This electronic filing is confirmatory of a paper filing made on
January 9, 1996.
Submitted January 9, 1996
File Number 0-14452
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRELIMINARY PROXY STATEMENT
Solicitation of Consent To the Sale of All Partnership Assets,
Distribution of the Proceeds to Partners, and Termination of the
Partnership
With Exhibits:
Purchase and Sale Agreement
Tax Opinion
Fairness Opinion
Form 10-QSB for the Quarter Ended September 30, 1995
Reply Card
THIS CONSENT IS SOLICITED BY THE GENERAL PARTNER OF THE FUND
Payment of Fee:
$125 per Exchange Act Rule 0-11(c)(1)(ii)
No offsetting fee has been previously paid
Registrant:
Far West Electric Energy Fund, L.P.
921 Executive Park Drive
Salt Lake City, Utah 84117
Tel (801) 268-4444
Fax (801) 266-5155
Correspondent:
Stanford Stoddard Smith
2921 Devon Drive
Bountiful, Utah 84010
Tel/Fax (801) 295-1444
Solicitation Statement For
Far West Electric Energy Fund, L.P.
This Solicitation of Consent is Dated January __, 1996
Voting on the Proposed Transaction will close January __, 1996
Summary
Far West Capital, Inc. ("FWC"), the general partner of the Far West
Electric Energy Fund, L.P., a Delaware limited partnership (the
"Fund"), hereby solicits from the limited partners of the Fund (the
"Limited Partners") written consent to-
The sale of substantially all of the Fund's assets (the "Assets")
for $1,250,000;
Distribution of the proceeds of sale to the Limited Partners
(estimated to be approximately $44 per limited partnership unit -
a "Unit"); and
Termination of the Fund (generally resulting in approximately $44
of taxable gain per Unit).
These three steps are collectively referred to in this Consent
Solicitation as the "Proposed Transaction."
As it has reported to Limited Partners in periodic letters and
reports, FWC has been seeking a purchaser for the Assets since
early 1993. It recommends that the Limited Partners vote to approve
the Proposed Transaction.
The following summary of certain information contained in this
solicitation of consent (the "Consent Solicitation") is not
intended to be complete; it is qualified in its entirety by the
more detailed information contained elsewhere in this Consent
Solicitation and the Exhibits hereto. Limited Partners are urged to
read this Consent Solicitation and the Exhibits in their entirety.
FWC has fixed the close of business December 31, 1995, as the
record date for determining the Limited Partners entitled to vote
on approval or disapproval of the Proposed Transaction and for
determining the Limited Partners entitled to receive the final
liquidating distribution.
Table of Contents
Summary
1
The Proposed Transaction
6
The Fund
13
Federal Tax Consequences
18
Opinion of Financial Advisor
24
Exhibits
1. Purchase and Sale Agreement
1-1
2. Tax Opinion
2-1
3. Fairness Opinion
3-1
4. Form 10-QSB for quarter ending
September 30, 1995
4-1
5. Reply Card
5-1
Cash Offer for Fund Assets
A cash offer to purchase the Fund's Assets for $1.25 million has
been received from U.S. Envirosystems, Inc., a Delaware corporation
("USE"), on the terms set forth in a draft Purchase and Sale
Agreement (the "Sales Agreement," appended as Exhibit 1). This
agreement was executed by the parties on December 31, 1995.
In addition, to purchasing the Steamboat 1 power plant ("SB-1"),
the Fund's only power plant, USE proposes to acquire for $275,000
the adjacent SB-1A power plant ("SB-1A") from 1-A Enterprises, a
Nevada general partnership controlled by the principals of FWC.
Collectively, these plants are referred to as the "Power Plants"
USE delivered to FWC a non-refundable deposit of $50,000 applicable
toward the purchase price of SB-1 on August 9, 1995.
Conditions of Sale
Performance of the Sales Agreement is subject to certain
pre-conditions (the "Conditions of Sale"):
The Fund's Limited Partners must approve the Proposed Transaction;
and
USE must raise the capital necessary to fund the purchase of the
Power Plants through an offering of its shares; USE shares are
publicly traded on the NASD OTC Bulletin Board.
Purchase Transaction Steps
To facilitate purchase of the Power Plants and related assets, USE
and FWC will create a Utah limited liability company to be called
Steamboat Envirosystems, L.L.C. ("SBE"), which will be owned 50% by
USE and 50% by FWC.
Under the terms of SBE's operating agreement, USE will receive on
a non-cumulative annual basis SBE's first available funds up to 18%
of the amount SBE raises in its contemplated public and private
offerings (up to $10 million), to purchase the Power Plants and
related assets and take out the balance of the Westinghouse project
loan (the "Preferred Return"). Available funds in excess of this
amount, if any, will be divided equally with FWC.
The major steps of the transaction include the following:
On or before March 1, 1996, FWC will establish an escrow account at
a Utah bank in which it will place executed instruments conveying
to SBE the Power Plants and related assets;
USE will deposit $2.525 million into the escrow account;
SBE will be formed and its operating agreement signed;
The escrowed documents and moneys will be transferred to SBE;
SBE will transfer $1.25 to the Fund for purchase of the Assets and
$.275 million to 1-A for purchase of SB-1A and related assets.
All Fund and 1-A receivables and payables will be prorated as of
the closing date.
Tax Opinion
A tax opinion from Robison, Hill Associates, Inc., Certified Public
Accountants (the "Tax Opinion"), addresses the significant tax
issues presented by the Proposed Transaction. It is summarized in
the section entitled "Federal Tax Consequences" and appended in
full as Exhibit 2 to this Consent Solicitation.
In brief, the authors of this opinion believe that a typical
Limited Partner able to utilize the Business credit would, over the
life of the Fund, have received approximately the following (per
unit of Fund ownership-a "Unit"):
A tax benefit of $299 for the Business credit;
Non-taxable cash distributions of $97;
If the Proposed Transaction is approved and completed, this Limited
Partner's Form K-1 will report, in the year of closing, a cash
distribution of $44 and ordinary taxable income of $44 ($559
taxable gain less $290 of suspended losses and $225 of capital
loss).
Each Limited Partner's situation may vary; accordingly, partners
are encouraged to consult their own tax advisers.
Opinion of Financial Advisor
An opinion respecting the fairness of the Proposed Transaction (the
"Fairness Opinion") has been issued by the Fund's financial
advisor, Corporate Capital Consultants Inc. ("CCC"), and appended
hereto as Exhibit 3.
An independent appraiser of business assets, CCC concludes that the
Proposed Transaction is fair to the Limited Partners from a
financial point of view.
Vote Required to Approve the Proposed Transaction
Under sections 15.9 and 16.1 of the Fund's agreement of limited
partnership (the "Partnership Agreement"), the Proposed Transaction
must be approved by a majority of the units casting votes, with a
quorum of at least 1% of the units participating.
Recommendation of FWC
FWC will vote its units, 5% of the total units, in favor of the
Proposed Transaction, and urges Limited Partners to do likewise for
two principal reasons:
In December, 1996, the income of the Fund's sole power plant, SB-1,
will drop below the level necessary to cover operating expenses,
pay royalties, and service debt.
On that date the rate paid by Sierra Pacific Power Company
("Sierra"), the local utility which purchases the electrical output
of SB-1, declines from the current rate of 7.17 cents per kwh to
short-term avoided cost rates (currently estimated to be 2.8 cents per
kwh) under the terms of the Fund's power sales agreement with
Sierra. The probable result of this decrease is that the Fund will
be unable to service the debt on SB-1, and the project will taken
over by Westinghouse Credit Corporation ("WCC"), the primary
project lender, resulting in financial loss and possible adverse
tax consequences to the limited partners.
Even if current income and expense levels could be maintained, FWC
believes that the Fund would face a long period of allocating
taxable "paper gain" to the Limited Partners, without distributing
the cash necessary to cover the amount of the associated tax.
Incentive to Limited Partners to Approve
As an incentive to the Limited Partners to vote in favor of the
Proposed Transaction, and contingent upon such approval, FWC will-
Transfer to SBE all obligations owed by the Fund to FWC (as of
October 1, 1995, approximately $2,582,885, consisting of $1,069,270
in cash advances, $825,163 interest on those cash advances, and
$688,452 owed for uncompensated services provided by FWC); and
Decline its 6.1% share of the final liquidating distribution to
which it is entitled as the general partner of the Fund and a Unit
holder.
This combination of transfer of debt and declination of
distribution will make it possible for the Limited Partners to
receive approximately $44 in liquidating distributions if the
Proposed Transaction is consummated.
Interest of FWC and its Principals
FWC is subject to conflicts of interest in connection with the
Proposed Transaction because (i) it will own a 50% interest in SBE,
the purchaser of the Power Plants, and (ii) its principals will
continue to own SB Geo, Inc., the operator of the Power Plants.
FWC will own 50% of SBE. Because of the Preferred Return to USE
under SBE's operating agreement, it is highly unlikely that FWC
will receive any income from SBE unless plant electrical output can
be substantially increased and/or a very favorable new power sales
agreement can be obtained.
The SBG operating agreement will provide, among other things, that
SBG will operate the Power Plants at rates competitive with those
charged by other independent operators. It is expected that SBG
will be able to realize a profit from these operations.
Cash to be Distributed
FWC estimates that if the Proposed Transaction is approved, the
final distribution will be approximately $428,128, or a total of
approximately $44 per limited partnership unit.
The exact amount to be distributed will depend in part upon the
payments made to third-party creditors of the Fund at the time the
business of the Fund is wound up. Such obligations currently total
approximately $852,834.
As of December 1, 1995, the Fund's estimated third party debts
(debts not owed to FWC) and accounts payable, including the
estimated costs of this Consent Solicitation, total approximately
$896,872. This consists of bank debt of $470,649, unpaid
professional services and royalties of $385,801, and $40,422 for
unpaid operating services. It is anticipated that additional
obligations will be incurred before the Fund is wound up, but these
may be offset in whole or part by Fund earnings and deferral of
payments on the SBG account payable.
FWC will attempt to reduce the amounts paid to third-party
creditors through negotiations. If these efforts are successful,
the final cash distribution to Limited Partners may be increased.
If the Fund is required by the Securities and Exchange Commission
to prepare and file a Form 10-KSB for 1995, the funds available for
distribution will be reduced by the additional costs incurred,
estimated by FWC to be approximately $50,000.
Purchaser's Plans
USE is willing to enter the Sales Agreement despite the impending
drop in the power sales rate based on its belief that it can
terminate the agreement with Sierra and locate another purchaser
for the projects' power at rate higher than Sierra will pay.
Further, USE plans to improve SB-1's profitability by:
Buying out the WCC loan (with a balance of approximately $4,709,541
as of October 31, 1995) at a discount; and
Spending approximately $1 million to make plant improvements and to
buy out royalty interests in SB-1 at a discount.
The Fund currently lacks sufficient resources to pursue any of
these measures, and in FWC's opinion has no way to obtain such
resources in the foreseeable future. USE plans to take similar
steps to improve the profitability of 1-A.
Costs of Consent Solicitation
All costs associated with this Consent Solicitation will be borne
by the Fund. FWC estimates that such costs will total approximately
$75,000.
Management's Interest in Matters Voted On
FWC, the general partner of the Fund, owns 1% of the total
partnership interest and 530 Fund units (representing 5% of the
outstanding units).
Messrs. Alan O. Melchior and Thomas A. Quinn, each owns 40% of FWC,
37.5% of 1-A Enterprises (owner of SB-1A), and 37.5% of SB Geo,
Inc. (operator of SB-1 and SB-1A). Ronald E. Burch, an FWC officer,
owns 20% of FWC and 15% of SBG.
Financial and Other Information
The Fund's annual report on Form 10-KSB for the period ended
December 31, 1994 (containing audited financial statements), and
quarterly reports on Form 10-QSB for the first three quarters of
1995, are incorporated herein by reference.
The Form 10-KSB, and Form 10-QSB filed June 31, 1995, have been
previously mailed to the Limited Partners; the Form 10-QSB for the
period ending on September 30, 1995 is appended hereto as Exhibit
4. Limited Partners may obtain additional copies of any of these
reports upon request.
Responding to this Consent Solicitation
It is important that you review this proposal carefully and vote
either to approve or disapprove the Proposed Transaction.
Please use the stamped, self-addressed postcard (the "Reply Card")
contained in this package to convey your vote to the Fund. To be
counted, your vote must be received by 5 p.m. on January 29, 1996.
The Reply Card must be dated and signed with the name or names
appearing on the original subscription agreement submitted to the
Fund at the time of the initial investment in the Fund.
Consents may be revoked or changed by providing written notice to
FWC at 921 Executive Park Drive, Salt Lake City, Utah 84117, on or
before the date voting is closed.
Voting
A majority vote of the units voting will bind all Partners.
Dissenting Partners have no right under Utah or Delaware law to
compel the Fund or FWC to refund their investment or purchase their
units should the Proposed Transaction be approved.
The Fund's 10,306 outstanding units are held by 1,106 investors. If
a majority of the votes cast favor the Proposed Transaction, the
Fund shall proceed as outlined in this Consent Solicitation.
If Limited Partners approve the sale, but USE fails to raise the
necessary capital or the Proposed Transaction is not completed for
any other reason, FWC will seek another purchaser for the Assets.
Please act promptly. Return the enclosed, stamped postcard after
checking the appropriate box to indicate your approval or
disapproval of the Proposed Transaction, dating the consent form,
and signing your name.
The Proposed Transaction
FWC proposes that the Fund sell its assets, distribute the proceeds
of sale to Limited Partners, and terminate the Fund. As a result of
the dissolution, the Fund's registration pursuant to the Securities
Exchange Act of 1934 and its obligation to file reports thereunder
will terminate.
The Fund has received a cash offer to purchase substantially all
the assets of the Fund on the terms and conditions set forth in the
Sales Agreement. This agreement was executed by the parties on
December 31, 1995.
The information below summarizes certain portions of the Sales
Agreement which FWC believes to be significant; reference must be
made to the complete copy of the Sales Agreement appended to this
Consent Solicitation as Exhibit 1.
The Purchaser
Under the terms of the Sales Agreement, USE and FWC will form
Steamboat Envirosystems, L.C., a Utah limited liability company
("SBE") to acquire and operate the Power Plants.
Under the terms of SBE's operating agreement, USE will receive on
a non-cumulative annual basis the first SBE net earnings of up to
18% of the amount SBE raises in its public offering to purchase the
Power Plants (not to exceed $10 million); earnings above this
amount, if any, will be divided equally with FWC.
USE will contribute to SBE the following:
$1.25 million to purchase SB-1 and related assets;
$.275 million to purchase SB-1A and related assets;
$1 million to fund improvements in the power plants and the
purchase, at a discount, of royalty interests held by third parties
in the Power Plants (these funds will be used as a reserve for
operations if the royalty interests are not purchased); and
Purchase and cancellation of the $4,709,542 Westinghouse loan (the
"Loan") on SB-1, receiving from the Fund the $1,016,774 debt
reserve (if the Loan cannot be purchased for an acceptable price,
USE shall make all Loan payments out of USE's share of SBE's
earnings).
FWC will contribute to SBE transfer of its loans and deferred fees
incurred with respect to the Power Plants, and all its interest in
the Fund. As of October 1, 1995, the Fund owed FWC approximately
$2,550,257, consisting of $1,069,270 in cash advances, $825,163 in
unpaid interest on those cash advances, and $655,824 in unpaid
advances. 1A owed FWC in excess of $950,000, consisting of
construction loans with an approximate principal balance of
$632,000, cash advances of approximately $88,000, and interest on
the foregoing.
Parties to the Sales Agreement
Listed below are the parties to the Sales Agreement, together with
a brief description of each.
Far West Electric Energy Fund, L.P. (the "Fund") is a Delaware
limited partnership with its principal place of business at 921
Executive Park Drive, Suite B, Salt Lake City, Utah 84117 (see "The
Fund"). The Fund is publicly held by approximately 1,100 unit
holders; Fund units are not publicly traded. The Fund is the owner
of SB-1 and related assets, and owns a royalty interest in SB-1A.
Far West Capital, Inc. ("FWC") is a privately held Utah corporation
with its principal place of business at 921 Executive Park Drive,
Suite B, Salt Lake City, Utah 84117. It is the general partner of
the Fund. Its shareholders are Alan O. Melchior, Thomas A. Quinn,
and Ronald E. Burch, who are also the major stockholders in SB Geo,
Inc., and partners in 1-A Enterprises, described below.
U.S. Envirosystems, Inc. ("USE"), is a Delaware corporation
engaging in the business of developing, owning and operating
co-generation and independent power facilities in the United States
and overseas. Its offices are located at 515 North Flagler Drive,
Suite 202, West Palm Beach, Florida 33401. Its stock is publicly
traded on the NASDAQ OTC Bulletin Board under the symbol "USEN."
Steamboat Envirosystems, L.C. ("SBE"), will be a Utah limited
liability company, qualified to do business in Nevada, with its
principal place of business located at 921 Executive Park Drive,
Suite B, Salt Lake City, UT 84117. SBE will be formed by USE and
FWC to purchase the Fund's Assets.
1-A Enterprises ("1-A") is a Nevada general partnership which owns
a geothermal power plant commonly referred to as SB-1A which is
located adjacent to the SB-1 power plant. The SB-1A power plant,
put on line in 1989, utilizes the tail stream from the SB-1 plant
to produce power. It has a nominal capacity of approximately 1.6
kwh, and on average produces approximately 14 million kwh per year.
Because SB-1A utilizes brine produced from SB-1 wells to produce
power, SB-1A pays a pumping charge and royalty to the Fund, which
constitute part of the Assets which SBE will purchase from the
Fund. The Fund received $144,000 in pumping charges and royalties
from 1-A in 1995.
SB Geo, Inc. ("SBG") is a Utah corporation with its principal place
of business at 921 Executive Park Drive, Suite B, Salt Lake City,
Utah 84117. SBG currently operates SB-1 and SB-1A under a contract
which provides that SBG does not make a profit on the operations of
those plants. In 1995, the Fund is expected to accrue obligations
to SBC of $419,200 for fixed operations and maintenance expenses
and $211,872 for variable expenses.
If the Proposed Transaction is consummated, SBE and SBG will
execute an operating agreement pursuant to which SBG will operate
the SB-1 and SB-1A geothermal power plants for SBE at rates
competitive with rates charged by other independent power plant
operators.
Purchase of Assets
Under the Sales Agreement, SBE proposes to purchase the Power
Plants and all related assets.
SB-1
The Fund owns a geothermal power plant located within the Steamboat
Springs Known Geothermal Resource Area located roughly 10 miles due
south of downtown Reno, Nevada near the intersection of U.S. 395
and the Mount Rose Highway. This SB-1 plant has a nominal net
capacity of approximately 4 MW and produces on the average
approximately 37.8 million kwh per year.
SB-1 sells its output under a twenty year power purchase agreement
with Sierra Pacific Power Company ("Sierra"), the local public
utility. That power purchase agreement provides in part that SB-1
will be paid 7.17 cents per kwh for the first ten years of commercial
operation and short-term avoided cost for the second ten years of
operation.
When SB-1 began commercial operations in December of 1986, it was
estimated by the parties that short-term avoided cost at the
beginning of the second ten years of commercial operation would be
in the 5-6 cents per kwh range. At present, however, Sierra's short-term
avoided cost is approximately 2.8 cents per kwh.
It is the opinion of FWC that the SB-1 plant cannot sell its output
at 2.8 cents and generate sufficient revenues to pay operating expenses
and royalties, and service project debt.
As of October 1, 1995 there was a balance of $4,709,542 on the
Westinghouse loan on SB-1 and a $1,016,774 debt reserve for the
Loan held in escrow. In addition the Fund owes FWC approximately
$2,550,257 consisting of $1,069,269 in cash advances, $825,163 in
unpaid interest on those cash advances and $655,824 in unpaid
services.
SB-1A
SB-1A sells its output to Sierra under a thirty year power purchase
agreement. Pursuant to that agreement during the first ten years of
commercial operation, which began in December of 1988, SB-1A is
paid a floating rate for energy and capacity based on the movement
of two different indices.
At present SB-1A is paid one rate for capacity and another for
energy. These rates vary at different times of the year. During
1995 the annual blended rate paid for SB-1A's output has been
0.05433 cents per kwh. During the balance of the power purchase
agreement beginning December of 1998, SB-1A will be paid for its
output at Sierra's short-term avoided cost which presently
approximates 2.8 cents per kwh.
1-A does not believe that SB-1A can sell its output at 2.8 cents per kwh
and generate sufficient revenues to pay operating expenses, pumping
charges, royalties, and debt service.
As of October 1, 1995 there was a balance due on the Westinghouse
loan on SB-1A of $1,746,470 and a debt reserve held in escrow of
$79,869. In addition 1-A owes FWC in excess of $950,000
representing (i) the balance and accrued interest due on a loan
made in connection with the construction of the SB-1A plant with a
principal balance of approximately $632,000), (ii) cash advances of
approximately $88,000, and (iii) interest on the foregoing.
Other Assets
The assets to be sold also include, without limitation, supplies,
inventory, plant, equipment, receivables and property; tangible and
intangible, real and personal including without limitation permits,
licenses, policies, contracts, choses in action, records, reports,
documents, computer records, power sales agreements, leases,
subleases, designs, operating records, bank accounts, escrow
accounts, funds, wells, rights to brine, and any other rights held
by the Fund or 1-A which are used or useful or pertain to the
ownership, operation and maintenance of the SB-1 and SB-1A
geothermal power plants owned by the Fund and 1-A.
Negotiations to Modify the Power Sales Agreements
FWC has initiated discussions with Sierra concerning renegotiating
the power purchase agreements applicable to the SB-1 and SB-1A
power plants, in an attempt to increase the rate to be paid for the
power generated by those plants during the period following the
first ten years of commercial operations.
At this point FWC is not optimistic that attempts to renegotiate
the power purchase agreement will be successful.
It may be possible for the owner of the Power Plants to terminate
the power purchase agreement with Sierra and find another market
for the output of SB-1 and SB-1A at a price that would exceed
Sierra's short-term avoided cost rate, but the possibility of that
result is unknown.
Cash Deposit
On August 9, 1995, USE paid to FWC a non-refundable deposit of
$50,000 towards the purchase of SB-1. This deposits will be used by
FWC to defray the cost of preparation and mailing of this Consent
Solicitation and associated documents.
Conditions of Sale
Performance of the Sales Agreement is subject to certain conditions
precedent ("Conditions of Sale"):
USE raises approximately $10,000,000 in public or private
securities offerings; and
A majority of the Fund's Limited Partnership interest which votes
in response to this Consent Solicitation approves the Proposed
Transaction.
Steps of the Sales Transaction
The Proposed Transaction consists of the following steps:
1. On or before March 1, 1995, FWC will establish an escrow account
at a Utah bank in which it will place executed instruments
conveying to SBE Power Plants and related assets. These assets
shall be free and clear of all claims or encumbrances except those
identified in the Sales Agreement.
2. USE will deposit $2.525 million into the escrow account, SBE
will be formed, its operating agreement will be executed by USE and
FWC, and the moneys and instruments of conveyance will be released
to SBE.
3. SBE will (i) transfer $1.25 to the Fund for purchase of the
Assets, (ii) transfer $.275 million to 1-A for purchase of SB-1A
and related assets, and (iii) retain $1 million for plant
improvements and possible buy-out of royalty rights in the Power
Plants.
4. All Fund and 1-A receivables, payables, and liabilities shall be
prorated as of the closing date. SBE shall immediately assume
responsibility for all direct obligations and liabilities
associated with the ownership and operation of the SB-1 and SB-1A
power plants including, without limitation, operating costs,
royalties, debt service (if any), back feed electricity,
interconnect fees, etc.
5. SBG will begin operating the SB-1 and SB-1A power plants at
rates competitive with those charged by independent operators.
6. The Fund will pay its obligations to third parties, distribute
the balance of the purchase price to the Limited Partners, and the
Fund will be terminated.
Incentive Offered to Limited Partners
As an incentive to the Limited Partners to vote in favor of the
Proposed Transaction, and contingent upon such approval, FWC will:
Transfer to SBE all debts owed by the Fund to FWC. As of October 1,
1995, this debt was approximately $2,550,257, consisting of
$1,069,269 in cash advances, $825,163 interest on those cash
advances, and $655,824 owed for uncompensated services provided to
the Fund by FWC; and
Decline its share of any final distribution. But for this
declination, FWC as a general partner and holder of units would be
entitled to receive 6.1% of the cash to be distributed in the final
distribution.
By re-directing these moneys from itself to the other Fund unit
holders, FWC believes it is doing everything in its power to
maximize the cash distributions to the Limited Partners.
Third Party Debts
As of December 1, 1995, the Fund's estimated third party debts
(debts not owed to FWC) and accounts payable, including the
estimated costs of this Consent Solicitation, total approximately
$896,872. This consists of bank debt of $470,649, unpaid
professional services and royalties of $385,801, and $40,422 for
unpaid operating services.
Cash to be Distributed
FWC estimates that if the Limited Partners approve the Proposed
Transaction the final distribution to Limited Partners will be a
total of $428,128, or a total of approximately $44 per limited
partnership unit. This amount will vary depending on the final
outcome of negotiations with Fund creditors.
Improvement of Power Plants and Purchase of Royalty Interests
A total of $1,000,000 of the $2,525,000 contributed to SBE by USE
shall be used to finance improvements in the Power Plants and
attempt to buy at a discount the gross royalties and net revenue
royalties owned by GDA, Benson, Helzel and Schwartzoff and Ormat,
Inc. in the projects (see Exhibit 1). Any amounts not utilized for
those purposes shall be retained in the accounts of SBE to be used
in the operation and maintenance of the SB-1 and SB-1A power
plants.
Purchase of Debt
USE has negotiated to purchase the position of Westinghouse Credit
Corporation, the primary lender on both the SB-1 and SB-1A
projects. USE expects to acquire the total Westinghouse loan
balance ($6,456,012 as of October 1, 1995) at a discount.
At its election, USE may contribute that debt position to SBE as a
part of its capital contribution to SBE. If that is done, SBE may
cancel the debt and all related encumbrances on the SB-1 and SB-1A
projects. If so contributed and canceled, SBE shall immediately
assign to USE all of its right, title and interest in and to the
funds held in the SB-1 and SB-1A loan reserves. As of October 1,
1995, these reserves totaled $1,096,643.
Liabilities Not Assumed
All operating expenses, royalties, taxes, and other Fund
obligations shall be prorated between the SBE, the Fund, and 1-A as
of the closing date.
The parties to the Sales Agreement are not assuming any of the
following liabilities, contracts, commitments and other obligations
of any other party to the Sales Agreement.
Any obligations or liabilities of any other party arising under the
Sales Agreement;
Any obligation of any other party to the Sales Agreement for
federal, state or local tax liability (including interest and
penalties) arising from the operation of SB-1 or SB-1A by SBG, FWC,
the Fund or 1-A up to the closing date or arising out of the sale
by the Fund or 1-A of their assets;
Any obligation of the Fund or 1-A for any transfer, sales or other
taxes, fees or levies arising out of the sale of assets;
Any obligation of the Fund or 1-A for expenses incurred in
connection with the sale of the assets.
All real or personal property taxes attributable to any of the
assets shall be prorated as of the closing date; any transfer,
sales, use or other tax, including any real estate excise tax or
transfer, filing or recording fees, payable upon or with respect to
the sale of the assets hereunder shall be paid when due by SBE.
Warranties of the Fund
As required by the Sales Agreement, the Fund and 1-A warrant that
to the best of their knowledge:
The assets will be duly and validly transferred to SBE and upon the
delivery to SBE of appropriate documents; SBE will have good and
marketable title to the assets, free and clear of all liens,
claims, encumbrances and other rights of third parties except for
certain interests listed in Exhibit B to the Sales Agreement.
There are no pending or threatened claims that are or could be
asserted against the Fund which relate to any toxic or hazardous
substance having been improperly generated, handled, released (or
threatened to be released), treated, stored or disposed of, or
otherwise deposited in, on, beneath or in close proximity to the
real property upon which the Power Plants are constructed
including, without limitation, the surface waters and subsurface
waters thereof. There are no underground tanks that are or have
been located on, in or in close proximity to the plant site. There
are no pending or threatened environmental claims that are or could
be asserted against the Fund or 1-A or its predecessors, which
relate to the plant site.
There is no suit, action or proceeding pending or threatened
against the Fund or 1-A, and there is no judgment, order,
injunction, decree, regulation or ruling of any court or
governmental department, commission, agency, instrumentality or
arbitration outstanding against the Fund or 1-A having or which,
insofar as can be foreseen in the future, may have any adverse
effect on the operation and use of the Power Plants.
There are no existing conditions at the Power Plant sites that
could cause those sites to become in violation of, or in
noncompliance with, any governmental rule or regulation.
The Fund and 1-A have complied in all material respects with all of
the applicable rules, regulations and requirements of all
governmental licenses, permits and authorizations held by each
entity in connection with the ownership, development and operation
of their respective power plants. All information and disclosures
made on any applications for licenses, permits or authorizations
were true when made. Neither the Fund nor 1-A has any knowledge of
any claimed violations from any governmental agency or any other
person with respect to the licenses, permits and authorizations
held by them in connection with the operation of the Power Plants
and neither the Fund nor 1-A has any knowledge that any condition
exists which may give rise to a claim of violation in the future.
All of the permits and contracts associated with the ownership and
operation of the Power Plants are in good standing and in full
force and effect, and there has been no material adverse change in
the status of the permits and contracts which threatens, restricts
or prohibits the operation of the power plants.
Warranties of USE
USE warrants that:
It is a corporation duly organized, validly existing and in good
standing under the laws of the state of Delaware and is authorized
or licensed to do business in all other jurisdictions in which the
failure so to qualify would have a material and adverse impact on
its business or properties. USE has the power and authority to
carry on its business as now conducted and as proposed to be
conducted.
All necessary actions on the part of USE necessary for the
authorization, execution, delivery and performance of the Sales
Agreement and the consummation of the transactions contemplated in
the Sales Agreement will be taken prior to closing. The Sales
Agreement shall constitute the legal, valid and binding obligation
of USE, enforceable against USE in accordance with its terms.
Additional Documents of Transfer
Upon the reasonable request of SBE the parties shall execute,
acknowledge, and deliver all such further documents as may be
required to convey and transfer to and vest in SBE and protect its
right, title and interest in all of the assets purchased pursuant
to the Sales Agreement, and as may be otherwise appropriate to
carry out the transactions contemplated by the Sales Agreement.
At closing SBE shall receive a report from First American Title
Company of Reno indicating that there are no mortgages, claims,
liens, charges, encumbrances security interests, restrictions on
use or transfer or other defects of record with respect to the
Power Plants other than as set forth in Exhibit B to the Sales
Agreement.
Other Provisions
The Sales Agreement contains several other provisions, among which
are the following:
The Sales Agreement may not be amended or modified except in a
writing signed by each of the parties.
Each party to the Sales Agreement will indemnify and hold harmless
each other party from any commission, fee or claim of any person,
firm or corporation employed or retained by, or claiming to be
employed or retained by, the indemnifying party to bring about, or
to represent it in, the transactions contemplated therein.
Each party will pay all expenses incurred by it and in connection
with the negotiation, execution and performance of the Sales
Agreement, whether or not the transactions contemplated therein are
consummated, including the fees and expenses of agents,
representatives, accountants and counsel for each party.
Time is of the essence of the Sales Agreement and each and every
covenant, condition and provision of the Sales Agreement.
Any dispute arising under the Sales Agreement which the parties
cannot resolve amicably, will first be mediated and if that process
does not resolve the dispute, the dispute will be submitted to
binding arbitration. Such mediation and arbitration will take place
in Salt Lake City, Utah in accordance with the Rules of the
American Arbitration Association and the prevailing party shall be
entitled to reasonable attorney's fees in addition to any other
relief to which that party may be entitled.
The Fund
Organization
Far West Electric Energy Fund L.P., a Delaware limited partnership
(the "Fund"), was originally organized in September 1984 under the
Uniform Limited Partnership Act of Utah as Far West Hydroelectric
Fund, Ltd. Its general partners were Far West Capital, Inc.
("FWC"), Alan O. Melchoir, and Thomas A. Quinn.
The principal revenue-producing activities of the Fund commenced as
of December 31, 1985, following the completion in November 1985 of
a public offering of its units of limited partnership interests
registered under the Securities Act of 1933.
On December 20, 1988, the Fund changed its name to Far West
Electric Energy Fund, L.P. and changed its domicile to Delaware.
Messrs. Melchior and Quinn resigned as individual general partners
of the Fund effective January 1, 1995, leaving FWC as the sole
general partner.
Since 1986, the Fund has realized significant revenues from its
business of selling power generated by its plants to public
utilities pursuant to the Public Utility Regulatory Policies Act
("PURPA"), and in accordance with regulations of the Federal Energy
Regulatory Commission ("FERC") and of the state public utility
commissions of Idaho and Nevada.
Management
The Fund has no employees, but relies on the staff of FWC and
Messrs. Melchoir, Quinn, and Burch, who are officers, directors,
and shareholders of FWC and SBG.
The following individuals are the principal officers and directors,
and sole shareholders of FWC.
Alan O. Melchior, President and Director of FWC, age 47. Mr.
Melchior was a founder of FWC, which was organized in May, 1983. He
has been its President since its inception. From December, 1981 to
May, 1983, he was an account executive with Westlake Securities,
Inc., of Angora Hills, California. Mr. Melchior received a B.S. in
business from Brigham Young University in 1971 and an M.B.A. degree
from the University of Utah in 1974.
Thomas A. Quinn, Vice President, General Counsel and Director of
FWC, age 59. Mr. Quinn was also a founder of FWC. Since February,
1985, Mr. Quinn has been serving full-time in his capacities with
FWC. From 1968 to February, 1985, he was engaged in the private
practice of law in Salt Lake City, Utah. He received a B.S. degree
in political science from Brigham Young University in 1959, and a
Juris Doctor, with honors, from George Washington University Law
School in 1963.
Messrs. Melchior and Quinn each own 40% of FWC, 37.5% of 1-A
Enterprises (owner of SB-1A), and 37.5% of SB Geo, Inc. (operator
of SB-1 and SB-1A). Ronald E. Burch owns 20% of FWC and 15% of SBG.
The principal asset of the Fund is the single electric power
generation plant described below. The Fund previously owned a small
hydroelectric plant near Twin Falls, Idaho, known as the Crystal
Springs Hydroelectric Plant which was sold in March, 1995.
The Steamboat Springs
Thermal-hydroelectric Plant
The Steamboat Springs Plant ("SB-1") is located ten miles south of
Reno, Nevada on property leased from Sierra Pacific Power Company
pursuant to a Geothermal Resource Lease in the Steamboat Known
Geothermal Resource Area.
The plant has gross capacity of approximately 6.5 megawatts and
consists of seven separate modules, utilizing binary rankine cycle
turbines. The Fund purchased SB-1 from Ormat, Inc. ("Ormat") in
1985.
The Operator of SB-1
The present operating agreement provides for SB Geo, Inc. ("SBG"),
an affiliate of FWC, to operate and maintain the SB-1 plant for a
period of 10 years. SBG operates the plant on a no profit basis
(salaries and expenses only).
While this change of operators generally has brought increased
power production and lower operating costs, the Fund incurred
increased cost associated with equipment repairs that otherwise
would have been covered by the Ormat warranty.
In October 1991, the Fund assigned its 77% ownership interest in
SBG, and 1-A Enterprises assigned its 23% ownership in SBG, to
Messrs. Melchior and Quinn, who accepted the assignments and SBG's
liabilities.
According to an independent valuation firm, SBG had no value as of
the transfer date due to its obligations and its cost basis
operating status. Consequently, no gain or loss was recognized as
a result of the assignment.
Fund Revenues from the
1-A Plant
The 1-A geothermal plant ("1-A") is located adjacent to the
Steamboat Springs Plant. 1-A consists of two separate modules,
utilizing binary rankine cycle turbines with a combined net output
of 1.6 megawatts.
1-A was originally a Steamboat Springs expansion project, but was
sold in 1988 to a general partnership entitled 1-A Enterprises
which is owned 75% by Alan O. Melchior and Thomas A. Quinn. Until
their resignation effective January 1, 1995, these gentlemen were
individual general partners of the Fund; they are currently
officers and shareholders of FWC.
Use of the geothermal resource by 1-A has no adverse effect on the
operation or earnings of SB-1.
In a Second Amendment to Geothermal Resources Lease, provision was
made to accommodate 1-A on the SB-1 lease. A Geothermal Resources
Sublease was entered into granting rights and defining terms and
conditions for the siting and operation of 1-A and setting forth a
method of calculating royalty payments to be made to the Fund. This
Sublease was Revised and Restated on October 9, 1989.
As consideration for the sale of 1-A rights to 1-A Enterprises, the
Fund received a royalty interest in the net operating income of
1-A. Such royalties equal 10% in 1988 through 1992, 15% in 1993
through 1998, 40% in 1999 through 2010, and 45% in 2011, and
thereafter.
The Fund is paid an amount equivalent to the net profit that would
be realized by the Fund if 1-A were bearing 150 kwh of parasitic
power load (power consumed by the plant itself).
The net profit equivalent is calculated as follows: 1,200,000 kwh
x the rate at which power is sold to Sierra Pacific Power Company
under the power purchase agreement applicable to 1-A, less any
royalties, note payments, or net revenue interest or other expenses
associated with or payable out of such additional revenues assuming
that 1-A produced an additional 1,200,000 kwh per annum.
The total royalty payments and pumping charges paid by 1-A to the
Fund were $95,000 in 1989, $94,000 in 1990, $115,000 in 1991,
$102,000 in 1992, $135,000 in 1993, $144,000 in 1994, and $144,000
in 1995.
As described in the Sales Agreement, SBE will also purchase the
SB-1A power plant, which currently pays pumping charges and
royalties to the Fund, as described above. These rights to
royalties and pumping charges are included in the assets being sold
by the Fund, and were included in calculating the value of the
assets being sold..
Long-term Debt
In January 1990, the Fund received the proceeds of an $8,000,000
non-recourse refinancing of SB-1 with Westinghouse Credit
Corporation ("WCC"). The WCC loan, which is secured by the Project
assets including the resource lease, plant and equipment and
related contract rights, bears interest at 11.5% per annum and must
be repaid over ten years in 40 quarterly payments of principal and
interest.
On October 23, 1992 WCC gave the Fund a notice of default with
regard to the long-term financing of the project. The default
occurred because-
The Fund allowed the reserve account to fall below $1 million plus
an additional $70,000 annually for 7 years (together with interest)
as required by the terms of the loan; and
The Ormat arbitration award exceeded $25,000, breaching a loan
requirement.
Since that date the parties have met in negotiations on several
occasions. There has been no resolution of the default, but
Westinghouse has taken no action.
Simultaneously with its January 17, 1990 loan to the Fund, WCC made
a $3 million non-recourse loan to 1-A on the same terms as the loan
made to the Fund, but secured by the assets associated with 1-A. Of
this amount, $400,000 has been reloaned by 1-A Enterprises to the
Fund on the same terms the Fund received from WCC.
Fund Financial Position
As shown in the Fund's last audited financial statements (for the
year ended December 31, 1994 delivered to the Limited Partners in
the December 31, 1994 Form 10-K), the Fund's current liabilities
exceed current assets by $9,191,000. Of this amount, $5,340,000
relates to the note default involving the Steamboat Springs Plant
with WCC.
Cumulative losses for the three-year period ended December 31, 1994
amounted to $614,000 before extraordinary items. The principal
cause of these losses was expenses associated with poor plant
performance and higher than expected operating and maintenance
expenses due primarily to Ormat's refusal to honor its warranty
obligations, litigation and administrative proceedings, and
unanticipated lower revenues.
Fund Operations
In 1987 the Steamboat Springs Plant produced electric power and
generated revenues at approximately 75% of expected operating
levels. The production shortfall was primarily due to shutdowns
required to effect certain equipment changes and modifications, and
to operation of that plant at a lower level than expected.
FWC determined that to achieve the expected capacity and the
performance requirements specified in the plant's purchase
contract, the vendor/operator would have to install additional
equipment and make some modifications to existing equipment. These
corrections were made at no cost to the Fund (although the
down-time for modifications and testing impacted revenues). The
modifications and repairs were completed in the summer of 1988, and
the Fund was informed by Ormat that the plant was performing at a
level that would produce 42,000,000 kwh per year.
The Steamboat Springs Plant increased production of electric power
from 32,797,000 kwh in 1987 to 36,142,000 kwh in 1988. Ormat, the
vendor/operator of the plant, installed additional equipment and
made equipment modifications which increased the plant's capacity
and performance. These additions and modifications were made at no
additional cost to the Fund.
In 1989 the Steamboat Springs Plant produced $2,564,000 in gross
revenues which was $448,000 and $576,000 less than would have been
received under the Ormat projected 42,000,000 kwh and 43,800,000
kwh agreed to under the purchase agreement per year respectively.
After reviewing plant performance with independent consultants, FWC
concluded that the deficiencies in plant performance were
attributable to both poor operating practices employed by Ormat,
the former operator, and certain problems in plant design.
Consequently, FWC notified Ormat that the Fund believed that Ormat
was in default under both its Operating and Purchase Agreements
with the Fund. FWC replaced Ormat as plant operator on October 11,
1990, and sought redress for plant deficiencies under the
arbitration clause of the Purchase Agreement. Arbitration
proceedings began October 29, 1990.
The arbitration panel denied the bulk of the Fund's claims and
Ormat's counter claims. The Fund was awarded $175,000 for well
field problems, and Ormat was awarded $254,000 for unpaid operating
and warranty service, the payment of which had been withheld
pending the completion of the Arbitration. The parties have all
complied with the ruling of the Arbitrators, including payment of
all awards.
In 1990 the plant produced $2,765,000 in gross revenues which was
an increase over 1989's revenues, but about $247,000 and $376,000
less than would have been received under the projected 42,000,000
and 43,800,000 kwh per year respectively.
In 1991 the plant produced $2,791,000 in gross revenues which was
$220,000 and $349,000 less than would have been received under the
projected 42,000,000 and 43,800,000 kwh per year respectively.
In 1992 the plant produced about $2,360,000 in gross revenues which
was $651,400 and $780,460 less than would have been received under
the projected 42,000,000 and 43,800,000 kwh per year respectively.
The poor performance in 1992 was directly due to excessive
equipment failures and breakdowns which resulted in plant downtime.
In 1993 the plant produced $2,625,000 in gross revenues which was
an increase over 1992's revenues but about $386,391 and $515,451
less than would have been received under the projected 42,000,000
and 43,800,000 kwh per year respectively.
In 1994 the plant produced $2,564,000 in gross revenues, a decrease
of $446,906 from the prior year and $575,966 less than projected.
In 1995 production was $2,580,000, an increase of $431,060 over the
prior year, but $560,120 less than projected.
The following table shows the annual production for SB-1; it does
not include SB-1A production:
of construction loans with an approximate principal balan,e of
$632,000, cash advanes Agreement
Listed below are the parties to the Sales Agreement, together with
a bri9d e38ription of each.
Far W+.94%ric Energy Fund, L.P. (the "Fund") is alaware limited
partnership with its principa994 place of business at 921 Executive
Park Drive, Suite B, Salt Lake City,
Compensation of the General Partner
Pursuant to the Amended and Restated Agreement of Limited
Partnership of Far West Electric Energy Fund, L.P., as
consideration for providing management services to the Fund, FWC is
entitled to the following compensation:
A one percent (1%) interest in the profits, losses, and net income
of the Fund; and
Units equal to five percent (5%) of the units outstanding, to be
increased proportionately if and as additional units are issued in
the future (currently, 530 units);
If and when units are listed for public trading, or the Limited
Partners have received an amount equal to their capital
contributions to the Fund (reduced by the amount of tax credits
allocated to the Limited Partners) together with a sum equal to a
cumulative annual return of 8%, FWC shall receive additional units
equal to ten percent (10%) of the units outstanding, and a total of
15% of any new units issued.
Reasonable compensation in connection with the purchase of projects
from FWC or its affiliates, and provision of services to the Fund
which are normally provided by outside consultants, provided any
such payments are competitive with charges for similar projects or
services.
Reimbursement on a monthly basis for all direct expenses it incurs
on behalf of the Fund and for that portion of its administrative
expenses allocable to the Fund.
Moneys Owed To FWC
Because SB-1 output has been below the anticipated level, and
because of higher than anticipated operating expenses, FWC has
deferred compensation due to it from the Fund, and has advanced
moneys to the Fund, as shown on the following table:
h 84117 (see "The Fund"). Fund is publicl 1990 - 42,000
imately 1,100 unit holders; Fund units are not publicly traded. The
Fund is he owner of SB-1 and related assets, and owns royalty
interest in SB-1A.
Far West Cd to acc
The FWC loans to the Fund are unsecured, accrue interest at 13%,
and are payable upon demand.
Federal Income Tax Consequences
This description of certain federal income tax consequences of the
proposed sale of the assets of the Fund is included solely for the
information of the Limited Partners. No information is provided
with respect to the consequences of any applicable state, local or
foreign tax laws.
Applicability of the minimum tax and other tax consequences of the
proposed sale to a Limited Partner may depend upon the individual
situation of the Partner. Therefore, each Partner is urged to
consult his or her own tax adviser concerning the specific tax
consequences of the proposed sale to such Partner.
General Considerations
The following summary of the major income tax consequences of the
proposed sale is based, with respect to U.S. tax consequences, on
the pertinent provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the applicable regulations promulgated by the
Treasury Department under the Code (the "Regulations"), judicial
and administrative interpretations of the Code and Regulations.
Each Partner of the Fund should be aware that the Code, the
Regulations and interpretations are subject to change and that such
changes may be given retroactive effect.
The Revenue Reconciliation Act of 1990 (the "1990 Act") changes the
tax rates imposed upon individuals commencing January 1, 1991. The
new tax law imposes a 36% marginal tax rate plus a surtax resulting
in a 39.6% rate rather than a generally imposed 28% marginal tax
bracket on individual taxpayers, increases the alternative minimum
tax rate to 24% (rather than the previous rate of 21%), and phases
out personal exemptions and itemized deductions for persons with
substantial income.
The 1990 Act also limits the tax rate on long-term capital gains to
28% The 1990 Act itself does not have an effect upon the opinion of
the Tax Advisor items (a) through (g) set forth below, but owners
of limited partnership units should be aware that the changes set
forth in the 1990 Act could have an effect on the rates imposed on
the taxpayer.
The Partners in the Fund are variously; corporations, individuals,
partnerships and nominees. Each type of entity may be taxed at
different rates or be taxed based on different sections of the Code
or Regulations. It is not feasible to comment on all of the federal
income tax consequences of the proposed sale.
This summary has been prepared based on the opinion of the Fund's
tax advisor, the Code, and the Regulations as now in effect and the
current judicial and administrative interpretations thereof.
There can be no assurance that the Internal Revenue Service will
agree with the interpretations of the Code and the Regulations set
forth below. The following summary does not include any discussion
with respect to the consequences of the proposed sale under state
and local taxation laws and regulations.
Opinion of Tax Advisor
The Tax Advisor to the Fund, Robison, Hill & Co. (a professional
corporation), has issued an opinion addressing certain tax
consequences of the proposed sale of the assets of the Fund. A
complete copy of the Tax Advisor's opinion is included in the
exhibits to this proxy statement. The opinion is to the effect that
if the sale occurs as set forth in the Purchase and Sale Agreement
and as described herein, it is more likely than not:
(a) The proposed sale will result in dissolution of the partnership
under the Certificate and Agreement of Limited Partnership of Far
West Hydroelectric Fund L.P.
(b) Any cash received by the Limited Partners of the Fund will be
treated as having been received in redemption of the limited
partner units so cashed out, and will result in taxable gain or
loss. The amount of such gain or loss will be the difference
between the cash received and the basis of the units surrendered in
exchange thereof.
(c) The partnership is not a "generic" tax shelter under the
two-pronged test and loss if any will be allowed.
(d) The $100,000 cancellation of indebtedness from First Security
Bank will result in taxable income and increase earnings and
profits to the Fund.
(e) The debt to FWC will be transferred to equity in the new entity
and is not forgiveness of debt and should not be recognized as a
distribution of money by the partnership to the Limited Partners.
(f) Partners that did not receive tax benefits from the energy tax
credit are entitled to 50% of the basis reduction as a credit on
their income tax return.
(g) Because the Fund records income on an accrual basis for tax
purposes there will not be any unrealized receivables or
appreciated inventory sold that should be recognized as ordinary
income.
An opinion of a tax practitioner is not binding upon the IRS or the
Courts. It is uncertain whether the IRS would issue a favorable
ruling on the Proposed Sale. An opinion of Tax Advisors does not
provide the same degree of assurance with respect to the
consequences of a transaction as would a private letter ruling from
the IRS.
The Tax Advisor's opinion is subject to a number of assumptions and
qualifications that are critical to the opinion and is based on
certain factual assumptions, and upon certain representations and
assurances made by FWC, the Fund, USE and SBE. If such factual
information or the representations, warranties, or assumptions are
not true when made or subsequently change, the Tax Advisor's
opinion may be inapplicable. Robison, Hill & Co. has expressed no
opinion concerning the consequences of the proposed sale on the
Limited Partners under applicable state or local income tax laws.
Calculation of Individual Partner Per Unit Cost Basis
Based on the information provided from the Schedule K of Form 1065
as was filed by the Fund, a per-unit basis of original issued units
($1,000 per Unit) would be as indicated on the table below.
(See table on paper filing)
The preceding table assumes that the Limited Partner is an
individual and was unable to deduct some of the losses at the times
they were incurred either because of the basis limitations or the
passive loss limitations.
In summary, assuming that the partner was able to utilize the
Business credit, the partner should have-
Received a tax benefit of $299 for the Business credit
Received non-taxable cash distributions of $97
If the proposed transaction is approved and completed, this Limited
Partner's Form K-1 will report ordinary income of $44 ($559 income
less $290 of suspended losses and $225 of capital loss).
Each Limited Partner's situation may vary from the above
assumptions, accordingly, partners are encouraged to consult their
own tax advisers.
Reduction of Basis
The Fund elected to reduce basis of property for which the energy
credit was claimed by 50% of the energy credit (Code Sec. 50). The
reduced basis was used in determining depreciation and gain on the
disposition of property.
In the event that a partner did not realize a tax benefit from the
investment credit for which a downward basis adjustment was made,
a deduction is allowed under Code Sec. 196 to the taxpayer for 50%
of the unused energy credit attributable to the basis reduction.
The Code also imposes an alternative minimum tax and excise taxes
on certain types of transactions. Applicability of such taxes is
usually controlled, in whole or part, by other matters unrelated to
the Proposed Sale or by unique characteristics of the particular
taxpayer.
Accordingly, partners are encouraged to consult their tax advisers
if they are or might be subject to such taxes.
Taxation of Partnerships in General
The partnership is not subject to federal income tax, it is an
entity which income or loss "flows through" to partners who are
taxable in their individual capacities on their distributive shares
of partnership taxable income. However, the partnership is a tax
reporting entity that must make an annual return of partnership
income or loss.
Each partner is required to treat partnership items on its return
in a manner consistent with the treatment of such items on the
partnership return and may be penalized for intentional disregard
of the consistency requirement (Code Sec. 6222).
The consistency requirement may be waived if the partner files a
statement (Form 8082) identifying the inconsistency or shows that
it resulted from an incorrect schedule furnished by the
partnership.
A partner is generally not taxed on distribution of cash or
property received from the partnership, except to the extent that
any money distributed exceeds the partner's adjusted basis in its
partnership interest immediately before the distribution (Code
Section 706(a)).
Each partner generally must account for its distributive share of
partnership taxable income in computing its income tax; thus, the
basis in its partnership interest is increased by its distributive
share of partnership taxable income.
It is this basis increase that generally allows distributions of
taxable income to be made without recognition of gain, since the
basis increase generally offsets corresponding decreases in basis
that result from such distributions (Code Secs. 705 and 731(a)).
Deductibility of Losses
The benefit of the net operating loss deduction is not allowed to
the partnership, but only to the partners. For purposes of
determining its individual net operating loss, each partner takes
into account its distributive share of income, gain, losses,
deductions, or credits of the partnership as if each item were
realized directly from the source from which realized by the
partnership, or incurred in the same manner as incurred by the
partnership (Reg. 1.702-2).
Limitations on Deductibility of Losses
There are three commonly encountered limitations on a partner's
ability to take into account its share of a partnership's loss in
computing its individual tax liability. A partner is entitled to
deduct its share of the partnership's loss only after satisfying
all three of these rules.
Since the adoption of the 1954 Code through the present, the
partnership taxation rules have limited a partner's deductible
share of losses to its basis in its partnership interest.
Since 1976, the at-risk rules have limited a partner's deduction
for its share of losses to the amount it is considered to be
economically at-risk in the venture.
Beginning with the effective date of the Tax reform Act of 1986, if
a partner's share of the partnership's losses are considered
"passive losses," the partner must combine them with its passive
losses from other sources and is allowed to deduct the total only
to the extent of its passive income from all sources.
Losses that are disallowed due to any of these three limitations
are deductible in the year of the termination of a partnership
interest.
Capital Gain or Loss
A decrease in a partner's share of partnership liabilities is
treated as a distribution of money by the partnership, which
decreases the distributee partner's basis in its partnership
interest (but not below zero) (Code Secs. 733 and 752(b)). When a
partner's basis has been reduced to zero, such "deemed
distributions" can result in the recognition of gain.
Partners' shares of partnership liabilities (and corresponding
allocations of basis) depend upon whether the liability is
"recourse" or "nonrecourse." In addition, separate rules apply in
the case of nonrecourse debts of the partnership if a partner is
the lender or has guaranteed repayment of the debt.
A limited partner cannot be allocated recourse liabilities in
excess of its capital contribution unless it has agreed to restore
any deficit in its capital account. Article VIII of the partnership
agreement states that the "units are not subject to assessment."
Nonrecourse liabilities are those for which no partner bears the
economic risk of loss.
Cancellation of Indebtedness
Cancellation of indebtedness usually results in taxable income and
increases earnings and profits. However, where the creditor's
adjusted basis in the debt is at least equal to the principal
amount of the debt forgiven, the forgiveness of debt by a
creditor-shareholder may be a capital contribution that doesn't
increase earnings and profits.
But, in the absence of evidence indicating an intent to make a
capital contribution, the cancellation of indebtedness increases
earnings and profits (Rev. Rul. 58-546).
Termination of the Fund
The tax year of the partnership closes if there has been a
termination of the partnership. Article XVII (ii) of the
Certificate and Agreement of Limited Partnership states that the
sale of substantially all the assets of the Fund shall work an
immediate dissolution of the Fund.
The partnership agreement of the Fund states that the "holders of
the units shall continue to share profits and or losses during the
period of liquidation in the same proportion as before the
dissolution.
Upon the completion of the liquidation of the partnership, the
partnership must file a short-period return for the resulting short
tax year. Code Section 708 provides that termination occurs only if
the business activities of the partnership are no longer carried on
by any of the partners or that at least one-half of the total
interest in partnership capital and profits is sold within a
12-month period.
Such sale or exchange includes a sale or exchange to another member
of the partnership and the exchange of the interest in one
partnership for an interest in another partnership (or limited
liability company).
A partnership is considered a continuing entity and observes its
regular tax year unless it is terminated under the rules above,
accordingly, the dissolution or liquidation of the partnership
under state law does not necessarily cause a partnership's tax year
to close (Reg. 1.706-1(c)).
Effect of Liquidation
In the case of a liquidating partnership, a relatively simple set
of rules governs the distributee's gain, loss, and basis in
distributed assets, if there are no disproportionate distributions
of unrealized receivables and substantially appreciated inventory
items. There are no tax consequences to the partnership.
If unrealized receivables and substantially appreciated inventory
are not distributed, a liquidation results in gain only to the
extent that a partner receives money in excess of its partnership
interest's adjusted basis (Code Sec. 731(a)).
Liquidating distributions always involve a complete termination of
liability for any share of partnership debt because the partnership
ceases to exist. The termination of partnership requires that
decreases in the partner's share of partnership liabilities be
netted with any liabilities the partner takes over from the
partnership (Reg. 1.752-1(f)).
Net debt relief is treated as additional money received (Code Sec.
752 (b) and Reg. 1.752-1(f)). If a partner takes over only its pro
rata share of the partnership debt, there will be no deemed cash
receipt or payment.
A loss may be recognized when only one or more of three types of
assets, and no other property, are distributed in the liquidation.
If the liquidated partner receives only cash, inventory, and/or
unrealized receivables and their bases to the partnership are less
than its basis in its partnership interest, it is allowed to deduct
the difference as a capital loss (Code Sec. 731(a)(2)).
Partner's Cost Basis
A partner's basis in its partnership interest must be adjusted
periodically to ensure that the partnership remains a conduit for
tax purposes. Income and deductions are to be taxed only once (Code
Sec. 701).
Tax-exempt income, nondeductible expenditures, and distributions
made from previously taxed income and contributions are not to be
taken into account in computing tax liability at all.
The transferor partner's adjusted basis in its partnership interest
at the time of the transfer is the sum of its basis on the day it
acquired its interest plus adjustments reflecting operations during
its holding period.
The calculation of a partner's initial basis varies according to
whether it acquired its interest through a contribution to the
partnership or by transfer from another partner (Code Sec. 742 and
Reg.1.742-1).
The original basis of a partner's interest is the amount of money
and the adjusted basis of property contributed to a partnership
when the partnership interest is acquired (Code Secs. 705(a) and
722). This basis is increased by any further capital contributions
and by the sum of the partner's distributive share of:
Taxable income of the partnership,
Tax-exempt receipts of the partnership, and
The excess of depletion deductions over basis of the depletable
property.
Code Sec. 705(a)(1) and Reg. 1.705-1(a)(2).
The basis is decreased (but not below zero) by distributions from
the partnership as provided under Code Sec. 733, and by the sum of
the partner's distributive share of:
Fund losses, including capital losses (Code Sec. 705(a)(2)(A)),
Nondeductible partnership expenditures which are not capital
expenditures (Code Sec. 705(a)(2) and Reg. 1.705-1(a)(3)),
The amount of the partner's deduction for depletion for partnership
oil and gas property to the extent the deduction does not exceed
the partner's share of the adjusted basis of the property (Code
Sec. 705(a)(3) and Reg. 1.705-1(a)(4), and
(4) loss from the disposition by the partnership of a domestic oil
or gas property (Reg. 1.705-1(a)(5)).
In all cases when downward adjustments to basis are required, the
statute expressly provides that basis is not to be reduced below
zero (Code Sec. 705(b)). A basis in a partnership interest never
has a value below zero. While a negative capital account is very
common, a negative basis is impossible.
The preceding is intended to be only a summary of income tax
consequences relating to the Proposed Sale.
Limited Partners of Far West Electric Energy Fund, L.P. should
consult their own tax advisors with respect to issues not covered
by the opinion or regarding their own particular circumstances.
Opinion of Financial Advisor
Far West Capital, Inc. retained Corporate Capital Consultants, Inc.
("CCC") as financial advisor to the Far West Electric Energy Fund,
L.P. in connection with determining whether the offer by U.S.
Envirosystems, Inc. for the SB-1 plant and certain other assets of
the Fund liabilities, was fair, from a financial point of view, to
the limited partners of the Fund.
In its capacity as an investment banking firm, CCC is regularly
engaged in the valuation of business and their securities in
connection with mergers and acquisitions and other corporate
transactions.
No limitations were imposed by FWC with respect to the
investigations made or procedures followed by CCC in rendering its
opinion. CCC has not in the past provided investment banking
services to either the Fund or FWC and does not have any equity
interest in either company.
Investigation By CCC
In connection with its opinion CCC reviewed, among other things:
A draft of the Purchase and Sale Agreement concerning the SB-1
power plant, with attendant documents;
Annual Reports on Form 10-K of the Fund for the five years ended
December 31, 1994, as well as tax returns for the same period;
Certain Quarterly Reports on Form 10-Q of the Fund;
Certain internal financial analyses and forecasts for the Fund
prepared by the management of the Fund;
Certain internal financial analyses and forecasts for the assets if
operated by USE, as prepared by the management of USE;
The Geothermal Resources Lease, as amended between Sierra Pacific
Power Company and Geothermal Development Associates;
The Agreement for the Purchase and Sale of Electricity, as amended,
between Sierra and Geothermal Development Associates;
The Operating Agreement between the Fund, 1-A Enterprises, and SB
Geo, Inc.;
The Term Loan Agreement among Westinghouse Credit Corporation and
the Fund, as well as the Term Loan Agreement among WCC and 1-A,
along with various Loan Modification Agreements pertaining thereto;
The Revised and Restated Geothermal Resources Sublease between the
Fund and FWC;
The Long-Term Agreement for Purchase and Sale of Energy between
Sierra and FWC;
The Purchase Agreement between Bonneville Pacific Corporation and
FWC dated September, 1985;
The Certificate of Limited Partnership and the Partnership
Agreement of the Fund; and
Various documents pertaining to a loan from the First Security Bank
of Utah, N.A., including the Third Extension and Modification
Agreement pertaining thereto.
In addition, CCC held discussions with members of the senior
management of the Fund and USE regarding the past and current
business operations, financial condition, and future prospects of
the SB-1 plant and the Fund. CCC also held discussions with WCC and
Sierra.
Management of CCC also visited the SB-1 facility and met with
operating and management personnel at the site. Additionally, CCC
reviewed a two-year old appraisal of SB-1, a draft to the proposed
Form SB-2 prepared by USE, certain internal financial information
prepared by FWC, and information regarding certain other companies
in the independent power production industry specifically and in
other industries generally, and considered such other information,
held such other discussions, and performed such other studies and
analyses as it considered appropriate.
CCC relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed
by it for purposes of its opinion.
In addition, CCC did not make an independent valuation or appraisal
of the assets and liabilities of the Fund, FWC, or the SB-1
facility and, aside from the two-year old appraisal mentioned
above, was not furnished with any such evaluation or appraisal.
Terms of Engagement
The terms of the engagement of CCC by FWC are set forth in a letter
agreement dated September 15, 1995, between CCC and FWC (the
"Engagement Letter"). Pursuant to the Engagement Letter, FWC has
agreed to pay CCC a fee based on CCC's hourly rate of $300, with a
minimum fee of $10,000.
FWC has also agreed to reimburse CCC for its out-of-pocket
expenses, and to indemnify CCC against certain liabilities in
connection with its engagement, including certain liabilities under
the federal securities laws.
Financial Analyses Used
The following is a summary of the material financial analyses
utilized by CCC in connection with providing its opinion to FWC.
Stock Trading Analysis. Owing to the fact that the limited
partnership interests of the Fund have no public market and have
had virtually no trading activity since inception of the Fund ten
years ago, CCC considered this approach to be inappropriate.
Selected Company Analysis. CCC examined certain financial,
operating, and stock market information for selected companies in
the independent power production industry, specifically, the AES
Corporation, Destec Energy, Inc., KENETECH Corporation, and Sithe
Energies, Inc.
CCC noted that all of these companies have revenues of at least
$100 million and are considerably diversified. By contrast, the
Fund's single SB-1 facility has been generating revenues of under
$3 million and has been incurring losses before extraordinary items
steadily during the current year and in three of the last five
fiscal years.
Consequently, CCC concluded that a selected company analysis, under
these circumstances, was not a meaningful approach to employ,
except for terminal values in the discounted cash flow discussed
below.
Selected Transactions Analysis. CCC reviewed the recent acquisition
of Magna Power Company by California Energy Company, Inc. Owing to
the enormous size of both companies and their substantial
diversification, as well as the fact that this transaction was
accomplished partly through the issuance of stock by the acquirer,
CCC concluded that this analysis did not provide any reliable
indication of value of the SB-1 facility, and, accordingly, CCC did
not rely on this approach. CCC is not aware of any other similar
recent transactions.
Replacement Cost Analysis. CCC took into account estimates from
various industry sources regarding the replacement cost for
geothermal plants, with new plants generally valued at
approximately $2,000 per kilowatt.
This would imply a value of $7.5 million for a new plant with the
power-generation aspects of SB-1. However, CCC noted that the SB-1
plant is ten years old and subject to market conditions governing
the sale of power, which sharply limit the profitability on
investment in the facility. Therefore, CCC considered this approach
to have little or no probative value for purposes of this
valuation.
Appraisal of the SB-1 Plant by Ronald P. Baldwin Dated September
20, 1993. At the time of this appraisal, the contract price for the
sale of power to Sierra had just over three years to run. At a
price of 7.17 cents per kwh, the plant was covering its mortgage payment
obligation by accruing and deferring substantial amounts of other
interest and general partner obligations.
There was a possibility that, at the expiration of the contract,
market forces might permit a renegotiated price with Sierra which
would allow a reasonable operating cash flow which would continue
to service the mortgage, particularly if the mortgage lender would
renegotiate the loan terms. But even with that optimistic chain of
events, the appraiser determined that SB-1 had a $5 million value
against an approximately $5 million mortgage. Consequently, he
opined that there was effectively no equity in the plant
That appraisal has not been updated. While CCC considers that
appraisal to have some credibility at the time, since it was
prepared by a person with considerable background in the geothermal
industry, the market for such power has become more competitive.
It is now highly likely that at the time the ten-year power
contract must be repriced at short-term avoided cost (January 1,
1997), both market and short-term avoided cost will be well below
break-even after debt service. A renegotiation of debt service also
seems unlikely. Thus, CCC concludes that the appraisal is
optimistic in today's environment and with tomorrow's prospects.
Discounted Cash Flow Analysis. The change in selling price to
Sierra that is likely to occur requires an evaluation of the plant
based on what it will receive in 1996 and over the ten-year life of
the contract that starts January 1, 1997 compared to its operating
costs and debt service. The net cash flow after debt service should
then be discounted to present value at rates that reflect the risk,
and a terminal value should be determined at the end of the year
2006 based on a multiple of projected net cash flows.
CCC's discounted cash flow analysis was based upon estimates of
financial performance as prepared by FWC, but adjusted by CCC based
on due diligence conducted by CCC on the plant, its power market,
and its secured lender. CCC ran various projections of prices per
kwh, from 2.58 cents to 4.2 cents, with expenses at their current level,
discounted to the present.
No change in working capital and no capital expenditures were
assumed. Debt obligations were calculated at their present
projected levels according to the loan agreement, and also at
levels that assumed a voluntary reduction in interest and principal
as well as a revised long-term payout level.
The reduction in principal was assumed to be on the same basis as
currently being negotiated by USE to pay off the lender entirely.
It should be noted, however, that the lender had advised CCC that
it will not consider such a reduction and revision by the Fund
without a total payoff. The Fund has no independent means of
accomplishing this restructuring.
These forecasts, even in their most optimistic form, were
discounted at rates of 10% to 12% and 14%. The projected terminal
value was based upon a multiple of 10 times net cash flow in 2006,
discounted back at the above rates. The discount rates and terminal
value multiple used by CCC in its analyses were based upon its own
judgment as to required rates for the risk involved, and a discount
from average multiples of the group of power companies described
above.
As a further check on its results, CCC computed the sales price of
power per kwh required to reach a value of $1,250,000 (the price
offered for purchase of SB-1 and associated assets) on a discounted
cash flow basis. This was determined to be 4.1 to 4.3 cents per kwh for
the most optimistic debt payment level. CCC is of the opinion that
achievement of such a price range is highly unlikely at the start
of 1997 due to the number of plants selling electricity in the
region at prices under 2 cents, the unlikely chance that that short-term
avoided cost (currently estimated to be 2.8 cents per kwh) would change
materially in the near future, the fact that Sierra can buy power
for less than that price and has been for several years, and the
likelihood that demand, while improving, is not projected to exceed
supply in the near future.
Conclusion
In arriving at the CCC opinion, CCC reviewed all of the above
analyses and concluded that the results of such analyses, when
considered as a whole supports its opinion that the sale of SB-1
and associated assets on the terms contemplated is fair, from a
financial point of view, to the limited partners of the Fund.
Any estimates incorporated in such analyses, particularly in
discounted cash flow, are not necessarily indicative of actual past
or future results or values, which may be significantly more or
less favorable than such estimates, and which are inherently
subject to uncertainty.
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this Consent Solicitation to
be signed on its behalf by the undersigned duly authorized persons
on the date indicated.
Far West Electric Energy Fund, L.P.,
By Far West Capital, Inc., its general partner
December 31, 1995
_________________________________________
Thomas A. Quinn, Authorized Officer
Exhibits
Exhibit 1. Purchase and Sale Agreement
Exhibit 2. Tax Opinion
Exhibit 3. Opinion of Financial Advisor
Exhibit 4. Form 10-QSB for the quarter ended September 30, 1995
Exhibit 5. Reply Card
Exhibit 1
Purchase and Sale Agreement
(Exhibits to the Purchase and Sale Agreement have been filed with
the Securities and Exchange Commission, File No. 0-14452, as a part
of these proxy materials, and are available to the Limited Partners
upon request to Far West Capital, Inc., (801) 268-4444.)
PURCHASE AND SALE AGREEMENT
This Agreement is made and entered into this 31st day of
December, 1995 by and between Far West Capital, Inc. ("FWC"); Far
West Electric Energy Fund, L.P. (the "Fund"); 1-A Enterprises
("1-A"); U.S. Envirosystems, Inc. ("USE") and Steamboat
Envirosystems, L.C. ("SBE").
RECITALS
A. FWC is a Utah corporation with its principal place of
business at 921 Executive Park Drive, Suite B, Salt Lake City, Utah
84117. FWC is the General Partner of the Fund. Thomas A. Quinn
and Alan O. Melchior who are officers, directors and majority
shareholders of FWC also own majority interest in SB Geo, Inc.
("SBG") and 1-A.
B. The Fund is a Delaware limited partnership with its
principal place of business at 921 Executive Park Drive, Suite B,
Salt Lake City, Utah 84117. The Fund is publicly held by
approximately 1,100 unit holders but the Fund units are not
publicly traded. The Fund owns a geothermal power plant located
within the Steamboat Springs Known Geothermal Resource Area located
roughly 10 miles due south of downtown Reno, Nevada near the
intersection of U.S. 395 and the Mount Rose Highway. This power
plant ("SB-1") has a nominal net capacity of approximately 4 MW and
produces on the average approximately 37.8 million KWH per year.
SB-1 sells its output under a twenty year power purchase agreement
with Sierra Pacific Power Company ("Sierra"), the local public
utility. That power purchase agreement provides in pertinent part,
that SB-1 will be paid 7.17 cents per KWH for the first ten years of
commercial operation and short-term avoided cost for the second ten
years of operation. When SB-1 began commercial operations in
December of 1986, it was estimated by the parties that short-term
avoided cost at the beginning of the second ten years of commercial
operation would be five to six cents per KW. At present Sierra's
short-term avoided cost approximates 2.8 cents per KWH. It is the
opinion of FWC that the SB-1 plant cannot sell its output at 2.8 cents
and generate sufficient revenues to pay the cost of owning and
operating the plant including debt service, royalties, operating
cost...etc. As of October 1, 1995 there was a balance of
$4,709,541.81 on the Westinghouse loan on SB-1 and a $1,016,774.16
debt reserve for the Loan held in escrow. In addition the Fund
owes FWC approximately $2,550,257 consisting of $1,069,270 in cash
advances, $825,163 in unpaid interest on those cash advances and
$655,824 in unpaid services.
C. 1-A is a Nevada General Partnership which owns a
geothermal power plant commonly referred to as SB-1A ("SB-1A")
which is located adjacent to the SB-1 power plant. The SB-1A power
plant utilizes the tail stream from the SB-1 plant to produce
power, has a nominal capacity of approximately 1.6 MW and on
average produces approximately 14 million KWH per year. Because
SB-1A utilizes brine produced from SB-1 wells to produce power,
SB-1A pays a pumping charge and royalty to the Fund. In 1995 it is
estimated that the total pumping charge and royalty payments to the
Fund will be $144,000.00. SB-1A sells its output to Sierra under
a thirty year power purchase agreement. Pursuant to that agreement
during the first ten years of commercial operation, which began in
December of 1988, SB-1A is paid a floating rate for its output
based on the movement of several indices. At present SB-1A is paid
one rate for capacity and another for energy. These rates vary at
different times of the day and year. During 1995 the annual
blended rate paid for SB-1A's output is 0.05433 cents per KWH. During
the balance of the power purchase agreement beginning December of
1998, SB-1A will be paid for its output at Sierra's short-term
avoided cost which presently approximates 2.8 cents per KWH. 1-A does
not believe that SB-1A can sell its output at 2.8 cents per KWH and
generate sufficient revenues to pay the cost of owning and
operating the plant including operating expenses, pumping charges,
royalties, debt service...etc. As of October 1, 1995 there was a
balance due on the Westinghouse loan on SB-1A of $1,746,470 and a
debt reserve held in escrow of $79,868.56. In addition 1-A owes
FWC in excess of $950,000 representing, (1) loans made in
connection with the construction of the SB-1A plant with a
principal balance of approximately $632,000, (2) cash advances of
approximately $88,000 and (3) interest on all of the above.
D. FWC has initiated discussions with Sierra concerning
renegotiating the power purchase agreements applicable to the SB-1
and SB-1A power plants to increase the rate to be paid for the
power generated by those plants during the period following the
first ten years of commercial operations. At this point FWC has no
reasonable basis on which to predict the outcome of those
negotiations:
E. SB Geo, Inc. ("SBG") is a Utah corporation with its
principal place of business at 921 Executive Park Drive, Suite B,
Salt Lake City, Utah 84117. SBG currently operates SB-1 and SB-1A
under a contract which provides that SBG does not make a profit on
the operations of those plants. In accordance with the terms of
this Agreement, SBE and SBG will executed an Operating Agreement (a
copy of which is attached hereto as Exhibit "C") pursuant to which
SBG will operate the SB-1 and SB-1A geothermal power plants for
SBE.
F. USE is a Delaware corporation with its principal place of
business at 515 N. Flagler Drive, Suite 202, West Palm Beach, FL
33401. USE is in the business of developing, owning and operating
power plants utilizing various technologies to generate
electricity.
G. USE desires to purchase the SB-1 and SB-1A power plants
under the terms described in this agreement. FWC, the Fund and 1-A
are willing to sell the SB-1 and SB-1A power plants subject to
approval of the transaction by the Fund's limited partners. To
facilitate this transaction, FWC has given USE the opportunity to
review any documents in the possession of FWC or its affiliates,
and interview any persons who might have information relating to
the operation, performance, output and design of SB-1 or SB-1A.
H. In furtherance of the proposed transaction, USE has
negotiated to purchase the position of Westinghouse who is the
primary lender on both the SB-1 and SB-1A projects. If USE
completes the purchase of Westinghouse's position on or before
January 15, 1996, USE will purchase the total Westinghouse loan
balance of (as of October 1, 1995) $6,456,012.11 for approximately
$4,600,000.
I. It is the intention of the parties as expressed in this
Agreement that SBE, a Utah Limited Liability Company qualified to
do business in Nevada, with its principal place of business at 921
Executive Park Drive, Suite B, Salt Lake City, UT 84117, will
acquire the SB-1 and SB-1A power plants and all associated assets
of any kind with funds provided by USE. SBE's Articles of
Organization and Operating Agreement (which are attached hereto as
Exhibit "A") provide, inter alia, that SBE is owned 50% each by FWC
and USE and that each year USE will receive a preferred 18% return
on all funds raised by USE in public and private fund raising
efforts up to $10,000,000.00 before FWC shall be entitled to any
distributions from SBE. Each year any net revenues in excess of
the amount needed to pay the 18% preferred target return to USE
will be divided 50% each to USE and FWC. The preferred 18% return,
however, is not guaranteed and any short fall in that return will
not accumulate from one year to the next. In the event that USE
does not buy out all of the Westinghouse debt or having acquired
the Westinghouse debt does not contribute that debt to SBE; any
debt amortization paid to Westinghouse or USE will be paid out of
USE's share of SBE's revenues and will count towards USE's
preferred 18% return. It is also intended that if USE acquires the
Westinghouse debt and this transaction is approved by the Fund's
limited partners and if USE shall contribute the Westinghouse debt
to SBE as further capitalization of SBE, USE shall have the right
to own and dispose of the SB-1 and SB-1A debt reserves held in
escrow at First Security Bank in Salt Lake City.
J. USE has previously paid FWC a $50,000.00 non-refundable
deposit towards the purchase of the SB-1 and SB-1A power plants.
K. USE's performance under this Agreement is conditioned
upon its raising $10,000,000 in public or private securities
offerings.
NOW THEREFORE, based on the foregoing and the mutual covenants
and representations contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. Attached hereto as Exhibit "A" are the Articles of
Organization and Operating Agreement for SBE, a Utah Limited
Liability Company which have been executed by FWC and USE.
2. On or before March 1, 1996 USE will deposit into an
escrow account at Zions National Bank in Salt Lake City, Utah cash
in the amount of $2,525,000 in immediately available funds in U.S.
currency. On or before March 1, 1996 the Fund and 1-A shall
deposit in the same escrow account documents converting the assets
provided in paragraph 3 below to SBE.
3. As soon as the funding and conveyance documents are
released to SBE from escrow as provided in paragraph 13 below, SBE
shall transfer $275,000 to 1-A and $1,250,000 to the Fund in
exchange for an assignment of all of 1-A's and the Fund's right,
title and interest in and to all of their SB-1 and SB-1A related
assets, including; supplies, inventory, plant, equipment,
receivables and property; tangible and intangible, real and
personal including without limitation permits, licenses, policies,
contracts, chooses in action, records, reports, documents, computer
records, power sales agreements, leases, subleases, designs,
operating records, bank accounts, escrow accounts, funds, wells,
rights to brine; used or useful or pertaining to the ownership,
operation and maintenance of the SB-1 and SB-1A geothermal power
plants, prorated as of December 31, 1995. These assets are
described in more detail in Exhibit "D" hereto. These assets shall
be conveyed to SBE free and clear of all claims or encumbrances
except those disclosed in Exhibit "B" hereto. USE has previously
paid FWC a non-refundable deposit of $50,000 towards the purchase
of SB-1 and SB-1A on behalf of SBE. That deposit has been used by
FWC to defray the cost of this transaction including the cost of
the preparation and mailing of the Consent Solicitation Statement
for the Fund. The $50,000 deposit will be allocated $50,000
towards the purchase of SB-1.
4. Simultaneous with the actions taken in paragraph 3 above,
SBE and SBG shall execute the Operating Agreement attached hereto
as Exhibit "C".
5. Simultaneous with acquiring ownership of the SB-1 and
SB-1A power plants and related assets, SBE shall assume
responsibility for all direct obligations and liabilities
associated with the ownership and operation of the SB-1 and SB-1A
power plants including, without limitation, operating costs,
royalties, debt service (if any), back feed electricity,
interconnect fees .....etc. prorated as of December 31, 1995.
6. $1,000,000 of the $2,575,000 ($50,000 deposit used for
transaction cost plus $2,525,000 in cash at closing) contributed to
SBE by USE shall be used to attempt to buy out the gross royalties
and net revenue royalties owned by GDA, Benson, Helzel and
Schwartzoff and Ormat, Inc. in the SB-1 and SB-1A projects and to
finance improvements in the SB-1 and SB-1A power plants. Any
amounts not utilized for those purposes shall be retained in the
accounts of SBE to be used in the operation and maintenance of the
SB-1 and SB-1A power plants.
7. If USE purchases the Westinghouse loan position on the
SB-1 and SB-1A power plants, USE may contribute that debt position
to SBE as a part of its capital contribution to SBE and if that is
done SBE may cancel the debt and all related encumbrances on the
SB-1 and SB-1A projects. If so contributed and canceled, SBE shall
immediately assign to USE all of its right, title and interest in
and to the. funds held in the SB-1 and SB-1A loan reserves (as of
October 1, 1995 a total of $1,096,643).
CONDITIONS PRECEDENT
8. This Agreement is contingent upon obtaining the necessary
approval of the limited partners of the Fund as provided in the
Fund's limited partnership agreement. In order to solicit this
approval it will be necessary to prepare and transmit to the
limited partners a Consent Solicitation Statement in accordance
with the applicable regulations of the Securities and Exchange
Commission. FWC shall use its best efforts to obtain approval of
the Fund's limited partners consistent with its fiduciary
obligations as General Partner of the Fund. As an incentive to the
limited partners to approve this transaction, and contingent upon
such approval, FWC will agree to:
A. Decline to have the Fund pay debts owed by the Fund
to FWC (as of October 1, 1995, believed to be approximately
$2,550,257, consisting of $1,069,270 in cash advances $825,163
interest on those cash advances and $655,824 owed for uncompensated
services provided to the Fund by the general partner);
B. FWC shall decline its share of any final
distribution. But for this declination, FWC as a General Partner
and holder of limited partnership units would be entitled to
receive 6.1% of the cash to be distributed in the final
distribution.
This forgiveness of debt and declination of distribution will
serve to maximize the distribution of cash to limited partners when
the business of the Fund is wound up, third party debts are paid
and a final distribution is made to limited partners. At present
the estimated third party debts and accounts payable (debts not
owed to the General Partner) of the Fund (including cost of this
transaction) are approximately $896,872; consisting of bank debt
$470,649 unpaid professional services and royalties $385,801 and
$40,422 for unpaid operating services. It is estimated that if the
limited partners approve this Agreement the final distribution will
be a total of approximately $428,128 or $44.00 per limited
partnership unit.
9. This Agreement is contingent on the approval of the
partners in 1-A. As an incentive for the 1-A partners to approve
this transaction FWC will forgive 1-A's outstanding debt to FWC
believed to be in excess of $950,000.
10. This Agreement is also contingent upon USE successfully
completing public and/or private efforts to raise $10,000,000. USE
agrees that it will use its best efforts to successfully complete
these capital raising efforts.
11. This Agreement is further contingent upon obtaining the
necessary consent to assignment of the permits, Power Purchase
Agreements and Leases.
12. Anything to the contrary notwithstanding, USE and SBE are
not assuming and shall not assume any of the following liabilities,
contracts, commitments and other obligations of any other party to
this Agreement:
A. Any obligations or liabilities of any other party
arising under this Agreement;
B. Any obligation of any other party to this Agreement
for federal, state or local tax liability (including interest and
penalties) arising from the operation of SB-1 or SB-1A by SBG, FWC,
the Fund or 1-A up to the time of closing or arising out of the
sale by the Fund or 1-A of the assets sold pursuant hereto;
C. Any obligation of the Fund or 1-A for any transfer,
sales or other taxes, fees or levies arising out of the sale of the
assets pursuant hereto;
D. Any obligation of the Fund or 1-A for expenses
incurred in connection with the sale of the assets pursuant hereto;
and
13. The closing of the transactions contemplated by this
Agreement shall take place on December 31, 1995 at 2:00 p.m. at the
offices of FWC, 921 Executive Park Drive, Suite B, Salt Lake City,
UT 84117 or at such other date, time and place as the parties
shall mutually agree in writing. Conveyance, transfer, assignment
and delivery of the assets shall be by bills of sale, certificates
of transfer, endorsements, assignments and other instruments of
transfer and conveyance in such form as the parties shall mutually
agree. The parties recognize that as of the date of closing some
of the conditions precedent will not have been satisfied such as
the approval of this transaction by the limited partners of the
Fund. Therefore, the purchase price and documents of conveyance
and transfer shall be held in escrow pending satisfaction of all
conditions precedent. At such time as all of the conditions
precedent are satisfied, the parties hereto shall notify the escrow
agent to release the purchase price and the conveyance document to
SBE, the escrow agent shall be the Trust Department of Zions Bank,
One South Main Street, Salt Lake City, UT 84111.
14. Any transfer, sales, use or other tax, including any real
estate excise tax or transfer, filing or recording fees, payable
upon or with respect to the sale of the assets hereunder shall be
paid when due by SBE. All real or personal property taxes
attributable to any of the assets shall be prorated as of January
1, 1996.
15. The Fund and 1-A warrant with respect to the assets being
sold by each of them hereunder that to the best of their individual
knowledge:
A. The assets which are being purchased by SBE
hereunder when sold and delivered in accordance with the terms
hereof for the consideration expressed herein, will be duly and
validly transferred to SBE and upon the delivery to SBE of the
transfer and assignment documents contemplated hereby, SBE will
have good and marketable title to the assets, free and clear of all
liens, claims, encumbrances and other rights of third parties
except as disclosed in Exhibit "B".
B. There are no pending or threatened claims that are
or could be asserted against the Fund or 1-A which relate to any
toxic or hazardous substance having been improperly generated,
handled, released (or threatened to be released), treated, stored
or disposed of, or otherwise deposited in, on, beneath or in close
proximity to the real property upon which SB-1 and SB-1A is
constructed including, without limitation, the surface waters and
subsurface waters thereof, and there are no underground tanks that
are or have been located on, in or in close proximity to the plant
site. As of the date hereof, there are no pending or threatened
environmental claims that are or could be asserted against the Fund
or 1-A or its predecessors, which relate to the plant site.
C. There is no suit, action or proceeding pending or
threatened against the Fund or 1-A and there is no judgment, order,
injunction, decree, regulation or ruling of any court or
governmental department, commission, agency, instrumentality or
arbitration outstanding against the Fund or 1-A having or which,
insofar as can be foreseen in the future, may have any adverse
effect on the operation and use of the SB-1 or SB-1A power plants.
D. There are no existing conditions at the SB-1 and
SB-1A plant sites that could cause those sites to become in
violation of or in noncompliance with any governmental rule or
regulation.
E. The Fund and 1-A have complied in all material
respects with all of the applicable rules, regulations and
requirements of all governmental licenses, permits and
authorizations held by each entity in connection with the
ownership, development and operation of their respective power
plants. All information and disclosures made on any applications
for licenses, permits or authorizations were true when made.
Neither the Fund nor 1-A has any knowledge of any claimed
violations from any governmental agency or any other person with
respect to the licenses, permits and authorizations held by them in
connection with the operation of the SB-1 and SB-1A power plants
and neither the Fund nor 1-A has any knowledge that any condition
exists which may give rise to a claim of violation in the future.
F. All of the permits and contracts associated with the
ownership and operation of SB-1 and SB-1A are in good standing and
in full force and effect, and there has been no material adverse
change in the status of the permits and contracts which threatens,
restricts or prohibits the operation of the power plants.
16. USE represents and warrants that:
A. It is a corporation duly organized, validly existing
and in good standing under the laws of the state of Delaware and is
authorized or licensed to do business in all other jurisdictions in
which the failure to do so to qualify would have a material and
adverse impact on its business or properties. USE has the power
and authority to carry on its business as now conducted and as
proposed to be conducted.
B. All necessary actions on the part of USE necessary
for the authorization, execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated
herein have been taken or will be taken prior to closing. This
Agreement, when executed and delivered, shall constitute the legal,
valid and binding obligation of USE, enforceable against USE in
accordance with its terms.
17. Each party will pay all expenses incurred by it and in
connection with the negotiation, execution and performance of this
Agreement, whether or not the transactions contemplated hereby are
consummated, including the fees and expenses of agents,
representatives, accountants and counsel for each party.
18. Upon the reasonable request of SBE the parties shall
execute, acknowledge and deliver all such further documents as may
be required to convey and transfer to and vest in SBE and protect
its right, title and interest in all of the assets purchased
pursuant to this Agreement, and as may be otherwise appropriate to
carry out the transactions contemplated by this Agreement.
19. At closing SBE shall receive a report from First American
Title Company of Reno indicating that there are no mortgages,
claims, liens, charges, encumbrances security interests,
restrictions on use or transfer or other defects of record with
respect to the SB-1 or SB-1A plants other than as set forth in
Exhibit "B".
20. All of the respective representations and warranties of
the parties to this Agreement shall survive the consummation of the
transactions contemplated hereby.
21. Each party hereto will indemnify and hold harmless each
other party from any commission, fee or claim of any person, firm
or corporation employed or retained by, or claiming to be employed
or retained by, the indemnifying party to bring about, or to
represent it in, the transactions contemplated hereby.
22. This Agreement shall not be amended or modified except in
a writing signed by each of the parties hereto.
23. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors,
heirs, administrators and assigns.
24. All notices or other communications hereunder shall be
deemed to have been given when personally delivered or when
deposited in the U.S. mail, registered or certified, postage
prepaid and addressed as follows:
Far West Electric Energy Fund, L.P.
c/o Far West Capital, Inc.
921 Executive Park Drive, Suite B
Salt Lake City, UT 84117
Attn: Thomas A. Quinn
Far West Capital, Inc.
921 Executive Park Drive, Suite B
Salt Lake City, UT 84117
Attn: Thomas A. Quinn
1-A Enterprises
c/o Far West Capital, Inc.
921 Executive Park Drive, Suite B
Salt Lake City, UT 84117
Attn: Thomas A. Quinn
To U.S. Envirosystems, Inc.
515 N. Flagler Drive, Suite 202
West Palm Beach, FL 33401
Attn: Richard Nelson
Steamboat Envirosystems, L.C.
515 N. Flagler Drive, Suite 202
West Palm Beach, FL 33401
25. If any provision of this Agreement is determined to be
illegal or unenforceable, such provision will be deemed amended to
the extent necessary to conform to applicable law or, if it cannot
be so amended without materially altering the intention of the
parties, it will be deemed stricken and the remainder of the
Agreement will remain in full force and effect.
26. No action taken pursuant to this Agreement, including any
investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance
with any representation, warranty, covenant or agreement contained
herein. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach.
27. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be
an original, and all of which together shall be deemed to be one
and the same instrument.
28. Time is of the essence of this Agreement and each and
every covenant, condition and provision hereof.
29. Any dispute arising under this Agreement which the
parties cannot resolve amicably, will first be mediated and if that
process does not resolve the dispute, the dispute will be submitted
to binding arbitration. Such mediation and arbitration will take
place in Salt Lake City, Utah in accordance with the Rules of the
American Arbitration Association and the prevailing party shall be
entitled to reasonable attorney's fees in addition to any other
relief to which that party may be entitled.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
SELLER: FAR WEST CAPITAL, INC.
By: _____________________________
Its: ______________________________
FAR WEST ELECTRIC ENERGY FUND, L.P.
By: Far West Capital, Inc.
Its: General Partner
By: _____________________________
Its: ______________________________
1-A ENTERPRISES
By: _____________________________
Its: ______________________________
PURCHASER: US ENVIROSYSTEMS, INC.
By: _____________________________
Richard Nelson
Its: ______________________________
STEAMBOAT ENVIROSYSTEMS, L.C.
By: _____________________________
Richard Nelson
Its: ______________________________
EXHIBIT "A"
ARTICLES OF ORGANIZATION
OF
STEAMBOAT ENVIROSYSTEMS, L.C.
We the undersigned named natural persons of the age of
eighteen (18) or more, acting as the officers and agents of the
members of a limited liability company under the Utah Limited
Liability Company Act, adopt, execute, and file the following
Articles of Organization for such company in the formation of such
limited liability company.
ARTICLE I
COMPANY NAME
The name of this limited liability company is Steamboat
Envirosystems, L.C. (hereinafter the "Company").
ARTICLE II
PERIOD OF DURATION
The Company shall exist and continue for thirty (30) years
unless earlier dissolved from the date of filing of these Articles
of Organization with the Division of Corporations of the Utah
Department of Commerce and liquidation has been completed pursuant
to Utah Code Annotated Sec. 48-2b-137 or the Operating Agreement of
the Company.
ARTICLE III
PURPOSE AND POWERS
The Company shall have unlimited power to engage in and to do
any lawful act concerning any or all lawful business for which
limited liability companies may be organized under the Utah Limited
Liability Company Act. The purpose of the Company is to own and
operate the SB-1 and 1A geothermal power plants located within the
Steamboat Springs KGRA approximately 10 miles south of downtown
Reno, NV near the intersection of U.S. 395 and the Mt. Rose
Highway.
ARTICLE IV
REGISTERED OFFICE AND AGENT
The address of the initial registered office of the Company is
921 Executive Park Drive, Suite B, Salt Lake City, Utah 84117, and
the name and address of its initial registered agent is Thomas A.
Quinn at such address.
ARTICLE V
SERVICE OF THE DIVISION OF CORPORATIONS AND COMMERCIAL CODE
The Director of the Division of Corporations and Commercial
Code of the Department of Commerce of the State of Utah is
appointed the agent of the Company for service of process, if the
agent has resigned, the agent's authority has been revoked, or the
agent cannot be found or served with the exercise of reasonable
diligence.
ARTICLE VI
MANAGEMENT OF THE COMPANY
The Company shall be managed by the Members.
ARTICLE VII
INDEMNIFICATION
The Company will indemnify its manager and its members to the
fullest extent permitted by the Utah Limited Liability Company Act,
as the same may hereinafter be amended, or as otherwise permitted
by law.
ARTICLE VIII
MEMBERS
The names and addresses of the members are:
Far West Capital, Inc.
921 Executive Park Drive, Suite B
Salt Lake City, Utah 84117;
U.S. Envirosystems, Inc.
515 North Flagler Drive, Suite 202
West Palm Beach, FL 35401
Dated this ____ day of _______________, 1995.
MEMBERS:
Far West Capital, Inc.
By: ________________________
Its: ________________________
REGISTERED AGENT:
Thomas A. Quinn
U.S. Envirosystems, Inc.
By: ________________________
Thomas A. Quinn By:
________________________
Its: ________________________
EXHIBIT "A"
OPERATING AGREEMENT
FOR
STEAMBOAT ENVIROSYSTEMS, L.C.
THIS OPERATING AGREEMENT ("Agreement") is made and entered
into this _____ day of _____________, 1995, by and among U.S.
Envirosystems, Inc. ("USE") and Far West Capital, Inc., a Utah
Corporation ("FWC"), hereinafter referred to as "Members" and
individually as "Member".
The Members desire to organize a limited-liability company
pursuant to the laws of the State of Utah. Accordingly, in
consideration of the mutual covenants contained herein, the Members
agree and certify as follows:
ARTICLE I
THE LIMITED LIABILITY COMPANY
1.1 Organization. The Members hereby organize the limited
liability company, Steamboat Envirosystems, L.C. (the "Company"),
subject to the provisions of the Utah Limited Liability Company Act
as currently in effect (the "Act"). It is the desire and intent of
the Members that the Company be treated as a partnership for
purposes of federal and state income taxation. ___________ is
hereby designated as the "Tax Matters Partner" for the Internal
Revenue Service ("IRS") purposes in representing the Company before
the IRS and state and local taxing authorities.
1.2 Filing. In connection with the execution of this
Operating Agreement, the Members shall cause Articles of
Organization that comply with the requirements of the Act to be
properly filed with the Utah Division of Corporations and
Commercial Code, and shall execute such further documents
(including amendments to the Articles of Organization) and take
such further action as is appropriate to comply with the
requirements of law for the formation or operation of a limited
liability company in all states and countries where the Company may
conduct its business.
1.3 Name. The name of the Company shall be Steamboat
Envirosystems, L.C.
1.4 Registered Office, Registered Agent. The location of the
registered office of the Company shall be 921 Executive Park Drive,
Suite B, Salt Lake City, Utah 84117, and thereafter at such other
location as the Members may designate. The Company's registered
agent at such address shall be Thomas A. Quinn.
1.5 Term and Events of Dissolution. The Company shall
continue for a period of thirty (30) years from the date of the
filing of its Articles of Organization with the Utah Division of
Corporations and Commercial Code, unless sooner dissolved by:
(a) a seventy-five percent (75%) majority vote of the
Members' ownership interests;
(b) any event which makes it unlawful for the business
of the Company to be carried on by the Members; or,
(c) the expulsion, bankruptcy or dissolution of a
Member.
1.6 Continuance of Company. Notwithstanding the foregoing
provisions of Section 1.5, upon the occurrence of an event
described in Section 1.5(c), the remaining Members shall have the
right to continue the business of the Company. Such right can be
exercised only by the affirmative vote of a simple majority
ownership interest of the remaining Members present at a duly
constituted meeting called pursuant to Paragraph 1.12 below, within
90 days after the occurrence of an event described in Section
1.5(c), to continue the business of the Company. If not so
exercised, the right of the Members to continue the business of the
Company shall expire and the Company's affairs shall be wound up as
provided in Article VIII.
1.7 Management of Business. The Company shall be managed
jointly by USE and FWC with FWC designated initially as Manager.
USE designates Richard H. Nelson as its sole representative and FWC
designates Alan O. Melchior as its sole representative. All
decisions to be made by Members shall be made on unanimous consent
of the Members of the Company unless otherwise provided herein.
1.8 Purpose and Character of Business. The primary purpose
of the Company shall be to own and operate SB-1 and SB-1A
geothermal power plants located within the Steamboat Springs KGRA
approximately 10 miles south of downtown Reno, NV near the
intersection of U.S. 395 and the Mt. Rose Highway located on an
approximate 30 acre parcel of real property located in Washoe
County, Nevada, described in Exhibit "A" attached hereto and made
a part hereof. The Company shall have all powers necessary to the
accomplishment of such purpose.
It is agreed that SB Geo, Inc. shall act as operator of the
power plant commencing upon acquisition by the Company, under a
separate Operating Agreement to be executed by the Company and SB
Geo, Inc. and attached hereto as Exhibit "C".
1.9 Principal Place of Business. The location of the
principal place of business of the Company shall be at 921
Executive Park Drive, Suite B, Salt Lake City, Utah 84117, or at
such other place as the Members from time to time may select.
1.10 Members. The name and address of each of the Members are
as follows:
Far West Capital, Inc.
921 Executive Park Drive, Suite B
Salt Lake City, Utah 84117
U.S. Envirosystems, Inc.
515 North Flagler Drive, Suite 202
West Palm Beach, FL 33401
1.11 Rules Determining Rights and Duties of Members. The
rights and duties of the Members in relation to the Company shall
be determined, subject to any other written agreement between them,
by the following rules:
(a) No Member shall have the right to unilaterally
withdraw from the Company or to require that its interest in the
Company be redeemed in whole or in part.
(b) The Company shall reimburse each Member with respect
to any payment of any costs or expenses actually incurred by it in
the ordinary and proper conduct of the business of the Company
which were approved by the Manager in advance.
(c) Unless otherwise provided herein, no Member shall
receive any payment for services rendered to the Company, except as
may be authorized by a simple majority of Company interests present
at a duly constituted meeting pursuant to Paragraph 1.12 below
and/or as provided in the annual Budget.
(d) It is recognized that lenders may require the
submission of current financial statements by individual Members.
Each Member agrees, upon the request of any lender evaluating the
possibility of lending the Company money, to provide said lender
with a current statement of its Financial Condition (Balance Sheet)
and a current Statement of Earnings (Profit and Loss Statement), or
other similar comprehensive statement, hereinafter collectively
referred to as "Financial Statements". Financial Statements need
not be "audited" by a Certified Public Accountant; however, the
authenticity and accuracy of the Financial Statements shall be
certified by the Member's original signature on its Financial
Statement. All such Financial Statements shall be held in the
strictest confidence and only provided to a previously approved
lender for the specific purpose of meeting previously agreed upon
funding needs of the Company.
1.12 Meetings and Voting of Members.
(a) Annual or Special Meetings - Annual or special
meetings of the Members, for any purpose or purposes, unless
otherwise prescribed by statute, may, but need not be called by the
Manager at such times and places, for such purposes and based upon
such notice, rules and procedures as the Manager in its sole
discretion shall deem reasonable. In lieu of a meeting, in the
discretion of the Manager, any action or vote of Members required
or permitted under the terms of this Agreement may take place by
written ballot as more fully set forth by the provisions in Section
1.12(b) below.
(1) Members holding a total of twenty-five percent
(25%) ownership interest in the Company may call a special meeting
upon fifteen days' notice in writing to the Members. A duly
constituted meeting can be held only upon attendance of Members
holding at least a simple majority of the ownership interest in the
Company.
(b) Voting Rights of Members - All actions and votes
of Members required or permitted under the terms of this Agreement
may be conducted pursuant to the following terms and provisions in
the sole discretion of the Manager.
(1) Each Member shall have the right to cast one
vote for each percent of ownership of record on the books of the
Company by such Member. Members shall not be entitled to cumulate
their votes.
(2) The Manager shall set a record date for
determining the Members entitled to cast a ballot and to vote,
which date shall not be more than fifty (50) or less than twenty
(20) days prior to the date on which such ballots are deposited in
regular mail or otherwise delivered to the Manager. The Manager
shall give notice to each Member and shall transmit with any such
notice the following:
(i) description of each matter being voted
upon;
(ii) a ballot providing for each Member to cast
his number of votes for or against each matter being voted upon;
(iii) a statement of the date by which each
Member's ballot must be received by the Manager, which date shall
be not less than twenty (20) days from the date on which such
ballots are deposited in the regular mail or otherwise delivered to
the Members; and
(iv) an envelope self-addressed to the Manager
at the Manager's address.
(3) All ballots must be returned to the Manager not
later than the date indicated on the ballot pursuant to Section
(2)(iii) above. Ballots received after said date shall be
considered void.
(4) Within ten (10) days after the date indicated
on the ballot pursuant to Section (2) (iii) above, the Manager
shall count the vote. All ballots not returned, or returned after
the due date, shall not be counted in the vote. The Manager shall
within ten (10) days after tallying the vote notify the Members of
the outcome of said vote by written notice.
(5) Unless otherwise specified in this Agreement,
any matters which shall be submitted to a vote of the Members shall
be deemed approved if Members owning not less than seventy-five
percent (75%) of the ownership interest then owned by all Members,
in the aggregate, and who are entitled to vote in accordance with
the provisions of Section (1) above, shall cast their votes in
favor of any such matter.
ARTICLE II
CAPITAL CONTRIBUTIONS
2.1 Initial Contributions. The profits interest and voting
rights in the Company are owned by the Members in the shares of
percentages set opposite the name of each Member on Exhibit "B"
attached hereto and made a part hereof. The Members shall
initially contribute to the Company's capital the cash, property or
services described for each Member as follows:
2.2 Initial Contributions by USE. USE's contribution to the
Company will be cash in the amount of $2,575,000 in immediate
availability in U.S. currency for which it shall receive 50% of the
profits interest and voting rights in the Company. Up to
$1,000,000 of that amount will be used to buy out gross royalties,
net revenue royalties owned by BSH, GDA and Ormat, Inc. in the SB-1
and SB-1A projects and to finance improvements in the SB-1 and
SB-1A power plants. Any moneys not used for those purposes will
remain in the Company but in any event shall not increase USE's
profits or voting interest in the Company beyond 50%.
USE may purchase the Westinghouse balance of the Westinghouse
loan $6,456,012.11 (as of October 1, 1995) on the SB-1 and SB-1A
power plants for $4,600,000.00. If USE does purchase the
Westinghouse position, USE may contribute that debt position to SBE
as a part of its capital contribution to SBE. If that is done SBE
may cancel the debt and all related encumbrances on the SB-1 and
SB-1A projects. If the Westinghouse debt is so contributed and
canceled, SBE shall immediately assign to USE all of its right,
title and interest in and to the funds held in the SB-1 and SB-1A
loan reserves (as of October 1, 1995 a total of $1,096,642.72).
The contribution by USE of the Westinghouse loan position or the
subsequent cancellation of that position shall not affect USE's
ownership in the Company but will affect USE's distributions as
provided in Article III hereof.
2.3 Initial Contributions by FWC. FWC's initial contribution
to the Company will be the assignment thereto of outstanding debt
owed by Far West Electric Energy Fund, L.P. ("FWEEF") and 1-A
Enterprises ("1-A") to FWC in the estimated to be amount of
$2,500,000 and the assignment of the debt owed by 1-A to FWC
estimated to be in excess of $950,000. For these contributions FWC
shall receive 50% profits interest and voting rights in the
Company.
2.4 Interests in Capital. The respective interests of the
Members in the capital contributions to the Company are in
proportion to each Member's contributions, adjusted as provided in
Article III.
2.5 Additional Contributions. If, at any time, and in the
discretion of the Manager and upon an affirmative vote of at least
a simple majority of the ownership interests of the Members of the
Company present at a duly constituted meeting pursuant to Paragraph
1.12 above, the Manager may call for and receive from each Member,
such additional contributions as may be necessary to conduct the
business of the Company. The collection procedure of additional
capital shall be as follows:
(a) Each Member shall be entitled to contribute a
percent of the call equal to the Member's present ownership
percentage so as to maintain its same ownership percentage after
the call has been funded as the Member had before the call. Each
Member shall have five (5) business days from notice of the
issuance of the call to make it's contribution to maintain its
ownership percentage.
(b) If after ten (10) business days after notice of the
issuance of the call for additional contributions, there remains a
shortfall in the contributions required from the procedure in (a)
above, then the contribution remaining to be funded shall be funded
by any or all Members in proportions as they may agree to between
themselves with their Member ownership percentages being adjusted
accordingly. This shall be open to the Members for five (5)
business days after notice of a remaining shortfall.
(c) If after the ten (10) day period described in (b)
above, and a shortfall continues to exist in funds received and
funds requested in the call, then the Manager shall have sole
discretion to eliminate or close the shortfall either by obtaining
loans wherein the Company is the borrower, or notwithstanding the
provisions of Section 7.10 herein, to seek additional Members, or
to contribute or loan the additional remaining shortfall itself.
2.6 Interest. No interest shall be paid on the capital
accounts of the Members.
2.7 Capital Accounts.
(a) The ownership represents undivided interests in the
Company assets, subject to liabilities. A separate capital account
shall be maintained by the Company for each Member in accordance
with IRC Sec 704(b) and Treasury Regulations promulgated thereunder.
(b) There shall be credited to each Member's capital
account:
(1) The amount of cash contributed by the Member to
the Company including any amounts contributed pursuant to Section
2.5 above;
(2) The fair market value of property contributed
by a Member to the Company (net of liabilities secured by such
contributed property that the Company is considered to assume or
take subject to under IRC Sec 752); and
(3) The amount of Company liabilities which are
assumed by such Member wherein the Member takes full and complete
legal responsibility for payment of such liabilities and the
Company is legally released from such liabilities, or the Member
provides complete indemnification for such liabilities (other than
liabilities described in Subsection (c) (2) below which are assumed
by a distributee Member).
(c) Each Member's capital account shall be decreased by:
(1) The amount of money distributed to the Member
by the Company in reduction of Company capital;
(2) The fair market value of property distributed
to the Member by the Company (net of liabilities secured by such
property that such Member is considered to assume or take pursuant
to IRC Sec 752);
(3) Allocations to such Member of expenditures of
the Company described in IRC Sec 705(a) (2) (B); and
(4) The amount of such Member's individual
liabilities which are assumed by the Company (other than
liabilities described in Subsection 2.7(b)(2) above which are
assumed by the Company);
(d) The Book Value of an item of Company property shall
be increased or decreased, as the case may be, to equal its
Adjusted Tax Basis whenever an adjustment to the Adjusted Tax Basis
of such item of Company property arises under IRC Sections 732(d),
734 or 743 and such adjustment exceeds the difference between the
Book Value of such item of Company property and its adjusted tax
basis prior to making such adjustment. Such increase or decrease
in book value shall then be allocated to the capital accounts of
the Members in accordance with Regulations Section
1.704-1(b)(2)(iv)(m).
2.8 Loans to Company. If any Member shall make any loan to
the Company or advance money on its behalf, the loan or advance
shall not increase the lending Member's capital account, entitle
the lending Member to any greater share of Company distributions,
or subject the Member to any greater proportion of Company losses.
The amount of the loan or advance shall be a debt owed by the
Company to the lender Member, repayable on the terms and
conditions, and bearing interest at two percent over the Prime Rate
published in the Wall Street Journal.
ARTICLE III
PROFITS, LOSSES AND DISTRIBUTIONS
3.1 Profits and Losses. The Company's net profits or net
losses shall be determined on an annual basis in accordance with
generally accepted accounting principles, consistently applied, and
shall be allocated to the Members' for both financial and tax
accounting purposes in proportion to their respective interests in
profits and losses as set forth in Exhibit "B" attached hereto and
made a part hereof; provided, that prior to any allocation of
profits pursuant to Exhibit B, there shall be specially allocated
to USE in each year 100% of the profits of the Company or an amount
equal to the amount of the Preferred Payment to USE under Section
3.3 set forth below, whichever is less.
3.2 Distributions. The Company shall distribute available
funds to the Members in proportion to their respective interests in
sharing profits and losses following the preferred distribution to
USE described in Section 3.3. "Available Funds" for this purpose
means the Company's gross cash receipts, less the Company's
operating expenses, payments on loans as they come due,
establishing reasonable reserves to pay loans coming due in the
future, establishing a reasonable reserve for the replacement of
furniture, fixtures and equipment and less the amount that, in the
Manager's reasonable judgment, the Company should retain in order
to fulfill its business purposes.
3.3 USE Preferred Distributions. The intent of the parties
is that Available Funds will first be distributed to USE (the
"Preferred Payment") to pay an 18% return on the moneys up to ten
million dollars ($10,000,000) raised in USE's contemplated public
and private offerings (the "Offering Amount") to be used, among
other things, to make its contributions to the Company (described
in Section 2.2 above) and to take out the balance on the
Westinghouse Electric Corporation ("WEC") loan ("WEC Loan") of
approximately $6,456,000 total on both the "SB-1" and "SB-1A"
projects. If cash flow is insufficient to pay USE the full amount
of the Preferred Payment in any given year, the deficit shall not
carry over or become part of the Preferred Payment in the following
or any subsequent year. If USE acquires the entire interest in the
WEC Loan, contributes it to the Company and cancels it, USE will be
entitled to receive the reserve funds which secure the WEC Loan
(described in Section 2.2 above). If USE does not acquire the
entire interest in the WEC Loan, or does not cancel and contribute
the WEC Loan to the Company, any remaining debt amortization paid
by the Company on the WEC Loan balance will reduce dollar for
dollar (but not below zero) the amount of the Preferred Payment
that otherwise would have been payable to USE. The amount of
distributions to USE other than distributions of the Preferred
Payment or a distribution, if any, of the reserve funds will be
deemed to reduce the Offering Amount for purposes of this Section
3.3.
3.4 No Shift of Recapture Responsibility. In making the
allocation among the Members of gain or profit for income tax
purposes, the ordinary income portion, if any, of such gain or
profit caused by the recapture of cost recovery or any other
deductions and/or the gains on property contributed by any Member
shall be allocated among those Members who were previously
allocated the cost recovery or any other deductions or among those
Members who contributed property with an adjusted basis less than
fair market value in proportion to the amount of such deductions
previously allocated to them and/or in proportion to the
unrecognized gains on contributed property, in accordance with IRC
Sec. 704(c) and Treasury Regulations promulgated thereunder. It is
intended that the Members, as among themselves, shall bear the
burden of recapture caused by cost recovery or other deductions
which were previously allocated to them, in proportion to the
amount of such deductions which have been allocated to them,
notwithstanding that a Member's share of profits, losses or
liabilities may increase or decrease from time to time. Nothing in
this Article, however, shall cause the Members to be allocated more
or less gain or profit than would otherwise be allocated to them
pursuant to this Article.
ARTICLE IV
MANAGEMENT
4.1 Members. The liability of the Members shall be limited
as provided in the Act. The Manager of the Company shall take part
in whatever action is necessary with the powers set forth below in
the control, management, direction and operation of the Company's
affairs and shall have power to bind the Company and at all times
shall have the exclusive right to control and manage the Company
until the conditions of Section 4.2(a) below have been met. No
other Member shall have any authority to act for or to bind the
Company or any other Member nor participate in the general conduct
or control of the Company's affairs.
4.2 Management of the Company; Major Decisions.
(a) The overall management and control of the business
and affairs of the Company shall be vested in the Members'
committee as delegated to Manager in it's sole discretion for the
term of the Company, unless the following has occurred:
(1) Such Manager can no longer competently perform
the duties of Manager under the Operating Agreement as evidenced by
acts of gross negligence, violation of law, abandonment of its
duties, financial insolvency which means:
(i) The making of an assignment for the
benefit of creditors by such Manager;
(ii) The filing of a voluntary petition in
bankruptcy by such Manager;
(iii) The adjudication of such Manager as
bankrupt or insolvent;
(iv) The filing by such Manager of a
petition or answer seeking for such Manager any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or
similar relief under any status, law or regulation;
(v) The filing of an answer or other
pleading by such Manager admitting or failing to contest the
material allegations of a petition filed against such Manager in
any proceeding described in subsection (iv) above;
(vi) The seeking, consent to, or
acquiescence in by such Manager of the appointment of a trustee,
receiver, or liquidator of such Manager or of all or any
substantial part of such Manager's properties; or
(vii) The failure of any proceeding
against such Manager seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation to be dismissed within
120 days after its commencement, or the failure of any appointment
without such Manager's consent or acquiescence of a trustee,
receiver or liquidator of such Manager or of all or any substantial
part of such Manager's properties to be vacated or stayed within 90
days after such appointment, or the failure of any such appointment
to be vacated within 90 days after the expiration of any stay.
or (2) Substitution of Manager has been agreed to by
consent of at least a simple majority of the ownership interests of
the Members of the Company present at a duly constituted meeting
pursuant to Paragraph 1.12 above and evidenced by written amendment
of this Operating Agreement and the Articles of Organization.
(b) Except where herein expressly provided to the
contrary, all decisions of the Manager with respect to the
management and control of the Company shall be binding on the
Company. The Manager shall be responsible for conducting the
ordinary and usual business and affairs of the Company as more
fully set forth in, and as limited by, this Agreement. The Manager
may contract with third parties, including entities related or
controlled by any one of the Members, for the performance of
certain specified duties under the Manager's control at established
and approved rates; provided that any such agreements shall be
disclosed in writing to the Members within 15 days prior to the
effective date.
(c) No act shall be taken, sum expended, decision made,
or obligation incurred by the Company, the Manager, or any Member
with respect to a matter within the scope of any of the major
decisions (hereinafter called "Major Decisions") as enumerated
below, unless such of the Major Decisions have been approved by an
affirmative unanimous vote of a simple majority ownership interests
of the Members of the Company present at a duly constituted meeting
pursuant to Paragraph 1.12 above. The Major Decisions shall
include:
(1) Acquisition of any land or interest therein and
any equipment;
(2) Sublease or other transfer of the Real Property
and/or improvements constituting the SB-1 or SB-1A power plants;
(3) Construction of any improvements or the making
of any capital improvements, repairs, alterations, or changes to
the power plants not provided for in the Budget in amount exceeding
$5,000; and
(4) Making any expenditure or incurring any
obligation by or for the Company through (i) increasing any
budgeted expense line item by more than fifteen percent (15%) of
its monthly budgeted amount and (ii) causing such increase in such
budgeted expense line item to be in excess of $10,000 for the
annual budgeted line item, pursuant to Section 6.8 hereof.
4.3 Avoiding Stalemates. It is anticipated that there will
be unanimity between the Members as to issues requiring the vote of
the Members; however, if there is disagreement on any issue which
results in a stalemate or deadlock, then such issue shall be
submitted to mediation pursuant to Article XIII of this Operating
Agreement.
4.4 Duties of Manager of the Company.
(a) The Manager for and on behalf of the Company, shall
be responsible to the Member and in good faith use its best efforts
to implement or cause to be implemented all Major Decisions
approved by the Members and assigned to it by a vote of the Members
and to conduct or cause to be conducted the ordinary and usual
business and affairs of the Company in accordance with and as
limited by this Agreement, including the following:
(1) Protect and preserve the title or interest of
the Company with respect to the power plants and property and other
assets owned by the Company;
(2) Pay all ad valorem taxes, assessments, and
other impositions applicable to the power plants and other assets
owned by the Company;
(3) Negotiate, and, enter into and supervise the
performance of contracts covering the operation of the power plants
and other improvements on the property and a contract for the
operation of the power plants;
(4) Keep all books of account and other records of
the Company;
(5) Retain, or employ and coordinate the services
of all supervisors, architects, engineers, accountants, attorneys,
and other persons necessary or appropriate to carry out the
business of the Company; provided, however, unless provided for in
the Budget the Manager will not engage the services of any
architect, engineer, accountant, or attorney unless and until
approved by the Members, and at any time thereafter the Manager, in
their sole discretion, may discharge and terminate the services of
any party who may be rendering services to the Company;
(6) To the extent that funds of the Company are
available therefore, pay, all debts and other obligations of the
Company, including amounts due under interim or permanent financing
of improvements and other loans to the Company and costs of
construction, operation, and maintenance of the Company property
and improvements thereof;
(7) Maintain all funds of the Company held by
Manager in a Company account in a bank or banks selected by the
Manager;
(8) Make distributions periodically to the Members
in accordance with the provisions of this Agreement;
(9) Coordinate the management and operation of all
improvements constructed on the property, including the performance
of such functions as the collection of accounts receivable, site
operations, and providing repair and maintenance services to be
furnished by the Company, all in accordance with and as limited by
this Agreement and any Operating Agreement in effect;
(10) Negotiate, and, when executed by the Company,
supervise the performance of contracts covering the purchase and
installation of equipment, project operation and management
contracts and contracts for the construction of buildings and other
improvements on the property;
(11) Perform other normal business functions and
otherwise operate and manage the business and affairs of the
Company in accordance with and as limited by this Agreement; and
(12) Perform other obligations provided elsewhere in
this Agreement to be performed by the Manager.
(b) The Manager shall be obligated to perform the
responsibilities and obligations of the Manager hereunder assigned
to it only to the extent that funds of the Company are available
therefor. Notwithstanding any other provision hereof, the Manager
shall be liable only for bad faith or breach of an express
provision of this Agreement, but in other respects shall not be
liable for mistakes of judgment.
(c) Any provision hereof to the contrary
notwithstanding, except for expenditures made and obligations
incurred in direct pursuance to a Budget approved by the Members,
Manager shall not have authority to make any expenditure or incur
any obligation by or for the Company by (i) increasing any budgeted
expense line item by more than fifteen percent (15%) of its monthly
budgeted amount and (ii) causing such increase in such budgeted
expense line item to be in excess of $5,000 for the annual budgeted
line item, pursuant to Section 6.8 hereof, unless approved by the
Members.
Notwithstanding any provision hereof, Manager shall exercise
good-faith efforts not to expend more than a reasonable sum of
money for any goods purchased or services engaged in on behalf of
the Company.
(d) Except as from time to time may be approved by the
Members or as provided in the Budget, no part of Manager's office
overhead or Manager's general or administrative expense shall be
deemed to be an expense of the Company, except for out of pocket
travel or a reasonable mileage allowance.
In exercise of its management powers, the Manager is
authorized to execute and deliver all contracts, conveyances,
assignments, leases, subleases, franchise agreements, licensing
agreements, management contracts and maintenance contracts covering
or affecting the assets of the Company; all checks, drafts, and
other orders for the payment of the Company's funds; all promissory
notes, mortgages, deeds of trust, security agreements and other
similar documents; and all other instruments of any kind or charter
relating to the Company's affairs, whether like or unlike the
foregoing as necessary to perform those tasks assigned to it.
4.5 Time Devoted to Business and Non-Competition Area. FWC
as initial Manager shall devote such time to the business of the
Company as the Manager, in its discretion, deems necessary for the
efficient operation of the Company's business. It is acknowledged
that FWC has ownership and management interests in other power
plants and businesses and is totally unrestricted in doing so.
4.6 Information Relating to Company. Upon request, Manager
shall supply to any Member information regarding the Company or its
activities in its possession. Each Member or its authorized
representative shall have access to and may inspect and copy all
books, records, and materials in the possession of the Manager
regarding the Company or its activities. The exercise of the
rights contained in this Section 4.6 shall be at the requesting
Member's expense.
4.7 Indemnity. The Company shall indemnify and hold
harmless, Manager and each officer, director, shareholder and
employee thereof from any and all liability which may arise or be
alleged to arise out of, or in connection with, contractual
obligations incurred in the discharge by the same of any
obligations of the Manager pursuant to this Agreement, provided
that any such contractual obligation shall have been incurred by
any of the same in good faith exercise of judgment consistent with
the Budget pursuant to Section 6.8, hereof, or with any other
provision of this Agreement.
Neither Manager nor any of its officers, directors or
employees who perform services under this Agreement shall, in the
performance of this Agreement, be liable to the Company or any
other person for any act or omission, negligent, tortious or
otherwise, of any agent or employee of Members or of Manager or of
the Company and Manager shall be entitled to be indemnified and
saved harmless by the Company from all liability, loss, damage,
cost or expense by reason of any of the foregoing acts or
omissions. More over, the Company will, at Manager's request,
assume the defense of any proceeding brought by any third party to
establish any such liability.
Notwithstanding the foregoing, Manager will be fully
responsible to the Company and shall indemnify and hold harmless
the Company and its Members from and against any and all claims,
liability, loss, damage or cost or expense resulting from the gross
negligence or willful misconduct of the personnel of Manager.
4.8 Cash Management Procedures.
(a) A checking account in the name of the Company will
be established with a bank located near the principal place of
business in Salt Lake City, Utah. All sales proceeds, capital
contributions, earnings, or other cash receipts will be deposited
into that account.
(b) The checking account will pay directly all costs and
expenses relating to the operation of the Company business.
(c) All disbursements from the account shall be made in
accordance with pre-determined Budgets approved by the Members in
accordance with Sections 4.2(c)(3),(c)(4) and 4.4(C).
4.9 Records at Principal Place of Business. The Manager
shall cause the Company to keep at its principal place of business
the following:
(a) a current list in alphabetical order of full name
and last known business street address of each Member;
(b) a copy of the stamped Articles of Organization and
all certificates of amendment thereto, together with executed
copies of any powers of attorney pursuant to which any certificate
of amendment has been executed;
(c) copies of the Company's federal, state and local
income tax returns and reports, if any, for the three most recent
years;
(d) copies of any financial statements of the Company,
if any, for the three most recent years; and
(e) a copy of the most recent Operating Agreement, with
amendments made pursuant to Article XI.
ARTICLE V
COMPENSATION
5.1 Reimbursements of Expenses to Manager. The Manager shall
be entitled at all times, on demand, to reimbursement from the
Company's funds for its actual Reimbursable Expenses.
"Reimbursable Expenses", as that term is used herein, are expenses
incurred by the Manager in furthering the Company's business and
for which the Manager has approved reimbursement to be made and
which are in accordance with the Budget. Reimbursable Expenses
shall have priority over all other distribution to the Members, and
if not reimbursed within 30 days after demand, such amounts shall
become interest-bearing debts of the Company, payable at a rate two
percent (2%) above the prevailing prime rate, as quoted in the Wall
Street Journal Money Rates Section from time to time during the
duration of the loan.
5.2 Fees for Services Rendered. FWC shall be paid a monthly
management fee of $_____________. FWC shall be paid an accounting
fee of ________________ per month for the maintenance of the
general ledger, the preparation of financial statements and tax
returns and other related accounting services. Any additional
compensation for the services of FWC or any other Member, other
than distribution of shares of profits must be authorized by a
unanimous vote of Members.
5.3 Salaries and Other Compensation. Unless otherwise
provided herein, no Member shall receive any payment for services
rendered to the Company, except as may be authorized by a unanimous
vote of Members and/or as provided in the annual Budget.
ARTICLE VI
BOOKS, RECORDS AND ACCOUNTS, STATEMENTS, AND TAX RETURNS
6.1 Accounting Decisions by Manager. All decisions as to
accounting principles and elections, whether for book or tax
purposes shall be made by ___________.
6.2 Fiscal Year; Accrual Basis Accounting Method. The fiscal
year of the Company shall be the calendar year. The Company shall
use the accrual basis method of accounting which, after having been
adopted, can only be changed by the Manager and with the approval
of the IRS as may be required.
6.3 Maintenance of Books and Records. FWC shall have
physical possession of the books and records of the Company.
Complete and accurate books of account of the Company's affairs
shall be maintained at the Company's principal place of business.
Any Member hereof or its authorized representatives may examine any
of the books and records of the Company at any time during the
normal business day and without notice.
6.4 Monthly and Annual Statements. Promptly (20 days) after
the end of each month, there shall be prepared and delivered to
each Member a statement showing the results of operations during
said month. Promptly (75 days) after the end of each fiscal year,
there shall be prepared a balance sheet showing the assets and
liabilities of the Company at the close of the year and a statement
of income showing the results of operations for the year.
6.5 Federal Income Tax Returns - Method of Disposition.
(a) The Company shall not elect, for federal income tax
purposes, to capitalize any items of expense which may properly be
deducted. The Members agree that the Company shall utilize an
accelerated cost recovery method for any property to which such
method may be legally applied.
(b) All elections required or permitted for federal
income tax purposes, except those made for the first taxable year
of the Company and referred to in paragraph (a), shall be made by
the Manager.
6.6 Tax Status and Returns.
(a) Any provision hereof to the contrary
notwithstanding, solely for United States federal income tax
purposes, each of the Members hereby recognizes that the Company
will be subject to all provisions of Subchapter K of Chapter 1 of
Subtitle A of the Internal Revenue Code of 1986.
(b) The Manager shall prepare or cause to be prepared
all tax returns and statements, if any, which must be filed on
behalf of the Company regarding this Agreement with any taxing
authority, and shall submit such returns and statements to all the
Members within 60 days after the close of the fiscal year and make
timely filing thereof. In addition, within 60 days after the close
of the fiscal year, the Manager shall prepare and furnish each
Member with a report of such Member's distributive share of income
and expense setting forth in sufficient detail all such data and
information regarding the business of the Company which shall
enable the Company and each Member to prepare its federal and state
tax returns.
6.7 Transfers During Year. To avoid an interim closing of
the Company's books, the share of profits and losses under Article
VII of a Member who transferred part or all of his interest in the
Company during the calendar year shall be determined by taking his
proportionate share of the amount of the profits and losses for the
year. The Manager shall make the proration based on the portion of
the calendar year that has elapsed prior to the transfer. The
Manager shall allocate the balance of the profits and losses
attributable to the transferee of such interest.
6.8 Budget. By December 1 of each year the Manager shall
prepare and submit to the Members for their consideration a budget
("Budget") setting forth the estimated receipts and expenditures
(capital, operating, and other) of the Company for the period
covered by the Budget. The Budget shall be considered to be
approved by the Members, unless a meeting of the Members to
consider approval of the Budget is requested in writing by Members
holding at least a simple majority of the ownership interests of
the Members in the Company within 15 days of the date of mailing of
the Budget to the Members. Any meeting so requested shall be
scheduled by the Manager within 15 days of the date the request is
received. Changes to the proposed Budget may be made by vote of a
simple majority of the ownership interests of the Members of the
Company present at a duly constituted meeting pursuant to Paragraph
1.12 above. The Manager shall implement the Budget and shall be
authorized, without the need for further approval by the Members,
to make the expenditures and incur the obligations provided for in
the Budget.
ARTICLE VII
TRANSFERS OF MEMBERS INTERESTS
7.1 Lifetime Restriction. Except as provided otherwise in
this Article VII, or as agreed to in writing by all Members, no
Member may, during the Member's lifetime, sell, assign, transfer,
or otherwise encumber any part of the Member's membership interest
which the Member now owns or hereafter acquires.
7.2 Related Parties. At any time, a Member may make an inter
vivos transfer of all or part of the Member's membership interest
to any of the following related parties: Member, Member's spouse,
children, grandchildren, father or mother or to a trust or trusts
for the benefit of such family members. Provided, however, that a
Member shall have this right to transfer only if all of the
following conditions are met:
(a) The assignor shall state his intention in the
instrument of assignment that the assignee shall become a
substituted Member;
(b) The assignor and assignee shall execute such other
instruments as the Manager deems necessary or desirable to effect
admission of the substituted Member;
(c) The assignee shall execute this Agreement;
(d) The assignee shall bear all reasonable expenses
incurred in effecting the substitution; and
(e) The Member making the transfer shall remain the
trustee of the trust to which the conveyance is made.
The assignee shall not become a substituted Member until
the Manager has consented to the substitution and has executed an
acceptance with the transferee Member. Further, if such a transfer
is made, the substituted Member shall be bound to the terms of this
Agreement.
7.3 Right of First Refusal. If at any time a Member receives
a bona fide written offer from a third party for the purchase of
all or a part of that Member's membership interest, and if the
Member desires to accept the offer, or, if a Member proposes to
make any other transfer or gift of the Member's interest, the
Company and the other Members shall have options, as provided in
this Section 7.3, to purchase such part of the interest which is
the subject of the offer.
(a) Notice. The Member desiring to sell, exchange or
transfer the membership ("Seller") shall give prompt written notice
to the Company and the other Members of the offer, and shall attach
to Seller's notice a copy of the written offer, or shall provide
notice of the intent to exchange or transfer. Seller shall include
in Seller's notice a statement setting forth the offering price,
the identity of the offeror, and all other terms and conditions of
the offer or transfer. If the interest is to be exchanged for
property other than cash, Seller shall include in Seller's notice
a reasonable dollar value of that property, valued as of the date
of the written offer.
(b) Company's Right. For ten (10) business days after
receipt of Seller's notice, the Company shall have the right to
purchase the interest which is the subject of the written offer,
either at the same price and upon the same terms and conditions as
set forth in the written offer, or at the Purchase Price set forth
in Section 7.6 below, and upon the terms and conditions set forth
in Section 7.7; but in no event shall the price paid by the Company
exceed the Purchase Price determined under Section 7.6.
(c) Member's Right. If the Company does not exercise
the right to purchase the interest Seller proposes to sell, that
same option to purchase, as described in paragraph (b) above, shall
be given to the other Members for an additional ten (10) business
days period, beginning on the date of expiration of the Company's
option. In no event shall the total purchase price paid by the
other Member or Members desiring to exercise the option hereby
("Purchasing Members") exceed the Purchase Price determined under
Section 7.6.
In the absence of a unanimous agreement among the
Purchasing Members, the interest which is subject to the written
offer shall be divided according to the proportion that each
Purchasing Member's Capital Account (as defined in Sections 2.6 and
3.1) bears to the total of the Capital Accounts of all Purchasing
Members, as of the date Seller sends notice of the written offer;
provided, however, that the Purchasing Members may not, in the
aggregate, purchase less than the entire interest which is the
subject of the written offer received by Seller.
Purchasing Members shall become substituted Members with
respect to interests purchased under this paragraph (c), as soon as
the purchase has been accomplished according to the terms hereof
and the Member-Manager has consented to the substitution and has
executed an acceptance with the transferee Member. Further, if
such a transfer is made, the substituted Member shall be bound to
the terms of this Agreement.
(d) Failure to Exercise. If neither the Company nor the
other Members exercise their option to purchase, Seller, upon
written agreement of non-selling Members owning a majority
ownership interest, may sell or exchange Seller's interest
according to the terms and conditions of the written offer Seller
received, or the gift or transfer may then be accomplished,
provided that such transfer be consummated within ten (10) business
days following the expiration of the other Members' option period.
Thereafter, or in the event Seller receives and desires to accept
a new written offer, or make any other such transfer, Seller must
again give the notice required by paragraph (a) above, and the
Company and the other Members shall again have option periods, one
following the other, as provided in this Section 7.3.
The purchaser or transferee of Seller's interest under
this paragraph (d) shall not be entitled to become a substituted
Member and shall have only a right to receive the distributions to
which Seller would otherwise have been entitled unless the Manager
approves of the substitution.
7.4 Involuntary Transfer. In the event a Member's interest
is transferred by operation of law, including, without limitation,
execution of judgment, or on the divorce, bankruptcy, dissolution
or insolvency of the Member, the transferee shall not be entitled
to become a substituted Member, and shall only have a right to
receive the distributions to which the transferor-Member would
otherwise have been entitled. Such involuntary transfer, or a
material breach of this Agreement not cured within 15 days after
written notice from the party or parties injured by the breach,
shall be considered an offer for sale or transfer as set forth at
Section 7.3 herein, and the Company and Members shall have the
right to purchase the interest transferred in accordance with the
price and terms allowed under Sections 7.6 and 7.7 herein. The
Company and the Members shall have the option to purchase the
interest as provided under Section 7.3 above, with the first option
period beginning the date the Member filing bankruptcy or whose
interest is executed upon provides notice thereof similar to the
notice required under Section 7.3 above. The Member shall give
Company and the other Members notice of the occurrence of
bankruptcy or execution upon a judgment as soon as it occurs.
Failure to provide such notice shall not affect the rights of the
Company or the remaining Members who at any time exercise their
rights hereunder, with or without notice.
7.5 Transfers on Death. In the event of the death of any
Member, the Company and the remaining Members shall have an
absolute right to purchase all of the deceased Member's interest,
as follows:
(a) Company Right. The Company shall have, for a period
of ninety (90) days after appointment of an executor, administrator
or personal representative for the deceased Member, an option to
purchase the deceased Member's entire interest in the Company. The
Purchase Price and payment terms shall be determined in accordance
with Sections 7.6 and 7.7 below.
(b) Members' Right. If the Company does not exercise
the right to purchase the deceased Member's entire interest by
giving notice to the deceased Member's executor, administrator, or
personal representative, in writing, within said ninety-day period,
the option to purchase shall be given to the remaining Members for
an additional ten (10) day period, beginning on the day that the
Company's right to purchase expires. In the absence of a unanimous
agreement among the remaining Member or Members who desire to
participate in the exercise of this option ("Purchasing Members"),
the interest owned by the deceased Member shall be divided
according to the proportion that each Purchasing Member's Capital
Account (as defined in Sections 2.11 and 3.1) bears to the total
Capital Accounts of all of the Purchasing Members, as of the date
of the deceased Member's death; provided, however, that the
Purchasing Members may not, in the aggregate, purchase less than
the entire interest of the deceased Member. The Purchase Price and
payment terms shall be determined in accordance with Sections 7.6
and 7.7 below.
Purchasing Members shall become substituted Members with
respect to interests purchased under this paragraph (b) only upon
the consent of the Manager.
(c) Failure to Purchase. In the event the option to
purchase is not exercised by the Company or the remaining Members
as provided above, the assignee of the executor, administrator, or
personal representative of the deceased Member shall not be
entitled to become substituted Members and shall have only the
right to receive the distributions to which the deceased Member
would otherwise have been entitled.
7.6 Purchase Price. The Purchase Price for a Member's
interest sold by a Member to the Company or to another Member under
Sections 7.3 or 7.4, or sold by a deceased Member's estate under
Section 7.5, shall be the fair market value ("FMV") of the
interest, determined as follows:
(a) The Valuation Date for determining FMV shall be the
date of the written offer received by Seller in the case of a sale
under Section 7.3, the date of filing of bankruptcy or date of
execution on a judgment for interests to be acquired pursuant to
Section 7.4, or the date of death of the deceased Member, in the
case of a sale by the deceased Member's estate under Section 7.5.
(b) For all real property or interest therein the
Company shall pay for and obtain an appraisal as of the Valuation
Date performed by an independent appraiser.
(c) All other assets shall be valued at their book value
using GAAP as promulgated by the American Association of Certified
Public Accountants except Marketable Securities and other assets
which have a readily discernible value, which will be expressed at
such realizable value.
(d) The FMV of the Company shall then be determined by
the following formula: Sum of (a)(b)&(c) above minus total Company
liabilities at Valuation Date.
(e) The Purchase Price of the interest being purchased
shall be the product of the percentage of the whole Company which
the subject interest represents (based upon relative Capital
Account balances) as of the Valuation Date, multiplied by the FMV
of the Company determined in paragraphs (b) through (d) above.
7.7 Payment and Terms. Payment by the Company or the Members
for a sale by a Member under Sections 7.3 or 7.4, or for a sale by
a deceased Member's estate under Section 7.5 shall be made as
follows:
(a) Thirty percent (30%) of the Purchase Price shall be
paid within two (2) months after the Valuation Date defined in
Section 7.6(a).
(b) The balance shall be paid in four (4) equal annual
installments beginning on the first annual anniversary of the
initial payment.
(c) Interest on the unpaid principal balance shall be
charged at the Applicable Federal Rate in effect as of the
Valuation Date, as the Applicable Federal Rate is defined in Sec 1274
(or a successor provision) of the Internal Revenue Code, compounded
semiannually. If there is no Applicable Federal Rate in effect as
of the Valuation Date, the interest rate shall be the prime rate in
effect on the Valuation Date as published in the Wall Street
Journal. Interest shall begin to accrue after the first payment
date, compounded annually. Interest payments shall be made at the
time principal payments are made.
7.8 Proration of Gains, etc. for Tax Purposes. In the event
of any transfer or assignment of membership interests other than at
and as of the close of the Company's fiscal year, all items of
gain, loss, deduction or credit for the entire fiscal year in which
the transfer or assignment takes place shall be allocated between
the transferor and the transferee (or assignor and assignee) by
proration based on the portion of the fiscal year that has elapsed
prior to the transfer or assignment, regardless of whether those
items have been realized as of the date the transfer or assignment
takes place.
7.9 Transfer of Capital Account. Upon the transfer of all or
part of an interest in the Company, as permitted herein, the
capital account of the transferor that is attributable to the
transferred interest shall carry over to the transferee Member.
7.10 Additional or Substituted Members. Additional Members
may be added, or substituted Members may be admitted, to the
Company with the consent of the Manager.
7.11 Authority of Manager. Upon the terms set forth in this
Article VII, the Manager is authorized (a) to exercise the power of
attorney granted in Article X to amend this Operating Agreement or
the Articles of Organization to reflect a substitution or addition;
and (b) to file any such amendment in the appropriate depositories.
7.12 General Restrictions on Transfer. No interest in the
Company has been registered under the Securities act of 1933 or
pursuant to the laws of the State of Utah or any other state.
Therefore, no interest may be sold or exchanged unless the
registration provisions of said act have been complied with unless
in the opinion of the Company's counsel, satisfactory to the
Company, compliance with such provisions is not required.
ARTICLE VIII
DISSOLUTION AND TERMINATION
8.1 Final Accounting. In case of the Company's dissolution,
a proper accounting shall be made from the date of the last
previous accounting to the date of dissolution.
8.2 Liquidation. Upon the Company's dissolution and the
failure of the remaining Members to continue the Company as
provided in Section 1.6, the Manager shall act as liquidator to
wind up the Company. The liquidator shall have full power and
authority to sell, assign and encumber any or all of the Company's
affairs in an orderly and prudent manner.
8.3 Distribution of Liquidation Proceeds. Pursuant to the
winding up of the Company's affairs, the Company assets and the
proceeds from the disposition of Company assets shall be applied in
order of priority as follows:
(a) First, to creditors of the Company other than
Members;
(b) Second, to the payment of compensation to which the
Manager is entitled by reason of its management of the Company and
to the payment of any debts incurred or advancements made by the
Manager;
(c) Third, to Members other than Manager for any debts
of the Company to such Members;
(d) Fourth, to Members in the amount of the final
balances in their respective Capital Accounts (after the allocation
of all Company Profits, Losses and specially allocated items).
Each Member shall look solely to the asset of the Company for
the return of such Member's investment in the Company, and if such
assets or the proceeds from the liquidation of such assets are
insufficient to return said investment, such Member shall have no
recourse against any other Member. Liquidating distributions to
Members shall be made by the later of (i) the end of the Company
taxable year in which Liquidation occurs, or (ii) ninety (90) days
after Liquidation.
8.4 Return of Capital Contributions. No Member shall be
entitled to the return of specific property contributed to the
Company nor to any payments in liquidation of such Member's
interest in the Company other than in cash.
8.5 Negative Capital Account Balance. Notwithstanding
anything to the contrary in this Agreement, upon a liquidation
within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), if
any Member has a deficit Capital Account balance (after giving
effect to all contributions, distributions, allocations and other
Capital Account adjustments for all taxable years, including the
year during which such liquidation occurs), such Member shall have
no obligation to make any contribution to the capital of the
Company, and the negative balance of such Member's Capital Account
shall not be considered a debt owed by such Member to the Company
or to any other person for any purpose whatsoever.
8.6 Articles of Dissolution. When all debts, liabilities and
obligations of the Company have been paid and discharged or
adequate provisions have been made therefor and all of the
remaining property and assets of the Company have been distributed
to the Members, Articles of Dissolution shall be executed and filed
pursuant to Act Sec 48-26-139 and -140. Upon issuance by the State
of Utah of a certificate of dissolution, the Company shall be
terminated.
ARTICLE IX
SALE OF COMPANY ASSETS
9.1 Right of First Refusal. If at any time the Company
receives a bona fide written offer for the purchase or exchange of
all or a part of the power plants and assets owned by the Company
and if the Company desires to accept the offer, the Members shall
have options as provided in this Article IX, to purchase such
property which is the subject of the offer.
9.2 Notice. The Manager shall give prompt written notice to
the Members of any offer received for the sale or exchange of all
or a part of the assets owned by the Company and shall attach to
the notice a copy of the written offer. The notice and attachment
shall include a statement setting forth the offering price, the
identity of the offeror, and all other terms and conditions of the
offer. If the interest is to be exchanged for property other than
cash, the Company shall include in the notice a reasonable dollar
value of that property, valued as of the date of the written offer.
9.3 Member's Right. For ten (10) business days after the
Company approves the terms of the offer described above, if
approved by a simple majority of the Company interests present at
a duly constituted meeting pursuant to Paragraph 1.12 above, any
Member or group of Members shall have the right to purchase the
property interest which is subject to the written offer at the same
price and upon the same terms and conditions as set forth in the
written offer. In absence of a unanimous agreement among the
Purchasing Members, the property interest which is subject to the
written offer shall be divided according to the portion that each
Purchasing Member's Capital Account (as defined in Sections 2.6 and
3.1) bears to the total of the Capital Account (as defined in
Sections 2.6 and 3.1) bears to the total of the Capital Accounts of
all Purchasing Members, as of the date the Manager sends notice of
the written offer; provided, however, that the Purchasing Member or
Members may not, in the aggregate, purchase less than the entire
property interest which is the subject of the written offer
received by the Company.
9.4 Failure to Exercise. If none of the Members exercise
their option to purchase, the Manager may sell or exchange such
property pursuant to Section 4.2(c)(2) above according to the terms
and conditions of the written offer the Company received, provided
that such transfer be consummated within ten (10) business days
following the expiration of the Members' option period.
Thereafter, or in the event the Company or Manager receives and
desires to accept a new written offer, or make other such transfer,
the Manager must again give notice required by Section 9.2 above,
and the Members shall again have option periods as provided in this
Article IX.
ARTICLE X
POWER OF ATTORNEY
10.1 Grant of Power. Subject to Article XI each of the
Members do hereby irrevocably constitute and appoint the Manager as
his true and lawful attorney and agent with full power and
authority in his name, place and stead to execute, acknowledge,
deliver, file and record documents which will include, but not be
limited to the following: (i) Articles of Organization, as well as
amendments thereto, under the laws of the State of Utah, or the
laws of any other state in which such Articles or equivalent are
required to be filed; (ii) any certificates, instruments and
documents, including Fictitious Name Certificates, as may be
required by, or may be appropriate under the laws of any state or
other jurisdiction in which the Company is doing or intends to do
business in connection with the use of the name of the Company by
the Company; (iii) any other instrument which may be required to be
filed by the Company under the laws of any state or by any
governmental agency, or which the Manager deems it advisable to
file; and (iv) any documents which may be required to effect the
continuation of the Company, the admission of any Additional or
Substituted Member, or the dissolution and termination of the
Company, provided such continuation, admission or dissolution and
termination are in accordance with the terms of the Agreement.
10.2 Survival. The power of attorney granted herein is
expressly intended by each Member to be a special power of attorney
coupled with an interest and irrevocable, and such power shall
survive the death of any Member and the delivery of any assignment
by a Member of all or any portion of his Member interest; except
that where the assignee thereof has been approved by the Manager
for admission to the Partnership as a Substitute Member, the Power
of Attorney shall survive the delivery of such assignment for the
sole purpose of enabling the Manager to execute, acknowledge and
file the instrument necessary to effect such substitution.
10.3 Further Action. Pursuant to the power of attorney
granted herein by the Members to the Manager, each Member
authorizes said attorney to take any further action which said
attorney shall consider necessary or convenient in connection with
any of the foregoing, hereby giving said attorney full power and
authority to do and perform each and every act and thing whatsoever
requisite and necessary to be done in and about the foregoing as
fully as said Member might or could do if personally present, and
hereby ratifying and confirming all that said attorney shall
lawfully do or cause to be done by virtue hereof.
10.4 Manager. The Manager, when exercising this power of
attorney for each Member, may do so by a facsimile signature by one
of its officers or by listing all of the Members executing any
instrument with a single signature of one of its officers as
attorney-in-fact for all of them.
10.5 No Amending. Nothing in this section shall be construed
to give the Manager the power to amend this Operating Agreement or
the Articles of Organization without the vote of the Members.
ARTICLE XI
AMENDMENT TO AGREEMENT OR ARTICLES
Except as otherwise provided herein, this Agreement or the
Articles of Organization may be amended or amended and restated at
any time upon the unanimous affirmative vote of the Members. Any
amendment to this Operating Agreement or to the Articles of
Organization may be proposed to the Members by the Manager. The
Manager shall submit to the Members any such proposed amendment and
the recommendation of the Manager as to its adoption within at
least fifteen (15) days of the date of the meeting of Members.
ARTICLE XII
NOTICES
12.1 Method for Notices. All notices hereunder shall be sent
by first certified mail, return receipt requested, postage prepaid
and addressed as set forth in Section 1.10 above (except that any
Member may from time to time give notice changing address for such
purpose) and shall be effective on the date of receipt or upon the
fifth day after mailing, whichever is earlier.
12.2 Computation of Time. In computing any period of time
under this Operating Agreement, the day of the act, event or
default from which the designated period of time begins to run
shall not be included. The last day of the period so computed
shall be included, unless it is a Saturday, Sunday or legal
holiday, in which event the period shall run until six o'clock p.m.
of the next day which is not a Saturday, Sunday or legal holiday.
ARTICLE XIII
GOVERNING LAW AND ATTORNEY'S FEES
This Agreement shall be construed in accordance with, governed
by the laws of, and enforced in, the State of Utah and in the event
of any unresolvable dispute, the parties agree to first submit the
issue to non-binding mediation to be paid for by the Company. If
mediation fails, then the Parties agree that any suit brought to
interpret or enforce this Agreement shall be in Salt Lake County,
Utah and that the prevailing party shall be entitled to reasonable
attorney's fees, costs and expenses.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Entire Agreement. This Operating Agreement contains the
entire agreement among the parties and shall be binding upon and
shall insure to the benefit of the parties, and their respective
personal representatives, successors and assigns, except as set
forth above.
14.2 Construction Principles. Words in any gender shall be
deemed to include the other gender. The singular shall be deemed
to include the plural and vice versa. The headings and underlined
paragraph titles are for guidance only and shall have no
significance in the interpretation of this Operating Agreement.
14.3 Counterparts. The Agreement may be executed in any
number of counterparts, each of which shall be deemed an original
and as executed shall constitute one agreement, binding on all
Members even though all Members do not sign the same counterpart.
14.4 Severance Clause. The invalidity or unenforceability of
any part of this Agreement shall not invalidate or affect the
remainder, which shall continue to govern the relative rights and
duties of the parties as though the invalid or unenforceable part
were not a part hereof.
14.5 Attorney's Fees. In the event any Member or the Company
shall breach this Agreement, the non-breaching parties shall be
entitled to recover from the breaching party all attorney's fees
and costs incurred in enforcing this Agreement, with or without
suit.
14.6 Signatures. The individuals signing this Agreement on
behalf of their respective entities, certify, warrant and represent
their authority to do so and that their signatures herein are fully
authorized by and are binding upon such entity: (i) if the
respective Member is a corporation, pursuant to a resolution
adopted by vote of the requisite percentage of directors required
by the Articles of Incorporation or Bylaws of the Corporation; and
that said resolution has not been altered, amended or revoked, and
(ii) if the respective member is of a limited liability company,
pursuant to the Articles of Organization and Operating Agreement,
and (iii) if the respective Member is a partnership, pursuant to
the signatures of the general partners herein.
IN WITNESS WHEREOF, the Members have signed this Operating
Agreement to be effective as of the date first written above.
MEMBERS:
Far West Capital, Inc.
By: ___________________________
Alan O. Melchior
Its: President
U.S. Envirosystems, Inc.
By: _________________________
Its: _________________________
EXHIBIT "A"
REAL PROPERTY DESCRIPTION
EXHIBIT "B"
OWNERSHIP RATIOS
FOR SHARING OF PROFITS AND LOSSES
The Members' percent of ownership for sharing profits and
losses are as follows:
OWNERSHIP
MEMBER PERCENTAGE
FWC 50%
USE 50%
Total
100%
EXHIBIT "B"
PERMITTED EXCEPTIONS
1. Rights of way for roads, ditches, pipelines, pole and
transmission lines as set forth in instruments recorded in Book 39,
Page 189 of Deeds.
2. A Mortgage to secure various bond indentures recorded December
17, 1940 in Book 72, Page 298 of Mortgages, which has been
supplemented by various instruments of record.
Mortgagor: SIERRA PACIFIC POWER COMPANY
Mortgagee: THE NEW ENGLAND TRUST COMPANY, its successors
and assigns
3. A right of way and easement for roadway purposes according to
that certain indenture made and entered into on the 25th day of
June, 1946 by and between H. AL PEIGH and HUBERT V. HAILMAN and
NINA M. HAILMAN, his wife, Document No. 142754, recorded in Book
184 of Deeds, at Page 237, Records of Washoe County, Nevada.
4. Any easements as shown and disclosed on a Record of Survey
recorded June 24, 1971 as Document No. 210116, as Survey No. 683 of
Washoe County Official Records.
5. An easement for aerial communication facilities, poles,
anchors, guys, wires and incidental purposes as conveyed to Bell
Telephone Company of Nevada in an instrument recorded November 7,
1980 in Book 1566, Page 569 as Document No. 705103 of Official
Records.
6. The terms, covenants and provisions in an unrecorded
Geothermal Resources Lease dated November 18, 1983, executed by
SIERRA POWER COMPANY as Lessor, and Geothermal Development
Associates, as Lessee, as disclosed by a Memorandum of Lease,
recorded January 8, 1985 in Book 2115, Page 321, as Document No.
971913 of Official Records. Said Lease was amended by Letter
Amendment dated January 7, 1985 and Amended Memorandum of Lease
recorded January 11, 1985 in Book 2116, Page 812, as Document No.
972684 of Official Records, and as disclosed by that certain
Memorandum of Lease, Assignment of Lease and Purchase Agreement
recorded April 7, 1986 in Book 2317, Page 368, as Document No.
1062824 of Official Records. Then Lessee's interest under said
Lease has been assigned to FAR WEST HYDROELECTRIC FUND, LTD., a
Utah limited partnership by Assignment of Lease recorded December
31,1 985 in Book 2272, Page 756, as Document No. 1043168 of
Official Records, and as disclosed by that certain Memorandum of
Lease, Assignments of Lease and Purchase Agreement recorded April
7, 1986 in Book 2317, page 368 as Document No. 1062824 of Official
Records.
An assignment of royalties to Benson, Schwarzhoff and Helzel,
a California general partnership by assignment executed by FAR WEST
HYDROELECTRIC FUND, LTD., and recorded August 5, 1988 in Book 2778,
Page 707, as Document No. 1264804 of Official Records.
Said Lease was amended by an instrument entitled AMENDED
MEMORANDUM OF LEASE recorded November 13, 1989 in Book 2992, Page
660 as Document No. 1362214 of Official Records.
7. The terms, covenants and conditions of an unrecorded option
agreement dated July 3, 1985 between Benson, Schwarzhoff and Helzel
and Ormat Systems, Inc., the rights and obligations of Ormat
Systems, Inc., having been assigned to Far West Hydroelectric Fund,
Ltd., as disclosed by an assignment recorded August 5, 1988 in Book
2778, Page 707, as Document No. 1264804 of Official Records.
8. The terms, covenants and provisions in an unrecorded
Geothermal Resource Sublease dated October 28, 1988, executed by
Far West Hydroelectric Fund, Ltd., a Utah limited partnership, as
Lessor, and Far West Capital, Inc., a Utah corporation, as
disclosed by a Memorandum recorded January 5, 1989 as Document No.
129633 of Official Records.
Said Sub-Lease was amended by an instrument entitled
MEMORANDUM OF REVISED AND RESTATED GEOTHERMAL RESOURCES SUBLEASE as
recorded October 19, 1989 in Book 2980, Page 60, as Document No.
1356739 of Official Records. Said instrument discloses, among
other thins, an unrecorded assignment of the sublessee's interest
to 1-A Enterprises, a Nevada General Partnership. Said Assignment
was subsequently recorded on April 2, 1990 in Book 3056, Page 871,
as Document No. 1390164 of Official Records.
9. A Financing Statement recorded November 13, 1989 in Book 2992,
Page 667, as Document No. 1362215 of Official Records.
Debtor : 1-A ENTERPRISES, a Nevada general
partnership
Secured Party : SIERRA PACIFIC POWER COMPANY
10. A Deed of Trust to secure an indebtedness of $3,000,000.00,
and any other amounts due thereunder recorded January 16, 1990 in
Book 3022, Page 359, as Document No. 1374620 of Official Records.
Dated : December 28, 1989
Trustor : 1-A ENTERPRISES, a Nevada general
partnership
Trustee: : FIRST AMERICAN TITLE COMPANY OF NEVADA
Beneficiary : WESTINGHOUSE CREDIT CORPORATION
A Financing Statement recorded January 16, 1990 as Document
No. 1374621 of Official Records.
Debtor: : 1-A ENTERPRISES, a Nevada general partnership
Secured Party : WESTINGHOUSE CREDIT CORPORATION
11. A Deed of Trust to secure an indebtedness of $8,000,000.00,
and any other amounts due thereunder recorded January 16, 1990 in
Book 3022, Page 300, as Document No. 1374623 of Official Records.
Dated: : December 28, 1989
Trustor : FAR WEST ELECTRIC ENERGY FUND, L.P.
Trustee : FIRST AMERICAN TITLE COMPANY OF NEVADA
Beneficiary : WESTINGHOUSE CREDIT CORPORATION
A Financing Statement recorded January 16, 1990 as Document
No. 1374624 of Official Records.
Debtor : FAR WEST ELECTRIC ENERGY FUND, L.P.
Secured Party : WESTINGHOUSE CREDIT CORPORATION
12. A Judgment recorded March 19, 1991 in Book 3228, Page 372, as
Document No. 1466577 of Official Records.
Plaintiff : BRUCE D. BENSON, DALE L. SCHWARZHOFF, and LEO
B. HELZEL doing business as BENSON, SCHWARZHOFF &
HELZEL
Defendant: FAR WEST ELECTRIC ENERGY FUND, L.P., a Delaware
limited partnership, et al
Case No. : CV89-6059 in the SECOND JUDICIAL DISTRICT COURT
OF THE STATE OF NEVADA IN AND FOR THE COUNTY OF
WASHOE
A partial Satisfaction of Judgment was recorded June 14, 1991
in Book 3276, Page 664 as Document No. 1487126 of Official Records.
13. Terms, conditions and provisions of that certain AGREEMENT RE
PAYMENT OF ROYALTIES dated NOT SHOWN, by and between BRUCE D.
BENSON, DALE L. SCHWARZHOFF, and LEO B. HELZEL, collectively doing
business as a California general partnership known as BENSON,
SCHWARZHOFF and HELZEL and FAR WEST ELECTRIC ENERGY FUND, L.P., a
Delaware limited partnership and 1-A ENTERPRISES, a Nevada general
partnership, ALAN O. MELCHIOR, THOMAS A. QUINN MARK O. ZOBRIST,
general partners recorded May 21, 1991 in Book 3261, Page 662, as
Document No. 480966 of Official Records. Reference is hereby made
to said document for further and other particulars.
14. An Action commenced December 10, 1993, in the SECOND JUDICIAL
DISTRICT COURT OF THE STATE OF NEVADA IN AND FOR THE COUNTY OF
WASHOE, Case No. CV93-07371.
Plaintiff : THE STATE OF NEVADA, on relation of
its Department of Transportation
Defendant: SIERRA PACIFIC POWER COMPANY, a Nevada
corporation; ORMAT SYSTEMS, INC., a Delaware corporation; FAR WEST
ELECTRIC ENERGY FUND, L.P., a Delaware limited partnership; FAR
WEST CAPITAL, INC., a Utah corporation; 1-A ENTERPRISES, a Nevada
general partnership; WESTINGHOUSE CREDIT CORPORATION, a Delaware
corporation; FIRST AMERICAN TITLE COMPANY OF NEVADA; COUNTY OF
WASHOE, a political subdivision of the State of Nevada; and all
other persons unknown claiming any right, title, estate, lien or
interest in the real property described in the complaint
to/for : To obtain a judgment of condemnation
for public use.
Notice of Pendency of said action was recorded December 15,
1993, in Book 3928, Page 379, as Document No. 1743074 of Official
Records.
Please be advised that no Final Order of Condemnation has been
recorded, but the Washoe County Assessor has severed the land to
the Highway Department.
15. A UCC-1 Financing Statement recorded March 22, 1995, in Book
4268, Page 175, as Document No. 1879901, Official Records.
Debtor(s) : FAR WEST ELECTRIC ENERGY FUND, L.P.
Secured Party : WESTINGHOUSE ELECTRIC CORPORATION
(Successor to WESTINGHOUSE CREDIT
CORPORATION)
16. A UCC-1 Financing Statement recorded March 22, 1995, in Book
4268, Page 183, as Document No. 1879902, Official Records.
Debtor(s) : 1-A ENTERPRISES
Secured party : WESTINGHOUSE ELECTRIC CORPORATION
(Successor to WESTINGHOUSE CREDIT
CORPORATION)
SB-1 SCHEDULE OF ROYALTIES
FIRST 10 YEARS
PAYEE: % OF GROSS REVENUES
1. Sierra Pacific Power Company 10.00000%
P.O. Box 10100
Reno, NV 89520-0026
Attention: General Accounting
2. Benson, Schwarzhoff & Helzel 3.888%
5550 Redwood Road
Oakland, CA 94619-3120
Attention: Dale Schwarzhoff
3. Mr. G. Martin Booth III 0.08100%
c/o Geothermal Development Associates
251 Ralston Street
Reno, NV 89503
4. Richard W. Harris 0.08100%
P.O. Box 70250
Reno, NV 89570-0250
5. Geothermal Development Associates $50,000.00
/ year
Attn: Mr. G. Martin Booth III 4,166.67
/ month
251 Ralston Street
Reno, NV 89503
Development Costs
SECOND 10 YEARS
1. Sierra Pacific Power Company 10.00000%
P.O. Box 10100
Reno, NV 89520-0026
Attention: General Accounting
2. Benson, Schwarzhoff & Helzel 3.888%
5550 Redwood Road
Oakland, CA 94619-3120
Attention: Dale Schwarzhoff
3. Mr. G. Martin Booth III 0.08100%
c/o Geothermal Development Associates
251 Ralston Street
Reno, NV 89503
4. Richard W. Harris 0.08100%
P.O. Box 70250
Reno, NV 89570-0250
5. Geothermal Development Associates - 25% of Annual net
operating revenues.
251 Ralston Street
Reno, NV 89503
6. Benson, Schwarzhoff & Helzel - 1.667% of Annual net
operating revenues.
5550 Redwood Road
Oakland, CA 94619-3120
Attention: Dale Schwarzhoff
7. Ormat, Inc. - 3.333% of Annual net operating revenues.
980 Greg Street
Sparks, NV 89431
AFTER YEAR 20
1. Sierra Pacific Power Company 10.00000%
P.O. Box 10100
Reno, NV 89520-0026
Attention: General Accounting
2. Benson, Schwarzhoff & Helzel 0.03888%
5550 Redwood Road
Oakland, CA 94619-3120
Attention: Dale Schwarzhoff
3. Mr. G. Martin Booth III 0.08100%
c/o Geothermal Development Associates
251 Ralston Street
Reno, NV 89503
4. Richard W. Harris 0.08100%
P.O. Box 70250
Reno, NV 89570-0250
5. Geothermal Development Associates - 25% of Annual net
operating revenues.
251 Ralston Street
Reno, NV 89503
6. Benson, Schwarzhoff & Helzel - 8.333% of Annual net
operating revenues.
5550 Redwood Road
Oakland, CA 94619-3120
Attention: Dale Schwarzhoff
7. Ormat, Inc. - 16.667% of Annual net operating revenues.
980 Greg Street
Sparks, NV 89431
For purposes of calculating net revenue royalties net revenues
are defined as follows:
"Net Proceeds from electricity sales from Steamboat 1 less
royalties, including the BSH overriding production royalty and
other royalties and all reasonable, necessary, and normal expenses
of the Steamboat 1 power plant, as determined on an accrual basis
applicable to the year for which the determination is made,
including operation, maintenance, warranty work, parts, labor,
general overhead, services, severance and property taxes,
insurance, casualty loss, and any other cost or expense reasonably
calculated or necessary to maintain and operate the Steamboat 1
power plant and preserve its revenue stream so that Annual Net
Operating Revenues will consist of the net cash flow from the
Steamboat 1 power plant before debt service, income taxes,
distributions to equity investors (including the Fund and its
partners) and overhead associated with such equity investors.
Annual Net Operating Revenues shall be calculated for the twelve
months beginning March 1 of each year and ending with the last day
of February of the following year."
SCHEDULE 1
SB-1A ROYALTY PAYMENT SCHEDULE TO
SIERRA PACIFIC POWER COMPANY
At the end of the month during which Initial Operation occurs
(January 1989) and at the end of each monthly billing period
thereafter, the SB-1A shall pay to the Sierra Pacific Power Company
("SPPC") an amount equal to the product the royalty payment
percentage as noted below in Column II and the gross sales of
electricity from the Plant, during each such monthly billing
period. For the purposes of this Exhibit, a "year" shall be
defined as the period beginning on the date of initial operation
(December 8, 1988) and every anniversary thereof, and ending at
2400 hours on the following anniversary of the date of initial
operation.
Column I Column II Column III
Year After Royalty Payment
Eleventh Year
Initial Operation Percentage
Payment Percentage
1st 89 4% 6%
2nd 90 4% 6%
3rd 91 4% 6%
4th 92 4% 6%
5th 93 4% 6%
6th 94 4% 6%
7th 95 6% 4%
8th 96 8% 2%
9th thru 30th 97-18 10% 0
3. In addition to the payment described above, Lessee shall be
obligated to pay Lessor an amount, no later than 180 days after the
tenth anniversary of the date of initial operation, calculated as
follows ("Eleventh Year Payment"):
At the end of each monthly Billing Period during the first ten
years after initial operation, SPPC shall calculate the product of
the gross sales of electricity from the Plant for that monthly
billing period multiplied by the percentage listed for that year in
Column III above. The Eleventh Year Payment shall equal the sum of
the monthly amounts, described above, plus interest accrued monthly
at an annual rate of 11.9%.
SB-1A
SCHEDULE OF ROYALTIES
DURATION OF PLANT LIFE
FIRST 10 YEARS
PAYEE: % OF GROSS REVENUES
1. Sierra Pacific Power Company 10.00000%
accrued
P.O. Box 10100
Reno, NV 89520-0026
Attention: General Accounting
2. Benson, Schwarzhoff & Helzel 3.888%
5550 Redwood Road
Oakland, CA 94619-3120
Attention: Dale Schwarzhoff
3. Mr. G. Martin Booth III 0.08100%
c/o Geothermal Development Associates
251 Ralston Street
Reno, NV 89503
4. Richard W. Harris 0.08100%
P.O. Box 70250
Reno, NV 89570-0250
Royalties shown in paragraphs 3 and 4 are only applicable to
revenues from the first 43.8 million KWH from a combination of SB-1
and SB-1A.
At the end of the first ten years of operation the difference
between royalties paid and accrued royalties must be paid. (See
Schedule 1 attached).
EXHIBIT "C"
OPERATION AND MAINTENANCE AGREEMENT
BETWEEN
STEAMBOAT ENVIROSYSTEMS, L.C.
AND
S. B. GEO, INC.
DATED AS OF
March 1, 1996
Steamboat 1 & 1-A
Geothermal Facilities at
Steamboat Springs, Washoe County
Nevada
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS 5
ARTICLE 2 TERM OF AGREEMENT; RELATIONSHIP OF PARTIES 10
2.1 Term 10
2.2 Parties' Representatives 10
2.3 Relationship of the Parties 10
2.4 Confidential Information 11
2.5 Access 11
ARTICLE 3 COVENANTS OF OPERATOR 12
3.1 Duties of Operator After Commencement Date 12
3.2 Records 14
3.3 Annual Operating Plan 14
3.4 Changes in Operation and Maintenance 15
3.5 Quarterly Reports 15
3.6 Testing 16
3.7 Maintenance of Qualifying Facility Status 16
3.8 Notice of Outages 16
3.9 Representations and Warranties 16
3.10 Obligations on Termination 17
3.11 Payment of Fines, Penalties and Liquidated Damages 17
ARTICLE 4 COVENANTS OF STEAMBOAT 18
4.1 Steamboat's Obligations 18
ARTICLE 5 PAYMENTS 18
5.1 Operation and Management Costs 18
5.2 Incentive Program 19
5.3 Payment of Fees and Bonus 20
ARTICLE 6 REPRESENTATIONS AND WARRANTIES 20
6.1 Representations and Warranties of Operator 20
6.2 Representations and Warranties of Steamboat 21
ARTICLE 7 DEFAULTS AND REMEDIES 22
7.1 Defaults by Operator 22
7.2 Remedies for Operator Default 23
7.3 Defaults by Steamboat 24
7.4 Remedies for Steamboat Default 24
7.5 Labor Difficulties 24
7.6 Uncontrollable Circumstance 25
7.7 Resumption of Performance 25
7.8 Continuing Uncontrollable Circumstance 25
ARTICLE 8 DISPUTE RESOLUTION 25
8.1 Arbitration 25
8.2 Availability of Arbitration 25
8.3 Arbitration Notice 25
8.4 Procedure 26
8.5 Additional Parties 26
8.6 Enforceability 26
8.7 Venue 27
8.8 Continuance of Contract Performance 27
8.9 Cost 27
ARTICLE 9 INDEMNIFICATION 27
9.1 Operator Indemnification 27
9.2 Cooperation Regarding Claims 27
9.3 Waiver of Subrogation 28
ARTICLE 10 INSURANCE 28
10.1 Operator Insurance Coverage 28
10.2 Evidence of Insurance 29
10.3 General Insurance Provisions 29
ARTICLE 11 MISCELLANEOUS 30
11.1 Assignment 30
11.2 Consequential Damages 30
11.3 Effect of Termination 30
11.4 Overdue Obligations to Bear Interest 30
11.5 Notices 30
11.6 Waiver 31
11.7 Entire Agreement; Modification 31
11.8 Governing Law 31
11.9 Counterparts 31
11.10 Severability 31
11.11 Further Assurances 31
11.12 Headings 32
11.13 Waiver of Liens 32
11.14 Appointment of Facilities Manager 32
11.15 Disposal of Materials and Equipment 32
EXHIBITS
Exhibit A - Anticipated Performance Standards
Exhibit B - Facilities Administrative Procedures
Exhibit C - Facility Work Force
Exhibit D - Operator's Operating Equipment
Exhibit E - Operator Approvals
OPERATION AND MAINTENANCE AGREEMENT
THIS OPERATION AND MAINTENANCE AGREEMENT (this "Agreement"),
entered into as of the 30th day of November, 1995, between SB GEO,
Inc., a Utah corporation ("Operator"), and STEAMBOAT ENVIROSYSTEMS,
L.C., a Utah limited liability company ("Steamboat"),
W I T N E S S E T H:
WHEREAS, Steamboat has been organized to own and operate two
(2) geothermal power plants and related geothermal wells and
interconnection equipment (respectively, the "Steamboat 1 Facility"
and the "Steamboat 1A Facility"), located in Washoe County, Nevada;
and
WHEREAS, Steamboat is assignee under an agreement with Sierra
Pacific Power Company for the purchase and sale of the electricity
produced by the Facilities; and
WHEREAS, Steamboat is assignee under a geothermal resources
lease with SPPC, pursuant to which Steamboat has the right to own
power plants and operate them and develop the geothermal resources
on certain property in Washoe County, Nevada; and
WHEREAS, Operator is willing to operate and maintain the
Facilities in accordance with the terms hereof;
NOW THEREFORE, in consideration of the covenants and
agreements and subject to the terms and conditions set forth
herein, and for other good and valuable consideration, the receipt
and adequacy of which are hereby specifically acknowledged,
Steamboat and Operator agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings set forth below such definitions to be equally applicable
to the singular and plural form of the terms defined):
"Affiliate" shall mean, with respect to any Person, a Person
that controls, is controlled by, or is under common control with,
such Person or any successor thereto.
"Annual Operating Plan" shall have the meaning set forth in
section 3.4.
"Anticipated Performance Standards" shall mean the electrical
power generation performance standards, set forth in Exhibit A
hereto.
"Approvals" shall mean all consents, rights, exemptions,
concessions, permits, easements, rights of way, licenses,
authorizations, certificates, orders, franchises, determinations or
other approvals of any Government Agency or Person required for the
development, design, construction, start-up and operation of the
Facilities, including but not limited to all approvals set out or
referred to in the Exhibits hereto.
"Arbitration Notice" shall have the meaning set forth in
section 8.3.
"Billing Period" shall mean a period of one (1) calendar
month, except that (a) the first Billing Period of each Contract
Year shall begin on the first day of such Contract Year and shall
continue to and including the last day of the month in which such
Contract Year begins and (b) the last Billing Period of each
Contract Year shall end on the last day of such Contract Year if
such day is not otherwise the last day of a Billing Period.
"Business Day" shall mean any day other than a Saturday,
Sunday or other day on which banks are authorized to be closed in
Nevada, Utah or New York.
"Commencement Date" shall mean, in respect of each Facility,
the date this Agreement is executed by the parties hereto.
"Contract Date" shall mean the date of this Agreement.
"Contract Term" shall have the meaning set forth in section
2.1.
"Contract Year" shall mean with respect to (i) the first
Contract Year, the period from and including the date of this
Agreement to the day preceding the first anniversary of said date,
and (ii) each subsequent Contract Year, the period beginning on the
day following the last day of the preceding beginning on the day
following the last day of the preceding Contract Year and ending on
the day preceding the next succeeding anniversary of the date of
this Agreement.
"Dispute" shall mean any claim, dispute, disagreement or
other matter in question between Operator and Steamboat that arises
with respect to the performance, nonperformance or breach by
Operator or Steamboat of their respective obligations under this
Agreement.
"Emission Standards" shall mean the air emissions limits
contained in the Approvals.
"Event of Default" shall have the meaning set forth in
sections 7.1 and 7.3 hereof.
"Exhibit" shall mean an exhibit which is incorporated in and
made a part of this Agreement, as such exhibit may be modified from
time to time in accordance with the terms hereof.
"Facility" shall mean each of the geothermal generating
facilities, known as Steamboat 1 and Steamboat 1A, respectively,
and related geothermal wells and interconnection equipment,
together with all additions, appurtenant leases and easements,
structures and equipment associated therewith and owned or
controlled by Steamboat and "Facilities" shall mean, collectively,
the Steamboat 1 Facility and the Steamboat 1A Facility.
"Facilities Administrative Procedures" shall mean, as a
minimum, but shall not be limited to, the procedures, implemented
independently or in combination, set forth in Exhibit B hereto, as
each of those procedures is more fully described in the Operator
Proposal.
"Facility Operating Standards" and "Operating Standards"
shall mean the standards set forth in (i) the Project Operations
and Maintenance Manual, (ii) Prudent Utility Practices, (iii) the
Power Purchase Agreement, (iv) this Agreement, including the
requirements set forth in each of the clauses of section 3.2
hereof, (v) the Annual Operating Plan for the current Contract
Year, (vi) the Emissions Standards, and (vii) the Facilities
Administrative Procedures.
"Facilities Site" shall mean the real property (including
easement rights) leased to Steamboat (as successor in interest to
Far West) as lessee by SPPC under the Facility Site Lease.
"Facility Site Lease" shall mean collectively the Geothermal
Resources lease, dated November 18, 1983, between SPPC and
Steamboat (as successor in interest) and the Revised and Restated
Geothermal Resources Sublease dated October 9, 1989 between
Steamboat as successor in interest of Far West Electric Energy
Fund, L.P. as Lessor and as successor in interest to 1-A
Enterprises as Lessee.
"Facility Tools" shall mean (i) any special tools which are
furnished by the manufacturer of equipment incorporated in the
Facilities to be used in connection with that equipment and (ii)
any and all tools, purchased for either Facility at any other time
which tools are required to carry on normal operation and repair of
the Facilities. For the purposes of this Agreement, "Facility
Tools" shall also include all furniture, fittings, fixtures and
office equipment of whatever nature (including, without limitation,
all computer hardware and software and associated equipment)
purchased by or on behalf of Steamboat for use at, or in connection
with, the operation of the Facilities from time to time.
"Facility Work Force" shall have the meaning set forth in
Exhibit C hereto, provided that the size and nature of the Facility
Work Force do not deviate in any material respect from those
described in the Operator Proposal, unless otherwise agreed by the
parties.
"Far West" shall mean Far West Capital, Inc., a Utah
corporation.
"Generally Accepted" shall mean with respect to any practice,
procedure or method herein, such practice, procedure or method,
consistent in all relevant respects with Prudent Utility Practices,
as would be employed or used by a person exercising good
professional judgment who is competent to perform such practice,
procedure or method.
"Gross Margin" shall mean, in respect of any Person, the
documented net pretax operating profit of that Person.
"Indemnified Party" shall have the meaning set forth in
section 9.1.
"Major Maintenance" shall mean, in respect of any Facility,
all necessary overhaul (with the exception of minor repairs),
replacement, major repair, calibration and cleaning of that
Facility and that Facility's mechanical and electrical equipment.
Overhaul and repair shall be performed in accordance with the
manufacturer's current recommendations, the reasonable
recommendations of Operator and Prudent Utility Practices. Such
work shall be consolidated to minimize the outage periods required
and to maximize power production availability.
"Management Fee" shall have the meaning set forth in section
5.2.
"Operating Plans" shall have the meaning set forth in section
3.4.
"Operator Approvals" shall mean those Approvals, other than
the Steamboat Approvals, necessary or appropriate for the
performance of Operator's responsibilities hereunder, including,
without limitation, the Approvals set forth on Exhibit E hereto.
Operator Approvals further include, without limitation, approvals
personal or peculiar to Operator such as business licenses, trade
and professional licenses, individual operator licenses, and
licenses or permits of the same or a similar nature.
"Operator Bonus" shall have the meaning set forth in section
5.3.
"Operator Fee" shall have the meaning set forth in section
5.2.
"Operator Proposal" shall mean the Operation and Maintenance
Plan prepared by Operator and submitted to Steamboat.
"Operator's Operating Equipment" shall have the meaning set
forth in Exhibit D hereto, provided that the type and amount of the
Operator's Operating Equipment do not deviate in any material
respect from those described in the Operator Proposal, unless
otherwise agreed by the parties.
"Person" shall mean a corporation, partnership, trust,
business trust, joint venture, company, cooperative, firm or other
entity or individual.
"Power Purchase Agreement" shall mean, collectively, the
Agreement for the Purchase and Sale of Electricity, Steamboat 1,
dated November 18, 1983, between Steamboat (as successor in
interest) and SPPC, and the Long Term Agreement for the Purchase
and Sale of Electricity, Steamboat 1A, dated October 29, 1988, by
and between Steamboat (as successor in interest) and SPPC, as the
same may be amended, restated or supplemented from time to time in
accordance with the respective terms thereof.
"Project Agreements" shall mean (i) this Agreement, (ii) the
Power Purchase Agreement, (iii) the Lease, (iv) the Special
Facilities Agreement, and (v) the Facility site Lease.
"Project Operations and Maintenance Manual" shall mean the
manual describing the proper operation and maintenance of the
Facilities, including appropriate safety precautions and
limitations.
"Prudent Utility Practices" shall mean those practices,
methods, equipment, specifications and standards of safety and
performance, as the same may change from time to time, as are
commonly used by electric generation stations generally throughout
the United States of America of a type and size similar to the
Facilities as good, safe and prudent engineering practices in
connection with the operation, maintenance, repair and use of
electrical and other equipment and facilities, with commensurate
standards of safety, performance, dependability, efficiency and
economy and which are consistent in all relevant respects with the
utility practices implemented by, and compliance with which is
required by SPPC.
"Regular Monthly Payment Date" shall have the meaning set
forth in section 5.4.
"Routine Repair and Maintenance" shall mean the repair and
preventative maintenance of a regular nature that must be performed
periodically and on an ongoing basis to maintain the Facilities in
good working order in accordance with Prudent Utility Practices,
including, but not limited to, lubrication, repacking of valves,
adjustments, labor for replacements of chemicals and consumables,
similar work, and general housekeeping.
"SPPC" shall mean Sierra Pacific Power Company, a Nevada
corporation.
"Special Facilities Agreement" shall mean that certain
Special Facilities Agreement by and between Steamboat (as successor
in interest) and SPPC, dated October 29, 1988 as it may be amended,
modified or supplemented in accordance with the terms thereof.
"Steamboat Approvals" shall mean all Approvals required for
ownership and commercial operation of the Facilities, including,
without limitation, federal, state and local environmental, water,
air, sewer and land use Approvals.
"Steamboat's Representative" shall mean that Person
designated in writing by Steamboat to Operator as its primary
representative in accordance with section 2.2 hereof.
"Stipulated Interest Rate" shall mean that rate per annum
designated by Morgan Guaranty Trust Company, or its successor
entity, from time to time as its reference rate plus three percent
(3%).
"Termination Date" shall have the meaning set forth in
section 7.6.
"Termination Payment" shall have the meaning set forth in
section 7.6.
"Uncontrollable Circumstances" shall mean acts of God, labor
disputes involving Persons other than Operator, labor disputes
involving Operator if any such labor dispute is the result of
breach of established labor agreements by employees of Operator, or
earthquake, flood or other sudden and unforeseeable weather
conditions. The non-availability of geothermal resource supply
(unless the same is directly or indirectly caused or exacerbated by
Operator) to generate capacity and energy from the Facilities and
any inability or unwillingness of SPPC to accept power generated at
the Facilities shall each be considered an Uncontrollable
Circumstance.
ARTICLE 2
TERM OF AGREEMENT; RELATIONSHIP OF PARTIES
2.1 Term. This Agreement shall commence as of the Contract
Date and shall continue for ten (10) successive periods or ten (10)
Contract Years, unless earlier terminated in accordance with the
provisions of this Agreement.
2.2 Parties' Representatives. Prior to the commencement of
mobilization services by Operator, as described in section 3.1
hereof, Steamboat and Operator shall each designate an individual
to act as its primary representative with respect to matters
concerning operation of the Facilities. Steamboat and Operator
shall each provide the other with written notice of the person
designated as its representative. At any time after the initial
designation by any party of its representative, such party may
designate a replacement by written notice to the other party in
accordance with the notice provisions herein.
2.3 Relationship of the Parties. Operator shall at all times
be deemed an independent contractor and neither it nor any of its
employees or the employees of any of its subcontractors shall be
considered an agent, servant or employee of Steamboat. Nothing in
this Agreement shall be deemed to constitute any party hereto a
partner, joint venturer, agent or legal representative of any other
party hereto or to create a fiduciary relationship between or among
such parties. Operator shall be solely responsible for all matters
relating to the payment of its employees, including compliance with
social security, withholding and all regulations governing such
matters. Operator shall be responsible for its own actions and
those of its subordinates, employees, agents, subcontractors and
consultants during the term of this Agreement. Unless otherwise
herein provided, Operator shall have no authority to make any
statements, representations or commitments of any kind or take any
action which shall be binding on Steamboat.
2.4 Confidential Information. If either party transmits to
the other any information (including, without limitation, drawings,
technology, reports and designs) which the disclosing party has
designated in writing as "proprietary information," the receiving
party shall receive and hold such proprietary information in
confidence, shall use it exclusively in connection with the
Facilities and shall not publish or otherwise disclose it to
others; provided, however, that the receiving party may make
necessary disclosures on a proprietary basis to any third party
directly engaged in the operation or financing of the Facilities
such as consultants, trustees and lenders engaged for that purpose
if such third party shall consent in writing to be bound by the
provisions of this section 2.4, but such disclosures may not be
made to suppliers to the Facilities without the prior written
consent of the transmitting party (which consent may be withheld in
such party's sole discretion).
Notwithstanding the foregoing restrictions, either party shall
have the right to disclose proprietary information furnished
hereunder (i) if such information becomes available from a source,
other than a party to this Agreement, who has no obligation of
confidentiality with respect to such information and who did not
obtain such information pursuant to a breach of this section 2.4;
(ii) if such information is developed independently or is within
the knowledge of the party to whom it is delivered prior to receipt
thereof; (iii) if such information is within, or later falls
within, the public domain without breach of this Agreement by the
party hereto receiving such information; (iv) if such disclosure is
required by order of any court of law, to the extent required by
such order; provided, however, that if a party is required to
disclose proprietary information by a court of law, it agrees to
give the other party prompt written notice of the disclosure
requirements of any such order; or (v) to a Government Agency to
the extent required by such Government Agency; provided, however,
that if such party undertakes to so disclose such proprietary
information to a Government Agency, it agrees to give the other
party advance written notice of such undertaking, to make
reasonable efforts to secure confidential treatment of such
proprietary information by the Government Agency in question and to
permit such other party to participate in discussions with such
Government Agency with regard to such confidential treatment. In
the event that efforts to secure confidential treatment are
unsuccessful, the party supplying the proprietary information shall
have the right, if legally permissible, to revise such proprietary
information to make it nonproprietary or to minimize the loss of
its proprietary value.
2.5 Access.
(a) Access by Steamboat. Steamboat and their representatives
including, without limitation, any independent technical
consultant, shall have the right at all times to visit and inspect
the Facilities and the Facilities Site, and Steamboat, their
representatives, including, without limitation, any independent
technical consultant, shall have the right, upon reasonable notice
and at reasonable times, to take visitors onto the Facilities Site
and into the Facilities; provided, however, that Operator shall
have the right to approve access to the Facilities by all proposed
visitors thereto, such approval not to be unreasonably withheld or
delayed, and that all visits shall be conducted in a manner so as
to minimize interference with Operator's performance hereunder; and
provided, further, that Steamboat and their representatives
including, without limitation, any independent technical
consultant, and invitees shall have the right to enter the
Facilities and the Facilities Site without notice in the event of
an emergency, including, without limitation, fire, vandalism or
other threats to public health and safety, or at any time when an
Event of Default has occurred and is continuing.
(b) Audits. Steamboat may employ accountants and other
auditors (i) to audit the record keeping practices and systems used
to generate the data required by sections 3.3, 3.6, 3.8, 5.2(b) and
5.3, (ii) to determine, if applicable, whether such practices and
systems are in accordance with generally accepted accounting
principles and (iii) to certify the results of such audit and
determination to Operator and Steamboat.
(c) Access by Others. Operator shall not interfere with the
rights of access to the Facilities granted to SPPC or other
customer under the Power Purchase Agreement or the access to the
Facilities Site granted under the Facility Site Lease.
(d) Operator Access From and After Commencement Date. During
the term of this Agreement, Steamboat shall provide Operator and
its agents, employees, subcontractors and consultants full and free
access at all times to the Facilities to the extent required to
perform the services required by this Agreement.
ARTICLE 3
COVENANTS OF OPERATOR
3.1 Duties of Operator After Commencement Date. Commencing
upon the Commencement Date for each Facility and continuing for the
term hereof, Operator shall be in care, custody and control of that
Facility and shall operate, maintain and repair that Facility in
accordance with the Facility Operating Standards. Such operation,
maintenance and repair services shall include, but not be limited
to, performance by Operator of the following:
(i) employment of a Facility Work Force consisting of
properly trained personnel. The control room of the Facilities
shall be staffed with a qualified operator during all hours of
power generation. For the purposes of the foregoing, the control
room shall be deemed to be staffed in accordance with this clause,
notwithstanding that a qualified operator may be absent therefrom
as duties require, provided that any such absence shall occur in
the ordinary course of operation of the Facilities and strictly in
accordance with Prudent Utility Practices;
(ii) operation and Routine Repair and Maintenance of each
Facility so as to keep it in good working order. Operator shall
utilize all Facility Tools as are necessary to carry on normal
operation and Routine Repair and Maintenance of each Facility;
(iii) the provision of materials and services to which
section 4.1(d) relates, when requested by Steamboat to provide the
same;
(iv) operation and repair of each Facility so as to deliver
electricity to SPPC in accordance with the Power Purchase
Agreement, the Special Facilities Agreement and the Annual
Operating Plan;
(v) compliance with the requirements of all warranties with
respect to each Facility or particular equipment contained therein;
(vi) operation of each Facility in compliance with all
applicable Approvals and other applicable laws and regulations
(including, without limitation, all federal, state and local
environmental, water, air, sewer and land use Approvals),
acquisition in a timely manner and maintenance of all Operator
Approvals and cooperation with and assistance of Steamboat in
Steamboat's efforts to obtain and maintain all Steamboat Approvals;
(vii) compliance with the terms of the Facility Site
Lease, the Special Facilities Agreement and the Power Purchase
Agreement;
(viii) procurement of all services necessary to keep and
maintain each Facility and the Facilities Site in a safe, secure,
clean, well-maintained, well-painted, orderly and attractive
condition;
(ix) efficient operation of each Facility so as to optimize
the useful life of the equipment, maximize conservation of the
geothermal resource (consistent with achievement of the Anticipated
Performance Standards), minimize downtime for repairs or Major
Maintenance and maximize net operating revenues, all in accordance
with the Facility Operating Standards;
(x) compliance with the terms of all insurance policies of
Steamboat and/or Operator applicable to each Facility;
(xi) arrangement of schedules maintenance in accordance with
the Annual Operating Plan, or otherwise in coordination with
Steamboat so as to minimize interruption of service to SPPC or
other purchaser;
(xii) safe operation of each Facility in accordance with
Prudent Utility Practices;
(xiii) arrangement with suppliers and transporters to
supply each Facility with backup electricity, water and sewage
disposal, sufficient to permit the continuous operation of that
Facility in accordance with the Annual Operating Plan;
(xiv) maintenance of an inventory of spare parts and
replacement equipment designated by Steamboat; and
(xv) upon expiration or termination of this Agreement,
Operator shall comply with the terms of section 3.11 hereof, remove
its personnel from each Facility and cooperate with Steamboat in
planning the closing of that Facility or the substitution of a
successor operator, as applicable. The parties shall mutually
agree to a schedule for the orderly removal of Operator from its
operational responsibilities.
3.2 Records. Operator shall maintain in a form acceptable to
Steamboat: (i) operating logs, records and reports relating to the
operation and maintenance of each Facility; and(ii) subject to the
prior approval of a Steamboat and Steamboat's Representative
current revisions of the Design Notebook and the Project Operation
and Maintenance Manual. Such records shall be maintained with
sufficient detail and accuracy as to provide an accurate and
complete history of the operation and maintenance of each Facility
in accordance with generally accepted practices of the electric
utility industry. All records prepared pursuant to this section
3.3 containing information consisting of equipment histories and
control, maintenance and lubrication log shall be retained by
Operator for the term of this Agreement and shall be promptly
delivered to Steamboat upon the expiration or earlier termination
hereof. Further, all records prepared pursuant to this section 3.3
shall be property of Steamboat and shall be maintained at a
location at each Facility designated by Steamboat.
3.3 Annual Operating Plan.
(a) Ninety (90) days prior to the commencement of each
Contract Year (and ninety (90) days prior to each expected
Commencement Date), Operator shall submit an annual operating plan
(the "Annual Operating Plan") for such Contract Year to Steamboat.
The Annual Operating Plan shall include, without limitation,
detailed plans for operating each Facility in accordance with the
Anticipated Performance Standards for such Contract Year. The
Annual Operating Plan shall also include, without limitation,
detailed plans with respect to the following: estimated costs of
Steamboat, scheduled Major Maintenance (including, without
limitation, major overhauls), Routine Repairs and Maintenance,
organization and staffing, training, materials, supplies, parts and
equipment acquisitions, hours of operation, contract services to be
purchased, fuel requirements, purchases of electricity from SPPC,
requirements for water and other consumables, data regarding
expected environmental requirements and performance, permit
renewals, requirements under all Approvals and plans for compliance
therewith, all filing requirements of whatever nature and plans for
compliance therewith, an inventory of spare parts and any other
matters as Steamboat may reasonably require with respect to the
operation and maintenance of each Facility.
(b) Operator shall provide all annual reports required by
Steamboat including the information required by sections 3.3 and
3.8.
(c) Steamboat shall accept or object to the terms of such
Annual Operating Plan within thirty (30) days of receipt thereof.
If Steamboat shall object to the terms of such Annual Operating
Plan, Steamboat and Operator shall attempt in good faith to agree
to revised terms of such Annual Operating Plan, but the terms
proposed by Operator shall be adopted absent agreement.
3.4 Changes in Operation and Maintenance.
(a) Steamboat shall have the right to request Operator to
make reasonable changes in the Facility Operating Standards and the
provisions for the performance thereof by Operator. Operator shall
consent to such requested changes, provided that such changes do
not have a material adverse effect on Operator's ability to perform
its obligations under this Agreement or material increase operator
cost of operations.
(b) Operator shall have the right to request the approval of
Steamboat for reasonable changes in the Facility Operating
Standards if consistence with section 3.2. Operator shall not make
such changes without the prior written approval of Steamboat. Any
such approved changes shall be reflected in the Project Operations
and Maintenance Manual.
(c) Notwithstanding the foregoing provisions of this section
3.5, Operator may take all such action which it considers necessary
or advisable in the event of an emergency or unit outage to
protect: (i) the Facilities and ensure the continued and efficient
operation of the same to the maximum extent possible, (ii) all
members of the Facility Work Force, (iii) all equipment located at
the Facilities Site and (iv) the Facility Tools, all in compliance
with Prudent Utility Practices; provided, however, that when taking
any action in accordance with this subsection (d), Operator shall
notify Steamboat of the nature of the emergency or unit outage and
the action taken by Operator as a result thereof as soon as
possible, and in any event, not later than twenty-four (24) hours
after Operator became aware, or should have become aware, of the
event giving rise to the emergency or unit outage as the case may
be.
3.5 Quarterly Reports.
(a) Operator shall, within ten (10) days after the last day
of each quarter, deliver to Steamboat a performance and costs
report with respect to each month showing achievement of and all
variances from the Annual Operating Plan. The report shall be in
a format acceptable to Steamboat and shall include, without
limitation: (i) the information required by section 3.3, (ii) the
total number of kwh of electricity produced by each Facility and
delivered to SPPC or other customer during such months with a
breakdown detailing deliveries as indicated by Steamboat and
information secured from SPPC or other customer concerning its
future energy requirements, together with details of monthly
parasitic load usage; provided, however, that where complete
collection or production of the foregoing information requires the
prior receipt of information from SPPC or other customer, such
information shall be delivered to Steamboat as soon as possible
after such receipt, although a preliminary report shall be
delivered to Steamboat, based upon Operator's own records during
each month, within the time period stipulated above; (iii) the
total number of kwh of electricity supplied by SPPC or other
supplier and consumed by each Facility during such month as a
result of outages at that Facility, with a breakdown detailing the
time of such consumption; (iv) a schedule of repair and maintenance
activities performed by or on behalf of Operator during such
period; (v) an itemization of any costs incurred during the month
which are outside the scope of the services to be provided by
Operator hereunder; (vi) such other information as Steamboat may
reasonably request to evaluate accomplishment of the Annual
Operating Plan and costs.
3.6 Testing. Operator shall perform such tests as are
generally accepted for the operation of facilities similar to the
Facilities, including:
(a) routine operating tests designed to monitor the safety
and performance of each Facility;
(b) tests designed to monitor the safety and performance of
each Facility following the performance of Major Maintenance;
(c) such other tests as Steamboat or Steamboat's
Representative shall reasonably request; and
(d) ongoing emissions testing to ensure compliance with all
applicable Approvals.
Steamboat has the right to reasonable advance notice of and to
have personnel present during such tests. Operator shall furnish
Steamboat with written results of the tests.
3.7 Maintenance of Qualifying Facility Status. Operator
shall operate each Facility in such a manner that it remains a
"Qualifying Small Power Production Facility" as such term is
defined in section 3(17) of the Federal Power Act, 16 U.S.C. Sec 796
(17) (1978), and part 292 of the regulations of the Federal Energy
Regulatory Commission, 18 C.F.R. 292.
3.8 Notice of Outages. Specific times for planned outages
for maintenance shall be scheduled annually as part of the Annual
Operating Plan so as to coordinate planned outages of each Facility
with other external factors; provided, however, in an emergency,
Operator shall be permitted to request a transmission or substation
clearance.
3.9 Representations and Warranties.
(a) Operator warrants that it will perform (or cause to be
performed) the operation, repair and maintenance services, required
under this Article 3, in a good and workmanlike manner in
accordance with generally accepted practices for the operation and
maintenance of facilities similar to the Facilities. Operator
shall cooperate with Steamboat in Steamboat's enforcement of any
manufacturer's warranty or Contractor guarantees or warranty or the
enforcement by Steamboat of any rights under the Construction
Contract in connection with the Facilities, the equipment
incorporated therein or any maintenance or repair services
performed thereon. Where Operator performs any services in
accordance herewith for which payment is subsequently received by
Steamboat under any manufacturer's warranty or Contractor guarantee
or warranty or as a result of the enforcement by Steamboat of any
rights under the Construction Contract in connection with the
Facilities, the equipment incorporated therein or any maintenance
or repair services performed thereon, the benefit of such payment
(or any part thereof) shall be passed on to Operator to, but not
beyond, the extent necessary to reimburse Operator for the actual
cost of any parts or materials utilized by it in the provision of
such services and the actual cost of any labor of subcontractors to
Operator, retained for the purpose of providing such services;
Operator shall not receive any payments, in addition to those
identified in Article 5, on account of its own labor costs in
providing such services. Operator shall notify Steamboat of all
manufacturer's warranties that Operator intends to obtain with
respect to any services to be performed hereunder. If more
complete warranty protection is available from any such
manufacturer, Operator shall notify Steamboat of such availability
and Steamboat may elect to obtain such additional protection.
(b) All repairs, replacements and other services to be
performed by or on behalf of Operator in accordance with the terms
of this Agreement shall be performed in a competent manner by
qualified personnel in accordance with Prudent Utility Practices.
All replacement equipment installed in the Facilities by or on
behalf of Operator shall be fit for its intended purpose, be of
quality at least equal to the standard in the industry and shall
have warranties enforceable by Steamboat at least comparable to
those standard in the industry.
3.10 Obligations on Termination. Upon termination of this
Agreement at any time and for whatever reason, Operator shall
replenish Steamboat's inventory of Facility Tools (which shall
remain at the Facilities as property of Steamboat), shall assist
(at Steamboat's request) in the training of personnel to provide
for a smooth transition, and shall update the Project Operation and
Maintenance Manuals.
3.11 Payment of Fines, Penalties and Liquidated Damages. If
at any time during the Contract Term any fine or penalty becomes
payable as a result of the failure of either one or both of the
Facilities to meet any environmental law, regulation, order or
permit promulgated thereunder, such fine or penalty shall be the
sole responsibility and at the cost of Operator; provided, however,
that Operator shall only be responsible for fines or penalties
which are the result of action or inaction on the part of Operator.
To the extent that any time during the Contract Term Steamboat
shall incur any liability to SPPC pursuant to the terms of the
Power Purchase Agreement, including, without limitation, liability
for liquidated damages, or any liability to SPPC, in either case
caused by the fault of Operator, Operator shall reimburse Steamboat
for all amounts paid by Steamboat in satisfaction of such
liability.
ARTICLE 4
COVENANTS OF STEAMBOAT
4.1 Steamboat's Obligations. From and after the Commencement
Date, Steamboat shall:
(a) make payments to Operator in accordance with Article 5 of
this Agreement;
(b) obtain and maintain all Steamboat Approvals; provided,
however, that Steamboat shall not be liable for any failure to
secure or maintain a permit which results from failure of either
one or both of the Facilities to meet the Facility Operating
Standards or any negligence or breach by Operator hereunder;
(c) pay all real property taxes, personal property taxes,
sales taxes, uses taxes, excise taxes, fees and premiums of
insurance due in connection with the Facilities; and
(d) procure all materials and services (including all
consumables and all contract services other than the normal
operation and Routine Repair and Maintenance services to be
performed by Operator's Facility Work Force hereunder) to the
extent necessary for the operation, repair and Major Maintenance of
the Facilities.
ARTICLE 5
PAYMENTS
5.1 Operation and Management Costs. Commencing on the
Commencement Date, Steamboat shall pay Operator for the management,
operation, Major Maintenance, Routine Repair and Maintenance, and
other services performed by Operator pursuant to Article 3, in the
following manner:
(a) In full compensation for the management, normal operation
and Routine Repair and Maintenance services to be performed by
Operator pursuant to Article 3 hereof (but excluding the services
described in section 3.1 hereof), a fee ("Operator Fee") to be
negotiated between the Company and the Operator per month during
the first Contract Year. In each subsequent Contract Year the
Operator Fee shall be increased by four percent (4%) of the
Operator Fee paid in the preceding Contract Year.
(b) Operator shall be entitled to an annual management fee
("Management Fee"), in accordance with the provisions of this
section. Payment of the Management Fee shall be based upon
achievement of an annual 5.48 MW average period net output goal as
follows:
Percentage of Average
Period Net Output Goal Achieved Management Fee
95% or less $
96% $
97% $
98% $
99% $
100% $
The Management Fee payable to Operator on the basis of actual
deliveries of energy from the Facilities throughout the relevant
Contract Year failing within the ranges specified above shall be
calculated by making all necessary prorations. Any Management Fee
earned by Operator in accordance with this section shall be payable
by Steamboat upon the delivery to Steamboat of documentation, from
both Operator and SPPC, confirming that the requisite operating
capacities have been achieved, in accordance with the foregoing,
and the acceptance of the same by Steamboat. The Management Fee
amounts contained in the preceding table shall be increased by four
percent (4%) each year, commencing in the second Contract Year.
(c) Steamboat shall reimburse Operator for all of Operator's
actual costs incurred in procuring equipment, materials and labor,
at the request and upon the authority of Steamboat, for the
purposes of performing services not otherwise required to be
provided by Operator hereunder (including, without limitation,
pursuant to section 4.1(d) hereof); provided that Operator shall
not receive any reimbursement on account of its own labor costs in
performing such additional services.
5.2 Incentive Program In any Contract Year in which a
Management Fee has been earned by Operator in accordance with
section 5.2(b), Operator may also earn an incentive fee ("Operator
Bonus") for superior plant operation and maintenance which results
in above proforma electrical production at the Facilities. Payment
of the Operator Bonus shall be based upon annual net salable
electrical output from the Facilities in accordance with the
following:
Annual MWHs Operator Bonus
53,000 or more $
52,000 $
51,000 $
50,000 $
49,000 $
48,000 or less $
The Operator Bonus payable to Operator on the basis of annual MWHs
failing within the ranges specified above shall be calculated by
making all necessary prorations. By way of example only, should
52,125 MWHs of electricity be delivered to SPPC from the Facilities
in any Contract Year, the Operator Bonus payable to Operator,
subject to section 5.6, would be the sum of __________________
($_________), adjusted as necessary in accordance with the last
sentence of this section. Any Operator Bonus to which Operator
shall be entitled in accordance with this section shall be payable
by Steamboat upon the delivery to Steamboat of annual generation
documentation prepared by, and obtained from, SPPC confirming the
annual MWHs produced at the Facilities, and the acceptance of the
same by Steamboat. The Operator Bonus amounts contained in the
preceding table shall be increased by four percent (4%) each year,
commencing in the second Contract Year.
5.3 Payment of Fees and Bonus. Steamboat shall pay the
Operator Fee on the fifth Business Day of the Billing Period in
which such fee commences to accrue pursuant to section 5.2 and on
the fifth Business Day of each and every subsequent Billing Period
(the "Regular Monthly Payment Date"). The first and final
installments of the Operator Fee payable hereunder shall be
prorated if they are for less than a full calendar month.
Steamboat shall pay Operator's actual costs for equipment,
materials and labor pursuant to section 5.1(c) hereof on the fifth
Business Day of the month after the month in which Operator
requests reimbursement of such costs. Steamboat shall pay any
Management Fee and Operator Bonus, when earned in accordance with
this Article.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 Representations and Warranties of Operator. Operator
represents and warrants, as of the date hereof, as follows:
(a) it is a corporation duly organized, validly existing and
in good standing under the laws of the State of Utah and is duly
qualified to do business in and is in good standing in the State of
Nevada.
(b) it has taken all necessary action to authorize the
execution, delivery and performance of its obligations under this
Agreement, which action has not been superseded or modified, and
this Agreement constitutes the legal, valid and binding obligation
of Operator, enforceable in accordance with its terms;
(c) the execution, delivery and performance of this Agreement
do not violate (i) its articles of incorporation or bylaws or any
resolution of its Board of Directors or other committee charged
with the governance of its affairs, (ii) any contract to which it
or any of its Affiliates is a party or (iii) any law, rule,
regulation, order, writ, judgment, injunction, decree or
determination affecting Operator or any of its properties;
(d) it is regularly paying its debts as they become due, has
not filed any petition for relief under the bankruptcy laws of the
United States of America, has not made nor is making an assignment
for the benefit of creditors, initiated nor been the subject of any
proceeding seeking to have a receiver or trustee appointed to
liquidate or manage its affairs, and none of its properties is
subject to the jurisdiction of any bankruptcy court of the United
States of America or any receivership proceeding;
(e) no litigation is pending or, to its knowledge, threatened
which seeks to restrain it from performing its obligations
hereunder or the adverse outcome of which would materially affect
its business or its ability to perform its obligations hereunder;
(f) no authorization or approval or other action by, and no
notice to or filing with, any Government Authority or regulatory
body is required for the due execution, delivery and performance by
Operator of this Agreement which have not been obtained;
(g) it is experienced in the operation of geothermal
generating facilities, has complied with the provisions of all
laws, including environmental laws, respecting the operation of
such facilities and has not been and is not currently subject to
any judgment or settlement of any claim imposing significant
liability on it for noncompliance with law or mismanagement in its
operation of any geothermal generating facility or other electric
power generating facility;
(h) it is familiar with the terms of (i) the Power Purchase
Agreement, all other Project Agreements and all of the standards
incorporated within the Facility Operating Standards and guaranteed
performance levels expected to form the basis of the Initial
Anticipated Performance Standards hereunder and has the resources
necessary to enable it to effectively operate and maintain the
Facilities so as to meet or exceed such Anticipated Performance
Standards; and
(i) Operator is an equal opportunity employer.
6.2 Representations and Warranties of Steamboat. Steamboat
represents and warrants, as of the date hereof, as follows:
(a) it is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Utah
and is duly qualified to do business in and is in good standing in
the State of Nevada;
(b) it has taken all necessary action to authorize the
execution, delivery and performance of its obligations under this
Agreement, which action has not been superseded or modified, and
this Agreement represents the valid and binding obligation of
Steamboat, enforceable in accordance with its terms;
(c) the execution, delivery and performance of this Agreement
do not violate (i) its Operating Agreement or any resolution of its
Members or other committee charged with the governance of its
affairs, (ii) any contract to which it is a party or (iii) any law,
rule, regulation, order, writ, judgment, injunction, decree or
determination affecting Steamboat or any of its properties;
(d) it is regularly paying its debts as they become due, has
not filed any petition for relief under the bankruptcy laws of the
United States of America, has not made nor is making an assignment
for the benefit of creditors, has not initiated nor been the
subject of any proceeding seeking to have a receiver or trustee
appointed to liquidate or manage its affairs, and none of its
properties is subject to the jurisdiction of any bankruptcy court
of the United States of America or any receivership proceeding; and
(e) no litigation is pending or, to its knowledge, threatened
which seeks to restrain the performance of its obligations
hereunder or the adverse outcome of which could materially affect
its business or its ability to perform its obligations hereunder.
ARTICLE 7
DEFAULTS AND REMEDIES
7.1 Defaults by Operator. Each of the following shall
constitute an Event of Default on the part of Operator:
(a) failure of Operator to make any payment to Steamboat when
due in accordance with the terms of this Agreement, and such
failure continues for ten (10) days after receipt of notice of
nonpayment from Steamboat;
(b) any of the representations or warranties of Operator
contained in this Agreement shall prove to be materially false,
incomplete or misleading;
(c) any material failure of Operator to perform its
obligations under this Agreement (to the extent that such failure
is not due to an Uncontrollable Circumstance or the negligence of
or breach by Steamboat) and failure of Operator to cure such
failure for a period of ten (10) days after Operator first has
knowledge of such failure or, if the failure is such that it cannot
be cured within such period of time, such longer period of time as
may be necessary (but not to exceed ninety (90) days) for Operator
to cure such failure, provided that Operator diligently pursues
such action to completion;
(d) (i) ceasing to pay its debts as they become due or making
an arrangement with or for the benefit of its creditors or
consenting to or acquiescing in the appointment of a receiver,
trustee or liquidator for a substantial part of its property, (ii)
a bankruptcy, winding up, reorganization, insolvency, arrangement
or similar proceeding instituted by Operator under the law of any
jurisdiction, in which proceeding Operator is the debtor, (iii) any
such proceeding instituted against Operator under the law of any
jurisdiction, in which proceeding Operator is the debtor, that has
not been stayed or dismissed within forty-five (45) days after its
institution, (iv) any action or answer by Operator approving of,
consenting to, or acquiescing in, any such proceeding, or (v) the
levy of any attachment upon the property of Operator which shall
substantially interfere with its performance hereunder; and
(e) any failure of Operator (other than a material failure as
provided for in subsection (c) above) to perform any of its
obligations under this Agreement (to the extent that such failure
is not due to an Uncontrollable Circumstance or the negligence of
or breach by Steamboat) and failure of Operator to cure such
failure for a period of thirty (30) days after Operator receives
notice thereof from Steamboat or, if such failure cannot be cured
in such period of time, such longer period of time as may be
necessary (but not to exceed ninety (90) days) for Operator to cure
such failure, provided that Operator diligently pursues such action
to completion.
7.2 Remedies for Operator Default. If an Event of Default on
the part of Operator shall occur and be continuing hereunder,
Steamboat may do one or both of the following:
(a) terminate this Agreement and require Operator to (i)
continue to operate the Facilities in accordance with the terms of
this Agreement for a transition period specified by Steamboat which
shall not exceed six (6) months, after which period Operator shall
vacate the Facilities and the Facilities Site and make the
Facilities available to Steamboat, in which case Steamboat may, at
its option, select a replacement operator to operate the
Facilities, and (ii) pay to Steamboat for a period not to exceed
the balance of the then current one (1) year period all losses and
expenses incurred by Steamboat as a direct result of such Operator
Event of Default, including the costs of recruiting and training
the replacement Operator's personnel and the costs and expenses
incurred (including attorneys' fees) in negotiating an operation
and maintenance agreement with such replacement operator; or
(b) exercise all other remedies available to it at law or in
equity including bringing an action for recovery of any amount due
and unpaid by Operator and/or for damages which shall include,
without limitation, all losses and expenses incurred by Steamboat
as a result of such Operator Event of Default and all costs and
expenses reasonably incurred by Steamboat in the exercise of its
remedy (including, without limitation, attorneys' fees).
7.3 Defaults by Steamboat. Each of the following shall
constitute an Event of Default on the part of Steamboat:
(a) failure of Steamboat to make any payment to Operator when
due in accordance with the terms of this Agreement, and such
failure continues for ten (10) days after receipt of notice of
nonpayment from Operator;
(b) any material failure by Steamboat to perform its
obligations under this Agreement which failure materially affects
Operator's ability to operate the Facilities in accordance with the
terms hereof (to the extent that such failure is not due to an
Uncontrollable Circumstance or the negligence of or breach by
Operator hereunder) and failure of Steamboat to remedy such failure
for a period of ten (10) days after it first has knowledge of such
failure or, if the failure is such that it cannot be cured within
such period of time, such longer period of time as may be necessary
(but not to exceed ninety (90) days) for Steamboat to cure such
failure, provided that Steamboat diligently pursues such action to
completion; and
(c) (i) ceasing to pay its debts as they become due or
making an arrangement with or for the benefit of its creditors or
consenting to or acquiescing in the appointment of a receiver,
trustee or liquidator for a substantial part of its property, (ii)
a bankruptcy, winding up, reorganization, insolvency, arrangement
or similar proceeding instituted by Steamboat under the laws of any
jurisdiction, in which proceeding Steamboat is the debtor, (iii)
any such proceeding instituted against Steamboat under the laws of
any jurisdiction, in which proceeding Steamboat is the debtor, that
has not been stayed or dismissed within forty-five (45) days after
its institution, (iv) any action or answer by Steamboat approving
of, consenting to, or acquiescing in any such proceeding or (v) the
levy of any attachment upon the property of Steamboat which shall
substantially interfere with its performance hereunder.
7.4 Remedies for Steamboat Default. If an Event of Default
on the part of Steamboat shall occur and be continuing hereunder,
Operator may do one or both of the following, pursuant to section
7.10 hereof:
(a) terminate this Agreement upon sixty (60) days' prior
written notice to Steamboat, whereupon Operator shall immediately
vacate the Facilities and the Facilities Site at the end of the
sixty (60) day period; or
(b) exercise all remedies available to it at law or in equity
including bringing an action for recovery of any amounts due and
unpaid by Steamboat hereunder.
7.5 Labor Difficulties. In the event of a strike or other
form of labor action by Operator's personnel affecting the
operation of the Facilities, Steamboat shall have the right to
operate the Facilities and to retain such other personnel or agents
as Steamboat in its sole discretion deems necessary or advisable
for such purpose. Steamboat shall have no payment obligations to
Operator during any such occurrence for work performed by
Steamboat, its agents or other personnel.
7.6 Uncontrollable Circumstance. The performance of each
party's respective obligations under this Agreement, other than
failure or delay in payment of money hereunder, shall be excused
during such times and to the extent such performance is prevented
by reason of any Uncontrollable Circumstance.
7.7 Resumption of Performance. The party whose performance
is suspended, prevented or delayed by Uncontrollable Circumstance
shall promptly notify the other party of such occurrence and its
estimated duration, and shall promptly remedy such Uncontrollable
Circumstance if and to the extent reasonably possible and resume
such performance when possible.
7.8 Continuing Uncontrollable Circumstance. If a party is
prevented from substantially performing its obligations under this
Agreement by Uncontrollable Circumstance for a period of ninety
(90) days, the other party may terminate the Agreement without
further liability of either party to the other hereunder by ten
(10) days written notice given any time thereafter prior to
resumption of substantial performance is resumed during that ten
(10) day period.
ARTICLE 8
DISPUTE RESOLUTION
8.1 Arbitration. The parties agree to make a diligent, good
faith attempt to resolve all Disputes. If the parties are unable
to resolve a Dispute within fifteen (15) days after notice of
Dispute from one party to the other, such Dispute shall be
submitted promptly to the designated representatives of each party.
The designated representatives shall meet, in person or by
telephone, not later than seven (7) days after the date of
submission of such Dispute and shall issue a written opinion with
respect to the Dispute within ten (10) days thereafter. Subject to
the provisions of section 8.2, in the event that the designated
representatives cannot resolve the Dispute, such Dispute shall be
submitted to arbitration in accordance with the provisions of this
Article 8.
8.2 Availability of Arbitration. The provisions of the
remainder of this Article 8 shall be available only with respect to
Disputes as to which the parties have attempted but failed to
arrive at resolution by use of the procedures set forth in section
8.1.
8.3 Arbitration Notice.
(a) Filing and Timing of Arbitration Notice. Either party
may initiate arbitration of a Dispute by serving the other party
with an arbitration notice (the "Arbitration Notice") containing a
detailed description of the Dispute, including the amount claimed,
the position of the party requesting arbitration, the remedy sought
and the name of one (1) independent arbitrator.
(b) Response to Arbitration Notice. Within twenty (20) days
after receipt of an Arbitration Notice, the receiving party shall
send a response to the other party containing (i) a detailed
response to the claim giving the position of the party, any
counterclaim and the remedy sought and (ii) an acceptance of the
arbitrator designated in the Arbitration Notice or a designation of
a second arbitrator. In the event that the party receiving the
Arbitration Notice gives notice of a counterclaim, the party
instituting the arbitration shall have ten (10) days to provide a
written detailed response to the counterclaim setting forth that
party's position.
(c) Selection of Arbitrators. If the parties agree to a
single arbitrator, the arbitration shall be decided by such
arbitrator. If the parties each designate an arbitrator, the
arbitrators designated by the parties shall designate a third
arbitrator within ten (10) days after the date of the notice in
response to the Arbitration Notice, and the arbitration shall be
decided by the three (3) arbitrators. In the event the two (2)
arbitrators cannot or do not select a third independent arbitrator
within ten (10) days of such responsive notice, either party may
apply to the American Arbitration Association for the purpose of
appointing any Person listed with the American Arbitration
Association as the third independent arbitrator.
8.4 Procedure.
(a) Hearing. a hearing shall be held by the arbitrator(s)
and a decision of the matter submitted shall be rendered within
thirty (30) days after the hearing or as soon as practicable
thereafter.
(b) Procedural Rules. The arbitration shall be conducted
pursuant to the Commercial Industry Rules of the American
Arbitration Association or such other procedures as may be agreed
by the parties or required by the arbitrators. No party may
present a position or make any argument at the hearing that is not
provided to the other party in writing before the hearing, unless
the arbitrator(s) determines that such position or argument could
not reasonably have been prepared in advance of such hearing.
8.5 Additional Parties. Any arbitration may include any
other Person substantially involved in a common question of fact or
law whose presence is required if complete relief is to be accorded
in arbitration, provided such other Person has agreed to be bound
by such arbitration. The parties shall endeavor to include a
similar arbitration clause in all other contracts that they may
enter into in connection with the services to be performed by
Operator hereunder.
8.6 Enforceability. The foregoing agreement to arbitrate
shall be specifically enforceable and the decision rendered by the
arbitrator(s) shall be final, binding and conclusive on the
parties. Such decision may be confirmed or embodied in any order
or judgment entered upon it in accordance with applicable law in
any court having jurisdiction thereof.
8.7 Venue. The venue of any arbitration or court proceeding
shall be in Salt Lake City, Utah.
8.8 Continuance of Contract Performance. Unless otherwise
provided herein or otherwise agreed in writing, the parties shall
continue to perform under the terms and conditions of this
Agreement during any Dispute.
8.9 Cost. The entire cost of the arbitration, but not
including the parties' attorneys' and consultants' fees, which
shall be borne by the party incurring such fees, shall be allocated
by the arbitrator(s) in their judgment.
ARTICLE 9
INDEMNIFICATION
9.1 Operator Indemnification. Subject to the provisions of
section 11.2, Operator agrees that it shall protect, indemnify, and
hold harmless Steamboat, its respective directors, officials,
officers, partners, members, employees, trustees, agents,
successors and assigns (collectively, the "Indemnified Parties")
from and against all liabilities, damages, claims, demands,
judgments, losses, costs, expenses, suits, actions or proceedings
(including reasonable fees and disbursements or counsel) arising
out of (i) the acts, omissions or other conduct of Operator or any
of its officials, agents or employees, contractors or
subcontractors of any tier in connection with its work pursuant to
this Agreement or (ii) the operation of the Facilities by or under
the direction of Operator; provided, however, that Operator shall
not be required to reimburse or indemnify any Indemnified Party for
any loss or claim to the extent such a loss or claim is due to the
gross negligence or willful misconduct of that Indemnified Party.
9.2 Cooperation Regarding Claims.
(a) If any party hereto shall receive notice or have
knowledge of any claim, demand, action, suit or proceeding that
such party may have reason to believe may result in a claim for
indemnification pursuant to this Article 9, such party shall, as
promptly as possible, give the other party notice thereof. Such
notice shall include, to the extent known to such party: (i) a
reasonably detailed description of the facts and circumstances
relating to such claim, demand, action, suit or proceeding, (ii) a
complete copy o all related notices, pleadings and other papers and
(iii) a description in reasonable detail of the basis for the
potential claim for indemnification; provided, however, that
failure promptly to give notice or to provide such information and
documents shall not relieve any other party of any obligation of
indemnification it may have under this Article 9.
(b) The parties shall consult with each other regarding, and
cooperate in respect of the response to, and the defense of, any
claim, demand, action, suit or proceeding. Operator shall be
entitled to assume the defense or to represent the interests of the
party seeking indemnification in respect of such claim, demand,
action, suit or proceeding which shall include, without limitation,
the right to select legal counsel and other consultants
satisfactory to the indemnified party, appear in proceedings on
behalf of such party and to propose, accept or reject offers of
settlement, all at its sole cost; provided, however, that if the
defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to
it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the
indemnified party shall have the right to select separate counsel
to defend such action on behalf of such indemnified party or
parties at the expense of the indemnifying party.
9.3 Waiver of Subrogation. Operator and Steamboat hereby
waive any and every claim for recovery from the other for any and
all loss or damage to each other resulting from the performance of
this Agreement, to the extent such loss or damage is recovered
under insurance policies described herein.
ARTICLE 10
INSURANCE
10.1 Operator Insurance Coverage. Operator shall secure and
maintain as a minimum during the term of this Agreement the
following insurance forms, at its own cost and expense (except in
the case of the insurance referred to in sections 10.1(d) and
10.1(e), which insurance shall be maintained at the cost and
expense of Steamboat) with deductibles or self-insured retention's
and with companies acceptable to Steamboat:
(a) Worker's Compensation, subject to statutory limits;
(b) Employer's Liability, with a minimum limit of one million
dollars ($1,000,000) per accident including occupational disease;
(c) Comprehensive Business Automobile Liability, in an amount
not less than a combined bodily injury and property damage limit of
five hundred thousand dollars ($500,000) per accident, in
comprehensive form and covering hired, owned and nonowned vehicles;
(d) Comprehensive (Commercial) General Liability Insurance
written on an occurrence basis in an amount equal to at least one
million dollars ($1,000,000) per occurrence, "single limit"
coverage. Such insurance shall include Premises/Operations,
Explosion, Collapse and Underground Hazards, Broad Form
Contractual, Independent Contractors, Products/Completed
Operations, Property Damage, Personal Injury, Cross Liability
(insured versus insured) and Broad Form Named Insured endorsement;
(e) Excess (or Umbrella) Liability insurance written on an
occurrence basis providing excess limits for, and following the
form of, the policies referred to in clauses (b), (c) and (d) above
so as to bring the total of each up to twenty-five million dollars
($25,000,000) per occurrence, and in the annual aggregate where
applicable.
Any insurance carried in accordance with this section 10.1
shall be endorsed to provide that:
(i) With the exception of worker's compensation
coverage, Steamboat shall be additional insureds with the
understanding that any obligation imposed upon Operator (including,
without limitation, the liability to pay premiums, subject to the
preamble to this section 10.1) shall be the sole obligation of
Operator;
(ii) The insurer thereunder waives all rights of
subrogation against Steamboat any right of set off and counterclaim
and any other right to deduction whether by attachment or
otherwise;
(iii) Such insurance shall be primary without right
of contribution of any other insurance carried by Steamboat with
respect to its interests as such in the Facilities; and
(iv) If such insurance is canceled for any reason
whatsoever, including nonpayment of premium, or any substantial
change is made in the coverage which affects the interests of
Steamboat, such cancellation or change shall not be effective as to
Steamboat for thirty (30) days after receipt by Steamboat of
written notice sent by registered mail from each insurer of such
cancellation or change.
Any insurance carried in accordance with section 10.1(c) or 10.1(d)
shall be endorsed to provide that, inasmuch as the policy is
written to cover more than one (1) insured, all terms, conditions,
insuring agreements and endorsements, with the exception of limits
of liability shall operate in the same manner as if there were a
separate policy covering such insured.
10.2 Evidence of Insurance. At the Commencement Date and at
each policy anniversary date thereafter, but not less than
annually, Operator shall furnish Steamboat with approved
certification of all required insurance effected by it in
compliance with this Article 10.
10.3 General Insurance Provisions. The provision of any
insurance obtained pursuant to this Agreement shall not be
construed to limit the liability of either party under this
Agreement.
ARTICLE 11
MISCELLANEOUS
11.1 Assignment. Operator may assign all or any part of its
rights or delegate all or any party of its duties hereunder without
the prior written consent of Steamboat. Steamboat may assign all
or any part of its rights and delegate all or any part of its
duties hereunder without the consent of Operator.
11.2 Consequential Damages. Neither party shall be liable to
the other hereunder for any indirect, consequential, incidental,
punitive or exemplary damages (including, without limitation,
damages on account of lost profits) arising hereunder.
11.3 Effect of Termination. Upon termination of this
Agreement, the obligations of Operator and Steamboat shall cease
except as provided in sections 3.11, 7.2(a), 9.1, 9.2 and 11.4;
provided, however, that Steamboat and Operator shall be entitled to
the amounts to which they would otherwise be entitled as of such
date under Article 5, with such amounts being prorated
approximately according to the portion of the Contract Year which
shall have elapsed prior to the date of termination.
11.4 Overdue Obligations to Bear Interest. All amounts due
hereunder, whether as damages, credits, revenue reimbursements,
that are not paid when due (less any amount which may be offset
against any such amount) shall bear interest, from the tenth day
after such amount is due hereunder, at the Stipulated Rate or, if
lower, the maximum interest rate permitted by law, on the amount
outstanding from time to time, on the basis of a three hundred
sixty-five (365) day year and the actual number of days elapsed.
11.5 Notices. Any notices or communications required or
permitted hereunder shall be in writing and sufficiently given if
delivered in person, sent by certified mail, return receipt
requested, postage prepaid, or sent by courier or delivery service
with charges therefor prepaid, and addressed as follows:
If to Operator: S. B. Geo, Inc.
921 Executive Park Drive, Suite
B
Salt Lake City, UT 84117
If to Steamboat: Steamboat Envirosystems,
L.C.
921 Executive Park Drive, Suite
B
Salt Lake City, UT 84117
Changes in the respective addresses to which such notices may be
directed may be made from time to time by any party by written
notice to the other party; provided, however, that such change of
address notice shall be effective only when received. Notices
shall be deemed to have been given on the date of receipt if
delivered personally, on the third day after posting if transmitted
by mail or on the day after dispatch if sent by courier or
overnight delivery service.
11.6 Waiver. The waiver of any party hereto of any rights
arising out of, or in connection with, a default or other breach or
failure under this Agreement by any other party hereto shall not
operate or be construed to operate as a waiver of any other or
subsequent default, breach, or failure. The making or the
acceptance of a payment by any party hereto with knowledge of the
existence of a default or other breach or failure shall not operate
or be construed to operate as a waiver of such default, breach or
failure, or any other or subsequent default, breach or failure.
11.7 Entire Agreement; Modification. The provisions of this
Agreement, including all Exhibits hereto, the Project Operation
and Maintenance Manual, the Design Notebook and the Annual
Operating Plan for the relevant Contract Year, together with any
other agreements specifically incorporated herein or therein by
reference, shall constitute the entire agreement among the parties
for the operation of the Facilities by Operator, superseding any
prior agreements executed by the parties hereto. Without prejudice
to the final sentence of section 7.10, neither this Agreement nor
any of the terms hereof may be terminated, amended, supplemented,
waived or modified orally, but only by an instrument in writing
signed by the party against which the enforcement of the
termination, amendment, supplement, waiver or modification shall be
sought, and no such termination, amendment, supplement, waiver or
modification shall be effective without the prior written consent
of GE Capital.
11.8 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Utah
applicable to agreements made and to be performed entirely within
that state, including all matters of construction, validity and
performance.
11.9 Counterparts. This Agreement may be executed in more
than one counterpart each of which shall be deemed to be an
original but all of which taken together shall be deemed a single
instrument.
11.10 Severability. In the event that any provision of
this Agreement shall for any reason be determined to be invalid,
illegal, or unenforceable in any respect, the parties hereto shall
attempt in good faith to agree to such amendments, modifications,
or supplements to this Agreement and take such other appropriate
actions as shall, to the maximum extent practicable in light of
such determination, implement and give effect to the intentions of
the parties as reflected herein. The provisions of this Agreement
not so affected shall remain in full force and effect.
11.11 Further Assurances. Operator and Steamboat further
covenant to cooperate with one another in all reasonable respects
necessary to consummate the transactions contemplated by this
Agreement, and each will take all reasonable actions within its
authority to secure cooperation of any necessary third parties.
11.12 Headings. The Table of Contents and the headings of
the Articles and sections of this Agreement are for convenience of
reference only and shall not affect the meanings or construction of
any provision of this Agreement.
11.13 Waiver of Liens. Operator hereby unconditionally
waives any existing or future lien or claim of lien which Operator
may have against the Facilities (or any part thereof) in connection
with performance of its obligations hereunder, under any statute
pertaining to mechanic's liens or any other statute or law, without
regard to whether Operator has been or is paid for the performance
of such obligations.
11.14 Appointment of Facilities Manager. Operator shall
give GE Capital prior written notice of the identity and
qualifications of any Person proposed to be appointed by Operator
to the position of plant manager, or other comparable position, at
the Facilities. GE Capital shall have the right to veto any
proposed appointment, within its discretion. With effect from the
date hereof, Operator appoints Eric Call to the position of, and to
perform all duties of, Facilities Manager in respect of both
Facilities.
11.15 Disposal of Materials and Equipment. Any materials
and/or equipment connected with or located at the Facilities which
is obsolete, surplus or dysfunctional shall be disposed of in
accordance with the instructions of Steamboat.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
STEAMBOAT ENVIROSYSTEMS, L.C.
By: __________________________
Its: __________________________
SB GEO, INC.
By: __________________________
Its: __________________________
EXHIBIT B
FACILITIES ADMINISTRATIVE PROCEDURES
Procedure Title
1. Administrative Procedure Description and Format
2. Review, Approval and Maintenance of Procedures
3. Watchstanding
4. Clearance Procedure
5. Responsibilities and Authorities
6. Records Management
7. Abnormal Tag Procedure
8. Control of Standing Orders
9. Hazardous Waste
10. Generation Dispatching Procedure
11. Receiving, Handling and Storage of Hazardous or Flammable
Materials
12. Work Requests
13. Operations Training Program
14. General Warehousing
15. Housekeeping
16. Transportation and Vehicle Use
17. Accident Prevention Program
18. Safety Meetings
19. Safety Inspections
20. Employee Indoctrination
21. Accident Reporting and Investigation
22. Fire Suppression System Testing
23. Joint Safety Advisory Committee
24. Barriers
25. Generation Outage Report
26. Scheduling Maintenance Outage
27. Accountability for Tools and Equipment
28. Plant Efficiency Testing
29. Timekeeping
30. Safety Glasses Purchase
Policy
31. Fitness of Duty Policy
32. Waste Sampling and Documentation
33. Hazardous Communication Program
34. Purchasing Procedure
35. Employee Benefits
36. Logs and Records
37. Budget and Tracking
38. Security
39. Medical Examination
40. Hearing Conservation
41. General Hazards
42. MSDS
43. Hydrogen Sulfide
44. Arsenic
45. Respirators
46. Decontamination Equipment
47. Welding and Cutting
48. Chlorine
49. Housekeeping
50. Isobutane Handling
51. Special Work Permit
52. Regulated Areas
53. Protective Clothing and Equipment
54. Respiratory Protection
55. Change Room Use
56. Handling Contaminated Tools and Equipment
57. Confined Spaces
58. I. H. Sampling Frequency
59. Noise Sampling
60. Arsenic Sample Collection
61. Airborne Arsenic Sampling
62. O2 and CO2 Sampling
63. Multi Gas Detector
64. Combustible Gases Sampling
65. Hydrogen Sulfide Sampling
EXHIBIT C
FACILITY WORK FORCE
Complete details of the Facility Work Force will be incorporated by
Operator in the Operating Plans pursuant to _____________ of this
Agreement.
EXHIBIT D
OPERATOR'S OPERATING EQUIPMENT
Complete details of Operator's Operating Equipment (in all cases to
be purchased by Steamboat and maintained by Operator) will be
incorporated by Operator in the Operating Plans pursuant to section
3.4 of this Agreement. All Operator's Operating Equipment is, and
upon termination of this Agreement shall remain, the property of
Steamboat.
EXHIBIT E
OPERATOR APPROVALS
1. Certificate, dated ___________________, of the Department of
Commerce of the State of Utah, certifying that Operator is duly
incorporated and in good standing.
2. Certificate, dated __________________, of the Utah State Tax
Commission certifying that Operator has paid all its franchise
taxes.
3. Certificate, dated _________________, of the Secretary of
State of Nevada that Operator is qualified as a foreign corporation
authorized to transact business therein and is in good standing as
a foreign corporation.
EXHIBIT "D"
DESCRIPTION OF ASSETS
All of the assets owned by the Fund or 1-A which relate to
SB-1 or SB-1A (collectively referred to herein as Owners) and are
otherwise described as:
(a) All the Owner's rights, and all Owner's title or
interest, in, to, or under the contracts and agreements listed in
APPENDIX D-2, which is incorporated herein by this reference.
Without limiting the generality of the foregoing, such rights
include but are not limited to, the rights to enforce such
contracts and agreements, to receive any refunds and to control and
enforce any claim(s) related to or pursuant to such contracts and
agreements, to direct performance and exercise options and
elections related to or pursuant to such contracts and agreements,
and any other rights of any description. (All the foregoing items
and types of property are referred to herein as the "Special
Contracts".)
(b) All furnishings, furniture, trade or other fixtures,
office equipment, supplies, and inventory located at or used in
connection with the premises described on APPENDIX D-1 in Washoe
County, Nevada (the "Premises"), or the 4.0 MW (net) and 1.6 MW
(net) geothermal electric generation facilities (the "Facilities")
located on the Premises and belonging to Owners.
(c) All inventories of every nature, wherever located,
including all goods intended for sale or lease or to be furnished
under contracts of service, all raw materials, work in process, and
finished goods, and all supplies, materials, and products of every
nature and description used or useable in connection with the
manufacture, packing, shipping, advertising, selling, leasing, or
furnishing of such goods which are related in any way to the
Facilities (the "Inventories").
(d) All equipment, machinery, motors, chattels, tools, dies,
trucks, automobiles, vehicles, boats, furniture, and fixtures, of
every nature, presently existing or hereafter acquired, wherever
located, and all additions and accessions thereto and substitutions
therefor and all parts, tools, components, and equipment which may
be attached to or which are necessary to the operation or use of
such personal property or fixtures, whether or not the same shall
be deemed to be affixed to real property, and all rights under or
arising out of contracts relating to the foregoing located on the
Premises or related in any way to the Facilities (the "Equipment").
Without limiting the generality of the foregoing, such assets
include, but are not limited to, the Facilities and all equipment
and other property described above associated with it, whether or
not constituting fixtures, located at the Premises.
(e) All general intangibles and intangible rights of every
nature related in any way to the Facilities including, without
limitation, good will, patents, trademarks, licensing agreements,
royalty payments, copyrights, service names, service marks, trade
names, logos, leases, contracts, claims, accounts receivable,
causes of action, computer software, computer service agreements,
governmental or regulatory licenses, permits, or authorizations of
any description, and all other rights of every description.
(f) All books, correspondence, credit files, data, records,
and other documents relating to the types of property described
herein, which are related in any way to the Facilities including,
without limitation, all tapes, cards, runs and other papers and
documents which belong to Owners or any of its agents, employees,
partners, affiliates, or subsidiaries, or any computer service
bureau.
(g) All improvements, buildings, components, and fixtures now
existing, whether or not attached to real property, located at the
Premises or which at any time are used in connection with the
operation of the Facilities, to the full extent of Owner's rights
therein.
(h) The Reserve Account and the Operating Account created
pursuant to Section 2.05 and 2.06 of the Term Loan Agreement dated
December 28, 1989 between Owner and Westinghouse Electric
Corporation.
(i) All technical data in possession of Owner and available
to it, now or hereafter existing with respect to the existence and
use of the natural resources, drilling, pumping and removal and u
se of the natural resources, surveys, reports, research and any
other information received, used or relied on in determining the
feasibility, operation, use and expansion of the natural resources
in connection with the Facilities or the Premises.
(j) As appropriate assets such as accounts receivable,
prepaid insurance, property taxes, etc. will be prorated as of the
date of closing.
(k) Anything to the contrary notwithstanding, nothing herein
will be construed to transfer technical know-how, equipment, tools,
computer programs or assets belonging to SB Geo, Inc.
APPENDIX D-1
All the real property situated in the County of Washoe, State
of Nevada, more particularly described as follows:
PARCEL 1
Beginning at the one-quarter corner between Sections 28 and
29, Township 18, North, Range 20 East, M.D.B.&M., running thence
North 583 feet to the south side of the county highway right of way
then along said right of way South 69o58' West 176.10 feet; thence
South 520 feet; thence East 415.50 feet to the place of beginning;
all of said described land is situated in the Southeast quarter of
the Southeast quarter of the Northeast quarter of Section 29,
Township 18 North, Range 20 East, M.D.B.&M.
PARCEL 2
The East half of the Northeast quarter of the Southeast
quarter of Section 29, Township 18 North, Range 20 East, M.D.B.&M.,
according to the official plat.
EXCEPTING FROM SAID PARCEL 2 the following described real
property, and subject to the condition that Lessee's use of the
remainder of Parcel 2 shall not cause subsidence or in any way
damage Lessor's facilities presently constructed or to be
constructed on the following described real property:
Commencing at the one-quarter corner between Sections 28 and
29, T18N, R20E, MDB&M; thence South 413.40 feet along the East line
of said Section 29; thence West 188.0 feet to the True Point of
Beginning; thence South 77.0 feet; thence east 85.5 feet; thence
South 410.0 feet; thence West 460.0 feet; thence North 272.0 feet;
thence East 289.0 feet; thence South 195.0 feet to the True Point
of Beginning. Containing 6.13 acres, more or less.
PARCEL 3
A portion of the Southeast one-quarter (SE 1/4) of the
Northeast one-quarter (NE 1/4), and a portion of the Southwest
one-quarter (SW 1/4) of the Northeast one-quarter (NE 1/4), all in
Section 29, Township 18 North, Range 20 East, M.D.B.&M., Washoe
County, Nevada, described as follows:
Beginning at a point marked by an iron pin on the South line
of the North one-half (N 1/2) of Section 29, Township 18 North,
Range 20 East, M.D.B.&M., said point further described as being the
Southwest corner of a 5.0 acre tract described by Document No.
174192, recorded in Book 236 of Deeds;
Records of Washoe County, Nevada from which point the East
one-quarter (E 1/4) corner of said Section 29 bears South 89o41'
East 415.5 feet (being East 415.5 according to said deed).
Thence, North 52o07' West 673.26 feet more or less to a point
on the Southerly right of way line of the Mount Rose Highway;
Thence South 57o37'30" West 759.97 feet more or less along the
Southerly right of way line of said highway to a point on the South
line of the North one-half (N 1/2) of said Section 29;
Thence, South 89o41' East 1173.24 feet more or less along the
South line of the North one-half (N 1/2) of said Section 29, to the
point of beginning.
Together with the right to use the easement 45.0 feet in width
described in that certain Easement Agreement dated October 18,
1971, and recorded November 3, 1971, as Document No. 224422 at Book
589, page 533 in the Official Records of Washoe County, Nevada, for
roadway and electric utility purposes over, upon and across the
property described therein and subject to the terms thereof.
APPENDIX D-2
1. Geothermal Resources Leases dated November 18, 1983 (the
"Lease") between Sierra Pacific Power Company, a Nevada corporation
("SPPC") and Geothermal Development Associates, a Nevada
corporation ("GDA"), as amended by a Letter Amendment to Geothermal
Resources Lease dated January 7, 1985 between SPPC and GDA, a
Second Amendment to Geothermal Resources Lease dated October 29,
1988 between SPPC and Owner, and a Third Amendment to Geothermal
Resources Lease dated October 2, 1989 between SPPC and the Fund.
2. Amended Memorandum of Lease dated January 7, 1985 between
SPPC and GDA.
3. Memorandum of Lease, Assignment of Lease and Purchase
Agreement dated December 31, 1985 among GDA, Ormat Systems, Inc.,
a Delaware corporation, now known as Ormat, Inc. ("Ormat"),
Bonneville Pacific Corporation, a Utah corporation ("Bonneville"),
Far West Capital, Inc., a Utah corporation doing business in Nevada
as Far West Resources, Inc. ("FWC"), the Fund and SPPC.
4. Amended Memorandum of Lease dated October 16, 1989
between SPPC and the Fund.
5. Revised and Restated Geothermal Resources Sublease dated
October 9, 1989 between the Fund and FWC.
6. Memorandum of Revised and Restated Geothermal Resources
Sublease dated October 9, 1989 between the Fund and FWC.
7. Consent and Agreement dated November 2, 1988 among the
Fund, FWC and SPPC.
8. Location and Occupancy Agreement dated December 31, 1985
between SPPC and the Fund.
9. Agreement for the Purchase and Sale of Electricity dated
November 18, 1983 between GDA as Seller and SPPC as buyer, as
amended by Amendment to Agreement for Purchase and Sale of
Electricity dated March 6, 1987 between the Fund as seller and SPPC
as buyer.
10. All permits, licenses, agreements and approvals related
to or necessary for the operation of the 4.0 MW (net) and 1.6 MW
(net) geothermal electric generation facilities (the "Facilities")
located on the property subject to the Lease (the "Premises"),
including, without limitation, all building and occupancy permits,
environmental permits and licenses, and Federal Energy Regulatory
Commission certification.
11. All technical data in possession of Owner and available
to it, now or hereafter existing with respect to the existence and
use of the natural resources, drilling, pumping and removal and use
of the natural resources, surveys, reports, research and any other
information received, used or relied on in determining the
feasibility, operation, use and expansion of the natural resources
in connection with the Facilities or the Premises.
Exhibit 2
Tax Opinion
ROBISON, HILL & CO.
January 4, 1996
Far West Capital, Inc.
General Partner
Far West Electric Energy Fund, L.P.
(formerly Far West Hydroelectric Fund Ltd.)
Salt Lake City, Utah
Gentlemen:
You have requested that we provide you with an explanation of the
limited partners, tax consequences of the purchase and sale
agreement between Far West Capital, Inc. (IIFWCII); Far West
Electric Energy Fund, L.P. (the "Fund"); 1-A Enterprises (111-All);
U.S. Envirosystems, Inc. ("USE") and Steamboat Envirosystems, L.C.
("SBEII) . The following is our explanation of the tax consequences
to the limited partners of the Fund.
FEDERAL INCOME TAX CONSEQUENCES
General Considerations
This description of certain federal income tax consequences of the
proposed sale of the assets of the Fund is included solely for the
information of the limited partners. No information is provided
with respect to the consequences of any applicable state, local or
foreign tax laws. Applicability of the minimum tax and other tax
consequences of the proposed sale to a Limited Partner may depend
upon the individual situation of the Partner. Therefore, each
Partner is urged to consult his or her own tax adviser concerning
the specific tax consequences of the proposed sale to such Partner.
The following summary of the major income tax consequences of the
proposed sale is based, with respect to U.S. tax consequences, on
the pertinent provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the applicable regulations promulgated by the
Treasury Department under the Code (the "Regulations"), Each
Partner of the Fund should be aware that the Code, the Regulations
and interpretations are subject to change and that such changes may
be given retroactive effect.
The Revenue Reconciliation Act of 1990 (the 111990 Act") changes
the tax rates imposed upon individuals commencing January 1, 1991.
The new tax law imposes a 36% marginal tax rate plus a surtax
resulting in 39.6% rate rather than a generally imposed 28%
marginal tax bracket on individual taxpayers, increases the
alternative minimum tax rate to 24% (rather than the previous rate
of 21%), and phases out personal exemptions and itemized deductions
for persons with substantial income. The 1990 Act also limits the
tax rate on long-term capital gains to 28% The 1990 Act itself does
not have an effect upon the opinion of the Tax Advisor items (a)
through (g) set forth below, but owners of limited partnership
units should be aware that the changes set forth in the 1990 Act
could have an effect on the rates imposed on the taxpayer.
The Partners in the Fund are variously; corporations, individuals,
partnerships and nominees. Each type of entity may be taxed at
different rates or be taxed based on different sections of the Code
or Regulations. It is not feasible to comment on all of the
federal income tax consequences of the proposed sale. This summary
has been prepared based on the opinion of the Fund's tax advisor,
the Code, and the Regulations as now in effect and the current
judicial and administrative interpretations thereof. There can be
no assurance that the Internal Revenue Service will agree with the
interpretations of the Code and the Regulations set forth below.
The following summary does not include any discussion with respect
to the consequences of the proposed sale under state and local
taxation laws and regulations.
Taxation of Partnership in General
The partnership is not subject to federal income tax, it is an
entity which income or loss "flows through" to partners who are
taxable in their individual capacities on their distributive shares
of partnership taxable income. However, the partnership is a tax
reporting entity that must make an annual return of partnership
income or loss. Each partner is required to treat partnership
items on its return in a manner consistent with the treatment of
such items on the partnership return and may be penalized for
intentional disregard of the consistency requirement (Code Sec.
6222). The consistency requirement may be waived if the partner
files a statement (Form 8082) identifying the inconsistency or
shows that it resulted from an incorrect schedule furnished by the
partnership.
A partner's distributive share of income, gain, losses, deductions
or credits is generally determined by the partnership agreement.
Allocations of any partnership item under the partnership agreement
must have substantial economic effect. If a partnership agreement
does not provide for the allocation of partnership items or if
partnership allocations lack substantial economic effect, the
partner's distributive share is determined in accordance with its
interest in the partnership (Code Sec. 704(a) and (b); Reg.
1.704-1(b)).
In determining tax, each partner must account separately for its
distributive share of the following partnership items (Code Sec.
702): (1) short-term capital gains and losses, (2) long-term
capital gains and losses, (3) gains and losses from sales or
exchanges of property used in a trade or business or subject to
involuntary conversion, (4) charitable contributions, (5) dividends
for which there is a dividends-received deduction, (6) taxes paid
or accrued to foreign countries and to U.S. possessions, (7)
taxable income or loss, exclusive of items requiring separate
computation, and (8) other items required to be stated separately
either by Reg. 1.702-1 or because separate statement could affect
the income tax liability of any partner, including the following:
recovery of bad debts, prior taxes, and delinquency amounts,
deductible investment expenses, intangible drilling and development
costs, alternative minimum tax adjustments and tax preference
items, investment tax credit recapture, recapture of mining
exploration expenditures, cost of recovery property being currently
expensed, investment interest, any items subject to a special
allocation under the partnership agreement.
Most elections affecting the computation of income derived from a
partnership must be made by the partnership. Thus, elections as to
methods of accounting, methods of computing depreciation, the
nonuse of the installment sales provision, the option to expense
intangible drilling and development costs, etc. , must be made by
the partnership and must apply to all partners, insofar as the
partnership transactions are concerned (Reg. 1.703i(b)).
Individual partners must make the elections to (1) use as a credit
or as a deduction their distributive shares of foreign taxes of the
partnership, (2) deduct or capitalize their shares of the
partnership's mining exploration expenditures, and (3) reduce basis
in connection with discharge of indebtedness under Code Sec. 108.
In an administrative or judicial proceeding concerning partnership
items, the determination of the tax treatment of partnership items
is made at the partnership level in a single administrative
partnership proceeding, rather than in separate proceedings with
the partners. Special rules govern proceedings that must be
conducted at the partnership level for the assessment and
collection of tax deficiencies or for tax refunds arising out of
the partner's distributive shares of income, deductions, credits,
etc. (Code Secs. 6221-6233).
A partner is generally not taxed on distribution of cash or
property received from the partnership, except to the extent that
any money distributed exceeds the partner's adjusted basis in its
partnership interest immediately before the distribution (Code
Section 706(a)).
Each partner generally must account for its distributive share of
partnership taxable income in computing its income tax; thus,
the basis in its partnership interest is increased by its
distributive share of partnership taxable income. It is this basis
increase that generally allows distributions of taxable income to
be made without recognition of gain, since the basis increase
generally offsets corresponding decreases in basis that result from
such distributions (Code Secs. 705 and 731(a)).
Deductibility of Partnership Losses
The benefit of the net operating loss deduction is not allowed to
the partnership, but only to the partners. For purposes of
determining its individual net operating loss, each partner takes
into account its distributive share of income, gain, losses,
deductions, or credits of the partnership as if each item were
realized directly from the source from which realized by the
partnership, or incurred in the same manner as incurred by the
partnership (Reg. 1.702-2).
There are three commonly encountered limitations on a partner's
ability to take into account its share of a partnership's loss in
computing its individual tax liability. A partner is entitled to
deduct its share of the partnership's loss only after satisfying
all three of these rules. First, since the adoption of the 1954
Code through the present, the partnership taxation rules have
limited a partner's deductible share of losses to its basis in its
partnership interest. Second, since 1976, the at-risk rules have
limited a partner's deduction for its share of losses to the amount
it is considered to be economically at-risk in the venture. Third,
beginning with the effective date of the Tax reform Act of 1986, if
a partner's share of the partnership's losses are considered
"passive losses,,' the partner must combine them with its passive
losses from other sources and is allowed to deduct the total only
to the extent of its passive income from all sources.
The amount of partnership loss (including capital loss) that may be
allowed to a partner is limited to the amount of the adjusted basis
(before reduction by the current year's loss) of its interest in
the partnership at the end of the partnership tax year in which the
loss occurred. The disallowed loss is carried forward to and may
be deducted by the partner in subsequent partnership tax years (to
the extent that the basis exceeds zero before deducting the loss)
(Reg. 1.704-1(d)).
Partners are subject to the at-risk rules. The amount of losses
deductible by a partner is limited to the amounts at risk in the
activity, which does not include any portion of a partnership
liability for which the partner has no personal liability. The at
risk loss limitation rules are applied before taking into account
the basis limitation for partners, losses or computing any passive
activity loss for the year.
The passive activity loss limitations apply to the partner level to
each partner's share of any loss or credit attributable to a
passive activity of the partnership. A partnership must report
separately a partner's share of income or losses and credits from
each (1) trade or business activity, (2) rental real estate
activity, and (3) rental activity other than rental real estate.
A partnership's portfolio income, which is excluded from passive
income, must also be separately reported.
Generally, a passive activity of a partner is (1) a trade or
business activity in which the partner does not materially
participate, or (2) any rental activity. Except as provided in
Temporary Reg. 1.469-ST(e)(2), an interest in an activity as a
limited partner in a limited partnership is not one in which the
partner materially participates. A limited partnership interest is
thus considered to be an interest in a passive activity subject to
the limits on passive losses. Thus, in any one taxable year,
passive activity expenses can be deducted only to the extent of the
taxpayer's passive activity income.
Losses that are disallowed due to any of these three limitations
are deductible in the year of the termination of a partnership
interest.
Capital Gain or Loss
Although the sale of a partnership interest generally gives rise to
capital gain or loss, amounts received by a partner allocable to
its share of unrealized receivables or substantially appreciated
inventory constitute ordinary income or loss whether the gain
results from a sale to nonpartners or to other partners. The term
"unrealized receivables" includes any rights to income that have
not been included in gross income under the method of accounting
employed by the partnership (Reg. 1.751-1(c)). For the most part,
the classification relates to cash-basis partnerships and in the
usual case, the term does not apply to an accrual-basis partnership
because it has already included unrealized receivables in gross
income. The term "unrealized receivable" also includes certain
property to the extent of the amount of gain that would have been
realized and treated as ordinary income (under Code Secs. 617, 995,
1245, 1248, 1250-1254) by the partnership if it had sold the
property at its fair market value at the time of the sale or
exchange of the partnership being considered.
A decrease in a partner's share of partnership liabilities is
treated as a distribution of money by the partnership, which
decreases the distributes partner's basis in its partnership
interest (but not below zero) (Code Secs. 733 and 752(b)). When a
partner's basis has been reduced to zero, such "deemed
distributions" can result in the recognition of gain.
Partners, shares of partnership liabilities (and corresponding
allocations of basis) depend upon whether the liability is
"recourse" or "nonrecourse.11 In addition, separate rules apply in
the case of nonrecourse debts of the partnership if a partner is
the lender or has guaranteed repayment of the debt. A limited
partner cannot be allocated recourse liabilities in excess of its
capital contribution unless it has agreed to restore any def icit
in its capital account. Article VIII of the partnership agreement
states that the "Units are not subject to assessment. 11
Nonrecourse liabilities are those for which no partner bears the
economic risk of loss.
The amount realized from a sale or other disposition of property
includes the amount of liabilities from which the transferor is
discharged as a result of the sale or disposition except:
(1) The amount realized on a sale or other disposition of property
that secures a recourse liability does not include amounts
that are income from the discharge of indebtedness under Code Sec
61(a)(12), or
(2) In the case of a liability incurred by reason of the
acquisition of the property, the liability is not included in the
amount realized to the extent that such liability was not taken
into account in determining the transferor's basis for such
property (Reg. 1.1001-2(a)).
Cancellation of Indebtedness
Cancellation of indebtedness usually results in taxable income and
increases earnings and profits. However, where the creditor's
adjusted basis in the debt is at least equal to the principal
amount of the debt forgiven, the forgiveness of debt by a creditor
shareholder may be a capital contribution that doesn't increase
earnings and profits. But, in the absence of evidence indicating
an intent to make a capital contribution, the cancellation of
indebtedness increases earnings and profits (Rev. RU1. 58-546).
Termination of Partnership
The tax year of the partnership closes if there has been a
termination of the partnership. Article XVII (ii) of the
Certificate and Agreement of Limited Partnership states that the
sale of substantially all the assets of the Partnership shall work
an immediate dissolution of the Partnership. Article XVIII states
that the "holders of the Units shall continue to share profits and
or losses during the period of liquidation in the same proportion
as before the dissolution. Upon the completion of the liquidation
of the partnership, the partnership must file a short-period return
for the resulting short tax year. Code Section 708 provides that
termination occurs only if the business activities of the
partnership are no longer carried on by any of the partners or that
at least one-half of the total interest in partnership capital and
profits is sold within a 12-month period. Such sale or exchange
includes a sale or exchange to another member of the partnership
and the exchange of the interest in one partnership for an interest
in another partnership (or limited liability company). A
partnership is considered a continuing entity and observes its
regular tax year unless it is terminated under the rules above,
accordingly, the dissolution or liquidation of the partnership
under state law does not necessarily cause a partnership's tax year
to close (Reg. 1.706-1(c)).
Effect of Liquidation
In the case of a liquidating partnership, a relatively simple set
of rules governs the distributee's gain, loss, and basis in
distributed assets, if there are no disproportionate distributions
of unrealized receivables and substantially appreciated inventory
items. There are no tax consequences to the partnership.
If unrealized receivables and substantially appreciated inventory
are not distributed, a liquidation results in gain only to the
extent that a partner receives money in excess of its partnership
interest's adjusted basis (Code Sec. 731(a)). Liquidating
distributions always involve a complete termination of
liability for any share of partnership debt because the
partnership
ceases to exist. The termination of partnership requires that
decreases in the partner's share of partnership liabilities be
netted with any liabilities the partner takes over from the
partnership (Reg. 1.752-1(f)). Net debt relief is treated as
additional money received (Code Sec. 752 (b) and Reg. 1.752-1(f)).
If a partner takes over only its pro rata share of the partnership
debt, there will be no deemed cash receipt or payment.
A loss may be recognized when only one or more of three types of
assets, and no other property, are distributed in the
liquidation. If the liquidated partner receives only cash,
inventory, and/or unrealized receivables and their bases to the
partnership are less than its basis in its partnership interest, it
is allowed to deduct the difference as a capital loss (Code Sec.
731(a)(2)).
The sale or exchange of a partnership interest is generally treated
as the sale of a single capital asset and not as the sale of a
partner's proportionate interest in each asset of the partnership
(Code Sec. 741). Capital gain or loss, as measured by the
difference between the amount realized and the adjusted basis of
the partnership interest, will result from the sale. If the
selling partner has a basis of zero and a deficit-capital account,
it also realizes additional capital gain to the extent that it has
been relieved of its obligation to repay the deficit.
AS is the situation with most sales of property, the amount
realized by the transferor partner equals the amount of cash and
the fair market value of any property received by it plus debt
relief (Regs. 1.1001-1(a)(1) and 1.1001-2(a)(1)). In the case of
sales of partnership interests, debt relief takes the form of a
decreased share of partnership liabilities (Reg. 1.10012 (a) (4)
(v) ) . An increase or a decrease in a partner Is share of the
partnership's liabilities is treated as a deemed money contribution
and distribution, respectively (Code Secs. 752(a) and 752(b)).
Deemed money contributions increase a partner's basis in its
interest (Code Sec. 722). Deemed distributions decrease its basis
in its interest to zero. Excess deemed distributions, ie., those
made after a partner's basis in its partnership interest has been
reduced to zero, are treated as taxable gain (Code Secs. 733(l) and
731(a)(1)). The limited partners of the Fund are not liable for
any of the partnership debt beyond the amount of their capital
account. Since the limited partners have negative capital accounts
none of the debt relief (if any) is attributable to the limited
partners.
Partner's Cost Basis
A partner's basis in its partnership interest must be adjusted
periodically to ensure that the partnership remains a conduit for
tax purposes. Income and deductions are to be taxed only once
(Code Sec. 701). Tax-exempt income, nondeductible expenditures,
and distributions made from previously taxed income and
contributions are not to be taken into account in computing tax
liability at all.
The transferor partner's adjusted basis in its partnership interest
at the time of the transfer is the sum of its basis on the day it
acquired its interest plus adjustments reflecting operations during
its holding period. The calculation of a partner's initial basis
varies according to whether it acquired its interest through a
contribution to the partnership or by transfer from another partner
(Code Sec. 742 and Reg.1.742-1). A partner has to determine the
adjusted basis of its interest in a partnership whenever it is
necessary for the determination of its tax liability, or that of
any other person. Ordinarily the determination is made as of the
end of the partnership's taxable year. However, where there has
been a sale of all or part of a partnership interest or a
liquidation of a partner's entire interest, the adjusted basis is
determined as of the date of sale or exchange or liquidation (Reg.
1.705-1(a)(1)).
The original basis of a partner's interest is the amount of money
and the adjusted basis of property contributed to a partnership
when the partnership interest is acquired (Code Secs. 705(a) and
722). This basis is increased by any further capital contributions
and by the sum of the partner's distributive share of:
(1) taxable income of the partnership,
(2) tax-exempt receipts of the partnership, and
(3) the excess of depletion deductions over basis of the
depletable property.
Code Sec. 705(a)(1) and Reg. 1.705-1(a)(2).
The basis is decreased (but not below zero) by distributions from
the partnership as provided under Code Sec. 733, and by the sum of
the partner's distributive share of:
(1) partnership losses, including capital losses (Code Sec.
705(a)(2)(A)),
(2) nondeductible partnership expenditures which are not capital
expenditures (Code Sec. 705 (a) (2) and Reg. 1. 705l(a)(3)),
(3) the amount of the partner's deduction for depletion for
partnership oil and gas property to the extent the deduction does
not exceed the partner's share of the adjusted basis of the
property (Code Sec. 705(a)(3) and Reg. 1.705-1(a)(4), and
(4) loss from the disposition by the partnership of a domestic oil
or gas property (Reg. 1.705-1(a)(5)).
in all cases when downward adjustments to basis are required, the
statute expressly provides that basis is not to be reduced below
zero (Code Sec. 705(b)). A basis in a partnership interest never
has a value below zero. While a negative capital account is very
common, a negative basis is impossible.
Calculation of Individual Partner Per Unit Cost Basis
Based on the information provided from the Schedule K of Form 1065
as was filed by the Partnership, a per unit basis of original
issued units would be:
10,000 units issued at $1,000 per unit.
Cash Sched.K Cumulative Cum-
Distri- Income Suspended Culative
bution (Loss) Loss Basis
Initial
Purchase $ - $ - $ - $1,000
1985
(Business
credit
$279) - (28) - 972
1986
(Business
credit
$20) - (368) - 604
1987 31 (374) - 199
1988 22 (420) (243) -
1989 - (366) (609) -
1990 - (297) (906) -
1991 - (6) (912) -
1992 - 325 (587) -
1993 - 125 (462) -
1994 - 58 (404) -
1995 (Projected
without Sale
of SB-1) - 114 (290) -
Projected Sale of
SB-1 44 559 - 225
The preceding table assumes that the limited partner is an
individual and was unable to deduct some of the losses at the times
they were incurred either because of the basis limitations or the
passive loss limitations. In summary, assuming that the partner
was able to utilize the Business credit, the partner should have
received a tax benefit of $299 for the Business credit, received
non-taxable cash distributions of $97, will have ordinary income of
$269 (net of suspended losses and assuming that the proposed sale
is completed during 1995) and will be able to deduct the remaining
basis as a capital loss of $225. Each limited partner's situation
may vary from the above assumptions, accordingly, partners are
encouraged to consult their own tax advisers.
The Partnership elected to reduce basis of property for which the
energy credit was claimed by 50% of the energy credit (Code Sec.
50). The reduced basis was used in determining depreciation and
gain on the disposition of property. In the event that a partner
did not realize a tax benefit from the investment credit for which
a downward basis adjustment was made, a deduction is allowed under
Code Sec. 196 to the taxpayer for 50% of the unused energy credit
attributable to the basis reduction.
The Code also imposes an alternative minimum tax and excise taxes
on certain types of transactions. Applicability of such taxes is
usually controlled, in whole or part, by other matters unrelated to
the Proposed Sale or by unique characteristics of the particular
taxpayer. Accordingly, partners are encouraged to consult their
tax advisers if they are or might be subject to such taxes.
Tax Shelter Consideration
The IRS may determine that the partnership is a tax shelter. Tax
shelters are treated as shams where the two-pronged test shows
that: (a) the transaction was entered into primarily for tax
avoidance, and (b) there was no reasonable possibility of profit
from the transaction, i.e., there was no economic substance.
Where a transaction contains the characteristics listed below, The
Tax Court treats the transaction as one entered into primarily, if
not solely, for tax avoidance under test (a), above and refers to
it as a "generic" tax shelter. Moreover, a "generic tax shelter is
treated as a sham where it is also found to have had no economic
substance (test (b), above) other than tax benefits (Rose, James,
(1987) 88 TC 386, affd on this issue (1989, CA6) 63 AFTR 2d 89-776,
868 F2d 851, 89-1 USTC 9191). The Tax Court's enumerated
characteristics common to "generic" tax shelters are: (1) tax
benefits are the focus of the promotional material, (2) investors
do not negotiate price, (3) assets involved consist of "rights"
difficult to value and substantially overvalued in relation to
tangible property involved, (4) the tangible property is created or
acquired for little cost shortly before the transactions, and (5)
most of the consideration is deferred by promissory notes,
nonrecourse in form or substance. For purposes of the tax shelter
rule, the requisite profit motive is determined at the partnership
level, as reflected by the motives and objectives of the promoters
and general partners of the partnership. Factors examined include:
experience and knowledge of the promoter, whether tax benefits are
the focus of marketing, whether advanced royalty payments are
disproportionate, whether reasonable efforts are made to engage in
the activity, and whether the property that was the basis for the
venture was overvalued. As of now the only significant tax benefit
for the limited partners is approximately $300 business investment
tax credit (per unit) which was available to investors during 1985
and 1986. Due to at-risk limitations it is possible that many of
the limited partners were not able to use the business tax credit.
It would appear that there have not been significant tax benefits
generated by the partnership.
opinion of Tax Advisor
In our opinion if the sale occurs as set forth in the Purchase and
Sale Agreement and as described herein, it is more likely than not:
(a) The proposed sale will result in dissolution of the
partnership under Article XVII (ii) of the Certificate and
Agreement of Limited Partnership of Far West Hydroelectric Fund
Ltd.
(b) Any cash received by the Limited Partners of the Fund will be
treated as having been received in redemption of the limited
partner units so cashed out, and will result in taxable gain or
loss. The amount of such gain or loss will be the difference
between the cash received and the basis of the units surrendered in
exchange thereof.
(c) The partnership is not a "generic" tax shelter under the
two-pronged test and loss if any will be allowed.
(d) The $100,000 cancellation of indebtedness from First Security
Bank will result in taxable income and increase earnings and
profits to the Partnership.
(e) The debt to FWC will be transferred to equity in the new
entity and is not forgiveness of debt and should not be recognized
as a distribution of money by the partnership to the limited
partners.
(f) Partners that did not receive tax benefits from the
energy tax credit are entitled to 50% of the basis
reduction as a
credit on their income tax return.
(g) Because the Partnership records income on an accrual
basis for tax purposes there will not be any unrealized
receivables
or appreciated inventory sold that should be recognized as ordinary
income.
An opinion of a tax practitioner is not binding upon the IRS or the
Courts. It is uncertain whether the IRS would issue a
favorable ruling on the Proposed Sale. An opinion of Tax Advisors
does not provide the same degree of assurance with respect to the
consequences of a transaction as would a private letter ruling from
the IRS. The Tax Advisor's opinion is subject to a number of
assumptions and qualifications that are critical to the opinion and
is based on certain factual assumptions, and upon certain
representations and assurances made by FWC, the Fund, USE and SBE.
if such factual information or the representations, warranties, or
assumptions are not true when made or subsequently change, the Tax
Advisor's opinion may be inapplicable. Robison, Hill & Co. has
expressed no opinion concerning the consequences of the proposed
sale on the Limited Partners under applicable state or local income
tax laws.
The preceding is intended to be only a summary of income tax
consequences relating to the Proposed Sale. LIMITED PARTNERS OF
FAR WEST ELECTRIC ENERGY FUND, L.P. SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO ISSUES NOT COVERED BY THE OPINION OR
REGARDING THEIR OWN PARTICULAR CIRCUMSTANCES.
Respectfully submitted,
Robison Hill & Company
Public Accountants
Salt Lake City, Utah
EXHIBIT 3
FAIRNESS OPINION
CORPORATE CAPITAL
December 12, 1995 CONSULTANTS INC.
1185 AVENUE OF THE AMERICAS
18th FLOOR
NEW YORK, NEW YORK 10036-2601
TEL: (212) 843-0352
Far West Electric Energy Fund, L.P.
FAX: (212) 843-0574
c/o Far West Capital, Inc., General Partner 921 Executive Park
Drive, Suite "B" Salt Lake City, Utah 84117
Gentlemen:
You have requested our opinion as to the fairness to the Limited
Partners, (other than Far West Capital, Inc. ('FWC")), of Far West
Electric Energy Fund, L.P. (the "Fund") of the $1,250,000 proposed
to be paid by U.S. Envirosystems, Inc. C'USE") for the geothermal
plant known as SB-1 and certain other assets of the Fund after the
date of closing, pursuant to the draft Purchase and Sale Agreement
dated December 7, 1995.
Corporate Capital Consultants, Inc. ('CCC") is a specialist
investment banking firm which, since its inception in 1974,
performs services in the area of financial consulting, corporate
valuation and fairness opinions, and mergers and acquisitions. In
the valuation area, CCC has provided corporate valuations, often in
conjunction with pending purchase offers, plans to sell or
recapitalizations, for both public and privately-held companies in
a broad range of industries. In the case of public companies, CCC
has furnished several fairness opinions with a number of tender
offers, going-private transactions, and the purchase of minority
interests.
In connection with this opinion, we have reviewed, among other
things, a draft of the Purchase and Sale Agreement with attendant
documents; Annual Reports on Form 10K of the Fund for the five
years ended December 31, 1994, as well as tax returns for the same
period; certain Quarterly Reports on Form 10-Q of the Fund; certain
internal financial analyses and forecasts for the Fund prepared by
the management of the Fund; and certain internal financial analyses
and forecasts for the Fund if operated by USE as prepared by the
management of USE, We have also reviewed other documents such as
the current Power Purchase Agreement with Sierra Pacific Power,
loan documents, royalty agreements, draft to the proposed USE SB-2,
and a two-year old appraisal of the plant. We also have held
discussions with members of the senior management of the Fund and
USE regarding the past and current business operations, financial
condition and future prospects of the SB-1 plant and the Fund. We
have held discussions with the senior lender, Westinghouse Credit
Corporation, and Sierra Pacific Power. We have reviewed
information on certain other companies in the independent power
production industry specifically and in other industries generally
and considered such other information, held such other discussions
and performed such other studies and analyses as we considered
appropriate.
2 -
Far West Electric Energy Fund, L.P.
December 12,1995
We have relied without independent verification upon the accuracy
and completeness of all of the financial information and other
information reviewed by us for purposes of this opinion. In
addition, we have not made an independent evaluation or appraisal
of the assets and liabilities of the plant or the Fund.
Based upon and subject to the foregoing an d such other matters as
we considered relevant, we are of the opinion that, as of December
12, 1995, the consideration to be received by the Limited Partners
(other than FWC) are fair to those Limited Partners from a
financial point of view.
Very truly yours,
CORPORATE CAPITAL CONSULTANTS, INC.
Carl A. Goldman
President
EXHIBIT 4
FORM 10-QSB FOR QUARTER ENDED
SEPTEMBER 30,1995
FORM 10-QSB
[As last amended in Release No. 34-32231, April 28, 1993, 58 F.R.
26509]
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from ________________ to ______________
Commission file number 0-14452
Far West Electric Energy Fund, L.P.
(Exact name of small business issuer as specified in its charter)
Delaware 87-0414725
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification
No.)
921 Executive Park Drive, Suite B, Salt Lake City, Utah 84117
(Address of principal executive offices)
(801) 268-4444
Issuer's telephone number
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
FAR WEST ELECTRIC ENERGY FUND, L.P.
Balance Sheets
December 31, 1994 and September 30, 1995
(Unaudited)
Assets 09/30/95 12/31/94
Utility plant:
Plant in service $15,998,000 $ 18,716,000
Equipment 590,000 335,000
Construction in progress 118,000 118,000
Accumulated depreciation (5,226,000) (6,010,000)
Net utility plant 11,480,000 13,159,000
Restricted Marketable Securities 1,012,000 1,145,000
Other assets 110,000 124,000
Current assets:
Cash 193,000 278,000
Receivables - Trade 260,000 437,000
Receivables - Other --- 6,000
Prepaid Insurance 16,000 12,000
Total current assets 469,000 733,000
Total assets $ 13,071,000 $ 15,161,000
The accompanying notes are an integral
part of these financial statements.
<PAGE>
FAR WEST ELECTRIC ENERGY FUND, L.P.
Balance Sheets
December 31, 1994 and September 30, 1995
(Unaudited)
Partners' Capital and Liabilities 09/30/95 12/31/94
Partners' capital $ 4,667,000 $ 4,857,000
Other liabilities --- 150,000
Long-term debt:
Long-term debt, excluding
current portion 537,000 0
Notes payable - Related party 203,000 230,000
Partners' capital and Long-term
Liabilities 5,407,000 5,237,000
Current liabilities:
Current portion - Long-term debt 4,746,000 7,140,000
Note payable - Related party 1,069,000 1,043,000
Payable - Related party 546,000 414,000
Accrued Liabilities
Operations 289,000 495,000
Royalties 76,000 220,000
Interest 938,000 612,000
Total current liabilities 7,664,000 9,924,000
Total partners' capital
and liabilities $ 13,071,000 $15,161,000
The accompanying notes are an integral
part of these financial statements
FAR WEST ELECTRIC ENERGY FUND, L.P.
Statements of Operations
(Unaudited)
For The For The For The For The
3 Months 3 Months 9 Months 9 Months
Ended Ended Ended Ended
09/30/95 09/30/94 09/30/95 09/30/94
Revenues
Electric power sales $ 494,000 $463,000 $1,794,000 1,882,000
(note 8)
Pumping charges 22,000 20,000 47,000 45,000
Royalty income 22,000 28,000 63,000 63,000
Interest income 18,000 14,000 50,000 31,000
Other income 0 0 0 7,000
Total Revenues 556,000 525,000 1,954,000 2,028,000
Expenses
Interest 143,000 237,000 924,000 665,000
Depreciation 158,000 160,000 462,000 480,000
Royalty 82,000 72,000 290,000 291,000
Professional Services 1,000 4,000 42,000 43,000
Administrative services -
general partner 13,000 8,000 95,000 73,000
Amortization 4,000 4,000 13,000 13,000
Insurance 11,000 14,000 34,000 42,000
Maintenance 164,000 129,000 443,000 366,000
Travel 7,000 0 7,000 0
Taxes 1,000 0 1,000 0
Other 6,000 3,000 21,000 18,000
Total Expenses 590,000 631,000 2,332,000 1,991,000
Net Income (Loss)
Before Gain on Sale (34,000) (106,000) (378,000) 37,000
Gain on Sale of Crystal
Springs Project 0 0 188,000 0
Net Income $ (34,000) $(106,000) $(190,000) $ 37,000
The accompanying notes are an integral
part of these financial statements.
FAR WEST ELECTRIC ENERGY FUND, L.P.
Statements of Cash Flows
For the Nine Months Ended September 30, 1995
(Unaudited)
09/30/95
Cash flows from operating activities:
Net income (loss) $ (190,000)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 475,000
Change in assets and liabilities
Decrease (increase) in receivables 183,000
Decrease (increase) in prepaid insurance (4,000)
Decrease (increase) in other assets 14,000
Increase (decrease) in accounts
payable and accrued expenses (55,000)
Increase (decrease) in amount due to
general partner 26,000
Total Adjustments 639,000
Net cash provided by (used in)
operating activities 449,000
Cash flows from investing activities:
Purchase of plant and equipment (255,000)
Disposal of plant and equipment 1,472,000
Net cash provided by (used in)
investing activities 1,217,000
Cash flows from financing activities:
Payment of principal on long-term debt (2,421,000)
Issuance of Long-term debt 537,000
Net cash provided by (used in)
financing activities (1,884,000)
Increase (decrease) in cash (218,000)
Cash at beginning of period 1,423,000
Cash and Cash Equivalents
at the end of the period $1,205,000
Supplemental disclosures of cash flow information:
Cash paid during the period of interest $ 205,000
The accompanying notes are an integral
part of these financial statements.
<PAGE>
Far West Electric Energy Fund, L.P.
September 30, 1995
Notes to Financial Statements
1. Interim Reporting
The accompanying unaudited financial statements have been pre-
pared in accordance with generally accepted accounting principles
and with Form 10-QSB requirements. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. Operating results for
the nine month period ended September 30, 1995, are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1995. For further information, refer to the financial
statements and footnotes thereto included in the Partnership's
annual report on Form 10-K for the year ended December 31, 1994.
2. Related Party Transactions
Under the terms of the Partnership Agreement, the General
Partner is allowed reimbursements of expenses incurred to manage
the Partnership. For the nine month periods ended September 30,
1994 and 1995, the Partnership accrued, but did not pay, fees and
reimbursements to the general partner of $73,000 and $95,000
respectively.
3. Long-term Debt
In January 1990, the Partnership received the proceeds of an
$8,000,000 non-recourse refinancing of its Steamboat Springs
Project ("Project" or "Steamboat Springs Plant") with Westinghouse
Credit Corporation ("WCC"). The WCC loan, which is secured by the
Project assets including the resource lease, plant and equipment
and related contract rights, bears interest at 11.5% per annum and
must be repaid over ten years in 40 quarterly payments of principal
and interest. This loan is currently in default, primarily because
the loan reserves have not been maintained at required levels.
Item 2. Management's Discussion and Analysis of Results of Opera-
tions and Financial Condition.
Overall electric power sales increased about 4% this past
quarter as compared to the third quarter of 1994. This increase in
power sales was mainly due to plant upgrades. Maintenance and
repair costs this past quarter were about 30% higher than those of
the third quarter of 1994, due to such plant upgrades.
The Steamboat Springs Plant is in compliance with
environmental and regulatory agencies.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material changes in the status of legal
proceedings since the Partnership's report on Form 10-Q dated June
30, 1995.
Item 5. Other Information
The general partner has received an offer to purchase the
Steamboat 1 and 1-A power plants which is currently in the form of
a Letter of Intent. A more definitive agreement is being prepared.
We expect that a description of the proposed transaction and its
tax effect will be submitted to you for your approval within the
next sixty days. The reason for the delay is the necessity of
obtaining tax and fairness opinions and review of the form of
Solicitation of Consent by the SEC.
Item 6. Exhibits and Reports on Form 8-K
The Partnership did not file a report on Form 8-K during the
three months ended September 30, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned duly authorized persons.
Registrant: Far West Electric Energy Fund, L.P.
By: Far West Capital, Inc.,
General Partner
DATE: November 14, 1995 By: /s/
Thomas A. Quinn
Vice President
DATE: November 14, 1995 By: /s/
Jody Rolfson
Controller
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned duly authorized persons.
Registrant: Far West Electric Energy Fund, L.P.
By: Far West Capital, Inc.,
General Partner
DATE: November 14, 1995 By:
Thomas A. Quinn
Vice President
DATE: November 14, 1995 By:
Jody Rolfson
Controller
Exhibit 5
Reply Card
I have reviewed documents by Far West Electric Energy Fund, L.P. in
connection with its proposal to sell all partnership's assets,
distribute the proceeds to partners, and terminate the Fund, and
hereby vote all partnership units held by me to-
Approve Disapprove
- the Proposed Transaction.
This consent is being solicited by the general partner of the
partnership, and must be turned by 5 p.m., January 29, 1996 to be
counted. When dated and properly executed, this consent will be
voted as directed by the unit holder; unit holders wishing to
abstain from voting need not return this reply card.
Dated: _______________________
___________________________________________
Signature of unit holder
___________________________________________
Name of unit holder (please print)
