<PAGE>
REGISTRATION NO. 333-79581
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SALTON SEA FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C> <C>
DELAWARE 4911 47-0790493
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
SALTON SEA BRINE PROCESSING L.P. CALIFORNIA 4911 33-0601721
SALTON SEA POWER GENERATION L.P. CALIFORNIA 4911 33-0567411
FISH LAKE POWER LLC DELAWARE 4911 33-0453364
VULCAN POWER COMPANY NEVADA 4911 95-3992087
CALENERGY OPERATING CORPORATION DELAWARE 4911 33-0268085
SALTON SEA ROYALTY LLC DELAWARE 4911 47-0790492
VPC GEOTHERMAL LLC DELAWARE 4911 91-1244270
SAN FELIPE ENERGY COMPANY CALIFORNIA 4911 33-0315787
CONEJO ENERGY COMPANY CALIFORNIA 4911 33-0268500
NIGUEL ENERGY COMPANY CALIFORNIA 4911 33-0268502
VULCAN/BN GEOTHERMAL POWER COMPANY NEVADA 4911 95-3992087
LEATHERS, L.P. CALIFORNIA 4911 33-0305342
DEL RANCH, L.P. CALIFORNIA 4911 33-0278290
ELMORE, L.P. CALIFORNIA 4911 33-0278294
SALTON SEA POWER L.L.C. DELAWARE 4911 47-0810713
CALENERGY MINERALS LLC DELAWARE 4911 47-0810718
CE TURBO LLC DELAWARE 4911 47-0812159
CE SALTON SEA INC. DELAWARE 4911 47-0810711
SALTON SEA MINERALS CORP. DELAWARE 4911 47-0811261
(Exact name of Registrants (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
as specified in their charters) incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
----------------
302 SOUTH 36TH STREET, SUITE 400-A, OMAHA, NEBRASKA 68131 (402) 231-1641
(Address, including zip code, and telephone number, including area code, of
Salton Sea Funding Corporation's principal executive offices)
----------------
DOUGLAS L. ANDERSON, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
SALTON SEA FUNDING CORPORATION
302 SOUTH 36TH STREET, SUITE 400-A
OMAHA, NEBRASKA 68131 (402) 231-1641
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
WITH COPIES TO:
PETER J. HANLON, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019 (212) 728-8227
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration
Statement.
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If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with general
instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
----------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
PROSPECTUS
SALTON SEA FUNDING CORPORATION
Exchange Offer for
7.475% Senior Secured Series F
Bonds Due November 30, 2018
----------------
This is an offer to exchange the outstanding, unregistered Salton Sea
Funding Corporation 7.475% Senior Secured Series F Bonds you now hold for new,
substantially identical 7.475% Senior Secured Series F Bonds that will be free
of the transfer restrictions that apply to the old bonds. This offer will
expire at 5:00 p.m., New York City time, on July 30, 1999, unless we extend it.
You must tender the old, unregistered bonds by the deadline to obtain new,
registered bonds and the liquidity benefits they offer.
We agreed with the initial purchasers of the old bonds to make this offer
and register the issuance of the new bonds following the closing. This offer
applies to any and all old bonds tendered before the deadline.
The new bonds will not trade on any established exchange. The new bonds
have the same financial terms and covenants as the old bonds, and are subject
to the same business and financial risks.
A DESCRIPTION OF THOSE RISKS BEGINS ON PAGE 31.
The terms of the exchange offer will include the following:
o We will exchange all old securities that are validly tendered and not
withdrawn prior to the expiration of the exchange offer.
o You may withdraw tenders of old securities at any time prior to the
expiration of the exchange offer.
o We will not receive any proceeds from the exchange offer.
----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
The date of this prospectus is June 29, 1999.
<PAGE>
TABLE OF CONTENTS
PAGE
----
Prospectus Summary ........................................................ 1
Risk Factors .............................................................. 31
Where You Can Find More Information ....................................... 36
Capitalization ............................................................ 37
The Exchange Offer ........................................................ 38
Selected Historical Financial and Operating Data of the Funding
Corporation ............................................................. 48
Selected Historical Combined Financial and Operating Data of the
Salton Sea Guarantors ................................................... 49
Selected Historical Combined Financial and Operating Data of the
Partnership Guarantors .................................................. 50
Selected Historical Financial and Operating Data of the Royalty
Guarantor ............................................................... 51
Management ................................................................ 52
Business of the Guarantors ................................................ 53
Summary Description of Principal Project Contracts ........................ 61
Summary Description of the Series F Securities ............................ 79
Summary Description of Principal Financing Documents ...................... 82
Plan of Distribution ...................................................... 113
Incorporation of Material Documents by Reference .......................... 114
Legal Matters ............................................................. 114
Experts ................................................................... 114
Independent Engineer ...................................................... 115
Consultants' Reports ...................................................... 115
Glossary of Defined Terms ................................................. A-1
Independent Engineer's Report ............................................. B-1
Power Market Consultant's Report .......................................... C-1
Geothermal Resource Consultant's Report ................................... D-1
Zinc Market Consultant's Report ........................................... E-1
Part II ................................................................... II-1
i
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PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus includes specific terms of the securities we are offering, as well
as information regarding our business and detailed financial data. We encourage
you to read the prospectus in its entirety. Unless the context clearly
indicates otherwise, the terms "we," "our" or "us" as used in this prospectus
summary refer to Salton Sea Funding Corporation, the issuer of your securities,
and to affiliates of Salton Sea Funding Corporation which are guaranteeing your
securities. You should pay special attention to the "Risk Factors" section
beginning on page 31 of this prospectus. Certain technical terms which we use
in this prospectus summary and elsewhere in this prospectus are defined in the
Glossary of Defined Terms in Appendix A.
SALTON SEA FUNDING CORPORATION
We are a special purpose Delaware corporation and an indirect wholly-owned
subsidiary of CE Generation, LLC ("CE Generation"). We were formed for the sole
purpose of issuing securities in our individual capacity as principal and as
agent acting on behalf of our affiliates which guarantee the Securities. Our
principal executive office is located at 302 South 36th Street, Suite 400-A,
Omaha, Nebraska 68131, and our telephone number is (402) 341-1644.
We have completed the following issuances and exchanges of securities:
o On July 21, 1995, we issued (1) $232,750,000 of our 6.69% Senior
Secured Series A Notes Due 2000 (the "Series A Securities"), (2)
$133,000,000 of 7.37% Senior Secured Series B Bonds Due 2005 (the
"Series B Securities") and (3) $109,250,000 of our 7.84% Senior
Secured Series C Bonds Due 2010 (the "Series C Securities" and,
together with the Series A Securities and the Series B Securities, the
"Initial Securities");
o On February 13, 1996, we consummated an exchange offer where we issued
substantially identical Initial Securities which had been registered
under the Securities Act in exchange for the unregistered Initial
Securities;
o On June 20, 1996, we issued (1) $70,000,000 of our 7.02% Senior
Secured Series D Bonds Due 2000 (the "Series D Securities") and (2)
$65,000,000 of our 8.30% Senior Secured Series E Bonds Due 2011 (the
"Series E Securities" and, together with the Series D Securities, the
"Supplemental Securities");
o On July 29, 1996, we consummated an exchange offer where we issued
substantially identical Supplemental Securities which had been
registered under the Securities Act in exchange for the unregistered
Supplemental Securities; and
o On October 13, 1998, we issued $285,000,000 of our 7.475% Senior
Secured Series F Bonds Due 2018 (the "Old Securities").
We are offering to exchange Old Securities for our 7.475% Senior Secured
Series F Bonds Due 2018 which have been registered under the Securities Act
(the "New Securities").
The Initial Securities, the Supplemental Securities and the Old Securities
have received ratings of "Baa2" by Moody's Investors Service, Inc. ("Moody's")
and "BBB" by Standard & Poor's Ratings Group ("S&P"). The Initial Securities,
the Supplemental Securities, the Old Securities and the New Securities will be
equivalent in right of payment and in the right to share in the collateral. On
June 1, 1999, the aggregate principal amount of all Securities outstanding was
$597,898,000. Approximately $297,102,000 of the Initial Securities and the
Supplemental Securities have been paid in full with cash flows from our
operating geothermal power plants.
CE GENERATION, LLC AND ITS MEMBERS
We (other than CalEnergy Minerals LLC and Salton Sea Minerals Corp.) are
indirect wholly-owned subsidiaries of CE Generation. CE Generation was formed
for the sole purpose of issuing securities and
1
<PAGE>
holding the equity interests in its subsidiaries. Fifty percent of the
membership interests in CE Generation are owned by MidAmerican Energy Holdings
Company ("MidAmerican") and the other fifty percent of the membership interests
in CE Generation are owned by El Paso Power Holding Company ("El Paso
Holding"). El Paso Holding is an affiliate of El Paso Energy Corporation ("El
Paso"). CalEnergy Minerals LLC is an indirect and Salton Sea Minerals Corp. is
a direct, wholly-owned subsidiary of MidAmerican. The Securities are
non-recourse to CE Generation, MidAmerican, El Paso Holding and El Paso.
MidAmerican, which is the successor to CalEnergy Company, Inc., is a
fast-growing global energy company with an increasingly diversified portfolio
of regulated and non-regulated assets. The focus of MidAmerican has evolved
over time from development and acquisition activities in the domestic and
international power generation market to strategic electric and gas utility
acquisitions, with a particular emphasis on investment-grade countries such as
the United States, the United Kingdom, Australia, Canada, New Zealand and the
countries of Western Europe. This focus has provided MidAmerican with increased
scale, skill, revenue diversity, enhanced credit quality of cash flows and
additional growth opportunities associated with each of the acquired
businesses. MidAmerican's investments in related activities (e.g., producing
gas fields, gas reserves and advanced utility information systems) are
primarily intended to support and augment the profitability of its existing
core businesses.
MidAmerican, through its subsidiaries, manages and currently owns
interests in over 10,000 MW of power generation facilities in operation,
construction and development worldwide, including 20 generating facilities
which it currently operates. MidAmerican first entered the energy distribution
and sales industry in 1996 with its acquisition of Northern Electric plc, which
currently has more than two million electric and gas customers in the United
Kingdom. On March 12, 1999, MidAmerican acquired MidAmerican Energy Company, a
combined electric and gas utility with electric and gas operations in Iowa,
Illinois and South Dakota and gas operations in Nebraska.
In February 1995, MidAmerican completed the acquisition of Magma Power
Company ("Magma"). Magma had previously owned or controlled substantially all
of the assets of some of the guarantors of the Securities and 50% of the
partnership interests in some of the other guarantors. In 1996, a subsidiary of
MidAmerican acquired the remaining 50% of the partnership interests in these
other guarantors and as a result obtained 100% ownership of the geothermal
power plants which generate the cash flows that we use to make payments on the
Securities. In February 1999, MidAmerican contributed the capital stock of
Magma to CE Generation, and on March 3, 1999 MidAmerican sold 50% of the
membership interests in CE Generation to El Paso Holdings.
Magma directly or indirectly owns all of our capital stock and other
equity interests. One of the guarantors of the Securities, CalEnergy Operating
Corporation, operates each of our geothermal power plants. Affiliates of Magma
control, through a variety of fee, leasehold and royalty interests, rights to
geothermal resources for power production and minerals recovery in the Salton
Sea Known Geothermal Resource Area. We believe, and GeothermEx, Inc. the
"Geothermal Resource Consultant" concurs, that these geothermal resources will
be sufficient to operate our geothermal power plants which are currently in
operation at contract capacity under their power purchase agreements, and our
geothermal power plants and zinc recovery facility which are currently in
construction at their respective design capacities, in each case through the
final maturity date for the Securities.
El Paso Holding is an affiliate of El Paso, which provides energy
solutions through five business units: Tennessee Gas Pipeline Company, El Paso
Natural Gas Company, El Paso Field Services Company, El Paso Energy Marketing
Company and El Paso Energy International Company. El Paso, which has over $10
billion in assets, owns the nation's only integrated coast-to-coast natural gas
pipeline system and has operations in interstate natural gas transmission, gas
gathering and processing, energy marketing and international infrastructure
development.
2
<PAGE>
THE GUARANTORS
The following companies (the "Guarantors") currently guarantee the Funding
Corporation's obligation to make payments on the Securities to the extent
described in this prospectus:
o Salton Sea Brine Processing L.P. ("SSBP");
o Salton Sea Power Generation L.P. ("SSPG");
o Fish Lake Power LLC ("Fish Lake");
o Salton Sea Power L.L.C. ("Power LLC");
o CalEnergy Operating Corporation ("CEOC");
o Vulcan Power Company ("VPC");
o VPC Geothermal LLC ("VPC Geothermal");
o Vulcan/BN Geothermal Power Company ("Vulcan");
o Elmore, L.P. ("Elmore");
o Leathers, L.P. ("Leathers");
o Del Ranch, L.P. ("Del Ranch");
o Conejo Energy Company ("Conejo");
o San Felipe Energy Company ("San Felipe");
o Niguel Energy Company ("Niguel");
o CalEnergy Minerals LLC ("Minerals LLC");
o CE Turbo LLC ("Turbo LLC");
o CE Salton Sea Inc. ("CESS");
o Salton Sea Minerals Corp. ("SSMC"); and
o Salton Sea Royalty LLC (the "Royalty Guarantor").
In this prospectus, we occasionally refer to the Guarantors in groups. The
following chart shows which Guarantors belong to which groups.
<TABLE>
<CAPTION>
NAME OF GROUP GUARANTORS WHICH BELONG TO THE GROUP
------------- ------------------------------------
<S> <C>
Initial Salton Sea Guarantors ................ SSBP, SSPG and Fish Lake
Salton Sea Guarantors ........................ SSBP, SSPG, Fish Lake and Power LLC
Initial Partnership Guarantors ............... CEOC and VPC
Supplemental Partnership Guarantors .......... VPC Geothermal, Conejo, Niguel, San Felipe, Leathers,
Elmore, Del Ranch and Vulcan
Additional Partnership Guarantors ............ Minerals LLC and Turbo LLC
Partnership Guarantors ....................... CEOC, VPC, VPC Geothermal, Conejo, Niguel, San
Felipe, Leathers, Elmore, Del Ranch, Vulcan, Minerals
LLC and Turbo LLC
Partnership Project Companies ................ Leathers, Elmore, Del Ranch, Vulcan, Minerals LLC and
Turbo LLC
</TABLE>
The Initial Salton Sea Guarantors own the following four geothermal power
plants, which are located in Imperial Valley, California in the Salton Sea
Known Geothermal Resource Area:
o a 10 MW nameplate geothermal power plant owned by SSBP and SSPG
("Salton Sea Unit I");
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<PAGE>
o a 20 MW nameplate geothermal power plant owned by SSBP and SSPG
("Salton Sea Unit II");
o a 50 MW nameplate geothermal power plant owned by SSBP and SSPG
("Salton Sea Unit III"); and
o a 34 MW nameplate geothermal power plant owned by Fish Lake and SSPG
("Salton Sea Unit IV").
Power LLC is currently constructing a 49 MW geothermal power plant located
in the Salton Sea Known Geothermal Resource Area ("Salton Sea Unit V").
The Initial Partnership Guarantors and the Supplemental Partnership
Guarantors own the following four geothermal power plants, which are located in
Imperial Valley, California in the Salton Sea Known Geothermal Resource Area:
o a 34 MW nameplate geothermal power plant owned by Vulcan (the "Vulcan
Project");
o a 38 MW nameplate geothermal power plant owned by Elmore (the "Elmore
Project");
o a 38 MW nameplate geothermal power plant owned by Leathers (the
"Leathers Project"); and
o a 38 MW nameplate geothermal power plant owned by Del Ranch (the "Del
Ranch Project").
Minerals LLC is currently constructing a 30,000 metric tonne/year facility
for the recovery of zinc from the geothermal brine used by our geothermal power
projects (the "Zinc Recovery Project"). Turbo LLC is currently constructing a
10 MW geothermal power project located in Imperial Valley, California in the
Salton Sea Known Geothermal Resource Area (the "CE Turbo Project"). Vulcan and
Del Ranch are currently constructing well field brine processing facilities
near the Vulcan Project and the Del Ranch Project (the "Region 2 Brine
Facilities Construction").
In this prospectus we sometimes refer to our geothermal power plants and
our zinc recovery facility in groups. The following chart shows which projects
belong to which groups.
<TABLE>
<CAPTION>
NAME OF GROUP PROJECTS WHICH BELONG TO THE GROUP
------------- ----------------------------------
<S> <C>
Existing Salton Sea Projects ........... Salton Sea Unit I, Salton Sea Unit II, Salton Sea Unit III
and Salton Sea Unit IV
Salton Sea Projects .................... Salton Sea Unit I, Salton Sea Unit II, Salton Sea Unit III,
Salton Sea Unit IV and Salton Sea Unit V
Existing Partnership Projects .......... Vulcan Project, Elmore Project, Leathers Project and Del
Ranch Project
Partnership Projects ................... Vulcan Project, Elmore Project, Leathers Project, Del
Ranch Project, Zinc Recovery Project and TurboExpander
Project
Existing Projects ...................... Salton Sea Unit I, Salton Sea Unit II, Salton Sea Unit III,
Salton Sea Unit IV, Vulcan Project, Elmore Project,
Leathers Project and Del Ranch Project
Power Projects ......................... Salton Sea Unit I, Salton Sea Unit II, Salton Sea Unit III,
Salton Sea Unit IV, Salton Sea Unit V, Vulcan Project,
Elmore Project, Leathers Project, Del Ranch Project and
CE Turbo Project
New Projects ........................... Salton Sea Unit V, Zinc Recovery Project and CE Turbo
Project
Region 2 Construction .................. CE Turbo Project and Region 2 Brine Facilities
Construction
</TABLE>
The Royalty Guarantor has received an assignment of certain fees and
royalties paid by Elmore, Leathers and Del Ranch. These fees and royalties are
subject to netting and reduction from time to time to reflect various operating
costs, as reflected in the financial statements contained in this prospectus.
4
<PAGE>
STRUCTURE OF AND COLLATERAL FOR THE SECURITIES
We loaned a portion of the proceeds of the sale of the Old Securities to
the Partnership Guarantors pursuant to a promissory note issued in an initial
principal amount of $201,728,000. The Partnership Guarantors are using the
proceeds of this loan for the following purposes:
o approximately $140,520,000 to finance the construction of the Zinc
Recovery Project;
o approximately $44,581,000 to finance the Region 2 Construction; and
o approximately $16,627,000 to fund capital improvements to the steam
field and related facilities for the Existing Projects (the
"Additional Capital Improvements").
We loaned another portion of the proceeds of the sale of the Old
Securities to the Salton Sea Guarantors pursuant to a promissory note issued in
an initial principal amount of $83,272,000. The Salton Sea Guarantors are using
all of the proceeds of this loan to finance the construction of Salton Sea
Unit V.
We will make payments on the Securities with the principal of and interest
paid on promissory notes issued by the Guarantors to us, including the notes
described above. The Securities are secured by a pledge of our capital stock
and are guaranteed by the Guarantors. These guarantees are secured by:
o in the case of the guarantee issued by the Salton Sea Guarantors, by a
lien on substantially all of the assets of the Salton Sea Guarantors
and a pledge of the equity interests in the Salton Sea Guarantors;
o in the case of the guarantee issued by the Partnership Guarantors, by
a lien on substantially all of the assets of the Partnership Project
Companies, a lien on the equity cash flows and royalties of the
Initial Partnership Guarantors and a pledge of the stock of and other
equity interests in the Partnership Guarantors; and
o in the case of the guarantee issued by the Royalty Guarantor, by a
lien on all royalties paid to the Royalty Guarantor and a pledge of
the capital stock of the Royalty Guarantor.
The guarantees issued by the Salton Sea Guarantors are unlimited. However,
the guarantees issued by the Partnership Guarantors and the Royalty Guarantor
are limited to the following amounts:
o for any Initial Partnership Guarantor or the Royalty Guarantor, the
total equity cash flows and royalties received by the Guarantor,
minus, without duplication, (1) any royalties paid, (2) all operating
and maintenance costs, (3) all capital expenditures and (4) debt
service;
o for any Additional Partnership Guarantor, the total revenues received
by the Guarantor, minus, without duplication, (1) any royalties paid,
(2) all operating and maintenance costs, (3) all capital expenditures
and (4) debt service.
The structure has been designed to cross-collateralize cash flows from
each Guarantor without cross-collateralizing all of the Guarantors' assets.
Therefore, if a Guarantor defaults under its guarantee or its promissory note
issued to us, without causing a payment default on the Securities, then the
trustee may direct the collateral agent to exercise remedies only with respect
to the collateral securing that Guarantor's obligations. If, however, the
default causes a payment default on the Securities, then the trustee may
accelerate the Securities and direct the collateral agent to exercise remedies
against all of the collateral and, if different, the collateral pledged by the
Salton Sea Guarantors.
We are obligated at all times to maintain a debt service reserve fund
and/or an acceptable letter of credit in an aggregate amount equal to:
o through December 31, 1999, the maximum semiannual principal and
interest payments on the Securities for the remaining term of the
Securities;
o after December 31, 1999 through payment in full of the Initial
Securities and the Supplemental Securities, the maximum annual
principal and interest payments on the Securities for the remaining
term of the Securities; and
5
<PAGE>
o after payment in full of the Initial Securities and the Supplemental
Securities, (a) the maximum annual principal and interest payments on
the Series F Securities for the remaining term or (b) if we obtain a
confirmation of the current ratings of the Securities, the maximum
semiannual principal and interest payments on the Series F Securities.
TRANSACTION STRUCTURE(1)
[GRAPHIC OMITTED]
- ----------
(1) This chart reflects loans made to the Guarantors with the proceeds of the
sale of the Initial Securities and the Supplemental Securities. As of
June 1, 1999, the outstanding balances of the promissory notes issued by
the Salton Sea Guarantors, the Partnership Guarantors and the Royalty
Guarantor to us were $218,720,000, $75,666,000 and $18,512,000,
respectively. The Salton Sea Guarantors and the Partnership Guarantors
issued additional promissory notes to us in the amounts of $83,272,000
and $201,728,000, respectively, in connection with the offering of the
Old Securities.
THE PROJECTS
Since MidAmerican's acquisition of Magma, the operations of the Existing
Projects acquired in such acquisition have substantially improved, and
significant cost savings and efficiencies have been realized:
o Salton Sea Unit IV was completed adding 39.6 MW of capacity;
o pH modification was installed at Salton Sea Units I, III and IV; and
o Control room and other administrative functions were upgraded and made
more efficient.
The result has been a 17.8% increase in net output from 1,973,007 net MWh
to 2,323,341 net MWh and a 23.5% reduction in site operating costs from $64.7
million (or 3.28 cents/kWh) to $49.5 million (or 2.13 cents/kWh) between 1995
and 1997.
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<PAGE>
Set forth below is a table describing certain characteristics of our projects.
<TABLE>
<CAPTION>
DATE OF
FACILITY CAPACITY COMMERCIAL CONTRACT CONTRACT POWER
PROJECT (IN MW)(1)(2) OPERATION EXPIRATION TYPE PURCHASER(3)
- ------- ------------- --------- ---------- ---- ------------
<S> <C> <C> <C> <C> <C>
Salton Sea Projects:
Salton Sea Unit I ....... 10 7/1987 6/2017 Negotiated SCE
Salton Sea Unit II ...... 20 4/1990 4/2020 SO4 Agreement SCE
Salton Sea Unit III ..... 49.8 2/1989 2/2019 SO4 Agreement SCE
Salton Sea Unit IV ...... 39.6 5/1996 5/2026 Negotiated SCE
Salton Sea Unit V ....... 49 mid-2000 N/A N/A PX/Zinc Recovery Project
-----
Subtotal ................ 168.4
Partnership Projects:
Vulcan .................. 34 2/1986 2/2016 SO4 Agreement SCE
Elmore .................. 38 1/1989 12/2018 SO4 Agreement SCE
Leathers ................ 38 1/1990 12/2019 SO4 Agreement SCE
Del Ranch ............... 38 1/1989 12/2018 SO4 Agreement SCE
TurboExpander
Project ................ 10 mid-2000 N/A N/A PX
-----
Subtotal ................ 158.0
-----
Total Power Projects 326.4
Zinc Recovery
Project ................ 30,000 mid-2000 N/A N/A N/A
</TABLE>
- ----------
(1) Power Project capacity is a nominal number that varies with operating and
reservoir conditions.
(2) Power Project capacities are measured in megawatts; Zinc Recovery Project
capacity is measured in metric tonnes per year.
(3) The term "SCE" means Southern California Edison Company and the term "PX"
means the California Power Exchange.
THE EXISTING PROJECTS
Salton Sea Units I-IV. Our Existing Salton Sea Projects have an aggregate
net generating capacity of approximately 119.4 MW. All of these Projects have
executed long-term power purchase agreements providing for the sale of capacity
and energy to Southern California Edison Company ("SCE"). Some of the basic
terms of these power purchase agreements are as follows:
o Salton Sea Unit I: capacity payment and energy payment for the life of
the contract, which are subject to quarterly adjustment by reference
to various inflation-related indices.
o Salton Sea Unit II:
o fixed price capacity payments for the life of the contract;
o fixed price energy payments until April 4, 2000; and
o energy payments based on SCE's short-run avoided cost of energy
after April 4, 2000.
o Salton Sea Unit III:
o fixed price capacity payments for the life of the contract;
o fixed price energy payments until February 13, 1999; and
o energy payments based on the avoided cost of energy after
February 13, 1999.
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<PAGE>
o Salton Sea Unit IV:
o fixed price capacity payments for the life of the contract;
o for approximately 56% of the energy: (1) fixed price energy
payments, subject to adjustment by reference to inflation-related
indicies, until June 2017; and (2) energy payments based on the
avoided cost of energy after June 2017; and
o for approximately 44% of the energy: (1) energy payments based on
a fixed price schedule for the first 10 years of the contract;
(2) energy payments based on a modified avoided cost of energy
for the next 5 years of the contract; and (3) energy payments
based on the avoided cost of energy for the remaining life of the
contract.
Existing Partnership Projects. Our Existing Partnership Projects have an
aggregate net generating capacity of 148 MW. The Partnership Guarantors
collectively own 100% of the Vulcan Project and 90% partnership interests in
each of the Elmore Project, the Leathers Project and the Del Ranch Project.
Magma owns the remaining 10% interests in these Projects. In connection with
the offering of the Initial Securities, Magma assigned to CEOC the partnership
distributions it receives from its interests in the Elmore Project, the
Leathers Project and the Del Ranch Project in exchange for proprietary data and
services provided by CEOC.
All of our Existing Partnership Projects have executed long-term power
purchase agreements for the sale of capacity and energy to SCE. Some of the
basic terms of these contracts are as follows:
o fixed price capacity payments for the life of the contract;
o fixed price energy payments for the first 10 years of the contract;
o energy payments based on the avoided cost of energy after the first 10
years of the contract.
The fixed price energy period expired in 1996 for the Vulcan Project, expired
in 1999 for the Del Ranch Project and the Elmore Project and will expire in
2000 for the Leathers Project.
Royalties and Royalty Projects. The Royalty Guarantor has received an
assignment from Magma of royalties received from the Leathers Project, the Del
Ranch Project and the Elmore Project in exchange for the provision to those
Projects of the rights to use geothermal resources. All of the assigned
royalties are based on a percentage of energy and capacity revenues of the
projects. The Partnership Guarantors are also entitled to receive royalties
from the Partnership Projects. Royalties are subject to netting and reduction
from time to time to reflect various operating costs, as reflected in the
financial statements contained in this prospectus.
THE NEW PROJECTS
Salton Sea Unit V. We are expanding the generating capacity of the Salton
Sea Projects by constructing Salton Sea Unit V. Some of the characteristics of
Salton Sea Unit V are expected to be as follows:
o Salton Sea Unit V is designed to be a 49 MW (net) geothermal power
plant;
o Salton Sea Unit V is designed to extract unutilized geothermal energy
from geothermal brine that has previously passed through the other
Salton Sea Projects;
o Salton Sea Unit V is designed to require an approximately 5% increase
in total brine used at the Salton Sea Projects, which can be supplied
from existing wells;
o This more efficient use of geothermal brine resulting from its design
is expected to make the plant very cost effective; and
o Salton Sea Unit V will sell approximately one-third of its net output
for use by the Zinc Recovery Project, and will sell the remainder of
its net output through the PX and in other market transactions.
8
<PAGE>
Salton Sea Unit V is being constructed pursuant to a date certain, fixed
price, turn-key engineering, procurement and construction contract with Stone &
Webster Engineering Corporation ("SWEC"). SWEC is one of the world's leading
engineering and construction firms for the construction of electric power
plants and, in particular, geothermal power plants. SWEC provided the
engineering for the construction of Salton Sea Unit III and has completed
engineering, procurement, construction or other related work on twenty-seven
other geothermal power plants over the past five years. SWEC's obligations
under the construction contract for Salton Sea Unit V, including provisions for
liquidated damages of up to 20% of the contract price for certain delays or
failures to meet performance guarantees, are guaranteed by SWEC's parent, Stone
& Webster, Incorporated. Salton Sea Unit V is scheduled to commence commercial
operation in mid-2000.
Zinc Recovery Project. We are also constructing the Zinc Recovery Project.
Some of the characteristics of the Zinc Recovery Project are expected to be as
follows:
o the Zinc Recovery Project is designed to recover zinc from the
geothermal brine that has been extracted from the ground for use in
the Power Projects;
o the Zinc Recovery Project is designed to utilize geothermal brine
after the brine has been used by the Power Projects but before the
brine is re-injected into the ground.
o the Zinc Recovery Project is designed to include four facilities
located near the sites for the Existing Projects to extract a zinc
chloride solution from the brine through an ion exchange process,
which solution will be transported to a central processing plant where
zinc ingots will be produced through solvent extraction,
electrowinning and casting processes;
o the Zinc Recovery Project is designed to have a capacity of
approximately 30,000 metric tonnes per year and scheduled to commence
commercial operation in mid-2000; and
o the Zinc Recovery Project's output is expected to be sold primarily to
domestic West Coast customers such as steel companies, alloyers and
galvanizers.
The Zinc Recovery Project is being constructed pursuant to a date certain,
fixed-price, turnkey engineering, procurement and construction contract with
Kvaerner U.S. Inc. ("Kvaerner"). Kvaerner is a wholly-owned indirect subsidiary
of Kvaerner ASA, an internationally recognized engineering and construction
firm experienced in the metals, mining and processing industries. The payment
obligations of Kvaerner, including payment of liquidated damages of up to 20%
of the contract price for certain delays or failures to meet performance
guarantees, will be secured by a letter of credit issued by Union Europeenne de
CIC in an initial aggregate amount equal to $29.6 million. The Zinc Recovery
Project is scheduled to commence initial operations in mid-2000.
Region 2 Construction. We are also constructing the CE Turbo Project. Some
of the characteristics of the CE Turbo Project are expected to be as follows:
o the CE Turbo Project is designed to generate electricity from excess
geothermal energy produced from the wells in the region of the well
field currently supplying the Vulcan Project and the Del Ranch
Project;
o the CE Turbo Project is designed to have a capacity of 10 MW (net);
o the CE Turbo Project is expected to be highly cost effective because
it is designed to not require additional geothermal production or
injection wells; and
o the CE Turbo Project's net output of electricity is expected to be
sold to the Zinc Recovery Project (if Salton Sea Unit V is not
delivering power) or will be sold through the PX.
We are also upgrading the geothermal brine processing facilities at the
Vulcan Project and the Del Ranch Project with the Region 2 Brine Facilities
Construction. These upgrades will incorporate a process whereby the pH of
liquid brine is reduced by injection of a pH modification agent into the liquid
brine.
9
<PAGE>
This process results in decreased scaling and mineral buildup. In addition, the
upgrades will enable the Vulcan Project and the Del Ranch Project to achieve
economies of scale through improved brine processing systems and the
utilization of newer equipment. We expect these improvements to reduce
brine-handling operating costs at the Vulcan Project and the Del Ranch Project.
The CE Turbo Project and the Region 2 Brine Facilities Construction are
being constructed pursuant to a date certain, fixed-price, turnkey engineering,
procurement and construction contract with SWEC. Stone & Webster, Incorporation
will guarantee the obligations of SWEC under this contract. The CE Turbo
Project is scheduled to commence initial operations in mid-2000 and the Region
2 Brine Facilities Construction is scheduled to be completed in early-2000.
Total capital costs for the new projects described above and the capital
improvements to the steam field and related facilities for the Existing
Projects are estimated as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
ZINC REGION 2 ADDITIONAL
RECOVERY SALTON SEA CE TURBO BRINE FACILITIES CAPITAL
($ IN THOUSANDS) PROJECT UNIT V PROJECT CONSTRUCTION IMPROVEMENTS TOTAL
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Turnkey Construction Contracts $148,240 $ 91,787 $ 8,000 $41,800 $ 0 $289,827
Initial Materials and Spares 9,203 675 346 1,403 0 11,627
Transmission Line Interconnection 0 700 0 0 0 700
Additional Capital Improvements 0 0 0 0 21,294 21,294
Construction Administration
Costs 12,662 7,721 1,301 1,221 0 22,905
Commercial Insurance
During Construction 824 409 41 118 43 1,435
Project Contingency 9,401 5,571 533 2,450 0 17,955
Financing Costs and Interest
During Construction 20,595 12,204 1,167 5,367 2,437 41,770
-------- -------- ------- ------- ------- --------
Total Project Cost $200,925 $119,067 $11,388 $52,359 $23,774 $407,513
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
ADVANTAGES OF THE NEW PROJECTS
We believe that the construction of the New Projects offers the following
potential competitive benefits:
o LOW COST ZINC PRODUCER: Resource Strategies International's ("RSI")
August 14, 1998 analysis of production costs for other North American
zinc producers indicates that the Zinc Recovery Project should be the
lowest marginal cost supplier of zinc to U.S. West Coast customers.
This analysis also indicates that the Zinc Recovery Project should be
well within the lowest quartile for zinc producers in the Western
world.
o ADVANTAGEOUS LOCATION FOR ZINC SALES: RSI's notes in its report that
the United States is a net importer of zinc and virtually all of the
zinc purchased by U.S. West Coast customers is imported. We expect the
Zinc Recovery Project to have a transportation cost advantage because
it will be substantially closer to U.S. West Coast zinc customers than
those suppliers that have traditionally supplied that area.
o LOW COST POWER PRODUCER: Henwood Energy Services, Inc.'s ("Henwood")
September 1, 1998 analysis of production costs for other California
power producers found that all of the Power Projects will be low cost
producers in all years of its study. Furthermore, Henwood found that
Salton Sea Unit V and the TurboExpander Project will have operating
costs lower than all other generator types, except hydro-electric, and
will be extremely well-positioned to be dispatched each hour of the
year.
10
<PAGE>
o SYNERGIES WITH EXISTING WELL FIELD FACILITIES:
o Salton Sea Unit V and the TurboExpander Project will primarily
utilize available heat and steam from existing geothermal brine
processing systems in the well field with only a slight increase
in brine flow being required.
o the brine production wells and injection wells at the steam field
serving the Existing Projects will supply the requirements of
Salton Sea Unit V and the CE Turbo Project, thereby eliminating
the need for additional investment in wells.
o the Zinc Recovery Project is designed to remove zinc from the
geothermal brine after it has been used in the geothermal power
production process.
o the Power Projects will use a pH modification agent produced as a
by-product by the Zinc Recovery Project in the pH modification
process, thus resulting in further reductions in operating costs.
o we expect that the New Projects and the Region 2 Construction, by
removing solids from the geothermal brine and by the addition of
the pH modification process, will reduce scaling of brine
injection systems and associated maintenance costs so as to
provide benefits for all of the Projects served by the
wellfields.
o RENEWABLE ENERGY BENEFITS: We expect Salton Sea Unit V and the
TurboExpander Project to earn up to approximately $31 million of
financial incentives from the State of California's New Renewable
Resources Account. This account was established pursuant to California
legislation enacted in 1997. Funds are payable to geothermal plants
and other renewable energy providers on the projects' sales over the
first five years of generation. In addition, if electricity customers
in California are willing to pay a premium in order to purchase "green
power," then Salton Sea Unit V and the TurboExpander Project, as
suppliers of renewable geothermal energy, are positioned to sell power
at a premium over PX prices. This premium is not included, however, in
the projections contained in Fluor Daniel, Inc.'s Independent
Engineer's Report.
11
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
On October 13, 1998, we completed the private offering of $285,000,000
aggregate principal amount of our 7.475% Senior Secured Series F Bonds due
2018. As part of that offering, we entered into a registration rights agreement
with the initial purchasers of the Old Securities in which we agreed, among
other things, to deliver this prospectus to you and to complete an exchange
offer for the Old Securities. Set forth below is a summary of that exchange
offer.
The Exchange Offer.......... We are offering to exchange up to $285,000,000
principal amount of New Securities which have
been registered under the Securities Act for up
to $285,000,000 principal amount of Old
Securities. We will exchange Old Securities only
in integral multiples of $1,000.
In order to be exchanged, an Old Security must
be properly tendered and accepted. We will
exchange all Old Securities that are validly
tendered and not withdrawn. As of the date of
this prospectus, there are $285,000,000
principal amount of Old Securities outstanding.
We will issue New Securities promptly after the
expiration of the exchange offer.
Resales Without Further
Registration.............. Based on interpretations by the staff of the
Securities and Exchange Commission (the
"Commission"), we believe that the New Securities
issued in the exchange offer may be offered for
resale, resold or otherwise transferred by you
without compliance with the registration and
prospectus delivery requirements of the
Securities Act, provided that:
o you are acquiring the New Securities in the
ordinary course of your business;
o you are not participating, do not intend to
participate and have no arrangement or
understanding with any person to participate,
in a distribution of the New Securities; and
o you are not an "affiliate" of ours.
By tendering your bonds as described below, you
will be making representations to this effect.
Transfer Restrictions on
New Bonds................. If you are an affiliate of ours, are engaged in
or intend to engage in or have any arrangement or
understanding with any person to participate in
the distribution of the New Securities:
(1) you cannot rely on the applicable
interpretations of the staff of the
Commission; and
(2) you must comply with the registration
requirements of the Securities Act in
connection with any resale transaction.
12
<PAGE>
Each broker or dealer that receives New
Securities for its own account in exchange for
Old Securities that were acquired as a result of
market-making or other trading activities must
acknowledge that it will deliver this prospectus
in connection with any offer to resell, resale,
or other transfer of the New Securities issued
in the exchange offer.
Expiration Date............. 5:00 p.m., New York City time, on July 30,
1999, unless we extend the expiration date.
Accrued Interest on the New
Securities and
Old Securities............ The New Securities will bear interest from the
most recent date to which interest has been paid
on the Old Securities. If your Old Securities are
accepted for exchange, then you will waive
interest on the Old Securities accrued to the
date the New Securities are issued.
Certain Conditions to the
Exchange Offer............ The exchange offer is subject to customary
conditions. We may assert or waive these
conditions in our sole discretion.
Procedures for Tendering
Old Securities............ If you wish to tender your Old Securities, you
must complete, sign and date the Letter of
Transmittal, or a facsimile of it, in accordance
with its instructions and transmit the Letter of
Transmittal, together with your Old Securities
and any other required documentation, and Chase
Manhattan Bank and Trust Company, National
Association, who is the exchange agent, must
receive such documentation at the address set
forth in the Letter of Transmittal by 5:00 p.m.
New York City time, on the expiration date. By
executing the Letter of Transmittal, you will
represent to us that you are acquiring the New
Securities in the ordinary course of your
business, that you are not participating, do not
intend to participate and have no arrangement or
understanding with any person to participate, in
the distribution of New Securities, and that you
are not an "affiliate" of ours.
Special Procedures for
Beneficial Holders........ If you are the beneficial holder of Old
Securities that are registered in the name of
your broker, dealer, commercial bank, trust
company or other nominee, and you wish to tender
in the exchange offer, you should promptly
contact the person in whose name your Old
Securities are registered and instruct such
person to tender on your behalf.
Guaranteed Delivery
Procedures................ If you wish to tender your Old Securities and
you cannot deliver your notes, the Letter of
Transmittal or any other required documents to
the Exchange Agent before the expiration date,
you may tender your Old Securities according to
the guaranteed delivery procedures set forth in
"The Exchange Offer--Guaranteed Delivery
Procedures."
13
<PAGE>
Withdrawal Rights........... Tenders may be withdrawn at any time before
5:00 p.m., New York City time, on the expiration
date.
Acceptance of Old Securities
and Delivery of New
Securities................. Subject to certain conditions, we will accept for
exchange any and all Old Securities which are
properly tendered in the exchange offer before
5:00 p.m., New York City time, on the expiration
date. The New Securities will be delivered
promptly after the expiration date.
Exchange Agent.............. Chase Manhattan Bank and Trust Company,
National Association, is serving as Exchange
Agent in connection with the exchange offer.
Certain Federal Income Tax
Considerations............ We believe that your exchange of Old Securities
for New Securities pursuant to the exchange offer
will not result in any gain or loss to you for
United States federal income tax purposes.
Use of Proceeds............. We will not receive any proceeds from the
issuance of New Securities pursuant to the
exchange offer. We will pay all expenses incident
to the exchange offer.
14
<PAGE>
SUMMARY OF THE TERMS OF THE NEW SECURITIES
The form and terms of the New Securities and the Old Securities are
identical in all material respects, except that transfer restrictions and
registration rights applicable to the Old Securities do not apply to the New
Securities. The New Securities will evidence the same debt as the Old
Securities and will be governed by the same indenture. Where we refer to
"Series F Securities" in this prospectus, we are referring to both Old
Securities and New Securities. Where we refer to "Securities" in this
prospectus, we are referring to the Initial Securities, the Supplemental
Securities and the Series F Securities.
THE SERIES F SECURITIES:
Securities Offered.......... $285,000,000 7.475% Senior Secured Series F
Bonds Due November 30, 2018.
Guarantees.................. The Salton Sea Guarantors fully guarantee
payment of the Securities. The Partnership
Guarantors and the Royalty Guarantor guarantee
payment of the Securities to the extent of their
cash flow remaining after the payment of
royalties, operating and maintenance costs,
capital expenditures and debt service.
Maturity Date............... November 30, 2018.
Interest Payment Dates...... May 30 and November 30. We have made the first
two interest payments due November 30, 1998 and
May 30, 1999.
Ratings of Series F
Securities ................ "Baa2" by Moody's and "BBB" by S&P.
Denominations............... We issued the Old Securities in authorized
denominations of $100,000 or any integral
multiple of $1,000 in excess thereof.
Initial Average Life........ 15.50 years.
Scheduled Principal
Payments.................... We have agreed to make principal payments on the
Series F Securities every six months on each May
30 and November 30, starting on May 30, 2001, in
accordance with the following schedule:
<TABLE>
<CAPTION>
PERCENTAGE OF PRINCIPAL AMOUNT
PRINCIPAL AMOUNT PAYABLE
PAYMENT DATE PAYABLE (IN $'000)
------------ ------- ----------
<S> <C> <C>
November 30, 1998 0.000% $ --
May 30, 1999 0.000% $ --
November 30, 1999 0.000% $ --
May 30, 2000 0.000% $ --
November 30, 2000 0.000% $ --
May 30, 2001 0.225% $ 641
November 30, 2001 0.225% $ 641
May 30, 2002 0.750% $2,137
November 30, 2002 0.750% $2,137
May 30, 2003 0.500% $1,425
November 30, 2003 0.500% $1,425
May 30, 2004 0.625% $1,781
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF PRINCIPAL AMOUNT
PRINCIPAL AMOUNT PAYABLE
PAYMENT DATE PAYABLE (IN $'000)
------------ ------- ----------
<S> <C> <C>
November 30, 2004 0.625% $ 1,781
May 30, 2005 0.625% $ 1,781
November 30, 2005 0.625% $ 1,781
May 30, 2006 0.650% $ 1,853
November 30, 2006 0.650% $ 1,853
May 30, 2007 0.375% $ 1,070
November 30, 2007 0.375% $ 1,070
May 30, 2008 0.875% $ 2,495
November 30, 2008 0.875% $ 2,495
May 30, 2009 0.375% $ 1,069
November 30, 2009 0.375% $ 1,069
May 30, 2010 1.250% $ 3,562
November 30, 2010 1.250% $ 3,562
May 30, 2011 3.000% $ 8,550
November 30, 2011 3.000% $ 8,550
May 30, 2012 5.750% $16,387
November 30, 2012 5.750% $16,387
May 30, 2013 5.075% $14,464
November 30, 2013 5.075% $14,464
May 30, 2014 6.000% $17,100
November 30, 2014 6.000% $17,100
May 30, 2015 6.550% $18,667
November 30, 2015 6.550% $18,667
May 30, 2016 7.050% $20,092
November 30, 2016 7.050% $20,092
May 30, 2017 6.875% $19,594
November 30, 2017 6.875% $19,594
May 30, 2018 3.450% $ 9,832
November 30, 2018 3.450% $ 9,832
</TABLE>
Priority of Payments........ We have agreed to deposit all revenues, equity
cash flows and royalties from our operating
projects into a revenue fund established for the
benefit of the holders of the Securities and our
other senior secured debt. The collateral agent
disburses the funds in the revenue fund to pay
operating and maintenance costs for our projects,
to pay administrative costs incurred by the
secured parties, to make payments on the
Securities and our other senior debt, to fund the
debt service reserve fund if necessary and to pay
costs, gross-ups and similar amounts owed to the
providers of our senior debt. Monies left over in
the revenue fund are transferred to the
distribution fund or distribution suspense fund
for further distribution to us if we satisfy the
distribution conditions.
Debt Service Reserve Fund... We have established a debt service reserve fund
for the benefit of the holders of the Securities
and the provider of the letter of credit which we
use to satisfy our debt service reserve
obligations. The financing documents require us
to deposit cash in and/or post a letter of credit
for the debt service reserve fund in
16
<PAGE>
an amount equal to:
o through December 31, 1999, the maximum
semiannual principal and interest payments on
the Securities for the remaining term of the
Securities;
o after December 31, 1999 until we pay all of
the Securities other than the Series F
Securities in full, the maximum annual
principal and interest payments on the
Securities for the remaining term of the
Securities; and
o after we pay all of the Securities other than
the Series F Securities in full, (1) the
maximum annual principal and interest
payments on the Series F Securities for the
remaining term of the Series F Securities or
(2) if we get confirmation of the then
current ratings of the Series F Securities,
the maximum semiannual principal and interest
payments on the Series F Securities for the
remaining term of the Series F Securities.
We do not have to fund the debt service reserve
fund in cash if we post a letter of credit
issued by a financial institution rated at least
"A" by S&P and "A2" by Moody's. The collateral
agent is required to use the money in the debt
service reserve fund and drawings under any
letter of credit posted for the debt service
reserve fund to pay principal of and interest on
the Securities and interest on loans resulting
from drawings on the letter of credit if there
are not enough monies in our other accounts to
make these payments.
Optional Redemption......... We may redeem all or any portion of the Series
F Securities at a redemption price equal to:
o 100% of the principal amount of the Series F
Securities being redeemed, plus
o accrued and unpaid interest on the Series F
Securities being redeemed, plus
o a make-whole premium which is based on the
rates of comparable treasury securities plus
50 basis points.
Mandatory Redemption........ If one of the current power purchase agreements
for one of the Existing Projects is terminated or
is amended to reduce the amount of capacity and
energy sold under the agreement, then we have to
use the proceeds that we receive from the power
purchaser in connection with the termination or
reduction to redeem Securities and prepay our
other senior secured debt unless we receive a
confirmation of the then current ratings of the
Securities. If we are required to redeem
Securities with the proceeds of a power contract
buy-out as described in the previous sentence,
then the redemption price will be equal to 100%
of the principal amount of the Securities being
redeemed plus accrued and unpaid interest on the
Securities being redeemed.
17
<PAGE>
If one of the Guarantors' promissory notes
issued is accelerated, then we must redeem an
amount of Securities equal to the principal
amount of the promissory note plus accrued and
unpaid interest on the promissory note. If we
are required to redeem Securities because of the
acceleration of a promissory note as described
in the previous sentence, then the redemption
price will be equal to 100% of the principal
amount of the Securities being redeemed plus
accrued and unpaid interest on the Securities
being redeemed.
If one of our projects is damaged, destroyed or
taken by eminent domain, or if there is a defect
in the title to the land on which a project is
located, and we cannot restore the project or
fix the title defect, then we must use the
insurance or other proceeds that we receive in
excess of certain amounts in connection with the
damage, destruction, taking or defect to redeem
Securities and prepay our other senior secured
debt. If we are required to redeem Securities
with insurance or other proceeds as described in
the previous sentence, then the redemption price
will be equal to 100% of the principal amount of
the Securities being redeemed plus accrued and
unpaid interest on the Securities being
redeemed.
If the collateral agent forecloses on the
collateral which secures the guarantees and
receives more than $5 million from the
foreclosure, then we must use the proceeds
received by the collateral agent to redeem
Securities. If we are required to redeem
Securities with foreclosure proceeds as
described in the previous sentence, then the
redemption price will be equal to 100% of the
principal amount of the Securities being
redeemed plus accrued and unpaid interest on the
Securities being redeemed.
If we receive more than $6,000,000 of certain
net performance liquidated damages pursuant to
the construction contracts for the New Projects
and such damage payments are not used to pay
construction costs in accordance with an
approved completion plan, then we must use the
damage payments to redeem Series F Securities.
If we are required to redeem Series F Securities
with damage payments as described in the
previous sentence, then the redemption price
will be equal to 100% of the principal amount of
the Series F Securities being redeemed plus
accrued and unpaid interest on the Series F
Securities being redeemed.
If one of our New Projects is not substantially
complete before its deadline for substantial
completion, we will be required to redeem Series
F Securities in the following amounts unless we
receive a confirmation of the then current
ratings of the Securities:
o $140,520,000 plus all interest accrued on the
Series F Securities being redeemed if the
Zinc Recovery Project is not substantially
complete by its deadline;
18
<PAGE>
o $83,272,000 plus all interest accrued on the
Series F Securities being redeemed if Salton
Sea Unit V is not substantially complete by
its deadline; and
o $44,581,000 plus all interest accrued on the
Series F Securities being redeemed if the
Region 2 Construction is not substantially
complete by its deadline.
If we are required to redeem Series F Securities
because of the failure to substantially complete
a New Project before the applicable deadline,
then the redemption price will be equal to 100%
of the principal amount of the Series F
Securities being redeemed plus accrued and
unpaid interest on the Series F Securities being
redeemed.
Buy-Down or Ratings Affirmation
to Achieve Substantial
Completion................. If one of our New Projects does not achieve
satisfactory results in its completion tests and
we have used reasonable efforts to substantially
complete the New Project by the deadline for
substantial completion (as the deadline may be
modified pursuant to an approved completion plan,
if applicable), then we may choose to cause the
New Project to be substantially complete
notwithstanding its failure to test at the
required performance levels by doing either of
the following:
o redeeming enough Series F Securities, at
redemption price equal to 100% of the Series
F Securities being redeemed plus unpaid and
accrued interest on the Series F Securities
being redeemed, to cause the minimum and
average projected debt service coverage
ratios for the term of the Series F
Securities to equal or exceed 1.4 to 1 and
1.7 to 1, respectively; or
o taking other measures as the rating agencies
require to confirm the then current ratings
of the Securities.
Distributions............... We may not make distributions unless we satisfy
the distribution conditions set forth in the
financing documents. These conditions include (1)
having enough funds in our accounts to make
certain upcoming payments on the Securities and
our other senior debt, (2) not being in default
on our obligations under the indenture for the
Securities, (3) certifying that our historical
and projected debt service coverage ratios are at
least as good as the levels required by the
financing documents, (4) satisfying our debt
service reserve obligations, (5) certifying that
we have enough geothermal resources to operate
our projects at their required levels through the
final maturity date for the Securities and (6)
substantially completing each of our New Projects
by the applicable deadline (unless we have
received a confirmation of the then current
ratings for the Securities or have redeemed the
required amount of Securities in connection with
the failure to substantially complete a New
Project).
19
<PAGE>
Ranking and Security for the
Securities................ The Securities:
o are senior secured debt;
o will be paid with payments that we receive
from the Guarantors under their promissory
notes;
o are secured by a pledge of our capital stock;
and
o are guaranteed by the Guarantors.
Limited Recourse............ We are the only person obligated to pay
principal of, premium, if any, and interest on
the Securities. Neither MidAmerican, El Paso,
Magma (nor any of MidAmerican's, El Paso's,
Magma's or our stockholders, officers, directors,
employees or affiliates, other than the
Guarantors) will guarantee the Securities or has
any obligation to make payments on the
Securities.
Covenants................... We have agreed to, among other things:
o maintain our existence;
o comply with applicable laws;
o enforce our rights against the Guarantors
under their promissory notes;
o deliver financial statements, notices of
default and other information to the trustee
and the rating agencies; and
o pay our taxes and maintain our books and
records.
We have agreed not to, among other things:
o incur debt other than as permitted under the
indenture for the Securities;
o create liens on our property other than as
permitted under the indenture for the
Securities;
o make any investment other than investments
permitted under the indenture for the
Securities;
o engage in a business other than our current
business and activities incidental thereto;
o assign our rights under the financing
documents;
o enter into additional contracts;
o merge or consolidate with another company;
o sell our assets; or
o make any distributions unless we satisfy the
distribution conditions.
These affirmative and negative covenants are
subject to a number of important qualifications
and exceptions set forth in the indenture for
the Securities.
20
<PAGE>
Form........................ The Securities issued pursuant to Rule 144A or
Regulation S were initially issued in global form
through the facilities of The Depository Trust
Company, which will act as depositary for the
global securities. Transfers of beneficial
interests in these Securities are effected only
through records maintained by The Depository
Trust Company and its participants.
THE PROJECT NOTES:
Salton Sea Project Notes.... The Salton Sea Guarantors have jointly and
severally issued to us promissory notes in the
amounts of $246,483,000 and $83,272,000, of which
$301,992,000 remains outstanding at June 1, 1999.
Partnership Project Notes... The Partnership Guarantors have jointly and
severally issued to us promissory notes in the
amounts of $24,579,000, $93,150,000 and amount of
$201,728,000, of which $277,394,000 remains
outstanding at June 1, 1999.
Royalty Project Note........ The Royalty Guarantor has issued to us a
promissory note in the amount of $75,000,000, of
which $18,512,000 remains outstanding at June 1,
1999.
Ranking and Security for the
Notes and Guarantee Issued
by the Salton Sea
Guarantors................. The guarantee and promissory notes issued by
the Salton Sea Guarantors are senior secured debt
of the Salton Sea Guarantors. Such guarantee and
promissory notes are secured by the following:
o an assignment of all revenues received by the
Salton Sea Guarantors from their projects;
o a lien on substantially all of the assets of
each of the Salton Sea Guarantors;
o a collateral assignment of certain material
contracts;
o a pledge of the capital stock of (or other
equity interests in) the Salton Sea
Guarantors; and
o a lien on funds established for the Salton
Sea Guarantors under the financing documents.
Ranking and Security for the
Notes and Guarantee Issued
by the Partnership
Guarantors................. The guarantee and promissory notes issued
by the Partnership Guarantors are senior secured
debt of the Partnership Guarantors. Such
guarantee and promissory notes are secured by the
following:
o an assignment of all revenues received by the
Partnership Guarantors from their projects;
o a lien on substantially all of the assets of
each of the Partnership Guarantors;
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o a collateral assignment of certain material
contracts;
o a pledge of the capital stock of (or other
equity interests in) the Partnership
Guarantors; and
o a lien on funds established for the
Partnership Guarantors under the financing
documents.
Ranking and Security for the
Project Note and Guarantee
Issued by the Royalty
Guarantor ................. The guarantee and promissory note issued by the
Royalty Guarantor are senior secured debt of the
Royalty Guarantor. Such guarantee and promissory
note are secured by the following collateral:
o an assignment of all royalties paid to the
Royalty Guarantor;
o a collateral assignment of certain material
contracts;
o a pledge of the capital stock of the Royalty
Guarantor; and
o a lien on the funds established for the
Royalty Guarantor under the financing
documents.
Covenants................... Each Guarantor has agreed, among other things:
o not to merge or consolidate with any other
company except for another Guarantor;
o not to enter into non-arm's length
transactions or agreements with affiliates;
o not to incur any debt other than as permitted
under the financing documents;
o not to create any liens on its properties
other than as permitted under the financing
documents;
o not to engage in any business other than as
contemplated by the financing documents; and
o not to amend, terminate or otherwise modify
the project documents if it would reasonably
be expected to have a material adverse
effect.
These affirmative and negative covenants are
subject to a number of important qualifications
and exceptions set forth in the indenture for
the Securities.
Capital Commitment.......... Our indirect parents, MidAmerican and El Paso
Holding, have agreed to contribute cash equity to
us in an amount of up to $122,513,000 to fund a
portion of the budgeted costs for the
construction of the New Projects and the capital
improvements to the steam field and related
facilities for the Existing Projects.
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ESTIMATED SOURCES AND USES OF FUNDS
The following table sets forth our estimated sources and uses of funds in
connection with the construction, financing and commencement of the commercial
operation of the New Projects and the capital improvements to the steam field
and related facilities for the Existing Projects. The estimated sources include
the proceeds from the sale of the Series F Securities. The dollar amounts shown
below are in thousands.
SOURCES OF FUNDS (000'S)
Proceeds of the Series F Securities ...................... $285,000
Capital Contributions .................................... 122,513
--------
TOTAL SOURCES OF FUNDS .................................. $407,513
USES OF FUNDS (000'S)
Zinc Recovery Project .................................... $180,330
Salton Sea Unit V ........................................ 106,863
TurboExpander Project .................................... 10,221
Region 2 Brine Facilities Construction ................... 46,992
Additional Capital Improvements .......................... 21,337
Financing Costs and Interest During Construction ......... 41,770
--------
TOTAL USES OF FUNDS ..................................... $407,513
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The following summaries of our expert consultant's reports are qualified
by reference to the actual reports which are included in the Appendices to this
Prospectus. You should be aware that the reports have not been updated since
they were originally issued in 1998, and that some of the assumptions,
forecasts and projections underlying the reports may have materially changed
since that time.
INDEPENDENT ENGINEER'S REPORT
Fluor Daniel, Inc. (referred to in this prospectus as "Fluor Daniel" or
the "Independent Engineer") has prepared the Independent Engineer's Report
concerning certain technical, environmental and economic aspects of our
projects. The Independent Engineer's Report was prepared in connection with the
offering of the Old Securities and is attached as Appendix B to this
prospectus. Fluor Daniel is an engineering consulting firm which provides
services related to the technical, environmental and economic aspects of power,
metals and mining projects. The Independent Engineer's Report includes, among
other things, a review of the operating history and performance of the
Projects, a review of the material project documents, and projections of our
annual revenues, expenses and debt service coverage for the term of the
Securities. For purposes of preparing these projections, Fluor Daniel relied on
certain assumptions regarding material contingencies and several other matters
that are not within our control or the control of Fluor Daniel or any other
person. Fluor Daniel's assumptions for future zinc and power prices relied on
the projections of such prices prepared by Resource Strategies International
and Henwood Energy Services, Inc., respectively.
Subject to the information contained, and the assumptions made, in the
Independent Engineer's Report, Fluor Daniel expressed the opinions that:
EXISTING PROJECTS -- OPERATIONS AND PERFORMANCE
o The projects use commercially proven technology and the Existing
Projects are operated in accordance with recognized electric utility
industry practices.
o The useful life of the surface facilities are expected to exceed the
final maturity date of the Securities.
o The principal project participants possess the necessary experience to
successfully fulfill their obligations for the projects.
o Operating plant capacity factors used in the projections are based on
the operating results for the operating years 1995, 1996 and 1997, and
are reasonable.
o The pH modification technology is proven and reliable, as has been
shown by the eight year operating history at Salton Sea Unit II and
the two year operating history at Salton Sea Units I, III and IV. The
pH modification program should continue to increase availability and
decrease costs consistent with the assumptions used in the
projections.
o The Existing Projects are expected to continue operations in
accordance with all relevant existing permits and environmental laws.
NEW PROJECTS
SALTON SEA UNIT V
o The technology upon which Salton Sea Unit V is based is proven and
reliable. The scope of work is within demonstrated capabilities of the
principal project participants. The fixed price engineering,
procurement and construction contract for Salton Sea Unit V provides
for a guaranteed completion date. Based on the expected closing date
for the Old Securities as of the date of the offering circular for the
Old Securities, it appears that the completion of Salton Sea Unit V
can be achieved within the guaranteed date set forth in the
construction contract.
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o As stated above, the pH modification technology is proven and reliable
and should continue to operate at the same or improved levels of
reliability.
o Salton Sea Unit V should meet the guaranteed performance criteria
contained in the construction contract and should comply with all
applicable environmental regulations.
o Based on the construction contract for Salton Sea Unit V, the capital
cost budget appears adequate for the facilities provided under the
contract. The guaranteed price in the construction contract, plus the
contractor's substantial prior experience with geothermal plants,
should mitigate the risk of cost overruns and schedule delays, and
thus should adequately protect both the holders of the Securities and
the owner of Salton Sea Unit V. The contractual liquidated damage
provisions provided in the construction contract (up to 20% of the
contract price) are typical for securing contractor completion of
projects utilizing proven technology such as that utilized at Salton
Sea Unit V, and should adequately protect both the holders of the
Securities and the owner.
o Based on Fluor Daniel's knowledge of conventional project financings,
the owner's costs, such as administration costs, insurance, financing
costs, contingency funds, working capital and similar costs, estimated
by the owner appear to be reasonable.
o All discretionary permit approvals have been obtained for
construction.
o The useful life of Salton Sea Unit V is expected to exceed the final
maturity date of the Securities.
REGION 2 BRINE FACILITIES CONSTRUCTION
o The technology upon which brine processing is based has been
demonstrated to be proven and reliable. The fixed price construction
contract for the Region 2 Brine Facilities Construction provides for a
guaranteed completion date. Based on the expected closing date for the
Old Securities as of the date of the offering circular for the Old
Securities, it appears that completion of the Region 2 Brine
Facilities Construction can be achieved within the guaranteed date set
forth in the construction contract.
o As stated above, the pH modification technology used at the well field
serving the Existing Projects has been demonstrated to be proven and
reliable. The pH modification system should increase plant
availability and decrease operating costs for all plants served by the
well field consistent with the assumptions in the projections.
o Based on the construction contract for the Region 2 Brine Facilities
Construction, the capital cost budget appears adequate for the
facilities provided under the contract. The guaranteed price in the
construction contract, plus the contractor's substantial prior
experience with geothermal installations, should mitigate the risk of
cost overruns and schedule delays. The contractual liquidated damage
provisions in the construction contract are typical for securing
contractor completion of projects utilizing proven technology such as
that utilized for the Region 2 Brine Facilities Construction, and
should adequately protect both the holders of the Securities and the
owners.
o The Region 2 Brine Facilities Construction should meet the guaranteed
performance criteria contained in the construction contract and should
comply with all applicable environmental regulations.
o All discretionary permit approvals have been obtained for
construction.
CE TURBO PROJECT
o The proposed CE Turbo Project uses technology which has been
demonstrated to be proven and reliable. The scope of work is within
demonstrated capabilities of the principal project participants which
should make the currently scheduled completion in mid-2000 achievable.
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o The fixed price construction contract for the Region 2 Brine
Facilities Construction, which also encompasses the CE Turbo Project,
provides for a guaranteed completion date. Based on the expected
closing date for the Old Securities as of the date of the offering
circular for the Old Securities, it appears that completion of the CE
Turbo Project can be achieved within the guaranteed date set forth in
the construction contract.
o The construction contractor for the Region 2 Brine Facilities
Construction is recognized as an experienced contractor in this field.
o The CE Turbo Project should meet the guaranteed performance criteria
contained in the construction contract and should comply with all
current applicable environmental regulations.
o Based on the construction contract, the capital cost budget appears
adequate for the facilities provided under the contract. The
guaranteed price in the contract, plus the contractor's substantial
prior experience with geothermal power plants, should mitigate the
risk of cost overruns and schedule delays. The contractual liquidated
damages provisions in the construction contract are typical for
securing contractor completion of projects utilizing proven technology
such as that utilized at the CE Turbo Project, and should adequately
protect both the holders of the Securities and the owner.
o Based on Fluor Daniel's knowledge of conventional project financings,
the owner's costs, such as administration costs, insurance, financing
costs, contingency funds, working capital and similar costs, estimated
by the owner appear to be reasonable.
o All required discretionary permit approvals have been obtained for
construction.
o The useful life of the CE Turbo Project is expected to exceed the
final maturity date of the Securities.
ZINC RECOVERY PROJECT
o The Zinc Recovery Project is generally modeled after a demonstration
plant constructed by the owner and located in the Salton Sea Known
Geothermal Resource Area. This demonstration plant has successfully
demonstrated the recovery of zinc on a continuous basis.
o Even though the application of this technology is relatively new at
the project site, the technology has been demonstrated to be reliable.
All components of this technology, except the ion exchange process,
have been in commercial operation for several years at Tecnicas
Reunidas, a zinc extraction project in Spain. Furthermore, each of the
components has been successfully applied and proven for a number of
years in other metals industries such as copper and uranium. The scope
of work is within demonstrated capabilities of the principal project
participants which provides a high level of confidence that the
expected completion date of mid-2000 is achievable.
o The fixed price engineering, procurement and construction contract for
the Zinc Recovery Project provides for a guaranteed completion date.
Based on the expected closing date for the Old Securities as of the
date of the offering circular for the Old Securities, it appears that
completion of the Zinc Recovery Project can be achieved within the
guaranteed date set forth in the construction contract.
o The construction contractor for the Zinc Recovery Project is
recognized as an experienced contractor in this field.
o The Zinc Recovery Project should meet the guaranteed performance
criteria contained in the construction contract and should comply with
all environmental regulations.
o Based on the construction contract, the capital cost budget appears
adequate for the facilities provided under the contract. The
guaranteed price in the contract, plus the contractor's
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substantial prior experience with minerals extractions, should
mitigate the risk of cost overruns and schedule delays. The
contractual liquidated damages provisions in the construction contract
(20% of the contract price) are typical for securing contractor
completion of projects utilizing proven technology such as that
utilized in Zinc Recovery Project, and should adequately protect both
the holders of the Securities and the owner.
o Based on Fluor Daniel's knowledge of conventional project financings,
the owner's costs, such as administration costs, insurance, financing
costs, contingency funds, working capital and similar costs, estimated
by the owner appear to be reasonable.
o All required discretionary permit approvals have been obtained for the
construction of Zinc Recovery Project.
o The useful life of the Zinc Recovery Project is expected to exceed the
final maturity date of the Securities.
o Operating costs have been appropriately developed and indicate that
the Zinc Recovery Project will be the lowest cost producer of zinc in
North America. The Zinc Recovery Project's major operating cost
component is electricity which will be supplied from Salton Sea Unit
V. Resin, another major cost component, will be supplied under a
contract with The Dow Chemical Company.
FINANCIAL PROJECTIONS
o An economic/financial model has been developed (and is contained in
the Independent Engineer's Report) which represents the projected
performance of the guarantors. The assumptions underlying the
economic/financial model are reasonable, and the projected operating
results reasonably represent the future financial profile of the
guarantors.
o Projected operating and maintenance costs and capital expenditures for
major maintenance are reasonable and representative of the planned
operations of the projects.
o The financial projections, which are based on the base case
assumptions recommended by us and were found to be reasonable by Fluor
Daniel, indicate that revenues should be adequate to pay operations
and maintenance expenses and provide cash flow for debt service, with
base case debt service coverage ratios calculated from 1999 through
2018 of 1.72x minimum and 2.97x average.
o The financial projections remain stable across a range of
sensitivities and avoided cost assumptions.
ENVIRONMENTAL PERMITTING AND LICENSING
o The reviewed records show that no environmental Notices of Violation
for any media (air emissions, wastewater, solid/hazardous waste) have
been filed against the Existing Projects in the last two years.
o The Existing Projects appear to be neat and well-maintained.
o The H2S abatement systems consist of existing biofilters for Salton
Sea Units I, II, III and IV. A review of the preliminary design
indicated that sufficient capacity appears to exist to handle any
anticipated increase of H2S loads resulting from the operation of
Salton Sea Unit V.
o The water and brine pond designs appear adequate.
o Solid waste handling and disposal appears adequate.
o Dust control in the solid waste handling operation should be improved
by planned dust handling equipment and dust abatement measures.
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o All discretionary environmental permit approvals have been received
for the proposed new construction.
PROJECT AGREEMENTS
o Major project agreements (as listed in Attachment 2-1 to Appendix B),
including power purchase agreements, construction contracts, major
subcontracts and related contracts for transmission system
interconnection appear reasonable from a technical perspective and are
consistent with the financial projections reviewed herein.
POWER MARKET CONSULTANT'S REPORT
Henwood (sometimes referred to in this prospectus as the "Power Market
Consultant") has prepared the Power Market Consultant's Report concerning
certain industry and regulatory matters affecting the sales of electricity by
the Power Projects and providing estimates of future prices of electricity. The
Power Market Consultant's Report is attached as Appendix C to this prospectus.
Henwood is a consulting firm that provides business advisory services, project
feasibility and finance studies, and market forecasts in electricity and gas to
international firms and public authorities. The Power Market Consultant's
Report includes, among other things, an overview of the U.S. and California
power markets, a forecast of future power prices, an assessment of our
projects' competitive market position and a review of California's green power
market. For purposes of preparing such projections, Henwood relied upon certain
assumptions regarding material contingencies and other matters that are not
within our control or the control of the Henwood or any other person.
Subject to the information contained, and the assumptions made, in the
Power Market Consultant's Report, Henwood expressed the opinions that:
o All of the Power Projects will be low cost producers in all years of
the study. The annual average operating cost of the Power Projects in
2005 is projected to be $17.81/MWh, which would make them low cost
producers. About 66 percent of the electricity produced in the Western
Systems Coordinating Council in 2005 -- the first year of full
competition -- is projected to be generated from units with higher
costs, a strong indication that the Power Projects will be dispatched
as base load. The new units, Salton Sea Unit V and the CE Turbo
Project, are projected to be even better positioned at $10.30 and
$9.50 per MWh respectively. Of all the generation in the region, only
hydroelectric generators have lower operating costs.
o The annual average operating costs of the Power Projects, in $/MWh,
are below the annual average PX prices. In fact, the Power Projects'
operating costs are close to the projected off-peak PX price in 1999
through 2002 and significantly below that in all years after 2002.
o The low-cost relationship between PX prices and the Power Projects'
operating costs also prevails with the low gas price downside
sensitivity cases. In these cases, the operating costs are well below
the PX prices. The range of annual average PX prices in the low gas
price cases is $26.47/MWh in 2001 to $46.95/MWh in 2018.
o A significant finding of the study is that Salton Sea Unit V and the
CE Turbo Project will have operating costs lower than all other
generator types, except hydro, and will be extremely well-positioned
to be dispatched any hour in the year. These units' operating costs
are projected to be approximately $20/MWh lower than the PX prices
from 1999 through 2001, a difference that is projected to increase to
$30/MWh in 2005 and to $40/MWh by 2018. This margin is so significant
that it is extremely unlikely that any new significant capacity with
lower operating costs will be built.
o We also find that the PX price will be greater than or equal to
$20.30/MWh in 96 percent of all hours in 2005. This means that the
Power Projects, with an average operating cost of $17.81/MWh, will be
below the PX price in each of those hours and will be dispatched
accordingly.
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o Our base case forecast indicates that the Southern California annual
PX market clearing price will increase from $28/MWh in 1999 to
$50.31/MWh by 2018 in constant dollars -- which translates into an
average annual rate of increase of 2.92 percent over such period. The
Power Market Consultant's Report also contains projections of SCE's
avoided cost of energy that were prepared by SCE in 1995.
o The transition of short-run avoided cost determination to
competitively determined pricing, while subject to regulatory and
market dynamics, is expected to be complete by the beginning of 2000.
We forecast the short-run avoided cost to be $30.30/MWh in 1999 on an
annual average basis.
o In addition to being low cost producers, the Power Projects have the
added competitive advantage of being a renewable (or "green") energy
resource.
o Surveys indicate that 40 to 70 percent of California residential
consumers are willing to pay a 5 to 15 percent premium for green power
products. Current retail premiums for green power products range from
0.7 to 3.1 cents per kWh.
o The State of California has established a $543 million fund to
subsidize existing and new sources of renewable energy. Henwood's
analysis of the disbursement criteria and delivery mechanisms, the
awards received by the guarantors and the guarantors' own demonstrated
expertise in acquiring such funds, all suggest that the Power Projects
will derive substantial benefits from generating clean and renewable
energy.
ZINC MARKET CONSULTANT'S REPORT
RSI (sometimes referred to in this prospectus as the "Zinc Market
Consultant") has prepared the Zinc Market Consultant's Report concerning
certain industry matters affecting the sales of zinc by the Zinc Recovery
Project and providing estimates of future prices of zinc. The Zinc Market
Consultant's Report is attached as Appendix E to this prospectus. RSI is a
consulting firm that is affiliated with CRU International Group and provides
advisory services and production cost and price forecasts to international
commodity based industries including metals, minerals and pulp and paper, as
well as financial institutions. The Zinc Market Consultant's Report includes,
among other things, an overview of the world zinc market, an assessment of the
California zinc market, the competitive position of the Zinc Recovery Project
and an analysis of the marketing plans for the Zinc Recovery Project. For
purposes of preparing such analyses, RSI relied upon certain assumptions
regarding material contingencies and other matters that are not within our
control or the control of RSI or any other person.
Subject to the information contained, and the assumptions made, in the
Zinc Market Consultant's Report, RSI expressed the opinions that:
o The Zinc Recovery Project is expected to be the lowest cost North
American zinc producer and well within the bottom quartile of all
Western producers.
o Current forecasts indicate that U.S. zinc consumption could rise to as
high as 1.54 million tonnes per annum by 2018, an increase of 270,000
tonnes per annum over current levels.
o The United States is only 31% self sufficient in zinc metal production
with three smelters located in Clarksville, Tennessee, Monaca,
Pennsylvania and Sauget, Illinois. These smelters produce 115,000,
155,000 and 82,000 metric tonnes per year respectively.
o The Zinc Recovery Project's production is expected to be readily
absorbed in California and other insular West Coast markets. The
relatively short distance to those markets will provide the project a
2-4 cents lb. advantage in freight costs over its nearest competitors
in Mexico and Canada.
o The owner's zinc marketing plan is reasonable and can be accomplished.
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o The forecast for zinc prices in 1997 dollars per pound is as detailed
in the Zinc Market Consultant's Report.
GEOTHERMAL RESOURCE CONSULTANT'S REPORT
GeothermEx, Inc. (referred to in this prospectus as "GeothermEx" or the
"Geothermal Resource Consultant") has prepared the Geothermal Resource
Consultant's Report concerning, among other things, the sufficiency of the
geothermal resources available for the use and conversion to electrical power
by the Power Projects and for the recovery of zinc by the Zinc Recovery
Project. The Geothermal Resource Consultant's Report is attached as Appendix D
to this prospectus. The Geothermal Resource Consultant's Report includes, among
other things an overview and description of the Salton Sea field, a discussion
of past and anticipated well and field behavior, an estimate of energy and zinc
reserves, and finally a review of proposed well costs. For purposes of
preparing its report, GeothermEx relied on certain assumptions regarding
material contingencies and several other matters that are not within our
control or the control of GeothermEx or any other person.
Subject to the information contained, and the assumptions made, in the
Geothermal Resource Consultant's Report, GeothermEx expressed the opinions
that:
o The Salton Sea field is highly productive and wells have historically
behaved favorably with minimal flow rate or pressure declines.
o The additional production fluid needed for Salton Sea Unit V and the
CE Turbo Project will be supplied by existing wells with spare
capacity.
o Numerical simulation studies undertaken to date forecast acceptable
well behavior for the existing and planned level of power generation
and zinc recovery. Well behavior has historically been consistent with
results predicted by earlier simulation models; therefore, future well
behavior is expected to be adequate to support the Power Projects.
o The recoverable geothermal energy reserves from the reservoir are more
than sufficient to support the Existing Projects and the planned
additional increments of capacity resulting in a total capacity of
326.4 MW. GeothermEx estimates that 1,200 MW of reserves are available
within the portion of the Salton Sea field dedicated to the Power
Projects.
o The predicted gross zinc recovery rate is based on the well field
configuration for the Existing Projects and the New Projects.
Therefore, because additional zinc reserves exist in the field, this
prediction is conservative. Additional zinc could be recovered by
developing new areas of the field for geothermal fluid production.
o The recoverable reserves of geothermal energy will not be affected by
the New Projects.
o The budget for well field costs through 2018 is reasonable and should
allow the projects to achieve the forecasted levels of electrical
generationand zinc production.
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RISK FACTORS
You should carefully consider the following factors before deciding to
tender your Old Securities in the exchange offer.
YOUR FAILURE TO EXCHANGE YOUR OLD SECURITIES FOR NEW SECURITIES COULD HAVE
ADVERSE CONSEQUENCES.
The Old Securities were not registered under the Securities Act or under
the securities laws of any state and may not be resold, offered for resale or
otherwise transferred unless they are subsequently registered or resold
pursuant to an exemption from the registration requirements of the Securities
Act and applicable state securities laws. If you do not exchange your
unregistered Old Securities for registered New Securities pursuant to the
exchange offer, you will not be able to resell, offer to resell or otherwise
transfer the Old Securities unless they are registered under the Securities Act
or unless you resell them, offer to resell or otherwise transfer them under an
exemption from the registration requirements of, or in a transaction not
subject to, the Securities Act. In addition, we will no longer be under an
obligation to register the Old Securities under the Securities Act except in
the limited circumstances provided under the registration rights agreement
between us and the initial purchasers of the Old Securities. In addition, to
the extent that Old Securities are tendered for exchange and accepted in the
exchange offer, the trading market for the untendered and tendered but
unaccepted Old Securities could be adversely affected.
WE ARE THE ONLY ONES REQUIRED TO MAKE PAYMENTS ON THE SECURITIES AND OUR
ABILITY TO DO SO IS DEPENDENT ON CIRCUMSTANCES BEYOND OUR CONTROL.
We are a special purpose finance subsidiary of Magma. Our ability to make
payments on the Securities will be entirely dependent on the Guarantors'
performance of their obligations under their promissory notes issued to us and
their guarantees of the Securities. The assets and cash flows of the Guarantors
are the sole source of repayment of their promissory notes and guarantees. The
Salton Sea Guarantors conduct no other business and own no other significant
assets except those related to the ownership or operation of the Salton Sea
Projects. The Partnership Project Companies conduct no business and own no
significant assets except those related to the ownership or operation of the
Partnership Projects. The other Partnership Guarantors (CEOC, VPC, VPC
Geothermal, San Felipe, Conejo and Niguel) conduct no business except those
related to the development, ownership or operation of the Partnership Projects
and the Salton Sea Projects. The Royalty Guarantor's sole business is to
receive royalty payments owed by some of the Partnership Projects and the
Royalty Guarantor conducts no other business and owns no other assets. We
cannot assure you that, if a Guarantor defaults under its promissory note,
credit agreement or guarantee, the exercise of remedies under the note, credit
agreement or guarantee, including foreclosure on the Guarantor's assets, would
provide sufficient funds to pay its obligations. Moreover, unless such default
causes a payment default under the indenture for the Securities, you may
exercise remedies only against the assets of the defaulting Guarantor. None of
our shareholders, partners or affiliates (other than the Guarantors) or any of
our or the Guarantors' officers or employees will guarantee or be in any way
liable for the payment of the Securities, the Guarantors' notes or the
guarantees. In addition, the obligations of the Partnership Guarantors and the
Royalty Guarantor under the guarantees are limited to the revenues of these
Guarantors less royalties, operating and maintenance costs, capital
expenditures and debt service. As a result, payment of amounts owed pursuant to
the Guarantors' promissory notes and guarantees and the Securities is dependent
upon the availability of sufficient revenues from the Guarantors' businesses or
holdings, after the payment of operating expenses and the satisfaction of other
obligations.
THE REVENUES FROM THE SALE OF ELECTRICITY BY THE GEOTHERMAL POWER PLANTS ARE
SUBJECT TO FLUCTUATION.
The power purchase agreements for all of our existing projects other than
Salton Sea Unit I and Salton Sea Unit IV sell electricity to SCE pursuant to
agreements which provide for both capacity payments and energy payments for a
term of 30 years. While the basis for the capacity payments is fixed for the
entire 30-year term, the price for energy in some of the agreements is fixed
only for the first ten years of the term. After ten years, the required energy
payment converts to SCE's avoided cost of energy, as determined by a
methodology approved by, and subject to change by, the California Public
Utility
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Commission. Vulcan's fixed price period expired in 1996; Salton Sea Unit III's,
Del Ranch's and Elmore's fixed price periods expired in 1999; and Salton Sea
Unit II's and Leather's fixed price periods will expire in 2000.
Estimates of SCE's future avoided cost of energy vary substantially. We
cannot predict the likely level of SCE's avoided cost of energy prices under
the power purchase agreements at the expiration of the fixed price periods.
SCE's avoided cost of energy is currently substantially below the energy prices
for the fixed price periods and is expected to remain so over at least the near
term. For example, for the year ending December 31, 1998, the time period
weighted average of SCE's avoided cost of energy was 3.0 cents per kWh and the
time period weighted average of the fixed price period energy prices was
approximately 10.0 cents per kWh, which is substantially below the contract
energy prices earned for the year ended December 31, 1998. Thus, the revenues
available to us to make payments on the Securities are likely to decline
significantly after the expiration of the fixed price periods in the power
purchase agreements with SCE.
Although Salton Sea Unit V will sell approximately one-third of its net
electrical output for use by the Zinc Recovery Project. We intend to sell the
output from Salton Sea Unit V and the CE Turbo Project that is not needed by
the Zinc Recovery Project in short term transactions through the PX or in other
more advantageous transactions. The PX was recently created to establish
markets for the sale of power on a daily and an hourly basis. Thus, we expect
PX prices to have the characteristics of short-term spot prices and to
fluctuate from time to time in a manner that cannot be predicted with accuracy
and is not within our control or the control of any other person. The
projections contained in the Independent Engineer's Report utilize predictions
of PX prices as estimated by Henwood. However, we cannot assure you that these
estimates will prove to be accurate. In addition, because the PX commenced
operation only recently, on April 1, 1998, PX operating procedures are new, not
yet fully tested and subject to change.
THE REVENUES FROM THE SALE OF ZINC BY THE ZINC RECOVERY PLANT ARE SUBJECT TO
FLUCTUATION.
Most of the revenues from the zinc recovery project will be derived from
the sale of zinc. Thus, its earnings will be directly related to the price of
zinc in the domestic and world markets. Zinc prices fluctuate and are affected
by numerous factors, including expectations of inflation, speculative
activities, currency exchange rates, interest rates, global and regional demand
and production, political and economic conditions, discovery of new deposits
and production costs in major producing regions. The aggregate effect of these
factors, all of which are beyond our control, is impossible for us to predict.
THE CONSTRUCTION OF THE NEW PROJECTS MAY BE DELAYED AND MAY COST MORE THAN WE
EXPECTED.
The three new projects are being constructed pursuant to fixed price, date
certain turnkey engineering, procurement and construction contracts. The new
projects are subject to customary risks associated with the construction of
power and metals processing plants, including risks of delays in completion,
cost overruns and failures to perform in accordance with contract terms. In
addition, the integrated process for the production of zinc from geothermal
brine that we plan to use in our Zinc Recovery Project has not been attempted
in a large scale commercial facility. Any material unremedied delay in or
unsatisfactory completion of the New Projects could have an adverse effect on
our results of operations.
THE GEOTHERMAL RESOURCES MAY NOT BE SUFFICIENT TO OPERATE THE PROJECTS FOR AS
LONG AS THE TERM OF THE SECURITIES AND THE USE OF GEOTHERMAL RESOURCES IN THE
PROJECTS MAY RESULT IN SIGNIFICANT COSTS WHICH ARE NOT WITHIN OUR CONTROL.
Geothermal exploration, development and operations are subject to
uncertainties which vary among different geothermal reservoirs and are similar
to those typically associated with oil and gas exploration and development,
including dry holes and uncontrolled releases. We can only estimate, and cannot
definitively establish, the geographic area and sustainable output of our
geothermal reservoirs because of their geological complexities. There is,
accordingly, a risk of an unexpected decline in the capacity of geothermal
wells and a risk of geothermal reservoirs not being sufficient for sustained
production of
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<PAGE>
electricity and/or zinc at the desired levels. In addition, both the cost of
operations and the operating performance of our projects may be adversely
affected by the following operating factors, among others, which may require us
to make substantial capital expenditures:
o production and injection wells can require frequent maintenance or
replacement;
o corrosion caused by high-temperature and high-salinity geothermal
fluids may require the replacement or repair of certain equipment,
vessels or pipelines; and
o new production and injection wells may be required for the maintenance
of current operating levels.
OUR BUSINESS IS SUBJECT TO SUBSTANTIAL REGULATIONS AND PERMITTING REQUIREMENTS
AND MAY BE ADVERSELY AFFECTED BY CHANGES IN THESE REGULATIONS OR REQUIREMENTS.
We are subject to a number of environmental laws and regulations affecting
many aspects of our present and future operations, including the disposal of
various forms of materials resulting from geothermal reservoir production and
the drilling and operation of new wells. These laws and regulations generally
require us to obtain and comply with a wide variety of licenses, permits and
other approvals. We also remain subject to a varied and complex body of
environmental and energy regulations that both public officials and private
individuals may seek to enforce. We cannot assure you that existing regulations
will not be revised or that new regulations will not be adopted or become
applicable us which could have an adverse impact on our operations.
The structure of federal and state energy regulations is currently
undergoing change and has in the past, and may in the future, be the subject of
various challenges, initiatives and restructuring proposals by utilities and
other industry participants. The implementation of regulatory changes in
response to such challenges, initiatives and restructuring proposals could
result in the imposition of more comprehensive or stringent requirements on us,
electric utilities and other industry participants, which would result in
increased compliance costs and could otherwise have an adverse effect on:
o our results of operations;
o our ability to make payments on the Securities; and
o the operations and financial condition of electric utilities
(including SCE) and other industry participants.
MOST OF OUR OPERATING REVENUES ARE DERIVED FROM POWER PURCHASE AGREEMENTS WITH
ONE CUSTOMER.
Each of our existing projects relies on an agreement with SCE to generate
100% of its operating revenues. The payments under these agreements have
constituted 100% of the operating revenues of each existing project since its
inception, and are expected to continue to do so for nearly the entire life of
the Securities. Any material failure of SCE to fulfill its contractual
obligations under the power purchase agreements could have a material adverse
effect on our ability to make payments on the Securities.
THE PROCEEDS RECEIVED UNDER OUR INSURANCE POLICIES MAY NOT BE SUFFICIENT TO
COVER ALL LOSSES AND THE INSURANCE COVERAGE FOR OUR PROJECTS MAY NOT BE
AVAILABLE IN THE FUTURE ON COMMERCIALLY REASONABLE TERMS.
We currently have property, business interruption, catastrophic and
general liability insurance for our projects. Proceeds of this insurance will
be payable to the depositary for our account and will be applied as required
under the financing documents. We cannot assure you that such comprehensive
insurance coverage will be available in the future at commercially reasonable
costs or terms or that the amounts for which we are or will be insured will
cover all potential losses.
Our new projects and any new facilities at the projects will be designed
and built to withstand relatively significant levels of seismic disturbance
because geothermally active areas such as the area in which our projects are
located are subject to frequent low-level seismic disturbances, and serious
seismic disturbances are possible. However, we cannot assure you that:
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<PAGE>
o seismic disturbances of a nature and magnitude so as to cause material
damage to our projects or gathering systems, or a material change in
the nature of the geothermal resource, will not occur;
o insurance with respect to seismic disturbances will be maintained for
all of our projects;
o insurance proceeds will be adequate to cover all potential losses
sustained; or
o insurance will continue to be available in the future in amounts
adequate to insure against seismic disturbances.
FEDERAL AND STATE STATUTES MAY ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO
VOID THE GUARANTORS' AND MAGMA'S OBLIGATIONS.
We distributed a significant portion of the proceeds of the offering of
the Initial Securities to MidAmerican to repay certain non-recourse
indebtedness incurred by MidAmerican in connection with its acquisition of
Magma. At that time, the Royalty Guarantor also purchased an assignment of
royalties from Magma pursuant to an assignment agreement. Pursuant to such
agreement, Magma agreed to make payments to CEOC and to secure this payment
obligation with a collateral assignment of cash flows. At the time of the
offering of the Initial Securities, the initial Guarantors executed guarantees
of the entire amount of the Securities. In connection with the offering of the
Supplemental Securities and the offering of the Old Securities, the Guarantors
executed guarantees of the entire amount of Securities. Under certain
circumstances (including a proceeding under Title 11 of the United States Code
or any similar proceeding), it is possible that a creditor of a Guarantor or
Magma could make a claim, under federal or state fraudulent conveyance laws,
that the following instruments should be subordinated or not enforced in
accordance with their terms or that payments under these instruments (including
payments to the holders of the Securities) should be recovered:
o our claims under the credit agreements between us and the Guarantors;
o the Security holders' claims under the guarantees;
o the Royalty Guarantor's interest under its assignment agreement with
Magma; or
o CEOC's rights under its services agreement with Magma.
In order to prevail on such a claim, a claimant would have to demonstrate
that:
o either:
o the obligations incurred under any Guarantor's credit agreement or
guarantee or the transfers made under the Magma assignment agreement
or the Magma services agreement were not incurred in good faith, or
o that any Guarantor or Magma did not receive fair consideration in
connection with such obligations and transfers, and
o that any Guarantor or Magma, at the time of (1) entering into its
credit agreement and/or guarantee or the Magma assignment agreement
and/or the Magma services agreement or (2) amending or otherwise
increasing its obligations under its credit agreement and/or
guarantee:
o was insolvent; or
o did not have and will not have sufficient capital for carrying on its
business or was not and will not be able to pay its debts as they
mature.
WE ARE RELYING ON PROJECTIONS OF THE FUTURE PERFORMANCE OF OUR PROJECTS.
The financing documents reflect certain assumptions with respect to our
revenue generating capacity and the costs associated with the generation of
revenue over the term of the Securities. Fluor Daniel has evaluated and
provided a report on the technical, environmental and economic aspects of the
Projects in the Independent Engineer's Report. The Independent Engineer's
Report also contains cash flow projections and a discussion of the many
assumptions utilized in preparing these projections, which you should review
carefully.
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<PAGE>
All projections of future operations and the economic results thereof
included in the Independent Engineer's Report have been adopted by Fluor
Daniel. These cash flow projections rely in part on the projections of power
and zinc prices provided by Henwood and RSI, respectively. Our independent
auditors, Deloitte & Touche LLP, have neither examined nor compiled the
projections and, accordingly, do not express an opinion or any other form of
assurance with respect to the projections. Neither we nor any other person has
any obligation to provide the holders of the Securities with updated reports or
revised projections comparing the projections and the actual operating results
later achieved by us.
For purposes of preparing the projections, Fluor Daniel made certain
assumptions, of necessity, with respect to general business and economic
conditions, the revenues we will earn, SCE's future avoided cost of energy and
several other material contingencies and other matters that are not within our
control and the outcome of which cannot be predicted by us, Fluor Daniel or any
other person with any certainty of accuracy. These assumptions and the other
assumptions used in the projections are inherently subject to significant
uncertainties and actual results may differ, perhaps materially, from those
projected. Neither we nor any of Fluor Daniel, Henwood, RSI or any other person
assumes any responsibility for the accuracy of such projections. Therefore, no
representation is made or intended, nor should any be inferred, with respect to
the likely existence of any particular future set of facts or circumstances. If
actual results are less favorable than those shown or if the assumptions used
in formulating the projections prove to be incorrect, our ability to make
payments on the Securities and the Guarantors' ability to make payments on
their notes and guarantees may be adversely affected.
THERE IS NO EXISTING MARKET FOR THE NEW SECURITIES AND WE CANNOT ASSURE YOU
THAT AN ACTIVE TRADING MARKET WILL DEVELOP.
We are offering the New Securities to the holders of the Old Securities.
There is no existing market for the New Securities and we cannot assure you
that a market will develop. If a market for the New Securities were to develop,
future trading prices would depend on many factors, including prevailing
interest rates, our operating results and the market for similar securities. We
do not intend to apply for listing or quotation of the New Securities on any
securities exchange or stock market.
RISKS ASSOCIATED WITH THE YEAR 2000 PROBLEM COULD HAVE AN ADVERSE EFFECT ON OUR
BUSINESS.
We expect to implement successfully systems to address year 2000 issues.
We cannot assure you, however, that our year 2000 compliance will not be
delayed or require significant expenditures. Our inability to implement the
appropriate software on a timely basis could have an adverse effect on our
business. We may also suffer an adverse impact on our business if our
suppliers, customers, financial institutions, technical advisors and others
with which we conduct business are not year 2000 compliant.
FORWARD-LOOKING STATEMENTS
Some of the statements contained or incorporated by reference into this
prospectus are not historical facts, but are "forward-looking statements" as
that term is defined under the Private Securities Litigation Reform Act of
1995. We wish to caution you that these forward-looking statements are only
predictions, and actual events or results may differ materially as a result of
risks that we face, including those set forth herein under "Risk Factors."
These forward-looking statements can be identified by the use of
forward-looking terminology such as "believe," "expects," "plans," "may,"
"would," "could," "should" or "anticipates" or the negative of these words or
other variations of these words or other comparable words, or by discussions of
strategies that involve risks and uncertainties. These risks include, but are
not limited to the following:
o general economic and business conditions;
o industry trends;
o the impact of the "year 2000" issue;
o weather effects on sales and revenues;
o changes in business strategy, development plans or vendor
relationships;
o availability, term and deployment of capital;
o availability of qualified personnel; and
o changes in, or failure or inability to comply with, governmental
regulations.
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a Registration Statement on Form S-4
(together with all amendments and exhibits, the "Registration Statement") under
the Securities Act with respect to our offering of the New Securities. This
prospectus does not contain all of the information in the Registration
Statement. You will find additional information about us and the New Securities
in the Registration Statement. Any statement made in this prospectus concerning
the provisions of legal documents are not necessarily complete and you should
read the documents that are filed as exhibits to the Registration Statement.
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and file periodic
reports, registration statements, proxy statements and other information with
the Commission. You may inspect and copy the Registration Statement, including
exhibits, and our periodic reports, registration statements, proxy statements
and other information we file with the Commission at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission maintains a Web site that contains reports,
proxy and information statements and other materials that are filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
This Web site can be accessed at http://www.sec.gov.
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<PAGE>
CAPITALIZATION
The following tables set forth the individual capitalization of the
Funding Corporation and the Guarantors and the combined capitalization of the
Guarantors as of March 31, 1999
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<S> <C>
CAPITALIZATION OF FUNDING CORPORATION:
Senior Secured Notes and Bonds ........................ $626,816
--------
Total Indebtedness .................................. 626,816
--------
Capital:
Common Stock ......................................... --
Additional paid-in capital ........................... 5,366
Retained earnings .................................... 6,744
--------
Total Capital ....................................... 12,110
--------
$638,926
========
CAPITALIZATION OF SALTON SEA GUARANTORS:
Senior Secured Project Note (1) ....................... $310,030
--------
Total Indebtedness .................................. 310,030
--------
Capital:
Partners' Capital .................................... 283,489
--------
$593,519
========
CAPITALIZATION OF PARTNERSHIP GUARANTORS:
Senior Secured Project Note (1) ....................... $293,576
--------
Total Indebtedness .................................. 293,576
--------
Capital:
Common Stock ......................................... 3
Additional paid-in capital ........................... 387,663
Retained earnings .................................... 113,713
--------
Total Capital ....................................... 501,379
--------
$794,955
========
CAPITALIZATION OF ROYALTY GUARANTOR:
Senior Secured Project Note (1) ....................... $ 23,210
--------
Total Indebtedness .................................. 23,210
--------
Capital:
Common Stock ......................................... --
Additional paid-in capital ........................... 1,561
Retained earnings .................................... 42,081
--------
Total Capital ....................................... 43,642
--------
$ 66,852
========
COMBINED CAPITALIZATION OF THE GUARANTORS:
Senior Secured Project Note (1) ....................... $626,816
--------
Total Indebtedness .................................. 626,816
--------
Capital:
Common Stock ......................................... 3
Additional paid-in capital ........................... 389,224
Retained earnings .................................... 155,794
Partners' capital .................................... 283,489
--------
Total Capital ....................................... $828,510
========
</TABLE>
- ----------
(1) For terms of the Project Notes, see "Summary Description of Principal
Financing Documents."
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<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Funding Corporation originally sold the outstanding 7.475% Senior
Secured Series F Bonds due November 30, 2018 on October 13, 1998 in a
transaction exempt from the registration requirements of the Securities Act.
Credit Suisse First Boston Corporation and Goldman, Sachs & Co., as the initial
purchasers, subsequently resold the notes to qualified institutional buyers in
reliance on Rule 144A and under Regulation S under the Securities Act. As of
the date of this prospectus, $285 million aggregate principal amount of
unregistered bonds are outstanding.
The Funding Corporation, Credit Suisse First Boston Corporation and
Goldman, Sachs & Co. entered into an exchange and registration rights agreement
under which the Funding Corporation agreed that it would, at its own cost, (1)
use its reasonable best efforts to cause the Registration Statement, of which
this prospectus is a part, relating to the exchange offer to be declared
effective by the Commission prior to July 10, 1999, (2) keep the exchange offer
open for a period of not less than the shorter of (A) the period ending when
the last of the remaining Old Securities is tendered into the exchange offer
and (B) 30 days from the date notice is mailed to holders of the Old
Securities, and (3) maintain the Registration Statement continuously effective
for a period of not less than the longer of (A) the period until consummation
of the exchange offer and (B) 120 days after effectiveness of the Registration
Statement (subject to extension under certain limited circumstances), provided
that in the event that all resales of New Securities covered by the
Registration Statement have been made, the Registration Statement need not
remain continuously effective. The summary in this prospectus of provisions of
the registration rights agreement does not purport to be complete and is
subject to, and is qualified in its entirety by, all the provisions of the
registration rights agreement, a copy of which is filed as an exhibit to the
registration statement of which this prospectus is a part.
RESALE OF THE NEW SECURITIES
Based on no-action letters issued by the staff of the Commission to third
parties, the Funding Corporation believes that a holder of Old Securities, but
not a holder who is an affiliate of the Funding Corporation within the meaning
of Rule 405 of the Securities Act, who exchanges Old Securities for New
Securities in the exchange offer, generally may offer the New Securities for
resale, sell the New Securities and otherwise transfer the New Securities
without further registration under the Securities Act and without delivery of a
prospectus that satisfies the requirements of Section 10 of the Securities Act.
This does not apply, however, to a holder who is an affiliate of the Funding
Corporation within the meaning of Rule 405 of the Securities Act. The Funding
Corporation also believes that a holder may offer, sell or transfer the New
Securities only if the holder acquires the New Securities in the ordinary
course of its business and is not participating, does not intend to participate
and has no arrangement or understanding with any person to participate in a
distribution of the New Securities.
Any holder of Old Securities using the exchange offer to participate in a
distribution of New Securities cannot rely on the no-action letters referred to
above. This includes a broker-dealer that acquired Old Securities directly from
the Funding Corporation, but not as a result of market-making activities or
other trading activities. Consequently, the holder must comply with the
registration and prospectus delivery requirements of the Securities Act in the
absence of an exemption from such requirements.
Each broker-dealer that receives New Securities for its own account in
exchange for Old Securities, where such Old Securities were acquired by the
broker-dealer as a result of market-making activities or other trading
activities may be a statutory underwriter and must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with the resale of New Securities received in exchange for Old
Securities. The letter of transmittal which accompanies this prospectus states
that by so acknowledging and by delivering a prospectus, a participating
broker-dealer will not be deemed to admit that it is an underwriter within the
meaning of the Securities Act. A participating broker-dealer may use this
prospectus, as it may be amended from time to time, in connection with resales
of New
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<PAGE>
Securities it receives in exchange for Old Securities in the exchange offer.
The Funding Corporation will make this prospectus available to any
participating broker-dealer in connection with any resale of this kind for a
period of 30 days after the expiration date of the exchange offer. See "Plan of
Distribution".
Each holder of the Old Securities who wishes to exchange Old Securities
for New Securities in the exchange offer will be required to represent and
acknowledge, for the holder and for each beneficial owner of such Old
Securities, whether or not the beneficial owner is the holder, in the letter of
transmittal that:
o the New Securities to be acquired by the holder and each beneficial
owner, if any, are being acquired in the ordinary course of business,
o neither the holder nor any beneficial owner is an affiliate, as
defined in Rule 405 of the Securities Act, of the Funding Corporation
or any of its subsidiaries,
o any person participating in the exchange offer with the intention or
purpose of distributing New Securities received in exchange for Old
Securities, including a broker-dealer that acquired Old Securities
directly from the Funding Corporation, but not as a result of
market-making activities or other trading activities cannot rely on
the no-action letters referenced above and must comply with the
registration and prospectus delivery requirements of the Securities
Act, in connection with a secondary resale of the New Securities
acquired by such person,
o if the holder is not a broker-dealer, the holder and each beneficial
owner, if any, are not participating, do not intend to participate and
have no arrangement or understanding with any person to participate in
any distribution of the New Securities received in exchange for Old
Securities, and
o if the holder is a broker-dealer that will receive New Securities for
the holder's own account in exchange for Old Securities, the Old
Securities to be so exchanged were acquired by the holder as a result
of market-making or other trading activities and the holder will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Securities received in the
exchange offer. However, by so representing and acknowledging and by
delivering a prospectus, the holder will not be deemed to admit that
it is an underwriter within the meaning of the Securities Act.
SHELF REGISTRATION STATEMENT
If applicable law or interpretations of the staff of the SEC are changed
so that the New Securities received by holders who make all of the above
representations in the letter of transmittal are not or would not be, upon
receipt, transferrable by each such holder without restriction under the
Securities Act, the Funding Corporation will, at its cost:
o file a shelf registration statement covering resales of the Old
Securities,
o use its reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act on or
prior to July 10, 1999, and
o use its reasonable best efforts to keep effective the shelf
registration statement until the earlier of three years after October
13, 1998, subject to certain exceptions, or the time when all of the
applicable Old Securities are no longer outstanding.
The Funding Corporation may postpone or suspend the filing or the
effectiveness of any registration statement if such action is taken by the
Funding Corporation in good faith and for valid business reasons. The Funding
Corporation will, if and when it files the shelf registration statement,
provide to each holder of the Old Securities copies of the prospectus which is
a part of the shelf registration statement, notify each holder when the shelf
registration statement has become effective and take other actions as are
required to permit unrestricted resales of the Old Securities.
INCREASE IN INTEREST RATE
In the event that neither the exchange offer registration statement nor a
shelf registration statement has been declared effective by July 10, 1999, the
interest rate on the Old Securities will increase by 0.50%
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<PAGE>
per annum until the exchange offer registration statement or the shelf
registration statement is declared effective. Upon consummation of the exchange
offer, holders of Old Securities will not be entitled to any increase in the
rate of interest on the Old Securities, but will be entitled to the benefits of
the indenture under which the Old Securities were issued.
TERMS OF THE EXCHANGE
The Funding Corporation hereby offers, upon the terms and subject to the
conditions set forth in this prospectus and in the accompanying Letter of
Transmittal, to exchange New Securities for a like aggregate principal amount
of Old Securities properly tendered on or prior to the Expiration Date and not
properly withdrawn in accordance with the procedures described below. The
Funding Corporation will issue, promptly after the Expiration Date, the New
Securities in exchange for a like principal amount of outstanding Old
Securities tendered and accepted in connection with the exchange offer. Holders
may tender their Old Securities in whole or in part in a principal amount of
$1,000 and integral multiples thereof, provided that if any Old Securities are
tendered for exchange in part, the untendered principal amount thereof must be
$100,000 or any integral multiple of $1,000 in excess thereof.
The exchange offer is not conditioned upon any minimum number of Old
Securities being tendered. As of the date of this prospectus, $285,000,000
aggregate principal amount of the Old Securities is outstanding.
If any tendered Old Securities are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Securities will be
returned, without expense to the tendering holder thereof promptly after the
Expiration Date.
Holders who tender Old Securities in connection with the exchange offer
will not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Old Securities in connection with the exchange offer. The Funding
Corporation will pay all charges and expenses, other than certain applicable
taxes described below, in connection with the exchange offer. See
"--Solicitation of Tenders; Fees and Expenses."
Neither the Board of Directors of the Funding Corporation nor the Funding
Corporation makes any recommendation to holders of Old Securities as to whether
to tender or refrain from tendering all or any portion of their Old Securities
pursuant to the exchange offer. In addition, no one has been authorized to make
any such recommendation, holders of Old Securities must make their own decision
whether to tender pursuant to the exchange offer and, if so, the aggregate
amount of Old Securities to tender after reading this prospectus and the Letter
of Transmittal and consulting with their advisers, if any, based on their own
financial position and requirements.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The exchange offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on July 30, 1999, unless the Funding
Corporation in its sole discretion extends the period during which the exchange
offer is open, in which case the term "Expiration Date" means the latest time
and date to which the exchange offer is extended. The Funding Corporation may
extend the exchange offer at any time and from time to time by giving oral or
written notice to the Exchange Agent and by timely public announcement. Without
limiting the manner in which the Funding Corporation may choose to make any
public announcement and subject to applicable law, the Funding Corporation
shall have no obligation to publish, advertise or otherwise communicate any
such public announcement other than by issuing a release to an appropriate news
agency. During any extension of the exchange offer, all Old Securities
previously tendered pursuant to the exchange offer will remain subject to the
exchange offer.
The Funding Corporation reserves the right (1) to delay accepting any Old
Securities, to extend the exchange offer or to terminate the exchange offer and
not accept Old Securities not previously accepted for any reason, including if
any of the events set forth herein under "--Conditions to the Exchange Offer"
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<PAGE>
occur and are not waived by the Funding Corporation, or (2) to amend the terms
of the exchange offer in any manner, whether prior to or after the tender of
any of the Old Securities. If any such delay, extension, termination or
amendment occurs, the Funding Corporation will give oral or written notice to
the Exchange Agent and will either issue a public announcement or give notice
to the holders of the Old Securities as promptly as practicable.
If the Funding Corporation waives any material condition to the exchange
offer, or amends the exchange offer in any other material respect, and if at
the time that notice of such waiver or amendment is first published, sent or
given to holders of Old Securities in the manner specified above, the exchange
offer is scheduled to expire at any time earlier than the expiration of a
period ending on the fifth business day from, and including, the date that such
notice is first so published, sent or given, then the exchange offer will be
extended until the expiration of such period of five business days.
This prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Funding Corporation to record holders of Old
Securities and will be furnished to brokers, banks and similar persons whose
names, or the names of whose nominees, appear on the lists of holders for
subsequent transmittal to beneficial owners of Old Securities.
PROCEDURES FOR TENDERING
To tender in the exchange offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof (all references in this
prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof), have the signatures thereon guaranteed if required by the Letter of
Transmittal and mail or otherwise deliver such Letter of Transmittal or such
facsimile, together with any other required documents or an Agent's Message in
case of book-entry delivery as described below, to the Exchange Agent prior to
the Expiration Date. In addition, either (1) certificates for such Old
Securities must be received by the Exchange Agent along with the Letter of
Transmittal on or prior to the Expiration Date, (2) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Old Securities, if
such procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, along with the Letter of
Transmittal must be received by the Exchange Agent on or prior to the
Expiration Date, or (3) the holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER
OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK
OF THE TENDERING HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL (RETURN
RECEIPT REQUESTED AND PROPERLY INSURED) OR AN OVERNIGHT DELIVERY SERVICE IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD SECURITIES SHOULD BE SENT TO THE
FUNDING CORPORATION. To be tendered effectively, the Old Securities, Letter of
Transmittal and all other required documents, or, in the case of a participant
in the Book-Entry Transfer Facility, an Agent's Message, must be received by
the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date. Except in the case of a participant in the Book-Entry Transfer Facility
who transfers Securities by an Agent's Message, delivery of all documents must
be made to the Exchange Agent at its address set forth on the back of this
prospectus. Holders may also request their respective brokers, dealers,
commercial, banks, trust companies or nominees to effect such tender for such
holders.
The tender by a holder of Old Securities will constitute an agreement
between such holder and the Funding Corporation in accordance with the terms
and subject to the conditions set forth in this prospectus and in the Letter of
Transmittal. If less than all of the Old Securities are tendered, a tendering
holder should fill in the amount of Old Securities being tendered in the
appropriate box on the Letter of Transmittal. The entire amount of Old
Securities delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated.
Only a holder of Old Securities may tender such Old Securities in the
exchange offer. The term "holder" with respect to the exchange offer means any
person in whose name Old Securities are registered on the books of the Funding
Corporation or any other person who has obtained a properly completed bond
power from the registered holder.
41
<PAGE>
Any beneficial owner whose Old Securities are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Securities, either
make appropriate arrangements to register ownership of the Old Securities in
such owner's name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a firm (an "Eligible Institution") that is a
member of a recognized signature guarantee medallion program within the meaning
of Rule 17Ad-15 under the Exchange Act, unless the Old Securities tendered
pursuant thereto are tendered (1) by a registered holder who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (2) for the account of an
Eligible Institution. In the event that signatures on a Letter of Transmittal
or a notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantee must be by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Securities listed therein, such Old Securities
must be endorsed or accompanied by bond powers and a proxy which authorizes
such person to tender the Old Securities on behalf of the registered holder, in
each case as the name of the registered holder or holders appears on the Old
Securities. If the Letter of Transmittal or any Old Securities bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing, and unless waived by the
Funding Corporation, evidence satisfactory to the Funding Corporation of their
authority to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Old Securities will be determined by
the Funding Corporation in its sole discretion, which determination will be
final and binding. The Funding Corporation reserves the absolute right to
reject any and all Old Securities not properly tendered or any Old Securities
which, if accepted by the Funding Corporation, would be unlawful. The Funding
Corporation also reserves the right to waive any irregularities or conditions
of tender as to particular Old Securities. The Funding Corporation's
interpretation of the terms and conditions of the exchange offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
tenders of Old Securities must be cured within such time as the Funding
Corporation determines. None of the Funding Corporation, the Exchange Agent or
any other person will be under any duty to give notification of defects or
irregularities with respect to tenders of Old Securities, nor will any of them
incur any liability for failure to give such notification. Tenders of Old
Securities will not be deemed to have been made until such irregularities have
been cured or waived. Any Old Securities received by the Exchange Agent that
are not properly tendered and as to which the defects or irregularities have
not been timely cured or waived will be returned without cost to such holder by
the Exchange Agent to the tendering holders of Old Securities, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, the Funding Corporation reserves the right in its sole
discretion (1) to purchase or make offers for any Old Securities that remain
outstanding subsequent to the Expiration Date or, as set forth under
"--Conditions to the exchange offer," to terminate the exchange offer and (2)
to the extent permitted by applicable law, to purchase Old Securities in the
open market, in privately negotiated transactions or otherwise. The Funding
Corporation has no present plan to acquire any Old Securities which are not
tendered in the exchange offer. The terms of any such purchases or offers could
differ from the terms of the exchange offer.
Book Entry Transfer. The Exchange Agent will make a request to establish
an account with respect to the Old Securities at the Book-Entry Transfer
Facility for purposes of the exchange offer within two business days after the
date of this prospectus. Any financial institution that is a participant in the
42
<PAGE>
Book-Entry Transfer Facility's systems may book-entry deliver Old Securities by
causing the Book-Entry Transfer Facility to transfer such Old Securities into
the Exchange Agent's account at the Book-Entry Transfer Facility in accordance
with the Book-Entry Transfer Facility's procedures for transfer on or prior to
the Expiration Date. A holder who is a participant in the Book-Entry Transfer
Facility and transfers the Securities by an Agent's Message need not transmit
the Letter of Transmittal to the Exchange Agent to consummate the exchange.
The term "Agent's Message" means a message transmitted through electronic
means by a Book-Entry Transfer Facility to and received by the Exchange Agent
and forming a part of a book-entry confirmation, which states that the
Book-Entry Transfer Facility has received an express acknowledgment from the
participant in the Book-Entry Transfer Facility tendering the Securities that
such participant has received and agrees to be bound by the Letter of
Transmittal and/or the Notice of Guaranteed Delivery (as discussed below),
where applicable.
Guaranteed Delivery Procedures. If a registered holder of the Old
Securities desires to tender its Old Securities, and the Old Securities are not
immediately available, or time will not permit such holder's Old Securities or
other required documents to reach the Exchange Agent before the Expiration
Date, or the procedure for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if:
(1) the tender is made through an Eligible Institution;
(2) on or prior to the Expiration Date, the Exchange Agent received from
such Eligible Institution a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof or in the case of a
participant in the Book-Entry Transfer Facility, an Agent's Message)
and Notice of Guaranteed Delivery, substantially in the form provided
by the Funding Corporation (by facsimile transmission, mail or hand
delivery, or, in the case of a participant in the Book-Entry Transfer
Facility, by an Agent's Message), setting forth the name and address
of the holder of Old Securities and the amount of Old Securities
tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Securities, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent; and
(3) the certificates for all physically tendered Old Securities, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal are
received by the Exchange Agent within three New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed
Delivery.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Securities is received by the Exchange Agent, or in the
case of a participant in the Book-Entry Transfer Facility, as of the date when
an Agent's Message from the participant has been received by the Exchange
Agent. Issuances of New Securities in exchange for Old Securities tendered
pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) by an Eligible Institution
will be made only against deposit of the Letter of Transmittal (and any other
required documents) and the tendered Old Securities.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following
terms and conditions, which are part of the exchange offer.
The party tendering Old Securities for exchange (the "Transferor")
exchanges, assigns and transfers the Old Securities to the Funding Corporation
and irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Old Securities to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender,
43
<PAGE>
exchange, assign and transfer the Old Securities and to acquire New Securities
issuable upon the exchange of such tendered Old Securities, and that, when the
same are accepted for exchange, the Funding Corporation will acquire good and
unencumbered title to the tendered Old Securities, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim.
The Transferor also warrants that it will, upon request, execute and deliver
any additional documents deemed by the Funding Corporation to be necessary or
desirable to complete the exchange, assignment and transfer of tendered Old
Securities. The Transferor further agrees that acceptance of any tendered Old
Securities by the Funding Corporation and the issuance of New Securities in
exchange therefor shall constitute performance in full by the Funding
Corporation of its obligations under the Registration Rights Agreement and that
the Funding Corporation shall have no further obligations or liabilities
thereunder (except in certain limited circumstances). All authority conferred
by the Transferee will survive the death or incapacity of the Transferor and
every obligation of the Transferor shall be binding upon the heirs, legal
representatives. successors, assigns, executors and administrators of such
Transferor.
By tendering Old Securities, the Transferor certifies that (1) it is not
an "affiliate" of the Funding Corporation within the meaning of Rule 405 under
the Securities Act, that it is not a broker-dealer that owns Old Securities
acquired directly from the Funding Corporation, that it is acquiring the New
Securities offered hereby in the ordinary course of such Transferor's business
and that such Transferor has no arrangement with any person to participate in
the distribution of such New Securities or (2) it is an "affiliate" (as defined
above) of the Funding Corporation or of an Initial Purchaser and that it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable to it. Each broker-dealer that receives
New Securities as a result of market-making activities or other trading
activities must acknowledge that it will deliver a prospectus in connection
with any resale of such New Securities. See "Plan of Distribution."
WITHDRAWAL RIGHTS; NONEXCHANGED OLD SECURITIES
Old Securities tendered pursuant to the exchange offer may be withdrawn at
any time prior to 5:00 p.m. New York City time, on the Expiration Date.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely received by the
Exchange Agent at its address set forth on the back of this prospectus. Any
such notice of withdrawal must specify the name of the person having tendered
the Old Securities to be withdrawn, identify the Old Securities to be withdrawn
(including the principal amount of such Old Securities) and (where certificates
for Old Securities have been transmitted) specify the name in which such Old
Securities are registered if different from that of the withdrawing holder,
accompanied by evidence satisfactory to the Funding Corporation that the person
withdrawing the tender has succeeded to the beneficial ownership of the Old
Securities being withdrawn. If certificates for Old Securities have been
delivered or otherwise identified to the Exchange Agent, then, prior to the
release of such certificates, the withdrawing holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such holder is an Eligible Institution. If Old Securities have been
tendered pursuant to the procedure for book-entry transfer described above, any
notice of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Old Securities
and otherwise comply with the procedures of such facility. If any Old
Securities are tendered for exchange but are not exchanged for any reason, or
if any Old Securities are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or nonexchanged Old Securities will
be returned to the holder thereof without cost to such holder (or, in the case
of Old Securities tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Securities will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Securities) as
soon as practicable after withdrawal, rejection of tender, termination of the
exchange offer or submission of nonexchanged Old Securities. Withdrawals of
tenders of Old Securities may not be rescinded. Old Securities properly
withdrawn will not be deemed validly tendered for purposes of the exchange
offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described above under
"--Procedures for Tendering."
44
<PAGE>
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Funding
Corporation in its sole discretion, whose determination will be final and
binding on all parties. Neither the Funding Corporation, any affiliates or
assigns of the Funding Corporation, the Exchange Agent nor any other person
shall be under any duty to give any notification of any irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
ACCEPTANCE OF OLD SECURITIES FOR EXCHANGE; DELIVERY OF NEW SECURITIES
Upon the terms and subject to the conditions of the exchange offer, the
Funding Corporation will exchange, and will issue to the Exchange Agent, New
Securities for Old Securities validly tendered and not withdrawn promptly after
the Expiration Date. For the purposes of the exchange offer, the Funding
Corporation will be deemed to have accepted for exchange validly tendered Old
Securities when and if the Funding Corporation has given oral or written notice
thereof to the Exchange Agent. The Exchange Agent will act as agent for the
tendering holders of Old Securities for the purposes of receiving New
Securities from the Funding Corporation and causing the Old Securities to be
assigned, transferred and exchanged. Upon the terms and subject to the
conditions of the exchange offer, delivery of New Securities to be issued in
exchange for accepted Old Securities will be made by the Exchange Agent only
after timely receipt by the Exchange Agent of certificates for such Old
Securities or a timely Book-Entry Confirmation of such Old Securities into the
Exchange Agent's account at the Book-Entry Transfer Facility, a properly
completed and duly executed Letter of Transmittal and all other required
documents, or, in the case of a book-entry delivery, an Agent's Message.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the exchange offer, or any
extension of the exchange offer, the Funding Corporation will not be required
to accept for exchange, or to exchange, any Old Securities for any New
Securities, and, as described below, may terminate the exchange offer (whether
or not any Old Securities have theretofore been accepted for exchange) or may
waive any conditions to or amend the exchange offer, if any of the following
conditions have occurred or exists or have not been satisfied:
o the exchange offer, or the making of any exchange by a holder,
violates any applicable law or any applicable interpretation of the
staff of the Commission;
o in the reasonable judgment of the Funding Corporation, there is be
threatened, instituted or pending any action or proceeding before, or
any injunction, order or decree has been issued by, any court or
governmental agency or other governmental regulatory or administrative
agency or commission, (1) seeking to restrain or prohibit the making
or consummation of the exchange offer or any other transaction
contemplated by the exchange offer, (2) assessing or seeking any
damages as a result thereof, or (3) resulting in a material delay in
the ability of the Funding Corporation to accept for exchange or
exchange some or all of the Old Securities pursuant to the exchange
offer;
o any statute, rule, regulation, order or injunction is sought,
proposed, introduced, enacted, promulgated or deemed applicable to the
exchange offer or any of the transactions contemplated by the exchange
offer by any government or governmental authority, domestic or
foreign, or any action shall have been taken, proposed or threatened,
by any government, governmental authority, agency or court, domestic
or foreign, that in the reasonable judgment of the Funding Corporation
might directly or indirectly result in any of the consequences
referred to in clauses (1), (2) or (3) in the immediately preceding
paragraph or, in the reasonable judgment of the Funding Corporation,
might result in the holders of New Securities having obligations with
respect to resales and transfers of New Securities which are greater
than those described in the interpretations of the Staff referred to
in this prospectus, or would otherwise make it inadvisable to proceed
with the exchange offer;
o there shall have occurred (1) any general suspension of trading in, or
general limitation on prices for securities on the New York Stock
Exchange, (2) a declaration of a banking moratorium or any
45
<PAGE>
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority that adversely
affects the extension of credit to the Funding Corporation, or (3) a
commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United
States; or, in the case any of the foregoing exists at the time of
commencement of the exchange offer, a material acceleration or
worsening thereof; or
o a material adverse change shall have occurred or be threatened in the
business, condition (financial or otherwise), operations, stock
ownership or prospects of the Funding Corporation.
The foregoing conditions are for the sole benefit of the Funding
Corporation and may be asserted by it with respect to all or any portion of the
exchange offer regardless of the circumstances (including any action or
inaction by the Funding Corporation) giving rise to such condition or may be
waived by the Funding Corporation in whole or in part at any time or from time
to time in their sole discretion. The failure by the Funding Corporation at any
time to exercise any of the foregoing rights will not be deemed a waiver of any
such right. and each right will be deemed an ongoing right which may be
asserted at any time or from time to time. In addition, the Funding Corporation
has reserved the right, notwithstanding the satisfaction of each of the
foregoing conditions, to amend the exchange offer.
Any determination by the Funding Corporation concerning the fulfillment or
non-fulfillment of any conditions will be final and binding upon all parties.
In addition, the Funding Corporation will not accept for exchange any Old
Securities tendered and no New Securities will be issued in exchange for any
such Old Securities, if at such time any stop order shall be threatened or in
effect with respect to (1) the Registration Statement of which this prospectus
constitutes a part or (2) the qualification of the Indenture under the Trust
Indenture Act of 1939.
EXCHANGE AGENT
Chase Manhattan Bank & Trust Company, National Association, has been
appointed as the Exchange Agent for the exchange offer. Chase Manhattan Bank &
Trust Company, National Association also acts as trustee under the Indenture.
Delivery of the Letters of Transmittal and any other required documents,
questions, requests for assistance, and requests for additional copies of this
prospectus or of the Letter of Transmittal, should be directed to the Exchange
Agent at its address and numbers set forth on the back of this prospectus.
Except in the case of a participant in the Book-Entry Transfer Facility who
transfers Securities by an Agent's Message, delivery to an address other than
as set forth herein, or transmissions of instructions via a facsimile or telex
number other than to the Exchange Agent as set forth herein, will not
constitute a valid delivery.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Funding Corporation has not retained any dealer-manager or similar
agent in connection with the exchange offer and will not make any payments to
brokers, dealers or others for soliciting acceptances of the exchange offer.
The Funding Corporation will, however, pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for reasonable
out-of-pocket expenses in connection therewith. The Funding Corporation will
also pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
prospectus and related documents to the beneficial owners of Old Securities,
and in handling tenders for their customers. The expenses to be incurred in
connection with the exchange offer, including the fees and expenses of the
Exchange Agent and printing, accounting and legal fees, will be paid by the
Funding Corporation and are estimated at approximately $100,000.
Holders who tender their Old Securities for exchange will not be obligated
to pay any transfer taxes in connection therewith. If, however, New Securities
are to be delivered to, or are to be issued in the name of, any person other
than a registered holder of the Old Securities tendered, of if a transfer tax
is imposed for any reason other than the exchange of Old Securities in
connection with the exchange offer, then the
46
<PAGE>
amount of any such transfer taxes (whether imposed on the registered holder or
any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
No person has been authorized to give any information or to make any
representations in connection with the exchange offer other than those
contained in this prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Funding Corporation. Neither the delivery of this prospectus nor any exchange
made under this prospectus will, under any circumstances, create any
implication that there has been no change in the affairs of the Funding
Corporation since the respective dates as of which information is given herein.
The exchange offer is not being made to (nor will tenders be accepted from or
on behalf of) holders of Old Securities in any jurisdiction in which the making
of the exchange offer or the acceptance thereof would not be in compliance with
the laws of such jurisdiction. However, the Funding Corporation may, at its
discretion, take such action as it may deem necessary to make the exchange
offer in any such jurisdiction and extend the exchange offer to holders of Old
Securities in such jurisdiction. In any jurisdiction the securities laws or
blue sky laws of which require the exchange offer to be made by a licensed
broker or dealer, the exchange offer is being made on behalf of the Funding
Corporation by one or more registered brokers or dealers which are licensed
under the laws of such jurisdiction.
APPRAISAL RIGHTS
Holders of Old Securities will not have dissenters' rights or appraisal
rights in connection with the exchange offer.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Old Securities for New Securities by holders will not be a
taxable exchange for federal income tax purposes, and holders should not
recognize any taxable gain or loss or any interest income as a result of such
exchange.
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<PAGE>
SELECTED HISTORICAL FINANCIAL AND
OPERATING DATA OF THE FUNDING CORPORATION
(ALL DATA IN THOUSANDS, EXCEPT RATIO DATA)
The following tables set forth selected historical financial and operating
data of the Funding Corporation. The historical summary statement of operations
for each of the three years ended December 31, 1998 and the period from June
20, 1995 (inception date) through December 31, 1995 and the historical balance
sheet data as of December 31, 1998, 1997, 1996 and 1995 have been derived from
the audited historical financial statements of the Funding Corporation. The
historical summary statements of operations for the three months ended March
31, 1999 and 1998 and the historical balance sheet data as of March 31, 1999
and 1998 have been derived from the unaudited historical financial statements
of the Funding Corporation which, in the opinion of management of the Funding
Corporation, include all adjustments (consisting only of recurring accruals)
necessary to present fairly the information set forth therein. The data should
be read in conjunction with the financial statements and related notes and
other financial information appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
FROM
JUNE 20, 1995
(INCEPTION) THREE MONTHS
YEAR ENDED DECEMBER 31, THROUGH ENDED MARCH 31,(1)
-------------------------------------- DECEMBER 31, ----------------------
1998 1997 1996 1995 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total Revenues ................................ $ 39,329 $ 40,674 $ 40,567 $ 17,577 $ 12,245 $ 9,151
General and administrative expenses ........... 804 748 712 -- 215 238
Interest expense .............................. 35,495 37,443 36,761 15,022 11,737 8,259
Provision for income taxes .................... 1,247 1,022 1,273 1,048 121 269
Net income .................................... 1,783 1,461 1,821 1,507 172 385
OTHER FINANCIAL DATA:
EBITDA(2) ..................................... 38,525 39,926 39,855 17,577 12,030 8,913
Ratio of combined EBITDA to fixed
charges(2) ................................... 1.085 1.066 1.084 1.170 1.025 1.079
Ratio of earnings to fixed charges(3) ......... 1.058 1.044 1.066 1.152 1.015 1.060
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------------- ----------------------
1998 1997 1996 1995 1999 1998
---- ---- ---- ---- ---- ----
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Total assets .................................. $659,337 $474,289 $575,989 $522,521 $694,175 $537,620
Senior secured notes and bonds ................ 626,816 448,754 538,982 452,088 626,816 448,754
Total liabilities ............................. 647,399 464,134 567,295 515,571 682,065 527,080
Stockholders' equity .......................... 11,938 10,155 8,694 6,950 12,110 10,540
</TABLE>
- ----------
(1) The Funding Corporation has a one percent investment in the Guarantors
whose operations are seasonal in nature, with a disproportionate
percentage of income earned in the quarter ending September 30;
therefore, operating results and ratios for interim periods are not
indicative of the results for a full fiscal year.
(2) Earnings before interest, taxes, depreciation and amortization (EBITDA)
is presented here not as a measure of operating results, but rather as a
measure of the Funding Corporation's ability to service debt. EBITDA
should not be construed as an alternative either (1) to operating income
(determined in accordance with generally accepted accounting principles)
or (2) to cash flows from operating activities (determined in accordance
with generally accepted accounting principles).
(3) For purposes of computing historical ratios of earnings to fixed charges,
earnings are divided by fixed charges. "Earnings" represent the aggregate
of pretax income of the Funding Corporation plus fixed charges, less
capitalized interest. "Fixed Charges" represent interest (whether
expensed or capitalized) and amortization of deferred financing fees.
48
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL AND
OPERATING DATA OF THE SALTON SEA GUARANTORS
(ALL DATA IN THOUSANDS, EXCEPT RATIO DATA)
The following tables set forth selected historical combined financial and
operating data of the Salton Sea Guarantors. The information contained therein
was extracted from certain historical information of Magma and certain of its
affiliates. The historical summary data as of and for each of the five years in
the period ended December 31, 1998 have been derived from the audited
historical financial statements of the Salton Sea Guarantors. The historical
summary data as of and for the three months ended March 31, 1999 and 1998 have
been derived from the unaudited historical financial statements of the Salton
Sea Guarantors which, in the opinion of management of the Salton Sea
Guarantors, include all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the information set forth therein. The
data should be read in conjunction with the financial statements and related
notes and other financial information appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,(1)
--------------------------------------------------------------- ------------------------
1998 1997 1996 1995 1994 1999 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ................... $ 107,091 $ 106,425 $ 91,123 $ 71,605 $ 74,998 $ 19,064 $ 20,200
Operating revenues ............... 106,274 106,252 90,982 71,605 74,576 18,272 20,185
Operating, general
administrative costs ............ 30,306 30,865 27,175 26,096 24,766 7,308 6,747
Depreciation and amortization 14,857 14,689 14,272 10,556 10,049 4,022 3,714
Income from operations ........... 61,928 60,871 49,676 34,953 40,183 7,734 9,739
Interest expense, net of
capitalized interest ............ 15,989 18,055 14,645 15,605 8,240 4,372 3,928
Net income(2) .................... 45,939 42,816 35,031 17,955 31,943 3,362 5,811
OTHER FINANCIAL DATA:
Capital expenditures ............. 15,845 7,204 79,863 68,677 4,493 9,792 1,498
Combined EBITDA(4) ............... 76,785 75,560 63,948 45,509 50,232 11,756 13,453
Ratio of combined EBITDA to
combined fixed charges .......... 3.534 3.285 2.572 1.840 6.100 1.935 2.558
Ratio of earnings to fixed
charges(3) ...................... 2.883 2.665 2.005 1.410 4.877 1.288 1.885
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------------------------------------------- ------------------------
1998 1997 1996 1995 1994 1999 1998
---- ---- ---- ---- ---- ---- ----
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Property, plant, contracts and
equipment, net .................. $ 480,293 $ 478,001 $484,182 $417,287 $204,329 $486,389 $476,111
Total assets ..................... 628,515 556,353 565,934 500,400 232,914 619,626 550,071
Senior secured project note ...... 310,030 266,208 299,840 321,500 -- 310,030 266,208
Loans payable .................... -- -- -- -- 114,308 -- --
Total liabilities ................ 348,388 322,165 374,562 330,801 114,936 336,137 310,072
Guarantors' equity ............... 280,127 234,188 191,372 169,599 117,978 283,489 239,999
</TABLE>
- ----------
(1) The Salton Sea Guarantors' operations are seasonal in nature, with a
disproportionate percentage of income earned in the quarter ending
September 30; therefore, operating results and ratios for interim periods
are not indicative of the results for a full fiscal year.
(2) As described in Note 1 to the financial statements, the Salton Sea
Guarantors are comprised primarily of a combination of partnership
interests. The income or loss of each partnership for income tax
purposes, along with any associated tax credits, is the responsibility of
the individual partners. Accordingly, no recognition has been given to
federal or state income taxes in the combined historical financial
statements.
(3) For purposes of computing historical ratios of earnings to fixed charges,
earnings are divided by fixed charges. "Earnings" represent the aggregate
of pretax income of the Salton Sea Guarantors plus fixed charges, less
capitalized interest. "Fixed Charges" represent interest (whether
expensed or capitalized) and amortization of deferred financing fees.
(4) Earnings before interest, taxes, depreciation and amortization (EBITDA)
is presented here not as a measure of operating results, but rather as a
measure of the Salton Sea Guarantors' ability to service debt. EBITDA
should not be construed as an alternative either (1) to operating income
(determined in accordance with generally accepted accounting principles)
or (2) to cash flows from operating activities (determined in accordance
with generally accepted accounting principles).
49
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL AND
OPERATING DATA OF THE PARTNERSHIP GUARANTORS
(ALL DATA IN THOUSANDS EXCEPT RATIO DATA)
The following tables set forth selected historical combined financial and
operating data of the Partnership Guarantors. The information contained therein
was extracted from certain historical information of Magma and certain of its
affiliates. The historical summary data as of and for each of the five years in
the period ended December 31, 1998, have been derived from the historical
financial statements of the Partnership Guarantors. The historical summary data
as of and for the three months ended March 31, 1999 and 1998, have been derived
from the unaudited historical financial statements of the Partnership
Guarantors which, in the opinion of management of the Partnership Guarantors,
include all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the information set forth therein. The data should
be read in conjunction with the financial statements and related notes, and
other financial information appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,(1)
----------------------------------------------------------------- ------------------------
1998 1997 1996 1995 1994 1999 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ................... $ 172,565 $ 162,315 $ 140,226 $ 87,483 $ 76,050 $ 24,349 $ 34,831
Operating revenues ............... 165,779 158,125 132,212 76,909 70,692 22,030 34,097
Operating, general
administrative costs ............ 63,717 64,103 58,945 32,143 35,306 11,207 14,090
Depreciation and amortization 48,615 38,771 33,974 18,958 9,037 6,218 10,155
Income from operations ........... 60,233 59,441 47,307 36,382 31,707 6,924 10,586
Interest expense, net of
capitalized interest ............ 3,570 4,430 4,848 8,826 3,285 3,261 835
Provision for income taxes ....... 19,529 21,374 16,700 11,492 11,284 1,117 3,801
Net income ....................... 37,134 33,637 25,759 14,637 17,138 2,546 5,950
OTHER FINANCIAL DATA:
Capital expenditures ............. 74,202 39,556 18,483 4,066 10,495 17,568 10,675
Combined EBITDA(2) ............... 108,848 98,212 81,281 55,340 40,744 13,142 20,741
Ratio of combined EBITDA to
combined fixed charges .......... 7.867 7.141 5.934 3.310 12.400 2.308 6.291
Ratio of earnings to fixed
charges(3) ...................... 4.446 4.382 3.466 2.175 9.885 1.239 3.311
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------------------------- ------------------------
1998 1997 1996 1995 1994 1999 1998
---- ---- ---- ---- ---- ---- ----
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Property, plant, contracts and
equipment, net .................. $ 399,817 $ 370,666 $ 364,849 $298,956 $137,265 $412,761 $372,730
Total assets ..................... 945,576 736,783 742,183 602,172 180,443 954,850 748,966
Loans payable .................... 293,576 143,610 182,204 62,706 -- 293,576 143,610
Senior secured project note ...... -- -- -- 43,766 52,340 -- --
Total liabilities ................ 446,743 275,084 314,121 228,440 74,048 453,471 281,317
Guarantors' equity ............... 498,833 461,699 428,062 373,732 106,395 501,379 467,649
</TABLE>
- ----------
(1) The Partnership Guarantors' operations are seasonal in nature, with a
disproportionate percentage of income earned in the quarter ending
September 30; therefore, operating results and ratios for interim periods
are not indicative of the results for a full fiscal year.
(2) Earnings before interest, taxes, depreciation and amortization (EBITDA)
is presented here not as a measure of operating results, but rather as a
measure of the Partnership Guarantors' ability to service debt. EBITDA
should not be construed as an alternative either (1) to operating income
(determined in accordance with generally accepted accounting principles)
or (2) to cash flows from operating activities (determined in accordance
with generally accepted accounting principles).
(3) For purposes of computing historical ratios of earnings to fixed charges,
earnings are divided by fixed charges. "Earnings" represents the
aggregate of pretax income of the Partnership Guarantors plus fixed
charges, less capitalized interest. "Fixed Charges" represents interest
(whether expensed or capitalized) and amortization of deferred financing
fees.
50
<PAGE>
SELECTED HISTORICAL FINANCIAL AND
OPERATING DATA OF THE ROYALTY GUARANTOR
(ALL DATA IN THOUSANDS, EXCEPT RATIO DATA)
The following tables set forth selected historical financial and operating
data of the Royalty Guarantor on the basis of the assignment in June 1995 of
certain royalties and fees to the Royalty Guarantor by Magma; accordingly, this
presentation is a "carve out" of information from Magma and certain of its
affiliates. The information contained therein was extracted from certain
historical information of Magma and certain of its affiliates. The historical
summary data as of and for each of the five years in the period ended December
31, 1998 have been derived from audited historical financial statements of the
Royalty Guarantor. The historical data as of and for the three months ended
March 31, 1999 and 1998 have been derived from the unaudited financial
statements of the Royalty Guarantor which, in the opinion of management of the
Royalty Guarantor, include all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the information set forth therein. The
data should be read in conjunction with the financial statements and related
notes and other financial information appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,(1)
------------------------------------------------------------ ---------------------
1998 1997 1996 1995 1994 1999 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ...................... $ 51,703 $ 32,231 $ 30,143 $ 28,383 $29,410 13,459 12,038
Operating revenues .................. 51,703 32,231 30,143 28,383 29,410 13,459 12,038
Operating, general
administrative costs ............... 8,120 7,769 7,288 6,822 20,753 1,108 1,859
Amortization ........................ 9,794 9,794 10,280 11,239 -- 2,449 2,449
Income from operations .............. 33,789 14,668 12,575 10,322 8,657 9,902 7,730
Interest expense .................... 2,784 4,179 5,246 4,757 -- 468 776
Provision for income taxes .......... 11,508 1,828 2,560 963 -- 3,790 2,625
Net income .......................... 19,497 8,661 4,769 3,510 8,657 5,644 4,329
OTHER FINANCIAL DATA:
Capital expenditures ................ -- -- -- -- -- -- --
EBITDA(3) ........................... 43,583 24,462 22,855 21,561 N/A 6,942 8,309
Ratio of EBITDA to fixed
charges ............................ 15.655 5.854 4.357 4.530 N/A 26.391 13.117
Ratio of earnings to fixed
charges(2) ......................... 12.137 3.510 2.397 2.170 N/A 21.158 9.961
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------------------------ ---------------------
1998 1997 1996 1995 1994 1999 1998
---- ---- ---- ---- ---- ---- ----
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Royalty Stream ...................... $ 22,932 $ 31,818 $ 44,372 $ 53,744 -- $ 20,710 $29,596
Total assets ........................ 107,561 86,009 91,073 117,341 -- 108,075 96,463
Senior secured project note ......... 23,210 38,934 56,936 67,882 -- 23,210 38,934
Total liabilities ................... 69,563 67,508 81,233 89,290 -- 64,433 73,633
Guarantors' equity .................. 37,998 18,501 9,840 28,051 -- 43,642 22,830
</TABLE>
- ----------
(1) The Royalty Guarantor's operations are seasonal in nature, with a
disproportionate percentage of income earned in the quarter ending
September 30; therefore, operating results and ratios for interim periods
are not indicative of the results for a full fiscal year.
(2) For purposes of computing historical ratios of earnings to fixed charges,
earnings are divided by fixed charges. "Earnings" represent the aggregate
of pretax income of the Royalty Guarantor plus fixed charges, less
capitalized interest. "Fixed Charges" represent interest (whether
expensed or capitalized) and amortization of deferred financing fees.
(3) Earnings before interest, taxes, depreciation and amortization (EBITDA)
is presented here not as a measure of operating results, but rather as a
measure of the Royalty Guarantor's ability to service debt. EBITDA should
not be construed as an alternative either (1) to operating income
(determined in accordance with generally accepted accounting principles)
or (2) to cash flows from operatingactivities (determined in accordance
with generally accepted accounting principles).
51
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUNDING CORPORATION AND THE GUARANTORS
Set forth below are the current executive officers of the Funding
Corporation and the Guarantors and their positions with the Funding Corporation
and, except as provided below, each of the Guarantors (or general partner or
manager thereof).
<TABLE>
<CAPTION>
EXECUTIVE OFFICER POSITION
- ----------------- --------
<S> <C>
Robert S. Silberman .......... President and Chief Executive Officer
Brian K. Hankel .............. Vice President and Treasurer
Douglas L. Anderson .......... Director, Vice President and General Counsel
Patrick J. Goodman ........... Director
John Harrison ................ Director
Lawrence Kellerman ........... Director
</TABLE>
ROBERT S. SILBERMAN, 41, President and Chief Executive Officer of the
Funding Corporation and each Guarantor (or general partner or manager thereof),
(other than Salton Sea Minerals Corp. and CalEnergy Minerals LLC) Senior Vice
President, Administration of MidAmerican and CE Generation. Mr. Silberman
joined MidAmerican in 1995. Prior to that, Mr. Silberman served as Executive
Assistant to the Chairman and Chief Executive Officer of International Paper
Company, as Director of Project Finance and Implementation for the Ogden
Corporation and as a Project Manager in Business Development for Allied-Signal,
Inc. He has also served as the Assistant Secretary of the Army for the United
States Department of Defense.
BRIAN K. HANKEL, 36, Vice President and Treasurer, of the Funding
Corporation and each Guarantor (or general partner or manager thereof), (other
than Salton Sea Minerals Corp. and CalEnergy Minerals LLC) Vice President and
Treasurer of MidAmerican and CE Generation. Mr. Hankel joined MidAmerican in
February 1992 as Treasury Analyst and served in that position to December 1995.
Mr. Hankel was appointed Assistant Treasurer in January 1996 and was appointed
Treasurer in January 1997. Prior to joining MidAmerican, Mr. Hankel was a Money
Position Analyst at FirsTier Bank of Lincoln from 1988 to 1992 and Senior
Credit Analyst at FirsTier from 1987 to 1988.
DOUGLAS L. ANDERSON, 41, Vice President and General Counsel of the Funding
Corporation and each Guarantor (or general partner thereof or manager), (other
than Salton Sea Minerals Corp. and CalEnergy Minerals LLC) Assistant General
Counsel and Assistant Secretary of MidAmerican and CE Generation. Mr. Anderson
joined MidAmerican in February 1993. From 1990 to 1993, Mr. Anderson was a
business attorney with Fraser, Stryker, Vaughn, Meusey, Olson, Boyer & Cloch,
P.C. in Omaha. From 1987 through 1989, Mr. Anderson was a principal in the firm
Anderson & Anderson. Prior to that, from 1985 to 1987, he was an attorney with
Foster, Swift, Collins & Coey, P.C. in Lansing, Michigan.
PATRICK J. GOODMAN, 32, Director of the Funding Corporation and each
Guarantor (or general partner thereof or manager), (other than Salton Sea
Mineral Corp. and CalEnergy Minerals LLC) Senior Vice President and Chief
Financial Officer of MidAmerican and CE Generation. Mr. Goodman joined
MidAmerican in June 1995 and served as Manager of Consolidation Accounting
until September 1996 when he was promoted to Controller. Prior to joining
MidAmerican, Mr. Goodman was a certified public accountant at Coopers &
Lybrand.
LARRY KELLERMAN, Director of the Funding Corporation and each Guarantor
(or general partner or manager thereof) (other than Salton Sea Minerals Corp.
and CalEnergy Minerals LLC) and President of El Paso Power Holding Company.
Prior to that he held a series of positions in the independent power industry.
JOHN HARRISON, Director of the Funding Corporation and each Guarantor (or
general partner or manager thereof) (other than Salton Sea Minerals Corp. and
CalEnergy Minerals LLC) and Chief Financial Officer, El Paso Power Holding
Company. Prior to that he held a series of financial positions in the energy
industry.
52
<PAGE>
BUSINESS OF THE GUARANTORS
GEOTHERMAL ENERGY
Geothermal energy is a clean, renewable and generally sustainable energy
source that, because it does not utilize combustion in the production of
electricity, releases significantly lower levels of emissions than result from
energy generation based on the burning of fossil fuels. Geothermal energy is
derived from the natural heat of the earth when water comes sufficiently close
to hot molten rock to heat the water to temperatures of 400 degrees Fahrenheit
or more. The heated water then ascends toward the surface of the earth where,
if geological conditions are suitable for its commercial extraction, it can be
extracted by drilling geothermal wells. The energy necessary to operate a
geothermal power plant is typically obtained from several such wells, which are
drilled using established technology similar to that employed in the oil and
gas industry. Geothermal production wells are normally located within
approximately one to two miles of the power plant as geothermal fluids cannot
be transported economically over longer distances. The geothermal reservoir is
a renewable source of energy if natural ground water sources and re-injection
of extracted geothermal fluids are adequate over the long term to replenish the
geothermal reservoir after the withdrawal of geothermal fluids. Geothermal
energy facilities typically have higher capital costs (primarily as a result of
wellfield development) but tend to have significantly lower variable costs than
fossil fuel based power plants.
THE SALTON SEA KNOWN GEOTHERMAL RESOURCE AREA
The area in which our geothermal power plants are located has been
designated as a "Known Geothermal Resource Area" by the Bureau of Land
Management pursuant to the Geothermal Steam Act of 1970. Areas are designated
as Known Geothermal Resource Areas when the Bureau of Land Management
determines that a commercially viable geothermal resource is likely to exist.
There are over 100 other Known Geothermal Resource Areas in the United States,
which are predominately located in the western states in tectonically active
regions.
The Salton Sea Known Geothermal Resource Area is located in Imperial
County, California, approximately 90 miles east of San Diego and is one of the
world's largest geothermal resource areas. The Salton Sea Known Geothermal
Resource Area is a liquid-dominated geothermal resource. The operations in the
Salton Sea Known Geothermal Resource Area benefit from, among other things, the
relatively high temperature of the geothermal fluid, as well as relatively high
pressures which naturally force the geothermal fluid to flow up into the our
power plants without the expense of pumping the geothermal fluid to the
surface.
The Salton Sea Known Geothermal Resource Area geothermal resource contains
substantial quantities of minerals, including zinc, silica, manganese, boron,
lithium and silver. These minerals are contained in the geothermal brine that
is brought to the surface by the power plants. Our new zinc recovery facility
will extract zinc from this geothermal brine after the brine has been utilized
by the Power Projects but before the brine is re-injected into the ground.
We believe that these resources will be sufficient to operate the our
power plants at capacity, and to operate our new zinc recovery facility at high
levels, through the final maturity date of the Securities.
53
<PAGE>
POWER PRODUCTION PROCESS
The physical facilities and power generation process used for geothermal
energy production are similar at each of our power plants. The following
diagram generally illustrates the geothermal energy production process:
[MAP OMITTED]
Geothermal fluid is extracted from the underground reservoir by a series
of production wells and piped into the Power Projects. The geothermal fluids
produced at the wellhead consist of a mixture of hot brine and steam. The
heated mixture flows from the wellhead through a gathering system of insulated
steel pipes to separation vessels or separators. There additional steam is
generated by converting liquid to steam via a pressure reduction process
(generally referred to as "flashing"). The steam is then separated from the
brine and is sent to a demister in the power plant, where any remaining water
droplets are removed. This produces a stream of dry steam, which is used by a
turbine generator to produce electricity. In some cases, the steam is used
again at a lower pressure to produce additional electricity.
The hot brine remaining after separation of steam is injected back into
the geothermal resource via a series of injection wells. Steam exhausted from
the steam turbine is passed to a surface condenser through which cold water
circulates. Moisture in the steam leaving the turbine generators condenses on
the tubes and after being cooled further in a cooling tower is used to provide
cold circulating water for the condenser or injected back into the geothermal
resource.
The Salton Sea Known Geothermal Resource Area geothermal fluids contain a
relatively high concentration of dissolved and suspended solids. As pressure is
reduced in the flashing process, solids tend to precipitate and cause scaling
and mineral buildup throughout the system. Our power projects use certain
processes to counteract the effects of these suspended solids. The Partnership
Projects currently use the "crystallizer/clarifier process" ("CRC Process")
developed by Magma in the late 1970s and early 1980s. The CRC Process removes
solids from the geothermal brine, resulting in a reduction in the amount of
scale buildup in pipe and vessels and the reduction of congestion within the
reinjection wells. The Salton Sea Projects currently use the alternative pH
Modification Process to avoid scale buildup. Certain embodiments of this
process were developed by Union Oil Company of California and are licensed to
54
<PAGE>
Magma. The pH Modification Process inhibits precipitation of geothermal solids
by modifying the "pH" of the fluid. This process reduces the need for
crystalizers, clarifiers and associated equipment and results in performance
standards similar to those achieved by the CRC Process at significantly reduced
operating costs. For example, Salton Sea Units I and III converted to this
process in 1996, resulting in a 39.2% reduction in operating costs at these
projects from 1995 to 1997. Salton Sea Unit V and, upon completion of the
Region 2 Brine Facilities Construction, the Vulcan and Del Ranch Projects, will
employ the pH Modification Processes for brine solids control.
SALE OF POWER
Each of our existing power projects sells its net electrical output to SCE
under a separate long-term power purchase agreement. These contracts are
similar to each other in many respects. Each of these contracts, except for two
(Salton Sea Unit I and Salton Sea Unit IV), provide for fixed capacity payments
over the term of the contracts, capacity bonus payments and fixed escalating
energy prices for the first 10 years of the contract, after which energy
payments are paid at SCE's avoided cost of energy. The net output of Salton Sea
Unit V and the CE Turbo Project (to the extent not sold for use by the Zinc
Recovery Project) will be sold through the PX.
The PX is a nonprofit public benefit corporation formed under California
law to provide a competitive marketplace where buyers and sellers of power,
including utilities, end-use customers, independent power producers and power
marketers complete wholesale trades through an electronic auction. The PX
currently operates two markets: (1) a day ahead market which is comprised of
twenty-four separate concurrent auctions for each hour of the following day;
and (2) an hour ahead market for each hour of each day for which bids are due
two hours before each hour. In each market, the PX receives bids from buyers
and sellers and, based on the bids, establishes the market clearing price for
each hour and schedules deliveries from sellers whose bids did not exceed the
market clearing price to buyers whose bids were not less than the market
clearing price. All trades are executed at the market clearing price.
In addition to amounts paid through the PX, we also expect to receive
incentive payments from the State of California's New Renewable Resources
Account (the "NRRA") for energy sold by Salton Sea Unit V or the CE Turbo
Project (each a "New Power Project") through the Imperial Irrigation District's
transmission system during the first five years of operation of each of the
projects. The California Energy Commission has selected Salton Sea Unit V to
receive incentive payments from the NRRA in an amount equal to $.0124 per kWh
of energy produced, up to $25,548,364.80 in the aggregate, for the first five
years of operation. The California Energy Commission has selected the CE Turbo
Project to receive incentive payments from the NRRA in an amount equal to
$.0134 per kWh of energy produced, up to $5,751,816 in the aggregate, for the
first five years of operation. The amount of the incentive payments for the
fourth and fifth years of operation of a New Power Project will be reduced by
25% if the actual generation from such New Power Project over the first three
years of operation averages less than 85% of the estimated annual generation of
such New Power Project (85,848,000 kWhs for the CE Turbo Project and
412,070,400 kWhs for Salton Sea Unit V). In order for each New Power Project to
remain eligible for incentive payments, it must continue to satisfy eligibility
criteria, including ownership and fuel use criteria, and must timely satisfy
specified milestones. These milestones include completion of construction of
the project by January 1, 2002.
The State of California has also established financial incentives for
existing renewable energy power projects which are available in the 1998-2001
time period. Projects must meet specified eligibility requirements, including
date of initial operation, ownership and fuel use criteria, in order to qualify
for the incentives. Each of our existing projects other than Salton Sea Unit I
and Salton Sea Unit IV will become eligible for this program upon expiration of
the fixed price period in its power purchase agreement with SCE. The program
provides geothermal plants with a monthly amount per kWh of power sold equal to
the lesser of (1) $.01/kWh, (2) $.03/kWh minus a calculated market clearing
price and (3) a specified amount of funds available for such month divided by
eligible generation. The Vulcan Project has already begun receiving payments
under this program.
55
<PAGE>
POWER TRANSMISSION
Except for Salton Sea Unit I, which delivers its power to SCE at the
Salton Sea Unit I site, the power sold to SCE by our existing projects is
delivered to SCE after interconnection/wheeling over the local transmission
system owned by the Imperial Irrigation District, a public agency of the State
of California ("IID"), pursuant to long-term transmission agreements and plant
interconnection agreements. Salton Sea Unit V and the CE Turbo Project have
also entered into long-term transmission agreements and interconnection
agreements with IID to permit the transmission of power from these plants to
the point of interconnection of the SCE and IID systems at Mirage. IID has also
entered into an agreement to deliver power from Salton Sea Unit V to the Zinc
Recovery Project and an agreement to construct the necessary electrical
interconnection facilities to provide these services.
The transmission systems of SCE and other California investor-owned
electric utilities are administered by an independent system operator, which
has proposed that the costs of system upgrades be paid for by charges imposed
on the last parties requesting service rather than all customers.
ENERGY REGULATION
Each of the Existing Projects currently meets the requirements promulgated
under the Public Utility Regulatory Policies Act of 1978 ("PURPA") to be a
Qualifying Facility. Regulations under PURPA exempt Qualifying Facilities from
the Public Utility Holding Company Act of 1935 ("PUHCA"), most provisions of
the Federal Power Act (the "FPA") and state laws concerning rates of electric
utilities, and financial and organizational regulation of electrical utilities.
Further, regulations promulgated under PURPA require that electric utilities
interconnect with and purchase electricity generated by Qualifying Facilities,
construction of which commenced on or after November 9, 1978, at a price based
on the purchasing utility's avoided cost. Salton Sea Unit V and the CE Turbo
Project are expected to be either Qualifying Facilities or eligible facilities
owned by Exempt Wholesale Generators. Exempt Wholesale Generators are not
considered electric utility companies under PUHCA and thus are not subject to
regulation under such statute.
ZINC RECOVERY
Our zinc recovery facility will use spent geothermal brine solution
containing dissolved zinc metal following use in the existing geothermal power
plants and the new Salton Sea Unit V power plant to produce approximately
30,000 metric tonnes per year of special high grade (99.995% zinc) quality zinc
ingots. The Zinc Recovery Project is modeled after an existing demonstration
plant that was located at the existing wellfield and has successfully
demonstrated the recovery of zinc from the geothermal brine feed. The following
paragraphs describe the intended design of the Zinc Recovery Project.
We intend to construct one central zinc processing solvent
extraction/electrowinning ("SX/EW") facility and four zinc ion exchange ("IX")
facilities. Three of the IX facilities will be located near, and will utilize
spent brine solution after its use in, the Leathers Project, the Elmore
Project, the Vulcan Project and the Del Ranch Project. One of the IX facilities
will be located near, and will utilize spent brine solution from, Salton Sea
Unit V (after its use by Salton Sea Units I-IV). Each IX facility will consist
of columns through which the spent brine is pumped. The columns will contain
resin that is specifically designed to "load" the zinc ions from the brine as
it is pumped through the IX columns. The brine, upon passing through the IX
column train, will be routed back to existing spent brine re-injection wells.
The loaded resin will then be stripped of the zinc ions by flushing the IX
column with a solution (eluant) using water provided by a reverse osmosis unit
at each IX facility.
The zinc rich solution stripped from the IX columns (eluate) will then be
transported via pipelines to the central SX/EW facility. A total of
approximately 6 miles of pipelines are required. These pipelines are designed
to follow, in part, existing geothermal pipeline routes.
The central SX/EW facility generally will consist of a solvent extraction
("SX") train, an electrowinning ("EW") tankhouse and a zinc casting plant. The
SX train will consist of a series of mixer/settler stages through which the
eluate will flow and be mixed with an organic based extractant reagent. The SX
56
<PAGE>
process is designed to transfer zinc in the eluate, a zinc chloride solution,
to a further purified zinc sulfate solution (electrolyte). The extraction
portion of the SX process will be performed in countercurrent stages by mixing
the eluate with a phosphoric acid metal extractant diluted into an organic
solvent (ultra-low aromatic kerosene) and mixed with the eluate, producing an
emulsion that is separated by settlers. This process is designed to produce a
zinc rich organic solution. This zinc rich organic solution will be washed and
then mixed in the SX stripping stages with a clean, dilute sulfuric acid
solution to transfer the zinc back into the clean aqueous stream, called fresh
electrolyte. The electrolyte solution will be purified and mixed with additives
prior to being pumped to the EW process. As the zinc rich electrolyte solution
flows through the EW cells, direct current will cause the zinc to deposit on
the aluminum/titanium alloy blank cathodes. After being fully loaded, the
cathodes will be harvested by a bridge crane that will transfer them to an
automated stripping machine. The stripping machine will wash the cathodes of
the remaining process fluids and remove the deposited zinc. The
aluminum/titanium alloy cathodes will be returned to the EW cells to be
re-plated.
The furnace will melt the zinc cathodes, and the molten zinc will be
continuously cast into ingots. The ingots will be removed from the molds via a
forklift and placed in storage for shipment.
SALE OF ZINC
We expect our zinc recovery facility to produce approximately 30,000
metric tonnes of refined zinc per year. After an initial five-month period of
mostly high grade (99.95% zinc) production, we expect the facility to produce
special high grade (99.995% zinc) which conforms to London Metals Exchange
specifications and continuous galvanizing grade zinc which is an alloy of zinc
containing aluminum and cadmium.
The Zinc Recovery Project will target the California market which,
according to RSI, accounts for about 7.4% of the U.S. market (94,000 metric
tonnes). RSI believes the Zinc Recovery Project will have a considerable
geographical advantage because its main competitors are located in Canada and
Mexico.
We expect to sell the zinc to California consumers such as steel mills,
galvanizers and diecast alloyers. See the "Zinc Market Consultant's Report"
attached to this prospectus as Appendix E.
PROJECT STRUCTURE
Ownership. Our Salton Sea Projects consist of Salton Sea Units I, II, III,
IV and V. All of the Salton Sea Projects are located in the Salton Sea Known
Geothermal Resource Area. The Salton Sea Guarantors collectively own 100% of
the Salton Sea Projects. SSBP is a limited partnership, with Magma owning a 99%
limited partnership interest, and Salton Sea Power Company ("SSPC") owning a 1%
general partnership interest SSBP. SSPG is also a limited partnership, with
SSPC owning a 1% general partnership interest, and SSBP owning a 99% limited
partnership interest, in SSPG. SSPC and Fish Lake are each 99% owned by Magma
and 1% owned by the Funding Corporation. Power LLC is a limited liability
company, with Magma and CESS each owning a 50% interest in Power LLC. SSBP is
the owner of the wellfields and brine facilities associated with the Salton Sea
Projects and SSPG is the owner of Salton Sea Units I, II and III. Fish Lake and
SSPG own Salton Sea Unit IV. Power LLC owns Salton Sea Unit V.
The Partnership Projects consist of five geothermal power plants (the
Vulcan Project, the Elmore Project, the Leathers Project, the Del Ranch Project
and the CE Turbo Project) and the Zinc Recovery Project. All are located in
Imperial Valley, California in the Salton Sea Known Geothermal Resource Area.
The ownership structure of these projects is as follows:
(1) Vulcan Project. VPC owns a 50% general partnership interest in
Vulcan, a Nevada general partnership which is the owner of the Vulcan
Project. VPC also owns VPC Geothermal, which owns the remaining 50% general
partnership interest in Vulcan.
(2) Elmore Project, Leathers Project and Del Ranch Project. CEOC
directly owns a 40% general partnership interest in each of Elmore,
Leathers and Del Ranch. Magma owns a 10% limited
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partnership interest in each of Elmore, Leathers and Del Ranch. Magma
has agreed to pay to CEOC the partnership distributions it receives from
its limited partnership interests. CEOC owns Niguel, San Felipe and Conejo,
which own a 40% general partnership interest and a 10% limited partnership
interest in Elmore, Leathers and Del Ranch, respectively.
(3) CE Turbo Project. CESS and Magma each own a 50% interest in Turbo
LLC, a Delaware limited liability company, which is the owner of the CE
Turbo Project.
(4) Zinc Recovery Project. SSMC owns all of the membership interests
in Minerals LLC, a Delaware limited liability company which is the owner of
the Zinc Recovery Project.
Operation, Maintenance and Administrative Services for the Projects. CEOC
(or VPC, in the case of the Vulcan Project) provides operations and maintenance
services for our projects pursuant to long-term operations and maintenance
agreements. As of May 1, 1999, CEOC employed 160 people at the Salton Sea
Projects and the Partnership Projects, collectively, including a qualified
technical and professional staff of approximately 35 people. Magma provides
administrative services to our projects pursuant to long-term administrative
services agreements. These services include operation, maintenance and testing
of the plants, wells and gathering and reinjection systems, the training of
personnel, obtaining parts and supplies, preparing reports for third parties,
enforcing all warranties and claims and maintaining compliance with permit,
licensing and insurance standards.
Geothermal Resources. Magma and other affiliates of who are not Guarantors
(Imperial Magma and Magma Land) control the land on which our projects are
located and rights to geothermal fluids in the Salton Sea Known Geothermal
Resource Area through a combination of fee, leasehold and royalty interests. We
have entered into long-term agreements with these affiliates to obtain the
surface rights and geothermal resource rights necessary to operate our
projects. We believe that these projects have the rights to all of the
geothermal resources necessary to operate those plants at capacity until the
final maturity date for the Securities. Desert Valley Company ("DVC"), a wholly
owned subsidiary of Magma, operates a storage and disposal site in Imperial
County, California for geothermal material. DVC has been granted a permit
allowing the storage and disposal of the our projects' non-hazardous geothermal
materials.
OPERATING HISTORY
The following tables summarize the operating history of our existing
projects in 1995-97. See the "Independent Engineer's Report" attached to this
prospectus as Appendix B.
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<TABLE>
<CAPTION>
SUMMARY OPERATING HISTORY
- -------------------------------------------------------------------------------------
Gross MWH Availability Contract
Generated Factor Capacity Factor
- -------------------------------------------------------------------------------------
Salton Sea Projects
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salton Sea Unit I
1995 83,696 93.7% 65.1%
1996 83,196 93.5% 71.3%
1997 92,106 97.3% 84.1%
Salton Sea Unit II
1995 155,859 95.2% 112.7%
1996 159,150 93.4% 114.4%
1997 170,032 98.4% 122.3%
Salton Sea Unit III
1995 433,440 92.7% 95.5%
1996 444,960 94.6% 98.1%
1997 454,368 98.1% 101.9%
Salton Sea Unit IV
1995 NA NA NA
1996 384,494(1) 91.7%(1) 118.6%(1)
1997 402,562 95.9% 114.3%
- -------------------------------------------------------------------------------------
Partnership Projects
- -------------------------------------------------------------------------------------
Del Ranch Project
1995 386,155 95.6% 115.8%
1996 396,480 98.8% 120.0%
1997 384,358 95.0% 114.9%
Vulcan Project
1995 366,670 98.7% 126.7%
1996 353,115 98.3% 122.3%
1997 317,534 91.8% 108.6%
Elmore Project
1995 393,584 98.5% 117.8%
1996 393,820 96.0% 116.1%
1997 393,328 99.0% 116.1%
Leathers Project
1995 386,488 97.4% 116.7%
1996 379,956 96.5% 113.5%
1997 397,982 99.1% 119.4%
- -------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Commenced operation in May 1996; figures are annualized based on seven
months of operations.
ROYALTIES
The Royalty Guarantor is a single purpose entity which was established in
connection with the offering of the Initial Securities to receive royalties
from Magma. Magma has assigned the royalties it receives under its easements
with Leathers, Del Ranch and Elmore to the Royalty Guarantor. These royalties
are paid prior to the operating and maintenance expenses of the Partnership
Projects and are payable from revenues that constitute collateral securing the
Partnership Guarantors' obligations under their credit agreement and guarantee.
See "Offering Circular Summary--Structure of and Collateral for the
Securities."
Pursuant to its assignment agreement with Magma, the Royalty Guarantor
receives royalties of an aggregate amount of 21.5% of the energy revenues of
Leathers and 23.333% of the energy revenues and 1% of the capacity revenues of
each of Del Ranch and Elmore. In addition, Magma receives a special
distribution of 4.5% of Leathers' energy revenues which it pays over to CEOC
pursuant to a data and services agreement. VPC also receives Royalties equal to
4.167% of the energy revenues of the Vulcan Project. CEOC receives royalties on
energy payments equal to 5.667%, 3.0%, and 5.667% for Elmore,
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Leathers, and Del Ranch, respectively. CEOC also receives royalties equal to 3%
of capacity revenues for Elmore, Leathers, and Del Ranch. All of the foregoing
revenues and Royalties are paid from revenues that constitute collateral
securing the Partnership Guarantors' obligations under their credit agreement
and guarantee. See "Summary Description of Principal Project
Contracts--Partnership Project Contracts" and "--Royalty Project Contracts" and
"Offering Circular Summary--Structure of and Collateral for the Securities."
INSURANCE
Our projects are currently insured under a corporate umbrella insurance
program. The program consists of $600 million for general property damage with
broad form coverages. The deductible is $25,000 per occurrence except for
damage to a turbine generator breakdown which is $500,000 per occurrence.
Business interruption and contingent business interruption coverages are
included in the limits, subject to a 25-day deductible. Catastrophic insurance
(earthquake and flood) consists of $300 million limits with an earthquake
deductible that is the higher of 5% of the loss or $2.5 million per occurrence.
General liability insurance consists of $101 million limits with a broad based
policy form and a deductible of $100,000 per occurrence. Control of well
insurance has a limit of $10 million with a deductible of $25,000. Construction
and marine cargo insurance of $316 million is in effect for the total insurable
values of our new projects and the capital improvements we intend to make to
the steam field and related facilities for our existing projects. Earthquake
coverage is being provided with a $200 million annual aggregate limit with a
deductible that is the higher of 5% of value at the time of loss or a maximum
of $2.5 million. Delay in start-up coverage provides coverage resulting from an
insurable property damage claim under the construction and marine cargo
policies with a 30-day deductible. General liability insurance consists of a
$10 million limit for the new projects during construction, providing coverage
for the owners of the projects and the contractors and subcontractors. The
policies are issued by international and domestic syndicates with each domestic
company rated "A--" or better by A.M. Best Co. Inc.
The financing documents require us to maintain or cause to be maintained
specified insurance with respect to our projects. However, we cannot assure you
that any specific insurance will continue to be available in the future on
commercially reasonable terms.
LEGAL PROCEEDINGS
Currently, our projects are parties to various minor items of litigation,
none of which, if determined adversely, would have a material adverse effect on
the projects. Set forth below is a description of one pending action in which
Del Ranch and Elmore are plaintiffs.
The power purchase agreements for the Partnership Projects provide for
energy rates of 14.6 cents per kWh in 1998. SCE paid Del Ranch and Elmore for
energy at a rate of 13.6 cents per kWh for 1998 and those partnerships have
filed a complaint against SCE seeking payment at 14.6 cents per kWh. The case
is in the early procedural stages and no trial date has been set.
ENVIRONMENTAL MATTERS
Each of our projects is subject to environmental laws and regulations at
the federal, state and local levels in connection with the development,
ownership and operation of the projects. These environmental laws and
regulations generally require that a wide variety of permits and other
approvals be obtained for the construction and operation of an energy-producing
facility and that the facility then operate in compliance with such permits and
approvals. Failure to operate the facility in compliance with applicable laws,
permits and approvals could result in the levy of fines or curtailment of
project operations by regulatory agencies.
We believe that we are in compliance in all material respects with all
applicable environmental regulatory requirements and that maintaining
compliance with current governmental requirements will not require a material
increase in capital expenditures or materially affect our financial condition
or results of operations. It is possible, however, that future developments,
such as more stringent requirements of environmental laws and enforcement
policies thereunder, could affect the costs of and the manner in which we
conduct our business.
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SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS
The following is a summary of selected provisions of some of the principal
agreements related to the Projects and the business of the Guarantors and is
not considered to be a full statement of the terms of such agreements.
Accordingly, the following summaries are qualified by reference to each
agreement and are subject to the terms of the full text of each agreement.
Unless otherwise stated, any reference in this prospectus to any agreement
shall mean the agreement and all schedules, exhibits and attachments to the
agreement as amended, supplemented or otherwise modified and in effect as of
the date hereof. Copies of all such agreements may be obtained from the Funding
Corporation (subject to certain confidentiality restrictions). See "Available
Information."
STANDARD TERMS OF SO4 AGREEMENT
All of the power purchase agreements for the Existing Projects are SO4
Agreements, except the Salton Sea Unit I PPA and the Salton Sea Unit IV PPA.
Although these SO4 Agreements differ in some respects from the standard SO4
Agreement, many of the provisions in each Existing Project's power purchase
agreement are the same as in the standard SO4 Agreement. Set forth below is a
summary of some of the terms and provisions contained in each SO4 Agreement.
Term and Termination. Each of the SO4 Agreements for the Existing Projects
has a contract term of 30 years from the Firm Operation Date of the Projects.
Upon expiration of the contract term, the SO4 Agreement remains in effect until
either party terminates the agreement upon 90 days prior written notice.
The Fixed Price Period is the first 10 years of the contract term. The
Avoided Cost of Energy Period begins upon expiration of the Fixed Price Period
and continues for the remainder of the contract term.
Construction, Design, Operation and Ownership of the Project. The SO4
Agreement sets forth terms for the construction, design, ownership and
operation and maintenance of the relevant Project. The Project Company warrants
that the Project will comply with applicable law and meet the requirements of a
Qualifying Facility as of the date of initial delivery of energy and throughout
the contract term. The Project Company indemnifies SCE for any losses which SCE
incurs due to the Project Company's failure to maintain any necessary
government approvals.
Power Purchase Provisions. The SO4 Agreement provides for (1) capacity
payments as described below and (2) energy payments either at an annually
escalating rate or at a levelized rate for the Fixed Rate Period and energy
payments at SCE's Avoided Cost of Energy for the Avoided Cost of Energy Period.
Capacity Payments. A Project will qualify for a fixed annual capacity
payment (the "Firm Capacity Payment") by meeting specified performance
requirements on a monthly basis during an approximately four month on-peak
period during the months of June through September of each year. The Project
must deliver an average kWh output during specified on-peak hours of each month
in the on-peak period at a rate corresponding to at least an 80% Contract
Capacity Factor (the "Performance Requirement"). The "Contract Capacity Factor"
equals (1) a plant's actual electricity output, divided by (2) the product of
the Project's "Contract Capacity" and the number of hours in the measurement
period (less applicable maintenance and curtailment hours). If a Project
maintains the required 80% Contract Capacity Factor during the applicable
reference period, then SCE must pay a Firm Capacity Payment equal to the
product of the Contract Capacity Price set forth in the agreement and the
Project's Contract Capacity. The Firm Capacity Payment is paid in monthly
installments, and the monthly installment of the Firm Capacity Payment may be
reduced if the relevant Project has a Contract Capacity Factor of less than 80%
for the month. Capacity payments are weighted toward the on-peak months.
The Project Company is required to annually demonstrate its ability to
provide the specified Contract Capacity by satisfying the Performance
Requirement. If the Project Company does not satisfy the Performance
Requirement, then it may be placed on probation for up to 15 months, and, if
the Project Company cannot satisfy the Performance Requirement during the
probationary period, then the Contract Capacity will be reduced to a capacity
equal to the greater of (1) what has been delivered during the
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probationary period or (2) what can reasonably be delivered by the Project
Company. Additionally, failure to satisfy the Performance Requirement will
subject the Project Company to the penalties described below. However, if the
Project Company's failure to meet the Performance Requirement is due to a
forced outage or a request by SCE to reduce delivery, then SCE must continue to
pay the full Firm Capacity Payment. If the Project Company is unable to provide
Contract Capacity due to Uncontrollable Forces, then SCE must continue to pay
the full Firm Capacity Payments for 90 days from the occurrence of the
Uncontrollable Force.
Capacity Bonus Payments. Under the SO4 Agreements, the Project Companies
are entitled to receive capacity bonus payments in an on-peak month if the
relevant Project operates at least at an 85% Contract Capacity Factor during
the on-peak hours of the on-peak month, and qualifies in respect of non-peak
months if the Contract Capacity Factors for all on-peak months have been at
least 85% and the Project operates at a Contract Capacity Factor of at least
85% during the on-peak hours of the relevant non-peak month.
Capacity bonus payments for each month increase with the level of kWhs
delivered between the 85% and 100% Contract Capacity Factor levels during the
month. The capacity bonus payment for each month is equal to a percentage of
the Firm Capacity Payment based on the Project's on-peak Contract Capacity
Factor (which percentage may not exceed 18% of one-twelfth of the Firm Capacity
Payment).
Changes in Contract Capacity. The Project Company may reduce Contract
Capacity if the Project Company gives SCE specified notice. The Project Company
must refund SCE an amount of money equal to the difference between the
accumulated monthly capacity payments paid by SCE prior to the receipt of the
reduction notice and the total monthly capacity payments SCE would have paid
based on the Adjusted Capacity Price, as well as interest at the prime rate. If
the Project Company fails to give notice, it can reduce Contract Capacity as
long as the Project Company refunds said amount plus a penalty equal to the
product of (1) the Contract Capacity being reduced, (2) the difference between
the Contract Capacity Price and the Adjusted Capacity Price and (3) the number
of years and fractions thereof (not less than one year) by which the Project
Company has been deficient in giving prescribed notice, but if the Adjusted
Capacity Price is less than the Contract Capacity Price, then no penalty is
due.
Energy Payments. In addition to capacity payments, each SO4 Agreement
provides that SCE must make monthly energy payments based on the number of kWh
of energy delivered by the relevant Project in the month. Energy payments are
weighted toward on-peak months and on-peak hours.
Annual Forecast Energy Payments. Under the Leathers SO4 Agreement, during
the Fixed Price Period the Project Company is paid a monthly energy payment
(the "Annual Forecast Energy Payment") of 15.6 cents per kWh in 1999, based on
the Forecast of Annual Marginal Cost of Energy Schedule.
Levelized Energy Payments. Under the Salton Sea Unit II and Salton Sea
Unit III SO4 Agreements (the "Levelized Energy Payment SO4 Agreements"), during
the Fixed Price Period the energy payments (the "Levelized Energy Payments")
are levelized to yield a time weighted average of 10.6 cents per kWh for Salton
Sea Unit II and 9.8 cents per kWh for Salton Sea Unit III. During later years
in the Fixed Price Period, when the Forecast of Annual Marginal Cost of Energy
Schedule price is greater than the Levelized Energy Payment price, the relevant
Project must deliver to SCE at least 70% of the average annual kWh delivered to
SCE during periods when the Levelized Energy Payment Price was greater than the
energy price in the Forecast of Annual Marginal Cost of Energy Schedule. If the
Project fails to satisfy this performance obligation or fails to perform any
other contract obligations during the Fixed Price Period, and, at such time,
the net present value of the cumulative energy payments received exceeds the
net present value of what the Project Company would have been paid under the
Annual Forecast Energy Payment SO4 Agreements, the Project Company must refund
the difference. The Project Company must post a performance bond, guarantee,
letter of credit or other security to insure payment to SCE of any such refund.
If the Project Company fails to post security or SCE deems the security
inadequate, the Project Company will be required to refund any difference
immediately and accept payment under the Forecast of Annual Marginal Cost of
Energy Schedule until the security is reinstated.
Avoided Cost of Energy Payments. During the Avoided Cost of Energy Period,
all of the Project Companies are paid a monthly energy payment at a rate which
equals SCE's Avoided Cost of Energy.
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SCE's Avoided Cost of Energy is currently determined by an approved interim
formula which adjusts historic costs by an inflation/deflation factor
representing monthly changes in the cost of natural gas at the California
border and "time of use" adjustment factors. Consequently, during the Avoided
Cost of Energy Period under this methodology, energy payments under the SO4
Agreements will fluctuate based on the time of generation and monthly changes
in average fuel costs in the California energy market. Pursuant to legislation
recently adopted in California, upon the satisfaction of certain conditions the
Avoided Cost of Energy will be based on the clearing price established by the
PX.
The time period weighted average of SCE's Avoided Cost of Energy was 3.00
cents per kWh for the year ended December 31, 1998. In April 1995, SCE forecast
its future Avoided Cost of Energy as follows:
<TABLE>
<CAPTION>
YEAR LOW MEDIAN HIGH
---- --- ------ ----
<S> <C> <C> <C>
1998 2.72 2.83 2.97
1999 2.91 2.99 3.28
2000 3.11 3.22 3.60
2001 3.30 3.46 3.91
2002 3.42 3.59 4.13
2003 3.52 3.72 4.36
2004 3.62 3.88 4.61
2005 3.72 4.11 4.86
2006 3.83 4.31 5.16
2007 3.95 4.44 5.48
2008 4.06 4.59 5.82
2009 4.18 4.74 6.19
2010 4.31 4.89 6.59
2011 4.43 5.06 7.07
2012 4.57 5.22 7.60
2013 4.70 5.40 8.16
2014 4.84 5.58 8.76
2015 4.99 5.76 9.41
</TABLE>
The Power Market Consultant's Report also contains projections of future
market prices of electricity. We have not prepared or relied upon any of these
forecasts. We believe that all forecasts of Avoided Cost of Energy are
speculative in nature and we cannot assure you that SCE's actual future Avoided
Cost of Energy will be equal to any of the above forecasts. SCE's actual
Avoided Cost of Energy will be dependent upon, among other factors, SCE's
future fuel costs, system operation characteristics, market prices for
electricity (including PX prices) and regulatory action.
Curtailment. SCE is not required to accept or purchase energy for a
maximum of 300 hours per year during off-peak hours if the purchase would
either (1) cost more than the costs SCE would incur if it utilized energy from
another source or (2) cause SCE hydro-energy to be spilled under specified CPUC
mandated conditions.
Abandonment of Project. The Project Company is deemed to have abandoned
the Project if it discontinues operation of the Project with the intent to
discontinue operation permanently. This intent is conclusively presumed if the
Project Company either gives notice to SCE of its intent or operates the plant
such that no energy is generated by the plant for 200 consecutive days.
However, if the Project is prevented from generating energy due to an
Uncontrollable Force, then such period is extended for the duration of the
Uncontrollable Force, not to exceed one year. If the Project Company abandons
the Project, SCE or any entity designated by SCE has a right of first refusal
to purchase the Project.
Insurance. The Project Company must obtain and maintain comprehensive
general liability insurance. If the Project Company fails to maintain such
insurance, then it must indemnify SCE for any liabilities which would have been
covered by the insurance.
Uncontrollable Force. Each party is relieved from its obligations under
the SO4 Agreement, other than payment obligations, when and to the extent that
the failure of performance is caused by an
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Uncontrollable Force; provided that the nonperforming party, within 2 weeks
after the occurrence of an Uncontrollable Force, gives the other party written
notice describing the particulars of the occurrence, and the nonperforming
party uses its best efforts to remedy its inability to perform.
Indemnification. Each party to the SO4 Agreement has indemnified the other
party for liability for property damage or personal injury arising out of the
indemnifying party's operation, use or ownership of its facilities, other than
for liability resulting from the indemnified party's sole negligence or willful
misconduct.
TRANSMISSION SERVICE AGREEMENTS
Salton Sea Unit I delivers electricity to SCE at the Salton Sea Unit I
site. Each of the other Existing Projects delivers electricity to SCE on
transmission lines owned by IID. These transmission lines interconnect the
operating plants with SCE's transmission system. Transmission service charges
are paid monthly to IID pursuant to Transmission Service Agreements. The
Transmission Service Agreements for Salton Sea Units II, III and IV expire in
2020, 2019 and 2026, respectively. The Transmission Service Agreements for the
Leathers Project, the Elmore Project, the Del Ranch Project and the Vulcan
Project expire in 2015.
Power LLC and Turbo LLC have entered into Transmission Service Agreements
with IID for Salton Sea Unit V and the Turbo Expander Project, respectively,
which are similar to the Transmission Service Agreements for the Existing
Projects. The terms of these new agreements are 30 years from the date of
initial service. Minerals LLC has entered into a 30-year Distribution Service
Agreement with IID to deliver power from Salton Sea Unit V to the Zinc Recovery
Project. Power LLC has also entered into a Construction Agreement with IID,
pursuant to which IID will construct the necessary transmission facilities to
provide the transmission and distribution services for the New Projects
described above.
SALTON SEA GUARANTOR PROJECT CONTRACTS
POWER PURCHASE AGREEMENTS
SALTON SEA UNIT I PPA
Salton Sea Unit I sells electricity to SCE pursuant to a negotiated power
purchase agreement dated May 8, 1987 between SCE and SSPG. The Salton Sea Unit
I PPA is not an SO4 Agreement, although as described below it contains many of
the provisions customarily found in an SO4 Agreement. See "--Standard Terms of
SO4 Agreement" above.
Term. The contract term of the Salton Sea Unit I PPA is for 30 years from
the Firm Operation Date of July 1, 1987. The Contract Capacity is 10 MW.
Capacity Payments. The Salton Sea Unit I PPA capacity payment is based on
a firm capacity price which adjusts quarterly in accordance with various
inflation-related indices. If Salton Sea Unit I is able to deliver 100% of the
Contract Capacity set forth in the agreement, Salton Sea Unit I receives a
monthly performance payment based on the then current firm capacity price
multiplied by the Contract Capacity and the energy delivered from Salton Sea
Unit I up to the Contract Capacity. Based on the current capacity price of
$127.80 per kW-year, the annual maximum capacity payment is $1,278,000. The
Salton Sea Unit I PPA does not provide for bonus capacity payments.
If Salton Sea Unit I does not meet the Salton Sea Unit I PPA performance
requirement, SCE may, in its sole discretion, place the plant on probation for
a period not to exceed 15 months. If the Salton Sea Unit I PPA performance
requirement is not met during the probationary period, SCE may derate the
Contract Capacity of the plant.
Energy Payments. Salton Sea Unit I receives a monthly energy payment
calculated using a base price, which is subject to quarterly adjustments in
accordance with various inflation-related indices. The time period weighted
average energy payment for Salton Sea Unit I was 5.4 cents per kWh for the
three months ended March 31, 1999. The energy payments under the Salton Sea
Unit I PPA never revert to SCE's Avoided Cost of Energy.
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SALTON SEA UNIT II PPA
Salton Sea Unit II sells electricity to SCE pursuant to a modified SO4
Agreement dated April 16, 1985 between SCE and SSPG. Those terms which are
generally contained in an SO4 Agreement are described in "--Standard Terms of
SO4 Agreement" above.
Term. The contract term of the Salton Sea Unit II PPA is for 30 years from
the Firm Operation Date of April 5, 1990. The Contract Capacity is 15 MW.
Capacity Payments. Salton Sea Unit II has a Contract Capacity Price of
$187 per kW-year and, based on the Contract Capacity of 15 MW, the annual
maximum capacity payment is $2,805,000.
Energy Payments. The Salton Sea Unit II PPA is a Levelized Energy Payment
SO4 Agreement. The Fixed Price Period for Salton Sea Unit II expires on April
4, 2000. During the Fixed Price Period, the energy payment is a time weighted
average of 10.6 cents per kWh. After the Fixed Price Period, energy payments
will be based on SCE's Avoided Cost of Energy. For the period from April 1,
1994 through March 31, 2004, SCE is entitled to receive, at no cost, 5% of all
energy delivered in excess of Contract Capacity.
SALTON SEA UNIT III PPA
Salton Sea Unit III sells electricity to SCE pursuant to a modified SO4
Agreement dated April 16, 1985 between SCE and SSPG. Those terms which are
generally contained in an SO4 Agreement are described in "--Standard Terms of
SO4 Agreement" above.
Term. The contract term of the Salton Sea Unit III PPA is for 30 years
from the Firm Operation Date of February 14, 1989.
Capacity Payments. Salton Sea Unit III has a Contract Capacity Price of
$175 per kW-year and, based on the Contract Capacity of 47.5 MW, the annual
maximum capacity payment is $8,312,500.
Energy Payments. The Salton Sea Unit III PPA is a Levelized Energy Payment
SO4 Agreement. The Fixed Price Period for Salton Sea Unit III expired on
February 13, 1999. As a result, energy payments for the balance of the contract
term will be based on SCE's Avoided Cost of Energy.
SALTON SEA UNIT IV PPA
Salton Sea Unit IV sells electricity to SCE pursuant to a negotiated SO4
Agreement dated November 29, 1994 between SCE and SSPG. Many of the terms of
the Salton Sea Unit IV PPA are similar to those terms customarily found in an
SO4 Agreement. See "--Standard Terms of SO4 Agreement" above.
Term. The contract term of the Salton Sea Unit IV PPA is for 30 years from
the Firm Operation Date of May 24, 1996. The Contract Capacity is 34 MW.
Capacity Payments. Salton Sea Unit IV is paid a monthly capacity payment
for satisfying certain performance requirements. Through June 30, 2017, the
capacity price is $121.72 per kW-year plus quarterly inflation-related
adjustments for 58.8% of the Contract Capacity delivered by Salton Sea Unit IV.
After June 30, 2017, SCE will not be obligated to purchase this 58.8% of
capacity. Until the end of the contract term, Salton Sea Unit IV will be paid
$158 per kW-year for 41.2% of the Contract Capacity delivered by Salton Sea
Unit IV. The 1997 capacity payment was $4,994,000. Salton Sea Unit IV may earn
capacity bonus payments based on the same criteria set forth in the "--Standard
Terms of SO4 Agreement" described above.
Energy Payments. Salton Sea Unit IV is paid a monthly energy payment equal
to the sum of the on-peak, mid-peak, off-peak and super-off-peak period energy
payments. Through June 30, 2017, the energy payments for 55.6% of the total
energy delivered by Salton Sea Unit IV (up to 110% of nameplate capacity) will
be calculated based on a base price of 4.701 cents per kWh, adjusted pursuant
to various inflation-related indices. Until the end of the contract term, the
energy payments for 44.4% of the total energy delivered will be calculated
according to a fixed price, based on an energy payment schedule for
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the first 10 years, SCE's Avoided Cost of Energy plus a predetermined spread
per kWh for years 11 through 15 and SCE's Avoided Cost of Energy thereafter.
After June 30, 2017, all energy payments will be calculated as provided in the
chart below; however, SCE will not be obliged to purchase any energy
attributable to 55.6% of Salton Sea Unit IV's capacity. The energy payments for
the 44% portion of the agreement and, after June 30, 2017, all energy delivered
under the agreement, will be as follows:
<TABLE>
<CAPTION>
ENERGY PAYMENT
YEAR (CENTS/KWH) YEAR ENERGY PAYMENT (CENTS/KWH)
---- ----------- ---- --------------------------
<S> <C> <C> <C>
1999 10.7 2006 3.5+Avoided Cost of Energy
2000 10.9 2007 2.9+Avoided Cost of Energy
2001 11.2 2008 2.2+Avoided Cost of Energy
2002 11.7 2009 1.2+Avoided Cost of Energy
2003 12.1 2010 1.0+Avoided Cost of Energy
2004 12.2 2011-2025 Avoided Cost of Energy
2005 12.4
</TABLE>
SALTON SEA UNIT V PPA
Power LLC and Minerals LLC have entered into an amended and restated power
sales agreement dated as of November 1, 1998, whereby Power LLC has agreed to
supply energy to Minerals LLC.
Conditions Precedent. Power LLC's and Mineral LLC's obligations under the
Salton Sea Unit V PPA are subject to the prior condition that both Salton Sea
Unit V and the Zinc Recovery Project are ready to commence initial operation.
Term. The contract term of the Salton Sea Unit V PPA is for 33 years from
the date of initial deliveries thereunder.
Energy Payments. Power LLC will be paid a monthly energy payment equal to
the product of (1) the total quantity in kWh of electrical energy purchased and
received by Minerals LLC under the Salton Sea Unit V PPA in the month
multiplied by (2) the product of the PX price multiplied by a percentage to
adjust for transmission losses, minus an adjustment factor based on
transmission service charges.
GEOTHERMAL SALES AND PRODUCTS SUPPLY CONTRACTS
Salton Sea Unit V. SSBP and Power LLC are parties to a geothermal products
supply contract, dated as of November 2, 1998, which requires SSBP to supply
geothermal steam and spent geothermal brine to Power LLC for Salton Sea Unit V.
The agreement has a term of 30 years, commencing on the date of initial
deliveries.
GROUND LEASES
Salton Sea Units I and II. SSBP and SSPG entered into a ground lease with
IID dated November 24, 1993. Pursuant to the Salton Sea Units I and II ground
lease, IID leases the real property on which Salton Sea Units I and II are
located, consisting of approximately 117 acres, to SSBP and SSPG for a period
of 33 years. The Salton Sea Units I and II ground lease is triple net with
original base rental payments of $400 per acre per annum. Every 5 years this
per acre price may be adjusted based on changes in the Consumer Price Index as
specified in the lease.
The Salton Sea Units I and II ground lease permits improvements and
construction to increase capacity. The rights of SSBP and SSPG under the lease
are junior and subordinate to (1) the rights of Magma Land under the amended
and restated geothermal lease and agreement dated as of November 24, 1993
between IID and Magma Land and (2) the right, title and interest of Magma Land
and SSBP under the Salton Sea Resource Easement.
The following constitute material defaults under the Salton Sea Units I
and II ground lease:
(1) failure to pay rent when due where such failure continues for 30
business days after written notice;
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(2) failure to observe or perform any material covenants under the lease
where such failure continues for 60 days after written notice; and
(3) either of SSBP or SSPG is adjudged bankrupt or insolvent, files a
petition for bankruptcy, discontinues its business, makes a general
assignment for the benefit of creditors or has substantially all of
its assets attached for greater than 60 days.
Upon the occurrence of any of the above, IID may terminate SSBP's and
SSPG's right to possession of the premises and the Salton Sea Units I and II
ground lease will be terminated. IID is entitled to recover various damages
enumerated in the Salton Sea Units I and II ground lease in the event of early
termination of the lease.
Salton Sea Units III and IV. SSBP and SSPG are currently parties to a
ground lease with Magma Land, dated as of March 31, 1993, pursuant to which
Magma Land leases the real property on which Salton Sea Units III and IV are
located to SSBP and SSPG. Many of the terms of the lease are substantially
similar to the Salton Sea Units I and II ground lease.
Salton Sea Unit V. Power LLC is currently party to a ground lease with
Imperial Magma, dated as of October 13, 1998, pursuant to which Imperial Magma
leases the real property on which Salton Sea Unit V will be located to Power
LLC. Many of the terms of the lease are substantially similar to the Salton Sea
Units I and II ground lease and the Salton Sea Units III and IV ground lease.
SALTON SEA RESOURCE EASEMENT AND OTHER RELATED AGREEMENTS
Salton Sea Units I-IV. SSBP and Magma Land entered into an amended and
restated easement grant deed and agreement regarding rights for geothermal
development dated as of February 23, 1994, and further amended as of July 21,
1995 and December 2, 1998 (the "Salton Sea Resource Easement"), pursuant to
which Magma Land grants to SSBP a first-priority, non-exclusive right to
extract and utilize for power production purposes the geothermal resource
underlying specific properties in the Salton Sea Known Geothermal Resource
Area. These resources supply all of the geothermal energy requirements used by
Salton Sea Units I, II, III and IV. Pursuant to the easement, Magma Land owns
the right to use any excess or unused geothermal resources, including spent
geothermal brine and brine minerals.
The Salton Sea Resource Easement became effective on February 23, 1994 and
expires on November 24, 2026.
SSBP must reimburse Magma Land for amounts Magma Land is obligated to pay
to those landowners who own the underlying rights to the geothermal resources
under various geothermal lease agreements. SSBP is obligated to pay all costs
and expenses associated with the maintenance, repair and operation of the
geothermal brine facilities. SSBP is required to comply with all laws, pay
utilities and all real and personal property taxes and maintain insurance.
Magma Land may terminate the Salton Sea Resource Easement if (1) SSBP
fails to make a payment when due and fails to cure the default within 5 days of
receiving notice of such default or (2) SSBP fails to perform or observe any
other material covenant under the Salton Sea Resource Easement and such failure
continues unremedied for a period of 30 days after notice of the failure is
given by Magma Land.
Salton Sea Unit V. Power LLC, SSBP and Magma Land entered into an
agreement regarding utilization of geothermal energy dated as of October 13,
1998, pursuant to which Magma Land grants to SSBP a license to extract and
utilize for power production purposes the geothermal resource underlying
specific properties in the Salton Sea Known Geothermal Resource Area in order
to supply the geothermal energy requirements of Salton Sea Unit V. The
agreement contemplates that SSBP and Power LLC will enter into a geothermal
products supply contract to provide geothermal energy to Salton Sea Unit V. See
"--Geothermal Sales and Products Supply Contracts--Salton Sea Unit V" above.
OPERATING AND MAINTENANCE AGREEMENTS
Salton Sea Units I-IV. The Salton Sea Guarantors (other than Power LLC)
and CEOC entered into a second amended and restated operating and maintenance
agreement, dated as of July 15, 1995, under which CEOC is responsible for the
day-to-day operation and maintenance of the Salton Sea Projects (other than
Salton Sea Unit V).
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Salton Sea Unit V. Power LLC and CEOC entered into an operating and
maintenance agreement, dated as of October 13, 1998, under which CEOC is
responsible for the day-to-day operations and maintenance of Salton Sea Unit V.
The provisions of the Salton Sea Unit V operating and maintenance agreement are
substantially similar to those of the Salton Sea Units I-IV operating and
maintenance agreement.
ADMINISTRATIVE SERVICES AGREEMENT
Salton Sea Units I-IV. The Salton Sea Guarantors (other than Power LLC)
and Magma entered into a second amended and restated administrative services
agreement, dated as of July 15, 1995, whereby Magma agrees to provide
administrative, management and technical services for the Salton Sea Projects
(other than Salton Sea Unit V).
Salton Sea Unit V. Power LLC and Magma entered into an administrative
services agreement, dated as of October 13, 1998, whereby Magma agrees to
provide administrative, management and technical services for Salton Sea Unit
V. The core provisions of the Salton Sea Unit V administrative services
agreement are substantially similar to those of the Salton Sea Units I-IV
administrative services agreement.
TECHNOLOGY TRANSFER AGREEMENTS
Salton Sea Units I-III. SSBP and SSPG entered into a 33-year technology
transfer agreement, dated as of March 31, 1993, with Magma pursuant to which
Magma grants to SSBP and SSPG the right to use Magma's proprietary and
non-proprietary technology, leases and patents for Salton Sea Units I-III.
Magma has granted these rights to SSBP and SSPG at no cost. The agreement also
allows SSBP and SSPG to benefit from improvements and modifications to the
technology for the life of the agreement.
Salton Sea Unit IV. The right to use Magma's proprietary and
non-proprietary technology in Salton Sea Unit IV is governed by the technology
transfer agreement, dated as of February 15, 1996, among Magma, SSBP, SSPG and
Fish Lake, the terms of which are substantially similar to the terms of the
Salton Sea Units I-III technology transfer agreement.
Salton Sea Unit V. Power LLC entered into a 33-year technology transfer
agreement, dated as of October 13, 1998, with Magma. The terms of the Salton
Sea Unit V technology transfer agreement are substantially similar to those of
the Salton Sea Unit IV technology transfer agreement.
SALTON SEA UNIT V EPC CONTRACT
Under the Salton Sea Unit V EPC Contract, SWEC will design, engineer,
procure, construct, commission and test the 49 MW geothermal power production
facility constituting Salton Sea Unit V on a turnkey basis for an aggregate
fixed price of $91,787,000 (the "Salton Sea Unit V EPC Price").
Contract Price; Security for SWEC's Obligations. SWEC will be entitled to
monthly payments under a milestone payment schedule if SWEC's invoices have
been approved by Power LLC. As security for the liabilities of SWEC to Power
LLC under the Salton Sea Unit V EPC Contract, Power LLC is entitled to retain
10% of the amount due with respect to each invoice. Power LLC must pay the
retainage to SWEC following final completion of the work. In lieu of the
retainage, SWEC may post a letter of credit acceptable to Power LLC in its good
faith discretion. In addition, SWEC's obligations under the Salton Sea Unit V
EPC Contract are guaranteed by its parent company, Stone & Webster,
Incorporated.
Buy-Down Following Capacity and Reliability Tests. SWEC guarantees that
Salton Sea Unit V will satisfy performance guarantees regarding energy
production, steam production and brine temperature. SWEC must pay specified
performance liquidated damages if Salton Sea Unit V fails to satisfy the
applicable performance guarantees during the capacity test and the reliability
test, subject to the limitations on liability described below. If SWEC has not
passed the requisite tests and has not paid the specified performance
liquidated damages 90 days after the capacity test completion deadline, SWEC
must pay the performance liquidated damages. The capacity test completion
deadline is scheduled to occur 610 days after October 13, 1998, as this
deadline may be modified in accordance with the terms of
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the Salton Sea Unit V EPC Contract. If SWEC has not run a capacity test within
90 days after the expiration of this period, SWEC must pay an amount equal to
the maximum aggregate damages and will have no right to conduct the reliability
test. In the event that SWEC has not run a reliability test by 90 days after
the substantial completion deadline, SWEC must pay additional specified
performance liquidated damages calculated as if the output during the
reliability test were zero, subject to limitations on liability described
below. The substantial completion deadline is scheduled to occur 638 days after
October 13, 1998, as this deadline may be modified in accordance with the terms
of the Salton Sea Unit V EPC Contract. Power LLC, in its sole discretion, may
grant SWEC an opportunity to attempt to meet the performance guarantees during
a rerun of one or all of the performance tests in accordance with a plan
approved by Power LLC. If by the re-testing deadline, each of the applicable
performance tests has been re-run but SWEC has failed to meet the performance
guarantees, then SWEC must pay certain specified performance liquidated damages
without regard to the limitations on liability described below. In the event
Salton Sea Unit V's performance has improved as a result of such corrective
measures, Power LLC may be obligated to refund certain liquidated damages to
SWEC; provided that the refund will be first reduced by, among other things, an
amount necessary to compensate Power LLC for any excess costs, lost revenues,
consequential damages or other losses incurred by Power LLC as a result of the
rerun, and any amounts owed but not paid to Power LLC due to the limitations on
SWEC's liability under the Salton Sea Unit V EPC Contract.
Delay Liquidated Damages; Early Completion Bonus. If SWEC fails to achieve
capacity test completion by the capacity test completion deadline, SWEC must
pay liquidated damages as follows: $15,400 per day for the first 30 days of
delay, $23,200 per day for each day of delay beyond the 30th day of delay but
prior to the 60th day of delay, and $32,750 per day for each day of delay
beyond the 60th day of delay, subject to the limitations on liability described
below. SWEC is not required to pay any delay liquidated damages for failure to
achieve substantial completion by the substantial completion deadline. If SWEC
achieves substantial completion before the deadline, then Power LLC must pay a
specified bonus as follows: $22,500 per day for the first 16 days of early
completion, and $15,400 per day for each day of early completion in excess of
16 days up to a total of 90 days.
Warranties. SWEC provides certain warranties for the work and equipment
provided under the Salton Sea Unit V EPC Contract, which warranty will
terminate on the date that is the later of 18 months from delivery of equipment
to the site or 12 months after the date SWEC achieves substantial completion
(subject to extension for repair or replacement of items covered by the
warranty).
Adjustments to the Contract Price. In the event of an owner requested
change in the work, owner caused delay, certain changes in law or certain
unforeseen subsurface manmade conditions at the project site, the Salton Sea
Unit V EPC Price will be increased by either, at Power LLC's sole discretion,
(1) a price agreed to by Power LLC and SWEC or (2) a price calculated pursuant
to fixed unit rates identified in the Salton Sea Unit V EPC Contract. There
will be no adjustment to the Salton Sea Unit V EPC Price in connection with a
change in the work resulting from an event of force majeure.
Delays in the Work. If an event of force majeure, an owner requested
change in the work, an owner caused delay, certain unforeseen subsurface
manmade conditions at the project site or certain changes in law delay SWEC's
performance, then SWEC will be entitled to an extension of the affected
deadlines provided SWEC satisfies certain conditions. SWEC must use reasonable
efforts to mitigate the duration of and costs arising from any suspension or
delay in performance of the work.
Events of Default. The events of default applicable to Power LLC include,
without limitation, the following: (1) Power LLC's breach of any of its
covenants under the Salton Sea Unit V EPC Contract (subject to cure periods);
(2) Power LLC's unauthorized assignment or transfer of any of its rights or
interests in the Salton Sea Unit V EPC Contract; and (3) the failure of any
representation or warranty made by Power LLC to be true (subject to cure
period). SWEC may terminate the Salton Sea Unit V EPC Contract if a Power LLC
event of default occurs, subject to exceptions specified in the Salton Sea Unit
V EPC Contract and cure rights of the Collateral Agent.
Limitations on Liability. SWEC's aggregate liability to Power LLC under
the Salton Sea Unit V EPC Contract will in no event be greater than 100% of the
Salton Sea Unit V EPC Price; provided,
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however, that no provision of the Salton Sea Unit V EPC Contract will be
construed to limit SWEC's liability or obligations (1) to achieve mechanical
completion, (2) with respect to vitiation of any insurance policy of the Salton
Sea Unit V EPC Contract, (3) with respect to any willful misconduct of SWEC, or
(4) with respect to SWEC's opportunity to re-run performance tests as described
above. SWEC's aggregate liability to Power LLC for liquidated damages (both
delay and performance based) under the Salton Sea Unit V EPC Contract is
limited to 20% of the Salton Sea Unit V EPC Price.
PARTNERSHIP GUARANTOR PROJECT CONTRACTS
POWER PURCHASE AGREEMENTS
Elmore PPA. Elmore sells electricity to SCE pursuant to an SO4 Agreement
dated June 15, 1984 between SCE and Elmore. The terms which are generally
contained in an SO4 Agreement are described in "--Standard Terms of SO4
Agreement" above. Some of the specific terms of the Elmore PPA and the primary
differences between the Elmore PPA and the terms of the standard SO4 Agreement
are described below.
Term. The contract term of the Elmore PPA is for 30 years from the Firm
Operation Date of January 1, 1989.
Capacity Payments. Elmore has a Contract Capacity Price of $198 per
kW-year and, based on the Contract Capacity of 34 MW, the annual maximum
capacity payment is $6,732,000.
Energy Payments. The Elmore PPA is an Annual Forecast Energy Payment SO4
Agreement. The Fixed Price Period expired on December 31, 1998. As a result,
energy payments for the balance of the contract term will be based on SCE's
Avoided Cost of Energy.
Leathers PPA. Leathers sells electricity to SCE pursuant to an SO4
Agreement which is identical in all material respects to the Elmore PPA. Some
of the specific terms of the Leathers PPA and the primary differences between
the Leathers PPA and the Elmore PPA are described below.
Term. The contract term of the Leathers PPA is for 30 years from the Firm
Operation Date of January 1, 1990.
Capacity Payments. Leathers has a Contract Capacity Price of $187 per
kW-year and, based on the Contract Capacity of 34 MW, the annual maximum
capacity payment is $6,358,000.
Energy Payments. The Leathers PPA is an Annual Forecast Energy Payment SO4
Agreement. The Fixed Price Period expires on December 31, 1999. After the Fixed
Price Period, energy payments will be based on SCE's Avoided Cost of Energy.
Del Ranch PPA. Del Ranch sells electricity to SCE pursuant to an SO4
Agreement which is identical in all material respects to the Elmore PPA. Some
of the specific terms of the Del Ranch PPA and the primary differences between
the Del Ranch PPA and the Elmore PPA are described below.
Term. The contract term of the Del Ranch PPA is for 30 years from the Firm
Operation Date of January 2, 1989.
Capacity Payments. Del Ranch has a Contract Capacity Price of $198 per
kW-year and, based on the Contract Capacity of 34 MW, the annual maximum
capacity payment is $6,732,000.
Energy Payments. The Del Ranch PPA is an Annual Forecast Energy Payment
SO4 Agreement. The Fixed Price Period expired on December 31, 1998. As a
result, energy payments for the balance of the contract term will be based on
SCE's Avoided Cost of Energy.
Vulcan PPA. Vulcan sells electricity to SCE pursuant to an SO4 Agreement
dated March 1, 1984 between SCE and Vulcan. The standard and principal terms
which are generally contained in an SO4 Agreement are described in "--Standard
Terms of SO4 Agreement" above. Some of the specific terms of the Vulcan PPA and
the primary differences between the Vulcan PPA and the terms of the standard
SO4 Agreement are described below.
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Term. The contract term of the Vulcan PPA is for 30 years from the Firm
Operation Date of February 10, 1986.
Capacity Payments. Vulcan has a Contract Capacity Price of $158 per
kW-year and, based on the Contract Capacity of 29.5 MW, the annual maximum
capacity payment is $4,661,000.
Energy Payments. The Vulcan PPA is an Annual Forecast Energy Payment SO4
Agreement. The Fixed Price Period expired on February 9, 1996. As a result,
energy payments for the balance of the contract term will be based on SCE's
Avoided Cost of Energy.
GROUND LEASES
Elmore. Elmore entered into a ground lease with Magma, dated as of March
14, 1988, as amended as of June 17, 1996. Pursuant to the Elmore ground lease,
Magma leases the real property on which the Elmore Project is located to Elmore
for a period of 32 years.
Magma retains under the lease the right to use the land surface to extract
and develop geothermal brine and geothermal brine scale. This includes the
right to construct, operate and maintain pipelines, buildings, equipment and
other improvements to the land, including additional geothermal power plants.
The lease permits minor alterations or additions to any improvements on
the land at a construction cost not exceeding $7,500,000. Additions or
improvements costing in excess of $7,500,000 require Magma's prior written
consent. Elmore is not permitted to assign, transfer, mortgage, sublet or
otherwise transfer or encumber any part of its interest in the lease or
premises without Magma's prior written consent, which shall not be unreasonably
withheld.
Leathers. Leathers entered into a ground lease, dated as of October 26,
1988, as amended as of June 17, 1996, with Magma. Pursuant to the Leathers
ground lease, Magma leases the real property on which the Leathers Project is
located to Leathers. The provisions of this lease are substantially similar in
most material respects to the terms of the Elmore ground lease.
Del Ranch. Del Ranch entered into a ground lease, dated as of March 14,
1988, as amended as of June 17, 1996, with Magma, pursuant to which Del Ranch
leases the real property on which the Del Ranch Project is located from Magma.
The provisions of this lease are substantially similar in all material respects
to the terms of the Elmore ground lease.
Zinc Recovery Project. Minerals LLC is party to a ground lease with
Imperial Magma, dated as of October 13, 1998, pursuant to which Imperial Magma
leases the real property on which the Zinc Recovery Project will be located to
Minerals LLC. Many of the terms of this lease are substantially similar to the
terms of the Salton Sea Units I and II ground lease and the Salton Sea Units
III and IV ground lease.
EASEMENTS
Elmore. The easement grant deed and agreement regarding rights for
geothermal development, dated as of March 14, 1988, as amended as of June 17,
1996, between Elmore and Magma, provides for royalty payments to be paid by
Elmore to Magma for the extraction and utilization of the geothermal resource
for power production purposes by the Elmore Project.
Description of Easement. Elmore has been granted by Magma a non-exclusive
right to use certain land and geothermal resources for the purpose of producing
geothermal energy from the Elmore Project. Pursuant to the easement, Magma has
reserved the right to use any excess or unused geothermal resources, including
brine minerals.
Royalty. Elmore is obligated to pay Magma a royalty equal to 21.5% of any
energy (but not capacity) revenues it receives under the Elmore PPA. The
royalty consists of two components, a grantor's fuel charge, which is 17.333%
of energy revenues, and a geothermal lessor's fee, which is 4.167% of energy
revenues. In addition, Elmore must pay Magma a resource development fee of 1%
of combined capacity and energy revenues and 0.833% of energy revenues. These
royalties are paid prior to the payment of project-level debt service
(including the Project Notes and the Guarantees) and are payable from revenues
that will constitute Partnership Collateral. See "Offering Circular
Summary--structure of and Collateral for the Securities."
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Term and Termination. The Elmore easement has a term of 32 years. Magma
has the right to terminate the easement if (1) Elmore fails to make any
payments within 3 business days of being due and fails to cure such default
within 2 business days of notice thereof, (2) during the last 5 years of the
term of the agreement, the Elmore Project is damaged or destroyed, with damages
over $7,500,000, and Magma chooses to decommission the plant, or (3) Elmore
fails to perform or observe any material covenant or condition in the easement
and fails to remedy or commence to remedy such default within 30 days.
Leathers. The easement grant deed and agreement regarding rights for
geothermal development, dated as of August 15, 1988, as amended as of June 17,
1996, between Leathers and Magma, provides for royalty payments to be paid by
Leathers to Magma for the extraction and utilization of the geothermal resource
for power production purposes.
The provisions of this agreement are identical in all material respects to
those of the Elmore easement, except that Leathers is not required to pay Magma
a continuing resource development fee. Leathers is only obligated to pay Magma
21.5% of its energy revenues, consisting of a grantor's fuel charge, which is
17.333% of energy revenues, and a geothermal lessor's fee, which is 4.167% of
energy revenues.
Del Ranch. The easement grant deed and agreement regarding rights for
geothermal development, dated as of March 14, 1988, as amended as of June 17,
1996, between Del Ranch and Magma, provides for royalty payments to be paid by
Del Ranch to Magma for the extraction and utilization of the geothermal
resource for power production purposes. The provisions of this agreement are
substantially similar in all material respects to those of the Elmore easement.
Vulcan. Rights to geothermal resources have been granted to VPC (and
assigned to Vulcan) by Magma pursuant to an easement grant deed and agreement
regarding rights for geothermal development, dated as of January 19, 1988, as
amended as of June 17, 1996 and February 18, 1999. Magma has reserved the right
to use excess or unused geothermal resources, including brine minerals.
CE Turbo Project. Magma and Turbo LLC have entered into a subeasement
agreement, dated as of October 13, 1998, whereby Magma grants to Turbo LLC the
right to use the real property on which the CE Turbo Project will be located.
Zinc Recovery Project.
Agreement Regarding Easements and Subeasements. Magma, Imperial Magma and
Minerals LLC entered into an agreement regarding easements and subeasements
dated as of February 18, 1999, pursuant to which Magma and Imperial Magma grant
to Minerals LLC easements and subeasements to permit Minerals LLC to construct,
operate and maintain the Zinc Recovery Project and associated pipelines and
equipment.
Term. The term of the agreement regarding easements and subeasements is
for 33 years, subject to earlier termination as provided therein.
Obligations. Minerals LLC must pay a nominal annual payment to Imperial
Magma and must reimburse Magma for amounts incurred by Magma and arising from
Minerals LLC's exercise of its rights under the agreement regarding easements
and subeasements. Minerals LLC is obligated to pay all costs and expenses
associated with the labor and materials furnished to Minerals LLC at or for use
on the easement areas. Minerals LLC is required to comply with all laws, pay
utilities and all real and personal property taxes and maintain insurance.
Defaults. Minerals LLC will be in default under the agreement regarding
easements and subeasements if it fails to perform its obligations thereunder in
any material respect and fails to cure the default within 30 days of receiving
notice of such default. However, if the nature of Minerals LLC's obligation is
such that more than 30 days are required for its performance, Minerals LLC will
not be in default if it commences such performance within the 30-day period and
thereafter pursues completion of the performance with commercially reasonable
diligence.
Easement Grant Deed and Agreement Regarding Rights for Zinc
Extraction. Magma, Magma Land and Minerals LLC entered into an easement grant
deed and agreement regarding rights for zinc
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extraction dated as of February 18, 1999, pursuant to which Magma and Magma
Land grant to Minerals LLC rights to (1) extract and utilize certain spent
geothermal brine for purposes of processing, extracting and selling zinc
therefrom, and (2) use certain subsurface land to produce, extract, store,
utilize, process, reclaim, convert, sell and otherwise use the zinc contained
in certain geothermal brine and to own the zinc contained in such geothermal
brine.
Term. The term of the easement grant deed and agreement regarding rights
for zinc extraction is for 33 years.
Obligations. Minerals LLC must pay to Magma and Magma Land an aggregate
amount equal to 1.32% of the greater of (1) the gross proceeds received by
Minerals LLC from the sale of zinc or (2) the product of the total quantity of
zinc produced and made ready for sale and the applicable daily London Metal
Exchange spot price for zinc as published in the Wall Street Journal.
Default. Minerals LLC will be in default under the easement grant deed and
agreement regarding rights for zinc extraction if it fails to perform its
obligations thereunder in any material respect and fails to cure the default
within 30 days of receiving notice of the default. However, if the nature of
the obligation requires more than 30 days for its performance, Minerals LLC
will not be in default if it commences performance within the 30-day period and
thereafter pursues completion of the performance with commercially reasonable
diligence.
OPERATING AND MAINTENANCE AGREEMENTS
Elmore, Leathers, Del Ranch and Vulcan. CEOC has entered into amended and
restated operating and maintenance agreements dated as of June 17, 1996 with
each of Elmore, Leathers and Del Ranch pursuant to which CEOC agrees to provide
operating and maintenance services for each of the Elmore, Leathers and Del
Ranch Projects. CEOC entered into a construction, operating and accounting
agreement, dated as of August 30, 1985, as amended on June 17, 1996, with VPC
and Vulcan, pursuant to which CEOC agrees to provide operating and maintenance
services for the Vulcan Project.
CE Turbo Project. Turbo LLC and CEOC have entered into an operating and
maintenance agreement, dated as of October 13, 1998, pursuant to which CEOC
agrees to provide operating and maintenance services for the CE Turbo Project.
Zinc Recovery Project. Minerals LLC and CEOC have entered into a zinc
facility operating and maintenance agreement, dated as of November 1, 1998,
pursuant to which CEOC agrees to provide operating and maintenance services for
the Zinc Recovery Project.
ADMINISTRATIVE SERVICES AGREEMENTS
Elmore, Leathers, Del Ranch and Vulcan. CEOC has entered into amended and
restated administrative services agreements, each dated as of June 17, 1996,
with each of Elmore, Leathers, Del Ranch and Vulcan, pursuant to which CEOC
agrees to provide day-to-day administrative, management and technical services
for the Elmore, Leathers, Del Ranch and Vulcan Projects.
Zinc Recovery Project and CE Turbo Project. Magma has entered into
administrative services agreements, each dated as of October 13, 1998, with
each of Minerals LLC and Turbo LLC, whereby Magma agrees to provide day-to-day
administrative, management and technical services for the Zinc Recovery Project
and the CE Turbo Project.
EPC CONTRACTS
REGION 2 UPGRADE EPC CONTRACT
Under the Region 2 Upgrade EPC Contract, SWEC will, in two phases, design,
engineer, procure, construct, test and start up the Region 2 Brine Facilities
Construction and the CE Turbo Project for a fixed price of $49,800,000 (the
"Region 2 EPC Price"). The Region 2 Upgrade EPC Contract is substantially
similar to the Salton Sea Unit V EPC Contract in all material aspects except as
described below.
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Buy-Down Following Capacity and Reliability Tests. SWEC guarantees that
the Region 2 Brine Facilities Construction will satisfy performance guarantees
regarding steam production, and that the CE Turbo Project will satisfy
performance guarantees regarding energy production. SWEC must pay specified
performance liquidated damages if the Region 2 Brine Facilities Construction
fails to satisfy the applicable performance guarantees during the capacity test
and if the CE Turbo Project fails to satisfy the applicable performance
guarantees during the reliability test and the capacity test, in each case
subject to the limitations on liability described below. If SWEC has not passed
the requisite tests and has not paid the specified performance liquidated
damages 90 days, in the case of the Region 2 Brine Facilities Construction, or
180 days, in the case of the CE Turbo Project, after the capacity test
completion deadline for such phase, SWEC must pay performance liquidated
damages at that time. The capacity test completion deadlines for the Region 2
Brine Facilities Construction and the CE Turbo Project are, respectively, 497
days and 520 days after October 13, 1998. In the event that SWEC has not run a
single capacity test for the Region 2 Brine Facilities Construction prior to 90
days after the capacity test completion deadline for such phase, SWEC must pay
an amount equal to the maximum aggregate damages. In the event that SWEC has
not run a single capacity test for the CE Turbo Project prior to 180 days after
the capacity test completion deadline for such phase, SWEC must pay an amount
equal to the maximum aggregate damages. In the event that SWEC has not run a
single reliability test prior to 180 days after the substantial completion
deadline for the CE Turbo Project, SWEC must pay additional specified
performance liquidated damages which will be calculated as if the output during
the reliability test were zero, subject to the limitations on liability
described below. The substantial completion deadlines for the Region 2 Brine
Facilities Construction and the CE Turbo Project are, respectively, 497 days
and 548 days after October 13, 1999, as each deadline may be modified in
accordance with the terms of the Region 2 Upgrade EPC Contract.
Delay Liquidated Damages; Early Completion Bonus. If SWEC fails to achieve
capacity test completion for the Region 2 Brine Facilities Construction by the
deadline therefor, SWEC must pay specified liquidated damages for each day that
capacity test completion is delayed beyond such deadline ("Phase One Delay
Liquidated Damages"), as follows: $15,400 per day for the first 30 days of
delay, $23,200 per day for each day of delay beyond the 30th day of delay but
prior to the 60th day of delay, and $32,750 per day for each day of delay
beyond the 60th day of delay, subject to the limitations on liability described
below. In addition, if SWEC fails to achieve capacity test completion for the
CE Turbo Project by the deadline, SWEC must pay specified liquidated damages
for each day that capacity test completion is delayed beyond the deadline
("Phase Two Delay Liquidated Damages" and, together with Phase One Delay
Liquidated Damages, the "Delay Liquidated Damages"), as follows: $4,000 per day
for the first 30 days of delay, $6,000 per day for each day of delay beyond the
30th day of delay but prior to the 60th day of delay, and $8,000 per day for
each day of delay beyond the 60th day of delay, subject to the limitations on
liability described below. SWEC is not required to pay any Delay Liquidated
Damages for failure to achieve substantial completion by the deadlines for
substantial completion. If SWEC achieves substantial completion for the Region
2 Brine Facilities Construction before the deadline, then Turbo LLC, Vulcan and
Del Ranch must pay a specified bonus for each day that substantial completion
of the Region 2 Brine Facilities Construction precedes the deadline, as
follows: $7,500 per day for the first 16 days of early completion, and $11,100
per day for each day of early completion in excess of 16 days up to a total of
90 days. In addition, if SWEC achieves substantial completion for the CE Turbo
Project before the deadline, then Turbo LLC, Vulcan and Del Ranch must pay a
specified bonus for each day that substantial completion for the CE Turbo
Project precedes the deadline, as follows: $2,000 per day for the first 16 days
of early completion, and $4,000 per day for each day of early completion in
excess of 16 days up to a total of 90 days.
Limitations on Liability. SWEC's aggregate liability to Turbo LLC, Vulcan
and Del Ranch under the Region 2 Upgrade EPC Contract will in no event be
greater than 100% of the Region 2 EPC Price; provided, however, that no
provision of the Region 2 Upgrade EPC Contract will be construed to limit
SWEC's liability or obligations (1) to achieve mechanical completion, (2) with
respect to vitiation of any insurance policy of the Region 2 Upgrade EPC
Contract, (3) with respect to any willful misconduct of SWEC, or (4) with
respect to SWEC's opportunity to re-run performance tests. SWEC's aggregate
liability to Turbo LLC, Vulcan and Del Ranch for liquidated damages (both delay
and performance based) under the Region 2 Upgrade EPC Contract is limited to
20% of the Region 2 EPC Price.
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ZINC RECOVERY PROJECT EPC CONTRACT
Under the Zinc Recovery Project EPC Contract, Kvaerner will design,
engineer, procure, construct, test and start up the Zinc Recovery Project for
an aggregate fixed price of $148,240,000 (the "Zinc EPC Price").
Contract Price; Security for Kvaerner's Obligations. Kvaerner will be
entitled to monthly payments in accordance with a milestone payment schedule if
Kvaerner's invoices have been approved by Minerals LLC. As security for the
liabilities of Kvaerner to Minerals LLC under the Zinc Recovery Project EPC
Contract, Minerals LLC is entitled to retain 10% of the amount due with respect
to each invoice. Minerals LLC must pay the retainage to Kvaerner following
final completion of the work. In lieu of the retainage, Kvaerner may post a
letter of credit to Minerals LLC in its good faith discretion. In addition,
Kvaerner's obligations under the Zinc Recovery Project EPC Contract must at all
times be secured by one or more letters of credit in an aggregate amount of 20%
of the Zinc EPC Price. The letters of credit have been issued by Union
Europeenne de CIC, and must always be issued by a financial institution rated
"A" or better by S&P or "A2" or better by Moody's and otherwise acceptable to
Minerals LLC.
Buy-Down Following Capacity, Process and Special High Grade Zinc
Tests. Kvaerner guarantees that the Zinc Recovery Project will satisfy
performance guarantees regarding zinc recovery rates and zinc casting and acid
production rates. Kvaerner must pay specified performance liquidated damages if
the Zinc Recovery Project fails to satisfy the applicable performance
guarantees during the capacity test, the process test and the special high
grade zinc test, subject to the limitations on liability described below. If
Kvaerner has not passed the requisite tests and has not paid the specified
performance liquidated damages 60 days after the substantial completion
deadline, Kvaerner must pay the performance liquidated damages at that time.
The substantial completion deadline is scheduled to occur 652 days after
October 13, 1998, as this deadline may be modified in accordance with the terms
of the Zinc Recovery Project EPC Contract. If Kvaerner has not run the capacity
test prior to the expiration of this period, Kvaerner must pay an amount equal
to the maximum aggregate damages and will have no right to conduct the process
test or the special high grade zinc test. If Kvaerner has not run the process
test by 60 days after the substantial completion deadline, Kvaerner must pay
additional specified performance liquidated damages which will be calculated as
if the output of such uncompleted process test were zero, subject to the
limitations on liability described below. In the event that Kvaerner has not
run the special high grade zinc test by 60 days after the special high grade
zinc test completion deadline, Kvaerner must pay additional performance
liquidated damages calculated as if the output of the uncompleted special high
grade zinc test were zero, subject to limitations on liability described below.
The special high grade zinc test completion deadline is scheduled to occur 160
days after the process test has been completed and certain other conditions
have been satisfied, as this deadline may be modified in accordance with the
terms of the Zinc Recovery Project EPC Contract. Minerals LLC, in its sole
discretion, may grant Kvaerner, upon the request of Kvaerner, an opportunity to
postpone paying performance liquidated damages otherwise due and owing to
Minerals LLC and to attempt to meet the performance guarantees during a re-run
of one or all of the performance tests in accordance with a remedial plan
approved by Minerals LLC. In return for allowing Kvaerner to re-run the tests,
Kvaerner must pay Minerals LLC monthly re-testing liquidated damages. In
addition, for each day the Zinc Recovery Project does not operate or perform at
a level greater than or equal to the level achieved during the initial
performance tests as a result of Kvaerner's corrective measures or other acts
relating to the approved remedial plan, Kvaerner must pay specified delay
liquidated damages subject to the limitations on liability described below. If
by a certain specified re-testing deadline each of the applicable performance
tests has been re-run but Kvaerner has failed to meet the performance
guarantees, then Kvaerner must pay specified performance liquidated damages
recalculated based upon the Zinc Recovery Project's current performance,
subject to the limitations on liability described below. If, by the earlier of
the completion of the activities contemplated in the approved remedial plan or
the re-testing deadline, the Zinc Recovery Project does not perform at a level
greater than or equal to the level achieved during the initial performance
tests, Kvaerner must either reinstate the Zinc Recovery Project to the
condition existing prior to Kvaerner's performance of such corrective measures
or pay the recalculated performance liquidated damages described in the
preceding sentence, in either case without regard to the limitations on
liability described below.
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Delay Liquidated Damages. If Kvaerner fails to achieve substantial
completion by the substantial completion deadline, Kvaerner must pay liquidated
damages of $16,700 per day for the first 30 days of delay, $25,100 per day for
each day of delay beyond the 30th day of delay but prior to the 60th day of
delay, and $34,100 per day for each day of delay beyond the 60th day of delay,
subject to the limitations on liability described below. In addition, if
Kvaerner fails to achieve special high grade zinc test completion by the
deadline therefor, Kvaerner must pay liquidated damages of $9,000 per day for
each day of delay up to and including the 60th day of delay.
Warranties. Kvaerner provides warranties for the work and equipment
provided under the Zinc Recovery Project EPC Contract, which warranties will
terminate on the date that is 12 months after the later of (1) the date on
which Kvaerner achieves substantial completion or (2) the date when all re-runs
of performance tests have been completed or, alternatively, Kvaerner has paid
the additional liquidated damages for failing to pass the performance tests
(subject to extension for repair or replacement of items covered by the
warranties).
Adjustments to the Contract Price. In the event of an owner-requested
change in the work, owner-caused delay or certain changes in law, the Zinc EPC
Price will be increased by Kvaerner's direct costs (without overhead or general
conditions) resulting from the change in the work, delay or change in law, less
any savings or costs not incurred due to such delay. In addition, in the case
of an owner-caused delay or a change in the work requested by Minerals LLC, the
Zinc EPC Price will be increased, for profit and overhead, by 5% of the direct
costs. There will be no adjustment to the Zinc EPC Price in connection with a
change in the work resulting from an event of force majeure.
Delays in the Work. If an event of force majeure, an owner-requested
change in the work, an owner-caused delay or certain changes in law delay
Kvaerner's performance, then Kvaerner will be entitled to an extension of the
affected deadlines, provided Kvaerner satisfies conditions to the receipt of an
extension which are set forth in the Zinc Recovery Project EPC Contract.
Kvaerner must use reasonable efforts to mitigate the duration of, and costs
arising from, any suspension or delay in performance of the work.
Events of Default. The events of default applicable to Minerals LLC
include, without limitation, the following: (1) Minerals LLC's breach of any of
its covenants under the Zinc Recovery Project EPC Contract (subject to cure
periods); (2) Minerals LLC's unauthorized assignment or transfer of any of its
rights or interests in the Zinc Recovery Project EPC Contract; and (3) the
failure of any representation or warranty made by Minerals LLC to be true
(subject to a cure period). Kvaerner may terminate the Zinc Recovery Project
EPC Contract if a Minerals LLC event of default occurs, subject to exceptions
specified in the Zinc Recovery Project EPC Contract and cure rights of the
Collateral Agent.
Limitations on Liability. Kvaerner's aggregate liability to Minerals LLC
under the Zinc Recovery Project EPC Contract will in no event be greater than
20% of the Zinc EPC Price; provided, however, that no provision of the Zinc
Recovery Project EPC Contract will be construed to limit Kvaerner's liability
or obligations (1) to achieve mechanical completion, (2) with respect to
safeguards described in the Zinc Recovery Project EPC Contract, (3) with
respect to vitiation of any insurance policy of the Zinc Recovery Project EPC
Contract, or (4) with respect to Kvaerner's obligations to reinstate the
project or pay the recalculated performance liquidated damages as described
above if the Zinc Recovery Project does not perform during re-testing at a
level greater than or equal to the project's performance achieved during the
initial performance tests. Kvaerner's aggregate liability to Minerals LLC for
liquidated damages (both delay and performance based) under the Zinc Recovery
Project EPC Contract is limited to 20% of the Zinc EPC Price.
TECHNOLOGY TRANSFER AGREEMENTS
CE Turbo Project. Turbo LLC entered into a 33-year technology transfer
agreement dated as of October 13, 1998 with Magma. The terms of the CE Turbo
Project technology transfer agreement are substantially similar to those of the
Salton Sea Units I-III technology transfer agreement. See "--Salton Sea
Guarantor Project Contracts--Technology Transfer Agreements--Salton Sea Units
I-III."
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Zinc Recovery Project. Minerals LLC entered into two 33-year technology
transfer agreements, each dated as of October 13, 1998, with each of Magma and
MidAmerican. The terms of the Zinc Recovery Project technology transfer
agreements are substantially similar to those of the Salton Sea Units I-III
technology transfer agreement. See "--Salton Sea Guarantor Project
Contracts--Technology Transfer Agreements--Salton Sea Units I-III."
OTHER AGREEMENTS
MAGMA SERVICES AGREEMENT
Pursuant to the Magma Services Agreement, Magma has agreed to pay CEOC all
Equity Cash Flows and certain Royalties payable by Elmore, Leathers and Del
Ranch in exchange for CEOC providing data and services to Magma. As security
for the obligations of Magma under the Magma Services Agreement, Magma has
collaterally assigned to CEOC its rights to the Equity Cash Flows and
Royalties. All of these Equity Cash Flows and Royalties are payable from
revenues that will constitute Partnership Collateral. See "Offering Circular
Summary--Structure of and Collateral for the Securities."
ZINC EXTRACTION SERVICES AGREEMENT
Minerals LLC, as owner, and SSBP, Elmore, VPC, Vulcan, Leathers, Power LLC
and Del Ranch (collectively, the "Operators") have entered into a zinc
extraction services agreement, dated as of February 1, 1999, whereby the
Operators agree to provide certain services for a fee and/or the right to
receive a pH modification agent produced as a by-product of the Zinc Recovery
Project.
Term. The term of the zinc extraction services agreement is for 33 years.
Obligations. Each of the Operators will perform certain services for
Minerals LLC, including:
(1) taking all reasonable actions necessary for the extraction of zinc
from Salton Sea Known Geothermal Resource Area geothermal brine,
including delivery of brine to Minerals LLC;
(2) supplying electrical energy required to operate the IX facilities;
(3) accepting delivery of a pH modification agent from Minerals LLC;
and/or
(4) any other services as may be agreed upon from time to time.
In consideration for the foregoing services, Minerals LLC will pay each of
SSBP, Elmore, VPC, Vulcan, Leathers and Del Ranch a fixed annual payment and
will bear the costs of producing and transporting the pH modification agent so
that it is available to the Operators. The parties' obligations under the zinc
extraction services agreement are subject to the requirement that the Zinc
Recovery Project is ready to commence initial operation and the Operators are
ready to commence delivery of brine and to supply electrical energy to the IX
facilities.
Indemnification/Arbitration. Each party to the zinc extraction services
agreement has agreed to indemnify each other party against any and all
liabilities arising out of the course of performance of the agreement. All
disputes arising under the zinc extraction services agreement will be settled
by arbitration.
Force Majeure. Neither Minerals LLC nor any of the Operators will be
liable for any failure or inability to perform (other than to make payments
due) under the zinc extraction services agreement due to the occurrence of an
event of force majeure. Events of force majeure are defined in the zinc
extraction services agreement in a manner usual and customary for agreements of
this type.
ROYALTY GUARANTOR PROJECT CONTRACTS
MAGMA ASSIGNMENT AGREEMENT
Magma receives Royalties from the Elmore Project, the Leathers Project and
the Del Ranch Project in exchange for leasing or subleasing a portion of
Magma's land and/or geothermal resources to Elmore, Leathers and Del Ranch for
power production purposes.
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In connection with the offering of the Initial Securities, Magma assigned
these Royalties to the Royalty Guarantor pursuant to the Magma Assignment
Agreement. However, payment of these Royalties will be made from revenues that
constitute Partnership Collateral. See "Offering Circular Summary--Structure of
and Collateral for the Securities."
Royalties received from the Elmore Project, Leathers Project and the Del
Ranch Project are payable pursuant to the Elmore easement, the Leathers
easement and the Del Ranch easement, respectively. See "--Partnership Guarantor
Project Contracts--Easements."
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SUMMARY DESCRIPTION OF THE SERIES F SECURITIES
GENERAL
The New Securities will be, and the Old Securities, the Supplemental
Securities and the Initial Securities have been, issued under the Indenture.
The following is a description of certain provisions of the Series F Securities
and, to the extent indicated, the Supplemental Securities and the Initial
Securities, and does not purport to be complete and is subject to, and
qualified in its entirety by, reference to the Series F Securities, the
Supplemental Securities, the Initial Securities and the Indenture. Unless
otherwise specified, the description applies to all of the Securities. A copy
of the Indenture has been filed with the Commission as part of our Registration
Statement. See "Where You Can Find More Information" for information on how to
obtain a copy.
The Old Securities have been, and the New Securities will be, offered in a
single series as set forth below. The Old Securities (other than Old Securities
issued to Accredited Investors) were issued in book-entry form and in
denominations of $100,000 and any integral multiple of $1,000 in excess
thereof.
The Indenture provides for the issuance of other series of senior secured
bonds or notes as from time to time may be authorized by the Funding
Corporation, subject to the limitations in the Indenture. See "Summary
Description of Principal Financing Documents--Indenture--Additional Securities"
and "--Amendments and Supplements."
The Securities are direct obligations of the Funding Corporation, secured
by the Funding Corporation Collateral and guaranteed by the Guarantors pursuant
to the Guarantees. The obligations of the Guarantors under the Guarantees are
secured by the Collateral.
PRINCIPAL AMOUNT, INTEREST RATE, FINAL MATURITY AND PAYMENT
The Old Securities have been, and the New Securities will be, issued in a
single series in the aggregate principal amount of $285,000,000, will bear
interest from their date of issuance at 7.475% per annum and will mature on
November 30, 2018.
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PAYMENT OF PRINCIPAL AND INTEREST
The principal of the Series F Securities is payable in semiannual
installments, commencing May 30, 2001, as follows:
<TABLE>
<CAPTION>
PRINCIPAL
PERCENTAGE OF AMOUNT
PRINCIPAL AMOUNT PAYABLE
PAYMENT DATE PAYABLE (IN $'000)
------------ ------- ----------
<S> <C> <C>
November 30, 1998 0.000% $ --
May 30, 1999 0.000% $ --
November 30, 1999 0.000% $ --
May 30, 2000 0.000% $ --
November 30, 2000 0.000% $ --
May 30, 2001 0.225% $ 641
November 30, 2001 0.225% $ 641
May 30, 2002 0.750% $ 2,137
November 30, 2002 0.750% $ 2,137
May 30, 2003 0.500% $ 1,425
November 30, 2003 0.500% $ 1,425
May 30, 2004 0.625% $ 1,781
November 30, 2004 0.625% $ 1,781
May 30, 2005 0.625% $ 1,781
November 30, 2005 0.625% $ 1,781
May 30, 2006 0.650% $ 1,853
November 30, 2006 0.650% $ 1,853
May 30, 2007 0.375% $ 1,070
November 30, 2007 0.375% $ 1,070
May 30, 2008 0.875% $ 2,495
November 30, 2008 0.875% $ 2,495
May 30, 2009 0.375% $ 1,069
November 30, 2009 0.375% $ 1,069
May 30, 2010 1.250% $ 3,562
November 30, 2010 1.250% $ 3,562
May 30, 2011 3.000% $ 8,550
November 30, 2011 3.000% $ 8,550
May 30, 2012 5.750% $16,387
November 30, 2012 5.750% $16,387
May 30, 2013 5.075% $14,464
November 30, 2013 5.075% $14,464
May 30, 2014 6.000% $17,100
November 30, 2014 6.000% $17,100
May 30, 2015 6.550% $18,667
November 30, 2015 6.550% $18,667
May 30, 2016 7.050% $20,092
November 30, 2016 7.050% $20,092
May 30, 2017 6.875% $19,594
November 30, 2017 6.875% $19,594
May 30, 2018 3.450% $ 9,832
November 30, 2018 3.450% $ 9,832
</TABLE>
Interest on the Series F Securities is payable semiannually on each May 30
and November 30, commencing November 30, 1998, to the registered owners thereof
at the close of business on the May 15 and November 15, as the case may be,
preceding the Interest Payment Date. Interest is calculated on the basis of a
360-day year, consisting of twelve 30-day months.
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OPTIONAL REDEMPTION
The Series F Securities are subject to optional redemption in whole or in
part on a pro rata basis, prior to maturity, at the option of the Funding
Corporation, at par plus accrued interest to the Redemption Date plus a premium
calculated to "make-whole" to comparable U.S. Treasury securities plus 50 basis
points.
MANDATORY REDEMPTION
The Securities (including the Series F Securities) are subject to
mandatory redemption, in whole or in part, ratably among each series at a
redemption price equal to the principal amount thereof plus accrued interest to
the Redemption Date, in the following circumstances:
(a) upon the receipt of Loss Proceeds or Eminent Domain Proceeds by
the Salton Sea Guarantors or the Partnership Project Companies if the
Salton Sea Guarantors or the Partnership Project Companies, as applicable,
determine that (1) the affected Salton Sea Project or Partnership Project
cannot be rebuilt, repaired or restored to permit operations on a
commercially reasonable basis, or the Salton Sea Guarantors or the
Partnership Project Companies, as the case may be, determine not to
rebuild, repair or restore the affected Project, and the Loss Proceeds or
Eminent Domain Proceeds exceed $15 million, in which case the amount of
such Loss Proceeds or Eminent Domain Proceeds will be available for such
redemption, or (2) only a portion of the affected Salton Sea Project or
Partnership Project is capable of being rebuilt, repaired or restored and
the amount of Loss Proceeds or Eminent Domain Proceeds exceed the cost of
rebuilding, repair or replacement by more than $15 million, in which case
only the amount of such excess Loss Proceeds or Eminent Domain Proceeds
will be made available for such redemption;
(b) upon the receipt by the Salton Sea Guarantors or the Partnership
Project Companies of proceeds in connection with a Title Event in excess of
$5,000,000, in which case the amount of such Title Event Proceeds will be
made available for such redemption, subject to reduction in the amount of
any costs expended in connection with collecting any Title Event Proceeds
and any additional costs or expenses not to exceed $25,000,000 that the
Salton Sea Guarantors or the Partnership Project Companies, as the case may
be, will be subject to as a result of the Title Event;
(c) upon the receipt by the Salton Sea Guarantors or the Partnership
Guarantors of net proceeds realized in connection with a Permitted Power
Contract Buy-Out, in which case the amount of such proceeds will be made
available for such redemption, unless the Rating Agencies confirm that such
Permitted Power Contract Buy-Out will not result in a Rating Downgrade;
(d) upon the receipt by the Partnership Guarantors of the proceeds of
a borrowing by the Partnership Project Companies which are used to fund an
equity distribution, in which case the amount of such proceeds received by
the Partnership Guarantors will be made available for such redemption
unless the Rating Agencies confirm that such borrowing and distribution
will not result in a Rating Downgrade;
(e) upon the acceleration of a Project Note, in an amount equal to the
principal amount thereof plus accrued interest; and
(f) upon the receipt of proceeds in excess of $5,000,000 arising out
of the foreclosure by the Collateral Agent of Collateral securing the
Guarantors' obligations under the Guarantees upon an event of default under
the Guarantees.
The Series F Securities are subject to mandatory redemption on a pro rata
basis if the Salton Sea Guarantors or the Partnership Guarantors receive net
performance liquidated damages in excess of $6,000,000 million pursuant to the
construction contracts for the New Projects and the damage payments are not
used to pay construction costs in accordance with an Approved Completion Plan.
The amounts available for redemption described in clauses (a) through (d) above
will also be subject to reduction by the amount of certain fees and expenses,
the amount of any Senior Debt owed under the Working Capital Facility and the
pro rata amount of any obligations in favor of the Debt Service Reserve LOC
Provider and in respect of other senior Permitted Debt as provided in the
Intercreditor Agreement.
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The Funding Corporation will be required to redeem the Series F Securities
in an aggregate principal amount of:
(1) $140,520,000, plus all accrued interest, if the Zinc Recovery
Project does not achieve Substantial Completion on or prior to its
Guaranteed Substantial Completion Date (as such date may be modified
pursuant to an Approved Completion Plan, if applicable) or if Minerals LLC
abandons the construction of the Zinc Recovery Project;
(2) $83,272,000, plus all accrued interest, if Salton Sea Unit V does
not achieve Substantial Completion on or prior to its Guaranteed
Substantial Completion Date (as such date may be modified pursuant to an
Approved Completion Plan, if applicable) or if Power LLC abandons the
construction of Salton Sea Unit V; and
(3) $44,581,000, plus all accrued interest, if the Region 2
Construction does not achieve Substantial Completion on or prior to its
Guaranteed Substantial Completion Date (as such date may be modified
pursuant to an Approved Completion Plan, if applicable) or if Vulcan, Del
Ranch and Turbo LLC abandon the Region 2 Construction;
provided that, in any case, the Funding Corporation will not be required to
redeem the Series F Securities if the Rating Agencies confirm that the failure
to achieve Substantial Completion or the abandonment will not result in a
Rating Downgrade.
BUY-DOWN OR RATINGS AFFIRMATION TO ACHIEVE SUBSTANTIAL COMPLETION
If (1) any New Project does not achieve results which are equal to or
greater than the performance levels necessary to achieve Substantial Completion
and (2) the relevant Guarantor has used reasonable efforts to cause the New
Project to achieve Substantial Completion on or before its Guaranteed
Substantial Completion Date (as such date may be modified pursuant to an
Approved Completion Plan, if applicable), the Funding Corporation may elect to
cause the New Project to achieve Substantial Completion notwithstanding its
failure to test at the required performance levels by (a) redeeming a principal
amount of the outstanding Series F Securities, at par plus accrued interest,
which causes the minimum and average projected Debt Service Coverage Ratios to
equal or exceed 1.4 to 1 and 1.7 to 1, respectively, or (b) taking other
measures as the Rating Agencies may require to confirm that the failure to
achieve Substantial Completion on or before the Guaranteed Substantial
Completion Date will not result in a Rating Downgrade.
RATINGS
Moody's and S&P have assigned the Series F Securities ratings of "Baa2"
and "BBB," respectively, subject to final documentation. There is no assurance
that this credit rating will remain in effect for any given period of time or
that the rating will not be lowered, suspended or withdrawn entirely by the
applicable Rating Agency, if, in the Rating Agency's judgment, circumstances so
warrant. Any lowering, suspension or withdrawal of the rating may have a
material adverse effect on the market price or marketability of the Series F
Securities.
NATURE OF RECOURSE ON THE SECURITIES
The Funding Corporation's obligations to make payments of principal of,
premium, if any, and interest on the Securities are obligations solely of the
Funding Corporation secured solely by the Funding Corporation Collateral and
guaranteed by the Guarantors pursuant to the Guarantees. Neither the
shareholders of the Funding Corporation nor any affiliate, incorporator,
officer, director or employee thereof or of the Funding Corporation will
guarantee the payment of the Securities or has any obligation with respect to
the payment of the Securities (other than the Guarantors and with respect to
their obligations under the Transaction Documents to which they are parties).
SUMMARY DESCRIPTION OF PRINCIPAL FINANCING DOCUMENTS
The following summaries of certain provisions of the Depositary Agreement,
the Indenture, the Guarantees, the Credit Agreements and Project Notes, the
Debt Service Reserve LOC Reimbursement
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Agreement, the Security Documents, the Intercreditor Agreement and the Equity
Commitment Agreement (collectively, with the Securities, the Working Capital
Facility and any Interest Rate Protection Agreements, the "Financing
Documents") do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all of the provisions thereof, including
definitions therein of certain terms. Copies of each of the Financing Documents
have been or will be filed as exhibits to the registration statement of which
this prospectus is a part and may be obtained from the Commission. See "Where
You Can Find More Information" for information on how to obtain copies.
Capitalized terms used herein and not otherwise defined in this prospectus have
the meanings ascribed to them in the Financing Documents.
DEPOSITARY AGREEMENT
The Collateral Agent, on behalf of the Secured Parties, has, pursuant to
the Depositary Agreement, appointed the Depositary as security agent for the
Secured Parties with respect to funds of the Guarantors in which the Depositary
has been granted a security interest. Pursuant to the terms of the Depositary
Agreement, the Depositary will hold, invest and disburse monies in which the
Depositary and/or the Collateral Agent, on behalf of the Secured Parties and
the Funding Corporation, has been granted a security interest. Neither the
Funding Corporation nor any Guarantor has any right of withdrawal under any
Fund except under circumstances established in the Depositary Agreement.
THE DEPOSITARY AGREEMENT FUNDS
The following funds (collectively, "Funds") have been established and
created with the Depositary and pledged as security for the benefit of the
Depositary and the Collateral Agent acting on behalf of the Secured Parties and
the Funding Corporation:
o Revenue Fund
o Principal Fund
o Interest Fund
o Debt Service Reserve Fund
o Distribution Fund
o Distribution Suspense Fund
o Redemption Fund
o Loss Proceeds Fund
o Construction Period Debt Service Fund
o Zinc Construction Fund
o Salton Sea Unit V Construction Fund
o Region 2 Construction Fund
o Capital Expenditure Fund
All amounts deposited with the Depositary, at the written request and
direction of the Funding Corporation, will be invested by the Depositary in
Permitted Investments. The Principal Fund, Interest Fund, Distribution Fund and
Distribution Suspense Fund are not required to be separate accounts but may be
maintained as subaccounts of the Revenue Fund. To the extent the Debt Service
Reserve Fund is fully funded or the amounts in such Fund, together with the
Debt Service Reserve Letter of Credit, equal the Debt Service Reserve Fund
Required Balance, interest earned on the amounts in other Funds will be
transferred to the Revenue Fund.
REVENUE FUND; PRIORITY OF PAYMENTS
With the exception of revenues received by each New Project prior to
Substantial Completion of such New Project (which revenues will be deposited in
the construction fund for such New Project), all
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revenues actually received by the Salton Sea Guarantors from the Salton Sea
Projects, all revenues actually received by the Partnership Project Companies
from the Partnership Projects (net of any Royalties paid to the Royalty
Guarantor), all Equity Cash Flows and Royalties of the Partnership Guarantors
other than the Partnership Project Companies, and all Royalties received by the
Royalty Guarantor will be paid into the Revenue Fund maintained by the
Depositary for the account of each of the Guarantors. The Guarantors will
arrange for the direct payment of all such revenues into the Revenue Fund, and
no Guarantor will have any right of withdrawal under the Revenue Fund except
pursuant to the priority of payments set forth below. All Equity Cash Flows and
Royalties of the Partnership Guarantors and Royalties received by the Royalty
Guarantor which are to be paid into the Revenue Fund are made from revenues
that will constitute Partnership Collateral. See "Offering Circular Summary--
Structure of and Collateral for the Securities."
The Revenue Fund is funded:
(1) from all revenues actually received by the Salton Sea Guarantors
from the Salton Sea Projects;
(2) from all revenues actually received by the Partnership Project
Companies from the Partnership Projects;
(3) from all Equity Cash Flows and Royalties received by CEOC and VPC;
(4) to the extent not included in clause (3), all Equity Cash Flows
and Royalties received by CEOC under the Magma Services Agreement and by
VPC from the Vulcan Project;
(5) from all Royalties received by the Royalty Guarantor;
(6) to the extent the Debt Service Reserve Fund is fully funded or the
amounts in such Fund, together with the Debt Service Reserve Letter of
Credit, equal the Debt Service Reserve Fund Required Balance, any income
from the investment of monies in any of the Funds, except income from
investments in each construction fund required to be maintained in such
fund; and
(7) from other Funds as required to be transferred to the Revenue Fund
pursuant to the Depositary Agreement.
Upon receipt of a certificate from the relevant Guarantor (or its duly
authorized agent for such purposes) detailing the amounts to be paid, funds in
the Revenue Fund will be transferred via wire transfer by the Depositary:
First, as and when required, to pay Operating and Maintenance Costs
(including Working Capital Debt and Debt incurred in connection with Interest
Rate Protection Agreements) of all of the Guarantors and the Funding
Corporation, provided that, if the cumulative Operating and Maintenance Costs
of the Guarantors in any fiscal year exceed the projected Operating and
Maintenance Costs in the applicable annual Operating Budget of the Guarantors
by more than 25%, then no amounts may be withdrawn on behalf of the Guarantors
to pay non-budgeted operating costs unless (a) the Guarantors certify that (1)
such additional non-budgeted costs are reasonably designed to permit the
Guarantors to satisfy their obligations in respect of the Project Notes and
maximize their revenue and net income and (2) it is reasonable to expect that
(A) a Debt Service Coverage Ratio of at least 1.4 to 1 will be maintained for
the next 12-month period if such period ends prior to 2000 or (B) a Debt
Service Coverage Ratio of at least 1.5 to 1 will be maintained for the next
12-month period if such period ends after January 1, 2000 or (b) the
Independent Engineer certifies that the additional cost is prudent and
reasonable;
Second, on a monthly basis, to the Depositary, the Trustee, the Debt
Service Reserve LOC Provider agent, the Working Capital Facility agent and the
Collateral Agent any amounts then due and payable to each of them as fees,
costs and expenses; provided, however, that if monies in the Revenue Fund are
insufficient on any date to make the payments specified in this paragraph
Second, distribution of monies will be made ratably to the specified recipients
based on the respective amounts owed to such recipients;
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Third, on a monthly basis,
(1) to the Interest Fund an amount which, together with the amount
then in such fund (and after giving effect to the moneys available from the
Construction Period Debt Service Fund to pay such interest), equals all of
the interest due or becoming due on the Securities and (without
duplication) the Project Notes on the next succeeding Interest Payment
Date;
(2) to the Principal Fund an amount which, together with the amount
then in such fund, equals all of the principal and, premium (if any) due or
becoming due on the Securities and (without duplication) the Project Notes
on the next succeeding Principal Payment Date;
(3) to the Debt Service Reserve LOC Provider an amount which equals
all of the commitment, letter of credit and fronting fees becoming due and
payable under the Debt Service Reserve LOC Reimbursement Agreement on the
next succeeding Payment Date;
(4) to a Debt Service Reserve sub-fund an amount which, together with
the amounts then in such sub-fund, equals all of the interest due or
becoming due on any Debt Service Reserve LOC Loans on the next succeeding
Interest Payment Date; and
(5) to a Debt Service Reserve sub-fund an amount which, together with
the amounts then in such sub-fund, equals all of the principal, premium (if
any) and interest due or becoming due under any Debt Service Reserve Bond
on the next succeeding Principal Payment Date;
provided, however, that if monies in the Revenue Fund are insufficient on any
date to make the payments specified in this paragraph Third, distribution of
monies will be made ratably to the specified recipients based on the respective
amounts owed to such recipients;
Fourth, on a monthly basis,
(1) to a Debt Service Reserve sub-fund an amount which, together with
the amount then in such sub-fund, equals all of the principal and certain
fees and charges related to tax gross-ups, capital adequacy costs and
certain breakage costs, in each case due or becoming due on the next
Principal Payment Date on any Debt Service Reserve LOC Loans, and
(2) if no Debt Service Reserve Letter of Credit is in place, to the
Debt Service Reserve Fund an amount as necessary to fund the Debt Service
Reserve Fund up to the Debt Service Reserve Fund Required Balance; and
Fifth, as and when required, (1) to the Debt Service Reserve LOC Provider,
or any other financial institution providing a Debt Service Reserve LOC Loan,
certain other breakage costs which are due and payable in connection with Debt
Service Reserve LOC Loans and (2) any indemnification expenses or other amounts
not otherwise paid and required to be paid to any of the Secured Parties;
Sixth, on a monthly basis, any remaining amounts to the Distribution Fund;
and
Seventh, any amounts in the Distribution Fund which cannot be distributed
because of the failure to satisfy the distribution conditions, to the
Distribution Suspense Fund.
However, if the Securities are accelerated and no foreclosure occurs
within 180 days after the acceleration, then principal of the Debt Service
Reserve LOC Loans will be paid equally and ratably in priority Third in lieu of
priority Fourth above until such time as the foreclosure has occurred or the
acceleration has been rescinded or otherwise remedied.
Notwithstanding the foregoing provisions of priority Fourth above, if the
Debt Service Reserve Letter of Credit has not been renewed or reinstated by a
date 3.5 years prior to its stated expiration date, monies withdrawn and
transferred as specified in priority Fourth above for application in priority
Fourth will, during such 3.5 year period and until either (1) the outstanding
amount of the Debt Service Reserve Letter of Credit is reduced to zero and no
Debt Service Reserve LOC Loans are outstanding or (2) a replacement Debt
Service Reserve Letter of Credit issued by a Debt Service Reserve LOC Provider
is provided to the Trustee, be distributed ratably as follows: (a) to the Debt
Service Reserve LOC Loan
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principal sub-fund for application against the principal on any Debt Service
Reserve LOC Loans due or becoming due on the next succeeding Principal Payment
Date, and (b) to the Debt Service Reserve Fund until the amount deposited
therein equals the Debt Service Reserve Fund Required Balance.
PRINCIPAL FUND AND INTEREST FUND
Funds in the Interest Fund and the Principal Fund are utilized to make
interest and principal payments on the Project Notes and the Securities.
DEBT SERVICE RESERVE FUND
A Debt Service Reserve Fund for the benefit of the Security Holders has
been established under the Depositary Agreement and was funded on the closing
date for the Old Securities with a letter of credit (the "Debt Service Reserve
Letter of Credit") in an amount of approximately $68,297,134 issued by Credit
Suisse First Boston, New York Branch. The Debt Service Reserve Letter of Credit
was issued pursuant to a Debt Service Reserve LOC Reimbursement Agreement which
has terms substantially as described below. See "--Debt Service Reserve LOC
Reimbursement Agreement."
The Debt Service Reserve Fund may accumulate cash deposits from:
(1) the Revenue Fund, as provided above in priority Fourth under
"Revenue Fund; Priority of Payments"; and
(2) net interest earned on amounts deposited in the Debt Service
Reserve Fund.
The sum of amounts available to be drawn under the Debt Service Reserve Letter
of Credit and all cash and other Permitted Investments held in the Debt Service
Reserve Fund will, from time to time, be equal to (1) at any given time on or
prior to December 31, 1999, an amount equal to the maximum semiannual scheduled
payment of principal, premium (if any) and interest due on the outstanding
Securities; (2) at any given time subsequent to December 31, 1999 through
payment in full of the Initial Securities and the Supplemental Securities, an
amount equal to the maximum annual scheduled payment of principal, premium (if
any) and interest due on the outstanding Securities; and (3) after payment in
full of the Initial Securities and the Supplemental Securities, (a) the maximum
annual scheduled payment of principal, premium (if any) and interest due on the
outstanding Series F Securities or (b) if the Rating Agencies confirm that no
Rating Downgrade will occur as a result thereof, the maximum semiannual
scheduled payment of principal, premium (if any) and interest due on the
outstanding Series F Securities, in each case as set forth in the Depositary
Agreement (the "Debt Service Reserve Fund Required Balance"). Cash deposits in
the Debt Service Reserve Fund, in conjunction with the Debt Service Reserve
Letter of Credit, will be available in the event the Revenue Fund, the
Principal Fund and the Interest Fund lack sufficient funds on a Payment Date to
meet principal and interest payments on the Securities and interest payments on
Debt Service Reserve LOC Loans. Once the Debt Service Reserve Fund Required
Balance is reached, interest income in excess of the required balance will be
transferred to the Revenue Fund.
DISTRIBUTION FUND
The Distribution Fund is funded from monies transferred from the Revenue
Fund, as specified in the Depositary Agreement, after all other then required
amounts have been paid as provided above under "--Revenue Fund; Priority of
Payments." Distributions may be made only from and to the extent of monies on
deposit in the Distribution Fund. Distributions are subject to the prior
satisfaction of the following conditions:
(1) the amounts contained in the Principal Fund and the Interest Fund
are equal to or greater than the aggregate principal payments and interest
payments, respectively, next due on the Securities and (without
duplication) the Project Notes;
(2) no Default or Event of Default has occurred and is continuing;
(3) the Debt Service Coverage Ratio for the preceding four fiscal
quarters, taken as one accounting period (with respect to any proposed
distribution date prior to the first anniversary of the
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closing date for the Series F Securities, for the period commencing
with the closing date and ending on the first anniversary of the closing
date, projected results for any portion of such period (certified by an
officer of the Funding Corporation) will be used when actual results are
not available), is equal to or greater than 1.4 to 1, if such distribution
date occurs prior to the year 2000, and is equal to or greater than 1.5 to
1, if such distribution date occurs in or subsequent to the year 2000, in
each case as certified by an authorized officer of the Funding Corporation;
(4) the projected Debt Service Coverage Ratio for the succeeding four
fiscal quarters, taken as one accounting period, is equal to or greater
than 1.4 to 1, if such distribution date occurs prior to the year 2000, and
is equal to or greater than 1.5 to 1, if such distribution date occurs in
or subsequent to the year 2000, in each case as certified by an authorized
officer of the Funding Corporation;
(5) the Debt Service Reserve Fund has a balance equal to or greater
than the Debt Service Reserve Fund Required Balance or one or more Debt
Service Reserve Letters of Credit at least equal to (collectively with the
balance, if any, then in such Debt Service Reserve Fund) the Debt Service
Reserve Fund Required Balance is outstanding;
(6) an authorized officer of the Funding Corporation provides a
certificate (based on customary assumptions) stating that there are
sufficient geothermal resources to operate the Power Projects at contract
capacity, and to operate the Zinc Recovery Project at a level not
materially lower than the level contemplated in the Base Case Projections
(as adjusted upon achievement of Substantial Completion, if applicable), in
each case through the final maturity date of the Securities; and
(7) Substantial Completion of each New Project has occurred on or
prior to the New Project's Guaranteed Substantial Completion Date unless
(a) for any New Project not reaching Substantial Completion by such date,
the required amount of Series F Securities has been redeemed as a result of
the New Project not reaching Substantial Completion or (b) the Rating
Agencies have confirmed that no Rating Downgrade will occur notwithstanding
the failure of the New Project to reach Substantial Completion on or prior
to its Guaranteed Substantial Completion Date. The foregoing condition is
applicable with respect to a New Project only (x) after the New Project's
Guaranteed Substantial Completion Date or (y) if the construction of the
New Project has been abandoned, in each case unless and until the New
Project has achieved Substantial Completion.
Monies which are not able to be distributed from the Distribution Fund
because of a failure to satisfy the conditions will be transferred to the
Distribution Suspense Fund. However, monies which are not able to be
distributed from the Distribution Fund because of a failure to satisfy the
condition described in clause (7) above may at the election of the Funding
Corporation be transferred to the Zinc Construction Fund, the Salton Sea Unit V
Construction Fund or the Region 2 Construction Fund, as applicable, up to an
amount necessary to complete the applicable New Project.
DISTRIBUTION SUSPENSE FUND
Funds in the Distribution Fund which may not be distributed because of a
failure to satisfy the distribution conditions will be transferred to the
Distribution Suspense Fund. Funds in the Distribution Suspense Fund may be
transferred back to the Distribution Fund and distributed when (1) all
conditions are satisfied and (2) no Default or Event of Default has occurred
and is continuing. At any time that funds in the Revenue Fund are not
sufficient to pay any amounts which are due and payable and required to be paid
with proceeds of the Revenue Fund, then funds in the Distribution Suspense Fund
will be transferred to the Revenue Fund for distribution as required.
REDEMPTION FUND
A Redemption Fund has been established under the Depositary Agreement. The
Redemption Fund is funded from:
(1) proceeds received in connection with an Event of Loss, an Event of
Eminent Domain or a Title Event;
(2) proceeds realized in connection with a Permitted Power Contract
Buy-Out;
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(3) performance liquidated damages in excess of $6,000,000 not used to
complete the construction of a New Project in accordance with an Approved
Completion Plan; and
(4) proceeds in excess of $5,000,000 received as a result of
foreclosure by the Collateral Agent of the Collateral securing the
obligations of the Guarantors following a Trigger Event caused by an event
of default under the Guarantees.
All proceeds received in connection with an Event of Loss or a Title Event
will be deposited in the Loss Proceeds Fund and proceeds in excess of
$15,000,000 will be transferred to the Redemption Fund if not used to repair or
replace the affected project or remediate the title deficiency, as permitted
under the Indenture, and will be distributed to the Collateral Agent for
distribution after giving effect to the applicable provisions of the Indenture,
the Intercreditor Agreement and the Depositary Agreement. See "--Intercreditor
Agreement" and "Summary Description of the Series F Securities--Mandatory
Redemption."
LOSS PROCEEDS FUND
All Loss Proceeds and Eminent Domain Proceeds received by the Salton Sea
Guarantors or the Partnership Guarantors will be deposited in the Loss Proceeds
Fund subject to disbursement for repair or replacement of the assets affected,
or otherwise, as follows.
Upon the Depositary's receipt of a proper requisition from the relevant
Salton Sea Guarantor or Partnership Guarantor and approved by the Independent
Engineer, the Depositary will apply the amounts in the Loss Proceeds Fund to
the payment, or reimbursement to the extent the same have been paid or
satisfied by such Salton Sea Guarantor or Partnership Guarantor, of the costs
of repair or replacement of the relevant Salton Sea Project or Partnership
Project or any part thereof that has been affected due to an Event of Loss or
Event of Eminent Domain; provided, however, that no approval of the Independent
Engineer will be required if less than $30,000,000 in the aggregate for all
plants affected by such occurrence is requested pursuant to such requisition or
requisitions in any fiscal year.
If the Salton Sea Guarantors or the Partnership Guarantors, as applicable,
determine that the affected Salton Sea Project or Partnership Project is not
capable of being rebuilt or replaced to permit operation on a commercially
reasonable basis, or determine not to rebuild, repair or restore the affected
Project (or the Loss Proceeds and Eminent Domain Proceeds, together with any
other amounts available to such Guarantors for such rebuilding or replacement,
are not sufficient to permit such rebuilding or replacement), and the Loss
Proceeds and Eminent Domain Proceeds exceed $15,000,000, the Depositary will
transfer the Loss Proceeds and Eminent Domain Proceeds to the Collateral Agent
for distribution to the Redemption Fund in accordance with the Indenture, the
Depositary Agreement and the Intercreditor Agreement. If only a portion of the
affected Project is capable of being rebuilt or replaced, the Depositary will
transfer the Loss Proceeds and Eminent Domain Proceeds in excess of the cost of
repairing or replacing the affected Project to the Redemption Fund in
accordance with the Indenture, the Depositary Agreement and the Intercreditor
Agreement; provided that such Loss Proceeds and Eminent Domain Proceeds exceed
the cost of such repair and replacement by $15,000,000. If the Salton Sea
Guarantors or the Partnership Guarantors, as applicable, do not rebuild or
replace the affected Project and the Loss Proceeds and Eminent Domain Proceeds
are equal to or are less than $15,000,000 or the excess Loss Proceeds and
Eminent Domain Proceeds after rebuilding and replacement of the affected
Project are equal to or are less than $15,000,000, funds in the Loss Proceeds
Fund will be transferred to the Revenue Fund for distribution to other Funds,
as provided below under "Revenue Fund; Priority of Payments." See
"--Intercreditor Agreement" and "Summary Description of the Series F
Securities--Mandatory Redemption."
All Title Event Proceeds received by the Salton Sea Guarantors or the
Partnership Guarantors, as applicable, will be deposited in the Loss Proceeds
Fund subject to disbursement in connection with remedying the Title Event in an
amount not to exceed $25,000,000 and for payment of expenses incurred in
collecting such proceeds. Any Title Event Proceeds not so expended will be
transferred to the
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Redemption Fund, to the extent such proceeds exceed $5,000,000. If such
proceeds are equal to or are less than $5,000,000, then such proceeds will be
transferred to the Revenue Fund and used for payment of interest on the
Securities in amounts equal to the scheduled interest payable on the Series F
Securities.
All net performance liquidated damages received by the Salton Sea
Guarantors or the Partnership Project Companies pursuant to the construction
contracts for the New Projects will be deposited into the Loss Proceeds Fund.
Such damage payments will be available for transfer to the applicable
construction fund to complete the construction of any New Project for which
such damage payments were received in accordance with an Approved Completion
Plan. If an Approved Completion Plan has not been approved within a specified
period of time and the liquidated damages payments received in respect of any
one or more New Projects (1) exceed $6,000,000, such damage payments will be
transferred to the Redemption Fund, or (2) are less than or equal to
$6,000,000, such damage payments will be transferred to the Revenue Fund. See
"--Redemption Fund" and "--Revenue Fund; Priority of Payments."
CONSTRUCTION PERIOD DEBT SERVICE FUND
On the closing date for the Old Securities, the Construction Period Debt
Service Fund was funded with approximately $23,575,000 from the proceeds of the
Old Securities. After all of such proceeds have been utilized, the Guarantors
will deposit up to a maximum of $12,963,000 into the Construction Period Debt
Service Fund from (1) funds available to the Guarantors as distributions in
accordance with the conditions described above under "--Distribution Fund" or
(2) funds available pursuant to the Equity Commitment Agreement, in each case
in installments from time to time to pay scheduled debt service on the
Securities. Amounts on deposit in the Construction Period Debt Service Fund
will be available solely for the payment of scheduled debt service on the
Securities in amounts equal to the scheduled debt service on the Old
Securities.
ZINC CONSTRUCTION FUND
On the closing date for the Old Securities the Zinc Construction Fund was
funded with approximately $126,317,000 from the proceeds of the Old Securities.
After all of such proceeds have been utilized, MidAmerican will deposit up to a
maximum of $54,013,000 into the Zinc Construction Fund pursuant to the Equity
Commitment Agreement in installments from time to time as necessary to complete
the construction of the Zinc Recovery Project. All revenues received by
Minerals LLC from the Zinc Recovery Project prior to its Substantial Completion
will be deposited into the Zinc Construction Fund. Until completion of the
construction of the Zinc Recovery Project, amounts on deposit in the Zinc
Construction Fund will be available solely for the payment of costs associated
with the construction and operation of the Zinc Recovery Project (collectively,
"Zinc Construction Costs"). Withdrawals from the Zinc Construction Fund will be
permitted only upon receipt by the Depositary of:
(1) a requisition certificate from Minerals LLC which (a) specifies
the Zinc Construction Costs then incurred or reasonably expected to be
incurred within the next 30 days, (b) certifies that no Default or Event of
Default has occurred and is continuing, and (c) confirms that the
activities associated with the construction of the Zinc Recovery Project
are proceeding in accordance with the construction budget and schedule for
the Zinc Recovery Project; and
(2) a certificate from the Independent Engineer (with customary
assumptions and qualifications) including, among other things, (a) a
confirmation that the Independent Engineer concurs with the statements
described in clauses (1)(a) and (1)(c) immediately above, (b) the monies
remaining on deposit after such withdrawal, together with the amounts
allocated to the Zinc Recovery Project under the Equity Commitment
Agreement or otherwise available to the Zinc Recovery Project, are
sufficient for the Zinc Recovery Project to achieve Substantial Completion
on or prior to its Guaranteed Substantial Completion Date and (c)
construction of the Zinc Recovery Project is proceeding in a satisfactory
manner in accordance with the construction contract therefor or pursuant to
an Approved Completion Plan, if applicable.
Upon completion of the construction of the Zinc Recovery Project, all amounts
on deposit in the Zinc Construction Fund will be transferred to the Revenue
Fund, the Salton Sea Unit V Construction Fund and/or the Region 2 Construction
Fund, as determined by the Funding Corporation.
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SALTON SEA UNIT V CONSTRUCTION FUND
On the closing date for the Old Securities the Salton Sea Unit V
Construction Fund was funded with approximately $74,854,000 from the proceeds
of the Old Securities. After all of such proceeds have been utilized,
MidAmerican and El Paso Holding will deposit up to a maximum of $32,009,000
into the Salton Sea Unit V Construction Fund pursuant to the Equity Commitment
Agreement in installments from time to time as necessary to complete the
construction of Salton Sea Unit V. All revenues received by Power LLC from
Salton Sea Unit V prior to its Substantial Completion will be deposited into
the Salton Sea Unit V Construction Fund. Until completion of Salton Sea Unit V,
amounts on deposit in the Salton Sea Unit V Construction Fund will be available
solely for the payment of costs associated with the construction or operation
of Salton Sea Unit V (collectively, "Salton Sea Unit V Construction Costs").
Withdrawals from the Salton Sea Unit V Construction Fund will be permitted only
upon receipt by the Depositary of:
(1) a requisition certificate from Power LLC which, among other
things, (a) specifies the Salton Sea Unit V Construction Costs then
incurred or reasonably expected to be incurred within the next 30 days, (b)
certifies that no Default or Event of Default has occurred and is
continuing and (c) confirms that the activities associated with the
construction of Salton Sea Unit V are proceeding in accordance with the
approved construction budget and schedule for Salton Sea Unit V; and
(2) a certificate from the Independent Engineer (with customary
assumptions and qualifications) including, among other things, (a) a
confirmation that the Independent Engineer concurs with the statements
described in clauses (1)(a) and (1)(c) immediately above, (b) a statement
that the monies remaining on deposit after such withdrawal, together with
the amounts allocated to Salton Sea Unit V under the Equity Commitment
Agreement or otherwise available to Salton Sea Unit V, are sufficient for
Salton Sea Unit V to achieve Substantial Completion on or prior to its
Guaranteed Substantial Completion Date (as such date may be modified
pursuant to an Approved Completion Plan, if applicable), and (c) a
statement that construction of Salton Sea Unit V is proceeding in a
satisfactory manner in accordance with the construction contract therefor
or pursuant to an Approved Completion Plan, if applicable.
Upon completion of the construction of Salton Sea Unit V, all amounts on
deposit in the Salton Sea Unit V Construction Fund will be transferred to the
Revenue Account, the Zinc Construction Fund and/or the Region 2 Construction
Fund, as determined by the Funding Corporation.
REGION 2 CONSTRUCTION FUND
On the closing date for the Old Securities the Region 2 Construction Fund
was funded with approximately $40,076,000 from the proceeds of the Old
Securities. After all of such proceeds have been utilized, MidAmerican and El
Paso Holding will deposit up to a maximum of $17,137,000 into the Region 2
Construction Fund pursuant to the Equity Commitment Agreement in installments
from time to time as necessary to complete the construction of the Region 2
Construction. All revenues received by Turbo LLC prior to Substantial
Completion of the Region 2 Construction will be deposited into the Region 2
Construction Fund. Until completion of the construction of the Turbo Project,
amounts on deposit in the Region 2 Construction Fund will be available solely
for the payment of costs associated with the Region 2 Construction or operation
of the CE Turbo Project (collectively, "Region 2 Construction Costs").
Withdrawals from the Region 2 Construction Fund will be permitted only upon
receipt by the Depositary of a requisition certificate from Vulcan, Del Ranch
or Turbo LLC which (1) specifies the Region 2 Construction Costs then incurred
or reasonably expected to be incurred within the next 30 days, (2) certifies
that no Default or Event of Default has occurred and is continuing and (3)
confirms that the activities associated with the construction of the Region 2
Construction are proceeding in accordance with the approved construction budget
and schedule for the Region 2 Construction. Upon completion of the construction
of the Region 2 Construction, all amounts on deposit in the Region 2
Construction Fund will be transferred to the Revenue Fund, the Zinc
Construction Fund and/or the Salton Sea Unit V Construction Fund, as determined
by the Funding Corporation.
CAPITAL EXPENDITURE FUND
The Capital Expenditure Fund was funded with approximately $14,946,000 of
the net proceeds from the sale of the Old Securities. After all of such
proceeds have been utilized, MidAmerican and El Paso
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Holding will deposit up to a maximum of $6,391,000 into the Capital Expenditure
Fund pursuant to the Equity Commitment Agreement in installments from time to
time as necessary to complete the Additional Capital Improvements.
Upon the Depositary's receipt of a proper requisition from the relevant
Partnership Guarantor or Salton Sea Guarantor, the Depositary will apply the
amounts in the Capital Expenditure Fund to the payment, or reimbursement to the
extent the same have been paid or satisfied by such Partnership Guarantor or
Salton Sea Guarantor, of costs incurred or reasonably expected to be incurred
during the subsequent 30 days, in connection with the modification,
improvement, reworking, maintenance and replacement from time to time of wells,
pipelines, gathering systems, equipment, facilities and other capital
expenditures in connection with or located at the Partnership Projects or the
Salton Sea Projects (collectively, the "Permitted Capital Expenditures"). Each
requisition certificate submitted by such an authorized officer must include
the following:
(1) a statement specifying the costs that have been incurred or that
are reasonably expected to be incurred within the next 30 days;
(2) a confirmation that no Default or Event of Default has occurred
and is continuing; and
(3) a confirmation that the expenditures are Permitted Capital
Expenditures and are in accordance with the then current capital
expenditure budget.
Funds in the Capital Expenditure Fund must be used for Permitted Capital
Expenditures and, until all Securities are paid in full, cannot be transferred
to the Revenue Fund for distribution to other Funds.
INVESTMENT OF MONIES
Amounts deposited in the accounts and funds under the Depositary
Agreement, at the written request and direction of the Funding Corporation or
any Guarantor, will be invested by the Depositary in Permitted Investments.
Such investments will generally mature in such amounts and not later than such
times as may be necessary to provide monies when needed to make payments from
such monies as provided in the Depositary Agreement. Net interest or gain
received from such investments will be applied as provided in the Depositary
Agreement. Absent written instructions from the Funding Corporation, the
Depositary will invest the amounts held in the accounts and funds under the
Depositary Agreement in Permitted Investments described in clause (1) of such
definition. So long as an outstanding balance remains in any of the accounts
and funds under the Depositary Agreement, the Depositary will provide the
Funding Corporation and the Guarantors with monthly statements showing the
amount of all receipts, the net investment income or gain received and
collected, all disbursements and the amount then available in each account and
fund.
INDENTURE
GENERAL
The New Securities and Additional Securities, if any, will be, and the
Initial Securities, the Supplemental Securities and the Old Securities have
been, issued under the Indenture between the Funding Corporation and the
Trustee. The Funding Corporation has issued and will issue the Securities in
its individual capacity as principal and as agent on behalf of the Guarantors.
The Securities have been and will be issued in series pursuant to one or more
supplemental indentures which will set forth the terms of such series including
(1) the title of such series, (2) any limit on the aggregate principal amount
of such series that may be authenticated and delivered under the Indenture, (3)
the dates on which the principal of the Securities of such series is payable
and the amount of principal payable on such dates, (4) the interest rate on
such series and the dates interest will accrue and be payable, (5) the place
where payments under such series will be payable, (6) the terms of any
redemption provisions related to such series and (7) other terms of such
series.
ADDITIONAL SECURITIES
The Indenture provides that Additional Securities may be issued thereunder
subject to the satisfaction of conditions set forth in the Indenture. All
Additional Securities (as well as the Initial
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Securities and Supplemental Securities) will rank pari passu with the Series F
Securities, will be secured by the Funding Corporation Collateral and
guaranteed pursuant to the Guarantees and will have such terms, be in such form
and be issued at such prices as approved in writing by the Funding Corporation.
No Additional Securities (other than those used to finance capital improvements
when required for the Salton Sea Projects, the Partnership Projects or
Additional Projects to maintain compliance with applicable law) may be issued
at any time if a Default or an Event of Default would result from the issuance
of Additional Securities. All net proceeds of Additional Securities must be
loaned to the Guarantors and must be utilized by the Guarantors for one or more
of the purposes for which Permitted Debt may be incurred.
CERTAIN COVENANTS
Actions with Respect to Credit Agreements. The Funding Corporation will
enforce all of its rights under the Credit Agreements and the Project Notes for
the benefit of the Trustee and the Security Holders. The Funding Corporation
will not grant any consents or waivers under, amend or modify any provisions
of, or otherwise modify, the Credit Agreements or the Project Notes, except as
provided below. See "--Amendment of Credit Agreements and Project Notes."
Limitations on Debt/Liens. The Funding Corporation will not create or
incur or suffer to exist any Debt except for Permitted Debt. The Funding
Corporation will not grant, create, incur or suffer to exist any Liens upon any
of its properties except for Permitted Liens.
Limitations on Guarantees. The Funding Corporation will not contingently
or otherwise be or become liable in connection with any guarantee, except for
endorsements and similar obligations in the ordinary course of business.
Restricted Payments. The Funding Corporation will not make any Restricted
Payments or direct any Restricted Payments to be made on behalf of any
Guarantor except for payments permitted under the Depositary Agreement.
Prohibitions on Other Obligations or Assignments. The Funding Corporation
may not assign any of its rights or obligations under any Financing Document,
and may not enter into additional contracts if it would be reasonably expected
to cause a Material Adverse Effect and otherwise only as contemplated by the
Indenture.
Prohibitions on Fundamental Changes. The Funding Corporation may not enter
into any transaction of merger or consolidation, change its form of
organization or its business, liquidate, wind-up or dissolve itself or
discontinue its business, except as may be contemplated by the Financing
Documents. The Funding Corporation is also restricted from engaging in any
business other than in connection with the issuance of the Securities, the
incurrence of Permitted Debt and the performance of its obligations under the
Transaction Documents. The Funding Corporation may not lease (as lessor) or
sell, transfer, assign, hypothecate, pledge or otherwise dispose of any of its
property or assets, except as contemplated by the Financing Documents.
ADDITIONAL COVENANTS
In addition to the covenants described above, the Indenture also contains
covenants of the Funding Corporation regarding:
(1) maintenance of existence;
(2) payment of taxes;
(3) maintenance of books and records;
(4) compliance with laws;
(5) delivery to the Trustee and the Rating Agencies of compliance
certificates and of notices of events of default under the Credit
Agreements and Guarantees;
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(6) delivery to the Trustee, the Rating Agencies and any Security
Holder or beneficial owner of a Global Security upon written request of
unaudited quarterly reports of the Funding Corporation and the Guarantors
for the first three quarters of each fiscal year containing condensed
financial information and audited annual reports of the Funding Corporation
and the Guarantors; and
(7) delivery to the Trustee and any Security Holder or beneficial
owner of a Global Security upon written request of all other information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities
Act in order to permit compliance by a Security Holder or beneficial owner
of a Global Security with Rule 144A in connection with the resale of the
Securities.
REDEMPTION OF SECURITIES; NOTICE
Notice to Trustee. The election or requirement of the Funding Corporation
to redeem any Securities will be evidenced by a written request of the Funding
Corporation (a "Funding Order"). If the Funding Corporation determines or is
required to redeem any Securities, the Funding Corporation will, at least 30
days prior to the date upon which notice of redemption is required to be given
to the Security Holders (or such shorter period as may be agreed by the
Trustee), deliver to the Trustee a Funding Order specifying the date on which
the redemption will occur (the "Redemption Date") and the series and principal
amount of Securities to be redeemed.
Notice of Redemption. Notice of redemption will be given to the holders of
Securities of the series to be redeemed at least 30 days but not more than 60
days prior to the Redemption Date. All notices of redemption will state the
Redemption Date, the premium payable on redemption, if any, the portion of the
principal amount of each Security of the series to be redeemed, that on the
Redemption Date interest on the Securities to be redeemed will cease to accrue
on and after said date, the place of payment where the Securities are to be
surrendered for payment of the redemption amount, and that the availability in
the mandatory redemption fund of an amount of immediately available funds to
pay the Securities to be redeemed in full is a condition precedent to the
redemption.
Securities Payable on Redemption Date. The Securities or portions thereof
to be redeemed will, on the Redemption Date, become due and payable, and from
and after the Redemption Date the Securities to be redeemed or portions thereof
will cease to bear interest. Upon surrender of any Security for redemption, an
amount in respect of such Security or portion thereof will be paid as provided
in the terms of the Security; provided, however, that any payment of interest
on any Security the scheduled payment date of which is on or prior to the
Redemption Date will be payable to the holder of the Security at the close of
business on the record date according to the terms of the Security and the
Indenture.
EVENTS OF DEFAULT
Certain Events. The following events constitute "Events of Default" under
the Indenture:
(a) Failure to pay any principal, interest or other amounts owed on any
Security when the same becomes due and payable, whether by scheduled maturity
or required prepayment or redemption or by acceleration or otherwise, and the
failure continues for 15 days or more following the due date for payment;
(b) An event of default under a Credit Agreement or a Guarantee has
occurred and is continuing (other than an event of default related to a failure
to make payments on a Project Note or a Guarantee);
(c) Any representation or warranty made by the Funding Corporation in the
Indenture or in any other Financing Document or any representation, warranty or
statement in any certificate, financial statement or other document furnished
to the Trustee or any other person by or on behalf of the Funding Corporation
proves to have been untrue or misleading in any material respect as of the time
made, confirmed or furnished and the fact, event or circumstance that gave rise
to such inaccuracy has resulted in, or could reasonably be expected to result
in, a Material Adverse Effect and the fact, event or circumstance continues
uncured for 30 or more days from the date a responsible officer of the Funding
Corporation obtains actual knowledge of the fact, event or circumstance;
provided that if the Funding Corporation commences and diligently pursues
efforts to cure the fact, event or circumstance within the
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30-day period and delivers written notice to the Trustee of the efforts to
cure, the Funding Corporation may continue to effect the cure, and the
misrepresentation will not be deemed an "Event of Default" for an additional 60
days so long as the Funding Corporation is diligently pursuing such cure;
(d) The Funding Corporation fails to perform or observe any covenant or
agreement contained in the Indenture regarding maintenance of existence or
restrictions on Debt, Liens, Restricted Payments, guarantees, disposition of
assets, amendments to Credit Agreements or Project Notes or taking of actions
thereunder as directed by the Required Security Holders, fundamental changes or
nature of business and the failure continues uncured for 30 or more days from
the date a responsible officer of the Funding Corporation obtains actual
knowledge of the failure;
(e) The Funding Corporation fails to perform or observe any of its
covenants contained in the Indenture (other than those contained in (d) above)
and the failure continues uncured for 60 or more days from the date a
responsible officer of the Funding Corporation obtains actual knowledge of the
failure; provided that if the Funding Corporation commences and diligently
pursues efforts to cure the default within the 60-day period, the Funding
Corporation may continue to effect the cure of the default and the default will
not be deemed an "Event of Default" for an additional 30 days so long as the
Funding Corporation is diligently pursuing the cure;
(f) Certain events involving the bankruptcy, insolvency, receivership or
reorganization of the Funding Corporation;
(g) The Funding Pledge Agreement ceases to be in full force and effect or
there is a Material Adverse Effect on the Lien purported to be granted in the
Funding Pledge Agreement such that it ceases to be a valid and perfected Lien
in favor of the Collateral Agent for the benefit of the Secured Parties on the
Funding Corporation Collateral described in the Funding Pledge Agreement with
the priority purported to be created by the Funding Pledge Agreement; provided,
however, that the Funding Corporation has 10 days to cure any such cessation,
if curable, or to furnish to the Collateral Agent with all documents or
instruments required to cure any such cessation, if curable;
(h) Any event of default under any Permitted Debt of the Funding
Corporation which results in Permitted Debt in excess of $10,000,000 becoming
due and payable prior to its stated maturity;
(i) Magma fails to perform or breaches its obligations under the Support
Letter and the failure or breach continues for 15 days or more;
(j) MidAmerican fails to perform or breaches its obligations under the
Equity Commitment Agreement and the failure or breach continues for 15 days or
more; or
(k) MidAmerican fails to maintain direct or indirect beneficial ownership
of (1) 100% of CEOC and VPC, (2) at least 50% of Minerals LLC, Power LLC and
Turbo LLC or (3) at least 50% of each of the Salton Sea Guarantors and the
Partnership Project Companies other than Minerals LLC, Power LLC and Turbo LLC.
Control By Security Holders. The holders of not less than a majority (the
"Required Security Holders") in aggregate principal amount of the outstanding
Securities have the right to direct the time, place and method of conducting
any proceeding for any right or remedy available to the Trustee or exercising
any trust or power conferred on the Trustee in the Indenture. The Required
Security Holders, acting through the Trustee, have the right to direct the
time, place and method for exercising any right or remedy available to the
Funding Corporation under the Credit Agreements and the Project Notes; provided
that upon the occurrence of an Event of Default related to failure to make
payments on the Securities, holders of 331/3% in aggregate principal amount of
the outstanding Securities have the right to cause the acceleration of any
Project Note pursuant to which a payment default related to the Event of
Default has occurred.
Subject to the immediately preceding paragraph, if an Event of Default has
occurred and is continuing and as a result of, in connection with, or pursuant
to an acceleration of the Securities arising from the Event of Default,
payments on the Securities are not made when due, the Trustee is required to
enforce the Guarantees and the rights of the Security Holders thereunder.
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Enforcement of Remedies
(a) If one or more Events of Default have occurred and are continuing,
then:
(1) in the case of an Event of Default described in clause (f) above,
the entire principal amount of the Securities outstanding, all accrued and
unpaid interest, and all premium and other amounts payable under the
Securities and the Indenture, if any, will automatically become due and
payable without presentment, demand, protest or notice of any kind; or
(2) in the case of an Event of Default described in clause (b) above
relating to certain events involving the bankruptcy, insolvency,
receivership or reorganization of any of the Guarantors, a principal amount
of the Securities outstanding (on a pro rata basis) which is equal to the
principal amount of the Project Notes automatically accelerated in
connection with such Event of Default under the Credit Agreements, all
accrued and unpaid interest, and all premium and other amounts payable
under the Securities and the Indenture, if any, will automatically become
due and payable without presentment, demand, protest or notice of any kind;
or
(3) in the case of an Event of Default described in:
(A) clause (a) above, upon the direction of the holders of no
less than 33 1/3% in aggregate principal amount of the outstanding
Securities, the Trustee will, by notice to the Funding Corporation,
declare the entire principal amount of the Securities outstanding, all
accrued and unpaid interest, and all premium and other amounts payable
under the Securities and the Indenture, if any, to be due and payable,
(B) clause (b) above (except as described in clause (2)
immediately above), upon the direction of the holders of no less than
50% in aggregate principal amount of the outstanding Securities, the
Trustee will, by notice to the Funding Corporation, declare a
principal amount of the Securities outstanding which is equal to the
principal amount of the Project Notes related to the Credit Agreement
to be accelerated in connection with the event of default under the
Credit Agreement, all accrued and unpaid interest, and all premium and
other amounts payable under the Securities and the Indenture, if any,
to be due and payable, or
(C) clauses (c), (d), (e), (g), (h), (i), (j) or (k) above, upon
the direction of the holders of no less than 50% in aggregate
principal amount of the outstanding Securities, the Trustee will, by
notice to the Funding Corporation, declare the entire principal amount
of the Securities outstanding, all accrued and unpaid interest, and
all premium and other amounts payable under the Securities and the
Indenture, if any, to be due and payable.
If an Event of Default occurs and is continuing and is known to the
Trustee, the Trustee will mail to each Security Holder notice of the Event of
Default within 30 days after its occurrence. Except in the case of an Event of
Default in the payment of principal of or interest on any Security, the Trustee
may withhold the notice to the Security Holders if the Trustee in good faith
determines that withholding the notice is in the interest of the Security
Holders.
If an Event of Default relating to failure to pay amounts owed on the
Securities has occurred and is continuing, the Trustee may declare the
principal amount of the Securities outstanding, all accrued and unpaid
interest, and all premium and other amounts payable under the Securities and
the Indenture, if any, to be due and payable notwithstanding the absence of
direction from holders of at least 33 1/3% in aggregate principal amount of the
Securities outstanding directing the Trustee to accelerate the maturity of the
Securities unless holders of more than 66 2/3% in aggregate principal amount of
the Securities outstanding direct the Trustee not to accelerate the maturity of
the Securities, if in the good faith exercise of its discretion the Trustee
determines that such action is necessary to protect the interests of the
Security Holders.
If an Event of Default relating to an event of default under a Credit
Agreement or a Guarantee (other than an event of default related to a failure
to make payments under a Project Note or a Guarantee) has occurred and is
continuing, the Trustee may declare the principal amount of the Securities
outstanding referred to in clause (3)(B) immediately above, all accrued and
unpaid interest, and all
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premium and other amounts payable under the Securities and the Indenture, if
any, to be due and payable notwithstanding the absence of direction from
holders of at least 50% in aggregate principal amount of the Securities
outstanding directing the Trustee to accelerate the maturity of such amount of
Securities unless holders of more than 50% in aggregate principal amount of the
Securities outstanding direct the Trustee not to accelerate the maturity of
such Securities, if in the good faith exercise of its discretion the Trustee
determines that such action is necessary to protect the interests of the
Security Holders.
In addition, if one or more of the Events of Default referred to in clause
(3)(C) immediately above has occurred and is continuing, the Trustee may
declare the entire principal amount of the Securities outstanding, all interest
accrued and unpaid thereon, and all premium and other amounts payable under the
Securities and the Indenture, if any, to be due and payable notwithstanding the
absence of direction from the holders of at least 50% in aggregate principal
amount of the Securities outstanding directing the Trustee to accelerate the
maturity of the Securities unless holders of more than 50% in aggregate
principal amount of the Securities outstanding direct the Trustee not to
accelerate the maturity of the Securities if in the good faith exercise of its
discretion the Trustee determines that such action is necessary to protect the
interests of the Security Holders.
(b) At any time after the principal of the Securities has become due and
payable upon a declared acceleration, and before any judgment or decree for the
payment of the money so due, or any portion thereof, has been entered, the
holders of not less than a majority in aggregate principal amount of the
outstanding Securities, by written notice to the Funding Corporation and the
Trustee, may rescind and annul such declaration and its consequences if:
(1) there has been paid to or deposited with the Trustee a sum
sufficient to pay:
(A) all overdue interest on the Securities,
(B) the principal of and premium, if any, on any Securities that
have become due (including overdue principal) other than by the
declaration of acceleration and interest thereon at the respective
rates provided in the Securities for overdue principal,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the respective rates provided in the
Securities for overdue interest, and
(D) all sums paid or advanced by the Trustee and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, and
(2) all Events of Default, other than the nonpayment of the principal
of the Securities that has become due solely by the acceleration, have been
cured or waived in accordance with the Indenture.
(c) If an Event of Default relating to failure to pay amounts owed on the
Securities has occurred and is continuing and an acceleration has occurred, the
Trustee may (as the holders of 33 1/3% in aggregate principal amount of the
Securities outstanding request) direct the Collateral Agent to take possession
of all Collateral pledged to secure the Project Notes to be accelerated in
connection with the Event of Default and all Collateral pledged to secure any
Guarantee under which a payment default has occurred in connection with the
failure to pay amounts owed on the Securities and, pursuant to the
Intercreditor Agreement, to sell pursuant to the procedures contained in the
Intercreditor Agreement such Collateral as and to the extent permitted under
the Intercreditor Agreement.
(d) If an Event of Default relating to an event of default under a Credit
Agreement or a Guarantee (other than an event of default related to a failure
to make payments on a Project Note or a Guarantee) has occurred and is
continuing and an acceleration has occurred, the Trustee may (as the holders of
50% in aggregate principal amount of the Securities outstanding request) direct
the Collateral Agent to take possession of all Collateral pledged to secure the
Project Note or Project Notes to be accelerated in connection with the Event of
Default and all Collateral pledged to secure any Guarantee pursuant to which
the Event of Default has occurred and, pursuant to the Intercreditor Agreement,
to sell pursuant to the procedures contained in the Intercreditor Agreement
such Collateral as and to the extent permitted under the Intercreditor
Agreement.
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(e) If an Event of Default other than those referred to in clauses (c) and
(d) above has occurred and is continuing and an acceleration has occurred, the
Trustee may (as the holders of 50% in aggregate principal amount of the
Securities outstanding request) direct the Collateral Agent to take possession
of all Collateral and Funding Corporation Collateral and, pursuant to the
Intercreditor Agreement, to sell pursuant to the procedures contained in the
Intercreditor Agreement the Collateral and Funding Corporation Collateral as
and to the extent permitted under the Intercreditor Agreement.
(f) If one or more events of default shall have occurred and be continuing
under the Royalty Guarantee or the Partnership Guarantee, the Trustee may (as
the holders of a majority in aggregate principal amount of the Securities
outstanding request) direct the Collateral Agent to take possession of all
Collateral pledged to secure the obligations of the defaulting Guarantor under
the Royalty Guarantee or the Partnership Guarantee in connection with the Event
of Default and, pursuant to the Intercreditor Agreement, to sell such
Collateral as and to the extent permitted under the Intercreditor Agreement.
Pursuant to the Intercreditor Agreement, all monies received by the Trustee
resulting from the sale will be made available for redemption of Securities.
Application of Monies Collected by Trustee. Any money collected or to be
applied by the Trustee after an Event of Default will be applied to amounts
owed with respect to all Securities on a pro rata basis and, in respect of
Securities of a series, will be applied ratably to the Security Holders in the
following order from time to time, on the date or dates fixed by the Trustee:
(1) first, to the payment of all amounts due to the Trustee or any
predecessor Trustee under the Indenture;
(2) second,
(A) in case the unpaid principal amount of the outstanding
Securities of such series has not become due, to the payment of any
overdue interest, in the order of the maturity of the payments
thereof, with interest at the rates specified in the respective
Securities of such series in respect of overdue interest,
(B) in case the unpaid principal amount of a portion of the
outstanding Securities of such series has become due, first to the
payment of accrued interest on all outstanding Securities of such
series in the order of the maturity of the payments thereof, with
interest at the respective rates specified in the Securities of such
series for overdue principal, premium, if any, and overdue interest,
and next to the payment of the overdue principal on all Securities of
such series then due, or
(C) in case the unpaid principal amount of all of the outstanding
Securities of such series has become due, first to the payment of the
whole amount then due and unpaid upon the outstanding Securities of
such series for principal, premium, if any, and interest, together
with interest at the respective rates specified in the Securities of
such series for overdue principal, premium, if any, and overdue
interest; and
(3) third, in case the unpaid principal amount of all the outstanding
Securities of such series has become due, and all of the outstanding
principal, premium, if any, interest and other amounts owed in connection
with Securities of such series have been fully paid, any surplus then
remaining will be paid to the Funding Corporation, or to whomsoever may be
lawfully entitled to receive the same, or as a court of competent
jurisdiction may direct.
AMENDMENTS AND SUPPLEMENTS
The Funding Corporation and the Trustee may amend or supplement the
Indenture without the consent of the Security Holders (1) to add additional
covenants of the Funding Corporation, to surrender rights conferred upon the
Funding Corporation, or to confer additional benefits upon the Security
Holders, (2) to increase the assets securing the Funding Corporation's
obligations under the Indenture, (3) to provide for the issuance of Additional
Securities on the conditions described elsewhere in this
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prospectus, (4) for any purpose not inconsistent with the terms of the
Indenture or to cure any ambiguity, defect or inconsistency, or (5) to reflect
any amendments required by a Rating Agency in circumstances where confirmation
of the Ratings is required or permitted under the Indenture.
The Indenture may be otherwise amended or supplemented by the Funding
Corporation and the Trustee with the consent of holders of not less than 51% in
aggregate principal amount of the Securities then outstanding; provided that no
amendment or supplement may, without the consent of all of the Security
Holders, modify: (1) the principal, premium (if any) or interest payable upon
any Securities, (2) the dates on which interest on or principal of any
Securities is paid, (3) the dates of maturity of any Securities, or (4) the
procedures for amendment by a supplemental indenture.
AMENDMENT OF CREDIT AGREEMENTS AND PROJECT NOTES
The Funding Corporation and the Trustee may, without the consent of or
notice to the Security Holders, consent to any amendment or modification of any
Credit Agreement or Project Note (1) as permitted by the provisions of the
Credit Agreement or Project Note or the Indenture, (2) to cure any ambiguity or
formal defect, (3) to add additional rights in favor of the Funding
Corporation, or (4) in connection with any other amendment to the Credit
Agreement or Project Note, including any amendment required by a Rating Agency
in circumstances where confirmation of the Ratings is required or permitted
under the Indenture or the Credit Agreement. Except as described above, neither
the Funding Corporation nor the Trustee shall consent to any other amendment or
modification of a Credit Agreement or Project Note or grant any waiver or
consent thereunder without the consent of the holders of not less than 51% in
aggregate principal amount of the Securities then outstanding. An amendment to
a Credit Agreement or Project Note which changes the amounts of payments due
thereunder, the person to whom such payments are to be made or the dates on
which such payments are to be made cannot be made without the unanimous consent
of the Security Holders.
SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
The Funding Corporation may terminate the Indenture and the Guarantees by
delivering all outstanding Securities to the Trustee for cancellation and by
paying all other sums payable under the Indenture.
Legal and covenant defeasance is permitted upon terms and conditions
customary for transactions of this nature.
TRUSTEE
There must at all times be a Trustee under the Indenture, which must be a
corporation either (a) having a combined capital and surplus of at least $50
million, or (b) having a combined capital and surplus of at least $10,000,000
and being a wholly-owned subsidiary of a corporation having a combined capital
and surplus of at least $50,000,000, in each case subject to supervision or
examination by a Federal or State or District of Columbia authority and having
a corporate trust office in New York, New York and California, to the extent
there is such an institution eligible and willing to serve. The Funding
Corporation agrees to indemnify and hold harmless the Trustee in connection
with the performance of its duties under the Indenture, except for liability
which results from the gross negligence, bad faith or willful misconduct of the
Trustee.
The Trustee may resign at any time by giving written notice thereof to the
Funding Corporation. The Trustee may be removed at any time by act of the
holders of a majority in principal amount of the outstanding Securities,
delivered to the Trustee and to the Funding Corporation. The Funding
Corporation must give notice of each resignation and removal of the Trustee and
each appointment of a successor Trustee to all Security Holders.
INFORMATION AVAILABLE TO SECURITY HOLDERS
Pursuant to the Indenture, the Funding Corporation has agreed to provide
to Security Holders and owners of beneficial interests in Securities in global
form, upon written request, such information as is
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appropriate under Rule 144A(d)(4) under the Securities Act to enable resales of
the Securities to be made pursuant to Rule 144A, including, but not limited to,
the unaudited quarterly and audited annual financial reports of the Funding
Corporation and the Guarantors.
AGENT RELATIONSHIP
Each of the Guarantors has designated the Funding Corporation as its agent
under the Indenture for the sole purpose of (1) issuing the Securities to the
extent of each Guarantor's obligations thereunder and (2) otherwise carrying
out each Guarantor's obligations and duties and exercising each Guarantor's
rights and privileges under the Indenture. Each Guarantor will indemnify
Funding Corporation against all claims arising in connection with the Funding
Corporation's performance of its obligations.
GUARANTEES
Pursuant to the Guarantees issued by the Salton Sea Guarantors, the
Partnership Guarantors and the Royalty Guarantor in favor of the Collateral
Agent for the benefit of the Secured Parties, each of the Guarantors has, on a
joint and several basis, unconditionally and irrevocably guaranteed the payment
of principal of, premium, if any, and interest on the Securities and the other
Senior Debt. The Royalty Guarantor and the Partnership Guarantors will only be
required to make payments under their Guarantees in amounts which do not exceed
their Available Cash Flow. Each Guarantee is a guarantee of payment and the
Trustee and the Collateral Agent are entitled to make demands for payment under
the Guarantees at any time that amounts due and payable on the Senior Debt have
not been paid.
Under the Guarantees, each Guarantor has agreed to be bound by and to
perform all of its covenants contained in the applicable Credit Agreement in
favor of the Trustee and the Collateral Agent from and after the date that its
Project Notes are repaid in full. Failure to perform these covenants will
result in an event of default under the Guarantee after the expiration of any
applicable grace period.
Because the Zinc Recovery Project is not required to maintain Qualifying
Facility status, MidAmerican did not contribute its indirect interests in such
Project to CE Generation. MidAmerican has agreed to guarantee the payment by
the Partnership Guarantors of a specified portion of the scheduled debt service
on the Partnership Project Loans in respect of the Zinc Recovery Project.
CREDIT AGREEMENTS
GENERAL
Salton Sea Credit Agreement. Pursuant to the Credit Agreement between the
Salton Sea Guarantors and the Funding Corporation, as amended on the closing
date for the Old Securities (the "Salton Sea Credit Agreement"), (1) the
Initial Salton Sea Guarantors issued the Initial Salton Sea Project Note on the
closing date for the Initial Securities, payable to the Funding Corporation,
which note was amended and restated and issued by all of the Salton Sea
Guarantors (including Power LLC) on the closing date for the Old Securities and
(2) the Salton Sea Guarantors issued the Additional Salton Sea Project Note on
the closing date for the Old Securities.
Partnership Credit Agreement. Pursuant to the Credit Agreement between the
Partnership Guarantors and the Funding Corporation, as amended on the closing
date for the Supplemental Securities and on the closing date for the Old
Securities (the "Partnership Credit Agreement"), (1) the Initial Partnership
Guarantors issued the Initial Partnership Project Note on the closing date for
the Initial Securities, payable to the Funding Corporation, which note was
amended and restated and issued by the Initial Partnership Guarantors and the
Supplemental Partnership Guarantors on the closing date for the Supplemental
Securities, and was amended and restated and issued by all of the Partnership
Guarantors (including the Additional Partnership Guarantors) on the closing
date for the Old Securities, (2) the Initial Partnership Guarantors and the
Supplemental Partnership Guarantors issued the Supplemental Partnership Project
Note on the closing date for the Supplemental Securities, payable to the
Funding Corporation, which note was amended and restated and issued by all of
the Partnership Guarantors (including the Additional Partnership Guarantors) on
the closing date for the Old Securities and (3) the Partnership Guarantors
issued the Additional Partnership Project Note on the closing date for the Old
Securities, payable to the Funding Corporation.
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Royalty Credit Agreement. Pursuant to the Credit Agreement, dated as of
the closing date for the Initial Securities, between the Royalty Guarantor and
the Funding Corporation (the "Royalty Credit Agreement"), the Royalty Guarantor
issued the Royalty Project Note payable to the Funding Corporation.
Payments on the Project Notes in the aggregate are sufficient to enable
the Funding Corporation to pay scheduled principal of, and interest on, the
Securities.
Each of the Guarantors has absolutely and unconditionally agreed to make
payments on its respective Project Notes in scheduled installments and to pay
interest, in arrears, on the unpaid principal amount of each installment. The
Salton Sea Guarantors' obligations to make payments on the Salton Sea Project
Notes, and the Partnership Guarantors' obligations to make payments on the
Partnership Project Notes, are joint and several with respect to each Salton
Sea Guarantor and each Partnership Guarantor, respectively.
OPTIONAL PREPAYMENT
Optional prepayment of the Additional Salton Sea Project Note and the
Additional Partnership Project Note is permitted so long as the proceeds of the
prepayment are utilized by the Funding Corporation to ratably redeem the Series
F Securities or in connection with the defeasance of the Securities. Optional
prepayment of the Supplemental Partnership Project Note is permitted so long as
the proceeds of the prepayment are utilized by the Funding Corporation to
ratably redeem Series E Securities or in connection with the defeasance of the
Securities. Optional prepayment of the Initial Salton Sea Project Note and the
Initial Partnership Project Note is permitted so long as the proceeds of the
prepayment are utilized by the Funding Corporation to ratably redeem Series B
Securities or Series C Securities or in connection with the defeasance of the
Securities. Optional prepayment of the Royalty Project Note is permitted so
long as the proceeds of the prepayment are utilized by the Funding Corporation
to ratably redeem Series B Securities or in connection with the defeasance of
the Securities
MANDATORY PREPAYMENT
The Salton Sea Guarantors and the Partnership Guarantors are required to
prepay their respective Project Notes (1) in connection with the failure of a
New Project to achieve Substantial Completion on or prior to its Guaranteed
Substantial Completion Date and (2) with net proceeds received by such
Guarantors in connection with an Event of Loss, a Title Event, an Event of
Eminent Domain, a Permitted Power Contract Buy-Out, or the payment of
performance liquidated damages under the construction contracts for the New
Projects, as and to the extent the Securities are required to be redeemed in
connection with the receipt of such proceeds in an amount as provided in the
Intercreditor Agreement. Additionally, the Partnership Guarantors are required
to prepay the Partnership Project Notes with proceeds received in connection
with the incurrence of Debt by the Partnership Project Companies in order to
fund equity distributions to the Partnership Guarantors. The Royalty Project
Note is not subject to mandatory prepayment except in connection with an
acceleration of the maturity of the note. See "--Depositary Agreement,"
"--Intercreditor Agreement" and "Summary Description of the Series F
Securities--Mandatory Redemption."
COVENANTS
Set forth below are some of the covenants of the Guarantors contained in
their Credit Agreements.
Reporting Requirements. The Salton Sea Guarantors, the Partnership
Guarantors and the Royalty Guarantor will provide to the Funding Corporation
(1) unaudited quarterly reports for the first three quarters of each fiscal
year containing condensed financial information and audited annual reports, (2)
all other information in respect of their Projects requested by the Funding
Corporation to enable the Funding Corporation to meet its obligations under the
Indenture and (3) written notice of any default or event of default under their
Credit Agreements or any event or condition that could reasonably be expected
to result in a Material Adverse Effect. The Salton Sea Guarantors and the
Partnership Guarantors will also provide to the Funding Corporation copies of
material notices delivered in connection with any of their Project Documents.
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Sale of Assets. With respect to the Salton Sea Guarantors and the
Partnership Guarantors, except as contemplated by the applicable Project
Documents none of the Salton Sea Guarantors or the Partnership Guarantors will
sell, lease (as lessor) or transfer (as transferor) any property or assets
material to the operation of their Projects, except in the ordinary course of
business to the extent that such property is no longer useful or necessary in
connection with the operation of the Projects; provided, however, that the
Salton Sea Guarantors will be allowed to loan useful spare parts to the
Partnership Project Companies for use in the Partnership Projects, and the
Partnership Project Companies will be allowed to loan useful spare parts to the
Salton Sea Guarantors for use in the Salton Sea Projects.
Sale of Partnership Interests. Neither of the Initial Partnership
Guarantors will sell, transfer or convey any of their partnership interests in
the Partnership Project Companies.
Insurance. The Salton Sea Guarantors have the benefit of the insurance in
effect for the Salton Sea Projects and as is generally carried by companies
engaged in similar businesses and owning similar properties in the same general
areas and financed in a similar manner, and the Partnership Project Companies
must maintain or cause to be maintained such insurance. The Salton Sea
Guarantors and the Partnership Project Companies maintain business interruption
insurance, casualty insurance, including flood and earthquake coverage, and
primary and excess liability insurance, as well as customary worker's
compensation and automobile insurance. The Salton Sea Guarantors and the
Partnership Project Companies will not reduce or cancel insurance coverages (or
permit any of these coverages to be reduced or canceled) if the Insurance
Consultant determines that such reduction or cancellation would not be
reasonable under the circumstances and the insurance coverages sought to be
reduced or canceled are available on commercially reasonable terms or that
another level of coverage greater than that proposed by such Guarantors is
available on commercially reasonable terms (in which case the coverage may be
reduced to the higher of the available levels).
QF Status. The Salton Sea Guarantors and the Partnership Project Companies
will operate and maintain their Projects (other than the New Projects) as
Qualifying Facilities, unless the failure to operate and maintain these
Projects as Qualifying Facilities would not cause or result in (1) a breach of
the Guarantors' power purchase agreements or (2) an adverse effect on the
revenues to be received under the Guarantors' power purchase agreements. The
Salton Sea Guarantors and the Partnership Guarantors will operate and maintain
Salton Sea Unit V and the CE Turbo Project as Qualifying Facilities or as
eligible facilities owned by Exempt Wholesale Generators unless the failure to
so maintain or operate these Projects could not reasonably be expected to have
a Material Adverse Effect.
Governmental Approvals; Title. Each of the Guarantors will at all times
(1) obtain and maintain in full force and effect all material governmental
approvals and other consents and approvals required at any time in connection
with its business and (2) preserve and maintain good and valid title to its
properties and assets (subject to no Liens other than Permitted Liens), except
in each case where the failure to do so could not reasonably be expected to
have a Material Adverse Effect.
Nature of Business. None of the Partnership Guarantors will engage in any
business other than their existing businesses and the development, acquisition,
construction, operation and financing of the Partnership Projects as
contemplated by the applicable Transaction Documents; provided, however, that
(a) the Partnership Guarantors may engage in Permitted Facilities at the Salton
Sea Known Geothermal Resource Area (A) (1) for which Permitted Debt may be
incurred and (2) if the Independent Engineer certifies that the new projects
could not reasonably be expected to have an adverse impact on the geothermal
resources for the Salton Sea Projects or the Partnership Projects or (B) if the
Funding Corporation and the Guarantors take such action as the Rating Agencies
require to confirm the Investment Grade Rating of the Securities, and (b) CEOC
may enter into agreements to provide operating and maintenance services,
administrative services, technical services or related services for Permitted
Facilities owned in whole or in part by the MidAmerican (directly or
indirectly) and located in Imperial County, California. None of the Salton Sea
Guarantors will engage in any business other than their existing businesses and
the development, acquisition, construction, operation and financing of the
Salton Sea Projects as contemplated by the Transaction Documents; provided,
however, that the Salton Sea Guarantors may engage in Permitted Facilities at
the Salton Sea Known Geothermal Resource Area
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(1) for which Permitted Debt may be incurred or (2) if the Independent Engineer
certifies that the new projects could not reasonably be expected to have an
adverse impact on the geothermal resources for the Salton Sea Projects or the
Partnership Projects or (3) if Funding Corporation and the Guarantors take such
action as the Rating Agencies require to confirm the Investment Grade Rating of
the Securities.
Compliance with Laws. Each of the Guarantors will comply with all
applicable laws, except where non-compliance could not reasonably be expected
to have a Material Adverse Effect.
Prohibition on Fundamental Changes. None of the Guarantors will enter into
any transaction of merger or consolidation, change its form of organization or
its business, liquidate or dissolve itself (or suffer any liquidation or
dissolution); provided that any Guarantor will be able to merge with or into
any other Guarantor so long as no Default or Event of Default exists or will
occur as a result thereof and subject to the satisfaction of other customary
conditions. None of the Salton Sea Guarantors or the Partnership Guarantors
will purchase or otherwise acquire all or substantially all of the assets of
any other person; provided, however, that under specified circumstances the
Salton Sea Guarantors or the Partnership Guarantors may engage in Permitted
Facilities at the Salton Sea Known Geothermal Resource Area (1) for which
Permitted Debt may be incurred or (2) if the Independent Engineer certifies
that the new projects could not reasonably be expected to have an adverse
impact on the geothermal resource for the Salton Sea Projects or the
Partnership Projects or (3) if the Funding Corporation and the Guarantors take
such action as the Rating Agencies require to confirm the Investment Grade
Rating of the Securities, and further provided that any of the Partnership
Guarantors may purchase or acquire the partnership interests or assets of the
Partnership Projects not currently owned by such Partnership Guarantors.
Revenue Fund. The Guarantors will take all actions as may be necessary to
cause all of their revenues to be deposited in the Revenue Fund or the
applicable construction fund, in each case in accordance with the terms of the
Depositary Agreement.
Transactions with Affiliates. No Guarantor will enter into any transaction
or agreement with any of its affiliates other than (1) as contemplated by the
Transaction Documents or (2) transactions in the ordinary course of business
and on terms no less favorable to the Guarantor than the Guarantor would obtain
in an arms-length transaction with a person that is not an affiliate of the
Guarantor.
Restricted Payments. No Guarantor will make any Restricted Payments,
except as permitted under the Depositary Agreement.
Exercise of Rights. None of the Salton Sea Guarantors or the Partnership
Guarantors will exercise, or fail to exercise, their rights under the Salton
Sea Project Documents or the Partnership Project Documents, respectively, in a
manner which could reasonably be expected to result in a Material Adverse
Effect.
Amendments to Contracts. None of the Salton Sea Guarantors will terminate,
amend, replace or modify (other than immaterial amendments or modifications as
certified by the Salton Sea Guarantors) any of the Salton Sea Project Documents
unless (1) (A) the Salton Sea Guarantor certifies that the termination,
amendment, replacement or modification could not reasonably be expected to have
a Material Adverse Effect and (B) in the case of any amendment, termination or
modification of a Salton Sea Project power purchase agreement which affects the
revenues derived by any of the Salton Sea Guarantors, the Independent Engineer
certifies that the amendment, termination or modification could not reasonably
be expected to have a Material Adverse Effect, (2) the Salton Sea Guarantors
provide a letter from the Rating Agencies confirming that the amendment,
termination or modification will not result in a Rating Downgrade or (3) the
amendment, termination or modification is required under applicable law or to
maintain the QF status of a Project.
Neither of the Initial Partnership Guarantors will terminate, amend,
replace or modify (other than immaterial amendments or modifications as
certified by the Partnership Guarantors) any of the Partnership Project
Documents unless the termination, amendment, replacement or modification (1)
could not reasonably be expected to have a Material Adverse Effect or (2) is
required under applicable law. In addition, none of the Partnership Guarantors
will terminate, amend, replace or modify (other than
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immaterial amendments or modifications as certified by the Partnership
Guarantors) any of the Partnership Project Documents unless (1)(A) the
Partnership Guarantor certifies that the termination, amendment, replacement or
modification could not reasonably be expected to have a Material Adverse Effect
and (B) in the case of any amendment, termination or modification of a
Partnership Project power purchase agreement which affects the revenues derived
by any of the Partnership Guarantors, the Independent Engineer certifies that
the amendment, termination or modification could not reasonably be expected to
have a Material Adverse Effect, (2) the Partnership Guarantors provide a letter
from the Rating Agencies confirming that the amendment, termination or
modification will not result in a Rating Downgrade, or (3) the amendment,
termination or modification is required under applicable law or to maintain the
QF status of a Project.
The Royalty Guarantor will not terminate, amend, replace or modify (other
than immaterial amendments or modifications as certified by the Royalty
Guarantor) any of the Royalty Project Documents unless (1) the Royalty
Guarantor certifies that the termination, amendment, replacement or
modification could not reasonably be expected to have a Material Adverse Effect
or (2) the Royalty Guarantor provides a letter from the Rating Agencies
confirming that the amendment, termination or modification will not result in a
Rating Downgrade. Notwithstanding the foregoing, in the case of any amendment,
termination or modification of the Magma Assignment Agreement which affects the
revenues derived by the Royalty Guarantor, no amendment, termination or
modification will be permitted if the amendment, termination or modification
could reasonably be expected to have a Material Adverse Effect on the Royalty
Guarantor's ability to meet its obligations under the Royalty Project Note or
the Royalty Guarantee. The Royalty Guarantor will not sell, transfer or assign
any of its rights under any of the Royalty Project Documents.
Limitations on Debt/Liens. None of the Guarantors will create or incur or
suffer to exist any Debt except for Permitted Guarantor Debt. None of the
Guarantors shall grant, create, incur or suffer to exist any Liens upon any of
their properties except for Permitted Liens.
Books and Records. The Salton Sea Guarantors and the Partnership
Guarantors will maintain their books and records and give the Funding
Corporation, the Trustee, the Collateral Agent and the Independent Engineer
inspection rights.
Additional Project Documents. The Salton Sea Guarantors and the
Partnership Guarantors will perform and observe their covenants and obligations
under the Salton Sea Project Documents and the Partnership Project Documents,
respectively, in all material respects, except where the failure to do so could
not reasonably be expected to result in a Material Adverse Effect. Neither the
Salton Sea Guarantors nor the Partnership Guarantors will be permitted to enter
into any Additional Project Documents if entering into the Additional Project
Documents could reasonably be expected to result in a Material Adverse Effect.
Information and Access. The Salton Sea Guarantors will provide the
Independent Engineer with information regarding Salton Sea Unit V which is
reasonably requested by the Independent Engineer. Power LLC will provide the
Independent Engineer with access to Salton Sea Unit V as reasonably requested
by the Independent Engineer. The Partnership Guarantors will provide the
Independent Engineer with information regarding the CE Turbo Project, the
Region 2 Brine Facilities Construction and the Zinc Recovery Project which is
reasonably requested by the Independent Engineer. The Partnership Project
Companies will provide the Independent Engineer with access to the Zinc
Recovery Project, the Region 2 Brine Facilities Construction and the CE Turbo
Project as reasonably requested by the Independent Engineer.
Additional Covenants. In addition to the covenants described above, the
Credit Agreements also contain covenants of the Guarantors regarding (1)
maintenance of existence, (2) payment of taxes and claims unless being
contested in good faith and (3) the preservation and maintenance of Liens on
the Collateral and the priority of the Liens.
EVENTS OF DEFAULT
Except as otherwise described below, each Credit Agreement currently
contains the following events of default with respect to the Guarantors party
to the Credit Agreement:
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(a) the failure by the Guarantors to pay or cause to be paid any principal
of, premium, if any, or interest, fees or any other obligations on their
Project Notes for 15 or more days after the same becomes due and payable,
whether by scheduled maturity or required prepayment or by acceleration or
otherwise, or, with respect to the Salton Sea Credit Agreement, the failure by
the Funding Corporation to pay or cause to be paid any principal of, premium,
if any, or interest on the Securities for 15 or more days after the same
becomes due and payable, whether by scheduled maturity or required prepayment
or by acceleration or otherwise;
(b) any representation or warranty made by the Guarantors under their
Credit Agreement proves to have been untrue or misleading in any material
respect as of the time made, confirmed or furnished and the fact, event or
circumstance that gave rise to the inaccuracy could reasonably be expected to
result in a Material Adverse Effect and the fact, event or circumstance
continues to be uncured for 30 or more days from the date a responsible officer
of the Guarantors has actual knowledge of the fact, event or circumstance;
provided that if the Guarantors commence efforts to cure the fact, event or
circumstance within the 30-day period, the Guarantors may continue to effect
the cure and the misrepresentation will not be deemed an event of default for
an additional 60 days so long as the Guarantors are diligently pursuing the
cure;
(c) (1) with respect to the Salton Sea Credit Agreement, the failure by
any of the Salton Sea Guarantors to perform or observe any covenant under the
Credit Agreement relating to Permitted Debt, Permitted Liens, Restricted
Payments, disposition of assets, maintenance of insurance, maintenance of books
and records, payment of taxes, fundamental changes, exercise of rights under
the Project Documents or nature of business and the failure continues uncured
for 30 or more days after a responsible officer of the Salton Sea Guarantors
has actual knowledge of the failure; (2) with respect to Partnership Credit
Agreement, the failure by any of the Partnership Guarantors to perform or
observe any covenant under the Credit Agreement relating to Restricted
Payments, disposition of assets, maintenance of insurance, maintenance of books
and records, payment of taxes, exercise of rights under the Partnership Project
Documents, amendments to the partnership agreement of any of the Partnership
Project Companies or the Partnership Project Documents, fundamental changes or
nature of business and the failure continues uncured for 30 or more days after
a responsible officer of the Partnership Guarantors has actual knowledge of the
failure; and (3) with respect to the Royalty Credit Agreement, the failure by
the Royalty Guarantor to perform or observe any covenant under the Credit
Agreement relating to maintenance of existence, Permitted Debt, Permitted
Liens, Restricted Payments, amendments to the Magma Assignment Agreement,
fundamental changes or nature of business and the failure continues uncured for
30 or more days after a responsible officer of the Royalty Guarantor has actual
knowledge of the failure;
(d) the failure by any of the Guarantors to perform or observe any of the
other covenants contained in their Credit Agreements or in the other Financing
Documents to which the Guarantors are party (other than the failures described
in clause (c) above) and the failure continues uncured for 60 or more days
after a responsible officer of the Guarantors has actual knowledge of the
failure; provided that if the Guarantors commence and diligently pursue efforts
to cure the default within such 60-day period, the Guarantors may continue to
effect the cure of the default and the default will not be deemed an event of
default for an additional 30 days so long as the Guarantors are diligently
pursuing the cure;
(e) certain events involving the bankruptcy, insolvency, receivership or
reorganization of the Guarantors;
(f) the entry of one or more final and non-appealable judgment or
judgments for the payment of money in excess of $10,000,000 (exclusive of
judgment amounts fully covered by insurance or indemnity) against the
Guarantors which remain unpaid or unstayed for a period of 90 or more
consecutive days;
(g) an event of default under any Permitted Guarantor Debt of the Salton
Sea Guarantors or the Partnership Guarantors in excess of $10,000,000 becomes
due and payable prior to its stated maturity;
(h) the Guarantors fail to perform any of their payment obligations under
their Guarantees for 15 or more days after the obligations become due and
payable;
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(i) (1) with respect to the Salton Sea Credit Agreement, if (A) any
governmental approval required for the operation of a Project owned by the
Salton Sea Guarantors is revoked, terminated, withdrawn or ceases to be in full
force and effect, (B) the revocation, termination, withdrawal or cessation
could reasonably be expected to have a Material Adverse Effect and (C) the
revocation, termination, withdrawal or cessation is not cured for 60 days
following the occurrence thereof; and (2) with respect to the Partnership
Credit Agreement, if (A) any governmental approval required for the operation
of a Project owned by the Partnership Guarantors is revoked, terminated,
withdrawn or ceases to be in full force and effect, (B) the revocation,
termination, withdrawal or cessation could reasonably be expected to have a
Material Adverse Effect and (C) the revocation, termination, withdrawal or
cessation is not cured for 60 days following the occurrence thereof;
(j) (1) with respect to the Salton Sea Credit Agreement, any Salton Sea
Project Document ceases to be valid and binding and in full force and effect
other than as a result of an amendment, termination or Permitted Power Contract
Buy-Out permitted under the Salton Sea Credit Agreement, or any third party
that is party to a Salton Sea Project Document fails to perform its material
obligations or makes any material misrepresentation thereunder and any such
event results in a Material Adverse Effect; (2) with respect to the Partnership
Credit Agreement, any Partnership Project Document ceases to be valid and
binding and in full force and effect other than as a result of an amendment,
termination or Permitted Power Contract Pay-Out permitted under the Partnership
Credit Agreement, or any third party that is party to a Partnership Project
Document fails to perform its material obligations or makes any material
misrepresentation thereunder and any such event results in a Material Adverse
Effect; provided that no such event described in the preceding clauses (1) and
(2) will be an event of default if within 180 days from the occurrence of any
such event, the Salton Sea Guarantors or the Partnership Guarantors, as
applicable, (A) cause the third party to resume performance or cure the
misrepresentation or (B) enter into a replacement Additional Project Document
as permitted under such Credit Agreement;
(k) (1) with respect to the Salton Sea Credit Agreement, the failure of
the Salton Sea Guarantors to perform or observe any of their covenants or
obligations contained in any of the Salton Sea Project Documents if the failure
would result in the receipt of a notice of termination of the Salton Sea
Project Document or otherwise result in a Material Adverse Effect; (2) with
respect to the Partnership Credit Agreement, the failure of the Partnership
Guarantors or any other party to perform or observe any of their covenants or
obligations contained in any of the Partnership Project Documents if the
failure results in the termination of the Partnership Project Document or
otherwise results in a Material Adverse Effect; provided that such event will
not be an event of default if within 180 days from the occurrence of any such
event, the Partnership Guarantors enter into a replacement Additional Project
Document as permitted under the Partnership Credit Agreement; and (3) with
respect to the Royalty Credit Agreement, any Royalty Project Document ceases to
be valid and binding and in full force and effect other than as a result of an
amendment or a termination permitted under the Royalty Credit Agreement and
such event results in a Material Adverse Effect; provided that such event will
not be an event of default if within 180 days from the occurrence of such
event, the Royalty Guarantor enters into a replacement Additional Project
Document as permitted under the Royalty Credit Agreement;
(l) any of the applicable Security Documents ceases to be effective or any
Lien granted therein ceases to be a valid and perfected Lien in favor of the
Collateral Agent on the Collateral described therein with the priority
purported to be created thereby; provided, however, that the Guarantors will
have 10 days to cure the cessation or to furnish to the Trustee, the Collateral
Agent or the Depositary all documents or instruments required to cure the
cessation; or
(m) an Event of Default described under clauses (c), (d), (e), (f), (g),
(h), (i), (j) or (k) of the summary of the Event of Defaults under the
Indenture occurs. See "--Indenture--Events of Default."
ENFORCEMENT OF REMEDIES
If any event of default under any particular Credit Agreement has occurred
and is continuing, then, with respect to that Credit Agreement:
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(1) in the case of an event of default under any Credit Agreement
described in clause (e) above, the entire outstanding principal amount of
the applicable Project Note or Notes, all interest accrued and unpaid
thereon, and all premium and other amounts payable under the Project Note
or Notes and the applicable Credit Agreement, if any, will automatically
become due and payable without presentment, demand, protest or notice of
any kind; or
(2) in the case of an event of default described in:
(A) clauses (a) and (h) above, upon the written direction of
holders of no less than 33 1/3% in aggregate principal amount of the
outstanding Securities, the Funding Corporation will declare the
outstanding principal amount of the applicable Project Note or Notes
to be accelerated and due and payable, all accrued and unpaid
interest, and all premium and other amounts payable under the
applicable Credit Agreement, if any, to be due and payable; or
(B) clauses (b), (c), (d), (f), (g), (i), (j), (k), (l) and (m)
above, upon the written direction of holders of no less than 50% in
aggregate principal amount of the outstanding Securities, the Funding
Corporation will declare the outstanding principal amount of the
applicable Project Note or Notes to be accelerated and due and
payable, all accrued and unpaid interest, and all premium and other
amounts payable under the applicable Credit Agreement, if any, to be
due and payable.
DEBT SERVICE RESERVE LOC REIMBURSEMENT AGREEMENT
The Debt Service Reserve LOC Provider, pursuant to a Debt Service Reserve
Letter of Credit and Reimbursement Agreement (the "Debt Service Reserve LOC
Reimbursement Agreement"), will provide a Debt Service Reserve Letter of Credit
for use by the Funding Corporation in funding the Debt Service Reserve Fund.
On the closing date for the Initial Securities, the Debt Service Reserve
LOC Provider issued a Debt Service Reserve Letter of Credit for the account of
the Funding Corporation in the amount of $50,000,000. On the closing date for
the Supplemental Securities, the Debt Service Reserve Letter of Credit Provider
issued a replacement Debt Service Reserve Letter of Credit for the account of
the Funding Corporation in the amount of approximately $71,250,000. On the
closing date for the Old Securities, the Debt Service Reserve Letter of Credit
Provider issued a replacement Debt Service Reserve Letter of Credit for the
account of the Funding Corporation in the amount of approximately $68,297,134
in favor of the Depositary as security agent for the Secured Parties.
The Depositary may make drawings under any Debt Service Reserve Letter of
Credit upon the occurrence of the following events:
(1) there being insufficient monies in the Interest Fund or Principal
Fund on any Payment Date to pay interest or principal then due on the
Securities (after application of funds from the Debt Service Reserve Fund);
(2) upon failure of the Funding Corporation to provide a substitute
letter of credit from another letter of credit provider within 45 days
after receipt of a notice from the Debt Service Reserve LOC Provider that
the long-term debt of such Debt Service Reserve LOC is less than "A" as
determined by S&P or "A2" as determined by Moody's;
(3) upon receipt of a notice from the Debt Service Reserve LOC
Provider that the Debt Service Reserve Letter of Credit will be terminated
prior to its stated expiration date;
(4) upon failure of the Funding Corporation to obtain an extension or
provide a replacement Debt Service Reserve Letter of Credit at least 45
days before the expiration of the Debt Service Reserve Letter of Credit;
and
(5) upon receipt of a notice from the Debt Service Reserve LOC
Provider that interest is due and payable, but unpaid, on outstanding Debt
Service Reserve LOC Loans (provided that the drawing pursuant to this
clause (5), together with all other drawings under the Debt Service Reserve
Letter of Credit in the same fiscal year, does not exceed $5,000,000 in the
aggregate).
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The Depositary will apply the proceeds of each such drawing: (x) in the case of
clauses (1) and (5) of the preceding sentence, to payment of the relevant
obligation, and (y) in the case of clauses (2), (3) and (4) of the preceding
sentence, to the Debt Service Reserve Fund until there is deposited therein an
aggregate amount equal to the Debt Service Reserve Fund Required Balance.
The amount available for drawing under the Debt Service Reserve Letter of
Credit will be reduced upon (1) the making of draws thereunder, (2) the
reduction of the Debt Service Reserve Fund Required Balance and (3) the making
of deposits of cash in the Debt Service Reserve Fund.
DEBT SERVICE RESERVE LOC LOANS
Each drawing on the Debt Service Reserve Letter of Credit submitted by the
Trustee will be converted into a loan (each converted drawing, a "Debt Service
Reserve LOC Loan").
Each Debt Service Reserve LOC Loan will be evidenced by a note (each, a
"Debt Service Reserve LOC Note") and will mature on the later of (1) 10 years
from the closing date for the Initial Securities or (2) 5 years from the
drawing giving rise to the Debt Service Reserve LOC Loan. The Funding
Corporation will repay the principal amount of each Debt Service Reserve LOC
Loan as, when and to the extent monies are made available from the Revenue Fund
pursuant to the Depositary Agreement.
CONVERSION TO DEBT SERVICE RESERVE BOND
Notwithstanding the foregoing, if (1) 50% or more of the principal amount
of any Debt Service Reserve LOC Loan remains outstanding on or after 5 years
from the drawing giving rise to such loans or (2) the principal amount of any
Debt Service Reserve LOC Loan remains outstanding on or after 10 years from the
closing date for the Initial Securities, the Debt Service Reserve LOC Provider
may, upon 30 days' prior written notice to the Funding Corporation and the
Trustee, convert the Debt Service Reserve LOC Loan into a substitute loan (such
converted loan, a "Debt Service Reserve Bond"). Each Debt Service Reserve Bond
will amortize on a basis which results in levelized payment of the principal of
and interest on the Debt Service Reserve Bond to and including the maturity
date applicable to the Debt Service Reserve Bond, which will be the final
maturity date of the Securities and will bear interest at a fixed rate equal to
the higher of (x) the interest rate last applicable to the Debt Service Reserve
LOC Loan converted into the Debt Service Reserve Bond and (y) the then-current
(at the time of conversion of the Debt Service Reserve LOC Loan into the Debt
Service Reserve Bond) rate of interest on U.S. Treasury Notes with an average
life most comparable to the average life of the Securities plus the higher of
(A) 2.50% and (B) the spread over U.S. Treasury Notes applicable to the
Supplemental Securities on the closing date for the Supplemental Securities.
The Funding Corporation will pay interest on and principal of each Debt Service
Reserve Bond on each Principal Payment Date on a pro rata basis with payments
of interest and principal on the Securities.
EVENTS OF DEFAULT
The following events constitute events of default under the Debt Service
Reserve LOC Reimbursement Agreement:
(1) the Funding Corporation fails to pay any principal, interest or
other amounts due under or in connection with the Debt Service Reserve LOC
Reimbursement Agreement or any Debt Service Reserve Bond within 15 days
after its due date (or the case of principal and interest) and, in the case
of the failure to pay fees, costs or expenses, 15 or more days following
delivery of notice of the failure to pay to the Funding Corporation;
(2) any representation or warranty made by or on behalf of the Funding
Corporation in the Debt Service Reserve LOC Reimbursement Agreement
(including by incorporation by reference) proves to have been untrue or
misleading in any material respect as of the time made, confirmed or
furnished and the fact, event or circumstance that gave rise to the
inaccuracy has resulted in or could reasonably be expected to have a
Material Adverse Effect and the fact, event or circumstance continues to be
uncured for 30 or more days from the date a responsible officer of the
Funding Corporation obtains
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actual knowledge of the fact, event or circumstance; provided that if
the Funding Corporation commences and diligently pursues efforts to cure
the fact, event or circumstance or the Material Adverse Effect within the
30-day period, the Funding Corporation may continue to effect the cure and
the misrepresentation will not be deemed an event of default for an
additional 60 days so long as the Funding Corporation is diligently
pursuing the cure;
(3) any provision of the Indenture, the Depositary Agreement, the
Deeds of Trust, the Guarantees or any Security Documents is terminated,
amended or otherwise modified without the prior written approval of the LOC
Banks (as defined herein) holding at least 66 2/3% of the obligations due
under the Debt Service Reserve LOC Reimbursement Agreement and/or the
commitments under the Debt Service Reserve LOC Reimbursement Agreement if
the termination, amendment or other modification would affect the priority
of payments from the Revenue Fund under the Depositary Agreement in a
manner adverse to the agent under the Debt Service Reserve LOC
Reimbursement Agreement (the "LOC Agent") or any bank party to the Debt
Service Reserve LOC Reimbursement Agreement (each, an "LOC Bank"), increase
the interest rate on the Securities other than in accordance with the
Indenture, amend the Principal Payment Dates of the Securities in a manner
adverse to the LOC Agent or any LOC Bank, or change the voting requirements
under the Intercreditor Agreement in a manner adverse to the LOC Agent or
any LOC Bank; provided that the same continues uncured for 60 or more days
after an authorized officer of the Funding Corporation has actual knowledge
of the same; and provided, further that if the Funding Corporation
commences and diligently pursues efforts to cure the default within the
60-day period, the Funding Corporation may continue to effect the cure of
the default, and the default will not be deemed an event of default under
the Debt Service Reserve LOC Reimbursement Agreement for an additional 30
days so long as the Funding Corporation is diligently pursuing the cure; or
(4) the Funding Corporation fails to perform certain covenants under
the Indenture incorporated by reference in the Debt Service Reserve LOC
Reimbursement Agreement, and the failure continues for 30 days after
knowledge by an authorized officer of the Funding Corporation at any time
after all outstanding amounts due in respect of the Securities have been
paid in full and the Indenture is no longer in effect;
(5) the Funding Corporation fails to perform or observe certain of its
covenants contained (including by incorporation by reference) in any other
provision of the Debt Service Reserve LOC Reimbursement Agreement and the
failure continues for 60 or more days after the Funding Corporation has
actual knowledge of the failure; provided that if the Funding Corporation
commences and diligently pursues efforts to cure the default within the
60-day period, the Funding Corporation may continue to effect the cure of
the default and the default will not be deemed an event of default for an
additional 30 days so long as the Funding Corporation is diligently
pursuing the cure;
(6) an Event of Default as described under clause (c), (d), (e), (f),
(g), (h), (i), (j) or (k) of the summary of Events of Default under the
Indenture occurs and is continuing until the earlier of the expiration of
30 days or an acceleration under the Indenture. See "--Indenture--Events of
Default"; and
(7) an event of default under a Credit Agreement or a Guarantee occurs
and is continuing after all outstanding amounts due in respect of the
Securities have been paid in full and the Indenture is no longer in effect.
REMEDIES
Upon the occurrence of an event of default under the Debt Service LOC
Reimbursement Agreement, the Debt Service Reserve LOC Provider may terminate
the Debt Service Reserve Letter of Credit following notice as provided in the
Debt Service Reserve Letter of Credit (in which case the Depositary may draw
the full amount available under the Debt Service Reserve Letter of Credit),
accelerate any outstanding Debt Service Reserve LOC Loans or Debt Service
Reserve Bonds and terminate its commitment.
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GUARANTEES
Pursuant to the Guarantees, the Guarantors, on a joint and several basis,
unconditionally and irrevocably guarantee the payment of all amounts owed by
the Funding Corporation under the Debt Service Reserve LOC Reimbursement
Agreement; provided that the Partnership Guarantors and the Royalty Guarantor
are only required to make payments under their Guarantees in amounts from their
Available Cash Flow. The Guarantees are guarantees of payment and the
Collateral Agent is entitled to make demand for payments under the Guarantees
at any time that amounts which are due and payable have not been paid under the
Debt Service Reserve LOC Reimbursement Agreement.
EQUITY COMMITMENT AGREEMENT
Pursuant to the Equity Commitment Agreements by MidAmerican and El Paso
Holding in favor of the Guarantors and the Collateral Agent, MidAmerican and El
Paso Holding are obligated to make cash equity contributions to the Guarantors
in a maximum amount of $122,513,000 (the "Total Equity Amount") to fund a
portion of the budgeted costs for the construction of the New Projects and the
Additional Capital Improvements. This equity will be allocated by the
Guarantors as follows: (1) $54,013,000 to pay a portion of the costs for the
construction of the Zinc Recovery Project; (2) $32,009,000 to pay a portion of
the costs for the construction of Salton Sea Unit V; (3) $17,137,000 to pay a
portion of the costs for the Region 2 Construction; (4) $6,391,000 to pay a
portion of the costs for the Additional Capital Improvements; and (5)
$12,963,000 to act as a reserve for certain costs associated with the
construction of the New Projects and the Additional Capital Improvements. Until
final completion, MidAmerican and El Paso Holding will be required to
contribute equity at times necessary to pay the costs of construction of a New
Project or to pay the costs of the Additional Capital Improvements, as the case
may be, after all of the proceeds from the sale of the Old Securities allocated
for such purpose have been utilized, provided that, until final completion,
upon the occurrence of specified Events of Default related to a New Project or
the Additional Capital Improvements, unless the defaults are timely waived,
MidAmerican and El Paso Holding will be required to contribute equity to the
relevant Guarantor in an amount equal to the portion of the Total Equity Amount
allocated for a given purpose less the aggregate of all equity contributions
made for this purpose prior to the occurrence of the Event of Default.
MidAmerican's and El Paso Holding's obligation to contribute equity to fund
costs associated with the construction of a New Project will be reduced dollar
for dollar by the amount of any net revenues received by the New Project prior
to Substantial Completion of the New Project.
If MidAmerican sells a portion of its indirect equity interests in one or
more Guarantors in accordance with the terms of the Financing Documents,
MidAmerican will be permitted to transfer a corresponding portion of its
obligations under the Equity Commitment Agreement to a transferee (1) whose
long-term unsecured debt obligations have Ratings equivalent to or better than
the then-current Ratings assigned to the Securities by Moody's and S&P or (2)
which provides an irrevocable direct pay letter of credit to support its equity
commitment obligations issued by a bank or other financial institution rated at
least "A" by S&P and "A2" by Moody's.
THE SECURITY
SHARING OF SECURITY
The Trustee, the Collateral Agent, the Depositary, the Debt Service
Reserve LOC Provider, the Guarantors and the Funding Corporation have entered
into the Intercreditor Agreement designating the Collateral Agent as the agent
for each of the Secured Parties and the Funding Corporation and addressing,
among other things, (1) the preservation and administration of the Funding
Corporation Collateral and the Collateral and (2) the disposition of the
Funding Corporation Collateral and the Collateral among the Secured Parties
upon acceleration and foreclosure. The Collateral is shared among the Secured
Parties as provided in the Intercreditor Agreement and the Depositary
Agreement. See "--Depositary Agreement" and "--Intercreditor Agreement." Any
entity that becomes a bank providing for working capital loans pursuant to the
Working Capital Facility or enters into an Interest Rate Protection Agreement
with the Funding Corporation must agree to be bound by the terms of the
Intercreditor Agreement.
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In connection with the issuance of the Initial Securities and the
Supplemental Securities, the Funding Corporation procured title insurance in
the amounts of $250 million and $96 million, respectively. In connection with
the offering of the Old Securities, the Funding Corporation procured title
insurance in the amount of $100 million. The Funding Corporation must at all
times maintain these levels of title insurance, which may be decreased for
reductions in the outstanding principal amount of the Securities, if lower, in
accordance with the terms of the title policies. Title insurance proceeds will
be shared among the Secured Parties as provided in the Intercreditor Agreement
and the Depositary Agreement.
FUNDING CORPORATION COLLATERAL
Pursuant to the Funding Pledge Agreement, Magma assigned and pledged to
the Collateral Agent a security interest in all of the capital stock of the
Funding Corporation (the "Funding Corporation Collateral") now owned by Magma
or hereafter acquired and all dividends, cash, instruments and other property
and proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any of the foregoing.
The security interest in the Funding Corporation Collateral is a first
priority security interest. However, absent any Trigger Event, Magma will be
able to vote, in its sole discretion, the capital stock of the Funding
Corporation; provided that no vote may be cast, and no consent, waiver or
ratification given or action taken, which would violate any provision of the
Indenture, the Securities or the Credit Agreements.
Upon satisfaction by the Funding Corporation of the conditions to
discharge the Indenture and all Senior Debt, the Lien of the Collateral Agent
on all the Funding Corporation Collateral will terminate and all the Funding
Corporation Collateral will be released without any further action by the
Collateral Agent or any other person.
DESCRIPTION OF COLLATERAL
Pledge Agreements. Each shareholder, partner or member, of each Guarantor
has assigned and pledged to the Collateral Agent for the benefit of the Secured
Parties a security interest in 100% of its capital stock or other equity
interests in the Guarantor, the right to receive dividends or distributions on
the equity interests, and the right to receive any other proceeds from the
equity interests.
Deeds of Trust and Security Documents. The Salton Sea Guarantors and the
Partnership Guarantors have entered into deeds of trust and related security
documents with the Collateral Agent for the benefit of the Secured Parties and
the Funding Corporation providing for the grant of a lien on and a security
interest in: (1) the Guarantors' material real and personal property, including
all real property interests (including fee interests, leasehold interests and
easement interests) of the Guarantors held in their Project sites and all
fixtures, equipment and improvements on the real property interests; (2) all of
the Guarantors' rights under the Salton Sea Project Documents or the
Partnership Project Documents, as applicable; (3) all of the Guarantors'
equipment, receivables, insurance proceeds, rights pursuant to any assignable
governmental approval and funds and accounts established pursuant to the
Depositary Agreement (to be held by the Depositary as agent for the Collateral
Agent), including all proceeds on the personal property and all documents
evidencing all funds and investments held in the accounts. In addition, the
Royalty Guarantor has entered into a deed of trust and related security
documents with the Collateral Agent for the benefit of the Secured Parties and
the Funding Corporation providing for the grant of a lien on and security
interest in all of the Royalty Guarantor's rights to receive Royalties.
Pursuant to each of the Security Documents, the Collateral Agent may, upon
the occurrence of a Trigger Event and satisfaction of conditions contained in
the Intercreditor Agreement and discussed below, take possession of all
Collateral and Funding Corporation Collateral (other than the Funds being held
by the Depositary) except as remedies may be limited with respect to certain
Collateral and Funding Corporation Collateral in connection with payment
defaults and event of defaults under the Credit Agreement. The repossessed
collateral may, subject to applicable contract terms or laws (in the case of
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governmental approvals and permits), be sold, leased or otherwise disposed of
by the Collateral Agent. The proceeds of the sale, lease or disposition will be
applied to the payment of costs and expenses of the Collateral Agent incurred
in connection therewith and to the payment of Secured Obligations pursuant to
the Intercreditor Agreement.
INTERCREDITOR AGREEMENT
The Secured Parties, the Guarantors, the Funding Corporation, the
Depositary and the Collateral Agent have entered into the Intercreditor
Agreement designating the Collateral Agent as the agent for each of the Secured
Parties and the Funding Corporation. The affirmative vote of Secured Parties
holding at least 33 1/3% of the Combined Exposure (the "Required Secured
Parties") is sufficient to direct actions of the Collateral Agent, including
the exercise of remedies following a Trigger Event (as defined herein);
provided that for purposes of directing such actions, (1) the Funding
Corporation will convey, transfer and assign its right to vote on all matters
under the Intercreditor Agreement to the Trustee and (2) the Trustee is
entitled to vote on all matters under the Intercreditor Agreement according to
the aggregate principal amount of the Securities outstanding, subject, however,
in all events to the terms and provisions of the Indenture. Each person
replacing any of the Secured Parties and each person (or trustee for or agent
of the person) providing Senior Debt to the Funding Corporation will be
required to become a party to the Intercreditor Agreement, which will be
amended to the extent necessary to accommodate the replacement or addition of
such persons.
APPLICATION OF LOSS PROCEEDS AND OTHER EXTRAORDINARY PROCEEDS
The Intercreditor Agreement provides that the Collateral Agent instructs
the Depositary to allocate, to the extent funds may be allocated, after giving
effect to the limitations and deductions permitted under the Indenture and the
Depositary Agreement, all Loss Proceeds, Eminent Domain Proceeds, Title Event
Proceeds and proceeds received in connection with a Permitted Power Contract
Buy-Out, in each case received by the Depositary, in the following order of
priorities pursuant to an allocation certificate:
(1) first, to the Collateral Agent, the Debt Service Reserve LOC
Provider agent, the Trustee and the Depositary, ratably, in an amount equal
to the administrative fees and expenses due and payable as of the date of
the distribution;
(2) second, to the banks providing for working capital loans pursuant
to the Working Capital Facility, if any, an amount equal to the unpaid
Senior Debt constituting principal, interest and commitment fees due and
owing under the Working Capital Facility;
(3) third, to the Secured Parties, ratably, an amount equal to the
unpaid amount of all Senior Debt constituting principal, interest and
premium (if any) due and owing to the Secured Parties and commitment fees
and fronting fees, if any, due and owing in respect of the Debt Service
Reserve Letter of Credit;
(4) fourth, to the Secured Parties, ratably, an amount equal to all
other unpaid amounts then due and payable in respect of all Senior Debt due
and owing to the Secured Parties;
(5) fifth to the holders of Subordinated Debt, an amount equal to the
unpaid amount of all Subordinated Debt due and owing to the holders, if
any; and
(6) sixth, to the Funding Corporation or its successors or assigns or
to whomever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, any surplus then remaining from the
proceeds. See "Description Of The Series F Securities--Mandatory
Redemption."
At the time the Collateral Agent is to make a distribution pursuant to
clause third in the immediately preceding paragraph, and with the same priority
as the distribution, the Collateral Agent will deposit into a separate
interest-bearing trust account to be maintained by the Collateral Agent an
amount up to the then outstanding amount of the Debt Service Reserve Letter of
Credit (which outstanding amount will shall be calculated after giving effect
to the redemption of Securities from the distribution in clause third
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above). The Collateral Agent will hold the monies in the separate account until
receipt of a written notice or notices from the Debt Service Reserve LOC
Provider to the effect that either (x) the Depositary has made a drawing on the
Debt Service Reserve Letter of Credit, which notice will specify the amounts of
the drawings or (y) the Debt Service Reserve Letter of Credit has expired or
terminated. Upon receipt of a notice specified in (x) above, the Collateral
Agent will distribute to the Debt Service Reserve LOC Provider the amount equal
to the drawing's proportionate share of the Debt Service Reserve Letter of
Credit collateralized by the separate account specified in the notice. Upon
receipt of a notice specified in (y) above, the Collateral Agent will
distribute from the separate account (in accordance with clauses third, fourth,
fifth and sixth above and without regard to this paragraph) to the appropriate
persons an amount equal to the balance in the separate account.
TRIGGER EVENTS
Each of the following is an event of default (a "Trigger Event") under the
Intercreditor Agreement: (1) an event of default under the Indenture and an
acceleration of all or a portion of the indebtedness issued thereunder; (2) an
event of default under the Debt Service Reserve LOC Reimbursement Agreement and
an acceleration of the indebtedness incurred thereunder; (3) an event of
default" under a Senior Debt instrument and an acceleration of all or a portion
of the Debt issued thereunder in an aggregate amount in excess of $10,000,000;
and (4) certain events of default under the Salton Sea Guarantee, the
Partnership Guarantee or the Royalty Guarantee; and, in each case, the
Collateral Agent has, upon direction from the Required Secured Parties,
declared the event to be a Trigger Event.
If a Trigger Event has occurred and is continuing, and only in such event,
upon the written request of the Required Secured Parties (subject to the
requirement that the Collateral Agent give written notice of the occurrence of
such Trigger Event to the Funding Corporation and provide the Funding
Corporation a period of 60 days from its receipt of the notice to cure the
Trigger Event), the Collateral Agent will be authorized to take any and all
actions and to exercise any and all rights, remedies and options which it may
have under the Security Documents; provided, however, that if a bankruptcy
event of the Funding Corporation has caused the Trigger Event, the Collateral
Agent will automatically be authorized to take action without the written
request of the Required Secured Parties; and provided, further that, if the
Trigger Event relates to a payment default on the Securities or an event of
default under a Credit Agreement which is not a payment default that has
resulted in an acceleration of a portion of the Securities or a comparable
event of default under a Guarantee, the Collateral Agent will be authorized
only to take actions and exercise rights, remedies and options under the
Security Documents which relate to the Project Note or Notes which have or
could have been automatically accelerated or requested by the Trustee to be
accelerated in connection with the default or the Guarantee pursuant to which
the event of default has occurred.
EXERCISE OF REMEDIES AND APPLICATION OF PROCEEDS
Upon a foreclosure or other exercise of remedies following a Trigger
Event, the proceeds of any sale, disposition or other realization upon any or
all of the Collateral and Funding Corporation Collateral will be distributed in
the following order of priority (except for amounts held under the Indenture
which will be distributed to the Trustee):
(1) first, to the Trustee, the Collateral Agent, any Debt Service
Reserve LOC Provider and the Depositary, ratably, all administrative fees,
costs and expenses due and owing to these parties under the Financing
Documents and the Intercreditor Agreement;
(2) second, to the Secured Parties, ratably, an amount equal to the
unpaid amount of all Senior Debt constituting principal, interest, premium
(if any) and certain fees due and owing to the Secured Parties (including
commitment fees and fronting fees, if any, owed in respect of the Debt
Service Reserve Letter of Credit and commitment fees due and owing in
respect of the Working Capital Facility) by the Funding Corporation and the
Guarantors;
(3) third, to the Secured Parties, ratably, an amount equal to all
other unpaid amounts then due and payable in respect of all Senior Debt
owed to the Secured Parties;
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(4) fourth to the holders of Subordinated Debt, an amount equal to the
unpaid amount of all Subordinated Debt due and owing to the holders; and
(5) fifth, to the Funding Corporation (or its successors or assigns)
or to whomever a court of competent jurisdiction may direct, any surplus
remaining after giving effect to clauses first, second, third and fourth
above.
At the time the distribution is to be made pursuant to clause second
above, the Collateral Agent will set aside available monies (on a ratable basis
with the distribution) in a separate interest-bearing trust account in an
amount up to the then outstanding amount of the Debt Service Reserve Letter of
Credit (which outstanding amount will be calculated after giving effect to the
redemption of Securities from the distribution in clause second above). Upon a
subsequent draw on the Debt Service Reserve Letter of Credit, the Collateral
Agent will transfer monies from the separate account to the Debt Service
Reserve LOC Provider up to the amount so drawn on the Debt Service Reserve
Letter of Credit. Upon an expiration or termination of the Debt Service Reserve
Letter of Credit, monies in the separate account collateralizing the Debt
Service Reserve Letter of Credit will be released and applied as set forth in
clauses second, third, fourth and fifth above.
The proceeds of any sale, disposition or other realization on the
Collateral or Funding Corporation Collateral held for the benefit of some but
not all of the Secured Parties will be applied to the payment of obligations
owed to the parties for whose benefit the specific Collateral or Funding
Corporation Collateral was held.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own account as a
result of market-making activities of other trading activities in connection
with the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Securities. This prospectus, as it may
be amended or supplemented from time to time, may be used by participating
broker-dealers during the period referred to below in connection with resales
of New Securities received in exchange for Old Securities if the Old Securities
were acquired by the participating broker-dealers for their own accounts as a
result of the market-making or other trading activities. The Funding
Corporation has agreed that this prospectus, as it may be amended or
supplemented from time to time, may be used by a participating broker-dealer in
connection with resales of New Securities for a period ending 120 days after
the registration statement of which this prospectus is a part has been declared
effective (subject to extension under certain limited circumstances) or, if
earlier, when all New Securities have been disposed of by the participating
broker-dealer. See "The Exchange Offer--Resales of New Securities."
The Funding Corporation will not receive any proceeds from the issuance of
the New Securities offered by this prospectus. New Securities received by
broker-dealers for their own accounts in connection with the Exchange Offer may
be sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the New
Securities or a combination of these methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any resale may be made directly to purchasers
or to or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any broker-dealer and/or the purchasers of any
New Securities. Any broker-dealer that resells New Securities that were
received by it for its own account in connection with the exchange offer and
any broker-dealer that participates in a distribution of New Securities may be
deemed to be an "underwriter" within the meaning of the Securities Act, and any
profit on any resale of New Securities and any commissions or concessions
received by any of those persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is a "underwriter" within the
meaning of the Securities Act.
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INCORPORATION OF MATERIAL DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" the information we
file with them, which means we can disclose important information to you by
referring you to those documents. The information included in the following
documents is incorporated by reference and is considered to be a part of this
prospectus. The most recent information that we file with the Commission
automatically updates and supersedes more dated information. We have previously
filed the following documents with the Commission and are incorporating them by
reference into this prospectus:
1. Our Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, filed on March 31, 1999, and amended on April 27, 1999;
2. Our Quarterly Report on Form 10-Q, for the quarter ended
March 31, 1999, filed on May 14, 1999;
3. Our Current Report on Form 8-K, filed on February 2, 1999.
We also incorporate by reference all documents subsequently filed by us
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until all of
the Old Securities are exchanged for New Securities.
We will provide without charge to each person, including any person having
a control relationship with that person, to whom a prospectus is delivered, a
copy of any or all of the information that has been incorporated by reference
in this prospectus but not delivered with this prospectus. If you would like to
obtain this information from us, please direct your request, either in writing
or by telephone to David C. Dickey, Salton Sea Funding Corporation, 302 South
36th Street, Suite 400A, Omaha, Nebraska, 68131, (402) 231-1644. In order to
insure timely delivery of the documents, any request should be made five days
before July 30, 1999, which is when the exchange offer expires.
LEGAL MATTERS
Certain legal matters with respect to the New Securities will be passed
upon for the Funding Corporation and the Guarantors by Willkie Farr &
Gallagher, 787 Seventh Avenue, New York, New York.
EXPERTS
The financial statements of the Funding Corporation and the Royalty
Guarantor and the combined financial statements of Salton Sea Guarantors and
the Partnership Guarantors incorporated in this prospectus by reference from
the Funding Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, which are incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information for the
three-month periods ended March 31, 1999 and 1998 which is incorporated herein
by reference, Deloitte & Touche LLP have applied limited procedures in
accordance with professional standards for a review of such information.
However, as stated in their reports included in the Funding Corporation's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and
incorporated by reference herein, they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their reports or such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP are
not subject to the liability provisions of Section 11 of the Securities Act of
1933 for their reports on the unaudited interim financial information because
those reports are not "reports" or a "part" of the registration statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Act.
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INDEPENDENT ENGINEER
Fluor Daniel, Inc. has prepared the Independent Engineer's Report included
as Appendix B to this Prospectus. The Independent Engineer's Report should be
read in its entirety by all investors for information with respect to the
Projects and the related subjects discussed therein. The Independent Engineer's
Report has been included in this Prospectus in reliance upon the conclusions
therein of Fluor Daniel, Inc. and upon such firm's experience in preparing
independent engineer's reports for independent power projects.
CONSULTANTS' REPORTS
Henwood Energy Services, Inc. has prepared the Power Market Consultant's
Report included as Appendix C to this Prospectus. The Power Market Consultant's
Report should be read in its entirety by all investors for information with
respect to certain industry and regulatory matters affecting the sales of
electricity by the Power Projects and the related subjects discussed therein.
The Power Market Consultant's Report has been included in this Prospectus in
reliance upon the conclusions therein of Henwood Energy Services, Inc. and upon
such firm's experience in providing business advisory and other services and
market forecasts in electricity and gas to international firms and public
authorities.
GeothermEx, Inc. has prepared the Geothermal Resource Consultant's Report
included as Appendix D to this Prospectus. The Geothermal Resource Consultant's
Report should be read in its entirety by all investors for information with
respect to the sufficiency of the geothermal resources available for use and
for conversion to electrical power and recovery of zinc by the Projects and the
related subjects discussed therein. The Geothermal Resource Consultant's Report
has been included in this Prospectus in reliance upon the conclusions therein
of GeothermEx, Inc. and upon such firm's experience in preparing consultant's
reports for geothermal projects.
Resource Strategies International has prepared the Zinc Market
Consultant's Report included as Appendix E to this Prospectus. The Zinc Market
Consultant's Report should be read in its entirety by all investors for
information with respect to certain industry matters affecting the sales of
zinc by the Zinc Recovery Project and the related subjects discussed therein.
The Zinc Market Consultant's Report has been included in this Prospectus in
reliance upon the conclusions therein of Resource Strategies International and
upon such firm's experience in providing advisory services and production cost
and price forecasts to international commodity based industries as well as
financial institutions.
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APPENDIX A
GLOSSARY OF DEFINED TERMS
Unless the context requires otherwise, any reference in this prospectus to
any agreement means the agreement and all schedules, exhibits and attachments
to the agreement as amended, supplemented or otherwise modified and in effect
as of the date of this prospectus, and as the same may be amended, supplemented
or otherwise modified from time to time in accordance with the terms of the
agreement and of the Transaction Documents. All terms defined herein used in
the singular have the same meanings when used in the plural and vice versa.
Some of the terms defined below are summaries of terms defined in, and are
defined more specifically in, the Project Documents and the Financing
Documents. These summaries do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all of the provisions of
the Project Documents and the Financing Documents.
"ACCREDITED INVESTOR" means an institutional "accredited investor" within
the meaning of Subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the
Securities Act.
"ADDITIONAL PARTNERSHIP PROJECT NOTE" means the promissory note in the
initial principal amount of $201,728,000 issued by the Partnership Guarantors
in favor of the Funding Corporation under the Partnership Credit Agreement on
October 13, 1998.
"ADDITIONAL PROJECT DOCUMENT" means (a) any contract or undertaking
relating to the purchase or sale of electricity from the Projects entered into
by the Guarantors after the closing date for the Initial Securities, (b) any
consent or security instrument entered into by the Guarantors or any other
relevant party in connection with an Additional Project Document, or (c) any
contract or undertaking to which Funding Corporation or any Guarantor is a
party entered into after the closing date for the Initial Securities, relating
to (1) the supply, procurement, handling or transportation of brine to the
Projects, or (2) the design, construction, operation or maintenance of the
Projects; in each of clauses (a), (b) and (c), which is material to the
applicable Project.
"ADDITIONAL PROJECTS" means Permitted Facilities developed, owned,
operated, acquired or constructed after the closing date for the Initial
Securities as may be permitted in accordance with the terms of the Financing
Documents.
"ADDITIONAL SALTON SEA PROJECT NOTE" means the promissory note in the
initial principal amount of $83,272,000 issued by the Salton Sea Guarantors in
favor of the Funding Corporation under the Salton Sea Credit Agreement on
October 13, 1998.
"ADDITIONAL SECURITIES" means any Securities issued pursuant to the
Indenture, other than the Series F Securities, the Supplemental Securities and
the Initial Securities.
"APPROVED COMPLETION PLAN" means a plan to construct and complete a New
Project using liquidated damages payments and/or other funds available to the
Funding Corporation and the relevant Guarantors, which plan includes (a) a
certificate by the relevant Guarantors, confirmed (with customary assumptions
and qualifications) as reasonable by the Independent Engineer and/or the Zinc
Market Consultant, as applicable, stating that (1) the funds available to the
Guarantors are reasonably expected to be sufficient to reach Substantial
Completion for the New Project and (2) after reaching Substantial Completion,
the minimum and average Debt Service Coverage Ratios for the term of the Series
F Securities will not be less than 1.4 to 1 and 1.7 to 1, respectively, or (b)
a confirmation from the Rating Agencies that the construction and completion of
the New Project in accordance with the plan will not result in a Rating
Downgrade.
"AVAILABLE CASH FLOW" means, for any period:
(a) for any Initial Partnership Guarantor or the Royalty Guarantor,
as applicable, the total Equity Cash Flows and Royalties received
by the Guarantor, minus, without duplication,
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(1) any Royalties paid, (2) all Operating and Maintenance Costs,
(3) all capital expenditures for the Guarantor and its Project
and (4) debt service, all as computed by the Guarantor for the
period; and
(b) for any Additional Partnership Guarantor, the total revenues
received by the Guarantor, minus, without duplication, (1) any
Royalties paid, (2) all Operating and Maintenance Costs, (3) all
capital expenditures for the Guarantor and its Project and (4)
debt service, all as computed by the Guarantor for the period.
"AVOIDED COST OF ENERGY" means SCE's then-current, published, short-run
avoided cost of energy.
"AVOIDED COST OF ENERGY PERIOD" means the last 20-year period of the SO4
Agreements to which the Project Companies are parties, during which the Project
Companies receive energy payments based on SCE's Avoided Cost of Energy.
"BASE CASE PROJECTIONS" means the base case projections included in the
Independent Engineer's Report.
"BASE LOAD" means a power plant which is normally operated to supply all
or a part of the minimum load of a utility system and which, consequently,
operates at a high load factor.
"CAPACITY" means the electric power producing capability of a power plant.
"CAPITAL EXPENDITURE FUND" means the fund of such name created under the
Depositary Agreement.
"COLLATERAL" means the Salton Sea Collateral, the Partnership Collateral
and the Royalty Collateral.
"COLLATERAL AGENT" means Chase Manhattan Bank and Trust Company, National
Association, as collateral agent for the benefit of the Secured Parties and the
Funding Corporation under the Intercreditor Agreement, together with its
successors and assigns.
"COMBINED EXPOSURE" means, as of any date of calculation, the sum
(calculated without duplication) of the following, to the extent the same is
held by or represented by a Secured Party:
(1) the aggregate principal amount of all outstanding Securities;
(2) the aggregate principal amount of all Permitted Debt outstanding
(other than Subordinated Debt);
(3) the aggregate amount of all available undrawn financing
commitments under the documents governing the Permitted Debt
which the creditors party to such documents have no right to
terminate;
(4) the maximum amount available to be drawn under the Debt Service
Reserve Letter of Credit issued pursuant to the Debt Service
Reserve LOC Reimbursement Agreement (if any); and
(5) the termination payment due and owing as of the calculation date
or which the Permitted Counterparty thereunder has a right to
cause to be due and owing as of the calculation date under any
Interest Rate Protection Agreement.
"COMMERCIAL OPERATION" means the achievement by one of our geothermal
power plants or our new zinc recovery facility of certain operational criteria
under its power purchase agreement (if any) and the capability of the plant of
delivering energy in accordance with its power purchase agreement or selling
electricity or zinc into the market.
"CONSTRUCTION PERIOD DEBT SERVICE FUND" means the fund of such name
created under the Depositary Agreement.
"CONTRACT CAPACITY" means the electric power producing capability of the
relevant Project which is committed to SCE on a firm basis under the Project's
power purchase agreement.
"CONTRACT CAPACITY FACTOR" means, with respect to a particular Project,
(1) the Project's actual electricity output divided by (2) the product of the
Project's Contract Capacity and the number of hours in the measurement period
(less applicable maintenance hours).
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"CONTRACT CAPACITY PRICE" means the particular capacity payment price per
kWh stated in the relevant SO4 Agreement.
"CPUC" means the California Public Utilities Commission.
"CREDIT AGREEMENTS" means the Salton Sea Credit Agreement, the Partnership
Credit Agreement and the Royalty Credit Agreement.
"DEBT" of any person means, at any date, without duplication, (1) all
obligations of the person for borrowed money, (2) all obligations of the person
evidenced by bonds, debentures, notes or other similar instruments (excluding
"deposit only" endorsements on checks payable to the order of such person), (3)
all obligations of the person to pay the deferred purchase price of property or
services (except accounts payable and similar obligations arising in the
ordinary course of business shall not be included herein), (4) all obligations
of the person as lessee under capital leases to the extent required to be
capitalized on the books of the person in accordance with GAAP and (5) all
obligations of others of the type referred to in clause (1) through (4) above
guaranteed by the person, whether or not secured by a lien or other security
interest on any asset of the person.
"DEBT SERVICE COVERAGE RATIO" means for any period, without duplication,
the ratio of (1) (A) the sum of all revenues (including interest and fee income
but excluding any insurance proceeds and other similar non-recurring receipts)
of the Guarantors for the period, minus (B) the aggregate amount of Operating
and Maintenance Costs of the Guarantors for the period to (2) the sum of (A)
all principal, premium (if any) and interest (excluding interest during
construction) payable with respect to Permitted Debt outstanding (other than
Subordinated Debt) for the period, plus (B) the aggregate amount of overdue
principal, premium (if any) and interest (excluding interest during
construction) payments owed with respect to Permitted Debt outstanding (other
than Subordinated Debt) from previous periods, all as determined on a cash
basis in accordance with GAAP.
"DEBT SERVICE RESERVE FUND" means the fund of such name created under the
Depositary Agreement.
"DEBT SERVICE RESERVE FUND REQUIRED BALANCE" means (1) at any given time,
on or prior to December 31, 1999, an amount equal to the maximum semiannual
scheduled payment of principal, premium (if any) and interest due on the
outstanding Securities; (2) at any given time subsequent to December 31, 1999
through payment in full of the Initial Securities and the Supplemental
Securities, an amount equal to the maximum annual scheduled payment of
principal, premium (if any) and interest due on the outstanding Securities; and
(3) after payment in full of the Initial Securities and the Supplemental
Securities, (a) the maximum annual scheduled payment of principal, premium (if
any) and interest due on the outstanding Series F Securities or (b) if the
Rating Agencies confirm that no Rating Downgrade would occur as a result
thereof, the maximum semiannual scheduled payment of principal, premium (if
any) and interest due on the outstanding Series F Securities, in each case as
set forth in the Depositary Agreement.
"DEBT SERVICE RESERVE LETTER OF CREDIT" means one or more irrevocable,
direct pay letters of credit issued by the Debt Service Reserve LOC Provider in
favor of the Depositary.
"DEBT SERVICE RESERVE LOC LOAN" means each loan made by a Debt Service
Reserve LOC Provider to the Funding Corporation pursuant to the Debt Service
Reserve LOC Reimbursement Agreement.
"DEBT SERVICE RESERVE LOC PROVIDER" means the commercial bank(s) or
financial institution(s) issuing the Debt Service Reserve Letter of Credit (and
the "Agent" and "Banks" as each of these terms is defined in the Debt Service
Reserve LOC Reimbursement Agreement).
"DEBT SERVICE RESERVE LOC REIMBURSEMENT AGREEMENT" means the Amended and
Restated Debt Service Reserve Letter of Credit and Reimbursement Agreement,
dated as of the closing date for the Supplemental Securities, as amended by the
Amendment to Notes and the Amended and Restated Debt Service Reserve Letter of
Credit and Reimbursement Agreement dated as of the closing date for the Series
F Securities.
"DEL RANCH PPA" means the Long Term Power Purchase Agreement, dated
February 22, 1984, as amended, between SCE and Del Ranch, as successor to
Magma.
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"DEPOSITARY" means Chase Manhattan Bank and Trust Company, National
Association, as depositary under the Depositary Agreement.
"DEPOSITARY AGREEMENT" means the Amended and Restated Deposit and
Disbursement Agreement, dated as of October 13, 1998, among the Funding
Corporation, the Collateral Agent, the Depositary and the Guarantors.
"DISTRIBUTION FUND" means the fund of such name created under the
Depositary Agreement.
"DISTRIBUTION SUSPENSE FUND" means the fund of such name created under the
Depositary Agreement.
"ELMORE PPA" means the Long Term Power Purchase Agreement, dated June 15,
1984, as amended, between SCE and Elmore, as successor to Magma.
"EMINENT DOMAIN PROCEEDS" means all amounts and proceeds (including
instruments) received (to the extent, if any, in the case of a Partnership
Guarantor other than a Partnership Project Company, as Equity Cash Flows) in
respect of any Event of Eminent Domain, after deducting all reasonable expenses
incurred in litigating, arbitrating, compromising, settling or consenting to
the settlement of any claims against the appropriate governmental authority.
"EQUITY CASH FLOWS" means, with respect to the Initial Partnership
Guarantors, the cash flow available to the Guarantors from equity distributions
made by the Partnership Project Companies and not otherwise required to be used
(x) for Operating and Maintenance Costs or (y) otherwise pursuant to a
Partnership Project document or financing document.
"EQUITY COMMITMENT AGREEMENT" means the Equity Commitment Agreement, dated
as of October 13, 1998, by MidAmerican in favor of the Guarantors and the
Collateral Agent.
"EVENT OF DEFAULT" means the occurrence of an event of default under the
Indenture.
"EVENT OF EMINENT DOMAIN" means any compulsory transfer or taking or
transfer under threat of compulsory transfer or taking of any material part of
the Collateral or the Projects by any governmental authority.
"EVENT OF LOSS" means an event which causes all or a portion of a Project
to be damaged, destroyed or rendered unfit for normal use for any reason
whatsoever, other than an Event of Eminent Domain or a Title Event.
"EXEMPT WHOLESALE GENERATOR" means an "exempt wholesale generator" as such
term is defined in the Energy Policy Act of 1992.
"FINANCING DOCUMENTS" means, collectively, the Credit Agreements, the
Guarantees, the Indenture, the Project Notes, the Registration Rights
Agreement, the Depositary Agreement, any Interest Rate Protection Agreements,
the Intercreditor Agreement, the Securities, the Debt Service Reserve LOC
Reimbursement Agreement, the Working Capital Facility, the Security Documents,
the Support Letter and the Equity Commitment Agreement.
"FIRM OPERATION" means, with respect to a Project, that the Project has
been determined to be a reliable source of generation, and that the Project can
be reasonably expected to operate continuously at its effective rating.
"FIRM OPERATION DATE" means the date a Project achieves Firm Operation.
"FIXED PRICE PERIOD" means the initial ten-year period of the SO4
Agreements to which some of the Project Companies are parties during which
these Project Companies receive either Annual Forecast Energy Payments or
Levelized Energy Payments, as applicable.
"FORECAST OF ANNUAL MARGINAL COST OF ENERGY SCHEDULE" means the schedule
of such name prepared by SCE in the Annual Forecast Energy Payment SO4
Agreements which provides that the energy payment price payable by SCE per kWh
is equal to 15.6 cents for 1999:
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"FUNDING CORPORATION COLLATERAL" means the pledge of the capital stock of
the Funding Corporation.
"FUNDING PLEDGE AGREEMENT" means the Stock Pledge Agreement, dated as of
the closing date for the Initial Securities, by Magma, pledging the stock of
Funding Corporation in favor of the Collateral Agent for the benefit of the
Secured Parties.
"FUNDS" means the funds established under the Depositary Agreements.
"GUARANTEED SUBSTANTIAL COMPLETION DATE" means (1) with respect to the
Zinc Recovery Project, November 30, 2001, (2) with respect to Salton Sea Unit
V, June 30, 2001, and (3) with respect to the Region 2 Construction, March 1,
2001, in each case as may be extended pursuant to an Approved Completion Plan,
if applicable.
"GUARANTEES" means, collectively, the Salton Sea Guarantee, the
Partnership Guarantee and the Royalty Guarantee.
"INDENTURE" means the Trust Indenture, dated as of the closing date for
the Initial Securities, as supplemented by the First Supplemental Indenture
thereto dated as of October 18, 1995, the Second Supplemental Indenture thereto
dated as of the closing date for the Supplemental Securities, the Third
Supplemental Indenture thereto dated as of July 29, 1996, the Fourth
Supplemental Indenture thereto dated as of the closing date for the Old
Securities, the Fifth Supplemental Indenture thereto dated as of February 16,
1999, and the Sixth Supplemental Indenture thereto dated as of June 29, 1999,
each by and between the Funding Corporation and the Trustee.
"INDEPENDENT ENGINEER" means (1) with respect to any Existing Project,
Stone & Webster Engineering Corporation, and (2) with respect to any New
Project, Fluor Daniel, Inc., or, in each case, another widely recognized
independent engineering firm or engineer retained as independent engineer by
the Funding Corporation.
"INITIAL PARTNERSHIP PROJECT NOTE means the promissory note in the initial
principal amount of $75,000,000 issued by the Initial Partnership Guarantors in
favor of the Funding Corporation under the Partnership Credit Agreement on the
closing date for the Initial Securities, and reissued by the Partnership
Guarantors on the closing date for the Supplemental Securities and the closing
date for the Old Securities.
"INITIAL PURCHASERS" means Credit Suisse First Boston Corporation and
Goldman, Sachs & Co.
"INITIAL SALTON SEA PROJECT NOTE" means the promissory note in the initial
principal amount of $325,000,000 issued by the Initial Salton Sea Guarantors in
favor of the Funding Corporation under the Salton Sea Credit Agreement on the
closing date for the Initial Securities, and reissued by the Salton Sea
Guarantors on the closing date for the Old Securities.
"INSURANCE CONSULTANT" means Sedgwick James of Tennessee, Inc. or another
widely recognized insurance consulting firm retained as insurance consultant by
the Funding Corporation.
"INTERCREDITOR AGREEMENT" means the Collateral Agency and Intercreditor
Agreement, dated as of the closing date for the Initial Securities, among the
Collateral Agent, the Depositary, the Secured Parties, the Funding Corporation
and the Initial Guarantors, as amended pursuant to Amendment No. 1 thereto,
dated as of the closing date for the Supplemental Securities and as further
amended by Amendment No. 2 thereto, dated as of the closing date for the Old
Securities, among the Collateral Agent, the Depositary, the Secured Parties,
the Funding Corporation and the Guarantors.
"INTEREST FUND" means the fund of such name created under the Depositary
Agreement.
"INTEREST PAYMENT DATE" means with respect to (1) any Security, each May
30th and November 30th, and (2) any Debt Service Reserve LOC Loan or Debt
Service Reserve Bond, each regularly scheduled date on which interest is due
and payable, as that date may be established from time to time pursuant to the
Debt Service Reserve LOC Reimbursement Agreement.
"INVESTMENT GRADE RATING" means a rating of "BBB-" or higher from S&P and
"Baa3" or higher from Moody's (or an equivalent rating by another nationally
recognized credit rating agency if none of such corporations is rating the
Securities).
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"KV" means "kilovolt" or one thousand volts.
"KW" means "kilowatt" or one thousand watts.
"KWH" means "kilowatt-hour" or a unit of electrical energy equal to one
kilowatt of power supplied or taken from an electric circuit steadily for one
hour.
"LEATHERS PPA" means the Long Term Power Purchase Agreement, dated as of
April 16, 1985, as amended, between SCE and Leathers, as successor to Magma.
"LETTER OF TRANSMITTAL" means the letter of transmittal which accompanies
this prospectus and which is filed as an exhibit to the registration statement
for the New Securities.
"LIENS" means any mortgage, pledge, hypothecation, assignment, mandatory
deposit arrangement with any person owning Debt of that person, encumbrance,
lien (statutory or other), preference, priority or other security agreement of
any kind or nature whatsoever which has the substantial effect of constituting
a security interest, including, without limitation, any conditional sale or
other title retention agreement, any financing lease having substantially the
same effect as any of the foregoing and the filing of any financing statement
or similar instrument under the Uniform Commercial Code or comparable law of
any jurisdiction, domestic or foreign.
"LOSS PROCEEDS" means all net proceeds from an Event of Loss, including,
without limitation, insurance proceeds or other amounts actually received (to
the extent, in the case of an Initial Partnership Guarantor or VPC Geothermal,
Conejo, Niguel and San Felipe, received in the form of Equity Cash Flows),
except proceeds of delayed opening or business interruption insurance, on
account of an event which causes all or a substantial portion of the relevant
Project to be damaged, destroyed or rendered unfit for normal use.
"LOSS PROCEEDS FUND" means the fund of such name created under the
Depositary Agreement.
"MAGMA ASSIGNMENT AGREEMENT" means the Assignment Agreement, dated as of
June 30, 1995, by Magma in favor of the Royalty Guarantor.
"MAGMA LAND" means Magma Land Company I, a Nevada corporation.
"MAGMA SERVICES AGREEMENT" means the Services Agreement, dated as of the
closing date for the Initial Securities, between Magma and CEOC.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (1) the
financial position or results of operation of the Funding Corporation and the
Guarantors, taken as a whole, (2) the validity or priority of the Liens on the
Collateral and the Funding Corporation Collateral, (3) the ability of the
Funding Corporation to perform its material obligations under the Indenture,
the Securities or any of the other Financing Documents to which it is a party,
(4) the ability of the Trustee to enforce any of the payment obligations of the
Funding Corporation under the Indenture or the Securities, or (5) the ability
of the Guarantors to perform any of their material obligations under their
Project Notes or the other Financing Documents to which they are a party.
"MW" means "megawatt" or one million watts.
"MWH" means "megawatt-hour" or one thousand kilowatt-hours.
"OPERATING AND MAINTENANCE COSTS" means all amounts disbursed by or on
behalf of the Guarantors for operation, maintenance, repair, or improvement of
their Projects, including, without limitation, premiums on insurance policies,
property and other taxes, and payments under the relevant operating and
maintenance agreements, leases, royalty and other land use agreements, and any
other payments required under the Project Documents.
"OPERATING BUDGET" means a budget of Operating and Maintenance Costs, and
a long-term maintenance program with respect to the Guarantors and the Projects
owned and operated by the Guarantors, for any given fiscal year or part
thereof, and prepared on the basis of estimated requirements, showing such
costs by category for such fiscal year.
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"PARTNERSHIP COLLATERAL" means (a) an assignment of all revenues received
by the Partnership Guarantors from the Partnership Projects which will be
applied in accordance with the priorities of payment established under the
Depositary Agreement; (b) a Lien on substantially all of the assets of each of
the Partnership Guarantors and the Partnership Projects; (c) a collateral
assignment of certain material contracts; (d) a pledge of the capital stock of
(or other equity interests in) the Partnership Guarantors; (e) a Lien on the
Zinc Construction Fund, the Region 2 Construction Fund and any other funds
established for the Partnership Guarantors under the Depositary Agreement; and
(f) any other collateral securing the obligations of the Partnership Guarantors
under the Partnership Credit Agreement, the Partnership Guarantee or any other
Financing Documents to which the Partnership Guarantors are party.
"PARTNERSHIP GUARANTEE" means the Second Amended and Restated Secured
Limited Guarantee, dated as of the closing date for the Old Securities, by the
Partnership Guarantors in favor of the Trustee and the Collateral Agent for the
benefit of the Secured Parties.
"PARTNERSHIP PROJECT DOCUMENTS" means, collectively, the construction
contracts, power purchase agreements, transmission agreements, fuel supply
agreements, fuel transportation agreements, operation and maintenance
agreements, administrative services agreements, real estate documents,
organizational documents and other material agreements entered into with
respect to the Partnership Projects, including any Additional Project Document
entered into with respect to the Partnership Projects.
"PARTNERSHIP PROJECT NOTE" means, collectively, the Initial Partnership
Project Note, the Supplemental Partnership Project Note and the Additional
Partnership Project Note.
"PARTNERSHIP SECURITY DOCUMENTS" means any security agreement, pledge
agreement, deed of trust, collateral assignment or other document pursuant to
which the Partnership Collateral is pledged to the Collateral Agent.
"PAYMENT DATE" means any Interest Payment Date or Principal Payment Date.
"PERMITTED COUNTERPARTY" means, in connection with an Interest Rate
Protection Agreement, a financial institution whose long-term senior debt is
rated at least "BBB+" by S&P and "Baa1" by Moody's or the equivalent by the
Rating Agencies.
"PERMITTED FACILITY" means (1) an electric power or thermal energy
generation or cogeneration facility or related facilities (including residual
waste management and facilities that use thermal energy from a cogeneration
facility), and its or their related electric power transmission, fuel supply
and fuel transportation facilities, together with its or their related power
supply, thermal energy and fuel contracts and other facilities, services or
goods that are ancillary, incidental, necessary or reasonably related to the
marketing, development, construction, management, servicing, ownership or
operation of the foregoing, owned by a utility or otherwise, as well as other
contractual arrangements with customers, suppliers and contractors or (2) any
infrastructure facilities related to (A) the treatment of water for municipal
and other uses, (B) the treatment and/or management of waste water, (C) the
treatment, management and/or remediation of waste, pollution and/or potential
pollutants and (D) any other process or environmental purpose.
"PERMITTED GUARANTOR DEBT" means (a) proceeds of Permitted Debt loaned to
Guarantors by the Funding Corporation, (b) guarantees by one or more of the
Guarantors of Permitted Debt, (c) the Guarantees and (d) the Project Notes.
"PERMITTED INVESTMENTS" means investments in securities that are:
(1) direct obligations of the United States, or any agency thereof;
(2) obligations fully guaranteed by the United States or any agency
thereof;
(3) certificates of deposit or bankers acceptances issued by
commercial banks (including the Trustee or any of its affiliates)
organized under the laws of the United States or of any political
subdivision thereof or under the laws of Canada, Japan,
Switzerland or any country that is a member of the European
Economic Community having a combined
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capital and surplus of at least $250 million and having long-term
unsecured debt securities then rated "A" or better by S&P or
"A-2" or better by Moody's (but at the time of investment not
more than $25,000,000 may be invested in such certificates of
deposit from any one bank);
(4) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (1)
and (2) above, entered into with any financial institution
meeting the qualifications specified in clause (3) above;
(5) open market commercial paper of any corporation incorporated or
doing business under the laws of the United States or of any
political subdivision thereof having a rating of at least "A-1"
from S&P and "P-1" from Moody's (but at the time of investment
not more than $25,000,000 may be invested in such commercial
paper from any one company);
(6) auction rate securities or money market preferred stock having
one of the two highest ratings obtainable from either S&P or
Moody's (or, if at any time neither S&P nor Moody's may be rating
such obligations, then from another nationally recognized rating
service acceptable to the Trustee); or
(7) investments in money market funds or money market mutual funds
sponsored by any securities broker dealer of recognized national
standing (or an affiliate thereof), having an investment policy
that requires substantially all the invested assets of such fund
to be invested in investments described in any one or more of the
foregoing clauses having a rating of "A" or better by S&P or
"A-2" or better by Moody's (including money market funds for
which the Depositary in its individual capacity or any of its
affiliates is investment manager or adviser).
"PERMITTED LIEN" means, collectively:
(1) Liens specifically permitted, required by or created by, any
Security Document;
(2) Liens to secure Permitted Debt and Permitted Guarantor Debt
(other than Subordinated Debt);
(3) Liens for taxes, assessments or governmental charges which are
either not yet due or which are being diligently contested in
good faith by appropriate proceedings and for which adequate
reserves are established in accordance with GAAP;
(4) any exceptions to title which are contained in the title policy
delivered to the Collateral Agent;
(5) Liens in connection with workmen's compensation, unemployment
insurance or other social security or pension obligations;
(6) mechanic's, workmen's, materialmen's, supplier's, construction or
other like Liens arising in the ordinary course of business or
incident to the construction of any Permitted Facilities
permitted to be developed or expanded under the Transaction
Documents;
(7) servitudes, easements, rights-of-way, restrictions, minor defects
or irregularities in title and such other encumbrances or charges
against real property or interests therein as are of a nature
generally existing with respect to properties of a similar
character and which do not in any material way interfere in any
material way with the use thereof in the business of the
Guarantors; and
(8) other Liens incidental to the conduct of the Guarantors' business
or the ownership of properties and assets which were not incurred
in connection with the borrowing of money or the obtaining of
advances or credit (other than vendor's liens for accounts
payable in the ordinary course of business), and which do not in
the aggregate materially impair the use thereof in the operation
of their business.
"PERMITTED POWER CONTRACT BUY-OUT" means the termination of a Power
Purchase Agreement or the negotiated reduction of capacity and energy to be
sold under a Power Purchase Agreement other than pursuant to such agreement's
terms and the payment by SCE made in connection therewith.
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"PH MODIFICATION PROCESS" means the process whereby the pH of liquid brine
is reduced by injection of a pH modification agent into the liquid brine. The
pH Modification Process results in decreased scaling and mineral buildup
because solids in the more acidic liquid brine remain in solution rather than
precipitating out, as occurs if the brine is untreated.
"POWER PURCHASE AGREEMENTS" means the Del Ranch PPA, the Elmore PPA, the
Leathers PPA, the Salton Sea Unit I PPA, the Salton Sea Unit II PPA, the Salton
Sea Unit III PPA, the Salton Sea Unit IV PPA and the Vulcan PPA.
"PRINCIPAL FUND" means the fund of such name created under the Depositary
Agreement.
"PRINCIPAL PAYMENT DATE" when used with respect to (1) any Security means
the date on which all or a portion of the principal of such Security becomes
due and payable as provided therein or in the Indenture, whether on a scheduled
date for payment of principal at a Redemption Date, the final maturity date for
the Securities, a date of declaration of acceleration, or otherwise, (2) any
Debt Service Reserve Bond means each May 30th and November 30th, commencing on
the first such date after the relevant conversion, and the date on which all or
a portion of the principal of such Debt Service Reserve Bond becomes due and
payable at redemption, the final maturity date or declaration of acceleration,
or otherwise or (3) any Debt Service Reserve LOC Loan means each regularly
scheduled date on which principal is due and payable, as such date may be
established from time to time, commencing on the first such date after the
applicable drawing, and any date on which principal of such Debt Service
Reserve LOC Loan becomes due and payable at redemption, the final maturity or
declaration of acceleration, or otherwise.
"PROJECT COMPANIES" means, collectively, the Salton Sea Guarantors and the
Partnership Project Companies.
"PROJECT DOCUMENTS" means, collectively, the Partnership Project
Documents, the Salton Sea Project Documents and the Magma Assignment Agreement.
"PROJECT NOTES" mean the Partnership Project Notes, the Royalty Project
Note and the Salton Sea Project Notes and any additional notes issued under the
Partnership Credit Agreement, the Royalty Credit Agreement or the Salton Sea
Credit Agreement.
"PROJECTS" means, individually or collectively, the Del Ranch Project, the
Elmore Project, the Leathers Project, Salton Sea Unit I, Salton Sea Unit II,
Salton Sea Unit III, Salton Sea Unit IV, Salton Sea Unit V, the Vulcan Project,
the CE Turbo Project, the Zinc Recovery Project, and any other power plant or
Permitted Facility the acquisition, construction, operation or maintenance of
which is financed in whole or in part with Permitted Debt.
"PURCHASE AGREEMENT means the Purchase Agreement, dated October 7, 1998,
between the Initial Purchasers and the Funding Corporation, providing for the
sale of the Old Securities to the Initial Purchasers.
"PX" means the California Power Exchange.
"QF" OR "QUALIFYING FACILITY" means a "small power production facility" or
a "qualifying cogeneration facility" in accordance with PURPA and the rules and
regulations of FERC under PURPA relating thereto.
"QUALIFIED INSTITUTIONAL BUYERS" means "qualified institutional buyers" as
defined in Rule 144A of the Securities Act.
"RATING" means the rating of the Securities by the Rating Agencies.
"RATING AGENCY" means any of Moody's and S&P.
"RATING DOWNGRADE" means a lowering by the Rating Agencies of the then
current Ratings of the Securities.
"REDEMPTION DATE" means the date on which Funding Corporation redeems or
shall redeem any Securities in accordance with the Indenture.
A-9
<PAGE>
"REDEMPTION FUND" means the fund of such name created under the Depositary
Agreement.
"REGION 2 CONSTRUCTION FUND" means the fund of such name created under the
Depositary Agreement.
"REGION 2 UPGRADE EPC CONTRACT" means that certain Region 2 Upgrade
Engineering, Procurement, and Contraction Contract, dated September 11, 1998,
among Vulcan, Del Ranch, Turbo LLC, and SWEC.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the closing date for the Old Securities, between the Funding
Corporation and the Initial Purchasers for the benefit of the holders of the
Old Securities.
"REGULATION S" means Regulation S under the Securities Act.
"REQUIRED SECURED PARTIES" means, at any time, persons that at such time
hold at least 331/3% of the Combined Exposure.
"REQUIRED SECURITY HOLDERS" means those Holders holding at least 50% in an
aggregate principal amount of the outstanding Securities.
"RESTRICTED PAYMENT" means, with respect to any person, (1) the
declaration and payment of distributions, dividends or any other payment made
in cash, property, obligations or other securities, (2) any payment of the
principal of or interest on any Subordinated Debt, or (3) the making of any
loans or advances to any affiliate (other than Permitted Debt); in each case
from cash, investments, securities or other funds from time to time in the
Distribution Suspense Fund or Distribution Fund.
"REVENUE FUND" means the fund of such name created under the Depositary
Agreement.
"ROYALTIES" means (1) with respect to the Royalty Guarantor, any and all
royalties received by Magma pursuant to the Partnership Project Easements, in
each case, to the extent not otherwise required to be used for Operating and
Maintenance Costs, and (2) with respect to the Initial Partnership Guarantors,
certain royalties, fees and other payments received by VPC and CEOC under the
Partnership Project project documents to the extent not otherwise required to
be used for (A) Operating and Maintenance Costs or (B) pursuant to a
Partnership Project document or financing document.
"ROYALTY COLLATERAL" means (1) an assignment of all Royalties paid to the
Royalty Guarantor which will be applied in accordance with the priorities of
payment established under the Depository Agreement, (2) a collateral assignment
of certain material contracts of the Royalty Guarantor, (3) a pledge of the
capital stock of the Royalty Guarantor, (4) a Lien on any funds established for
the Royalty Guarantor under the Depositary Agreement and (5) any other
collateral securing the obligations of the Royalty Guarantor under the Royalty
Credit Agreement, the Royalty Guarantee or any other Financing Document to
which the Royalty Guarantor is a party.
"ROYALTY GUARANTEE" means the Guarantee by the Royalty Guarantor in favor
of the Trustee and the Collateral Agent for the benefit of the Secured Parties.
"ROYALTY PROJECT NOTE" means the promissory note in the principal amount
of $75,000,000 issued by the Royalty Guarantor in favor of the Funding
Corporation under the Royalty Credit Agreement on the closing date for the
Initial Securities.
"ROYALTY SECURITY DOCUMENTS" means any security agreement, pledge
agreement, deed of trust, collateral assignment or other document pursuant to
which the Royalty Collateral is pledged to the Collateral Agent.
"RULE 144A" means Rule 144A under the Securities Act.
"SALTON SEA COLLATERAL" means (1) an assignment of all revenues received
by the Salton Sea Guarantors from the Salton Sea Projects which will be applied
in accordance with the priorities of payment established under the Depositary
Agreement; (2) a Lien on substantially all of the assets of each of the Salton
Sea Guarantors and the Salton Sea Projects; (3) a collateral assignment of
certain material
A-10
<PAGE>
contracts; (4) a pledge of the capital stock of (or other equity interests in)
the Salton Sea Guarantors; (5) a Lien on the Salton Sea Unit V Construction
Fund and any other funds established for the Salton Sea Guarantors under the
Depositary Agreement; and (6) any other collateral securing the obligations of
the Salton Sea Guarantors under the Salton Sea Credit Agreement, the Salton Sea
Guarantee or any other Financing Document to which the Salton Sea Guarantors
are party.
"SALTON SEA GUARANTEE" means the Amended and Restated Secured Guarantee,
dated as of the closing date for the Old Securities, by the Salton Sea
Guarantors in favor of the Trustee and the Collateral Agent for the benefit of
the Secured Parties.
"SALTON SEA PROJECT DOCUMENTS" means, collectively, the construction
contracts, power purchase agreements, transmission agreements, fuel supply
agreements, fuel transportation agreements, operation and maintenance
agreements, administrative services agreements, real estate documents,
organizational documents and other material agreements entered into with
respect to the Salton Sea Projects, including any Additional Project Documents
entered into with respect to the Salton Sea Projects.
"SALTON SEA PROJECT NOTE" means, collectively, the Initial Salton Sea
Project Note and the Additional Salton Sea Project Note.
"SALTON SEA SECURITY DOCUMENTS" means any security agreement, pledge
agreement, deed of trust, collateral assignment or other document pursuant to
which the Salton Sea Collateral is pledged to the Collateral Agent.
"SALTON SEA UNIT I PPA" means the Amended and Restated Power Purchase
Agreement, dated May 8, 1987, between SSPG and SCE.
"SALTON SEA UNIT II PPA" means the Power Purchase Agreement, dated
April 16, 1985, between SSPG and SCE.
"SALTON SEA UNIT III PPA" means the Power Purchase Agreement, dated
April 16, 1985, between SCE and SSPG.
"SALTON SEA UNIT IV PPA" means the Consolidated, Amended and Restated
Power Purchase Agreement, dated November 29, 1994, among SCE, Fish Lake and
SSPG.
"SALTON SEA UNIT V CONSTRUCTION FUND" means the fund of such name created
under the Depositary Agreement.
"SALTON SEA UNIT V EPC CONTRACT" means that certain Salton Sea Unit 5
Engineering, Procurement, and Contraction Contract, dated September 2, 1998,
between Power LLC, as owner, and SWEC, as contractor.
"SALTON SEA UNIT V PPA" means the Power Sales Agreement, dated as of the
closing date for the Old Securities, between Power LLC and Minerals LLC.
"SECURED OBLIGATIONS" means all indebtedness, liabilities and obligations,
of whatsoever nature and howsoever evidenced (including, but not limited to,
principal, interest, fees, reimbursement obligations, penalties, indemnities
and legal and other expenses, whether due after acceleration or otherwise), to
the Secured Parties, in each case, direct or indirect, primary or secondary,
fixed or contingent, now or hereafter arising.
"SECURED PARTIES" means the Trustee, the Collateral Agent, the Depositary,
the Debt Service Reserve LOC Provider, any party that becomes a Permitted
Counterparty under an Interest Rate Protection Agreement, any party that
becomes the agent under the Working Capital Facility and any other person that
becomes a Secured Party under any Financing Document.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY" OR "SECURITIES" means any of the Old Securities, the New
Securities, the Initial Securities, the Supplemental Securities and any
Additional Securities issued pursuant to the Indenture.
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<PAGE>
"SECURITY DOCUMENTS" means, collectively, the Depositary Agreement, the
Funding Pledge Agreement, the Intercreditor Agreement, the Partnership Security
Documents, the Royalty Security Documents, the Salton Sea Security Documents
and any other document providing for any lien, pledge, encumbrance, mortgage or
security interest on any or all of the Collateral or Funding Corporation
Collateral.
"SECURITY HOLDER" means the registered holder of any Security from time to
time.
"SENIOR DEBT" means all of the Permitted Debt of the Funding Corporation
other than the Subordinated Debt.
"SO4 AGREEMENT" means an Interim Standard Offer No. 4 long-term power
purchase agreement or a modified Interim Standard Offer No. 4 long-term power
purchase agreement.
"SUBORDINATED DEBT" means Debt (and the note or other instrument
evidencing the same) which has been subordinated, on terms and conditions
substantially the same as those permitted under the Indenture, to the prior
payment of amounts owing under the Indenture and the Securities.
"SUBSTANTIAL COMPLETION" of a Project means that (1) the Project is
substantially complete in accordance with the construction contract therefor
and all applicable laws and permits, (2) all services required to be furnished
by the contractors for the Project are substantially completed and all material
equipment for the Project has been delivered and properly incorporated, (3) all
necessary performance and startup testing required for substantial completion
of the Project under its construction contract and other significant
pre-commissioning activities for the Project have been conducted, (4) a
punchlist of items to be finished or completed for the Project has been
prepared, and (5) all significant events necessary to allow commercial
operation of the Project to be declared have been met, in each case as
confirmed (with customary qualifications and assumptions) by the Independent
Engineer; provided, however, that a New Project will be deemed to have achieved
Substantial Completion notwithstanding its failure to satisfy the conditions
set forth in clauses (1) through (5) above if (a) the Funding Corporation has
redeemed an amount of Series F Securities such that the minimum and average
projected Debt Service Coverage Ratios for the term of the Series F Securities
are greater than or equal to 1.4 to 1 and 1.7 to 1, respectively, (b) the
Funding Corporation has been required to redeem, and has redeemed, an amount of
Series F Securities equal to the amount specified for the New Project in the
third paragraph under "Summary Description of the Series F
Securities--Mandatory Redemption," or (c) the Funding Corporation and the
Guarantors have taken such other measures as the Rating Agencies may require to
confirm that the failure to achieve Substantial Completion on or before the
applicable Guaranteed Substantial Completion Date will not result in a Rating
Downgrade.
"SUPPLEMENTAL PARTNERSHIP GUARANTEE" means the Amended and Restated
Guarantee, dated as of the closing date for the Supplemental Securities, by the
Initial Partnership Guarantors and the Supplemental Partnership Guarantors in
favor of the Trustee and the Collateral Agent for the benefit of the Secured
Parties.
"SUPPLEMENTAL PARTNERSHIP PROJECT NOTE" means the promissory note in the
initial principal amount of $135,000,000 issued by the Initial Partnership
Guarantors and the Supplemental Partnership Guarantors in favor of the Funding
Corporation under the Partnership Credit Agreement on the closing date for the
Supplemental Securities.
"SUPPORT LETTER" means the letter agreement, dated as of the closing date
for the Initial Securities, among Magma, the Funding Corporation and the
Initial Guarantors.
"TITLE EVENT" means the existence of any defect of title or lien or
encumbrance on a Salton Sea Project or a Partnership Project (in each case,
other than certain permitted liens) in effect on the closing date for the
Initial Securities or the closing date for the Old Securities, as applicable,
that entitles the Collateral Agent to make a claim under the policy or policies
of title insurance required pursuant to the Financing Documents.
"TITLE EVENT PROCEEDS" means all amounts and proceeds (including
instruments) received in respect of any Title Event.
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<PAGE>
"TRANSACTION DOCUMENTS" means the Project Documents and the Financing
Documents.
"TRUSTEE" means Chase Manhattan Bank and Trust Company, National
Association, as trustee under the Indenture, together with its successors and
assigns.
"UNCONTROLLABLE FORCE," with respect to any Power Purchase Agreement,
means any occurrence beyond the control of a party which causes that party to
be unable to perform its obligations under the relevant agreement and which a
party has been unable to overcome by the exercise of due diligence, including
but not limited to flood, drought, earthquake, storm, fire, pestilence,
lightning and other natural catastrophes, epidemic, war, riot, civil
disturbance or disobedience, strike, labor dispute, action or inaction of
government or other proper authority which may conflict with the terms of the
agreement, or failure, threat of failure or sabotage of facilities which have
been maintained in accordance with good engineering and operating practices in
California. The failure of the interconnecting utility to deliver electrical
energy generated by a Project to the point of interconnection is not considered
an Uncontrollable Force under the relevant Power Purchase Agreement.
"VULCAN PPA" means the Long Term Power Purchase Agreement, dated March 1,
1984, as amended, between SCE and Vulcan, as successor to Magma Electric
Company, a Nevada corporation.
"WORKING CAPITAL DEBT" means the working capital loans provided under the
Working Capital Facility in an aggregate principal amount not to exceed
$15,000,000.
"WORKING CAPITAL FACILITY" means any agreement or agreements from time to
time in effect among Funding Corporation and banks providing for the
availability of working capital loans to the Funding Corporation and the
Guarantors.
"YIELD MAINTENANCE PREMIUM" means an amount calculated by the Funding
Corporation or any Guarantor as of the Redemption Date for any redemption of
Series F Securities as follows:
(1) the average life of the remaining scheduled payments of principal
in respect of outstanding Series F Securities (the "Remaining
Average Life") will be calculated as of the Redemption Date;
(2) the yield to maturity will be calculated for the U.S. Treasury
security having an average life equal to the Remaining Average
Life and trading in the secondary market at the price closest to
par (the "Primary Issue"); provided, however, that if no U. S.
Treasury security has an average life equal to the Remaining
Average Life, the yields (the "Other Yields") for the two
maturities of United States Treasury securities having average
lives most closely corresponding to the Remaining Average Life
and trading in the secondary market at the price closest to par
will be calculated, and the yield to maturity for the Primary
Issue will be the yield interpolated or extrapolated from such
Other Yields on a straight-line basis, rounding in each of such
relevant periods to the nearest month;
(3) the discounted present value of the then remaining scheduled
payments of principal and interest (but excluding that portion of
any scheduled payment of interest that is actually due and paid
on such Redemption Date) in respect of outstanding Series F
Securities will be calculated as of the Redemption Date using a
discount factor equal to the sum of (a) the yield to maturity for
the Primary Issue, plus (b) 50 basis points; and
(4) the amount of premium in respect of Series F Securities to be
redeemed will be an amount equal to (a) the discounted present
value of the Series F Securities to be redeemed determined in
accordance with clause (3) above minus (b) the unpaid principal
amount of the Series F Securities to be redeemed; provided,
however, that the premium will not be less than zero.
"ZINC CONSTRUCTION FUND" means the fund of such name created under the
Depositary Agreement.
"ZINC RECOVERY PROJECT EPC CONTRACT" means that certain Zinc Recovery
Project Engineering, Procurement, and Contraction Contract, dated September 16,
1998, between Minerals LLC, as owner, and Kvaerner, as contractor.
A-13
<PAGE>
APPENDIX B
INDEPENDENT ENGINEER'S REPORT
SALTON SEA PROJECT ANALYSIS
PREPARED FOR
SALTON SEA FUNDING CORPORATION
SEPTEMBER 23, 1998
FLUOR DANIEL, INC.
IRVINE, CALIFORNIA
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION TITLE PAGE
- ------- ----- ----
<S> <C> <C>
1.0 Executive Summary and Conclusions ......................................... B-2
1.1 Executive Summary ......................................................... B-2
1.2 Conclusions ............................................................... B-5
2.0 Scope of Services ......................................................... B-10
3.0 Facilities Overview ....................................................... B-10
3.1 General Description ....................................................... B-10
3.2 Management and Organization ............................................... B-11
3.3 Salton Sea Projects ....................................................... B-12
3.4 Partnership Projects ...................................................... B-13
3.5 Royalty Projects .......................................................... B-13
3.6 pH Modification Process ................................................... B-13
4.0 New Projects .............................................................. B-14
4.1 General Description -- Salton Sea Unit V Project .......................... B-14
4.2 General Description -- Region II Brine Facilities Construction ............ B-14
4.3 General Description -- Salton Sea Zinc Recovery Project ................... B-15
4.4 Materials of Construction ................................................. B-17
4.5 New Projects Management Organization ...................................... B-17
4.6 Project Site Geotechnical Description ..................................... B-17
4.7 Schedule .................................................................. B-18
4.8 Capital Cost Analysis ..................................................... B-19
5.0 Project Operations ........................................................ B-20
6.0 Project Contracts ......................................................... B-20
6.1 Power Purchase Agreements and Related Agreements .......................... B-20
6.2 Solids Disposal Agreements--Operating Plants .............................. B-22
6.3 Engineering, Procurement and Construction Agreements ...................... B-23
7.0 Permitting and Environmental .............................................. B-24
7.1 Environmental Compliance .................................................. B-24
7.2 Applicable Environmental Permit and Licensing Requirements ................ B-25
7.3 Environmental Requirement Compliance, Deficiencies and Limitations ........ B-25
8.0 Assessment of Financial Projections ....................................... B-25
8.1 Overview .................................................................. B-25
8.2 Base Case Projection Assumptions .......................................... B-26
8.3 Sensitivity Analysis ...................................................... B-28
8.4 Breakeven Analysis ........................................................ B-29
</TABLE>
B-1
<PAGE>
SECTION 1.0
EXECUTIVE SUMMARY AND CONCLUSIONS
1.1 EXECUTIVE SUMMARY
Presented herein is the Fluor Daniel, Inc. (Fluor Daniel) review and
analyses (the Report) as related to eight operating geothermal power plants (the
Existing Projects), two new geothermal power plants and a Zinc Recovery Project
(the New Projects), as listed below. The geothermal resource production
facilities (wellheads and related brine delivery system) are reviewed by
GeothermEx, Inc.
o Salton Sea Units I, II, III and IV, including brine modification (pH
Modification) and a planned capacity increase via a new Salton Sea Unit V
(collectively the Salton Sea Projects).
o Vulcan, Del Ranch, Elmore and Leathers, including the Region II Brine
Facilities Construction, the TurboExpander Project, and the commercial
zinc production facilities collectively known as the Zinc Recovery Project
(collectively the Partnership Projects).
o Royalty and other payments received from the Del Ranch, Elmore, and
Leathers Projects (the Royalty Projects). The Salton Sea Projects,
Partnership Projects and the Royalty Projects are collectively referred to
herein as the Projects.
NEW PROJECTS -- OVERVIEW
Salton Sea Power LLC is planning to construct a 49.0 MW net geothermal power
plant (Salton Sea Unit V Project) using proven technology designed to produce
electrical energy primarily from the Salton Sea Region I injection brine. This
brine is currently reinjected and contains over 40 MW of available thermal
energy to be used by Salton Sea Unit V. Additional power will be produced
utilizing minimal increased brine flows through the existing brine handling
facilities located at the Salton Sea Projects. Therefore, Salton Sea Unit V will
produce electrical energy by increasing the thermal efficiency of Region I with
only a limited increase in the quantity of brine production.
The Region II Brine Processing Construction will include the installation of
modern brine processing facilities to service the total brine flow to be
provided to Vulcan and Del Ranch. It is intended that these facilities will be
designed with the appropriate technology, developed and proven at the Salton
Sea, to provide for reliable steam production for power generation, and a
consistent supply of brine suitable for the ion exchange zinc recovery process.
CE Turbo LLC is planning to construct the TurboExpander Project which is
designed to provide electrical power output of 10.0 MW net. This power output
will result from increased efficiencies in the steam field and by efficiency
increases in the existing Region II brine handling facilities as a result of the
Region II Brine Processing Construction; no new production or injection wells
are required.
Additionally, CalEnergy Minerals LLC is planning to construct a commercial
scale Zinc Recovery facility to extract approximately 30,000 metric tons per
year of zinc from the geothermal brine. The Salton Sea Unit V Project and the
Region II Brine Processing Facilities are intended to complement the Zinc
Recovery Project.
Fluor Daniel has been informed that the Funding Corporation intends to issue
approximately $285 million of Senior Secured Notes and Bonds (Securities). The
net proceeds of the Securities, in addition to approximately $122.5 million in
equity to be contributed from CalEnergy or an affiliate, are intended to be used
to (1) fund the construction cost of the Salton Sea Zinc Recovery Project,
Salton Sea Unit V, and the Turboexpander Project; (2) fund the cost of the
Region II Brine Processing Construction; (3) fund certain other capital
improvements (the Capital Improvements); and (4) fund interest, other financing
costs, project administration, and other owner's costs during construction.
B-2
<PAGE>
A summary overview of the current and intended features of the Projects is
presented in Table 1-1.
TABLE 1-1
OVERVIEW OF THE PROJECTS
<TABLE>
<CAPTION>
FACILITY(1) NET
NET OWNERSHIP COMMERCIAL POWER
CAPACITY INTEREST OPERATION CONTRACT CONTRACT POWER
(MW) (MW) (YEARS) EXPIRATION TYPE PURCHASER
------------- ----------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
SALTON SEA PROJECTS
Salton Sea Unit I ....... 10.0 10.0 16 6/2017 Negotiated SCE
Salton Sea Unit II ...... 20.0 20.0 8 4/2020 SO4 SCE
Salton Sea Unit III ..... 49.8 49.8 9 2/2019 SO4 SCE
Salton Sea Unit IV. ..... 39.6 39.6 2 5/2026 Negotiated SCE
Salton Sea Unit V ....... 49.0 49.0 0 N/A N/A Zinc Recovery
Project and PX
----- -----
Subtotal ............. 168.4 168.4
PARTNERSHIP PROJECTS
Elmore .................. 38.0 38.0 10 12/2018 SO4 SCE
Del Ranch ............... 38.0 38.0 10 12/2018 SO4 SCE
Leathers ................ 38.0 38.0 8 12/2019 SO4 SCE
Vulcan .................. 34.0 34.0 12 2/2016 SO4 SCE
TurboExpander ........... 10.0 10.0 0 N/A N/A PX
----- -----
Subtotal ............. 158.0 158.0
----- -----
Total ................... 326.4 326.4
</TABLE>
<TABLE>
<CAPTION>
FACILITY NET
NET OWNERSHIP
CAPACITY INTEREST COMMERCIAL
(METRIC (METRIC OPERATION CONTRACT CONTRACT ZINC
TONNES/YR) TONNES/YR) (YEARS) EXPIRATION TYPE PURCHASER
------------ ------------ ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
ZINC RECOVERY PROJECT
Zinc Plant ........ 30,000 30,000 0 N/A Annual Local Market
------ ------
</TABLE>
- ----------
(1) Power Project capacity is a nominal number that varies with operating and
reservoir conditions.
B-3
<PAGE>
PROJECT LOCATION
The Salton Sea and Partnership Projects are located in Imperial County
California in the Salton Sea area. A map showing the general location of the
Salton Sea, Partnership, and Zinc Recovery Project is provided in Figure 1-1.
FIGURE 1-1
PLANT LOCATION MAP
[GRAPHIC OF MAP OMITTED]
B-4
<PAGE>
PROJECT AGREEMENTS
As shown in Table 1-1, the Existing Projects sell power to Southern
California Edison Company (SCE) in accordance with power purchase agreements and
related agreements for transmission system interconnection. Salton Sea Unit V
will sell approximately one-third of its net output to the Zinc Recovery Project
and the remainder, through the Power Exchange (PX). The TurboExpander will sell
all its power through the PX. The Zinc Recovery Project intends to sell its zinc
primarily to West Coast consumers on an open market basis.
It is understood that the Salton Sea, Partnership, and Zinc Recovery
Projects are, and will continue to be, operated by CalEnergy Operating
Corporation (CEOC). The Existing Projects have been in commercial operation for
numerous years.
Construction of a portion of the facilities to be funded by the securities
will be performed under Engineering, Procurement and Construction (EPC)
contracts, with completion and cost guarantees. The Salton Sea Unit V,
TurboExpander and Region II Brine Processing Construction Projects will be
constructed by Stone and Webster Engineering Corporation (S&W) under two
separate guaranteed price contracts. The Zinc Recovery Project will be
constructed by Kvaerner, again under a guaranteed price contract.
PROJECT PARTICIPANTS
The Salton Sea Units I, II and III are owned by Salton Sea Power Generation
L.P. (SSPG) and purchase steam from Salton Sea Brine Processing L.P. (SSBP).
SSPG and Fish Lake Power Company (FLPC) are owners of the Salton Sea Unit IV
Project. Salton Sea Unit V will be owned by Salton Sea Power L.L.C. (Power LLC).
SSPG, SSBP FLPC, and Power LLC are referred to collectively as the "Salton Sea
Guarantors".
The improvements to the brine processing facility part of the Region II
Brine Processing Construction will be owned by certain of the Existing Projects.
The TurboExpander Project will be owned by CE Turbo LLC. The Zinc Recovery
Project will be owned by CalEnergy Minerals L.L.C. Agreements were reviewed that
indicate that the Salton Sea Royalty Company (the Royalty Guarantor) receives
royalties and other payments from Leathers, Elmore, and Del Ranch.
SCHEDULE
The commercial operation dates for Salton Sea Unit V and the Zinc Recovery
Project are currently scheduled for mid 2000. The commercial operation dates for
the TurboExpander Project and the Region II Brine Processing Construction are
currently scheduled for the first half of 2000.
1.2 CONCLUSIONS
On the basis of Fluor Daniel's review of the information provided by the
Salton Sea Funding Corporation (the Funding Corporation), and in reliance
thereon, Fluor Daniel provides the following opinions:
1.2.1 EXISTING PROJECTS -- OPERATIONS AND PERFORMANCE
o The Projects use commercially proven technology and Existing Projects are
operated in accordance with recognized electric utility industry
practices.
o The useful life of the surface facilities are expected to exceed the
final maturity date of the debt Securities.
o Principal project participants possess the necessary experience to
successfully fulfill their project obligations.
o Operating plant capacity factors (expected forced and scheduled outages)
used in the projections are based on the operating results for the
operating years 1995, 1996, and 1997, and these are felt to be
reasonable. For the years 1995 through 1997, selected highlights of the
operating history reported by the Funding Corporation are as follows:
B-5
<PAGE>
o Revenue increased 78 percent.
o Site operating costs decreased from 3.53 cents/net kWh to 1.84
cents/net kWh for the Salton Sea Units I-IV Projects, and from 3.17
cents/net kWh to 2.35 cents/net kWh for the Partnership Projects. For
the Existing Projects as a whole, operating costs decreased from 3.28
cents/net kWh to 2.13 cents/net kWh.
o Nominal capacity factors in 1997 were maintained at 95.5 percent for
the Salton Sea I-IV Projects, 102.3 percent for the Partnership
Projects, and 99.2 percent on a combined basis.
o The pH Modification technology is proven and reliable, as has been shown
by the eight year operating history at Salton Sea Unit II and the two
years of operating history of this technology at Salton Sea Units I, III,
and IV. The pH Modification program should continue to increase
availability and decrease costs consistent with assumptions in the
financial projections.
o The Existing Projects are expected to continue operations in accordance
with all relevant existing permits and environmental laws.
1.2.2 NEW PROJECTS
SALTON SEA UNIT V
o The technology upon which the Salton Sea Unit V is based, is proven and
reliable. The scope of work is within demonstrated capabilities of the
principal project participants. The EPC contract for the Salton Sea Unit
V Project provides for a guaranteed completion date. Based on the current
expected closing date for the Securities, it appears that the completion
of the Salton Sea Unit V Project can be achieved within the guaranteed
date in the EPC contract.
o The pH Modification technology is proven and reliable. Similar technology
has been installed and has operated successfully throughout Salton Sea
Units I -- IV. As demonstrated by the eight year operating history at
Salton Sea Unit II, and the more recent operating history of Salton Sea
Units I, III, and IV, the pH Modification program should continue to
operate at the same or improved levels of reliability.
o Reasonable selections have been made in selecting the EPC Contractor for
this work, and in preparing the list of equipment suppliers. Major
equipment suppliers approved by Power LLC are recognized as qualified
suppliers in the geothermal power industry.
o The Salton Sea Unit V Project should meet the guaranteed performance
criteria contained in the EPC contracts and should comply with all
applicable environmental regulations.
o Based on the EPC contract reviewed for the Salton Sea Unit V Project, the
capital cost budget appears adequate for the facilities provided under
this contract. The guaranteed price in the S&W contract, plus S&W's
substantial prior experience with geothermal plants, should mitigate the
risk of cost overruns and schedule delays, and should thus adequately
protect both the Bondholders and Owners. Power LLC should have adequate
Contractor resources available to cover the possibility of performance
shortfalls by S&W for the Salton Sea Unit V Project . The contractual
Liquidated Damage provisions provided in the EPC contract are typical for
securing contractor completion of projects utilizing proven technology
such as that utilized on the Salton Sea Unit V Project, and should
adequately protect both the Bondholders and the Owners.
o Based on Fluor Daniel's knowledge of conventional power project
financing, Owner's costs, such as administration costs, insurance,
financing costs, contingency funds, working capital, etc., estimated by
the Funding Corporation appear to be reasonable.
o All discretionary permit approvals have been obtained for construction.
o The useful life of the Salton Sea Unit V Project can be expected to
exceed the final maturity date of the Securities.
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REGION II BRINE PROCESSING CONSTRUCTION
o The technology upon which brine processing is based has been demonstrated
to be proven and reliable. The EPC contract for the Region II Brine
Processing Construction provides for a guaranteed completion date. Based
on the current expected closing date for the Securities, it appears that
the completion of the Region II Brine Processing Construction can be
achieved within the guaranteed date in the EPC contract.
o The pH Modification technology has been demonstrated to be proven and
reliable at the wellfield servicing the Existing Projects. Similar
technology has been serving Salton Sea Units I -- V and has a proven
operating history. The pH Modification system should increase
availability and decrease operating and maintenance costs consistent with
assumptions in the financial projections.
o Reasonable selections have been made in selecting the EPC Contractor for
this work, and in preparing the list of equipment suppliers. Major
equipment suppliers approved for this project are recognized as qualified
suppliers in the geothermal field.
o Based on the EPC contract reviews for the Region II Brine Processing
Construction, the capital cost budget appears adequate for the facilities
provided under those contracts. The guaranteed price in the S&W EPC
contract, plus S&W's substantial prior experience with geothermal
installations, should mitigate the risk of cost overruns and schedule
delays. The contractual Liquidated Damage provisions in the EPC contract
are typical for securing contractor completion of projects utilizing
proven technology such as that utilized, and should adequately protect
both the Bondholders and the Owners.
o The Region II Brine Processing Construction should meet the guaranteed
performance criteria contained in the EPC contract and should comply with
all applicable environmental regulations.
o All discretionary permit approvals have been obtained for construction.
TURBOEXPANDER PROJECT
o The proposed TurboExpander Project uses technology which has been
demonstrated to be proven and reliable. The scope of work is within
demonstrated capabilities of the principal project participants which
should make the currently scheduled completion during the first quarter
of 2000 achievable.
o The EPC Contract for the Region II Brine Processing Construction, which
also encompasses the TurboExpander Project provides for a guaranteed
completion date. Based on the current expected closing date for the
Securities, it appears that the completion of the TurboExpander Project
can achieved within the guaranteed date in the EPC contract.
o S&W, the EPC contractor for this work, is recognized as an experienced
contractor in this field. The major equipment suppliers that have been
approved for S&W's selection are recognized as qualified suppliers to the
industry.
o The TurboExpander Project should meet the guaranteed performance criteria
contained in the EPC contract and should comply with all current
applicable environmental regulations.
o On the basis of the EPC contract reviewed for the TurboExpander Project,
the capital cost budget appears adequate for the facilities provided
under those contracts. The guaranteed price in the S&W contract, plus
S&W's substantial prior experience with geothermal power plants, should
mitigate the risk of cost overruns and schedule delays. CE Turbo LLC
should have adequate contractor resources available to cover the
possibility of performance shortfalls by S&W for the TurboExpander
Project. The contractual Liquidated Damages provisions in the EPC
contract are typical for securing contractor completion of projects
utilizing proven technology such as that utilized in TurboExpander
Project, and should adequately protect both the Bondholders and the
Owners.
o Based on Fluor Daniel's knowledge of conventional power project
financing, the Owner's costs, such as administration costs, insurance,
financing costs, contingency funds, working capital, etc., estimated by
CE Turbo LLC appear to be reasonable.
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o All required discretionary permit approvals have been obtained for the
construction of TurboExpander Project.
o The useful life of the TurboExpander Project can be expected to exceed
the final maturity date of the Securities.
ZINC RECOVERY PROJECT
o The Zinc Recovery Project is generally modeled after a demonstration
plant located at the Elmore Project. This demonstration plant
successfully demonstrated the recovery of zinc on a continuous basis.
o Even though the application of this technology is relatively new at the
Salton Sea site, the technology has been demonstrated to be reliable. All
components of this technology, except the ion exchange process, have been
in commercial operation for several years at Tecnicas Reunidas, a zinc
extraction project in Spain. Furthermore, each of the components has been
successfully applied and proven for a number of years in other metals
industries such as copper and uranium. The scope of work is within
demonstrated capabilities of the principal project participants which
provides a high level of confidence that the expected completion date of
mid 2000 is achievable.
o The EPC contract for the Zinc Recovery Project provides for a guaranteed
completion date. Based on the current expected closing date for the
Securities, it appears that the completion of the Zinc Recovery Project
can achieved within the guaranteed date in the EPC contract.
o Kvaerner, the EPC contractor for this work, is recognized as an
experienced contractor in this field. The major equipment suppliers that
have been approved for Kvaerner's selection are recognized as qualified
suppliers to the industry.
o The Zinc Recovery Project should meet the guaranteed performance criteria
contained in the EPC contract and should comply with all environmental
regulations.
o Based on the EPC contracts reviewed for the Zinc Recovery Project, the
capital cost budget appears adequate for the facilities provided under
those contracts. The guaranteed price in the Kvaerner contract, plus
Kvaerner's substantial prior experience with minerals extraction, should
mitigate the risk of cost overruns and schedule delays. CalEnergy
Minerals LLC should have adequate contractor resources available to cover
the possibility of performance shortfalls by Kvaerner for the Zinc
Recovery Project. The contractual Liquidated Damages provisions in the
EPC contract are typical for securing contractor completion of projects
utilizing proven technology such as that utilized in Zinc Recovery
Project, and should adequately protect both the Bondholders and the
Owners.
o Based on Fluor Daniel's knowledge of conventional minerals project
financing, the Owner's costs, such as administration costs, insurance,
financing costs, contingency funds, working capital, etc., estimated by
the Funding Corporation appear to be reasonable.
o All required discretionary permit approvals have been obtained for the
construction of Zinc Recovery Project.
o The useful life of the Zinc Recovery Project can be expected to exceed
the final maturity date of the Securities.
o Operating costs have been appropriately developed and indicate that the
Project will be the lowest cost producer of zinc in North America. The
Project's major operating cost component is electricity which will be
supplied from Salton Sea Unit V. Resin, another major cost component, is
supplied under a contract with The Dow Chemical Company.
FINANCIAL PROJECTIONS
o An economic/financial model has been developed by the Funding Corporation
which represents the projected performance of the Guarantors. The
assumptions underlying the economic/financial model are reasonable, and
the projected operating results reasonably represent the future financial
profile of the Guarantors.
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o Projected operating and maintenance costs and capital expenditures for
major maintenance are reasonable and representative of the planned
operations of the Salton Sea and Partnership Projects.
o Financial projections, based on the Base Case assumptions recommended by
the Funding Corporation, and found to be reasonable by Fluor Daniel,
indicate that revenues should be adequate to pay operations and
maintenance expenses and provide cash flow for debt service, with base
case debt service coverage ratios calculated from 1999 through 2018 of
1.72 minimum and 2.97 average.
o The financial projections remain stable across a range of sensitivities
and avoided cost assumptions.
ENVIRONMENTAL PERMITTING AND LICENSING
o The reviewed records show no environmental Notices of Violation for any
media (air emissions, wastewater, solid/hazardous waste) have been filed
against the Existing Projects in the last two years.
o The Existing Projects appeared to be neat and well maintained.
o The H2S abatement systems consist of existing biofilters for Salton Sea
Units I, II, III and IV. A review of the preliminary design indicated
that sufficient capacity appears to exist to handle any anticipated
increase of H2S loads resulting from the operation of Salton Sea
Unit V.
o The water and brine pond designs appear adequate to minimize or eliminate
the potential for water and brine release into the underlying soil and
groundwater.
o Solid waste handling and disposal appears adequate.
o Dust control in the solid waste handling operation should be improved by
planned dust handling equipment and dust abatement measures.
o All discretionary environmental permit approvals have been received for
the proposed new construction.
PROJECT AGREEMENTS
o Major project agreements (as listed in Attachment 2-1) for the Salton Sea
Projects and Partnership Projects, including power purchase agreements,
EPC contracts, major subcontracts, and related contracts for transmission
system interconnection appear reasonable from a technical perspective and
are consistent with the financial projections reviewed herein.
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SECTION 2.0
SCOPE OF SERVICES
On the basis of information and documents provided by the Funding
Corporation, Fluor Daniel, as Independent Engineer, has reviewed certain
technical, environmental and economic aspects of the Projects as listed below:
o Current status of existing Salton Sea Funding Corporation projects
o Project participants
o Plant designs and projected performance
o Project capital cost estimates
o Operations and maintenance
o Project agreements
o Environmental permitting and licensing
o Financial projections
o Project completion testing
Fluor Daniel conducted this analysis, and prepared this report, utilizing
reasonable care and skill in applying methods of analysis consistent with normal
industry practice. In the preparation of this report and the opinions expressed,
Fluor Daniel has made certain assumptions with respect to conditions, which may
exist or events, which may occur in the future. A listing of assumptions and
documentation relied upon by Fluor Daniel in the preparation of this report are
provided in Attachment 2-1. The information set forth herein has been obtained
from sources which are believed to be reliable, but it is not guaranteed as to
accuracy or completeness by, and is not construed as a representation by, Fluor
Daniel or the Project sponsors.
SECTION 3.0
FACILITIES OVERVIEW
3.1 GENERAL DESCRIPTION
The Existing Projects consist of eight operating geothermal power plants
near the Salton Sea in the Imperial Valley of Southern California. These plants
produce net power generation of approximately 288 MW from high temperature
geothermal brines produced by drilling deep production wells into the Salton Sea
Known Geothermal Resource Area (SSKGRA). Imperial Valley brines are
characterized by heavy concentrations of compounds of silica, zinc, manganese
and other metals. Over twenty million pounds of brine per hour are produced and
flashed to supply the steam for electric power generation. After the brine is
flashed to produce steam, it is reinjected into the subsurface reservoir through
separate injection wells constructed for that purpose.
As mentioned above, the Salton Sea and Partnership Projects are located in
the SSKGRA and are within a central radius of approximately five miles. A
representative map showing approximate plant locations is provided in Figure
1-1.
Hot brine from the geothermal resource is flashed into high pressure,
standard pressure, and low pressure steam which is expanded through steam
turbine generators to produce electric power. The steam is condensed and then
used for cooling tower make-up. Excess condensate is injected back into the
geothermal reservoir. Brine from the steam flash process is further processed to
remove solids, or maintain them in solution, and is injected back into the
geothermal reservoir. The Existing Projects employ proven geothermal resource
flash technology which has been commercially operated worldwide for over 30
years.
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Plant design and operation are affected by the geothermal resource which, in
the SSKGRA, is relatively high in solids content at approximately 250,000 to
300,000 parts per million. Leathers, Elmore, Del Ranch, and Vulcan utilize the
crystallizer reactor clarifier (CRC) process to control scaling and to
precipitate solids. The majority of the solids are disposed of in an
appropriately licensed landfill and the remainder are recycled to the
crystallizers to promote crystal growth (seeding) to control scaling on vessel
walls.
Salton Sea Units I, II, III, and IV utilize the pH Modification process to
control scaling. This process involves injection of a pH modification agent into
the liquid brine resource to maintain solids in solution so that the brine may
be injected directly into the reservoir without precipitation and removal of the
solids. Implementation of this process as part of the Region II Brine Processing
Construction is expected to simplify resource handling in a similar fashion,
thus improving availability and reducing costs.
Noncondensible gases from the Existing Projects are removed from the
condensers for efficient power generation and turbine operation using a
combination of steam jet ejectors and vacuum pumps. Systems for abatement of
hydrogen sulfide present in the noncondensible gases are not currently required
for the Partnership Projects since ambient hydrogen sulfide concentrations are
at acceptable levels. However, hydrogen sulfide abatement systems were installed
for Salton Sea Units I, II, III and IV as part of an earlier Salton Sea
expansion project. The technology for such abatement systems is proven and
reliable.
The cooling systems for all operating projects consist of surface condensers
and wet mechanical draft cooling towers. Utility systems are provided to support
each operating plant. Fire protection systems are also provided, including
cooling tower wetdown systems which keep the tower wet during shutdown periods,
and fire monitors which are provided at grade around the perimeter of each
tower. Standby diesel generators are available to support plant safety systems
during shutdowns.
Brine is injected into the reservoir by injection pumps after solids
processing. Brine ponds are provided at each plant for temporary storage of
brine during startup/shutdown periods and for emergency use.
3.2 MANAGEMENT AND ORGANIZATION
An Operations Manager is responsible for operations, maintenance, and plant
performance of the Existing Projects. The Salton Sea Projects, Vulcan and Del
Ranch, and Elmore and Leathers each have a Region Supervisor who is responsible
for operations, maintenance, and plant performance. The plant's Control
Operators are trained to operate the plants, perform routine lab tests and
supervise the Outside Operators. The plant's onsite staff is trained to conduct
routine maintenance activities.
In support of these Project sites, CEOC provides centralized administrative
support, engineering support, maintenance support, and analytical lab support. A
Maintenance Supervisor is responsible for the Mechanics as well as the
Instrument and Electrical Technicians. When additional manpower is required at
the Project sites, the Central Maintenance shop provides the necessary staff.
This organization and staffing procedure is typical for these types of plants.
Fluor Daniel is of the opinion that the overall operating and maintenance
organization is adequate to support operation of the Salton Sea and Partnership
Projects and should continue to provide operating and maintenance cost
reductions.
Safety
CEOC has an established safety program based on a Corporate Safety Manual
and Imperial Valley Site Specific Safety Procedures. These safety procedures
appear to be generally consistent with general industry practices.
CEOC is staffed with a Safety Manager and two Safety Engineers. All are
trained in Safety procedures as well as environmental response, pursuant to
stated procedures. The Safety personnel conduct ongoing safety reviews at each
of the Project sites and monthly training sessions for all-hands.
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These sessions are designed to emphasize compliance with current CEOC Safety
Procedures in place and to convey new safety procedures and execution methods.
CEOC utilizes a "Safe Work Permit" procedure that must be implemented by
maintenance and operating personnel prior to starting any work. CEOC also has a
plant lockout/tagout procedure for isolating systems for maintenance and
personnel protection.
All procedures were found to be sound and in line with safety procedures
normally found in this type of industry.
Training
CEOC has a very comprehensive training program, which includes Operator and
Maintenance Technician certification. There are five classifications of
Operators: Operator 1, 2, and 3, Control Operator, and Senior Operator. Each
classification, except Senior Operator, has a Certification Manual. The manual
contents and associated tests have been developed in accordance with CEOC's
organizational structure. The certification program includes written tests
administered by the CEOC Training Department and a plant walk-through test
conducted by the Training Review Board.
The CEOC Senior Operator classification was recently implemented, but no
certification program is currently in place. A job description and certification
testing procedure is being prepared for this new classification.
In Fluor Daniel's opinion, the program appears to be in line with training
programs found in the power industry.
Operating Procedures
Operating Procedures are in place for the Salton Sea and Partnership
Projects. They included step-by-step methods for start-up, normal operation, and
shutdown of the Projects. Fluor Daniel is of the opinion that the operating
procedures are satisfactory.
Maintenance Program
Maintenance at each plant is supervised by a Maintenance Supervisor. Most of
the routine maintenance is performed in the centralized maintenance shop with
specialty maintenance being performed by specialty contractors on a subcontract
basis. The Salton Sea and Partnership Projects are using a commercially
available Central Maintenance Management System (CMMS) software package, which
has reportedly improved management of plant maintenance activities.
Since the Salton Sea Projects are using the pH modification process which
results in cleaner equipment than the crystallizer reactor-reactor-clarifier
process, these plants are currently on a four-year major turnaround cycle. Major
turnarounds are generally scheduled for twelve days and include process valve
maintenance, cleaning, and descaling of process pipe and vessels. Mini-outages
(three to five days) are scheduled each spring in preparation for the summer
peak runs.
For the Partnership Projects, major overhaul planning is also performed by
Central Maintenance with input from the sites. Major twelve day overhauls are
scheduled every two years with mini-outages (three to five days) scheduled each
spring in preparation for the summer peak runs.
In all plants, specialized maintenance such as turbine overhaul and
electrical protective relay calibration is performed by outside contractors. The
plants historically operate reliably as a result of these maintenance and
overhaul scheduling practices.
Fluor Daniel's review of the plants during a site walk-through found the
plants to be well maintained. Plant personnel indicated that spare parts were
available when required.
3.3 SALTON SEA PROJECTS
Salton Sea Units I and II are located adjacent to the Salton Sea; the
shoreline has appropriate dikes and levies designed to protect these units from
increases in the Salton Sea water level. The dikes appear to be adequately
maintained. Salton Sea Unit III and IV are located approximately 0.5 miles from
the Salton Sea.
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Salton Sea Unit I has been in service since 1982. Power generation equipment
consists of a 10 MW Fuji steam turbine operating with standard pressure (SP)
steam originally produced by CRC (crystallizer-reactor-clarifier) technology.
This process also produces high pressure (HP) and low pressure (LP) steam. The
generation voltage of 13.8 kV is stepped up to 34.5 kV for transmission to
Southern California Edison (SCE).
Salton Sea Unit II was placed in service in 1990. A total of three steam
turbines produce electrical power. Salton Sea Unit II was the original plant to
operate on the pH Modification process and has done so successfully for eight
years. The Mitsubishi turbine-generator produces electrical power at 4,160 volts
which is stepped-up to 13.8 kV; the other generators produce power at 13.8 kV.
One transformer steps-up power from these three generators to 92 kV for
transmission by the Imperial Irrigation District (IID) to the Rancho Mirage
substation for sale to SCE.
Salton Sea Unit III is a 49.8 MW plant with a Mitsubishi turbine that
operates on SP and LP steam. The turbine is a 5-stage, dual flow, condensing
turbine. Three stages of steam jet air ejectors remove noncondensible gases from
the steam. Operational flexibility provided by steam jet air ejector trains are
used to respond to varying noncondensible gas content. Commercial operation was
declared on February 14, 1989. Power is stepped up to 92 kV for transmission by
the IID to the Rancho Mirage substation for sale to SCE.
Salton Sea Unit IV is a General Electric steam turbine generator installed
next to the Salton Sea Unit III site to provide capacity of 39.6 MW. Salton Sea
Unit IV's design involved modification of existing steam and brine processing
equipment and related systems. All of the steam used is processed through this
system.
3.4 PARTNERSHIP PROJECTS
The Vulcan Project was commissioned in February 1986. It generates
electrical power for transmission to SCE via IID lines. Noncondensible gases are
directed to the cooling tower using two stages of steam jet air ejectors and a
vacuum pump. Each of these components has at least one spare. A standby diesel
generator is available to provide emergency power. Solids precipitated from the
CRC process are monitored for metals concentrations and hauled by truck to a
permitted landfill. Covered solids storage is provided onsite on a concrete slab
for emergency purposes.
Electrical power is generated at 14.4 kV and is transmitted to SCE over 92
kV IID lines. The Del Ranch and the Vulcan Projects are connected via an
electrical tie-line.
The Del Ranch Project achieved commercial operation in October 1988. The
plant is very similar to the Vulcan Project. A dual pressure nine-stage Fuji
turbine produces electrical power for transmission to SCE via IID.
Commercial operation was achieved at the Elmore Project in December 1988 and
at the Leathers Project in January 1990. These two plants are identical in all
major design respects to the Del Ranch Project, including the main turbine.
Three spare turbine rotors and two spare sets of diaphragms are available for
the Del Ranch, Elmore, and Leathers Projects.
3.5 ROYALTY PROJECTS
Magma receives royalties, fees and other payments ("Royalties") from the
Leathers, Del Ranch and Elmore Projects based on a percentage of each project's
annual revenue. Total Royalties from these Partnership Projects paid to Magma
annually are projected to be $39,168,000 in 1998, stepping down to $9,097,000 in
2000 as revenues from the three Partnership Projects revert to avoided cost
pricing. The Royalties from the Leathers, Del Ranch and Elmore Projects are
included in the financial projections.
3.6 PH MODIFICATION PROCESS
The pH Modification process currently used for Salton Sea Unit I, II, III
and IV lowers the pH of the geothermal resource by injection of a pH
modification agent into the liquid brine stream. As a result,
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solids remain in solution rather than precipitate out of solution as in the CRC
process previously used at Salton Sea Units I and III, and at the Partnership
Projects. Therefore, scaling is minimized and solids in solution can be
injected into the reservoir. Certain aspects of the process were a proprietary
process developed by Unocal and subsequently licensed to Magma, which was
purchased in 1995 by CalEnergy. The pH Modification process has operated
successfully since 1990.
SECTION 4.0
NEW PROJECTS
4.1 GENERAL DESCRIPTION -- SALTON SEA UNIT V PROJECT
4.1.1 DESIGN CONSIDERATIONS
The Salton Sea Unit V geothermal power plant (49.0 MW net) will be designed
to produce electrical energy from the spent Brine that would otherwise be
reinjected following usage in Salton Sea Units I -- IV. This brine is currently
reinjected at a temperature of approximately 360 degreesF and at the current
rate contains over 40 MW of available thermal energy to be used by Salton Sea
Unit V. Additional power will be produced utilizing minimal increased brine
flows through the existing Salton Sea Units I -- IV brine handling facilities.
Therefore, the Salton Sea Unit V Project will produce electrical energy by
significantly increasing the thermal efficiency of existing brine usage with
only a minor increase in the quantity of brine production.
The Salton Sea Unit V Project will include a multiple inlet pressure turbine
utilizing standard pressure (SP) steam, low pressure (LP) steam, and very low
pressure (VLP) steam, operating at approximately 110/30/10 psig, respectively.
Other equipment necessary for the Salton Sea Unit V Project includes a pH
modification agent handling system, wet cooling tower, surface condenser,
non-condensable gas system, electrical switchgear, and associated cooling water
pumps, condensate pumps, and brine pumps. Auxiliary equipment includes a lube
oil system, expanding the existing fire protection system, and plant air.
Salton Sea Units I -- IV are using pH Modification of the geothermal brine
to prevent precipitation of silica dissolved in the brine during the power
production cycle. The Salton Sea Unit V Project will utilize refinements in pH
Modification technology. Additional pH modification agent will be injected into
the brine prior to flashing/cooling the brine below 360 degreesF. This has
been shown to prevent precipitation of silica at the lower temperatures, which
would otherwise cause scaling/plugging of brine handling equipment. The brine
will then be flashed to produce LP and VLP steam for conversion into electrical
power. Just before being delivered to the Zinc Recovery Plant, the remaining
brine passes through an atmospheric flash/reactor vessel which removes residual
heat and most of the silica. The silica will initially be disposed of in a
licensed landfill but may later be marketed to potential consumers such as
cement and tire manufacturers.
The facilities will produce a significant quantity of steam as part of the
brine cooling process. A majority of this steam will normally be utilized by
Salton Sea Unit V, with very low pressure steam being used by the Zinc Recovery
Project as process heat.
4.2 GENERAL DESCRIPTION -- REGION II BRINE FACILITIES CONSTRUCTION
4.2.1 TURBOEXPANDER PROJECT
The TurboExpander Project is designed to produce 10.0 MW net of electrical
power output. The TurboExpander Project will use existing unutilized geothermal
energy and additional geothermal energy made available via efficiency increases
of the existing Brine Facilities Construction; no new production or injection
wells or associated pipelines will be required. The new power generation will be
transmitted through IID power lines.
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The new turbine will be an Atlas Copco Rotoflow design. The system will
consist of a turbo-expander, a gearbox, and a generator coupled together in a
power delivery train. All auxiliary equipment required to operate the turbine
will be included in the package.
4.2.2 REGION II BRINE FACILITIES CONSTRUCTION
Project Summary
The Region II Brine Facilities Construction upgrade project will install
modern brine processing facilities designed to service the total brine flow now
provided to Vulcan and Del Ranch. These facilities will be designed with
technology developed and proven at the Salton Sea Projects, to provide steam
production for power generation. Process design and equipment specifications
will be developed and are intended to minimize the long term cost of plant
operations. The existing brine gathering system, and upgraded cement lined
production and injection systems should facilitate the conversion to the new
facilities. It is intended that proven existing designs, and equipment where
possible, will be used to minimize cost, schedule and project risk.
Silica Control Process
The silica control process for this development combines features common to
the pH Modification process and the CRC process. This process is designed to be
lower in capital cost and in projected operating cost than a traditional CRC
process. The use of pH Modification technology is designed to increase the
service interval between shutdowns of its' respective equipment. This technology
also allows a smaller, more efficient standard pressure brine-steam separator
vessel to be used in place of the two SP crystallizers required for the current
Region II SP brine flow. Two low pressure crystallizer and atmospheric flash
tank trains, a primary clarifier, a secondary clarifier, filter press, and brine
booster pump system complete the major equipment. These are traditional CRC
components, but upgraded for long term reliability and performance.
H2S Abatement
The high pressure steam from the turboexpander will flow to a condenser,
where the additional noncondensible gas stream must be removed. An H2S abatement
unit will be added downstream of this condenser to ensure the projected air
quality standards are met. This unit will be a biofilter type device, similar to
the ones used at Salton Sea Units I -- IV.
4.3 GENERAL DESCRIPTION -- SALTON SEA ZINC RECOVERY PROJECT
4.3.1 NEW FACILITIES
This project uses spent brine solution containing dissolved zinc metal
exiting from the Existing Projects and the new Salton Sea Unit V Project as feed
to produce approximately 30,000 metric tons per year of Special High Grade (SHG
- -- 99.99% pure zinc) quality zinc ingots. The Zinc Recovery Project is modeled
after an existing demonstration plant that was located at the Elmore Project and
which successfully demonstrated the recovery of zinc on a continuous basis from
the geothermal brine feed. Moreover, Tecnicas Reunidas, a zinc recovery plant in
Spain, has successfully used a substantial portion of this technology to produce
zinc.
To enable the commercial production of zinc, one central zinc processing
solvent extraction/ electrowinning (SX/EW) facility and four zinc ion exchange
(IX) facilities are to be constructed at the Existing Projects to utilize spent
brine solution exiting from the existing geothermal power plants located near
each IX facility. Each IX facility is designed to produce a purified and
concentrated product stream rich in zinc chloride as feed to the central SX/EW
facility.
Each IX facility consists of IX column trains with resin that is
specifically designed to remove the zinc ions from the brine as it is pumped
through the IX columns. The brine is then routed back to existing spent brine
re-injection wells to recharge the reservoir and ultimately be produced again as
new feed to the power plants.
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The loaded resin is then stripped of the zinc chloride ions by flushing the
IX column. The zinc chloride rich solution from the Salton Sea Projects is
processed through a reverse osmosis (RO) unit to further concentrate the zinc.
The zinc chloride solution from all four zinc IX facilities is pumped via
cross-country pipelines to the central processing facility located at Vulcan and
Del Ranch. These pipelines follow existing geothermal pipeline routes and are
generally above ground.
IX technology has been successfully proven and long been used in the uranium
and water treatment industry. Specifically, the resin as is proposed for the
Zinc Recovery Project has been used to extract uranium in at least a dozen
plants located in the U.S.
The central processing facility consists of an iron removal process, solvent
extraction (SX) train, electrowinning (EW) tank house and a zinc casting plant.
The SX train consists of a series of mixer/settler stages (extraction,
scrubbing, and stripping) through which the zinc solution flows, and is mixed
with an organic based extractant reagent. The SX process is designed to transfer
zinc chloride in the solution to a further purified zinc sulfate solution
(electrolyte). This electrolyte is required for the EW process.
The extraction portion of the SX process is performed in several
countercurrent stages by mixing the zinc chloride solution with an extractant
diluted by an organic solvent and mixed with the zinc solution which produces an
emulsion that is separated in settlers resulting in a zinc rich (loaded) organic
solution. The loaded organic is then washed to remove physically entrained
chloride and other impurities. This by-product stream produces a pH modification
agent which can be used at the Existing Projects. The washed, loaded organic
solution is then mixed in the SX stripping stages with the partially zinc
depleted, sulfuric acid based lean electrolyte to transfer the zinc from the
loaded organic into the clean aqueous fresh zinc sulfate electrolyte stream.
SX technology has been successfully proven in many commercial metals
extraction and purification processes. Nearly one third of the copper produced
today comes from the heap leach/SX/EW process.
The fresh electrolyte contains some impurities such as calcium, which are
removed as a precipitate (gypsum) when cooled. The resulting small quantity of
gypsum is disposed of.
The purified electrolyte solution is then mixed with additives prior to
being pumped to the electrowinning process. Two transformer rectifiers are
required to produce the necessary direct current. As the zinc rich electrolyte
solution flows through the EW cells, the direct current causes the zinc to
deposit on the aluminum alloy blank cathodes. After being fully loaded, the
cathodes are transferred by a bridge crane to an automated stripping machine.
The stripping machine washes the cathodes of the remaining process fluids and
removes the deposited zinc. The aluminum alloy cathodes are returned to the EW
cells to be re-plated. The stockpiled zinc is transported to the furnace
charging floor or storage.
The EW technology utilized in this plant is the same process and equipment
used by essentially all of the primary zinc producers in the world. A purified
zinc electrolyte is fed to the electrolytic cells where zinc metal is plated as
zinc cathode. Partially depleted, or spent, electrolyte is then used to extract
more zinc and recycled to the EW.
The furnace is a horizontal cylindrical vessel heated by induction coils.
The zinc cathodes are placed in the furnace, melted, and then continuously cast
into jumbo ingots of Special High Grade (SHG) and Continuous Galvanizing Grade
(CGG) zinc. Provision is made in the melting/casting area to include alloying
material for production of specialty alloys.
The Zinc Recovery Project will receive its electrical power from the
affiliated Salton Sea Unit V. The TurboExpander Project provides a backup source
of power. Electrical power represents the Project's highest operating cost.
Another major consumable, resin, is supplied by The Dow Chemical Company under a
fixed price contract. IID will provide transmission services for electrical
power delivery to the Zinc Recovery Project.
The Zinc Recovery Project is expected to require an initial period of
approximately five months after Substantial Completion during which Kvaerner is
only guaranteeing the production of High Grade zinc rather than SHG. CalEnergy
Minerals LLC reported that the most conservative potential economic effect is an
insignificant 1\c/lb. less in terms of zinc prices and $48/MT or 2.2 cents
/lb/more in terms of freight costs
B-16
<PAGE>
to deliver the High Grade zinc to Midwest markets where such customers are
located. After this period, Kvaerner guarantees the production of SHG. The
financial analysis assumes the most conservative scenario (lower zinc prices
and higher freight) although CalEnergy Minerals LLC management believes that
some of the production during this period will meet SHG specifications.
4.3.2 DEMONSTRATION PLANT DESCRIPTION
The Zinc Recovery Project demonstration plant was operated onsite in order
to demonstrate technical feasibility of zinc production from geothermal brine
and produce reliable data to be used as a basis for commercial plant design. The
demonstration plant operated from June 1997, through the first quarter of 1998,
in a continuous mode with minimal downtime. There was also extensive testing in
the laboratory and at a small onsite pilot plant. The pilot IX unit was also
used to confirm the process design in the geothermal brine pH modification
system.
Pilot plant testing results were used to build a larger demonstration plant
with a brine feed capacity of 42 gallons per minute. The plant has successfully
operated and consists of IX, iron removal, RO, SX and EW circuits. Critical
equipment/materials suppliers, IX resin and SX extractant suppliers, and zinc
industry consultants also participated in the development of the demonstration
plant design.
4.4 MATERIALS OF CONSTRUCTION
A review of the design documents and specifications for the mechanical
components revealed that the New Projects have specified design requirements
typically found in the geothermal and minerals recovery industries. In some
cases, the specifications and design criteria further defined very specific
requirements that are based on the operating history and proven experience with
similar equipment that has been in similar service for a number of years. As
presented on the reviewed documents, the materials of construction are
appropriate for these facilities.
4.5 NEW PROJECTS MANAGEMENT ORGANIZATION
Salton Sea Unit V will be managed as part of the Salton Sea Units I, II,
III, and IV group of units (Region I). These units are managed by a Region
Supervisor. The operations program includes a safety program, a training
program, and operating procedures. Maintenance programs include CMMS, training,
and spare parts inventory control.
A Minerals Operations Manager will be responsible for operations,
maintenance, and plant performance of the Salton Sea Zinc Recovery Project. A
Minerals Supervisor will be responsible for the operations, maintenance, and
plant performance for the extraction/electrowinning (SX/EW) facility and the
four zinc ion exchange (IX) facilities.
The plant's Control Operators are to be trained to operate the mineral
extraction plants, perform routine lab tests and supervise the Outside
Operators. The CEOC staff are to be trained to conduct routine maintenance
activities.
In support of these zinc recovery sites, CEOC will provide centralized
administrative support, engineering support, maintenance support, and analytical
lab technician support. When additional manpower is required at the mineral
recovery sites, the Central Maintenance shop will provide the necessary staff.
This organization and staffing procedure is typical for these types of plants.
Fluor Daniel considers the overall operating and maintenance organization
planned for these new facilities to be adequate to support expanded operations.
4.6 PROJECT SITE GEOTECHNICAL DESCRIPTION
The project sites are located in the Salton Trough geologic region. This
region is a result of extensive tectonic activity due to three active or
potentially active faults in the area. The site area is classified by Uniform
Building Code (UBC) as an earthquake zone of 4.
B-17
<PAGE>
The subsurface geologic site conditions typically consist of stiff to firm
silty clay at shallow depth. At depth, loose to medium dense silty sand exist
with a potential for liquefaction. The silty clay exists with the potential for
long term settlements. The depth to groundwater at the site varies, but is in
the range of 5 to 6 feet below grade.
On the basis of a Geotechnical Report prepared by Southland Geotechnical,
the project sites are believed to be suitable for the proposed new Projects.
Foundation designs proposed in the report are similar to designs previously used
on other geothermal projects in this area which have operated for numerous years
and are believed to be adequate for these facilities.
4.7 SCHEDULE
4.7.1 SALTON SEA UNIT V PROJECT
Stone & Webster Engineering Corporation (S&W) has been selected as the
Contractor to engineer, procure, construct, and startup the Salton Sea Unit V
Project. S&W is a world-wide EPC power project Contractor with a background in,
and experience with geothermal projects. S&W has engineering and construction
experience with some of the Existing Projects, including the original design for
Salton Sea Unit III and is familiar with the site conditions and resources of
the Imperial Valley. Additionally, S&W previously worked for the Salton Sea
Funding Corporation as consultant for the existing Bondholders. Belmont
Construction (a subsidiary of S&W) will be utilized for the construction phase,
having previously performed construction services for Salton Sea Unit IV.
The project schedule milestones require:
o Notice to Proceed (NTP) Offering Closing Date
o Startup Commissioning 520 days from NTP
o Substantial Completion 638 days from NTP
Under the EPC contract, S&W guarantees that substantial completion will be
attained within 638 days of NTP, or S&W will be assessed for delay damages.
S&W has acknowledged that the procurement, fabrication, delivery and
erection of the Turbine Generator is the critical path of the Salton Sea Unit V
Project. They have established a schedule to support the immediate award of the
Turbine Generator and other critical equipment at NTP. The overall schedule
duration is approximately 7 months for engineering, 18 months for construction,
and 4 months for startup and testing. This schedule provides that the project be
substantially complete approximately 6 weeks prior to the guaranteed Substantial
Completion milestone.
Fluor Daniel has reviewed the Salton Sea Unit V Project EPC schedule. It
appears that the EPC schedule can be achieved as indicated subject to customary
permitted delays under the contract. S&W has identified and addressed the major
project components, allowing for sufficient time and interface to meet the
schedule objectives such as tie-ins and support to other facilities. Critical
equipment deliveries are shown at 8 to 14 months and are within the current
industry parameters. Given S&W's qualifications and past experience at the
Existing Projects and elsewhere, the EPC project schedule should be achievable.
4.7.2 ZINC RECOVERY PROJECT
CalEnergy Minerals LLC has selected Kvaerner U.S. Inc. to engineer, procure,
construct, and startup the Zinc Recovery Project. Kvaerner is a world-wide EPC
contractor well experienced with various mineral processing plants. They have
indicated that they would self perform the construction of this project.
The project schedule milestones require:
o Notice to proceed (NTP) Offering Closing Date
o Substantial Completion 652 days from NTP
Under the EPC contract, Kvaerner guarantees that substantial completion will be
attained within 652 days of NTP, or Kvaerner will be assessed for delay
damages.
B-18
<PAGE>
Kvaerner's schedule indicates that all major process equipment would be
delivered fourteen months or less from NTP, allowing sufficient time in the
installation schedule to meet the expected completion date. Fluor Daniel has
reviewed the Project Schedule and believes that project completion is
achievable.
4.7.3 REGION II BRINE PROCESSING CONSTRUCTION
S&W has been selected as the contractor to engineer, procure, construct, and
startup the TurboExpander Project and Region II Brine Facilities Construction.
S&W has engineering and construction experience with some of the Existing
Projects, including the original design for Salton Sea Unit III and is familiar
with the site conditions and resources of the Imperial Valley. Additionally, S&W
previously worked for the Salton Sea Funding Corporation as consultant for the
existing Bondholders. Belmont Construction (a subsidiary of S&W) will be
utilized for the construction phase, having previously performed construction
services for Salton Sea Unit IV.
The Project Schedule Milestones require:
<TABLE>
<S> <C>
o Notice to Proceed (NTP) Offering Closing Date
o Startup Commissioning 400 days from NTP
o Substantial Completion -- Brine Facilities Construction 497 days from NTP
o Substantial Completion -- TurboExpander Project 548 days from NTP
</TABLE>
Under its EPC contract, S&W guarantees that substantial completion will be
attained within 497 days of NTP for the Brine Facilities Construction and 548
days of NTP for the TurboExpander Project, or S&W will be assessed for delay
damages.
S&W has acknowledged that the procurement, fabrication, delivery and
erection of the turboexpander is the critical path of the Region II facilities
construction. They have established a schedule plan to support the immediate
award of the TurboExpander and other critical equipment at NTP. Fluor Daniel has
reviewed the Region II Construction Schedule and believes Substantial Completion
can be achieved, subject to customary permitted delays under the EPC contract.
4.8 CAPITAL COST ANALYSIS
4.8.1 SALTON SEA UNIT V PROJECT
Bids received from qualified contractors in response to the Salton Sea Unit
V Request for Proposal (RFP) were within a range limits acceptable to CalEnergy,
validating scope, performance, and criteria definitions. The fixed price of
$91.8 million equates to approximately $1,874 per net kilowatt of new installed
capacity, which is consistent with the cost of similar geothermal facilities
requiring solids removal technology.
4.8.2 ZINC RECOVERY PROJECT
The lump sum price of $148.2 million appears reasonable for this project.
4.8.3 REGION II BRINE FACILITIES CONSTRUCTION
The lump sum price of $49.8 million, which includes the TurboExpander,
appears reasonable for this project.
B-19
<PAGE>
4.8.4 CAPITAL IMPROVEMENTS
Proceeds from the bonds and equity will also be used to fund certain capital
expenditures involving plant and wellfield facilities at Elmore and Leathers.
These costs are presented below:
<TABLE>
<CAPTION>
1998 1999 2000 TOTAL ($000'S)
---------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Elmore ............ $10,817 $6,150 0 $16,967
Leathers .......... 0 $ 977 $3,393 $ 4,370
------- ------ ------ -------
Total ............. $10,817 $7,127 $3,393 $21,337
</TABLE>
At Elmore, approximately $6.4 million of the total will be used in 1998 for
a regularly scheduled plant overhaul and various other capital expenditure
items. At Leathers, approximately $2.3 million will be spent in 2000 for an
overhaul. The remaining expenditures in that year are for various other plant
capital expenditure items. On the basis of past expenditures for this type of
similar installations, Fluor Daniel finds these expenditures to be reasonable.
The remaining capital expenditure amounts are wellfield related and are
separately analyzed by GeothermEx.
SECTION 5.0
PROJECT OPERATIONS
The Salton Sea and Partnership Projects use proven technology and have
operated reliably since initiating commercial operation. The most significant
operating and maintenance activities for the Salton Sea and Partnership Projects
are caused by the geothermal resource which corrodes and deposits solids in the
geothermal resource processing systems. These activities were significantly
reduced at the Salton Sea Projects with the implementation of the pH
Modification program and should be significantly reduced at Vulcan and Del Ranch
with the same system. This should result in similar decreases in cost at Vulcan
and Del Ranch.
SECTION 6.0
PROJECT CONTRACTS
6.1 POWER PURCHASE AGREEMENTS AND RELATED AGREEMENTS
Fluor Daniel reviewed the technical adequacy of the contracts and agreements
discussed below and has found them to be reasonable. The pertinent technical
obligations of the contracts are presented in this section. Energy pricing terms
were reviewed with respect to their use in the financial projections.
6.1.1 OPERATING PLANTS
Each of the Existing Projects is subject to terms and conditions as
specified in its associated power purchase agreement. All of the contracts
include a number of identical conditions related to operation, maintenance,
metering, and other standard terms which are consistent with the financial
projection assumptions for the respective power plants. Each contract is unique
in certain aspects, such as contract capacity, payments, or contract term.
Tables 6-1 and 6-2 provide a summary of contractual terms for each power
purchase agreement. These contract quantities and prices are accurately
reflected in the financial projections.
Based upon the capacity and energy payment rates summarized in Tables 6-1
and 6-2, actual billing rates for some plants are calculated for On-Peak,
Mid-Peak, Off-Peak, and Super Off-Peak for Summer and Winter seasons as defined
by Time-of-Use Schedules published by Southern California Edison (SCE) and
approved by the California Public Utilities Commission (CPUC). These billing
rates provide for higher payments during Summer Peak, Summer Mid-Peak and Winter
Mid-Peak periods, which total 3,465 hours per year, and lower payments during
Winter Super Off-Peak which total 1,434 hours per year. Payment rates during
Summer and Winter Off-Peak periods, which include 3,861 hours, equal or are
close
B-20
<PAGE>
to the rates shown in Tables 6-1 and 6-2. Average energy rates received in any
year could vary below the financial projections assumptions if the capacity
factor of the power plants were significantly reduced during the Summer Period
between June 1 and October 1, when energy payments equal or exceed the average
rates shown on Tables 6-1 and 6-2.
TABLE 6-1
SUMMARY OF TERMS -- POWER PURCHASE CONTRACT
SALTON SEA PROJECTS
<TABLE>
<CAPTION>
SALTON SEA
FACTORS UNIT I UNIT II UNIT III UNIT IV UNIT V
- ------------------------- --------------- --------------------- ----------------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Contract Capacity (kW) 10,000 15,000 47,500 34,000 0
As Available Capacity N/A 0 0 2,000 49,000
Capacity Payment
($/kW-year) 121.71 (1) 187 175 158 Spot Price
Capacity Bonus ($/kW-year) (2) (5) (5) (5) N/A
As Available Capacity
Payment ($/kW-year) N/A N/A N/A N/A N/A
Energy Payment ($/kWh) 0.04701 (3) 0.196 (Phase 1) (4) 0.098 (Phase 1) (4) 0.075 (6) Spot Price
Contract Term July 2017 April 2020 January 2019 May 2026 Spot Market
</TABLE>
Table Notes:
1. Capacity payments as of 2nd Quarter 1992, subject to quarterly adjustments
based on Bureau of Labor Statistics
2. Payment for capacity in excess of contract is based on as available capacity
price in Standard Offer No. 1 Capacity Payment Schedule. The financial
projections do not include bonus payments.
3. Energy payment as of 2nd Quarter 1992, subject to quarterly adjustments
based on Bureau of Labor Statistics. Rate applies to all energy delivered
at specified point of delivery.
4. Energy payments in Phase 2 to be equal to 100% of Tariff Schedule No. TOU-8
published avoided cost of energy rates as periodically updated.
5. For capacity factors greater than 85%, monthly payments = [(1.2 x On Peak
Capacity Factor) -- 1.02][Capacity Payment][Contract Capacity][1/12].
Proforma appropriately indicate bonuses of 18% of capacity payments.
6. 1998 weighted value.
TABLE 6-2
SUMMARY OF TERMS -- POWER PURCHASE CONTRACT
PARTNERSHIP PROJECTS
<TABLE>
<CAPTION>
FACTORS VULCAN DEL RANCH ELMORE LEATHERS TURBOEXPANDER
- ----------------------------- ----------------- ----------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Capacity (kW) 29,500 34,000 34,000 34,000 0
As Available Capacity 4,500 4,000 4,000 4,000 10,000
Capacity Payment 158 198 198 187 Spot Price
($/kW-year)
Capacity Bonus ($/kW-year) (2) (2) (2) (2) N/A
As Available Capacity 8 8 8 8 N/A
Payment ($/kW-year)
Energy Payment ($/kWh) 0.109-0.126 0.109-0.146 0.109-0.146 0.109-0.156 Spot Price
(Phase 2) (Phase 1) (Phase 1) (Phase 1)
(Phase 2) (1) (Phase 2) (1) (Phase 2) (1)
Contract Term February 2016 January 2019 January 2019 January 2020 Spot Price
</TABLE>
B-21
<PAGE>
TABLE NOTES:
1. Energy payments in Phase 2 to be equal to 100% of Tariff Schedule No. TOU-8
published avoided cost of energy rates as periodically updated.
2. For capacity factors greater than 85%, monthly payments = [(1.2 x On Peak
Capacity Factor) -- 1.02][Capacity Payment][Contract Capacity][1/12].
Where appreciable, Proforma indicates bonuses of 18% of capacity payment.
6.1.2 SALTON SEA POWER GENERATION CAPACITY EXPANSION
Power sales for the planned Salton Sea Unit V and TurboExpander Project are
expected to be made under spot market pricing or other similar arrangements.
Henwood Energy Services has forecasted these prices to be 2.8 cents/kWh in
nominal dollars in 2000, escalated to 3.7 cents/kWh in 2004, and 5.03 cents/kWh
in 2018. The Henwood forecast was not reviewed by Fluor Daniel and was only
utilized in the financial projections.
6.1.3 TRANSMISSION INTERCONNECTION AGREEMENTS
Transmission lines owned and operated by IID are used to interconnect each
of the Existing Projects (except Salton Sea Unit I) with Southern California
Edison (SCE). Salton Sea Unit I delivers power directly to SCE which uses the
IID transmission lines.
Salton Sea Unit V and TurboExpander Project, described in Section 4.2
herein, will each be interconnected to a transmission line owned by IID. A
transmission agreement, and other related agreements have been executed with IID
for each of the projects and these agreements expire thirty years after the
initiation of service. Transmission service charges are included in the
financial projections.
The Existing Projects (other than Salton Sea Unit I) have the necessary
transmission service agreements in place with IID which contain transmission
entitlements equal to the requirements of the respective Projects. Agreements
provide credits equal to contributions and other financing costs to be applied
against Transmission Service Agreement charges. These credits are included in
the financial projections. SCE is responsible for transmission of power from
Salton Sea Unit I.
6.2 SOLIDS DISPOSAL AGREEMENTS--OPERATING PLANTS
Solid geothermal filter cake is disposed of in the Magma owned Desert Valley
Company monofill in accordance with the Amended and Restated Waste Disposal
Agreement of February 23, 1994; contract term is 10 years. Tipping fees are set
by the Agreement and are subject to annual adjustment based on specified
indices. These are included in the projections. This agreement may have to be
renegotiated prior to the final maturity date of the Securities.
Other solid geothermal scale, pipe, filter cake, and other materials which
are characterized as hazardous waste are transported and disposed of by Laidlaw
Environmental Services (a licensed Contractor) in accordance with an
Environmental Services Agreement in effect through April 1, 2001. This agreement
may have to be renegotiated prior to the final maturity date of the Securities.
6.3 ENGINEERING, PROCUREMENT AND CONSTRUCTION AGREEMENTS
6.3.1 SALTON SEA UNIT V
Fluor Daniel has reviewed the EPC agreement between Salton Sea Power LLC and
Stone & Webster Engineering Corporations (S&W) for the Salton Sea Unit V
Project. The contract appears to contain typical and customary terms for fixed
price, guaranteed completion EPC contracts common to the independent power
industry and limited recourse financed projects. This agreement addresses
important issues such as guarantees, progress payment terms, schedule
commitments, safety, quality, Operator training, reporting, mechanical
completion, startup, performance testing and associated guarantees, force
majeure relief, and the limits associated with liquidated damages.
B-22
<PAGE>
Salton Sea Unit V Completion Risk
The S&W contract, with its use of demonstrated technology and experiences
subcontractors and suppliers, represents the most reasonable terms that could be
attained in the current EPC market. With the use of proven power plant
technology Fluor Daniel feels that Salton Sea Power LLC should have adequate
contractor resources available to cover the chance possibility of equipment
failures in the power generation facilities.
SSP has limited its risk of delay and performance shortfalls by including
liquidated damages (LDs) in the EPC agreement, and an owner's contingency
reserve funds. The EPC Contract liquidated damages are sized to compensate SSP
for delays and performance shortfalls up to coverage limits of 20 percent of the
fixed price, approximately $18.4 million. Fluor Daniel finds this to be
reasonable. Additionally, SSP has included $5.6 million in the construction
budget as an allowance to cover potential expenditures that are not fully
covered by the EPC contract The owner's contingency amounts to approximately 5.4
percent of the total construction budget which is not unreasonable for projects
of this nature.
6.3.2 ZINC RECOVERY PROJECT
Fluor Daniel reviewed the agreement between CalEnergy Minerals LLC and
Kvaerner U.S. Inc. for the construction of the Zinc Recovery Project. The
contract appears to contain typical and customary terms for fixed price,
guaranteed completion EPC contracts common to the independent power and process
industries and limited recourse financed projects. This agreement addresses
important issues such as guarantees, progress payment terms, schedule
commitments, safety, quality, operator training, reporting, mechanical
completion, startup, performance testing and associated guarantees, force
majeure relief, and the limits associated with liquidated damages.
Zinc Recovery Project Completion Risk
The Kvaerner contract, with its use of demonstrated technology and
experiences subcontractors and suppliers, represents the most reasonable terms
that could be attained in the current EPC market.
Clarifier operating conditions could vary significantly, based on
demonstration plant operations, and impact the ion exchange (IX) resin, this
being a component of brine feed risk. This could mean that CalEnergy Minerals
LLC would need to maintain a contingency supply of resin for that possibility.
CalEnergy Mineral's budget provides for an additional 10 percent of total resin
fill as a contingency for unfavorable clarifier operating conditions, which
Fluor Daniel feels is reasonable. Furthermore, operating procedures have been
developed to minimize this risk. Additionally, excessive pressure drop through
the IX system could restrict the brine feed to the IX. This could potentially
reduce recovery but would not completely shut down the recovery process. This
shortfall in IX capacity could be remedied with housekeeping (maintaining brine
quality) and, if necessary, with the addition of IX capacity which could be
easily accomplished as long as there is sufficient plot space for the new
components, which is the case for this facility. The IX trains are skid mounted
units, complete with the necessary piping and valving. The cost for one train,
including resin, is estimated to be around $1.5 million. If a downside case is
assumed whereby each site would need a new IX train, four new trains would be
required for a combined installed cost of around $6 million, well within the
approximately $29.6 million in liquidated damages available from the contractor
and approximately $9.4 million available in owner's contingency.
The solvent extraction part of the plant presents minimal technology risk
as this same technology has been in commercial operation for several years at
Tecnicas Reunidas in Spain. The component sizing for the SX units is comparable
to the sizing commonly used for copper SX/EW plants. Extraction of zinc in the
SX process has been demonstrated to be greater than 94 percent. Any zinc not
extracted will eventually be reintroduced into the IX as most of the SX plant
raffinate is returned to the feed brine, either directly as dilution or through
the salt wash stage of the IX elution cycle.
Zinc plating occurs in the electrowinning (EW) process. It appears that the
only risk in this process is the current efficiency (CE); that is the actual
amount of electrical energy needed to produce the zinc cathode, when compared to
the theoretical energy calculation. The plant design is based on 90 percent CE;
a lower CE will mean that the cost of electrical energy per pound of zinc
product will be higher than
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<PAGE>
that cost potentially assumed in the sensitivity analysis. However, Kvaerner
has guaranteed overall electrical consumption on the Zinc Recovery Project.
Solution chemistry and housekeeping (tightness of electrical connections,
plate cleanliness, etc.) have an impact on current efficiency. While the
chemistry of the solution should be rather stable, CEOC is aware of the
necessity to maintain good electrolyte chemistry through successful operation of
the demonstration plant, and appears to have the technical capability to
successfully operate the commercial plant.
CalEnergy Minerals LLC has limited its risk of delay and performance
shortfalls by including liquidated damages (secured by a bank letter of credit)
in the Kvaerner EPC contract, and owner's contingency reserve funds. The EPC
Contract liquidated damages are sized to compensate SSP for delays and
performance shortfalls up to coverage limits of 20 percent of the fixed price,
or approximately $29.6 million. Fluor Daniel finds this to be reasonable.
Additionally, CalEnergy Minerals has included approximately $9.4 million in the
construction budget as an allowance to cover potential expenditures that are not
fully covered by the EPC contract. The owner's contingency amounts to
approximately 5.4 percent of the total construction budget which is not
unreasonable for projects of this nature. The combined cap on LD's and owner's
contingency funds appear to be consistent with, or above industry practices for
process plants.
SECTION 7.0
PERMITTING AND ENVIRONMENTAL
7.1 ENVIRONMENTAL COMPLIANCE
On July 24, 1998, Fluor Daniel conducted a walk through of the Existing
Projects in the Imperial Valley. This walk through included an environmental
overview of the facilities. Facilities' inspections included Salton Sea Units I
- -- IV, and the proposed sites for the New Projects. The environmental overview
focused on the H2S air emissions abatement systems; water and brine ponds
design and operation; stormwater control; solid waste handling and disposal;
general noise environment; the proposed Zinc Recovery Project site and the
associated solvent extraction sites.
The plants appeared neat and well maintained. The H2S abatement systems
consisted of existing biofilters for Salton Sea Units I, II, III and IV. A
review of the design indicated that there should be sufficient capacity to
handle any anticipated increase of H2S loads from Salton Sea Unit V. The water
and brine ponds design appeared adequate to minimize or eliminate the potential
for water and brine release into the underlying soil and groundwater. The
build-up of brine solids in the brine pond and subsequent land disposal should
be minimized in the future by enhanced solids retention in the brine injected
into the geothermal reservoir by project pH modification features.
Stormwater onsite is collected and injected into the geothermal reservoir.
Solid waste handling and disposal appear to be adequate. Dust control in the
solid waste handling operation should be improved by proposed dust handling
equipment and dust abatement measures.
The noise environment encountered appears to be comparable to other similar
power plant designs. Noise was qualitatively experienced within acceptable OSHA
limits near equipment. Excessive noise was not experienced at the nearest
residence. The preliminary design of the proposed ion exchange units, central
solvent extraction and electrowinning plant appeared feasible and
environmentally protective, evidenced by the pilot plant walk-through and review
of system process flow diagrams.
In reviewing two years worth of available Funding Corporation files, Fluor
Daniel has found no environmental Notices of Violation for any media (air
emissions, wastewater, solid/hazardous waste).
7.2 APPLICABLE ENVIRONMENTAL PERMIT AND LICENSING REQUIREMENTS
All Existing Projects and the New Projects have received appropriate
regulatory approvals/ exemptions in all media (air emissions,
stormwater/wastewater, brine injection), and have appropriate solid and
hazardous waste transportation and disposal contracts or agreements in place.
The New Projects have received the required Imperial County Conditional Use
Permits and Imperial County Air Pollution Control District air permits.
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<PAGE>
7.3 ENVIRONMENTAL REQUIREMENT COMPLIANCE, DEFICIENCIES AND LIMITATIONS
It is the opinion of Fluor Daniel that the New Projects have appropriate
designs and have or plan to have trained personnel to comply with all
environmental laws and regulations, have received all environmental permits and
approvals, and have contracts and agreements in place with licensed waste
transportation and disposal companies. If operated in accordance with the
provided design, and good utility practices the projects should not have any
environmental deficiencies or limitations.
SECTION 8.0
ASSESSMENT OF FINANCIAL PROJECTIONS
8.1 OVERVIEW
Fluor Daniel has reviewed a projection of cash flows for the Funding
Corporation (provided by the Funding Corporation) and has analyzed the ability
of the Funding Corporation to repay anticipated Security debt service over the
next 20 years. Fluor Daniel has summarized the results of this analysis in the
table of debt coverage ratios calculated from 1999 through 2018 presented below.
In addition, Fluor Daniel has performed a series of sensitivity analyses that
are also listed on the table and described in more detail later in this section.
SUMMARY OF DEBT COVERAGE RATIOS
<TABLE>
<CAPTION>
SCENARIO MINIMUM COVERAGE AVERAGE COVERAGE
- -------- ---------------- ----------------
<S> <C> <C>
Base Case .......................... 1.72 2.97
Low Power Price -- Case 1 .......... 1.72 2.86
Low Power Price -- Case 2 .......... 1.71 2.76
Downside Zinc Price ................ 1.69 2.90
98% Confidence Zinc Price .......... 1.69 2.88
High O&M Cost Escalation ........... 1.71 2.80
SCE Low Avoided Cost ............... 1.78 3.02
SCE Medium Avoided Cost ............ 1.78 3.28
SCE High Avoided Cost .............. 1.78 4.24
Low Power 2/98% Zinc ............... 1.68 2.66
</TABLE>
Among the assumptions used for the analysis and detailed below, the Funding
Corporation provided the assumptions regarding debt pricing and term. Henwood
Energy Services prepared the forecasts of spot electricity prices and Resource
Strategies International (RSI) provided the zinc pricing forecast. GeothermEx
provided a forecast of the amount of zinc contained in the geothermal brine and
the zinc depletion rate.
Fluor Daniel reviewed the financial model which contains a twenty year
projection beginning in year 1998 of revenues, expenses, initial and long term
expenditures , royalties, and cash flow . The financial model projects the
financial performance of each project and consolidates the results for measuring
aggregate debt service coverage. The base case projections indicate that project
revenues from the sale of electricity for the Existing and New Projects and the
sale of zinc for the Zinc Recovery Project should be sufficient to cover the
projected annual operating expenses, post-completion capital expenditures, and
debt service for the Securities.
8.2 BASE CASE PROJECTION ASSUMPTIONS
8.2.1 CONSTRUCTION EXPENDITURES
The Funding Corporation provided what we believe to be reasonable
assumptions regarding new capital expenditures, including the construction cost
of the Salton Sea Unit V Project, the Zinc Recovery Project, the TurboExpander
Project, Region II Brine Facilities Construction and the Capital Improve-
B-25
<PAGE>
ments. As used in the summary, the Project construction costs include certain
owner's administration costs, owner's contingency funds and other costs for
construction and services not included in the fixed price EPC contracts. These
assumptions along with the financing plan, are shown below.
USES AND SOURCES OF FUNDS
(X$000'S)
<TABLE>
<CAPTION>
1998 1999 2000 TOTAL
--------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Salton Sea Unit V Project ........................ 15,983 77,284 13,596 106,863
Zinc Recovery Project ............................ 31,779 104,640 43,911 180,330
TurboExpander Project ............................ 1,502 8,504 215 10,221
Region II Brine Processing Construction .......... 6,908 39,097 987 46,992
Capital Improvements ............................. 10,817 7,127 3,393 21,337
Interest and Financing Cost ...................... 9,901 21,305 10,564 41,770
------- -------- ------- --------
TOTAL USES ...................................... $76,890 $257,957 $72,666 $407,513
------- -------- ------- --------
Bond Proceeds .................................... 76,890 208,110 0 285,000
Equity ........................................... 0 49,847 72,666 122,513
------- -------- ------- --------
TOTAL SOURCES ................................... $76,890 $257,957 $72,666 $407,513
</TABLE>
8.2.2 DEBT
The assumptions regarding the sizing of the debt Securities were provided by
the Funding Corporation. As used in the Report, the projections assume
approximately 70 percent of required funding to be provided by debt and the
remaining 30 percent with cash equity contributed from CalEnergy or an
affiliate. Debt will be long term bonds issued as Series F under the existing
bonding authority priced at an assumed annual interest rate of 7.475 percent.
The final maturity is approximately 20 years after issuance with an average life
of approximately 15.5 years. No principal is due and payable during the first
three years, which corresponds to the projected construction period.
8.2.3 POWER PRODUCTION
Existing operations at the Salton Sea consist of eight power plants: Salton
Sea Units I, II, III, and IV, Vulcan, Del Ranch, Elmore, and Leathers. These
facilities have demonstrated reliable operation in the range of 95-100 percent
average plant availability. The assumptions regarding future operations are
shown in the table below. The capacity factors for the Existing Projects are
shown for 1998.
PROFORMA OPERATING ASSUMPTIONS
<TABLE>
<CAPTION>
NAMEPLATE AVERAGE AVAILABILITY
LOCATION CAPACITY (KW) FACTOR (1)
- ----------------------------- --------------- ---------------------
<S> <C> <C>
Salton Sea Unit I ........... 10,000 92%
Salton Sea Unit II .......... 20,000 96%
Salton Sea Unit III ......... 49,800 98%
Salton Sea Unit IV .......... 39,650 99%
Leathers .................... 41,000 98%
Elmore ...................... 41,000 98%
Vulcan ...................... 34,000 98%
Del Ranch ................... 38,000 99%
Salton Sea Unit V ........... 49,000 95%
TurboExpander ............... 10,000 95%
------
TOTAL ...................... 332,450
</TABLE>
- ----------
(1) For years 2000 through 2004.
On the basis of past plant performance, Fluor Daniel finds the capacity
factor assumptions used in the financial projections to be reasonable.
8.2.4 ZINC PRODUCTION
Annual production of zinc will depend upon the level of zinc contained in
brine, the brine production rate, the zinc recovery factor, plant operating
efficiency and reliability, the depletion rate, and other
B-26
<PAGE>
factors. The financial projections assume that the average zinc content of the
brine is 8,639 lbs/hr (based on a the GeothermEx report) and that this rate
diminishes by 4.0 percent linearly over the first 10 years of operation. Over
the next 10 years, the zinc contained in the brine is projected to decline by
another 5.5 percent. The recovery rate of zinc contained in the brine feed is
assumed to be between 90 and 91 percent on the basis of the rate guarantees
provided by Kvaerner at Substantial Completion. The Zinc Recovery Project is
assumed to operate at an average annual capacity factor of 95 percent. Together,
these assumptions yield a first year production level of approximately 65
million pounds of zinc declining every year thereafter as the zinc content in
the brine declines in accordance with the depletion projections.
Zinc pricing is assumed to follow the London Metals Exchange (LME) plus a
premium reflecting current market conditions and the favorable location of the
Zinc Recovery Project which puts it closer to many zinc buyers as identified in
the independent report prepared by RSI as listed in Attachment 2-1. These
projections assume that after five months of High Grade Zinc production, 70
percent of the zinc will be sold as Special High Grade and 30 percent of the
zinc can be sold as a special Continuous Galvanizing Grade (CGG) and can be
priced at the standard Special High Grade (SHG) zinc rate.
8.2.5 REVENUES
All of the Existing Projects sell power under contract to Southern
California Edison Company. Six of the eight Existing Projects have a 10-year
provision for fixed energy pricing at rates that are now considered to be
substantially above market. These six Existing Projects have already reached, or
by 2000 will reach the expiration of the 10-year fixed energy price period by
2000 causing a drop in project revenue. Pricing for electrical energy beyond
these fixed price termination dates will be subject to pricing under the new
deregulated wholesale power market in California. The chart showing the forecast
of gross revenues for the Projects is shown below.
SALTON SEA FUNDING CORPORATION III
PROJECTED REVENUES
[GRAPHIC OF PROJECTED REVENUES OMITTED]
8.2.6 OPERATING EXPENSES
CEOC presently operates the Existing Projects under contract to the various
ownership entities. As evidenced by the information provided by the Funding
Corporation, over the last three years operating expenses have been reduced
through consolidation of operations. Projected operating costs have been
developed in detail by CEOC and appear to be reasonable.
A significant annual expense associated with operation of each facility is
the payment of royalties for use of the geothermal brine. Under the present
ownership arrangement, the majority of royalties paid by each project flow back
to the Royalty Guarantor. This impact is captured in the cash flow analysis.
B-27
<PAGE>
8.2.7 ONGOING CAPITAL EXPENDITURE
The Funding Corporation has prepared a five-year plan for ongoing capital
expenditure. This plan was reviewed by Fluor Daniel, was determined to be
reasonable, and is used as the basis for projecting future capital expenditures
in the forecasting model. Categories of expenditure include such items as
geothermal well drilling, power plant improvements, and power plant overhaul.
8.2.8 ESCALATION
All expenses in the financial projection have been escalated at an assumed
rate of 2.5 percent, unless specified otherwise.
8.2.9 CASH FLOW
The cash flow model computes cash flow available to cover debt service.
Total expenses by facility are netted from total revenues to arrive at project
operating income. Royalties, capital expenditures, and new construction
expenditures are then calculated and subtracted from operating income to
determine cash flow available for debt service. The Base Case results in a
minimum debt service coverage calculated from 1999 through 2018 of 1.72 and an
average coverage of 2.97.
A summary of key assumptions used in the financial analysis is shown in
Attachment 8-1. The cash flow results and coverage ratios from the analysis are
shown in Attachment 8-2.
8.3 SENSITIVITY ANALYSIS
Fluor Daniel utilized the cash flow model to perform a sensitivity analysis
to examine the ability of the project to maintain debt coverage levels under
several scenarios. The three variables we adjusted for this analysis are power
price, zinc price, and the O&M escalation rate.
8.3.1 POWER PRICE
Henwood Energy Services prepared the forecast of future electric energy
prices used in the financial projections. As a downside case, Henwood also
prepared two cases based on assumptions of lower natural gas prices (10 or 15
percent). The lower natural gas forecasts were used by Henwood to forecast the
corresponding lower electrical energy prices.
Use of the Case 1 power forecast maintained minimum coverage at 1.72 but
reduced the average debt coverage from 2.97 to 2.86. Case 2 resulted in minimum
and average coverages of 1.71 and 2.76, respectively.
8.3.2 ZINC PRICE
RSI conducted the study of future zinc prices for use in the financial
projections. In addition to defining the base case zinc price, RSI also
evaluated a downside case where they used a series of zinc prices using a 98
percent confidence interval. The downside sensitivity case resulted in a
reduction in the minimum debt coverage from 1.72 to 1.69 and a reduction in
average debt coverage from 2.97 to 2.90. The 98% confidence case also brought
minimum debt coverage to 1.69 and average debt coverage to 2.88.
8.3.3 O&M COST ESCALATION
As a further sensitivity, the rate of O&M escalation was increased from 2.5
percent (inflation only) to 4 percent. This reduced the minimum debt service
coverage to 1.71 and the average to 2.80.
8.3.4 SCE AVOIDED COST
Fluor Daniel ran three sensitivity cases using avoided costs estimated in
1995 by SCE. The Low Case increased minimum coverage to 1.78 and average
coverage to 3.02. The Medium Case resulted in an increase in the minimum
coverage level to 1.78 and an increase in average coverage to 3.28. The High
Case again resulted in an increase in the minimum coverage to 1.78 and an
increase in average coverage to 4.24.
B-28
<PAGE>
8.3.5 LOW POWER CASE 2/98% ZINC
This sensitivity combines the lowest power price forecast from Henwood (Case
2) with the lowest zinc forecast from RSI (98% Confidence Level). Minimum
coverage was reduced from 1.72 to 1.68 and average coverage declined from 2.97
to 2.66.
8.4 BREAKEVEN ANALYSIS
The following table presents the Power Exchange electric price that
maintains project debt service at a level of 1.0 or higher.
<TABLE>
<CAPTION>
BREAKEVEN (CENTS/KWH)
----------------------
YEAR NOMINAL 1998 BASE
- ---- ------- ---------
<S> <C> <C>
1998 ......... 0.00 0.00
1999 ......... 0.00 0.00
2000 ......... 0.00 0.00
2001 ......... 0.00 0.00
2002 ......... 0.18 0.16
2003 ......... 0.48 0.42
2004 ......... 0.18 0.16
2005 ......... 0.65 0.55
2006 ......... 0.00 0.00
2007 ......... 0.40 0.32
2008 ......... 0.06 0.05
2009 ......... 0.43 0.33
2010 ......... 0.00 0.00
2011 ......... 0.00 0.00
2012 ......... 0.00 0.00
2013 ......... 0.01 0.01
2014 ......... 0.00 0.00
2015 ......... 0.00 0.00
2016 ......... 0.00 0.00
2017 ......... 0.01 0.01
2018 ......... 0.00 0.00
</TABLE>
B-29
<PAGE>
ATTACHMENT 2-1
ASSUMPTIONS, QUALIFICATIONS AND REVIEW DOCUMENTS
B-30
<PAGE>
ATTACHMENT 2-1
ASSUMPTIONS, QUALIFICATIONS AND REVIEW DOCUMENTS
THIS REPORT WAS PREPARED BY FLUOR DANIEL, INC. EXPRESSLY FOR USE BY SALTON
SEA FUNDING CORPORATION. IT IS FLUOR DANIEL'S UNDERSTANDING THAT THIS REPORT
WILL BE INCLUDED IN THE PUBLIC OFFERING MEMORANDUM AND SUBSEQUENT PROSPECTUS
FOR THE OFFERING OF THE BONDS, AS DESCRIBED HEREIN. NEITHER FLUOR DANIEL NOR
SALTON SEA FUNDING CORPORATION NOR ANY PERSON ACTING IN THEIR BEHALF, MAKES ANY
WARRANTY, EXPRESS OR IMPLIED, OR ASSUMES ANY LIABILITY WITH RESPECT TO THE USE
OF ANY INFORMATION, TECHNOLOGY, ENGINEERING, OR METHODS DISCLOSED IN THIS
REPORT.
In the preparation of this Report and the opinions contained therein,
Fluor Daniel has made certain assumptions with respect to conditions which may
exist or events which may occur in the future. While we believe these
assumptions to be reasonable for the purpose of this Report, they are dependent
upon future events and actual conditions may differ from those assumed. In
addition, we have used and relied upon certain information provided to us by
others. Neither Salton Sea Funding Corporation nor Fluor Daniel Inc. has made
an analysis, verified, or rendered an independent judgment of the validity of
the information provided by others. While it is believed that the information
contained herein will be reliable under the conditions and subject to the
limitations set forth herein, neither Salton Sea Funding Corporation nor Fluor
Daniel, Inc. guarantee the accuracy thereof. Further, some assumptions may vary
significantly due to unanticipated events and circumstances. To the extent that
actual future conditions differ from those assumed herein or provided to us by
others, the actual results will vary from those forecast. This Report
summarizes our work up to date of the Report. Thus, changed conditions
occurring or becoming known after such date could affect the material presented
to the extent of such changes.
The principal assumptions and considerations utilized by Fluor Daniel in
developing the results and conclusions presented in this report include the
following:
o Only the power plants and above ground geothermal resource piping and
processing facilities were evaluated. The adequacy, reliability, and costs of
geothermal resources and wells, including minerals extraction factors were
assessed by GeothermEx.
o The projected interest rates on the Securities, reinvestment rates, cost of
arranging the financing and the amortization schedule of the Securities used
in the debt service coverage analysis have been provided to Fluor Daniel.
o Fluor Daniel's inspection of the existing Salton Sea operations were limited
to a visit of personnel on July 24, 1998.
o Funding Corporation provided 1997 financial statements for the Funding
Corporation and other cost accounting information as well as future
projections of cost, expenses, prices, and other key assumptions.
o Brine quantities, zinc content in the brine and depletion rates were provided
by GeothermEx.
o The zinc pricing forecast was provided by Resource Strategy International
(RSI).
o The electricity pricing forecast was provided by Henwood Energy Services.
o Fluor Daniel has not undertaken an independent review with all regulatory
agencies which could under any circumstances have jurisdictions over or
interests pertaining to the project.
B-31
<PAGE>
REVIEW DOCUMENTS
<TABLE>
<CAPTION>
DOCUMENT
DATE DOCUMENT
- ------------ --------
<S> <C>
11/97 Feasibility Study -- Kilborn -- SNC Lavalin (without capital or operating cost data)
3/23/98 Salton Sea Zinc Recovery Project Request for EPC Bids
2/20/98 Preliminary Process Flow Diagrams and P&ID's -- Simons
9/21/98 Proforma Cost Report
9/16/98 Revised Process Equipment List -- Kvaerner
3/23/98 Salton Sea Unit V Request For EPC Bid Proposal (4 Volumes)
Various Preliminary Salton Sea Unit V Process Flow Diagrams
Various Preliminary Salton Sea Unit V Piping and Instrument Diagrams (P&ID's)
Various Preliminary Salton Sea Unit V Plot Plans
7/10/98 Preliminary Salton Sea Unit V Master Schedule
Various Preliminary Region II Process Flow Diagrams
Various Preliminary Region II Plot Plans
9/16/98 EPC Agreement between CalEnergy Minerals L.L.C and Kvaerner U.S. Inc
9/10/98 Revised PFDs -- Kvaerner
7/18/95 Salton Sea Funding Corporation Confidential Offering Circular
6/17/96 Salton Sea Funding Corporation Confidential Offering Circular
7/28/98 Lump Sum Cost Proposal -- Salton Sea Unit V
7/28/98 Memorandum of Understanding (MOU) -- Salton Sea Unit V
7/28/98 Lump Sum Cost Proposal -- Salton Sea Zinc Recovery
7/28/98 Memorandum of Understanding (MOU) -- Salton Sea Zinc Recovery
3/31/93 Technology Transfer Agreement -- Units I, II, & III
7/28/98 Second Amended and Restated Waste Disposal Agreement -- Units I, II, III, & IV
11/24/93 Ground Lease -- Units I & II
9/25/89 Plant Connection Agreement -- Unit II
7/20/88 Plant Connection Agreement -- Unit III
3/31/93 Ground Lease -- Units III & IV
7/14/95 Plant Connection Agreement -- Unit IV
2/15/96 Technology Transfer Agreement -- Unit IV
6/9/88 Plant Connection Agreement -- Del Ranch, L.P.
3/14/88 Ground Lease -- Del Ranch, L.P.
3/14/88 Technology Transfer Agreement -- Del Ranch, L.P.
6/9/88 Plant Connection Agreement -- Elmore, L.P.
3/14/88 Ground Lease -- Elmore, L.P.
3/14/88 Technology Transfer Agreement -- Elmore, L.P.
9/25/89 Plant Connection Agreement -- Leathers, L.P.
10/26/88 Ground Lease -- Leathers, L.P.
8/15/88 Technology Transfer Agreement -- Leathers, L.P.
12/6/88 Plant Connection Agreement -- Vulcan Power Company
4/14/98 IID Construction Agreement -- Salton Sea Unit V
4/1/98 IID Plant Connection Agreement -- Salton Sea Unit V
4/14/98 IID Transmission Services Agreement -- Salton Sea Unit V
5/10/96 BHP License Agreement -- Zinc Recovery Project
4/14/98 IID Distribution Services Agreement -- Zinc Recovery Project
5/1/98 Dow Resin Sales Contract -- Zinc Recovery Project
7/30/98 Lump Sum Cost Proposal -- Salton Sea Unit V Project Schedule
7/30/98 Lump Sum Cost Proposal -- Salton Sea Zinc Recovery Project Schedule
7/31/98 Preliminary Construction Schedule -- Salton Sea Unit V & Zinc Plant
</TABLE>
B-32
<PAGE>
<TABLE>
<CAPTION>
DOCUMENT
DATE DOCUMENT
- ------------ --------
<S> <C>
9/11/98 Conditional Use Permit G91-0001 -- Region II Power Plant Modification Project
3/20/98 Draft Geotechnical Report -- Salton Sea Unit V & Zinc Extraction Facilities
8/5/98 Imperial Valley Operating Statistics
8/5/98 Excerpts from 5 Year Operating Plan
8/98 GeothermEx Report -- Assessment of the Resource Supply
8/5/98 BHP Royalty Agreement and Amendment
8/14/98 RSI Report -- Global Refined Zinc Market
8/5/98 California Energy Commission, State of California Energy Resources Conservation
and Development Commission Clearance/Acknowledgement that the Desert
Valley/Salton Sea Unit V Project is not subject to the Commission's jurisdiction.
6/26/98 Conditional Use Permit (#G94-0001) Second Amendment, Granted by Imperial
County and Recorded on 6/26/98 to Allow Brine Flow Increase to Accommodate
New 49 MW Power Plant Site.
6/25/98 Conditional Use Permit (#G98-0001) Granted by Imperial County and Recorded on
6/25/98 for a New 23 acre, 49 MW Power Plant generating 0.35 Tons Filter Cake
per Net Megawatt.
4/23/98 Conditional Use Permit #98-0002 Granted by Imperial County and Recorded on
4/23/98 for a Central Mineral Recovery Facility to Recover Zinc and Other Precious
Metals from Spent Geothermal Fluids Prior to Injection of the Fluids.
8/5/98 Draft Conditional Use Permit Applications Including Environmental Information --
Region 2 Power Plant Modification Project (dated June 1998)
7/1/98 Imperial County Air Pollution Control District, Amended Conditions For Authority
To Construct and Permit To Operate #1894C. Amended Conditions Issued 7/1/98.
This permit is for amended conditions for construction and operation of the
elements in Region I, Unit III.
8/5/98 Imperial County Air Pollution Control District Permit to Construct # 2743 --
Permit to construct Salton Sea Unit V
8/5/98 Imperial County Air Pollution Control District Permit to Construct and Operate
#2742. This permit is for the Zinc Recovery Project including solvent extraction,
electrowinning, metals melting furnace, and Dross handling dust collection system.
8/5/98 Imperial County Public Health Department Water System Permit for 1998, Permit
Number 637
4/1/96 Laidlaw Environmental Services Contract for Facilities Waste Removal and
Disposal Services, dated April 1, 1996, expiring April 1, 2001. Contract NO. 963093.
6/13/96 State of California, Department of Conservation, Division of Oil, Gas, and
Geothermal Resources, Unit 3 Permanent Injection Project Approval.
4/1/98 Cal/EPA State Water Resources Control Board, Letters of Receipt and Processing
of Notices of Intent (2) to Comply with the General Permit to Discharge
Stormwater Associated with Construction Activity, dated April 1, 1998 effective
9/1/98 through 7/1/2000.
9/13/94 California Regional Water Quality control Board, Colorado River Basin, Region 7
Waste Discharge Order (Permit) NO. 94-081for the Injection of Brine and
operation of a brine pond and Holding Basin, effective 9/13/94.
8/5/98 Material Safety Data Sheet, Nalco 1387 Scale Inhibitor (phosphonomethylated
amine).
9/2/98 Salton Sea Unit V Engineering, Procurement, and Construction Contract
9/11/98 Region II Upgrade Engineering, Procurement, and Construction Contract
8/12/98 Amendments to Power Purchase Agreement
3/31/98 Securities and Exchange Commission Form 10-Q
12/31/97 Securities and Exchange Commission Form 10-K
</TABLE>
B-33
<PAGE>
APPENDIX C
THE SOUTHERN CALIFORNIA ELECTRICITY MARKET AND
PRICE FORECAST
1999 -- 2018
PREPARED FOR:
SALTON SEA FUNDING CORPORATION
SEPTEMBER 1, 1998
PREPARED BY:
HENWOOD ENERGY SERVICES, INC.
2710 GATEWAY OAKS WAY, SUITE 300N
SACRAMENTO, CA 95833
<PAGE>
TABLE OF CONTENTS
THE SOUTHERN CALIFORNIA
ELECTRICITY MARKET AND
PRICE FORECAST
1999 -- 2018
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- --------- -----
<S> <C> <C>
EXECUTIVE SUMMARY ........................................... C-4
1 THE U.S. ELECTRIC POWER MARKET .............................. C-6
1.1 INTRODUCTION ................................................ C-6
1.2 FEDERAL LEGISLATIVE AND REGULATORY INITIATIVES .............. C-6
1.2.1 Public Utility Regulatory Policies Act -- 1978 .............. C-6
1.2.2 Energy Policy Act -- 1992 ................................... C-6
1.2.3 FERC Order 888 -- 1996 ...................................... C-6
1.3 CALIFORNIA LEGISLATIVE INITIATIVES .......................... C-7
1.3.1 Assembly Bill 1890 .......................................... C-7
2 THE CALIFORNIA WHOLESALE POWER MARKET ....................... C-7
2.1 THE MARKET 1998 AND BEYOND .................................. C-7
2.1.1 Market Size ................................................. C-8
2.1.2 Diversity of Energy Supply .................................. C-8
2.1.3 California Investor Owned Utilities ......................... C-9
2.1.4 Treatment of Qualifying Facilities (QFs) .................... C-9
2.2 CALIFORNIA MUNICIPAL UTILITIES AND AUTHORITIES .............. C-9
2.3 SYSTEM RELIABILITY .......................................... C-9
2.4 PX MARKET ................................................... C-10
2.4.1 PX Prices ................................................... C-10
2.4.2 Short Run Avoided Costs ..................................... C-10
2.5 PX PRICES AS A MEASURE OF AVOIDED COST ...................... C-11
3 PX PRICE FORECAST: KEY ASSUMPTIONS AND METHODOLOGY .......... C-12
3.1 MODELING METHODOLOGY & TECHNIQUES ........................... C-12
3.2 ASSUMPTIONS REGARDING THE CALIFORNIA MARKET TRANSITION
PERIOD ..................................................... C-12
3.3 KEY ASSUMPTIONS FOR MODELING CALIFORNIA MARKET .............. C-13
3.3.1 Forecast Horizon ............................................ C-13
3.3.2 Market Structure ............................................ C-13
3.3.3 Existing Resource Base ...................................... C-13
3.3.4 Resource Retirements ........................................ C-13
3.3.5 Generic Resource Additions .................................. C-13
3.3.6 Loads ....................................................... C-14
3.3.7 Load Shape .................................................. C-14
3.3.8 Load Growth ................................................. C-14
3.3.9 Inflation ................................................... C-14
3.3.10 Fuel Prices ................................................. C-14
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ----------- -----
<S> <C> <C>
3.3.11 Operations & Maintenance .......................................................... C-16
3.3.12 Property Taxes .................................................................... C-16
3.3.13 Insurance ......................................................................... C-16
3.3.14 Other Costs ....................................................................... C-16
3.4 WSCC TRANSMISSION SYSTEM CONFIGURATION ............................................ C-16
3.5 HYDRO POWER ....................................................................... C-17
3.5.1 Median Year Case .................................................................. C-17
3.5.2 Transactions ...................................................................... C-17
4 PX PRICE FORECAST: RESULTS ........................................................ C-18
4.1 BASE CASE 1999-2018 ............................................................... C-18
4.2 SENSITIVITY CASES ................................................................. C-19
4.2.1 Low Gas 1 Case .................................................................... C-19
4.2.2 Low Gas 2 Case .................................................................... C-19
5 THE POWER PROJECTS AND THE CALIFORNIA MARKET ...................................... C-20
5.1 MARKET ANALYSIS RESULTS ........................................................... C-20
5.2 PX PRICES AND THE MARKET POSITION OF THE POWER PROJECTS ........................... C-23
6 THE CALIFORNIA GREEN POWER MARKET AND ITS IMPLICATIONS
FOR THE NEW POWER PROJECTS ....................................................... C-24
6.1 CEC RENEWABLE RESOURCE FUNDING .................................................... C-24
6.2 EXISTING RENEWABLE RESOURCE ACCOUNT ............................................... C-24
6.3 NEW RENEWABLE RESOURCE ACCOUNT .................................................... C-25
6.4 EMERGING RENEWABLES ACCOUNT ....................................................... C-26
6.5 CONSUMER-SIDE INCENTIVES .......................................................... C-26
6.6 DISCUSSION OF GREEN POWER MARKET BENEFITS ......................................... C-26
LIST OF APPENDICES
A SCE SRAC Forecast ................................................................. C-28
LIST OF TABLES
Table 1 1996 Net System Power (Electric Generation) ....................................... C-8
Table 2 PX Prices from April 1 to July 31 1998 Average Weekly On-Peak, Average Weekly
Off-Peak, and Average of all hours in Week ($/MWh)................................ C-10
Table 3 Southern California Edison Annual Average Short-Run Avoided Costs of Energy As
Computed Using Transition Formula and HESI Projected Gas Prices .................. C-11
Table 4 Generic Resource Characteristics (1996 dollars) ................................... C-14
Table 5 PX prices expressed as MCPs in Nominal Dollars .................................... C-18
Table 6 PX Prices Under Low Gas Case 1 .................................................... C-19
Table 7 PX Prices Under Low Gas Case 2 .................................................... C-20
Table 8 Average operating costs by plant type in the WSCC from Prosym model simulation
year 2005 ........................................................................ C-21
Table 9 PX price frequency analysis in Southern California Transmission Area, 2005 ........ C-23
Table 10 AB 1890 Accounts -- Total Funding Allocations by Technology, $Millions............. C-24
Table 11 Existing Renewable Resource Account -- Allocations by Tier, $Millions ............. C-25
Table 12 New Renewable Resource Account -- Allocations by Year, $Millions................... C-25
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ---------- -----
<S> <C> <C>
LIST OF FIGURES
Figure 1 WSCC Transmission System Configuration ............................ C-17
Figure 2 PX Prices & Existing Project Operating Costs, Units I to IV ....... C-22
Figure 3 PX Prices & Existing Project Operating Costs, Other Units ......... C-22
Figure 4 PX Prices & New Project Operating Costs ........................... C-23
</TABLE>
C-3
<PAGE>
EXECUTIVE SUMMARY
BACKGROUND
Salton Sea Funding Corporation (the "Funding Corporation") will issue
securities to finance, among other things, two new geothermal power plants --
Salton Sea V and the Region II TurboExpander (the "New Power Projects"), which
will have a combined net generation capacity of 59 MW. The New Power Projects
are located in the Salton Sea area of California. The financing will also
encompass further investment in eight existing geothermal units (the "Existing
Projects"), which sell power to Southern California Edison under Standard Offer
contracts authorized by the California Public Utilities Commission (the
"CPUC"). The New Power Projects and Existing Projects together comprise the
"Power Projects". The financing requires an in-depth assessment of the
regulatory issues and electric energy markets in California including
information on the structure and operation of the California market and an
assessment of the competitive position of the Power Projects in the market.
Henwood Energy Services, Inc (HESI) has developed an independent
assessment of (i) the wholesale electricity market in California for the 20
year period 1999 through 2018; (ii) the competitive position of the Power
Projects in the California market, and; (iii) the outlook for renewable energy
in the emerging Green Power market.
This assessment is presented in both quantitative and qualitative fashion
as listed below:
1. A brief description of the California wholesale electricity market.
2. The key assumptions used in assessing the market and as inputs into the
HESI Electric Market Simulation System.
3. Forecasts of average electricity prices in the California market and the
methodology to develop them. HESI used its proprietary Electric Market
Simulation System (EMSS) to produce the forecasts of market clearing
prices. The base case scenario was developed using assumptions developed
and tested by HESI. Two low gas price scenarios were developed to assess
the Power Projects'sensitivity to market prices.
4. A specific competitive assessment of the Power Projects on a stand-alone
basis using revenue and variable cost estimates generated by HESI.
5. An assessment of the Power Projects within the context of the
competitive market and how the Power Projects compare with other
generators.
6. An assessment of the Green Power and renewable energy markets.
7. An analysis of the changes to Qualifying Facility (QF) payments, the
transition formula for calculating such payments, and forecasts of the
payments for the Power Projects.
Based on these analyses, our report contains the following conclusions:
1. Our Base Case forecast indicates that the Southern California annual
Power Exchange (PX) market clearing price (MCP) will increase from
$28/MWh in 1999 to $50.31/MWh by 2018 in constant dollars -- which
translates into an average annual rate of increase of 2.92 percent over
that period.
2. We expect all of the Power Projects to be low cost producers in all
years of the study. The annual average operating cost of the Power
Projects in 2005 is $17.81/MWh making them low cost producers. In fact,
about 66 percent of the electricity produced in the WSCC in 2005 -- the
first year of full competition -- is generated from units with higher
costs, a strong indication that the Power Projects will be dispatched as
baseload. The new units, Salton Sea Unit V and the TurboExpander, are
even better positioned at $10.30 and $9.50 per MWh respectively. Of all
the generation in the region, only hydroelectric generators have lower
operating costs.
3. The annual average operating costs of the Power Projects, in $/MWh, are
below the annual average PX prices. In fact, the Power Projects'
operating costs are close to the off-peak PX price in 1999 through 2002
and significantly below that in all years thereafter.
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4. The low-cost relationship between PX prices and Power Projects'
operating costs also prevails with the Low Gas Price downside
sensitivity cases. In these cases, the operating costs are well below
the PX prices. The range of annual average PX prices in the Low Gas
Cases is $26.47/MWh in 2001 to $46.95/MWh in 2018.
5. A significant finding of the study is that Salton Sea Unit V and the
TurboExpander will have operating costs lower than all other generator
types, except hydro, and will be extremely well-positioned to be
dispatched any hour in the year. These units' operating costs are about
$20/MWh lower than the PX prices from 1999 through 2001, a difference
that increases to $30/MWh in 2005 and to $40/MWh by 2018. The margin is
so significant it is extremely unlikely that any new significant
capacity with lower operating costs will be built.
6. We also find that the PX price will be greater than or equal to
$20.30/MWh in 96 percent of all hours in 2005. This means that the Power
Projects, with an average operating cost of $17.81/MWh, will be below
the PX price in each of those hours and will be dispatched accordingly.
7. The transition of short--run avoided cost determination to competitively
determined pricing, while subject to regulatory and market dynamics, is
expected to be complete by the beginning of 2000. We forecast the SRAC
to be $30.30/MWh in 1999 on an annual average basis.
8. In addition to being low cost producers, the Power Projects have the
added competitive advantage of being a renewable and environmentally
preferred (or "green") energy resource.
o Surveys indicate that 40 to 70 percent of California residential
consumers are willing to pay a 5 to 15 percent premium for green
power products. Current retail premiums for green power products
range from 0.7 to 3.1 cents per kWh.
o California is a world leader in the promotion and development of
clean renewable energy and its energy consumers are environmentally
aware. While the traditional power utilities are cutting back on
renewable expenditures, the State of California has established a
$543 million fund to subsidize existing and new sources of renewable
energy. HESI's analysis of the disbursement criteria and delivery
mechanisms, as well as CalEnergy's own demonstrated expertise in
acquiring such funds, all suggest that the Power Projects will derive
substantial benefits from generating clean and renewable energy.
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SECTION 1.0
THE U.S. ELECTRIC POWER MARKET
1.1 INTRODUCTION
The U.S. electric power industry is undergoing a profound transformation.
The industry is evolving from a vertically integrated and cost-regulated
monopoly to one that is market-based with competitive prices. The transition
began with the passing of the Public Utility Regulatory Policies Act (PURPA) in
1978, which made it possible for non-utility generators to enter the wholesale
power market. As a result, non-utility capacity additions grew 54 percent from
1990 to 1996 while utility capacity additions during the same period grew only 2
percent. The deregulation process is likely to continue at the state level far
into the next decade.
1.2 FEDERAL LEGISLATIVE AND REGULATORY INITIATIVES
This section briefly discusses the major federal legislation and regulation
that established a framework for electric power industry deregulation and set
the stage for further legislative initiatives at the state level.
1.2.1 PUBLIC UTILITY REGULATORY POLICIES ACT -- 1978
PURPA is one of five bills signed into law on November 9, 1978, as part of
the National Energy Act. It is the only one remaining in force. Enacted to
combat the "energy crisis," and the perceived shortage of petroleum and natural
gas, PURPA requires utilities to buy power from non-utility generating
facilities that use renewable energy sources or "cogeneration," i.e. the use of
steam both for heat and to generate electricity. The Act stipulates that
electric utilities must interconnect with and buy, at the utilities' avoided
cost, the capacity and energy offered by any non-utility facility ("Qualifying
Facility") meeting certain ownership, operating and efficiency criteria
established by the Federal Energy Regulatory Commission (FERC).
1.2.2 ENERGY POLICY ACT -- 1992
The Energy Policy Act of 1992 (EPACT) opened access to transmission networks
and exempted certain non-utilities from the restrictions of the Public Utility
Holding Company Act of 1935 (PUHCA). EPACT therefore has made it even easier for
non-utility generators to enter the wholesale market for electricity.
The Act also created a new category of power producers, called exempt
wholesale generators (EWGs). By exempting them from PUHCA regulation, the law
eliminated a major barrier for utility-affiliated and nonaffiliated power
producers wanting to compete to build new non-rate-based power plants. EWGs
differ from PURPA QFs in two ways. First, they are not required to meet PURPA's
utility ownership, cogeneration, or renewable fuels limitations. Second,
utilities are not required to purchase power from EWGs.
In addition to giving EWGs and QFs access to distant wholesale markets,
EPACT provides transmission-dependent utilities the ability to shop for
wholesale power supplies, thus releasing them -- mostly municipals and rural
cooperatives -- from their dependency on surrounding investor-owned utilities
for wholesale power requirements. The transmission provisions of EPACT have led
to a nationwide open-access electric power transmission grid for wholesale
transactions.
1.2.3 FERC ORDER 888 -- 1996
With the passage of EPACT, Congress opened the door to wholesale competition
in the electric utility industry by authorizing FERC to establish regulations to
provide open access to the nation's transmission system. FERC's subsequent
rules, issued in April 1996 as Order 888, is designed to increase
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wholesale competition in the nation's transmission system, remedy undue
discrimination in transmission, and establish standards for stranded cost
recovery. A companion ruling, Order 889, requires utilities to establish
electronic systems to share information about available transmission capacity.
1.3 CALIFORNIA LEGISLATIVE INITIATIVES
1.3.1 ASSEMBLY BILL 1890
The legislation that introduced electric power deregulation in California is
Assembly Bill 1890, which achieves a number of goals, including:
o An immediate 10 percent rate reduction for residential and small
commercial users.
o A new power market structure with an Oversight Board (OB), an Independent
System Operator (ISO) and a PX.
o Limits the amount of costs (e.g. stranded assets) that are recoverable in
the transition to a deregulated market.
o Preserves public programs supporting energy efficiency, research &
development and low-income households.
o Provides approximately $540 million in subsidies to support renewable
energy programs, including geothermal power generation, such as the Power
Projects.
SECTION 2.0
THE CALIFORNIA WHOLESALE POWER MARKET
In September 1996, the California legislature passed Assembly Bill 1890 ("AB
1890") that deregulated parts of the electric power business in California. The
California market, originally scheduled to begin on January 1, 1998, was delayed
to March 31, 1998. At that time, the PX and ISO began operation. AB 1890 permits
a fully competitive electric generation market to phase in over a four-year
transition period between January 1998 and March 2002 (the "Transition"). At the
end of the Transition period, most of the protections afforded California's
investor owned-utilities (IOUs) for past uneconomic investments and power
contracts will be removed. It is anticipated that, eventually, municipal
utilities will also permit their retail customers to enter into direct supply
agreements with competitive power suppliers.
2.1 THE MARKET 1998 AND BEYOND
With deregulation, a steadily increasing percentage of customers will be
allowed to shop for power in an open market. Customers will have direct access
to generators. No longer restricted to buying power only from their local
utility company, they can freely select the power arrangement that suits their
preferences.
On March 31, 1998, the PX began operating the day-ahead energy market, a
wholesale market-clearing auction into which PX participants bid energy supply
and demand for each of the next day's 24 hours. On the same date, the ISO took
control of the electric grid, and began operating a complementary set of
competitive auctions. The ISO relies on these auctions to manage transmission
line congestion, to procure a portion of the needed ancillary services (for
reliability purposes), and to balance physical generation with load in real
time.
During the Transition, utilities are afforded the opportunity to recover
certain "stranded costs" for generation-related investments. These costs had
been previously authorized by the CPUC for inclusion in rates, but are not
likely to be recoverable through the prices that emerge in the competitive
market. The mechanism for this cost recovery is an unavoidable Competition
Transition Charge (CTC) assessed against all customers served by the
distribution system of California IOUs.
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2.1.1 MARKET SIZE
California's energy market is very large, with a non-coincident peak energy
demand of 51,280 MW1 in 1996 and total energy consumption of 245,900 GWh. The
average retail cost of electricity is 9.4 cents /kWh (1996 $), with total
electric revenue accounting for over $20 billion. Peak demand for electricity is
forecast to reach 68,100 megawatts by 2015 -- a growth rate of 1.5 percent per
year between 1996 and 2015.
California's three largest IOU's -- PG&E, SCE, and SDG&E account for 188,470
GWh, or approximately 77 percent, of California's statewide energy consumption.
2.1.2 DIVERSITY OF ENERGY SUPPLY
During the 1970s, over two-thirds of California's electricity was generated
from oil and natural gas. This decade, however, California has developed a more
diverse resource mix of electricity generation. As Table 1 shows, over half of
the state's 258,801 gigawatt-hours of electricity production is now met with
non-fossil fuel sources. Further, over 11 percent of power generation is fueled
by renewable energy, mainly geothermal, small hydro and biomass (but excluding
large hydro).
California leads in developing new generation technologies. It has 40
percent of the world's geothermal power plants, 30 percent of the installed wind
capacity and 90 percent of the world's solar generation. The state also leads
the nation in the amount of electricity supplied by non-utility generators.
Table 1 also shows that just over 32 percent of electricity generation is
supplied by natural gas. Because of its cheap price and clean-burning
characteristics, natural gas has become California's fuel of choice,
particularly for electricity generation. Demand for natural gas in 1990 exceeded
2,025 trillion cubic feet and one-third of California's electrical energy is
generated by natural gas. According to the California Energy Commission, natural
gas will account for 38 percent of energy used for power generation by 2009.
TABLE 1
1996 NET SYSTEM POWER
(ELECTRIC GENERATION)
<TABLE>
<CAPTION>
FUEL TYPE GIGAWATT-HOURS PERCENT
- ------------------------------- ---------------- ----------
<S> <C> <C>
Coal * ...................... 40,283 15.6%
Large Hydro * ............... 64,958 25.1%
Natural Gas * ............... 84,110 32.5%
Nuclear ..................... 39,753 15.4%
Other(Oil, Diesel) .......... 693 0.3%
Biomass & Waste ............. 5,848 2.3%
Geothermal .................. 13,541 5.2%
Small Hydro ................. 5,767 2.2%
Solar ....................... 807 0.3%
Wind ........................ 3,041 1.2%
------ ----
Total ....................... 258,801 100%
======= ====
</TABLE>
- ----------
* Includes out of state imports.
Source: California Energy Facts, California Energy Commission
Natural gas pipeline capacity into California stood at about 8 BCF/day in
1996. Between 1990 and 1996, interstate pipeline capacity into California
increased by 65 percent. The major sources of new capacity during this period
were the Mojave, El Paso and Tuscarora pipelines.2
- ----------
1 "Electricity Report," California Energy Commission, August 1997.
2 Deliverability on the Interstate Natural Gas Pipeline System, Energy
Information Administration, May 1998.
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2.1.3 CALIFORNIA INVESTOR OWNED UTILITIES
As California's utility market moves toward free competition, over 17,800 MW
of generating assets owned by IOUs have been sold, or will be in the near
future. However, despite this divestiture of generation resources, the IOUs are
expected to retain ownership and control of substantial nuclear, QF, and
hydropower generation in California and jointly owned thermal coal-fired
generation outside of California.
The IOUs also buy and sell power from each other, as well as engage in
transactions with other utilities in California and the surrounding Western
states. Each has assumed responsibility for matching load and resources to
maintain frequency, and matching scheduled and actual flows at the tie points by
which utilities are connected to other power producers. Because of their
obligation to serve within their service territories, they also developed
generation and demand forecasts, operated generating plants, and entered into
long-term procurement contracts for the fuel used to generate electricity. They
also participated in short- and long-term bilateral contracts for electric power
in order to meet changes in demand and demand growth, respectively.
2.1.4 TREATMENT OF QUALIFYING FACILITIES (QFS)
Qualifying Facilities are currently compensated under a Transition Formula
- -- the Short Run Avoid Cost (SRAC) -- that in its current form is tied directly
to changes in the price of natural gas. However, this relationship is not likely
to persist much longer. The CPUC, which has the regulatory authority to
determine SRAC, in Decision 96-12-028, stated its intention to change the
formula to one based on the PX price once certain conditions are satisfied.
These conditions are that the PX is functioning properly and that either the
IOUs have divested 90 percent of their gas-fired fossil generation, or the
fossil-fired generation units owned directly or indirectly by the IOUs are
recovering all of their going forward costs from PX based prices. HESI believes
these conditions will be met by the beginning of 2000.
2.2 CALIFORNIA MUNICIPAL UTILITIES AND AUTHORITIES
While it is anticipated that municipal utilities and other governmental
authorities will participate in the PX and ISO, there is no regulatory
requirement for them to do so. The largest municipal utilities are the Los
Angeles Department of Water and Power (LADWP) and the Sacramento Municipal
Utility District (SMUD), which in combination own or control over 15,000 MW of
generating resources. To date, they have not announced plans regarding their
participation nor have they submitted their transmission resources to ISO
control. The Imperial Irrigation District has also not as yet announced plans to
turn-over its transmission system to ISO control.
2.3 SYSTEM RELIABILITY
The ISO is the entity responsible for the security and operating reliability
of the statewide electric grid. In this function, the ISO will adhere to the
North American Electric Reliability Council (NERC) and Western Systems
Coordinating Council (WSCC) standards for reliable operation.
In the near term, the new market is designed to accommodate this
centralized, third-party control structure through the combined use of two
mechanisms. One is the ISO-conducted, competitive auction for eligible ancillary
services, such as operating (spinning and non-spinning) reserve, replacement
reserve, and regulation capacity that can be controlled electronically by the
ISO.
The other mechanism available to the ISO for procurement of generating
services is the use of long-term contracts with generating facilities that are
designated as "reliability must-run" facilities. As with the ancillary service
auction, the ISO will use reliability must-run contracts to obtain operating
reserve, replacement reserve, "black start" capability, voltage support, and
regulation capacity. The prices established in these must-run contracts are
unrelated to PX market prices. Instead, they are based on the actual costs of
the generating units under contract. Most of the IOU-owned generators in
California were declared must-run by their owners. The ISO will examine each
must-run contract during the Transition and retain those required for system
reliability. The ISO's use of must-run contracts through the Transition period
was authorized by AB 1890. Service procured under must-run contracts will be
replaced by those procured competitively after the end of the AB 1890-specified
Transition period.
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2.4 PX MARKET
The PX is responsible for managing the transactions for all power auctioned
through, and purchased by, market participants except those bound by contract.
It was mandated by AB 1890 and set-up as a private, non-profit corporation
subject to regulation by FERC. The different auctions include: the Day-ahead
Market, Hour-ahead Market, Real-time Market, and an Ancillary Services Market.
The day-ahead market is the most forward-looking of the scheduled markets,
and is the largest in terms of total volume. It will give participants the
opportunity to buy and sell energy for each hour of the 24-hour trading day on a
day-ahead basis.
The hour-ahead market is also a forward-looking, scheduled market, but its
scale is much smaller in terms of both ahead-time and total volume. It will give
participants the opportunity to adjust their schedules two hours before the hour
of operation.
The real-time market is dramatically different from the scheduled day-ahead
and hour-ahead markets, in that it is not forward-looking. Rather, it seeks to
balance the real-time differences actually experienced between scheduled and
metered values for load and generation.
2.4.1 PX PRICES
The first four months of California PX prices, from April 1 through July 31,
are displayed in Table 2 below. It displays the on-peak and off-peak averages
for each week in the first four months of operation.
TABLE 2
PX PRICES FROM APRIL 1 TO JULY 31 1998
AVERAGE WEEKLY ON-PEAK, AVERAGE WEEKLY OFF-PEAK, AND
AVERAGE OF ALL HOURS IN WEEK ($/MWH)
<TABLE>
<CAPTION>
WEEK ON-PEAK OFF-PEAK AVERAGE
- ------------------------ --------- ---------- ----------
<S> <C> <C> <C>
4/1 - 4/5 ............ 24.00 17.44 21.19
4/6 - 4/12 ........... 23.32 19.70 21.76
4/13 - 4/19 .......... 27.44 21.22 24.77
4/20 - 4/26 .......... 25.82 16.44 21.79
4/27 - 5/3 ........... 24.36 10.46 18.38
5/4 - 5/10 ........... 18.74 8.08 14.15
5/11 - 5/17 .......... 14.02 4.83 10.06
5/18 - 5/24 .......... 19.12 7.90 14.30
5/25 - 6/1 ........... 10.98 4.38 8.15
6/2 - 6/8 ............ 12.78 4.25 9.11
6/9 - 6/15 ........... 8.50 5.07 7.03
6/16 - 6/22 .......... 21.50 9.08 16.16
6/23 - 6/29 .......... 18.43 8.22 14.04
6/30 - 7/5 ........... 18.86 9.89 15.00
7/6 - 7/12 ........... 35.27 25.78 31.19
7/13 - 7/19 .......... 46.36 25.45 37.37
7/20 - 7/26 .......... 38.21 24.76 32.43
7/27 - 7/31 .......... 54.38 29.50 43.68
</TABLE>
2.4.2 SHORT RUN AVOIDED COSTS
All QFs are compensated on the basis of the SRAC of the IOU purchasing the
power. The Power Projects QFs currently receive payment under the SRAC
"Transition Formula" for Southern California Edison (SCE). This "formulaic" SRAC
is a linear function of the price of natural gas as measured at the "California
Border". Table 3 below presents a forecast of annual average SRAC as computed
pursuant to the existing SRAC Transition Formula for SCE. The gas prices used to
make this calculation are the same as the gas prices used in the HESI model to
produce the forecast of PX prices.
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TABLE 3
SOUTHERN CALIFORNIA EDISON ANNUAL AVERAGE SHORT-RUN
AVOIDED COSTS OF ENERGY AS COMPUTED USING TRANSITION
FORMULA AND HESI PROJECTED GAS PRICES
<TABLE>
<CAPTION>
PRICE OF GAS SHORT-RUN
YEAR ($/MMBTU) AVOIDED COST ($/MWH)
- ---- --------- --------------------
<S> <C> <C>
1999 ......... 2.30 30.30
2000 ......... 2.32 31.12
2001 ......... 2.34 31.19
</TABLE>
While the SRAC is projected through 2001, we believe PX pricing will replace
SRAC pricing as early as the start of 2000.
SCE's 1995 forecast of avoided costs of energy is included in Appendix A for
comparison purposes, containing low, medium, and high forecasts.
2.5 PX PRICES AS A MEASURE OF AVOIDED COST
The SRAC Transition Formula is expected to be in effect until several
conditions are met. One is the divestiture by California IOUs of their
California fossil-fired generation, a process expected to be completed in the
next twelve months for all major utilities. The other is a determination by the
CPUC that the PX market is "functioning properly." Currently PX operations are
being gradually phased in. Once complete, the CPUC will likely wait at least
several more months before determining the PX is functioning properly, a
determination which could be subject to several months of regulatory delay.
However, if PX market prices are substantially below transition SRAC prices,
utilities will be motivated to seek a change in SRAC pricing through the CPUC
more quickly. PX trading prices through June 1998 were substantially lower than
SRAC payments, a situation that was reversed in July. HESI's market price
forecasting supports the notion that the trend of annual average PX prices being
lower than SRAC will likely continue through the Transition years (1999-2001) of
California restructuring.
Given the above considerations, the change from Transition Formula to PX
pricing should occur at the beginning of Year 2000.
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SECTION 3.0
PX PRICE FORECAST: KEY ASSUMPTIONS AND METHODOLOGY
3.1 MODELING METHODOLOGY & TECHNIQUES
To develop a forecast of PX market clearing prices for the Southern
California Transmission Area, simulation of the entire Western Systems
Coordinating Council (WSCC) electrical system was required. Such a simulation
requires a vast amount of data regarding power plants, fuel prices, transmission
capability and constraints, and customer demands.
HESI utilizes its proprietary Electric Market Simulation System (EMSS) and
its MULTISYM (Trade Mark) production cost model to simulate the operation of the
WSCC. EMSS is a sophisticated application of relational database technology,
which operates in conjunction with a state-of-the-art, multi-area,
chronological, production simulation model. It is used to manage the tens of
thousands of individual data points necessary to properly characterize the WSCC
electric system for the forecast.
The types of data managed by the EMSS database include the data necessary to
correctly consider the configuration of the regional transmission system. This
includes:
o individual power plant characteristics;
o transmission line interconnections, ratings, losses, and wheeling rates;
o forecasts of resource additions and fuel costs; and
o forecasts of loads for each utility in the region.
MULTISYM (Trade Mark) simulates the operation of the individual generators,
utilities and control areas (also referred to as transmission areas) within the
region, taking into consideration various system and operational constraints.
Output from the simulation is generated in hourly, station-level detail and
provided in database format. This data may then be aggregated and sorted for any
level of aggregation required by the user.
3.2 ASSUMPTIONS REGARDING THE CALIFORNIA MARKET TRANSITION PERIOD
It is assumed during the Transition period that the market will consist of a
limited number of generators that will be required to operate competitively in
the market. AB 1890-mandated regulatory Must-Take generation and regulatory
Must-Run contracts provide for the continuation of capacity payments through
Transition. Must-Take includes power from QF resources -- including the Existing
Power Projects -- nuclear units, and existing purchase power agreements that
have minimum-take provisions, is not subject to competition and will be
scheduled with the ISO on a must-take basis. Must-Run contracts are between IOU
generators and the ISO for the purposes of system reliability and provide a
capacity payment to the owners during all, or part, of the Transition.
Must-Take units owned by municipal and public power agencies are assumed to
continue operating as they did in the past. Other Must-Take units, like QFs,
will continue to operate under existing contracts.
Units identified on the ISO's must-run list will end up with one of three
types of Must-Run contracts -- A, B, or C. This study assumes that most Must-Run
contracts will be Must-Run "B" which allows the generators to cover its fixed
costs of operation through the ISO's payment. Those units that do not sign the
"B" contract and remain on an "A" contract will generally be those that are
must-run or follow load, like hydroelectric. There will be few Must-Run "C"
contracts which dedicate the units to the ISO in exchange for full cost recovery
but do not allow the unit to bid independently into the market. The ISO has the
right to terminate any must-run contract it deems unnecessary with a 90 day
notice.
Since a majority of the generating units both inside and outside of
California will generally continue to bid to the PX just above their variable
cost of production until the end of the AB 1890 specified Transition period, we
assume that the PX closely resembles a variable cost pool in the near term. At
the end of the Transition period, fixed costs will also be recovered through the
PX. Thus, a relatively small number of units will be exposed to full competition
during the Transition period.
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We have forecasted the Must-Run contracts to impact the market through the
end of 2001 by putting downward pressure on PX prices. The Must-Run contract
payments cover much of the generators' costs by allowing fixed costs to be
recovered through the ISO. Thus, generators will not require higher PX prices to
recover their fixed costs. When the contracts terminate during, or at the end
of, the Transition period, all generators will be required to recover their
costs through normal, competitive trading activities. The model takes into
account the phasing out of the Must Run contracts in the Transition period,
resulting in an increase in PX prices.
3.3 KEY ASSUMPTIONS FOR MODELING CALIFORNIA MARKET
3.3.1 FORECAST HORIZON
The forecast period covers a twenty-year period beginning January 1, 1999
and ending December 31, 2018.
3.3.2 MARKET STRUCTURE
It is assumed that all generators in the WSCC, except a few in California
that were not declared Must Run, receive some payment for capacity through 2001,
the end of the Transition period specified in AB 1890. From 2002 through 2018
there are no capacity payments to the California generators. We assume
non-California generators will continue to operate with regulated tariffs and
capacity payments from 2002 through 2004. We believe the market will become
fully competitive by 2005 and, from that point forward, all generators will need
to recover capacity costs through the market.
3.3. EXISTING RESOURCE BASE
All existing generation units within the WSCC are included in the analysis.
HESI's database contains information regarding all such units and their
performance characteristics. This data has been updated to reflect the most
recent filings made by utilities regarding their resources. Much of this data
was taken from the "OE-411" and is current as of January 1, 1997. Generation
resource data were also supplemented by a review of specific utility resource
plan filings and reports generated by state agencies. Existing resources are
assumed to continue operating through the forecast horizon, except for those
resources that have specific retirement dates or assumed retirements.
3.3.4 RESOURCE RETIREMENTS
We have conservatively estimated the retirements to be only those publicly
announced, except in the case of the nuclear units. Recent CPUC decisions on
rate recovery allow California utilities to recover investments in nuclear
plants on an accelerated schedule. Investments in Diablo Canyon and Palo Verde
will therefore be fully recovered by the end of 2001 and San Onofre by the end
of 2003. After this special rate treatment period ends, these plants must
compete individually. All costs will have to be recovered in the competitive
energy market. HESI believes that Diablo Canyon and San Onofre will not be
competitive in the new environment and so will be shut down shortly after their
investments are recovered, in 2001 and 2003 respectively. Palo Verde is assumed
to operate throughout the forecast period.
3.3.5 GENERIC RESOURCE ADDITIONS
HESI believes that gas-fired combined cycle units (CC) and gas-fired
combustion turbines (CT) will be added as needed to meet the projected increase
in customer demand over the forecast period. HESI's analysis assumes that
generation resources will be added over the forecast period in a 3 CC MWs to 1
CT MW ratio for all trans-areas.
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Table 4 lists the cost and performance assumptions for these resources.
TABLE 4
GENERIC RESOURCE CHARACTERISTICS (1996 DOLLARS)
<TABLE>
<CAPTION>
COMBUSTION COMBINED
UNIT CHARACTERISTIC TURBINE CYCLE
------------------- ------- -----
<S> <C> <C>
Capacity (MW) ......................... 120 240
Heat Rate (Btu/kWh) ................... 11,000 7,100
Fixed O&M ($/kW- year) ................ 3.00 10.00
Variable O&M (dollars/MWh) ............ 4.00 2.00
Forced Outage Rate (%) ................ 0.00 2.00
Maintenance Outage Rate (%) ........... 4.00 4.00
Capital Cost ($/kW) ................... 300.00 500.00
Cost of Money (%) ..................... 10% 10%
Capital Amort. Period (years) ......... 15 15
</TABLE>
3.3.6 LOADS
HESI is using the latest available data to project future customer demand
and energy requirements. This data was filed electronically by the utilities
with the Federal Energy Regulatory Commission (FERC) early in 1997, and
represents each utility's most recent recorded historic loads and their most
recent load forecast data. HESI has used data approved by the California Energy
Commission in its 1996 Electricity Report for the California utilities.
3.3.7 LOAD SHAPE
The load shape is based on recent historic load data filed with the FERC by
utilities which reflects their complete hourly loads over calendar years 1993
through 1996. HESI has used these load shapes to create a load shape consistent
with the load forecasts provided by utilities. These "synthetic" load shapes are
used to project the shapes of future utility loads based on the load growth data
described in section below.
3.3.8 LOAD GROWTH
Based on the load forecasts filed with the FERC in 1996 under Form 714 and
on more recent information filed to state regulatory agencies, including
California ER96, peak demand and energy requirements for the entire WSCC are
expected to both grow at less than 2 percent per year through the study.
3.3.9 INFLATION
General inflation drives a number of cost elements that underlie power
market prices including Operations and Maintenance (O&M) costs, the cost of new
resource additions, and is combined with expectations of real escalation to
result in future fuel prices. For this study inflation was assumed to be 2.5
percent.
3.3.10 FUEL PRICES
There are two principal fuels that drive electricity prices in the WSCC
region -- natural gas and coal.
NATURAL GAS
The natural gas price forecast utilized in this study was developed based on
the price of gas futures contracts for the 1999 period and estimates of gas
transportation costs associated with moving gas from the relevant gas basin to
the power plant. Each power plant in EMSS is assigned a fuel group. Each fuel
group is comprised of two components: a commodity price and a gas transportation
price.
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<PAGE>
Gas Commodity Prices
Gas Commodity prices are tied to the San Juan basin in the southwest and to
the AECO C Hub in Canada, the two main gas-producing basins in the WSCC region.
The price of a series of gas futures contracts for gas delivered to the San Juan
Basin was used as the basis for the study's southwest gas basin price. Gas basin
prices at the AECO C Hub were based on forward gas futures at Henry Hub plus the
price of a financial swap tying Henry Hub prices to the AECO C Hub. Although
generators within the WSCC often use gas from more than one of these basins, it
is assumed that only one gas basin will set the key marginal gas price for each
generator. Each gas basin is mapped to generation regions within the WSCC as
discussed below:
San Juan
This basin is assumed to be the dominant gas basin supply generating
stations in the New Mexico, southern Nevada, Arizona, and California. Additional
pipeline and Local Distribution Company (LDC) charges must be added to the San
Juan price to yield the delivered price of gas to each generating unit.
Alberta
This basin is assumed to supply generating stations within Alberta; the same
gas price is also applied to generators in British Columbia. Alberta gas is also
assumed to supply electric generators located in the following states:
Washington, Oregon, Idaho, Montana, Wyoming, Utah, and Northern Nevada. Again,
gas transportation costs are added to yield the gas prices to generators in
those states.
Gas Transport Prices
Pipeline transportation costs are added to basin prices to determine
Citygate gas prices. The gas transportation price is a combination of gas
pipeline charges and the cost to move gas across a gas LDC. In many areas,
Citygate prices are the relevant marginal gas costs used by electric generators
to "dispatch" their electric systems, either because the generation owners
receive service directly from pipelines or pay only nominal additional charges
to an LDC. In other areas, additional charges for intrastate or LDC
transportation must be added to yield the dispatch price of gas. These costs are
based on the difference in historic Citygate and basin prices. Additionally, the
monthly price profile of the referenced basin's natural gas futures contract is
used to approximate the seasonality of the gas transportation price.
Local Distribution Company Charges
For those generators with gas delivered by an LDC, additional charges must
be added. These charges were again estimated using data developed from relevant
regulatory filings and other publicly available company information. The key
generators receiving LDC gas service are California's electric generators. The
LDC charges for each of these were estimated using 1996 charges. These charges
were assumed to remain flat in nominal terms through the study horizon, based on
data that has been published by the California Energy Commission. HESI assumes
the utilities will not continue their current practice of recognizing only a
small portion of their total transportation costs in their dispatch decisions;
rather, the utilities will likely recognize their average transportation cost in
each dispatch decision, or run the risk of substantial under-recovery of their
transportation costs.
Total Gas Costs
The total cost of gas for each "gas price region" within the WSCC is
developed by combining the above costs to yield a forecast of delivered gas
prices.
COAL
HESI bases its coal prices on historic power plant specific coal price data
extracted from the "Form 423's" utilities regularly file with the FERC. The Form
423 data include historic consumption as well as both spot and average
(transportation and so-called fixed fees included) prices. Given the competitive
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<PAGE>
nature of fuel supply markets and the current pricing of coal relative to gas,
HESI expects no coal price escalation through the forecast period. HESI used
spot coal prices to simulate the economic operation of coal plants. Spot prices
are historically about 77 percent of average prices.
3.3.11 OPERATIONS & MAINTENANCE
Power plant specific non-fuel O&M costs are reported by utilities in annual
reports to the FERC in a number of separate accounts. HESI averages these data
for the 1991 through 1995 time periods (normalized for constant year dollars) to
develop average starting O&M costs. The amounts in these various accounts are
then allocated between fixed and variable O&M. To derive a unit's fixed O&M
cost, the total O&M cost is decreased by the variable O&M cost component. Both
fixed and variable O&M costs are assumed to escalate with inflation.
3.3.12 PROPERTY TAXES
Property taxes are set by local jurisdiction and so vary throughout the
WSCC. In California they are 1.09 percent of remaining generation station book
value. In other jurisdictions, the rates range from 0.4 percent to approximately
4 percent. For purposes of establishing the property tax component of going
forward costs, jurisdictional tax rates will be used.
3.3.13 INSURANCE
Insurance is calculated as 0.2 percent of the remaining, undepreciated book
value of the power plant.
3.3.14 OTHER COSTS
In addition to fuel costs, a power plant operator experiences other costs
associated with the on-going business of producing power. These costs include
O&M, property taxes and insurance. For the most part, these costs can be avoided
if a facility is "mothballed" or retired, and thus are included in power plant
bids when performing competitive market analysis.
3.4 WSCC TRANSMISSION SYSTEM CONFIGURATION
In order to perform a study of the Southern California market prices likely
to result from the PX, the operation of the transmission system in the entire
WSCC region must be modeled. The transmission system configuration for this
study is shown in Figure 1. This characterization reflects the zones proposed by
the California IOUs in their PX applications to FERC.
C-16
<PAGE>
FIGURE 1
WSCC TRANSMISSION SYSTEM CONFIGURATION
[GRAPHIC OF WSCC TRANSMISSION SYSTEM CONFIGURATION OMITTED]
3.5 HYDRO POWER
3.5.1 MEDIAN YEAR CASE
HESI utilized average or median hydro conditions depending on the WSCC
sub-region and the data available. The sources for these data follow.
PACIFIC NORTHWEST (PNW) HYDRO DATA
The hydroelectric generation in the PNW accounts for almost half of the
hydro generation in the entire WSCC. HESI used the Bonneville Power
Administration's (BPA) 1996 Pacific Northwest Loads and Resources Study to
update hydroelectric data in the PNW. HESI calculated monthly capacity and
energy values for each hydroelectric station in the PNW based on this data,
choosing the median conditions from a recorded database of 50 years.
HYDRO DATA FOR OTHER REGIONS
Hydro data for the other regions come from a number of sources and are
updated periodically by HESI.
The WSCC Coordinated Bulk Power Supply Program document was used for the
majority of the plant capacity data for plants outside the Northwest. This
document is the WSCC's response to the Department of Energy's Form OE-411. It
includes summer and winter capacity ratings for all of the existing hydro and
thermal resources in the WSCC.
The McGraw Hill Electrical World Directory of Electric Utilities (The
"Bluebook") was the source of hydro plant energy data in a number of the WSCC
regions.
3.5.2 TRANSACTIONS
HESI incorporates known firm, contracted power transactions into its model,
as reported by the WSCC in the annual FERC Form OE-411 Filing. The transactions
are reflected in the load requirements
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<PAGE>
of the buying and selling utilities, in transactions between regions, and by
adjusting the transmission capacity. Any remaining transmission capacity is
used to facilitate additional power transactions between regions.
SECTION 4.0
PX PRICE FORECAST: RESULTS
The following sections summarize the model results from the Base Case and
the two Low Gas price sensitivity cases. Gas prices are sensitized due to the
fact that gas-burning generators will continue to be marginal cost producers
and therefore a major influence on the PX price. Any additional baseload
capacity, including the New Power Projects, would be low cost producers and
price takers. Additional intermediate capacity will need to be flexible enough
to accommodate hourly load fluctuations. The gas-fired combined-cycle and
combustion turbines are the most flexible technologies to meet these needs
cost-effectively. The role of these units and the impact of gas prices in
setting the PX prices will increase over time making gas the ideal input to
vary for sensitivity. To test this sensitivity two gas price downside cases are
developed as described in the sections below.
TABLE 5
PX PRICES EXPRESSED AS MCPS IN NOMINAL DOLLARS
<TABLE>
<CAPTION>
ANNUAL AVERAGE AVERAGE
AVERAGE OFF-PEAK ON-PEAK
YEAR MCP $/MWH MCP $/MWH MCP $/MWH
- -------- ----------- ----------- ----------
<S> <C> <C> <C>
1999 28.31 23.18 33.94
2000 28.19 23.49 33.42
2001 28.16 22.71 34.16
2002 33.99 26.73 41.98
2003 35.23 27.79 43.43
2004 36.82 28.80 45.65
2005 40.09 30.97 50.14
2006 39.91 31.02 49.68
2007 40.19 31.02 50.30
2008 43.05 32.17 55.02
2009 42.04 31.77 53.35
2010 43.48 33.03 54.99
2011 43.48 33.08 54.93
2012 43.26 33.10 54.45
2013 45.70 34.37 58.18
2014 45.89 34.95 57.93
2015 47.57 35.87 60.46
2016 47.79 35.67 61.12
2017 49.16 36.78 62.79
2018 50.31 37.19 64.75
</TABLE>
4.1 BASE CASE 1999-2018
The Base Case annual average PX prices for the Southern California
transmission area are listed in Table 5.
The PX prices decrease at an annual average of 0.18 percent each year from
1999 through 2001. This is the Transition period in which most market players
bid selling prices into the market which reflect their short run marginal fuel
costs. During this period, most IOU-owned generators receive payments for
capacity from the ISO Must Run contracts, if in California, or through
traditional tariffs, if outside of California. The capacity payments cease for
most ISO-contracted Must Run generators by the end of 2001.
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<PAGE>
After the AB 1890 Transition period ends in March 2002, the power pool
should cease to behave as a marginal cost pool. We believe California generators
will begin to recover some, though not all, of their fixed costs through their
sales through the PX. However, they will continue to compete with out-of-state
generators that continue to receive capacity payments through their regulated
rates and may continue to bid as if the PX was a marginal cost pool. This change
is reflected in the average PX price increase from $28.16/MWh in 2001 to
$33.99/MWh in 2002.
The average PX prices from 2002 through 2004 increase at an annual average
rate of 2.7 percent. During this period the California generators are exposed to
the competitive market but their out-of-state competitors continue to receive
capacity payments.
We assume that the entire WSCC will be competitive starting in 2005 and that
the bidding behavior of generators reflects their efforts to recover fixed costs
through sales to the PX. The PX price increases from $36.82/MWh in 2004 to
$40.09/MWh in 2005.
4.2 SENSITIVITY CASES
4.2.1 LOW GAS 1 CASE
In the Low Gas Case 1, the inflation rate was set to zero keeping the gas
price flat relative to the Base Case. The gas price decreases each year to the
point it is 10 percent below the Base Case. It was held at a constant 10 percent
below the Base Case gas price in all remaining years of the analysis. This low
gas scenario, while unlikely, could occur if there was an oversupply of gas, for
which there was no market, followed by a lengthy period of recovery and market
demand.
A total of 6 simulations, representing the sample years listed in Table 6,
were run to calculate the annual average PX prices for those years (intervening
years can be interpolated).
TABLE 6
PX PRICES UNDER LOW GAS CASE 1
<TABLE>
<CAPTION>
BASE CASE LOW GAS 1 PERCENT
SAMPLE ANNUAL AVE ANNUAL AVE BELOW BASE
YEAR MCP $/MWH MCP $/MWH CASE PRICE
- -------- ------------ ------------ -----------
<S> <C> <C> <C>
2000 28.19 27.92 1.0
2001 28.16 27.86 1.1
2005 40.09 38.70 3.5
2010 43.48 40.25 7.4
2014 45.89 42.89 6.5
2018 50.31 46.95 6.7
</TABLE>
4.2.2 LOW GAS 2 CASE
In the Low Gas Case 2, a third gas price forecast is developed. The Base
Case gas price forecast is reduced by three percent each year from 1999 through
2004, so that by 2004 the gas price is 15 percent below the Base Case forecast
gas price. The Low Gas 2 gas price is then held at a constant 15 percent below
the Base Case gas price for the remaining years of the analysis. This scenario
also requires an oversupply of gas or a dramatic decline in demand followed by a
lengthy period of recovery.
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<PAGE>
A total of 6 simulations, representing the sample years listed in Table 7,
were run to calculate the annual average PX prices for those years.
TABLE 7
PX PRICES UNDER LOW GAS CASE 2
<TABLE>
<CAPTION>
BASE CASE LOW GAS 2 PERCENT
SAMPLE ANNUAL AVE ANNUAL AVE BELOW BASE
YEAR MCP $/MWH MCP $/MWH CASE PRICES
- -------- ------------ ------------ ------------
<S> <C> <C> <C>
2000 28.19 27.23 3.4
2001 28.16 26.47 6.0
2005 40.09 35.58 11.0
2010 43.48 38.47 12.0
2014 45.89 39.98 13.0
2018 50.31 43.31 14.0
</TABLE>
SECTION 5.0
THE POWER PROJECTS AND THE CALIFORNIA MARKET
5.1 MARKET ANALYSIS RESULTS
This section presents an analysis of the Power Projects and their position
in the competitive California market consisting primarily of a comparison of
unit operating cost estimates, provided by the Funding Corporation and reviewed
by Fluor Daniel, to operating costs of other types of generation, and to PX
price forecasts. Comparisons were done for the Base Case and two Low Gas price
cases for each of the units.
We expect all of the Power Projects to be low cost producers in all years of
the study. Table 8 lists the average operating costs projected in 2005 for
several categories of generators in the WSCC region including the Power
Projects. We selected the year 2005 for this analysis as it is the first year in
which we assumed a fully competitive market. The annual average of the Power
Projects in 2005 is $17.81/MWh making them low cost producers. In fact, about 66
percent of the electricity produced in the WSCC in 2005 is generated from units
with higher costs, a strong indication that the Power Projects will be
dispatched as baseload. The new units, Salton Sea Unit V and the TurboExpander,
are even better positioned at $10.30 and $9.50 per MWh respectively. Of all the
generation in the region, only hydroelectric generators have lower operating
costs.
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<PAGE>
TABLE 8
AVERAGE OPERATING COSTS BY PLANT TYPE IN THE WSCC FROM PROSYM MODEL SIMULATION
IN 2005 1
<TABLE>
<CAPTION>
ELECTRICITY AVERAGE OPERATING
PLANT TYPE GENERATION (GWH) COST ($/MWH)/2/
- -------------------------------------------- ------------------ ------------------
<S> <C> <C>
Internal Combustion Engines ......... 62 62.22
Gas Turbine ......................... 26,177 39.94
Geothermal 3 ........................ 18,890 37.49
Gas/Cogeneration .................... 21,917 26.85
Gas/Combined Cycle .................. 151,804 25.41
Other Renewables 4 .................. 6,737 23.29
Steam Plants ........................ 335,527 18.21
THE POWER PROJECTS 5 ................ 2,868 17.81
Nuclear ............................. 35,885 13.33
Wind ................................ 3,435 10.45
SALTON SEA UNIT V ................... 408 10.30
TURBOEXPANDER ....................... 84 9.50
Hydroelectric ....................... 246,434 4.916
Total ............................... 846,8677
</TABLE>
- ----------
[1] The table displays operating cost by plant-type for various plant categories
in the Prosym simulation results. The values shown are for the simulation
year 2005 and are stated in nominal dollars. These values reflect expenses
for fuel and variable operation and maintenance only. They do not include
costs associated with fixed operation and maintenance, the inclusion of
which would increase overall costs for some plants substantially. For
example, inclusion of fixed operation and maintenance in the nuclear
category would increase the cost reported in the Table from $13.33/MWh to
$34.00/MWh. In as much as it is presently unclear what portion of fixed
costs will be recovered in the competitive market and under what conditions,
the Table should be viewed as a conservative representation of the
operational costs of these plants.
[2] Cost based on fuel and variable O&M in nominal dollars
[3] The operating costs of the Geothermal category reflect the fact that many of
the utility-owned geothermal facilities have long term steam contracts with
steam suppliers. In the case of the Power Projects, the steam supply and
facility owners are all Guarantors.
[4] Includes solar, biomass, and other renewables
[5] Average cost based on weighted facility operating cost; includes Salton Sea
Units 1-5, Elmore, Leathers, Hoch, Vulcan, and TurboExpander; source: Salton
Sea Funding Corporation.
[6] Cost based on average aggregated operating expenses of hydroelectric
facilities in the WSCC as reported to FERC on FERC Form 1.
[7] The generation totals in bold are not included in the total, but are
included in the total geothermal production. They are listed here to provide
relative scale to the market.
Operating Costs of the Power Projects, in $/MWh, are compared to the Base
Case annual average PX prices in the three figures below. All units have
operating costs below the annual average PX price. Only the Leathers unit has an
operating cost above the annual average PX price, and that is only in the first
year. This occurrence is because 1) Leathers is still in the S04 fixed price
energy period, and 2) certain costs such as geothermal royalties are directly
linked to revenues. In fact, all of the Power Projects' operating costs are
close to the off-peak PX price in 1999 through 2002 and significantly below that
in all years thereafter.
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<PAGE>
FIGURE 2
PX PRICES AND PROJECT OPERATING COSTS, UNITS I TO IV
[GRAPHIC OMITTED]
FIGURE 3
PX PRICES AND PROJECT OPERATING COSTS, OTHER UNITS
[GRAPHIC OMITTED]
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<PAGE>
FIGURE 4
PX PRICES AND NEW POWER PROJECT OPERATING COSTS
[GRAPHIC OMITTED]
Most important is the comparison between the PX prices and the New Power
Projects, Salton Sea Unit V and the TurboExpander as shown in Figure 4. These
units are about $20/MWh lower than the PX prices from 1999 through 2001, a
difference that increases to $30/MWh in 2005 and to $40/MWh by 2018. The margin
is so significant it is extremely unlikely that any new generators with lower
operating costs will be built. It is very unlikely that any significant hydro
generation capacity, even with lower operating costs, due to siting and
licensing difficulties. Thus, we conclude that the New Power Projects will have
operating costs lower than all other generator types, except hydro, and will be
extremely well-positioned to be dispatched any hour in the year.
The differential between PX prices and operating costs is perpetuated in the
Low Gas Price Cases, namely, the operating costs are well below the PX prices.
The range of PX prices in the Low Gas Cases is $26.47/MWh in 2001 to $46.95/MWh
in 2018.
5.2 PX PRICES AND THE MARKET POSITION OF THE POWER PROJECTS
For an additional perspective of the relative position of the Power Projects
in the market, a table summarizing the frequency of PX prices (Marginal Prices)
is developed. This approach captures more of the hour by hour price variability
than the preceding results.
First, the hourly PX price results from the Base Case year 2005 are ranked
from highest to lowest. From this, the frequency of price levels (i.e. the
percentage of hours in which the price is at, or above, a given level) is
developed. The analysis for 2005 indicates that in 96 percent of the hours the
PX price is greater than, or equal to, $20.30/MWh. This means that the Power
Projects, with an average operating cost of $17.81/MWh will be below the PX
price 96 percent of the time.
TABLE 9
PX PRICE FREQUENCY ANALYSIS IN SOUTHERN CALIFORNIA TRANSMISSION AREA, 2005
<TABLE>
<CAPTION>
MINIMUM% OF PX PRICE
TIME $/MWH
- ------------- ---------
<S> <C>
70 28.73
75 25.65
80 24.12
85 23.15
90 21.73
95 20.68
96 20.30
</TABLE>
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<PAGE>
SECTION 6.0
THE CALIFORNIA GREEN POWER MARKET AND
ITS IMPLICATIONS FOR THE POWER PROJECTS
The sweeping regulatory changes initiated by Federal and California
regulators present significant opportunities for providers of electricity from
renewable energy sources. HESI believes a number of emerging market factors bode
well for the most efficient renewable energy projects in general including the
Existing Projects and the New Power Projects in particular. These factors are
listed and discussed below. First, however, this section presents a brief
summary of the renewable funding programs.
6.1 CEC RENEWABLE RESOURCE FUNDING
AB 1890 established a $540 million fund to promote and develop renewable
energy projects and directed the CEC to administer and distribute the funds. In
response, the CEC established four separate accounts to deliver these funds over
the period January 1, 1998 to January 1, 2002. Each account has been allocated a
fixed percentage of the total fund and a different distribution mechanism is
used for each account. The four accounts and the amount of funds allocated to
each are shown in Table 10.
TABLE 10
AB 1890 ACCOUNTS -- TOTAL FUNDING ALLOCATIONS BY TECHNOLOGY, $MILLIONS
<TABLE>
<CAPTION>
TECHNOLOGY $MILLIONS
- ---------- ---------
<S> <C>
Existing Technologies .......... 243
New Techologies ................ 162
Emerging Technologies .......... 54
Consumer-Side .................. 81
Total .......................... 540
</TABLE>
Source: Policy Report on AB 1890 Renewables Funding, Report to the Legislature,
California Energy Commission, March 1998.
The "existing" and "new" categories are the most important, accounting for
75% of the total fund disbursement. Further, these accounts are applicable to
the majority of active or economically feasible renewable energy projects in
California, including the New and Existing Projects. An existing technology
refers to a facility that started operation prior to September 23, 1996 and a
new technology means a facility that started generation on or after September
26, 1996 but before January 1, 2002.
Existing facilities that are substantially refurbished on or after September
23, 1996 can apply for funding from the new technology category. However, the
non-refurbished portion of the facility cannot exceed 20% of the refurbished
facility's total value.
The "emerging" category is restricted to projects using small wind turbines
of 10 kW or less, fuel cell technology and solar power -- both photovoltaic and
solar thermal. A total of $54 million has been allocated to the emerging
technology account -- $10.5 million of which became available on March 20 on a
first-come, first-served basis.
The consumer-side account is designed to promote customer participation in
the renewable energy market. This fund has been allocated $81 million in total,
which in turn is divided between two sub-accounts: a customer credit account;
which has been most of the consumer-side funds, and secondly, a consumer
information account.
6.2 EXISTING RENEWABLE RESOURCE ACCOUNT
The Existing Renewable Resource Account was designed to help maintain
existing renewable technologies during the first four years of the electric
industry restructuring. The total amount of funds allocated to the existing
renewable account is $243 million, which is divided among three tiers.
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<PAGE>
Existing technologies are assigned to a tier according to their cost
characteristics and potential for further cost efficiencies. Tier 1 contains
biomass and solar thermal technologies and is allocated 25% of the total
existing renewable account. Wind generation is placed in Tier 2 and is allocated
13% of the total. Tier 3 is allocated 7% of the existing renewable fund total
and consists of geothermal, small hydro, digester gas, and municipal solid waste
and landfill gas technologies.
TABLE 11
EXISTING RENEWABLE RESOURCE ACCOUNT -- ALLOCATIONS BY TIER, $MILLIONS
<TABLE>
<CAPTION>
TIER 3 --
TIER 1 - BIOMASS, TIER 2 -- GEOTHERMAL, SMALL
SOLAR, THERMAL WIND HYDRO, OTHERS TOTAL
- ------------------- ----------- ------------------ ------
<S> <C> <C> <C>
$ 135 $ 70.2 $ 37.8 $243
</TABLE>
Source: Policy Report on AB 1890 Renewables Funding, Report to the Legislature,
California Energy Commission, March 1998, page ES-8.
The amount of funds available annually to each tier declines over the four
year period. The CEC expects renewable generation facilities to become more cost
efficient and therefore more competitive as the unregulated market evolves.
The subsidy is distributed monthly to renewable energy suppliers through a
cents per kWh payment. However, the payment is based on the lowest of three
possible calculations: the difference between a target price and the market
clearing price (the SRAC specific to each IOU is used as a proxy for the market
clearing price at present), a pre-determined cents per kWh price cap, and a
funds adjusted price (the adjustment ensures that the amount disbursed does not
exceed the amount of funds available). The CEC designated target price and price
cap for existing technology tier 3 geothermal facilities are 3.0 and 1.0 cents
per kWh, respectively. Thus the Existing Projects benefit from these subsidies
on a cent per kWh basis to the extent that the SRAC is below 3 cents per kWh.
SRAC prices applicable to Southern California Edison have recently been in the
2.7 to 3.1 per kWh range.
6.3 NEW RENEWABLE RESOURCE ACCOUNT
The New Renewable Resources Account contains $162 million to support new
renewable electricity generation projects. According to the AB 1890 legislation,
"new" in this context means a renewable energy facility located in California
that became operational on or after September 23, 1996, but prior to January 1,
2002. As Table 12 shows, the proportion of total funds devoted to new
technologies increases from $32.4 million in 1998 to $48.6 million by 2001.
TABLE 12
NEW RENEWABLE RESOURCE ACCOUNT -- ALLOCATIONS BY YEAR,
$MILLIONS
<TABLE>
<CAPTION>
1998 1999 2000 2001 TOTAL
---------- ---------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
New Renewables .......... $ 32.4 $ 37.8 $ 43.2 $ 48.6 $162
</TABLE>
Source: Policy Report on AB 1890 Renewables Funding, Report to the Legislature,
California Energy Commission, March 1998, page 33.
The full $162 million allocated to new renewable energy technologies was
disbursed in a single auction held in July of this year. Auction participants
were required to submit "bids" -- a cents per kWh subsidy -and an estimate of
project generation over a 5 year period (however, acceptable bids were capped at
1.5 cents per kWh). The fund was then allocated from lowest to highest bidder
until it was exhausted. Winners will receive a payment for renewable electric
generation produced and sold in the first five years of project operation.
The New Power Projects were awarded $31.3 million in this auction, one of
the largest subsidies granted by the CEC. This subsidy directly and positively
impacts the ability of the New Power Projects to produce competitively priced
power. HESI also notes that the award is a strong indication that the New Power
Projects are among the lowest unit cost producers of new renewable energy in
California.
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<PAGE>
6.4 EMERGING RENEWABLES ACCOUNT
The purpose of the emerging renewable subsidy or Buy-Down Program is to
reduce the cost to consumers of certain renewable energy generation equipment.
Four types of renewable power generation are eligible for these funds: small
wind turbines of 10 kilowatts or less, fuel cells that convert renewable fuels
such as methane gas into electricity, and solar power -- both photovoltaic (PV)
and solar thermal. The first $10.5 million of the total $54 million allocated to
this fund became available March 20, 1998 from the CEC on a first-come,
first-served basis.
6.5 CONSUMER-SIDE INCENTIVES
The consumer-side account is designed to promote customer participation in
the renewable energy market. This account was allocated $81 million, or 15% of
the total fund. These funds in turn have been allocated to two sub-accounts, a
customer credit account, which has most of the allotted funds, and secondly, to
a consumer information account.
The customer credit account provides "credits" to consumers who purchase
CEC-registered renewable power that satisfy certain eligibility criteria.
Through this program, residential and small commercial customers' electricity
bill who purchase renewable energy will automatically be credited up to 1.5
cents for every kilowatt-hour of renewable electricity they consume up to the
total fund amount of $75.6 million. Funds for customer credits were distributed
in early 1998. For at least the first two years, payments to some customers have
a ceiling of $1,000 per year per customer. This program directly reduces the
retail cost of renewable energy and thus makes power produced by the New Power
Projects more attractive to customers who otherwise would not have purchased
renewable-based power.
The $5.4 million consumer information account is to fund a renewable energy
public information program. The objective of the program is to help build a
viable customer-driver market for renewable energy through consumer education.
6.6 DISCUSSION OF GREEN POWER MARKET BENEFITS
The New Power Projects can earn the market clearing price by selling power
directly into the PX. However, an alternative marketing strategy exists --
tapping into the retail market by selling directly to green power marketers.
Based on our analysis, we believe this option may reap additional benefits for
the New Power Projects. This section of the report discusses the potential
benefits to the New Power Projects from participation in the California green
power energy market.
Surveys consistently show that 40 to 70 percent of California residential
customers are willing to pay a 5 to 15 percent premium for green power
products(4). Current retail premiums for green power products range from about
0.7 to 3.1 cents per kWh, depending upon the percentage of renewable energy
contained in the resource mix. Assuming that 50 percent of the New Power
Projects' output is sold into the green power market and that 2.5 cents per kWh
can be obtained from such sales, assumptions we believe to be reasonable, the
New Power Projects would earn additional revenue of approximately $6.5 million a
year.
- ----------
4 See, for example a summary of customer survey results in "Selling Green Power
in California: Product, Industry, and Market Trends," by Ryan H. Wiser and
Steven J. Pickle, Ernest Orlando Lawrence Berkeley National Laboratory,
University of California, Berkeley, California, May 1998, page 5.
C-26
<PAGE>
A study by the Lawrence Berkeley Laboratory (5) estimates that between 25 to
60 thousand households will have switched to a green power energy source by the
end of 1998(6). However, expectations among renewable energy marketers are much
higher. In proceedings before the California Energy Commission, marketers
suggested that the number of customers switching to a renewable energy source
could reach as high as 175,000 households within the first twelve months.
The study also suggests that a combination of rising consumer demand for
renewable energy and a scarcity of renewable energy projects will result in a
higher renewable energy price premium in the near future. This situation is
likely to continue until higher cost renewable projects are developed and
eventually brought on-line.
While California possesses a large amount of renewable generation, the
significant majority of it is either tied up in long term contracts with the
IOUs or is owned outright by them and thus not available to the green power
market in the near term. Consequently, the short-term supply of non-utility
renewable energy available to marketers is very small -- perhaps no more than
200 MW(7). Because of this situation, new renewable resource projects that can
offer competitively priced power, such as the New Power Projects, will likely be
in a position to capture a significant portion of the rising premiums that are
excepted in the near future. Further, the improved market position of low cost
renewable energy providers is also likely to be reflected in more attractive
contract terms. According to the Lawrence Berkeley Laboratory report, the
majority of green power marketers expect contracts of one to five years to
become the standard within 5 years (8). Contracts with existing renewable energy
providers are, in contrast, generally two years at a maximum.
In conclusion, the California green power market can potentially provide
significant additional benefits to the New Power Projects above and beyond the
proven financial return these plants can earn dealing through the PX market. The
Funding Corporation has indicated to HESI that while it intends to fully exploit
the green power market, none of the anticipated benefits discussed in this
section have been reflected in its analysis.
- ----------
5 The Ernest Orlando Lawrence Berkeley National Laboratory (Berkeley Lab) is a
multi-program national research facility operated by the University of
California for the Department of Energy (DOE). Its fundamental mission is to
provide national scientific leadership and technological innovation in
support of DOE's objectives. Founded in 1931, it is the oldest of the
national laboratories. The Laboratory specializes in research related to
technology and the environment, such as advanced materials science, life
sciences, energy efficiency and energy supply, and nuclear physics. The
Berkeley Lab has been awarded nine Nobel prizes in the fields of physics and
chemistry for this research.
6 IBID, page 5.
7 IBID, page 26. In comparison, the CEC estimates about 500 MW. See "Policy
Report on AB 1890 Renewables Funding: Report to the Legislature," 1997.
8 IBID, page 5.
C-27
<PAGE>
APPENDIX A
SCE'S SRAC FORECAST
FOR 1995 THROUGH 2015
<TABLE>
<CAPTION>
YEAR LOW MEDIAN HIGH
- --------------- --------- -------- ---------
<S> <C> <C> <C>
1995 .......... 2.41 2.41 2.41
1996 .......... 2.48 2.51 2.54
1997 .......... 2.55 2.60 2.68
1998 .......... 2.72 2.83 2.97
1999 .......... 2.91 2.99 3.28
2000 .......... 3.11 3.22 3.60
2001 .......... 3.30 3.46 3.91
2002 .......... 3.42 3.59 4.13
2003 .......... 3.52 3.72 4.36
2004 .......... 3.62 3.88 4.61
2005 .......... 3.72 4.11 4.86
2006 .......... 3.83 4.31 5.16
2007 .......... 3.95 4.44 5.48
2008 .......... 4.06 4.59 5.82
2009 .......... 4.18 4.74 6.19
2010 .......... 4.31 4.89 6.59
2011 .......... 4.43 5.06 7.07
2012 .......... 4.57 5.22 7.60
2013 .......... 4.70 5.40 8.16
2014 .......... 4.84 5.58 8.76
2015 .......... 4.99 5.76 9.41
</TABLE>
C-28
<PAGE>
APPENDIX D
ASSESSMENT OF THE RESOURCE SUPPLYING
GEOTHERMAL FACILITIES
AT SALTON SEA, CALIFORNIA
FOR
SALTON SEA FUNDING CORPORATION
OMAHA, NEBRASKA
BY
GEOTHERMEX, INC.
RICHMOND, CALIFORNIA
<PAGE>
AUGUST 1998
4
EXECUTIVE SUMMARY
Introduction
Presented herein are the review and analyses (the "Report") by GeothermEx,
Inc. ("GeothermEx") of the long-term resource sufficiency of the Salton Sea
Known Geothermal Resource Area (the "Salton Sea Field") to supply geothermal
resource to existing and proposed power plants and a proposed zinc recovery
facility, which provide revenue to the Salton Sea Guarantors, the Partnership
Guarantors and the Royalty Guarantor. Magma Power Company ("Magma"), a wholly
owned subsidiary of CalEnergy Company, Inc. ("CECI"), has established Salton Sea
Funding Corporation ("Funding Corporation") to issue notes and bonds to
investors guaranteed by, and to make loans to, each of the Salton Sea Guarantors
and the Partnership Guarantors secured by operating assets, including the
following:
o Salton Sea Guarantors: Salton Sea Units I, II, III and IV ("Salton Sea
Projects"), including the construction of Salton Sea Unit V;
o Partnership Guarantors: partnership interests in the Vulcan, Del Ranch
(Hoch), Elmore and Leathers Projects (the "Partnership Projects"),
including certain royalty and other payments; and
o Royalty Guarantor: Royalty interests paid by the Royalty Projects
consisting of three of the Partnership Projects.
Affiliates of Funding Corporation are planning to construct three additional
facilities (the "Expansion Projects") at the Salton Sea. These are: 1) Salton
Sea Unit V, a 49 MW (net) facility; 2) the TurboExpander Project, a 10 MW (net)
facility; and 3) a zinc recovery facility. GeothermEx has prepared this report
as an independent resource consultant for Funding Corporation and for future
potential bondholders.
Scope of Work and Assumptions
GeothermEx has reviewed the behavior of the wells and resource supplying the
existing geothermal power plants in the Salton Sea Field, located in Imperial
County, California. Well locations are shown in figure 1. The purposes of this
report are: 1) to assess the long-term resource sufficiency and suitability for
supplying the existing plants and the proposed additional facilities mentioned
above and 2) to assess the reasonableness of the projected workover and
wellfield capital budget for the program.
In the preparation of this report and the opinions expressed, GeothermEx has
made certain assumptions about conditions which may exist or events which may
occur in the future. The principal assumptions and considerations made and the
database used by GeothermEx in developing the results and conclusions presented
in this report are described below.
GeothermEx has provided several due-diligence evaluations for the Salton Sea
Projects and the Partnership Projects; the most recent of these was prepared in
1995 in support of the initial Funding Corporation bond offering. As such,
GeothermEx holds a large amount of information on the Salton Sea wells, which
has been presented in numerous technical reports in the past. These data were
augmented in 1997 to include updated production and injection histories from the
California Division of Oil, Gas, and Geothermal Resources (CDOGGR), the results
of recent well logging, and recent chemical analyses.
For the current study, SSFC provided additional production and injection
well records, new chemical analyses, information on the drilling and logging of
recent wells, budget information for future wellfield expenditures, and design
information for the planned new facilities at Salton Sea. SSFC has also improved
upon the zinc correlations and numerical reservoir model from the 1997 work to
develop the zinc forecasts presented herein. Together, all of this information
constitutes the database used in the present study. Reports that have formed a
significant part of GeothermEx's current evaluation are included in the document
list in section 6.
GeothermEx has independently reviewed and relied upon data from the Salton
Sea Field supplied by SSFC, in addition to other data mentioned above. In our
opinion, the data is reliable and accurate,
D-1
<PAGE>
based on our extensive knowledge of the resource and the history of operations
at the Salton Sea Field. In particular, the zinc analyses made since 1994 were
undertaken using sound sampling and analytical techniques, and we have a high
level of confidence in the quality and accuracy of these recent zinc data, on
which the forecasts of future zinc recovery are partially based.
Conclusions
Based upon our review and the considerations and assumptions set forth
above, we have reached the following conclusions:
o The Salton Sea Field is highly productive and wells have historically
behaved favorably with minimal flow rate or pressure declines.
o The proposed Salton Sea Unit V will utilize the heat energy in
reinjection brine which is presently supplying Units I -- IV. The
additional production fluid needed for Salton Sea Unit V will be supplied
from existing wellhead capacity.
o The additional production fluid needed for the TurboExpander Project can
also be supplied by existing wells with spare capacity without any
modification.
o Numerical simulation studies undertaken to date forecast acceptable well
behavior for the existing and planned level of power generation and zinc
recovery. Well behavior has historically been consistent with results
predicted by earlier simulation models; therefore, future well behavior
is expected to be adequate to support the Salton Sea, Partnership and
Expansion Projects.
o The recoverable geothermal energy reserves from the reservoir are more
than sufficient to support existing projects and the planned additional
increments of capacity resulting in a total capacity of 326.8 MW. We
estimate that 1,200 MW of reserves are available within the portion of
the Salton Sea Field dedicated to the Salton Sea, Partnership and
Expansion Projects.
o SSFC's forecast of gross zinc production recovery begins at 8,639 pounds
per hour (about 34,000 metric tonnes per year) and declines slightly
thereafter. This forecast was validated through independent numerical
modeling performed by GeothermEx. The predicted gross zinc recovery rate
is based on the wellfield configuration for the existing projects and the
planned expansion projects. Therefore, because additional zinc reserves
exist in the field, this prediction is conservative. Additional zinc
could be recovered by developing new areas of the field for geothermal
fluid production.
o The recoverable reserves of geothermal energy will not be affected by
either the planned capacity expansion or the zinc recovery project.
o In unescalated dollars, SSFC's projected budget through 2018 includes
$77.7 million for wellfield capital (new wells, re-drills, and tie-ins)
and $43.7 million for well workovers. The budget for wellfield costs is
reasonable and should allow the SSFC facilities to achieve the forecasted
levels of electrical generation and zinc production.
1. OVERVIEW AND DESCRIPTION OF THE SALTON SEA GEOTHERMAL FIELD
1.1 Development History and Present Status
SSFC and its affiliates own and operate eight geothermal power plants and
propose to develop two additional power plants in the Salton Sea Field. The
plant names, capacities and start-up dates are listed below.
D-2
<PAGE>
<TABLE>
<CAPTION>
NOMINAL
PLANT NAME CAPACITY (NET MW) START-UP DATE
- ------------------------- ------------------- ---------------
<S> <C> <C>
Vulcan 34.0 1986
Del Ranch (Hoch) 38.0 1989
Elmore 38.0 1989
Leathers 38.0 1990
Unit I 10.0 1982
Unit II 20.0 1990
Unit III 49.8 1989
Unit IV 39.6 1996
Salton Sea Unit V 49.0 2000 (planned)
TurboExpander Project 10.0 2000 (planned)
-----
Total 326.4
</TABLE>
The ninth unit at Salton Sea (Salton Sea Unit V) is scheduled to start-up in
2000, concurrently with a facility to recover zinc from the geothermal brine.
The TurboExpander Project is scheduled for start-up in mid-2000.
1.2 NEW PLANTS
Salton Sea Unit V is a facility designed to use the geothermal brine
separated from the standard-pressure steam (at approximately 125 pounds per
square inch absolute, or "psia") which supplies the Region 1 plants (Units I --
IV). This 360 (degrees) F brine is presently injected, but still contains a
significant amount of heat energy. The purpose of Salton Sea Unit V is to
recover this heat energy by flashing the 360 (degrees) F brine down to
approximately 20 psia. To fully supply Units I -- V, an increase in production
equivalent to about 4% of the present level of withdrawal from the reservoir in
Region 1 will be required.
A 10 net MW turboexpander will be installed near the Vulcan and Del Ranch
(Hoch) facilities. This facility will require an increase of about 3% in the
production of reservoir fluids from the region of the wellfield supplying the
Vulcan and Del Ranch (Hoch) plants.
The third of the New Projects is the zinc recovery facility. Both GeothermEx
and SSFC have independently estimated that an initial gross zinc production rate
of 8,639 pounds per hour will be available from the injection brine using the
existing wellfield configuration. This represents an initial annual gross zinc
production rate of 34,400 metric tonnes. Satellite process facilities will be
located at four existing power plant facilities: Leathers, Elmore, Vulcan/Hoch
and the Region 1 (Units I -- V) brine processing facility. These sites will be
connected by pipelines to the brine processing facility, which will process the
solution from the satellite plants into a final marketable product of metallic
zinc.
2. WELL BEHAVIOR
2.1 HISTORICAL
A total of about 130 production or injection wells have been drilled within
the Salton Sea field to date. Production and injection histories were obtained
from the archives of the CDOGGR, which receives monthly average flow rate (or
injection rate), wellhead pressure and wellhead temperature from the field
operators. To the best of our knowledge, this information represents the most
consistent and complete production and injection database available.
There are 29 production wells in the Salton Sea field with an average
capacity of 10 MW per well, which exceeds the US industry average. The plants
are often operated at higher levels than their net capacity ratings, and many of
the wells are routinely operated in a throttled condition that does not draw on
their full capacity.
Both the production and injection wells have been worked over periodically
because of scaling and corrosion. In general, these workovers have helped to
maintain the productivity and injectivity of the wells; however, as in most
geothermal projects, it has been necessary to redrill some wells because of
mechanical problems which sometimes occur during a workover operation, or
because of other mechanical damage.
D-3
<PAGE>
Despite the need for workovers and/or redrills, the project wells have
behaved very favorably to date. Flow rate declines have been small, and many
wells have excess capacity.
In May 1996, output from the field was increased when new wells were brought
on line to supply Unit IV. As shown in figure 2, production and injection rates
have been relatively stable since then.
2.2 ANTICIPATED WELL AND FIELD BEHAVIOR
It will be shown in the following chapter of this report that the
recoverable geothermal energy reserves are more than sufficient to support the
existing projects and the New Projects. While it is a necessary condition,
adequacy of geothermal reserves by itself does not guarantee commercial success
of a geothermal project. Future behavior of the field, in general, and the
wells, in particular, will dictate how much of these reserves can be
economically recovered. As mentioned above, the wells have behaved very
favorably to date, and SSFC is using numerical modeling to forecast and optimize
future well and field behavior under various operating scenarios.
GeothermEx independently developed a numerical simulation model of the
Salton Sea Field in 1997, and SSFC independently developed a numerical
simulation of the Salton Sea Field in 1998. These models are used to evaluate
future well and reservoir behavior in response to production and injection under
specified scenarios, including the modification of injection well locations to
optimize zinc recovery, and the additional reservoir production from the
wellfield of geothermal brine required to supply Salton Sea Unit V and the
TurboExpander Project. SSFC developed and utilizes its model as a reservoir
management tool, to maximize both power production and zinc recovery from the
field. The SSFC model incorporates the most recent production and injection
data, as well as current development and operational plans. The results of both
modeling efforts indicate that the existing and planned production facilities
can be supported by the existing wells (maintained as needed) and by those
budgeted wells which may be drilled in the near future.
3. RECOVERABLE GEOTHERMAL ENERGY RESERVES
This study confirms that there are sufficient geothermal energy reserves to
support the existing projects and the New Projects. For calculating the
reserves, the area under consideration includes the acreage dedicated to Units I
- -- V, and the Vulcan, Del Ranch (Hoch), Elmore and Leathers units. This is
referred to herein as the "Subject Area".
The first step in making a volumetric reserve estimate is to calculate the
heat energy in place within the subject area using the subsurface temperature
distribution. The volume considered is an irregular block confined by the
downward vertical projections of the boundaries of the subject area between
elevations of -1,500 feet and -6,500 feet (msl). The volume of reservoir
considered is also limited by temperature constraints; the minimum acceptable
temperature used herein is 380 degreesF. Certain assumptions were then made
regarding the recoverability of the heat-in-place, the efficiency of converting
heat energy to electrical energy, and the annual plant capacity factor. The
methodology is described in detail below.
Reserves in a geothermal area can be expressed as the maximum electric power
plant capacity that can be supplied commercially for 30 years. Volumetric
calculation of reserves requires estimation of four parameters:
1. Gross thermal energy in place (H, Btu);
2. Fraction of the gross in-place thermal energy that can be recovered
commercially (recovery factor, R);
3. Fraction of recoverable thermal energy that can be converted to
electrical energy (conversion efficiency, E); and
4. Power plant load factor (F).
D-4
<PAGE>
Using the above-defined quantities, the maximum sustainable power plant
capacity is expressed as:
H o R o E
MW = 1.11 x 10-12 ------------ (1)
F
where MW= average gross MW over 30 years.
We can calculate the gross heat in place as:
H = (Cvr + Cvb) V (T -- To) (2)
where Cvr = volumetric specific heat of rock (Btu/ft3/ degreesF)
Cvb = volumetric specific heat of brine (Btu/ft3/ degreesF)
V = reservoir bulk volume (ft3),
T = average reservoir temperature ( degrees F), and
To = a reference or base temperature ( degrees F).
Within the Subject Area, the volume of rock with temperatures exceeding 380
degrees F (parameter V in equation 2 above) was calculated to be 1.26 x 1012
cubic feet. Average temperature (T) was estimated to be 522 degrees F on the
basis of the subsurface temperature distribution.
In equation (2),
Cvr = (rho)r Cr (1(phi)- o NS) (3),
and Cvb = (rho)f Cf (phi) o NS (4),
where (rho)f = bulk density of reservoir fluid,
= 60 lbs/ft3
Cf = specific heat capacity of reservoir brine,
= 0.85 Btu/lb/ degreesF,
(phi) = reservoir porosity,
= 20%;
(rho)r = bulk density of rock matrix,
= 168 lbs/ft3;
Cr = specific heat capacity of rock matrix,
= 0.255 Btu/lb/ degreesF; and
NS = net sand fraction
= 0.35.
Using the above estimates of the various parameters, the heat in place (H)
is calculated for the subject area using equation 2:
H = 5.84 x 1013 (522 -- To) Btu for the subject area. (5).
Now the parameters R (recovery factor), E (conversion efficiency) and F
(power plant capacity factor) need to be estimated to complete the calculation
of gross MW available for 30 years. We assume a conversion efficiency of 15%,
which is typical for power plants like those presently in operation at Salton
Sea, and a capacity factor of 85%. The recovery factor (R) cannot be readily
estimated as it depends critically on the degree of heterogeneity in the
reservoir, whereas the model used for volumetric reserve estimation is assumed
to be homogeneous.
For the purpose of volumetric reserve estimation, the following approach was
considered to estimate an approximate value for R. In this case, R is estimated
to be 0.35, based on the reasonable assumptions that: (a) 35% of the reservoir
bulk volume is permeable because the average sand fraction in the Salton Sea
reservoir is 35%; (b) there is no in-situ boiling; and (c) the injected water
can cool the entire porous and permeable volume (sand layers) of the reservoir
(including the sand grains) to To (here assumed to
D-5
<PAGE>
be the temperature of the power plant waste water, or 225 (degrees)F. We have
conservatively assumed essentially no heat recovery from shale for our
single-phase heat extraction model. This assumption is balanced to some degree
by assuming that there is 100% sweep of all sand layers by injection water.
Our analysis is that 30-year energy reserves of 1,200 MW were calculated for
the subject area. A total capacity of 267.4 MW has been installed to date and
another 59 additional MW (Salton Sea Unit V and the TurboExpander) are planned,
resulting in a total capacity of 326.8 MW. Accordingly, our analysis indicates
that the energy reserves are more than sufficient to support the existing and
planned facilities within the subject property.
4. RECOVERY OF ZINC FROM THE GEOTHERMAL BRINE
4.1 INTRODUCTION
The geothermal brines produced from the Salton Sea reservoir contain a
significant amount of dissolved mineral species, including (but not limited to)
zinc, silica, manganese, lithium, lead, silver, and gold. GeothermEx has
conducted numerical modeling, theoretical studies on the solubility of
zinc-bearing minerals in geothermal brines, and the development of correlations
between zinc, dissolved solids and reservoir temperature and has refined these
correlations and incorporated them into its 1997 numerical model, which was used
to forecast zinc recovery.
A pilot plant was constructed by SSFC to demonstrate the technology used to
recover zinc from the Salton Sea geothermal brine.
SSFC has further refined the correlations between zinc and temperature and
has incorporated these into its own numerical model of the Salton Sea field with
updated data and development scenarios. This model of the field and the zinc
forecasts from it have been provided to GeothermEx for review. The results of
numerical modeling are summarized below.
4.2 REVIEW OF NUMERICAL MODEL USED TO FORECAST ZINC RECOVERY
Numerical modeling is the most accurate way to forecast future zinc recovery
from the field. Unlike volumetric estimation or analytical simulation, it can
account for changes in temperature, pressure and zinc concentrations in the
reservoir under various production and injection schemes, and it is the industry
standard method for predicting geothermal well and reservoir behavior.
SSFC's numerical model of the Salton Sea Field was developed using TETRAD, a
commercially available simulator which is widely used in the geothermal
industry. GeothermEx routinely uses this software to evaluate specific aspects
of geothermal fluid production and injection for many clients, and considers it
valid for forecasting zinc recovery. GeothermEx used this software in its 1997
modeling effort and in its assessment of the currently proposed development.
As mentioned in the introduction, GeothermEx believes that the data on which
the SSFC model is based is accurate and reliable. The SSFC model was derived
from a thorough review of the geological and reservoir engineering data for the
Salton Sea Field. These data, combined with a study of reservoir fluid chemistry
and a detailed evaluation of numerous brine samples and well logs have
demonstrated a strong correlation between reservoir temperature and zinc
concentrations in the brine. In both the GeothermEx and SSFC models, this direct
zinc-temperature correlation is used in the model to determine the initial zinc
concentration in the reservoir. In GeothermEx's opinion, the SSFC model was
developed in a prudent manner and yields reasonable results.
Additionally, GeothermEx has updated the forecast from its own 1997 model to
reflect the anticipated increase in production rates and some additional
refinement of the zinc correlations to capture most of the major updates in the
SSFC model. GeothermEx then compared its updated forecast to the SSFC model, and
found that the results agreed within 3% on an average annual basis. The fact
that two independently constructed models yielded consistent results gives
GeothermEx additional confidence that the production and zinc forecasts in
SSFC's model are reasonable.
D-6
<PAGE>
4.3 ZINC RECOVERY FORECASTS
Figure 3 presents SSFC's base case simulator forecast of zinc production
rate (in pounds per hour) as a function of time from the anticipated start-up of
the zinc recovery facility in January 2000. The forecast starts at a gross zinc
production rate of about 8,600 lbs/hour and declines by about 4.0% during the
first 10 years of operation. During the next 10 years, a further 5.5% decline in
the zinc production rate occurs. This represents an initial annual gross zinc
recovery of 34,300 metric tonnes per year. As indicated in Table 1, after 10 and
20 years, respectively, this would decline to approximately 33,000 and 31,200
metric tonnes per year, respectively.
This forecast of zinc production is conservative as the predicted decline in
zinc production is attributable to the simulated return of zinc-depleted
injection fluid to the main production zone and recirculation of injected fluid
within the reservoir. The vast majority of wells have shown no evidence for
recirculation of injected fluid in the data observed to date. Thus, the actual
amount of recirculation is likely to be less than is forecasted by the
simulation model. SSFC's development scenario includes a prudent and reasonable
mitigation plan to move some injection from the central production area to the
periphery of the field, should this become necessary. The cost of this
mitigation plan is included in the budget forecasts. Both the mitigation plan
and the zinc production rate forecasted by the SSFC model appear reasonable to
GeothermEx.
Finally, it should be noted that recoverable geothermal energy reserves of
the Salton Sea field are not affected by either the production of zinc or the
planned capacity addition.
5. REVIEW OF FUTURE WELLFIELD COSTS
SSFC's estimate of projected wellfield costs includes two components. The
first component is wellfield capital, which comprises new production wells, new
injection wells, and tie-ins for these wells (that is, connections from the
wellheads to the gathering system pipelines). The second component is workovers
(that is, repairs of existing wells to correct such problems as wellbore scaling
or casing damage). Figure 4 shows the projected annual expenditures for these
components through the year 2020. The dollar values in figure 4 and in the
following discussion are in unescalated 1998 dollars.
The total projected budget for wellfield costs from 1998 to 2020 is $121.4
million, of which $77.7 million is for wellfield capital and $43.7 million is
for workovers. Wellfield costs are expected to be higher in the first four years
(through 2001), reflecting the planned drilling of several new production wells
with titanium casing and several new injection wells. Workover costs are also
somewhat higher in the first few years, reflecting continuing repairs to older
wells with carbon steel casing that are being gradually replaced by new wells.
The titanium casing in the new production wells is less prone to wellbore
scaling, and the injection water after start-up of the zinc extraction
facilities is expected to have less entrained solids, which should extend the
lives of the injection wells. For these reasons, annual workover expenditures
after the first few years of the project life are expected to be lower.
GeothermEx agrees with this conclusion.
New production wells with titanium casing are expected to cost about $4
million each. New injection wells are expected to cost somewhat less (about $2.5
million each) because they do not require titanium casing. A re-drill (that is,
a well drilled to a new down-hole location from an existing wellhead) is
expected to cost about $0.8 million. The number, timing, and location of new
wells during the project life will depend on field performance. However, the
projected budget contains sufficient funds for roughly 11 new producers, 10 new
injectors, and 10 re-drills, including the costs of tie-ins for these wells. In
GeothermEx's opinion, the budget amounts are reasonable estimates for the
forecasted levels of electrical generation and zinc production over the next 20
years.
D-7
<PAGE>
6. DOCUMENT LIST
ADA International Consulting, Ltd., "TETRAD Version 12.0 User's Manual."
Calgary, Alberta, Canada. Reservoir simulation software.
California Division of Oil, Gas, and Geothermal Resources, "Monthly
Reports of Geothermal Operations." Production and injection statistics for
Salton Sea wells.
-- maps of existing and proposed well locations in Salton Sea Field
-- recent production and injection statistics for Salton Sea wells
-- database of chemical analyses from Salton Sea wells
-- input deck for SSFC's numerical simulation of Salton Sea Field using
TETRAD software
-- Imperial Valley Capital Expenditures by Year (budget forecast of
wellfield costs)
GeothermEx (1995), "Assessment of the Geothermal Resource Underlying
Geothermal Power Projects, Salton Sea Geothermal Field, California." Report
prepared for Salton Sea Funding Corporation, Omaha, Nebraska.
McKibben, M.A., and Elders, W.A. (1985), "Fe-Zn-Cu-Pb mineralization in the
Salton Sea geothermal system, Imperial Valley, California." Economic Geology,
vol. 80, pp. 539-559.
D-8
<PAGE>
TABLE 1: SSFC PREDICTION OF GROSS ZINC RECOVERY, SALTON SEA GEOTHERMAL FIELD
<TABLE>
<CAPTION>
TIME CUMULATIVE ZINC ANNUAL ZINC ANNUAL ZINC
(YEARS SINCE START-UP) PRODUCTION (POUNDS) PRODUCTION (POUNDS) PRODUCTION (METRIC TONNES)
---------------------- ------------------- ------------------- --------------------------
<S> <C> <C> <C>
0 0 0 0
1 75,691,098 75,691,098 34,327
2 151,006,305 75,315,207 34,157
3 225,881,216 74,874,991 33,957
4 300,457,522 74,576,306 33,821
5 374,742,249 74,284,727 33,689
6 448,751,791 74,009,542 33,564
7 522,467,412 73,715,621 33,431
8 595,831,733 73,364,321 33,272
9 668,850,609 73,018,876 33,115
10 741,543,947 72,693,338 32,968
11 813,864,907 72,320,960 32,799
12 885,799,437 71,934,530 32,623
13 957,335,827 71,536,390 32,443
14 1,028,485,787 71,149,960 32,268
15 1,099,190,767 70,704,980 32,066
16 1,169,497,607 70,306,840 31,885
17 1,239,406,307 69,908,700 31,705
18 1,308,928,577 69,522,270 31,529
19 1,378,076,127 69,147,550 31,359
20 1,446,813,827 68,737,700 31,174
</TABLE>
1998 GeothermEx, Inc.
D-9
<PAGE>
[GRAPHIC OF LOCATION MAP OF SALTON SEA GEOTHERMAL AREA OMITTED]
D-10
<PAGE>
[GRAPHIC OF HISTORICAL PRODUCTION AND INJECTION RATES OMITTED]
D-11
<PAGE>
[GRAPHIC OF PREDICTION OF FUTURE ZINC PRODUCTION AT SALTON SEA OMITTED]
D-12
<PAGE>
FIGURE 4. PROJECTED EXPENDITURES FOR WELLFIELD CAPITAL AND WORKOVERS AT
THE GUARANTORS' GEOTHERMAL FACILITIES AT SALTON SEA, CALIFORNIA
[GRAPHIC OF THE GUARANTOR'S GEOTHERMAL FACILITIES AT SALTON SEA ,CA OMITTED]
D-13
<PAGE>
APPENDIX E
CALENERGY MINERALS
AND THE
GLOBAL REFINED ZINC MARKET
AUGUST 14, 1998
RESOURCE STRATEGIES
626 WEST LINCOLN HIGHWAY
EXTON, PA 19341 USA
TEL: (610) 269-6900
FAX: (610) 269-7600
HTTP://WWW.RSIC.COM
-------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Executive Summary .......................................................... E-2
Introduction ............................................................... E-4
Project Description ........................................................ E-4
Comparison with Traditional Zinc Production Methods ........................ E-5
The World Refined Zinc Market .............................................. E-6
o Zinc Consumption in the United States, California and the West Coast E-8
-> United States .................................................... E-8
-> California ....................................................... E-8
-> West Coast ....................................................... E-9
o Zinc Supply in the United States and California ..................... E-10
-> United States .................................................... E-10
o Supply and Demand Balances .......................................... E-12
o The Pricing Structure of the Zinc Market ............................ E-12
The Competitive Position of the Salton Sea Project ......................... E-14
o Cost of Production .................................................. E-14
o Competitive Position in the California Market ....................... E-15
Projecting Future Revenues ................................................. E-15
o Long-Term Zinc Price Forecast ....................................... E-16
Zinc Marketing Plan ........................................................ E-17
o Conclusion .......................................................... E-17
</TABLE>
E-1
<PAGE>
EXECUTIVE SUMMARY
Salton Sea Funding Corporation (SSFC), through its subsidiary, CalEnergy
Minerals, is planning to develop the Salton Sea Zinc project and produce
approximately 30,000 metric tonnes of refined zinc per year in a processing
facility that will utilize geothermal brine associated with ten geothermal
power plants in the Imperial Valley, Southern California.
Because zinc is typically obtained by the mining, smelting, and refining
of zinc-containing ores, the traditional zinc mining and smelting complexes are
large in terms of surface area and require significant capital expenditures.
These characteristics, along with environmental concerns, are an effective
barrier to entry for new smelting complexes in the USA.
The Salton Sea installation is much more compact and far less
environmentally intrusive than a traditional mining and smelting venture which
can cause significant disruption to the landscape, alter watercourses and
require extensive monitoring of emissions. By comparison, the Salton Sea
project is more an industrial process than an extraction facility. Furthermore,
the by-products generated by the project will be used in the generation of
geothermal power, thereby increasing the efficiency of the local power
generating system.
In 1997, USA zinc consumption was 1.265 million tonnes. Current forecasts
indicate that zinc consumption could rise as high as 1.54 million tonnes per
annum by 2018, an increase of 270,000 tonnes per annum. Currently, the USA is
only 31% self-sufficient in zinc metal production and must therefore import
almost 70% of its needs. The cost of freight is the main factor that determines
which part of the USA will be supplied by a particular exporter. As a result,
exporters tend to sell metal into the market that is geographically closest to
them. For example, in the case of Canada, the USA's largest zinc provider, one
smelter is in the West, while the other three are in the central and eastern
parts of the country. The cost of freight also factors into the distribution of
local production. It is noteworthy that none of the USA zinc smelters ship to
the West Coast because they are better situated to serve the larger Midwest and
Eastern markets.
The Salton Sea project has the advantage of being able to produce
relatively small amounts of high grade zinc that can serve a local market of
significant size, that is, California and the West Coast of the USA. This
market is expected to expand by about 33,000 tonnes over the life of the Salton
Sea project from a level of 105,000 tonnes in 1997 to a level of 138,000 tonnes
in 2018. Since there is no local production of zinc on the USA West Coast, we
believe it is reasonable to project that the Salton Sea production can be
readily absorbed in the Californian and other West Coast markets.
According to operating cost figures recommended by SSFC and found to be
reasonable by Fluor Daniel as the Independent Engineer, we estimate using RSI
methodology that the Salton Sea project will be the lowest cost producer of
zinc for it is well within the bottom quartile of the Western mine cash
operating cost curve after by-product credits. Historical price experience over
the last 28 years has established a price of around 48 cents per pound ($1,050
per tonne) in real terms which reflects the long-run marginal cost of
production. For example, SSFC has quoted zinc production costs of 22.9 cents
per pound ($505 per tonne) in 2007 before by-product credits and 18.4 cents per
pound ($405 per tonne) after by-product credits (in 1997 dollars). Fluor
Daniel, as Independent Engineer, has confirmed that the operating costs of
CalEnergy Minerals used in the production cost calculation by RSI are
reasonable. In addition to low operating costs, the Salton Sea project will
also have important savings of 2-4 cents per pound as a result of the
comparably short delivery distance to its local market.
An important point to note about the market for zinc is that it is a
global commodity market where the price is determined by a terminal market, the
London Metal Exchange. Since the LME is both a buyer and seller of last resort,
when supply exceeds demand, producers can and do deliver metal into an exchange
warehouse. Therefore, in a global commodity market like that for zinc, sellers
never face the prospect of being unable to sell their metal once it has met LME
specifications and has been registered as a deliverable brand. As far as the
Salton Sea project is concerned, there are two LME warehouses in California.
Thus, once the project's metal is registered, it can be delivered to one of
these warehouses if a suitable trade customer cannot be located.
E-2
<PAGE>
The table below sets forth our forecast of the zinc metal prices and
premia that should be used in the financing of the Salton Sea Zinc Project. We
have used Monte Carlo risk analysis to construct a base case, a downside case
and a price forecast that can be achieved given a 98% confidence level.
RECOMMENDED FUTURE ZINC PRICES TO BE USED IN FINANCING
THE SALTON SEA ZINC PROJECT
(US CENTS/LB -- 1997 PRICES)
<TABLE>
<CAPTION>
2000-2004 2005-2015 2000-2018
----------- ----------- ----------
<S> <C> <C> <C>
Base .......................... 49.08 57.92 54.61
Downside Case ................. 46.49 52.81 50.26
98% Confidence Level .......... 43.91 49.76 49.26
SHG Premium ................... 4.40 4.37 4.23
CGG Premium ................... 10.01 10.09 9.91
</TABLE>
E-3
<PAGE>
CALENERGY MINERALS
AND THE
GLOBAL REFINED ZINC MARKET
INTRODUCTION
SSFC, through its subsidiary, CalEnergy Minerals, is planning to develop
the Salton Sea Zinc project and produce around 30,000 tonnes of refined zinc
per year in a processing facility that will utilize geothermal brine feeding
ten geothermal power plants in the Imperial Valley, Southern California.
CalEnergy Minerals will therefore be a new entrant to the 7.8 million
tonnes global zinc market valued at $10.14 billion in 1997. Western World zinc
consumption has not grown as fast as aggregated world industrial production but
it is an essential metal used in industrial processes involving corrosion
prevention, the production of diecast alloy components, brasses and bronzes as
well as zinc chemicals. Over the past 20 years, Western zinc consumption has
been growing at an average rate of 1.7%; in the next 20 years, with the
expansion of China and the eventual recovery of the other surrounding markets
in Asia, global growth prospects for this metal will increase to 2.5% per
annum.
The refined zinc market is a global commodity market where the price is
set by trading on the London Metal Exchange (LME). There are also regional
differences in premia over the LME price which reflect the cost of financing
and delivery of the metal into the respective regional markets.
PROJECT DESCRIPTION
The SSFC geothermal power plants use hot brines from an underground
reservoir to generate steam which, in turn, drive a number of turbines to
generate electrical power. Currently, the hot brines emerge from the ground at
around 600 (degrees) F and upon entering each individual power station circuit,
steam for the turbines is generated. After passing through the power station
circuits, these brines are currently reinjected or returned to the underground
reservoir.
However, these geothermal brines are rich in a number of metallic salts
including zinc, silica, manganese and iron and, as a result of several years of
research and the successful operation of a pilot plant, an extraction process
has been perfected that can produce high purity zinc from these brines before
they are returned to the underground reservoir.
This process is based on proven industrial processes involving:
o Ion exchange
o Purification
o Solvent extraction
o Electrowinning
o Metal alloying and casting
The Salton Sea project will establish four ion-exchange sites, located
near the SSFC power plants. Each ion exchange site consists of a number of ion
exchange columns, arranged in trains, which treat the brine and remove the
zinc. These zinc-rich solutions from the ion exchange plants will then be piped
to a central processing plant and the depleted brines pumped back to the
underground reservoir. The pipeline network will also carry secondary flows of
brine and process liquid between the central processing plant and the ion
exchange plants.
The central processing plant will then purify the zinc-rich liquor and
through the use of solvent extraction and electrowinning, produce zinc cathodes
which will then be melted to produce zinc ingot of ASTM (American Society for
Testing and Materials) and, eventually, LME quality and continuous galvanizing
grade alloys.
The process is dependent on use of ion exchange resins and solvent
extraction reagents. These are readily available and produced for the solvent
extraction industry by leading specialist chemical
E-4
<PAGE>
companies such as Dow Chemical, Henkel, Allied Colloids and Zeneca. The
electrowinning and alloying and casting stages will use standard metallurgical
practice and equipment.
COMPARISON WITH TRADITIONAL ZINC PRODUCTION METHODS
Zinc is typically obtained by the mining, smelting, and refining of zinc
containing ores. Frequently, zinc minerals are associated with copper, lead,
tin and cadmium containing minerals which have to be separated before zinc can
be smelted and refined.
The traditional refined zinc operation involves the discovery and
development of mineral reserves, the mining of zinc ore, crushing and grinding
that ore in a concentrator and producing a zinc concentrate for smelting.
Smelting and refining can be carried out at or near the mine site but a
significant amount of zinc concentrates are shipped for refining at third party
smelters.
Traditional mining and smelting complexes are large in terms of surface
area; they involve the operation of large pieces of mechanical equipment for
mining, transportation, crushing and grinding together with the installation of
large smelters and refineries. Hence they involve significant capital
expenditure and require operation at high throughputs in order to achieve
economies of scale and to generate high enough returns for the initial
investment. Today, Resource Strategies believes that a new zinc mining and
refining complex will have to operate at a level of around 200,000 tonnes of
refined zinc per year in order to generate sufficient returns on capital costs
ranging between $600 to $730 million over a 20 year life. This means that new
installations will have to be located within easy access of relatively large
and high grade zinc deposits for them to be viable and today, these deposits
are often located in regions distant from their markets. These characteristics,
in addition to environmental concerns, are an effective barrier to entry for
new smelting complexes in the USA.
In terms of capital cost, the amount required to complete the zinc plant
will be around $150 million, much less than a traditional zinc project. The
project is more capital intensive on a per tonne basis than a traditional
mining and smelting project but this will be offset by lower operating costs.
The Salton Sea project therefore has the advantage of being able to
produce relatively small amounts of high grade zinc that can serve a local
market. The installation is, by comparison, much more compact and far less
environmentally intrusive than a traditional mining and smelting venture. For
example, the ion exchange columns will be located at the existing power station
sites, the pipelines will follow existing pipeline corridors and the central
production plant will be another building on an existing power station site. A
traditional mining and smelting operation causes significant disruption to the
landscape, it can alter watercourses and requires extensive monitoring of
emissions, so by comparison, the Salton Sea project is more an industrial
process than an extraction facility. Furthermore, by-products generated by the
process are used in the generation of geothermal power, thereby increasing the
efficiency of the current generating system.
E-5
<PAGE>
THE WORLD REFINED ZINC MARKET
THE WORLD REFINED ZINC MARKET
1997-2018
1997 2007 2018
E. Bloc 18.6% E. Bloc 28.8% E. Bloc 28.9%
Other 28.2% Other 25.0% Other 27.5%
Japan 9.7% Japan 7.0% Japan 5.3%
US 16.2% US 14.7% US 13.1%
W. Europe 27.3% W. Europe 24.6% W. Europe 25.2%
7.80 Million Tonnes 10.02 Million Tonnes 13.24 Million Tonnes
Source: CRU International, Resource Strategies
As shown in the chart above, the world zinc market was 7.8 million tonnes
in 1997 and is forecast to grow to just over 10 million tonnes in 2007. By
2018, Resource Strategies expects the world market for refined zinc to be in
the order of 13.24 million tonnes which represents an average growth over the
next 20 years of 2.5% per annum.
The main end-uses for zinc are in galvanizing, diecast alloys and the
production of brasses and bronzes. Recent trends have shown a strong reduction
in the use of zinc diecast alloys in the automobile industry but a more than
compensating growth in galvanizing. Continuous galvanizing for the automotive
and appliance markets has shown strong growth over the past fifteen years and
is forecast to be the strongest growing sector over the next 20 years as shown
in the graph below.
WESTERN WORLD ZINC CONSUMPTION BY END USE
1997-2018
1997 2007 2018
Other 16.8% Other 16.2% Other 15.5%
Brasses 13.0% Brasses 11.3% Brasses 10.0%
Die Casting 16.0% Die Casting 15.6% Die Casting 15.3%
Other Galv 20.7% Other Galv 19.9% Other Galv 18.8%
Galv Sheet 33.5% Galv Sheet 36.9% Galv Sheet 40.5%
6.36 Million Tonnes 7.65 Million Tonnes 13.24 Million Tonnes
Source: CRU International, Resource Strategies
The graph on page six shows the history of the zinc price since 1970 and
illustrates the typically cyclical nature of price movements of commodity
markets. The graph shows that zinc prices in real terms
E-6
<PAGE>
peaked in 1973, 1988-9 and to a lesser extent, in 1997. In 1988-9 as well as in
early 1997, the price rises were caused by relatively short term periods of
tightness in supply. In 1988, demand in North America and Western Europe was
strong and the former Soviet Union and China were important buyers of Western
zinc. Prices rose in spite of the fact that the market fundamentals were
indicating a potential oversupply; several traders had to cover short term
positions and at the time, both the Russians and Chinese were willing to pay
high prices as well as high premia. However, by the end of 1989, oversupply of
metal in Europe combined with technical and speculative influences caused a
rapid price fall. Since 1990, prices fell steadily until the end of 1996,
falling to below $1000 per tonne in 1993 and 1994.
With respect to more recent price movements, 1997 was a year of sharp
price fluctuation. During the first half of the year, consumption was strong,
LME stocks dropped by 100,000 tonnes and prices rose to $1,700 per tonne.
However during the second half of the year, massive exports from China, a
collapse in Asian demand and an increase in the supply of refined zinc lead to
prices falling to $1,100 per tonne. In 1998, alongside further weakness in
demand, refined supply has also fallen; LME stocks have decreased by 110,000
tonnes but in the expectation that supply will move above demand, prices have
languished around $1,056 per tonne.
[GRAPHIC OF HISTORY OF ZINC PRICES OMITTED]
It is also interesting to note that a clearly defined floor of around
$1,050 per tonne (approximately 48 cents /lb.) in real terms has been
established over the past 28 years which reflects the long-run marginal cost of
production. In 1971, real annual average prices fell to $1,138 per tonne; in
1986 prices fell to $1,062 per tonne; in 1993 they were $1,052 per tonne and
$1,045 in 1996.
E-7
<PAGE>
ZINC CONSUMPTION IN THE UNITED STATES, CALIFORNIA AND THE WEST COAST
UNITED STATES
Zinc consumption in the USA was 1.265 million tonnes in 1997; current
forecasts indicate that zinc consumption could rise as high as 1.54 million
tonnes per annum by 2018, an increase of 270,000 tonnes per annum. The United
States market, into which the Salton Sea product will be sold, imports 70% of
its needs and is expected to remain at this level over the forecast period.
Total USA consumption in 1997 was 1,265,000 tonnes, broken down as
follows:
<TABLE>
<S> <C> <C>
Galvanizing 695,000 tonnes 55%
Diecasting 224,000 tonnes 18%
Brass 170,000 tonnes 13%
Rolled Zinc 70,000 tonnes 6%
Zinc Oxide 80,000 tonnes 6%
Misc. 26,000 tonnes 2%
------------------ --
TOTAL 1,265,000 TONNES 100%
</TABLE>
CALIFORNIA
As a result of a recent market survey carried out by Resource Strategies,
we estimate the zinc market in California is about 94,000 tonnes accounting for
about 7.4% of total USA consumption. Three grades of zinc are available: High
Grade (HG) zinc produced to ASTM standards, having a purity of 99.95% zinc;
Special High Grade (SHG) zinc which conforms to LME specifications with a
purity of 99.995% zinc and Continuous Galvanizing Grade (CGG) which is an alloy
of zinc containing aluminium and cadmium produced to specific customer
requirements. USA consumers tend to use HG zinc when this is available.
There are no brass mills, zinc rolling mills or zinc oxide plants in
California, so the consumption in the state is quite different from the current
USA pattern. In the state of California, we estimate that galvanizing accounts
for 51,000 tonnes (55%) of the total and zinc alloys 41,000 tonnes (45%). We
have also developed a more detailed breakdown of these categories. We estimate
that the total galvanized consumption of 51,000 tonnes includes 43,500 tonnes
of sheet and strip galvanizing, 5,000 tonnes of continuous galvanizing of
extruded tube and 2,500 tonnes of after-fabrication hot dip galvanizing. Of the
alloy total of 41,000 tonnes, 40,000 tonnes would be used in zinc diecasting
alloys and 1,000 tonnes in aluminum-based alloys.
The most complex market sector is sheet galvanizing; there are four steel
mills in California producing coated steel; three are conventional galvanizing
lines, while the fourth coats its steel with a zinc-aluminum alloy to produce a
product called Zincalume.
The four California steel mills that have continuous galvanizing lines
are:
o PINOLE POINT STEEL, RICHMOND: The company consumes 12,700 tonnes
annually of zinc and most of it is contained in alloy supplied directly
from its zinc suppliers. It buys about 1,500 tonnes as high grade zinc.
o CALIFORNIA STEEL, FONTANA: The company uses 11,000 tpy of zinc. It buys
master alloy and special high-grade (SHG) zinc and produces its own
specification alloy.
o USS-POSCO, PITTSBURGH: This is the biggest galvanized producer in
California consuming about 16,800 tpy of zinc. It buys around 14,000
tonnes of CGG and the rest as SHG zinc and master alloy and then blends
to specification.
o BHP STEEL USA, RANCHO CUCAMONGA: This is the Zincalume line. The amount
of zinc in the coating is less than half that of conventional galvanized
steel (34.3 lb/tonne vs. 77.2 lb/tonne). Annual zinc purchases total
4,200 tonnes. The company buys SHG and primary aluminum and produces the
alloy in-house.
E-8
<PAGE>
These steel mills have the option of purchasing from their zinc suppliers,
the exact specification CGG alloy needed for a particular application or they
can buy a "master" alloy containing the required ingredients of aluminium and
cadmium, and SHG zinc separately, and blend them to the exact specification
needed for a particular production run. The specification of the CGG alloy will
vary according to the end use in which the galvanized sheet will be used, e.g.
automotive, appliance or construction applications. Different mills also have
their own preferences based on their equipment and operating experience. A
large zinc producer may offer as many as 15 or 20 different CGG alloys.
The after-fabrication galvanizing market in California holds a much
smaller share of the total galvanizing market than is the case nationwide.
While the total USA after-fabrication market is about 180,000 tonnes or 25% of
the galvanizing market, in California it is only 2,500 tonnes or 5%. There are
only six companies and six plants doing after-fabrication hot dip galvanizing
in California. The American Galvanizers Association reports that there are two
plants in the San Francisco area, two in Los Angeles and two in San Diego.
There are a handful of steel tube makers that continuously galvanize the
tube as it is extruded. We estimate they consume about 5,000 tpy.
There are three independent zinc diecast alloyers in California. These
alloy makers purchase zinc and other alloying metals from producers and then
produce alloys used by diecasters. They also serve to recycle scrap generated
by the diecasters.
The three are Semco in City of Industry, Custom Alloy in Lynwood and Atlas
Pacific in Paramount. We estimate they consume a combined 40,000 tpy of zinc,
with Semco being the largest. In summary, therefore, the zinc consumption of
California is primarily in the form of SHG zinc as shown below:
<TABLE>
<CAPTION>
PROCESS SHG/HG CGG
- ------- ------ ---
<S> <C> <C>
Continuous Sheet Galvanizing 19,500 t 26,000 t
Diecast Alloyers 40,000 t
Tube Makers 5,000 t
After-Fab Galvanizers 2,500 t
Aluminum Alloys 1,000 t
---------- ---------
TOTAL 68,000 T 26,000 T
</TABLE>
WEST COAST
As far as the West Coast of the USA, is concerned, Washington state and
Northwest Mexico are expected to be potential markets for Salton Sea zinc. BHP
also recently opened a conventional galvanizing line in Washington state that
consumes about 9,000 tpy of zinc that it buys as specification grade alloy from
Cominco in British Columbia. In Northwestern Mexico, around the cities of
Mexicali and Tijuana, with combined population of around 3 million people,
there is minor zinc consumption in after-fabrication galvanizing and brass
making.
We therefore estimate, that the total market for the three grades of zinc
in the expanded West Coast region must be at least 105,000 tonnes per annum
assuming that Northwest Mexico is using a conservative 2,000 tonnes per year.
The breakdown in alloys is shown below:
<TABLE>
<CAPTION>
STATE/REGION SHG/HG CGG
- ------------ ------ ---
<S> <C> <C>
California 68,000 t 26,000 t
Washington 9,000 t
NW Mexico 2,000 t
---------- ---------
TOTAL 70,000 T 35,000 T
</TABLE>
From world and regional consumption patterns, CRU International and
Resource Strategies project that Western World zinc demand will grow at an
annual growth rate of around 2.5% from 1997 to 2018. In a longer term survey
carried out by Resource Strategies, we expect the consumption of zinc in the
United States to increase from 1.265 million tonnes in 1997 to 1.45 million
tonnes in 2007 and 1.67 million
E-9
<PAGE>
tonnes in 2018. If California's share of the national total remains constant,
which is a reasonable assumption, consumption in the state by 2007 would be
about 108,000 tonnes per year rising to around 124,000 tonnes by 2018. If the
West Coast market for zinc grows at the same average rate predicted for North
America over the period, we expect this market to be in excess of 138,000
tonnes by 2018.
The market for zinc in California and the West Coast is significant, and
over the life of the Salton Sea project, this combined market is expected to
grow by about 33,000 tonnes from 105,000 tonnes in 1997 to 138,000 tonnes in
2018 on the basis of conservative growth forecasts. Bearing in mind that there
is no local production of zinc on the USA West Coast, we believe that providing
production meets the normal quality requirements, the Salton Sea production can
be readily absorbed in the Californian and other West Coast markets at present.
Future growth prospects reinforce this view.
ZINC SUPPLY IN THE UNITED STATES AND CALIFORNIA
UNITED STATES
The USA is only 31% self sufficient in zinc metal production. The largest
zinc mine in the country is Red Dog in Alaska, which is owned by Cominco. The
concentrates are smelted at Cominco's Trail smelter in British Columbia and by
other smelters around the world.
In 1997 the USA produced 387,000 tonnes of slab zinc and imported 876,000
tonnes. The three USA smelters are all located in the eastern half of the
country. They are, with their rated capacities:
<TABLE>
<S> <C> <C>
SAVAGE ZINC Clarksville, TN 115,000 tpy
ZINC CORP. OF AMERICA Monaca, PA 155,000 tpy
BIG RIVER ZINC Sauget, IL 82,000 tpy
------------
TOTAL 353,000 tpy
</TABLE>
Big River is now owned by Korea Zinc and Savage is an Australian company.
Both of America's NAFTA partners are significant zinc producers. In 1997
Canada produced 700,000 tonnes and Mexico 229,000. The smelters in these
countries and their rated capacities are as follows:
<TABLE>
<S> <C> <C> <C>
CANADA: Noranda Vallefield, Que 250,000 tpy
Cominco Trail, BC 290,000 tpy
Hudson Bay Flin Flon, Man 95,000 tpy
Falconbridge Timmins, Ont 145,000 tpy
------------
TOTAL 780,000 TPY
MEXICO: Penoles Torreon 130,000 tpy
IMMSA San Luis Potosi 113,000 tpy
------------
TOTAL 243,000 TPY
</TABLE>
Source: CRU International
The major foreign supplier to the USA zinc market is Canada. In 1997 it
supplied 473,000 tonnes or 54% of the total. The eight largest suppliers,
accounting for 88% of total imports, were as follows:
<TABLE>
<S> <C>
Canada 473,000 tonnes
Spain 99,000 tonnes
Mexico 83,000 tonnes
Russia 34,000 tonnes
Brazil 22,000 tonnes
Korea 21,000 tonnes
Peru 18,000 tonnes
Kazakhstan 18,000 tonnes
---------------
TOTAL 768,000 TONNES
</TABLE>
The cost of freight is the main factor that determines which part of the
USA will be supplied by a particular importer. For example, European exporters
will ship zinc to East Coast ports and the Great
E-10
<PAGE>
Lakes ports via the St. Lawrence Seaway. Asian exporters will ship to West
Coast ports. Exporters such as Peru have the option of shipping to the West
Coast or using the Panama Canal to reach the Gulf Coast.
In the case of Canada, the Cominco smelter is in the western part of the
country, while the other three smelters are in the central and eastern parts of
the country. Thus, Cominco is the only Canadian smelter to ship zinc to the
West Coast of the USA.
The two Mexican smelters are somewhat better placed to ship into the USA
Gulf region, but they also rail some of their output into the USA Southwest.
None of the USA smelters ship to the West Coast; they are better situated
to serve the larger Midwest and Eastern markets.
Since data to determine the tonnage of imports consumed in California is
scarce, we have developed an estimate of the sources of supply for the
California market based on interviews with consumers and merchants; this is as
follows:
<TABLE>
<S> <C>
Canada 49,000 tonnes
Mexico 17,000 tonnes
Korea 15,000 tonnes
China 5,000 tonnes
Peru 5,000 tonnes
Australia 3,000 tonnes
--------------
TOTAL 94,000 TONNES
</TABLE>
Of the six significant exporters to the California zinc market, five are
now facing diminished demand in their domestic markets as a result of economic
uncertainty in Asia. Competition to sell more zinc in the USA has already
intensified, especially on the West Coast. This intensified competition may
mean that some suppliers will reduce their West Coast marketing efforts. Mexico
would be the most likely candidate to try to sell more elsewhere in the USA and
less in California.
The biggest potential impact on the California supply pattern over the
life of the Salton Sea project will result from new capacity overseas whose
production may be competitive when delivered into the California market.
However, when recovery of the Asian economies gets underway, we expect these
same countries to be the fastest growing markets for zinc, so the pressure to
export to the West Coast of the USA will be significantly reduced.
Korea Zinc has recently completed an 85,000 tpy expansion at Onsan and is
now constructing a new 170,000 tpy smelter at Townsville, Australia, which is
due on stream in 2000. It plans to market the Townsville production in
Southeast Asia. We therefore expect Korea Zinc to continue selling into the USA
West Coast by using production from Onsan. Thus, assuming a recovery in Asian
zinc demand shortly after 2000, this new Australian capacity should not affect
exports to California.
Cominco is considering an expansion from 120,000 tpy to 240,000 tpy at its
Cajamarquilla smelter in Peru. This project could be postponed since much of
the increased production is targeted for Asia. We do not expect the company to
switch supply destinations as Cominco can more economically supply its
California customers from its British Columbia smelter.
Penoles is expanding its Torreon, Mexico, smelter from 135,000 tpy to
220,000 tpy in 1999. It is possible that Penoles could try to sell some of this
increased output in California.
All matters considered, we expect no major shifts in the California supply
pattern once economic recovery commences in Asia. We expect Cominco to remain
the dominant supplier, followed by Penoles, Korea Zinc and IMMSA.
E-11
<PAGE>
SUPPLY AND DEMAND BALANCES
Over the life of the Salton Sea project, we expect all of the metal
consumed in California to be supplied by imports from Canada, Mexico and Korea,
and from Salton Sea production. As we will discuss in a later section, the
Salton Sea project will have important transportation advantages over the other
suppliers. Secondly, as far as the wider United States market is concerned, we
expect the country to remain a large importer of zinc; by 2018 we expect
consumption to be 1.54 million tonnes of zinc per year. The only expansion on
the horizon is the Savage Resources smelter at Clarkesville which will increase
production by around 200,000 tonnes of zinc. This metal is unlikely to be
competitive when delivered to the West Coast.
THE PRICING STRUCTURE OF THE ZINC MARKET
The zinc prices paid by industrial consumers have two components, the
BASIC ZINC PRICE and a PREMIUM that generally reflects both the cost of
delivery into a particular region and the grade of zinc sold. Zinc prices in
the Western World are determined by the London Metal Exchange (LME). Through
daily trading, prices are established for metal to be delivered in the current
month, three months forward and for selected months extending out for 27
months. These prices reflect the current worldwide supply/ demand balance, the
level of stocks, and the perception of changes likely over the next year or
two. As far as the Salton Sea project is concerned, there are two premiums, one
for the standard metal (SHG) that reflects the cost of delivery and a
galvanizing grade premium (CGG) which includes the cost of alloying as well as
delivery.
The purity standard of traded zinc has been the cause of intermittent
discussion within the LME over the past 25 years. The LME used to trade Good
Ordinary Brand zinc and High Grade zinc but these contracts were gradually
upgraded to the current Special High Grade contract.
The advantage that the LME brings to both producers and consumers is that
not only does it provide a mechanism for pricing the six major primary metals,
but it is also the buyer and seller of last resort. A producer can always sell
zinc into the LME at market prices and deliver the metal to an LME warehouse.
Similarly, a consumer can always buy zinc and take delivery from an LME
warehouse.
Although the LME sets the metal price, very little of the trading involves
the exchange of physical metal. In 1997, the LME traded 7.675 million lots of
SHG zinc equivalent to 191.9 million tonnes of material, nearly 25 times the
global consumption of the metal.
Most of the trading on the LME involves price hedging where a producer can
set a price for future delivery or a consumer can fix a price for a future
purchase, irrespective of what the LME price will be on the day of delivery or
purchase. In most cases, these are paper transactions and do not entail
exchange of physical metal.
One other important point to note about the zinc market is that as the LME
is a buyer and seller of last resort, when supply exceeds demand, producers can
and do deliver metal into an exchange warehouse. There is the cost of
physically delivering the metal to the warehouse and sacrificing the premium,
but producers never face the prospect of not being able to sell their metal
once it has met LME specifications and becomes registered as a deliverable
brand. As far as the Salton Sea project is concerned, there are two LME
warehouses in California; so when the project metal is registered, it can be
delivered to one of these warehouses if it cannot find a suitable trade
customer. Typically for new zinc smelters, the LME brand registration
procedure, including sampling and testing, which often takes six to eighteen
months to obtain, is not a crucial factor in successfully marketing metal
during the initial months of operation. Many consumers require metal
specifications which are frequently more stringent than the LME's, so the
establishment of consistent product quality for both SHG and CGG zinc is more
important than pure pricing considerations.
CE Minerals' marketing strategy for the period prior to obtaining the LME
standard is to target the CGG market in California; there is no LME requirement
for CGG. CE Minerals intends to work closely with the four West Coast sheet
galvanizers to ensure customer specifications are met. This is described more
fully in the marketing section.
E-12
<PAGE>
The amount of the PREMIUM over the LME price reflects both what it would
cost a consumer to buy metal from an LME warehouse and ship it to his plant.
The shippable cost would be the fee paid to the warehouse to withdraw the
metal, the fee paid to the LME broker to buy the metal, the freight cost from
warehouse to plant, and import tariffs, if any.
Premiums in general will vary regionally based on market conditions of
supply and demand. Europe, for example, is a net exporter of zinc and hence has
low premiums. The USA is a net importer and thus has higher premiums. Producers
must bear the freight cost to ship to a more distant market and, consequently,
will be willing to accept a lower premium on sales made in their home markets
where delivery costs are lower. According to Metals Week, a McGraw Hill
publication which conducts regular market surveys, North American SHG and
galvanizer grade prices are presently 5.25 cents/lb and 11.25 cents/lb
respectively over the SHG LME zinc price.
Normally USA premiums are lowest on the East and Gulf Coasts since most
offshore suppliers (excluding Canada and Mexico) ship across the Atlantic.
Midwest premiums are higher reflecting the cost of shipping product through the
St. Lawrence Seaway to ports on the Great Lakes. West Coast premiums are about
1 cent/lb higher than East and Gulf Coast premia because competition from
imports is normally less severe. With zinc demand from East Asia slackening,
the competition to sell more zinc on the West Coast has intensified and
premiums are now about 1 cent/lb below the rest of the country. Over time, we
expect West Coast premiums to range from 4 cents/lb to 6 cents/lb for SHG zinc
and 10 cents/lb to 12 cents/lb for CGG zinc in nominal terms. In times of high
prices, the premia in the East and Gulf Coasts have risen to 10 cents/lb and
fallen to 1 cent/lb in times of very low prices.
E-13
<PAGE>
THE COMPETITIVE POSITION OF THE SALTON SEA PROJECT
The competitive position of the Salton Sea project will be defined by the
cost that the project incurs in producing refined zinc and the costs of
delivering its metal to its consumers.
COSTS OF PRODUCTION
According to operating cost figures recommended by SSFC and found to be
reasonable by Fluor Daniel as independent engineer, we estimate using RSI
methodology the Salton Sea project is well within the bottom quartile of the
Western World mine cash operating cost curve after by-product credits, as shown
in the chart below. Essentially, this means that the project will be amongst
the lowest cost producers of zinc. The graph shows the costs of production of
all the Western World zinc producers on an accumulated tonnage basis.
CRU International is forecasting that of the 5.3 million tonnes of
capacity surveyed, the cost of production of zinc will range from below zero to
around $1,300 per tonne in 2007 after the inclusion of by-product credits. Some
mines have a cost less than zero by this calculation because they have high
quantities of lead and silver, which, in effect, are valued higher than their
production costs. Using this data, Resource Strategies estimates that by 2007,
around 700,000 tonnes of world capacity will have lower costs than the Salton
Sea project but around 5.6 million tonnes of capacity will have higher
production costs.
[GRAPHIC OF WESTERN WORLD ZINC CASH COST CURVES OMITTED]
SSFC has recommended zinc production costs of 22.9 cents/lb ($505 per
tonne) for 2007 before by-product credits and, 18.4 cents/lb ($405 per tonne)
after by-product credits at 1997 prices. The Independent Engineer has found
these costs to be reasonable.
We have outlined the physical differences between the Salton Sea project
and traditional methods of production, but in terms of the production of
refined zinc, the above production figures are directly comparable and indicate
that the project is very competitive.
E-14
<PAGE>
COMPETITIVE POSITION IN THE CALIFORNIAN MARKET
More specifically, the Salton Sea project is also seen to be competitive
in terms of the companies currently supplying the Californian market. As the
chart below illustrates, the project has lower production costs than Cominco,
the largest supplier at present, as well as the two Mexican companies, Penoles
and IMMSA.
ESTIMATED PRODUCTION COSTS OF LEADING
ZINC SUPPLIERS IN CALIFORNIAN MARKET
Salton Sea Penoles IMMSA Cominco
Cost (cents) 18.4 18.5 20.6 40.0
When the cost of delivering metal into the Californian market is
considered in addition to production costs, the Salton Sea project will have a
further advantage. SSFC has indicated that its average delivery costs will be
in the order of 1.7 cents/lb. Current West Coast zinc premia, which essentially
reflect the cost of delivery, are around 4 to 6 cents/lb, so this advantage
could be as much as a further 2 to 4 cents/lb.
PROJECTING FUTURE REVENUES
The future revenues of the Salton Sea zinc extraction project will be
linked to the prevailing market price of zinc. As outlined in an earlier
section of this report, zinc is traded on the London Metal Exchange, so the
price is set daily and, as a last resort, metal can be delivered to an approved
LME warehouse and sold. This, however, is an inefficient way of selling this
material as normally, a price premium over and above that quoted on the LME, is
charged by metal producers. Furthermore, around half of the production may be
sold as continuous galvanizing grade which itself cannot be delivered to an LME
warehouse but also commands an important premium.
For the Salton Sea project, future revenues will therefore be a function
of the future zinc price and the specific premia connected with LME quality
zinc and approved galvanizing grade alloys. However, Resource Strategies
believes that future zinc prices used in the evaluation of debt and equity
investment must be related to the level of risk to the extent that our
forecasts could be inaccurate.
E-15
<PAGE>
LONG-TERM ZINC PRICE FORECAST
Resource Strategies has produced a long-term zinc price forecast to 2018.
This forecast is summarized in the chart below.
[GRAPHIC OF LONG-TERM ZINC PRICE FORECAST 2000 TO 2018 OMITTED]
This forecast has been prepared from an analysis of current and future
patterns of production and consumption and the relative changes in LME stocks,
which currently stand at around 375,000 tonnes. Over the next 20 years,
Resource Strategies is expecting a double peak in zinc prices. In our base
case, the current low prices are expected to continue to well beyond 2000, but
shortly after 2004 when the renewed levels of Asian demand feed through to
depressed stock levels, prices are expected to rise strongly to around 66
cents/lb in 2006 which will encourage investment in new production. As a result
of this new investment, we then expect another cycle of lower prices followed
by reduction in stocks and another price increase. Our downside case assumes
that the recession in Asia will be deeper and longer, and the decrease in
stocks, necessary before there can be any increases in price, will be more
gradual.
The tables below show the results of probabilistic simulation analysis,
which assigns confidence levels to zinc price variations. The methodology
associated with this analysis is detailed in the appendix.
RECOMMENDED FUTURE ZINC PRICES TO BE USED IN FINANCING
THE SALTON SEA ZINC PROJECT
(US C/LB -- 1997 PRICES)
<TABLE>
<CAPTION>
CONFIDENCE LEVEL 2000-2004 2005 - 2015 2000 - 2018
- ---------------------- ----------- ------------- ------------
<S> <C> <C> <C>
Base Case 49.08 57.92 54.61
Downside Case 46.49 52.81 50.26
98% Confidence Level 43.91 49.76 49.26
</TABLE>
- ----------
Source: Resource Strategies
To summarize, the table on the following page details our price forecasts
on an annual basis for our base case and downside scenarios as well as the
premia for SHG and CGG grades.
E-16
<PAGE>
LONG-TERM PRICE FORECAST (1997 CENTS/LB)
2000 -- 2018
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Base Case 48.5 47.2 48.1 49.9 51.7 56.7 66.2 56.9 55.7 53.1
Downside 45.6 44.0 46.4 47.7 48.7 50.8 55.3 54.4 53.5 49.9
SHG Premium 3.7 4.5 4.4 4.3 5.0 4.9 4.8 4.7 4.6 4.5
CGG Premium
a. alloy element 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0
b. market 4.6 5.4 5.3 5.2 5.9 5.7 5.6 5.5 5.3 5.2
Market entry discount (0.9) (0.5) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total CGG Premiuim 8.7 10.0 10.3 10.2 10.9 10.7 10.6 10.5 10.3 10.2
2010 2011 2012 2013 2014 2015 2016 2017 2018
----- ----- ----- ----- ----- ----- ----- ----- -----
Base Case 56.0 58.2 60.6 59.0 57.9 56.9 55.5 50.8 48.8
Downside 52.6 53.3 54.0 54.4 52.2 50.4 48.4 47.0 46.1
SHG Premium 4.4 4.2 4.1 4.0 3.9 3.8 3.8 3.7 3.0
CGG Premium
a. alloy element 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0
b. market 5.1 5.0 4.8 4.7 4.6 4.5 4.4 4.3 3.6
Market entry discount 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total CGG Premium 10.1 10.0 9.8 9.7 9.6 9.5 9.4 9.3 8.6
</TABLE>
- ----------
SOURCE: Resource Strategies
ZINC MARKETING PLAN
We have reviewed an outline marketing plan for the Salton Sea production
which is detailed below. The marketing plan contains the following primary
elements:
1.) Goal -- become a major supplier to the West Coast market focusing on
steel companies and alloyers. Become the supplier of choice to alloyers
and the number two supplier to steel companies.
2.) Products -- ASTM SHG purity of 99.99%; production split of 70% SHG
(special high grade) zinc for steel companies, alloyers and other
galvanizers; 30% CGG (continuous galvanizing grade) zinc for steel
companies.
3.) Produce product in one ton jumbo ingots.
4.) Pricing based on market standard terms of LME plus premium, fob customer.
5.) Make direct sales using a dedicated sales team consisting of: salesman,
logistics manager, administrative assistant, and technical support from a
metallurgist and engineers. Hire the marketing staff in advance of
start-up.
6.) Use trucks as the primary mode of delivery with rail deliveries as
appropriate to distant customers.
7.) Accomplish market entry by producing on-specification products and using
discounts of 1 cent/lb of zinc in 2000 and 1/2 cent/lb in 2001.
8.) Obtain LME registration as soon as possible.
CONCLUSION:
In our review and discussion we focused on the following key points:
E-17
<PAGE>
1.) the local market for zinc and continuous galvanizing grade material
2.) the form of the material required by the market
3.) levels of impurities in the end product
4.) sales strategy
We have been satisfied that management is aware of the major issues and is
formatting plans with these points in mind.
We believe this marketing plan is reasonable and can be accomplished.
APPENDIX
RESOURCE STRATEGIES APPROACH TO METAL PRICE VARIATIONS
Resource Strategies' approach to examining potential metal price
variability is to use a probability simulation technique in order to assign
levels of confidence with a range of future metal prices.
The methodology used by Resource Strategies to quantify this risk is based
on Monte Carlo risk analysis. This is a well known statistical technique
utilizing a model, which, in the case of the Salton Sea project, identifies the
key drivers of uncertainty surrounding the zinc price and quantifies their
potential effect on the future zinc price over the forecast period.
The key variables or uncertainties that drive the metal price such as
macroeconomic trends, timing of the next point of change in the supply/demand
balance, the rate at which changes may occur, the price elasticity effect on
the use of the metal, and changes in short and long run marginal costs of
production, are quantified so that the potential affect of each driver can be
assessed. This is usually done by specifying a frequency distribution; a normal
distribution is most commonly used to describe many natural, economic and
business risks, which can easily be quantified in terms of a median value and a
standard deviation. Some of the risks associated with the above parameters may
require different risk distributions in order to describe how the parameter may
change over time.
The Monte Carlo simulation process uses random number generation to select
values from every distribution pattern associated with each variable or
uncertainty in order to calculate the potential effect on the metal price. By
repeating the simulation a large number of times, this procedure yields a
frequency distribution for a range of metal prices. Essentially, the model is
simulating every possible permutation and combination of assumptions in
accordance with the probabilities specified.
In the case of the CRU International forecast of the zinc price, our Monte
Carlo simulation has indicated that as a result of the possible changes in the
timing of many new projects worldwide during the period 2000 to 2005, there is
an important downside risk that metal prices will be lower than indicated.
E-18
<PAGE>
The chart below shows the skewed distribution of the level of risk associated
with the metal price over this period, indicating that prices are likely to be
lower rather than higher than the base case forecast.
[GRAPHIC OF FREQUENCY CHART OMITTED]
In the chart below, the distribution of this risk is seen to adopt a far
more normal pattern for the period 2005 to 2015, indicating that prices for
this period in the life of the project are likely to be higher on average.
[GRAPHIC OF FREQUENCY CHART OMITTED]
E-19
<PAGE>
For the first 15 years of the project, that is assessing the risk of
variation of the zinc price during the period overall, our model has also
indicated a more normal distribution. This indicates that over the life of the
project average prices will be higher than those achieved in the first five
years.
We recommend that in order to assess the price beneath which future zinc
prices will not fall, a probability level of 2% indicated by the risk analysis
is used. This corresponds with a 98% confidence level.
E-20
<PAGE>
APPENDIX F
FORM OF LETTER TO BE DELIVERED BY ACCREDITED INVESTORS
Salton Sea Funding Corporation
302 South 36th Street, Suite 400-A
Omaha, Nebraska 68131
Credit Suisse First Boston Corporation
Goldman, Sachs & Co.
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010-3629
Attention: Transactions Advisory Group
Dear Sirs:
We are delivering this letter in connection with an offering of
$285,000,000 7.475% Senior Secured Series F Bonds Due November 30, 2018 (the
"Securities") of Salton Sea Funding Corporation, a Delaware corporation (the
"Company"), all as described in the Confidential Offering Circular (the
"Offering Circular") relating to the offering.
We hereby confirm that:
(i) we are an "accredited investor" within the meaning of Rule 501(a)(1),
(2) or (3) under the Securities Act of 1933, as amended (the "Securities Act"),
or an entity in which all of the equity owners are accredited investors within
the meaning of Rule 501(a)(1), (2) or (3) under the Securities Act (an
"Institutional Accredited Investor");
(ii) (A) any purchase of the Securities by us will be for our own account
or for the account of one or more other Institutional Accredited Investors or
as fiduciary for the account of one or more trusts, each of which is an
"accredited investor" within the meaning of Rule 501(a)(7) under the Securities
Act and for each of which we exercise sole investment discretion or (B) we are
a "bank", within the meaning of Section 3(a)(2) of the Securities Act, or a
"savings and loan association" or other institution described in Section
3(a)(5)(A) of the Securities Act that is acquiring the Securities as fiduciary
for the account of one or more institutions for which we exercise sole
investment discretion;
(iii) in the event that we purchase any of the Securities, we will acquire
Securities having a minimum purchase price of not less than $100,000 for our
own account or for any separate account for which we are acting;
(iv) we have such knowledge and experience in financial and business
matters that we are capable of evaluating the merits and risks of purchasing
the Securities;
(v) we are not acquiring the Securities with a view to distribution
thereof or with any present intention of offering or selling any of the
Securities, except inside the United States in accordance with Rule 144A under
the Securities Act or outside the United States in accordance with Regulation S
under the Securities Act, as provided below; provided that the disposition of
our property and the property of any accounts for which we are acting as
fiduciary shall remain at all times within our control; and
(vi) we have received a copy of the Offering Circular relating to the
offering of the Securities and acknowledge that we have had access to such
financial and other information, and have been afforded the opportunity to ask
such questions of representatives of the Company and receive answers thereto,
as we deem necessary in connection with our decision to purchase the
Securities.
We understand that the Securities are being offered in a transaction not
involving any public offering within the United States within the meaning of
the Securities Act and that the Securities have not been and will not be
registered under the Securities Act, and we agree, on our own behalf and on
behalf of each
F-1
<PAGE>
account for which we acquire any Securities, that if in the future we decide to
resell, pledge or otherwise transfer such Securities, such Securities may be
offered, resold, pledged or otherwise transferred only (i) inside the United
States to a person who we reasonably believe is a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act) in a transaction with
meeting the requirements of Rule 144A, or (ii) outside the United States in a
transaction in accordance Rule 904 under the Securities Act, (iii) pursuant to
an exemption from registration under the Securities Act provided by Rule 144
thereunder (if available) or (iv) pursuant to an effective registration
statement under the Securities Act, in each of these cases (i) through (iv), in
accordance with any applicable securities laws of any State of the United
States or any other applicable jurisdiction. We understand that the registrar
and transfer agent for the Securities will not be required to accept for
registration or transfer any Securities acquired by us, except upon
presentation of evidence satisfactory to the Company and the transfer agent
that the foregoing restrictions on transfer have been complied with. We further
understand that any Securities acquired by us, will be in the form of
definitive physical certificates and that such certificates will bear a legend
reflecting the substance of this paragraph.
We acknowledge that you, the Company and others will rely upon our
confirmations, acknowledgments and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS.
Date: _________________________________ _____________________________________
(Name of Purchaser)
By: __________________________________
Name:
Title:
Address:
F-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Each of the Funding Corporation (a Delaware corporation), CEOC (a Delaware
corporation), CESS (a Delaware corporation) and SSMC (a Delaware corporation)
is empowered by Section 145 of the Delaware General Corporation Law, subject to
the procedures and limitations stated therein, VPC (a Nevada corporation) is
empowered by Section 78.751 of the Nevada General Corporation Law, subject to
the procedures and limitations stated therein, each of San Felipe (a California
corporation), Conejo (a California corporation) and Niguel (a California
corporation) is empowered by Section 317 of California General Corporation Law,
subject to the procedures and limitations stated therein, and each of Fish Lake
(a Delaware limited liability company), Power LLC (a Delaware limited liability
company), VPC Geothermal (a Delaware limited liability company), Minerals LLC
(a Delaware limited liability company), Turbo LLC (a Delaware limited liability
company) and the Royalty Guarantor (a Delaware limited liability company) is
empowered by Section 18-108 of the Delaware Limited Liability Company Act,
subject to the procedures and limitations stated therein, to indemnify any
person against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with any threatened, pending or completed action, suit or proceeding
in which such person is made a party by reason of his being or having been a
director, officer, employee or agent of the Funding Corporation, CEOC, CESS,
SSMC, VPC, San Felipe, Conejo, Niguel, Fish Lake, Power LLC, VPC Geothermal,
Minerals LLC, Turbo LLC and the Royalty Guarantor, respectively. The statutes
provide that indemnification pursuant to their provisions is not exclusive of
other rights of indemnification to which a person may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors, or
otherwise. The Certificates of Incorporation and/or by-laws of the Funding
Corporation, CEOC, CESS and SSMC provide for indemnification of the directors
and officers of such entities to the full extent permitted by the Delaware
General Corporation Law. The by-laws of VPC provide for indemnification of the
directors and officers of such entities to the full extent permitted by the
Nevada General Corporation Law. The Certificates of Incorporation and/or
by-laws of San Felipe, Conejo and Niguel provide for indemnification of the
directors and officers of such entities to the full extent permitted by the
California General Corporation Law. The limited liability company operating
agreements of Fish Lake, Power LLC, VPC Geothermal, Minerals LLC, Turbo LLC and
the Royalty Guarantor provide for indemnification of the managers, officers and
directors of such entities to the full extent permitted by the Delaware Limited
Liability Company Act.
Section 15643 of the California Revised Limited Partnership Act empowers
SSBP (a California limited partnership), SSPG (a California limited
partnership) Leathers (a California limited partnership), Del Ranch (a
California limited partnership), and Elmore (a California limited partnership),
to indemnify a general partner who has paid more than his share of partnership
obligations. Section 87.180 of the Uniform Partnership Act of Nevada, absent
all agreement to the contrary, empowers Vulcan (a Nevada general partnership)
to indemnify its partners for acts or omissions taken in good faith. The
general partnership agreement of Vulcan does not contain provisions to the
contrary.
Section 102(b)(7) of the Delaware General Corporation Law permits a
provision in the certificate of incorporation of each corporation incorporated
thereunder, such as the Funding Corporation, CEOC, CESS and SSMC, eliminating
or limiting, with certain exceptions, the personal liability of a director to
the corporation or its stockholders for monetary damages for certain breaches
of fiduciary duty as a director. The Certificates of Incorporation of the
Funding Corporation, CEOC, CESS and SSMC provide for eliminating the personal
liability of directors to the full extent permitted by the Delaware General
Corporation Law.
MidAmerican maintains an insurance policy providing for indemnification of
the officers and directors of its subsidiaries and certain other persons
against liabilities and expenses incurred by any of them in certain stated
proceedings and under certain stated conditions.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
3.1 Articles of Incorporation of the Funding Corporation (incorporated by reference to Exhibit
3.1 to the Funding Corporation Registration Statement on Form S-4 dated August 9, 1995,
Reg. No. 33-95538 ("Funding Corporation Form S-4")).
3.2 By-laws of the Funding Corporation (incorporated by reference to Exhibit 3.2 to the
Funding Corporation Form S-4).
3.3 Limited Partnership Agreement of SSBP (incorporated by reference to Exhibit 3.3 to the
Funding Corporation Form S-4).
3.4 Limited Partnership Agreement of SSPG (incorporated by reference to Exhibit 3.4 to the
Funding Corporation Form S-4).
3.5* Certificate of Formation of Fish Lake.
3.6* Limited Liability Company Agreement of Fish Lake.
3.7 Articles of Incorporation of VPC (incorporated by reference to Exhibit 3.7 to the Funding
Corporation Form S-4).
3.8 By-laws of VPC (incorporated by reference to Exhibit 3.8 to the Funding Corporation
Form S-4).
3.9 Articles of Incorporation of CEOC (incorporated by reference to Exhibit 3.9 to the
Funding Corporation Form S-4).
3.10 By-laws of CEOC (incorporated by reference to Exhibit 3.10 to the Funding Corporation
Form S-4).
3.11* Certificate of Formation of the Royalty Guarantor.
3.12* Limited Liability Company Agreement of the Royalty Guarantor.
3.13* Certificate of Formation of VPC Geothermal.
3.14* Limited Liability Company Agreement of VPC Geothermal.
3.15 Articles of Incorporation of San Felipe (incorporated by reference to Exhibit 3.15 to the
Funding Corporation Registration Statement on Form S-4 dated July 2, 1996, Reg. No.
333-07527 ("Funding Corporation II Form S-4")).
3.16 By-laws of San Felipe (incorporated by reference to Exhibit 3.16 to the Funding
Corporation II Form S-4).
3.17 Articles of Incorporation of Conejo (incorporated by reference to Exhibit 3.17 to the
Funding Corporation II Form S-4).
3.18 By-laws of Conejo (incorporated by reference to Exhibit 3.18 to the Funding Corporation
II Form S-4).
3.19 Articles of Incorporation of Niguel (incorporated by reference to Exhibit 3.19 to the
Funding Corporation II Form S-4).
3.20 By-laws of Niguel (incorporated by reference to Exhibit 3.20 to the Funding Corporation II
Form S-4).
</TABLE>
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<S> <C>
3.21 General Partnership Agreement of Vulcan (incorporated by reference to Exhibit 3.21 to
the Funding Corporation II Form S-4).
3.22 Limited Partnership Agreement of Leathers (incorporated by reference to Exhibit 3.22 to
the Funding Corporation II Form S-4).
3.23 Amended and Restated Limited Partnership Agreement of Del Ranch (incorporated by
reference to Exhibit 3.23 to the Funding Corporation II Form S-4).
3.24 Amended and Restated Limited Partnership Agreement of Elmore (incorporated by
reference to Exhibit 3.24 to the Funding Corporation II Form S-4).
3.25* Certificate of Formation of Minerals LLC.
3.26* Limited Liability Company Agreement of Minerals LLC.
3.27* Certificate of Formation of Turbo LLC.
3.28* Limited Liability Company Agreement of Turbo LLC.
3.29* Articles of Incorporation of CESS.
3.30* By-laws of CESS.
3.31* Articles of Incorporation of SSMC.
3.32* By-laws of SSMC.
3.33* Certificate of Formation of Power LLC
3.34* Limited Liability Company Agreement of Power LLC
4.1 (a) Indenture, dated as of July 21, 1995, between Chemical Trust Company of California and
the Funding Corporation (incorporated by reference to Exhibit 4.1(a) to the Funding
Corporation Form S-4).
4.1 (b) First Supplemental Indenture, dated as of October 18, 1995, between Chemical Trust
Company of California and the Funding Corporation (incorporated by reference to Exhibit
4.1(b) to the Funding Corporation Form S-4).
4.1 (c) Second Supplemental Indenture, dated as of June 20, 1996, between Chemical Trust
Company of California and the Funding Corporation (incorporated by reference to Exhibit
4.1(c) to the Funding Corporation II Form S-4).
4.1 (d) Third Supplemental Indenture, dated as of July 29, 1996 between Chemical Trust Company
of California and the Funding Corporation (incorporated by reference to Exhibit 4.1(d) to
the Funding Corporation II Form S-4).
4.1 (e) Fourth Supplemental Indenture, dated as of October 13, 1998, between Chase Manhattan
Bank and Trust Company, National Association and the Funding Corporation
(incorporated by reference to Exhibit 4.1(e) to the Funding Corporation's Form 10-K/A
dated March 27, 1999 (the "Form 10-K/A")).
4.1 (f)** Fifth Supplemental Indenture, dated as of February 16, 1999, between Chase Manhattan
Bank and Trust Company, National Association and the Funding Corporation.
4.1 (g)* Sixth Supplemental Indenture, dated as of June 29, 1999, between Chase Manhattan Bank
and Trust Company, National Association, and the Funding Corporation.
</TABLE>
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4.2 Amended and Restated Salton Sea Secured Guarantee, dated as of July 21, 1995, by SSBP,
SSPG and Fish Lake in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.2 to the Funding Corporation Form S-4).
4.3 Second Amended and Restated Partnership Secured Limited Guarantee, dated as of
October 13, 1998 by CEOC, VPC, Conejo, Niguel, San Felipe, BNG, Del Ranch, Elmore,
Leathers, Vulcan, Minerals LLC and Turbo LLC in favor of Chemical Trust Company of
California (incorporated by reference to Exhibit 4.3(c) to the Form 10-K/A).
4.4 Royalty Guarantor Secured Limited Guarantee, dated as of July 21, 1995, by the Royalty
Guarantor in favor of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.4 to the Funding Corporation Form S-4).
4.5(a) Exchange and Registration Rights Agreement, dated July 21, 1995, by and among CS First
Boston Corporation, Lehman Brothers Inc. and the Funding Corporation (incorporated by
reference to Exhibit 4.5 to the Funding Corporation Form S- 4).
4.5(b) Exchange and Registration Rights Agreement, dated June 20, 1996, by and between CS
First Boston Corporation and the Funding Corporation (incorporated by reference to
Exhibit 4.5 to the Funding Corporation II Form S-4).
4.5(c)** Exchange and Registration Rights Agreement, dated October 13, 1998, by and among CS
First Boston Corporation, Goldman, Sachs & Co. and the Funding Corporation.
4.6(a) Collateral Agency and Intercreditor Agreement, dated as of July 21, 1995, by and among
Credit Suisse, Chemical Trust Company of California, the Funding Corporation and the
Guarantors (incorporated by reference to Exhibit 4.6 to the Funding Corporation Form
S-4).
4.6(b) First Amendment to the Collateral Agency and Intercreditor Agreement, dated as of June
20, 1996, by and among Credit Suisse, Chemical Trust Company of California, the Funding
Corporation and the Guarantors (incorporated by reference to Exhibit 4.6(b) to the
Funding Corporation II Form S-4).
4.6(c) Second Amendment to the Collateral Agency and Intercreditor Agreement, dated as of
October 13, 1998, by and among Credit Suisse, Chemical Trust Company of California, the
Funding Corporation and the Guarantors (incorporated by reference to Exhibit 4.6(c) to
the Form 10-K/A).
4.7 Stock Pledge Agreement, dated as of July 21, 1995, by Magma Power Company in favor of
Chemical Trust Company of California (incorporated by reference to Exhibit 4.7 to the
Funding Corporation Form S-4).
4.8(a) Purchase Agreement, dated July 18, 1995, by and among CS First Boston Corporation,
Lehman Brothers Inc., the Guarantors and the Funding Corporation (incorporated by
reference to Exhibit 4.8 to the Funding Corporation Form S-4).
4.8(b) Purchase Agreement, dated June 17, 1996, by and among CS First Boston Corporation, the
Guarantors and the Funding Corporation (incorporated by reference to Exhibit 4.8 to the
Funding Corporation II Form S-4).
4.8(c) Purchase Agreement, dated October 13, 1998 by and among CS First Boston Corporation,
the Guarantors and the Funding Corporation (incorporated by reference to Exhibit 4.8(c)
to the Form 10-K/A).
</TABLE>
II-4
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4.9 Support Letter, dated as of July 21, 1995, by and among Magma Power Company, the
Funding Corporation and the Guarantors (incorporated by reference to Exhibit 4.9 to the
Funding Corporation Form S-4).
4.10 Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as of July 21,
1995, by and among the Funding Corporation, certain banks and Credit Suisse, as agent
(incorporated by reference to Exhibit 4.10 to the Funding Corporation Form S-4).
4.10(a) Amendment to Notes and to Amended Debt Service Reserve Letter of Credit and
Reimbursement Agreement, dated October 13, 1998, by and among the Funding
Corporation, certain banks and Credit Suisse, as agent (incorporated by reference to
Exhibit 4.10(a) to the Form 10-K/A).
4.11 Revolving Credit Agreement, dated as of July 21, 1995, by and among Credit Suisse and
the Funding Corporation (incorporated by reference to Exhibit 4.11 to the Funding
Corporation Form S-4).
4.12 Amended and Restated Salton Sea Credit Agreement, dated October 13, 1998, by and
among SSBP, SSPG, Power LLC and Fish Lake (incorporated by reference to Exhibit 4.12
to the Funding Corporation Form S-4).
4.13 Salton Sea Project Note (SSI), dated October 13, 1998, by SSBP, SSPG, Power LLC and
Fish Lake in favor of the Funding Corporation (incorporated by reference to Exhibit
4.13(a) to the Form 10-K/A).
4.13(a) Salton Sea Project Note (SSIII), dated October 13, 1998, by SSBP, SSPG, Power LLC and
Fish Lake in favor of the Funding Corporation (incorporated by reference to Exhibit
4.13(b) to the Form 10-K/A).
4.14 Amended and Restated Deposit and Disbursement Agreement, dated as of October 13,
1998, by and among the Funding Corporation, Chemical Trust Company of California and
the Guarantors (incorporated by reference to Exhibit 4.14(c) to the Form 10-K/A).
4.15 Partnership Interest Pledge Agreement, dated as of July 21, 1995, by Magma Power
Company and Salton Sea Power Company in favor of Chemical Trust Company of
California (incorporated by reference to Exhibit 4.15 to the Funding Corporation Form
S-4).
4.16 Partnership Interest Pledge Agreement, dated as of July 21, 1995, by SSBP and Salton Sea
Power Company in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.16 to the Funding Corporation Form S-4).
4.17 Stock Pledge Agreement (pledge of Stock of Fish Lake by Magma Power Company and
the Funding Corporation), dated as of July 21, 1995, by Magma Power Company and the
Funding Corporation in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.17 to the Funding Corporation Form S-4).
4.18 Intentionally Omitted.
4.19 Second Amended and Restated Partnership Guarantors Credit Agreement, dated October
13, 1998, by and among the Partnership Guarantors and the Funding Corporation
(incorporated by reference to Exhibit 4.19(c) to the Form 10-K/A).
4.20 Partnership Guarantors Security Agreement and Assignment of Rights, dated as of July 21,
1995, by CEOC and VPC in favor of Chemical Trust Company of California (incorporated
by reference to Exhibit 4.20 to the Funding Corporation Form S-4).
</TABLE>
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EXHIBIT NO. DESCRIPTION OF EXHIBIT
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<S> <C>
4.21 Stock Pledge Agreement (pledge of Stock of CEOC by Magma Power Company and the
Funding Corporation), dated as of July 21, 1995, by Magma Power Company and Funding
Corporation in favor of Chemical Trust Company of California (incorporated by reference
to Exhibit 4.21 to the Funding Corporation Form S-4).
4.22 Stock Pledge Agreement (pledge of Stock of VPC by Magma Power Company and the
Funding Corporation), dated as of July 21, 1995, by Magma Power Company and the
Funding Corporation in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.22 to the Funding Corporation Form S-4).
4.23 Royalty Guarantor Credit Agreement, among the Royalty Guarantor and the Funding
Corporation, dated as of July 21, 1995 (incorporated by reference to Exhibit 4.23 to the
Funding Corporation Form S-4).
4.24 Royalty Project Note, dated as of July 21, 1995, by the Royalty Guarantor in favor of the
Funding Corporation (incorporated by reference to Exhibit 4.24 to the Funding
Corporation Form S-4).
4.25 Royalty Security Agreement and Assignment of Revenues, dated as of July 21, 1995, by the
Royalty Guarantor in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.25 to the Funding Corporation Form S-4).
4.26 Royalty Deed of Trust, dated as of July 21, 1995, by the Royalty Guarantor to Chicago
Title Company for the use and benefit of Chemical Trust Company of California
(incorporated by reference to Exhibit 4.26 to the Funding Corporation Form S-4).
4.27 Stock Pledge Agreement (pledge of Stock of Royalty Guarantor by Magma Power
Company and the Funding Corporation), dated as of July 21, 1995, by Magma Power
Company and the Funding Corporation in favor of Chemical Trust Company of California
(incorporated by reference to Exhibit 4.27 to the Funding Corporation Form S-4).
4.28 Collateral Assignment of the Imperial Irrigation District Agreements, dated as of July 21,
1995, by SSBP, SSPG and Fish Lake in favor of Chemical Trust Company of California
(incorporated by reference to Exhibit 4.28 to the Funding Corporation Form S-4).
4.29 Collateral Assignments of Certain Salton Sea Agreements, dated as of July 21, 1995, by
SSBP, SSPG and Fish Lake in favor of Chemical Trust Company of California
(incorporated by reference to Exhibit 4.29 to the Funding Corporation Form S-4).
4.30 Debt Service Reserve Letter of Credit by Credit Suisse in favor of Chemical Trust
Company of California (incorporated by reference to Exhibit 4.30 to the Funding
Corporation Form S-4).
4.31 Partnership Project Note (SSI), dated October 13, 1998, by VPC, CEOC, Conejo, San
Felipe, Niguel, VPC Geothermal, Del Ranch, Elmore, Leathers, Vulcan, Turbo LLC and
Minerals LLC in favor of the Funding Corporation (incorporated by reference to Exhibit
4.31(a) to the Form 10-K/A).
4.31(a) Partnership Project Note (SSII), dated October 13, 1998, by VPC, CEOC, Conejo, San
Felipe, Niguel, VPC Geothermal, Del Ranch, Elmore, Leathers, Vulcan, Turbo LLC and
Minerals LLC in favor of the Funding Corporation (incorporated by reference to Exhibit
4.31(b) to the Form 10-K/A).
4.31(b) Partnership Project Note (SSIII), dated October 13, 1998, by VPC, CEOC, Conejo, San
Felipe, Niguel, VPC Geothermal, Del Ranch, Elmore, Leathers, Vulcan, Turbo LLC and
Minerals LLC in favor of the Funding Corporation (incorporated by reference to Exhibit
4.31(c) to the Form 10-K/A).
</TABLE>
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4.32 Collateral Assignment of the Imperial Irrigation District Agreements, dated as of June 20,
1996, by Vulcan, Elmore, Leathers, VPC and Del Ranch in favor of Chemical Trust
Company of California (incorporated by reference to Exhibit 4.29 to the Funding
Corporation II Form S-4).
4.33 Collateral Assignments of Certain Partnership Agreements, dated as of June 20, 1996, by
Vulcan Elmore, Leathers and Del Ranch in favor of Chemical Trust Company of California
(incorporated by reference to Exhibit 4.31 to the Funding Corporation II Form S-4).
4.34 Debt Service Reserve Letter of Credit by Credit Suisse in favor of Chemical Trust
Company of California (incorporated by reference to Exhibit 4.32 to the Funding
Corporation II Form S-4).
4.35 Intentionally Omitted.
4.36 Intentionally Omitted.
4.37 Deed of Trust, dated as of June 20, 1996, by Vulcan to Chicago Title Company for the use
and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit
4.35 to the Funding Corporation II Form S-4).
4.37(a) First Amendment to Deed of Trust, dated October 13, 1998 by Vulcan to Chicago Title
Company for the use and benefit of Chemical Trust Company of California (incorporated
by reference to Exhibit 4.37(a) to the Form 10-K/A).
4.38 Deed of Trust, dated as of June 20, 1996, by Elmore to Chicago Title Company for the use
and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit
4.36 to the Funding Corporation II Form S-4).
4.38(a) First Amendment to Deed of Trust, dated October 13, 1998, by Elmore to Chicago Title
Company for the use and benefit of Chemical Trust Company of California (incorporated
by reference to Exhibit 4.38(a) to the Form 10-K/A).
4.39 Deed of Trust, dated as of June 20, 1996, by Leathers to Chicago Title Company for the
use and benefit of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.37 to the Funding Corporation II Form S-4).
4.39(a) First Amendment to Deed of Trust, dated October 13, 1998, by Leathers to Chicago Title
Company for the use and benefit of Chemical Trust Company of California (incorporated
by reference to Exhibit 4.39(a) to the Form 10-K/A).
4.40 Deed of Trust, dated as of June 20, 1996, by Del Ranch to Chicago Title Company for the
use and benefit of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.38 to the Funding Corporation II Form S-4).
4.40(a) First Amendment to Deed of Trust, dated October 13, 1998, by Del Ranch to Chicago Title
Company for the use and benefit of Chemical Trust Company of California (incorporated
by reference to Exhibit 4.40(a) to the Form 10-K/A).
4.41 Stock Pledge Agreement, Dated as of June 20, 1996, by CEOC, pledging the stock of
Conejo, Niguel and San Felipe in favor of Chemical Trust Company of California for the
benefit of the Secured Parties and the Funding Corporation (incorporated by reference to
Exhibit 4.39 to the Funding Corporation II Form S-4).
</TABLE>
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<S> <C>
4.42 Stock Pledge Agreement, dated as of June 20, 1996, by VPC, pledging the stock of BNG in
favor of Chemical Trust Company of California for the benefit of the Secured Parties and
the Funding Corporation (incorporated by reference to Exhibit 4.40 to the Funding
Corporation II Form S-4).
4.43 Partnership Interest Pledge Agreement, dated as of June 20, 1996, by VPC and BNG,
pledging the partnership interests in Vulcan in favor of Chemical Trust Company of
California for the benefit of the Secured Parties and the Funding Corporation
(incorporated by reference to Exhibit 4.41 to the Funding Corporation II Form S-4).
4.44 Partnership Interest Pledge Agreement, dated as of June 20, 1996, by Magma, CEOC and
each of Conejo, Niguel, San Felipe, respectively, pledging the partnership interests in Del
Ranch, Elmore and Leathers, respectively, in favor of Chemical Trust Company of
California for the benefit of the Secured Parties and the Funding Corporation
(incorporated by reference to Exhibit 4.42 to the Funding Corporation II Form S-4).
4.45 Agreement regarding Security Documents, dated as of June 20, 1996, by and among the
Initial Guarantors, Magma, Sspc, the Funding Corporation and Chemical Trust Company of
California (incorporated by reference to Exhibit 4.45 to the Funding Corporation II Form
S-4).
5.1* Opinion of Willkie Farr & Gallagher.
5.2* Opinion of Latham & Watkins.
5.3* Opinion of Lionel Sawyer & Collins.
10.1 (a) Salton Sea Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing,
dated as of July 21, 1995, by SSBP, SSPG and Fish Lake to Chicago Title Company for the
use and benefit of Chemical Trust Company of California (incorporated by reference to
Exhibit 10.1 to the Funding Corporation Form S-4) .
10.1 (b) First Amendment to Salton Sea Deed of Trust, Assignment of Rents, Security Agreement
and Fixed Filing, dated as of June 20, 1996, by SSBP, SSPG and Fish Lake to Chicago Title
Company for the use and benefit of Chemical Trust Company of California (incorporated
by reference to Exhibit 10.2 to the Funding Corporation II Form S-4).
10.1 (c) Second Amendment to Salton Sea Deed of Trust, Assignment of Rents, Security
Agreement and Fixed Filing, dated as of October 13, 1998, by SSBP, SSPG and Fish Lake
to Chicago Title Company for the use and benefit of Chemical Trust Company of
California (incorporated by reference to Exhibit 10.1(c) to the Form 10-K/A).
10.2 Collateral Assignment of Southern California Edison Company Agreements, dated as of
July 21, 1995, by SSPG and Fish Lake in favor of Chemical Trust Company of California
(incorporated by reference to Exhibit 10.3 to the Funding Corporation Form S-4).
10.3 Contract for the Purchase and Sale of Electric Power from the Salton Sea Geothermal
Facility, dated May 9, 1987 (the "Unit 1 Power Purchase Agreement"), between Southern
California Edison Company and Earth Energy, Inc. (incorporated by reference to Exhibit
10.4 to the Funding Corporation Form S-4).
10.4 Amendment No. 1 to the Unit 1 Power Purchase Agreement, dated as of March 30, 1993,
between Southern California Edison Company and Earth Energy, Inc. (incorporated by
reference to Exhibit 10.5 to the Funding Corporation Form S-4).
</TABLE>
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10.5 Amendment No. 2 to Unit 1 Power Purchase Agreement, dated November 29, 1994,
between Southern California Edison Company and SSPG (incorporated by reference to
Exhibit 10.6 to the Funding Corporation Form S-4).
10.6 Contract for the Purchase and Sale of Electric Power, dated April 16, 1985 (the "Unit 2
Power Purchase Agreement"), between Southern California Edison Company and
Westmoreland Geothermal Associates (incorporated by reference to Exhibit 10.7 to the
Funding Corporation Form S-4).
10.7 Amendment No. 1 to Unit 2 Power Purchase Agreement, dated as of December 18, 1987,
between Southern California Edison Company and Earth Energy, Inc. (incorporated by
reference to Exhibit 10.8 to the Funding Corporation Form S-4).
10.8 Power Purchase Contract, dated April 16, 1985 (the "Unit 3 Power Purchase Agreement"),
between Southern California Edison Company and Union Oil Company of California
(incorporated by reference to Exhibit 10.9 to the Funding Corporation Form S-4).
10.9 Power Purchase Contract (the "Unit 4 Power Purchase Agreement"), dated November 29,
1994, between Southern California Edison Company, SSPG and Fish Lake (incorporated by
reference to Exhibit 10.10 to the Funding Corporation Form S-4).
10.10 Plant Connection Agreement (Unit 2), dated October 3, 1989, between the Imperial
Irrigation District and Earth Energy, Inc. (incorporated by reference to Exhibit 10.11 to the
Funding Corporation Form S-4).
10.11 Plant Connection Agreement, dated August 2, 1988 (Unit 3), between the Imperial
Irrigation District and Desert Power Company (incorporated by reference to Exhibit 10.12
to the Funding Corporation Form S-4).
10.12 Imperial Irrigation District Funding and Construction Agreements as amended (Units 2
and 3), dated as of June 29, 1987, among the Imperial Irrigation District, Earth Energy,
Inc., Chevron Geothermal Company of California, Geo East Mesa No. 3, Inc., Magma
Power Company, Desert Power Company, Geo East Mesa No. 2, Inc., Heber Geothermal
Company, Ormesa Geothermal, Ormesa Geothermal II, Vulcan/BN Geothermal Power
Company, Union Oil Company of California, Del Ranch L.P., Elmore L.P., Leathers L.P.,
Geo East Mesa Limited Partnership and Imperial Resource Recovery Associates, L.P.
(incorporated by reference to Exhibit 10.13 to the Funding Corporation Form S-4).
10.13 Transmission Service Agreement, dated as of October 3, 1989 (Unit 2), between the
Imperial Irrigation District and Earth Energy, Inc. (incorporated by reference to Exhibit
10.14 to the Funding Corporation Form S-4).
10.14 Transmission Service Agreement, dated as of August 2, 1988 (Unit 3), between the
Imperial Irrigation District and Desert Power Company (incorporated by reference to
Exhibit 10.15 to the Funding Corporation Form S-4).
10.15 Plant Connection Agreement (Unit 4), dated as of July 14, 1995, by and between the
Imperial Irrigation District, SSPG and Fish Lake (incorporated by reference to Exhibit
10.16 to the Funding Corporation Form S-4).
10.16 Letter Agreement, dated February 2, 1995, between Magma Power Company and the
Imperial Irrigation District (incorporated by reference to Exhibit 10.17 to the Funding
Corporation Form S-4).
10.17 Transmission Service Agreement (Unit 4), dated as of July 14, 1995, by and between the
Imperial Irrigation District, SSPG and Fish Lake (incorporated by reference to Exhibit
10.18 to the Funding Corporation Form S-4).
</TABLE>
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10.18 Transmission Line Construction Agreement (Unit 4), dated July 14, 1995, between the
Imperial Irrigation District, SSPG and Fish Lake (incorporated by reference to Exhibit
10.19 to the Funding Corporation Form S-4).
10.19 Funding Agreement, dated June 15, 1988 (Unit 2), between Southern California Edison
Company and Earth Energy, Inc. (incorporated by reference to Exhibit 10.20 to the
Funding Corporation Form S-4).
10.20 Second Amended and Restated Administrative Services Agreement, by and among CEOC,
SSBP, SSPG and Fish Lake, dated as of July 15, 1995 (incorporated by reference to Exhibit
10.21 to the Funding Corporation Form S-4).
10.21 Second Amended and Restated Operating and Maintenance Agreement, dated as of July
15, 1995, by and among Magma Power Company, SSBP, SSPG and Fish Lake (incorporated
by reference to Exhibit 10.22 to the Funding Corporation Form S-4).
10.22 Intentionally Omitted.
10.23 Collateral Assignment of Southern California Edison Company Agreements, dated as of
June 20, 1996, by Vulcan, Elmore, Leathers and Del Ranch in favor of Chemical Trust
Company of California (incorporated by reference to Exhibit 10.23 to the Funding
Corporation II Form S-4).
10.24 Administrative Services Agreement, dated as of June 17, 1996, between CEOC and Vulcan
(incorporated by reference to Exhibit 10.24 to the Funding Corporation II Form S-4).
10.25 Amended and Restated Construction, Operating and Accounting Agreement, dated as of
June 17, 1996, between VPC and Vulcan (incorporated by reference to Exhibit 10.25 to the
Funding Corporation II Form S-4).
10.26 Long Term Power Purchase Contract, dated March 1, 1984, as amended, between SCE and
Vulcan, as successor to Magma Electric Company (incorporated by reference to Exhibit
10.26 to the Funding Corporation II Form S-4).
10.27 Transmission Service Agreement, dated December 1, 1988, between VPC and IID
(incorporated by reference to Exhibit 10.27 to the Funding Corporation II Form S-4).
10.28 Plant Connection Agreement, dated as of December 1, 1988, between VPC and IID
(incorporated by reference to Exhibit 10.28 to the Funding Corporation II Form S-4).
10.29 Amended and Restated Administrative Services Agreement, dated as of June 17, 1996
between CEOC and Elmore (incorporated by reference to Exhibit 10.29 to the Funding
Corporation II Form S-4).
10.30 Amended and Restated Operating and Maintenance Agreement, dated as of June 17, 1996,
between CEOC and Elmore (incorporated by reference to Exhibit 10.30 to the Funding
Corporation II Form S-4).
10.31 Long Term Power Purchase Contract, dated June 15, 1984, as amended, between SCE and
Elmore, as successor to Magma Electric Company (incorporated by reference to Exhibit
10.31 to the Funding Corporation II Form S-4).
10.32 Transmission Service Agreement, dated as of August 2, 1988, as amended, between Elmore
and IID (incorporated by reference to Exhibit 10.32 to the Funding Corporation II Form
S-4).
10.33 Plant Connection Agreement, dated as of August 2, 1988, between Elmore and IID
(incorporated by reference to Exhibit 10.33 to the Funding Corporation II Form S-4).
</TABLE>
II-10
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EXHIBIT NO. DESCRIPTION OF EXHIBIT
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<S> <C>
10.34 Amended and Restated Administrative Services Agreement, dated as of June 17, 1996,
between CEOC and Leathers (incorporated by reference to Exhibit 10.34 to the Funding
Corporation II Form S-4).
10.35 Amended and Restated Operating and Maintenance Agreement, dated as of June 17, 1996,
between CEOC and Leathers (incorporated by reference to Exhibit 10.35 to the Funding
Corporation II Form S-4).
10.36 Long Term Power Purchase Contract, dated August 16, 1985, as amended, between SCE
and Leathers, as successor to Imperial Energy Corporation (incorporated by reference to
Exhibit 10.36 to the Funding Corporation II Form S-4).
10.37 Transmission Service Agreement, dated as of October 3, 1989, as amended, between
Leathers and IID (incorporated by reference to Exhibit 10.37 to the Funding Corporation
II Form S-4).
10.38 Plant Connection Agreement, dated as of October 3, 1989, between Leathers and IID
(incorporated by reference to Exhibit 10.38 to the Funding Corporation II Form S-4).
10.39 Amended and Restated Administrative Services Agreement, dated as of June 17, 1996,
between CEOC and Del Ranch (incorporated by reference to Exhibit 10.39 to the Funding
Corporation II Form S-4).
10.40 Amended and Restated Operating and Maintenance Agreement, dated as of June 17, 1996,
between CEOC and Del Ranch (incorporated by reference to Exhibit 10.40 to the Funding
Corporation II Form S-4).
10.41 Long Term Power Purchase Contract, dated February 22, 1984, as amended, between SCE
and Del Ranch, as successor to Magma (incorporated by reference to Exhibit 10.41 to the
Funding Corporation II Form S-4).
10.42 Transmission Service Agreement, dated as of August 2, 1988, as amended, between Del
Ranch and IID (incorporated by reference to Exhibit 10.42 to the Funding Corporation II
Form S-4).
10.43 Plant Connection Agreement, dated as of August 2, 1988, between Del Ranch and IID
(incorporated by reference to Exhibit 10.43 to the Funding Corporation II Form S-4).
10.44 Funding Agreement, dated May 18, 1990, between SCE and Del Ranch (incorporated by
reference to Exhibit 10.44 to the Funding Corporation II Form S-4).
10.45 Funding Agreement, dated May 18, 1990, between SCE and Elmore (incorporated by
reference to Exhibit 10.45 to the Funding Corporation II Form S-4).
10.46 Funding Agreement, dated June 15, 1990, between SCE and Leathers (incorporated by
reference to Exhibit 10.46 to the Funding Corporation II Form S-4).
10.47 Funding Agreement, dated May 18, 1990, between SCE and Leathers (incorporated by
reference to Exhibit 10.47 to the Funding Corporation II Form S-4).
10.48 Funding Agreement, dated May 18, 1990, between SCE and Vulcan (incorporated by
reference to Exhibit 10.48 to the Funding Corporation II Form S-4).
12.1** Statement regarding computation of Salton Sea Funding Corporation ratio of earnings to
fixed charges.
12.2** Statement regarding computation of Salton Sea Guarantors ratio of earnings to fixed
charges.
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
12.3** Statement regarding computation of Partnership Guarantors ratio of earnings to fixed
charges.
12.4** Statement regarding computation of Royalty Guarantor's ratio of earnings to fixed charges.
15.1* Awareness letter of Deloitte & Touche LLP.
21.1* Subsidiaries of the Registrants.
23.1* Consent of Willkie Farr & Gallagher (included in their opinion filed as Exhibit 5.1).
23.2** Consent of Fluor Daniel, Inc.
23.3** Consent of Henwood Energy Services, Inc.
23.4 Intentionally omitted.
23.5** Consent of Geothermex, Inc.
23.6* Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.2).
23.7* Consent of Lionel Sawyer & Collins (included in their opinion filed as Exhibit 5.3).
23.8** Consent of Resource Strategies International.
23.9* Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (included on signature page).
25.1* Statement on Form T-1 of Eligibility of Trustee.
27. Financial Data Schedule (incorporated by reference to Exhibit 27 to the Funding
Corporation's Form 10-Q dated May 14, 1999).
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Letter to Clients.
99.4* Letter to Securities Dealers, Commercial Banks, Trust Companies and Other Nominees.
</TABLE>
- ----------
* Filed herewith.
** Previously filed.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the provisions described under Item 20 above, or
otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrants of expenses incurred or paid by a director,
officer or controlling person of the Registrants in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrants will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
SALTON SEA FUNDING CORPORATION
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-13
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
SALTON SEA BRINE PROCESSING L.P.
By: Salton Sea Power Company,
as its general partner
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-14
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
SALTON SEA POWER GENERATION L.P.
By: Salton Sea Power Company,
as its general partner
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-15
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
FISH LAKE POWER LLC
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-16
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
VULCAN POWER COMPANY
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-17
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
CALENERGY OPERATING CORPORATION
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-18
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
SALTON SEA ROYALTY LLC
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-19
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
VPC GEOTHERMAL LLC
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-20
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
SAN FELIPE ENERGY COMPANY
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-21
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
CONEJO ENERGY COMPANY
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-22
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
NIGUEL ENERGY COMPANY
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-23
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
VULCAN/BN GEOTHERMAL POWER COMPANY
By: Vulcan Power Company,
its general partner
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-24
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
LEATHERS, L.P.
By: CalEnergy Operating Corporation,
its general partner
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-25
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
DEL RANCH, L.P.
By: CalEnergy Operating Corporation,
its general partner
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-26
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
ELMORE, L.P.
By: CalEnergy Operating Corporation,
its general partner
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-27
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
SALTON SEA POWER L.L.C.
By: CE Salton Sea Inc., its manager
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-28
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
CALENERGY MINERALS LLC
By: Salton Sea Minerals Corporation,
its manager
By: *
-----------------------------
David L. Sokol
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- ----------------------------------------- --------------
<S> <C> <C>
* Director, Chairman of the Board and June 29, 1999
----------------------- Chief Executive Officer
David L. Sokol (Principal Executive Officer)
* Director, President and Chief Operating June 29, 1999
----------------------- Officer
Gregory E. Abel
* Director, Senior Vice President and June 29, 1999
----------------------- Secretary
Steven A. McArthur
* Senior Vice President, Chief Financial June 29, 1999
----------------------- Officer and Chief Accounting Officer
Patrick J. Goodman (Principal Financial Officer and
Principal Accounting Officer)
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-29
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
CE TURBO LLC
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-30
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
CE SALTON SEA INC.
By: *
-----------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- --------------------------------------- --------------
<S> <C> <C>
* President and Chief Executive Officer June 29, 1999
----------------------- (Principal Executive Officer)
Robert S. Silberman
* Vice President and Treasurer June 29, 1999
----------------------- (Principal Financial Officer and
Brian K. Hankel Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and June 29, 1999
----------------------- General Counsel
Douglas L. Anderson
* Director June 29, 1999
-----------------------
Patrick J. Goodman
* Director June 29, 1999
-----------------------
John Harrison
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-31
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Omaha, State of Nebraska, on June 29, 1999.
SALTON SEA MINERALS CORP.
By: *
-----------------------------
David L. Sokol
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, each thereunto duly authorized
in the City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- ----------------------------------------- --------------
<S> <C> <C>
* Director, Chairman of the Board and June 29, 1999
----------------------- Chief Executive Officer
David L. Sokol (Principal Executive Officer)
* Director, President and Chief Operating June 29, 1999
----------------------- Officer
Gregory E. Abel
* Director, Senior Vice President and June 29, 1999
----------------------- Secretary
Steven A. McArthur
* Senior Vice President, Chief Financial June 29, 1999
----------------------- Officer and Chief Accounting Officer
Patrick J. Goodman (Principal Financial Officer and
Principal Accounting Officer)
*By /s/ Douglas L. Anderson
---------------------
Attorney-In-Fact
</TABLE>
II-32
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
3.1 Articles of Incorporation of the Funding Corporation (incorporated by reference to Exhibit
3.1 to the Funding Corporation Registration Statement on Form S-4 dated August 9, 1995,
Reg. No. 33-95538 ("Funding Corporation Form S-4")).
3.2 By-laws of the Funding Corporation (incorporated by reference to Exhibit 3.2 to the
Funding Corporation Form S-4).
3.3 Limited Partnership Agreement of SSBP (incorporated by reference to Exhibit 3.3 to the
Funding Corporation Form S-4).
3.4 Limited Partnership Agreement of SSPG (incorporated by reference to Exhibit 3.4 to the
Funding Corporation Form S-4).
3.5* Certificate of Formation of Fish Lake.
3.6* Limited Liability Company Agreement of Fish Lake.
3.7 Articles of Incorporation of VPC (incorporated by reference to Exhibit 3.7 to the Funding
Corporation Form S-4).
3.8 By-laws of VPC (incorporated by reference to Exhibit 3.8 to the Funding Corporation
Form S-4).
3.9 Articles of Incorporation of CEOC (incorporated by reference to Exhibit 3.9 to the
Funding Corporation Form S-4).
3.10 By-laws of CEOC (incorporated by reference to Exhibit 3.10 to the Funding Corporation
Form S-4).
3.11* Certificate of Formation of the Royalty Guarantor.
3.12* Limited Liability Company Agreement of the Royalty Guarantor.
3.13* Certificate of Formation of VPC Geothermal.
3.14* Limited Liability Company Agreement of VPC Geothermal.
3.15 Articles of Incorporation of San Felipe (incorporated by reference to Exhibit 3.15 to the
Funding Corporation Registration Statement on Form S-4 dated July 2, 1996, Reg. No.
333-07527 ("Funding Corporation II Form S-4")).
3.16 By-laws of San Felipe (incorporated by reference to Exhibit 3.16 to the Funding
Corporation II Form S-4).
3.17 Articles of Incorporation of Conejo (incorporated by reference to Exhibit 3.17 to the
Funding Corporation II Form S-4).
3.18 By-laws of Conejo (incorporated by reference to Exhibit 3.18 to the Funding Corporation
II Form S-4).
3.19 Articles of Incorporation of Niguel (incorporated by reference to Exhibit 3.19 to the
Funding Corporation II Form S-4).
3.20 By-laws of Niguel (incorporated by reference to Exhibit 3.20 to the Funding Corporation II
Form S-4).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
3.21 General Partnership Agreement of Vulcan (incorporated by reference to Exhibit 3.21 to
the Funding Corporation II Form S-4).
3.22 Limited Partnership Agreement of Leathers (incorporated by reference to Exhibit 3.22 to
the Funding Corporation II Form S-4).
3.23 Amended and Restated Limited Partnership Agreement of Del Ranch (incorporated by
reference to Exhibit 3.23 to the Funding Corporation II Form S-4).
3.24 Amended and Restated Limited Partnership Agreement of Elmore (incorporated by
reference to Exhibit 3.24 to the Funding Corporation II Form S-4).
3.25* Certificate of Formation of Minerals LLC.
3.26* Limited Liability Company Agreement of Minerals LLC.
3.27* Certificate of Formation of Turbo LLC.
3.28* Limited Liability Company Agreement of Turbo LLC.
3.29* Articles of Incorporation of CESS.
3.30* By-laws of CESS.
3.31* Articles of Incorporation of SSMC.
3.32* By-laws of SSMC.
3.33* Certificate of Formation of Power LLC
3.34* Limited Liability Company Agreement of Power LLC
4.1 (a) Indenture, dated as of July 21, 1995, between Chemical Trust Company of California and
the Funding Corporation (incorporated by reference to Exhibit 4.1(a) to the Funding
Corporation Form S-4).
4.1 (b) First Supplemental Indenture, dated as of October 18, 1995, between Chemical Trust
Company of California and the Funding Corporation (incorporated by reference to Exhibit
4.1(b) to the Funding Corporation Form S-4).
4.1 (c) Second Supplemental Indenture, dated as of June 20, 1996, between Chemical Trust
Company of California and the Funding Corporation (incorporated by reference to Exhibit
4.1(c) to the Funding Corporation II Form S-4).
4.1 (d) Third Supplemental Indenture, dated as of July 29, 1996 between Chemical Trust Company
of California and the Funding Corporation (incorporated by reference to Exhibit 4.1(d) to
the Funding Corporation II Form S-4).
4.1 (e) Fourth Supplemental Indenture, dated as of October 13, 1998, between Chase Manhattan
Bank and Trust Company, National Association and the Funding Corporation
(incorporated by reference to Exhibit 4.1(e) to the Funding Corporation's Form 10-K/A
dated March 27, 1999 (the "Form 10-K/A")).
4.1 (f)** Fifth Supplemental Indenture, dated as of February 16, 1999, between Chase Manhattan
Bank and Trust Company, National Association and the Funding Corporation.
4.1 (g)* Sixth Supplemental Indenture, dated as of June 29, 1999, between Chase Manhattan Bank
and Trust Company, National Association, and the Funding Corporation.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
4.2 Amended and Restated Salton Sea Secured Guarantee, dated as of July 21, 1995, by SSBP,
SSPG and Fish Lake in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.2 to the Funding Corporation Form S-4).
4.3 Second Amended and Restated Partnership Secured Limited Guarantee, dated as of
October 13, 1998 by CEOC, VPC, Conejo, Niguel, San Felipe, BNG, Del Ranch, Elmore,
Leathers, Vulcan, Minerals LLC and Turbo LLC in favor of Chemical Trust Company of
California (incorporated by reference to Exhibit 4.3(c) to the Form 10-K/A).
4.4 Royalty Guarantor Secured Limited Guarantee, dated as of July 21, 1995, by the Royalty
Guarantor in favor of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.4 to the Funding Corporation Form S-4).
4.5(a) Exchange and Registration Rights Agreement, dated July 21, 1995, by and among CS First
Boston Corporation, Lehman Brothers Inc. and the Funding Corporation (incorporated by
reference to Exhibit 4.5 to the Funding Corporation Form S- 4).
4.5(b) Exchange and Registration Rights Agreement, dated June 20, 1996, by and between CS
First Boston Corporation and the Funding Corporation (incorporated by reference to
Exhibit 4.5 to the Funding Corporation II Form S-4).
4.5(c)** Exchange and Registration Rights Agreement, dated October 13, 1998, by and among CS
First Boston Corporation, Goldman, Sachs & Co. and the Funding Corporation.
4.6(a) Collateral Agency and Intercreditor Agreement, dated as of July 21, 1995, by and among
Credit Suisse, Chemical Trust Company of California, the Funding Corporation and the
Guarantors (incorporated by reference to Exhibit 4.6 to the Funding Corporation Form
S-4).
4.6(b) First Amendment to the Collateral Agency and Intercreditor Agreement, dated as of June
20, 1996, by and among Credit Suisse, Chemical Trust Company of California, the Funding
Corporation and the Guarantors (incorporated by reference to Exhibit 4.6(b) to the
Funding Corporation II Form S-4).
4.6(c) Second Amendment to the Collateral Agency and Intercreditor Agreement, dated as of
October 13, 1998, by and among Credit Suisse, Chemical Trust Company of California, the
Funding Corporation and the Guarantors (incorporated by reference to Exhibit 4.6(c) to
the Form 10-K/A).
4.7 Stock Pledge Agreement, dated as of July 21, 1995, by Magma Power Company in favor of
Chemical Trust Company of California (incorporated by reference to Exhibit 4.7 to the
Funding Corporation Form S-4).
4.8(a) Purchase Agreement, dated July 18, 1995, by and among CS First Boston Corporation,
Lehman Brothers Inc., the Guarantors and the Funding Corporation (incorporated by
reference to Exhibit 4.8 to the Funding Corporation Form S-4).
4.8(b) Purchase Agreement, dated June 17, 1996, by and among CS First Boston Corporation, the
Guarantors and the Funding Corporation (incorporated by reference to Exhibit 4.8 to the
Funding Corporation II Form S-4).
4.8(c) Purchase Agreement, dated October 13, 1998 by and among CS First Boston Corporation,
the Guarantors and the Funding Corporation (incorporated by reference to Exhibit 4.8(c)
to the Form 10-K/A).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
4.9 Support Letter, dated as of July 21, 1995, by and among Magma Power Company, the
Funding Corporation and the Guarantors (incorporated by reference to Exhibit 4.9 to the
Funding Corporation Form S-4).
4.10 Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as of July 21,
1995, by and among the Funding Corporation, certain banks and Credit Suisse, as agent
(incorporated by reference to Exhibit 4.10 to the Funding Corporation Form S-4).
4.10(a) Amendment to Notes and to Amended Debt Service Reserve Letter of Credit and
Reimbursement Agreement, dated October 13, 1998, by and among the Funding
Corporation, certain banks and Credit Suisse, as agent (incorporated by reference to
Exhibit 4.10(a) to the Form 10-K/A).
4.11 Revolving Credit Agreement, dated as of July 21, 1995, by and among Credit Suisse and
the Funding Corporation (incorporated by reference to Exhibit 4.11 to the Funding
Corporation Form S-4).
4.12 Amended and Restated Salton Sea Credit Agreement, dated October 13, 1998, by and
among SSBP, SSPG, Power LLC and Fish Lake (incorporated by reference to Exhibit 4.12
to the Funding Corporation Form S-4).
4.13 Salton Sea Project Note (SSI), dated October 13, 1998, by SSBP, SSPG, Power LLC and
Fish Lake in favor of the Funding Corporation (incorporated by reference to Exhibit
4.13(a) to the Form 10-K/A).
4.13(a) Salton Sea Project Note (SSIII), dated October 13, 1998, by SSBP, SSPG, Power LLC and
Fish Lake in favor of the Funding Corporation (incorporated by reference to Exhibit
4.13(b) to the Form 10-K/A).
4.14 Amended and Restated Deposit and Disbursement Agreement, dated as of October 13,
1998, by and among the Funding Corporation, Chemical Trust Company of California and
the Guarantors (incorporated by reference to Exhibit 4.14(c) to the Form 10-K/A).
4.15 Partnership Interest Pledge Agreement, dated as of July 21, 1995, by Magma Power
Company and Salton Sea Power Company in favor of Chemical Trust Company of
California (incorporated by reference to Exhibit 4.15 to the Funding Corporation Form
S-4).
4.16 Partnership Interest Pledge Agreement, dated as of July 21, 1995, by SSBP and Salton Sea
Power Company in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.16 to the Funding Corporation Form S-4).
4.17 Stock Pledge Agreement (pledge of Stock of Fish Lake by Magma Power Company and
the Funding Corporation), dated as of July 21, 1995, by Magma Power Company and the
Funding Corporation in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.17 to the Funding Corporation Form S-4).
4.18 Intentionally Omitted.
4.19 Second Amended and Restated Partnership Guarantors Credit Agreement, dated October
13, 1998, by and among the Partnership Guarantors and the Funding Corporation
(incorporated by reference to Exhibit 4.19(c) to the Form 10-K/A).
4.20 Partnership Guarantors Security Agreement and Assignment of Rights, dated as of July 21,
1995, by CEOC and VPC in favor of Chemical Trust Company of California (incorporated
by reference to Exhibit 4.20 to the Funding Corporation Form S-4).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
4.21 Stock Pledge Agreement (pledge of Stock of CEOC by Magma Power Company and the
Funding Corporation), dated as of July 21, 1995, by Magma Power Company and Funding
Corporation in favor of Chemical Trust Company of California (incorporated by reference
to Exhibit 4.21 to the Funding Corporation Form S-4).
4.22 Stock Pledge Agreement (pledge of Stock of VPC by Magma Power Company and the
Funding Corporation), dated as of July 21, 1995, by Magma Power Company and the
Funding Corporation in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.22 to the Funding Corporation Form S-4).
4.23 Royalty Guarantor Credit Agreement, among the Royalty Guarantor and the Funding
Corporation, dated as of July 21, 1995 (incorporated by reference to Exhibit 4.23 to the
Funding Corporation Form S-4).
4.24 Royalty Project Note, dated as of July 21, 1995, by the Royalty Guarantor in favor of the
Funding Corporation (incorporated by reference to Exhibit 4.24 to the Funding
Corporation Form S-4).
4.25 Royalty Security Agreement and Assignment of Revenues, dated as of July 21, 1995, by the
Royalty Guarantor in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.25 to the Funding Corporation Form S-4).
4.26 Royalty Deed of Trust, dated as of July 21, 1995, by the Royalty Guarantor to Chicago
Title Company for the use and benefit of Chemical Trust Company of California
(incorporated by reference to Exhibit 4.26 to the Funding Corporation Form S-4).
4.27 Stock Pledge Agreement (pledge of Stock of Royalty Guarantor by Magma Power
Company and the Funding Corporation), dated as of July 21, 1995, by Magma Power
Company and the Funding Corporation in favor of Chemical Trust Company of California
(incorporated by reference to Exhibit 4.27 to the Funding Corporation Form S-4).
4.28 Collateral Assignment of the Imperial Irrigation District Agreements, dated as of July 21,
1995, by SSBP, SSPG and Fish Lake in favor of Chemical Trust Company of California
(incorporated by reference to Exhibit 4.28 to the Funding Corporation Form S-4).
4.29 Collateral Assignments of Certain Salton Sea Agreements, dated as of July 21, 1995, by
SSBP, SSPG and Fish Lake in favor of Chemical Trust Company of California
(incorporated by reference to Exhibit 4.29 to the Funding Corporation Form S-4).
4.30 Debt Service Reserve Letter of Credit by Credit Suisse in favor of Chemical Trust
Company of California (incorporated by reference to Exhibit 4.30 to the Funding
Corporation Form S-4).
4.31 Partnership Project Note (SSI), dated October 13, 1998, by VPC, CEOC, Conejo, San
Felipe, Niguel, VPC Geothermal, Del Ranch, Elmore, Leathers, Vulcan, Turbo LLC and
Minerals LLC in favor of the Funding Corporation (incorporated by reference to Exhibit
4.31(a) to the Form 10-K/A).
4.31(a) Partnership Project Note (SSII), dated October 13, 1998, by VPC, CEOC, Conejo, San
Felipe, Niguel, VPC Geothermal, Del Ranch, Elmore, Leathers, Vulcan, Turbo LLC and
Minerals LLC in favor of the Funding Corporation (incorporated by reference to Exhibit
4.31(b) to the Form 10-K/A).
4.31(b) Partnership Project Note (SSIII), dated October 13, 1998, by VPC, CEOC, Conejo, San
Felipe, Niguel, VPC Geothermal, Del Ranch, Elmore, Leathers, Vulcan, Turbo LLC and
Minerals LLC in favor of the Funding Corporation (incorporated by reference to Exhibit
4.31(c) to the Form 10-K/A).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
4.32 Collateral Assignment of the Imperial Irrigation District Agreements, dated as of June 20,
1996, by Vulcan, Elmore, Leathers, VPC and Del Ranch in favor of Chemical Trust
Company of California (incorporated by reference to Exhibit 4.29 to the Funding
Corporation II Form S-4).
4.33 Collateral Assignments of Certain Partnership Agreements, dated as of June 20, 1996, by
Vulcan Elmore, Leathers and Del Ranch in favor of Chemical Trust Company of California
(incorporated by reference to Exhibit 4.31 to the Funding Corporation II Form S-4).
4.34 Debt Service Reserve Letter of Credit by Credit Suisse in favor of Chemical Trust
Company of California (incorporated by reference to Exhibit 4.32 to the Funding
Corporation II Form S-4).
4.35 Intentionally Omitted.
4.36 Intentionally Omitted.
4.37 Deed of Trust, dated as of June 20, 1996, by Vulcan to Chicago Title Company for the use
and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit
4.35 to the Funding Corporation II Form S-4).
4.37(a) First Amendment to Deed of Trust, dated October 13, 1998 by Vulcan to Chicago Title
Company for the use and benefit of Chemical Trust Company of California (incorporated
by reference to Exhibit 4.37(a) to the Form 10-K/A).
4.38 Deed of Trust, dated as of June 20, 1996, by Elmore to Chicago Title Company for the use
and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit
4.36 to the Funding Corporation II Form S-4).
4.38(a) First Amendment to Deed of Trust, dated October 13, 1998, by Elmore to Chicago Title
Company for the use and benefit of Chemical Trust Company of California (incorporated
by reference to Exhibit 4.38(a) to the Form 10-K/A).
4.39 Deed of Trust, dated as of June 20, 1996, by Leathers to Chicago Title Company for the
use and benefit of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.37 to the Funding Corporation II Form S-4).
4.39(a) First Amendment to Deed of Trust, dated October 13, 1998, by Leathers to Chicago Title
Company for the use and benefit of Chemical Trust Company of California (incorporated
by reference to Exhibit 4.39(a) to the Form 10-K/A).
4.40 Deed of Trust, dated as of June 20, 1996, by Del Ranch to Chicago Title Company for the
use and benefit of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.38 to the Funding Corporation II Form S-4).
4.40(a) First Amendment to Deed of Trust, dated October 13, 1998, by Del Ranch to Chicago Title
Company for the use and benefit of Chemical Trust Company of California (incorporated
by reference to Exhibit 4.40(a) to the Form 10-K/A).
4.41 Stock Pledge Agreement, Dated as of June 20, 1996, by CEOC, pledging the stock of
Conejo, Niguel and San Felipe in favor of Chemical Trust Company of California for the
benefit of the Secured Parties and the Funding Corporation (incorporated by reference to
Exhibit 4.39 to the Funding Corporation II Form S-4).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
4.42 Stock Pledge Agreement, dated as of June 20, 1996, by VPC, pledging the stock of BNG in
favor of Chemical Trust Company of California for the benefit of the Secured Parties and
the Funding Corporation (incorporated by reference to Exhibit 4.40 to the Funding
Corporation II Form S-4).
4.43 Partnership Interest Pledge Agreement, dated as of June 20, 1996, by VPC and BNG,
pledging the partnership interests in Vulcan in favor of Chemical Trust Company of
California for the benefit of the Secured Parties and the Funding Corporation
(incorporated by reference to Exhibit 4.41 to the Funding Corporation II Form S-4).
4.44 Partnership Interest Pledge Agreement, dated as of June 20, 1996, by Magma, CEOC and
each of Conejo, Niguel, San Felipe, respectively, pledging the partnership interests in Del
Ranch, Elmore and Leathers, respectively, in favor of Chemical Trust Company of
California for the benefit of the Secured Parties and the Funding Corporation
(incorporated by reference to Exhibit 4.42 to the Funding Corporation II Form S-4).
4.45 Agreement regarding Security Documents, dated as of June 20, 1996, by and among the
Initial Guarantors, Magma, Sspc, the Funding Corporation and Chemical Trust Company of
California (incorporated by reference to Exhibit 4.45 to the Funding Corporation II Form
S-4).
5.1* Opinion of Willkie Farr & Gallagher.
5.2* Opinion of Latham & Watkins.
5.3* Opinion of Lionel Sawyer & Collins.
10.1 (a) Salton Sea Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing,
dated as of July 21, 1995, by SSBP, SSPG and Fish Lake to Chicago Title Company for the
use and benefit of Chemical Trust Company of California (incorporated by reference to
Exhibit 10.1 to the Funding Corporation Form S-4) .
10.1 (b) First Amendment to Salton Sea Deed of Trust, Assignment of Rents, Security Agreement
and Fixed Filing, dated as of June 20, 1996, by SSBP, SSPG and Fish Lake to Chicago Title
Company for the use and benefit of Chemical Trust Company of California (incorporated
by reference to Exhibit 10.2 to the Funding Corporation II Form S-4).
10.1 (c) Second Amendment to Salton Sea Deed of Trust, Assignment of Rents, Security
Agreement and Fixed Filing, dated as of October 13, 1998, by SSBP, SSPG and Fish Lake
to Chicago Title Company for the use and benefit of Chemical Trust Company of
California (incorporated by reference to Exhibit 10.1(c) to the Form 10-K/A).
10.2 Collateral Assignment of Southern California Edison Company Agreements, dated as of
July 21, 1995, by SSPG and Fish Lake in favor of Chemical Trust Company of California
(incorporated by reference to Exhibit 10.3 to the Funding Corporation Form S-4).
10.3 Contract for the Purchase and Sale of Electric Power from the Salton Sea Geothermal
Facility, dated May 9, 1987 (the "Unit 1 Power Purchase Agreement"), between Southern
California Edison Company and Earth Energy, Inc. (incorporated by reference to Exhibit
10.4 to the Funding Corporation Form S-4).
10.4 Amendment No. 1 to the Unit 1 Power Purchase Agreement, dated as of March 30, 1993,
between Southern California Edison Company and Earth Energy, Inc. (incorporated by
reference to Exhibit 10.5 to the Funding Corporation Form S-4).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
10.5 Amendment No. 2 to Unit 1 Power Purchase Agreement, dated November 29, 1994,
between Southern California Edison Company and SSPG (incorporated by reference to
Exhibit 10.6 to the Funding Corporation Form S-4).
10.6 Contract for the Purchase and Sale of Electric Power, dated April 16, 1985 (the "Unit 2
Power Purchase Agreement"), between Southern California Edison Company and
Westmoreland Geothermal Associates (incorporated by reference to Exhibit 10.7 to the
Funding Corporation Form S-4).
10.7 Amendment No. 1 to Unit 2 Power Purchase Agreement, dated as of December 18, 1987,
between Southern California Edison Company and Earth Energy, Inc. (incorporated by
reference to Exhibit 10.8 to the Funding Corporation Form S-4).
10.8 Power Purchase Contract, dated April 16, 1985 (the "Unit 3 Power Purchase Agreement"),
between Southern California Edison Company and Union Oil Company of California
(incorporated by reference to Exhibit 10.9 to the Funding Corporation Form S-4).
10.9 Power Purchase Contract (the "Unit 4 Power Purchase Agreement"), dated November 29,
1994, between Southern California Edison Company, SSPG and Fish Lake (incorporated by
reference to Exhibit 10.10 to the Funding Corporation Form S-4).
10.10 Plant Connection Agreement (Unit 2), dated October 3, 1989, between the Imperial
Irrigation District and Earth Energy, Inc. (incorporated by reference to Exhibit 10.11 to the
Funding Corporation Form S-4).
10.11 Plant Connection Agreement, dated August 2, 1988 (Unit 3), between the Imperial
Irrigation District and Desert Power Company (incorporated by reference to Exhibit 10.12
to the Funding Corporation Form S-4).
10.12 Imperial Irrigation District Funding and Construction Agreements as amended (Units 2
and 3), dated as of June 29, 1987, among the Imperial Irrigation District, Earth Energy,
Inc., Chevron Geothermal Company of California, Geo East Mesa No. 3, Inc., Magma
Power Company, Desert Power Company, Geo East Mesa No. 2, Inc., Heber Geothermal
Company, Ormesa Geothermal, Ormesa Geothermal II, Vulcan/BN Geothermal Power
Company, Union Oil Company of California, Del Ranch L.P., Elmore L.P., Leathers L.P.,
Geo East Mesa Limited Partnership and Imperial Resource Recovery Associates, L.P.
(incorporated by reference to Exhibit 10.13 to the Funding Corporation Form S-4).
10.13 Transmission Service Agreement, dated as of October 3, 1989 (Unit 2), between the
Imperial Irrigation District and Earth Energy, Inc. (incorporated by reference to Exhibit
10.14 to the Funding Corporation Form S-4).
10.14 Transmission Service Agreement, dated as of August 2, 1988 (Unit 3), between the
Imperial Irrigation District and Desert Power Company (incorporated by reference to
Exhibit 10.15 to the Funding Corporation Form S-4).
10.15 Plant Connection Agreement (Unit 4), dated as of July 14, 1995, by and between the
Imperial Irrigation District, SSPG and Fish Lake (incorporated by reference to Exhibit
10.16 to the Funding Corporation Form S-4).
10.16 Letter Agreement, dated February 2, 1995, between Magma Power Company and the
Imperial Irrigation District (incorporated by reference to Exhibit 10.17 to the Funding
Corporation Form S-4).
10.17 Transmission Service Agreement (Unit 4), dated as of July 14, 1995, by and between the
Imperial Irrigation District, SSPG and Fish Lake (incorporated by reference to Exhibit
10.18 to the Funding Corporation Form S-4).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
10.18 Transmission Line Construction Agreement (Unit 4), dated July 14, 1995, between the
Imperial Irrigation District, SSPG and Fish Lake (incorporated by reference to Exhibit
10.19 to the Funding Corporation Form S-4).
10.19 Funding Agreement, dated June 15, 1988 (Unit 2), between Southern California Edison
Company and Earth Energy, Inc. (incorporated by reference to Exhibit 10.20 to the
Funding Corporation Form S-4).
10.20 Second Amended and Restated Administrative Services Agreement, by and among CEOC,
SSBP, SSPG and Fish Lake, dated as of July 15, 1995 (incorporated by reference to Exhibit
10.21 to the Funding Corporation Form S-4).
10.21 Second Amended and Restated Operating and Maintenance Agreement, dated as of July
15, 1995, by and among Magma Power Company, SSBP, SSPG and Fish Lake (incorporated
by reference to Exhibit 10.22 to the Funding Corporation Form S-4).
10.22 Intentionally Omitted.
10.23 Collateral Assignment of Southern California Edison Company Agreements, dated as of
June 20, 1996, by Vulcan, Elmore, Leathers and Del Ranch in favor of Chemical Trust
Company of California (incorporated by reference to Exhibit 10.23 to the Funding
Corporation II Form S-4).
10.24 Administrative Services Agreement, dated as of June 17, 1996, between CEOC and Vulcan
(incorporated by reference to Exhibit 10.24 to the Funding Corporation II Form S-4).
10.25 Amended and Restated Construction, Operating and Accounting Agreement, dated as of
June 17, 1996, between VPC and Vulcan (incorporated by reference to Exhibit 10.25 to the
Funding Corporation II Form S-4).
10.26 Long Term Power Purchase Contract, dated March 1, 1984, as amended, between SCE and
Vulcan, as successor to Magma Electric Company (incorporated by reference to Exhibit
10.26 to the Funding Corporation II Form S-4).
10.27 Transmission Service Agreement, dated December 1, 1988, between VPC and IID
(incorporated by reference to Exhibit 10.27 to the Funding Corporation II Form S-4).
10.28 Plant Connection Agreement, dated as of December 1, 1988, between VPC and IID
(incorporated by reference to Exhibit 10.28 to the Funding Corporation II Form S-4).
10.29 Amended and Restated Administrative Services Agreement, dated as of June 17, 1996
between CEOC and Elmore (incorporated by reference to Exhibit 10.29 to the Funding
Corporation II Form S-4).
10.30 Amended and Restated Operating and Maintenance Agreement, dated as of June 17, 1996,
between CEOC and Elmore (incorporated by reference to Exhibit 10.30 to the Funding
Corporation II Form S-4).
10.31 Long Term Power Purchase Contract, dated June 15, 1984, as amended, between SCE and
Elmore, as successor to Magma Electric Company (incorporated by reference to Exhibit
10.31 to the Funding Corporation II Form S-4).
10.32 Transmission Service Agreement, dated as of August 2, 1988, as amended, between Elmore
and IID (incorporated by reference to Exhibit 10.32 to the Funding Corporation II Form
S-4).
10.33 Plant Connection Agreement, dated as of August 2, 1988, between Elmore and IID
(incorporated by reference to Exhibit 10.33 to the Funding Corporation II Form S-4).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
10.34 Amended and Restated Administrative Services Agreement, dated as of June 17, 1996,
between CEOC and Leathers (incorporated by reference to Exhibit 10.34 to the Funding
Corporation II Form S-4).
10.35 Amended and Restated Operating and Maintenance Agreement, dated as of June 17, 1996,
between CEOC and Leathers (incorporated by reference to Exhibit 10.35 to the Funding
Corporation II Form S-4).
10.36 Long Term Power Purchase Contract, dated August 16, 1985, as amended, between SCE
and Leathers, as successor to Imperial Energy Corporation (incorporated by reference to
Exhibit 10.36 to the Funding Corporation II Form S-4).
10.37 Transmission Service Agreement, dated as of October 3, 1989, as amended, between
Leathers and IID (incorporated by reference to Exhibit 10.37 to the Funding Corporation
II Form S-4).
10.38 Plant Connection Agreement, dated as of October 3, 1989, between Leathers and IID
(incorporated by reference to Exhibit 10.38 to the Funding Corporation II Form S-4).
10.39 Amended and Restated Administrative Services Agreement, dated as of June 17, 1996,
between CEOC and Del Ranch (incorporated by reference to Exhibit 10.39 to the Funding
Corporation II Form S-4).
10.40 Amended and Restated Operating and Maintenance Agreement, dated as of June 17, 1996,
between CEOC and Del Ranch (incorporated by reference to Exhibit 10.40 to the Funding
Corporation II Form S-4).
10.41 Long Term Power Purchase Contract, dated February 22, 1984, as amended, between SCE
and Del Ranch, as successor to Magma (incorporated by reference to Exhibit 10.41 to the
Funding Corporation II Form S-4).
10.42 Transmission Service Agreement, dated as of August 2, 1988, as amended, between Del
Ranch and IID (incorporated by reference to Exhibit 10.42 to the Funding Corporation II
Form S-4).
10.43 Plant Connection Agreement, dated as of August 2, 1988, between Del Ranch and IID
(incorporated by reference to Exhibit 10.43 to the Funding Corporation II Form S-4).
10.44 Funding Agreement, dated May 18, 1990, between SCE and Del Ranch (incorporated by
reference to Exhibit 10.44 to the Funding Corporation II Form S-4).
10.45 Funding Agreement, dated May 18, 1990, between SCE and Elmore (incorporated by
reference to Exhibit 10.45 to the Funding Corporation II Form S-4).
10.46 Funding Agreement, dated June 15, 1990, between SCE and Leathers (incorporated by
reference to Exhibit 10.46 to the Funding Corporation II Form S-4).
10.47 Funding Agreement, dated May 18, 1990, between SCE and Leathers (incorporated by
reference to Exhibit 10.47 to the Funding Corporation II Form S-4).
10.48 Funding Agreement, dated May 18, 1990, between SCE and Vulcan (incorporated by
reference to Exhibit 10.48 to the Funding Corporation II Form S-4).
12.1** Statement regarding computation of Salton Sea Funding Corporation ratio of earnings to
fixed charges.
12.2** Statement regarding computation of Salton Sea Guarantors ratio of earnings to fixed
charges.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
12.3** Statement regarding computation of Partnership Guarantors ratio of earnings to fixed
charges.
12.4** Statement regarding computation of Royalty Guarantor's ratio of earnings to fixed charges.
15.1* Awareness letter of Deloitte & Touche LLP.
21.1* Subsidiaries of the Registrants.
23.1* Consent of Willkie Farr & Gallagher (included in their opinion filed as Exhibit 5.1).
23.2** Consent of Fluor Daniel, Inc.
23.3** Consent of Henwood Energy Services, Inc.
23.4 Intentionally omitted.
23.5** Consent of Geothermex, Inc.
23.6* Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.2).
23.7* Consent of Lionel Sawyer & Collins (included in their opinion filed as Exhibit 5.3).
23.8** Consent of Resource Strategies International.
23.9* Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (included on signature page).
25.1* Statement on Form T-1 of Eligibility of Trustee.
27. Financial Data Schedule (incorporated by reference to Exhibit 27 to the Funding
Corporation's Form 10-Q dated May 14, 1999).
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Letter to Clients.
99.4* Letter to Securities Dealers, Commercial Banks, Trust Companies and Other Nominees.
</TABLE>
- ----------
* Filed herewith.
** Previously filed.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the provisions described under Item 20 above, or
otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrants of expenses incurred or paid by a director,
officer or controlling person of the Registrants in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrants will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
CERTIFICATE OF FORMATION
OF
FISH LAKE POWER LLC
This Certificate of Formation of Fish Lake Power LLC (the "LLC"), dated
as of February 19, 1999, is being duly executed and filed by an authorized
person to form a limited liability company under the Delaware Limited Liability
Company Act (6 Del. C. Section 18-101, et seq.).
FIRST. The name of the limited liability company formed hereby is Fish
Lake Power LLC.
SECOND. The address of the registered office of the LLC in the State of
Delaware is c/o The Corporation Trust Company, Corporation Trust Center, 1209
Orange Street, Wilmington, Delaware 19801.
THIRD. The name and address of the registered agent for service of
process on the LLC in the State of Delaware are The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation as of the date first above written.
By: /s/ Douglas L. Anderson
---------------------------
Name: Douglas L. Anderson
Title: Assistant Secretary
<PAGE>
2.6
LIMITED LIABILITY COMPANY AGREEMENT
OF
FISH LAKE POWER LLC,
A DELAWARE LIMITED LIABILITY COMPANY
This LIMITED LIABILITY COMPANY AGREEMENT (as amended from time to time
in accordance with its terms, this "Agreement") for Fish Lake Power LLC (the
"Company"), by and between Salton Sea Funding Corporation, a Delaware
corporation ("Salton Sea"), and Magma Power Company, a Nevada corporation
("Magma," and jointly with any other Person admitted to the Company as a member
in accordance with this Agreement, the "Members," with each being referred to,
individually, as a "Member"), is made effective as of February 19, 1999.
ARTICLE 1
ORGANIZATIONAL MATTERS
1.1 FORMATION.
1.1.1. Act. The Members hereby form the Company as a limited
liability company under the Delaware Limited Liability Company Act (6 Del. C.
Section 18-101, et seq.), as amended from time to time (the "Act") and agree
that the rights and liabilities of the Members shall be as provided in the Act,
except as otherwise expressly provided herein. Salton Sea and Magma are hereby
admitted to the Company as members of the Company. In the event of any
inconsistency between any terms and conditions contained in this Agreement and
any non-mandatory provisions of the Act, the terms and conditions contained in
this Agreement shall govern. The Company shall commence on the date that the
Certificate of Formation is initially filed with the office of the Secretary of
State of the State of Delaware, and shall continue without dissolution until
dissolved in accordance with Section 2.13.
1.1.2. Name. The name of the Company shall be Fish Lake Power LLC.
The Company may also conduct business at the same time under one or more
fictitious names if the Board of Directors determines that such is in the best
interests of the Company. Without the need for the consent of any Member, the
Board of Directors may change the name of the Company, from time to time, and it
shall file or cause to be filed an appropriate amendment to the Certificate of
Formation of the Company, as amended or restated from time to time (the
"Certificate of Formation").
1.1.3. Place of Business; Registered Office and Agent. The
principal place of business of the Company shall be located at 302 South 36th
Street, Suite 400-B, Omaha, Nebraska 68131, or such other place within or
outside the State of
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<PAGE>
Delaware as the Board of Directors may from time to time designate by notice to
the Members. The Company may maintain offices and places of business at such
other place or places within or outside the State of Delaware as the Board of
Directors deems advisable. The Company shall continuously maintain a registered
office and a designated and duly qualified agent for service of process on the
Company in the State of Delaware. The address of the current registered office
and of the current registered agent for service of process is c/o The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware, 19801.
1.1.4 Definitions. When used in this Agreement, capitalized terms not
otherwise defined herein have the meanings set forth on Schedule A attached
hereto.
1.2 BUSINESS PURPOSE. The Company has been formed and is authorized to
engage in any and all lawful business, purpose, or activity in which a limited
liability company may be engaged under applicable law (including, without
limitation, the Act), as the Board of Directors may determine, including,
without limitation, developing, owning, operating and disposing of power
production facilities and related activities.
1.3 REQUIRED FILINGS. Each Officer, acting singly or jointly, is hereby
designated as an authorized person, within the meaning of the Act, to execute,
deliver and file all certificates (and any amendments and/or restatements
thereof) required or permitted by the Act to be filed in the office of the
Secretary of State of the State of Delaware. Each Officer, acting singly or
jointly, shall also execute, deliver and file any other certificates (and any
amendments and/or restatements thereof) necessary for the Company to qualify to
do business in a jurisdiction in which the Company may wish to conduct business.
Each Officer, acting singly or jointly, shall cause a Certificate of Formation
to be executed and filed in the office of the Secretary of State of the State of
Delaware as required by the Act. Each Officer, acting singly or jointly, may
execute and file any duly authorized amendments or restatements to the
Certificate of Formation from time to time in a form prescribed by the Act. Each
Officer, acting singly or jointly, shall also cause to be made, on behalf of the
Company, such additional filings and recordings as the Board of Directors shall
deem necessary or advisable. Following the execution of this Agreement,
fictitious business name statements shall be filed and published when and if the
Board of Directors determines it to be necessary or advisable. Any such
statement shall be renewed as required by applicable law.
1.4 PERCENTAGE INTERESTS AND INITIAL CAPITAL CONTRIBUTIONS. The Members
shall make the following initial capital contributions to the Company on a date
as directed by the Board of Directors and shall have the following percentage
interests in the Company's distributions, profits and losses ("Percentage
Interests"):
<TABLE>
<CAPTION>
Member Initial Capital Contribution Percentage Interest
------ ---------------------------- -------------------
<S> <C> <C>
Salton Sea Funding Corporation $ 1.00 1%
Magma Power Company $99.00 99%
</TABLE>
1.5 ADDITIONAL CAPITAL CONTRIBUTIONS. No Member has the right or
obligation to make any additional capital contributions to the Company. If the
Board of Directors determines, at any time and from time to time, that the
Company requires additional capital for its business
2
<PAGE>
and operations, the Board of Directors, with the approval of a Supermajority in
Interest of the Members, may deliver a notice (an "Additional Capital
Requirement Notice") to the Members specifying the additional amount of capital
so determined to be required from each Member. Promptly upon receipt of an
Additional Capital Requirement Notice, a Member shall make such additional
capital contribution. In the event any Member does not contribute the entire
amount required to be contributed by such Member, the shortfall may be loaned to
the Company by one or more of the other Members on terms approved by the Board
of Directors (which loans shall be considered permitted Member loans).
1.6 DISTRIBUTIONS. Distributions shall be made to the Members at the
time and in the aggregate amounts determined by the Board of Directors.
Notwithstanding any provision to the contrary contained in this Agreement, the
Company shall not make a distribution to a Member on account of its interest in
the Company if such distribution would violate Sections 18-607 or 18-804 of the
Act or other applicable law.
1.7 ASSIGNMENTS. A Member may assign in whole or in part its limited
liability company interest in the Company. The transferee shall be admitted to
the Company as a member of the Company upon its execution of an instrument
signifying its agreement to be bound by the terms and conditions of this
Agreement, which instrument may be a counterpart signature page to this
Agreement. Such admission shall be deemed effective immediately prior to the
transfer, and, immediately following such admission in the case of a transferor
Member transferring its entire limited liability company interest in the
Company, the transferor Member shall cease to be a member of the Company.
Notwithstanding anything in this Agreement to the contrary, any successor to a
Member by merger, conversion or consolidation with the Member as a constituent
party in compliance with this Agreement shall, without further act, be a Member
hereunder, and such merger, conversion or consolidation shall not constitute an
assignment for purposes of this Agreement.
1.8. ADMISSION OF ADDITIONAL MEMBERS. Except as permitted by Section
1.7, one or more additional members of the Company may be admitted to the
Company only with the written consent of all of the Members.
1.9 RESIGNATION. A Member may resign from the Company if it obtains the
written consent of all other Members.
1.10 UCC. The limited liability company interests in the Company are
not securities governed by Article 8 of the Uniform Commercial Code, as in
effect in any state.
1.11 BUSINESS VENTURES. A Member or a Director, or any affiliate
thereof, may engage in or possess an interest in other business ventures of any
nature or description, independently or with others, similar or dissimilar to
the business of the Company, and the Company shall have no rights by virtue of
this Agreement in and to such independent ventures or the income or profits
derived therefrom, and the pursuit of any such venture, even if competitive with
the business of the Company, shall not be deemed wrongful or improper. A Member
or a Director, or any affiliate thereof, shall not be obligated to present any
particular investment opportunity to the Company even if such opportunity is of
a character that, if presented to the Company, could be taken by the Company,
and
3
<PAGE>
such Member or Director, or any affiliate thereof, shall have the right to take
for its own account (individually or as a partner or fiduciary) or to recommend
to others any such particular investment opportunity.
ARTICLE 2
OPERATIONS
2.1 MANAGEMENT. The business and affairs of the Company shall be
managed exclusively by or under the direction of a board of one or more
directors (the "Board of Directors"). Each director of the Company (a
"Director") is not a "manager" (within the meaning of the Act) of the Company.
Each Director appointed shall hold office until a successor is appointed and
qualified in accordance with Section 2.10. The Members may, from time to time as
they deem advisable, appoint additional Directors by the affirmative vote of a
Supermajority in Interest of the Members.
The Members hereby appoint the following persons as Directors:
David L. Sokol
Gregory E. Abel
Steven A. McArthur
Craig M. Hammett
2.2 MEETINGS OF THE BOARD OF DIRECTORS. The Board of Directors shall
hold annual meetings at such time and at such place as shall be designated by
the President and stated in the notice of the meeting. Notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
Director not less than ten (10) days before the date of such annual meeting,
either personally, by telephone, by mail, by telegram or by any other means of
communication. Special meetings of the Board of Directors may be called by the
President on three (3) days' notice to each Director, either personally, by
telephone, by mail, by telegram or by any other means of communication; special
meetings shall be called by the President or Secretary in like manner and on
like notice on the written request of one or more of the Directors.
2.3 QUORUM AND ACTS OF THE BOARD OF DIRECTORS. At all meetings of the
Board of Directors a majority of the Directors shall constitute a quorum for the
transaction of business and the act of a majority of the Directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by this Agreement.
If a quorum shall not be present at any meeting of the Board of Directors, the
Directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Any action required or permitted to be taken at any meeting of the Board of
Directors may be taken without a meeting, if all members of the Board of
Directors consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board of Directors.
2.4 ELECTRONIC COMMUNICATIONS. Directors may participate in a meeting
of the Board of Directors by means of conference telephone or similar
communications equipment by means of
4
<PAGE>
which all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
2.5. COMPENSATION OF DIRECTORS; EXPENSES OF BOARD OF DIRECTORS. The
Board of Directors shall have the authority to fix the compensation of
Directors. The Directors may be paid their expenses, if any, of attendance at
such meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as a
Director. No such payment shall preclude any Director from serving the Company
in any other capacity and receiving compensation therefor. The Board of
Directors shall be entitled to reimbursement from the Company for all costs and
expenses (including allocable overhead, fees paid to outside consultants,
on-site personnel hired by the Board of Directors and others who are not
salaried employees of the Company at the time of the performance of such
services) incurred by it for or on behalf of the Company. No Member shall be
entitled to any compensation for its services to the Company or in the conduct
of the business of the Company.
2.6 OFFICERS. The officers of the Company (the "Officers") shall be
chosen by the Members or the Board of Directors and shall include a President,
Vice President, Secretary, and Treasurer. The Members or the Board of Directors
may also choose additional Vice Presidents and one or more Assistant Secretaries
and Assistant Treasurers. Any number of offices may be held by the same person.
2.6.1 Additional Officers. The Members or the Board of Directors at
its annual meetings may appoint such other Officers and agents as they or it
shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors.
2.6.2 Compensation of Officers. The salaries of all Officers and
agents of the Company shall be fixed from time to time by the Board of
Directors. No Officer shall be prevented from receiving such salary by reason of
the fact that he is also a Director of the Company.
2.6.3 Removal of Officers; Vacancies. The Officers of the Company
shall hold office until their successors are chosen and qualified. Any Officer
elected or appointed by the Members or the Board of Directors may be removed at
any time by the Chairman of the Board or the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the Company shall
be filled by the Board of Directors.
2.6.4 Initial Officers. The initial Officers are as follows:
David L. Sokol Chairman and Chief Executive Officer
Gregory E. Abel President and Chief Operating Officer
Steven A. McArthur Executive Vice President, General Counsel and Secretary
Craig M. Hammett Senior Vice President and Chief Financial Officer
Robert S. Silberman Senior Vice President, Administration
Douglas L. Anderson Assistant General Counsel and Assistant Secretary
James A. Flores Vice President, Project Finance
Patrick J. Goodman Vice President and Chief Accounting Officer
5
<PAGE>
Brian K. Hankel Vice President and Treasurer
Stephen A. Amdor Assistant Treasurer
Jonathan M. Weisgall Vice President, Legislative & Regulatory Affairs
2.6.5 The Chairman of the Board. The Chairman of the Board shall be
the Chief Executive Officer and shall have general and active supervision and
direction over the management of the Company's business and over the President
and Chief Operating Officer and all of the Company's other Officers, agents and
employees. The Chairman of the Board shall, if present, preside at each meeting
of the Members and of the Board of Directors and shall be an ex officio member
of any and all committees of the Board of Directors. The Chairman of the Board
shall perform all duties incident to the office of Chairman of the Board and
such other duties as may from time to time be assigned to him by the Board of
Directors or the Members. The Chairman of the Board shall execute bonds,
mortgages and other contracts requiring a seal, under a seal of the Company,
except where required or permitted by law to be otherwise signed and executed
and except where the signing and execution thereof shall be expressly delegated
by the Board of Directors or the Members to some other Officer or agent of the
Company.
2.6.6 The President. The President, in consultation with and
subject to the direction of the Chairman of the Board, shall have general and
active management of the business of the Company and shall see that all orders
and resolutions of the Board of Directors or the Members are carried into
effect.
2.6.7 The Vice President. In the absence of the President or in the
event of his inability or refusal to act, the Vice President (or in the event
there shall be more than one Vice President, the Vice Presidents in the order
designated by the Board of Directors, or in the absence of any designation, then
in the order of their election) shall perform the duties of the President, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. The Vice President shall perform such other
duties and have such other powers as the Board of Directors or the Members shall
from time to time prescribe.
2.6.8 The Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the Members and record all the
proceedings of the meetings of the Company and of the Board of Directors in a
book to be kept for that purpose and shall perform like duties for any standing
committees when required. The Secretary shall give, or cause to be given, notice
of all meetings of the Members and meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or the
President, under whose supervision he shall be. The Secretary shall have custody
of the seal of the Company, and he, or an Assistant Secretary, shall have the
authority to affix the same to any instrument requiring it and, when so affixed,
it may be attested by his signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
Officer to affix the seal of the Company and to attest the affixing by his
signature.
2.6.9 The Assistant Secretary. The Assistant Secretary (or if there
shall be more than one, the Assistant Secretaries in the order determined by the
Board of Directors, or in the absence of any determination, then in the order of
their election) shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
6
<PAGE>
Secretary and shall perform such other duties and have such other powers as the
Board of Directors or the Members may from time to time prescribe.
2.6.10 The Treasurer. The Treasurer shall have the custody of the
Company funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Company and shall deposit
all moneys and other valuable effects in the name and to the credit of the
Company in such depositories as may be designated by the Board of Directors or
the Members. The Treasurer shall disburse the funds of the Company as may be
ordered by the Board of Directors or the Members, taking proper vouchers for
such disbursements, and shall render to the President and the Board of
Directors, at its annual meetings, or when the Board of Directors so requires,
an account of all of the Treasurer's transactions and of the financial condition
of the Company. If required by the Board of Directors or the Members, the
Treasurer shall give the Company a bond (which shall be renewed every six years)
in such sum and with such surety or sureties as shall be satisfactory to the
Board of Directors for the faithful performance of the duties of his office and
for the restoration to the Company, in the case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the Company.
2.6.11 The Assistant Treasurer. The Assistant Treasurer (or if
there shall be more than one, the Assistant Treasurers, in the order determined
by the Board of Directors or the Members, or in the absence of any
determination, then in the order of their election) shall, in the absence of the
Treasurer or in the event of his inability or refusal to act, perform the duties
and exercise the powers of the Treasurer and shall perform such other duties and
have such other powers as the Board of Directors or the Members may from time to
time prescribe.
2.6.12 Actions of Members. All references in this Section 2.6 to
actions of the Members shall mean such Members acting by an affirmative vote of
a Supermajority in Interest of the Members.
2.7. BINDING. Unless otherwise determined by the Board of Directors or
as otherwise set forth in this Agreement, each Director and Officer has the
authority to bind the Company.
2.8 POWERS. Subject to the provisions of this Agreement, including
Sections 2.9 and 2.10, the Board of Directors shall have full and complete
charge of all the affairs and business of the Company, in all respects and in
all matters, including, without limitation, the responsibility, authority and
power, on behalf of the Company, at the Company's expense and without the
approval of any Member, to:
(a) acquire, operate, lease, encumber or dispose of any direct and
indirect interests in real and personal property (including tangible
and intangible property and cash) owned by the Company from time to
time, and any property received in exchange therefor;
(b) pay, collect, compromise, arbitrate or otherwise adjust any and
all claims or demands of or against the Company, in such amounts and
upon such terms and conditions as the Board of Directors shall
reasonably determine;
7
<PAGE>
(c) from time to time, employ, engage, hire or otherwise secure the
services of such Persons, including any of the parties hereto or any
Persons related thereto or affiliated therewith, as the Board of
Directors may reasonably deem advisable for the proper execution of its
duties as the Board of Directors hereunder, provided such services are
within the scope of the foregoing authority granted to the Board of
Directors hereunder, such employment to be for such reasonable
compensation and upon such reasonable terms and conditions as the Board
of Directors shall determine;
(d) prepare, execute, file, record, publish and deliver any and all
instruments, documents or statements necessary or convenient to
effectuate any and all actions that the Board of Directors is
authorized to take on behalf of the Company;
(e) borrow money and issue evidences of indebtedness necessary,
convenient or incidental to the accomplishment of the purposes of the
Company, and secure the same by mortgage, pledge or other lien on any
Company assets;
(f) deal with, or otherwise engage in business with, or provide
services to and receive compensation therefor from, any Person that has
provided or may in the future provide services to, lend money to, sell
property to, or purchase property from the Members or the Board of
Directors, or any affiliate thereof;
(g) establish and maintain reserves for such purposes and in such
amounts as it deems appropriate from time to time; and
(h) engage in any kind of activity and perform and carry out
contracts of any kind necessary to, in connection with or incidental to
the accomplishment of the purposes of the Company, as may be lawfully
carried on or performed by a limited liability company under the laws
of the State of Delaware.
Except as expressly provided in this Agreement or required by law, the Members
shall have no right to vote on or consent to any other matter, act, decision or
document involving the Company or its business.
2.9 LIMITS ON AUTHORITY OF BOARD OF DIRECTORS. None of the following
actions may be taken by the Board of Directors without the affirmative approval
of Members having sixty-six percent (66%) of the Percentage Interests in the
Company (a "Supermajority in Interest of the Members"):
(a) Except as otherwise provided herein, any amendment to this
Agreement or the Certificate of Formation;
(b) The removal or replacement of any Director;
8
<PAGE>
(c) The increase or decrease of the number of Directors to a number
other than four (4);
(d) The demand for additional capital contributions to the Company;
(e) Except as otherwise provided in Section 2.14, the merger or
consolidation of the Company with, or conversion of the Company into,
any other entity or entities;
(f) The additional borrowing of money or issuing of evidences of
indebtedness beyond that which the Company has outstanding as of the
date hereof or by virtue of the Merger if such borrowing or issuance is
in excess of $1,000,000;
(g) The sale of all or any substantial part of the assets of the
Company; and
(h) The commencement of proceedings to have the Company be
adjudicated bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against the Company or the filing
of a petition seeking, or consent to, reorganization or relief with
respect to the Company under any applicable federal or state law
relating to bankruptcy, or the consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or a substantial part of its property, or the
assignment for the benefit of creditors of the Company, or the
admission in writing the Company's inability to pay its debts generally
as they become due, or, to the fullest extent permitted by law, the
taking of action in furtherance of any such action.
2.10 SUCCESSOR DIRECTORS. A Director may be removed from the Board of
Directors at any time, with or without cause, by the affirmative vote of a
Supermajority in Interest of the Members. A Director may resign from the Board
of Directors at any time without prejudice to any rights of the Company or any
Member as against the resigning Director, by giving written notice to the
Members. If a Director dies, dissolves, resigns or becomes otherwise unwilling
or unable to act as a Director and if no successor Director has been selected as
provided in this Agreement, one or more successor Directors shall be selected by
the vote of a Supermajority in Interest of the Members. Each successor Director
shall have all the rights and responsibilities of its predecessors. It is the
intent of this provision to provide for effective continuity of management of
the Company.
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<PAGE>
2.11 INDEMNIFICATION AND LIABILITY.
2.11.1 The Company shall indemnify and hold harmless each Member,
each Director and each Officer, and all affiliates, officers, directors,
shareholders, partners, members, co-trustees, employees and agents of any of the
foregoing (individually, an "Indemnitee") to the fullest extent permitted by
applicable law from and against any and all losses, claims, demands, costs,
damages, liabilities, joint and several, expenses of any nature (including
attorneys' fees and disbursements), judgments, fines, settlements and other
amounts arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative, in which the Indemnitee may be
involved, or threatened to be involved as a party or otherwise, arising out of
or incident to the business of the Company, unless such loss, claim, demand,
cost, damage or liability was proximately caused by such Indemnitee's (i) not
acting (or failing to act) in good faith and in a manner believed to be in, or
not opposed to, the interests of the Company or (ii) gross negligence or willful
misconduct.
2.11.2 Expenses incurred by an Indemnitee in defending any claim,
demand, action, suit or proceeding subject to this Section 2.11 shall be
advanced by the Company prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such Indemnitee to repay such amount if it shall be determined that such
Indemnitee is not entitled to be indemnified by the Company as authorized in
Section 2.11.1.
2.11.3 The indemnification provided by this Section 2.11 shall be
in addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to an affirmative vote of Members holding fifty-one percent
(51%) of the Percentage Interests in the Company, as a matter of law or equity
or otherwise, and shall inure to the benefit of the heirs, successors, assigns
and administrators of the Indemnitee.
2.11.4 Any indemnification provided hereunder shall be satisfied
solely out of the assets of the Company. Neither any Member nor any Director nor
any Officer shall be subject to personal liability by reason of these
indemnification provisions.
2.11.5 No Indemnitee shall be denied indemnification in whole or in
part under this Section 2.11 by reason of the fact that the Indemnitee had an
interest in the transaction with respect to which the indemnification applies if
the transaction was otherwise permitted by the terms of this Agreement.
2.11.6 The provisions of this Section 2.11 are for the benefit of
the Indemnitees and shall not be deemed to create any rights for the benefit of
any other Person.
2.11.7 Neither any Member nor any Director nor any Officer nor the
affiliates, officers, directors, shareholders, partners, members, co-trustees,
employees or agents of any of the foregoing shall be liable to the Company or to
a Member for any losses sustained or liabilities incurred as a result of any act
or omission of such Member, Director, Officer or any such other Person if (i)
such Member, Director, Officer or such other Person acted (or failed to act) in
good faith and in a manner believed to be in, or not opposed to, the
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<PAGE>
interests of the Company and (ii) the conduct of such Member, Director, Officer
or such other Person did not constitute gross negligence or willful misconduct.
2.11.8. An Indemnitee shall be fully protected in relying in good
faith upon the records of the Company and upon such information, opinions,
reports or statements presented to the Company by any Person as to matters the
Indemnitee reasonably believes are within such other Person's professional or
expert competence and that has been selected with reasonable care by or on
behalf of the Company, including information, opinions, reports or statements as
to the value and amount of the assets, liabilities, or any other facts pertinent
to the existence and amount of assets from which distributions to the Members
might properly be paid.
2.11.9. To the extent that, at law or in equity, an Indemnitee has
duties (including fiduciary duties) and liabilities relating thereto to the
Company or to any other Indemnitee, an Indemnitee acting under this Agreement
shall not be liable to the Company or to any other Indemnitee for its good faith
reliance on the provisions of this Agreement or any approval or authorization
granted by the Company or any other Indemnitee. The provisions of this
Agreement, to the extent that they restrict the duties and liabilities of an
Indemnitee otherwise existing at law or in equity, are agreed by the Members to
replace such other duties and liabilities of such Indemnitee.
2.11.10. The foregoing provisions of this Section 2.11 shall survive
any termination of this Agreement.
2.12 BOOKS AND RECORDS. The Board of Directors shall keep or cause to
be kept complete and accurate books of account and records with respect to the
Company's business. The books of the Company shall at all times be maintained by
the Board of Directors. Each Member and its duly authorized representatives
shall have the right to examine the Company books, records and documents during
normal business hours for any purpose reasonably related to such Member's
interest as a member of the Company. The Company's books of account shall be
kept using the method of accounting determined by the Board of Directors.
2.13 DISSOLUTION. The Company shall dissolve, and its affairs shall be
wound up upon the first to occur of the following:
(a) the written consent of all of the Members;
(b) the last remaining Member ceasing to be a member of the Company
unless the business of the Company is continued without dissolution in
accordance with the Act; and
(c) the entry of a decree of judicial dissolution under Section
18-802 of the Act.
The bankruptcy (as defined in the Act) of a Member shall not cause such
Member to cease to be a member of the Company and shall not cause a dissolution
of
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<PAGE>
the Company. The Members hereby waive any right they may have to vote to
dissolve the Company under Section 18-801(b) of the Act.
2.14 AUTHORIZATION OF MERGER. Without the need for the consent of any
additional Person and notwithstanding anything in this Agreement to the
contrary, the Company is authorized to merge with Fish Lake Power Company, a
Delaware corporation ("FLPC"), with the Company being the surviving entity (the
"Merger"). Without the need for the consent of any additional Person and
notwithstanding anything in this Agreement to the contrary, the Company is
authorized to execute and deliver, and to consummate all of the transactions
contemplated by, the Agreement and Plan of Merger, between the Company and FLPC
(the "Merger Agreement"), and any Officer, on behalf of the Company, is
authorized to execute, acknowledge and verify, deliver, file and record any and
all documents and instruments, including, without limitation, the Merger
Agreement, the Certificate of Merger relating to the Merger and those documents
and instruments required or contemplated by applicable law that the Board of
Directors or the Members deem necessary or appropriate to effectuate the Merger.
ARTICLE 3
OTHER PROVISIONS
3.1 ENTIRE AGREEMENT; BINDING PROVISIONS; SEPARABILITY. This Agreement
constitutes the entire agreement between and among the parties hereto pertaining
to the subject matter hereof and fully supersedes any and all prior agreements
or understandings between or among the parties hereto pertaining to the subject
matter hereof. The covenants and agreements contained in this Agreement shall be
binding upon, and inure to the benefit of, the heirs, executors, administrators,
personal representatives, successors and permitted assigns of the respective
parties hereto. Each provision of this Agreement shall be considered separable,
and, if for any reason any provision or provisions hereof are determined to be
invalid and contrary to any existing or future law, such invalidity shall not
impair the operation or effect of those portions of this Agreement that are
valid.
3.2 FURTHER ASSURANCES. Each of the parties hereto does hereby covenant
and agree on behalf of itself, its successors and its assigns, without further
consideration, to prepare, execute, acknowledge, file, record, publish and
deliver such other instruments, documents and statements, and to take such other
action as may be required by law or necessary to effectively carry out the
purposes of this Agreement.
3.3. NOTICES. Any notices required to be delivered hereunder shall be
in writing and personally delivered, mailed or sent by telecopy, electronic
mail, or other similar form of rapid transmission, and shall be deemed to have
been duly given upon receipt (a) in the case of the Company, to the Company at
its address in Section 1.1.3, (b) in the case of a Member or a Director, to such
party at its address as listed on Schedule B attached hereto or (c) at such
other address as may be designated by written notice to the other parties.
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3.4 WAIVER OF PARTITION; NATURE OF INTEREST. Except as otherwise
expressly provided in this Agreement, to the fullest extent permitted by law,
each Member hereby irrevocably waives any right or power that such Member might
have to cause the Company or any of its assets to be partitioned, to cause the
appointment of a receiver for all or any portion of the assets of the Company,
to compel any sale of all or any portion of the assets of the Company pursuant
to any applicable law or to file a complaint or to institute any proceeding at
law or in equity to cause the dissolution, liquidation, winding up or
termination of the Company. No Member shall have any interest in any specific
assets of the Company, and no Member shall have the status of a creditor with
respect to any distribution pursuant to Section 1.6. The interest of the Members
in the Company is personal property.
3.5 LIMITED LIABILITY. Except as otherwise expressly provided by the
Act, the debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be the debts, obligations and liabilities
solely of the Company, and neither any Member nor any Director nor any Officer
shall be obligated personally for any such debt, obligation or liability of the
Company solely by reason of being a member, director or officer of the Company.
3.6 GOVERNING LAW. This Agreement, including its existence, validity,
construction and operating effect, and the rights of each of the parties hereto,
shall be governed by and construed in accordance with the laws of the State of
Delaware (without regard to its principles of conflict of laws).
3.7 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of the successors and
assigns of the respective Members.
3.8 COUNTERPARTS. This Agreement may be executed in counterparts, all
of which together shall constitute one agreement binding on all parties hereto,
notwithstanding that all of the parties have not signed the same counterpart.
3.9 TITLES. Article and Section titles are for descriptive purposes
only and shall not control or alter the meaning of this Agreement as set forth
in the text.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
SALTON SEA FUNDING
CORPORATION,
a Delaware corporation, as member
By: /s/ Douglas L. Anderson
---------------------------
Name: Douglas L. Anderson
Title: Assistant Secretary
MAGMA POWER COMPANY,
a Nevada corporation, as member
By: /s/ Douglas L. Anderson
---------------------------
Name: Douglas L. Anderson
Title: Assistant Secretary
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<PAGE>
SCHEDULE A
Definitions
-----------
A. Definitions
-----------
"Act" has the meaning set forth in Section 1.1.1.
"Additional Capital Requirement Notice" has the meaning set forth in Section
1.5.
"Agreement" has the meaning set forth in the preamble to this Agreement.
"Assistant Secretary" means the one or more persons appointed as Assistant
Secretary in accordance with the terms of this Agreement.
"Assistant Treasurer" means the one or more persons appointed as Assistant
Treasurer in accordance with the terms of this Agreement.
"Board of Directors" has the meaning set forth in Section 2.1.
"Certificate of Formation" has the meaning set forth in Section 1.1.2.
"Company" has the meaning set forth in the preamble to this Agreement.
"Directors" has the meaning set forth in Section 2.1.
"FLPC" has the meaning set forth in Section 2.14.
"Indemnitee" has the meaning set forth in Section 2.11.1.
"Magma" has the meaning set forth in the preamble to this Agreement.
"Member" has the meaning set forth in the preamble to this Agreement.
"Merger" has the meaning set forth in Section 2.14.
"Merger Agreement" has the meaning set forth in Section 2.14.
"Officers" has the meaning set forth in Section 2.6.
"Percentage Interests" has the meaning set forth in Section 1.4.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, limited liability partnership, association,
joint-stock company, trust, unincorporated organization, or other
organization, whether or not a legal entity, and any governmental
authority.
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"President" means the person appointed as President in accordance with the
terms of this Agreement.
"Salton Sea" has the meaning set forth in the preamble to this Agreement.
"Secretary" means the person appointed as Secretary in accordance with the
terms of this Agreement.
"Supermajority in Interest of the Members" has the meaning set forth in
Section 2.9.
"Treasurer" means the person appointed as Treasurer in accordance with the
terms of this Agreement.
"Vice President" means the one or more persons appointed as Vice President
in accordance with the terms of this Agreement.
B. Rules of Construction
---------------------
Definitions in this Agreement apply equally to both the singular and plural
forms of the defined terms. The words "include" and "including" shall be
deemed to be followed by the phrase "without limitation." The terms
"herein," "hereof" and "hereunder" and other words of similar import refer
to this Agreement as a whole and not to any particular Section, paragraph or
subdivision. All Section, paragraph, clause or Schedule references not
attributed to a particular document shall be references to such parts of
this Agreement.
16
<PAGE>
SCHEDULE B
Addresses
---------
Members:
- --------
Magma Power Company
302 South 36th Street, Suite 400-W
Omaha, NE 68131
Salton Sea Funding Corporation
302 South 36th Street, Suite 400-A
Omaha, NE 68131
Directors:
- ----------
David E. Sokol
302 South 36th Street, Suite 400-B
Omaha, NE 68131
Gregory E. Abel
302 South 36th Street, Suite 400-B
Omaha, NE 68131
Steven A. McArthur
302 South 36th Street, Suite 400-B
Omaha, NE 68131
Craig M. Hammett
302 South 36th Street, Suite 400-B
Omaha, NE 68131
17
<PAGE>
CERTIFICATE OF FORMATION
OF
SALTON SEA ROYALTY LLC
This Certificate of Formation of Salton Sea Royalty LLC (the "LLC"),
dated as of February 19, 1999, is being duly executed and filed by an authorized
person to form a limited liability company under the Delaware Limited Liability
Company Act (6 Del. C. Section 18-101, et seq.).
FIRST. The name of the limited liability company formed hereby is
Salton Sea Royalty LLC.
SECOND. The address of the registered office of the LLC in the State of
Delaware is c/o The Corporation Trust Company, Corporation Trust Center, 1209
Orange Street, Wilmington, Delaware 19801.
THIRD. The name and address of the registered agent for service of
process on the LLC in the State of Delaware are The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation as of the date first above written.
By: /s/ Douglas L. Anderson
--------------------------------
Name: Douglas L. Anderson
Title: Assistant Secretary
<PAGE>
3.6
LIMITED LIABILITY COMPANY AGREEMENT
OF
SALTON SEA ROYALTY LLC,
A DELAWARE LIMITED LIABILITY COMPANY
This LIMITED LIABILITY COMPANY AGREEMENT (as amended from time to time
in accordance with its terms, this "Agreement") for Salton Sea Royalty LLC (the
"Company"), by and between Salton Sea Funding Corporation, a Delaware
corporation ("Salton Sea"), and Magma Power Company, a Nevada corporation
("Magma," and jointly with any other Person admitted to the Company as a member
in accordance with this Agreement, the "Members," with each being referred to,
individually, as a "Member"), is made effective as of February 19, 1999.
ARTICLE 1
ORGANIZATIONAL MATTERS
1.1 FORMATION.
1.1.1. Act. The Members hereby form the Company as a limited
liability company under the Delaware Limited Liability Company Act (6 Del. C.
Section 18-101, et seq.), as amended from time to time (the "Act") and agree
that the rights and liabilities of the Members shall be as provided in the Act,
except as otherwise expressly provided herein. Salton Sea and Magma are hereby
admitted to the Company as members of the Company. In the event of any
inconsistency between any terms and conditions contained in this Agreement and
any non-mandatory provisions of the Act, the terms and conditions contained in
this Agreement shall govern. The Company shall commence on the date that the
Certificate of Formation is initially filed with the office of the Secretary of
State of the State of Delaware, and shall continue without dissolution until
dissolved in accordance with Section 2.13.
1.1.2. Name. The name of the Company shall be Salton Sea Royalty
LLC. The Company may also conduct business at the same time under one or more
fictitious names if the Board of Directors determines that such is in the best
interests of the Company. Without the need for the consent of any Member, the
Board of Directors may change the name of the Company, from time to time, and it
shall file or cause to be filed an appropriate amendment to the Certificate of
Formation of the Company, as amended or restated from time to time (the
"Certificate of Formation").
1.1.3. Place of Business; Registered Office and Agent. The
principal place of business of the Company shall be located at 302 South 36th
Street, Suite 400-H, Omaha, Nebraska 68131, or such other place within or
outside the State of
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Delaware as the Board of Directors may from time to time designate by notice to
the Members. The Company may maintain offices and places of business at such
other place or places within or outside the State of Delaware as the Board of
Directors deems advisable. The Company shall continuously maintain a registered
office and a designated and duly qualified agent for service of process on the
Company in the State of Delaware. The address of the current registered office
and of the current registered agent for service of process is c/o The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware, 19801.
1.1.4 Definitions. When used in this Agreement, capitalized terms
not otherwise defined herein have the meanings set forth on Schedule A attached
hereto.
1.2 BUSINESS PURPOSE. The Company has been formed and is authorized to
engage in any and all lawful business, purpose, or activity in which a limited
liability company may be engaged under applicable law (including, without
limitation, the Act), as the Board of Directors may determine, including,
without limitation, developing, owning, operating and disposing of power
production facilities and related activities.
1.3 REQUIRED FILINGS. Each Officer, acting singly or jointly, is hereby
designated as an authorized person, within the meaning of the Act, to execute,
deliver and file all certificates (and any amendments and/or restatements
thereof) required or permitted by the Act to be filed in the office of the
Secretary of State of the State of Delaware. Each Officer, acting singly or
jointly, shall also execute, deliver and file any other certificates (and any
amendments and/or restatements thereof) necessary for the Company to qualify to
do business in a jurisdiction in which the Company may wish to conduct business.
Each Officer, acting singly or jointly, shall cause a Certificate of Formation
to be executed and filed in the office of the Secretary of State of the State of
Delaware as required by the Act. Each Officer, acting singly or jointly, may
execute and file any duly authorized amendments or restatements to the
Certificate of Formation from time to time in a form prescribed by the Act. Each
Officer, acting singly or jointly, shall also cause to be made, on behalf of the
Company, such additional filings and recordings as the Board of Directors shall
deem necessary or advisable. Following the execution of this Agreement,
fictitious business name statements shall be filed and published when and if the
Board of Directors determines it to be necessary or advisable. Any such
statement shall be renewed as required by applicable law.
1.4 PERCENTAGE INTERESTS AND INITIAL CAPITAL CONTRIBUTIONS. The Members
shall make the following initial capital contributions to the Company on a date
as directed by the Board of Directors and shall have the following percentage
interests in the Company's distributions, profits and losses ("Percentage
Interests"):
<TABLE>
<CAPTION>
Member Initial Capital Contribution Percentage Interest
------ ---------------------------- -------------------
<S> <C> <C>
Salton Sea Funding Corporation $ 1.00 1%
Magma Power Company $99.00 99%
</TABLE>
1.5 ADDITIONAL CAPITAL CONTRIBUTIONS. No Member has the right or
obligation to make any additional capital contributions to the Company. If the
Board of Directors determines, at any time and from time to time, that the
Company requires additional capital for its business
2
<PAGE>
and operations, the Board of Directors, with the approval of a Supermajority in
Interest of the Members, may deliver a notice (an "Additional Capital
Requirement Notice") to the Members specifying the additional amount of capital
so determined to be required from each Member. Promptly upon receipt of an
Additional Capital Requirement Notice, a Member shall make such additional
capital contribution. In the event any Member does not contribute the entire
amount required to be contributed by such Member, the shortfall may be loaned to
the Company by one or more of the other Members on terms approved by the Board
of Directors (which loans shall be considered permitted Member loans).
1.6 DISTRIBUTIONS. Distributions shall be made to the Members at the
time and in the aggregate amounts determined by the Board of Directors.
Notwithstanding any provision to the contrary contained in this Agreement, the
Company shall not make a distribution to a Member on account of its interest in
the Company if such distribution would violate Sections 18-607 or 18-804 of the
Act or other applicable law.
1.7 ASSIGNMENTS. A Member may assign in whole or in part its limited
liability company interest in the Company. The transferee shall be admitted to
the Company as a member of the Company upon its execution of an instrument
signifying its agreement to be bound by the terms and conditions of this
Agreement, which instrument may be a counterpart signature page to this
Agreement. Such admission shall be deemed effective immediately prior to the
transfer, and, immediately following such admission in the case of a transferor
Member transferring its entire limited liability company interest in the
Company, the transferor Member shall cease to be a member of the Company.
Notwithstanding anything in this Agreement to the contrary, any successor to a
Member by merger, conversion or consolidation with the Member as a constituent
party in compliance with this Agreement shall, without further act, be a Member
hereunder, and such merger, conversion or consolidation shall not constitute an
assignment for purposes of this Agreement.
1.8. ADMISSION OF ADDITIONAL MEMBERS. Except as permitted by Section
1.7, one or more additional members of the Company may be admitted to the
Company only with the written consent of all of the Members.
1.9 RESIGNATION. A Member may resign from the Company if it obtains the
written consent of all other Members.
1.10 UCC. The limited liability company interests in the Company are
not securities governed by Article 8 of the Uniform Commercial Code, as in
effect in any state.
1.11 BUSINESS VENTURES. A Member or a Director, or any affiliate
thereof, may engage in or possess an interest in other business ventures of any
nature or description, independently or with others, similar or dissimilar to
the business of the Company, and the Company shall have no rights by virtue of
this Agreement in and to such independent ventures or the income or profits
derived therefrom, and the pursuit of any such venture, even if competitive with
the business of the Company, shall not be deemed wrongful or improper. A Member
or a Director, or any affiliate thereof, shall not be obligated to present any
particular investment opportunity to the Company even if such opportunity is of
a character that, if presented to the Company, could be taken by the Company,
and
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<PAGE>
such Member or Director, or any affiliate thereof, shall have the right to take
for its own account (individually or as a partner or fiduciary) or to recommend
to others any such particular investment opportunity.
ARTICLE 2
OPERATIONS
2.1 MANAGEMENT. The business and affairs of the Company shall be
managed exclusively by or under the direction of a board of one or more
directors (the "Board of Directors"). Each director of the Company (a
"Director") is not a "manager" (within the meaning of the Act) of the Company.
Each Director appointed shall hold office until a successor is appointed and
qualified in accordance with Section 2.10. The Members may, from time to time as
they deem advisable, appoint additional Directors by the affirmative vote of a
Supermajority in Interest of the Members.
The Members hereby appoint the following persons as Directors:
David L. Sokol
Gregory E. Abel
Steven A. McArthur
Craig M. Hammett
2.2 MEETINGS OF THE BOARD OF DIRECTORS. The Board of Directors shall
hold annual meetings at such time and at such place as shall be designated by
the President and stated in the notice of the meeting. Notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
Director not less than ten (10) days before the date of such annual meeting,
either personally, by telephone, by mail, by telegram or by any other means of
communication. Special meetings of the Board of Directors may be called by the
President on three (3) days' notice to each Director, either personally, by
telephone, by mail, by telegram or by any other means of communication; special
meetings shall be called by the President or Secretary in like manner and on
like notice on the written request of one or more of the Directors.
2.3 QUORUM AND ACTS OF THE BOARD OF DIRECTORS. At all meetings of the
Board of Directors a majority of the Directors shall constitute a quorum for the
transaction of business and the act of a majority of the Directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by this Agreement.
If a quorum shall not be present at any meeting of the Board of Directors, the
Directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Any action required or permitted to be taken at any meeting of the Board of
Directors may be taken without a meeting, if all members of the Board of
Directors consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board of Directors.
2.4 ELECTRONIC COMMUNICATIONS. Directors may participate in a meeting
of the Board of Directors by means of conference telephone or similar
communications equipment by means of
4
<PAGE>
which all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
2.5. COMPENSATION OF DIRECTORS; EXPENSES OF BOARD OF DIRECTORS. The
Board of Directors shall have the authority to fix the compensation of
Directors. The Directors may be paid their expenses, if any, of attendance at
such meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as a
Director. No such payment shall preclude any Director from serving the Company
in any other capacity and receiving compensation therefor. The Board of
Directors shall be entitled to reimbursement from the Company for all costs and
expenses (including allocable overhead, fees paid to outside consultants,
on-site personnel hired by the Board of Directors and others who are not
salaried employees of the Company at the time of the performance of such
services) incurred by it for or on behalf of the Company. No Member shall be
entitled to any compensation for its services to the Company or in the conduct
of the business of the Company.
2.6 OFFICERS. The officers of the Company (the "Officers") shall be
chosen by the Members or the Board of Directors and shall include a President,
Vice President, Secretary, and Treasurer. The Members or the Board of Directors
may also choose additional Vice Presidents and one or more Assistant Secretaries
and Assistant Treasurers. Any number of offices may be held by the same person.
2.6.1 Additional Officers. The Members or the Board of Directors at
its annual meetings may appoint such other Officers and agents as they or it
shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors.
2.6.2 Compensation of Officers. The salaries of all Officers and
agents of the Company shall be fixed from time to time by the Board of
Directors. No Officer shall be prevented from receiving such salary by reason of
the fact that he is also a Director of the Company.
2.6.3 Removal of Officers; Vacancies. The Officers of the Company
shall hold office until their successors are chosen and qualified. Any Officer
elected or appointed by the Members or the Board of Directors may be removed at
any time by the Chairman of the Board or the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the Company shall
be filled by the Board of Directors.
2.6.4 Initial Officers. The initial Officers are as follows:
David L. Sokol Chairman and Chief Executive Officer
Gregory E. Abel President and Chief Operating Officer
Steven A. McArthur Executive Vice President, General Counsel and Secretary
Craig M. Hammett Senior Vice President and Chief Financial Officer
Robert S. Silberman Senior Vice President, Administration
Douglas L. Anderson Assistant General Counsel and Assistant Secretary
James A. Flores Vice President, Project Finance
Patrick J. Goodman Vice President and Chief Accounting Officer
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<PAGE>
Brian K. Hankel Vice President and Treasurer
Stephen A. Amdor Assistant Treasurer
Jonathan M. Weisgall Vice President, Legislative & Regulatory Affairs
2.6.5 The Chairman of the Board. The Chairman of the Board shall be
the Chief Executive Officer and shall have general and active supervision and
direction over the management of the Company's business and over the President
and Chief Operating Officer and all of the Company's other Officers, agents and
employees. The Chairman of the Board shall, if present, preside at each meeting
of the Members and of the Board of Directors and shall be an ex officio member
of any and all committees of the Board of Directors. The Chairman of the Board
shall perform all duties incident to the office of Chairman of the Board and
such other duties as may from time to time be assigned to him by the Board of
Directors or the Members. The Chairman of the Board shall execute bonds,
mortgages and other contracts requiring a seal, under a seal of the Company,
except where required or permitted by law to be otherwise signed and executed
and except where the signing and execution thereof shall be expressly delegated
by the Board of Directors or the Members to some other Officer or agent of the
Company.
2.6.6 The President. The President, in consultation with and
subject to the direction of the Chairman of the Board, shall have general and
active management of the business of the Company and shall see that all orders
and resolutions of the Board of Directors or the Members are carried into
effect.
2.6.7 The Vice President. In the absence of the President or in the
event of his inability or refusal to act, the Vice President (or in the event
there shall be more than one Vice President, the Vice Presidents in the order
designated by the Board of Directors, or in the absence of any designation, then
in the order of their election) shall perform the duties of the President, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. The Vice President shall perform such other
duties and have such other powers as the Board of Directors or the Members shall
from time to time prescribe.
2.6.8 The Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the Members and record all the
proceedings of the meetings of the Company and of the Board of Directors in a
book to be kept for that purpose and shall perform like duties for any standing
committees when required. The Secretary shall give, or cause to be given, notice
of all meetings of the Members and meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or the
President, under whose supervision he shall be. The Secretary shall have custody
of the seal of the Company, and he, or an Assistant Secretary, shall have the
authority to affix the same to any instrument requiring it and, when so affixed,
it may be attested by his signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
Officer to affix the seal of the Company and to attest the affixing by his
signature.
2.6.9 The Assistant Secretary. The Assistant Secretary (or if there
shall be more than one, the Assistant Secretaries in the order determined by the
Board of Directors, or in the absence of any determination, then in the order of
their election) shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
6
<PAGE>
Secretary and shall perform such other duties and have such other powers as the
Board of Directors or the Members may from time to time prescribe.
2.6.10 The Treasurer. The Treasurer shall have the custody of the
Company funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Company and shall deposit
all moneys and other valuable effects in the name and to the credit of the
Company in such depositories as may be designated by the Board of Directors or
the Members. The Treasurer shall disburse the funds of the Company as may be
ordered by the Board of Directors or the Members, taking proper vouchers for
such disbursements, and shall render to the President and the Board of
Directors, at its annual meetings, or when the Board of Directors so requires,
an account of all of the Treasurer's transactions and of the financial condition
of the Company. If required by the Board of Directors or the Members, the
Treasurer shall give the Company a bond (which shall be renewed every six years)
in such sum and with such surety or sureties as shall be satisfactory to the
Board of Directors for the faithful performance of the duties of his office and
for the restoration to the Company, in the case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the Company.
2.6.11 The Assistant Treasurer. The Assistant Treasurer (or if
there shall be more than one, the Assistant Treasurers, in the order determined
by the Board of Directors or the Members, or in the absence of any
determination, then in the order of their election) shall, in the absence of the
Treasurer or in the event of his inability or refusal to act, perform the duties
and exercise the powers of the Treasurer and shall perform such other duties and
have such other powers as the Board of Directors or the Members may from time to
time prescribe.
2.6.12 Actions of Members. All references in this Section 2.6 to
actions of the Members shall mean such Members acting by an affirmative vote of
a Supermajority in Interest of the Members.
2.7. BINDING. Unless otherwise determined by the Board of Directors or
as otherwise set forth in this Agreement, each Director and Officer has the
authority to bind the Company.
2.8 POWERS. Subject to the provisions of this Agreement, including
Sections 2.9 and 2.10, the Board of Directors shall have full and complete
charge of all the affairs and business of the Company, in all respects and in
all matters, including, without limitation, the responsibility, authority and
power, on behalf of the Company, at the Company's expense and without the
approval of any Member, to:
(a) acquire, operate, lease, encumber or dispose of any direct and
indirect interests in real and personal property (including tangible
and intangible property and cash) owned by the Company from time to
time, and any property received in exchange therefor;
(b) pay, collect, compromise, arbitrate or otherwise adjust any and
all claims or demands of or against the Company, in such amounts and
upon such terms and conditions as the Board of Directors shall
reasonably determine;
7
<PAGE>
(c) from time to time, employ, engage, hire or otherwise secure the
services of such Persons, including any of the parties hereto or any
Persons related thereto or affiliated therewith, as the Board of
Directors may reasonably deem advisable for the proper execution of its
duties as the Board of Directors hereunder, provided such services are
within the scope of the foregoing authority granted to the Board of
Directors hereunder, such employment to be for such reasonable
compensation and upon such reasonable terms and conditions as the Board
of Directors shall determine;
(d) prepare, execute, file, record, publish and deliver any and all
instruments, documents or statements necessary or convenient to
effectuate any and all actions that the Board of Directors is
authorized to take on behalf of the Company;
(e) borrow money and issue evidences of indebtedness necessary,
convenient or incidental to the accomplishment of the purposes of the
Company, and secure the same by mortgage, pledge or other lien on any
Company assets;
(f) deal with, or otherwise engage in business with, or provide
services to and receive compensation therefor from, any Person that has
provided or may in the future provide services to, lend money to, sell
property to, or purchase property from the Members or the Board of
Directors, or any affiliate thereof;
(g) establish and maintain reserves for such purposes and in such
amounts as it deems appropriate from time to time; and
(h) engage in any kind of activity and perform and carry out
contracts of any kind necessary to, in connection with or incidental to
the accomplishment of the purposes of the Company, as may be lawfully
carried on or performed by a limited liability company under the laws
of the State of Delaware.
Except as expressly provided in this Agreement or required by law, the Members
shall have no right to vote on or consent to any other matter, act, decision or
document involving the Company or its business.
2.9 LIMITS ON AUTHORITY OF BOARD OF DIRECTORS. None of the following
actions may be taken by the Board of Directors without the affirmative approval
of Members having sixty-six percent (66%) of the Percentage Interests in the
Company (a "Supermajority in Interest of the Members"):
(a) Except as otherwise provided herein, any amendment to this
Agreement or the Certificate of Formation;
(b) The removal or replacement of any Director;
8
<PAGE>
(c) The increase or decrease of the number of Directors to a number
other than four (4);
(d) The demand for additional capital contributions to the Company;
(e) Except as otherwise provided in Section 2.14, the merger or
consolidation of the Company with, or conversion of the Company into,
any other entity or entities;
(f) The additional borrowing of money or issuing of evidences of
indebtedness beyond that which the Company has outstanding as of the
date hereof or by virtue of the Merger if such borrowing or issuance is
in excess of $1,000,000;
(g) The sale of all or any substantial part of the assets of the
Company; and
(h) The commencement of proceedings to have the Company be
adjudicated bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against the Company or the filing
of a petition seeking, or consent to, reorganization or relief with
respect to the Company under any applicable federal or state law
relating to bankruptcy, or the consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or a substantial part of its property, or the
assignment for the benefit of creditors of the Company, or the
admission in writing the Company's inability to pay its debts generally
as they become due, or, to the fullest extent permitted by law, the
taking of action in furtherance of any such action.
2.10 SUCCESSOR DIRECTORS. A Director may be removed from the Board of
Directors at any time, with or without cause, by the affirmative vote of a
Supermajority in Interest of the Members. A Director may resign from the Board
of Directors at any time without prejudice to any rights of the Company or any
Member as against the resigning Director, by giving written notice to the
Members. If a Director dies, dissolves, resigns or becomes otherwise unwilling
or unable to act as a Director and if no successor Director has been selected as
provided in this Agreement, one or more successor Directors shall be selected by
the vote of a Supermajority in Interest of the Members. Each successor Director
shall have all the rights and responsibilities of its predecessors. It is the
intent of this provision to provide for effective continuity of management of
the Company.
9
<PAGE>
2.11 INDEMNIFICATION AND LIABILITY.
2.11.1 The Company shall indemnify and hold harmless each Member,
each Director and each Officer, and all affiliates, officers, directors,
shareholders, partners, members, co-trustees, employees and agents of any of the
foregoing (individually, an "Indemnitee") to the fullest extent permitted by
applicable law from and against any and all losses, claims, demands, costs,
damages, liabilities, joint and several, expenses of any nature (including
attorneys' fees and disbursements), judgments, fines, settlements and other
amounts arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative, in which the Indemnitee may be
involved, or threatened to be involved as a party or otherwise, arising out of
or incident to the business of the Company, unless such loss, claim, demand,
cost, damage or liability was proximately caused by such Indemnitee's (i) not
acting (or failing to act) in good faith and in a manner believed to be in, or
not opposed to, the interests of the Company or (ii) gross negligence or willful
misconduct.
2.11.2 Expenses incurred by an Indemnitee in defending any claim,
demand, action, suit or proceeding subject to this Section 2.11 shall be
advanced by the Company prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such Indemnitee to repay such amount if it shall be determined that such
Indemnitee is not entitled to be indemnified by the Company as authorized in
Section 2.11.1.
2.11.3 The indemnification provided by this Section 2.11 shall be
in addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to an affirmative vote of Members holding fifty-one percent
(51%) of the Percentage Interests in the Company, as a matter of law or equity
or otherwise, and shall inure to the benefit of the heirs, successors, assigns
and administrators of the Indemnitee.
2.11.4 Any indemnification provided hereunder shall be satisfied
solely out of the assets of the Company. Neither any Member nor any Director nor
any Officer shall be subject to personal liability by reason of these
indemnification provisions.
2.11.5 No Indemnitee shall be denied indemnification in whole or in
part under this Section 2.11 by reason of the fact that the Indemnitee had an
interest in the transaction with respect to which the indemnification applies if
the transaction was otherwise permitted by the terms of this Agreement.
2.11.6 The provisions of this Section 2.11 are for the benefit of
the Indemnitees and shall not be deemed to create any rights for the benefit of
any other Person.
2.11.7 Neither any Member nor any Director nor any Officer nor the
affiliates, officers, directors, shareholders, partners, members, co-trustees,
employees or agents of any of the foregoing shall be liable to the Company or to
a Member for any losses sustained or liabilities incurred as a result of any act
or omission of such Member, Director, Officer or any such other Person if (i)
such Member, Director, Officer or such other Person acted (or failed to act) in
good faith and in a manner believed to be in, or not opposed to, the
10
<PAGE>
interests of the Company and (ii) the conduct of such Member, Director, Officer
or such other Person did not constitute gross negligence or willful misconduct.
2.11.8. An Indemnitee shall be fully protected in relying in good
faith upon the records of the Company and upon such information, opinions,
reports or statements presented to the Company by any Person as to matters the
Indemnitee reasonably believes are within such other Person's professional or
expert competence and that has been selected with reasonable care by or on
behalf of the Company, including information, opinions, reports or statements as
to the value and amount of the assets, liabilities, or any other facts pertinent
to the existence and amount of assets from which distributions to the Members
might properly be paid.
2.11.9. To the extent that, at law or in equity, an Indemnitee has
duties (including fiduciary duties) and liabilities relating thereto to the
Company or to any other Indemnitee, an Indemnitee acting under this Agreement
shall not be liable to the Company or to any other Indemnitee for its good faith
reliance on the provisions of this Agreement or any approval or authorization
granted by the Company or any other Indemnitee. The provisions of this
Agreement, to the extent that they restrict the duties and liabilities of an
Indemnitee otherwise existing at law or in equity, are agreed by the Members to
replace such other duties and liabilities of such Indemnitee.
2.11.10. The foregoing provisions of this Section 2.11 shall
survive any termination of this Agreement.
2.12 BOOKS AND RECORDS. The Board of Directors shall keep or cause to
be kept complete and accurate books of account and records with respect to the
Company's business. The books of the Company shall at all times be maintained by
the Board of Directors. Each Member and its duly authorized representatives
shall have the right to examine the Company books, records and documents during
normal business hours for any purpose reasonably related to such Member's
interest as a member of the Company. The Company's books of account shall be
kept using the method of accounting determined by the Board of Directors.
2.13 DISSOLUTION. The Company shall dissolve, and its affairs shall be
wound up upon the first to occur of the following:
(a) the written consent of all of the Members;
(b) the last remaining Member ceasing to be a member of the Company
unless the business of the Company is continued without dissolution in
accordance with the Act; and
(c) the entry of a decree of judicial dissolution under Section
18-802 of the Act.
The bankruptcy (as defined in the Act) of a Member shall not cause such
Member to cease to be a member of the Company and shall not cause a dissolution
of the
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Company. The Members hereby waive any right they may have to vote to dissolve
the Company under Section 18-801(b) of the Act.
2.14 AUTHORIZATION OF MERGER. Without the need for the consent of any
additional Person and notwithstanding anything in this Agreement to the
contrary, the Company is authorized to merge with Salton Sea Royalty Company
("Salton"), with the Company being the surviving entity (the "Merger"). Without
the need for the consent of any additional Person and notwithstanding anything
in this Agreement to the contrary, the Company is authorized to execute and
deliver, and to consummate all of the transactions contemplated by, the
Agreement and Plan of Merger, between the Company and Salton (the "Merger
Agreement"), and any Officer, on behalf of the Company, is authorized to
execute, acknowledge and verify, deliver, file and record any and all documents
and instruments, including, without limitation, the Merger Agreement, the
Certificate of Merger relating to the Merger and those documents and instruments
required or contemplated by applicable law that the Board of Directors or the
Members deem necessary or appropriate to effectuate the Merger.
ARTICLE 3
OTHER PROVISIONS
3.1 ENTIRE AGREEMENT; BINDING PROVISIONS; SEPARABILITY. This Agreement
constitutes the entire agreement between and among the parties hereto pertaining
to the subject matter hereof and fully supersedes any and all prior agreements
or understandings between or among the parties hereto pertaining to the subject
matter hereof. The covenants and agreements contained in this Agreement shall be
binding upon, and inure to the benefit of, the heirs, executors, administrators,
personal representatives, successors and permitted assigns of the respective
parties hereto. Each provision of this Agreement shall be considered separable,
and, if for any reason any provision or provisions hereof are determined to be
invalid and contrary to any existing or future law, such invalidity shall not
impair the operation or effect of those portions of this Agreement that are
valid.
3.2 FURTHER ASSURANCES. Each of the parties hereto does hereby covenant
and agree on behalf of itself, its successors and its assigns, without further
consideration, to prepare, execute, acknowledge, file, record, publish and
deliver such other instruments, documents and statements, and to take such other
action as may be required by law or necessary to effectively carry out the
purposes of this Agreement.
3.3. NOTICES. Any notices required to be delivered hereunder shall be
in writing and personally delivered, mailed or sent by telecopy, electronic
mail, or other similar form of rapid transmission, and shall be deemed to have
been duly given upon receipt (a) in the case of the Company, to the Company at
its address in Section 1.1.3, (b) in the case of a Member or a Director, to such
party at its address as listed on Schedule B attached hereto or (c) at such
other address as may be designated by written notice to the other parties.
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<PAGE>
3.4 WAIVER OF PARTITION; NATURE OF INTEREST. Except as otherwise
expressly provided in this Agreement, to the fullest extent permitted by law,
each Member hereby irrevocably waives any right or power that such Member might
have to cause the Company or any of its assets to be partitioned, to cause the
appointment of a receiver for all or any portion of the assets of the Company,
to compel any sale of all or any portion of the assets of the Company pursuant
to any applicable law or to file a complaint or to institute any proceeding at
law or in equity to cause the dissolution, liquidation, winding up or
termination of the Company. No Member shall have any interest in any specific
assets of the Company, and no Member shall have the status of a creditor with
respect to any distribution pursuant to Section 1.6. The interest of the Members
in the Company is personal property.
3.5 LIMITED LIABILITY. Except as otherwise expressly provided by the
Act, the debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be the debts, obligations and liabilities
solely of the Company, and neither any Member nor any Director nor any Officer
shall be obligated personally for any such debt, obligation or liability of the
Company solely by reason of being a member, director or officer of the Company.
3.6 GOVERNING LAW. This Agreement, including its existence, validity,
construction and operating effect, and the rights of each of the parties hereto,
shall be governed by and construed in accordance with the laws of the State of
Delaware (without regard to its principles of conflict of laws).
3.7 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of the successors and
assigns of the respective Members.
3.8 COUNTERPARTS. This Agreement may be executed in counterparts, all
of which together shall constitute one agreement binding on all parties hereto,
notwithstanding that all of the parties have not signed the same counterpart.
3.9 TITLES. Article and Section titles are for descriptive purposes
only and shall not control or alter the meaning of this Agreement as set forth
in the text.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
SALTON SEA FUNDING
CORPORATION,
a Delaware corporation, as member
By: /s/ Douglas L. Anderson
---------------------------
Name: Douglas L. Anderson
Title: Assistant Secretary
MAGMA POWER COMPANY,
a Nevada corporation, as member
By: /s/ Douglas L. Anderson
---------------------------
Name: Douglas L. Anderson
Title: Assistant Secretary
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<PAGE>
SCHEDULE A
Definitions
-----------
A. Definitions
-----------
"Act" has the meaning set forth in Section 1.1.1.
"Additional Capital Requirement Notice" has the meaning set forth in Section
1.5.
"Agreement" has the meaning set forth in the preamble to this Agreement.
"Assistant Secretary" means the one or more persons appointed as Assistant
Secretary in accordance with the terms of this Agreement.
"Assistant Treasurer" means the one or more persons appointed as Assistant
Treasurer in accordance with the terms of this Agreement.
"Board of Directors" has the meaning set forth in Section 2.1.
"Certificate of Formation" has the meaning set forth in Section 1.1.2.
"Company" has the meaning set forth in the preamble to this Agreement.
"Directors" has the meaning set forth in Section 2.1.
"Indemnitee" has the meaning set forth in Section 2.11.1.
"Magma" has the meaning set forth in the preamble to this Agreement.
"Member" has the meaning set forth in the preamble to this Agreement.
"Merger" has the meaning set forth in Section 2.14.
"Merger Agreement" has the meaning set forth in Section 2.14.
"Officers" has the meaning set forth in Section 2.6.
"Percentage Interests" has the meaning set forth in Section 1.4.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, limited liability partnership, association,
joint-stock company, trust, unincorporated organization, or other organization,
whether or not a legal entity, and any governmental authority.
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<PAGE>
"President" means the person appointed as President in accordance with the
terms of this Agreement.
"Salton" has the meaning set forth in Section 2.14.
"Salton Sea" has the meaning set forth in the preamble to this Agreement.
"Secretary" means the person appointed as Secretary in accordance with the
terms of this Agreement.
"Supermajority in Interest of the Members" has the meaning set forth in
Section 2.9.
"Treasurer" means the person appointed as Treasurer in accordance with the
terms of this Agreement.
"Vice President" means the one or more persons appointed as Vice President
in accordance with the terms of this Agreement.
B. Rules of Construction
---------------------
Definitions in this Agreement apply equally to both the singular and plural
forms of the defined terms. The words "include" and "including" shall be
deemed to be followed by the phrase "without limitation." The terms
"herein," "hereof" and "hereunder" and other words of similar import refer
to this Agreement as a whole and not to any particular Section, paragraph or
subdivision. All Section, paragraph, clause or Schedule references not
attributed to a particular document shall be references to such parts of
this Agreement.
16
<PAGE>
SCHEDULE B
Addresses
---------
Members:
- --------
Magma Power Company
302 South 36th Street, Suite 400-W
Omaha, NE 68131
Salton Sea Funding Corporation
302 South 36th Street, Suite 400-A
Omaha, NE 68131
Directors:
- ----------
David E. Sokol
302 South 36th Street, Suite 400-H
Omaha, NE 68131
Gregory E. Abel
302 South 36th Street, Suite 400-H
Omaha, NE 68131
Steven A. McArthur
302 South 36th Street, Suite 400-H
Omaha, NE 68131
Craig M. Hammett
302 South 36th Street, Suite 400-H
Omaha, NE 68131
17
<PAGE>
4.3
CERTIFICATE OF FORMATION
OF
VPC GEOTHERMAL LLC
This Certificate of Formation of VPC Geothermal LLC (the "LLC"), dated as
of February 19, 1999, is being duly executed and filed by an authorized
person to form a limited liability company under the Delaware Limited Liability
Company Act (6 Del. C. Section 18-101, et seq.).
FIRST. The name of the limited liability company formed hereby is VPC
Geothermal LLC.
SECOND. The address of the registered office of the LLC in the State of
Delaware is c/o The Corporation Trust Company, Corporation Trust Center, 1209
Orange Street, Wilmington, Delaware 19801.
THIRD. The name and address of the registered agent for service of process
on the LLC in the State of Delaware are The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation as of the date first above written.
By: /s/ Douglas L. Anderson
---------------------------
Name: Douglas L. Anderson
Title: Assistant Secretary
<PAGE>
4.4
LIMITED LIABILITY COMPANY AGREEMENT
OF
VPC GEOTHERMAL LLC,
A DELAWARE LIMITED LIABILITY COMPANY
This LIMITED LIABILITY COMPANY AGREEMENT (as amended from time to time in
accordance with its terms, this "Agreement") for VPC Geothermal LLC (the
"Company"), by Vulcan Power Company, a Nevada corporation ("Vulcan," and jointly
with any other Person admitted to the Company as a member in accordance with
this Agreement, the "Members," with each being referred to, individually, as a
"Member"), is made effective as of February 19, 1999.
ARTICLE 1
ORGANIZATIONAL MATTERS
1.1 FORMATION.
1.1.1. Act. Vulcan hereby forms the Company as a limited liability
company under the Delaware Limited Liability Company Act (6 Del. C. Section
18-101, et seq.), as amended from time to time (the "Act") and agrees that the
rights and liabilities of the Members shall be as provided in the Act, except as
otherwise expressly provided herein. Vulcan is hereby admitted to the Company as
a member of the Company. In the event of any inconsistency between any terms and
conditions contained in this Agreement and any non-mandatory provisions of the
Act, the terms and conditions contained in this Agreement shall govern. The
Company shall commence on the date that the Certificate of Formation is
initially filed with the office of the Secretary of State of the State of
Delaware, and shall continue without dissolution until dissolved in accordance
with Section 2.13.
1.1.2. Name. The name of the Company shall be VPC Geothermal LLC.
The Company may also conduct business at the same time under one or more
fictitious names if the Board of Directors determines that such is in the best
interests of the Company. Without the need for the consent of any Member, the
Board of Directors may change the name of the Company, from time to time, and it
shall file or cause to be filed an appropriate amendment to the Certificate of
Formation of the Company, as amended or restated from time to time (the
"Certificate of Formation").
1.1.3. Place of Business; Registered Office and Agent. The
principal place of business of the Company shall be located at 302 South 36th
Street, Suite 400-J, Omaha, Nebraska 68131, or such other place within or
outside the State of Delaware as the Board of Directors may from time to time
designate by notice to the Members. The Company may maintain offices and places
of business at such other place or places within or outside the State of
Delaware as the Board of Directors deems advisable. The Company shall
continuously maintain
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a registered office and a designated and duly qualified agent for service of
process on the Company in the State of Delaware. The address of the current
registered office and of the current registered agent for service of process is
c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware, 19801.
1.1.4 Definitions. When used in this Agreement, capitalized terms
not otherwise defined herein have the meanings set forth on Schedule A attached
hereto.
1.2 BUSINESS PURPOSE. The Company has been formed and is authorized to
engage in any and all lawful business, purpose, or activity in which a limited
liability company may be engaged under applicable law (including, without
limitation, the Act), as the Board of Directors may determine, including,
without limitation, developing, owning, operating and disposing of power
production facilities and related activities.
1.3 REQUIRED FILINGS. Each Officer, acting singly or jointly, is hereby
designated as an authorized person, within the meaning of the Act, to execute,
deliver and file all certificates (and any amendments and/or restatements
thereof) required or permitted by the Act to be filed in the office of the
Secretary of State of the State of Delaware. Each Officer, acting singly or
jointly, shall also execute, deliver and file any other certificates (and any
amendments and/or restatements thereof) necessary for the Company to qualify to
do business in a jurisdiction in which the Company may wish to conduct business.
Each Officer, acting singly or jointly, shall cause a Certificate of Formation
to be executed and filed in the office of the Secretary of State of the State of
Delaware as required by the Act. Each Officer, acting singly or jointly, may
execute and file any duly authorized amendments or restatements to the
Certificate of Formation from time to time in a form prescribed by the Act. Each
Officer, acting singly or jointly, shall also cause to be made, on behalf of the
Company, such additional filings and recordings as the Board of Directors shall
deem necessary or advisable. Following the execution of this Agreement,
fictitious business name statements shall be filed and published when and if the
Board of Directors determines it to be necessary or advisable. Any such
statement shall be renewed as required by applicable law.
1.4 PERCENTAGE INTERESTS AND INITIAL CAPITAL CONTRIBUTIONS. The Members
shall make the following initial capital contributions to the Company on a date
as directed by the Board of Directors and shall have the following percentage
interests in the Company's distributions, profits and losses ("Percentage
Interests"):
<TABLE>
<CAPTION>
Member Initial Capital Contribution Percentage Interest
------ ---------------------------- -------------------
<S> <C> <C>
Vulcan Power Company $100.00 100%
</TABLE>
1.5 ADDITIONAL CAPITAL CONTRIBUTIONS. No Member has the right or obligation
to make any additional capital contributions to the Company. If the Board of
Directors determines, at any time and from time to time, that the Company
requires additional capital for its business and operations, the Board of
Directors, with the approval of a Supermajority in Interest of the Members, may
deliver a notice (an "Additional Capital Requirement Notice") to the Members
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<PAGE>
specifying the additional amount of capital so determined to be required from
each Member. Promptly upon receipt of an Additional Capital Requirement Notice,
a Member shall make such additional capital contribution. In the event any
Member does not contribute the entire amount required to be contributed by such
Member, the shortfall may be loaned to the Company by one or more of the other
Members on terms approved by the Board of Directors (which loans shall be
considered permitted Member loans).
1.6 DISTRIBUTIONS. Distributions shall be made to the Members at the time
and in the aggregate amounts determined by the Board of Directors.
Notwithstanding any provision to the contrary contained in this Agreement, the
Company shall not make a distribution to a Member on account of its interest in
the Company if such distribution would violate Sections 18-607 or 18-804 of the
Act or other applicable law.
1.7 ASSIGNMENTS. A Member may assign in whole or in part its limited
liability company interest in the Company. The transferee shall be admitted to
the Company as a member of the Company upon its execution of an instrument
signifying its agreement to be bound by the terms and conditions of this
Agreement, which instrument may be a counterpart signature page to this
Agreement. Such admission shall be deemed effective immediately prior to the
transfer, and, immediately following such admission in the case of a transferor
Member transferring its entire limited liability company interest in the
Company, the transferor Member shall cease to be a member of the Company.
Notwithstanding anything in this Agreement to the contrary, any successor to a
Member by merger, conversion or consolidation with the Member as a constituent
party in compliance with this Agreement shall, without further act, be a Member
hereunder, and such merger, conversion or consolidation shall not constitute an
assignment for purposes of this Agreement.
1.8. ADMISSION OF ADDITIONAL MEMBERS. Except as permitted by Section 1.7,
one or more additional members of the Company may be admitted to the Company
only with the written consent of all of the Members.
1.9 RESIGNATION. A Member may resign from the Company if it obtains the
written consent of all other Members.
1.10 UCC. The limited liability company interests in the Company are not
securities governed by Article 8 of the Uniform Commercial Code, as in effect in
any state.
1.11 BUSINESS VENTURES. A Member or a Director, or any affiliate thereof,
may engage in or possess an interest in other business ventures of any nature or
description, independently or with others, similar or dissimilar to the business
of the Company, and the Company shall have no rights by virtue of this Agreement
in and to such independent ventures or the income or profits derived therefrom,
and the pursuit of any such venture, even if competitive with the business of
the Company, shall not be deemed wrongful or improper. A Member or a Director,
or any affiliate thereof, shall not be obligated to present any particular
investment opportunity to the Company even if such opportunity is of a character
that, if presented to the Company, could be taken by the Company, and such
Member or Director, or any affiliate thereof, shall have the right to take for
its own account
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(individually or as a partner or fiduciary) or to recommend to others any such
particular investment opportunity.
ARTICLE 2
OPERATIONS
2.1 MANAGEMENT. The business and affairs of the Company shall be managed
exclusively by or under the direction of a board of one or more directors (the
"Board of Directors"). Each director of the Company (a "Director") is not a
"manager" (within the meaning of the Act) of the Company. Each Director
appointed shall hold office until a successor is appointed and qualified in
accordance with Section 2.10. The Members may, from time to time as they deem
advisable, appoint additional Directors by the affirmative vote of a
Supermajority in Interest of the Members.
The following persons are hereby appointed as Directors:
David L. Sokol
Gregory E. Abel
Steven A. McArthur
Craig M. Hammett
2.2 MEETINGS OF THE BOARD OF DIRECTORS. The Board of Directors shall hold
annual meetings at such time and at such place as shall be designated by the
President and stated in the notice of the meeting. Notice of the annual meeting
stating the place, date and hour of the meeting shall be given to each Director
not less than ten (10) days before the date of such annual meeting, either
personally, by telephone, by mail, by telegram or by any other means of
communication. Special meetings of the Board of Directors may be called by the
President on three (3) days' notice to each Director, either personally, by
telephone, by mail, by telegram or by any other means of communication; special
meetings shall be called by the President or Secretary in like manner and on
like notice on the written request of one or more of the Directors.
2.3 QUORUM AND ACTS OF THE BOARD OF DIRECTORS. At all meetings of the Board
of Directors a majority of the Directors shall constitute a quorum for the
transaction of business and the act of a majority of the Directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by this Agreement.
If a quorum shall not be present at any meeting of the Board of Directors, the
Directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Any action required or permitted to be taken at any meeting of the Board of
Directors may be taken without a meeting, if all members of the Board of
Directors consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board of Directors.
2.4 ELECTRONIC COMMUNICATIONS. Directors may participate in a meeting of
the Board of Directors by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
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2.5. COMPENSATION OF DIRECTORS; EXPENSES OF BOARD OF DIRECTORS. The Board
of Directors shall have the authority to fix the compensation of Directors. The
Directors may be paid their expenses, if any, of attendance at such meeting of
the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as a Director. No such
payment shall preclude any Director from serving the Company in any other
capacity and receiving compensation therefor. The Board of Directors shall be
entitled to reimbursement from the Company for all costs and expenses (including
allocable overhead, fees paid to outside consultants, on-site personnel hired by
the Board of Directors and others who are not salaried employees of the Company
at the time of the performance of such services) incurred by it for or on behalf
of the Company. No Member shall be entitled to any compensation for its services
to the Company or in the conduct of the business of the Company.
2.6 OFFICERS. The officers of the Company (the "Officers") shall be chosen
by the Members or the Board of Directors and shall include a President, Vice
President, Secretary, and Treasurer. The Members or the Board of Directors may
also choose additional Vice Presidents and one or more Assistant Secretaries and
Assistant Treasurers. Any number of offices may be held by the same person.
2.6.1 Additional Officers. The Members or the Board of Directors at
its annual meetings may appoint such other Officers and agents as they or it
shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors.
2.6.2 Compensation of Officers. The salaries of all Officers and
agents of the Company shall be fixed from time to time by the Board of
Directors. No Officer shall be prevented from receiving such salary by reason of
the fact that he is also a Director of the Company.
2.6.3 Removal of Officers; Vacancies. The Officers of the Company
shall hold office until their successors are chosen and qualified. Any Officer
elected or appointed by the Members or the Board of Directors may be removed at
any time by the Chairman of the Board or the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the Company shall
be filled by the Board of Directors.
2.6.4 Initial Officers. The initial Officers are as follows:
David L. Sokol Chairman and Chief Executive Officer
Gregory E. Abel President and Chief Operating Officer
Steven A. McArthur Executive Vice President, General Counsel and Secretary
Craig M. Hammett Senior Vice President and Chief Financial Officer
Robert S. Silberman Senior Vice President, Administration
Douglas L. Anderson Assistant General Counsel and Assistant Secretary
James A. Flores Vice President, Project Finance
Patrick J. Goodman Vice President and Chief Accounting Officer
Brian K. Hankel Vice President and Treasurer
Stephen A. Amdor Assistant Treasurer
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Jonathan M. Weisgall Vice President, Legislative & Regulatory Affairs
2.6.5 The Chairman of the Board. The Chairman of the Board shall be
the Chief Executive Officer and shall have general and active supervision and
direction over the management of the Company's business and over the President
and Chief Operating Officer and all of the Company's other Officers, agents and
employees. The Chairman of the Board shall, if present, preside at each meeting
of the Members and of the Board of Directors and shall be an ex officio member
of any and all committees of the Board of Directors. The Chairman of the Board
shall perform all duties incident to the office of Chairman of the Board and
such other duties as may from time to time be assigned to him by the Board of
Directors or the Members. The Chairman of the Board shall execute bonds,
mortgages and other contracts requiring a seal, under a seal of the Company,
except where required or permitted by law to be otherwise signed and executed
and except where the signing and execution thereof shall be expressly delegated
by the Board of Directors or the Members to some other Officer or agent of the
Company.
2.6.6 The President. The President, in consultation with and
subject to the direction of the Chairman of the Board, shall have general and
active management of the business of the Company and shall see that all orders
and resolutions of the Board of Directors or the Members are carried into
effect.
2.6.7 The Vice President. In the absence of the President or in the
event of his inability or refusal to act, the Vice President (or in the event
there shall be more than one Vice President, the Vice Presidents in the order
designated by the Board of Directors, or in the absence of any designation, then
in the order of their election) shall perform the duties of the President, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. The Vice President shall perform such other
duties and have such other powers as the Board of Directors or the Members shall
from time to time prescribe.
2.6.8 The Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the Members and record all the
proceedings of the meetings of the Company and of the Board of Directors in a
book to be kept for that purpose and shall perform like duties for any standing
committees when required. The Secretary shall give, or cause to be given, notice
of all meetings of the Members and meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or the
President, under whose supervision he shall be. The Secretary shall have custody
of the seal of the Company, and he, or an Assistant Secretary, shall have the
authority to affix the same to any instrument requiring it and, when so affixed,
it may be attested by his signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
Officer to affix the seal of the Company and to attest the affixing by his
signature.
2.6.9 The Assistant Secretary. The Assistant Secretary (or if there
shall be more than one, the Assistant Secretaries in the order determined by the
Board of Directors, or in the absence of any determination, then in the order of
their election) shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors or the Members may from time to time prescribe.
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2.6.10 The Treasurer. The Treasurer shall have the custody of the
Company funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Company and shall deposit
all moneys and other valuable effects in the name and to the credit of the
Company in such depositories as may be designated by the Board of Directors or
the Members. The Treasurer shall disburse the funds of the Company as may be
ordered by the Board of Directors or the Members, taking proper vouchers for
such disbursements, and shall render to the President and the Board of
Directors, at its annual meetings, or when the Board of Directors so requires,
an account of all of the Treasurer's transactions and of the financial condition
of the Company. If required by the Board of Directors or the Members, the
Treasurer shall give the Company a bond (which shall be renewed every six years)
in such sum and with such surety or sureties as shall be satisfactory to the
Board of Directors for the faithful performance of the duties of his office and
for the restoration to the Company, in the case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the Company.
2.6.11 The Assistant Treasurer. The Assistant Treasurer (or if
there shall be more than one, the Assistant Treasurers, in the order determined
by the Board of Directors or the Members, or in the absence of any
determination, then in the order of their election) shall, in the absence of the
Treasurer or in the event of his inability or refusal to act, perform the duties
and exercise the powers of the Treasurer and shall perform such other duties and
have such other powers as the Board of Directors or the Members may from time to
time prescribe.
2.6.12 Actions of Members. All references in this Section 2.6 to
actions of the Members shall mean such Members acting by an affirmative vote of
a Supermajority in Interest of the Members.
2.7. BINDING. Unless otherwise determined by the Board of Directors or as
otherwise set forth in this Agreement, each Director and Officer has the
authority to bind the Company.
2.8 POWERS. Subject to the provisions of this Agreement, including Sections
2.9 and 2.10, the Board of Directors shall have full and complete charge of all
the affairs and business of the Company, in all respects and in all matters,
including, without limitation, the responsibility, authority and power, on
behalf of the Company, at the Company's expense and without the approval of any
Member, to:
(a) acquire, operate, lease, encumber or dispose of any direct and
indirect interests in real and personal property (including tangible and
intangible property and cash) owned by the Company from time to time, and
any property received in exchange therefor;
(b) pay, collect, compromise, arbitrate or otherwise adjust any and
all claims or demands of or against the Company, in such amounts and upon
such terms and conditions as the Board of Directors shall reasonably
determine;
(c) from time to time, employ, engage, hire or otherwise secure the
services of such Persons, including any of the parties hereto or any
Persons related
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thereto or affiliated therewith, as the Board of Directors may reasonably
deem advisable for the proper execution of its duties as the Board of
Directors hereunder, provided such services are within the scope of the
foregoing authority granted to the Board of Directors hereunder, such
employment to be for such reasonable compensation and upon such reasonable
terms and conditions as the Board of Directors shall determine;
(d) prepare, execute, file, record, publish and deliver any and all
instruments, documents or statements necessary or convenient to effectuate
any and all actions that the Board of Directors is authorized to take on
behalf of the Company;
(e) borrow money and issue evidences of indebtedness necessary,
convenient or incidental to the accomplishment of the purposes of the
Company, and secure the same by mortgage, pledge or other lien on any
Company assets;
(f) deal with, or otherwise engage in business with, or provide
services to and receive compensation therefor from, any Person that has
provided or may in the future provide services to, lend money to, sell
property to, or purchase property from the Members or the Board of
Directors, or any affiliate thereof;
(g) establish and maintain reserves for such purposes and in such
amounts as it deems appropriate from time to time; and
(h) engage in any kind of activity and perform and carry out
contracts of any kind necessary to, in connection with or incidental to the
accomplishment of the purposes of the Company, as may be lawfully carried
on or performed by a limited liability company under the laws of the State
of Delaware.
Except as expressly provided in this Agreement or required by law, the Members
shall have no right to vote on or consent to any other matter, act, decision or
document involving the Company or its business.
2.9 LIMITS ON AUTHORITY OF BOARD OF DIRECTORS. None of the following
actions may be taken by the Board of Directors without the affirmative approval
of Members having sixty-six percent (66%) of the Percentage Interests in the
Company (a "Supermajority in Interest of the Members"):
(a) Except as otherwise provided herein, any amendment to this
Agreement or the Certificate of Formation;
(b) The removal or replacement of any Director;
(c) The increase or decrease of the number of Directors to a number
other than four (4);
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(d) The demand for additional capital contributions to the Company;
(e) Except as otherwise provided in Section 2.14, the merger or
consolidation of the Company with, or conversion of the Company into, any
other entity or entities;
(f) The additional borrowing of money or issuing of evidences of
indebtedness beyond that which the Company has outstanding as of the date
hereof or by virtue of the Merger if such borrowing or issuance is in
excess of $1,000,000;
(g) The sale of all or any substantial part of the assets of the
Company; and
(h) The commencement of proceedings to have the Company be
adjudicated bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against the Company or the filing of a
petition seeking, or consent to, reorganization or relief with respect to
the Company under any applicable federal or state law relating to
bankruptcy, or the consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Company
or a substantial part of its property, or the assignment for the benefit of
creditors of the Company, or the admission in writing the Company's
inability to pay its debts generally as they become due, or, to the fullest
extent permitted by law, the taking of action in furtherance of any such
action.
2.10 SUCCESSOR DIRECTORS. A Director may be removed from the Board of
Directors at any time, with or without cause, by the affirmative vote of a
Supermajority in Interest of the Members. A Director may resign from the Board
of Directors at any time without prejudice to any rights of the Company or any
Member as against the resigning Director, by giving written notice to the
Members. If a Director dies, dissolves, resigns or becomes otherwise unwilling
or unable to act as a Director and if no successor Director has been selected as
provided in this Agreement, one or more successor Directors shall be selected by
the vote of a Supermajority in Interest of the Members. Each successor Director
shall have all the rights and responsibilities of its predecessors. It is the
intent of this provision to provide for effective continuity of management of
the Company.
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2.11 INDEMNIFICATION AND LIABILITY.
2.11.1 The Company shall indemnify and hold harmless each Member,
each Director and each Officer, and all affiliates, officers, directors,
shareholders, partners, members, co-trustees, employees and agents of any of the
foregoing (individually, an "Indemnitee") to the fullest extent permitted by
applicable law from and against any and all losses, claims, demands, costs,
damages, liabilities, joint and several, expenses of any nature (including
attorneys' fees and disbursements), judgments, fines, settlements and other
amounts arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative, in which the Indemnitee may be
involved, or threatened to be involved as a party or otherwise, arising out of
or incident to the business of the Company, unless such loss, claim, demand,
cost, damage or liability was proximately caused by such Indemnitee's (i) not
acting (or failing to act) in good faith and in a manner believed to be in, or
not opposed to, the interests of the Company or (ii) gross negligence or willful
misconduct.
2.11.2 Expenses incurred by an Indemnitee in defending any claim,
demand, action, suit or proceeding subject to this Section 2.11 shall be
advanced by the Company prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such Indemnitee to repay such amount if it shall be determined that such
Indemnitee is not entitled to be indemnified by the Company as authorized in
Section 2.11.1.
2.11.3 The indemnification provided by this Section 2.11 shall be
in addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to an affirmative vote of Members holding fifty-one percent
(51%) of the Percentage Interests in the Company, as a matter of law or equity
or otherwise, and shall inure to the benefit of the heirs, successors, assigns
and administrators of the Indemnitee.
2.11.4 Any indemnification provided hereunder shall be satisfied
solely out of the assets of the Company. Neither any Member nor any Director nor
any Officer shall be subject to personal liability by reason of these
indemnification provisions.
2.11.5 No Indemnitee shall be denied indemnification in whole or in
part under this Section 2.11 by reason of the fact that the Indemnitee had an
interest in the transaction with respect to which the indemnification applies if
the transaction was otherwise permitted by the terms of this Agreement.
2.11.6 The provisions of this Section 2.11 are for the benefit of
the Indemnitees and shall not be deemed to create any rights for the benefit of
any other Person.
2.11.7 Neither any Member nor any Director nor any Officer nor the
affiliates, officers, directors, shareholders, partners, members, co-trustees,
employees or agents of any of the foregoing shall be liable to the Company or to
a Member for any losses sustained or liabilities incurred as a result of any act
or omission of such Member, Director, Officer or any such other Person if (i)
such Member, Director, Officer or such other Person acted (or failed to act) in
good faith and in a manner believed to be in, or not opposed to, the
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interests of the Company and (ii) the conduct of such Member, Director, Officer
or such other Person did not constitute gross negligence or willful misconduct.
2.11.8. An Indemnitee shall be fully protected in relying in good
faith upon the records of the Company and upon such information, opinions,
reports or statements presented to the Company by any Person as to matters the
Indemnitee reasonably believes are within such other Person's professional or
expert competence and that has been selected with reasonable care by or on
behalf of the Company, including information, opinions, reports or statements as
to the value and amount of the assets, liabilities, or any other facts pertinent
to the existence and amount of assets from which distributions to the Members
might properly be paid.
2.11.9. To the extent that, at law or in equity, an Indemnitee has
duties (including fiduciary duties) and liabilities relating thereto to the
Company or to any other Indemnitee, an Indemnitee acting under this Agreement
shall not be liable to the Company or to any other Indemnitee for its good faith
reliance on the provisions of this Agreement or any approval or authorization
granted by the Company or any other Indemnitee. The provisions of this
Agreement, to the extent that they restrict the duties and liabilities of an
Indemnitee otherwise existing at law or in equity, are agreed by the Members to
replace such other duties and liabilities of such Indemnitee.
2.11.10. The foregoing provisions of this Section 2.11 shall
survive any termination of this Agreement.
2.12 BOOKS AND RECORDS. The Board of Directors shall keep or cause to be
kept complete and accurate books of account and records with respect to the
Company's business. The books of the Company shall at all times be maintained by
the Board of Directors. Each Member and its duly authorized representatives
shall have the right to examine the Company books, records and documents during
normal business hours for any purpose reasonably related to such Member's
interest as a member of the Company. The Company's books of account shall be
kept using the method of accounting determined by the Board of Directors.
2.13 DISSOLUTION. The Company shall dissolve, and its affairs shall be
wound up upon the first to occur of the following:
(a) the written consent of all of the Members;
(b) the last remaining Member ceasing to be a member of the Company
unless the business of the Company is continued without dissolution in
accordance with the Act; and
(c) the entry of a decree of judicial dissolution under Section
18-802 of the Act.
The bankruptcy (as defined in the Act) of a Member shall not cause such
Member to cease to be a member of the Company and shall not cause a dissolution
of the
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Company. The Members hereby waive any right they may have to vote to dissolve
the Company under Section 18-801(b) of the Act.
2.14 AUTHORIZATION OF MERGER. Without the need for the consent of any
additional Person and notwithstanding anything in this Agreement to the
contrary, the Company is authorized to merge with BN Geothermal Inc. ("BN"),
with the Company being the surviving entity (the "Merger"). Without the need for
the consent of any additional Person and notwithstanding anything in this
Agreement to the contrary, the Company is authorized to execute and deliver, and
to consummate all of the transactions contemplated by, the Agreement and Plan of
Merger, between the Company and BN (the "Merger Agreement"), and any Officer, on
behalf of the Company, is authorized to execute, acknowledge and verify,
deliver, file and record any and all documents and instruments, including,
without limitation, the Merger Agreement, the Certificate of Merger relating to
the Merger and those documents and instruments required or contemplated by
applicable law that the Board of Directors or the Members deem necessary or
appropriate to effectuate the Merger.
ARTICLE 3
OTHER PROVISIONS
3.1 ENTIRE AGREEMENT; BINDING PROVISIONS; SEPARABILITY. This Agreement
constitutes the entire agreement between and among the parties hereto pertaining
to the subject matter hereof and fully supersedes any and all prior agreements
or understandings between or among the parties hereto pertaining to the subject
matter hereof. The covenants and agreements contained in this Agreement shall be
binding upon, and inure to the benefit of, the heirs, executors, administrators,
personal representatives, successors and permitted assigns of the respective
parties hereto. Each provision of this Agreement shall be considered separable,
and, if for any reason any provision or provisions hereof are determined to be
invalid and contrary to any existing or future law, such invalidity shall not
impair the operation or effect of those portions of this Agreement that are
valid.
3.2 FURTHER ASSURANCES. Each of the parties hereto does hereby covenant and
agree on behalf of itself, its successors and its assigns, without further
consideration, to prepare, execute, acknowledge, file, record, publish and
deliver such other instruments, documents and statements, and to take such other
action as may be required by law or necessary to effectively carry out the
purposes of this Agreement.
3.3. NOTICES. Any notices required to be delivered hereunder shall be in
writing and personally delivered, mailed or sent by telecopy, electronic mail,
or other similar form of rapid transmission, and shall be deemed to have been
duly given upon receipt (a) in the case of the Company, to the Company at its
address in Section 1.1.3, (b) in the case of a Member or a Director, to such
party at its address as listed on Schedule B attached hereto or (c) at such
other address as may be designated by written notice to the other parties.
3.4 WAIVER OF PARTITION; NATURE OF INTEREST. Except as otherwise expressly
provided in this Agreement, to the fullest extent permitted by law, each Member
hereby
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irrevocably waives any right or power that such Member might have to cause the
Company or any of its assets to be partitioned, to cause the appointment of a
receiver for all or any portion of the assets of the Company, to compel any sale
of all or any portion of the assets of the Company pursuant to any applicable
law or to file a complaint or to institute any proceeding at law or in equity to
cause the dissolution, liquidation, winding up or termination of the Company. No
Member shall have any interest in any specific assets of the Company, and no
Member shall have the status of a creditor with respect to any distribution
pursuant to Section 1.6. The interest of the Members in the Company is personal
property.
3.5 LIMITED LIABILITY. Except as otherwise expressly provided by the Act,
the debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be the debts, obligations and liabilities
solely of the Company, and neither any Member nor any Director nor any Officer
shall be obligated personally for any such debt, obligation or liability of the
Company solely by reason of being a member, director or officer of the Company.
3.6 GOVERNING LAW. This Agreement, including its existence, validity,
construction and operating effect, and the rights of each of the parties hereto,
shall be governed by and construed in accordance with the laws of the State of
Delaware (without regard to its principles of conflict of laws).
3.7 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of the successors and
assigns of the respective Members.
3.8 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which together shall constitute one agreement binding on all parties hereto,
notwithstanding that all of the parties have not signed the same counterpart.
3.9 TITLES. Article and Section titles are for descriptive purposes only
and shall not control or alter the meaning of this Agreement as set forth in the
text.
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IN WITNESS WHEREOF, the party hereto has duly executed this Agreement as
of the day and year first above written.
VULCAN POWER COMPANY,
a Nevada corporation, as member
By: /s/ Douglas L. Anderson
---------------------------
Name: Douglas L. Anderson
Title: Assistant Secretary
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SCHEDULE A
Definitions
-----------
A. Definitions
-----------
"Act" has the meaning set forth in Section 1.1.1.
"Additional Capital Requirement Notice" has the meaning set forth in Section
1.5.
"Agreement" has the meaning set forth in the preamble to this Agreement.
"Assistant Secretary" means the one or more persons appointed as Assistant
Secretary in accordance with the terms of this Agreement.
"Assistant Treasurer" means the one or more persons appointed as Assistant
Treasurer in accordance with the terms of this Agreement.
"BN" has the meaning set forth in Section 2.14.
"Board of Directors" has the meaning set forth in Section 2.1.
"Certificate of Formation" has the meaning set forth in Section 1.1.2.
"Company" has the meaning set forth in the preamble to this Agreement.
"Directors" has the meaning set forth in Section 2.1.
"Indemnitee" has the meaning set forth in Section 2.11.1.
"Member" has the meaning set forth in the preamble to this Agreement.
"Merger" has the meaning set forth in Section 2.14.
"Merger Agreement" has the meaning set forth in Section 2.14.
"Officers" has the meaning set forth in Section 2.6.
"Percentage Interests" has the meaning set forth in Section 1.4.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, limited liability partnership, association,
joint-stock company, trust, unincorporated organization, or other organization,
whether or not a legal entity, and any governmental authority.
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"President" means the person appointed as President in accordance with the
terms of this Agreement.
"Secretary" means the person appointed as Secretary in accordance with the
terms of this Agreement.
"Supermajority in Interest of the Members" has the meaning set forth in
Section 2.9.
"Treasurer" means the person appointed as Treasurer in accordance with the
terms of this Agreement.
"Vice President" means the one or more persons appointed as Vice President
in accordance with the terms of this Agreement.
"Vulcan" has the meaning set forth in the preamble to this Agreement.
B. Rules of Construction
---------------------
Definitions in this Agreement apply equally to both the singular and plural
forms of the defined terms. The words "include" and "including" shall be
deemed to be followed by the phrase "without limitation." The terms
"herein," "hereof" and "hereunder" and other words of similar import refer
to this Agreement as a whole and not to any particular Section, paragraph
or subdivision. All Section, paragraph, clause or Schedule references not
attributed to a particular document shall be references to such parts of
this Agreement.
RLF3-1097159-1
16
<PAGE>
SCHEDULE B
Addresses
---------
Members:
Vulcan Power Company
302 South 36th Street, Suite 400-F
Omaha, NE 68131
Directors:
David E. Sokol
302 South 36th Street, Suite 400-J
Omaha, NE 68131
Gregory E. Abel
302 South 36th Street, Suite 400-J
Omaha, NE 68131
Steven A. McArthur
302 South 36th Street, Suite 400-J
Omaha, NE 68131
Craig M. Hammett
302 South 36th Street, Suite 400-J
Omaha, NE 68131
17
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:30 PM 06/01/1998
981209942 - 2903133
CERTIFICATE OF FORMATION
OF
CALENERGY MINERALS LLC
1. The name of the limited liability company is CalEnergy Minerals LLC.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at
such address is The Corporation Trust Company.
3. This Certificate of formation shall be effective February 12, 1998.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Formation of CalEnergy Minerals LLC this 12th day of February, 1998.
/s/ Douglas L. Anderson
-------------------------
Douglas L. Anderson
Authorized Person
<PAGE>
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
CALENERGY MINERALS LLC,
A DELAWARE LIMITED LIABILITY COMPANY
This LIMITED LIABILITY COMPANY OPERATING AGREEMENT (the
"AGREEMENT") for CalEnergy Minerals LLC (the "COMPANY"), by and between
CalEnergy Minerals, Inc., a Delaware corporation, and Magma Power Company, a
Nevada corporation (collectively, the "MEMBERS", with each being referred to,
individually, as a "MEMBER"), is made effective as of February 24, 1998.
ARTICLE 1
ORGANIZATIONAL MATTERS
1.1 FORMATION. The Members hereby form the Company as a limited
liability company under the Delaware Limited Liability Company Act, Del. Code
Ann. tit. 6, Sections 18-101 to 18-1109 (the "Act") and agree that the rights
and liabilities of the Members and the Manager of the Company shall be as
provided in the Act, except as otherwise expressly provided herein. In the event
of any inconsistency between any terms and conditions contained in the Agreement
and any non-mandatory provisions of the Act, the terms and conditions contained
in the Agreement shall govern. The name of the Company shall be CalEnergy
Minerals LLC. The Company may also conduct business at the same time under one
or more fictitious names if the Manager determines that such is in the best
interests of the Company. The Manager may change the name of the Company, from
time to time, in accordance with applicable law, and it shall file or cause to
be filed the appropriate certificate of amendment to the Certificate of
Formation. The principal place of business of the Company shall be located at
302 South 36th Street, Suite 400-L, Omaha, NE 68131, or such other place within
or outside the State of Delaware as the Manager may from time to time designate
by notice to the Members. The Company may maintain offices and places of
business at such other place or places within or outside the State of Delaware
as the Manager deems advisable. The Company shall continuously maintain a
registered office and a designated and duly qualified agent for service of
process on the Company in the State of Delaware. The address of current
registered office and of the current registered agent for service of process is
c/o CT Corporation, Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware, 19801. The Company shall commence on the date that the Certificate of
Formation is filed with the Office of the Delaware Secretary of State, and shall
continue and be perpetual until terminated by agreement in writing among the
parties or otherwise under the Act.
1.2 BUSINESS PURPOSE. The Company has been formed and is authorized to
engage in any and all lawful business, purpose, or activity in which a limited
liability company may be engaged under applicable law (including, without
limitation, the Act), as the Manager may determine. In particular, the Company
is formed for the purpose of developing, owning and operating commercial
minerals recovery facilities and related activities.
1
<PAGE>
1.3 REQUIRED FILINGS. The Manager has caused to be executed and filed, a
Certificate of Formation in the Office of the Delaware Secretary of State as
required by the Act. The Manager may execute and file any duly authorized
amendments to the Certificate of Formation from time to time in a form
prescribed by the Act. The Manager shall also cause to be made, on behalf of the
Company, such additional filings and recordings as the Manager shall deem
necessary or advisable. Following the execution of this Agreement, fictitious
business name statements shall be filed and published when and if the Manager
determines it necessary or advisable. Any such statement shall be renewed as
required by applicable law.
1.4 PERCENTAGE INTERESTS AND INITIAL CAPITAL CONTRIBUTIONS. The Members
shall make the following initial capital contributions to the Company on a date
as directed by the Manager and shall have the following percentage interests in
the Company's distributions, profits and losses:
Member Initial Capital Contribution Percentage Interest
------ ---------------------------- -------------------
CalEnergy Minerals, Inc. $25,000 50%
Magma Power Company $25,000 50%
1.5 ADDITIONAL CAPITAL CONTRIBUTIONS. No Member has the right or
obligation to make any additional capital contributions to the Company. If the
Manager determines, at any time and from time to time, that the Company requires
additional capital for its business and operations, the Manager, with the
approval of a Supermajority in Interest of the Members (defined below), may
deliver notice (an "Additional Capital Requirement Notice") to the Members
specifying the additional amount of capital so determined to be required from
each Member. Promptly upon receipt of an Additional Capital Requirement Notice,
a Member shall make such additional capital contribution. In the event any
Member does not contribute the entire amount required to be contributed by such
Member, the shortfall may be loaned to the Company by one or more of the other
Members on terms approved by the Manager (which loans shall be considered
permitted Member loans).
1.6 RESIGNATION. A Member may resign from the Company if it obtains the
written consent all other Members.
ARTICLE 2
OPERATIONS
2.1 MANAGEMENT. The business and affairs of the Company shall be managed
exclusively by CalEnergy Minerals, Inc. (the "Manager"). Subject to Sections 2.2
and 2.3 hereof, the Manager shall have full and complete charge of all the
affairs and business of the Company, in all respects and in all matters,
including, without limitation, the responsibility, authority and power, on
behalf of the Company, at the Company's expense and without the approval of any
other Member, to:
2
<PAGE>
(a) acquire, operate, lease, encumber or dispose of any direct
and indirect interests in real and personal property (including tangible
and intangible property and cash) owned by the Company from time to
time, and any property received in exchange therefor;
(b) pay, collect, compromise, arbitrate or otherwise adjust any
and all claims or demands of or against the Company, in such amounts and
upon such terms and conditions as the Manager shall reasonably
determine;
(c) from time to time, employ, engage, hire or otherwise secure
the services of such persons, firms or corporations, including any of
the parties hereto or any persons, firms or corporations related thereto
or affiliated therewith, as the Manager may reasonably deem advisable
for the proper execution of its duties as Manager hereunder, provided
such services are within the scope of the foregoing authority granted to
the Manager hereunder, such employment to be for such reasonable
compensation and upon such reasonable terms and conditions as the
Manager shall determine;
(d) prepare, execute, file, record, publish and deliver any and
all instruments, documents or statements necessary or convenient to
effectuate any and all actions that the Manager is authorized to take on
behalf of the Company.
(e) borrow money and issue evidences of indebtedness necessary,
convenient or incidental to the accomplishment of the purposes of the
Company, and secure the same by mortgage, pledge or other lien on any
Company assets;
(f) deal with, or otherwise engage in business with, or provide
services to and receive compensation therefor from, any person who has
provided or may in the future provide services to, lend money to, sell
property to, or purchase property from the Members or any affiliate of
the Members;
(g) establish and maintain reserves for such purposes and in such
amounts as they deem appropriate from time to time; and
(h) engage in any kind of activity and perform and carry out
contracts of any kind necessary to, in connection with or incidental to
the accomplishment of the purposes of the Company, as may be lawfully
carried on or performed by a limited liability company under the laws of
the State of Delaware.
Except as expressly provided in this Agreement or required by law, the Members
shall have no right to vote on or consent to any other matter, act, decision or
document involving the Company or its business.
3
<PAGE>
2.2 LIMITS ON AUTHORITY OF MANAGER. None of the following actions may be
taken by the Manager without the approval of Members having sixty-six percent
(66%) of the Percentage Interests in the Company (a "Supermajority in Interest
of the Members"):
(a) Except as otherwise provided herein, any amendment to this
Agreement or the Certificate of Formation;
(b) The removal or replacement of a Manager;
(c) The demand for additional capital contributions to the
Company;
(d) An agreement to merge the Company with any other entity or
entities; and
(e) Any substantial change in the business purpose of the
Company.
2.3 SUCCESSOR MANAGER. A Manager may be removed at any time, with or
without cause, by the affirmative vote of a Supermajority in Interest of the
Members. A Manager may resign at any time without prejudice to any rights of the
Company or any Member as against the resigning Manager, by giving written notice
to the Members. If the Manager dies, dissolves, resigns or becomes otherwise
unwilling or unable to act as the Manager and if no successor Manager or Manager
has been selected as provided in this Agreement, one or more successor Manager
shall be selected by the vote of a Supermajority in Interest of the Members. If
one or more successor Manager cannot be so selected, then the Company shall be
dissolved. References in this Agreement to the "Manager" shall include CalEnergy
Minerals, Inc. while it is acting as Manager and to any successor Manager(s).
Each successor Manager shall have all the rights and responsibilities of its
predecessors. It is the intent of this provision to provide for effective
continuity of management of the Company.
2.4 COMPENSATION/REIMBURSEMENT. Except as expressly provided in this
Section, no Member or Manager shall be entitled to any compensation for his or
her services to the Company or in the conduct of the business of the Company.
The Manager shall be entitled to reimbursement from the Company for all costs
and expenses (including allocable overhead, fees paid to outside consultants,
on-site personnel hired by the Manager and others who are not salaried employees
of the Company at the time of the performance of such services) incurred by it
for or on behalf of the Company.
4
<PAGE>
2.5 INDEMNIFICATION AND LIABILITY OF MANAGER.
2.5.1 The Company shall indemnify and hold harmless each Manager,
its affiliates, and all officers, directors, shareholders, partners, members
(excluding, for this purpose, other members of the Company), co-trustees,
employees and agents of any of the foregoing (individually, an "Indemnitee") to
the fullest extent permitted by applicable law from and against any and all
losses, claims, demands, costs, damages, liabilities, joint and several,
expenses of any nature (including attorneys' fees and disbursements), judgments,
fines, settlements and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
in which the Indemnitee may be involved, or threatened to be involved as a party
or otherwise, arising out of or incident to the business of the Company.
2.5.2 Expenses incurred by an Indemnitee in defending any claim,
demand, action, suit or proceeding subject to this Section 2.5 shall be advanced
by the Company prior to the final disposition of such claim, demand, action,
suit or proceeding.
2.5.3 The indemnification provided by this Section 2.5 shall be
in addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to an affirmative vote of Members holding fifty-one percent
(51%) of the Percentage Interests in the Company, as a matter of law or equity
or otherwise, and shall inure to the benefit of the heirs, successors, assigns
and administrators of the Indemnitee.
2.5.4 Any indemnification provided hereunder shall be satisfied
solely out of the assets of the Company. Neither the Manager nor any Member
shall be subject to personal liability by reason of these indemnification
provisions.
2.5.5 No Indemnitee shall be denied indemnification in whole or
in part under this Section 2.5 by reason of the fact that the Indemnitee had an
interest in the transaction with respect to which the indemnification applies if
the transaction was otherwise permitted by the terms of this Agreement.
2.5.6 The provisions of this Section 2.5 are for the benefit of
the Indemnities and shall not be deemed to create any rights for the benefit of
any other person or entity.
2.5.7 Neither the Manager nor its affiliates nor the officers,
directors, shareholders, partners, members, co-trustees, employees or agents of
any of the foregoing shall be liable to the Company or to a Member for any
losses sustained or liabilities incurred as a result of any act or omission of
the Manager or any such other person or entity if (i) the Manager or such other
person or entity acted (or failed to act) in good faith and in a manner believed
to be in, or not opposed to, the interests of the Company and (ii) the conduct
of the Manager or such other person or entity did not constitute gross
negligence or willful misconduct.
5
<PAGE>
ARTICLE 3
OTHER PROVISIONS
3.1 ENTIRE AGREEMENT; BINDING PROVISIONS; SEPARABILITY. This Agreement
constitutes the entire agreement between and among the parties hereto pertaining
to the subject matter hereof and fully supersedes any and all prior agreements
or understandings between or among the parties hereto pertaining to the subject
matter hereof. The covenants and agreements contained in this Agreement shall be
binding upon, and inure to the benefit of, the heirs, executors, administrators,
personal representatives, successors and permitted assigns of the respective
parties hereto. Each provision of this Agreement shall be considered separable,
and, if for any reason any provision or provisions hereof are determined to be
invalid and contrary to any existing or future law, such invalidity shall not
impair the operation or effect of those portions of this Agreement that are
valid.
3.2 FURTHER ASSURANCES. Each of the parties hereto does hereby covenant
and agree on behalf of itself, its successors and its assigns, without further
consideration, to prepare, execute, acknowledge, file, record, publish and
deliver such other instruments, documents and statements, and to take such other
action as may be required by law or necessary to effectively carry out the
purposes of this Agreement.
3.3 TAX MATTERS. The Manager shall be designated and shall operate as
"tax matters partner" (as defined in Internal Revenue Code of 1986 Section
6231), to oversee or handle matters relating to taxation of the Company. The
Manager may make all Company elections for federal income and all other tax
purposes.
3.4 GOVERNING LAW. This Agreement, including its existence, validity,
construction and operating effect, and the rights of each of the parties hereto,
shall be governed by and construed in accordance with the laws of the State of
Delaware (without regard to its principles of conflicts of law).
3.5 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of the successors and
assigns of the respective Members.
3.6 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which together shall constitute one agreement binding on all parties hereto,
notwithstanding that all of the parties have not signed the same counterpart.
6
<PAGE>
3.7 TITLES. Article and Section titles are for descriptive purposes only
and shall not control or alter the meaning of this Agreement as set forth in the
text.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
CalEnergy Minerals, Inc., Magma Power Company,
a Delaware corporation a Nevada corporation
By:/s/ Douglas L. Anderson By:/s/ Douglas L. Anderson
------------------------------- -------------------------------
Name: Douglas L. Anderson Name: Douglas L. Anderson
--------------------------- ---------------------------
Title: Authorized Person Title: Authorized Person
--------------------------- ---------------------------
7
<PAGE>
CERTIFICATE OF FORMATION
OF
CE TURBO LLC
1. The name of the limited liability company is CE Turbo LLC.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1219 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is
The Corporation Trust Company.
3. This Certificate of formation shall be effective June 1, 1998.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation of CE Turbo LLC this 1st day of June, 1998.
/s/ Douglas L. Anderson
------------------------
Douglas L. Anderson
<PAGE>
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
CE TURBO LLC,
A DELAWARE LIMITED LIABILITY COMPANY
This LIMITED LIABILITY COMPANY OPERATING AGREEMENT (the
"AGREEMENT") for CE Turbo LLC (the "COMPANY"), by and between CE Salton Sea
Inc., a Delaware corporation, and Magma Power Company, a Nevada corporation
(collectively, the "MEMBERS", with each being referred to, individually, as a
"MEMBER"), is made effective as of June 1, 1998.
ARTICLE 1
ORGANIZATIONAL MATTERS
1.1 FORMATION. The Members hereby form the Company as a limited
liability company under the Delaware Limited Liability Company Act, Del. Code
Ann. tit. 6, Sections 18-101 to 18-1109 (the "Act") and agree that the rights
and liabilities of the Members and the Manager of the Company shall be as
provided in the Act, except as otherwise expressly provided herein. In the event
of any inconsistency between any terms and conditions contained in the Agreement
and any non-mandatory provisions of the Act, the terms and conditions contained
in the Agreement shall govern. The name of the Company shall be CE Turbo LLC.
The Company may also conduct business at the same time under one or more
fictitious names if the Manager determines that such is in the best interests of
the Company. The Manager may change the name of the Company, from time to time,
in accordance with applicable law, and it shall file or cause to be filed the
appropriate certificate of amendment to the Certificate of Formation. The
principal place of business of the Company shall be located at 302 South 36th
Street, Suite 400-M, Omaha, NE 68131, or such other place within or outside the
State of Delaware as the Manager may from time to time designate by notice to
the Members. The Company may maintain offices and places of business at such
other place or places within or outside the State of Delaware as the Manager
deems advisable. The Company shall continuously maintain a registered office and
a designated and duly qualified agent for service of process on the Company in
the State of Delaware. The address of current registered office and of the
current registered agent for service of process is c/o CT Corporation,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801. The
Company shall commence on the date that the Certificate of Formation is filed
with the Office of the Delaware Secretary of State, and shall continue and be
perpetual until terminated by agreement in writing among the parties or
otherwise under the Act.
1.2 BUSINESS PURPOSE. The Company has been formed and is authorized to
engage in any and all lawful business, purpose, or activity in which a limited
liability company may be engaged under applicable law (including, without
limitation, the Act), as the Manager may determine. In particular, the Company
is formed for the purpose of developing, owning and operating power production
facilities and related activities.
1
<PAGE>
1.3 REQUIRED FILINGS. The Manager has caused to be executed and filed, a
Certificate of Formation in the Office of the Delaware Secretary of State as
required by the Act. The Manager may execute and file any duly authorized
amendments to the Certificate of Formation from time to time in a form
prescribed by the Act. The Manager shall also cause to be made, on behalf of the
Company, such additional filings and recordings as the Manager shall deem
necessary or advisable. Following the execution of this Agreement, fictitious
business name statements shall be filed and published when and if the Manager
determines it necessary or advisable. Any such statement shall be renewed as
required by applicable law.
1.4 PERCENTAGE INTERESTS AND INITIAL CAPITAL CONTRIBUTIONS. The Members
shall make the following initial capital contributions to the Company on a date
as directed by the Manager and shall have the following percentage interests in
the Company's distributions, profits and losses:
Member Initial Capital Contribution Percentage Interest
------ ---------------------------- -------------------
CE Salton Sea Inc. $25,000 50%
Magma Power Company $25,000 50%
1.5 ADDITIONAL CAPITAL CONTRIBUTIONS. No Member has the right or
obligation to make any additional capital contributions to the Company. If the
Manager determines, at any time and from time to time, that the Company requires
additional capital for its business and operations, the Manager, with the
approval of a Supermajority in Interest of the Members (defined below), may
deliver notice (an "Additional Capital Requirement Notice") to the Members
specifying the additional amount of capital so determined to be required from
each Member. Promptly upon receipt of an Additional Capital Requirement Notice,
a Member shall make such additional capital contribution. In the event any
Member does not contribute the entire amount required to be contributed by such
Member, the shortfall may be loaned to the Company by one or more of the other
Members on terms approved by the Manager (which loans shall be considered
permitted Member loans).
1.6 RESIGNATION. A Member may resign from the Company if it obtains the
written consent of all other Members.
ARTICLE 2
OPERATIONS
2.1 MANAGEMENT. The business and affairs of the Company shall be managed
exclusively by Magma Power Company (the "Manager"). Subject to Sections 2.2 and
2.3 hereof, the Manager shall have full and complete charge of all the affairs
and business of the Company, in all respects and in all matters, including,
without limitation, the responsibility, authority and power, on behalf of the
Company, at the Company's expense and without the approval of any other Member,
to:
2
<PAGE>
(a) acquire, operate, lease, encumber or dispose of any direct
and indirect interests in real and personal property (including tangible
and intangible property and cash) owned by the Company from time to
time, and any property received in exchange therefor;
(b) pay, collect, compromise, arbitrate or otherwise adjust any
and all claims or demands of or against the Company, in such amounts and
upon such terms and conditions as the Manager shall reasonably
determine;
(c) from time to time, employ, engage, hire or otherwise secure
the services of such persons, firms or corporations, including any of
the parties hereto or any persons, firms or corporations related thereto
or affiliated therewith, as the Manager may reasonably deem advisable
for the proper execution of its duties as Manager hereunder, provided
such services are within the scope of the foregoing authority granted to
the Manager hereunder, such employment to be for such reasonable
compensation and upon such reasonable terms and conditions as the
Manager shall determine;
(d) prepare, execute, file, record, publish and deliver any and
all instruments, documents or statements necessary or convenient to
effectuate any and all actions that the Manager is authorized to take on
behalf of the Company.
(e) borrow money and issue evidences of indebtedness necessary,
convenient or incidental to the accomplishment of the purposes of the
Company, and secure the same by mortgage, pledge or other lien on any
Company assets;
(f) deal with, or otherwise engage in business with, or provide
services to and receive compensation therefor from, any person who has
provided or may in the future provide services to, lend money to, sell
property to, or purchase property from the Members or any affiliate of
the Members;
(g) establish and maintain reserves for such purposes and in such
amounts as they deem appropriate from time to time; and
(h) engage in any kind of activity and perform and carry out
contracts of any kind necessary to, in connection with or incidental to
the accomplishment of the purposes of the Company, as may be lawfully
carried on or performed by a limited liability company under the laws of
the State of Delaware.
Except as expressly provided in this Agreement or required by law, the Members
shall have no right to vote on or consent to any other matter, act, decision or
document involving the Company or its business.
3
<PAGE>
2.2 LIMITS ON AUTHORITY OF MANAGER. None of the following actions may be
taken by the Manager without the approval of Members having sixty-six percent
(66%) of the Percentage Interests in the Company (a "Supermajority in Interest
of the Members"):
(a) Except as otherwise provided herein, any amendment to this
Agreement or the Certificate of Formation;
(b) The removal or replacement of a Manager;
(c) The demand for additional capital contributions to the
Company;
(d) An agreement to merge the Company with any other entity or
entities; and
(e) Any substantial change in the business purpose of the
Company.
2.3 SUCCESSOR MANAGER. A Manager may be removed at any time, with or
without cause, by the affirmative vote of a Supermajority in Interest of the
Members. A Manager may resign at any time without prejudice to any rights of the
Company or any Member as against the resigning Manager, by giving written notice
to the Members. If the Manager dies, dissolves, resigns or becomes otherwise
unwilling or unable to act as the Manager and if no successor Manager or Manager
has been selected as provided in this Agreement, one or more successor Manager
shall be selected by the vote of a Supermajority in Interest of the Members. If
one or more successor Manager cannot be so selected, then the Company shall be
dissolved. References in this Agreement to the "Manager" shall include Magma
Power Company while it is acting as Manager and to any successor Manager(s).
Each successor Manager shall have all the rights and responsibilities of its
predecessors. It is the intent of this provision to provide for effective
continuity of management of the Company.
2.4 COMPENSATION/REIMBURSEMENT. Except as expressly provided in this
Section, no Member or Manager shall be entitled to any compensation for his or
her services to the Company or in the conduct of the business of the Company.
The Manager shall be entitled to reimbursement from the Company for all costs
and expenses (including allocable overhead, fees paid to outside consultants,
on-site personnel hired by the Manager and others who are not salaried employees
of the Company at the time of the performance of such services) incurred by it
for or on behalf of the Company.
4
<PAGE>
2.5 INDEMNIFICATION AND LIABILITY OF MANAGER.
2.5.1 The Company shall indemnify and hold harmless each Manager,
its affiliates, and all officers, directors, shareholders, partners, members
(excluding, for this purpose, other members of the Company), co-trustees,
employees and agents of any of the foregoing (individually, an "Indemnitee") to
the fullest extent permitted by applicable law from and against any and all
losses, claims, demands, costs, damages, liabilities, joint and several,
expenses of any nature (including attorneys' fees and disbursements), judgments,
fines, settlements and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
in which the Indemnitee may be involved, or threatened to be involved as a party
or otherwise, arising out of or incident to the business of the Company.
2.5.2 Expenses incurred by an Indemnitee in defending any claim,
demand, action, suit or proceeding subject to this Section 2.5 shall be advanced
by the Company prior to the final disposition of such claim, demand, action,
suit or proceeding.
2.5.3 The indemnification provided by this Section 2.5 shall be
in addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to an affirmative vote of Members holding fifty-one percent
(51%) of the Percentage Interests in the Company, as a matter of law or equity
or otherwise, and shall inure to the benefit of the heirs, successors, assigns
and administrators of the Indemnitee.
2.5.4 Any indemnification provided hereunder shall be satisfied
solely out of the assets of the Company. Neither the Manager nor any Member
shall be subject to personal liability by reason of these indemnification
provisions.
2.5.5 No Indemnitee shall be denied indemnification in whole or
in part under this Section 2.5 by reason of the fact that the Indemnitee had an
interest in the transaction with respect to which the indemnification applies if
the transaction was otherwise permitted by the terms of this Agreement.
2.5.6 The provisions of this Section 2.5 are for the benefit of
the Indemnities and shall not be deemed to create any rights for the benefit of
any other person or entity.
2.5.7 Neither the Manager nor its affiliates nor the officers,
directors, shareholders, partners, members, co-trustees, employees or agents of
any of the foregoing shall be liable to the Company or to a Member for any
losses sustained or liabilities incurred as a result of any act or omission of
the Manager or any such other person or entity if (i) the Manager or such other
person or entity acted (or failed to act) in good faith and in a manner believed
to be in, or not opposed to, the interests of the Company and (ii) the conduct
of the Manager or such other person or entity did not constitute gross
negligence or willful misconduct.
5
<PAGE>
ARTICLE 3
OTHER PROVISIONS
3.1 ENTIRE AGREEMENT; BINDING PROVISIONS; SEPARABILITY. This Agreement
constitutes the entire agreement between and among the parties hereto pertaining
to the subject matter hereof and fully supersedes any and all prior agreements
or understandings between or among the parties hereto pertaining to the subject
matter hereof. The covenants and agreements contained in this Agreement shall be
binding upon, and inure to the benefit of, the heirs, executors, administrators,
personal representatives, successors and permitted assigns of the respective
parties hereto. Each provision of this Agreement shall be considered separable,
and, if for any reason any provision or provisions hereof are determined to be
invalid and contrary to any existing or future law, such invalidity shall not
impair the operation or effect of those portions of this Agreement that are
valid.
3.2 FURTHER ASSURANCES. Each of the parties hereto does hereby covenant
and agree on behalf of itself, its successors and its assigns, without further
consideration, to prepare, execute, acknowledge, file, record, publish and
deliver such other instruments, documents and statements, and to take such other
action as may be required by law or necessary to effectively carry out the
purposes of this Agreement.
3.3 TAX MATTERS. The Manager shall be designated and shall operate as
"tax matters partner" (as defined in Internal Revenue Code of 1986 Section
6231), to oversee or handle matters relating to taxation of the Company. The
Manager may make all Company elections for federal income and all other tax
purposes.
3.4 GOVERNING LAW. This Agreement, including its existence, validity,
construction and operating effect, and the rights of each of the parties hereto,
shall be governed by and construed in accordance with the laws of the State of
Delaware (without regard to its principles of conflicts of law).
3.5 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of the successors and
assigns of the respective Members.
3.6 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which together shall constitute one agreement binding on all parties hereto,
notwithstanding that all of the parties have not signed the same counterpart.
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3.7 TITLES. Article and Section titles are for descriptive purposes only
and shall not control or alter the meaning of this Agreement as set forth in the
text.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
CE Salton Sea Inc., Magma Power Company,
a Delaware corporation a Nevada corporation
By:/s/ Douglas L. Anderson By:/s/ Douglas L. Anderson
------------------------------- -------------------------------
Name: Douglas L. Anderson Name: Douglas L. Anderson
--------------------------- ---------------------------
Title: Authorized Person Title: Authorized Person
--------------------------- ---------------------------
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STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:00 PM 01/28/1998
981034963 - 2851952
CERTIFICATE OF INCORPORATION
OF
CE SALTON SEA INC.
1. The name of the corporation is: CE Salton Sea Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is One Thousand (1,000) and the par value of each of such
shares is One Cent ($0.01) amounting in the aggregate to Ten Dollars ($10.00).
5. The corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
To make, alter or repeal the bylaws of the corporation; and
To authorize and cause to be executed mortgages and liens upon the real
and personal property of the corporation.
7. The name and mailing address of the incorporator is Douglas L.
Anderson, 302 South 36 Street, Suite 400, Omaha, NE 68131.
8. Elections of directors need not be by written ballot unless the bylaws
of the corporation shall so provide.
9. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty
<PAGE>
as a director except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived any improper personal
benefit.
10. The corporation shall indemnify its officers, directors, employees and
agents to the extent permitted by the General Corporation Law of Delaware.
11. Meetings of stockholders may be held within or without the State of
Delaware as the bylaws may provide. The books of this corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated by the board of directors
or in the bylaws of this corporation.
I, the undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
Delaware, do make this Certificate, hereby declaring and certifying that this
is my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this 28th day of January, 1998.
/s/ Douglas L. Anderson
--------------------------
Douglas L. Anderson
<PAGE>
BYLAWS
OF
CE SALTON SEA INC.
A DELAWARE CORPORATION
* * * * *
ARTICLE I
OFFICES
SECTION 1. The registered office of the corporation shall be the address
of CT Corporation Trust Company in the City of Wilmington, County of New
Castle, State of Delaware.
SECTION 2. The principal executive offices of the corporation shall be
located in the City of Omaha, County of Douglas, State of Nebraska.
SECTION 3. The corporation may have such other offices, either within and
without the State of Delaware, as the Board of Directors may from time to time
designate or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. All meetings of the stockholders for the election of directors
shall be held in the City of Omaha, State of Nebraska, at such place as may be
fixed from time to time by the board of directors, or at such other place
either within or without the State of Delaware as shall be designated from time
to time by the board of directors and stated in the notice of the meeting.
Meetings of stockholders for any other purpose may be held at such time and
place, within or
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without the State of Delaware, as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
SECTION 2. Annual meetings of stockholders, commencing with the year 1999,
shall be held in the second quarter of each year as shall be designated and
stated in the notice of the meeting, at which they shall elect by a plurality
vote a board of directors, and transact such other business as may properly be
brought before the meeting.
SECTION 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be delivered to each stockholder entitled to vote
at such meeting not less than ten nor more than sixty days before the date of
the meeting.
SECTION 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning a majority in
amount of
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the entire capital stock of the corporation issued and outstanding and entitled
to vote. Such request shall state the purpose or purposes of the proposed
meeting.
SECTION 6. Written notice of a special meeting setting the place, date and
hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten or more than sixty days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
SECTION 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
SECTION 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
SECTION 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express
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provision of the statutes or of the certificate of incorporation, a different
vote is required in which case such express provision shall govern and control
the decision of such question.
SECTION 10. Unless otherwise provided in the certificate of incorporation
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three
years from its date, unless the proxy provides for a longer period. At all
elections of directors of the corporation each stockholder having voting power
shall be entitled to exercise the right of cumulative voting as provided in the
certificate of incorporation.
SECTION 11. Unless otherwise provided in the certificate of incorporation,
any action required to be taken at any annual or special meeting of
stockholders of the corporation, or any action which may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole board
shall be not less than two (2) nor more than seven (7). The first board elected
after the adoption of these bylaws shall consist of three (3) directors.
Thereafter, within the limits above specified, the number of directors shall be
determined by resolution of the board of directors or by the
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stockholders at the annual meeting. The directors shall be elected at the
annual meeting of the stockholders, except as provided in Section 2 of this
Article, and each director elected shall hold office until his successor is
elected and qualified. Directors need not be stockholders.
SECTION 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, by a sole remaining
director or by the stockholders, and the directors so chosen shall hold office
until the next annual election and until their successors are duly elected and
shall qualify, unless sooner displaced. If there are no directors in office,
then an election of directors may be held in the manner provided by statute.
If, at the time of filling any vacancy or any newly created directorship, the
directors then in office shall constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent of the total number of shares at the time outstanding having
the right to vote for such directors, summarily order an election to be held to
fill any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office.
SECTION 3. The business of the corporation shall be managed by or under
the direction of its board of directors, which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these bylaws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
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SECTION 5. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly
elected board of directors, or in the event such meeting is not held at the
time and place so fixed by the stockholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter provided
for special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
SECTION 6. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
SECTION 7. Special meetings of the board may be called by the Chairman on
at least forty-eight hours notice, or by telegram or facsimile at least
twenty-four hours notice before the meeting to each director, either
personally, by mail, by telegram or by facsimile; special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of two directors unless the board consists of only one
director, in which case special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of the sole
director.
SECTION 8. At all meetings of the board a majority of the directors shall
constitute a quorum for the transaction of business and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the board of directors, except as may be otherwise specifically provided
by statute or by the certificate of incorporation. If a quorum shall not be
present at any meeting of the board of directors the directors present thereat
may adjourn
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<PAGE>
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
SECTION 9. Unless otherwise restricted by the certificate of incorporation
or these bylaws, any action required or permitted to be taken at any meeting of
the board of directors or of any committee thereof may be taken without a
meeting, if all members of the board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the board of committee.
SECTION 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other and such participation in the meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
SECTION 11. The board of directors may, by resolution passed by a majority
of the whole board, designate one or more committees, each committee to consist
of one or more of the directors of the corporation. The board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the board of directors to act at the meeting in the place of any such
absent or disqualified member.
7
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Any such committee, to the extent provided in the resolution of the board
of directors, shall have and may exercise all the powers and authority of the
board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation (except
that a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of directors
as provided in Section 151(a) fix any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the
same or any other class or classes of stock of the corporation), adopting an
agreement of merger or consolidation, recommending to the stockholders the
sale, lease or exchange of all or substantially all of the corporation's
property and assets, recommending to the stockholders a dissolution of the
corporation or a revocation of a dissolution, or amending the bylaws of the
corporation; and, unless the resolution or the certificate of incorporation
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock or to adopt a
certificate of ownership and merger. Such committee or committees shall have
such name or names as may be determined from time to time by resolution adopted
by the board of directors.
SECTION 12. Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
SECTION 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the board of directors shall have the authority
to fix the compensation of directors. The
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directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors and may be paid a fixed sum for attendance at each
meeting of the board of directors or a stated salary as directors. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or outstanding
committees may be allowed like compensation for attending committee meetings.
REMOVAL OF DIRECTORS
SECTION 14. Unless otherwise restricted by the certificate of
incorporation or by law, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
SECTION 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by telegram or facsimile.
SECTION 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
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ARTICLE V
OFFICERS
SECTION 1. The Officers of the corporation shall be chosen by the
stockholders or the board of directors and shall include a president, a vice
president, a secretary and a treasurer. The stockholders or the board of
directors may also choose additional vice presidents and one or more assistant
secretaries and assistant treasurers. Any number of offices may be held by the
same person, unless the certificate of incorporation or these bylaws otherwise
provide.
SECTION 2. The stockholders or the board of directors may appoint such
other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such powers
and perform such duties as shall be determined from time to time by the board.
SECTION 3. The salaries of all officers and agents of the corporation
shall be fixed from time to time by the board of directors. No officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the corporation.
SECTION 4. The officers of the corporation shall hold office until their
successors are chosen and qualified. Any Officer elected for appointed by the
stockholders or the board of directors may be removed at any time by the
Chairman of the Board or the affirmative vote of a majority of the board of
directors. Any vacancy occurring in any office of the corporation shall be
filled by the board of directors.
THE CHAIRMAN OF THE BOARD
SECTION 5. Chairman of the Board shall be the Chief Executive Officer and
shall have general and active supervision and direction over the management of
the Corporation's business and over the President and Chief Operating Officer
and all of the Corporation's other officers,
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agents and employees. The Chairman of the Board shall, if present, preside at
each meeting of the stockholders and of the Board and shall be an ex officio
member of all committees of the Board. The Chairman of the Board shall perform
all duties incident to the office of Chairman of the Board and such other
duties as may from time to time be assigned to him by the Board or
Stockholders.
SECTION 6. The Chairman of the Board shall execute bonds, mortgages and
other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the board of directors or stockholders to some other officer or agent of the
corporation.
THE PRESIDENT
SECTION 7. The President, in consultation with and subject to the
direction of the Chairman of the Board, shall have general and active
management of the business of the corporation and shall see that all orders and
resolution of the board of directors or stockholders are carried into effect.
THE VICE PRESIDENTS
SECTION 8. In the absence of the President or in the event of his
inability or refusal to act, the vice president (or in the event there be more
than one vice president, the vice presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President and when so acting, shall
have all the powers of and be subject to all the restriction upon the
President. The vice presidents shall perform such other duties and have such
other powers as the board of directors or stockholders may from time to time
prescribe.
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SECRETARY AND ASSISTANT SECRETARY
SECTION 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the board of directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the board of directors,
and shall perform such other duties as may be prescribed by the board of
directors or the president, under whose supervision he shall be. He shall have
custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring
it and, when so affixed, it may be attested by his signature or by the
signature of such assistant secretary. The board of directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his signature.
SECTION 10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors or
stockholders (or if there be no such determination, then in the order of their
election) shall, in the absence of the secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
board of directors or stockholders may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURER
SECTION 11. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
moneys and other valuable effects in the name and to the credit
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of the corporation in such depositories as may be designated by the board of
directors or stockholders.
SECTION 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors or stockholders, taking proper vouchers for
such disbursements, and shall render to the president and the board of
directors or stockholders, at its regular meetings, or when the board of
directors or stockholders so require, an account of all his transactions as
treasurer and of the financial condition of the corporation.
SECTION 13. If required by the board of directors or stockholders, the
treasurer shall give the corporation a bond (which shall be renewed every six
years) in such sum and with such surety or sureties as shall be satisfactory to
the board of directors for the faithful performance of the duties of his office
and for the restoration to the corporation, in case of his death, resignation,
retirement or removal form office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control
belonging to the corporation.
SECTION 14. The assistant treasurer, or if there shall be more than one,
the assistant treasurers, in the order determined by the board of directors or
stockholders (or if there be no such determination, then in the order of their
election) shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
board of directors or stockholders may from time to time prescribe.
ARTICLE VI
CERTIFICATES FOR SHARES
SECTION 1. The shares of the corporation shall be represented by a
certificate or shall be uncertificated. Certificates shall be signed by, or in
the name of the corporation by the
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chairman or vice chairman of the board of directors, or the president, or a
vice president and by the treasurer or an assistant treasurer, or the secretary
or an assistant secretary of the corporation.
Upon the face or back of each stock certificate issued to represent any
partly paid shares or upon the books and records of the corporation in the case
of uncertificated partly paid shares shall be set forth the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware,
in lieu of the foregoing requirements, there may be set forth on the face or
back of the certificate which the corporation shall issue to represent such
class or series of stock, a statement that the corporation will furnish without
charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Within a reasonable time after the issuance or transfer of uncertificated
stock, the corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on
certificates pursuant to Section 151, 156, 202(a) or 218(a) or a statement that
the corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative participating, optional or
other special rights of
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each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
SECTION 2. Any or all of the signatures on a certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
SECTION 3. The board of directors may direct a new certificate or
certificates or uncertificated shares, to be issued in place of any certificate
or certificates theretofore issued by the corporation alleged to have been
lost, stolen or destroyed, upon making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates or uncertificated
shares, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
SECTION 4. Upon surrender to the corporation or the transfer agent of the
corporation a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
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Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares such uncertificated shares shall be cancelled and
issuance of new equivalent uncertificated shares or certificated shares shall
be made to the person entitled thereto and the transaction shall be recorded
upon the books of the corporation.
FIXING RECORD DATE
SECTION 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the board of directors may fix, in advance, a record
date, which shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjournment meeting.
REGISTERED STOCKHOLDERS
SECTION 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
the State of Delaware.
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ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
SECTION 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
SECTION 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
SECTION 3. The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
SECTION 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
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FISCAL YEAR
SECTION 5. The fiscal year of the corporation shall be fixed by resolution
of the board of directors.
SEAL
SECTION 6. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
SECTION 7. The corporation shall indemnify its officers, directors,
employees and agents to the extent permitted by the General corporation Law of
Delaware.
ARTICLE VIII
AMENDMENTS
SECTION 1. These bylaws may be altered, amended or repealed or new bylaws
may be adopted by the stockholders or by the board of directors, when such
power is conferred upon the board of directors by the certificate of
incorporation at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the board of directors by the
certificate of incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
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STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 06:00PM 05/04/1998
981170668-2892218
CERTIFICATE OF INCORPORATION
OF
SALTON SEA MINERALS CORP.
1. The name of the corporation is: SALTON SEA MINERALS CORP.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is One Hundred (100) and the par value of each of such
shares is One Cent ($0.01) amounting in the aggregate to One Dollar ($1.00).
5. The corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred by statute,
the board of directors is expressly authorized.
To make, alter or repeal the bylaws of the corporation; and
To authorize and cause to be executed mortgages and liens upon the real
and personal property of the corporation.
7. The name and mailing address of the incorporator is Douglas L.
Anderson, 302 South 36 Street, Suite 400, Omaha, NE 68131.
8. Elections of directors need not be by written ballot unless the bylaws
of the corporation shall so provide.
9. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the
<PAGE>
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived any improper personal benefit.
10. The corporation shall indemnify its officers, directors, employees and
agents to the extent permitted by the General Corporation Law of Delaware.
11. Meetings of stockholders may be held within or without the State of
Delaware as the bylaws may provide. The books of this corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated by the board of directors
or in the bylaws of this corporation.
I, the undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
Delaware, do make this Certificate, hereby declaring and certifying that this
is my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this 1st day of April, 1998.
/s/ Douglas L. Anderson
----------------------------------------
Douglas L. Anderson
<PAGE>
BYLAWS
OF
SALTON SEA MINERALS CORP.
A DELAWARE CORPORATION
* * * * *
ARTICLE I
OFFICES
SECTION 1. The registered office of the corporation shall be the address
of CT Corporation Trust Company in the City of Wilmington, County of New
Castle, State of Delaware.
SECTION 2. The principal executive offices of the corporation shall be
located in the City of Omaha, County of Douglas, State of Nebraska.
SECTION 3. The corporation may have such other offices, either within and
without the State of Delaware, as the Board of Directors may from time to time
designate or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. All meetings of the stockholders for the election of directors
shall be held in the City of Omaha, State of Nebraska, at such place as may be
fixed from time to time by the board of directors, or at such other place
either within or without the State of Delaware as shall be designated from time
to time by the board of directors and stated in the notice of the meeting.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
SECTION 2. Annual meetings of stockholders, commencing with the year 1999,
shall be held in the second quarter of each year as shall be designated and
stated in the notice of the meeting, at which they shall elect by a plurality
vote a board of directors, and transact such other business as may properly be
brought before the meeting.
SECTION 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be delivered to each stockholder entitled to vote
at such meeting not less than ten nor more than sixty days before the date of
the meeting.
SECTION 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
SECTION 6. Written notice of a special meeting setting the place, date and
hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
<PAGE>
SECTION 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
SECTION 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or requested. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
SECTION 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
of the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
SECTION 10. Unless otherwise provided in the certificate of incorporation
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three
years from its date, unless the proxy provides for a longer period. At all
elections of directors of the corporation each stockholder having voting power
shall be entitled to exercise the right of cumulative voting as provided in the
certificate of incorporation.
SECTION 11. Unless otherwise provided in the certificate of incorporation,
any action required to be taken at any annual or special meeting of
stockholders of the corporation, or any action which may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. The number of directors which shall constitute the whole board
shall be not less than two (2) nor more than seven (7). The first board elected
after the adoption of these bylaws shall consist of four (4) directors.
Thereafter, within the limits above specified, the number of directors shall be
determined by resolution of the board of directors or by the stockholders at
the annual meeting. The directors shall be elected at the annual meeting of the
stockholders except as provided in Section 2 of this Article, and each director
elected shall hold office until his successor is elected and qualified.
Directors need not be stockholders.
SECTION 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, by a sole remaining
director or by the stockholders, and the directors so chosen shall hold office
until the next annual election and until their successors are duly elected and
shall qualify, unless sooner displaced. If there are no directors in office,
then an election of directors may be held in the manner provided by statute.
If, at the time of filling any vacancy or any newly created directorship, the
directors then in office shall constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent of the total number of shares at the time outstanding having
the right to vote for such
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directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the
directors then in office.
SECTION 3. The business of the corporation shall be managed by or under
the direction of its board of directors, which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these bylaws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
SECTION 5. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly
elected board of directors, or in the event such meeting is not held at the
time and place so fixed by the stockholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter provided
for special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
SECTION 6. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
SECTION 7. Special meetings of the board may be called by the Chairman on
at least forty-eight hours notice, or by telegram or facsimile at least
twenty-four hours notice before the meeting to each director, either
personally, by mail, by telegram or by facsimile; special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of two directors unless the board consists of only one
director; in which case special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of the sole
director.
SECTION 8. At all meetings of the board a majority of the directors shall
constitute a quorum for the transaction of business and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the board of directors, except as may be otherwise specifically provided
by statute or by the certificate of incorporation. If a quorum shall not be
present at any meeting of the board of directors the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
SECTION 9. Unless otherwise restricted by the certificate of incorporation
or these bylaws, any action required or permitted to be taken at any meeting of
the board of directors or of any committee thereof may be taken without a
meeting, if all members of the board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the board or committee.
SECTION 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other and such participation in the meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
SECTION 11. The board of directors may, by resolution passed by a majority
of the whole board, designate one or more committees, each committee to consist
of one or more of the directors of the corporation. The board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee.
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In the absence of disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the board of directors to act at the meeting in the place of any such
absent or disqualified member.
Any such committee, to the extent provided in the resolution of the board
of directors, shall have and may exercise all the powers and authority of the
board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation (except
that a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of directors
as provided in Section 151(a) fix any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the
same or any other class or classes of stock of the corporation), adopting an
agreement of merger or consolidation, recommending to the stockholders the
sale, lease or exchange of all or substantially all of the corporation's
property and assets, recommending to the stockholders a dissolution of the
corporation or a revocation of a dissolution, or amending the bylaws of the
corporation; and, unless the resolution or the certificate of incorporation
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock or to adopt a
certificate of ownership and merger. Such committee or committees shall have
such name or names as may be determined from time to time by resolution adopted
by the board of directors.
SECTION 12. Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
SECTION 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a
stated salary as directors. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Members of special or outstanding committees may be allowed like
compensation for attending committee meetings.
REMOVAL OF DIRECTORS
SECTION 14. Unless otherwise restricted by the certificate of
incorporation or by law, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
SECTION 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by telegram or facsimile.
SECTION 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
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ARTICLE V
OFFICERS
SECTION 1. The Officers of the corporation shall be chosen by the
stockholders or the board of directors and shall include a president, a vice
president, a secretary and a treasurer. The stockholders or the board of
directors may also choose additional vice presidents and one or more assistant
secretaries and assistant treasurers. Any number of offices may be held by the
same person, unless the certificate of incorporation or these bylaws otherwise
provide.
SECTION 2. The stockholders or the board of directors may appoint such
other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties
as shall be determined from time to time by the board.
SECTION 3. The salaries of all officers and agents of the corporation
shall be fixed from time to time by the board of directors. No officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the corporation.
SECTION 4. The officers of the corporation shall hold office until their
successors are chosen and qualified. Any Officer elected or appointed by the
stockholders or the board of directors may be removed at any time by the
Chairman of the Board or the affirmative vote of a majority of the board of
directors. Any vacancy occurring in any office of the corporation shall be
filled by the board of directors.
THE CHAIRMAN OF THE BOARD
SECTION 5. Chairman of the Board shall be the Chief Executive Officer and
shall have general and active supervision and direction over the management of
the Corporation's business and over the President and Chief Operating Officer
and all of the Corporation's other officers, agents and employees. The Chairman
of the Board shall, if present, preside at each meeting of the stockholders and
of the Board and shall be an ex officio member of all committees of the Board.
The Chairman of the Board shall perform all duties incident to the office of
Chairman of the Board and such other duties as may from time to time be
assigned to him by the Board or Stockholders.
SECTION 6. The Chairman of the Board shall execute bonds, mortgages and
other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the board of directors or stockholders to some other officer or agent of the
corporation.
THE PRESIDENT
SECTION 7. The President, in consultation with and subject to the
direction of the Chairman of the Board, shall have general and active
management of the business of the corporation and shall see that all orders and
resolutions of the board of directors or stockholders are carried into effect.
THE VICE PRESIDENTS
SECTION 8. In the absence of the President or in the event of his
inability or refusal to act, the vice president (or in the event there be more
than one vice president, the vice presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The vice presidents shall perform such other duties and have such
other powers as the board of directors or stockholders may from time to time
prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
SECTION 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the board of directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and special
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meetings of the board of directors, and shall perform such other duties as may
be prescribed by the board of directors or the president, under whose
supervision he shall be. He shall have custody of the corporate seal of the
corporation and he, or an assistant secretary, shall have authority to affix
the same to any instrument requiring it and, when so affixed, it may be
attested by his signature or by the signature of such assistant secretary. The
board of directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing by his signature.
SECTION 10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors or
stockholders (or if there be no such determination, then in the order of their
election) shall, in the absence of the secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
board of directors or stockholders may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURER
SECTION 11. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the board of directors
or stockholders.
SECTION 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors or stockholders, taking proper vouchers for
such disbursements, and shall render to the president and the board of
directors or stockholders, at its regular meetings, or when the board of
directors or stockholders so require, an account of all his transactions as
treasurer and of the financial condition of the corporation.
SECTION 13. If required by the board of directors or stockholders, the
treasurer shall give the corporation a bond (which shall be renewed every six
years) in such sum and with such surety or sureties as shall be satisfactory to
the board of directors for the faithful performance of the duties of his office
and for the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control
belonging to the corporation.
SECTION 14. The assistant treasurer, or if there shall be more than one,
the assistant treasurers, in the order determined by the board of directors or
stockholders (or if there be no such determination, then in the order of their
election) shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
board of directors of stockholders may from time to time prescribe.
ARTICLE VI
CERTIFICATES FOR SHARES
SECTION 1. The shares of the corporation shall be represented by a
certificate or shall be uncertified. Certificates shall be signed by, or in the
name of the corporation by the chairman or vice chairman of the board of
directors, or the president, or a vice president, and by the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation.
Upon the face or back of each stock certificate issued to represent any
partly paid shares, or upon the books and records of the corporation in the
case of uncertified partly paid shares, shall be set forth the total amount of
the consideration to be paid therefor and the amount paid thereon shall be
stated.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware,
in lieu of the foregoing
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requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Within a reasonable time after the issuance or transfer of uncertified
stock, the corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on
certificates pursuant to Sections 151, 156, 202(a) or 218(a) or a statement
that the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
SECTION 2. Any or all of the signatures on a certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
SECTION 3. The board of directors may direct a new certificate or
certificates or uncertified shares, to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates or uncertified
shares, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
SECTION 4. Upon surrender to the corporation or the transfer agent of the
corporation a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertified shares such uncertificated shares shall be cancelled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the
books of the corporation.
FIXING RECORD DATE
SECTION 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the board of directors may fix, in advance, a record
date, which shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
REGISTERED STOCKHOLDERS
SECTION 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for
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calls and assessments a person registered on its books as the owner of shares,
and shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by the
laws of the State of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
SECTION 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
SECTION 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
SECTION 3. The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
SECTION 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
SECTION 5. The fiscal year of the corporation shall be fixed by resolution
of the board of directors.
SEAL
SECTION 6. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
SECTION 7. The corporation shall indemnify its officers, directors,
employees and agents to the extent permitted by the General corporation Law of
Delaware.
ARTICLE VIII
AMENDMENTS
SECTION 1. These bylaws may be altered, amended or repealed or new bylaws
may be adopted by the stockholders or by the board of directors, when such
power is conferred upon the board of directors by the certificate of
incorporation at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration,
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amendment, repeal or adoption of new bylaws be contained in the notice of such
special meeting. If the power to adopt, amend or repeal bylaws is conferred
upon the board of directors by the certificate of incorporation it shall not
divest or limit the power of the stockholders to adopt, amend or repeal bylaws.
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CERTIFICATE OF FORMATION
OF
SALTON SEA POWER LLC
1. The name of the limited liability company is Salton Sea Power LLC.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is
The Corporation Trust Company.
3. This Certificate of formation shall be effective February 12, 1998.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation
of Salton Sea Power LLC this 12th day of February, 1998.
/s/ Douglas L. Anderson
-------------------------
Douglas L. Anderson
<PAGE>
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
SALTON SEA POWER L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANY
This LIMITED LIABILITY COMPANY OPERATING AGREEMENT (the
"AGREEMENT") for Salton Sea Power L.L.C. (the "COMPANY"), by and between CE
Salton Sea Inc., a Delaware corporation, and Magma Power Company, a Nevada
corporation (collectively, the "MEMBERS", with each being referred to,
individually, as a "MEMBER"), is made effective as of January 29, 1998.
ARTICLE 1
ORGANIZATIONAL MATTERS
1.1 FORMATION. The Members hereby form the Company as a limited
liability company under the Delaware Limited Liability Company Act, Del. Code
Ann. tit. 6, Sections 18-101 to 18-1109 (the "Act") and agree that the rights
and liabilities of the Members and the Manager of the Company shall be as
provided in the Act, except as otherwise expressly provided herein. In the event
of any inconsistency between any terms and conditions contained in the Agreement
and any non-mandatory provisions of the Act, the terms and conditions contained
in the Agreement shall govern. The name of the Company shall be Salton Sea Power
L.L.C. The Company may also conduct business at the same time under one or more
fictitious names if the Manager determines that such is in the best interests of
the Company. The Manager may change the name of the Company, from time to time,
in accordance with applicable law, and it shall file or cause to be filed the
appropriate certificate of amendment to the Certificate of Formation. The
principal place of business of the Company shall be located at 302 South 36th
Street, Suite 400-K, Omaha, NE 68131, or such other place within or outside the
State of Delaware as the Manager may from time to time designate by notice to
the Members. The Company may maintain offices and places of business at such
other place or places within or outside the State of Delaware as the Manager
deems advisable. The Company shall continuously maintain a registered office and
a designated and duly qualified agent for service of process on the Company in
the State of Delaware. The address of current registered office and of the
current registered agent for service of process is c/o CT Corporation,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801. The
Company shall commence on the date that the Certificate of Formation is filed
with the Office of the Delaware Secretary of State, and shall continue and be
perpetual until terminated by agreement in writing among the parties or
otherwise under the Act.
1.2 BUSINESS PURPOSE. The Company has been formed and is authorized to
engage in any and all lawful business, purpose, or activity in which a limited
liability company may be engaged under applicable law (including, without
limitation, the Act), as the Manager may determine. In particular, the Company
is formed for the purpose of developing, owning and operating power production
facilities and related activities.
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1.3 REQUIRED FILINGS. The Manager has caused to be executed and filed, a
Certificate of Formation in the Office of the Delaware Secretary of State as
required by the Act. The Manager may execute and file any duly authorized
amendments to the Certificate of Formation from time to time in a form
prescribed by the Act. The Manager shall also cause to be made, on behalf of the
Company, such additional filings and recordings as the Manager shall deem
necessary or advisable. Following the execution of this Agreement, fictitious
business name statements shall be filed and published when and if the Manager
determines it necessary or advisable. Any such statement shall be renewed as
required by applicable law.
1.4 PERCENTAGE INTERESTS AND INITIAL CAPITAL CONTRIBUTIONS. The Members
shall make the following initial capital contributions to the Company on a date
as directed by the Manager and shall have the following percentage interests in
the Company's distributions, profits and losses:
Member Initial Capital Contribution Percentage Interest
------ ---------------------------- -------------------
CE Salton Sea Inc. $25,000 50%
Magma Power Company $25,000 50%
1.5 ADDITIONAL CAPITAL CONTRIBUTIONS. No Member has the right or
obligation to make any additional capital contributions to the Company. If the
Manager determines, at any time and from time to time, that the Company requires
additional capital for its business and operations, the Manager, with the
approval of a Supermajority in Interest of the Members (defined below), may
deliver notice (an "Additional Capital Requirement Notice") to the Members
specifying the additional amount of capital so determined to be required from
each Member. Promptly upon receipt of an Additional Capital Requirement Notice,
a Member shall make such additional capital contribution. In the event any
Member does not contribute the entire amount required to be contributed by such
Member, the shortfall may be loaned to the Company by one or more of the other
Members on terms approved by the Manager (which loans shall be considered
permitted Member loans).
1.6 RESIGNATION. A Member may resign from the Company if it obtains the
written consent of all other Members.
ARTICLE 2
OPERATIONS
2.1 MANAGEMENT. The business and affairs of the Company shall be managed
exclusively by CE Salton Sea Inc. (the "Manager"). Subject to Sections 2.2 and
2.3 hereof, the Manager shall have full and complete charge of all the affairs
and business of the Company, in all respects and in all matters, including,
without limitation, the responsibility, authority and power, on behalf of the
Company, at the Company's expense and without the approval of any other Member,
to:
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(a) acquire, operate, lease, encumber or dispose of any direct
and indirect interests in real and personal property (including tangible
and intangible property and cash) owned by the Company from time to
time, and any property received in exchange therefor;
(b) pay, collect, compromise, arbitrate or otherwise adjust any
and all claims or demands of or against the Company, in such amounts and
upon such terms and conditions as the Manager shall reasonably
determine;
(c) from time to time, employ, engage, hire or otherwise secure
the services of such persons, firms or corporations, including any of
the parties hereto or any persons, firms or corporations related thereto
or affiliated therewith, as the Manager may reasonably deem advisable
for the proper execution of its duties as Manager hereunder, provided
such services are within the scope of the foregoing authority granted to
the Manager hereunder, such employment to be for such reasonable
compensation and upon such reasonable terms and conditions as the
Manager shall determine;
(d) prepare, execute, file, record, publish and deliver any and
all instruments, documents or statements necessary or convenient to
effectuate any and all actions that the Manager is authorized to take on
behalf of the Company.
(e) borrow money and issue evidences of indebtedness necessary,
convenient or incidental to the accomplishment of the purposes of the
Company, and secure the same by mortgage, pledge or other lien on any
Company assets;
(f) deal with, or otherwise engage in business with, or provide
services to and receive compensation therefor from, any person who has
provided or may in the future provide services to, lend money to, sell
property to, or purchase property from the Members or any affiliate of
the Members;
(g) establish and maintain reserves for such purposes and in such
amounts as they deem appropriate from time to time; and
(h) engage in any kind of activity and perform and carry out
contracts of any kind necessary to, in connection with or incidental to
the accomplishment of the purposes of the Company, as may be lawfully
carried on or performed by a limited liability company under the laws of
the State of Delaware.
Except as expressly provided in this Agreement or required by law, the Members
shall have no right to vote on or consent to any other matter, act, decision or
document involving the Company or its business.
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2.2 LIMITS ON AUTHORITY OF MANAGER. None of the following actions may be
taken by the Manager without the approval of Members having sixty-six percent
(66%) of the Percentage Interests in the Company (a "Supermajority in Interest
of the Members"):
(a) Except as otherwise provided herein, any amendment to this
Agreement or the Certificate of Formation;
(b) The removal or replacement of a Manager;
(c) The demand for additional capital contributions to the
Company;
(d) An agreement to merge the Company with any other entity or
entities; and
(e) Any substantial change in the business purpose of the
Company.
2.3 SUCCESSOR MANAGER. A Manager may be removed at any time, with or
without cause, by the affirmative vote of a Supermajority in Interest of the
Members. A Manager may resign at any time without prejudice to any rights of the
Company or any Member as against the resigning Manager, by giving written notice
to the Members. If the Manager dies, dissolves, resigns or becomes otherwise
unwilling or unable to act as the Manager and if no successor Manager or Manager
has been selected as provided in this Agreement, one or more successor Manager
shall be selected by the vote of a Supermajority in Interest of the Members. If
one or more successor Manager cannot be so selected, then the Company shall be
dissolved. References in this Agreement to the "Manager" shall include CE Salton
Sea Inc. while it is acting as Manager and to any successor Manager(s). Each
successor Manager shall have all the rights and responsibilities of its
predecessors. It is the intent of this provision to provide for effective
continuity of management of the Company.
2.4 COMPENSATION/REIMBURSEMENT. Except as expressly provided in this
Section, no Member or Manager shall be entitled to any compensation for his or
her services to the Company or in the conduct of the business of the Company.
The Manager shall be entitled to reimbursement from the Company for all costs
and expenses (including allocable overhead, fees paid to outside consultants,
on-site personnel hired by the Manager and others who are not salaried employees
of the Company at the time of the performance of such services) incurred by it
for or on behalf of the Company.
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2.5 INDEMNIFICATION AND LIABILITY OF MANAGER.
2.5.1 The Company shall indemnify and hold harmless each Manager,
its affiliates, and all officers, directors, shareholders, partners, members
(excluding, for this purpose, other members of the Company), co-trustees,
employees and agents of any of the foregoing (individually, an "Indemnitee") to
the fullest extent permitted by applicable law from and against any and all
losses, claims, demands, costs, damages, liabilities, joint and several,
expenses of any nature (including attorneys' fees and disbursements), judgments,
fines, settlements and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
in which the Indemnitee may be involved, or threatened to be involved as a party
or otherwise, arising out of or incident to the business of the Company.
2.5.2 Expenses incurred by an Indemnitee in defending any claim,
demand, action, suit or proceeding subject to this Section 2.5 shall be advanced
by the Company prior to the final disposition of such claim, demand, action,
suit or proceeding.
2.5.3 The indemnification provided by this Section 2.5 shall be
in addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to an affirmative vote of Members holding fifty-one percent
(51%) of the Percentage Interests in the Company, as a matter of law or equity
or otherwise, and shall inure to the benefit of the heirs, successors, assigns
and administrators of the Indemnitee.
2.5.4 Any indemnification provided hereunder shall be satisfied
solely out of the assets of the Company. Neither the Manager nor any Member
shall be subject to personal liability by reason of these indemnification
provisions.
2.5.5 No Indemnitee shall be denied indemnification in whole or
in part under this Section 2.5 by reason of the fact that the Indemnitee had an
interest in the transaction with respect to which the indemnification applies if
the transaction was otherwise permitted by the terms of this Agreement.
2.5.6 The provisions of this Section 2.5 are for the benefit of
the Indemnities and shall not be deemed to create any rights for the benefit of
any other person or entity.
2.5.7 Neither the Manager nor its affiliates nor the officers,
directors, shareholders, partners, members, co-trustees, employees or agents of
any of the foregoing shall be liable to the Company or to a Member for any
losses sustained or liabilities incurred as a result of any act or omission of
the Manager or any such other person or entity if (i) the Manager or such other
person or entity acted (or failed to act) in good faith and in a manner believed
to be in, or not opposed to, the interests of the Company and (ii) the conduct
of the Manager or such other person or entity did not constitute gross
negligence or willful misconduct.
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ARTICLE 3
OTHER PROVISIONS
3.1 ENTIRE AGREEMENT; BINDING PROVISIONS; SEPARABILITY. This Agreement
constitutes the entire agreement between and among the parties hereto pertaining
to the subject matter hereof and fully supersedes any and all prior agreements
or understandings between or among the parties hereto pertaining to the subject
matter hereof. The covenants and agreements contained in this Agreement shall be
binding upon, and inure to the benefit of, the heirs, executors, administrators,
personal representatives, successors and permitted assigns of the respective
parties hereto. Each provision of this Agreement shall be considered separable,
and, if for any reason any provision or provisions hereof are determined to be
invalid and contrary to any existing or future law, such invalidity shall not
impair the operation or effect of those portions of this Agreement that are
valid.
3.2 FURTHER ASSURANCES. Each of the parties hereto does hereby covenant
and agree on behalf of itself, its successors and its assigns, without further
consideration, to prepare, execute, acknowledge, file, record, publish and
deliver such other instruments, documents and statements, and to take such other
action as may be required by law or necessary to effectively carry out the
purposes of this Agreement.
3.3 TAX MATTERS. The Manager shall be designated and shall operate as
"tax matters partner" (as defined in Internal Revenue Code of 1986 Section
6231), to oversee or handle matters relating to taxation of the Company. The
Manager may make all Company elections for federal income and all other tax
purposes.
3.4 GOVERNING LAW. This Agreement, including its existence, validity,
construction and operating effect, and the rights of each of the parties hereto,
shall be governed by and construed in accordance with the laws of the State of
Delaware (without regard to its principles of conflicts of law).
3.5 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of the successors and
assigns of the respective Members.
3.6 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which together shall constitute one agreement binding on all parties hereto,
notwithstanding that all of the parties have not signed the same counterpart.
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3.7 TITLES. Article and Section titles are for descriptive purposes only
and shall not control or alter the meaning of this Agreement as set forth in the
text.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
CE Salton Sea Inc., Magma Power Company,
a Delaware corporation a Nevada corporation
By:/s/ Douglas L. Anderson By:/s/ Douglas L. Anderson
------------------------------- -------------------------------
Name: Douglas L. Anderson Name: Douglas L. Anderson
--------------------------- ---------------------------
Title: Authorized Person Title: Authorized Person
--------------------------- ---------------------------
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- -------------------------------------------------------------------------------
SIXTH SUPPLEMENTAL INDENTURE
dated as of June 29, 1999
to
TRUST INDENTURE
dated as of July 21, 1995
among
SALTON SEA FUNDING CORPORATION
and
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION, as Trustee
(as successor in interest to Chemical Trust Company of California)
- -------------------------------------------------------------------------------
<PAGE>
SIXTH SUPPLEMENTAL INDENTURE
This SIXTH SUPPLEMENTAL INDENTURE, dated as of June 29, 1999
(this "Sixth Supplemental Indenture"), by and between SALTON SEA FUNDING
CORPORATION, a corporation organized under the laws of the state of Delaware
(the "Funding Corporation"), and CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION (as successor in interest to Chemical Trust Company of
California) (together with its successors in such capacity, the "Trustee"), a
banking association organized under the federal laws of the United States of
America.
W I T N E S S E T H:
WHEREAS, the Funding Corporation and the Trustee are parties
to the Trust Indenture, dated as of July 21, 1995, such Trust Indenture, as
amended and supplemented by the First Supplemental Indenture, dated as of
October 18, 1995, the Second Supplemental Indenture, dated as of June 20, 1996,
the Third Supplemental Indenture, dated as of July 29, 1996, the Fourth
Supplemental Indenture dated as of October 13, 1998 (the "Fourth Supplemental
Indenture"), the Fifth Supplemental Indenture dated as of February 16, 1999, and
this Sixth Supplemental Indenture is referred to herein as the "Indenture";
WHEREAS, pursuant to the Fourth Supplemental Indenture, the
Funding Corporation has issued $285,000,000 7.475% Series F Senior Secured Bonds
due November 30, 2018 (the "Initial Series F Securities");
WHEREAS, as contemplated by Section 8.1 of the Indenture and
by the Series F Registration Rights Agreement, the Funding Corporation has
commenced an Exchange Offer for the Initial Series F Securities pursuant to
which the Funding Corporation has offered to exchange 7.475% Senior Secured
Series F Bonds Due November 30, 2018 (the "Exchange Series F Securities") for a
like aggregate principal amount of Initial Series F Securities; and
WHEREAS, Section 8.1 of the Indenture permits the Funding
Corporation and the Trustee to amend the Indenture, without the consent of any
of the Holders, by a supplemental indenture authorized by a resolution of the
Board of Directors of the Funding Corporation filed with, and in a form
satisfactory to the Trustee, to provide for the issuance of the Exchange Series
F Securities.
NOW THEREFORE, in order to establish the designation, form,
terms and provisions of, and to authorize the authentication and delivery of,
said Exchange Series F
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Securities, and in consideration of the premises and the covenants herein
contained and of the acceptance of said Exchange Series F Securities by the
Holders thereof and of other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, it is mutually covenanted and
agreed, for the benefit of the parties hereto and the equal and proportionate
benefit of all Holders of the Securities, as follows:
ARTICLE I
DEFINITIONS
For purposes of the Indenture, the following terms shall have
the meanings specified unless the context otherwise requires. Capitalized terms
not otherwise defined herein shall have the meanings set forth in the Indenture.
"Authorized Denomination" means (i) with respect to the
Initial Securities, the Initial Series D Securities, the Initial Series E
Securities and the Initial Series F Securities, $100,000 or any integral
multiple of $1,000 in excess thereof, (ii) with respect to the Exchange Series A
Securities, the Exchange Series B Securities, the Exchange Series C Securities,
the Exchange Series D Securities and the Exchange Series E Securities, $1,000
or any integral multiple thereof, and (iii) with respect to any other series of
Securities, the denomination set forth in the relevant Supplemental Indenture.
In the event of a conflict between the provisions of a Security and the relevant
Indenture provisions, the Indenture provisions shall control.
"Exchange Series F Securities" means the Securities issued
from time to time in the form of Exhibit A to this Sixth Supplemental Indenture.
"Initial Series F Securities" means the Securities issued from
time to time in the form of Exhibit A-1 and Exhibit A-2 to the Fourth
Supplemental Indenture.
"Security" or "Securities" means any of the Initial
Securities, Additional Securities and Exchange Securities, including, without
limitation, any of the Exchange Series A Securities, Exchange Series B
Securities, Exchange Series C Securities, Initial Series D Securities, Initial
Series E Securities, Exchange Series D Securities, Exchange Series E Securities,
Initial Series F Securities and Exchange Series F Securities, issued
pursuant to the Indenture.
"Series F Exchange Offer Consummation Date" means the date on
which Initial Series F Securities are exchanged for Exchange Series F Securities
pursuant to an Exchange Offer.
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"Series F Securities" means, collectively, the Initial Series
F Securities and the Exchange Series F Securities.
ARTICLE II
THE SECURITIES
SECTION 2.1. Forms of Securities. The Exchange Series F
Securities shall contain substantially the terms recited in the form of Security
set forth in Exhibit A, and each shall have and be subject to such other terms
as provided in the Indenture.
SECTION 2.2. Authorization and Terms of the Exchange Series F
Securities. (a) The Exchange Series F Securities to be issued under this Sixth
Supplemental Indenture are hereby created. The Funding Corporation may issue the
Exchange Series F Securities in the form of Exhibit A, and as definitive
Securities pursuant to the terms of the Indenture governing definitive
Securities, upon the execution of this Sixth Supplemental Indenture, and on or
prior to the Series F Exchange Offer Consummation Date, the Funding Corporation
may execute and deliver to the Trustee, and upon delivery of a written request
by the Funding Corporation to the Trustee in accordance with the provisions of
Section 2.7 of the Indenture, the Trustee shall authenticate and deliver the
Exchange Series F Securities to be issued in connection with the Exchange
Offer. Such Funding Corporation order shall specify the amount of the Exchange
Series F Securities to be authenticated and the date on which such Securities
are to be authenticated. The aggregate principal amount of the Exchange Series F
Securities together with the Initial Series F Securities outstanding at any time
may not exceed $285,000,000 except as provided in the Indenture.
(b) The Exchange Series F Securities shall be dated
as of the Series F Exchange Offer Consummation Date, shall be issued in an
aggregate principal amount up to the aggregate principal amount set forth below
and shall have a final matu rity date and bear interest as set forth below:
Series Interest Rate Maturity Date Principal Amount
------ ------------- ------------- ----------------
Series F Bonds 7.475% November 30, 2018 $285,000,000
(c) The principal of, premium (if any) and interest
on the Exchange Series F Securities shall be payable in any coin or currency of
the United States of America which, at the respective dates of payment thereof,
is legal tender for the payment of public and private debts. Payment of
principal of and interest on the Exchange Series F Securities shall be made (i)
by check or draft mailed on the Scheduled Payment Date to the registered owner
as of the close of business on the Record Date immediately
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preceding the Scheduled Payment Date, at his address as it appears on the
registration books of the Trustee or (ii) by wire transfer to such registered
owner as of the close of business on such Record Date upon written notice of
such wire transfer address in the continental United States given not less than
fifteen (15) days prior to such Record Date; provided, however, that if and to
the extent that there shall be a default in the payment of the interest or
principal due on such Scheduled Payment Date, such defaulted interest and/or
principal shall be paid to the Holder in whose name any such Security is
registered at the close of business on the day determined by the Trustee as
provided in Section 2.4 of the Indenture.
(d) The Exchange Series F Securities will bear
interest at the rate of 7.475% per annum from the most recent date to which
interest has been paid on the Initial Series F Securities or, if no interest has
been paid on the Initial Series F Securities, from October 13, 1998. Interest on
the Exchange Series F Securities shall be computed upon the basis of a 360-day
year, consisting of twelve (12) thirty (30) day months.
(e) Except to the extent that principal has been
paid on the Initial Series F Securities prior to the Series F Exchange Offer
Consummation Date, principal of the Exchange Series F Securities shall be paid
on the Scheduled Payment Dates as set forth with respect to the Exchange Series
F Securities on Schedule I hereto. The principal payable on the Scheduled
Payment Dates on the Exchange Series F Securities shall be equal to the product
of (i) the aggregate principal amount of Initial Series F Securities that are
exchanged for Exchange Series F Securities as of the applicable Record Date
divided by the aggregate principal amount of Initial Series F Securities
originally issued by the Funding Corporation on October 13, 1998, multiplied by
(ii) the principal amount pay able in accordance with Schedule I hereto on that
date.
(f) The Authorized Denomination with respect to the
Exchange Series F Securities shall be $1,000 or any integral multiple thereof.
SECTION 2.3. Terms of the Initial Series F Securities.
Principal of Initial Series F Securities not exchanged for Exchange Series F
Securities shall be paid on the Scheduled Payment Dates as set forth with
respect to the Initial Series F Securities on Schedule I of the Fourth
Supplemental Indenture. The principal payable on the Sched uled Payment Dates on
the Initial Series F Securities shall be equal to the product of (i) the
aggregate principal amount of Initial Series F Securities that are not exchanged
for Exchange Series F Securities as of the applicable Record Date divided by the
amount of Initial Series F Securities originally issued by the Funding
Corporation on October 13, 1998, multiplied by (ii) the principal amount payable
in accordance with Schedule I of the Fourth Supplemental Indenture on that date.
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SECTION 2.4. Actions to be Taken. Reference to actions to be
taken in connection with any Securities means to both the Initial Series F
Securities and the Exchange Series F Securities.
SECTION 2.5. Exchange Offer. The Funding Corporation will
issue the Exchange Series F Securities in exchange for a like principal amount
of outstanding Initial Series F Securities tendered and accepted in connection
with an Exchange Offer. Holders may tender their Initial Series F Securities in
whole or in part in a principal amount of $1,000 and integral multiples thereof,
provided that if any Initial Series F Securities are tendered for exchange in
part, the untendered principal amount thereof must be $100,000 or any integral
multiple of $1,000 in excess thereof; provided, however, that the Initial
Series F Securities surrendered for exchange pursuant to the Ex change Offer
shall be duly endorsed and accompanied by a letter of transmittal or written
instrument of transfer in form satisfactory to the Funding Corporation, the
Trustee and the Security Registrar, duly executed by the Holder thereof or his
attorney who shall be duly authorized in writing to execute such document or by
means of a message transmitted through electronic means in form satisfactory to
the Funding Corporation. Whenever any Initial Series F Securities are so
surrendered for exchange, the Funding Corporation shall execute, and the Trustee
shall authenticate and deliver to the Security Registrar Exchange Series F
Securities in the same aggregate principal amount as the principal amount of
Initial Series F Securities that have been surrendered.
ARTICLE III
ACTS OF HOLDERS
SECTION 3.1. Determination of Voting Rights. For purposes of
this Indenture, all Holders of Initial Series F Securities and Exchange Series F
Securities shall vote together as Holders of Series F Securities under the
Indenture.
ARTICLE IV
COVENANTS
SECTION 4.1. Debt. Section 5.11 of the Indenture is hereby
amended by deleting the existing clause (h) of such Section and replacing it
with the following clause:
"(h) Debt represented by the Exchange Series D Securities, the
Exchange Series E Securities and the Exchange Series F Securities."
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<PAGE>
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Execution of Supplemental Indenture. This Sixth
Supplemental Indenture is executed and shall be construed as an indenture
supplemental to the Indenture and, as provided in the Indenture, this Sixth
Supplemental Indenture forms a part thereof. Except as amended and supplemented
hereby, the Indenture (as constituted prior to the date hereof) shall remain in
full force and effect.
SECTION 5.2. Concerning the Trustee. The Trustee shall not be
responsible in any manner for or with respect to the validity or sufficiency of
this Sixth Supplemental Indenture, or the due execution hereof by the Funding
Corporation, or for or with respect to the recitals and statements contained
herein, all of which recitals and statements are made solely by the Funding
Corporation.
SECTION 5.3. Counterparts. This Sixth Supplemental Indenture
may be executed in any number of counterparts, each of which when so executed
shall be deemed to be an original; but all such counterparts shall together
constitute but one and the same instrument.
SECTION 5.4. GOVERNING LAW. THIS SIXTH SUPPLEMENTAL INDENTURE
AND EACH SECURITY ISSUED HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
7
<PAGE>
IN WITNESS WHEREOF, Salton Sea Funding Corporation has caused
this Sixth Supplemental Indenture to be executed and its corporate seal to be
hereunto affixed and attested by one of its duly authorized officers, and Chase
Manhattan Bank and Trust Company, National Association, has caused this Sixth
Supplemental Indenture to be executed by one of its duly authorized officers,
all as of the day and year first above written.
SALTON SEA FUNDING CORPORATION,
as principal and as agent for the Guarantors
By: /s/ Douglas L. Anderson
---------------------------------------
Name: Douglas L. Anderson
Title: Vice President
Attest:
/s/ Steven A. McArthur
- -----------------------------
Title: Secretary
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION (as
successor in interest to Chemical
Trust Company of California), as
Trustee
By: /s/ Rose T. Maravilla
---------------------------------------
Name: Rose T. Maravilla
Title: Assistant Vice President
8
<PAGE>
Schedule I to
Sixth Supplemental Indenture
PRINCIPAL AMORTIZATION
Except to the extent that principal has been paid on the
Initial Series F Securities prior to the Series F Exchange Offer Consummation
Date, principal of the Exchange Series F Securities due November 30, 2018 will
be payable on the Scheduled Payment Dates listed below in an amount equal to the
product of (i) the aggregate principal amount of Initial Series F Securities
that are exchanged for Exchange Series F Securities as of the applicable Record
Date divided by the aggregate principal amount of Initial Series F Securities
originally issued by the Funding Corporation on October 13, 1998, multiplied by
(ii) the principal amount payable in accordance with this Schedule I.
Percentage of Principal
Principal Amount Amount Payable
Payment Date Payable (in $'000)
- ------------ ------------------------- ----------
November 30, 1998 0.0000% $ --
May 30, 1999 0.0000% $ --
November 30, 1999 0.0000% $ --
May 30, 2000 0.0000% $ --
November 30, 2000 0.0000% $ --
May 30, 2001 0.2250% $641
November 30, 2001 0.2250% $641
May 30, 2002 0.7500% $2,137
November 30, 2002 0.7500% $2,137
May 30, 2003 0.5000% $1,425
November 30, 2003 0.5000% $1,425
May 30, 2004 0.6250% $1,781
November 30, 2004 0.6250% $1,781
May 30, 2005 0.6250% $1,781
November 30, 2005 0.6250% $1,781
May 30, 2006 0.6500% $1,853
November 30, 2006 0.6500% $1,853
May 30, 2007 0.3750% $1,070
November 30, 2007 0.3750% $1,070
May 30, 2008 0.8750% $2,495
November 30, 2008 0.8750% $2,495
1
<PAGE>
Percentage of Principal
Principal Amount Amount Payable
Payment Date Payable (in $'000)
- ------------ ------------------------- ----------
May 30, 2009 0.3750% $1,069
November 30, 2009 0.3750% $1,069
May 30, 2010 1.2500% $3,562
November 30, 2010 1.2500% $3,562
May 30, 2011 3.0000% $8,550
November 30, 2011 3.0000% $8,550
May 30, 2012 5.7500% $16,387
November 30, 2012 5.7500% $16,387
May 30, 2013 5.0750% $14,464
November 30, 2013 5.0750% $14,464
May 30, 2014 6.0000% $17,100
November 30, 2014 6.0000% $17,100
May 30, 2015 6.5500% $18,667
November 30, 2015 6.5500% $18,667
May 30, 2016 7.0500% $20,092
November 30, 2016 7.0500% $20,092
May 30, 2017 6.8750% $19,594
November 30, 2017 6.8750% $19,594
May 30, 2018 3.4500% $9,832
November 30, 2018 3.4500% $9,832
2
<PAGE>
EXHIBIT A
[Form of Senior Secured Series F Bond]
SALTON SEA FUNDING CORPORATION
7.475% Series F Senior Secured
Bond due November 30, 2018
THIS SECURITY IS A REGISTERED GLOBAL SECURITY AND IS REGISTERED IN THE NAME OF
CEDE & CO., AS NOMINEE OF THE DEPOSITORY TRUST COMPANY ("DTC").
UNLESS THIS REGISTERED GLOBAL SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE
& CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC AND
ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE REGISTERED FORM, THIS REGISTERED GLOBAL SECURITY MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY DTC TO A NOMINEE OF DTC, OR BY A NOMINEE OF
DTC TO DTC OR ANOTHER NOMINEE OF DTC, OR BY DTC OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
A-1
<PAGE>
CUSIP Number: [_________]
Number [R-1][R-2]
Principal Amount Maturity Date Issue Date Interest Rate
- ---------------- ------------- ---------- -------------
$[200,000,000] November 30, 2018 ______________, 1999 7.475%
$[85,000,000]
REGISTERED HOLDER: CEDE & CO.
PRINCIPAL AMOUNT: [TWO HUNDRED MILLION DOLLARS ($200,000,000)]
[EIGHTY-FIVE MILLION DOLLARS ($85,000,000)]
SALTON SEA FUNDING CORPORATION, a Delaware corporation
(hereinafter called the "Company", which term includes any successor or assign
under the Trust Indenture referred to below), for value received hereby promises
to pay to CEDE & Co., or its registered assigns, the outstanding principal
amount hereof (reduced by the amount of principal, if any, paid or due, or to be
paid or to become due on the Initial Series F Securities (as defined in the
Sixth Supplemental Indenture dated June 29, 1999)), such payment to be made in
semiannual installments on May 30 and November 30 of each year (commencing May
30, 2001) and ending on the Maturity Date set forth above, each such installment
to be in an amount equal to the principal amount set forth opposite the
applicable payment date on Schedule I attached hereto (provided that the portion
of the principal amount remaining unpaid on the Maturity Date, together with all
interest accrued thereon, shall in any and all cases be due and payable on the
Maturity Date), and to pay interest on the unpaid portion of the principal
amount at the interest rate set forth above (the "Interest Rate") from the most
recent interest payment date to which interest has been paid or duly provided
for or, if no interest has been paid or duly provided for, from the date of the
last interest payment on the Initial Series F Securities occurring prior to the
issue date set forth above or, if no interest has been paid on the Initial
Series F Securities, from October 13, 1998, semiannually on May 30 and November
30 in each year (commencing November 30, 1998), until the principal amount is
paid in full or payment thereof is duly provided for. Any installment of
principal and, to the extent permitted by applicable law, any payment of
interest not punctually paid or duly provided for shall continue to bear
interest at a rate equal to the Interest Rate set forth above. The principal and
interest so payable on any payment date shall, as provided in the Trust
Indenture, be paid to the Person in whose name this Security (or one or more
predecessor securities) is registered in the Securities Register at the close of
business on the Record Date for such payment of principal and interest, which
shall be the preceding May 15 and November 15, respectively. Any such principal
and interest not so punctually paid or duly provided for shall forthwith cease
to be payable to the Person in whose name this
A-2
<PAGE>
Security (or one or more predecessor securities) was registered in the
Securities Register at the close of business on such Record Date, and may be
paid to the Person in whose name this Security is registered at the close of
business on a subsequent Record Date for the payment of such defaulted principal
and interest, to be fixed by the Trustee, notice of which shall be given to the
Holder hereof not less than 15 days prior to such subsequent Record Date, or may
be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which this Security may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in the Trust Indenture. This being a Global Security (as that term is
defined in the Trust Indenture) deposited with the Custodian acting as
depository, and registered in the name of CEDE & CO., as nominee of DTC, CEDE &
CO., as holder of record of this Security shall be entitled to receive payment
of principal and interest by wire transfer of immediately available funds. All
payments in respect of this Security shall be made in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of debts.
Interest shall be computed upon the basis of a 360-day year,
consisting of twelve (12) thirty (30) day months.
This Security is one of an authorized series of Securities of
the Company known as its 7.475% Senior Secured Series F Bonds Due November 30,
2018. The Securities are issued under the Trust Indenture dated as of July 21,
1995, as supplemented by the First Supplemental Indenture dated as of October
18, 1995, the Second Supplemental Indenture dated as of June 20, 1996, the
Third Supplemental Indenture dated as of July 29, 1996, the Fourth Supplemental
Indenture dated as of October 13, 1998, the Fifth Supplemental Indenture dated
as of February 16, 1999 and the Sixth Supplemental Indenture dated as of June
29, 1999 (as so supplemented and as the same may be further amended, modified or
supplemented from time to time, the "Trust Indenture"), each among the Company
and Chase Manhattan Bank and Trust Company, National Association, as trustee
(the "Trustee", which term includes any successor Trustee under the Trust
Indenture). All capitalized terms used herein, unless defined herein, shall have
the meanings ascribed to them in the Trust Indenture.
All Securities are secured equally and ratably with one
another. Reference is hereby made to the Trust Indenture for a description of
the nature and extent of the Securities and the respective rights of the Holders
of the Securities and of the Trustee and the Company in respect of the
Securities and the terms upon which the Securities are made and are to be
authenticated and delivered.
The principal of, and interest on, this Security are payable
from, and secured by, assets subject to the Lien on the Funding Corporation
Collateral, in accordance with the terms of the Trust Indenture and the
Financing Documents.
A-3
<PAGE>
The obligations of the Company to pay the principal of,
premium, if any, and interest on the Securities when due are unconditionally
guaranteed by (i) the Salton Sea Guarantors pursuant to the Salton Sea
Guarantee, and (ii) the Partnership Guarantors and the Royalty Guarantor (up to
an amount equal to, with respect to the Partnership Guarantors and the Royal
Guarantor, such Guarantor's Available Cash Flow) pursuant to the Partnership
Guarantee and the Royalty Guarantee, respectively. The Guarantees will be
secured by the Lien on the Collateral, in accordance with the terms of the Trust
Indenture and the Financing Documents.
The Securities are subject to an Intercreditor Agreement dated
as of July 21, 1995, as amended as of June 20, 1996 and as of October 13, 1998.
The Trust Indenture permits, with certain exceptions, as
therein provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities under
the Trust Indenture at any time by the Company with the consent of the Holders
of not less than 51 percent in aggregate principal amount of the Securities at
the time Outstanding. The Trust Indenture also contains provisions permitting
the Holders of specified percentages in aggregate principal amount of the
Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain provisions of the
Trust Indenture and certain past defaults under the Trust Indenture and their
consequences. Any such consent or waiver or direction by the Holder of this
Security shall be conclusive and binding upon the Holder and upon all future
Holders of this Security and of any security issued upon the transfer hereof or
in exchange hereof or in lieu hereof whether or not notation of such consent or
waiver is made upon this Security.
The Securities are, under certain conditions, subject to
mandatory redemption as set forth in Section 3.3 of the Trust Indenture and
Sections 2(l) and 2(m) of the Fourth Supplemental Indenture dated as of October
13, 1998.
Any payment of interest on any Security, the stated maturity
of which payment is on or prior to any Redemption Date, shall be payable to the
Holder of such Security, or one or more predecessor securities, registered as
such at the close of business on the related Record Date or subsequent Record
Date.
Notice of any redemption of Securities will be given at least
30 days before the Redemption Date to each Holder at its registered address.
Securities (or portions thereof as aforesaid) for the
redemption of which provision is made in accordance with the Trust Indenture
shall cease to bear interest from and after the Redemption Date.
A-4
<PAGE>
The unpaid portion of principal, together with all interest
accrued thereon and all other amounts due hereunder, shall be due and payable,
as provided in the Trust Indenture, upon the occurrence of certain Events of
Default in full, or in such lesser amount in the case of an Event of Default
relating to the bankruptcy, insolvency, receivership or reorganization of any
of the Guarantors which has resulted in an automatic acceleration of any
Project Note.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN DEFINITIVE REGISTERED FORM, THIS REGISTERED GLOBAL SECURITY MAY
NOT BE TRANSFERRED EXCEPT AS A WHOLE BY DTC TO A NOMINEE OF DTC, OR BY A NOMINEE
OF DTC TO DTC OR ANOTHER NOMINEE OF DTC, OR BY DTC OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
The Exchange Series F Securities are issuable in book entry
form in denominations of $1,000 and any integral multiple thereof.
No service charge will be made to any Holder of Securities for
any transfer or exchange, but the Registrar may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
The person in whose name this Security is registered shall be
deemed to be the owner and holder hereof for the purpose of receiving payment as
herein provided and for all other purposes whether or not this Security be
overdue regardless of any notice to anyone to the contrary.
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS
MADE AND TO BE PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK.
Unless the certificate of authentication hereon has been
executed by the Trustee by manual or facsimile signature, this Security shall
not be entitled to any benefit under such Trust Indenture, or be valid or
obligatory for any purpose.
Recourse under this Security is limited as set forth in
Section 13.12 of the Trust Indenture.
A-5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
SALTON SEA FUNDING CORPORATION
By:
--------------------------------
Name:
Title:
Attested:
- --------------------------------
Title:
CERTIFICATE OF AUTHENTICATION
This Security is one of the Securities referred to in the
within-mentioned Trust Indenture.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION (as
successor in interest to Chemical
Trust Company of California), as
Trustee
By:
--------------------------------
Authorized Signatory
A-6
<PAGE>
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s)
and transfers) Social Security or Other Identifying Number of Assignee:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please print or typewrite name and address,
including zip code of Assignee)
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing _____________________ attorney to transfer said Security on the
books of the Company, with full power of substitution in the premises.
Dated:
----------------------
---------------------------------
NOTICE: The signature to this assignment must correspond with the name
as written upon the first page of the within instrument in
every particular, without alteration or enlargement or any
change whatsoever.
A-7
<PAGE>
SCHEDULE I
TO SENIOR SECURED SERIES F BOND
Except to the extent that principal has been paid on the
Initial Series F Securities prior to the Series F Exchange Offer Consummation
Date, principal of the Exchange Series F Securities due November 30, 2018 will
be payable on the Scheduled Payment Dates listed below in an amount equal to the
product of (i) the aggregate principal amount of Initial Series F Securities
that are exchanged for Exchange Series F Securities as of the applicable Record
Date divided by the aggregate principal amount of Initial Series F Securities
originally issued by the Funding Corporation on October 13, 1998, multiplied by
(ii) the principal amount payable in accordance with this Schedule I.
Percentage of Principal
Principal Amount Amount Payable
Payment Date Payable (in $'000)
- ------------ ------------------------- ----------
November 30, 1998 0.0000% $ --
May 30, 1999 0.0000% $ --
November 30, 1999 0.0000% $ --
May 30, 2000 0.0000% $ --
November 30, 2000 0.0000% $ --
May 30, 2001 0.2250% $641
November 30, 2001 0.2250% $641
May 30, 2002 0.7500% $2,137
November 30, 2002 0.7500% $2,137
May 30, 2003 0.5000% $1,425
November 30, 2003 0.5000% $1,425
May 30, 2004 0.6250% $1,781
November 30, 2004 0.6250% $1,781
May 30, 2005 0.6250% $1,781
November 30, 2005 0.6250% $1,781
May 30, 2006 0.6500% $1,853
November 30, 2006 0.6500% $1,853
May 30, 2007 0.3750% $1,070
November 30, 2007 0.3750% $1,070
May 30, 2008 0.8750% $2,495
November 30, 2008 0.8750% $2,495
A-8
<PAGE>
Percentage of Principal
Principal Amount Amount Payable
Payment Date Payable (in $'000)
- ------------ ------------------------- ----------
May 30, 2009 0.3750% $1,069
November 30, 2009 0.3750% $1,069
May 30, 2010 1.2500% $3,562
November 30, 2010 1.2500% $3,562
May 30, 2011 3.0000% $8,550
November 30, 2011 3.0000% $8,550
May 30, 2012 5.7500% $16,387
November 30, 2012 5.7500% $16,387
May 30, 2013 5.0750% $14,464
November 30, 2013 5.0750% $14,464
May 30, 2014 6.0000% $17,100
November 30, 2014 6.0000% $17,100
May 30, 2015 6.5500% $18,667
November 30, 2015 6.5500% $18,667
May 30, 2016 7.0500% $20,092
November 30, 2016 7.0500% $20,092
May 30, 2017 6.8750% $19,594
November 30, 2017 6.8750% $19,594
May 30, 2018 3.4500% $9,832
November 30, 2018 3.4500% $9,832
A-9
<PAGE>
Exhibit 5.1
June 29, 1999
Salton Sea Funding Corporation
Salton Sea Brine Processing L.P.
Salton Sea Power Generation L.P.
Fish Lake Power LLC
Vulcan Power Company
CalEnergy Operating Corporation
Salton Sea Royalty LLC
VPC Geothermal LLC
San Felipe Energy Company
Conejo Energy Company
Niguel Energy Company
Vulcan/BN Geothermal Power Company
Leathers, L.P.
Del Ranch, L.P.
Elmore, L.P.
CE Turbo LLC
CE Salton Sea Inc.
Salton Sea Minerals Corp.
CalEnergy Minerals LLC
Salton Sea Power L.L.C.
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
Re: Registration Statement on Form S-4
(File No. 333-79581)
-----------------------------------
Ladies & Gentlemen:
Salton Sea Funding Corporation (the "Funding Corporation"), a Delaware
corporation, and Salton Sea Brine Processing L.P., a California limited
partnership, Salton Sea Power Generation L.P., a California limited partnership,
Fish Lake Power LLC, a Delaware limited liability company, Vulcan Power Company,
a Nevada corporation, CalEnergy Operating Corporation, a Delaware corporation,
Salton Sea Royalty LLC, a Delaware limited liability company, VPC Geothermal
LLC, a Delaware limited liability company, San Felipe Energy Company, a
California corporation, Conejo Energy Company, a California corporation, Niguel
Energy Company, a California corporation, Vulcan/BN Geothermal Power Company, a
Nevada general partnership, Leathers, L.P., a California limited partnership,
Del Ranch, L.P., a California limited partnership, Elmore, L.P., a California
limited partnership, CE Turbo LLC, a Delaware limited liability company, CE
Salton Sea Inc., a Delaware corporation, Salton Sea Minerals Corp., a Delaware
corporation, CalEnergy Minerals LLC, a Delaware
<PAGE>
June 29, 1999
Page 2
limited liability company and Salton Sea Power L.L.C., a Delaware limited
liability company (the foregoing collectively, other than the Funding
Corporation, the "Guarantors"), have requested our opinion in connection with
various legal matters relating to the filing of a Registration Statement on Form
S-4 (File No. 333-79581) (the "Registration Statement"), under the Securities
Act of 1933, as amended, covering the offer to exchange 7.475% Senior Secured
Series F Bonds Due November 30, 2018 ("New Securities"), for an equal principal
amount of outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018
("Old Securities"), of which $285,000,000 principal amount is outstanding. The
Old Securities were, and the New Securities are to be, issued under the Trust
Indenture, dated as of July 21, 1995, as supplemented and amended by the First
Supplemental Indenture dated as of October 18, 1995, the Second Supplemental
Indenture dated as of June 20, 1996, the Third Supplemental Indenture, dated as
of July 29, 1996, the Fourth Supplemental Indenture, dated as of October 13,
1998, the Fifth Supplemental Indenture, dated as of February 16, 1999 (as so
supplemented and amended, the "Indenture"), and the Sixth Supplemental
Indenture, dated as of the date hereof (the "Sixth Supplemental Indenture"),
each by and between the Funding Corporation and Chase Manhattan Bank and Trust
Company National Association (as successor in interest to Chemical Trust Company
of California), as trustee (the "Trustee"). The exchange will be made pursuant
to an exchange offer (the "Exchange Offer") contemplated by the Registration
Statement.
We have examined copies of such records of the Funding Corporation and the
Guarantors and such other certificates and documents as we have deemed relevant
and necessary for the opinions hereinafter set forth. In such examination, we
have assumed the genuineness of all signatures, and the authenticity of all
documents submitted to us as originals and the conformity to authentic originals
of all documents submitted to us as certified or reproduced copies. We have also
assumed the legal capacity of all persons executing such documents and the truth
and correctness of any representations or warranties therein contained. As to
various questions of fact material to such opinions, we have relied upon
certificates of officers of the Funding Corporation and the Guarantors and of
public officials.
Based upon the foregoing, we are of the opinion that:
1. The Funding Corporation, Fish Lake Power LLC, CalEnergy Operating Company,
VPC Geothermal LLC, CE Turbo LLC, CE Salton Sea Inc., Salton Sea Minerals
Corp., CalEnergy Minerals LLC, Salton Sea Power L.L.C. and Salton Sea
Royalty LLC are duly formed
<PAGE>
June 29, 1999
Page 3
and validly existing under the laws of the State of Delaware.
2. The execution and delivery of the Indenture and the Sixth Supplemental
Indenture have been duly authorized by the Funding Corporation and the
Guarantors, and the Indenture and the Sixth Supplemental Indenture together
constitute a valid and binding obligation of the Funding Corporation and the
Guarantors, enforceable against the Funding Corporation and the Guarantors
in accordance with the terms thereof, except as enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, fraudulent conveyance and
other similar laws affecting the enforcement of creditors' rights generally
and except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law).
3. The New Securities and the guarantees of the New Securities provided by the
Guarantors (the "Guarantees") will, upon the issuance and authentication of
the New Securities and exchange thereof for the Old Securities in the manner
referred to in the Registration Statement, the Indenture and the Sixth
Supplemental Indenture, constitute valid and binding obligations of the
Funding Corporation and the Guarantors, respectively, enforceable against
the Funding Corporation and the Guarantors, respectively, in accordance with
their terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance and other similar laws
affecting the enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law).
This opinion is limited to the laws of the State of New York, the General
Corporation Law of the State of Delaware and the federal laws of the United
States of the type typically applicable to transactions contemplated by the
Exchange Offer, and we do not express any opinion with respect to the laws of
any other country, state or jurisdiction.
This letter speaks only as of the date hereof and is limited to present
statutes, regulations and administrative and judicial interpretations. We
undertake no
<PAGE>
June 29, 1999
Page 4
responsibility to update or supplement this letter after the date
hereof.
We consent to being named in the Registration Statement and related
Prospectus as counsel who are passing upon the legality of the New Securities
and the Guarantees for the Funding Corporation and for the Guarantors,
respectively, and to the reference to our name under the caption "Legal Matters"
in such Prospectus. We also consent to your filing copies of this opinion as an
exhibit to the Registration Statement or any amendment thereto.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>
[LATHAM & WATKINS LETTERHEAD]
June 29, 1999
To: The Parties Listed on Schedule A
Re: Registration Statement on Form S-4/FILE NO. 333-79581
Ladies and Gentleman:
We have acted as special California counsel to Salton Sea Brine
Processing L.P., a California limited partnership ("SSBP"), Salton Sea Power
Generation L.P., a California limited partnership ("SSPG"), Conejo Energy
Company, a California corporation ("Conejo"), Niguel Energy Company, a
California corporation ("Niguel"), San Felipe Energy Company, a California
corporation ("San Felipe"), Del Ranch, L.P., a California limited partnership
("Del Ranch"), Elmore, L.P., a California limited partnership ("Elmore"), and
Leathers, L.P., a California limited partnership ("Leathers"), in connection
with the filing of a Registration Statement on Form S-4 (File No. 333-79581)
(the "Registration Statement"), under the Securities Act of 1933, as amended
(the "Act"), covering the offer to exchange all 7.475% Senior Secured F Bonds
due November 30, 2018 for 7.475% Senior Secured F Bonds due November 30, 2018 of
Salton Sea Funding Corporation which have been registered under the Act.
This opinion is rendered to you pursuant to the registration
requirements of the Act, and the regulations promulgated thereunder.
As such counsel, we have examined such matters of fact and questions of
law as we have considered appropriate for purposes of rendering the opinions
expressed below. In our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons executing documents, the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as copies. We
<PAGE>
LATHAM & WATKINS
June 29, 1999
Page 2
have relied upon such certificates and assurances from public officials as we
have deemed necessary.
We are opining herein as to the effect on the subject transaction only
of the internal laws of the State of California and we express no opinion with
respect to the applicability thereto, or the effect thereon, of the laws of any
other jurisdiction or as to any matters of municipal law or the laws of any
other local agencies within any state.
Subject to the foregoing and the other matters set forth herein, and in
reliance thereon, it is our opinion that, as of the date hereof, each of SSBP,
SSPG, Conejo, Niguel, San Felipe, Del Ranch, Elmore and Leathers has been duly
formed and is validly existing and in good standing under the laws of the State
of California.
This opinion is rendered only to you and is solely for your benefit in
connection with the transaction covered hereby. This opinion may not be relied
upon by you for any other purpose, or furnished to, quoted to or relied upon by
any other person, firm or corporation for any purpose, without our prior written
consent. Notwithstanding the foregoing, we consent to your filing copies of this
opinion as an exhibit to the Registration Statement or any amendment thereto,
provided that the effectiveness of this opinion shall be only as of the date
hereof.
Very truly yours,
/s/ Latham & Watkins
<PAGE>
LATHAM & WATKINS
June 29, 1999
Page 3
SCHEDULE A
----------
Salton Sea Funding Corporation
Salton Sea Brine Processing L.P.
Salton Sea Power Generation L.P.
Fish Lake Power LLC
Vulcan Power Company
CalEnergy Operating Corporation
Salton Sea Royalty LLC
Conejo Energy Company
San Felipe Energy Company
Niguel Energy Company
VPC Geothermal LLC
Elmore, L.P.
Del Ranch, L.P.
Leathers, L.P.
Vulcan/BN Geothermal Power Company
CE Turbo LLC
CalEnergy Minerals LLC
CE Salton Sea, Inc.
Salton Sea Minerals Corp.
<PAGE>
June 29, 1999
Salton Sea Brine Processing L.P.
Salton Sea Power Generation L.P.
Fish Lake Power L.L.C.
Vulcan Power Company
CalEnergy Operating Corporation
Salton Sea Funding Corporation
Salton Sea Royalty LLC
VPC Geothermal LLC
San Felipe Energy Company
Conejo Energy Company
Niguel Energy Company
Vulcan/BN Geothermal Power Company
Leathers, L.P.
Del Ranch, L.P.
Elmore, L.P.
CE Turbo LLC
CE Salton Sea, Inc.
CalEnergy Minerals LLC
Salton Sea Minerals Corp.
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as special Nevada counsel to Vulcan Power Company, a
Nevada corporation ("VPC"), and Vulcan/BN
<PAGE>
June 29, 1999
Page 2
Geothermal Power Company, a Nevada general partnership ("Vulcan") in connection
with the filing of a Registration Statement on Form S-4 (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Act"), covering
the offer to exchange all 7.475% Senior Secured Series F Bonds due November 30,
2018 for 7.475% Senior Secured Series F Bonds due November 30, 1999 which have
been registered under the Securities Act of 1933, as amended by Salton Sea
Funding Corporation, a Delaware corporation, and also covering VPC and Vulcan's
guarantee of the payment of the principal of, premium, if any, and interest in
the Securities.
This Opinion is rendered pursuant to the registration requirements of
the Act, and the regulations promulgated thereunder (including 17 CFR
229.601(b)(5)). All capitalized terms used herein and not otherwise defined have
the meanings assigned to them in the Registration Statement.
In connection with this Opinion we have examined a Good Standing
Certificate for VPC from the Nevada Secretary of State, dated May __, 1999, and
the Vulcan Partnership Agreement certified on the date hereof by the general
partners of Vulcan. We have assumed the authenticity of all documents submitted
to us as originals, the genuineness of all signatures, the legal capacity of
natural persons and the conformity to originals of all copies of all documents
submitted to us. We have relied upon the certificates of all public officials
and corporate officers with respect to the accuracy of all matters contained
therein.
Based upon and subject to the foregoing, and the qualifications,
limitations, exceptions and assumptions set forth below, it is our opinion that:
1. VPC is duly incorporated and validly existing and in good standing
under the laws of the State of Nevada.
2. Vulcan has been duly formed and is validly existing under the laws of
the State of Nevada.
Nothing herein shall be deemed an opinion as to the laws of any
jurisdiction other than the State of Nevada.
<PAGE>
June 29, 1999
Page 3
This Opinion is intended solely for your use in connection with the
transaction(s) covered hereby. It may not be relied upon by any other person or
for any other purpose, or reproduced or filed publicly by any person, without
the written consent of this firm. We disclaim liability as an expert under the
securities laws of the United States or any other jurisdiction. We consent to
being named in the Registration Statement and related Prospectus as counsel who
are passing upon the due incorporation and good standing of VPC, and the due
formation and valid existence of Vulcan, as each of the same relates to the
legality of the Partnership Guarantee by VPC and Vulcan. We hereby consent to
your filing copies of this Opinion as an exhibit to the Registration Statement
or any amendment thereto.
Sincerely,
/s/ Lionel Sawyer & Collins
LIONEL SAWYER & COLLINS
<PAGE>
15.1
June 29, 1999
Salton Sea Funding Corporation
302 South 36th Street, Suite 400-A
Omaha, Nebraska
We have made a reveiw, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Salton Sea Funding Corporation, Salton Sea Guarantors,
Partnership Guarantors, and Salton Sea Royalty Company for the periods ended
March 31, 1999 and 1998, as indicated in our reports dated April 28, 1999;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our reports referred to above, which were included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 are being
used in this Registration Statement. We also are aware that the aforementioned
reports, pursuant to Rule 436(c) under the Securities Act of 1933, are not
considered a part of the Registration Statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of Sections 7 and 11 of that Act.
/s/ Deloitte & Touche
- ---------------------
DELOITTE & TOUCHE LLP
Omaha, Nebraska
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANTS
A. Vulcan/BN Geothermal Power Company, a Nevada general partnership, and
VPC Geothermal LLC, a Delaware limited liability company, are
subsidiaries of Vulcan Power Company.
B. Vulcan/BN Geothermal Power Company is a subsidiary of VPC
Geothermal LLC.
C. Leathers, L.P., a California limited partnership, Del Ranch, L.P., a
California limited partnership, Elmore, L.P., a California limited
partnership, San Felipe Energy Company, a California corporation, Conejo
Energy Company, a California corporation, and Niguel Energy Company, a
California corporation, are subsidiaries of CalEnergy Operating
Corporation.
D. Leathers, L.P. is a subsidiary of San Felipe Energy Company.
E. Elmore, L.P. is a subsidiary of Niguel Energy Company.
F. Del Ranch, L.P. is a subsidiary of Conejo Energy Company.
G. Salton Sea Power Generation L.P., a California limited partnership, is a
subsidiary of Salton Sea Brine Processing L.P., a California limited
partnership.
H. CalEnergy Minerals LLC, a Delaware limited liability company, is a
subsidiary of Salton Sea Minerals Corp., a Delaware corporation.
I. Salton Sea Power L.L.C., a Delaware limited liability company, and CE
Turbo LLC, a Delaware limited liability company, are subsidiaries of CE
Salton Sea, Inc., a Delaware corporation.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Salton Sea Funding Corporation on Form S-4 of our reports dated January 28,
1999 (March 3, 199 as to Note 4 to the financial statements of Salton Sea
Funding Corporation, Note 6 to the combined financial statements of Salton
Sea Guarantors, Note 10 to the combined financial statements of Partnership
Guarantors, and Note 5 to the financial statements of Salton Sea Royalty
Company), appearing in the Annual Report on Form 10-K of Salton Sea Funding
Corporation for the year ended December 31, 1998 and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/ Deloitte & Touche
DELOITTE & TOUCHE LLP
Omaha, Nebraska
June 29, 1999
<PAGE>
EXHIBIT 25.1
------------
--------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
---------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(B)(2)_________
---------------------
CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-4655078
(STATE OF INCORPORATION (I.R.S. EMPLOYER
IF NOT A NATIONAL BANK) IDENTIFICATION NO.)
101 California Street, #2725
San Francisco, California 94111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
---------------------
SALTON SEA FUNDING CORPORATION
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 47-0790493
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
302 South 36th Street, Suite 400-A
Omaha, Nebraska 68131
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
---------------------
7.475% Senior Secured Series F Bonds due November 30, 2018
(TITLE OF THE INDENTURE SECURITIES)
---------------------
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency, Washington, D.C.
Board of Governors of the Federal Reserve System,
Washington, D.C. 20551
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES.
(a) Title of the securities outstanding under each such other indenture.
$475,000,000 Series A Notes, B&C Bonds issued under Indenture dated as
of 7-21-95
$135,000,000 Series D Notes and Series E Bonds issued under Indenture
dated as of 6-20-96
(b) A brief statement of the facts relied upon as a basis for the claim
that no conflicting interest within the meaning of Section 310(b)(1) of
the Act arises as a result of the trusteeship under any such other
indenture, including a statement as to how the indenture securities
will rank as compared with the securities issued under such other
Indenture.
The Trustee is not deemed to have a conflicting interest within the
meaning of Section 310(b)(1) of the Act because (i) the indenture securities
referenced in (a) above (the "Prior Securities") are not in default and (ii)
proviso (i) under 310(b)(1) is applicable and excludes the operations of
310(b)(1) as the indentures to be qualified and the indentures entered into in
connection with the Prior Securities (the "Prior Indentures") are wholly
unsecured and rank equally and the Prior Indentures specifically described in
the indenture to be qualified.
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as a part of this Statement of Eligibility.
1. A copy of the Articles of Incorporation of the Trustee as now in
effect, including the Restated Articles of Incorporation dated December 23,
1986 and the Certificate of Amendment dated March 26, 1992 (see Exhibit 1 to
Form T-1 filed in connection with Registration Statement No. 33-55136, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (See Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-55136, which is incorporated by reference).
3. Authorization to exercise corporate trust powers (Contained in
Exhibit 2).
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form
T-1 filed in connection with Registration Statement No. 33-55136, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 21(b) of the Act (See
Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-55136, which is incorporated by reference).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Chase Manhattan Bank and Trust Company, National Association, a
corporation organized and existing under the laws of the State of California,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of San Francisco and
State of California, on the 29th day of June, 1999.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
By /s/ Rose T. Maravilla
-------------------------------------
ROSE T. MARAVILLA
Assistant Vice President
3
<PAGE>
EXHIBIT 7. REPORT OF CONDITION OF THE TRUSTEE
Consolidated Report of Condition of Chase Manhattan Bank and Trust Company, N.A.
---------------------------------------------
(Legal Title)
Located at 1800 Century Park East, Ste. 400 Los Angeles, CA 94111
---------------------------------------------------------------------
(Street) (City) (State) (Zip)
as of close of business on March 31, 1999
------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS DOLLAR AMOUNTS IN THOUSANDS
1. Cash and balances due from
a. Noninterest-bearing balances and currency and coin (1,2) 2,305
b. Interest bearing balances (3) 0
2. Securities
a. Held-to-maturity securities (from Schedule RC-B, column A) 0
b. Available-for-sale securities (from Schedule RC-B, column D) 1,102
3. Federal Funds sold (4) and securities purchased agreements to resell 64,250
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C) 162
b. LESS: Allowance for loan and lease losses 0
c. LESS: Allocated transfer risk reserve 0
d. Loans and leases, net of unearned income, allowance, and reserve
(item 4.a minus 4.b and 4.c) 162
5. Trading assets 0
6. Premises and fixed assets (including capitalized leases) 280
7. Other real estate owned (from Schedule RC-M) 0
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M) 0
9. Customers liability to this bank on acceptances outstanding 0
10. Intangible assets (from Schedule RC-M) 1,292
11. Other assets (from Schedule RC-F) 2,111
12a. TOTAL ASSETS 71,502
(1) Includes cash items in process of collection and unposted debits.
(2) The amount reported in this item must be greater than or equal to the sum of
Schedule RC-M, items 3.a and 3.b
(3) Includes time certificates of deposit not held for trading.
(4) Report "term federal funds sold" in Schedule RC, item 4.a "Loans and leases,
net of unearned income" and in Schedule RC-C, part 1.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E) 41,121
(1) Noninterest-bearing 6,008
(2) Interest-bearing 35,113
b. In foreign offices, Edge and Agreement subsidiaries, and IBF
(1) Noninterest-bearing
(2) Interest-bearing
14. Federal funds purchased (2) and securities said under agreements to repurchase 0
15. a. Demand notes issued to the U.S. Treasury 0
b. Trading liabilities 0
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized losses):
a. With a remaining maturity of one year or less 0
b. With a remaining maturity of more than one year through three years 0
c. With a remaining maturity of more than three years 0
17. Not applicable
18. Bank's liability on acceptances executed and outstanding 0
19. Subordinated notes and Debentures (3) 0
20. Other liabilities (from Schedule RC-G) 5,058
21. Total liabilities (sum of items 13 through 20) 48,179
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus 0
24. Common stock-- 600
25. Surplus (exclude all surplus related to preferred stock) 12,590
26. a. Undivided profits and capital reserves 12,133
b. Net unrealized holding gains (losses) on available-for-sale securities 0
27. Cumulative foreign currency translation adjustments
28. a. Total equity capital (sum of items 25 through 27) 25,323
29. Total liabilities, equity capital, and losses deferred pursuant to
12 U.S.C. 1823 (i)(sum of items 21 and 28.C) 71,602
MEMORANDUM
To be reported only with the March Report of Condition
1. Indicate in the box at the right the number of the statement below that best
describes the most comprehensive level of auditing work performed for the
bank by independent external auditors as of any date during 1998 2
</TABLE>
5
<PAGE>
EXHIBIT 99.1
------------
LETTER OF TRANSMITTAL
SALTON SEA FUNDING CORPORA TION
OFFER TO EXCHANGE ITS REGISTERED
7.475% SENIOR SECURED SERIES F BONDS DUE NOVEMBER 30, 2018
FOR ANY AND ALL OF ITS OUTSTANDING
7.475% SENIOR SECURED SERIES F BONDS DUE NOVEMBER 30, 2018
PURSUANT TO THE PROSPECTUS, DATED JUNE 29, 1999
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
JULY 30, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
The Exchange Agent
for the Exchange Offer is:
CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION
FACSIMILE TRANSMISSIONS:
(214) 672-5746
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
(415) 954-9508
By Hand Delivery: By Mail/Courier Service:
The Chase Manhattan Bank Chase Bank of Texas
Corporate Tellers Corporate Trust Services
55 Water St., Rm 234 North Bldg. 1201 Main St., 18th Floor
New York, NY 10041 Dallas, TX 75202
Attention: Frank Ivins
Personal & Confidential
The Information Agent for the Exchange Offer is:
MACKENZIE PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500
or
(800) 322-2885 (Toll Free)
---------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus, dated June 29,
1999 (as the same may be amended or supplemented from time to time, the
"Prospectus"), of Salton Sea Funding Corporation, a Delaware corporation (the
"Company"), and this Letter of Transmittal, which may be amended from time to
time (this "Letter"), which together constitute the Company's offer (the
"Exchange Offer") to exchange its 7.475% Senior Secured Series F Bonds Due
November 30, 2018 ("New Securities") for an equal principal amount of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018 ("Old
Securities"). The New Securities will be obligations of the Company evidencing
the same indebtedness as the Old Securities and will be entitled to the benefits
of the same indenture which governs both the Old Securities and the New
Securities. The form and terms (including principal
<PAGE>
amount, interest rate, maturity and ranking) of the New Securities are
substantially identical to the form and terms of the Old Securities other than
interest rate penalties, transfer restrictions and registration rights which
are no longer applicable. Capitalized terms used herein but not defined herein
have the meanings ascribed to them in the Prospectus.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter is to be completed by a holder of Old Securities either if
certificates are to be forwarded herewith or if a tender of Old Securities, if
available, is to be made by book-entry transfer to the account maintained by the
Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer
Facility" or "DTC") pursuant to the procedures set forth in "The Exchange Offer"
section of the Prospectus. Holders of Old Securities whose certificates are not
immediately available, or who are unable to deliver their certificates or
Agent's Message and confirmation of the book-entry tender of their Old
Securities into the Exchange Agent's account at the Book-Entry Transfer Facility
(together with the Agent's Message, the "Book-Entry Confirmation") and all other
documents required by this Letter to the Exchange Agent on or prior to the
Expiration Date, must tender their Old Securities according to the guaranteed
delivery procedures set forth in "The Exchange Offer--Procedures for Tendering"
section of the Prospectus. See Instruction 1. Delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.
The undersigned has completed, executed and delivered this Letter to
indicate the action he or she desires to take with respect to the Exchange
Offer.
The Instructions included with this Letter must be followed in their
entirety. Questions and requests for assistance or for additional copies of the
Prospectus or this Letter may be directed to the Exchange Agent, at the address
listed above, or the Information Agent, at the address listed above.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE
INSTRUCTIONS TO THIS LETTER, CAREFULLY BEFORE CHECKING ANY BOX BELOW.
List in Box 1 below the Old Securities of which you are the holder. If
the space provided in Box 1 is inadequate, list the certificate numbers and
principal amount of Old Securities on a separate SIGNED schedule and affix that
schedule to this Letter.
2
<PAGE>
BOX 1
TO BE COMPLETED BY ALL TENDERING HOLDERS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL
OF OLD SECURITIES AMOUNT OF OLD
NAME(S) AND ADDRESS(ES) OF REGISTERED CERTIFICATE REPRESENTED SECURITIES
HOLDER(S) (PLEASE FILL IN, IF BLANK) NUMBER(S)* BY CERTIFICATE(S) TENDERED**
- ---------------------------------------------------------------------------- ------------- ------------------- --------------
<S> <C> <C> <C>
------------- ------------------- --------------
------------- ------------------- --------------
------------- ------------------- --------------
------------- ------------------- --------------
TOTALS:
- -----------------------------------------------------------------------------------------------------------------------------
* Need not be completed if Old Securities are being tendered by book-entry transfer.
** Unless otherwise indicated, the entire principal amount of Old Securities represented by acertificate delivered to the
Exchange Agent will be deemed to have been tendered. See Instruction 2. Old Securities tendered hereby must be in a
principal amount of $1,000 and integral multiples thereof, provided that if any Old Securities are tendered for
exchange in part, the untendered principal amount thereof must be $100,000 or any integral multiple of $1,000 in excess
thereof. See Instruction 1.
- -----------------------------------------------------------------------------------------------------------------------------
(Boxes below to be checked by Eligible Institutions only)
</TABLE>
[ ] CHECK HERE IF TENDERED OLD SECURITIES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ____________________________________________
DTC Account Number _______________________________________________________
Transaction Code Number __________________________________________________
[] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD SECURITIES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Owner(s) ___________________________________________
Window Ticket Number (if any) ____________________________________________
Date of Execution of Notice of Guaranteed Delivery _______________________
Name of Institution which Guaranteed Delivery ____________________________
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution ____________________________________________
DTC Account Number _______________________________________________________
Transaction Code Number __________________________________________________
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD
SECURITIES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET
FORTH ABOVE.
3
<PAGE>
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD SECURITIES FOR
ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name ____________________________________________________________________
Address _________________________________________________________________
_________________________________________________________________
4
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned tenders to the Company the aggregate principal amount of Old
Securities indicated above. Subject to and effective upon the acceptance for
exchange of all or any portion of the Old Securities tendered herewith in
accordance with the terms and conditions of the Exchange Offer (including, if
the Exchange Offer is extended or amended, the terms and conditions of any such
extension or amendment), the undersigned exchanges, assigns and transfers to, or
upon the order of, the Company all right, title and interest in and to the Old
Securities tendered.
The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as his or her agent and attorney-in-fact (with full knowledge
that the Exchange Agent also acts as the agent of the Company) with respect to
the tendered Old Securities, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest)
subject only to the right of withdrawal described in the Prospectus, to: (a)
deliver certificates for such Old Securities with all accompanying evidences of
transfer and authenticity to, or upon the order of, the Company upon receipt by
the Exchange Agent, as the undersigned's agent, of the New Securities to which
the undersigned is entitled upon the acceptance by the Company of the Old
Securities tendered under the Exchange Offer; (b) present certificates for such
Old Securities for transfer, and to transfer the Old Securities on the books of
the Company; and (c) receive all benefits and otherwise exercise all rights of
beneficial ownership of the Old Securities, all in accordance with the terms of
the Exchange Offer.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, exchange, assign and transfer the Old Securities
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim. The undersigned will, upon request, execute
and deliver any additional documents deemed by the Company to be necessary or
desirable to complete the assignment and transfer of the Old Securities
tendered. The undersigned has read and agrees to all of the terms of the
Exchange Offer.
The undersigned agrees that acceptance of any tendered Old Securities
by the Company and the issuance of New Securities in exchange therefor shall
constitute performance in full by the Company of its obligations under the
Registration Rights Agreement (as defined in the Prospectus) and that, upon the
issuance of the New Securities, the Company will have no further obligations or
liabilities thereunder. By tendering Old Securities, the undersigned hereby
represents and agrees that (a) the undersigned is not an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act of 1933, as
amended (the "Securities Act"); (b) any New Securities to be received by the
undersigned are being acquired in the ordinary course of its business; (c) the
undersigned is not participating, and has no arrangement or understanding with
any person to participate, in a distribution (within the meaning of the
Securities Act) of New Securities to be received in the Exchange Offer; and (d)
any person participating in the Exchange Offer with the intention or purpose of
distributing New Securities received in exchange for Old Securities, including a
broker-dealer that acquired Old Securities directly from the Company, but not as
a result of market-making activities or other trading activities cannot rely on
the no-action letters referenced in "The Exchange Offer--Resale of the New
Securities" Section of the Prospectus, and must comply with the registration and
prospectus delivery requirements of the Securities Act, in connection with a
secondary resale of the New Securities acquired by such person. By tendering Old
Securities pursuant to the Exchange Offer, a holder of Old Securities which is a
broker-dealer represents and agrees, consistent with certain interpretive
letters issued by the staff of the Division of Corporation Finance of the
Securities and Exchange Commission, that (a) such Old Securities held by the
broker-dealer are held only as a nominee, or (b) such Old Securities were
acquired by such broker-dealer for its own account as a result of market-making
activities or other trading activities and it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such New
Securities; provided, however, that by so acknowledging and by delivering a
prospectus, such broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned understands that tenders of Old Securities pursuant to
any one of the procedures described in "The Exchange Offer--Procedures for
Tendering" section of the Prospectus and in the instructions hereto will, upon
the Company's acceptance for exchange of such tendered Old Securities,
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Exchange Offer. The undersigned
recognizes that, under certain circumstances set forth in the Prospectus, the
Company may not be required to accept for exchange any of the Old Securities
tendered hereby.
5
<PAGE>
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Securities tendered hereby. All
authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer--Withdrawal Rights; Nonexchanged Old Securities" section of the
Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the New Securities be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Old Securities, that such New Securities be credited to the account
indicated above maintained at the Book-Entry Transfer Facility. If applicable,
substitute certificates representing Old Securities not exchanged or not
accepted for exchange will be issued to the undersigned or, in the case of a
book-entry transfer of Old Securities, will be credited to the account indicated
above maintained at the Book-Entry Transfer Facility. Similarly, unless
otherwise indicated under "Special Delivery Instructions" below, please deliver
New Securities to the undersigned at the address set forth in Box 1.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
SECURITIES" ABOVE AND BY SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED
THE OLD SECURITIES AS SET FORTH IN SUCH BOX ABOVE.
6
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
BOX 2
------------------------------------------------------------------
PLEASE SIGN HERE
WHETHER OR NOT OLD SECURITIES ARE BEING
PHYSICALLY TENDERED HEREBY
X _____________________________________________________
X _____________________________________________________
Area Code and Telephone Number: ________________
This box must be signed by registered holder(s) of Old
Securities as their name(s) appear(s) on certificate(s) for
Old Securities hereby tendered or on a security position
listing, or by any person(s) authorized to become registered
holder(s) by endorsement and documents transmitted with this
Letter (including such opinions of counsel, certifications
and other information as may be required by the Company or
the Trustee for the Old Securities to comply with the
restrictions on transfer applicable to the Old Securities).
If signature is by an attorney-in-fact, trustee, executor,
administrator, guardian, officer or other person acting in
a fiduciary or representative capacity, such person must set
forth his or her full title below. See Instruction 3.
Name(s): ______________________________________________
_______________________________________________________
(Please Print)
Capacity (full title): ________________________________
_______________________________________________________
Address:_______________________________________________
_______________________________________________________
(Including Zip Code)
Tax Indentification or Social Security
Number(s): ____________________________________________
_______________________________________________________
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 5 to determine if required.)
Authorized Signature: _________________________________
Name: _________________________________________________
Name of Firm: _________________________________________
Title: ________________________________________________
Address: ______________________________________________
Area Code and Telephone Number: _______________________
Dated: ________________________________________________
------------------------------------------------------------------
7
<PAGE>
------------------------------------------------------------------
BOX 3
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Securities in a
principal amount not tendered, or New Securities, are to be
issued in the name of someone other than the person whose
signature appears in Box 2.
Issue:
(check appropriate boxes)
[ ] Old Securities not tendered
[ ] New Securities, to:
Name _______________________________________________________
(Please Print)
Address ____________________________________________________
____________________________________________________________
Please complete the Substitute Form W-9 at Box 5 Tax. I.D. or Social
Security Number: _______________________________
------------------------------------------------------------------
------------------------------------------------------------------
BOX 4
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Securities in a
principal amount not tendered, or New Securities, are to be sent
to someone other than the person whose signature appears in Box 2
or to an address other than that shown in Box 1.
Deliver:
(check appropriate boxes)
[ ] Old Securities not tendered
[ ] New Securities, to:
Name _______________________________________________________
(Please Print)
Address ____________________________________________________
____________________________________________________________
Please complete the Substitute Form W-9 at Box 5 Tax. I.D. or Social
Security Number: _______________________________
------------------------------------------------------------------
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. DELIVERY OF THIS LETTER AND OLD SECURITIES; GUARANTEED DELIVERY
PROCEDURES. This Letter is to be completed by holders of Old Securities either
if certificates are to be forwarded herewith or if tenders are to be made
pursuant to the procedures for tender by book-entry transfer set forth in "The
Exchange Offer--Procedures for Tendering" section of the Prospectus.
Certificates for all physically tendered Old Securities, or Book-Entry
Confirmation, as the case may be, as well as a properly completed and duly
executed Letter (or facsimile thereof) and any other documents required by this
Letter, must be received by the Exchange Agent at the address set forth herein
on or prior to 5:00 p.m., New York City time, on the Expiration Date, or the
tendering holder must comply with the guaranteed delivery procedures set forth
below. Holders may tender their Old Securities in whole or in part in a
principal amount of $1,000 and integral multiples thereof, provided that if any
Old Securities are tendered for exchange in part, the untendered principal
amount thereof must be $100,000 or any integral multiple of $1,000 in excess
thereof.
If a registered holder of Old Securities desires to tender such Old
Securities, and the Old Securities are not immediately available, or time will
not permit such holder's Old Securities or other required documents to reach the
Exchange Agent prior to the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Procedures for Tendering" section of the Prospectus. Pursuant to such
procedures, if (a) the tender is made through an Eligible Institution, (b) on or
prior to the Expiration Date, the Exchange Agent received from such Eligible
Institution a properly completed and duly executed Letter (or facsimile thereof)
and Notice of Guaranteed Delivery, substantially in the form provided by the
Company (by facsimile transmission, mail or hand delivery), setting forth the
name and address of the holder of Old Securities and the amount of Old
Securities tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Securities, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by this Letter will be deposited by the Eligible Institution
with the Exchange Agent and (c) the certificates for all physically tendered Old
Securities, in proper form for transfer, or a Book-Entry Confirmation, as the
case may be, and any other documents required by this Letter are received by the
Exchange Agent within three NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER. IF
DELIVERY IS BY MAIL, REGISTERED MAIL (RETURN RECEIPT REQUESTED AND PROPERLY
INSURED) OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. NO LETTERS OR OLD
SECURITIES SHOULD BE SENT TO THE COMPANY. To be tendered effectively, the Old
Securities, this Letter and all other required documents must be received by the
Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
All questions as to the validity, form, eligibility (including time of receipt),
acceptance and withdrawal of tendered Old Securities will be determined by the
Company, whose determination will be final and binding. The Company reserves the
absolute right to reject any or all tenders that are not in proper form or the
acceptance of which, in the opinion of the Company's counsel, would be unlawful.
The Company also reserves the right to waive any irregularities or conditions of
tender as to particular Old Securities. All tendering holders, by execution of
this Letter, waive any right to receive notice of acceptance of their Old
Securities. Neither the Company, the Exchange Agent nor any other person shall
be obligated to give notice of defects or irregularities in any tender, nor
shall any of them incur any liability for failure to give any such notice.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER); WITHDRAWALS. If less than the entire principal amount of any Old
Security evidenced by a submitted certificate is tendered, the tendering holder
must fill in the principal amount tendered in the fourth column of Box 1 above.
ALL OF THE OLD SECURITIES REPRESENTED BY A CERTIFICATE DELIVERED TO THE EXCHANGE
AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED. A
certificate for Old Securities not tendered will be sent to the holder, unless
otherwise provided in Box 5, as soon as practicable after the Expiration Date,
in the event that less than the entire principal amount of Old Securities
represented by a submitted certificate is tendered.
Old Securities tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely received by the
Exchange Agent at its address set forth above or in the Prospectus. Any such
notice of withdrawal must specify the name of the person having tendered the Old
Securities to be withdrawn, identify the Old
9
<PAGE>
Securities to be withdrawn (including the principal amount of such Old
Securities), and (where certificates for Old Securities have been transmitted)
specify the name in which such Old Securities are registered if different from
that of the withdrawing holder, accompanied by evidence satisfactory to the
Company that the person withdrawing the tender has succeeded to the beneficial
ownership of the Old Securities being withdrawn. If certificates for Old
Securities have been delivered or otherwise identified to the Exchange Agent,
then, prior to the release of such certificates, the withdrawing holder must
also submit the serial numbers of the particular certificates to be withdrawn
and a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such holder is an Eligible Institution. If Old Securities
have been tendered pursuant to the procedure for book-entry transfer described
in "The Exchange Offer--Procedures for Tendering" section of the Prospectus,
any notice of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Old Securities
and otherwise comply with the procedures of such facility. If any Old
Securities are tendered for exchange but are not exchanged for any reason, or
if any Old Securities are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or nonexchanged Old Securities will
be returned to the holder thereof without cost to such holder (or, in the case
of Old Securities tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described in "The Exchange Offer--Procedures for Tendering" section
of the Prospectus, such Old Securities will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Securities) as
soon as practicable after withdrawal, rejection of tender, termination of the
Exchange Offer or submission of nonexchanged Old Securities. Withdrawals of
tenders of Old Securities may not be rescinded. Old Securities properly
withdrawn will not be deemed validly tendered for purposes of the Exchange
Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described in "The Exchange
Offer--Procedures for Tendering" section of the Prospectus.
All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification.
3. SIGNATURES; ASSIGNMENTS; GUARANTEE OF SIGNATURES. If this Letter is
signed by the holder(s) of Old Securities tendered hereby, the signature must
correspond with the name(s) as written on the face of the certificate(s) for
such Old Securities, without alteration, enlargement or any change whatsoever.
If any of the Old Securities tendered hereby are owned by two or more
joint owners, all owners must sign this Letter.
If any tendered Old Securities are held in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are names in which certificates are held.
Signatures on this Letter or a notice of withdrawal, as the case may
be, must be guaranteed by an Eligible Institution, unless the Old Securities
tendered pursuant thereto are tendered (a) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter or (b) for the account of an Eligible Institution.
In the event that signatures on this Letter or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be by an
Eligible Institution.
If this Letter is signed by a person other than the registered holder
of any Old Securities listed therein, such Old Securities must be endorsed or
accompanied by bond powers and a proxy which authorizes such person to tender
the Old Securities on behalf of the registered holder, in each case as the name
of the registered holder or holders appears on the Old Securities. If this
Letter or any Old Securities bond powers are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such person should so indicate
when signing, and unless waived by the Company, evidence satisfactory to the
Company of their authority to so act must be submitted with this Letter.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in Box 5, the name and address to which the New Securities or
certificates for Old Securities not tendered are to be sent or issued, if
different from the name and address of the person signing this Letter. In the
case of issuance in a different name, the tax identification number of the
person named must also be indicated. A holder of Old Securities tendering Old
Securities by book-entry transfer may request that Old Securities not exchanged
be credited to such account maintained at the Book-Entry Transfer Facility as
such holder of Old Securities may designate hereon. If no such instructions are
given, such Old Securities not exchanged will be returned to the name or address
of the person signing this Letter.
10
<PAGE>
5. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder whose tendered Old Securities are accepted for exchange must provide the
Exchange Agent (as payor) with his or her correct taxpayer identification number
("TIN"), which, in the case of a holder who is an individual, is his or her
social security number. If the Exchange Agent is not provided with the correct
TIN, the holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, delivery to the holder of the New Securities pursuant to
the Exchange Offer may be subject to back-up withholding. (If withholding
results in overpayment of taxes, a refund may be obtained.) Exempt holders
(including, among others, all corporations and certain foreign individuals) are
not subject to these back-up withholding and reporting requirements. See the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional instructions.
Under federal income tax laws, payments that may be made by the Company
on account of New Securities issued pursuant to the Exchange Offer may be
subject to back-up withholding at a rate of 31%. In order to prevent back-up
withholding, each tendering holder must provide his or her correct TIN by
completing the "Substitute Form W-9" referred to above, certifying that the TIN
provided is correct (or that the holder is awaiting a TIN) and that: (i) the
holder has not been notified by the Internal Revenue Service that he or she is
subject to back-up withholding as a result of failure to report all interest or
dividends; or (ii) the Internal Revenue Service has notified the holder that he
or she is no longer subject to back-up withholding; or (iii) certify in
accordance with the Guidelines that such holder is exempt from back-up
withholding. If the Old Securities are in more than one name or are not in the
name of the actual owner, consult the enclosed Guidelines for information on
which TIN to report.
6. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the transfer of Old Securities to it or its order pursuant to the
Exchange Offer. If, however, the New Securities or certificates for Old
Securities not tendered are to be delivered to, or are to be issued in the name
of, any person other than the record holder, or if tendered certificates are
recorded in the name of any person other than the person signing this Letter, or
if a transfer tax is imposed by any reason other than the transfer of Old
Securities to the Company or its order pursuant to the Exchange Offer, then the
amount of such transfer taxes (whether imposed on the record holder or any other
person) will be payable by the tendering holder. If satisfactory evidence of
payment of taxes or exemption from taxes is not submitted with this Letter, the
amount of transfer taxes will be billed directly to the tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter.
7. WAIVER OF CONDITIONS; NO CONDITIONAL TENDERS. The Company reserves
the absolute right to amend or waive any of the specified conditions in the
Exchange Offer.
No alternative, conditional, irregular or contingent tenders will be
accepted.
8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose
certificates for Old Securities have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering, as well as requests for additional copies of the
Prospectus or this Letter, may be directed to the Exchange Agent at the address
and telephone number indicated above.
IMPORTANT: THIS LETTER (OR A FACSIMILE THEREOF), TOGETHER WITH
CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED
DOCUMENTS, MUST BE RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT, ON OR PRIOR TO 5:00 P.M., NEW
YORK CITY TIME, ON THE EXPIRATION DATE.
11
<PAGE>
BOX 5
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
PAYER'S NAME: CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE Social security number
Form W-9 PART 1 -- PLEASE PROVIDE YOUR TIN IN OR _______________________________
Department of THE BOX AT RIGHT AND CERTIFY BY Employer identification number
the Treasury SIGNING AND DATING BELOW
Internal Revenue Service -----------------------------------------------------------------------------------
PART 2 -- CERTIFICATION -- UNDER PENALTIES OF PERJURY, I CERTIFY THAT::
PAYER'S (1) The number shown on this form is my correct Taxpayer Identification
REQUEST FOR Number (or I am waiting for a number to be issued to me); and
TAXPAYER (2) I am not subject to backup withholding because (i) I am exempt from
IDENTIFICATION backup withholding, (ii) I have not been notified by the Internal
NUMBER Revenue Service (the "IRS") that I am subject to backup withholding
("TIN") as a result of a failure to report all interest or dividends, or (iii)
the IRS has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) in part 2
above if you have been notified by the IRS that you are subject to backup
withholding because of under-reporting interest or dividends on your tax
return. However, if after being notified by the IRS that you were subject
to backup withholding you received another notification from the IRS stating
that you are no longer subject to backup withholding, do not cross out
item (2).
-----------------------------------------------------------------------------------
SIGNATURE....................... DATE..............
NAME (Please Print................................. PART 3
Awaiting TIN -> [ ]
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDE LINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (i) I have mailed or
delivered an application to receive a taxpayer identification number
to the appropriate Internal Revenue Service Center or Social Security
Administration Office or (ii) I intend to mail or deliver an
application in the near future. I understand that if I do not provide
a taxpayer identification number within 60 days, 31% of all
reportable payments made to me thereafter will be withheld until I
provide a number.
Signature..............................Date...................................
Name (Please Print)...........................................................
- --------------------------------------------------------------------------------
12
<PAGE>
EXHIBIT 99.2
------------
NOTICE OF GUARANTEED DELIVERY
FOR
SALTON SEA FUNDING CORPORATION
This Notice of Guaranteed Delivery, or one substantially equivalent to
this form, must be used to accept the Exchange Offer (as defined below) of
Salton Sea Funding Corporation (the "Company") made pursuant to the Prospectus,
dated June 29, 1999 (the "Prospectus"), and the related Letter of Transmittal
(the "Letter of Transmittal") if (i) certificates for the Old Securities (as
defined below) are not immediately available; (ii) the Old Securities, the
Letter of Transmittal and all other required documents cannot be delivered or
transmitted by facsimile transmission, mail or hand delivery to Chase Manhattan
Bank and Trust Company, National Association (the "Exchange Agent") on or prior
to 5:00 p.m., New York City time, on the Expiration Date (as defined in the
Prospectus); or (iii) the procedures for delivery by book-entry transfer cannot
be completed on a timely basis. See "The Exchange Offer--Procedures for
Tendering" section in the Prospectus. The term "Old Securities" means the
Company's outstanding 7.475% Senior Secured Series F Bonds Due November 30,
2018. Capitalized terms used herein but not defined herein have the meanings
ascribed to them in the Prospectus.
The Exchange Agent for the Exchange Offer is:
CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION
Facsimile Transmissions:
(214) 672-5746
To Confirm by Telephone or for Information:
(415) 954-9508
By Hand Delivery: By Mail/Courier Service:
The Chase Manhattan Bank Chase Bank of Texas
Corporate Tellers Corporate Trust Services
55 Water St., Rm. 234 North Bldg. 1201 Main St., 18th Floor
New York, NY 10041 Dallas, TX 75202
Attention: Frank Ivins
Personal & Confidential
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID
DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and
conditions set forth in the Prospectus and the Letter of Transmittal (which
together constitute the "Exchange Offer"), receipt of which are hereby
acknowledged, the aggregate principal amount of Old Securities set forth below
pursuant to the guaranteed delivery procedure described in "The Exchange Offer
- -- Procedures for Tendering" section in the Prospectus and the Letter of
Transmittal.
Principal Amount of Old Securities Signature(s) _____________________
Tendered $ _______________________
__________________________________
Certificate Nos. Please Print the Following Information:
(if available) ___________________
Name(s) of Registered
Total Principal Amount Holders __________________________
Represented by Old Securities
Certificate(s) __________________ __________________________________
If Old Securities will be tendered Address __________________________
by book-entry transfer, provide the
following information: __________________________________
DTC Account Number _______________ Area Code and Telephone
Number(s) ________________________
Dated:___________________, 1999
__________________________________
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," hereby guarantees to deliver to the Exchange Agent, at its
address set forth above, either the Old Securities tendered hereby in proper
form for transfer, or confirmation of the book-entry transfer of such Old
Securities pursuant to the procedures for book-entry transfer set forth in the
Prospectus, in either case together with a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees, and any other documents required by the Letter of Transmittal
within three New York Stock Exchange trading days after the date of execution
of this Notice of Guaranteed Delivery.
Name of Firm ______________________ ___________________________________
Authorized Signature
Address ___________________________
Name: _____________________________
___________________________________ Please type or print
Zip Code
Date: _____________________________
Area Code and Telephone
Number: ___________________________
NOTE: DO NOT SEND CERTIFICATES FOR OLD SECURITIES WITH THIS NOTICE OF
GUARANTEED DELIVERY. CERTIFICATES FOR OLD SECURITIES SHOULD ONLY BE
SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE>
EXHIBIT 99.3
------------
SALTON SEA FUNDING CORPORATION
OFFER TO EXCHANGE ITS REGISTERED
7.475% SENIOR SECURED SERIES F BONDS DUE NOVEMBER 30, 2018
FOR ANY AND ALL OF ITS OUTSTANDING
7.475% SENIOR SECURED SERIES F BONDS DUE NOVEMBER 30, 2018
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
JULY 30, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
June 29, 1999
To Our Clients:
Enclosed for your consideration is a Prospectus dated June 29, 1999 (as
the same may be amended or supplemented from time to time, the "Prospectus") and
a related Letter of Transmittal (the "Letter of Transmittal") in connection with
the offer (the "Exchange Offer") by Salton Sea Funding Corporation (the
"Company") to exchange its 7.475% Senior Secured Series F Bonds Due November 30,
2018 ("New Securities") for an equal principal amount of its outstanding 7.475%
Senior Secured Series F Bonds Due November 30, 2018 ("Old Securities"), of which
$285,000,000 aggregate principal amount is outstanding. The New Securities are
being offered for exchange in order to satisfy certain obligations of the
Company under the Exchange and Registration Rights Agreement, dated October 13,
1998, among the Company and other signatories thereto.
Holders of Old Securities whose certificates for such Old Securities
are not immediately available or who cannot deliver their certificates and all
other required documents to the Exchange Agent on or prior to the Expiration
Date (as defined below), or who cannot complete the procedures for book-entry
transfer on a timely basis, must tender their certificates according to the
guaranteed delivery procedures set forth in "The Exchange Offer-Procedures for
Tendering" section of the Prospectus.
THE MATERIAL IS BEING FORWARDED TO YOU AS THE BENEFICIAL OWNER OF OLD
SECURITIES CARRIED BY US FOR YOUR ACCOUNT OR BENEFIT BUT NOT REGISTERED IN YOUR
NAME. A TENDER OF ANY OLD SECURITIES MAY BE MADE ONLY BY US AS THE REGISTERED
HOLDER AND PURSUANT TO YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to
tender any or all Old Securities, pursuant to the terms and conditions set forth
in the Prospectus and Letter of Transmittal. We urge you to read carefully the
Prospectus and Letter of Transmittal before instructing us to tender your Old
Securities.
YOUR INSTRUCTIONS TO US SHOULD BE FORWARDED AS PROMPTLY AS POSSIBLE IN
ORDER TO PERMIT US TO TENDER OLD SECURITIES ON YOUR BEHALF IN ACCORDANCE WITH
THE PROVISIONS OF THE EXCHANGE OFFER. The Exchange Offer will expire at 5:00
p.m., New York City time, on the Expiration Date. Any Old Securities tendered
pursuant to the Exchange Offer may be withdrawn, subject to the procedures
described in the Prospectus, at any time prior to 5:00 p.m., New York City time,
on the Expiration Date.
<PAGE>
Please note the following:
1. The Exchange Offer is for any and all Old Securities.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Procedures for
Tendering."
3. Any transfer taxes incident to the transfer of Old Securities from
the holder to the Company will be paid by the Company, except as otherwise
provided in the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on the
Expiration Date.
If you wish to have us tender any or all of your Old Securities held by
us for your account or benefit, please so instruct us by completing, executing
and returning to us the instruction form that appears below. THE ACCOMPANYING
LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATIONAL PURPOSES ONLY AND
MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD SECURITIES HELD BY US AND
REGISTERED IN OUR NAME FOR YOUR ACCOUNT OR BENEFIT.
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by Salton Sea
Funding Corporation with respect to its Old Securities.
This will instruct you to tender the Old Securities held by you for the
account of the undersigned, upon and subject to the terms and conditions set
forth in the Prospectus and the related Letter of Transmittal.
Please tender the Old Securities held by you for my account as
indicated below:
AGGREGATE PRINCIPAL AMOUNT OF
OLD SECURITIES
________________________________________
[ ] Please do not tender any Old
Securities held by you for my
account
________________________________________
Dated: ________________ , 1999
________________________________________
Signature(s)
________________________________________
________________________________________
________________________________________
Please Print Name(s) here
________________________________________
________________________________________
Address(es)
________________________________________
Area Code(s) and Telephone Number(s)
________________________________________
Tax Identification or Social Security No(s)
None of the Old Securities held by us for your account will be tendered
unless we receive written instructions from you to do so. Unless a specific
contrary instruction is given in the space provided, your signature(s) hereon
shall constitute an instruction to us to tender all the Old Securities held by
us for your account.
<PAGE>
EXHIBIT 99.4
------------
SALTON SEA FUNDING CORPORATION
OFFER TO EXCHANGE ITS REGISTERED
7.475% SENIOR SECURED SERIES F BONDS DUE NOVEMBER 30, 2018
FOR ANY AND ALL OF ITS OUTSTANDING
7.475% SENIOR SECURED SERIES F BONDS DUE NOVEMBER 30, 2018
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
JULY 30, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
June 29, 1999
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Enclosed for your consideration is a Prospectus dated June 29, 1999 (as
the same may be amended or supplemented from time to time, the "Prospectus") and
related Letter of Transmittal (the "Letter of Transmittal") in connection with
the offer (the "Exchange Offer") by Salton Sea Funding Corporation (the
"Company") to exchange its 7.475% Senior Secured Series F Bonds Due November 30,
2018 ("New Securities") for an equal principal amount of its outstanding 7.475%
Senior Secured Series F Bonds Due November 30, 2018 ("Old Securities"), of which
$285,000,000 aggregate principal amount is outstanding. The New Securities are
being offered for exchange in order to satisfy certain obligations of the
Company under the Exchange and Registration Rights Agreement, dated October 13,
1998, among the Company and other signatories thereto.
We are asking you to contact your clients for whom you hold Old
Securities registered in your name or in the name of your nominee. In addition,
we ask you to contact your clients who, to your knowledge, hold Old Securities
registered in their own name. The Company will not pay any fees or commissions
to any broker, dealer or other person in connection with the solicitation of
tenders pursuant to the Exchange Offer. You will, however, be reimbursed (upon
request) by the Company for customary mailing and handling expenses incurred by
you in forwarding any of the enclosed materials to your clients. The Company
will pay all transfer taxes, if any, applicable to the tender of Old Securities
to it or its order, except as otherwise provided in the Prospectus and the
Letter of Transmittal.
Enclosed herewith for your information and for forwarding to your
clients for whom you hold Old Securities registered in your name or in the name
of your nominee, or who hold Old Securities registered in their own name, are
copies of the following documents:
1. The Prospectus dated June 29, 1999;
2. The Letter of Transmittal for your use in connection with the tender
of the Old Securities and for the information of your clients. Facsimile
copies of the Letter of Transmittal may be used to tender Old Securities;
3. A form of letter that may be sent to your clients for whose accounts
you hold Old Securities registered in your name or the name of your
nominee, with space provided for obtaining the clients' instructions with
regard to the Exchange Offer;
4. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if certificates for Old Securities are not immediately available or
time will not permit all required documents to reach the Exchange Agent (as
defined below) prior to the Expiration Date (as defined below) or if the
procedures for book-entry transfer cannot be completed on a timely basis;
<PAGE>
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to Chase Manhattan Bank and Trust
Company, National Association (the "Exchange Agent"), the exchange agent
for the Exchange Offer.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. ANY OLD SECURITIES TENDERED
PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN, SUBJECT TO THE PROCEDURES
DESCRIBED IN THE PROSPECTUS, AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME,
ON THE EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing the Old Securities should be
delivered to the Exchange Agent, all in accordance with the instructions set
forth in the Letter of Transmittal and the Prospectus.
If holders of Old Securities wish to tender, but it is impracticable
for them to forward their certificates for Old Securities prior to the
Expiration Date or to comply with the book-entry transfer procedures on a timely
basis, a tender may be effected by following the guaranteed delivery procedures
described in "The Exchange Offer--Procedures for Tendering" section of the
Prospectus.
Any inquiries you may have with respect to the Exchange Offer, or
requests for additional copies of the enclosed materials, should be directed to
the Exchange Agent at its address and telephone number set forth on the back
cover of the Prospectus.
Very truly yours,
Salton Sea Funding Corporation
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO
THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS AND
THE LETTER OF TRANSMITTAL.
