Exhibit 10.5(b)
---------------
AMENDMENT TO
PURCHASE NOTE AND SECURITY AGREEMENT SERIES A
AMENDMENT the Amendment" TO PURCHASE NOTE AND SECURITY AGREEMENT dated
as of November 1985 (the "Series A Purchase Note Agreement") between ZOND
CONSTRUCTION CORPORATION III a California corporation "ZCC III" and ZOND
WINDSYSTEM PARTNERS, LTD SERIES 85-A a California Limited Partnership the
"Debtor" is entered into as of this 26th day of March 1986
----
WHEREAS ZCC III and the Debtor entered into the Series A Purchase Note
Agreement pursuant to which the Debtor, among other things issued to ZCC III
three promissory notes, respectively dated November 22 November 27 and December
16 1985, as amended by that certain Modification Agreement dated as of February
19 198_ in the aggregate original principal amount of $13,708,800 collectively
the "Series A Purchase Notes") and
WHEREAS, ZCC III and the Debtor deem it to be in their respective best
interests to amend and supplement certain terms and provisions of the Series A
Purchase Note Agreement
NOW THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, ZCC III 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 Series A 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 III as hereinafter set forth
A. Representations in Series A Purchase Note Agreement The
---------------------------------------------------
representations and warranties in Section 3 of the Series A 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 Series A Purchase Notes
SECTION 3 Amendments to Series A Purchase Note Agreement. The Series
----------------------------------------------
A Purchase Note Agreement is amended
(1) by amending Sections 2.2(e), 2.3(g), 2.3(h), 2.3(i 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
-------
-2-
(3) by adding a new Exhibit E thereto to read as set forth in in its
entirety in Annex C hereto.
-------
SECTION 4 Effectiveness of this Amendment. This Amendment shall
-------------------------------
become effective on the date first written above
SECTION 5 Ratification. The provisions of the Series A 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
-3-
SECTION 6 Governing Law. This Amendment shall be construed in
-------------
accordance with and governed by the law of the State of California
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 III
By /s/ Xxxxxxx X. Xxxxx
-----------------------------
Title President
ZOND WINDSYSTEM PARTNERS, LTD
SERIES 85-A
By ZOND WINDSYSTEMS MANAGEMENT
CORPORATION III, its General
Partner
By /s/ Xxxxxxx X. Xxxxx
-----------------------------
Title President
-4-
ANNEX A
(1) 2.2 Windsystem Collateral. The definition of Windsystem
---------------------
Collateral as set forth in Section 2.2 of the Series A 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, Power Substation Completion Certificates and Bills of Sale and
Power Transfer Facilities Completion Certificates issued to the Debtor
by ZCC III pursuant to the Series A Construction Agreement.
(2) 2.3 Intangible Collateral. The following definitions of
---------------------
Intangible Collateral set forth in Section 2.3 of the Series A Purchase Note
Agreement are amended as follows:
(i) The definition of the Series A Easement Agreement set forth
in Section 2.3(g) of the Agreement is hereby amended to include the
Amended and Restated Series A Windpark Easement Agreement dated as of
March 24, 1986 between the Debtor and ZCC III.
--
(ii) The definition of Series A Access Easement set forth in
Section 2.3(h) of the Series A Purchase Note Agreement is hereby
amended to refer to the Amended and Restated Grant of Easement
(Western Access) dated as of March 24, 1986 between Zond and the
--
Debtor.
(iii) The definition of Series A Interconnect Easement contained
in Section 2.3(i) of the Series A Purchase Note Agreement is defined
to refer to the Grant of Easement (Interconnect) dated as of March 24,
--
1986 between Zond and the Debtor.
(3) 6.1 Existing Policies. Section 6.1 of the Series A 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.
---------
(4) 6.5 Use of Insurance Proceeds. Section 6.5 of the Series A
-------------------------
Purchase Note Agreement is amended to read in full as follows:
-5-
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 $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 III
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 Series A Purchase Notes in an amount
which bears the same proportion to the then outstanding principal
balance of the Series A 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 among the Series A 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
-6-
installment so as to maintain the level payment character of
the Series A 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
Series A 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 the Debtor shall be deposited
in the separate depository account described in Section 5.2 of
the Indenture, Deed of Trust and Security Agreement dated as of
December 1, 1985 (the "Indenture") between ZCC III 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.
(5) 7.5 Investments. Section 7.5 of the Series A 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 III or the agent of ZCC III which may be designated from
time to time in a writing addressed to the Debtor.
(6) 7.6 Bank Accounts. Section 7.6 of the Series A Purchase Note
-------------
Agreement is amended so that it reads in full as follows:
7.6 Bank Accounts. So long as any amounts remain outstanding
-------------
under those certain secured promissory notes issued by ZCC III
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
-7-
whose certificates of deposit would be permitted investments
of the Debtor under Section 7.5 hereof.
(7) 7.7 Debt, Guarantees and Other Liabilities
--------------------------------------
Section 7.7 of the Agreement is amended so that it reads 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 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 III, pursuant to Section 13), provided
that any such advance (i) has a stated maturity after December
17, 1997 (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.
---------
(8) 7.8 Distributions. Section 7.8 of the Series A Purchase Note
-------------
Agreement is amended so that it reads 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
-8-
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
III for amounts outstanding and reimbursible 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
Series A Purchase Note.
(9) 7.15 Payment of Charges. Section 7.15 of the Series A Purchase
------------------
Note Agreement is amended so that it reads in full as follows:
7.15 Payment of Charges. The Debtor shall pay and discharge
------------------
all taxes (other than sales taxes payable by ZCC III with respect
to 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.
(10) 13. Payments on Behalf of the Debtor. Section 13 of the Series
--------------------------------
A Purchase Note Agreement is amended so that it reads in full as follows:
-9-
13. Payments on Behalf of the Debtor.
--------------------------------
ZCC III 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
Series A Easement Agreement or the Series A Management Agreement.
Debtor agrees that it will reimburse ZCC III for such sums, together
with interest thereon at a rate per annum equal to the lesser of (1)
15% and (2) the maximum interest rate permitted by law from the date
of payment by ZCC III 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
-------
EXHIBIT D
TO
SERIES A PURCHASE NOTE AND SECURITY AGREEMENT
A. IDENTIFICATION OF EXISTING POLICIES
-----------------------------------
PRIMARY-SYSTEMS PERFORMANCE POLICY
California Union Insurance Company
Policy #ZPM017468
2 EXCESS-SYSTEMS PERFORMANCE POLICY
California Union Insurance Company HAFNIA)
Policy #ZPM018487
National Union Fire Insurance Company
Policy #D7292751
3 PRIMARY-"ALL RISK" PROPERTY DAMAGE POLICY
Continental Insurance Company
Policy #SFP2980475
4 PRIMARY-GENERAL LIABILITY POLICY
Hartford Insurance Company
Policy #83UENPF1765
EXCESS-GENERAL LIABILITY POLICY
US International Insurance Company
Policy #5234125869
National Surety Corporation
Policy #XLX1735756
B. SUMMARY OF SIGNIFICANT TERMS OF EXISTING POLICIES
-------------------------------------------------
following summary is intended to set forth the significant
coverage terms of the insurance policies identified in Al through A5, inclusive
above, and is qualified in its entirety by reference to such policies, true and
correct copies of each of which ZCC III 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
-11-
afforded under the policies identified in Al 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. One hundred of the 160 Turbines purchased by the Debtor are included
in the first projects declared by the Debtor The remaining 60 Turbines are
contained in a declared project which also covers 40 Turbines owned and operated
by Zond Windsystem Partners Ltd Series 85-B. 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 systems performance
-12-
policies do not protect against revenue losses arising out of a failure or a
malfunction of a power substation The revenue protection provided by these
policies is designed to substantially cover the Debtor's anticipated debt
service payments under the Series B Purchase Notes and the projected necessary
operating cost of Turbines so long as such policies remain in effect.
The systems performance policies insure each declared project for term
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
Partnership may extend these policies for each declared project for an
additional five-year term upon prepayment of the required premium amount 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.
-13-
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% for the third month after which the Turbines contained in
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, 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 between the Debtor and
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
14-
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 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 entitled 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, ZCC III, Vestas Energy A/S ("Vestas" Vestas North America Limited
"VNA"), the general partner of the Debtor and Zond Windsystem Partners, Ltd
Series 85-B and its general partner each named insureds under the policies and
are covered thereunder.
-15-
for liability incurred by them by reason of breaches of their warranties to the
Partnership 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
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 claim may be made by the
Partnership against Vestas VNA ZCC III 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 Turbine which protect the equipment which control or regulate yawing,
vibration excessive oil temperature and oil levels 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 Turbines; any loss covered under the "All-Risk
property damage and business interruption policy issued by Continental Insurance
Company and identified in A3 above; and other common insurance exclusions such
as war, governmental or court intervention, nuclear radiation, strikes,
-16-
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 electricty produced by the Turbines or
the abandonment of the Turbines Coverage for damaqe,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 ZCC III and Zond Windsystem
Partners Ltd Series 85-B 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
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 Southern California Edison Company ("SCE" to accept power
generated by the Turbines Risks insured against by the policy include fire,
wind, hail, freezing, theft, flood and
-17-
earthquake The policy contains aggregate combined limits of $40,000,000 per
loss occurrence, with an annual aggregate sublimit of $25,000,000 for losses
occasioned by either earthquake or flood. The coverage sublimit for boiler and
machinery (property damage on the power transfer system is $2,000,000 per
occurrence; for boiler and machinery business interruption is $4,000,000 per
occurrence for contingent business interruption is $2,000,000 per occurrence;
and for service interruption due to physical damage caused by a period 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 following table summarizes the policy deductibles and coverage
limitations and deductible amounts per occurrence
Occurrence
Coverage
Coverage Limits Deductible
-------- ---------- ----------
Boiler and Machinery
(Property Damage)
on Transformers
Feeder Lines and the
Power Substation $ 2,000,000 $ 5,000
-18-
Boiler and Machinery
(Business Interruption 4,000,00,0
Contingent Business
Interruption 2,000,000
All-Risk Property
Damage and Business
Interruption 40,000,000 1,000 2
Property in Transit 500,000 10,000 (3)
Service Interruption 2,000,000 4
Earthquake 25,000,000 3 (5)
Flood 25,000,000 (3) 100,000
1 Will not provide coverage for revenue losses occurring during the first 12
hours of each service interruption.
2 Per Turbine deductible per loss occurrence, subject to an aggregate per loss
occurrence deductible of $10,000
-19-
Annual aggregate sublimit Each earthquake loss occurrence includes
all damage occurring during a continuous period of 72 hours
Will not provide coverage for revenue losses occurring during the
first 48 hours of each service interruption
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 $21,940.
General Liability Insurance Policies
------------------------------------
Zond currently maintains a $1,000,000 primary liability insurance
policy with the Hartford Insurance Company identified in A4 above, a $5,000,000
excess general liability policy from the US International Insurance Company
identified in A5(a) above and an additional $5,000,000 excess policy from the
National Surety Corporation identified in A5(b) above. 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 III and their
affiliates, have been named as insureds under the policies. The primary policy
expires on July 1, 1986 and the excess policies expire on June 1, 1986. The
coverage limits under the above policies extend to all activities of Zond,
-20-
its subsidiaries and affiliates and all investor programs sponsored by them not
only at Zond's Tehachapi site but at other locations 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.
-21-
ANNEX C
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EXHIBIT E
FORM OF SUBORDINATED NOTE
-------------------------
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-A
------------------------------------------
Subordinated Note Due
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-A, a California limited partnership
(the "Series A Partnership"), for value received, hereby promises to pay to
[Zond or a subsidiary thereof] (the "Payee"), the principal sum of $__________,
on *__________________, 19_, at the office of $_________________, or such other
place as the Payee 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 on the Purchase Notes as 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 (Series A) as amended.
(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 Series A 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 Series A Partnership, whether or not involving insolvency or
bankruptcy, then the holders of Superior Indebtednes 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
_______________________________
* Stated maturity to be after December 17, 1997.
86TEACH#1/FORMSN
-1-
accruing after the commencement of any such proceedings) before the
Payee 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
relfecting the rights conferred herein upon Superior Indebtedness and
the holders thereof with respect to the subordinated indebtedness
represented by this Subordinated Note and the Payee by a lawful plan of
reorganizaton under applicable bankruptcy law) the holders of Superior
Indebtedness (until 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) shall
be entitled to receive for application in payment thereof any payment or
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 Payee will not exercise or
attempt to exercise any right of setoff or counterclaim in respect of
any obligations (including accounts payable) of the Payee to the Series
A Partnership against the obligations of the Series A Partnership under
this 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 Payee is required by any mandatory provisions
of law to exercise any such right of setoff or counterclaim, all amounts
which the Payee 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 repect hereof
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(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 Payee is entitled
to receive any payment on account of this Subordinated Note. Nothing
herein shall prevent the Payee 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 Payee 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 and 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.
No present or future holder of Superior Indebtedness shall be prejudiced
in its right to enforce subordination of this Subordinated Note by any act or
failure to act on the part of the Series A Partnership or by any act
(including without limitation any surrender, release or discharge in whole or in
part of any mortgage, lien, pledge, charge, security interest or other
encumbrance of any kind securing such Superior Indebtedness) or failure to act
on the part of such holder or any trustee for such holder. The foregoing
provisions are solely for the purpose of defining the relative rights of the
holders of Superior Indebtedness on the one hand, and the Payee on the other
hand, and nothing herein shall impair, as between the Series A Partnership and
the Payee, the obligation of the Series A Partnership, which is unconditional
and absolute, to pay to the Payee the principal hereof in accordance with the
terms hereof, nor shall anything herein prevent the Payee from exercising all
remedies otherwise permitted by applicable law in respect hereof, subject to
the rights, if any, under this Subordinated Note of holders of Superior
Indebtedness to receive cash, property or securities otherwise payable or
deliverable to the Payee and all amounts which the Payee would be entitled to
retain by reasons of setoff or counterclaim in respect of any obligations of the
Payee to the Series A Partnership against the obligations of the Series A
Partnership under this Subordinated Note.
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The Payee will look solely to the assets of the Series A Partnership
for satisfaction of the obligations of the Series A Partnership on this
Subordinated Note.
This Subordinated Note shall be governed by and construed in
accordance with the laws of the State of California.
ZOND WINDSYSTEMS PARTNERS, LTD.
SERIES 85-A
By Zond Windsystems Management
Corporation III
By /s/ Xxxxxxx X. Xxxxx
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Title
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