Exhibit 10.2(b)
---------------
AMENDMENT TO
PURCHASE NOTE AND SECURITY AGREEMENT
THIS AMENDMENT (this "Amendment") TO PURCHASE NOTE AND SECURITY
AGREEMENT, dated as of December 2, 1985 (the "Purchase Note Agreement"), between
ZOND CONSTRUCTION CORPORATION IV, a California corporation ("ZCC IV"), and ZOND
WINDSYSTEM PARTNERS, LTD. SERIES 85-C, a California Limited Partnership (the
"Debtor"), is entered into as of the 1st day of July, 1986.
WHEREAS, ZCC IV and the Debtor entered into the Purchase Note
Agreement pursuant to which the Debtor, among other things, issued to ZCC IV two
promissory notes, respectively dated December 23 and December 27, 1985, as
amended (collectively, the "Purchase Notes"); and
WHEREAS, ZCC IV and Debtor deem it to be in their respective best
interests to amend and supplement certain terms and provisions of the Purchase
Note Agreement.
NOW THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, ZCC IV and the Debtor agree as follows:
SECTION 1. Defined Terms. All terms used but not defined in this
-------------
Amendment which are used or defined in the Purchase Note Agreement as
supplemented and amended by this Amendment are used in this Amendment as so used
or defined.
SECTION 2. Representations of the Debtor. The Debtor represents
-----------------------------
and warrants to ZCC IV as hereinafter set forth.
A. Representations in Purchase Note Agreement. The representations
------------------------------------------
and warranties in Section 3 of the Purchase Note Agreement are reaffirmed.
B. Authority of the Debtor. The Debtor has full power and authority
-----------------------
to enter into this Amendment and to carry out the transactions contemplated by
this Amendment and by the Purchase Notes.
- 2 -
SECTION 3. Amendments to Purchase Note Agreement. The Purchase
-------------------------------------
Note Agreement is amended
(1) by amending Sections 2.2(e), 2.3, 6.1, 6.5, 7.5, 7.6, 7.7, 7.8,
7.15 and 13 thereof as respectively set forth in Annex A hereto,
-------
(2) by amending Exhibit D thereto to read as set forth in its
entirety in Annex B hereto, and
-------
(3) by adding a new Exhibit E thereto to read as set forth in its
entirety in Annex C hereto.
-------
SECTION 4. Effectiveness of this Amendment; Termination of this
----------------------------------------------------
Amendment. This amendment shall become effective on the date of execution. The
---------
amendments to the Purchase Note Agreement effected by paragraphs (3) - (9),
inclusive of Annex A to this amendment shall terminate and cease to be of any
-------
force and effect, without the need for further action by ZCC IV or the Debtor,
at such time as no amounts remain due under (i) those certain 10.50% Secured
Notes due 1998 in the aggregate original principal amount of $11,000,000 (the
- 3 -
"Notes") originally issued by ZCC IV to Connecticut General Life Insurance
Company and United of Omaha Life Insurance Company (singly, a "Purchaser")
pursuant to those certain Note Purchase Agreements each dated as of July 1, 1986
between ZCC IV and each Purchaser and (ii) the Indenture and Security Agreement
dated as of July 1, 1986 between ZCC IV and First Interstate Bank of California,
as Trustee.
SECTION 5. Ratification. The provisions of the Purchase Note
------------
Agreement, except as supplemented and amended by this Amendment, are in all
respects ratified and confirmed, and the terms, covenants and agreements thereof
shall be and remain in full force and effect as written.
SECTION. 6. Governing Law. This Amendment shall be construed in
-------------
accordance with and governed by the law of the State of California.
- 4 -
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the day and year first above written.
ZOND CONSTRUCTION CORPORATION IV
By /s/ [Illegible]
----------------------------------
Title: Vice President
ZOND WINDSYSTEM PARTNERS, LTD.
SERIES 85-C
By ZOND WINDSYSTEMS MANAGEMENT
CORPORATION V, it General
Partner
By /s/ [Illegible]
----------------------------------
Title: Vice President
- 5 -
ANNEX A
-------
(1) 2.2. Windsystem Collateral. The definition of Windsystem
---------------------
Collateral as set forth in Section 2.2 of the Purchase Note Agreement shall be
amended by adding to such Section 2.2 a clause (e) which shall read in full as
follows:
(e) Any and all Turbine Completion Certificates and
Bills of Sale and Power Substation Completion Certificates
and Bills of Sale issued to the Debtor by ZCC IV pursuant to
the Windsystem Construction Agreement.
(2) 2.3 Intangible Collateral. Section 2.3 of the Purchase Note
---------------------
Agreement is amended to read in full as follows:
2.3 Intangible Collateral. "Intangible Collateral"
---------------------
shall mean the following (other than any rights of the
Debtor set forth in the below-described agreements to be
defended, indemnified or held harmless or to receive any
payments made or to be made pursuant to any obligation to
such effect, all of the foregoing being collectively the
"Indemnification Rights"):
(a) the Standard Offer #4: Long-Term Energy and
Capacity Power Purchase Agreement (the "Original Power
Agreement"), dated January 17, 1985, originally between Wind
Developers, Inc. and Pacific Gas and Electric Company, a
California public utility ("PGE"), as assigned by Zond
Systems, Inc., a California corporation ("Zond"), to the
Debtor pursuant to the Assignment of Power Purchase
Agreement (the "Power Assignment") dated as of November 4,
1985 between Zond and the Debtor, as amended by the First
Amendment to Power Purchase Agreement effective December 11,
1985 (the Original Power Agreement, as so amended, is called
the "Power Agreement"), together with the Power Assignment;
(b) the PGE Agreement for Installation or Allocation of
Special Facilities for Parallel Operation of
Nonutility-owned Generation and/or Electrical Standby
Service, dated November 26, 1986 between PGE and Zond, as
assigned by Zond to the Debtor pursuant to the Assignment of
Interconnection Agreements (the "Interconnection
Assignment") dated as of July 1, 1986 by and between Zond
and the Debtor, together with the Interconnection
Assignment;
(c) the PGE Agreement for Electrical Standby Service,
dated November 26, 1986 between PGE and Zond, as assigned by
Zond to the Debtor pursuant to the Interconnection
Assignment, together with the Interconnection Assignment;
(d) the Windsystem Management Agreement (the
"Management Agreement") dated as of November 4, 1985 between
the Debtor and Zond;
(e) the Windsystem Construction Agreement;
(f) the Wind Power Generating Facility Warranty
Agreement (the "Warranty Agreement") made by Vestas Energy
A/S, a Danish corporation, in favor of one or more
purchasers to be subsequently designated, as referred to in
the Windsystem Construction Agreement;
(g) the warranty Assignment made as of November 25,
1985 by Zond and ZCC IV to the Debtor in respect of certain
representations and warranties pertaining to transactions
contemplated by the Windsystem Construction Agreement;
(h) the Assignment (the "Warranty Assignment") dated as
of November 4, 1985 between ZCC IV and the Debtor, by which
- 2 -
ZCC IV assigned to the Debtor certain representations and
warranties of Zond contained in the Construction Agreement
dated as of November 4, 1985 between Zond and ZCC IV;
(i) the 0000 Xxxxx Xxxxxxxx xxxxxxxx xx Xxxxxx Xxxxx
Xxxxxxx Limited, a California corporation, in favor of the
Debtor;
(j) the Amended and Restated Wind Park Easement
Agreement (the "Easement Agreement") dated as of July 1,
1986 between the Debtor and Zond;
(k) the Santa Xxxxx Non-Disturbance Agreement dated as
of December 17, 1985 between the City of Santa Xxxxx and the
Debtor;
(l) any and all payments or monies (other than payments
or monies received pursuant to any Indemnification Rights)
received or to be received under any of the foregoing,
including without limitation any and all proceeds from the
sale of electricity under the Power Agreement as assigned to
the Debtor by the Power Assignment;
(m) any additional agreements to which the Debtor is a
party, or warranties assigned or running to the debtor, and
which relate to the ownership and operation of the
Windsystem; and
(n) any replacements, substitutions, modifications,
amendments or proceeds of any of the foregoing.
(3) 5.2 Minimum Reserve Level. The first sentence of Section 5.2 of
---------------------
the Purchase Note Agreement is amended to read as follows:
5.2 Minimum Reserve Level. The "Minimum Reserve Level"
---------------------
of the Cash Reserve at any
- 3 -
particular time shall mean an amount equal to (a) the
number of Turbines then owned by the Debtor, which number
shall include any Turbines which have been damaged or
destroyed by an Insured Property Loss (as defined in section
6.5) or have been the subject of a Taking (as defined in the
Indenture referred to in Section 6.5(d)) and in either such
case as to which the Debtor, pursuant to the applicable
provisions of Section 6.5 and within the 60 day period
provided therein, has either elected or may elect to make
replacement or repair, multiplied by (b) $7,500.
(4) 6.1 Existing Policies. Section 6.1 of the Purchase Note Agreement
-----------------
is amended to read in full as follows:
6.1 Existing Policies. The Debtor presently maintains
-----------------
or is a named insured under the insurance policies
(individually an "Existing Policy," and collectively the
"Existing Policies") which are identified on the attached
Exhibit D.
---------
(5) 6.5 Use of Insurance Proceeds. Section 6.5 of the Purchase Note
-------------------------
Agreement is amended to read in full as follows:
6.5 Use of Insurance and Taking Proceeds. All insurance
------------------------------------
proceeds in excess of $50,000 per loss occurrence in respect
of a loss claimed or for which a claim can be made under any
property damage policy or policies or the property loss
(whether or not by casualty) coverage provisions of any
windsystem performance policy or policies maintained by or
for the benefit of Debtor (an "Insured Property Loss") and
all moneys received by the Debtor as an award or
compensation in the event of a Taking (as defined in the
Indenture referred to below) (a "Taking Award") in excess of
- 4 -
$50,000 per Taking shall be used by the Debtor in accordance
with the following:
(a) Upon the occurrence of an Insured Property
Loss in respect of which insurance proceeds in excess of
$50,000 are paid to the Debtor or upon the occurrence of a
Taking in respect of which a Taking Award in excess of
$50,000 is paid to the Debtor, the Debtor may elect to
replace or repair any property which is damaged by such
Insured Property Loss or which is the subject of such Taking
(the "Affected Property") by so notifying ZCC IV within 60
days after payment to the Debtor of such insurance proceeds
or of such Taking Award, as the case may be, and upon making
such election shall have 320 days to complete the
replacement or repair of such property.
(b) If the Debtor does not elect to replace or
repair all or any of the Affected Property within such
60-day period, the Debtor shall prepay the Purchase Notes in
an amount which bears the same proportion to the then
outstanding principal balance of the Purchase Notes plus
accrued interest thereon as the rated capacity of all
Turbines which are the subject of such Insured Property Loss
or are the subject of such Taking, and which the Debtor does
not so elect to repair or replace, bears to the total rated
capacity of all Turbines (including such damaged Turbines or
Turbines subject to such Taking) then owned by the Debtor.
The amount of any such prepayment shall be allocated between
the Purchase Notes in proportion to their respective unpaid
balances of principal and accrued interest. Any such
prepayment shall be applied pro rata or as otherwise
required by applicable tax law or regulation to each
outstanding
- 5 -
installment so as to maintain the level payment
character of the Purchase Notes.
(c) In the event that the Debtor makes an election
to replace or repair as provided for in paragraph (a) of
this Section 6.5, such proceeds or moneys shall be applied
to the costs of replacement or repair as such costs are
incurred by the Debtor, with the remaining balance, if any,
applied to prepay the Purchase Notes.
(d) Notwithstanding anything to the contrary above
or in the Indenture referred to below in this paragraph (d),
all proceeds or moneys in excess of $50,000 per loss
occurrence paid to the Debtor in respect of an Insured
Property Loss, and any Taking Award in excess of $50,000
paid to he Debtor shall be deposited in the separate
depository account described in Section 5.2 of the Indenture
and Security Agreement dated as of July 1, 1986 (the
"Indenture") between ZCC IV and First Interstate Bank of
California, as Trustee (the "Trustee") and shall be held by
the Trustee and shall be disbursed by the Trustee in
accordance with the provisions of such Section 5.2 of the
Indenture.
(6) 7.5 Investments. Section 7.5 of the Purchase Note Agreement is
-----------
amended to add thereto as a final sentence the following:
Anything to the contrary in this Agreement notwithstanding,
any such investments shall at all times remain in the
possession of ZCC IV or the agent of ZCC IV which may be
designated from time to time in a writing addressed to the
Debtor.
(7) 7.6 Bank Accounts. Section 7.6 of the Purchase Note Agreement is
-------------
amended in full as follows:
- 6 -
7.6 Bank Accounts. So long as any amounts remain
-------------
outstanding under those certain secured promissory notes
issued by ZCC IV under the Indenture, the Debtor shall
maintain all of its trust and depositary accounts with the
Trustee or any successor trustee appointed pursuant to
Section 8.3 of the Indenture, provided that such successor
trustee is a bank whose certificates of deposit would be
permitted investments of the Debtor under Section 7.5
hereof.
(8) 7.7 Debt, Guarantees and Other Liabilities. Section 7.7 of the
--------------------------------------
Agreement is amended to read in full as follows:
7.7 Debt, Guarantees and Other Liabilities. The Debtor
--------------------------------------
shall not create, incur or assume, directly or indirectly,
any indebtedness, or purchase or repurchase (or agree,
contingently or otherwise, so to do) the indebtedness of, or
assume, guarantee (directly or indirectly or by an
instrument having the effect of assuring another's payment
or performance of any obligation or capability of so doing,
or otherwise), endorse or otherwise become liable, directly
or indirectly, in connection with the obligations, stock or
dividends of any Person, except
(a) by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business;
(b) as permitted under Section 7.5;
(c) trade obligations incurred in the ordinary course
of business and in an aggregate amount outstanding at any
one time not to exceed $750,000; and
(d) advances from the General Partner or any affiliate
of Zond (other than by ZCC IV pursuant to Section 13),
- 7 -
provided that any such advance (i) has a stated maturity
after June 28, 1998, (ii) is not subject to any mandatory
payment, redemption or other retirement requirement by means
of any installment, sinking funds, serial maturity or other
required payments prior to the stated maturity, and (iii) is
evidenced by one or more promissory notes substantially in
the form of Exhibit E hereto.
---------
(9) 7.8 Distributions. Section 7.8 of the Purchase Note Agreement is
-------------
amended to read in full as follows:
7.8 Distributions. The Debtor shall not make (i) any
-------------
distributions (whether of earnings or of capital and whether
in the form of cash or of property) to any of its partners
or (ii) any payment on account of the principal of or
interest or prepayment charge, if any, on, or any
expenditure for the purchase or other retirement of, any
subordinated advance under Section 7.7(d) when in any such
case (a) an Event of Default has occurred and is continuing
or will occur upon giving effect to such distribution,
payment or expenditure, (b) the Cash reserve balance is less
than the Minimum Reserve Level or (c) the Debtor has not
reimbursed ZCC IV for amounts outstanding and reimbursable
by the Debtor under Section 13. Distributions (if any) to
partners of the Debtor and payments and expenditures (if
any) on account of subordinated advances under Section
7.7(d) shall be made annually within 90 days after the
anniversary date of the issuance of the first Purchase Note.
(10) 7.15 Payment of Charges. Section 7.15 of the Purchase Note
------------------
Agreement is amended to read in full as follows:
- 8 -
7.15 Payment of Charges. The Debtor shall pay and
------------------
discharge all taxes (other than sales taxes payable by ZCC
IV with respect t the Windsystem in connection with the sale
of the Windsystem to the Debtor), assessments and
governmental charges or levies imposed upon it or its
property or assets, prior to the date on which penalties
attach thereto, and lawful claims which, if unpaid, might
become a lien upon its property or assets not permitted or
contemplated hereby, provided that the Debtor shall not be
required to pay any such tax, assessment, charge, levy or
claim which is being contested in good faith and by proper
proceedings if (i) adequate reserves with respect thereto
have been set up by the Debtor, (ii) such contest or any
bond delivered in connection therewith shall suspend the
collection of such tax, assessment, charge, levy or claim,
and (iii) neither the Windsystem or any interest therein nor
any sums payable to the Debtor under any of the Intangible
Collateral would be in danger of being sold, forfeited or
lost by reason of such contest.
(11) 13. Payments on Behalf of the Debtor. Section 13 of the Purchase
--------------------------------
Note Agreement is amended to read in full as follows:
13. Payments on Behalf of the Debtor. ZCC IV shall be
--------------------------------
entitled to pay such sums for the account and at the expense
of the Debtor as may be necessary to cure any breaches by
the Debtor which are occasioned by the failure of Debtor to
pay when due (a) the amount of premiums due under the
Insurance Policies, or (b) amounts required to be paid by it
pursuant to the Easement Agreement or the Management
Agreement. Debtor agrees that it will reimburse ZCC IV for
such sums, together with interest thereon at a rate per
annum equal to the lesser of (1) 15% and (2)
- 9 -
the maximum interest rate permitted by law from the date of
payment by ZCC IV to the date of reimbursement by the
Debtor, prior to the Debtor making any distribution of cash
or property to its partners.
- 10 -
ANNEX B
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EXHIBIT D
TO
PURCHASE NOTE AND SECURITY AGREEMENT
A. IDENTIFICATION OF EXISTING POLICIES
-----------------------------------
1. PRIMARY-SYSTEMS PERFORMANCE POLICY
California Union Insurance Company Policy #XXXX00000
2. EXCESS-SYSTEMS PERFORMANCE POLICY
(a) California Union Insurance Company (HAENIA)
Policy #ZPM018487
(b) National Union Fire Insurance Company
Policy #D7292751
3. PRIMARY-"ALL RISK" PROPERTY DAMAGE POLICY
Continental Insurance
Company Policy #SFC2980487
4. PRIMARY-GENERAL LIABILITY POLICY
Hartford Insurance Company
Policy #83UENMR6320
5. EXCESS-GENERAL LIABILITY POLICY
(a) International Insurance Company
Policy #523426099
(b) National Surety Corporation
Policy #XLX1751487
B. SUMMARY OF SIGNIFICANT TERMS OF EXISTING POLICIES
The following summary is intended to set forth the significant
coverage terms of the insurance policies identified in A1 through A5, inclusive,
above, and is qualified in its entirety by reference to such policies, true and
correct copies of each of which ZCC IV acknowledges have been heretofore
supplied to it by the Debtor. For convenience, descriptions in the summary below
of the significant coverage terms of the "systems performance policies" refer to
the aggregate protection afforded under the policies identified in A1, A2(a) and
A2(b) above; such references to "property damage and business interruption
policy" refer to the protection afforded under the policy identified in A3
above; and such references to "general
liability insurance policies" refer to the aggregate protection afforded under
the policies identified in A4(a) and A5(a) and A5(b) above.
Systems Performance Policies
----------------------------
The systems performance policies provide combined aggregate coverage
of up to $4.5 million per loss occurrence for a declared project of 100
Turbines. The 200 Turbines owned by the Debtor are contained in two separate
project declarations of 100 Turbines each. The primary coverage layer of $2.5
million provides protection against revenue losses due to failure to meet
projected energy output, and against physical loss or damage to the Turbines due
to mechanical or electrical breakdown or defects in materials, design and
fabrication. The excess layers provide $2 million of additional protection
against physical loss or damage to the Turbines due to mechanical or electrical
breakdown or defects in materials, design and fabrication, including lost
revenues attributable to such physical loss or damage (but not lost revenues due
to wind deficiencies). The revenue protection provided by these policies is
designed to substantially cover the Debtor's anticipated debt service payments
under the Partnership Notes and the projected necessary operating costs of the
Turbines so long as such policies remain in effect.
The systems performance policies insure each declared project for a
term of five years, and may not be cancelled by the insurer except for
nonpayment of premiums or fraud in the procurement of the policies. The premiums
for the systems performance policies are prepaid for the first five years. The
Debtor may extend these policies for each declared project for an additional
five-year term upon prepayment of the required premiums, whose amount depends in
part upon the insurers' loss experience in connection with the declared project
in question.
Reimbursement for losses due to mechanical or electrical breakdown or
defects in materials, design and fabrication (including resulting shortfall
between projected and actual revenues until damage is repaired or defects are
corrected) and costs incurred to investigate, repair or replace suspected
defective components is subject to a deductible amount of $1,500 per Turbine per
loss occurrence. A loss occurrence is defined as any one loss, disaster or
casualty or a series of losses, disasters or casualties arising out of a single
event.
Coverage under the systems performance policies for losses due to the
failure of a declared project to meet projected electric power production due to
wind deficiency, or any cause other than those described above or excluded by
the policies, is subject to a deductible amount for each loss period equal to
45% of the projected revenues for the first month after which the Turbines
contained in a declared project were first placed in service, 40% for the second
month after which the Turbines contained in a declared project were first placed
in service, 35%
- 2 -
for the third month after which the Turbines contained in a declared project
were first placed in service and 30% thereafter. No loss period is greater than
12 months in duration. Revenue losses incurred with respect to any loss period
are calculated as the shortfall between the projected and actual revenues
generated by the insured Turbines from the production of electric power, after
adding back the amount of reimbursement for lost revenues payable on account of
the causes described in the preceding paragraph. The amount of such shortfall is
computed by taking the difference between the minimum projected kilowatt
production for the loss period and the actual kilowatt production, and
multiplying it by the applicable purchase price under the Power Agreement. The
minimum annual projected power production for each declared Project was
established by agreement with the insurer at the time of each project
declaration. This minimum projected power production amount will be prorated in
the case of loss periods shorter than 12 months. The policy allows the insurer,
at its cost and expense (including reimbursement of any revenue losses incurred
by the Debtor due to interruption of Turbine operation), to evaluate and modify
the Turbines if they fail to meet the minimum projected power production
estimate set forth in the project declaration. Additionally, the policy requires
the Debtor to maintain records of wind speed and power production in order to
allow accurate loss calculations. The policies require, with respect to each
declared project, the repayment to the insurers of amounts paid as reimbursement
for revenue shortfall in any loss period from the excess of actual power
production revenues over projected power revenues in subsequent loss periods.
Premiums due under the policies for the first five years of coverage
are calculated at $9,125 per Turbine and are payable when each Turbine is
certified to be operational. Upon expiration of the first five years of
coverage, the Partnership will be entitles to a return of a portion of the
premiums paid with respect to a project if the aggregate amounts paid under the
policy with respect to that project do not exceed 60% of such premiums. Premiums
for the remaining five years of coverage have not been fixed and will be
determined on a project-by-project basis under a formula which is based in part
upon the insurers' loss experience under the policies. In addition to the
Debtor, Zond, Vestas, ZCC IV, VNA and ZWMC V, are each named insureds under the
policies and are covered thereunder for liability incurred by them by reason of
breaches of their warranties to the Debtor relating to the Turbines.
Consequently, claims made by such entities under the policies may cause the
amount of premium refund to be reduced, and may cause an increase in the amount
of any renewal premium.
- 3 -
All losses are payable to the Debtor within 30 days after proofs of
loss are filed and accepted by the insurer. Losses must first be claimed and
adjusted under the insurance policy before any warranty claims may be made by
the Debtor against Vestas Energy A/S ("Vestas"), VNA, ZCC IV or Zond.
Under the terms of the policy, the insurers are not liable for losses
caused by any insured's willful acts performed with the specific intent to cause
or aggravate loss to the property; the absence (but not failure) of the
components of the Turbine which protect the equipment which control or regulate
yawing, vibration, excessive oil temperature and oil levels (the Turbines are
equipped with vibration and yaw control equipment but not equipment to regulate
oil temperature and oil levels); failure to construct, operate and maintain the
Turbines in accordance with the procedures or instructions of Zond, Vestas or
VNA; normal deterioration of the Turbine; any loss covered under the "All-Risk"
property damage and business interruption policy issued by Continental Insurance
Company; and other common insurance exclusions such as war, governmental or
court intervention, nuclear radiation, strikes, riots, etc. Coverage for revenue
shortfall contains additional exclusions for revenue losses caused by loss of
market, price changes not contemplated by the Power Agreement, the inability to
sell electricity produced by the Turbines or the abandonment of the Turbines.
Coverage for damage or physical loss to the Turbines contains additional
exclusions for loss or damage caused by frost or freezing, due to disappearance
or inventory shortages, or loss or damage caused by any contractor's equipment
or the cost to repair or replace the Power Substation.
Property Damage and Business Interruption Policy
------------------------------------------------
The Debtor, along with Zond, Vestas, VNA and ZCC IV, is a named
insured under a one-year "All-Risk" property policy covering the Windsystem. As
is common with such coverage, the insurer may cancel the policy upon 90 days
notice except for premium nonpayment, which requires a 10-day notice. During the
past year, premiums for such insurance increased substantially due to unsettled
conditions in the insurance industry. It is possible that similar premium
increases might occur in the future, which may affect the Debtor's ability to
secure renewal "All-Risk" insurance at reasonable rates.
The policy covers all direct physical damage to the Turbines and the
power transfer system. It also provides boiler and machinery coverage with
business interruption provisions for the power transfer system which insures
against losses of income caused by physical damage to the power transfer system
or by the inability of Pacific Gas and Electric Company to accept power
generated by the Windsystem. Risks insured against by the policy include fire,
wind, hail, freezing, theft, flood and earthquake. The policy contains combined
limits of $20,000,000 per loss occurrence, with an annual aggregate sublimit of
- 4 -
$20,000,000 for losses occasioned by either earthquake or flood. The sublimit
for boiler and machinery (property damage) on the power transfer system is
$1,170,000 per occurrence and the sublimit for boiler and machinery (business
interruption) on the power transfer system is $2,500,000 per occurrence; for
contingent business interruption is $2,000,000 per occurrence; and for service
interruption due to physical damage caused by a peril covered by the policy is
$2,000,000 per occurrence. The policy excludes any loss or damage to the
Turbines covered by the systems performance policies, and contains other
commonly specified exclusions such as nuclear radiation, acts of war or civil
disobedience, or fraud.
The Debtor pays a fixed annual premium of $114,285 under this policy.
The following table summarizes the policy deductibles and coverage
limitations and deductible amounts per occurrence:
Per Occurrence
Coverage
Coverage Limits Deductible
-------- -------------- ----------
Boiler and Machinery $1,170,000
Property Damage $5,000(1)
On Transformers,
Feeder Lines and
The Power Substation
Business Interruption $2,000,000 (2)
Contingent Business $2,000,000 (2)
Interruption
All-Risk Property $20,000,000 $1,000(3)
Damage and Business
Interruption
Property in Transit $500,000 $10,000(4)
Service Interruption $2,000,000 (5)
Earthquake $20,000,000(4) (6)
Flood $20,000,000(4) $100,000
-------------------------
(1) Per occurrence deductible for property damage.
(2) Will not provide coverage for revenue losses occurring during the first 12
hours of each service interruption
-5-
(3) Per turbine deductible per loss occurrence, subject to an aggregate per
loss occurrence deductible of $10,000.
(4) Annual aggregate sublimit. Each earthquake loss occurrence includes all
damage occurring during a continuous period of 72 hours.
(5) will not provide coverage for revenue losses occurring during the first 48
hours of each service interruption.
(6) The deductible amount per loss occurrence for each damaged structure is set
out in a schedule which is part of the policy. The deductible amount per
loss occurrence with respect to each turbine and its supporting tower is
$5,000 and with respect to the Power Substation is $20,000.
General Liability Insurance
---------------------------
Zond currently maintains a $1,000,000 primary liability insurance
policy with the Hartford Insurance Company, a $5,000,000 excess general
liability policy from the US International Insurance Company and an additional
$5,000,000 excess policy from the National Surety Corporation. Each of these
policies expire on June 30, 1987. The aggregate liability limits will apply to
all facilities and operations of the named insureds at the Operating Site. The
Debtor, along with Zond, ZCC IV and their affiliates, have been named as
insureds under the policies. The Debtor will pay that portion of Zond's premium
which is equal to the aggregate rated capacity of the Debtor's Turbines divided
by the aggregate rated capacity of all wind turbines covered by the policies.
The liabilities which may arise form the ownership and operation of
the Debtor's Windsystem are insured against under the general liability
insurance policies maintained by Zond which are described above. The coverage
limits under such policies extend to all activities of Zond, its subsidiaries
and affiliates and all investor programs sponsored by them, not only the
Operating Site but at other locations such as Tehachapi and San Gorgonio as
well. Additional Zond subsidiaries and affiliates and future Zond-sponsored
programs, operating at Tehachapi or elsewhere, may also share in such coverage.
To the extent that named insureds other than the Debtor perfect claims under the
policies, the protection provided to the Debtor may be correspondingly reduced.
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ANNEX C
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EXHIBIT E
FORM OF SUBORDINATED NOTE
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ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-C
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Subordinated Note Due *
---------------------------
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-C, a California limited
partnership (the "Partnership"), for value received, hereby promises to pay to
Zond or a subsidiary thereof, the principal sum of $_________, on *________,
19___, at the office of ______________________, or such other place as the
holder hereof shall from time to time designate to the Company in writing, in
lawful money of the United States of America.
Anything in this Subordinated Note to the contrary notwithstanding,
the indebtedness evidenced by this Subordinated Note shall be subordinate and
junior in right of payment, to the extent and in the manner hereinafter forth,
to all indebtedness of the Partnership evidenced by its promissory notes in the
aggregate original principal amount of $15,840,000 issued pursuant to the
Purchase Note and Security Agreement dated as of December 2, 1985 between the
Partnership and Zond Construction Corporation IV, as said Purchase Note and
Security Agreement and such notes may at any time and from time to time be
supplemented or amended in any respect (all such indebtedness to which this
Subordinated Note is subordinate as aforesaid being sometimes hereinafter
referred to as "Superior Indebtedness"):
(i) The holder of this Subordinated Note shall not be entitled to receive
any payment on account of this Subordinated Note unless the
Partnership would be permitted to make distributions under the
provisions of Section 7.8 of the Purchase Note and Security Agreement
as amended.
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* Stated maturity to be after June 28, 1998.
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(ii) In the event of any insolvency or bankruptcy proceedings, and any
receivership, liquidation, reorganization or other similar proceedings
in connection therewith, relative to the Partnership or to its
creditors, as such, or to its property, and in the event of any
proceedings for voluntary liquidation, dissolution or other winding up
of the Partnership, whether or not involving insolvency or bankruptcy,
then the holders of Superior Indebtedness shall be entitled to receive
full payment in full of all principal of and premium (if any) and
interest on all Superior Indebtedness (including interest thereon
accruing after the commencement of any such proceedings) before the
holder hereof is entitled to receive, or make any demand for, any
payment on account of this Subordinated Note, and to that end (subject
to the power of a court of competent jurisdiction to make other
equitable provisions reflecting the rights conferred herein upon
Superior Indebtedness and the holders thereof with respect to the
subordinated indebtedness represented by this Subordinated Note and
the holder hereof by a Lawful plan of reorganization under applicable
bankruptcy law) the holders of Superior Indebtedness (until payment in
full of all principal of an premium (if any) and interest on all
Superior Indebtedness, including interest thereon accruing after the
commencement of any such proceedings) shall be entitled to receive for
application in payment thereof any payment of distribution of any kind
or character, whether in cash or property or securities, which may be
payable or deliverable in any such proceedings in respect of this
Subordinated Note (including any such payment or distribution which
may be payable or deliverable by virtue of the provisions of, or any
security for, any securities which are subordinate and junior in right
of payment to this Subordinated Note), except securities which are
subordinate and junior (to at least the same extent as this
Subordinated Note) in right of payment to the payment of all Superior
Indebtedness then outstanding. The holder hereof will not exercise or
attempt to exercise any right of setoff or counterclaim in respect of
any obligations (including accounts payable) of the holder hereof to
the Partnership against the obligations of the Partnership under this
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Subordinated Note if the effect thereof shall be to reduce in any way
the amount of any such payment or distribution to which the holders of
Superior Indebtedness would be entitled in the absence of such setoff
or counterclaim; provided, however, that notwithstanding the foregoing
if and to the extent the holder hereof is required by any mandatory
provisions of law to exercise any such right of setoff or
counterclaim, all amounts which the holder hereof shall be entitled to
retain by reason of such setoff or counterclaim shall be deemed to be
payments in respect of this Subordinated Note to which the first
sentence of this Clause (ii) shall apply.
(iii) in the event that this Subordinated Note is declared due and payable
before its expressed maturity because of the occurrence of any default
in respect hereof (under circumstances when the provisions of the
foregoing Clause (ii) shall not be applicable), the holders of
Superior Indebtedness then due or becoming due by acceleration or
otherwise shall be entitled to receive payment in full of all
principal of and premium (if any) and interest on all such Superior
Indebtedness before the holder hereof is entitled to receive any
payment on account of this Subordinated Note. Nothing herein shall
prevent the holder hereof from seeking any remedy allowed at law or in
equity so long as any judgment or decree obtained thereby makes
provision for enforcing this Clause (iii).
(iv) If any payment or distribution of any character, whether in cash,
securities or other property, in respect of this Subordinated Note
shall (despite these subordination provisions) be received by the
holder hereof which is not then permitted by the foregoing provisions
of this Subordinated Note, such payment or distribution shall be held
in trust for the benefit of an shall be paid over or delivered to, the
holders of Superior Indebtedness (or their representatives), ratably
according to the respective aggregate amounts remaining unpaid
thereon, to the extent necessary to pay all Superior Indebtedness in
full.
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