<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1995, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission File No. 0-13510
ZOND-PANAERO WINDSYSTEM PARTNERS I, A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 77-0035358
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13000 Jameson St., Tehachapi, California 93581
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 822-6835
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
State the aggregate market value of Voting Stock held by non-affiliates
of the registrant: Not applicable. -- The registrant is a limited partnership
and its units of limited partnership interest are not traded.
<PAGE>
ZOND-PANAERO WINDSYSTEM PARTNERS I,
A CALIFORNIA LIMITED PARTNERSHIP
FORM 10-K
For the Fiscal Year Ended December 31, 1995
TABLE OF CONTENTS
Item Number
in Form 10-K Page
PART I
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . .8
4. Submission of Matters to a Vote of Security Holders . . . . . .8
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . . .8
6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . .9
7. Management's Discussion and Analysis of
Financial Condition and Results of Operation . . . . . . . . 10
8. Financial Statements and Supplementary Data. . . . . . . . . . 13
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . 13
PART III
10. Directors and Executive Officers of the Registrant . . . . . . 13
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . 15
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . 16
13. Certain Relationships and Related Transactions . . . . . . . . 17
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
PART I
ITEM 1. BUSINESS
Introduction
Zond-PanAero Windsystem Partners I, a California limited partnership (the
"Partnership") was formed in June of 1984, to purchase, own and operate a
system of 300 Vestas Energy A/S ("Vestas") Model V15 wind turbine electric
generators (the "Turbines"). The electricity generated by the Turbines is
sold by the Partnership to its sole customer, Southern California Edison
Company ("SCE").
Each Turbine has a rated capacity of 65 kilowatts, and the Turbines have
an aggregate rated capacity of 19.5 megawatts. The Turbines, together with
certain infra structural improvements (collectively, the "Operating Site"),
form an integrated electric power generating facility (the "Windsystem"). The
Windsystem is located in the San Gorgonio Pass area of the San Bernardino
Mountains near Palm Springs, California.
The business of the Partnership and the respective rights of its partners
are governed by the First Amended and Restated Certificate and Agreement of
Limited Partnership of Zond-PanAero Windsystem Partners I, a California
Limited Partnership, dated as of November 29, 1984, as amended (the "Partner-
ship Agreement"). The term of the Partnership expires on December 31, 2005,
unless terminated earlier in accordance with the terms of the Partnership
Agreement.
The general partner of the Partnership (the "General Partner") is Zond
Windsystems Management Corporation ("ZWMC"), a California corporation wholly
owned by Zond Systems, Inc. ("Zond"). From the Partnership's formation in
1984 until June 24, 1988, PanAero Management Corporation ("PAMC"), a Califor-
nia corporation wholly owned by PanAero Corporation ("PanAero"), served as the
other general partner of the Partnership. PAMC was removed as a general part-
ner effective June 24, 1988, by a vote of the partners of the Partnership.
Until July 28, 1988, the Windsystem was managed, operated and maintained by
Mesa Wind Developers ("Mesa"), a joint venture composed of Zond and PanAero
California, Ltd., an affiliate of PanAero ("PACL") pursuant to a now
terminated agreement (the "Mesa Agreement"). Following the removal of PAMC,
Zond has performed such functions pursuant to a windsystem management
agreement dated July 27, 1988 (the "Management Agreement") that terminates on
December 31, 2004.
In order to purchase the Turbines (the "Purchase Note Financing"), the
Partnership paid $26,500,000 of the Windsystem's purchase price by issuing
non-recourse promissory notes (the "Purchase Notes") to Mesa Construction
Company, a California joint venture composed of affiliates of ZWMC and PAMC
("MCC"), which subcontracted the construction of the Windsystem to Zond. In
order to pay for the construction of the Windsystem, MCC borrowed $16,000,000
(the "Term Loan") from a syndicate of lenders (the "Windsystem Lender") and
pledged the Purchase Notes and their underlying security interests to the
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Windsystem Lender as collateral. MCC and such financing were the subjects of
a bankruptcy proceeding. See "MCC Bankruptcy." In September of 1993, MCC
repaid the Term Loan in full.
Sale of Electric Power
The Windsystem is an integrated electric power generating plant consist-
ing of an array of individually sited Turbines. The Turbines are
interconnected by a system of transformers and power transfer lines to a sub-
station and SCE's transmission grid. The individual power lines from each of
the Turbines are fed into step-up transformers which increase the voltage from
480 volts to 12.5 kilovolts. Additional 12.5 kilovolt power transfer lines
carry electricity to a substation which steps up the electric power to 115
kilovolts for delivery to SCE.
The Partnership sells the electric power generated by the Turbines to SCE
under a power purchase and sales agreement (the "Power Agreement"). The Power
Agreement was originally entered into between SCE and PanAero in April of
1982, and was assigned by PanAero to Mesa in July of 1984. Mesa subsequently
assigned the portion of the Power Agreement which covers the aggregate rated
capacity of the Turbines (19.5 megawatts) to the Partnership until December
31, 2004. The Power Agreement covers an aggregate of 30 megawatts, and Mesa
has assigned 10.4 megawatts to Zond-PanAero Windsystem Partners II, a Califor-
nia limited partnership ("ZP-II") whose general partner is an affiliate of the
General Partner. Such assignment also terminates on December 31, 2004.
Under the Power Agreement, SCE is required to purchase all of the elec-
tric output from the Turbines at a rate equal to the greater of either (I) 89%
of SCE's "cost of energy" or (ii) a fixed minimum price of $0.102 per kilowatt
hour ("kWh"). The Power Agreement provides, however, that if SCE's cost of
energy exceeds $0.20 per kWh, the price per kilowatt paid by SCE will be
limited to $0.20 per kWh plus 70% of the difference between 89% of its cost of
energy and $0.20 per kWh. SCE's cost of energy, in a rising market, could
have a beneficial impact on the Partnership's revenues; however, the cost of
energy is not expected to experience this level of increase. Since formation
of the Partnership, SCE has paid only the fixed minimum price of $0.102 per
kWh. SCE makes monthly meter readings of the amount of electricity delivered
to SCE by the Partnership and makes monthly payments to the Partnership based
on such meter readings.
For 1995, SCE purchased an aggregate of 45,334,000 kWh of electricity
from the Partnership for an aggregate purchase price of approximately
$4,624,000. See Part II, Item 6 hereof for the amounts of revenue, operating
loss and assets of the Partnership for the fiscal years 1991 through 1995.
The amount of electricity produced by the Turbines depends upon wind
speed, which is subject to significant seasonal variations in the San Gorgonio
Pass area. Wind speed is generally highest during the summer months and
lowest during the winter months. These seasonal variations result in
significant variations from month to month in the net power production
realized by the Turbines, and, therefore, result in monthly variations in the
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amount of electricity sold to SCE.
Windsystem Performance
The Windsystem commenced operation in November of 1984. The Windsystem's
annual electrical power production was originally projected to be 74,761
megawatt-hours per full calendar year. These annual production projections
were based upon forecasted average wind speed at the Operating Site estimated
by the Partnership's independent wind consultants. The Windsystem actually
produced 39,097, 38,520, 45,968, 43,768, and 45,334 megawatt-hours for
calendar years 1991, 1992, 1993, 1994, and 1995, respectively.
The wind speed at the Operating Site was measured using an instrument
called an anemometer a device that records wind speeds at designated inter-
vals over long periods of time. The consultants used data from anemometers
that were located in the general area of the proposed Windsystem site and re-
corded data for the years 1979, 1980, and 1983. Based upon operating experi-
ence, it is now known that wind resources should be measured in close
proximity to each individual turbine site, not merely across a windsystem
site. The varying topography at a windsystem site can create significant
differences in the wind resource to which each individual turbine would be
exposed depending on its location at the Operating Site. Measurement is now
typically accomplished by deploying more anemometers in the specific areas of
prospective turbine sites.
Lower than projected production, and correspondingly lower than projected
annual power sales revenues in years prior to 1988, had been offset (subject
to a 30% deductible) by payments to the Partnership under an insurance policy
issued by California Union Insurance Company ("Cal Union") which protected the
Partnership against revenue losses due to wind resource deficiencies (the
"Performance Policy" or "Policy"). With the approval of the bankruptcy court
having jurisdiction over the MCC bankruptcy, the Partnership terminated the
Performance Policy in settlement of a dispute with Cal Union. See "Settlement
of Performance Policy." The cash payment that the Partnership received in
connection with such settlement included any and all outstanding and future
claims of the Partnership with respect to the Performance Policy. In 1989,
the Partnership received $3,300,000 for the 1988 and all future revenue losses
and $4,164,000 for claims under the Partnership's boiler and machinery policy.
Subsequent to the termination of the Policy, the General Partner attempted to
obtain alternative coverage for the Partnership, but was unable to locate an
insurer willing to underwrite this type of risk.
The Plan
Following the removal of PAMC as a general partner, the Partnership began
implementing a plan (the "Plan") to improve power production and reduce
operating costs of the Windsystem. The Plan consisted of a series of
mechanical upgrades as well as financial and administrative improvements. The
bulk of the funding needed to implement the Plan was obtained through the
settlement of the dispute with Cal Union. Implementation of the Plan was sub-
ject to certain criteria and procedures imposed in connection with MCC's
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bankruptcy reorganization plan. See "MCC Bankruptcy." For a discussion of
the use of settlement funds, see "Settlement of Performance Policy."
The mechanical upgrades consisted of repitching and taping some of the
original Turbine blades, replacing certain Turbine blades, modifying the
Turbine yaw system and removal of the smaller of the two generators that are
part of each Turbine. Each upgrade was economically ranked to gain the
greatest benefit in comparison to cost, due to the limited funds available.
Many of the original Turbine blades exhibited stress cracks, which, in
some cases, required the affected Turbines to be shut down. The Partnership
replaced blades on 143 Turbines because of the poor condition of such blades.
Consistent with the cost/benefit analysis discussed above, the blades on the
remaining 157 Turbines were not replaced because their condition was
relatively good. The Partnership believes that the original turbine blades
were not properly fabricated and could not be permanently repaired. The
Turbine blades were originally manufactured by a supplier to Vestas, the
manufacturer of the Turbines. Both Vestas and the supplier declared
bankruptcy in the mid 1980's. The Partnership was not, and is not, able to
pursue either company to recoup any of the losses. Therefore, the Plan
included the design, manufacture and installation of new blades. The new
blades were designed and tested by LACADRE, Inc., an independent Los
Angeles-based aeronautical engineering firm, with the assistance of Zond's
technical staff. The Partnership replaced blades on 143 Turbines.
The Plan also included the relocation of 52 Turbines from their original
pads to new pads that are expected to experience higher average wind speed.
Certain Turbines were also relocated to towers extended by adding a new base,
thereby exposing such Turbines to higher average wind speed. The Plan was
completed in 1991 for a total cost of $4,573,000.
Implementation of the Turbine relocation phase of the Plan depended, in
part, upon the approval by the United States Department of the Interior,
Bureau of Land Management (the "BLM"), which owns the Operating Site. The
Partnership submitted a relocation proposal to the BLM in March of 1989, as to
which proposal the BLM issued formal permission on January 9, 1990,
substantially in accordance with Zond's requests. To gain the BLM's permis-
sion, the Partnership agreed to the relocation of 22 additional Turbines to
locations less visible to the Palm Springs area. The Partnership acceded to
the BLM's requests, under the provisions that the relocations were to be at no
cost to the Partnership and that the less visible sites were to be equal to or
better than the original locations in terms of wind energy. Funds to pay for
such relocations have been provided by the BLM: the BLM uses the rental
income that it receives from Mesa Wind Developers ("MWD"), which income MWD,
in-turn, receives from the Partnership. The Partnership completed such
relocations during 1992.
Settlement of Performance Policy
The Partnership's lower than projected energy production had been
partially offset by payments from Cal Union under the Performance Policy,
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which Policy has been terminated. See "Windsystem Performance." Prior to its
termination, the Performance Policy had been due to expire in December of
1989, subject to the Partnership's option to renew at a premium that was to
have been based upon a formula substantially dependent upon losses incurred
under the Policy. However, Cal Union and the Partnership, Zond, and certain
Zond affiliates entered into a Settlement Agreement and Mutual Special Release
dated April 12, 1989, to terminate the Performance Policy in settlement of a
dispute. In exchange for mutual releases, a dismissal of a Cal Union lawsuit
for rescission and reformation of the Policy, and a termination of the Policy,
and following bankruptcy court approval in November 1989, Cal Union paid
$11,230,000, allocated 68.04% to the Partnership and 31.96% to ZP-II, whose
facility is also covered by the Policy. Cal Union received a credit of
$258,000 for amounts paid to the Partnership and ZP-II in the fourth quarter
of 1988. The settlement payment was in addition to claims already paid under
the Policy, which totaled approximately $5,700,000 prior to termination of the
Policy, of which $168,000 was credited against its share of the $11,230,000
settlement amount plus $534,889 of accrued interest, approximately $7,828,823.
Under the Reorganization Plan (as defined in "MCC Bankruptcy"), $6,600,000 of
the settlement proceeds were allocated to the Plan and a similar improvements
plan for ZP-II and were held in special accounts to be disbursed as necessary
to implement such improvement plans. The Partnership's share of the
settlement amount was substantially in excess of the $2,211,000 of premiums
paid by the Partnership under the Policy, and in excess of the $4,573,000 cost
of implementing the mechanical upgrades under the Plan. The excess settlement
funds were paid to MCC to reduce notes receivable. MCC utilized such funds to
pay third party lenders who had provided the financing to MCC to build the
Windsystem. See "MCC Bankruptcy."
The Partnership has been unable to obtain insurance coverage similar to
the Performance Policy. As a result, since 1989, the Partnership has been at
risk for lower than expected winds at the Operating Site. The lack of this
coverage contributed to the Partnership's liquidity difficulties and hindered
its ability to service its debt obligation according to the original repayment
schedule. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operation Liquidity and Capital Resources."
MCC Bankruptcy
On July 2, 1987, the Windsystem Lender delivered a notice of default to
MCC alleging certain defaults by MCC under the Term Loan. On August 6, 1987,
the Windsystem Lender notified MCC of its intention to foreclose on the
Purchase Notes. In its July notice, the Windsystem Lender alleged, in
addition to certain technical defaults, an inability of ZWMC and PAMC, then
co-general partners, to agree on and implement a prudent course of action for
the Partnership and that such inability was a fundamental problem which, in
the opinion of the Windsystem Lender, impaired the value of the Windsystem and
the Purchase Notes.
On December 23, 1987, PanAero Omega, Ltd. ("PanAero Omega") an affiliate
of PAMC, acting as one of the joint venture partners of MCC and without the
knowledge of Zond Construction Company ("ZCC"), the Zond affiliate that serves
as the other joint venture partner, filed an involuntary petition in
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bankruptcy against MCC under Chapter 11 of the Federal Bankruptcy Act, as
amended, in the United States Bankruptcy Court for the Eastern District of
California (the "Bankruptcy Court") for the purpose of staying the threatened
foreclosure by the Windsystem Lender. A similar petition was filed with
respect to Mesa Construction Company II ("MCC II") from whom ZP-II purchased
its windsystem pursuant to a similar financing arrangement with the Windsystem
Lender.
On June 5, 1989, MCC filed with the Bankruptcy Court a Joint Plan of
Reorganization and related Disclosure Statement, and on August 11, 1989 filed
a First Amended Joint Plan of Reorganization and related Disclosure Statement.
A confirmation hearing with respect to the Disclosure Statement was held on
September 20, 1989, at which MCC's Revised Disclosure Statement with respect
to the First Amended Joint Plan (the "Reorganization Plan") was approved. The
Reorganization Plan was confirmed by the U.S. Bankruptcy Court for the Eastern
District of California (the "Bankruptcy Court") on October 13, 1989, and
implemented on November 7, 1989. On October 23, 1989, PanAero Omega and
PanAero Alpha, Ltd. filed with the Bankruptcy Court a notice of appeal and
consent to hearing by the Bankruptcy Appellate Panel for the Ninth Circuit
(the "Panel") of the Bankruptcy Court's confirmation order, and on October 30,
1989, filed with the Panel a notice of motion for stay of the confirmation
order. MCC has filed with the Panel objections to the Panel's jurisdiction and
motions in opposition to the motion for stay. A hearing has not yet been
held. The General Partner believes that implementation of the Reorganization
Plan has rendered moot the motions for stay.
In connection with the Reorganization Plan, the Partnership agreed to
make distributions to its Limited Partners only if certain financial ratios
and reserve levels are met. Specifically, the Partnership will be able to
make distributions to the Limited Partners only after two years have elapsed
from Bankruptcy Court approval of the Reorganization Plan and if the aggregate
reserves held by the Partnership and MCC are $3,600,000 or more after giving
effect to the then current debt service payments and to the proposed
distributions to the Limited Partners and any distributions to the joint
venture partners of MCC. In addition, the reserves held by the Partnership
must be at least $5,000 per Turbine, after giving effect to the proposed
distributions, and the ratio of the Partnership's net operating cash flow to
the debt service under the Term Loan (annualized based on the previous year's
audited financial statements) must be at least 1.4. Finally, no defaults must
exist with respect to the Purchase Notes and the Term Loan. As of the date of
this Annual Report, the Partnership is unable to make distributions to the
Limited Partners.
Financial and Operational Requirements. Pursuant to the Reorganization
Plan, the Partnership's interest obligation on the Purchase Notes was reduced
two percent (2%) beginning January 1, 1990. The Partnership is required to
carry certain property/casualty/earthquake insurance but no systems
performance insurance. The Partnership was required to provide the Windsystem
Lender with certain periodic financial and budget reports. The Partnership's
Turbines were required to have availability factors of at least 90% for any
three- month period except for periods of external catastrophes and
implementation of the Plan. The Windsystem Lender also was granted security
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interests in the SCE power payment account and the Management Agreement. In
addition, all Partnership bank accounts were held at a bank of the Windsystem
Lender's choice, subject to security interests in favor of the Windsystem
Lender. In September of 1993, MCC repaid the Term Loan in full.
Research and Development
Windsystem performance research and development actuated under the Plan
were conducted and funded by other entities. For discussion of the Plan, see
"The Plan." Zond, in cooperation with Dean Witter Reynolds Inc. ("Dean
Witter") and LACADRE, developed the Turbine modifications carried out under
the Plan. (Dean Witter was the Partnership's original placement agent for the
sale of units of limited partnership interests in the Partnership ("Units")
and a Special Limited Partner of the Partnership.) Cal Union's independent
engineering consultants, R. Lynette and Associates, Inc., reviewed and
approved the modifications. As discussed under "Settlement of Performance
Policy," Cal Union funded the modifications. Dean Witter funded the design
and testing of the new Turbine blades installed under the Plan.
Any current research and development expenses related to improvement of
wind turbine electric generating facility performance are shared,
proportionately, by the Partnership with other programs that Zond manages.
The Partnership's on-going share is not material.
Employees
The Partnership has no employees. Zond manages, operates, and maintains
the Windsystem pursuant to the Management Agreement, and renders semi-annual
accountings and operating reports to the partners regarding the Windsystem.
Any remaining day-to-day activities of the Partnership are attended to by the
General Partner which utilizes employees of Zond.
ITEM 2. PROPERTIES
The Windsystem (an integrated electric power generating facility located
at the Operating Site) consists of 300 Turbines and certain infra structural
improvements. Each Turbine has a rated capacity of 65 kilowatts, and the
Turbines have an aggregate rated capacity of 19.5 megawatts. The electricity
generated by the Turbines is sold by the Partnership to SCE. The Partnership
depends solely upon production from the Windsystem and the resulting revenues
to fund all operations of the Windsystem, repay debt, administer the
Partnership, and make distributions to its partners. From the commencement of
operation of the Windsystem in November of 1984 through December 31, 1995, the
Windsystem has produced 419,000 megawatts of power and averaged 96.4% Turbine
availability. See Item 1. "Business Introduction."
The Operating Site is situated on two adjoining parcels of land,
consisting of approximately 440 acres, located in the San Gorgonio Pass area
of the San Bernardino Mountains approximately 16 miles northwest of Palm
Springs, California. The two parcels are owned by the United States. Under a
Right-of-Way Grant (the "Right-of-Way Grant") from the BLM, Mesa holds certain
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rights to develop wind energy resources on the Operating Site. The primary
term of the Right-of-Way Grant expires in January of 2003, unless earlier
terminated by its terms but the Right-of-Way Grant may automatically continue
for up to 10 additional years if certain conditions are met. The Right-of-Way
Grant was originally issued to PanAero on January 26, 1983, and was assigned
by PanAero to Mesa in April of 1984.
The Partnership owns the Turbines, including the supporting towers and
related concrete support pads and controllers. Subject to the interests of
the United States, Mesa owns the Operating Site, which includes roads, fences,
the power transfer system, the substation and maintenance facilities. The
Partnership uses the Operating Site pursuant to a 20-year easement granted by
Mesa under the terms of a Wind Park Easement Agreement dated as of September
7, 1984 (the "Wind Park Easement Agreement").
Mesa has also granted ZP-II a similar easement for the installation and
operation of wind turbines. ZP-II has installed 160 wind turbines on the
Operating Site. The general partner of ZP-II is an affiliate of the General
Partner. The facilities on the Operating Site, such as roads, fences, the
power transfer system, the substation and maintenance facilities, are also
utilized by ZP-II.
Mesa was granted an easement by Seymour Lazar and Alyce Lazar (the "Lazar
Easement") over certain real property (the "Lazar Real Property") located
immediately adjacent to the Operating Site. The Lazar Easement was recorded
on June 28, 1990, in the County of Riverside. This easement was granted in
perpetuity.
ITEM 3. LEGAL PROCEEDINGS
PanAero State Litigation
In July of 1995, PanAero, among other plaintiffs, filed a lawsuit
entitled, PanAero Management Corporation et al. v Zond Systems, Inc., et al.,
Los Angeles Superior Court Case No. BC 130959. The defendants in the
litigation included the Partnership, ZWMC, and Zond. The plaintiffs alleged
that defendants improperly allocated certain expenses to the Partnership and
to ZP-II. Plaintiffs seek equitable relief and damages in excess of $1.3 mil-
lion. In November of 1985, Zond moved to compel arbitration of the litiga-
tion, which motion was denied in December. In January of 1996, Zond filed a
Notice of Appeal. Zond's position is that the litigation is stayed pending
its appeal, but there has been no order in respect of that position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Limited Partners during the fourth
quarter of the fiscal year ended December 31, 1995.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
There is no established public trading market for the Partnership's
Units.
Holders
At March 31, 1996, there were 874 holders of record of the Partnership's
1,190 Units.
Cash Distributions
The Partnership Agreement provides that distributions of "Distributable
Cash" (as defined in the Partnership Agreement) are to be made as determined
by the General Partner in accordance with the terms of the Partnership
Agreement. Cash distributions are to be made 99% to the Partnership's limited
partners (the "Limited Partners") and 1% to the General Partner and PAMC until
the date on which the Limited Partners have received in the aggregate
cumulative cash distributions of at least $10,000,000.
In connection with issuing the Purchase Notes, the Partnership agreed
with MCC that it will make no distributions to the partners of the Partnership
so long as either (I) an event of default exists under certain construction
financing agreements entered into in connection with the construction of the
Windsystem, (ii) the Partnership's cash reserve is not maintained at a certain
level ($5,000 per Turbine), or (iii) the Partnership's anticipated cash flow
for the twelve months following any proposed distribution does not exceed the
amounts necessary for the Partnership to meet its obligations with respect to
debt service, operating expenses and maintenance of its cash reserve at the
required level. In addition, the Partnership Agreement provides that, until
the Purchase Notes are paid in full, the Partnership must maintain cash
reserves in an amount equal to at least $1,500,000 before it can make any
distributions of Partnership cash or property.
Due to less than projected operating results, the Partnership has not
distributed any cash to the Limited Partners during any fiscal year other than
1985. During fiscal 1985, the Partnership distributed an aggregate of
approximately $158,000 to the Limited Partners and $2,000 to the General
Partners.
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<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
From and after 1987, the Partnership's accounting records have been
maintained on a federal tax accrual basis, consistent with appropriate
provisions of the Internal Revenue Code. Such records have been adjusted to
reflect generally accepted accounting principles for purposes of filings with
the Securities and Exchange Commission. A reconciliation between the
Partnership's income tax basis financial statements and its generally accepted
accounting principles financial statements and the description of the effect
of the change from cash to accrual basis accounting are described in Notes to
the Financial Statements Notes 6 and 2, respectively, which are incorporated
herein by reference.
<CAPTION>
As of and for the Year Ended December 31,
(in thousands)
1995 1996 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Revenues $ 4,669 $ 4,489 $ 4,692 $ 3,962 $ 4,101
Net income (loss) (1,412) (1,743) (1,640) (2,184) (2,447)
Per Unit:
Net income (loss) (1) (1) (1) (2) (2)
Distributions 0 0 0 0 O
Partners' capital 1 2 4 5 7
Total assets 23,061 25,599 28,173 30,617 34,672
Long-term debt 15,678 17,321 18,770 20,047 21,173
Partners' capital 1,504 2,916 4,659 6,299 8,483
<FN>
All per Unit values calculated utilizing 1,190 Units and including General
Partners' and Substituted Limited Partner's amounts.
See Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Liquidity and Capital Resources
The Partnership continues to experience a lack of liquidity primarily
due to a continued short-fall in revenues from operations in comparison to the
costs and expenses of operations. Accordingly, interest payments on the
Purchase Notes in the aggregate amount of $3,981,000 were in arrears at
December 31, 1995, despite a reduction in the interest rate thereon from 13%
to 11% as a result of the Reorganization Plan. The Partnership expects that
it will continue to experience poor liquidity and to defer certain payments on
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the Purchase Notes. See "Results of Operations."
The failure of the Partnership to meet its interest payments allows MCC
to declare a default under the Purchase Notes. Upon such a default, MCC could
exercise various remedies, including acceleration of the maturity of the
Purchase Notes and foreclosure on the Windsystem (the collateral security for
the Purchase Notes). MCC may have the right at any time to take the necessary
steps to protect its position as payee under the Purchase Notes. As of
December 31, 1995, MCC has not notified the Partnership that it intends to
foreclose on its security although the parties have not reached a formal
agreement for the payment of the interest deficiencies. The General Partner
believes that the interest arrearage will not be paid by the scheduled
maturity date nor by December, 2005 the end of the Partnership term.
Currently, the General Partner expects that the interest arrearage balance
will be paid through a combination of normal cash flow and liquidation
proceeds.
The Partnership has not developed a plan for the significant improvement
of its liquidity. The Partnership's primary source of revenues and liquidity
to fund operations of the Windsystem, repay debt, administer the Partnership,
and make distributions to its partners is production of electricity from the
Windsystem. The Partnership's sole customer is SCE. The price paid by SCE
for the electricity is contractually defined. See Item 1. "Business Sale
of Electric Power." To prevent degradation in the current level of
production, the Partnership must ensure that the Windsystem is properly
maintained and ready to produce power when the wind resource is available.
The Partnership also must exercise close control of its operating expenses.
The General Partner believes that the Partnership is operating the Windsystem
at an expense level that is efficient and appropriate to the operation of a
windsystem of this size.
The Partnership has no current or planned commitments for capital
expenditures as of December 31, 1995.
Results of Operations
Year Ended December 31, 1995, Compared to Year Ended December 31, 1994
Average wind speed based on three representative anemometer locations on
the Operating Site was 0.2% lower for the 12-month period ended December 31,
1995, than the corresponding period one year earlier and was 2.6% lower than
the historical yearly averages. Production increased approximately 3.4% for
the 1995 period in comparison to the prior year 45,334 megawatt hours in
1995 and 43,768 megawatt hours in 1994. Revenues from power sales in 1995
were approximately 3.6% higher than in 1994 as a result of higher average
system availability. Other income increased due to interest earned on higher
average cash balances.
Overall, the Partnership reported a loss of approximately $1,412,000 in
1995, in comparison to a loss of approximately $1,743,000 for 1994. Total
expenses for 1995 decreased approximately 2.4%, primarily due to reduced
interest expense. Interest expenses decreased due to lower average principal
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balances on the Purchase Notes outstanding during 1995. On an absolute basis,
property tax expense increased $10,000 during 1995; although, net of a tax
refund of $18,000 in 1994, property tax expense continued to decrease.
Insurance expense remained constant following an 11% increase in 1994 due to
inflation in the insurance markets. Management fees and land lease expenses
increased due to their direct relationship to sales of electricity.
Maintenance expense decreased 4.5% due to reduction of labor costs at the
Operating Site.
The Partnership's overall financial condition worsened during 1995
primarily due to a continued shortfall in revenues from operations in
comparison to the costs and expenses of operations. During 1995, total
partners' capital decreased $1,412,000 from $2,916,000 to $1,504,000 and
Limited Partners' capital decreased $1,398,000 from $2,303,000 to $905,000.
This represents a total decrease of $1,186 per Unit. Based on historical
average wind speed and current cost levels, the Partnership expects to
continue to suffer net annual operating losses. The Partnership expects that
its overall financial condition will continue to worsen for the foreseeable
future.
Year Ended December 31, 1994, Compared to Year Ended December 31, 1993
Average wind speed based on three representative anemometer locations on
the Operating Site was 2.4% lower for the 12-month period ended December 31,
1994, than the corresponding period one year earlier and was 4.8% lower than
the historical yearly averages. Production decreased approximately 4.8% for
the 1994 period in comparison to the prior year 43,768 megawatt hours in
1994 and 45,968 megawatt hours in 1993. Revenues from power sales in 1994
were approximately 4.7% lower than in 1993 as a result of lower average wind
speed. Other income increased due to interest accrual on higher average cash
balances.
Overall, the Partnership reported a loss of approximately $1,743,000 in
1994, in comparison to a loss of approximately $1,640,000 for 1993. Total
expenses for 1994 decreased approximately 1.6%, primarily due to reduced
interest expense. Interest expenses decreased due to lower average principal
balances on the Purchase Notes outstanding during 1994. Property tax expense
decreased largely due to a tax refund of $18,000 in 1994. Insurance expense
increased by 11% due to regression in the insurance markets. Management fees
and land lease expenses decreased due to their direct relationship to sales of
electricity. Maintenance expense increased 2.8% due to the failure of
generators and increased repairs to yaw gears. In 1993, four Turbines were
moved to other pad locations within the Operating Site because of foundation
erosion. The General Partner considers the erosion of the land material
around the Turbines to be an anomaly. The Windsystem is located in an area
subject to flash floods and exposure to seismic activity. While the
Partnership and the General Partner currently do not expect that erosion will
occur with respect to any of the other Turbines, neither can predict the
probability of a natural occurrence creating a similar problem.
The Partnership's overall financial condition worsened during 1994
primarily due to a continued shortfall in revenues from operations in
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comparison to the costs and expenses of operations. During 1994, total
partners' capital decreased $1,743,000 from $4,659,000 to $2,916,000 and
Limited Partners' capital decreased $1,725,000 from $4,028,000 to $2,303,000.
This represents a total decrease of $1,465 per Unit. Based on historical
average wind speed and current cost levels, the Partnership expects to
continue to suffer net annual operating losses. The Partnership expects that
its overall financial condition will continue to worsen for the foreseeable
future.
Year Ended December 31, 1993, Compared to Year Ended December 31, 1992
Turbine performance currently is slightly better than the performance
expected as a result of implementation of the Plan. Average wind speed based
on three representative anemometer locations on the Operating Site was 26.2%
higher for the 12-month period ended December 31, 1993, than the corresponding
period one year earlier and was 5.2% higher than the historical yearly
averages. Production increased approximately 19% for the 1993 period in
comparison to the prior year 45,968 megawatt hours in 1993 and 38,520
megawatt hours in 1992. Revenues from power sales in 1993 were approximately
20% higher than in 1992 as a result of higher average wind speed. Other
income decreased due to the 1992 receipt of interest from property tax
refunds.
Overall, the Partnership reported a loss of approximately $1,640,000 for
1993 in comparison to a loss of approximately $2,184,000 for 1992. Total
expenses for 1993 increased approximately 3%, primarily due to capitalized
credits in 1992 of approximately $258,000 of Plan expenses. In 1993 there
were no capitalized credits of Plan expenses. Management fees and land lease
expenses increased due to their direct relationship to sales of electricity.
Interest expenses decreased due to lower average principal balances on the
Purchase Notes outstanding during 1993. Four Turbines were moved to other pad
locations within the Operating Site because of foundation erosion. Cost of
moving such Turbines, along with increased labor costs, accounts for the 10%
increase in maintenance and other operating costs.
The Partnership's overall financial condition worsened during 1993
primarily due to a continued shortfall in revenues from operations in
comparison to the costs and expenses of operations. During 1993, total
partners' capital decreased $1,640,000 from $6,299,000 to $4,659,000 and
Limited Partners' capital decreased $1,624,000 from $5,652,000 to $4,028,000.
This represents a total decrease of $1,378 per Unit.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Partnership, together with the report
thereon of Price Waterhouse, filed as a part of this report and listed in
response to Part IV, Item 14 hereof, are hereby incorporated by reference.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The General Partner of the Partnership is ZWMC. Until removed effective
June 24, 1988, pursuant to a vote of the Partners at the Special Meeting, PAMC
also was a general partner of the Partnership.
Rights and Powers of the General Partner
Under the terms of the Partnership Agreement, the General Partner holds
the exclusive right to manage the business and affairs of the Partnership.
The Limited Partners are not entitled to exercise any rights or powers to
manage the business and affairs of the Partnership. The Limited Partners have
voting rights only with respect to certain fundamental changes in the nature
and operation of the Partnership, as set forth in the Partnership Agreement.
ZWMC
ZWMC is a California corporation wholly-owned by Zond. ZWMC was formed
on June 14, 1984, solely for the purpose of serving as a general partner of
the Partnership and has served as a general partner since the Partnership's
formation. ZWMC's principal executive offices are located at 13000 Jameson
Street, Tehachapi, California 93581.
Set forth below is certain information regarding the officers and
directors of ZWMC. Zond alone determines who will serve as the directors of
ZWMC.
Name Age Position
James G. P. Dehlsen 58 Chairman of the Board,
Secretary, and a Director
Kenneth C. Karas 42 President, Chief Executive
Officer, Chief Financial
Officer, and a Director
Robert H. Gates 50 Senior Vice President
Business Development
James G. P. Dehlsen. Mr. Dehlsen founded Zond in 1980. Since then, he
has served as its Chairman of the Board and Secretary. He also served as
President of Zond from its inception until January of 1986, at which time Mr.
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Karas was elected President and until January of 1991, at which time Mr. Karas
was elected Chief Executive Officer. Prior to 1980, Mr. Dehlsen served as
Chairman of the Board of Triflon Company, Inc. ("Triflon"), which he founded
in 1976. Triflon developed and marketed a teflon-based lubrication product
for commercial and residential use. Mr. Dehlsen has served as an advisor on
wind energy to the Congressional Office of Technology Assessment and serves as
a director of the American Wind Energy Association. For his contribution to
the development of the commercial wind energy industry, he was awarded the
Diploma of the National Association for Danish Enterprise and the Danish Medal
of Honor from His Royal Highness Prince Henrik.
Kenneth C. Karas. Mr. Karas joined Zond as Vice President - Finance in
1983 and became its Executive Vice President in 1985. Mr. Karas has served as
Zond's Chief Executive Officer since January of 1991, as its President since
January of 1986, and as its Chief Operating Officer and Chief Financial
Officer since February of 1985. Immediately prior to joining Zond, Mr. Karas
was Vice-President - Corporate Banking for Scandinavian Bank Group plc where
he was actively involved in financing the energy industry. From 1979 to 1982,
Mr. Karas was an officer with Security Pacific National Bank's international
banking group.
Robert H. Gates. Mr. Gates joined Zond in 1981 as Vice President -
Marketing. He was appointed Senior Vice President - Marketing in mid-1983.
From early 1986 until 1992, Mr. Gates assumed the responsibilities of Senior
Vice President - Wind Facilities Operation and in 1992 became Senior Vice
President - Business Development. Prior to joining Zond, Mr. Gates held
operations and marketing management positions for Pan American World Airways
and several small firms. Mr. Gates has served in the past as Chairman of the
Board of the Kern Wind Energy Association.
Delegation of Management
ZWMC has delegated certain aspects of the operation, management,
maintenance and repair of the Windsystem to Zond pursuant to the Management
Agreement.
ITEM 11. EXECUTIVE COMPENSATION
As the Partnership has no employees, it does not pay executive
compensation to any individual. The General Partner participates in the
profits and losses of the Partnership by virtue of its partnership interest,
and Zond receives payment under the Management Agreement for services rendered
thereunder. Prior to the termination of the Mesa Agreement, Mesa received
compensation for its services rendered thereunder. Officers and members of
the Board of Directors of the General Partner are not compensated for their
services in those capacities.
Allocations and Distributions to General Partner
Following its removal as a general partner, PAMC became a Substitute
Limited Partner of the Partnership with the same interests in profits and
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losses as it had while a general partner.
The Partnership Agreement provides for certain allocations of profits
and losses and distributions of cash and property to the General Partner and
PAMC. The General Partner and PAMC are entitled to an aggregate of one
percent of all allocations of Partnership profits and losses for any taxable
year or other period beginning before the date on which the Limited Partners
have received cumulative cash distributions of at least $10,000,000 (to date,
the Limited Partners have received $158,000 and the General Partner and PAMC
$2,000), such amounts to be shared equally. For any taxable year thereafter,
profits and losses will be allocated 20% to the General Partner and PAMC, to
be shared equally.
The General Partner and PAMC are entitled to receive one percent of all
non-liquidating distributions made before April 1995, with respect to any
taxable year or other period ending before January 1, 1995, and until such
time as the Limited Partners have received cumulative cash distributions of at
least $10,000,000, such distributions to be shared equally. On or after April
1, 1995, and after at least $10,000,000 has been distributed to the Limited
Partners on a cumulative basis, the General Partner and PAMC will receive 20%
of non-liquidating distributions, such distributions to be shared equally.
The Partnership did not distribute any amounts to the General Partner or PAMC
during fiscal 1993, 1994, or 1995.
Windsystem Management Fees
As compensation for its services under the Management Agreement, Zond
receives a management fee of two percent of the Partnership's "Gross Operating
Proceeds" which are defined as the gross receipts from the sale of electricity
generated by the Turbines and all amounts paid in lieu of receipts from the
sale of electricity, including all proceeds of insurance paid in reimbursement
of lost revenues. Zond is also reimbursed for 115% of the maintenance costs,
including labor and material costs, that it incurs in the performance of
services, including services by third parties, under the Management Agreement.
Upon termination of the Agreement in December of 2004, Zond would also receive
an incentive fee equal to the balance of the cash reserve maintained in
connection with Purchase Notes. At its option, Zond also is entitled to
receive 10% interest on any funds advanced to or on behalf of the Partnership.
For 1995, the Partnership paid Zond $96,000 for management services under the
Management Agreement. In addition, the Partnership paid Zond $928,000 for
cost reimbursement for maintenance expenditures.
Operating Site Rentals
Under the Wind Park Easement Agreement, Mesa charges the Partnership and
ZP-II rentals for use of the Operating Site of the greater of (i) 5% of the
Partnership's Gross Operating Receipts and (ii) the Partnership's pro rata
share of the payments due the BLM under the Right-of-Way Grant. For 1995, the
Partnership's rental fee was $241,000.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain Beneficial Owners
The Partnership does not know of any person (including a "group" as that
term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) who is the beneficial owner of more than five percent (5%) of the
Partnership's Units.
Ownership of Management
ZWMC owns the sole general partnership interest in the Partnership.
Neither Zond nor any officer or director of ZWMC or Zond owns any Units.
Changes In Control
ZWMC executed a conditional resignation of its position as a General
Partner effective upon (i) a material breach of any of its agreements
contained in a Letter of Understanding dated March 24, 1988, between ZWMC,
Zond, Dean Witter and certain Zond affiliates (the "Letter of Understanding")
or (ii) if by December 31, 1989, the Partnership is not generating revenues
which exceed 1989 adjusted expenses by $762,600, as is more particularly
described in the Letter of Understanding. A material breach would include
failure by ZWMC to achieve additional specified benchmarks set forth in
Exhibit I to the Letter of Understanding. Although ZWMC originally committed
to implement the entire Plan by the end of 1989, and made substantial
progress, the lengthy negotiation process with the Windsystem Lender and
certain opposition to the Reorganization Plan, the lengthy approval process
with the BLM concerning the relocation of the Turbines, and a variety of other
factors out of ZWMC's control delayed full implementation of the Plan, and the
General Partner believes, therefore, that no material breach of the Letter of
Understanding occurred. Furthermore, if a material breach had occurred, ZWMC
believes that its resignation as the General Partner would breach the
Partnership Agreement.
This description of the terms of ZWMC's conditional resignation is
qualified in its entirety by the Letter of Understanding, including its
exhibits, a copy of which was attached as Exhibit 28.1 to the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Although the Partnership did not attempt to enter into transaction and
service agreements with parties other than as specified below, the General
Partner believes that the terms of such agreements are not materially
different than terms that would have resulted if the transactions had been
entered with independent third parties.
Purchase Note Financing and Term Loan
The information contained under the captions "Item 1. Business MCC
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Bankruptcy" and "Financial and Operational Requirements" is incorporated
herein by reference.
The Purchase Notes are currently payable in equal semi-annual
installments of principal and interest over 18 years commencing 1984.
Pursuant to the Reorganization Plan, the interest rate of the Purchase Notes
at the Partnership's option may be reduced. At December 31, 1995,
approximately $21,369,000 was due to MCC under the Purchase Notes. During
1995, the Partnership made payments of principal and interest totaling
$3,125,000. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and Capital Resources."
In September of 1993, MCC repaid the Term Loan in full. Accordingly,
the following information is only relevant to periods prior to September of
1993. To secure repayment of the Term Loan, MCC in 1984 granted the
Windsystem Lender a first security interest in the Turbines, the portion of
the Power Agreement assigned to the Partnership by Mesa and certain other
rights. The Partnership received the Turbines, its interest in the Power
Agreement and certain other rights subject to the prior security interest in
favor of the Windsystem Lender.
In connection with the Term Loan, the Partnership agreed with MCC that
so long as any amounts are due under the Purchase Notes (i) all insurance
proceeds in excess of $50,000 per loss occurrence paid to the Partnership
under its systems warranty and property damage insurance policies would be
deposited into an account maintained with the Windsystem Lender and (ii) its
cash reserves would be maintained in an interest-bearing account at a bank
acceptable to the Windsystem Lender and it would be prohibited from
withdrawing amounts except for specified purposes. In addition, the
Partnership agreed with the Windsystem Lender to subordinate any claims it may
have against MCC to any amounts owing to the Windsystem Lender under the Term
Loan for such time as amounts under the Term Loan remain unpaid.
The Windsystem Lender, MCC, and the Partnership in 1984 entered into a
non-disturbance agreement under which the Windsystem Lender agreed to release
its first security interest in the Turbines, the portion of the Power
Agreement assigned by Mesa to the Partnership and the other rights of the
Partnership subject to such security interest upon the earlier of either (i)
payment in full of the Term Loan or the indefeasible receipt by the Windsystem
Lender as assignee of MCC of all amounts owed by the Partnership under the
Purchase Notes which can be applied indefeasibly to the Term Loan or (ii)
payments by the Partnership of all amounts due under the Purchase Notes in
accordance with their terms. In 1984, the Windsystem Lender agreed that the
Partnership does not have any obligation under the Term Loan, and is entitled
to quiet enjoyment of the property which is subject to the prior security
interest created in favor of the Windsystem Lender, so long as no event of
default has occurred and is continuing under the Purchase Notes. Pursuant to
the Reorganization Plan, however, the Partnership has granted the Windsystem
Lender certain security interests in certain accounts and contracts to secure
MCC's obligations in connection with the Term Loan, upon which the Windsystem
Lender may foreclose notwithstanding the non-disturbance agreement. See First
Amendment to Purchase Note and Security Agreement section 5.3.
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Management of the Windsystem
Under the Management Agreement, Zond is obligated to use its best
efforts to maximize revenues from the operation of the Turbines and is
required to: (1) represent the Partnership in its dealings with SCE; (2)
collect all payments from SCE, as the Partnership's agent and account for and
remit all sums due the Partnership; (3) pay all expenses in connection with
the operation and maintenance of the Windsystem including property taxes,
insurance and operating expenses; (4) provide quarterly accountings and
operating reports for the Turbines to the Partnership; (5) maintain the
Turbines in accordance with the manufacturer's maintenance manual and standard
maintenance practices; (6) monitor and supervise all insurance and warranty
claims concerning the Turbines; (7) comply with all governmental regulations
and directives, including compliance with the operating conditions in the
Right-of-Way Grant; and (8) perform such other services incidental to the
operation of the Turbines as may from time to time be reasonably necessary or
appropriate. Zond also performs similar management functions for ZP-II.
The Management Agreement allows the Partnership to remove Zond as the
operating agent if Zond fails adequately to maintain and operate the Turbines
or if the Partnership in good faith determines that Zond is guilty of
negligence, fraud or willful misconduct in the performance of its duties and
responsibilities under the Management Agreement. Pursuant to an amendment in
connection with the Reorganization Plan, the Management Agreement terminates
upon material breach by any of the Zond affiliated parties of the Letter of
Understanding. See "Item 12. Change in Control."
The description of Zond's compensation under the Management Agreement
contained under the caption "Item 11. Executive Compensation Windsystem
Management Fees" is incorporated herein by reference.
Windpark Easement Agreement
The information contained under the caption "Item 2. Properties" is
hereby incorporated by reference.
Mesa's annual rental payments to the BLM under the Right-of-Way Grant
are equal to the greater of either (i) a fixed amount based upon actual
acreage under use ($241,000 for 1995) or (ii) two percent of gross revenues
received from the sale of electricity generated on the Operating Site. Annual
rental payments may be increased by the BLM at five-year intervals to reflect
any increase in the fair rental value of the Operating Site which may result
in higher easement payments by the Partnership to Mesa. See. "Item 11.
Operating Site Rentals."
Zond, PanAero, and their affiliates have developed and sold additional
wind turbines on the Operating Site other than the Turbines. The Windpark
Easement Agreement requires that Mesa comply fully with all the conditions of
the Right-of-Way Grant in these developments and not to disturb or otherwise
interfere materially with the operation of the Turbines.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a).1 Financial Statements
Report of Independent Accountants
Financial Statements
Balance Sheets at December 31, 1994, and
December 31, 1995
Statement of Operations for the years ended
December 31, 1995, December 31, 1994, and
December 31, 1993
Statement of Changes in Partners' Capital
for the years ended December 31, 1995,
December 31, 1994, and December 31, 1993
Statement of Cash Flows for the years ended
December 31, 1995, December 31, 1994, and
December 31, 1993
Notes to Financial Statements
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(a).2 Exhibits
Listed by number corresponding to the Exhibit Table of Item 601 in
Regulation S-K.
Number Description
3.1 First Amended and Restated Certificate and Agreement of Limited
Partnership of Zond-PanAero Windsystem Partners I (Incorporated
by reference from Exhibit A to the Partnership's Registration
Statement on Form 10 dated April 29, 1985).
3.2 First Amendment to First Amended and Restated Certificate dated
as of June 27, 1988 (Incorporated by reference from Exhibit 3.2
to the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988).
10.1 Wind Park Power Purchase and Sale Agreement between PanAero and
Southern California Edison Company dated April 12, 1982;
Assignment of Wind Park Power Purchase and Sale Agreement dated
July 28, 1984, between PanAero and Mesa; and Partial Assignment
of Wind Park Power Purchase and Sale Agreement effective
September 25, 1984, between Mesa and the Partnership
(Incorporated by reference from Exhibit B to the Partnership's
Registration Statement on Form 10 dated April 29, 1985).
10.2 Right-of-Way Grant (Serial No. CA-11688-A) issued by the Bureau
of Land Management of the United States Department of the
Interior to PanAero and assigned to Mesa (Incorporated by
reference from Exhibit C to the Partnership's Registration
Statement on Form 10 dated April 29, 1985).
10.3 Wind Park Easement Agreement dated as of September 7, 1984,
between Mesa and the Partnership; Amendment to Wind Park
Easement Agreement dated as of November 28, 1984, (Incorporated
by reference from Exhibit D to the Partnership's Registration
Statement on Form 10 dated April 29, 1985).
10.4 Windsystem Management Agreement dated July 27, 1988, between
Zond and the Partnership, and First Amendment to Windsystem
Management Agreement, (Incorporated by reference from Exhibit
10.5 to the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988).
10.5 Second Amendment to Windsystem Management Agreement between
Zond and the Partnership (Incorporated by reference from
Exhibit 10.5 to the Partnership's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989).
10.6 Purchase Note and Security Agreement dated as of November 26,
1984, between MCC and the Partnership (Incorporated by
reference from Exhibit G to the Partnership's Registration
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Statement on Form 10 dated April 29, 1985).
10.7 First Amendment to Purchase Note and Security Agreement dated
as of November 7, 1989, between MCC and the Partnership
(Incorporated by reference from Exhibit 10.7 to the
Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989).
10.8 Agreement dated as of November 30, 1984, between National Union
Fire Insurance Company and the Partnership (Incorporated by
reference from Exhibit J to the Partnership's Registration
Statement on Form 10 dated April 29, 1985).
10.9 Facilities Agreement dated as of November 26, 1984, among Mesa,
Nordic American Banking Corporation, and the Partnership
(Incorporated by reference from Exhibit K to the Partnership's
Registration Statement on Form 10 dated April 29, 1985).
10.10 Escrow Agreement dated as of November 26, 1984, among Mesa,
First Interstate Bank of California, and the Partnership
(Incorporated by reference from Exhibit L to the Partnership's
Registration Statement on Form 10 dated April 29, 1985).
10.11 Agency Agreement dated as of September 17, 1984, among
Partnership, ZWMC, PAMC, PanAero, Zond and Dean Witter
(Incorporated by reference from Exhibit P to the Partnership's
Registration Statement on Form 10 dated April 29, 1985).
10.12 Settlement Agreement and Special Mutual Releases of Any and All
Claims, Causes of Action, Chose in Action, Etc. dated April 12,
1989, among Zond, MCC II, the Partnership, ZWMC, Zond
Windsystems Management Corporation II, ZCC, Zond Construction
Company II, DnC America Banking Corporation, Mesa, MCC, and Cal
Union (Incorporated by reference from Exhibit 10.15 to the
Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.13 Letter of Understanding and Agreement dated April 11, 1989,
between DnC America Banking Corporation, ZCC, Zond Construction
Company II, Zond, MCC, MCC II, the Partnership, and ZP-II
(Incorporated by reference from Exhibit 10.16 to the
Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
28.1 Letter of Understanding dated March 24, 1988, between Dean
Witter, Zond, ZWMC, Zond Windsystem Management Corporation II,
ZCC, and Zond Construction Company II (Incorporated by
reference from Exhibit 28.1 to the Partnership's Annual Report
on Form 10-K for the fiscal year ended December 31, 1988).
28.2 First Amended Joint Plan of Reorganization for Mesa
Construction Company II, and Revised Disclosure Statement re
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me, Case Nos. 187-04616-A and 187-04616-A [filed and
maintained under Case No. 187-04616-A], United States
Bankruptcy Court, Eastern District of California, filed
September 25, 1989 (Incorporated by reference from Exhibit 28.1
to the Partnership's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989).
28.3 Order confirming Debtors' Revised First Amended Joint Plan of
Reorganization for Mesa Construction Company and Mesa
Construction Company II, Case Nos. 187-04616-A and 187-04616-A
[filed and maintained under Case No 187-04616-A], United States
Bankruptcy Court, Eastern District of California, filed October
13, 1989 (Incorporated by reference from Exhibit 28.1 to the
Partnership's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1989).
28.4 Order Confirming Good Faith Settlement, Case No. C 687 521,
Superior Court for the State of California for the County of
Los Angeles, filed October 13, 1989 (Incorporated by reference
from Exhibit 28.2 to the Partnership's Quarterly Report on Form
10-Q for the quarter ended June 30, 1989).
28.5 Order Approving Compromise of Controversies with California
Union Insurance Company, Case Nos. 187-04616-A and 187-04616-A
[filed and maintained under Case No 187-04616-A], United States
Bankruptcy Court, Eastern District of California, filed October
13, 1989 (Incorporated by reference from Exhibit 28.3 to the
Partnership's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1989).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the fiscal
year ended December 31, 1995.
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14(a).1
ZOND-PANAERO WINDSYSTEM PARTNERS I,
A CALIFORNIA LIMITED PARTNERSHIP
REPORT AND FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, AND 1993
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Accountants F-1
Financial Statements
Balance Sheets at December 31, 1995
and December 31, 1994 F-2
Statement of Operations for the years ended
December 31, 1995, December 31, 1994, and
December 31, 1993 F-3
Statement of Changes in Partners' Capital for
the years ended December 31, 1995, December
31, 1994, and December 31, 1993 F-4
Statement of Cash Flows for the years ended
December 31, 1995, December 31, 1994, and
December 31, 1993 F-5
Notes to Financial Statements F-6
- -24-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 15, 1996
To the Partners of
Zond-PanAero Windsystem Partners I
(A California Limited Partnership)
In our opinion, the financial statements listed in the accompanying index
appearing under Item 14(a)(1) on page 24 present fairly, in all material
respects, the financial position of Zond-PanAero Windsystem Partners I (the
"Partnership"), a California Limited Partnership, at December 31, 1994 and
1995, and the results of their operations, changes in partners' capital and
their cash flows for each of the three fiscal years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As further described in the notes to the financial statements, the Partnership
has extensive transactions and relationships with affiliates. Because of
these relationships, it is possible that the terms of these transactions are
not the same as those that would result from transactions among wholly
unrelated parties.
/S/PRICE WATERHOUSE LLP
F-1
<PAGE>
ZOND-PANAERO WINDSYSTEM PARTNERS I
(A California Limited Partnership)
<TABLE>
BALANCE SHEET
<CAPTION>
December 31,
1994 1995
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 37,000 $ 213,000
Accounts receivable 494,000 307,000
Prepaid insurance & other current assets 158,000 128,000
Total current assets 689,000 648,000
Noncurrent assets: (Notes 2 and 3)
Building 98,000 98,000
Wind turbines 49,561,000 49,561,000
Less - accumulated depreciation (24,749,000) (27,246,000)
Total Noncurrent assets 24,910,000 22,413,000
Total assets $ 25,599,000 $ 23,061,000
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses $ 125,000 $ 109,000
Amounts payable to related parties (Note 4) 84,000 79,000
Current portion of
notes payable to related party (Note 3) 1,449,000 1,643,000
Accrued interest payable
to related party (Note 3) 3,704,000 4,048,000
Total current liabilities 5,362,000 5,879,000
Notes payable to related party,
less current portion (Note 3) 17,321,000 15,678,000
Commitments and contingencies
(Notes 3, 4 and 5)
Partners' capital: (Note 1)
General partner 16,000 9,000
Limited partners 2,303,000 905,000
Substituted limited partner 16,000 9,000
Contributed capital 581,000 581,000
Total partners' capital 2,916,000 1,504,000
Total liabilities and partners' capital $ 25,599,000 $ 23,061,000
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-2
<PAGE>
ZOND-PANAERO WINDSYSTEM PARTNERS I
(A California Limited Partnership)
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Years Ended December 31,
1993 1994 1995
<S> <C> <C> <C>
Revenues:
Sales of electricity $ 4,686,000 $ 4,464,000 $ 4,624,000
Other income 6,000 25,000 45,000
Total revenue 4,692,000 4,489,000 4,669,000
Cost and expenses:
Depreciation 2,466,000 2,497,000 2,497,000
Interest expense (Note 3) 2,298,000 2,166,000 2,020,000
Property taxes, including net
refund of $18,000 in 1994 54,000 26,000 36,000
Management fees and land lease 324,000 308,000 337,000
Maintenance and
other operating costs 1,007,000 1,031,000 985,000
Insurance expense 183,000 204,000 206,000
Total costs and expenses 6,332,000 6,232,000 6,081,000
Net loss ($ 1,640,000) ($ 1,743,000) ($ 1,412,000)
Net loss per limited
partnership unit ($ 1,378) ($ 1,465) ($ 1,187)
Number of limited
partnership units outstanding 1,190 1,190 1,190
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-3
<PAGE>
ZOND-PANAERO WINDSYSTEM PARTNERS I
(A California Limited Partnership)
<TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Dollars in thousands)
<CAPTION>
Substit. Contrib.
General Limited Limited Capital
Total Partner Partners Partner (Note 6)
<S> <C> <C> <C> <C> <C>
Profit and loss
percentage (Note 1) 100% .5% .99% .5%
Accumulated capital
contributions, net of
private placement costs
and cash distributions $27,000 $ 273 $26,146 $ 581
Conversion to
Substituted Limited
Partner (Note 1) (83) ($ 83)
Loss for the period from
June 29, 1984(inception)
through December 31, 1992 (20,701) (157) (20,494) (50)
Balance at December 31, 1992 6,299 33 5,652 33 581
Net loss (1,640) (8) (1,624) (8)
Balance at December 31, 1993 4,659 25 4,028 25 581
Net loss (1,743) (9) (1,725) (9)
Balance at December 31, 1994 2,916 16 2,303 16 581
Net loss (1,412) (7) (1,398) (7)
Balance at December 31, 1995 $ 1,504 $ 9 $ 905 $ 9 $ 581
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-4
<PAGE>
ZOND-PANAERO WINDSYSTEM PARTNERS I
(A California Limited Partnership)
<TABLE>
STATEMENT OF CASH FLOWS
(In thousands)
(Note 2)
<CAPTION>
Years Ended December 31,
1993 1994 1995
<S> <C> <C< <C>
Cash flows from operating activities:
Net loss ($1,640) ($1,743) ($1,412)
Adjustments to reconcile net loss to net
cash provided by operating activities -
Depreciation 2,466 2,497 2,497
Changes in assets and liabilities -
Accounts receivable (56) (104) 187
Prepaid insurance and
other current assets (10) (8) 30
Accounts payable and accrued expenses 3 23 (16)
Amounts payable to related parties (5) (42) (5)
Accrued interest payable
to related party 324 465 344
Net cash provided
by operating activities 1,082 1,088 1,625
Cash flows used in financing activities:
Principal payments on
notes payable to related party (1,126) (1,277) (1,449)
Net (decrease) increase in cash (44) (189) 176
Cash and cash equivalents at
beginning of year 270 226 37
Cash and cash equivalents at end of year $ 226 $ 37 $ 213
Supplemental disclosure of
cash flow information:
Cash paid during the year for interest $ 1,974 $ 1,701 $ 1,676
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-5
<PAGE>
ZOND-PANAERO WINDSYSTEM PARTNERS I
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP:
Zond-PanAero Windsystem Partners I, a California Limited Partnership (the
"Partnership"), was formed on June 29, 1984 to purchase and operate a system
of 300 Vestas V-15 wind turbine electric generators (the "Turbines"). The
Turbines, together with certain infrastructural facilities which are owned by
Mesa Wind Developers ("Mesa"), a joint venture between Zond Systems, Inc.
("Zond") and an affiliate of PanAero Corporation ("PanAero"), form an
integrated electric power generating facility (the "Windsystem") with a rated
capacity of 19.5 megawatts in the San Gorgonio Pass near Palm Springs,
California. The general partner of the Partnership is Zond Windsystems
Management Corporation ("ZWMC"), a wholly owned subsidiary of Zond. PanAero
Management Corporation ("PAMC"), a wholly owned subsidiary of PanAero,
formerly served as a general partner of the Partnership. In June 1988, ZWMC
solicited a vote by proxy of the limited partners to remove PAMC as a general
partner; pursuant to that vote, PAMC was converted to a limited partner (the
"Substituted Limited Partner"). Zond is a developer of commercial
wind-powered electric generating facilities and PanAero is a wind resources
development company.
The Windsystem, which became operational in November 1984, was constructed by
Mesa Construction Company ("MCC"), a joint venture between a wholly owned
subsidiary of Zond Mesa VGIV (Zond Mesa) who in turn is a wholly owned
subsidiary of Zond and an affiliate of PanAero. Mesa has title to the
Windsystem's infrastructural facilities including the power substation.
A summary of the major operating agreements entered into by the Partnership,
directly or indirectly, is set forth below:
(1) The Partnership sells the electricity produced by the Turbines to
Southern California Edison Company ("SCE") pursuant to a power
purchase and sales agreement (the "Power Agreement") for a minimum
of twenty years which may be cancelled by either SCE or the
Partnership after the year 2004. SCE purchases electricity
produced by the Turbines at a price equal to the greater of (i)
89% of SCE's Cost of Energy (as defined in the Power Agreement) or
(ii) a fixed minimum price of $.102 per kilowatt hour ("kWh"),
with the limitation that when 89% of SCE's Cost of Energy exceeds
$.20 kWh, the price per kilowatt paid by SCE will be limited to
$.20 per kWh plus 70% of the difference between 89% of SCE's Cost
of Energy and $.20 per kWh.
(2) The Partnership has contracted with Zond for the operation and
maintenance of the Turbines and the performance of certain
ancillary management services, such as collection of revenues from
SCE and administration and payment of all Partnership expenses.
F-6
<PAGE>
(3) The land on which the Windsystem is located (Operating Site) is
owned by the United States Bureau of Land Management ("BLM"). The
BLM issued a Right-of-Way Grant to the Operating Site to PanAero
for development and operation of wind driven electricity
generating facilities. PanAero assigned its rights under the
Right-of-Way Grant to Mesa. Mesa granted the Partnership
nonexclusive easement rights to the Operating Site and the
Infrastructural Facilities under the Wind Park Easement Agreement
through January 26, 2003.
Mesa is required to pay the BLM annual rental payments for the
Operating Site equal to the greater of (i) a fixed fee based on
acreage utilized or (ii) 2% of gross revenues from the sale of
electricity. Annual rental payments may be increased by the BLM
to reflect an increase in the fair rental value of the land
covered by the Right-of-Way Grant.
The significant provisions of the Wind Park Easement Agreement
include:
Payment to Mesa each year of the greater of 5% of Gross
Operating Proceeds and the Partnership's pro rata share,
estimated to be 65%, of payments due under the Right-of-Way
Grant to the BLM. The Partnership incurred $231,000, $221,000
and $241,000 in fiscal years 1993, 1994 and 1995, respectively,
pursuant to this provision.
Payment to Mesa of its pro rata share of the operating costs of
the Infrastructural Facilities.
Mesa has the right to relocate the Partnership's turbines to
other areas of the Operating Site with similar wind conditions,
at Mesa's expense.
At the termination of the Easement Agreement, the Partnership
has the option of abandoning the turbines or removing the
turbines at its sole cost and selling them to third parties,
subject to a right of first refusal of Mesa to purchase the
turbines.
The nature and extent of limitations on distributions and allocations to the
Partners of the Partnership are as follows:
(1) The Partnership Agreement provides that distributions of
Distributable Cash are to be made as determined by the General
Partner in accordance with the Partnership Agreement.
Distributable Cash is defined as cash not needed to make both
semiannual payments on notes payable and to maintain a reserve
equal to twelve months anticipated partnership costs and expenses.
Cash distributions are to be made 99% to the limited partners, .5%
to PAMC, and .5% to the General Partner until the date on which
the aggregate amount of distributions to limited partners is
F-7
<PAGE>
$10,000,000. After such date, Distributable Cash will be
distributed in proportions of 75%, 10%, 10% and 5%, respectively,
to the limited partners, Substituted Limited Partner, General
Partner and Dean Witter Reynolds, Inc., placement agent for the
Partnership's private placement of limited partnership units in
1984, as the Special Limited Partner.
In connection with the Purchase Notes, the partnership agreed with
MCC that it will make no distributions to the partners of the
Partnership so long as either (i) an event of default exists under
certain construction financing agreements entered into in
connection with the construction of
the Windsystem, and (ii) the Partnership's anticipated cash flow
for the twelve months following any proposed distribution does not
exceed the amounts necessary for the Partnership to meets its
obligations with respect to debt service, operating expenses, and
maintenance of its cash reserve at the required level.
(2) Profits and losses are allocated to the limited partners,
Substituted Limited Partner and general partner in proportions of
99%, .5% and .5%, respectively, through the date on which the
aggregate amount of cash distributions to limited partners is
$10,000,000. After such date, profits and losses will be
allocated in proportions of 75%, 10%, 10% and 5% to the limited
partners, Substituted Limited Partner, general partner and Special
Limited Partner, respectively.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting
The Partnership's accounting records are maintained on the basis used for
federal income tax reporting purposes. For purposes of filing with the
Securities and Exchange Commission, the accounting records have been adjusted
to reflect generally accepted accounting principles ("GAAP") (see Note 6).
Income Taxes
The Partnership is not subject to federal and state income taxes.
Accordingly, no recognition has been given to income taxes in the accompanying
financial statements since the income or loss of the Partnership is to be
included in the tax returns of the individual partners. The tax returns of
the Partnership are subject to examination by federal and state taxing
authorities. If such examinations result in adjustments to distributive
shares of taxable income or loss, the tax liability of the partners could be
adjusted accordingly.
The tax attributes of the Partnership's net assets flow directly to each
individual partner. Individual partners will have different investment bases
depending upon the timing and prices of acquisition of Partnership units.
Further, each partner's tax accounting, which is partially dependent upon
F-8
<PAGE>
their individual tax position, may differ from the accounting followed in the
financial statements. Accordingly, there could be significant differences
between each individual partner's tax basis and their proportionate share of
the net assets reported in the financial statements. Statement of Financial
Accounting Standard No. 109 Accounting for Income Taxes requires disclosure by
a publicly held partnership of the aggregate difference in the basis of its
net assets for financial and tax reporting purposes. However, the Partnership
does not have access to information about each individual partner's tax
attributes in the Partnership, and the aggregate tax bases cannot be readily
determined. In any event, management does not believe that, in the
Partnership's circumstances, the aggregate difference would be meaningful
information.
Depreciation
The Turbines and capitalized improvements thereon are recorded at cost and are
being depreciated on the straight-line method over a twenty-year life.
Expenditures that materially increase the useful lives of assets are
capitalized, while ordinary maintenance and repairs are charged to operations
as incurred. Replacement of defective parts or expenditures designed to
modify turbines to improve their productivity are expensed as incurred.
Cash Equivalents
Cash equivalents are considered to be all highly liquid debt investments
purchased with maturities of three months or less.
Earnings Per Limited Partnership Unit
Earnings per limited partnership unit are calculated based upon the number of
limited partnership units outstanding during each year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
For each class of financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses, and accounts
payable to related parties, the carrying amount approximates fair value
because of the short maturity of those instruments.
NOTE 3 - PURCHASE NOTES PAYABLE:
The Partnership paid MCC a total of $48,930,000 for the purchase, construction
and installation of the Turbines, comprising $22,430,000 in cash and
F-9
<PAGE>
$26,500,000 in the form of eighteen-year, 13% notes payable in equal
semiannual installments of principal and interest totaling $1,921,500 (the
"Purchase Notes"). Under an agreement reached in April 1989, MCC reduced the
interest rate on the Purchase Notes to 11% beginning in January 1990. The
Partnership has secured payment of the Purchase Notes by granting MCC security
interests in all of the personal property or fixtures owned by the
Partnership, including the Windsystem.
<TABLE>
The Partnership's aggregate scheduled maturities of the Purchase Notes and
related interest payments and its approximate minimum rental obligations are
as follows (in 000's):
<CAPTION>
-------- Notes -------------
Principal Interest Total Rent Total
<S> <C> <C> <C> <C> <C>
1996 $ 1,643 $ 5,843 $ 7,486 $ 154 $ 7,640
1997 1,864 1,675 3,539 154 3,693
1998 2,114 1,463 3,577 154 3,731
1999 2,398 1,223 3,621 154 3,775
2000 2,719 951 3,670 154 3,824
Thereafter 6,583 934 7,517 308 7,825
Total $17,321 $12,089 $29,410 $1,078 $30,488
</TABLE>
The Partnership's cash flows have been insufficient to pay all scheduled
interest associated with the Purchase Notes. Consequently, at December 31,
1995, the Partnership was in arrears with respect to interest payments
totaling $3,981,000 ($3,632,000 at December 31, 1994). Interest arrearage is
not an event of default under the Purchase Notes unless MCC should decide that
MCC's ability to meet its obligations would be materially and adversely
affected by such arrearage and gives written notice of such failure to pay.
Management believes that the Purchase Notes principal and interest amounts
will not be paid by the scheduled maturity date of 2002.
The fair value of the principal portion of the Purchase Notes is determined
using the discounted value of estimated future cash flows based on the notes'
contractual effective interest rate. Management estimates future cash flows
available to repay the notes by considering average historical production,
contractual power purchase rates, future operating costs, current economic
conditions and other relevant factors. The fair value of the Purchase Notes
at December 31, 1995 is estimated based on projected cash flows to be
$15,240,000 using the contractual effective interest rate as the market rate
of interest.
The Purchase Notes contained a number of covenants. Such covenants relate
principally to Windsystem availability and provision of financial information.
F-10
<PAGE>
NOTE 4 - AMOUNT PAYABLE TO RELATED PARTIES:
<TABLE>
The following amounts were payable to related parties:
<CAPTION>
December 31,
1994 1995
<S> <C> <C>
Mesa $ 62,000 $ 85,000
Other 22,000 (6,000)
Total $ 84,000 $ 79,000
</TABLE>
Amounts payable to Mesa represent management fees, easement royalties,
purchases of spare parts and other miscellaneous expenses related to
Windsystem operations. Such amounts are unsecured and non-interest bearing.
The Partnership has the following related party transactions and
relationships:
(1) The Windsystem was constructed and installed by MCC. MCC, in turn,
contracted with Zond as its general contractor and purchased the
Turbines from Vestas North America Limited ("VNAL"), a joint venture
between Zond and Vestas Energy A/S ("Vestas"), a Danish corporation.
Zond sold its interest in VNAL during 1987.
(2) Since July 1988, the Partnership has contracted with Zond to operate
and maintain the Turbines and to perform certain management services.
Under the provisions of this contract, the Partnership pays a
management fee of 2% of gross operating cash receipts. The Partnership
incurred $1,058,000, $1,080,000 and $1,024,000 in 1993, 1994 and 1995,
respectively, pursuant to this agreement.
(3) The Special Limited Partner, in conjunction with Zond, has undertaken
certain research and development activities to improve the design and
construction of the Turbines' blades. The cost of these activities,
including the cost of certain prototype blades, were borne solely by
the Special Limited Partner and Zond.
(4) The Partnership contracted with Zond, as general contractor, to
complete a comprehensive turbine improvement program intended to
upgrade the production performance of the Partnership's windsystem.
Zond completed the improvements in 1991 for a total cost of $4,573,000.
NOTE 5 - LITIGATION:
The Partnership and certain affiliated entities, including Zond and ZWMC, were
named defendants in a suit brought by PanAero. The suit alleges, among other
things, certain overcharges to the Partnership pursuant to the contract with
Zond to operate and maintain the Turbines. Although the case is in the early
F-11
<PAGE>
discovery stage of litigation, Zond believes that the outcome will not have a
material adverse effect on the Partnership's results of operations or
financial position.
NOTE 6 - RECONCILIATION OF GAAP BASIS
AND TAX BASIS FINANCIAL STATEMENTS:
<TABLE>
Listed below are reconciliations between the Partnership's tax basis financial
statements and the financial statements included herein for results of
operations, partners' capital balances and total assets:
<CAPTION>
Years Ended December 31,
1993 1994 1995
<S> <C> <C> <C>
Tax basis income $ 698,000 $ 628,000 $ 1,086,000
Tax depreciation less
than GAAP depreciation (2,339,000) (2,370,000) (2,494,000)
Other 1,000 (1,000) (4,000)
GAAP basis loss ($ 1,640,000) ($ 1,743,000) ($ 1,412,000)
Tax basis partners'
capital (deficit) ($16,351,000) ($15,724,000) ($14,638,000)
Cumulative tax basis losses
in excess of cumulative
GAAP basis losses 20,429,000 18,059,000 15,561,000
GAAP basis contributed capital 581,000 581,000 581,000
GAAP basis partners' capital $ 4,659,000 $ 2,916,000 $ 1,504,000
Tax basis total assets $ 6,935,000 $ 6,892,000
Cumulative tax depreciation
in excess of GAAP depreciation 8,664,000 16,169,000
GAAP basis total assets $ 25,599,000 $ 23,061,000
</TABLE>
F-12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ZOND-PANAERO WINDSYSTEM PARTNERS I
A CALIFORNIA LIMITED PARTNERSHIP
By: Zond Windsystems Management
Corporation, General Partner
Date: March 29, 1996 By: /S/ KENNETH C. KARAS
Kenneth C. Karas, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ JAMES G. P. DEHLSEN Director of ZWMC March 29, 1996
James G. P. Dehlsen
/S/ KENNETH C. KARAS Director of ZWMC March 29, 1996
Kenneth C. Karas
/S/ ROBERT H. GATES Director of ZWMC March 29, 1996
Robert H. Gates
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 213
<SECURITIES> 0
<RECEIVABLES> 307
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 128
<PP&E> 49,659
<DEPRECIATION> (27,246)
<TOTAL-ASSETS> 23,061
<CURRENT-LIABILITIES> 5,879
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 1,504 <F1>
<TOTAL-LIABILITY-AND-EQUITY> 23,061
<SALES> 4,624
<TOTAL-REVENUES> 4,669
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,061
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,020
<INCOME-PRETAX> (1,412)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,412)
<EPS-PRIMARY> (1.187)<F2>
<EPS-DILUTED> (1,187)<F2>
<FN>
<F1>Partner equity - 1,190 Partnership units outstanding.
<F2>Per Partnership Unit in thousands.
</FN>
</TABLE>
