and E
Securities");
WHEREAS, the net proceeds derived by the Funding Corporation
from the issuance of the Series D and E Securities will be loaned by the
Funding Corporation to (i) CEOC and VPC and used by CEOC and VPC to acquire
interests in Del Ranch, L.P., a California limited partnership ("Del Ranch"),
Elmore, L.P., a California limited partnership ("Elmore"), Leathers, L.P., a
California limited partnership ("Leathers"), and Vulcan/BN Geothermal Power
Company, a Nevada general partnership ("Vulcan"), (ii) Del Ranch, Elmore, and
Leathers, and used by such entities to repay existing Debt, and (iii) to Del
Ranch, Elmore, Leathers, Vulcan, SSBP, SSPG and Fish Lake to finance the
making of certain capital improvements to the Partnership Projects and the
Salton Sea Projects;
WHEREAS, the Series D and E Securities are being guaranteed
by the Salton Sea Guarantors, the Royalty Guarantor, VPC, CEOC, BN Geothermal,
Inc., a Nevada corporation ("BNG"), San Felipe Energy Company, a California
corporation ("San Felipe"), Conejo Energy Company, a California corporation
("Conejo"), Niguel Energy Company, a California corporation ("Niguel"),
Vulcan, Leathers, Del Ranch, and Elmore;
WHEREAS, the Salton Sea Guarantors, the Royalty Guarantor,
VPC, and CEOC are currently parties to the Depositary Agreement;
WHEREAS, in connection with the issuance of the Series D and
E Securities, BNG, San Felipe, Conejo, Niguel, Vulcan, Leathers, Del Ranch,
and Elmore are to become parties to the Depositary Agreement;
WHEREAS, in connection with the issuance of the Series D and
E Securities, a Capital Expenditure Fund is to be established under the
Depositary Agreement and the Depositary Agreement shall be modified as
provided herein;
NOW, THEREFORE, in consideration of the premises and for
other consideration, the receipt of which is
2
<PAGE>
hereby acknowledged, the parties hereto hereby agree as follows:
1. Amendment. (a) The introductory paragraph of the
Depositary Agreement is hereby amended by deleting "("CEOC"; and together with
VPC, the "Partnership Guarantors")" beginning in the eleventh line of such
paragraph and replacing it with the following: "("CEOC"), BN Geothermal Inc.,
a Nevada corporation ("BNG"), San Felipe Energy Company, a California
corporation ("San Felipe"), Conejo Energy Company, a California corporation
("Conejo"), Niguel Energy Company, a California corporation ("Niguel"), Vulcan
BN Geothermal Power Company, a Nevada general partnership ("Vulcan"), Leathers
L.P., a California limited partnership ("Leathers"), Del Ranch L.P., a
California limited partnership ("Del Ranch"), and Elmore, L.P., a California
limited partnership ("Elmore"; and together with VPC, CEOC, BNG, San Felipe,
Conejo, Niguel, Vulcan, Leathers, and Del Ranch, the "Partnership
Guarantors")".
(a) The fifth "WHEREAS" clause of the Depository agreement
is hereby amended by adding the words ", as amended by the First Supplemental
Indenture dated as of October 18, 1995, and by the Second Supplemental
Indenture dated as of June 20, 1996, and as otherwise amended, modified or
supplemented from time to time" after the word "hereof" in the fifth line of
such clause.
(b) Section 1.2 of the Depositary Agreement is hereby
amended by: (i) inserting the definition ""Capital Expenditure Fund" has the
meaning specified in Section 3.14." between the definitions of "Allocation
Certificate" and "Combined Exposure", and (ii) adding the words "Capital
Expenditure Requisition" after the words "Expansion Requisition," in the first
line of the definition of "Requisition".
(c) Section 2.2 is hereby amended by replacing the period
after the words "(i) Redemption Fund" with "; and" and by inserting the
following in the first paragraph directly below "(i) Redemption Fund":
"(j) Capital Expenditure Fund.".
3
<PAGE>
(d) Section 3.2(a)(i) is hereby amended by
adding the words "and all revenues actually received by the Partnership
Project Companies from the Partnership Projects" after the words "Salton Sea
Projects."
(e) Section 3.2(a)(ii) is hereby amended by deleting
"the Partnership Guarantors" and replacing it with "CEOC and VPC".
(f) Section 3.6(b)(iii) of the Depositary Agreement is
hereby amended by inserting "such distribution date occurs in or" after the
words "and, if" in the twelfth line of such Section 3.6(b)(iii).
(g) Section 3.8 of the Depositary Agreement is hereby
amended by inserting ", or as the case may be, Partnership Guarantor," after
the words "Salton Sea Guarantor", wheresoever such words appear within such
Section 3.8.
(h) Section 3.8 of the Depositary Agreement is hereby
amended by inserting ", or as the case may be, Partnership Guarantors," after
the words "Salton Sea Guarantors", wheresoever such words appear within such
Section 3.8.
(i) Section 3.8 of the Depositary Agreement is hereby
amended by inserting ", or as the case may be, Partnership Project" after the
words "Salton Sea Project", wheresoever such words appear within such Section
3.8.
(j) Section 3.9(a)(i) of the Depositary Agreement is hereby
amended by inserting ", or as the case may be, Partnership Guarantors," after
the words "Salton Sea Guarantors" in the second line and by replacing the
words "the Partnership Guarantors" with "CEOC or VPC" in such Section
3.9(a)(i).
(k) Section 3.9(a)(iv) is hereby amended by inserting the
words "any of" between the words "to" and "the" appearing contiguously in the
third line, and by inserting the phrase "other than the Partnership Project
Companies" after the word "Guarantors" beginning in the third line.
4
<PAGE>
(l) Article III is hereby amended by adding after
Section 3.13 thereof the following:
"Section 3.14. Capital Expenditure Fund. (a) On June 20, 1996,
$15,000,000 shall be delivered to the Depositary Agent and deposited
in the Capital Expenditure Fund from the net proceeds derived by the
Funding Corporation from the issuance of the Series D and E
Securities.
(b) Amounts held in the Capital Expenditure Fund shall be applied
solely for the payment (or reimbursement to the extent the same shall
have been previously paid or satisfied) of costs (including any
interest paid) incurred in connection with the modification,
improvement, reworking, maintenance and replacement from time to time
of wells, pipelines, gathering systems, equipment, facilities, and
other capital expenditures in connection with or located at the
Partnership Projects or the Salton Sea Projects (collectively, the
"Permitted Capital Expenditures") and for the payment of Permitted
Capital Expenditures reasonably expected to be incurred during the
30-day period following an applicable Disbursement Date. All monies
shall be withdrawn in accordance with the disbursement procedure
hereinafter described in this Section 3.14.
(c) As a condition precedent to any withdrawal and transfer from the
Capital Expenditure Fund there shall be filed with the Depositary
Agent within three days of each Disbursement Date on which such
withdrawal and transfer is requested to be made, a requisition in the
form attached hereto as Exhibit E (the "Capital Expenditure
Requisition") signed by an Authorized Representative of the relevant
Partnership Project Company or Salton Sea Guarantor, as the case may
be.
(d) On the Disbursement Date referred to in Section 3.14(c), or as
soon thereafter as pos-
5
<PAGE>
sible following receipt of the Capital Expenditure Requisition, the
Depositary Agent shall make payments in accordance with such Capital
Expenditure Requisition."
(n) Schedule I to the Depositary Agreement is hereby
deleted and replaced with the new Schedule I attached hereto.
(o) Exhibit C to the Depositary Agreement is hereby amended
by adding the words ", or as the case may be, Partnership Guarantors," after
the words "Salton Sea Guarantors" appearing in numbered paragraphs six and
seven and in Appendix I of such Exhibit C.
(p) Exhibit D to the Depositary Agreement is hereby amended
by adding the words ", or as the case may be, Partnership Guarantors" after
the words "Salton Sea Guarantors" appearing in numbered paragraph five of such
Exhibit D.
(q) The Depositary Agreement is hereby amended by adding
attached Exhibit E as Exhibit E to the Depositary Agreement.
2. Agreement to be Bound. Each of BNG, San Felipe, Conejo,
Niguel, Vulcan, Leathers, Del Ranch, and Elmore hereby agrees to become a
party to and be bound by the Depositary Agreement, as amended pursuant to this
Amendment and as subsequently amended, modified, or supplemented from time to
time, and acknowledges that all references to "Guarantors" or "Partnership
Guarantors" shall, from and after the effectiveness of this Amendment, refer
to each such Person as well as to all such Persons that were previously
Guarantors or Partnership Guarantors.
3. Condition to Effectiveness of Amendment. Pursuant to
Section 6.1 of the Depositary Agreement, this Amendment shall become
effective, and shall modify and amend the Depositary Agreement, upon execution
and delivery of this Amendment by the Collateral Agent, the Depositary Agent,
the Funding Corporation and the Guarantors.
6
<PAGE>
4. Modification of Depositary Agreement. Except as
expressly modified by this Amendment, all of the terms and provisions of the
Depositary Agreement are reaffirmed and shall remain in full force and effect.
5. Governing Law. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
6. Counterparts. This Amendment may be executed in
any number of counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and
delivered by the Funding Corporation, each of the Guarantors, the Collateral
Agent, and the Depositary Agent.
CHEMICAL TRUST COMPANY
OF CALIFORNIA,
as the Collateral Agent
By: /s/ Rose Maravilla
----------------------------
Name: Rose Maravilla
Title: Assistant Vice President
CHEMICAL TRUST COMPANY
OF CALIFORNIA,
as the Depositary Agent
By: /s/ Rose Maravilla
----------------------------
Name: Rose Maravilla
Title: Assistant Vice President
SALTON SEA FUNDING CORPORATION
By: /s/ John G. Sylvia
----------------------------
Name: John G. Sylvia
Title: Senior Vice President
SALTON SEA POWER GENERATION L.P.
By: SALTON SEA POWER COMPANY,
as its general partner
By: /s/ John G. Sylvia
----------------------------
Name: John G. Sylvia
Title: Senior Vice President
8
<PAGE>
SALTON SEA BRINE PROCESSING L.P.
By: SALTON SEA POWER COMPANY,
as its general partner
By: /s/ John G. Sylvia
----------------------------
Name: John G. Sylvia
Title: Senior Vice President
FISH LAKE POWER COMPANY
By: /s/ John G. Sylvia
----------------------------
Name: John G. Sylvia
Title: Senior Vice President
VULCAN POWER COMPANY
By: /s/ John G. Sylvia
----------------------------
Name: John G. Sylvia
Title: Senior Vice President
CALENERGY OPERATING COMPANY
By: /s/ John G. Sylvia
----------------------------
Name: John G. Sylvia
Title: Senior Vice President
BN GEOTHERMAL INC.
By: /s/ John G. Sylvia
----------------------------
Name: John G. Sylvia
Title: Senior Vice President
9
<PAGE>
VULCAN/BN GEOTHERMAL POWER
COMPANY
By: VULCAN POWER COMPANY,
as its general partner
By: /s/ John G. Sylvia
----------------------------
Name: John G. Sylvia
Title: Senior Vice President
SAN FELIPE ENERGY COMPANY,
By: /s/ John G. Sylvia
----------------------------
Name: John G. Sylvia
Title: Senior Vice President
LEATHERS, L.P.
By: CALENERGY OPERATING COMPANY,
as its general partner
By: /s/ John G. Sylvia
----------------------------
Name: John G. Sylvia
Title: Senior Vice President
CONEJO ENERGY COMPANY
By: /s/ John G. Sylvia
----------------------------
Name: John G. Sylvia
Title: Senior Vice President
10
<PAGE>
DEL RANCH, L.P.
By: CALENERGY OPERATING COMPANY,
as its general partner
By: /s/ John G. Sylvia
----------------------------
Name: John G. Sylvia
Title: Senior Vice President
NIGUEL ENERGY COMPANY
By: /s/ John G. Sylvia
----------------------------
Name: John G. Sylvia
Title: Senior Vice President
ELMORE, L.P.
By: CALENERGY OPERATING COMPANY,
as its general partner
By: /s/ John G. Sylvia
----------------------------
Name: John G. Sylvia
Title: Senior Vice President
SALTON SEA ROYALTY COMPANY
By: /s/ John G. Sylvia
----------------------------
Name: John G. Sylvia
Title: Senior Vice President
11
EXHIBIT 4.19
AMENDED AND RESTATED CREDIT AGREEMENT
(PARTNERSHIP GUARANTORS)
Among
SALTON SEA FUNDING CORPORATION,
a Delaware corporation,
as lender,
and
CALENERGY OPERATING COMPANY,
a Delaware corporation
VULCAN POWER COMPANY,
a Nevada corporation
CONEJO ENERGY COMPANY,
a California corporation,
NIGUEL ENERGY COMPANY,
a California corporation,
SAN FELIPE ENERGY COMPANY,
a California corporation,
BN GEOTHERMAL INC.,
a Delaware corporation,
DEL RANCH, L.P.,
a California limited partnership,
ELMORE, L.P.,
a California limited partnership,
LEATHERS, L.P.,
a California limited partnership,
and
VULCAN/BN GEOTHERMAL POWER COMPANY,
a Nevada general partnership,
as borrowers
dated June 20, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
- - DEFINITIONS AND AMENDMENT.........................................................8
Definitions.........................................................................8
Amendment and Restatement...........................................................8
- - DESCRIPTION OF THE LOAN...........................................................8
Acknowledgements of the Partnership Guarantors; Partnership Project Loan............8
Term of This Agreement..............................................................9
Interest ...........................................................................9
Repayment...........................................................................9
(a) Optional Prepayment.............................................................10
Mandatory Prepayment................................................................10
Obligations of the Partnership Guarantors Hereunder Unconditional...................10
General Terms of Payment............................................................11
Security ...........................................................................11
- - REPRESENTATIONS AND WARRANTIES....................................................11
Organization, Power and Status of the Partnership Guarantors........................12
Authorization; Enforceability; Execution and Delivery...............................12
<PAGE>
No Conflicts; Laws and Contracts; No Default; Representations and Warranties........13
Litigation..........................................................................14
Environmental Matters...............................................................14
Employee Benefit Plans..............................................................14
Business of the Partnership Guarantors..............................................15
Valid Title.........................................................................15
Security Interests..................................................................15
Utility Regulation..................................................................15
Qualifying Facility.................................................................16
Investment Company Act..............................................................16
No Defaults.........................................................................16
Governmental Approvals..............................................................16
Margin Stock........................................................................16
Taxes ...........................................................................17
Ownership of Partnership Guarantors.................................................17
Disclosure..........................................................................17
- - COVENANTS AND AGREEMENTS OF THE PARTNERSHIP GUARANTORS............................18
Reporting Requirements..............................................................18
<PAGE>
Sale of Assets......................................................................18
Sale of Partnership Interests.......................................................19
Insurance...........................................................................19
QF Status...........................................................................19
Governmental Approvals; Title.......................................................20
Nature of Business..................................................................20
Compliance With Laws................................................................21
Prohibition on Fundamental Changes..................................................21
Revenue Fund........................................................................22
Transactions With Affiliates........................................................22
Restricted Payments.................................................................22
Exercise of Rights Under Partnership Project Documents..............................22
Amendments to Contracts.............................................................23
Limitations on Debt/Liens...........................................................23
Books and Records...................................................................24
Additional Project Documents........................................................24
Maintenance of Existence............................................................24
Taxes ...........................................................................24
<PAGE>
Additional Documents; Filings and Recordings........................................25
- - DEFAULT AND REMEDIES..............................................................25
Events of Default...................................................................25
Consequences of Event of Default....................................................29
Continuing Lien.....................................................................30
Defense of Actions..................................................................31
- - GENERAL TERMS AND CONDITIONS......................................................32
Notices ...........................................................................32
Amendments and Waivers..............................................................34
Election of Remedies................................................................35
Severability........................................................................35
Third-Party Beneficiaries; Prior Agreements.........................................35
Partnership Guarantors in Control...................................................36
Number and Gender...................................................................36
Captions ...........................................................................36
Applicable Law and Jurisdiction.....................................................36
Consent ...........................................................................36
No Recourse.........................................................................36
<PAGE>
Counterparts........................................................................37
Successors and Assigns..............................................................37
Joint and Several Obligations.......................................................37
</TABLE>
AMENDED AND RESTATED CREDIT AGREEMENT
(PARTNERSHIP GUARANTORS)
This AMENDED AND RESTATED CREDIT AGREEMENT dated as of June
20, 1996 (this "Amendment") is by and between SALTON SEA FUNDING CORPORATION,
a Delaware corporation ("Funding Corporation"), as lender, and CALENERGY
OPERATING COMPANY, a Delaware corporation ("CEOC"), VULCAN POWER COMPANY, a
Nevada corporation ("VPC"), CONEJO ENERGY COMPANY, a California corporation
("Conejo"), NIGUEL ENERGY COMPANY, a California corporation ("Niguel"), SAN
FELIPE ENERGY COMPANY, a California corporation ("San Felipe"), BN GEOTHERMAL
INC., a Delaware corporation ("BNG"), DEL RANCH, L.P., a California limited
partnership ("Del Ranch"), ELMORE, L.P., a California limited partnership
("Elmore"), LEATHERS, L.P., a California limited partnership ("Leathers"), and
VULCAN/BN GEOTHERMAL POWER COMPANY, a Nevada general partnership ("Vulcan",
and together with CEOC, VPC, Conejo, Niguel, San Felipe, BNG, Del Ranch,
Elmore and Leathers, the "Partnership Guarantors") as borrowers.
<PAGE>
W I T N E S S E T H:
WHEREAS, Funding Corporation is a corporation established
for the sole purpose of making loans to the Guarantors of proceeds from the
issuance of notes and bonds (collectively, the "Securities") in its individual
capacity as principal and as agent acting on behalf of the Guarantors pursuant
to the Trust Indenture, dated as of July 21, 1995, between Funding Corporation
and Chemical Trust Company of California, a California corporation, as trustee
("Trustee"), as the same may be amended, modified or supplemented (as so
amended, modified or supplemented, including, pursuant to that certain Second
Supplemental Indenture dated as of even date herewith, the "Indenture"); and
WHEREAS, the principal and interest payments on the
Securities will be serviced by repayment of loans made by Funding Corporation
to the Guarantors and guaranteed by the Guarantors, subject to the conditions
set forth in the Indenture; and
WHEREAS, on July 21, 1995 the Funding Corporation issued and
sold Securities in the aggregate principal amount of $475,000,000.00; and
WHEREAS, Funding Corporation used a portion of the proceeds
from the sale of such Securities to make a loan to CEOC and VPC pursuant to
that certain Credit Agreement (Partnership Guarantors) dated as of July 21,
1995 between Funding Corporation, CEOC and VPC (the "Original Partnership
Credit Agreement") in the aggregate amount of $75,000,000.00 (the "Original
Partnership Project Loan") portions of which were used: (a) to repay certain
non-recourse indebtedness incurred by California Energy in connection with the
Magma Acquisition; and (b) used to pay certain costs of issuing the
Securities; and
6
<PAGE>
WHEREAS, Funding Corporation has simultaneously with the
execution and delivery of this Amendment issued and sold Securities in the
aggregate principal amount of $135,000,000.00; and
WHEREAS, Funding Corporation intends to use the proceeds
from the Securities issued and sold contemporaneously herewith to make a loan
to the Partnership Guarantors in the amount of $135,000,000.00 (the
"Additional Partnership Project Loan", and together with the Original
Partnership Project Loan, the "Partnership Project Loan") portions of which
will be used for the following purposes: (a) approximately $96 million to
refinance all existing project-level indebtedness of the Partnership Projects,
(b) approximately $15 million to fund certain capital improvements to the
Partnership Projects and the Salton Sea Projects, and (c) approximately $23
million to fund a portion of the purchase price for the acquisition by certain
of the Partnership Guarantors of the 50% interest in each of the Partnership
Projects previously owned by a third party; and
WHEREAS, in connection with the making of the Additional
Partnership Project Loan, each Partnership Guarantor (including Conejo,
Niguel, San Felipe, BNG, Del Ranch, Elmore, Leathers and Vulcan) has agreed to
become jointly and severally liable with each other Partnership Guarantor for
the entire amount of the Original Partnership Project Loan; and
WHEREAS, in order to evidence and implement the making of
the Additional Partnership Project Loan and the addition of Conejo, Niguel,
San Felipe, BNG, Del Ranch, Elmore, Leathers and Vulcan as borrowers under the
Original Partnership Project Loan, the parties hereto have agreed to amend and
restate the Original Partnership Credit Agreement as set forth herein.
7
<PAGE>
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants hereinafter contained, the parties hereto formally
covenant, agree and bind themselves as follows:
1 - DEFINITIONS AND AMENDMENT
.1. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings ascribed thereto in Exhibit A to the Indenture,
which Exhibit A is hereby incorporated by this reference.
.2. Amendment and Restatement. From and after the date hereof, the
terms of the Original Partnership Credit Agreement shall be amended to read in
their entirety as set forth in this Amendment and the terms of this Amendment
shall govern and control the rights and obligations of the parties in and with
respect to the Partnership Project Loan, notwithstanding any conflict between
the terms of this Amendment and the terms of the Original Partnership Credit
Agreement. As amended and restated by this Amendment, the Original Partnership
Credit Agreement shall be referred to herein as the "Agreement."
2 - DESCRIPTION OF THE LOAN
.1. Acknowledgements of the Partnership Guarantors; Partnership
Project Loan. The Partnership Guarantors hereby acknowledge and agree that:
(a) The Partnership Guarantors are indebted to Funding
Corporation for all principal, interest, and other amounts currently
outstanding on the Original Partnership Project Loan;
8
<PAGE>
(b) Pursuant to this Agreement, Funding Corporation does
hereby lend to the Partnership Guarantors and the Partnership Guarantors do
hereby borrow from Funding Corporation the principal amount of the Additional
Partnership Project Loan;
(c) The Partnership Project Loan shall be evidenced by a
promissory note or notes issued by the Partnership Guarantors in favor of
Funding Corporation (collectively, the "Partnership Project Note"); and
(d) If proceeds from the issuance of any Additional Securities
are loaned to the Partnership Guarantors, the outstanding principal balance on
the Partnership Project Loan shall be increased by the amount of such proceeds
and the Partnership Project Loan shall include the loan to the Partnership
Guarantors of such proceeds, as evidenced by a promissory note issued by the
Partnership Guarantors.
Section .2. Term of This Agreement. This Agreement shall remain in full
force and effect from the date hereof until payment in full of all amounts due
under this Agreement.
Section .3. Interest. Interest hereunder shall be paid in arrears on
each May 30th and November 30th commencing on November 30, 1996 until all
principal hereunder is paid in full. Interest shall be computed on the basis
of a three hundred sixty (360) day year, consisting of twelve (12) thirty (30)
day months and at the applicable rate per annum specified on Schedule 1
hereto. Principal shall be payable hereunder in an amount and on the dates set
forth on Schedule 1 hereto.
Section .4. Repayment. The Partnership Guarantors shall repay the
Partnership Project Loan in installments to Funding Corporation on the dates,
at the times and in the amounts
9
<PAGE>
set forth on Schedule 1 attached hereto (as the same may be modified pursuant
to Section 8.3 of the Indenture).
Section .5. (a) Optional Prepayment. The Partnership Guarantors shall
have the optional right to prepay the Partnership Project Loan in such amounts
and at such times as may be appropriate to permit Funding Corporation to
redeem the Securities pursuant to the optional redemption provisions set forth
in Section 3.1 of the Indenture or defease the Securities pursuant to the
optional defeasance provisions set forth in Section 10.1 of the Indenture.
(a) Mandatory Prepayment. The Partnership Guarantors shall
be required to prepay principal, and to pay accrued interest on such prepaid
principal, on the Partnership Project Loan in such amounts and at such times
as may be required to permit Funding Corporation to redeem the Securities
pursuant to the mandatory redemption provisions set forth in Section 3.3 of
the Indenture as they apply specifically to the Partnership Guarantors and/or
their projects or contracts.
Section .6. Obligations of the Partnership Guarantors Hereunder
Unconditional. The obligations of the Partnership Guarantors to make the
payments required in Sections 2.3 and 2.4 hereof shall be absolute and
unconditional; and the Partnership Guarantors shall not discontinue such
payments for any cause, including, without limiting the generality of the
foregoing, any acts or circumstances that may constitute failure of
consideration, eviction or constructive eviction from the Partnership
Projects, destruction of or damage to the Partnership Projects, including
commercial frustration of purpose, or change in the tax or other laws or
administrative rulings of or administrative actions by the United States of
America or the State of California or any political subdivision of either. The
Partnership Guarantors may, however, at their own cost and expense
10
<PAGE>
and in their own name or in the name of Funding Corporation, prosecute or
defend any action or proceeding or take any other action involving third
persons which the Partnership Guarantors deem reasonably necessary in order to
secure or protect their rights with respect to the Partnership Projects.
Section .7. General Terms of Payment. (a) All sums payable to Funding
Corporation hereunder shall be deemed paid to the extent the Depositary Agent
shall apply amounts held by the Depositary Agent in accordance with the
Depositary Agreement to the payment of principal of or interest on the
Partnership Project Loan and the Securities in accordance with the Depositary
Agreement.
(a) Whenever any payment hereunder shall be due, or any
calculation shall be made, on a day which is not a Business Day, the date for
payment or calculation, as the case may be, shall be extended to the next
succeeding Business Day, and any interest on any payment shall be payable for
such extended time at the specified rate.
(b) If no due date is specified for the payment of any
amount payable by the Partnership Guarantors hereunder, such amount shall be
due and payable not later than ten (10) days after receipt of written demand
by Funding Corporation to the Partnership Guarantors for payment thereof.
Section .8. Security. The obligations of the Partnership Guarantors
hereunder shall be secured as set forth herein and under the Security
Documents.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES
The Partnership Guarantors represent and warrant to Funding
Corporation as follows:
11
<PAGE>
Section .1. Organization, Power and Status of the Partnership Guarantors.
(a) CEOC and BNG are corporations duly organized, validly existing and in good
standing under the laws of the State of Delaware, (b) VPC is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada, (c) Conejo, Niguel and San Felipe are corporations duly
organized, validly existing and in good standing under the laws of the State
of California, (d) Del Ranch, Elmore and Leathers are limited partnerships,
duly organized, validly existing and in good standing under the laws of the
State of California, (e) Vulcan is a general partnership, duly organized,
validly existing and in good standing under the laws of the State of Nevada
and (f) each of the Partnership Guarantors is duly qualified in the State of
California and is duly authorized to do business in each other jurisdiction
where the nature of its activities makes such qualification necessary. Each of
the Partnership Guarantors has all requisite power and authority to carry on
its business as now being conducted and as proposed to be conducted.
Section .2. Authorization; Enforceability; Execution and Delivery.
(a) Each of the Partnership Guarantors has all necessary
power and authority to execute, deliver and perform its obligations under this
Agreement, the Partnership Project Note and each other Financing Document to
which it is a party.
(b) All action on the part of each of the Partnership
Guarantors that is required for the authorization, execution, delivery and
performance of this Agreement, the Partnership Project Note and each other
Financing Document to which such Partnership Guarantor is a party have been
duly and effectively taken; and the execution, delivery and performance of
this Agreement, the Partnership Project Note and each such other Financing
Document to which any of the Partnership Guarantors is a party does not
require the approval or consent of any holder or
12
<PAGE>
trustee of any Debt or other material obligations of the Partnership
Guarantors which has not been obtained.
(c) This Agreement, the Partnership Project Note and each other
Financing Document to which any of the Partnership Guarantors is a party have
been duly authorized, executed and delivered by the Partnership Guarantors.
Each of this Agreement, the Partnership Project Note and each other Financing
Document to which any of the Partnership Guarantors is a party constitutes a
legal, valid and binding obligation of such Partnership Guarantor enforceable
against such Partnership Guarantor in accordance with the terms hereof and
thereof, except as the enforceability thereof may be limited by bankruptcy,
insolvency, or similar laws affecting creditors' rights generally, and subject
to general principles of equity.
Section .1. No Conflicts; Laws and Contracts; No Default;
Representations and Warranties. (a) Neither the execution, delivery and
performance of this Agreement, the Partnership Project Note or any other
Financing Document to which any of the Partnership Guarantors is a party, nor
the consummation of any of the transactions contemplated hereby or thereby (i)
contravenes any provision of Law applicable to any of the Partnership
Guarantors or any of the Collateral, except any contravention which,
individually or in the aggregate, could not reasonably be expected to result
in a Material Adverse Effect, (ii) conflicts or is inconsistent with or
constitutes a default under the articles of incorporation, by-laws, or
partnership agreement of any of the Partnership Guarantors, or of any other
terms of any Partnership Project Document, Financing Document or any other
agreement or instrument to which the Partnership Guarantors may be subject
except any such conflict, inconsistency, default or violation which,
individually or in the aggregate, could not reasonably be expected to result
in a Material Adverse Effect or (iii)
13
<PAGE>
results in the creation or imposition of (or the obligation to create or
impose) any Liens (other than Permitted Liens) on the Partnership Collateral.
(b) Each of the Partnership Guarantors is in compliance with
any and all Laws applicable to it, except any such noncompliance which,
individually or in the aggregate, could not reasonably be expected to result
in a Material Adverse Effect.
Section .2. Litigation There are no claims, actions, suits,
investigations or proceedings at law or in equity (including any Environmental
Claims) or by or before any arbitrator or Governmental Authority now pending
against any of the Partnership Guarantors or, to the best knowledge of any of
the Partnership Guarantors after due inquiry, threatened against any of the
Partnership Guarantors or any property or other assets or rights of the
Partnership Guarantors that could reasonably be expected to result in a
Material Adverse Effect.
Section .3. Environmental Matters. To the best knowledge of the
Partnership Guarantors after due inquiry, the Partnership Projects are in
compliance with all existing applicable Environmental Laws and there are no
facts, circumstances or conditions under any existing Environmental Law which
could, individually or in the aggregate with all other circumstances or
conditions, reasonably be expected to result in a Material Adverse Effect.
Section .4. Employee Benefit Plans. Each Plan (including without
limitation each Plan of a Commonly Controlled Entity) as to which the
Partnership Guarantors may have any liability complies with all applicable
requirements of Law and regulations, and (i) no "reportable event" (as defined
in Section 4043 of ERISA (other than an event not subject to the notice
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 that have resulted or could
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reasonably be expected to result in material liability for the Partnership
Guarantors, (iii) no Plan has been terminated or has commenced to be
terminated which could reasonably be expected to result in material liability
for the Partnership Guarantors, (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 that, in each case, could
reasonably be expected to result in a Material Adverse Effect.
Section .5. Business of the Partnership Guarantors. Except as otherwise
permitted in this Agreement and the other Financing Documents, none of the
Partnership Guarantors is engaged in any business other than the development,
acquisition, construction, operation and financing of the Projects and
transactions related thereto or as permitted under Section 4.7 hereof.
Section .6. Valid Title. Each of the Partnership Guarantors has valid
legal title to all of its assets.
Section .7. Security Interests. The security interests to be
transferred to and/or to be created in favor of Funding Corporation hereunder
and under the Security Documents will be, to the extent provided herein and
therein, valid and perfected first priority security interests in and liens on
the collateral described therein.
Section .8. Utility Regulation. None of the Partnership Guarantors is
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.
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Section .9. Qualifying Facility. The Partnership Projects are
Qualifying Facilities.
Section .10. Investment Company Act. None of the Partnership Guarantors
is, and following the execution of the Partnership Project Note, will be, an
"investment company" or, to its knowledge, an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company Act
of 1940, as amended.
Section .11. No Defaults. None of the Partnership Guarantors is in
default under any Project Documents or other material project contract which
could reasonably be expected to result in a Material Adverse Effect. To the
best of the Partnership Guarantors' knowledge, no material default exists by
any other party to the Project Documents or other material project contracts.
Section .12. Governmental Approvals. All Governmental Approvals which
are required to be obtained by, in the name of or on behalf of any of the
Partnership Guarantors or, to the knowledge of any of the Partnership
Guarantors, any other party to any Financing Document, in connection with (a)
the issuance of the Partnership Project Note and (b) the execution, delivery
and performance by the Partnership Guarantors 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 .13. Margin Stock. None of the Partnership Guarantors is
engaged, directly or indirectly, principally, or as one of its important
activities, in the business of extending, or arranging for the extension of,
credit for the purposes of purchasing or carrying any margin stock, within the
meaning of Regulation G, T, U or X of the Board of Governors of the Federal
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Reserve System. No part of the proceeds of any loan made under this Agreement
will be used for "purchasing" or "carrying" any "margin stock" as so defined,
or for extending credit to others for the purpose of purchasing or carrying
margin stock, or for any purpose which would violate, or cause a violation of,
any such regulation.
Section .14. Taxes. The Partnership Guarantors have filed all federal
and state tax returns, to date, required to be filed by applicable laws and
have paid all federal and state taxes due under such tax returns except to the
extent that such taxes are being contested in good faith and by appropriate
proceedings and adequate reserves, bonds or other security have been
established with respect thereto.
Section .15. Ownership of Partnership Guarantors. As of the date of this
Agreement, (a) Magma and Funding Corporation are the sole shareholders of CEOC
and VPC, (b) CEOC and Conejo are the sole general partners of Del Ranch, and
Magma and Conejo are the sole limited partners of Del Ranch, (c) CEOC and
Niguel are the sole general partners of Elmore, and Magma and Niguel are the
sole limited partners of Elmore, (d) CEOC and San Felipe are the sole general
partners of Leathers, and Magma and San Felipe are the sole limited partners
of Leathers, (e) VPC and BNG are the sole general partners of Vulcan, (f) CEOC
is the sole shareholder of each of Conejo, Niguel and San Felipe and (g) VPC
is the sole shareholder of BNG.
Section .16. Disclosure. Each of the Series D and E Preliminary
Offering Circular and the Series D and E Final Offering Circular as of its
date did not, and the Series D and E 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 with respect to the Partnership
Guarantors or omit to state any material fact necessary to make the statements
made therein
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with respect to the Partnership Guarantors, in the light of the circumstances
under which they were made, not misleading.
ARTICLE 2 - COVENANTS AND AGREEMENTS OF THE PARTNERSHIP
GUARANTORS
Each Partnership Guarantor hereby covenants and agrees that
from the date of this Agreement, it shall faithfully observe and fulfill, and
shall cause to be fulfilled and observed, each of the following covenants that
is applicable to such Partnership Guarantor until all amounts due under the
Securities and the Indenture shall have been repaid.
Section .1. Reporting Requirements. Each of the Partnership
Guarantors shall provide to Funding Corporation (a) unaudited quarterly
reports for the first three quarters of each fiscal year containing condensed
financial information within forty-five (45) days of the end of each quarter
and audited annual reports within ninety (90) days of the end of each fiscal
year, (b) all other information in respect of the Partnership Guarantors
requested by Funding Corporation to enable Funding Corporation to meet its
obligations under the Indenture, (c) copies of material notices delivered in
connection with any Partnership Project Documents, and (d) written notice of
any Credit Agreement Default or Event of Default under this Agreement or any
event or condition that could reasonably be expected to result in a Material
Adverse Effect.
Section .2. Sale of Assets. Except as contemplated by the Partnership
Project Documents, none of the Partnership Guarantors shall sell, lease (as
lessor) or transfer (as transferor) any property or assets material to the
operation of the Partnership Projects except in the ordinary course of business
to the extent that such property is no longer useful or necessary in connection
with the operation of the Partnership Projects; provided, however, without
limiting the
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generality of the foregoing, that the Partnership Guarantors shall be allowed
to lend useful spare parts to the Salton Sea Guarantors for use in the Salton
Sea Projects or to other Permitted Facilities financed with Permitted Debt for
use in such Permitted Facilities.
Section .3. Sale of Partnership Interests. Neither CEOC nor VPC
shall sell, transfer or convey any of their partnership interests in the
Partnership Project Companies.
Section .4. Insurance. Except as set forth below, the Partnership
Project Companies shall maintain or cause to be maintained (a) on the date
hereof the insurance in effect with respect to the Partnership Projects on the
date hereof and (b) insurance as is generally carried by companies engaged in
similar businesses and owning similar properties in the same general areas and
financed in a similar manner. The Partnership Project Companies have business
interruption insurance, casualty insurance, including flood and earthquake
coverage, and primary and excess liability insurance, as well as customary
worker's compensation and automobile insurance. The Partnership Project
Companies shall not reduce or cancel such insurance coverages (or permit any
such coverages to be reduced or cancelled) if the Insurance Consultant
determines that (i) such reduction or cancellation would not be reasonable
under the circumstances and (ii) the insurance coverages sought to be reduced
or cancelled are available on commercially reasonable terms or that another
level of coverage greater than that proposed by the Partnership Project
Companies is available on commercially reasonable terms (in which case such
coverage may be reduced to such greater available levels).
Section .5. QF Status. The Partnership Project Companies shall operate
and maintain the Partnership Projects as Qualifying Facilities unless the
failure to do so operate and maintain such Projects as Qualifying Facilities
would not cause or result in (a) a breach of the
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power purchase agreements that the Partnership Project Companies are party to
or (b) an adverse effect on the revenues to be received under such power
purchase agreements.
Section .6. Governmental Approvals; Title. Each of the Partnership
Guarantors shall at all times (a) obtain and maintain in full force and effect
all material Governmental Approvals and other consents and approvals required
at any time in connection with its business and (b) preserve and maintain good
and valid title to its properties and assets (subject to no liens other than
Permitted Liens), except in each case where the failure to do so in clause (a)
or (b) could not reasonably be expected to have a Material Adverse Effect.
Section .7. Nature of Business. None of the Partnership Guarantors
shall engage in any business other than their existing businesses and, in the
case of the Partnership Project Companies, the development, acquisition,
construction, operation and financing of the Partnership Projects as
contemplated by the Transaction Documents; provided, however, that (a) CEOC
shall be permitted to enter into agreements to provide operating and
maintenance services, administrative services, technical services or related
services for Permitted Facilities owned in whole or in part by CalEnergy
(directly or indirectly) and located in Imperial County, California and (b)
the Partnership Guarantors may engage in Permitted Facilities at the SSKGRA
(i)(A) for which Permitted Debt may be incurred and (B) if the Independent
Engineer certifies that such other projects could not reasonably be expected
to have an adverse impact on the geothermal resources for the Salton Sea
Projects or the Partnership Projects or (ii) if Funding Corporation and the
Guarantors take such action as the Rating Agencies require to confirm the
Investment Grade Rating of the Securities.
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Section .8. Compliance With Laws. Each of the Partnership Guarantors
shall comply with all applicable laws, except where non-compliance could not
reasonably be expected to have a Material Adverse Effect.
Section .9. Prohibition on Fundamental Changes. None of the Partnership
Guarantors shall enter into any transaction of merger or consolidation, change
its form of organization or its business, liquidate or dissolve itself (or
suffer any liquidation or dissolution); provided, however, that any Guarantor
shall be able to merge with or into any other Guarantor so long as no Default
or Event of Default exists or will occur as a result thereof and in the event
that any of the Partnership Guarantors is not the surviving entity (i) the
surviving entity shall, simultaneously with such merger, assume all the
obligations of such Partnership Guarantor under this Agreement and under the
other Financing Documents to which such Partnership Guarantor was a party,
(ii) Funding Corporation shall have received appropriate amendments to this
Agreement and the other Financing Documents to which such Partnership
Guarantor was a party, all financing statements necessary to preserve its
valid, perfected, first priority security interest in the Partnership
Collateral, each in form and substance reasonably satisfactory to Funding
Corporation, (iii) after giving effect to such merger, the merger shall not
result in a Material Adverse Effect and (iv) after giving effect to such
merger, no Credit Agreement Event of Default or Event of Default shall have
occurred or be continuing. None of the Partnership Guarantors shall purchase
or otherwise acquire all or substantially all of the assets of any other
Person, except for the purchase or acquisition by the Partnership Guarantors
of the partnership interests or assets of the Partnership Projects not
currently owned by the Partnership Guarantors; provided, however, that the
Partnership Guarantors may engage in Permitted Facilities at the SSKGRA (a)
for which Permitted
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Debt may be incurred or (b) if the Independent Engineer certifies that such
other projects could not reasonably be expected to have an adverse impact on
the geothermal resources for the Partnership Projects or the Partnership
Projects or (c) if Funding Corporation and the Guarantors take such action as
the Rating Agencies require to confirm the Investment Grade Rating of the
Securities.
Section .10. Revenue Fund. Each of the Partnership Guarantors shall take
all actions as may be necessary to cause revenues of the Partnership Guarantors
to be deposited in the Revenue Fund to the extent required by the Depositary
Agreement.
Section .11. Transactions With Affiliates. None of the Partnership
Guarantors shall enter into any transaction or agreement with any Affiliate of
the Partnership Guarantors other than (a) as contemplated under the Transaction
Documents or (b) transactions in the ordinary course of business and on terms
no less favorable to the Partnership Guarantors than the Partnership Guarantors
would obtain in an arms length transaction with a Person that is not an
Affiliate of the Partnership Guarantors.
Section .12. Restricted Payments. The Partnership Guarantors shall not
make any Restricted Payments except (a) as permitted under the Depositary
Agreement or as contemplated in the Offering Circular to occur on the Closing
Date and (b) in respect of Operating and Maintenance Costs.
Section .13. Exercise of Rights Under Partnership Project Documents. None
of the Partnership Guarantors shall exercise, or fail to exercise, their rights
under the partnership agreements of each of the Partnership Project Companies
or any of the Partnership Project Documents in a manner which could reasonably
be expected to result in a Material Adverse Effect.
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Section .14. Amendments to Contracts. Neither CEOC nor VPC shall
terminate, amend, replace or modify the partnership agreement of any of the
Partnership Project Companies or the Partnership Project Documents to which it
is a party unless such termination, amendment, replacement or modification (i)
could not reasonably be expected to have a Material Adverse Effect or (b) is
required under applicable law. In addition, none of the Partnership Guarantors
shall terminate, amend, replace or modify (other than immaterial amendments or
modifications as certified by the Partnership Guarantors), any of the
Partnership Project Documents to which it is a party (other than a Permitted
Power Contract Buy-Out) unless (a)(1) such Partnership Guarantor certifies
that such termination, amendment, replacement or modification could not
reasonably be expected to have a Material Adverse Effect and (2) in the case
of any amendment, termination or modification of any Power Purchase Agreement
which affects the revenues derived by any of the Partnership Guarantors, the
Independent Engineer certifies that such amendment, termination or
modification could not reasonably be expected to have a Material Adverse
Effect, (b) the Partnership Guarantors provide a letter from the Rating
Agencies confirming that such amendment, termination or modification shall not
result in a Rating Downgrade, or (c) such amendment, termination or
modification is required under applicable law.
Section .15. Limitations on Debt/Liens. None of the Partnership Guarantors
shall create or incur or suffer to exist any Debt except Permitted Guarantor
Debt and except for Debt of the Partnership Project Companies in existence on
the Closing Date which has been effectively defeased or cash collateralized in
connection with the issuance of the Series D and E Securities. None of the
Partnership Guarantors shall grant, create, incur or suffer to exist any Liens
upon any of its properties, except for Permitted Liens.
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Section .16. Books and Records. The Partnership Guarantors shall
maintain their books and records and give the Funding Corporation, the
Trustee, the Collateral Agent and the Independent Engineer inspection rights.
Section .17. Additional Project Documents. The Partnership Guarantors
shall perform and observe their respective covenants and obligations under all
of the Partnership Project Documents in all material respects except where the
failure to do so could not reasonably be expected to result in a Material
Adverse Effect. The Partnership Project Companies shall not enter into any
Additional Project Documents if entering into such document could reasonably
be expected to result in a Material Adverse Effect.
Section .18. Maintenance of Existence. The Partnership Guarantors shall at
all times preserve and maintain in full force and effect (a) their existence as
limited partnerships, corporations or a general partnership, as applicable, in
good standing under the laws of the State of California, Nevada or Delaware, as
applicable, (b) their qualification to do business in each jurisdiction in which
the character of the properties owned or leased by them or in which the
transaction of their business as conducted or proposed to be conducted makes
such qualification necessary, and (c) all of their powers, rights, privileges
and franchises which are necessary for the ownership and operation of their
respective businesses.
Section .19. Taxes. The Partnership Guarantors shall pay and discharge all
taxes, assessments and governmental charges upon them, their income and their
properties prior to the date on which penalties are attached thereto, unless
and to the extent only that (a) such taxes, assessments and governmental
charges shall be contested in good faith and by appropriate proceedings, and
(b) adequate reserves, bonds or other security are established with respect
thereto.
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Section .20. Additional Documents; Filings and Recordings. The Partnership
Guarantors shall execute and deliver, as requested by Funding Corporation,
such other documents as shall reasonably be necessary or advisable in order to
effect or protect the rights and remedies of Funding Corporation granted or
provided for by this Agreement or the other Financing Documents to which the
Partnership Guarantors are party and to consummate the transactions
contemplated therein. The Partnership Guarantors shall, at their own expense,
take all reasonable actions (a) that are requested by Funding Corporation or
(b) that an Authorized Officer of the Partnership Guarantors has actual
knowledge are necessary as a legal matter, to establish, maintain and perfect
the first priority security interests of Funding Corporation. Without limiting
the generality of the foregoing, the Partnership Guarantors shall execute or
cause to be executed and shall file or cause to be filed such Financing
Statements, continuation statements, and fixture filings and such mortgages,
or deeds of trust in all places necessary or advisable (in the opinion of
counsel for Funding Corporation) to establish, maintain and perfect such
security interests.
ARTICLE 3 - DEFAULT AND REMEDIES
--------------------
Section .1. Events of Default. Each of the following events and
occurrences shall constitute a Credit Agreement Event of Default under this
Agreement:
(a) the failure by the Partnership Guarantors to pay or cause
to be paid any principal of, premium, if any, or interest, fees or any other
obligations on the Partnership Project Note for fifteen (15) or more days after
the same becomes due and payable, whether by scheduled maturity or required
prepayment or by acceleration or otherwise, after application by the Trustee, in
accordance with the provisions of the Indenture, of any amounts in Funding
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Corporation's account in the Debt Service Reserve Fund (as defined in the
Depositary Agreement) and amounts otherwise advanced by other Guarantors for
the benefit of the Partnership Guarantors.
(b) any representation or warranty made by the Partnership
Guarantors under this Agreement shall prove to have been untrue or misleading
in any material respect as of the time made, confirmed or furnished and the
fact, event or circumstance that gave rise to such inaccuracy could reasonably
be expected to result in a Material Adverse Effect and such fact, event or
circumstance shall continue to be uncured for thirty (30) or more days from
the date an Authorized Officer of the Partnership Guarantors has actual
knowledge thereof; provided, however, that if the Partnership Guarantors
commence efforts to cure such fact, event or circumstance within such thirty
(30) day period, the Partnership Guarantors may continue to effect such cure
and such misrepresentation shall not be deemed a Credit Agreement Event of
Default for an additional sixty (60) days so long as the Partnership
Guarantors are diligently pursuing such cure;
(c) the failure by any of the Partnership Guarantors to
perform or observe any covenant contained in Sections 4.2, 4.4, 4.7, 4.9, 4.12,
4.13, 4.14, 4.16, or 4.19 hereof, if any, and such failure shall continue
uncured for thirty (30) or more days after an Authorized Officer of such
Partnership Guarantor obtains actual knowledge of such failure;
(d) the failure by any of the Partnership Guarantors to
perform or observe any of the other covenants contained in this Agreement or in
the other Financing Documents the Partnership Guarantors are party to (other
than such failures described in Sections 5.1(c) above) and such failure shall
continue uncured for sixty (60) or more days after an Authorized Officer of the
Partnership Guarantors has actual knowledge of such failure; provided,
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however, that if the Partnership Guarantors commence efforts to cure such
default within such sixty (60) day period, the Partnership Guarantors may
continue to effect such cure of the default and such default shall not be
deemed a Credit Agreement Event of Default for an additional thirty (30) days
so long as the Partnership Guarantors are diligently pursuing such cure;
(e) any of the Partnership Guarantors:
(1) does not pay its Debts as they become due or admits in
writing its inability to pay its Debts or makes a general assignment
for the benefit of creditors; or
(2) commences any case, proceeding or other action seeking
reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts under any applicable liquidation,
conservatorship, bankruptcy, moratorium, arrangement, adjustment,
insolvency, reorganization or similar laws affecting the rights or
remedies of creditors generally, as in effect from time to time
(collectively, "Debtor Relief Law"); or
(3) in any involuntary case, proceeding or other action
commenced against it which seeks to have an order for relief
(injunctive or otherwise) entered against it, as debtor, or seeks
reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its Debts under any Debtor Relief Law, (A) fails
to obtain a dismissal of such case, proceeding or other action within
sixty (60) days of its commencement, or (B) converts the case from
one chapter of the Bankruptcy Reform Act of 1978, as amended, to
another chapter, or (C) is the subject of an order for relief; or
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(4) has a trustee, receiver, custodian or other official
appointed for or take possession of all or any part of its property
or has any court take jurisdiction of any of its property, which
action remains undismissed for a period of sixty (60) days;
(a) the entry of one or more final and
non-appealable judgment or judgments for the payment of money in excess of Ten
Million Dollars ($10 Million) (exclusive of judgment amounts fully covered by
insurance or indemnity) against the Partnership Guarantors, which remain
unpaid or unstayed for a period of ninety (90) or more consecutive days;
(b) an event of default under any Permitted
Guarantor Debt of the Partnership Guarantors in excess of Ten Million Dollars
($10 Million) occurs and such debt becomes due and payable prior to its stated
maturity;
(c) the Partnership Guarantors fail to perform
any of their respective payment obligations under the Partnership Guarantee
for fifteen (15) or more days after the same becomes due and payable;
(d) any Governmental Approval required for the
operation of a Project owned by the Partnership Project Companies is revoked,
terminated, withdrawn or ceases to be in full force and effect if such
revocation, termination, withdrawal or cessation could reasonably be expected
to have a Material Adverse Effect and such revocation, termination, withdrawal
or cessation is not cured for sixty (60) days following the occurrence
thereof;
(e) any Partnership Project Document ceases to be
valid and binding and in full force and effect other than as a result of an
amendment, termination or Permitted Power Contract Buy-Out permitted under
this Agreement, and any such event results in a Material
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Adverse Effect; provided, however, that no such event shall be a Credit
Agreement Event of Default if within one hundred eighty (180) days from the
occurrence of any such event, the Partnership Guarantors (1) cause the third
party to resume performance or cure such misrepresentation or (2) enter into
an Additional Project Document in replacement thereof, as permitted under this
Agreement;
(f) the failure of any of the Partnership
Guarantors to perform or observe any of its covenants or obligations contained
in any of the Partnership Project Documents to which it is a party if such
failure shall result in the termination of such Partnership Project Document
or otherwise result in a Material Adverse Effect; provided, however that such
event shall not be a Credit Agreement Event of Default if within one hundred
eighty (180) days from the occurrence of any such event, the Partnership
Guarantors enter into an Additional Project Document in replacement thereof as
permitted under this Agreement;
(g) any of the Partnership Security Documents
ceases to be effective or any Lien granted therein ceases to be a valid and
perfected Lien in favor of the Collateral Agent on the Collateral described
therein with the priority purported to be created thereby; provided, however,
that the Partnership Guarantors shall have ten (10) days to cure any such
impairment or cessation or to furnish to the Trustee, the Collateral Agent or
the Depositary Agent all documents or instruments required to cure any such
cessation; or
(h) an Event of Default under Section 6.1 (c),
(d), (e), (f), (g), (h), (i), (j), (k) or (l) of the Indenture occurs.
Section .2. Consequences of Event of Default. If one or more Credit
Agreement Events of Default under this Agreement have occurred and are
continuing, then:
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(a) in the case of a Credit Agreement Event of Default under
Section 5.1(e) hereof, the entire outstanding principal amount of the
Partnership Project Note, all interest accrued and unpaid thereon, and all
premium and other amounts payable under the Partnership Project Note and this
Agreement, if any, shall automatically become due and payable, without
presentment, demand, protest or notice of any kind; or
(b) in the case of a Credit Agreement Event of Default under:
(1) Sections 5.1(a) or (h) hereof, upon the
written and unrescinded direction of the Holders of no less than thirty three
and one-third percent (33 1/3%) in aggregate principal amount of the
Outstanding Securities, Funding Corporation shall declare the outstanding
principal amount of the Partnership Project Note to be accelerated and due and
payable and all interest accrued and unpaid thereon, and all premium and other
amounts payable under this Agreement, if any to be due and payable, and
(2) Sections 5.1(b), (c), (d), (f), (g), (i),
(j), (k), (l) and (m) hereof, upon the written and unrescinded direction of
the Holders of no less than fifty percent (50%) in aggregate principal amount
of the Outstanding Securities, Funding Corporation shall declare the
outstanding principal amount of the Partnership Project Note to be accelerated
and due and payable and all interest accrued and unpaid thereon, and all
premium and other amounts payable under this Agreement, if any to be due and
payable.
Section .3. Continuing Lien. (a) The liens and security interests
granted in this Agreement, the other Financing Documents to which the
Partnership Guarantors are party and the Security Documents to which the
Partnership Guarantors are party secure all indebtedness and all obligations of
the Partnership Guarantors owed to Funding Corporation in connection with the
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Partnership Project Loan of whatever kind or character, whether now owing,
hereafter arising or hereafter to be performed.
(a) Notwithstanding anything to the contrary in this
Agreement, the other Financing Documents to which the Partnership Guarantors
are party or the Security Documents to which the Partnership Guarantors are
party, if at the time the principal balance of the Securities is fully paid
(the "Pay-off Date"), any other amounts owed by the Partnership Guarantors
hereunder remain to be paid, Funding Corporation shall not be obligated to
release any collateral remaining subject to the Security Documents, and such
collateral shall continue to secure the payment of such amounts remaining as
of the Pay-off Date.
Section .4. Defense of Actions. Upon the occurrence of a Credit
Agreement Event of Default, Funding Corporation may (but shall not be obligated
to) commence, appear in or defend any action or proceeding purporting to affect
the Partnership Project Loan, the Partnership Projects or the respective
rights and obligations of Funding Corporation and any other person pursuant to
this Agreement, any other Financing Document to which the Partnership
Guarantors are party or any Security Document to which the Partnership
Guarantors are party. Funding Corporation may (but shall not be obligated to)
pay all necessary expenses, including reasonable attorneys' fees and expenses,
incurred in connection with such proceedings or actions, which expenses the
Partnership Guarantors hereby agree to repay to Funding Corporation promptly
upon demand.
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ARTICLE 2 - GENERAL TERMS AND CONDITIONS
----------------------------
Section .1. Notices. All notices, requests, complaints, demands,
communications or other papers shall be sufficiently given and shall be deemed
given when delivered or mailed by registered or certified mail, postage prepaid,
or sent by telegram or telex, addressed to the parties as follows:
If to the Partnership Guarantors: CalEnergy Operating Company
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
Vulcan Power Company
302 South 36th Street, Suite 400-E
Omaha, Nebraska 68131
Attention: General Counsel
Conejo Energy Company
302 South 36th Street, Suite 400-G
Omaha, Nebraska 68131
Attention: General Counsel
Niguel Energy Company
302 South 36th Street, Suite 400-H
Omaha, Nebraska 68131
Attention: General Counsel
San Felipe Energy Company
302 South 36th Street, Suite 400-I
Omaha, Nebraska 68131
Attention: General Counsel
BN Geothermal Inc.
302 South 36th Street, Suite 400-J
Omaha, Nebraska 68131
Attention: General Counsel
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Del Ranch, L.P.
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
Elmore, L.P.
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
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Leathers, L.P.
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
Vulcan/BN Geothermal Power Company
302 South 36th Street, Suite 400-E
Omaha, Nebraska 68131
Attention: General Counsel
If to Funding Corporation: Salton Sea Funding Corporation
302 South 36th Street, Suite 400-A
Omaha, Nebraska 68131
Attention: Chief Financial Officer
If to Moody's: Moody's Investors Service
99 Church Street
New York, New York 10007
Attention: Corporate Utilities Department
If to S & P: Standard & Poor's Corporation
25 Broadway
New York, New York 10004
Attention: Corporate Finance Department
Electric Utilities Group
The above parties may, by notice given hereunder, designate any further or
different addresses to which subsequent notices, certificates or other
communications shall be sent.
Section .1. Amendments and Waivers. This Agreement may only be
amended by a document signed by Funding Corporation and the Partnership
Guarantors. No waiver of any provision of this Agreement nor consent by Funding
Corporation to any departure by the Partnership Guarantors therefrom shall in
any event be effective unless the same shall be in writing and signed by Funding
Corporation. Any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No failure on the part of
Funding Corporation to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver
34
<PAGE>
thereof (except as provided above) nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. This Agreement shall be binding upon the
Partnership Guarantors, its successors and any permitted assigns.
Section .2. Election of Remedies. The remedies herein provided
are cumulative and not exclusive of any remedies provided by law. Funding
Corporation shall have all of the rights and remedies granted in the Financing
Documents and available at law or in equity, and these same rights and
remedies may be pursued separately, successively or concurrently against the
Partnership Guarantors, or any collateral under the Financing Documents, at
the sole discretion of Funding Corporation.
Section .3. Severability. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section .4. Third-Party Beneficiaries; Prior Agreements. It is
intended that the Trustee, the Collateral Agent and the Depositary Agent be,
and the Trustee, the Collateral Agent and the Depositary Agent are hereby made,
third-party beneficiaries of this Agreement. This Agreement is for the sole
benefit of Funding Corporation, the Trustee, the Holders and the Partnership
Guarantors and is not for the benefit of any other third party. Notwithstanding
the two preceding sentences, no Holder shall have any right to pursue any remedy
hereunder except through the Trustee as permitted under Sections 6.5 and 6.6 of
the Indenture. This Agreement supersedes all prior agreements among the parties
with respect to the matters addressed herein.
35
<PAGE>
Section .5. Partnership Guarantors in Control. In no event shall
Funding Corporation's or the Trustee's rights and interests under this Agreement
and the other Financing Documents be construed to give Funding Corporation or
the Trustee, or be deemed to indicate that Funding Corporation or the Trustee
has, control of the business, management or properties of the Partnership
Guarantors or power over the daily management functions and operating decisions
made by the Partnership Guarantors.
Section .6. Number and Gender. Whenever used herein, the singular
number shall include the plural and the plural the singular, and the
use of any gender shall be applicable to all genders.
Section .7. Captions. The captions, headings, table of contents and
arrangements used in this Agreement are for convenience only and do not and
shall not be deemed to affect, limit, amplify or modify the terms and provisions
hereof.
Section .8. Applicable Law and Jurisdiction. This Agreement shall be
governed by and construed and interpreted in accordance with the laws of the
State of California.
Section .9. Consent. Whenever the consent or approval of Funding
Corporation or the Partnership Guarantors is required herein, such consent or
approval shall not be unreasonably withheld or delayed.
Section .10. No Recourse. Funding Corporation agrees that no general
partner (except CEOC, VPC, Conejo, Niguel, San Felipe and BNG), limited partner
(except Conejo, Niguel and San Felipe), officer, director, employee or
shareholder of the Partnership Guarantors or any Affiliate of any such party
(collectively, the "Nonrecourse Parties") shall be personally liable under this
Agreement for the payment of any sums now or hereafter owing Funding
36
<PAGE>
Corporation under the terms of, or for the performance of any obligation
contained in, this Agreement. Funding Corporation agrees that its rights shall
be limited to proceeding against the Partnership Guarantors and the security
provided or intended to be provided pursuant to the Security Documents and
that it shall have no right to proceed against the Nonrecourse Parties for (a)
the satisfaction of any monetary obligation of, or enforcement of any monetary
claim against, the Partnership Guarantors, (b) the performance of any
obligation, covenant or agreement arising under this Agreement, or (c) any
deficiency judgment remaining after foreclosure of any property securing the
obligations hereunder.
Section .11. Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
Section .12. Successors and Assigns. All the covenants, promises and
agreements in this Agreement contained by or on behalf of the Partnership
Guarantors, or by or on behalf of Funding Corporation, shall bind and inure to
the benefit of their respective successors and assigns, whether so expressed or
not.
Section .13. Joint and Several Obligations. The obligations of the
Partnership Guarantors are joint and several.
Section 6.15. Maximum Interest Rate. Notwithstanding any
provision to the contrary contained herein or in the Partnership Project Note,
at no time shall the Partnership Guarantors be obligated or required to pay
interest on the principal balance due hereunder or thereunder at a rate which
could be in excess of the maximum interest rate permitted by law to be
contracted or agreed to be paid. If by the terms hereof or of the Partnership
Project Note, the
37
<PAGE>
Partnership Guarantors are at any time required or obligated to pay interest
in excess of such maximum rate, then the rate of interest applicable hereunder
shall be deemed to be immediately reduced to such maximum rate and the
interest payable shall be computed at such maximum rate.
38
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
PARTNERSHIP GUARANTORS:
CALENERGY OPERATING COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
-----------------------------
Name: John G. Sylvia
Title: Senior Vice President
VULCAN POWER COMPANY,
a Nevada corporation
By: /s/ John G. Sylvia
-----------------------------
Name: John G. Sylvia
Title: Senior Vice President
CONEJO ENERGY COMPANY,
a California corporation
By: /s/ John G. Sylvia
-----------------------------
Name: John G. Sylvia
Title: Senior Vice President
39
<PAGE>
NIGUEL ENERGY COMPANY,
a California corporation
By: /s/ John G. Sylvia
-----------------------------
Name: John G. Sylvia
Title: Senior Vice President
SAN FELIPE ENERGY COMPANY,
a California corporation
By: /s/ John G. Sylvia
-----------------------------
Name: John G. Sylvia
Title: Senior Vice President
BN GEOTHERMAL INC.,
a Delaware corporation
By: /s/ John G. Sylvia
-----------------------------
Name: John G. Sylvia
Title: Senior Vice President
DEL RANCH, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
as General Partner
By: /s/ John G. Sylvia
-----------------------------
Name: John G. Sylvia
Title: Senior Vice President
40
<PAGE>
ELMORE, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
as General Partner
By: /s/ John G. Sylvia
-----------------------------
Name: John G. Sylvia
Title: Senior Vice President
LEATHERS, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
as General Partner
By: /s/ John G. Sylvia
-----------------------------
Name: John G. Sylvia
Title: Senior Vice President
VULCAN/BN GEOTHERMAL POWER COMPANY,
a Nevada general partnership
By: Vulcan Power Company,
a Nevada corporation,
as General Partner
By: /s/ John G. Sylvia
-----------------------------
Name: John G. Sylvia
Title: Senior Vice President
41
<PAGE>
FUNDING CORPORATION:
SALTON SEA FUNDING CORPORATION,
a Delaware corporation
By: /s/ John G. Sylvia
-----------------------------
Name: John G. Sylvia
Title: Senior Vice President
42
<PAGE>
SCHEDULE 1
INTEREST AND PRINCIPAL PAYMENT SCHEDULE
RECORDING REQUESTED BY )
AND WHEN RECORDED )
RETURN TO: )
)
David C. Reamer )
Skadden, Arps, Slate, Meagher & Flom )
919 Third Avenue )
New York, New York 10022 )
)
)
FIRST AMENDMENT TO DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
THIS FIRST AMENDMENT TO DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING (this "Amendment") is made as of June
20, 1996, by SALTON SEA ROYALTY COMPANY, a Delaware corporation, whose address
is 302 South 36th Street, Suite 400-D, Omaha, Nebraska 68131, as trustor
("Trustor"), to CHICAGO TITLE COMPANY, whose address is 925 B Street, San
Diego, California 92101, as trustee ("Trustee"), and in favor of CHEMICAL
TRUST COMPANY OF CALIFORNIA, a California corporation, whose address is 50
California Street, 10th Floor, San Francisco, California 94111, as beneficiary
("Beneficiary") acting in its capacity as collateral agent for and on behalf
of Salton Sea Funding Corporation, a Delaware corporation ("Funding
Corporation") and the Secured Parties (the "Secured Parties") under that
certain Collateral Agency and Intercreditor Agreement by and among
Beneficiary, Funding Corporation, the Secured Parties and the other parties
named therein (the "Intercreditor Agreement") and that certain Trust Indenture
dated as of July 21, 1995 by and between Funding Corporation and Beneficiary,
as trustee, as the same may be amended, modified or supplemented, including by
that certain Second Supplemental Trust Indenture dated as of even date
herewith (as so amended, modified or supplemented, the "Indenture").
Capitalized terms used and not defined herein shall have the meanings set
forth in the Indenture.
RECITALS
WHEREAS, Funding Corporation is a corporation established
for the sole purpose of making loans to the Guarantors from proceeds of the
issuance of notes and bonds (collectively, the "Securities") in its individual
capacity as principal and as agent acting on behalf of the Guarantors pursuant
to the Indenture; and
WHEREAS, on July 21, 1995 the Funding Corporation issued and
sold Securities in the aggregate principal amount of $475 Million (the
"Initial Securities"); and
WHEREAS, in connection with the issuance and sale of the
Initial Securities, Trustor entered into the Royalty Secured Limited Guarantee
dated as of July 21, 1995 in favor
<PAGE>
of Beneficiary (the "Royalty Secured Limited Guarantee") whereby Trustor
guaranteed certain of the obligations of Funding Corporation under the Initial
Securities; and
WHEREAS, in order to secure its obligations under the
Royalty Secured Limited Guarantee and the other Financing Documents, Trustor
has, among other things, entered into that certain Deed of Trust, Assignment
of Rents, Security Agreement and Fixture Filing in favor of Trustee and for
the benefit of Beneficiary (the "Deed of Trust") dated as of July 21, 1995
which was recorded on July 21, 1995, as instrument no. 95015973, in the
official records of Imperial County, California; and
WHEREAS, Funding Corporation has simultaneously with the
execution and delivery of this Amendment issued and sold Securities in the
aggregate principal amount of $135 Million (the "Additional Securities"); and
WHEREAS, in connection with the issuance and sale of the
Additional Securities, Trustor entered into various agreements and amendments
to the Financing Documents, including that certain Agreement Regarding
Security Documents dated as of the date hereof, by and among Trustor,
Beneficiary and the other parties named therein (the "Agreement Regarding
Security Documents") supplementing the Royalty Secured Limited Guarantee and
acknowledging that the obligations guaranteed by the Royalty Secured Limited
Guarantee include the obligations of Funding Corporation under the Additional
Securities; and
WHEREAS, the parties wish to amend the Deed of Trust to
expressly provide that it secures Trustor's obligations under the Royalty
Secured Limited Guarantee and the other Financing Documents, as so amended,
modified or supplemented, including pursuant to the Agreement Regarding
Security Documents.
AGREEMENT
NOW, THEREFORE, in consideration of good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
1. Financing Documents. The term Financing Documents, as
used in the Deed of Trust, is hereby expressly made to include (to the extent
it does not now so include), without limitation: (a) the Royalty Secured
Limited Guarantee, as amended, modified or supplemented by the Agreement
Regarding Security Documents, and as otherwise amended, modified or
supplemented from time to time, (b) the Depositary Agreement, as amended,
modified or supplemented by that certain Amendment No. 1 to Deposit and
Disbursement Agreement dated as of the date hereof, and as otherwise amended,
modified or supplemented from time to time, by and among Trustor, Beneficiary
and the other parties named therein, (c) the Intercreditor Agreement, as
amended, modified or supplemented by that certain First Amendment to
Collateral Agency and Intercreditor Agreement dated as of the date hereof, and
as otherwise amended, modified or supplemented from time to time, by and among
Trustor, Beneficiary and the other parties named therein and (d) the Exchange
and Registration Rights
<PAGE>
Agreement dated as of the date hereof, between Funding Corporation and the
initial purchaser named therein.
2. Effect of This Amendment. On and after the date of this
Amendment, each reference in the Deed of Trust to the Deed of Trust, shall
mean the Deed of Trust as amended hereby. Except as specifically amended
above, the Deed of Trust shall remain in full force and effect and is hereby
ratified and confirmed. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver
of any right, power, or remedy of Beneficiary or any of the Secured Parties
nor constitute a waiver of any provision of the Deed of Trust.
3. Headings. The headings, titles and captions of various
Sections of this Amendment are for convenience of reference only and are not
to be construed as defining or limiting, in any way, the scope or intent of
the provisions hereof.
4. Governing Law. THIS AMENDMENT IS GOVERNED BY AND SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
5. Counterparts. This Amendment may be signed in any number
of counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed, and this Amendment shall be effective, as of the day
and year first above written.
SALTON SEA ROYALTY COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
CHEMICAL TRUST COMPANY OF CALIFORNIA,
a California corporation,
as Collateral Agent
By: /s/ Rose Maravilla
Name: R.I. Maravilla
Title: Assistant Vice President
<PAGE>
T:\CECIMPVA\DOT\1ST-RC.DOT
STATE OF )
)
COUNTY OF )
On July 21, 1996, before me, (Illegible) Notary Public, personally
appeared John B. Sylvia, personally known to me (or proved to me on the basis
of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed
to the within instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of
which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Notary/Public
STATE OF )
)
COUNTY OF )
On July 21, 1996, before me, (Illegible) Notary Public, personally
appeared Rose I. Maravilla, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Notary/Public
EXHIBITS 4.29
COLLATERAL ASSIGNMENT
(IID Agreements)
This Collateral Assignment (this "Assignment") is dated as
of June 20, 1996 by DEL RANCH, L.P., a California limited partnership ("Del
Ranch"), ELMORE, L.P., a California limited partnership ("Elmore"), LEATHERS,
L.P., a California limited partnership ("Leathers"), VULCAN/BN GEOTHERMAL
POWER COMPANY, a Nevada general partnership ("Vulcan"), and VULCAN POWER
COMPANY, a Nevada corporation ("VPC", and together with Del Ranch, Elmore,
Leathers and Vulcan, "Borrower") in favor of Chemical Trust Company of
California, a California corporation (together with its successors and
assigns, the "Collateral Agent"), as collateral agent under the Intercreditor
Agreement (as defined below).
RECITALS
A. Initial Senior Secured Debt. Pursuant to that certain
Trust Indenture (the "Original Indenture") dated as of July 21, 1995, between
Salton Sea Funding Corporation, a Delaware corporation ("Funding
Corporation"), as issuer, and Collateral Agent, as trustee, Funding
Corporation has issued for its own account as principal, and as agent for the
Guarantors (as defined in the Original indenture), $232,750,000 principal
amount of Senior Secured Series A Notes due 2000, $133,000,000 principal
amount of Senior Secured Series B Bonds due 2005 and $109,250,000 principal
amount of Senior Secured Series C Bonds due 2010 (collectively, the "Initial
Senior Secured Debt").
B. Additional Senior Secured Debt. Pursuant to that certain
Second Supplemental Trust Indenture (the "Supplemental Indenture") dated as of
June 20, 1996, between Funding Corporation, as issuer, and Collateral Agent,
as trustee, Funding Corporation will issue for its own account as principal,
and as agent for the Guarantors, $70,000,000 principal amount of Senior
Secured Series D Notes due 2000 and $65,000,000 principal amount of Senior
Secured Series E Bonds due 2011 (the "Additional Senior Secured Debt", and
together with the Initial Senior Secured Debt and all other securities issued
under the Indenture, the "Senior Secured Debt"). The Original Indenture, as
amended, modified or supplemented, including pursuant to the Supplemental
Indenture is referred to herein as the Indenture. Capitalized terms used and
not otherwise defined herein shall have the meanings as defined in the
Indenture.
C. Financing Documents. In connection with the issuance of
the Senior Secured Debt, Borrower has entered or will enter into certain
agreements (the "Financing Documents") with certain parties (the "Secured
Parties"), which agreements include a credit agreement with Funding
Corporation and a guarantee in favor of Collateral Agent, serving in its
capacity as collateral agent under the Intercreditor Agreement and as trustee
under the Indenture.
<PAGE>
D. Security Documents. In order to secure all their
obligations under the Financing Documents, Borrower has agreed to execute
certain security documents (the "Security Documents"), encumbering and
granting security interests in certain of Borrower's rights and properties in
favor of Collateral Agent, as agent for the Secured Parties and Funding
Corporation under that certain Collateral Agency and Intercreditor Agreement
dated as of July 21, 1995, as amended, by and among Funding Corporation, the
Secured Parties and the Guarantors named therein (the "Intercreditor
Agreement").
E. Purpose. This Assignment is entered into to assign, pledge
and encumber all of Borrower's right, title and interest in and to the
documents listed on Exhibit A attached hereto, in favor of the Collateral
Agent, as agent for the Secured Parties and Funding Corporation in order to
secure the payment and performance of the Obligations (as defined below) to
the Secured Parties and Funding Corporation.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the sufficiency
and adequacy of which is hereby acknowledged, the parties agree as follows:
1. Borrower hereby conveys, assigns, transfers and grants to
Collateral Agent, as security for all its obligations under the Financing
Documents (the "Obligations") all the right, title and interest of Borrower
in, to and under (including all moneys due and to become due to Borrower
under), and does hereby grant and create in favor of Collateral Agent, for the
equal and ratable benefit of the Secured Parties and Funding Corporation, a
lien on and first priority security interest in the documents listed on
Exhibit A attached hereto (as amended, supplemented or modified, individually,
an "Assigned Agreement," and collectively, the "Assigned Agreements").
Notwithstanding any provision herein to the contrary, (a) there shall be no
enforcement of remedies hereunder unless there shall have occurred and be
continuing a Credit Agreement Event of Default under the Partnership Credit
Agreement or a Guarantee Event of Default under the Partnership Guarantee, and
(b) the rights and remedies of Collateral Agent, Funding Corporation and the
Secured Parties shall be subject to the provisions of the Intercreditor
Agreement.
2. This Assignment shall be subject to all the terms and conditions
of the other Security Documents, and all the right, title and interest of
Borrower in, to and under the Assigned Agreements shall from the date hereof
constitute part of the collateral pledged, assigned or otherwise encumbered
under the Security Documents (the "Collateral") for all purposes of the
Security Documents.
3. Neither this Assignment nor the receipt by Collateral Agent of any
payments pursuant hereto shall cause Collateral Agent, Funding Corporation or
any Secured Party to be
<PAGE>
under any obligation to Borrower for any action taken or omitted to be taken by
Collateral Agent, Funding Corporation or any Secured Party under or in
connection with the Assigned Agreements, this Assignment or any other Security
Document.
4. Borrower hereby irrevocably constitutes and appoints Collateral
Agent and any officer or agent thereof, with full power of substitution, as
its true and lawful attorney-in-fact (which appointment as attorney-in-fact
shall be coupled with an interest) with full and irrevocable power and
authority in the place and stead of Borrower and in the name of Borrower or in
the name of Collateral Agent for the purpose of carrying out the terms of this
Assignment or any of the Security Documents, 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 Collateral Agent deems necessary or advisable to impose,
perfect or continue the perfection of the Lien created hereby and to take any
and all action and to execute any and all instruments which may be necessary
to accomplish the purposes of this Assignment; provided, however, Collateral
Agent shall not exercise such rights except upon the occurrence and
continuance of a Credit Agreement Event of Default under the Partnership
Credit Agreement or a Guarantee Event of Default under the Partnership
Guarantee.
5. At any time and from time to time, Collateral Agent or any officer
or agent thereof shall have the right to perform any act, duty or obligation
required of Borrower that Collateral Agent reasonably determines to be
necessary or appropriate to cure any default, action or omission of Borrower
under any of the Assigned Agreements and, in connection with such cure, to
protect the rights of Borrower and Collateral Agent thereunder, and may do so
in Collateral Agent's name or in the name of Borrower; provided, however,
nothing herein shall require Collateral Agent to cure any default, action or
omission of Borrower under any such Assigned Agreement or to perform any act,
duty or obligation to Borrower thereunder. In accordance with the Security
Documents, neither Collateral Agent, Funding Corporation or any Secured Party,
nor any of their respective officers, directors, employees, agents,
attorneys-in-fact or affiliates shall be liable to Borrower or any other
Person for any action taken or omitted to be taken by it or them under or in
connection with any Assigned Agreement notwithstanding that any such action
taken, or omission, by Collateral Agent or such other Persons shall prove to
be inadequate, inappropriate or invalid, in whole or in part, except for
liability resulting from Collateral Agent's gross negligence or willful
misconduct.
6. Borrower hereby agrees to execute and deliver such additional
assignments and other documents as Collateral Agent reasonably may request in
order to implement the purpose and intent of this Assignment and the Security
Documents, including, without limitation, those documents required to perfect
and protect the assignment and security interest granted hereunder and
thereunder.
7. Borrower hereby represents and warrants that, other than such
security interests as have been granted by the Borrower pursuant to (a) any
collateral assignments entered into
<PAGE>
by Del Ranch, Elmore and/or Leathers in favor of Morgan Guaranty Trust Company
of New York, as Agent, which security interests shall have been terminated as of
even date herewith, and (b) the Security Documents, it has not heretofore
assigned or otherwise disposed of or encumbered any right, title or interest of
the Borrower in, to or under the Assigned Agreements or any moneys due or to
become due to the Borrower under or by reason thereof, and that the Borrower
has, subject to the terms and conditions of the Assigned Agreements and all
applicable governmental laws, rules or other requirements, the right and power
to transfer to Collateral Agent, for the benefit of the Secured Parties and
Funding Corporation, absolute title to the Borrower's right, title and interest
in, to and under the Assigned Agreements and in and to all the moneys due and to
become due to the Borrower under the Assigned Agreements.
8. THIS ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
9. This Assignment shall create a continuing assignment, pledge and
first priority security interest in the Assigned Agreements and shall remain
in full force and effect for the benefit of Collateral Agent until all
Obligations to be paid or performed by Borrower have been paid and performed
in full. Upon the happening of all of such events, the security interest
granted hereby shall terminate. Upon such termination, Collateral Agent shall,
upon the request and at the expense of Borrower, execute and deliver to
Borrower such documents as Borrower shall reasonably request to evidence such
termination.
10. This Assignment shall be binding upon and inure to the benefit of
Borrower and Collateral Agent for the benefit of Funding Corporation and the
Secured Parties and their respective successors and assigns.
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Assignment to be duly
executed and delivered as of the date first above written.
DEL RANCH, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
as General Partner
By: /s/ John G. Sylvia
__________________________
Name: John G. Sylvia
________________________
Title: Senior Vice President
_______________________
ELMORE, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
as General Partner
By: /s/ John G. Sylvia
__________________________
Name: John G. Sylvia
________________________
Title: Senior Vice President
_______________________
LEATHERS, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
as General Partner
By: /s/ John G. Sylvia
__________________________
Name: John G. Sylvia
________________________
Title: Senior Vice President
_______________________
<PAGE>
VULCAN/BN GEOTHERMAL POWER COMPANY,
a Nevada general partnership
By: Vulcan Power Company,
a Nevada corporation,
as General Partner
By: /s/ John G. Sylvia
__________________________
Name: John G. Sylvia
________________________
Title: Senior Vice President
_______________________
VULCAN POWER COMPANY,
a Nevada corporation
By: /s/ John G. Sylvia
__________________________
Name: John G. Sylvia
________________________
Title: Senior Vice President
_______________________
<PAGE>
Exhibit A
to the
Collateral Assignment
ASSIGNED AGREEMENTS
As the following may be amended, supplemented or otherwise modified
in compliance with the provisions of the Financing Documents:
The Funding And Construction Agreement (Heber-Mirage
Transmission Project), dated as of June 29, 1987, and the amendments thereto
dated September 1, 1987, October 1, 1988, April 1, 1989, and March 26, 1991,
by and between the Imperial Irrigation District, a public agency of the State
of California ("IID"), and the persons listed as Participants in Exhibit 1
thereto.
The Plant Connection Agreement for the Del Ranch Power
Plant, dated August 2, 1988, between IID and Del Ranch, L.P.
The Transmission Service Agreement for the Del Ranch Power
Plant, dated August 2, 1988, between IID and Del Ranch, L.P., and Amendment
No. 1 thereto, dated March 22, 1990.
The Plant Connection Agreement for the Elmore Power Plant,
dated August 2, 1988, between IID and Elmore, L.P.
The Transmission Service Agreement for the Elmore Power
Plant, dated August 2, 1988, between IID and Elmore, L.P., and Amendment No. 1
thereto, dated March 22, 1990.
The Plant Connection Agreement for the Leathers Power Plant,
dated October 3, 1989, between IID and Leathers, L.P.
The Transmission Service Agreement for the Leathers Power
Plant, dated October 3, 1989, between IID and Leathers, L.P. and Amendment No.
1 thereto, dated March 22, 1990.
The Plant Connection Agreement for the Vulcan Power Plant,
dated December 1, 1988, between IID and Vulcan Power Company.
The Transmission Service Agreement for the Vulcan Power
Plant, dated December 1, 1988, between IID and Vulcan Power Company.
EXHIBITS 4.31
COLLATERAL ASSIGNMENT
(Partnership Agreements)
This Collateral Assignment (this "Assignment") is dated as
of June 20, 1996 by DEL RANCH, L.P., a California limited partnership ("Del
Ranch"), ELMORE, L.P., a California limited partnership ("Elmore"), LEATHERS,
L.P., a California limited partnership ("Leathers"), and VULCAN/BN GEOTHERMAL
POWER COMPANY, a Nevada general partnership ("Vulcan", and together with Del
Ranch, Elmore and Leathers, "Borrower") in favor of Chemical Trust Company of
California, a California corporation, (together with its successors and
assigns, the "Collateral Agent"), as collateral agent under the Intercreditor
Agreement (as defined below).
RECITALS
A. Initial Senior Secured Debt. Pursuant to that certain
Trust Indenture (the "Original Indenture") dated as of July 21, 1995, between
Salton Sea Funding Corporation, a Delaware corporation ("Funding
Corporation"), as issuer, and Collateral Agent, as trustee, Funding
Corporation has issued for its own account as principal, and as agent for the
Guarantors (as defined in the Original Indenture), $232,750,000 principal
amount of Senior Secured Series A Notes due 2000, $133,000,000 principal
amount of Senior Secured Series B Bonds due 2005 and $109,250,000 principal
amount of Senior Secured Series C Bonds due 2010 (collectively, the "Initial
Senior Secured Debt").
B. Additional Senior Secured Debt. Pursuant to that certain
Second Supplemental Trust Indenture (the "Supplemental Indenture") dated as of
June 20, 1996, between Funding Corporation, as issuer, and Collateral Agent,
as trustee, Funding Corporation will issue for its own account as principal,
and as agent for the Guarantors $135,000,000 principal amount of Senior
Secured Series D Notes due 2011 (the "Additional Senior Secured Debt", and
together with the Initial Senior Secured Debt and all other securities issued
under the Indenture, the "Senior Secured Debt"). The Original Indenture, as
amended, modified or supplemented, including pursuant to the Supplemental
Indenture is referred to herein as the "Indenture". Capitalized terms used and
not otherwise defined herein shall have the meanings as defined in the
Indenture.
C. Financing Documents. In connection with the issuance of
the Senior Secured Debt, Borrower has entered or will enter into certain
agreements (the "Financing Documents") with certain parties (the "Secured
Parties"), which agreements include a credit agreement with Funding
Corporation and a guarantee in favor of Collateral Agent serving in its
capacity as Collateral Agent under the Intercreditor Agreement and as trustee
under the Indenture.
D. Security Documents. In order to secure all its
obligations under the Financing Documents, Borrower has agreed to execute
certain security documents (the "Security Documents"), encumbering and
granting security interests in certain of Borrower's rights and properties in
favor of Collateral Agent, as agent for the Secured Parties and Funding
Corporation under that certain Collateral Agency and Intercreditor Agreement
dated as of July 21, 1995, as amended, by and among Funding Corporation, the
Secured Parties and the Guarantors named therein (the "Intercreditor
Agreement").
<PAGE>
E. Purpose. This Assignment is entered into to assign,
pledge and encumber all of Borrower's right, title and interest in and to the
documents listed on Exhibit A attached hereto, in favor of the Collateral
Agent, as agent for the Secured Parties and Funding Corporation in order to
secure the payment and performance of the Obligations (as defined below) to
the Secured Parties and Funding Corporation.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the sufficiency
and adequacy of which is hereby acknowledged, the parties agree as follows:
1. Borrower hereby conveys, assigns, transfers and grants to
Collateral Agent, as security for all its obligations under the Financing
Documents (the "Obligations") all the right, title and interest of Borrower
in, to and under (including all moneys due and to become due to Borrower
under), and does hereby grant and create in favor of Collateral Agent, for the
equal and ratable benefit of the Secured Parties and Funding Corporation, a
lien on and first priority security interest in the documents listed on
Exhibit A attached hereto (as amended, supplemented or modified, individually,
an "Assigned Agreement," and collectively, the "Assigned Agreements").
Notwithstanding any provision herein to the contrary, (a) there shall be no
enforcement of remedies hereunder unless there shall have occurred and be
continuing a Credit Agreement Event of Default under the Partnership Credit
Agreement or a Guarantee Event of Default under the Partnership Guarantee, and
(b) the rights and remedies of Collateral Agent, Funding Corporation and the
Secured Parties shall be subject to the provisions of the Intercreditor
Agreement.
2. This Assignment shall be subject to all the terms and conditions
of the other Security Documents, and all the right, title and interest of
Borrower in, to and under the Assigned Agreements shall from the date hereof
constitute part of the collateral pledged, assigned or otherwise encumbered
under the Security Documents (the "Collateral") for all purposes of the
Security Documents.
3. Neither this Assignment nor the receipt by Collateral Agent of any
payments pursuant hereto shall cause Collateral Agent, Funding Corporation or
any Secured Party to be under any obligation to Borrower for any action taken
or omitted to be taken by Collateral Agent, Funding Corporation or any Secured
Party under or in connection with the Assigned Agreements, this Assignment or
any other Security Document.
4. Borrower hereby irrevocably constitutes and appoints Collateral
Agent and any officer or agent thereof, with full power of substitution, as
its true and lawful attorney-in-fact (which appointment as attorney-in-fact
shall be coupled with an interest) with full and irrevocable power and
authority in the place and stead of Borrower and in the name of Borrower or in
the name of Collateral Agent for the purpose of carrying out the terms of this
Assignment or any of the Security Documents, to execute and deliver and, if
appropriate, to file with the appropriate filing officer or office such
security agreements, financing statements,
<PAGE>
continuation statements or other instruments as Collateral Agent deems
necessary or advisable to impose, perfect or continue the perfection of the
Lien created hereby and to take any and all action and to execute any and all
instruments which may be necessary to accomplish the purposes of this
Assignment; provided, however, Collateral Agent shall not exercise such rights
except upon the occurrence and continuance of a Credit Agreement Event of
Default under the Partnership Credit Agreement or a Guarantee Event of Default
under the Partnership Guarantee.
5. At any time and from time to time, Collateral Agent or any officer
or agent thereof shall have the right to perform any act, duty or obligation
required of Borrower that Collateral Agent reasonably determines to be
necessary or appropriate to cure any default, action or omission of Borrower
under any of the Assigned Agreements and, in connection with such cure, to
protect the rights of Borrower and Collateral Agent thereunder, and may do so
in Collateral Agent's name or in the name of Borrower; provided, however,
nothing herein shall require Collateral Agent to cure any default, action or
omission of Borrower under any such Assigned Agreement or to perform any act,
duty or obligation to Borrower thereunder. In accordance with the Security
Documents, neither Collateral Agent, Funding Corporation or any Secured Party,
nor any of their respective officers, directors, employees, agents,
attorneys-in-fact or affiliates shall be liable to Borrower or any other
Person for any action taken or omitted to be taken by it or them under or in
connection with any Assigned Agreement notwithstanding that any such action
taken, or omission, by Collateral Agent or such other Persons shall prove to
be inadequate, inappropriate or invalid, in whole or in part, except for
liability resulting from Collateral Agent's gross negligence or willful
misconduct.
6. Borrower hereby agrees to execute and deliver such additional
assignments and other documents as Collateral Agent reasonably may request in
order to implement the purpose and intent of this Assignment and the Security
Documents, including, without limitation, those documents required to perfect
and protect the assignment and security interest granted hereunder and
thereunder.
7. Borrower hereby represents and warrants that, other than such
security interests as have been granted by the Borrower pursuant to (a) the
collateral assignments entered into by each of Del Ranch, Elmore and Leathers
in favor of Morgan Guaranty Trust Company of New York, as Agent, which
security interests shall have been terminated as of even date herewith, and
(b) the Security Documents, it has not heretofore assigned or otherwise
disposed of or encumbered any right, title or interest of the Borrower in, to
or under the Assigned Agreements or any moneys due or to become due to the
Borrower under or by reason thereof, and that the Borrower has, subject to the
terms and conditions of the Assigned Agreements and all applicable
governmental laws, rules or other requirements, the right and power to
transfer to Collateral Agent, for the benefit of the Secured Parties and
Funding Corporation, absolute title to the Borrower's right, title and
interest in, to and under the Assigned Agreements and in and to all the moneys
due and to become due to the Borrower under the Assigned Agreements.
<PAGE>
8. THIS ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
9. This Assignment shall create a continuing assignment, pledge and
first priority security interest in the Assigned Agreements and shall remain
in full force and effect for the benefit of Collateral Agent until all
Obligations to be paid or performed by Borrower have been paid and performed
in full. Upon the happening of all of such events, the security interest
granted hereby shall terminate. Upon such termination, Collateral Agent shall,
upon the request and at the expense of Borrower, execute and deliver to
Borrower such documents as Borrower shall reasonably request to evidence such
termination.
10. This Assignment shall be binding upon and inure to the benefit of
Borrower and Collateral Agent for the benefit of Funding Corporation and the
Secured Parties and their respective successors and assigns.
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Assignment to be duly
executed and delivered as of the date first above written.
DEL RANCH, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
as General Partner
By: /s/ John G. Sylvia
__________________________
Name: John G. Sylvia
________________________
Title: Senior Vice President
_______________________
ELMORE, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
as General Partner
By: /s/ John G. Sylvia
__________________________
Name: John G. Sylvia
________________________
Title: Senior Vice President
_______________________
<PAGE>
LEATHERS, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
as General Partner
By: /s/ John G. Sylvia
__________________________
Name: John G. Sylvia
________________________
Title: Senior Vice President
_______________________
VULCAN/BN GEOTHERMAL POWER COMPANY,
a Nevada general partnership
By: Vulcan Power Company,
a Nevada corporation,
as General Partner
By: /s/ John G. Sylvia
__________________________
Name: John G. Sylvia
________________________
Title: Senior Vice President
_______________________
<PAGE>
Exhibit A
to the
Collateral Assignment
ASSIGNED AGREEMENTS
As each of the following may be amended, supplemented or otherwise
modified in compliance with the provisions of the Financing Documents:
1. Joint Funding Agreement, dated as of June 29, 1987, by and among
Chevron Geothermal Company of California, Desert Power Company, Earth
Energy, Inc., GEO East Mesa No. 2, Inc., GEO East Mesa No. 3, Inc.,
Heber Geothermal Company, Magma Power Company ("Magma"), Ormesa
Geothermal, Ormesa Geothermal II, Union Oil Company of California and
Vulcan/BN Geothermal Power Company ("Vulcan").
2. Amended and Restated Administrative Services Agreement, dated as
of June 17, 1996, by and between CalEnergy Operating Company ("CEOC")
and Del Ranch, L.P. ("Del Ranch").
3. Technology Transfer Agreement, dated as of March 14, 1988, by and
between Magma and Del Ranch.
4. Amended and Restated Operating and Maintenance Agreement, dated as
of June 17, 1996, by and between CEOC and Del Ranch.
5. Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development, dated as of March 14, 1988, as amended as of June 17,
1996, by and between Magma and Del Ranch.
6. Ground Lease, dated as of March 14, 1988, as amended as of June
17, 1996, by and between Magma and Del Ranch.
7. Amended and Restated Administrative Services Agreement, dated as
of June 17, 1996, by and between CEOC and Elmore, L.P. ("Elmore").
8. Technology Transfer Agreement, dated as of March 14, 1988, by and
between Magma and Elmore.
9. Amended and Restated Operating and Maintenance Agreement, dated as
of June 17, 1996, by and between CEOC and Elmore.
<PAGE>
10. Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development, dated as of March 14, 1988, as amended as of June 17,
1996, by and between Magma and Elmore.
11. Ground Lease, dated as of March 14, 1988, as amended as of June
17, 1996, by and between Magma and Elmore.
12. Amended and Restated Administrative Services Agreement, dated as
of June 17, 1996, by and between CEOC and Leathers, L.P.
("Leathers".)
13. Technology Transfer Agreement, dated as of August 15, 1988, by
and between Magma and Leathers.
14. Amended and Restated Operating and Maintenance Agreement, dated
as of June 17, 1996, by and between CEOC and Leathers.
15. Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development, dated as of August 15, 1988, as amended as of June 17,
1996, by and between Magma and Leathers.
16. Ground Lease, dated as of October 26, 1988, as amended as of June
17, 1996, by and between Magma and Leathers.
17. Amended and Restated Construction, Operating and Accounting
Agreement, dated as of June 17, 1996, by and between Vulcan and
Vulcan Power Company ("VPC").
18. Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development, dated as of January 19, 1988, as amended as of June 17,
1996, by and between Magma and VPC.
19. Administrative Services Agreement, dated as of June 17, 1996, by
and between CEOC and Vulcan.
20. Amended and Restated Limited Partnership Agreement of Del Ranch,
L.P., dated as of March 14, 1988, among CEOC, Magma and Conejo Energy
Company, a California corporation, as the same may be amended from
time to time.
21. Amended and Restated Limited Partnership Agreement of Elmore,
L.P., dated as of March 14, 1988, among CEOC, Magma and Niguel Energy
Company, a California corporation, as the same may be amended from
time to time.
<PAGE>
22. Limited Partnership Agreement of Leathers, L.P., dated as of
August 15, 1988, among CEOC, Magma and San Felipe Energy Company, a
California corporation, as the same may be amended from time to time.
23. Partnership Agreement of Vulcan/BN Geothermal Power Company,
dated as of August 30, 1985, among VPC and BN Geothermal Inc., a
Delaware corporation, as the same may be amended from time to time.
24. Any additional documents now existing or hereafter entered into
by Del Ranch, Elmore, Leathers or Vulcan relating to the maintenance
or operation of their respective geothermal power plants located in
Imperial Valley, California.
EXHIBIT 4.32
CREDIT SUISSE
One Liberty Plaza
165 Broadway
New York, NY 10006
Irrevocable Standby Letter of Credit
Credit Suisse Letter of Credit No. TS-06000733
One Liberty Plaza Irrevocable Standby Credit
165 Broadway
New York, New York 10006
Date and Place of Issue: Date and Place of Expiry:
New York, New York Credit Suisse
July 21, 1995 New York, New York
July 21, 2002
Applicant:
Salton Sea Funding Corporation
302 South 36th Street
Suite 400-A
Omaha, Nebraska 68131
Beneficiary: Amount: Up to an aggregate
Chemical Trust Company of of Fifty Million
California, United States Dollars
as Depositary Agent (US$50,000,000.00)
50 California Street
10th Floor
San Francisco, California 94111
Attn: Corporate Trust Department
Credit Available With:
Credit Suisse
By: Negotiations, Against
Presentation of the Documents
Detailed Herein Drawn on
Credit Suisse
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 FIFTY MILLION UNITED STATES DOLLARS
(US$50,000,000.00) (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, New York
Office, manually signed by an authorized officer of the Beneficiary (who is
identified as such) appropriately completed
<PAGE>
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 One Liberty Plaza, 165
Broadway, New York, New York, 10006, Attn: Trade Services, telecopier no.
(212) 238-2121, telex no. 420149, with a copy to 12 East 49th Street, 43rd
Floor, New York, New York 10017, Attn: Project Finance Department, telecopier
no. (212) 238-5390, telex no. 420149, referencing this Letter of Credit No.
TS-06000733 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
commercial banks located in New York, New York are not required or authorized
to remain closed.
This Letter of Credit shall expire on the later of the then applicable Stated
Expiration Date or New Stated Expiration Date (as each such term is
hereinafter defined), as the case may be.
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 July 21, 1995 among the Applicant, the Banks party thereto and Credit
Suisse, as Agent (the "Debt Service Reserve Letter of Credit and Reimbursement
Agreement"), terminate this Letter of Credit by giving the Beneficiary and
Chemical Trust Company of California, as Trustee (in such capacity, the
"Trustee") under the Indenture referred to in the Debt Service Reserve 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 Chemical Trust Company of
California at 50 California Street, 10th Floor, San Francisco, California
94111, Attn: Corporate Trust Department, telecopier no. (415) 989-5241,
telephone no.
2
<PAGE>
(415) 954-9515, 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. Unless terminated earlier in
accordance with the provisions hereof, the date of expiry set forth
hereinabove (the "Stated Expiration Date") may be extended for a period of one
year effective upon the Stated Expiration Date and each annual anniversary of
the Stated Expiration Date (each such annual anniversary date being referred
to as the "New Stated Expiration Date") if notice that such Stated Expiration
Date or New Stated Expiration Date, as the case may be, shall be extended is
given by Credit Suisse to the Beneficiary and the Trustee 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 Chemical Trust Company of California at 50 California
Street, 10th Floor, San Francisco, California 94111, Attn: Corporate Trust
Department in accordance with Section 2.2(b) of the Debt Service Reserve
Letter of Credit and Reimbursement Agreement.
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
3
<PAGE>
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.
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(c), 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 Letter of Credit Number
TS-06000733 dated July 21, 1995."
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
Documentary 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
4
<PAGE>
the jurisdiction of such courts solely for the purposes
of this Letter of Credit. We hereby waive, to the 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
/s/ Henry Park
- --------------------------
Authorized signature
/s/Suzanne Leon
- --------------------------
Authorized signature
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(c),
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
Required Balance 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*
- ------------------ ---------------- -------------------
July 21, 1995 May 30, 1998 $49,909,141.30
May 31, 1998 November 30, 1998 $48,611,569.25
December 1, 1998 December 31, 1999 $27,704,941.00
January 1, 2000 December 31, 2000 $36,971,590.40
January 1, 2001 December 31, 2001 $36,971,590.40
January 1, 2002 July 21, 2002 $36,693,821.35
_________________________
* Prior to giving effect to any drawings hereunder or reinstatement
pursuant to the Debt Service Reserve Letter of Credit and Reimbursement
Agreement.
<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*
- ------------------ ---------------- -------------------
January 17, 1996 May 30, 1998 $50,000,000.00
May 31, 1998 November 30, 1998 $49,366,906.75
December 1, 1998 December 31, 1999 $28,278,836.00
January 1, 2000 December 31, 2000 $37,994,800.40
January 1, 2001 December 31, 2001 $37,994,800.40
January 1, 2002 July 21, 2002 $37,608,498.85
_________________________
* Prior to giving effect to any drawings hereunder or reinstatement
pursuant to the Debt Service Reserve Letter of Credit and Reimbursement
Agreement.
<PAGE>
ANNEX 1
"Drawn under Credit Suisse Letter of Credit Number [__________]
dated July 21, 1995"
DRAWING REQUEST
[Date]
Credit Suisse
One Liberty Plaza
165 Broadway
New York, New York 10006
Attention: Trade Services
Ladies and Gentlemen:
The undersigned hereby draws on Credit Suisse Letter of
Credit No. [ ] Irrevocable Standby Letter of Credit (the "Letter of
Credit") dated July 21, 1995, issued by you in favor of us. Any capitalized
term used herein and not defined herein shall have its respective meaning as
set forth in the Letter of Credit.
In connection with this drawing, we hereby certify that:
A) "This drawing in the amount of US$____________ is being made
pursuant to Credit Suisse Letter of Credit No. [ ] Irrevocable
Standby Letter of Credit issued to the Depositary Agent pursuant to
Section 3.5 of the Deposit and Disbursement Agreement dated as of
July 21, 1995 among Salton Sea Funding Corporation, the Guarantors,
Chemical Trust Company of California, as Collateral Agent and
Chemical Trust Company of California, as Depositary Agent (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]
B) "After the transfer of monies on deposit in the Debt Service Reserve
Fund, there are insufficient monies in the Interest Fund and the
Principal Fund on the [Interest] [Principal] Payment Date occurring
____________, ______ to pay the [interest] [or] [principal] due on
the Securities on such date (each capitalized word being used as
defined in the
<PAGE>
Indenture) (whether due on a Scheduled Payment Date, at Stated
Maturity, at acceleration or otherwise)";
or
B) "You have delivered notice to Salton Sea Funding Corporation and the
Trustee that the long-term debt rating of Credit Suisse has fallen
below A as determined by Standard & Poor's Ratings Group or A2 as
determined by Moody's Investor Services, Inc. and Salton Sea Funding
Corporation has failed to provide us with a substitute letter of
credit from another letter of credit provider within 45 days of
receipt of such notice."
or
B) "The current Stated Expiration Date or New Stated Expiration Date,
as the case may be, will occur within forty-five (45) days of the
date hereof and Salton Sea Funding Corporation has failed to deliver
a replacement or renewal letter of credit or other security
reasonably acceptable to Depositary Agent 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 or New Stated Expiration Date, as applicable] and
Salton Sea Funding Corporation has failed to deliver a replacement
or renewal letter of credit or other security reasonably acceptable
to Depositary Agent 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 in respect of drawings under the Credit Suisse Letter
of Credit No. [ ] Irrevocable Standby Letter of Credit is now due
and payable, and the drawing requested hereunder, together with all
drawings under the Letter of Credit in the current Fiscal Year (as
defined in the Indenture) do not exceed $5,000,000 in the
aggregate."
C) "The amount requested to be drawn does not exceed the Outstanding
Amount"; and
<PAGE>
D) "You are directed to make payment of the requested drawing to
account no. _______________ at __________________ [insert bank name,
address and account number]."
IN WITNESS WHEREOF, the undersigned has executed and
delivered this request on this _____ day of _______________, ____.
CHEMICAL TRUST COMPANY OF CALIFORNIA
By:________________________________
Name:
Title:
<PAGE>
ANNEX 2
NOTICE OF TERMINATION OF LETTER OF CREDIT
[Date]
Chemical Trust Company
of California
50 California Street
10th Floor
San Francisco, California 94111
Attn: Corporate Trust Department
Ladies and Gentlemen:
Reference is made to Credit Suisse Letter of Credit No. [ ]
Irrevocable Standby Letter of Credit (the "Letter of Credit") dated July 21,
1995, 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
By:__________________________
By:___________________________
<PAGE>
ANNEX 3
TRANSFER OF LETTER OF CREDIT
[Date]
Credit Suisse
One Liberty Plaza
165 Broadway
New York, New York 10006
Attention: Trade Services
Gentlemen:
Reference is made to Credit Suisse Letter of Credit No. [ ] Irrevocable
Standby Letter of Credit dated July 21, 1995 originally issued by you in favor
of Chemical Trust Company of California, as Depositary Agent (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
undersigned to draw under the Letter of Credit in their entirety.
The Transferee is the successor to the Beneficiary, as Depositary Agent under
the Deposit and Disbursement Agreement dated as of July 21, 1995 among Salton
Sea Funding Corporation, the Guarantors, Chemical Trust Company of California,
as Collateral Agent, Chemical Trust Company of California, as Depositary Agent
(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
<PAGE>
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.
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,
CHEMICAL TRUST COMPANY OF CALIFORNIA
By:________________________________
Name:
Title:
2
<PAGE>
ANNEX 4
CERTIFICATE OF REINSTATEMENT OF OUTSTANDING AMOUNT
[Date]
Chemical Trust Company
of California
50 California Street
10th Floor
San Francisco, California 94111
Attn: Corporate Trust Department
Ladies and Gentlemen:
Reference is made to Credit Suisse Letter of Credit No. [ ]
Irrevocable Standby Letter of Credit (the "Letter of Credit") dated July 21,
1995, 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
Reimbursement Agreement in the amount of $________, and,
pursuant to Section 2.7(c) of the Debt Service Reserve
Letter of Credit and Reimbursement 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
Reimbursement Agreement in the amount of $________. The Debt
Service Reserve Required Balance has been previously reduced
(each capitalized term being used as defined in the
<PAGE>
Indenture dated as of July 21, 1995 by and between Salton
Sea Funding Corporation, 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 Required Balance.
Very truly yours,
CREDIT SUISSE
By:______________________________
By:______________________________
2
<PAGE>
ANNEX 5
CERTIFICATE OF CHANGE OF OUTSTANDING AMOUNT
[Date]
Chemical Trust Company
of California
50 California Street
10th Floor
San Francisco, California 94111
Attn: Corporate Trust Department
Ladies and Gentlemen:
Reference is made to Credit Suisse Letter of Credit No. [ ]
Irrevocable Standby Letter of Credit (the "Letter of Credit") dated July 21,
1995, 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 July 21, 1995 (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 Agent.
This constitutes our notice to you pursuant to the Letter of
Credit that we have been advised by the Applicant that:
[use one or more of the following paragraphs]
The Letter of Credit has not been renewed or deemed renewed
pursuant to Section 2.2(b) of the Debt Service Reserve
Letter of Credit and Reimbursement Agreement. Therefore,
pursuant to such Section 2.2(c), the Outstanding Amount is
reduced by $______, which is the Debt Service Reserve LOC
Credit Amount (as defined in the Depositary Agreement), to
$____________.
or
<PAGE>
The Debt Service Reserve Required Balance (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
By:______________________________
By:______________________________
2
EXHIBIT 4.33
PARTNERSHIP PROJECT NOTE
$54,956,000 June 20, 1996
For value received, the undersigned, CALENERGY OPERATING
COMPANY, a Delaware corporation, VULCAN POWER COMPANY, a Nevada corporation,
CONEJO ENERGY COMPANY, a California corporation, NIGUEL ENERGY COMPANY, a
California corporation, SAN FELIPE ENERGY COMPANY, a California corporation,
BN GEOTHERMAL INC., a Delaware corporation, DEL RANCH, L.P., a California
limited partnership, ELMORE, L.P., a California limited partnership, LEATHERS,
L.P., a California limited partnership, and VULCAN/BN GEOTHERMAL POWER
COMPANY, a Nevada general partnership (collectively, the "Partnership
Guarantors"), by this promissory note jointly and severally promise to pay to
the order of Salton Sea Funding Corporation, a Delaware corporation ("Funding
Corporation") at the office of Chemical Trust Company of California, a
California corporation, located at 50 California Street, 10th Floor, San
Francisco, California 94111, in lawful currency of the United States of
America and in immediately available funds, the principal amount of Fifty Four
Million Nine Hundred Fifty Six Thousand Dollars ($54,956,000), or if less, the
aggregate unpaid and outstanding principal amount of this Partnership Project
Note advanced by Funding Corporation to the Partnership Guarantors pursuant to
that certain Amended and Restated Credit Agreement (Partnership Guarantors)
dated as of June 20, 1996 (the "Partnership Credit Agreement") by and between
the Partnership Guarantors and Funding Corporation, as the same may be amended
from time to time, and all other amounts owed by the Partnership Guarantors to
Funding Corporation hereunder.
This Partnership Project Note is entered into pursuant to
the Partnership Credit Agreement and is entitled to the benefits thereof and
is subject to all terms, provisions and conditions thereof. Capitalized terms
used and not defined herein shall have the meanings set forth in Exhibit A to
that certain Trust Indenture, dated as of July 21, 1995 (as the same may be
amended, modified or supplemented, including pursuant to the Second
Supplemental Indenture dated as of the date hereof, the "Indenture"), by and
between Funding Corporation and Chemical Trust Company of California, a
California corporation, as trustee.
Reference is hereby made to the Partnership Credit
Agreement, the Indenture and the Security Documents for the provisions, among
others, with respect to the custody and application of the Collateral, the
nature and extent of the security provided thereunder, the rights, duties and
obligations of the Partnership Guarantors and the rights of the holder of this
Partnership Project Note.
The principal amount hereof is payable in accordance with
the Partnership Credit Agreement, and such principal amount may be prepaid
solely in accordance with the Partnership Credit Agreement.
<PAGE>
The Partnership Guarantors further agree to pay, in lawful
currency of the United States of America and in immediately available funds,
interest from the date hereof on the unpaid and outstanding principal amount
hereof until such unpaid and outstanding principal amount shall become due and
payable (whether at stated maturity, by acceleration or otherwise) at the
rates of interest and at the times set forth in the Partnership Credit
Agreement, and the Partnership Guarantors agree to pay other fees and costs as
stated in the Partnership Credit Agreement.
Upon the occurrence of any one or more Credit Agreement
Events of Default (as defined in Section 5.1 of the Partnership Credit
Agreement), all amounts then remaining unpaid under this Partnership Project
Note may become or be declared to be immediately due and payable as provided
in the Partnership Credit Agreement, without notice of default, presentment or
demand for payment, protest or notice of nonpayment or dishonor, or notices or
demands of any kind, all of which are expressly waived by the Partnership
Guarantors.
The obligations hereunder are subject to the limitations set
forth in Section 6.11 of the Partnership Credit Agreement, the provisions of
which are hereby incorporated by reference.
<PAGE>
This Partnership Project Note shall be construed and
interpreted in accordance with and governed by the laws of the State of
California without regard to the conflicts of laws rules thereof.
CALENERGY OPERATING COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
VULCAN POWER COMPANY,
a Nevada corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
CONEJO ENERGY COMPANY,
a California corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
NIGUEL ENERGY COMPANY,
a California corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
SAN FELIPE ENERGY COMPANY,
a California corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
<PAGE>
BN GEOTHERMAL INC.,
a Delaware corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
DEL RANCH, L.P.,
a California limited partnership
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
ELMORE, L.P.,
a California limited partnership
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
LEATHERS, L.P.,
a California limited partnership
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
VULCAN/BN GEOTHERMAL POWER COMPANY,
a Nevada general partnership
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
EXHIBIT 4.34
PARTNERSHIP PROJECT NOTE
$135,000,000 June 20, 1996
For value received, the undersigned, CALENERGY OPERATING
COMPANY, a Delaware corporation, VULCAN POWER COMPANY, a Nevada corporation,
CONEJO ENERGY COMPANY, a California corporation, NIGUEL ENERGY COMPANY, a
California corporation, SAN FELIPE ENERGY COMPANY, a California corporation,
BN GEOTHERMAL INC., a Delaware corporation, DEL RANCH, L.P., a California
limited partnership, ELMORE, L.P., a California limited partnership, LEATHERS,
L.P., a California limited partnership, and VULCAN/BN GEOTHERMAL POWER
COMPANY, a Nevada general partnership (collectively, the "Partnership
Guarantors"), by this promissory note jointly and severally promise to pay to
the order of Salton Sea Funding Corporation, a Delaware corporation ("Funding
Corporation") at the office of Chemical Trust Company of California, a
California corporation, located at 50 California Street, 10th Floor, San
Francisco, California 94111, in lawful currency of the United States of
America and in immediately available funds, the principal amount of One
Hundred Thirty Five Million Dollars ($135,000,000), or if less, the aggregate
unpaid and outstanding principal amount of this Partnership Project Note
advanced by Funding Corporation to the Partnership Guarantors pursuant to that
certain Amended and Restated Credit Agreement (Partnership Guarantors) dated
as of June 20, 1996 (the "Partnership Credit Agreement") by and between the
Partnership Guarantors and Funding Corporation, as the same may be amended
from time to time, and all other amounts owed by the Partnership Guarantors to
Funding Corporation hereunder.
This Partnership Project Note is entered into pursuant to
the Partnership Credit Agreement and is entitled to the benefits thereof and
is subject to all terms, provisions and conditions thereof. Capitalized terms
used and not defined herein shall have the meanings set forth in Exhibit A to
that certain Trust Indenture, dated as of July 21, 1995 (as the same may be
amended, modified or supplemented, including pursuant to the Second
Supplemental Indenture dated as of the date hereof, the "Indenture"), by and
between Funding Corporation and Chemical Trust Company of California, a
California corporation, as trustee.
Reference is hereby made to the Partnership Credit
Agreement, the Indenture and the Security Documents for the provisions, among
others, with respect to the custody and application of the Collateral, the
nature and extent of the security provided thereunder, the rights, duties and
obligations of the Partnership Guarantors and the rights of the holder of this
Partnership Project Note.
The principal amount hereof is payable in accordance with
the Partnership Credit Agreement, and such principal amount may be prepaid
solely in accordance with the Partnership Credit Agreement.
<PAGE>
The Partnership Guarantors further agree to pay, in lawful
currency of the United States of America and in immediately available funds,
interest from the date hereof on the unpaid and outstanding principal amount
hereof until such unpaid and outstanding principal amount shall become due and
payable (whether at stated maturity, by acceleration or otherwise) at the
rates of interest and at the times set forth in the Partnership Credit
Agreement, and the Partnership Guarantors agree to pay other fees and costs as
stated in the Partnership Credit Agreement.
Upon the occurrence of any one or more Credit Agreement
Events of Default (as defined in Section 5.1 of the Partnership Credit
Agreement), all amounts then remaining unpaid under this Partnership Project
Note may become or be declared to be immediately due and payable as provided
in the Partnership Credit Agreement, without notice of default, presentment or
demand for payment, protest or notice of nonpayment or dishonor, or notices or
demands of any kind, all of which are expressly waived by the Partnership
Guarantors.
The obligations hereunder are subject to the limitations set
forth in Section 6.11 of the Partnership Credit Agreement, the provisions of
which are hereby incorporated by reference.
<PAGE>
This Partnership Project Note shall be construed and
interpreted in accordance with and governed by the laws of the State of
California without regard to the conflicts of laws rules thereof.
CALENERGY OPERATING COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
VULCAN POWER COMPANY,
a Nevada corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
CONEJO ENERGY COMPANY,
a California corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
NIGUEL ENERGY COMPANY,
a California corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
SAN FELIPE ENERGY COMPANY,
a California corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
<PAGE>
BN GEOTHERMAL INC.,
a Delaware corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
DEL RANCH, L.P.,
a California limited partnership
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
ELMORE, L.P.,
a California limited partnership
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
LEATHERS, L.P.,
a California limited partnership
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
VULCAN/BN GEOTHERMAL POWER COMPANY,
a Nevada general partnership
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
EXHIBIT 4.35
Recording Requested By and When
Recorded Return to:
Attention:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
VULCAN/BN GEOTHERMAL POWER COMPANY
and
VULCAN POWER COMPANY
(jointly and severally, as Trustor)
to
CHICAGO TITLE COMPANY,
(as Trustee)
for the use and benefit of
CHEMICAL TRUST COMPANY OF CALIFORNIA,
for and on behalf
of Salton Sea Funding Corporation
and the Secured Parties
(as Beneficiary)
- ------------------------------------------------------------------------------
DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
- ------------------------------------------------------------------------------
Dated: As of June 20, 1996
Location: County of Imperial
State of California
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
THIS DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT
AND FIXTURE FILING (the "Deed of Trust") is made as of June 20, 1996, by
VULCAN/BN GEOTHERMAL POWER COMPANY, a Nevada general partnership ("Vulcan"),
whose address is 302 South 36th Street, Suite 400-E, Omaha, Nebraska 68131,
and VULCAN POWER COMPANY, a Nevada corporation ("VPC"), whose address is 302
South 36th Street, Suite 400-E, Omaha, Nebraska 68131, as trustor
(collectively, "Trustor"), to CHICAGO TITLE COMPANY, whose address is 925 B
Street, San Diego, California 92101, as trustee ("Trustee"), and in favor of
CHEMICAL TRUST COMPANY OF CALIFORNIA, a California corporation, whose address
is 50 California Street, 10th Floor, San Francisco, California 94111, as
beneficiary ("Beneficiary") acting in its capacity as collateral agent for and
on behalf of Salton Sea Funding Corporation, a Delaware corporation ("Funding
Corporation") and the Secured Parties (the "Secured Parties") under that
certain Collateral Agency and Intercreditor Agreement by and among
Beneficiary, Funding Corporation and the Guarantors and Secured Parties
thereto (the "Intercreditor Agreement") and that certain Trust Indenture dated
as of July 21, 1995, as the same may be amended, modified or supplemented,
including pursuant to that certain Second Supplemental Trust Indenture, dated
as of even date herewith, by and between Funding Corporation and Beneficiary,
as trustee (as so amended, modified or supplemented, the "Indenture"). This
Deed of Trust is entered into pursuant to that certain Amended and Restated
Credit Agreement (Partnership Guarantors) dated as of even date herewith by
and between Trustor and Funding Corporation (the "Partnership Credit
Agreement"), the Indenture and the other Financing Documents. Unless otherwise
defined herein, capitalized terms shall have the meanings set forth in Exhibit
A to the Indenture, which Exhibit A is hereby incorporated by this reference.
NOW, THEREFORE, in consideration of, and to secure the
payment and performance of the Debt (as hereinafter defined) which Debt may
increase, decrease and increase again from time to time, Trustor has given,
granted, bargained, sold, alienated, conveyed, confirmed and assigned, and by
these presents does give, grant, bargain, sell, alienate, convey, confirm and
assign unto Trustee, its successors and assigns, with general warranties of
title, in trust with power of sale and right of entry and possession forever,
for the benefit and security of Beneficiary as collateral agent for Funding
Corporation and the Secured Parties, all right title and interest of Trustor
in and to, the following property, rights and interests, whether now owned or
hereafter acquired (such property, rights and interests being hereinbefore and
hereinafter collectively referred to as the "Trust Property") :
(a) all of Trustor's right, title and interest in
that certain real property in the County of Imperial, State of
California, described in Exhibit A attached hereto and by this
reference incorporated herein (the "Resource Easement Area
Premises"), pursuant to that certain Easement Grant Deed and
Agreement Regarding Rights for Geothermal Development dated as of
January 19, 1988 between Magma Power Company, a Nevada corporation
("Magma"), as grantor, and VPC, as grantee (recorded on February 9,
1988 in Book 1597, Page 1265 of the Official Records of Imperial
<PAGE>
County, California (the "Official Records")), as amended by that
certain Amendment To Agreements and Grant of Easement dated as of
June 17, 1996 among Magma, Vulcan and VPC (the "Amendment to
Agreements"), which is being recorded in the Official Records
concurrently herewith (collectively, and as the same may from time to
time be further amended and be in effect in accordance with the other
Financing Documents, the "Easement Grant Deed"), together with all
renewals, extensions, supplements, amendments, cancellations or
terminations thereof and all credits, deposits, options, privileges
and rights thereunder;
(b) all of Trustor's right, title and interest in
that certain real property in the County of Imperial, State of
California, described in Exhibit B attached hereto and by this
reference incorporated herein (the "Vulcan Plant Site") (the Resource
Easement Area Premises and the Vulcan Plant Site being hereinafter
collectively referred to as the "Vulcan Premises");
(c) all buildings, improvements and fixtures now
or hereafter located on the Vulcan Premises (hereinafter referred to
as the "Improvements");
(d) the Easement Grant Deed and the rights and
interests created thereunder together with all renewals, extensions,
supplements, amendments, cancellations or terminations thereof;
(e) all the estate, right, title, claim or demand
of any nature whatsoever of Trustor, either in law or in equity, in
possession or expectancy, in and to the Trust Property and in all
replacements, substitutes, renewals, betterments and extensions of
and all additions to any of the Improvements, or any part thereof;
(f) all easements (other than as created under and
pursuant to the Easement Grant Deed), rights-of-way, gores of land,
streets, ways, alleys, passages, sewer rights, waters, water courses,
water rights and powers, and all estates, rights, titles, interests,
privileges, liberties, tenements, hereditaments, revocable consents,
options, appendages and appurtenances of any nature whatsoever, in
any way belonging, relating or pertaining to the Trust Property
(including, without limitation, any and all development rights, air
rights, water rights or similar or comparable rights of any nature
whatsoever now or hereafter appurtenant to the Vulcan Premises or now
or hereafter transferred to the Vulcan Premises) together with all
renewals, extensions, supplements or amendments thereof, and
Trustor's interest in all land lying in the bed of any street, road
or avenue, opened or proposed, in front of or adjoining the Vulcan
Premises to the center line thereof;
(g) all machinery, apparatus, equipment, fittings,
fixtures and other property of every kind and nature whatsoever owned
by Trustor, or in which Trustor has or shall have an interest, now or
hereafter located upon the Trust Property, or appurtenances thereto,
and usable in connection with the present or future operation and
occupancy of the Trust Property and all equipment, materials,
supplies, apparatus
2
<PAGE>
and other items now or hereafter attached to, installed in or used
(temporarily or permanently) of any nature whatsoever, now or
hereafter located upon the Trust Property and all renewals,
replacements and substitutions thereof and additions thereto,
including but not limited to any and all partitions, ducts, shafts,
pipes, radiators, conduits, wiring, floor coverings, awnings, motors,
engines, boilers, stokers, pumps, dynamos, transformers, turbines,
generators, fans, blowers, vents, switchboards, elevators, mail or
coal conveyors, escalators, compressors, furnaces, cleaning
equipment, call and sprinkler systems, fire extinguishing apparatus,
water and other tanks, heating, ventilating, plumbing, laundry,
incinerating, air conditioning and air cooling systems and water,
gas, telephone, telecommunications, telemetry, electric equipment,
wells, sumps, test holes, pipelines, separators, clarifiers,
crystallizers, headers, scrubbers, demisters, cooling towers,
turbines, generators, geothermal electric generating facilities,
buildings sheds, roads, transformers and transmission lines
(hereinafter collectively referred to as the "Equipment"), and the
right, title and interest of Trustor in and to any of the Equipment
which may be subject to any security agreements (as defined in the
Uniform Commercial Code of the State of California) superior in lien
to the lien of this Deed of Trust;
(h) all awards or payments, including interest
thereon, and the right to receive the same, which may be made with
respect to the Trust Property, whether from state fund sharing or
from the exercise of the right of eminent domain (including any
transfer made in lieu of the exercise of said right), changes of
grade of street or for any other injury to or decrease in the value
of the Trust Property now or hereafter located thereon, whether
direct or consequential, which said awards and payments are hereby
assigned, and Beneficiary is hereby authorized to collect and receive
the proceeds thereof and to give proper receipts and acquittances
therefor;
(i) all refunds or rebates of all taxes or charges
in lieu of taxes, assessments, water rates, sewer rents and other
charges, including vault charges and license or permit fees for the
use of vaults, chutes and similar areas on or adjoining the Premises,
now or hereafter levied or assessed against the Trust Property
(hereinafter referred to as the "Taxes");
(j) all leases (including oil, gas and other
mineral leases), subleases, franchises, licenses, concessions,
permits, contracts and other agreements affecting the use or
occupancy of the Trust Property now or hereafter entered into and any
renewals or extensions thereof (hereinafter referred to as the
"Leases") and the right to receive and apply the rents, issues and
profits of the Trust Property to the extent of Trustor's interest
therein, including but not limited to the proceeds of all
hydrocarbons or other minerals produced from the Trust Property and
all delay rentals and bonuses from any oil, gas or other mineral
lease (hereinafter referred to as the "Rents") to the payment of the
Debt;
3
<PAGE>
(k) all inventory, accounts and general intangibles
owned by Trustor, or in which Trustor now has or hereafter shall have
any right, title or interest, now or hereafter located upon, arising
in connection with or concerning the Trust Property;
(l) all proceeds of and any unearned premiums on
any insurance policies covering the Trust Property, including,
without limitation, the right to receive the proceeds of any
insurance, judgments, or settlements made in lieu thereof, for damage
to the Trust Property;
(m) the right, in the name and on behalf of
Trustor, to appear in and defend any action or proceeding brought
with respect to the Trust Property and to commence any action or
proceeding to protect the interest of Beneficiary, Funding
Corporation and the Secured Parties in the Trust Property;
(n) all of Trustor's right, title and interest in
and to all plans and specifications prepared for construction of
Improvements or other development of the Trust Property (including
all amendments, modifications, supplements, general conditions and
addenda thereof or thereto) and all studies, data and drawings
related thereto, and all contracts and agreements of Trustor relating
to the aforesaid plans and specifications or to the aforesaid
studies, data and drawings or to the construction of Improvements on
the Trust Property;
(o) all contracts with property managers,
surveyors, real estate advisors and consultants, geothermal advisors
and consultants, geothermal engineers, real estate brokers, and other
like agents and professionals that relate to any part of the Trust
Property, including without limitation, any Improvements constructed
or to be constructed on the Trust Property, and all maps, reports,
surveys, and studies of or relating to any of the Trust Property,
owned by Trustor or in which Trustor has or shall have an interest
and now or hereafter in the possession of Trustor or any such agent
or professional;
(p) all present and future agreements, permits,
licenses and approvals, as well as all modifications, supplements,
extensions and renewals thereof, now existing or hereafter made, in
which Trustor has or shall have an interest relating to the use,
development and/or occupancy of the Resource Easement Area Premises,
the Vulcan Plant Site and/or the Improvements;
(q) all products and proceeds of any of the Trust
Property herein described; and
(r) all bank accounts and trust accounts of
Trustor, including without limitation Trustor's accounts in the
Capital Improvements Fund and any other funds of Trustor on deposit
pursuant to the Indenture and the Depositary Agreement.
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This Deed of Trust secures the following obligations which
shall heretofore and hereinafter collectively be referred to as the Debt:
(i) The payment of all indebtedness of Trustor evidenced
by the Financing Documents to which it is a party; and
(ii) The satisfaction and performance of all other debts,
obligations, covenants, agreements, and liabilities of Trustor to Trustee and
Beneficiary arising out of, connected with, or related to this Deed of Trust
or the Financing Documents and all amendments, extensions, and renewals of the
foregoing documents, whether now existing or hereafter arising, voluntary or
involuntary, absolute or contingent, liquidated or unliquidated, and whether
or not from time to time decreased or extinguished and later increased,
created, or incurred.
To protect the security of this Deed of Trust, Trustor
covenants with and represents and warrants to Trustee, Beneficiary, Funding
Corporation and the Secured Parties as follows:
2. Payment of Debt. Trustor will pay the Debt at
the time and in the manner provided for its payment in this Deed of Trust and
the Financing Documents, as applicable.
3. Warranty of Title. Subject only to Permitted
Liens, Trustor warrants its right, title or interest, as applicable, to the
Resource Easement Area Premises, the Vulcan Plant Site, the Improvements, the
Equipment and the balance of the Trust Property and the validity and priority
of the lien of this Deed of Trust and the estate hereof against the claims and
demands of all persons whomsoever. Trustor also represents and warrants that
(i) Trustor is now, and after giving effect to this Deed of Trust, will be, in
a solvent condition, (ii) the execution and delivery of this Deed of Trust by
Trustor does not constitute a "fraudulent conveyance" within the meaning of
Title 11 of the United States Code as now constituted or under any other
applicable statute, and (iii) no bankruptcy or insolvency proceedings are
pending or contemplated by or, to the best of Trustor's knowledge, against
Trustor.
4. Notice. Trustor hereby requests that a copy of
notice of default and notice of sale be mailed to it at the address set forth
below, and such address is also the mailing address of Trustor, as debtor,
under the California Uniform Commercial Code. Beneficiary's address given
below is the address for Beneficiary on behalf of Funding Corporation and the
Secured Parties, as secured party, under the California Uniform Commercial
Code. In addition, any notice, request, demand, statement, authorization,
approval or consent made hereunder shall be made pursuant to the provisions of
the Partnership Credit Agreement as follows:
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If to Trustor:
Vulcan/BN Geothermal Power Company
Vulcan Power Company
302 South 36th Street, Suite 400-E
Omaha, Nebraska 68131
Attention: General Counsel
to Trustee:
Chicago Title Insurance Company
925 B Street
San Diego, California 92101
Attention: Legal Department
If to Beneficiary:
Chemical Trust Company of California
50 California Street, 10th Floor
San Francisco, California 94111
Attention: Legal Department
5. Sale of Trust Property. If this Deed of Trust is
foreclosed, or the power of sale hereunder is exercised, the Trust Property,
or any interest therein, may, at the discretion of Beneficiary, be sold in one
or more parcels or in several interests or portions and in any order or
manner.
6. No Credits on Account of the Debt. Trustor will
not claim or demand or be entitled to any credit or credits on account of the
Debt for any part of the Taxes assessed against the Trust Property or any part
thereof, and no deduction shall otherwise be made or claimed from the taxable
value of the Trust Property, or any part thereof, by reason of this Deed of
Trust or the Debt.
7. Offset, Counterclaims and Defenses. Any assignee
of this Deed of Trust and the Debt secured hereby shall take the same free and
clear of all offsets, counterclaims or defenses of any nature whatsoever which
Trustor may have against any assignor of this Deed of Trust and the Debt
secured hereby, and no such offset, counterclaim or defense shall be
interposed or asserted by Trustor in any action or proceeding brought by any
such assignee upon this Deed of Trust or the Debt secured hereby and any such
right to interpose or assert
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any such offset, counterclaim or defense in any such action or proceeding is
hereby expressly waived by Trustor.
8. Other Security for the Debt. Trustor shall
observe and perform all of the terms, covenants and provisions to be observed
or performed by Trustor contained in this Deed of Trust and in the Financing
Documents to which Trustor shall be a party evidencing, securing or
guaranteeing payment of the Debt, in whole or in part, or otherwise executed
and delivered in connection with this Deed of Trust or the Financing
Documents.
9. Documentary Stamps. If at any time the United
States of America, any state thereof or any governmental subdivision of any
such state, shall require revenue or other stamps to be affixed to the
Financing Documents or this Deed of Trust, Trustor will pay for the same, with
interest and penalties thereon, if any.
10. Right of Entry. Beneficiary, Funding
Corporation and each of the Secured Parties shall have the right to enter and
inspect the Trust Property at all reasonable times as provided in the
Partnership Credit Agreement.
11. Books and Records. Trustor will comply with all
of the provisions and requirements of Section 4.16 of the Partnership Credit
Agreement concerning its books, records and accounts reflecting all of the
financial affairs of Trustor.
12. Right to Cure Defaults. Upon the occurrence and
during the continuance of a Credit Agreement Event of Default under the
Partnership Credit Agreement or a Guarantee Event of Default under the
Partnership Guarantee, Beneficiary, Funding Corporation or the Secured Parties
may, at their discretion, remedy the same in accordance with the applicable
provisions of the Partnership Credit Agreement and for such purpose shall have
the right to enter upon the Trust Property or any portion thereof without
thereby becoming liable to Trustor or any person in possession thereof holding
under Trustor in each case to the extent set forth in the Partnership Credit
Agreement. If Beneficiary, Funding Corporation or the Secured Parties shall
remedy such a default or appear in, defend, or bring any action or proceeding
to protect their interest in the Trust Property or to foreclose this Deed of
Trust or to exercise the power of sale granted under this Deed of Trust or to
collect the Debt or to otherwise exercise any remedies available to
Beneficiary, Funding Corporation or the Secured Parties under this Deed of
Trust, the costs and expenses thereof (including attorneys' fees to the extent
permitted by law) shall be treated as set forth in Section 5.4 of the
Partnership Credit Agreement.
13. Appointment of Receiver. Trustee or
Beneficiary, in any action to foreclose this Deed of Trust or exercise the
power of sale granted under this Deed of Trust or upon the actual or
threatened waste to any part of the Trust Property or upon the occurrence of a
Credit Agreement Event of Default under the Partnership Credit Agreement or a
Guarantee Event of Default under the Partnership Guarantee, shall be at
liberty, without notice, to apply for the appointment of a receiver of the
Rents, and shall be entitled to the appointment of such receiver as a matter
of right, without regard to the value of the Trust
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Property as security for the Debt, or the solvency or insolvency of any person
then liable for the payment of the Debt.
14. Non-Waiver. The failure of Beneficiary to
insist upon strict performance of any term of this Deed of Trust shall not be
deemed to be a waiver of any term of this Deed of Trust. Trustor shall not be
relieved of Trustor's obligation to pay and perform the Debt at the time and
in the manner provided for its payment in the Financing Documents and this
Deed of Trust by reason of (i) failure to comply with any request of Trustor
to take any action to foreclose this Deed of Trust or otherwise enforce any of
the provisions hereof or of the Financing Documents or any other mortgage,
deed of trust, instrument or document securing or guaranteeing the payment of
the Debt or a portion thereof, (ii) the release, regardless of consideration,
of the whole or any part of the Trust Property or any other security for the
Debt, or (iii) any agreement or stipulation between Beneficiary and any
subsequent owner or owners of the Trust Property or other person extending the
time of payment or otherwise modifying or supplementing the terms of this Deed
of Trust or the Financing Documents evidencing, securing or guaranteeing
payment of the Debt or any portion thereof, without first having obtained the
consent of Trustor (but without prejudice to the rights of Trustor under the
Partnership Credit Agreement), and in the latter event, Trustor shall continue
to be obligated to pay and perform the Debt at the time and in the manner
provided in the Financing Documents and this Deed of Trust, as so extended,
modified and supplemented, unless expressly released and discharged from such
obligation by Beneficiary in writing. Regardless of consideration, and without
the necessity for any notice to or consent by the holder of any subordinate
lien, encumbrance, right, title or interest in or to the Trust Property,
Beneficiary, Funding Corporation or the Secured Parties may release any person
at any time liable for the payment of the Debt or any portion thereof or all
or any part of the security held for the Debt and may extend the time of
payment or otherwise modify the terms of the Financing Documents or this Deed
of Trust, including, without limitation, a modification of the interest rate
payable on the principal balance of the Debt, without in any manner impairing
or affecting this Deed of Trust or the lien thereof or the priority of this
Deed of Trust, as so extended and modified, as security for the Debt over any
such subordinate lien, encumbrance, right, title or interest. Beneficiary,
Funding Corporation and the Secured Parties may resort for the payment of the
Debt to any other security held by Beneficiary, Funding Corporation or the
Secured Parties in such order and manner as Beneficiary, Funding Corporation
or the Secured Parties, in their discretion, may elect. Beneficiary, Funding
Corporation or the Secured Parties may take action to recover the Debt, or any
portion thereof, or to enforce any covenant hereof without prejudice to the
right of the Beneficiary thereafter to foreclose this Deed of Trust. The
Beneficiary, Funding Corporation and the Secured Parties shall not be limited
exclusively to the rights and remedies herein stated but shall be entitled to
every additional right and remedy now or hereafter afforded by law or equity.
The rights of the Beneficiary, Funding Corporation and the Secured Parties
under this Deed of Trust shall be separate, distinct and cumulative, and none
shall be given effect to the exclusion of the others. No act of Funding
Corporation, the Secured Parties or Beneficiary shall be construed as an
election to proceed under any one provision herein to the exclusion of any
other provision.
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15. Power of Sale. Subject to the provisions of the
Intercreditor Agreement, upon the occurrence and during the continuance of a
Credit Agreement Event of Default under the Partnership Credit Agreement or a
Guarantee Event of Default under the Partnership Guarantee, Beneficiary may at
any time, at its option and in its sole discretion, declare the Debt to be due
and payable and the same shall thereupon become immediately due and payable,
including any prepayment charge or fee payable under the terms of the
Financing Documents. Beneficiary may also do any or all of the following;
provided, however, that any of the following actions shall be undertaken in a
commercially reasonable manner in accordance with applicable law; and
provided, further, that Beneficiary shall have no obligation to do any of the
following:
(a) Either in person or by agent, with or without
bringing any action or proceeding or by a receiver appointed by a court and
without regard to the adequacy of Beneficiary's, Funding Corporation's and the
Secured Parties' security, enter upon and take possession of the Trust
Property or any part hereof and do any acts which Beneficiary deems necessary
or desirable to preserve the value, marketability or rentability of the Trust
Property or to increase the income therefrom or to protect the security hereof
and with or without taking possession of any of the Trust Property, sue for or
otherwise collect all Rents and profits including those past due and unpaid,
and apply the same, less costs and expenses of operation and collection
including attorneys' fees and expenses, upon the Debt, all in such order as
provided in Section 6 of the Intercreditor Agreement. The collection of Rents
and profits and the application thereof shall not cure or waive any event of
default or notice thereof or invalidate any act done in response thereto or
pursuant to such notice.
(b) Bring an action in any court of competent
jurisdiction to foreclose this instrument or to enforce any of the covenants
hereof.
(c) Exercise any or all of the remedies available
to a secured party under the Uniform Commercial Code.
(d) Beneficiary may elect to cause the Trust
Property or any part thereof to be sold under the power of sale herein granted
in any manner permitted by applicable law. In connection with any sale or
sales hereunder, Beneficiary may elect to treat any of the Trust Property
which consists of a right in action or which is property that can be severed
from the real property covered hereby or any improvements thereon without
causing structural damage thereto as if the same were personal property, and
dispose of the same in accordance with applicable law, separate and apart from
the sale of real property. Any sale of any personal property hereunder shall
be conducted in any manner permitted by Section 9501 or any other applicable
sections of the California Uniform Commercial Code. Where the Trust Property
consists of real and personal property or fixtures, whether or not such
personal property is located on or within the real property, Beneficiary may
elect in its discretion to exercise its rights and remedies against any or all
of the real property, personal property, and fixtures in such order and manner
as is now or hereafter permitted by applicable law. Without limiting the
generality of the foregoing, Beneficiary may at its sole and absolute
discretion and without regard to the adequacy of its security elect to proceed
against any or all of the real property,
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personal property and fixtures in any manner permitted under Section
9501(4)(a) of the California Uniform Commercial Code; and if the Beneficiary
elects to proceed in the manner permitted under Section 9501(4)(a)(ii) of the
California Uniform Commercial Code, the power of sale herein granted shall be
exercisable with respect to all or any of the real property and fixtures
covered hereby, as designated by Beneficiary, and the Trustee is hereby
authorized and empowered to conduct any such sale of any real property and
fixtures in accordance with the procedures applicable to real property. Where
the Trust Property consists of real property and personal property, any
reinstatement of the Debt, following the occurrence of a Credit Agreement
Event of Default under the Partnership Credit Agreement or a Guarantee Event
of Default under the Partnership Guarantee and an election by the Beneficiary
to accelerate the maturity of the Debt, which is made by Trustor or any other
person or entity permitted to exercise the right of reinstatement under
Section 2924c of the California Civil Code or any successor statute, shall, in
accordance with the terms of California Uniform Commercial Code Section
9501(4)(c)(iii), not prohibit the Beneficiary from conducting a sale or other
disposition of any personal property or fixtures or from otherwise proceeding
against or continuing to proceed against any personal property or fixtures in
any manner permitted by the California Uniform Commercial Code; nor shall any
such reinstatement invalidate, rescind or otherwise affect any sale,
disposition or other proceeding held, conducted or instituted with respect to
any personal property or fixtures prior to such reinstatement. Any sums paid
to Beneficiary, Funding Corporation or the Secured Parties in effecting any
reinstatement pursuant to Section 2924c of the California Civil Code shall be
applied to the Debt and to Beneficiary's, Funding Corporation's, the Secured
Parties' and Trustee's reasonable costs and expenses in the manner required by
Section 2924c. Should Beneficiary elect to sell any of the Trust Property
which is real property or which is personal property or fixtures that
Beneficiary has elected under Section 9501(4)(a)(ii) of the California Uniform
Commercial Code to sell together with real property in accordance with the
laws governing a sale of real property, such notice of default and election to
sell shall be given as may then be required by law. Thereafter, upon the
expiration of such time and the giving of such notice of sale as may then be
required by law, at the time and place specified in the notice of sale,
Trustee shall sell such property, or any portion thereof specified by
Beneficiary, at public auction to the highest bidder for cash in lawful money
of the United States. Trustee may, and upon request of Beneficiary shall, from
time to time, postpone the sale by public announcement thereof at the time and
place noticed therefor. If the Trust Property consists of several lots,
parcels or interests, Beneficiary may designate the order in which the same
shall be offered for sale or sold. Should Beneficiary desire that more than
one such sale or other disposition be conducted, Beneficiary may, at its
option, cause the same to be conducted simultaneously, or successively on the
same day, or at such different days or times and in such order as Beneficiary
may deem to be in its best interest. Any person, including Trustor, Trustee,
Beneficiary, Funding Corporation or any of the Secured Parties, may purchase
at the sale. In the event Beneficiary elects to dispose of the Trust Property
through more than one sale, Trustor agrees to pay the costs and expenses of
each such sale and of any judicial proceedings wherein the same may be made,
including reasonable compensation to Trustee and Beneficiary, their agents and
counsel, and to pay all expenses, liabilities and advances made or incurred by
Trustee in connection with such sale or sales, together with interest on all
such advances made by Trustee at the interest rate then applicable to the
indebtedness evidenced by the Partnership Credit Agreement. Upon any sale
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Trustee shall execute and deliver to the purchaser or purchasers a deed or
deeds conveying the property so sold but without any covenant or warranty
whatsoever express or implied whereupon such purchaser or purchasers shall be
let into immediate possession, and the recitals in any such deed or deeds of
facts such as default, the giving of notice of default and notice of sale, and
other facts affecting the regularity or validity of such sale or disposition,
shall be conclusive proof of the truth of such facts and any such deed or
deeds shall be conclusive against all persons as to such facts recited
therein.
(e) Exercise each of its other rights and remedies
under this Deed of Trust and the Financing Documents, including, any or all of
the following:
(i) declare the Debt, with all interest thereon and
all other sums secured hereby, to be immediately due and payable, and
if the same is not paid on demand, at Beneficiary's option, bring
suit therefor and demand payment thereof and if the same is not paid
on demand, bring suit for any delinquent installment payment under
the Financing Documents and take any and all steps and institute any
and all other proceedings that Beneficiary deems necessary to enforce
the indebtedness and obligations secured hereby and to protect the
lien of this Deed of Trust;
(ii) without assuming liability for the performance
of any of Trustor's obligations hereunder or under the Partnership
Project Documents, enter and take possession of the Trust Property or
any part thereof, exclude Trustor and all persons claiming under
Trustor whose claims are junior to this Deed of Trust, wholly or
partly therefrom, and use, operate, manage and control the same
either in the name of Trustor or otherwise as Beneficiary shall deem
best, and upon such entry, from time to time at the expense of
Trustor and the Trust Property, make all such repairs, replacements,
alterations, additions or improvements to the Trust Property or any
part thereof as Beneficiary may deem proper and, whether or not
Beneficiary has so entered and taken possession of the Trust Property
or any part thereof, collect and receive all the Rents and apply the
same, to the extent permitted by law, to the payment of all expenses
which Beneficiary may be authorized to make under this Deed of Trust,
the remainder to be applied to the payment of the Debt until the same
shall have been repaid in full; if Beneficiary demands or attempts to
take possession of the Trust Property or any portion thereof in the
proper exercise of any rights hereunder, Trustor shall promptly turn
over and deliver complete possession thereto to Beneficiary; and
(iii) personally or by agents, with or without
entry, if Beneficiary shall deem it advisable, proceed to protect and
enforce its rights under this Deed of Trust, by suit for specific
performance of any covenant contained herein or in the Financing
Documents or in aid of the execution of any power granted herein or
in the Financing Documents, or for the foreclosure of this Deed of
Trust and the sale for cash of the Trust Property under the judgment
or decree of a court of competent jurisdiction, or for the exercise
of the power of sale granted under this Deed of Trust or for the
enforcement of any other right as Beneficiary shall deem most
effectual for such purpose; provided that in the event of a sale, by
foreclosure or otherwise, of less than
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all of the Trust Property, this Deed of Trust shall continue as a
lien on, and security interest in, the remaining portion of the Trust
Property and Beneficiary shall not be obligated to sell upon credit
unless Beneficiary shall have expressly consented in writing to a
sale upon credit.
(f) Except as otherwise required by law, apply the
proceeds of any foreclosure or disposition in the manner set forth in the
Intercreditor Agreement.
(g) Upon any sale or sales made under or by virtue
of this section, whether made under the power of sale or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Beneficiary or
any of the Secured Parties may bid for and acquire the Trust Property or any
part thereof. In lieu of paying cash for the Trust Property, Beneficiary
and/or any of the Secured Parties may make settlement for the purchase price
by crediting against the Debt the sales price of the Trust Property, as
adjusted for the expenses of sale and the costs of the action and any other
sums for which Trustor is obligated to reimburse Trustee or Beneficiary and
the Secured Parties under this Deed of Trust.
16. Concerning the Trustee. Trustee shall be under
no duty to take any action hereunder except as expressly required hereunder or
by law, or to perform any act which would involve Trustee in any expense or
liability or to institute or defend any suit in respect hereof, unless
properly indemnified to Trustee's reasonable satisfaction. Trustee, by
acceptance of this Deed of Trust, covenants to perform and fulfill the trusts
herein created, being liable, however, only for willful negligence or
misconduct, and hereby waives any statutory fee and agrees to accept
reasonable compensation, in lieu thereof, for any services rendered by Trustee
in accordance with the terms hereof. Trustee may resign at any time upon
giving thirty (30) days' notice to Trustor and to Beneficiary. Beneficiary may
remove Trustee at any time or from time to time and select a successor
trustee. In the event of the death, removal, resignation, refusal to act, or
inability to act of Trustee, or in its sole discretion for any reason
whatsoever Beneficiary may, without notice and without specifying any reason
therefor and without applying to any court, select and appoint a successor
trustee, by an instrument recorded wherever this Deed of Trust is recorded and
all powers, rights, duties and authority of Trustee, as aforesaid, shall
thereupon become vested in such successor. Such substitute trustee shall not
be required to give bond for the faithful performance of the duties of Trustee
hereunder unless required by Beneficiary.
17. Trustee's Fees. Trustor shall pay all costs,
fees and expenses incurred by Trustee and Trustee's agents and counsel in
connection with the performance by Trustee of Trustee's duties hereunder and
all such costs, fees and expenses shall be secured by this Deed of Trust.
18. Proceeds of Sale.
(a) The proceeds or avails of any foreclosure sale
or other remedy exercised pursuant to Section 14, above, entitled "Power of
Sale" together with all other sums which then may be held by Beneficiary under
this Deed of Trust, or under a judgment, order or
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decree made in any action to foreclose or to enforce this Deed of Trust
whether under the provisions of this Deed of Trust, or otherwise, shall be
distributed according to the terms of the Intercreditor Agreement.
(b) Subject to the provisions of Section 44 of this
Deed of Trust, no sale or other disposition of all or any part of the Trust
Property shall be deemed to relieve Trustor of its obligations under this Deed
of Trust or the Financing Documents except and only to the extent the proceeds
are applied to the payment of the Debt or such other obligations. If the
proceeds of sale, collection or other realization of or upon the Trust
Property are insufficient to cover the costs and expenses of such realization
and the payment in full of the Debt, Trustor shall remain liable for any
deficiency.
19. Trustor as Tenant Holding Over. In the event of
any such foreclosure or other sale by Beneficiary and/or the Secured Parties,
Trustor shall be deemed a tenant holding over and shall forthwith deliver
possession to the purchaser or purchasers at such sale or be summarily
dispossessed according to provisions of law applicable to tenants holding
over.
20. Leases. Beneficiary is authorized to
subordinate this Deed of Trust to any Leases and to foreclose this Deed of
Trust subject to the rights of any tenants of the Trust Property, if any, and
the failure to so subordinate or to make any such tenants' parties to any such
foreclosure or other proceedings and to foreclose their rights will not be,
nor be asserted to be by Trustor, a defense to any proceedings instituted by
Beneficiary to collect the Debt.
21. Discontinuance of Proceedings. In case
Beneficiary, Funding Corporation or the Secured Parties shall have proceeded
to enforce any right, power or remedy under this Deed of Trust by foreclosure,
sale, entry or otherwise, and such proceeding shall have been withdrawn,
discontinued or abandoned for any reason, or shall have been determined
adverse to Beneficiary, Funding Corporation or the Secured Parties, then in
every such case, to the fullest extent permitted by law, (a) Trustor and
Beneficiary, Funding Corporation or the Secured Parties shall be restored to
their former positions and rights, (b) all rights, powers and remedies of
Beneficiary, Funding Corporation and the Secured Parties shall continue as if
no such proceeding had been taken, (c) each and every Credit Agreement Event
of Default under the Partnership Credit Agreement and each and every Guarantee
Event of Default under the Partnership Guarantee declared or occurring prior
or subsequent to such withdrawal, discontinuance or abandonment shall be or
shall be deemed to be an independent event of default and (d) neither the
Debt, this Deed of Trust nor any of the Financing Documents shall be or shall
be deemed to have been not reinstated or otherwise affected by such
withdrawal, discontinuance or abandonment; and to the fullest extent permitted
by law, Trustor hereby expressly waives the benefit of any statute or rule of
law now provided or which may hereafter conflict with the above.
22. No Reinstatement. If a Credit Agreement Event
of Default under the Partnership Credit Agreement or a Guarantee Event of
Default under the Partnership Guarantee shall have occurred and be continuing
Beneficiary, Funding Corporation or the Secured Parties shall have proceeded
to enforce any right, power or remedy permitted
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hereunder, then a tender of payment by Trustor or by anyone on behalf of
Trustor of any amount less than the amount necessary to satisfy the Debt in
full, or the acceptance by Beneficiary, Funding Corporation or the Secured
Parties of any such payment so tendered, shall not constitute a reinstatement
of this Deed of Trust, the Financing Documents or any other document
evidencing, securing or guaranteeing the Debt.
23. Trustor's Waiver of Rights. To the fullest
extent permitted by law, Trustor waives the benefit of all laws now existing
or that hereafter may be enacted providing for (i) any appraisal before sale
of any portion of the Trust Property and (ii) the benefit of all laws that may
be hereafter enacted in any way extending the time for the enforcement of the
collection of the Debt, or creating or extending a period of redemption from
any sale made in collecting said Debt. To the fullest extent that Trustor may
do so, Trustor agrees that Trustor will not at any time insist upon, plead,
claim or take the benefit or advantage of any law now or hereafter in force
providing for any appraisal, valuation, stay, extension or redemption, or any
so-called "Moratorium Laws" and Trustor, for Trustor and its successors and
assigns, and for any and all persons ever claiming any interest in the Trust
Property, to the fullest extent permitted by law, hereby waives and releases
all rights of redemption, valuation, appraisal, stay of execution, notice of
election to mature or declare due the whole of the Debt and marshaling in the
event of the exercise of the power of sale granted under this Deed of Trust or
foreclosure of the liens hereby created. If any law referred to in this
Section and now in force, of which Trustor, Trustor's successors and assigns
or any other person might take advantage despite this Section, shall hereafter
be repealed or cease to be in force, such law shall not thereafter be deemed
to preclude the application of this Section.
24. Liability. If Trustor consists of more than one
person, the obligations and liabilities of each such person hereunder shall be
joint and several.
25. Security Agreement. (a) Trustor maintains
places of business in the State of California and Trustor will immediately
notify Beneficiary in writing of any change in such places of business.
(a) At the request of Beneficiary, Trustor shall
join Beneficiary in executing one or more financing statements and
continuations and amendments thereof pursuant to the UCC in form reasonably
satisfactory to Beneficiary; and Trustor will pay the cost of filing the same
in all public offices wherever filing is deemed by Beneficiary to be
necessary. In the event Trustor fails to execute such documents within five
(5) business days after request by Beneficiary, Trustor hereby authorizes
Beneficiary to file such financing statements and irrevocably constitutes and
appoints Beneficiary, or any officer of Beneficiary, as its true and lawful
attorney-in-fact to execute the same on behalf of Trustor.
(b) This Deed of Trust constitutes a financing
statement filed as a fixture filing under UCC ss. 9402(6) in the official
records of Imperial County with respect to any and all fixtures included
within the term "Trust Property" and with respect to any goods or other
personal property that may now be or hereafter become such a fixture.
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(c) Beneficiary has no responsibility for and does
not assume any of, Trustor's obligations or duties under any agreement or
obligation which is part of the Equipment or any obligation relating to the
acquisition, preparation, custody, use, enforcement or operation of any of the
Trust Property.
(d) Trustor and Beneficiary agree that the filing
of a financing statement in the records normally having to do with personal
property shall never be construed as in any way derogating from or impairing
this Deed of Trust and the intention of the parties that everything used in
connection with the production of income from the Trust Property or adapted
for use therein or which is described or reflected in this Deed of Trust is,
and at all times and for all purposes and in all proceedings both legal or
equitable shall be regarded as part of the real estate subject to the lien
hereof, irrespective of whether (i) any such item is physically attached to
improvements located on such real property or (ii) any such item is referred
to or reflected in any financing statement so filed at any time. Similarly,
the mention in any such financing statement of (A) the rights in or to the
proceeds of any fire hazard insurance policy or (B) any award in eminent
domain proceedings for taking or for loss of value or for cause of action or
proceeds thereof in connection with any damage or injury to the Trust Property
or any part thereof shall never be construed as in any way altering any of the
rights of Beneficiary, Funding Corporation and the Secured Parties as
determined by this instrument or impugning the priority of Beneficiary's,
Funding Corporation's and the Secured Parties' lien granted hereby or by any
other recorded document, but such mention in such financing statement is
declared to be for the protection of Beneficiary, Funding Corporation and the
Secured Parties in the event any court shall at any time hold with respect to
matters (A) and (B) above that notice of Beneficiary's, Funding Corporation's
and the Secured Parties' priority of interest, to be effective against a
particular class of persons, including, without limitation, the Federal
government and any subdivision or entity of the Federal government must be
filed in the personal property records or other commercial code records.
26. Further Acts, etc. Trustor will, at the cost of
Trustor, and without expense to Beneficiary, Funding Corporation or the
Secured Parties, execute, acknowledge and deliver all and every such further
acts, deeds, conveyances, financing statements, mortgages, deeds of trust,
assignments, notices of assignments, transfers and assurances as Beneficiary
shall, from time to time, reasonably require, for the better assuring,
conveying, assigning, transferring and confirming unto Beneficiary, the
property and rights hereby conveyed or assigned or intended now or hereafter
so to be, or which Trustor may be or may hereafter become bound to convey or
assign to Beneficiary, or for carrying out the intention or facilitating the
performance of the terms of this Deed of Trust or for filing, registering or
recording this Deed of Trust and, on demand, will execute and deliver and
hereby authorizes Beneficiary to execute in the name of Trustor to the extent
they may lawfully do so, one or more financing statements, chattel mortgages
or comparable security instruments, to evidence and perfect more effectively
the lien hereof upon the Trust Property.
27. Headings, etc. The headings, titles and
captions of various Sections of this Deed of Trust are for convenience of
reference only and are not to be construed as defining or limiting, in any
way, the scope or intent of the provisions hereof.
15
<PAGE>
28. Filing of Deed of Trust, etc. Trustor forthwith
upon the execution and delivery of this Deed of Trust and thereafter, from
time to time, will cause this Deed of Trust, and any security instrument
creating a lien or evidencing or perfecting the lien hereof upon the Trust
Property and each instrument of further assurance to be filed, registered or
recorded in such manner and in such places as may be required by any present
or future law in order to publish notice of and fully to protect, preserve and
perfect the lien hereof upon, and the interest of Beneficiary, Funding
Corporation and the Secured Parties in the Trust Property. Trustor will pay
all filing, registration or recording fees, and all expenses incurred by the
Beneficiary, Funding Corporation or Secured Parties incident to the
preparation, execution and acknowledgment of this Deed of Trust, any deed of
trust or any mortgage or deed of trust supplemental hereto, any security
instrument with respect to the Trust Property and any instrument of further
assurance, and all Federal, state, county and municipal taxes, duties,
imposts, assessments and charges arising out of or in connection with the
execution and delivery of this Deed of Trust, any mortgage or deed of trust
supplemental hereto, any security instrument with respect to the Trust
Property or any financing statement, continuation statement or other
instrument of further assurance. Trustor shall hold harmless and indemnify
Beneficiary, Funding Corporation and the Secured Parties, their successors and
assigns, against any liability incurred by reason of the imposition of any tax
on the making and recording of this Deed of Trust.
29. Usury Laws. This Deed of Trust and the
Financing Documents are subject to the express condition that at no time shall
Trustor be obligated or required to pay interest on the principal balance due
under the Financing Documents at a rate which could subject the creditor of
the debt evidenced by such instruments to either civil or criminal liability
as a result of being in excess of the maximum interest rate which Trustor is
permitted by law to contract or agree to pay. If by the terms of this Deed of
Trust or the Financing Documents Trustor is at any time required or obligated
to pay interest on the principal balance due under any of the Financing
Documents at a rate in excess of such maximum rate, the rate of interest under
such Financing Document shall be deemed to be immediately reduced to such
maximum rate and the interest payable shall be computed at such maximum rate.
30. Recovery of Sums Required to Be Paid.
Beneficiary, Funding Corporation and the Secured Parties shall have the right
pursuant to the Financing Documents from time to time to take action to
recover any sum or sums which constitute a part of the Debt as the same become
due, without regard to whether or not the balance of the Debt shall be due,
and without prejudice to the right of Beneficiary, Funding Corporation or the
Secured Parties thereafter to bring an action of foreclosure, or any other
action, for a default or defaults by Trustor existing at the time such earlier
action was commenced.
31. Authority. Trustor (and the undersigned acting
on behalf of Trustor) has full power, authority and legal right to execute
this Deed of Trust and to mortgage, give, grant, bargain, sell, release,
pledge, convey, confirm and assign the Trust Property pursuant to the terms
hereof and to keep and observe all of the terms of this Deed of Trust on
Trustor's part to be performed.
16
<PAGE>
32. Inapplicable Provisions. If any term, covenant
or condition of this Deed of Trust shall be held to be invalid, illegal or
unenforceable in any respect, this Deed of Trust shall be construed to recast
such term, covenant or condition in a manner which will allow such term,
covenant or condition to be valid provided any recasting shall be in
accordance with the original intention of the parties. When recasting any
term, covenant or condition, if it is not possible to reflect the original
intention of the parties, this Deed of Trust shall be construed without such
provision.
33. Duplicate Originals. This Deed of Trust may be
executed in any number of duplicate originals and each such duplicate original
shall be deemed to constitute but one and the same instrument.
34. Waiver of Notice. Trustor shall not be entitled
to any notices of any nature whatsoever from Beneficiary, Funding Corporation
or the Secured Parties except with respect to matters for which this Deed of
Trust, the Financing Documents or applicable law specifically and expressly
provides for the giving of notice to Trustor, and to the fullest extent
permitted by law Trustor hereby expressly waives the right to receive any
notice from Beneficiary, Funding Corporation or the Secured Parties with
respect to any matter for which this Deed of Trust, the Financing Documents or
applicable law does not specifically and expressly provide for the giving of
notice to Trustor.
35. No Oral Change. This Deed of Trust may only be
modified, amended or changed by an agreement in writing signed by Trustor and
Beneficiary, and may only be released, discharged or satisfied of record by an
instrument in writing signed by Beneficiary. Funding Corporation and the
Secured Parties shall join in any such agreement, release, discharge or
satisfaction if required for such agreement to be effective under applicable
law. No waiver of any term, covenant or provision of this Deed of Trust shall
be effective unless given in writing by Beneficiary and if so given by
Beneficiary shall only be effective in the specific instance in which given.
Trustor acknowledges that this Deed of Trust and the Financing Documents set
forth the entire agreement and understanding of Trustor and Beneficiary with
respect to the matters set forth therein and that no oral or other agreements,
understanding, representations or warranties exist with respect to those
matters other than those set forth in this Deed of Trust and the Financing
Documents.
36. Absolute and Unconditional Obligation. Trustor
acknowledges that Trustor's obligation to pay the Debt in accordance with the
provision of this Deed of Trust and the Financing Documents is and shall at
all times continue to be absolute and unconditional in all respects, and shall
at all times be valid and enforceable irrespective of any other agreements or
circumstances of any nature whatsoever (other than any express written
agreements to the contrary by Funding Corporation and the Secured Parties)
which might otherwise constitute a defense to this Deed of Trust or the
Financing Documents or the obligations of Trustor thereunder to pay the Debt
or the obligations of any other person relating to this Deed of Trust or the
Financing Documents or the obligations of Trustor under this Deed of Trust or
the Financing Documents and to the fullest extent permitted by law
17
<PAGE>
Trustor absolutely, unconditionally and irrevocably waives any and all right
to assert any defense, setoff, counterclaim or crossclaim of any nature
whatsoever with respect to the obligation of Trustor to pay the Debt in
accordance with the provisions of this Deed of Trust or the Financing
Documents or the obligations of any other person relating to this Deed of
Trust or the Financing Documents or the obligations of Trustor under this Deed
of Trust or the Financing Documents, or in any action or proceeding brought by
Beneficiary to collect the Debt, or any portion thereof, or to enforce,
foreclose and realize upon the lien and security interest created by this Deed
of Trust or any other document or instrument securing repayment of the Debt,
in whole or in part.
37. Indemnification.
(a) Trustor shall indemnify and hold harmless
Beneficiary, Funding Corporation and the Secured Parties from and against all
loss, cost, liability, other expense in the manner and to the extent required
under the Financing Documents.
(b) All sums secured by this Deed of Trust shall be
paid in accordance with the Financing Documents, as applicable, without
counterclaim, setoff, deduction or defense and without abatement, suspension,
deferment, diminution or reduction, and the obligations and liabilities of
Trustor hereunder shall in no way be released, discharged or otherwise
affected (except as expressly provided herein) by reason of (i) any claim
which Trustor has or might have against Funding Corporation, any of the
Secured Parties or Beneficiary or (ii) any default or failure on the part of
Funding Corporation, any of the Secured Parties or Beneficiary to perform or
comply with any of the terms hereof, of the Partnership Credit Agreement or of
any other Financing Document.
38. Action Affecting the Trust Property.
(a) Trustor agrees to appear in and contest any
action or proceeding purporting to adversely affect the security hereof or the
rights or powers of Funding Corporation, the Secured Parties or Beneficiary
and to pay all costs and expenses of Funding Corporation, the Secured Parties
and Beneficiary, including cost of evidence of title and attorneys' fees and
expenses, in any such action or proceeding in which Funding Corporation, the
Secured Parties or Beneficiary may appear.
(b) Beneficiary shall have the right to appear in
and defend any action or proceeding brought with respect to the Trust Property
and to bring any action or proceeding, in the name and on behalf of Trustor,
Beneficiary, Funding Corporation or the Secured Parties, which Beneficiary
determines to be necessary or reasonably advisable to be brought to protect
its, Funding Corporation's or the Secured Parties' interest in the Trust
Property if (i) Trustor fails to defend or bring such action or proceeding, as
appropriate, in a prompt and diligent manner, or thereafter fails to proceed
with diligence in the defense or prosecution of the same, or (ii) a Credit
Agreement Event of Default under the Partnership Credit Agreement or a
Guarantee Event of Default under the Partnership Guarantee shall have occurred
and be continuing.
18
<PAGE>
39. Actions by Beneficiary to Preserve the Trust
Property. Except as hereinbefore expressly provided, should Trustor fail to
make any payment or do any act as and in the manner provided in any of the
Financing Documents after the expiration of any applicable cure or grace
period and as a result a Credit Agreement Event of Default under the
Partnership Credit Agreement or a Guarantee Event of Default under the
Partnership Guarantee shall occur and be continuing, Beneficiary for the
benefit of Funding Corporation and the Secured Parties, without obligation so
to do and without notice to or demand upon Trustor and without releasing
Trustor from any obligation, may make or do the same in such manner and to
such extent as Beneficiary may deem necessary to protect the security hereof.
In connection therewith (without limiting any general powers of Beneficiary,
Funding Corporation or the Secured Parties), Beneficiary, for the benefit of
Funding Corporation and the Secured Parties, shall have and is hereby given
the right, but not the obligation, (i) to the fullest extent permitted by law,
to make additions, alterations, repairs and improvements to the Trust Property
which it may consider necessary to keep the Trust Property in good condition
and repair and (ii) in exercising such powers, to pay necessary expenses,
including engagement of counsel or other necessary or desirable consultants.
Trustor shall, immediately upon demand therefor by Beneficiary, pay all costs
and expenses incurred by Funding Corporation, the Secured Parties or
Beneficiary in connection with the exercise by Beneficiary of the foregoing
rights, including without limitation, costs of evidence of title, court costs,
appraisals, surveys and attorneys' fees and expenses.
40. Remedies Not Exclusive. Subject to the
limitations set forth in Section 44 of this Deed of Trust, Beneficiary,
Funding Corporation and the Secured Parties, and each of them, shall be
entitled to enforce payment and performance of any indebtedness or obligations
secured hereby and to exercise all rights and powers granted under this Deed
of Trust or under the Financing Documents or any other agreement or any laws
now or hereafter in force, notwithstanding some or all of the said
indebtedness and obligations secured hereby may now or hereafter be otherwise
secured, whether by mortgage, deed of trust, pledge, lien, assignment or
otherwise. Subject to the limitations set forth in Section 44 of this Deed of
Trust, neither the acceptance of this Deed of Trust nor its enforcement,
whether by court action or pursuant to the power of sale or other powers
herein contained, shall prejudice or in any manner affect Beneficiary's,
Funding Corporation's or the Secured Parties' right to realize upon or enforce
any other security now or hereafter held by Beneficiary, Funding Corporation
or the Secured Parties, it being agreed that Beneficiary, on behalf of Funding
Corporation and the Secured Parties collectively and individually, shall be
entitled to enforce this Deed of Trust and any other security now or hereafter
held by Beneficiary, Funding Corporation or the Secured Parties in such order
and manner as they, collectively and individually, may in their absolute
discretion determine. No remedy herein conferred upon or reserved to
Beneficiary, Funding Corporation or the Secured Parties is intended to be
exclusive of any other remedy herein or by law provided or permitted, but each
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute.
Every right, power or remedy given by any of the Financing Documents to
Beneficiary, Funding Corporation or the Secured Parties, or to which either of
them may be otherwise entitled, may be exercised, concurrently or
independently, from time to time and as
19
<PAGE>
often as may be deemed expedient by Beneficiary, Funding Corporation or the
Secured Parties. Every right, power or remedy given by this Deed of Trust to
Funding Corporation and the Secured Parties may be exercised on their behalf
by Beneficiary, whether so expressed or not. Notwithstanding any other
provision of this Deed of Trust, the rights and remedies of Beneficiary, the
Funding Corporation and the Secured Parties shall be subject to the provisions
of the Intercreditor Agreement.
41. Relationship. The relationship of Beneficiary,
Funding Corporation and the Secured Parties to Trustor hereunder is strictly
and solely that of lender and borrower, and nothing contained in this Deed of
Trust or the Financing Documents is intended to create, or shall in any event
or under any circumstance be construed as creating, a partnership, joint
venture, tenancy-in-common, joint tenancy or other relationship of any nature
whatsoever between or among Beneficiary, Funding Corporation and the Secured
Parties and Trustor other than as lender and borrower.
42. Financing Documents. This Deed of Trust is
subject to all of the terms, covenants and conditions of the Financing
Documents, which Financing Documents and all of the terms, covenants and
conditions thereof are by this reference incorporated herein and made a part
hereof with the same force and effect as if set forth at length herein.
Trustor shall observe and perform all of the terms, covenants and conditions
of the Financing Documents on Trustor's part to be observed or performed. All
advances made and all indebtedness arising and accruing under the Financing
Documents from time to time shall be secured hereby.
43. Business Purpose. Trustor hereby stipulates and
warrants that the loans secured hereby are commercial or business loans and
are transacted solely for the purpose of carrying on or acquiring a business
or commercial enterprise or for a proper business purpose under the laws of
the jurisdiction in which the Trust Property is located.
44. Time of the Essence. TIME IS OF THE ESSENCE
with respect to each and every covenant, agreement and obligation of Trustor
under this Deed of Trust and the Financing Documents.
45. Non-Recourse. The obligations hereunder are
subject to the limitations set forth in Section 6.11 of the Partnership Credit
Agreement, the provisions of which are hereby incorporated by reference.
46. Severance of Counterclaims. In the event of
foreclosure of this Deed of Trust, any and all counterclaims filed by Trustor
against Beneficiary, Funding Corporation or the Secured Parties, to the extent
permitted by law, shall be severed by the court having jurisdiction over the
foreclosure action, for all purposes from the basic foreclosure action, on an
ex parte basis and without notice to Trustor. Trustor, by its execution and
delivery hereof, hereby expressly consents and agrees to such severance.
47. WAIVER OF JURY TRIAL. AS AN INDEPENDENT
COVENANT HEREOF, TRUSTOR HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY
20
<PAGE>
AND IRREVOCABLY WAIVES THE RIGHT IT MIGHT HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS DEED OF TRUST OR THE FINANCING DOCUMENTS, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY
PERSONS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BENEFICIARY TO ACCEPT
DELIVERY OF THIS DEED OF TRUST AND THE FINANCING DOCUMENTS.
48. GOVERNING LAW. THIS DEED OF TRUST IS GOVERNED
BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
49. Attorneys' Fees. Attorneys shall be entitled to
fees in connection with the enforcement, amendment, extension or modification
of this Deed of Trust.
50. Shared Draftsmanship. If any ambiguity in the
terms of this Deed of Trust, the doctrine of construction which holds that the
language of the document shall be construed against its drafter shall not
apply as all parties have shared in the drafting of this Deed of Trust.
51. No Third Party Beneficiary. This Deed of Trust,
the Partnership Credit Agreement and the other Financing Documents are for the
sole benefit of Beneficiary, Funding Corporation and each of the Secured
Parties, as applicable, and Trustor and are not for the benefit of any third
party and no third party shall gain any subrogation rights against Trustor or
in, to or with respect to any portion of the Trust Property by reason of this
Deed of Trust or the provisions hereof.
52. Security Only. This Deed of Trust is granted
for security purposes only. Accordingly, except as otherwise permitted by the
Partnership Credit Agreement or as otherwise specifically provided in this
Deed of Trust, neither Beneficiary, Funding Corporation nor the Secured
Parties, as applicable, shall enforce Trustor's rights with respect to the
Trust Property until such time as (a) an Credit Agreement Event of Default
under the Partnership Credit Agreement shall have occurred and be continuing
or (b) a Guarantee Event of Default under the Partnership Guarantee shall have
occurred and be continuing.
53. Release by Beneficiary. Upon written request of
Beneficiary stating that the Debt has been paid and upon surrender by
Beneficiary, Funding Corporation and the Secured Parties of this Deed of Trust
to Trustee for cancellation and retention and upon payment by Trustor of
Trustee's fees and the costs of executing and recording any requested
reconveyance, Trustee shall reconvey, without cost or expense to Beneficiary,
Funding Corporation and any of the Secured Parties, to Trustor or to the
person or persons legally entitled thereto, without warranty, any portion of
the Trust Property then held hereunder. The recitals in any such reconveyance
of any matter or fact shall be conclusive proof of the truthfulness thereof.
The grantee in any such reconveyance may be described as the person or persons
legally entitled thereto.
21
<PAGE>
54. Waiver. Trustor waives and releases any rights
or defenses which Trustor might otherwise have (i) under California Code of
Civil Procedure Sections 726, 725a, 580a, 580b, 580c and 580d and California
Civil Code Section 2889, which statutes might otherwise limit or condition
Beneficiary's, Funding Corporation's and/or the Secured Parties' exercise of
certain of Beneficiary's, Funding Corporation's and/or the Secured Parties'
rights and remedies in connection with the enforcement of obligations secured
by a lien on real property or (ii) under any laws now existing or hereafter
enacted providing for any appraisal before sale of a portion of the Trust
Property and (iii) to all rights of redemption, valuation, appraisal, stay of
execution, notice of election to mature or to declare due the Debt and
marshalling in the event of the foreclosure of the liens created under this
Deed of Trust or the exercise of the power of sale granted hereunder. To the
extent, if any, which such laws may be applicable, Trustor waives and releases
any right or defense which Trustor might otherwise have under such provisions
and under any other law of any applicable jurisdiction which might limit or
restrict the effectiveness or scope of any of Trustor's waivers or releases
hereunder.
55. Sole Discretion of Beneficiary or Trustee.
Except as otherwise provided in the Financing Documents, wherever pursuant to
this Deed of Trust, Beneficiary, Funding Corporation, the Secured Parties or
Trustee exercises any right given to them to approve or disapprove, or any
arrangement or term is to be satisfactory to Beneficiary, Funding Corporation,
the Secured Parties or Trustee, the decision of Beneficiary, Funding
Corporation, the Secured Parties or Trustee to approve or disapprove or to
decide that arrangements or terms are satisfactory or not satisfactory shall
be in the sole discretion of Beneficiary, Funding Corporation, the Secured
Parties or Trustee and shall be final and conclusive.
56. Partial Release. Upon receipt of written notice
from Magma to the effect that Magma has exercised the Purchase Option provided
in Section 3.4.2 of the Amendment To Agreements, (i) Trustor shall have the
right to sell and convey title to the Optioned Parcels (as that term is
defined in the Amendment to Agreements) to Magma as provided in such Section
3.4.2, and (ii) Beneficiary, acting on behalf of Funding Corporation and the
Secured Parties, shall promptly execute and deliver, in recordable form, such
documents and instruments as may reasonably be necessary or appropriate to
fully release said Optioned Parcels from the Security Documents.
22
<PAGE>
IN WITNESS WHEREOF, Trustor has duly executed this
Deed of Trust the day and year first above written.
VULCAN/BN GEOTHERMAL POWER COMPANY,
a Nevada general partnership
By: Vulcan Power Company,
a Nevada corporation,
its general partner
By: /s/ John G. Sylvia
------------------------------
Name: John G. Sylvia
----------------------------
Title: Senior Vice President
---------------------------
VULCAN POWER COMPANY,
a Nevada corporation
By: /s/ John G. Sylvia
-----------------------------------
Name: John G. Sylvia
---------------------------------
Title: Senior Vice President
--------------------------------
23
<PAGE>
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
On June 20, 1996, before me, Patricia Peterson Notary Public,
personally appeared John G. Sylvia, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Patricia Peterson
- ----------------------------------
Notary/Public
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
On June 20, 1996, before me, Patricia Peterson Notary Public,
personally appeared John G. Sylvia, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Patricia Peterson
- ----------------------------------
Notary/Public
[Signature Page to Deed of Trust, Assignment of Rents]
24
<PAGE>
EXHIBIT A
Description of the Resource Easement Area Premises
Parcel 1:
The Southeast Quarter of the Southeast Quarter of Section 32,
Township 11 South, Range 13 East, San Bernardino Meridian, in the
County of Imperial, State of California, according to Official Plat
thereof.
Parcel 2:
Parcel A:
The Southwest Quarter of Section 33, Township 11 South, Range 13
East, San Bernardino Meridian, in the County of Imperial, State of
California, according to Official Plat thereof.
Parcel B:
The West Half of the Southeast Quarter of Section 33, Township 11
South, Range 13 East, San Bernardino Meridian, in the County of
Imperial, State of California, according to Official Plat thereof,
excepting therefrom the following portion thereof:
Beginning at the Southwest Corner of Parcel 1 as shown in
Book 5 Page 74 of Parcel Maps, said Point being on the South
Line of said Section 33; thence North 0(Degree)00'12" West
662.00 feet along the West Line of Parcels 1 and 2 of said
Map; thence West 382.00 feet parallel to the South Line of
said Section, thence South 0(Degree)00'12" East 662.00 feet
parallel to the West Line of Parcel 1 to a Point in the
South Line of said Section, thence East 382.00 feet along
the South Line of said Section to the True Point of
Beginning.
Parcel C:
All minerals, whether in solid or liquid form, geothermal steam and
thermal energy within that portion of the West Half of the Southeast
Quarter of Section 33, Township 11 South, Range 13 East, San
Bernardino Meridian, in the County of Imperial, State of California,
according to Official Plat thereof, described as follows:
Beginning at the Southwest Corner of Parcel 1 as shown in
Book 5 Page 74 of Parcel Maps, said Point being on the South
Line of said Section 33; thence North 0(Degree)00'12" West
662.00 feet along the West Line of Parcels 1 and 2 of said
Map; thence West 382.00 feet parallel to the South Line of
said Section, thence South 0(Degree)00'12" East 662.00 feet
parallel to the West Line of Parcel 1 to a Point in the
South Line of said Section, thence East 382.00 feet along
the South Line of said Section to the True Point of
Beginning.
<PAGE>
Parcel 3:
Lots 3 and 4 and the South One-Half of the Northeast Quarter of
Section 4, Township 12 South, Range 13 East, San Bernardino Meridian,
in the County of Imperial, State of California, according to Official
Plat thereof.
Parcel 4:
Parcel A:
That Portion of the Northeast Quarter of Section 33, in Township 11
South, Range 13 East, San Bernardino Meridian, in the County of
Imperial, State of California, according to Official Plat thereof,
described as follows:
Beginning at the Northeast Corner of said Section 33; thence
South 00(Degree)03' East, 2,640 feet to the East Quarter
Corner of said Section 33; thence with the East-West Center
Line of said Section, South 89(Degree)53' West, 2,489.12
feet to a Point from which a one-inch iron pipe bears North
00(Degree)10' West 37.48 feet distant; thence passing within
the said Northeast Quarter North 00(Degree)10' West 1,319.78
feet to a 1-1/2 inch iron pipe on the North line of the
One-Half Northeast Quarter; thence with said North Line East
3.0 feet to a 1-1/2 inch iron pipe; thence North
00(Degree)10' West 1,319.78 feet to a point on the North
Line of said Section 33; thence with said North Line North
89(Degree)53' East 2,491.39 feet to the Place of Beginning.
Parcel B:
Beginning at the Quarter Corner on the North Line of said Section 33;
thence with said North Line North 89(Degree)53' East 116.43 feet to a
Point; thence passing within the said Northeast Quarter South
00(Degree)10' East, 2,639.55 feet to a point on the East-West Center
Line of said Section; thence with said East-West Center Line South
89(Degree)53' West 121.29 feet to the Center Quarter Corner of said
Section; thence with the North-South Center Line of said Section,
North 00(Degree)03' West 2,639.53 feet to the Place of Beginning.
Parcel 5:
Parcel A:
The Northeast Quarter of the Southeast Quarter of Section 33, in
Township 11 South, Range 13 East, San Bernardino Meridian, in the
County of Imperial, State of California, according to Official Plat
thereof.
Parcel B:
All minerals, whether in solid or liquid form, geothermal steam and
thermal energy lying below a depth of 500 feet below the surface of
the following land: The Southeast Quarter of the Southeast Quarter of
Section 33, in Township 11 South, Range 13 East,
EXHIBIT A TO DEED OF TRUST
(VULCAN)
Page 2 of 3
<PAGE>
San Bernardino Meridian, in the County of Imperial, State of
California, according to Official Plat thereof.
Parcel 6:
The North Half of the Northwest Quarter of Section 34, Township 11
South, Range 13 East, San Bernardino Meridian, County of Imperial,
State of California, according to Official Plat thereof.
Parcel 7:
The South Half of the Northwest Quarter of Section 34, Township 11
South, Range 13 East, San Bernardino Meridian, County of Imperial,
State of California, according to the Official Plat thereof.
Parcel 8:
The West Half of the Northeast Quarter of Section 34, Township 11
South, Range 13 East, San Bernardino Meridian, according to the
Official Plat thereof.
- ------------------------
Parcel 1/Severe; Parcel 2/Del Ranch; Parcel 3/Future Energy;
Parcel 4/Ruchti; Parcel 5/Woolsey; Parcel 6/McKelvey; Parcel 7/Wiest;
Parcel 8/J.F. Baretta.
EXHIBIT A TO DEED OF TRUST
(VULCAN)
Page 3 of 3
<PAGE>
EXHIBIT "B"
Description of the Leasehold Premises
Parcel 1:
That portion of the Southeast Quarter of the Southeast Quarter of
Section 33, Township 11 South, Range 13 East, San Bernardino
Meridian, County of Imperial, State of California, according to the
Official Plat thereof shown as Parcel 1 on Parcel Map M-1356, on file
in Book 5, Page 74 of Parcel Maps in the Office of the County
Recorder of Imperial County.
Excepting therefrom, minerals, either in solid or liquid form,
geothermal steam, naturally heated water, and thermal energy below a
depth of 500 feet from the surface of said land, as reserved by Roy
B. Woolsey and Louise J. Woolsey, in the Deed recorded October 30,
1974 in Book 1368 Page 960, Official Records, without, however, the
right to enter the area within 500 feet of the surface of the ground,
nor endanger or interfere with the operation, maintenance or repair
of the facilities located within or upon said land.
Parcel 2:
That portion of the West Half of the Southeast Quarter of Section 33,
in Township 11 South, Range 13 East, San Bernardino Meridian, in the
County of Imperial, State of California, according to Official Plat
thereof, described as follows:
Beginning at the Southwest Corner of Parcel 1 as shown in
Book 5 Page 74 of Parcel Maps, said Point being on the South
Line of said Section 33; thence North 0(Degree)00'12" West
662.00 feet along the West Line of Parcels 1 and 2 of said
Map; thence West 382.00 feet parallel to the South Line of
said Section, thence South 0(Degree)00'12" East 662.00 feet
parallel to the West Line of Parcel 1 to a Point in the
South Line of said Section, thence East 382.00 feet along
the South Line of said Section to the True Point of
Beginning.
Excepting therefrom, all oil, gas and other minerals, including
geothermal resources, lying below a depth of 500 feet below the
surface of said land.
EXHIBIT B TO DEED OF TRUST
(VULCAN)
Page 1 of 1
EXHIBIT 4.36
Recording Requested By and When
Recorded Return to:
Attention:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ELMORE, L.P.
(as Trustor)
to
CHICAGO TITLE COMPANY,
(as Trustee)
for the use and benefit of
CHEMICAL TRUST COMPANY OF CALIFORNIA,
for and on behalf
of Salton Sea Funding Corporation
and the Secured Parties
(as Beneficiary)
- -------------------------------------------------------------------------------
DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
- -------------------------------------------------------------------------------
Dated: As of June 20, 1996
Location: County of Imperial
State of California
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
THIS DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT
AND FIXTURE FILING (the "Deed of Trust") is made as of June 20, 1996, by
ELMORE, L.P., a California limited partnership ("Elmore"), whose address is
302 South 36th Street, Suite 400-C, Omaha, Nebraska 68131, as trustor
("Trustor"), to CHICAGO TITLE COMPANY, whose address is 925 B Street, San
Diego, California 92101, as trustee ("Trustee"), and in favor of CHEMICAL
TRUST COMPANY OF CALIFORNIA, a California corporation, whose address is 50
California Street, 10th Floor, San Francisco, California 94111, as beneficiary
("Beneficiary") acting in its capacity as collateral agent for and on behalf
of Salton Sea Funding Corporation, a Delaware corporation ("Funding
Corporation") and the Secured Parties (the "Secured Parties") under that
certain Collateral Agency and Intercreditor Agreement by and among
Beneficiary, Funding Corporation and the Guarantors and Secured Parties
thereto (the "Intercreditor Agreement") and that certain Trust Indenture dated
as of July 21, 1995, as the same may be amended, modified or supplemented,
including pursuant to that certain Supplemental Trust Indenture, dated as of
even date herewith, by and between Funding Corporation and Beneficiary, as
trustee (as so amended, modified or supplemented, the "Indenture"). This Deed
of Trust is entered into pursuant to that certain Amended and Restated Credit
Agreement (Partnership Guarantors) dated as of even date herewith by and
between Trustor and Funding Corporation (the "Partnership Credit Agreement"),
the Indenture and the other Financing Documents. Unless otherwise defined
herein, capitalized terms shall have the meanings set forth in Exhibit A to
the Indenture, which Exhibit A is hereby incorporated by this reference.
NOW, THEREFORE, in consideration of, and to secure the
payment and performance of the Debt (as hereinafter defined) which Debt may
increase, decrease and increase again from time to time, Trustor has given,
granted, bargained, sold, alienated, conveyed, confirmed and assigned, and by
these presents does give, grant, bargain, sell, alienate, convey, confirm and
assign unto Trustee, its successors and assigns, with general warranties of
title, in trust with power of sale and right of entry and possession forever,
for the benefit and security of Beneficiary as collateral agent for Funding
Corporation and the Secured Parties, all right title and interest of Trustor
in and to, the following property, rights and interests, whether now owned or
hereafter acquired (such property, rights and interests being hereinbefore and
hereinafter collectively referred to as the "Trust Property") :
(a) all of Trustor's right, title and interest in
that certain real property in the County of Imperial, State of
California, described in Exhibit A attached hereto and by this
reference incorporated herein (the "Resource Easement Area
Premises"), pursuant to that certain Easement Grant Deed and
Agreement Regarding Rights for Geothermal Development dated as of
March 14, 1988 between Magma Power Company, a Nevada corporation, as
grantor ("Magma"), and Trustor, as grantee (a Short Form of which was
recorded on March 14, 1988 in Book 1599, Page 1007 of the Official
Records of Imperial County, California (the "Official Records")), as
amended by that certain Clarification and Amendment dated as of June
17, 1996 between Magma and Trustor
(the "Clarification and Amendment"), which is being recorded in the
Official Records concurrently herewith (collectively, and as the same
may from time to time be further amended and be in effect in accordance
with the other Financing Documents, the "Easement Grant Deed"),
together with all renewals, extensions, supplements, amendments,
cancellations or terminations thereof and all credits, deposits,
options, privileges and rights thereunder;
(b) all of Trustor's right, title and interest in
that certain real property in the County of Imperial, State of
California, described in Exhibit B attached hereto and by this
reference incorporated herein (the "Ground Lease Premises") (the
Resource Easement Area Premises and the Ground Lease Premises being
hereinafter collectively referred to as the "Elmore Premises");
pursuant to that certain Ground Lease dated as of March 14, 1988
between Magma, as landlord, and Trustor, as tenant (a Memorandum of
which was recorded on March 14, 1988 in Book 1599, Page 1002 of
Official Records), as amended by the Clarification and Amendment
(collectively, and as the same may from time to time be further
amended and be in effect in accordance with the other Financing
Documents, the "Ground Lease"), together with all renewals,
extensions, supplements, amendments, cancellations or terminations
thereof and all credits, deposits, options, privileges and rights
thereunder;
(c) all buildings, improvements and fixtures now or
hereafter located on the Elmore Premises (hereinafter referred to as
the "Improvements");
(d) the Easement Grant Deed and the rights and
interests created thereunder together with all renewals, extensions,
supplements, amendments, cancellations or terminations thereof;
(e) the Ground Lease and the rights and interests
created thereunder together with all renewals, extensions, supplements,
amendments, cancellations or terminations thereof;
(f) all the estate, right, title, claim or demand
of any nature whatsoever of Trustor, either in law or in equity, in
possession or expectancy, in and to the Trust Property and in all
replacements, substitutes, renewals, betterments and extensions of
and all additions to any of the Improvements, or any part thereof;
(g) all easements (other than as created under and
pursuant to the Easement Grant Deed), rights-of-way, gores of land,
streets, ways, alleys, passages, sewer rights, waters, water courses,
water rights and powers, and all estates, rights, titles, interests,
privileges, liberties, tenements, hereditaments, revocable consents,
options, appendages and appurtenances of any nature whatsoever, in
any way belonging, relating or pertaining to the Trust Property
(including, without limitation, any and all development rights, air
rights, water rights or similar or comparable rights of any nature
whatsoever now or hereafter appurtenant to the Elmore Premises or now
or hereafter transferred to the Elmore Premises) together with all
renewals, extensions,
2
supplements or amendments thereof, and Trustor's interest in all land
lying in the bed of any street, road or avenue, opened or proposed, in
front of or adjoining the Elmore Premises to the center line thereof;
(h) all machinery, apparatus, equipment, fittings,
fixtures and other property of every kind and nature whatsoever owned
by Trustor, or in which Trustor has or shall have an interest, now or
hereafter located upon the Trust Property, or appurtenances thereto,
and usable in connection with the present or future operation and
occupancy of the Trust Property and all equipment, materials,
supplies, apparatus and other items now or hereafter attached to,
installed in or used (temporarily or permanently) of any nature
whatsoever, now or hereafter located upon the Trust Property and all
renewals, replacements and substitutions thereof and additions
thereto, including but not limited to any and all partitions, ducts,
shafts, pipes, radiators, conduits, wiring, floor coverings, awnings,
motors, engines, boilers, stokers, pumps, dynamos, transformers,
turbines, generators, fans, blowers, vents, switchboards, elevators,
mail or coal conveyors, escalators, compressors, furnaces, cleaning
equipment, call and sprinkler systems, fire extinguishing apparatus,
water and other tanks, heating, ventilating, plumbing, laundry,
incinerating, air conditioning and air cooling systems and water,
gas, telephone, telecommunications, telemetry, electric equipment,
wells, sumps, test holes, pipelines, separators, clarifiers,
crystallizers, headers, scrubbers, demisters, cooling towers,
turbines, generators, geothermal electric generating facilities,
buildings sheds, roads, transformers and transmission lines
(hereinafter collectively referred to as the "Equipment"), and the
right, title and interest of Trustor in and to any of the Equipment
which may be subject to any security agreements (as defined in the
Uniform Commercial Code of the State of California) superior in lien
to the lien of this Deed of Trust;
(i) all awards or payments, including interest
thereon, and the right to receive the same, which may be made with
respect to the Trust Property, whether from state fund sharing or
from the exercise of the right of eminent domain (including any
transfer made in lieu of the exercise of said right), changes of
grade of street or for any other injury to or decrease in the value
of the Trust Property now or hereafter located thereon, whether
direct or consequential, which said awards and payments are hereby
assigned, and Beneficiary is hereby authorized to collect and receive
the proceeds thereof and to give proper receipts and acquittances
therefor;
(j) all refunds or rebates of all taxes or charges
in lieu of taxes, assessments, water rates, sewer rents and other
charges, including vault charges and license or permit fees for the
use of vaults, chutes and similar areas on or adjoining the Premises,
now or hereafter levied or assessed against the Trust Property
(hereinafter referred to as the "Taxes");
(k) all leases (including oil, gas and other
mineral leases), subleases, franchises, licenses, concessions,
permits, contracts and other agreements affecting the use or
occupancy of the Trust Property now or hereafter entered into and any
renewals
3
or extensions thereof (hereinafter referred to as the "Leases") and the
right to receive and apply the rents, issues and profits of the Trust
Property to the extent of Trustor's interest therein, including but not
limited to the proceeds of all hydrocarbons or other minerals produced
from the Trust Property and all delay rentals and bonuses from any oil,
gas or other mineral lease (hereinafter referred to as the "Rents") to
the payment of the Debt;
(l) all inventory, accounts and general intangibles
owned by Trustor, or in which Trustor now has or hereafter shall have
any right, title or interest, now or hereafter located upon, arising
in connection with or concerning the Trust Property;
(m) all proceeds of and any unearned premiums on
any insurance policies covering the Trust Property, including,
without limitation, the right to receive the proceeds of any
insurance, judgments, or settlements made in lieu thereof, for damage
to the Trust Property;
(n) the right, in the name and on behalf of
Trustor, to appear in and defend any action or proceeding brought
with respect to the Trust Property and to commence any action or
proceeding to protect the interest of Beneficiary, Funding
Corporation and the Secured Parties in the Trust Property;
(o) all of Trustor's right, title and interest in
and to all plans and specifications prepared for construction of
Improvements or other development of the Trust Property (including
all amendments, modifications, supplements, general conditions and
addenda thereof or thereto) and all studies, data and drawings
related thereto, and all contracts and agreements of Trustor relating
to the aforesaid plans and specifications or to the aforesaid
studies, data and drawings or to the construction of Improvements on
the Trust Property;
(p) all contracts with property managers,
surveyors, real estate advisors and consultants, geothermal advisors
and consultants, geothermal engineers, real estate brokers, and other
like agents and professionals that relate to any part of the Trust
Property, including without limitation, any Improvements constructed
or to be constructed on the Trust Property, and all maps, reports,
surveys, and studies of or relating to any of the Trust Property,
owned by Trustor or in which Trustor has or shall have an interest
and now or hereafter in the possession of Trustor or any such agent
or professional;
(q) all present and future agreements, permits,
licenses and approvals, as well as all modifications, supplements,
extensions and renewals thereof, now existing or hereafter made, in
which Trustor has or shall have an interest relating to the use,
development and/or occupancy of the Resource Easement Area Premises,
the Ground Lease Premises and/or the Improvements;
4
(r) all products and proceeds of any of the Trust
Property herein described; and
(s) all bank accounts and trust accounts of
Trustor, including without limitation Trustor's accounts in the
Capital Improvements Fund and any other funds of Trustor on deposit
pursuant to the Indenture and the Depositary Agreement.
This Deed of Trust secures the following obligations which
shall heretofore and hereinafter collectively be referred to as the Debt:
(i) The payment of all indebtedness of Trustor evidenced
by the Financing Documents to which it is a party; and
(ii) The satisfaction and performance of all other debts,
obligations, covenants, agreements, and liabilities of Trustor to Trustee and
Beneficiary arising out of, connected with, or related to this Deed of Trust
or the Financing Documents and all amendments, extensions, and renewals of the
foregoing documents, whether now existing or hereafter arising, voluntary or
involuntary, absolute or contingent, liquidated or unliquidated, and whether
or not from time to time decreased or extinguished and later increased,
created, or incurred.
To protect the security of this Deed of Trust, Trustor
covenants with and represents and warrants to Trustee, Beneficiary, Funding
Corporation and the Secured Parties as follows:
2. Payment of Debt. Trustor will pay the Debt
at the time and in the manner provided for its payment in this Deed of Trust and
the Financing Documents, as applicable.
3. Warranty of Title. Subject only to
Permitted Liens, Trustor warrants its right, title or interest, as applicable,
to the Resource Easement Area Premises, the Ground Lease Premises, the
Improvements, the Equipment and the balance of the Trust Property and the
validity and priority of the lien of this Deed of Trust and the estate hereof
against the claims and demands of all persons whomsoever. Trustor also
represents and warrants that (i) Trustor is now, and after giving effect to this
Deed of Trust, will be, in a solvent condition, (ii) the execution and delivery
of this Deed of Trust by Trustor does not constitute a "fraudulent conveyance"
within the meaning of Title 11 of the United States Code as now constituted or
under any other applicable statute, and (iii) no bankruptcy or insolvency
proceedings are pending or contemplated by or, to the best of Trustor's
knowledge, against Trustor.
4. Notice. Trustor hereby requests that a
copy of notice of default and notice of sale be mailed to it at the address set
forth below, and such address is also the mailing address of Trustor, as debtor,
under the California Uniform Commercial Code. Beneficiary's address given below
is the address for Beneficiary on behalf of Funding
5
Corporation and the Secured Parties, as secured party, under the California
Uniform Commercial Code. In addition, any notice, request, demand, statement,
authorization, approval or consent made hereunder shall be made pursuant to the
provisions of the Partnership Credit Agreement as follows:
If to Trustor:
Elmore, L.P.
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
to Trustee:
Chicago Title Insurance Company
925 B Street
San Diego, California 92101
Attention: Legal Department
If to Beneficiary:
Chemical Trust Company of California
50 California Street, 10th Floor
San Francisco, California 94111
Attention: Legal Department
5. Sale of Trust Property. If this Deed of
Trust is foreclosed, or the power of sale hereunder is exercised, the Trust
Property, or any interest therein, may, at the discretion of Beneficiary, be
sold in one or more parcels or in several interests or portions and in any order
or manner.
6. No Credits on Account of the Debt. Trustor
will not claim or demand or be entitled to any credit or credits on account of
the Debt for any part of the Taxes assessed against the Trust Property or any
part thereof, and no deduction shall otherwise be made or claimed from the
taxable value of the Trust Property, or any part thereof, by reason of this Deed
of Trust or the Debt.
7. Offset, Counterclaims and Defenses. Any
assignee of this Deed of Trust and the Debt secured hereby shall take the same
free and clear of all offsets, counterclaims or defenses of any nature
whatsoever which Trustor may have against any assignor of this Deed
6
of Trust and the Debt secured hereby, and no such offset, counterclaim or
defense shall be interposed or asserted by Trustor in any action or proceeding
brought by any such assignee upon this Deed of Trust or the Debt secured hereby
and any such right to interpose or assert any such offset, counterclaim or
defense in any such action or proceeding is hereby expressly waived by Trustor.
8. Other Security for the Debt. Trustor shall
observe and perform all of the terms, covenants and provisions to be observed or
performed by Trustor contained in this Deed of Trust and in the Financing
Documents to which Trustor shall be a party evidencing, securing or guaranteeing
payment of the Debt, in whole or in part, or otherwise executed and delivered in
connection with this Deed of Trust or the Financing Documents.
9. Documentary Stamps. If at any time the
United States of America, any state thereof or any governmental subdivision of
any such state, shall require revenue or other stamps to be affixed to the
Financing Documents or this Deed of Trust, Trustor will pay for the same, with
interest and penalties thereon, if any.
10. Right of Entry. Beneficiary, Funding
Corporation and each of the Secured Parties shall have the right to enter and
inspect the Trust Property at all reasonable times as provided in the
Partnership Credit Agreement.
11. Books and Records. Trustor will comply
with all of the provisions and requirements of Section 4.16 of the Partnership
Credit Agreement concerning its books, records and accounts reflecting all of
the financial affairs of Trustor.
12. Right to Cure Defaults. Upon the
occurrence and during the continuance of a Credit Agreement Event of Default
under the Partnership Credit Agreement or a Guarantee Event of Default under the
Partnership Guarantee, Beneficiary, Funding Corporation or the Secured Parties
may, at their discretion, remedy the same in accordance with the applicable
provisions of the Partnership Credit Agreement and for such purpose shall have
the right to enter upon the Trust Property or any portion thereof without
thereby becoming liable to Trustor or any person in possession thereof holding
under Trustor in each case to the extent set forth in the Partnership Credit
Agreement. If Beneficiary, Funding Corporation or the Secured Parties shall
remedy such a default or appear in, defend, or bring any action or proceeding to
protect their interest in the Trust Property or to foreclose this Deed of Trust
or to exercise the power of sale granted under this Deed of Trust or to collect
the Debt or to otherwise exercise any remedies available to Beneficiary, Funding
Corporation or the Secured Parties under this Deed of Trust, the costs and
expenses thereof (including attorneys' fees to the extent permitted by law)
shall be treated as set forth in Section 5.4 of the Partnership Credit
Agreement.
13. Appointment of Receiver. Trustee or
Beneficiary, in any action to foreclose this Deed of Trust or exercise the power
of sale granted under this Deed of Trust or upon the actual or threatened waste
to any part of the Trust Property or upon the occurrence of a Credit Agreement
Event of Default under the Partnership Credit Agreement or a
7
Guarantee Event of Default under the Partnership Guarantee, shall be at liberty,
without notice, to apply for the appointment of a receiver of the Rents, and
shall be entitled to the appointment of such receiver as a matter of right,
without regard to the value of the Trust Property as security for the Debt, or
the solvency or insolvency of any person then liable for the payment of the
Debt.
14. Non-Waiver. The failure of Beneficiary to
insist upon strict performance of any term of this Deed of Trust shall not be
deemed to be a waiver of any term of this Deed of Trust. Trustor shall not be
relieved of Trustor's obligation to pay and perform the Debt at the time and in
the manner provided for its payment in the Financing Documents and this Deed of
Trust by reason of (i) failure to comply with any request of Trustor to take any
action to foreclose this Deed of Trust or otherwise enforce any of the
provisions hereof or of the Financing Documents or any other mortgage, deed of
trust, instrument or document securing or guaranteeing the payment of the Debt
or a portion thereof, (ii) the release, regardless of consideration, of the
whole or any part of the Trust Property or any other security for the Debt, or
(iii) any agreement or stipulation between Beneficiary and any subsequent owner
or owners of the Trust Property or other person extending the time of payment or
otherwise modifying or supplementing the terms of this Deed of Trust or the
Financing Documents evidencing, securing or guaranteeing payment of the Debt
or any portion thereof, without first having obtained the consent of Trustor
(but without prejudice to the rights of Trustor under the Partnership Credit
Agreement), and in the latter event, Trustor shall continue to be obligated to
pay and perform the Debt at the time and in the manner provided in the
Financing Documents and this Deed of Trust, as so extended, modified and
supplemented, unless expressly released and discharged from such obligation by
Beneficiary in writing. Regardless of consideration, and without the necessity
for any notice to or consent by the holder of any subordinate lien,
encumbrance, right, title or interest in or to the Trust Property,
Beneficiary, Funding Corporation or the Secured Parties may release any person
at any time liable for the payment of the Debt or any portion thereof or all
or any part of the security held for the Debt and may extend the time of
payment or otherwise modify the terms of the Financing Documents or this Deed
of Trust, including, without limitation, a modification of the interest rate
payable on the principal balance of the Debt, without in any manner impairing
or affecting this Deed of Trust or the lien thereof or the priority of this
Deed of Trust, as so extended and modified, as security for the Debt over any
such subordinate lien, encumbrance, right, title or interest. Beneficiary,
Funding Corporation and the Secured Parties may resort for the payment of the
Debt to any other security held by Beneficiary, Funding Corporation or the
Secured Parties in such order and manner as Beneficiary, Funding Corporation
or the Secured Parties, in their discretion, may elect. Beneficiary, Funding
Corporation or the Secured Parties may take action to recover the Debt, or any
portion thereof, or to enforce any covenant hereof without prejudice to the
right of the Beneficiary thereafter to foreclose this Deed of Trust. The
Beneficiary, Funding Corporation and the Secured Parties shall not be limited
exclusively to the rights and remedies herein stated but shall be entitled to
every additional right and remedy now or hereafter afforded by law or equity.
The rights of the Beneficiary, Funding Corporation and the Secured Parties
under this Deed of Trust shall be separate, distinct and cumulative, and none
shall be given effect to the exclusion of the others. No act of Funding
Corporation, the Secured Parties or Beneficiary
8
shall be construed as an election to proceed under any one provision herein to
the exclusion of any other provision.
15. Power of Sale. Subject to the provisions
of the Intercreditor Agreement, upon the occurrence and during the continuance
of a Credit Agreement Event of Default under the Partnership Credit Agreement or
a Guarantee Event of Default under the Partnership Guarantee, Beneficiary may at
any time, at its option and in its sole discretion, declare the Debt to be due
and payable and the same shall thereupon become immediately due and payable,
including any prepayment charge or fee payable under the terms of the Financing
Documents. Beneficiary may also do any or all of the following; provided,
however, that any of the following actions shall be undertaken in a commercially
reasonable manner in accordance with applicable law; and provided, further, that
Beneficiary shall have no obligation to do any of the following:
(a) Either in person or by agent, with or
without bringing any action or proceeding or by a receiver appointed by a court
and without regard to the adequacy of Beneficiary's, Funding Corporation's and
the Secured Parties' security, enter upon and take possession of the Trust
Property or any part hereof and do any acts which Beneficiary deems necessary or
desirable to preserve the value, marketability or rentability of the Trust
Property or to increase the income therefrom or to protect the security hereof
and with or without taking possession of any of the Trust Property, sue for or
otherwise collect all Rents and profits including those past due and unpaid, and
apply the same, less costs and expenses of operation and collection including
attorneys' fees and expenses, upon the Debt, all in such order as provided in
Section 6 of the Intercreditor Agreement. The collection of Rents and profits
and the application thereof shall not cure or waive any event of default or
notice thereof or invalidate any act done in response thereto or pursuant to
such notice.
(b) Bring an action in any court of competent
jurisdiction to foreclose this instrument or to enforce any of the covenants
hereof.
(c) Exercise any or all of the remedies
available to a secured party under the Uniform Commercial Code.
(d) Beneficiary may elect to cause the Trust
Property or any part thereof to be sold under the power of sale herein granted
in any manner permitted by applicable law. In connection with any sale or sales
hereunder, Beneficiary may elect to treat any of the Trust Property which
consists of a right in action or which is property that can be severed from the
real property covered hereby or any improvements thereon without causing
structural damage thereto as if the same were personal property, and dispose of
the same in accordance with applicable law, separate and apart from the sale of
real property. Any sale of any personal property hereunder shall be conducted in
any manner permitted by Section 9501 or any other applicable sections of the
California Uniform Commercial Code. Where the Trust Property consists of real
and personal property or fixtures, whether or not such personal property is
located on or within the real property, Beneficiary may elect in its
discretion to exercise its rights and remedies against any or all of the real
property, personal property, and fixtures in
9
such order and manner as is now or hereafter permitted by applicable law.
Without limiting the generality of the foregoing, Beneficiary may at its sole
and absolute discretion and without regard to the adequacy of its security elect
to proceed against any or all of the real property, personal property and
fixtures in any manner permitted under Section 9501(4)(a) of the California
Uniform Commercial Code; and if the Beneficiary elects to proceed in the manner
permitted under Section 9501(4)(a)(ii) of the California Uniform Commercial
Code, the power of sale herein granted shall be exercisable with respect to all
or any of the real property and fixtures covered hereby, as designated by
Beneficiary, and the Trustee is hereby authorized and empowered to conduct any
such sale of any real property and fixtures in accordance with the procedures
applicable to real property. Where the Trust Property consists of real property
and personal property, any reinstatement of the Debt, following the occurrence
of a Credit Agreement Event of Default under the Partnership Credit Agreement or
a Guarantee Event of Default under the Partnership Guarantee and an election by
the Beneficiary to accelerate the maturity of the Debt, which is made by
Trustor or any other person or entity permitted to exercise the right of
reinstatement under Section 2924c of the California Civil Code or any
successor statute, shall, in accordance with the terms of California Uniform
Commercial Code Section 9501(4)(c)(iii), not prohibit the Beneficiary from
conducting a sale or other disposition of any personal property or fixtures or
from otherwise proceeding against or continuing to proceed against any
personal property or fixtures in any manner permitted by the California
Uniform Commercial Code; nor shall any such reinstatement invalidate, rescind
or otherwise affect any sale, disposition or other proceeding held, conducted
or instituted with respect to any personal property or fixtures prior to such
reinstatement. Any sums paid to Beneficiary, Funding Corporation or the
Secured Parties in effecting any reinstatement pursuant to Section 2924c of
the California Civil Code shall be applied to the Debt and to Beneficiary's,
Funding Corporation's, the Secured Parties' and Trustee's reasonable costs and
expenses in the manner required by Section 2924c. Should Beneficiary elect to
sell any of the Trust Property which is real property or which is personal
property or fixtures that Beneficiary has elected under Section 9501(4)(a)(ii)
of the California Uniform Commercial Code to sell together with real property
in accordance with the laws governing a sale of real property, such notice of
default and election to sell shall be given as may then be required by law.
Thereafter, upon the expiration of such time and the giving of such notice of
sale as may then be required by law, at the time and place specified in the
notice of sale, Trustee shall sell such property, or any portion thereof
specified by Beneficiary, at public auction to the highest bidder for cash in
lawful money of the United States. Trustee may, and upon request of
Beneficiary shall, from time to time, postpone the sale by public announcement
thereof at the time and place noticed therefor. If the Trust Property consists
of several lots, parcels or interests, Beneficiary may designate the order in
which the same shall be offered for sale or sold. Should Beneficiary desire
that more than one such sale or other disposition be conducted, Beneficiary
may, at its option, cause the same to be conducted simultaneously, or
successively on the same day, or at such different days or times and in such
order as Beneficiary may deem to be in its best interest. Any person,
including Trustor, Trustee, Beneficiary, Funding Corporation or any of the
Secured Parties, may purchase at the sale. In the event Beneficiary elects to
dispose of the Trust Property through more than one sale, Trustor agrees to
pay the costs and expenses of each such sale and of any judicial proceedings
wherein the same may be made, including reasonable compensation to Trustee and
Beneficiary, their agents and counsel, and to pay all
10
expenses, liabilities and advances made or incurred by Trustee in connection
with such sale or sales, together with interest on all such advances made by
Trustee at the interest rate then applicable to the indebtedness evidenced by
the Partnership Credit Agreement. Upon any sale Trustee shall execute and
deliver to the purchaser or purchasers a deed or deeds conveying the property so
sold but without any covenant or warranty whatsoever express or implied
whereupon such purchaser or purchasers shall be let into immediate possession,
and the recitals in any such deed or deeds of facts such as default, the giving
of notice of default and notice of sale, and other facts affecting the
regularity or validity of such sale or disposition, shall be conclusive proof of
the truth of such facts and any such deed or deeds shall be conclusive against
all persons as to such facts recited therein.
(e) Exercise each of its other rights and
remedies under this Deed of Trust and the Financing Documents, including, any or
all of the following:
(i) declare the Debt, with all interest thereon and
all other sums secured hereby, to be immediately due and payable, and
if the same is not paid on demand, at Beneficiary's option, bring
suit therefor and demand payment thereof and if the same is not paid
on demand, bring suit for any delinquent installment payment under
the Financing Documents and take any and all steps and institute any
and all other proceedings that Beneficiary deems necessary to enforce
the indebtedness and obligations secured hereby and to protect the
lien of this Deed of Trust;
(ii) without assuming liability for the performance
of any of Trustor's obligations hereunder or under the Partnership
Project Documents, enter and take possession of the Trust Property or
any part thereof, exclude Trustor and all persons claiming under
Trustor whose claims are junior to this Deed of Trust, wholly or
partly therefrom, and use, operate, manage and control the same
either in the name of Trustor or otherwise as Beneficiary shall deem
best, and upon such entry, from time to time at the expense of
Trustor and the Trust Property, make all such repairs, replacements,
alterations, additions or improvements to the Trust Property or any
part thereof as Beneficiary may deem proper and, whether or not
Beneficiary has so entered and taken possession of the Trust Property
or any part thereof, collect and receive all the Rents and apply the
same, to the extent permitted by law, to the payment of all expenses
which Beneficiary may be authorized to make under this Deed of Trust,
the remainder to be applied to the payment of the Debt until the same
shall have been repaid in full; if Beneficiary demands or attempts to
take possession of the Trust Property or any portion thereof in the
proper exercise of any rights hereunder, Trustor shall promptly turn
over and deliver complete possession thereto to Beneficiary; and
(iii) personally or by agents, with or without
entry, if Beneficiary shall deem it advisable, proceed to protect and
enforce its rights under this Deed of Trust, by suit for specific
performance of any covenant contained herein or in the Financing
Documents or in aid of the execution of any power granted herein or
in the Financing Documents, or for the foreclosure of this Deed of
Trust and the sale for cash of the Trust Property under the judgment
or decree of a court of competent jurisdiction, or
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for the exercise of the power of sale granted under this Deed of Trust
or for the enforcement of any other right as Beneficiary shall deem
most effectual for such purpose; provided that in the event of a sale,
by foreclosure or otherwise, of less than all of the Trust Property,
this Deed of Trust shall continue as a lien on, and security interest
in, the remaining portion of the Trust Property and Beneficiary shall
not be obligated to sell upon credit unless Beneficiary shall have
expressly consented in writing to a sale upon credit.
(f) Except as otherwise required by law, apply
the proceeds of any foreclosure or disposition in the manner set forth in the
Intercreditor Agreement.
(g) Upon any sale or sales made under or by
virtue of this section, whether made under the power of sale or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale,
Beneficiary or any of the Secured Parties may bid for and acquire the Trust
Property or any part thereof. In lieu of paying cash for the Trust Property,
Beneficiary and/or any of the Secured Parties may make settlement for the
purchase price by crediting against the Debt the sales price of the Trust
Property, as adjusted for the expenses of sale and the costs of the action and
any other sums for which Trustor is obligated to reimburse Trustee or
Beneficiary and the Secured Parties under this Deed of Trust.
16. Concerning the Trustee. Trustee shall be
under no duty to take any action hereunder except as expressly required
hereunder or by law, or to perform any act which would involve Trustee in any
expense or liability or to institute or defend any suit in respect hereof,
unless properly indemnified to Trustee's reasonable satisfaction. Trustee, by
acceptance of this Deed of Trust, covenants to perform and fulfill the trusts
herein created, being liable, however, only for willful negligence or
misconduct, and hereby waives any statutory fee and agrees to accept reasonable
compensation, in lieu thereof, for any services rendered by Trustee in
accordance with the terms hereof. Trustee may resign at any time upon giving
thirty (30) days' notice to Trustor and to Beneficiary. Beneficiary may remove
Trustee at any time or from time to time and select a successor trustee. In the
event of the death, removal, resignation, refusal to act, or inability to act of
Trustee, or in its sole discretion for any reason whatsoever Beneficiary may,
without notice and without specifying any reason therefor and without applying
to any court, select and appoint a successor trustee, by an instrument recorded
wherever this Deed of Trust is recorded and all powers, rights, duties and
authority of Trustee, as aforesaid, shall thereupon become vested in such
successor. Such substitute trustee shall not be required to give bond for the
faithful performance of the duties of Trustee hereunder unless required by
Beneficiary.
17. Trustee's Fees. Trustor shall pay all
costs, fees and expenses incurred by Trustee and Trustee's agents and counsel in
connection with the performance by Trustee of Trustee's duties hereunder and all
such costs, fees and expenses shall be secured by this Deed of Trust.
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18. Proceeds of Sale.
(a) The proceeds or avails of any foreclosure
sale or other remedy exercised pursuant to Section 14, above, entitled "Power of
Sale" together with all other sums which then may be held by Beneficiary under
this Deed of Trust, or under a judgment, order or decree made in any action to
foreclose or to enforce this Deed of Trust whether under the provisions of this
Deed of Trust, or otherwise, shall be distributed according to the terms of the
Intercreditor Agreement.
(b) Subject to the provisions of Section 43 of
this Deed of Trust, no sale or other disposition of all or any part of the Trust
Property shall be deemed to relieve Trustor of its obligations under this Deed
of Trust or the Financing Documents except and only to the extent the proceeds
are applied to the payment of the Debt or such other obligations. If the
proceeds of sale, collection or other realization of or upon the Trust Property
are insufficient to cover the costs and expenses of such realization and the
payment in full of the Debt, Trustor shall remain liable for any deficiency.
19. Trustor as Tenant Holding Over. In the
event of any such foreclosure or other sale by Beneficiary and/or the Secured
Parties, Trustor shall be deemed a tenant holding over and shall forthwith
deliver possession to the purchaser or purchasers at such sale or be summarily
dispossessed according to provisions of law applicable to tenants holding over.
20. Leases. Beneficiary is authorized to
subordinate this Deed of Trust to any Leases and to foreclose this Deed of Trust
subject to the rights of any tenants of the Trust Property, if any, and the
failure to so subordinate or to make any such tenants' parties to any such
foreclosure or other proceedings and to foreclose their rights will not be, nor
be asserted to be by Trustor, a defense to any proceedings instituted by
Beneficiary to collect the Debt.
21. Discontinuance of Proceedings. In case
Beneficiary, Funding Corporation or the Secured Parties shall have proceeded to
enforce any right, power or remedy under this Deed of Trust by foreclosure,
sale, entry or otherwise, and such proceeding shall have been withdrawn,
discontinued or abandoned for any reason, or shall have been determined adverse
to Beneficiary, Funding Corporation or the Secured Parties, then in every such
case, to the fullest extent permitted by law, (a) Trustor and Beneficiary,
Funding Corporation or the Secured Parties shall be restored to their former
positions and rights, (b) all rights, powers and remedies of Beneficiary,
Funding Corporation and the Secured Parties shall continue as if no such
proceeding had been taken, (c) each and every Credit Agreement Event of Default
under the Partnership Credit Agreement and each and every Guarantee Event of
Default under the Partnership Guarantee declared or occurring prior or
subsequent to such withdrawal, discontinuance or abandonment shall be or shall
be deemed to be an independent event of default and (d) neither the Debt, this
Deed of Trust nor any of the Financing Documents shall be or shall be deemed to
have been not reinstated or otherwise affected by such withdrawal,
discontinuance or abandonment; and to the fullest extent permitted by law,
Trustor hereby expressly waives the benefit of any statute or rule of law now
provided or which may hereafter conflict with the above.
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22. No Reinstatement. If a Credit Agreement
Event of Default under the Partnership Credit Agreement or a Guarantee Event of
Default under the Partnership Guarantee shall have occurred and be continuing
Beneficiary, Funding Corporation or the Secured Parties shall have proceeded to
enforce any right, power or remedy permitted hereunder, then a tender of payment
by Trustor or by anyone on behalf of Trustor of any amount less than the amount
necessary to satisfy the Debt in full, or the acceptance by Beneficiary,
Funding Corporation or the Secured Parties of any such payment so tendered,
shall not constitute a reinstatement of this Deed of Trust, the Financing
Documents or any other document evidencing, securing or guaranteeing the Debt.
23. Trustor's Waiver of Rights. To the fullest
extent permitted by law, Trustor waives the benefit of all laws now existing or
that hereafter may be enacted providing for (i) any appraisal before sale of any
portion of the Trust Property and (ii) the benefit of all laws that may be
hereafter enacted in any way extending the time for the enforcement of the
collection of the Debt, or creating or extending a period of redemption from any
sale made in collecting said Debt. To the fullest extent that Trustor may do so,
Trustor agrees that Trustor will not at any time insist upon, plead, claim or
take the benefit or advantage of any law now or hereafter in force providing for
any appraisal, valuation, stay, extension or redemption, or any so-called
"Moratorium Laws" and Trustor, for Trustor and its successors and assigns, and
for any and all persons ever claiming any interest in the Trust Property, to the
fullest extent permitted by law, hereby waives and releases all rights of
redemption, valuation, appraisal, stay of execution, notice of election to
mature or declare due the whole of the Debt and marshaling in the event of the
exercise of the power of sale granted under this Deed of Trust or foreclosure of
the liens hereby created. If any law referred to in this Section and now in
force, of which Trustor, Trustor's successors and assigns or any other person
might take advantage despite this Section, shall hereafter be repealed or cease
to be in force, such law shall not thereafter be deemed to preclude the
application of this Section.
24. Security Agreement. (a) Trustor maintains
places of business in the State of California and Trustor will immediately
notify Beneficiary in writing of any change in such places of business.
(a) At the request of Beneficiary, Trustor
shall join Beneficiary in executing one or more financing statements and
continuations and amendments thereof pursuant to the UCC in form reasonably
satisfactory to Beneficiary; and Trustor will pay the cost of filing the same in
all public offices wherever filing is deemed by Beneficiary to be necessary. In
the event Trustor fails to execute such documents within five (5) business days
after request by Beneficiary, Trustor hereby authorizes Beneficiary to file such
financing statements and irrevocably constitutes and appoints Beneficiary, or
any officer of Beneficiary, as its true and lawful attorney-in-fact to execute
the same on behalf of Trustor.
(b) This Deed of Trust constitutes a financing
statement filed as a fixture filing under UCC ss. 9402(6) in the official
records of Imperial County with respect to any and
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all fixtures included within the term "Trust Property" and with respect to any
goods or other personal property that may now be or hereafter become such a
fixture.
(c) Beneficiary has no responsibility for and
does not assume any of, Trustor's obligations or duties under any agreement or
obligation which is part of the Equipment or any obligation relating to the
acquisition, preparation, custody, use, enforcement or operation of any of the
Trust Property.
(d) Trustor and Beneficiary agree that the
filing of a financing statement in the records normally having to do with
personal property shall never be construed as in any way derogating from or
impairing this Deed of Trust and the intention of the parties that everything
used in connection with the production of income from the Trust Property or
adapted for use therein or which is described or reflected in this Deed of Trust
is, and at all times and for all purposes and in all proceedings both legal or
equitable shall be regarded as part of the real estate subject to the lien
hereof, irrespective of whether (i) any such item is physically attached to
improvements located on such real property or (ii) any such item is referred to
or reflected in any financing statement so filed at any time. Similarly, the
mention in any such financing statement of (A) the rights in or to the proceeds
of any fire hazard insurance policy or (B) any award in eminent domain
proceedings for taking or for loss of value or for cause of action or proceeds
thereof in connection with any damage or injury to the Trust Property or any
part thereof shall never be construed as in any way altering any of the rights
of Beneficiary, Funding Corporation and the Secured Parties as determined by
this instrument or impugning the priority of Beneficiary's, Funding
Corporation's and the Secured Parties' lien granted hereby or by any other
recorded document, but such mention in such financing statement is declared to
be for the protection of Beneficiary, Funding Corporation and the Secured
Parties in the event any court shall at any time hold with respect to matters
(A) and (B) above that notice of Beneficiary's, Funding Corporation's and the
Secured Parties' priority of interest, to be effective against a particular
class of persons, including, without limitation, the Federal government and any
subdivision or entity of the Federal government must be filed in the personal
property records or other commercial code records.
25. Further Acts, etc. Trustor will, at the
cost of Trustor, and without expense to Beneficiary, Funding Corporation or the
Secured Parties, execute, acknowledge and deliver all and every such further
acts, deeds, conveyances, financing statements, mortgages, deeds of trust,
assignments, notices of assignments, transfers and assurances as Beneficiary
shall, from time to time, reasonably require, for the better assuring,
conveying, assigning, transferring and confirming unto Beneficiary, the property
and rights hereby conveyed or assigned or intended now or hereafter so to be, or
which Trustor may be or may hereafter become bound to convey or assign to
Beneficiary, or for carrying out the intention or facilitating the performance
of the terms of this Deed of Trust or for filing, registering or recording this
Deed of Trust and, on demand, will execute and deliver and hereby authorizes
Beneficiary to execute in the name of Trustor to the extent they may lawfully do
so, one or more financing statements, chattel mortgages or comparable security
instruments, to evidence and perfect more effectively the lien hereof upon the
Trust Property.
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26. Headings, etc. The headings, titles and
captions of various Sections of this Deed of Trust are for convenience of
reference only and are not to be construed as defining or limiting, in any way,
the scope or intent of the provisions hereof.
27. Filing of Deed of Trust, etc. Trustor
forthwith upon the execution and delivery of this Deed of Trust and thereafter,
from time to time, will cause this Deed of Trust, and any security instrument
creating a lien or evidencing or perfecting the lien hereof upon the Trust
Property and each instrument of further assurance to be filed, registered or
recorded in such manner and in such places as may be required by any present or
future law in order to publish notice of and fully to protect, preserve and
perfect the lien hereof upon, and the interest of Beneficiary, Funding
Corporation and the Secured Parties in the Trust Property. Trustor will pay all
filing, registration or recording fees, and all expenses incurred by the
Beneficiary, Funding Corporation or Secured Parties incident to the preparation,
execution and acknowledgment of this Deed of Trust, any deed of trust or any
mortgage or deed of trust supplemental hereto, any security instrument with
respect to the Trust Property and any instrument of further assurance, and all
Federal, state, county and municipal taxes, duties, imposts, assessments and
charges arising out of or in connection with the execution and delivery of this
Deed of Trust, any mortgage or deed of trust supplemental hereto, any security
instrument with respect to the Trust Property or any financing statement,
continuation statement or other instrument of further assurance. Trustor shall
hold harmless and indemnify Beneficiary, Funding Corporation and the Secured
Parties, their successors and assigns, against any liability incurred by
reason of the imposition of any tax on the making and recording of this Deed
of Trust.
28. Usury Laws. This Deed of Trust and the
Financing Documents are subject to the express condition that at no time shall
Trustor be obligated or required to pay interest on the principal balance due
under the Financing Documents at a rate which could subject the creditor of the
debt evidenced by such instruments to either civil or criminal liability as a
result of being in excess of the maximum interest rate which Trustor is
permitted by law to contract or agree to pay. If by the terms of this Deed of
Trust or the Financing Documents Trustor is at any time required or obligated to
pay interest on the principal balance due under any of the Financing Documents
at a rate in excess of such maximum rate, the rate of interest under such
Financing Document shall be deemed to be immediately reduced to such maximum
rate and the interest payable shall be computed at such maximum rate.
29. Recovery of Sums Required to Be Paid.
Beneficiary, Funding Corporation and the Secured Parties shall have the right
pursuant to the Financing Documents from time to time to take action to recover
any sum or sums which constitute a part of the Debt as the same become due,
without regard to whether or not the balance of the Debt shall be due, and
without prejudice to the right of Beneficiary, Funding Corporation or the
Secured Parties thereafter to bring an action of foreclosure, or any other
action, for a default or defaults by Trustor existing at the time such earlier
action was commenced.
30. Authority. Trustor (and the undersigned
acting on behalf of Trustor) has full power, authority and legal right to
execute this Deed of Trust and to mortgage, give,
16
grant, bargain, sell, release, pledge, convey, confirm and assign the Trust
Property pursuant to the terms hereof and to keep and observe all of the terms
of this Deed of Trust on Trustor's part to be performed.
31. Inapplicable Provisions. If any term,
covenant or condition of this Deed of Trust shall be held to be invalid, illegal
or unenforceable in any respect, this Deed of Trust shall be construed to recast
such term, covenant or condition in a manner which will allow such term,
covenant or condition to be valid provided any recasting shall be in accordance
with the original intention of the parties. When recasting any term, covenant or
condition, if it is not possible to reflect the original intention of the
parties, this Deed of Trust shall be construed without such provision.
32. Duplicate Originals. This Deed of Trust
may be executed in any number of duplicate originals and each such duplicate
original shall be deemed to constitute but one and the same instrument.
33. Waiver of Notice. Trustor shall not be
entitled to any notices of any nature whatsoever from Beneficiary, Funding
Corporation or the Secured Parties except with respect to matters for which this
Deed of Trust, the Financing Documents or applicable law specifically and
expressly provides for the giving of notice to Trustor, and to the fullest
extent permitted by law Trustor hereby expressly waives the right to receive any
notice from Beneficiary, Funding Corporation or the Secured Parties with respect
to any matter for which this Deed of Trust, the Financing Documents or
applicable law does not specifically and expressly provide for the giving of
notice to Trustor.
34. No Oral Change. This Deed of Trust may
only be modified, amended or changed by an agreement in writing signed by
Trustor and Beneficiary, and may only be released, discharged or satisfied of
record by an instrument in writing signed by Beneficiary. Funding Corporation
and the Secured Parties shall join in any such agreement, release, discharge or
satisfaction if required for such agreement to be effective under applicable
law. No waiver of any term, covenant or provision of this Deed of Trust shall be
effective unless given in writing by Beneficiary and if so given by Beneficiary
shall only be effective in the specific instance in which given. Trustor
acknowledges that this Deed of Trust and the Financing Documents set forth the
entire agreement and understanding of Trustor and Beneficiary with respect to
the matters set forth therein and that no oral or other agreements,
understanding, representations or warranties exist with respect to those matters
other than those set forth in this Deed of Trust and the Financing Documents.
35. Absolute and Unconditional Obligation.
Trustor acknowledges that Trustor's obligation to pay the Debt in accordance
with the provision of this Deed of Trust and the Financing Documents is and
shall at all times continue to be absolute and unconditional in all respects,
and shall at all times be valid and enforceable irrespective of any other
agreements or circumstances of any nature whatsoever (other than any express
written agreements to the contrary by Funding Corporation and the Secured
Parties) which might otherwise constitute a defense to this Deed of Trust or the
Financing Documents or the
17
obligations of Trustor thereunder to pay the Debt or the obligations of any
other person relating to this Deed of Trust or the Financing Documents or the
obligations of Trustor under this Deed of Trust or the Financing Documents and
to the fullest extent permitted by law Trustor absolutely, unconditionally and
irrevocably waives any and all right to assert any defense, setoff, counterclaim
or crossclaim of any nature whatsoever with respect to the obligation of Trustor
to pay the Debt in accordance with the provisions of this Deed of Trust or the
Financing Documents or the obligations of any other person relating to this Deed
of Trust or the Financing Documents or the obligations of Trustor under this
Deed of Trust or the Financing Documents, or in any action or proceeding brought
by Beneficiary to collect the Debt, or any portion thereof, or to enforce,
foreclose and realize upon the lien and security interest created by this Deed
of Trust or any other document or instrument securing repayment of the Debt, in
whole or in part.
36. Indemnification.
(a) Trustor shall indemnify and hold harmless
Beneficiary, Funding Corporation and the Secured Parties from and against all
loss, cost, liability, other expense in the manner and to the extent required
under the Financing Documents.
(b) All sums secured by this Deed of Trust
shall be paid in accordance with the Financing Documents, as applicable, without
counterclaim, setoff, deduction or defense and without abatement, suspension,
deferment, diminution or reduction, and the obligations and liabilities of
Trustor hereunder shall in no way be released, discharged or otherwise affected
(except as expressly provided herein) by reason of (i) any claim which Trustor
has or might have against Funding Corporation, any of the Secured Parties or
Beneficiary or (ii) any default or failure on the part of Funding Corporation,
any of the Secured Parties or Beneficiary to perform or comply with any of the
terms hereof, of the Partnership Credit Agreement or of any other Financing
Document.
37. Action Affecting the Trust Property.
(a) Trustor agrees to appear in and contest any
action or proceeding purporting to adversely affect the security hereof or the
rights or powers of Funding Corporation, the Secured Parties or Beneficiary and
to pay all costs and expenses of Funding Corporation, the Secured Parties and
Beneficiary, including cost of evidence of title and attorneys' fees and
expenses, in any such action or proceeding in which Funding Corporation, the
Secured Parties or Beneficiary may appear.
(b) Beneficiary shall have the right to appear
in and defend any action or proceeding brought with respect to the Trust
Property and to bring any action or proceeding, in the name and on behalf of
Trustor, Beneficiary, Funding Corporation or the Secured Parties, which
Beneficiary determines to be necessary or reasonably advisable to be brought to
protect its, Funding Corporation's or the Secured Parties' interest in the Trust
Property if (i) Trustor fails to defend or bring such action or proceeding, as
appropriate, in a prompt and diligent manner, or thereafter fails to proceed
with diligence in the defense or prosecution of
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the same, or (ii) a Credit Agreement Event of Default under the Partnership
Credit Agreement or a Guarantee Event of Default under the Partnership Guarantee
shall have occurred and be continuing.
38. Actions by Beneficiary to Preserve the
Trust Property. Except as hereinbefore expressly provided, should Trustor fail
to make any payment or do any act as and in the manner provided in any of the
Financing Documents after the expiration of any applicable cure or grace period
and as a result a Credit Agreement Event of Default under the Partnership Credit
Agreement or a Guarantee Event of Default under the Partnership Guarantee shall
occur and be continuing, Beneficiary for the benefit of Funding Corporation and
the Secured Parties, without obligation so to do and without notice to or demand
upon Trustor and without releasing Trustor from any obligation, may make or do
the same in such manner and to such extent as Beneficiary may deem necessary to
protect the security hereof. In connection therewith (without limiting any
general powers of Beneficiary, Funding Corporation or the Secured Parties),
Beneficiary, for the benefit of Funding Corporation and the Secured Parties,
shall have and is hereby given the right, but not the obligation, (i) to the
fullest extent permitted by law, to make additions, alterations, repairs and
improvements to the Trust Property which it may consider necessary to keep the
Trust Property in good condition and repair and (ii) in exercising such
powers, to pay necessary expenses, including engagement of counsel or other
necessary or desirable consultants. Trustor shall, immediately upon demand
therefor by Beneficiary, pay all costs and expenses incurred by Funding
Corporation, the Secured Parties or Beneficiary in connection with the
exercise by Beneficiary of the foregoing rights, including without limitation,
costs of evidence of title, court costs, appraisals, surveys and attorneys'
fees and expenses.
39. Remedies Not Exclusive. Subject to the
limitations set forth in Section 43 of this Deed of Trust, Beneficiary, Funding
Corporation and the Secured Parties, and each of them, shall be entitled to
enforce payment and performance of any indebtedness or obligations secured
hereby and to exercise all rights and powers granted under this Deed of Trust or
under the Financing Documents or any other agreement or any laws now or
hereafter in force, notwithstanding some or all of the said indebtedness and
obligations secured hereby may now or hereafter be otherwise secured, whether by
mortgage, deed of trust, pledge, lien, assignment or otherwise. Subject to the
limitations set forth in Section 43 of this Deed of Trust, neither the
acceptance of this Deed of Trust nor its enforcement, whether by court action or
pursuant to the power of sale or other powers herein contained, shall prejudice
or in any manner affect Beneficiary's, Funding Corporation's or the Secured
Parties' right to realize upon or enforce any other security now or hereafter
held by Beneficiary, Funding Corporation or the Secured Parties, it being agreed
that Beneficiary, on behalf of Funding Corporation and the Secured Parties
collectively and individually, shall be entitled to enforce this Deed of Trust
and any other security now or hereafter held by Beneficiary, Funding
Corporation or the Secured Parties in such order and manner as they,
collectively and individually, may in their absolute discretion determine. No
remedy herein conferred upon or reserved to Beneficiary, Funding Corporation
or the Secured Parties is intended to be exclusive of any other remedy herein
or by law provided or permitted, but each shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by
19
statute. Every right, power or remedy given by any of the Financing Documents to
Beneficiary, Funding Corporation or the Secured Parties, or to which either of
them may be otherwise entitled, may be exercised, concurrently or independently,
from time to time and as often as may be deemed expedient by Beneficiary,
Funding Corporation or the Secured Parties. Every right, power or remedy given
by this Deed of Trust to Funding Corporation and the Secured Parties may be
exercised on their behalf by Beneficiary, whether so expressed or not.
Notwithstanding any other provision of this Deed of Trust, the rights and
remedies of Beneficiary, the Funding Corporation and the Secured Parties shall
be subject to the provisions of the Intercreditor Agreement.
40. Relationship. The relationship of
Beneficiary, Funding Corporation and the Secured Parties to Trustor hereunder is
strictly and solely that of lender and borrower, and nothing contained in this
Deed of Trust or the Financing Documents is intended to create, or shall in any
event or under any circumstance be construed as creating, a partnership, joint
venture, tenancy-in-common, joint tenancy or other relationship of any nature
whatsoever between or among Beneficiary, Funding Corporation and the Secured
Parties and Trustor other than as lender and borrower.
41. Financing Documents. This Deed of Trust is
subject to all of the terms, covenants and conditions of the Financing
Documents, which Financing Documents and all of the terms, covenants and
conditions thereof are by this reference incorporated herein and made a part
hereof with the same force and effect as if set forth at length herein. Trustor
shall observe and perform all of the terms, covenants and conditions of the
Financing Documents on Trustor's part to be observed or performed. All advances
made and all indebtedness arising and accruing under the Financing Documents
from time to time shall be secured hereby.
42. Business Purpose. Trustor hereby
stipulates and warrants that the loans secured hereby are commercial or business
loans and are transacted solely for the purpose of carrying on or acquiring a
business or commercial enterprise or for a proper business purpose under the
laws of the jurisdiction in which the Trust Property is located.
43. Time of the Essence. TIME IS OF THE
ESSENCE with respect to each and every covenant, agreement and obligation of
Trustor under this Deed of Trust and the Financing Documents.
44. Non-Recourse. The obligations hereunder
are subject to the limitations set forth in Section 6.11 of the Partnership
Credit Agreement, the provisions of which are hereby incorporated by reference.
45. Severance of Counterclaims. In the event
of foreclosure of this Deed of Trust, any and all counterclaims filed by Trustor
against Beneficiary, Funding Corporation or the Secured Parties, to the extent
permitted by law, shall be severed by the court having jurisdiction over the
foreclosure action, for all purposes from the basic foreclosure action, on an ex
parte basis and without notice to Trustor. Trustor, by its execution and
delivery hereof, hereby expressly consents and agrees to such severance.
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46. WAIVER OF JURY TRIAL. AS AN INDEPENDENT
COVENANT HEREOF, TRUSTOR HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND
IRREVOCABLY WAIVES THE RIGHT IT MIGHT HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
DEED OF TRUST OR THE FINANCING DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PERSONS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BENEFICIARY TO ACCEPT DELIVERY OF THIS DEED
OF TRUST AND THE FINANCING DOCUMENTS.
47. GOVERNING LAW. THIS DEED OF TRUST IS
GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
48. Attorneys' Fees. Attorneys shall be
entitled to fees in connection with the enforcement, amendment, extension or
modification of this Deed of Trust.
49. Shared Draftsmanship. If any ambiguity in
the terms of this Deed of Trust, the doctrine of construction which holds that
the language of the document shall be construed against its drafter shall not
apply as all parties have shared in the drafting of this Deed of Trust.
50. No Third Party Beneficiary. This Deed of
Trust, the Partnership Credit Agreement and the other Financing Documents are
for the sole benefit of Beneficiary, Funding Corporation and each of the Secured
Parties, as applicable, and Trustor and are not for the benefit of any third
party and no third party shall gain any subrogation rights against Trustor or
in, to or with respect to any portion of the Trust Property by reason of this
Deed of Trust or the provisions hereof.
51. Security Only. This Deed of Trust is
granted for security purposes only. Accordingly, except as otherwise permitted
by the Partnership Credit Agreement or as otherwise specifically provided in
this Deed of Trust, neither Beneficiary, Funding Corporation nor the Secured
Parties, as applicable, shall enforce Trustor's rights with respect to the Trust
Property until such time as (a) an Credit Agreement Event of Default under the
Partnership Credit Agreement shall have occurred and be continuing or (b) a
Guarantee Event of Default under the Partnership Guarantee shall have occurred
and be continuing.
52. Release by Beneficiary. Upon written
request of Beneficiary stating that the Debt has been paid and upon surrender by
Beneficiary, Funding Corporation and the Secured Parties of this Deed of Trust
to Trustee for cancellation and retention and upon payment by Trustor of
Trustee's fees and the costs of executing and recording any requested
reconveyance, Trustee shall reconvey, without cost or expense to Beneficiary,
Funding Corporation and any of the Secured Parties, to Trustor or to the person
or persons legally entitled thereto, without warranty, any portion of the Trust
Property then held hereunder. The
21
recitals in any such reconveyance of any matter or fact shall be conclusive
proof of the truthfulness thereof. The grantee in any such reconveyance may be
described as the person or persons legally entitled thereto.
53. Waiver. Trustor waives and releases any
rights or defenses which Trustor might otherwise have (i) under California Code
of Civil Procedure Sections 726, 725a, 580a, 580b, 580c and 580d and California
Civil Code Section 2889, which statutes might otherwise limit or condition
Beneficiary's, Funding Corporation's and/or the Secured Parties' exercise of
certain of Beneficiary's, Funding Corporation's and/or the Secured Parties'
rights and remedies in connection with the enforcement of obligations secured by
a lien on real property or (ii) under any laws now existing or hereafter enacted
providing for any appraisal before sale of a portion of the Trust Property and
(iii) to all rights of redemption, valuation, appraisal, stay of execution,
notice of election to mature or to declare due the Debt and marshalling in the
event of the foreclosure of the liens created under this Deed of Trust or the
exercise of the power of sale granted hereunder. To the extent, if any, which
such laws may be applicable, Trustor waives and releases any right or defense
which Trustor might otherwise have under such provisions and under any other
law of any applicable jurisdiction which might limit or restrict the
effectiveness or scope of any of Trustor's waivers or releases hereunder.
54. Sole Discretion of Beneficiary or Trustee.
Except as otherwise provided in the Financing Documents, wherever pursuant to
this Deed of Trust, Beneficiary, Funding Corporation, the Secured Parties or
Trustee exercises any right given to them to approve or disapprove, or any
arrangement or term is to be satisfactory to Beneficiary, Funding Corporation,
the Secured Parties or Trustee, the decision of Beneficiary, Funding
Corporation, the Secured Parties or Trustee to approve or disapprove or to
decide that arrangements or terms are satisfactory or not satisfactory shall be
in the sole discretion of Beneficiary, Funding Corporation, the Secured Parties
or Trustee and shall be final and conclusive.
55. Partial Release. Upon receipt of written
notice from Magma to the effect that Magma has exercised the Partial Termination
Option provided in Section 3.2.2 of the Clarification and Amendment, (i) Trustor
shall have the right to quitclaim all its right, title and interest in the
Terminated Parcels (as that term is defined in the Clarification and Amendment)
to Magma and to surrender and deliver possession thereof to Magma as provided in
such Section 3.2.2 and (ii) Beneficiary, acting on behalf of Funding Corporation
and the Secured Parties, shall promptly execute and deliver, in recordable form,
such documents and instruments as may reasonably be necessary or appropriate to
fully release said Terminated Parcels from the Security Documents.
IN WITNESS WHEREOF, Trustor has duly executed this Deed of
Trust the day and year first above written.
22
ELMORE, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
its general partner
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
23
STATE OF NEW YORK)
)
COUNTY OF NEW YORK)
On June 20, 1996, before me, Patricia Peterson, Notary Public,
personally appeared John G. Sylvia, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Patricia Peterson
- ------------------------------------
Notary/Public
[Signature Page to Deed of Trust, Assignment of Rents]
24
EXHIBIT A
Description of the Resource Easement Area Premises
Parcel 1:
The North Half of the Northwest Quarter of Section 35, Township 11
South, Range 13 East, San Bernardino Meridian, County of Imperial,
State of California, according to Official Plat thereof.
Parcel 2:
The East Half of the Northeast Quarter of Section 34, Township 11
South, Range 13 East, San Bernardino Meridian, County of Imperial,
State of California, according to Official Plat thereof.
Parcel 3:
Parcel A:
The Southwest Quarter of Section 26, the West Half of the Southeast
Quarter of Section 26, and the Southeast Quarter of Section 27, all
in Township 11 South, Range 13 East, San Bernardino Meridian, County
of Imperial, State of California, according to Official Plat thereof.
Parcel B:
The Southwest Quarter of Section 27, Township 11 South, Range 13
East, San Bernardino Meridian, County of Imperial, State of
California, according to Official Plat thereof.
Parcel 4:
The South Half of the Northwest Quarter of Section 35, Township 11
South, Range 13 East, San Bernardino Meridian, County of Imperial,
State of California, according to Official Plat thereof.
Parcel 5:
The South Half of the Northwest Quarter of Section 26, Township 11
South, Range 13 East, San Bernardino Meridian, County of Imperial,
State of California, excepting therefrom an undivided one-half
interest in all oil, gas and mineral rights, as reserved by William
T. Clarke and Mildred L. Clarke in Deed recorded April 17, 1943 in
Book 603, Page 55 of Official Records, in the Office of the County
Recorder, Imperial County, California
Parcel 6:
An undivided one-half interest in all oil, gas and mineral rights
located in and under the South Half of the Northwest Quarter of
Section 26, Township 11 South, Range 13 East, San Bernardino
Meridian, State of California, as reserved by William T. Clarke and
Mildred L. Clarke in Deed recorded April 17, 1943 in Book 603, Page
55 of Official Records, in the Office of the County Recorder,
Imperial County, California.
- ---------------
Parcel 1/McCoy; Parcel 2/L. Baretta; Parcel 3/Elmore; Parcel 4/Huffman;
Parcel 5/State; Parcel 6/Magma Mineral Property
EXHIBIT A TO DEED OF TRUST
(ELMORE)
Page 2 of 2
EXHIBIT B
Description of the Ground Lease Premises
The South Half of the Southwest Quarter of the Southeast Quarter of
Section 27, Township 11 South, Range 13 East, San Bernardino
Meridian, County of Imperial, State of California, according to
Official Plat thereof.
Excepting all mineral rights, specifically including, but not limited
to, sources of geothermal energy and power as reserved by John
Jameson Elmore, Et Ux, by Deed recorded June 5, 1974 in Book 1363,
Page 1812 of Official Records.
EXHIBIT B TO DEED OF TRUST
(ELMORE)
Page 1 of 1
EXHIBIT 4.37
Recording Requested By and When
Recorded Return to:
Attention:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LEATHERS, L.P.
(as Trustor)
to
CHICAGO TITLE COMPANY,
(as Trustee)
for the use and benefit of
CHEMICAL TRUST COMPANY OF CALIFORNIA,
for and on behalf
of Salton Sea Funding Corporation
and the Secured Parties
(as Beneficiary)
- -------------------------------------------------------------------------------
DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
- -------------------------------------------------------------------------------
Dated: As of June 20, 1996
Location: County of Imperial
State of California
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
THIS DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT
AND FIXTURE FILING (the "Deed of Trust") is made as of June 20, 1996, by
LEATHERS, L.P., a California limited partnership ("Leathers"), whose address
is 302 South 36th Street, Suite 400-C, Omaha, Nebraska 68131, as trustor
("Trustor"), to CHICAGO TITLE COMPANY, whose address is 925 B Street, San
Diego, California 92101, as trustee ("Trustee"), and in favor of CHEMICAL
TRUST COMPANY OF CALIFORNIA, a California corporation, whose address is 50
California Street, 10th Floor, San Francisco, California 94111, as beneficiary
("Beneficiary") acting in its capacity as collateral agent for and on behalf
of Salton Sea Funding Corporation, a Delaware corporation ("Funding
Corporation") and the Secured Parties (the "Secured Parties") under that
certain Collateral Agency and Intercreditor Agreement by and among
Beneficiary, Funding Corporation and the Guarantors and Secured Parties
thereto (the "Intercreditor Agreement") and that certain Trust Indenture dated
as of July 21, 1995, as the same may be amended, modified or supplemented,
including pursuant to that certain Supplemental Trust Indenture, dated as of
even date herewith, by and between Funding Corporation and Beneficiary, as
trustee (as so amended, modified or supplemented, the "Indenture"). This Deed
of Trust is entered into pursuant to that certain Amended and Restated Credit
Agreement (Partnership Guarantors) dated as of even date herewith by and
between Trustor and Funding Corporation (the "Partnership Credit Agreement"),
the Indenture and the other Financing Documents. Unless otherwise defined
herein, capitalized terms shall have the meanings set forth in Exhibit A to
the Indenture, which Exhibit A is hereby incorporated by this reference.
NOW, THEREFORE, in consideration of, and to secure the
payment and performance of the Debt (as hereinafter defined) which Debt may
increase, decrease and increase again from time to time, Trustor has given,
granted, bargained, sold, alienated, conveyed, confirmed and assigned, and by
these presents does give, grant, bargain, sell, alienate, convey, confirm and
assign unto Trustee, its successors and assigns, with general warranties of
title, in trust with power of sale and right of entry and possession forever,
for the benefit and security of Beneficiary as collateral agent for Funding
Corporation and the Secured Parties, all right title and interest of Trustor
in and to, the following property, rights and interests, whether now owned or
hereafter acquired (such property, rights and interests being hereinbefore and
hereinafter collectively referred to as the "Trust Property") :
(a) all of Trustor's right, title and interest in
that certain real property in the County of Imperial, State of
California, described in Exhibit A attached hereto and by this
reference incorporated herein (the "Resource Easement Area
Premises"), pursuant to that certain Easement Grant Deed and
Agreement Regarding Rights for Geothermal Development dated as of
August 15, 1988 between Magma Power Company, a Nevada corporation, as
grantor ("Magma"), and Trustor, as grantee, as amended by that
certain First Amendment to Easement Grant Deed and Agreement
Regarding Rights for Geothermal Development dated as of October 26,
1988 (a Short Form of which was recorded on October 26, 1988 in Book
1613, Page 324 of the Official Records of
<PAGE>
Imperial County, California (the "Official Records")), as amended by
that certain Clarification and Amendment dated as of June 17, 1996
between Magma and Trustor (the "Clarification and Amendment"), which
is being recorded in the Official Records concurrently herewith
(collectively, and as the same may from time to time be further
amended and be in effect in accordance with the other Financing
Documents, the "Easement Grant Deed"), together with all renewals,
extensions, supplements, amendments, cancellations or terminations
thereof and all credits, deposits, options, privileges and rights
thereunder;
(b) all of Trustor's right, title and interest in
that certain real property in the County of Imperial, State of
California, described in Exhibit B attached hereto and by this
reference incorporated herein (the "Ground Lease Premises") (the
Resource Easement Area Premises and the Ground Lease Premises being
hereinafter collectively referred to as the "Leathers Premises");
pursuant to that certain Ground Lease dated as of October 26, 1988
between Magma, as landlord, and Trustor, as tenant (a Memorandum of
which was recorded on October 26, 1988 in Book 1613, Page 318 of
Official Records), as amended by the Clarification and Amendment
(collectively, and as the same may from time to time be further
amended and be in effect in accordance with the other Financing
Documents, the "Ground Lease"), together with all renewals,
extensions, supplements, amendments, cancellations or terminations
thereof and all credits, deposits, options, privileges and rights
thereunder;
(c) all buildings, improvements and fixtures now or
hereafter located on the Leathers Premises (hereinafter referred to
as the "Improvements");
(d) the Easement Grant Deed and the rights and
interests created thereunder together with all renewals, extensions,
supplements, amendments, cancellations or terminations thereof;
(e) the Ground Lease and the rights and interests
created thereunder together with all renewals, extensions,
supplements, amendments, cancellations or terminations thereof;
(f) all the estate, right, title, claim or demand
of any nature whatsoever of Trustor, either in law or in equity, in
possession or expectancy, in and to the Trust Property and in all
replacements, substitutes, renewals, betterments and extensions of
and all additions to any of the Improvements, or any part thereof;
(g) all easements (other than as created under and
pursuant to the Easement Grant Deed), rights-of-way, gores of land,
streets, ways, alleys, passages, sewer rights, waters, water courses,
water rights and powers, and all estates, rights, titles, interests,
privileges, liberties, tenements, hereditaments, revocable consents,
options, appendages and appurtenances of any nature whatsoever, in
any way belonging, relating or pertaining to the Trust Property
(including, without limitation, any and all development rights, air
rights, water rights or similar or comparable rights of any
2
<PAGE>
nature whatsoever now or hereafter appurtenant to the Leathers
Premises or now or hereafter transferred to the Leathers Premises)
together with all renewals, extensions, supplements or amendments
thereof, and Trustor's interest in all land lying in the bed of any
street, road or avenue, opened or proposed, in front of or adjoining
the Leathers Premises to the center line thereof;
(h) all machinery, apparatus, equipment, fittings,
fixtures and other property of every kind and nature whatsoever owned
by Trustor, or in which Trustor has or shall have an interest, now or
hereafter located upon the Trust Property, or appurtenances thereto,
and usable in connection with the present or future operation and
occupancy of the Trust Property and all equipment, materials,
supplies, apparatus and other items now or hereafter attached to,
installed in or used (temporarily or permanently) of any nature
whatsoever, now or hereafter located upon the Trust Property and all
renewals, replacements and substitutions thereof and additions
thereto, including but not limited to any and all partitions, ducts,
shafts, pipes, radiators, conduits, wiring, floor coverings, awnings,
motors, engines, boilers, stokers, pumps, dynamos, transformers,
turbines, generators, fans, blowers, vents, switchboards, elevators,
mail or coal conveyors, escalators, compressors, furnaces, cleaning
equipment, call and sprinkler systems, fire extinguishing apparatus,
water and other tanks, heating, ventilating, plumbing, laundry,
incinerating, air conditioning and air cooling systems and water,
gas, telephone, telecommunications, telemetry, electric equipment,
wells, sumps, test holes, pipelines, separators, clarifiers,
crystallizers, headers, scrubbers, demisters, cooling towers,
turbines, generators, geothermal electric generating facilities,
buildings sheds, roads, transformers and transmission lines
(hereinafter collectively referred to as the "Equipment"), and the
right, title and interest of Trustor in and to any of the Equipment
which may be subject to any security agreements (as defined in the
Uniform Commercial Code of the State of California) superior in lien
to the lien of this Deed of Trust;
(i) all awards or payments, including interest
thereon, and the right to receive the same, which may be made with
respect to the Trust Property, whether from state fund sharing or
from the exercise of the right of eminent domain (including any
transfer made in lieu of the exercise of said right), changes of
grade of street or for any other injury to or decrease in the value
of the Trust Property now or hereafter located thereon, whether
direct or consequential, which said awards and payments are hereby
assigned, and Beneficiary is hereby authorized to collect and receive
the proceeds thereof and to give proper receipts and acquittances
therefor;
(j) all refunds or rebates of all taxes or charges
in lieu of taxes, assessments, water rates, sewer rents and other
charges, including vault charges and license or permit fees for the
use of vaults, chutes and similar areas on or adjoining the Premises,
now or hereafter levied or assessed against the Trust Property
(hereinafter referred to as the "Taxes");
3
<PAGE>
(k) all leases (including oil, gas and other
mineral leases), subleases, franchises, licenses, concessions,
permits, contracts and other agreements affecting the use or
occupancy of the Trust Property now or hereafter entered into and any
renewals or extensions thereof (hereinafter referred to as the
"Leases") and the right to receive and apply the rents, issues and
profits of the Trust Property to the extent of Trustor's interest
therein, including but not limited to the proceeds of all
hydrocarbons or other minerals produced from the Trust Property and
all delay rentals and bonuses from any oil, gas or other mineral
lease (hereinafter referred to as the "Rents") to the payment of the
Debt;
(l) all inventory, accounts and general intangibles
owned by Trustor, or in which Trustor now has or hereafter shall have
any right, title or interest, now or hereafter located upon, arising
in connection with or concerning the Trust Property;
(m) all proceeds of and any unearned premiums on
any insurance policies covering the Trust Property, including,
without limitation, the right to receive the proceeds of any
insurance, judgments, or settlements made in lieu thereof, for damage
to the Trust Property;
(n) the right, in the name and on behalf of
Trustor, to appear in and defend any action or proceeding brought
with respect to the Trust Property and to commence any action or
proceeding to protect the interest of Beneficiary, Funding
Corporation and the Secured Parties in the Trust Property;
(o) all of Trustor's right, title and interest in
and to all plans and specifications prepared for construction of
Improvements or other development of the Trust Property (including
all amendments, modifications, supplements, general conditions and
addenda thereof or thereto) and all studies, data and drawings
related thereto, and all contracts and agreements of Trustor relating
to the aforesaid plans and specifications or to the aforesaid
studies, data and drawings or to the construction of Improvements on
the Trust Property;
(p) all contracts with property managers,
surveyors, real estate advisors and consultants, geothermal advisors
and consultants, geothermal engineers, real estate brokers, and other
like agents and professionals that relate to any part of the Trust
Property, including without limitation, any Improvements constructed
or to be constructed on the Trust Property, and all maps, reports,
surveys, and studies of or relating to any of the Trust Property,
owned by Trustor or in which Trustor has or shall have an interest
and now or hereafter in the possession of Trustor or any such agent
or professional;
(q) all present and future agreements, permits,
licenses and approvals, as well as all modifications, supplements,
extensions and renewals thereof, now existing or hereafter made, in
which Trustor has or shall have an interest relating to the use,
4
<PAGE>
development and/or occupancy of the Resource Easement Area Premises,
the Ground Lease Premises and/or the Improvements;
(r) all products and proceeds of any of the Trust
Property herein described; and
(s) all bank accounts and trust accounts of
Trustor, including without limitation Trustor's accounts in the
Capital Improvements Fund and any other funds of Trustor on deposit
pursuant to the Indenture and the Depositary Agreement.
This Deed of Trust secures the following
obligations which shall heretofore and hereinafter collectively be referred to
as the Debt:
(i) The payment of all indebtedness of Trustor
evidenced by the Financing Documents to which it is a party; and
(ii) The satisfaction and performance of all other
debts, obligations, covenants, agreements, and liabilities of Trustor to
Trustee and Beneficiary arising out of, connected with, or related to this
Deed of Trust or the Financing Documents and all amendments, extensions, and
renewals of the foregoing documents, whether now existing or hereafter
arising, voluntary or involuntary, absolute or contingent, liquidated or
unliquidated, and whether or not from time to time decreased or extinguished
and later increased, created, or incurred.
To protect the security of this Deed of Trust,
Trustor covenants with and represents and warrants to Trustee, Beneficiary,
Funding Corporation and the Secured Parties as follows:
2. Payment of Debt. Trustor will pay the Debt at
the time and in the manner provided for its payment in this Deed of Trust and
the Financing Documents, as applicable.
3. Warranty of Title. Subject only to Permitted
Liens, Trustor warrants its right, title or interest, as applicable, to the
Resource Easement Area Premises, the Ground Lease Premises, the Improvements,
the Equipment and the balance of the Trust Property and the validity and
priority of the lien of this Deed of Trust and the estate hereof against the
claims and demands of all persons whomsoever. Trustor also represents and
warrants that (i) Trustor is now, and after giving effect to this Deed of
Trust, will be, in a solvent condition, (ii) the execution and delivery of
this Deed of Trust by Trustor does not constitute a "fraudulent conveyance"
within the meaning of Title 11 of the United States Code as now constituted or
under any other applicable statute, and (iii) no bankruptcy or insolvency
proceedings are pending or contemplated by or, to the best of Trustor's
knowledge, against Trustor.
5
<PAGE>
4. Notice. Trustor hereby requests that a copy of
notice of default and notice of sale be mailed to it at the address set forth
below, and such address is also the mailing address of Trustor, as debtor,
under the California Uniform Commercial Code. Beneficiary's address given
below is the address for Beneficiary on behalf of Funding Corporation and the
Secured Parties, as secured party, under the California Uniform Commercial
Code. In addition, any notice, request, demand, statement, authorization,
approval or consent made hereunder shall be made pursuant to the provisions of
the Partnership Credit Agreement as follows:
If to Trustor:
Leathers, L.P.
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
to Trustee:
Chicago Title Insurance Company
925 B Street
San Diego, California 92101
Attention: Legal Department
If to Beneficiary:
Chemical Trust Company of California
50 California Street, 10th Floor
San Francisco, California 94111
Attention: Legal Department
5. Sale of Trust Property. If this Deed of Trust is
foreclosed, or the power of sale hereunder is exercised, the Trust Property,
or any interest therein, may, at the discretion of Beneficiary, be sold in one
or more parcels or in several interests or portions and in any order or
manner.
6. No Credits on Account of the Debt. Trustor will
not claim or demand or be entitled to any credit or credits on account of the
Debt for any part of the Taxes assessed against the Trust Property or any part
thereof, and no deduction shall otherwise be made or claimed from the taxable
value of the Trust Property, or any part thereof, by reason of this Deed of
Trust or the Debt.
6
<PAGE>
7. Offset, Counterclaims and Defenses. Any assignee
of this Deed of Trust and the Debt secured hereby shall take the same free and
clear of all offsets, counterclaims or defenses of any nature whatsoever which
Trustor may have against any assignor of this Deed of Trust and the Debt
secured hereby, and no such offset, counterclaim or defense shall be
interposed or asserted by Trustor in any action or proceeding brought by any
such assignee upon this Deed of Trust or the Debt secured hereby and any such
right to interpose or assert any such offset, counterclaim or defense in any
such action or proceeding is hereby expressly waived by Trustor.
8. Other Security for the Debt. Trustor shall
observe and perform all of the terms, covenants and provisions to be observed
or performed by Trustor contained in this Deed of Trust and in the Financing
Documents to which Trustor shall be a party evidencing, securing or
guaranteeing payment of the Debt, in whole or in part, or otherwise executed
and delivered in connection with this Deed of Trust or the Financing
Documents.
9. Documentary Stamps. If at any time the United
States of America, any state thereof or any governmental subdivision of any
such state, shall require revenue or other stamps to be affixed to the
Financing Documents or this Deed of Trust, Trustor will pay for the same, with
interest and penalties thereon, if any.
10. Right of Entry. Beneficiary, Funding
Corporation and each of the Secured Parties shall have the right to enter and
inspect the Trust Property at all reasonable times as provided in the
Partnership Credit Agreement.
11. Books and Records. Trustor will comply with all
of the provisions and requirements of Section 4.16 of the Partnership Credit
Agreement concerning its books, records and accounts reflecting all of the
financial affairs of Trustor.
12. Right to Cure Defaults. Upon the occurrence and
during the continuance of a Credit Agreement Event of Default under the
Partnership Credit Agreement or a Guarantee Event of Default under the
Partnership Guarantee, Beneficiary, Funding Corporation or the Secured Parties
may, at their discretion, remedy the same in accordance with the applicable
provisions of the Partnership Credit Agreement and for such purpose shall have
the right to enter upon the Trust Property or any portion thereof without
thereby becoming liable to Trustor or any person in possession thereof holding
under Trustor in each case to the extent set forth in the Partnership Credit
Agreement. If Beneficiary, Funding Corporation or the Secured Parties shall
remedy such a default or appear in, defend, or bring any action or proceeding
to protect their interest in the Trust Property or to foreclose this Deed of
Trust or to exercise the power of sale granted under this Deed of Trust or to
collect the Debt or to otherwise exercise any remedies available to
Beneficiary, Funding Corporation or the Secured Parties under this Deed of
Trust, the costs and expenses thereof (including attorneys' fees to the extent
permitted by law) shall be treated as set forth in Section 5.4 of the
Partnership Credit Agreement.
7
<PAGE>
13. Appointment of Receiver. Trustee or
Beneficiary, in any action to foreclose this Deed of Trust or exercise the
power of sale granted under this Deed of Trust or upon the actual or
threatened waste to any part of the Trust Property or upon the occurrence of a
Credit Agreement Event of Default under the Partnership Credit Agreement or a
Guarantee Event of Default under the Partnership Guarantee, shall be at
liberty, without notice, to apply for the appointment of a receiver of the
Rents, and shall be entitled to the appointment of such receiver as a matter
of right, without regard to the value of the Trust Property as security for
the Debt, or the solvency or insolvency of any person then liable for the
payment of the Debt.
14. Non-Waiver. The failure of Beneficiary to
insist upon strict performance of any term of this Deed of Trust shall not be
deemed to be a waiver of any term of this Deed of Trust. Trustor shall not be
relieved of Trustor's obligation to pay and perform the Debt at the time and
in the manner provided for its payment in the Financing Documents and this
Deed of Trust by reason of (i) failure to comply with any request of Trustor
to take any action to foreclose this Deed of Trust or otherwise enforce any of
the provisions hereof or of the Financing Documents or any other mortgage,
deed of trust, instrument or document securing or guaranteeing the payment of
the Debt or a portion thereof, (ii) the release, regardless of consideration,
of the whole or any part of the Trust Property or any other security for the
Debt, or (iii) any agreement or stipulation between Beneficiary and any
subsequent owner or owners of the Trust Property or other person extending the
time of payment or otherwise modifying or supplementing the terms of this Deed
of Trust or the Financing Documents evidencing, securing or guaranteeing
payment of the Debt or any portion thereof, without first having obtained the
consent of Trustor (but without prejudice to the rights of Trustor under the
Partnership Credit Agreement), and in the latter event, Trustor shall continue
to be obligated to pay and perform the Debt at the time and in the manner
provided in the Financing Documents and this Deed of Trust, as so extended,
modified and supplemented, unless expressly released and discharged from such
obligation by Beneficiary in writing. Regardless of consideration, and without
the necessity for any notice to or consent by the holder of any subordinate
lien, encumbrance, right, title or interest in or to the Trust Property,
Beneficiary, Funding Corporation or the Secured Parties may release any person
at any time liable for the payment of the Debt or any portion thereof or all
or any part of the security held for the Debt and may extend the time of
payment or otherwise modify the terms of the Financing Documents or this Deed
of Trust, including, without limitation, a modification of the interest rate
payable on the principal balance of the Debt, without in any manner impairing
or affecting this Deed of Trust or the lien thereof or the priority of this
Deed of Trust, as so extended and modified, as security for the Debt over any
such subordinate lien, encumbrance, right, title or interest. Beneficiary,
Funding Corporation and the Secured Parties may resort for the payment of the
Debt to any other security held by Beneficiary, Funding Corporation or the
Secured Parties in such order and manner as Beneficiary, Funding Corporation
or the Secured Parties, in their discretion, may elect. Beneficiary, Funding
Corporation or the Secured Parties may take action to recover the Debt, or any
portion thereof, or to enforce any covenant hereof without prejudice to the
right of the Beneficiary thereafter to foreclose this Deed of Trust. The
Beneficiary, Funding Corporation and the Secured Parties shall not be limited
exclusively to the rights and remedies herein stated
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but shall be entitled to every additional right and remedy now or hereafter
afforded by law or equity. The rights of the Beneficiary, Funding Corporation
and the Secured Parties under this Deed of Trust shall be separate, distinct
and cumulative, and none shall be given effect to the exclusion of the others.
No act of Funding Corporation, the Secured Parties or Beneficiary shall be
construed as an election to proceed under any one provision herein to the
exclusion of any other provision.
15. Power of Sale. Subject to the provisions of the
Intercreditor Agreement, upon the occurrence and during the continuance of a
Credit Agreement Event of Default under the Partnership Credit Agreement or a
Guarantee Event of Default under the Partnership Guarantee, Beneficiary may at
any time, at its option and in its sole discretion, declare the Debt to be due
and payable and the same shall thereupon become immediately due and payable,
including any prepayment charge or fee payable under the terms of the
Financing Documents. Beneficiary may also do any or all of the following;
provided, however, that any of the following actions shall be undertaken in a
commercially reasonable manner in accordance with applicable law; and
provided, further, that Beneficiary shall have no obligation to do any of the
following:
(a) Either in person or by agent, with or without
bringing any action or proceeding or by a receiver appointed by a court and
without regard to the adequacy of Beneficiary's, Funding Corporation's and the
Secured Parties' security, enter upon and take possession of the Trust
Property or any part hereof and do any acts which Beneficiary deems necessary
or desirable to preserve the value, marketability or rentability of the Trust
Property or to increase the income therefrom or to protect the security hereof
and with or without taking possession of any of the Trust Property, sue for or
otherwise collect all Rents and profits including those past due and unpaid,
and apply the same, less costs and expenses of operation and collection
including attorneys' fees and expenses, upon the Debt, all in such order as
provided in Section 6 of the Intercreditor Agreement. The collection of Rents
and profits and the application thereof shall not cure or waive any event of
default or notice thereof or invalidate any act done in response thereto or
pursuant to such notice.
(b) Bring an action in any court of competent
jurisdiction to foreclose this instrument or to enforce any of the covenants
hereof.
(c) Exercise any or all of the remedies available
to a secured party under the Uniform Commercial Code.
(d) Beneficiary may elect to cause the Trust
Property or any part thereof to be sold under the power of sale herein granted
in any manner permitted by applicable law. In connection with any sale or
sales hereunder, Beneficiary may elect to treat any of the Trust Property
which consists of a right in action or which is property that can be severed
from the real property covered hereby or any improvements thereon without
causing structural damage thereto as if the same were personal property, and
dispose of the same in accordance with applicable law, separate and apart from
the sale of real property. Any sale of any personal property hereunder shall
be conducted in any manner permitted by Section 9501 or any other
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applicable sections of the California Uniform Commercial Code. Where the Trust
Property consists of real and personal property or fixtures, whether or not
such personal property is located on or within the real property, Beneficiary
may elect in its discretion to exercise its rights and remedies against any or
all of the real property, personal property, and fixtures in such order and
manner as is now or hereafter permitted by applicable law. Without limiting
the generality of the foregoing, Beneficiary may at its sole and absolute
discretion and without regard to the adequacy of its security elect to proceed
against any or all of the real property, personal property and fixtures in any
manner permitted under Section 9501(4)(a) of the California Uniform Commercial
Code; and if the Beneficiary elects to proceed in the manner permitted under
Section 9501(4)(a)(ii) of the California Uniform Commercial Code, the power of
sale herein granted shall be exercisable with respect to all or any of the
real property and fixtures covered hereby, as designated by Beneficiary, and
the Trustee is hereby authorized and empowered to conduct any such sale of any
real property and fixtures in accordance with the procedures applicable to
real property. Where the Trust Property consists of real property and personal
property, any reinstatement of the Debt, following the occurrence of a Credit
Agreement Event of Default under the Partnership Credit Agreement or a
Guarantee Event of Default under the Partnership Guarantee and an election by
the Beneficiary to accelerate the maturity of the Debt, which is made by
Trustor or any other person or entity permitted to exercise the right of
reinstatement under Section 2924c of the California Civil Code or any
successor statute, shall, in accordance with the terms of California Uniform
Commercial Code Section 9501(4)(c)(iii), not prohibit the Beneficiary from
conducting a sale or other disposition of any personal property or fixtures or
from otherwise proceeding against or continuing to proceed against any
personal property or fixtures in any manner permitted by the California
Uniform Commercial Code; nor shall any such reinstatement invalidate, rescind
or otherwise affect any sale, disposition or other proceeding held, conducted
or instituted with respect to any personal property or fixtures prior to such
reinstatement. Any sums paid to Beneficiary, Funding Corporation or the
Secured Parties in effecting any reinstatement pursuant to Section 2924c of
the California Civil Code shall be applied to the Debt and to Beneficiary's,
Funding Corporation's, the Secured Parties' and Trustee's reasonable costs and
expenses in the manner required by Section 2924c. Should Beneficiary elect to
sell any of the Trust Property which is real property or which is personal
property or fixtures that Beneficiary has elected under Section 9501(4)(a)(ii)
of the California Uniform Commercial Code to sell together with real property
in accordance with the laws governing a sale of real property, such notice of
default and election to sell shall be given as may then be required by law.
Thereafter, upon the expiration of such time and the giving of such notice of
sale as may then be required by law, at the time and place specified in the
notice of sale, Trustee shall sell such property, or any portion thereof
specified by Beneficiary, at public auction to the highest bidder for cash in
lawful money of the United States. Trustee may, and upon request of
Beneficiary shall, from time to time, postpone the sale by public announcement
thereof at the time and place noticed therefor. If the Trust Property consists
of several lots, parcels or interests, Beneficiary may designate the order in
which the same shall be offered for sale or sold. Should Beneficiary desire
that more than one such sale or other disposition be conducted, Beneficiary
may, at its option, cause the same to be conducted simultaneously, or
successively on the same day, or at such different days or times and in such
order as Beneficiary may deem to be in its best interest. Any person,
including Trustor, Trustee, Beneficiary, Funding Corporation or any of
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the Secured Parties, may purchase at the sale. In the event Beneficiary elects
to dispose of the Trust Property through more than one sale, Trustor agrees to
pay the costs and expenses of each such sale and of any judicial proceedings
wherein the same may be made, including reasonable compensation to Trustee and
Beneficiary, their agents and counsel, and to pay all expenses, liabilities
and advances made or incurred by Trustee in connection with such sale or
sales, together with interest on all such advances made by Trustee at the
interest rate then applicable to the indebtedness evidenced by the Partnership
Credit Agreement. Upon any sale Trustee shall execute and deliver to the
purchaser or purchasers a deed or deeds conveying the property so sold but
without any covenant or warranty whatsoever express or implied whereupon such
purchaser or purchasers shall be let into immediate possession, and the
recitals in any such deed or deeds of facts such as default, the giving of
notice of default and notice of sale, and other facts affecting the regularity
or validity of such sale or disposition, shall be conclusive proof of the
truth of such facts and any such deed or deeds shall be conclusive against all
persons as to such facts recited therein.
(e) Exercise each of its other rights and remedies
under this Deed of Trust and the Financing Documents, including, any or all of
the following:
(i) declare the Debt, with all interest thereon and
all other sums secured hereby, to be immediately due and payable, and
if the same is not paid on demand, at Beneficiary's option, bring
suit therefor and demand payment thereof and if the same is not paid
on demand, bring suit for any delinquent installment payment under
the Financing Documents and take any and all steps and institute any
and all other proceedings that Beneficiary deems necessary to enforce
the indebtedness and obligations secured hereby and to protect the
lien of this Deed of Trust;
(ii) without assuming liability for the performance
of any of Trustor's obligations hereunder or under the Partnership
Project Documents, enter and take possession of the Trust Property or
any part thereof, exclude Trustor and all persons claiming under
Trustor whose claims are junior to this Deed of Trust, wholly or
partly therefrom, and use, operate, manage and control the same
either in the name of Trustor or otherwise as Beneficiary shall deem
best, and upon such entry, from time to time at the expense of
Trustor and the Trust Property, make all such repairs, replacements,
alterations, additions or improvements to the Trust Property or any
part thereof as Beneficiary may deem proper and, whether or not
Beneficiary has so entered and taken possession of the Trust Property
or any part thereof, collect and receive all the Rents and apply the
same, to the extent permitted by law, to the payment of all expenses
which Beneficiary may be authorized to make under this Deed of Trust,
the remainder to be applied to the payment of the Debt until the same
shall have been repaid in full; if Beneficiary demands or attempts to
take possession of the Trust Property or any portion thereof in the
proper exercise of any rights hereunder, Trustor shall promptly turn
over and deliver complete possession thereto to Beneficiary; and
(iii) personally or by agents, with or without
entry, if Beneficiary shall deem it advisable, proceed to protect and
enforce its rights under this Deed of Trust, by suit
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for specific performance of any covenant contained herein or in the Financing
Documents or in aid of the execution of any power granted herein or in the
Financing Documents, or for the foreclosure of this Deed of Trust and the sale
for cash of the Trust Property under the judgment or decree of a court of
competent jurisdiction, or for the exercise of the power of sale granted under
this Deed of Trust or for the enforcement of any other right as Beneficiary
shall deem most effectual for such purpose; provided that in the event of a
sale, by foreclosure or otherwise, of less than all of the Trust Property,
this Deed of Trust shall continue as a lien on, and security interest in, the
remaining portion of the Trust Property and Beneficiary shall not be obligated
to sell upon credit unless Beneficiary shall have expressly consented in
writing to a sale upon credit.
(f) Except as otherwise required by law, apply the
proceeds of any foreclosure or disposition in the manner set forth in the
Intercreditor Agreement.
(g) Upon any sale or sales made under or by virtue
of this section, whether made under the power of sale or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Beneficiary or
any of the Secured Parties may bid for and acquire the Trust Property or any
part thereof. In lieu of paying cash for the Trust Property, Beneficiary
and/or any of the Secured Parties may make settlement for the purchase price
by crediting against the Debt the sales price of the Trust Property, as
adjusted for the expenses of sale and the costs of the action and any other
sums for which Trustor is obligated to reimburse Trustee or Beneficiary and
the Secured Parties under this Deed of Trust.
16. Concerning the Trustee. Trustee shall be under
no duty to take any action hereunder except as expressly required hereunder or
by law, or to perform any act which would involve Trustee in any expense or
liability or to institute or defend any suit in respect hereof, unless
properly indemnified to Trustee's reasonable satisfaction. Trustee, by
acceptance of this Deed of Trust, covenants to perform and fulfill the trusts
herein created, being liable, however, only for willful negligence or
misconduct, and hereby waives any statutory fee and agrees to accept
reasonable compensation, in lieu thereof, for any services rendered by Trustee
in accordance with the terms hereof. Trustee may resign at any time upon
giving thirty (30) days' notice to Trustor and to Beneficiary. Beneficiary may
remove Trustee at any time or from time to time and select a successor
trustee. In the event of the death, removal, resignation, refusal to act, or
inability to act of Trustee, or in its sole discretion for any reason
whatsoever Beneficiary may, without notice and without specifying any reason
therefor and without applying to any court, select and appoint a successor
trustee, by an instrument recorded wherever this Deed of Trust is recorded and
all powers, rights, duties and authority of Trustee, as aforesaid, shall
thereupon become vested in such successor. Such substitute trustee shall not
be required to give bond for the faithful performance of the duties of Trustee
hereunder unless required by Beneficiary.
17. Trustee's Fees. Trustor shall pay all costs,
fees and expenses incurred by Trustee and Trustee's agents and counsel in
connection with the performance by Trustee of
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Trustee's duties hereunder and all such costs, fees and expenses shall be
secured by this Deed of Trust.
18. Proceeds of Sale.
(a) The proceeds or avails of any foreclosure sale
or other remedy exercised pursuant to Section 14, above, entitled "Power of
Sale" together with all other sums which then may be held by Beneficiary under
this Deed of Trust, or under a judgment, order or decree made in any action to
foreclose or to enforce this Deed of Trust whether under the provisions of
this Deed of Trust, or otherwise, shall be distributed according to the terms
of the Intercreditor Agreement.
(b) Subject to the provisions of Section 43 of this
Deed of Trust, no sale or other disposition of all or any part of the Trust
Property shall be deemed to relieve Trustor of its obligations under this Deed
of Trust or the Financing Documents except and only to the extent the proceeds
are applied to the payment of the Debt or such other obligations. If the
proceeds of sale, collection or other realization of or upon the Trust
Property are insufficient to cover the costs and expenses of such realization
and the payment in full of the Debt, Trustor shall remain liable for any
deficiency.
19. Trustor as Tenant Holding Over. In the event of
any such foreclosure or other sale by Beneficiary and/or the Secured Parties,
Trustor shall be deemed a tenant holding over and shall forthwith deliver
possession to the purchaser or purchasers at such sale or be summarily
dispossessed according to provisions of law applicable to tenants holding
over.
20. Leases. Beneficiary is authorized to
subordinate this Deed of Trust to any Leases and to foreclose this Deed of
Trust subject to the rights of any tenants of the Trust Property, if any, and
the failure to so subordinate or to make any such tenants' parties to any such
foreclosure or other proceedings and to foreclose their rights will not be,
nor be asserted to be by Trustor, a defense to any proceedings instituted by
Beneficiary to collect the Debt.
21. Discontinuance of Proceedings. In case
Beneficiary, Funding Corporation or the Secured Parties shall have proceeded
to enforce any right, power or remedy under this Deed of Trust by foreclosure,
sale, entry or otherwise, and such proceeding shall have been withdrawn,
discontinued or abandoned for any reason, or shall have been determined
adverse to Beneficiary, Funding Corporation or the Secured Parties, then in
every such case, to the fullest extent permitted by law, (a) Trustor and
Beneficiary, Funding Corporation or the Secured Parties shall be restored to
their former positions and rights, (b) all rights, powers and remedies of
Beneficiary, Funding Corporation and the Secured Parties shall continue as if
no such proceeding had been taken, (c) each and every Credit Agreement Event
of Default under the Partnership Credit Agreement and each and every Guarantee
Event of Default under the Partnership Guarantee declared or occurring prior
or subsequent to such withdrawal, discontinuance or abandonment shall be or
shall be deemed to be an independent event of default and (d) neither the
Debt, this Deed of Trust nor any of the Financing Documents shall be or shall
be deemed to have been not reinstated or otherwise affected by
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such withdrawal, discontinuance or abandonment; and to the fullest extent
permitted by law, Trustor hereby expressly waives the benefit of any statute or
rule of law now provided or which may hereafter conflict with the above.
22. No Reinstatement. If a Credit Agreement Event
of Default under the Partnership Credit Agreement or a Guarantee Event of
Default under the Partnership Guarantee shall have occurred and be continuing
Beneficiary, Funding Corporation or the Secured Parties shall have proceeded
to enforce any right, power or remedy permitted hereunder, then a tender of
payment by Trustor or by anyone on behalf of Trustor of any amount less than
the amount necessary to satisfy the Debt in full, or the acceptance by
Beneficiary, Funding Corporation or the Secured Parties of any such payment so
tendered, shall not constitute a reinstatement of this Deed of Trust, the
Financing Documents or any other document evidencing, securing or guaranteeing
the Debt.
23. Trustor's Waiver of Rights. To the fullest
extent permitted by law, Trustor waives the benefit of all laws now existing
or that hereafter may be enacted providing for (i) any appraisal before sale
of any portion of the Trust Property and (ii) the benefit of all laws that may
be hereafter enacted in any way extending the time for the enforcement of the
collection of the Debt, or creating or extending a period of redemption from
any sale made in collecting said Debt. To the fullest extent that Trustor may
do so, Trustor agrees that Trustor will not at any time insist upon, plead,
claim or take the benefit or advantage of any law now or hereafter in force
providing for any appraisal, valuation, stay, extension or redemption, or any
so-called "Moratorium Laws" and Trustor, for Trustor and its successors and
assigns, and for any and all persons ever claiming any interest in the Trust
Property, to the fullest extent permitted by law, hereby waives and releases
all rights of redemption, valuation, appraisal, stay of execution, notice of
election to mature or declare due the whole of the Debt and marshaling in the
event of the exercise of the power of sale granted under this Deed of Trust or
foreclosure of the liens hereby created. If any law referred to in this
Section and now in force, of which Trustor, Trustor's successors and assigns
or any other person might take advantage despite this Section, shall hereafter
be repealed or cease to be in force, such law shall not thereafter be deemed
to preclude the application of this Section.
24. Security Agreement. (a) Trustor maintains
places of business in the State of California and Trustor will immediately
notify Beneficiary in writing of any change in such places of business.
(a) At the request of Beneficiary, Trustor shall
join Beneficiary in executing one or more financing statements and
continuations and amendments thereof pursuant to the UCC in form reasonably
satisfactory to Beneficiary; and Trustor will pay the cost of filing the same
in all public offices wherever filing is deemed by Beneficiary to be
necessary. In the event Trustor fails to execute such documents within five
(5) business days after request by Beneficiary, Trustor hereby authorizes
Beneficiary to file such financing statements and irrevocably constitutes and
appoints Beneficiary, or any officer of Beneficiary, as its true and lawful
attorney-in-fact to execute the same on behalf of Trustor.
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(b) This Deed of Trust constitutes a financing
statement filed as a fixture filing under UCC ss. 9402(6) in the official
records of Imperial County with respect to any and all fixtures included
within the term "Trust Property" and with respect to any goods or other
personal property that may now be or hereafter become such a fixture.
(c) Beneficiary has no responsibility for and does
not assume any of, Trustor's obligations or duties under any agreement or
obligation which is part of the Equipment or any obligation relating to the
acquisition, preparation, custody, use, enforcement or operation of any of the
Trust Property.
(d) Trustor and Beneficiary agree that the filing
of a financing statement in the records normally having to do with personal
property shall never be construed as in any way derogating from or impairing
this Deed of Trust and the intention of the parties that everything used in
connection with the production of income from the Trust Property or adapted
for use therein or which is described or reflected in this Deed of Trust is,
and at all times and for all purposes and in all proceedings both legal or
equitable shall be regarded as part of the real estate subject to the lien
hereof, irrespective of whether (i) any such item is physically attached to
improvements located on such real property or (ii) any such item is referred
to or reflected in any financing statement so filed at any time. Similarly,
the mention in any such financing statement of (A) the rights in or to the
proceeds of any fire hazard insurance policy or (B) any award in eminent
domain proceedings for taking or for loss of value or for cause of action or
proceeds thereof in connection with any damage or injury to the Trust Property
or any part thereof shall never be construed as in any way altering any of the
rights of Beneficiary, Funding Corporation and the Secured Parties as
determined by this instrument or impugning the priority of Beneficiary's,
Funding Corporation's and the Secured Parties' lien granted hereby or by any
other recorded document, but such mention in such financing statement is
declared to be for the protection of Beneficiary, Funding Corporation and the
Secured Parties in the event any court shall at any time hold with respect to
matters (A) and (B) above that notice of Beneficiary's, Funding Corporation's
and the Secured Parties' priority of interest, to be effective against a
particular class of persons, including, without limitation, the Federal
government and any subdivision or entity of the Federal government must be
filed in the personal property records or other commercial code records.
25. Further Acts, etc. Trustor will, at the cost of
Trustor, and without expense to Beneficiary, Funding Corporation or the
Secured Parties, execute, acknowledge and deliver all and every such further
acts, deeds, conveyances, financing statements, mortgages, deeds of trust,
assignments, notices of assignments, transfers and assurances as Beneficiary
shall, from time to time, reasonably require, for the better assuring,
conveying, assigning, transferring and confirming unto Beneficiary, the
property and rights hereby conveyed or assigned or intended now or hereafter
so to be, or which Trustor may be or may hereafter become bound to convey or
assign to Beneficiary, or for carrying out the intention or facilitating the
performance of the terms of this Deed of Trust or for filing, registering or
recording this Deed of Trust and, on demand, will execute and deliver and
hereby authorizes Beneficiary to execute in the name of Trustor to the extent
they may lawfully do so, one or
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more financing statements, chattel mortgages or comparable security instruments,
to evidence and perfect more effectively the lien hereof upon the Trust
Property.
26. Headings, etc. The headings, titles and
captions of various Sections of this Deed of Trust are for convenience of
reference only and are not to be construed as defining or limiting, in any
way, the scope or intent of the provisions hereof.
27. Filing of Deed of Trust, etc. Trustor forthwith
upon the execution and delivery of this Deed of Trust and thereafter, from
time to time, will cause this Deed of Trust, and any security instrument
creating a lien or evidencing or perfecting the lien hereof upon the Trust
Property and each instrument of further assurance to be filed, registered or
recorded in such manner and in such places as may be required by any present
or future law in order to publish notice of and fully to protect, preserve and
perfect the lien hereof upon, and the interest of Beneficiary, Funding
Corporation and the Secured Parties in the Trust Property. Trustor will pay
all filing, registration or recording fees, and all expenses incurred by the
Beneficiary, Funding Corporation or Secured Parties incident to the
preparation, execution and acknowledgment of this Deed of Trust, any deed of
trust or any mortgage or deed of trust supplemental hereto, any security
instrument with respect to the Trust Property and any instrument of further
assurance, and all Federal, state, county and municipal taxes, duties,
imposts, assessments and charges arising out of or in connection with the
execution and delivery of this Deed of Trust, any mortgage or deed of trust
supplemental hereto, any security instrument with respect to the Trust
Property or any financing statement, continuation statement or other
instrument of further assurance. Trustor shall hold harmless and indemnify
Beneficiary, Funding Corporation and the Secured Parties, their successors and
assigns, against any liability incurred by reason of the imposition of any tax
on the making and recording of this Deed of Trust.
28. Usury Laws. This Deed of Trust and the
Financing Documents are subject to the express condition that at no time shall
Trustor be obligated or required to pay interest on the principal balance due
under the Financing Documents at a rate which could subject the creditor of
the debt evidenced by such instruments to either civil or criminal liability
as a result of being in excess of the maximum interest rate which Trustor is
permitted by law to contract or agree to pay. If by the terms of this Deed of
Trust or the Financing Documents Trustor is at any time required or obligated
to pay interest on the principal balance due under any of the Financing
Documents at a rate in excess of such maximum rate, the rate of interest under
such Financing Document shall be deemed to be immediately reduced to such
maximum rate and the interest payable shall be computed at such maximum rate.
29. Recovery of Sums Required to Be Paid.
Beneficiary, Funding Corporation and the Secured Parties shall have the right
pursuant to the Financing Documents from time to time to take action to
recover any sum or sums which constitute a part of the Debt as the same become
due, without regard to whether or not the balance of the Debt shall be due,
and without prejudice to the right of Beneficiary, Funding Corporation or the
Secured Parties thereafter to bring an action of foreclosure, or any other
action, for a default or defaults by Trustor existing at the time such earlier
action was commenced.
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30. Authority. Trustor (and the undersigned acting
on behalf of Trustor) has full power, authority and legal right to execute
this Deed of Trust and to mortgage, give, grant, bargain, sell, release,
pledge, convey, confirm and assign the Trust Property pursuant to the terms
hereof and to keep and observe all of the terms of this Deed of Trust on
Trustor's part to be performed.
31. Inapplicable Provisions. If any term, covenant
or condition of this Deed of Trust shall be held to be invalid, illegal or
unenforceable in any respect, this Deed of Trust shall be construed to recast
such term, covenant or condition in a manner which will allow such term,
covenant or condition to be valid provided any recasting shall be in
accordance with the original intention of the parties. When recasting any
term, covenant or condition, if it is not possible to reflect the original
intention of the parties, this Deed of Trust shall be construed without such
provision.
32. Duplicate Originals. This Deed of Trust may be
executed in any number of duplicate originals and each such duplicate original
shall be deemed to constitute but one and the same instrument.
33. Waiver of Notice. Trustor shall not be entitled
to any notices of any nature whatsoever from Beneficiary, Funding Corporation
or the Secured Parties except with respect to matters for which this Deed of
Trust, the Financing Documents or applicable law specifically and expressly
provides for the giving of notice to Trustor, and to the fullest extent
permitted by law Trustor hereby expressly waives the right to receive any
notice from Beneficiary, Funding Corporation or the Secured Parties with
respect to any matter for which this Deed of Trust, the Financing Documents or
applicable law does not specifically and expressly provide for the giving of
notice to Trustor.
34. No Oral Change. This Deed of Trust may only be
modified, amended or changed by an agreement in writing signed by Trustor and
Beneficiary, and may only be released, discharged or satisfied of record by an
instrument in writing signed by Beneficiary. Funding Corporation and the
Secured Parties shall join in any such agreement, release, discharge or
satisfaction if required for such agreement to be effective under applicable
law. No waiver of any term, covenant or provision of this Deed of Trust shall
be effective unless given in writing by Beneficiary and if so given by
Beneficiary shall only be effective in the specific instance in which given.
Trustor acknowledges that this Deed of Trust and the Financing Documents set
forth the entire agreement and understanding of Trustor and Beneficiary with
respect to the matters set forth therein and that no oral or other agreements,
understanding, representations or warranties exist with respect to those
matters other than those set forth in this Deed of Trust and the Financing
Documents.
35. Absolute and Unconditional Obligation. Trustor
acknowledges that Trustor's obligation to pay the Debt in accordance with the
provision of this Deed of Trust and the Financing Documents is and shall at
all times continue to be absolute and unconditional in all respects, and shall
at all times be valid and enforceable irrespective of any other
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agreements or circumstances of any nature whatsoever (other than any express
written agreements to the contrary by Funding Corporation and the Secured
Parties) which might otherwise constitute a defense to this Deed of Trust or
the Financing Documents or the obligations of Trustor thereunder to pay the
Debt or the obligations of any other person relating to this Deed of Trust or
the Financing Documents or the obligations of Trustor under this Deed of Trust
or the Financing Documents and to the fullest extent permitted by law Trustor
absolutely, unconditionally and irrevocably waives any and all right to assert
any defense, setoff, counterclaim or crossclaim of any nature whatsoever with
respect to the obligation of Trustor to pay the Debt in accordance with the
provisions of this Deed of Trust or the Financing Documents or the obligations
of any other person relating to this Deed of Trust or the Financing Documents
or the obligations of Trustor under this Deed of Trust or the Financing
Documents, or in any action or proceeding brought by Beneficiary to collect
the Debt, or any portion thereof, or to enforce, foreclose and realize upon
the lien and security interest created by this Deed of Trust or any other
document or instrument securing repayment of the Debt, in whole or in part.
36. Indemnification.
(a) Trustor shall indemnify and hold harmless
Beneficiary, Funding Corporation and the Secured Parties from and against all
loss, cost, liability, other expense in the manner and to the extent required
under the Financing Documents.
(b) All sums secured by this Deed of Trust shall be
paid in accordance with the Financing Documents, as applicable, without
counterclaim, setoff, deduction or defense and without abatement, suspension,
deferment, diminution or reduction, and the obligations and liabilities of
Trustor hereunder shall in no way be released, discharged or otherwise
affected (except as expressly provided herein) by reason of (i) any claim
which Trustor has or might have against Funding Corporation, any of the
Secured Parties or Beneficiary or (ii) any default or failure on the part of
Funding Corporation, any of the Secured Parties or Beneficiary to perform or
comply with any of the terms hereof, of the Partnership Credit Agreement or of
any other Financing Document.
37. Action Affecting the Trust Property.
(a) Trustor agrees to appear in and contest any
action or proceeding purporting to adversely affect the security hereof or the
rights or powers of Funding Corporation, the Secured Parties or Beneficiary
and to pay all costs and expenses of Funding Corporation, the Secured Parties
and Beneficiary, including cost of evidence of title and attorneys' fees and
expenses, in any such action or proceeding in which Funding Corporation, the
Secured Parties or Beneficiary may appear.
(b) Beneficiary shall have the right to appear in
and defend any action or proceeding brought with respect to the Trust Property
and to bring any action or proceeding, in the name and on behalf of Trustor,
Beneficiary, Funding Corporation or the Secured Parties, which Beneficiary
determines to be necessary or reasonably advisable to be brought to
18
<PAGE>
protect its, Funding Corporation's or the Secured Parties' interest in the Trust
Property if (i) Trustor fails to defend or bring such action or proceeding, as
appropriate, in a prompt and diligent manner, or thereafter fails to proceed
with diligence in the defense or prosecution of the same, or (ii) a Credit
Agreement Event of Default under the Partnership Credit Agreement or a
Guarantee Event of Default under the Partnership Guarantee shall have occurred
and be continuing.
38. Actions by Beneficiary to Preserve the Trust
Property. Except as hereinbefore expressly provided, should Trustor fail to
make any payment or do any act as and in the manner provided in any of the
Financing Documents after the expiration of any applicable cure or grace
period and as a result a Credit Agreement Event of Default under the
Partnership Credit Agreement or a Guarantee Event of Default under the
Partnership Guarantee shall occur and be continuing, Beneficiary for the
benefit of Funding Corporation and the Secured Parties, without obligation so
to do and without notice to or demand upon Trustor and without releasing
Trustor from any obligation, may make or do the same in such manner and to
such extent as Beneficiary may deem necessary to protect the security hereof.
In connection therewith (without limiting any general powers of Beneficiary,
Funding Corporation or the Secured Parties), Beneficiary, for the benefit of
Funding Corporation and the Secured Parties, shall have and is hereby given
the right, but not the obligation, (i) to the fullest extent permitted by law,
to make additions, alterations, repairs and improvements to the Trust Property
which it may consider necessary to keep the Trust Property in good condition
and repair and (ii) in exercising such powers, to pay necessary expenses,
including engagement of counsel or other necessary or desirable consultants.
Trustor shall, immediately upon demand therefor by Beneficiary, pay all costs
and expenses incurred by Funding Corporation, the Secured Parties or
Beneficiary in connection with the exercise by Beneficiary of the foregoing
rights, including without limitation, costs of evidence of title, court costs,
appraisals, surveys and attorneys' fees and expenses.
39. Remedies Not Exclusive. Subject to the
limitations set forth in Section 43 of this Deed of Trust, Beneficiary,
Funding Corporation and the Secured Parties, and each of them, shall be
entitled to enforce payment and performance of any indebtedness or obligations
secured hereby and to exercise all rights and powers granted under this Deed
of Trust or under the Financing Documents or any other agreement or any laws
now or hereafter in force, notwithstanding some or all of the said
indebtedness and obligations secured hereby may now or hereafter be otherwise
secured, whether by mortgage, deed of trust, pledge, lien, assignment or
otherwise. Subject to the limitations set forth in Section 43 of this Deed of
Trust, neither the acceptance of this Deed of Trust nor its enforcement,
whether by court action or pursuant to the power of sale or other powers
herein contained, shall prejudice or in any manner affect Beneficiary's,
Funding Corporation's or the Secured Parties' right to realize upon or enforce
any other security now or hereafter held by Beneficiary, Funding Corporation
or the Secured Parties, it being agreed that Beneficiary, on behalf of Funding
Corporation and the Secured Parties collectively and individually, shall be
entitled to enforce this Deed of Trust and any other security now or hereafter
held by Beneficiary, Funding Corporation or the Secured Parties in such order
and manner as they, collectively and individually, may in their absolute
discretion determine. No remedy herein conferred upon or reserved to
Beneficiary,
19
<PAGE>
Funding Corporation or the Secured Parties is intended to be exclusive of any
other remedy herein or by law provided or permitted, but each shall be
cumulative and shall be in addition to every other remedy given hereunder or
now or hereafter existing at law or in equity or by statute. Every right, power
or remedy given by any of the Financing Documents to Beneficiary, Funding
Corporation or the Secured Parties, or to which either of them may be otherwise
entitled, may be exercised, concurrently or independently, from time to time
and as often as may be deemed expedient by Beneficiary, Funding Corporation or
the Secured Parties. Every right, power or remedy given by this Deed of Trust
to Funding Corporation and the Secured Parties may be exercised on their behalf
by Beneficiary, whether so expressed or not. Notwithstanding any other provision
of this Deed of Trust, the rights and remedies of Beneficiary, the Funding
Corporation and the Secured Parties shall be subject to the provisions of the
Intercreditor Agreement.
40. Relationship. The relationship of Beneficiary,
Funding Corporation and the Secured Parties to Trustor hereunder is strictly
and solely that of lender and borrower, and nothing contained in this Deed of
Trust or the Financing Documents is intended to create, or shall in any event
or under any circumstance be construed as creating, a partnership, joint
venture, tenancy-in-common, joint tenancy or other relationship of any nature
whatsoever between or among Beneficiary, Funding Corporation and the Secured
Parties and Trustor other than as lender and borrower.
41. Financing Documents. This Deed of Trust is
subject to all of the terms, covenants and conditions of the Financing
Documents, which Financing Documents and all of the terms, covenants and
conditions thereof are by this reference incorporated herein and made a part
hereof with the same force and effect as if set forth at length herein.
Trustor shall observe and perform all of the terms, covenants and conditions
of the Financing Documents on Trustor's part to be observed or performed. All
advances made and all indebtedness arising and accruing under the Financing
Documents from time to time shall be secured hereby.
42. Business Purpose. Trustor hereby stipulates and
warrants that the loans secured hereby are commercial or business loans and
are transacted solely for the purpose of carrying on or acquiring a business
or commercial enterprise or for a proper business purpose under the laws of
the jurisdiction in which the Trust Property is located.
43. Time of the Essence. TIME IS OF THE ESSENCE
with respect to each and every covenant, agreement and obligation of Trustor
under this Deed of Trust and the Financing Documents.
44. Non-Recourse. The obligations hereunder are
subject to the limitations set forth in Section 6.11 of the Partnership Credit
Agreement, the provisions of which are hereby incorporated by reference.
45. Severance of Counterclaims. In the event of
foreclosure of this Deed of Trust, any and all counterclaims filed by Trustor
against Beneficiary, Funding Corporation or the Secured Parties, to the extent
permitted by law, shall be severed by the court having
20
<PAGE>
jurisdiction over the foreclosure action, for all purposes from the basic
foreclosure action, on an ex parte basis and without notice to Trustor. Trustor,
by its execution and delivery hereof, hereby expressly consents and agrees to
such severance.
46. WAIVER OF JURY TRIAL. AS AN INDEPENDENT
COVENANT HEREOF, TRUSTOR HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND
IRREVOCABLY WAIVES THE RIGHT IT MIGHT HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS DEED OF TRUST OR THE FINANCING DOCUMENTS, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY
PERSONS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BENEFICIARY TO ACCEPT
DELIVERY OF THIS DEED OF TRUST AND THE FINANCING DOCUMENTS.
47. GOVERNING LAW. THIS DEED OF TRUST IS GOVERNED
BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
48. Attorneys' Fees. Attorneys shall be entitled to
fees in connection with the enforcement, amendment, extension or modification
of this Deed of Trust.
49. Shared Draftsmanship. If any ambiguity in the
terms of this Deed of Trust, the doctrine of construction which holds that the
language of the document shall be construed against its drafter shall not
apply as all parties have shared in the drafting of this Deed of Trust.
50. No Third Party Beneficiary. This Deed of Trust,
the Partnership Credit Agreement and the other Financing Documents are for the
sole benefit of Beneficiary, Funding Corporation and each of the Secured
Parties, as applicable, and Trustor and are not for the benefit of any third
party and no third party shall gain any subrogation rights against Trustor or
in, to or with respect to any portion of the Trust Property by reason of this
Deed of Trust or the provisions hereof.
51. Security Only. This Deed of Trust is granted
for security purposes only. Accordingly, except as otherwise permitted by the
Partnership Credit Agreement or as otherwise specifically provided in this
Deed of Trust, neither Beneficiary, Funding Corporation nor the Secured
Parties, as applicable, shall enforce Trustor's rights with respect to the
Trust Property until such time as (a) an Credit Agreement Event of Default
under the Partnership Credit Agreement shall have occurred and be continuing
or (b) a Guarantee Event of Default under the Partnership Guarantee shall have
occurred and be continuing.
52. Release by Beneficiary. Upon written request of
Beneficiary stating that the Debt has been paid and upon surrender by
Beneficiary, Funding Corporation and the Secured Parties of this Deed of Trust
to Trustee for cancellation and retention and upon payment by Trustor of
Trustee's fees and the costs of executing and recording any requested
21
<PAGE>
reconveyance, Trustee shall reconvey, without cost or expense to Beneficiary,
Funding Corporation and any of the Secured Parties, to Trustor or to the
person or persons legally entitled thereto, without warranty, any portion of
the Trust Property then held hereunder. The recitals in any such reconveyance
of any matter or fact shall be conclusive proof of the truthfulness thereof.
The grantee in any such reconveyance may be described as the person or persons
legally entitled thereto.
53. Waiver. Trustor waives and releases any rights
or defenses which Trustor might otherwise have (i) under California Code of
Civil Procedure Sections 726, 725a, 580a, 580b, 580c and 580d and California
Civil Code Section 2889, which statutes might otherwise limit or condition
Beneficiary's, Funding Corporation's and/or the Secured Parties' exercise of
certain of Beneficiary's, Funding Corporation's and/or the Secured Parties'
rights and remedies in connection with the enforcement of obligations secured
by a lien on real property or (ii) under any laws now existing or hereafter
enacted providing for any appraisal before sale of a portion of the Trust
Property and (iii) to all rights of redemption, valuation, appraisal, stay of
execution, notice of election to mature or to declare due the Debt and
marshalling in the event of the foreclosure of the liens created under this
Deed of Trust or the exercise of the power of sale granted hereunder. To the
extent, if any, which such laws may be applicable, Trustor waives and releases
any right or defense which Trustor might otherwise have under such provisions
and under any other law of any applicable jurisdiction which might limit or
restrict the effectiveness or scope of any of Trustor's waivers or releases
hereunder.
54. Sole Discretion of Beneficiary or Trustee.
Except as otherwise provided in the Financing Documents, wherever pursuant to
this Deed of Trust, Beneficiary, Funding Corporation, the Secured Parties or
Trustee exercises any right given to them to approve or disapprove, or any
arrangement or term is to be satisfactory to Beneficiary, Funding Corporation,
the Secured Parties or Trustee, the decision of Beneficiary, Funding
Corporation, the Secured Parties or Trustee to approve or disapprove or to
decide that arrangements or terms are satisfactory or not satisfactory shall
be in the sole discretion of Beneficiary, Funding Corporation, the Secured
Parties or Trustee and shall be final and conclusive.
55. Partial Release. Upon receipt of written notice
from Magma to the effect that Magma has exercised the Remaining Area
Termination Option provided in Section 41 of the Ground Lease, (i) Trustor
shall have the right to quitclaim all its right, title and interest in the
Remaining Area (as that term is defined in the Ground Lease) to Magma and to
surrender and deliver possession thereof to Magma as provided in such Section
41 and (ii) Beneficiary, acting on behalf of Funding Corporation and the
Secured Parties, shall promptly execute and deliver, in recordable form, such
documents and instruments as may reasonably be necessary or appropriate to
fully release said Remaining Area from the Security Documents.
IN WITNESS WHEREOF, Trustor has duly executed this
Deed of Trust the day and year first above written.
22
<PAGE>
LEATHERS, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
its general partner
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
23
<PAGE>
STATE OF NEW YORK)
)
COUNTY OF NEW YORK)
On June 20, 1996, before me, Patricia Peterson, Notary Public,
personally appeared John G. Sylvia, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Patricia Peterson
- ------------------------------------
Notary/Public
[Signature Page to Deed of Trust, Assignment of Rents]
24
<PAGE>
EXHIBIT A
Description of the Resource Easement Area Premises
Lease No. 1:
THE SUBSURFACE OF THAT CERTAIN PORTION OF THE SOUTHWEST QUARTER OF SECTION 25,
TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL,
STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF, INCLUDING ALL
MINERALS AND GEOTHERMAL RESOURCES CONTAINED THEREIN, DESCRIBED AS FOLLOWS:
BEGINNING AT THE SOUTHWEST CORNER OF SAID SECTION 25; THENCE EAST ALONG THE
SOUTHERLY LINE THEREOF 1170 FEET; THENCE NORTH 33(Degree) 50' WEST 1130 FEET;
THENCE NORTH 71(Degree) 00' WEST 310 FEET; THENCE WEST 247.7 FEET TO THE WEST
LINE OF SAID SECTION; THENCE SOUTH ALONG THE WESTERLY LINE 1039.6 FEET TO THE
POINT OF BEGINNING. EXCEPTING ANY PORTION OF SAID SECTION NOT LYING SOUTH AND
WEST OF THE ALAMO RIVER.
Lease No. 2:
PARCEL 1:
SECTION 25, TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN BERNARDINO MERIDIAN, COUNTY
OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THAT PORTION OF THE SOUTHWEST QUARTER OF SAID SECTION 25,
DESCRIBED AS FOLLOWS:
BEGINNING AT THE SOUTHWEST CORNER OF SAID SECTION 25; THENCE EAST ALONG THE
SOUTH LINE THEREOF, 1170 FEET; THENCE NORTH 33(Degree)50' WEST, 1130 FEET;
THENCE NORTH 71(Degree)0' WEST, 310 FEET; THENCE WEST 247.7 FEET TO THE WEST
LINE OF SAID SECTION; THENCE SOUTH ALONG SAID WEST LINE, 1039.6 FEET TO THE
POINT OF BEGINNING.
FURTHER EXCEPTING THEREFROM THAT PORTION OF THE SOUTHEAST QUARTER OF SAID
SECTION 25, DESCRIBED AS FOLLOWS:
PARCEL 1, AS SHOWN ON PARCEL MAP M-1901 FILED OCTOBER 6, 1988 IN BOOK 7, PAGE
86 OF PARCEL MAPS IN THE OFFICE OF THE COUNTY RECORDER OF IMPERIAL COUNTY.
PARCEL 2:
<PAGE>
THE SOUTHEAST QUARTER OF SECTION 24, IN TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN
BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO
OFFICIAL PLAT THEREOF.
PARCEL 3:
THAT PART OF THE NORTHEAST QUARTER OF SECTION 26, IN TOWNSHIP 11 SOUTH, RANGE
13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA,
ACCORDING TO OFFICIAL PLAT THEREOF, LYING EASTERLY OF A LINE DRAWN FROM THE
SOUTHEAST CORNER OF SAID NORTHEAST QUARTER TO A POINT IN THE NORTH LINE, WHICH
IS 1122 FEET WEST OF THE NORTHEAST CORNER OF SAID NORTHEAST QUARTER.
PARCEL 4:
ALL MINERALS, INCLUDING, WITHOUT LIMITATION, OIL, HYDROCARBON GAS AND OTHER
HYDROCARBON SUBSTANCES AND GEOTHERMAL RESOURCES LYING BELOW THE SURFACE OF
THAT PORTION OF THE SOUTHEAST QUARTER OF SECTION 25, TOWNSHIP 11 SOUTH, RANGE
13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA,
DESCRIBED AS FOLLOWS:
PARCEL 1, AS SHOWN ON PARCEL MAP M-1901 FILED OCTOBER 6, 1988 IN BOOK 7, PAGE
86 OF PARCEL MAPS IN THE OFFICE OF THE COUNTY RECORDER OF IMPERIAL COUNTY.
AS EXCEPTED AND RESERVED IN THE DEED FROM RIVER RANCH, INC., RECORDED OCTOBER 7,
1988 AS INSTRUMENT NO. 88-16258, IN BOOK 1612, PAGE 399 OF OFFICIAL RECORDS.
Lease No. 3:
THAT CERTAIN PORTION OF THE NORTH HALF OF SECTION 36, TOWNSHIP 11 SOUTH, RANGE
13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA,
ACCORDING TO OFFICIAL PLAT THEREOF, DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT IN THE SOUTH LINE OF SAID NORTH HALF OF SECTION 36, WHICH
POINT IS NORTH 89(Degree)59'30" WEST, 15 FEET FROM THE SOUTHEAST CORNER
THEREOF; THENCE NORTH 0(Degree)01'30" EAST, 2530.0 FEET PARALLEL WITH AND 15
FEET WEST OF THE EAST LINE TO A POINT, WHICH POINT IS SOUTH 0(Degree)01'30"
WEST 110 FEET AND NORTH 89(Degree)58'30" WEST 15 FEET FROM THE NORTHEAST
CORNER OF SAID SECTION 36; THENCE NORTH 89(Degree)58'30" WEST, 95 FEET TO A
POINT; THENCE NORTH 0(Degree)01'30" EAST, 10 FEET TO A POINT; THENCE NORTH
89(Degree)58'30" WEST, 3719.3 FEET PARALLEL WITH AND 100 FEET SOUTH OF THE
NORTH LINE OF SAID SECTION 36 TO A POINT; WHICH POINT IS SOUTH
89(Degree)58'30" EAST, 1419.0 FEET AND SOUTH 17(Degree)41'30" EAST, 105.0 FEET
FROM THE NORTHWEST CORNER OF SAID SECTION 36; THENCE SOUTH 17(Degree)41'30"
EAST, 76.5 FEET TO A POINT; THENCE SOUTH 36(Degree)36'30" EAST, 1247.0 FEET TO
A POINT; THENCE SOUTH 9(Degree) 49'30" EAST, 749.0 FEET TO A POINT; THENCE
EXHIBIT A TO DEED OF TRUST
(LEATHERS)
Page 2 of 3
<PAGE>
SOUTH 61(Degree)10' EAST 268.0 FEET TO A POINT; THENCE SOUTH 29(Degree)47'
EAST, 117.8 FEET TO A POINT IN THE WEST LINE OF THE NORTHEAST QUARTER OF SAID
SECTION 36, WHICH POINT IS NORTH 0(Degree)01' EAST 498.6 FEET FROM THE CENTER
OF SAID SECTION 36; THENCE SOUTH 29(Degree)47' EAST, 574.6 FEET TO A POINT IN
THE SOUTH LINE OF SAID NORTHEAST QUARTER OF SECTION 36, WHICH POINT IS SOUTH
89(Degree)59'30" EAST 285.6 FEET FROM THE CENTER OF SAID SECTION 36; THENCE
SOUTH 89(Degree)59'30" EAST, 2339.5 FEET TO THE POINT OF BEGINNING.
EXHIBIT A TO DEED OF TRUST
(LEATHERS)
Page 3 of 3
<PAGE>
EXHIBIT B
Description of the Ground Lease Premises
PARCEL 1, AS SHOWN ON PARCEL MAP M-1901 FILED OCTOBER 6, 1988 IN BOOK 7, PAGE
86 OF PARCEL MAPS IN THE OFFICE OF THE COUNTY RECORDER OF IMPERIAL COUNTY,
BEING A PORTION OF THE SOUTHEAST QUARTER OF SECTION 25, TOWNSHIP 11 SOUTH,
RANGE 13 EAST, SAN BERNARDINO MERIDIAN, IN THE COUNTY OF IMPERIAL, STATE OF
CALIFORNIA.
EXCEPTING THEREFROM ALL MINERALS LYING BELOW THE SURFACE OF SAID LAND,
INCLUDING, WITHOUT LIMITATION, OIL, HYDROCARBON GAS AND OTHER HYDROCARBON
SUBSTANCES AND GEOTHERMAL RESOURCES, BUT WITHOUT THE RIGHT OF SURFACE ENTRY;
AS EXCEPTED AND RESERVED IN THE DEED FROM RIVER RANCH, INC., RECORDED OCTOBER
7, 1988 AS INSTRUMENT NO. 88-16258, IN BOOK 1612, PAGE 399 OF OFFICIAL RECORDS.
EXHIBIT B TO DEED OF TRUST
(LEATHERS)
Page 1 of 1
EXHIBIT 4.38
Recording Requested By and When
Recorded Return to:
Attention:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
DEL RANCH, L.P.
(as Trustor)
to
CHICAGO TITLE COMPANY,
(as Trustee)
for the use and benefit of
CHEMICAL TRUST COMPANY OF CALIFORNIA,
for and on behalf
of Salton Sea Funding Corporation
and the Secured Parties
(as Beneficiary)
- -----------------------------------------------------------------------------
DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
- -----------------------------------------------------------------------------
Dated: As of June 20, 1996
Location: County of Imperial
State of California
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
THIS DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT
AND FIXTURE FILING (the "Deed of Trust") is made as of June __, 1996, by DEL
RANCH, L.P., a California limited partnership ("Del Ranch"), whose address is
302 South 36th Street, Suite 400-C, Omaha, Nebraska 68131, as trustor
("Trustor"), to CHICAGO TITLE COMPANY, whose address is 925 B Street, San
Diego, California 92101, as trustee ("Trustee"), and in favor of CHEMICAL
TRUST COMPANY OF CALIFORNIA, a California corporation, whose address is 50
California Street, 10th Floor, San Francisco, California 94111, as beneficiary
("Beneficiary") acting in its capacity as collateral agent for and on behalf
of Salton Sea Funding Corporation, a Delaware corporation ("Funding
Corporation") and the Secured Parties (the "Secured Parties") under that
certain Collateral Agency and Intercreditor Agreement by and among
Beneficiary, Funding Corporation and the Guarantors and Secured Parties
thereto (the "Intercreditor Agreement") and that certain Trust Indenture dated
as of July 21, 1995, as the same may be amended, modified or supplemented,
including pursuant to that certain Supplemental Trust Indenture, dated as of
even date herewith, by and between Funding Corporation and Beneficiary, as
trustee (as so amended, modified or supplemented, the "Indenture"). This Deed
of Trust is entered into pursuant to that certain Amended and Restated Credit
Agreement (Partnership Guarantors) dated as of even date herewith by and
between Trustor and Funding Corporation (the "Partnership Credit Agreement"),
the Indenture and the other Financing Documents. Unless otherwise defined
herein, capitalized terms shall have the meanings set forth in Exhibit A to
the Indenture, which Exhibit A is hereby incorporated by this reference.
NOW, THEREFORE, in consideration of, and to secure the
payment and performance of the Debt (as hereinafter defined) which Debt may
increase, decrease and increase again from time to time, Trustor has given,
granted, bargained, sold, alienated, conveyed, confirmed and assigned, and by
these presents does give, grant, bargain, sell, alienate, convey, confirm and
assign unto Trustee, its successors and assigns, with general warranties of
title, in trust with power of sale and right of entry and possession forever,
for the benefit and security of Beneficiary as collateral agent for Funding
Corporation and the Secured Parties, all right title and interest of Trustor
in and to, the following property, rights and interests, whether now owned or
hereafter acquired (such property, rights and interests being hereinbefore and
hereinafter collectively referred to as the "Trust Property") :
(a) all of Trustor's right, title and interest in
that certain real property in the County of Imperial, State of
California, described in Exhibit A attached hereto and by this
reference incorporated herein (the "Resource Easement Area
Premises"), pursuant to that certain Easement Grant Deed and
Agreement Regarding Rights for Geothermal Development dated as of
March 14, 1988 between Magma Power Company, a Nevada corporation, as
grantor ("Magma"), and Trustor, as grantee (a Short Form of which was
recorded on March 14, 1988 in Book 1599, Page 918 of the Official
Records of Imperial County, California (the "Official Records")), as
amended by that certain Clarification and Amendment dated as of June
17, 1996 between Magma and Trustor
<PAGE>
(the "Clarification and Amendment"), which is being recorded in the
Official Records concurrently herewith (collectively, and as the same
may from time to time be further amended and be in effect in
accordance with the other Financing Documents, the "Easement Grant
Deed"), together with all renewals, extensions, supplements,
amendments, cancellations or terminations thereof and all credits,
deposits, options, privileges and rights thereunder;
(b) all of Trustor's right, title and interest in
that certain real property in the County of Imperial, State of
California, described in Exhibit B attached hereto and by this
reference incorporated herein (the "Ground Lease Premises") (the
Resource Easement Area Premises and the Ground Lease Premises being
hereinafter collectively referred to as the "Del Ranch Premises");
pursuant to that certain Ground Lease dated as of March 14, 1988
between Magma, as landlord, and Trustor, as tenant (a Memorandum of
which was recorded on March 14, 1988 in Book 1599, Page 913 of
Official Records), as amended by the Clarification and Amendment
(collectively, and as the same may from time to time be further
amended and be in effect in accordance with the other Financing
Documents, the "Ground Lease"), together with all renewals,
extensions, supplements, amendments, cancellations or terminations
thereof and all credits, deposits, options, privileges and rights
thereunder;
(c) all buildings, improvements and fixtures now or
hereafter located on the Del Ranch Premises (hereinafter referred to
as the "Improvements");
(d) the Easement Grant Deed and the rights and
interests created thereunder together with all renewals, extensions,
supplements, amendments, cancellations or terminations thereof;
(e) the Ground Lease and the rights and interests
created thereunder together with all renewals, extensions,
supplements, amendments, cancellations or terminations thereof;
(f) all the estate, right, title, claim or demand
of any nature whatsoever of Trustor, either in law or in equity, in
possession or expectancy, in and to the Trust Property and in all
replacements, substitutes, renewals, betterments and extensions of
and all additions to any of the Improvements, or any part thereof;
(g) all easements (other than as created under and
pursuant to the Easement Grant Deed), rights-of-way, gores of land,
streets, ways, alleys, passages, sewer rights, waters, water courses,
water rights and powers, and all estates, rights, titles, interests,
privileges, liberties, tenements, hereditaments, revocable consents,
options, appendages and appurtenances of any nature whatsoever, in
any way belonging, relating or pertaining to the Trust Property
(including, without limitation, any and all development rights, air
rights, water rights or similar or comparable rights of any nature
whatsoever now or hereafter appurtenant to the Del Ranch Premises or
now or
<PAGE>
hereafter transferred to the Del Ranch Premises) together with all
renewals, extensions, supplements or amendments thereof, and Trustor's
interest in all land lying in the bed of any street, road or avenue,
opened or proposed, in front of or adjoining the Del Ranch Premises to
the center line thereof;
(h) all machinery, apparatus, equipment, fittings,
fixtures and other property of every kind and nature whatsoever owned
by Trustor, or in which Trustor has or shall have an interest, now or
hereafter located upon the Trust Property, or appurtenances thereto,
and usable in connection with the present or future operation and
occupancy of the Trust Property and all equipment, materials,
supplies, apparatus and other items now or hereafter attached to,
installed in or used (temporarily or permanently) of any nature
whatsoever, now or hereafter located upon the Trust Property and all
renewals, replacements and substitutions thereof and additions
thereto, including but not limited to any and all partitions, ducts,
shafts, pipes, radiators, conduits, wiring, floor coverings, awnings,
motors, engines, boilers, stokers, pumps, dynamos, transformers,
turbines, generators, fans, blowers, vents, switchboards, elevators,
mail or coal conveyors, escalators, compressors, furnaces, cleaning
equipment, call and sprinkler systems, fire extinguishing apparatus,
water and other tanks, heating, ventilating, plumbing, laundry,
incinerating, air conditioning and air cooling systems and water,
gas, telephone, telecommunications, telemetry, electric equipment,
wells, sumps, test holes, pipelines, separators, clarifiers,
crystallizers, headers, scrubbers, demisters, cooling towers,
turbines, generators, geothermal electric generating facilities,
buildings sheds, roads, transformers and transmission lines
(hereinafter collectively referred to as the "Equipment"), and the
right, title and interest of Trustor in and to any of the Equipment
which may be subject to any security agreements (as defined in the
Uniform Commercial Code of the State of California) superior in lien
to the lien of this Deed of Trust;
(i) all awards or payments, including interest
thereon, and the right to receive the same, which may be made with
respect to the Trust Property, whether from state fund sharing or
from the exercise of the right of eminent domain (including any
transfer made in lieu of the exercise of said right), changes of
grade of street or for any other injury to or decrease in the value
of the Trust Property now or hereafter located thereon, whether
direct or consequential, which said awards and payments are hereby
assigned, and Beneficiary is hereby authorized to collect and receive
the proceeds thereof and to give proper receipts and acquittances
therefor;
(j) all refunds or rebates of all taxes or charges
in lieu of taxes, assessments, water rates, sewer rents and other
charges, including vault charges and license or permit fees for the
use of vaults, chutes and similar areas on or adjoining the Premises,
now or hereafter levied or assessed against the Trust Property
(hereinafter referred to as the "Taxes");
<PAGE>
(k) all leases (including oil, gas and other
mineral leases), subleases, franchises, licenses, concessions,
permits, contracts and other agreements affecting the use or
occupancy of the Trust Property now or hereafter entered into and any
renewals or extensions thereof (hereinafter referred to as the
"Leases") and the right to receive and apply the rents, issues and
profits of the Trust Property to the extent of Trustor's interest
therein, including but not limited to the proceeds of all
hydrocarbons or other minerals produced from the Trust Property and
all delay rentals and bonuses from any oil, gas or other mineral
lease (hereinafter referred to as the "Rents") to the payment of the
Debt;
(l) all inventory, accounts and general intangibles
owned by Trustor, or in which Trustor now has or hereafter shall have
any right, title or interest, now or hereafter located upon, arising
in connection with or concerning the Trust Property;
(m) all proceeds of and any unearned premiums on
any insurance policies covering the Trust Property, including,
without limitation, the right to receive the proceeds of any
insurance, judgments, or settlements made in lieu thereof, for damage
to the Trust Property;
(n) the right, in the name and on behalf of
Trustor, to appear in and defend any action or proceeding brought
with respect to the Trust Property and to commence any action or
proceeding to protect the interest of Beneficiary, Funding
Corporation and the Secured Parties in the Trust Property;
(o) all of Trustor's right, title and interest in
and to all plans and specifications prepared for construction of
Improvements or other development of the Trust Property (including
all amendments, modifications, supplements, general conditions and
addenda thereof or thereto) and all studies, data and drawings
related thereto, and all contracts and agreements of Trustor relating
to the aforesaid plans and specifications or to the aforesaid
studies, data and drawings or to the construction of Improvements on
the Trust Property;
(p) all contracts with property managers,
surveyors, real estate advisors and consultants, geothermal advisors
and consultants, geothermal engineers, real estate brokers, and other
like agents and professionals that relate to any part of the Trust
Property, including without limitation, any Improvements constructed
or to be constructed on the Trust Property, and all maps, reports,
surveys, and studies of or relating to any of the Trust Property,
owned by Trustor or in which Trustor has or shall have an interest
and now or hereafter in the possession of Trustor or any such agent
or professional;
(q) all present and future agreements, permits,
licenses and approvals, as well as all modifications, supplements,
extensions and renewals thereof, now existing or hereafter made, in
which Trustor has or shall have an interest relating to the use,
<PAGE>
development and/or occupancy of the Resource Easement Area Premises,
the Ground Lease Premises and/or the Improvements;
(r) all products and proceeds of any of the Trust
Property herein described; and
(s) all bank accounts and trust accounts of
Trustor, including without limitation Trustor's accounts in the
Capital Improvements Fund and any other funds of Trustor on deposit
pursuant to the Indenture and the Depositary Agreement.
This Deed of Trust secures the following obligations which
shall heretofore and hereinafter collectively be referred to as the Debt:
(i) The payment of all indebtedness of Trustor evidenced by
the Financing Documents to which it is a party; and
(ii) The satisfaction and performance of all other debts,
obligations, covenants, agreements, and liabilities of Trustor to Trustee and
Beneficiary arising out of, connected with, or related to this Deed of Trust
or the Financing Documents and all amendments, extensions, and renewals of the
foregoing documents, whether now existing or hereafter arising, voluntary or
involuntary, absolute or contingent, liquidated or unliquidated, and whether
or not from time to time decreased or extinguished and later increased,
created, or incurred.
To protect the security of this Deed of Trust, Trustor
covenants with and represents and warrants to Trustee, Beneficiary, Funding
Corporation and the Secured Parties as follows:
2. Payment of Debt. Trustor will pay the Debt at
the time and in the manner provided for its payment in this Deed of Trust and
the Financing Documents, as applicable.
3. Warranty of Title. Subject only to Permitted
Liens, Trustor warrants its right, title or interest, as applicable, to the
Resource Easement Area Premises, the Ground Lease Premises, the Improvements,
the Equipment and the balance of the Trust Property and the validity and
priority of the lien of this Deed of Trust and the estate hereof against the
claims and demands of all persons whomsoever. Trustor also represents and
warrants that (i) Trustor is now, and after giving effect to this Deed of
Trust, will be, in a solvent condition, (ii) the execution and delivery of
this Deed of Trust by Trustor does not constitute a "fraudulent conveyance"
within the meaning of Title 11 of the United States Code as now constituted or
under any other applicable statute, and (iii) no bankruptcy or insolvency
proceedings are pending or contemplated by or, to the best of Trustor's
knowledge, against Trustor.
<PAGE>
4. Notice. Trustor hereby requests that a copy of
notice of default and notice of sale be mailed to it at the address set forth
below, and such address is also the mailing address of Trustor, as debtor,
under the California Uniform Commercial Code. Beneficiary's address given
below is the address for Beneficiary on behalf of Funding Corporation and the
Secured Parties, as secured party, under the California Uniform Commercial
Code. In addition, any notice, request, demand, statement, authorization,
approval or consent made hereunder shall be made pursuant to the provisions of
the Partnership Credit Agreement as follows:
If to Trustor:
Del Ranch, L.P.
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
to Trustee:
Chicago Title Insurance Company
925 B Street
San Diego, California 92101
Attention: Legal Department
If to Beneficiary:
Chemical Trust Company of California
50 California Street, 10th Floor
San Francisco, California 94111
Attention: Legal Department
5. Sale of Trust Property. If this Deed of Trust is
foreclosed, or the power of sale hereunder is exercised, the Trust Property,
or any interest therein, may, at the discretion of Beneficiary, be sold in one
or more parcels or in several interests or portions and in any order or
manner.
6. No Credits on Account of the Debt. Trustor will
not claim or demand or be entitled to any credit or credits on account of the
Debt for any part of the Taxes assessed against the Trust Property or any part
thereof, and no deduction shall otherwise be made or
<PAGE>
claimed from the taxable value of the Trust Property, or any part thereof, by
reason of this Deed of Trust or the Debt.
7. Offset, Counterclaims and Defenses. Any assignee
of this Deed of Trust and the Debt secured hereby shall take the same free and
clear of all offsets, counterclaims or defenses of any nature whatsoever which
Trustor may have against any assignor of this Deed of Trust and the Debt
secured hereby, and no such offset, counterclaim or defense shall be
interposed or asserted by Trustor in any action or proceeding brought by any
such assignee upon this Deed of Trust or the Debt secured hereby and any such
right to interpose or assert any such offset, counterclaim or defense in any
such action or proceeding is hereby expressly waived by Trustor.
8. Other Security for the Debt. Trustor shall
observe and perform all of the terms, covenants and provisions to be observed
or performed by Trustor contained in this Deed of Trust and in the Financing
Documents to which Trustor shall be a party evidencing, securing or
guaranteeing payment of the Debt, in whole or in part, or otherwise executed
and delivered in connection with this Deed of Trust or the Financing
Documents.
9. Documentary Stamps. If at any time the United
States of America, any state thereof or any governmental subdivision of any
such state, shall require revenue or other stamps to be affixed to the
Financing Documents or this Deed of Trust, Trustor will pay for the same, with
interest and penalties thereon, if any.
10. Right of Entry. Beneficiary, Funding
Corporation and each of the Secured Parties shall have the right to enter and
inspect the Trust Property at all reasonable times as provided in the
Partnership Credit Agreement.
11. Books and Records. Trustor will comply with all
of the provisions and requirements of Section 4.16 of the Partnership Credit
Agreement concerning its books, records and accounts reflecting all of the
financial affairs of Trustor.
12. Right to Cure Defaults. Upon the occurrence and
during the continuance of a Credit Agreement Event of Default under the
Partnership Credit Agreement or a Guarantee Event of Default under the
Partnership Guarantee, Beneficiary, Funding Corporation or the Secured Parties
may, at their discretion, remedy the same in accordance with the applicable
provisions of the Partnership Credit Agreement and for such purpose shall have
the right to enter upon the Trust Property or any portion thereof without
thereby becoming liable to Trustor or any person in possession thereof holding
under Trustor in each case to the extent set forth in the Partnership Credit
Agreement. If Beneficiary, Funding Corporation or the Secured Parties shall
remedy such a default or appear in, defend, or bring any action or proceeding
to protect their interest in the Trust Property or to foreclose this Deed of
Trust or to exercise the power of sale granted under this Deed of Trust or to
collect the Debt or to otherwise exercise any remedies available to
Beneficiary, Funding Corporation or the Secured Parties under this Deed of
Trust, the costs and expenses thereof (including
<PAGE>
attorneys' fees to the extent permitted by law) shall be treated as set forth
in Section 5.4 of the Partnership Credit Agreement.
13. Appointment of Receiver. Trustee or
Beneficiary, in any action to foreclose this Deed of Trust or exercise the
power of sale granted under this Deed of Trust or upon the actual or
threatened waste to any part of the Trust Property or upon the occurrence of a
Credit Agreement Event of Default under the Partnership Credit Agreement or a
Guarantee Event of Default under the Partnership Guarantee, shall be at
liberty, without notice, to apply for the appointment of a receiver of the
Rents, and shall be entitled to the appointment of such receiver as a matter
of right, without regard to the value of the Trust Property as security for
the Debt, or the solvency or insolvency of any person then liable for the
payment of the Debt.
14. Non-Waiver. The failure of Beneficiary to
insist upon strict performance of any term of this Deed of Trust shall not be
deemed to be a waiver of any term of this Deed of Trust. Trustor shall not be
relieved of Trustor's obligation to pay and perform the Debt at the time and
in the manner provided for its payment in the Financing Documents and this
Deed of Trust by reason of (i) failure to comply with any request of Trustor
to take any action to foreclose this Deed of Trust or otherwise enforce any of
the provisions hereof or of the Financing Documents or any other mortgage,
deed of trust, instrument or document securing or guaranteeing the payment of
the Debt or a portion thereof, (ii) the release, regardless of consideration,
of the whole or any part of the Trust Property or any other security for the
Debt, or (iii) any agreement or stipulation between Beneficiary and any
subsequent owner or owners of the Trust Property or other person extending the
time of payment or otherwise modifying or supplementing the terms of this Deed
of Trust or the Financing Documents evidencing, securing or guaranteeing
payment of the Debt or any portion thereof, without first having obtained the
consent of Trustor (but without prejudice to the rights of Trustor under the
Partnership Credit Agreement), and in the latter event, Trustor shall continue
to be obligated to pay and perform the Debt at the time and in the manner
provided in the Financing Documents and this Deed of Trust, as so extended,
modified and supplemented, unless expressly released and discharged from such
obligation by Beneficiary in writing. Regardless of consideration, and without
the necessity for any notice to or consent by the holder of any subordinate
lien, encumbrance, right, title or interest in or to the Trust Property,
Beneficiary, Funding Corporation or the Secured Parties may release any person
at any time liable for the payment of the Debt or any portion thereof or all
or any part of the security held for the Debt and may extend the time of
payment or otherwise modify the terms of the Financing Documents or this Deed
of Trust, including, without limitation, a modification of the interest rate
payable on the principal balance of the Debt, without in any manner impairing
or affecting this Deed of Trust or the lien thereof or the priority of this
Deed of Trust, as so extended and modified, as security for the Debt over any
such subordinate lien, encumbrance, right, title or interest. Beneficiary,
Funding Corporation and the Secured Parties may resort for the payment of the
Debt to any other security held by Beneficiary, Funding Corporation or the
Secured Parties in such order and manner as Beneficiary, Funding Corporation
or the Secured Parties, in their discretion, may elect.
<PAGE>
Beneficiary, Funding Corporation or the Secured Parties may take action to
recover the Debt, or any portion thereof, or to enforce any covenant hereof
without prejudice to the right of the Beneficiary thereafter to foreclose this
Deed of Trust. The Beneficiary, Funding Corporation and the Secured Parties
shall not be limited exclusively to the rights and remedies herein stated but
shall be entitled to every additional right and remedy now or hereafter
afforded by law or equity. The rights of the Beneficiary, Funding Corporation
and the Secured Parties under this Deed of Trust shall be separate, distinct
and cumulative, and none shall be given effect to the exclusion of the others.
No act of Funding Corporation, the Secured Parties or Beneficiary shall be
construed as an election to proceed under any one provision herein to the
exclusion of any other provision.
15. Power of Sale. Subject to the provisions of the
Intercreditor Agreement, upon the occurrence and during the continuance of a
Credit Agreement Event of Default under the Partnership Credit Agreement or a
Guarantee Event of Default under the Partnership Guarantee, Beneficiary may at
any time, at its option and in its sole discretion, declare the Debt to be due
and payable and the same shall thereupon become immediately due and payable,
including any prepayment charge or fee payable under the terms of the
Financing Documents. Beneficiary may also do any or all of the following;
provided, however, that any of the following actions shall be undertaken in a
commercially reasonable manner in accordance with applicable law; and
provided, further, that Beneficiary shall have no obligation to do any of the
following:
(a) Either in person or by agent, with or without
bringing any action or proceeding or by a receiver appointed by a court and
without regard to the adequacy of Beneficiary's, Funding Corporation's and the
Secured Parties' security, enter upon and take possession of the Trust
Property or any part hereof and do any acts which Beneficiary deems necessary
or desirable to preserve the value, marketability or rentability of the Trust
Property or to increase the income therefrom or to protect the security hereof
and with or without taking possession of any of the Trust Property, sue for or
otherwise collect all Rents and profits including those past due and unpaid,
and apply the same, less costs and expenses of operation and collection
including attorneys' fees and expenses, upon the Debt, all in such order as
provided in Section 6 of the Intercreditor Agreement. The collection of Rents
and profits and the application thereof shall not cure or waive any event of
default or notice thereof or invalidate any act done in response thereto or
pursuant to such notice.
(b) Bring an action in any court of competent
jurisdiction to foreclose this instrument or to enforce any of the covenants
hereof.
(c) Exercise any or all of the remedies available
to a secured party under the Uniform Commercial Code.
(d) Beneficiary may elect to cause the Trust
Property or any part thereof to be sold under the power of sale herein granted
in any manner permitted by applicable law. In connection with any sale or
sales hereunder, Beneficiary may elect to treat any of the Trust
<PAGE>
Property which consists of a right in action or which is property that can be
severed from the real property covered hereby or any improvements thereon
without causing structural damage thereto as if the same were personal
property, and dispose of the same in accordance with applicable law, separate
and apart from the sale of real property. Any sale of any personal property
hereunder shall be conducted in any manner permitted by Section 9501 or any
other applicable sections of the California Uniform Commercial Code. Where the
Trust Property consists of real and personal property or fixtures, whether or
not such personal property is located on or within the real property,
Beneficiary may elect in its discretion to exercise its rights and remedies
against any or all of the real property, personal property, and fixtures in
such order and manner as is now or hereafter permitted by applicable law.
Without limiting the generality of the foregoing, Beneficiary may at its sole
and absolute discretion and without regard to the adequacy of its security
elect to proceed against any or all of the real property, personal property
and fixtures in any manner permitted under Section 9501(4)(a) of the
California Uniform Commercial Code; and if the Beneficiary elects to proceed
in the manner permitted under Section 9501(4)(a)(ii) of the California Uniform
Commercial Code, the power of sale herein granted shall be exercisable with
respect to all or any of the real property and fixtures covered hereby, as
designated by Beneficiary, and the Trustee is hereby authorized and empowered
to conduct any such sale of any real property and fixtures in accordance with
the procedures applicable to real property. Where the Trust Property consists
of real property and personal property, any reinstatement of the Debt,
following the occurrence of a Credit Agreement Event of Default under the
Partnership Credit Agreement or a Guarantee Event of Default under the
Partnership Guarantee and an election by the Beneficiary to accelerate the
maturity of the Debt, which is made by Trustor or any other person or entity
permitted to exercise the right of reinstatement under Section 2924c of the
California Civil Code or any successor statute, shall, in accordance with the
terms of California Uniform Commercial Code Section 9501(4)(c)(iii), not
prohibit the Beneficiary from conducting a sale or other disposition of any
personal property or fixtures or from otherwise proceeding against or
continuing to proceed against any personal property or fixtures in any manner
permitted by the California Uniform Commercial Code; nor shall any such
reinstatement invalidate, rescind or otherwise affect any sale, disposition or
other proceeding held, conducted or instituted with respect to any personal
property or fixtures prior to such reinstatement. Any sums paid to
Beneficiary, Funding Corporation or the Secured Parties in effecting any
reinstatement pursuant to Section 2924c of the California Civil Code shall be
applied to the Debt and to Beneficiary's, Funding Corporation's, the Secured
Parties' and Trustee's reasonable costs and expenses in the manner required by
Section 2924c. Should Beneficiary elect to sell any of the Trust Property
which is real property or which is personal property or fixtures that
Beneficiary has elected under Section 9501(4)(a)(ii) of the California Uniform
Commercial Code to sell together with real property in accordance with the
laws governing a sale of real property, such notice of default and election to
sell shall be given as may then be required by law. Thereafter, upon the
expiration of such time and the giving of such notice of sale as may then be
required by law, at the time and place specified in the notice of sale,
Trustee shall sell such property, or any portion thereof specified by
Beneficiary, at public auction to the highest bidder for cash in lawful money
of the United States. Trustee may, and upon request of Beneficiary shall, from
time to time, postpone the sale by public announcement thereof at the time and
place noticed
<PAGE>
therefor. If the Trust Property consists of several lots, parcels or
interests, Beneficiary may designate the order in which the same shall be
offered for sale or sold. Should Beneficiary desire that more than one such
sale or other disposition be conducted, Beneficiary may, at its option, cause
the same to be conducted simultaneously, or successively on the same day, or
at such different days or times and in such order as Beneficiary may deem to
be in its best interest. Any person, including Trustor, Trustee, Beneficiary,
Funding Corporation or any of the Secured Parties, may purchase at the sale.
In the event Beneficiary elects to dispose of the Trust Property through more
than one sale, Trustor agrees to pay the costs and expenses of each such sale
and of any judicial proceedings wherein the same may be made, including
reasonable compensation to Trustee and Beneficiary, their agents and counsel,
and to pay all expenses, liabilities and advances made or incurred by Trustee
in connection with such sale or sales, together with interest on all such
advances made by Trustee at the interest rate then applicable to the
indebtedness evidenced by the Partnership Credit Agreement. Upon any sale
Trustee shall execute and deliver to the purchaser or purchasers a deed or
deeds conveying the property so sold but without any covenant or warranty
whatsoever express or implied whereupon such purchaser or purchasers shall be
let into immediate possession, and the recitals in any such deed or deeds of
facts such as default, the giving of notice of default and notice of sale, and
other facts affecting the regularity or validity of such sale or disposition,
shall be conclusive proof of the truth of such facts and any such deed or
deeds shall be conclusive against all persons as to such facts recited
therein.
(e) Exercise each of its other rights and remedies
under this Deed of Trust and the Financing Documents, including, any or all
of the following:
(i) declare the Debt, with all interest thereon and
all other sums secured hereby, to be immediately due and payable, and
if the same is not paid on demand, at Beneficiary's option, bring
suit therefor and demand payment thereof and if the same is not paid
on demand, bring suit for any delinquent installment payment under
the Financing Documents and take any and all steps and institute any
and all other proceedings that Beneficiary deems necessary to enforce
the indebtedness and obligations secured hereby and to protect the
lien of this Deed of Trust;
(ii) without assuming liability for the performance
of any of Trustor's obligations hereunder or under the Partnership
Project Documents, enter and take possession of the Trust Property or
any part thereof, exclude Trustor and all persons claiming under
Trustor whose claims are junior to this Deed of Trust, wholly or
partly therefrom, and use, operate, manage and control the same
either in the name of Trustor or otherwise as Beneficiary shall deem
best, and upon such entry, from time to time at the expense of
Trustor and the Trust Property, make all such repairs, replacements,
alterations, additions or improvements to the Trust Property or any
part thereof as Beneficiary may deem proper and, whether or not
Beneficiary has so entered and taken possession of the Trust Property
or any part thereof, collect and receive all the Rents and apply the
same, to the extent permitted by law, to the payment of all expenses
which Beneficiary may be authorized to make under this Deed of Trust,
the
<PAGE>
remainder to be applied to the payment of the Debt until the same
shall have been repaid in full; if Beneficiary demands or attempts to
take possession of the Trust Property or any portion thereof in the
proper exercise of any rights hereunder, Trustor shall promptly turn
over and deliver complete possession thereto to Beneficiary; and
(iii) personally or by agents, with or without
entry, if Beneficiary shall deem it advisable, proceed to protect and
enforce its rights under this Deed of Trust, by suit for specific
performance of any covenant contained herein or in the Financing
Documents or in aid of the execution of any power granted herein or
in the Financing Documents, or for the foreclosure of this Deed of
Trust and the sale for cash of the Trust Property under the judgment
or decree of a court of competent jurisdiction, or for the exercise
of the power of sale granted under this Deed of Trust or for the
enforcement of any other right as Beneficiary shall deem most
effectual for such purpose; provided that in the event of a sale, by
foreclosure or otherwise, of less than all of the Trust Property,
this Deed of Trust shall continue as a lien on, and security interest
in, the remaining portion of the Trust Property and Beneficiary shall
not be obligated to sell upon credit unless Beneficiary shall have
expressly consented in writing to a sale upon credit.
(f) Except as otherwise required by law, apply the
proceeds of any foreclosure or disposition in the manner set forth in the
Intercreditor Agreement.
(g) Upon any sale or sales made under or by virtue
of this section, whether made under the power of sale or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Beneficiary or
any of the Secured Parties may bid for and acquire the Trust Property or any
part thereof. In lieu of paying cash for the Trust Property, Beneficiary
and/or any of the Secured Parties may make settlement for the purchase price
by crediting against the Debt the sales price of the Trust Property, as
adjusted for the expenses of sale and the costs of the action and any other
sums for which Trustor is obligated to reimburse Trustee or Beneficiary and
the Secured Parties under this Deed of Trust.
16. Concerning the Trustee. Trustee shall be under
no duty to take any action hereunder except as expressly required hereunder or
by law, or to perform any act which would involve Trustee in any expense or
liability or to institute or defend any suit in respect hereof, unless
properly indemnified to Trustee's reasonable satisfaction. Trustee, by
acceptance of this Deed of Trust, covenants to perform and fulfill the trusts
herein created, being liable, however, only for willful negligence or
misconduct, and hereby waives any statutory fee and agrees to accept
reasonable compensation, in lieu thereof, for any services rendered by Trustee
in accordance with the terms hereof. Trustee may resign at any time upon
giving thirty (30) days' notice to Trustor and to Beneficiary. Beneficiary may
remove Trustee at any time or from time to time and select a successor
trustee. In the event of the death, removal, resignation, refusal to act, or
inability to act of Trustee, or in its sole discretion for any reason
whatsoever Beneficiary may, without notice and without specifying any reason
therefor and without applying to any court, select and appoint a successor
trustee,
<PAGE>
by an instrument recorded wherever this Deed of Trust is recorded and all
powers, rights, duties and authority of Trustee, as aforesaid, shall thereupon
become vested in such successor. Such substitute trustee shall not be required
to give bond for the faithful performance of the duties of Trustee hereunder
unless required by Beneficiary.
17. Trustee's Fees. Trustor shall pay all costs,
fees and expenses incurred by Trustee and Trustee's agents and counsel in
connection with the performance by Trustee of Trustee's duties hereunder and
all such costs, fees and expenses shall be secured by this Deed of Trust.
18. Proceeds of Sale.
(a) The proceeds or avails of any foreclosure sale
or other remedy exercised pursuant to Section 14, above, entitled "Power of
Sale" together with all other sums which then may be held by Beneficiary under
this Deed of Trust, or under a judgment, order or decree made in any action to
foreclose or to enforce this Deed of Trust whether under the provisions of
this Deed of Trust, or otherwise, shall be distributed according to the terms
of the Intercreditor Agreement.
(b) Subject to the provisions of Section 43 of this
Deed of Trust, no sale or other disposition of all or any part of the Trust
Property shall be deemed to relieve Trustor of its obligations under this Deed
of Trust or the Financing Documents except and only to the extent the proceeds
are applied to the payment of the Debt or such other obligations. If the
proceeds of sale, collection or other realization of or upon the Trust
Property are insufficient to cover the costs and expenses of such realization
and the payment in full of the Debt, Trustor shall remain liable for any
deficiency.
19. Trustor as Tenant Holding Over. In the event of
any such foreclosure or other sale by Beneficiary and/or the Secured Parties,
Trustor shall be deemed a tenant holding over and shall forthwith deliver
possession to the purchaser or purchasers at such sale or be summarily
dispossessed according to provisions of law applicable to tenants holding
over.
20. Leases. Beneficiary is authorized to
subordinate this Deed of Trust to any Leases and to foreclose this Deed of
Trust subject to the rights of any tenants of the Trust Property, if any, and
the failure to so subordinate or to make any such tenants' parties to any such
foreclosure or other proceedings and to foreclose their rights will not be,
nor be asserted to be by Trustor, a defense to any proceedings instituted by
Beneficiary to collect the Debt.
21. Discontinuance of Proceedings. In case
Beneficiary, Funding Corporation or the Secured Parties shall have proceeded
to enforce any right, power or remedy under this Deed of Trust by foreclosure,
sale, entry or otherwise, and such proceeding shall have been withdrawn,
discontinued or abandoned for any reason, or shall have been determined
adverse to Beneficiary, Funding Corporation or the Secured Parties, then in
every such case, to the fullest extent permitted by law, (a) Trustor and
Beneficiary, Funding
<PAGE>
Corporation or the Secured Parties shall be restored to their former positions
and rights, (b) all rights, powers and remedies of Beneficiary, Funding
Corporation and the Secured Parties shall continue as if no such proceeding
had been taken, (c) each and every Credit Agreement Event of Default under the
Partnership Credit Agreement and each and every Guarantee Event of Default
under the Partnership Guarantee declared or occurring prior or subsequent to
such withdrawal, discontinuance or abandonment shall be or shall be deemed to
be an independent event of default and (d) neither the Debt, this Deed of
Trust nor any of the Financing Documents shall be or shall be deemed to have
been not reinstated or otherwise affected by such withdrawal, discontinuance
or abandonment; and to the fullest extent permitted by law, Trustor hereby
expressly waives the benefit of any statute or rule of law now provided or
which may hereafter conflict with the above.
22. No Reinstatement. If a Credit Agreement Event
of Default under the Partnership Credit Agreement or a Guarantee Event of
Default under the Partnership Guarantee shall have occurred and be continuing
Beneficiary, Funding Corporation or the Secured Parties shall have proceeded
to enforce any right, power or remedy permitted hereunder, then a tender of
payment by Trustor or by anyone on behalf of Trustor of any amount less than
the amount necessary to satisfy the Debt in full, or the acceptance by
Beneficiary, Funding Corporation or the Secured Parties of any such payment so
tendered, shall not constitute a reinstatement of this Deed of Trust, the
Financing Documents or any other document evidencing, securing or guaranteeing
the Debt.
23. Trustor's Waiver of Rights. To the fullest
extent permitted by law, Trustor waives the benefit of all laws now existing
or that hereafter may be enacted providing for (i) any appraisal before sale
of any portion of the Trust Property and (ii) the benefit of all laws that may
be hereafter enacted in any way extending the time for the enforcement of the
collection of the Debt, or creating or extending a period of redemption from
any sale made in collecting said Debt. To the fullest extent that Trustor may
do so, Trustor agrees that Trustor will not at any time insist upon, plead,
claim or take the benefit or advantage of any law now or hereafter in force
providing for any appraisal, valuation, stay, extension or redemption, or any
so-called "Moratorium Laws" and Trustor, for Trustor and its successors and
assigns, and for any and all persons ever claiming any interest in the Trust
Property, to the fullest extent permitted by law, hereby waives and releases
all rights of redemption, valuation, appraisal, stay of execution, notice of
election to mature or declare due the whole of the Debt and marshaling in the
event of the exercise of the power of sale granted under this Deed of Trust or
foreclosure of the liens hereby created. If any law referred to in this
Section and now in force, of which Trustor, Trustor's successors and assigns
or any other person might take advantage despite this Section, shall hereafter
be repealed or cease to be in force, such law shall not thereafter be deemed
to preclude the application of this Section.
24. Security Agreement. (a) Trustor maintains
places of business in the State of California and Trustor will immediately
notify Beneficiary in writing of any change in such places of business.
<PAGE>
(a) At the request of Beneficiary, Trustor shall
join Beneficiary in executing one or more financing statements and
continuations and amendments thereof pursuant to the UCC in form reasonably
satisfactory to Beneficiary; and Trustor will pay the cost of filing the same
in all public offices wherever filing is deemed by Beneficiary to be
necessary. In the event Trustor fails to execute such documents within five
(5) business days after request by Beneficiary, Trustor hereby authorizes
Beneficiary to file such financing statements and irrevocably constitutes and
appoints Beneficiary, or any officer of Beneficiary, as its true and lawful
attorney-in-fact to execute the same on behalf of Trustor.
(b) This Deed of Trust constitutes a financing
statement filed as a fixture filing under UCC ss. 9402(6) in the official
records of Imperial County with respect to any and all fixtures included
within the term "Trust Property" and with respect to any goods or other
personal property that may now be or hereafter become such a fixture.
(c) Beneficiary has no responsibility for and does
not assume any of, Trustor's obligations or duties under any agreement or
obligation which is part of the Equipment or any obligation relating to the
acquisition, preparation, custody, use, enforcement or operation of any of the
Trust Property.
(d) Trustor and Beneficiary agree that the filing
of a financing statement in the records normally having to do with personal
property shall never be construed as in any way derogating from or impairing
this Deed of Trust and the intention of the parties that everything used in
connection with the production of income from the Trust Property or adapted
for use therein or which is described or reflected in this Deed of Trust is,
and at all times and for all purposes and in all proceedings both legal or
equitable shall be regarded as part of the real estate subject to the lien
hereof, irrespective of whether (i) any such item is physically attached to
improvements located on such real property or (ii) any such item is referred
to or reflected in any financing statement so filed at any time. Similarly,
the mention in any such financing statement of (A) the rights in or to the
proceeds of any fire hazard insurance policy or (B) any award in eminent
domain proceedings for taking or for loss of value or for cause of action or
proceeds thereof in connection with any damage or injury to the Trust Property
or any part thereof shall never be construed as in any way altering any of the
rights of Beneficiary, Funding Corporation and the Secured Parties as
determined by this instrument or impugning the priority of Beneficiary's,
Funding Corporation's and the Secured Parties' lien granted hereby or by any
other recorded document, but such mention in such financing statement is
declared to be for the protection of Beneficiary, Funding Corporation and the
Secured Parties in the event any court shall at any time hold with respect to
matters (A) and (B) above that notice of Beneficiary's, Funding Corporation's
and the Secured Parties' priority of interest, to be effective against a
particular class of persons, including, without limitation, the Federal
government and any subdivision or entity of the Federal government must be
filed in the personal property records or other commercial code records.
25. Further Acts, etc. Trustor will, at the cost of
Trustor, and without expense to Beneficiary, Funding Corporation or the
Secured Parties, execute, acknowledge
<PAGE>
and deliver all and every such further acts, deeds, conveyances, financing
statements, mortgages, deeds of trust, assignments, notices of assignments,
transfers and assurances as Beneficiary shall, from time to time, reasonably
require, for the better assuring, conveying, assigning, transferring and
confirming unto Beneficiary, the property and rights hereby conveyed or
assigned or intended now or hereafter so to be, or which Trustor may be or may
hereafter become bound to convey or assign to Beneficiary, or for carrying out
the intention or facilitating the performance of the terms of this Deed of
Trust or for filing, registering or recording this Deed of Trust and, on
demand, will execute and deliver and hereby authorizes Beneficiary to execute
in the name of Trustor to the extent they may lawfully do so, one or more
financing statements, chattel mortgages or comparable security instruments, to
evidence and perfect more effectively the lien hereof upon the Trust Property.
26. Headings, etc. The headings, titles and
captions of various Sections of this Deed of Trust are for convenience of
reference only and are not to be construed as defining or limiting, in any
way, the scope or intent of the provisions hereof.
27. Filing of Deed of Trust, etc. Trustor forthwith
upon the execution and delivery of this Deed of Trust and thereafter, from
time to time, will cause this Deed of Trust, and any security instrument
creating a lien or evidencing or perfecting the lien hereof upon the Trust
Property and each instrument of further assurance to be filed, registered or
recorded in such manner and in such places as may be required by any present
or future law in order to publish notice of and fully to protect, preserve and
perfect the lien hereof upon, and the interest of Beneficiary, Funding
Corporation and the Secured Parties in the Trust Property. Trustor will pay
all filing, registration or recording fees, and all expenses incurred by the
Beneficiary, Funding Corporation or Secured Parties incident to the
preparation, execution and acknowledgment of this Deed of Trust, any deed of
trust or any mortgage or deed of trust supplemental hereto, any security
instrument with respect to the Trust Property and any instrument of further
assurance, and all Federal, state, county and municipal taxes, duties,
imposts, assessments and charges arising out of or in connection with the
execution and delivery of this Deed of Trust, any mortgage or deed of trust
supplemental hereto, any security instrument with respect to the Trust
Property or any financing statement, continuation statement or other
instrument of further assurance. Trustor shall hold harmless and indemnify
Beneficiary, Funding Corporation and the Secured Parties, their successors and
assigns, against any liability incurred by reason of the imposition of any tax
on the making and recording of this Deed of Trust.
28. Usury Laws. This Deed of Trust and the
Financing Documents are subject to the express condition that at no time shall
Trustor be obligated or required to pay interest on the principal balance due
under the Financing Documents at a rate which could subject the creditor of
the debt evidenced by such instruments to either civil or criminal liability
as a result of being in excess of the maximum interest rate which Trustor is
permitted by law to contract or agree to pay. If by the terms of this Deed of
Trust or the Financing Documents Trustor is at any time required or obligated
to pay interest on the principal balance due under any of the Financing
Documents at a rate in excess of such maximum rate, the rate
<PAGE>
of interest under such Financing Document shall be deemed to be immediately
reduced to such maximum rate and the interest payable shall be computed at
such maximum rate.
29. Recovery of Sums Required to Be Paid.
Beneficiary, Funding Corporation and the Secured Parties shall have the right
pursuant to the Financing Documents from time to time to take action to
recover any sum or sums which constitute a part of the Debt as the same become
due, without regard to whether or not the balance of the Debt shall be due,
and without prejudice to the right of Beneficiary, Funding Corporation or the
Secured Parties thereafter to bring an action of foreclosure, or any other
action, for a default or defaults by Trustor existing at the time such earlier
action was commenced.
30. Authority. Trustor (and the undersigned acting
on behalf of Trustor) has full power, authority and legal right to execute
this Deed of Trust and to mortgage, give, grant, bargain, sell, release,
pledge, convey, confirm and assign the Trust Property pursuant to the terms
hereof and to keep and observe all of the terms of this Deed of Trust on
Trustor's part to be performed.
31. Inapplicable Provisions. If any term, covenant
or condition of this Deed of Trust shall be held to be invalid, illegal or
unenforceable in any respect, this Deed of Trust shall be construed to recast
such term, covenant or condition in a manner which will allow such term,
covenant or condition to be valid provided any recasting shall be in
accordance with the original intention of the parties. When recasting any
term, covenant or condition, if it is not possible to reflect the original
intention of the parties, this Deed of Trust shall be construed without such
provision.
32. Duplicate Originals. This Deed of Trust may be
executed in any number of duplicate originals and each such duplicate original
shall be deemed to constitute but one and the same instrument.
33. Waiver of Notice. Trustor shall not be entitled
to any notices of any nature whatsoever from Beneficiary, Funding Corporation
or the Secured Parties except with respect to matters for which this Deed of
Trust, the Financing Documents or applicable law specifically and expressly
provides for the giving of notice to Trustor, and to the fullest extent
permitted by law Trustor hereby expressly waives the right to receive any
notice from Beneficiary, Funding Corporation or the Secured Parties with
respect to any matter for which this Deed of Trust, the Financing Documents or
applicable law does not specifically and expressly provide for the giving of
notice to Trustor.
34. No Oral Change. This Deed of Trust may only be
modified, amended or changed by an agreement in writing signed by Trustor and
Beneficiary, and may only be released, discharged or satisfied of record by an
instrument in writing signed by Beneficiary. Funding Corporation and the
Secured Parties shall join in any such agreement, release, discharge or
satisfaction if required for such agreement to be effective under applicable
law. No waiver of any term, covenant or provision of this Deed of Trust shall
be effective unless
<PAGE>
given in writing by Beneficiary and if so given by Beneficiary shall only be
effective in the specific instance in which given. Trustor acknowledges that
this Deed of Trust and the Financing Documents set forth the entire agreement
and understanding of Trustor and Beneficiary with respect to the matters set
forth therein and that no oral or other agreements, understanding,
representations or warranties exist with respect to those matters other than
those set forth in this Deed of Trust and the Financing Documents.
35. Absolute and Unconditional Obligation. Trustor
acknowledges that Trustor's obligation to pay the Debt in accordance with the
provision of this Deed of Trust and the Financing Documents is and shall at
all times continue to be absolute and unconditional in all respects, and shall
at all times be valid and enforceable irrespective of any other agreements or
circumstances of any nature whatsoever (other than any express written
agreements to the contrary by Funding Corporation and the Secured Parties)
which might otherwise constitute a defense to this Deed of Trust or the
Financing Documents or the obligations of Trustor thereunder to pay the Debt
or the obligations of any other person relating to this Deed of Trust or the
Financing Documents or the obligations of Trustor under this Deed of Trust or
the Financing Documents and to the fullest extent permitted by law Trustor
absolutely, unconditionally and irrevocably waives any and all right to assert
any defense, setoff, counterclaim or crossclaim of any nature whatsoever with
respect to the obligation of Trustor to pay the Debt in accordance with the
provisions of this Deed of Trust or the Financing Documents or the obligations
of any other person relating to this Deed of Trust or the Financing Documents
or the obligations of Trustor under this Deed of Trust or the Financing
Documents, or in any action or proceeding brought by Beneficiary to collect
the Debt, or any portion thereof, or to enforce, foreclose and realize upon
the lien and security interest created by this Deed of Trust or any other
document or instrument securing repayment of the Debt, in whole or in part.
36. Indemnification.
(a) Trustor shall indemnify and hold harmless
Beneficiary, Funding Corporation and the Secured Parties from and against all
loss, cost, liability, other expense in the manner and to the extent required
under the Financing Documents.
(b) All sums secured by this Deed of Trust shall be
paid in accordance with the Financing Documents, as applicable, without
counterclaim, setoff, deduction or defense and without abatement, suspension,
deferment, diminution or reduction, and the obligations and liabilities of
Trustor hereunder shall in no way be released, discharged or otherwise
affected (except as expressly provided herein) by reason of (i) any claim
which Trustor has or might have against Funding Corporation, any of the
Secured Parties or Beneficiary or (ii) any default or failure on the part of
Funding Corporation, any of the Secured Parties or Beneficiary to perform or
comply with any of the terms hereof, of the Partnership Credit Agreement or of
any other Financing Document.
37. Action Affecting the Trust Property.
<PAGE>
(a) Trustor agrees to appear in and contest any
action or proceeding purporting to adversely affect the security hereof or the
rights or powers of Funding Corporation, the Secured Parties or Beneficiary
and to pay all costs and expenses of Funding Corporation, the Secured Parties
and Beneficiary, including cost of evidence of title and attorneys' fees and
expenses, in any such action or proceeding in which Funding Corporation, the
Secured Parties or Beneficiary may appear.
(b) Beneficiary shall have the right to appear in
and defend any action or proceeding brought with respect to the Trust Property
and to bring any action or proceeding, in the name and on behalf of Trustor,
Beneficiary, Funding Corporation or the Secured Parties, which Beneficiary
determines to be necessary or reasonably advisable to be brought to protect
its, Funding Corporation's or the Secured Parties' interest in the Trust
Property if (i) Trustor fails to defend or bring such action or proceeding, as
appropriate, in a prompt and diligent manner, or thereafter fails to proceed
with diligence in the defense or prosecution of the same, or (ii) a Credit
Agreement Event of Default under the Partnership Credit Agreement or a
Guarantee Event of Default under the Partnership Guarantee shall have occurred
and be continuing.
38. Actions by Beneficiary to Preserve the Trust
Property. Except as hereinbefore expressly provided, should Trustor fail to
make any payment or do any act as and in the manner provided in any of the
Financing Documents after the expiration of any applicable cure or grace
period and as a result a Credit Agreement Event of Default under the
Partnership Credit Agreement or a Guarantee Event of Default under the
Partnership Guarantee shall occur and be continuing, Beneficiary for the
benefit of Funding Corporation and the Secured Parties, without obligation so
to do and without notice to or demand upon Trustor and without releasing
Trustor from any obligation, may make or do the same in such manner and to
such extent as Beneficiary may deem necessary to protect the security hereof.
In connection therewith (without limiting any general powers of Beneficiary,
Funding Corporation or the Secured Parties), Beneficiary, for the benefit of
Funding Corporation and the Secured Parties, shall have and is hereby given
the right, but not the obligation, (i) to the fullest extent permitted by law,
to make additions, alterations, repairs and improvements to the Trust Property
which it may consider necessary to keep the Trust Property in good condition
and repair and (ii) in exercising such powers, to pay necessary expenses,
including engagement of counsel or other necessary or desirable consultants.
Trustor shall, immediately upon demand therefor by Beneficiary, pay all costs
and expenses incurred by Funding Corporation, the Secured Parties or
Beneficiary in connection with the exercise by Beneficiary of the foregoing
rights, including without limitation, costs of evidence of title, court costs,
appraisals, surveys and attorneys' fees and expenses.
39. Remedies Not Exclusive. Subject to the
limitations set forth in Section 43 of this Deed of Trust, Beneficiary,
Funding Corporation and the Secured Parties, and each of them, shall be
entitled to enforce payment and performance of any indebtedness or obligations
secured hereby and to exercise all rights and powers granted under this Deed
of
<PAGE>
Trust or under the Financing Documents or any other agreement or any laws now
or hereafter in force, notwithstanding some or all of the said indebtedness
and obligations secured hereby may now or hereafter be otherwise secured,
whether by mortgage, deed of trust, pledge, lien, assignment or otherwise.
Subject to the limitations set forth in Section 43 of this Deed of Trust,
neither the acceptance of this Deed of Trust nor its enforcement, whether by
court action or pursuant to the power of sale or other powers herein
contained, shall prejudice or in any manner affect Beneficiary's, Funding
Corporation's or the Secured Parties' right to realize upon or enforce any
other security now or hereafter held by Beneficiary, Funding Corporation or
the Secured Parties, it being agreed that Beneficiary, on behalf of Funding
Corporation and the Secured Parties collectively and individually, shall be
entitled to enforce this Deed of Trust and any other security now or hereafter
held by Beneficiary, Funding Corporation or the Secured Parties in such order
and manner as they, collectively and individually, may in their absolute
discretion determine. No remedy herein conferred upon or reserved to
Beneficiary, Funding Corporation or the Secured Parties is intended to be
exclusive of any other remedy herein or by law provided or permitted, but each
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute.
Every right, power or remedy given by any of the Financing Documents to
Beneficiary, Funding Corporation or the Secured Parties, or to which either of
them may be otherwise entitled, may be exercised, concurrently or
independently, from time to time and as often as may be deemed expedient by
Beneficiary, Funding Corporation or the Secured Parties. Every right, power or
remedy given by this Deed of Trust to Funding Corporation and the Secured
Parties may be exercised on their behalf by Beneficiary, whether so expressed
or not. Notwithstanding any other provision of this Deed of Trust, the rights
and remedies of Beneficiary, the Funding Corporation and the Secured Parties
shall be subject to the provisions of the Intercreditor Agreement.
40. Relationship. The relationship of Beneficiary,
Funding Corporation and the Secured Parties to Trustor hereunder is strictly
and solely that of lender and borrower, and nothing contained in this Deed of
Trust or the Financing Documents is intended to create, or shall in any event
or under any circumstance be construed as creating, a partnership, joint
venture, tenancy-in-common, joint tenancy or other relationship of any nature
whatsoever between or among Beneficiary, Funding Corporation and the Secured
Parties and Trustor other than as lender and borrower.
41. Financing Documents. This Deed of Trust is
subject to all of the terms, covenants and conditions of the Financing
Documents, which Financing Documents and all of the terms, covenants and
conditions thereof are by this reference incorporated herein and made a part
hereof with the same force and effect as if set forth at length herein.
Trustor shall observe and perform all of the terms, covenants and conditions
of the Financing Documents on Trustor's part to be observed or performed. All
advances made and all indebtedness arising and accruing under the Financing
Documents from time to time shall be secured hereby.
42. Business Purpose. Trustor hereby stipulates and
warrants that the loans secured hereby are commercial or business loans and
are transacted solely for the purpose of
<PAGE>
carrying on or acquiring a business or commercial enterprise or for a proper
business purpose under the laws of the jurisdiction in which the Trust
Property is located.
43. Time of the Essence. TIME IS OF THE ESSENCE
with respect to each and every covenant, agreement and obligation of Trustor
under this Deed of Trust and the Financing Documents.
Non-Recourse. The obligations hereunder are subject
to the limitations set forth in Section 6.11 of the Partnership Credit
Agreement, the provisions of which are hereby incorporated by reference.
45. Severance of Counterclaims. In the event of
foreclosure of this Deed of Trust, any and all counterclaims filed by Trustor
against Beneficiary, Funding Corporation or the Secured Parties, to the extent
permitted by law, shall be severed by the court having jurisdiction over the
foreclosure action, for all purposes from the basic foreclosure action, on an
ex parte basis and without notice to Trustor. Trustor, by its execution and
delivery hereof, hereby expressly consents and agrees to such severance.
46. WAIVER OF JURY TRIAL. AS AN INDEPENDENT
COVENANT HEREOF, TRUSTOR HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND
IRREVOCABLY WAIVES THE RIGHT IT MIGHT HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS DEED OF TRUST OR THE FINANCING DOCUMENTS, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY
PERSONS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BENEFICIARY TO ACCEPT
DELIVERY OF THIS DEED OF TRUST AND THE FINANCING DOCUMENTS.
47. GOVERNING LAW. THIS DEED OF TRUST IS GOVERNED
BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
48. Attorneys' Fees. Attorneys shall be entitled to
fees in connection with the enforcement, amendment, extension or modification
of this Deed of Trust.
49. Shared Draftsmanship. If any ambiguity in the
terms of this Deed of Trust, the doctrine of construction which holds that the
language of the document shall be construed against its drafter shall not
apply as all parties have shared in the drafting of this Deed of Trust.
50. No Third Party Beneficiary. This Deed of Trust,
the Partnership Credit Agreement and the other Financing Documents are for the
sole benefit of Beneficiary, Funding Corporation and each of the Secured
Parties, as applicable, and Trustor and are not for the benefit of any third
party and no third party shall gain any subrogation rights against
<PAGE>
Trustor or in, to or with respect to any portion of the Trust Property by
reason of this Deed of Trust or the provisions hereof.
51. Security Only. This Deed of Trust is granted
for security purposes only. Accordingly, except as otherwise permitted by the
Partnership Credit Agreement or as otherwise specifically provided in this
Deed of Trust, neither Beneficiary, Funding Corporation nor the Secured
Parties, as applicable, shall enforce Trustor's rights with respect to the
Trust Property until such time as (a) an Credit Agreement Event of Default
under the Partnership Credit Agreement shall have occurred and be continuing
or (b) a Guarantee Event of Default under the Partnership Guarantee shall have
occurred and be continuing.
52. Release by Beneficiary. Upon written request of
Beneficiary stating that the Debt has been paid and upon surrender by
Beneficiary, Funding Corporation and the Secured Parties of this Deed of Trust
to Trustee for cancellation and retention and upon payment by Trustor of
Trustee's fees and the costs of executing and recording any requested
reconveyance, Trustee shall reconvey, without cost or expense to Beneficiary,
Funding Corporation and any of the Secured Parties, to Trustor or to the
person or persons legally entitled thereto, without warranty, any portion of
the Trust Property then held hereunder. The recitals in any such reconveyance
of any matter or fact shall be conclusive proof of the truthfulness thereof.
The grantee in any such reconveyance may be described as the person or persons
legally entitled thereto.
53. Waiver. Trustor waives and releases any rights
or defenses which Trustor might otherwise have (i) under California Code of
Civil Procedure Sections 726, 725a, 580a, 580b, 580c and 580d and California
Civil Code Section 2889, which statutes might otherwise limit or condition
Beneficiary's, Funding Corporation's and/or the Secured Parties' exercise of
certain of Beneficiary's, Funding Corporation's and/or the Secured Parties'
rights and remedies in connection with the enforcement of obligations secured
by a lien on real property or (ii) under any laws now existing or hereafter
enacted providing for any appraisal before sale of a portion of the Trust
Property and (iii) to all rights of redemption, valuation, appraisal, stay of
execution, notice of election to mature or to declare due the Debt and
marshalling in the event of the foreclosure of the liens created under this
Deed of Trust or the exercise of the power of sale granted hereunder. To the
extent, if any, which such laws may be applicable, Trustor waives and releases
any right or defense which Trustor might otherwise have under such provisions
and under any other law of any applicable jurisdiction which might limit or
restrict the effectiveness or scope of any of Trustor's waivers or releases
hereunder.
54. Sole Discretion of Beneficiary or Trustee.
Except as otherwise provided in the Financing Documents, wherever pursuant to
this Deed of Trust, Beneficiary, Funding Corporation, the Secured Parties or
Trustee exercises any right given to them to approve or disapprove, or any
arrangement or term is to be satisfactory to Beneficiary, Funding Corporation,
the Secured Parties or Trustee, the decision of Beneficiary, Funding
Corporation, the Secured Parties or Trustee to approve or disapprove or to
decide that
<PAGE>
arrangements or terms are satisfactory or not satisfactory shall be in the
sole discretion of Beneficiary, Funding Corporation, the Secured Parties or
Trustee and shall be final and conclusive.
55. Partial Release. Upon receipt of written notice
from Magma to the effect that Magma has exercised the Partial Termination
Option provided in Section 3.2.2 of the Clarification and Amendment, (i)
Trustor shall have the right to quitclaim all its right, title and interest in
the Terminated Parcels (as that term is defined in the Clarification and
Amendment) to Magma and to surrender and deliver possession thereof to Magma
as provided in such Section 3.2.2 and (ii) Beneficiary, acting on behalf of
Funding Corporation and the Secured Parties, shall promptly execute and
deliver, in recordable form, such documents and instruments as may reasonably
be necessary or appropriate to fully release said Terminated Parcels from the
Security Documents.
IN WITNESS WHEREOF, Trustor has duly executed this
Deed of Trust the day and year first above written.
DEL RANCH, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
its general partner
By: /s/ John G. Sylvia
------------------------------
Name: John G. Sylvia
----------------------------
Title: Senior Vice President
---------------------------
<PAGE>
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
On June 20, 1996, before me, Patricia Peterson Notary Public,
personally appeared John Sylvia, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Patricia Peterson
- ----------------------------------
Notary/Public
[Signature Page to Deed of Trust, Assignment of Rents]
<PAGE>
EXHIBIT A
Description of the Resource Easement Area Premises
Parcel 1:
The Southeast Quarter of the Southeast Quarter of Section 32,
Township 11 South, Range 13 East, San Bernardino Meridian, in the
County of Imperial, State of California, according to Official Plat
thereof.
Parcel 2:
Parcel A:
The Southwest Quarter of Section 33, Township 11 South, Range 13
East, San Bernardino Meridian, in the County of Imperial, State of
California, according to Official Plat thereof.
Parcel B:
The West Half of the Southeast Quarter of Section 33, Township 11
South, Range 13 East, San Bernardino Meridian, in the County of
Imperial, State of California, according to Official Plat thereof,
excepting therefrom the following portion thereof:
Beginning at the Southwest Corner of Parcel 1 as shown in
Book 5 Page 74 of Parcel Maps, said Point being on the South
Line of said Section 33; thence North 0(Degree)00'12" West
662.00 feet along the West Line of Parcels 1 and 2 of said
Map; thence West 382.00 feet parallel to the South Line of
said Section, thence South 0(Degree)00'12" East 662.00 feet
parallel to the West Line of Parcel 1 to a Point in the
South Line of said Section, thence East 382.00 feet along
the South Line of said Section to the True Point of
Beginning.
Parcel C:
All minerals, whether in solid or liquid form, geothermal steam and
thermal energy within that portion of the West Half of the Southeast
Quarter of Section 33, Township 11 South, Range 13 East, San
Bernardino Meridian, in the County of Imperial, State of California,
according to Official Plat thereof, described as follows:
Beginning at the Southwest Corner of Parcel 1 as shown in
Book 5 Page 74 of Parcel Maps, said Point being on the South
Line of said Section 33; thence North 0(Degree)00'12" West
662.00 feet along the West Line of Parcels 1 and 2 of said
Map; thence West 382.00 feet parallel to the South Line of
said Section, thence South 0(Degree)00'12" East 662.00 feet
parallel to the West Line of Parcel 1 to a Point in the
South Line of said Section, thence East 382.00 feet along
the South Line of said Section to the True Point of
Beginning.
<PAGE>
Parcel 3:
Lots 3 and 4 and the South One-Half of the Northeast Quarter of
Section 4, Township 12 South, Range 13 East, San Bernardino Meridian,
in the County of Imperial, State of California, according to Official
Plat thereof.
Parcel 4:
Parcel A:
That Portion of the Northeast Quarter of Section 33, in Township 11
South, Range 13 East, San Bernardino Meridian, in the County of
Imperial, State of California, according to Official Plat thereof,
described as follows:
Beginning at the Northeast Corner of said Section 33; thence
South 00(Degree)03' East, 2,640 feet to the East Quarter
Corner of said Section 33; thence with the East-West Center
Line of said Section, South 89(Degree)53' West, 2,489.12
feet to a Point from which a one-inch iron pipe bears North
00(Degree)10' West 37.48 feet distant; thence passing within
the said Northeast Quarter North 00(Degree)10' West 1,319.78
feet to a 1-1/2 inch iron pipe on the North line of the
One-Half Northeast Quarter; thence with said North Line East
3.0 feet to a 1-1/2 inch iron pipe; thence North
00(Degree)10' West 1,319.78 feet to a point on the North
Line of said Section 33; thence with said North Line North
89(Degree)53' East 2,491.39 feet to the Place of Beginning.
Parcel B:
Beginning at the Quarter Corner on the North Line of said Section 33;
thence with said North Line North 89(Degree)53' East 116.43 feet to a
Point; thence passing within the said Northeast Quarter South
00(Degree)10' East, 2,639.55 feet to a point on the East-West Center
Line of said Section; thence with said East-West Center Line South
89(Degree)53' West 121.29 feet to the Center Quarter Corner of said
Section; thence with the North-South Center Line of said Section,
North 00(Degree)03' West 2,639.53 feet to the Place of Beginning.
Parcel 5:
Parcel A:
The Northeast Quarter of the Southeast Quarter of Section 33, in
Township 11 South, Range 13 East, San Bernardino Meridian, in the
County of Imperial, State of California, according to Official Plat
thereof.
Parcel B:
All minerals, whether in solid or liquid form, geothermal steam and
thermal energy lying below a depth of 500 feet below the surface of
the following land: The Southeast
EXHIBIT A TO DEED OF TRUST
(DEL RANCH)
Page 2 of 3
<PAGE>
Quarter of the Southeast Quarter of Section 33, in Township 11 South,
Range 13 East, San Bernardino Meridian, in the County of Imperial,
State of California, according to Official Plat thereof.
Parcel 6:
The North Half of the Northwest Quarter of Section 34, Township 11
South, Range 13 East, San Bernardino Meridian, County of Imperial,
State of California, according to Official Plat thereof.
Parcel 7:
The South Half of the Northwest Quarter of Section 34, Township 11
South, Range 13 East, San Bernardino Meridian, County of Imperial,
State of California, according to the Official Plat thereof.
Parcel 8:
The West Half of the Northeast Quarter of Section 34, Township 11
South, Range 13 East, San Bernardino Meridian, according to the
Official Plat thereof.
Parcel 1/Severe; Parcel 2/Del Ranch; Parcel 3/Future Energy;
Parcel 4/Ruchti; Parcel 5/Woolsey; Parcel 6/McKelvey; Parcel 7/Wiest;
Parcel 8/J.F. Baretta.
EXHIBIT A TO DEED OF TRUST
(DEL RANCH)
Page 3 of 3
<PAGE>
EXHIBIT B
Description of the Ground Lease Premises
That portion of the Southeast Quarter of the Southeast Quarter of
Section 33, Township 11 South, Range 13 East, San Bernardino
Meridian, County of Imperial, State of California, according to the
Official Plat thereof shown as Parcel 2 on Parcel Map M-1356, on file
in Book 5, Page 74 of Parcel Maps in the Office of the County
Recorder of Imperial County.
Excepting therefrom, minerals, either in solid or liquid form,
geothermal steam, naturally heated water, and thermal energy below a
depth of 500 feet from the surface of said land, as reserved by Roy
B. Woolsey and Louise J. Woolsey, in the Deed recorded October 30,
1974 in Book 1368 Page 960, Official Records, without, however, the
right to enter the area within 500 feet of the surface of the ground,
nor endanger or interfere with the operation, maintenance or repair
of the facilities located within or upon said land.
EXHIBIT B TO DEED OF TRUST
(DEL RANCH)
Page 1 of 1
<PAGE>
EXHIBIT 4.39
STOCK PLEDGE AGREEMENT
(Pledge of Capital Stock of Conejo, Niguel and San Felipe)
by
CALENERGY OPERATING COMPANY
(as Pledgor)
in favor of
CHEMICAL TRUST COMPANY OF CALIFORNIA
(as Collateral Agent)
Dated as of June 20, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
<S> <C>
Definitions..................................................................................................3
Grant of Security Interest...................................................................................3
Representations and Warranties...............................................................................4
Covenants and Agreements.....................................................................................5
Pledgor's Obligations Upon Event of Default..................................................................7
Remedies; Rights Upon Event of Default.......................................................................7
Application of Proceeds......................................................................................9
Security Interest Absolute...................................................................................9
Collateral Agent Appointed Attorney-in-Fact..................................................................9
Collateral Agent May Perform.................................................................................10
No Duty on Collateral Agent's Part,..........................................................................11
Reasonable Care..............................................................................................11
Role of Collateral Agent.....................................................................................11
Waiver of Trial by Jury......................................................................................11
Notices......................................................................................................12
Absence of Fiduciary Relation................................................................................12
Survival of Representations and Warranties...................................................................12
No Waiver; Cumulative Remedies...............................................................................12
Severability.................................................................................................12
Exculpatory Provisions; Reliance by Collateral Agent.........................................................13
Amendment....................................................................................................13
Successors and Assigns.......................................................................................13
Number and Gender............................................................................................14
Subrogation, etc.............................................................................................14
Captions.....................................................................................................14
Applicable Law...............................................................................................14
Continuing Security Interest; Termination....................................................................14
Payments Set Aside...........................................................................................14
Counterparts.................................................................................................15
Non-Recourse.................................................................................................15
</TABLE>
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STOCK PLEDGE AGREEMENT
(Pledge of Capital Stock of Conejo, Niguel and San Felipe)
This STOCK PLEDGE AGREEMENT (this "Pledge Agreement"), dated
as of June 20, 1996, is entered into by CALENERGY OPERATING COMPANY, a
Delaware corporation ("Pledgor"), in favor of CHEMICAL TRUST COMPANY OF
CALIFORNIA, a California corporation, as collateral agent (together with its
successors and assigns, the "Collateral Agent"), on behalf of and for the
benefit of the Secured Parties and Salton Sea Funding Corporation, a Delaware
Corporation ("Funding Corporation").
W I T N E S S E T H:
WHEREAS, Pledgor owns all of the issued and outstanding
capital stock of each of Conejo Energy Company, a California corporation
("Conejo"), Niguel Energy Company, a California corporation ("Niguel"), and
San Felipe Energy Company, a California corporation ("San Felipe"); and
WHEREAS, Funding Corporation is a corporation established
for the sole purpose of making loans to the Guarantors (as hereinafter
defined) from the proceeds of the issuance of notes and bonds (collectively,
the "Securities") in its individual capacity as principal and as agent acting
on behalf of Salton Sea Brine Processing L.P., a California limited
partnership ("SSBP"), Salton Sea Power Generation L.P., a California limited
partnership ("SSPG"), Fish Lake Power Company, a Delaware corporation ("Fish
Lake," and together with SSBP and SSPG, the "Salton Sea Guarantors"), Pledgor,
Conejo, Niguel, San Felipe, Del Ranch, L.P., a California limited partnership
("Del Ranch"), Elmore, L.P., a California limited partnership ("Elmore"),
Leathers, L.P., a California limited partnership ("Leathers"), Vulcan/BN
Geothermal Power Company, a Nevada general partnership ("Vulcan"), BN
Geothermal, Inc., a Delaware corporation ("BNG"), and Vulcan Power Company, a
Nevada corporation ("VPC," and together with Pledgor, Conejo, Niguel, San
Felipe, Del Ranch, Elmore, Leathers, Vulcan and BNG, the "Partnership
Guarantors"), and Salton Sea Royalty Company, a Delaware corporation ("Royalty
Guarantor", and together with the Salton Sea Guarantors and the Partnership
Guarantors, the "Guarantors"), pursuant to the Trust Indenture, dated as of
July 21, 1995, as the same may be amended, modified, or supplemented,
including pursuant to that certain Second Supplemental Trust Indenture, dated
as of even date herewith (as so amended, modified and supplemented, the
"Indenture"), between Funding Corporation and Collateral Agent, as trustee
("Trustee"); and
WHEREAS, the principal and interest payments on the
Securities will be serviced by repayment of loans made by Funding Corporation
to the Guarantors and guaranteed by the Guarantors, subject to the conditions
set forth in the Indenture; and
WHEREAS, Funding Corporation has (a) on July 21, 1995 issued
and sold Securities in the principal amount of $475 Million (the "Initial
Issuance") and (b) simultaneously with the execution and delivery of this
Agreement issued and sold Securities in the principal amount of $135 Million
(the "Additional Issuance"); and
WHEREAS, Funding Corporation has used a portion of the
proceeds from the Initial Issuance and intends to use the proceeds from the
Additional Issuance to make loans to the Partnership Guarantors in the
aggregate outstanding amount of $189,956,000, as of the date hereof, portions
of which will be used for the following purposes: (a) approximately $96
Million to refinance all existing
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<PAGE>
project-level indebtedness of the Partnership Projects, (b) approximately $15
Million to fund certain capital improvements to the Partnership Projects and the
Salton Sea Projects, and (c) approximately $23 Million to fund a portion of the
purchase price for the acquisition by certain of the Partnership Guarantors of
the 50% interest in each of the Partnership Projects previously owned by a third
party; and
WHEREAS, Pledgor anticipates benefiting directly and
indirectly from the making of the loan pursuant to the Partnership Credit
Agreement and is, therefore, willing to enter into this Pledge Agreement in
accordance with the terms hereof.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, and in order to induce the
Funding Corporation to enter into the Partnership Credit Agreement, the
parties hereto hereby agree as follows:
Definitions. Unless otherwise defined herein, all capitalized
terms shall have the meanings set forth in Exhibit A to the Indenture, which
Exhibit A is hereby incorporated by reference. All references to sections,
schedules and exhibits in or to this Pledge Agreement are to sections, schedules
and exhibits in or to this Pledge Agreement, unless otherwise specified. The
words "hereof," "herein" and "hereunder" and words of similar import when used
in this Pledge Agreement shall refer to this Pledge Agreement as a whole and not
to any particular provision of this Pledge Agreement. For purposes of this
Pledge Agreement, all other terms used herein and not otherwise defined herein
which are defined in Article 9 of the Uniform Commercial Code (as the same may
be in effect in the State of California or any other applicable jurisdiction,
the "Code"), shall have their respective meanings as therein defined.
Grant of Security Interest.
Collateral. As security for the prompt and complete
payment and performance when due (whether at stated maturity, by acceleration or
otherwise) of any and all of the Obligations (as defined below) now existing or
hereafter arising, and howsoever evidenced, Pledgor hereby collaterally assigns,
conveys, mortgages, pledges, hypothecates and transfers to Collateral Agent, and
grants and creates a lien on and first priority security interest (the "Security
Interest") in favor of Collateral Agent, for the equal and ratable benefit of
the Secured Parties and the Funding Corporation, in all right, title and
interest of Pledgor in and to all of the issued and outstanding capital stock
of each of Conejo, Niguel and San Felipe, whether now existing or hereafter
acquired (collectively, the "Stock"), including, without limitation, the Stock
described in Schedule 2.1 hereto, and all proceeds thereof, including, without
limitation, dividends and other property received and receivable by Pledgor in
connection with the Stock, other than dividends and other distributions made
by Conejo, Niguel or San Felipe in compliance with the other Financing
Documents (the Stock and such proceeds to be referred to herein collectively
as the "Collateral").
Obligations. This Pledge Agreement secures, in
accordance with the provisions hereof, the following obligations, now existing
or hereafter arising (collectively, the "Obligations"):
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<PAGE>
payment and performance of the Partnership Guarantors'
obligations under the Partnership Credit Agreement and the Partnership
Guarantee, and each and every obligation, indebtedness, covenant and agreement
of Pledgor under any of the Financing Documents to which it is a party,
including, without limitation, this Pledge Agreement, the Intercreditor
Agreement and any amendments or supplements thereto, extensions or renewals
thereof or replacements therefor; and
performance of every obligation, covenant and agreement of
Pledgor contained in any agreement now or hereafter executed by Pledgor which
recites that the obligations thereunder are secured by this Pledge Agreement;
in each case whether direct or indirect, joint or several, absolute or
contingent, liquidated or unliquidated, now or hereafter existing, renewed or
restructured, reinstated, created or incurred, and, including, without
limitation, all indebtedness of Pledgor under any instrument now or hereafter
evidencing or securing any of the foregoing.
Representations and Warranties. Pledgor hereby represents and
warrants as follows:
Organization and Existence. Pledgor owns all of the
issued and outstanding capital stock of each of Conejo, Niguel and San Felipe.
Pledgor is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Pledgor is duly qualified to do
business and is in good standing in the State of California and each other
jurisdiction in which the character of the properties owned or leased by it or
in which the transaction of its business as presently conducted or proposed to
be conducted makes such qualification necessary or desirable. Pledgor has full
corporate power and authority to own its property and to carry on its business
as now being conducted and as proposed to be conducted.
Authority, Enforceability. Pledgor has full
corporate power and authority to enter into and perform this Pledge Agreement
and the entering into and performance of such agreement by Pledgor has been duly
authorized by all proper and necessary corporate action. This Pledge Agreement,
when executed and delivered by Pledgor and any other party hereto, will
constitute the legal, valid and binding obligation of Pledgor, enforceable in
accordance with its terms.
Title: No Other Liens. Pledgor is the legal and
beneficial owner of the Collateral in existence on the date hereof and will be
the sole owner of the Collateral hereafter acquired, free and clear of any and
all Liens or claims of others except for Permitted Liens, and Pledgor has full
corporate power and authority to grant the liens and security interests in and
to the Collateral hereunder. Except with respect to the Secured Parties and the
Funding Corporation and as required under this Pledge Agreement, no security
agreement, financing statement or other public notice with respect to all or any
part of the Collateral is on file or of record in any public office, and no lien
or security interest on or in the Collateral has been registered in the
registration books maintained by Conejo, Niguel or San Felipe in which all
capital stock of Conejo, Niguel and San Felipe, respectively, is recorded,
except such as may have been filed in favor of Collateral Agent for the
benefit of the Secured Parties and the Funding Corporation pursuant to this
Pledge Agreement.
Collateral. All of the Collateral constituting
shares of capital stock are and such future collateral will be validly issued,
fully paid and nonassessable securities of Conejo, Niguel and San Felipe. The
Collateral includes all of the issued and outstanding shares of capital stock of
each of Conejo, Niguel and San Felipe. Except for the Collateral, there are no
outstanding options, warrants or other rights to subscribe for or purchase
voting or non-voting capital stock of Conejo, Niguel or San Felipe, nor any
notes, bonds, debentures or other evidences of indebtedness that (1) are at any
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<PAGE>
time convertible into capital stock of Conejo, Niguel or San Felipe, or (2) have
or at any time would have voting rights with respect to Conejo, Niguel or San
Felipe.
Perfection; Registration of Lien. Financing
statements or other appropriate instruments have been filed or deposited for
filing pursuant to the Code in such public offices as may be necessary to
perfect any Security Interest granted or purported to be granted hereby to the
extent any such Security Interest may be perfected by the filing of a financing
statement. All other action by Pledgor and, to Pledgor's knowledge, by any other
Person necessary or desirable to perfect the Security Interest in each item of
the Collateral has been duly taken. Subject to the requirements contained in the
Code with respect to the filing of continuation statements, this Pledge
Agreement constitutes a valid and continuing Lien on and perfected Security
Interest (subject only to Permitted Liens) in the Collateral in favor of
Collateral Agent for the equal and ratable benefit of the Secured Parties and
the Funding Corporation, superior and prior to the rights of all Persons
(subject only to Permitted Liens), whether the Collateral subject to the
Security Interest is now owned by Pledgor or is hereafter acquired.
No Default. Pledgor is not in default in the
performance, observance or fulfillment of any of the material obligations,
covenants or conditions applicable to Pledgor contained in any Financing
Document to which it is a party.
Chief Executive Office and Principal Place of
Business. Pledgor's chief executive office and principal place of business and
the place where Pledgor's records concerning the Collateral are kept is:
Blackstone Center
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
Covenants and Agreements. Pledgor hereby covenants
and agrees that Pledgor shall faithfully observe and fulfill, and shall cause to
be observed and fulfilled, each and all of the following covenants until all
Obligations to be paid or performed by Pledgor and the other Partnership
Guarantors under the Financing Documents to which it is a party have been paid
and performed in full:
Further Assurances. Pledgor shall, from time to
time at Pledgor's expense, and upon request by Collateral Agent on behalf of the
Secured Parties and the Funding Corporation, promptly execute and deliver all
further instruments and documents, and take all further action that may be
reasonably necessary or advisable, or that Collateral Agent reasonably
determines may be necessary, in order to perfect and protect the Security
Interest granted or purported to be granted hereby or to enable Collateral Agent
to exercise and enforce its rights and remedies hereunder with respect to the
Collateral.
Stock Certificates. Pledgor shall promptly deliver
to Collateral Agent all originals of certificates and other documents,
instruments and agreements evidencing the Collateral which are now held or
hereafter received by Pledgor, together with such blank stock powers executed
by Pledgor as Collateral Agent may request.
Stock Issuance. Pledgor shall not, except as
expressly permitted by the Financing Documents, vote to enable, or take any
other action to permit, Conejo, Niguel or San Felipe to issue any stock.
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<PAGE>
Certificated Interest. If Pledgor shall become
entitled to receive or shall receive any certificate, instrument, option or
rights, whether as an addition to, in substitution of, or in exchange for the
Collateral or any part thereof, or otherwise, Pledgor shall accept any such
certificate, instrument, option or rights as Collateral Agent's agent, shall
hold them in trust for Collateral Agent, and shall deliver them forthwith to
Collateral Agent in the exact form received, with Pledgor's endorsement when
necessary, or accompanied by duly executed instruments of transfer or assignment
in blank or, if requested by Collateral Agent, an additional pledge agreement or
security agreement executed and delivered by Pledgor, all in form and substance
reasonably satisfactory to Collateral Agent, to be held by Collateral Agent,
subject to the terms hereof, as further Collateral for the Obligations.
Change in Location, Name, Etc. Pledgor may change
the location of its chief executive office, principal place of business or the
office where such records are kept to another location in the United States
after giving Collateral Agent thirty (30) days' advance written notice of such
change. Without the prior written consent of Collateral Agent, Pledgor shall not
adopt any trade name or fictitious business name.
Limitation on Liens on the Collateral. Pledgor
shall not create, incur or permit to exist, shall defend the Collateral now
owned or hereafter acquired by it against, and shall take such other action as
is necessary to remove, any Lien or claim on or to the Collateral, other than
Permitted Liens, and shall defend the right, title and interest of Collateral
Agent in and to any of the Collateral against the claims and demands of all
Persons whomsoever.
Bankruptcy Filing, etc. Pledgor shall not authorize
or permit Conejo, Niguel or San Felipe (i) to commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
Conejo, Niguel or San Felipe, as applicable, or their respective debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of Conejo, Niguel or San Felipe, as applicable, or any
substantial part of their respective properties or (ii) to consent to any such
relief or to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against Conejo, Niguel or San
Felipe or (iii) to make a general assignment for the benefit of their
respective creditors. Neither Pledgor nor any of its Affiliates shall commence
or join with any other Person (other than the Secured Parties and Funding
Corporation) in commencing any proceeding against Conejo, Niguel or San Felipe
under any bankruptcy, reorganization, liquidation or insolvency law or statute
now or hereafter in effect in any jurisdiction.
Obligations. Pledgor acknowledges and agrees that
its rights to receive any payments from Conejo, Niguel and San Felipe, or
arising out of or in connection with Pledgor's interests in Conejo, Niguel and
San Felipe, shall be payable by Conejo, Niguel or San Felipe, as applicable,
only from funds available to Conejo, Niguel and San Felipe, respectively, upon
distributions pursuant to the Depositary Agreement or any other provision of the
Indenture expressly providing for distribution, payment or release of funds to
Conejo, Niguel or San Felipe, as the case may be, and only so long as such
distribution, payment or release is made in accordance with the Depositary
Agreement and the Indenture. Pledgor also agrees that any distributions made by
Conejo, Niguel or San Felipe to Pledgor that do not comply with the Depositary
Agreement and the Indenture shall be restored to Conejo, Niguel or San Felipe,
as the case may be, by Pledgor by deposit into an account designated by
Collateral Agent, promptly upon demand by Collateral Agent or Conejo, Niguel or
San Felipe or upon Pledgor becoming aware of receipt of such non-complying
distribution.
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Governmental Authority Requirement. Pledgor shall
not take or omit to take (or suffer such taking or omission of) any action
(unless ordered to do so by a competent Governmental Authority having
jurisdiction) in respect of Pledgor or Conejo, Niguel or San Felipe and their
respective businesses if, as a consequence directly or indirectly of such action
or omission, Conejo, Niguel, San Felipe or Pledgor becomes subject to regulation
by any Governmental Authority as a "public utility," an "electric utility," an
"electric utility holding company," a "public utility holding company" or a
subsidiary or affiliate of any of the foregoing under PUHCA, FPA or PURPA, or as
a "holding company" within the meaning of PUHCA.
Indemnification. Pledgor shall defend, indemnify
and hold harmless Collateral Agent and each of the other Secured Parties and the
Funding Corporation and their officers, directors and employees, from and
against any and all costs, expenses, disbursements, liabilities, obligations,
losses, damages, injunctions, judgments, suits, actions, causes of action,
fines, penalties, claims and demands, of every kind or nature (including,
without limitation, reasonable attorney's fees and expenses) which are
occasioned by or result from any (i) failure by Pledgor to perform any of the
terms, agreements, or covenants to be performed by Pledgor under this Pledge
Agreement and (ii) proceeding or action to enforce brought by Collateral Agent
pursuant to this Pledge Agreement or which arise out of any such agreement
unless due solely to the gross negligence or willful misconduct of Collateral
Agent. This indemnity and any other obligations of Pledgor under any of the
Financing Documents shall be made only against, and shall be limited to the
extent of, the Collateral pledged hereunder.
Pledgor's Obligations Upon Event of Default. If an
Event of Default under the Partnership Credit Agreement or the Partnership
Guarantee shall occur and be continuing (a) all payments received by Pledgor
under or in connection with any of the Collateral shall be held by Pledgor in
trust for Collateral Agent, shall be segregated from other funds of Pledgor and
shall, forthwith upon receipt by Pledgor, be turned over to Collateral Agent or
its designee in the same form as received by Pledgor (duly endorsed by Pledgor
to Collateral Agent, if requested), and (b) any and all such payments so
received by Collateral Agent or its designee (whether from Pledgor or otherwise)
may, in the sole discretion of Collateral Agent or its designee, be held by
Collateral Agent or such designee as collateral security for, and/or then or at
any time thereafter be applied, subject only to the relevant provisions of the
Intercreditor Agreement and Depositary Agreement or as otherwise may be required
by applicable law, in whole or in part by Collateral Agent or its designee in
the manner specified in Section 7.
Remedies; Rights Upon Event of Default. Until an
Event of Default shall have occurred and be continuing under the Partnership
Credit Agreement or the Partnership Guarantee and Collateral Agent shall have
given notice to Pledgor of Collateral Agent's intent to exercise its rights
pursuant to Subparagraph 6.5 below, Pledgor shall be permitted (a) to receive
all dividends paid on Stock (other than dividends paid in additional capital
stock unless such additional capital stock is pledged to Collateral Agent for
the benefit of Collateral Agent and the Secured Parties and the Funding
Corporation pursuant to a Pledge Agreement in the form of this Pledge Agreement)
which are permitted by the Financing Documents and (b) to exercise all voting
and corporate rights with respect to the such capital stock. Upon the occurrence
and during the continuance of an Event of Default under the Partnership Credit
Agreement or the Partnership Guarantee, Collateral Agent, for the equal and
ratable benefit of and on behalf of the Secured Parties and the Funding
Corporation, may, subject to the provisions of the Intercreditor Agreement and
the other Financing Documents, do one or more of the following:
declare, without presentment, demand, protest or
notice of any kind, all of which Pledgor hereby expressly waives, the entire
amount of Obligations to be immediately due and payable,
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whereupon all of such Obligations declared due and payable shall be and become
immediately due and payable; provided, however, if, with respect to the
Partnership Guarantors, an Event of Default occurs pursuant to Section 5.1 of
the Partnership Credit Agreement, then the acceleration provided for in this
Section 6.1 shall be deemed to have been made upon the occurrence of such Event
of Default without declaration or any other action by Collateral Agent;
upon notice to Pledgor, which notice need not be in
writing, make such payments and do such acts as Collateral Agent may deem
necessary to protect, perfect or continue the perfection of the Secured Parties'
and the Funding Corporation's Security Interest in the Collateral, including,
without limitation, paying, purchasing, contesting or compromising any Lien
which is, or purports to be, prior to or superior to the Security Interest
granted hereunder, and commencing, appearing or otherwise participating in or
controlling any action or proceeding purporting to affect the Secured Parties'
and the Funding Corporation's Security Interest in or ownership of the
Collateral;
foreclose on the Collateral as herein provided or in
any manner permitted by law and exercise any and all of the rights and remedies
conferred upon the Secured Parties and the Funding Corporation by the Security
Documents either concurrently or in such order as Collateral Agent may determine
without affecting the rights or remedies to which the Secured Parties and the
Funding Corporation may be entitled under any Security Documents. Pledgor hereby
waives, to the extent permitted by applicable law, notice and judicial hearing
in connection with Collateral Agent's taking possession or collection,
recovery, receipt, appropriation, repossession, retention, set-off, sale,
leasing, conveyance, assignment, transfer or other disposition of or
realization upon any or all of the Collateral, including, without limitation,
any and all prior notice and hearing for any prejudgment remedy or remedies
and any such right which Pledgor would otherwise have under the constitution
or any statute or other law of the United States of America or of any state;
without notice, except as specified below, sell the
Collateral, or any part thereof, in one or more parcels at public or private
sale, at any of Collateral Agent's offices or elsewhere, at such time or times,
for cash, on credit or for future delivery, and at a commercially reasonable
price or prices and on other commercially reasonable terms. Pledgor agrees that,
to the extent notice of sale shall be required by law, at least ten (10) days'
notice to Pledgor of the time and the place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
At any sale of the Collateral, if permitted by law, Collateral Agent may bid
(which bid may be, in whole or in part, in the form of cancellation of
indebtedness) for the purchase of the Collateral or any portion thereof for the
account of Collateral Agent on behalf of the Secured Parties and the Funding
Corporation. Collateral Agent shall not be obligated to make any sale of the
Collateral regardless of notice of sale having been given. Collateral Agent may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Collateral Agent shall incur
no liability as a result of the manner of sale of the Collateral, or any part
thereof, at any private sale conducted in a commercially reasonable manner.
Pledgor hereby waives, to the extent permitted by applicable law, any claims
against Collateral Agent arising by reason of the fact that the price at which
the Collateral, or any part thereof, may have been sold at a private sale was
less than the price which might have been obtained at public sale or was less
than the aggregate amount of the Obligations, even if Collateral Agent accepts
the first offer received which Collateral Agent in good faith deems to be
commercially reasonable under the circumstances and does not offer the
Collateral to more than one offeree. To the full extent permitted by law,
Pledgor shall have the burden of proving that any such sale of the Collateral
was conducted in a commercially unreasonable manner. To the extent permitted
by law, Pledgor hereby specifically waives all rights of redemption, stay or
appraisal which it has or may have under any law now existing or hereafter
enacted. Pledgor authorizes
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Collateral Agent, at any time and from time to time, to execute, in connection
with a sale of the Collateral pursuant to the provisions of this Pledge
Agreement, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral;
upon notice to Pledgor, register the Collateral in
the name of Collateral Agent or its nominee as pledgee or otherwise take such
action as Collateral Agent shall in its sole discretion deem necessary or
desirable with respect to the Collateral, and Collateral Agent or its nominee
may thereafter, in its sole discretion, without notice, exercise all voting,
consent, managerial and other rights relating to the Collateral and exercise any
and all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to the Collateral as if it were the absolute
owner thereof, including, without limitation, all rights of Pledgor, including,
without limitation, the right to (i) receive all permitted distributions, if
any, made for the account of Pledgor and (ii) exchange any and all of the
Collateral upon the merger, consolidation, reorganization, recapitalization or
other readjustment of Conejo, Niguel or San Felipe, all without liability except
to account for property actually received by Collateral Agent, but Collateral
Agent shall have no duty to exercise any of the aforesaid rights, privileges
or options and shall not be responsible for any failure to do so or delay in
so doing; and
exercise in respect of the Collateral, in addition
to other rights and remedies provided for herein or otherwise available to it,
all the rights and remedies of a secured party after default under the Code.
Application of Proceeds. The net proceeds of any
foreclosure, collection, recovery, receipt, appropriation, realization or sale
of the Collateral shall be applied in the order of priority specified in the
Intercreditor Agreement. If all Obligations and any other amounts due under this
Pledge Agreement and the Intercreditor Agreement have been indefeasibly paid,
satisfied and discharged in full, any surplus then remaining shall be paid to
Pledgor, if it is lawfully entitled to receive the same or shall be paid to
whomsoever a court of competent jurisdiction may direct.
Security Interest Absolute. All the rights of
Collateral Agent and any of the other Secured Parties and the Funding
Corporation hereunder and the Security Interest and all obligations of Pledgor
hereunder shall be absolute and unconditional irrespective of:
any lack of validity or enforceability of the
Project Documents or the Financing Documents or any other agreement or
instrument relating thereto;
any change in the time, manner or place of payment
of, or in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to any departure from the Project
Documents or the Financing Documents;
any exchange or release of any Collateral or any
other collateral, or the non-perfection of any of the Security Interest, or any
release or amendment or waiver of or consent to or departure from any guaranty,
for all or any of the Obligations;
to the full extent permitted by law, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, Pledgor or any third party pledgor; or
the failure by Pledgor to fulfill its obligations
under this Pledge Agreement.
Collateral Agent Appointed Attorney-in-Fact.
-9-
<PAGE>
Powers. Pledgor hereby irrevocably constitutes and
appoints Collateral Agent and any officer or agent thereof, with full power of
substitution, as Pledgor's true and lawful attorney-in-fact (which appointment
as attorney-in-fact shall be coupled with an interest), with full authority in
the place and stead of Pledgor and in the name of Pledgor or otherwise, from
time to time upon the occurrence and during the continuance of any Event of
Default under the Partnership Credit Agreement or the Partnership Guarantee in
Collateral Agent's discretion, to take any action and to execute any and all
documents and instruments which Collateral Agent may deem necessary or advisable
to accomplish the purposes of this Pledge Agreement, without notice to Pledgor,
including, without limitation:
to exercise all rights, powers and privileges to the
same extent Pledgor shall have been entitled under applicable law, including,
without limitation, all voting rights of Pledgor as holder of capital stock of
Conejo, Niguel and San Felipe;
to receive, endorse and collect all instruments made
payable to Pledgor representing any interest payment or other distribution in
respect of the Collateral or any part thereof and to give full discharge for the
same and to file any claim or to take any other action or proceeding in any
court of law or equity or otherwise deemed appropriate by Collateral Agent for
the purpose of collecting any and all of such dividends, payments or other
distributions;
to pay or discharge taxes and liens levied or placed
on the Collateral; and
(a) to direct any party liable for any payment in
respect of or arising out of any of the Collateral to make payment of any and
all moneys due or to become due in connection therewith directly to Collateral
Agent or as Collateral Agent shall otherwise direct, (b) to ask or make demand
for, collect, receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or arising out of
any Collateral, (c) to commence and prosecute any suits, actions or proceedings
at law or in equity in any court of competent jurisdiction to collect the
Collateral or any part thereof and to enforce any other right in respect of any
Collateral, (d) to defend any suit, action or proceeding brought against Pledgor
with respect to any Collateral, (e) to settle, compromise or adjust any suit,
action or proceeding described in clause (d) above and, in connection therewith,
to give such discharges or releases as Collateral Agent acting in good faith may
deem appropriate and (f) generally, to sell, transfer, pledge and make any
agreement with respect to or otherwise deal with any of the Collateral as
fully and completely as though Collateral Agent were the absolute owner
thereof for all purposes, and (g) to do, at Collateral Agent's option and at
Pledgor's expense, at any time, or from time to time, all acts and things
which Collateral Agent acting in good faith deems necessary to protect,
preserve or realize upon the Collateral and the Security Interest granted
herein and to effect the intent of this Pledge Agreement, all as fully and
effectively as Pledgor might do.
Other Powers. Pledgor further authorizes Collateral
Agent, at any time and from time to time (i) to execute, in connection with any
sale provided for hereunder, any endorsements, assignments or other instruments
of conveyance or transfer with respect to the Collateral and (ii) to the full
extent permitted by applicable law, to file one or more financing or
continuation statements, and amendments thereto, relative to all or any part of
the Collateral without the signature of Pledgor.
Collateral Agent May Perform. Upon the occurrence
and during the continuance of an Event of Default under the Partnership Credit
Agreement or the Partnership Guarantee, Collateral Agent, without releasing
Pledgor from any obligation, covenant or condition hereof, itself may make any
payment or perform, or cause the performance of, any such obligation, covenant,
condition or
-10-
<PAGE>
agreement or any other action in such manner and to such extent as Collateral
Agent may deem necessary to protect, perfect or continue the perfection of the
Secured Parties' and the Funding Corporation's Security Interest in the
Collateral. Any costs or expenses incurred by Collateral Agent in connection
with the foregoing shall be governed by the Indenture and the Financing
Documents, and constitute Obligations secured hereby.
No Duty on Collateral Agent's Part, Limitation on
Collateral Agent's Obligations.
No Duty on Collateral Agent's Part. The powers
conferred on Collateral Agent hereunder are solely to protect Collateral Agent's
interests in the Collateral and shall not impose any duty upon it to exercise
any such powers. Collateral Agent shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers.
Limitations on Obligations. Without limiting the
effectiveness of Section 30 hereof, anything herein to the contrary
notwithstanding, Pledgor shall remain liable under any Project Document or
Financing Document to which it is a party to the extent set forth therein to
perform all of its duties and obligations thereunder, to the same extent as if
this Pledge Agreement had not been executed. The exercise by Collateral Agent of
any of the rights or remedies hereunder shall not release Pledgor from any of
its duties or obligations under any Project Document or Financing Document to
which it is a party. All of the Collateral is hereby assigned to Collateral
Agent solely as security, and Collateral Agent shall have no duty, liability or
obligation whatsoever with respect to any of the Collateral, unless Collateral
Agent so elects in writing consistent with its rights under this Pledge
Agreement.
Reasonable Care. Collateral Agent shall exercise
the same degree of care hereunder as it exercises in connection with similar
transactions for its own account. Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which Collateral Agent accords or would accord collateral held by
Collateral Agent in similar transactions for its own account. Without limiting
the generality of the foregoing and except as otherwise provided by applicable
law, Collateral Agent shall not be required to marshall any collateral,
including, without limitation, the Collateral subject to the Security Interest
created hereby and any guaranties of the Obligations, or to resort to any item
of Collateral or guaranties in any particular order; and all of Collateral
Agent's rights hereunder and in respect of such Collateral and guaranties shall
be cumulative and in addition to all other rights, however existing or arising.
To the extent that Pledgor lawfully may, Pledgor hereby (a) agrees that it will
not invoke any law relating to the marshalling of collateral
which might cause delay in or impede the enforcement of Collateral Agent's
rights under this Pledge Agreement or under any other instrument evidencing
any of the Obligations or under which any of the Obligations is outstanding or
by which any of the Obligations is secured or guaranteed and (b) irrevocably
waives the benefits of all Laws and any and all rights to equity of redemption
or other rights of redemption that it may have in equity or at law with
respect to the Collateral.
Role of Collateral Agent. The rights, duties,
liabilities and immunities of Collateral Agent and its appointment and
replacement hereunder shall be governed by the Intercreditor Agreement.
Waiver of Trial by Jury. WITH REGARD TO THIS PLEDGE
AGREEMENT, EACH OF PLEDGOR AND COLLATERAL AGENT HEREBY WAIVES THE RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING AND FOR ANY COUNTERCLAIM THEREIN.
-11-
<PAGE>
Notices. All notices, demands, requests and other
communications required or permitted hereunder shall be in writing, and shall be
given and deemed to have been given in accordance with Section 6.1 of the
Partnership Credit Agreement and the information set forth immediately below
shall apply to Pledgor:
Blackstone Center
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
Absence of Fiduciary Relation. Collateral Agent undertakes to
perform or to observe only such of its agreements and obligations as are
specifically set forth in this Pledge Agreement, the Intercreditor Agreement or
any other Security Document, and no implied agreements, covenants or obligations
with respect to Pledgor, any Affiliate of Pledgor or any other party to the
Partnership Agreement or any other Project Document or Security Document to
which Pledgor is a party shall be read into this Pledge Agreement against
Collateral Agent or any of the Secured Parties and the Funding Corporation;
neither Collateral Agent nor any of the Secured Parties and the Funding
Corporation in its and their capacity as such is a fiduciary of and shall not
owe or be deemed to owe any fiduciary duty to Pledgor, any Affiliate of Pledgor
or any other party to any Project Document or Financing Document to which
Pledgor is a party, except as otherwise specifically required by law.
Survival of Representations and Warranties. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Pledge Agreement and the other Financing Documents and
repayment of the Obligations, and shall be deemed to be material and to have
been relied upon by Collateral Agent and any of the other Secured Parties and
the Funding Corporation, regardless of any investigation made by or on behalf of
any of Collateral Agent and any of the other Secured Parties and the Funding
Corporation. Notwithstanding anything in this Pledge Agreement or implied by law
to the contrary, the agreements and obligations of Pledgor set forth in Section
4.8 shall survive until the payment or prepayment in full of the Obligations and
the termination of this Pledge Agreement in accordance with Section 27 hereof.
No Waiver; Cumulative Remedies. By exercising or
failing to exercise any of its rights, options or elections hereunder (without
also expressly waiving the same in writing), Collateral Agent, on behalf of the
Secured Parties and the Funding Corporation, shall not be deemed to have waived
any breach or default on the part of Pledgor or to have released Pledgor from
any of its obligations secured hereby. No failure on the part of Collateral
Agent to exercise, and no delay in exercising (without also expressly waiving
the same in writing) any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or privilege preclude any other or further exercise thereof, or the
exercise of any other right, power or privilege. The remedies provided herein
are cumulative and not exclusive of any remedies provided by law. Collateral
Agent, acting on behalf of the Secured Parties and the Funding Corporation,
shall have all of the rights and remedies granted under the Intercreditor
Agreement or any Financing Document, and available at law or in equity, and
these same rights and remedies may be pursued separately, successively or
concurrently against Pledgor or any Collateral, at the discretion of Collateral
Agent.
Severability. Any provision of this Pledge
Agreement which is prohibited, unenforceable or not authorized in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition, unenforceability or non-authorization, without invalidating
the remaining provisions hereof or affecting the validity, enforceability or
legality of such provision in any other
-12-
<PAGE>
jurisdiction. Where provisions of any law or regulation resulting in such
prohibition or unenforceability may be waived they are hereby waived by Pledgor
and Collateral Agent to the full extent permitted by law so that this Pledge
Agreement shall be deemed a valid, binding agreement, and the Security Interest
created hereby shall constitute a continuing first lien on and first perfected
security interest in the Collateral, in each case enforceable in accordance with
its terms.
Exculpatory Provisions; Reliance by Collateral
Agent.
Exculpatory Provisions. Neither Collateral Agent,
Funding Corporation nor any other Secured Party, nor any of their respective
officers, directors, employees, agents, attorneys-in-fact or affiliates (the
"Exculpated Parties") shall be liable to Pledgor for any action taken or omitted
to be taken by it or them under or in connection with this Pledge Agreement or
any other Project Document or Financing Document to which Pledgor is a party,
except for the Exculpated Parties' own gross negligence or willful misconduct,
or responsible in any manner to any Person for any recitals, statements,
representations or warranties made by Pledgor or any officer thereof contained
in this Pledge Agreement or any other Project Document or Financing Document to
which Pledgor is a party or in any certificate, report, statement or other
document referred to or provided for in, or received by Collateral Agent,
Funding Corporation or any other Secured Party under or in connection with, this
Pledge Agreement or any other Project Document or Financing Document to which
Pledgor is a party or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Pledge Agreement or any other Project
Document or Financing Document to which Pledgor is a party or for any failure of
Pledgor to perform any of the Obligations. Neither Collateral Agent, Funding
Corporation nor any other Secured Party shall be under any obligation to any
Person to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, this Pledge Agreement or any
other Project Document or Financing Document to which Pledgor is a party, or
to inspect the properties or records of Pledgor.
Reliance by Collateral Agent. 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
Pledgor), independent accountants and other experts selected by Collateral
Agent. Collateral Agent shall have no obligation to any Person to act or refrain
from acting or exercising any of its rights under this Pledge Agreement.
Amendment. No modification or waiver of any of the
provisions of this Pledge Agreement shall be binding on Collateral Agent, except
as expressly set forth in a writing duly signed and delivered by Collateral
Agent and which is otherwise in accordance with Section 6.2 of the Partnership
Credit Agreement.
Successors and Assigns. This Pledge Agreement shall
be binding upon and inure to the benefit of Pledgor and Collateral Agent for the
benefit of the Secured Parties and the Funding Corporation and their respective
successors and assigns. In the event of any assignment or transfer by the
Funding Corporation or any other Secured Party of any instrument evidencing all
or any part of the Obligations, the holder of such instrument shall, subject to
the Partnership Credit Agreement and the Partnership Guarantee, be entitled to
the benefits of this Pledge Agreement.
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<PAGE>
Number and Gender. Whenever used in this Pledge
Agreement, the singular number shall include the plural and the plural the
singular, and the use of any gender shall be applicable to all genders.
Subrogation, etc. Notwithstanding any payment or
payments made by Pledgor or the exercise by Collateral Agent of any of the
remedies provided under this Pledge Agreement or any of the Financing Documents,
Pledgor shall have no claim (as defined in 11 U.S. C. ss. 101 (5)) of
subrogation to any of the rights of the Secured Parties and the Funding
Corporation against Conejo, Niguel and San Felipe, Pledgor or any Collateral or
guaranty held by the Secured Parties and the Funding Corporation for the
satisfaction of any of the Obligations, nor shall Pledgor have any claims (as
defined in 11 U.S.C. ss. 101 (5)) for reimbursement, indemnity, exoneration or
contribution from Conejo, Niguel and San Felipe in respect of payments made by
Pledgor hereunder. Notwithstanding the foregoing, if any amount shall be paid to
Pledgor on account of such subrogation, reimbursement, indemnity, exoneration or
contribution rights at any time, such amount shall be held by Pledgor in trust
for the Secured Parties and the Funding Corporation, segregated from other funds
of Pledgor, and shall be turned over to Collateral Agent for the benefit of the
Secured Parties and the Funding Corporation, in the exact form received by
Pledgor (duly endorsed by Pledgor to Collateral Agent for the benefit of the
Secured Parties and the Funding Corporation, if required), to be applied against
such amounts in such order as Collateral Agent may elect.
Captions. The captions, headings and table of
contents used in this Pledge Agreement are for convenience only and do not and
shall not be deemed to affect, limit, amplify or modify the terms and provisions
hereof.
Applicable Law. This Pledge Agreement shall be
governed by, and construed and interpreted in accordance with, the laws of the
State of California.
Continuing Security Interest; Termination. This
Pledge Agreement shall create a continuing assignment, pledge and first priority
Security Interest in the Collateral, subject only to Permitted Liens, and shall
remain in full force and effect for the benefit of Collateral Agent and the
other Secured Parties and the Funding Corporation until all Obligations to be
paid or performed by Partnership Guarantors under the Partnership Credit
Agreement and the Partnership Guarantee have been paid and performed in full.
Upon the happening of such event, the Security Interest granted hereby shall
terminate. Upon such termination, Collateral Agent shall, upon the request and
at the expense of Pledgor, execute and deliver to Pledgor such documents as
Pledgor shall reasonably request to evidence such termination or expiration.
Payments Set Aside. To the extent that Pledgor or
the Partnership Guarantors or any other Person on behalf of Pledgor or the
Partnership Guarantors makes a payment or payments to Collateral Agent and/or
any other Secured Party, or Collateral Agent and/or any other Secured Party
enforce the Security Interests or Collateral Agent exercises its right of set-
off, and such payment or payments or the proceeds of such enforcement or set-off
or any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such recovery, the Obligations or any
part thereof originally intended to be satisfied, and this Pledge Agreement and
all Liens, rights and remedies therefor, shall be revived and continued in full
force and effect as if such payment had not been made or such enforcement or
set-off had not occurred.
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<PAGE>
Counterparts. This Pledge Agreement may be executed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
Non-Recourse. Notwithstanding any other provision
hereof, Collateral Agent agrees that its only remedy hereunder shall be to
proceed against the Collateral and that there shall be no recourse to the
Pledgor, its shareholders, officers, directors or employees.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Pledge Agreement to be duly executed as of the day and year first written
above.
CALENERGY OPERATING COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
------------------------------
Name: John G. Sylvia
------------------------------
Title: Senior Vice President
------------------------------
CHEMICAL TRUST COMPANY OF CALIFORNIA,
a California corporation,
as Collateral Agent
By: /s/ Rose Maravilla
------------------------------
Name: R. I. Maravilla
------------------------------
Title: Assistant Vice President
------------------------------
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<PAGE>
Schedule 2.1
Stock
Percentage of
Stock Outstanding
Issuer Certificate No. No. of Shares Shares
- ------ -------------- ------------- ------------
Conejo 3 100 100%
Niguel 3 100 100%
San Felipe 3 100 100%
EXHIBIT 4.40
STOCK PLEDGE AGREEMENT
(Pledge of Capital Stock of BNG)
by
VULCAN POWER COMPANY
(as Pledgor)
in favor of
CHEMICAL TRUST COMPANY OF CALIFORNIA
(as Collateral Agent)
Dated as of June 20, 1996
<PAGE>
TABLE OF CONTENTS
------------------
<TABLE>
<CAPTION>
<S> <C>
Page
-----
1. Definitions....................................................................... 2
2. Grant of Security Interest........................................................ 2
3. Representations and Warranties.................................................... 3
4. Covenants and Agreements.......................................................... 4
5. Pledgor's Obligations Upon Event of Default....................................... 6
6. Remedies; Rights Upon Event of Default............................................ 6
7. Application of Proceeds........................................................... 8
8. Security Interest Absolute........................................................ 8
9. Collateral Agent Appointed Attorney-in-Fact....................................... 9
10. Collateral Agent May Perform......................................................10
11. No Duty on Collateral Agent's Part, Limitation on Collateral Agent's Obligations..10
12. Reasonable Care...................................................................10
13. Role of Collateral Agent..........................................................11
14. Waiver of Trial by Jury...........................................................11
15. Notices...........................................................................11
16. Absence of Fiduciary Relation.....................................................11
17. Survival of Representations and Warranties........................................11
18. No Waiver; Cumulative Remedies....................................................12
19. Severability......................................................................12
20. Exculpatory Provisions; Reliance by Collateral Agent..............................12
21. Amendment.........................................................................13
22. Successors and Assigns............................................................13
23. Number and Gender.................................................................13
24. Subrogation, etc..................................................................13
25. Captions..........................................................................13
26. Applicable Law....................................................................13
27. Continuing Security Interest; Termination.........................................13
28. Payments Set Aside................................................................14
29. Counterparts......................................................................14
30. Non-Recourse......................................................................14
</TABLE>
i
<PAGE>
STOCK PLEDGE AGREEMENT
----------------------
(Pledge of Capital Stock of BNG)
This STOCK PLEDGE AGREEMENT (this "Pledge Agreement"), dated
as of June 20, 1996, is entered into by VULCAN POWER COMPANY, a Nevada
corporation ("Pledgor"), in favor of CHEMICAL TRUST COMPANY OF CALIFORNIA, a
California corporation, as collateral agent (together with its successors and
assigns, the "Collateral Agent"), on behalf of and for the benefit of the
Secured Parties and Salton Sea Funding Corporation, a Delaware Corporation
("Funding Corporation").
W I T N E S S E T H:
WHEREAS, Pledgor owns all of the issued and outstanding
capital stock of BN Geothermal, Inc., a Delaware corporation ("BNG"); and
WHEREAS, Funding Corporation is a corporation established
for the sole purpose of making loans to the Guarantors (as hereinafter
defined) from the proceeds of the issuance of notes and bonds (collectively,
the "Securities") in its individual capacity as principal and as agent acting
on behalf of Salton Sea Brine Processing L.P., a California limited
partnership ("SSBP"), Salton Sea Power Generation L.P., a California limited
partnership ("SSPG"), Fish Lake Power Company, a Delaware corporation ("Fish
Lake," and together with SSBP and SSPG, the "Salton Sea Guarantors"), Pledgor,
BNG, Del Ranch, L.P., a California limited partnership ("Del Ranch"), Elmore,
L.P., a California limited partnership ("Elmore"), Leathers, L.P., a
California limited partnership ("Leathers"), Vulcan/BN Geothermal Power
Company, a Nevada general partnership ("Vulcan"), Conejo Energy Company, a
California corporation ("Conejo"), Niguel Energy Company, a California
corporation ("Niguel"), and San Felipe Energy Company, a California
corporation ("San Felipe"), and CalEnergy Operating Company, a Delaware
corporation ("CEOC," and together with Pledgor, BNG, Del Ranch, Elmore,
Leathers, Vulcan, Conejo, Niguel and San Felipe, the "Partnership
Guarantors"), and Salton Sea Royalty Company, a Delaware corporation ("Royalty
Guarantor", and together with the Salton Sea Guarantors and the Partnership
Guarantors, the "Guarantors"), pursuant to the Trust Indenture, dated as of
July 21, 1995, as the same may be amended, modified, or supplemented,
including pursuant to that certain Second Supplemental Trust Indenture, dated
as of even date herewith (as so amended, modified and supplemented, the
"Indenture"), between Funding Corporation and Collateral Agent, as trustee
("Trustee"); and
WHEREAS, the principal and interest payments on the
Securities will be serviced by repayment of loans made by Funding Corporation
to the Guarantors and guaranteed by the Guarantors, subject to the conditions
set forth in the Indenture; and
WHEREAS, Funding Corporation has (a) on July 21, 1995 issued
and sold Securities in the principal amount of $475 Million (the "Initial
Issuance") and (b) simultaneously with the execution and delivery of this
Agreement issued and sold Securities in the principal amount of $135 Million
(the "Additional Issuance"); and
WHEREAS, Funding Corporation has used a portion of the
proceeds from the Initial Issuance and intends to use the proceeds from the
Additional Issuance to make loans to the Partnership
<PAGE>
Guarantors in the aggregate outstanding amount of $189,956,000, as of the
date hereof, portions of which will be used for the following purposes:
(a) approximately $96 Million to refinance all existing project-level
indebtedness
of the Partnership Projects, (b) approximately $15 Million to fund certain
capital
improvements to the Partnership Projects and the Salton Sea Projects, and (c)
approximately $23 Million to fund a portion of the purchase price for the
acquisition
by certain of the Partnership Guarantors of the 50% interest in each of the
Partnership Projects previously owned by a third party; and
WHEREAS, Pledgor anticipates benefiting directly and
indirectly from the making of the loan pursuant to the Partnership Credit
Agreement and is, therefore, willing to enter into this Pledge Agreement in
accordance with the terms hereof.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, and in order to induce the
Funding Corporation to enter into the Partnership Credit Agreement, the
parties hereto hereby agree as follows:
<PAGE>
1. Definitions. Unless otherwise defined herein, all
capitalized terms shall have the meanings set forth in Exhibit A to the
Indenture, which Exhibit A is hereby incorporated by reference. All references
to sections, schedules and exhibits in or to this Pledge Agreement are to
sections, schedules and exhibits in or to this Pledge Agreement, unless
otherwise specified. The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Pledge Agreement shall refer to this Pledge
Agreement as a whole and not to any particular provision of this Pledge
Agreement. For purposes of this Pledge Agreement, all other terms used herein
and not otherwise defined herein which are defined in Article 9 of the Uniform
Commercial Code (as the same may be in effect in the State of California or
any other applicable jurisdiction, the "Code"), shall have their respective
meanings as therein defined.
2. Grant of Security Interest.
.1. Collateral. As security for the prompt and
complete payment and performance when due (whether at stated maturity, by
acceleration or otherwise) of any and all of the Obligations (as defined below)
now existing or hereafter arising, and howsoever evidenced, Pledgor hereby
collaterally assigns, conveys, mortgages, pledges, hypothecates and transfers
to Collateral Agent, and grants and creates a lien on and first priority
security interest (the "Security Interest") in favor of Collateral Agent, for
the equal and ratable benefit of the Secured Parties and the Funding
Corporation, in all right, title and interest of Pledgor in and to all of the
issued and outstanding capital stock of BNG, whether now existing or hereafter
acquired (collectively, the "Stock"), including, without limitation, the Stock
described in Schedule 2.1 hereto, and all proceeds thereof, including, without
limitation, dividends and other property received and receivable by Pledgor in
connection with the Stock, other than dividends and other distributions made by
BNG in compliance with the other Financing Documents (the Stock and such
proceeds to be referred to herein collectively as the "Collateral").
.2. Obligations. This Pledge Agreement secures,
in accordance with the provisions hereof, the following obligations, now
existing or hereafter arising (collectively, the "Obligations"):
.1 payment and performance of the Partnership Guarantors'
obligations under the Partnership Credit Agreement and the
Partnership Guarantee, and each and every obligation, indebtedness,
covenant and agreement of Pledgor under any of the Financing
Documents to which it is a party, including, without limitation, this
Pledge Agreement, the Intercreditor Agreement and any amendments or
supplements thereto, extensions or renewals thereof or replacements
therefor; and
.2 performance of every obligation, covenant and agreement
of Pledgor contained in any agreement now or hereafter executed by
Pledgor which recites that the obligations thereunder are secured by
this Pledge Agreement;
in each case whether direct or indirect, joint or several, absolute or
contingent, liquidated or unliquidated, now or hereafter existing, renewed or
restructured, reinstated, created or incurred, and, including, without
limitation, all indebtedness of Pledgor under any instrument now or hereafter
evidencing or securing any of the foregoing.
3. Representations and Warranties. Pledgor hereby
represents and warrants as follows:
<PAGE>
.1. Organization and Existence. Pledgor owns
all of the issued and outstanding capital stock of BNG. Pledgor is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada. Pledgor is duly qualified to do business and is in
good standing in the State of California and each other jurisdiction in which
the character of the properties owned or leased by it or in which the
transaction of its business as presently conducted or proposed to be conducted
makes such qualification necessary or desirable. Pledgor has full corporate
power and authority to own its property and to carry on its business as now
being conducted and as proposed to be conducted.
.2. Authority, Enforceability. Pledgor has
full corporate power and authority to enter into and perform this
Pledge Agreement and the entering into and performance of such agreement by
Pledgor has been duly authorized by all proper and necessary corporate action.
This Pledge Agreement, when executed and delivered by Pledgor and any other
party hereto, will constitute the legal, valid and binding obligation of
Pledgor, enforceable in accordance with its terms.
.3. Title: No Other Liens. Pledgor is the legal and
beneficial owner of the Collateral in existence on the date hereof and will be
the sole owner of the Collateral hereafter acquired, free and clear of any and
all Liens or claims of others except for Permitted Liens, and Pledgor has full
corporate power and authority to grant the liens and security interests in and
to the Collateral hereunder. Except with respect to the Secured Parties and the
Funding Corporation and as required under this Pledge Agreement, no security
agreement, financing statement or other public notice with respect to all or
any part of the Collateral is on file or of record in any public office, and
no lien or security interest on or in the Collateral has been registered in
the registration book maintained by BNG in which all capital stock of BNG is
recorded, except such as may have been filed in favor of Collateral Agent for
the benefit of the Secured Parties and the Funding Corporation pursuant to
this Pledge Agreement.
.4. Collateral. All of the Collateral constituting
shares of capital stock are and such future collateral will be validly issued,
fully paid and nonassessable securities of BNG. The Collateral includes all of
the
issued and outstanding shares of capital stock of BNG. Except for the
Collateral,
there are no outstanding options, warrants or other rights to subscribe for or
purchase voting or non-voting capital stock of BNG, nor any notes, bonds,
debentures or other evidences of indebtedness that (1) are at any time
convertible into capital stock of BNG, or (2) have or at any time would have
voting rights with respect to BNG.
.5. Perfection; Registration of Lien. Financing
statements or other appropriate instruments have been filed or deposited for
filing
pursuant to the Code in such public offices as may be necessary to perfect any
Security Interest granted or purported to be granted hereby to the extent any
such
Security Interest may be perfected by the filing of a financing statement. All
other action by Pledgor and, to Pledgor's knowledge, by any other Person
necessary or desirable to perfect the Security Interest in each item of the
Collateral has been duly taken. Subject to the requirements contained in the
Code with respect to the filing of continuation statements, this Pledge
Agreement constitutes a valid and continuing Lien on and perfected Security
Interest (subject only to Permitted Liens) in the Collateral in favor of
Collateral Agent for the equal and ratable benefit of the Secured Parties and
the Funding Corporation, superior and prior to the rights of all Persons
(subject only to Permitted Liens), whether the Collateral subject to the
Security Interest is now owned by Pledgor or is hereafter acquired.
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.6. No Default. Pledgor is not in default in the
performance, observance or fulfillment of any of the material obligations,
covenants or conditions applicable to Pledgor contained in any Financing
Document
to which it is a party.
.7. Chief Executive Office and Principal Place of
Business. Pledgor's chief executive office and principal place of business and
the
place where Pledgor's records concerning the Collateral are kept is:
Blackstone Center
302 South 36th Street, Suite 400-E
Omaha, Nebraska 68131
4. Covenants and Agreements. Pledgor hereby covenants and
agrees that Pledgor shall faithfully observe and fulfill, and shall cause to
be observed and fulfilled, each and all of the following covenants until all
Obligations to be paid or performed by Pledgor and the other Partnership
Guarantors under the Financing Documents to which it is a party have been paid
and performed in full:
.1. Further Assurances. Pledgor shall, from time to
time at Pledgor's expense, and upon request by Collateral Agent on behalf of the
Secured Parties and the Funding Corporation, promptly execute and deliver all
further instruments and documents, and take all further action that may be
reasonably necessary or advisable, or that Collateral Agent reasonably
determines may be necessary, in order to perfect and protect the Security
Interest granted or purported to be granted hereby or to enable Collateral
Agent to exercise and enforce its rights and remedies hereunder with respect
to the Collateral.
.2. Stock Certificates. Pledgor shall promptly
deliver
to Collateral Agent all originals of certificates and other documents,
instruments and agreements evidencing the Collateral which are now held or
hereafter received by Pledgor, together with such blank stock powers executed
by Pledgor as Collateral Agent may request.
.3. Stock Issuance. Pledgor shall not, except as
expressly permitted by the Financing Documents, vote to enable, or take any
other
action to permit, BNG to issue any stock.
.4. Certificated Interest. If Pledgor shall become
entitled to receive or shall receive any certificate, instrument, option or
rights, whether as an addition to, in substitution of, or in exchange for the
Collateral or any part thereof, or otherwise, Pledgor shall accept any such
certificate, instrument, option or rights as Collateral Agent's agent, shall
hold them in trust for Collateral Agent, and shall deliver them forthwith to
Collateral Agent in the exact form received, with Pledgor's endorsement when
necessary, or accompanied by duly executed instruments of transfer or
assignment in blank or, if requested by Collateral Agent, an additional pledge
agreement or security agreement executed and delivered by Pledgor, all in form
and substance reasonably satisfactory to Collateral Agent, to be held by
Collateral Agent, subject to the terms hereof, as further Collateral for the
Obligations.
.5. Change in Location, Name, Etc. Pledgor may change
the location of its chief executive office, principal place of business or the
office where such records are kept to another location in the United States
after
giving Collateral Agent thirty (30) days' advance written notice of such change.
Without the prior written consent of Collateral Agent, Pledgor shall not adopt
any trade name or fictitious business name.
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.6. Limitation on Liens on the Collateral. Pledgor
shall
not create, incur or permit to exist, shall defend the Collateral now owned or
hereafter acquired by it against, and shall take such other action as is
necessary
to remove, any Lien or claim on or to Collateral, other than Permitted Liens,
and
shall defend the right, title and interest of Collateral Agent in and to any
of the Collateral against the claims and demands of all Persons whomsoever.
.7. Bankruptcy Filing, etc. Pledgor shall not
authorize
or permit BNG (i) to commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to BNG, or its debts
under
any bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of BNG, or any substantial part of its properties or (ii) to
consent to any such relief or to the appointment of or taking possession by
any such official in an involuntary case or other proceeding commenced against
BNG or (iii) to make a general assignment for the benefit of BNG's creditors.
Neither Pledgor nor any of its Affiliates shall commence or join with any
other Person (other than the Secured Parties and Funding Corporation) in
commencing any proceeding against BNG under any bankruptcy, reorganization,
liquidation or insolvency law or statute now or hereafter in effect in any
jurisdiction.
.8. Obligations. Pledgor acknowledges and agrees that
its
rights to receive any payments from BNG, or arising out of or in connection with
Pledgor's interests in BNG, shall be payable by BNG only from funds available
to BNG upon distributions pursuant to the Depositary Agreement or any other
provision of the Indenture expressly providing for distribution, payment or
release of funds to BNG, and only so long as such distribution, payment or
release is made in accordance with the Depositary Agreement and the Indenture.
Pledgor also agrees that any distributions made by BNG to Pledgor that do not
comply with the Depositary Agreement and the Indenture shall be restored to
BNG by Pledgor by deposit into an account designated by Collateral Agent,
promptly upon demand by Collateral Agent or BNG or upon Pledgor becoming aware
of receipt of such non-complying distribution.
.9. Governmental Authority Requirement. Pledgor shall
not
take or omit to take (or suffer such taking or omission of) any action (unless
ordered
to do so by a competent Governmental Authority having jurisdiction) in respect
of Pledgor or BNG and its businesses if, as a consequence directly or indirectly
of such action or omission, BNG or Pledgor becomes subject to regulation by any
Governmental Authority as a "public utility," an "electric utility," an
"electric
utility holding company," a "public utility holding company" or a subsidiary or
affiliate of any of the foregoing under PUHCA, FPA or PURPA, or as a "holding
company"
within the meaning of PUHCA.
.10. Indemnification. Pledgor shall defend, indemnify
and
hold harmless Collateral Agent and each of the other Secured Parties and the
Funding
Corporation and their officers, directors and employees, from and against any
and
all costs, expenses, disbursements, liabilities, obligations, losses, damages,
injunctions, judgments, suits, actions, causes of action, fines, penalties,
claims
and demands, of every kind or nature (including, without limitation, reasonable
attorney's fees and expenses) which are occasioned by or result from any (i)
failure
by Pledgor to perform any of the terms, agreements, or covenants to be performed
by
Pledgor under this Pledge Agreement and (ii) proceeding or action to enforce
brought
by Collateral Agent pursuant to this Pledge Agreement or which arise out of any
such
agreement unless due solely to the gross negligence or willful misconduct of
Collateral Agent. This indemnity and any other obligations of Pledgor under any
of
the Financing
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Documents shall be made only against, and shall be limited to the
extent of, the Collateral pledged hereunder.
5. Pledgor's Obligations Upon Event of Default. If an Event of
Default under the Partnership Credit Agreement or the Partnership Guarantee
shall occur and be continuing (a) all payments received by Pledgor under or in
connection with any of the Collateral shall be held by Pledgor in trust for
Collateral Agent, shall be segregated from other funds of Pledgor and shall,
forthwith upon receipt by Pledgor, be turned over to Collateral Agent or its
designee in the same form as received by Pledgor (duly endorsed by Pledgor to
Collateral Agent, if requested), and (b) any and all such payments so received
by Collateral Agent or its designee (whether from Pledgor or otherwise) may,
in the sole discretion of Collateral Agent or its designee, be held by
Collateral Agent or such designee as collateral security for, and/or then or
at any time thereafter be applied, subject only to the relevant provisions of
the Intercreditor Agreement and Depositary Agreement or as otherwise may be
required by applicable law, in whole or in part by Collateral Agent or its
designee in the manner specified in Section 7.
6. Remedies; Rights Upon Event of Default. Until an Event of
Default shall have occurred and be continuing under the Partnership Credit
Agreement or the Partnership Guarantee and Collateral Agent shall have given
notice to Pledgor of Collateral Agent's intent to exercise its rights pursuant
to Subparagraph 6.5 below, Pledgor shall be permitted (a) to receive all
dividends paid on Stock (other than dividends paid in additional capital stock
unless such additional capital stock is pledged to Collateral Agent for the
benefit of Collateral Agent and the Secured Parties and the Funding
Corporation pursuant to a Pledge Agreement in the form of this Pledge
Agreement) which are permitted by the Financing Documents and (b) to exercise
all voting and corporate rights with respect to the such capital stock. Upon
the occurrence and during the continuance of an Event of Default under the
Partnership Credit Agreement or the Partnership Guarantee, Collateral Agent,
for the equal and ratable benefit of and on behalf of the Secured Parties and
the Funding Corporation, may, subject to the provisions of the Intercreditor
Agreement and the other Financing Documents, do one or more of the following:
.1. declare, without presentment, demand, protest or
notice of any kind, all of which Pledgor hereby expressly waives, the entire
amount of Obligations to be immediately due and payable, whereupon all of such
Obligations declared due and payable shall be and become immediately due and
payable; provided, however, if, with respect to the Partnership Guarantors, an
Event of Default occurs pursuant to Section 5.1 of the Partnership Credit
Agreement, then the acceleration provided for in this Section 6.1 shall be
deemed to have been made upon the occurrence of such Event of Default without
declaration or any other action by Collateral Agent;
.2. upon notice to Pledgor, which notice need not be
in writing, make such payments and do such acts as Collateral Agent may deem
necessary to protect, perfect or continue the perfection of the Secured Parties'
and the Funding Corporation's Security Interest in the Collateral, including,
without limitation, paying, purchasing, contesting or compromising any Lien
which
is, or purports to be, prior to or superior to the Security Interest granted
hereunder, and commencing, appearing or otherwise participating in or
controlling
any action or proceeding purporting to affect the Secured Parties' and the
Funding Corporation's Security Interest in or ownership of the Collateral;
.3. foreclose on the Collateral as herein provided or
in any manner permitted by law and exercise any and all of the rights and
remedies
conferred upon the Secured Parties and the Funding Corporation by the Security
Documents either concurrently or in such order as
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<PAGE>
Collateral Agent may determine without affecting the rights or
remedies to which the Secured Parties and the Funding Corporation may be
entitled under any Security Documents. Pledgor hereby waives, to the extent
permitted by applicable law, notice and judicial hearing in connection with
Collateral Agent's taking possession or collection, recovery, receipt,
appropriation, repossession, retention, set-off, sale, leasing, conveyance,
assignment, transfer or other disposition of or realization upon any or all of
the Collateral, including, without limitation, any and all prior notice and
hearing for any prejudgment remedy or remedies and any such right which
Pledgor would otherwise have under the constitution or any statute or other
law of the United States of America or of any state;
.4. without notice, except as specified below, sell
the
Collateral, or any part thereof, in one or more parcels at public or private
sale,
at any of Collateral Agent's offices or elsewhere, at such time or times, for
cash, on credit or for future delivery, and at a commercially reasonable price
or
prices and on other commercially reasonable terms. Pledgor agrees that, to the
extent notice of sale shall be required by law, at least ten (10) days' notice
to Pledgor of the time and the place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
At any sale of the Collateral, if permitted by law, Collateral Agent may bid
(which bid may be, in whole or in part, in the form of cancellation of
indebtedness) for the purchase of the Collateral or any portion thereof for
the account of Collateral Agent on behalf of the Secured Parties and the
Funding Corporation. Collateral Agent shall not be obligated to make any sale
of the Collateral regardless of notice of sale having been given. Collateral
Agent may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned. Collateral
Agent shall incur no liability as a result of the manner of sale of the
Collateral, or any part thereof, at any private sale conducted in a
commercially reasonable manner. Pledgor hereby waives, to the extent permitted
by applicable law, any claims against Collateral Agent arising by reason of
the fact that the price at which the Collateral, or any part thereof, may have
been sold at a private sale was less than the price which might have been
obtained at public sale or was less than the aggregate amount of the
Obligations, even if Collateral Agent accepts the first offer received which
Collateral Agent in good faith deems to be commercially reasonable under the
circumstances and does not offer the Collateral to more than one offeree. To
the full extent permitted by law, Pledgor shall have the burden of proving
that any such sale of the Collateral was conducted in a commercially
unreasonable manner. To the extent permitted by law, Pledgor hereby
specifically waives all rights of redemption, stay or appraisal which it has
or may have under any law now existing or hereafter enacted. Pledgor
authorizes Collateral Agent, at any time and from time to time, to execute, in
connection with a sale of the Collateral pursuant to the provisions of this
Pledge Agreement, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral;
.5. upon notice to Pledgor, register the Collateral
in
the name of Collateral Agent or its nominee as pledgee or otherwise take such
action as Collateral Agent shall in its sole discretion deem necessary or
desirable
with respect to the Collateral, and Collateral Agent or its nominee may
thereafter,
in its sole discretion, without notice, exercise all voting, consent, managerial
and other rights relating to the Collateral and exercise any and all rights of
conversion, exchange, subscription or any other rights, privileges or options
pertaining to the Collateral as if it were the absolute owner thereof,
including,
without limitation, all rights of Pledgor, including, without limitation, the
right
to (i) receive all permitted distributions, if any, made for the account of
Pledgor
and (ii) exchange any and all of the Collateral upon the merger, consolidation,
reorganization, recapitalization or other readjustment of BNG, all without
liability
except to account for property actually received by Collateral Agent, but
Collateral
Agent shall have no duty to exercise any of the
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<PAGE>
aforesaid rights, privileges or options and shall not be responsible
for any failure to do so or delay in so doing; and
.6. exercise in respect of the Collateral, in
addition to
other rights and remedies provided for herein or otherwise available to it, all
the
rights and remedies of a secured party after default under the Code.
7. Application of Proceeds. The net proceeds of any foreclosure,
collection, recovery, receipt, appropriation, realization or sale of the
Collateral shall be applied in the order of priority specified in the
Intercreditor Agreement. If all Obligations and any other amounts due under
this Pledge Agreement and the Intercreditor Agreement have been indefeasibly
paid, satisfied and discharged in full, any surplus then remaining shall be
paid to Pledgor, if it is lawfully entitled to receive the same or shall be
paid to whomsoever a court of competent jurisdiction may direct.
8. Security Interest Absolute. All the rights of Collateral Agent
and any of the other Secured Parties and the Funding Corporation hereunder and
the Security Interest and all obligations of Pledgor hereunder shall be
absolute and unconditional irrespective of:
.1. any lack of validity or enforceability of the
Project Documents or the Financing Documents or any other agreement or
instrument
relating thereto;
.2. any change in the time, manner or place of
payment
of, or in any other term of, all or any of the Obligations, or any other
amendment
or waiver of or any consent to any departure from the Project Documents or the
Financing Documents;
.3. any exchange or release of any Collateral or any
other collateral, or the non-perfection of any of the Security Interest, or any
release or amendment or waiver of or consent to or departure from any guaranty,
for all or any of the Obligations;
.4. to the full extent permitted by law, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, Pledgor or any third party pledgor; or
.5. the failure by Pledgor to fulfill its obligations
under this Pledge Agreement.
9. Collateral Agent Appointed Attorney-in-Fact.
.1. Powers. Pledgor hereby irrevocably constitutes
and
appoints Collateral Agent and any officer or agent thereof, with full power of
substitution, as Pledgor's true and lawful attorney-in-fact (which appointment
as attorney-in-fact shall be coupled with an interest), with full authority in
the place and stead of Pledgor and in the name of Pledgor or otherwise, from
time to time upon the occurrence and during the continuance of any Event of
Default under the Partnership Credit Agreement or the Partnership Guarantee in
Collateral Agent's discretion, to take any action and to execute any and all
documents and instruments which Collateral Agent may deem necessary or
advisable to accomplish the purposes of this Pledge Agreement, without notice
to Pledgor, including, without limitation:
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<PAGE>
.1. to exercise all rights, powers and privileges to
the same extent Pledgor shall have been entitled under applicable law,
including,
without limitation, all voting rights of Pledgor as holder of capital stock of
BNG;
.2. to receive, endorse and collect all instruments
made
payable to Pledgor representing any interest payment or other distribution in
respect
of the Collateral or any part thereof and to give full discharge for the same
and to
file any claim or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by Collateral Agent for the purpose of
collecting any and all of such dividends, payments or other distributions;
.3. to pay or discharge taxes and liens levied or
placed
on the Collateral; and
.4. (a) to direct any party liable for any payment in
respect of or arising out of any of the Collateral to make payment of any and
all
moneys due or to become due in connection therewith directly to Collateral Agent
or as Collateral Agent shall otherwise direct, (b) to ask or make demand for,
collect, receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or arising out of
any Collateral, (c) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any part thereof and to enforce any other right in
respect of any Collateral, (d) to defend any suit, action or proceeding
brought against Pledgor with respect to any Collateral, (e) to settle,
compromise or adjust any suit, action or proceeding described in clause (d)
above and, in connection therewith, to give such discharges or releases as
Collateral Agent acting in good faith may deem appropriate and (f) generally,
to sell, transfer, pledge and make any agreement with respect to or otherwise
deal with any of the Collateral as fully and completely as though Collateral
Agent were the absolute owner thereof for all purposes, and (g) to do, at
Collateral Agent's option and at Pledgor's expense, at any time, or from time
to time, all acts and things which Collateral Agent acting in good faith deems
necessary to protect, preserve or realize upon the Collateral and the Security
Interest granted herein and to effect the intent of this Pledge Agreement, all
as fully and effectively as Pledgor might do.
.2. Other Powers. Pledgor further authorizes
Collateral
Agent, at any time and from time to time (i) to execute, in connection with any
sale provided for hereunder, any endorsements, assignments or other instruments
of
conveyance or transfer with respect to the Collateral and (ii) to the full
extent
permitted by applicable law, to file one or more financing or continuation
statements, and amendments thereto, relative to all or any part of the
Collateral
without the signature of Pledgor.
10. Collateral Agent May Perform. Upon the occurrence and during
the continuance of an Event of Default under the Partnership Credit Agreement
or the Partnership Guarantee, Collateral Agent, without releasing Pledgor from
any obligation, covenant or condition hereof, itself may make any payment or
perform, or cause the performance of, any such obligation, covenant, condition
or agreement or any other action in such manner and to such extent as
Collateral Agent may deem necessary to protect, perfect or continue the
perfection of the Secured Parties' and the Funding Corporation's Security
Interest in the Collateral. Any costs or expenses incurred by Collateral Agent
in connection with the foregoing shall be governed by the Indenture and the
Financing Documents, and constitute Obligations secured hereby.
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11. No Duty on Collateral Agent's Part, Limitation on Collateral
Agent's Obligations.
.1. No Duty on Collateral Agent's Part. The powers
conferred on Collateral Agent hereunder are solely to protect Collateral Agent's
interests in the Collateral and shall not impose any duty upon it to exercise
any such powers. Collateral Agent shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers.
.2. Limitations on Obligations. Without limiting the
effectiveness of Section 30 hereof, anything herein to the contrary
notwithstanding, Pledgor shall remain liable under any Project Document or
Financing Document to which it is a party to the extent set forth therein to
perform all of its duties and obligations thereunder, to the same extent as if
this Pledge Agreement had not been executed. The exercise by Collateral Agent of
any of the rights or remedies hereunder shall not release Pledgor from any of
its
duties or obligations under any Project Document or Financing Document to which
it is a party. All of the Collateral is hereby assigned to Collateral Agent
solely
as security, and Collateral Agent shall have no duty, liability or obligation
whatsoever with respect to any of the Collateral, unless Collateral Agent so
elects in writing consistent with its rights under this Pledge Agreement.
12. Reasonable Care. Collateral Agent shall exercise the
same degree of care hereunder as it exercises in connection with similar
transactions for its own account. Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which Collateral Agent accords or would accord collateral held by
Collateral Agent in similar transactions for its own account. Without limiting
the generality of the foregoing and except as otherwise provided by applicable
law, Collateral Agent shall not be required to marshall any collateral,
including, without limitation, the Collateral subject to the Security Interest
created hereby and any guaranties of the Obligations, or to resort to any item
of Collateral or guaranties in any particular order; and all of Collateral
Agent's rights hereunder and in respect of such Collateral and guaranties
shall be cumulative and in addition to all other rights, however existing or
arising. To the extent that Pledgor lawfully may, Pledgor hereby (a) agrees
that it will not invoke any law relating to the marshalling of collateral
which might cause delay in or impede the enforcement of Collateral Agent's
rights under this Pledge Agreement or under any other instrument evidencing
any of the Obligations or under which any of the Obligations is outstanding or
by which any of the Obligations is secured or guaranteed and (b) irrevocably
waives the benefits of all Laws and any and all rights to equity of redemption
or other rights of redemption that it may have in equity or at law with
respect to the Collateral.
13. Role of Collateral Agent. The rights, duties, liabilities and
immunities of Collateral Agent and its appointment and replacement hereunder
shall be governed by the Intercreditor Agreement.
14. Waiver of Trial by Jury. WITH REGARD TO THIS PLEDGE AGREEMENT,
EACH OF PLEDGOR AND COLLATERAL AGENT HEREBY WAIVES THE RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING AND FOR ANY COUNTERCLAIM THEREIN.
15. Notices. All notices, demands, requests and other
communications required or permitted hereunder shall be in writing, and shall
be given and deemed to have been given in
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accordance with Section 6.1 of the Partnership Credit Agreement and
the information set forth immediately below shall apply to Pledgor:
Blackstone Center
302 South 36th Street, Suite 400-E
Omaha, Nebraska 68131
16. Absence of Fiduciary Relation. Collateral Agent undertakes to
perform or to observe only such of its agreements and obligations as are
specifically set forth in this Pledge Agreement, the Intercreditor Agreement
or any other Security Document, and no implied agreements, covenants or
obligations with respect to Pledgor, any Affiliate of Pledgor or any other
party to the Partnership Agreement or any other Project Document or Security
Document to which Pledgor is a party shall be read into this Pledge Agreement
against Collateral Agent or any of the Secured Parties and the Funding
Corporation; neither Collateral Agent nor any of the Secured Parties and the
Funding Corporation in its and their capacity as such is a fiduciary of and
shall not owe or be deemed to owe any fiduciary duty to Pledgor, any Affiliate
of Pledgor or any other party to any Project Document or Financing Document to
which Pledgor is a party, except as otherwise specifically required by law.
17. Survival of Representations and Warranties. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Pledge Agreement and the other Financing Documents and
repayment of the Obligations, and shall be deemed to be material and to have
been relied upon by Collateral Agent and any of the other Secured Parties and
the Funding Corporation, regardless of any investigation made by or on behalf
of any of Collateral Agent and any of the other Secured Parties and the
Funding Corporation. Notwithstanding anything in this Pledge Agreement or
implied by law to the contrary, the agreements and obligations of Pledgor set
forth in Section 4.8 shall survive until the payment or prepayment in full of
the Obligations and the termination of this Pledge Agreement in accordance
with Section 27 hereof.
18. No Waiver; Cumulative Remedies. By exercising or failing to
exercise any of its rights, options or elections hereunder (without also
expressly waiving the same in writing), Collateral Agent, on behalf of the
Secured Parties and the Funding Corporation, shall not be deemed to have
waived any breach or default on the part of Pledgor or to have released
Pledgor from any of its obligations secured hereby. No failure on the part of
Collateral Agent to exercise, and no delay in exercising (without also
expressly waiving the same in writing) any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or privilege preclude any other or further exercise
thereof, or the exercise of any other right, power or privilege. The remedies
provided herein are cumulative and not exclusive of any remedies provided by
law. Collateral Agent, acting on behalf of the Secured Parties and the Funding
Corporation, shall have all of the rights and remedies granted under the
Intercreditor Agreement or any Financing Document, and available at law or in
equity, and these same rights and remedies may be pursued separately,
successively or concurrently against Pledgor or any Collateral, at the
discretion of Collateral Agent.
19. Severability. Any provision of this Pledge Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of
such provision in any other jurisdiction. Where provisions of any law or
regulation resulting in such prohibition or unenforceability may be waived
they are hereby waived by Pledgor and Collateral Agent to the full
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<PAGE>
extent permitted by law so that this Pledge Agreement shall be
deemed a valid, binding agreement, and the Security Interest created hereby
shall constitute a continuing first lien on and first perfected security
interest in the Collateral, in each case enforceable in accordance with its
terms.
20. Exculpatory Provisions; Reliance by Collateral Agent.
.1. Exculpatory Provisions. Neither Collateral Agent,
Funding Corporation nor any other Secured Party, nor any of their respective
officers, directors, employees, agents, attorneys-in-fact or affiliates (the
"Exculpated Parties") shall be liable to Pledgor for any action taken or omitted
to be taken by it or them under or in connection with this Pledge Agreement or
any other Project Document or Financing Document to which Pledgor is a party,
except for the Exculpated Parties' own gross negligence or willful misconduct,
or responsible in any manner to any Person for any recitals, statements,
representations or warranties made by Pledgor or any officer thereof contained
in this Pledge Agreement or any other Project Document or Financing Document
to which Pledgor is a party or in any certificate, report, statement or other
document referred to or provided for in, or received by Collateral Agent,
Funding Corporation or any other Secured Party under or in connection with,
this Pledge Agreement or any other Project Document or Financing Document to
which Pledgor is a party or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Pledge Agreement or any
other Project Document or Financing Document to which Pledgor is a party or
for any failure of Pledgor to perform any of the Obligations. Neither
Collateral Agent, Funding Corporation nor any other Secured Party shall be
under any obligation to any Person to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Pledge Agreement or any other Project Document or Financing Document
to which Pledgor is a party, or to inspect the properties or records of
Pledgor.
.2. Reliance by Collateral Agent. 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
Pledgor), independent accountants and other experts selected by Collateral
Agent. Collateral Agent shall have no obligation to any Person to act or
refrain from acting or exercising any of its rights under this Pledge
Agreement.
21. Amendment. No modification or waiver of any of the provisions
of this Pledge Agreement shall be binding on Collateral Agent, except as
expressly set forth in a writing duly signed and delivered by Collateral Agent
and which is otherwise in accordance with Section 6.2 of the Partnership
Credit Agreement.
22. Successors and Assigns. This Pledge Agreement shall be binding
upon and inure to the benefit of Pledgor and Collateral Agent for the benefit
of the Secured Parties and the Funding Corporation and their respective
successors and assigns. In the event of any assignment or transfer by the
Funding Corporation or any other Secured Party of any instrument evidencing
all or any part of the Obligations, the holder of such instrument shall,
subject to the Partnership Credit Agreement and the Partnership Guarantee, be
entitled to the benefits of this Pledge Agreement.
23. Number and Gender. Whenever used in this Pledge Agreement, the
singular number shall include the plural and the plural the singular, and the
use of any gender shall be applicable to all genders.
13
<PAGE>
24. Subrogation, etc. Notwithstanding any payment or payments made
by Pledgor or the exercise by Collateral Agent of any of the remedies provided
under this Pledge Agreement or any of the Financing Documents, Pledgor shall
have no claim (as defined in 11 U.S. C. ss. 101 (5)) of subrogation to any of
the rights of the Secured Parties and the Funding Corporation against BNG,
Pledgor or any Collateral or guaranty held by the Secured Parties and the
Funding Corporation for the satisfaction of any of the Obligations, nor shall
Pledgor have any claims (as defined in 11 U.S.C. ss. 101 (5)) for
reimbursement, indemnity, exoneration or contribution from BNG in respect of
payments made by Pledgor hereunder. Notwithstanding the foregoing, if any
amount shall be paid to Pledgor on account of such subrogation, reimbursement,
indemnity, exoneration or contribution rights at any time, such amount shall
be held by Pledgor in trust for the Secured Parties and the Funding
Corporation, segregated from other funds of Pledgor, and shall be turned over
to Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation, in the exact form received by Pledgor (duly endorsed by Pledgor
to Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation, if required), to be applied against such amounts in such order as
Collateral Agent may elect.
25. Captions. The captions, headings and table of contents used in
this Pledge Agreement are for convenience only and do not and shall not be
deemed to affect, limit, amplify or modify the terms and provisions hereof.
26. Applicable Law. This Pledge Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of
California.
27. Continuing Security Interest; Termination. This Pledge
Agreement shall create a continuing assignment, pledge and first priority
Security Interest in the Collateral, subject only to Permitted Liens, and
shall remain in full force and effect for the benefit of Collateral Agent and
the other Secured Parties and the Funding Corporation until all Obligations to
be paid or performed by Partnership Guarantors under the Partnership Credit
Agreement and the Partnership Guarantee have been paid and performed in full.
Upon the happening of such event, the Security Interest granted hereby shall
terminate. Upon such termination, Collateral Agent shall, upon the request and
at the expense of Pledgor, execute and deliver to Pledgor such documents as
Pledgor shall reasonably request to evidence such termination or expiration.
28. Payments Set Aside. To the extent that Pledgor or the
Partnership Guarantors or any other Person on behalf of Pledgor or the
Partnership Guarantors makes a payment or payments to Collateral Agent and/or
any other Secured Party, or Collateral Agent and/or any other Secured Party
enforce the Security Interests or Collateral Agent exercises its right of
set-off, and such payment or payments or the proceeds of such enforcement or
set-off or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or
federal law, common law or equitable cause, then to the extent of such
recovery, the Obligations or any part thereof originally intended to be
satisfied, and this Pledge Agreement and all Liens, rights and remedies
therefor, shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or set-off had not occurred.
29. Counterparts. This Pledge Agreement may be executed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
14
<PAGE>
30 . Non-Recourse. Notwithstanding any other provision hereof,
Collateral Agent agrees that its only remedy hereunder shall be to proceed
against the Collateral and that there shall be no recourse to the Pledgor, its
shareholders, officers, directors or employees.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Pledge Agreement to be duly executed as of the day and year first written
above.
VULCAN POWER COMPANY,
a Nevada corporation
By: /s/ John G. Sylvia
-----------------------------------
Name: John G. Sylvia
-----------------------------
Title: Senior Vice President
-----------------------------
CHEMICAL TRUST COMPANY OF CALIFORNIA,
a California corporation,
as Collateral Agent
By: /s/ Rose Maravilla
Name: R.I. Maravilla
Title: Assistant Vice President
<PAGE>
Schedule 2.1
STOCK
<TABLE>
<CAPTION>
<S> <C> <C>
Percentage of
Stock Outstanding
Certificate No. No. of Shares Shares
--------------- ------------- ------
5 1,000 100%
</TABLE>
EXHIBIT 4.41
PARTNERSHIP INTEREST PLEDGE AGREEMENT
(Pledge of Partnership Interests in Vulcan)
by
VULCAN POWER COMPANY
and
BN GEOTHERMAL INC.
(as Pledgor)
in favor of
CHEMICAL TRUST COMPANY OF CALIFORNIA
(as Collateral Agent)
Dated as of June 20, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions ..................................................... 2
2. Grant of Security Interest ...................................... 2
3. Representations and Warranties .................................. 3
4. Covenants and Agreements ........................................ 4
5. Pledgor's Obligations Upon Event of Default ..................... 6
6. Remedies; Rights Upon Event of Default .......................... 6
7. Application of Proceeds ......................................... 8
8. Security Interest Absolute ...................................... 8
9. Collateral Agent Appointed Attorney-in-Fact ..................... 9
10. Collateral Agent May Perform .................................... 10
11. No Duty on Collateral Agent's Part,
Limitation on Collateral Agent's Obligations .................... 10
12. Reasonable Care ................................................. 10
13. Role of Collateral Agent ........................................ 11
14. Waiver of Trial by Jury ......................................... 11
15. Notices ......................................................... 11
16. Absence of Fiduciary Relation ................................... 11
17. Survival of Representations and Warranties ...................... 12
18. No Waiver; Cumulative Remedies .................................. 12
19. Severability .................................................... 12
20. Exculpatory Provisions; Reliance by Collateral Agent ............ 13
21. Amendment ....................................................... 13
22. Successors and Assigns .......................................... 13
23. Number and Gender ............................................... 13
24. Subrogation, etc. ............................................... 14
25. Captions ........................................................ 14
26. Applicable Law .................................................. 14
27. Continuing Security Interest; Termination ....................... 14
28. Payments Set Aside .............................................. 14
29. Counterparts .................................................... 14
30. Non-Recourse .................................................... 15
<PAGE>
PARTNERSHIP INTEREST PLEDGE AGREEMENT
(Pledge of Partnership Interests in Vulcan)
This PARTNERSHIP INTEREST PLEDGE AGREEMENT (this "Pledge
Agreement"), dated as of June 20, 1996, is entered into by VULCAN POWER
COMPANY, a Nevada corporation ("VPC") and BN GEOTHERMAL INC., a Delaware
corporation ("BNG," and together with VPC, the "Pledgor"), in favor of
CHEMICAL TRUST COMPANY OF CALIFORNIA, a California corporation, as collateral
agent (together with its successors and assigns, the "Collateral Agent"), on
behalf of and for the benefit of the Secured Parties and Funding Corporation.
W I T N E S S E T H:
WHEREAS, VPC and BNG each own a 50% partnership interest in
Vulcan/BN Geothermal Power Company, a Nevada general partnership ("Vulcan");
and
WHEREAS, Salton Sea Funding Corporation, a Delaware
corporation (the "Funding Corporation"), is a corporation established for the
sole purpose of making loans to the Guarantors (as hereinafter defined) from
the proceeds of the issuance of notes and bonds (collectively, the
"Securities") in its individual capacity as principal and as agent acting on
behalf of Salton Sea Brine Processing L.P., a California limited partnership
("SSBP"), Salton Sea Power Generation, L.P., a California limited partnership
("SSPG"), Fish Lake Power Company, a Delaware corporation ("Fish Lake," and
together with SSBP and SSPG, the "Salton Sea Guarantors"), VPC, BNG, Vulcan,
Del Ranch, L.P., a California limited partnership ("Del Ranch"), Elmore, L.P.,
a California limited partnership ("Elmore"), Leathers, L.P., a California
limited partnership ("Leathers"), Conejo Energy Company, a California
corporation ("Conejo"), Niguel Energy Company, a California corporation
("Niguel"), San Felipe Energy Company, a California corporation ("San
Felipe"), and CalEnergy Operating Company, a Delaware corporation ("CEOC," and
together with Del Ranch, Elmore, Leathers, Vulcan, Conejo, Niguel, San Felipe,
BNG and VPC, the "Partnership Guarantors") and Salton Sea Royalty Company, a
Delaware corporation ("Royalty Guarantor", and together with the Salton Sea
Guarantors and the Partnership Guarantors, the "Guarantors"), pursuant to the
Trust Indenture, dated as of July 21, 1995, as the same may be amended,
modified, or supplemented, including pursuant to that certain Second
Supplemental Trust Indenture, dated as of even date herewith (as so amended,
modified and supplemented, the "Indenture"), between Funding Corporation and
Collateral Agent, as trustee ("Trustee"); and
WHEREAS, the principal and interest payments on the
Securities will be serviced by repayment of loans made by Funding Corporation
to the Guarantors and guaranteed by the Guarantors, subject to the conditions
set forth in the Indenture; and
WHEREAS, Funding Corporation has (a) on July 21, 1995 issued
and sold Securities in the principal amount of $475 Million (the "Initial
Issuance") and (b) simultaneously with the execution and delivery of this
Agreement issued and sold Securities in the principal amount of $135 Million
(the "New Issuance"); and
WHEREAS, Funding Corporation has used a portion of the
proceeds from the Initial Issuance and intends to use the proceeds from the
New Issuance to make loans to the Partnership Guarantors in the aggregate
outstanding amount of $189,956,000, as of the date hereof, portions of which
will be used for the following purposes: (a) approximately $96 Million to
refinance all existing
<PAGE>
project-level indebtedness of the Partnership Projects, (b) approximately
$15 Million to fund certain capital improvements to the Partnership Projects and
the Salton Sea Projects, and (c) approximately $23 Million to fund a portion
of the purchase price for the acquisition by certain of the Partnership
Guarantors of the 50% interest in each of the Partnership Projects previously
owned by a third party; and
WHEREAS, Pledgor anticipates benefiting directly and
indirectly from the making of the loan pursuant to the Partnership Credit
Agreement and is, therefore, willing to enter into this Pledge Agreement in
accordance with the terms hereof.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, and in order to induce the
Funding Corporation to enter into the Partnership Credit Agreement, the
parties hereto hereby agree as follows:
1. Definitions. Unless otherwise defined herein, all
capitalized terms shall have the meanings set forth in Exhibit A to the
Indenture, which Exhibit A is hereby incorporated by reference. All references
to sections, schedules and exhibits in or to this Pledge Agreement are to
sections, schedules and exhibits in or to this Pledge Agreement, unless
otherwise specified. The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Pledge Agreement shall refer to this Pledge
Agreement as a whole and not to any particular provision of this Pledge
Agreement. For purposes of this Pledge Agreement, all other terms used herein
and not otherwise defined herein which are defined in Article 9 of the Uniform
Commercial Code (as the same may be in effect in the State of California or
any other applicable jurisdiction, the "Code"), shall have their respective
meanings as therein defined.
2. Grant of Security Interest.
2.1 . Collateral. As security for the prompt and
complete payment and performance when due (whether at stated maturity, by
acceleration or otherwise) of any and all of the Obligations (as defined
below) now existing or hereafter arising, and howsoever evidenced, Pledgor
hereby collaterally assigns, conveys, mortgages, pledges, hypothecates and
transfers to Collateral Agent, and grants and creates a lien on and first
priority security interest (the "Security Interest") in favor of Collateral
Agent, for the equal and ratable benefit of the Secured Parties and the
Funding Corporation, in all right, title and interest of Pledgor in, to and
under the following, whether now existing or hereafter acquired (the
"Collateral"):
2.1.1. its partnership interest in Vulcan
and all of its rights under the Partnership Agreement of Vulcan,
dated as of August 30, 1985, among VPC and BNG (the "Partnership
Agreement") (including, without limitation, to the extent assignable
or transferable, all of its right, title and interest as a partner to
participate in the operation or management and control of Vulcan and
all of its rights to property, assets, partnership interests and
distributions under the Partnership Agreement);
2
<PAGE>
2.1.2. all present and future rights of
Pledgor to receive any payment of money or other distribution or
payment arising out of or in connection with its partnership interest
in Vulcan and its rights under the Partnership Agreement; and
2.1.3. to the extent not otherwise
included, all proceeds, products and accessions of and to any and all
of the foregoing, including, without limitation, "proceeds" as
defined in Section 9-306(1) of the Code, including whatever is
received upon any sale, exchange, collection or other disposition of
any of the Collateral, and any property into which any of the
Collateral is converted, whether cash or noncash proceeds, and any
and all other amounts paid or payable under or in connection with any
of the Collateral.
2.2. Obligations. This Pledge Agreement secures,
in accordance with the provisions hereof, the following obligations, now
existing or hereafter arising (collectively, the "Obligations"):
2.2.1. payment and performance of the
Partnership Guarantors' obligations under the Partnership Credit
Agreement and the Partnership Guarantee, and each and every
obligation, indebtedness, covenant and agreement of Pledgor under any
of the Financing Documents to which it is a party, including, without
limitation, this Pledge Agreement, the Intercreditor Agreement and
any amendments or supplements thereto, extensions or renewals thereof
or replacements therefor; and
2.2.2. performance of every obligation,
covenant and agreement of Pledgor contained in any agreement now or
hereafter executed by Pledgor which recites that the obligations
thereunder are secured by this Pledge Agreement;
in each case whether direct or indirect, joint or several, absolute or
contingent, liquidated or unliquidated, now or hereafter existing, renewed or
restructured, reinstated, created or incurred, and, including, without
limitation, all indebtedness of Pledgor under any instrument now or hereafter
evidencing or securing any of the foregoing.
3. Representations and Warranties. Pledgor hereby represents
and warrants as follows:
3.1. Organization and Existence. Vulcan is a
general partnership in which VPC owns a 50% general partnership interest and
BNG owns a 50% general partnership interest. VPC is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Nevada. BNG is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Each of VPC and BNG is duly
qualified to do business and is in good standing in the State of California
and each other jurisdiction in which the character of the properties owned or
leased by it or in which the transaction of its business as presently
conducted or proposed to be conducted makes such qualification necessary or
desirable. Pledgor has full corporate power and authority to own its property
and to carry on its business as now being conducted and as proposed to be
conducted.
3.2. Authority, Enforceability. Pledgor has full
corporate power and authority to enter into and perform the Partnership
Agreement and this Pledge Agreement and the
3
<PAGE>
entering into and performance of each such agreement by Pledgor has been duly
authorized by all proper and necessary corporate action. Each such agreement,
when executed and delivered by Pledgor and any other party thereto, will
constitute the legal, valid and binding obligations of Pledgor, enforceable in
accordance with its respective terms.
3.3. Title: No Other Liens. Pledgor is the legal
and beneficial owner of the Collateral in existence on the date hereof and
will be the sole owner of the Collateral hereafter acquired, free and clear of
any and all Liens or claims of others except for Permitted Liens, and Pledgor
has full corporate power and authority to grant the liens and security
interests in and to the Collateral hereunder. Except with respect to the
Secured Parties and the Funding Corporation and as required under this Pledge
Agreement, no security agreement, financing statement or other public notice
with respect to all or any part of the Collateral is on file or of record in
any public office, and no lien or security interest on or in the Collateral
has been registered in the registration book maintained by Vulcan in which all
partnership interests of Vulcan are recorded, except such as may have been
filed in favor of Collateral Agent for the benefit of the Secured Parties and
the Funding Corporation pursuant to this Pledge Agreement.
3.4. Perfection; Registration of Lien. Financing
statements or other appropriate instruments have been filed or deposited for
filing pursuant to the Code in such public offices as may be necessary to
perfect any Security Interest granted or purported to be granted hereby to the
extent any such Security Interest may be perfected by the filing of a
financing statement. All other action by Pledgor and, to Pledgor's knowledge,
by any other Person necessary or desirable to perfect the Security Interest in
each item of the Collateral has been duly taken. Subject to the requirements
contained in the Code with respect to the filing of continuation statements,
this Pledge Agreement constitutes a valid and continuing Lien on and perfected
Security Interest (subject only to Permitted Liens) in the Collateral in favor
of Collateral Agent for the equal and ratable benefit of the Secured Parties
and the Funding Corporation, superior and prior to the rights of all Persons
(subject only to Permitted Liens), whether the Collateral subject to the
Security Interest is now owned by Pledgor or is hereafter acquired.
3.5. No Default. Pledgor is not in default in the
performance, observance or fulfillment of any of the material obligations,
covenants or conditions applicable to Pledgor contained in the Partnership
Agreement or any Financing Document to which it is a party.
3.6. Chief Executive Office and Principal Place of
Business. Pledgor's chief executive office and principal place of business and
the place where Pledgor's records concerning the Collateral are kept is:
Blackstone Center
302 South 36th Street, Suite 400-E
Omaha, Nebraska 68131
4. Covenants and Agreements. Pledgor hereby covenants and
agrees that Pledgor shall faithfully observe and fulfill, and shall cause to
be observed and fulfilled, each and all of the following covenants until all
Obligations to be paid or performed by the Partnership Guarantors under the
Financing Documents to which they are a party have been paid and performed in
full:
4
<PAGE>
4.1. Further Assurances. Pledgor shall, from time
to time at the Partnership Guarantors' expense, and upon request by Collateral
Agent on behalf of the Secured Parties and the Funding Corporation, promptly
execute and deliver all further instruments and documents, and take all
further action that may be reasonably necessary or advisable, or that
Collateral Agent reasonably determines may be necessary, in order to perfect
and protect the Security Interest granted or purported to be granted hereby or
to enable Collateral Agent to exercise and enforce its rights and remedies
hereunder with respect to the Collateral.
4.2. Certificated Interest. If Pledgor shall become
entitled to receive or shall receive any certificate, instrument, option or
rights, whether as an addition to, in substitution of, or in exchange for the
Collateral or any part thereof, or otherwise, Pledgor shall accept any such
certificate, instrument, option or rights as Collateral Agent's agent, shall
hold them in trust for Collateral Agent, and shall deliver them forthwith to
Collateral Agent in the exact form received, with Pledgor's endorsement when
necessary, or accompanied by duly executed instruments of transfer or
assignment in blank or, if requested by Collateral Agent, an additional pledge
agreement or security agreement executed and delivered by Pledgor, all in form
and substance reasonably satisfactory to Collateral Agent, to be held by
Collateral Agent, subject to the terms hereof, as further Collateral for the
Obligations.
4.3. Change in Location, Name, Etc. Pledgor may
change the location of its chief executive office, principal place of business
or the office where such records are kept to another location in the United
States after giving Collateral Agent thirty (30) days' advance written notice
of such change. Without the prior written consent of Collateral Agent, Pledgor
shall not adopt any trade name or fictitious business name.
4.4. Limitation on Liens on the Collateral. Pledgor
shall not create, incur or permit to exist, shall defend the Collateral now
owned or hereafter acquired by it against, and shall take such other action as
is necessary to remove, any Lien or claim on or to the Collateral, other than
Permitted Liens, and shall defend the right, title and interest of Collateral
Agent in and to any of the Collateral against the claims and demands of all
Persons whomsoever.
4.5 Bankruptcy Filing, etc. Pledgor shall not
authorize or permit Vulcan (i) to commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
Vulcan or Vulcan's debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of Vulcan or any substantial
part of Vulcan's property or (ii) to consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary
case or other proceeding commenced against Vulcan or (iii) to make a general
assignment for the benefit of Vulcan's creditors. Neither Pledgor nor any of
its Affiliates shall commence or join with any other Person (other than the
Secured Parties and Funding Corporation) in commencing any proceeding against
Vulcan under any bankruptcy, reorganization, liquidation or insolvency law or
statute now or hereafter in effect in any jurisdiction.
4.6. Obligations. Pledgor acknowledges and agrees
that its rights to receive any payments from Vulcan, or arising out of or in
connection with Pledgor's interests in Vulcan or its rights under the
Partnership Agreement, shall be payable by Vulcan only from funds available to
Vulcan upon distributions pursuant to the Depositary Agreement or any other
provision of the Indenture expressly providing for distribution, payment or
release of funds to Vulcan, and only so long
5
<PAGE>
as such distribution, payment or release is made in accordance with the
Depositary Agreement and the Indenture. Pledgor also agrees that any
distributions made by Vulcan to Pledgor that do not comply with the Depositary
Agreement and the Indenture shall be restored to Vulcan by Pledgor by deposit
into an account designated by Collateral Agent, promptly upon demand by
Collateral Agent or Vulcan or upon Pledgor becoming aware of receipt of such
non-complying distribution.
4.7. Governmental Authority Requirement. Pledgor
shall not take or omit to take (or suffer such taking or omission of) any
action (unless ordered to do so by a competent Governmental Authority having
jurisdiction) in respect of Pledgor or Vulcan and their respective businesses
if, as a consequence directly or indirectly of such action or omission, Vulcan
or Pledgor becomes subject to regulation by any Governmental Authority as a
"public utility," an "electric utility," an "electric utility holding
company," a "public utility holding company" or a subsidiary or affiliate of
any of the foregoing under PUHCA, FPA or PURPA, or as a "holding company"
within the meaning of PUHCA.
4.8. Indemnification. Pledgor shall defend,
indemnify and hold harmless Collateral Agent and each of the other Secured
Parties and the Funding Corporation and their officers, directors and
employees, from and against any and all costs, expenses, disbursements,
liabilities, obligations, losses, damages, injunctions, judgments, suits,
actions, causes of action, fines, penalties, claims and demands, of every kind
or nature (including, without limitation, reasonable attorney's fees and
expenses) which are occasioned by or result from any (i) failure by Pledgor to
perform any of the terms, agreements, or covenants to be performed by Pledgor
under this Pledge Agreement and (ii) proceeding or action to enforce brought
by Collateral Agent pursuant to this Pledge Agreement or which arise out of
any such agreement unless due solely to the gross negligence or willful
misconduct of Collateral Agent. This indemnity and any other obligations of
Pledgor under any of the Financing Documents shall be made only against, and
shall be limited to the extent of, the Collateral pledged hereunder.
5. Pledgor's Obligations Upon Event of Default. If an Event
of Default under the Partnership Credit Agreement or the Partnership Guarantee
shall occur and be continuing (a) all payments received by Pledgor under or in
connection with any of the Collateral shall be held by Pledgor in trust for
Collateral Agent, shall be segregated from other funds of Pledgor and shall,
forthwith upon receipt by Pledgor, be turned over to Collateral Agent or its
designee in the same form as received by Pledgor (duly endorsed by Pledgor to
Collateral Agent, if requested), and (b) any and all such payments so received
by Collateral Agent or its designee (whether from Pledgor or otherwise) may,
in the sole discretion of Collateral Agent or its designee, be held by
Collateral Agent or such designee as collateral security for, and/or then or
at any time thereafter be applied, subject only to the relevant provisions of
the Intercreditor Agreement and the Depositary Agreement or as otherwise may
be required by applicable law, in whole or in part by Collateral Agent or its
designee in the manner specified in Section 7.
6. Remedies; Rights Upon Event of Default. Upon the
occurrence and during the continuance of an Event of Default under the
Partnership Credit Agreement or Partnership Guarantee, Collateral Agent, for
the equal and ratable benefit of and on behalf of the Secured Parties and the
Funding Corporation, may, subject to the provisions of the Intercreditor
Agreement and the other Financing Documents, do one or more of the following:
6
<PAGE>
6.1 declare, without presentment, demand, protest
or notice of any kind, all of which Pledgor hereby expressly waives, the
entire amount of Obligations to be immediately due and payable, whereupon all
of such Obligations declared due and payable shall be and become immediately
due and payable; provided, however, if, with respect to the Partnership
Guarantors, an Event of Default occurs pursuant to Section 5.1 of the
Partnership Credit Agreement, then the acceleration provided for in this
Section 6.1 shall be deemed to have been made upon the occurrence of such
Event of Default without declaration or any other action by Collateral Agent;
6.2 upon notice to Pledgor, which notice need not be
in writing, make such payments and do such acts as Collateral Agent may deem
necessary to protect, perfect or continue the perfection of the Secured Parties'
and the Funding Corporation's Security Interest in the Collateral, including,
without limitation, paying, purchasing, contesting or compromising any Lien
which is, or purports to be, prior to or superior to the Security Interest
granted hereunder, and commencing, appearing or otherwise participating in or
controlling any action or proceeding purporting to affect the Secured Parties'
and the Funding Corporation's Security Interest in or ownership of the
Collateral;
6.3 foreclose on the Collateral as herein provided
or in any manner permitted by law and exercise any and all of the rights and
remedies conferred upon the Secured Parties and the Funding Corporation by the
Security Documents either concurrently or in such order as Collateral Agent
may determine without affecting the rights or remedies to which the Secured
Parties and the Funding Corporation may be entitled under any Security
Documents. Pledgor hereby waives, to the extent permitted by applicable law,
notice and judicial hearing in connection with Collateral Agent's taking
possession or collection, recovery, receipt, appropriation, repossession,
retention, set-off, sale, leasing, conveyance, assignment, transfer or other
disposition of or realization upon any or all of the Collateral, including,
without limitation, any and all prior notice and hearing for any prejudgment
remedy or remedies and any such right which Pledgor would otherwise have under
the constitution or any statute or other law of the United States of America
or of any state;
6.4 without notice, except as specified below, sell
the Collateral, or any part thereof, in one or more parcels at public or
private sale, at any of Collateral Agent's offices or elsewhere, at such time
or times, for cash, on credit or for future delivery, and at a commercially
reasonable price or prices and on other commercially reasonable terms. Pledgor
agrees that, to the extent notice of sale shall be required by law, at least
ten (10) days' notice to Pledgor of the time and the place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. At any sale of the Collateral, if permitted by law,
Collateral Agent may bid (which bid may be, in whole or in part, in the form
of cancellation of indebtedness) for the purchase of the Collateral or any
portion thereof for the account of Collateral Agent on behalf of the Secured
Parties and the Funding Corporation. Collateral Agent shall not be obligated
to make any sale of the Collateral regardless of notice of sale having been
given. Collateral Agent may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. Collateral Agent shall incur no liability as a result of the manner
of sale of the Collateral, or any part thereof, at any private sale conducted
in a commercially reasonable manner. Pledgor hereby waives, to the extent
permitted by applicable law, any claims against Collateral Agent arising by
reason of the fact that the price at which the Collateral, or any part
thereof, may have been sold at a private sale was less than the price which
might have been obtained at public sale or was less than the aggregate amount
of the Obligations, even if Collateral Agent accepts the first offer received
which Collateral Agent in good faith deems to be commercially reasonable under
the circumstances and does not offer the Collateral to
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more than one offeree. To the full extent permitted by law, Pledgor shall have
the burden of proving that any such sale of the Collateral was conducted in a
commercially unreasonable manner. To the extent permitted by law, Pledgor
hereby specifically waives all rights of redemption, stay or appraisal which
it has or may have under any law now existing or hereafter enacted. Pledgor
authorizes Collateral Agent, at any time and from time to time, to execute, in
connection with a sale of the Collateral pursuant to the provisions of this
Pledge Agreement, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral;
6.5 upon notice to Pledgor, register the Collateral
in the name of Collateral Agent or its nominee as pledgee or otherwise take
such action as Collateral Agent shall in its sole discretion deem necessary or
desirable with respect to the Collateral, and Collateral Agent or its nominee
may thereafter, in its sole discretion, without notice, exercise all voting,
consent, managerial and other rights relating to the Collateral and exercise
any and all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to the Collateral as if it were the absolute
owner thereof, including, without limitation, all rights of Pledgor under the
Partnership Agreement, including, without limitation, the right to (i) receive
all permitted distributions, if any, made for the account of Pledgor under the
Partnership Agreement and (ii) exchange any and all of the Collateral upon the
merger, consolidation, reorganization, recapitalization or other readjustment
of Vulcan, all without liability except to account for property actually
received by Collateral Agent, but Collateral Agent shall have no duty to
exercise any of the aforesaid rights, privileges or options and shall not be
responsible for any failure to do so or delay in so doing; and
6.6 exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party after default
under the Code.
7. Application of Proceeds. The net proceeds of any
foreclosure, collection, recovery, receipt, appropriation, realization or sale
of the Collateral shall be applied in the order of priority specified in the
Intercreditor Agreement. If all Obligations and any other amounts due under
this Pledge Agreement and the Intercreditor Agreement have been indefeasibly
paid, satisfied and discharged in full, any surplus then remaining shall be
paid to Pledgor, if it is lawfully entitled to receive the same or shall be
paid to whomsoever a court of competent jurisdiction may direct.
8. Security Interest Absolute. All the rights of Collateral
Agent and any of the other Secured Parties and the Funding Corporation
hereunder and the Security Interest and all obligations of Pledgor hereunder
shall be absolute and unconditional irrespective of:
8.1. any lack of validity or enforceability of the
Project Documents or the Partnership Agreement or the Financing
Documents or any other agreement or instrument relating thereto;
8.2. any change in the time, manner or place of
payment of, or in any other term of, all or any of the Obligations,
or any other amendment or waiver of or any consent to any departure
from the Project Documents, the Partnership Agreement or the
Financing Documents;
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<PAGE>
8.3. any exchange or release of any Collateral or
any other collateral, or the non-perfection of any of the Security
Interest, or any release or amendment or waiver of or consent to or
departure from any guaranty, for all or any of the Obligations;
8.4. to the full extent permitted by law, any other
circumstance that might otherwise constitute a defense available to,
or a discharge of, Pledgor or any third party pledgor; or
8.5 the failure by any of the Pledgors to fulfill
its obligations under this Pledge Agreement.
9. Collateral Agent Appointed Attorney-in-Fact.
9.1. Powers. Pledgor hereby irrevocably constitutes
and appoints Collateral Agent and any officer or agent thereof, with full
power of substitution, as Pledgor's true and lawful attorney-in-fact (which
appointment as attorney-in-fact shall be coupled with an interest), with full
authority in the place and stead of Pledgor and in the name of Pledgor or
otherwise, from time to time upon the occurrence and during the continuance of
any Event of Default under the Partnership Credit Agreement or the Partnership
Guarantee in Collateral Agent's discretion, to take any action and to execute
any and all documents and instruments which Collateral Agent may deem
necessary or advisable to accomplish the purposes of this Pledge Agreement,
without notice to Pledgor, including, without limitation:
9.1.1. to exercise all partnership
rights, powers and privileges to the same extent Pledgor shall have
been entitled under the Partnership Agreement and in accordance with
applicable law, including, without limitation, all voting rights of
Pledgor as partner of Vulcan;
9.1.2. to receive, endorse and collect all
instruments made payable to Pledgor representing any interest payment
or other distribution in respect of the Collateral or any part
thereof and to give full discharge for the same and to file any claim
or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by Collateral Agent for the
purpose of collecting any and all of such dividends, payments or
other distributions;
9.1.3. to pay or discharge taxes and liens
levied or placed on the Collateral; and
9.1.4. (a) to direct any party liable for
any payment in respect of or arising out of any of the Collateral to
make payment of any and all moneys due or to become due in connection
therewith directly to Collateral Agent or as Collateral Agent shall
otherwise direct, (b) to ask or make demand for, collect, receive
payment of and receipt for, any and all moneys, claims and other
amounts due or to become due at any time in respect of or arising out
of any Collateral, (c) to commence and prosecute any suits, actions
or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral, (d) to defend
any suit, action or proceeding brought against Pledgor with respect
to any Collateral, (e) to settle, compromise or adjust any suit,
action or proceeding described in clause (d) above and, in connection
9
<PAGE>
therewith, to give such discharges or releases as Collateral Agent
acting in good faith may deem appropriate and (f) generally, to sell,
transfer, pledge and make any agreement with respect to or otherwise
deal with any of the Collateral as fully and completely as though
Collateral Agent were the absolute owner thereof for all purposes,
and (g) to do, at Collateral Agent's option and at Pledgor's expense,
at any time, or from time to time, all acts and things which
Collateral Agent acting in good faith deems necessary to protect,
preserve or realize upon the Collateral and the Security Interest
granted herein and to effect the intent of this Pledge Agreement, all
as fully and effectively as Pledgor might do.
9.2. Other Powers. Pledgor further authorizes
Collateral Agent, at any time and from time to time (i) to execute, in
connection with any sale provided for hereunder, any endorsements, assignments
or other instruments of conveyance or transfer with respect to the Collateral
and (ii) to the full extent permitted by applicable law, to file one or more
financing or continuation statements, and amendments thereto, relative to all
or any part of the Collateral without the signature of Pledgor.
10. Collateral Agent May Perform. Upon the occurrence and
during the continuance of an Event of Default under the Partnership Credit
Agreement or the Partnership Guarantee, Collateral Agent, without releasing
Pledgor from any obligation, covenant or condition hereof, itself may make any
payment or perform, or cause the performance of, any such obligation,
covenant, condition or agreement or any other action in such manner and to
such extent as Collateral Agent may deem necessary to protect, perfect or
continue the perfection of the Secured Parties' and the Funding Corporation's
Security Interest in the Collateral. Any costs or expenses incurred by
Collateral Agent in connection with the foregoing shall be governed by the
Indenture and the Financing Documents and constitute Obligations secured
hereby.
11. No Duty on Collateral Agent's Part,
Limitation on Collateral Agent's Obligations.
11.1. No Duty on Collateral Agent's Part. The
powers conferred on Collateral Agent hereunder are solely to protect
Collateral Agent's interests in the Collateral and shall not impose any duty
upon it to exercise any such powers. Collateral Agent shall be accountable
only for amounts that it actually receives as a result of the exercise of such
powers.
11.2. Limitations on Obligations. Without limiting
the effectiveness of Section 30 hereof, anything herein to the contrary
notwithstanding, Pledgor shall remain liable under the Partnership Agreement
and any other Project Document or Financing Document to which it is a party to
the extent set forth therein to perform all of its duties and obligations
thereunder, to the same extent as if this Pledge Agreement had not been
executed. The exercise by Collateral Agent of any of the rights or remedies
hereunder shall not release Pledgor from any of its duties or obligations
under the Partnership Agreement or any other Project Document or Financing
Document to which it is a party. All of the Collateral is hereby assigned to
Collateral Agent solely as security, and Collateral Agent shall have no duty,
liability or obligation whatsoever with respect to any of the Collateral,
unless Collateral Agent so elects in writing consistent with its rights under
this Pledge Agreement.
12. Reasonable Care. Collateral Agent shall exercise the same
degree of care hereunder as it exercises in connection with similar
transactions for its own account. Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
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<PAGE>
its possession if the Collateral is accorded treatment substantially equal to
that which Collateral Agent accords or would accord collateral held by
Collateral Agent in similar transactions for its own account. Without limiting
the generality of the foregoing and except as otherwise provided by applicable
law, Collateral Agent shall not be required to marshall any collateral,
including, without limitation, the Collateral subject to the Security Interest
created hereby and any guaranties of the Obligations, or to resort to any item
of Collateral or guaranties in any particular order; and all of Collateral
Agent's rights hereunder and in respect of such Collateral and guaranties
shall be cumulative and in addition to all other rights, however existing or
arising. To the extent that Pledgor lawfully may, Pledgor hereby (a) agrees
that it will not invoke any law relating to the marshalling of collateral
which might cause delay in or impede the enforcement of Collateral Agent's
rights under this Pledge Agreement or under any other instrument evidencing
any of the Obligations or under which any of the Obligations is outstanding or
by which any of the Obligations is secured or guaranteed and (b) irrevocably
waives the benefits of all Laws and any and all rights to equity of redemption
or other rights of redemption that it may have in equity or at law with
respect to the Collateral.
13. Role of Collateral Agent. The rights, duties,
liabilities and immunities of Collateral Agent and its appointment and
replacement hereunder shall be governed by the Intercreditor Agreement.
14. Waiver of Trial by Jury. WITH REGARD TO THIS PLEDGE
AGREEMENT, EACH OF PLEDGOR AND COLLATERAL AGENT HEREBY WAIVES THE RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING AND FOR ANY COUNTERCLAIM THEREIN.
15. Notices. All notices, demands, requests and other
communications required or permitted hereunder shall be in writing, and shall
be given and deemed to have been given in accordance with Section 6.1 of the
Partnership Credit Agreement and the information set forth immediately below
shall apply to:
If to VPC:
Blackstone Center
302 South 36th Street, Suite 400-E
Omaha, Nebraska 68131
If to BNG:
Blackstone Center
302 South 36th Street, Suite 400-J
Omaha, Nebraska 68131
16. Absence of Fiduciary Relation. Collateral Agent undertakes
to perform or to observe only such of its agreements and obligations as are
specifically set forth in this Pledge Agreement, the Intercreditor Agreement
or any other Security Document, and no implied agreements, covenants or
obligations with respect to Pledgor, any Affiliate of Pledgor or any other
party to the Partnership Agreement or any other Project Document or Security
Document to which Pledgor is a party shall be read into this Pledge Agreement
against Collateral Agent or any of the Secured Parties
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and the Funding Corporation; neither Collateral Agent nor any of the Secured
Parties and the Funding Corporation in its and their capacity as such is a
fiduciary of and shall not owe or be deemed to owe any fiduciary duty to
Pledgor, any Affiliate of Pledgor or any other party to any Project Document
or Financing Document to which Pledgor is a party, except as otherwise
specifically required by law.
17. Survival of Representations and Warranties. All
agreements, representations and warranties made herein shall survive the
execution and delivery of this Pledge Agreement and the other Financing
Documents and repayment of the Obligations, and shall be deemed to be material
and to have been relied upon by Collateral Agent and any of the other Secured
Parties and the Funding Corporation, regardless of any investigation made by
or on behalf of any of Collateral Agent and any of the other Secured Parties
and the Funding Corporation. Notwithstanding anything in this Pledge Agreement
or implied by law to the contrary, the agreements and obligations of Pledgor
set forth in Section 4.6 shall survive until the payment or prepayment in full
of the Obligations and the termination of this Pledge Agreement in accordance
with Section 27 hereof.
18. No Waiver; Cumulative Remedies. By exercising or failing
to exercise any of its rights, options or elections hereunder (without also
expressly waiving the same in writing), Collateral Agent, on behalf of the
Secured Parties and the Funding Corporation, shall not be deemed to have
waived any breach or default on the part of Pledgor or to have released
Pledgor from any of its obligations secured hereby. No failure on the part of
Collateral Agent to exercise, and no delay in exercising (without also
expressly waiving the same in writing) any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or privilege preclude any other or further exercise
thereof, or the exercise of any other right, power or privilege. The remedies
provided herein are cumulative and not exclusive of any remedies provided by
law. Collateral Agent, acting on behalf of the Secured Parties and the Funding
Corporation, shall have all of the rights and remedies granted under the
Intercreditor Agreement or any Financing Document, and available at law or in
equity, and these same rights and remedies may be pursued separately,
successively or concurrently against Pledgor or any Collateral, at the
discretion of Collateral Agent.
19. Severability. Any provision of this Pledge Agreement which
is prohibited, unenforceable or not authorized in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of
such provision in any other jurisdiction. Where provisions of any law or
regulation resulting in such prohibition or unenforceability may be waived
they are hereby waived by Pledgor and Collateral Agent to the full extent
permitted by law so that this Pledge Agreement shall be deemed a valid,
binding agreement, and the Security Interest created hereby shall constitute a
continuing first lien on and first perfected security interest in the
Collateral, in each case enforceable in accordance with its terms.
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20. Exculpatory Provisions; Reliance by Collateral Agent.
20.1. Exculpatory Provisions. Neither Collateral
Agent, the Funding Corporation nor any other Secured Party, nor any of their
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates (the "Exculpated Parties") shall be liable to Pledgor for any
action taken or omitted to be taken by it or them under or in connection with
this Pledge Agreement, the Partnership Agreement or any other Project Document
or Financing Document to which Pledgor is a party, except for the Exculpated
Parties' own gross negligence or willful misconduct, or responsible in any
manner to any Person for any recitals, statements, representations or
warranties made by Pledgor or any officer thereof contained in this Pledge
Agreement, the Partnership Agreement or any other Project Document or
Financing Document to which Pledgor is a party or in any certificate, report,
statement or other document referred to or provided for in, or received by
Collateral Agent, Funding Corporation or any other Secured Party under or in
connection with, this Pledge Agreement, the Partnership Agreement or any other
Project Document or Financing Document to which Pledgor is a party or for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Pledge Agreement, the Partnership Agreement or any other Project Document
or Financing Document to which Pledgor is a party or for any failure of
Pledgor to perform any of the Obligations. Neither Collateral Agent, Funding
Corporation nor any other Secured Party shall be under any obligation to any
Person to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, this Pledge Agreement, the
Partnership Agreement or any other Project Document or Financing Document to
which Pledgor is a party, or to inspect the properties or records of Pledgor.
20.2. Reliance by Collateral Agent. 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 Pledgor), independent accountants and other experts
selected by Collateral Agent. Collateral Agent shall have no obligation to any
Person to act or refrain from acting or exercising any of its rights under
this Pledge Agreement.
21. Amendment. No modification or waiver of any of the
provisions of this Pledge Agreement shall be binding on Collateral Agent,
except as expressly set forth in a writing duly signed and delivered by
Collateral Agent and which is otherwise in accordance with Section 6.2 of the
Partnership Credit Agreement.
22. Successors and Assigns. This Pledge Agreement shall be
binding upon and inure to the benefit of Pledgor and Collateral Agent for the
benefit of the Secured Parties and the Funding Corporation and their
respective successors and assigns. In the event of any assignment or transfer
by the Funding Corporation or any other Secured Party of any instrument
evidencing all or any part of the Obligations, the holder of such instrument
shall, subject to the Partnership Credit Agreement and the Partnership
Guarantee, be entitled to the benefits of this Pledge Agreement.
23. Number and Gender. Whenever used in this Pledge
Agreement, the singular number shall include the plural and the plural the
singular, and the use of any gender shall be applicable to all genders.
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24. Subrogation, etc. Notwithstanding any payment or payments
made by Pledgor or the exercise by Collateral Agent of any of the remedies
provided under this Pledge Agreement or any of the Financing Documents,
Pledgor shall have no claim (as defined in 11 U.S. C. ss. 101 (5)) of
subrogation to any of the rights of the Secured Parties and the Funding
Corporation against Vulcan, Pledgor or any Collateral or guaranty held by the
Secured Parties and the Funding Corporation for the satisfaction of any of the
Obligations, nor shall Pledgor have any claims (as defined in 11 U.S.C. ss.
101 (5)) for reimbursement, indemnity, exoneration or contribution from Vulcan
in respect of payments made by Pledgor hereunder. Notwithstanding the
foregoing, if any amount shall be paid to Pledgor on account of such
subrogation, reimbursement, indemnity, exoneration or contribution rights at
any time, such amount shall be held by Pledgor in trust for the Secured
Parties and the Funding Corporation, segregated from other funds of Pledgor,
and shall be turned over to Collateral Agent for the benefit of the Secured
Parties and the Funding Corporation, in the exact form received by Pledgor
(duly endorsed by Pledgor to Collateral Agent for the benefit of the Secured
Parties and the Funding Corporation, if required), to be applied against such
amounts in such order as Collateral Agent may elect.
25. Captions. The captions, headings and table of contents
used in this Pledge Agreement are for convenience only and do not and shall
not be deemed to affect, limit, amplify or modify the terms and provisions
hereof.
26. Applicable Law. This Pledge Agreement shall be governed
by, and construed and interpreted in accordance with, the laws of the State of
California.
27. Continuing Security Interest; Termination. This Pledge
Agreement shall create a continuing assignment, pledge and first priority
Security Interest in the Collateral, subject only to Permitted Liens, and
shall remain in full force and effect for the benefit of Collateral Agent and
the other Secured Parties and the Funding Corporation until all Obligations to
be paid or performed by Partnership Guarantors under the Partnership Credit
Agreement and the Partnership Guarantee have been paid and performed in full.
Upon the happening of such event, the Security Interest granted hereby shall
terminate. Upon such termination, Collateral Agent shall, upon the request and
at the expense of Pledgor, execute and deliver to Pledgor such documents as
Pledgor shall reasonably request to evidence such termination or expiration.
28. Payments Set Aside. To the extent that Pledgor or the
Partnership Guarantors or any other Person on behalf of Pledgor or the
Partnership Guarantors makes a payment or payments to Collateral Agent and/or
any other Secured Party, or Collateral Agent and/or any other Secured Party
enforce the Security Interests or Collateral Agent exercises its right of
set-off, and such payment or payments or the proceeds of such enforcement or
set-off or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or
federal law, common law or equitable cause, then to the extent of such
recovery, the Obligations or any part thereof originally intended to be
satisfied, and this Pledge Agreement and all Liens, rights and remedies
therefor, shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or set-off had not occurred.
29. Counterparts. This Pledge Agreement may be executed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
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30. Non-Recourse. Notwithstanding any other provision
hereof, Collateral Agent agrees that its only remedy hereunder shall be to
proceed against the Collateral and that there shall be no recourse to the
Pledgor, its shareholders, officers, directors or employees.
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IN WITNESS WHEREOF, the parties hereto have caused this
Pledge Agreement to be duly executed as of the day and year first written
above.
VULCAN POWER COMPANY,
a Nevada corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
BN GEOTHERMAL INC.,
a Delaware corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
CHEMICAL TRUST COMPANY OF CALIFORNIA,
a California corporation,
as Collateral Agent
By: Rose Maravilla
Name: R.I. Maravilla
Title: Assistant Vice President
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EXHIBIT 4.42
PARTNERSHIP INTEREST PLEDGE AGREEMENT
(Pledge of Partnership Interests in Elmore)
by
MAGMA POWER COMPANY,
CALENERGY OPERATING COMPANY
and
NIGUEL ENERGY COMPANY
(as Pledgor)
in favor of
CHEMICAL TRUST COMPANY OF CALIFORNIA
(as Collateral Agent)
Dated as of June 20, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
1. Definitions ................................................ 3
2. Grant of Security Interest ................................. 3
3. Representations and Warranties ............................. 4
4. Covenants and Agreements ................................... 5
5. Pledgor's Obligations Upon Event of Default ................ 7
6. Remedies; Rights Upon Event of Default ..................... 7
7. Application of Proceeds .................................... 9
8. Security Interest Absolute ................................. 9
9. Collateral Agent Appointed Attorney-in-Fact ................ 9
10. Collateral Agent May Perform ............................... 10
11. No Duty on Collateral Agent's Part,
Limitation on Collateral Agent's Obligations ............... 10
12. Reasonable Care ............................................ 11
13. Role of Collateral Agent ................................... 11
14. Waiver of Trial by Jury .................................... 11
15. Notices .................................................... 11
16. Absence of Fiduciary Relation .............................. 12
17. Survival of Representations and Warranties ................. 12
18. No Waiver; Cumulative Remedies ............................. 12
19. Severability ............................................... 13
20. Exculpatory Provisions; Reliance by Collateral Agent ....... 13
21. Amendment .................................................. 14
22. Successors and Assigns ..................................... 14
23. Number and Gender .......................................... 14
24. Subrogation, etc ........................................... 14
25. Captions ................................................... 14
26. Applicable Law ............................................. 14
27. Continuing Security Interest; Termination .................. 14
28. Payments Set Aside ......................................... 15
29. Counterparts ............................................... 15
30. Non-Recourse ............................................... 15
<PAGE>
PARTNERSHIP INTEREST PLEDGE AGREEMENT
(Pledge of Partnership Interests in Elmore)
This PARTNERSHIP INTEREST PLEDGE AGREEMENT (this "Pledge
Agreement"), dated as of June 20, 1996, is entered into by MAGMA POWER
COMPANY, a Nevada corporation ("Magma"), CALENERGY OPERATING COMPANY, a
Delaware corporation ("CEOC"), and NIGUEL ENERGY COMPANY, a California
corporation ("Niguel," and together with Magma and CEOC, the "Pledgor"), in
favor of CHEMICAL TRUST COMPANY OF CALIFORNIA, a California corporation, as
collateral agent (together with its successors and assigns, the "Collateral
Agent"), on behalf of and for the benefit of the Secured Parties and Funding
Corporation.
W I T N E S S E T H:
WHEREAS, Magma, CEOC and Niguel own a 10%, 40% and 50% partnership
interest, respectively, in Elmore, L.P., a California limited partnership
("Elmore"); and
WHEREAS, Salton Sea Funding Corporation, a Delaware corporation
(the "Funding Corporation"), is a corporation established for the sole purpose
of making loans to the Guarantors (as hereinafter defined) from the proceeds
of the issuance of notes and bonds (collectively, the "Securities") in its
individual capacity as principal and as agent acting on behalf of Salton Sea
Brine Processing L.P., a California limited partnership ("SSBP"), Salton Sea
Power Generation, L.P., a California limited partnership ("SSPG"), Fish Lake
Power Company, a Delaware corporation ("Fish Lake," and together with SSBP and
SSPG, the "Salton Sea Guarantors"), CEOC, Niguel, Elmore, Del Ranch, L.P., a
California limited partnership ("Del Ranch"), Leathers, L.P., a California
limited partnership ("Leathers"), Vulcan/BN Geothermal Power Company, a Nevada
general partnership ("Vulcan"), Conejo Energy Company, a California
corporation ("Conejo"), San Felipe Energy Company, a California corporation
("San Felipe"), and BN Geothermal, Inc., a Delaware corporation ("BNG"),
Vulcan Power Company, a Nevada corporation ("VPC," and together with Del
Ranch, Elmore, Leathers, Vulcan, Conejo, Niguel, San Felipe, BNG and CEOC, the
"Partnership Guarantors") and Salton Sea Royalty Company, a Delaware
corporation ("Royalty Guarantor", and together with the Salton Sea Guarantors
and the Partnership Guarantors, the "Guarantors"), pursuant to the Trust
Indenture, dated as of July 21, 1995, as the same may be amended, modified, or
supplemented, including pursuant to that certain Second Supplemental Trust
Indenture, dated as of even date herewith (as so amended, modified and
supplemented, the "Indenture"), between Funding Corporation and Collateral
Agent, as trustee ("Trustee"); and
WHEREAS, the principal and interest payments on the Securities will
be serviced by repayment of loans made by Funding Corporation to the
Guarantors and guaranteed by the Guarantors, subject to the conditions set
forth in the Indenture; and
WHEREAS, Funding Corporation has (a) on July 21, 1995 issued and
sold Securities in the principal amount of $475 Million (the "Initial
Issuance") and (b) simultaneously with the execution and delivery of this
Agreement issued and sold Securities in the principal amount of $135 Million
(the "New Issuance"); and
WHEREAS, Funding Corporation has used a portion of the proceeds
from the Initial Issuance and intends to use the proceeds from the New
Issuance to make loans to the Partnership
<PAGE>
Guarantors in the aggregate outstanding amount of $189,956,000, as of the date
hereof, portions of which will be used for the following purposes: (a)
approximately $96 Million to refinance all existing project-level
indebtedness of the Partnership Projects, (b) approximately $15 Million to
fund certain capital improvements to the Partnership Projects and the Salton
Sea Projects, and (c) approximately $23 Million to fund a portion of the
purchase price for the acquisition by certain of the Partnership Guarantors of
the 50% interest in each of the Partnership Projects previously owned by a
third party; and
WHEREAS, Pledgor anticipates benefiting directly and indirectly
from the making of the loan pursuant to the Partnership Credit Agreement and
is, therefore, willing to enter into this Pledge Agreement in accordance with
the terms hereof.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the
Funding Corporation to enter into the Partnership Credit Agreement, the
parties hereto hereby agree as follows:
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1. Definitions. Unless otherwise defined herein, all capitalized
terms shall have the meanings set forth in Exhibit A to the Indenture, which
Exhibit A is hereby incorporated by reference. All references to sections,
schedules and exhibits in or to this Pledge Agreement are to sections,
schedules and exhibits in or to this Pledge Agreement, unless otherwise
specified. The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Pledge Agreement shall refer to this Pledge Agreement
as a whole and not to any particular provision of this Pledge Agreement. For
purposes of this Pledge Agreement, all other terms used herein and not
otherwise defined herein which are defined in Article 9 of the Uniform
Commercial Code (as the same may be in effect in the State of California or
any other applicable jurisdiction, the "Code"), shall have their respective
meanings as therein defined.
2. Grant of Security Interest.
.1. Collateral. As security for the prompt and complete
payment and performance when due (whether at stated maturity, by acceleration
or otherwise) of any and all of the Obligations (as defined below) now
existing or hereafter arising, and howsoever evidenced, Pledgor hereby
collaterally assigns, conveys, mortgages, pledges, hypothecates and transfers
to Collateral Agent, and grants and creates a lien on and first priority
security interest (the "Security Interest") in favor of Collateral Agent, for
the equal and ratable benefit of the Secured Parties and the Funding
Corporation, in all right, title and interest of Pledgor in, to and under the
following, whether now existing or hereafter acquired (the "Collateral"):
.1. its partnership interest in Elmore and all of its
rights under the Amended and Restated Limited Partnership Agreement of
Elmore, dated as of March 14, 1988, among Magma, CEOC and Niguel (the
"Partnership Agreement") (including, without limitation, to the extent
assignable or transferable, all of its right, title and interest as a
partner to participate in the operation or management and control of
Elmore and all of its rights to property, assets, partnership interests
and distributions under the Partnership Agreement);
.2. all present and future rights of Pledgor to receive
any payment of money or other distribution or payment arising out of or
in connection with its partnership interest in Elmore and its rights
under the Partnership Agreement; and
.3. to the extent not otherwise included, all proceeds,
products and accessions of and to any and all of the foregoing,
including, without limitation, "proceeds" as defined in Section 9-306(1)
of the Code, including whatever is received upon any sale, exchange,
collection or other disposition of any of the Collateral, and any
property into which any of the Collateral is converted, whether cash or
noncash proceeds, and any and all other amounts paid or payable under or
in connection with any of the Collateral.
.2. Obligations. This Pledge Agreement secures, in accordance
with the provisions hereof, the following obligations, now existing or
hereafter arising (collectively, the "Obligations"):
.1. payment and performance of the Partnership
Guarantors' obligations under the Partnership Credit Agreement and the
Partnership Guarantee, and each and every obligation, indebtedness,
covenant and agreement of Pledgor under any of the Financing Documents
to which it is a party, including, without limitation, this Pledge
Agreement, the Intercreditor Agreement and any amendments or supplements
thereto, extensions or renewals thereof or replacements therefor; and
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.2. performance of every obligation, covenant and
agreement of Pledgor contained in any agreement now or hereafter
executed by Pledgor which recites that the obligations thereunder are
secured by this Pledge Agreement;
in each case whether direct or indirect, joint or several, absolute or
contingent, liquidated or unliquidated, now or hereafter existing, renewed or
restructured, reinstated, created or incurred, and, including, without
limitation, all indebtedness of Pledgor under any instrument now or hereafter
evidencing or securing any of the foregoing.
3. Representations and Warranties. Pledgor hereby represents and
warrants as follows:
.1. Organization and Existence. Elmore is a limited
partnership in which Magma owns a 10% limited partnership interest, Niguel
owns a 10% limited and a 40% general partnership interest, and CEOC owns a 40%
general partnership interest. Magma is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada. CEOC is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Niguel is a corporation duly organized, validly
existing and in good standing under the laws of the State of California. Each
of Magma, CEOC and Niguel is duly qualified to do business and is in good
standing in the State of California and each other jurisdiction in which the
character of the properties owned or leased by it or in which the transaction
of its business as presently conducted or proposed to be conducted makes such
qualification necessary or desirable. Pledgor has full corporate power and
authority to own its property and to carry on its business as now being
conducted and as proposed to be conducted.
.2. Authority, Enforceability. Pledgor has full corporate
power and authority to enter into and perform the Partnership Agreement and
this Pledge Agreement and the entering into and performance of each such
agreement by Pledgor has been duly authorized by all proper and necessary
corporate action. Each such agreement, when executed and delivered by Pledgor
and any other party thereto, will constitute the legal, valid and binding
obligations of Pledgor, enforceable in accordance with its respective terms.
.3. Title: No Other Liens. Pledgor is the legal and beneficial
owner of the Collateral in existence on the date hereof and will be the sole
owner of the Collateral hereafter acquired, free and clear of any and all
Liens or claims of others except for Permitted Liens, and Pledgor has full
corporate power and authority to grant the liens and security interests in and
to the Collateral hereunder. Except with respect to the Secured Parties and
the Funding Corporation and as required under this Pledge Agreement, no
security agreement, financing statement or other public notice with respect to
all or any part of the Collateral is on file or of record in any public
office, and no lien or security interest on or in the Collateral has been
registered in the registration book maintained by Elmore in which all
partnership interests of Elmore are recorded, except such as may have been
filed in favor of Collateral Agent for the benefit of the Secured Parties and
the Funding Corporation pursuant to this Pledge Agreement.
.4. Perfection; Registration of Lien. Financing statements or
other appropriate instruments have been filed or deposited for filing pursuant
to the Code in such public offices as may be necessary to perfect any Security
Interest granted or purported to be granted hereby to the extent any such
Security Interest may be perfected by the filing of a financing statement. All
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<PAGE>
other action by Pledgor and, to Pledgor's knowledge, by any other Person
necessary or desirable to perfect the Security Interest in each item of the
Collateral has been duly taken. Subject to the requirements contained in the
Code with respect to the filing of continuation statements, this Pledge
Agreement constitutes a valid and continuing Lien on and perfected Security
Interest (subject only to Permitted Liens) in the Collateral in favor of
Collateral Agent for the equal and ratable benefit of the Secured Parties and
the Funding Corporation, superior and prior to the rights of all Persons
(subject only to Permitted Liens), whether the Collateral subject to the
Security Interest is now owned by Pledgor or is hereafter acquired.
.5. No Default. Pledgor is not in default in the performance,
observance or fulfillment of any of the material obligations, covenants or
conditions applicable to Pledgor contained in the Partnership Agreement or any
Financing Document to which it is a party.
.6. Chief Executive Office and Principal Place of Business.
Pledgor's chief executive office and principal place of business and the place
where Pledgor's records concerning the Collateral are kept is:
Blackstone Center
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
4. Covenants and Agreements. Pledgor hereby covenants and agrees
that Pledgor shall faithfully observe and fulfill, and shall cause to be
observed and fulfilled, each and all of the following covenants until all
Obligations to be paid or performed by the Partnership Guarantors under the
Financing Documents to which they are a party have been paid and performed in
full:
.1. Further Assurances. Pledgor shall, from time to time at
the Partnership Guarantors' expense, and upon request by Collateral Agent on
behalf of the Secured Parties and the Funding Corporation, promptly execute
and deliver all further instruments and documents, and take all further action
that may be reasonably necessary or advisable, or that Collateral Agent
reasonably determines may be necessary, in order to perfect and protect the
Security Interest granted or purported to be granted hereby or to enable
Collateral Agent to exercise and enforce its rights and remedies hereunder
with respect to the Collateral.
.2. Certificated Interest. If Pledgor shall become entitled to
receive or shall receive any certificate, instrument, option or rights,
whether as an addition to, in substitution of, or in exchange for the
Collateral or any part thereof, or otherwise, Pledgor shall accept any such
certificate, instrument, option or rights as Collateral Agent's agent, shall
hold them in trust for Collateral Agent, and shall deliver them forthwith to
Collateral Agent in the exact form received, with Pledgor's endorsement when
necessary, or accompanied by duly executed instruments of transfer or
assignment in blank or, if requested by Collateral Agent, an additional pledge
agreement or security agreement executed and delivered by Pledgor, all in form
and substance reasonably satisfactory to Collateral Agent, to be held by
Collateral Agent, subject to the terms hereof, as further Collateral for the
Obligations.
.3. Change in Location, Name, Etc. Pledgor may change the
location of its chief executive office, principal place of business or the
office where such records are kept to another location in the United States
after giving Collateral Agent thirty (30) days' advance written
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<PAGE>
notice of such change. Without the prior written consent of Collateral Agent,
Pledgor shall not adopt any trade name or fictitious business name.
.4. Limitation on Liens on the Collateral. Pledgor shall not
create, incur or permit to exist, shall defend the Collateral now owned or
hereafter acquired by it against, and shall take such other action as is
necessary to remove, any Lien or claim on or to the Collateral, other than
Permitted Liens, and shall defend the right, title and interest of Collateral
Agent in and to any of the Collateral against the claims and demands of all
Persons whomsoever.
.5. Bankruptcy Filing, etc. Pledgor shall not authorize or
permit Elmore (i) to commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to Elmore or Elmore's
debts under any bankruptcy, insolvency or other similar law now or hereafter
in effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of Elmore or any substantial part of
Elmore's property or (ii) to consent to any such relief or to the appointment
of or taking possession by any such official in an involuntary case or other
proceeding commenced against Elmore or (iii) to make a general assignment for
the benefit of Elmore's creditors. Neither Pledgor nor any of its Affiliates
shall commence or join with any other Person (other than the Secured Parties
and Funding Corporation) in commencing any proceeding against Elmore under any
bankruptcy, reorganization, liquidation or insolvency law or statute now or
hereafter in effect in any jurisdiction.
.6. Obligations. Pledgor acknowledges and agrees that its
rights to receive any payments from Elmore, or arising out of or in connection
with Pledgor's interests in Elmore or its rights under the Partnership
Agreement, shall be payable by Elmore only from funds available to Elmore upon
distributions pursuant to the Depositary Agreement or any other provision of
the Indenture expressly providing for distribution, payment or release of
funds to Elmore, and only so long as such distribution, payment or release is
made in accordance with the Depositary Agreement and the Indenture. Pledgor
also agrees that any distributions made by Elmore to Pledgor that do not
comply with the Depositary Agreement and the Indenture shall be restored to
Elmore by Pledgor by deposit into an account designated by Collateral Agent,
promptly upon demand by Collateral Agent or Elmore or upon Pledgor becoming
aware of receipt of such non-complying distribution.
.7. Governmental Authority Requirement. Pledgor shall not take
or omit to take (or suffer such taking or omission of) any action (unless
ordered to do so by a competent Governmental Authority having jurisdiction) in
respect of Pledgor or Elmore and their respective businesses if, as a
consequence directly or indirectly of such action or omission, Elmore or
Pledgor becomes subject to regulation by any Governmental Authority as a
"public utility," an "electric utility," an "electric utility holding
company," a "public utility holding company" or a subsidiary or affiliate of
any of the foregoing under PUHCA, FPA or PURPA, or as a "holding company"
within the meaning of PUHCA.
.8. Indemnification. Pledgor shall defend, indemnify and hold
harmless Collateral Agent and each of the other Secured Parties and the
Funding Corporation and their officers, directors and employees, from and
against any and all costs, expenses, disbursements, liabilities, obligations,
losses, damages, injunctions, judgments, suits, actions, causes of action,
fines, penalties, claims and demands, of every kind or nature (including,
without limitation, reasonable attorney's fees and expenses) which are
occasioned by or result from any (i) failure by Pledgor to perform any of the
terms, agreements, or covenants to be performed by Pledgor under this Pledge
Agreement and (ii) proceeding or action to enforce brought by Collateral Agent
pursuant to this Pledge Agreement or
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<PAGE>
which arise out of any such agreement unless due solely to the gross
negligence or willful misconduct of Collateral Agent. This indemnity and any
other obligations of Pledgor under any of the Financing Documents shall be
made only against, and shall be limited to the extent of, the Collateral
pledged hereunder.
5. Pledgor's Obligations Upon Event of Default. If an Event of
Default under the Partnership Credit Agreement or the Partnership Guarantee
shall occur and be continuing (a) all payments received by Pledgor under or in
connection with any of the Collateral shall be held by Pledgor in trust for
Collateral Agent, shall be segregated from other funds of Pledgor and shall,
forthwith upon receipt by Pledgor, be turned over to Collateral Agent or its
designee in the same form as received by Pledgor (duly endorsed by Pledgor to
Collateral Agent, if requested), and (b) any and all such payments so received
by Collateral Agent or its designee (whether from Pledgor or otherwise) may,
in the sole discretion of Collateral Agent or its designee, be held by
Collateral Agent or such designee as collateral security for, and/or then or
at any time thereafter be applied, subject only to the relevant provisions of
the Intercreditor Agreement and the Depositary Agreement or as otherwise may
be required by applicable law, in whole or in part by Collateral Agent or its
designee in the manner specified in Section 7.
6. Remedies; Rights Upon Event of Default. Upon the occurrence and
during the continuance of an Event of Default under the Partnership Credit
Agreement or Partnership Guarantee, Collateral Agent, for the equal and
ratable benefit of and on behalf of the Secured Parties and the Funding
Corporation, may, subject to the provisions of the Intercreditor Agreement and
the other Financing Documents, do one or more of the following:
.1. declare, without presentment, demand, protest or notice of
any kind, all of which Pledgor hereby expressly waives, the entire amount of
Obligations to be immediately due and payable, whereupon all of such
Obligations declared due and payable shall be and become immediately due and
payable; provided, however, if, with respect to the Partnership Guarantors, an
Event of Default occurs pursuant to Section 5.1 of the Partnership Credit
Agreement, then the acceleration provided for in this Section 6.1 shall be
deemed to have been made upon the occurrence of such Event of Default without
declaration or any other action by Collateral Agent;
.2. upon notice to Pledgor, which notice need not be in
writing, make such payments and do such acts as Collateral Agent may deem
necessary to protect, perfect or continue the perfection of the Secured
Parties' and the Funding Corporation's Security Interest in the Collateral,
including, without limitation, paying, purchasing, contesting or compromising
any Lien which is, or purports to be, prior to or superior to the Security
Interest granted hereunder, and commencing, appearing or otherwise
participating in or controlling any action or proceeding purporting to affect
the Secured Parties' and the Funding Corporation's Security Interest in or
ownership of the Collateral;
.3. foreclose on the Collateral as herein provided or in any
manner permitted by law and exercise any and all of the rights and remedies
conferred upon the Secured Parties and the Funding Corporation by the Security
Documents either concurrently or in such order as Collateral Agent may
determine without affecting the rights or remedies to which the Secured
Parties and the Funding Corporation may be entitled under any Security
Documents. Pledgor hereby waives, to the extent permitted by applicable law,
notice and judicial hearing in connection with Collateral Agent's taking
possession or collection, recovery, receipt, appropriation, repossession,
retention, set-off, sale, leasing, conveyance, assignment, transfer or other
disposition of or realization upon any or all of the Collateral, including,
without limitation, any and all prior notice and hearing for any
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<PAGE>
prejudgment remedy or remedies and any such right which Pledgor would
otherwise have under the constitution or any statute or other law of the
United States of America or of any state;
.4. without notice, except as specified below, sell the
Collateral, or any part thereof, in one or more parcels at public or private
sale, at any of Collateral Agent's offices or elsewhere, at such time or
times, for cash, on credit or for future delivery, and at a commercially
reasonable price or prices and on other commercially reasonable terms. Pledgor
agrees that, to the extent notice of sale shall be required by law, at least
ten (10) days' notice to Pledgor of the time and the place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. At any sale of the Collateral, if permitted by law,
Collateral Agent may bid (which bid may be, in whole or in part, in the form
of cancellation of indebtedness) for the purchase of the Collateral or any
portion thereof for the account of Collateral Agent on behalf of the Secured
Parties and the Funding Corporation. Collateral Agent shall not be obligated
to make any sale of the Collateral regardless of notice of sale having been
given. Collateral Agent may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. Collateral Agent shall incur no liability as a result of the manner
of sale of the Collateral, or any part thereof, at any private sale conducted
in a commercially reasonable manner. Pledgor hereby waives, to the extent
permitted by applicable law, any claims against Collateral Agent arising by
reason of the fact that the price at which the Collateral, or any part
thereof, may have been sold at a private sale was less than the price which
might have been obtained at public sale or was less than the aggregate amount
of the Obligations, even if Collateral Agent accepts the first offer received
which Collateral Agent in good faith deems to be commercially reasonable under
the circumstances and does not offer the Collateral to more than one offeree.
To the full extent permitted by law, Pledgor shall have the burden of proving
that any such sale of the Collateral was conducted in a commercially
unreasonable manner. To the extent permitted by law, Pledgor hereby
specifically waives all rights of redemption, stay or appraisal which it has
or may have under any law now existing or hereafter enacted. Pledgor
authorizes Collateral Agent, at any time and from time to time, to execute, in
connection with a sale of the Collateral pursuant to the provisions of this
Pledge Agreement, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral;
.5. upon notice to Pledgor, register the Collateral in the
name of Collateral Agent or its nominee as pledgee or otherwise take such
action as Collateral Agent shall in its sole discretion deem necessary or
desirable with respect to the Collateral, and Collateral Agent or its nominee
may thereafter, in its sole discretion, without notice, exercise all voting,
consent, managerial and other rights relating to the Collateral and exercise
any and all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to the Collateral as if it were the absolute
owner thereof, including, without limitation, all rights of Pledgor under the
Partnership Agreement, including, without limitation, the right to (i) receive
all permitted distributions, if any, made for the account of Pledgor under the
Partnership Agreement and (ii) exchange any and all of the Collateral upon the
merger, consolidation, reorganization, recapitalization or other readjustment
of Elmore, all without liability except to account for property actually
received by Collateral Agent, but Collateral Agent shall have no duty to
exercise any of the aforesaid rights, privileges or options and shall not be
responsible for any failure to do so or delay in so doing; and
.6. exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise available to it,
all the rights and remedies of a secured party after default under the Code.
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7. Application of Proceeds. The net proceeds of any foreclosure,
collection, recovery, receipt, appropriation, realization or sale of the
Collateral shall be applied in the order of priority specified in the
Intercreditor Agreement. If all Obligations and any other amounts due under
this Pledge Agreement and the Intercreditor Agreement have been indefeasibly
paid, satisfied and discharged in full, any surplus then remaining shall be
paid to Pledgor, if it is lawfully entitled to receive the same or shall be
paid to whomsoever a court of competent jurisdiction may direct.
8. Security Interest Absolute. All the rights of Collateral Agent
and any of the other Secured Parties and the Funding Corporation hereunder and
the Security Interest and all obligations of Pledgor hereunder shall be
absolute and unconditional irrespective of:
.1. any lack of validity or enforceability of the Project
Documents or the Partnership Agreement or the Financing Documents or
any other agreement or instrument relating thereto;
.2. any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to any departure from the Project
Documents, the Partnership Agreement or the Financing Documents;
.3. any exchange or release of any Collateral or any other
collateral, or the non-perfection of any of the Security Interest, or
any release or amendment or waiver of or consent to or departure from
any guaranty, for all or any of the Obligations;
.4. to the full extent permitted by law, any other
circumstance that might otherwise constitute a defense available to, or
a discharge of, Pledgor or any third party pledgor; or
.5. the failure by any of the Pledgors to fulfill its
obligations under this Pledge Agreement.
9. Collateral Agent Appointed Attorney-in-Fact.
.1. Powers. Pledgor hereby irrevocably constitutes and
appoints Collateral Agent and any officer or agent thereof, with full power of
substitution, as Pledgor's true and lawful attorney-in-fact (which appointment
as attorney-in-fact shall be coupled with an interest), with full authority in
the place and stead of Pledgor and in the name of Pledgor or otherwise, from
time to time upon the occurrence and during the continuance of any Event of
Default under the Partnership Credit Agreement or the Partnership Guarantee in
Collateral Agent's discretion, to take any action and to execute any and all
documents and instruments which Collateral Agent may deem necessary or
advisable to accomplish the purposes of this Pledge Agreement, without notice
to Pledgor, including, without limitation:
.1. to exercise all partnership rights, powers and
privileges to the same extent Pledgor shall have been entitled under the
Partnership Agreement and in accordance with applicable law, including,
without limitation, all voting rights of Pledgor as partner of Elmore;
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.2. to receive, endorse and collect all instruments made
payable to Pledgor representing any interest payment or other
distribution in respect of the Collateral or any part thereof and to
give full discharge for the same and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise
deemed appropriate by Collateral Agent for the purpose of collecting any
and all of such dividends, payments or other distributions;
.3. to pay or discharge taxes and liens levied or placed on
the Collateral; and
.4. (a) to direct any party liable for any payment in
respect of or arising out of any of the Collateral to make payment of
any and all moneys due or to become due in connection therewith directly
to Collateral Agent or as Collateral Agent shall otherwise direct, (b)
to ask or make demand for, collect, receive payment of and receipt for,
any and all moneys, claims and other amounts due or to become due at any
time in respect of or arising out of any Collateral, (c) to commence and
prosecute any suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect the Collateral or any part
thereof and to enforce any other right in respect of any Collateral, (d)
to defend any suit, action or proceeding brought against Pledgor with
respect to any Collateral, (e) to settle, compromise or adjust any suit,
action or proceeding described in clause (d) above and, in connection
therewith, to give such discharges or releases as Collateral Agent
acting in good faith may deem appropriate and (f) generally, to sell,
transfer, pledge and make any agreement with respect to or otherwise
deal with any of the Collateral as fully and completely as though
Collateral Agent were the absolute owner thereof for all purposes, and
(g) to do, at Collateral Agent's option and at Pledgor's expense, at any
time, or from time to time, all acts and things which Collateral Agent
acting in good faith deems necessary to protect, preserve or realize
upon the Collateral and the Security Interest granted herein and to
effect the intent of this Pledge Agreement, all as fully and effectively
as Pledgor might do.
.2. Other Powers. Pledgor further authorizes Collateral Agent,
at any time and from time to time (i) to execute, in connection with any sale
provided for hereunder, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral and (ii) to the full
extent permitted by applicable law, to file one or more financing or
continuation statements, and amendments thereto, relative to all or any part
of the Collateral without the signature of Pledgor.
10. Collateral Agent May Perform. Upon the occurrence and during
the continuance of an Event of Default under the Partnership Credit Agreement
or the Partnership Guarantee, Collateral Agent, without releasing Pledgor from
any obligation, covenant or condition hereof, itself may make any payment or
perform, or cause the performance of, any such obligation, covenant, condition
or agreement or any other action in such manner and to such extent as
Collateral Agent may deem necessary to protect, perfect or continue the
perfection of the Secured Parties' and the Funding Corporation's Security
Interest in the Collateral. Any costs or expenses incurred by Collateral Agent
in connection with the foregoing shall be governed by the Indenture and the
Financing Documents and constitute Obligations secured hereby.
11. No Duty on Collateral Agent's Part,
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Limitation on Collateral Agent's Obligations.
.1. No Duty on Collateral Agent's Part. The powers conferred
on Collateral Agent hereunder are solely to protect Collateral Agent's
interests in the Collateral and shall not impose any duty upon it to exercise
any such powers. Collateral Agent shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers.
.2. Limitations on Obligations. Without limiting the
effectiveness of Section 30 hereof, anything herein to the contrary
notwithstanding, Pledgor shall remain liable under the Partnership Agreement
and any other Project Document or Financing Document to which it is a party to
the extent set forth therein to perform all of its duties and obligations
thereunder, to the same extent as if this Pledge Agreement had not been
executed. The exercise by Collateral Agent of any of the rights or remedies
hereunder shall not release Pledgor from any of its duties or obligations under
the Partnership Agreement or any other Project Document or Financing Document to
which it is a party. All of the Collateral is hereby assigned to Collateral
Agent solely as security, and Collateral Agent shall have no duty, liability or
obligation whatsoever with respect to any of the Collateral, unless Collateral
Agent so elects in writing consistent with its rights under this Pledge
Agreement.
12. Reasonable Care. Collateral Agent shall exercise the same
degree of care hereunder as it exercises in connection with similar
transactions for its own account. Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which Collateral Agent accords or would accord collateral held by
Collateral Agent in similar transactions for its own account. Without limiting
the generality of the foregoing and except as otherwise provided by applicable
law, Collateral Agent shall not be required to marshall any collateral,
including, without limitation, the Collateral subject to the Security Interest
created hereby and any guaranties of the Obligations, or to resort to any item
of Collateral or guaranties in any particular order; and all of Collateral
Agent's rights hereunder and in respect of such Collateral and guaranties
shall be cumulative and in addition to all other rights, however existing or
arising. To the extent that Pledgor lawfully may, Pledgor hereby (a) agrees
that it will not invoke any law relating to the marshalling of collateral
which might cause delay in or impede the enforcement of Collateral Agent's
rights under this Pledge Agreement or under any other instrument evidencing
any of the Obligations or under which any of the Obligations is outstanding or
by which any of the Obligations is secured or guaranteed and (b) irrevocably
waives the benefits of all Laws and any and all rights to equity of redemption
or other rights of redemption that it may have in equity or at law with
respect to the Collateral.
13. Role of Collateral Agent. The rights, duties, liabilities and
immunities of Collateral Agent and its appointment and replacement hereunder
shall be governed by the Intercreditor Agreement.
14. Waiver of Trial by Jury. WITH REGARD TO THIS PLEDGE AGREEMENT,
EACH OF PLEDGOR AND COLLATERAL AGENT HEREBY WAIVES THE RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING AND FOR ANY COUNTERCLAIM THEREIN.
15. Notices. All notices, demands, requests and other
communications required or permitted hereunder shall be in writing, and shall
be given and deemed to have been given in accordance with Section 6.1 of the
Partnership Credit Agreement and the information set forth immediately below
shall apply to:
11
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If to Magma:
Blackstone Center
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
If to CEOC:
Blackstone Center
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
If to Niguel:
Blackstone Center
302 South 36th Street, Suite 400-H
Omaha, Nebraska 68131
15. Absence of Fiduciary Relation. Collateral Agent undertakes to
perform or to observe only such of its agreements and obligations as are
specifically set forth in this Pledge Agreement, the Intercreditor Agreement
or any other Security Document, and no implied agreements, covenants or
obligations with respect to Pledgor, any Affiliate of Pledgor or any other
party to the Partnership Agreement or any other Project Document or Security
Document to which Pledgor is a party shall be read into this Pledge Agreement
against Collateral Agent or any of the Secured Parties and the Funding
Corporation; neither Collateral Agent nor any of the Secured Parties and the
Funding Corporation in its and their capacity as such is a fiduciary of and
shall not owe or be deemed to owe any fiduciary duty to Pledgor, any Affiliate
of Pledgor or any other party to any Project Document or Financing Document to
which Pledgor is a party, except as otherwise specifically required by law.
16. Survival of Representations and Warranties. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Pledge Agreement and the other Financing Documents and
repayment of the Obligations, and shall be deemed to be material and to have
been relied upon by Collateral Agent and any of the other Secured Parties and
the Funding Corporation, regardless of any investigation made by or on behalf
of any of Collateral Agent and any of the other Secured Parties and the
Funding Corporation. Notwithstanding anything in this Pledge Agreement or
implied by law to the contrary, the agreements and obligations of Pledgor set
forth in Section 4.6 shall survive until the payment or prepayment in full of
the Obligations and the termination of this Pledge Agreement in accordance
with Section 27 hereof.
17. No Waiver; Cumulative Remedies. By exercising or failing to
exercise any of its rights, options or elections hereunder (without also
expressly waiving the same in writing), Collateral Agent, on behalf of the
Secured Parties and the Funding Corporation, shall not be deemed to have
waived any breach or default on the part of Pledgor or to have released
Pledgor from any of its obligations secured hereby. No failure on the part of
Collateral Agent to exercise, and no delay in exercising (without also
expressly waiving the same in writing) any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or privilege preclude any other or further exercise
thereof, or the exercise of any other right,
12
<PAGE>
power or privilege. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. Collateral Agent, acting on behalf of
the Secured Parties and the Funding Corporation, shall have all of the rights
and remedies granted under the Intercreditor Agreement or any Financing
Document, and available at law or in equity, and these same rights and remedies
may be pursued separately, successively or concurrently against Pledgor or any
Collateral, at the discretion of Collateral Agent.
18. Severability. Any provision of this Pledge Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of
such provision in any other jurisdiction. Where provisions of any law or
regulation resulting in such prohibition or unenforceability may be waived
they are hereby waived by Pledgor and Collateral Agent to the full extent
permitted by law so that this Pledge Agreement shall be deemed a valid,
binding agreement, and the Security Interest created hereby shall constitute a
continuing first lien on and first perfected security interest in the
Collateral, in each case enforceable in accordance with its terms.
19. Exculpatory Provisions; Reliance by Collateral Agent.
1. Exculpatory Provisions. Neither Collateral Agent, the
Funding Corporation nor any other Secured Party, nor any of their respective
officers, directors, employees, agents, attorneys-in-fact or affiliates (the
"Exculpated Parties") shall be liable to Pledgor for any action taken or
omitted to be taken by it or them under or in connection with this Pledge
Agreement, the Partnership Agreement or any other Project Document or
Financing Document to which Pledgor is a party, except for the Exculpated
Parties' own gross negligence or willful misconduct, or responsible in any
manner to any Person for any recitals, statements, representations or
warranties made by Pledgor or any officer thereof contained in this Pledge
Agreement, the Partnership Agreement or any other Project Document or
Financing Document to which Pledgor is a party or in any certificate, report,
statement or other document referred to or provided for in, or received by
Collateral Agent, Funding Corporation or any other Secured Party under or in
connection with, this Pledge Agreement, the Partnership Agreement or any other
Project Document or Financing Document to which Pledgor is a party or for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Pledge Agreement, the Partnership Agreement or any other Project Document
or Financing Document to which Pledgor is a party or for any failure of
Pledgor to perform any of the Obligations. Neither Collateral Agent, Funding
Corporation nor any other Secured Party shall be under any obligation to any
Person to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, this Pledge Agreement, the
Partnership Agreement or any other Project Document or Financing Document to
which Pledgor is a party, or to inspect the properties or records of Pledgor.
2. Reliance by Collateral Agent. 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
Pledgor), independent accountants and other experts selected by Collateral
Agent. Collateral Agent shall have no obligation to any Person to act or
refrain from acting or exercising any of its rights under this Pledge
Agreement.
13
<PAGE>
20. Amendment. No modification or waiver of any of the provisions
of this Pledge Agreement shall be binding on Collateral Agent, except as
expressly set forth in a writing duly signed and delivered by Collateral Agent
and which is otherwise in accordance with Section 6.2 of the Partnership
Credit Agreement.
21. Successors and Assigns. This Pledge Agreement shall be binding
upon and inure to the benefit of Pledgor and Collateral Agent for the benefit
of the Secured Parties and the Funding Corporation and their respective
successors and assigns. In the event of any assignment or transfer by the
Funding Corporation or any other Secured Party of any instrument evidencing
all or any part of the Obligations, the holder of such instrument shall,
subject to the Partnership Credit Agreement and the Partnership Guarantee, be
entitled to the benefits of this Pledge Agreement.
22. Number and Gender. Whenever used in this Pledge Agreement, the
singular number shall include the plural and the plural the singular, and the
use of any gender shall be applicable to all genders.
23. Subrogation, etc. Notwithstanding any payment or payments made
by Pledgor or the exercise by Collateral Agent of any of the remedies provided
under this Pledge Agreement or any of the Financing Documents, Pledgor shall
have no claim (as defined in 11 U.S. C. ss. 101 (5)) of subrogation to any of
the rights of the Secured Parties and the Funding Corporation against Elmore,
Pledgor or any Collateral or guaranty held by the Secured Parties and the
Funding Corporation for the satisfaction of any of the Obligations, nor shall
Pledgor have any claims (as defined in 11 U.S.C. ss. 101 (5)) for
reimbursement, indemnity, exoneration or contribution from Elmore in respect
of payments made by Pledgor hereunder. Notwithstanding the foregoing, if any
amount shall be paid to Pledgor on account of such subrogation, reimbursement,
indemnity, exoneration or contribution rights at any time, such amount shall
be held by Pledgor in trust for the Secured Parties and the Funding
Corporation, segregated from other funds of Pledgor, and shall be turned over
to Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation, in the exact form received by Pledgor (duly endorsed by Pledgor
to Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation, if required), to be applied against such amounts in such order as
Collateral Agent may elect.
24. Captions. The captions, headings and table of contents used in
this Pledge Agreement are for convenience only and do not and shall not be
deemed to affect, limit, amplify or modify the terms and provisions hereof.
25. Applicable Law. This Pledge Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of
California.
26. Continuing Security Interest; Termination. This Pledge
Agreement shall create a continuing assignment, pledge and first priority
Security Interest in the Collateral, subject only to Permitted Liens, and
shall remain in full force and effect for the benefit of Collateral Agent and
the other Secured Parties and the Funding Corporation until all Obligations to
be paid or performed by Partnership Guarantors under the Partnership Credit
Agreement and the Partnership Guarantee have been paid and performed in full.
Upon the happening of such event, the Security Interest granted hereby shall
terminate. Upon such termination, Collateral Agent shall, upon the request and
at the expense of Pledgor, execute and deliver to Pledgor such documents as
Pledgor shall reasonably request to evidence such termination or expiration.
14
<PAGE>
27. Payments Set Aside. To the extent that Pledgor or the
Partnership Guarantors or any other Person on behalf of Pledgor or the
Partnership Guarantors makes a payment or payments to Collateral Agent and/or
any other Secured Party, or Collateral Agent and/or any other Secured Party
enforce the Security Interests or Collateral Agent exercises its right of
set-off, and such payment or payments or the proceeds of such enforcement or
set-off or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or
federal law, common law or equitable cause, then to the extent of such
recovery, the Obligations or any part thereof originally intended to be
satisfied, and this Pledge Agreement and all Liens, rights and remedies
therefor, shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or set-off had not occurred.
28. Counterparts. This Pledge Agreement may be executed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
29. Non-Recourse. Notwithstanding any other provision hereof,
Collateral Agent agrees that its only remedy hereunder shall be to proceed
against the Collateral and that there shall be no recourse to the Pledgor, its
shareholders, officers, directors or employees.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed as of the day and year first written above.
MAGMA POWER COMPANY,
a Nevada corporation
By: /s/ John G. Sylvia
----------------------
Name: John G. Sylvia
-----------------------
Title: Senior Vice President
------------------------
CALENERGY OPERATING COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
----------------------
Name: John G. Sylvia
-----------------------
Title: Senior Vice President
------------------------
NIGUEL ENERGY COMPANY,
a California corporation
By: /s/ John G. Sylvia
----------------------
Name: John G. Sylvia
-----------------------
Title: Senior Vice President
------------------------
CHEMICAL TRUST COMPANY OF CALIFORNIA,
a California corporation,
as Collateral Agent
By: /s/ Rose Maravilla
----------------------
Name: Rose Maravilla
-----------------------
Title: Assistant Vice President
------------------------
16
<PAGE>
EXHIBIT 4.43
PARTNERSHIP INTEREST PLEDGE AGREEMENT
(Pledge of Partnership Interests in Del Ranch)
by
MAGMA POWER COMPANY,
CALENERGY OPERATING COMPANY
and
CONEJO ENERGY COMPANY
(as Pledgor)
in favor of
CHEMICAL TRUST COMPANY OF CALIFORNIA
(as Collateral Agent)
Dated as of June 20, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
. Definitions....................................................3
. Grant of Security Interest.....................................3
. Representations and Warranties.................................4
. Covenants and Agreements.......................................5
. Pledgor's Obligations Upon Event of Default....................7
. Remedies; Rights Upon Event of Default.........................7
. Application of Proceeds........................................9
. Security Interest Absolute.....................................9
. Collateral Agent Appointed Attorney-in-Fact....................9
. Collateral Agent May Perform...................................10
. No Duty on Collateral Agent's Part,............................11
. Reasonable Care................................................11
. Role of Collateral Agent.......................................11
. Waiver of Trial by Jury........................................11
. Notices........................................................12
. Absence of Fiduciary Relation..................................12
i
<PAGE>
. Survival of Representations and Warranties.....................12
. No Waiver; Cumulative Remedies.................................12
. Severability...................................................13
. Exculpatory Provisions; Reliance by Collateral Agent...........13
. Amendment......................................................14
. Successors and Assigns.........................................14
. Number and Gender..............................................14
. Subrogation, etc...............................................14
. Captions.......................................................14
. Applicable Law.................................................14
. Continuing Security Interest; Termination......................14
. Payments Set Aside.............................................15
. Counterparts...................................................15
. Non-Recourse...................................................15
ii
<PAGE>
PARTNERSHIP INTEREST PLEDGE AGREEMENT
(Pledge of Partnership Interests in Del Ranch)
This PARTNERSHIP INTEREST PLEDGE AGREEMENT (this "Pledge
Agreement"), dated as of June 20, 1996, is entered into by MAGMA POWER
COMPANY, a Nevada corporation ("Magma"), CALENERGY OPERATING COMPANY, a
Delaware corporation ("CEOC"), and CONEJO ENERGY COMPANY, a California
corporation ("Conejo," and together with Magma and CEOC, the "Pledgor"), in
favor of CHEMICAL TRUST COMPANY OF CALIFORNIA, a California corporation, as
collateral agent (together with its successors and assigns, the "Collateral
Agent"), on behalf of and for the benefit of the Secured Parties and Funding
Corporation.
W I T N E S S E T H:
WHEREAS, Magma, CEOC and Conejo own a 10%, 40% and 50% partnership
interest, respectively, in Del Ranch, L.P., a California limited partnership
("Del Ranch"); and
WHEREAS, Salton Sea Funding Corporation, a Delaware corporation
(the "Funding Corporation"), is a corporation established for the sole purpose
of making loans to the Guarantors (as hereinafter defined) from the proceeds
of the issuance of notes and bonds (collectively, the "Securities") in its
individual capacity as principal and as agent acting on behalf of Salton Sea
Brine Processing L.P., a California limited partnership ("SSBP"), Salton Sea
Power Generation, L.P., a California limited partnership ("SSPG"), Fish Lake
Power Company, a Delaware corporation ("Fish Lake," and together with SSBP and
SSPG, the "Salton Sea Guarantors"), CEOC, Conejo, Del Ranch, Elmore, L.P., a
California limited partnership ("Elmore"), Leathers, L.P., a California
limited partnership ("Leathers"), Vulcan/BN Geothermal Power Company, a Nevada
general partnership ("Vulcan"), Niguel Energy Company, a California
corporation ("Niguel"), San Felipe Energy Company, a California corporation
("San Felipe"), and BN Geothermal, Inc., a Delaware corporation ("BNG"),
Vulcan Power Company, a Nevada corporation ("VPC," and together with Del
Ranch, Elmore, Leathers, Vulcan, Conejo, Niguel, San Felipe, BNG and CEOC, the
"Partnership Guarantors") and Salton Sea Royalty Company, a Delaware
corporation ("Royalty Guarantor", and together with the Salton Sea Guarantors
and the Partnership Guarantors, the "Guarantors"), pursuant to the Trust
Indenture, dated as of July 21, 1995, as the same may be amended, modified, or
supplemented, including pursuant to that certain Second Supplemental Trust
Indenture, dated as of even date herewith (as so amended, modified and
supplemented, the "Indenture"), between Funding Corporation and Collateral
Agent, as trustee ("Trustee"); and
WHEREAS, the principal and interest payments on the Securities will
be serviced by repayment of loans made by Funding Corporation to the
Guarantors and guaranteed by the Guarantors, subject to the conditions set
forth in the Indenture; and
WHEREAS, Funding Corporation has (a) on July 21, 1995 issued and
sold Securities in the principal amount of $475 Million (the "Initial
Issuance") and (b) simultaneously with the execution and delivery of this
Agreement issued and sold Securities in the principal amount of $135 Million
(the "New Issuance"); and
<PAGE>
WHEREAS, Funding Corporation has used a portion of the proceeds
from the Initial Issuance and intends to use the proceeds from the New
Issuance to make loans to the Partnership Guarantors in the aggregate
outstanding amount of $189,956,000, as of the date hereof, portions of which
will be used for the following purposes: (a) approximately $96 Million to
refinance all existing project- level indebtedness of the Partnership
Projects, (b) approximately $15 Million to fund certain capital improvements
to the Partnership Projects and the Salton Sea Projects, and (c) approximately
$23 Million to fund a portion of the purchase price for the acquisition by
certain of the Partnership Guarantors of the 50% interest in each of the
Partnership Projects previously owned by a third party; and
WHEREAS, Pledgor anticipates benefiting directly and indirectly
from the making of the loan pursuant to the Partnership Credit Agreement and
is, therefore, willing to enter into this Pledge Agreement in accordance with
the terms hereof.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the
Funding Corporation to enter into the Partnership Credit Agreement, the
parties hereto hereby agree as follows:
2
<PAGE>
1. Definitions. Unless otherwise defined herein, all capitalized
terms shall have the meanings set forth in Exhibit A to the Indenture, which
Exhibit A is hereby incorporated by reference. All references to sections,
schedules and exhibits in or to this Pledge Agreement are to sections,
schedules and exhibits in or to this Pledge Agreement, unless otherwise
specified. The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Pledge Agreement shall refer to this Pledge Agreement
as a whole and not to any particular provision of this Pledge Agreement. For
purposes of this Pledge Agreement, all other terms used herein and not
otherwise defined herein which are defined in Article 9 of the Uniform
Commercial Code (as the same may be in effect in the State of California or
any other applicable jurisdiction, the "Code"), shall have their respective
meanings as therein defined.
2. Grant of Security Interest.
.1. Collateral. As security for the prompt and complete
payment and performance when due (whether at stated maturity, by acceleration
or otherwise) of any and all of the Obligations (as defined below) now
existing or hereafter arising, and howsoever evidenced, Pledgor hereby
collaterally assigns, conveys, mortgages, pledges, hypothecates and transfers
to Collateral Agent, and grants and creates a lien on and first priority
security interest (the "Security Interest") in favor of Collateral Agent, for
the equal and ratable benefit of the Secured Parties and the Funding
Corporation, in all right, title and interest of Pledgor in, to and under the
following, whether now existing or hereafter acquired (the "Collateral"):
.1 . its partnership interest in Del Ranch and all of its
rights under the Amended and Restated Limited Partnership Agreement of
Del Ranch, dated as of March 14, 1988, among Magma, CEOC and Conejo (the
"Partnership Agreement") (including, without limitation, to the extent
assignable or transferable, all of its right, title and interest as a
partner to participate in the operation or management and control of Del
Ranch and all of its rights to property, assets, partnership interests
and distributions under the Partnership Agreement);
.2. all present and future rights of Pledgor to receive any
payment of money or other distribution or payment arising out of or in
connection with its partnership interest in Del Ranch and its rights
under the Partnership Agreement; and
.3. to the extent not otherwise included, all proceeds,
products and accessions of and to any and all of the foregoing,
including, without limitation, "proceeds" as defined in Section 9-306(1)
of the Code, including whatever is received upon any sale, exchange,
collection or other disposition of any of the Collateral, and any
property into which any of the Collateral is converted, whether cash or
noncash proceeds, and any and all other amounts paid or payable under or
in connection with any of the Collateral.
.2. Obligations. This Pledge Agreement secures, in accordance
with the provisions hereof, the following obligations, now existing or
hereafter arising (collectively, the "Obligations"):
.1. payment and performance of the Partnership Guarantors'
obligations under the Partnership Credit Agreement and the Partnership
Guarantee, and each and every obligation, indebtedness, covenant and
agreement of Pledgor under any
3
<PAGE>
of the Financing Documents to which it is a party, including, without
limitation, this Pledge Agreement, the Intercreditor Agreement and any
amendments or supplements thereto, extensions or renewals thereof or
replacements therefor; and
.2. performance of every obligation, covenant and agreement of
Pledgor contained in any agreement now or hereafter executed by Pledgor
which recites that the obligations thereunder are secured by this Pledge
Agreement;
in each case whether direct or indirect, joint or several, absolute or
contingent, liquidated or unliquidated, now or hereafter existing, renewed or
restructured, reinstated, created or incurred, and, including, without
limitation, all indebtedness of Pledgor under any instrument now or hereafter
evidencing or securing any of the foregoing.
3. Representations and Warranties. Pledgor hereby represents
and warrants as follows:
.1. Organization and Existence. Del Ranch is a limited
partnership in which Magma owns a 10% limited partnership interest, Conejo
owns a 10% limited and a 40% general partnership interest, and CEOC owns a 40%
general partnership interest. Magma is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada. CEOC is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Conejo is a corporation duly organized, validly
existing and in good standing under the laws of the State of California. Each
of Magma, CEOC and Conejo is duly qualified to do business and is in good
standing in the State of California and each other jurisdiction in which the
character of the properties owned or leased by it or in which the transaction
of its business as presently conducted or proposed to be conducted makes such
qualification necessary or desirable. Pledgor has full corporate power and
authority to own its property and to carry on its business as now being
conducted and as proposed to be conducted.
.2. Authority, Enforceability. Pledgor has full corporate
power and authority to enter into and perform the Partnership Agreement and
this Pledge Agreement and the entering into and performance of each such
agreement by Pledgor has been duly authorized by all proper and necessary
corporate action. Each such agreement, when executed and delivered by Pledgor
and any other party thereto, will constitute the legal, valid and binding
obligations of Pledgor, enforceable in accordance with its respective terms.
.3. Title: No Other Liens. Pledgor is the legal and
beneficial owner of the Collateral in existence on the date hereof and will be
the sole owner of the Collateral hereafter acquired, free and clear of any and
all Liens or claims of others except for Permitted Liens, and Pledgor has full
corporate power and authority to grant the liens and security interests in and
to the Collateral hereunder. Except with respect to the Secured Parties and
the Funding Corporation and as required under this Pledge Agreement, no
security agreement, financing statement or other public notice with respect to
all or any part of the Collateral is on file or of record in any public
office, and no lien or security interest on or in the Collateral has been
registered in the registration book maintained by Del Ranch in which all
partnership interests of Del Ranch are recorded, except such as may have been
filed in favor of Collateral Agent for the benefit of the Secured Parties and
the Funding Corporation pursuant to this Pledge Agreement.
4
<PAGE>
.4. Perfection; Registration of Lien. Financing statements or
other appropriate instruments have been filed or deposited for filing pursuant
to the Code in such public offices as may be necessary to perfect any Security
Interest granted or purported to be granted hereby to the extent any such
Security Interest may be perfected by the filing of a financing statement. All
other action by Pledgor and, to Pledgor's knowledge, by any other Person
necessary or desirable to perfect the Security Interest in each item of the
Collateral has been duly taken. Subject to the requirements contained in the
Code with respect to the filing of continuation statements, this Pledge
Agreement constitutes a valid and continuing Lien on and perfected Security
Interest (subject only to Permitted Liens) in the Collateral in favor of
Collateral Agent for the equal and ratable benefit of the Secured Parties and
the Funding Corporation, superior and prior to the rights of all Persons
(subject only to Permitted Liens), whether the Collateral subject to the
Security Interest is now owned by Pledgor or is hereafter acquired.
.5 . No Default. Pledgor is not in default in the performance,
observance or fulfillment of any of the material obligations, covenants or
conditions applicable to Pledgor contained in the Partnership Agreement or any
Financing Document to which it is a party.
.6 . Chief Executive Office and Principal Place of Business.
Pledgor's chief executive office and principal place of business and the place
where Pledgor's records concerning the Collateral are kept is:
Blackstone Center
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
4. Covenants and Agreements. Pledgor hereby covenants and agrees
that Pledgor shall faithfully observe and fulfill, and shall cause to be
observed and fulfilled, each and all of the following covenants until all
Obligations to be paid or performed by the Partnership Guarantors under the
Financing Documents to which they are a party have been paid and performed in
full:
.1. Further Assurances. Pledgor shall, from time to time at
the Partnership Guarantors' expense, and upon request by Collateral Agent on
behalf of the Secured Parties and the Funding Corporation, promptly execute
and deliver all further instruments and documents, and take all further action
that may be reasonably necessary or advisable, or that Collateral Agent
reasonably determines may be necessary, in order to perfect and protect the
Security Interest granted or purported to be granted hereby or to enable
Collateral Agent to exercise and enforce its rights and remedies hereunder
with respect to the Collateral.
.2. Certificated Interest. If Pledgor shall become entitled
to receive or shall receive any certificate, instrument, option or rights,
whether as an addition to, in substitution of, or in exchange for the
Collateral or any part thereof, or otherwise, Pledgor shall accept any such
certificate, instrument, option or rights as Collateral Agent's agent, shall
hold them in trust for Collateral Agent, and shall deliver them forthwith to
Collateral Agent in the exact form received, with Pledgor's endorsement when
necessary, or accompanied by duly executed instruments of transfer or
assignment in blank or, if requested by Collateral Agent, an additional pledge
agreement or security agreement executed and delivered by Pledgor, all in form
and substance reasonably satisfactory to Collateral Agent, to be held by
Collateral Agent, subject to the terms hereof, as further Collateral for the
Obligations.
5
.3. Change in Location, Name, Etc. Pledgor may change the
location of its chief executive office, principal place of business or the
office where such records are kept to another location in the United States
after giving Collateral Agent thirty (30) days' advance written notice of such
change. Without the prior written consent of Collateral Agent, Pledgor shall
not adopt any trade name or fictitious business name.
.4. Limitation on Liens on the Collateral. Pledgor shall not
create, incur or permit to exist, shall defend the Collateral now owned or
hereafter acquired by it against, and shall take such other action as is
necessary to remove, any Lien or claim on or to the Collateral, other than
Permitted Liens, and shall defend the right, title and interest of Collateral
Agent in and to any of the Collateral against the claims and demands of all
Persons whomsoever.
.5. Bankruptcy Filing, etc. Pledgor shall not authorize or permit
Del Ranch (i) to commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to Del Ranch or Del
Ranch's debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of Del Ranch or any
substantial part of Del Ranch's property or (ii) to consent to any such relief
or to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against Del Ranch or (iii) to
make a general assignment for the benefit of Del Ranch's creditors. Neither
Pledgor nor any of its Affiliates shall commence or join with any other Person
(other than the Secured Parties and Funding Corporation) in commencing any
proceeding against Del Ranch under any bankruptcy, reorganization, liquidation
or insolvency law or statute now or hereafter in effect in any jurisdiction.
.6. Obligations. Pledgor acknowledges and agrees that its
rights to receive any payments from Del Ranch, or arising out of or in
connection with Pledgor's interests in Del Ranch or its rights under the
Partnership Agreement, shall be payable by Del Ranch only from funds available
to Del Ranch upon distributions pursuant to the Depositary Agreement or any
other provision of the Indenture expressly providing for distribution, payment
or release of funds to Del Ranch, and only so long as such distribution,
payment or release is made in accordance with the Depositary Agreement and the
Indenture. Pledgor also agrees that any distributions made by Del Ranch to
Pledgor that do not comply with the Depositary Agreement and the Indenture
shall be restored to Del Ranch by Pledgor by deposit into an account
designated by Collateral Agent, promptly upon demand by Collateral Agent or
Del Ranch or upon Pledgor becoming aware of receipt of such non-complying
distribution.
.7. Governmental Authority Requirement. Pledgor shall not
take or omit to take (or suffer such taking or omission of) any action (unless
ordered to do so by a competent Governmental Authority having jurisdiction) in
respect of Pledgor or Del Ranch and their respective businesses if, as a
consequence directly or indirectly of such action or omission, Del Ranch or
Pledgor becomes subject to regulation by any Governmental Authority as a
"public utility," an "electric utility," an "electric utility holding
company," a "public utility holding company" or a subsidiary or affiliate of
any of the foregoing under PUHCA, FPA or PURPA, or as a "holding company"
within the meaning of PUHCA.
.8. Indemnification. Pledgor shall defend, indemnify and hold
harmless Collateral Agent and each of the other Secured Parties and the
Funding Corporation and their officers, directors and employees, from and
against any and all costs, expenses, disbursements, liabilities,
6
<PAGE>
obligations, losses, damages, injunctions, judgments, suits, actions, causes
of action, fines, penalties, claims and demands, of every kind or nature
(including, without limitation, reasonable attorney's fees and expenses) which
are occasioned by or result from any (i) failure by Pledgor to perform any of
the terms, agreements, or covenants to be performed by Pledgor under this
Pledge Agreement and (ii) proceeding or action to enforce brought by
Collateral Agent pursuant to this Pledge Agreement or which arise out of any
such agreement unless due solely to the gross negligence or willful misconduct
of Collateral Agent. This indemnity and any other obligations of Pledgor under
any of the Financing Documents shall be made only against, and shall be
limited to the extent of, the Collateral pledged hereunder.
5 . Pledgor's Obligations Upon Event of Default. If an Event of
Default under the Partnership Credit Agreement or the Partnership Guarantee
shall occur and be continuing (a) all payments received by Pledgor under or in
connection with any of the Collateral shall be held by Pledgor in trust for
Collateral Agent, shall be segregated from other funds of Pledgor and shall,
forthwith upon receipt by Pledgor, be turned over to Collateral Agent or its
designee in the same form as received by Pledgor (duly endorsed by Pledgor to
Collateral Agent, if requested), and (b) any and all such payments so received
by Collateral Agent or its designee (whether from Pledgor or otherwise) may,
in the sole discretion of Collateral Agent or its designee, be held by
Collateral Agent or such designee as collateral security for, and/or then or
at any time thereafter be applied, subject only to the relevant provisions of
the Intercreditor Agreement and the Depositary Agreement or as otherwise may
be required by applicable law, in whole or in part by Collateral Agent or its
designee in the manner specified in Section 7.
6 . Remedies; Rights Upon Event of Default. Upon the occurrence and
during the continuance of an Event of Default under the Partnership Credit
Agreement or Partnership Guarantee, Collateral Agent, for the equal and
ratable benefit of and on behalf of the Secured Parties and the Funding
Corporation, may, subject to the provisions of the Intercreditor Agreement and
the other Financing Documents, do one or more of the following:
.1 declare, without presentment, demand, protest or notice of any kind,
all of which Pledgor hereby expressly waives, the entire amount of Obligations
to be immediately due and payable, whereupon all of such Obligations declared
due and payable shall be and become immediately due and payable; provided,
however, if, with respect to the Partnership Guarantors, an Event of Default
occurs pursuant to Section 5.1 of the Partnership Credit Agreement, then the
acceleration provided for in this Section 6.1 shall be deemed to have been
made upon the occurrence of such Event of Default without declaration or any
other action by Collateral Agent;
.2 upon notice to Pledgor, which notice need not be in writing, make
such payments and do such acts as Collateral Agent may deem necessary to
protect, perfect or continue the perfection of the Secured Parties' and the
Funding Corporation's Security Interest in the Collateral, including, without
limitation, paying, purchasing, contesting or compromising any Lien which is,
or purports to be, prior to or superior to the Security Interest granted
hereunder, and commencing, appearing or otherwise participating in or
controlling any action or proceeding purporting to affect the Secured Parties'
and the Funding Corporation's Security Interest in or ownership of the
Collateral;
.3 foreclose on the Collateral as herein provided or in any manner
permitted by law and exercise any and all of the rights and remedies conferred
upon the Secured Parties and the Funding Corporation by the Security Documents
either concurrently or in such order as Collateral Agent may determine without
affecting the rights or remedies to which the Secured Parties and the Funding
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<PAGE>
Corporation may be entitled under any Security Documents. Pledgor hereby
waives, to the extent permitted by applicable law, notice and judicial hearing
in connection with Collateral Agent's taking possession or collection,
recovery, receipt, appropriation, repossession, retention, set-off, sale,
leasing, conveyance, assignment, transfer or other disposition of or
realization upon any or all of the Collateral, including, without limitation,
any and all prior notice and hearing for any prejudgment remedy or remedies
and any such right which Pledgor would otherwise have under the constitution
or any statute or other law of the United States of America or of any state;
.4 without notice, except as specified below, sell the Collateral, or
any part thereof, in one or more parcels at public or private sale, at any of
Collateral Agent's offices or elsewhere, at such time or times, for cash, on
credit or for future delivery, and at a commercially reasonable price or
prices and on other commercially reasonable terms. Pledgor agrees that, to the
extent notice of sale shall be required by law, at least ten (10) days' notice
to Pledgor of the time and the place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
At any sale of the Collateral, if permitted by law, Collateral Agent may bid
(which bid may be, in whole or in part, in the form of cancellation of
indebtedness) for the purchase of the Collateral or any portion thereof for
the account of Collateral Agent on behalf of the Secured Parties and the
Funding Corporation. Collateral Agent shall not be obligated to make any sale
of the Collateral regardless of notice of sale having been given. Collateral
Agent may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned. Collateral
Agent shall incur no liability as a result of the manner of sale of the
Collateral, or any part thereof, at any private sale conducted in a
commercially reasonable manner. Pledgor hereby waives, to the extent permitted
by applicable law, any claims against Collateral Agent arising by reason of
the fact that the price at which the Collateral, or any part thereof, may have
been sold at a private sale was less than the price which might have been
obtained at public sale or was less than the aggregate amount of the
Obligations, even if Collateral Agent accepts the first offer received which
Collateral Agent in good faith deems to be commercially reasonable under the
circumstances and does not offer the Collateral to more than one offeree. To
the full extent permitted by law, Pledgor shall have the burden of proving
that any such sale of the Collateral was conducted in a commercially
unreasonable manner. To the extent permitted by law, Pledgor hereby
specifically waives all rights of redemption, stay or appraisal which it has
or may have under any law now existing or hereafter enacted. Pledgor
authorizes Collateral Agent, at any time and from time to time, to execute, in
connection with a sale of the Collateral pursuant to the provisions of this
Pledge Agreement, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral;
.5 upon notice to Pledgor, register the Collateral in the name of
Collateral Agent or its nominee as pledgee or otherwise take such action as
Collateral Agent shall in its sole discretion deem necessary or desirable with
respect to the Collateral, and Collateral Agent or its nominee may thereafter,
in its sole discretion, without notice, exercise all voting, consent,
managerial and other rights relating to the Collateral and exercise any and
all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to the Collateral as if it were the absolute
owner thereof, including, without limitation, all rights of Pledgor under the
Partnership Agreement, including, without limitation, the right to (i) receive
all permitted distributions, if any, made for the account of Pledgor under the
Partnership Agreement and (ii) exchange any and all of the Collateral upon the
merger, consolidation, reorganization, recapitalization or other readjustment
of Del Ranch, all without liability except to account for property actually
received by Collateral Agent, but Collateral Agent shall have no duty to
exercise any of the aforesaid rights, privileges or options and shall not be
responsible for any failure to do so or delay in so doing; and
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<PAGE>
.6 exercise in respect of the Collateral, in addition to other rights
and remedies provided for herein or otherwise available to it, all the rights
and remedies of a secured party after default under the Code.
7. Application of Proceeds. The net proceeds of any foreclosure,
collection, recovery, receipt, appropriation, realization or sale of the
Collateral shall be applied in the order of priority specified in the
Intercreditor Agreement. If all Obligations and any other amounts due under
this Pledge Agreement and the Intercreditor Agreement have been indefeasibly
paid, satisfied and discharged in full, any surplus then remaining shall be
paid to Pledgor, if it is lawfully entitled to receive the same or shall be
paid to whomsoever a court of competent jurisdiction may direct.
8. Security Interest Absolute. All the rights of Collateral Agent
and any of the other Secured Parties and the Funding Corporation hereunder and
the Security Interest and all obligations of Pledgor hereunder shall be
absolute and unconditional irrespective of:
.1. any lack of validity or enforceability of the Project
Documents or the Partnership Agreement or the Financing Documents or any
other agreement or instrument relating thereto;
.2. any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to any departure from the Project
Documents, the Partnership Agreement or the Financing Documents;
.3. any exchange or release of any Collateral or any other
collateral, or the non-perfection of any of the Security Interest, or
any release or amendment or waiver of or consent to or departure from
any guaranty, for all or any of the Obligations;
.4. to the full extent permitted by law, any other
circumstance that might otherwise constitute a defense available to, or
a discharge of, Pledgor or any third party pledgor; or
.5. the failure by any of the Pledgors to fulfill its
obligations under this Pledge Agreement.
9. Collateral Agent Appointed Attorney-in-Fact.
.1. Powers. Pledgor hereby irrevocably constitutes and
appoints Collateral Agent and any officer or agent thereof, with full power of
substitution, as Pledgor's true and lawful attorney-in-fact (which appointment
as attorney-in-fact shall be coupled with an interest), with full authority in
the place and stead of Pledgor and in the name of Pledgor or otherwise, from
time to time upon the occurrence and during the continuance of any Event of
Default under the Partnership Credit Agreement or the Partnership Guarantee in
Collateral Agent's discretion, to take any action and to execute any and all
documents and instruments which Collateral Agent may deem necessary or
advisable to accomplish the purposes of this Pledge Agreement, without notice
to Pledgor, including, without limitation:
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<PAGE>
.1. to exercise all partnership rights, powers and
privileges to the same extent Pledgor shall have been entitled under the
Partnership Agreement and in accordance with applicable law, including,
without limitation, all voting rights of Pledgor as partner of Del
Ranch;
.2. to receive, endorse and collect all instruments made
payable to Pledgor representing any interest payment or other
distribution in respect of the Collateral or any part thereof and to
give full discharge for the same and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise
deemed appropriate by Collateral Agent for the purpose of collecting any
and all of such dividends, payments or other distributions;
3. to pay or discharge taxes and liens levied or placed
on the Collateral; and
.4. (a) to direct any party liable for any payment in
respect of or arising out of any of the Collateral to make payment of
any and all moneys due or to become due in connection therewith directly
to Collateral Agent or as Collateral Agent shall otherwise direct, (b)
to ask or make demand for, collect, receive payment of and receipt for,
any and all moneys, claims and other amounts due or to become due at any
time in respect of or arising out of any Collateral, (c) to commence and
prosecute any suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect the Collateral or any part
thereof and to enforce any other right in respect of any Collateral, (d)
to defend any suit, action or proceeding brought against Pledgor with
respect to any Collateral, (e) to settle, compromise or adjust any suit,
action or proceeding described in clause (d) above and, in connection
therewith, to give such discharges or releases as Collateral Agent
acting in good faith may deem appropriate and (f) generally, to sell,
transfer, pledge and make any agreement with respect to or otherwise
deal with any of the Collateral as fully and completely as though
Collateral Agent were the absolute owner thereof for all purposes, and
(g) to do, at Collateral Agent's option and at Pledgor's expense, at any
time, or from time to time, all acts and things which Collateral Agent
acting in good faith deems necessary to protect, preserve or realize
upon the Collateral and the Security Interest granted herein and to
effect the intent of this Pledge Agreement, all as fully and effectively
as Pledgor might do.
.2. Other Powers. Pledgor further authorizes Collateral
Agent, at any time and from time to time (i) to execute, in connection with
any sale provided for hereunder, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral and (ii)
to the full extent permitted by applicable law, to file one or more financing
or continuation statements, and amendments thereto, relative to all or any
part of the Collateral without the signature of Pledgor.
10. Collateral Agent May Perform. Upon the occurrence and during
the continuance of an Event of Default under the Partnership Credit Agreement
or the Partnership Guarantee, Collateral Agent, without releasing Pledgor from
any obligation, covenant or condition hereof, itself may make any payment or
perform, or cause the performance of, any such obligation, covenant, condition
or agreement or any other action in such manner and to such extent as
Collateral Agent may deem necessary to protect, perfect or continue the
perfection of the Secured Parties' and the Funding Corporation's Security
Interest in the Collateral. Any costs or expenses incurred by
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Collateral Agent in connection with the foregoing shall be governed by the
Indenture and the Financing Documents and constitute Obligations secured
hereby.
11. No Duty on Collateral Agent's Part,
Limitation on Collateral Agent's Obligations.
.1. No Duty on Collateral Agent's Part. The powers conferred
on Collateral Agent hereunder are solely to protect Collateral Agent's
interests in the Collateral and shall not impose any duty upon it to exercise
any such powers. Collateral Agent shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers.
.2. Limitations on Obligations. Without limiting the
effectiveness of Section 30 hereof, anything herein to the contrary
notwithstanding, Pledgor shall remain liable under the Partnership Agreement
and any other Project Document or Financing Document to which it is a party to
the extent set forth therein to perform all of its duties and obligations
thereunder, to the same extent as if this Pledge Agreement had not been
executed. The exercise by Collateral Agent of any of the rights or remedies
hereunder shall not release Pledgor from any of its duties or obligations
under the Partnership Agreement or any other Project Document or Financing
Document to which it is a party. All of the Collateral is hereby assigned to
Collateral Agent solely as security, and Collateral Agent shall have no duty,
liability or obligation whatsoever with respect to any of the Collateral,
unless Collateral Agent so elects in writing consistent with its rights under
this Pledge Agreement.
12. Reasonable Care. Collateral Agent shall exercise the same
degree of care hereunder as it exercises in connection with similar
transactions for its own account. Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which Collateral Agent accords or would accord collateral held by
Collateral Agent in similar transactions for its own account. Without limiting
the generality of the foregoing and except as otherwise provided by applicable
law, Collateral Agent shall not be required to marshall any collateral,
including, without limitation, the Collateral subject to the Security Interest
created hereby and any guaranties of the Obligations, or to resort to any item
of Collateral or guaranties in any particular order; and all of Collateral
Agent's rights hereunder and in respect of such Collateral and guaranties
shall be cumulative and in addition to all other rights, however existing or
arising. To the extent that Pledgor lawfully may, Pledgor hereby (a) agrees
that it will not invoke any law relating to the marshalling of collateral
which might cause delay in or impede the enforcement of Collateral Agent's
rights under this Pledge Agreement or under any other instrument evidencing
any of the Obligations or under which any of the Obligations is outstanding or
by which any of the Obligations is secured or guaranteed and (b) irrevocably
waives the benefits of all Laws and any and all rights to equity of redemption
or other rights of redemption that it may have in equity or at law with
respect to the Collateral.
13. Role of Collateral Agent. The rights, duties, liabilities and
immunities of Collateral Agent and its appointment and replacement hereunder
shall be governed by the Intercreditor Agreement.
14. Waiver of Trial by Jury. WITH REGARD TO THIS PLEDGE AGREEMENT,
EACH OF PLEDGOR AND COLLATERAL AGENT HEREBY WAIVES THE RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING AND FOR ANY COUNTERCLAIM THEREIN.
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15. Notices. All notices, demands, requests and other
communications required or permitted hereunder shall be in writing, and shall
be given and deemed to have been given in accordance with Section 6.1 of the
Partnership Credit Agreement and the information set forth immediately below
shall apply to:
If to Magma:
Blackstone Center
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
If to CEOC:
Blackstone Center
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
If to Conejo:
Blackstone Center
302 South 36th Street, Suite 400-G
Omaha, Nebraska 68131
16. Absence of Fiduciary Relation. Collateral Agent undertakes to
perform or to observe only such of its agreements and obligations as are
specifically set forth in this Pledge Agreement, the Intercreditor Agreement
or any other Security Document, and no implied agreements, covenants or
obligations with respect to Pledgor, any Affiliate of Pledgor or any other
party to the Partnership Agreement or any other Project Document or Security
Document to which Pledgor is a party shall be read into this Pledge Agreement
against Collateral Agent or any of the Secured Parties and the Funding
Corporation; neither Collateral Agent nor any of the Secured Parties and the
Funding Corporation in its and their capacity as such is a fiduciary of and
shall not owe or be deemed to owe any fiduciary duty to Pledgor, any Affiliate
of Pledgor or any other party to any Project Document or Financing Document to
which Pledgor is a party, except as otherwise specifically required by law.
17. Survival of Representations and Warranties. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Pledge Agreement and the other Financing Documents and
repayment of the Obligations, and shall be deemed to be material and to have
been relied upon by Collateral Agent and any of the other Secured Parties and
the Funding Corporation, regardless of any investigation made by or on behalf
of any of Collateral Agent and any of the other Secured Parties and the
Funding Corporation. Notwithstanding anything in this Pledge Agreement or
implied by law to the contrary, the agreements and obligations of Pledgor set
forth in Section 4.6 shall survive until the payment or prepayment in full of
the Obligations and the termination of this Pledge Agreement in accordance
with Section 27 hereof.
18. No Waiver; Cumulative Remedies. By exercising or failing to
exercise any of its rights, options or elections hereunder (without also
expressly waiving the same in writing), Collateral Agent, on behalf of the
Secured Parties and the Funding Corporation, shall not be deemed to have
waived any breach or default on the part of Pledgor or to have released
Pledgor from any of its
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<PAGE>
obligations secured hereby. No failure on the part of Collateral Agent to
exercise, and no delay in exercising (without also expressly waiving the same
in writing) any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof, or the exercise of
any other right, power or privilege. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law. Collateral
Agent, acting on behalf of the Secured Parties and the Funding Corporation,
shall have all of the rights and remedies granted under the Intercreditor
Agreement or any Financing Document, and available at law or in equity, and
these same rights and remedies may be pursued separately, successively or
concurrently against Pledgor or any Collateral, at the discretion of
Collateral Agent.
19. Severability. Any provision of this Pledge Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of
such provision in any other jurisdiction. Where provisions of any law or
regulation resulting in such prohibition or unenforceability may be waived
they are hereby waived by Pledgor and Collateral Agent to the full extent
permitted by law so that this Pledge Agreement shall be deemed a valid,
binding agreement, and the Security Interest created hereby shall constitute a
continuing first lien on and first perfected security interest in the
Collateral, in each case enforceable in accordance with its terms.
20. Exculpatory Provisions; Reliance by Collateral Agent.
.1. Exculpatory Provisions. Neither Collateral Agent, the
Funding Corporation nor any other Secured Party, nor any of their respective
officers, directors, employees, agents, attorneys-in-fact or affiliates (the
"Exculpated Parties") shall be liable to Pledgor for any action taken or
omitted to be taken by it or them under or in connection with this Pledge
Agreement, the Partnership Agreement or any other Project Document or
Financing Document to which Pledgor is a party, except for the Exculpated
Parties' own gross negligence or willful misconduct, or responsible in any
manner to any Person for any recitals, statements, representations or
warranties made by Pledgor or any officer thereof contained in this Pledge
Agreement, the Partnership Agreement or any other Project Document or
Financing Document to which Pledgor is a party or in any certificate, report,
statement or other document referred to or provided for in, or received by
Collateral Agent, Funding Corporation or any other Secured Party under or in
connection with, this Pledge Agreement, the Partnership Agreement or any other
Project Document or Financing Document to which Pledgor is a party or for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Pledge Agreement, the Partnership Agreement or any other Project Document
or Financing Document to which Pledgor is a party or for any failure of
Pledgor to perform any of the Obligations. Neither Collateral Agent, Funding
Corporation nor any other Secured Party shall be under any obligation to any
Person to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, this Pledge Agreement, the
Partnership Agreement or any other Project Document or Financing Document to
which Pledgor is a party, or to inspect the properties or records of Pledgor.
.2. Reliance by Collateral Agent. 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
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<PAGE>
(including, without limitation, counsel to Pledgor), independent accountants
and other experts selected by Collateral Agent. Collateral Agent shall have no
obligation to any Person to act or refrain from acting or exercising any of
its rights under this Pledge Agreement.
21. Amendment. No modification or waiver of any of the provisions
of this Pledge Agreement shall be binding on Collateral Agent, except as
expressly set forth in a writing duly signed and delivered by Collateral Agent
and which is otherwise in accordance with Section 6.2 of the Partnership
Credit Agreement.
22. Successors and Assigns. This Pledge Agreement shall be binding
upon and inure to the benefit of Pledgor and Collateral Agent for the benefit
of the Secured Parties and the Funding Corporation and their respective
successors and assigns. In the event of any assignment or transfer by the
Funding Corporation or any other Secured Party of any instrument evidencing
all or any part of the Obligations, the holder of such instrument shall,
subject to the Partnership Credit Agreement and the Partnership Guarantee, be
entitled to the benefits of this Pledge Agreement.
23. Number and Gender. Whenever used in this Pledge Agreement, the
singular number shall include the plural and the plural the singular, and the
use of any gender shall be applicable to all genders.
24. Subrogation, etc. Notwithstanding any payment or payments made
by Pledgor or the exercise by Collateral Agent of any of the remedies provided
under this Pledge Agreement or any of the Financing Documents, Pledgor shall
have no claim (as defined in 11 U.S. C. ss. 101 (5)) of subrogation to any of
the rights of the Secured Parties and the Funding Corporation against Del
Ranch, Pledgor or any Collateral or guaranty held by the Secured Parties and
the Funding Corporation for the satisfaction of any of the Obligations, nor
shall Pledgor have any claims (as defined in 11 U.S.C. ss. 101 (5)) for
reimbursement, indemnity, exoneration or contribution from Del Ranch in
respect of payments made by Pledgor hereunder. Notwithstanding the foregoing,
if any amount shall be paid to Pledgor on account of such subrogation,
reimbursement, indemnity, exoneration or contribution rights at any time, such
amount shall be held by Pledgor in trust for the Secured Parties and the
Funding Corporation, segregated from other funds of Pledgor, and shall be
turned over to Collateral Agent for the benefit of the Secured Parties and the
Funding Corporation, in the exact form received by Pledgor (duly endorsed by
Pledgor to Collateral Agent for the benefit of the Secured Parties and the
Funding Corporation, if required), to be applied against such amounts in such
order as Collateral Agent may elect.
25. Captions. The captions, headings and table of contents used in
this Pledge Agreement are for convenience only and do not and shall not be
deemed to affect, limit, amplify or modify the terms and provisions hereof.
26. Applicable Law. This Pledge Agreement shall be governed by,
and construed and interpreted in accordance with, the laws of the State of
California.
27. Continuing Security Interest; Termination. This Pledge
Agreement shall create a continuing assignment, pledge and first priority
Security Interest in the Collateral, subject only to Permitted Liens, and
shall remain in full force and effect for the benefit of Collateral Agent and
the other Secured Parties and the Funding Corporation until all Obligations to
be paid or performed by Partnership Guarantors under the Partnership Credit
Agreement and the Partnership Guarantee have been paid and performed in full.
Upon the happening of such event, the Security Interest granted
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<PAGE>
hereby shall terminate. Upon such termination, Collateral Agent shall, upon
the request and at the expense of Pledgor, execute and deliver to Pledgor such
documents as Pledgor shall reasonably request to evidence such termination or
expiration.
28. Payments Set Aside. To the extent that Pledgor or the
Partnership Guarantors or any other Person on behalf of Pledgor or the
Partnership Guarantors makes a payment or payments to Collateral Agent and/or
any other Secured Party, or Collateral Agent and/or any other Secured Party
enforce the Security Interests or Collateral Agent exercises its right of
set-off, and such payment or payments or the proceeds of such enforcement or
set-off or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or
federal law, common law or equitable cause, then to the extent of such
recovery, the Obligations or any part thereof originally intended to be
satisfied, and this Pledge Agreement and all Liens, rights and remedies
therefor, shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or set-off had not occurred.
29. Counterparts. This Pledge Agreement may be executed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
30 . Non-Recourse. Notwithstanding any other provision hereof,
Collateral Agent agrees that its only remedy hereunder shall be to proceed
against the Collateral and that there shall be no recourse to the Pledgor, its
shareholders, officers, directors or employees.
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IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed as of the day and year first written above.
MAGMA POWER COMPANY,
a Nevada corporation
By: /s/ John G. Sylvia
------------------------
Name: John G. Sylvia
-------------------------
Title: Senior Vice President
--------------------------
CALENERGY OPERATING COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
------------------------
Name: John G. Sylvia
-------------------------
Title: Senior Vice President
--------------------------
CONEJO ENERGY COMPANY,
a California corporation
By: /s/ John G. Sylvia
------------------------
Name: John G. Sylvia
-------------------------
Title: Senior Vice President
--------------------------
CHEMICAL TRUST COMPANY OF CALIFORNIA,
a California corporation,
as Collateral Agent
By: /s/ Rose Maravilla
------------------------
Name: R. I. Maravilla
-------------------------
Title: Assistant Vice President
--------------------------
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EXHIBIT 4.44
PARTNERSHIP INTEREST PLEDGE AGREEMENT
(Pledge of Partnership Interests in Leathers)
by
MAGMA POWER COMPANY,
CALENERGY OPERATING COMPANY
and
SAN FELIPE ENERGY COMPANY
(as Pledgor)
in favor of
CHEMICAL TRUST COMPANY OF CALIFORNIA
(as Collateral Agent)
Dated as of June 20, 1996
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TABLE OF CONTENTS
PAGE
1. Definitions ................................................ 2
2. Grant of Security Interest ................................. 2
3. Representations and Warranties ............................. 3
4. Covenants and Agreements ................................... 4
5. Pledgor's Obligations Upon Event of Default ................ 6
6. Remedies; Rights Upon Event of Default ..................... 6
7. Application of Proceeds .................................... 8
8. Security Interest Absolute ................................. 8
9. Collateral Agent Appointed Attorney-in-Fact ................ 9
10. Collateral Agent May Perform ............................... 10
11. No Duty on Collateral Agent's Part,
Limitation on Collateral Agent's Obligations ............... 10
12. Reasonable Care ............................................ 10
13. Role of Collateral Agent ................................... 11
14. Waiver of Trial by Jury .................................... 11
16. Absence of Fiduciary Relation .............................. 11
17. Survival of Representations and Warranties ................. 12
19. Severability ............................................... 12
20. Exculpatory Provisions; Reliance by Collateral Agent ....... 12
21. Amendment .................................................. 13
22. Successors and Assigns ..................................... 13
23. Subrogation, etc ........................................... 13
25. Captions ................................................... 14
26. Applicable Law ............................................. 14
27. Continuing Security Interest; Termination .................. 14
28. Payments Set Aside ......................................... 14
29. Counterparts ............................................... 14
30. Non-Recourse ............................................... 14
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PARTNERSHIP INTEREST PLEDGE AGREEMENT
(Pledge of Partnership Interests in Leathers)
This PARTNERSHIP INTEREST PLEDGE AGREEMENT (this "Pledge
Agreement"), dated as of June 20, 1996, is entered into by MAGMA POWER
COMPANY, a Nevada corporation ("Magma"), CALENERGY OPERATING COMPANY, a
Delaware corporation ("CEOC"), and SAN FELIPE ENERGY COMPANY, a California
corporation ("San Felipe," and together with Magma and CEOC, the "Pledgor"),
in favor of CHEMICAL TRUST COMPANY OF CALIFORNIA, a California corporation, as
collateral agent (together with its successors and assigns, the "Collateral
Agent"), on behalf of and for the benefit of the Secured Parties and Funding
Corporation.
W I T N E S S E T H:
WHEREAS, Magma, CEOC and San Felipe own a 10%, 40% and 50%
partnership interest, respectively, in Leathers, L.P., a California limited
partnership ("Leathers"); and
WHEREAS, Salton Sea Funding Corporation, a Delaware corporation
(the "Funding Corporation"), is a corporation established for the sole purpose
of making loans to the Guarantors (as hereinafter defined) from the proceeds
of the issuance of notes and bonds (collectively, the "Securities") in its
individual capacity as principal and as agent acting on behalf of Salton Sea
Brine Processing L.P., a California limited partnership ("SSBP"), Salton Sea
Power Generation, L.P., a California limited partnership ("SSPG"), Fish Lake
Power Company, a Delaware corporation ("Fish Lake," and together with SSBP and
SSPG, the "Salton Sea Guarantors"), CEOC, San Felipe, Leathers, Del Ranch,
L.P., a California limited partnership ("Del Ranch"), Elmore, L.P., a
California limited partnership ("Elmore"), Vulcan/BN Geothermal Power Company,
a Nevada general partnership ("Vulcan"), Conejo Energy Company, a California
corporation ("Conejo"), Niguel Energy Company, a California corporation
("Niguel"), and BN Geothermal, Inc., a Delaware corporation ("BNG"), Vulcan
Power Company, a Nevada corporation ("VPC," and together with Del Ranch,
Elmore, Leathers, Vulcan, Conejo, Niguel, San Felipe, BNG and CEOC, the
"Partnership Guarantors") and Salton Sea Royalty Company, a Delaware
corporation ("Royalty Guarantor", and together with the Salton Sea Guarantors
and the Partnership Guarantors, the "Guarantors"), pursuant to the Trust
Indenture, dated as of July 21, 1995, as the same may be amended, modified, or
supplemented, including pursuant to that certain Second Supplemental Trust
Indenture, dated as of even date herewith (as so amended, modified and
supplemented, the "Indenture"), between Funding Corporation and Collateral
Agent, as trustee ("Trustee"); and
WHEREAS, the principal and interest payments on the Securities will
be serviced by repayment of loans made by Funding Corporation to the
Guarantors and guaranteed by the Guarantors, subject to the conditions set
forth in the Indenture; and
WHEREAS, Funding Corporation has (a) on July 21, 1995 issued and
sold Securities in the principal amount of $475 Million (the "Initial
Issuance") and (b) simultaneously with the execution and delivery of this
Agreement issued and sold Securities in the principal amount of $135 Million
(the "New Issuance"); and
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WHEREAS, Funding Corporation has used a portion of the proceeds
from the Initial Issuance and intends to use the proceeds from the New
Issuance to make loans to the Partnership Guarantors in the aggregate
outstanding amount of $189,956,000, as of the date hereof, portions of which
will be used for the following purposes: (a) approximately $96 Million to
refinance all existing project- level indebtedness of the Partnership
Projects, (b) approximately $15 Million to fund certain capital improvements
to the Partnership Projects and the Salton Sea Projects, and (c) approximately
$23 Million to fund a portion of the purchase price for the acquisition by
certain of the Partnership Guarantors of the 50% interest in each of the
Partnership Projects previously owned by a third party; and
WHEREAS, Pledgor anticipates benefiting directly and indirectly
from the making of the loan pursuant to the Partnership Credit Agreement and
is, therefore, willing to enter into this Pledge Agreement in accordance with
the terms hereof.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the
Funding Corporation to enter into the Partnership Credit Agreement, the
parties hereto hereby agree as follows:
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1. Definitions. Unless otherwise defined herein, all capitalized
terms shall have the meanings set forth in Exhibit A to the Indenture, which
Exhibit A is hereby incorporated by reference. All references to sections,
schedules and exhibits in or to this Pledge Agreement are to sections,
schedules and exhibits in or to this Pledge Agreement, unless otherwise
specified. The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Pledge Agreement shall refer to this Pledge Agreement
as a whole and not to any particular provision of this Pledge Agreement. For
purposes of this Pledge Agreement, all other terms used herein and not
otherwise defined herein which are defined in Article 9 of the Uniform
Commercial Code (as the same may be in effect in the State of California or
any other applicable jurisdiction, the "Code"), shall have their respective
meanings as therein defined.
2. Grant of Security Interest.
.1 . Collateral. As security for the prompt and complete
payment and performance when due (whether at stated maturity, by acceleration
or otherwise) of any and all of the Obligations (as defined below) now
existing or hereafter arising, and howsoever evidenced, Pledgor hereby
collaterally assigns, conveys, mortgages, pledges, hypothecates and transfers
to Collateral Agent, and grants and creates a lien on and first priority
security interest (the "Security Interest") in favor of Collateral Agent, for
the equal and ratable benefit of the Secured Parties and the Funding
Corporation, in all right, title and interest of Pledgor in, to and under the
following, whether now existing or hereafter acquired (the "Collateral"):
.1. its partnership interest in Leathers and all of its
rights under the Limited Partnership Agreement of Leathers, dated as of
August 15, 1988, among Magma, CEOC and San Felipe (the "Partnership
Agreement") (including, without limitation, to the extent assignable or
transferable, all of its right, title and interest as a partner to
participate in the operation or management and control of Leathers and
all of its rights to property, assets, partnership interests and
distributions under the Partnership Agreement);
.2. all present and future rights of Pledgor to receive
any payment of money or other distribution or payment arising out of or
in connection with its partnership interest in Leathers and its rights
under the Partnership Agreement; and
.3. to the extent not otherwise included, all proceeds,
products and accessions of and to any and all of the foregoing,
including, without limitation, "proceeds" as defined in Section 9-306(1)
of the Code, including whatever is received upon any sale, exchange,
collection or other disposition of any of the Collateral, and any
property into which any of the Collateral is converted, whether cash or
noncash proceeds, and any and all other amounts paid or payable under or
in connection with any of the Collateral.
.2 . Obligations. This Pledge Agreement secures, in accordance with
the provisions hereof, the following obligations, now existing or hereafter
arising (collectively, the "Obligations"):
.1. payment and performance of the Partnership Guarantors'
obligations under the Partnership Credit Agreement and the Partnership
Guarantee, and each and every obligation, indebtedness, covenant and
agreement of Pledgor under any of the Financing Documents to which it is
a party, including, without limitation, this
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Pledge Agreement, the Intercreditor Agreement and any amendments or
supplements thereto, extensions or renewals thereof or replacements
therefor; and
.2. performance of every obligation, covenant and agreement of
Pledgor contained in any agreement now or hereafter executed by Pledgor
which recites that the obligations thereunder are secured by this Pledge
Agreement;
in each case whether direct or indirect, joint or several, absolute or
contingent, liquidated or unliquidated, now or hereafter existing, renewed or
restructured, reinstated, created or incurred, and, including, without
limitation, all indebtedness of Pledgor under any instrument now or hereafter
evidencing or securing any of the foregoing.
3. Representations and Warranties. Pledgor hereby represents
and warrants as follows:
.1. Organization and Existence. Leathers is a limited
partnership in which Magma owns a 10% limited partnership interest, San Felipe
owns a 10% limited and a 40% general partnership interest, and CEOC owns a 40%
general partnership interest. Magma is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada. CEOC is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. San Felipe is a corporation duly organized,
validly existing and in good standing under the laws of the State of
California. Each of Magma, CEOC and San Felipe is duly qualified to do
business and is in good standing in the State of California and each other
jurisdiction in which the character of the properties owned or leased by it or
in which the transaction of its business as presently conducted or proposed to
be conducted makes such qualification necessary or desirable. Pledgor has full
corporate power and authority to own its property and to carry on its business
as now being conducted and as proposed to be conducted.
.2. Authority, Enforceability. Pledgor has full corporate
power and authority to enter into and perform the Partnership Agreement and
this Pledge Agreement and the entering into and performance of each such
agreement by Pledgor has been duly authorized by all proper and necessary
corporate action. Each such agreement, when executed and delivered by Pledgor
and any other party thereto, will constitute the legal, valid and binding
obligations of Pledgor, enforceable in accordance with its respective terms.
.3. Title: No Other Liens. Pledgor is the legal and
beneficial owner of the Collateral in existence on the date hereof and will be
the sole owner of the Collateral hereafter acquired, free and clear of any and
all Liens or claims of others except for Permitted Liens, and Pledgor has full
corporate power and authority to grant the liens and security interests in and
to the Collateral hereunder. Except with respect to the Secured Parties and
the Funding Corporation and as required under this Pledge Agreement, no
security agreement, financing statement or other public notice with respect to
all or any part of the Collateral is on file or of record in any public
office, and no lien or security interest on or in the Collateral has been
registered in the registration book maintained by Leathers in which all
partnership interests of Leathers are recorded, except such as may have been
filed in favor of Collateral Agent for the benefit of the Secured Parties and
the Funding Corporation pursuant to this Pledge Agreement.
.4. Perfection; Registration of Lien. Financing statements or
other appropriate instruments have been filed or deposited for filing pursuant
to the Code in such public
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offices as may be necessary to perfect any Security Interest granted or
purported to be granted hereby to the extent any such Security Interest may be
perfected by the filing of a financing statement. All other action by Pledgor
and, to Pledgor's knowledge, by any other Person necessary or desirable to
perfect the Security Interest in each item of the Collateral has been duly
taken. Subject to the requirements contained in the Code with respect to the
filing of continuation statements, this Pledge Agreement constitutes a valid
and continuing Lien on and perfected Security Interest (subject only to
Permitted Liens) in the Collateral in favor of Collateral Agent for the equal
and ratable benefit of the Secured Parties and the Funding Corporation,
superior and prior to the rights of all Persons (subject only to Permitted
Liens), whether the Collateral subject to the Security Interest is now owned
by Pledgor or is hereafter acquired.
.5. No Default. Pledgor is not in default in the performance,
observance or fulfillment of any of the material obligations, covenants or
conditions applicable to Pledgor contained in the Partnership Agreement or any
Financing Document to which it is a party.
.6. Chief Executive Office and Principal Place of Business.
Pledgor's chief executive office and principal place of business and the place
where Pledgor's records concerning the Collateral are kept is:
Blackstone Center
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
4. Covenants and Agreements. Pledgor hereby covenants and agrees
that Pledgor shall faithfully observe and fulfill, and shall cause to be
observed and fulfilled, each and all of the following covenants until all
Obligations to be paid or performed by the Partnership Guarantors under the
Financing Documents to which they are a party have been paid and performed in
full:
.1. Further Assurances. Pledgor shall, from time to time at
the Partnership Guarantors' expense, and upon request by Collateral Agent on
behalf of the Secured Parties and the Funding Corporation, promptly execute
and deliver all further instruments and documents, and take all further action
that may be reasonably necessary or advisable, or that Collateral Agent
reasonably determines may be necessary, in order to perfect and protect the
Security Interest granted or purported to be granted hereby or to enable
Collateral Agent to exercise and enforce its rights and remedies hereunder
with respect to the Collateral.
.2. Certificated Interest. If Pledgor shall become entitled
to receive or shall receive any certificate, instrument, option or rights,
whether as an addition to, in substitution of, or in exchange for the
Collateral or any part thereof, or otherwise, Pledgor shall accept any such
certificate, instrument, option or rights as Collateral Agent's agent, shall
hold them in trust for Collateral Agent, and shall deliver them forthwith to
Collateral Agent in the exact form received, with Pledgor's endorsement when
necessary, or accompanied by duly executed instruments of transfer or
assignment in blank or, if requested by Collateral Agent, an additional pledge
agreement or security agreement executed and delivered by Pledgor, all in form
and substance reasonably satisfactory to Collateral Agent, to be held by
Collateral Agent, subject to the terms hereof, as further Collateral for the
Obligations.
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.3. Change in Location, Name, Etc. Pledgor may change the
location of its chief executive office, principal place of business or the
office where such records are kept to another location in the United States
after giving Collateral Agent thirty (30) days' advance written notice of such
change. Without the prior written consent of Collateral Agent, Pledgor shall
not adopt any trade name or fictitious business name.
.4. Limitation on Liens on the Collateral. Pledgor shall not
create, incur or permit to exist, shall defend the Collateral now owned or
hereafter acquired by it against, and shall take such other action as is
necessary to remove, any Lien or claim on or to the Collateral, other than
Permitted Liens, and shall defend the right, title and interest of Collateral
Agent in and to any of the Collateral against the claims and demands of all
Persons whomsoever.
.5 Bankruptcy Filing, etc. Pledgor shall not authorize or permit
Leathers (i) to commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to Leathers or
Leathers' debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of Leathers or any substantial
part of Leathers' property or (ii) to consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary
case or other proceeding commenced against Leathers or (iii) to make a general
assignment for the benefit of Leathers' creditors. Neither Pledgor nor any of
its Affiliates shall commence or join with any other Person (other than the
Secured Parties and Funding Corporation) in commencing any proceeding against
Leathers under any bankruptcy, reorganization, liquidation or insolvency law
or statute now or hereafter in effect in any jurisdiction.
.6. Obligations. Pledgor acknowledges and agrees that its
rights to receive any payments from Leathers, or arising out of or in
connection with Pledgor's interests in Leathers or its rights under the
Partnership Agreement, shall be payable by Leathers only from funds available
to Leathers upon distributions pursuant to the Depositary Agreement or any
other provision of the Indenture expressly providing for distribution, payment
or release of funds to Leathers, and only so long as such distribution,
payment or release is made in accordance with the Depositary Agreement and the
Indenture. Pledgor also agrees that any distributions made by Leathers to
Pledgor that do not comply with the Depositary Agreement and the Indenture
shall be restored to Leathers by Pledgor by deposit into an account designated
by Collateral Agent, promptly upon demand by Collateral Agent or Leathers or
upon Pledgor becoming aware of receipt of such non-complying distribution.
.7. Governmental Authority Requirement. Pledgor shall not
take or omit to take (or suffer such taking or omission of) any action (unless
ordered to do so by a competent Governmental Authority having jurisdiction) in
respect of Pledgor or Leathers and their respective businesses if, as a
consequence directly or indirectly of such action or omission, Leathers or
Pledgor becomes subject to regulation by any Governmental Authority as a
"public utility," an "electric utility," an "electric utility holding
company," a "public utility holding company" or a subsidiary or affiliate of
any of the foregoing under PUHCA, FPA or PURPA, or as a "holding company"
within the meaning of PUHCA.
.8. Indemnification. Pledgor shall defend, indemnify and hold
harmless Collateral Agent and each of the other Secured Parties and the
Funding Corporation and their officers, directors and employees, from and
against any and all costs, expenses, disbursements, liabilities, obligations,
losses, damages, injunctions, judgments, suits, actions, causes of action,
fines, penalties, claims and demands, of every kind or nature (including,
without limitation, reasonable attorney's fees
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and expenses) which are occasioned by or result from any (i) failure by
Pledgor to perform any of the terms, agreements, or covenants to be performed
by Pledgor under this Pledge Agreement and (ii) proceeding or action to
enforce brought by Collateral Agent pursuant to this Pledge Agreement or which
arise out of any such agreement unless due solely to the gross negligence or
willful misconduct of Collateral Agent. This indemnity and any other
obligations of Pledgor under any of the Financing Documents shall be made only
against, and shall be limited to the extent of, the Collateral pledged
hereunder.
5 . Pledgor's Obligations Upon Event of Default. If an Event of
Default under the Partnership Credit Agreement or the Partnership Guarantee
shall occur and be continuing (a) all payments received by Pledgor under or in
connection with any of the Collateral shall be held by Pledgor in trust for
Collateral Agent, shall be segregated from other funds of Pledgor and shall,
forthwith upon receipt by Pledgor, be turned over to Collateral Agent or its
designee in the same form as received by Pledgor (duly endorsed by Pledgor to
Collateral Agent, if requested), and (b) any and all such payments so received
by Collateral Agent or its designee (whether from Pledgor or otherwise) may,
in the sole discretion of Collateral Agent or its designee, be held by
Collateral Agent or such designee as collateral security for, and/or then or
at any time thereafter be applied, subject only to the relevant provisions of
the Intercreditor Agreement and the Depositary Agreement or as otherwise may
be required by applicable law, in whole or in part by Collateral Agent or its
designee in the manner specified in Section 7.
6 . Remedies; Rights Upon Event of Default. Upon the occurrence and
during the continuance of an Event of Default under the Partnership Credit
Agreement or Partnership Guarantee, Collateral Agent, for the equal and
ratable benefit of and on behalf of the Secured Parties and the Funding
Corporation, may, subject to the provisions of the Intercreditor Agreement and
the other Financing Documents, do one or more of the following:
.1 declare, without presentment, demand, protest or notice of any kind,
all of which Pledgor hereby expressly waives, the entire amount of Obligations
to be immediately due and payable, whereupon all of such Obligations declared
due and payable shall be and become immediately due and payable; provided,
however, if, with respect to the Partnership Guarantors, an Event of Default
occurs pursuant to Section 5.1 of the Partnership Credit Agreement, then the
acceleration provided for in this Section 6.1 shall be deemed to have been
made upon the occurrence of such Event of Default without declaration or any
other action by Collateral Agent;
.2 upon notice to Pledgor, which notice need not be in writing, make
such payments and do such acts as Collateral Agent may deem necessary to
protect, perfect or continue the perfection of the Secured Parties' and the
Funding Corporation's Security Interest in the Collateral, including, without
limitation, paying, purchasing, contesting or compromising any Lien which is,
or purports to be, prior to or superior to the Security Interest granted
hereunder, and commencing, appearing or otherwise participating in or
controlling any action or proceeding purporting to affect the Secured Parties'
and the Funding Corporation's Security Interest in or ownership of the
Collateral;
.3 foreclose on the Collateral as herein provided or in any manner
permitted by law and exercise any and all of the rights and remedies conferred
upon the Secured Parties and the Funding Corporation by the Security Documents
either concurrently or in such order as Collateral Agent may determine without
affecting the rights or remedies to which the Secured Parties and the Funding
Corporation may be entitled under any Security Documents. Pledgor hereby
waives, to the extent permitted by applicable law, notice and judicial hearing
in connection with Collateral Agent's taking
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possession or collection, recovery, receipt, appropriation, repossession,
retention, set-off, sale, leasing, conveyance, assignment, transfer or other
disposition of or realization upon any or all of the Collateral, including,
without limitation, any and all prior notice and hearing for any prejudgment
remedy or remedies and any such right which Pledgor would otherwise have under
the constitution or any statute or other law of the United States of America
or of any state;
.4 without notice, except as specified below, sell the Collateral, or
any part thereof, in one or more parcels at public or private sale, at any of
Collateral Agent's offices or elsewhere, at such time or times, for cash, on
credit or for future delivery, and at a commercially reasonable price or
prices and on other commercially reasonable terms. Pledgor agrees that, to the
extent notice of sale shall be required by law, at least ten (10) days' notice
to Pledgor of the time and the place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
At any sale of the Collateral, if permitted by law, Collateral Agent may bid
(which bid may be, in whole or in part, in the form of cancellation of
indebtedness) for the purchase of the Collateral or any portion thereof for
the account of Collateral Agent on behalf of the Secured Parties and the
Funding Corporation. Collateral Agent shall not be obligated to make any sale
of the Collateral regardless of notice of sale having been given. Collateral
Agent may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned. Collateral
Agent shall incur no liability as a result of the manner of sale of the
Collateral, or any part thereof, at any private sale conducted in a
commercially reasonable manner. Pledgor hereby waives, to the extent permitted
by applicable law, any claims against Collateral Agent arising by reason of
the fact that the price at which the Collateral, or any part thereof, may have
been sold at a private sale was less than the price which might have been
obtained at public sale or was less than the aggregate amount of the
Obligations, even if Collateral Agent accepts the first offer received which
Collateral Agent in good faith deems to be commercially reasonable under the
circumstances and does not offer the Collateral to more than one offeree. To
the full extent permitted by law, Pledgor shall have the burden of proving
that any such sale of the Collateral was conducted in a commercially
unreasonable manner. To the extent permitted by law, Pledgor hereby
specifically waives all rights of redemption, stay or appraisal which it has
or may have under any law now existing or hereafter enacted. Pledgor
authorizes Collateral Agent, at any time and from time to time, to execute, in
connection with a sale of the Collateral pursuant to the provisions of this
Pledge Agreement, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral;
.5 upon notice to Pledgor, register the Collateral in the name of
Collateral Agent or its nominee as pledgee or otherwise take such action as
Collateral Agent shall in its sole discretion deem necessary or desirable with
respect to the Collateral, and Collateral Agent or its nominee may thereafter,
in its sole discretion, without notice, exercise all voting, consent,
managerial and other rights relating to the Collateral and exercise any and
all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to the Collateral as if it were the absolute
owner thereof, including, without limitation, all rights of Pledgor under the
Partnership Agreement, including, without limitation, the right to (i) receive
all permitted distributions, if any, made for the account of Pledgor under the
Partnership Agreement and (ii) exchange any and all of the Collateral upon the
merger, consolidation, reorganization, recapitalization or other readjustment
of Leathers, all without liability except to account for property actually
received by Collateral Agent, but Collateral Agent shall have no duty to
exercise any of the aforesaid rights, privileges or options and shall not be
responsible for any failure to do so or delay in so doing; and
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.6 exercise in respect of the Collateral, in addition to other rights
and remedies provided for herein or otherwise available to it, all the rights
and remedies of a secured party after default under the Code.
7. Application of Proceeds. The net proceeds of any foreclosure,
collection, recovery, receipt, appropriation, realization or sale of the
Collateral shall be applied in the order of priority specified in the
Intercreditor Agreement. If all Obligations and any other amounts due under
this Pledge Agreement and the Intercreditor Agreement have been indefeasibly
paid, satisfied and discharged in full, any surplus then remaining shall be
paid to Pledgor, if it is lawfully entitled to receive the same or shall be
paid to whomsoever a court of competent jurisdiction may direct.
8 . Security Interest Absolute. All the rights of Collateral Agent
and any of the other Secured Parties and the Funding Corporation hereunder and
the Security Interest and all obligations of Pledgor hereunder shall be
absolute and unconditional irrespective of:
.1. any lack of validity or enforceability of the Project
Documents or the Partnership Agreement or the Financing Documents or any
other agreement or instrument relating thereto;
.2. any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to any departure from the Project
Documents, the Partnership Agreement or the Financing Documents;
.3. any exchange or release of any Collateral or any other
collateral, or the non-perfection of any of the Security Interest, or
any release or amendment or waiver of or consent to or departure from
any guaranty, for all or any of the Obligations;
.4. to the full extent permitted by law, any other
circumstance that might otherwise constitute a defense available to, or
a discharge of, Pledgor or any third party pledgor; or
.5 the failure by any of the Pledgors to fulfill its obligations
under this Pledge Agreement.
9. Collateral Agent Appointed Attorney-in-Fact.
.1. Powers. Pledgor hereby irrevocably constitutes and
appoints Collateral Agent and any officer or agent thereof, with full power of
substitution, as Pledgor's true and lawful attorney-in-fact (which appointment
as attorney-in-fact shall be coupled with an interest), with full authority in
the place and stead of Pledgor and in the name of Pledgor or otherwise, from
time to time upon the occurrence and during the continuance of any Event of
Default under the Partnership Credit Agreement or the Partnership Guarantee in
Collateral Agent's discretion, to take any action and to execute any and all
documents and instruments which Collateral Agent may deem necessary or
advisable to accomplish the purposes of this Pledge Agreement, without notice
to Pledgor, including, without limitation:
.1 to exercise all partnership rights, powers and
privileges to the same extent Pledgor shall have been entitled under the
Partnership Agreement and in
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accordance with applicable law, including, without limitation, all voting
rights of Pledgor as partner of Leathers;
.2. to receive, endorse and collect all instruments made
payable to Pledgor representing any interest payment or other
distribution in respect of the Collateral or any part thereof and to
give full discharge for the same and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise
deemed appropriate by Collateral Agent for the purpose of collecting any
and all of such dividends, payments or other distributions;
.3. to pay or discharge taxes and liens levied or placed on
the Collateral; and
.4 . (a) to direct any party liable for any payment in
respect of or arising out of any of the Collateral to make payment of
any and all moneys due or to become due in connection therewith directly
to Collateral Agent or as Collateral Agent shall otherwise direct, (b)
to ask or make demand for, collect, receive payment of and receipt for,
any and all moneys, claims and other amounts due or to become due at any
time in respect of or arising out of any Collateral, (c) to commence and
prosecute any suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect the Collateral or any part
thereof and to enforce any other right in respect of any Collateral, (d)
to defend any suit, action or proceeding brought against Pledgor with
respect to any Collateral, (e) to settle, compromise or adjust any suit,
action or proceeding described in clause (d) above and, in connection
therewith, to give such discharges or releases as Collateral Agent
acting in good faith may deem appropriate and (f) generally, to sell,
transfer, pledge and make any agreement with respect to or otherwise
deal with any of the Collateral as fully and completely as though
Collateral Agent were the absolute owner thereof for all purposes, and
(g) to do, at Collateral Agent's option and at Pledgor's expense, at any
time, or from time to time, all acts and things which Collateral Agent
acting in good faith deems necessary to protect, preserve or realize
upon the Collateral and the Security Interest granted herein and to
effect the intent of this Pledge Agreement, all as fully and effectively
as Pledgor might do.
.2 . Other Powers. Pledgor further authorizes Collateral
Agent, at any time and from time to time (i) to execute, in connection with
any sale provided for hereunder, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral and (ii)
to the full extent permitted by applicable law, to file one or more financing
or continuation statements, and amendments thereto, relative to all or any
part of the Collateral without the signature of Pledgor.
10 . Collateral Agent May Perform. Upon the occurrence and during
the continuance of an Event of Default under the Partnership Credit Agreement
or the Partnership Guarantee, Collateral Agent, without releasing Pledgor from
any obligation, covenant or condition hereof, itself may make any payment or
perform, or cause the performance of, any such obligation, covenant, condition
or agreement or any other action in such manner and to such extent as
Collateral Agent may deem necessary to protect, perfect or continue the
perfection of the Secured Parties' and the Funding Corporation's Security
Interest in the Collateral. Any costs or expenses incurred by Collateral Agent
in connection with the foregoing shall be governed by the Indenture and the
Financing Documents and constitute Obligations secured hereby.
10
11. No Duty on Collateral Agent's Part,
Limitation on Collateral Agent's Obligations.
.1. No Duty on Collateral Agent's Part. The powers conferred
on Collateral Agent hereunder are solely to protect Collateral Agent's
interests in the Collateral and shall not impose any duty upon it to exercise
any such powers. Collateral Agent shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers.
.2. Limitations on Obligations. Without limiting the
effectiveness of Section 30 hereof, anything herein to the contrary
notwithstanding, Pledgor shall remain liable under the Partnership Agreement
and any other Project Document or Financing Document to which it is a party to
the extent set forth therein to perform all of its duties and obligations
thereunder, to the same extent as if this Pledge Agreement had not been
executed. The exercise by Collateral Agent of any of the rights or remedies
hereunder shall not release Pledgor from any of its duties or obligations
under the Partnership Agreement or any other Project Document or Financing
Document to which it is a party. All of the Collateral is hereby assigned to
Collateral Agent solely as security, and Collateral Agent shall have no duty,
liability or obligation whatsoever with respect to any of the Collateral,
unless Collateral Agent so elects in writing consistent with its rights under
this Pledge Agreement.
12. Reasonable Care. Collateral Agent shall exercise the same
degree of care hereunder as it exercises in connection with similar
transactions for its own account. Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which Collateral Agent accords or would accord collateral held by
Collateral Agent in similar transactions for its own account. Without limiting
the generality of the foregoing and except as otherwise provided by applicable
law, Collateral Agent shall not be required to marshall any collateral,
including, without limitation, the Collateral subject to the Security Interest
created hereby and any guaranties of the Obligations, or to resort to any item
of Collateral or guaranties in any particular order; and all of Collateral
Agent's rights hereunder and in respect of such Collateral and guaranties
shall be cumulative and in addition to all other rights, however existing or
arising. To the extent that Pledgor lawfully may, Pledgor hereby (a) agrees
that it will not invoke any law relating to the marshalling of collateral
which might cause delay in or impede the enforcement of Collateral Agent's
rights under this Pledge Agreement or under any other instrument evidencing
any of the Obligations or under which any of the Obligations is outstanding or
by which any of the Obligations is secured or guaranteed and (b) irrevocably
waives the benefits of all Laws and any and all rights to equity of redemption
or other rights of redemption that it may have in equity or at law with
respect to the Collateral.
13. Role of Collateral Agent. The rights, duties, liabilities and
immunities of Collateral Agent and its appointment and replacement hereunder
shall be governed by the Intercreditor Agreement.
14. Waiver of Trial by Jury. WITH REGARD TO THIS PLEDGE AGREEMENT,
EACH OF PLEDGOR AND COLLATERAL AGENT HEREBY WAIVES THE RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING AND FOR ANY COUNTERCLAIM THEREIN.
15. Notices. All notices, demands, requests and other
communications required or permitted hereunder shall be in writing, and shall
be given and deemed to have been given in
11
<PAGE>
accordance with Section 6.1 of the Partnership Credit Agreement and the
information set forth immediately below shall apply to:
If to Magma:
Blackstone Center
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
If to CEOC:
Blackstone Center
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
If to San Felipe:
Blackstone Center
302 South 36th Street, Suite 400-I
Omaha, Nebraska 68131
16. Absence of Fiduciary Relation. Collateral Agent undertakes to
perform or to observe only such of its agreements and obligations as are
specifically set forth in this Pledge Agreement, the Intercreditor Agreement
or any other Security Document, and no implied agreements, covenants or
obligations with respect to Pledgor, any Affiliate of Pledgor or any other
party to the Partnership Agreement or any other Project Document or Security
Document to which Pledgor is a party shall be read into this Pledge Agreement
against Collateral Agent or any of the Secured Parties and the Funding
Corporation; neither Collateral Agent nor any of the Secured Parties and the
Funding Corporation in its and their capacity as such is a fiduciary of and
shall not owe or be deemed to owe any fiduciary duty to Pledgor, any Affiliate
of Pledgor or any other party to any Project Document or Financing Document to
which Pledgor is a party, except as otherwise specifically required by law.
17. Survival of Representations and Warranties. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Pledge Agreement and the other Financing Documents and
repayment of the Obligations, and shall be deemed to be material and to have
been relied upon by Collateral Agent and any of the other Secured Parties and
the Funding Corporation, regardless of any investigation made by or on behalf
of any of Collateral Agent and any of the other Secured Parties and the
Funding Corporation. Notwithstanding anything in this Pledge Agreement or
implied by law to the contrary, the agreements and obligations of Pledgor set
forth in Section 4.6 shall survive until the payment or prepayment in full of
the Obligations and the termination of this Pledge Agreement in accordance
with Section 27 hereof.
18. No Waiver; Cumulative Remedies. By exercising or failing to
exercise any of its rights, options or elections hereunder (without also
expressly waiving the same in writing), Collateral Agent, on behalf of the
Secured Parties and the Funding Corporation, shall not be deemed to have
waived any breach or default on the part of Pledgor or to have released
Pledgor from any of its obligations secured hereby. No failure on the part of
Collateral Agent to exercise, and no delay in exercising (without also
expressly waiving the same in writing) any right, power or privilege
12
<PAGE>
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or privilege preclude any other or further
exercise thereof, or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law. Collateral Agent, acting on behalf of the Secured Parties and
the Funding Corporation, shall have all of the rights and remedies granted
under the Intercreditor Agreement or any Financing Document, and available at
law or in equity, and these same rights and remedies may be pursued
separately, successively or concurrently against Pledgor or any Collateral, at
the discretion of Collateral Agent.
19. Severability. Any provision of this Pledge Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of
such provision in any other jurisdiction. Where provisions of any law or
regulation resulting in such prohibition or unenforceability may be waived
they are hereby waived by Pledgor and Collateral Agent to the full extent
permitted by law so that this Pledge Agreement shall be deemed a valid,
binding agreement, and the Security Interest created hereby shall constitute a
continuing first lien on and first perfected security interest in the
Collateral, in each case enforceable in accordance with its terms.
20. Exculpatory Provisions; Reliance by Collateral Agent.
.1. Exculpatory Provisions. Neither Collateral Agent, the
Funding Corporation nor any other Secured Party, nor any of their respective
officers, directors, employees, agents, attorneys-in-fact or affiliates (the
"Exculpated Parties") shall be liable to Pledgor for any action taken or
omitted to be taken by it or them under or in connection with this Pledge
Agreement, the Partnership Agreement or any other Project Document or
Financing Document to which Pledgor is a party, except for the Exculpated
Parties' own gross negligence or willful misconduct, or responsible in any
manner to any Person for any recitals, statements, representations or
warranties made by Pledgor or any officer thereof contained in this Pledge
Agreement, the Partnership Agreement or any other Project Document or
Financing Document to which Pledgor is a party or in any certificate, report,
statement or other document referred to or provided for in, or received by
Collateral Agent, Funding Corporation or any other Secured Party under or in
connection with, this Pledge Agreement, the Partnership Agreement or any other
Project Document or Financing Document to which Pledgor is a party or for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Pledge Agreement, the Partnership Agreement or any other Project Document
or Financing Document to which Pledgor is a party or for any failure of
Pledgor to perform any of the Obligations. Neither Collateral Agent, Funding
Corporation nor any other Secured Party shall be under any obligation to any
Person to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, this Pledge Agreement, the
Partnership Agreement or any other Project Document or Financing Document to
which Pledgor is a party, or to inspect the properties or records of Pledgor.
.2 . Reliance by Collateral Agent. 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
Pledgor), independent accountants and other experts selected
13
<PAGE>
by Collateral Agent. Collateral Agent shall have no obligation to any Person
to act or refrain from acting or exercising any of its rights under this
Pledge Agreement.
21. Amendment. No modification or waiver of any of the provisions
of this Pledge Agreement shall be binding on Collateral Agent, except as
expressly set forth in a writing duly signed and delivered by Collateral Agent
and which is otherwise in accordance with Section 6.2 of the Partnership
Credit Agreement.
22. Successors and Assigns. This Pledge Agreement shall be binding
upon and inure to the benefit of Pledgor and Collateral Agent for the benefit
of the Secured Parties and the Funding Corporation and their respective
successors and assigns. In the event of any assignment or transfer by the
Funding Corporation or any other Secured Party of any instrument evidencing
all or any part of the Obligations, the holder of such instrument shall,
subject to the Partnership Credit Agreement and the Partnership Guarantee, be
entitled to the benefits of this Pledge Agreement.
23. Number and Gender. Whenever used in this Pledge Agreement, the
singular number shall include the plural and the plural the singular, and the
use of any gender shall be applicable to all genders.
24. Subrogation, etc. Notwithstanding any payment or payments made
by Pledgor or the exercise by Collateral Agent of any of the remedies provided
under this Pledge Agreement or any of the Financing Documents, Pledgor shall
have no claim (as defined in 11 U.S. C. ss. 101 (5)) of subrogation to any of
the rights of the Secured Parties and the Funding Corporation against
Leathers, Pledgor or any Collateral or guaranty held by the Secured Parties
and the Funding Corporation for the satisfaction of any of the Obligations,
nor shall Pledgor have any claims (as defined in 11 U.S.C. ss. 101 (5)) for
reimbursement, indemnity, exoneration or contribution from Leathers in respect
of payments made by Pledgor hereunder. Notwithstanding the foregoing, if any
amount shall be paid to Pledgor on account of such subrogation, reimbursement,
indemnity, exoneration or contribution rights at any time, such amount
shall be held by Pledgor in trust for the Secured Parties and the Funding
Corporation, segregated from other funds of Pledgor, and shall be turned over
to Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation, in the exact form received by Pledgor (duly endorsed by Pledgor
to Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation, if required), to be applied against such amounts in such order as
Collateral Agent may elect.
25. Captions. The captions, headings and table of contents used in
this Pledge Agreement are for convenience only and do not and shall not be
deemed to affect, limit, amplify or modify the terms and provisions hereof.
26. Applicable Law. This Pledge Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of
California.
27. Continuing Security Interest; Termination. This Pledge
Agreement shall create a continuing assignment, pledge and first priority
Security Interest in the Collateral, subject only to Permitted Liens, and
shall remain in full force and effect for the benefit of Collateral Agent and
the other Secured Parties and the Funding Corporation until all Obligations to
be paid or performed by Partnership Guarantors under the Partnership Credit
Agreement and the Partnership Guarantee have been paid and performed in full.
Upon the happening of such event, the Security Interest granted hereby shall
terminate. Upon such termination, Collateral Agent shall, upon the request and
at the
14
<PAGE>
expense of Pledgor, execute and deliver to Pledgor such documents as
Pledgor shall reasonably request to evidence such termination or expiration.
28. Payments Set Aside. To the extent that Pledgor or the
Partnership Guarantors or any other Person on behalf of Pledgor or the
Partnership Guarantors makes a payment or payments to Collateral Agent and/or
any other Secured Party, or Collateral Agent and/or any other Secured Party
enforce the Security Interests or Collateral Agent exercises its right of
set-off, and such payment or payments or the proceeds of such enforcement or
set-off or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal law,
common law or equitable cause, then to the extent of such recovery, the
Obligations or any part thereof originally intended to be satisfied, and this
Pledge Agreement and all Liens, rights and remedies therefor, shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or set-off had not occurred.
29. Counterparts. This Pledge Agreement may be executed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
30. Non-Recourse. Notwithstanding any other provision hereof,
Collateral Agent agrees that its only remedy hereunder shall be to proceed
against the Collateral and that there shall be no recourse to the Pledgor, its
shareholders, officers, directors or employees.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed as of the day and year first written above.
MAGMA POWER COMPANY,
a Nevada corporation
By: /s/ John G. Sylvia
------------------------
Name: John G. Sylvia
-------------------------
Title: Senior Vice President
--------------------------
CALENERGY OPERATING COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
------------------------
Name: John G. Sylvia
-------------------------
Title: Senior Vice President
--------------------------
SAN FELIPE ENERGY COMPANY,
a California corporation
By: /s/ John G. Sylvia
------------------------
Name: John G. Sylvia
-------------------------
Title: Senior Vice President
--------------------------
CHEMICAL TRUST COMPANY OF CALIFORNIA,
a California corporation,
as Collateral Agent
By: /s/ Rose Maravilla
------------------------
Name: R. I. Maravilla
-------------------------
Title: Assistant Vice President
--------------------------
16
EXHIBIT 4.45
AGREEMENT REGARDING SECURITY DOCUMENTS
THIS AGREEMENT REGARDING SECURITY DOCUMENTS (this "Agreement") is
made as of June 20, 1996 by SALTON SEA POWER GENERATION L.P., a California
limited partnership ("SSPG"), SALTON SEA BRINE PROCESSING L.P., a California
limited partnership ("SSBP"), FISH LAKE POWER COMPANY, a Delaware corporation
("Fish Lake", and together with SSPG and SSBP, the "Salton Sea Guarantors"),
CALENERGY OPERATING COMPANY, a Delaware corporation ("CEOC"), VULCAN POWER
COMPANY, a Nevada corporation ("VPC", and together with CEOC, the "Initial
Partnership Guarantors"), SALTON SEA ROYALTY COMPANY, a Delaware corporation
(the "Royalty Guarantor", and together with the Salton Sea Guarantors and the
Initial Partnership Guarantors, the "Initial Guarantors"), SALTON SEA FUNDING
CORPORATION, a Delaware corporation ("Funding Corporation"), MAGMA POWER
COMPANY, a Nevada corporation ("Magma"), and SALTON SEA POWER COMPANY, a
Nevada corporation ("SSPC", and collectively with the Initial Guarantors,
Funding Corporation and Magma, the "Acknowledging Parties"), in favor of
CHEMICAL TRUST COMPANY OF CALIFORNIA, a California corporation, as collateral
agent ("Collateral Agent") on behalf and for the benefit of the Secured
Parties and Funding Corporation under that certain Collateral Agency and
Intercreditor Agreement dated as of July 21, 1995, as amended, by and among
Collateral Agent, Funding Corporation, the Secured Parties and the other
parties named therein (the "Intercreditor Agreement") and that certain Trust
Indenture (the "Original Indenture") dated as of July 21, 1995 by and between
Funding Corporation and Collateral Agent, as trustee, as amended, modified or
supplemented, including pursuant to that certain Second Supplemental Trust
Indenture (the "Supplemental Indenture") dated as of the date hereof. The
Original Indenture, as amended, modified or supplemented, including pursuant
to the Supplemental Indenture is hereafter referred to as the "Indenture."
Capitalized terms used and not defined herein shall have the meanings set
forth in the Indenture.
RECITALS
WHEREAS, Funding Corporation is a corporation established for the
sole purpose of making loans to the Guarantors from proceeds of the issuance
of notes and bonds (collectively, the "Securities") in its individual capacity
as principal and as agent acting on behalf of the Guarantors pursuant to the
Indenture; and
WHEREAS, the principal and interest payments on the Securities are
serviced by repayment of loans made by Funding Corporation to one or more of
the Guarantors and the Securities are guaranteed by the Guarantors, subject to
the conditions set forth in the Indenture; and
WHEREAS, on July 21, 1995 Funding Corporation issued and sold
Securities in the aggregate principal amount of $475 Million (the "Initial
Securities"); and
<PAGE>
WHEREAS, Funding Corporation used the proceeds from the sale of the
Initial Securities to make loans to the Initial Guarantors pursuant to credit
agreements between Funding Corporation and the Initial Guarantors (the
"Initial Credit Agreements"); and
WHEREAS, in connection with the issuance and sale of the Initial
Securities, the Initial Guarantors entered into guarantees in favor of
Collateral Agent (the "Initial Guarantees") whereby the Initial Guarantors
guaranteed certain of the obligations of Funding Corporation under the Initial
Securities; and
WHEREAS, in order to secure the obligations of the Initial
Guarantors under the Initial Credit Agreements, the Initial Guarantees and the
other Financing Documents, the Acknowledging Parties entered into various
security agreements in favor of Collateral Agent; and
WHEREAS, Funding Corporation has simultaneously with the execution
and delivery of this Agreement issued and sold Securities in the aggregate
principal amount of $135 Million (such Securities, along with all other
Securities hereafter issued under the Indenture, the "Additional Securities")
the net proceeds of which will be loaned to the Partnership Guarantors
(including Conejo, Niguel, San Felipe, BN/Geothermal, Del Ranch, Elmore,
Leathers and Vulcan) pursuant to that certain Amended and Restated Credit
Agreement (Partnership Guarantors) dated as of the date hereof between Funding
Corporation and the Partnership Guarantors (the "Amended and Restated
Partnership Credit Agreement"); and
WHEREAS, in connection with the issuance and sale of the Additional
Securities, the Partnership Guarantors entered into that certain Amended and
Restated Partnership Secured Limited Guarantee dated as of the date hereof in
favor of Collateral Agent (the "Amended and Restated Partnership Guarantee")
pursuant to which all the Partnership Guarantors (including Conejo, Niguel,
San Felipe, BN/Geothermal, Del Ranch, Elmore, Leathers and Vulcan) agreed to
jointly and severally guarantee certain of the obligations of Funding
Corporation under the Initial Securities and the Additional Securities as
provided therein; and
WHEREAS, the parties wish to enter into this Agreement in order to
supplement the Salton Sea Guarantee, the Royalty Guarantee and the Security
Documents entered into prior to the date hereof (the "Initial Security
Documents") and to acknowledge that (a) the obligations guaranteed by the
Salton Sea Guarantee and the Royalty Guarantee include the obligations of
Funding Corporation under the Additional Securities and the Amended and
Restated Debt Service Reserve Letter of Credit and Reimbursement Agreement
dated as of the date hereof by and among Funding Corporation, Credit Suisse
and the other Banks named therein (the "Amended and Restated LOC Agreement")
and (b) the obligations secured by the Initial Security Documents include
the obligations of the Acknowledging
<PAGE>
Parties under the Guarantees, Credit Agreements and other Financing Documents as
amended, modified or supplemented hereby or otherwise in connection with the
Supplemental Indenture and the issuance and sale of the Additional Securities.
AGREEMENT
NOW, THEREFORE, in consideration of good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
1. Salton Sea Guarantee and Royalty Guarantee. Each of the Salton
Sea Guarantors and the Royalty Guarantor hereby acknowledges and agrees for
the benefit of the Collateral Agent acting for and on behalf of the Secured
Parties and Funding Corporation that the term "Indebtedness," as used in the
Salton Sea Guarantee and Royalty Guarantee, shall and is hereby expressly made
to include (to the extent it does not now so include), all principal,
interest, premium (if any), fees, charges, penalties, expenses, payments and
all other amounts due with respect to the Additional Securities and the
Amended and Restated LOC Agreement.
2. Initial Security Documents. Each Acknowledging Party hereby
acknowledges and agrees for the benefit of the Collateral Agent acting for and
on behalf of the Secured Parties and Funding Corporation that the obligations
secured by each Initial Security Document to which such Acknowledging Party is
a party shall and are hereby expressly made to include (to the extent they do
not now so include) all obligations of such Acknowledging Party (and of any
other Acknowledging Party whose obligations are secured by the terms of such
Initial Security Document), if any, under (a) the Amended and Restated
Partnership Credit Agreement, (b) the Amended and Restated Partnership
Guarantee, (c) the Salton Sea Guarantee as amended, modified or supplemented
hereby, (d) the Royalty Guarantee as amended, modified or supplemented hereby,
(e) the Additional Securities, (f) the Amended and Restated LOC Agreement and
(f) any other Financing Document entered into in connection with the
Supplemental Indenture and the issuance and sale of the Additional Securities
to which such Acknowledging Party is a party.
3. Amendment to Collateral Assignment. The Collateral Assignment
(Salton Sea Agreements) dated as of July 21, 1995 by SSPG, SSBP and FLPC is
hereby amended by inserting the following at the end of Exhibit A thereof:
"14. Technology Transfer Agreement dated February 15, 1996 among Magma,
SSBP, SSPG and FLPC."
4. Amendment to Consent. The Consent to Collateral Assignment
(Magma Power Company) dated as of July 21, 1995 by Magma and Collateral Agent
is hereby amended by deleting clause 2 of recital A thereof and inserting the
following in lieu thereof:
<PAGE>
"2. Consenting Party, SSPG and SSBP have entered into that certain
Technology Transfer Agreement, dated as of March 31, 1993; and Consenting
Party, SSPG, SSBP and FLPC have entered into that certain Technology Transfer
Agreement, dated as of February 15, 1996 (collectively, the "Technology
Transfer Agreement")."
5. Amendment to Salton Sea Guarantee. The Salton Sea Guarantee is
hereby amended by adding the following after Section 17 thereof.
"18. The Salton Sea Guarantors shall continue to be bound by and perform
all of their obligations under the terms and conditions set forth in the
Salton Sea Credit Agreement for the benefit of the Funding Corporation and its
legal successors and assigns, the terms of which are incorporated herein by
reference, from and after the date that the Salton Sea Project Note is repaid
and until the payment in full of all other obligations under the Partnership
Project Note and the Royalty Project Note. The Salton Sea Guarantors' failure
to perform such terms and conditions shall, from and after the date that the
Salton Sea Project Note has been repaid, be an Event of Default hereunder."
6. Amendment to Stock Pledge Agreements. The Stock Pledge Agreement
(Pledge of Capital Stock of CEOC), the Stock Pledge Agreement (Pledge of
Capital Stock of VPC), the Stock Pledge Agreement (Pledge of Capital Stock of
FLPC) and the Stock Pledge Agreement (Pledge of Capital Stock of Royalty
Guarantor), each dated as of July 21, 1995 by Magma and Funding Corporation in
favor of Collateral Agent are hereby amended by replacing the words "Funding
Corporation" in the next to last line of Section 2.1 thereof with the word
"CEOC" in the Stock Pledge Agreement (Pledge of Capital Stock of CEOC), with
the word "VPC" in the Stock Pledge Agreement (Pledge of Capital Stock of VPC),
with the word "FLPC" in the Stock Pledge Agreement (Pledge of Capital Stock of
FLPC) and with the words "Royalty Guarantor" in the Stock Pledge Agreement
(Pledge of Capital Stock of Royalty Guarantor).
7. References to Original Indenture. From and after the date of
this Agreement all references in the Salton Sea Guarantee, the Royalty
Guarantee and the Initial Security Documents to the Original Indenture
(including for the purpose of defining capitalized terms) shall, unless the
context otherwise requires, mean the Original Indenture as amended, modified
or supplemented by the Supplemental Indenture.
8. Effect of This Agreement. From and after the date of this
Agreement, all references in the Security Documents and the Financing
Documents to the Salton Sea Guarantee, Royalty Guarantee or Initial Security
Documents shall mean the Salton Sea Guarantee, Royalty Guarantee or Initial
Security Documents, as applicable, as amended, modified or supplemented
hereby. Except as specifically amended, modified or supplemented above, the
Salton Sea Guarantee, Royalty Guarantee and Initial Security Documents shall
remain in full force and effect and are hereby ratified and confirmed. The
execution, delivery
<PAGE>
and effectiveness of this Agreement shall not, except as expressly provided
herein, operate as a waiver of any right, power, or remedy of Collateral
Agent or any of the Secured Parties nor constitute a waiver of any provision
of the Salton Sea Guarantee, Royalty Guarantee or Initial Security Documents.
9. Headings. The headings, titles and captions of various sections
of this Agreement are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
10. Governing Law. THIS AGREEMENT IS GOVERNED BY AND
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
11. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed, and this Agreement shall be effective, as of the day and year
first above written.
SALTON SEA POWER GENERATION L.P.,
a California limited partnership
By: SALTON SEA POWER COMPANY,
a Nevada corporation, its general partner
By: /s/ John G. Sylvia
_____________________________________
Name:
John G. Sylvia
___________________________________
Title: Senior Vice President
__________________________________
SALTON SEA BRINE
PROCESSING L.P.,
a California limited partnership
By: SALTON SEA POWER COMPANY,
a Nevada corporation, its general partner
By: /s/ John G. Sylvia
_____________________________________
Name:
John G. Sylvia
___________________________________
Title: Senior Vice President
__________________________________
FISH LAKE POWER COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
_____________________________________
Name:
John G. Sylvia
___________________________________
Title: Senior Vice President
__________________________________
<PAGE>
SALTON SEA FUNDING CORPORATION,
a Delaware corporation
By: /s/ John G. Sylvia
_____________________________________
Name:
John G. Sylvia
___________________________________
Title: Senior Vice President
__________________________________
MAGMA POWER COMPANY,
a Nevada corporation
By: /s/ John G. Sylvia
_____________________________________
Name:
John G. Sylvia
___________________________________
Title: Senior Vice President
__________________________________
SALTON SEA POWER COMPANY,
a Nevada corporation
By: /s/ John G. Sylvia
_____________________________________
Name:
John G. Sylvia
___________________________________
Title: Senior Vice President
__________________________________
CALENERGY OPERATING COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
_____________________________________
Name:
John G. Sylvia
___________________________________
Title: Senior Vice President
__________________________________
VULCAN POWER COMPANY,
a Nevada corporation
By: /s/ John G. Sylvia
_____________________________________
Name:
John G. Sylvia
___________________________________
Title: Senior Vice President
__________________________________
<PAGE>
SALTON SEA ROYALTY COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
_____________________________________
Name:
John G. Sylvia
___________________________________
Title: Senior Vice President
__________________________________
CHEMICAL TRUST COMPANY OF
CALIFORNIA,
a California corporation,
as Collateral Agent
By: /s/ Rose Maravilla
_____________________________________
Name:
R. I. Maravilla
___________________________________
Title: Assistant Vice President
__________________________________
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF WILLKIE FARR & GALLAGHER]
July 29, 1996
Salton Sea Funding Corporation
Salton Sea Brine Processing L.P.
Salton Sea Power Generation L.P.
Fish Lake Power Company
Vulcan Power Company
CalEnergy Operating Company
Salton Sea Royalty Company
BN Geothermal Inc.
San Felipe Energy Company
Conejo Energy Company
Niguel Energy Company
Vulcan/BN Geothermal Power Company
Leathers, L.P.
Del Ranch, L.P.
Elmore, L.P.
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
Re: Registration Statement on Form S-4
(File No. 333-07527)
Ladies & Gentlemen:
Salton Sea Funding Corporation (the "Funding Corporation"), a Delaware
corporation, and Salton Sea Brine Processing L.P., a California Limited
partnership, Salton Sea Power Generation L.P., a California limited partnership,
Fish Lake Power Company, a Delaware corporation, Vulcan Power Company, a Nevada
corporation, CalEnergy Operating Company, a Delaware corporation, Salton Sea
Royalty Company, a Delaware corporation, BN Geothermal Inc., a Delaware
corporation, San Felipe Energy Company, a California corporation, Conejo Energy
Company, a California corporation, Niguel Energy Company, a California
corporation, Vulcan/BN Geothermal Power Company, a Nevada general partnership,
Leathers, L.P., a California limited partnership, Del Ranch, L.P., a California
limited partnership, and Elmore, L.P., a California limited partnership
(together with Salton Sea Brine Processing L.P., Salton Sea Power Generation
L.P., Fish Lake Power Company, Vulcan Power Company, CalEnergy Operating
Company, Salton Sea Royalty Company, BN Geothermal Inc., San Felipe Energy
Company, Conejo Energy Company, Niguel Energy Company, Vulcan/Bn Geothermal
Power Company, Leathers, L.P., and Del Ranch, L.P., the "Guarantors"), have
requested our opinion in connection with various legal matters relating to the
filing of a Registration
Statement on Form S-4 (File No. 333-07527) (the "Registration Statement"), under
the Securities Act of 1933, as amended covering the offer to exchange (i) 7.02%
Senior Secured Series D Notes Due May 30, 2000 ("New Series D Securities"), for
an equal principal amount of outstanding 7.02% Senior Secured Series D Notes Due
May 30, 2000 ("Old Series D Securities"), of which $70,000,000 aggregate
principal amount is outstanding, and (ii) 8.30% Senior Secured Series E Bonds
Due May 30, 2011 ("New Series E Securities," and collectively with the New
Series D Securities, "New Securities"), for an equal principal amount of
outstanding 8.30% Senior Secured Series E Bonds Due May 30, 2011 ("Old Series E
Securities," and collectively with the Old Series D Securities, "Old
Securities"), of which $65,000,000 aggregate principal amount is outstanding.
The Old Securities were, and the New Securities are to be, issued under the
Trust Indenture, dated as of July 21, 1995, as supplemented and amended by the
First Supplemental Indenture dated as of October 18, 1995, the Second
Supplemental Indenture dated as of June 20, 1996 (as so supplemented and
amended, the "Indenture"), and the Third Supplemental Indenture, dated as of the
date hereof (the "Third Supplemental Indenture"), each by and between the
Funding Corporation and the Chemical Trust Company of California, as trustee
(the "Trustee"). The exchange will be made pursuant to an exchange offer (the
"Exchange Offer") contemplated by the Registration Statement.
We have examined copies of such records of the Funding Corporation and
the Guarantors and such other certificates and documents as we have deemed
relevant and necessary for the options hereinafter set forth. In such
examination, we have assumed the genuineness of all signatures, and the
authenticity of all documents submitted to us as originals and the conformity to
authentic originals of all documents submitted to us as certified or reproduced
copies. We have also assumed the legal capacity of all persons executing such
documents and the truth and correctness of any representations or warranties
therein contained. As to various questions of fact material to such opinions, we
have relied upon certificates of officers of the Funding Corporation and the
Guarantors and of public officials.
Based upon the foregoing, we are of the opinion that:
1. The Funding Corporation, Fish Lake Power Company, CalEnergy Operating
Company, BN Geothermal Inc., and Salton Sea Royalty are duly formed and validly
existing under the laws of the State of Delaware.
2. The execution and delivery of the Indenture and the Third Supplemental
Indenture have been duly authorized by the Funding Corporation and the
Guarantors, and the Indenture and the Third Supplemental Indenture together
constitute a valid and binding obligation of the Funding Corporation and the
Guarantors, enforceable against the Funding Corporation and the Guarantors in
accordance with the terms thereof, except as enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, fraudulent conveyance and other
similar laws affecting the enforcement of creditors' rights generally and except
as enforcement thereof is subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
3. The New Securities and the guarantees of the New Securities provided by
the Guarantors (the "Guarantees") will, upon the issuance and authentication of
the New Securities and exchange thereof for the Old Securities in the manner
referred to in the Registration Statement, the Indenture and the Third
Supplemental Indenture, constitute valid and binding obligations of the Funding
Corporation and the Guarantors, respectively, enforceable against the Funding
Corporation and the Guarantors, respectively, in accordance with their
respective terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance and other similar laws
affecting the enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
This opinion is limited to the laws of the State of New York, the
General Corporation Law of the State of Delaware and the federal laws of the
United States of the type typically applicable to transactions contemplated by
the Exchange Offer, and we do not express any opinion with respect to the laws
of any other country, state or jurisdiction.
This letter speaks only as of the date hereof and is limited to present
statutes, regulations and administrative and judicial interpretations. We
undertake no responsibility to update or supplement this letter after the date
hereof.
We consent to being named in the Registration Statement and related
Prospectus as counsel who are passing upon the legality of the New Securities
and the Guarantees for the Funding Corporation and for the Guarantors,
respectively, and to the reference to our name under the caption "Legal Matters"
in such Prospectus. We also consent to your filing copies of this opinion as an
exhibit to the Registration Statement or any amendment thereto.
Very truly yours,
/s/ Willkie Farr & Gallagher
EXHIBIT 5.2
[LATHAM & WATKINS LETTERHEAD]
July 29, 1996
To: The Parties Listed on Schedule A
Re: Registration Statement on Form S-4 FILE NO. 333-07527
Ladies and Gentlemen:
We have acted as special California counsel to Salton Sea Brine
Processing L.P., a California limited partnership ("SSBP"), Salton Sea Power
Generation L.P., a California limited partnership ("SSPG"), Conejo Energy
Company, a California corporaiton ("Conejo"), Niguel Energy Company, a Calfornia
corporation ("Niguel"), San Felipe Energy Company, a California corporation
("San Felipe"), Del Ranch, L.P., a California limited partnership ("Del Ranch"),
Elmore, L.P., a California limited partnership ("Elmore"), and Leathers, L.P., a
California limited partnership ("Leathers"), in connection with the filing of a
Registration Statement on Form S-4 (File No. 333-07527) (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Act"), covering
the offer to exchange (i) 7.02% Senior Secured Series D Notes Due May 30, 2000,
for an equal principal amount of outstanding 7.02% Senior Secured Series D Notes
Due May 30, 2000, and (ii) 8.30% Senior Secured Series E Bonds Due May 30, 2011,
for an equal principal amount of outstanding 8.30% Senior Secured Series E Bonds
Due May 30, 2011, by Salton Sea Funding Corporation.
This opinion is rendered to you pursuant to the registration
requirements of the Act, and the regulations promulgated thereunder.
<PAGE>
As such counsel, we have examined such matters of fact and questions of
law as we have considered appropriate for purposes of rendering the opinions
expressed below. In our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons executing documents, 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. We
have relied upon such certificates and assurances from public officials as we
have deemed necessary.
We are opining herein as to the effect on the subject transactions only
of the internal laws of the State of California and we express no opinion with
respect to the applicability thereto, or the effect thereon, of the laws of any
other jurisdiction or as to any matters of municipal law or the laws of any
other local agencies within any state.
Subject to the foregoing and the other matters set forth herein, and in
reliance thereon, it is our opinion that, as of the date hereof, each of SSBP,
SSPG, Conejo, Niguel, San Felipe, Del Ranch, Elmore and Leathers has been duly
formed and is validly existing and in good standing under the laws of the State
of California.
This opinion is rendered only to you and is solely for your benefit in
connection with the transactions covered hereby. This opinion may not be relied
upon by you for any other purpose, or furnished to, quoted to or relied upon by
any other person, firm or corporation for any purpose, without our prior written
consent. Notwithstanding the foregoing, we consent to your filing copies of this
opinion as an exhibit to the Registration Statement or any amendment thereto,
provided that the effectiveness of this opinion shall be only as of the date
hereof.
Very truly yours,
/s/ Latham & Watkins
-----------------------
<PAGE>
SCHEDULE A
------------
Salton Sea Funding Corporation
Salton Sea Brine Processing L.P.
Salton Sea Power Generation L.P.
Fish Lake Power Company
Vulcan Power Company
California Energy Operating Company
Salton Sea Royalty Company
Conejo Energy Company
San Felipe Energy Company
Niguel Energy Company
BN Geothermal Inc.
Del Ranch, L.P.
Elmore, L.P.
Leathers, L.P.
Vulcan/BN Geothermal Power Company
<PAGE>
EXHIBIT 5.3
[LETTERHEAD OF LIONEL SAWYER & COLLINS]
July 29, 1996
(702) 383-8888
Salton Sea Brine Processing L.P.
Salton Sea Power Generation L.P.
Fish Lake Power Company
Vulcan Power Company
CalEnergy Operating Company
Salton Sea Funding Corporation
Salton Sea Royalty Company
BN Geothermal Inc.
San Felipe Energy Company
Conejo Energy Company
Niguel Energy Company
Vulcan/BN Geothermal Power Company
Leathers, L.P.
Del Ranch, L.P.
Elmore, L.P.
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
Re: Registration Statement on Form S-4
(File No. 333-07527)
Ladies and Gentlemen:
We have acted as special Nevada counsel to Vulcan Power Company, a Nevada
corporation ("VPC"), and Vulcan/BN Geothermal Power Company, a Nevada general
partnership ("Vulcan") in connection with the filing of a Registration Statement
on Form S-4 (File No. 333-07527) (the "Registration Statement"), under the
Securities Act of 1933, as amended (the "Act"), covering the Offer to Exchange
7.02% Senior Secured Series D Notes Due May 30, 2000 for any and all of its
outstanding 7.02% Senior Secured Series D Notes Due May 30, 2000 ("Series D
Securities"); and Offer to Exchange 8.30% Senior Secured Series E Bonds Due May
30, 2011, for any and all of its outstanding 8.30% Senior Secured Series E Bonds
Due May 30, 2011 ("Series E Securities") (Series D and E Securities,
collectively, the "Securities") by Salton Sea Funding Corporation, a Delaware
corporation, and also covering VPC and Vulcan's guarantee of the payment of the
principal of, premium, if any, and interest in the Securities. This Opinion is
rendered pursuant to the registraton requirements of the Act, and the
regulations promulgated thereunder (including 17 CFR 229.601(b)(5)). All
capitalized terms used herein and not oterwise defined have the meanings
assigned to them in the Registration Statement.
In connection with this Opinion we have examined a Good Standing Certificate
for the Corporation from the Nevada Secretary of State, dated July 23, 1996, and
the Vulcan Partnership Agreement certified on the date hereof by the general
partners of Vulcan. We have assumed the authenticity of all documents submitted
to us as originals, the genuineness of all signatures, the legal capacity of
natural persons and the conformity to originals of all copies of all documents
submitted to us. We have relied upon the certificates of all public officials
and corporate officers with respect to the accuracy of all matters contained
therein.
Based upon and subject to the foregoing, and the qualifications, limitations,
exceptions and assumptions set forth below, it is our opinion that:
1. VPC is duly incorporated and validly existing and in good standing under the
laws of the State of Nevada.
2. Vulcan has been duly formed and is validly existing under the laws of the
State of Nevada.
Nothing herein shall be deemed an opinion as to the laws of any jurisdiction
other than the State of Nevada.
This Opinion is intended solely for your use in connection with the
transaction(s) covered hereby. It may not be relied upon by any other person or
for any other purpose, or reproduced or filed publicly by any person, without
the written consent of this firm. We disclaim liability as an expert under the
securities laws of the United States or any other jurisdiction. We consent to
being named in the Registration Statement and related Prospectus as counsel who
are passing upon the due incorporation and good standing of VPC, and the due
formation and valid existance of Vulcan, as each of the same relates to the
legality of the Partnership Guarantee by VPC and Vulcan. We hereby consent to
your filing copies of this Opinion as an exhibit to the Registration Statement
or any amendment thereto.
Sincerely,
/s/ Lionel Sawyer & Collins
LIONEL SAWYER & COLLINS
RECORDING REQUESTED BY )
AND WHEN RECORDED )
RETURN TO: )
)
David C. Reamer )
Skadden, Arps, Slate, Meagher & )
Flom )
919 Third Avenue )
New York, New York 10022 )
FIRST AMENDMENT TO DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
THIS FIRST AMENDMENT TO DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING (this "Amendment") is made as of June
20, 1996, by SALTON SEA POWER GENERATION L.P., a California limited
partnership ("SSPG"), whose address is 302 South 36th Street, Suite 400-B,
Omaha, Nebraska 68131, SALTON SEA BRINE PROCESSING L.P., a California limited
partnership ("SSBP"), whose address is 302 South 36th Street, Suite 400-B,
Omaha, Nebraska 68131 and FISH LAKE POWER COMPANY, a Delaware corporation
("Fish Lake"), whose address is 302 South 36th Street, Suite 400-F, Omaha,
Nebraska 68131, jointly and severally as trustor (collectively "Trustor"), to
CHICAGO TITLE COMPANY, whose address is 925 B Street, San Diego, California
92101, as trustee ("Trustee"), and in favor of CHEMICAL TRUST COMPANY OF
CALIFORNIA, a California corporation, whose address is 50 California Street,
10th Floor, San
Francisco, California 94111, as beneficiary ("Beneficiary") acting in its
capacity as collateral agent for and on behalf of Salton Sea Funding
Corporation, a Delaware corporation ("Funding Corporation") and the Secured
Parties (the "Secured Parties") under that certain Collateral Agency and
Intercreditor Agreement by and among Beneficiary, Funding Corporation, the
Secured Parties and the other parties named therein (the "Intercreditor
Agreement") and that certain Trust Indenture dated as of July 21, 1995 by and
between Funding Corporation and Beneficiary, as trustee, as the same may be
amended, modified or supplemented, including by that certain Second
Supplemental Trust Indenture dated as of even date herewith (as so amended,
modified or supplemented, the "Indenture"). Capitalized terms used and not
defined herein shall have the meanings set forth in the Indenture.
RECITALS
WHEREAS, Funding Corporation is a corporation established
for the sole purpose of making loans to the Guarantors from proceeds of the
issuance of notes and bonds (collectively, the "Securities") in its individual
capacity as principal and as agent acting on behalf of the Guarantors pursuant
to the Indenture; and
<PAGE>
WHEREAS, on July 21, 1995 the Funding Corporation issued and
sold Securities in the aggregate principal amount of $475 Million (the
"Initial Securities"); and
WHEREAS, in connection with the issuance and sale of the
Initial Securities, Trustor entered into the Salton Sea Secured Guarantee
dated as of July 21, 1995 in favor of Beneficiary (the "Salton Sea Secured
Guarantee") whereby Trustor guaranteed certain of the obligations of Funding
Corporation under the Initial Securities; and
WHEREAS, in order to secure its obligations under the Salton
Sea Secured Guarantee and the other Financing Documents, Trustor has, among
other things, entered into that certain Deed of Trust, Assignment of Rents,
Security Agreement and Fixture Filing in favor of Trustee and for the benefit
of Beneficiary (the "Deed of Trust") dated as of July 21, 1995 which was
recorded on July 21, 1995, as instrument no. 95015970, in the official records
of Imperial County, California; and
WHEREAS, Funding Corporation has simultaneously with the
execution and delivery of this Amendment issued and sold Securities in the
aggregate principal amount of $135 Million (the "Additional Securities"); and
WHEREAS, in connection with the issuance and sale of the
Additional Securities, Trustor entered into various agreements and amendments
to the Financing Documents, including that certain Agreement Regarding
Security Documents dated as of the date hereof, by and among Trustor,
Beneficiary and the other parties named therein (the "Agreement Regarding
Security Documents") supplementing the Salton Sea Secured Guarantee and
acknowledging that the obligations guaranteed by the Salton Sea Secured
Guarantee include the obligations of Funding Corporation under the Additional
Securities; and
WHEREAS, the parties wish to amend the Deed of Trust to
expressly provide that it secures Trustor's obligations under the Salton Sea
Secured Guarantee and the other Financing Documents, as so amended, modified
or supplemented, including pursuant to the Agreement Regarding Security
Documents.
AGREEMENT
NOW, THEREFORE, in consideration of good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
1. Financing Documents. The term Financing Documents, as
used in the Deed of Trust, is hereby expressly made to include (to the extent
it does not now so include), without limitation: (a) the Salton Sea Secured
Guarantee, as amended,
<PAGE>
modified or supplemented by the Agreement Regarding Security Documents, and as
otherwise amended, modified or supplemented from time to time, (b) the
Depositary Agreement, as amended, modified or supplemented by that certain
Amendment No. 1 to Deposit and Disbursement Agreement dated as of the date
hereof, and as otherwise amended, modified or supplemented from time to time,
by and among Trustor, Beneficiary and the other parties named therein, (c) the
Intercreditor Agreement, as amended, modified or supplemented by that certain
First Amendment to Collateral Agency and Intercreditor Agreement dated as of
the date hereof, and as otherwise amended, modified or supplemented from time
to time, by and among Trustor, Beneficiary and the other parties named therein
and (d) the Exchange and Registration Rights Agreement dated as of the date
hereof, between Funding Corporation and the initial purchaser named therein.
2. Effect of This Amendment. On and after the date of this
Amendment, each reference in the Deed of Trust to the Deed of Trust, shall
mean the Deed of Trust as amended hereby. Except as specifically amended
above, the Deed of Trust shall remain in full force and effect and is hereby
ratified and confirmed. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver
of any right, power, or remedy of Beneficiary or any of the Secured Parties
nor constitute a waiver of any provision of the Deed of Trust.
3. Headings. The headings, titles and captions of various
Sections of this Amendment are for convenience of reference only and are not
to be construed as defining or limiting, in any way, the scope or intent of
the provisions hereof.
4. Governing Law. THIS AMENDMENT IS GOVERNED BY AND SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
5. Counterparts. This Amendment may be signed in any number
of counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed, and this Amendment shall be effective, as of the day
and year first above written.
SALTON SEA POWER GENERATION L.P.,
a California limited partnership
By: SALTON SEA POWER COMPANY,
a Nevada corporation, its general partner
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
SALTON SEA BRINE
PROCESSING L.P.,
a California limited partnership
By: SALTON SEA POWER COMPANY,
a Nevada corporation, its general partner
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
FISH LAKE POWER COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
<PAGE>
CHEMICAL TRUST COMPANY OF
CALIFORNIA,
a California corporation,
as Collateral Agent
By: /s/ Rose Maravilla
Name: R.I. Maravilla
Title: Assistant Vice President
<PAGE>
STATE OF NEW YORK)
)
COUNTY OF NEW YORK)
On June 20, 1996, before me, Patricia Peterson, Notary Public,
personally appeared R.I. Maravilla, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Patricia Peterson
- ------------------------------------
Notary/Public
STATE OF NEW YORK)
)
COUNTY OF NEW YORK)
On June 20, 1996, before me, Patricia Peterson, Notary Public,
personally appeared John Sylvia, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Patricia Peterson
- ------------------------------------
Notary/Public
STATE OF NEW YORK)
)
COUNTY OF NEW YORK)
On June 20, 1996, before me, Patricia Peterson, Notary Public,
personally appeared R.I. Maravilla, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Patricia Peterson
- ------------------------------------
Notary/Public
<PAGE>
STATE OF NEW YORK)
)
COUNTY OF NEW YORK)
On June 20, 1996, before me, Patricia Peterson, Notary Public,
personally appeared John Sylvia, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Patricia Peterson
- ------------------------------------
Notary/Public
EXHIBIT 10.23
COLLATERAL ASSIGNMENT
(SCE Agreements)
This Collateral Assignment (this "Assignment") is dated as of June
20, 1996 by DEL RANCH, L.P., a California limited partnership ("Del Ranch"),
ELMORE, L.P., a California limited partnership ("Elmore"), LEATHERS, L.P., a
California limited partnership ("Leathers"), and VULCAN/BN GEOTHERMAL POWER
COMPANY, a Nevada general partnership ("Vulcan", and together with Del Ranch,
Elmore and Leathers, "Borrower") in favor of Chemical Trust Company of
California, a California corporation (together with its successors and
assigns, the "Collateral Agent"), as collateral agent under the Intercreditor
Agreement (as defined below).
RECITALS
A. Initial Senior Secured Debt. Pursuant to that certain Trust
Indenture (the "Original Indenture") dated as of July 21, 1995, between Salton
Sea Funding Corporation, a Delaware corporation ("Funding Corporation"), as
issuer, and Collateral Agent, as trustee, Funding Corporation has issued for
its own account as principal, and as agent for the Guarantors (as defined in
the Original Indenture), $232,750,000 principal amount of Senior Secured
Series A Notes due 2000, $133,000,000 principal amount of Senior Secured
Series B Bonds due 2005 and $109,250,000 principal amount of Senior Secured
Series C Bonds due 2010 (collectively, the "Initial Senior Secured Debt").
B. Additional Senior Secured Debt. Pursuant to that certain Second
Supplemental Trust Indenture (the "Supplemental Indenture") dated as of June
20, 1996, between Funding Corporation, as issuer, and Collateral Agent, as
trustee, Funding Corporation will issue for its own account as principal, and
as agent for the Guarantors, $70,000,000 principal amount of Senior Secured
Series D Notes due 2000 and $65,000,000 principal amount of Senior Secured
Series E Bonds due 2011 (the "Additional Senior Secured Debt", and together
with the Initial Senior Secured Debt and all other securities issued under the
Indenture, the "Senior Secured Debt"). The Original Indenture, as amended,
modified or supplemented, including pursuant to the Supplemental Indenture is
referred to herein as the "Indenture." Capitalized terms used and not
otherwise defined herein shall have the meanings as defined in the Indenture.
C. Financing Documents. In connection with the issuance of the Senior
Secured Debt, Borrower has entered or will enter into certain agreements (the
"Financing Documents") with certain parties (the "Secured Parties"), which
agreements include a credit agreement with Funding Corporation and a guarantee
in favor of Collateral Agent serving in its capacity as collateral agent under
the Intercreditor Agreement and as trustee under the Indenture.
<PAGE>
D. Security Documents. In order to secure all their obligations under
the Financing Documents, Borrower has agreed to execute certain security
documents (the "Security Documents"), encumbering and granting security
interests in certain of Borrower's rights and properties in favor of Collateral
Agent, as agent for the Secured Parties and Funding Corporation under that
certain Collateral Agency and Intercreditor Agreement dated as of July 21,
1995, as amended, by and among Funding Corporation, the Secured Parties and the
Guarantors named therein (the "Intercreditor Agreement").
E. Purpose. This Assignment is entered into to assign, pledge and
encumber all of Borrower's right, title and interest in and to the documents
listed on Exhibit A attached hereto, in favor of the Collateral Agent, as agent
for the Secured Parties and Funding Corporation in order to secure the payment
and performance of the Obligations (as defined below) to the Secured Parties and
Funding Corporation.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the sufficiency
and adequacy of which is hereby acknowledged, the parties agree as follows:
1. Borrower hereby conveys, assigns, transfers and grants to
Collateral Agent, as security for all its obligations under the Financing
Documents (the "Obligations") all the right, title and interest of Borrower
in, to and under (including all moneys due and to become due to Borrower
under), and does hereby grant and create in favor of Collateral Agent, for the
equal and ratable benefit of the Secured Parties and Funding Corporation, a
lien on and first priority security interest in the documents listed on
Exhibit A attached hereto (as amended, supplemented or modified, individually,
an "Assigned Agreement," and collectively, the "Assigned Agreements").
Notwithstanding any provision herein to the contrary, there shall be no
enforcement of remedies hereunder unless there shall have occurred and be
continuing a Credit Agreement Event of Default under the Partnership Credit
Agreement or a Guarantee Event of Default under the Partnership Guarantee.
2. This Assignment shall be subject to all the terms and conditions
of the other Security Documents, and all the right, title and interest of
Borrower in, to and under the Assigned Agreements shall from the date hereof
constitute part of the collateral pledged, assigned or otherwise encumbered
under the Security Documents (the "Collateral") for all purposes of the
Security Documents.
3. Neither this Assignment nor the receipt by Collateral Agent of any
payments pursuant hereto shall cause Collateral Agent, Funding Corporation or
any Secured Party to be under any obligation to Borrower for any action taken
or omitted to be taken by Collateral Agent, Funding Corporation or any Secured
Party under or in connection with the Assigned Agreements, this Assignment or
any other Security Document.
2
<PAGE>
4. Borrower hereby irrevocably constitutes and appoints Collateral
Agent and any officer or agent thereof, with full power of substitution, as
its true and lawful attorney-in-fact (which appointment as attorney-in-fact
shall be coupled with an interest) with full and irrevocable power and
authority in the place and stead of Borrower and in the name of Borrower or in
the name of Collateral Agent for the purpose of carrying out the terms of this
Assignment or any of the Security Documents, 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 Collateral Agent deems necessary or advisable to impose,
perfect or continue the perfection of the Lien created hereby and to take any
and all action and to execute any and all instruments which may be necessary
to accomplish the purposes of this Assignment; provided, however, Collateral
Agent shall not exercise such rights except upon the occurrence and
continuance of a Credit Agreement Event of Default under the Partnership
Credit Agreement or a Guarantee Event of Default under the Partnership
Guarantee.
5. At any time and from time to time, Collateral Agent or any officer
or agent thereof shall have the right to perform any act, duty or obligation
required of Borrower that Collateral Agent reasonably determines to be
necessary or appropriate to cure any default, action or omission of Borrower
under any of the Assigned Agreements and, in connection with such cure, to
protect the rights of Borrower and Collateral Agent thereunder, and may do so
in Collateral Agent's name or in the name of Borrower; provided, however,
nothing herein shall require Collateral Agent to cure any default, action or
omission of Borrower under any such Assigned Agreement or to perform any act,
duty or obligation to Borrower thereunder. In accordance with the Security
Documents, neither Collateral Agent, Funding Corporation or any Secured Party,
nor any of their respective officers, directors, employees, agents,
attorneys-in-fact or affiliates shall be liable to Borrower or any other
Person for any action taken or omitted to be taken by it or them under or in
connection with any Assigned Agreement notwithstanding that any such action
taken, or omission, by Collateral Agent or such other Persons shall prove to
be inadequate, inappropriate or invalid, in whole or in part, except for
liability resulting from Collateral Agent's gross negligence or willful
misconduct.
6. Borrower hereby agrees to execute and deliver such additional
assignments and other documents as Collateral Agent reasonably may request in
order to implement the purpose and intent of this Assignment and the Security
Documents, including, without limitation, those documents required to perfect
and protect the assignment and security interest granted hereunder and
thereunder.
7. Borrower hereby represents and warrants that, other than such
security interests as have been granted by the Borrower pursuant to (a) the
collateral assignments entered into by each of Del Ranch, Elmore and Leathers
in favor of Morgan Guaranty Trust Company of New York, as Agent, which
security interests shall have been terminated as of even date herewith, and
(b) the Security Documents, it has not heretofore assigned or otherwise
disposed of or encumbered any right, title or interest of the Borrower in, to
or under the Assigned Agreements or any moneys due or to become due to the
Borrower under or by reason thereof, and that the Borrower has, subject to
3
<PAGE>
the terms and conditions of the Assigned Agreements and all applicable
governmental laws, rules or other requirements, the right and power to
transfer to Collateral Agent, for the benefit of the Secured Parties and
Funding Corporation, absolute title to the Borrower's right, title and
interest in, to and under the Assigned Agreements and in and to all the moneys
due and to become due to the Borrower under the Assigned Agreements.
8. THIS ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
9. This Assignment shall create a continuing assignment, pledge and
first priority security interest in the Assigned Agreements and shall remain
in full force and effect for the benefit of Collateral Agent until all
Obligations to be paid or performed by Borrower have been paid and performed
in full. Upon the happening of all of such events, the security interest
granted hereby shall terminate. Upon such termination, Collateral Agent shall,
upon the request and at the expense of Borrower, execute and deliver to
Borrower such documents as Borrower shall reasonably request to evidence such
termination.
10. This Assignment shall be binding upon and inure to the benefit of
Borrower and Collateral Agent for the benefit of Funding Corporation and the
Secured Parties and their respective successors and assigns.
4
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Assignment to be duly
executed and delivered as of the date first above written.
DEL RANCH, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
as General Partner
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
ELMORE, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
as General Partner
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
LEATHERS, L.P.,
a California limited partnership
By: CalEnergy Operating Company,
a Delaware corporation,
as General Partner
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
5
<PAGE>
VULCAN/BN GEOTHERMAL POWER COMPANY,
a Nevada general partnership
By: Vulcan Power Company,
Nevada corporation,
as General Partner
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
6
<PAGE>
Exhibit A
to the
Collateral Assignment
---------------------
ASSIGNED AGREEMENTS
-------------------
As each of the following may be amended, supplemented or otherwise modified
in compliance with the provisions of the Financing Documents:
The Power Purchase Contract, dated February 22, 1984 between Southern
California Edison Company ("Edison") and Del Ranch, L.P., a California limited
partnership ("Del Ranch") (as successor-in-interest to Imperial Energy
Corporation), and Amendment No. 1 thereto dated November 13, 1984 and
Amendment No. 2 thereto dated April 10, 1986.
The Power Purchase Contract, dated June 15, 1984 between Edison and Elmore,
L.P., a California limited partnership ("Elmore") (as successor-in-interest to
Magma Electric Company), and Amendment No. 1 thereto dated November 30, 1984
and Amendment No. 2 thereto dated April 10, 1986.
The Power Purchase Contract, dated April 16, 1985 between Edison and
Leathers, L.P., a California limited partnership ("Leathers") (as
successor-in-interest to Imperial Energy Corporation), and Amendment No. 1
thereto dated April 10, 1986.
The Power Purchase Contract, dated March 1, 1984 between Edison and
Vulcan/BN Geothermal Power Company, a Nevada general partnership ("Vulcan")
(as successor-in-interest to Magma Electric Company), and Amendment No. 1
thereto dated May 10, 1984 and Amendment No. 2 thereto dated April 1, 1986.
The Funding Agreement dated May 18, 1990 between Edison and Del Ranch.
The Funding Agreement dated May 18, 1990 between Edison and Elmore.
The Funding Agreement dated June 15, 1988 between Edison and Leathers (as
successor-in-interest to Magma Power Company).
The Funding Agreement dated May 18, 1990 between Edison and Leathers.
The Funding Agreement dated May 18, 1990 between Edison and Vulcan.
EXHIBIT 10.24
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
CALENERGY OPERATING COMPANY,
a Delaware corporation
AND
VULCAN/BN GEOTHERMAL POWER COMPANY,
a Nevada general partnership
<PAGE>
TABLE OF CONTENTS
PAGE
1. Definitions....................................... 2
2. Services.......................................... 2
3. Subcontracting.................................... 2
4. Reimbursement and Other Compensation for Services. 2
5. Term and Termination.............................. 3
6. Disclaimer of CEOC's Liability.................... 4
7. Non-Waiver of Breach.............................. 4
8. Arbitration....................................... 4
9. Attorneys' Fees................................... 5
10. Force Majeure..................................... 5
11. Invalid Provision................................. 6
12. Assignment........................................ 6
13. Governing Law..................................... 6
14. Entire Agreement - Amendments..................... 6
15. Communications.................................... 7
16. Counterparts...................................... 7
17. Exhibits.......................................... 7
18. Third Party Beneficiaries......................... 7
19. Headings.......................................... 7
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
PREAMBLE
THIS ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement") is made as
of June 17, 1996, by and between CALENERGY OPERATING COMPANY, a Delaware
corporation ("CEOC"), and VULCAN/BN GEOTHERMAL POWER COMPANY, a Nevada general
limited partnership ("Owner").
RECITALS
A. Owner owns the Vulcan Facility located in the Salton Sea Known
Geothermal Resource Area ("SSKGRA").
B. Owner intends to operate the Vulcan Facility under the following
operating agreements: (i) a Construction, Operating and Accounting Agreement
by and between Owner and Vulcan Power Company, a Nevada corporation ("VPC"),
pursuant to which VPC will operate the Vulcan Facility on behalf of Owner;
(ii) an Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development by and between VPC and Magma pursuant to which Magma Power
Company, a Nevada corporation ("Magma"), will supply Owner with the right to
extract Geothermal Brine and use geothermal brine-derived steam which is
necessary to operate the Vulcan Facility; and (iii) a Power Purchase Contract
by and between Owner and Southern California Edison Company.
C. Owner desires to exploit CEOC's administrative and management
resources, and to that end Owner desires to employ, hire or otherwise retain
the administrative and management services of CEOC for purposes of
administering the functions of the Vulcan Facility.
D. Owner and CEOC desire to enter into this Agreement pursuant to
which CEOC, for a fee will provide administrative and management services as
more fully described herein. In consideration for the services provided by
CEOC hereunder, Owner shall compensate CEOC for, among other things, all costs
and expenses actually incurred by CEOC in providing such services, as more
particularly described herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements set forth herein, the parties hereto agree as
follow:
1
<PAGE>
AGREEMENT
1. Definitions.
1.1 Unless the context shall otherwise require, capitalized
terms used and not otherwise defined herein shall have the respective meanings
assigned thereto in Schedule Z hereto, which shall be incorporated by
reference herein.
2. Services. In consideration of the payment by Owner to CEOC as
provided in Section 4 hereof, CEOC agrees to perform during the term of this
Agreement those functions normally considered part of the day-to-day
administrative and management activities for facilities similar to the Vulcan
Facility as determined by Owner which are not within the scope of Services to
be provided by VPC to Owner pursuant to the Operating and Maintenance
Agreement. The Services to be provided hereunder include, without limitation,
(i) general bookkeeping and financial accountingy, (ii) general legal services
(but not legal services of an extraordinary nature including, without
limitation, legal services in connection with litigation or administrative
proceedings), (iii) personnel administration and payroll services, (iv) cash
management services, (v) energy production oversight and the determination of
output levels; (vi) consulting services with respect to geothermal electrical
energy production, (vii) assisting Owner in obtaining any franchises, permits,
licenses, easements or rights-of-way necessary for continued operation of the
Vulcan Facility, and (viii) any other administrative and management services
that may be needed in connection with the operation of the Vulcan Facility.
3. Subcontracting. In connection with CEOC's providing of the
Services contemplated by this Agreement, CEOC may subcontract with or
otherwise retain the services of other Persons including, but not limited to,
Magma and other Affiliates of CEOC, and Owner hereby consents to such
subcontracting for purposes of Section 12 hereof. For purposes of this
Agreement, any Services performed by such Persons shall be deemed to have been
performed by CEOC.
4. Reimbursement and Other Compensation for Services.
1. In consideration of the provision by CEOC to Owner of the
Services contemplated by Section 2 hereof, within thirty (30) days after Owner
has received an invoice from CEOC specifying the Services rendered to Owner by
CEOC and the amount to be paid to CEOC therefor, Owner shall pay
2
<PAGE>
to CEOC such specified amount. In charging Owner for Services under this
Section 4, CEOC shall have the right to charge Owner an amount which shall
enable CEOC to (a) recoup the actual costs and expenses incurred by CEOC in
rendering the Services plus (b) earn a reasonable profit for the Services so
rendered including, without limitation, a reasonable rate of return on CEOC's
invested capital used in connection with the provision by CEOC of the
Services, taking into consideration factors including the extent to which CEOC
can reasonably expect to earn a return on itsinvested capital by utilizing
CEOC's equipment and materials for providing services other than to the Vulcan
Facility. As used in this Section 4.1, "actual costs and expenses incurred by
CEOC" includes, without limitation, (a) the actual cost to CEOC of goods and
materials used by CEOC in rendering Services, (b) the pro rata cost to CEOC of
personnel providing labor or services in the course of CEOC's provision of
Services and (c) the actual cost to CEOC of retaining another Person, whether
Magma or another Affiliate of CEOC or otherwise, in connection with the
provision of Services. In the event CEOC subcontracts with any Person,
including, without limitation, Magma or another Affiliate as provided in
Section 3 hereof, any payment to CEOC under this Section 4.1 on account of the
Services so subcontracted shall be made to CEOC only to the extent of the
amount charged CEOC by such Person and shall not include any amounts
representing a mark-up by CEOC over the amount so charged.
2. With respect to any calculation of actual costs and
expenses or any allocation of costs contemplated by Section 4.1 hereof, Owner
shall be bound by CEOC's determination thereof unless the same is clearly
erroneous.
5. Term and Termination.
1. Unless terminated as provided in Section 11 hereof, by
written agreement between Owner and CEOC as provided in Section 14 hereof, or
as hereinafter provided in this Section 5, this Agreement shall remain in
effect until, and shall terminate on March 14, 2020.
2. In the event of a material default by either party in the
performance of its duties, obligations or undertakings under this Agreement,
the other party shall have the right to give written notice to the defaulting
party advising such party of the specific default involved and, if within
thirty (30) days after such notice the defaulting party shall not have
remedied or commenced diligently to remedy the default, the other party shall
have the right, in addition to any other rights and remedies it may have, to
terminate this Agreement upon ten (10) days written notice to the defaulting
party.
3
<PAGE>
3. Notwithstanding any other provision of this Agreement, and
in addition to any other right it may have, CEOC shall have the right to
terminate this Agreement, effective immediately, if, at any time, Owner is
adjudged bankrupt or insolvent, or files a petition in bankruptcy or an answer
admitting the material facts recited in such a petition filed by another, or
is put or decides to go into dissolution or liquidation (other than in
connection with a merger, consolidation or amalgamation), or otherwise
discontinues business, makes an assignment for the benefit of its creditors or
any other general arrangement with its creditors, becomes insolvent or unable
to meet its current payments, or has a receiver or other custodian of any kind
appointed to administer any substantial amount of its property, or otherwise
seeks to take advantage of any bankruptcy or insolvency statute now or
hereafter in effect.
4. If this Agreement is terminated prior to the expiration of
its term as provided in Section 5.1 hereof, Owner shall, in addition to any
other rights, remedies and obligations it may have, pay CEOC all amounts due
and payable to CEOC under Section 4 hereof as of the date the Agreement is
effectively terminated.
6. Disclaimer of CEOC's Liability. CEOC, in providing the Services
provided for herein, shall use its good faith efforts in providing such
services, but CEOC shall not be liable to Owner for damages arising out of or
resulting from the provision of such Services, except to the extent that such
damages arise out of or result from the gross negligence or willful misconduct
or CEOC, nor shall CEOC be liable to Owner for consequential damages under any
circumstances. CEOC shall have no responsibility for the ability of Owner to
effectively operate the Vulcan Facility or the claims of third parties arising
with respect to the Vulcan Facility. Owner shall indemnify and hold harmless
CEOC against all liability or responsibility to Owner or to others for any
failure in production, operation or otherwise of the Vulcan Facility. CEOC
does not warrant and shall not be responsible for the quality of services or
any design, specification, drawing, blueprint, reproduced tracing, formula,
production process or other data or information furnished by it to Owner in
the course of fulfilling its obligations under this Agreement, but shall
furnish such in good faith to the best of CEOC's knowledge and ability.
7. Non-Waiver of Breach. Either party hereto may specifically waive
any breach of this Agreement by the other party, but no such waiver shall be
deemed to have been given unless such waiver is in writing, signed by the
waiving party and specifically designates the breach waived, nor shall any
4
<PAGE>
such waiver constitute a continuing waiver of similar or other breaches.
8. Arbitration. All disputes arising under this Agreement shall be
settled by arbitration. The party desiring such arbitration shall give written
notice to that effect to the other party and in such notice shall appoint as
an arbitrator a disinterested person of recognized competence in the area at
issue. Within fifteen (15) days thereafter, the other party shall, by written
notice to the originating party, appoint a second person similarly qualified
as the second arbitrator. The arbitrators thus appointed shall appoint a third
person similarly qualified as the third arbitrator, and such three arbitrators
shall as promptly as possible determine such matter with the parties, each
being entitled to present evidence and argument to the arbitrators; provided,
however, that:
(i) if the second arbitrator shall not have been appointed as
aforesaid, the first arbitrator shall determine such matter; and
(ii) if the two arbitrators appointed by the party shall be
unable to agree upon the appointment of a third arbitrator within
fifteen (15) days after the appointment of the second arbitrator,
they shall give written notice of such failure to agree to the
parties, and, if the parties fail to agree upon the selection of such
third arbitrator within fifteen (15) days thereafter, then within ten
(10) days thereafter, either of the parties upon written notice to
the other party may apply for such appointment to the Federal
District Court or District Court in Omaha, Nebraska.
The arbitrator or arbitrators shall only interpret and apply the
terms and provisions of this Agreement and shall not change any such terms or
provisions or deprive either party of any right or remedy expressly or
impliedly provided for in this Agreement.
The determination of the majority of the arbitrators or the sole
arbitrator, as the case may be, shall, to the extent permitted by law, be
conclusive upon the parties. The arbitrator or arbitrators shall give written
notice to the parties stating their determination, and shall furnish to each a
copy of such determination signed by them. In the event of the failure,
refusal or inability of any arbitrator to act, a new arbitrator shall be
appointed in his stead, which appointment shall be made in the same manner as
hereinbefore provided for the appointment of the arbitrator so failing,
refusing or unable to act.
5
<PAGE>
9. Attorneys' Fees. If either party hereto commences litigation or
arbitration for the judicial or other interpretation, enforcement,
termination, cancellation or rescission hereof, or for damages for the breach
hereof, the prevailing party in any such action, trial, arbitration or appeal
thereon shall be entitled to its reasonable attorneys' fees and court,
arbitration and other costs incurred, to be paid by the losing party as fixed
by the court or arbitrator in the same or a separate suit, and whether or not
such action is pursued to decision or judgment.
10. Force Majeure.
1. Neither Owner nor CEOC shall be liable in damages to the
other for any act, omission or circumstance ("Event of Force Majeure")
occasioned by or in consequence of any acts of God, acts of the public enemy,
wars, blockades, insurrections, riots, epidemics, landslides, lightning,
earthquakes, fires, storms, floods, civil disturbances, explosions, sabotage,
the binding order of any court or governmental authority which has been
resisted in good faith by all reasonable legal means, Federal, State or local
laws, or other event or circumstance not within the control of such party
preventing such party from performing its obligations hereunder, whether
caused or occasioned by, or happening on account of, the act or omission of
one of the parties, not within the control of the party claiming suspension
and which by the exercise of due diligence such party is unable to prevent or
overcome.
2. Such Events of Force Majeure shall not relieve Owner or
CEOC of liability in the event of either party's concurring negligence or in
the event of either party's failure to use due diligence to remedy the
situation and to remove the cause in an adequate manner and with all
reasonable dispatch, nor shall such Events of Force Majeure relieve either
party of liability unless such party shall give notice and full particulars of
the same in writing to the other party within ten (10) days of the occurrence
relied on. In no event, however, shall an Event of Force Majeure relieve Owner
from the obligation of making payments due under this Agreement at the time of
such occurrence. The parties agree that should any Event of Force Majeure
remain in existence for a period of six (6) months, this Agreement may be
terminated by the party not claiming suspension of the Agreement under such
Event of Force Majeure upon the giving of written notice by such party to the
other; provided, however, that such six (6) month period shall be extended for
a reasonable time so long as throughout such six (6) month period the party
claiming suspension of this Agreement under the Event of Force Majeure has
diligently proceeded to
6
<PAGE>
terminate the Event of Force Majeure and continues to do so throughout such
extension.
11. Invalid Provision.
1. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted; provided, however, that if any of the
provisions of Sections 2, 4 or 5 hereof are held invalid or unenforceable by
any court or other relevant authority, Owner and CEOC shall hold consultations
over a period of ninety (90) days, commencing immediately, in an effort to
work out satisfactory terms for continuation of this Agreement. If Owner and
CEOC do not reach agreement within this period, CEOC shall have the right to
terminate this Agreement, effective immediately.
2. In the event that any provision, term, condition or object
of this Agreement may be in conflict with any law, measure, ruling, court
judgment (by consent or otherwise), or regulation of the government of the
United States of America, and the legal counsel of either party shall advise
that in their considered opinion such conflict, or a reasonable possibility of
such conflict, exists, then either party may propose to the other appropriate
modifications of this Agreement to avoid such conflict. In such case, if an
agreement of modification is not reached within ninety (90) days from such
proposal, the party making such proposal, after sixty (60) days' written
notice to the other party, may terminate the agreement in its entirety as of a
date subsequent to such sixty (60) days, and which shall be specified in such
notice.
12. Assignment. Subject to Section 3 hereof, neither Owner nor CEOC
shall grant, assign or otherwise convey any of their respective rights or
delegate any of their respective obligations under this Agreement without the
prior written consent of the other party which consent shall not be
unreasonably withheld.
13. Governing Law. The existence, validity, construction, operation
and effect of this Agreement shall be determined in accordance with and
governed by the laws of the State of California. This Agreement shall be
construed equally as against the parties hereto, and shall not be construed
against the party responsible for its drafting.
14. Entire Agreement - Amendments. This Agreement constitutes the
entire agreement of the parties and the provisions hereof shall supersede any
and all prior agree-
7
<PAGE>
ments or understandings relating to the same subject
matter. This Agreement may be amended only by a writing signed by a duly
authorized representative of both parties.
15. Communications. All notices, requests, offers and other
communications required or permitted to be made under this Agreement shall be
in writing and shall be deemed to have been duly given and received,
regardless of when and whether received, either: (a) on the day of delivery,
if delivered
To CEOC at:
CalEnergy Operating Company
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
To Owner at:
Vulcan/BN Geothermal Power Company
302 South 36th Street, Suite 400-E
Omaha, Nebraska 68131
Attention: General Counsel
or at such other address as either party most recently may have designated in
writing to the other party for such purpose; or (b) on the day sent, when sent
by prepaid telex, telegram, cable or radiogram, and confirmed the same day by
prepaid first-class registered airmail, addressed to CEOC or Owner, as the
case may be, at their respective addresses aforesaid.
16. Counterparts. This Agreement may be executed in counterparts
and any number of counterparts signed in the aggregate by the parties hereto
shall constitute a single original instrument.
17. Exhibits. All exhibits and schedules attached hereto are hereby
incorporated herein by this reference.
18. Third Party Beneficiaries. The covenants contained herein are
made solely for the benefit of the properties, parties and successors and
assigns of such parties as specified herein, and shall not be construed as
having been intended to benefit any third party not a party to this Agreement.
19. Headings. The headings herein are for reference only and shall
not affect the construction of this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be signed by their duly authorized officers as of the day and year first
above written.
CEOC:
CALENERGY OPERATING COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
______________________________
Name: John G. Sylvia
______________________________
Title: Senior Vice President
______________________________
OWNER:
VULCAN/BN GEOTHERMAL POWER COMPANY,
a Nevada general partnership
By: VULCAN POWER COMPANY,
a Nevada corporation, as
General Partner
By: /s/ John G. Sylvia
______________________________
Name: John G. Sylvia
______________________________
Title: Senior Vice President
______________________________
9
<PAGE>
TABLE OF SCHEDULES
Section
-------
Schedule "Z" Schedule of Defined Terms 1.1
10
EXHIBIT 10.25
AMENDED AND RESTATED
CONSTRUCTION, OPERATING AND ACCOUNTING AGREEMENT
------------------------------------------------
BY AND BETWEEN
VULCAN POWER COMPANY,
a Nevada corporation
AND
VULCAN/BN GEOTHERMAL POWER COMPANY
a Nevada general partnership
<PAGE>
TABLE OF CONTENTS
- -----------------
<TABLE>
<CAPTION>
<S> <C>
Page
----
1. Definitions.......................................................2
2. Operator's Services...............................................2
3. Standard of Services..............................................4
4. Personnel.........................................................5
5. Inspection........................................................5
6. Change in Duties; Notification....................................5
7. Responsibilities of Owner.........................................6
8. Facilities Revenue Fund...........................................6
9. Reimbursement Charges.............................................6
10. Subcontracting....................................................7
11. Term and Termination..............................................7
12. Indemnification...................................................7
13. Non-Waiver of Breach..............................................8
14. Arbitration.......................................................8
15. Attorneys' Fees...................................................9
16. Force Majeure.....................................................9
17. Invalid Provision................................................10
18. Assignment.......................................................10
19. Governing Law....................................................10
20. Entire Agreement - Amendments....................................10
21. Communications...................................................11
i
<PAGE>
22. Counterparts.....................................................11
23. Exhibits.........................................................11
24. Third Party Beneficiaries........................................11
25. Headings.........................................................12
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED
CONSTRUCTION, OPERATING AND ACCOUNTING AGREEMENT
------------------------------------------------
PREAMBLE
THIS AMENDED AND RESTATED CONSTRUCTION, OPERATING AND ACCOUNTING
AGREEMENT (the "Agreement") is made as of June 17, 1996, by and between VULCAN
POWER COMPANY, a Nevada corporation ("Operator"), and VULCAN/BN GOETHERMAL
POWER COMPANY, a Nevada general partnership ("Owner").
RECITALS
A. Owner owns the Vulcan Facility located in the Salton Sea Known
Geothermal Resource Area ("SSKGRA").
B. Owner intends to operate the Vulcan Facility under the following
operating agreements: (i) an Administrative Services Agreement by and between
Owner and CalEnergy Operating Company, a Delaware corporation ("CEOC"),
pursuant to which CEOC will provide certain administrative services to Owner
for the operation of the Vulcan Facility; (ii) an Easement Grant Deed and
Agreement Regarding Rights for Geothermal Development by and between Operator
and Magma pursuant to which Magma will supply Owner with the right to extract
Geothermal Brine and use geothermal brine-derived steam which is necessary to
operate the Del Ranch Facility; and (iii) a Power Purchase Contract by and
between Owner and Southern California Edison Company.
C. Owner desires to exploit Operator's personnel resources, and to that
end Owner desires to employ, hire or otherwise retain Operator for purposes of
performing the day-to-day operations at the Vulcan Facility.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and agreements set forth herein, the parties hereto agree as follow:
<PAGE>
AGREEMENT
1. Definitions.
1. Unless the context shall otherwise require, capitalized terms used
and not otherwise defined herein shall have the respective meanings assigned
thereto in Schedule Z hereto both of which shall be incorporated by reference
herein.
2. Operator's Services. In consideration of the payment by Owner to
Operator of the Reimbursement Charges, Operator agrees to perform during the
term of this Agreement the following services (the "Services"):
(a) Operator shall operate, maintain, and repair (or cause to be
operated, maintained, and repaired) the equipment associated with the
Vulcan Facility, including all work normally considered part of the
operational and maintenance activities for facilities similar to the
Vulcan Facility, and shall engage, supervise, and be responsible for any
and all personnel and Subcontractors necessary for the continuous
operation of the Vulcan Facility. Notwithstanding the provisions of
Section 2(f) hereof, when specialized maintenance and repairs to the
Vulcan Facility are required which cannot reasonably be performed by
Operator, Operator will subcontract with original equipment manufacturers
or similarly qualified personnel acceptable to Owner. Said operations,
maintenance, and repairs will be provided in accordance with the
requirements determined by Owner during the term of this Agreement. Owner
may modify, delete or supplement said requirements from time to time as
Owner, in its sole discretion, deems appropriate. Notice of any changes or
modifications in service requirements which may occur shall be provided by
Owner to Operator in writing. If Operator, in the exercise of good faith,
believes that an emergency exists and that certain changes or
modifications in service requirements are required to avoid or mitigate
serious damage to the Vulcan Facility or injury to its personnel or
others, Operator may make such changes or modifications, to the extent so
necessary and required.
(b) Consistent with good engineering and operations practices,
Operator shall provide its Services so as to optimize both the
profitability of the Vulcan Facility and the useful life of the equipment
as well as minimize downtime for repairs. Subject to the provisions of
this Agreement, Operator shall provide all labor, material, and equipment
necessary for such purposes.
(c) Operator shall develop and implement a preventive maintenance
program based upon, among other things, information and procedures provided
to Operator by Owner, which shall include on-going
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<PAGE>
operational maintenance. This preventive maintenance program shall be
implemented and carried out by Operator in accordance with the
specifications provided by Owner.
(d) Operator shall implement and maintain a Vulcan Facility safety
and loss prevention program. Operator shall take all reasonable
precautions for the safety of its employees and shall comply with all
applicable provisions of federal, state and municipal laws, building codes
and insurance policies to prevent accidents or injuries to persons or
damage to property within or about the Vulcan Facility.
(e) Operator shall maintain, inventory, and procure replacement
Spare Parts and specialized tools in order to maximize the continuous
operation of the Vulcan Facility, and procure, inventory, and maintain
chemicals, consumables and working supplies necessary to carry out the
Services. Owner will provide a location for storage of Spare Parts,
chemicals, consumables and supplies.
(f) Subject to Owner's prior approval, Operator may subcontract to
qualified Subcontractors, including, without limitation, Affiliates of
Operator, such routine or non-routine work as is necessary to perform
scheduled or unscheduled maintenance and repairs, annual inspections, and
equipment overhauls; Operator shall supervise all work subcontracted. The
subcontracting of any work to outside Subcontractors shall in no way
relieve or excuse Operator from any of its obligations under this
Agreement with respect to said work. Subcontracts with Affiliates of
Operator shall be on a competitive and arms-length basis. All charges
associated with work subcontracted by Operator shall be billed to Owner in
accordance with Section 9 hereof.
(g) Operator shall arrange for scheduled testing and recalibration
to assure accuracy of scales, metering units (geothermal and electric) and
associated recording devices.
(h) Operator shall be responsible for providing security for the
Vulcan Facility.
(i) Subject to shutdowns for scheduled maintenance, Operator shall
to the maximum extent achievable under the law and pursuant to the terms
of the Vulcan Power Purchase Contract, use its best efforts to maintain
the Vulcan Facility in operation, producing energy at its full rated
capacity, twenty-four (24) hours per day, seven (7) days per week
throughout the entire year, including legal and other holidays, unless
otherwise directed by Owner.
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<PAGE>
(j) At the request of Owner, Operator shall assist Owner in
obtaining any franchises, permits, licenses, easements, or rights-of-way
necessary for continued operation of the Vulcan Facility.
(k) Operator shall employ such staff as is reasonably necessary to
perform routine, ministerial record keeping and administrative functions
of the Del Ranch Facility as reasonably required by Owner for its use in
billings, accounting for receipts and payments, complying with
governmental laws and regulations, with generally acceptable accounting
principles and with reporting requirements of any Vulcan Facility finance
agreement or other agreement of Owner.
(l) Operator shall pursue warranty claims on behalf of Owner.
(m) Operator shall establish and maintain such bank accounts in the
name and on behalf of Owner as may be necessary or desirable for the
performance of its obligations hereunder. All such accounts and all
amounts from time to time deposited therein shall be and remain the
property of Owner and shall be subject to withdrawal by Owner from time to
time in its discretion.
(n) Operator shall operate the Vulcan Facility in compliance with
all permit conditions and applicable laws.
(o) Operator shall dispose of all Geothermal Brine Scale and all
Partially Spent Geothermal Brine from the operation of the Vulcan Facility
(unless utilized by Magma pursuant to Section 2.3.3 of the Easement
Agreement) and all Totally Spent Geothermal Brine to the extent Owner is
required to dispose thereof pursuant to the Easement Agreement.
(p) Operator shall be responsible for discharging all duties and
obligations, and protecting all rights, of Owner under the Credit
Facility, the Limited Partnership Agreement, the Vulcan Power Purchase
Contract and the other Operating Agreements.
3. Standard of Services. Operator agrees to use good faith efforts to
perform all Services in accordance with the reasonable, good, and prudent
business practices applicable to the geothermal electrical generating
production industry and in a manner no less favorable than practices employed
by operators of other power production geothermal electrical generating
facilities, including, without limitation, Magma. Operator shall exercise its
good faith efforts to ensure that:
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(a) the Vulcan Facility shall at all times be kept in as near "as
new" condition, ordinary wear and tear and Owner's operating requirements
considered, as can reasonably be achieved;
(b) the Services shall be rendered in accordance with manufacturers'
and systems designers' specifications as delivered to Operator by Owner;
(c) the Vulcan Facility shall at all times be operated and the
Services shall at all times be provided in accordance with all of the
terms of the Operating Agreements and all applicable codes, governmental
requirements or court orders (including, without limitation, all zoning,
environmental protection, pollution, sanitary, and safety laws) except to
the extent compliance with such requirements has been excused or exempted
by the applicable governmental or judicial authority;
(d) the Vulcan Facility shall be operated in a manner required such
that the Vulcan Facility is a "qualifying facility" as provided in
18-C.F.R. [section]-292.203, as the same may be amended from time to time;
and
(e) the Vulcan Facility shall be operated at all times in such a
manner that it shall comply with all safety and other requirements of
insurance policies in effect at said times with respect to the Vulcan
Facility or any part thereof and with the reasonable request of insurers
and that all warranties with respect to the Vulcan Facility or any part
thereof shall be kept in full force and effect.
4. Personnel. Operator shall provide and employ qualified plant
management, operations and maintenance personnel in sufficient numbers to
accomplish its Services hereunder and to comply with sound engineering and
operations practices. During the term of this Agreement, a duly authorized
on-site manager shall represent Operator at all times. All personnel shall
meet minimum job qualifications associated with their positions as determined
mutually by Owner and by Operator. Operator's personnel shall possess
experience and training equal to standards generally set within the industry
to operate and maintain substantially similar equipment. Operator will use its
best efforts to hire competent and experienced personnel at competitive
compensation.
5. Inspection. Operator shall ensure that the Vulcan Facility and all
records of the Vulcan Facility will at all times be open to Owner for
inspection and review of operations and maintenance practices.
6. Change in Duties; Notification. Owner shall notify Operator of the
execution or amendment of each Operating Agreement and the Limited Partnership
5
<PAGE>
Agreement which affects the Vulcan Facility or the operation thereof and which
directly relates to the performance of Operator's duties under this Agreement.
Owner shall furnish to Operator a description of the provisions of such
agreement or amendment which directly relates to the performance of Operator's
duties under this Agreement in sufficient detail to enable Operator to
satisfactorily perform its duties hereunder.
7. Responsibilities of Owner. Owner will bear responsibility for, among
other things, reviewing and approving all required plans, budgets and
schedules in a timely fashion.
8. Facilities Revenue Fund. Subject to the provisions of the Credit
Facility and related loan documents regarding accounts:
1. Operator shall deposit all revenues received by Owner in connection
with the operation of the Facilities into the Revenue Fund (as defined in the
Credit Facility and related loan documents).
2. Operator is authorized to withdraw monies from the Revenue Fund to
pay costs of performing its obligations only to the extent that the funds are
then available in the Revenue Fund and such payments are authorized pursuant
to the terms of this Agreement and the Credit Facility and related loan
documents.
9. Reimbursement Charges.
1. In consideration of the provision by Operator to Owner of the
Services, within ten (10) days after Owner has received an invoice from
Operator specifying the Services rendered to Owner by Operator and the amount
of actual costs and expenses incurred by Operator in rendering such Services,
Owner shall pay to Operator such specified amount. As used in this Section 9,
"actual costs and expenses incurred by Operator" includes, without limitation,
(a) the actual cost to Operator of goods and materials used by Operator in
rendering Services, (b) the pro rata cost to Operator of personnel providing
labor or services in the course of Operator's provision of Services, (c) the
portion of the cost of invested capital incurred by Operator for the purchase
of machinery and equipment used by Operator in connection with the provision
of Services fairly allocable to the use of such machinery and equipment for
performing the Services hereunder, taking into consideration factors including
the extent to which Operator can reasonably expect to earn a return on its
invested capital by utilizing such machinery and equipment for providing
services other than to the Vulcan Facility and (d) the actual cost to
Operator, without any mark-up by Operator whatsoever, of retaining a
Subcontractor, whether an Affiliate of Operator or otherwise, in connection
with the provision of Services.
2. With respect to any calculation of actual costs and expenses or any
allocation of costs contemplated by Section 9.1 hereof, Owner shall be bound
by Operator's determination thereof unless the same is clearly erroneous.
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<PAGE>
10. Subcontracting. Without limiting the generality of any provision
contained herein concerning the same subject matter as this Section 10, in the
event Operator determines it to be reasonably necessary to render the Services
required hereunder through a Subcontractor, Operator may subcontract with
Affiliates of Operator, and Owner hereby consents to such subcontracting for
all purposes of this Agreement. For purposes of this Agreement, any Services
performed by such Affiliates shall be deemed to have been performed by
Operator.
11. Term and Termination.
1. Unless terminated as provided in Section 17 hereof, by written
agreement between Owner and Operator as provided in Section 20 hereof, or as
hereinafter provided in this Section 11, this Agreement shall remain in effect
until, and shall terminate on March 14, 2020.
2. In the event of a material default by either party in the
performance of its duties, obligations or undertakings under this Agreement,
the other party shall have the right to give written notice to the defaulting
party advising such party of the specific default involved and, if within
thirty (30) days after such notice the defaulting party shall not have remedied
or commenced diligently to remedy the default, the other party shall have the
right, in addition to any other rights and remedies it may have, to terminate
this Agreement upon ten (10) days' written notice to the defaulting party.
3. Notwithstanding any other provision of this Agreement, and in
addition to any other right it may have, Operator shall have the right to
terminate this Agreement, effective immediately, if, at any time, Owner is
adjudged bankrupt or insolvent, or files a petition in bankruptcy or an answer
admitting the material facts recited in such a petition filed by another, or
is put or decides to go into dissolution or liquidation (other than in
connection with a merger, consolidation or amalgamation), or otherwise
discontinues business, makes an assignment for the benefit of its creditors or
any other general arrangement with its creditors, becomes insolvent or unable
to meet its current payments, or has a receiver or other custodian of any kind
appointed to administer any substantial amount of its property, or otherwise
seeks to take advantage of any bankruptcy or insolvency statute now or
hereafter in effect.
4. If this Agreement is terminated prior to the expiration of its
terms, Owner shall, in addition to any other rights, remedies and obligations
they may have, pay Operator all amounts due and payable to Operator under
Section 9 hereof as of the date the Agreement is effectively terminated.
12. Indemnification.
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<PAGE>
1. Owner shall defend, indemnify and hold Operator and its agent and
employees harmless from and against any and all other liabilities, claims,
damages, losses and expenses, including attorneys' fees and costs and expenses
of litigation or arbitration, of every kind and nature arising out of the
course of performance of this Agreement by Owner or Operator and shall, upon
request of Operator, defend all suits arising out of or resulting from the
performance of this Agreement by Owner or Operator, provided that such
liability, claim, damage, loss or expense is not attributable to the gross
negligence or willful misconduct of Operator.
2. Operator shall defend, indemnify and hold Owner and its agents and
employees harmless from and against any and all liabilities, claims, damages,
losses and expenses, including attorneys' fees and costs and expenses of
litigation or arbitration, of every kind and nature arising out of Operator's
gross negligence or willful misconduct in the course of Operator's performance
of this Agreement and shall, upon request of Owner, defend all suits arising
out or resulting from Operator's gross negligence or willful misconduct in the
performance of this Agreement.
13. Non-Waiver of Breach. Either party hereto may specifically waive any
breach of this Agreement by the other party, but no such waiver shall be
deemed to have been given unless such waiver is in writing, signed by the
waiving party and specifically designates the breach waived, nor shall any
such waiver constitute a continuing waiver of similar or other breaches.
14. Arbitration. All disputes arising under this Agreement shall be
settled by arbitration. The party desiring such arbitration shall give written
notice to that effect to the other party and in such notice shall appoint as
an arbitrator a disinterested person of recognized competence in the area at
issue. Within fifteen (15) days thereafter, the other party shall, by written
notice to the originating party, appoint a second person similarly qualified
as the second arbitrator. The arbitrators thus appointed shall appoint a third
person similarly qualified as the third arbitrator, and such three arbitrators
shall as promptly as possible determine such matter with the parties, each
being entitled to present evidence and argument to the arbitrators; provided,
however, that:
(a) if the second arbitrator shall not have been appointed as
aforesaid, the first arbitrator shall determine such matter; and
(b) if the two arbitrators appointed by the party shall be unable to
agree upon the appointment of a third arbitrator within fifteen (15) days
after the appointment of the second arbitrator, they shall give written
notice of such failure to agree to the parties, and, if the parties fail
to agree upon the selection of such third arbitrator within fifteen (15)
days thereafter, then within ten (10) days thereafter, either of the
parties upon
8
<PAGE>
written notice to the other party may apply for such appointment to the
Federal District Court or District Court in Omaha, Nebraska.
The arbitrator or arbitrators shall only interpret and apply the terms
and provisions of this Agreement and shall not change any such terms or
provisions or deprive either party of any right or remedy expressly or
impliedly provided for in this Agreement.
The determination of the majority of the arbitrators or the sole
arbitrator, as the case may be, shall, to the extent permitted by law, be
conclusive upon the parties. The arbitrator or arbitrators shall give written
notice to the parties stating their determination, and shall furnish to each a
copy of such determination signed by them. In the event of the failure,
refusal or inability of any arbitrator to act, a new arbitrator shall be
appointed in his stead, which appointment shall be made in the same manner as
hereinbefore provided for the appointment of the arbitrator so failing,
refusing or unable to act.
15. Attorneys' Fees. If either party hereto commences litigation or
arbitration for the judicial or other interpretation, enforcement,
termination, cancellation or rescission hereof, or for damages for the breach
hereof, the prevailing party in any such action, trial, arbitration or appeal
thereon shall be entitled to its reasonable attorneys' fees and court,
arbitration and other costs incurred, to be paid by the losing party as fixed
by the court or arbitrator in the same or a separate suit, and whether or not
such action is pursued to decision or judgment.
16. Force Majeure.
1. Neither Owner nor Operator shall be liable in damages to the other
for any act, omission or circumstance ("Event of Force Majeure") occasioned by
or in consequence of any acts of God, acts of the public enemy, wars,
blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes,
fires, storms, floods, civil disturbances, explosions, sabotage, the binding
order of any court or governmental authority which has been resisted in good
faith by all reasonable legal means, Federal, State or local laws, or other
event or circumstance not within the control of such party preventing such
party from performing its obligations hereunder, whether caused or occasioned
by, or happening on account of, the act or omission of one of the parties, not
within the control of the party claiming suspension and which by the exercise
of due diligence such party is unable to prevent or overcome.
2. Such Events of Force Majeure shall not relieve Owner or Operator of
liability in the event of either party's concurring negligence or in the event
of either party's failure to use due diligence to remedy the situation and to
remove the cause in an adequate manner and with all reasonable dispatch, nor
shall such Events of Force Majeure relieve either party of liability unless
such party shall give notice and full particulars of the same in writing to
the other party within ten (10) days of the
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<PAGE>
occurrence relied on. In no event, however, shall an Event of Force
Majeure relieve Owner from the obligation of making payments due under this
Agreement at the time of such occurrence. The parties agree that should any
Event of Force Majeure remain in existence for a period of six (6) months,
this Agreement may be terminated by the party not claiming suspensionof the
Agreement under such Event of Force Majeure upon the giving of written notice
by such party to the other; provided, however, that such six (6) month period
shall be extended for a reasonable time so long as throughout such six (6)
month period the party claiming suspension of this Agreement under the Event
of Force Majeure has diligently proceeded to terminate the Event of Force
Majeure and continues to do so throughout such extension.
17. Invalid Provision.
1. The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable
provisions were omitted; provided, however, that if any of the provisions of
Sections 9, or 10 hereof are held invalid or unenforceable by any court or
other relevant authority, Owner and Operator shall hold consultations over a
period of ninety (90) days, commencing immediately, in an effort to work out
satisfactory terms for continuation of this Agreement. If Owner and Operator
do not reach agreement within this period, Operator shall have the right to
terminate this Agreement, effective immediately.
2. In the event that any provision, term, condition or object of this
Agreement may be in conflict with any law, measure, ruling, court judgment (by
consent or otherwise), or regulation of the government of the United States of
America, and the legal counsel of either party shall advise that in their
considered opinion such conflict, or a reasonable possibility of such
conflict, exists, then either party may propose to the other appropriate
modifications of this Agreement to avoid such conflict. In such case, if an
agreement of modification is not reached within ninety (90) days from such
proposal, the party making such proposal, after sixty (60) days' written
notice to the other party, may terminate the agreement in its entirety as of a
date subsequent to such sixty (60) days, and which shall be specified in such
notice.
18. Assignment. Subject to Section 10 hereof, neither Owner nor Operator
shall grant, assign or otherwise convey any of their respective rights or
delegate any of their respective obligations under this Agreement without the
prior written consent of the other party which shall not be unreasonably
withheld.
19. Governing Law. The existence, validity, construction, operation and
effect of this Agreement shall be determined in accordance with and governed
by the laws of the State of California. This Agreement shall be construed
equally as against the parties hereto, and shall not be construed against the
party responsible for its drafting.
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20. Entire Agreement - Amendments. This Agreement constitutes the entire
agreement of the parties and the provisions hereof shall supersede any and all
prior agreements or understandings relating to the same subject matter.
Without limiting the generality of the foregoing, from and after the date
hereof, the terms of the Construction, Operating and Accounting Agreement
dated as of August 30, 1985 (the "Original Construction, Operating and
Accounting Agreement") between Owner and Operator shall be amended to read in
their entirety as set forth in this Agreement and the terms of this Agreement
shall govern and control the rights and obligations of the parties in and with
respect to the matters herein set forth, notwithstanding any conflict between
the terms of this Agreement and the terms of the Original Construction
Operating and Accounting Agreement. This Agreement may be amended only by a
writing signed by a duly authorized representative of both parties.
21. Communications. All notices, requests, offers and other
communications required or permitted to be made under this Agreement shall be
in writing and shall be deemed to have been duly given and received,
regardless of when and whether received, either: (a) on the day of delivery,
if delivered:
To Operator at:
Vulcan Power Company
302 South 36th Street, Suite 400-E
Omaha, Nebraska 68131
Attention: General Counsel
To Owner at:
Vulcan/BN Geothermal Power Company
302 South 36th Street, Suite 400-E
Omaha, Nebraska 68131
Attention: General Counsel
or at such other address as either party most recently may have designated in
writing to the other party for such purpose; or (b) on the day sent, when sent
by prepaid telex, telegram, cable or radiogram, and confirmed the same day by
prepaid first-class registered airmail, addressed to Operator or Owner, as the
case may be, at their respective addresses aforesaid.
22. Counterparts. This Agreement may be executed in counterparts and any
number of counterparts signed in the aggregate by the parties hereto shall
constitute a single original instrument.
23. Exhibits. All exhibits and schedules attached hereto are hereby
incorporated herein by this reference.
11
24. Third Party Beneficiaries. The covenants contained herein are made
solely for the benefit of the properties, parties and successors and assigns
of such parties as specified herein, and shall not be construed as having been
intended to benefit any third party not a party to this Agreement.
25. Headings. The headings herein are for reference only and shall not
affect the construction of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.
OWNER:
VULCAN/BN GEOTHERMAL POWER COMPANY,
a Nevada general partnership
By: VULCAN POWER COMPANY,
a Nevada corporation,
as General Partner
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
OPERATOR:
VULCAN POWER COMPANY,
a Nevada corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
13
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TABLE OF SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Section
-------
Schedule "Z" Schedule of Defined Terms 1.1
</TABLE>
16
EXHIBIT 10.26
LONG TERM POWER PURCHASE
POWER PURCHASE CONTRACT
BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY
AND
MAGMA ELECTRIC CO.
<PAGE>
TABLE OF CONTENTS
-----------------
SECTION TITLE PAGE
- ------- ----- ----
1. PROJECT SUMMARY .......................................... 1a
2. DEFINITIONS .............................................. 2
3. TERM ..................................................... 8
4. GENERATING FACILITY ...................................... 8
5. OPERATING OPTIONS ........................................ 17
6. INTERCONNECTION FACILITIES ............................... 18
7. METERING ................................................. 19
8. POWER PURCHASE PROVISIONS ................................ 20
9. PAYMENT AND BILLING PROVISIONS ........................... 39
10. TAXES .................................................... 42
11. TERMINATION .............................................. 42
12. SALE OF GENERATING FACILITY .............................. 42
13. ABANDONMENT OF PROJECT ................................... 43
14. LIABILITY ................................................ 44
15. INSURANCE ................................................ 46
16. UNCONTROLLABLE FORCES .................................... 48
17. NON-DEDICATION OF FACILITIES ............................. 50
18. PRIORITY OF DOCUMENTS .................................... 50
19. NOTICES AND CORRESPONDENCE ............................... 51
20. PREVIOUS COMMUNICATIONS .................................. 51
21. THIRD PARTY BENEFICIARIES ................................ 51
22. NON-WAIVER ............................................... 52
23. DISPUTES ................................................. 52
24. SUCCESSORS AND ASSIGNS ................................... 54
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25. EFFECT OF SECTION HEADINGS ............................... 54
26. TRANSMISSION ............................................. 54
27. AMENDMENT ................................................ 55
28. GOVERNING LAW ............................................ 55
29. CONFIDENTIALITY .......................................... 55
30. MULTIPLE ORIGINALS ....................................... 56
APPENDIX A A-1
APPENDIX B B-1
APPENDIX C C-1
AMENDMENT NO. 1 1
AMENDMENT NO. 2 1
ii
<PAGE>
1. PROJECT SUMMARY
This Contract is entered into between Southern California Edison Company
("Edison") and Magma Electric Co., a Nevada corporation ("Seller").
Seller is willing to construct, own, and operate a Qualifying Facility
and sell electric power to Edison and Edison is willing to purchase
electric power delivered by Seller to Edison at the Point of
Interconnection pursuant to the terms and conditions set forth as
follows:
1.1 All Notices shall be sent to Seller at the following address:
Magma Electric Co.
P.O. Box 17760
Los Angeles, CA 90017
Attn: President
1.2 Seller's Generating Facility:
a. Nameplate Rating: 34,000 kW.
b. Location: Niland, Imperial County, California
c. Type (Check One):
[ ] Cogeneration Facility
[X] Small Power Production Facility
1.3 Contract Capacity: 29,500 kW
1.3.1 Estimated as-available
capacity: 4,500 kW.
1.4 Expected annual production: 206,736,000 kWh.
1.5 Expected Date of Firm Operation: September 1, 1985
1a
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1.6 Contract Term: 30 years
1.7 Operating options pursuant to Section 5: (Check One)
[X] Operating Option I. Excess Generator output dedicated to Edison. No
electric service or standby service required from Edison.
[ ] Operating Option II. Entire Generator output dedicated to Edison
with separate electric service required from Edison.
1.8 The Capacity Payment Option selected by Seller pursuant to Section 8.1
shall be: (Check One)
[ ] Option A - As-available capacity based upon:
[ ] Standard Offer No. 1 Capacity Payment Schedule, or
[ ] Forecast of Annual As-Available Capacity Payment Schedule
a. The as-available capacity price (first year):
$______ kW-yr. (Appendix A)
[X] Option B - Firm Capacity
b. The Contract Capacity Price: -$l58 kW-yr. (Firm Capacity) per Amend
2 [section] 5.
1.9 The Energy Payment Option selected by Seller pursuant to Section 8.2
shall be: (Check One)
[X] Option 1 - Forecast of Annual Marginal Cost of Energy in effect at
date of execution of this Contract. (Appendix B)
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[ ] Option 2 - Levelized Forecast of Marginal Cost of Energy in
effect at date of execution of this Contract. (Appendix C)
For the energy payment refund pursuant to Section 8.5 under Option
2, Edison's Incremental Cost of Capital is 15%.
Seller may change once between Options 1 and 2, provided Seller delivers
written notice of such change at least 90 days prior to the date of Firm
Operation.
For Option 1 or 2, Seller elects to receive the following
percentages in 20% increments, the total of which shall equal 100%:
100 percent of Forecast of Annual Marginal Cost of Energy,
and
00 percent of Edison's published avoided cost of energy as updated
periodically and accepted by the Commission.
1c
<PAGE>
GENERAL TERMS AND CONDITIONS
2. DEFINITIONS
When used with initial capitalizations, whether in the singular or in the
plural, the following terms shall have the following meanings:
2.1 Adjusted Capacity Price: The $/kW-yr capacity purchase price based on
the Capacity Payment Schedule in effect at the time of Contract
execution for the time period beginning on the date of Firm operation
for the first generating unit and ending on the date of termination
or reduction of Contract Capacity under Capacity Payment Option B.
2.2 Appendix A: Capacity Payment Schedule - Forecast of Annual As-
Available Capacity
2.3 Appendix B: Energy Payment Schedule - Forecast of Annual Marginal
Cost of Energy
2.4 Appendix C: Energy Payment Schedule - Levelized Forecast of Marginal
Cost of Energy
2.5 Capacity Payment Schedule(s): Published capacity payment schedule(s)
as authorized by the Commission and in effect at the time of
execution of this Contract for as-available or firm capacity.
2.6 Commission: The Public Utilities Commission of the State of
California.
2.7 Contract: This document and Appendices, as amended from time to time.
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2.8 Contract Capacity: The electric power producing capability of the
Generating Facility which is committed to Edison.
2.9 Contract Capacity Price: The capacity purchase price from the
Capacity Payment Schedule approved by the Commission and in effect on
the date of execution of this Contract for Capacity Payment Option B.
2.10 Contract Term: Period in years commencing with date of Firm Operation
during which Edison shall purchase electric power from Seller.
2.11 Current Capacity Price: The $/kW-yr capacity price provided in the
Capacity Payment Schedule determined by the year of termination or
reduction of Contract Capacity and the number of years from such
termination or reduction to the expiration of the Contract Term for
Capacity Payment Option B.
2.12 Edison: The Southern California Edison Company.
2.13 Edison Electric System Integrity: The state of operation of Edison's
electric system in a manner which is deemed to minimize the risk of
injury to persons and/or property and enables Edison to provide
adequate and reliable electric service to its customers.
2.14 Emergency: A condition or situation which in Edison's sole judgment
affects Edison Electric System Integrity.
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2.15 Energy: Kilowatthours generated by the Generating Facility which are
purchased by Edison at the Point of Interconnection.
2.16 Firm Operation: The date agreed on by the Parties on which each
generating unit of the Generating Facility is determined to be a
reliable source of generation and on which such unit can be
reasonably expected to operate continuously at its effective rating
(expressed in kW).
2.17 First Period: The period of the Contract Term specified in Section
3.1.
2.18 Forced Outage: Any outage other than a scheduled outage of the
Generating Facility that fully or partially curtails its electrical
output.
2.19 Generating Facility: All of Seller's generators, together with all
protective and other associated equipment and improvements, necessary
to produce electrical power at Seller's Facility excluding associated
land, land rights, and interests in land.
2.20 Generator: The generator(s) and associated prime mover(s), which are
a part of the Generating Facility.
2.21 Interconnection Facilities: The electrical interconnection facilities
furnished, at no cost to Edison, by Seller, or by the Interconnecting
Utility on the Seller's behalf, which are appurtenant to, and/or
incidental to, the Project. The Interconnection
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Facilities shall include, but are not limited to, transmission lines
and/or distribution lines between the Project and transmission lines
and/or distribution lines of the Interconnecting Utility, relays,
power-circuit breakers, metering devices, telemetering devices, and
other control and protective devices specified by the Interconnecting
Utility as necessary for operation of the Project in parallel with
the Interconnecting Utility's electric system.
2.22 Interconnecting Utility: The electric utility, or any other utility
which takes delivery of electric energy generated by the Generating
Facility.
2.23 Operate: To provide the engineering, purchasing, repair, supervision,
training, inspection, testing, protection, operation, use,
management, replacement, retirement, reconstruction, and maintenance
of and for the Generating Facility in accordance with applicable
California utility standards and good engineering practices.
2.24 Operating Representatives: Individual(s) appointed by each Party for
the purpose of securing effective cooperation and interchange of
information between the Parties in connection with administration and
technical matters related to this Contract.
2.25 Parties: Edison and Seller.
2.26 Party: Edison or Seller.
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2.27 Peak Months: Those months which the Edison annual system peak demand
could occur. Currently, but subject to change with notice, the peak
months for the Edison system are June, July, August and September.
2.28 Point of Interconnection: The point where the electrical energy
generated by the Seller, at the Project, is delivered to the Edison
electric system.
2.29 Project: The Generating Facility and Interconnection Facilities
required to permit the Generator to deliver electric energy and make
capacity available to Interconnecting Utility.
2.30 Qualifying Facility: Cogeneration or Small Power Production Facility
which meets the criteria as defined in Title 18, Code of Federal
Regulations, Section 292.201 through 292.207.
2.31 Renewable Resources: Wind parks, small hydroelectric, solar, and
geothermal resources which produce electric power.
2.32 Second Period: The period of the Contract Term specified in Section
3.2.
2.33 Seller: The Party identified in Section 1.0.
2.34 Seller's Facility: The premises and equipment of Seller located as
specified in Section 1.2.
2.35 Small Power Production Facility: The facilities and equipment which
use biomass, waste, or Renewable Resources, including wind, solar,
geothermal, and
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water, to produce electrical energy as defined in Title 18, Code of
Federal Regulations, Section 292.201 through 292.207.
2.36 Summer Period: Defined in Edison's Tariff Schedule No. TOU-8 as now
in effect or as may hereafter be authorized by the Commission.
2.37 Tariff Schedule No. TOU-8: Edison's time-of-use energy tariff for
electric service exceeding 500 kW, as now in effect or as may
hereafter be authorized by the Commission.
2.38 Uncontrollable Forces: Any occurrence beyond the control of a Party
which causes that Party to be unable to perform its obligations
hereunder and which a Party has been unable to overcome by the
exercise of due diligence, including but not limited to flood,
drought, earthquake, storm, fire, pestilence, lightning and other
natural catastrophes, epidemic, war, riot, civil disturbance or
disobedience, strike, labor dispute, action or inaction of government
or other proper authority, which may conflict with the terms of this
Contract, or failure, threat of failure or sabotage of facilities
which have been maintained in accordance with good engineering and
operating practices in California.
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2.39 Winter Period: Defined in Edison's Tariff Schedule No. TOU-8 as now
in effect or as may hereafter be authorized by the Commission.
3. TERM
This Contract shall be effective upon execution by the Parties and shall
remain effective until either Party gives 90 days prior written notice of
termination to the other Party, except that such notice of termination
shall not be effective to terminate this Contract prior to expiration of
the Contract Term specified in Section 1.6.
3.1 The First Period of the Contract Term shall commence upon date of
Firm Operation but not later than 5 years from the date of execution
of this Contract.
a. If the Contract Term specified in Section 1.6 is 15 years, the
First Period of the Contract Term shall be for 5 years.
b. If the Contract Term specified in Section 1.6 is 20, 25, or 30
years, the First Period of the Contract Term shall be for 10
years.
3.2 The Second Period of the Contract Term shall commence upon expiration
of the First Period and shall continue for the remainder of the
Contract Term.
4. GENERATING FACILITY
4.1 Ownership
The Generating Facility shall be owned by Seller.
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4.2 Design
4.2.1 Seller, at no cost to Edison, shall:
a. Design the Generating Facility.
b. Acquire all permits and other approvals necessary for the
construction, operation, and maintenance of the Generating
Facility.
c. Complete all environmental impact studies necessary for
the construction, operation, and maintenance of the
Generating Facility.
4.2.2 Edison shall have the right to review the design of the
Generating Facility's electrical system and the Seller's
Interconnection Facilities. Edison shall have the right to
request modifications to the design of the Generating
Facility's electrical system and the Seller's Interconnection
Facilities. Such modifications shall be required if necessary
to maintain Edison Electric System Integrity. If Seller does
not agree to such modifications, resolution of the difference
between the Parties shall be made pursuant to Section 23.
4.3 Construction
Edison shall have the right to review, consult with, and make
recommendations regarding Seller's construction schedule and to
monitor the construction and start-up of the Project. Seller shall
notify
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Edison, as far in advance of Firm Operation as reasonably possible, of
changes in Seller's Construction Schedule which may affect the date of
Firm Operation.
4.4 Operation
4.4.1 Edison shall have the right to monitor operation of the Project and
may require changes in Seller's method of operation if such changes
are necessary, in Edison's sole judgment, to maintain Edison
Electric System Integrity.
4.4.2 Seller shall notify, in writing, Edison's Operating Representative
at least 14 days prior to the initial delivery of electrical energy
from the Project to the Point of Interconnection.
4.4.3 Edison shall have the right to require Seller to curtail or reduce
the delivery of electrical energy from the Project to the Edison
electric system whenever Edison determines, in its sole judgment,
that such curtailment or reduction is necessary to facilitate
maintenance of Edison's facilities, or to maintain Edison Electric
System Integrity. If Edison requires Seller to curtail or reduce
the delivery of electrical energy from the Project to the Edison
electric system pursuant to this Section 4.4.3, Seller
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shall have the right to continue to serve its total electrical
requirements. Each Party shall endeavor to correct, within a
reasonable period, the condition on its system which necessitates
the curtailment or the reduction of delivery of electrical energy
from the Project. The duration of the curtailment or the reduction
shall be limited to the period of time such a condition exists.
4.4.4 Each Party shall keep the other Party's Operating Representative
informed as to the operating schedule of their respective
facilities affecting each other's operation hereunder, including
any reduction in Contract Capacity availability. In addition,
Seller shall provide Edison with reasonable advance notice
regarding its scheduled outages including any reduction in Contract
Capacity availability. Reasonable advance notice is as follows:
SCHEDULED OUTAGE ADVANCE NOTICE
EXPECTED DURATION TO EDISON
----------------- ---------
Less than one day 24 Hours
One day or more (except major overhauls) 1 Week
Major overhaul 6 Months
4.4.5 Notification by each Party's Operating Representative of outage
date and duration
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should be directed to the other Party's Operating Representative by
telephone.
4.4.6 Seller shall not schedule major overhauls during Peak Months.
Currently, but subject to change with notice, the Peak Months for
the Edison system are June, July, August and September.
4.4.7 Seller shall maintain an operating log at Seller's Facility with
records of: real and reactive power production; changes in
operating status, outages, Protective Apparatus operations; and any
unusual conditions found during inspections. Changes in setting
shall also be logged for Generators which are "block-loaded" to a
specific kW capacity. In addition, Seller shall maintain records
applicable to the Generating Facility, including the electrical
characteristics of the Generator and settings, adjustments of the
Generator control equipment, and well-field information.
Information maintained pursuant to this Section 4.4.7 shall be
provided to Edison, within 30 days of Edison's request.
4.4.8 At Edison's request, Seller shall make all reasonable effort to
deliver power at an average rate of delivery at least equal to the
Contract Capacity during periods of Emergency. In the
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event that the Seller has previously scheduled an outage coincident
with an Emergency, Seller shall make all reasonable efforts to
reschedule the outage. The notification periods listed in Section
4.4.4 shall be waived by Edison if Seller reschedules the outage.
4.4.9 Seller shall demonstrate the ability to provide Edison the
specified Contract Capacity within 30 days of the date of Firm
Operation. Thereafter, at least once per year at Edison's request,
Seller shall demonstrate the ability to provide Contract Capacity
for a reasonable period of time as required by Edison. Seller's
demonstration of Contract Capacity shall be at Seller's expense and
conducted at a time and pursuant to procedures mutually agreed upon
by the Parties. If Seller fails to demonstrate the ability to
provide the Contract Capacity, the Contract Capacity shall be
reduced by agreement of the Parties pursuant to Section 8.1.2.5.
4.410 The Seller warrants that the Generating Facility meets the
requirements of a Qualifying Facility as of the effective date of
this Contract and continuing through the Contract Term.
4.4.11 The Seller warrants that the Generating Facility shall, at all
times, conform to all applicable
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laws and regulations. Seller shall obtain and maintain any
governmental authorizations and permits for the continued operation
of the Generating Facility. If, at any time, Seller does not hold
such authorizations and permits, Seller agrees to reimburse Edison
for any loss which Edison incurs as a result of the Seller's failure
to maintain governmental authorization and permits.
4.4.12 In the event electrical energy from the Project is curtailed or
reduced pursuant to Sections 4.4.3, 16 or 8.4, the Seller, in its
sole discretion, may elect to (i) sell said electrical energy to a
third party or (ii) deliver said electrical energy to a third
party for future delivery to Edison at times and at amounts
agreeable to Edison. The Seller shall be responsible for making
all such arrangements. The provisions in this Section 4.4.12 shall
only apply for the duration of the curtailment or reduction.
4.4.13 Seller shall maintain operating communications with the Edison
switching center designated by the Edison Operating
Representative. The operating communications shall include, but
not be limited to, system paralleling or separation,
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scheduled and unscheduled shutdowns, equipment clearances, levels
of operating voltage or power factors, and daily capacity and
generation reports.
4.5 Maintenance
4.5.1 Seller shall maintain the Generating Facility in accordance with
applicable California utility industry standards and good
engineering and operating practices. Edison shall have the right
to monitor such maintenance of the Generating Facility. Seller
shall maintain and deliver a maintenance record of the Generating
Facility to Edison's Operating Representatives upon request.
4.5.2 Seller shall make a reasonable effort to schedule routine
maintenance during Off-Peak Months and expected minimal generation
periods for renewable resources. Outages for scheduled maintenance
shall not exceed a total of 30 peak hours for the Peak Months.
4.5.3 The allowance for scheduled maintenance is as follows:
a. Outage periods for scheduled maintenance shall not exceed 840
hours (35 days) in any 12-month period. This allowance may be
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used in increments of an hour or longer on a consecutive or
nonconsecutive basis.
b. Seller may accumulate unused maintenance hours on a
year-to-year basis up to a maximum of 1,080 hours (45 days).
This accrued time must be used consecutively and only for major
overhauls.
4.6 Any review by Edison of the design, construction, operation, or
maintenance of the Project is solely for the information of Edison. By
making such review, Edison makes no representation as to the economic and
technical feasibility, operational capability, or reliability of the
Project. Seller shall in no way represent to any third party that any
such review by Edison of the Project, including, but not limited to, any
review of the design, construction, operation, or maintenance of the
Project by Edison, is a representation by Edison as to the economic and
technical feasibility, operational capability, or reliability of said
facilities. Seller is solely responsible for economic and technical
feasibility, operational capability, and reliability thereof.
4.7 Edison shall have access to the Seller's geothermal field and power-
generating facilities for the purpose of gathering technical information
and records. The technical information and records shall include, but
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not be limited to, drilling data, well-testing data, well-production data
and design, power plant performance data and design, environmental data,
brine handling design, and operation and maintenance data. Edison agrees
not to interfere with Seller's rules and operating regulations.
5. OPERATING OPTIONS
5.1 Seller shall elect in Section 1.7 to Operate its Generating Facility
pursuant to one of the following options:
a. Operating Option I: Seller dedicates the excess Generator output
to Edison with no electrical service or standby service required
from Edison.
b. Operating Option II: Seller dedicates the entire Generator
output to Edison with electrical service required from Edison.
5.2 After expiration of the First Period of the Contract Term, Seller may
change the Operating Option, but not more than once per year upon at
least 90 days prior written notice to Edison. A reduction in Contract
Capacity as a result of a change in operating options shall be
subject to Section 8.1.2.5. Edison shall not be required to remove or
reserve capacity of Interconnection Facilities made idle by a change
in operating options. Edison may dedicate any such idle Interconnection
Facilities at any time to serve other
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customers or to interconnect with other electric power sources.
Edison shall process requests for changes of operating option in the
chronological order received.
6. INTERCONNECTION FACILITIES
6.1 Seller shall design, engineer, procure, construct, and test the
Interconnection Facilities in accordance with applicable California
utility standards and good engineering practices and the rules and
regulations of the Interconnecting Utility.
6.2 The design, installation, operation, maintenance, and modifications
of the Interconnection Facilities shall be at Seller's expense.
6.3 Seller, at no cost to Edison, shall acquire all permits and approvals
and complete all environmental impact studies necessary for the
design, installation, operation, and maintenance of the
Interconnection Facilities.
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7. METERING
7.1 All meters and equipment used for the measurement of electrical power
for determining Edison's payments to Seller pursuant to this Contract
shall be provided, owned, and maintained by Edison and/or the
Interconnecting Utility at Seller's expense.
7.2 If Seller's Generating Facility is rated at a Capacity of 500 kW or
greater, then Edison, at its option, may install at Seller's expense,
generation metering and/or telemetering equipment.
7.3 Edison's or the Interconnecting Utility's meters shall be sealed and
the seals shall be broken only when the meters are to be inspected,
tested, or adjusted by Edison or Interconnecting Utility. Seller
shall be given reasonable notice of testing and have the right to
have its Operating Representative present on such occasions.
7.4 Edison's or Interconnecting Utility's meters installed pursuant to
this Contract shall be tested by Edison or Interconnecting Utility,
at Edison's or Interconnecting Utility's expense, at least once each
year and at any reasonable time upon request by either Party, at the
requesting Party's expense. If Seller makes such request, Seller
shall reimburse said expense to Edison or Interconnecting Utility
within thirty days after presentation of a bill therefor.
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7.5 Metering equipment found to be inaccurate shall be repaired,
adjusted, or replaced by Edison or Interconnecting Utility such that
the metering accuracy of said equipment shall be within plus or minus
two percent. If metering equipment inaccuracy exceeds plus or minus
two percent, the correct amount of Energy and capacity delivered
during the period of said inaccuracy shall be estimated by Edison and
agreed upon by the Parties.
8. POWER PURCHASE PROVISIONS
Prior to the date of Firm Operation, Seller shall be paid for Energy only
pursuant to Edison's published avoided cost of energy based on Edison's
full avoided operating cost as periodically updated and accepted by the
Commission. If at any time electrical energy can be delivered to Edison
and Seller is contesting the claimed jurisdiction of any entity which has
not issued a license or other approval for the Project, Seller, in its
sole discretion and risk, may deliver electrical energy to Edison and for
any electrical energy purchased by Edison Seller shall receive payment
from Edison for (i) Energy pursuant to this Section, and (ii)
as-available capacity based on a capacity price from the Standard Offer
No. 1 Capacity Payment Schedule as approved by the Commission. Unless and
until all required licenses and approvals have been obtained, Seller may
discontinue deliveries at any time.
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8.1 Capacity Payments
Seller shall sell to Edison and Edison shall purchase from Seller
capacity pursuant to the Capacity Payment Option selected by Seller in
Section 1.8. The Capacity Payment Schedules will be based on Edison's
full avoided operating costs as approved by the Commission throughout the
life of this Contract.
8.1.1 Capacity Payment Option A -- As-Available Capacity.
If Seller selects Capacity Payment Option A, Seller shall be paid a
Monthly Capacity Payment calculated pursuant to the following
formula:
Monthly Capacity Payment = (A x D)+(B x D)+(C x D)
Where A = kWh purchased by Edison during on-peak
periods defined in Edison's Tariff
Schedule No. TOU-8.
B = kWh purchased by Edison during mid-peak
periods defined in Edison's Tariff
Schedule No. TOU-8.
C = kWh purchased by Edison during off-peak
periods defined in Edison's Tariff
Schedule No. TOU-8.
D = The appropriate time differentiated
capacity price from either the Standard
Offer No. 1 Capacity
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Payment Schedule or Forecast of Annual.
As-Available Capacity Payment Schedule
as specified by Seller in Section 1.8.
8.1.1.1 If Seller specifies the Standard Offer No. 1 Capacity
Payment Schedule in Section 1.8, then the formula set
forth in Section 8.1.1 shall be computed with D equal
to the appropriate time differentiated capacity price
from the Standard Offer No. 1 Capacity Payment
Schedule for the Contract Term.
8.1.1.2 If Seller specifies the Forecast of Annual
As-Available Capacity Payment Schedule in Section 1.8,
the formula set forth in Section 8.1.1 shall be
computed as follows:
a. During the First Period of the Contract Term,
D shall equal the appropriate time
differentiated capacity price from the
Forecast of Annual As-Available Capacity
Payment Schedule.
b. During the Second Period of the Contract Term,
the formula shall be computed with D equal to
the
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appropriate time differentiated capacity price
from Standard Offer No. 1 Capacity Payment
Schedule, but not less than the greater of (i)
the appropriate time differentiated capacity
price from the Forecast of Annual As-Available
Capacity Payment Schedule for the last year of
the First Period, or (ii) the appropriate time
differentiated capacity price from the
Standard Offer No. 1 Capacity Payment Schedule
for the first year of the Second Period.
8.1.2 Capacity Payment Option B--Firm Capacity Purchase
If Seller selects Capacity Payment Option B, Seller shall
provide to Edison for the Contract Term the Contract Capacity
specified in Section 1.3, or as adjusted pursuant to Section
8.1.2.6, and Seller shall be paid as follows:
8.1.2.1 If Seller meets the performance requirements set forth
in Section 8.1.2.2, Seller shall be paid a Monthly
Capacity Payment, beginning from the date of Firm
Operation equal to the sum
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of the on-peak, mid-peak, and off-peak Capacity Period
Payments. Each capacity period payment is calculated
pursuant to the following formula:
Monthly Capacity Period = A x B x C x D
Payment
Where A = Contract Capacity Price specified
in Section 1.8 based on the Standard
Offer No. 2 Capacity Payment Schedule
as approved by the Commission and in
effect on the date of the execution of
this Agreement.
B = Conversion factors to convert annual
capacity prices to monthly payments by
time of delivery as specified in
Standard Offer No. 2 Capacity Payment
Schedule and subject to periodic
modifications as approved by the
Commission.
C = Contract Capacity specified in
Section 1.3.
D = Period Performance Factor, not to
exceed 1.0, calculated as follows:
Period Performance Factor = [Period kWh Purchased by Edison
(Limited by the Level of
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Contract Capacity)] [0.8 x Contract
Capacity x (Period Hours minus
Maintenance Hours Allowed in Section
4.5.)]
8.1.2.2 Performance Requirements
To receive the Monthly Capacity Payment in Section
8.1.2.1, Seller shall provide the Contract Capacity in
each Peak Month for all on-peak hours as such peak
hours are defined in Edison's Tariff Schedule No.
TOU-8 on file with the Commission, except that Seller
is entitled to a 20% allowance for Forced Outages for
each Peak Month. Seller shall not be subject to such
performance requirements for the remaining hours of
the year.
a. If Seller fails to meet the requirements
specified in Section 8.1.2.2, Seller, in
Edison's sole discretion, may be placed on
probation for a period not to exceed 15
months. If Seller fails to meet the
requirements specified in Section 8.1.2.2
during the probationary period, Edison may
derate the Contract Capacity to the
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greater of the capacity actually delivered
during the probationary period, or the
capacity at which Seller can reasonably meet
such requirements. A reduction in Contract
Capacity as a result of this Section 8.1.2.2
shall be subject to Section 8.1.2.5.
b. If Seller fails to meet the requirements set
forth in this Section 8.1.2.2 due to a Forced
Outage on the Edison system, or a request to
reduce or curtail delivery under Section 8.4,
Edison shall continue Monthly Capacity
Payments pursuant to Capacity Payment Option
B. The Contract Capacity curtailed shall be
treated the same as scheduled maintenance
outages in the calculation of the Monthly
Capacity Payment.
8.1.2.3 If Seller is unable to provide Contract Capacity due
to Uncontrollable Forces, Edison shall continue
Monthly Capacity Payments pursuant to Capacity Payment
Option B for 90 days from the occurrence
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of the Uncontrollable Force. Monthly Capacity Payments
payable during a period of interruption or reduction
by reason of an Uncontrollable Force shall be treated
the same as scheduled maintenance outages.
8.1.2.4 Capacity Bonus Payment For Capacity Payment Option B,
Seller may receive a Capacity Bonus Payment as
follows:
Bonus During Peak Months
a. For a Peak Month, Seller shall receive a
Capacity Bonus Payment if (i) the requirements
set forth in Section 8.1.2.2 have been met, and
(ii) the on-peak capacity factor exceeds 85%.
Bonus During Non-Peak Months
b. For a non-peak month, Seller shall receive a
Capacity Bonus Payment if (i) the requirements
set forth in Section 8.1.2.2 have been met,
(ii) the on-peak capacity factor for each Peak
Month during the year was at least 85%, and
(iii) the on-peak
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capacity factor for the non-peak month exceeds
85%.
c. For any eligible month, the Capacity Bonus
Payment shall be calculated as follows:
Capacity Bonus Payment = A x B x C x D
Where A = (1.2 x On-Peak Capacity Factor)-
1.02
Where the On-Peak Capacity Factor, not to exceed
1.0, is calculated as follows:
[Period kWh Purchased by Edison
(Limited by the Level of Contract
Capacity)]
On-Peak Capacity Factor = ((Contract Capacity) x (Period Hours
minus Maintenance Hours Allowed in
Section 4.5))
B = Contract Capacity Price specified in
Section 1.8 for Capacity Payment
Option B
C = 1/12
D = Contract Capacity specified in
Section 1.3
d. When Seller is entitled to receive
a Capacity Bonus Payment, the
Monthly Capacity
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Payment shall be the sum of the Monthly Capacity
Payment pursuant to Section 8.1.2.1 and the
Monthly Capacity Bonus Payment pursuant to this
Section 8.1.2.4.
8.1.2.5 Capacity Reduction
a. Seller may reduce the Contract Capacity specified
in Section 1.3, provided that Seller gives Edison
prior written notice for a period determined by
the amount of Contract Capacity reduced as
follows:
Amount of Contract Length of
Capacity Reduce Notice Required
------------------ ---------------
25,000 kW or under 12 months
25,001 - 50,000 kW 36 months
50,001 - 100,000 kW 48 months
over 100,000 kW 60 months
b. Seller shall refund to Edison with interest at
the current published Federal Reserve Board three
months prime commercial paper rate, an amount
equal to the difference between (i) the
accumulated Monthly Capacity Payments paid by
Edison pursuant to Capacity Payment Option B up
to the time the reduction notice is received by
Edison, and
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(ii) the total capacity payments which Edison
would have paid if based on the Adjusted
Capacity Price.
c. From the date the reduction notice is received
to the date of actual capacity reduction,
Edison shall make capacity payments based on
the Adjusted Capacity Price for the amount of
Contract Capacity being reduced
d. Seller may reduce Contract Capacity without
the notice prescribed in Section 8.1.2.5(a),
provided that Seller shall refund to Edison
the amount specified in Section 8.1.2.5(b) and
an amount equal to: (i) the amount of Contract
Capacity being reduced, times (ii) the
difference between the Current Capacity Price
and the Contract Capacity Price, times (iii)
the number of years and fractions thereof (not
less than one year) by which the Seller has
been deficient in giving the prescribed
notice.
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If the Current Capacity Price is less than the
Contract Capacity Price, only payment under Section
8.1.2.5(b) shall be due to Edison.
8.1.2.6 The Parties may agree in writing at any time to adjust the
Contract Capacity. Seller may reduce the Contract Capacity
pursuant to Section 8.1.2.5. Seller may increase the Contract
Capacity with Edison's approval and thereafter receive payment
for the increased capacity in accordance with the Contract
Capacity Price for the Capacity Payment Option selected by
Seller for the remaining Contract Term.
8.1.2.7 For Capacity Payment Option B, Seller shall be paid for
capacity in excess of Contract Capacity based on the
as-available capacity price in Standard Offer No. 1 Capacity
Payment Schedule, as updated and approved by the Commission.
8.2 Energy Payments - First Period
During the First Period of the Contract Term, Seller shall be paid a
Monthly Energy Payment for the electrical energy delivered by the
Seller and purchased
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by Edison at the Point of Interconnection pursuant to the Energy
Payment Option selected by the Seller in Section 1.9, as follows.
8.2.1 Energy Payment Option 1 -- Forecast of Annual Marginal Cost of
Energy. If Seller selects Energy Payment Option 1, then during
the First Period of the Contract Term, Seller shall be paid a
Monthly Energy Payment for electrical energy delivered by
Seller and purchased by Edison at the Point of Interconnection
during each month in the First Period of the Contract Term
pursuant to the following formula:
Monthly Energy Payment = [(A x D) + (B x D) + (C x D)] x
E per Amend 1 section 5.
Where A = kWh purchased by Edison during on-peak
periods defined in Edison's Tariff Schedule
No. TOU-8.
B = kWh purchased by Edison during mid-peak
periods defined in Edison's Tariff
Schedule No. TOU-8.
C = kWh purchased by Edison during off-peak
periods defined in Edison's Tariff Schedule
No. TOU-8.
D = The sum of: (i) the appropriate time
differentiated energy price
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from the Forecast of Annual Marginal Cost of
Energy, multiplied by the decimal equivalent
of the percentage of the forecast specified
in Section 1.9, and (ii) the appropriate
time differentiated energy price from
Edison's published avoided cost of energy
multiplied by the decimal equivalent of the
percentage of the published energy price
specified in Section 1.9.
E = Energy Loss Adjustment Factor For Remote
Generating Sites * per Amend 1 section 5
8.2.2 Energy Payment Option 2 -- Levelized Forecast of Marginal Cost
of Energy. If Seller selects Energy Payment Option 2 then
during the First Period of the Contract Term, Seller shall be
paid a Monthly Energy Payment for electrical energy delivered
by Seller and purchased by Edison each month during the First
Period of the Contract Term pursuant to the following formula:
Monthly Energy Payment = [(A x D) + (B x D) + (C x D)] X
- --------------------
* The Energy Loss Adjustment Factor For Remote Generating Site shall be
1.0, subject to adjustment by Commission orders and rulings.
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E per Amend 1 section 6
Where A = kWh purchased by Edison during
on-peak periods defined in Edison's
Tariff Schedule No. TOU-8.
B = kWh purchased by Edison during mid-
peak periods defined in Edison's
Tariff Schedule No. TOU-8.
C = kWh purchased by Edison during off-
peak periods defined in Edison's
Tariff Schedule No. TOU-8.
D = The sum of:
(i) the appropriate time
differentiated energy price from the
Levelized Forecast of Marginal Cost
of Energy, for the First Period of
the Contract Term multiplied by the
decimal equivalent of the percentage
of the levelized forecast specified
in Section 1.9, and (ii) the
appropriate time differentiated
energy price from Edison's published
avoided cost of energy multiplied by
the decimal equivalent of the
percentage of the
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<PAGE>
published energy price specified in
Section 1.9.
E = Energy Loss Adjustment Factor For
Remote Generating Sites * per Amend
1 section 6
8.2.2.1 Performance Requirement for Energy Payment
Option 2
During the First Period when the annual
forecast referred to in Section 8.2.1 is
greater than the levelized forecast referred
to in Section 8.2.2, Seller shall deliver to
Edison at least 70 percent of the average
annual kWh delivered to Edison during those
previous periods when the levelized forecast
referred to in Section 8.2.2 is greater than
the annual forecast referred to in Section
8.2.1. If Seller does not meet the
performance requirements of this Section
8.2.2.1, Seller shall be subject to Section
8.5.
8.3 Energy Payments - Second Period
During the Second Period of the Contract Term, Seller shall be paid a
Monthly Energy Payment for electrical
- --------------------
* The Energy Loss Adjustment Factor For Remote Generating Sites shall be
1.0, subject to adjustment by Commission orders or rulings.
35
<PAGE>
energy delivered by Seller and purchased by Edison at the
Point of Interconnection at a rate equal to 100% of Edison's
published avoided cost of energy as updated periodically and
accepted by the Commission, pursuant to the following formula:
Monthly Energy Payment = kWh purchased by Edison for each on-peak,
mid-peak, and off-peak time period
defined in Edison's Tariff Schedule
No. TOU-8
x Edison's published avoided cost of
energy by time of delivery for each
time period
x Energy Loss Adjustment Factor for
Remote Generating Sites*
Edison shall not be obligated to accept or pay for electrical
energy generated by the Generating Facility, and may request
Seller whose Generating Facility is one (1) MW or greater to
discontinue or reduce delivery of electric energy, for not
more than 300 hours annually during off-peak hours when (i)
purchases would result in costs greater than those which
Edison would incur if it did not purchase electrical energy
from Seller but instead utilized an equivalent amount of
electrical energy generated from another Edison source, or
- --------------------
* The Energy Loss Adjustment Factor For Remote Generating Sites shall be
1.0, subject to adjustment by Commission orders or rulings.
36
<PAGE>
(ii) the Edison Electric System demand would require that Edison
hydro-energy be spilled to reduce generation.
8.4 Energy Payment Refund
If Seller elects Energy Payment Option 2, Seller shall be subject to the
following:
8.4.1 If Seller fails to perform the Contract obligations for any reason
during the First Period of the Contract Term, or fails to meet the
performance requirements set forth in Section 8.2.2.1, and at the
time of such failure to perform, the net present value of the
cumulative Energy payments received by Seller pursuant to Energy
Payment Option 2 exceeds the net present value of what Seller would
have been paid pursuant to Energy Payment Option 1, Seller shall
make an energy payment refund equal to the difference in such net
present values in the year in which the refund is due. The present
value calculation shall be based upon the rate of Edison's
incremental cost of capital specified in Section 1.9.
8.4.2 Not less than 90 days prior to the date Energy is first delivered
to the Point of Interconnection, Seller shall provide and maintain
a performance bond, surety bond,
37
<PAGE>
performance insurance, corporate guarantee, or bank letter of
credit, satisfactory to Edison, which shall insure payment to
Edison of the Energy Payment Refund at any time during the First
Period. Edison may, in its sole discretion, accept another form of
security except that in such instance a 1-1/2 percent reduction
shall then apply to the levelized forecast referred to in Section
8.2.2 in computing payments for Energy. Edison shall be provided
with certificates evidencing Seller's compliance with the security
requirements in this Section which shall also include the
requirement that Edison be given 90 days prior written notice of
the expiration of such security.
8.4.3 If Seller fails to provide replacement security not less than 60
days prior to the date of expiration of existing security, the
Energy Payment Refund provided in Section 8.5 shall be payable
forthwith. Thereafter, payments for Energy shall be 100 percent of
the Monthly Energy Payment provided in Section 8.2.1.
8.4.4 If Edison at any time determines the security to be otherwise
inadequate, and so notifies Seller, payments thereafter for Energy
shall be 100
38
<PAGE>
percent of the Monthly Energy Payment provided in Section 8.2.1.
If within 30 days of the date Edison gives notice of such
inadequacies, Seller satisfies Edison's security requirements,
Energy Payment Option 2 shall be reinstated. If Seller fails to
satisfy Edison's security requirements within the 30-day period,
the Energy Payment Refund provided in Section 8.5 shall be
payable forthwith.
9. PAYMENT AND BILLING PROVISIONS
9.1 For Energy and capacity purchased by Edison:
9.1.1 Edison shall mail to Seller no later than thirty days after the
end of each monthly billing period (1) a statement showing the
Energy and capacity delivered to Edison during the on-peak,
mid-peak, and off-peak periods, as those periods are Specified
in Edison's Tariff Schedule No. TOU-8 for that monthly billing
period, (2) Edison's computation of the amount due Seller, and
(3) Edison's check in payment of said amount.
9.1.2 If the monthly payment period involves portions of two different
published Energy payment schedule periods, the monthly Energy
payment shall be prorated on the basis of the percentage of days
at each price.
39
<PAGE>
9.1.3 If the payment period is less than 27 days or greater than 33
days, the capacity payment shall be prorated on the basis of the
average days per month per year.
9.1.4 If, within thirty days of receipt of the statement, Seller does
not make a report in writing to Edison of an error, Seller shall
be deemed to have waived any error in Edison's statement,
computation, and payment, and they shall be considered correct
and complete.
9.2 Edison shall bill the Seller, on a monthly basis, for the costs
Edison has incurred in the transmission of the electrical energy from
the Project to the Point of Interconnection pursuant to the provisions
of Section 26.
9.3 Payments Due to Contract Capacity Reduction
9.3.1 The Parties agree that the refund and payments provided in
Section 8.1.2.5 represent a fair compensation for the reasonable
losses that would result from such reduction of Contract
Capacity.
9.3.2 In the event of a reduction in Contract Capacity, the quantity,
in kW, by which the Contract Capacity is reduced shall be used
to calculate the refunds and payments due Edison in accordance
with Section 8.1.2.5, as applicable.
40
<PAGE>
9.3.3 Edison shall provide invoices to Seller for all refunds and
payments due Edison under this Section 9 which shall be due
within 60 days.
9.3.4 If Seller does not make payments as required in Section 9.2.3,
Edison shall have the right to offset any amounts due it against
any present or future payments due Seller and may pursue any
other remedies available to Edison as a result of Seller's
failure to perform.
9.4 Energy Payment Refund
Energy Payment Refund is immediately due and payable upon Seller's
failure to perform the contract obligations as specified in Section 8.5.
41
<PAGE>
10. TAXES
10.1 Seller shall pay ad valorem taxes and other taxes properly
attributable to the Project. If such taxes are assessed or levied
against Edison, Seller shall pay Edison for such assessment or levy.
10.2 Seller shall pay ad valorem taxes and other taxes properly attributed
to land, land rights, or interest in land for the Project. If such
taxes are assessed or levied against Edison, Seller shall pay Edison
for such assessment or levy.
10.3 Seller or Edison shall provide information concerning the Project to
any requesting taxing authority.
11. TERMINATION
This Contract shall terminate if Firm Operation does not occur within 5
years of the date of Contract execution.
12. SALE OF GENERATING FACILITY
12.1 If Seller desires to sell the Generating Facility, Seller shall
promptly offer to Edison, or any entity designated by Edison in its
sole discretion, the right to purchase the Generating Facility.
Edison, or any such entity designated by Edison, shall have up to
sixty days following the offer to accept Seller's offer or reach
agreement with Seller.
12.2 If the Parties are unable to reach a satisfactory agreement within
sixty days following the offer pursuant to Section 12.1, and the
Generating Facility
42
<PAGE>
is offered to any third party or parties, Edison, or any such entity
designated by Edison, has the right for thirty days following each
offer to agree to purchase the Generating Facility under the same
terms and conditions, if such terms and conditions are better to
Edison than those offered in Section 12.1. Any offers to sell made
more than two years after Edison's failure to accept a previous offer
to sell under Section 12.1, shall again be subject to the terms of
Sections 12.1 and 12.2.
12.3 Notwithstanding the foregoing, Seller shall have the right at any
time to sell or transfer the Generating Facility to an affiliate of
Seller and an affiliate of Seller may sell, transfer, or lease to
Seller without giving rise to any right of first refusal of Edison.
An "affiliate" of Seller shall mean a Party's parent, a Party's
subsidiary, or any company of which a Party's parent is a parent. An
"affiliate" of Seller shall also mean a partnership or joint venture
from which the Seller leases and operates the Generating Facility. A
"parent" shall mean a company which owns directly or indirectly not
less than 51% of the shares entitled to vote in an election of
directors of another company.
13. ABANDONMENT OF PROJECT
13.1 The Generating Facility shall be deemed to be abandoned if Seller
discontinues operation of the Generating
43
<PAGE>
Facility with the intent that such discontinuation be permanent. Such
intent shall be conclusively presumed by either (i) Seller's notice
to Edison of such intent, or (ii) Seller's operation of the
Generating Facility in such a manner that no Energy is generated
therefrom for 200 consecutive days during any period after Firm
Operation of the first generating unit, unless otherwise agreed to in
writing by the Parties. If the Project is prevented from generating
Energy due to an Uncontrollable Force, then such period shall be
extended for the duration of the Uncontrollable Force, not to exceed
one year.
13.2 If Seller abandons the Generating Facility during the term of this
Agreement, Edison, or any entity designated by Edison in its sole
discretion, shall have the right to purchase the Generating Facility
pursuant to the provisions of Section 12.
14. LIABILITY
14.1 Each Party (First Party) releases the other Party (Second Party), its
directors, officers, employees and agents from any loss, damage,
claim, cost, charge, or expense of any kind or nature (including any
direct, indirect or consequential loss, damage, claim, cost, charge,
or expense), including attorney's fees and other costs of litigation
incurred by the First Party, in connection with damage to property of
the First
44
<PAGE>
Party caused by or arising out of the Second Party's construction,
engineering, repair, supervision, inspection, testing, protection,
operation, maintenance, replacement, reconstruction, use or ownership
of its facilities, to the extent that such loss, damage, claim, cost,
charge, or expense is caused by the negligence of Second Party, its
directors, officers, employees, agents, or any person or entity whose
negligence would be imputed to Second Party.
14.2 Each Party shall indemnify and hold harmless the other Party, its
directors, officers, and employees or agents from and against any
loss, damage, claim, cost, charge, or expense of any kind or nature
(including direct, indirect or consequential loss, damage, claim,
cost, charge, or expense), including attorney's fees and other costs
of litigation, incurred by the other Party in connection with the
injury to or death of any person or damage to property of a third
party arising out of the indemnifying Party's construction,
engineering, repair, supervision, inspection, testing, protection,
operation, maintenance, replacement, reconstruction, use, or
ownership of its facilities, to the extent that such loss, damage,
claim, cost, charge, or expense is caused by the negligence of the
indemnifying Party, its directors, officers, employees, agents or any
person or entity whose negligence would be imputed to the
45
<PAGE>
indemnifying Party; provided, however, that each Party shall be
solely responsible for and shall bear all cost of claims brought by
its contractors or its own employees and shall indemnify and hold
harmless the other Party for any such costs including costs arising
out of any workers compensation law. Seller releases and shall defend
and indemnify Edison from any claim, cost, loss, damage, or liability
arising from any contrary representation concerning the effect of
Edison's review of the design, construction, operation, or
maintenance of the Project.
14.3 The provisions of this Section 14 shall not be construed so as to
relieve any insurer of its obligations to pay any insurance claims in
accordance with the provisions of any valid insurance policy.
14.4 Neither Party shall be indemnified by the other Party under Section
14.2 for its liability or loss resulting from its sole negligence or
willful misconduct.
15. INSURANCE
15.1 Until Contract is terminated, Seller shall obtain and maintain in
force as hereinafter provided comprehensive general liability
insurance, including contractual liability coverage, with a combined
single limit of not less than $1,000,000 each occurrence. The
insurance carrier or carriers and form of policy shall be subject to
review and approval by Edison.
46
<PAGE>
15.2 Prior to the date Seller's generating facility first delivers
electrical energy to the Point of Interconnection, Seller shall (i)
furnish certificate of insurance to Edison, which certificate shall
provide that such insurance shall not be terminated nor expire except
on thirty days prior written notice to Edison, (ii) maintain such
insurance in effect for so long as Seller's Generating Facility is
delivering electrical energy to the Point of Interconnection, and
(iii) furnish to Edison an additional insured endorsement with
respect to such insurance in substantially the following form: "In
consideration of the premium charged, Southern California Edison
Company (Edison) is named as additional insured with respect to all
liabilities arising out of Seller's use and ownership of Seller's
Generating Facility.
"The inclusion of more than one insured under this policy shall not
operate to impair the rights of one insured against another insured
and the coverages afforded by this policy will apply as though separate
policies had been issued to each insured. The inclusion of more than
one insured will not, however, operate to increase the limit of the
carrier's liability. Edison will not, by reason of its inclusion
under this policy, incur liability to the insurance carrier for
payment of premium for this policy.
47
<PAGE>
"Any other insurance carried by Edison which may be applicable shall
be deemed excess insurance and Seller's insurance primary for all
purposes despite any conflicting provisions in Seller's policy to the
contrary."
15.3 If Seller fails to comply with the provisions of this Section 15,
Seller shall, at its own cost, defend, indemnify, and hold harmless
Edison, its directors, officers, employees, agents, assigns, and
successors in interest from and against any and all loss, damage,
claim, cost, charge, or expense of any kind or nature (including
direct, indirect or consequential loss, damage, claim, cost, charge,
or expense, including attorney's fees and other costs of litigation)
resulting from the death or injury to any person or damage to any
property, including the personnel and property of Edison, to the
extent that Edison would have been protected had Seller complied with
all of the provisions of this Section 15.
16. UNCONTROLLABLE FORCES
16.1 Neither Party shall be considered to be in default in the performance
of any of the agreements contained in this Contract, except for
obligations to pay money, when and to the extent failure of
performance shall be caused by an Uncontrollable Force.
48
<PAGE>
16.2 If either Party, because of an Uncontrollable Force, is rendered
wholly or partly unable to perform its obligations under this
Contract, the Party shall be executed from whatever performance is
affected by the Uncontrollable Force to the extent so affected
provided that:
(1) The non-performing Party, within two weeks after the occurrence
of the Uncontrollable Force, gives the other Party written
notice describing the particulars of the occurrence;
(2) The suspension of performance is of no greater scope and of no
longer duration than is required by the Uncontrollable Force;
(3) The non-performing Party uses its best efforts to remedy its
inability to perform (this subsection shall not require the
settlement of any strike, walkout, lockout or other labor
dispute on terms which, in the sole judgment of the party
involved in the dispute, are contrary to its interest. It is
understood and agreed that the settlement of strikes, walkouts,
lockouts or other labor disputes shall be at the sole discretion
of the Party having the difficulty);
(4) When the non-performing Party is able to resume performance of
its obligations under this
49
<PAGE>
Contract, that Party shall give the other Party written
notice to that effect; and
(5) Capacity payments during such periods of Uncontrollable Force on
Seller's part shall be governed by Section 8.1.2.3.
16.3 In the event that either Party's ability to perform cannot be
corrected when the Uncontrollable Force is caused by the actions or
inactions of legislative, judicial or regulatory agencies or other
proper authority, this Contract may be amended to comply with the
legal or regulatory change which caused the nonperformance.
If a loss of Qualifying Facility status occurs due to an
Uncontrollable Force and Seller fails to make the changes necessary
to maintain its Qualifying Facility status, the Seller shall
compensate Edison for any economic detriment incurred by Edison as a
result of such failure.
17. NON-DEDICATION OF FACILITIES
Neither Party, by this Contract, dedicates any part of its facilities
involved in this Project to the public or to the service provided under
the Contract, and such service shall cease upon termination of the
Contract.
18. PRIORITY OF DOCUMENTS
If there is a conflict between this document and any Appendix, the
provisions of this document shall govern.
50
<PAGE>
Each Party shall notify the other immediately upon the determination of
the existence of any such conflict.
19. NOTICES AND CORRESPONDENCE
All notices and correspondence pertaining to this Contract shall be in
writing and shall be sufficient if delivered in person or sent by
certified mail, postage prepaid, return receipt requested, to Seller as
specified in Section 1.1, or to Edison as follows:
Southern California Edison Company
Post Office Box 800
Rosemead, California 91770
Attention: Secretary
All notices sent pursuant to this Section 19 shall be effective when
received, and each Party shall be entitled to specify as its proper
address any other address in the United States upon written notice to the
other Party.
20. PREVIOUS COMMUNICATIONS
This Contract contains the entire agreement and understanding between the
Parties, their agents, and employees as to the subject matter of this
contract, and merges and supersedes all prior agreements, commitments,
representations, and discussions between the Parties. No Party shall be
bound to any other obligations, conditions, or representations with
respect to the subject matter of this Contract.
21. THIRD PARTY BENEFICIARIES
This Contract is for the sole benefit of the Parties and shall not be
construed as granting any rights to any person
51
<PAGE>
or entity other than the Parties or imposing obligations on either Party
to any person or entity other than the Parties.
22. NON-WAIVER
None of the provisions of the Contract shall be considered waived by
either Party except when such waiver is given in writing. The failure of
either Edison or Seller to insist in any one or more instances upon strict
performance of any of the provisions of the Contract or to take advantage
of any of its rights hereunder shall not be construed as a waiver of any
such provisions or the relinquishment of any such rights for the future,
but the same shall continue to remain in full force and effect.
23. DISPUTES
23.1 Any dispute arising between the Parties relating to interpretation of
the provisions of this Contract or to performance of the Parties
hereunder, other than matters which may not be settled without the
consent of an involved insurance company, shall be reduced to writing
stating the complaint and proposed solution and submitted to the
appropriate Edison manager, whose interpretation and decision thereon
shall be incorporated into a written document which shall specify
Edison's position and that it is the final decision of such manager.
A copy of such document shall be furnished to Seller within ten days
following the receipt of Seller's written complaint.
52
<PAGE>
23.2 The decision of such manager pursuant to Section 23.1 shall be final
and conclusive from the date of receipt of such copy by the
complaining Party, unless within thirty days Seller furnishes a
written appeal to such manager. Following receipt of such appeal, a
joint hearing shall be held within fifteen days of said appeal, at
which time the Parties shall each be afforded an opportunity to
present evidence in support of their respective positions. Such joint
hearing shall be conducted by one authorized representative of Seller
and one authorized representative of Edison and other necessary
persons. Pending final decision of a dispute hereunder, the Parties
shall proceed diligently with the performance of their obligations
under this Contract and in accordance with Edison's position pursuant
to Section 23.1.
23.3 The final decision by the Parties' authorized representatives shall
be made within fifteen days after presentation of all evidence
affecting the dispute, and shall be reduced to writing. The decision
shall be final and conclusive.
23.4 If the authorized representatives cannot reach a final decision
within the fifteen-day period, any remedies which are provided by law
may be pursued.
53
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24. SUCCESSORS AND ASSIGNS
Neither Party shall voluntarily assign its rights nor delegate its duties
under this Contract, or any part of such rights or duties, without the
written consent of the other Party, except in connection with the sale or
merger of a substantial portion of its properties. Any such assignment or
delegation made without such written consent shall be null and void.
Consent for assignment shall not be unreasonably withheld. Such assignment
shall include, unless otherwise specified therein, all of Seller's rights
to any refunds which might become due under the Contract. Seller may
assign all or any part of its interest under this Contract to a financing
institution to facilitate financing for the Project by the Seller.
25. EFFECT OF SECTION HEADINGS
Section headings appearing in this Agreement are inserted for convenience
only, and shall not be construed as interpretations of text.
26. TRANSMISSION
26.1 Edison shall endeavor to make arrangements with third parties for the
necessary transmission of the electrical energy from the Project to
the Point of Interconnection. Seller shall be responsible for all
costs associated with such transmission of electrical energy,
including the cost of transmission losses from the Project to the
Point of Interconnection.
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<PAGE>
26.2 If Edison, using its best efforts, is unable to secure satisfactory
firm transmission service or equivalent arrangements from third
parties which are required to transmit the electrical energy from the
Project to the Point of Interconnection, then Edison shall not be
liable to the Seller for any damages arising from Edison's failure to
secure said transmission service or arrangements nor will Edison be
required to purchase Energy which is not delivered or capacity which
is not made available at the Point of Interconnection.
27. AMENDMENT
If at any time during the term of this Agreement a change in circumstances
not anticipated at the time this Agreement was executed significantly
alters the rights or obligations of either Party, the terms of the
Agreement which are directly affected by the change shall be amended by
mutual agreement of Parties.
28. GOVERNING LAW
This Contract shall be interpreted, governed, and construed under the laws
of the State of California as if executed and to be performed wholly
within the State of California.
29. CONFIDENTIALITY
29.1 Except as provided herein, the Parties shall hold all information in
this Contract and all information related to or received pursuant to
this Contract as confidential.
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<PAGE>
29.2 Neither Party shall disclose any part nor the whole of this Contract
to any third party without the express prior written consent of the
other Party; such consent shall not be unreasonably withheld.
29.3 From time to time governmental and/or regulatory agencies may request
disclosure of the Contract or Contract-related information from
either Party or both Parties and if such is the case either Party or
both Parties may consent to such disclosure provided, that (i) the
requestor(s) be notified by the disclosing Party that the information
being released is confidential, and that (ii) the disclosing Party
inform the other Party, in writing, as to the nature of the
information disclosed and to whom disclosed.
30. MULTIPLE ORIGINALS
This Contract is executed in two counterparts, each of which shall be
deemed an original.
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SIGNATURES
IN WITNESS WHEREOF the Parties hereto have executed this Contract
this 1st DAY of MARCH, 1984.
SOUTHERN CALIFORNIA EDISON COMPANY
By /s/Edward A. Myers, Jr.
---------------------------------
Name EDWARD A. MYERS, Jr
----------------------------
Title VICE PRESIDENT
---------------------------
MAGMA ELECTRIC COMPANY
By /s/Andrew W. Hoch
---------------------------------
Name Andrew W. Hoch
----------------------------
Title Vice-President
---------------------------
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<PAGE>
APPENDIX A
SOUTHERN CALIFORNIA EDISON COMPANY
LONG-TERM STANDARD OFFER
CAPACITY PAYMENT SCHEDULE -
FORECAST OF ANNUAL AS-AVAILABLE CAPACITY(1)
Line As-Available Capacity(2)
No. Year ($/kW-year)
- -----------------------------------------------------------------------------
1 1983 70
2 1984 76
3 1985 81
4 1986 87
5 1987 94
6 1988 101
7 1989 109
8 1990 117
9 1991 126
10 1992 148
11 1993 158
12 1994 169
13 1995 180
14 1996 194
15 1997 206
- --------
1. This forecast to be used in conjunction with Capacity Payment Option A.
2. The annual as-available capacity ($/kW-yr) will be converted to a
seasonal time-of-delivery ((cent)/kWh) value that is consistent with
as-available time-of-delivery rates current authorized by the Commission for
Avoided AsAvailable Capacity.
A-1
<PAGE>
APPENDIX B
SOUTHERN CALIFORNIA EDISON COMPANY
LONG-TERM STANDARD OFFER
ENERGY PAYMENT SCHEDULE -
FORECAST OF ANNUAL MARGINAL COST OF ENERGY(1)
Line Annual Marginal Cost of
No. Year Energy ((cent)/kWh)
- -----------------------------------------------------------------------------
1 1983 5.3
2 1984 5.6
3 1985 5.7
4 1986 6.0
5 1987 6.4
6 1988 6.9
7 1989 7.6
8 1990 8.1
9 1991 8.6
10 1992 9.3
11 1993 10.1
12 1994 10.9
13 1995 11.8
14 1996 12.6
15 1997 13.6
- --------
1. This forecast to be used in conjunction with Energy Payment Option 1.
B-1
<PAGE>
APPENDIX C
SOUTHERN CALIFORNIA EDISON COMPANY
LONG-TERM STANDARD OFFER
ENERGY PAYMENT SCHEDULE -
LEVELIZED FORECAST OF MARGINAL COST OF ENERGY(1)
5-Year
Initial Levelized Levelized
Line Year of Forecast Forecast
No. Delivery ((cent)/kWh) ((cent)/kWh)
- -----------------------------------------------------------------------------
1 1983 5.7 6.5
2 1984 6.0 6.9
3 1985 6.4 7.3
4 1986 6.8 7.9
5 1987 7.3 8.5
6 1988 7.9 9.1
- --------
1. Levelized Forecast to be used in conjunction with Energy Payment Option 2.
C-1
<PAGE>
AMENDMENT NO. 1
TO
POWER PURCHASE CONTRACT
BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY
AND
MAGMA ELECTRIC CO.
<PAGE>
AMENDMENT NO. 1 TO
POWER PURCHASE CONTRACT BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY AND
MAGMA ELECTRIC CO.
1. Parties
The Parties to this Amendment No. 1 to the Power Purchase Contract between
Southern California Edison Company and Magma Electric Co., executed on
March 1, 1984, hereinafter referred to as "Amendment No. 1", are Southern
California Edison Company, a California corporation, hereinafter referred
to as "Edison", and Magma Electric Co., a Nevada corporation, hereinafter
referred to as "Seller", hereinafter sometimes referred to individually as
"Party" and collectively as "Parties".
2. Recitals
This Amendment No. 1 is made with reference to the following facts, among
others:
2.1 On March 1, 1984, Edison and Seller executed the Power Purchase
Contract to provide the terms and conditions for the sale by Seller
and the purchase by Edison of electrical power delivered by Seller to
Edison at the Point of Interconnection from the 29,500 kW electrical
generating facility located at Niland, California.
2.2 The Parties desire to amend the Power Purchase Contract to modify the
terms of the payments for energy.
-1-
<PAGE>
3. Agreement
The Parties agree to the following.
4. Effective Date
This Amendment No. 1 shall become effective upon execution by the Parties.
5. Amendment to Section 8.2.1
5.1 The formula for calculating the Monthly Energy Payment is deleted in
its entirety and replaced with the following:
"Monthly Energy Payment = [(AxD)+(BxD)+(CxD)] x E"
5.2 The definition of "F" is deleted in its entirety.
6. Amendment to Section 8.2.2
6.1 The formula for calculating the Monthly Energy Payment is deleted in
its entirety and replaced with the following:
"Monthly Energy Payment = [(AxD)+(BxD)+(CxD)] x E"
6.2 The definition of "F" is deleted in its entirety.
7. Effect of this Amendment No. 1
Except as amended herein, all terms, covenants, and conditions contained
in the Power Purchase Contract shall remain in full force and effect.
-2-
<PAGE>
8. Signature Clause
The signatories hereto represent that they have been appropriately
authorized to enter into this Amendment No. 1 on the behalf of the Party
for whom they sign. This Amendment No. 1 is hereby executed as of this
10th day of May, 1984.
SOUTHERN CALIFORNIA EDISON COMPANY
By /s/Edward A. Myers, Jr.
---------------------------------
Edward A. Myers, Jr.
Vice President
MAGMA ELECTRIC COMPANY
By /s/Andrew W. Hoch
---------------------------------
Andrew W. Hoch
Vice-President
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AMENDMENT NO. 2
TO
POWER PURCHASE CONTRACT
BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY
AND
VULCAN/BN GEOTHERMAL POWER COMPANY
<PAGE>
AMENDMENT NO. 2 TO
POWER PURCHASE CONTRACT BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY AND
VULCAN/BN GEOTHERMAL POWER COMPANY
1. Parties
The Parties to this Amendment No. 2 to the Power Purchase Contract between
Southern California Edison Company and Magma Electric Co., executed on
March 1, 1984, hereinafter referred to as "Amendment No. 2", are Southern
California Edison Company, a California corporation, hereinafter referred
to as "Edison", and Vulcan/BN Geothermal Power Company, a partnership,
hereinafter referred to as "Seller", hereinafter sometimes referred to
individually as "Party" and collectively as "Parties".
2. Recitals
This Amendment No. 2 is made with reference to the following facts, among
others:
2.1 On March 1, 1984, Edison and Magma Electric Co. ("Magma") executed
the Power Purchase Contract to provide the terms and conditions for
the sale by Magma and the purchase by Edison of electrical power
delivered by Magma to Edison at the Point of Interconnection from the
29,500 kW electrical generating facility located at Niland,
California.
2.2 May 10, 1984, Edison and Magma, the original Seller under the Power
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Purchase Contract, amended the Power Purchase Contract to modify the
Monthly Energy Payment formulas specified in Sections 8.2.1 and
8.2.2.
2.3 On January 4, 1985, Magma assigned its rights, title and interest in
the Power Purchase Contract to Vulcan Power Company and Edison
consented to such assignment on January 11, 1985.
2.4 On August 30, 1985, Vulcan Power Company assigned its rights, title
and interest in the Power Purchase Contract to Vulcan/BN Geothermal
Power Company and Edison consented to such assignment on September
25, 1985.
2.5 The Parties acknowledge that the Date of Firm Operation for the
Generating Facility occurred on February 10, 1986 and desire to amend
the Power Purchase Contract to reflect that fact.
3. Agreement
The Parties agree to the following.
4. Effective Date
This Amendment No. 2 shall become effective upon execution by the Parties.
5. Amendment to Section 1.8 (Option B)a
Section 1.8 (Option B)a of the Power Purchase Contract is deleted in its
entirety and replaced with the following: "a. The Contract Capacity Price:
$158/kW-yr. (Firm Capacity)."
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6. Effect of this Amendment No. 2
Except as amended herein, all terms, covenants, and conditions contained
in the Power Purchase Contract shall remain in full force and effect.
7. Signature Clause
The signatories hereto represent that they have been appropriately
authorized to enter into this Amendment No. 2 on the behalf of the Party
for whom they sign. This Amendment No. 2 is hereby executed as of this 1st
day of April, 1986.
SOUTHERN CALIFORNIA EDISON COMPANY
By /s/Edward A. Myers, Jr.
------------------------------------
Edward A. Myers, Jr.
Vice President
VULCAN/BN GEOTHERMAL POWER COMPANY, A
PARTNERSHIP
VULCAN POWER COMPANY, PARTNER
By: /s/Andrew W. Hoch
-----------------------------------
Name: Andrew W. Hoch
---------------------------------
Title: President
--------------------------------
BN GEOTHERMAL, INC., PARTNER
By: /s/Harry W. Ray
-----------------------------------
Name: Harry W. Ray
---------------------------------
Title: President
--------------------------------
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EXHIBIT 10.27
TRANSMISSION SERVICE AGREEMENT
FOR THE
VULCAN POWER PLANT
BETWEEN
IMPERIAL IRRIGATION DISTRICT
AND
VULCAN POWER COMPANY
<PAGE>
TABLE OF CONTENTS
Section Title Page
- ------- ----- ----
1 PARTIES........................................................... 1
2 RECITALS.......................................................... 1
3 AGREEMENT......................................................... 1
4 DEFINITIONS....................................................... 1
5 TERM.............................................................. 4
6 TRANSMISSION SERVICE.............................................. 4
7 TRANSMISSION LOSSES...............................................10
8 CHARGES...........................................................11
9 BILLING AND PAYMENT...............................................12
10 LIABILITY.........................................................14
11 AUDITING..........................................................16
12 AUTHORIZED REPRESENTATIVES........................................17
13 NO DEDICATION OF FACILITIES.......................................17
14 NON-WAIVER........................................................18
15 NO THIRD PARTY RIGHTS.............................................18
16 UNCONTROLLABLE FORCES.............................................18
17 ASSIGNMENTS.......................................................19
18 GOVERNING LAW.....................................................21
19 NOTICES...........................................................21
20 SIGNATURE CLAUSE..................................................22
EXHIBIT I - DEVELOPMENTS AND METHODOLOGIES FOR TRANSMISSION SERVICE
CHARGES AND SCHEDULING FEE................................. EIA-1
EXHIBIT II - TRANSMISSION SERVICE FOR VUYLCAN POWER COMPANY..............EII-1
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1. PARTIES: The Parties to this Agreement are Imperial Irrigation District,
organized under the Water Code of the State of California ("IID"), and Vulcan
Power Company ("Producer"), hereinafter sometimes referred to individually as
"Party," and collectively as "Parties." 2. RECITALS: This Agreement is made
with reference to the following facts, among others:
2.1 Producer has caused to be constructed an alternative energy resource
facility located in IID's service area.
2.2 Producer and IID have entered into a Plant Connection Agreement.
2.3 Producer desires to purchase, and IID desires to sell firm transmission
service of power from the Plant to Edison's Mirage Substation subject to the
terms and conditions specified herein.
2.4 Producer and IID are parties to that certain Funding and Construction
Agreement dated June 29, 1987, providing for the funding and construction of
transmission lines within IID's service area.
3. AGREEMENT: The Parties agree as follows:
4. DEFINITIONS: The following terms, when used herein with initial
capitalization, whether in the singular or plural, shall have the meanings
specified:
4.1 Agreement: This IID - Producer Transmission Service Agreement for
Alternative Resources between Vulcan Power Company
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and IID, and all Exhibits attached hereto, as such Agreement may subsequently
be amended for firm transmission service between each Plant and Edison's
Mirage Substation.
4.2 Authorized Representative: The representative of a party designated in
accordance with Section 12.
4.3 Date of Initial Service: The date when the output from each Plant is
first available for delivery to Edison, as notified to IID pursuant to Section
5.2.
4.4 Edison: Southern California Edison Company.
4.5 Funding and Construction Agreement: An agreement entered into by IID
and others dated June 29, 1987, providing for the funding and construction of
the Heber-Mirage Transmission Project, to which a form of this agreement is
attached as Exhibit III.
4.6 Maximum Transmission Service Entitlement: The Maximum Transmission
Service Entitlement for each Plant, as specified in Exhibit[s] II,
Transmission Service, and in any subsequent Plant Amendments.
4.7 Normal Transmission Capacity: The maximum transfer capability,
expressed in megawatts (MW), from the Point of Receipt to the Point of
Delivery. Such transfer capability, as determined by IID, in its sole
judgment, shall be consistent with prudent operating procedures and with
generally-accepted engineering and operating practices in the electrical
utility industry.
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4.8 Operating Transmission Capability: The maximum transfer capability,
expressed in megawatts (MW), available to IID at any given time to transmit
power from Point of Receipt to Point of Delivery. Such transfer capability
shall be as determined by IID in its sole judgment, may vary from time-to-time
depending on system conditions, and shall be consistent with prudent operating
procedures and generally-accepted engineering and operating practices in the
electrical utility industry.
4.9 Plant: An electrical generating alternative energy resource facility
developed by Producer for which IID shall provide transmission service, as
specified in Exhibit(s) II, Transmission Service, and in any subsequent Plant
Amendments.
4.10 Plant Amendment: An agreement reached by the Parties, as an amendment
to this Agreement, for transmission service to be provided by IID for a Plant
added by Producer or for Producer's account subsequent to the execution of
this Agreement.
4.11 Plant Connection Agreement: An agreement between IID and Producer
providing for the connection of a Plant to IID's electrical system, as
specified in Exhibit[s] II, Transmission Service, and in any subsequent Plant
Amendments.
4.12 Point(s) of Delivery: The 230-kV switchrack at the Mirage Substation
site where Edison's 230-kV facilities are attached to IID's 230-kV
Coachella-Mirage Line or other points as may be mutually agreed upon by the
Authorized Representatives.
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4.13 Point of Receipt: The point on the high voltage side of the Plant's
transformer where IID's metering equipment measures the delivery of energy to
the IID system.
4.14 Transmission Service Entitlement: The amount of transmission service,
expressed in megawatts (MW), provided by IID for each Plant, from the
applicable Point of Receipt to the applicable Point(s) of Delivery.
5. TERM:
5.1 Unless otherwise agreed to by the Parties, this Agreement shall be
effective on the Completion Date for the transmission lines being constructed
pursuant to the Funding and Construction Agreement, as the term Completion
Date is defined in Article I thereof, and shall remain in effect until April
15, 2015.
5.2 The Transmission Service Entitlement to be provided by IID for each
Plant shall be contingent on a Plant Connection Agreement being in effect.
Transmission service for each Plant shall commence on the Date of Initial
Service of such Plant. Producer's Authorized Representative shall give IID's
Authorized Representative written notice of the Date of Initial Service at
least thirty (30) days before the Date of Initial Service.
6. TRANSMISSION SERVICE:
6.1 Subject to the terms of this Agreement, IID shall provide to Producer
and Producer shall purchase from IID transmission service over IID's
transmission system for each Plant. IID shall make arrangements with Edison to
provide, at
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Producer's or Edison's expense, for the transfer of the electrical power to be
delivered to Edison hereunder from IID's transmission system to Edison's
transmission system at the Point(s) of Delivery.
6.2 The Transmission Service Entitlement for each Plant shall be the
Maximum Transmission Service Entitlement for such Plant specified in
Exhibit[s] II, Transmission Service, or any subsequent Plant Amendments, or
such lesser amount as may be established as follows. Beginning on the Date of
Initial Service for each Plant, Producer shall be entitled to specify a
Transmission Service Entitlement by advance written notice given to IID's
Authorized Representative at least thirty (30) days prior to the Date of
Initial Service. The Transmission Service Entitlement to be provided by IID
subsequent to the Date of Initial Service may be adjusted at six (6) month
intervals thereafter until two (2) years after the Date of Initial Service for
such Plant (the "Trial Period"). Such adjustments shall be made by having
Producer's Authorized Representative give IID's Authorized Representative a
ninety (90) day advance written notice as to the adjustment required.
Beginning two (2) years after the Date of Initial Service for such Plant,
Producer shall be entitled to specify a Transmission Service Entitlement for
each successive two-year period during the remaining term of this Agreement by
written notice from Producer's Authorized Representative to IID's Authorized
Representative given at least ninety (90) days prior to the beginning of each
two-year period.
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6.3 The Transmission Service Entitlement selected by Producer for each
Plant in accordance with Section 6.2 may be any amount which is less than or
equal to the Maximum Transmission Service Entitlement for such Plant specified
in Exhibit[s] II, Transmission Service and in any subsequent Plant Amendments,
provided, however, that the following shall apply to each Plant after the
Trial Period for such Plant has elapsed.
6.3.1 If (i) the sum of the Transmission Service Entitlements for all
Plants which are no longer in their Trial Periods is less than the sum of the
Maximum Transmission Service Entitlements for such Plants, as shown in
Exhibit[s] II, Transmission Service and in any subsequent Plant Amendments,
(the "Aggregate Maximum Transmission Service Entitlement"), and (ii) provided
that IID requires additional capacity for transmitting electric power to
Edison's transmission system for another person (or, following the Credit
Installment Period as defined in the Funding and Construction Agreement, for
itself) and (iii) IID's use of such required capacity would be in conflict
with Producer's right as provided herein to increase the sum of the
Transmission Service Entitlements for such Plants to the Aggregate Maximum
Transmission Service Entitlement, then IID shall so notify Producer in
writing, specifying in such notice the portion, expressed in megawatts (MW),
of the excess of the Maximum Transmission Service Entitlement over the
Transmission Service Entitlement for each such Plant which it desires to use
as stated above. Producer shall have ninety (90) days after receipt of IID's
notice to notify IID in writing that it desires
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to increase the Transmission Service Entitlements of such Plants. To the
extent that Producer does not elect to increase the Transmission Service
Entitlement of each such Plant up to the Maximum Transmission Service
Entitlement for such Plant, IID shall be entitled to use such unclaimed
capacity to satisfy the transmission requirements specified in its notice to
Producer, and to the extent that IID does so, Producer shall thereafter be
foreclosed from increasing the Transmission Service Entitlement for such Plant
in a manner which would conflict with such usage by IID.
6.3.2 IID shall treat Producer and each other person who has entered
into a transmission service agreement similar in substance to this Agreement
in a fair and nondiscriminatory manner in requesting additional transmission
capacity as provided in this Section 6.3. Without limiting the generality of
the foregoing, IID shall request additional transmission capacity from
Producer and such other persons on a pro rata basis, in proportion to the
Aggregate Maximum Transmission Service Entitlement for each person less the
sum of the Transmission Service Entitlements for each of such persons'
generating plants which is no longer in a Trial Period.
6.4 In the event that the Original Capacity Nomination designated by
Producer (or the Participant associated with Producer) is adjusted pursuant to
Section 3.07 of the Funding and Construction Agreement, the Parties agree to
amend this Agreement in such a way that the sum of the Maximum Transmission
Service Entitlements for all Plants hereunder is equal to such Original
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Capacity Nomination as so adjusted. As used in this Section 6.4, the terms
Original Capacity Nomination and Participant shall have the meanings assigned
to them in Article I of the Funding and Construction Agreement.
6.5 IID, reserves the right to interrupt or curtail the transmission
service provided hereunder as follows:
6.5.1 If the Operating Transmission Capability is reduced to less than
Normal Transmission Capacity from a Point of Receipt to a Point of Delivery,
and when continuity of service within IID's service area is not being
jeopardized, IID may curtail the transmission service currently being provided
from such Point of Receipt to such Point of Delivery, to an amount "A"
determined by the following formula:
A = Operating Transmission Capability x Transmission Service
Normal Transmission Capacity Entitlement
The transmission service for each Plant affected shall be
curtailed by multiplying the Transmission Service Entitlement in accordance
with Exhibit[s] II, Transmission Service, and in any subsequent Plant
Amendments by the same percentage (expressed as a decimal) as used in the
determination of "A." However, any such curtailment shall occur only after IID
has made all reasonable efforts to eliminate the cause of the reduction in
Operating Transmission Capability, and IID shall then employ reasonable
efforts to eliminate expeditiously the cause of said reduction.
6.5.2 If continuity of service within IID's control area is being
jeopardized, as determined by IID in its sole
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judgment, IID may interrupt or curtail the transmission service provided
hereunder to the extent necessary to avoid or eliminate such jeopardy;
provided that (i) such interruptions or cur tailments may be made so that IID
may fully utilize all generating resources owned by it or available to it
under contract in order to avoid damage to IID's electrical system caused by
overloading, (ii) such interruption or curtailment shall occur only after IID
has made all reasonable efforts to avoid or eliminate such jeopardy and (iii)
to the extent feasible any curtailment of transmission service provided
hereunder from a Point of Receipt to a Point of Delivery shall be made in
accordance with the formula set forth in Section 6.5.1.
6.6 If IID's efforts do not avoid or eliminate such jeopardy, the Parties
shall endeavor to develop some other arrangement to avoid or eliminate such
jeopardy and minimize the effects of IID's interruption or curtailment on both
parties.
6.7 In the event of any curtailments or interruptions made pursuant to
Section 6.5.1 or Section 6.5.2, Producer shall, immediately after being orally
notified by IID, reduce the electrical output of the Plants by the amounts
requested by IID.
6.8 The transmission service to be provided by IID and purchased by
Producer for each Plant shall not exceed the Transmission Service Entitlement
for that Plant.
6.9 Subject to Section 6.5, IID shall, during the periods that IID has
agreed to provide the transmission service at the specified Transmission
Service Entitlements, accept hourly
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scheduled energy deliveries at each Point of Receipt and simultaneously
deliver the same amount of energy (less transmission losses as provided
herein) at the Point(s) of Delivery mutually agreed upon by the Parties'
dispatchers and/or schedulers.
6.10 Hourly scheduled energy deliveries at each Point of Receipt shall
conform with the practices and procedures developed by the Parties'
dispatchers and schedulers and agreed to by the Authorized Representatives.
7. TRANSMISSION LOSSES:
7.1 IID shall determine, by transmission power flow analysis, the
electrical losses (expressed as a percent amount of hourly scheduled energy
deliveries) associated with the electrical output from each Plant. Such
analysis shall be performed by IID at its sole expense. The initial percent
amount, for each Plant, representing the electrical losses as determined
herein shall be as specified in Exhibit[s] II, Transmission Service and in any
subsequent Plant Amendments.
7.2 Unless otherwise agreed to by Producer's and IID's schedulers and
dispatchers, IID shall reduce the amount of all hourly scheduled energy
deliveries for Producer or Producer's account by the percent amount of such
hourly deliveries for each Plant in accordance with Exhibit[s] II,
Transmission Service and in any subsequent Plant Amendments.
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7.3 If either Party believes that there has been a significant change in
IID's electrical system and the electrical losses associated with any Plant
should be redetermined, either Party's Authorized Representative may submit a
written request to the other Party's Authorized Representative that the
electrical losses be redetermined. Following such request, a transmission flow
analysis shall be performed by IID as approved by the Authorized
Representatives and paid for by the requesting Party. Whenever the percent
amount for electrical losses is redetermined, such percent amount shall become
effective as of the first day of the month following the date of such
redetermination; provided, that such a redetermination may be no sooner than
twelve (12) months after the most recent redetermination. Any redetermination
of electrical losses made pursuant to this Section 7 shall be based on
conditions in existence at the time of such redetermination.
7.4 Along with the monthly billing pursuant to Section 9.1, for the
transmission service for each Plant, IID shall submit a monthly summary of
hourly scheduled energy deliveries and of electrical losses for each Plant.
8. CHARGES:
8.1 For transmission service provided by IID, Producer shall pay IID at a
rate to be determined by IID pursuant to the methodologies specified in
Exhibit I.A. The initial rate is specified in Exhibit[s] II, Transmission
Service, and revisions thereto will be specified in any subsequent Plant
Amendments.
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Any specific facility charge to Producer for connecting the Plant(s) to the
IID transmission system shall be included only in the Plant Connection
Agreement(s) between IID and Producer.
8.2 The transmission rate shall be reviewed annually and may be
revised. Any revision of the rates shall be based on the methodologies in
Exhibit I.A and on the conditions in existence at the time of the revision.
Producer shall have the right to review any exhibits or work papers prepared
by IID to revise the rates.
8.3 An initial monthly scheduling fee, as specified in Exhibit[s] II,
Transmission Service and revisions thereto specified in any subsequent Plant
Amendments, shall be paid by Producer to IID for those months in which there
were scheduled energy deliveries from the Plant(s). The initial scheduling fee
has been determined by IID pursuant to the methodology specified in Exhibit
I.B. The scheduling fee shall be reviewed annually and may be revised. Any
revision of the scheduling fee shall be based on the methodology in Exhibit
I.B and on the conditions in existence at the time of the revision. Producer
shall have the right to review any exhibits or work papers prepared by IID to
revise the scheduling fee.
9. BILLING AND PAYMENT:
9.1 IID shall render bills to Producer, beginning in the month of the Date
of Initial Service, on or before the fifteenth (15th) day of each month for
the transmission service to be.
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provided during the month. Producer shall pay such bills within twenty (20)
days after receipt thereof
All payments by Producer shall be sent to:
Imperial Irrigation District
c/o Manager, Finance and Accounting
P.O. Box 937
Imperial, California 92251
All billings by IID shall be sent to:
Vulcan Power Company
P.O. Box 630
Calipatria, California 92233
9.2 Either Party's Authorized Representative may at any time, by advance
written notice to the other Party's Authorized Representative, change the
address to which payments or billings shall be sent.
9.3 Bills which are not paid in full by said due date shall thereafter bear
an additional charge of one and one-half percent (1-1/2%) per month, or the
maximum legal rate of interest, whichever is less, compounded monthly on the
unpaid amount prorated by days from the due date until payment is received by
IID.
9.4 In the event any portion of any bill is disputed, the disputed amount
shall be paid when due under protest. If the protested portion of the payment
is found to be incorrect by the Authorized Representatives, the disputed
amount shall be paid by IID to Producer, including interest at the rate of
1-1/2% per month, or the maximum legal rate, whichever is less, compounded
monthly from the date of payment by Producer to the date the refund check or
adjusted bill is received by Producer.
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9.5 For a fractional part of a calendar month at the beginning or end of
the period for which the transmission service is provided hereunder, the
charge pursuant to Section 8.1 shall be proportionately adjusted by the ratio
of days that service is furnished by IID to Producer during such month to the
total number of days in such month.
9.6 The charge for the transmission service pursuant to Section 8.1 shall
be proportionately reduced to the extent the duration of the interruptions or
curtailments of the transmission service which may occur pursuant to Section
6.5.1 or Section 6.5.2 exceed a cumulative total of twenty-four (24) hours
during any calendar month based on 730 hours per month representing the full
transmission service charge. The amount of such prorata reduction in any month
shall reflect the duration and amount of such interruptions or curtailments
which exceed said cumulative 24 hours. Such prorata reduction shall be
reflected as a credit to Producer as soon as possible in a subsequent monthly
bill.
9.7 The charge for the transmission service shall not be reduced if
IID can deliver, but Edison's transmission system cannot receive, the hourly
scheduled energy deliveries independent of the duration of time this condition
exists.
10. LIABILITY:
10.1 Except for any loss, damage, claim, costs, charge or expense resulting
from Willful Action, neither Party (the "released Party"), its directors or
other governing body, officers or employees shall be liable to the other Party
for any loss, damage, claim, cost, charge, or expense of any kind or
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nature incurred by the other Party (including direct, indirect or
consequential loss, damage, claim, cost, charge or expense; and whether or not
resulting from the negligence of a Party, its directors or other governing
body, officers, employees or any person or entity whose negligence would be
imputed to a Party) from engineering, repair, supervision, inspection,
testing, protection, operation, maintenance, replacement, reconstruction, use
or ownership of the released Party's electrical system, Plant(s) or associated
facilities in connection with the implementation of this Agreement. Except for
any loss, damage, claim, cost, charge or expense resulting from Willful
Action, each Party releases the other Party, its directors or other governing
body, officers and employees from any such liability.
10.2 For the purpose of this Section 10, Willful Action shall be defined as
action taken or not taken by a Party at the direction of its directors or
other governing body, officers or employees having management or
administrative responsibility affecting its performance under this Agreement,
as follows:
10.2.1 Action which is knowingly or intentionally taken or not taken
with conscious indifference to the consequences thereof or with intent that
injury or damage would result or would probably result therefrom.
10.2.2 Action which has been determined by final arbitration award or
final judgment or judicial decree to be a material default under this
Agreement and which occurs or continues beyond the time specified in such
arbitration award or judgment or judicial decree for curing such default or,
if no
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time to cure is specified therein, occurs or continues thereafter beyond
a reasonable time to cure such default.
10.2.3 Action which is knowingly or intentionally taken or not taken
with the knowledge that such action taken or not taken is a material default
under this Agreement.
10.3 Willful Action does not include any act or failure to act which is
merely involuntary, accidental or negligent.
10.4 The phrase "employees having management or administrative
responsibility," as used in Section 10.2, means the employees of a Party who
are responsible for one or more of the executive functions of planning,
organizing, coordinating, directing, controlling and supervising such Party's
performance under this Agreement with responsibility for results.
10.5 Subject to the foregoing provisions of this Section 10, each Party
agrees to defend, indemnify and save harmless the other Party, its officers,
agents, or employees against all losses, claims, demands, costs or expenses
for loss of or damage to property, or injury or death of persons, which
directly or indirectly arise out of the indemnifying Party's performance pur
suant to this Agreement; provided, however, that a Party shall be solely
responsible for any such losses, claims, demands, costs or expenses which
result from its sole negligence or Willful Action.
11. AUDITING
11.1 IID shall make its books, records, and other supporting information,
as requested, available to Producer or to Producer's designated contracted
representatives with a CPA firm, for the purpose of auditing any charges or
accounts to be kept by
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IID hereunder. All such audits shall be undertaken at reasonable times and in
conformance with generally-accepted auditing Stan dards.
11.2 If as a result of such audits Producer believes its charges or
accounts should be adjusted, the findings shall be presented to the Authorized
Representatives. If the Authorized Representatives agree that any audit
finding should result in a revision of charges or accounts, such revisions
shall be retroactive to the first billing for such charges and accounts and
shall be made as soon as practical after determination.
11.3 The amount of any unresolved dispute shall accrue interest at the
rate of one and one-half percent (1-1/2%) per month, or the maximum legal
rate, whichever is less, compounded monthly for any amount of money ultimately
refunded to Producer.
12. AUTHORIZED REPRESENTATIVES: Within thirty (30) calendar days after the
Completion Date, as defined in Article I of the Funding and Construction
Agreement, each Party shall designate by written notice to the other Party a
representative who is authorized to act on its behalf in the implementation of
this Agreement. Either Party may at any time change the designation of its
Authorized Representative by written notice to the other Party.
13. NO DEDICATION OF FACILITIES: Any undertaking by one Party to the other
Party under any provision of this Agreement shall not constitute the
dedication of the system or any portion thereof of the Party to the public or
to the other Party, and it is understood and agreed that any such undertaking
under any
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provision of this Agreement by a Party shall cease upon the termination of its
obligations hereunder.
14. NON-WAIVER: None of the provisions of this Agreement shall be considered
waived by either Party except when such waiver is given in writing. The
failure of either Party to insist in any one or more instances upon strict
performance of any of the provisions of this Agreement or to take advantage of
any of its rights hereunder shall not be construed as a waiver of any such
provisions or the relinquishment of any such rights for the future, but the
same shall continue and remain in full force and effect.
15. NO THIRD PARTY RIGHTS: The Parties do not intend to create rights in or to
grant remedies to any Third Party or others as a beneficiary of this Agreement
or of any duty, covenant, obligation or undertaking established hereunder.
16. UNCONTROLLABLE FORCES: Neither Party shall be considered to be in default
in the performance of any of its obligations under this Agreement when a
failure of performance shall be due to an uncontrollable force. The term
"uncontrollable force" shall mean any cause beyond the control of the Party
affected including, but not restricted to, failure of or threat of failure of
facilities which have been maintained in accordance with generally-accepted
engineering and operating practices in the electrical utility industry, flood,
drought, earthquake, tornado, storm, fire, pestilence, lightning and other
natural catastrophes, epidemic, war, riot, civil disturbance or disobedience,
strike, labor dispute, labor or material shortage, sabotage, government
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priorities and restraint by court order or public authority (whether valid or
invalid) and actions or nonaction by or inability to obtain or keep the
necessary authorizations or approvals from any governmental agency or
authority, the failure or inability of Edison to receive the electric power to
be transmitted hereunder at the Point(s) of Delivery, which by exercise of due
diligence such Party could not reasonably have been expected to avoid and
which by exercise of due diligence it has been unable to overcome. Nothing
contained herein shall be construed as to require a Party to settle any strike
or labor dispute in which it may be involved. Either Party rendered unable to
fulfill any of its obligations under this Agreement by reason of an
uncontrollable force shall give prompt written notice of such fact to the
other Party and shall exercise due diligence to remove such inability with all
reasonable dispatch.
17. ASSIGNMENTS:
17.1 Any assignment by Producer of its interest in this Agreement which is
made without the written consent of IID (which shall not be unreasonably
withheld) shall not relieve Producer from its primary liability for any of its
duties and obligations hereunder, and in the event of any such assignment
Producer shall continue to remain primarily liable for payment of any and all
money due IID hereunder and for the performance and observance of all other
covenants, duties and obligations to be performed and observed hereunder by it
to the same extent as though no assignment has been made.
-19-
<PAGE>
17.2 Notwithstanding any provision of Section 17.1 to the contrary, prior
to the end of the Credit Installment Period, as defined in Article I of the
Funding and Construction Agreement, Producer's right to transmission service
under this Agreement with respect to one or more of the Plants may be assigned
only (i) to a purchaser or co-owner of such Plants or to a person who will
operate such Plants pursuant to a contract or other arrangement with such
purchaser and in either case only with the prior written consent of IID (which
shall not be unreasonably withheld) or (ii) for security purposes, to a bank
or other entity which provides financing for such Plants or any electrical
transmission facilities associated therewith. Producer and IID agree that
nothing in this Section 17.2 may be amended, modified or waived without the
prior written consent of each and every party to the Funding and Construction
Agreement (except for any parties in default thereunder).
17.3 Whenever an assignment of Producer's interest in this Agreement is
made with the written consent of IID, Producer's assignee shall expressly
assume in writing the duties and obligations hereunder of Producer and, within
thirty (30) days after any such assignment and assumption of duties and obli
gations, Producer shall furnish or cause to be furnished to IID a true and
correct copy of such assignment and assumption of duties and obligations.
17.4 Subject to the foregoing restrictions on assignments, all of the
terms of this Agreement shall be binding upon and
-20-
<PAGE>
inure to the benefit of both of the Parties and their respective successors,
permitted assigns and legal representatives.
18. GOVERNING LAW: This Agreement shall be interpreted, governed by and
construed under the laws of the State of California or the laws of the United
States, as applicable.
19. NOTICES: Any notice, demand or request provided for in this Agreement, or
served, given or made in connection with it, shall be in writing and shall be
deemed properly served, given or made if delivered in person or sent by United
States mail, postage prepaid, to the persons specified below unless otherwise
provided for in this Agreement:
Imperial Irrigation District
c/o General Manager
P.O. Box 937
Imperial, California 92251
Vulcan Power Company
P.O. Box 630
Calipatria, California 92233
Either Party may at any time, by notice to the other Party, change the
designation or address of the person so specified as the one to receive
notices pursuant to this Agreement.
-21-
<PAGE>
20. SIGNATURE CLAUSE: The signatories hereto represent that they have been
appropriately authorized to enter into this IID- Vulcan Power Plant
Transmission Service Agreement for Alternative Resources (Standard Form) on
behalf of the Party for whom they signed. This Agreement is hereby executed as
of the 1st day of December, 1988.
[SEAL] IMPERIAL IRRIGATION DISTRICT
By: /s/ Tony Gallego
-----------------------------------
President, Board of Directors
VULCAN POWER COMPANY
By: /s/ Jon R. Peele
-----------------------------------
Vice President
-22-
<PAGE>
EXHIBIT I.A
DEVELOPMENT AND METHODOLOGY FOR THE
TRANSMISSION SERVICE CHARGE
IID's transmission service charge shall be recalculated during the month of
April of each year, using the methodology summarized in this Exhibit. The
recalculated transmission service charge shall be effective on June 1 of the
year of recalculation.
EI.A-1 Plant Investment
- -----------------------
TAI= WP + PA - TR + GP + M&S
where
TAI= Total adjusted investment at the time of calculation.
WP = Estimate of weighted Transmission Plant Cost ($40,980,291)
as December 31, 1983 calculated using the following formula:
WP = (0.7 x OC) + (0.3 x RCN); where
OC = Cumulative original cost of Transmission Plant as
shown in IID's accounting records, obtained by
summing the actual cost of all yearly additions to
Transmission Plant from 1938 to the end of 1983
(i.e., $20,700,415).
RCN= Estimate of the cumulative reproduction cost to
build the Transmission Plant items identified in
OC in 1983 dollars. Calculated by summing the
escalated cost of each yearly addition to
Transmission Plant starting in 1938 up to the end
of calendar year 1983 using the Handy-Whitman
Index for Total Transmission Plant for the Pacific
Region, (i.e., $88,300,000).
PA = Cumulative sum of additions to Transmission Plant from
January 1, 1984 to the end of the year preceding the year
of calculation. Thus, if the calculation takes place in
1996, PA is sum of Transmission Plant additions at actual
cost from January 1, 1984 to December 31, 1995.
PA = Sum of [TPA(i) + OA(i)]
where TPA(i)= Annual additions to Transmission Plant
for each year associated with the
Transmission Project, as defined in Section
7.05 of the Funding and Construction
Agreement. TPA(i) is calculated for each year
from Completion Date of Transmission Project
to end of year preceding year of calculation.
OA(i)= Other annual additions to Transmission Plant
by IID each year. OA(i) is calculated for
each year from January 1, 1984 to end of year
preceding year of calculation.
-EIA-1-
<PAGE>
TR = Sum of (i) and (ii) where:
(i)= For facilities placed in service prior to 1984, the
cumulative sum of the annual Weighted Retirement Costs (WRC)
for retirements from Transmission Plant from January 1, 1984
to the end of the year preceding the year of calculation.
Thus, if the calculation takes place in 1996, TR is
comprised of the sum of annual Transmission Plant
retirements from January 1, 1984 to December 31, 1995 with
each year's original cost adjusted to account for the
weighted cost of retirement.
where WRC = Weighted Retirement Cost for transmission
retired in a given year.
OCI = Original cost of transmission facilities
retired in a given year.
WRC = 70%*OCI + 30%*OCI*RCN/OC
(ii) = Cumulative sum of original cost of annual
transmission retirements for facilities placed in
service after January 1, 1984.
GP = General plant investment as shown in IID's accounting
records, as of the year preceding the year of calculation,
allocated to transmission use by the ratio of total
allocated transmission O&M cost to the sum of production O&M
cost excluding fuel, distribution O&M cost, transmission O&M
cost, dispatching cost, and customer accounting and services
costs.
M&S= Materials and supplies inventory held by IID as of the year
preceding the year of calculation, allocated to transmission
use by the ratio of Transmission Plant Original Cost to
Total Electric Plant original cost as reflected in IID's
accounting records for the year preceding the year of
calculation.
EI.A-2 Annual Cost
- -------------------
TAC= (1.25 x CRF x TAI) + OM + A&G
where
TAC= Total Annual Cost.
CRF= Annual capital recovery factor calculated for a 33-year
amortization using the average interest rate for the year
preceding the year of calculation from the "Merrill Lynch
500 Municipal Bond Index Electric- Retail."
OM = Total allocated transmission O&M cost during the year
preceding the year of calculation, equal to the sum of
(i) dispatching costs and (ii) transmission O&M cost
allocated to transmission use by the ratio of
Transmission Plant original cost (OC) to Total
Transmission Plant original cost (including the cost of
subtransmission plant) as shown in IID's accounting
records.
A&G= Administrative and general cost during the year
preceding the year of calculation, allocated to
-EIA-2-
<PAGE>
transmission use by the ratio of total allocated
transmission cost (OM) to the sum of production O&M cost
excluding fuel, distribution O&M cost, transmission O&M
cost, dispatching cost, and customer accounting and services
cost. Administrative and general cost is comprised of Power
Department plus Joint Department A&G less Customer Account
Expense.
EI.A-3 Monthly Transmission Service Charge
- --------------------------------------------------
TSC= TAC
--------
12 x APL
where
TSC= Monthly transmission service charge, in $/kW.
APL= Annual peak load during the year preceding the year of
calculation, expressed in kW, which is equal to the sum of
IID's service peak load plus all transmission wheeling
commitments (including all Transmission Service
Entitlements).
Examples
(1) Recalculation of 1985 Transmission Service Charge Plant Investment
- -----------------------------------------------------------------------
OC = 20,700,415
RCN= 88,300,000
WP = (0.7 x OC) + (0.3 x RCN) = 40,980,291
PA = 0 + 4,111,000 = 4,111,000
GP =
1,526,849 x 764,058
-----------------------------------------------------
3,085,080 + 4,080,868 + 694,545 + 189,450 + 1,621,252
= 1,526,849 x 0.079 = 120,625
M&S= 6,151,304 x 20,700,415
162,700,978
= 6,151,304 x 0.1272 = 782,629
TAI= 40,980,291 + 4,111,000 + 120,625 + 782,629
= 45,994,545
Annual Cost
- -----------
CRF= (33 years, 10.41%) = 10.8221%
OM = 189,540 + 694,545 x 20,700,415
25,025,093
= 189,540 + 694,545 x 0.8272 = 764,058
A&G=
4,086,530 x 764,058
----------------------------------------------------
3,085,080 + 4,080,868 + 694,545 +189,450 + 1,621,252
= 4,086,530 x 0.079 = 322,847
TAC= (1.25 x 0.108221 x 45,994,545) + 764,058 + 322,847
= 7,308,875
-EIA-3-
<PAGE>
Examples (Continued)
Monthly Transmission Service Charge
APL= 369,000 + 63,000 = 432,000
TSC= 7,308,875 = 1.41 $/kW
-------------
12 x 432,000
(2) Sample Calculation, 1996
Assumptions
- Weighted cost of Transmission Plant to 12-31-83; $40,980,291.
- Transmission Additions to 12-31-95; $67,000,000.
- Transmission Credit to rate base through 12-31-94; $30,000,000.
- Transmission credits used during 1995 were $6,000,000; IID's
Reserved Capacity is 40 MW, and the Deemed Capacity is 600 MW.
- No accumulated retirements.
- General plant investment as of 12-31-95, from IID records, is
$2,000,000.
- All allocation factors are assumed the same as in the previous
example but, in general, would not be identically the same each
year.
- Materials and supplies inventory as of 12-31-95; from IID
records, is $8,000,000.
- The 12-month average Merrill-Lynch Index interest rate is 8%
in 1995.
- Dispatching costs in 1995 were $1,000,000.
- IID's transmission O&M costs in 1995 were $1,000,000.
- IID's administrative and general costs in 1995 were $5,000,000.
- IID's service peak load in 1995 was 543 MW.
- IID's total transmission commitments in 1995 were 320 MW.
<TABLE>
<CAPTION>
Adjusted Investment 1996
- ------------------- -----------
<S> <C> <C>
WP = Weighted Plant to 12-31-83. . . . . . . . $40,980,291
OA[1984-1995] = Transmission Plant Additions Through
12-31-95 (excludes Transmission Project). 67,000,000
TPA[1984-1994]= Transmission Credit to Rate Base Through
12-31-94. . . . . . . . . . . . . . . . . 30,000,000
TPA[1995] = Transmission Credit to Rate Base during 1995;
6,000,000 x 600 - 40
600. . . . . . . . . . . . . 5,600,000
GP = General Plant Allocated; 2,000,000 x 0.079 158,000
M&S = M&S Allocated; 8,000,000 x 0.1272 . . . . 1,017,600
-----------
TAI = $144,755,891
</TABLE>
-EIA-4-
<PAGE>
Annual Cost
CRF = (33 years, 8%) = 8.6852
OM = 1,000,000 + 1,000,000 x 0.8272 = 1,827,200
A&G = 5,000,000 x 0.079 = 395,000
TAC = 1.25 x 0.086852 x $144,755,891 + 1,827,200 + 395,000
= $17,937,623
Monthly Transmission Service Charge
APL = 543,000 + 320,000 = 863,000
TSC = $17,937,623 = $1.73/kW
12 x 863,000
R1
-EIA-5-
<PAGE>
EXHIBIT I.B
METHODOLOGY AND CALCULATION OF SCHEDULING FEE
ANNUAL DETERMINATION
OF
IID SCHEDULING FEES
IID, in April each year, will calculate monthly fees for scheduling
services related to Alternative Energy Resources and transactions with other
utilities as follows:
A. An appropriate number of scheduling units will be assigned
to every IID resource, Alternative Energy Resource, and
transaction with other utilities in operation during the
preceding year. The number of scheduling units assigned to
each resource and/or transaction will depend upon the total
daily number of functions and therefore, estimated time
required to schedule the resource and/or transaction. This
estimate will be directly related to the complexity of the
sche duling service being provided. Table 1 shows how the
total scheduling units were determined for the IID system.
B. The expenses related to dispatching and scheduling services
will be equal to the sum of the following:
1. IID FPC Account 556 for the year preceding the year of
calculation
2. A portion of the annual expenses related to the SCADA
and AGC for the year preceding the year of calculation,
determined by multiplying one half of the levelized debt
service payments for the systems by the percentage that
FPC Account 556 is of the total of FPC Accounts 556, 561
and 581. Table 2 shows calculations involved with this
step.
C. The annual scheduling fee per scheduling unit will be
determined by dividing the expenses related to scheduling
found in Step B by the total scheduling units from Step A.
The per unit fee will then be multiplied by the number of
scheduling units assigned to each resource and/or
transaction to develop an appropriate annual scheduling fee
for that resource and/or transaction. The monthly scheduling
fee will then be calculated by dividing the annual fee by
12. Table 3 shows the calculation.
The revised scheduling fee will be effective on June 1 of the year in which
they are calculated.
R1
-EIB-1-
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
IMPERIAL IRRIGATION DISTRICT
SCHEDULING FEE METHODOLOGY
DETERMINATION OF TOTAL SCHEDULING UNITS
Hours Payback/ Pre- On AGC Off Loss
Energy Capacity Variable Banking Scheduling System System Accounting
(X=2) (X=2) (X=1) (X=1) (X=1) (X=1) (X=1) (X=1) Total
------ -------- -------- -------- ---------- ------ ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
IID's Generating Units:
Pilot Knob X X X X 6
Drop No. 1 X X X X 6
Drop No. 2 X X X X 6
Drop No. 3 X X X X 6
Drop No. 4 X X X X 6
Drop No. 5 X X X X 6
_____ Highline X X X X 6
Turnip and Double Weir X X X X 6
El Centro Unit No. 1 X X X X 6
El Centro Unit No. 2 X X X X 6
El Centro Unit No. 3 X X X X 6
El Centro Unit No. 4 X X X X 6
Coachella Units No. 1 and 2 X X X X 6
Coachella Units No. 3 and 4 X X X X 6
Rockwood X X X X 6
X X X X 6
--
Subtotal 96
Alternative Energy Resources:
Earth Energy X X X X X X X 10
Magma (East Mesa) X X X X X X 9
Heber HGC X X X X X X X 10
Vulcan Power X X X X X X X 10
Ormesa I X X X X X X X 10
Ormesa II X X X X X X X 10
_____ Binary X X X X X X X 10
--
Subtotal 69
Transactions with Other Utilities:
DOE X X X X X 7
EPE X X X X X 7
SCE X X X X X 7
SDG&E X X X X X X X 10
APS (Yucca) X X X X X 7
SCE GT's (Axis) X X X X X X 9
APS (Axis) X X X X X X 9
YCWUA X X X X X X 9
---
Subtotal 65
Total Scheduling Units 230
---
</TABLE>
-EIB-2-
<PAGE>
TABLE 2
IMPERIAL IRRIGATION DISTRICT
SCHEDULING FEE METHODOLOGY
EXPENSES RELATED TO SCHEDULING
IID 1986 Actual
FPC Account 556 (3) $371,297 (52.15%)
FPC Account 561 $230,170 (32.33%)
FPC Account 581 $110,461 (15.52%)
-------- --------
$711,928 (100.0%)
SCADA and AGC Systems
Investment (2) = $4,536,285
Annual Expense
$4,536,285 x 0.1170923 (1) = $ 531,164
Expenses Related to Scheduling
FPC Account 556 = $371,297
52.15% of SCADA and AGC Systems
Annualized Expense ($531,164 x 0.5215) = $277,002
Total Expense Related to Scheduling = $648,299
(1) Capital Recovery Factor determined from levelized debt service
payments of $7,611,000 for $65,000,000 - May, 1983 COP issue.
(2) Fifty percent of total investment for SCADA and AGC $9,072,571
is assumed related to transmission service.
(3) Related to load dispatching for system control.
-EIB-3-
<PAGE>
TABLE 3
IMPERIAL IRRIGATION DISTRICT
SCHEDULING FEE METHODOLOGY
CALCULATION OF SCHEDULING FEE
Annual Charge per Scheduling Unit
Total Expenses Related to Scheduling (from Table 2) = $648,299
Total Scheduling Units (from Table 1) 230
-------
Annual Charge per Scheduling Unit ($613,446/220) = $ 2,818
Alternative Energy Resource Scheduling Fee
Magma (East Mesa) Plant:
Annual Charge (9 Scheduling Units x $2,818) = $25,362/year
Monthly Charge ($25,362/12) $ 2,113/month
All Other Plants:
Annual Charge (10 Scheduling Units x $2,818) = $28,180/year
(1) Monthly Charge ($28,180/12) $ 2,348/month
(1) Also applies to new plants to be on-line in 1988 & 89
-EIB-4-
<PAGE>
EXHIBIT II
TRANSMISSION SERVICE
FOR THE VULCAN POWER PLANT
EII-1. DESCRIPTION:
EII-2. APPLICABILITY: Applicable to the transmission service to be
provided by IID to Producer for transmitting the electrical
output from the Vulcan Power Plant Point of Receipt to the
Point(s) of Delivery.
EII-3. PLANT CONNECTION AGREEMENT: The Vulcan Power Plant Connection
Agreement to be executed between IID and Producer.
EII-4. MAXIMUM TRANSMISSION SERVICE ENTITLEMENT: 38 MW.
TRANSMISSION SERVICE ENTITLEMENT: 38 MW, as specified in
accordance with Sections 6.2 and 6.3.
EII-5. POINT OF RECEIPT: See Section 4.13.
EII-6. POINT(S) OF DELIVERY: The 230-kV switchrack at Edison's
Mirage Substation.
EII-7. TERM: The term of the Transmission Service Entitlement for
the Vulcan Power Plant shall be effective from the Date of
Initial Service and shall terminate on April 15, 2015.
EII-8. TRANSMISSION SERVICE CHARGE: $1.41 per kilowatt-month, or as
revised in accordance with Section 8.2, times Transmission
Service Entitlement.
EII-9. SCHEDULING FEE: $2,348 per month or as revised in accordance
with Section 8.3.
EII-10. TRANSMISSION LOSSES: 2.60% or as revised in accordance with
Section 7.
-EII-1-
EXHIBIT 10.28
88A.4
VULCAN
12-06-88
EXECUTION COPY
PLANT CONNECTION AGREEMENT
FOR THE
VULCAN POWER PLANT
BETWEEN
IMPERIAL IRRIGATION DISTRICT
AND
VULCAN POWER COMPANY
EXECUTION COPY
12-06-88
<PAGE>
1. PARTIES
The parties to this Agreement are IMPERIAL IRRIGATION
DISTRICT ("IID"), organized under the Water Code of the State of
California and VULCAN POWER COMPANY ("Producer"), hereinafter referred to
individually as "Party," and collectively as "Parties."
2. RECITALS
2.1 Producer has constructed and operates, as owner or lessee, a
generating facility with a maximum 38 megawatt net operating capacity at the
Salton Sea (KGRA), Imperial County, California, and sells the Plant electrical
output to Southern California Edison Company ("SCE").
2.2 SCE has entered into the Power Purchase Agreement dated March 1,
1984, ("Purchase Agreement") with Producer, to purchase all the electrical
output from the Plant.
2.3 SCE and Producer agree that the terms and conditions regarding
transmission of the Plant's Energy to an IID/SCE point of interconnection
shall be pursuant to a Transmission Service Agreement to be entered into
between IID and Producer.
2.4 Since the Plant has been built in the IID service territory, it is
convenient to connect the Plant to the IID electric system.
Producer hereby grants the IID the right to enter the Plant site
for any reasonable purposes connected with this Agreement, by previous
arrangements with the Plant manager. Those reasonable purposes include
maintenance and repairs to IID
2
<PAGE>
equipment in Producer's facilities, observing tests of said facilities,
reading of kilowatt-hour meters, and the like.
2.5 Producer desires to purchase and IID desires to sell the electrical
energy necessary to satisfy the operation and maintenance power consumption
requirements of the Plant for the life of the Plant that is not normally
generated by the Plant itself, or portable generating equipment.
2.6 The Parties desire, by means of this Agreement, to interconnect the
Plant to the IID electrical system and to establish the terms, conditions and
obligations of the Parties relating to such interconnection.
2.7 Upon execution of this Agreement, Plant Connection
Agreement for the Vulcan Power Plant Between Imperial Irrigation
District and Vulcan Power Company executed August 20, 1985, is hereby
terminated.
3. AGREEMENT
The Parties agree as follows:
4. DEFINITIONS
4.1 Agreement: This Plant Connection Agreement between IID and Producer,
and all Exhibits hereto, as may be amended from time to time.
4.2 Authorized Representative: The representative of a
Party designated in accordance with Section 13.
4.3 Energy: Electric energy in excess of Producer's electric energy
requirements, expressed in kilowatt-hours, generated by the Plant and measured
and delivered to the Point of Delivery.
3
<PAGE>
4.4 Funding and Construction Agreement: An agreement entered into by IID
and others dated June 29, 1987, providing for the funding and construction of
the Heber-Mirage Transmission Project, to which a form of this Agreement is
attached as Exhibit C.
4.5 Operation Date: The day on which the Plant Energy is
first accepted by IID for delivery to SCE.
4.6 Plant: A maximum of 38 MW net operating capacity Geothermal facility
operated by Producer, as owner or lessee, including all associated equipment
and improvements necessary for generating electric energy and transmitting it
to the high voltage side of the power transformer.
4.7 Point of Delivery: The point on the high voltage side of Producer's
switchyard where IID's metering equipment measures the delivery of Energy to
the IID system as shown on Exhibit "B".
4.8 System Emergency: A condition on IID's system which
is likely to result in imminent significant disruption of service
to customers or is imminently likely to endanger life or property.
5. EFFECTIVE DATE AND TERM
This Agreement shall become effective upon the Operation Date of the
Plant, and shall remain in effect until the earlier of (i) April 15, 2015, or
(ii) thirty six (36) months from the date the Plant has ceased to operate at
the option of IID.
4
<PAGE>
6. CONNECTION OF PLANT
6.1 Producer may electrically connect its Plant, in accordance with the
provisions of this Agreement, so that it can operate in parallel with the IID
electric system. Parallel operation will commence until IID has inspected and
approved the interconnection facilities and operational procedures.
6.2 Notwithstanding the provision that Producer has
furnished the high voltage switchyard complete, including the high
voltage oil circuit breakers and disconnect switches, the control of
the high voltage oil circuit breakers and disconnect switches shall
be under the control of the IID dispatcher.
7. ELECTRIC SERVICE TO PRODUCER
IID shall provide electric service to Producer pursuant to Section 12.
8. METERING OF ENERGY DELIVERIES
Metering for electric service to Producer and for energy deliveries by
Producer to IID for delivery to SCE shall be at the Point of Delivery as shown
on Exhibit "B." Four meters shall be installed which shall measure and record
flows in each direction as shown on Exhibit "B."
9. PRODUCER'S DELIVERY AND IID ACCEPTANCE OF ENERGY FROM PLANT
Whenever electric output from the Plant exceeds Producer's
power requirements, Producer shall deliver all such excess output
to IID for delivery to SCE and IID shall accept such output for
delivery to SCE and deliver such output to SCE pursuant to a
transmission service agreement to be entered into between Producer and
IID.
5
<PAGE>
10. PRODUCER'S GENERAL OBLIGATIONS
Producer shall :
10.1 Operate the Plant in a manner consistent with applicable electric
utility industry standards, good engineering practice, and without degradation
of quality or reliability of service to IID customers.
10.2 Deliver the Plant's net electrical output to IID for the account of
SCE at the Point of Delivery.
10.3 Each Party shall provide the reactive kilovolt-ampere (KVA)
requirements of its own system so that there will be no interchange of
reactive KVA between systems. The Parties shall cooperate to control the flow
of reactive KVA to prevent the introduction of objectionable operating
conditions on the system of either Party.
10.4 Coordinate, to the greatest extent practicable, major overhaul and
inspection outages of the Plant with IID.
10.5 Give IID a written schedule on or before June 1, and December 1,
each year of the estimated amounts and rates of delivery of energy to be
delivered to IID for the account of SCE at the Point of Delivery during each
month of the succeeding twelve-month (12) period commencing July 1, and
January 1.
10.6 Give IID a written schedule on or before the fifteenth (15th) day
of each month of the estimated amounts and rates of delivery of energy to be
delivered to IID for the account of SCE at the Point of Delivery during each
day of the succeeding calendar month.
6
<PAGE>
10.7 Give IID a schedule on or before 12:01 p.m. on Tuesday
of each seven-day (7) period of the estimated amounts and rates of
delivery of energy to be delivered to IID for the account of SCE
at the Point of Delivery during each hour of the succeeding seven-day (7)
period commencing at 12:01 a.m. on the following Monday; provided, however,
that if any changes in the hourly deliveries so scheduled become necessary,
Producer shall notify IID of such changes as far in advance as possible.
10.8 Provide IID any reasonable rights-of-way and access required for
testing and reading of meters by previous arrangement with the Plant manager.
10.9 Carry out the directions of the Authorized Representatives with
respect to the matters set forth in this Agreement.
11. IID'S GENERAL OBLIGATIONS
IID shall:
11.1 Accept the Plant's net electrical output for the account of SCE at
the Point of Delivery and simultaneously deliver an equal amount of electric
energy (less applicable transmission losses) to the SCE system at IID/SCE
point(s) of interconnection.
11.2 Coordinate, to the greatest extent practicable, major overhaul and
inspection outages of IID transmission facilities with Producer and notify
Producer of any changes as far in advance as possible.
7
<PAGE>
11.3 Carry out the directions of the Authorized Representative with
respect to the matters set forth in this Agreement.
11.4 Operate its system in a manner consistent with applicable utility
industry standards and good engineering practices.
12. BILLING
12.1 IID shall read the meters monthly according to its regular meter
reading schedule beginning no more than thirty (30) days after the date that
electric energy is first supplied to Producer. IID monthly shall send Producer
within ten (10) working days after the meter is read a bill for electric
service. Producer shall pay IID the total amount billed within thirty (30)
days of receipt of the bill.
12.2 IID shall bill Producer for Producer's consumption of energy from
IID's resources in accordance with Rate Schedule GL or Rate Schedule A-2, as
applicable, as it may be revised from time to time. Copies of current Rate
Schedule GL and current Rate Schedule A-2 are attached as Exhibit "A."
12.3 If Producer disputes a bill, payment shall be made as
if no dispute existed pending resolution of the dispute by the
Authorized Representatives. If the bill is determined to be in
error, the disputed amount shall be refunded by IID including interest
at the rate of one and one-half percent (1 1/2%) per month,
compounded monthly, from the date of payment to the date the refund
check or adjusted bill is mailed.
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13. AUTHORIZED REPRESENTATIVES
13.1 Within thirty (30) days after the date this Agreement is signed,
each Party shall designate, by written notice to the other Party, an
Authorized Representative who is authorized to act in its behalf in the
implementation of this Agreement and with respect to those matters contained
herein which are the functions and responsibilities for the Authorized
Representatives. Either Party may, at any time, change the designation of its
Authorized Representative by written notice to the other Party.
13.2 IID's Authorized Representative shall develop detailed written
procedures necessary and convenient to administer this Agreement within six
(6) months after the date signed. Such procedures shall be submitted to
Producer's Authorized Representative for review, comment, discussion and
concurrence before they are put into effect. Such procedures shall include,
without limitation: (i) communication between Producer and IID's electric
system dispatcher with regard to daily operating matters, (ii) billing and
payments, (iii) specified equipment tests, and (iv) operating matters which
affect or may affect quality and reliability of service to electric customers
and continuity of deliveries to SCE.
13.3 The Authorized Representative shall have no authority to modify any
of the provisions of this Agreement.
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<PAGE>
14. METERS
14.1 All meters shall be sealed and the seal shall be broken only upon
occasions when the meters are to be inspected, tested or adjusted.
14.2 IID shall inspect and test all meters upon their installation and
at least once every year thereafter. If requested to do so by Producer, IID
shall inspect or test a meter more frequently than every year, but the expense
of such inspection or test shall be paid by Producer unless the meter is found
to register inaccurately by more than two percent (2%) from the measurement
made by a standard meter. Each Party shall give reasonable notice to the other
Party of the time when any inspection or test shall take place and that Party
may have representatives present at the test or inspection. If a meter is
found to be inaccurate or defective, it shall be adjusted, repaired or
replaced in order to provide accurate metering. All adjustments due to
inaccurate meters shall be limited to the preceding six (6) months.
14.3 If a meter fails to register, or if the measurement made by a meter
during a test varies by more than two percent (2%) from the measurement made
by the standard meter used in the test, adjustment shall be made correcting
all measurements made by the inaccurate meter for:
(i) the actual period during which inaccurate measurements
were made, if the period can be determined, or if not,
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<PAGE>
(ii) the period immediately preceding the test of the meter
equal to one-half (1/2) the time from the date of the last
previous test of the meter; provided, however, that the period
covered by the correction shall not exceed six (6) months.
14.4 Producer shall telemeter information to IID's Dispatch
Center regarding the kilowatts, kilowatt-hours, kilovars and kilovar-hours
delivered to or received from IID at the Point of Delivery over phone line
leased by Producer.
IID shall purchase, own, and shall design, install, operate, maintain,
or cause to be designed, installed, operated, and maintained, equipment to
automatically transmit from the Plant to IID's Dispatch Center continuous
values of Plant output expressed as megawatts, megavars and megawatt-hours.
IID may thereupon bill and Producer shall promptly pay IID's cost of design,
purchase and installation of said equipment. Producer shall have the right to
audit IID's records and accounts to verify the cost of said equipment.
15. CONTINUITY OF SERVICE
IID shall not be obligated to accept and IID may require
Producer to temporarily curtail, interrupt or reduce deliveries of energy
upon advance notice to Producer, when such curtailment, interruption
or reduction is required in order for IID to construct, install,
maintain, repair, replace, remove, investigate or inspect any of its
equipment or any part of its system or if IID determines that such
curtailment, interruption or reduction is necessary because of a System
Emergency, forced
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<PAGE>
outages or abnormal operating conditions on its system. IID shall use
reasonable efforts to keep interruptions and curtailments to a minimum time.
16. LIABILITY
16.1 Except for any loss, damage, claim, costs, charge or expense
resulting from Willful Action, neither Party (the "released Party"), its
directors or other governing body, officers or employees shall be liable to
the other Party for any loss, damage, claim, cost, charge or expense of any
kind or nature incurred by the other Party (including direct, indirect or
consequential loss, damage, claim, cost, charge or expense; and whether or not
resulting from the negligence of a Party, its directors or other governing
body, officers, employees or any person or entity whose negligence would be
imputed to a Party) from engineering, repair, supervision, inspection,
testing, protection, operation, maintenance, replacement, reconstruction, use
or ownership of the released Party's electrical system, Plant(s) or associated
facilities in connection with the implementation of this Agreement. Except for
any loss, damage, claim, cost, charge or expense resulting from Willful
Action, each Party releases the other Party, its directors or other governing
body, officers and employees from any such liability.
16.2 For the purpose of this Section 16, Willful Action shall be defined
as action taken or not taken by a Party at the direction of its directors or
other governing body, officers or employees having management or
administrative responsibility affecting its performance under this Agreement,
as follows:
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16.2.1 Action which is knowingly or intentionally taken or not taken
with conscious indifference to the consequences thereof or with intent that
injury or damage would result or would probably result therefrom.
16.2.2 Action which has been determined by final arbitration award or
final judgment or judicial decree to be a material default under this
Agreement and which occurs or continues beyond the time specified in such
arbitration award or judgment or judicial decree for curing such default or,
if no time to cure is specified therein, occurs or continues thereafter beyond
a reasonable time to cure such default.
16.2.3 Action which is knowingly or intentionally taken or not taken
with the knowledge that such action taken or not taken is a material default
under this Agreement.
16.3 Willful Action does not include any act or failure to act which is
merely involuntary, accidental or negligent.
16.4 The phrase "employees having management or administrative
responsibility," as used in Section 16.2, means the employees of a Party who
are responsible for one or more of the executive functions of planning,
organizing, coordinating, directing, controlling and supervising such Party's
performance under this Agreement with responsibility for results.
16.5 Subject to the foregoing provisions of this Section 16,
each Party agrees to defend, indemnify and save harmless the other
Party, its officers, agents, or employees against all losses, claims,
demands, costs or expenses for loss of or damage to property, or injury
or death of persons, which directly or
13
<PAGE>
indirectly arise out of the indemnifying Party's performance pursuant to this
Agreement; provided, however, that a Party shall be solely responsible for any
such losses, claims, demands, costs or expenses which result from its sole
negligence or Willful Action.
17. UNCONTROLLABLE FORCES
Neither Party shall be considered to be in default in the performance of
any of its obligations under this Agreement when a failure of performance
shall be due to an uncontrollable force. The term "uncontrollable force" shall
mean any cause beyond the control of the Party affected including, but not
restricted to, failure of or threat of failure of facilities which have been
maintained in accordance with generally-accepted engineering and operating
practices in the electrical utility industry, flood, drought, earthquake,
tornado, storm fire, pestilence, lightning and other natural catastrophes,
epidemic, war, riot, civil disturbance or disobedience, strike, labor dispute,
labor or material shortage, sabotage, government priorities and restraint by
court order or public authority (whether valid or invalid) and actions or
nonaction by or inability to obtain or keep the necessary authorizations or
approvals from any governmental agency or authority, which by exercise of due
diligence such Party could not reasonably have been expected to avoid and
which by exercise of due diligence it has been unable to overcome. Nothing
contained herein shall be construed as to require a Party to settle any strike
or labor dispute in which it may be involved. Either Party rendered unable to
fulfill any of its
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<PAGE>
obligations under this Agreement by reason of an uncontrollable force shall
give prompt written notice of such fact to the other Party and shall exercise
due diligence to remove such inability with all reasonable dispatch.
18. INTEGRATION AND AMENDMENTS
This Agreement constitutes the entire agreement between the Parties
relating to the interconnection of Producer's Plant to IID's electric system,
the acceptance of energy by IID from Producer and the providing of electric
service by IID. No oral agreement or prior written agreement between the
Parties shall be of any effect whatsoever; provided, however, that any
arrangements agreed upon by the Authorized Representatives within the limits
of their authority, and consistent with this Agreement shall be binding upon
the Parties. All changes to this Agreement shall be in writing and shall be
signed by an officer of each Party.
19. NON-WAIVER
None of the provisions of this Agreement shall be considered
waived by either Party except when such waiver is given in writing.
The failure of either Party to insist in any one or more instances upon
strict performance of any of the provisions of this Agreement or to
take advantage of any of its rights hereunder shall not be construed
as a waiver of any such provisions or the relinquishment of any such
rights for the future; but the same shall continue and remain in full
force and effect.
15
<PAGE>
20. NO DEDICATION OF FACILITIES
Any undertaking by one Party to the other Party under any
provision of this Agreement shall not constitute the dedication of the
system or any portion thereof by the Party to the public or to the other
Party, and it is understood and agreed that any such undertaking
under any provisions of this Agreement by a Party shall cease upon the
termination of its obligations hereunder.
21. SUCCESSORS AND ASSIGNS
21.1 This Agreement shall be binding upon and inure to the benefit of
the respective successors and assigns of the Parties.
21.2 This Agreement may be assigned by Producer only (i) to a purchaser
or co-owner of the Plant or to a person who will operate the Plant pursuant to
a contract or other arrangement with such purchaser and in either case with
the prior written consent of IID (which shall not be unreasonably withheld) or
(ii) for security purposes, to a bank or other entity which provides financing
for the Plant or any electrical transmission facilities associated therewith.
Producer and IID agree that nothing in this Section 21.2 may be amended,
modified or waived without the prior written consent of each and every Party
to the Funding and Construction Agreement (except for any Parties in default
thereunder.)
22. EFFECT OF SECTION HEADINGS
Section headings appearing in this Agreement are inserted for
convenience only, and shall not be construed as interpretations of
text.
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<PAGE>
23. GOVERNING LAW
This Agreement shall be interpreted, governed and construed
under the laws of the State of California or the laws of the United
States, as applicable.
24. ARBITRATION
24.1 Any dispute arising out of or relating to this Agreement, or the
breach thereof, which is not resolved by the Parties acting through their
Authorized Representatives shall be settled by arbitration to the extent
permitted by the laws applicable to the Parties; provided, however, that no
Party to the dispute shall be bound to any greater extent than any other Party
to the dispute. Arbitration shall not apply to any dispute or matter that is
within the jurisdiction of any regulatory agency.
24.2 Any demand for arbitration shall be made by written notice to the
other Party setting forth in adequate detail the nature of the dispute, the
issues to be arbitrated, the amount or amounts, if any, involved in the
dispute, and the remedy sought. Within twenty (20) days from the receipt of
such notice, the other Party may submit its own written statement of the
dispute and may set forth in adequate detail any additional related matters or
issues to be arbitrated.
24.3 Within thirty (30) days after delivery of the written notice
demanding arbitration, the Parties acting through their Authorized
Representative shall meet for the purpose of selecting an arbitrator. The
Parties may agree upon a single arbitrator, but in the event that they cannot
agree, three arbitrators shall
17
<PAGE>
be used. Each Party shall designate one arbitrator, and the two arbitrators
shall then select a third arbitrator. All arbitrators shall be persons skilled
and experienced in the field in which the dispute has arisen and no person
shall be eligible for appointment as an arbitrator who is or has been an
officer or employee of either of the Parties or otherwise interest in the
matter to be arbitrated. Should either party refuse or neglect to appoint an
arbitrator or to furnish the arbitrators with any papers or information
demanded, the arbitrators are empowered, by both Parties, to proceed without
the participation or assistance of that Party.
24.4 Except as otherwise provided in this Section, the arbitration shall
be governed by the rules and practices of the American Arbitration
Association, or a similar organization if the American Arbitration Association
should not at the time exist.
24.5 Arbitration proceedings shall be held in Imperial, California, at a
time and place to be selected by the arbitrators. The arbitrators shall hear
evidence submitted by the Parties and may call for additional information
which shall be furnished by the Party having such information. The arbitrators
shall have no authority to call for information not related to the issues
included in the dispute or to determine other issues not in dispute.
24.6 If there is only one arbitrator, his decision shall be binding and
conclusive on the Parties. If there are three arbitrators, the decision of any
two shall be binding and
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<PAGE>
conclusive. The decision of the arbitrators shall contain findings regarding
the issues involved in the dispute, including the merits of the positions of
the Parties, the materiality of any default, and the remedy or relief to which
a Party shall be entitled. The arbitrators may not grant any remedy or relief
which is inconsistent with this Agreement, nor shall the arbitrators make
findings or decide issues not in dispute.
24.7 The fees and expenses of the arbitrators shall be shared equally by
the Parties, unless the decision of the arbitrators specifies some other
apportionment. All other expenses and costs of the arbitration shall be borne
by the Party incurring such expenses and costs.
24.8 Any decision or award granted by the arbitrators shall be final and
judgment may be entered on it in any court of competent jurisdiction. This
agreement to arbitrate shall be specifically enforceable.
25. ENTIRE AGREEMENT
25.1 The complete agreement of the Parties is set forth in
this Agreement and all communications regarding subject interconnected
operations whether oral or written, are hereby abrogated and
withdrawn.
26. NOTICES
Any formal communication or notice in connection with this Agreement
shall be in writing and shall be deemed properly given if delivered in person
or sent first class mail, postage prepaid to the person specified below:
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<PAGE>
VULCAN POWER COMPANY
P.O. Box 630
Calipatria, California 92233
IMPERIAL IRRIGATION DISTRICT
c/o General Manager
P.O. Box 937
Imperial, California 92251
27. SEVERAL OBLIGATIONS
Except where specifically stated in this Agreement to be
otherwise, the duties, obligations and liabilities of the Parties are
intended to be several and not joint or collective. Nothing contained in
this Agreement shall ever be construed to create an association,
trust, partnership, or joint venture, or impose a trust or partnership
duty, obligation or liability on or with regard to either Party. Each
Party shall be individually and severally liable for its own
obligations under this Agreement.
28. SIGNATURE CLAUSE
The Parties have caused this Agreement to be executed in their
respective names, in duplicate, by their respective officers hereunto this 1st
day of December, 1988.
VULCAN POWER COMPANY
By /s/ Jon R. Peele
--------------------------
Vice President
ATTEST:
By /s/ Wallace D. Dieckman
- --------------------------
Assistant Secretary
IMPERIAL IRRIGATION DISTRICT
By /s/ Tony Gallego
--------------------------
President, Board of
Directors
ATTEST:
By /s/ Larry E. Beck
- --------------------
Secretary
20
EXHIBIT 10.29
AMENDED AND RESTATED
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
CALENERGY OPERATING COMPANY,
a Delaware corporation
AND
ELMORE, L.P.,
a California limited partnership
<PAGE>
TABLE OF CONTENTS
PAGE
1. Definitions ............................................ 2
2. Ordinary Services ...................................... 3
3. Extraordinary Services ................................. 3
4. Subcontracting ......................................... 3
5. Administration Fee ..................................... 3
6. Reimbursement and Other Compensation for
Extraordinary Services ................................. 4
7. Term and Termination ................................... 5
8. Disclaimer of CEOC's Liability ......................... 6
9. Non-Waiver of Breach ................................... 6
10. Arbitration ............................................ 6
11. Attorneys' Fees ........................................ 7
12. Force Majeure .......................................... 7
13. Invalid Provision ...................................... 8
14. Assignment ............................................. 8
15. Governing Law .......................................... 8
16. Entire Agreement - Amendments .......................... 9
17. Communications ......................................... 9
18. Counterparts ........................................... 9
19. Exhibits ............................................... 9
20. Third Party Beneficiaries ..............................10
21. Headings ...............................................10
TABLE OF SCHEDULES
------------------
Section
-------
Schedule "Z" Schedule of Defined Terms 1.1
<PAGE>
AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT
PREAMBLE
THIS AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT (the
"Agreement") is made as of June 17, 1996, by and between CALENERGY OPERATING
COMPANY, a Delaware corporation ("CEOC"), and ELMORE, L.P., a California
limited partnership ("Owner").
RECITALS
A. Owner owns the Elmore Facility located in the
Salton Sea Known Geothermal Resource Area ("SSKGRA").
B. Owner intends to operate the Elmore Facility under the following
operating agreements: (i) an Operating and Maintenance Agreement by and
between Owner and CEOC pursuant to which CEOC will operate the Elmore Facility
on behalf of Owner; (ii) a Technology Transfer Agreement by and between Owner
and Magma Power Company, a Nevada corporation ("Magma") pursuant to which
Magma will provide Owner with the nonexclusive right to use certain
"Technology" and "Know-How" in connection with the operation of the Elmore
Facility; (iii) a Ground Lease by and between Owner, as lessee, and Magma, as
lessor, pursuant to which Magma will lease to Owner the real property upon
which the Elmore Facility is located; (iv) an Easement Grant Deed and
Agreement Regarding Rights for Geothermal Development by and between Owner and
Magma pursuant to which Magma will supply Owner with the right to extract
Geothermal Brine and use geothermal brine-derived steam which is necessary to
operate the Elmore Facility; and (v) a Power Purchase Contract by and between
Owner and Southern California Edison Company.
C. Owner desires to exploit CEOC's administrative and management
resources, and to that end Owner desires to employ, hire or otherwise retain
the administrative and management services of CEOC, in addition to the
Services provided pursuant to the Operating and Maintenance Agreement, for
purposes of administering the functions of the Elmore Facility.
D. Owner and CEOC desire to enter into this Agreement pursuant to
which CEOC, for a fee and in addition to the Services provided pursuant to the
Operating and Maintenance Agreement, will provide day-to-day administrative
and management services as more fully described herein, which administrative
and management services shall include normal day-to-day administrative and
management services and shall not include services which, although occurring
in the ordinary course of Owner's business, are not of a nature
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<PAGE>
ordinarily occurring on a day-to-day basis. In consideration for services not
of a day-to-day nature provided by CEOC hereunder, Owner shall compensate CEOC
for, among other things, all costs and expenses actually incurred by CEOC in
providing such services, as more particularly described herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements set forth herein, the parties hereto agree as
follow:
AGREEMENT
1. Definitions.
1.1 Unless the context shall otherwise require, capitalized
terms used and not otherwise defined herein shall have the respective meanings
assigned thereto in Schedule Z hereto, which shall be incorporated by
reference herein.
1.2 In addition to the terms defined pursuant to Section 1.1
hereof, the following definitions shall apply for purposes of this Agreement:
"CPI" means the Consumer Price Index of
the Bureau of Labor Statistics of the Department of Labor for All Urban
Consumers, All Items, for the Los Angeles-Anaheim-Riverside Metropolitan Area.
In the event the compilation and/or publication of the CPI shall be
transferred to any other governmental department or bureau or agency or shall
be discontinued, then the index most nearly the same as the CPI shall be
deemed to be the CPI for purposes of this Agreement. In the event that Owner
and CEOC cannot agree on such alternative index, then the matter shall be
submitted for decision by an arbitrator or arbitrators in accordance with
Section 10 hereof.
"CPI Adjustment" means an amount equal
to $800,000 multiplied by a fraction, the numerator of which shall be the CPI
for August of the year for which the calculation is to be made, and the
denominator of which shall be the CPI for August of 1988, but in no event
shall such CPI Adjustment be less than $800,000.
"Floor" means the minimum annual
Administration Fee which, for the years indicated below, shall be an amount
calculated as follows:
Year Calculation
---- -----------
2
<PAGE>
1989 $66,667 multiplied by the number of months in
1989 following and including the month on
which that certain Construction Management
and Asset Transfer Agreement dated as of
March 14, 1988, as amended, between Magma
and Owner terminated in accordance with
its terms.
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For each of 1990 The greater of (a) the Floor for the year
through the end immediately preceding the year for which
of the term of this the calculation is being made and (b) the
Agreement. CPI Adjustment for the year in which the
calculation is being made.
2. Ordinary Services. In consideration of the payment by Owner to
CEOC of the Administration Fee as provided in Section 5 hereof, CEOC agrees to
perform during the term of this Agreement those functions normally considered
part of the day-to-day administrative and management activities for facilities
similar to the Elmore Facility as determined by Owner which are not within the
scope of Services to be provided by CEOC to Owner pursuant to the Operating
and Maintenance Agreement. The Ordinary Services to be provided hereunder
include, without limitation, (i) general bookkeeping and financial accounting,
(ii) general legal services (but not legal services of an extraordinary nature
including, without limitation, legal services in connection with litigation or
administrative proceedings), (iii) personnel administration and payroll
services, (iv) cash management services, (v) energy production oversight and
the determination of output levels; (vi) consulting services with respect to
geothermal electrical energy production and (vii) assisting Owner in obtaining
any franchises, permits, licenses, easements or rights-of-way necessary for
continued operation of the Elmore Facility.
3. Extraordinary Services. In consideration of the compensation of
CEOC by Owner as provided in Section 7 hereof, CEOC agrees to perform during
the term of this Agreement, as Extraordinary Services, any administrative and
management services that may be needed in connection with the operation of the
Elmore Facility and (a) which are not included in the scope of the services
delineated in Section 2 hereof or (b) which are not included in the scope of
the Services delineated in the Operating and Maintenance Agreement.
4. Subcontracting. In connection with CEOC's providing of the
Ordinary Services and Extraordinary Services contemplated by this Agreement,
CEOC may subcontract with or otherwise retain the services of other Persons
including, but not limited to, Magma and other Affiliates of CEOC, and Owner
hereby consents to such subcontracting for purposes of Section 14 hereof. For
purposes of this Agreement, any Ordinary Services or Extraordinary Services
performed by such Persons shall be deemed to have been performed by CEOC.
4
<PAGE>
5. Administration Fee. In consideration of the provision of
Ordinary Services by CEOC as contemplated by Section 2 hereof, Owner shall pay
CEOC the Administration Fee. The Administration Fee shall be payable in the
manner and in the amount calculated as follows:
(i) For each year, the Administration Fee shall be 3% of the
Total Electricity Revenues earned by Owner in such year, but in no event
shall such Administration Fee be less than the Floor for such year. The
Administration Fee in each such year shall be paid monthly in arrears on
the last day of each month in an amount equal to one-twelfth (1/12) of
the Floor for the preceding year; provided, however, that on December 31
of each year (or as soon thereafter as is practicable, but in no event
later than March 31 of the next succeeding year), in addition to the
amounts otherwise payable to CEOC under this Section 5(i), Owner shall
pay to CEOC the greater of (a) the amount by which 3% of the Total
Electricity Revenues earned by Owner in such year exceeds the Floor for
the preceding year or (b) the amount by which the CPI Adjustment for the
year in which the calculation is being made exceeds the Floor for the
preceding year. In the event this Agreement terminates other than on
December 31 of the calendar year in which it terminates, the
Administration Fee for such year shall be prorated as provided in
Section 7.4(i) hereof. Notwithstanding anything contained herein that
may be construed to the contrary, and solely for purposes of making the
calculations in this Section 5(i), the Floor for the year preceding 1990
shall be deemed to equal $800,000.
5
<PAGE>
6. Reimbursement and Other Compensation for Extraordinary Services.
1. In consideration of the provision by CEOC to Owner of the
Extraordinary Services contemplated by Section 3 hereof, within thirty (30)
days after Owner has received an invoice from CEOC specifying the
Extraordinary Services rendered to Owner by CEOC and the amount to be paid to
CEOC therefor, Owner shall pay to CEOC such specified amount. In charging
Owner for Extraordinary Services under this Section 6, CEOC shall have the
right to charge Owner an amount which shall enable CEOC to (a) recoup the
actual costs and expenses incurred by CEOC in rendering the Extraordinary
Services plus (b) earn a reasonable profit for the Extraordinary Services so
rendered including, without limitation, a reasonable rate of return on CEOC's
invested capital used in connection with the provision by CEOC of the
Extraordinary Services, taking into consideration factors including the extent
to which CEOC can reasonably expect to earn a return on its invested capital
by utilizing CEOC's equipment and materials for providing services other than
to the Elmore Facility. As used in this Section 6.1, "actual costs and
expenses incurred by CEOC" includes, without limitation, (a) the actual cost
to CEOC of goods and materials used by CEOC in rendering Extraordinary
Services, (b) the pro rata cost to CEOC of personnel providing labor or
services in the course of CEOC's provision of Extraordinary Services and (c)
the actual cost to CEOC of retaining another Person, whether Magma or another
Affiliate of CEOC or otherwise, in connection with the provision of
Extraordinary Services. In the event CEOC subcontracts with any Person,
including, without limitation, Magma or another Affiliate as provided in
Section 4 hereof, any payment to CEOC under this Section 6.1 on account of the
Extraordinary Services so subcontracted shall be made to CEOC only to the
extent of the amount charged CEOC by such Person and shall not include any
amounts representing a mark-up by CEOC over the amount so charged.
2. With respect to any calculation of actual costs and
expenses or any allocation of costs contemplated by Section 6.1 hereof, Owner
shall be bound by CEOC's determination thereof unless the same is clearly
erroneous.
7. Term and Termination.
1. Unless terminated as provided in Section 13 hereof, by
written agreement between Owner and CEOC as provided in Section 16 hereof, or
as hereinafter provided in this Section 7, this Agreement shall remain in
effect until, and shall terminate on March 14, 2020.
2. In the event of a material default by either party in the
performance of its duties, obligations or undertakings under this Agreement,
the other party shall have the right to give written notice to the defaulting
party
6
<PAGE>
advising such party of the specific default involved and, if within thirty
(30) days after such notice the defaulting party shall not have remedied or
commenced diligently to remedy the default, the other party shall have the
right, in addition to any other rights and remedies it may have, to terminate
this Agreement upon ten (10) days written notice to the defaulting party.
3. Notwithstanding any other provision of this Agreement,
and in addition to any other right it may have, CEOC shall have the right to
terminate this Agreement, effective immediately, if, at any time, Owner is
adjudged bankrupt or insolvent, or files a petition in bankruptcy or an answer
admitting the material facts recited in such a petition filed by another, or
is put or decides to go into dissolution or liquidation (other than in
connection with a merger, consolidation or amalgamation), or otherwise
discontinues business, makes an assignment for the benefit of its creditors or
any other general arrangement with its creditors, becomes insolvent or unable
to meet its current payments, or has a receiver or other custodian of any kind
appointed to administer any substantial amount of its property, or otherwise
seeks to take advantage of any bankruptcy or insolvency statute now or
hereafter in effect.
4. If this Agreement is terminated prior to the expiration
of its terms as provided in Section 7.1 hereof, Owner and CEOC shall have the
following rights, remedies and obligations in addition to any other rights,
remedies and obligations they may have:
(i) Owner shall pay CEOC, immediately upon termination, the
entire Administration Fee for the year in which the Agreement is
effectively terminated, prorated for the number of months in such year
prior to and including the month in which the Agreement is effectively
terminated, less the amount of the Administration Fee which is
theretofore paid during such year.
(ii) Owner shall pay CEOC all amounts due and payable to CEOC
under Section 6 hereof as of the date the Agreement is effectively
terminated.
8. Disclaimer of CEOC's Liability. CEOC, in providing the Ordinary
Services and the Extraordinary Services provided for herein, shall use its
good faith efforts in providing such services, but CEOC shall not be liable to
Owner for damages arising out of or resulting from the provision of such
Ordinary Services and Extraordinary Services, except to the extent that such
damages arise out of or result from the gross negligence or willful misconduct
or CEOC, nor shall CEOC be liable to Owner for consequential damages under any
7
<PAGE>
circumstances. CEOC shall have no responsibility for the ability of Owner to
effectively operate the Elmore Facility or the claims of third parties arising
with respect to the Elmore Facility. Owner shall indemnify and hold harmless
CEOC against all liability or responsibility to Owner or to others for any
failure in production, operation or otherwise of the Elmore Facility. CEOC
does not warrant and shall not be responsible for the quality of services or
any design, specification, drawing, blueprint, reproduced tracing, formula,
production process or other data or information furnished by it to Owner in
the course of fulfilling its obligations under this Agreement, but shall
furnish such in good faith to the best of CEOC's knowledge and ability.
9. Non-Waiver of Breach. Either party hereto may specifically waive
any breach of this Agreement by the other party, but no such waiver shall be
deemed to have been given unless such waiver is in writing, signed by the
waiving party and specifically designates the breach waived, nor shall any such
waiver constitute a continuing waiver of similar or other breaches.
10. Arbitration. All disputes arising under this Agreement shall be
settled by arbitration. The party desiring such arbitration shall give written
notice to that effect to the other party and in such notice shall appoint as
an arbitrator a disinterested person of recognized competence in the area at
issue. Within fifteen (15) days thereafter, the other party shall, by written
notice to the originating party, appoint a second person similarly qualified
as the second arbitrator. The arbitrators thus appointed shall appoint a third
person similarly qualified as the third arbitrator, and such three arbitrators
shall as promptly as possible determine such matter with the parties, each
being entitled to present evidence and argument to the arbitrators; provided,
however, that:
(i) if the second arbitrator shall not have
been appointed as aforesaid, the first arbitrator shall
determine such matter; and
(ii) if the two arbitrators appointed by the party shall be
unable to agree upon the appointment of a third arbitrator within
fifteen (15) days after the appointment of the second arbitrator, they
shall give written notice of such failure to agree to the parties, and,
if the parties fail to agree upon the selection of such third arbitrator
within fifteen (15) days thereafter, then within ten (10) days
thereafter, either of the parties upon written notice to the other party
may apply for such appointment to the Federal District Court or District
Court in Omaha, Nebraska.
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The arbitrator or arbitrators shall only interpret and apply the
terms and provisions of this Agreement and shall not change any such terms or
provisions or deprive either party of any right or remedy expressly or
impliedly provided for in this Agreement.
The determination of the majority of the arbitrators or the sole
arbitrator, as the case may be, shall, to the extent permitted by law, be
conclusive upon the parties. The arbitrator or arbitrators shall give written
notice to the parties stating their determination, and shall furnish to each a
copy of such determination signed by them. In the event of the failure,
refusal or inability of any arbitrator to act, a new arbitrator shall be
appointed in his stead, which appointment shall be made in the same manner as
hereinbefore provided for the appointment of the arbitrator so failing,
refusing or unable to act.
11. Attorneys' Fees. If either party hereto commences litigation or
arbitration for the judicial or other interpretation, enforcement,
termination, cancellation or rescission hereof, or for damages for the breach
hereof, the prevailing party in any such action, trial, arbitration or appeal
thereon shall be entitled to its reasonable attorneys' fees and court,
arbitration and other costs incurred, to be paid by the losing party as fixed
by the court or arbitrator in the same or a separate suit, and whether or not
such action is pursued to decision or judgment.
12. Force Majeure.
1. Neither Owner nor CEOC shall be liable in damages to the
other for any act, omission or circumstance ("Event of Force Majeure")
occasioned by or in consequence of any acts of God, acts of the public enemy,
wars, blockades, insurrections, riots, epidemics, landslides, lightning,
earthquakes, fires, storms, floods, civil disturbances, explosions, sabotage,
the binding order of any court or governmental authority which has been
resisted in good faith by all reasonable legal means, Federal, State or local
laws, or other event or circumstance not within the control of such party
preventing such party from performing its obligations hereunder, whether
caused or occasioned by, or happening on account of, the act or omission of
one of the parties, not within the control of the party claiming suspension
and which by the exercise of due diligence such party is unable to prevent or
overcome.
2. Such Events of Force Majeure shall not relieve Owner or
CEOC of liability in the event of either party's concurring negligence or in
the event of either party's failure to use due diligence to remedy the
situation and to remove the cause in an adequate manner and with all
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reasonable dispatch, nor shall such Events of Force Majeure relieve either
party of liability unless such party shall give notice and full particulars of
the same in writing to the other party within ten (10) days of the occurrence
relied on. In no event, however, shall an Event of Force Majeure relieve Owner
from the obligation of making payments due under this Agreement at the time of
such occurrence. The parties agree that should any Event of Force Majeure
remain in existence for a period of six (6) months, this Agreement may be
terminated by the party not claiming suspension of the Agreement under such
Event of Force Majeure upon the giving of written notice by such party to the
other; provided, however, that such six (6) month period shall be extended for
a reasonable time so long as throughout such six (6) month period the party
claiming suspension of this Agreement under the Event of Force Majeure has
diligently proceeded to terminate the Event of Force Majeure and continues to
do so throughout such extension.
13. Invalid Provision.
1. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted; provided, however, that if any of the
provisions of Sections 2, 3, 5, 6, or 7 hereof are held invalid or
unenforceable by any court or other relevant authority, Owner and CEOC shall
hold consultations over a period of ninety (90) days, commencing immediately,
in an effort to work out satisfactory terms for continuation of this
Agreement. If Owner and CEOC do not reach agreement within this period, CEOC
shall have the right to terminate this Agreement, effective immediately.
2. In the event that any provision, term, condition or
object of this Agreement may be in conflict with any law, measure, ruling,
court judgment (by consent or otherwise), or regulation of the government of
the United States of America, and the legal counsel of either party shall
advise that in their considered opinion such conflict, or a reasonable
possibility of such conflict, exists, then either party may propose to the
other appropriate modifications of this Agreement to avoid such conflict. In
such case, if an agreement of modification is not reached within ninety (90)
days from such proposal, the party making such proposal, after sixty (60)
days' written notice to the other party, may terminate the agreement in its
entirety as of a date subsequent to such sixty (60) days, and which shall be
specified in such notice.
14. Assignment. Subject to Section 4 hereof, neither Owner nor CEOC
shall grant, assign or otherwise convey any of their respective rights or
delegate any of their
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respective obligations under this Agreement without the prior written consent
of the other party which consent shall not be unreasonably withheld.
15. Governing Law. The existence, validity, construction, operation
and effect of this Agreement shall be determined in accordance with and
governed by the laws of the State of California. This Agreement shall be
construed equally as against the parties hereto, and shall not be construed
against the party responsible for its drafting.
16. Entire Agreement - Amendments. This Agreement constitutes the
entire agreement of the parties and the provisions hereof shall supersede any
and all prior agreements or understandings relating to the same subject
matter. Without limiting the generality of the foregoing, from and after the
date hereof, the terms of the Administrative Services Agreement dated as of
March 14, 1988 (the "Original Administrative Services Agreement") between
Owner and CEOC shall be amended to read in their entirety as set forth in this
Agreement and the terms of this Agreement shall govern and control the rights
and obligations of the parties in and with respect to the matters herein set
forth, notwithstanding any conflict between the terms of this Agreement and
the terms of the Original Administrative Services Agreement. This Agreement
may be amended only by a writing signed by a duly authorized representative of
both parties.
17. Communications. All notices, requests, offers and other
communications required or permitted to be made under this Agreement shall be
in writing and shall be deemed to have been duly given and received,
regardless of when and whether received, either: (a) on the day of delivery,
if delivered
To CEOC at:
CalEnergy Operating Company
302 South 36th Street
Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
To Owner at:
Elmore, L.P.
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
or at such other address as either party most recently may have designated in
writing to the other party for such purpose; or (b) on the day sent, when sent
by prepaid telex, telegram, cable or radiogram, and confirmed the same day by
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prepaid first-class registered airmail, addressed to CEOC or Owner, as the
case may be, at their respective addresses aforesaid.
18. Counterparts. This Agreement may be executed in counterparts
and any number of counterparts signed in the aggregate by the parties hereto
shall constitute a single original instrument.
19. Exhibits. All exhibits and schedules attached hereto are hereby
incorporated herein by this reference.
20. Third Party Beneficiaries. The covenants contained herein are
made solely for the benefit of the properties, parties and successors and
assigns of such parties as specified herein, and shall not be construed as
having been intended to benefit any third party not a party to this Agreement.
21. Headings. The headings herein are for reference only and shall
not affect the construction of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be signed by their duly authorized officers as of the day and year first
above written.
CEOC:
CALENERGY OPERATING COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
OWNER:
ELMORE, L.P., a California limited partnership
By: CALENERGY OPERATING COMPANY,
a Delaware corporation, as
General Partner
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
13
EXHIBIT 10.30
AMENDED AND RESTATED
OPERATING AND MAINTENANCE AGREEMENT
BY AND BETWEEN
CALENERGY OPERATING COMPANY,
a Delaware corporation
AND
ELMORE, L.P.,
a California limited partnership
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions ......................................... 2
2. Operator's Services ................................. 2
3. Standard of Services ................................ 4
4. Personnel ........................................... 5
5. Inspection .......................................... 5
6. Change in Duties; Notification ...................... 5
7. Responsibilities of Owner ........................... 6
8. Facilities Revenue Fund ............................. 6
9. Guaranteed Capacity Payment ......................... 6
10. Reimbursement Charges ............................... 7
11. Subcontracting ...................................... 8
12. Term and Termination ................................ 8
13. Indemnification ..................................... 9
14. Non-Waiver of Breach ................................ 9
15. Arbitration ......................................... 9
16. Attorneys' Fees ..................................... 10
17. Force Majeure ....................................... 10
18. Invalid Provision ................................... 11
19. Assignment .......................................... 12
20. Governing Law ....................................... 12
21. Entire Agreement - Amendments ....................... 12
22. Communications ...................................... 12
<PAGE>
23. Counterparts ........................................ 13
24. Exhibits ............................................ 13
25. Third Party Beneficiaries ........................... 13
26. Headings ............................................ 13
4
<PAGE>
TABLE OF EXHIBITS
-----------------
Section
-------
Exhibit "A" Guaranteed Capacity Payment 9.1
Target Levels
5
<PAGE>
TABLE OF SCHEDULES
------------------
Section
-------
Schedule "Z" Schedule of Defined Terms 1.1
6
<PAGE>
AMENDED AND RESTATED
OPERATING AND MAINTENANCE AGREEMENT
PREAMBLE
THIS AMENDED AND RESTATED OPERATING AND MAINTENANCE AGREEMENT (the
"Agreement") is made as of June 17, 1996, by and between CALENERGY OPERATING
COMPANY, a Delaware corporation ("Operator"), and ELMORE, L.P., a California
limited partnership ("Owner").
RECITALS
A. Owner owns the Elmore Facility located in the Salton Sea Known
Geothermal Resource Area ("SSKGRA").
B. Owner intends to operate the Elmore Facility under the following
operating agreements: (i) an Administrative Services Agreement by and between
Owner and Operator, pursuant to which Operator will provide certain
administrative services to Owner for the operation of the Elmore Facility in
addition to the Services provided hereunder; (ii) a Technology Transfer
Agreement by and between Owner and Magma Power Company, a Nevada corporation
("Magma"), pursuant to which Magma will provide Owner with the nonexclusive
right to use certain "Technology" and "Know-How" in connection with the
operation of the Elmore Facility; (iii) a Ground Lease by and between Owner,
as lessee, and Magma, as lessor, pursuant to which Magma will lease to Owner
the real property upon which the Elmore Facility is located; (iv) an Easement
Grant Deed and Agreement Regarding Rights for Geothermal Development by and
between Owner and Magma pursuant to which Magma will supply Owner with the
right to extract Geothermal Brine and use geothermal brine-derived steam which
is necessary to operate the Elmore Facility; and (v) a Power Purchase Contract
by and between Owner and Southern California Edison Company.
C. Owner desires to exploit Operator's personnel resources, and to
that end Owner desires to employ, hire or otherwise retain Operator for
purposes of performing the day-to-day operations at the Elmore Facility.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements set forth herein, the parties hereto agree as
follow:
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AGREEMENT
1. Definitions.
1. Unless the context shall otherwise require, capitalized
terms used and not otherwise defined herein shall have the respective meanings
assigned thereto in Schedule Z hereto both of which shall be incorporated by
reference herein.
2. Operator's Services. In consideration of the payment by Owner to
Operator of the Guaranteed Capacity Payment and the Reimbursement Charges,
Operator agrees to perform during the term of this Agreement the following
services (the "Services"):
(a) Operator shall operate, maintain, and repair (or cause to
be operated, maintained, and repaired) the equipment associated with the
Elmore Facility, including all work normally considered part of the
operational and maintenance activities for facilities similar to the
Elmore Facility, and shall engage, supervise, and be responsible for any
and all personnel and Subcontractors necessary for the continuous
operation of the Elmore Facility. Notwithstanding the provisions of
Section 2(f) hereof, when specialized maintenance and repairs to the
Elmore Facility are required which cannot reasonably be performed by
Operator, Operator will subcontract with original equipment
manufacturers or similarly qualified personnel acceptable to Owner. Said
operations, maintenance, and repairs will be provided in accordance with
the requirements determined by Owner during the term of this Agreement.
Owner may modify, delete or supplement said requirements from time to
time as Owner, in its sole discretion, deems appropriate. Notice of any
changes or modifications in service requirements which may occur shall
be provided by Owner to Operator in writing. If Operator, in the
exercise of good faith, believes that an emergency exists and that
certain changes or modifications in service requirements are required to
avoid or mitigate serious damage to the Elmore Facility or injury to its
personnel or others, Operator may make such changes or modifications, to
the extent so necessary and required.
(b) Consistent with good engineering and operations practices,
Operator shall provide its Services so as to optimize both the
profitability of the Elmore Facility and the useful life of the
equipment as well as minimize downtime for repairs. Subject to the
provisions of this Agreement, Operator shall provide all labor,
material, and equipment necessary for such purposes.
(c) Operator shall develop and implement a preventive
maintenance program based upon, among other things, information and
procedures provided to Operator by Owner, which shall include on-going
operational maintenance. This preventive maintenance program shall be
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implemented and carried out by Operator in accordance with the
specifications provided by Owner.
(d) Operator shall implement and maintain a Elmore Facility
safety and loss prevention program. Operator shall take all reasonable
precautions for the safety of its employees and shall comply with all
applicable provisions of federal, state and municipal laws, building
codes and insurance policies to prevent accidents or injuries to persons
or damage to property within or about the Elmore Facility.
(e) Operator shall maintain, inventory, and procure
replacement Spare Parts and specialized tools in order to maximize the
continuous operation of the Elmore Facility, and procure, inventory, and
maintain chemicals, consumables and working supplies necessary to carry
out the Services. Owner will provide a location for storage of Spare
Parts, chemicals, consumables and supplies.
(f) Subject to Owner's prior approval, Operator may
subcontract to qualified Subcontractors, including, without limitation,
Affiliates of Operator, such routine or non-routine work as is necessary
to perform scheduled or unscheduled maintenance and repairs, annual
inspections, and equipment overhauls; Operator shall supervise all work
subcontracted. The subcontracting of any work to outside Subcontractors
shall in no way relieve or excuse Operator from any of its obligations
under this Agreement with respect to said work. Subcontracts with
Affiliates of Operator shall be on a competitive and arms-length basis.
All charges associated with work subcontracted by Operator shall be
billed to Owner in accordance with Section 10 hereof.
(g) Operator shall arrange for scheduled testing and
recalibration to assure accuracy of scales, metering units (geothermal
and electric) and associated recording devices.
(h) Operator shall be responsible for providing security for
the Elmore Facility.
(i) Subject to shutdowns for scheduled maintenance, Operator
shall to the maximum extent achievable under the law and pursuant to the
terms of the Elmore Power Purchase Contract, use its best efforts to
maintain the Elmore Facility in operation, producing energy at its full
rated capacity, twenty-four (24) hours per day, seven (7) days per week
throughout the entire year, including legal and other holidays, unless
otherwise directed by Owner.
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(j) At the request of Owner, Operator shall assist Owner in
obtaining any franchises, permits, licenses, easements, or rights-of-way
necessary for continued operation of the Elmore Facility.
(k) Operator shall employ such staff as is reasonably
necessary to perform routine, ministerial record keeping and
administrative functions of the Del Ranch Facility as reasonably
required by Owner for its use in billings, accounting for receipts and
payments, complying with governmental laws and regulations, with
generally acceptable accounting principles and with reporting
requirements of any Elmore Facility finance agreement or other agreement
of Owner.
(l) Operator shall pursue warranty claims on behalf of Owner.
(m) Operator shall establish and maintain such bank accounts
in the name and on behalf of Owner as may be necessary or desirable for
the performance of its obligations hereunder. All such accounts and all
amounts from time to time deposited therein shall be and remain the
property of Owner and shall be subject to withdrawal by Owner from time
to time in its discretion.
(n) Operator shall operate the Elmore Facility in compliance
with all permit conditions and applicable laws.
(o) Operator shall dispose of all Geothermal Brine Scale and
all Partially Spent Geothermal Brine from the operation of the Elmore
Facility (unless utilized by Magma pursuant to Section 2.3.3 of the
Easement Agreement) and all Totally Spent Geothermal Brine to the extent
Owner is required to dispose thereof pursuant to the Easement Agreement.
(p) Operator shall be responsible for discharging all duties
and obligations, and protecting all rights, of Owner under the Credit
Facility, the Limited Partnership Agreement, the Elmore Power Purchase
Contract and the other Operating Agreements.
3. Standard of Services. Operator agrees to use good faith efforts
to perform all Services in accordance with the reasonable, good, and prudent
business practices applicable to the geothermal electrical generating
production industry and in a manner no less favorable than practices employed
by operators of other power production geothermal electrical generating
facilities, including, without limitation, Magma. Operator shall exercise its
good faith efforts to ensure that:
(a) the Elmore Facility shall at all times be kept in as near
"as new" condition, ordinary wear and tear and Owner's operating
requirements considered, as can reasonably be achieved;
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(b) the Services shall be rendered in accordance with
manufacturers' and systems designers' specifications as delivered to
Operator by Owner;
(c) the Elmore Facility shall at all times be operated and the
Services shall at all times be provided in accordance with all of the
terms of the Operating Agreements and all applicable codes, governmental
requirements or court orders (including, without limitation, all zoning,
environmental protection, pollution, sanitary, and safety laws) except
to the extent compliance with such requirements has been excused or
exempted by the applicable governmental or judicial authority;
(d) the Elmore Facility shall be operated in a manner required
such that the Elmore Facility is a "qualifying facility" as provided in
18 C.F.R. ss. 292.203, as the same may be amended from time to time; and
(e) the Elmore Facility shall be operated at all times in such
a manner that it shall comply with all safety and other requirements of
insurance policies in effect at said times with respect to the Elmore
Facility or any part thereof and with the reasonable request of insurers
and that all warranties with respect to the Elmore Facility or any part
thereof shall be kept in full force and effect.
4. Personnel. Operator shall provide and employ qualified plant
management, operations and maintenance personnel in sufficient numbers to
accomplish its Services hereunder and to comply with sound engineering and
operations practices. During the term of this Agreement, a duly authorized
on-site manager shall represent Operator at all times. All personnel shall
meet minimum job qualifications associated with their positions as determined
mutually by Owner and by Operator. Operator's personnel shall possess
experience and training equal to standards generally set within the industry
to operate and maintain substantially similar equipment. Operator will use its
best efforts to hire competent and experienced personnel at competitive
compensation.
5. Inspection. Operator shall ensure that the Elmore Facility and
all records of the Elmore Facility will at all times be open to Owner for
inspection and review of operations and maintenance practices.
6. Change in Duties; Notification. Owner shall notify Operator of
the execution or amendment of each Operating Agreement and the Limited
Partnership Agreement which affects the Elmore Facility or the operation
thereof and which directly relates to the performance of Operator's duties
under this Agreement. Owner shall furnish to Operator a description of the
provisions of such agreement or amendment which directly relates to the
performance of Operator's duties under this Agreement in sufficient detail to
enable Operator to satisfactorily perform its duties hereunder.
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7. Responsibilities of Owner. Owner will bear responsibility for,
among other things, reviewing and approving all required plans, budgets and
schedules in a timely fashion.
8. Facilities Revenue Fund. Subject to the provisions of the Credit
Facility and related loan documents regarding accounts:
1. Operator shall deposit all revenues received by Owner in
connection with the operation of the Facilities into the Revenue Fund (as
defined in the Credit Facility and related loan documents).
2. Operator is authorized to withdraw monies from the Revenue
Fund to pay costs of performing its obligations only to the extent that the
funds are then available in the Revenue Fund and such payments are authorized
pursuant to the terms of this Agreement and the Credit Facility and related
loan documents.
9. Guaranteed Capacity Payment. As an inducement to Operator to
operate the Elmore Facility, to the extent reasonably possible, in such a
manner as to, among other things, earn the maximum Total Electricity Revenues
possible on behalf of Owner, Owner shall pay Operator a fee (the "Guaranteed
Capacity Payment") calculated as follows:
1. The Guaranteed Capacity Payment, to the extent earned by
Operator, shall be paid to Operator on the last day of each of Owner's fiscal
years (or as soon thereafter as is reasonably practicable, but in no event
later than the next succeeding March 31) in an amount which is, for each of
Owner's fiscal years from 1989 through 1998 inclusive, the sum of the
following amounts:
(a) ten percent (10%) of the amount of Total Electricity
Revenues earned by Owner in such year in excess of the amount listed in
column A of Exhibit "A" with respect to such year up to and including
the amount listed in column B of Exhibit "A" with respect to such year;
plus
(b) twenty-five percent (25%) of the amount of Total
Electricity Revenues earned by Owner in such year in excess of the
amount listed in column B of Exhibit "A" with respect to such year.
2. The Guaranteed Capacity Payment, to the extent earned by
Operator, shall be paid to Operator on the last day of each of Owner's fiscal
years (or as soon thereafter as is reasonably practicable, but in no event
later than the next succeeding March 31) in an amount which is, for each of
Owner's fiscal years from 1999 through the end of the term of this Agreement
inclusive, the sum of the following amounts:
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(a) ten percent (10%) of the amount of Total Electricity
Revenues earned by Owner in such year in excess of the amount which is
obtained by multiplying 268,056,000 by the Average Annual Energy Price
for such year up to and including the amount which is obtained by
multiplying 297,840,000 by the Average Annual Energy Price for such
year; plus
(b) twenty-five percent (25%) of the amount of Total
Electricity Revenues earned by Owner in such year in excess of the
amount which is obtained by multiplying 297,840,000 by the Average
Annual Energy Price for such year.
3. To the extent that there are not sufficient funds to pay
the Guaranteed Capacity Payment, any such shortfall (the "Accrued Guaranteed
Capacity Payment") shall accrue and be payable to Operator, with interest
thereon at a rate of seven percent (7%) per annum, on the next date for
payment of the Guaranteed Capacity Payment and any Accrued Guaranteed Capacity
Payment shall be paid prior to the Guaranteed Capacity Payment due on the date
on which such payment is made.
10. Reimbursement Charges.
1. In consideration of the provision by Operator to Owner of
the Services and in addition to the amounts payable to Operator pursuant to
Section 9 hereof, within ten (10) days after Owner has received an invoice
from Operator specifying the Services rendered to Owner by Operator and the
amount of actual costs and expenses incurred by Operator in rendering such
Services, Owner shall pay to Operator such specified amount. As used in this
Section 10, "actual costs and expenses incurred by Operator" includes, without
limitation, (a) the actual cost to Operator of goods and materials used by
Operator in rendering Services, (b) the pro rata cost to Operator of personnel
providing labor or services in the course of Operator's provision of Services,
(c) the portion of the cost of invested capital incurred by Operator for the
purchase of machinery and equipment used by Operator in connection with the
provision of Services fairly allocable to the use of such machinery and
equipment for performing the Services hereunder, taking into consideration
factors including the extent to which Operator can reasonably expect to earn a
return on its invested capital by utilizing such machinery and equipment for
providing services other than to the Elmore Facility and (d) the actual cost
to Operator, without any mark-up by Operator whatsoever, of retaining a
Subcontractor, whether an Affiliate of Operator or otherwise, in connection
with the provision of Services.
2. With respect to any calculation of actual costs and
expenses or any allocation of costs contemplated by Section 10.1 hereof, Owner
shall be bound by Operator's determination thereof unless the same is clearly
erroneous.
11. Subcontracting. Without limiting the generality of any
provision contained herein concerning the same subject matter as this Section
11, in the event Operator determines it to be reasonably necessary to render
the Services required hereunder through a Subcontractor, Operator may
subcontract with Affiliates of Operator, and Owner hereby
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consents to such subcontracting for all purposes of this Agreement. For
purposes of this Agreement, any Services performed by such Affiliates shall be
deemed to have been performed by Operator.
12. Term and Termination.
1. Unless terminated as provided in Section 18 hereof, by
written agreement between Owner and Operator as provided in Section 21 hereof,
or as hereinafter provided in this Section 12, this Agreement shall remain in
effect until, and shall terminate on March 14, 2020.
2. In the event of a material default by either party in the
performance of its duties, obligations or undertakings under this Agreement,
the other party shall have the right to give written notice to the defaulting
party advising such party of the specific default involved and, if within
thirty (30) days after such notice the defaulting party shall not have
remedied or commenced diligently to remedy the default, the other party shall
have the right, in addition to any other rights and remedies it may have, to
terminate this Agreement upon ten (10) days' written notice to the defaulting
party.
3. Notwithstanding any other provision of this Agreement, and
in addition to any other right it may have, Operator shall have the right to
terminate this Agreement, effective immediately, if, at any time, Owner is
adjudged bankrupt or insolvent, or files a petition in bankruptcy or an answer
admitting the material facts recited in such a petition filed by another, or
is put or decides to go into dissolution or liquidation (other than in
connection with a merger, consolidation or amalgamation), or otherwise
discontinues business, makes an assignment for the benefit of its creditors or
any other general arrangement with its creditors, becomes insolvent or unable
to meet its current payments, or has a receiver or other custodian of any kind
appointed to administer any substantial amount of its property, or otherwise
seeks to take advantage of any bankruptcy or insolvency statute now or
hereafter in effect.
4. If this Agreement is terminated prior to the expiration of
its terms, Owner and Operator shall have the following rights, remedies and
obligations in addition to any other rights, remedies and obligations they may
have:
(a) Owner shall pay Operator the Guaranteed Capacity Payment,
if any, earned by Operator as of the date this Agreement is effectively
terminated in the manner and subject to the conditions provided for in Section
9 hereof.
(b) Owner shall pay Operator all amounts due and payable to
Operator under Section 10 hereof as of the date the Agreement is effectively
terminated.
13. Indemnification.
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1. Owner shall defend, indemnify and hold Operator and its
agent and employees harmless from and against any and all other liabilities,
claims, damages, losses and expenses, including attorneys' fees and costs and
expenses of litigation or arbitration, of every kind and nature arising out of
the course of performance of this Agreement by Owner or Operator and shall,
upon request of Operator, defend all suits arising out of or resulting from
the performance of this Agreement by Owner or Operator, provided that such
liability, claim, damage, loss or expense is not attributable to the gross
negligence or willful misconduct of Operator.
2. Operator shall defend, indemnify and hold Owner and its
agents and employees harmless from and against any and all liabilities,
claims, damages, losses and expenses, including attorneys' fees and costs and
expenses of litigation or arbitration, of every kind and nature arising out of
Operator's gross negligence or willful misconduct in the course of Operator's
performance of this Agreement and shall, upon request of Owner, defend all
suits arising out or resulting from Operator's gross negligence or willful
misconduct in the performance of this Agreement.
14. Non-Waiver of Breach. Either party hereto may specifically
waive any breach of this Agreement by the other party, but no such waiver
shall be deemed to have been given unless such waiver is in writing, signed by
the waiving party and specifically designates the breach waived, nor shall any
such waiver constitute a continuing waiver of similar or other breaches.
15. Arbitration. All disputes arising under this Agreement shall be
settled by arbitration. The party desiring such arbitration shall give written
notice to that effect to the other party and in such notice shall appoint as
an arbitrator a disinterested person of recognized competence in the area at
issue. Within fifteen (15) days thereafter, the other party shall, by written
notice to the originating party, appoint a second person similarly qualified
as the second arbitrator. The arbitrators thus appointed shall appoint a third
person similarly qualified as the third arbitrator, and such three arbitrators
shall as promptly as possible determine such matter with the parties, each
being entitled to present evidence and argument to the arbitrators; provided,
however, that:
(a) if the second arbitrator shall not have been appointed as
aforesaid, the first arbitrator shall determine such matter; and
(b) if the two arbitrators appointed by the party shall be
unable to agree upon the appointment of a third arbitrator within
fifteen (15) days after the appointment of the second arbitrator, they
shall give written notice of such failure to agree to the parties, and,
if the parties fail to agree upon the selection of such third arbitrator
within fifteen (15) days thereafter, then within ten (10) days
thereafter, either of the parties upon written notice to the other party
may apply for such appointment to the Federal District Court or District
Court in Omaha, Nebraska.
9
<PAGE>
The arbitrator or arbitrators shall only interpret and apply the
terms and provisions of this Agreement and shall not change any such terms or
provisions or deprive either party of any right or remedy expressly or
impliedly provided for in this Agreement.
The determination of the majority of the arbitrators or the sole
arbitrator, as the case may be, shall, to the extent permitted by law, be
conclusive upon the parties. The arbitrator or arbitrators shall give written
notice to the parties stating their determination, and shall furnish to each a
copy of such determination signed by them. In the event of the failure,
refusal or inability of any arbitrator to act, a new arbitrator shall be
appointed in his stead, which appointment shall be made in the same manner as
hereinbefore provided for the appointment of the arbitrator so failing,
refusing or unable to act.
16. Attorneys' Fees. If either party hereto commences litigation or
arbitration for the judicial or other interpretation, enforcement,
termination, cancellation or rescission hereof, or for damages for the breach
hereof, the prevailing party in any such action, trial, arbitration or appeal
thereon shall be entitled to its reasonable attorneys' fees and court,
arbitration and other costs incurred, to be paid by the losing party as fixed
by the court or arbitrator in the same or a separate suit, and whether or not
such action is pursued to decision or judgment.
17. Force Majeure.
1. Neither Owner nor Operator shall be liable in damages to
the other for any act, omission or circumstance ("Event of Force Majeure")
occasioned by or in consequence of any acts of God, acts of the public enemy,
wars, blockades, insurrections, riots, epidemics, landslides, lightning,
earthquakes, fires, storms, floods, civil disturbances, explosions, sabotage,
the binding order of any court or governmental authority which has been
resisted in good faith by all reasonable legal means, Federal, State or local
laws, or other event or circumstance not within the control of such party
preventing such party from performing its obligations hereunder, whether
caused or occasioned by, or happening on account of, the act or omission of
one of the parties, not within the control of the party claiming suspension
and which by the exercise of due diligence such party is unable to prevent or
overcome.
2. Such Events of Force Majeure shall not relieve Owner or
Operator of liability in the event of either party's concurring negligence or
in the event of either party's failure to use due diligence to remedy the
situation and to remove the cause in an adequate manner and with all
reasonable dispatch, nor shall such Events of Force Majeure relieve either
party of liability unless such party shall give notice and full particulars of
the same in writing to the other party within ten (10) days of the occurrence
relied on. In no event, however, shall an Event of Force Majeure relieve Owner
from the obligation of making payments due under this Agreement at the time of
such occurrence. The parties agree that should any Event of Force Majeure
remain in existence for a period of six (6) months, this Agreement may be
terminated by the party not claiming suspension of the Agreement under such
Event of Force Majeure upon the giving of written notice by such party to the
other; provided, however, that
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such six (6) month period shall be extended for a reasonable time so long as
throughout such six (6) month period the party claiming suspension of this
Agreement under the Event of Force Majeure has diligently proceeded to
terminate the Event of Force Majeure and continues to do so throughout such
extension.
18. Invalid Provision.
1. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted; provided, however, that if any of the
provisions of Sections 9, 10 or 11 hereof are held invalid or unenforceable by
any court or other relevant authority, Owner and Operator shall hold
consultations over a period of ninety (90) days, commencing immediately, in an
effort to work out satisfactory terms for continuation of this Agreement. If
Owner and Operator do not reach agreement within this period, Operator shall
have the right to terminate this Agreement, effective immediately.
2. In the event that any provision, term, condition or object
of this Agreement may be in conflict with any law, measure, ruling, court
judgment (by consent or otherwise), or regulation of the government of the
United States of America, and the legal counsel of either party shall advise
that in their considered opinion such conflict, or a reasonable possibility of
such conflict, exists, then either party may propose to the other appropriate
modifications of this Agreement to avoid such conflict. In such case, if an
agreement of modification is not reached within ninety (90) days from such
proposal, the party making such proposal, after sixty (60) days' written
notice to the other party, may terminate the agreement in its entirety as of a
date subsequent to such sixty (60) days, and which shall be specified in such
notice.
19. Assignment. Subject to Section 11 hereof, neither Owner nor
Operator shall grant, assign or otherwise convey any of their respective
rights or delegate any of their respective obligations under this Agreement
without the prior written consent of the other party which shall not be
unreasonably withheld.
20. Governing Law. The existence, validity, construction, operation
and effect of this Agreement shall be determined in accordance with and
governed by the laws of the State of California. This Agreement shall be
construed equally as against the parties hereto, and shall not be construed
against the party responsible for its drafting.
21. Entire Agreement - Amendments. This Agreement constitutes the
entire agreement of the parties and the provisions hereof shall supersede any
and all prior agreements or understandings relating to the same subject
matter. Without limiting the generality of the foregoing, from and after the
date hereof, the terms of the Operating and Maintenance Agreement dated as of
March 14, 1988 (the "Original Operating and Maintenance Agreement") between
Owner and Operator shall be amended to read in their entirety as set forth in
this Agreement and the terms of this Agreement shall govern and control the
rights
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and obligations of the parties in and with respect to the matters herein set
forth, notwithstanding any conflict between the terms of this Agreement and
the terms of the Original Operating and Maintenance Agreement. This Agreement
may be amended only by a writing signed by a duly authorized representative of
both parties.
22. Communications. All notices, requests, offers and other
communications required or permitted to be made under this Agreement shall be
in writing and shall be deemed to have been duly given and received,
regardless of when and whether received, either: (a) on the day of delivery,
if delivered:
To Operator at:
CalEnergy Operating Company
302 South 36th Street
Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
To Owner at:
Elmore, L.P.
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
or at such other address as either party most recently may have designated in
writing to the other party for such purpose; or (b) on the day sent, when sent
by prepaid telex, telegram, cable or radiogram, and confirmed the same day by
prepaid first-class registered airmail, addressed to Operator or Owner, as the
case may be, at their respective addresses aforesaid.
23. Counterparts. This Agreement may be executed in counterparts
and any number of counterparts signed in the aggregate by the parties hereto
shall constitute a single original instrument.
24. Exhibits. All exhibits and schedules attached hereto are hereby
incorporated herein by this reference.
25. Third Party Beneficiaries. The covenants contained herein are
made solely for the benefit of the properties, parties and successors and
assigns of such parties as specified herein, and shall not be construed as
having been intended to benefit any third party not a party to this Agreement.
26. Headings. The headings herein are for reference only and shall
not affect the construction of this Agreement.
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be signed by their duly authorized officers as of the day and year first
above written.
OWNER:
ELMORE, L.P.,
a California limited partnership
By: CALENERGY OPERATING COMPANY,
a Delaware corporation,
as General Partner
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
OPERATOR:
CALENERGY OPERATING COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
14
<PAGE>
Exhibit "A"
Guaranteed Capacity Payment Target Levels
-----------------------------------------
($000s)
Column Column
Year A B
- ---- ------ ------
1989 27,391 30,435
1990 28,738 31,944
1991 30,078 33,433
1992 31,955 35,518
1993 34,099 37,901
1994 36,243 40,283
1995 38,656 42,964
1996 40,800 45,346
1997 43,481 48,324
1998 46,161 51,303
15
EXHIBIT 10.31
POWER PURCHASE CONTRACT
BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY
AND
MAGMA ELECTRIC COMPANY
<PAGE>
TABLE OF CONTENTS
SECTION TITLE PAGE
- ------- ----- ----
1 PROJECT SUMMARY 1
2 DEFINITIONS 4
3 TERM 10
4 GENERATING FACILITY 10
5 OPERATING OPTIONS 19
6 INTERCONNECTION FACILITIES 20
7 METERING 20
8 POWER PURCHASE PROVISIONS 22
9 PAYMENT AND BILLING PROVISIONS 41
10 TAXES 44
11 TERMINATION 44
12 SALE OF GENERATING FACILITY 44
13 ABANDONMENT OF PROJECT 46
14 LIABILITY 46
15 INSURANCE 48
16 UNCONTROLLABLE FORCES 50
17 NONDEDICATION OF FACILITIES 52
18 PRIORITY OF DOCUMENTS 52
19 NOTICES AND CORRESPONDENCE 53
20 PREVIOUS COMMUNICATIONS 53
21 THIRD PARTY BENEFICIARIES 53
22 NONWAIVER 54
23 DISPUTES 54
24 SUCCESSORS AND ASSIGNS 55
i
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25 EFFECT OF SECTION HEADINGS 56
26 TRANSMISSION 56
27 AMENDMENT 57
28 GOVERNING LAW 57
29 CONFIDENTIALITY 57
30 MULTIPLE ORIGINALS 59
SIGNATURES 59
APPENDIX A A-l
APPENDIX B B-1
APPENDIX C C-1
ii
<PAGE>
1. PROJECT SUMMARY
This Contract is entered into between Southern California Edison Company
("Edison") and Magma Electric Company, a Nevada Corporation ("Seller").
Seller is willing to construct, own, and operate a Qualifying Facility
and sell electric power to Edison and Edison is willing to purchase
electric power delivered by Seller to Edison at the Point of
Interconnection pursuant to the terms and conditions set forth as
follows:
1.1 All Notices shall be sent to Seller at the following
address: Magma Electric Company
P.O. Box 17760
Los Angeles, CA 90017
Attn: President
1.2 Seller's Generating Facility:
a. Nameplate Rating: 10,000 kW
b. Location: Niland, Imperial County, California
c. Type (Check One):
_____ Cogeneration Facility
X Small Power Production Facility
1.3 Contract Capacity: 8,000 kW
1.3.1 Estimated as-available capacity: 2,000 kW
1.4 Expected annual production: 56,064,000 kWh
1.5 Expected Date of Firm-Operation: July 1, 1986
1.6 Contract Term: 30 years
<PAGE>
1.7 Operating Options pursuant to Section 5: (Check One)
X Operating Option I. Excess Generator output
dedicated to Edison. No electric service or
standby service required from Edison.
____ Operating Option II. Entire Generator output dedicated to
Edison with separate electric service required from
Edison.
1.8 The Capacity Payment Option selected by Seller pursuant to Section
8.1 shall be: (Check One)
_____ Option A - As-available capacity based upon:
_____ Standard Offer No. 1 Capacity Payment
Schedule, or
_____ Forecast of Annual As-Available Capacity
Payment Schedule
X Option B - Firm Capacity
X Standard Offer No. 2 Capacity Payment
Schedule in effect at time of Contract
execution
_____ Standard Offer No. 2 Capacity Payment
Schedule in effect at time of Firm
Operation
a. The Contract Capacity Price: $158
kW-yr. (Firm Capacity)
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1.9 The Energy Payment Option selected by Seller pursuant
to Section 8.2 shall be: (Check One)
X Option 1 - Forecast of Annual Marginal Cost of Energy in
effect at date of execution of this Contract. (Appendix B)
____ Option 2 - Levelized Forecast of Marginal Cost of Energy in
effect at date of execution of this Contract. (Appendix C) For
the energy payment refund pursuant to Section 8.5 under Option
2, Edison's Incremental Cost of Capital is 15%.
Seller may change once between Options 1 and 2, provided Seller
delivers written notice of such change at least 90 days prior to
the date of Firm Operation. For Option 1 or 2, Seller elects to
receive the following percentages in 20% increments, the total of
which shall equal 100%: 100 percent of Forecast of Annual Marginal
Cost of Energy, and 0 percent of Edison's published avoided cost of
energy as updated periodically and accepted by the Commission.
3
<PAGE>
GENERAL TERMS AND CONDITIONS
2. DEFINITIONS
When used with initial capitalizations, whether in the
singular or in the plural, the following terms shall have
the following meanings:
2.1 Adjusted Capacity Price: The $/kW-yr. capacity purchase
price based on the Capacity Payment Schedule in effect at the time
of Contract execution for the time period beginning on the date of
Firm Operation for the first generating unit and ending on the date
of termination or reduction of Contract Capacity under Capacity
Payment Option B.
2.2 Appendix A: Capacity Payment Schedule - Forecast of
Annual As-Available Capacity
2.3 Appendix B: Energy Payment Schedule - Forecast of
Annual Marginal Cost of Energy
2.4 Appendix C: Energy Payment Schedule - Levelized
Forecast of Marginal Cost of Energy
2.5 Capacity Payment Schedule(s): Published capacity
payment schedule(s) as authorized by the Commission and
in effect at the time of execution of this Contract for
as-available or firm capacity.
2.6 Commission: The Public Utilities Commission of the
State of California.
2.7 Contract: This document and Appendices, as amended from
time to time.
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2.8 Contract Capacity: The electric power producing
capability of the Generating Facility which is
committed to Edison.
2.9 Contract Capacity Price: The capacity purchase price from the
Capacity Payment Schedule approved by the Commission and in effect
on the date of execution of this Contract for Capacity Payment
Option B.
2.10 Contract Term: Period in years commencing with date of
Firm Operation during which Edison shall purchase
electric power from Seller.
2.11 Current Capacity Price: The $/kW-yr. capacity price
provided in the Capacity Payment Schedule determined by
the year of termination or reduction of Contract
Capacity and the number of years from such termination
or reduction to the expiration of the Contract Term for
Capacity Payment Option B.
2.12 Edison: The Southern California Edison Company.
2.13 Edison Electric System Integrity: The state of operation of
Edison's electric system in a manner which is deemed to minimize
the risk of injury to persons and/or property and enables Edison to
provide adequate and reliable electric service to its customers.
2.14 Emergency: A condition or situation which in Edison's sole judgment
affects Edison Electric System Integrity.
2.15 Energy: Kilowatt hours generated by the Generating
Facility which are purchased by Edison at the Point of
Interconnection.
5
<PAGE>
2.16 Firm Operation: The date agreed on by the Parties on which
each generating unit of the Generating Facility is determined to be
a reliable source of generation and on which such unit can be
reasonably expected to operate continuously at its effective rating
(expressed in kW).
2.17 First Period: The period of the Contract Term specified in
Section 3.1.
2.18 Forced Outage: Any outage other than a scheduled outage of the
Generating Facility that fully or partially curtails its electrical
output.
2.19 Generating Facility: All of Seller's generators, together with all
protective and other associated equipment and improvements, necessary
to produce electrical power at Seller's Facility excluding associated
land, land rights, and interests in land.
2.20 Generator: The generator(s) and associated prime mover(s), which are
a part of the Generating Facility.
2.21 Interconnection Facilities: The electrical interconnection
facilities furnished, at no cost to Edison, by Seller, or by the
Interconnecting Utility on the Seller's behalf, which are
appurtenant to, and/or incidental to, the Project. The
Interconnection Facilities shall include, but are not limited to,
transmission lines and/or distribution lines between the Project
and transmission lines and/or distribution lines of the
Interconnecting Utility, relays, power-
6
<PAGE>
circuit breakers, metering devices, telemetering devices, and other
control and protective devices specified by the Interconnecting
Utility as necessary for operation of the Project in parallel with
the Interconnecting Utility's electric system.
2.22 Interconnecting Utility: The electric utility, or any
other utility which takes delivery of electric energy
generated by the Generating Facility.
2.23 Operate: To provide the engineering, purchasing, repair,
supervision, training, inspection, testing, protection, operation,
use, management, replacement, retirement, reconstruction, and
maintenance of and for the Generating Facility in accordance with
applicable California utility standards and good engineering
practices.
2.24 Operating Representatives: Individual(s) appointed by each Party
for the purpose of securing effective cooperation and interchange
of information between the Parties in connection with
administration and technical matters related to this Contract.
2.25 Parties: Edison and Seller.
2.26 Party: Edison or Seller.
2.27 Peak Months: Those months which the Edison annual system peak
demand could occur. Currently, but subject to change with notice,
the peak months for the Edison system are June, July, August, and
September.
7
<PAGE>
2.28 Point of Interconnection: The point where the electrical
energy generated by the Seller, at the Project, is delivered to the
Edison electric system.
2.29 Project: The Generating Facility and Interconnection Facilities
required to permit the Generator to deliver electric energy and
make capacity available to Interconnecting Utility.
2.30 Qualifying Facility: Cogeneration or Small Power
Production Facility which meets the criteria as defined in Title
18, Code of Federal Regulations, Section
292.201 through 292.207.
2.31 Renewable Resources: Wind parks, small hydroelectric,
solar, and geothermal resources which produce electric
power.
2.32 Second Period: The period of the Contract Term
specified in Section 3.2.
2.33 Seller: The Party identified in Section 1.0.
2.34 Seller's Facility: The premises and equipment of Seller
located as specified in Section 1.2.
2.35 Small Power Production Facility: The facilities and equipment which
use biomass, waste, or Renewable Resources, including wind, solar,
geothermal, and water, to produce electrical energy as defined in
Title 18, Code of Federal Regulations, Section 292.201 through
292.207.
8
<PAGE>
2.36 Summer Period: Defined in Edison's Tariff Schedule No.
TOU-8 as now in effect or as may hereafter be
authorized by the Commission.
2.37 Tariff Schedule No. TOU-8: Edison's time-of-use energy
tariff for electric service exceeding 500 kW, as now in
effect or as may hereafter be authorized by the
Commission.
2.38 Uncontrollable Forces: Any occurrence beyond the control of a Party
which causes that Party to be unable to perform its obligations
hereunder and which a Party has been unable to overcome by the
exercise of due diligence, including but not limited to flood,
drought, earthquake, storm, fire, pestilence, lightning and other
natural catastrophes, epidemic, war, riot, civil disturbance or
disobedience, strike, labor dispute, action or inaction of
government or other proper authority, which may conflict with the
terms of this Contract, or failure, threat of failure or sabotage
of facilities which have been maintained in accordance with good
engineering and operating practices in California. The failure of
the Interconnecting Utility to deliver electrical energy to the
Point of Interconnection shall be an Uncontrollable Force only if
such failure is beyond the control of the Interconnecting Utility.
9
<PAGE>
2.39 Winter Period: Defined in Edison's Tariff Schedule No.
TOU-8 as now in effect or as may hereafter be
authorized by the Commission.
3. TERM
This Contract shall be effective upon execution by the Parties and shall
remain effective until either Party gives 90 days' prior written notice
of termination to the other Party, except that such notice of
termination shall not be effective to terminate this Contract prior to
expiration of the Contract Term specified in Section 1.6.
3.1 The First Period of the Contract Term shall commence upon date of Firm
Operation but not later than 5 years from the date of execution of
this Contract.
a. If the Contract Term specified in Section 1.6 is
15 years, the First Period of the Contract Term
shall be for 5 years.
b. If the Contract Term specified in Section 1.6 is 20, 25, or 30
years, the First Period of the Contract Term shall be for 10
years.
3.2 The Second Period of the Contract Term shall commence upon
expiration of the First Period and shall continue for the remainder
of the Contract Term.
4. GENERATING FACILITY
4.1 Ownership
The Generating Facility shall be owned by Seller.
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<PAGE>
4.2 Design
4.2.1 Seller, at no cost to Edison, shall:
a. Design the Generating Facility.
b. Acquire all permits and other approvals
necessary for the construction,
operation, and maintenance of the
Generating Facility.
c. Complete all environmental impact
studies necessary for the construction,
operation, and maintenance of the
Generating Facility.
4.2.2 Edison shall have the right to review the
design of the Generating Facility's
electrical system and the Seller's
Interconnection Facilities. Edison shall
have the right to request modifications to
the design of the Generating Facility's
electrical system and the Seller's
Interconnection Facilities. Such
modifications shall be required if necessary
to maintain Edison Electric System Integrity.
If Seller does not agree to such
modifications, resolution of the difference
between the Parties shall be made pursuant to
Section 23.
11
<PAGE>
4.3 Construction
Edison shall have the right to review, consult with, and
make recommendations regarding Seller's construction
schedule and to monitor the construction and start-up of
the Project. Seller shall notify Edison, as far in
advance of Firm Operation as reasonably possible, of
changes in Seller's Construction Schedule which may
affect the date of Firm Operation.
4.4 Operation
4.4.1 Edison shall have the right to monitor operation of the
Project and may require changes in Seller's method of
operation if such changes are necessary, in Edison's sole
judgment, to maintain Edison Electric System
Integrity.
4.4.2 Seller shall notify, in writing, Edison's Operating
Representative at least 14 days prior to the initial
delivery of electrical energy from the Project to the
Point of Interconnection.
4.4.3 Edison shall have the right to require Seller to curtail
or reduce the delivery of electrical energy from the
Project to the Edison electric system whenever Edison
determines, in its sole judgment, that such curtailment
or reduction is necessary to
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<PAGE>
facilitate maintenance of Edison's facilities, or to
maintain Edison Electric System Integrity. If Edison
requires Seller to curtail or reduce the delivery of
electrical energy from the Project to the Edison electric
system pursuant to this Section 4.4.3, Seller shall have
the right to continue to serve its total electrical
requirements. Each Party shall endeavor to correct,
within a reasonable period, the condition on its system
which necessitates the curtailment or the reduction of
delivery of electrical energy from the Project. The
duration of the curtailment or the reduction shall be
limited to the period of time such a condition exists.
4.4.4 Each Party shall keep the other Party's Operating
Representative informed as to the operating schedule of
their respective facilities affecting each other's
operation hereunder, including any reduction in
Contract Capacity availability. In addition, Seller shall
provide Edison with reasonable advance notice regarding
its scheduled outages including any reduction in Contract
Capacity availability. Reasonable advance notice is as
follows:
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<PAGE>
SCHEDULED OUTAGE ADVANCE NOTICE
EXPECTED DURATION TO EDISON
Less than one day 24 Hours
one day or more
(except major overhauls) 1 Week
Major overhaul 6 Months
4.4.5 Notification by each Party's Operating Representative of
outage date and duration should be directed to the other
Party's Operating Representative by telephone.
4.4.6 Seller shall not schedule major overhauls
during Peak Months.
4.4.7 Seller shall maintain an operating log at
Seller's Facility with records of: real and
reactive power production; changes in
operating status, outages, Protective
Apparatus operations; and any unusual
conditions found during inspections. Changes
in setting shall also be logged for
Generators which are "block-loaded" to a
specific kW capacity. In addition, Seller
shall maintain records applicable to the
Generating Facility, including the electrical
characteristics of the Generator and
settings, adjustments of the Generator
control equipment, and well-field
information. Information maintained pursuant
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<PAGE>
to this Section 4.4.7 shall be provided to Edison, within
30 days of Edison's request.
4.4.8 At Edison's request, Seller shall make all
reasonable effort to deliver power at an
average rate of delivery at least equal to
the Contract Capacity during periods of
Emergency. In the event that the Seller has
previously scheduled an outage coincident
with an Emergency, Seller shall make all
reasonable efforts to reschedule the outage.
The notification periods listed in Section
4.4.4 shall be waived by Edison if Seller
reschedules the outage.
4.4.9 Seller shall demonstrate the ability to
provide Edison the specified Contract
Capacity within 30 days of the date of Firm
operation. Thereafter, at least once per
year at Edison's request, Seller shall
demonstrate the ability to provide Contract
Capacity for a reasonable period of time as
required by Edison. Seller's demonstration
of Contract Capacity shall be at Seller's
expense and conducted at a time and pursuant
to procedures mutually agreed upon by the
Parties. If Seller fails to demonstrate the
ability to provide the Contract Capacity, the
Contract Capacity shall be reduced by
15
<PAGE>
agreement of the Parties pursuant to Section
8.1.2.5.
4.4.10 The Seller warrants that the Generating Facility meets
the requirements of a Qualifying Facility as of the
effective date of this Contract and continuing through
the Contract Term.
4.4.11 The Seller warrants that the Generating
Facility shall, at all times, conform to all
applicable laws and regulations. Seller
shall obtain and maintain any governmental
authorizations and permits for the continued
operation of the Generating Facility. If, at
any time, Seller does not hold such
authorizations and permits, Seller agrees to
reimburse Edison for any loss which Edison
incurs as a result of the Seller's failure to
maintain governmental authorization and
permits.
4.4.12 In the event electrical energy from the
Project is curtailed or reduced pursuant to
Sections 4.4.3, 16 or 8.4, the Seller, in its
sole discretion, may elect to (i) sell said
electrical energy to a third party or (ii)
deliver said electrical energy to a third
party for future delivery to Edison at times
and at amounts agreeable to Edison. The
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<PAGE>
Seller shall be responsible for making all such
arrangements. The provisions in this Section 4.4.12 shall
only apply for the duration of the curtailment or
reduction.
4.4.13 Seller shall maintain operating
communications with the Edison switching
center designated by the Edison Operating
Representative. The operating communications
shall include, but not be limited to, system
paralleling or separation, scheduled and
unscheduled shutdowns, equipment clearances,
levels of operating voltage or power factors,
and daily capacity and generation reports.
4.5 Maintenance
4.5.1 Seller shall maintain the Generating Facility
in accordance with applicable California
utility industry standards and good
engineering and operating practices. Edison
shall have the right to monitor such
maintenance of the Generating Facility.
Seller shall maintain and deliver a
maintenance record of the Generating Facility
to Edison's Operating Representatives upon
request.
4.5.2 Seller shall make a reasonable effort to
schedule routine maintenance during Off-Peak
Months and expected minimal generation
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<PAGE>
periods for renewable resources. Outages for scheduled
maintenance shall not exceed a total of 30 peak hours for
the Peak Months.
4.5.3 The allowance for scheduled maintenance is as
follows:
a. Outage periods for scheduled maintenance
shall not exceed 840 hours (35 days) in any 12-month
period. This allowance may be used in increments of
an hour or longer on a consecutive or nonconsecutive
basis.
b. Seller may accumulate unused maintenance hours on a
year-to-year basis up to a maximum of 1,080 hours
(45 days). This accrued time must be used
consecutively and only for major overhauls.
4.6 Any review by Edison of the design, construction,
operation, or maintenance of the Project is solely for
the information of Edison. By making such review,
Edison makes no representation as to the economic and
technical feasibility, operational capability, or
reliability of the Project. Seller shall in no way
represent to any third party that any such review by
Edison of the Project, including, but not limited to,
any review of the design, construction, operation, or
maintenance of the Project by Edison, is a
representation by Edison as to the economic and
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technical feasibility, operational capability, or reliability of
said facilities. Seller is solely responsible for economic and
technical feasibility, operational capability, and reliability
thereof.
4.7 Edison shall have access to the Seller's geothermal
field and power-generating facilities for the purpose
of gathering technical information and records. The
technical information and records shall include, but
not be limited to, drilling data, well-testing data,
well-production data and design, power plant
performance data and design, environmental data, brine
handling design, and operation and maintenance data.
Edison agrees not to interfere with Seller's rules and
operating regulations.
5. OPERATING OPTIONS
5.1 Seller shall elect in Section 1.7 to Operate its
Generating Facility pursuant to one of the following
options:
a. Operating Option 1: Seller dedicates the excess
Generator output to Edison with no electrical service or
standby service required from Edison.
b. Operating Option II: Seller dedicates the entire
Generator output to Edison with electrical service
required from Edison.
5.2 After expiration of the First Period of the Contract Term, Seller
may change the Operating Option, but not more than once per year
upon at least 90 days' prior
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written notice to Edison. A reduction in Contract Capacity as a
result of a change in operating options shall be subject to Section
8.1.2.5. Edison shall not be required to remove or reserve capacity
of Interconnection Facilities made idle by a change in operating
options. Edison may dedicate any such idle Interconnection
Facilities at any time to serve other customers or to interconnect
with other electric power sources. Edison shall process requests
for changes of operating option in the chronological order
received.
6. INTERCONNECTION FACILITIES
6.1 Seller shall design, engineer, procure, construct, and test the
Interconnection Facilities in accordance with applicable California
utility standards and good engineering practices and the rules and
regulations of the Interconnecting Utility.
6.2 The design, installation, operation, maintenance, and modifications
of the Interconnection Facilities shall be at Seller's expense.
6.3 Seller, at no cost to Edison, shall acquire all permits and
approvals and complete all environmental impact studies necessary
for the design, installation, operation, and maintenance of the
Interconnection Facilities.
7. METERING
7.1 All meters and equipment used for the measurement of
electrical power for determining Edison's payments to
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Seller pursuant to this Contract shall be provided, owned, and
maintained by Edison and/or the Inter- connecting Utility at
Seller's expense.
7.2 If Seller's Generating Facility is rated at a Capacity of 500 kW or
greater, then Edison, at its option, may install at Seller's
expense, generation metering and/or telemetering equipment.
7.3 Edison's or the Interconnecting Utility's meters shall
be sealed and the seals shall be broken only when the
meters are to be inspected, tested, or adjusted by
Edison or Interconnecting Utility. Seller shall be
given reasonable notice of testing and have the right
to have its Operating Representative present on such
occasions.
7.4 Edison's or Interconnecting Utility's meters installed
pursuant to this Contract shall be tested by Edison or
Interconnecting Utility, at Edison's or Interconnecting
Utility's expense, at least once each year and at any
reasonable time upon request by either Party, at the
requesting Party's expense. If Seller makes such
request, Seller shall reimburse said expense to Edison
or Interconnecting Utility within thirty days after
presentation of a bill therefor.
7.5 Metering equipment found to be inaccurate shall be repaired,
adjusted, or replaced by Edison or Interconnecting Utility such
that the metering accuracy of said equipment shall be within plus
or minus two
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percent. If metering equipment inaccuracy exceeds plus or minus two
percent, the correct amount of Energy and capacity delivered during
the period of said inaccuracy shall be estimated by Edison and
agreed upon by the Parties.
8. POWER PURCHASE PROVISIONS
Prior to the date of Firm Operation, Seller shall be paid for Energy
only pursuant to Edison's published avoided cost of energy based on
Edison's full avoided operating cost as periodically updated and
accepted by the Commission. If at any time electrical energy can be
delivered to Edison and Seller is contesting the claimed jurisdiction of
any entity which has not issued a license or other approval for the
Project, Seller, in its sole discretion and risk, may deliver electrical
energy to Edison and for any electrical energy purchased by Edison
Seller shall receive payment from Edison for (i) Energy pursuant to this
Section, and (ii) as- available capacity based on a capacity price from
the Standard Offer No. 1 Capacity Payment Schedule as approved by the
Commission. Unless and until all required licenses and approvals have
been obtained, Seller may discontinue deliveries at any time.
8.1 Capacity Payments Seller shall sell to Edison and Edison shall
purchase from Seller capacity pursuant to the Capacity Payment Option
selected by Seller in Section 1.8. The Capacity Payment Schedules
will be based on Edison's full
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avoided operating costs as approved by the Commission
throughout the life of this Contract.
8.1.1 Capacity Payment Option A -- As-Available
Capacity.
If Seller selects Capacity Payment Option A, Seller shall be
paid a Monthly Capacity Payment calculated pursuant to the
following formula:
Monthly Capacity Payment = (A x D)+(B x D)+(C x D)
Where A = kWh purchased by Edison during on-peak
periods defined in Edison's Tariff
Schedule No. TOU-8.
B = kWh purchased by Edison during mid-peak
periods defined in Edison's Tariff Schedule No.
TOU-8.
C = kWh purchased by Edison during off-peak
periods defined in Edison's Tariff Schedule No.
TOU-8.
D = The appropriate time differentiated capacity
price from either the Standard Offer No. 1
Capacity Payment Schedule or Forecast of Annual
As- Available Capacity Payment Schedule as
specified by Seller in Section 1.8.
8.1.1.1 If Seller specifies the Standard
Offer No. 1 Capacity Payment
Schedule in Section 1.8, then the
formula set forth in Section 8.1.1
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shall be computed with D equal to
the appropriate time differentiated
capacity price from the Standard
Offer No. 1 Capacity Payment
Schedule for the Contract Term.
8.1.1.2 If Seller specifies the Forecast of
Annual As-Available Capacity
Payment Schedule in Section 1.8,
the formula set forth in Section
8.1.1 shall be computed as follows:
a. During the First Period of the
Contract Term, D shall equal the
appropriate time differentiated capacity
price from the Forecast of Annual
As-Available Capacity Payment Schedule.
b. During the Second Period of
the Contract Term, the formula
shall be computed with D equal
to the appropriate time
differentiated capacity price
from Standard Offer No. 1
Capacity Payment Schedule, but
not less than the greater of
(i) the appropriate time
differentiated capacity price
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from the Forecast of Annual As-Available
Capacity Payment Schedule for the last
year of the First Period, or (ii) the
appropriate time differentiated capacity
price from the Standard Offer No. 1
Capacity Payment Schedule for the first
year of the Second Period.
8.1.2 Capacity Payment Option B--Firm Capacity
Purchase
If Seller selects Capacity Payment Option B, Seller
shall provide to Edison for the Contract Term the
Contract Capacity specified in Section 1.3, or as
adjusted pursuant to Section 8.1.2.6, and Seller
shall be paid as follows:
8.1.2.1 If Seller meets the performance
requirements set forth in Section
8.1.2.2, Seller shall be paid a
monthly Capacity Payment, beginning
from the date of Firm Operation
equal to the sum of the on-peak,
mid-peak, and off-peak Capacity
Period Payments. Each capacity
period payment is calculated
pursuant to the following formula:
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Monthly Capacity Period = A x B x C x D
Payment
Where A = Contract Capacity Price specified in
Section 1.8 based on the Standard Offer No.
2 Capacity Payment Schedule as approved by
the Commission and in effect on the date of
the execution of this Agreement.
B = Conversion factors to convert annual
capacity prices to monthly payments by time
of delivery as specified in Standard Offer
No. 2 Capacity Payment Schedule and subject
to periodic modifications as approved by
the Commission.
C = Contract Capacity specified in
Section 1.3.
D = Period Performance Factor, not
to exceed 1.0, calculated as
follows:
Period Performance Factor [period kWh Purchased by Edison
(Limited by the Level of
Contract Capacity)]
-----------------
[0.8 x Contract Capacity x
(Period Hours minus Maintenance
Hours Allowed in Section 4.5.)]
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8.1.2.2 Performance Reguirements
To receive the Monthly Capacity Payment in
Section 8.1.2.1, Seller shall provide the
Contract Capacity in each Peak Month for all
on-peak hours as such peak hours are defined in
Edison's Tariff Schedule No. TOU-8 on file with
the Commission, except that Seller is entitled
to a 20% allowance for Forced Outages for each
Peak Month. Seller shall not be subject to such
performance requirements for the remaining
hours of the year.
a. If Seller fails to meet the requirements
specified in Section 8.1.2.2, Seller, in
Edison's sole discretion, may be placed on
probation for a period not to exceed 15 months.
If Seller fails to meet the requirements
specified in Section 8.1.2.2 during the
probationary period, Edison may derate the
Contract Capacity to the greater of the
capacity
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actually delivered during the probationary
period, or the capacity at which Seller
can reasonably meet such requirements. A
reduction in Contract Capacity as a result
of this Section 8.1.2.2 shall be subject
to Section 8.1.2.5.
b. If Seller fails to meet the
requirements set forth in this
Section 8.1.2.2 due to a
Forced Outage on the Edison
system, or a request to reduce
or curtail delivery under
Section 8.4, Edison shall
continue Monthly Capacity
Payments pursuant to Capacity
Payment Option B. The
Contract Capacity curtailed
shall be treated the same as
scheduled maintenance outages
in the calculation of the
Monthly Capacity Payment.
8.1.2.3 If Seller is unable to provide
Contract Capacity due to
Uncontrollable Forces, Edison shall
continue Monthly Capacity Payments
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pursuant to Capacity Payment option B for 90
days from the occurrence of the Uncontrollable
Force. Monthly Capacity Payments payable during
a period of interruption or reduction by reason
of an Uncontrollable Force shall be treated the
same as scheduled maintenance outages.
8.1.2.4 Capacity Bonus Payment
For Capacity Payment Option B,
Seller may receive a Capacity Bonus
Payment as follows:
a. Bonus During Peak Months
------------------------
For a Peak Month, Seller shall
receive a Capacity Bonus
Payment if (i) the
requirements set forth in
Section 8.1.2.2 have been met,
and (ii) the on-peak capacity
factor exceeds 85%.
b. Bonus During Non-Peak Months
----------------------------
For a non-peak month, Seller
shall receive a Capacity Bonus
Payment if (i) the
requirements set forth in
Section 8.1.2.2 have been met,
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(ii) the on-peak capacity factor for each
Peak Month during the year was at least
85%, and (iii) the on-peak capacity factor
for the non- peak month exceeds 85%.
c. For any eligible month, the
Capacity Bonus Payment shall
be calculated as follows:
Capacity Bonus Payment = A x B x C x D
Where A = (1.2 x On-Peak Capacity Factor)-
1.02
Where the On-Peak Capacity Factor, not to exceed 1.0,
is calculated as follows:
[Period kWh Purchased by
Edison (Limited by the Level
of Contract Capacity)]
On-Peak capacity Factor = ((Contract capacity) x (Period
Hours minus Maintenance Hours
Allowed in Section 4.5))
B = Contract Capacity Price specified
in Section 1.8 for Capacity
Payment Option B
C = 1/12
D = Contract Capacity specified in
Section 1.3
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d. When Seller is entitled to receive a
Capacity Bonus Payment, the Monthly
Capacity Payment shall be the sum of the
Monthly Capacity Payment pursuant to
Section 8.1.2.1 and the Monthly Capacity
Bonus Payment pursuant to this Section
8.1.2.4.
8.1.2.5 Capacity Reduction
a. Seller may reduce the Contract
Capacity specified in Section 1.3,
provided that Seller gives Edison prior
written notice for a period determined by
the amount of Contract Capacity reduced as
follows:
Amount of Contract Length of
Capacity Reduced Notice Required
25,000 kW or under 12 months
25,001 - 50,000 kW 36 months
50,001 - 100,000 kW 48 months
over 100,000 kW 60 months
b. Seller shall refund to Edison
with interest at the current
published Federal Reserve
Board three months prime
commercial paper rate, an
amount equal to the difference
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between (i) the accumulated Monthly
Capacity Payments paid by Edison pursuant
to Capacity Payment Option B up to the
time the reduction notice is received by
Edison, and (ii) the total capacity
payments which Edison would have paid if
based on the Adjusted Capacity Price.
c. From the date the reduction
notice is received to the date
of actual capacity reduction,
Edison shall make capacity
payments based on the Adjusted
Capacity Price for the amount
of Contract Capacity being
reduced.
d. Seller may reduce Contract
Capacity without the notice
prescribed in Section
8.1.2.5(a), provided that
Seller shall refund to Edison
the amount specified in
Section 8.1.2.5(b) and an
amount equal to: (i) the
amount of Contract Capacity
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being reduced, times (ii) the difference
between the Current Capacity Price and the
Contract Capacity Price, times (iii) the
number of years and fractions thereof (not
less than one year) by which the Seller
has been deficient in giving the
prescribed notice. If the Current Capacity
Price is less than the Contract Capacity
Price, only payment under Section
8.1.2.5(b) shall be due to Edison.
8.1.2.6 The Parties may agree in writing at
any time to adjust the Contract
Capacity. Seller may reduce the
Contract Capacity pursuant to
Section 8.1.2.5. Seller may
increase the Contract Capacity with
Edison's approval and thereafter
receive payment for the increased
capacity in accordance with the
Contract Capacity Price for the
Capacity Payment Option selected by
Seller for the remaining Contract
Term.
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<PAGE>
8.1.2.7 For Capacity Payment Option B, Seller
shall be paid for capacity in excess of
Contract Capacity based on the as-available
capacity price in Standard Offer No. 1 Capacity
Payment Schedule, as updated and approved by
the commission.
8.2 Energy Payments - First Period
During the First Period of the Contract Term, Seller shall be paid
a Monthly Energy Payment for the electrical energy delivered by the
Seller and purchased by Edison at the Point of Interconnection
pursuant to the Energy Payment Option selected by the Seller in
Section 1.9, as follows.
8.2.1 Energy Payment Option 1 -- Forecast of Annual
Marginal Cost of Energy.
If Seller selects Energy Payment Option 1, then during the
First Period of the Contract Term, Seller shall be paid a
Monthly Energy Payment for electrical energy delivered by
Seller and purchased by Edison at the Point of Interconnection
during each month in the First Period of the Contract Term
pursuant to the following formula:
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Monthly Energy Payment = [(A x D) + (B x D) + (C x D)] x E
Where A = kWh purchased by Edison during on-
peak periods defined in Edison's
Tariff Schedule No. TOU-8.
B = kWh purchased by Edison during mid- peak
periods defined in Edison's Tariff Schedule No.
TOU-8.
C = kWh purchased by Edison during off-peak
periods defined in Edison's Tariff Schedule No.
TOU-8.
D = The sum of:
(i) the appropriate time differentiated energy
price from the Forecast of Annual Marginal Cost
of Energy, multiplied by the decimal equivalent
of the percentage of the forecast specified in
Section 1.9, and (ii) the appropriate time
differentiated energy price from Edison's
published avoided cost of energy multiplied by
the decimal equivalent of the percentage of the
published energy price specified in Section 1.9.
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<PAGE>
E = Energy Loss Adjustment Factor For Remote Generating
Sites*
8.2.2 Energy Payment Option 2 -- Levelized Forecast
of Marginal Cost of Energy. If Seller
selects Energy Payment Option 2, then during
the First Period of the Contract Term, Seller
shall be paid a Monthly Energy Payment for
electrical energy delivered by Seller and
purchased by Edison each month during the
First Period of the Contract Term pursuant to
the following formula:
Monthly Energy Payment = [(A x D) + (B x D) + (C x D)] x E
Where A = kWh purchased by Edison during on-peak periods defined
in Edison's Tariff Schedule No. TOU-8.
B = kWh purchased by Edison during mid- peak periods
defined in Edison's Tariff Schedule No. TOU-8.
C = kWh purchased by Edison during off-peak periods
defined in Edison's Tariff Schedule No. TOU-8.
D = The sum of:
(i) the appropriate time differentiated energy
price from
- --------
* The Energy Loss Adjustment Factor For Remote Generating
Sites shall be 1.0, subject to adjustment by Commission
orders and rulings.
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the Levelized Forecast of Marginal Cost of
Energy, for the First Period of the Contract
Term multiplied by the decimal equivalent of
the percentage of the levelized forecast
specified in Section 1.9, and (ii) the
appropriate time differentiated energy price
from Edison's published avoided cost of energy
multiplied by the decimal equivalent of the
percentage of the published energy price
specified in Section 1.9.
E = Energy Loss Adjustment Factor For Remote
Generating Sites*
8.2.2.1 Performance Requirement for Energy
----------------------------------
Payment Option 2
----------------
During the First Period when the
annual forecast referred to in
Section 8.2.1 is greater than the
levelized forecast referred to in
Section 8.2.2, Seller shall deliver
to Edison at least 70 percent of
- --------
* The Energy Loss Adjustment Factor For Remote Generating
Sites shall be 1.0, subject to adjustment by Commission
orders and rulings.
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<PAGE>
the average annual kWh delivered to Edison
during those previous periods when the
levelized forecast referred to in Section 8.2.2
is greater than the annual forecast referred to
in Section 8.2.1. If Seller does not meet the
performance requirements of this Section
8.2.2.1, Seller shall be subject to Section
8.5.
8.3 Energy Payments - Second Period
During the Second Period of the Contract Term, Seller shall be paid
a Monthly Energy Payment for electrical energy delivered by Seller
and purchased by Edison at the Point of Interconnection at a rate
equal to 100% of Edison's published avoided cost of energy as
updated periodically and accepted by the Commission, pursuant to
the following formula:
Monthly Energy Payment = kWh purchased by Edison for each on-peak, mid-peak, and
off-peak time period defined in Edison's Tariff
Schedule No. TOU-8
x Edison's published avoided cost of energy by time of
delivery for each time period
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<PAGE>
x Energy Loss Adjustment Factor for
Remote Generating Sites*
8.4 Edison shall not be obligated to accept or pay for
electrical energy generated by the Generating Facility,
and may request Seller whose Generating Facility is one
(1) MW or greater to discontinue or reduce delivery of
electric energy, for not more than 300 hours annually
during off-peak hours when (i) purchases would result
in costs greater than those which Edison would incur if
it did not purchase electrical energy from Seller but
instead utilized an equivalent amount of electrical
energy generated from another Edison source, or (ii)
the Edison Electric System demand would require that
Edison hydro-energy be spilled to reduce generation.
8.5 Energy Payment Refund
If Seller elects Energy Payment Option 2, Seller shall
be subject to the following:
8.5.1 If Seller fails to perform the Contract
obligations for any reason during the First Period of the
Contract Term, or fails to meet the performance
requirements set forth in Section 8.2.2.1, and at the
time of such failure to perform, the net present value of
the cumulative Energy payments received by Seller
pursuant to Energy Payment Option 2
- --------
* The Energy Loss Adjustment Factor For Remote Generating
Sites shall be 1.0, subject to adjustment by Commission
orders and rulings.
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<PAGE>
exceeds the net present value of what Seller would have
been paid pursuant to Energy Payment Option 1, Seller
shall make an energy payment refund equal to the
difference in such net present values in the year in
which the refund is due. The present value calculation
shall be based upon the rate of Edison's incremental cost
of capital specified in Section 1.9.
8.5.2 Not less than 90 days prior to the date
Energy is first delivered to the Point of
Interconnection, Seller shall provide and
maintain a performance bond, surety bond,
performance insurance, corporate guarantee,
or bank letter of credit, satisfactory to
Edison, which shall insure payment to Edison
of the Energy Payment Refund at any time
during the First Period. Edison may, in its
sole discretion, accept another form of
security except that in such instance a 1-1/2
percent reduction shall then apply to the
levelized forecast referred to in Section
8.2.2 in computing payments for Energy.
Edison shall be provided with certificates
evidencing Seller's compliance with the
security requirements in this Section which
shall also include the requirement that
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Edison be given 90 days' prior written notice of the
expiration of such security.
8.5.3 If Seller fails to provide replacement
security not less than 60 days prior to the
date of expiration of existing security, the
Energy Payment Refund provided in Section 8.5
shall be payable forthwith. Thereafter,
payments for Energy shall be 100 percent of
the Monthly Energy Payment provided in
Section 8.2.1.
8.5.4 If Edison at any time determines the security
to be otherwise inadequate, and so notifies
Seller, payments thereafter for Energy shall
be 100 percent of the Monthly Energy Payment
provided in Section 8.2.1. If within 30 days
of the date Edison gives notice of such
inadequacies, Seller satisfies Edison's
security requirements, Energy Payment Option
2 shall be reinstated. If Seller fails to
satisfy Edison's security requirements within
the 30-day period, the Energy Payment Refund
provided in Section 8.5 shall be payable
forthwith.
9. PAYMENT AND BILLING PROVISIONS
9.1 For Energy and capacity purchased by Edison:
9.1.1 Edison shall mail to Seller no later than
thirty days after the end of each monthly
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billing period (1) a statement showing the Energy and
capacity delivered to Edison during the on-peak,
mid-peak, and off-peak periods, as those periods are
specified in Edison's Tariff Schedule No. TOU-8 for that
monthly billing period, (2) Edison's computation of the
amount due Seller, and (3) Edison's check in payment of
said amount.
9.1.2 If the monthly payment period involves portions of two
different published Energy payment schedule periods, the
monthly Energy payment shall be prorated on the basis of
the percentage of days at each price.
9.1.3 If the payment period is less than 27 days or greater
than 33 days, the capacity payment shall be prorated on
the basis of the average days per month per year.
9.1.4 If, within thirty days of receipt of the statement,
Seller does not make a report in writing to Edison of an
error, Seller shall be deemed to have waived any error
in Edison's statement, computation, and payment, and
they shall be considered correct and complete.
9.2 Edison shall bill the Seller, on a monthly basis, for
the costs Edison has incurred in the transmission of
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the electrical energy from the Project to the Point of
Interconnection pursuant to the provisions of Section 26.
9.3 Payments Due to Contract Capacity Reduction
9.3.1 The Parties agree that the refund and
payments provided in Section 8.1.2.5 represent a fair
compensation for the reasonable losses that would result
from such reduction of Contract Capacity.
9.3.2 in the event of a reduction in Contract Capacity, the
quantity, in kW, by which the Contract Capacity is
reduced shall be used to calculate the refunds and
payments due Edison in accordance with Section 8.1.2.5,
as applicable.
9.3.3 Edison shall provide invoices to Seller for all refunds
and payments due Edison under this Section 9 which shall
be due within 60 days.
9.3.4 If Seller does not make payments as required in Section
9.2.3, Edison shall have the right to offset any amounts
due it against any present or future payments due Seller
and may pursue any other remedies available to Edison as
a result of Seller's failure to perform.
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9.4 Energy Payment Refund
Energy Payment Refund is immediately due and payable upon Seller's
failure to perform the contract obligations as specified in Section
8.5.
10. TAXES
10.1 Seller shall pay ad valorem taxes and other taxes properly
attributable to the Project. If such taxes are assessed or levied
against Edison, Seller shall pay Edison for such assessment or
levy.
10.2 Seller shall pay ad valorem taxes and other taxes properly
attributed to land, land rights, or interest in land for the
Project. If such taxes are assessed or levied against Edison,
Seller shall pay Edison for such assessment or levy.
10.3 Seller or Edison shall provide information concerning the Project
to any requesting taxing authority.
11. TERMINATION
This Contract shall terminate if Firm Operation does not occur within 5
years of the date of Contract execution.
12. SALE OF GENERATING FACILITY
12.1 If Seller desires to sell the Generating Facility, Seller shall
promptly offer to Edison, or any entity designated by Edison in its
sole discretion, the right to purchase the Generating Facility.
Edison, or any such entity designated by Edison, shall have up to
sixty days following the offer to accept Seller's offer or reach
agreement with Seller.
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12.2 If the Parties are unable to reach a satisfactory agreement
within sixty days following the offer pursuant to Section 12.1, and
the Generating Facility is offered to any third party or parties,
Edison, or any such entity designated by Edison, has the right for
thirty days following each offer to agree to purchase the
Generating Facility under the same terms and conditions, if such
terms and conditions are better to Edison than those offered in
Section 12.1. Any offers to sell made more than two years after
Edison's failure to accept a previous offer to sell under Section
12.1, shall again be subject to the terms of Sections 12.1 and
12.2.
12.3 Notwithstanding the foregoing, Seller shall have the right at any
time to sell or transfer the Generating Facility to an affiliate of
Seller and an affiliate of Seller may sell, transfer, or lease to
Seller without giving rise to any right of first refusal of Edison.
An "affiliate" of Seller shall mean a Party's parent, a Party's
subsidiary, or any company of which a Party's parent is a parent.
An "affiliate" of Seller shall also mean a partnership or joint
venture from which the Seller leases and operates the Generating
Facility. A "parent" shall mean a company which owns directly or
indirectly not less than 51% of the shares entitled to vote in an
election of directors of another company.
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13. ABANDONMENT OF PROJECT
13.1 The Generating Facility shall be deemed to be abandoned if Seller
discontinues operation of the Generating Facility with the intent
that such discontinuation be permanent. Such intent shall be
conclusively presumed by either (i) Seller's notice to Edison of
such intent, or (ii) Seller's operation of the Generating Facility
in such a manner that no Energy is generated therefrom for 200
consecutive days during any period after Firm Operation of the
first generating unit, unless otherwise agreed to in writing by the
Parties. If the Project is prevented from generating Energy due to
an Uncontrollable Force, then such period shall be extended for the
duration of the Uncontrollable Force, not to exceed one year.
13.2 If Seller abandons the Generating Facility during the term of this
Agreement, Edison, or any entity designated by Edison in its sole
discretion, shall have the right to purchase the Generating
Facility pursuant to the provisions of Section 12.
14. LIABILITY
14.1 Each Party (First Party) releases the other Party (Second Party),
its directors, officers, employees and agents from any loss,
damage, claim, cost, charge, or expense of any kind or nature
(including any direct, indirect or consequential loss, damage,
claim, cost, charge, or expense), including attorney's fees and
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<PAGE>
other costs of litigation incurred by the First Party, in
connection with damage to property of the First Party caused by or
arising out of the Second Party's construction, engineering,
repair, supervision, inspection, testing, protection, operation,
maintenance, replacement, reconstruction, use or ownership of its
facilities, to the extent that such loss, damage, claim, cost,
charge, or expense is caused by the negligence of Second Party, its
directors, officers, employees, agents, or any person or entity
whose negligence would be imputed to Second Party.
14.2 Each Party shall indemnify and hold harmless the other Party, its
directors, officers, and employees or agents from and against any
loss, damage, claim, cost, charge, or expense of any kind or nature
(including direct, indirect or consequential loss, damage, claim,
cost, charge, or expense), including attorney's fees and other
costs of litigation, incurred by the other Party in connection with
the injury to or death of any person or damage to property of a
third party arising out of the indemnifying Party's construction,
engineering, repair, supervision, inspection, testing, protection,
operation, maintenance, replacement, reconstruction, use, or
ownership of its facilities, to the extent that such loss, damage,
claim, cost, charge, or expense is caused by the negligence of the
indemnifying Party, its directors, officers, employees, agents, or
any person
47
<PAGE>
or entity whose negligence would be imputed to the indemnifying
Party; provided, however, that each Party shall be solely
responsible for and shall bear all cost of claims brought by its
contractors or its own employees and shall indemnify and hold
harmless the other Party for any such costs including costs arising
out of any workers compensation law. Seller releases and shall
defend and indemnify Edison from any claim, cost, loss, damage, or
liability arising from any contrary representation concerning the
effect of Edison's review of the design, construction, operation,
or maintenance of the Project.
14.3 The provisions of this Section 14 shall not be construed so as to
relieve any insurer of its obligations to pay any insurance claims
in accordance with the provisions of any valid insurance policy.
14.4 Neither Party shall be indemnified by the other Party under Section
14.2 for its liability or loss resulting from its sole negligence
or willful misconduct.
15. INSURANCE
15.1 Until Contract is terminated, Seller shall obtain and maintain in
force as hereinafter provided comprehensive general liability
insurance, including contractual liability coverage, with a
combined single limit of not less than $1,000,000 each occurrence.
The insurance carrier or carriers and form of policy shall be
subject to review and approval by Edison.
48
<PAGE>
15.2 Prior to the date Seller's generating facility first delivers
electrical energy to the Point of Interconnection, Seller shall (i)
furnish certificate of insurance to Edison, which certificate shall
provide that such insurance shall not be terminated nor expire
except on thirty days prior written notice to Edison, (ii) maintain
such insurance in effect for so long as Seller's Generating
Facility is delivering electrical energy to the Point of
Interconnection, and (iii) furnish to Edison an additional insured
endorsement with respect to such insurance in substantially the
following form: "In consideration of the premium charged, Southern
California Edison Company (Edison) is named as additional insured
with respect to all liabilities arising out of Seller's use and
ownership of Seller's Generating Facility.
"The inclusion of more than one insured under this policy shall not
operate to impair the rights of one insured against another insured
and the coverages afforded by this policy will apply as though
separate policies had been issued to each insured. The inclusion of
more than one insured will not, however, operate to increase the
limit of the carrier's liability. Edison will not, by reason of its
inclusion under this policy, incur liability to the insurance carrier
for payment of premium for this policy.
49
<PAGE>
"Any other insurance carried by Edison which may be applicable
shall be deemed excess insurance and Seller's insurance primary for
all purposes despite any conflicting provisions in Seller's policy
to the contrary."
15.3 If Seller fails to comply with the provisions of this Section 15,
Seller shall, at its own cost, defend, indemnify, and hold harmless
Edison, its directors, officers, employees, agents, assigns, and
successors in interest from and against any and all loss, damage,
claim, cost, charge, or expense of any kind or nature (including
direct, indirect or consequential loss, damage, claim, cost,
charge, or expense, including attorney's fees and other costs of
litigation) resulting from the death or injury to any person or
damage to any property, including the personnel and property of
Edison, to the extent that Edison would have been protected had
Seller complied with all of the provisions of this Section 15.
16. UNCONTROLLABLE FORCES
16.1 Neither Party shall be considered to be in default in the
performance of any of the agreements contained in this Contract,
except for obligations to pay money, when and to the extent failure
of performance shall be caused by an Uncontrollable Force.
16.2 If either Party, because of an Uncontrollable Force, is
rendered wholly or partly unable to perform its
50
<PAGE>
obligations under this Contract, the Party shall be executed from
whatever performance is affected by the Uncontrollable Force to the
extent so affected provided that:
(1) The non-performing Party, within two weeks after
the occurrence of the Uncontrollable Force, gives
the other Party written notice describing the
particulars of the occurrence;
(2) The suspension of performance is of no greater
scope and of no longer duration than is required
by the Uncontrollable Force;
(3) The non-performing Party uses its best efforts to
remedy its inability to perform (this subsection
shall not require the settlement of any strike,
walkout, lockout or other labor dispute on terms
which, in the sole judgment of the party involved
in the dispute, are contrary to its interest. It
is understood and agreed that the settlement of
strikes, walkouts, lockouts or other labor
disputes shall be at the sole discretion of the
Party having the difficulty);
(4) When the non-performing Party is able to resume performance of
its obligations under this Contract, that Party shall give the
other Party written notice to that effect; and
51
<PAGE>
(5) Capacity payments during such periods of Uncontrollable
Force on Seller's part shall be governed by Section 8.1.2.3.
16.3 In the event that either Party's ability to perform cannot be
corrected when the Uncontrollable Force is caused by the actions or
inactions of legislative, judicial or regulatory agencies or other
proper authority, this Contract may be amended to comply with the
legal or regulatory change which caused the nonperformance.
If a loss of Qualifying Facility status occurs due to an
Uncontrollable Force and Seller fails to make the changes necessary
to maintain its Qualifying Facility status, the Seller shall
compensate Edison for any economic detriment incurred by Edison as a
result of such failure.
17. NONDEDICATION OF FACILITIES
Neither Party, by this Contract, dedicates any part of its facilities
involved in this Project to the public or to the service provided under
the Contract, and such service shall cease upon termination of the
Contract.
18. PRIORITY OF DOCUMENTS
If there is a conflict between this document and any Appendix, the
provisions of this document shall govern. Each Party shall notify the
other immediately upon the determination of the existence of any such
conflict.
52
<PAGE>
19. NOTICES AND CORRESPONDENCE
All notices and correspondence pertaining to this Contract shall be in
writing and shall be sufficient if delivered in person or sent by
certified mail, postage prepaid, return receipt requested, to Seller as
specified in Section 1.1, or to Edison as follows:
Southern California Edison Company
Post Office Box 800
Rosemead, California 91770
Attention: Secretary
All notices sent pursuant to this Section 19 shall be effective when
received, and each Party shall be entitled to specify as its proper
address any other address in the United States upon written notice to
the other Party.
20. PREVIOUS COMMUNICATIONS
This Contract contains the entire agreement and understanding between
the Parties, their agents, and employees as to the subject matter of
this contract, and merges and supersedes all prior agreements,
commitments, representations, and discussions between the Parties. No
Party shall be bound to any other obligations, conditions, or
representations with respect to the subject matter of this Contract.
21. THIRD PARTY BENEFICIARIES
This Contract is for the sole benefit of the Parties and shall not be
construed as granting any rights to any person or entity other than the
Parties or imposing obligations on either Party to any person or entity
other than the Parties.
53
<PAGE>
22. NONWAIVER
None of the provisions of the Contract shall be considered waived by
either Party except when such waiver is given in writing. The failure of
either Edison or Seller to insist in any one or more instances upon
strict performance of any of the provisions of the Contract or to take
advantage of any of its rights hereunder shall not be construed as a
waiver of any such provisions or the relinquishment of any such rights
for the future, but the same shall continue to remain in full force and
effect.
23. DISPUTES
23.1 Any dispute arising between the Parties relating to interpretation
of the provisions of this Contract or to performance of the Parties
hereunder, other than matters which may not be settled without the
consent of an involved insurance company, shall be reduced to
writing stating the complaint and proposed solution and submitted
to the appropriate Edison manager, whose interpretation and
decision thereon shall be incorporated into a written document
which shall specify Edison's position and that it is the final
decision of such manager. A copy of such document shall be
furnished to Seller within ten days following the receipt of
Seller's written complaint.
23.2 The decision of such manager pursuant to Section 23.1 shall be
final and conclusive from the date of receipt of such copy by the
complaining Party, unless within
54
<PAGE>
thirty days Seller furnishes a written appeal to such manager.
Following receipt of such appeal, a joint hearing shall be held
within fifteen days of said appeal, at which time the Parties shall
each be afforded an opportunity to present evidence in support of
their respective positions. Such joint hearing shall be conducted
by one authorized representative of Seller and one authorized
representative of Edison and other necessary persons. Pending final
decision of a dispute hereunder, the Parties shall proceed
diligently with the performance of their obligations under this
Contract and in accordance with Edison's position pursuant to
Section 23.1.
23.3 The final decision by the Parties' authorized representatives shall
be made within fifteen days after presentation of all evidence
affecting the dispute, and shall be reduced to writing. The
decision shall be final and conclusive.
23.4 If the authorized representatives cannot reach a final decision
within the fifteen-day period, any remedies which are provided by
law may be pursued.
24. SUCCESSORS AND ASSIGNS
Neither Party shall voluntarily assign its rights nor delegate its
duties under this Contract, or any part of such rights or duties,
without the written consent of the other Party, except in connection
with the sale or merger of a substantial portion of its properties. Any
such assignment
55
<PAGE>
or delegation made without such written consent shall be null and void.
Consent for assignment shall not be unreasonably withheld. Such
assignment shall include, unless otherwise specified therein, all of
Seller's rights to any refunds which might become due under the
Contract. Seller may assign all or any part of its interest under this
Contract to a financing institution to facilitate financing for the
Project by the Seller.
25. EFFECT OF SECTION HEADINGS
Section headings appearing in this Agreement are inserted for
convenience only, and shall not be construed as interpretations of text.
26. TRANSMISSION
26.1 Edison shall endeavor to make arrangements with third parties for
the necessary transmission of the electrical energy from the
Project to the Point of Interconnection. Seller shall be
responsible for all costs associated with such transmission of
electrical energy, including the cost of transmission losses from
the Project to the Point of Interconnection as determined by Edison
in its sole judgment.
26.2 If Edison is unable to secure firm transmission service or
equivalent arrangements from third parties which are required to
transmit the electrical energy from the Project to the Point of
Interconnection at terms and conditions satisfactory to Edison in
its sole judgment, then Edison shall not be liable to the Seller
for any
56
<PAGE>
damages arising from Edison's failure to secure said transmission
service or arrangements nor will Edison be required to purchase
Energy which is not delivered or capacity which is not made
available at the Point of Interconnection.
27. AMENDMENT
If at any time during the term of this Agreement a change in
circumstances not anticipated at the time this Agreement was executed
significantly alters the rights or obligations of either Party, the
terms of the Agreement which are directly affected by the change shall
be amended by mutual agreement of Parties.
28. GOVERNING LAW
This Contract shall be interpreted, governed, and construed under the
laws of the State of California as if executed and to be performed
wholly within the State of California.
29. CONFIDENTIALITY
29.1 Except as provided herein, the Parties shall hold all information
in this Contract and all information related to or received
pursuant to this Contract as confidential.
29.2 Neither Party shall disclose any part nor the whole of this
Contract to any third party without the express prior written
consent of the other Party; such consent shall not be unreasonably
withheld.
29.3 From time to time governmental and/or regulatory
agencies may request disclosure of the Contract or
57
<PAGE>
Contract-related information from either Party or both Parties and
if such is the case either Party or both Parties may consent to
such disclosure provided, that (i) the requestor(s) be notified by
the disclosing Party that the information being released is
confidential, and that (ii) the disclosing Party inform the other
Party, in writing, as to the nature of the information disclosed
and to whom disclosed.
58
<PAGE>
30. MULTIPLE ORIGINALS
This Contract is executed in two counterparts, each of which shall be
deemed an original.
SIGNATURES
IN WITNESS WHEREOF, the Parties hereto have executed this Contract this
15 of June, 1984.
SOUTHERN CALIFORNIA EDISON COMPANY
By: /s/ Edward A. Myers, Jr.
Vice President
MAGMA ELECTRIC CO.
By: /s/ Andrew W. Hoch
Vice President
59
<PAGE>
APPENDIX A
SOUTHERN CALIFORNIA EDISON COMPANY
LONG-TERM STANDARD OFFER
CAPACITY PAYMENT SCHEDULE-
FORECAST OF ANNUAL AS-AVAILABLE CAPACITY1
Line As-Available Capacity2
No. Year ($/kW-year)
- --------------------------------------------------------------------------
1 1983 70
2 1984 76
3 1985 81
4 1986 87
5 1987 94
6 1988 101
7 1989 109
8 1990 117
9 1991 126
10 1992 148
11 1993 158
12 1994 169
13 1995 180
14 1996 194
15 1997 206
- -------------------------
1 This forecast to be used in conjunction with Capacity Payment
Option A.
2 The annual as-available capacity ($/kW-yr) will be converted to a
seasonal time-of-delivery ((cent)/kWh) value that is consistent with
as-available time-of-delivery rates current authorized by the Commission
for Avoided As-Available Capacity.
A-1
<PAGE>
APPENDIX B
SOUTHERN CALIFORNIA EDISON COMPANY
LONG-TERM STANDARD OFFER
ENERGY PAYMENT SCHEDULE -
FORECAST OF ANNUAL MARGINAL COST OF ENERGY1
Line Annual Marginal Cost of
No. Year Energy ((cent)/kWh)
- -----------------------------------------------------------------------------
1 1983 5.3
2 1984 5.6
3 1985 5.7
4 1986 6.0
5 1987 6.4
6 1988 6.9
7 1989 7.6
8 1990 8.1
9 1991 8.6
10 1992 9.3
11 1993 10.1
12 1994 10.9
13 1995 11.8
14 1996 12.6
15 1997 13.6
1 This forecast to be used in conjunction with Energy Payment Option
1.
2 The annual energy payments in the table will be converted to seasonal
time-of-delivery energy-payment rates that are consistent with the
time-of-delivery rates currently authorized by the Commission for
Avoided Energy Cost Payments.
B-1
<PAGE>
APPENDIX C
SOUTHERN CALIFORNIA EDISON COMPANY
LONG-TERM STANDARD OFFER ENERGY PAYMENT SCHEDULE -
LEVELIZED FORECAST OF MARGINAL COST OF ENERGY1
5-Year
Initial Levelized Levelized
Line Year of Forecast Forecast
No. Delivery ((cent)/kWh) ((cent)/KWh)
- ------------------------------------------------------------------------
1 1983 5.7 6.5
2 1984 6.0 6.9
3 1985 6.4 7.3
4 1986 6.8 7.9
5 1987 7.3 8.5
6 1988 7.9 9.1
- ------------------------
1 Levelized Forecast to be used in conjunction with Energy
Payment Option 2.
2 The annual energy payments in the table will be converted to seasonal
time-of-delivery energy payment rates that are consistent with the
time-of-delivery rates currently authorized by the Commission for
Avoided Energy Cost Payments.
C-1
<PAGE>
AMENDMENT No. 1
TO
POWER PURCHASE CONTRACT
BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY
AND
MAGMA ELECTRIC COMPANY
<PAGE>
AMENDMENT NO. 1 TO
POWER PURCHASE CONTRACT BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY AND
MAGMA ELECTRIC COMPANY
1. Parties
The Parties to this Amendment No. 1 to the Power Purchase Contract
between Southern California Edison Company and Magma Electric Company,
executed on June 15, 1984, hereinafter referred to as "Amendment No. 1",
are Southern California Edison Company, a California corporation,
hereinafter referred to as "Edison", and Magma Electric Company, a
Nevada corporation, hereinafter referred to as "Seller", hereinafter
sometimes referred to individually as "Party" and collectively as
"Parties".
2. Recitals
This Amendment No. 1 is made with reference to the following
facts, among others:
2.1 On June 15, 1984, Edison and Seller executed the Power
Purchase Contract to provide the terms and conditions for the sale
by Seller and the purchase by Edison of electrical power delivered
by Seller to Edison at the Point of Interconnection from the 10,000
kW electrical generating facility, located at Niland, California.
2.2 The Parties desire to amend the Power Purchase Contract to modify
the rating of the Seller's generating facility and its expected
date of firm operation.
-1-
<PAGE>
3. Agreement
The Parties agree to the following.
4. Effective Date
This Amendment No. 1 shall become effective upon execution
by the Parties.
5. Amendment to Section 1.2
Subparagraph a. in Section 1.2 is deleted in its entirety
and replaced with the following:
"a. Nameplate Rating: 49,000 kW."
6. Amendment to Section 1.3
Section 1.3 is deleted in its entirety and replaced with the following:
"1.3 Contract Capacity: 45,000 kW
1.3.1 Estimated as-available capacity: 0 kW."
7. Amendment to Section 1.4
Section 1.4 is deleted in its entirety and replaced with the following:
"1.4 Expected Annual Production: 315,360,000 kWh."
8. Amendment to Section 1.5
Section 1.5 is deleted in its entirety and replaced with following:
"1.5 Expected Date of Firm Operation:
1.5.1 Phase No. 1 (Nameplate Rating: 12,500 kW):
December 1, 1986
1.5.2 Phase No. 2 (Nameplate Rating: 12,500 kW):
December 1, 1987
1.5.3 Phase No. 3 (Nameplate Rating: 12,500 kW):
April 1, 1988
-2-
<PAGE>
1.5.4 Phase No. 4 (Nameplate Rating: 12,500 kW):
December 1, 1988"
9. Amendment to Section 1.8
Subparagraph a. to Option B in Section 1.8 is deleted in its
entirety and replaced with the following:
"a. The estimated Contract Capacity Price based on the
estimated dates of Firm Operation (Firm Capacity) is:
a.1 Phase No. 1: $158 per kW-yr.
a.2 Phase No. 2: $170 per kW-yr.
a.3 Phase No. 3: $184 per kW-yr.
a.4 Phase No. 4: $184 per kW-yr.
10. Amendment to Section 3.1
The first sentence in Section 3.1 is deleted in its entirety and
replaced with the following: "The First Period of the Contract Term for
the project phases, as specified in Section 1.5, shall commence upon
date of Firm Operation of Phase No. 1 but not later than 5 years from
the date of execution of this Contract."
11. Effect of this Amendment No. 1
Except as amended herein, all terms, covenants and
conditions contained in the Power Purchase Contract shall
remain in full force and effect.
-3-
<PAGE>
12. Signature Clause
The signatories hereto represent that they have been
appropriately authorized to enter into this Amendment No. 1
on behalf of the Party for whom they sign. This Amendment
No. 1 is hereby executed as of this 30 day of November,
1984.
SOUTHERN CALIFORNIA EDISON COMPANY
By /s/ Edward A. Myers, Jr.
Vice President
MAGMA ELECTRIC COMPANY
By /s/ Andrew W. Hoch
Vice President
-4-
<PAGE>
AMENDMENT NO. 2
TO
POWER PURCHASE CONTRACT
BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY
AND
MAGMA ELECTRIC COMPANY
<PAGE>
AMENDMENT NO. 2 TO
POWER PURCHASE CONTRACT BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY AND
MAGMA ELECTRIC COMPANY
1. Parties
The Parties to this Amendment No. 2 to the Power Purchase Contract
between Southern California Edison Company and Magma Electric Company,
executed on June 15, 1984 ("Power Purchase Contract"), hereinafter
referred to as "Amendment No. 2", are Southern California Edison
Company, a California corporation, hereinafter referred to as "Edison",
and Magma Electric Company, a Nevada corporation, hereinafter referred
to as "Seller", hereinafter sometimes referred to individually as
"Party" and collectively as "Parties".
2. Recitals
This Amendment No. 2 is made with reference to the following
facts, among others:
2.1 On June 15, 1984, Edison and Seller executed the Power
Purchase Contract to provide the terms and conditions for the sale
by Seller and the purchase by Edison of electrical power delivered
by Seller to Edison at the Point of Interconnection from the 10,000
kW electrical generating facility located at Niland, California.
2.2 On November 30, 1984, Edison and Seller amended the Power Purchase
Contract to modify the (i) Nameplate rating, (ii) Contract Capacity
and Estimated as- available capacity, (iii) Expected Annual
Production,
-1-
<PAGE>
(iv) Expected Date of Firm Operation, (v) Estimated Contract
Capacity Price, and (vi) definition of the First Period of the
Contract Term as it applies in Section 3.1.
2.3 Seller is a wholly owned subsidiary of Magma Power
Company ("Magma").
2.4 On January 22, 1986, Magma acquired an option to purchase the
geothermal leaseholds described in and pursuant to the terms and
conditions contained in the Option to Acquire Adjacent Geothermal
Leasehold ("Option") among Magma, Imperial Energy Corporation,
Niland Power, Inc., and Salton Sea Associates.
2.5 On January 22, 1986, in conjunction with the Option,
Imperial Energy Corporation assigned to Magma its
rights, title and interest in the Power Purchase
Contract between Edison and Imperial Energy
Corporation, dated February 22, 1984, and amended on
November 13, 1984 ("Imperial I Contract"). Edison
consented to such assignment on March 12, 1986.
2.6 On January 22, 1986, in conjunction with the option,
Niland Power, Inc., assigned to Magma its rights,
title, and interest in the Power Purchase Contract
between Edison and Imperial Energy Corporation, dated
April 16, 1985, which it acquired from Imperial Energy
Corporation on September 9, 1985 ("Imperial II
Contract"). Edison consented to said assignment on
March 12, 1986.
-2-
<PAGE>
2.7 On February 10, 1986, Vulcan/BN Geothermal Power Company, of
which Vulcan Power Company, a wholly owned subsidiary of Magma and
an affiliate of Seller, is a partner, declared its 29,500 kW
geothermal project at Niland in firm operation. Based on the
successful development of its first project at Niland, Magma has
concluded that its succeeding projects should be duplicates of that
project.
2.8 On March 14, 1986, Imperial Energy Corporation, Niland Power, Inc.,
and Salton Sea Associates assigned to Magma their rights, title and
interest in those geothermal leaseholds described in and pursuant
to the terms and conditions contained in the Option.
2.9 The aforementioned Power Purchase Contracts provide for projects
which will all be constructed and operated on contiguous sites.
2.10 Concurrent with this Amendment No. 2, Edison and Magma have agreed
to amend the Imperial I Contract and Imperial II Contract to
effectively transfer Capacity to be purchased by Edison from the
Power Purchase Contract and from Imperial II Contract to Imperial I
Contract to account for the decrease in Capacity to be produced
under the Power Purchase Contract.
2.11 Seller, based on the aforementioned facts, desires to amend the
Power Purchase Contract to reflect a change in the rating of the
Seller's Generating Facility.
3. Agreement
The Parties agree to the following.
-3-
<PAGE>
4. Effective Date
This Amendment No. 2 shall become effective upon execution
by the Parties.
5. Amendment to Section 1.2
5.1 Subparagraph a. in Section 1.2 is deleted in its
entirety and replaced with the following:
"a. Nameplate Rating: 38,000 kW."
5.2 Add the following subparagraph "d."
"d. Generating Facility Designation: Niland No. 3."
6. Amendment to Section 1.3
Section 1.3 is deleted in its entirety and replaced with the following:
"1.3 Contract Capacity: 34,000 kW.
1.3.1 Estimated as-available capacity: 4,000 kW."
7. Amendment to Section 1.4
Section 1.4 is deleted in its entirety and replaced with the following:
"1.4 Expected Annual Production: 238,272,000 kWh."
8. Amendment to Section 1.5
Section 1.5 is deleted in its entirety and replaced with the following:
"l.5 Expected Date of Firm Operation: June 1, 1989."
9. Amendment to Section 1.8
Subparagraph a. to Option B in Section 1.8 is deleted in its
entirety.
-4-
<PAGE>
10. Amendment to Section 3.1
The first sentence in Section 3.1 is deleted in its entirety and
replaced with the following:
"The First Period of the Contract Term shall commence upon date of
Firm Operation but not later than 5 years from the date of
execution of this Contract."
11. Amendment to Section 26
Section 26 is deleted in its entirety and replaced with the following:
"Seller shall be solely responsible, using all reasonable efforts,
to negotiate and conclude all required transmission and
interconnection agreements with the Interconnecting Utility. Such
agreements shall provide for the transmission of electrical energy
generated by the Generating Facility to the Point of
Interconnection."
12. Effect of this Amendment No. 2
Except as amended herein, all terms, covenants and
conditions contained in the Power Purchase Contract shall
remain in full force and effect.
-5-
<PAGE>
13. Signature Clause
The signatories hereto represent that they have been
appropriately authorized to enter into this Amendment No. 2
on the behalf of the Party for whom they sign. This
Amendment No. 2 is hereby executed as of this 10 day of
April, 1985.
SOUTHERN CALIFORNIA EDISON COMPANY
By /s/ EDWARD A. MYERS, JR.
Vice President
MAGMA ELECTRIC COMPANY
By /s/ ANDREW W. HOCH
Vice President
-6-
EXHIBIT 10.32
TRANSMISSION SERVICE AGREEMENT
FOR THE
ELMORE POWER PLANT
BETWEEN
IMPERIAL IRRIGATION DISTRICT
AND
ELMORE, LTD.
EXECUTION
COPY
<PAGE>
TABLE OF CONTENTS
Section Title Page
- ------- ----- ----
1 PARTIES...........................................................1
2 RECITALS..........................................................1
3 AGREEMENT.........................................................1
4 DEFINITIONS.......................................................1
5 TERM..............................................................4
6 TRANSMISSION SERVICE..............................................4
7 TRANSMISSION LOSSES..............................................10
8 CHARGES..........................................................11
9 BILLING AND PAYMENT..............................................12
10 LIABILITY........................................................14
11 AUDITING.........................................................16
12 AUTHORIZED REPRESENTATIVES.......................................17
13 NO DEDICATION OF FACILITIES......................................17
14 NON-WAIVER.......................................................17
15 NO THIRD PARTY RIGHTS............................................18
16 UNCONTROLLABLE FORCES............................................18
17 ASSIGNMENTS......................................................19
18 GOVERNING LAW....................................................20
19 NOTICES..........................................................20
20 SIGNATURE CLAUSE.................................................21
EXHIBIT I - DEVELOPMENTS AND METHODOLOGIES FOR TRANSMISSION SERVICE CHARGES
AND SCHEDULING FEE
EXHIBIT II - TRANSMISSION SERVICE FOR ELMORE, LTD.
i
<PAGE>
1. PARTIES: The Parties to this Agreement are Imperial Irrigation District,
organized under the Water Code of the State of California ("IID"), and Elmore,
Ltd. ("Producer"), hereinafter sometimes referred to individually as "Party,"
and collectively as "Parties."
2. RECITALS: This Agreement is made with reference to the following facts,
among others:
2.1 Producer has caused to be constructed or intends to construct an
alternative energy resource facility located in IID's service area.
2.2 Producer and IID have entered into a Plant Connection Agreement.
2.3 Producer desires to purchase, and IID desires to sell firm transmission
service of power from the Plant to Edison's Mirage Substation subject to the
terms and conditions specified herein.
2.4 Producer and IID are parties to that certain Funding and Construction
Agreement dated June 29, 1987, providing for the funding and construction of
transmission lines within IID's service area.
3. AGREEMENT: The Parties agree as follows:
4. DEFINITIONS: The following terms, when used herein with initial
capitalization, whether in the singular or plural, shall have the meanings
specified:
4.1 Agreement: This IID - Producer Transmission Service
Agreement for Alternative Resources between Elmore, Ltd. and IID,
and all Exhibits attached hereto, as such Agreement may
<PAGE>
subsequently be amended for firm transmission service between each Plant and
Edison's Mirage Substation.
4.2 Authorized Representative: The representative of a party designated in
accordance with Section 12.
4.3 Date of Initial Service: The date when the output from each Plant is
first available for delivery to Edison, as notified to IID pursuant to Section
5.2.
4.4 Edison: Southern California Edison Company.
4.5 Funding and Construction Agreement: An agreement entered into by IID
and others dated June 29, 1987, providing for the funding and construction of
the Heber-Mirage Transmission Project, to which a form of this agreement is
attached as Exhibit III.
4.6 Maximum Transmission Service Entitlement: The Maximum Transmission
Service Entitlement for each Plant, as specified in Exhibit[s] II,
Transmission Service, and in any subsequent Plant Amendments.
4.7 Normal Transmission Capacity: The maximum transfer capability,
expressed in megawatts (MW), from the Point of Receipt to the Point of
Delivery. Such transfer capability, as determined by IID, in its sole
judgment, shall be consistent with prudent operating procedures and with
generally-accepted engineering and operating practices in the electrical
utility industry.
4.8 Operating Transmission Capability: The maximum transfer capability,
expressed in megawatts (MW), available to IID at any given time to transmit
power from Point of Receipt to
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Point of Delivery. Such transfer capability shall be as determined by IID in
its sole judgment, may vary from time-to-time depending on system conditions,
and shall be consistent with prudent operating procedures and
generally-accepted engineering and operating practices in the electrical
utility industry.
4.9 Plant: An electrical generating alternative energy resource facility
developed by Producer for which IID shall provide transmission service, as
specified in Exhibit(s) II, Transmission Service, and in any subsequent Plant
Amendments.
4.10 Plant Amendment: An agreement reached by the Parties, as an amendment
to this Agreement, for transmission service to be provided by IID for a Plant
added by Producer or for Producer's account subsequent to the execution of
this Agreement.
4.11 Plant Connection Agreement: An agreement between IID and Producer
providing for the connection of a Plant to IID's electrical system, as
specified in Exhibit[s] II, Transmission Service, and in any subsequent Plant
Amendments.
4.12 Point(s) of Delivery: The 230-kV switchrack at the Mirage Substation
site where Edison's 230-kV facilities are attached to IID's 230-kV
Coachella-Mirage Line or other points as may be mutually agreed upon by the
Authorized Representatives.
4.13 Point of Receipt: The point on the high voltage side of the Plant's
transformer where IID's metering equipment measures the delivery of energy to
the IID system.
4.14 Transmission Service Entitlement: The amount of transmission service,
expressed in megawatts (MW), provided by
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IID for each Plant, from the applicable Point of Receipt to the applicable
Point(s) of Delivery.
5. TERM:
5.1 Unless otherwise agreed to by the Parties, this Agreement shall be
effective on the Completion Date for the transmission lines being constructed
pursuant to the Funding and Construction Agreement, as the term Completion
Date is defined in Article I thereof, and shall remain in effect until April
15, 2015. It is understood that if such Completion Date does not occur, this
Agreement shall be of no force or effect.
5.2 The Transmission Service Entitlement to be provided by IID for each
Plant shall be contingent on a Plant Connection Agreement being in effect.
Transmission service for each Plant shall commence an the Date of Initial
Service of such Plant. Producer's Authorized Representative shall give IID's
Authorized Representative written notice of the Date of Initial Service at
least thirty (30) days before the Date of Initial Service.
6. TRANSMISSION SERVICE:
6.1 Subject to the terms of this Agreement, IID shall provide to Producer
and Producer shall purchase from IID transmission service over IID's
transmission system for each Plant. IID shall make arrangements with Edison to
provide, at Producer's or Edison's expense, for the transfer of the electrical
power to be delivered to Edison hereunder from IID's transmission system to
Edison's transmission system at the Point(s) of Delivery.
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6.2 The Transmission Service Entitlement for each Plant shall be the
Maximum Transmission Service Entitlement for such Plant specified in
Exhibit[s] II, Transmission Service, or any subsequent Plant Amendments, or
such lesser amount as may be established as follows. Beginning on the Date of
Initial Service for each Plant, Producer shall be entitled to specify a
Transmission Service Entitlement by advance written notice given to IID's
Authorized Representative at least thirty (30) days prior to the Date of
Initial Service. The Transmission Service Entitlement to be provided by IID
subsequent to the Date of Initial Service may be adjusted at six (6) month
intervals thereafter until two (2) years after the Date of Initial Service for
such Plant (the "Trial Period"). Such adjustments shall be made by having
Producer's Authorized Representative give IID's Authorized Representative a
ninety (90) day advance written notice as to the adjustment required.
Beginning two (2) years after the Date of Initial Service for such Plant,
Producer shall be entitled to specify a Transmission Service Entitlement for
each successive two-year period during the remaining term of this Agreement by
written notice from Producer's Authorized Representative to IID's Authorized
Representative given at least ninety (90) days prior to the beginning of each
two-year period.
6.3 The Transmission Service Entitlement selected by Producer for each
Plant in accordance with Section 6.2 may be any amount which is less than or
equal to the Maximum Transmission Service Entitlement for such Plant specified
in Exhibit[s] II, Transmission Service and in any subsequent Plant Amendments,
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<PAGE>
provided, however, that the following shall apply to each Plant after the
Trial Period for such Plant has elapsed.
6.3.l If (i) the sum of the Transmission Service Entitlements for all
Plants which are no longer in their Trial Periods is less than the sum of the
Maximum Transmission Service Entitlements for such Plants, as shown in
Exhibit[s] II, Transmission Service and in any subsequent Plant Amendments,
(the "Aggregate Maximum Transmission Service Entitlement"), and (ii) provided
that IID requires additional capacity for transmitting electric power to
Edison's transmission system for another person (or, following the Credit
Installment Period as defined in the Funding and Construction Agreement, for
itself) and (iii) IID's use of such required capacity would be in conflict
with Producer's right as provided herein to increase the sum of the
Transmission Service Entitlements for such Plants to the Aggregate Maximum
Transmission Service Entitlement, then IID shall so notify Producer in
writing, specifying in such notice the portion, expressed in megawatts (MW),
of the excess of the Maximum Transmission Service Entitlement over the
Transmission Service Entitlement for each such Plant which it desires to use
as stated above. Producer shall have ninety (90) days after receipt of IID's
notice to notify IID in writing that it desires to increase the Transmission
Service Entitlements of such Plants. To the extent that Producer does not
elect to increase the Transmission Service Entitlement of each such Plant up
to the Maximum Transmission Service Entitlement for such Plant, IID shall be
entitled to use such unclaimed capacity to satisfy the
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transmission requirements specified in its notice to Producer, and to the
extent that IID does so, Producer shall thereafter be foreclosed from
increasing the Transmission Service Entitlement for such Plant in a manner
which would conflict with such usage by IID.
6.3.2 IID shall treat Producer and each other person who has entered
into a transmission service agreement similar in substance to this Agreement
in a fair and nondiscriminatory manner in requesting additional transmission
capacity as provided in this Section 6.3. Without limiting the generality of
the foregoing, IID shall request additional transmission capacity from
Producer and such other persons on a pro rata basis, in proportion to the
Aggregate Maximum Transmission Service Entitlement for each person less the
sum of the Transmission Service Entitlements for each of such persons'
generating plants which is no longer in a Trial Period.
6.4 In the event that the Original Capacity Nomination designated by
Producer (or the Participant associated with Producer) is adjusted pursuant to
Section 3.07 of the Funding and Construction Agreement, the Parties agree to
amend this Agreement in such a way that the sum of the Maximum Transmission
Service Entitlements for all Plants hereunder is equal to such Original
Capacity Nomination as so adjusted. As used in this Section 6.4, the terms
Original Capacity Nomination and Participant shall have the meanings assigned
to them in Article I of the Funding and Construction Agreement.
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6.5 IID reserves the right to interrupt or curtail the transmission service
provided hereunder as follows:
6.5.1 If the Operating Transmission Capability is reduced to
less than Normal Transmission Capacity from a Point of Receipt to a Point of
Delivery, and when continuity of service within IID's service area is not
being jeopardized, IID may curtail the transmission service currently being
provided from such Point of Receipt to such Point of Delivery, to an amount
"A" determined by the following formula:
A = Operating Transmission Capability x Transmission Service Entitlement
---------------------------------
Normal Transmission Capacity
The transmission service for each Plant affected shall be curtailed by
multiplying the Transmission Service Entitlement in accordance with Exhibit[s]
II, Transmission Service and in any subsequent Plant Amendments by the same
percentage (expressed as a decimal) as used in the determination of "A."
However, any such curtailment shall occur only after IID has made all
reasonable efforts to eliminate the cause of the reduction in Operating
Transmission Capability, and IID shall then employ reasonable efforts to
eliminate expeditiously the cause of said reduction.
6.5.2 If continuity of service within IID's control area is being
jeopardized, as determined by IID in its sole judgment, IID may interrupt or
curtail the transmission service provided hereunder to the extent necessary to
avoid or eliminate such jeopardy; provided that (i) such interruptions or cur
tailments may be made so that IID may fully utilize all generating resources
owned by it or available to it under
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contract in order to avoid damage to IID's electrical system caused by
overloading, (ii) such interruption or curtailment shall occur only after IID
has made all reasonable efforts to avoid or eliminate such jeopardy and (iii)
to the extent feasible any curtailment of transmission service provided
hereunder from a Point of Receipt to a Point of Delivery shall be made in
accordance with the formula set forth in Section 6.5.1.
6.6 If IID's efforts do not avoid or eliminate such jeopardy, the
Parties shall endeavor to develop some other arrangement to avoid or eliminate
such jeopardy and minimize the effects of IID's interruption or curtailment on
both parties.
6.7 In the event of any curtailments or interruptions made pursuant to
Section 6.5.1 or Section 6.5.2, Producer shall, immediately after being orally
notified by IID, reduce the electrical output of the Plants by the amounts
requested by IID.
6.8 The transmission service to be provided by IID and purchased by
Producer for each Plant shall not exceed the Transmission Service Entitlement
for that Plant.
6.9 Subject to Section 6.5, IID shall, during the periods that IID has
agreed to provide the transmission service at the specified Transmission
Service Entitlements, accept hourly scheduled energy deliveries at each Point
of Receipt and simultaneously deliver the same amount of energy (less
transmission losses as provided herein) at the Point(s) of Delivery mutually
agreed upon by the Parties' dispatchers and/or schedulers.
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6.10 Hourly scheduled energy deliveries at each Point of Receipt shall
conform with the practices and procedures developed by the Parties'
dispatchers and schedulers and agreed to by the Authorized Representatives.
7. TRANSMISSION LOSSES:
7.1 IID shall determine, by transmission power flow analysis, the
electrical losses (expressed as a percent amount of hourly scheduled energy
deliveries) associated with the electrical output from each Plant. Such
analysis shall be performed by IID at its sole expense. The initial percent
amount, for each Plant, representing the electrical losses as determined
herein shall be as specified in Exhibit[s] II, Transmission Service and in any
subsequent Plant Amendments.
7.2 Unless otherwise agreed to by Producer's and IID's schedulers and
dispatchers, IID shall reduce the amount of all hourly scheduled energy
deliveries for Producer or Producer's account by the percent amount of such
hourly deliveries for each Plant in accordance with Exhibit[s] II,
Transmission Service and in any subsequent Plant Amendments.
7.3 If either Party believes that there has been a significant change in
IID's electrical system and the electrical losses associated with any Plant
should be redetermined, either Party's Authorized Representative may submit a
written request to the other Party's Authorized Representative that the
electrical losses be redetermined. Following such request, a transmission flow
analysis shall be performed by IID as approved by the Authorized
Representatives and paid for by the requesting Party.
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Whenever the percent amount for electrical losses is redetermined, such
percent amount shall become effective as of the first day of the month
following the date of such redeter mination; provided, that such a
redetermination may be no sooner than twelve (12) months after the most recent
redetermination. Any redetermination of electrical losses made pursuant to
this Section 7 shall be based on conditions in existence at the time of such
redetermination.
7.4 Along with the monthly billing pursuant to Section 9.1, for the
transmission service for each Plant, IID shall submit a monthly summary of
hourly scheduled energy deliveries and of electrical losses for each Plant.
8. CHARGES:
8.1 For transmission service provided by IID, Producer shall pay IID at a
rate to be determined by IID pursuant to the methodologies specified in
Exhibit I.A. The initial rate is specified in Exhibit[s] II, Transmission
Service and revisions thereto will be specified in any subsequent Plant
Amendments. Any specific facility charge to Producer for connecting the
Plant(s) to the IID transmission system shall be included only in the Plant
Connection Agreement(s) between IID and Producer.
8.2 The transmission rate shall be reviewed annually and may be revised.
Any revision of the rates shall be based on the methodologies in Exhibit I.A
and on the conditions in existence at the time of the revision. Producer shall
have the right to review any exhibits or work papers prepared by IID to revise
the rates.
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8.3 An initial monthly scheduling fee, as specified in Exhibit[s] II,
Transmission Service and revisions thereto specified in any subsequent Plant
Amendments, shall be paid by Producer to IID for those months in which there
were scheduled energy deliveries from the Plant(s). The initial scheduling fee
has been determined by IID pursuant to the methodology specified in Exhibit
I.B. The scheduling fee shall be reviewed annually and may be revised. Any
revision of the scheduling fee shall be based on the methodology in Exhibit
I.B and on the conditions in existence at the time of the revision. Producer
shall have the right to review any exhibits or work papers prepared by IID to
revise the scheduling fee.
9. BILLING AND PAYMENT:
9.1 IID shall render bills to Producer, beginning in the month of the Date
of Initial Service, on or before the fifteenth (15th) day of each month for
the transmission service to be provided during the month. Producer shall pay
such bills within twenty (20) days after receipt thereof.
All payments by Producer shall be sent to:
Imperial Irrigation District
c/o Manager, Finance and Accounting
P.O. Box 937
Imperial, California 92251
All billings by IID shall be sent to:
Elmore, Ltd.
7029 Gentry Road
Calipatria, California 92233
9.2 Either Party's Authorized Representative may at any time, by advance
written notice to the other Party's Authorized
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Representative, change the address to which payments or billings shall be
sent.
9.3 Bills which are not paid in full by said due date shall thereafter bear
an additional charge of one and one-half percent (1-1/2%) per month, or the
maximum legal rate of interest, whichever is less, compounded monthly on the
unpaid amount prorated by days from the due date until payment is received by
IID.
9.4 In the event any portion of any bill is disputed, the disputed amount
shall be paid when due under protest. If the protested portion of the payment
is found to be incorrect by the Authorized Representatives, the disputed
amount shall be paid by IID to Producer, including interest at the rate of
1-1/2% per month, or the maximum legal rate, whichever is less, compounded
monthly from the date of payment by Producer to the date the refund check or
adjusted bill is received by Producer.
9.5 For a fractional part of a calendar month at the beginning or end of
the period for which the transmission service is provided hereunder, the
charge pursuant to Section 8.1 shall be proportionately adjusted by the ratio
of days that service is furnished by IID to Producer during such month to the
total number of days in such month.
9.6 The charge for the transmission service pursuant to Section 8.1 shall
be proportionately reduced to the extent the duration of the interruptions or
curtailments of the transmission service which may occur pursuant to Section
6.5.1 or Section 6.5.2 exceed a cumulative total of twenty-four (24) hours
during
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any calendar month based on 730 hours per month representing the full
transmission service charge. The amount of such pro rata reduction in any
month shall reflect the duration and amount of such interruptions or
curtailments which exceed said cumulative 24 hours. Such pro rata reduction
shall be reflected as a credit to Producer as soon as possible in a subsequent
monthly bill.
9.7 The charge for the transmission service shall not be reduced if IID can
deliver, but Edison's transmission system cannot receive, the hourly scheduled
energy deliveries independent of the duration of time this condition exists.
10. LIABILITY:
10.1 Except for any loss, damage, claim, costs, charge or expense resulting
from Willful Action, neither Party (the "released Party"), its directors or
other governing body, officers or employees shall be liable to the other Party
for any loss, damage, claim, cost, charge, or expense of any kind or nature
incurred by the other Party (including direct,, indirect or consequential
loss, damage, claim, cost, charge or expense; and whether or not resulting
from the negligence of a Party, its directors or other governing body,
officers, employees or any person or entity whose negligence would be imputed
to a Party) from engineering, repair, supervision, inspection, testing,
protection, operation, maintenance, replacement, reconstruction, use or
ownership of the released Party's electrical system, Plant(s) or associated
facilities in connection with the implementation of this Agreement. Except for
any loss, damage, claim, cost, charge or expense resulting from Willful
Action,
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<PAGE>
each Party releases the other Party, its directors or other governing body,
officers and employees from any such liability.
10.2 For the purpose of this Section 10, Willful Action shall be defined as
action taken or not taken by a Party at the direction of its directors or
other governing body, officers or employees having management or
administrative responsibility affecting its performance under this Agreement,
as follows:
10.2.1 Action which is knowingly or intentionally taken or not taken
with conscious indifference to the consequences thereof or with intent that
injury or damage would result or would probably result therefrom.
10.2.2 Action which has been determined by final arbitration award or
final judgment or judicial decree to be a material default under this
Agreement and which occurs or continues beyond the time specified in such
arbitration award or judgment or judicial decree for curing such default or,
if no time to cure is specified therein, occurs or continues thereafter beyond
a reasonable time to cure such default.
10.2.3 Action which is knowingly or intentionally taken or not taken
with the knowledge that such action taken or not taken is a material default
under this Agreement.
10.3 Willful Action does not include any act or failure to act which is
merely involuntary, accidental or negligent.
10.4 The phrase "employees having management or administrative
responsibility," as used in Section 10.2, means the employees of a Party who
are responsible for one or more of the executive functions of planning,
organizing, coordinating,
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directing, controlling and supervising such Party's performance under this
Agreement with responsibility for results.
10.5 Subject to the foregoing provisions of this Section 10, each Party
agrees to defend, indemnify and save harmless the other Party, its officers,
agents, or employees against all losses, claims, demands, costs or expenses
for loss of or damage to property, or injury or death of persons, which
directly or indirectly arise out of the indemnifying Party's performance pur
suant to this Agreement; provided, however, that a Party shall be solely
responsible for any such losses, claims, demands, costs or expenses which
result from its sole negligence or Willful Action. 11. AUDITING:
11.1 IID shall make its books, records, and other supporting information,
as requested, available to Producer or to Producer's designated contracted
representative(s) with a CPA firm, for the purpose of auditing any charges or
accounts to be kept by IID hereunder. All such audits shall be undertaken at
reasonable times and in conformance with generally-accepted auditing stan
dards.
11.2 If as a result of such audits Producer believes its charges or
accounts should be adjusted, the findings shall be presented to the Authorized
Representatives. If the Authorized Representatives agree that any audit
finding should result in a revision of charges or accounts, such revisions
shall be retroactive to the first billing for such charges and accounts and
shall be made as soon as practical after determination.
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11.3 The amount of any unresolved dispute shall accrue interest at the rate
of one and one-half percent (1-1/2%) per month, or the maximum legal rate,
whichever is less, compounded monthly for any amount of money ultimately
refunded to Producer.
12. AUTHORIZED REPRESENTATIVES: Within thirty (30) calendar days after the
Completion Date, as defined in Article I of the Funding and Construction
Agreement, each Party shall designate by written notice to the other Party a
representative who is authorized to act on its behalf in the implementation of
this Agreement. Either Party may at any time change the designation of its
Authorized Representative by written notice to the other Party.
13. NO DEDICATION OF FACILITIES: Any undertaking by one Party to the other
Party under any provision of this Agreement shall not constitute the
dedication of the system or any portion thereof of the Party to the public or
to the other Party, and it is understood and agreed that any such undertaking
under any provision of this Agreement by a Party shall cease upon the
termination of its obligations hereunder.
14. NON-WAIVER: None of the provisions of this Agreement shall be considered
waived by either Party except when such waiver is given in writing. The
failure of either Party to insist in any one or more instances upon strict
performance of any of the provisions of this Agreement or to take advantage of
any of its rights hereunder shall not be construed as a waiver of any such
provisions or the relinquishment of any such rights for the
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future, but the same shall continue and remain in full force and effect.
15. NO THIRD PARTY RIGHTS: The Parties do not intend to create rights in or to
grant remedies to any Third Party or others as a beneficiary of this Agreement
or of any duty, covenant, obligation or undertaking established hereunder.
16. UNCONTROLLABLE FORCES: Neither Party shall be considered to be in default
in the performance of any of its obligations under this Agreement when a
failure of performance shall be due to an uncontrollable force. The term
"uncontrollable force" shall mean any cause beyond the control of the Party
affected including, but not restricted to, failure of or threat of failure of
facilities which have been maintained in accordance with generally-accepted
engineering and operating practices in the electrical utility industry, flood,
drought, earthquake, tornado, storm, fire, pestilence, lightning and other
natural catastrophes, epidemic, war, riot, civil disturbance or disobedience,
strike, labor dispute, labor or material shortage, sabotage, government
priorities and restraint by court order or public authority (whether valid or
invalid) and actions or nonaction by or inability to obtain or keep the
necessary authorizations or approvals from any governmental agency or
authority, the failure or inablility of Edison to receive the electric power
to be transmitted hereunder at the Point(s) of Delivery, which by exercise of
due diligence such Party could not reasonably have been expected to avoid and
which by exercise of due diligence it has been unable to overcome. Nothing
contained herein shall be
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construed as to require a Party to settle any strike or labor dispute in which
it may be involved. Either Party rendered unable to fulfill any of its
obligations under this Agreement by reason of an uncontrollable force shall
give prompt written notice of such fact to the other Party and shall exercise
due diligence to remove such inability with all reasonable dispatch.
17. ASSIGNMENTS:
17.1 Any assignment by Producer of its interest in this Agreement which is
made without the written consent of IID (which shall not be unreasonably
withheld) shall not relieve Producer from its primary liability for any of its
duties and obligations hereunder, and in the event of any such assignment
Producer shall continue to remain primarily liable for payment of any and all
money due IID hereunder and for the performance and observance of all other
covenants, duties and obligations to be performed and observed hereunder by it
to the same extent as though no assignment has been made.
17.2 Notwithstanding any provision of Section 17.1 to the contrary, prior
to the end of the Credit Installment Period, as defined in Article I of the
Funding and Construction Agreement, Producer's right to transmission service
under this Agreement with respect to one or more of the Plants may be assigned
only (i) to a purchaser or co-owner of such Plants or to a person who will
operate such Plants pursuant to a contract or other arrangement with such
purchaser and in either case only with the prior written consent of IID (which
shall not be unreasonably withheld) or (ii) for security purposes, to a bank
or other
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entity which provides financing for such Plants or any electrical transmission
facilities associated therewith. Producer and IID agree that nothing in this
Section 17.2 may be amended, modified or waived without the prior written
consent of each and every party to the Funding and Construction Agreement
(except for any parties in default thereunder).
17.3 Whenever an assignment of Producer's interest in this Agreement is
made with the written consent of IID, Producer's assignee shall expressly
assume in writing the duties and obligations hereunder of Producer and, within
thirty (30) days after any such assignment and assumption of duties and obli
gations, Producer shall furnish or cause to be furnished to IID a true and
correct copy of such assignment and assumption of duties and obligations.
17.4 Subject to the foregoing restrictions on assignments, all of the terms
of this Agreement shall be binding upon and inure to the benefit of both of
the Parties and their respective successors, permitted assigns and legal
representatives.
18. GOVERNING LAW: This Agreement shall be interpreted, governed by and
construed under the laws of the State of California or the laws of the United
States, as applicable.
19. NOTICES: Any notice, demand or request provided for in this Agreement, or
served, given or made in connection with it, shall be in writing and shall be
deemed properly served, given or made if delivered in person or sent by United
States mail, postage prepaid, to the persons specified below unless otherwise
provided for in this Agreement:
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Imperial Irrigation District
c/o General Manager
P.O. Box 937
Imperial, California 92251
Elmore, Ltd.
7029 Gentry Road
Calipatria, California 92233
Either Party may at any time, by notice to the other Party, change
the designation or address of the person so specified as the one to receive
notices pursuant to this Agreement.
20. SIGNATURE CLAUSE: The signatories hereto represent that they have been
appropriately authorized to enter into this IID- Elmore Power Plant
Transmission Service Agreement for Alternative Resources (Standard Form) on
behalf of the Party for whom they signed. This Agreement is hereby executed as
of the 2nd day of August, 1988.
IMPERIAL IRRIGATION DISTRICT
By: /s/ Tony Gallego
-----------------------------
President, Board of Directors
ELMORE, LTD., a California
Limited Partnership
By: Red Hill Geothermal, Inc.
------------------------------
a General Partner
By: /s/ Jon R. Peele
-------------------------------
Vice President
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EXHIBIT I.A
DEVELOPMENT AND METHODOLOGY FOR THE
TRANSMISSION SERVICE CHARGE
IID's transmission service charge shall be recalculated during the month of
April of each year, using the methodology summarized in this Exhibit. The
recalculated transmission service charge shall be effective on June 1 of the
year of recalculation.
EI.A-1 Plant Investment
TAI= WP + PA - TR + GP + M&S
where
TAI= Total adjusted investment at the time of
calculation.
WP = Estimate of weighted Transmission Plant Cost
($40,980,291) as December 31, 1983 calculated using the
following formula:
WP= (0.7 x OC) + (0.3 x RCN); where
OC= Cumulative original cost of Transmission Plant
as shown in IID's accounting records, obtained
by summing the actual cost of all yearly
additions to Transmission Plant from 1938 to
the end of 1983, (i.e., $20,700,415).
RCN= Estimate of the cumulative reproduction cost to
build the Transmission Plant items identified
in OC in 1983 dollars. Calculated by summing
the escalated cost of each yearly addition to
Transmission Plant starting in 1938 up to the
end of calendar year 1983 using the Handy-
Whitman Index for Total Transmission Plant for
the Pacific Region, (i.e., $88,300,000).
PA = Cumulative sum of additions to Transmission Plant
from January 1, 1984 to the end of the year
preceding the year of calculation. Thus, if the
calculation takes place in 1996, PA is sum of
Transmission Plant additions at actual cost from
January 1, 1984 to December 31, 1995.
PA = Sum of [TPA(I) + OA(i)]
where TPA(i)= Annual additions to Transmission
Plant for each year associated with the
Transmission Project, as defined in
Section 7.05 of the Funding and
Construction Agreement. TPA(i) is
calculated for each year from Completion
Date of Transmission Project to end of
year preceding year of calculation.
EIA-1
<PAGE>
OA(i)= Other annual additions
to Transmission Plant by IID
each year. OA(i) is
calculated for each year from
January 1, 1984 to end of
year preceding year of
calculation.
TR = Sum of (i) and (ii) where:
(i) = For facilities placed in service prior to
1984, the cumulative sum of the annual
Weighted Retirement Costs (WRC) for retire
ments from Transmission Plant from January 1,
1984 to the end of the year preceding the
year of calculation. Thus, if the calculation
takes place in 1996, TR is comprised of the
sum of annual Transmission Plant retirements
from January 1, 1984 to December 31, 1995
with each year's original cost adjusted to
account for the weighted cost of retirement.
where WRC = Weighted Retirement Cost for
transmission retired in a given
year.
OCI = Original cost of
transmission facilities
retired in a given year.
WRC = 70%*OCI + 30%*OCI*RCN/OC
(ii) = Cumulative sum of original cost of annual
transmission retirements for facilities placed
in service after January 1, 1984.
GP = General plant investment as shown in IID's
accounting records, as of the year preceding
the year of calculation, allocated to.
transmission use by the ratio of total
allocated transmission O&M cost to the sum of
production O&M cost excluding fuel,
distribution O&M cost, transmission O&M cost,
dispatching cost, and customer accounting and
services costs.
M&S = Materials and supplies inventory held by
IID as of the year preceding the year of
calculation, allocated to transmission use by
the ratio of Transmission Plant Original Cost
to Total Electric Plant original cost as
reflected in IID's accounting records for the
year preceding the year of calculation.
EI.A-2 Annual Cost
TAC= (1.25 x CRF x TAI) + OM + A&G
where
TAC= Total Annual Cost.
CRF= Annual capital recovery factor calculated for a 33- year
amortization using the average interest rate for the year
preceding the year of calculation from the
EIA-2
<PAGE>
"Merrill Lynch 500 Municipal Bond Index Electric-
Retail."
OM = Total allocated transmission O&M cost during the year
preceding the year of calculation, equal to the sum
of (i) dispatching costs and (ii) transmission O&M
cost allocated to transmission use by the ratio of
Transmission Plant original cost (OC) to Total
Transmission Plant original cost (including the cost
of subtransmission plant) as shown in IID's
accounting records.
A&G= Administrative and general cost during the year preceding
the year of calculation, allocated to transmission use by
the ratio of total allocated transmission cost (OM) to the
sum of production O&M cost excluding fuel, distribution
O&M cost, transmission O&M cost, dispatching cost, and
customer accounting and services cost.
Administrative and general cost is comprised of Power
Department plus Joint Department A&G less Customer
Account Expense.
EI.A-3 Monthly Transmission Service Charge
TSC= TAC
--------
12 x APL
where
TSC= Monthly transmission service charge, in $/kW.
APL= Annual peak load during the year preceding the year
of calculation, expressed in kW, which is equal to the sum
of IID's service peak load plus all transmission wheeling
commitments (including all Transmission Service
Entitlements).
Examples
(1) Recalculation of 1985 Transmission Service Charge Plant Investment
OC = 20,700,415
RCN= 88,300,000
WP = (0.7 x OC) + (0.3 x RCN) = 40,980,291
PA = 0 + 4,111,000 = 4,111,000
GP =
1,526,849 x 764,058
--------------------------------------------------------
3,085,080 +4,080,868 + 694,545 + 189,450 + 1,621,252
= 1,526,849 x 0.079 = 120,625
M&S= 6,151,304 x 20,700,415
-----------
162,700,978
= 6,151,304 x 0.1272 = 782,629
TAI= 40,980,291 + 4,111,000 + 120,625 + 782,629
= 45,994,545
EIA-3
<PAGE>
Annual Cost
CRF= (33 years, 10.41%) = 10.8221%
OM = 189,540 + 694,545 x 20,700,415
----------
25,025,093
= 189,540 + 694,545 x 0.8272 = 764,058
A&G=
4,086,530 x 764,058
--------------------------------------------------------
3,085,080 +4,080,868 + 694,545 + 189,450 + 1,621,252
= 4,086,530 x 0.079 = 322,847
TAC= (1.25 x 0.108221 x 45,994,545) + 764,058 + 322,847
= 7,308,875
Monthly Transmission Service Charge
APL= 369,000 + 63,000 = 432,000
TSC= 7,308,875 = 1.41 $/kW
------------
12 x 432,000
(2) Sample Calculation, 1996
Assumptions
- Weighted cost of Transmission Plant to 12-31-83;
$40,980,291.
- Transmission Additions to 12-31-95; $67,000,000.
- Transmission Credit to rate base through 12-31-94;
$30,000,000.
- Transmission credits used during 1995 were $6,000,000; IID's
Reserved Capacity is 40 MW, and the Deemed Capacity is 600
MW.
- No accumulated retirements.
- General plant investment as of 12-31-95, from IID
records, is $2,000,000.
- All allocation factors are assumed the same as in the
previous example but, in general, would not be
identically the same each year.
- Materials and supplies inventory as of 12-31-95; from
IID records, is $8,000,000.
- The 12-month average Merrill-Lynch Index interest rate
is 8% in 1995.
- Dispatching costs in 1995 were $1,000,000.
- IID's transmission O&M costs in 1995 were $1,000,000.
- IID's administrative and general costs in 1995 were
$5,000,000.
- IID's service peak load in 1995 was 543 MW.
- IID's total transmission commitments in 1995 were 320
MW.
EIA-4
<PAGE>
Adjusted Investment 1996
- ------------------- ----
WP = Weighted Plant to 12-31-83..............$ 40,980,291
OA[1984-1995] = Transmission Plant Additions
Through 12-31-95
(excludes Transmission Project)...........67,000,000
TPA[1984-1994]= Transmission Credit to Rate
Base Through 12-31-94.....................30,000,000
TPA[1995] = Transmission Credit to Rate
Base during 1995;
6,000,000 x 600 - 40
600...............5,600,000
GP = General Plant Allocated;
2,000,000 x 0.079............................158,000
M&S = M&S Allocated;
8,000,000 x 0.1272 . . . ................. 1,017,600
------------
TAI = $144,755,891
Annual Cost
CRF = (33 years, 8%) = 8.6852
OM = 1,000,000 + 1,000,000 x 0.8272 = 1,827,200
A&G = 5,000,000 x 0.079 = 395,000
TAC = 1.25 x 0.086852 x $144,755,891 + 1,827,200 + 395,000
= $17,937,623
Monthly Transmission Service Charge
APL = 543,000 + 320,000 = 863,000
TSC = $17,937,623 = $1.73/kW
------------
12 x 863,000
R1
EIA-5
<PAGE>
EXHIBIT I.B
METHODOLOGY AND CALCULATION OF SCHEDULING FEE
ANNUAL DETERMINATION
OF
IID SCHEDULING FEES
IID, in April each year, will calculate monthly fees for scheduling
services related to Alternative Energy Resources and transactions with other
utilities as follows:
A. An appropriate number of scheduling units will be
assigned to every IID resource, Alternative Energy
Resource, and transaction with other utilities in
operation during the preceding year. The number of
scheduling units assigned to each resource and/or
transaction will depend upon the total daily number of
functions and therefore, estimated time required to
schedule the resource and/or transaction. This
estimate will be directly related to the complexity of
the scheduling service being provided. Table 1 shows
how the total scheduling units were determined for the
IID system.
B. The expenses related to dispatching and scheduling
services will be equal to the sum of the following:
1. IID FPC Account 556 for the year preceding the
year of calculation
2. A portion of the annual expenses related to the
SCADA and AGC systems for the year preceding the
year of calculation, determined by multiplying one
half of the levelized debt service payments for
the systems by the percentage that FPC Account 556
is of the total of FPC Accounts 556, 561 and 581.
Table 2 shows calculations involved with this
step.
C. The annual scheduling fee per scheduling unit will be
determined by dividing the expenses related to
scheduling found in Step B by the total scheduling
units from Step A. The per unit fee will then be
multiplied by the number of scheduling units assigned
to each resource and/or transaction to develop an
appropriate annual scheduling fee for that resource
and/or transaction. The monthly scheduling fee will
then be calculated by dividing the annual fee by 12.
Table 3 shows the calculation.
The revised scheduling fee will be effective on June 1 of the year in which
they are calculated.
R1
EIB-1
<PAGE>
IID-Edison
Service Agreement
to Alternative
Energy Resources
<TABLE>
<CAPTION>
TABLE 1
IMPERIAL IRRIGATION DISTRICT
SCHEDULING FEE METHODOLOGY
DETERMINATION OF TOTAL SCHEDULING UNITS
Hours Payback/ Pre- On AGC Off Loss
Energy Capacity Vaiable Banking Scheduling System System Accounting
(X=2) (X=2) (X=1) (X=2) (X=1) (X=1) (X=1) (X=1) Total
------ -------- ------- ------- ----------- ------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
IID's Generating Units:
Pilot Knob x x x x 6
Drop No. 1 x x x x 6
Drop No. 2 x x x x 6
Drop No. 3 x x x x 6
Drop No. 4 x x x x 6
Drop No. 5 x x x x 6
_____ Highline x x x x 6
Turnip and Double Weir x x x x 6
El Centro Unit No. 1 x x x x 6
El Centro Unit No. 2 x x x x 6
El Centro Unit No. 3 x x x x 6
El Centro Unit No. 4 x x x x 6
Coachella Units No. 1 and 2 x x x x 6
Coachella Units No. 3 and 4 x x x x 6
Rockwood x x x x 6
_____ x x x x 6
---
Subtotal 96
Alternative Energy Resources:
Earth Energy x x x x x x x 10
Magma (East Mesa) x x x x x x x 9
Heber HGC x x x x x x x 10
Vulcan Power x x x x x x x 10
Ormesa I x x x x x x x 10
Ormesa II x x x x x x x 10
_____ Binary x x x x x x x 10
---
Subtotal 69
Transactions with Other Utilities:
DOE x x x x x 7
EPE x x x x x 7
SCE x x x x x 7
SDG&E x x x x x x x 10
APS (Yucca) x x x x x 7
SCE GT's (Axis) x x x x x x 9
APS (Axis) x x x x x x 9
YCWUA x x x x x x 9
---
Subtotal 65
Total Scheduling Units 230
</TABLE>
EIB-2
<PAGE>
TABLE 2
IMPERIAL IRRIGATION DISTRICT
SCHEDULING FEE METHODOLOGY
EXPENSES RELATED TO SCHEDULING
IID 1986 Actual
FPC Account 556(3) $371,297 (52.15%)
FPC Account 561 $230,170 (32.33%)
FPC Account 581 $110,461 (15.52%)
-------- --------
$711,928 (100.0%)
SCADA and AGC Systems
Investment (2) = $4,536,285
Annual Expense
$4,536,285 x 0.1170923 (1) = 531,164
Expenses Related to Scheduling
FPC Account 556 = $371,297
52.15% of SCADA and AGC Systems
Annualized Expense ($531,164 x 0.5215) = $277,002
--------
Total Expense Related to Scheduling = $648,299
(1) Capital Recovery Factor determined from levelized debt service
payments of $7,611,000 for $65,000,000 - May, 1983 COP issue.
(2) Fifty percent of total investment for SCADA and AGC
$9,072,571 is assumed related to transmission service.
(3) Related to load dispatching for system control.
EIB-3
<PAGE>
TABLE 3
IMPERIAL IRRIGATION DISTRICT
SCHEDULING FEE METHODOLOGY
CALCULATION OF SCHEDULING FEE
Annual Charge per Scheduling Unit
Total Expenses Related to Scheduling (from Table 2) = $648,299
Total Scheduling Units (from Table 1) 230
-------
Annual Charge per Scheduling Unit ($613,446/220) = $ 2,818
Alternative Energy Resource Scheduling Fee
Magma (East Mesa) Plant:
Annual Charge (9 Scheduling Units x $2,818) $ 25,362/year
Monthly Charge ($25,362/12) $ 2,113/month
All Other Plants:
Annual Charge (10 Scheduling Units x $2,818) = $ 28,180/year
(1) Monthly Charge ($28,180/12) = $ 2,348/month
(1) Also applies to new plants to be on-line in 1988 & 89
EIB-4
<PAGE>
EXHIBIT II
TRANSMISSION SERVICE
FOR THE ELMORE POWER PLANT
Ell-1. DESCRIPTION:
EII-2. APPLICABILITY: Applicable to the transmission service to be
provided by IID to Producer for transmitting the electrical
output from the Elmore Power Plant Point of Receipt to the
Point(s) of Delivery.
EII-3. PLANT CONNECTION AGREEMENT: The Elmore Power Plant Connection
Agreement to be executed etween IID and Producer.
EII-4. MAXIMUM TRANSMISSION SERVICE ENTITLEMENT: 38 MW.
TRANSMISSION SERVICE ENTITLEMENT: 38 MW, as specified in
accordance with Sections 6.2 and 6.3.
EII-5. POINT OF RECEIPT: See Section 4.13.
EII-6. POINT(S) OF DELIVERY: The 230-kV switchrack at Edison's Mirage
Substation.
EII-7. TERM: The term of the Transmission Service Entitlement for the
Elmore Power Plant shall be effective from the Date of Initial
Service and shall terminate on April 15, 2015.
EII-8. TRANSMISSION SERVICE CHARGE: $1.41 per kilowatt-month, or as
revised in accordance with Section 8.2, times Transmission
Service Entitlement.
EII-9. SCHEDULING FEE: $2,348 per month or as revised in accordance
with Section 8.3.
EII-10. TRANSMISSION LOSSES: 2.82% or as revised in accordance with
Section 7.
EII-1
<PAGE>
AMENDMENT NO. 1
EXHIBIT II
TRANSMISSION SERVICE
FOR THE ELMORE POWER PLANT
EII-1. DESCRIPTION:
EII-2. APPLICABILITY: Applicable to the transmission service to be
provided by IID to Producer for transmitting the electrical
output from the Elmore Power Plant Point of Receipt to the
Point(s) of Delivery.
EII-3. PLANT CONNECTION AGREEMENT: The Elmore Power Plant Connection
Agreement to be executed between IID and Producer.
EII-4. MAXIMUM TRANSMISSION SERVICE ENTITLEMENT: 42 MW.
TRANSMISSION SERVICE ENTITLEMENT: 42 MW, as specified in
accordance with Sections 6.2 and 6.3.
EII-5. POINT OF RECEIPT: See Section 4.13.
EII-6. POINT(S) OF DELIVERY: The 230-kV switchrack at Edison's Mirage
Substation.
EII-7. TERM: The term of the Transmission Service Entitlement for the
Elmore Power Plant shall be effective from the Date of Initial
Service and shall terminate on April 15, 2015.
EII-8. TRANSMISSION SERVICE CHARGE: $1.41 per kilowatt-month, or as
revised in accordance with Section 8.2, times Transmission
Service Entitlement.
EII-9. SCHEDULING FEE: $2,348 per month or as revised in accordance
with Section 8.3.
EII-10. TRANSMISSION LOSSES: 2.10% or as revised in accordance with
Section 7.
EII-2
<PAGE>
AMENDMENT NO. 1
EXHIBIT II
TRANSMISSION SERVICE
FOR THE ELMORE POWER PLANT
IMPERIAL IRRIGATION DISTRICT
By: /s/ W.R. Condit
--------------------------------
President, Board of Directors
ELMORE, LTD., a California
Limited Partnership
By: /s/ Russ L. Tenney
--------------------------------
EII-3
<PAGE>
EXHIBIT 10.33
88A.2
ELMORE
06-09-88
EXECUTION COPY
PLANT CONNECTION AGREEMENT
FOR THE
ELMORE POWER PLANT
BETWEEN
IMPERIAL IRRIGATION DISTRICT
AND
ELMORE, LTD.
EXECUTION COPY
06-09-88
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-------
<S> <C>
1. PARTIES.....................................................1
2. RECITALS....................................................1
3. AGREEMENT...................................................2
4. DEFINITIONS.................................................2
5. EFFECTIVE DATE AND TERM.....................................3
6. CONNECTION OF PLANT.........................................4
7. ELECTRIC SERVICE TO PRODUCER................................4
8 METERING OF ENERGY DELIVERIES...............................4
9. PRODUCER'S DELIVERY AND IID ACCEPTANCE OF
ENERGY FROM PLANT...........................................4
10. PRODUCER'S GENERAL OBLIGATIONS..............................5
11. IID'S GENERAL OBLIGATIONS...................................6
12. BILLING.....................................................7
13. AUTHORIZED REPRESENTATIVES..................................8
14. METERS......................................................9
15. CONTINUITY OF SERVICE.......................................11
16. LIABILITY...................................................11
17. UNCONTROLLABLE FORCES.......................................13
18. INTEGRATION AND AMENDMENTS..................................14
19. NON-WAIVER..................................................14
20. NO DEDICATION OF FACILITIES.................................15
21. SUCCESSORS AND ASSIGNS......................................15
22. EFFECT OF SECTION HEADINGS..................................16
23. GOVERNING LAW...............................................16
24. ARBITRATION.................................................16
(i)
<PAGE>
25. ENTIRE AGREEMENT............................................18
26. NOTICES.....................................................19
27. SEVERAL OBLIGATIONS.........................................19
28. SIGNATURE CLAUSE............................................20
</TABLE>
(ii)
<PAGE>
1. PARTIES
The parties to this Agreement are IMPERIAL IRRIGATION DISTRICT ("IID"),
organized under the Water Code of the State of California and Elmore, Ltd.
("Producer"), hereinafter referred to individually as "Party", and collectively
as "Parties".
2. RECITALS
2.1 Producer intends to construct and operate, as owner or lessee, a
megawatt generating facility with a maximum 38 megawatt net operating capacity
at the Salton Sea (KGRA), Imperial County, California, and to sell the Plant
electrical output to Southern California Edison Company ("SCE").
2.2 SCE has entered into the Power Purchase Agreement dated June 15, 1984,
("Purchase Agreement") with Producer, to purchase all the electrical output from
the Plant.
2.3 SCE and Producer agree that the terms and conditions regarding
transmission of the Plant's Energy to an IID/SCE point of interconnection shall
be pursuant to a Transmission Service Agreement to be entered into between IID
and Producer.
2.4 Since the Plant will be built in the IID service territory, it will be
convenient to connect the Plant to the IID electric system.
Producer hereby grants the IID the right to enter the Plant site for
any reasonable purposes connected with this Agreement, by previous arrangements
with the Plant manager. Those reasonable purposes include maintenance and
repairs to IID equipment in Producer's facilities, observing tests of said
facilities, reading of kilowatt-hour meters, and the like.
<PAGE>
2.5 Producer desires to purchase and IID desires to sell the electrical
energy necessary to satisfy the operation and maintenance power consumption
requirements of the Plant for the life of the Plant that is not normally
generated by the Plant itself, or portable generating equipment.
2.6 The Parties desire, by means of this Agreement, to interconnect the
Plant to the IID electrical system and to establish the terms, conditions and
obligations of the Parties relating to such interconnection.
3. AGREEMENT
The Parties agree as follows:
4. DEFINITIONS
4.1 Agreement: This Plant Connection Agreement between IID and Producer,
and all Exhibits hereto, as may be amended from time to time.
4.2 Authorized Representative: The representative of a Party designated
in accordance with Section 13.
4.3 Energy: Electric energy in excess of Producer's electric energy
requirements, expressed in kilowatt-hours generated by the Plant and measured
and delivered to the Point of Delivery.
4.4 Funding and Construction Agreement: An agreement entered into by IID
and others dated June 29, 1987, providing for the funding and construction of
the Heber-Mirage Transmission Project, to which a form of this Agreement is
attached as Exhibit C.
-2-
<PAGE>
4.5 Operation Date: The day on which the Plant Energy is first accepted
by IID for delivery to SCE.
4.6 Plant: A maximum of 38 MW net operating capacity Geothermal facility
operated by Producer, as owner or lessee, including all associated equipment
and improvements necessary for generating electric energy and transmitting it
to the high voltage side of the power transformer.
4.7 Point of Delivery: The point on the high voltage side of Producer's
switchyard where IID's metering equipment measures the delivery of Energy to
the IID system as shown on Exhibit "B".
4.8 System Emergency: A condition on IID's system which is likely to
result in imminent significant disruption of service to customers or is
imminently likely to endanger life or property.
5. EFFECTIVE DATE AND TERM
This Agreement shall become effective upon the Operation Date of the
Plant, and shall remain in effect until the earlier of (i) April 15, 2015, or
(ii) thirty-six (36) months from the date the Plant has ceased to operate at
the option of IID. It is understood that (i) if the Completion Date, as the
term Completion Date is defined in Article I of Funding and Construction
Agreement does not occur, or (ii) if the Operation Date does not occur within
five (5) years after the date this Agreement was executed, this Agreement
shall be of no force or effect.
6. CONNECTION OF PLANT
6.1 Producer may electrically connect its Plant, in accordance with the
provisions of this Agreement, so that it can
-3-
<PAGE>
operate in parallel with the IID electric system. Parallel operation will
not commence until IID has inspected and approved the interconnection
facilities and operational procedures.
6.2 Notwithstanding the provision that Producer has furnished the high
voltage switchyard complete, including the high voltage oil circuit breakers
and disconnect switches, the control of the high voltage oil circuit breakers
and disconnect switches shall be under the control of the IID dispatcher.
7. ELECTRIC SERVICE TO PRODUCER
IID shall provide electric service to Producer pursuant to Section 12.
8. METERING OF ENERGY DELIVERIES
Metering for electric service to Producer and for energy deliveries by
Producer to IID for delivery to SCE shall be at the Point of Delivery as shown
on Exhibit "B." Four meters shall be installed which shall measure and record
flows in each direction as shown on Exhibit "B".
9. PRODUCER'S DELIVERY AND IID ACCEPTANCE OF ENERGY FROM PLANT
Whenever electric output from the Plant exceeds Producer's power
requirements, Producer shall deliver all such excess output to IID for
delivery to SCE and IID shall accept such output for delivery to SCE and
deliver such output to SCE pursuant to a transmission service agreement to be
entered into between Producer and IID.
-4-
<PAGE>
10. PRODUCER'S GENERAL OBLIGATIONS
Producer shall:
10.1 Operate the Plant in a manner consistent with applicable electric
utility industry standards, good engineering practice, and without degradation
of quality or reliability of service to IID customers.
10.2 Deliver the Plant's net electrical output to IID for the account of
SCE at the Point of Delivery.
10.3 Each Party shall provide the reactive kilovolt-ampere (KVA)
requirements of its own system so that there will be no interchange of
reactive KVA between systems. The Parties shall cooperate to control the flow
of reactive KVA to prevent the introduction of objectionable operating
conditions on the system of either Party.
10.4 Coordinate, to the greatest extent practicable, major overhaul and
inspection outages of the Plant with IID.
10.5 Give IID a written schedule on or before June 1, and December 1,
each year of the estimated amounts and rates of delivery of energy to be
delivered to IID for the account of SCE at the Point of Delivery during each
month of the succeeding twelve-month (12) period commencing July 1, and
January 1.
10.6 Give IID a written schedule on or before the fifteenth (15th) day of
each month of the estimated amounts and rates of delivery of energy to be
delivered to IID for the account of SCE at the Point of Delivery during each
day of the succeeding calendar month.
-5-
<PAGE>
10.7 Give IID a schedule on or before 12:01 p.m. on Tuesday of each
seven-day (7) period of the estimated amounts and rates of delivery of energy
to be delivered to IID for the account of SCE at the Point of Delivery during
each hour of the succeeding seven-day (7) period commencing at 12:01 a.m. on
the following Monday; provided, however, that if any changes in the hourly
deliveries so scheduled become necessary, Producer shall notify IID of such
changes as far in advance as possible.
10.8 Provide IID any reasonable rights-of-way and access required for
testing and reading of meters by previous arrangement with the Plant manager.
10.9 Carry out the directions of the Authorized Representatives with
respect to the matters set forth in this Agreement.
11. IID'S GENERAL OBLIGATIONS
IID shall:
11.1 Design, acquire, construct, operate and maintain, or cause to be
designed, acquired, constructed, operated and maintained, and shall own, a
connecting transmission line between IID's transmission system and the Plant.
Following the completion of such line, IID may bill and Producer shall pay
IID's costs of designing, acquiring and constructing such line. Producer shall
have the right to audit IID's records and accounts to verify the cost of such
line.
11.2 Accept the Plant's net electrical output for the account of SCE at
the Point of Delivery and simultaneously deliver an equal amount of electric
energy (less applicable
-6-
<PAGE>
transmission losses) to the SCE system at IID/SCE point(s) of interconnection.
11.3 Coordinate, to the greatest extent practicable, major overhaul and
inspection outages of IID transmission facilities with Producer and notify
Producer of any changes as far in advance as possible.
11.4 Carry out the directions of the Authorized Representative with
respect to the matters set forth in this Agreement.
11.5 Operate its system in a manner consistent with applicable utility
industry standards and good engineering practices.
12. BILLING
12.1 IID shall read the meters monthly according to its regular meter
reading schedule beginning no more than thirty (30) days after the date that
electric energy is first supplied to Producer. IID monthly shall send Producer
within ten (10) working days after the meter is read a bill for electric
service. Producer shall pay IID the total amount billed within thirty (30)
days of receipt of the bill.
12.2 IID shall bill Producer for Producer's consumption of energy from
IID's resources in accordance with Rate Schedule GL or Rate Schedule A-2, as
applicable, as it may be revised from time to time. Copies of current Rate
Schedule GL and current Rate Schedule A-2 are attached as Exhibit "A."
12.3 If Producer disputes a bill, payment shall be made as if no dispute
existed pending resolution of the dispute by the
-7-
<PAGE>
Authorized Representatives. If the bill is determined to be in error, the
disputed amount shall be refunded by IID including interest at the rate of one
and one-half percent (1-1/2%) per month, compounded monthly, from the date of
payment to the date the refund check or adjusted bill is mailed.
13. AUTHORIZED REPRESENTATIVES
13.1 Within thirty (30) days after the date this Agreement is signed,
each Party shall designate, by written notice to the other Party, an
Authorized Representative who is authorized to act in its behalf in the
implementation of this Agreement and with respect to those matters contained
herein which are the functions and responsibilities for the Authorized
Representatives. Either Party may, at any time, change the designation of its
Authorized Representative by written notice to the other
Party.
13.2 IID's Authorized Representative shall develop detailed written
procedures necessary and convenient to administer this Agreement within six
(6) months after the date signed. Such procedures shall be submitted to
Producer's Authorized Representative for review, comment, discussion and
concurrence before they are put into effect. Such procedures shall include,
without limitation: (i) communication between Producer and IID's electric
system dispatcher with regard to daily operating matters, (ii) billing and
payments, (iii) specified equipment tests, and (iv) operating matters which
affect or may affect quality and reliability of service to electric customers
and continuity of deliveries to SCE.
-8-
<PAGE>
13.3 The Authorized Representative shall have no authority to modify any
of the provisions of this Agreement.
14. METERS
14.1 All meters shall be sealed and the seal shall be broken only upon
occasions when the meters are to be inspected, tested or adjusted.
14.2 IID shall inspect and test all meters upon their installation and at
least once every year thereafter. If requested to do so by Producer, IID shall
inspect or test a meter more frequently than every year, but the expense of
such inspection or test shall be paid by Producer unless the meter is found to
register inaccurately by more than two percent (2%) from the measurement made
by a standard meter. Each Party shall give reasonable notice to the other Party
of the time when any inspection or test shall take place and that Party may
have representatives present at the test or inspection. If a meter is found to
be inaccurate or defective, it shall be adjusted, repaired or replaced in
order to provide accurate metering. All adjustments due to inaccurate meters
shall be limited to the preceding six (6) months.
14.3 If a meter fails to register, or if the measurement made by a meter
during a test varies by more than two percent (2%) from the measurement made
by the standard meter used in the test, adjustment shall be made correcting
all measurements made by the inaccurate meter for:
-9-
<PAGE>
(i) the actual period during which inaccurate measurements were
made, if the period can be determined, or if not,
(ii) the period immediately preceding the test of the meter equal
to one-half (1/2) the time from the date of the last previous
test of the meter; provided, however, that the period covered
by the correction shall not exceed six (6) months.
14.4 Producer shall telemeter information to IID's Dispatch Center
regarding the kilowatts, kilowatt-hours, kilovars and kilovar-hours delivered
to or received from IID at the Point of Delivery over phone line leased by
Producer.
IID shall purchase, own, and shall design, install, operate,
maintain, or cause to be designed, installed, operated, and maintained,
equipment to automatically transmit from the Plant to IID's Dispatch Center
continuous values of Plant output expressed as megawatts, megavars and
megawatt-hours. IID may thereupon bill and Producer shall promptly pay IID's
cost of design, purchase and installation of said equipment. Producer shall
have the right to audit IID's records and accounts to verify the cost of said
equipment.
15. CONTINUITY OF SERVICE
IID shall not be obligated to accept and IID may require Producer to
temporarily curtail, interrupt or reduce deliveries of energy upon advance
notice to Producer, when such curtailment, interruption or reduction is
required in order for IID to construct, install, maintain, repair, replace,
remove,
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investigate or inspect any of its equipment or any part of its system
or if IID determines that such curtailment, interruption or reduction is
necessary because of a System Emergency, forced outages or abnormal operating
conditions on its system. IID shall use reasonable efforts to keep
interruptions and curtailments to a minimum time.
16. LIABILITY
16.1 Except for any loss, damage, claim, costs, charge or expense
resulting from Willful Action, neither Party (the "released Party"), its
directors or other governing body, officers or employees shall be liable to
the other Party for any loss, damage, claim, cost, charge or expense of any
kind or nature incurred by the other Party (including direct, indirect or
consequential loss, damage, claim, cost, charge or expense; and whether or not
resulting from the negligence of a Party, its directors or other governing
body, officers, employees or any person or entity whose negligence would be
imputed to a Party) from engineering, repair, supervision, inspection,
testing, protection, operation, maintenance, replacement, reconstruction, use
or ownership of the released Party's electrical system, Plant(s) or associated
facilities in connection with the implementation of this Agreement. Except for
any loss, damage, claim, cost, charge or expense resulting from Willful
Action, each Party releases the other Party, its directors or other governing
body, officers and employees from any such liability.
16.2 For the purpose of this Section 16, Willful Action shall be defined
as action taken or not taken by a Party at the
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direction of its directors or other governing body, officers or employees
having management or administrative responsibility affecting its performance
under this Agreement, as follows:
16.2.1 Action which is knowingly or intentionally taken or nottaken with
conscious indifference to the consequences thereof or with intent that injury
or damage would result or would probably result therefrom.
16.2.2 Action which has been determined by final arbitration award or
final judgment or judicial decree to be a material default under this
Agreement and which occurs or continues beyond the time specified in such
arbitration award or judgment or judicial decree for curing such default or,
if no time to cure is specified therein, occurs or continues thereafter beyond
a reasonable time to cure such default.
16.2.3 Action which is knowingly or intentionally taken or not taken with
the knowledge that such action taken or not taken is a material default under
this Agreement.
16.3 Willful Action does not include any act or failure to act which is
merely involuntary, accidental or negligent.
16.4 The phrase "employees having management or administrative
responsibility," as used in Section 16.2, means the employees of a Party who
are responsible for one or more of the executive functions of planning,
organizing, coordinating, directing, controlling and supervising such Party's
performance under this Agreement with responsibility for results.
16.5 Subject to the foregoing provisions of this Section 16, each Party
agrees to defend, indemnify and save
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harmless the other Party, its officers, agents, or employees against all
losses, claims, demands, costs or expenses for loss of or damage to property,
or injury or death of persons, which directly or indirectly arise out of the
indemnifying Party's performance pursuant to this Agreement; provided,
however, that a Party shall be solely responsible for any such losses, claims,
demands, costs or expenses which result from its sole negligence or Willful
Action.
17. UNCONTROLLABLE FORCES
Neither Party shall be considered to be in default in the performance of
any of its obligations under this Agreement when a failure of performance
shall be due to an uncontrollable force. The term "uncontrollable force" shall
mean any cause beyond the control of the Party affected including, but not
restricted to, failure of or threat of failure of facilities which have been
maintained in accordance with generally-accepted engineering and operating
practices in the electrical utility industry, flood, drought, earthquake,
tornado, storm fire, pestilence, lightning and other natural catastrophes,
epidemic, war, riot, civil disturbance or disobedience, strike, labor dispute,
labor or material shortage, sabotage, government priorities and restraint by
court order or public authority (whether valid or invalid) and actions or
nonaction by or inability to obtain or keep the necessary authorizations or
approvals from any government agency or authority, which by exercise of due
diligence such Party could not reasonably have been expected to avoid and
which by exercise of due diligence it has been unable to overcome. Nothing
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<PAGE>
contained herein shall be construed as to require a Party to settle any strike
or labor dispute in which it may be involved. Either Party rendered unable to
fulfill any of its obligations under this Agreement by reason of an
uncontrollable force shall given prompt written notice of such fact to the
other Party and shall exercise due diligence to remove such inability with all
reasonable dispatch.
18. INTEGRATION AND AMENDMENTS
This Agreement constitutes the entire agreement between the Parties
relating to the interconnection of Producer's Plant to IID's electric system,
the acceptance of energy by IID from Producer and the providing of electric
service by IID. No oral agreement or prior written agreement between the
Parties shall be of any effect whatsoever; provided, however, that any
arrangements agreed upon by the Authorized Representatives within the limits
of their authority, and consistent with this Agreement shall be binding upon
the Parties. All changes to this Agreement shall be in writing and shall be
signed by an officer of each Party.
19. NON-WAIVER
None of the provisions of this Agreement shall be considered waived by
either Party except when such waiver is given in writing. The failure of
either Party to insist in any one or more instances upon strict performance of
any of the provisions of this Agreement or to take advantage of any of its
rights hereunder shall not be construed as a waiver of any such provisions or
the relinquishment of any such rights for the
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<PAGE>
future; but the same shall continue and remain in full force and effect.
20. NO DEDICATION OF FACILITIES
Any undertaking by one Party to the other Party under any provision of
this Agreement shall not constitute the dedication of the system or any
portion thereof by the Party to the public or to the other Party, and it is
understood and agreed that any such undertaking under any provision of this
Agreement by a Party shall cease upon the termination of its obligations
hereunder.
21. SUCCESSORS AND ASSIGNS
21.1 This Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the Parties.
21.2 This Agreement may be assigned by Producer only (i) to a purchaser
or co-owner of the Plant or to a person who will operate the Plant pursuant to
a contract or other arrangement with such purchaser and in either case with
the prior written consent of IID (which shall not be unreasonably withheld) or
(ii) for security purposes, to a bank or other entity which provides financing
for the Plant or any electrical transmission facilities associated therewith.
Producer and IID agree that nothing in this Section 21.2 may be amended,
modified or waived without the prior written consent of each and every Party
to the Funding and Construction Agreement (except for any Parties in default
thereunder.)
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<PAGE>
22. EFFECT OF SECTION HEADINGS
Section headings appearing in this Agreement are inserted for convenience
only, and shall not be construed as interpretations of text.
23. GOVERNING LAW
This Agreement shall be interpreted, governed and construed under the
laws of the State of California or the laws of the United States, as
applicable.
24. ARBITRATION
24.1 Any dispute arising out of or relating to this Agreement, or the
breach thereof, which is not resolved by the Parties acting through their
Authorized Representatives shall be settled by arbitration to the extent
permitted by the laws applicable to the Parties; provided, however, that no
Party to the dispute shall be bound to any greater extent than any other Party
to the dispute. Arbitration shall not apply to any dispute or matter that is
within the jurisdiction of any regulatory agency.
24.2 Any demand for arbitration shall be made by written notice to the
other Party setting forth in adequate detail the nature of the dispute, the
issues to be arbitrated, the amount or amounts, if any, involved in the
dispute, and the remedy sought. Within twenty (20) days from the receipt of
such notice, the other Party may submit its own written statement of the
dispute and may set forth in adequate detail any additional related matters or
issues to be arbitrated.
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<PAGE>
24.3 Within thirty (30) days after delivery of the written notice
demanding arbitration, the Parties acting through their Authorized
Representatives shall meet for the purpose of selecting an arbitrator. The
Parties may agree upon a single arbitrator, but in the event that they cannot
agree, three arbitrators shall be used. Each Party shall designate one
arbitrator, and the two arbitrators shall then select a third arbitrator. All
arbitrators shall be persons skilled and experienced in the field in which the
dispute has arisen and no person shall be eligible for appointment as an
arbitrator who is or has been an officer or employee of either of the Parties
or otherwise interested in the matter to be arbitrated. Should either party
refuse or neglect to appoint an arbitrator or to furnish the arbitrators with
any papers or information demanded, the arbitrators are empowered, by both
Parties, to proceed without the participation or assistance of that Party.
24.4 Except as otherwise provided in this Section, the arbitration shall
be governed by the rules and practices of the American Arbitration
Association, or a similar organization if the American Arbitration Association
should not at the time exist.
24.5 Arbitration proceedings shall be held in Imperial, California, at a
time and place to be selected by the arbitrators. The arbitrators shall hear
evidence submitted by the Parties and may call for additional information
which shall be furnished by the Party having such information. The arbitrators
shall have no authority to call for information not
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<PAGE>
related to the issues included in the dispute or to determine other
issues not in dispute.
24.6 If there is only one arbitrator, his decision shall be binding and
conclusive on the parties. If there are three arbitrators, the decision of any
two shall be binding and conclusive. The decision of the arbitrators shall
contain findings regarding the issues involved in the dispute, including the
merits of the positions of the parties, the materiality of any default, and
the remedy or relief to which a Party shall be entitled. The arbitrators may
not grant any remedy or relief which is inconsistent with this Agreement, nor
shall the arbitrators make findings or decide issues not in dispute.
24.7 The fees and expenses of the arbitrators shall be shared equally by
the Parties, unless the decision of the arbitrators specifies some other
apportionment. All other expenses and costs of the arbitration shall be borne
by the Party incurring such expenses and costs.
24.8 Any decision or award granted by the arbitrators shall be final and
judgment may be entered on it in any court of competent jurisdiction. This
agreement to arbitrate shall be specifically enforceable.
25. ENTIRE AGREEMENT
25.1 The complete agreement of the Parties is set forth in this Agreement
and all communications regarding subject interconnected operations whether
oral or written, are hereby abrogated and withdrawn.
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<PAGE>
26. NOTICES
Any formal communication or notice in connection with this Agreement
shall be in writing and shall be deemed properly given if delivered in person
or sent first class mail, postage prepaid to the person specified below:
ELMORE, LTD.
7029 Gentry Road
Calipatria, California 92233
IMPERIAL IRRIGATION DISTRICT
c/o General Manager
P.O. Box 937
Imperial, California 92251
27. SEVERAL OBLIGATIONS
Except where specifically stated in this Agreement to be otherwise, the
duties, obligations and liabilities of the Parties are intended to be several
and not joint or collective. Nothing contained in this Agreement shall ever be
construed to create an association, trust, partnership, or joint venture, or
impose a trust or partnership duty, obligation or liability on or with regard
to either Party. Each Party shall be individually and severally liable for its
own obligations under this Agreement.
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<PAGE>
28. SIGNATURE CLAUSE
The Parties have caused this Agreement to be executed in their respective
names, in duplicate, by their respective officers hereunto this 2nd day of
August, 1988.
ELMORE, LTD., a California Limited
Partnership
By /s/ Red Hill Geothermal, Inc.
---------------------------------
a General Partner
By: /s/ Jon R. Peele
-------------------------------
Vice President
ATTEST:
By /s/ Thomas C. Hinrich
---------------------------
Asst. Secretary
IMPERIAL IRRIGATION DISTRICT
By /s/ Tony Gallego
------------------------------
President, Board of Directors
ATTEST:
By /s/ Larry E. Beck
---------------------
Secretary
[SEAL]
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EXHIBIT 10.34
AMENDED AND RESTATED
ADMINISTRATIVE SERVICES AGREEMENT
---------------------------------
BY AND BETWEEN
CALENERGY OPERATING COMPANY,
a Delaware corporation
AND
LEATHERS, L.P.,
a California limited partnership
<PAGE>
TABLE OF CONTENTS
PAGE
1. Definitions .............................................2
2. Ordinary Services .......................................3
3. Extraordinary Services ..................................3
4. Subcontracting ..........................................3
5. Administration Fee ......................................3
6. Reimbursement and Other Compensation for
Extraordinary Services ..................................4
7. Term and Termination ....................................5
8. Disclaimer of CEOC's Liability ..........................6
9. Non-Waiver of Breach ....................................6
10. Arbitration .............................................6
11. Attorneys' Fees .........................................7
12. Force Majeure ...........................................7
13. Invalid Provision .......................................8
14. Assignment ..............................................8
15. Governing Law ...........................................8
16. Entire Agreement - Amendments ...........................9
17. Communications ..........................................9
18. Counterparts ............................................9
19. Exhibits ................................................9
20. Third Party Beneficiaries ..............................10
21. Headings ...............................................10
TABLE OF SCHEDULES
------------------
Section
-------
Schedule "Z" Schedule of Defined Terms 1.1
<PAGE>
AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT
------------------------------------------------------
PREAMBLE
--------
THIS AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT
(the "Agreement") is made as of June 17, 1996, by and between CALENERGY
OPERATING COMPANY, a Delaware corporation ("CEOC"), and LEATHERS, L.P., a
California limited partnership ("Owner").
RECITALS
--------
A. Owner owns the Leathers Facility located in the Salton Sea Known
Geothermal Resource Area ("SSKGRA").
B. Owner intends to operate the Leathers Facility under the
following operating agreements: (i) an Operating and Maintenance Agreement by
and between Owner and CEOC pursuant to which CEOC will operate the Leathers
Facility on behalf of Owner; (ii) a Technology Transfer Agreement by and
between Owner and Magma Power Company, a Nevada corporation ("Magma") pursuant
to which Magma will provide Owner with the nonexclusive right to use certain
"Technology" and "Know-How" in connection with the operation of the Leathers
Facility; (iii) a Ground Lease by and between Owner, as lessee, and Magma, as
lessor, pursuant to which Magma will lease to Owner the real property upon
which the Leathers Facility is located; (iv) an Easement Grant Deed and
Agreement Regarding Rights for Geothermal Development by and between Owner and
Magma pursuant to which Magma will supply Owner with the right to extract
Geothermal Brine and use geothermal brine-derived steam which is necessary to
operate the Leathers Facility; and (v) a Power Purchase Contract by and
between Owner and Southern California Edison Company.
C. Owner desires to exploit CEOC's administrative and management
resources, and to that end Owner desires to employ, hire or otherwise retain
the administrative and management services of CEOC, in addition to the
Services provided pursuant to the Operating and Maintenance Agreement, for
purposes of administering the functions of the Leathers Facility.
D. Owner and CEOC desire to enter into this Agreement pursuant to
which CEOC, for a fee and in addition to the Services provided pursuant to the
Operating and Maintenance Agreement, will provide day-to-day administrative
and management services as more fully described herein, which administrative
and management services shall include normal day-to-day administrative and
management services and shall not include services which, although occurring
in the ordinary course of Owner's business, are not of a nature ordinarily
occurring on a day-to-day basis. In consideration
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<PAGE>
for services not of a day-to-day nature provided by CEOC hereunder, Owner
shall compensate CEOC for, among other things, all costs and expenses actually
incurred by CEOC in providing such services, as more particularly described
herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements set forth herein, the parties hereto agree
as follow:
AGREEMENT
---------
1. Definitions.
1.1 Unless the context shall otherwise require, capitalized terms used
and not otherwise defined herein shall have the respective meanings assigned
thereto in Schedule Z hereto, which shall be incorporated by reference herein.
1.2 In addition to the terms defined pursuant to Section 1.1 hereof,
the following definitions shall apply for purposes of this Agreement:
"CPI" means the Consumer Price Index of the Bureau of Labor Statistics
of the Department of Labor for All Urban Consumers, All Items, for the Los
Angeles-Anaheim-Riverside Metropolitan Area. In the event the compilation
and/or publication of the CPI shall be transferred to any other governmental
department or bureau or agency or shall be discontinued, then the index most
nearly the same as the CPI shall be deemed to be the CPI for purposes of this
Agreement. In the event that Owner and CEOC cannot agree on such alternative
index, then the matter shall be submitted for decision by an arbitrator or
arbitrators in accordance with Section 10 hereof.
"CPI Adjustment" means an amount equal to $800,000 multiplied by a
fraction, the numerator of which shall be the CPI for August of the year for
which the calculation is to be made, and the denominator of which shall be the
CPI for August of 1988, but in no event shall such CPI Adjustment be less than
$800,000.
"Floor" means the minimum annual Administration Fee which, for the
years indicated below, shall be an amount calculated as follows:
Year Calculation
---- -----------
1989 $66,667 multiplied by the
number of months in 1989
2
<PAGE>
following and including the
month on which that certain
Construction Management and
Asset Transfer Agreement
dated as of August 15, 1988,
as amended, between Magma
and Owner terminated in
accordance with its terms.
3
<PAGE>
For each of The greater of (a) the Floor
1990 for the year immediately
through the preceding the year for which
end of the the calculation is being
term of made and (b) the CPI
this Adjustment for the year in
Agreement. which the calculation is
being made.
2. Ordinary Services. In consideration of the payment by Owner to
CEOC of the Administration Fee as provided in Section 5 hereof, CEOC agrees to
perform during the term of this Agreement those functions normally considered
part of the day-to-day administrative and management activities for facilities
similar to the Leathers Facility as determined by Owner which are not within
the scope of Services to be provided by CEOC to Owner pursuant to the
Operating and Maintenance Agreement. The Ordinary Services to be provided
hereunder include, without limitation, (i) general bookkeeping and financial
accounting, (ii) general legal services (but not legal services of an
extraordinary nature including, without limitation, legal services in
connection with litigation or administrative proceedings), (iii) personnel
administration and payroll services, (iv) cash management services, (v) energy
production oversight and the determination of output levels; (vi) consulting
services with respect to geothermal electrical energy production and (vii)
assisting Owner in obtaining any franchises, permits, licenses, easements or
rights-of-way necessary for continued operation of the Leathers Facility.
3. Extraordinary Services. In consideration of the compensation of
CEOC by Owner as provided in Section 7 hereof, CEOC agrees to perform during
the term of this Agreement, as Extraordinary Services, any administrative and
management services that may be needed in connection with the operation of the
Leathers Facility and (a) which are not included in the scope of the services
delineated in Section 2 hereof or (b) which are not included in the scope of
the Services delineated in the Operating and Maintenance Agreement.
4. Subcontracting. In connection with CEOC's providing of the
Ordinary Services and Extraordinary Services contemplated by this Agreement,
CEOC may subcontract with or otherwise retain the services of other Persons
including, but not limited to, Magma and other Affiliates of CEOC, and Owner
hereby consents to such subcontracting for purposes of Section 14 hereof. For
purposes of this Agreement, any Ordinary Services or Extraordinary Services
performed by such Persons shall be deemed to have been performed by CEOC.
5. Administration Fee. In consideration of the provision of Ordinary
Services by CEOC as contemplated by
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<PAGE>
Section 2 hereof, Owner shall pay CEOC the Administration Fee. The
Administration Fee shall be payable in the manner and in the amount calculated
as follow:
(i) For each year, the Administration Fee shall be
3% of the Total Electricity Revenues earned by Owner in such year,
but in no event shall such Administration Fee be less than the Floor
for such year. The Administration Fee in each such year shall be paid
monthly in arrears on the last day of each month in an amount equal
to one-twelfth (1/12) of the Floor for the preceding year; provided,
however, that on December 31 of each year (or as soon thereafter as
is practicable, but in no event later than March 31 of the next
succeeding year), in addition to the amounts otherwise payable to
CEOC under this Section 5(i), Owner shall pay to CEOC the greater of
(a) the amount by which 3% of the Total Electricity Revenues earned
by Owner in such year exceeds the Floor for the preceding year or (b)
the amount by which the CPI Adjustment for the year in which the
calculation is being made exceeds the Floor for the preceding year.
In the event this Agreement terminates other than on December 31 of
the calendar year in which it terminates, the Administration Fee for
such year shall be prorated as provided in Section 7.4(i) hereof.
Notwithstanding anything contained herein that may be construed to
the contrary, and solely for purposes of making the calculations in
this Section 5(i), the Floor for the year preceding 1990 shall be
deemed to equal $800,000.
6. Reimbursement and Other Compensation for Extraordinary Services.
1. In consideration of the provision by CEOC to Owner of the
Extraordinary Services contemplated by Section 3 hereof, within thirty (30) days
after Owner has received an invoice from CEOC specifying the Extraordinary
Services rendered to Owner by CEOC and the amount to be paid to CEOC therefor,
Owner shall pay to CEOC such specified amount. In charging Owner for
Extraordinary Services under this Section 6, CEOC shall have the right to charge
Owner an amount which shall enable CEOC to (a) recoup the actual costs and
expenses incurred by CEOC in rendering the Extraordinary Services plus (b) earn
a reasonable profit for the Extraordinary Services so rendered including,
without limitation, a reasonable rate of return on CEOC's invested capital used
in connection with the provision by CEOC of the Extraordinary Services, taking
into consideration factors including the extent to which CEOC can reasonably
expect to earn a return on its invested capital by utilizing CEOC's equipment
and materials for providing services other than to
5
<PAGE>
the Leathers Facility. As used in this Section 6.1, "actual costs and
expenses incurred by CEOC" includes, without limitation, (a) the actual cost
to CEOC of goods and materials used by CEOC in rendering Extraordinary
Services, (b) the pro rata cost to CEOC of personnel providing labor or
services in the course of CEOC's provision of Extraordinary Services and (c)
the actual cost to CEOC of retaining another Person, whether Magma or another
Affiliate of CEOC or otherwise, in connection with the provision of
Extraordinary Services. In the event CEOC subcontracts with any Person,
including, without limitation, Magma or another Affiliate as provided in
Section 4 hereof, any payment to CEOC under this Section 6.1 on account of the
Extraordinary Services so subcontracted shall be made to CEOC only to the
extent of the amount charged CEOC by such Person and shall not include any
amounts representing a mark-up by CEOC over the amount so charged.
2. With respect to any calculation of actual costs and expenses or
any allocation of costs contemplated by Section 6.1 hereof, Owner shall be
bound by CEOC's determination thereof unless the same is clearly erroneous.
7. Term and Termination.
1. Unless terminated as provided in Section 13 hereof, by written
agreement between Owner and CEOC as provided in Section 16 hereof, or as
hereinafter provided in this Section 7, this Agreement shall remain in effect
until, and shall terminate on August 15, 2020.
2. In the event of a material default by either party in the
performance of its duties, obligations or undertakings under this Agreement,
the other party shall have the right to give written notice to the defaulting
party advising such party of the specific default involved and, if within
thirty (30) days after such notice the defaulting party shall not have
remedied or commenced diligently to remedy the default, the other party shall
have the right, in addition to any other rights and remedies it may have, to
terminate this Agreement upon ten (10) days written notice to the defaulting
party.
3. Notwithstanding any other provision of this Agreement, and in
addition to any other right it may have, CEOC shall have the right to
terminate this Agreement, effective immediately, if, at any time, Owner is
adjudged bankrupt or insolvent, or files a petition in bankruptcy or an answer
admitting the material facts recited in such a petition filed by another, or
is put or decides to go into dissolution or liquidation (other than in
connection with a merger, consolidation or amalgamation), or otherwise
discontinues business, makes an assignment for the benefit of its creditors or
any other general arrangement with its creditors, becomes
6
<PAGE>
insolvent or unable to meet its current payments, or has a receiver or other
custodian of any kind appointed to administer any substantial amount of its
property, or otherwise seeks to take advantage of any bankruptcy or insolvency
statute now or hereafter in effect.
4. If this Agreement is terminated prior to the expiration of its
terms as provided in Section 7.1 hereof, Owner and CEOC shall have the
following rights, remedies and obligations in addition to any other rights,
remedies and obligations they may have:
(i) Owner shall pay CEOC, immediately upon termination,
the entire Administration Fee for the year in which the
Agreement is effectively terminated, prorated for the number
of months in such year prior to and including the month in which
the Agreement is effectively terminated, less the amount of the
Administration Fee which is theretofore paid during such year.
(ii) Owner shall pay CEOC all amounts due and payable to
CEOC under Section 6 hereof as of the date the Agreement is
effectively terminated.
8. Disclaimer of CEOC's Liability. CEOC, in providing the Ordinary
Services and the Extraordinary Services provided for herein, shall use its
good faith efforts in providing such services, but CEOC shall not be liable to
Owner for damages arising out of or resulting from the provision of such
Ordinary Services and Extraordinary Services, except to the extent that such
damages arise out of or result from the gross negligence or willful misconduct
or CEOC, nor shall CEOC be liable to Owner for consequential damages under any
circumstances. CEOC shall have no responsibility for the ability of Owner to
effectively operate the Leathers Facility or the claims of third parties
arising with respect to the Leathers Facility. Owner shall indemnify and hold
harmless CEOC against all liability or responsibility to Owner or to others
for any failure in production, operation or otherwise of the Leathers
Facility. CEOC does not warrant and shall not be responsible for the quality
of services or any design, specification, drawing, blueprint, reproduced
tracing, formula, production process or other data or information furnished by
it to Owner in the course of fulfilling its obligations under this Agreement,
but shall furnish such in good faith to the best of CEOC's knowledge and
ability.
9. Non-Waiver of Breach. Either party hereto may specifically waive
any breach of this Agreement by the other party, but no such waiver shall be
deemed to have been given unless such waiver is in writing, signed by the
waiving party and specifically designates the breach waived, nor shall any
7
<PAGE>
such waiver constitute a continuing waiver of similar or other breaches.
10. Arbitration. All disputes arising under this Agreementshall be
settled by arbitration. The party desiring such arbitration shall give written
notice to that effect to the other party and in such notice shall appoint as
an arbitrator a disinterested person of recognized competence in the area at
issue. Within fifteen (15) days thereafter, the other party shall, by written
notice to the originating party, appoint a second person similarly qualified
as the second arbitrator. The arbitrators thus appointed shall appoint a third
person similarly qualified as the third arbitrator, and such three arbitrators
shall as promptly as possible determine such matter with the parties, each
being entitled to present evidence and argument to the arbitrators; provided,
however, that:
(i) if the second arbitrator shall not have
been appointed as aforesaid, the first arbitrator shall
determine such matter; and
(ii) if the two arbitrators appointed by the party
shall be unable to agree upon the appointment of a third arbitrator
within fifteen (15) days after the appointment of the second
arbitrator, they shall give written notice of such failure to agree
to the parties, and, if the parties fail to agree upon the selection
of such third arbitrator within fifteen (15) days thereafter, then
within ten (10) days thereafter, either of the parties upon written
notice to the other party may apply for such appointment to the
Federal District Court or District Court in Omaha, Nebraska.
The arbitrator or arbitrators shall only interpret and apply the
terms and provisions of this Agreement and shall not change any such terms or
provisions or deprive either party of any right or remedy expressly or
impliedly provided for in this Agreement.
The determination of the majority of the arbitrators or the sole
arbitrator, as the case may be, shall, to the extent permitted by law, be
conclusive upon the parties. The arbitrator or arbitrators shall give written
notice to the parties stating their determination, and shall furnish to each a
copy of such determination signed by them. In the event of the failure,
refusal or inability of any arbitrator to act, a new arbitrator shall be
appointed in his stead, which appointment shall be made in the same manner as
hereinbefore provided for the appointment of the arbitrator so failing,
refusing or unable to act.
8
<PAGE>
11. Attorneys' Fees. If either party hereto commences litigation or
arbitration for the judicial or other interpretation, enforcement,
termination, cancellation or rescission hereof, or for damages for the breach
hereof, the prevailing party in any such action, trial, arbitration or appeal
thereon shall be entitled to its reasonable attorneys' fees and court,
arbitration and other costs incurred, to be paid by the losing party as fixed
by the court or arbitrator in the same or a separate suit, and whether or not
such action is pursued to decision or judgment.
12. Force Majeure.
1. Neither Owner nor CEOC shall be liable in damages to the other for
any act, omission or circumstance ("Event of Force Majeure") occasioned by or
in consequence of any acts of God, acts of the public enemy, wars, blockades,
insurrections, riots, epidemics, landslides, lightning, earthquakes, fires,
storms, floods, civil disturbances, explosions, sabotage, the binding order of
any court or governmental authority which has been resisted in good faith by
all reasonable legal means, Federal, State or local laws, or other event or
circumstance not within the control of such party preventing such party from
performing its obligations hereunder, whether caused or occasioned by, or
happening on account of, the act or omission of one of the parties, not within
the control of the party claiming suspension and which by the exercise of due
diligence such party is unable to prevent or overcome.
2. Such Events of Force Majeure shall not relieve Owner or CEOC of
liability in the event of either party's concurring negligence or in the event
of either party's failure to use due diligence to remedy the situation and to
remove the cause in an adequate manner and with all reasonable dispatch, nor
shall such Events of Force Majeure relieve either party of liability unless
such party shall give notice and full particulars of the same in writing to
the other party within ten (10) days of the occurrence relied on. In no event,
however, shall an Event of Force Majeure relieve Owner from the obligation of
making payments due under this Agreement at the time of such occurrence. The
parties agree that should any Event of Force Majeure remain in existence for a
period of six (6) months, this Agreement may be terminated by the party not
claiming suspension of the Agreement under such Event of Force Majeure upon
the giving of written notice by such party to the other; provided, however,
that such six (6) month period shall be extended for a reasonable time so long
as throughout such six (6) month period the party claiming suspension of this
Agreement under the Event of Force Majeure has diligently proceeded to
terminate the Event of Force Majeure and continues to do so throughout such
extension.
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13. Invalid Provision.
1. The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted; provided, however, that if any of the
provisions of Sections 2, 3, 5, 6, or 7 hereof are held invalid or
unenforceable by any court or other relevant authority, Owner and CEOC shall
hold consultations over a period of ninety (90) days, commencing immediately,
in an effort to work out satisfactory terms for continuation of this
Agreement. If Owner and CEOC do not reach agreement within this period, CEOC
shall have the right to terminate this Agreement, effective immediately.
2. In the event that any provision, term, condition or object of this
Agreement may be in conflict with any law, measure, ruling, court judgment (by
consent or otherwise), or regulation of the government of the United States of
America, and the legal counsel of either party shall advise that in their
considered opinion such conflict, or a reasonable possibility of such
conflict, exists, then either party may propose to the other appropriate
modifications of this Agreement to avoid such conflict. In such case, if an
agreement of modification is not reached within ninety (90) days from such
proposal, the party making such proposal, after sixty (60) days' written
notice to the other party, may terminate the agreement in its entirety as of a
date subsequent to such sixty (60) days, and which shall be specified in such
notice.
14. Assignment. Subject to Section 4 hereof, neither Owner nor CEOC
shall grant, assign or otherwise convey any of their respective rights or
delegate any of their respective obligations under this Agreement without the
prior written consent of the other party which consent shall not be
unreasonably withheld.
15. Governing Law. The existence, validity, construction, operation
and effect of this Agreement shall be determined in accordance with and
governed by the laws of the State of California. This Agreement shall be
construed equally as against the parties hereto, and shall not be construed
against the party responsible for its drafting.
16. Entire Agreement - Amendments. This Agreement constitutes the
entire agreement of the parties and the provisions hereof shall supersede any
and all prior agreements or understandings relating to the same subject
matter. Without limiting the generality of the foregoing, from and after the
date hereof, the terms of the Administrative Services Agreement dated as of
March 14, 1988 (the "Original Administrative
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Services Agreement") between Owner and CEOC shall be amended to read in their
entirety as set forth in this Agreement and the terms of this Agreement shall
govern and control the rights and obligations of the parties in and with
respect to the matters herein set forth, notwithstanding any conflict between
the terms of this Agreement and the terms of the Original Administrative
Services Agreement. This Agreement may be amended only by a writing signed by
a duly authorized representative of both parties.
17. Communications. All notices, requests, offers and other
communications required or permitted to be made under this Agreement shall be
in writing and shall be deemed to have been duly given and received, regardless
of when and whether received, either: (a) on the day of delivery, if delivered
To CEOC at:
CalEnergy Operating Company
302 South 36th Street
Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
To Owner at:
Leathers, L.P.
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
or at such other address as either party most recently may have designated in
writing to the other party for such purpose; or (b) on the day sent, when sent
by prepaid telex, telegram, cable or radiogram, and confirmed the same day by
prepaid first-class registered airmail, addressed to CEOC or Owner, as the
case may be, at their respective addresses aforesaid.
18. Counterparts. This Agreement may be executed in counterparts and
any number of counterparts signed in the aggregate by the parties hereto shall
constitute a single original instrument.
19. Exhibits. All exhibits and schedules attached hereto are hereby
incorporated herein by this reference.
20. Third Party Beneficiaries. The covenants contained herein are
made solely for the benefit of the properties, parties and successors and
assigns of such parties as specified herein, and shall not be construed as
having been intended to benefit any third party not a party to this Agreement.
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21. Headings. The headings herein are for reference only and shall
not affect the construction of this Agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their duly authorized officers as of the day and year first above
written.
CEOC:
CALENERGY OPERATING COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
OWNER:
LEATHERS, L.P., a California limited
partnership
By: CALENERGY OPERATING COMPANY,
a Delaware corporation, as General
Partner
By: /s/ John G. Sylvia
Name: John G. Sylvia
Title: Senior Vice President
EXHIBIT 10.35
AMENDED AND RESTATED
OPERATING AND MAINTENANCE AGREEMENT
-----------------------------------
BY AND BETWEEN
CALENERGY OPERATING COMPANY,
a Delaware corporation
AND
LEATHERS, L.P.,
a California limited partnership
<PAGE>
TABLE OF CONTENTS
- -----------------
Page
----
1. Definitions...................................................2
2. Operator's Services...........................................2
3. Standard of Services..........................................4
4. Personnel.....................................................5
5. Inspection....................................................5
6. Change in Duties; Notification................................5
7. Responsibilities of Owner.....................................6
8. Facilities Revenue Fund.......................................6
9. Guaranteed Capacity Payment...................................6
10. Reimbursement Charges.........................................7
11. Subcontracting................................................8
12. Term and Termination .........................................8
13. Indemnification ..............................................9
14. Non-Waiver of Breach .........................................9
15. Arbitration ..................................................9
16. Attorneys' Fees .............................................10
17. Force Majeure ...............................................10
18. Invalid Provision ...........................................11
19. Assignment ..................................................12
20. Governing Law ...............................................12
21. Entire Agreement - Amendments ...............................12
<PAGE>
22. Communications ..............................................12
23. Counterparts ................................................13
24. Exhibits ....................................................13
25. Third Party Beneficiaries ...................................13
26. Headings ....................................................13
3
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TABLE OF EXHIBITS
-----------------
Section
-------
Exhibit "A" Guaranteed Capacity Payment 9.1
Target Levels
4
<PAGE>
TABLE OF SCHEDULES
------------------
Section
-------
Schedule "Z" Schedule of Defined Terms 1.1
5
<PAGE>
AMENDED AND RESTATED
OPERATING AND MAINTENANCE AGREEMENT
-----------------------------------
PREAMBLE
--------
THIS AMENDED AND RESTATED OPERATING AND MAINTENANCE AGREEMENT (the
"Agreement") is made as of June 17, 1996, by and between CALENERGY OPERATING
COMPANY, a Delaware corporation ("Operator"), and LEATHERS, L.P., a California
limited partnership ("Owner").
RECITALS
--------
A. Owner owns the Leathers Facility located in the Salton Sea Known
Geothermal Resource Area ("SSKGRA").
B. Owner intends to operate the Leathers Facility under the
following operating agreements: (i) an Administrative Services Agreement by
and between Owner and Operator, pursuant to which Operator will provide
certain administrative services to Owner for the operation of the Leathers
Facility in addition to the Services provided hereunder; (ii) a Technology
Transfer Agreement by and between Owner and Magma Power Company, a Nevada
corporation ("Magma"), pursuant to which Magma will provide Owner with the
nonexclusive right to use certain "Technology" and "Know-How" in connection
with the operation of the Leathers Facility; (iii) a Ground Lease by and
between Owner, as lessee, and Magma, as lessor, pursuant to which Magma will
lease to Owner the real property upon which the Leathers Facility is located;
(iv) an Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development by and between Owner and Magma pursuant to which Magma will supply
Owner with the right to extract Geothermal Brine and use geothermal
brine-derived steam which is necessary to operate the Leathers Facility; and
(v) a Power Purchase Contract by and between Owner and Southern California
Edison Company.
C. Owner desires to exploit Operator's personnel resources, and to
that end Owner desires to employ, hire or otherwise retain Operator for
purposes of performing the day-to-day operations at the Leathers Facility.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements set forth herein, the parties hereto agree as
follow:
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AGREEMENT
---------
1. Definitions.
1. Unless the context shall otherwise require, capitalized
terms used and not otherwise defined herein shall have the respective meanings
assigned thereto in Schedule Z hereto both of which shall be incorporated by
reference herein.
2. Operator's Services. In consideration of the payment by
Owner to Operator of the Guaranteed Capacity Payment and the Reimbursement
Charges, Operator agrees to perform during the term of this Agreement the
following services (the "Services"):
(a) Operator shall operate, maintain, and repair (or cause
to be operated, maintained, and repaired) the equipment associated with
the Leathers Facility, including all work normally considered part of the
operational and maintenance activities for facilities similar to the
Leathers Facility, and shall engage, supervise, and be responsible for any
and all personnel and Subcontractors necessary for the continuous
operation of the Leathers Facility. Notwithstanding the provisions of
Section 2(f) hereof, when specialized maintenance and repairs to the
Leathers Facility are required which cannot reasonably be performed by
Operator, Operator will subcontract with original equipment manufacturers
or similarly qualified personnel acceptable to Owner. Said operations,
maintenance, and repairs will be provided in accordance with the
requirements determined by Owner during the term of this Agreement. Owner
may modify, delete or supplement said requirements from time to time as
Owner, in its sole discretion, deems appropriate. Notice of any changes or
modifications in service requirements which may occur shall be provided by
Owner to Operator in writing. If Operator, in the exercise of good faith,
believes that an emergency exists and that certain changes or
modifications in service requirements are required to avoid or mitigate
serious damage to the Leathers Facility or injury to its personnel or
others, Operator may make such changes or modifications, to the extent so
necessary and required.
(b) Consistent with good engineering and operations
practices, Operator shall provide its Services so as to optimize both the
profitability of the Leathers Facility and the useful life of the
equipment as well as minimize downtime for repairs. Subject to the
provisions of this Agreement, Operator shall provide all labor, material,
and equipment necessary for such purposes.
(c) Operator shall develop and implement a preventive
maintenance program based upon, among other things, information and
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<PAGE>
procedures provided to Operator by Owner, which shall include on-going
operational maintenance. This preventive maintenance program shall be
implemented and carried out by Operator in accordance with the
specifications provided by Owner.
(d) Operator shall implement and maintain a Leathers
Facility safety and loss prevention program. Operator shall take all
reasonable precautions for the safety of its employees and shall comply
with all applicable provisions of federal, state and municipal laws,
building codes and insurance policies to prevent accidents or injuries to
persons or damage to property within or about the Leathers Facility.
(e) Operator shall maintain, inventory, and procure
replacement Spare Parts and specialized tools in order to maximize the
continuous operation of the Leathers Facility, and procure, inventory, and
maintain chemicals, consumables and working supplies necessary to carry
out the Services. Owner will provide a location for storage of Spare
Parts, chemicals, consumables and supplies.
(f) Subject to Owner's prior approval, Operator may
subcontract to qualified Subcontractors, including, without limitation,
Affiliates of Operator, such routine or non-routine work as is necessary
to perform scheduled or unscheduled maintenance and repairs, annual
inspections, and equipment overhauls; Operator shall supervise all work
subcontracted. The subcontracting of any work to outside Subcontractors
shall in no way relieve or excuse Operator from any of its obligations
under this Agreement with respect to said work. Subcontracts with
Affiliates of Operator shall be on a competitive and arms-length basis.
All charges associated with work subcontracted by Operator shall be billed
to Owner in accordance with Section 10 hereof.
(g) Operator shall arrange for scheduled testing and
recalibration to assure accuracy of scales, metering units (geothermal and
electric) and associated recording devices.
(h) Operator shall be responsible for providing security
for the Leathers Facility.
(i) Subject to shutdowns for scheduled maintenance,
Operator shall to the maximum extent achievable under the law and pursuant
to the terms of the Leathers Power Purchase Contract, use its best efforts
to maintain the Leathers Facility in operation, producing energy at its
full rated capacity, twenty-four (24) hours per day, seven (7) days per
week throughout the entire year, including legal and other holidays,
unless otherwise directed by Owner.
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<PAGE>
(j) At the request of Owner, Operator shall assist Owner
in obtaining any franchises, permits, licenses, easements, or
rights-of-way necessary for continued operation of the Leathers Facility.
(k) Operator shall employ such staff as is reasonably
necessary to perform routine, ministerial record keeping and
administrative functions of the Del Ranch Facility as reasonably required
by Owner for its use in billings, accounting for receipts and payments,
complying with governmental laws and regulations, with generally
acceptable accounting principles and with reporting requirements of any
Leathers Facility finance agreement or other agreement of Owner.
(l) Operator shall pursue warranty claims on behalf of
Owner.
(m) Operator shall establish and maintain such bank
accounts in the name and on behalf of Owner as may be necessary or
desirable for the performance of its obligations hereunder. All such
accounts and all amounts from time to time deposited therein shall be and
remain the property of Owner and shall be subject to withdrawal by Owner
from time to time in its discretion.
(n) Operator shall operate the Leathers Facility in
compliance with all permit conditions and applicable laws.
(o) Operator shall dispose of all Geothermal Brine Scale
and all Partially Spent Geothermal Brine from the operation of the
Leathers Facility (unless utilized by Magma pursuant to Section 2.3.3 of
the Easement Agreement) and all Totally Spent Geothermal Brine to the
extent Owner is required to dispose thereof pursuant to the Easement
Agreement.
(p) Operator shall be responsible for discharging all
duties and obligations, and protecting all rights, of Owner under the
Credit Facility, the Limited Partnership Agreement, the Leathers Power
Purchase Contract and the other Operating Agreements.
3. Standard of Services. Operator agrees to use good faith
efforts to perform all Services in accordance with the reasonable, good, and
prudent business practices applicable to the geothermal electrical generating
production industry and in a manner no less favorable than practices employed
by operators of other power production geothermal electrical generating
facilities, including, without limitation, Magma. Operator shall exercise its
good faith efforts to ensure that:
4
<PAGE>
(a) the Leathers Facility shall at all times be kept in
as near "as new" condition, ordinary wear and tear and Owner's operating
requirements considered, as can reasonably be achieved;
(b) the Services shall be rendered in accordance with
manufacturers' and systems designers' specifications as delivered to
Operator by Owner;
(c) the Leathers Facility shall at all times be operated
and the Services shall at all times be provided in accordance with all of
the terms of the Operating Agreements and all applicable codes,
governmental requirements or court orders (including, without limitation,
all zoning, environmental protection, pollution, sanitary, and safety
laws) except to the extent compliance with such requirements has been
excused or exempted by the applicable governmental or judicial authority;
(d) the Leathers Facility shall be operated in a manner
required such that the Leathers Facility is a "qualifying facility" as
provided in 18 C.F.R. ss. 292.203, as the same may be amended from time to
time; and
(e) the Leathers Facility shall be operated at all times
in such a manner that it shall comply with all safety and other
requirements of insurance policies in effect at said times with respect to
the Leathers Facility or any part thereof and with the reasonable request
of insurers and that all warranties with respect to the Leathers Facility
or any part thereof shall be kept in full force and effect.
4. Personnel. Operator shall provide and employ qualified
plant management, operations and maintenance personnel in sufficient numbers
to accomplish its Services hereunder and to comply with sound engineering and
operations practices. During the term of this Agreement, a duly authorized
on-site manager shall represent Operator at all times. Allpersonnel shall meet
minimum job qualifications associated with their positions as determined
mutually by Owner and by Operator. Operator's personnel shall possess
experience and training equal to standards generally set within the industry
to operate and maintain substantially similar equipment. Operator will use its
best efforts to hire competent and experienced personnel at competitive
compensation.
5. Inspection. Operator shall ensure that the Leathers
Facility and all records of the Leathers Facility will at all times be open to
Owner for inspection and review of operations and maintenance practices.
6. Change in Duties; Notification. Owner shall notify
Operator of the execution or amendment of each Operating Agreement and the
Limited Partnership
5
<PAGE>
Agreement which affects the Leathers Facility or the operation thereof and
which directly relates to the performance of Operator's duties under this
Agreement. Owner shall furnish to Operator a description of the provisions of
such agreement or amendment which directly relates to the performance of
Operator's duties under this Agreement in sufficient detail to enable Operator
to satisfactorily perform its duties hereunder.
7. Responsibilities of Owner. Owner will bear responsibility
for, among other things, reviewing and approving all required plans, budgets
and schedules in a timely fashion.
8. Facilities Revenue Fund. Subject to the provisions of the
Credit Facility and related loan documents regarding accounts:
1. Operator shall deposit all revenues received by Owner
in connection with the operation of the Facilities into the Revenue Fund (as
defined in the Credit Facility and related loan documents).
2. Operator is authorized to withdraw monies from the
Revenue Fund to pay costs of performing its obligations only to the extent
that the funds are then available in the Revenue Fund and such payments are
authorized pursuant to the terms of this Agreement and the Credit Facility and
related loan documents.
9. Guaranteed Capacity Payment. As an inducement to Operator
to operate the Leathers Facility, to the extent reasonably possible, in such a
manner as to, among other things, earn the maximum Total Electricity Revenues
possible on behalf of Owner, Owner shall pay Operator a fee (the "Guaranteed
Capacity Payment") calculated as follows:
1. The Guaranteed Capacity Payment, to the extent earned
by Operator, shall be paid to Operator on the last day of each of Owner's
fiscal years (or as soon thereafter as is reasonably practicable, but in no
event later than the next succeeding March 31) in an amount which is, for each
of Owner's fiscal years from 1989 through 1998 inclusive, the sum of the
following amounts:
(a) ten percent (10%) of the amount of Total
Electricity Revenues earned by Owner in such year in excess of the
amount listed in column A of Exhibit "A" with respect to such year up
to and including the amount listed in column B of Exhibit "A" with
respect to such year; plus
(b) twenty-five percent (25%) of the amount
of Total Electricity Revenues earned by Owner in such year in excess
of the amount listed in column B of Exhibit "A" with respect to such
year.
6
<PAGE>
2. The Guaranteed Capacity Payment, to the extent earned
by Operator, shall be paid to Operator on the last day of each of Owner's
fiscal years (or as soon thereafter as is reasonably practicable, but in no
event later than the next succeeding March 31) in an amount which is, for each
of Owner's fiscal years from 1999 through the end of the term of this
Agreement inclusive, the sum of the following amounts:
(a) ten percent (10%) of the amount of Total
Electricity Revenues earned by Owner in such year in excess of the
amount which is obtained by multiplying 268,056,000 by the Average
Annual Energy Price for such year up to and including the amount
which is obtained by multiplying 297,840,000 by the Average Annual
Energy Price for such year; plus
(b) twenty-five percent (25%) of the amount of Total
Electricity Revenues earned by Owner in such year in excess of the
amount which is obtained by multiplying 297,840,000 by the Average
Annual Energy Price for such year.
3. To the extent that there are not sufficient funds
to pay the Guaranteed Capacity Payment, any such shortfall (the "Accrued
Guaranteed Capacity Payment") shall accrue and be payable to Operator, with
interest thereon at a rate of seven percent (7%) per annum, on the next date
for payment of the Guaranteed Capacity Payment and any Accrued Guaranteed
Capacity Payment shall be paid prior to the Guaranteed Capacity Payment due on
the date on which such payment is made.
10. Reimbursement Charges.
1. In consideration of the provision by Operator to
Owner of the Services and in addition to the amounts payable to Operator
pursuant to Section 9 hereof, within ten (10) days after Owner has received an
invoice from Operator specifying the Services rendered to Owner by Operator
and the amount of actual costs and expenses incurred by Operator in rendering
such Services, Owner shall pay to Operator such specified amount. As used in
this Section 10, "actual costs and expenses incurred by Operator" includes,
without limitation, (a) the actual cost to Operator of goods and materials
used by Operator in rendering Services, (b) the pro rata cost to Operator of
personnel providing labor or services in the course of Operator's provision of
Services, (c) the portion of the cost of invested capital incurred by Operator
for the purchase of machinery and equipment used by Operator in connection
with the provision of Services fairly allocable to the use of such machinery
and equipment for performing the Services hereunder, taking into consideration
factors including the extent to which Operator can reasonably expect to earn a
return on its invested capital by utilizing such machinery and equipment for
providing services other than to the Leathers Facility and (d) the actual cost
to Operator, without any mark-up by Operator whatsoever, of retaining a
Subcontractor, whether an Affiliate of Operator or otherwise, in connection
with the provision of Services.
7
<PAGE>
2. With respect to any calculation of actual costs
and expenses or any allocation of costs contemplated by Section 10.1 hereof,
Owner shall be bound by Operator's determination thereof unless the same is
clearly erroneous.
11. Subcontracting. Without limiting the generality of
any provision contained herein concerning the same subject matter as this
Section 11, in the event Operator determines it to be reasonably necessary to
render the Services required hereunder through a Subcontractor, Operator may
subcontract with Affiliates of Operator, and Owner hereby consents to such
subcontracting for all purposes of this Agreement. For purposes of this
Agreement, any Services performed by such Affiliates shall be deemed to have
been performed by Operator.
12. Term and Termination.
1. Unless terminated as provided in Section 18
hereof, by written agreement between Owner and Operator as provided in Section
21 hereof, or as hereinafter provided in this Section 12, this Agreement shall
remain in effect until, and shall terminate on March 14, 2020.
2. In the event of a material default by either
party in the performance of its duties, obligations or undertakings under this
Agreement, the other party shall have the right to give written notice to the
defaulting party advising such party of the specific default involved and, if
within thirty (30) days after such notice the defaulting party shall not have
remedied or commenced diligently to remedy the default, the other party shall
have the right, in addition to any other rights and remedies it may have, to
terminate this Agreement upon ten (10) days' written notice to the defaulting
party.
3. Notwithstanding any other provision of this
Agreement, and in addition to any other right it may have, Operator shall have
the right to terminate this Agreement, effective immediately, if, at any time,
Owner is adjudged bankrupt or insolvent, or files a petition in bankruptcy or
an answer admitting the material facts recited in such a petition filed by
another, or is put or decides to go into dissolution or liquidation (other
than in connection with a merger, consolidation or amalgamation), or otherwise
discontinues business, makes an assignment for the benefit of its creditors or
any other general arrangement with its creditors, becomes insolvent or unable
to meet its current payments, or has a receiver or other custodian of any kind
appointed to administer any substantial amount of its property, or otherwise
seeks to take advantage of any bankruptcy or insolvency statute now or
hereafter in effect.
4. If this Agreement is terminated prior to the
expiration of its terms, Owner and Operator shall have the following rights,
remedies and obligations in addition to any other rights, remedies and
obligations they may have:
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(a) Owner shall pay Operator the Guaranteed Capacity
Payment, if any, earned by Operator as of the date this Agreement is
effectively terminated in the manner and subject to the conditions provided
for in Section 9 hereof.
(b) Owner shall pay Operator all amounts due and
payable to Operator under Section 10 hereof as of the date the Agreement is
effectively terminated.
13. Indemnification.
1. Owner shall defend, indemnify and hold Operator
and its agent and employees harmless from and against any and all other
liabilities, claims, damages, losses and expenses, including attorneys' fees
and costs and expenses of litigation or arbitration, of every kind and nature
arising out of the course of performance of this Agreement by Owner or
Operator and shall, upon request of Operator, defend all suits arising out of
or resulting from the performance of this Agreement by Owner or Operator,
provided that such liability, claim, damage, loss or expense is not
attributable to the gross negligence or willful misconduct of Operator.
2. Operator shall defend, indemnify and hold Owner
and its agents and employees harmless from and against any and all liabilities,
claims, damages, losses and expenses, including attorneys' fees and costs and
expenses of litigation or arbitration, of every kind and nature arising out of
Operator's gross negligence or willful misconduct in the course of Operator's
performance of this Agreement and shall, upon request of Owner, defend all
suits arising out or resulting from Operator's gross negligence or willful
misconduct in the performance of this Agreement.
14. Non-Waiver of Breach. Either party hereto may
specifically waive any breach of this Agreement by the other party, but no
such waiver shall be deemed to have been given unless such waiver is in
writing, signed by the waiving party and specifically designates the breach
waived, nor shall any such waiver constitute a continuing waiver of similar or
other breaches.
15. Arbitration. All disputes arising under this
Agreement shall be settled by arbitration. The party desiring such arbitration
shall give written notice to that effect to the other party and in such notice
shall appoint as an arbitrator a disinterested person of recognized competence
in the area at issue. Within fifteen (15) days thereafter, the other party
shall, by written notice to the originating party, appoint a second person
similarly qualified as the second arbitrator. The arbitrators thus appointed
shall appoint a third person similarly qualified as the third arbitrator, and
such three arbitrators shall as promptly as possible determine such matter
with the parties, each being entitled to present evidence and argument to the
arbitrators; provided, however, that:
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(a) if the second arbitrator shall not have been
appointed as aforesaid, the first arbitrator shall determine such
matter; and
(b) if the two arbitrators appointed by the party
shall be unable to agree upon the appointment of a third arbitrator
within fifteen (15) days after the appointment of the second
arbitrator, they shall give written notice of such failure to agree
to the parties, and, if the parties fail to agree upon the selection
of such third arbitrator within fifteen (15) days thereafter, then
within ten (10) days thereafter, either of the parties upon written
notice to the other party may apply for such appointment to the
Federal District Court or District Court in Omaha, Nebraska.
The arbitrator or arbitrators shall only interpret and
apply the terms and provisions of this Agreement and shall not change any such
terms or provisions or deprive either party of any right or remedy expressly
or impliedly provided for in this Agreement.
The determination of the majority of the arbitrators or the
sole arbitrator, as the case may be, shall, to the extent permitted by law, be
conclusive upon the parties. The arbitrator or arbitrators shall give written
notice to the parties stating their determination, and shall furnish to each a
copy of such determination signed by them. In the event of the failure,
refusal or inability of any arbitrator to act, a new arbitrator shall be
appointed in his stead, which appointment shall be made in the same manner as
hereinbefore provided for the appointment of the arbitrator so failing,
refusing or unable to act.
16. Attorneys' Fees. If either party hereto commences
litigation or arbitration for the judicial or other interpretation,
enforcement, termination, cancellation or rescission hereof, or for damages
for the breach hereof, the prevailing party in any such action, trial,
arbitration or appeal thereon shall be entitled to its reasonable attorneys'
fees and court, arbitration and other costs incurred, to be paid by the losing
party as fixed by the court or arbitrator in the same or a separate suit, and
whether or not such action is pursued to decision or judgment.
17. Force Majeure.
1. Neither Owner nor Operator shall be liable in
damages to the other for any act, omission or circumstance ("Event of Force
Majeure") occasioned by or in consequence of any acts of God, acts of the
public enemy, wars, blockades, insurrections, riots, epidemics, landslides,
lightning, earthquakes, fires, storms, floods, civil disturbances, explosions,
sabotage, the binding order of any court or governmental authority which has
been resisted in good faith by all reasonable legal means, Federal, State or
local laws, or other event or circumstance not within the control of such
party preventing such party from performing its obligations hereunder, whether
caused or
10
<PAGE>
occasioned by, or happening on account of, the act or omission of one of the
parties, not within the control of the party claiming suspension and which by
the exercise of due diligence such party is unable to prevent or overcome.
2. Such Events of Force Majeure shall not relieve
Owner or Operator of liability in the event of either party's concurring
negligence or in the event of either party's failure to use due diligence to
remedy the situation and to remove the cause in an adequate manner and with
all reasonable dispatch, nor shall such Events of Force Majeure relieve either
party of liability unless such party shall give notice and full particulars of
the same in writing to the other party within ten (10) days of the occurrence
relied on. In no event, however, shall an Event of Force Majeure relieve Owner
from the obligation of making payments due under this Agreement at the time of
such occurrence. The parties agree that should any Event of Force Majeure
remain in existence for a period of six (6) months, this Agreement may be
terminated by the party not claiming suspension of the Agreement under such
Event of Force Majeure upon the giving of written notice by such party to the
other; provided, however, that such six (6) month period shall be extended for
a reasonable time so long as throughout such six (6) month period the party
claiming suspension of this Agreement under the Event of Force Majeure has
diligently proceeded to terminate the Event of Force Majeure and continues to
do so throughout such extension.
18. Invalid Provision.
1. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such
invalid or unenforceable provisions were omitted; provided, however, that if
any of the provisions of Sections 9, 10 or 11 hereof are held invalid or
unenforceable by any court or other relevant authority, Owner and Operator
shall hold consultations over a period of ninety (90) days, commencing
immediately, in an effort to work out satisfactory terms for continuation of
this Agreement. If Owner and Operator do not reach agreement within this
period, Operator shall have the right to terminate this Agreement, effective
immediately.
2. In the event that any provision, term, condition
or object of this Agreement may be in conflict with any law, measure, ruling,
court judgment (by consent or otherwise), or regulation of the government of
the United States of America, and the legal counsel of either party shall
advise that in their considered opinion such conflict, or a reasonable
possibility of such conflict, exists, then either party may propose to the
other appropriate modifications of this Agreement to avoid such conflict. In
such case, if an agreement of modification is not reached within ninety (90)
days from such proposal, the party making such proposal, after sixty (60)
days' written notice to the other party, may terminate the agreement in its
entirety as of a date subsequent to such sixty (60) days, and which shall be
specified in such notice.
11
<PAGE>
19. Assignment. Subject to Section 11 hereof, neither
Owner nor Operator shall grant, assign or otherwise convey any of their
respective rights or delegate any of their respective obligations under this
Agreement without the prior written consent of the other party which shall not
be unreasonably withheld.
20. Governing Law. The existence, validity, construction,
operation and effect of this Agreement shall be determined in accordance with
and governed by the laws of the State of California. This Agreement shall be
construed equally as against the parties hereto, and shall not be construed
against the party responsible for its drafting.
21. Entire Agreement - Amendments. This Agreement
constitutes the entire agreement of the parties and the provisions hereof
shall supersede any and all prior agreements or understandings relating to the
same subject matter. Without limiting the generality of the foregoing, from
and after the date hereof, the terms of the Operating and Maintenance
Agreement dated as of March 14, 1988 (the "Original Operating and Maintenance
Agreement") between Owner and Operator shall be amended to read in their
entirety as set forth in this Agreement and the terms of this Agreement shall
govern and control the rights and obligations of the parties in and with
respect to the matters herein set forth, notwithstanding any conflict between
the terms of this Agreement and the terms of the Original Operating and
Maintenance Agreement. This Agreement may be amended only by a writing signed
by a duly authorized representative of both parties.
22. Communications. All notices, requests, offers and
other communications required or permitted to be made under this Agreement
shall be in writing and shall be deemed to have been duly given and received,
regardless of when and whether received, either: (a) on the day of delivery,
if delivered:
To Operator at:
CalEnergy Operating Company
302 South 36th Street
Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
12
<PAGE>
To Owner at:
Leathers, L.P.
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
or at such other address as either party most recently may have designated in
writing to the other party for such purpose; or (b) on the day sent, when sent
by prepaid telex, telegram, cable or radiogram, and confirmed the same day by
prepaid first-class registered airmail, addressed to Operator or Owner, as the
case may be, at their respective addresses aforesaid.
23. Counterparts. This Agreement may be executed in
counterparts and any number of counterparts signed in the aggregate by the
parties hereto shall constitute a single original instrument.
24. Exhibits. All exhibits and schedules attached hereto
are hereby incorporated herein by this reference.
25. Third Party Beneficiaries. The covenants contained
herein are made solely for the benefit of the properties, parties and
successors and assigns of such parties as specified herein, and shall not be
construed as having been intended to benefit any third party not a party to
this Agreement.
26. Headings. The headings herein are for reference only
and shall not affect the construction of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.
OWNER:
LEATHERS, L.P.,
a California limited partnership
By: CALENERGY OPERATING COMPANY,
a Delaware corporation,
as General Partner
By: /S/ John G. Sylvia
--------------------------
Name: John G. Sylvia
--------------------------
Title: Senior Vice President
--------------------------
OPERATOR:
CALENERGY OPERATING COMPANY,
a Delaware corporation
By: /S/ John G. Sylvia
--------------------------
Name: John G. Sylvia
--------------------------
Title: Senior Vice President
--------------------------
14
<PAGE>
Exhibit "A"
Guaranteed Capacity Payment Target Levels
-----------------------------------------
($000s)
Column Column
Year A B
- ---- ------ ------
1989 27,391 30,435
1990 28,738 31,944
1991 30,078 33,433
1992 31,955 35,518
1993 34,099 37,901
1994 36,243 40,283
1995 38,656 42,964
1996 40,800 45,346
1997 43,481 48,324
1998 46,161 51,303
15
POWER PURCHASE CONTRACT
BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY
AND
IMPERIAL ENERGY CORPORATION
NILAND NO. 2
<PAGE>
TABLE OF CONTENTS
SECTION TITLE PAGE
------- ----- ----
1 PROJECT SUMMARY 1
2 DEFINITIONS 4
3 TERM 9
4 GENERATING FACILITY 10
5 OPERATING OPTIONS 19
6 ELECTRIC LINES AND ASSOCIATED EASEMENTS 19
7 METERING 20
8 POWER PURCHASE PROVISIONS 22
9 PAYMENT AND BILLING PROVISIONS 42
10 TAXES 44
11 TERMINATION 44
12 SALE OF GENERATING FACILITY 44
13 ABANDONMENT OF PROJECT 46
14 LIABILITY 46
15 INSURANCE 48
16 UNCONTROLLABLE FORCES 51
17 NONDEDICATION OF FACILITIES 52
18 PRIORITY OF DOCUMENTS 53
19 NOTICES AND CORRESPONDENCE 53
20 PREVIOUS COMMUNICATIONS 53
21 THIRD PARTY BENEFICIARIES 54
22 NONWAIVER 54
23 DISPUTES 54
24 SUCCESSORS AND ASSIGNS 56
i
<PAGE>
TABLE OF CONTENTS
SECTION TITLE Page
------- ----- ----
25 EFFECT OF SECTION HEADINGS 56
26 TRANSMISSION AND INTERCONNECTION 56
27 EFFECT OF SECTION HEADINGS 59
28 GOVERNING LAW 59
29 CONFIDENTIALITY 59
30 MULTIPLE ORIGINALS 60
SIGNATURES 61
APPENDIX A A-1
APPENDIX B B-1
APPENDIX C C-1
ii
<PAGE>
1. PROJECT SUMMARY
This Contract is entered into between Southern California Edison
Company ("Edison") and Imperial Energy Corporation, a California
Corporation ("Seller"). Seller is willing to construct, own and
operate a Qualifying Facility and sell electric power to Edison and
Edison is willing to purchase electric power delivered by Seller to
Edison at the Point of Interconnection pursuant to the terms and
conditions set forth as follows:
1.1 All Notices shall be sent to Seller at the following address:
Imperial Energy Corporation
5743 Corsa Avenue, Suite 216
Westlake Village, CA 91362
Attn: President
1.2 Seller's Generating Facility:
a. Nameplate Rating: 49,000 kW.
b. Location: Niland, Imperial County, California
c. Generating Facility Designation: Imperial Energy
Corporation-Niland Plant No. 2
d. Type (Check One):
_____ Cogeneration Facility
x Small Power Production Facility
1.3 Contract Capacity: 49,000 kW
1.3.1 Estimated as-available capacity: 0 kW.
1.4 Expected annual production: 365,000,000 kWh.
1.5 Expected Date of Firm Operation: January 1, 1990
1.6 Contract Term: 30 years
<PAGE>
1.7 Operating Options pursuant to Section 5: (Check One)
X Operating Option I. Excess Generator output
dedicated to Edison. No electric service or
standby service required from Edison.
1.8 The Capacity Payment Option selected by Seller pursuant to
Section 8.1 shall be: (Check One)
_____ Option A - As-available capacity based upon:
_____ Standard Offer No. 1 Capacity Payment
Schedule, or
_____ Forecast of Annual As-Available Capacity
Payment Schedule
X Option B - Firm Capacity
X Standard Offer No. 2 Capacity Payment Schedule
-----in effect at time of Contract execution
Standard Offer No. 2 Capacity Payment Schedule
-----in effect at time of Firm Operation
1.9 The Energy Payment Option selected by Seller pursuant to
Section 8.2 shall be: (Check One)
X Option 1 - Forecast of Annual Marginal Cost of Energy
----- in effect at date of execution of this Contract.
(Appendix B)
Option 2 - Levelized Forecast of Marginal Cost of
----- Energy in effect at date of execution of this
Contract. (Appendix C)
For the energy payment refund pursuant to Section
8.5 under Option 2, Edison's Incremental Cost of
Capital is 15%.
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Seller may change once between Options 1 and 2, provided
Seller delivers written notice of such change at least 90
days prior to the date of Firm Operation. For Option 1 or 2,
Seller elects to receive the following percentages in 20%
increments, the total of which shall equal 100%:
100 percent of Forecast of Annual Marginal Cost of Energy, and
0 percent of Edison's published avoided cost of
----- energy as updated periodically and accepted by the
Commission.
1.10 Metering Location (Check one)
Seller elects metering location pursuant to Section 7 as
follows:
X Edison's side of the Point of Interconnection
-----
Seller's side of the Point of Interconnection.
----- Loss compensation factor is equal to ________,
pursuant to Section 7.2.
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GENERAL TERMS AND CONDITIONS
2. DEFINITIONS
When used with initial capitalizations, whether in the singular or in
the plural, the following terms shall have the following meanings:
2.1 Adjusted Capacity Price: The $/kW-yr capacity purchase price
based on the Capacity Payment Schedule in effect at the time
of Contract execution for the time period beginning on the
date of Firm Operation for the first generating unit and
ending on the date of termination or reduction of Contract
Capacity under Capacity Payment Option B.
2.2 Appendix A: Capacity Payment Schedule - Forecast of Annual
As-Available Capacity.
2.3 Appendix B: Energy Payment Schedule - Forecast of Annual
Marginal Cost of Energy.
2.4 Appendix C: Energy Payment Schedule - Levelized Forecast of
Marginal Cost of Energy.
2.5 Capacity Payment Schedule(s): Published capacity payment
schedule(s) as authorized by the Commission and in effect at
the time of execution of this Contract for as-available or
firm capacity.
2.6 Commission: The Public Utilities Commission of the State of
California.
2.7 Contract: This document and Appendices, as amended from time
to time.
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<PAGE>
2.8 Contract Capacity: The electric power producing capability
of the Generating Facility which is committed to Edison.
2.9 Contract Capacity Price: The capacity purchase price from
the Capacity Payment Schedule approved by the Commission and
in effect on the date of execution of this Contract for
Capacity Payment Option B.
2.10 Contract Term: Period in years commencing with date of Firm
Operation during which Edison shall purchase electric power
from Seller.
2.11 Current Capacity Price: The $/kW-yr capacity price provided
in the Capacity Payment Schedule determined by the year of
termination or reduction of Contract Capacity and the number
of years from such termination or reduction to the
expiration of the Contract Term for Capacity Payment Option
B.
2.12 Edison: The Southern California Edison Company.
2.13 Edison Electric System Integrity: The state of operation of
Edison's electric system in a manner which is deemed to
minimize the risk of injury to persons and/or property and
enables Edison to provide adequate and reliable electric
service to its customers.
2.14 Emergency: A condition or situation which in Edison's sole
judgment affects Edison Electric System Integrity.
2.15 Energy: Kilowatthours generated by the Generating Facility
which are purchased by Edison at the Point of
Interconnection.
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<PAGE>
2.16 Firm Operation: The date agreed on by the Parties on which
each generating unit of the Generating Facility is
determined to be a reliable source of generation and on
which such unit can be reasonably expected to operate
continuously at its effective rating (expressed in kW).
2.17 First Period: The period of the Contract Term specified in
Section 3.1.
2.18 Forced Outage: Any outage other than a scheduled outage of
the Generating Facility that fully or partially curtails its
electrical output.
2.19 Generating Facility: All of Seller's generators, together
with all metering, protective and other associated equipment
and improvements, necessary to produce electrical energy at
Seller's Facility and deliver such power to the
Interconnecting Utility's electric system, excluding
associated land, land rights, and interests in land.
2.20 Generator: The generator(s) and associated Prime mover(s),
which are a part of the Generating Facility.
2.21 Interconnecting Utility: The electric utility, or any other
utility which takes delivery of electrical energy generated
by the Generating Facility.
2.22 Operate: To provide the engineering, purchasing, repair,
supervision, training, inspection, testing, protection,
operation, use, management, replacement, retirement,
reconstruction, and maintenance of and for
-6-
<PAGE>
the Generating Facility in accordance with applicable
California utility standards and good engineering practices.
2.23 Operating Representatives: Individual(s) appointed by each
Party for the purpose of securing effective cooperation and
interchange of information between the Parties in connection
with administration and technical matters related to this
Contract.
2.24 Parties: Edison and Seller.
2.25 Party: Edison or Seller.
2.26 Peak Months: Those months which the Edison annual system
peak demand could occur. Currently, but subject to chance
with notice, the peak months for the Edison system are June,
July, August, and September.
2.27 Point of Interconnection: The point where the electrical
energy generated by the Seller, at the Generating Facility,
is delivered to the Edison electric system.
2.28 Protective Apparatus: That equipment and apparatus installed
by Seller and/or Interconnecting Utility necessary for
proper and safe operation of the Generating Facility in
parallel with the Interconnecting Utility's electric system.
2.29 Qualifying Facility: Cogeneration or Small Power Production
Facility which meets the criteria as defined in Title 18,
Code of Federal Regulations, Section 292.201 through
292.207.
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<PAGE>
2.30 Renewable Resources: Wind parks, small hydroelectric, solar,
and geothermal resources which produce electric power.
2.31 Second Period: The period of the Contract Term specified in
Section 3.2.
2.32 Seller: The Party identified in Section 1.0.
2.33 Seller's Facility: The premises and equipment of Seller
located as specified in Section 1.2.
2.34 Small Power Production Facility: The facilities and
equipment which use biomass, waste, or Renewable Resources,
including wind, solar, geothermal, and water, to produce
electrical energy as defined in Title 18, Code of Federal
Regulations, Section 292.201 through 292.207.
2.35 Summer Period: Defined in Edison's Tariff Schedule
No. TOU-8 as now in effect or as may hereafter be authorized
by the Commission.
2.36 Tariff Schedule No. TOU-8: Edison's time-of-use energy
tariff for electric service exceeding 500 kW, as now in
effect or as may hereafter be authorized by the Commission.
2.37 Uncontrollable Forces: Any occurrence beyond the control of
a Party which causes that Party to be unable to perform its
obligations hereunder and which a Party has been unable to
overcome by the exercise of due diligence, including but not
limited to flood, drought, earthquake, storm, fire,
pestilence, lightning and
-8-
<PAGE>
other natural catastrophes, epidemic, war, riot, civil
disturbance or disobedience, strike, labor dispute, action
or inaction of government or other proper authority, which
may conflict with the terms of this Contract, or failure,
threat of failure or sabotage of facilities which have been
maintained in accordance with good engineering and operating
practices in California. The failure of the Interconnecting
Utility to deliver electrical energy generated by the
Generating Facility to the Point of Interconnection shall
not be considered an Uncontrollable Force.
2.38 Winter Period: Defined in Edison's Tariff Schedule No.TOU-8
as now in effect or as may hereafter be authorized by the
Commission.
3. TERM
This Contract shall be effective upon execution by the Parties and
shall remain effective until either Party gives 90 days prior written
notice of termination to the other Party, except that such notice of
termination shall not be effective to terminate this Contract prior
to expiration of the Contract Term specified in Section 1.6.
3.1 The First Period of the Contract Term shall commence upon
date of Firm Operation but not later than 5 years from the
date of execution of this Contract.
a. If the Contract Term specified in Section 1.6 is
15 years, the First Period of the Contract Term
shall be for 5 years.
-9-
<PAGE>
b. If the Contract Term specified in Section 1.6 is 20,
25, or 30 years, the First Period of the Contract
Term shall be for 10 years.
3.2 The Second Period of the Contract Term shall commence upon
expiration of the First Period and shall continue for the
remainder of the Contract Term.
4. GENERATING FACILITY.
4.1 Ownership
The Generating Facility shall be owned by Seller.
4.2 Design
4.2.1 Seller, at no cost to Edison, shall:
a. Design the Generating Facility.
b. Acquire all permits and other approvals necessary
for the construction, operation, and maintenance
of the Generating Facility.
c. Complete all environmental impact studies
necessary for the construction, operation, and
maintenance of the Generating Facility.
4.2.2 Edison shall have the right to:
a. Review the design of the Generating Facility's
electrical system. Such review shall be required
if necessary to maintain Edison Electric System
Integrity when in parallel with the Edison
electric system. Such review
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<PAGE>
may include, but not be limited to, the
Generator, governor, excitation system,
synchronizing equipment, protective relays, and
neutral grounding. The Seller shall be notified
in writing of the-outcome of the Edison review
within 30 days of the receipt of all
specifications for the Generating Facility's
electrical system. Any flaws perceived by Edison
in the design shall be described in Edison's
written notice.
b. Edison shall have the right to request
modifications to the design of the Generating
Facility's electrical system. Such modifications
shall be required if necessary to maintain
Edison Electric System Integrity when in
parallel with the Edison electric system.
4.3 Construction
Edison shall have the right to review, consult with, and
make recommendations regarding Seller's construction
schedule and to monitor the construction and start-up of the
Project. Seller shall notify Edison, as far in advance of
Firm Operation as reasonably possible, of changes in
Seller's
-11-
<PAGE>
Construction Schedule which may affect the date of Firm
Operation.
4.4 Operation
4.4.1 Edison shall have the right to monitor
operation of the Project and may require changes
in Seller's method of operation if such changes
are necessary, in Edison's sole judgment, to
maintain Edison Electric System Integrity.
4.4.2 Seller shall notify, in writing, Edison's
Operating Representative at least 14 days prior
to the initial delivery of electrical energy
from the Generating Facility to the Point of
Interconnection. Edison shall have the right to
have a representative present.
4.4.3 Edison shall have the right to require Seller to
curtail or reduce the delivery of electrical
energy from the Generating Facility to the Point
of Interconnection, whenever Edison determines,
in its sole judgment, that such curtailment or
reduction is necessary to facilitate maintenance
of Edison's facilities, or to maintain Edison
Electric System Integrity. Each Party shall
endeavor to correct, within a reasonable period,
the condition on its system which necessitates
the curtailment or the reduction
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<PAGE>
of delivery of electrical energy from the
Generating Facility. The duration of the
curtailment or the reduction shall be limited to
the period of time such a condition exists.
4.4.4 Each Party shall keep the other Party's Operating
Representative informed as to the operating
schedule of their respective facilities
affecting each other's operation hereunder,
including any reduction in Contract Capacity
availability. In addition, Seller shall provide
Edison with reasonable advance notice regarding
its scheduled outages including any reduction in
Contract Capacity availability. Reasonable
advance notice is as follows:
SCHEDULED OUTAGE ADVANCE NOTICE
EXPECTED DURATION TO EDISON
----------------- --------------
Less than one day 24 Hours
One day or more
(except major overhauls) 1 Week
Major Overhaul 6 Months
4.4.5 Notification by each Party's Operating
Representative of outage date and duration
should be directed to the other Party's
operating Representative by telephone.
4.4.6 Seller shall not schedule major overhauls during
Peak Months.
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<PAGE>
4.4.7 Seller shall maintain an operating log at
Seller's Facility with records of: real and
reactive power production; changes in operating
status, outages, Protective Apparatus
operations; and any unusual conditions found
during inspections. Changes in setting shall
also be logged for Generators which are
"block-loaded" to a specific kW capacity. In
addition, Seller shall maintain records
applicable to the Generating Facility, including
the electrical characteristics of the Generator
and settings, adjustments of the Generator
control equipment, and well-field information.
Information maintained pursuant to this Section
4.4.7 shall be provided to Edison, within 30
days of Edison's request.
4.4.8 At Edison's request, Seller shall make all
reasonable effort to deliver power at an average
rate of delivery at least equal to the Contract
Capacity during periods of Emergency. In the
event that the Seller has previously scheduled
an outage coincident with an Emergency, Seller
shall make all reasonable efforts to reschedule
the outage. The notification periods listed in
Section
-14-
<PAGE>
4.4.4 shall be waived by Edison if Seller
reschedules the outage.
4.4.9 Seller shall demonstrate the ability to provide
Edison the specified Contract Capacity within 30
days of the date of Firm Operation. Thereafter,
at least once per year at Edison's request,
Seller shall demonstrate the ability to provide
Contract Capacity for a reasonable period of
time as required by Edison. Seller's
demonstration of Contract Capacity shall be at
Seller's expense and conducted at a time and
pursuant to procedures mutually agreed upon by
the Parties. If Seller fails to demonstrate the
ability to provide the Contract Capacity, the
Contract Capacity shall be reduced by agreement
of the Parties pursuant to Section 8.1.2.5.
4.4.10 The Seller warrants that the Generating Facility
meets the requirements of a Qualifying Facility
as of the date of initial delivery of electrical
energy from the Generating Facility to the Point
of Interconnection and continuing through the
Contract Term.
4.4.11 The Seller warrants that the Generating Facility
shall, at all times, conform to all
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<PAGE>
applicable laws and regulations. Seller shall
obtain and maintain any governmental
authorizations and permits for the continued
operation of the Generating Facility. If, at any
time, Seller does not hold such authorizations
and permits, Seller agrees to reimburse Edison
for any loss which Edison incurs as a result of
the Seller's failure to maintain governmental
authorization and permits.
4.4.12 In the event electrical energy from the
Generating Facility is curtailed or reduced
pursuant to Sections 4.4.3, 16 or 8.4, the
Seller, in its sole discretion, may elect to (i)
sell said electrical energy to a third party or
(ii) deliver said electrical energy to a third
party for future delivery to Edison at times and
at amounts agreeable to Edison. The Seller shall
be responsible for making all such arrangements.
The provisions in this Section 4.4.12 shall only
apply for the duration of the curtailment or
reduction.
4.4.13 Seller shall maintain operating
communications with the Edison switching center
designated by the Edison Operating
Representative. The operating communications
shall include, but not be limited to, system
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<PAGE>
paralleling or separation, scheduled and
unscheduled shutdowns, equipment clearances,
levels of operating voltage or power factors,
and daily capacity and generation reports.
4.5 Maintenance
4.5.1 Seller shall maintain the Generating
Facility in accordance with applicable
California utility industry standards and good
engineering and operating practices. Edison
shall have the right to monitor such maintenance
of the Generating Facility. Seller shall
maintain and deliver a maintenance record of the
Generating Facility to Edison's Operating
Representatives upon request.
4.5.2 Seller shall make a reasonable effort to
schedule routine maintenance during Off-Peak
Months and expected minimal generation periods
for renewable resources. Outages for scheduled
maintenance shall not exceed a total of 30 peak
hours for the Peak Months.
4.5.3 The allowance for scheduled maintenance is as
follows:
a. Outage periods for scheduled maintenance shall
not exceed 840 hours (35 days) in any 12-month
period. This allowance may be used in
increments of an hour or
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<PAGE>
longer on a consecutive or nonconsecutive
basis.
b. Seller may accumulate unused maintenance
hours on a year-to-year basis up to a maximum
of 1,080 hours (45 days). This accrued time
must be used consecutively and only for major
overhauls.
4.6 Any review by Edison of the design, construction, operation,
or maintenance of the Generating Facility is solely for the
information of Edison. By making such review, Edison makes
no representation as to the economic and technical
feasibility, operational capability, or reliability of the
Generating Facility. Seller shall in no way represent to any
third party that any such review by Edison of the Generating
Facility, including, but not limited to, any review of the
design, construction, operation, or maintenance of the
Generating Facility by Edison, is a representation by Edison
as to the economic and technical feasibility, operational
capability, or reliability of said facilities. Seller is
solely responsible for economic and technical feasibility,
operational capability, and reliability thereof.
4.7 Edison shall have access to the Seller's geothermal field
and power-generating facilities for the purpose of gathering
technical information and records. The technical information
and records shall include, but
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not be limited to, drilling data, well-testing data,
well-production data and design, power plant performance
data and design, environmental data, brine handling design,
and operation and maintenance data. Edison agrees not to
interfere with Seller's rules and operating regulations.
5. OPERATING OPTIONS
5.1 Seller shall Operate its Generating Facility pursuant to the
following option:
a. Operating Option I: Seller dedicates the excess Generator
output to Edison with no electrical service or standby
service required from Edison.
6. ELECTRIC LINES AND ASSOCIATED EASEMENTS
6.1 Edison shall, as it deems necessary or desirable, build
electric lines, facilities and other equipment, both
overhead and underground, on and off Seller's Facility, for
the purpose of effecting the agreements contained in this
Contract. The physical location of such electric lines,
facilities and other equipment on Seller's Facility shall be
determined by agreement of the Parties.
6.2 Seller shall reimburse Edison for the cost of acquiring
property rights off Seller's Facility required by Edison to
meet its obligations under this Contract.
6.3 Seller shall grant to Edison, without cost to Edison, and by
an instrument of conveyance, acceptable to Edison, rights of
way, easements and other property
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interests necessary to construct, reconstruct, use,
maintain, alter, add to, enlarge, repair, replace, inspect
and remove, at any time, the electric lines, facilities or
other equipment, both overhead and underground, which are
required by Edison to effect the agreements contained in the
Contract. The rights of ingress and egress at all reasonable
times necessary for Edison to perform the activities
contemplated in the Contract.
6.4 The electric lines, facilities, or other equipment referred
to in this Section 6 installed by Edison on or off Seller's
Facility shall be and remain the property of Edison.
6.5 Edison shall have no obligation to Seller for any delay or
cancellation due to inability to acquire satisfactory right
of way, easements, or other property interests.
7. METERING
7.1 All meters and equipment used for the measurement of
electrical power for determining Edison's payments to Seller
pursuant to this Contract shall be provided, owned, and
maintained by Edison and/or the Interconnecting Utility at
Seller's expense.
7.2 The meters and equipment used for measuring the Energy sold
to Edison shall be located on the side of the Point of
Interconnection as specified by Seller in Section 1.10. If
the metering equipment is located on
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Seller's side of the Point of Interconnection, then a loss
compensation factor agreed upon by the Parties shall be
applied. At the written request of the Seller, and at
Seller's sole expense, Edison shall measure actual
transformer losses. If the actual measured value differs
from the agreed-upon loss compensation factor, the actual
value shall be applied prospectively. If the meters are
placed on Edison's side of the Point of Interconnection,
service shall be provided at the available transformer
high-side voltage.
7.3 For purposes of monitoring the Generator operation, Edison
shall have the right to require, at Seller's expense, the
installation of generation metering. Edison may also require
the installation of telemetering equipment at Seller's
expense for Generating Facilities equal to or greater than
10 MW. Edison may require the installation of telemetering
equipment at Edison's expense for Generating Facilities less
than 10 MW.
7.4 Edison's meters shall be sealed and the seals shall be
broken only when the meters are to be inspected, tested, or
adjusted by Edison. Seller shall be given reasonable notice
of testing and have the right to have its Operating
Representative present on such occasions.
7.5 Edison's meters installed pursuant to this Contract shall be
tested by Edison, at Edison's expense, at
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least once each year and at any reasonable time upon request
by either Party, at the requesting Party's expense. If
Seller makes such request, Seller shall reimburse said
expense to Edison within thirty days after presentation of a
bill therefor.
7.6 Edison's metering equipment found to be inaccurate shall be
repaired, adjusted, or replaced by Edison such that the
metering accuracy of said equipment shall be within plus or
minus two percent. If metering equipment inaccuracy exceeds
plus or minus two percent, the correct amount of Energy and
capacity delivered during the period of said inaccuracy
shall be estimated by Edison and agreed upon by the Parties.
8. POWER PURCHASE PROVISIONS
Prior to the date of Firm Operation, Seller shall be paid for Energy
only pursuant to Edison's published avoided cost of energy based on
Edison's full avoided operating cost as periodically updated and
accepted by the Commission. If at any time electrical energy can be
delivered to Edison and Seller is contesting the claimed jurisdiction
of any entity which has not issued a license or other approval for
the Project, Seller, in its sole discretion and risk, may deliver
electrical energy to Edison and for any electrical energy purchased
by Edison Seller shall receive payment from Edison for (i) Energy
pursuant to this Section, and (ii) as-available capacity based on a
capacity price from the Standard Offer No. 1 Capacity Payment
Schedule as approved
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by the Commission. Unless and until all required licenses and
approvals have been obtained, Seller may discontinue deliveries at
any time.
8.1 Capacity Payments.
Seller shall sell to Edison and Edison shall purchase from
Seller capacity pursuant to the Capacity Payment option
selected by Seller in Section 1.8. Seller shall receive
monthly payments for capacity equal to 100% of the payment
provisions specified in this Section 8.1.
8.1.1 Capacity Payment Option A -- As-Available Capacity.
If Seller selects Capacity Payment Option A, Seller
shall be paid a Monthly Capacity Payment calculated
pursuant to the following formula:
Monthly Capacity Payment = (A x D)+(B x D)+(C x D)
Where A = kWh purchased by
Edison at the Point of
Interconnection during
on-peak periods defined
in Edison's Tariff
Schedule No. TOU-8.
B = kWh purchased by Edison
at the Point of
Interconnection during
mid-peak periods defined
in Edison's Tariff
Schedule No. TOU-8.
C = kWh purchased by Edison
at the Point of
Interconnection during
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off-peak periods defined
in Edison's Tariff
Schedule No. TOU-8.
D = The appropriate time
differentiated capacity
price from either the
Standard Offer No. 1
Capacity Payment Schedule
or Forecast of Annual
As-Available Capacity
Payment Schedule as
specified by Seller in
Section 1.8.
8.1.1.1 If Seller specifies the Standard Offer
No. 1 Capacity Payment Schedule in
Section 1.8, then the formula set forth
in Section 8.1.1 shall be computed with
D equal to the appropriate time
differentiated capacity price from the
Standard Offer No. 1 Capacity Payment
Schedule for the Contract Term.
8.1.1.2 If Seller specifies the Forecast of
Annual As-Available Capacity Payment
Schedule in Section 1.8, the formula set
forth in Section 8.1.1 shall be computed
as follows:
a. During the First Period of the
Contract Term, D shall equal the
appropriate time differentiated
capacity price from the Forecast of
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Annual As-Available Capacity Payment
Schedule.
b. During the Second Period of the
Contract Term, the formula shall be
computed with D equal to the
appropriate time differentiated
capacity price from Standard Offer
No. 1 Capacity Payment Schedule,
but not less than the greater of
(i) the appropriate time
differentiated capacity price from
the Forecast of Annual As-Available
Capacity Payment Schedule for the
last year of the First Period, or
(ii) the appropriate time
differentiated capacity price from
the Standard Offer No. 1 Capacity
Payment Schedule for the first year
of the Second Period.
8.1.2 Capacity Payment Option B--Firm Capacity Purchase
If Seller selects Capacity Payment Option B, Seller
shall provide to Edison for the Contract Term the
Contract Capacity specified in Section 1.3, or as
adjusted pursuant to Section 8.1.2.6, and Seller
shall be paid as follows:
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8.1.2.1 If Seller meets the performance
requirements set forth in Section
8.1.2.2, Seller shall be paid a Monthly
Capacity Payment, beginning from the
date of Firm Operation equal to the sum
of the on-peak, mid-peak, and off-peak
Capacity Period Payments. Each capacity
period payment is calculated pursuant to
the following formula:
Monthly Capacity Period = A x B x C x D
Payment
Where A = Contract Capacity Price specified in
Section 1.8 based on the Standard Offer
No. 2 Capacity Payment Schedule
as approved by the Commission and in
effect on the date of the execution of
this Agreement.
B = Conversion factors to convert annual
capacity prices to monthly payments by
time of delivery as specified in
Standard Offer No. 2 Capacity Payment
Schedule and subject to periodic
modifications as approved by the
Commission.
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C = Contract Capacity specified in
Section 1.3.
D = Period Performance Factor, not to exceed
1.0, calculated as follows:
[Period kWh Purchased by Edison at the
Point of Interconnection (Limited
Period Performance Factor = by the Level of Contract Capacity)]
--------------------------
[0.8 x Contract Capacity x (Period Hours
minus Maintenance Hours Allowed
in Section 4.5.)]
8.1.2.2 Performance Requirements
To receive the Monthly Capacity Payment
in Section 8.1.2.1, Seller shall provide
the Contract Capacity in each Peak Month
for all on-peak hours as such peak hours
are defined in Edison's Tariff Schedule
No. TOU-8 on file with the Commission,
except that Seller is entitled to a 20%
allowance for Forced Outages for each
Peak Month. Seller shall not be subject
to such performance requirements for the
remaining hours of the year.
a. If Seller fails to meet the
requirements specified in
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Section 8.1.2.2, Seller, in Edison's
sole discretion, may be placed on
probation for a period not to
exceed 15 months. If Seller fails
to meet the requirements specified
in Section 8.1.2.2 during the
probationary period, Edison may
derate the Contract Capacity to the
greater of the capacity actually
delivered during the probationary
period, or the capacity at which
Seller can reasonably meet such
requirements. A reduction in
Contract Capacity as a result of
this Section 8.1.2.2 shall be
subject to Section 8.1.2.5.
b. If Seller fails to meet the
requirements set forth in this
Section 8.1.2.2 due to a Forced
Outage on the Edison system, or a
request to reduce or curtail
delivery under Section 8.4, Edison
shall continue Monthly Capacity
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Payments pursuant to Capacity Payment
Option B. The Contract Capacity
curtailed shall be treated the same
as scheduled maintenance outages in
the calculation of the Monthly
Capacity Payment.
8.1.2.3 If Seller is unable to provide Contract
Capacity due to Uncontrollable Forces,
Edison shall continue Monthly Capacity
Payments pursuant to Capacity Payment
Option B for 90 days from the occurrence
of the Uncontrollable Force. Monthly
Capacity Payments payable during a
period of interruption or reduction by
reason of an Uncontrollable Force shall
be treated the same as scheduled
maintenance outages.
8.1.2.4 Capacity Bonus Payment For Capacity
Payment Option B, Seller may receive a
Capacity Bonus Payment as follows:
a. Bonus During Peak Months For a Peak
Month, Seller shall receive a
Capacity Bonus
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Payment if (i) the requirements set
forth in Section 8.1.2.2 have been
met, and (ii) the on-peak capacity
factor exceeds 85%.
b. Bonus During Non-Peak Months
For a non-peak month, Seller shall
receive a Capacity Bonus Payment if
(i) the requirements set forth in
Section 8.1.2.2 have been met, (ii)
the on-peak capacity factor for
each Peak Month during the year was
at least 85%, and (iii) the on-peak
capacity factor for the non-peak
month exceeds 85%.
c. For any eligible month, the
Capacity Bonus Payment shall be
calculated as follows:
Capacity Bonus Payment = A x B x C x D
Where A = (1.2 x On-Peak Capacity Factor)-1.02
Where the On-Peak Capacity Factor, not to exceed 1.0, is
calculated as follows:
[Period kWh Purchased by Edison at
the Point of
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Interconnection (Limited by the
Level of
On-Peak Capacity Factor = Contract Capacity)]
-----------------------------------
((Contract Capacity) x (Period Hours
minus Maintenance Hours Allowed in
Section 4.5))
B = Contract Capacity Price
specified in Section 1.8 for
Capacity Payment Option B
C = 1/12
D = Contract Capacity specified in
Section 1.3
d. When Seller is entitled to receive
a Capacity Bonus Payment, the
Monthly Capacity Payment shall be
the sum of the Monthly Capacity
Payment pursuant to Section 8.1.2.1
and the Monthly Capacity Bonus
Payment pursuant to this Section
8.1.2.4.
8.1.2.5 Capacity Reduction
a. Seller may reduce the Contract
Capacity specified in Section 1.3,
provided that Seller gives Edison
prior written
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notice for a period determined by the
amount of Contract Capacity reduced
as follows:
Amount of Contract Length of
Capacity Reduced Notice Required
------------------ ---------------
25,000 kW or under 12 months
25,001 - 50,000 kW 36 months
50,001 - 100,000 kW 48 months
over 100,000 kW 60 months
b. Seller shall refund to Edison with
interest at the current published
Federal Reserve Board three months
prime commercial paper rate, an
amount equal to the difference
between (i) the accumulated Monthly
Capacity Payments paid by Edison
pursuant to Capacity Payment Option
B up to the time the reduction
notice is received by Edison, and
(ii) the total capacity payments
which Edison would have paid if
based on the Adjusted Capacity
Price.
c. From the date the reduction notice
is received to the date of actual
capacity reduction, Edison shall
make capacity
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payments based on the Adjusted
Capacity Price for the amount of
Contract Capacity being reduced.
d. Seller may reduce Contract Capacity
without the notice prescribed in
Section 8.1.2.5(a), provided that
Seller shall refund to Edison the
amount specified in Section
8.1.2.5(b) and an amount equal to:
(i) the amount of Contract Capacity
being reduced, times (ii) the
difference between the Current
Capacity Price and the Contract
Capacity Price, times (iii) the
number of years and fractions
thereof (not less than one year) by
which the Seller has been deficient
in giving the prescribed notice. If
the Current Capacity Price is less
than the Contract Capacity Price,
only payment under Section
8.1.2.5(b) shall be due to Edison.
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8.1.2.6 The Parties may agree in writing at any
time to adjust the Contract Capacity.
Seller may reduce the Contract Capacity
pursuant to Section 8.1.2.5. Seller may
increase the Contract Capacity with
Edison's approval and thereafter receive
payment for the increased capacity in
accordance with the Contract Capacity
Price for the Capacity Payment Option
selected by Seller for the remaining
Contract Term.
8.1.2.7 For Capacity Payment Option B, Seller
shall be paid for capacity in excess of
Contract Capacity based on the
as-available capacity price in Standard
Offer No. 1 Capacity Payment Schedule,
as updated and approved by the
Commission.
8.2 Energy Payments - First Period
During the First Period of the Contract Term, Seller shall
be paid a Monthly Energy Payment for the electrical energy
delivered by the Seller and purchased by Edison at the Point
of Interconnection, at a rate equal to 100% of the payment
provisions specified in
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Section 8.2, pursuant to the Energy Payment Option selected
by the Seller in Section 1.9, as follows:
8.2.1 Energy Payment Option 1 -- Forecast of Annual
Marginal Cost of Energy.
If Seller selects Energy Payment Option 1, then
during the First Period of the Contract Term, Seller
shall be paid a Monthly Energy Payment for electrical
energy delivered by Seller and purchased by Edison
at the Point of Interconnection during each month in
the First Period of the Contract Term pursuant to
the following formula:
Monthly Energy Payment = [(A x D) + (B x D) + (C x D)] x E
Where A = kWh purchased by Edison at the
Point of Interconnection during
on-peak periods defined in Edison's
Tariff Schedule No. TOU-8.
B = kWh purchased by Edison at the
Point of Interconnection during
mid-peak periods defined in
Edison's Tariff Schedule No. TOU-8.
C = kWh purchased by Edison at the
Point of Interconnection during
off-peak periods defined in
Edison's Tariff Schedule No. TOU-8.
D = The sum of:
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(i) the appropriate time differentiated
energy price from the Forecast
of Annual Marginal Cost of Energy,
multiplied by the decimal equivalent
the percentage of the forecast specified
in Section 1.9, and
(ii) the appropriate time differentiated
energy price from Edison's
published avoided cost of energy
multiplied by the decimal equivalent of
the percentage of the published energy
price specified in Section 1.9.
8.2.2 Energy Payment Option 2 -- Levelized Forecast of
Marginal Cost of Energy.
If Seller selects Energy Payment Option 2, then
during the First Period of the Contract Term,
Seller shall be paid a Monthly Energy Payment for
electrical energy delivered by Seller and purchased
by Edison at the Point of Interconnection each month
during the First Period of the Contract Term pursuant
to the following formula:
Monthly Energy Payment = [(A x D) + (B x D) + (C x D)] x E
Where A = kWh purchased by Edison at the Point of
Interconnection
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during on-peak periods defined in Edison's
Tariff Schedule No. TOU-8.
B = kWh purchased by Edison at the Point of
Interconnection during mid-peak periods defined
in Edison's Tariff Schedule No. TOU-8.
C = kWh purchased by Edison at the Point of
Interconnection during off-peak periods defined
in Edison's Tariff Schedule No. TOU-8.
D = The sum of:
(i) the appropriate time differentiated energy price
from the Levelized Forecast of Marginal Cost of
Energy, for the First Period of the Contract
Term multiplied by the decimal equivalent of
the percentage of the levelized forecast
specified in Section 1.9, and
(ii) the appropriate time differentiated energy
price from Edison's published avoided cost of energy
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multiplied by the decimal equivalent of the
percentage of the published energy price specified
in Section 1.9.
8.2.2.1 Performance Requirement for Energy
Payment Option 2
---------------------------------------
During the First Period when the annual
forecast referred to in Section 8.2.1 is
greater than the levelized forecast
referred to in Section 8.2.2, Seller
shall deliver to Edison at least 70
percent of the average annual kWh
delivered to Edison during those
previous periods when the levelized
forecast referred to in Section 8.2.2 is
greater than the annual forecast
referred to in Section 8.2.1. If Seller
does not meet the performance
requirements of this Section 8.2.2.1,
Seller shall be subject to Section 8.5.
8.3 Energy Payments - Second Period
During the Second Period of the Contract Term, Seller shall
be paid a Monthly Energy Payment for electrical energy
delivered by Seller and purchased by Edison at the Point of
Interconnection at a rate equal to 100% of Edison's
published avoided cost of energy as updated
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periodically and accepted by the Commission, pursuant to the
following formula:
Monthly Energy Payment = kWh purchased by Edison at
the Point of Interconnection for
each on-peak, mid-peak, and off-peak time period
defined in Edison's Tariff Schedule No. TOU-8
x Edison's published avoided cost of energy by time
of delivery for each time period.
8.4 Edison shall not be obligated to accept or pay for
electrical energy generated by the Generating Facility, and
may request Seller whose Generating Facility is one (1) MW
or greater to discontinue or reduce delivery of electric
energy, for not more than 300 hours annually during off-peak
hours when (i) purchases would result in costs greater than
those which Edison would incur if it did not purchase
electrical energy from Seller but instead utilized an
equivalent amount of electrical energy generated from
another Edison source, or (ii) the Edison Electric System
demand would require that Edison hydro-energy be spilled to
reduce generation.
8.5 Energy Payment Refund
If Seller elects Energy Payment Option 2, Seller shall be
subject to the following:
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8.5.1 If Seller fails to perform the Contract obligations
for any reason during the First Period of the
Contract Term, or fails to meet the performance
requirements set forth in Section 8.2.2.1, and at
the time of such failure to perform, the net present
value of the cumulative Energy payments received by
Seller pursuant to Energy Payment Option 2 exceeds
the net present value of what Seller would have been
paid pursuant to Energy Payment Option 1, Seller
shall make an energy payment refund equal to the
difference in such net present values in the year in
which the refund is due. The present value
calculation shall be based upon the rate of Edison's
incremental cost of capital specified in Section
1.9.
8.5.2 Not less than 90 days prior to the date Energy is
first delivered to the Point of Interconnection,
Seller shall provide and maintain a performance
bond, surety bond, performance insurance, corporate
guarantee, or bank letter of credit, satisfactory to
Edison, which shall insure payment to Edison of the
Energy Payment Refund at any time during the First
Period. Edison may, in its sole discretion, accept
another form of
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security except that in such instance a 1-1/2 percent
reduction shall then apply to the levelized forecast
referred to in Section 8.2.2 in computing payments for
Energy. Edison shall be provided with certificates
evidencing Seller's compliance with the security
requirements in this Section which shall also include
the requirement that Edison be given 90 days prior
written notice of the expiration of such security.
8.5.3 If Seller fails to provide replacement security not
less than 60 days prior to the date of expiration of
existing security, the Energy Payment Refund
provided in Section 8.5 shall be payable forthwith.
Thereafter, payments for Energy shall be 100 percent
of the Monthly Energy Payment provided in Section
8.2.1.
8.5.4 If Edison at any time determines the security to be
otherwise inadequate, and so notifies Seller,
payments thereafter for Energy shall be 100 percent
of the Monthly Energy Payment provided in Section
8.2.1. If within 30 days of the date Edison gives
notice of such inadequacies, Seller satisfies
Edison's security requirements, Energy Payment
Option 2 shall be reinstated. If Seller fails to
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satisfy Edison's security requirements within the 30-day
period, the Energy Payment Refund provided in Section 8.5
shall be payable forthwith.
9. PAYMENT AND BILLING PROVISIONS
9.1 For Energy and capacity purchased by Edison:
9.1.1 Edison shall mail to Seller no later than thirty
days after the end of each monthly billing period
(1) a statement showing the Energy and capacity
delivered to Edison during the on-peak, mid-peak,
and off-peak periods, as those periods are specified
in Edison's Tariff Schedule No. TOU-8 for that
monthly billing period, (2) Edison's computation of
the amount due Seller, and (3) Edison's check in
payment of said amount.
9.1.2 If the monthly payment period involves portions of
two different published Energy payment schedule
periods, the monthly Energy payment shall be
prorated on the basis of the percentage of days at
each price.
9.1.3 If the payment period is less than 27 days or
greater than 33 days, the capacity payment shall be
prorated on the basis of the average days per month
per year.
9.1.4 If, within thirty days of receipt of the statement,
Seller does not make a report in
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writing to Edison of an error, Seller shall be deemed
to have waived any error in Edison's statement,
computation, and payment, and they shall be
considered correct and complete.
9.2 Payments Due to Contract Capacity Reduction
9.2.1 The Parties agree that the refund and payments
provided in Section 8.1.2.5 represent a fair
compensation for the reasonable losses that would
result from such reduction of Contract Capacity.
9.2.2 In the event of a reduction in Contract Capacity,
the quantity, in kW, by which the Contract Capacity
is reduced shall be used to calculate the refunds
and payments due Edison in accordance with Section
8.1.2.5, as applicable.
9.2.3 Edison shall provide invoices to Seller for all
refunds and payments due Edison under this Section 9
which shall be due within 60 days.
9.2.4 If Seller does not make payments as required in
Section 9.2.3, Edison shall have the right to offset
any amounts due it against any present or future
payments due Seller and may pursue any other
remedies available to Edison as a result of Seller's
failure to perform.
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9.3 Energy Payment Refund
Energy Payment Refund is immediately due and payable upon
Seller's failure to perform the contract obligations as
specified in Section 8.5.
10. TAXES
10.1 Seller shall pay ad valorem taxes and other taxes properly
attributable to the Project. If such taxes are assessed or
levied against Edison, Seller shall pay Edison for such
assessment or levy.
10.2 Seller shall pay ad valorem taxes and other taxes properly
attributed to land, land rights, or interest in land for the
Project. If such taxes are assessed or levied against
Edison, Seller shall pay Edison for such assessment or levy.
10.3 Seller or Edison shall provide information concerning the
Project to any requesting taxing authority.
11. TERMINATION
This Contract shall terminate if Firm Operation does not occur within
5 years of the date of Contract execution.
12. SALE OF GENERATING FACILITY
12.1 If Seller desires to sell the Generating Facility, Seller
shall promptly offer to Edison, or any entity designated by
Edison in its sole discretion, the right to purchase the
Generating Facility. Edison, or any such entity designated
by Edison, shall have up to sixty days following the offer
to accept Seller's offer or reach agreement with Seller.
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12.2 If the Parties are unable to reach a satisfactory agreement
within sixty days following the offer pursuant to Section
12.1, and the Generating Facility is offered to any third
party or parties, Edison, or any such entity designated by
Edison, has the right for thirty days following each offer
to agree to purchase the Generating Facility under the same
terms and conditions, if such terms and conditions are
better to Edison than those offered in Section 12.1. Any
offers to sell made more than two years after Edison's
failure to accept a previous offer to sell under Section
12.1, shall again be subject to the terms of Sections 12.1
and 12.2.
12.3 Notwithstanding the foregoing, Seller shall have the right
at any time to sell or transfer the Generating Facility to
an affiliate of Seller and an affiliate of Seller may sell,
transfer, or lease to Seller without giving rise to any
right of first refusal of Edison. An "affiliate" of Seller
shall mean a Party's parent, a Party's subsidiary, any
company of which a Party's parent is a parent or a limited
partnership of which Seller is the controlling general
partner. An "affiliate" of Seller shall also mean a
partnership or joint venture from which the Seller leases
and operates the Generating Facility. A "parent" shall mean
a company which owns directly or indirectly not less than
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51% of the shares entitled to vote in an election of
directors of another company.
13. ABANDONMENT OF PROJECT
13.1 The Generating Facility shall be deemed to be abandoned if
Seller discontinues operation of the Generating Facility
with the intent that such discontinuation be permanent. Such
intent shall be conclusively presumed by either (i) Seller's
notice to Edison of such intent, or (ii) Seller's operation
of the Generating Facility in such a manner that no Energy
is generated therefrom for 200 consecutive days during any
period after Firm Operation of the first generating unit,
unless otherwise agreed to in writing by the Parties. If the
Project is prevented from generating Energy due to an
Uncontrollable Force, then such period shall be extended for
the duration of the Uncontrollable Force, not to exceed one
year.
13.2 If Seller abandons the Generating Facility during the term
of this Agreement, Edison, or any entity designated by
Edison in its sole discretion, shall have the right to
purchase the Generating Facility pursuant to the provisions
of Section 12.
14. LIABILITY
14.1 Each Party (First Party) releases the other Party (Second
Party), its directors, officers, employees and agents from
any loss, damage, claim, cost, charge, or expense of any
kind or nature (including any direct,
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indirect or consequential loss, damage, claim, cost, charge,
or expense), including attorneys' fees and other costs of
litigation, incurred by the First Party in connection with
damage to property of the First Party caused by or arising
out of the Second Party's construction, engineering, repair,
supervision, inspection, testing, protection, operation,
maintenance, replacement, reconstruction, use or ownership
of its facilities, to the extent that such loss, damage,
claim, cost, charge, or expense is caused by the negligence
of Second Party, its directors, officers, employees, agents,
or any person or entity whose negligence would be imputed to
Second Party.
14.2 Each Party shall indemnify and hold harmless the other
Party, its directors, officers, and employees or agents from
and against any loss, damage, claim, cost, charge, or
expense of any kind or nature (including direct, indirect or
consequential loss, damage, claim, cost, charge, or
expense), including attorneys' fees and other costs of
litigation, incurred by the other Party in connection with
the injury to or death of any person or damage to property
of a third party arising out of the indemnifying Party's
construction, engineering, repair, supervision, inspection,
testing, protection, operation, maintenance, replacement,
reconstruction, use, or ownership of its facilities, to the
extent that such loss, damage, claim, cost, charge, or
expense is
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caused by the negligence of the indemnifying Party, its
directors, officers, employees, agents, or any person or
entity whose negligence would be imputed to the indemnifying
Party; provided, however, that each Party shall be solely
responsible for and shall bear all cost of claims brought by
its contractors or its own employees and shall indemnify and
hold harmless the other Party for any such costs including
costs arising out of any workers compensation law. Seller
releases and shall defend and indemnify Edison from any
claim, cost, loss, damage, or liability arising from any
contrary representation concerning the effect of Edison's
review of the design, construction, operation, or
maintenance of the Project.
14.3 The provisions of this Section 14 shall not be construed so
as to relieve any insurer of its obligations to pay any
insurance claims in accordance with the provisions of any
valid insurance policy.
14.4 Neither Party shall be indemnified by the other Party under
Section 14.2 for its liability or loss resulting from its
sole negligence or willful misconduct.
15. INSURANCE
15.1 Until Contract is terminated, Seller shall obtain and
maintain in force as hereinafter provided comprehensive
general liability insurance, including contractual liability
coverage, with a combined single limit of not less than
$1,000,000 each occurrence. The insurance
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carrier or carriers and form of policy shall be subject to
review and approval by Edison.
15.2 Prior to the date Seller's generating facility first
delivers electrical energy to the Point of Interconnection,
Seller shall (i) furnish certificate of insurance to Edison,
which certificate shall provide that such insurance shall
not be terminated nor expire except on thirty days prior
written notice to Edison, (ii) maintain such insurance in
effect for so long as Seller's Generating Facility is
delivering electrical energy to the Point of
Interconnection, and (iii) furnish to Edison an additional
insured endorsement with respect to such insurance in
substantially the following form:
"In consideration of the premium charged, Southern California
Edison Company (Edison) is named as additional insured with
respect to all liabilities arising out of Seller's use and
ownership of Seller's Generating Facility."
"The inclusion of more than one insured under this policy
shall not operate to impair the rights of one insured against
another insured and the coverages afforded by this policy
will apply as though separate policies had been issued to each
insured. The inclusion of more than one insured will not,
however, operate to increase the limit of the carrier's
liability. Edison will not, by reason of its inclusion
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<PAGE>
under this policy, incur liability to the insurance carrier
for payment of premium for this policy." "Any other
insurance carried by Edison which may be applicable shall be
deemed excess insurance and Seller's insurance primary for
all purposes despite any conflicting provisions in Seller's
policy to the contrary."
If the requirement of Section 15.2(iii) prevents Seller from
obtaining the insurance required in Section 15.1, then upon
written notification by Seller to Edison, Section 15.2(iii)
shall be waived.
15.3 If Seller fails to comply with the provisions of this
Section 15, Seller shall, at its own cost, defend,
indemnify, and hold harmless Edison, its directors,
officers, employees, agents, assigns, and successors in
interest from and against any and all loss, damage, claim,
cost, charge, or expense of any kind or nature (including
direct, indirect or consequential loss, damage, claim, cost,
charge, or expense, including attorney's fees and other
costs of litigation) resulting from the death or injury to
any person or damage to any property, including the
personnel and property of Edison, to the extent that Edison
would have been protected had Seller complied with all of
the provisions of this Section 15.
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<PAGE>
16. UNCONTROLLABLE FORCES
16.1 Neither Party shall be considered to be in default in the
performance of any of the agreements contained in this
Contract, except for obligations to pay money, when and to
the extent failure of performance shall be caused by an
Uncontrollable Force.
16.2 If either Party, because of an Uncontrollable Force, is
rendered wholly or partly unable to perform its obligations
under this Contract, the Party shall be excused from
whatever performance is affected by the Uncontrollable Force
to the extent so affected provided that:
(1) The non-performing Party, within two weeks after the
occurrence of the Uncontrollable Force, gives the
other Party written notice describing the particulars
of the occurrence;
(2) The suspension of performance is of no greater scope
and of no longer duration than is required by the
Uncontrollable Force;
(3) The non-performing Party uses its best efforts to
remedy its inability to perform (this subsection
shall not require the settlement of any strike,
walkout, lockout or other labor dispute on terms
which, in the sole judgment of the party involved
in the dispute, are contrary to its interest. It is
understood and agreed that the settlement of
strikes, walkouts, lockouts or other labor
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<PAGE>
disputes shall be at the sole discretion of the
Party having the difficulty);
(4) When the non-performing Party is able to resume
performance of its obligations under this Contract,
that Party shall give the other Party written
notice to that effect; and
(5) Capacity payments during such periods of
Uncontrollable Force on Seller's part shall be
governed by Section 8.1.2.3.
16.3 In the event that either Party's ability to perform cannot
be corrected when the Uncontrollable Force is caused by the
actions or inactions of legislative, judicial or regulatory
agencies or other proper authority, this Contract may be
amended to comply with the legal or regulatory change which
caused the non-performance.
If a loss of Qualifying Facility status occurs due to an
Uncontrollable Force and Seller fails to make the changes
necessary to maintain its Qualifying Facility status, the
Seller shall compensate Edison for any economic detriment
incurred by Edison as a result of such failure.
17. NONDEDICATION OF FACILITIES
Neither Party, by this Contract, dedicates any part of its facilities
involved in this Project to the public or to the service provided
under the Contract, and such service shall cease upon termination of
the Contract.
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<PAGE>
18. PRIORITY OF DOCUMENTS
If there is a conflict between this document and any Appendix, the
provisions of this document shall govern. Each Party shall notify the
other immediately upon the determination of the existence of any such
conflict.
19. NOTICES AND CORRESPONDENCE
All notices and correspondence pertaining to this Contract shall be
in writing and shall be sufficient if delivered in person or sent by
certified mail, postage prepaid, return receipt requested, to Seller
as specified in Section 1.1, or to Edison as follows:
Southern California Edison Company
Post Office Box 800
Rosemead, California 91770
Attention: Secretary
All notices sent pursuant to this Section 19 shall be effective when
received, and each Party shall be entitled to specify as its proper
address any other address in the United States upon written notice to
the other Party.
20. PREVIOUS COMMUNICATIONS
This Contract contains the entire agreement and understanding between
the Parties, their agents, and employees as to the subject matter of
this contract, and merges and supersedes all prior agreements,
commitments, representations, and discussions between the Parties. No
Party shall be bound to any prior obligations, conditions, or
representations with respect to the subject matter of this Contract.
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<PAGE>
21. THIRD PARTY BENEFICIARIES
This Contract is for the sale benefit of the Parties and shall not be
construed as granting any rights to any person or entity other than
the Parties or imposing obligations on either Party to any person or
entity other than the Parties.
22. NONWAIVER
None of the provisions of the Contract shall be considered waived by
either Party except when such waiver is given in writing. The failure
of either Edison or Seller to insist in any one or more instances
upon strict performance of any of the provisions of the Contract or
to take advantage of any of its rights hereunder shall not be
construed as a waiver of any such provisions or the relinquishment of
any such rights for the future, but the same shall continue to remain
in full force and effect.
23. DISPUTES
23.1 Any dispute arising between the Parties relating to
interpretation of the provisions of this Contract or to
performance of the Parties hereunder, other than matters
which may not be settled without the consent of an involved
insurance company, shall be reduced to writing stating the
complaint and proposed solution and submitted to the
appropriate Edison manager, whose interpretation and
decision thereon shall be incorporated into a written
document which shall specify Edison's position and that it
is the final decision of such manager. A copy of such
document
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<PAGE>
shall be furnished to Seller within ten days following the
receipt of Seller's written complaint.
23.2 The decision of such manager pursuant to Section 23.1 shall
be final and conclusive from the date of receipt of such
copy by the complaining Party, unless within thirty days
Seller furnishes a written appeal to such manager. Following
receipt of such appeal, a joint hearing shall be held within
fifteen days of said appeal, at which time the Parties shall
each be afforded an opportunity to present evidence in
support of their respective positions. Such joint hearing
shall be conducted by one authorized representative of
Seller and one authorized representative of Edison and other
necessary persons. Pending final decision of a dispute
hereunder, the Parties shall proceed diligently with the
performance of their obligations under this Contract and in
accordance with Edison's position pursuant to Section 23.1.
23.3 The final decision by the Parties' authorized representatives
shall be made within fifteen days after presentation of all
evidence affecting the dispute, and shall be reduced to
writing. The decision shall be final and conclusive.
23.4 If the authorized representatives cannot reach a final
decision within the fifteen-day period, any remedies which
are provided by law may be pursued.
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<PAGE>
24. SUCCESSORS AND ASSIGNS
Neither Party shall voluntarily assign its rights nor delegate its
duties under this Contract, or any part of such rights or duties
without the written consent of the other Party, except in connection
with the sale or merger of a substantial portion of its properties.
Any such assignment or delegation made without such written consent
shall be null and void. Consent for assignment shall not be
unreasonably withheld. Such assignment shall include, unless
otherwise specified therein, all of Seller's rights to any refunds
which might become due under the Contract.
25. EFFECT OF SECTION HEADINGS
Section headings appearing in this Agreement are inserted for
convenience only, and shall not be construed as interpretations of
text.
26. TRANSMISSION AND INTERCONNECTION
26.1 Seller shall be solely responsible for negotiating and
concluding all required transmission and interconnection
agreements with the Interconnecting Utility. Such agreements
shall provide for the transmission of electrical energy
generated by the Generating Facility to the Point of
Interconnection.
26.2 It is contemplated that those agreements will include:
26.2.1 An agreement between Seller and/or a syndicate
(which includes the Seller) and the Interconnecting
Utility to develop those facilities, as determined
by the
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<PAGE>
Interconnecting Utility, which are necessary
to transmit electrical energy generated by the
Generating Facility to the Point of Interconnection.
Such agreements shall be executed no later than 36
months prior to the expected date of Firm Operation
as specified in Section 1.5. Such agreement should
include the following terms:
a. Financial responsibilities of the Parties;
b. Default/Remedies;
c. Facilities and scope of work associated
thereto; and
d. Scheduling provisions reflecting the
development of the facilities.
26.2.2 An agreement between Seller and the Interconnecting
Utility for the transmission services necessary to
transmit the electrical energy generated by the
Generating Facility to the Point of Interconnection.
Such agreement shall be executed no later than three
months prior to the expected date of Firm Operation
specified in Section 1.5.
26.2.3 An agreement between Seller and the Interconnecting
Utility for the interconnection of the Generating
Facility and the Interconnecting Utility. Such
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<PAGE>
agreement to permit the Generating Facility to
operate in parallel with the Interconnecting
Facility. Such agreement shall be executed no later
than three months prior to the expected date of Firm
Operation as specified in Section 1.5.
26.2.4 Edison shall review and determine, in its sole
judgment, if the Seller has compiled with the
provisions contained within Section 26.2.
26.3 Notwithstanding the provisions contained within Section
26.2, Seller may pursue and develop alternate means, routes
or agreements for the transmission of electrical energy
generated by the Generating Facility to the Point of
Interconnection. Should Seller develop such alternative
means, routes or agreements, Seller shall submit such
alternative method to Edison for review and approval at
least six months prior to the expected date of Firm
Operation as specified in Section 1.5. Edison shall, in its
sole judgment, determine if the proposed alternative method
complies with the terms and conditions of this Contract and
shall not impair or effect Edison's rights contained herein.
26.4 Should Seller be unable to comply with the provisions
contained within either Sections 26.2 or 26.3, Seller's
selection of a Contract Capacity Price pursuant to the
Seller's selection of Capacity Payment
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<PAGE>
Option in Section 1.8 shall be abrogated, and Seller's
Contract Capacity Price shall be deemed to be $ 123/kW-year,
in its stead, for the duration of the Contract Term.
27. EFFECT OF SECTION HEADINGS
Section headings appearing in this Contract are inserted for
convenience only and shall not be construed as interpretations of
text.
28. GOVERNING LAW
This Contract shall be interpreted governed, and construed under the
laws of the State of California as if executed and to be performed
wholly within the State of California.
29. CONFIDENTIALITY
29.1 Except as provided herein, the Parties shall hold all
information in this Contract and all information related to
or received pursuant to this Contract as confidential.
29.2 Neither Party shall disclose any part nor the whole of this
Contract to any third party without the express prior
written consent of the other Party; such consent shall not
be unreasonably withheld.
29.3 From time to time governmental and/or regulatory agencies
may request disclosure of the Contract or Contract-related
information from either Party or both Parties and if such is
the case either Party or both Parties may consent to such
disclosure provided, that (i) the requestor(s) be notified
by the disclosing
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Party that the information being released is confidential,
and that (ii) the disclosing Party inform the other Party,
in writing, as to the nature of the information disclosed
and to whom disclosed.
30. MULTIPLE ORIGINALS
This Contract is executed in two counterparts, each of which shall be
deemed an original.
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the Parties hereto have executed this Contract
this 16th Day of August, 1985.
SOUTHERN CALIFORNIA EDISON COMPANY
By /s/ Edward A. Myers, Jr.
-------------------------------
Edward A. Myers, Jr.
Vice President
IMPERIAL ENERGY CORPORATION
By /s/ Michael B. Malvin
-------------------------------
Michael B. Malvin
President
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<PAGE>
APPENDIX A
SOUTHERN CALIFORNIA EDISON COMPANY
LONG-TERM STANDARD OFFER
CAPACITY PAYMENT SCHEDULE -
FORECAST OF ANNUAL AS-AVAILABLE CAPACITY1
Line As-Available Capacity2
No. Year ($/kW-year)
1 1985 81
2 1986 87
3 1987 94
4 1988 101
5 1989 109
6 1990 117
7 1991 126
8 1992 148
9 1993 158
10 1994 169
11 1995 180
12 1996 194
13 1997 206
14 1998 221
15 1999 235
- ------------------
1This forecast to be used in conjunction with Capacity Payment Option A.
2The annual as-available capacity ($/kW-yr) will be converted to a seasonal
time-of-delivery ((cent)/kWh) value that is consistent with as-available
time-of-delivery rates current authorized by the Commission for Avoided
As-Available Capacity.
A-1
<PAGE>
APPENDIX B
SOUTHERN CALIFORNIA EDISON COMPANY
LONG-TERM STANDARD OFFER
ENERGY PAYMENT SCHEDULE -
FORECAST OF ANNUAL MARGINAL COST OF ENERGY1
Line Annual Marginal Cost of
No. Year Energy ((cent)/kWh)
1 1985 5.7
2 1986 6.0
3 1987 6.4
4 1988 6.9
5 1989 7.6
6 1990 8.1
7 1991 8.6
8 1992 9.3
9 1993 10.1
10 1994 10.9
11 1995 11.8
12 1996 12.6
13 1997 13.6
14 1998 14.6
15 1999 15.6
1This forecast to be used in conjunction with Energy Payment Option 1.
2The annual energy payments in the table will be converted to seasonal
time-of-delivery energy-payment rates that are consistent with the
time-of-delivery rates currently authorized by the Commission for Avoided
Energy Cost Payments.
B-1
<PAGE>
APPENDIX C
SOUTHERN CALIFORNIA EDISON COMPANY
LONG-TERM STANDARD OFFER
ENERGY PAYMENT SCHEDULE -
LEVELIZED FORECAST OF MARGINAL COST OF ENERGY1
5-Year
Initial Levelized Levelized
Line Year of Forecast Forecast
No. Delivery ((cent)/kWh) ((cent)/Kwh)
1 1985 6.4 7.3
2 1986 6.8 7.9
3 1987 7.3 8.5
4 1988 7.9 9.1
5 1989 8.6 9.8
6 1990 9.2 10.6
- ----------------
1Levelized Forecast to be used in conjunction with Energy Payment Option 2.
2The annual energy payments in the table will be converted to seasonal time-of
delivery energy payment rates that are consistent with the time-of-delivery
rates currently authorized by the Commission for Avoided Energy Cost Payments.
C-1
<PAGE>
AMENDMENT NO. 1
TO
POWER PURCHASE CONTRACT
BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY
AND
MAGMA POWER COMPANY
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<PAGE>
AMENDMENT NO. 1 TO
POWER PURCHASE CONTRACT BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY AND
MAGMA POWER COMPANY
1. Parties
The Parties to this Amendment No. 1 to the Power Purchase Contract
between Southern California Edison Company and Imperial Energy
Corporation, executed on April 16, 1985 ("Power Purchase Contract"),
hereinafter referred to as "Amendment No. 1", are Southern California
Edison Company, a California corporation, hereinafter referred to as
"Edison", and Magma Power Company, a Nevada corporation, hereinafter
referred to as "Seller", hereinafter sometimes referred to
individually as "Party" and collectively as "Parties".
2. Recitals
This Amendment No. 1 is made with reference to the following facts,
among others:
2.1 On June 15, 1984, Edison and Magma Electric Company, a
wholly owned subsidiary of Seller, executed a Power Purchase
Contract, which was amended on November 30, 1984 ("Magma
Electric Contract").
2.2 On April 16, 1985, Edison and Imperial Energy Corporation
("Imperial") executed the Power Purchase Contract to provide
the terms and conditions for the sale by Imperial and the
purchase by Edison of electrical power delivered by Imperial
to Edison at the Point of Interconnection from the 49,000 kW
electrical generating facility located at Niland,
California.
2.3 On September 9, 1985, Imperial assigned its rights, title,
and interest in the Power Purchase Contract to Niland Power,
Inc., and Edison consented to such assignment on September
11, 1985.
2.4 On January 22, 1986, Seller acquired an option to purchase
the geothermal leaseholds described in and pursuant to the
terms and conditions contained in the Option to Acquire
Adjacent Geothermal Leasehold ("Option") among Seller,
Imperial, Niland Power, Inc., and Salton Sea Associates.
2.5 On January 22, 1986, in conjunction with the Option, Niland
Power, Inc. assigned its rights, title, and interest in the
Power Purchase Contract to Seller. Edison consented to said
assignment on March 12, 1986.
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<PAGE>
2.6 On January 22, 1986, in conjunction with the Option,
Imperial assigned to Seller its rights, title, and interest
in the Power Purchase Contract between Edison and Imperial,
dated February 22, 1984 ("Imperial I Contract"), and amended
on November 13, 1984. Edison consented to said assignment on
March 12, 1986.
2.7 On February 10, 1986, Vulcan/BN Geothermal Power Company, of
which Seller's affiliate is a partner, declared its 29,500
kW geothermal project at Niland in firm operation. Based on
the successful development of its first project at Niland,
Seller has concluded that its succeeding projects should be
duplicates of that project.
2.8 On March 14, 1986, Imperial, Niland Power, Inc., and Salton
Sea Associates assigned to Seller their rights, title and
interest in those geothermal leaseholds described in and
pursuant to the terms and conditions in the Option.
2.9 The aforementioned Power Purchase Contracts provide for
projects which will all be constructed and operated on
contiguous sites.
2.10 Concurrent with this Amendment No. 1, Edison, Seller, and
Magma Electric Company have agreed to amend the Magma
Electric Contract and Imperial I Contract to effectively
transfer Capacity to be purchased by Edison from the Power
Purchase Contract and the Magma Electric Contract to the
Imperial I Contract to account for the decrease in Capacity
to be produced under the Power Purchase Contract.
2.11 Seller, based on the aforementioned facts, desires to amend
the Power Purchase Contract to reflect a change in the
rating of the Seller's Generating Facility.
3. Agreement
The Parties agree to the following.
4. Effective Date
This Amendment No. 1 shall become effective upon execution by the
Parties.
5. Amendment to Section 1.1
Section 1.1 is deleted in its entirety and replaced with the
following:
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<PAGE>
"1.1 All notices shall be sent to Seller at the following
address:
Magma Power Company
P.O. Box 17760
Los Angeles, CA 90017
Attention: President"
6. Amendment to Section 1.2
Subparagraphs a and c of Section 1.2 are deleted in their entirety
and replaced with the following:
"a. Nameplate Rating: 38,000 kW."
"c. Generating Facility Designation: Niland No. 4"
7. Amendment to Section 1.3
Section 1.3 is deleted in its entirety and replaced with the
following:
"Contract Capacity: 34,000 kW
1.3.1 Estimated as-available capacity: 4,000 kW."
8. Amendment to Section 1.4
Section 1.4 is deleted in its entirety and replaced with the
following:
"Expected annual production: 238,272,000 kWh."
9. Effect of this Amendment No. 1
Except as amended herein, all terms, covenants, and conditions
contained in the Power Purchase Contract shall remain in full force
and effect.
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<PAGE>
10. Signature Clause
The signatories hereto represent that they have been appropriately
authorized to enter into this Amendment No. 1 on the behalf of the
Party for whom they sign. This Amendment No. 1 is hereby executed
as of this 10th day of April , 1986.
SOUTHERN CALIFORNIA EDISON COMPANY
By: /s/ EDWARD A MYERS, JR.
-----------------------
EDWARD A MYERS, JR.
Vice President
MAGMA POWER COMPANY
By: /s/ ANDREW W. HOCH
--------------------
ANDREW W. HOCH
President
EXHIBIT 10.37
EXECUTION COPY
TRANSMISSION SERVICE AGREEMENT
FOR THE
LEATHERS POWER PLANT
BETWEEN
IMPERIAL IRRIGATION DISTRICT
AND
LEATHERS, L.P.
<PAGE>
TABLE OF CONTENTS
Section Title Page
------- ----- ----
1 PARTIES .................................................1
2 RECITALS ................................................1
3 AGREEMENT ...............................................1
4 DEFINITIONS .............................................1
5 TERM ....................................................3
6 TRANSMISSION SERVICE ....................................4
7 TRANSMISSION LOSSES .....................................8
8 CHARGES .................................................9
9 BILLING AND PAYMENT ....................................10
10 LIABILITY ..............................................12
11 AUDITING ...............................................14
12 AUTHORIZED REPRESENTATIVES .............................15
13 NO DEDICATION OF FACILITIES ............................15
14 NON-WAIVER .............................................15
15 NO THIRD PARTY RIGHTS ..................................15
16 UNCONTROLLABLE FORCES ..................................15
17 ASSIGNMENTS ............................................16
18 GOVERNING LAW ..........................................18
19 NOTICES ................................................18
20 SIGNATURE CLAUSE .......................................19
EXHIBIT I - DEVELOPMENTS AND METHODOLOGIES FOR TRANSMISSION SERVICE
CHARGES AND SCHEDULING FEE
EXHIBIT II - TRANSMISSION SERVICE FOR LEATHERS, L.P.
i
<PAGE>
1. PARTIES: The Parties to this Agreement are Imperial Irrigation District,
organized under the Water Code of the State of California ("IID"), and
Leathers, L.P. ("Producer"), hereinafter sometimes referred to individually as
"Party," and collectively as "Parties."
2. RECITALS: This Agreement is made with reference to the following facts,
among others:
2.1 Producer has caused to be constructed or intends to construct an
alternative energy resource facility located in IID's service area.
2.2 Producer and IID have entered into a Plant Connection Agreement.
2.3 Producer desires to purchase, and IID desires to sell firm transmission
service of power from the Plant to Edison's Mirage Substation subject to the
terms and conditions specified herein.
2.4 Producer and IID are parties to that certain Funding and Construction
Agreement dated June 29, 1987, providing for the funding and construction of
transmission lines within IID's service area.
3. AGREEMENT: The Parties agree as follows:
4. DEFINITIONS: The following terms, when used herein with initial
capitalization, whether in the singular or plural, shall have the meanings
specified:
4.1 Agreement: This IID - Producer Transmission Service Agreement for
Alternative Resources between Leathers, L.P. and IID, and all Exhibits
attached hereto, as such Agreement may
<PAGE>
subsequently be amended for firm transmission service between each Plant and
Edison's Mirage Substation.
4.2 Authorized Representative: The representative of a
party designated in accordance with Section 12.
4.3 Date of Initial Service: The date when the output from
each Plant is first available for delivery to Edison, as notified
to IID pursuant to Section 5.2.
4.4 Edison: Southern California Edison Company.
4.5 Funding and Construction Agreement: An agreement entered into by IID
and others dated June 29, 1987, providing for the funding and construction of
the Heber-Mirage Transmission Project, to which a form of this agreement is
attached as Exhibit III.
4.6 Maximum Transmission Service Entitlement: The Maximum Transmission
Service Entitlement for each Plant, as specified in Exhibit[s] II,
Transmission Service, and in any subsequent Plant Amendments.
4.7 Normal Transmission Capacity: The maximum transfer capability,
expressed in megawatts (MW), from the Point of Receipt to the Point of
Delivery. Such transfer capability, as determined by IID, in its sole
judgment, shall be consistent with prudent operating procedures and with
generally-accepted engineering and operating practices in the electrical
utility industry.
4.8 Operating Transmission Capability: The maximum transfer capability,
expressed in megawatts (MW), available to IID at any given time to transmit
power from Point of Receipt to Point of
2
<PAGE>
Delivery. Such transfer capability shall be as determined by IID in its sole
judgment, may vary from time-to-time depending on system conditions, and shall
be consistent with prudent operating procedures and generally-accepted
engineering and operating practices in the electrical utility industry.
4.9 Plant: An electrical generating alternative energy resource facility
developed by Producer for which IID shall provide transmission service, as
specified in Exhibit(s) II, Transmission Service, and in any subsequent Plant
Amendments.
4.10 Plant Amendment: An agreement reached by the Parties, as an amendment
to this Agreement, for transmission service to be provided by IID for a Plant
added by Producer or for Producer's account subsequent to the execution of
this Agreement.
4.11 Plant Connection Agreement: An agreement between IID and Producer
providing for the connection of a Plant to IID's electrical system, as
specified in Exhibit[s] II, Transmission Service, and in any subsequent Plant
Amendments.
4.12 Point(s) of Delivery: The 230-kV switchrack at the Mirage Substation
site where Edison's 230-kV facilities are attached to IID's 230-kV
Coachella-Mirage Line or other points as may be mutually agreed upon by the
Authorized Representatives.
4.13 Point of Receipt: The point on the high voltage side of the Plant's
transformer where IID's metering equipment measures the delivery of energy to
the IID system.
4.14 Transmission Service Entitlement: The amount of transmission service,
expressed in megawatts (MW), provided by
3
<PAGE>
IID for each Plant, from the applicable Point of Receipt to the applicable
Point(s) of Delivery.
5. TERM:
5.1 Unless otherwise agreed to by the Parties, this Agreement shall be
effective on the Completion Date for the transmission lines being constructed
pursuant to the Funding and Construction Agreement, as the term Completion
Date is defined in Article I thereof, and shall remain in effect until April
15, 2015. It is understood that if such Completion Date does not occur, this
Agreement shall be of no force or effect.
5.2 The Transmission Service Entitlement to be provided by IID for each
Plant shall be contingent on a Plant Connection Agreement being in effect.
Transmission service for each Plant shall commence on the Date of Initial
Service of such Plant. Producer's Authorized Representative shall give IID's
Authorized Representative written notice of the Date of Initial Service at
least thirty (30) days before the Date of Initial Service.
6. TRANSMISSION SERVICE:
6.1 Subject to the terms of this Agreement, IID shall provide to Producer
and Producer shall purchase from IID transmission service over IID's
transmission system for each Plant. IID shall make arrangements with Edison to
provide, at Producer's or Edison's expense, for the transfer of the electrical
power to be delivered to Edison hereunder from IID's transmission system to
Edison's transmission system at the Point(s) of Delivery.
4
<PAGE>
6.2 The Transmission Service Entitlement for each Plant shall be the
Maximum Transmission Service Entitlement for such Plant specified in
Exhibit[s] II, Transmission Service, or any subsequent Plant Amendments, or
such lesser amount as may be established as follows. Beginning on the Date of
Initial Service for each Plant, Producer shall be entitled to specify a
Transmission Service Entitlement by advance written notice given to IID's
Authorized Representative at least thirty (30) days prior to the Date of
Initial Service. The Transmission Service Entitlement to be provided by IID
subsequent to the Date of Initial Service may be adjusted at six (6) month
intervals thereafter until two (2) years after the Date of Initial Service for
such Plant (the "Trial Period"). Such adjustments shall be made by having
Producer's Authorized Representative give IID's Authorized Representative a
ninety (90) day advance written notice as to the adjustment required.
Beginning two (2) years after the Date of Initial Service for such Plant,
Producer shall be entitled to specify a Transmission Service Entitlement for
each successive two-year period during the remaining term of this Agreement by
written notice from Producer's Authorized Representative to IID's Authorized
Representative given at least ninety (90) days prior to the beginning of each
two-year period.
6.3 The Transmission Service Entitlement selected by Producer for each
Plant in accordance with Section 6.2 may be any amount which is less than or
equal to the Maximum Transmission Service Entitlement for such Plant specified
in Exhibit[s] II, Transmission Service and in any subsequent Plant Amendments,
5
<PAGE>
provided, however, that the following shall apply to each Plant after the
Trial Period for such Plant has elapsed.
6.3.1 If (i) the sum of the Transmission Service Entitlements for all
Plants which are no longer in their Trial Periods is less than the sum of the
Maximum Transmission Service Entitlements for such Plants, as shown in
Exhibit[s] II, Transmission Service and in any subsequent Plant Amendments,
(the "Aggregate Maximum Transmission Service Entitlement"), and (ii) provided
that IID requires additional capacity for transmitting electric power to
Edison's transmission system for another person (or, following the Credit
Installment Period as defined in the Funding and Construction Agreement, for
itself) and (iii) IID's use of such required capacity would be in conflict
with Producer's right as provided herein to increase the sum of the
Transmission Service Entitlements for such Plants to the Aggregate Maximum
Transmission Service Entitlement, then IID shall so notify Producer in
writing, specifying in such notice the portion, expressed in megawatts (MW),
of the excess of the Maximum Transmission Service Entitlement over the
Transmission Service Entitlement for each such Plant which it desires to use
as stated above. Producer shall have ninety (90) days after receipt of IID's
notice to notify IID in writing that it desires to increase the Transmission
Service Entitlements of such Plants. To the extent that Producer does not
elect to increase the Transmission Service Entitlement of each such Plant up
to the Maximum Transmission Service Entitlement for such Plant, IID shall be
entitled to use such unclaimed capacity to satisfy the
6
<PAGE>
transmission requirements specified in its notice to Producer, and to the
extent that IID does so, Producer shall thereafter be foreclosed from
increasing the Transmission Service Entitlement for such Plant in a manner
which would conflict with such usage by IID.
6.3.2 IID shall treat Producer and each other person who has entered
into a transmission service agreement similar in substance to this Agreement
in a fair and nondiscriminatory manner in requesting additional transmission
capacity as provided in this Section 6.3. Without limiting the generality of
the foregoing, IID shall request additional transmission capacity from
Producer and such other persons on a pro rata basis, in proportion to the
Aggregate Maximum Transmission Service Entitlement for each person less the
sum of the Transmission Service Entitlements for each of such persons'
generating plants which is no longer in a Trial Period.
6.4 In the event that the Original Capacity Nomination designated by
Producer (or the Participant associated with Producer) is adjusted pursuant to
Section 3.07 of the Funding and Construction Agreement, the Parties agree to
amend this Agreement in such a way that the sum of the Maximum Transmission
Service Entitlements for all Plants hereunder is equal to such Original
Capacity Nomination as so adjusted. As used in this Section 6.4, the terms
Original Capacity Nomination and Participant shall have the meanings assigned
to them in Article I of the Funding and Construction Agreement.
7
<PAGE>
6.5 IID reserves the right to interrupt or curtail the transmission service
provided hereunder as follows:
6.5.1 If the Operating Transmission Capability is reduced to
less than Normal Transmission Capacity from a Point of Receipt to a Point of
Delivery, and when continuity of service within IID's service area is not
being jeopardized, IID may curtail the transmission service currently being
provided from such Point of Receipt to such Point of Delivery, to an amount
"A" determined by the following formula:
A = Operating Transmission Capability x Transmission Service
Normal Transmission Capacity Entitlement
The transmission service for each Plant affected shall be curtailed
by multiplying the Transmission Service Entitlement in accordance with
Exhibit[s] II, Transmission Service and in any subsequent Plant Amendments by
the same percentage (expressed as a decimal) as used in the determination of
"A." However, any such curtailment shall occur only after IID has made all
reasonable efforts to eliminate the cause of the reduction in Operating
Transmission Capability, and IID shall then employ reasonable efforts to
eliminate expeditiously the cause of said reduction.
6.5.2 If continuity of service within IID's control area is
being jeopardized, as determined by IID in its sole judgment, IID may
interrupt or curtail the transmission service provided hereunder to the extent
necessary to avoid or eliminate such jeopardy; provided that (i) such
interruptions or curtailments may be made so that IID may fully utilize all
generating resources owned by it or available to it under contract in order to
avoid damage to IID's electrical system
8
<PAGE>
caused by overloading, (ii) such interruption or curtailment shall occur only
after IID has made all reasonable efforts to avoid or eliminate such jeopardy
and (iii) to the extent feasible any curtailment of transmission service
provided hereunder from a Point of Receipt to a Point of Delivery shall be
made in accordance with the formula set forth in Section 6.5.1.
6.6 If IID's efforts do not avoid or eliminate such jeopardy, the Parties
shall endeavor to develop some other arrangement to avoid or eliminate such
jeopardy and minimize the effects of IID's interruption or curtailment on both
parties.
6.7 In the event of any curtailments or interruptions made pursuant to
Section 6.5.1 or Section 6.5.2, Producer shall, immediately after being orally
notified by IID, reduce the electrical output of the Plants by the amounts
requested by IID.
6.8 The transmission service to be provided by IID and purchased by
Producer for each Plant shall not exceed the Transmission Service Entitlement
for that Plant.
6.9 Subject to Section 6.5, IID shall, during the periods that IID has
agreed to provide the transmission service at the specified Transmission
Service Entitlements, accept hourly scheduled energy deliveries at each Point
of Receipt and simultaneously deliver the same amount of energy (less
transmission losses as provided herein) at the Point(s) of Delivery mutually
agreed upon by the Parties' dispatchers and/or schedulers.
6.10 Hourly scheduled energy deliveries at each Point of Receipt shall
conform with the practices and procedures developed
9
<PAGE>
by the Parties' dispatchers and schedulers and agreed to by the Authorized
Representatives.
7. TRANSMISSION LOSSES:
7.1 IID shall determine, by transmission power flow analysis, the
electrical losses (expressed as a percent amount of hourly scheduled energy
deliveries) associated with the electrical output from each Plant. Such
analysis shall be performed by IID at its sole expense. The initial percent
amount, for each Plant, representing the electrical losses as determined
herein shall be as specified in Exhibit[s] II, Transmission Service and in any
subsequent Plant Amendments.
7.2 Unless otherwise agreed to by Producer's and IID's schedulers and
dispatchers, IID shall reduce the amount of all hourly scheduled energy
deliveries for Producer or Producer's account by the percent amount of such
hourly deliveries for each Plant in accordance with Exhibit[s] II,
Transmission Service and in any subsequent Plant Amendments.
7.3 If either Party believes that there has been a significant change in
IID's electrical system and the electrical losses associated with any Plant
should be redetermined, either Party's Authorized Representative may submit a
written request to the other Party's Authorized Representative that the
electrical losses be redetermined. Following such request, a transmission flow
analysis shall be performed by IID as approved by the Authorized
Representatives and paid for by the requesting Party. Whenever the percent
amount for electrical losses is redetermined, such percent amount shall become
effective as of
10
<PAGE>
the first day of the month following the date of such redetermination;
provided, that such a redetermination may be no sooner than twelve (12) months
after the most recent redetermination. Any redetermination of electrical
losses made pursuant to this Section 7 shall be based on conditions in
existence at the time of such redetermination.
7.4 Along with the monthly billing pursuant to Section 9.1, for the
transmission service for each Plant, IID shall submit a monthly summary of
hourly scheduled energy deliveries and of electrical losses for each Plant.
8. CHARGES:
8.1 For transmission service provided by IID, Producer shall pay IID at a
rate to be determined by IID pursuant to the methodologies specified in
Exhibit I.A. The initial rate is specified in Exhibit[s] II, Transmission
Service and revisions thereto will be specified in any subsequent Plant
Amendments. Any specific facility charge to Producer for connecting the
Plant(s) to the IID transmission system shall be included only in the Plant
Connection Agreement(s) between IID and Producer.
8.2 The transmission rate shall be reviewed annually and may be revised.
Any revision of the rates shall be based on the methodologies in Exhibit I.A
and on the conditions in existence at the time of the revision. Producer shall
have the right to review any exhibits or work papers prepared by IID to revise
the rates.
8.3 An initial monthly scheduling fee, as specified in Exhibit[s] II,
Transmission Service and revisions thereto
11
<PAGE>
specified in any subsequent Plant Amendments, shall be paid by Producer to IID
for those months in which there were scheduled energy deliveries from the
Plant(s). The initial scheduling fee has been determined by IID pursuant to
the methodology specified in Exhibit I.B. The scheduling fee shall be reviewed
annually and may be revised. Any revision of the scheduling fee shall be based
on the methodology in Exhibit I.B and on the conditions in existence at the
time of the revision. Producer shall have the right to review any exhibits or
work papers prepared by IID to revise the scheduling fee.
9. BILLING AND PAYMENT:
9.1 IID shall render bills to Producer, beginning in the month of the Date
of Initial Service, on or before the fifteenth (15th) day of each month for
the transmission service to be provided during the month. Producer shall pay
such bills within twenty (20) days after receipt thereof.
All payments by Producer shall be sent to:
Imperial Irrigation District
c/o Manager, Finance and Accounting
P.O. Box 937
Imperial, California 92251
All billings by IID shall be sent to:
Leathers, L.P.
480 West Sinclair Rd.
Calipatria, California 92233
9.2 Either Party's Authorized Representative may at any time, by advance
written notice to the other Party's Authorized Representative, change
the address to which payments or billings shall be sent.
12
<PAGE>
9.3 Bills which are not paid in full by said due date shall thereafter bear
an additional charge of one and one-half percent (1-1/2%) per month, or the
maximum legal rate of interest, whichever is less, compounded monthly on the
unpaid amount prorated by days from the due date until payment is received by
IID.
9.4 In the event any portion of any bill is disputed, the disputed amount
shall be paid when due under protest. If the protested portion of the payment
is found to be incorrect by the Authorized Representatives, the disputed
amount shall be paid by IID to Producer, including interest at the rate of
1-1/2% per month, or the maximum legal rate, whichever is less, compounded
monthly from the date of payment by Producer to the date the refund check or
adjusted bill is received by Producer.
9.5 For a fractional part of a calendar month at the beginning or end of
the period for which the transmission service is provided hereunder, the
charge pursuant to Section 8.1 shall be proportionately adjusted by the ratio
of days that service is furnished by IID to Producer during such month to the
total number of days in such month.
9.6 The charge for the transmission service pursuant to Section 8.1
shall be proportionately reduced to the extent the duration of the
interruptions or curtailments of the transmission service which may occur
pursuant to Section 6.5.1 or Section 6.5.2 exceed a cumulative total of
twenty-four (24) hours during any calendar month based on 730 hours per month
representing the full transmission service charge. The amount of such pro rata
13
<PAGE>
reduction in any month shall reflect the duration and amount of such
interruptions or curtailments which exceed said cumulative 24 hours. Such pro
rata reduction shall be reflected as a credit to Producer as soon as possible
in a subsequent monthly bill.
9.7 The charge for the transmission service shall not be reduced if IID can
deliver, but Edison's transmission system cannot receive, the hourly scheduled
energy deliveries independent of the duration of time this condition exists.
10. LIABILITY:
10.1 Except for any loss, damage, claim, costs, charge or expense resulting
from Willful Action, neither Party (the "released Party"), its directors or
other governing body, officers or employees shall be liable to the other Party
for any loss, damage, claim, cost, charge, or expense of any kind or nature
incurred by the other Party (including direct, indirect or consequential loss,
damage, claim, cost, charge or expense; and whether or not resulting from the
negligence of a Party, its directors or other governing body, officers,
employees or any person or entity whose negligence would be imputed to a
Party) from engineering, repair, supervision, inspection, testing, protection,
operation, maintenance, replacement, reconstruction, use or ownership of the
released Party's electrical system, Plant(s) or associated facilities in
connection with the implementation of this Agreement. Except for any loss,
damage, claim, cost, charge or expense resulting from Willful Action, each
Party releases the other Party, its directors or other governing body,
officers and employees from any such liability.
14
<PAGE>
10.2 For the purpose of this Section 10, Willful Action shall be defined as
action taken or not taken by a Party at the direction of its directors or
other governing body, officers or employees having management or
administrative responsibility affecting its performance under this Agreement,
as follows:
10.2.1 Action which is knowingly or intentionally taken or not taken
with conscious indifference to the consequences thereof or with intent that
injury or damage would result or would probably result therefrom.
10.2.2 Action which has been determined by final arbitration award or
final judgment or judicial decree to be a material default under this
Agreement and which occurs or continues beyond the time specified in such
arbitration award or judgment or judicial decree for curing such default or,
if no time to cure is specified therein, occurs or continues thereafter beyond
a reasonable time to cure such default.
10.2.3 Action which is knowingly or intentionally taken or not taken
with the knowledge that such action taken or not taken is a material default
under this Agreement.
10.3 Willful Action does not include any act or failure to act which is
merely involuntary, accidental or negligent.
10.4 The phrase "employees having management or administrative
responsibility," as used in Section 10.2, means the employees of a Party who
are responsible for one or more of the executive functions of planning,
organizing, coordinating, directing, controlling and supervising such Party's
performance under this Agreement with responsibility for results.
15
<PAGE>
10.5 Subject to the foregoing provisions of this Section 10, each Party
agrees to defend, indemnify and save harmless the other Party, its officers,
agents, or employees against all losses, claims, demands, costs or expenses
for loss of or damage to property, or injury or death of persons, which
directly or indirectly arise out of the indemnifying Party's performance
pursuant to this Agreement; provided, however, that a Party shall be solely
responsible for any such losses, claims, demands, costs or expenses which
result from its sole negligence or Willful Action.
11. AUDITING:
11.1 IID shall make its books, records, and other supporting information,
as requested, available to Producer or to Producer's designated contracted
representatives with a CPA firm, for the purpose of auditing any charges or
accounts to be kept by IID hereunder. All such audits shall be undertaken at
reasonable times and in conformance with generally-accepted auditing
standards.
11.2 If as a result of such audits Producer believes its charges or
accounts should be adjusted, the findings shall be presented to the Authorized
Representatives. If the Authorized Representatives agree that any audit
finding should result in a revision of charges or accounts, such revisions
shall be retroactive to the first billing for such charges and accounts and
shall be made as soon as practical after determination.
11.3 The amount of any unresolved dispute shall accrue interest at the rate
of one and one-half percent (1-1/2%) per
16
<PAGE>
month, or the maximum legal rate, whichever is less, compounded monthly for
any amount of money ultimately refunded to Producer.
12. AUTHORIZED REPRESENTATIVES: Within thirty (30) calendar days after the
Completion Date, as defined in Article I of the Funding and Construction
Agreement, each Party shall designate by written notice to the other Party a
representative who is authorized to act on its behalf in the implementation of
this Agreement. Either Party may at any time change the designation of its
Authorized Representative by written notice to the other Party.
13. NO DEDICATION OF FACILITIES: Any undertaking by one Party to the other
Party under any provision of this Agreement shall not constitute the
dedication of the system or any portion thereof of the Party to the public or
to the other Party, and it is understood and agreed that any such undertaking
under any provision of this Agreement by a Party shall cease upon the
termination of its obligations hereunder.
14. NON-WAIVER: None of the provisions of this Agreement shall be considered
waived by either Party except when such waiver is given in writing. The
failure of either Party to insist in any one or more instances upon strict
performance of any of the provisions of this Agreement or to take advantage of
any of its rights hereunder shall not be construed as a waiver of any such
provisions or the relinquishment of any such rights for the future, but the
same shall continue and remain in full force and effect.
17
<PAGE>
15. NO THIRD PARTY RIGHTS: The Parties do not intend to create rights in order
to grant remedies to any Third Party or others as a beneficiary of this
Agreement or of any duty, covenant, obligation or undertaking established
hereunder.
16. UNCONTROLLABLE FORCES: Neither Party shall be considered to be in default
in the performance of any of its obligations under this Agreement when a
failure of performance shall be due to an uncontrollable force. The term
"uncontrollable force" shall mean any cause beyond the control of the Party
affected including, but not restricted to, failure of or threat of failure of
facilities which have been maintained in accordance with generally-accepted
engineering and operating practices in the electrical utility industry, flood,
drought, earthquake, tornado, storm, fire, pestilence, lightning and other
natural catastrophes, epidemic, war, riot, civil disturbance or disobedience,
strike, labor dispute, labor or material shortage, sabotage, government
priorities and restraint by court order or public authority (whether valid or
invalid) and actions or nonaction by or inability to obtain or keep the
necessary authorizations or approvals from any governmental agency or
authority, the failure or inablility of Edison to receive the electric power
to be transmitted hereunder at the Point(s) of Delivery, which by exercise of
due diligence such Party could not reasonably have been expected to avoid and
which by exercise of due diligence it has been unable to overcome. Nothing
contained herein shall be construed as to require a Party to settle any strike
or labor dispute in which it may be involved. Either Party rendered
18
<PAGE>
unable to fulfill any of its obligations under this Agreement by reason of an
uncontrollable force shall give prompt written notice of such fact to the
other Party and shall exercise due diligence to remove such inability with all
reasonable dispatch.
17. ASSIGNMENTS:
17.1 Any assignment by Producer of its interest in this Agreement which is
made without the written consent of IID (which shall not be unreasonably
withheld) shall not relieve Producer from its primary liability for any of its
duties and obligations hereunder, and in the event of any such assignment,
Producer shall continue to remain primarily liable for payment of any and all
money due IID hereunder and for the performance and observance of all other
covenants, duties and obligations to be performed and observed hereunder by it
to the same extent as though no assignment has been made.
17.2 Notwithstanding any provision of Section 17.1 to the contrary, prior
to the end of the Credit Installment Period, as defined in Article I of the
Funding and Construction Agreement, Producer's right to transmission service
under this Agreement with respect to one or more of the Plants may be assigned
only (i) to a purchaser or co-owner of such Plants or to a person who will
operate such Plants pursuant to a contract or other arrangement with such
purchaser and in either case only with the prior written consent of IID (which
shall not be unreasonably withheld) or (ii) for security purposes, to a bank
or other entity which provides financing for such Plants or any electrical
transmission facilities associated therewith. Producer and IID
19
<PAGE>
agree that nothing in this Section 17.2 may be amended, modified or waived
without the prior written consent of each and every party to the Funding and
Construction Agreement (except for any parties in default thereunder).
17.3 Whenever an assignment of Producer's interest in this Agreement is
made with the written consent of IID, Producer's assignee shall expressly
assume in writing the duties and obligations hereunder of Producer and, within
thirty (30) days after any such assignment and assumption of duties and
obligations, Producer shall furnish or cause to be furnished to IID a true and
correct copy of such assignment and assumption of duties and obligations.
17.4 Subject to the foregoing restrictions on assignments, all of the
terms of this Agreement shall be binding upon and inure to the benefit of both
of the Parties and their respective successors, permitted assigns and legal
representatives.
18. GOVERNING LAW: This Agreement shall be interpreted, governed by and
construed under the laws of the State of California or the laws of the United
States, as applicable.
19. NOTICES: Any notice, demand or request provided for in this Agreement, or
served, given or made in connection with it, shall be in writing and shall be
deemed properly served, given or made if delivered in person or sent by United
States mail, postage prepaid, to the persons specified below unless otherwise
provided for in this Agreement:
20
<PAGE>
Imperial Irrigation District
c/o General Manager
P.O. Box 937
Imperial, California 92251
Leathers, L.P.
480 West Sinclair Rd.
Calipatria, California 92233
Either Party may at any time, by notice to the other Party,
change the designation or address of the person so specified as the one to
receive notices pursuant to this Agreement.
20. SIGNATURE CLAUSE: The signatories hereto represent that they have been
appropriately authorized to enter into this IID- Leathers Power Plant
Transmission Service Agreement for Alternative Resources (Standard Form) on
behalf of the Party for whom they signed. This Agreement is hereby executed as
of the 3rd day of October, 1989.
IMPERIAL IRRIGATION DISTRICT
By: /s/ Lester A. Burnt
------------------------------------
President, Board of Directors
LEATHERS, L.P., a California
Limited Partnership
By: /s/ Jon R. Peele
------------------------------------
Vice President, Red Hill Geothermal, Inc.
Managing General Partner for
Leathers, L.P.
21
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EXHIBIT I.A
DEVELOPMENT AND METHODOLOGY FOR THE
TRANSMISSION SERVICE CHARGE
IID's transmission service charge shall be recalculated during
the month of April of each year, using the methodology summarized
in this Exhibit. The recalculated transmission service charge
shall be effective on June 1 of the year of recalculation.
EI.A-1 Plant Investment
TAI = WP + PA - TR + GP + M&S
where
TAI = Total adjusted investment at the time of calculation.
WP = Estimate of weighted Transmission Plant Cost ($40,980,291) as
December 31, 1983 calculated using the following formula:
WP = (0.7 x OC) + (0.3 x RCN); where
OC = Cumulative original cost of Transmission Plant as shown
in IID's accounting records, obtained by summing the
actual cost of all yearly additions to Transmission Plant
from 1938 to the end of 1983, (i.e., $20,700,415).
RCN = Estimate of the cumulative reproduction cost to build
the Transmission Plant items identified in OC in 1983
dollars. Calculated by summing the escalated cost of each
yearly addition to Transmission Plant starting in 1938 up
to the end of calendar year 1983 using the Handy-Whitman
Index for Total Transmission Plant for the Pacific
Region, (i.e., $88,300,000).
PA = Cumulative sum of additions to Transmission Plant from
January 1, 1984 to the end of the year preceding the year of
calculation. Thus, if the calculation takes place in 1996, PA
is sum of Transmission Plant additions at actual cost from
January 1, 1984 to December 31, 1995.
PA = Sum of [TPA(I) + OA(i)]
where TPA(i) = Annual additions to Transmission Plant for each
year associated with the Transmission Project,
as defined in Section 7.05 of the Funding and
Construction Agreement. TPA(i) is calculated for
each year from Completion Date of Transmission
EIA-1
<PAGE>
Project to end of year preceding year of
calculation.
OA(i) = Other annual additions to Transmission Plant
by IID each year. OA(i) is calculated for each
year from January 1, 1984 to end of year
preceding year of calculation.
TR = Sum of (i) and (ii) where:
(i) = For facilities placed in service prior to 1984, the
cumulative sum of the annual Weighted Retirement
Costs (WRC) for retirements from Transmission Plant
from January 1, 1984 to the end of the year
preceding the year of calculation. Thus, if the
calculation takes place in 1996, TR is comprised of
the sum of annual Transmission Plant retirements
from January 1, 1984 to December 31, 1995 with each
year's original cost adjusted to account for the
weighted cost of retirement.
where WRC = Weighted Retirement Cost for
transmission retired in a given year.
OCI = Original cost of transmission facilities
retired in a given year.
WRC = 70%*OCI + 30%*OCI*RCN/OC
(ii) = Cumulative sum of original cost of annual transmission
retirements for facilities placed in service after
January 1, 1984.
GP = General plant investment as shown in IID's
accounting records, as of the year preceding the
year of calculation, allocated to transmission use
by the ratio of total allocated transmission O&M
cost to the sum of production O&M cost excluding
fuel, distribution O&M cost, transmission O&M cost,
dispatching cost, and customer accounting and
services costs.
M&S = Materials and supplies inventory held by IID as of the
year preceding the year of calculation, allocated to
transmission use by the ratio of Transmission Plant
Original Cost to Total Electric Plant original cost as
reflected in IID's accounting records for the year
preceding the year of calculation.
EI.A-2 Annual Cost
TAC = (1.25 x CRF x TAI) + OM + A&G
where
TAC = Total Annual Cost.
CRF = Annual capital recovery factor calculated for a 33-
year amortization using the average interest rate for
the year preceding the year of calculation from the
"Merrill Lynch 500 Municipal Bond Index
Electric-Retail."
EIA-2
<PAGE>
OM = Total allocated transmission O&M cost during the
year preceding the year of calculation, equal to the sum
of (i) dispatching costs and (ii) transmission O&M cost
allocated to transmission use by the ratio of
Transmission Plant original cost (OC) to Total
Transmission Plant original cost (including the cost of
subtransmission plant) as shown in IID's accounting
records.
A&G = Administrative and general cost during the year
preceding the year of calculation, allocated to
transmission use by the ratio of total allocated
transmission cost (OM) to the sum of production O&M cost
excluding fuel, distribution O&M cost, transmission O&M
cost, dispatching cost, and customer accounting and
services cost.
Annual Cost
CRF = (33 years, 8%) = 8.6852
OM = 1,000,000 + 1,000,000 x 0.8272 = 827,200
A&G = 5,000,000 x 0.079 = 395,000
TAC = 1.25 x 0.086852 x $144,755,891 + 1,827,200 + 395,000
= $16,937,623
Monthly Transmission Service Charge
APL = 543,000 + 320,000 = 863,000
TSC = $16,937,623 = $1.64/kW
12 x 863,000
EIA-3
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Examples (Continued)
Monthly Transmission Service Charge
APL= 369,000 + 63,000 = 432,000
TSC= 7,119,333 = 1.37 $/kW
------------
12 x 432,000
(2) Sample Calculation, 1996
Assumptions
- Weighted cost of Transmission Plant to 12-31-83;
$40,980,291.
- Transmission Additions to 12-31-95; $67,000,000.
- Transmission Credit to rate base through 12-31-94;
$30,000,000.
- Transmission credits used during 1995 were $6,000,000; IID's
Reserved Capacity is 40 MW, and the Deemed Capacity is 600
MW.
- No accumulated retirements.
- General plant investment as of 12-31-95, from IID
records, is $2,000,000.
- All allocation factors are assumed the same as in the
previous example but, in general, would not be
identically the same each year.
- Materials and supplies inventory as of 12-31-95; from
IID records, is $8,000,000.
- The 12-month average Merrill-Lynch Index interest rate
is 8% in 1995.
- Dispatching costs in 1995 were $1,000,000.
- IID's transmission O&M costs in 1995 were $1,000,000.
- IID's administrative and general costs in 1995 were
$5,000,000.
- IID's service peak load in 1995 was 543 MW.
- IID's total transmission commitments in 1995 were 320
MW.
EIA-4
<PAGE>
Adjusted Investment 1996
WP = Weighted Plant to 12-31-83 ............$40,980,291
OA[1984-1995] = Transmission Plant Additions
Through 12-31-95
(excludes Transmission Project) ........67,000,000
TPA[1984-1994] = Transmission Credit to Rate Base
Through 12-31-94 .......................30,000,000
TPA[1995] = Transmission Credit to Rate Base
during 1995; 6,000,000 x 600 - 40
600 ..........5,600,000
GP = General Plant Allocated;
2,000,000 x 0.079 .........................158,000
M&S = M&S Allocated; 8,000,000 x 0.1272 .......1,017,600
-----------
TAI = $144,755,891
Administrative and general cost is comprised of Power
Department plus Joint Department A&G less Customer
Account Expense.
EI.A-3 Monthly Transmission Service Charge
TSC = TAC
--------
12 x APL
where
TSC = Monthly transmission service charge, in $/kW.
APL = Annual peak load during the year preceding the year
of calculation, expressed in kW, which is equal to the sum
of IID's service peak load plus all transmission wheeling
commitments (including all Transmission Service
Entitlements).
Examples
(1) Recalculation of 1985 Transmission Service Charge Plant Investment
OC = 20,700,415
RCN = 88,300,000
WP = (0.7 x OC) + (0.3 x RCN) = 40,980,291
PA = 0 + 4,111,000 = 4,111,000
GP =
1,526,849 x 574,528 + 189,450
----------------------------------------------------------
3,085,080 + 4,080,868 + 694,545 + 1,621,252 + 189,450
= 1,526,849 x 0.079 = 120,621
M&S = 6,151,304 x 20,700,415
-----------
162,700,978
= 6,151,304 x 0.1272 = 782,629
TAI = 40,980,291 + 4,111,000 + 120,621 + 782,629
= 45,994,541
EIA-5
<PAGE>
Annual Cost
CRF = (33 years, 10.41%) = 10.8221%
OM = 694,545 x 20,700,415
----------
25,025,093
= 694,545 x 0.8272 = 574,528
A&G =
4,086,530 x 574,528 + 189,450
----------------------------------------------------------
3,085,080 + 4,080,868 + 694,545 + 189,450 + 1,621,252
= 4,086,530 x 0.079 = 322,836
TAC = (1.25 x 0.108221 x 45,994,541) + 574,528 + 322,836
= 7,119,333
EIA-6
<PAGE>
EXHIBIT I.B
METHODOLOGY AND CALCULATION OF SCHEDULING FEE
ANNUAL DETERMINATION
OF
IID SCHEDULING FEES
IID, in April each year, will calculate monthly fees for scheduling
services related to Alternative Energy Resources and transactions with other
utilities as follows:
A. An appropriate number of scheduling units will be
assigned to every IID resource, Alternative Energy
Resource, and transaction with other utilities in
operation during the preceding year. The number of
scheduling units assigned to each resource and/or
transaction will depend upon the total daily number of
functions and therefore, estimated time required to
schedule the resource and/or transaction. This
estimate will be directly related to the complexity of
the scheduling service being provided. Table 1 shows
how the total scheduling units were determined for the
IID system.
B. The expenses related to dispatching and scheduling
services will be equal to the sum of the following:
1. IID FPC Account 556 for the year preceding the
year of calculation
2. A portion of the annual expenses related to the
SCADA and AG systems for the year preceding the
year of calculation, determined by multiplying one
half of the levelized debt service payments for
the systems by the percentage that FPC Account 55
is of the total of FPC Accounts 556, 561 and 581.
Table 2 shows calculations involved with this
step.
C. The annual scheduling fee per scheduling unit will be
determined by dividing the expenses related to
scheduling found in Step B by the total scheduling
units from Step A. The per unit fee will then be
multiplied by the number of scheduling units assigned
to each resource and/or transaction to develop an
appropriate annual scheduling fee for that resource
and/or transaction. The monthly scheduling fee will
then be calculated by dividing the annual fee by 12.
Table 3 shows the calculation.
The revised scheduling fee will be effective on June 1 of the year in which
they are calculated.
EIB-1
<PAGE>
IID-Edison
Service Agreement
to Alternative
Energy Resources
<TABLE>
<CAPTION>
TABLE 1
IMPERIAL IRRIGATION DISTRICT
SCHEDULING FEE METHODOLOGY
DETERMINATION OF TOTAL SCHEDULING UNITS
Hours Payback/ Pre- On AGC Off Loss
Energy Capacity Vaiable Banking Scheduling System System Accounting
(X=2) (X=2) (X=1) (X=2) (X=1) (X=1) (X=1) (X=1) Total
------ -------- ------- ------- ---------- ------ ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
IID's Generating Units:
Pilot Knob x x x x 6
Drop No. 1 x x x x 6
Drop No. 2 x x x x 6
Drop No. 3 x x x x 6
Drop No. 4 x x x x 6
Drop No. 5 x x x x 6
Ea - Highline x x x x 6
Turnip and Double Weir x x x x 6
El Centro Unit No. 1 x x x x 6
El Centro Unit No. 2 x x x x 6
El Centro Unit No. 3 x x x x 6
El Centro Unit No. 4 x x x x 6
Coachella Units No. 1 and 2 x x x x 6
Coachella Units No. 3 and 4 x x x x 6
Railwood x x x x 6
El Reyx x x x x 6
--
Subtotal 96
Alternative Energy Resources:
Earth Energy x x x x x x x 10
Magma (East Mesa) x x x x x x x 10
Heber HGC x x x x x x x 10
Vulcan Power x x x x x x x 10
Ormesa I x x x x x x x 10
Ormesa II x x x x x x x 10
Western Blomas x x x x x x x 10
D.J. Ranch x x x x x x x 10
J.J. Elmore x x x x x x x 10
Desert Power x x x x x x x 10
---
Subtotal 100
Transactions with Other Utilities:
DOE x x x x x 7
EPE x x x x x 7
SCE x x x x x 7
SDG&E x x x x x x x 10
APS (Yucca) x x x x x 7
SCE GT's (Axis) x x x x x x 9
APS (Axis) x x x x x x 9
YCWUA x x x x x x 9
---
Subtotal 65
Total Scheduling Units 261
---
</TABLE>
EIB-2
<PAGE>
TABLE 2
IMPERIAL IRRIGATION DISTRICT
SCHEDULING FEE METHODOLOGY
EXPENSES RELATED TO SCHEDULING
IID 1986 Actual
FPC Account 556 (3) $413,810 (54.67%)
FPC Account 561 $234,475 (30.98%)
FPC Account 581 $108,627 (14.35%)
-------- --------
$756,912 (100.0%)
SCADA and AGC Systems
Investment (2) = $4,896,766
Annual Expense
$4,896,766 x 0.1170923 (1) = $ 573,374
Expenses Related to Scheduling
FPC Account 556 = $413,810
54.67% of SCADA and AGC Systems
Annualized Expense ($573,374 x 0.5467) = $313,463
--------
Total Expense Related to Scheduling = $727,273
(1) Capital Recovery Factor determined from levelized debt service
payments of $7,611,000 for $65,000,000 - May, 1983 COP issue.
(2) Fifty percent of total investment for SCADA and AGC,
$9,793,532, is assumed related to transmission service.
(3) Related to load dispatching for system control.
EIB-3
<PAGE>
TABLE 3
IMPERIAL IRRIGATION DISTRICT
SCHEDULING FEE METHODOLOGY
CALCULATION OF SCHEDULING FEE
Annual Charge per Scheduling Unit
Total Expenses Related to Scheduling (from Table 2) = $727,273
Total Scheduling Units (from Table 1) = 261
--------
Annual Charge per Scheduling Unit ($727,273/261) = $ 2,786
Alternative Energy Resource Scheduling Fee
All Plants:
Annual Charge (10 Scheduling Units x $2,786) = $ 27,860/year
(1) Monthly Charge ($27,860/12) = $ 2,321/month
(1) Also applies to new plants to be on-line in 1989
EIB-4
<PAGE>
EXHIBIT II
TRANSMISSION SERVICE
FOR THE LEATHERS POWER PLANT
EII-1. DESCRIPTION:
EII-2. APPLICABILITY: Applicable to the transmission service to be
provided by IID to Producer for transmitting the electrical
output from the Del Ranch Plant Point of Receipt to the Point(s)
of Delivery.
EII-3. PLANT CONNECTION AGREEMENT: The Del Ranch Plant Connection
Agreement to be executed between IID and Producer.
EII-4. MAXIMUM TRANSMISSION SERVICE ENTITLEMENT: 40 MW.
TRANSMISSION SERVICE ENTITLEMENT: 40 MW, as specified in
accordance with Sections 6.2 and 6.3.
EII-5. POINT OF RECEIPT: See Section 4.13.
EII-6. POINT(S) OF DELIVERY: The 230-kV switchrack at Edison's Mirage
Substation.
EII-7. TERM: The term of the Transmission Service Entitlement for the
Del Ranch Power Plant shall be effective from the Date of
Initial Service and shall terminate on April 15, 2015.
EII-8. TRANSMISSION SERVICE CHARGE: $1.29 per kilowatt-month, or as
revised in accordance with Section 8.2, times Transmission
Service Entitlement.
EII-9. SCHEDULING FEE: $2,321 per month or as revised in accordance
with Section 8.3.
EII-10. TRANSMISSION LOSSES: 2.8% or as revised in accordance with
Section 7.
EIB-5
EXHIBIT 10.38
89A.3
LTHRS
9-25-89
EXECUTION COPY
PLANT CONNECTION AGREEMENT
FOR THE
LEATHERS POWER PLANT
BETWEEN
IMPERIAL IRRIGATION DISTRICT
AND
LEATHERS, L.P.
EXECUTION COPY
9-25-89
<PAGE>
TABLE OF CONTENTS
Page
1. PARTIES ............................................ 1
2. RECITALS ........................................... 1
3. AGREEMENT .......................................... 2
4. DEFINITIONS ........................................ 2
5. EFFECTIVE DATE AND TERM ............................ 3
6. CONNECTION OF PLANT ................................ 3
7. ELECTRIC SERVICE TO PRODUCER ....................... 4
8 METERING OF ENERGY DELIVERIES 4
9. PRODUCER'S DELIVERY AND IID ACCEPTANCE OF
ENERGY FROM PLANT .................................. 4
10. PRODUCER'S GENERAL OBLIGATIONS ..................... 5
11. IID'S GENERAL OBLIGATIONS .......................... 6
12. BILLING ............................................ 7
13. AUTHORIZED REPRESENTATIVES ......................... 8
14. METERS ............................................. 9
15. CONTINUITY OF SERVICE .............................. 10
16. LIABILITY .......................................... 11
17. UNCONTROLLABLE FORCES .............................. 13
18. INTEGRATION AND AMENDMENTS ......................... 14
19. NON-WAIVER ......................................... 14
20. NO DEDICATION OF FACILITIES ........................ 15
21. SUCCESSORS AND ASSIGNS ............................. 15
22. EFFECT OF SECTION HEADINGS ......................... 16
23. GOVERNING LAW ...................................... 16
24. ARBITRATION ........................................ 16
(1)
<PAGE>
25. ENTIRE AGREEMENT ................................... 18
26. NOTICES ............................................ 19
27. SEVERAL OBLIGATIONS ................................ 19
28. SIGNATURE CLAUSE ................................... 20
(2)
<PAGE>
1. PARTIES
The parties to this Agreement are IMPERIAL IRRIGATION DISTRICT ("IID"),
organized under the Water Code of the State of California and Leathers, L.P.
("Producer"), hereinafter referred to individually as "Party", and
collectively as "Parties".
2. RECITALS
2.1 Producer intends to construct and operate, as owner or lessee, a
megawatt generating facility with a maximum 38 megawatt net operating capacity
at the Salton Sea (KGRA), Imperial County, California, and to sell the Plant
electrical output to Southern California Edison Company ("SCE").
2.2 SCE has entered into the Power Purchase Agreement dated April 10,
1986 ("Purchase Agreement") with Producer, to purchase
all the electrical output from the Plant.
2.3 SCE and Producer agree that the terms and conditions regarding
transmission of the Plant's Energy to an IID/SCE point of interconnection
shall be pursuant to a Transmission Service Agreement to be entered into
between IID and Producer.
2.4 Since the Plant will be built in the IID service territory, it will
be convenient to connect the Plant to the IID electric system.
Producer hereby grants the IID the right to enter the Plant site
for any reasonable purposes connected with this Agreement, by previous
arrangements with the Plant manager. Those reasonable purposes include
maintenance and repairs to IID equipment in Producer's facilities, observing
tests of said facilities, reading of kilowatt-hour meters, and the like.
<PAGE>
2.5 Producer desires to purchase and IID desires to sell the electrical
energy necessary to satisfy the operation and maintenance power consumption
requirements of the Plant for the life of the Plant that is not normally
generated by the Plant itself, or portable generating equipment.
2.6 The Parties desire, by means of this Agreement, to
interconnect the Plant to the IID electrical system and to establish
the terms, conditions and obligations of the Parties relating to
such interconnection.
3. AGREEMENT
The parties agree as follows:
4. DEFINITIONS
4.1 Agreement: This Plant Connection Agreement between IID and Producer,
and all Exhibits hereto, as may be amended from time to time.
4.2 Authorized Representative: The representative of a
Party designated in accordance with Section 13.
4.3 Energy: Electric energy in excess of Producer's electric energy
requirements, expresses in kilowatt-hours, generated by the Plant and measured
and delivered to the Point of Delivery.
4.4 Funding and Construction Agreement: An agreement entered into by IID
and others dated June 29, 1987, providing for the funding and construction of
the Heber-Mirage Transmission Project, to which a form of this Agreement is
attached as Exhibit C.
2
<PAGE>
4.5 Operation Date: The day on which the Plant Energy is first accepted
by IID for delivery to SCE.
4.6 Plant: A maximum of 40 MW net operating capacity Geothermal facility
operated by Producer, as owner or lessee, including all associated equipment
and improvements necessary for generating electric energy and transmitting it
to the high voltage side of the power transformer.
4.7 Point of Delivery: The point on the high voltage side of Producer's
switchyard where IID's metering equipment measures the delivery of Energy to
the IID system as shown on Exhibit "B".
4.8 System Emergency: A condition on IID's system which is likely to
result in imminent significant disruption of service to customers or is
imminently likely to endanger life or property.
5. EFFECTIVE DATE AND TERM
This Agreement shall become effective upon the Operation Date of the
Plant, and shall remain in effect until the earlier of (i) April 15, 2015, or
(ii) thirty six (36) months from the date the Plant has ceased to operate at
the option of IID. It is understood that (i) if the Completion Date, as the
term Completion Date is defined in Article I of Funding and Construction
Agreement does not occur, or (ii) if the Operation Date does not occur within
five (5) years after the date this Agreement was executed, this Agreement
shall be of no force or effect.
6. CONNECTION OF PLANT
6.1 Producer may electrically connect its Plant, in accordance with the
provisions of this Agreement, so that it can
3
<PAGE>
operate in parallel with the IID electric system. Parallel operation will
not commence until IID has inspected and approved the interconnection
facilities and operations procedures.
6.2 Notwithstanding the provision that Producer has
furnished the high voltage switchyard complete, including the high
voltage oil circuit breakers and disconnect switches, the control of the
high voltage oil circuit breakers and disconnect switches shall be
under the control of the IID dispatcher.
7. ELECTRIC SERVICE TO PRODUCER
IID shall provide electric service to Producer pursuant to Section 12.
8. METERING OF ENERGY DELIVERIES
Metering for electric service to Producer and for energy
deliveries by Producer to IID for delivery to SCE shall be at the
Point of Delivery as shown on Exhibit "B". Four meters shall be
installed which shall measure and record flows in each direction as
shown on Exhibit "B".
9. PRODUCER'S DELIVERY AND IID ACCEPTANCE OF ENERGY FROM PLANT
Whenever electric output from the Plant exceeds Producer's
power requirements, Producer shall deliver all such excess output
to IID for delivery to SCE and IID shall accept such output for
delivery to SCE and deliver such output to SCE pursuant to a
transmission service agreement to be entered into between Producer and
IID.
4
<PAGE>
10. PRODUCER'S GENERAL OBLIGATIONS
Producer shall:
10.1 Operate the Plant in a manner consistent with applicable electric
utility industry standards, good engineering practice, and without degradation
of quality or reliability of service to IID customers.
10.2 Deliver the Plant's net electrical output to IID for the account of
SCE at the Point of Delivery.
10.3 Each Party shall provide the reactive kilovolt-ampere (KVA)
requirements of its own system so that there will be no interchange of
reactive KVA between systems. The Parties shall cooperate to control the flow
of reactive KVA to prevent the introduction of objectionable operating
conditions on the system of either Party.
10.4 Coordinate, to the greatest extent practicable, major overhaul and
inspection outages of the Plant with IID.
10.5 Give IID a written schedule on or before June 1, and December 1,
each year of the estimated amounts and rates of delivery of energy to be
delivered to IID for the account of SCE at the Point of Delivery during each
month of the succeeding twelve-month (12) period commencing July 1, and
January 1.
10.6 Give IID a written schedule on or before the fifteenth (15th) day
of each month of the estimated amounts and rates of delivery of energy to be
delivered to IID for the account of SCE at the Point of Delivery during each
day of the succeeding calendar month.
5
<PAGE>
10.7 Give IID a schedule on or before 12:01 p.m. on Tuesday
of each seven-day (7) period of the estimated amounts and rates
of delivery of energy to be delivered to IID for the account of SCE
at the Point of Delivery during each hour of the succeeding seven-day (7)
period commencing at 12:01 a.m. on the following Monday; provided, however,
that if any changes in the hourly deliveries so scheduled become necessary,
Producer shall notify IID of such changes as far in advance as possible.
10.8 Provide IID any reasonable rights-of-way and access required for
testing and reading of meters by previous arrangement with the Plant manager.
10.9 Carry out the directions of the Authorized Representatives with
respect to the matters set forth in this Agreement.
11. IID'S GENERAL OBLIGATIONS
IID shall:
11.1 Design, acquire, construct, operate and maintain, or cause to be
designed, acquired, constructed, operated and maintained, and shall own, a
connecting transmission line between IID's transmission system and the Plant.
Following the completion of such line, IID may bill and Producer shall pay
IID's costs of designing, acquiring and constructing such line. Producer shall
have the right to audit IID's records and accounts to verify the cost of such
line.
11.2 Accept the Plant's net electrical output for the account of SCE at
the Point of Delivery and simultaneously deliver an equal amount of electric
energy (less applicable
6
<PAGE>
transmission losses) to the SCE system at IID/SCE point(s) of interconnection.
11.3 Coordinate, to the greatest extent practicable, major overhaul and
inspection outages of IID transmission facilities with Producer and notify
Producer of any changes as far in advance as possible.
11.4 Carry out the directions of the Authorized Representative with
respect to the matters set forth in this Agreement.
11.5 Operate its system in a manner consistent with applicable utility
industry standards and good engineering practices.
12. BILLING
12.1 IID shall read the meters monthly according to its regular meter
reading schedule beginning no more than thirty (30) days after the date that
electric energy is first supplied to Producer. IID monthly shall send Producer
within ten (10) working days after the meter is read a bill for electric
service. Producer shall pay IID the total amount billed within thirty (30)
days of receipt of the bill.
12.2 IID shall bill Producer for Producer's consumption of energy from
IID's resources in accordance with Rate Schedule GL or Rate Schedule A-2, as
applicable, as it may be revised from time to time. Copies of current Rate
Schedule GL and current Rate Schedule A-2 are attached as Exhibit "A".
12.3 If Producer disputes a bill, payment shall be made as if no dispute
existed pending resolution of the dispute by the
7
<PAGE>
Authorized Representatives. If the bill is determined to be in
error, the disputed amount shall be refunded by IID including interest
at the rate of one and one-half percent (1 1/2%) per month, compounded monthly,
from the date of payment to the date the refund check
or adjusted bill is mailed.
13. AUTHORIZED REPRESENTATIVES
13.1 Within thirty (30) days after the date this Agreement is signed,
each Party shall designate, by written notice to the other Party, an
Authorized Representative who is authorized to act in its behalf in the
implementation of this Agreement and with respect to those matters contained
herein which are the functions and responsibilities for the Authorized
Representatives. Either Party may, at any time, change the designation of its
Authorized Representative by written notice to the other Party.
13.2 IID's Authorized Representative shall develop detailed written
procedures necessary and convenient to administer this Agreement within six
(6) months after the date signed. Such procedures shall be submitted to
Producer's Authorized Representative for review, comment, discussion and
concurrence before they are put into effect. Such procedures shall include,
without limitation: (i) communication between Producer and IID's electric
system dispatcher with regard to daily operating matters, (ii) billing and
payments, (iii) specified equipment tests, and (iv) operating matters which
affect or may affect quality and reliability of service to electric customers
and continuity of deliveries to SCE.
8
<PAGE>
13.3 The Authorized Representative shall have no authority to modify any
of the provisions of this Agreement.
14. METERS
14.1 All meters shall be sealed and the seal shall be broken only upon
occasions when the meters are to be inspected, tested or adjusted.
14.2 IID shall inspect and test all meters upon their installation and
at least once every year thereafter. If requested to do so by Producer, IID
shall inspect or test a meter more frequently than every year, but the expense
of such inspection or test shall be paid by Producer unless the meter is found
to register inaccurately by more than two percent (2%) from the measurement
made by a standard meter. Each Party shall give reasonable notice to the other
Party of the time when any inspection or test shall take place and that Party
may have representatives present at the test or inspection. If a meter is
found to be inaccurate or defective, it shall be adjusted, repaired or
replaced in order to provide accurate metering. All adjustments due to
inaccurate meters shall be limited to the preceding six (6) months.
14.3 If a meter fails to register, or if measurement made by a meter
during a test varies by more than two percent (2%) from the measurement made
by the standard meter used in the test, adjustment shall be made correcting
all measurements made by the inaccurate meter for:
9
<PAGE>
(i) the actual period during which inaccurate measurements
were made, if the period can be determined, or if not,
(ii) the period immediately preceding the test of the meter equal
to one-half (1/2) the time from the date of the last previous
test of the meter; provided, however, that the period covered
by the correction shall not exceed six (6) months.
14.4 Producer shall telemeter information to IID's Dispatch Center
regarding the kilowatts, kilowatt-hours, kilovars and kilovar-hours delivered
to or received from IID at the Point of Delivery over phone line leased by
Producer.
IID shall purchase, own, and shall design, install, operate,
maintain, or cause to be designed, installed, operated, and maintained,
equipment to automatically transmit from the Plant to IID's Dispatch Center
continuous values of Plant output expressed as megawatts, megavars, and
megawatt-hours. IID may thereupon bill and Producer shall promptly pay IID's
cost of design, purchase and installation of said equipment. Producer shall
have the right to audit IID's records and accounts to verify the cost of said
equipment.
15. CONTINUITY OF SERVICE
IID shall not be obligated to accept and IID may require Producer to
temporarily curtail, interrupt or reduce deliveries of energy upon advance
notice to Producer, when such curtailment, interruption or reduction is
required in order for IID to construct, install, maintain, repair, replace,
remove,
10
<PAGE>
investigate or inspect any of its equipment or any part of its system
or if IID determines that such curtailment, interruption or reduction is
necessary because of a System Emergency, forced outages or abnormal operating
conditions on its system. IID shall use reasonable efforts to keep
interruptions and curtailment to a minimum time.
16. LIABILITY
16.1 Except for any loss, damage, claim, costs, charge or expense
resulting from Willful Action, neither Party (the "released Party"), its
directors or other governing body, officers or employees shall be liable to
the other Party for any loss, damage, claim, cost, charge, or expense of any
kind or nature incurred by the other Party (including direct, indirect or
consequential loss, damage, claim, cost, charge or expense; and whether or not
resulting from the negligence of a Party, its directors or other governing
body, officers, employees or any person or entity whose negligence would be
imputed to a Party) from engineering, repair, supervision, inspection,
testing, protection, operation, maintenance, replacement, reconstruction, use
or ownership of the released Party's electrical system, Plant(s) or associated
facilities in connection with the implementation of this Agreement. Except for
any loss, damage, claim, cost, charge or expense resulting from Willful
Action, each Party releases the other Party, its directors or other governing
body, officers and employees from any such liability.
16.2 For the purpose of this Section 16, Willful Action shall be defined
as action taken or not taken by a Party at the
11
<PAGE>
direction of its directors or other governing body, officers or employees
having management or administrative responsibility affecting its performance
under this Agreement, as follows:
16.2.1 Action which is knowingly or intentionally taken or not taken
with conscious indifference to the consequences thereof or with intent that
injury or damage would result or would probably result therefrom.
16.2.2 Action which has been determined by final arbitration award or
final judgment or judicial decree to be a material default under this
Agreement and which occurs or continues beyond the time specified in such
arbitration award or judgment or judicial decree for curing such default or,
if no time to cure is specified therein, occurs or continues thereafter beyond
a reasonable time to cure such default.
16.2.3 Action which is knowingly or intentionally taken or not taken
with the knowledge that such action taken or not taken is a material default
under this Agreement.
16.3 Willful Action does not include any act or failure to act which is
merely involuntary, accidental or negligent.
16.4 The phrase "employees having management or administrative
responsibility," as used in Section 16.2, means the employees of a Party who
are responsible for one or more of the executive functions of planning,
organizing, coordinating, directing, controlling and supervising such Party's
performance under this Agreement with responsibility for results.
16.5 Subject to the foregoing provisions of this Section 16, each Party
agrees to defend, indemnify and save harmless the
12
<PAGE>
other Party, its officers, agents, or employees against all losses, claims,
demands, costs or expenses for loss of or damage to property, or injury or
death of persons, which directly or indirectly arise out of the indemnifying
Party's performance pursuant to this Agreement; provided, however, that a
Party shall be solely responsible for any such losses, claims, demands, costs
or expenses which result form its sole negligence or Willful Action.
17. UNCONTROLLABLE FORCES
Neither Party shall be considered to be in default in the performance of
any of its obligations under this Agreement when a failure of performance
shall be due to an uncontrollable force. The term "uncontrollable force" shall
mean any cause beyond the control of the Party affected including, but not
restricted to, failure of or threat of failure of facilities which have been
maintained in accordance with generally-accepted engineering and operating
practices in the electrical utility industry, flood, drought, earthquake,
tornado, storm fire, pestilence, lightning and other natural catastrophes,
epidemic, war, riot, civil disturbance or disobedience, strike, labor dispute,
labor or material shortage, sabotage, government priorities and restraint by
court order or public authority (whether valid or invalid) and actions or
nonaction by or inability to obtain or keep the necessary authorizations or
approvals from any governmental agency or authority, which by exercise of due
diligence such Party could not reasonably have been expected to avoid and
which by exercise of due diligence it has been unable to overcome.
13
<PAGE>
Nothing contained herein shall be construed as to require a Party to settle
any strike or labor dispute in which it may be involved. Either Party rendered
unable to fulfill any of its obligations under this Agreement by reason of an
uncontrollable force shall give prompt written notice of such fact to the
other Party and shall exercise due diligence to remove such inability with all
reasonable dispatch.
18. INTEGRATION AND AMENDMENTS
This Agreement constitutes the entire agreement between the Parties
relating to the interconnection of Producer's Plant to IID's electric system,
the acceptance of energy by IID from Producer and the providing of electric
service by IID. No oral agreement or prior written agreement between the
Parties shall be of any effect whatsoever; provided, however, that any
arrangements agreed upon by the Authorized Representatives within the limits
of their authority, and consistent with this Agreement shall be binding upon
the Parties. All changes to this Agreement shall be in writing and shall be
signed by an officer of each Party.
19. NON-WAIVER
None of the provisions of this Agreement shall be considered waived by
either Party except when such waiver is given in writing. The failure of
either Party to insist in any one or more instances upon strict performance of
any of the provisions of this Agreement or to take advantage of any of its
rights hereunder shall not be construed as a waiver of any such provisions or
the relinquishment of any such rights for the
14
<PAGE>
future; but the same shall continue and remain in full force and effect.
20. NO DEDICATION OF FACILITIES
Any undertaking by one Party to the other Party under any provision of
this Agreement shall not constitute the dedication of the system or any
portion thereof by the Party to the public or to the other Party, and it is
understood and agreed that any such undertaking under any provision of this
Agreement by a Party shall cease upon the termination of its obligations
hereunder.
21. SUCCESSORS AND ASSIGNS
21.1 This Agreement shall be binding upon and inure to the benefit of
the respective successors and assigns of the Parties.
21.2 This Agreement may be assigned by Producer only (i) to a purchaser
or co-owner of the Plant or to a person who will operate the Plant pursuant to
a contract or other arrangement with such purchaser and in either case with
the prior written consent of IID (which shall not be unreasonably withheld) or
(ii) for security purposes, to a bank or other entity which provides financing
for the Plant or any electrical transmission facilities associated therewith.
Producer and IID agree that nothing in this Section 21.2 may be amended,
modified or waived without the prior written consent of each and every Party
to the Funding and Construction Agreement (except for any Parties in default
thereunder.)
15
<PAGE>
22. EFFECT OF SECTION HEADINGS
Section headings appearing in this Agreement are inserted for
convenience only, and shall not be construed as interpretation of text.
23. GOVERNING LAW
This Agreement shall be interpreted, governed and construed
under the laws of the State of California or the laws of the
United States, as applicable.
24. ARBITRATION
24.1 Any dispute arising out of or relating to this Agreement, or the
breach thereof, which is not resolved by the Parties acting through their
Authorized Representatives shall be settled by arbitration to the extent
permitted by the laws applicable to the Parties; provided, however, that no
Party to the dispute shall be bound to any greater extent than any other Party
to the dispute. Arbitration shall not apply to any dispute or matter that is
within the jurisdiction of any regulatory agency.
24.2 Any demand for arbitration shall be made by written notice to the
other Party setting forth in adequate detail the nature of the dispute, the
issues to be arbitrated, the amount or amounts, if any, involved in the
dispute, and the remedy sought. Within twenty (20) days from the receipt of
such notice, the other Party may submit its own written statement of the
dispute and may set forth in adequate detail any additional related matters or
issues to be arbitrated.
16
<PAGE>
24.3 Within thirty (30) days after delivery of the written notice
demanding arbitration, the Parties acting through their Authorized
Representatives shall meet for the purpose of selecting an arbitrator. The
Parties may agree upon a single arbitrator, but in the event that they cannot
agree, three arbitrators shall be used. Each Party shall designate one
arbitrator, and the two arbitrators shall then select a third arbitrator. All
arbitrators shall be persons skilled and experienced in the field in which the
dispute has arisen and no person shall be eligible for appointment as an
arbitrator who is or has been an officer or employee of either of the Parties
or otherwise interested in the matter to be arbitrated. Should either party
refuse or neglect to appoint an arbitrator or to furnish the arbitrators with
any papers or information demanded, the arbitrators are empowered, by both
Parties, to proceed without the participation or assistance of that Party.
24.4 Except as otherwise provided in this Section, the arbitration shall
be governed by the rules and practices of the American Arbitration
Association, or a similar organization if the American Arbitration Association
should not at the time exist.
24.5 Arbitration proceedings shall be held in Imperial, California, at a
time and place to be selected by the arbitrators. The arbitrators shall hear
evidence submitted by the Parties and may call for additional information
which shall be furnished by the Party having such information. The arbitrators
shall have no authority to call for information not
17
<PAGE>
related to the issues included in the dispute or to determine other issues not
in dispute.
24.6 If there is only one arbitrator, his decision shall be binding and
conclusive on the Parties. If there are three arbitrators, the decision of any
two shall be binding and conclusive. The decision of the arbitrators shall
contain findings regarding the issues involved in the dispute, including the
merits of the positions of the Parties, the materiality of any default, and
the remedy or relief to which a Party shall be entitled. The arbitrators may
not grant any remedy or relief which is inconsistent with this Agreement, nor
shall the arbitrators make findings or decide issues not in dispute.
24.7 The fees and expenses of the arbitrators shall be shared equally by
the Parties, unless the decision of the arbitrators specifies some other
apportionment. All other expenses and costs of the arbitration shall be borne
by the Party incurring such expenses and costs.
24.8 Any decision or award granted by the arbitrators shall be final and
judgment may be entered on it in any court of competent jurisdiction. This
agreement to arbitrate shall be specifically enforceable.
25. ENTIRE AGREEMENT
25.1 The complete agreement of the Parties is set forth in this Agreement
and all communications regarding subject interconnected operations whether oral
or written, are hereby abrogated and withdrawn.
18
<PAGE>
26. NOTICES
Any formal communication or notice in connection with this Agreement
shall be in writing and shall be deemed properly given if delivered in person
or sent first class mail, postage prepaid to the person specified below:
LEATHERS, L.P.
480 West Sinclair Rd.
Calipatria, California 92233
IMPERIAL IRRIGATION DISTRICT
c/o General Manager
P. O. Box 937
Imperial, California 92251
27. SEVERAL OBLIGATIONS
Except where specifically stated in this Agreement to be otherwise, the
duties, obligations and liabilities of the Parties are intended to be several
and not joint or collective. Nothing contained in this Agreement shall ever be
construed to create an association, trust, partnership, or joint venture, or
impose a trust or partnership duty, obligation or liability on or with regard
to either Party. Each Party shall be individually and severally liable for its
own obligations under this Agreement.
19
<PAGE>
28. SIGNATURE CLAUSE
The Parties have caused this Agreement to be executed in their
respective names, in duplicate, by their respective officers hereunto this 3rd
day of October, 1989.
LEATHERS, L.P., a California
Limited Partnership
By /s/ Jon R. Peele
---------------------------
Vice President, Red Hill
Geothermal, Inc.,
Managing General Partner for
Leathers, L.P.
ATTEST:
By /s/ Thomas C. Hinrich
---------------------------
Asst. Secretary
IMPERIAL IRRIGATION DISTRICT
By /s/ Lester A. Burnt
--------------------------
President, Board of Directors
ATTEST:
By /s/ Larry E. Beck
---------------------------
Secretary
[SEAL]
20
<PAGE>
EXHIBIT 10.39
AMENDED AND RESTATED
ADMINISTRATIVE SERVICES AGREEMENT
---------------------------------
BY AND BETWEEN
CALENERGY OPERATING COMPANY,
a Delaware corporation
AND
DEL RANCH, L.P.,
a California limited partnership
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PAGE
----
1. Definitions.............................................2
2. Ordinary Services.......................................3
3. Extraordinary Services..................................3
4. Subcontracting..........................................3
5. Administration Fee......................................3
6. Reimbursement and Other Compensation for
Extraordinary Services..................................4
7. Term and Termination....................................5
8. Disclaimer of CEOC's Liability..........................6
9. Non-Waiver of Breach....................................6
10. Arbitration.............................................6
11. Attorneys' Fees.........................................7
12. Force Majeure...........................................7
13. Invalid Provision.......................................8
14. Assignment..............................................8
15. Governing Law...........................................8
16. Entire Agreement - Amendments...........................9
17. Communications..........................................9
18. Counterparts............................................9
19. Exhibits................................................9
20. Third Party Beneficiaries...............................10
21. Headings................................................10
</TABLE>
TABLE OF SCHEDULES
<TABLE>
<CAPTION>
<S> <C> <C>
Section
Schedule "Z" Schedule of Defined Terms 1.1
</TABLE>
<PAGE>
AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT
PREAMBLE
THIS AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT
(the "Agreement") is made as of June 17, 1996, by and between CALENERGY
OPERATING COMPANY, a Delaware corporation ("CEOC"), and DEL RANCH, L.P., a
California limited partnership ("Owner").
RECITALS
A. Owner owns the Del Ranch Facility located in the Salton
Sea Known Geothermal Resource Area ("SSKGRA").
B. Owner intends to operate the Del Ranch Facility under the
following operating agreements: (i) an Operating and Maintenance Agreement by
and between Owner and CEOC pursuant to which CEOC will operate the Del Ranch
Facility on behalf of Owner; (ii) a Technology Transfer Agreement by and
between Owner and Magma Power Company, a Nevada corporation ("Magma") pursuant
to which Magma will provide Owner with the nonexclusive right to use certain
"Technology" and "Know-How" in connection with the operation of the Del Ranch
Facility; (iii) a Ground Lease by and between Owner, as lessee, and Magma, as
lessor, pursuant to which Magma will lease to Owner the real property upon
which the Del Ranch Facility is located; (iv) an Easement Grant Deed and
Agreement Regarding Rights for Geothermal Development by and between Owner and
Magma pursuant to which Magma will supply Owner with the right to extract
Geothermal Brine and use geothermal brine-derived steam which is necessary to
operate the Del Ranch Facility; and (v) a Power Purchase Contract by and
between Owner and Southern California Edison Company.
C. Owner desires to exploit CEOC's administrative and
management resources, and to that end Owner desires to employ, hire or
otherwise retain the administrative and management services of CEOC, in
addition to the Services provided pursuant to the Operating and Maintenance
Agreement, for purposes of administering the functions of the Del Ranch
Facility.
D. Owner and CEOC desire to enter into this Agreement
pursuant to which CEOC, for a fee and in addition to the Services provided
pursuant to the Operating and Maintenance Agreement, will provide day-to-day
administrative and management services as more fully described herein, which
administrative and management services shall include normal day-to-day
administrative and management services and shall not include services which,
although occurring in the
<PAGE>
ordinary course of Owner's business, are not of a nature ordinarily occurring on
a day-to-day basis. In consideration for services not of a day-to-day nature
provided by CEOC hereunder, Owner shall compensate CEOC for, among other things,
all costs and expenses actually incurred by CEOC in providing such services, as
more particularly described herein.
NOW, THEREFORE, in consideration of the foregoing recitals
and the mutual covenants and agreements set forth herein, the parties hereto
agree as follow:
AGREEMENT
1. Definitions.
1.1 Unless the context shall otherwise require,
capitalized terms used and not otherwise defined herein shall have the
respective meanings assigned thereto in Schedule Z hereto, which shall be
incorporated by reference herein.
1.2 In addition to the terms defined pursuant
to Section 1.1 hereof, the following definitions shall apply
for purposes of this Agreement:
"CPI" means the Consumer Price Index of
the Bureau of Labor Statistics of the Department of Labor for All Urban
Consumers, All Items, for the Los Angeles-Anaheim-Riverside Metropolitan Area.
In the event the compilation and/or publication of the CPI shall be
transferred to any other governmental department or bureau or agency or shall
be discontinued, then the index most nearly the same as the CPI shall be
deemed to be the CPI for purposes of this Agreement. In the event that Owner
and CEOC cannot agree on such alternative index, then the matter shall be
submitted for decision by an arbitrator or arbitrators in accordance with
Section 10 hereof.
"CPI Adjustment" means an amount equal
to $800,000 multiplied by a fraction, the numerator of which shall be the CPI
for August of the year for which the calculation is to be made, and the
denominator of which shall be the CPI for August of 1988, but in no event
shall such CPI Adjustment be less than $800,000.
"Floor" means the minimum annual
Administration Fee which, for the years indicated below, shall be an amount
calculated as follows:
Year Calculation
---- -----------
2
<PAGE>
1989 $66,667 multiplied by the number
of months in 1989 following and
including the month on which that
certain Construction Management and
Asset Transfer Agreement dated as
of March 14, 1988, as amended,
between Magma and Owner terminated
in accordance with its terms.
3
<PAGE>
For each of The greater of (a) the Floor for
1990 the year immediately preceding the
through the year for which the calculation is
end of the being made and (b) the CDI
term of this Adjustment for the year in which the
Agreement. calculation is being made.
2. Ordinary Services. In consideration of the payment by
Owner to CEOC of the Administration Fee as provided in Section 5 hereof, CEOC
agrees to perform during the term of this Agreement those functions normally
considered part of the day-to-day administrative and management activities for
facilities similar to the Del Ranch Facility as determined by Owner which are
not within the scope of Services to be provided by CEOC to Owner pursuant to
the Operating and Maintenance Agreement. The Ordinary Services to be provided
hereunder include, without limitation, (i) general bookkeeping and financial
accounting, (ii) general legal services (but not legal services of an
extraordinary nature including, without limitation, legal services in
connection with litigation or administrative proceedings), (iii) personnel
administration and payroll services, (iv) cash management services, (v) energy
production oversight and the determination of output levels; (vi) consulting
services with respect to geothermal electrical energy production and (vii)
assisting Owner in obtaining any franchises, permits, licenses, easements or
rights-of-way necessary for continued operation of the Del Ranch Facility.
3. Extraordinary Services. In consideration of the
compensation of CEOC by Owner as provided in Section 7 hereof, CEOC agrees to
perform during the term of this Agreement, as Extraordinary Services, any
administrative and management services that may be needed in connection with
the operation of the Del Ranch Facility and (a) which are not included in the
scope of the services delineated in Section 2 hereof or (b) which are not
included in the scope of the Services delineated in the Operating and
Maintenance Agreement.
4. Subcontracting. In connection with CEOC's providing of
the Ordinary Services and Extraordinary Services contemplated by this
Agreement, CEOC may subcontract with or otherwise retain the services of other
Persons including, but not limited to, Magma and other Affiliates of CEOC, and
Owner hereby consents to such subcontracting for purposes of Section 14
hereof. For purposes of this Agreement, any Ordinary Services or Extraordinary
Services performed by such Persons shall be deemed to have been performed by
CEOC.
4
<PAGE>
5. Administration Fee. In consideration of the provision
of Ordinary Services by CEOC as contemplated by Section 2 hereof, Owner shall
pay CEOC the Administration Fee. The Administration Fee shall be payable in
the manner and in the amount calculated as follows:
(i) For each year, the Administration Fee shall be
3% of the Total Electricity Revenues earned by Owner in such year,
but in no event shall such Administration Fee be less than the Floor
for such year. The Administration Fee in each such year shall be paid
monthly in arrears on the last day of each month in an amount equal
to one-twelfth (1/12) of the Floor for the preceding year; provided,
however, that on December 31 of each year (or as soon thereafter as
is practicable, but in no event later than March 31 of the next
succeeding year), in addition to the amounts otherwise payable to
CEOC under this Section 5(i), Owner shall pay to CEOC the greater of
(a) the amount by which 3% of the Total Electricity Revenues earned
by Owner in such year exceeds the Floor for the preceding year or (b)
the amount by which the CPI Adjustment for the year in which the
calculation is being made exceeds the Floor for the preceding year.
In the event this Agreement terminates other than on December 31 of
the calendar year in which it terminates, the Administration Fee for
such year shall be prorated as provided in Section 7.4(i) hereof.
Notwithstanding anything contained herein that may be construed to
the contrary, and solely for purposes of making the calculations in
this Section 5(i), the Floor for the year preceding 1990 shall be
deemed to equal $800,000.
6. Reimbursement and Other Compensation for Extraordinary
Services.
1. In consideration of the provision by CEOC to
Owner of the Extraordinary Services contemplated by Section 3 hereof, within
thirty (30) days after Owner has received an invoice from CEOC specifying the
Extraordinary Services rendered to Owner by CEOC and the amount to be paid to
CEOC therefor, Owner shall pay to CEOC such specified amount. In charging
Owner for Extraordinary Services under this Section 6, CEOC shall have the
right to charge Owner an amount which shall enable CEOC to (a) recoup the
actual costs and expenses incurred by CEOC in rendering the Extraordinary
Services plus (b) earn a reasonable profit for the Extraordinary Services so
rendered including, without limitation, a reasonable rate of return on CEOC's
invested capital used in connection with the provision by CEOC of the
Extraordinary Services, taking into consideration factors
5
<PAGE>
including the extent to which CEOC can reasonably expect to earn a return on
its invested capital by utilizing CEOC's equipment and materials for providing
services other than to the Del Ranch Facility. As used in this Section 6.1,
"actual costs and expenses incurred by CEOC" includes, without limitation,
(a) the actual cost to CEOC of goods and materials used by CEOC in rendering
Extraordinary Services, (b) the pro rata cost to CEOC of personnel providing
labor or services in the course of CEOC's provision of Extraordinary Services
and (c) the actual cost to CEOC of retaining another Person, whether Magma or
another Affiliate of CEOC or otherwise, in connection with the provision of
Extraordinary Services. In the event CEOC subcontracts with any Person,
including, without limitation, Magma or another Affiliate as provided in
Section 4 hereof, any payment to CEOC under this Section 6.1 on account
of the Extraordinary Services so subcontracted shall be made to CEOC only to
the extent of the amount charged CEOC by such Person and shall not include any
amounts representing a mark-up by CEOC over the amount so charged.
2. With respect to any calculation of actual costs
and expenses or any allocation of costs contemplated by Section 6.1 hereof,
Owner shall be bound by CEOC's determination thereof unless the same is clearly
erroneous.
7. Term and Termination.
1. Unless terminated as provided in Section 13
hereof, by written agreement between Owner and CEOC as provided in Section 16
hereof, or as hereinafter provided in this Section 7, this Agreement shall
remain in effect until, and shall terminate on March 14, 2020.
2. In the event of a material default by either
party in the performance of its duties, obligations or undertakings under this
Agreement, the other party shall have the right to give written notice to the
defaulting party advising such party of the specific default involved and, if
within thirty (30) days after such notice the defaulting party shall not have
remedied or commenced diligently to remedy the default, the other party shall
have the right, in addition to any other rights and remedies it may have, to
terminate this Agreement upon ten (10) days written notice to the defaulting
party.
3. Notwithstanding any other provision of this
Agreement, and in addition to any other right it may have, CEOC shall have the
right to terminate this Agreement, effective immediately, if, at any time,
Owner is adjudged bankrupt or insolvent, or files a petition in bankruptcy or
an answer admitting the material facts recited in such a petition filed by
another, or is put or decides to go into dissolution or
6
<PAGE>
liquidation (other than in connection with a merger, consolidation or
amalgamation), or otherwise discontinues business, makes an assignment for the
benefit of its creditors or any other general arrangement with its creditors,
becomes insolvent or unable to meet its current payments, or has a receiver or
other custodian of any kind appointed to administer any substantial amount of
its property, or otherwise seeks to take advantage of any bankruptcy or
insolvency statute now or hereafter in effect.
4. If this Agreement is terminated prior to the
expiration of its terms as provided in Section 7.1 hereof, Owner and CEOC
shall have the following rights, remedies and obligations in addition to any
other rights, remedies and obligations they may have:
(i) Owner shall pay CEOC, immediately upon
termination, the entire Administration Fee for the year in which the
Agreement is effectively terminated, prorated for the number of
months in such year prior to and including the month in which the
Agreement is effectively terminated, less the amount of the
Administration Fee which is theretofore paid during such year.
(ii) Owner shall pay CEOC all amounts due and
payable to CEOC under Section 6 hereof as of the date the Agreement
is effectively terminated.
8. Disclaimer of CEOC's Liability. CEOC, in providing the
Ordinary Services and the Extraordinary Services provided for herein, shall
use its good faith efforts in providing such services, but CEOC shall not be
liable to Owner for damages arising out of or resulting from the provision of
such Ordinary Services and Extraordinary Services, except to the extent that
such damages arise out of or result from the gross negligence or willful
misconduct or CEOC, nor shall CEOC be liable to Owner for consequential
damages under any circumstances. CEOC shall have no responsibility for the
ability of Owner to effectively operate the Del Ranch Facility or the claims
of third parties arising with respect to the Del Ranch Facility. Owner shall
indemnify and hold harmless CEOC against all liability or responsibility to
Owner or to others for any failure in production, operation or otherwise of
the Del Ranch Facility. CEOC does not warrant and shall not be responsible for
the quality of services or any design, specification, drawing, blueprint,
reproduced tracing, formula, production process or other data or information
furnished by it to Owner in the course of fulfilling its obligations under
this Agreement, but shall furnish such in good faith to the best of CEOC's
knowledge and ability.
7
<PAGE>
9. Non-Waiver of Breach. Either party hereto may
specifically waive any breach of this Agreement by the other party, but no
such waiver shall be deemed to have been given unless such waiver is in
writing, signed by the waiving party and specifically designates the breach
waived, nor shall any such waiver constitute a continuing waiver of similar or
other breaches.
10. Arbitration. All disputes arising under this Agreement
shall be settled by arbitration. The party desiring such arbitration shall
give written notice to that effect to the other party and in such notice shall
appoint as an arbitrator a disinterested person of recognized competence in
the area at issue. Within fifteen (15) days thereafter, the other party shall,
by written notice to the originating party, appoint a second person similarly
qualified as the second arbitrator. The arbitrators thus appointed shall
appoint a third person similarly qualified as the third arbitrator, and such
three arbitrators shall as promptly as possible determine such matter with the
parties, each being entitled to present evidence and argument to the
arbitrators; provided, however, that:
(i) if the second arbitrator shall not have
been appointed as aforesaid, the first arbitrator shall
determine such matter; and
(ii) if the two arbitrators appointed by the party
shall be unable to agree upon the appointment of a third arbitrator
within fifteen (15) days after the appointment of the second
arbitrator, they shall give written notice of such failure to agree
to the parties, and, if the parties fail to agree upon the selection
of such third arbitrator within fifteen (15) days thereafter, then
within ten (10) days thereafter, either of the parties upon written
notice to the other party may apply for such appointment to the
Federal District Court or District Court in Omaha, Nebraska.
The arbitrator or arbitrators shall only interpret and apply
the terms and provisions of this Agreement and shall not change any such terms
or provisions or deprive either party of any right or remedy expressly or
impliedly provided for in this Agreement.
The determination of the majority of the arbitrators or the
sole arbitrator, as the case may be, shall, to the extent permitted by law, be
conclusive upon the parties. The arbitrator or arbitrators shall give written
notice to the parties stating their determination, and shall furnish to each a
copy of such determination signed by them. In the event of
8
<PAGE>
the failure, refusal or inability of any arbitrator to act, a new arbitrator
shall be appointed in his stead, which appointment shall be made in the same
manner as hereinbefore provided for the appointment of the arbitrator so
failing, refusing or unable to act.
11. Attorneys' Fees. If either party hereto commences
litigation or arbitration for the judicial or other interpretation,
enforcement, termination, cancellation or rescission hereof, or for damages
for the breach hereof, the prevailing party in any such action, trial,
arbitration or appeal thereon shall be entitled to its reasonable attorneys'
fees and court, arbitration and other costs incurred, to be paid by the losing
party as fixed by the court or arbitrator in the same or a separate suit, and
whether or not such action is pursued to decision or judgment.
12. Force Majeure.
1. Neither Owner nor CEOC shall be liable in
damages to the other for any act, omission or circumstance ("Event of
Force Majeure") occasioned by or in consequence of any acts of God, acts of
the public enemy, wars, blockades, insurrections, riots, epidemics,
landslides, lightning, earthquakes, fires, storms, floods, civil disturbances,
explosions, sabotage, the binding order of any court or governmental authority
which has been resisted in good faith by all reasonable legal means, Federal,
State or local laws, or other event or circumstance not within the control of
such party preventing such party from performing its obligations hereunder,
whether caused or occasioned by, or happening on account of, the act or
omission of one of the parties, not within the control of the party claiming
suspension and which by the exercise of due diligence such party is unable to
prevent or overcome.
2. Such Events of Force Majeure shall not relieve
Owner or CEOC of liability in the event of either party's concurring
negligence or in the event of either party's failure to use due diligence to
remedy the situation and to remove the cause in an adequate manner and with
all reasonable dispatch, nor shall such Events of Force Majeure relieve either
party of liability unless such party shall give notice and full particulars of
the same in writing to the other party within ten (10) days of the occurrence
relied on. In no event, however, shall an Event of Force Majeure relieve Owner
from the obligation of making payments due under this Agreement at the time of
such occurrence. The parties agree that should any Event of Force Majeure
remain in existence for a period of six (6) months, this Agreement may be
terminated by the party not claiming suspension of the Agreement under such
Event of Force Majeure upon the giving of written notice by such party to the
9
<PAGE>
other; provided, however, that such six (6) month period shall be extended for
a reasonable time so long as throughout such six (6) month period the party
claiming suspension of this Agreement under the Event of Force Majeure has
diligently proceeded to terminate the Event of Force Majeure and continues to
do so throughout such extension.
13. Invalid Provision.
1. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions hereof, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provisions were omitted; provided, however, that
if any of the provisions of Sections 2, 3, 5, 6, or 7 hereof are held invalid
or unenforceable by any court or other relevant authority, Owner and CEOC
shall hold consultations over a period of ninety (90) days, commencing
immediately, in an effort to work out satisfactory terms for continuation of
this Agreement. If Owner and CEOC do not reach agreement within this period,
CEOC shall have the right to terminate this Agreement, effective immediately.
2. In the event that any provision, term,
condition or object of this Agreement may be in conflict with any law,
measure, ruling, court judgment (by consent or otherwise), or regulation of
the government of the United States of America, and the legal counsel of
either party shall advise that in their considered opinion such conflict, or a
reasonable possibility of such conflict, exists, then either party may propose
to the other appropriate modifications of this Agreement to avoid such
conflict. In such case, if an agreement of modification is not reached within
ninety (90) days from such proposal, the party making such proposal, after
sixty (60) days' written notice to the other party, may terminate the
agreement in its entirety as of a date subsequent to such sixty (60) days, and
which shall be specified in such notice.
14. Assignment. Subject to Section 4 hereof, neither Owner
nor CEOC shall grant, assign or otherwise convey any of their respective
rights or delegate any of their respective obligations under this Agreement
without the prior written consent of the other party which consent shall not
be unreasonably withheld.
15. Governing Law. The existence, validity, construction,
operation and effect of this Agreement shall be determined in accordance with
and governed by the laws of the State of California. This Agreement shall be
construed equally as against the parties hereto, and shall not be construed
against the party responsible for its drafting.
10
<PAGE>
16. Entire Agreement - Amendments. This Agreement
constitutes the entire agreement of the parties and the provisions hereof
shall supersede any and all prior agreements or understandings relating to the
same subject matter. Without limiting the generality of the foregoing, from
and after the date hereof, the terms of the Administrative Services Agreement
dated as of March 14, 1988 (the "Original Administrative Services Agreement")
between Owner and CEOC shall be amended to read in their entirety as set forth
in this Agreement and the terms of this Agreement shall govern and control the
rights and obligations of the parties in and with respect to the matters
herein set forth, notwithstanding any conflict between the terms of this
Agreement and the terms of the Original Administrative Services Agreement.
This Agreement may be amended only by a writing signed by a duly authorized
representative of both parties.
17. Communications. All notices, requests, offers and other
communications required or permitted to be made under this Agreement
shall be in writing and shall be deemed to have been duly given and received,
regardless of when and whether received, either: (a) on the day of delivery,
if delivered
To CEOC at:
CalEnergy Operating Company
302 South 36th Street
Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
To Owner at:
Del Ranch, L.P.
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
or at such other address as either party most recently may have designated in
writing to the other party for such purpose; or (b) on the day sent, when sent
by prepaid telex, telegram, cable or radiogram, and confirmed the same day by
prepaid first-class registered airmail, addressed to CEOC or Owner, as the
case may be, at their respective addresses aforesaid.
18. Counterparts. This Agreement may be executed in
counterparts and any number of counterparts signed in the aggregate by the
parties hereto shall constitute a single original instrument.
11
<PAGE>
19. Exhibits. All exhibits and schedules attached hereto
are hereby incorporated herein by this reference.
20. Third Party Beneficiaries. The covenants contained
herein are made solely for the benefit of the properties, parties and
successors and assigns of such parties as specified herein, and shall not be
construed as having been intended to benefit any third party not a party to
this Agreement.
21. Headings. The headings herein are for reference only
and shall not affect the construction of this Agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their duly authorized officers as of the day and
year first above written.
CEOC:
CALENERGY OPERATING COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
______________________________
Name: John G. Sylvia
______________________________
Title: Senior Vice President
______________________________
OWNER:
DEL RANCH, L.P., a California limited
partnership
By: CALENERGY OPERATING COMPANY,
a Delaware corporation, as General Partner
By: /s/ John G. Sylvia
______________________________
Name: John G. Sylvia
______________________________
Title: Senior Vice President
______________________________
EXHIBIT 10.40
AMENDED AND RESTATED
OPERATING AND MAINTENANCE AGREEMENT
BY AND BETWEEN
CALENERGY OPERATING COMPANY,
a Delaware corporation
AND
DEL RANCH, L.P.,
a California limited partnership
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TABLE OF CONTENTS
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Page
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1. Definitions ......................................... 2
2. Operator's Services ................................. 2
3. Standard of Services ................................ 4
4. Personnel ........................................... 5
5. Inspection .......................................... 5
6. Change in Duties; Notification ...................... 5
7. Responsibilities of Owner ........................... 6
8. Facilities Revenue Fund ............................. 6
9. Guaranteed Capacity Payment ......................... 6
10. Reimbursement Charges ............................... 7
11. Subcontracting ...................................... 8
12. Term and Termination ................................ 8
13. Indemnification ..................................... 9
14. Non-Waiver of Breach ................................ 9
15. Arbitration ......................................... 9
16. Attorneys' Fees ..................................... 10
17. Force Majeure ....................................... 10
18. Invalid Provision ................................... 11
19. Assignment .......................................... 12
20. Governing Law ....................................... 12
21. Entire Agreement - Amendments ....................... 12
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22. Communications ...................................... 12
23. Counterparts ........................................ 13
24. Exhibits ............................................ 13
25. Third Party Beneficiaries ........................... 13
26. Headings ............................................ 13
3
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TABLE OF EXHIBITS
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Section
-------
Exhibit "A" Guaranteed Capacity Payment 9.1
Target Levels
4
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TABLE OF SCHEDULES
------------------
Section
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Schedule "Z" Schedule of Defined Terms 1.1
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AMENDED AND RESTATED
OPERATING AND MAINTENANCE AGREEMENT
PREAMBLE
THIS AMENDED AND RESTATED OPERATING AND MAINTENANCE AGREEMENT (the
"Agreement") is made as of June 17, 1996, by and between CALENERGY OPERATING
COMPANY, a Delaware corporation ("Operator"), and DEL RANCH, L.P., a
California limited partnership ("Owner").
RECITALS
A. Owner owns the Del Ranch Facility located in the Salton Sea
Known Geothermal Resource Area ("SSKGRA").
B. Owner intends to operate the Del Ranch Facility under the
following operating agreements: (i) an Administrative Services Agreement by
and between Owner and Operator, pursuant to which Operator will provide
certain administrative services to Owner for the operation of the Del Ranch
Facility in addition to the Services provided hereunder; (ii) a Technology
Transfer Agreement by and between Owner and Magma Power Company, a Nevada
corporation ("Magma"), pursuant to which Magma will provide Owner with the
nonexclusive right to use certain "Technology" and "Know-How" in connection
with the operation of the Del Ranch Facility; (iii) a Ground Lease by and
between Owner, as lessee, and Magma, as lessor, pursuant to which Magma will
lease to Owner the real property upon which the Del Ranch Facility is located;
(iv) an Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development by and between Owner and Magma pursuant to which Magma will supply
Owner with the right to extract Geothermal Brine and use geothermal
brine-derived steam which is necessary to operate the Del Ranch Facility; and
(v) a Power Purchase Contract by and between Owner and Southern California
Edison Company.
C. Owner desires to exploit Operator's personnel resources, and to
that end Owner desires to employ, hire or otherwise retain Operator for
purposes of performing the day-to-day operations at the Del Ranch Facility.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements set forth herein, the parties hereto agree as
follow:
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AGREEMENT
1. Definitions.
1. Unless the context shall otherwise require, capitalized
terms used and not otherwise defined herein shall have the respective meanings
assigned thereto in Schedule Z hereto both of which shall be incorporated by
reference herein.
2. Operator's Services. In consideration of the payment by Owner to
Operator of the Guaranteed Capacity Payment and the Reimbursement Charges,
Operator agrees to perform during the term of this Agreement the following
services (the "Services"):
(a) Operator shall operate, maintain, and repair (or cause to
be operated, maintained, and repaired) the equipment associated with the
Del Ranch Facility, including all work normally considered part of the
operational and maintenance activities for facilities similar to the Del
Ranch Facility, and shall engage, supervise, and be responsible for any
and all personnel and Subcontractors necessary for the continuous
operation of the Del Ranch Facility. Notwithstanding the provisions of
Section 2(f) hereof, when specialized maintenance and repairs to the Del
Ranch Facility are required which cannot reasonably be performed by
Operator, Operator will subcontract with original equipment
manufacturers or similarly qualified personnel acceptable to Owner. Said
operations, maintenance, and repairs will be provided in accordance with
the requirements determined by Owner during the term of this Agreement.
Owner may modify, delete or supplement said requirements from time to
time as Owner, in its sole discretion, deems appropriate. Notice of any
changes or modifications in service requirements which may occur shall
be provided by Owner to Operator in writing. If Operator, in the
exercise of good faith, believes that an emergency exists and that
certain changes or modifications in service requirements are required to
avoid or mitigate serious damage to the Del Ranch Facility or injury to
its personnel or others, Operator may make such changes or
modifications, to the extent so necessary and required.
(b) Consistent with good engineering and operations practices,
Operator shall provide its Services so as to optimize both the
profitability of the Del Ranch Facility and the useful life of the
equipment as well as minimize downtime for repairs. Subject to the
provisions of this Agreement, Operator shall provide all labor,
material, and equipment necessary for such purposes.
(c) Operator shall develop and implement a preventive
maintenance program based upon, among other things, information and
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procedures provided to Operator by Owner, which shall include on-going
operational maintenance. This preventive maintenance program shall be
implemented and carried out by Operator in accordance with the
specifications provided by Owner.
(d) Operator shall implement and maintain a Del Ranch Facility
safety and loss prevention program. Operator shall take all reasonable
precautions for the safety of its employees and shall comply with all
applicable provisions of federal, state and municipal laws, building
codes and insurance policies to prevent accidents or injuries to persons
or damage to property within or about the Del Ranch Facility.
(e) Operator shall maintain, inventory, and procure
replacement Spare Parts and specialized tools in order to maximize the
continuous operation of the Del Ranch Facility, and procure, inventory,
and maintain chemicals, consumables and working supplies necessary to
carry out the Services. Owner will provide a location for storage of
Spare Parts, chemicals, consumables and supplies.
(f) Subject to Owner's prior approval, Operator may
subcontract to qualified Subcontractors, including, without limitation,
Affiliates of Operator, such routine or non-routine work as is necessary
to perform scheduled or unscheduled maintenance and repairs, annual
inspections, and equipment overhauls; Operator shall supervise all work
subcontracted. The subcontracting of any work to outside Subcontractors
shall in no way relieve or excuse Operator from any of its obligations
under this Agreement with respect to said work. Subcontracts with
Affiliates of Operator shall be on a competitive and arms-length basis.
All charges associated with work subcontracted by Operator shall be
billed to Owner in accordance with Section 10 hereof.
(g) Operator shall arrange for scheduled testing and
recalibration to assure accuracy of scales, metering units (geothermal
and electric) and associated recording devices.
(h) Operator shall be responsible for providing security for
the Del Ranch Facility.
(i) Subject to shutdowns for scheduled maintenance, Operator
shall to the maximum extent achievable under the law and pursuant to the
terms of the Del Ranch Power Purchase Contract, use its best efforts to
maintain the Del Ranch Facility in operation, producing energy at its
full rated capacity, twenty-four (24) hours per day, seven (7) days per
week throughout the entire year, including legal and other holidays,
unless otherwise directed by Owner.
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(j) At the request of Owner, Operator shall assist Owner in
obtaining any franchises, permits, licenses, easements, or rights-of-way
necessary for continued operation of the Del Ranch Facility.
(k) Operator shall employ such staff as is reasonably
necessary to perform routine, ministerial record keeping and
administrative functions of the Del Ranch Facility as reasonably
required by Owner for its use in billings, accounting for receipts and
payments, complying with governmental laws and regulations,with
generally acceptable accounting principles and with reporting
requirements of any Del Ranch Facility finance agreement or other
agreement of Owner.
(l) Operator shall pursue warranty claims on behalf of Owner.
(m) Operator shall establish and maintain such bank accounts
in the name and on behalf of Owner as may be necessary or desirable for
the performance of its obligations hereunder. All such accounts and all
amounts from time to time deposited therein shall be and remain the
property of Owner and shall be subject to withdrawal by Owner from time
to time in its discretion.
(n) Operator shall operate the Del Ranch Facility in
compliance with all permit conditions and applicable laws.
(o) Operator shall dispose of all Geothermal Brine Scale and
all Partially Spent Geothermal Brine from the operation of the Del Ranch
Facility (unless utilized by Magma pursuant to Section 2.3.3 of the
Easement Agreement) and all Totally Spent Geothermal Brineto the extent
Owner is required to dispose thereof pursuant to the Easement Agreement.
(p) Operator shall be responsible for discharging all duties
and obligations, and protecting all rights, of Owner under the Credit
Facility, the Limited Partnership Agreement, the Del Ranch Power
Purchase Contract and the other Operating Agreements.
3. Standard of Services. Operator agrees to use good faith efforts
to perform all Services in accordance with the reasonable, good, and prudent
business practices applicable to the geothermal electrical generating
production industry and in a manner no less favorable than practices employed
by operators of other power production geothermal electrical generating
facilities, including, without limitation, Magma. Operator shall exercise its
good faith efforts to ensure that:
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(a) the Del Ranch Facility shall at all times be kept in as
near "as new" condition, ordinary wear and tear and Owner's operating
requirements considered, as can reasonably be achieved;
(b) the Services shall be rendered in accordance with
manufacturers' and systems designers' specifications as delivered to
Operator by Owner;
(c) the Del Ranch Facility shall at all times be operated and
the Services shall at all times be provided in accordance with all of
the terms of the Operating Agreements and all applicable codes,
governmental requirements or court orders (including, without
limitation, all zoning, environmental protection, pollution, sanitary,
and safety laws) except to the extent compliance with such requirements
has been excused or exempted by the applicable governmental or judicial
authority;
(d) the Del Ranch Facility shall be operated in a manner
required such that the Del Ranch Facility is a "qualifying facility" as
provided in 18 C.F.R. ss. 292.203, as the same may be amended from time
to time; and
(e) the Del Ranch Facility shall be operated at all times in
such a manner that it shall comply with all safety and other
requirements of insurance policies in effect at said times with respect
to the Del Ranch Facility or any part thereof and with the reasonable
request of insurers and that all warranties with respect to the Del
Ranch Facility or any part thereof shall be kept in full force and
effect.
4. Personnel. Operator shall provide and employ qualified plant
management, operations and maintenance personnel in sufficient numbers to
accomplish its Services hereunder and to comply with sound engineering and
operations practices. During the term of this Agreement, a duly authorized
on-site manager shall represent Operator at all times. All personnel shall
meet minimum job qualifications associated with their positions as determined
mutually by Owner and by Operator. Operator's personnel shall possess
experience and training equal to standards generally set within the industry
to operate and maintain substantially similar equipment. Operator will use its
best efforts to hire competent and experienced personnel at competitive
compensation.
5. Inspection. Operator shall ensure that the Del Ranch Facility
and all records of the Del Ranch Facility will at all times be open to Owner
for inspection and review of operations and maintenance practices.
6. Change in Duties; Notification. Owner shall notify Operator of
the execution or amendment of each Operating Agreement and the Limited
Partnership
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Agreement which affects the Del Ranch Facility or the operation thereof and
which directly relates to the performance of Operator's duties under this
Agreement. Owner shall furnish to Operator a description of the provisions of
such agreement or amendment which directly relates to the performance of
Operator's duties under this Agreement in sufficient detail to enable Operator
to satisfactorily perform its duties hereunder.
7. Responsibilities of Owner. Owner will bear responsibility for,
among other things, reviewing and approving all required plans, budgets and
schedules in a timely fashion.
8. Facilities Revenue Fund. Subject to the provisions of the Credit
Facility and related loan documents regarding accounts:
1. Operator shall deposit all revenues received by Owner in
connection with the operation of the Facilities into the Revenue Fund (as
defined in the Credit Facility and related loan documents).
2. Operator is authorized to withdraw monies from the Revenue
Fund to pay costs of performing its obligations only to the extent that the
funds are then available in the Revenue Fund and such payments are authorized
pursuant to the terms of this Agreement and the Credit Facility and related
loan documents.
9. Guaranteed Capacity Payment. As an inducement to Operator to
operate the Del Ranch Facility, to the extent reasonably possible, in such a
manner as to, among other things, earn the maximum Total Electricity Revenues
possible on behalf of Owner, Owner shall pay Operator a fee (the "Guaranteed
Capacity Payment") calculated as follows:
1. The Guaranteed Capacity Payment, to the extent earned by
Operator, shall be paid to Operator on the last day of each of Owner's fiscal
years (or as soon thereafter as is reasonably practicable, but in no event
later than the next succeeding March 31) in an amount which is, for each of
Owner's fiscal years from 1989 through 1998 inclusive, the sum of the
following amounts:
(a) ten percent (10%) of the amount of Total Electricity
Revenues earned by Owner in such year in excess of the amount listed in
column A of Exhibit "A" with respect to such year up to and including
the amount listed in column B of Exhibit "A" with respect to such year;
plus
(b) twenty-five percent (25%) of the amount of Total
Electricity Revenues earned by Owner in such year in excess of the
amount listed in column B of Exhibit "A" with respect to such year.
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2. The Guaranteed Capacity Payment, to the extent earned by
Operator, shall be paid to Operator on the last day of each of Owner's fiscal
years (or as soon thereafter as is reasonably practicable, but in no event
later than the next succeeding March 31) in an amount which is, for each of
Owner's fiscal years from 1999 through the end of the term of this Agreement
inclusive, the sum of the following amounts:
(a) ten percent (10%) of the amount of Total Electricity
Revenues earned by Owner in such year in excess of the amount which is
obtained by multiplying 268,056,000 by the Average Annual Energy Price
for such year up to and including the amount which is obtained by
multiplying 297,840,000 by the Average Annual Energy Price for such
year; plus
(b) twenty-five percent (25%) of the amount of Total
Electricity Revenues earned by Owner in such year in excess of the
amount which is obtained by multiplying 297,840,000 by the Average
Annual Energy Price for such year.
3. To the extent that there are not sufficient funds to pay
the Guaranteed Capacity Payment, any such shortfall (the "Accrued Guaranteed
Capacity Payment") shall accrue and be payable to Operator, with interest
thereon at a rate of seven percent (7%) per annum, on the next date for
payment of the Guaranteed Capacity Payment and any Accrued Guaranteed Capacity
Payment shall be paid prior to the Guaranteed Capacity Payment due on the date
on which such payment is made.
10. Reimbursement Charges.
1. In consideration of the provision by Operator to Owner of
the Services and in addition to the amounts payable to Operator pursuant to
Section 9 hereof, within ten (10) days after Owner has received an invoice
from Operator specifying the Services rendered to Owner by Operator and the
amount of actual costs and expenses incurred by Operator in rendering such
Services, Owner shall pay to Operator such specified amount. As used in this
Section 10, "actual costs and expenses incurred by Operator" includes, without
limitation, (a) the actual cost to Operator of goods and materials used by
Operator in rendering Services, (b) the pro rata cost to Operator of personnel
providing labor or services in the course of Operator's provision of Services,
(c) the portion of the cost of invested capital incurred by Operator for the
purchase of machinery and equipment used by Operator in connection with the
provision of Services fairly allocable to the use of such machinery and
equipment for performing the Services hereunder, taking into consideration
factors including the extent to which Operator can reasonably expect to earn a
return on its invested capital by utilizing such machinery and equipment for
providing services other than to the Del Ranch Facility and (d) the actual
cost to Operator, without any mark-up by Operator whatsoever, of retaining a
Subcontractor, whether an Affiliate of Operator or otherwise, in connection
with the provision of Services.
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2. With respect to any calculation of actual costs and
expenses or any allocation of costs contemplated by Section 10.1 hereof, Owner
shall be bound by Operator's determination thereof unless the same is clearly
erroneous.
11. Subcontracting. Without limiting the generality of any
provision contained herein concerning the same subject matter as this Section
11, in the event Operator determines it to be reasonably necessary to render
the Services required hereunder through a Subcontractor, Operator may
subcontract with Affiliates of Operator, and Owner hereby consents to such
subcontracting for all purposes of this Agreement. For purposes of this
Agreement, any Services performed by such Affiliates shall be deemed to have
been performed by Operator.
12. Term and Termination.
1. Unless terminated as provided in Section 18 hereof, by
written agreement between Owner and Operator as provided in Section 21 hereof,
or as hereinafter provided in this Section 12, this Agreement shall remain in
effect until, and shall terminate on March 14, 2020.
2. In the event of a material default by either party in the
performance of its duties, obligations or undertakings under this Agreement,
the other party shall have the right to give written notice to the defaulting
party advising such party of the specific default involved and, if within
thirty (30) days after such notice the defaulting party shall not have
remedied or commenced diligently to remedy the default, the other party shall
have the right, in addition to any other rights and remedies it may have, to
terminate this Agreement upon ten (10) days' written notice to the defaulting
party.
3. Notwithstanding any other provision of this Agreement, and
in addition to any other right it may have, Operator shall have the right to
terminate this Agreement, effective immediately, if, at any time, Owner is
adjudged bankrupt or insolvent, or files a petition in bankruptcy or an answer
admitting the material facts recited in such a petition filed by another, or
is put or decides to go into dissolution or liquidation (other than in
connection with a merger, consolidation or amalgamation), or otherwise
discontinues business, makes an assignment for the benefit of its creditors or
any other general arrangement with its creditors, becomes insolvent or unable
to meet its current payments, or has a receiver or other custodian of any kind
appointed to administer any substantial amount of its property, or otherwise
seeks to take advantage of any bankruptcy or insolvency statute now or
hereafter in effect.
4. If this Agreement is terminated prior to the expiration of
its terms, Owner and Operator shall have the following rights, remedies and
obligations in addition to any other rights, remedies and obligations they may
have:
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(a) Owner shall pay Operator the Guaranteed Capacity Payment,
if any, earned by Operator as of the date this Agreement is effectively
terminated in the manner and subject to the conditions provided for in Section
9 hereof.
(b) Owner shall pay Operator all amounts due and payable to
Operator under Section 10 hereof as of the date the Agreement is effectively
terminated.
13. Indemnification.
1. Owner shall defend, indemnify and hold Operator and its
agent and employees harmless from and against any and all other liabilities,
claims, damages, losses and expenses, including attorneys' fees and costs and
expenses of litigation or arbitration, of every kind and nature arising out of
the course of performance of this Agreement by Owner or Operator and shall,
upon request of Operator, defend all suits arising out of or resulting from
the performance of this Agreement by Owner or Operator, provided that such
liability, claim, damage, loss or expense is not attributable to the gross
negligence or willful misconduct of Operator.
2. Operator shall defend, indemnify and hold Owner and its
agents and employees harmless from and against any and all liabilities,
claims, damages, losses and expenses, including attorneys' fees and costs and
expenses of litigation or arbitration, of every kind and nature arising out of
Operator's gross negligence or willful misconduct in the course of Operator's
performance of this Agreement and shall, upon request of Owner, defend all
suits arising out or resulting from Operator's gross negligence or willful
misconduct in the performance of this Agreement.
14. Non-Waiver of Breach. Either party hereto may specifically
waive any breach of this Agreement by the other party, but no such waiver
shall be deemed to have been given unless such waiver is in writing, signed by
the waiving party and specifically designates the breach waived, nor shall any
such waiver constitute a continuing waiver of similar or other breaches.
15. Arbitration. All disputes arising under this Agreement shall be
settled by arbitration. The party desiring such arbitration shall give written
notice to that effect to the other party and in such notice shall appoint as
an arbitrator a disinterested person of recognized competence in the area at
issue. Within fifteen (15) days thereafter, the other party shall, by written
notice to the originating party, appoint a second person similarly qualified
as the second arbitrator. The arbitrators thus appointed shall appoint a third
person similarly qualified as the third arbitrator, and such three arbitrators
shall as promptly as possible determine such matter with the parties, each
being entitled to present evidence and argument to the arbitrators; provided,
however, that:
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(a) if the second arbitrator shall not have been appointed as
aforesaid, the first arbitrator shall determine such matter; and
(b) if the two arbitrators appointed by the party shall be
unable to agree upon the appointment of a third arbitrator within
fifteen (15) days after the appointment of the second arbitrator, they
shall give written notice of such failure to agree to the parties, and,
if the parties fail to agree upon the selection of such third arbitrator
within fifteen (15) days thereafter, then within ten (10) days
thereafter, either of the parties upon written notice to the other party
may apply for such appointment to the Federal District Court or District
Court in Omaha, Nebraska.
The arbitrator or arbitrators shall only interpret and apply the
terms and provisions of this Agreement and shall not change any such terms or
provisions or deprive either party of any right or remedy expressly or
impliedly provided for in this Agreement.
The determination of the majority of the arbitrators or the sole
arbitrator, as the case may be, shall, to the extent permitted by law, be
conclusive upon the parties. The arbitrator or arbitrators shall give written
notice to the parties stating their determination, and shall furnish to each a
copy of such determination signed by them. In the event of the failure,
refusal or inability of any arbitrator to act, a new arbitrator shall be
appointed in his stead, which appointment shall be made in the same manner as
hereinbefore provided for the appointment of the arbitrator so failing,
refusing or unable to act.
16. Attorneys' Fees. If either party hereto commences litigation or
arbitration for the judicial or other interpretation, enforcement,
termination, cancellation or rescission hereof, or for damages for the breach
hereof, the prevailing party in any such action, trial, arbitration or appeal
thereon shall be entitled to its reasonable attorneys' fees and court,
arbitration and other costs incurred, to be paid by the losing party as fixed
by the court or arbitrator in the same or a separate suit, and whether or not
such action is pursued to decision or judgment.
17. Force Majeure.
1. Neither Owner nor Operator shall be liable in damages to
the other for any act, omission or circumstance ("Event of Force Majeure")
occasioned by or in consequence of any acts of God, acts of the public enemy,
wars, blockades, insurrections, riots, epidemics, landslides, lightning,
earthquakes, fires, storms, floods, civil disturbances, explosions, sabotage,
the binding order of any court or governmental authority which has been
resisted in good faith by all reasonable legal means, Federal, State or local
laws, or other event or circumstance not within the control of such party
preventing such party from performing its obligations hereunder, whether
caused or
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occasioned by, or happening on account of, the act or omission of one of the
parties, not within the control of the party claiming suspension and which by
the exercise of due diligence such party is unable to prevent or overcome.
2. Such Events of Force Majeure shall not relieve Owner or
Operator of liability in the event of either party's concurring negligence or
in the event of either party's failure to use due diligence to remedy the
situation and to remove the cause in an adequate manner and with all
reasonable dispatch, nor shall such Events of Force Majeure relieve either
party of liability unless such party shall give notice and full particulars of
the same in writing to the other party within ten (10) days of the occurrence
relied on. In no event, however, shall an Event of Force Majeure relieve Owner
from the obligation of making payments due under this Agreement at the time of
such occurrence. The parties agree that should any Event of Force Majeure
remain in existence for a period of six (6) months, this Agreement may be
terminated by the party not claiming suspension of the Agreement under such
Event of Force Majeure upon the giving of written notice by such party to the
other; provided, however, that such six (6) month period shall be extended for
a reasonable time so long as throughout such six (6) month period the party
claiming suspension of this Agreement under the Event of Force Majeure has
diligently proceeded to terminate the Event of Force Majeure and continues to
do so throughout such extension.
18. Invalid Provision.
1. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted; provided, however, that if any of the
provisions of Sections 9, 10 or 11 hereof are held invalid or unenforceable by
any court or other relevant authority, Owner and Operator shall hold
consultations over a period of ninety (90) days, commencing immediately, in an
effort to work out satisfactory terms for continuation of this Agreement. If
Owner and Operator do not reach agreement within this period, Operator shall
have the right to terminate this Agreement, effective immediately.
2. In the event that any provision, term, condition or object
of this Agreement may be in conflict with any law, measure, ruling, court
judgment (by consent or otherwise), or regulation of the government of the
United States of America, and the legal counsel of either party shall advise
that in their considered opinion such conflict, or a reasonable possibility of
such conflict, exists, then either party may propose to the other appropriate
modifications of this Agreement to avoid such conflict. In such case, if an
agreement of modification is not reached within ninety (90) days from such
proposal, the party making such proposal, after sixty (60) days' written
notice to the other party, may terminate the agreement in its entirety as of a
date subsequent to such sixty (60) days, and which shall be specified in such
notice.
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19. Assignment. Subject to Section 11 hereof, neither Owner nor
Operator shall grant, assign or otherwise convey any of their respective
rights or delegate any of their respective obligations under this Agreement
without the prior written consent of the other party which shall not be
unreasonably withheld.
20. Governing Law. The existence, validity, construction, operation
and effect of this Agreement shall be determined in accordance with and
governed by the laws of the State of California. This Agreement shall be
construed equally as against the parties hereto, and shall not be construed
against the party responsible for its drafting.
21. Entire Agreement - Amendments. This Agreement constitutes the
entire agreement of the parties and the provisions hereof shall supersede any
and all prior agreements or understandings relating to the same subject
matter. Without limiting the generality of the foregoing, from and after the
date hereof, the terms of the Operating and Maintenance Agreement dated as of
March 14, 1988 (the "Original Operating and Maintenance Agreement") between
Owner and Operator shall be amended to read in their entirety as set forth in
this Agreement and the terms of this Agreement shall govern and control the
rights and obligations of the parties in and with respect to the matters
herein set forth, notwithstanding any conflict between the terms of this
Agreement and the terms of the Original Operating and Maintenance Agreement.
This Agreement may be amended only by a writing signed by a duly authorized
representative of both parties.
22. Communications. All notices, requests, offers and other
communications required or permitted to be made under this Agreement shall be
in writing and shall be deemed to have been duly given and received,
regardless of when and whether received, either: (a) on the day of delivery,
if delivered:
To Operator at:
CalEnergy Operating Company
302 South 36th Street
Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
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To Owner at:
Del Ranch, L.P.
302 South 36th Street, Suite 400-C
Omaha, Nebraska 68131
Attention: General Counsel
or at such other address as either party most recently may have designated in
writing to the other party for such purpose; or (b) on the day sent, when sent
by prepaid telex, telegram, cable or radiogram, and confirmed the same day by
prepaid first-class registered airmail, addressed to Operator or Owner, as the
case may be, at their respective addresses aforesaid.
23. Counterparts. This Agreement may be executed in counterparts
and any number of counterparts signed in the aggregate by the parties hereto
shall constitute a single original instrument.
24. Exhibits. All exhibits and schedules attached hereto are hereby
incorporated herein by this reference.
25. Third Party Beneficiaries. The covenants contained herein are
made solely for the benefit of the properties, parties and successors and
assigns of such parties as specified herein, and shall not be construed as
having been intended to benefit any third party not a party to this Agreement.
26. Headings. The headings herein are for reference only and shall
not affect the construction of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be signed by their duly authorized officers as of the day and year first
above written.
OWNER:
DEL RANCH, L.P.,
a California limited partnership
By: CALENERGY OPERATING COMPANY,
a Delaware corporation,
as General Partner
By: /s/ John G. Sylvia
______________________________
Name: John G. Sylvia
______________________________
Title: Senior Vice President
______________________________
OPERATOR:
CALENERGY OPERATING COMPANY,
a Delaware corporation
By: /s/ John G. Sylvia
______________________________
Name: John G. Sylvia
______________________________
Title: Senior Vice President
______________________________
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Exhibit "A"
Guaranteed Capacity Payment Target Levels
-----------------------------------------
($000s)
Column Column
Year A B
---- ------ ------
1989 27,391 30,435
1990 28,738 31,944
1991 30,078 33,433
1992 31,955 35,518
1993 34,099 37,901
1994 36,243 40,283
1995 38,656 42,964
1996 40,800 45,346
1997 43,481 48,324
1998 46,161 51,303
EXHIBIT 10.41
IMPERIAL ENERGY CORPORATION
LONG TERM POWER PURCHASE
POWER PURCHASE CONTRACT
BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY
AND
IMPERIAL ENERGY CORPORATION
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TABLE OF CONTENTS
Section Title Page
- ------- ----- ----
1 PROJECT SUMMARY 1
2 DEFINITIONS 4
3 TERM 10
4 GENERATING FACILITY 11
5 OPERATING OPTIONS 19
6 INTERCONNECTION FACILITIES 20
7 METERING 21
8 POWER PURCHASE PROVISIONS 22
9 PAYMENT AND BILLING PROVISIONS 40
10 TAXES 42
11 TERMINATION 43
12 SALE OF GENERATING FACILITY 43
13 ABANDONMENT OF PROJECT 44
14 LIABILITY 45
15 INSURANCE 47
16 UNCONTROLLABLE FORCES 49
17 NONDEDICATION OF FACILITIES 51
18 PRIORITY OF DOCUMENTS 52
19 NOTICES AND CORRESPONDENCE 52
20 PREVIOUS COMMUNICATIONS 52
21 THIRD PARTY BENEFICIARIES 53
22 NONWAIVER 53
23 DISPUTES 53
24 SUCCESSORS AND ASSIGNS 55
25 EFFECT OF SECTION HEADINGS 55
26 TRANSMISSION 55
27 AMENDMENT 58
28 GOVERNING LAW 58
29 CONFIDENTIALITY 58
30 MULTIPLE ORIGINALS 59
APPENDIX A
APPENDIX B
APPENDIX C
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1. PROJECT SUMMARY
---------------
This Contract is entered into between Southern California Edison
Company ("Edison") and Imperial Energy Corporation, a California
corporation ("Seller"). Seller is willing to construct, own, and
operate a Qualifying Facility and sell electric power to Edison and
Edison is willing to purchase electric power delivered by Seller to
Edison at the Point of Interconnection pursuant to the terms and
conditions set forth as follows:
1.1 All Notices shall be sent to Seller at the following
address: Imperial Energy Corporation
2049 Century Park East, Suite 1100
Los Angeles, CA 90067
Attn: President
1.2 Seller's Generating Facility:
a. Nameplate Rating: 3,000 kW.
b. Location: Niland, Imperial County, California
c. Type (Check One):
[ ] Cogeneration Facility
[X] Small Power Production Facility
1.3 Contract Capacity: 1,000 kW
1.3.1 Estimated as-available capacity: 2,000 kW.
1.4 Expected annual production: 21,024,000 kWh.
1.5 Expected Date of Firm Operation: July 1, 1985
1.6 Contract Term: 20 years
1.7 Operating Options pursuant to Section 5: (Check One)
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[X] Operating Option I. Excess Generator output dedicated to Edison. No
electric service or standby service required from Edison. --
[ ] Operating Option II. Entire Generator output dedicated to Edison
with separate electric service required from Edison.
1.8 The Capacity Payment Option selected by Seller pursuant to Section 8.1
shall be: (Check One)
[ ] Option A - As-available capacity based upon:
[ ] Standard Offer No. 1 Capacity Payment Schedule, or
[ ] Forecast of Annual As-Available Capacity Payment Schedule
[X] Option B - Firm Capacity
a. The as-available capacity price (first year): ____ kW-yr. (Appendix
A)
b. The Contract Capacity Price: $132 kW-yr. (Firm Capacity)
1.9 The Energy Payment Option selected by Seller pursuant to Section 8.2
shall be: (Check One)
[X] Option 1 - Forecast of Annual Marginal Cost of Energy in effect at
date of execution of this Contract. (Appendix B)
[ ] Option 2 - Levelized Forecast of Marginal Cost of Energy in effect
at date of execution of this Contract. (Appendix C)
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For the energy payment refund pursuant to Section 8.5 under Option
2, Edison's Incremental Cost of Capital is 15%.
Seller may change once between Options 1 and 2, provided Seller
delivers written notice of such change at least 90 days prior to the
date of Firm Operation. For Option 1 or 2, Seller elects to receive
the following percentages in 20% increments, the total of which
shall equal 100%:
60 percent of Forecast of Annual Marginal Cost of Energy, and 40
---------- --
percent of Edison's published avoided cost of energy as updated
-------
periodically and accepted by the Commission.
3
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GENERAL TERMS AND CONDITIONS
2. DEFINITIONS
When used with initial capitalizations, whether in the singular or in
the plural, the following terms shall have the following meanings:
2.1 Adjusted Capacity Price: The $/kW-yr capacity purchase price based on
the Capacity Payment Schedule in effect at the time of Contract
execution for the time period beginning on the date of Firm Operation
for the first generating unit and ending on the date of termination or
reduction of Contract Capacity under Capacity Payment Option B.
2.2 Appendix A: Capacity Payment Schedule - Forecast of Annual As
Available Capacity
2.3 Appendix B: Energy Payment Schedule - Forecast of Annual Marginal Cost
of Energy
2.4 Appendix C: Energy Payment Schedule - Levelized Forecast of Marginal
Cost of Energy
2.5 Capacity Payment Schedule(s): Published capacity payment schedule(s)
as authorized by the Commission and in effect at the time of execution
of this Contract for as-available or firm capacity.
2.6 Commission: The Public Utilities Commission of the State of
California.
2.7 Contract: This document and Appendices, as amended from time to time.
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2.8 Contract Capacity: The electric power producing capability of the
Generating Facility which is committed to Edison.
2.9 Contract Capacity Price: The capacity purchase price from the Capacity
Payment Schedule approved by the Commission and in effect on the date
of execution of this Contract for Capacity Payment Option B.
2.10 Contract Term: Period in years commencing with date of Firm Operation
during which Edison shall purchase electric power from Seller.
2.11 Current Capacity Price: The $/kW-yr capacity price provided in the
Capacity Payment Schedule determined by the year of termination or
reduction of Contract Capacity and the number of years from such
termination or reduction to the expiration of the Contract Term for
Capacity Payment Option B.
2.12 Edison: The Southern California Edison Company.
2.13 Edison Electric System Integrity: The state of operation of Edison's
electric system in a manner which is deemed to minimize the risk of
injury to persons and/or property and enables Edison to provide
adequate and reliable electric service to its customers.
2.14 Emergency: A condition or situation which in Edison's sole judgment
affects Edison Electric System Integrity.
2.15 Energy: Kilowatthours generated by the Generating Facility which are
purchased by Edison at the Point of Interconnection.
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2.16 Firm Operation: The date agreed on by the Parties on which each
generating unit of the Generating Facility is determined to be a
reliable source of generation and on which such unit can be reasonably
expected to operate continuously at its effective rating (expressed in
kW).
2.17 First Period: The period of the Contract Term specified in Section
3.1.
2.18 Forced Outage: Any outage other than a scheduled outage of the
Generating Facility that fully or partially curtails its electrical
output.
2.19 Generating Facility: All of Seller's generators, together with all
protective and other associated equipment and improvements, necessary
to produce electrical power at Seller's Facility excluding associated
land, land rights, and interests in land.
2.20 Generator: The generator(s) and associated prime mover(s), which are a
part of the Generating Facility.
2.21 Interconnection Facilities: The electrical interconnection facilities
furnished, at no cost to Edison, by Seller, or by the Interconnecting
Utility on Seller's behalf, which is appurtenant to, and/or incidental
to, the Project. The Interconnection Facilities shall include, but are
not limited to, transmission lines and/or distribution lines between
the Project and transmission lines and/or distribution lines of the
Interconnecting Utility, relays, power-circuit breakers, metering
devices, telemetering devices, and
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other control and Protective devices specified by the Interconnecting
Utility as necessary for operation of the Project in parallel with the
Interconnecting Utility's electric system.
2.22 Interconnecting Utility: The electric utility, or any other utility
that is directly connected with the Project, and which receives
electrical energy generated by the Generating Facility.
2.23 Monthly Capacity Factor: For each month, the Energy expressed in kWh,
divided by the product of: (i) the total of Contract Capacity and
Estimated as-available capacity, as specified in Section 1.3; and (ii)
the total hours in the month, minus (a) maintenance hours allowed in
Section 4.5, (b) hours during an Uncontrollable Force on either the
Edison Interconnecting Utility's systems which prohibits Edison from
accepting electrical energy from the Project, and (c) hours that
Edison curtailed or reduced the delivery of electrical energy from the
Project pursuant to Sections 4.4 and 8.4.
2.24 Operate: To provide the engineering, purchasing, repair, supervision,
training, inspection, testing, protection, operation, use, management,
replacement, retirement, reconstruction, and maintenance of and for
the Generating Facility in accordance with applicable California
utility standards and good engineering practices.
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2.25 Operating Representatives: Individual(s) appointed by each Party for
the purpose of securing effective cooperation and interchange of
information between the Parties in connection with administration and
technical matters related to this Contract.
2.26 Parties: Edison and Seller.
2.27 Party: Edison or Seller.
2.28 Peak Months: Those months which the Edison annual system peak demand
could occur. Currently, but subject to change with notice, the peak
months for the Edison system are June, July, August and September.
2.29 Point of Interconnection: The point where the electrical energy
generated by the Seller at the Project is delivered to the Edison
electric system.
2.30 Project: The Generating Facility and Interconnection Facilities
required to permit the Generator to deliver electrical energy and make
capacity available to Interconnecting Utility.
2.31 Qualifying Facility: Cogeneration or Small Power Production Facility
which meets the criteria as defined in Title 18, Code of Federal
Regulations, Section 292.201 through 292.207.
2.32 Renewable Resources: Wind parks, small hydroelectric, solar, and
geothermal resources which produce electric power.
2.33 Second Period: The Period of the Contract Term specified in Section
3.2.
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2.34 Seller: The Party identified in Section 1.0.
2.35 Seller's Facility: The premises and equipment of Seller located as
specified in Section 1.2. This Generating Facility to be known as
"Imperial Energy Salton Sea Unit 1".
2.36 Small Power Production Facility: The facilities and equipment which
use biomass, waste, or Renewable Resources, including wind, solar,
geothermal, and water, to produce electrical energy as defined in
Title 18, Code of Federal Regulations, Section 292.201 through
292.207.
2.37 Summer Period: Defined in Edison's Tariff Schedule No. TOU-8 as now in
effect or as may hereafter be authorized by the Commission.
2.38 Tariff Schedule No. TOU-8: Edison's time-of-use energy tariff for
electric service exceeding 500 kW, as now in effect or as may
hereafter be authorized by the Commission.
2.39 Uncontrollable Forces: Any occurrence beyond the control of a Party
which causes that Party to be unable to perform its obligations
hereunder and which a Party has been unable to overcome by the
exercise of due diligence, including but not limited to flood,
drought, earthquake, storm, fire, pestilence, lightning and other
natural catastrophes, epidemic, war, riot, civil disturbance or
disobedience, strike, labor dispute, action or inaction of
legislative, judicial, or
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regulatory agencies or other proper authority, which may conflict with
the terms of this Contract or failure, threat of failure or sabotage
of facilities which have been maintained in accordance with good
engineering and operating practices in California.
2.40 Winter Period: Defined in Edison's Tariff Schedule No. TOU-8 as now in
effect or as may hereafter be authorized by the Commission.
3. TERM
This Contract shall be effective upon execution by the Parties and
shall remain effective until either Party gives 90 days prior written
notice of termination to the other Party, except that such notice of
termination shall not be effective to terminate this Contract prior to
expiration of the Contract Term specified in Section 1.6.
3.1 The First Period of the Contract Term shall commence upon date of Firm
Operation but not later than 5 years from the date of execution of
this Contract.
a. If the Contract Term specified in Section 1.6 is 15 years, the
First Period of the Contract Term shall be for 5 years.
b. If the Contract Term specified in Section 1.6 is 20, 25, or 30
years, the First Period of the Contract Term shall be for 10
years.
3.2 The Second Period of the Contract Term shall commence upon expiration
of the First Period and shall continue for the remainder of the
Contract Term.
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4. GENERATING FACILITY
4.1 Ownership
The Generating Facility shall be owned by Seller.
4.2 Design
4.2.1 Seller, at no cost to Edison, shall:
a. Design the Generating Facility.
b. Acquire all permits and other approvals necessary for the
construction, operation, and maintenance of the Generating
Facility.
c. Complete all environmental impact studies necessary for the
construction, operation, and maintenance of the Generating
Facility.
4.2.2 Edison shall have the right to review the design of the
Generating Facility's electrical system and the Seller's
Interconnection Facilities. Edison shall have the right to
request modifications to the design of the Generating
Facility's electrical system and the Seller's Interconnection
Facilities. Such modifications shall be required if necessary
to maintain Edison Electric System Integrity. If Seller does
not agree to such modifications, resolution of the difference
between the Parties shall be made pursuant to Section 23.
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4.3 Construction
Edison shall have the right to review, consult with, and make
recommendations regarding Seller's construction schedule and to
monitor the construction and start-up of the Project. Seller shall
notify Edison, as far in advance of Firm Operation as reasonably
possible, of changes in Seller's Construction Schedule which may
affect the date of Firm Operation.
4.4 Operation
4.4.1 Edison shall have the right to monitor the operation of the
Project and may require changes in Seller's method of
operation if such changes are necessary, in Edison's sole
judgment, to maintain Edison Electric System Integrity.
4.4.2 Seller shall notify, in writing, Edison's Operating
Representative at least 14 days prior to (i) the initial
delivery of electrical energy to the Point of Interconnection.
4.4.3 Edison shall have the right to require Seller to curtail or
reduce the delivery of electrical energy from the Project to
the Edison electric system whenever Edison determines, in its
sole judgment, that such curtailment or reduction is necessary
to facilitate maintenance of Edison's facilities,
Interconnecting Utility's facilities, or to maintain Edison
Electric
12
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System Integrity. If Edison requires Seller to curtail or
reduce the delivery of electrical energy from the Project to
the Edison electric system pursuant to this Section 4.4.3,
Seller shall have the right to continue to serve its total
electrical requirements. Each Party shall endeavor to correct,
within a reasonable period, the condition on its system which
necessitates the curtailment or the reduction of delivery of
electrical energy from the Project. The duration of the
curtailment or the reduction shall be limited to the period of
time such a condition exists.
4.4.4 Each Party shall keep the other Party's Operating
Representative informed as to the operating schedule of their
respective facilities affecting each other's operation
hereunder, including any reduction in Contract Capacity
availability. In addition, Seller shall provide Edison with
reasonable advance notice regarding its scheduled outages
including any reduction in Contract Capacity availability.
Reasonable advanced notice is as follows:
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SCHEDULED OUTAGE ADVANCE NOTICE
EXPECTED DURATION TO EDISON
Less than one day 24 Hours
One day or more
(except major overhauls) 1 Week
major overhaul 6 Months
4.4.5 Notification by each Party's Operating Representative of
outage date and duration should be directed to the other
Party's Operating Representative by telephone.
4.4.6 Seller shall not schedule major overhauls during Peak Months.
4.4.7 Seller shall maintain an operating log at Seller's Facility
with records of: real and reactive power production; changes
in operating status, outages, Protective Apparatus operations;
and any unusual conditions found during inspections.
Changes in setting shall also be logged for Generators which are
"block-loaded" to a specific kW capacity. In addition, Seller
shall maintain records applicable to the Generating Facility,
including the electrical characteristics of the Generator and
settings, adjustments of the Generator control equipment, and
well-field information. Information maintained pursuant to
this Section 4.4.7 shall
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be provided to Edison, within 30 days of Edison's request.
4.4.8 At Edison's request, Seller shall make all reasonable effort
to deliver power at an average rate of delivery at least equal
the Contract Capacity during periods of Emergency. In the
event that the Seller has previously scheduled an outage
coincident with an Emergency, Seller shall make all reasonable
efforts to reschedule the outage. The notification periods
listed in Section 4.4.4 shall be waived by Edison if Seller
reschedules the outage.
4.4.9 Seller shall demonstrate the ability to provide Edison the
specified Contract Capacity within 30 days of the date of Firm
Operation. Thereafter, at least once per year at Edison's
request, Seller shall demonstrate the ability to provide
Contract Capacity for a reasonable period of time as required
by Edison. Seller's demonstration of Contract Capacity shall
be at Seller's expense and conducted at a time and pursuant to
procedures mutually agreed upon by the Parties. If Seller
fails to demonstrate the ability to provide the Contract
Capacity, the Contract Capacity shall be reduced by
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agreement of the Parties pursuant to Section 8.1.2.5.
4.4.10 The Seller warrants that the Generating Facility meets the
requirements of a Qualifying Facility as of the effective date
of this Contract and continuing through the Contract Term.
4.4.11 The Seller warrants that the Generating Facility shall at all
times conform to all applicable laws and regulations. Seller
shall obtain and maintain any governmental authorizations and
permits for the continued operation of the Generating
Facility. If at any time Seller does not hold such
authorizations and permits, Seller agrees to reimburse Edison
for any loss which Edison incurs as a result of the Seller's
failure to maintain governmental authorization and permits.
4.4.12 In the event electrical energy from the Project is curtailed
or reduced pursuant to Sections 4.4.3, 16 and 8.4, the Seller,
at its sole discretion, may elect (i) to sell said electrical
energy to a third party or (ii) deliver said electrical energy
to a third party for future delivery to Edison at times and at
amount agreeable to Edison. The Seller shall
16
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be responsible for making all such arrangements. The provisions
in this Section 4.4.12 shall apply only for the duration of the
curtailment or reduction.
4.4.13 Seller shall maintain operating communications with the Edison
switching center designated by the Edison Operating
Representative. The operating communications shall include,
but not be limited to, system paralleling or separation,
scheduled and unscheduled shutdowns, equipment clearances,
levels of operating voltage or power factors, and daily
capacity and generation reports.
4.5 Maintenance
4.5.1 Seller shall maintain the Generating Facility in accordance
with applicable California utility industry standards a good
engineering and operating practices. Edison shall have the
right to monitor such maintenance of the Generating Facility.
Seller shall maintain and deliver a maintenance record of the
Generating Facility to Edison's Operating Representatives upon
request.
4.5.2 Seller shall make a reasonable effort to schedule routine
maintenance during Off-Peak Months and expected minimal
generation periods for renewable resources. Outages for
scheduled
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maintenance shall not exceed a total of 30 peak hours for the
Peak Months.
4.5.3 The allowance for scheduled maintenance is as follows:
a. Outage periods for scheduled maintenance shall not
exceed 840 hours (35 days) in any 12-month period.
This allowance may be used in increments of an hour or
longer on a consecutive or nonconsecutive basis.
b. Seller may accumulate unused maintenance hours on a
year-to-year basis up to a maximum of 1,080 hours (45
days). This accrued time must be used consecutively
and only for major overhauls.
4.6 Any review by Edison of the design, construction, operation, or
maintenance of the Project is solely for the information of Edison. By
making such review, Edison makes no representation as to the economic
and technical feasibility, operational capability, or reliability of the
Project. Seller shall in no way represent to any third party that any
such review by Edison of the Project, including, but not limited to, any
review of the design, construction, operation, or maintenance of the
Project by Edison, is a representation by Edison as to the economic and
technical feasibility, operational capability, or reliability of said
facilities. Seller is solely
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responsible for economic and technical feasibility, operational
capability, and reliability of said facilities.
4.7 Edison shall have access, at reasonable times and upon reasonable
notice, to the Generating Facility and those portions of Seller's
Geothermal field serving such Facility, for the purpose of gathering
technical information. Seller's technical records subject to such
inspection shall include, but not be limited to, drilling data, well
-testing data, well-production data, power plant performance data,
environmental data, and operation and maintenance data, provided,
however, that Edison shall not be entitled to inspect (i) Seller's
financial records or any other data of a non-technical nature, or (ii)
any portions of Seller's geothermal field other than those wells serving
the Generating Facility. Edison agrees to abide by Seller's operating
rules and regulations in connection with any such inspection by
Edison.
5. OPERATING OPTIONS
5.1 Seller shall elect in Section 1.7 to Operate its Generating Facility
pursuant to one of the following options:
a. Operating Option 1: Seller dedicates the excess Generator
output to Edison with no electric service required from
Edison.
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b. Operating Option II: Seller dedicates the entire Generator
output to Edison with electric service required from Edison.
5.2 After expiration of the First Period of the Contract Term, Seller may
change the Operating Option, but not more than once per year upon at
least 90 days prior written notice to Edison. A reduction in Contract
Capacity as a result of a change in operating options shall be subject
to Section 8.1.2.5. Edison shall not be required to remove or reserve
capacity of Interconnection Facilities made idle by a change in
operating options. Edison may dedicate any such idle interconnection
Facilities at any time to serve other customers or to interconnect
with other electric power sources. Edison shall process requests for
changes of operating option in the chronological order received.
6. INTERCONNECTION FACILITIES
6.1 Seller shall design, engineer, procure, construct, and test the
Interconnection Facilities in accordance with applicable California
utility standards and good engineering practices and the rules and
regulations of the Interconnecting Utility.
6.2 The design, installation, operation, maintenance, and modifications of
the Interconnection Facilities shall be at Seller's expense.
6.3 Seller, at no cost to Edison, shall acquire all permits and approvals
and complete all environmental impact
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studies necessary for the design, installation, operation, and
maintenance of the interconnection Facilities.
7. METERING
7.1 All meters and equipment used for the measurement of electric power
for determining Edison's payments Seller pursuant to this Contract
shall be provided, owned, and maintained by Edison and/or
Interconnecting Utility at Seller's expense.
7.2 If Seller's Generating Facility is rated at a Capacity of 500 kW or
greater, then Edison, at its option, may install at Seller's expense
generation metering and/or telemetering equipment.
7.3 Edison's or Interconnecting Utility's meters shall be sealed and the
seals shall be broken only when the meters are to be inspected,
tested, or adjusted by Edison or Interconnecting Utility. Seller shall
be given reasonable notice of testing and have the right to have its
Operating Representative present on such occasions.
7.4 Edison's or Interconnecting Utility's meters installed pursuant to
this Contract shall be tested by Edison or Interconnecting Utility, at
Edison's or Interconnecting Utility's expense, at least once each year
and at any reasonable time upon request by either Party, at the
requesting Party's expense. If Seller makes such request, Seller shall
reimburse said expense to Edison
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or Interconnecting Utility within thirty days after presentation of a
bill therefor.
7.5 Metering equipment found to be inaccurate shall be repaired, adjusted,
or replaced by Edison or Interconnecting Utility such that the
metering accuracy of said equipment shall be within plus or minus two
percent. If metering equipment inaccuracy exceeds plus or minus two
percent, the correct amount of Energy and Contract Capacity delivered
during the period of said inaccuracy shall be estimated by Edison and
agreed upon by the Parties.
8. POWER PURCHASE PROVISIONS
Prior to the date of Firm Operation, Seller shall be paid for Energy
equal to 90% of Edison's published avoided cost of energy based on
Edison's full avoided operating cost as periodically updated and
accepted by the Commission. If at any time electrical energy can be
delivered to Edison and Seller is contesting the claimed jurisdiction
of any entity which has not issued a license or other approval for the
Project, Seller, in its sole discretion and risk, may deliver
electrical energy to Edison and for any electrical energy purchased by
Edison Seller shall receive payment from Edison for (i) Energy
pursuant to this Section 8, and (ii) as-available capacity based on
90% capacity price from the Standard Offer No. 1 Capacity Payment
Schedule as approved by the Commission. Unless and until all required
licenses and
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approvals have been obtained, Seller may discontinue deliveries at any
time.
8.1 Capacity Payments
If Seller shall sell to Edison and Edison shall purchase from Seller
capacity pursuant to the Capacity Payment Option selected by Seller in
Section 1.8. Seller shall receive monthly payments for capacity equal to
90% of the payment provisions specified in this Section 8.1.
8.1.1 Capacity Payment Option A -- As-Available Capacity.
If Seller selects Capacity Payment Option A, Seller shall be paid a
monthly capacity payment calculated pursuant to the following formula:
Monthly Capacity Payment = (A x D)+(B x D)+(C x D)
Where A = kWh purchased by Edison during on-peak periods
defined in Edison's Tariff Schedule No. TOU-8.
B = kWh purchased by Edison during mid-peak periods
defined in Edison's Tariff Schedule No. TOU-8.
C = kWh purchased by Edison during off-peak periods
defined in Edison's Tariff Schedule No. TOU-8.
D = The appropriate time differentiated capacity
price from either the
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Standard Offer No. 1 Capacity Payment Schedule
or Forecast of Annual As-Available Capacity
Payment Schedule as specified by Seller in
Section 1.8.
8.1.1.1 If Seller specifies the Standard Offer No. 1 Capacity Payment
Schedule in Section 1.8, then the formula set forth in Section
8.1.1 shall be computed with D equal to the appropriate time
differentiated capacity price from the Standard Offer No. 1
Capacity Payment Schedule for the Contract Term.
8.1.1.2 If Seller specifies the Forecast of Annual As-Available
Capacity Payment Schedule in Section 1.8, the formula set
forth in Section 8.1.1 shall be computed as follows:
a. During the First Period of the Contract Term, D shall
equal the appropriate time differentiated capacity
price from the Forecast of Annual As-Available
Capacity Payment Schedule.
b. During the Second Period of the Contract Term, the
formula shall be computed with D equal to the
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appropriate time differentiated capacity price from
Standard Offer No. 1 Capacity Payment Schedule, but
not less than the greater of (i) the appropriate time
differentiated capacity price from the Forecast of
Annual As-Available Capacity Payment Schedule for the
last year of the First Period, or (ii) the appropriate
time differentiated capacity price from the Standard
Offer No. 1 Capacity Payment Schedule for the first
year of the Second Period.
8.1.2 Capacity Payment Option B--Firm Capacity Purchase If Seller
selects Capacity Payment Option B, Seller shall provide to
Edison for the Contract Term the Contract Capacity specified
in Section 1.3, or as adjusted pursuant to Section 8.1.2.6,
and Seller shall be paid as follows:
8.1.2.1 If Seller meets the performance requirements set forth in
Section 8.1.2.2, Seller shall be paid a Monthly Capacity
Payment, beginning from the date of Firm Operation equal to the
sum of the on-peak, mid-peak and off-peak Capacity Period
Payments. Each capacity
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period payment is calculated pursuant to the following
formula:
Monthly Capacity Period = A x B x C x D
Payment
Where A = Contract Capacity Price specified in Section 1.8
based on the Standard Offer No. 2 Capacity Payment
Schedule as approved by the Commission and in
effect on the date of the execution of this
Agreement.
B = Conversion factors to convert annual capacity
prices to monthly payments by time of delivery as
specified in Standard Offer No. 2 Capacity Payment
Schedule and subject to periodic modifications as
approved by the Commission.
C = Contract Capacity specified in Section 1.3.
D = Period Performance Factor, not to exceed 1.0,
calculated as follows: [Period kWh Purchased by
Edison (Limited by the Level of Contract
Period Performance Factor = Capacity)]
-------------------------------------------------
(0.8 x Contract Capacity x (Period
Hours minus Maintenance
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Hours Allowed in Section 4.5.))
8.1.2.2 Performance Requirements
To receive the Monthly Capacity Payment in Section 8.1.2.1,
Seller shall provide the Contract Capacity in each Peak Month
for all on-peak hours as such peak hours are defined in
Edison's Tariff Schedule No. TOU-8 on file with the
Commission, except that Seller is entitled to a 20% allowance
for Forced Outages for each Peak Month. Seller shall not be
subject to such performance requirements for the remaining
hours of the year.
a. If Seller fails to meet the requirements specified in
this Section 8.1.2.2, Seller, in Edison's sole
discretion, may be placed on probation for a period
not to exceed 15 months. If Seller fails to meet the
requirements specified in this Section 8.1.2.2 during
the probationary period, Edison may derate the
Contract Capacity to the greater of the capacity
actually delivered during the probationary period, or
the capacity at which Seller can
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reasonably meet such requirements. A reduction in
Contract Capacity as a result of this Section 8.1.2.2
shall be subject to Section 8.1.2.5.
b. If Seller fails to meet the requirements set forth in
Section 8.1.2.2 due to a Forced Outage on either the
Edison system, or the Interconnecting Utility System,
or a request to reduce or curtail delivery under
Section 8.4, Edison shall continue Monthly Capacity
Payments pursuant to Capacity Payment Option B. The
Contract Capacity curtailed shall be treated the same
as allowable scheduled maintenance outages in the
calculation of the Monthly Capacity Payment.
8.1.2.3 If Seller is unable to provide Contract Capacity due to
Uncontrollable Forces, Edison shall continue Monthly Capacity
Payments pursuant to Capacity Payment Option B for 90 days
from the occurrence of the Uncontrollable Force. Monthly
Capacity Payments payable during a
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period of interruption or reduction by reason of an
Uncontrollable Force shall be treated the same as allowable
scheduled maintenance outages.
8.1.2.4 Capacity Bonus Payment
For Capacity Payment Option B, Seller may receive a Capacity
Bonus Payment as follows:
a. Bonus During Peak Months
For a Peak Month, Seller shall receive a Capacity Bonus
Payment if (i) the requirements set forth in Section
8.1.2.2 have been met, and (ii) the on-peak capacity
factor exceeds 85%.
b. Bonus During Non-Peak Months
For a non-peak month, Seller shall receive a Capacity
Bonus Payment if (i) the requirements set forth in
Section 8.1.2.2 have been met, (ii) the on-peak capacity
factor for each Peak Month during the year was at least
85%, and (iii) the on-peak capacity factor for the non
-peak month exceeds 85%.
c. For any eligible month, the Capacity Bonus Payment
shall be calculated as follows:
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Capacity Bonus Payment = A x B x C x D
Where A = (1.2 x On-Peak Capacity Factor)-
1.02
Where the On-Peak Capacity Factor, not to exceed 1.0, is
calculated as follows:
[Period kWh Purchased by Edison
On-Peak Capacity Factor = (Limited by the Level of Contract
Capacity)]
-------------------------------------------
[(Contract Capacity) x (Period Hours minus
Maintenance Hours Allowed in
Section 4.5)]
B = Contract Capacity Price specified in
Section 1.8 for Capacity Payment
Option B
C = 1/12
D = Contract Capacity specified in Section 1.3
d. When Seller is entitled to receive a Capacity Bonus
Payment, the Monthly Capacity Payment shall be the sum
of the Monthly Capacity Payment pursuant to Section
8.1.2.1. and the Monthly Capacity Bonus Payment pursuant
to this Section 8.1.2.4.
8.1.2.5 Capacity Reduction
a. Seller may reduce the Contract Capacity specified in
Section 1.3,
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provided that Seller gives Edison prior written notice
for a period determined by the amount of Contract
Capacity reduced as follows:
Amount of Contract Length of
Capacity Reduced Notice Required
------------------ ---------------
25,000 kW or under 12 months
25,001 - 50,000 kW 36 months
50,001 - 100,000 kW 48 months
over 100,000 kW 60 months
b. Seller shall refund to Edison, with interest at the
current published Federal Reserve Board three months
prime commercial paper rate an amount equal to the
difference between (i) the accumulated Monthly
Capacity Payments paid by Edison pursuant to Capacity
Payment Option B up to the time the reduction notice
is received by Edison, and (ii) the total capacity
payments which Edison would have paid if based on the
Adjusted Capacity Price.
c. From the date the reduction notice is received to the
date of actual
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capacity reduction, Edison shall make capacity
payments based on the Adjusted Capacity Price for the
amount of Contract Capacity being reduced.
d. Seller may reduce Contract Capacity without the notice
prescribed in Section 8.1.2.5(a), provided that Seller
shall refund to Edison the amount specified in Section
8.1.2.5(b) and an amount equal to: (i) the amount of
Contract Capacity being reduced, times (ii) the
difference between the Current Capacity Price and the
Contract Capacity Price, times (iii) the number of
years and fractions thereof (not less than one year)
by which the Seller has been deficient in giving the
prescribed notice. If the Current Capacity Price is
less than the Contract Capacity Price, only payment
under Section 8.1.2.5(b) shall be due to Edison.
8.1.2.6 The Parties may agree in writing at any time to adjust the
Contract Capacity. Seller may reduce the Contract Capacity
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pursuant to Section 8.1.2.5. Seller may increase the Contract
Capacity with Edison's approval and thereafter receive payment
for the increased capacity in accordance with the Contract
Capacity Price for the Capacity Payment Option selected by
Seller in Section 1.8 for the remaining Contract Term.
8.1.2.7 For Capacity Payment Option B, Seller shall be paid for
capacity in excess of Contract Capacity based on the
as-available capacity price in Standard Offer No. 1 Capacity
Payment Schedule, as updated and approved by the Commission.
8.2 Energy Payments - First Period
During the First Period of the Contract Term, Seller shall be paid a
Monthly Energy Payment for the Energy delivered by the Seller and
purchased by Edison at the Point of Interconnection equal to 90% of
the payment provisions specified in this Section 8.2, pursuant to the
Energy Payment Option selected by the Seller in Section 1.9.
8.2.1 Energy Payment Option 1 -- Forecast
of Annual Marginal Cost of Energy.
If Seller selects Energy Payment Option 1, then during the First
Period of the Contract
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Term, Seller shall be paid a Monthly Energy Payment for Energy
delivered by Seller and purchased by Edison during each month in
the First Period of the Contract Term pursuant to the following
formula:
Monthly Energy Payment = [(A x D) + (B x D) + (C x D)] x E x F
Where A = kWh purchased by
Edison during on-peak
periods defined in
Edison's Tariff Schedule
No. TOU-8.
B = kWh purchased by Edison
during mid-peak periods
defined in Edison's
Tariff Schedule No.
TOU-8.
C = kWh purchased by Edison
during off-peak periods
defined in Edison's
Tariff Schedule No.
TOU-8.
D = The sum of:
(i) the appropriate time
differentiated energy
price from the Forecast
of Annual Marginal Cost
of Energy, multiplied by
the decimal equivalent of
the percentage of the
forecast specified in
Section 1.9, and (ii) the
appropriate time
differentiated energy
price from Edison's
published avoided cost of
energy
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multiplied by the
decimal equivalent of the
percentage of the
published energy price
specified in Section 1.9.
E = Energy Loss Adjustment
Factor for Remote
Generating Sites1
F = 1/1.032
8.2.2 Energy Payment Option 2 -- Levelized Forecast of
Marginal Cost of Energy. If Seller selects Energy
Payment Option 2, then during the First Period of the
Contract Term, Seller shall be paid a Monthly Energy
Payment for Energy delivered by Seller and purchased by
Edison each month during the First Period of the
Contract Term pursuant to the following formula:
Monthly Energy Payment = [(A x D) + (B x D) + (C x D)] x E x F]
Where A = kWh purchased by
Edison during on-peak
periods defined in
Edison's Tariff Schedule
No. TOU-8.
B = kWh purchased by Edison
during mid-peak periods
defined in Edison's
Tariff Schedule No.
TOU-8.
- ----------
1 The Energy Loss Adjustment Factor for Remote Generating Sites shall be
1.0, subject to adjustment by Commission orders and rulings.
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<PAGE>
C = kWh purchased by Edison
during off-peak periods
defined in Edison's
Tariff Schedule No.
TOU-8.
D = The sum of:
(i) the appropriate time
differentiated energy
price from the Levelized
Forecast of Marginal Cost
of Energy, for the First
Period of the Contract
Term multiplied by the
decimal equivalent of the
percentage of the
levelized forecast
specified in Section 1.9,
and (ii) the appropriate
time differentiated
energy price from
Edison's published
avoided cost of energy
multiplied by the decimal
equivalent of the
percentage of the
published energy price
specified in Section 1.9.
E = Energy Loss Adjustment
Factor for Remote
Generating Sites2
F = 1/1.032
8.2.2.1 Performance Requirement for Energy Payment Option 2
- ---------
2 The Energy Loss Adjustment Factor for Remote Generating Sites shall be
1.0, subject to adjustment by Commission orders and rulings.
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<PAGE>
During the First Period when the annual forecast referred to in
Section 8.2.1 is greater than the levelized forecast referred to
in Section 8.2.2, Seller shall deliver to Edison at least 70
percent of the average annual kWh delivered to Edison during
those previous periods when the levelized forecast referred to
in Section 8.2.2 is greater than the annual forecast referred to
in Section 8.2.1. If Seller does not meet the performance
requirements of this Section 8.2.2.1, Seller shall be subject to
Section 8.5.
8.3 Energy Payments - Second Period
During the Second Period of the Contract Term, Seller shall be paid a
Monthly Energy Payment for Energy delivered by Seller and purchased by
Edison at the Point of Interconnection at a rate equal to 90% of
Edison's published avoided cost of energy as updated and authorized by
the Commission, pursuant to the following formula:
Monthly Energy Payment = kWh purchased by Edison for each on-peak,
mid-peak, and off-peak time period
defined in Edison's Tariff
Schedule No. TOU-8
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x Edison's published avoided cost of
energy by time of delivery for each
time period
x Energy Loss Adjustment Factor for Remote
Generating Sites3
8.4 Edison shall not be obligated to accept or pay for electrical
energy from the Project, and may request Seller whose Generating
Facility is one (1) MW or greater to discontinue or reduce delivery of
electrical energy, for not more than 300 hours annually during off-peak
hours when (i) purchases would result in costs greater than those which
Edison would incur if it did not purchase electrical energy from Seller
but instead utilized an equivalent amount of electrical energy generated
from another Edison source, or (ii) the Edison Electric System
demand would require that Edison hydro-energy be spilled to reduce
generation.
8.5 Energy Payment Refund
If Seller elects Energy Payment Option 2, Seller shall be subject to the
following:
8.5.1 If Seller fails to perform the Contract obligations for any
reason during the First Period of the Contract Term, or fails to
meet the performance requirements set forth in Section 8.2.2.1,
and at the time of such failure
- ---------
3 The Energy Loss Adjustment Factor for Remote Generating Sites shall be
1.0, subject to adjustment by Commission orders and rulings.
38
<PAGE>
to perform, the net present value of the cumulative Energy
payments received by Seller pursuant to Energy Payment Option
2 exceeds the net present value of what Seller would have been
paid pursuant to Energy Payment Option 1, Seller shall make an
energy payment refund equal to the difference in such net
present values in the year in which the refund is due. The
present value calculation shall be based upon the rate of
Edison's incremental cost of capital specified in Section 1.9.
8.5.2 Not less than 90 days prior to the date Energy is first
delivered to the Point of Interconnection, Seller shall
provide and maintain a performance bond, surety bond,
performance insurance, corporate guarantee, or bank letter of
credit, satisfactory to Edison, which shall insure payment to
Edison of the Energy Payment Refund at any time during the
First Period. Edison may, in its sole discretion, accept
another form of security except that in such instance a 1-1/2
percent reduction shall then apply to the levelized forecast
referred to in Section 8.2.2 in computing payments for Energy.
Edison shall be provided with certificates evidencing Seller's
compliance with the security requirements in
39
<PAGE>
this Section 8.5.2 which shall also include the requirement
that Edison be given 90 days prior written notice of the
expiration of such security.
8.5.3 If Seller fails to provide replacement security not less than
60 days prior to the date of expiration of existing security,
the Energy Payment Refund provided in Section 8.5 shall be
payable forthwith. Thereafter, payments for Energy shall be 100
percent of the Monthly Energy Payment provided in Section 8.2.1.
8.5.4 If Edison at any time determines the security to
be otherwise inadequate, and so notifies Seller, payments
thereafter for Energy shall be 100 percent of the Monthly
Energy Payment provided in Section 8.2.1. If within 30 days of
the date Edison gives notice of such inadequacies, Seller
satisfies Edison's security requirements, Energy Payment
Option 2 shall be reinstated. If Seller fails to satisfy
Edison's security requirements within the 30-day period, the
Energy Payment Refund provided in Section 8.5 shall be payable
forthwith.
9. PAYMENT AND BILLING PROVISIONS
9.1 For Energy and capacity purchased by Edison:
9.1.1 Edison shall mail to Seller no later than thirty days after the
end of each monthly billing
40
<PAGE>
period (1) a statement showing the Energy and capacity delivered
to Edison during the on-peak, mid-peak and off-peak periods, as
those periods are specified in Edison's Tariff Schedule No.
TOU-8 for that monthly billing period, (2) Edison's computation
of the amount due Seller, and (3) Edison's check in payment of
said amount.
9.1.2 If the monthly payment period involves portions of two different
published Energy payment schedule periods, the monthly Energy
payment shall be prorated on the basis of the percentage
of days at each price.
9.1.3 If the payment period is less than 27 days or greater than 33
days, the capacity payment shall be prorated on the basis of the
average days per month per year.
9.1.4 If within thirty days of receipt of the statement Seller does
not make a report in writing to Edison of an error, Seller shall
be deemed to have waived any error in Edison's statement,
computation, and payment, and they shall be considered correct
and complete.
9.2 Payments Due to Contract Capacity Reduction
9.2.1 The Parties agree that the refund and payments provided in
Section 8.1.2.5 represent a fair compensation for the reasonable
losses that
41
<PAGE>
would result from such reduction of Contract Capacity.
9.2.2 In the event of a reduction in Contract Capacity, the quantity,
in kW, by which the Contract Capacity is reduced shall be used
to calculate the refunds and payments due Edison in accordance
with Section 8.1.2.5, as applicable.
9.2.3 Edison shall provide invoices to Seller for all refunds and
payments due Edison under this section which shall be due within
60 days.
9.2.4 If Seller does not make payments as required in Section 9.2.3,
Edison shall have the right to offset any amounts due it against
any present or future payments due Seller and may pursue any
other remedies available to Edison as a result of Seller's
failure to perform.
9.3 Energy Payment Refund
Energy Payment Refund is immediately due and payable upon Seller's failure
to perform the contract obligations as specified in Section 8.5.
10. TAXES
10.1 Seller shall pay ad valorem taxes and other taxes properly attributable to
the Project. If such taxes are assessed or levied against Edison, Seller
shall pay Edison for such assessment or levy.
10.2 Seller shall pay ad valorem taxes and other taxes properly attributed to
land, land rights, or
42
<PAGE>
interest in land for the Project. If such taxes assessed or levied against
Edison, Seller shall pay Edison for such assessment or levy.
10.3 If the Interconnection Facilities are owned by Edison, Edison shall pay ad
valorem taxes and other taxes properly attributed to said facilities. If
such taxes are assessed or levied against Seller, Edison shall pay
Seller for such assessment or levy.
10.4 Seller or Edison shall provide information concerning the Project to any
requesting taxing authority.
11. TERMINATION
This Contract shall terminate if Firm Operation does not occur within
5 years of the date of Contract execution.
12. SALE OF GENERATING FACILITY
12.1 If Seller desires to sell the Generating Facility, Seller shall promptly
offer to Edison, or any entity designated by Edison in its sole
discretion, the right to purchase the Generating Facility. Edison, or any
such entity designated by Edison, shall have up to sixty days
following the offer to accept Seller's offer or reach agreement with
Seller.
12.2 If the Parties are unable to reach a satisfactory agreement within sixty
days following the offer pursuant to Section 12.1, and the Generating
Facility is offered to any third party or parties, Edison, or any such
entity designated by Edison, has the right
43
<PAGE>
for thirty days following each offer to agree to purchase the Generating
Facility under the same terms and conditions, if such terms and conditions
are better to Edison than those offered in Section 12.1. Any offer to sell
made more than two years after Edison's failure to accept a previous offer
to sell under Section 12.1, shall again be subject to the terms of
Sections 12.1 and 12.2.
12.3 Notwithstanding the foregoing, Seller shall have the right at any time to
sell or transfer the Generating Facility to an affiliate of Seller without
giving rise to any right of first refusal of Edison. An "affiliate" of
Seller shall mean a Party's parent, a Party's subsidiary, or any
company of which a Party's parent is a parent. A "parent" shall mean a
company which owns directly or indirectly not less than 51% of the shares
entitled to vote in a election of directors of another company.
13. ABANDONMENT OF PROJECT
13.1 The Generating Facility shall be deemed to be abandoned if Seller
discontinues operation of the Generating Facility with the intent that
such discontinuation be permanent. Such intent shall be conclusively
presumed by either (i) Seller's notice to Edison of such intent, or (ii)
Seller's operation of the Generating Facility in such a manner that
no Energy is generated therefrom for 200 consecutive
44
<PAGE>
days during any period after Firm Operation of the first generating unit,
unless otherwise agreed to in writing by the Parties. If the Project is
prevented from generating Energy due to an Uncontrollable Force, then such
period shall be extended for the duration of the Uncontrollable
Force, not to exceed one year.
13.2 If Seller abandons the Generating Facility during the term of this
Agreement, Edison, or any entity designated by Edison in its sole
discretion, shall have the right to purchase the Generating Facility
pursuant to the provisions of Section 12.
14. LIABILITY
14.1 Each Party (First Party) releases the other Party (Second Party), its
directors, officers, employees and agents from any loss, damage, claim,
cost, charge, or expense of any kind or nature (including any direct,
indirect or consequential loss, damage, claim, cost, charge, or
expense), including attorney's fees and other costs of litigation,
incurred by the First Party in connection with damage to property of the
First Party caused by or arising out of the Second Party's construction,
engineering, repair, supervision, inspection, testing, protection,
operation, maintenance, replacement, reconstruction, use or ownership of
it facilities, to the extent that such loss, damage, claim, cost, charge,
or expense is
45
<PAGE>
caused by the negligence of Second Party, its directors, officers,
employees, agents, or any person or entity whose negligence would be
imputed to Second Party.
14.2 Each Party shall indemnify and hold harmless the other Party, its
directors, officers, and employees or agents from and against any loss,
damage, claim, cost, charge, or expense of any kind or nature (including
direct, indirect or consequential loss, damage, claim, cost, charge, or
expense), including attorney's fees and other costs of litigation,
incurred by the other Party in connection with the injury to or death of
any person or damage to property of a third party arising out of the
indemnifying Party's construction, engineering, repair, supervision,
inspection, testing, protection, operation, maintenance, replacement,
reconstruction, use, or ownership of its facilities, to the extent that
such loss, damage, claim, cost, charge, or expense is caused by the
negligence of the indemnifying Party, its directors, officers,
employees, agents, or any person or entity whose negligence would be
imputed to the indemnifying Party; provided, however, that each Party
shall be solely responsible for and shall bear all cost of claims brought
by its contractors or its own employees and shall indemnify and hold
harmless the
46
<PAGE>
other Party for any such costs including costs arising out of any
workers compensation law. Seller releases and shall defend and indemnify
Edison from, any claim, cost, loss, damage, or liability arising from
any contrary representation concerning the effect of Edison's review of
the design, construction, operation, or maintenance of the Project.
14.3 The provisions of this Section 14 shall not be construed so as to
relieve any insurer of its obligations to pay any insurance claims in
accordance with the provisions of any valid insurance policy.
14.4 Neither Party shall be indemnified by the other Party under Section 14.2
for its liability or loss resulting from its sole negligence or willful
misconduct.
15. INSURANCE
15.1 Until Contract is terminated, Seller shall obtain and maintain in force
as hereinafter provided comprehensive general liability insurance,
including contractual liability coverage, with a combined single limit
of not less than $1,000,000 for each occurrence. The insurance
carrier or carriers and form of policy shall be subject to review and
approval by Edison.
15.2 Prior to the date Seller's Generating Facility first delivers electrical
energy to the Point of
47
<PAGE>
Interconnection, Seller shall (i) furnish certificate of insurance to
Edison, which certificate shall provide that such insurance shall not be
terminated nor expire except on thirty days prior written notice to
Edison, (ii) maintain such insurance in effect for so long as Seller's
Generating Facility is delivering electrical energy to the Point of
Interconnection, and (iii) furnish to Edison an additional insured
endorsement with respect to such insurance in substantially the
following form: "In consideration of the premium charged, Southern
California Edison Company (Edison) is named as additional insured
with respect to all liabilities arising out of Seller's use and
ownership of Seller's Generating Facility. "The inclusion of more than
one insured under this policy shall not operate to impair the rights of
one insured against another insured and the coverages afforded by this
policy will apply as though separate policies had been issued to
each insured. The inclusion of more than one insured will not, however,
operate to increase the limit of the carrier's liability. Edison will
not, by reason of its inclusion under this policy, incur liability to
the insurance carrier for payment of premium for this policy.
"Any other insurance carried by Edison which may be applicable shall be
deemed excess insurance and
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<PAGE>
Seller's insurance primary for all purposes despite any conflicting
provisions in Seller's policy to the contrary."
If the requirement of Section 15.2 (iii) prevents Seller from obtaining
the insurance required in Section 15.1 then upon written notification by
Seller to Edison, Section 15.2 (iii) shall be waived.
15.3 If Seller fails to comply with the provisions of this Section 15, Seller
shall, at its own cost, defend, indemnify, and hold harmless Edison, its
directors, officers, employees, agents, assigns, and successors in
interest from and against any and all loss, damage, claim, cost, charge,
or expense of any kind or nature (including direct, indirect or
consequential loss, damage, claim, cost, charge, or expense, including
attorney's fees and other costs of litigation) resulting from the death
or injury to any person or damage to any property, including
the personnel and property of Edison, to the extent that Edison would
have been protected had Seller complied with all of the provisions of
this Section 15.
16. UNCONTROLLABLE FORCES
16.1 Neither Party shall be considered to be in default in the performance of
any of the agreements contained in this Contract, except for obligations
to pay money, when and to the extent failure of performance shall be
caused by an Uncontrollable Force.
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16.2 If either Party because of an Uncontrollable Force is rendered wholly or
partly unable to perform its obligations under this Contract, the Party
shall be excused from whatever performance is affected by the
Uncontrollable Force to the extent so affected provided that:
(1) the non-performing Party, within two weeks after the occurrence of
the Uncontrollable Force, gives the other Party written notice
describing the particulars of the occurrence,
(2) the suspension of performance is of no greater scope and of
no longer duration than is required by the Uncontrollable Force,
(3) the non-performing Party uses its best efforts to remedy its
inability to perform (this subsection shall not require the
settlement of any strike, walkout, lockout or other labor dispute
on terms which, in the sole judgment of the Party involved in the
dispute, are contrary to its interest. It is understood and agreed
that the settlement of strikes, walkouts, lockouts or other labor
disputes shall be at the sole discretion of the Party having the
difficulty),
(4) when the non-performing Party is able to resume performance
of its obligations under this Contract, that Party shall give the
other Party written notice to that effect, and
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<PAGE>
(5) capacity payments during such periods of Uncontrollable Force on
Seller's party shall be governed by Section 8.1.2.3.
16.3 In the event that either Party's ability to perform cannot be corrected
when the Uncontrollable Force is caused by the actions or inactions of
legislative, judicial or regulatory agencies or other proper authority,
this Contract may be amended to comply with the legal or regulatory
change which caused the nonperformance. If a loss of Qualifying Facility
status occurs due to an Uncontrollable Force and Seller fails to make
the changes necessary to maintain its Qualifying Facility status, the
Seller shall compensate Edison for any economic detriment incurred by
Edison as a result of such failure.
16.4 The Interconnecting Utility's facilities used in delivering the
electrical energy from the Point of Interconnection shall be covered by
the provisions of this Section 16.
17. NON-DEDICATION OF FACILITIES
Neither Party, by this Contract, dedicates any part of its faci1ities
involved in this Project to the public or to the service provided
under the Contract, and such service shall cease upon termination of
the Contract.
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18. PRIORITY OF DOCUMENTS
If there is a conflict between this document and any Appendix, the
provisions of this document shall govern. Each Party shall notify the
other immediately upon the determination of the existence of any such
conflict.
19. NOTICES AND CORRESPONDENCE
All notices and correspondence pertaining to this Contract shall be
in writing and shall be sufficient if delivered in person or sent by
certified mail, postage prepaid, return receipt requested, to Seller
as specified in Section 1.1, or to Edison as follows:
Southern California Edison Company
Post Office Box 800
Rosemead, California 91770
Attention: Secretary
All notices sent pursuant to this Section 19 shall be effective when
received, and each Party shall be entitled to specify as its proper
address any other address in the United States upon written notice to
the other Party.
20. PREVIOUS COMMUNICATIONS
This Contract contains the entire agreement and understanding between
the Parties, their agents, and employees as to the subject matter of
this contract, and merges and supersedes all prior agreements,
commitments, representations, and discussions between the Parties. No
Party shall be bound to any other obligations, conditions, or
representations with respect to the subject matter of this Contract.
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21. THIRD PARTY BENEFICIARIES
This Contract is for the sole benefit of the Parties and shall not be
construed as granting any rights to any person or entity other than
the Parties or imposing obligations on either Party to any person or
entity other than the Parties.
22. NON-WAIVER
None of the provisions of the Contract shall be considered waived by
either Party except when such waiver is given in writing. The failure
of either Edison or Seller to insist on any one or more instances
upon strict performance of any of the provisions of the Contract or
to take advantage of any of its rights hereunder shall not be
construed as a waiver of any such provisions or the relinquishment of
any such rights for the future, but the same shall continue to remain
in full force and effect.
23. DISPUTES
23.1 Any dispute arising between the Parties relating to interpretation of
the provisions of this Contract or to performance of the Parties
hereunder, other than matters which may not be settled without the
consent of an involved insurance company, shall be reduced to writing
stating the complaint and proposed solution and submitted to the
appropriate Edison manager, whose interpretation and decision thereon
shall be incorporated into a written document which shall specify
Edison's position and that it is the final decision of such manager. A
copy of such document
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<PAGE>
shall be furnished to Seller within ten days following the receipt of
Seller's written complaint.
23.2 The decision of such manager pursuant to Section 23.1 shall be final and
conclusive from the date of receipt of such copy by the complaining
Party, unless within thirty days Seller furnishes a written appeal to
such manager. Following receipt of such appeal, a joint hearing shall be
held within fifteen days of said appeal, at which time the Parties shall
each be afforded an opportunity to present evidence in support of their
respective positions. Such joint hearing shall be conducted by one
authorized representative of Seller and one authorized representative
of Edison and other necessary persons. Pending final decision of a
dispute hereunder, the Parties shall proceed diligently with the
performance of their obligations under this Contract and in accordance
with Edison's position pursuant to Section 23.1.
23.3 The final decision by the Parties' authorized representatives shall be
made within fifteen days after presentation of all evidence affecting
the dispute, and shall be reduced to writing. The decision shall be
final and conclusive.
23.4 If the authorized representatives cannot reach a final decision within
the fifteen-day period, any remedies which are provided by law may be
pursued.
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24. SUCCESSORS AND ASSIGNS
Neither Party shall voluntarily assign its rights nor delegate its
duties under this Contract, or any part of such rights or duties,
without the written consent of the other Party, except in connection
with the sale or merger of a substantial portion of its properties.
Any such assignment or delegation made without such written consent
shall be null and void. Consent for assignment shall not be withheld
unreasonably. Such assignment shall include, unless otherwise
specified therein, all of Seller's rights to any refunds which might
become due under this Contract. Seller may assign all or any part of
its interest under this Contract to a financing institution to
facilitate financing for the Project by the Seller.
25. EFFECT OF SECTION HEADINGS
Section headings appearing in this Agreement are inserted for
convenience only, and shall not be construed as interpretations of
text.
26. TRANSMISSION
26.1 Edison shall use its best efforts to contract with third parties in
order to secure the least expensive transmission path(s) or
arrangement(s) for the transmission of the electric energy from the
Project to the Point of Interconnection. Edison shall be responsible
for all costs associated with such transmission of electric energy from
the Project to the Point of Interconnection.
55
<PAGE>
26.2 If Edison, using its best efforts, is unable to secure firm transmission
service or equivalent arrangements from third parties which are required
to transmit the electric energy from the Project to the Point of
Interconnection, then Edison shall not be liable to the Seller for any
damages arising from Edison's failure to secure said transmission
service or arrangements nor will Edison be required to purchase electric
energy which is not delivered or capacity which is not made available at
the Point of Interconnection.
26.3 Transmission Account
26.3.1 A Transmission Account ("Account") will be established to
offset, as necessary, transmission service costs which Edison
might incur as a result of the Project's failure to achieve a
Monthly Capacity Factor of 80%.
26.3.2 Transmission Surcharges ("Surcharge") will be placed into the
Account. The Surcharge will be 1% of the Energy and capacity
payments as specified in Section 8. The Surcharge will start on
the date of initial delivery and will continue until the Account
balance is $25,000 including Surcharge and interest, if
applicable. When the Account balance reaches $25,000, the
Surcharge will be curtailed and
56
<PAGE>
interest on the Account, if any, will be paid to the Seller.
26.3.3 Transmission Deductions ("Deductions") will be made when the
Project's Monthly Capacity Factor drops below 80%. The
Deductions will be payed to Edison to offset specific Project
related transmission service costs which Edison has incurred as
a direct result of the Project's failure to achieve the 80%
Monthly Capacity Factor. The procedure for calculating the
Deductions will be prepared by Edison's Operating
Representative and reviewed by the Seller's Operating
Representative prior to the date of initial delivery. This
procedure may be modified from time to time, as necessary.
26.3.4 The Surcharge will be in effect at any time during the Contract
Term when the Account balance drops below $25,000.
26.3.5 In the event that the Deductions exceed the Account balance, the
remaining unpaid Deductions shall be paid by the Seller to
Edison within 30 calendar days of the Seller's receipt of
Edison's notice to pay said unpaid Deductions. If an Account
balance exists at the date the Contract terminated, then said
balance shall be paid
57
<PAGE>
to the Seller within 30 calendar days of termination.
27. AMENDMENT
If at any time during the term of this Agreement a change in
circumstances not anticipated at the time this Agreement was executed
significantly alters the rights or obligations of either Party, the
terms of the Agreement which are directly affected by the change
shall be amended by mutual agreement of Parties.
28. GOVERNING LAW
This Contract shall be interpreted, governed, and construed under the
laws of the State of California as if executed and to be performed
wholly within the State of California.
29. CONFIDENTIALITY
29.1 Except as provided herein, the Parties shall hold all information
related to or received pursuant to this Contract as confidential.
29.2 Except as provided in Section 29.3, neither Party shall disclose any
part nor the whole of this Contract to any third Party without the
express written consent of the other Party; such consent shall not be
unreasonably withheld.
29.3 From time to time governmental and/or regulatory agencies may request
disclosure of the Contract or Contract-related information from either
Party or both Parties and if such is the case either Party or both
Parties may consent to such disclosure provided
58
<PAGE>
that (i) the requestor(s) be notified by the disclosing Party that the
information being released is confidential and that (ii) the disclosing
Party inform the other Party, in writing, as to the nature of the
information disclosed and to whom disclosed.
30. MULTIPLE ORIGINALS
This Contract is executed in two counterparts, each of which shall be
deemed an original.
SIGNATURES
IN WITNESS WHEREOF, the Parties hereto have executed this Contract
this 22nd of February, 1984.
SOUTHERN CALIFORNIA EDISON COMPANY
By: /s/ Edward A. Myers, Jr.
----------------------------
Name: Edward A. Myers, Jr.
--------------------
Title: Vice President
--------------------
IMPERIAL ENERGY CORPORATION
By: /s/ Michael B. Malvin
-----------------------------
Name: Michael B. Malvin
---------------------
Title: President
--------------------
59
<PAGE>
APPENDIX A
SOUTHERN CALIFORNIA EDISON COMPANY
LONG-TERM STANDARD OFFER
CAPACITY PAYMENT SCHEDULE -
FORECAST OF ANNUAL AS-AVAILABLE CAPACITY
Line As Available Capacity2
No. Year (S/kW-year)
- --------------------------------------------------------------------------
1 1983 70
2 1984 76
3 1985 81
4 1986 87
5 1987 94
6 1988 101
7 1989 109
8 1990 117
9 1991 126
10 1992 148
11 1993 158
12 1994 169
13 1995 180
14 1996 194
15 1997 206
- ----------
1 This forecast to be used in conjunction with Capacity Payment Option A.
2 The annual as-available capacity (S/kW-yr) will be converted to a
seasonal time-of-delivery ((cent)/kWh) value that is consistent with
as-available time-of-delivery rates current authorized by the
Commission for Avoided As-Available Capacity.
A-1
<PAGE>
APPENDIX B
SOUTHERN CALIFORNIA EDISON COMPANY
LONG-TERM STANDARD OFFER
ENERGY PAYMENT SCHEDULE -
FORECAST OF ANNUAL MARGINAL COST OF ENERGY1
Line Annual Marginal Cost of Energy2
No. Year ((cent)/kWh)
--------------------------------------------------------------------------
1 1983 5.3
2 1984 5.6
3 1985 5.7
4 1986 6.0
5 1987 6.4
6 1988 6.9
7 1989 7.6
8 1990 8.1
9 1991 8.6
10 1992 9.3
11 1993 10.1
12 1994 10.9
13 1995 11.8
14 1996 12.6
15 1997 13.6
- ----------
1 This forecast to be used in conjunction with Energy Payment Option 1.
2 The annual energy payments in the table will be converted to seasonal
time-of-delivery energy-payment rates that are consistent with the
time-of-delivery rates currently authorized by the Commission for
Avoided Energy Cost Payments.
B-1
<PAGE>
APPENDIX C
SOUTHERN CALIFORNIA EDISON COMPANY
LONG-TERM STANDARD OFFER
ENERGY PAYMENT SCHEDULE -
LEVELIZED FORECAST OF MARGINAL COST OF ENERGY(1)
5-Year
Initial Levelized Levelized
Line Year of Forecast Forecast
No. Delivery ((cent)/kWh) ((cent)/KWh)
- --------------------------------------------------------------------
1 1983 5.7 6.5
2 1984 6.0 6.9
3 1985 6.4 7.3
4 1986 6.8 7.9
5 1987 7.3 8.5
6 1988 7.9 9.1
- ----------
1 Levelized Forecast to be used in conjunction with Energy Payment
Option 2.
2 The annual energy payments in the table will be converted to
seasonal time-of-delivery energy payment rates that are consistent
with the time-of-delivery rates currently authorized by the
Commission for Avoided Energy Cost Payments.
C-1
<PAGE>
AMENDMENT NO. 1
TO
POWER PURCHASE CONTRACT
BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY
AND
IMPERIAL ENERGY CORPORATION
<PAGE>
AMENDMENT NO. 1 TO
POWER PURCHASE CONTRACT BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY AND
IMPERIAL ENERGY CORPORATION
1. Parties
The Parties to this Amendment No. 1 to the Power Purchase Contract
between Southern California Edison Company and Imperial Energy
Corporation, executed on February 22, 1984, hereinafter referred to
as "Amendment No. 1", are Imperial Energy Corporation, a California
corporation, hereinafter referred to as "Seller", and Southern
California Edison Company, a California corporation, hereinafter
referred to as "Edison", hereinafter sometimes referred to
individually as "Party" and collectively as "Parties".
2. Recitals
2.1 On February 22, 1984, Edison and Seller of executed the
Power Purchase Contract to provide the terms and conditions
for the sale by Seller and purchase by Edison of electrical
power delivered by Seller to Edison at the Point of
Interconnection from Seller's "Salton Sea Unit 1" generating
facility, located at Niland, California.
2.2 The Parties desire to amend the Power Purchase Contract to
modify the terms of: (i) Payments for Energy; (ii) Contract
Capacity of the Generating Facility; (iii) Successors and
Assigns; and (iv) Transmission.
1
<PAGE>
3. Agreement
The Parties agree to the following:
4. Effective Date
This Amendment No. 1 shall become effective upon execution by the
Parties.
5. Amendment to Section 8.1.2.6
Add the designation "a." to the existing paragraph, and add the
following paragraph "b":
b. Edison consents to the Seller increasing the
Contract Capacity from the amount
specified in Section 1.3 to any amount up
to 14,000 kW provided that:
(i) The Seller provides a written notice to
Edison at least 12 months prior to
the proposed increase in the Contract
Capacity;
(ii) The Date of Firm Operation for the
proposed increased Contract Capacity
shall occur no later than five years
after the date of Contract execution;
and
(iii) The 230 kV interconnection between the
Edison and Imperial Irrigation District
electric systems has been completed and
is in service prior to the Date of Firm
Operation for the proposed increased
Contract Capacity."
2
<PAGE>
6. Amendment to Section 8.2.1:
6.1 The formula for calculating the Monthly Energy Payment is
deleted in its entirety and replaced
with the following:
"Monthly Energy Payment = ( (AxD)+(BxD)+(CxD) ) x E"
6.2 The definition of "F" is deleted in its entirety.
7. Amendment to Section 8.2.2
7.1 The formula for calculating the Monthly Energy Payment is
deleted in its entirety and replaced
with the following:
"Monthly Energy Payment = ( (AxD)+(BxD)+(CxD) ) x E"
7.2 The definition of "F" is deleted in entirety.
8. Amendment to Section 24
8.1 The first sentence in Section 24 is deleted in its entirety
and replaced with the following: "Neither Party shall
voluntary assign its rights nor delegate its duties under
this Contract, or any part of such rights or duties, without
the written consent of the other party, except in connection
with the sale, exchange or merger of a substantial portion
of its properties."
8.2 The last sentence in Section 24 is deleted in its entirety
and replaced with the following: "Notwithstanding the
foregoing, (i) Seller may assign all or part of its interest
under this Contract to a financial institution to facilitate
financing for the Project by the Seller, and (ii) Seller may
assign its
3
<PAGE>
interest under this Contract to a partnership of
which Seller, or its permitted successor or assign, is the
general partner, provided that the assignee assumes all of
Seller's obligations hereunder and that no such assignment
shall relieve Seller of any such obligation."
9. Amendment to Section 26
Add the following to Section 26:
26.4 In the event the Contract Capacity specified in
Section 1.3 is increased pursuant to the provisions
of Section 8.1.2.6(b), Edison shall have the option
to select the transmission plan described in either
Section 26.4.l or Section 26.4.2. Edison shall
notify the Seller in writing of its selection under
this Section 26.4 at least three (3) months prior
to date of Firm Operation.
26.4.1 Transmission Option 1
If Edison selects the transmission
option specified in this Section
26.4.1, the transmission
arrangements associated with the
transmission of the electrical
energy from the Project to the
Point of Interconnection shall be
pursuant to the provisions of
Sections 26.1, 26.2, and 26.3.
4
<PAGE>
26.4.2 Transmission Option 2
If Edison selects the transmission
option specified in this Section
26.4.2, then:
26.4.2.1 Edison shall endeavor to make
arrangements with Interconnecting
Utilities for the necessary
transmission of the electrical
energy from the Project to the Point
of Interconnection. Seller
shall be responsible for all costs
associated with such transmission of
electrical energy, commencing on the
date of Firm Operation of the
proposed increased Contract
Capacity, as described in Section
8.1.2.6(b), including the costs of
transmission losses from the Project
to the Point of Interconnection as
provided for in the transmission
arrangements between Edison and the
Interconnecting Utilities.
5
<PAGE>
26.4.2.2 If Edison is unable to secure
satisfactory firm transmission
service or equivalent
arrangements from Interconnecting
Utilities which are required to
transmit the electrical energy from
the Project to the Point of
Interconnection, at terms and
conditions satisfactory to Edison,
in its sole judgement, then Edison
shall not be liable to the
Seller for any damages arising
from Edison's failure to secure said
transmission service or arrangements
nor will Edison be required to
purchase Energy which is not
delivered or capacity which
is not made available at the Point
of Interconnection.
26.4.2.3 Commencing on the date of Firm
Operation of the proposed increased
Contract Capacity, as described in
Section 8.1.2.6(b), and extending
6
<PAGE>
through the Contract Term, the
payments specified in Sections
8, 8.1, 8.2, and 8.3 shall be made
at 100% of their calculated
value instead of the 90% of their
calculated value as otherwise
required by those Sections.
26.4.2.4 Commencing on the date of Firm
Operation of the proposed
increased Contract Capacity,
Sections 26.1, 26.2, and 26.3
shall be inoperative.
26.4.2.5 Edison shall pay to Seller,
within 30 calendar days after the
date of Firm Operation of the
proposed increased Contract
Capacity, the balance remaining in
the Transmission Account established
under Section 26.3.
26.4.2.6 Edison shall prepare and mail
a bill to Seller for the
transmission costs, as provided for
in Section 26.4.2.1, within 30 days
of the end of each month. Seller
7
<PAGE>
shall pay such bills within 20
calendar days of the receipt of
said bill."
10. Effect of this Amendment No. 1
Except as amended herein, all terms, covenants, and conditions
contained in the Power Purchase Contract shall remain in full force and
effect.
11. Signature Clause
The signatories hereto represent that they have been appropriately
authorized to enter into this Amendment No. 1 on behalf of the Party
for whom they sign. This Amendment No. 1 is hereby executed as of
this 13th day of November, 1984.
SOUTHERN CALIFORNIA EDISON COMPANY
By /s/ Edward A. Myers, Jr.
________________________________
Edward A. Myers, Jr.
Vice President
IMPERIAL ENERGY CORPORATION
By /s/ Michael B. Malvin
________________________________
Michael B. Malvin
President
8
<PAGE>
AMENDMENT NO. 2
TO
POWER PURCHASE CONTRACT
BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY
AND
MAGMA POWER COMPANY
<PAGE>
AMENDMENT NO. 2 TO
POWER PURCHASE CONTRACT BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY AND
MAGMA POWER COMPANY
1. Parties
The Parties to this Amendment No. 2 to the Power Purchase Contract
between Southern California Edison Company and Imperial Energy
Corporation, executed on February 22, 1984 ("Power Purchase
Contract"), hereinafter referred to as "Amendment No. 2", are
Southern California Edison Company, a California corporation,
hereinafter referred to as "Edison", and Magma Power Company, a
Nevada corporation, hereinafter referred to as "Seller", hereinafter
sometimes referred to individually as "Party" and collectively as
"Parties".
2. Recitals
This Amendment No. 2 is made with reference to the following facts,
among others:
2.1 On February 22, 1984, Edison and Imperial Energy Corporation
("Imperial") executed the Power Purchase Contract to provide
the terms and conditions for the sale by Imperial and the
purchase by Edison of electrical power delivered by Imperial
to Edison at the Point of Interconnection from the 1,000 kW
electrical generating facility located at Niland,
California.
2.2 On June 15, 1984, Edison and Magma Electric Company executed
a Power Purchase Contract, which was amended on November 30,
1984 ("Magma Electric Contract").
1
<PAGE>
2.3 On November 13, 1984, Edison and Imperial amended the Power
Purchase Contract to modify the terms of: (i) Payments for
Energy, (ii) Contract Capacity of the Generating Facility,
(iii) Successors and Assigns, and (iv) Transmission.
2.4 On January 22, 1986, Seller acquired an option to purchase
the geothermal leaseholds described in and pursuant to the
terms and conditions contained in the Option to Acquire
Adjacent Geothermal Leasehold ("Option") among Seller,
Imperial, Niland Power, Inc., and Salton Sea Associates.
2.5 On January 22, 1986, in conjunction with the Option,
Imperial assigned to Seller its rights, title and interest
in the Power Purchase Contract. Edison consented to said
assignment on March 12, 1986.
2.6 On January 22, 1986, in conjunction with the Option, Niland
Power, Inc. assigned to Seller its rights, title and
interest in the Power Purchase Contract between Edison and
Imperial, dated April 16, 1985 which it acquired from
Imperial on September 9, 1985 ("Imperial II Contract").
Edison consented to said assignment on March 12, 1986.
2.7 On February 10, 1986, Vulcan/BN Geothermal Power Company, of
which Seller's affiliate is a partner, declared its 29,500
kW geothermal project at Niland in firm operation. Based on
the successful development of its first project at Niland,
Seller has concluded that
2
<PAGE>
its succeeding projects should be duplicates of that project.
2.8 On March 14, 1986, Imperial, Niland Power, Inc., and Salton
Sea Associates assigned to Seller their rights, title and
interest in those geothermal leaseholds described in and
pursuant to the terms and conditions contained in the
Option.
2.9 The aforementioned Power Purchase Contracts provide for
projects which will all be constructed and operated on
contiguous sites.
2.10 Concurrent with this Amendment No. 2, Edison, Seller and
Magma Electric Company have agreed to amend the Magma
Electric Contract and the Imperial II Contract to
effectively transfer Capacity to be purchased by Edison from
the Magma Electric Contract and the Imperial II Contract to
the Power Purchase Contract to account for the increase in
the Capacity to be produced under the Power Purchase
Contract.
2.11 Seller, based on the aforementioned facts, desires to amend
the Power Purchase Contract to reflect a change in the
rating of the Seller's Generating Facility.
3. Agreement
The Parties agree to the following.
4. Effective Date
This Amendment No. 2 shall become effective upon execution by the
Parties.
3
<PAGE>
5. Amendment to Section 1.1
Section 1.1 is deleted in its entirety and replaced with the
following:
"1.1 All notices shall be sent to Seller at the following
address.
Magma Power Company
P.O. Box 17760
Los Angeles, California 90017
Attention: President"
6. Amendment to Section 1.2
6.1 Subparagraph a of Section 1.2 is deleted in its entirety and
replaced with the following:
"a. Nameplate Rating: 38,000 kW."
6.2 Add the following subparagraph "d":
"d. Generating Facility Designation: Niland No. 2."
7. Amendment to Section 1.3
Section 1.3 is deleted in its entirety and replaced with the
following:
"Contract Capacity: 34,000 kW
1.3.1 Estimated as-available capacity: 4,000 kW."
8. Amendment to Section 1.4
Section 1.4 is deleted in its entirety and replaced with the following:
"Expected annual production: 238,272,000 kWh."
9. Amendment to Section 1.5
Section 1.5 is deleted in its entirety and replaced with the following:
"Expected Date of Firm Operation: January 1, 1989."
4
<PAGE>
10. Amendment to Section 1.6
Section 1.6 is deleted in its entirety and replaced with the following:
"Contract Term: 30 years."
11. Amendment to Section 1.8
Section 1.8, Option B, subparagraphs a and b, are deleted in their
entirety and replaced with the following:
X Standard Offer No. 2 Capacity Payment
----- Schedule in effect at time of contract
execution.
_____ Standard Offer No. 2 Capacity Payment
Schedule in effect at time of Firm
Operation."
12. Amendment to Section 1.9
The last paragraph in Section 1.9 is deleted in its entirety and
replaced with the following:
"100 percent of Forecast of Annual Marginal Cost of Energy, and
0 percent of Edison's published avoided cost of energy as
updated periodically and accepted by the Commission."
13. Amendment to Section 8
Section 8 is deleted in its entirety and replaced with the following:
"Prior to the date of Firm Operation, Seller shall be paid for Energy
only pursuant to Edison's published avoided cost of energy based on
Edison's full avoided operating cost as periodically updated and
accepted by the Commission. If at any time electrical energy can be
delivered to Edison and Seller is contesting the claimed jurisdiction
of any entity which has not issued a license or other approval for
the Project, Seller, in its sole discretion and risk, may deliver
electrical energy to Edison and for any electrical energy purchased
by Edison, Seller shall receive payment from Edison for (i) Energy
pursuant to this Section, and (ii) as-available capacity based on a
capacity price from the Standard Offer No. 1 Capacity Payment
Schedule as approved by the Commission. Unless and until all required
5
<PAGE>
licenses and approvals have been obtained, Seller may discontinue
deliveries at any time."
14. Amendment to Section 8.1
The first two sentences in Section 8.1 are deleted in their entirety
and replaced with the following:
"Seller shall sell to Edison and Edison shall purchase from Seller
capacity pursuant to the Capacity Payment Option selected by Seller
in Section 1.8. The Capacity Payment Schedules will be based on
Edison's full avoided operating costs as approved by the Commission
throughout the life of this Contract."
15. Amendment to Section 8.1.2.6
Subparagraph b is deleted in its entirety.
16. Amendment to Section 8.2
The first sentence in Section 8.2 is deleted in its entirety and
replaced with the following:
"During the First Period of the Contract Term, Seller shall be paid a
Monthly Energy Payment for the Energy delivered by the Seller and
purchased by Edison at the Point of Interconnection pursuant to the
Energy Payment Option selected by the Seller in Section 1.9, as
follows."
17. Amendment to Section 8.3
The first sentence in Section 8.3 is deleted in its entirety and
replaced with the following:
"During the Second Period of the Contract Term, Seller shall be paid
a Monthly Energy Payment for Energy delivered by Seller and purchased
by Edison at the Point of Interconnection at a rate equal to 100% of
Edison's published avoided cost of energy as updated periodically and
accepted by the Commission, pursuant to the following formula:"
18. Amendment to Section 26
Section 26 is deleted in its entirety and replaced with the
following:
6
<PAGE>
"Seller shall be solely responsible, using all reasonable efforts, to
negotiate and conclude all required transmission and interconnection
agreements with the Interconnecting Utility. Such agreements shall
provide for the transmission of electrical energy generated by the
Generating Facility to the Point of Interconnection."
19. Effect of this Amendment No. 2
Except as amended herein, all terms and conditions contained in the
Power Purchase Contract shall remain in full force and effect.
20. Signature Clause
The signatories hereto represent that they have been appropriately
authorized to enter into this Amendment No. 2 on the behalf of the
Party for whom they sign. This Amendment No. 2 is hereby executed
as of this 10th day of April, 1986.
SOUTHERN CALIFORNIA EDISON COMPANY
By: /s/ Edward A. Myers, Jr.
______________________________
Edward A. Myers, Jr.
Vice President
MAGMA POWER COMPANY
By: /s/ Andrew W. Hoch
______________________________
Andrew W. Hoch
President
EXHIBIT 10.42
TRANSMISSION SERVICE AGREEMENT
FOR THE
DEL RANCH POWER PLANT
BETWEEN
IMPERIAL IRRIGATION DISTRICT
AND
DEL RANCH, LTD.
<PAGE>
TABLE OF CONTENTS
Section Title Page
1 PARTIES.................................................1
2 RECITALS................................................1
3 AGREEMENT...............................................1
4 DEFINITIONS.............................................1
5 TERM....................................................4
6 TRANSMISSION SERVICE....................................4
7 TRANSMISSION LOSSES....................................10
8 CHARGES................................................11
9 BILLING AND PAYMENT....................................12
10 LIABILITY..............................................14
11 AUDITING...............................................16
12 AUTHORIZED REPRESENTATIVES.............................17
13 NO DEDICATION OF FACILITIES............................17
14 NON-WAIVER.............................................17
15 NO THIRD PARTY RIGHTS..................................18
16 UNCONTROLLABLE FORCES..................................18
17 ASSIGNMENTS............................................19
18 GOVERNING LAW..........................................20
19 NOTICES................................................20
20 SIGNATURE CLAUSE.......................................21
EXHIBIT I - DEVELOPMENTS AND METHODOLOGIES FOR TRANSMISSION
SERVICE CHARGES AND SCHEDULING FEE
EXHIBIT II - TRANSMISSION SERVICE FOR DEL RANCH, LTD.
(i)
<PAGE>
1. PARTIES: The Parties to this Agreement are
Imperial Irrigation District, organized under the Water Code of
the State of California ("IID"), and Del Ranch, Ltd.
("Producer"), hereinafter sometimes referred to individually as
"Party," and collectively as "Parties."
2. RECITALS: This Agreement is made with reference
to the following facts, among others:
2.1 Producer has caused to be constructed or intends to construct
an alternative energy resource facility located in IID's service area.
2.2 Producer and IID have entered into a Plant
Connection Agreement.
2.3 Producer desires to purchase, and IID desires to sell firm
transmission service of power from the Plant to Edison's Mirage Substation
subject to the terms and conditions specified herein.
2.4 Producer and IID are parties to that certain Funding and
Construction Agreement dated June 29, 1987, providing for the funding and
construction of transmission lines within
IID's service area.
3. AGREEMENT: The Parties agree as follows:
4. DEFINITIONS: The following terms, when used
herein with initial capitalization, whether in the singular or plural, shall
have the meanings specified:
4.1 Agreement: This IID - Producer Transmission
Service Agreement for Alternative Resources between Del Ranch,
Ltd. and IID, and all Exhibits attached hereto, as such Agreement
<PAGE>
may subsequently be amended for firm transmission service between each Plant
and Edison's Mirage Substation.
4.2 Authorized Representative: The representative of
a party designated in accordance with Section 12.
4.3 Date of Initial Service: The date when the output
from each Plant is first available for delivery to Edison, as
notified to IID pursuant to Section 5.2.
4.4 Edison: Southern California Edison Company.
4.5 Funding and Construction Agreement: An agreement entered into
by IID and others dated June 29, 1987, providing for the funding and
construction of the Heber-Mirage Transmission Project, to which a form of this
agreement is attached as Exhibit III.
4.6 Maximum Transmission Service Entitlement: The
Maximum Transmission Service Entitlement for each Plant, as specified in
Exhibit[s] II, Transmission Service, and in any subsequent Plant Amendments.
4.7 Normal Transmission Capacity: The maximum transfer capability,
expressed in megawatts (MW), from the Point of Receipt to the Point of
Delivery. Such transfer capability, as determined by IID, in its sole
judgment, shall be consistent with prudent operating procedures and with
generally-accepted engineering and operating practices in the electrical
utility industry.
4.8 Operating Transmission Capability: The maximum
transfer capability, expressed in megawatts (MW), available to
IID at any given time to transmit power from Point of Receipt to
-2-
<PAGE>
Point of Delivery. Such transfer capability shall be as determined by IID in
its sole judgment, may vary from time-to-time depending on system conditions,
and shall be consistent with prudent operating procedures and
generally-accepted engineering and operating practices in the electrical
utility industry.
4.9 Plant: An electrical generating alternative energy resource
facility developed by Producer for which IID shall provide transmission
service, as specified in Exhibit(s) II, Transmission Service, and in any
subsequent Plant Amendments.
4.10 Plant Amendment: An agreement reached by the Parties, as an
amendment to this Agreement, for transmission service to be provided by IID
for a Plant added by Producer or for Producer's account subsequent to the
execution of this Agreement.
4.11 Plant Connection Agreement: An agreement between IID and
Producer providing for the connection of a Plant to IID's electrical system,
as specified in Exhibit[s] II, Transmission Service, and in any subsequent
Plant Amendments.
4.12 Point(s) of Delivery: The 230-kV switchrack at the Mirage
Substation site where Edison's 230-kV facilities are attached to IID's 230-kV
Coachella-Mirage Line or other points as may be mutually agreed upon by the
Authorized Representatives.
4.13 Point of Receipt: The point on the high voltage side of the
Plant's transformer where IID's metering equipment measures the delivery of
energy to the IID system.
4.14 Transmission Service Entitlement: The amount of
transmission service, expressed in megawatts (MW), provided by
-3-
<PAGE>
IID for each Plant, from the applicable Point of Receipt to the applicable
Point(s) of Delivery.
5. TERM:
5.1 Unless otherwise agreed to by the Parties, this Agreement shall
be effective on the Completion Date for the transmission lines being
constructed pursuant to the Funding and Construction Agreement, as the term
Completion Date is defined in Article I thereof, and shall remain in effect
until April 15, 2015. It is understood that if such Completion Date does not
occur, this Agreement shall be of no force or effect.
5.2 The Transmission Service Entitlement to be provided by IID for
each plant shall be contingent on a Plant Connection Agreement being in
effect. Transmission service for each Plant shall commence on the Date of
Initial Service of such Plant. Producer's Authorized Representative shall give
IID's Authorized Representative written notice of the Date of Initial Service
at least thirty (30) days before the Date of Initial Service.
6. TRANSMISSION SERVICE:
6.1 Subject to the terms of this Agreement, IID shall provide to
Producer and Producer shall purchase from IID transmission service over IID's
transmission system for each Plant. IID shall make arrangements with Edison to
provide, at Producer's or Edison's expense, for the transfer of the electrical
power to be delivered to Edison hereunder from IID's transmission system to
Edison's transmission system at the Point(s) of Delivery.
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6.2 The Transmission Service Entitlement for each Plant shall be
the Maximum Transmission Service Entitlement for such Plant specified in
Exhibit[s] II, Transmission Service, or any subsequent Plant Amendments, or
such lesser amount as may be established as follows. Beginning on the Date of
Initial Service for each Plant, Producer shall be entitled to specify a
Transmission Service Entitlement by advance written notice given to IID's
Authorized Representative at least thirty (30) days prior to the Date of
Initial Service. The Transmission Service Entitlement to be provided by IID
subsequent to the Date of Initial Service may be adjusted at six (6) month
intervals thereafter until two (2) years after the Date of Initial Service for
such Plant (the "Trial Period"). Such adjustments shall be made by having
Producer's Authorized Representative give IID's Authorized Representative a
ninety (90) day advance written notice as to the adjustment required.
Beginning two (2) years after the Date of Initial Service for such Plant,
Producer shall be entitled to specify a Transmission Service Entitlement for
each successive two-year period during the remaining term of this Agreement by
written notice from Producer's Authorized Representative to IID's Authorized
Representative given at least ninety (90) days prior to the beginning of each
two-year period.
6.3 The Transmission Service Entitlement selected by Producer for
each Plant in accordance with Section 6.2 may be any amount which is less than
or equal to the Maximum Transmission Service Entitlement for such Plant
specified in Exhibit[s] II, Transmission Service and in any subsequent Plant
Amendments,
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provided, however, that the following shall apply to each Plant after the
Trial Period for such Plant has elapsed.
6.3.1 If (i) the sum of the Transmission Service Entitlements
for all Plants which are no longer in their Trial Periods is less than the sum
of the Maximum Transmission Service Entitlements for such Plants, as shown in
Exhibit[s] II, Transmission Service and in any subsequent Plant Amendments,
(the "Aggregate Maximum Transmission Service Entitlement"), and (ii) provided
that IID requires additional capacity for transmitting electric power to
Edison's transmission system for another person (or, following the Credit
Installment Period as defined in the Funding and Construction Agreement, for
itself) and (iii) IID's use of such required capacity would be in conflict
with Producer's right as provided herein to increase the sum of the
Transmission Service Entitlements for such Plants to the Aggregate Maximum
Transmission Service Entitlement, then IID shall so notify Producer in
writing, specifying in such notice the portion, expressed in megawatts (MW),
of the excess of the Maximum Transmission Service Entitlement over the
Transmission Service Entitlement for each such Plant which it desires to use
as stated above. Producer shall have ninety (90) days after receipt of IID's
notice to notify IID in writing that it desires to increase the Transmission
Service Entitlements of such Plants. To the extent that Producer does not
elect to increase the Transmission Service Entitlement of each such Plant up
to the Maximum Transmission Service Entitlement for such Plant, IID shall be
entitled to use such unclaimed capacity to satisfy the
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transmission requirements specified in its notice to Producer, and to the
extent that IID does so, Producer shall thereafter be foreclosed from
increasing the Transmission Service Entitlement for such Plant in a manner
which would conflict with such usage by IID.
6.3.2 IID shall treat Producer and each other person who has
entered into a transmission service agreement similar in substance to this
Agreement in a fair and nondiscriminatory manner in requesting additional
transmission capacity as provided in this Section 6.3. Without limiting the
generality of the foregoing, IID shall request additional transmission
capacity from Producer and such other persons on a pro rata basis, in
proportion to the Aggregate Maximum Transmission Service Entitlement for each
person less the sum of the Transmission Service Entitlements for each of such
persons' generating plants which is no longer in a Trial Period.
6.4 In the event that the Original Capacity Nomination designated
by Producer (or the Participant associated with Producer) is adjusted pursuant
to Section 3.07 of the Funding and Construction Agreement, the Parties agree
to amend this Agreement in such a way that the sum of the Maximum Transmission
Service Entitlements for all Plants hereunder is equal to such Original
Capacity Nomination as so adjusted. As used in this Section 6.4, the terms
Original Capacity Nomination and Participant shall have the meanings assigned
to them in Article I of the Funding and Construction Agreement.
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6.5 IID reserves the right to interrupt or curtail the
transmission service provided hereunder as follows:
6.5.1 If the Operating Transmission Capability is reduced to
less than Normal Transmission Capacity from a Point of Receipt to a Point of
Delivery, and when continuity of service within IID's service area is not
being jeopardized, IID may curtail the transmission service currently being
provided from such Point of Receipt to such Point of Delivery, to an amount
"A" determined by the following formula:
A = Operating Transmission Capability x Transmission Service
Normal Transmission Capacity Entitlement
The transmission service for each Plant affected
shall be curtailed by multiplying the Transmission Service Entitlement in
accordance with Exhibit[s] II, Transmission Service and in any subsequent
Plant Amendments by the same percentage (expressed as a decimal) as used in
the determination of "A." However, any such curtailment shall occur only after
IID has made all reasonable efforts to eliminate the cause of the reduction in
Operating Transmission Capability, and IID shall then employ reasonable
efforts to eliminate expeditiously the cause of said reduction.
6.5.2 If continuity of service within IID's control area is
being jeopardized, as determined by IID in its sole judgment, IID may
interrupt or curtail the transmission service provided hereunder to the extent
necessary to avoid or eliminate such jeopardy; provided that (i) such
interruptions or curtailments may be made so that IID may fully utilize all
generating resources owned by it or available to it under
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contract in order to avoid damage to IID's electrical system caused by
overloading, (ii) such interruption or curtailment shall occur only after IID
has made all reasonable efforts to avoid or eliminate such jeopardy and (iii)
to the extent feasible any curtailment of transmission service provided
hereunder from a Point of Receipt to a Point of Delivery shall be made in
accordance with the formula set forth in Section 6.5.1.
6.6 If IID's efforts do not avoid or eliminate such jeopardy, the
Parties shall endeavor to develop some other arrangement to avoid or eliminate
such jeopardy and minimize the effects of IID's interruption or curtailment on
both parties.
6.7 In the event of any curtailments or interruptions made pursuant
to Section 6.5.1 or Section 6.5.2, Producer shall, immediately after being
orally notified by IID, reduce the electrical output of the Plants by the
amounts requested by IID.
6.8 The transmission service to be provided by IID and purchased by
Producer for each Plant shall not exceed the Transmission Service Entitlement
for that Plant.
6.9 Subject to Section 6.5, IID shall, during the periods that IID
has agreed to provide the transmission service at the specified Transmission
Service Entitlements, accept hourly scheduled energy deliveries at each Point
of Receipt and simultaneously deliver the same amount of energy (less
transmission losses as provided herein) at the Point(s) of Delivery mutually
agreed upon by the Parties' dispatchers and/or schedulers.
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6.10 Hourly scheduled energy deliveries at each Point of Receipt shall conform
with the practices and procedures developed by the Parties' dispatchers and
schedulers and agreed to by the Authorized Representatives.
7. TRANSMISSION LOSSES:
7.1 IID shall determine, by transmission power flow analysis, the
electrical losses (expressed as a percent amount of hourly scheduled energy
deliveries) associated with the electrical output from each Plant. Such
analysis shall be performed by IID at its sole expense. The initial percent
amount, for each Plant, representing the electrical losses as determined
herein shall be as specified in Exhibit[s] II, Transmission Service and in any
subsequent Plant Amendments.
7.2 Unless otherwise agreed to by Producer's and IID's schedulers
and dispatchers, IID shall reduce the amount of all hourly scheduled energy
deliveries for Producer or Producer's account by the percent amount of such
hourly deliveries for each Plant in accordance with Exhibit[s] II,
Transmission Service and in any subsequent Plant Amendments.
7.3 If either Party believes that there has been a significant
change in IID's electrical system and the electrical losses associated with
any Plant should be redetermined, either Party's Authorized Representative may
submit a written request to the other Party's Authorized Representative that
the electrical losses be redetermined. Following such request, a transmission
flow analysis shall be performed by IID as approved by the Authorized
Representatives and paid for by the requesting Party.
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Whenever the percent amount for electrical losses is redetermined, such
percent amount shall become effective as of the first day of the month
following the date of such redetermination; provided, that such a
redetermination may be no sooner than twelve (12) months after the most recent
redetermination. Any redetermination of electrical losses made pursuant to
this Section 7 shall be based on conditions in existence at the time of such
redetermination.
7.4 Along with the monthly billing pursuant to Section 9.1, for the
transmission service for each Plant, IID shall submit a monthly summary of
hourly scheduled energy deliveries and of electrical losses for each Plant.
8. CHARGES:
8.1 For transmission service provided by IID, Producer shall pay
IID at a rate to be determined by IID pursuant to the methodologies specified
in Exhibit I.A. The initial rate is specified in Exhibit[s] II, Transmission
Service and revisions thereto will be specified in any subsequent Plant
Amendments. Any specific facility charge to Producer for connecting the
Plant(s) to the IID transmission system shall be included only in the Plant
Connection Agreement(s) between IID and Producer.
8.2 The transmission rate shall be reviewed annually and may be
revised. Any revision of the rates shall be based on the methodologies in
Exhibit I.A and on the conditions in existence at the time of the revision.
Producer shall have the right to review any exhibits or work papers prepared
by IID to revise the rates.
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8.3 An initial monthly scheduling fee, as specified in Exhibit[s]
II, Transmission Service and revisions thereto specified in any subsequent
Plant Amendments, shall be paid by Producer to IID for those months in which
there were scheduled energy deliveries from the Plant(s). The initial
scheduling fee has been determined by IID pursuant to the methodology
specified in Exhibit I.B. The scheduling fee shall be reviewed annually and
may be revised. Any revision of the scheduling fee shall be based on the
methodology in exhibit I.B and on the conditions in existence at the time of
the revision. Producer shall have the right to review any exhibits or work
papers prepared by IID to revise the scheduling fee.
9. BILLING AND PAYMENT:
9.1 IID shall render bills to Producer, beginning in the month of
the Date of Initial Service, on or before the fifteenth (15th) day of each
month for the transmission service to be provided during the month. Producer
shall pay such bills within twenty (20) days after receipt thereof.
All payments by Producer shall be sent to:
Imperial Irrigation District
c/o Manager, Finance and Accounting
P.O. Box 937
Imperial, California 92251
All billings by IID shall be sent to:
Del Ranch, Ltd.
7029 Gentry Road
Calipatria, California 92233
9.2 Either Party's Authorized Representative may at
any time, by advance written notice to the other Party's
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Authorized Representative, change the address to which payments or billings
shall be sent.
9.3 Bills which are not paid in full by said due date shall
thereafter bear an additional charge of one and one-half percent (1-1/2%) per
month, or the maximum legal rate of interest, whichever is less, compounded
monthly on the unpaid amount prorated by days from the due date until payment
is received by IID.
9.4 In the event any portion of any bill is disputed, the disputed
amount shall be paid when due under protest. If the protested portion of the
payment is found to be incorrect by the Authorized Representatives, the
disputed amount shall be paid by IID to Producer, including interest at the
rate of 1-1/2% per month, or the maximum legal rate, whichever is less,
compounded monthly from the date of payment by Producer to the date the refund
check or adjusted bill is received by Producer.
9.5 For a fractional part of a calendar month at the beginning or
end of the period for which the transmission service is provided hereunder,
the charge pursuant to Section 8.1 shall be proportionately adjusted by the
ratio of days that service is furnished by IID to Producer during such month
to the total number of days in such month.
9.6 The charge for the transmission service pursuant to Section 8.1
shall be proportionately reduced to the extent the duration of the
interruptions or curtailments of the transmission service which may occur
pursuant to Section 6.5.1 or Section 6.5.2 exceed a cumulative total of
twenty-four (24) hours during
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any calendar month based on 730 hours per month representing the full
transmission service charge. The amount of such pro rata reduction in any
month shall reflect the duration and amount of such interruptions or
curtailments which exceed said cumulative 24 hours. Such pro rata reduction
shall be reflected as a credit to Producer as soon as possible in a subsequent
monthly bill.
9.7 The charge for the transmission service shall not be reduced if
IID can deliver, but Edison's transmission system cannot receive, the hourly
scheduled energy deliveries independent of the duration of time this condition
exists.
10. LIABILITY:
10.1 Except for any loss, damage, claim, costs, charge or expense
resulting from Willful Action, neither Party (the "released Party"), its
directors or other governing body, officers or employees shall be liable to
the other Party for any loss, damage, claim, cost, charge, or expense of any
kind or nature incurred by the other Party (including direct, indirect or
consequential loss, damage, claim, cost, charge or expense; and whether or not
resulting from the negligence of a Party, its directors or other governing
body, officers, employees or any person or entity whose negligence would be
imputed to a Party) from engineering, repair, supervision, inspection,
testing, protection, operation, maintenance, replacement, reconstruction, use
or ownership of the released Party's electrical system, Plant(s) or associated
facilities in connection with the implementation of this Agreement. Except for
any loss, damage, claim, cost, charge or expense resulting from Willful
Action,
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each Party releases the other Party, its directors or other governing body,
officers and employees from any such liability.
10.2 For the purpose of this Section 10, Willful Action shall be
defined as action taken or not taken by a Party at the direction of its
directors or other governing body, officers or employees having management or
administrative responsibility affecting its performance under this Agreement,
as follows:
10.2.1 Action which is knowingly or intentionally taken or not
taken with conscious indifference to the consequences thereof or with intent
that injury or damage would result or would probably result therefrom.
10.2.2 Action which has been determined by final arbitration
award or final judgment or judicial decree to be a material default under this
Agreement and which occurs or continues beyond the time specified in such
arbitration award or judgment or judicial decree for curing such default or,
if no time to cure is specified therein, occurs or continues thereafter beyond
a reasonable time to cure such default.
10.2.3 Action which is knowingly or intentionally taken or not
taken with the knowledge that such action taken or not taken is a material
default under this Agreement.
10.3 Willful Action does not include any act or failure to act
which is merely involuntary, accidental or negligent.
10.4 The phrase "employees having management or administrative
responsibility," as used in Section 10.2, means the employees of a Party who
are responsible for one or more of
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the executive functions of planning, organizing, coordinating, directing,
controlling and supervising such Party's performance under this Agreement with
responsibility for results.
10.5 Subject to the foregoing provisions of this Section 10, each
Party agrees to defend, indemnify and save harmless the other Party, its
officers, agents, or employees against all losses, claims, demands, costs or
expenses for loss of or damage to property, or injury or death of persons,
which directly or indirectly arise out of the indemnifying Party's performance
pursuant to this Agreement; provided, however, that a Party shall be solely
responsible for any such losses, claims, demands, costs or expenses which
result from its sole negligence or Willful Action.
11. AUDITING:
11.1 IID shall make its books, records, and other supporting
information, as requested, available to Producer or to Producer's designated
contracted representatives with a CPA firm, for the purpose of auditing any
charges or accounts to be kept by IID hereunder. All such audits shall be
undertaken at reasonable times and in conformance with generally-accepted
auditing stan dards.
11.2 If as a result of such audits Producer believes its charges or
accounts should be adjusted, the findings shall be presented to the Authorized
Representatives. If the Authorized Representatives agree that any audit
finding should result in a revision of charges or accounts, such revisions
shall be
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retroactive to the first billing for such charges and accounts and shall be
made as soon as practical after determination.
11.3 The amount of any unresolved dispute shall accrue interest at
the rate of one and one-half percent (1-1/2%) per month, or the maximum legal
rate, whichever is less, compounded monthly for any amount of money ultimately
refunded to Producer.
12. AUTHORIZED REPRESENTATIVES: Within thirty (30) calendar days
after the Completion Date, as defined in Article I of the Funding and
Construction Agreement, each Party shall designate by written notice to the
other Party a representative who is authorized to act on its behalf in the
implementation of this Agreement. Either Party may at any time change the
designation of its Authorized Representative by written notice to the other
Party.
13. NO DEDICATION OF FACILITIES: Any undertaking by one Party to
the other Party under any provision of this Agreement shall not constitute the
dedication of the system or any portion thereof of the Party to the public or
to the other Party, and it is understood and agreed that any such undertaking
under any provision of this Agreement by a Party shall cease upon the
termination of its obligations hereunder.
14. NON-WAIVER: None of the provisions of this Agreement shall be
considered waived by either Party except when such waiver is given in writing.
The failure of either Party to insist in any one or more instances upon strict
performance of any of the provisions of this Agreement or to take advantage of
any of its rights hereunder shall not be construed as a waiver of
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any such provisions or the relinquishment of any such rights for the future,
but the same shall continue and remain in full force and effect.
15. NO THIRD PARTY RIGHTS: The Parties do not intend
to create rights in or to grant remedies to any Third Party or
others as a beneficiary of this Agreement or of any duty,
covenant, obligation or undertaking established hereunder.
16. UNCONTROLLABLE FORCES: Neither Party shall be considered to be
in default in the performance of any of its obligations under this Agreement
when a failure of performance shall be due to an uncontrollable force. The
term "uncontrollable force" shall mean any cause beyond the control of the
Party affected including, but not restricted to, failure of or threat of
failure of facilities which have been maintained in accordance with
generally-accepted engineering and operating practices in the electrical
utility industry, flood, drought, earthquake, tornado, storm, fire,
pestilence, lightning and other natural catastrophes, epidemic, war, riot,
civil disturbance or disobedience, strike, labor dispute, labor or material
shortage, sabotage, government priorities and restraint by court order or
public authority (whether valid or invalid) and actions or nonaction by or
inability to obtain or keep the necessary authorizations or approvals from any
governmental agency or authority, the failure or inability of Edison to
receive the electric power to be transmitted hereunder at the Point(s) of
Delivery, which by exercise of due diligence such Party could not reasonably
have been expected to avoid and which by exercise of
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due diligence it has been unable to overcome. Nothing contained herein shall
be construed as to require a Party to settle any strike or labor dispute in
which it may be involved. Either Party rendered unable to fulfill any of its
obligations under this Agreement by reason of an uncontrollable force shall
give prompt written notice of such fact to the other Party and shall exercise
due diligence to remove such inability with all reasonable dispatch.
17. ASSIGNMENTS:
17.1 Any assignment by Producer of its interest in this Agreement
which is made without the written consent of IID (which shall not be
unreasonably withheld) shall not relieve Producer from its primary liability
for any of its duties and obligations hereunder, and in the event of any such
assignment Producer shall continue to remain primarily liable for payment of
any and all money due IID hereunder and for the performance and observance of
all other covenants, duties and obligations to be performed and observed
hereunder by it to the same extent as though no assignment has been made.
17.2 Notwithstanding any provision of Section 17.1 to the contrary,
prior to the end of the Credit Installment Period, as defined in Article I of
the Funding and Construction Agreement, Producer's right to transmission
service under this Agreement with respect to one or more of the Plants may be
assigned only (i) to a purchaser or co-owner of such Plants or to a person who
will operate such Plants pursuant to a contract or other arrangement with such
purchaser and in either case only
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with the prior written consent of IID (which shall not be unreasonably
withheld) or (ii) for security purposes, to a bank or other entity which
provides financing for such Plants or any electrical transmission facilities
associated therewith. Producer and IID agree that nothing in this Section 17.2
may be amended, modified or waived without the prior written consent of each
and every party to the Funding and Construction Agreement (except for any
parties in default thereunder).
17.3 Whenever an assignment of Producer's interest in this
Agreement is made with the written consent of IID, Producer's assignee shall
expressly assume in writing the duties and obligations hereunder of Producer
and, within thirty (30) days after any such assignment and assumption of
duties and obli gations, Producer shall furnish or cause to be furnished to
IID a true and correct copy of such assignment and assumption of duties and
obligations.
17.4 Subject to the foregoing restrictions on assignments, all of
the terms of this Agreement shall be binding upon and inure to the benefit of
both of the Parties and their respective successors, permitted assigns and
legal representatives.
18. GOVERNING LAW: This Agreement shall be
interpreted, governed by and construed under the laws of the
State of California. or the laws of the United States, as
applicable.
19. NOTICES: Any notice, demand or request provided
for in this Agreement, or served, given or made in connection
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with it, shall be in writing and shall be deemed properly served, given or
made if delivered in person or sent by United States mail, postage prepaid, to
the persons specified below unless otherwise provided for in this Agreement:
Imperial Irrigation District
c/o General Manager
P.O. Box 937
Imperial, California 92251
Del Ranch, Ltd.
7029 Gentry Road
Calipatria, California 92233
Either Party may at any time, by notice to the other Party, change
the designation or address of the person so specified as the one to receive
notices pursuant to this Agreement.
20. SIGNATURE CLAUSE: The signatories hereto represent that they
have been appropriately authorized to enter into this IID-Del Ranch Power
Plant Transmission Service Agreement for Alternative Resources (Standard Form)
on behalf of the Party for whom they signed. This Agreement is hereby executed
as of the 2nd given day of August, 1988.
[S E A L]
IMPERIAL IRRIGATION DISTRICT
By: /s/ Tony Gallego
-------------------------------------
President, Board of Directors
DEL RANCH, LTD., a California
Limited Partnership
By: Red Hill Geothermal, Inc.
a General Partner
By: /s/ Jon R. Peele
---------------------------------------
Vice President
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EXHIBIT I.A
DEVELOPMENT AND METHODOLOGY FOR THE
TRANSMISSION SERVICE CHARGE
IID's transmission service charge shall be recalculated during the month of
April of each year, using the methodology summarized in this Exhibit. The
recalculated transmission service charge shall be effective on June 1 of the
year of recalculation.
EI.A-1 Plant Investment
TAI = WP + PA - TR + GP + M&S
where
TAI = Total adjusted investment at the time of calculation.
WP = Estimate of weighted Transmission Plant Cost ($40,980,291) as
December 31, 1983 calculated using the following formula:
WP = (0.7 x OC) + (0.3 x RCN); where
OC = Cumulative original cost of Transmission
Plant as shown in IID's accounting records, obtained by
summing the actual cost of all yearly additions to
Transmission Plant from 1938 to the end of 1983, (i.e.,
$20,700,415).
RCN = Estimate of the cumulative reproduction cost
to build the Transmission Plant items
identified in OC in 1983 dollars. Calculated
by summing the escalated cost of each yearly
addition to Transmission Plant starting in
1938 up to the end of calendar year 1983
using the Handy-Whitman Index for Total
Transmission Plant for the Pacific Region,
(i.e., $88,300,000).
PA = Cumulative sum of additions to Transmission Plant from January
1, 1984 to the end of the year preceding the year of
calculation. Thus, if the calculation takes place in 1996, PA is
sum of Transmission Plant additions at actual cost from January
1, 1984 to December 31, 1995.
PA = Sum of [TPA(i) + OA(i)] where TPA(i) =
Annual additions to Transmission
Plant for each year associated with
the Transmission Project, as defined
in Section 7.05 of the Funding and
Construction Agreement. TPA(i) is
calculated for each year from Completion Date of
Transmission Project to end of year preceding
year of calculation.
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OA(i) = Other annual additions to Transmission
Plant by IID each year. OA(i) is calculated for
each year from January 1, 1984 to end of year
preceding year of calculation.
TR = Sum of (i) and (ii) where:
(i)= For facilities placed in service prior to 1984, the cumulative sum
of the annual Weighted Retirement Costs (WRC) for retirements from
Transmission Plant from January 1, 1984 to the end of the year
preceding the year of calculation. Thus, if the calculation takes
place in 1996, TR is comprised of the sum of annual Transmission
Plant retirements from January 1, 1984 to December 31, 1995 with
each year's original cost adjusted to account for the weighted cost
of retirement.
where WRC = Weighted Retirement Cost for transmission
retired in a given year.
OCI = Original cost of transmission facilities
retired in a given year.
WRC = 70%*OCI + 30%*OCI*RCN/OC
(ii) = Cumulative sum of original cost of annual
transmission retirements for facilities placed in
service after January 1, 1984.
GP = General plant investment as shown in IID's accounting records, as
of the year preceding the year of calculation, allocated to
transmission use by the ratio of total allocated transmission O&M
cost to the sum of production O&M cost excluding fuel, distribution
O&M cost, transmission O&M cost, dispatching cost, and customer
accounting and services costs.
M&S= Materials and supplies inventory held by IID as of the year
preceding the year of calculation, allocated to transmission use by
the ratio of Transmission Plant Original Cost to Total Electric
Plant original cost as reflected in IID's accounting records for
the year preceding the year of calculation.
EI.A-2 Annual Cost
TAC = (1.25 x CRF x TAI) + OM + A&G
where
TAC = Total Annual Cost.
CRF = Annual capital recovery factor calculated for a 33- year
amortization using the average interest rate for the year
preceding the year of calculation from the "Merrill Lynch 500
Municipal Bond Index Electric- Retail."
OM = Total allocated transmission O&M cost during the year preceding
the year of calculation, equal to the sum of (i) dispatching
costs and (ii) transmission O&M cost allocated to transmission
use by the ratio of
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Transmission Plant original cost (OC) to Total Transmission Plant
original cost (including the cost of subtransmission plant) as
shown in IID's accounting records.
A&G = Administrative and general cost during the year
preceding the year of calculation, allocated to
transmission use by the ratio of total allocated
transmission cost (OM) to the sum of production O&M
cost excluding fuel, distribution O&M cost,
transmission O&M cost, dispatching cost, and customer
accounting and services cost. Administrative and
general cost is comprised of Power Department plus
Joint Department A&G less Customer Account Expense.
EI.A-3 Monthly Transmission Service Charge
TSC = TAC
--------
12 x APL
where
TSC = Monthly transmission service charge, in $/kW.
APL = Annual peak load during the year preceding the year
of calculation, expressed in kW, which is equal to the sum of
IID's service peak load plus all transmission wheeling commitments
(including all Transmission Service Entitlements).
Examples
(1) Recalculation of 1985 Transmission Service Charge Plant Investment
OC = 20,700,415
RCN= 88,300,000
WP = (0.7 x OC) + (0.3 x RCN) = 40,980,291 PA = 0 + 4,111,000 = 4,111,000
GP = 1,526,849 x 764,058
-------------------------------------------------------
3,085,080 + 4,080,868 + 694,545 + 189,450 + 1,621,252
= 1,526,849 x 0.079 = 120,625
M&S = 6,151,304 x 20,700,415
162,700,978
= 6,151,304 x 0.1272 = 782,629
TAI = 40,980,291 + 4,111,000 + 120,625 + 782,629
= 45,994,545
Annual Cost
CRF = (33 years, 10.41%) = 10.8221%
OM = 189,540 + 694,545 x 20,700,415
25,025,093
= 189,540 + 694,545 x 0.8272 = 764,058
A&G =
4,086,530 x 764,058
-------------------------------------------------------
3,085,080 + 4,080,868 + 694,545 + 189,450 + 1,621,252
= 4,086,530 x 0.079 = 322,847
TAC = (1.25 x 0.108221 x 45,994,545) + 764,058 + 322,847
= 7,308,875
-EIA-3-
<PAGE>
Monthly Transmission Service Charge
APL = 369,000 + 63,000 = 432,000
TSC = 7,308,875 = 1.41 $/kW
------------
12 x 432,000
(2) Sample Calculation, 1996
Assumptions
- Weighted cost of Transmission Plant to 12-31-83;
$40,980,291.
- Transmission Additions to 12-31-95; $67,000,000.
- Transmission Credit to rate base through 12-31-94;
$30,000,000.
- Transmission credits used during 1995 were $6,000,000; IID's
Reserved Capacity is 40 MW, and the Deemed Capacity is 600 MW.
- No accumulated retirements.
- General plant investment as of 12-31-95, from IID
records, is $2,000,000.
- All allocation factors are assumed the same as in the previous
example but, in general, would not be identically the same each
year.
- Materials and supplies inventory as of 12-31-95; from
IID records, is $8,000,000.
- The 12-month average Merrill-Lynch Index interest rate is 8% in
1995.
- Dispatching costs in 1995 were $1,000,000.
- IID's transmission O&M costs in 1995 were $1,000,000.
- IID's administrative and general costs in 1995 were
$5,000,000.
- IID's service peak load in 1995 was 543 MW.
- IID's total transmission commitments in 1995 were 320
MW.
Adjusted Investment 1996
- ------------------- ------
WP = Weighted Plant to 12-31-83........$ 40,980,291
OA[1984-1995] = Transmission Plant Additions
Through 12-31-95 (excludes
Transmission Project)...............67,000,000
TPA[1984-1994] = Transmission Credit to Rate Base
Through 12-31-94....................30,000,000
TPA[1995] = Transmission Credit Rate Base during
1995; 6,000,000 x 600 - 40
600.............5,600,000
GP = General Plant Allocated;
2,000,000 x 0.079......................158,000
M&S = M&S Allocated; 8,000,000 x 0.1272 ...1,017,600
------------
TAI = $144,755,891
-EIA-4-
<PAGE>
Annual Cost
CRF = (33 years, 8%) = 8.6852
OM = 1,000,000 + 1,000,000 x 0.8272 = 1,827,200
A&G = 5,000,000 x 0.079 = 395,000
TAC = 1.25 x 0.086852 x $144,755,891 + 1,827,200 + 395,000
= $17,937,623
Monthly Transmission Service Charge
APL = 543,000 + 320,000 = 863,000
TSC = $17,937,623 = $1.73/kW
12 x 863,000
R1
-EIA-5-
<PAGE>
EXHIBIT I.B
METHODOLOGY AND CALCULATION OF SCHEDULING FEE
ANNUAL DETERMINATION
OF
IID SCHEDULING FEES
IID, in April each year, will calculate monthly fees for scheduling
services related to Alternative Energy Resources and transactions with other
utilities as follows:
A. An appropriate number of scheduling units will be
assigned to every IID resource, Alternative Energy
Resource, and transaction with other utilities in
operation during the preceding year. The number of
scheduling units assigned to each resource and/or
transaction will depend upon the total daily number of
functions and therefore, estimated time required to
schedule the resource and/or transaction. This
estimate will be directly related to the complexity of
the scheduling service being provided. Table 1 shows
how the total scheduling units were determined for the
IID system.
B. The expenses related to dispatching and scheduling
services will be equal to the sum of the following:
1. IID FPC Account 556 for the year preceding the
year of calculation
2. A portion of the annual expenses related to the SCADA and
AGC systems for the year preceding the year of calculation,
determined by multiplying one half of the levelized debt service
payments for the systems by the percentage that FPC Account 556 is
of the total of FPC Accounts 556, 561 and 581. Table 2 shows
calculations involved with this step.
C. The annual scheduling fee per scheduling unit will be
determined by dividing the expenses related to
scheduling found in Step B by the total scheduling
units from Step A. The per unit fee will then be
multiplied by the number of scheduling units assigned
to each resource and/or transaction to develop an
appropriate annual scheduling fee for that resource
and/or transaction. The monthly scheduling fee will
then be calculated by dividing the annual fee by 12.
Table 3 shows the calculation.
The revised scheduling fee will be effective on June 1 of the year in which
they are calculated.
R1
-EIB-1-
<PAGE>
IID-Edison
Service Agreement
for Alternative
Energy Resources TABLE 1
IMPERIAL IRRIGATION DISTRICT
SCHEDULING FEE METHODOLOGY
DETERMINATION OF TOTAL SCHEDULING UNITS
<TABLE>
<CAPTION>
On
Hours Payback Pre- AGC Off Loss
Energy Capacity Variable /Banking Scheduling System System Accounting
(X=2) (X=2) (X=1) (X=2) (X=1) (X=1) (X=1) (X=1) Total
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
IID's Generating
Units:
Pilot Knob x x x x 6
Drop No. 1 x x x x 6
Drop No. 2 x x x x 6
Drop No. 3 x x x x 6
Drop No. 4 x x x x 6
Drop No. 5 x x x x 6
Ea - Highline x x x x 6
Turnip and Double x x x x 6
Weir
El Centro Unit No. 1 x x x x 6
El Centro Unit No. 2 x x x x 6
El Centro Unit No. 3 x x x x 6
El Centro Unit No. 4 x x x x 6
Coachella Units
No. 1 and 2 x x x x 6
Coachella Units
No. 3 and 4 x x x x 6
Rockwood x x x x 6
Brawley x x x x 6
---
Subtotal 96
Alternative Energy
Resources:
Earth Energy x x x x x x x 10
Magma (East Mesa) x x x x x x 9
Heber HGC x x x x x x x 10
Vulcan Power x x x x x x x 10
Ormesa I x x x x x x x 10
Ormesa II x x x x x x x 10
_______ Binary x x x x x x x 10
---
Subtotal 69
Transactions with
Other Utilities:
DOE x x x x x 7
EPE x x x x x 7
SCE x x x x x 7
SDG&E x x x x x x x 10
APS (Yucca) x x x x x 7
SCE GT's (Axis) x x x x x x 9
APS (Axis) x x x x x x 9
YCWUA x x x x x x 9
---
Subtotal 65
Total Scheduling Units 230
</TABLE>
-EIB-2-
<PAGE>
TABLE 2
IMPERIAL IRRIGATION DISTRICT
SCHEDULING FEE METHODOLOGY
EXPENSES RELATED TO SCHEDULING
IID 1986 Actual
FPC Account 556 (3) $371,297 (52.15%)
FPC Account 56l $230,170 (32.33%)
FPC Account 581 $110,461 (15.52%
-------- -------
$711,928 (100.0%)
SCADA and AGC Systems
Investment (2) = $4,536,285
Annual Expense
$4,536,285 x 0.1170923 (1) = $531,164
Expenses Related to Scheduling
FPC Account 556 = $371,297
52.15% of SCADA and AGC Systems
Annualized Expense ($531,164 x 0.5215) = $277,002
--------
Total Expense Related to Scheduling = $648,299
(1) Capital Recovery Factor determined from levelized debt service payments
of $7,611,000 for $65,000,000 - May, 1983 COP issue.
(2) Fifty percent of total investment for SCADA and AGC $9,072,571 is
assumed related to transmission service.
(3) Related to load dispatching for system control.
-EIB-3-
<PAGE>
TABLE 3
IMPERIAL IRRIGATION DISTRICT
SCHEDULING FEE METHODOLOGY
CALCULATION OF SCHEDULING FEE
Annual Charge per Scheduling Unit
Total Expenses Related to Scheduling (from Table 2) = $648,299
Total Scheduling Units (from Table 1) 230
-------
Annual Charge per Scheduling Unit ($613,446/220) = $ 2,818
Alternative Energy Resource Scheduling Fee
Magma (East Mesa) Plant:
Annual Charge (9 Scheduling Units x $2,818) = $25,362/year
Monthly Charge ($25,362/12) $ 2,113/month
All Other Plants:
Annual Charge (10 Scheduling Units x $2,818) = $28,180/year
(1) Monthly Charge ($28,180/12) = $ 2,348/month
(1) Also applies to new plants to be on-line in 1988 & 89
-EIB-4-
<PAGE>
EXHIBIT II
TRANSMISSION SERVICE
FOR THE DEL RANCH POWER PLANT
EII-1. DESCRIPTION:
EII-2. APPLICABILITY: Applicable to the transmission service
to be provided by IID to Producer for transmitting the
electrical output from the Del Ranch Plant Point of
Receipt to the Point(s) of Delivery.
EII-3. PLANT CONNECTION AGREEMENT: The Del Ranch Plant
Connection Agreement to be executed between IID and
Producer.
EII-4. MAXIMUM TRANSMISSION SERVICE ENTITLEMENT: 38 MW.
TRANSMISSION SERVICE ENTITLEMENT: 38 MW, as specified
in accordance with Sections 6.2 and 6.3.
EII-5. POINT OF RECEIPT: See Section 4.13.
EII-6. POINT(S) OF DELIVERY: The 230-kV switchrack at
Edison's Mirage Substation.
EII-7. TERM: The term of the Transmission Service Entitlement
for the Del Ranch Power Plant shall be effective from
the Date of Initial Service and shall terminate on
April 15, 2015.
EII-8. TRANSMISSION SERVICE CHARGE: $1.41 per kilowatt-month,
or as revised in accordance with Section 8.2, times
Transmission Service Entitlement.
EII-9. SCHEDULING FEE: $2,348 per month or as revised in
accordance with Section 8.3.
EII-10. TRANSMISSION LOSSES: 2.98% or as revised in accordance
with Section 7.
-EII-1-
<PAGE>
AMENDMENT NO. 1
EXHIBIT II
TRANSMISSION SERVICE
FOR THE DEL RANCH POWER PLANT
EII-1. DESCRIPTION:
EII-2. APPLICABILITY: Applicable to the transmission service
to be provided by IID to Producer for transmitting the
electrical output from the Del Ranch Plant Point of
Receipt to the Point(s) of Delivery.
EII-3. PLANT CONNECTION AGREEMENT: The Del Ranch Plant
Connection Agreement to be executed between IID and
Producer.
EII-4. MAXIMUM TRANSMISSION SERVICE ENTITLEMENT: 42 MW.
TRANSMISSION SERVICE ENTITLEMENT: 42 MW, as specified
in accordance with Sections 6.2 and 6.3.
EII-5. POINT OF RECEIPT: See Section 4.13.
EII-6. POINT(S) OF DELIVERY: The 230-kV switchrack at
Edison's Mirage Substation.
EII-7. TERM: The term of the Transmission Service Entitlement
for the Del Ranch Power Plant shall be effective from
the Date of Initial Service and shall terminate on
April 15, 2015.
EII-8. TRANSMISSION SERVICE CHARGE: $1.41 per kilowatt-month,
or as revised in accordance with Section 8.2, times
Transmission Service Entitlement.
EII-9. SCHEDULING FEE: $2,348 per month or as revised in
accordance with Section 8.3.
EII-10. TRANSMISSION LOSSES: 2.20% or as revised in accordance
with Section 7.
-EII-2-
<PAGE>
AMENDMENT NO. 1
EXHIBIT II
TRANSMISSION SERVICE
FOR THE DEL RANCH POWER PLANT
[SEAL] IMPERIAL IRRIGATION DISTRICT
By: /S/ W.R. Condit
---------------------------------------
President, Board of Directors
DEL RANCH, LTD., a California
Limited Partnership
By: /S/ Russ L. Tenney
---------------------------------------
-EII-3-
EXHIBIT 10.43
PLANT CONNECTION AGREEMENT
FOR THE
DEL RANCH POWER PLANT
BETWEEN
IMPERIAL IRRIGATION DISTRICT
AND
DEL RANCH, LTD.
1. PARTIES
The parties to this Agreement are IMPERIAL IRRIGATION DISTRICT ("IID"),
organized under the Water Code of the State of California and Del Ranch, Ltd.
("Producer"), hereinafter referred to individually as "Party", and collectively
as "Parties".
2. RECITALS
2.1 Producer intends to construct and operate, as owner or lessee, a
megawatt generating facility with a maximum 38 megawatt net operating capacity
at the Salton Sea (KGRA), Imperial County, California, and to sell the Plant
electrical output to Southern California Edison Company ("SCE").
2.2 SCE has entered into the Power Purchase Agreement dated February
22, 1984, ("Purchase Agreement") with Producer, to purchase all the electrical
output from the Plant.
2.3 SCE and Producer agree that the terms and conditions regarding
transmission of the Plant's Energy to an IID/SCE point of interconnection shall
be pursuant to a Transmission Service Agreement to be entered into between IID
and Producer.
2.4 Since the Plant will be built in the IID service territory, it
will be convenient to connect the Plant to the IID electric system.
Producer hereby grants the IID the right to enter the Plant site
for any reasonable purposes connected with this Agreement, by previous
arrangements with the Plant manager. Those reasonable purposes include
maintenance and repairs to IID equipment in Producer's facilities, observing
tests of said facilities, reading of kilowatt-hour meters, and the like.
-2-
2.5 Producer desires to purchase and IID desires to sell the
electrical energy necessary to satisfy the operation and maintenance power
consumption requirements of the Plant for the life of the Plant that is not
normally generated by the Plant itself, or portable generating equipment.
2.6 The Parties desire, by means of this Agreement, to interconnect
the Plant to the IID electrical system and to establish the terms, conditions
and obligations of the Parties relating to such interconnection.
3. AGREEMENT
The Parties agree as follows:
4. DEFINITIONS
4.1 Agreement: This Plant Connection Agreement between IID and
Producer, and all Exhibits hereto, as may be amended from time to time.
4.2 Authorized Representative: The representative of a Party
designated in accordance with Section 13.
4.3 Energy: Electric energy in excess of Producer's electric
energy requirements, expressed in kilowatt-hours, generated by the Plant and
measured and delivered to the Point of Delivery.
4.4 Funding and Construction Agreement: An agreement entered into
by IID and others dated June 29, 1987, providing for the funding and
construction of the Heber-Mirage Transmission Project, to which a form of this
Agreement is attached as Exhibit C.
-3-
4.5 Operation Date: The day on which the Plant Energy is first
accepted by IID for delivery to SCE.
4.6 Plant: A maximum of 38 MW net operating capacity Geothermal
facility operated by Producer, as owner or lessee, including all associated
equipment and improvements necessary for generating electric energy and
transmitting it to the high voltage side of the power transformer.
4.7 Point of Delivery: The point on the high voltage side of
Producer's switchyard where IID's metering equipment measures the delivery of
Energy to the IID system as shown on Exhibit "B".
4.8 System Emergency: A condition on IID's system which is likely
to result in imminent significant disruption of service to customers or is
imminently likely to endanger life or property.
5. EFFECTIVE DATE AND TERM
This Agreement shall become effective upon the Operation Date of the
Plant, and shall remain in effect until the earlier of (i) April 15, 2015, or
(ii) thirty six (36) months from the date the Plant has ceased to operate at
the option of IID. It is understood that (i) if the Completion Date, as the
term Completion Date is defined in Article I of Funding and Construction
Agreement does not occur, or (ii) if the Operation Date does not occur within
five (5) years after the date this Agreement was executed, this Agreement shall
be of no force or effect.
6. CONNECTION OF PLANT
6.1 Producer may electrically connect its Plant, in accordance with
the provisions of this Agreement, so that it can
-4-
operate in parallel with the IID electric system. Parallel operation will not
commence until IID has inspected and approved the interconnection facilities
and operational procedures.
6.2 Notwithstanding the provision that Producer has furnished the
high voltage switchyard complete, including the high voltage oil circuit
breakers and disconnect switches, the control of the high voltage oil circuit
breakers and disconnect switches shall be under the control of the IID
dispatcher.
7. ELECTRIC SERVICE TO PRODUCER
IID shall provide electric service to Producer pursuant to Section 12.
8. METERING OF ENERGY DELIVERIES
Metering for electric service to Producer and for energy deliveries by
Producer to IID for delivery to SCE shall be at the Point of Delivery as shown
on Exhibit "B." Four meters shall be installed which shall measure and record
flows in each direction as shown on Exhibit "B."
9. PRODUCER'S DELIVERY AND IID ACCEPTANCE OF ENERGY FROM PLANT
Whenever electric output from the Plant exceeds Producer's power
requirements, Producer shall deliver all such excess output to IID for delivery
to SCE and IID shall accept such output for delivery to SCE and deliver such
output to SCE pursuant to a transmission service agreement to be entered into
between Producer and IID.
10. PRODUCER'S GENERAL OBLIGATIONS
Producer shall:
-5-
10.1 Operate the Plant in a manner consistent with applicable
electric utility industry standards, good engineering practice, and without
degradation of quality or reliability of service to IID customers.
10.2 Deliver the Plant's net electrical output to IID for the
account of SCE at the Point of Delivery.
10.3 Each Party shall provide the reactive kilovolt-ampere (KVA)
requirements of its own system so that there will be no interchange of reactive
KVA between systems. The Parties shall cooperate to control the flow of
reactive KVA to prevent the introduction of objectionable operating conditions
on the system of either Party.
10.4 Coordinate, to the greatest extent practicable, major overhaul
and inspection outages of the Plant with IID.
10.5 Give IID a written schedule on or before June 1, December 1,
each year of the estimated amounts and rates of delivery of energy to be
delivered to IID for the account of SCE at the Point of Delivery during each
month of the succeeding twelve-month (12) period commencing July 1, and
January 1.
10.6 Give IID a written schedule on or before the fifteenth (15th)
day of each month of the estimated amounts and rates of delivery of energy to
be delivered to IID for the account of SCE at the Point of Delivery during each
day of the succeeding calendar month.
10.7 Give IID a schedule on or before 12:01 p.m. on Tuesday of each
seven-day (7) period of the estimated amounts and rates of delivery of energy
to be delivered to IID for the
-6-
account of SCE at the Point of Delivery during each hour of the succeeding
seven-day (7) period commencing at 12:01 a.m. on the following Monday;
provided, however, that if any changes in the hourly deliveries so scheduled
become necessary, Producer shall notify IID of such changes as far in advance
as possible.
10.8 Provide IID any reasonable rights-of-way and access required
for testing and reading of meters by previous arrangement with the Plant
manager.
10.9 Carry out the directions of the Authorized Representatives with
respect to the matters set forth in this Agreement.
11. IID'S GENERAL OBLIGATIONS
IID shall:
11.1 Design, acquire, construct, operate and maintain, or cause to
be designed, acquired, constructed, operated and maintained, and shall own, a
connecting transmission line between IID's transmission system and the Plant.
Following the completion of such line, IID may bill and Producer shall pay
IID's costs of designing, acquiring and constructing such line. Producer shall
have the right to audit IID's records and accounts to verify the cost of such
line.
11.2 Accept the Plant's net electrical output for the account of SCE
at the Point of Delivery and simultaneously deliver an equal amount of electric
energy (less applicable transmission losses) to the SCE system at IID/SCE
point(s) of interconnection.
-7-
11.3 Coordinate, to the greatest extent practicable, major overhaul
and inspection outages of IID transmission facilities with Producer and notify
Producer of any changes as far in advance as possible.
11.4 Carry out the directions of the Authorized Representative with
respect to the matters set forth in this Agreement.
11.5 Operate its system in a manner consistent with applicable
utility industry standards and good engineering practices.
12. BILLING
12.1 IID shall read the meters monthly according to its regular
meter reading schedule beginning no more than thirty (30) days after the date
that electric energy is first supplied to Producer. IID monthly shall send
Producer within ten (10) working days after the meter is read a bill for
electric service. Producer shall pay IID the total amount billed within thirty
(30) days of receipt of the bill.
12.2 IID shall bill Producer for Producer's consumption of energy
from IID's resources in accordance with Rate Schedule GL or Rate Schedule A-2,
as applicable, as it may be revised from time to time. Copies of current Rate
Schedule GL and current Rate Schedule A-2 are attached as Exhibit "A."
12.3 If Producer disputes a bill, payment shall be made as if no
dispute existed pending resolution of the dispute by the Authorized
Representatives. If the bill is determined to be in error, the disputed amount
shall be refunded by IID including
-8-
interest at the rate of one and one-half percent (1 1/2%) per month, compounded
monthly, from the date of payment to the date the refund check or adjusted bill
is mailed.
13. AUTHORIZED REPRESENTATIVES
13.1 Within thirty (30) days after the date this Agreement is signed,
each Party shall designate, by written notice to the other Party, an Authorized
Representative who is authorized to act in its behalf in the implementation of
this Agreement and with respect to those matters contained herein which are the
functions and responsibilities for the Authorized Representatives. Either
Party may, at any time, change the designation of its Authorized Representative
by written notice to the other Party.
13.2 IID's Authorized Representative shall develop detailed written
procedures necessary and convenient to administer this Agreement within six (6)
months after the date signed. Such procedures shall be submitted to Producer's
Authorized Representative for review, comment, discussion and concurrence
before they are put into effect. Such procedures shall include, without
limitation: (i) communication between Producer and IID's electric system
dispatcher with regard to daily operating matters, (ii) billing and payments,
(iii) specified equipment tests, and (iv) operating matters which affect or may
affect quality and reliability of service to electric customers and continuity
of deliveries to SCE.
13.3 The Authorized Representative shall have no authority to modify
any of the provisions of this Agreement.
-9-
14. METERS
14.1 All meters shall be sealed and the seal shall be broken only upon
occasions when the meters are to be inspected, tested or adjusted.
14.2 IID shall inspect and test all meters upon their installation and
at least once every year thereafter. If requested to do so by Producer, IID
shall inspect or test a meter more frequently than every year, but the expense
of such inspection or test shall be paid by Producer unless the meter is found
to register inaccurately by more than two percent (2%) from the measurement
made by a standard meter. Each Party shall give reasonable notice to the other
Party of the time when any inspection or test shall take place and that Party
may have representatives present at the test or inspection. If a meter is
found to be inaccurate or defective, it shall be adjusted, repaired or replaced
in order to provide accurate metering. All adjustments due to inaccurate
meters shall be limited to the preceding six (6) months.
14.3 If a meter fails to register, or if the measurement made by a
meter during a test varies by more than two percent (2%) from the measurement
made by the standard meter used in the test, adjustment shall be made
correcting all measurements made by the inaccurate meter for:
(i) the actual period during which inaccurate
measurements were made, if the period can be
determined, or if not,
-10-
(ii) the period immediately preceding the test of
the meter equal to one-half (1/2) the time from
the date of the last previous test of the
meter; provided, however, that the period
covered by the correction shall not exceed six
(6) months.
14.4 Producer shall telemeter information to IID's Dispatch Center
regarding the kilowatts, kilowatt-hours, kilovars and kilovar-hours delivered
to or received from IID at the Point of Delivery over phone line leased by
Producer.
IID shall purchase, own, and shall design, install, operate,
maintain, or cause to be designed, installed, operated, and maintained,
equipment to automatically transmit from the Plant to IID's Dispatch Center
continuous values of Plant output expressed as megawatts, megavars and
megawatt-hours. IID may thereupon bill and Producer shall promptly pay IID's
cost of design, purchase and installation of said equipment. Producer shall
have the right to audit IID's records and accounts to verify the cost of said
equipment.
15. CONTINUITY OF SERVICE
IID shall not be obligated to accept and IID may require Producer to
temporarily curtail, interrupt or reduce deliveries of energy upon advance
notice to Producer, when such curtailment, interruption or reduction is
required in order for IID to construct, install, maintain, repair, replace,
remove, investigate or inspect any of its equipment or any part of its system
or if IID determines that such curtailment, interruption or reduction is
necessary because of a System Emergency, forced
-11-
outages or abnormal operating conditions on its system. IID shall use
reasonable efforts to keep interruptions and curtailments to a minimum time.
16. LIABILITY
16.1 Except for any loss, damage, claim, costs, charge or expense
resulting from Willful Action, neither Party (the "released Party"), its
directors or other governing body, officers or employees shall be liable to the
other Party for any loss, damage, claim, cost, charge or expense of any kind or
nature incurred by the other Party (including direct, indirect or consequential
loss, damage, claim, cost, charge or expense; and whether or not resulting from
the negligence of a Party, its directors or other governing body, officers,
employees or any person or entity whose negligence would be imputed to a Party)
from engineering, repair, supervision, inspection, testing, protection,
operation, maintenance, replacement, reconstruction, use or ownership of the
released Party's electrical system, Plant(s) or associated facilities in
connection with the implementation of this Agreement. Except for any loss,
damage, claim, cost, charge or expense resulting from Willful Action, each
Party releases the other Party, its directors or other governing body, officers
and employees from any such liability.
16.2 For the purpose of this Section 16, Willful Action shall be
defined as action taken or not taken by a Party at the direction of its
directors or other governing body, officers or employees having management or
administrative responsibility affecting its performance under this Agreement,
as follows:
-12-
16.2.1 Action which is knowingly or intentionally taken or not taken
with conscious indifference to the consequences thereof or with intent that
injury or damage would result or would probably result therefrom.
16.2.2 Action which has been determined by final arbitration award or
final judgment or judicial decree to be a material default under this Agreement
and which occurs or continues beyond the time specified in such arbitration
award or judgment or judicial decree for curing such default or, if no time to
cure is specified therein, occurs or continues thereafter beyond a reasonable
time to cure such default.
16.2.3 Action which is knowingly or intentionally taken or not taken
with the knowledge that such action taken or not taken is a material default
under this Agreement.
16.3 Willful Action does not include any act or failure to act which
is merely involuntary, accidental or negligent.
16.4 The phrase "employees having management or administrative
responsibility," as used in Section 16.2, means the employees of a Party who
are responsible for one or more of the executive functions of planning,
organizing, coordinating, directing, controlling and supervising such Party's
performance under this Agreement with responsibility for results.
16.5 Subject to the foregoing provisions of this Section 16, each
Party agrees to defend, indemnify and save harmless the other Party, its
officers, agents, or employees against all losses, claims, demands, costs or
expenses for loss of or damage to property, or injury or death of persons,
which directly or
-13-
indirectly arise out of the indemnifying Party's performance pursuant to this
Agreement; provided, however, that a Party shall be solely responsible for any
such losses, claims, demands, costs or expenses which result from its sole
negligence or Willful Action.
17. UNCONTROLLABLE FORCES
Neither Party shall be considered to be in default in the performance
of any of its obligations under this Agreement when a failure of performance
shall be due to an uncontrollable force. The term "uncontrollable force" shall
mean any cause beyond the control of the Party affected including, but not
restricted to, failure of or threat of failure of facilities which have been
maintained in accordance with generally-accepted engineering and operating
practices in the electrical utility industry, flood, drought, earthquake,
tornado, storm fire, pestilence, lightning and other natural catastrophes,
epidemic, war, riot, civil disturbance or disobedience, strike, labor dispute,
labor or material shortage, sabotage, government priorities and restraint by
court order or public authority (whether valid or invalid) and actions or
nonaction by or inability to obtain or keep the necessary authorizations or
approvals from any governmental agency or authority, which by exercise of due
diligence such Party could not reasonably have been expected to avoid and which
by exercise of due diligence it has been unable to overcome. Nothing contained
herein shall be construed as to require a Party to settle any strike or labor
dispute in which it may be involved. Either Party rendered unable to fulfill
any of its
-14-
obligations under this Agreement by reason of an uncontrollable force shall
give prompt written notice of such fact to the other Party and shall exercise
due diligence to remove such inability with all reasonable dispatch.
18. INTEGRATION AND AMENDMENTS
This Agreement constitutes the entire agreement between the Parties
relating to the interconnection of Producer's Plant to IID's electric system,
the acceptance of energy by IID from Producer and the providing of electric
service by IID. No oral agreement or prior written agreement between the
Parties shall be of any effect whatsoever; provided, however, that any
arrangements agreed upon by the Authorized Representatives within the limits of
their authority, and consistent with this Agreement shall be binding upon the
Parties. All changes to this Agreement shall be in writing and shall be signed
by an officer of each Party.
19. NON-WAIVER
None of the provisions of this Agreement shall be considered waived by
either Party except when such waiver is given in writing. The failure of
either Party to insist in any one or more instances upon strict performance of
any of the provisions of this Agreement or to take advantage of any of its
rights hereunder shall not be construed as a waiver of any such provisions or
the relinquishment of any such rights for the future; but the same shall
continue and remain in full force and effect.
-15-
20. NO DEDICATION OF FACILITIES
Any undertaking by one Party to the other Party under any provision of
this Agreement shall not constitute the dedication of the system or any portion
thereof by the Party to the public or to the other Party, and it is understood
and agreed that any such undertaking under any provision of this Agreement by a
Party shall cease upon the termination of its obligations hereunder.
21. SUCCESSORS AND ASSIGNS
21.1 This Agreement shall be binding upon and inure to the benefit of
the respective successors and assigns of the Parties.
21.2 This Agreement may be assigned by Producer only (i) to a
purchaser or co-owner of the Plant or to a person who will operate the Plant
pursuant to a contract or other arrangement with such purchaser and in either
case with the prior written consent of IID (which shall not be unreasonably
withheld) or (ii) for security purposes, to a bank or other entity which
provides financing for the Plant or any electrical transmission facilities
associated therewith. Producer and IID agree that nothing in this Section 21.2
may be amended, modified or waived without the prior written consent of each
and every Party to the Funding and Construction Agreement (except for any
Parties in default thereunder).
22. EFFECT OF SECTION HEADINGS
Section headings appearing in this Agreement are inserted for
convenience only, and shall not be construed as interpretations of text.
-16-
23. GOVERNING LAW
This Agreement shall be interpreted, governed and construed under the
laws of the State of California or the laws of the United States, as
applicable.
24. ARBITRATION
24.1 Any dispute arising out of or relating to this Agreement, or the
breach thereof, which is not resolved by the Parties acting through their
Authorized Representatives shall be settled by arbitration to the extent
permitted by the laws applicable to the Parties; provided, however, that no
Party to the dispute shall be bound to any greater extent than any other Party
to the dispute. Arbitration shall not apply to any dispute or matter that is
within the jurisdiction of any regulatory agency.
24.2 Any demand for arbitration shall be made by written notice to the
other Party setting forth in adequate detail the nature of the dispute, the
issues to be arbitrated, the amount or amounts, if any, involved in the
dispute, and the remedy sought. Within twenty (20) days from the receipt of
such notice, the other Party may submit its own written statement of the
dispute and may set forth in adequate detail any additional related matters or
issues to be arbitrated.
24.3 Within thirty (30) days after delivery of the written notice
demanding arbitration, the Parties acting through their Authorized
Representatives shall meet for the purpose of selecting an arbitrator. The
Parties may agree upon a single arbitrator, but in the event that they cannot
agree, three
-17-
arbitrators shall be used. Each Party shall designate one arbitrator, and the
two arbitrators shall then select a third arbitrator. All arbitrators shall be
persons skilled and experienced in the field in which the dispute has arisen
and no person shall be eligible for appointment as an arbitrator who is or has
been an officer or employee of either of the Parties or otherwise interested in
the matter to be arbitrated. Should either party refuse or neglect to appoint
an arbitrator or to furnish the arbitrators with any papers or information
demanded, the arbitrators are empowered, by both Parties, to proceed without
the participation or assistance of that Party.
24.4 Except as otherwise provided in this Section, the arbitration
shall be governed by the rules and practices of the American Arbitration
Association, or a similar organization if the American Arbitration Association
should not at the time exist.
24.5 Arbitration proceedings shall be held in Imperial, California, at
a time and place to be selected by the arbitrators. The arbitrators shall hear
evidence submitted by the Parties and may call for additional information which
shall be furnished by the Party having such information. The arbitrators shall
have no authority to call for information not related to the issues included in
the dispute or to determine other issues not in dispute.
24.6 If there is only one arbitrator, his decision shall be binding
and conclusive on the Parties. If there are three arbitrators, the decision of
any two shall be binding and
-18-
conclusive. The decision of the arbitrators shall contain findings regarding
the issues involved in the dispute, including the merits of the positions of
the Parties, the materiality of any default, and the remedy or relief to which
a Party shall be entitled. The arbitrators may not grant any remedy or relief
which is inconsistent with this Agreement, nor shall the arbitrators make
findings or decide issues not in dispute.
24.7 The fees and expenses of the arbitrators shall be shared equally
by the Parties, unless the decision of the arbitrators specifies some other
apportionment. All other expenses and costs of the arbitration shall be borne
by the Party incurring such expenses and costs.
24.8 Any decision or award granted by the arbitrators shall be final
and judgement may be entered on it in any court of competent jurisdiction.
This agreement to arbitrate shall be specifically enforceable.
25. ENTIRE AGREEMENT
25.1 The complete agreement of the Parties is set forth in this
Agreement and all communications regarding subject interconnected operations
whether oral or written, are hereby abrogated and withdrawn.
26. NOTICES
Any formal communication or notice in connection with this Agreement
shall be in writing and shall be deemed properly given if delivered in person
or sent first class mail, postage prepaid to the person specified below:
-19-
DEL RANCH, LTD.
7029 Gentry Road
Calipatria, California 92233
IMPERIAL IRRIGATION DISTRICT
c/o General Manager
P.O. Box 937
Imperial, California 92251
27. SEVERAL OBLIGATIONS
Except where specifically stated in this Agreement to be otherwise, the
duties, obligations and liabilities of the Parties are intended to be several
and not joint or collective. Nothing contained in this Agreement shall ever be
construed to create an association, trust, partnership, or joint venture, or
impose a trust or partnership duty, obligation or liability on or with regard
to either Party. Each Party shall be individually and severally liable for its
own obligations under this Agreement.
-20-
28.SIGNATURE CLAUSE
The Parties have caused this Agreement to be executed in their
respective names, in duplicate, by their respective officers hereunto
this 2nd day of August, 1988.
DEL RANCH, LTD., a California Limited
Partnership
By Red Hill Geothermal, Inc.
__________________________________
a General Partner
By: /s/ Jon R. Peele
---------------------------------
Vice President
ATTEST:
By /s/ Thomas C. Hinrich
____________________________
Asst. Secretary
IMPERIAL IRRIGATION DISTRICT
By /s/ Tony Gallego
_______________________________
President, Board of Directors
ATTEST:
By /s/ Larry E. Beck
____________________________
Secretary
-21-
DEL RANCH
FUNDING AGREEMENT
1. PARTIES: The Parties to this Funding Agreement ("Agreement") are Del Ranch
Ltd., a California limited partnership ("Seller") and Southern California
Edison Company ("Edison"), a California corporation, hereinafter sometimes
referred to individually as "Party" and collectively as "Parties."
2. RECITALS: This Agreement is made with reference to the following facts,
among others:
2.1 On February 22, 1984, Edison and Imperial Energy Corporation
("Imperial") executed a Power Purchase Contract to provide the terms and
conditions for the sale by Imperial and the purchase by Edison of electrical
power from an electrical generating facility to be located at Niland,
California.
2.2 On November 13, 1984, Edison and Imperial amended the Power
Purchase Contract (Amendment No. 1).
2.3 On January 22, 1986, Imperial assigned its rights, title, and
interest in the Power Purchase Contract to Magma Power Company ("Magma"), a
Nevada corporation, to which assignment Edison consented on March 12, 1986.
2.4 On April 10, 1986, Edison and Magma amended the Power Purchase
Contract (Amendment No. 2).
2.5 On March 14, 1988, Magma assigned its rights, title, and interest
in the Power Purchase Contract to Seller, to which assignment Edison consented
on March 14, 1988.
<PAGE>
2.6 Seller is a signatory to the Funding and Construction Agreement
("Funding and Construction Agreement") among the Imperial Irrigation District
("IID") and independent power companies, listed as participants
("Participants") therein, which was executed on June 29, 1987. Seller's
capacity entitlement under the Funding and Construction Agreement is
sufficient to satisfy its capacity and energy deliveries under the Power
Purchase Contract.
2.7 Seller is, at the date of execution of this Agreement, in full
compliance with the terms and conditions of the Power Purchase Contract, the
Qualifying Facilities Milestone Procedure ("QFMP") and/or Edison's Tariff Rule
21, as applicable.
2.8 Seller and Edison jointly agree that a transmission capacity
limit of 400 MW exists on the existing transmission line between Edison's
Mirage Substation and its Devers Substation (the "Mirage/Devers Line") and
that construction of additional transmission facilities may, in Edison's sole
judgment, be required to allow delivery of Seller's electrical energy and
capacity over the portion of Edison's system between Edison's Mirage and
Devers Substations. Such facilities shall hereinafter be referred to as the
"Additional Transmission Facilities."
2.9 Six (6) Qualifying Facility projects identified in Appendix A,
Appendix B, and Appendix C, attached hereto, have previously executed Funding
Agreements to pay a pro rata share of the Additional Transmission Facilities.
2.10 Seller acknowledges that, because of the transmission priority
of its project under the QFMP and/or Edison's Tariff
-2-
<PAGE>
Rule No. 21, it may not be entitled thereunder to use the existing
Mirage/Devers Line to deliver its power to Edison. Therefore, Seller is willing
to pay a portion of the cost of the Additional Transmission Facilities which
may be required to accommodate transmission of its electrical energy and
capacity,
as further set forth therein.
3. AGREEMENT: The Parties agree as follows:
4. TERM: This Agreement shall be effective upon execution by the Parties and
shall remain in effect until the earliest of (a) termination by agreement of
the Parties, (b) completion of the Additional Transmission Facilities, or (c)
January 1, 1995.
5. FUNDING ACCOUNT:
5.1 Within 30 days after the date of execution of this funding
agreement, Seller shall, in the amount determined pursuant to the formula set
forth herein, either (a) provide Edison with an irrevocable letter of credit
issued by a commercial lender acceptable to Edison in its sole judgment
allowing Edison to draw the funds for use consistent with the terms and
conditions of this Agreement, or (b) establish and fund an escrow account
governed by an escrow agreement in a form acceptable to Edison, consistent
with the terms and conditions of this Agreement. The escrow account or letter
of credit so established shall hereinafter be referred to as the "Funding
Account." The dollar amount of Seller's Funding Account shall be
-3-
<PAGE>
the amount specified in Appendix D hereto as Seller's funding contribution,
which is established as follows:
X = A x (B / C)
Where: X = Seller's Funding Account in dollars
A = Seller's MW capacity as specified in
Appendix D
B = $3,150,000
C = 79 MW
Seller shall not be required to contribute any funds in excess of the amount
identified in Appendix D hereto as Seller's funding contribution.
5.2 Interest which may be paid to the Funding Account shall accrue to
the Funding Account and shall contribute to the principal when earned. Seller
shall not have any right to make withdrawals of accrued interest unless and
until the Funding Account is released to Seller pursuant to Section 5.6 of
this Agreement.
5.3 Edison shall have sole drawing rights on the funds contained in
the Funding Account. Edison may use those funds for payment of the costs
actually incurred by Edison to construct the Additional Transmission Facilities
determined necessary by Edison in its sole discretion to accept the electric
capacity and energy of Seller pursuant to the Power Purchase Contract and to
pay any taxes levied on those funds as contributions in aid of construction.
5.4 Seller shall maintain the Funding Account in effect until the
termination of this Agreement pursuant to Section 4
-4-
<PAGE>
hereof. Failure to do so shall cause Seller to lose its rights to transmission
capacity under this Agreement and shall cause Edison's obligation to accept
Seller's power pursuant to Sections 6.1 and 6.2 of this Agreement to
terminate.
5.5 In the event of termination of this Agreement, Edison shall not
be obligated to reimburse Seller for any funds withdrawn from the Funding
Account in accordance with the terms and conditions of this Agreement.
5.6 In the event that this Agreement has terminated pursuant to
Section 4 hereof prior to the commencement of construction of the Additional
Transmission Facilities, Edison shall promptly release Seller's Funding
Account to Seller. Seller shall have no other right to terminate or withdraw
funds from the Funding Account.
6. OBLIGATIONS OF EDISON:
6.1 As long as Seller is in compliance with all of the terms and
conditions of this Agreement, Edison shall accept power from Seller pursuant
to Seller's Power Purchase Contract on the date of Firm operation (as that
term is defined in the Power Purchase Contract) in the amount specified in
Appendix D hereto, under the terms and conditions of Section 6.2 of this
Agreement. Purchases from Seller shall be made pursuant to the Power Purchase
Contract for energy and capacity delivered to Edison's Mirage Substation (a)
during the term of this Agreement and (b) following termination of this
Agreement only if terminated pursuant to Section 4.
-5-
<PAGE>
6.2 For that period of time between payment of funds pursuant to
Section 5.1 of this Agreement and completion and placing in service of the
Additional Transmission Facilities, Seller's access to transmission capacity
between Edison's Mirage and Devers substations, pursuant to this Agreement,
shall be on an as-available and interruptible basis. Upon completion and
placing in service of the Additional Transmission Facilities, Seller's access
to such transmission capacity shall be firm for the balance of the term of
Seller's Power Purchase Contract.
6.3 In the event that Edison enters into an agreement with a
developer other than those listed in Appendix A, Appendix B, Appendix C, or
Appendix D, which requires the use of capacity on the Additional Transmission
Facilities, Edison shall require such developer to pay a portion of the costs
of the Additional Transmission Facilities. Such payment shall be in accordance
with the formula specified in Section 5.1 of this Agreement. Such payment
shall not affect Seller's funding contribution as specified in Appendix D.
7. OWNERSHIP: Edison shall own and operate any Additional Transmission
Facilities which may be constructed or installed to fulfill Edison's
obligations pursuant to this Agreement.
8. TAXES:
8.1 Edison shall pay ad valorem taxes and other taxes properly
attributed to the Additional Transmission Facilities.
8.2 Edison may, at its sole discretion, use funds from the Funding
Account to pay taxes levied on contributions in aid of construction. However,
Seller shall not be required to pay any
-6-
<PAGE>
tax, or provide any funds for the payment of any tax, in excess of its funding
contribution as set forth in Appendix D of this Agreement.
8.3 If requested by any taxing authority, Seller or Edison, as the
case may be, shall provide information in its possession concerning the
Additional Transmission Facilities to such taxing authority.
9. NONDEDICATION OF FACILITIES: Neither Party, by this Agreement, dedicates
any part of its facilities to the public or to the service provided under the
Power Purchase Contract, and such service shall cease upon termination of the
Power Purchase Contract.
10. NOTICE: All notices pertaining to this Agreement shall be in writing and
shall be sufficient if delivered in person or sent by certified mail, postage
prepaid, return receipt requested, to Seller or to Edison at the following
address:
If to Seller: Del Ranch, Limited
c/o Red Hill Geothermal, Inc.
480 West Sinclair Road
Calipatria, CA 92233
Attention: Secretary
If to Edison: Southern California Edison Company
Post Office Box 800
Rosemead, CA 91770
Attention: Secretary
All notices sent pursuant to this Section 10 shall be effective when received,
and each Party shall be entitled to specify as its proper address any other
address in the United States upon written notice to the other Party.
-7-
<PAGE>
11. PREVIOUS COMMUNICATIONS: This Agreement contains the entire agreement
between the Parties, their agents, and employees as to the Additional
Transmission Facilities, and merges and supersedes all prior agreements,
commitments, representations, and discussions between the Parties relating
thereto. No Party shall be bound to any other obligations, conditions, or
representations with respect to the subject matter of this Agreement.
Notwithstanding the foregoing, nothing in this Agreement shall be construed to
terminate, supersede or amend the Power Purchase Contract, except if, and only
to the extent, specifically set forth herein.
12. SUCCESSORS AND ASSIGNS: This Agreement shall not be assigned by Edison
without Seller's consent, which consent shall not be unreasonably withheld.
Seller may assign this Agreement with the written consent of Edison only if
such assignment is in conjunction with assignment of the Power Purchase
Contract. Any such assignment or delegation made without said written consent
shall be null and void. Edison's consent to such assignment shall not be
unreasonably withheld. Any assignment of this Agreement in conjunction with
assignment of the Power Purchase Contract shall be in full compliance with the
applicable terms and conditions of the Power Purchase Contract. Any assignment
of this Agreement shall not relieve the Seller of its primary liability for
any of its duties and obligations hereunder unless the assignee expressly
assumes those duties and obligations in writing.
-8-
<PAGE>
13. UNCONTROLLABLE FORCE: Neither Party shall be considered to be in default
in the performance of any of its obligations under this Agreement, except for
obligations to pay money, when and to the extent failure of performance shall
be caused by an uncontrollable force. The term "uncontrollable force" shall
mean any cause beyond the control of the Party unable to perform such
obligations including, but not limited to, failure of or threat of failure of
facilities, flood, earthquake, storm, drought, fire, pestilence, lightning and
other natural catastrophes, epidemic, war, riot, civil disturbance or
disobedience, strike, labor dispute, labor or material shortage, sabotage,
government priorities, restraint by court order or public authority (whether
valid or invalid), and action or nonaction by or inability to obtain or keep
the necessary authorizations or approvals from any government agency or
authority, which by exercise of due diligence such Party could not reasonably
have been expected to avoid and which by exercise of due diligence it has been
unable to overcome. Nothing contained in this Section 13 shall be construed as
to require a Party to settle any strike or labor dispute in which it may be
involved.
14. EFFECT OF SECTION HEADINGS: Section headings appearing in this Agreement
are inserted for convenience only, and shall not be construed as
interpretations of text.
15. GOVERNING LAW: This Agreement shall be interpreted, governed, and
construed under the laws of the State of California as if executed and to be
performed wholly within the State of California.
-9-
<PAGE>
16. SIGNATURES: IN WITNESS WHEREOF, the Parties hereto have executed this
Funding Agreement this 18 day of May, 1990.
SOUTHERN CALIFORNIA EDISON COMPANY
By /s/Robert Dietch
Vice President
DEL RANCH, LIMITED
BY: RED HILL GEOTHERMAL, INC.
By /s/ Jon R. Peele
-----------------------------------
Name Jon R. Peele
---------------------------------
Title Vice President
--------------------------------
-10-
<PAGE>
EXHIBIT 10.44
APPENDIX A
DEVELOPER PROJECT CAPACITY FUNDING
--------- ------- -------- -------
Western Power Group Imperial Resource 15 MW $ 598,101.27
Unit II, Inc. Recovery (QFID
No. 1043)
Earth Energy, Inc. Salton Sea II 20 MW $ 797,468.35
(QFID No. 3028)
Magma Power Company Leathers (QFID 38 MW $1,515,189.35
No. 3026)
Ormesa Geothermal Ormesa 1E (QFID 6 MW $ 239,240.51
No. 3010) ------ -------------
TOTAL APPENDIX A 79 MW $3,150,000.00
<PAGE>
EXHIBIT 10.44
APPENDIX B
DEVELOPER PROJECT CAPACITY FUNDING
--------- ------- -------- -------
Colmac Energy, Inc. Colmac Energy, Inc. 25.8 MW $1,028,734.20
<PAGE>
APPENDIX C
DEVELOPER PROJECT CAPACITY FUNDING
--------- ------- -------- -------
Ormesa Geothermal Ormesa Geothermal 6.5 MW $259,177.22
(QFID No. 3010)
<PAGE>
APPENDIX D
DEVELOPER PROJECT CAPACITY FUNDING
--------- ------- -------- -------
Magma Power Company Vulcan/BN 6 MW $239,240.52
Geothermal (QFID
No. 3006)
Magma Power Company Del Ranch, Ltd.* 4 MW $159,493.67
(QFID No. 3004)
Magma Power Company Elmore, Ltd. (QFID 4 MW $159,493.67
No. 3009)
Magma Power Company Leathers, L.P. 4 MW $159,493.67
(QFID No. 3026) ---- -----------
TOTAL APPENDIX D 18 MW $717,721.56
*Seller
EXHIBIT 10.45
ELMORE, LTD.
FUNDING AGREEMENT
1. PARTIES: The Parties to this Funding Agreement ("Agreement") are
Elmore, Ltd., a California limited partnership ("Seller") and Southern
California Edison Company ("Edison"), a California corporation, hereinafter
sometimes referred to individually as "Party" and collectively as "Parties."
2. RECITALS: This Agreement is made with reference to the following
facts, among others:
2.1 On June 15, 1984, Edison and Magma Electric Company ("Magma
Electric") executed a Power Purchase Contract to provide the terms and
conditions for the sale by Magma Electric and the purchase by Edison of
electrical power from an electrical generating facility to be located at
Niland, California.
2.2 On November 30, 1984, Edison and Magma Electric, amended the
Power Purchase Contract (Amendment No. 1).
2.3 On April 10, 1986, Edison and Magma Electric amended the Power
Purchase Contract (Amendment No. 2).
2.4 On January 1, 1988, Magma Electric Company assigned its
rights, title, and interest in the Power Purchase Contract to Magma Power
Company ("Magma"), a Nevada corporation, to which assignment Edison consented
on March 14, 1988.
2.5 On March 14, 1988, Magma Power Company assigned its rights,
title, and interest in the Power Purchase Contract to Seller, to which
assignment Edison consented on March 14, 1988.
<PAGE>
2.6 Seller is a signatory to the Funding and Construction
Agreement ("Funding and Construction Agreement") among the Imperial Irrigation
District ("IID") and independent power companies, listed as participants
("Participants") therein, which was executed on June 29, 1987. Seller's
capacity entitlement under the Funding and Construction Agreement is
sufficient to satisfy its capacity and energy deliveries under the Power
Purchase Contract.
2.7 Seller is, at the date of execution of this Agreement, in full
compliance with the terms and conditions of the Power Purchase Contract, the
Qualifying Facilities Milestone Procedure ("QFMP") and/or Edison's Tariff Rule
21, as applicable.
2.8 Seller and Edison jointly agree that a transmission capacity
limit of 400 MW exists on the existing transmission line between Edison's
Mirage Substation and its Devers Substation (the "Mirage/Devers Line") and
that construction of additional transmission facilities may, in Edison's sole
judgment, be required to allow delivery of Seller's electrical energy and
capacity over the portion of Edison's system between Edison's Mirage and
Devers Substations. Such facilities shall hereinafter be referred to as the
"Additional Transmission Facilities."
2.9 Six (6) Qualifying Facility projects identified in Appendix A,
Appendix B, and Appendix C, attached hereto, have previously executed Funding
Agreements to pay a pro rata share of the Additional Transmission Facilities.
-2-
<PAGE>
2.10 Seller acknowledges that, because of the transmission
priority of its project under the QFMP and/or Edison's Tariff Rule No. 21, it
may not be entitled thereunder to use the existing Mirage/Devers Line to
deliver its power to Edison. Therefore, Seller is willing to pay a portion of
the cost of the Additional Transmission Facilities which may be required to
accommodate transmission of its electrical energy and capacity, as further set
forth therein.
3. AGREEMENT: The Parties agree as follows:
4. TERM: This Agreement shall be effective upon execution by the
Parties and shall remain in effect until the earliest of (a) termination by
agreement of the Parties, (b) completion of the Additional Transmission
Facilities, or (c) January 1, 1995.
5. FUNDING ACCOUNT:
5.1 Within 30 days after the date of execution of this funding
agreement, Seller shall, in the amount determined pursuant to the formula set
forth herein, either (a) provide Edison with an irrevocable letter of credit
issued by a commercial lender acceptable to Edison in its sole judgment
allowing Edison to draw the funds for use consistent with the terms and
conditions of this Agreement, or (b) establish and fund an escrow account
governed by an escrow agreement in a form acceptable to Edison, consistent
with the terms and conditions of this Agreement. The escrow account or letter
of credit so established shall hereinafter be referred to as the "Funding
Account." The dollar amount of Seller's Funding Account shall be
-3-
<PAGE>
the amount specified in Appendix D hereto as Seller's funding contribution,
which is established as follows:
X = A x (B / C)
Where: X = Seller's Funding Account in dollars
A = Seller's MW capacity as specified in
Appendix D
B = $3,150,000
C = 79 MW
Seller shall not be required to contribute any funds in excess of the amount
identified in Appendix D hereto as Seller's funding contribution.
5.2 Interest which may be paid to the Funding Account shall accrue
to the Funding Account and shall contribute to the principal when earned.
Seller shall not have any right to make withdrawals of accrued interest unless
and until the Funding Account is released to Seller pursuant to Section 5.6 of
this Agreement.
5.3 Edison shall have sole drawing rights on the funds contained
in the Funding Account. Edison may use those funds for payment of the costs
actually incurred by Edison to construct the Additional Transmission
Facilities determined necessary by Edison in its sole discretion to accept the
electric capacity and energy of Seller pursuant to the Power Purchase Contract
and to pay any taxes levied on those funds as contributions in aid of
construction.
5.4 Seller shall maintain the Funding Account in effect until the
termination of this Agreement pursuant to
-4-
<PAGE>
Section 4 hereof. Failure to do so shall cause Seller to lose its rights to
transmission capacity under this Agreement and shall cause Edison's obligation
to accept Seller's power pursuant to Sections 6.1 and 6.2 of this Agreement to
terminate.
5.5 In the event of termination of this Agreement, Edison shall
not be obligated to reimburse Seller for any funds withdrawn from the Funding
Account in accordance with the terms and conditions of this Agreement.
5.6 In the event that this Agreement has terminated pursuant to
Section 4 hereof prior to the commencement of construction of the Additional
Transmission Facilities, Edison shall promptly release Seller's Funding
Account to Seller. Seller shall have no other right to terminate or withdraw
funds from the Funding Account.
6. OBLIGATIONS OF EDISON:
6.1 As long as Seller is in compliance with all of the terms and
conditions of this Agreement, Edison shall accept power from Seller pursuant
to Seller's Power Purchase Contract on the date of Firm Operation (as that
term is defined in the Power Purchase Contract) in the amount specified in
Appendix D hereto, under the terms and conditions of Section 6.2 of this
Agreement. Purchases from Seller shall be made pursuant to the Power Purchase
Contract for energy and capacity delivered to Edison's Mirage Substation (a)
during the term of this Agreement and (b) following termination of this
Agreement only if terminated pursuant to Section 4.
-5-
<PAGE>
6.2 For that period of time between payment of funds pursuant to
Section 5.1 of this Agreement and completion and placing in service of the
Additional Transmission Facilities, Seller's access to transmission capacity
between Edison's Mirage and Devers substations, pursuant to this Agreement,
shall be on an as-available and interruptible basis. Upon completion and
placing in service of the Additional Transmission Facilities, Seller's access
to such transmission capacity shall be firm for the balance of the term of
Seller's Power Purchase Contract.
6.3 In the event that Edison enters into an agreement with a
developer other than those listed in Appendix A, Appendix B, Appendix C, or
Appendix D, which requires the use of capacity on the Additional Transmission
Facilities, Edison shall require such developer to pay a portion of the costs
of the Additional Transmission Facilities. Such payment shall be in accordance
with the formula specified in Section 5.1 of this Agreement. Such payment
shall not affect Seller's funding contribution as specified in Appendix D.
7. OWNERSHIP: Edison shall own and operate any Additional
Transmission Facilities which may be constructed or installed to fulfill
Edison's obligations pursuant to this Agreement.
-6-
<PAGE>
8. TAXES:
8.1 Edison shall pay ad valorem taxes and other taxes properly
attributed to the Additional Transmission Facilities.
8.2 Edison may, at its sole discretion, use funds from the Funding
Account to pay taxes levied on contributions in aid of construction. However,
Seller shall not be required to pay any tax, or provide any funds for the
payment of any tax, in excess of its funding contribution as set forth in
Appendix D of this Agreement.
8.3 If requested by any taxing authority, Seller or Edison, as the
case may be, shall provide information in its possession concerning the
Additional Transmission Facilities to such taxing authority.
9. NONDEDICATION OF FACILITIES: Neither Party, by this Agreement,
dedicates any part of its facilities to the public or to the service provided
under the Power Purchase Contract, and such service shall cease upon
termination of the Power Purchase Contract.
10. NOTICE: All notices pertaining to this Agreement shall be in
writing and shall be sufficient if delivered in person or sent by certified
mail, postage prepaid, return receipt requested, to Seller or to Edison at the
following address:
If to Seller: Elmore Ltd.
c/o Red Hill Geothermal, Inc.
480 W. Sinclair Road
Calipatria, CA 92233
Attention: Secretary
If to Edison: Southern California Edison Company
Post Office Box 800
-7-
<PAGE>
Rosemead, CA 91770
Attention: Secretary
All notices sent pursuant to this Section 10 shall be effective when received,
and each Party shall be entitled to specify as its proper address any other
address in the United States upon written notice to the other Party.
11. PREVIOUS COMMUNICATIONS: This Agreement contains the entire
agreement between the Parties, their agents, and employees as to the
Additional Transmission Facilities, and merges and supersedes all prior
agreements, commitments, representations, and discussions between the Parties
relating thereto. No Party shall be bound to any other obligations,
conditions, or representations with respect to the subject matter of this
Agreement. Notwithstanding the foregoing, nothing in this Agreement shall be
construed to terminate, supersede or amend the Power Purchase Contract, except
if, and only to the extent, specifically set forth herein.
12. SUCCESSORS AND ASSIGNS: This Agreement shall not be assigned by
Edison without Seller's consent, which consent shall not be unreasonably
withheld. Seller may assign this Agreement with the written consent of Edison
only if such assignment is in conjunction with assignment of the Power
Purchase Contract. Any such assignment or delegation made without said written
consent shall be null and void. Edison's consent to such assignment shall not
be unreasonably withheld. Any assignment of this Agreement in conjunction with
assignment of the Power Purchase Contract shall be in full compliance with
-8-
<PAGE>
the applicable terms and conditions of the Power Purchase Contract. Any
assignment of this Agreement shall not relieve the Seller of its primary
liability for any of its duties and obligations hereunder unless the assignee
expressly assumes those duties and obligations in writing.
13. UNCONTROLLABLE FORCE: Neither Party shall be considered to be in
default in the performance of any of its obligations under this Agreement,
except for obligations to pay money, when and to the extent failure of
performance shall be caused by an uncontrollable force. The term
"uncontrollable force" shall mean any cause beyond the control of the Party
unable to perform such obligations including, but not limited to, failure of
or threat of failure of facilities, flood, earthquake, storm, drought, fire,
pestilence, lightning and other natural catastrophes, epidemic, war, riot,
civil disturbance or disobedience, strike, labor dispute, labor or material
shortage, sabotage, government priorities, restraint by court order or public
authority (whether valid or invalid), and action or nonaction by or inability
to obtain or keep the necessary authorizations or approvals from any
government agency or authority, which by exercise of due diligence such Party
could not reasonably have been expected to avoid and which by exercise of due
diligence it has been unable to overcome. Nothing contained in this Section 13
shall be construed as to require a Party to settle any strike or labor dispute
in which it may be involved.
-9-
<PAGE>
14. EFFECT OF SECTION HEADINGS: Section headings appearing in this
Agreement are inserted for convenience only, and shall not be construed as
interpretations of text.
15. GOVERNING LAW: This Agreement shall be interpreted, governed, and
construed under the laws of the State of California as if executed and to be
performed wholly within the State of California.
16. SIGNATURES: IN WITNESS WHEREOF, the Parties hereto have executed
this Funding Agreement this 18th day of May, 1990.
SOUTHERN CALIFORNIA EDISON COMPANY
By /s/ Robert Dietch
Vice President
ELMORE LTD.
BY: RED HILL GEOTHERMAL, INC.
By /s/ Jon R. Peele
------------------------------------
Name Jon R. Peele
----------------------------------
Title Vice President
---------------------------------
-10-
<PAGE>
APPENDIX A
DEVELOPER PROJECT CAPACITY FUNDING
--------- ------- -------- -------
Western Power Imperial 15 MW $ 598,101.27
Group Unit II, Resource
Inc. Recovery (QFID
No. 1043)
Earth Energy, Salton Sea II 20 MW $ 797,468.35
Inc. (QFID No. 3028)
Magma Power Leathers (QFID 38 MW $1,515,189.35
Company No. 3026)
Ormesa Ormesa 1E 6 MW $ 239,240.51
Geothermal (QFID No. 3010)
----- -------------
TOTAL APPENDIX A 79 MW $3,150,000.00
-11-
<PAGE>
APPENDIX B
DEVELOPER PROJECT CAPACITY FUNDING
--------- ------- -------- -------
Colmac Energy, Colmac Energy, 25.8 MW $1,028,734.20
Inc. Inc.
-12-
<PAGE>
APPENDIX C
DEVELOPER PROJECT CAPACITY FUNDING
--------- ------- -------- -------
Ormesa Ormesa 6.5 MW $ 259,177.22
Geothermal Geothermal
(QFID No. 3010)
-13-
<PAGE>
APPENDIX D
DEVELOPER PROJECT CAPACITY FUNDING
--------- ------- -------- -------
Magma Power Vulcan/BN 6 MW $ 239,240.52
Company Geothermal (QFID
No. 3006)
Magma Power Del Ranch, Ltd. 4 MW $ 159,493.67
Company (QFID No. 3004)
Magma Power Elmore, Ltd.* 4 MW $ 159,493.67
Company (QFID No. 3009)
Magma Power Leathers, L.P. 4 MW $ 159,493.67
Company (QFID No. 3026)
----- ------------
TOTAL APPENDIX D 18 MW $ 717,721.56
* Seller
-14-
EXHIBIT 10.46
FUNDING AGREEMENT
1. PARTIES: The Parties to this Funding Agreement ("Agreement") are Magma
Power Company, a Nevada corporation ("Seller") and Southern California Edison
Company ("Edison"), a California corporation, hereinafter sometimes referred
to individually as "Party" and collectively as "Parties."
2. RECITALS: This Agreement is made with reference to the following facts,
among others:
2.1 On April 16, 1985, Imperial Energy Corporation ("IEC") and Edison
entered into a Long Term Power Purchase Contract (the "Power Purchase
Contract"). IEC assigned the Power Purchase Contract to Magma on January 22,
1986 to which assignment Edison consented on March 12, 1986. On April 10,
1988, Magma and Edison executed Amendment No. 1 to the Power Purchase Contract
(the "First Amendment"). The Power Purchase Contract, as amended by the First
Amendment, is hereinafter referred to as the "Power Purchase Contract." Magma
is developing a 38 megawatt ("MW") (nameplate capacity) geothermal electric
power production facility (the "Leathers Plant") in the Imperial Valley at
Niland, California, the electricity from which will be sold to Edison under
the Power Purchase Contract.
2.2 Seller is a signatory to the Funding and Construction Agreement
("Funding and Construction Agreement") among the Imperial Irrigation District
("IID") and independent power companies, listed as participants
("Participants") therein, which was executed on June 29, 1987. Seller's
capacity entitlement
<PAGE>
under the Funding and Construction Agreement is sufficient to satisfy its
capacity and energy deliveries under the Power Purchase Contract.
2.3 Seller is, at the date of execution of this Agreement, in full
compliance with the terms and conditions of the Power Purchase Contract, the
Qualifying Facilities Milestone Procedure ("QFMP") and/or Edison's Tariff Rule
21, as applicable.
2.4 Seller and Edison jointly agree that a transmission limit of 400 MW
exists on the capacity of the existing transmission line between Edison's
Mirage Substation and its Devers Substation (the "Mirage/Devers Line") and
that construction of additional transmission facilities may, in Edison's sole
judgment, be required to allow delivery of Seller's electrical energy and
capacity over the portion of Edison's system between Edison's Mirage and
Devers substations. Such facilities shall hereinafter be referred to as the
"Additional Transmission Facilities."
2.5 Seller acknowledges that, because of the transmission priority of its
project under the QFMP and/or Edison's Tariff Rule No. 21, it may not be
entitled thereunder to use the existing Mirage/Devers Line to deliver its
power to Edison. Therefore, Seller is willing to pay a portion of the cost of
the Additional Transmission Facilities which may be required to accommodate
transmission of its electrical energy and capacity, as further set forth
therein.
-2-
<PAGE>
3. AGREEMENT: The Parties agree as follows:
4. TERM: Except as provided in Section 5 hereof, this Agreement shall be
effective upon execution by the Parties and shall remain in effect until the
earliest of (a) termination by agreement of the Parties, (b) completion of the
Additional Transmission Facilities, (c) the termination, prior to the
commencement of construction of the Additional Transmission Facilities, of
existing power purchase contracts with an aggregate nameplate capacity of at
least 88.5 MW which have transmission priority under the QFMP or Edison's
Tariff Rule No. 21, as applicable, on the Mirage/Devers Line superior to the
transmission priority of the projects identified in Appendix A hereto, or (d)
January 1, 1995.
5. CONDITION PRECEDENT: This Agreement shall not be effective until the
execution of funding agreements in substantially the form of this Agreement
with all of the developers listed in Appendix A, and the posting of a total of
at least $3.15 million (including Seller's funds) into either escrow accounts
or irrevocable letters of credit, as further set forth in Section 6, by such
developers, whose identity and funding contribution are set forth in Appendix
A to this Agreement.
6. FUNDING ACCOUNT:
6.1 Within 30 days after the last date of execution of a separate funding
agreement in substantially the form of this Agreement by each developer listed
in Appendix A hereto, Seller shall, in the amount determined pursuant to the
formula set forth herein, either (a) provide Edison with an irrevocable letter
of
-3-
<PAGE>
credit issued by a commercial lender acceptable to Edison in its sole judgment
allowing Edison to draw the funds for use consistent with the terms and
conditions of this Agreement. The escrow account or letter of credit so
established shall hereinafter be referred to as the "Funding Account." The
dollar amount of Seller's Funding Account shall be the amount specified in
Appendix A hereto as Seller's funding contribution, which is established as
follows:
X = A x (B / C)
Where: X = Seller's Funding Account in dollars
A = Seller's MW capacity as specified in
Appendix A
B = $3,150,000
C = 79 MW
Seller shall not be required to contribute any funds in excess of the amount
identified in Appendix A hereto as Seller's funding contribution.
6.2 Interest which may be paid to the Funding Account shall accrue to the
Funding Account and shall contribute to the principal when earned. Seller
shall not have any right to make withdrawals of accrued interest unless and
until the Funding Account is released to Seller pursuant to Section 6.6 of
this Agreement.
6.3 Edison shall have sole drawing rights on the funds contained in
the Funding Account. Edison may use those funds for payment of the costs
actually incurred by Edison to construct the Additional Transmission
Facilities determined necessary by Edison
-4-
<PAGE>
in its sole discretion to accept the electric capacity and energy of Seller
pursuant to the Power Purchase Contract and to pay any taxes levied on those
funds as contributions in aid of construction.
6.4 Seller shall maintain the Funding Account in effect until the
termination of this Agreement pursuant to Section 4 hereof. Failure to do so
shall cause Seller to lose its rights to transmission capacity under this
Agreement and shall cause Edison's obligation to accept Seller's power
pursuant to Section 7.1 of this Agreement to terminate.
6.5 In the event of termination of this Agreement, Edison shall not be
obligated to reimburse Seller for any funds withdrawn from the Funding Account
in accordance with the terms and conditions of this Agreement.
6.6 In the event that this Agreement has terminated pursuant to Section 4
hereof prior to the commencement of construction of the Additional
Transmission Facilities, Edison shall promptly release Seller's Funding
Account to Seller. Seller shall have no other right to terminate or withdraw
funds from the Funding Account.
7. OBLIGATIONS OF EDISON:
7.1 As long as Seller is in compliance with all of the terms and
conditions of this Agreement, Edison shall accept power from Seller pursuant
to Seller's Power Purchase Contract on the date of Firm Operation (as that
term is defined in the Power Purchase Contract) in the amount specified in
Appendix A hereto, regardless of the status of the Additional Transmission
-5-
<PAGE>
Facilities on such date. Purchases from Seller shall be made pursuant to the
Power Purchase Contract for energy and capacity delivered to Edison's Mirage
Substation (a) during the term of this Agreement and (b) following termination
of this Agreement only if terminated pursuant to Section 4.
7.2 In the event that Edison enters into an agreement with a developer
other than those listed in Appendix A which requires the use of capacity on
the Additional Transmission Facilities, Edison shall require such developer to
pay a portion of the costs of the Additional Transmission Facilities. Such
payment shall be in accordance with the formula specified in Section 6.1 of
this Agreement. Such payment shall not affect Seller's funding contribution as
specified in Appendix A.
8. OWNERSHIP: Edison shall own and operate any Additional Transmission
Facilities which may be constructed or installed to fulfill Edison's
obligations pursuant to this Agreement.
9. TAXES:
9.1 Edison shall pay ad valorem taxes and other taxes properly attributed to
the Additional Transmission Facilities.
9.2 Edison may, at its sole discretion, use funds from the Funding Account
to pay taxes levied on contributions in aid of construction. However, Seller
shall not be required to pay any tax, or provide any funds for the payment of
any tax, in excess of its funding contribution as set forth in Appendix A of
this Agreement.
9.3 If requested by any taxing authority, Seller or Edison, as the case may
be, shall provide information in its possession
-6-
<PAGE>
concerning the Additional Transmission Facilities to such taxing authority.
10. NONDEDICATION OF FACILITIES: Neither Party, by this Agreement, dedicates
any part of its facilities to the public or to the service provided under the
Power Purchase Contract, and such service shall cease upon termination of the
Power Purchase Contract.
11. NOTICES: All notices pertaining to this Agreement shall be in writing and
shall be sufficient if delivered in person or sent by certified mail, postage
prepaid, return receipt requested, to Seller or to Edison at the following
address:
If to Seller: Magma Power Company
11770 Bernardo Plaza Court Suite 366
San Diego, CA 92129
Attention: Secretary
If to Edison: Southern California Edison Company
Post Office Box 800
Rosemead, CA 91770
Attention: Secretary
All notices sent pursuant to this Section 11 shall be effective when received,
and each Party shall be entitled to specify as its proper address any other
address in the United States upon written notice to the other Party.
12. PREVIOUS COMMUNICATIONS: This Agreement contains the entire agreement
between the Parties, their agents, and employees as to the Additional
Transmission Facilities, and merges and supersedes all prior agreements,
commitments, representations, and discussions between the Parties relating
thereto. No Party shall be bound to any other obligations, conditions, or
representations with respect to the subject matter of this Agreement.
-7-
<PAGE>
Notwithstanding the foregoing, nothing in this Agreement shall be construed to
terminate, supersede or amend the Power Purchase Contract, except if, and only
to the extent, specifically set forth herein.
13. SUCCESSORS AND ASSIGNS: This Agreement shall not be assigned by Edison
without Seller's consent, which consent shall not be unreasonably withheld.
Seller may assign this Agreement with the written consent of Edison only if
such assignment is in conjunction with assignment of the Power Purchase
Contract. Any such assignment or delegation made without said written consent
shall be null and void. Edison's consent to such assignment shall not be
unreasonably withheld. Any assignment of this Agreement in conjunction with
assignment of the Power Purchase Contract shall be in full compliance with the
applicable terms and conditions of the Power Purchase Contract. Any assignment
of this Agreement shall not relieve the Seller of its primary liability for
any of its duties and obligations hereunder unless the assignee expressly
assumes those duties and obligations in writing.
14. UNCONTROLLABLE FORCE: Neither Party shall be considered to be in default
in the performance of any of its obligations under this Agreement, except for
obligations to pay money, when and to the extent failure of performance shall
be caused by an uncontrollable force. The term "uncontrollable force" shall
mean any cause beyond the control of the Party unable to perform such
obligations including, but not limited to, failure of or threat of failure of
facilities, flood, earthquake, storm, drought,
-8-
<PAGE>
fire, pestilence, lightning and other natural catastrophes, epidemic, war,
riot, civil disturbance or disobedience, strike, labor dispute, labor or
material shortage, sabotage, government priorities, restraint by court order
or public authority (whether valid or invalid), and action or nonaction by or
inability to obtain or keep the necessary authorizations or approvals from any
government agency or authority, which by exercise of due diligence such Party
could not reasonably have been expected to avoid and which by exercise of due
diligence it has been unable to overcome. Nothing contained in this Section 14
shall be construed as to require a Party to settle any strike or labor dispute
in which it may be involved.
15. EFFECT OF SECTION HEADINGS: Section headings appearing in this Agreement
are inserted for convenience only, and shall not be construed as
interpretations of text.
16. GOVERNING LAW: This Agreement shall be interpreted, governed, and
construed under the laws of the State of California as if executed and to be
performed wholly within the State of California.
-9-
<PAGE>
17. SIGNATURES: IN WITNESS WHEREOF, the Parties hereto have executed this
Funding Agreement this 15 day of June, 1988.
SOUTHERN CALIFORNIA EDISON COMPANY
By /s/ Glenn J. Bjorklund
Vice President
MAGMA POWER COMPANY
By /s/ Andrew W. Hoch
Title: Chairman of the Board
-10-
<PAGE>
APPENDIX A
DEVELOPER PROJECT CAPACITY FUNDING
--------- ------- -------- -------
Western Power Imperial Resource 15 MW $ 598,101.27
Group Unit II, Recovery (QFID
Inc. No. 1043)
Earth Energy, Salton Sea II 20 MW $ 797,468.35
Inc. (QFID No. 3028)
Magma Power Leathers (QFID 38 MW $1,515,189.87
Company No. 3026)
Ormesa Ormesa 1E 6 MW $ 239,240.51
Geothermal (QFID No. 3010)
----- -------------
TOTAL 79 MW $3,150,000.00
-11-
EXHIBIT 10.47
LEATHERS
FUNDING AGREEMENT
1. PARTIES: The Parties to this Funding Agreement ("Agreement") are
Leathers, L.P., a California limited partnership ("Seller") and Southern
California Edison Company ("Edison"), a California corporation, hereinafter
sometimes referred to individually as "Party" and collectively as "Parties."
2. RECITALS: This Agreement is made with reference to the following
facts, among others:
2.1 On April 16, 1985, Imperial Energy Corporation ("IEC") and Edison
executed a Power Purchase Contract to provide the terms and conditions for the
sale by IEC and the purchase by Edison of electrical power from an electrical
generating facility to be located at Niland, California.
2.2 On January 22, 1986, IEC assigned its rights, title, and interest
in the Power Purchase Contract to Magma Power Company ("Magma"), a Nevada
corporation to which assignment Edison consented on March 12, 1986.
2.3 On April 10, 1988, Edison and Magma amended the Power Purchase
Contract (Amendment No. 1).
2.4 On August 15, 1988, Magma assigned its rights, title, and
interest in the Power Purchase Contract to Seller, to which assignment Edison
consented on October 19, 1988.
2.5 Magma, on behalf of Seller, is a signatory to the Funding and
Construction Agreement ("Funding and Construction Agreement") among the
Imperial Irrigation District ("IID") and
<PAGE>
independent power companies, listed as participants ("Participants") therein,
which was executed on June 29, 1987. Seller's capacity entitlement under the
Funding and Construction Agreement is sufficient to satisfy its capacity and
energy deliveries under the Power Purchase Contract.
2.6 Seller is, as of the date of execution of this Agreement, in full
compliance with the terms and conditions of the Power Purchase Contract, the
Qualifying Facilities Milestone Procedure ("QFMP"), and/or Edison's Tariff
Rule 21, as applicable.
2.7 Seller and Edison jointly agree that a transmission limit of 400
MW exists on the capacity of the existing transmission line between Edison's
Mirage Substation and its Devers Substation (the "Mirage/Devers Line") and
that construction of additional transmission facilities may, in Edison's sole
judgment, be required to allow delivery of Seller's electrical energy and
capacity over the portion of Edison's system between Edison's Mirage and
Devers Substations. Such facilities shall hereinafter be referred to as the
"Additional Transmission Facilities."
2.8 Six (6) Qualifying Facility projects identified in Appendix A,
Appendix B, and Appendix C attached hereto, have previously executed Funding
Agreements to pay a pro rata share of the Additional Transmission Facilities.
2.9 Seller acknowledges that, because of the transmission priority of
its project under the QFMP and/or Edison's Tariff Rule No. 21, it may not be
entitled thereunder to use the
-2-
<PAGE>
existing Mirage/Devers Line to deliver its power to Edison. Therefore, Seller
is willing to pay a portion of the cost of the Additional Transmission
Facilities which may be required to accommodate transmission of its electrical
energy and capacity, as further set forth herein.
2.10 On June 15, 1988, Magma, on behalf of Seller, and Edison entered
into a Funding Agreement (the "1988 Funding Agreement"). The terms and
conditions of the 1988 Funding Agreement shall be separate and apart from this
Funding Agreement. The terms and conditions of either this Funding Agreement
or the 1988 Funding Agreement shall not be construed to influence or impact
the terms and conditions of the other.
3. AGREEMENT: The Parties agree as follows:
4. TERM: This Agreement shall be effective upon execution by the Parties
and shall remain in effect until the earliest of (a) termination by agreement
of the Parties, (b) completion of the Additional Transmission Facilities, or
(c) January 1, 1995.
5. FUNDING ACCOUNT:
5.1 Within 30 days after the date of execution of this funding
agreement, Seller shall, in the amount determined pursuant to the formula set
forth herein, either (a) provide Edison with an irrevocable letter of credit
issued by a commercial lender acceptable to Edison in its sole judgment
allowing Edison to draw the funds for use consistent with the terms and
conditions of this Agreement, or (b) establish and fund an escrow account
governed by an escrow agreement in a form acceptable to Edison, consistent
with the terms and conditions of
-3-
<PAGE>
this Agreement. The escrow account or letter of credit so established shall
hereinafter be referred to as the "Funding Account." The dollar amount of
Seller's Funding Account shall be the amount specified in Appendix D hereto as
Seller's funding contribution, which is established as follows:
X = A x (B / C)
Where: X = Seller's Funding Account in dollars
A = Seller's MW capacity as specified in Appendix D
B = $3,150,000
C = 79 MW
Seller shall not be required to contribute any funds in excess of the amount
identified in Appendix D hereto as Seller's funding contribution.
5.2 Interest which may be paid to the Funding Account shall accrue to
the Funding Account and shall contribute to the principal when earned. Seller
shall not have any right to make withdrawals of accrued interest unless and
until the Funding Account is released to Seller pursuant to Section 5.6 of
this Agreement.
5.3 Edison shall have sole drawing rights on the funds contained in
the Funding Account. Edison may use those funds for payment of the costs
actually incurred by Edison to construct the Additional Transmission
Facilities determined necessary by Edison in its sole discretion to accept the
electric capacity and energy of Seller pursuant to the Power Purchase Contract
and to pay any
-4-
<PAGE>
taxes levied on those funds as contributions in aid of construction.
5.4 Seller shall maintain the Funding Account in effect until the
termination of this Agreement pursuant to Section 4 hereof. Failure to do so
shall cause Seller to lose its rights to transmission capacity under this
Agreement and shall cause Edison's obligation to accept Seller's power
pursuant to Sections 6.1 and 6.2 of this Agreement to terminate.
5.5 In the event of termination of this Agreement, Edison shall not
be obligated to reimburse Seller for any funds withdrawn from the Funding
Account in accordance with the terms and conditions of this Agreement.
5.6 In the event that this Agreement has terminated pursuant to
Section 4 hereof prior to the commencement of construction of the Additional
Transmission Facilities, Edison shall promptly release Seller's Funding
Account to Seller. Seller shall have no other right to terminate or withdraw
funds from the Funding Account.
6. OBLIGATIONS OF EDISON:
6.1 As long as Seller is in compliance with all of the terms and
conditions of this Agreement, and subject to Section 6.2, Edison shall accept
power from Seller pursuant to Seller's Power Purchase Contract on the date of
Firm Operation (as that term is defined in the Power Purchase Contract) in the
amount specified in Appendix D hereto, under the terms and conditions of
Section 6.2 of this Agreement. Purchases from Seller shall be made pursuant to
the Power Purchase Contract for energy and
-5-
<PAGE>
capacity delivered to Edison's Mirage Substation (a) during the term of this
Agreement and (b) following termination of this Agreement only if terminated
pursuant to Section 4.
6.2 For that period of time between establishment of the Funding
Account pursuant to Section 5.1 of this Agreement and completion and placing
in service of the Additional Transmission Facilities, Seller's access to
transmission capacity between Edison's Mirage and Devers substations, pursuant
to this Agreement, shall be on an as-available and interruptible basis. Upon
completion and placing in service of the Additional Transmission Facilities,
Seller's access to such transmission capacity shall be firm for the balance of
the term of Seller's Power Purchase Contract.
6.3 In the event that Edison enters into an agreement with a
developer other than those listed in Appendix A, Appendix B, Appendix C, or
Appendix D, which requires the use of capacity on the Additional Transmission
Facilities, Edison shall require such developer to pay a portion of the costs
of the Additional Transmission Facilities. Such payment shall be in accordance
with the formula specified in Section 5.1 of this Agreement. Such payment
shall not affect Seller's funding contribution as specified in Appendix A or
Appendix D.
7. OWNERSHIP: Edison shall own and operate any Additional
Transmission Facilities which may be constructed or installed to fulfill
Edison's obligations pursuant to this Agreement.
8. TAXES:
-6-
<PAGE>
8.1 Edison shall pay ad valorem taxes and other taxes properly
attributed to the Additional Transmission Facilities.
8.2 Edison may, at its sole discretion, use funds from the Funding
Account to pay taxes levied on contributions in aid of construction. However,
Seller shall not be required to pay any tax, or provide any funds for the
payment of any tax, in excess of its funding contribution as set forth in
Appendix A or Appendix D of this Agreement.
8.3 If requested by any taxing authority, Seller or Edison, as the
case may be, shall provide information in its possession concerning the
Additional Transmission Facilities to such taxing authority.
9. NONDEDICATION OF FACILITIES: Neither Party, by this
Agreement, dedicates any part of its facilities to the public or
to the service provided under the Power Purchase Contract, and
such service shall cease upon termination of the Power Purchase
Contract.
10. NOTICE: All notices pertaining to this Agreement shall be
in writing and shall be sufficient if delivered in person or sent
by certified mail, postage prepaid, return receipt requested, to
Seller or to Edison at the following address:
If to Seller: Leathers, L.P.
c/o Red Hill Geothermal, Inc.
480 W. Sinclair Road
Calipatria, CA 92233
Attention: Secretary
If to Edison: Southern California Edison Company
Post Office Box 800
Rosemead, CA 91770
Attention: Secretary
-7-
<PAGE>
All notices sent pursuant to this Section 10 shall be effective when received,
and each Party shall be entitled to specify as its proper address any other
address in the United States upon written notice to the other Party.
11. PREVIOUS COMMUNICATIONS: This Agreement contains the entire agreement
between the Parties, their agents, and employees as to the Additional
Transmission Facilities, and merges and supersedes all prior agreements,
commitments, representations, and discussions between the Parties relating
thereto. No Party shall be bound to any other obligations, conditions, or
representations with respect to the subject matter of this Agreement.
Notwithstanding the foregoing, nothing in this Agreement shall be construed to
terminate, supersede or amend the Power Purchase Contract, except if, and only
to the extent, specifically set forth herein.
12. SUCCESSORS AND ASSIGNS: This Agreement shall not be assigned by Edison
without Seller's consent, which consent shall not be unreasonably withheld.
Seller may assign this Agreement with the written consent of Edison only if
such assignment is in conjunction with assignment of the Power Purchase
Contract. Any such assignment or delegation made without said written consent
shall be null and void. Edison's consent to such assignment shall not be
unreasonably withheld. Any assignment of this Agreement in conjunction with
assignment of the Power Purchase Contract shall be in full compliance with the
applicable terms and conditions of the Power Purchase Contract. Any assignment
of this Agreement
shall not relieve the Seller of its primary
-8-
<PAGE>
liability for any of its duties and obligations hereunder unless the assignee
expressly assumes those duties and obligations in writing.
13. UNCONTROLLABLE FORCE: Neither Party shall be considered to
be in default in the performance of any of its obligations under this
Agreement, except for obligations to pay money, when and to the extent failure
of performance shall be caused by an uncontrollable force. The term
"uncontrollable force" shall mean any cause beyond the control of the Party
unable to perform such obligations including, but not limited to, failure of
or threat of failure of facilities, flood, earthquake, storm, drought, fire,
pestilence, lightning and other natural catastrophes, epidemic, war, riot,
civil disturbance or disobedience, strike, labor dispute, labor or material
shortage, sabotage, government priorities, restraint by court order or public
authority (whether valid or invalid), and action or nonaction by or inability
to obtain or keep the necessary authorizations or approvals from any
government agency or authority, which by exercise of due diligence such Party
could not reasonably have been expected to avoid and which by exercise of due
diligence it has been unable to overcome. Nothing contained in this Section 13
shall be construed as to require a Party to settle any strike or labor dispute
in which it may be involved.
14. EFFECT OF SECTION HEADINGS: Section headings appearing in this
Agreement are inserted for convenience only, and shall not be construed as
interpretations of text.
-9-
<PAGE>
15. GOVERNING LAW: This Agreement shall be interpreted, governed, and
construed under the laws of the State of California as if executed and to be
performed wholly within the State of California.
16. SIGNATURES: IN WITNESS WHEREOF, the Parties hereto have
executed this Funding Agreement this 18 day of May, 1990.
SOUTHERN CALIFORNIA EDISON COMPANY
By /s/ Robert Dietch
Vice President
LEATHERS, L.P.
BY: RED HILL GEOTHERMAL, INC.
By /s/ Jon R. Peele
---------------------------------
Name Jon R. Peele
-------------------------------
Title Vice President
------------------------------
-10-
<PAGE>
APPENDIX A
DEVELOPER PROJECT CAPACITY FUNDING
--------- ------- -------- -------
Western Power Imperial Resource 15 MW $ 598,101.27
Group Unit II, Recovery (QFID
Inc. No. 1043)
Earth Energy, Salton Sea II 20 MW $ 797,468.35
Inc. (QFID No. 3028)
Magma Power Leathers (QFID 38 MW $1,515,189.35
Company No. 3026)
Ormesa Ormesa 1E 6 MW $ 239,240.51
Geothermal (QFID No. 3010) ----- -------------
TOTAL APPENDIX A 79 MW $3,150,000.00
-11-
<PAGE>
APPENDIX B
DEVELOPER PROJECT CAPACITY FUNDING
--------- ------- -------- -------
Colmac Energy, Colmac Energy, 25.8 MW $1,028,734.20
Inc. Inc.
-12-
<PAGE>
APPENDIX C
DEVELOPER PROJECT CAPACITY FUNDING
--------- ------- -------- -------
Ormesa Ormesa Geothermal 6.5 MW $259,177.22
Geothermal (QFID No. 3010)
-13-
<PAGE>
APPENDIX D
DEVELOPER PROJECT CAPACITY FUNDING
--------- ------- -------- -------
Magma Power Vulcan/BN 6 MW $239,240.52
Company Geothermal
(QFID No. 3006)
Magma Power Del Ranch, Ltd. 4 MW $159,493.68
Company (QFID No. 3004)
Magma Power Elmore, Ltd. 4 MW $159,493.68
Company (QFID No. 3009)
Magma Power Leathers, L.P.* 4 MW $159,493.68
Company (QFID No. 3026) ----- -----------
TOTAL APPENDIX D 18 MW $717,721.56
* Seller
-14-
EXHIBIT 10.48
VULCAN/BN
FUNDING AGREEMENT
1. PARTIES: The Parties to this Funding Agreement ("Agreement") are
Vulcan/BN Geothermal Power Company, a California partnership ("Seller") and
Southern California Edison Company ("Edison"), a California corporation,
hereinafter sometimes referred to individually as "Party" and collectively as
"Parties."
2. RECITALS: This Agreement is made with reference to the following
facts, among others:
2.1 On March 1, 1984, Edison and Magma Electric Co. ("Magma")
executed a Power Purchase Contract to provide the terms and conditions for the
sale by Magma and the purchase by Edison of electrical power from an electrical
generating facility located at Niland, California.
2.2 On May 10, 1984, Edison and Magma amended the Power Purchase
Contract (Amendment No. 1).
2.3 On January 4, 1985, Magma assigned its rights, title, and
interest in the Power Purchase Contract to Vulcan Power Company, to which
assignment Edison consented on January 11, 1985.
2.4 On August 30, 1985, Vulcan Power Company assigned its
rights, title, and interest in the Power Purchase Contract to Seller, to which
assignment Edison consented on September 25, 1985.
2.5 On April 1, 1986, Edison and Seller amended the Power
Purchase Contract (Amendment No. 2).
<PAGE>
2.6 Seller is a signatory to the Funding and Construction
Agreement ("Funding and Construction Agreement") among the Imperial Irrigation
District ("IID") and independent power companies, listed as participants
("Participants") therein, which was executed on June 29, 1987. Seller's
capacity entitlement under the Funding and Construction Agreement is
sufficient to satisfy its capacity and energy deliveries under the Power
Purchase Contract.
2.7 Seller is, at the date of execution of this Agreement, in
full compliance with the terms and conditions of the Power Purchase Contract,
the Qualifying Facilities Milestone Procedure ("QFMP") and/or Edison's Tariff
Rule 21, as applicable.
2.8 Seller and Edison jointly agree that a transmission capacity
limit of 400 MW exists on the existing transmission line between Edison's
Mirage Substation and its Devers Substation (the "Mirage/Devers Line") and
that construction of additional transmission facilities may, in Edison's sole
judgment, be required to allow delivery of Seller's electrical energy and
capacity over the portion of Edison's system between Edison's Mirage and
Devers Substations. Such facilities shall hereinafter be referred to as the
"Additional Transmission Facilities."
2.9 Six (6) Qualifying Facility projects identified in Appendix
A, Appendix B, and Appendix C, attached hereto, have previously executed
Funding Agreements to pay a pro rata share of the Additional Transmission
Facilities.
-2-
<PAGE>
2.10 Seller acknowledges that, because of the transmission
priority of its project under the QFMP and/or Edison's Tariff Rule No. 21, it
may not be entitled thereunder to use the existing Mirage/Devers Line to
deliver its power to Edison. Therefore, Seller is willing to pay a portion of
the cost of the Additional Transmission Facilities which may be required to
accommodate transmission of its electrical energy and capacity, as further set
forth therein.
3. AGREEMENT: The Parties agree as follows:
4. TERM: This Agreement shall be effective upon execution by the
Parties and shall remain in effect until the earliest of (a) termination by
agreement of the Parties, (b) completion of the Additional Transmission
Facilities, or (c) January 1, 1995.
5. FUNDING ACCOUNT:
5.1 Within 30 days after the date of execution of this funding
agreement, Seller shall, in the amount determined pursuant to the formula set
forth herein, either (a) provide Edison with an irrevocable letter of credit
issued by a commercial lender acceptable to Edison in its sole judgment
allowing Edison to draw the funds for use consistent with the terms and
conditions of this Agreement, or (b) establish and fund an escrow account
governed by an escrow agreement in a form acceptable to Edison, consistent
with the terms and conditions of this Agreement. The escrow account or letter
of credit so established shall hereinafter be referred to as the "Funding
Account." The dollar amount of Seller's Funding Account shall be
-3-
<PAGE>
the amount specified in Appendix D hereto as Seller's funding contribution,
which is established as follows:
X = A x (B / C)
Where: X = Seller's Funding Account in dollars
A = Seller's MW capacity as specified in Appendix D
B = $3,150,000
C = 79 MW
Seller shall not be required to contribute any funds in excess of the amount
identified in Appendix D hereto as Seller's funding contribution.
5.2 Interest which may be paid to the Funding Account shall
accrue to the Funding Account and shall contribute to the principal when
earned. Seller shall not have any right to make withdrawals of accrued
interest unless and until the Funding Account is released to Seller pursuant
to Section 5.6 of this Agreement.
5.3 Edison shall have sole drawing rights on the funds contained
in the Funding Account. Edison may use those funds for payment of the costs
actually incurred by Edison to construct the Additional Transmission
Facilities determined necessary by Edison in its sole discretion to accept the
electric capacity and energy of Seller pursuant to the Power Purchase Contract
and to pay any taxes levied on those funds as contributions in aid of
construction.
5.4 Seller shall maintain the Funding Account in effect until
the termination of this Agreement pursuant to Section 4 hereof. Failure to do
so shall cause Seller to lose
-4-
<PAGE>
its rights to transmission capacity under this Agreement and shall cause
Edison's obligation to accept Seller's power pursuant to Sections 6.1 and 6.2
of this Agreement to terminate.
5.5 In the event of termination of this Agreement, Edison shall
not be obligated to reimburse Seller for any funds withdrawn from the Funding
Account in accordance with the terms and conditions of this Agreement.
5.6 In the event that this Agreement has terminated pursuant to
Section 4 hereof prior to the commencement of construction of the Additional
Transmission Facilities, Edison shall promptly release Seller's Funding
Account to Seller. Seller shall have no other right to terminate or withdraw
funds from the Funding Account.
6. OBLIGATIONS OF EDISON:
6.1 As long as Seller is in compliance with all of the terms and
conditions of this Agreement, Edison shall accept power from Seller pursuant
to Seller's Power Purchase Contract on the date of Firm Operation (as that
term is defined in the Power Purchase Contract) in the amount specified in
Appendix D hereto, under the terms and conditions of Section 6.2 of this
Agreement. Purchases from Seller shall be made pursuant to the Power Purchase
Contract for energy and capacity delivered to Edison's Mirage Substation (a)
during the term of this Agreement and (b) following termination of this
Agreement only if terminated pursuant to Section 4.
6.2 For that period of time between payment of funds pursuant to
Section 5.1 of this Agreement and completion
-5-
<PAGE>
and placing in service of the Additional Transmission Facilities, Seller's
access to transmission capacity between Edison's Mirage and Devers
substations, pursuant to this Agreement, shall be on an as-available and
interruptible basis. Upon completion and placing in service of the Additional
Transmission Facilities, Seller's access to such transmission capacity shall
be firm for the balance of the term of Seller's Power Purchase Contract.
6.3 In the event that Edison enters into an agreement with a
developer other than those listed in Appendix A, Appendix B, Appendix C, or
Appendix D, which requires the use of capacity on the Additional Transmission
Facilities, Edison shall require such developer to pay a portion of the costs
of the Additional Transmission Facilities. Such payment shall be in accordance
with the formula specified in Section 5.1 of this Agreement. Such payment
shall not affect Seller's funding contribution as specified in Appendix D.
7. OWNERSHIP: Edison shall own and operate any Additional
Transmission Facilities which may be constructed or installed to fulfill
Edison's obligations pursuant to this Agreement.
8. TAXES:
8.1 Edison shall pay ad valorem taxes and other taxes properly
attributed to the Additional Transmission Facilities.
8.2 Edison may, at its sole discretion, use funds from the
Funding Account to pay taxes levied on contributions in aid of construction.
However, Seller shall not be required to
-6-
<PAGE>
pay any tax, or provide any funds for the payment of any tax, in excess of its
funding contribution as set forth in Appendix D of this Agreement.
8.3 If requested by any taxing authority, Seller or Edison, as
the case may be, shall provide information in its possession concerning the
Additional Transmission Facilities to such taxing authority.
9. NONDEDICATION OF FACILITIES: Neither Party, by this Agreement,
dedicates any part of its facilities to the public or to the service provided
under the Power Purchase Contract, and such service shall cease upon
termination of the Power Purchase Contract.
10. NOTICE: All notices pertaining to this Agreement shall be in
writing and shall be sufficient if delivered in person or sent by certified
mail, postage prepaid, return receipt requested, to Seller or to Edison at the
following address:
If to Seller: Vulcan/BN Geothermal Power Company
c/o Vulcan Power Company, Partner
11770 Bernardo Plaza Court
Suite 366
San Diego, CA 92129
Attention: Secretary
If to Edison: Southern California Edison Company
Post Office Box 800
Rosemead, CA 91770
Attention: Secretary
All notices sent pursuant to this Section 10 shall be effective when received,
and each Party shall be entitled to specify as its proper address any other
address in the United States upon written notice to the other Party.
-7-
<PAGE>
11. PREVIOUS COMMUNICATIONS: This Agreement contains the entire
agreement between the Parties, their agents, and employees as to the
Additional Transmission Facilities, and merges and supersedes all prior
agreements, commitments, representations, and discussions between the Parties
relating thereto. No Party shall be bound to any other obligations,
conditions, or representations with respect to the subject matter of this
Agreement. Notwithstanding the foregoing, nothing in this Agreement shall be
construed to terminate, supersede or amend the Power Purchase Contract, except
if, and only to the extent, specifically set forth herein.
12. SUCCESSORS AND ASSIGNS: This Agreement shall not be assigned by
Edison without Seller's consent, which consent shall not be unreasonably
withheld. Seller may assign this Agreement with the written consent of Edison
only if such assignment is in conjunction with assignment of the Power
Purchase Contract. Any such assignment or delegation made without said written
consent shall be null and void. Edison's consent to such assignment shall not
be unreasonably withheld. Any assignment of this Agreement in conjunction with
assignment of the Power Purchase Contract shall be in full compliance with the
applicable terms and conditions of the Power Purchase Contract. Any assignment
of this Agreement shall not relieve the Seller of its primary liability for
any of its duties and obligations hereunder unless the assignee expressly
assumes those duties and obligations in writing.
-8-
<PAGE>
13. UNCONTROLLABLE FORCE: Neither Party shall be considered to be in
default in the performance of any of its obligations under this Agreement,
except for obligations to pay money, when and to the extent failure of
performance shall be caused by an uncontrollable force. The term
"uncontrollable force" shall mean any cause beyond the control of the Party
unable to perform such obligations including, but not limited to, failure of
or threat of failure of facilities, flood, earthquake, storm, drought, fire,
pestilence, lightning and other natural catastrophes, epidemic, war, riot,
civil disturbance or disobedience, strike, labor dispute, labor or material
shortage, sabotage, government priorities, restraint by court order or public
authority (whether valid or invalid), and action or nonaction by or inability
to obtain or keep the necessary authorizations or approvals from any
government agency or authority, which by exercise of due diligence such Party
could not reasonably have been expected to avoid and which by exercise of due
diligence it has been unable to overcome. Nothing contained in this Section 13
shall be construed as to require a Party to settle any strike or labor dispute
in which it may be involved.
14. EFFECT OF SECTION HEADINGS: Section headings appearing in this
Agreement are inserted for convenience only, and shall not be construed as
interpretations of text.
15. GOVERNING LAW: This Agreement shall be interpreted, governed, and
construed under the laws of the State
-9-
<PAGE>
of California as if executed and to be performed wholly within the State of
California.
16. SIGNATURES: IN WITNESS WHEREOF, the Parties hereto have executed
this Funding Agreement this 18 day of MAY, 1990.
SOUTHERN CALIFORNIA EDISON COMPANY
By /s/ Robert Dietch
Vice President
VULCAN/BN GEOTHERMAL POWER COMPANY
BY: VULCAN POWER COMPANY, PARTNER
By /s/ Jon R. Peele
------------------------------------
Name Jon R. Peele
----------------------------------
Title Vice President
---------------------------------
-10-
<PAGE>
APPENDIX A
DEVELOPER PROJECT CAPACITY FUNDING
--------- ------- -------- -------
Western Power Imperial 15 MW $ 598,101.27
Group Unit II, Resource
Inc. Recovery (QFID
No. 1043)
Earth Energy, Salton Sea II 20 MW $ 797,468.35
Inc. (QFID No. 3028)
Magma Power Leathers (QFID 38 MW $1,515,189.35
Company No. 3026)
Ormesa Ormesa 1E 6 MW $ 239,240.51
Geothermal (QFID No. 3010)
----- --------------
TOTAL APPENDIX A 79 MW $3,150,000.00
-11-
<PAGE>
APPENDIX B
DEVELOPER PROJECT CAPACITY FUNDING
--------- ------- -------- -------
Colmac Energy, Colmac Energy, 25.8 MW $1,028,734.20
Inc. Inc.
-12-
<PAGE>
APPENDIX C
DEVELOPER PROJECT CAPACITY FUNDING
--------- ------- -------- -------
Ormesa Ormesa 6.5 MW $ 259,177.22
Geothermal Geothermal
(QFID No. 3010)
-13-
<PAGE>
APPENDIX D
DEVELOPER PROJECT CAPACITY FUNDING
--------- ------- -------- -------
Magma Power Vulcan/BN* 6 MW $ 239,240.52
Company Geothermal
(QFID No. 3006)
Magma Power Del Ranch, Ltd. 4 MW $ 159,493.67
Company (QFID No. 3004)
Magma Power Elmore, Ltd. 4 MW $ 159,493.67
Company (QFID No. 3009)
Magma Power Leathers, L.P. 4 MW $ 159,493.67
Company (QFID No. 3026)
----- --------------
TOTAL APPENDIX D 18 MW $ 717,721.50
* Seller
-14-
<PAGE>
Exhibit 15.1
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of the Salton Sea Funding Corporation for the three month period
ended March 31, 1996 and the Salton Sea Guarantors, the Partnership Guarantors,
and the Salton Sea Royalty Company for the three month periods ended March 31,
1996 and 1995, as indicated in our reports dated April 25, 1996; because we did
not perform an audit, we expressed no opinion on that information.
We are aware that our reports referred to above are being incorporated by
reference in the Prospectus which is part of this Registration Statement on
Form S-4, as amended.
We are also aware that the aforementioned reports, pursuant to Rule 436(c)
under the Securities Act of 1933, are not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ Deloitte & Toouche LLP
DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 29, 1996
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANTS
A. Vulcan/BN Geothermal Power Company, a Nevada general partnership,
and BN Geothermal Inc., a Delaware corporation, are subsidiaries of
Vulcan Power Company.
B. Leathers L.P., a California limited partnership, Del Ranch L.P., a
California limited partnership, Elmore L.P., a California limited
partnership, San Felipe Energy Company, a California corporation,
Conejo Energy Company, a California corporation, and Niguel Energy
Company, a California corporation, are subsidiaries of CalEnergy
Operating Company.
C. Salton Sea Power Generation L.P., a California limited partnership,
is a subsidiary of Salton Sea Brine Processing L.P.
D. Leathers, L.P., a California limited partnership, is a subsidiary of
San Felipe Energy Company.
E. Del Ranch, L.P., a California limited partnership, is a subsidiary of
Conejo Energy Company.
F. Elmore, L.P., a California limited partnership, is a subsidiary of
Niguel Energy Company.
<PAGE>
Exhibit 23.2
[LETTERHEAD OF STONE & WEBSTER ENGINEERING CORPORATION]
INDEPENDENT ENGINEER'S CONSENT
We consent to the incorporation in this Amendment No. 1 to the
Registration Statement of Salton Sea Funding Corporation, Salton Sea Brine
Processing L.P., Salton Sea Power Generation L.P., Fish Lake Power Company,
Vulcan Power Company, CalEnergy Operating Company, Conejo Energy Company,
Niguel Energy Company, San Felipe Energy Company, BN Geothermal Inc., Elmore,
L.P., Leathers, L.P., Del Ranch, L.P., Vulcan/BN Geothermal Power Company, and
Salton Sea Royalty Company on Form S-4 of our report dated June 17, 1996 of our
analysis of the Salton Sea Project and Partnership Project facilities.
STONE & WEBSTER ENGINEERING CORPORATION
/s/ R.E. McDonald
By: R.E. McDonald
Title: Project Manager
Denver, Colorado
July 29, 1996
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to the Registration
Statement of Salton Sea Funding Corporation on Form S-4 of: (i) our report
dated June 19, 1995 on our audits of the combined predecessor financial
statements of the Partnership Guarantors as of December 31, 1994 and for each
of the two years in the period ended December 31, 1994, (ii) our report dated
June 19, 1995 on our audits of the combined predecessor financial statements of
Salton Sea Guarantors as of December 31, 1994 and for the year ended December
31, 1994 and for the nine month period from April 1, 1993 (date of acquisition)
to December 31, 1993 and (iii) our report dated June 19, 1995 on our audits of
the predecessor summaries of revenues and related expenses of Salton Sea
Royalty Company for each of the two years in the period ended December 31, 1994
on the basis of presentation described in the notes thereto. We also consent to
the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
San Diego, California
July 29, 1996
<PAGE>
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to the Registration Statement No.
333-07527 of Salton Sea Funding Corporation on Form S-4 of the reports of
Deloitte & Touche LLP dated January 26, 1996 relating to the balance sheets of
Salton Sea Funding Corporation as of June 20, 1995 (inception date) and
December 31, 1995 and the related statements of operations, stockholder's
equity and cash flows for the period from June 20, 1995 through December 31,
1995 and of Salton Sea Guarantors, Partnership Guarantors and Salton Sea
Royalty Company balance sheets as of December 31, 1995 and the related
statements of operations, stockholder's equity and cash flows for the year
ended December 31, 1995 appearing in the Prospectus which is part of such
Registration Statement, and to the reference to Deloitte & Touche LLP under the
heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 29, 1996
<PAGE>
LETTER OF TRANSMITTAL
SALTON SEA FUNDING CORPORATION
OFFER TO EXCHANGE ITS REGISTERED
7.02% SENIOR SECURED SERIES D NOTES DUE MAY 30, 2000
FOR ANY AND ALL OF ITS OUTSTANDING
7.02% SENIOR SECURED SERIES D NOTES DUE MAY 30, 2000;
OFFER TO EXCHANGE ITS REGISTERED
8.30% SENIOR SECURED SERIES E BONDS DUE MAY 30, 2011
FOR ANY AND ALL OF ITS OUTSTANDING
8.30% SENIOR SECURED SERIES E BONDS DUE MAY 30, 2011
PURSUANT TO THE PROSPECTUS, DATED JULY 29, 1996
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,ON
SEPTEMBER 10, 1996, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER 10, 1996.
The Exchange Agent
for the Exchange Offer is:
CHEMICAL TRUST COMPANY OF CALIFORNIA
FACSIMILE TRANSMISSIONS:
(214) 672-5746
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
(415) 954-9508
<TABLE>
<CAPTION>
<S> <C>
By Hand Delivery: By Mail/Courier Service:
Chemical Bank Texas Commerce Bank
Corporate Tellers Corporate Trust Services
55 Water St. Rm. 234 North Bldg. 1201 Main St. 18th Fl.
New York, N.Y. 10041 Dallas, TX 75202
Attn: Frank Ivins
Personal & Confidential
</TABLE>
The Information Agent for the Exchange Offer is:
MACKENZIE PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500
or
(800) 322-2885 (Toll Free)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus, dated July 29,
1996 (as the same may be amended or supplemented from time to time, the
"Prospectus"), of Salton Sea Funding Corporation, a Delaware corporation (the
"Company"), and this Letter of Transmittal, which may be amended from time to
time (this "Letter"), which together constitute the Company's offer (the
"Exchange Offer") to exchange (i) its 7.02% Senior Secured Series D Notes Due
May 30, 2000 ("New Series D Securities") for an equal principal amount of its
outstanding 7.02% Senior Secured Series D Notes Due May 30, 2000 ("Old Series
D Securities") and (ii) its 8.30% Senior Secured Series E Bonds Due May 30,
2011 ("New Series E Securities" and together with the New Series D
Securities, "New
<PAGE>
Securities") for an equal principal amount of its outstanding 8.30% Senior
Secured Series E Bonds Due May 30, 2011 ("Old Series E Securities" and
together with the Old Series D Securities, "Old Securities"). The New
Securities will be obligations of the Company evidencing the same
indebtedness as the Old Securities and will be entitled to the benefits of
the same indenture which governs both the Old Securities and the New
Securities. The form and terms (including principal amount, interest rate,
maturity and ranking) of the New Securities are substantially identical to
the form and terms of the Old Securities other than interest rate penalties,
transfer restrictions and registration rights which are no longer applicable.
Capitalized terms used herein but not defined herein have the meanings
ascribed to them in the Prospectus.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter is to be completed by a holder of Old Securities either if
certificates are to be forwarded herewith or if a tender of Old Securities,
if available, is to be made by book-entry transfer to the account maintained
by the Exchange Agent at The Depository Trust Company (the "Book-Entry
Transfer Facility" or "DTC") pursuant to the procedures set forth in "The
Exchange Offer" section of the Prospectus. Holders of Old Securities whose
certificates are not immediately available, or who are unable to deliver
their certificates or Agent's Message and confirmation of the book-entry
tender of their Old Securities into the Exchange Agent's account at the
Book-Entry Transfer Facility (together with the Agent's Message, the
"Book-Entry Confirmation") and all other documents required by this Letter to
the Exchange Agent on or prior to the Expiration Date, must tender their Old
Securities according to the guaranteed delivery procedures set forth in "The
Exchange Offer--Procedures for Tendering" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed, executed and delivered this Letter to
indicate the action he or she desires to take with respect to the Exchange
Offer.
The Instructions included with this Letter must be followed in their
entirety. Questions and requests for assistance or for additional copies of
the Prospectus or this Letter may be directed to the Exchange Agent, at the
address listed above, or Steven A. McArthur, General Counsel and Secretary of
the Company, at (402) 231-1641, 302 South 36th Street, Suite 400-A, Omaha,
Nebraska 68131.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE INSTRUCTIONS
TO THIS LETTER, CAREFULLY BEFORE CHECKING ANY BOX BELOW.
List in Box 1 below the Old Securities of which you are the holder. If the
space provided in Box 1 is inadequate, list the certificate numbers and
principal amount of Old Securities on a separate SIGNED schedule and affix
that schedule to this Letter.
2
<PAGE>
BOX 1
TO BE COMPLETED BY ALL TENDERING HOLDERS
<TABLE>
<CAPTION>
<S> <C> <C>
PRINCIPAL AMOUNT OF
NAME(S) AND ADDRESS(ES) OF OLD SECURITIES PRINCIPAL AMOUNT
REGISTERED CERTIFICATE REPRESENTED BY OF OLD SECURITIES
HOLDER(S) (PLEASE FILL IN, IF BLANK) NUMBER(S)* CERTIFICATE(S) TENDERED**
- ------------------------------------ --------------- --------------------- -----------------
--------------- --------------------- -----------------
--------------- --------------------- -----------------
--------------- --------------------- -----------------
--------------- --------------------- -----------------
TOTALS:
- ------------------------------------ --------------- --------------------- -----------------
* Need not be completed if Old Securities are being tendered by book-entry transfer.
** Unless otherwise indicated, the entire principal amount of Old Securities represented by
a certificate delivered to the Exchange Agent will be deemed to have been tendered. See
Instruction 2. Old Securities tendered hereby must be 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. See Instruction 1.
- -----------------------------------------------------------------------------------------------
</TABLE>
(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
---------------------------------------------------------------------------
DTC Account Number
---------------------------------------------------------------------------
Transaction Code Number
---------------------------------------------------------------------------
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD SECURITIES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Owner(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
---------------------------------------------------------------------------
DTC 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 DTC ACCOUNT NUMBER SET FORTH
ABOVE.
3
<PAGE>
[ ] 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>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned tenders to the Company the aggregate principal amount of Old
Securities indicated above. Subject to and effective upon the acceptance for
exchange of all or any portion of the Old Securities tendered herewith in
accordance with the terms and conditions of the Exchange Offer (including, if
the Exchange Offer is extended or amended, the terms and conditions of any
such extension or amendment), the undersigned exchanges, assigns and
transfers to, or upon the order of, the Company all right, title and interest
in and to the Old Securities tendered.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as his or her agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of the Company) with respect to the
tendered Old Securities, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest)
subject only to the right of withdrawal described in the Prospectus, to: (a)
deliver certificates for such Old Securities with all accompanying evidences
of transfer and authenticity to, or upon the order of, the Company upon
receipt by the Exchange Agent, as the undersigned's agent, of the New
Securities to which the undersigned is entitled upon the acceptance by the
Company of the Old Securities tendered under the Exchange Offer; (b) present
certificates for such Old Securities for transfer, and to transfer the Old
Securities on the books of the Company; and (c) receive all benefits and
otherwise exercise all rights of beneficial ownership of the Old Securities,
all in accordance with the terms of the Exchange Offer.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, exchange, assign and transfer the Old
Securities tendered hereby and that the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Company to be necessary or desirable to complete the assignment
and transfer of the Old Securities tendered. The undersigned has read and
agrees to all of the terms of the Exchange Offer.
The undersigned agrees that acceptance of any tendered Old Securities by
the Company and the issuance of New Securities in exchange therefor shall
constitute performance in full by the Company of its obligations under the
Registration Rights Agreement (as defined in the Prospectus) and that, upon
the issuance of the New Securities, the Company will have no further
obligations or liabilities thereunder. By tendering Old Securities, the
undersigned hereby represents and agrees that (a) the undersigned is not an
"affiliate" of the Company within the meaning of Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"); (b) any New
Securities to be received by the undersigned are being acquired in the
ordinary course of its business; and (c) the undersigned is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
New Securities to be received in the Exchange Offer. By tendering Old
Securities pursuant to the Exchange Offer, a holder of Old Securities which
is a broker-dealer represents and agrees, consistent with certain
interpretive letters issued by the staff of the Division of Corporation
Finance of the Securities and Exchange Commission, that (a) such Old
Securities held by the broker-dealer are held only as a nominee, or (b) such
Old Securities were acquired by such broker-dealer for its own account as a
result of market-making activities or other trading activities and it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Securities; provided, however, that by
so acknowledging and by delivering a prospectus, such broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
The undersigned understands that tenders of Old Securities pursuant to any
one of the procedures described in "The Exchange Offer--Procedures for
Tendering" section of the Prospectus and in the instructions hereto will,
upon the Company's acceptance for exchange of such tendered Old Securities,
constitute a binding agreement between the undersigned and the Company upon
the terms and subject to the conditions of the Exchange Offer. The
undersigned recognizes that, under certain circumstances set forth in the
Prospectus, the Company may not be required to accept for exchange any of the
Old Securities tendered hereby.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Securities tendered hereby. All
authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer--Withdrawal Rights; Nonexchanged Old Securities" section of the
Prospectus.
5
<PAGE>
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the New Securities
be issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Old Securities, that such New Securities be credited to the
account indicated above maintained at the Book-Entry Transfer Facility. If
applicable, substitute certificates representing Old Securities not exchanged
or not accepted for exchange will be issued to the undersigned or, in the
case of a book-entry transfer of Old Securities, will be credited to the
account indicated above maintained at the Book-Entry Transfer Facility.
Similarly, unless otherwise indicated under "Special Delivery Instructions"
below, please deliver New Securities to the undersigned at the address set
forth in Box 1.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
SECURITIES" ABOVE AND BY SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED
THE OLD SECURITIES AS SET FORTH IN SUCH BOX ABOVE.
6
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
BOX 2
PLEASE SIGN HERE
WHETHER OR NOT OLD SECURITIES ARE BEING
PHYSICALLY TENDERED HEREBY
X
----------------------------------------------------------------
X
----------------------------------------------------------------
Area Code and Telephone Number:
This box must be signed by registered holder(s) of Old
Securities as their name(s) appear(s) on certificate(s) for Old
Securities hereby tendered or on a security position listing, or
by any person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Letter
(including such opinions of counsel, certifications and other
information as may be required by the Company or the Trustee for
the Old Securities to comply with the restrictions on transfer
applicable to the Old Securities). If signature is by an
attorney-in-fact, trustee, executor, administrator, guardian,
officer or other person acting in a fiduciary or representative
capacity, such person must set forth his or her full title
below. See Instruction 3.
Name(s):
----------------------------------------------------------------
----------------------------------------------------------------
(Please Print)
Capacity (full title):
----------------------------------------------------------------
----------------------------------------------------------------
Address:
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
(Including Zip Code)
Tax Indentification or Social Security Number(s):
----------------------------------------------------------------
----------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 5 to determine if required.)
Authorized Signature:
----------------------------------------------------------------
Name:
----------------------------------------------------------------
Name of Firm:
----------------------------------------------------------------
Title:
----------------------------------------------------------------
Address:
----------------------------------------------------------------
Area Code and Telephone Number:
----------------------------------------------------------------
Dated:
----------------------------------------------------------------
7
BOX 3
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Securities in a principal
amount not tendered, or New Securities, are to be issued in the name of
someone other than the person whose signature appears in Box 2.
Issue:
(check appropriate boxes)
[ ] Old Securities not tendered
[ ] New Securities, to:
Name
-------------------------------------------------------------------------
(Please Print)
Address
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Please complete the Substitute Form W-9 at Box 5 Tax. I.D. or Social
Security Number:
-------------------------------------------------------------------------
BOX 4
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Securities in a principal
amount not tendered, or New Securities, are to be sent to someone other
than the person whose signature appears in Box 2 or to an address other
than that shown in Box 1.
Deliver:
(check appropriate boxes)
[ ] Old Securities not tendered
[ ] New Securities, to:
Name
---------------------------------------------------------------------------
(Please Print)
Address
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Please complete the Substitute Form W-9 at Box 5 Tax. I.D. or Social
Security Number:
---------------------------------------------------------------------------
8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. DELIVERY OF THIS LETTER AND OLD SECURITIES; GUARANTEED DELIVERY
PROCEDURES. This Letter is to be completed by holders of Old Securities
either if certificates are to be forwarded herewith or if tenders are to be
made pursuant to the procedures for tender by book-entry transfer set forth
in "The Exchange Offer--Procedures for Tendering" section of the Prospectus.
Certificates for all physically tendered Old Securities, or Book-Entry
Confirmation, as the case may be, as well as a properly completed and duly
executed Letter (or facsimile thereof) and any other documents required by
this Letter, must be received by the Exchange Agent at the address set forth
herein on or prior to 5:00 p.m., New York City time, on the Expiration Date,
or the tendering holder must comply with the guaranteed delivery procedures
set forth below. Holders may tender their 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.
If a registered holder of Old Securities desires to tender such Old
Securities, and the Old Securities are not immediately available, or time
will not permit such holder's Old Securities or other required documents to
reach the Exchange Agent prior to the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected pursuant to the guaranteed delivery procedures set forth in "The
Exchange Offer--Procedures for Tendering" section of the Prospectus. Pursuant
to such procedures, if (a) the tender is made through an Eligible
Institution, (b) on or prior to the Expiration Date, the Exchange Agent
received from such Eligible Institution a properly completed and duly
executed Letter (or facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of
Old Securities and the amount of Old Securities tendered, stating that the
tender is being made thereby and guaranteeing that within three New York
Stock Exchange ("NYSE") 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 this Letter will be
deposited by the Eligible Institution with the Exchange Agent and (c) 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 this Letter are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of
Guaranteed Delivery.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER. IF DELIVERY
IS BY MAIL, REGISTERED MAIL (RETURN RECEIPT REQUESTED AND PROPERLY INSURED)
OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. NO LETTERS OR OLD
SECURITIES SHOULD BE SENT TO THE COMPANY. To be tendered effectively, the Old
Securities, this Letter and all other required documents must be received by
the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Securities will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders that are not
in proper form or the acceptance of which, in the opinion of the Company's
counsel, would be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to particular Old Securities. All
tendering holders, by execution of this Letter, waive any right to receive
notice of acceptance of their Old Securities. Neither the Company, the
Exchange Agent nor any other person shall be obligated to give notice of
defects or irregularities in any tender, nor shall any of them incur any
liability for failure to give any such notice.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER); WITHDRAWALS. If less than the entire principal amount of any Old
Security evidenced by a submitted certificate is tendered, the tendering
holder must fill in the principal amount tendered in the fourth column of Box
1 above. ALL OF THE OLD SECURITIES REPRESENTED BY A CERTIFICATE DELIVERED TO
THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE
INDICATED. A certificate for Old Securities not tendered will be sent to the
holder, unless otherwise provided in Box 5, as soon as practicable after the
Expiration Date, in the event that less than the entire principal amount of
Old Securities represented by a submitted certificate is tendered.
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 above or in the Prospectus. Any such
notice of withdrawal must specify the name of the person having tendered the
Old Securities to be withdrawn, identify the Old
9
Securities to be withdrawn (including the principal amount of such Old
Securities), and (where certificates for Old Securities have been
transmitted) specify the name in which such Old Securities are registered if
different from that of the withdrawing holder, accompanied by evidence
satisfactory to the Company 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 such
certificates, the withdrawing holder must also submit the serial numbers of
the particular certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by an Eligible Institution unless such holder is
an Eligible Institution. If Old Securities have been tendered pursuant to the
procedure for book-entry transfer described in "The Exchange
Offer--Procedures for Tendering" section of the Prospectus, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Old Securities and
otherwise comply with the procedures of such facility. 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, such unaccepted or nonexchanged Old Securities will be
returned to the holder thereof without cost to such holder (or, in the case
of Old Securities tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described in "The Exchange Offer--Procedures for
Tendering" section of the Prospectus, such Old Securities will be credited to
an account maintained with such Book-Entry Transfer Facility for the Old
Securities) as soon as practicable after withdrawal, rejection of tender,
termination of the Exchange Offer or submission of nonexchanged Old
Securities. 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 in "The Exchange Offer--Procedures for Tendering" section of the
Prospectus.
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all
parties. Neither the Company, any affiliates or assigns of the Company, the
Exchange Agent nor any other person shall 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.
3. SIGNATURES; ASSIGNMENTS; GUARANTEE OF SIGNATURES. If this Letter is
signed by the holder(s) of Old Securities tendered hereby, the signature must
correspond with the name(s) as written on the face of the certificate(s) for
such Old Securities, without alteration, enlargement or any change
whatsoever.
If any of the Old Securities tendered hereby are owned by two or more
joint owners, all owners must sign this Letter.
If any tendered Old Securities are held in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are names in which certificates are
held.
Signatures on this Letter or a notice of withdrawal, as the case may be,
must be guaranteed by an Eligible Institution, unless the Old Securities
tendered pursuant thereto are tendered (a) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on this Letter or (b) for the account of an Eligible
Institution. In the event that signatures on this Letter or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by an Eligible Institution.
If this Letter is signed by a person other than the registered holder of
any Old Securities listed therein, such 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 or holders appears on the Old Securities. If
this Letter or any Old Securities 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 the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with this Letter.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in Box 5, the name and address to which the New Securities or
certificates for Old Securities not tendered are to be sent or issued, if
different from the name and address of the person signing this Letter. In the
case of issuance in a different name, the tax identification number of the
person named must also be indicated. A holder of Old Securities tendering Old
Securities by book-entry transfer may request that Old Securities not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such holder of Old Securities may designate hereon. If no such
instructions are given, such Old Securities not exchanged will be returned to
the name or address of the person signing this Letter.
10
5. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder whose tendered Old Securities are accepted for exchange must provide
the Exchange Agent (as payor) with his or her correct taxpayer identification
number ("TIN"), which, in the case of a holder who is an individual, is his
or her social security number. If the Exchange Agent is not provided with the
correct TIN, the holder may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, delivery to the holder of the New
Securities pursuant to the Exchange Offer may be subject to back-up
withholding. (If withholding results in overpayment of taxes, a refund may be
obtained.) Exempt holders (including, among others, all corporations and
certain foreign individuals) are not subject to these back-up withholding and
reporting requirements. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
Under federal income tax laws, payments that may be made by the Company on
account of New Securities issued pursuant to the Exchange Offer may be
subject to back-up withholding at a rate of 31%. In order to prevent back-up
withholding, each tendering holder must provide his or her correct TIN by
completing the "Substitute Form W-9" referred to above, certifying that the
TIN provided is correct (or that the holder is awaiting a TIN) and that: (i)
the holder has not been notified by the Internal Revenue Service that he or
she is subject to back-up withholding as a result of failure to report all
interest or dividends; or (ii) the Internal Revenue Service has notified the
holder that he or she is no longer subject to back-up withholding; or (iii)
certify in accordance with the Guidelines that such holder is exempt from
back-up withholding. If the Old Securities are in more than one name or are
not in the name of the actual owner, consult the enclosed Guidelines for
information on which TIN to report.
6. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the transfer of Old Securities to it or its order pursuant to
the Exchange Offer. If, however, the New Securities or certificates for Old
Securities not tendered are to be delivered to, or are to be issued in the
name of, any person other than the record holder, or if tendered certificates
are recorded in the name of any person other than the person signing this
Letter, or if a transfer tax is imposed by any reason other than the transfer
of Old Securities to the Company or its order pursuant to the Exchange Offer,
then the amount of such transfer taxes (whether imposed on the record holder
or any other person) will be payable by the tendering holder. If satisfactory
evidence of payment of taxes or exemption from taxes is not submitted with
this Letter, the amount of transfer taxes will be billed directly to the
tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter.
7. WAIVER OF CONDITIONS; NO CONDITIONAL TENDERS. The Company reserves the
absolute right to amend or waive any of the specified conditions in the
Exchange Offer.
No alternative, conditional, irregular or contingent tenders will be
accepted.
8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose
certificates for Old Securities have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above
for further instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus or this Letter, may be directed to the Exchange Agent at the
address and telephone number indicated above.
IMPORTANT: THIS LETTER (OR A FACSIMILE THEREOF), TOGETHER WITH
CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED
DOCUMENTS, MUST BE RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT, ON OR PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
11
<PAGE>
BOX 5
<TABLE>
<CAPTION>
<S> <C> <C>
PAYER'S NAME: CHEMICAL TRUST COMPANY OF CALIFORNIA
SUBSTITUTE PART 1 --PLEASE PROVIDE YOUR TIN IN THE Social security number
Form W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND OR
DATING BELOW Employer identification number
-------------------------------------- ----------------------------------
Department of PART 2 --CERTIFICATION --UNDER PENALTIES OF PERJURY, I CERTIFY THAT::
the Treasury (1)The number shown on this form is my correct Taxpayer Identification Number
Internal Revenue Service (or I am waiting for a number to be issued to me); and
(2)I am not subject to backup withholding because (i) I am exempt from backup
PAYER'S withholding, (ii) I have not been notified by the Internal Revenue Service
REQUEST FOR (the "IRS") that I am subject to backup withholding as a result of a failure
TAXPAYER to report all interest or dividends, or (iii) the IRS has notified me that
IDENTIFICATION I am no longer subject to backup withholding.
NUMBER CERTIFICATION INSTRUCTIONS -- You must cross out item (2) in part 2 above
("TIN") if you have been notified by the IRS that you are subject to backup withholding
because of under-reporting interest or dividends on your tax return. However,
if after being notified by the IRS that you were subject to backup withholding
you received another notification from the IRS stating that you are no longer
subject to backup withholding, do not cross out item (2).
--------------------------------------------------------------------------
SIGNATURE ................. DATE .................
NAME (Please Print) ...............................
PART 3
Awaiting TIN --> [ ]
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (i) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(ii) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within
60 days, 31% of all reportable payments made to me thereafter will be
withheld until I provide a number.
Signature ............................. Date .............................
Name (Please Print) .......................................................
12
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
SALTON SEA FUNDING CORPORATION
This Notice of Guaranteed Delivery, or one substantially equivalent to
this form, must be used to accept the Exchange Offer (as defined below) of
Salton Sea Funding Corporation (the "Company") made pursuant to the
Prospectus, dated July 29, 1996 (the "Prospectus"), and the related Letter of
Transmittal (the "Letter of Transmittal") if (i) certificates for the Old
Securities (as defined below) are not immediately available; (ii) the Old
Securities, the Letter of Transmittal and all other required documents cannot
be delivered or transmitted by facsimile transmission, mail or hand delivery
to Chemical Trust Company of California (the "Exchange Agent") on or prior to
5:00 p.m., New York City time, on the Expiration Date (as defined in the
Prospectus); or (iii) the procedures for delivery by book-entry transfer
cannot be completed on a timely basis. See "The Exchange Offer-Procedures for
Tendering" section in the Prospectus. The term "Old Securities" means the
Company's outstanding (i) 7.02% Senior Secured Series D Notes Due May 30,
2000 and (ii) 8.30% Senior Secured Series E, and Bonds Due May 30, 2011.
Capitalized terms used herein but not defined herein have the meanings
ascribed to them in the Prospectus.
The Exchange Agent for the Exchange Offer is:
CHEMICAL TRUST COMPANY OF CALIFORNIA
Facsimile Transmissions:
(212) 672-5746
To Confirm by Telephone or for Information:
(415) 954-9508
By Hand Delivery:
Chemical Bank
Corporate Tellers
55 Water St., Rm. 234 North Bldg.
New York, NY 10041
By Mail/Courier Service:
Texas Commerce Bank
Corporate Trust Services
1201 Main St., 18th Floor
Dallas, TX 75202
Attention: Frank Ivins
Personal & Confidential
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and
conditions set forth in the Prospectus and the Letter of Transmittal (which
together constitute the "Exchange Offer"), receipt of which are hereby
acknowledged, the aggregate principal amount of Old Securities set forth
below pursuant to the guaranteed delivery procedure described in "The
Exchange Offer --Procedures for Tendering" section in the Prospectus and the
Letter of Transmittal.
Principal Amount of Old Securities
Tendered $
- -----------------------------------------------------------------------------
Certificate Nos.
(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
- -----------------------------------------------------------------------------
Dated: , 1996
Signature(s)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Please Print the Following Information:
Name(s) of Registered Holders
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Address
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Area Code and Telephone Number(s)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," hereby guarantees to deliver to the Exchange Agent, at its
address 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 pursuant to the procedures for book-entry transfer set forth in
the Prospectus, in either case together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, and any other documents required by the Letter of
Transmittal within three New York Stock Exchange trading days after the date
of execution of this Notice of Guaranteed Delivery.
Name of Firm
- -----------------------------------------------------------------------------
Address
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Zip Code
Area Code and
Telephone Number:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Authorized Signature
Name:
- -----------------------------------------------------------------------------
Please type or print
Date:
- -----------------------------------------------------------------------------
NOTE: DO NOT SEND CERTIFICATES FOR OLD SECURITIES WITH THIS NOTICE OF
GUARANTEED DELIVERY. CERTIFICATES FOR OLD SECURITIES SHOULD ONLY BE
SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE>
SALTON SEA FUNDING CORPORATION
OFFER TO EXCHANGE ITS REGISTERED
7.02% SENIOR SECURED SERIES D NOTES DUE MAY 30, 2000
FOR ANY AND ALL OF ITS OUTSTANDING
7.02% SENIOR SECURED SERIES D NOTES DUE MAY 30, 2000;
OFFER TO EXCHANGE ITS REGISTERED
8.30% SENIOR SECURED SERIES E BONDS DUE MAY 30, 2011
FOR ANY AND ALL OF ITS OUTSTANDING
8.30% SENIOR SECURED SERIES E BONDS DUE MAY 30, 2011;
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
SEPTEMBER 10, 1996, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER 10, 1996.
July 30, 1996
To Our Clients:
Enclosed for your consideration is a Prospectus dated July 29, 1996 (as
the same may be amended or supplemented from time to time, the "Prospectus")
and a related Letter of Transmittal (the "Letter of Transmittal") in
connection with the offer (the "Exchange Offer") by Salton Sea Funding
Corporation (the "Company") to exchange (i) its 7.02% Senior Secured Series D
Notes Due May 30, 2000 ("New Series D Securities") for an equal principal
amount of its outstanding 7.02% Senior Secured Series D Notes Due May 30,
2000 ("Old Series D Securities"), of which $70,000,000 aggregate principal
amount is outstanding, and (ii) its 8.30% Senior Secured Series E Bonds Due
May 30, 2011 ("New Series E Securities" and collectively with the New Series
D Securities, "New Securities") for an equal principal amount of its
outstanding 8.30% Senior Secured Series E Bonds Due May 30, 2011 ("Old Series
E Securities" and collectively with the Old Series D Securities, "Old
Securities") of which $65,000,000 aggregate principal amount is outstanding.
The New Securities are being offered for exchange in order to satisfy certain
obligations of the Company under the Exchange and Registration Rights
Agreement, dated June 20, 1996, among the Company and other signatories
thereto.
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 (as defined below), or who cannot complete the procedures for book-entry
transfer on a timely basis, must tender their certificates according to the
guaranteed delivery procedures set forth in "The Exchange Offer-Procedures
for Tendering" section of the Prospectus.
THE MATERIAL IS BEING FORWARDED TO YOU AS THE BENEFICIAL OWNER OF OLD
SECURITIES CARRIED BY US FOR YOUR ACCOUNT OR BENEFIT BUT NOT REGISTERED IN
YOUR NAME. A TENDER OF ANY OLD SECURITIES MAY BE MADE ONLY BY US AS THE
REGISTERED HOLDER AND PURSUANT TO YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender
any or all Old Securities, pursuant to the terms and conditions set forth in
the Prospectus and Letter of Transmittal. We urge you to read carefully the
Prospectus and Letter of Transmittal before instructing us to tender your Old
Securities.
YOUR INSTRUCTIONS TO US SHOULD BE FORWARDED AS PROMPTLY AS POSSIBLE IN
ORDER TO PERMIT US TO TENDER OLD SECURITIES ON YOUR BEHALF IN ACCORDANCE WITH
THE PROVISIONS OF THE EXCHANGE OFFER. The Exchange Offer will expire at 5:00
p.m., New York City time, on September 10, 1996, unless extended by the Company
(the "Expiration Date"). Any Old Securities tendered pursuant to the Exchange
Offer may be withdrawn, subject to the procedures described in the
Prospectus, at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
<PAGE>
Please note the following:
1. The Exchange Offer is for any and all Old Securities.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Procedures for
Tendering."
3. Any transfer taxes incident to the transfer of Old Securities from the
holder to the Company will be paid by the Company, except as otherwise
provided in the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on the
Expiration Date.
If you wish to have us tender any or all of your Old Securities held by us
for your account or benefit, please so instruct us by completing, executing
and returning to us the instruction form that appears below. THE ACCOMPANYING
LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATIONAL PURPOSES ONLY AND
MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD SECURITIES HELD BY US AND
REGISTERED IN OUR NAME FOR YOUR ACCOUNT OR BENEFIT.
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by Salton
Sea Funding Corporation with respect to its Old Securities.
This will instruct you to tender the Old Securities held by you for the
account of the undersigned, upon and subject to the terms and conditions set
forth in the Prospectus and the related Letter of Transmittal.
Please tender the Old Securities held by you for my account as indicated
below:
[ ] Please do not tender any Old AGGREGATE PRINCIPAL AMOUNT OF
Securities held by you for my OLD SECURITIES
account ---------------------------------
---------------------------------
Dated: , 1996
---------
---------------------------------
Signature(s)
---------------------------------
---------------------------------
---------------------------------
Please Print Name(s) here
---------------------------------
---------------------------------
Address(es)
---------------------------------
Area Code(s) and Telephone
Number(s)
---------------------------------
Tax Identification or Social
Security No(s)
None of the Old Securities held by us for your account will be tendered
unless we receive written instructions from you to do so. Unless a specific
contrary instruction is given in the space provided, your signature(s) hereon
shall constitute an instruction to us to tender all the Old Securities held
by us for your account.
<PAGE>
SALTON SEA FUNDING CORPORATION
OFFER TO EXCHANGE ITS REGISTERED
7.02% SENIOR SECURED SERIES D NOTES DUE MAY 30, 2000
FOR ANY AND ALL OF ITS OUTSTANDING
7.02% SENIOR SECURED SERIES D NOTES DUE MAY 30, 2000;
OFFER TO EXCHANGE ITS REGISTERED
8.30% SENIOR SECURED SERIES E BONDS DUE MAY 30, 2011
FOR ANY AND ALL OF ITS OUTSTANDING
8.30% SENIOR SECURED SERIES E BONDS DUE MAY 30, 2011;
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
SEPTEMBER 10, 1996, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER 10, 1996.
July 30, 1996
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Enclosed for your consideration is a Prospectus dated July 29, 1996 (as the
same may be amended or supplemented from time to time, the "Prospectus") and
related Letter of Transmittal (the "Letter of Transmittal") in connection
with the offer (the "Exchange Offer") by Salton Sea Funding Corporation (the
"Company") to exchange (i) its 7.02% Senior Secured Series D Notes Due May
30, 2000 ("New Series D Securities") for an equal principal amount of its
outstanding 7.02% Senior Secured Series D Notes Due May 30, 2000 ("Old Series
D Securities"), of which $70,000,000 aggregate principal amount is
outstanding, and (ii) its 8.30% Senior Secured Series E Bonds Due May 30,
2011 ("New Series E Securities" and collectively with the New Series D
Securities, "New Securities") for an equal principal amount of its
outstanding 8.30% Senior Secured Series E Bonds Due May 30, 2011 ("Old Series
E Securities" and collectively with the Old Series D Securities, "Old
Securities"), of which $65,000,000 aggregate principal amount is outstanding.
The New Securities are being offered for exchange in order to satisfy certain
obligations of the Company under the Exchange and Registration Rights
Agreement, dated June 20, 1996, among the Company and other signatories
thereto.
We are asking you to contact your clients for whom you hold Old Securities
registered in your name or in the name of your nominee. In addition, we ask
you to contact your clients who, to your knowledge, hold Old Securities
registered in their own name. The Company will not pay any fees or
commissions to any broker, dealer or other person in connection with the
solicitation of tenders pursuant to the Exchange Offer. You will, however, be
reimbursed (upon request) by the Company for customary mailing and handling
expenses incurred by you in forwarding any of the enclosed materials to your
clients. The Company will pay all transfer taxes, if any, applicable to the
tender of Old Securities to it or its order, except as otherwise provided in
the Prospectus and the Letter of Transmittal.
Enclosed herewith for your information and for forwarding to your clients
for whom you hold Old Securities registered in your name or in the name of
your nominee, or who hold Old Securities registered in their own name, are
copies of the following documents:
1. The Prospectus dated July 29, 1996;
2. The Letter of Transmittal for your use in connection with the tender
of the Old Securities and for the information of your clients. Facsimile
copies of the Letter of Transmittal may be used to tender Old Securities;
<PAGE>
3. A form of letter that may be sent to your clients for whose accounts
you hold Old Securities registered in your name or the name of your
nominee, with space provided for obtaining the clients' instructions with
regard to the Exchange Offer;
4. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if certificates for Old Securities are not immediately available or
time will not permit all required documents to reach the Exchange Agent
(as defined below) prior to the Expiration Date (as defined below) or if
the procedures for book-entry transfer cannot be completed on a timely
basis;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to Chemical Trust Company of California
(the "Exchange Agent"), the exchange agent for the Exchange Offer.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON SEPTEMBER 10, 1996, UNLESS EXTENDED BY THE COMPANY
(THE "EXPIRATION DATE"). ANY OLD SECURITIES TENDERED PURSUANT TO THE EXCHANGE
OFFER MAY BE WITHDRAWN, SUBJECT TO THE PROCEDURES DESCRIBED IN THE
PROSPECTUS, AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing the Old Securities should be
delivered to the Exchange Agent, all in accordance with the instructions set
forth in the Letter of Transmittal and the Prospectus.
If holders of Old Securities wish to tender, but it is impracticable for
them to forward their certificates for Old Securities prior to the Expiration
Date or to comply with the book-entry transfer procedures on a timely basis,
a tender may be effected by following the guaranteed delivery procedures
described in "The Exchange Offer--Procedures for Tendering" section of the
Prospectus.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to the
Exchange Agent at its address and telephone number set forth on the back
cover of the Prospectus.
Very truly yours,
Salton Sea Funding Corporation
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR
ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH
RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE
PROSPECTUS AND THE LETTER OF TRANSMITTAL.
Exhibit 23.5
[Lettehead of Arthur Andersen LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Amendment No. 1 to the
Registration Statement of Salton Sea Funding Corporation on Form S-4 of our
reports dated June 7, 1996 on the financial statments of BN Geothermal, Inc.,
Conejo Energy Company, San Felipe Energy Company and Niguel Energy Company
incorporated by reference in the Registration Statement and to all references to
our Firm included in this Amendment No. 1 to the Registration Statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Orange County, California
July 29, 1996
