EXHIBIT 3.5
THIRD AMENDED AND RESTATED
GENERAL PARTNERSHIP AGREEMENT
OF
COSO POWER DEVELOPERS
This Third Amended and Restated General Partnership Agreement (the
"Agreement"), of Coso Power Developers (the "Partnership"), dated as of May 28,
1999, is between (a) Caithness Navy II Group, LLC, a Delaware limited liability
company (successor by merger with Caithness Navy II Group, L.P., a New Jersey
limited partnership) ("Navy II Group"), and (b) New CTC Company, LLC, a Delaware
limited liability company ("New CTC").
RECITALS
On December 6, 1979, CalEnergy Company, Inc., a Delaware corporation
(formerly known as California Energy Company, Inc.) ("CECI") entered into a
contract (the "Navy Contract") with the United States Navy (the "Navy") to
develop geothermal energy at the Naval Weapons Center, China Lake, California,
and to sell the resultant electricity to the Navy.
CECI and Caithness Geothermal 1980 Ltd., a Delaware limited partnership
(successor by merger with Caithness Geothermal 1980 Ltd., a New Jersey limited
partnership) ("CG-80"), caused the formation of the China Lake Joint Venture
("CLJV"), a California joint venture. CLJV acquired rights pursuant to the Navy
Contract to develop geothermal resources on the Naval Weapons Center.
CECI assigned its rights and obligations under the Navy Contract to CLJV on
December 17, 1980. The assignment was approved by the Navy on December 24,
1980.
CECI caused the formation of Coso Technology Corporation, a Delaware
corporation "CTC"). On December 30, 1988, Caithness CPD Group, L.P., a
California limited partnership ("CCPDG") and CTC caused the formation of the
Partnership to carry out the obligations and receive the benefits relating to
the Navy II Assigned Rights (as defined below), and to the Navy II Project.
CLJV assigned the rights to the Navy II Project to Coso Energy Developers
("CED"), a California general partnership, in December 1988. CED assigned the
Navy II Assigned Rights, through a series of assignments, distributions and
contributions, to the Partnership.
On or around July 31, 1989, CCPDG assigned all of its right, title and
interest in the Partnership to Navy II Group and Navy II Group became a
substitute general partner of the Partnership.
Pursuant to that certain Agreement and Plan of Merger dated as of February
25, 1999, CTC was merged with and into New CTC, and New CTC became the
successor-in-interest to CTC.
Concurrently with this Agreement, the Partnership is acquiring, subject to
the approval of the United States Department of the Interior, Bureau of Land
Management ("BLM"), an undivided interest as a tenant-in-common in and to the
BLM Leases (as hereinafter defined) and has entered into the Co-Tenancy
Agreement (as hereinafter defined) in order to utilize the resources from said
lands for the Navy II Project.
The parties hereto desire to provide for the continued existence and
governance of the Partnership, and to set forth in detail their respective
rights and duties relating to the Partnership.
NOW, THEREFORE, in consideration of the mutual covenants, conditions and
agreements herein contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
The capitalized words and phrases used in this Agreement shall, unless the
context otherwise requires, have the meanings specified in this Article I.
1.1 "Act" means the California Uniform Partnership Act, as amended from
time to time.
1.2 "Additional Capital Contributions" has the meaning defined in Section
4.2 of this Agreement.
1.3 "Agreement" or "Partnership Agreement" means this Partnership
Agreement, as amended from time to time. Words such as "herein," "hereof,"
"hereto" and "hereunder" refer to this Agreement as a whole, unless the context
otherwise requires.
1.4 "BLM Leases" means that certain (i) Geothermal Resources Lease, Serial
No. CA-11384, by and between the United States of America, acting through BLM,
and the LADWP, effective as of February 1, 1982, as amended; (ii) Geothermal
Resources Lease, Serial No. CA-11385, by and between the United States of
America, acting through the BLM,
2
and the LADWP, effective as of February 1, 1982, as amended; and, (iii)
Geothermal Resources Lease, Serial No. CA-11383, by and between the United
States of America, acting through BLM, and the LADWP, effective as of February
1, 1982, as amended.
1.5 "Book" when used to modify an item of income, gain, loss or deduction,
or any word in reference thereto, means the amount thereof taken into account
for capital accounting purposes under the principles of Section 1.8 and
Regulation Section 1.704-1(b)(2)(iv).
1.6 "Budget" means each of the budgets to be prepared by the Managing
Partner and approved by the Management Committee pursuant to Section 7.4.
1.7 "Business Day" means any day that is not a Saturday, Sunday or a day
on which banking institutions in the City of San Francisco, State of California,
are authorized or required to close by law, executive order or Regulation.
1.8 "Capital Account" with respect to each Partner means the capital
account of that Partner determined and maintained throughout the full term of
the Partnership in accordance with the rules set forth in Regulation Section
1.704-1(b)(2)(iv). The initial balance of each Partner's Capital Account is set
forth in the Partnership books and records. In the event the Management
Committee determines that it is prudent to modify the manner in which the
Capital Accounts are maintained, or any debits or credits thereto (including,
without limitation, debits or credits relating to liabilities which are secured
by contributed or distributed property, or assumed by the Partnership with
regard to such asset with the approval of the Partnership), are accounted for,
in order to comply with such Regulations or if unanticipated events otherwise
cause the Partners' Capital Accounts not to comply with such Regulations, the
Management Committee may make such modification, provided that it is not likely
to have a material effect on the amounts distributable to any Partner. Subject
to the three previous sentences:
(a) Each Partner's Capital Account shall be increased by (i) the
amount of money contributed by such Partner to the Partnership; (ii) the Fair
Market Value of property contributed by such Partner to the Partnership (net of
liabilities secured by such contributed property that the Partnership is
considered to assume or take subject to under Code Section 752); and (iii)
Partnership income and gain (or items thereof) allocated to such Partner; and
shall be decreased by (iv) the amount of money distributed to such Partner by
the Partnership; (v) the Fair Market Value of property distributed to such
Partner by the Partnership (net of liabilities secured by such distributed
property that such Partner is considered to assume or take subject to under Code
Section 752); (vi) Partnership loss or deductions (or item thereof) allocated to
such Partner; (vii) the Partner's share of expenditures of the Partnership
described in Code Section 705(a)(2)(B), including for this purpose losses which
are nondeductible under Code Section 267(a)(1) or Code Section 707(b); and
(viii) the Partner's share of amounts paid or incurred by the Partnership to
organize the Partnership or
3
to promote the sale of (or to sell) an interest in the Partnership (except to
the extent properly amortizable for tax purposes).
(b) For this purpose, "income" refers to all items of income
(including all items of gain and including income exempt from tax) as properly
determined for Book purposes, and "loss" refers to all items of loss (including
all items of deduction) as properly determined for Book purposes.
(c) An assumption of a Partner's unsecured liability by the
Partnership shall be treated as a distribution of money to the Partner and an
assumption of the Partnership's unsecured liability by a Partner shall be
treated as a cash contribution to the Partnership in accordance with Section 752
of the Code and the Regulations thereunder.
(d) Capital Accounts shall be adjusted appropriately on account of
investment tax credit and investment tax credit recapture in accordance with the
principles of Code Section 48(q) and Regulation Section 1.704-1(b).
(e) In the event that assets of the Partnership other than cash are
distributed to a Partner in kind, Capital Accounts shall be adjusted for the
hypothetical Book gain or Book loss that would have been realized by the
Partnership if the distributed assets had been sold for their Fair Market Value
in a cash sale (in order to reflect unrealized Book gain or Book loss).
(f) At the option of the Management Committee, in the event of a
contribution of money or other property (other than a de minimus amount) to the
Partnership by a new or existing Partner as consideration for an interest in the
Partnership, or in connection with a distribution of money or other property
(other than a de minimus amount) by the Partnership to a continuing Partner as
consideration for an interest in the Partnership, Capital Accounts shall be
adjusted for the hypothetical Book gain or Book loss that would have been
realized by the Partnership if all Partnership assets had been sold for their
Fair Market Value in a cash sale (in order to reflect unrealized Book gain or
Book loss).
(g) In the event of a distribution of money or other property (other
than a de minimus amount) by the Partnership to a retiring Partner as
consideration for its interest in the Partnership, Capital Accounts shall be
adjusted for the hypothetical Book gain or Book loss that would have been
realized by the Partnership if all Partnership assets had been sold for their
Fair Market Value in a cash sale (in order to reflect unrealized Book gain or
Book loss).
1.9 "Capital Event" means any of the following: (a) a sale, repayment,
exchange, transfer, assignment or other disposition of all or a portion of any
asset (but not including occasional sales in the ordinary course of business of
inventory, furniture, fixtures and equipment); (b) any financing or refinancing
of, or with respect to, an asset; (c) any condemnation or deeding in lieu of
condemnation of a Project asset; (d) any collection with respect to property,
hazard or casualty insurance (but not business interruption insurance) or
4
any damage award; or (e) any other transaction the proceeds of which, in
accordance with generally accepted accounting principles, are considered to be
capital in nature.
1.10 "Capital Contribution" means the amount of money plus the Fair Market
Value of property contributed by a Partner to the Partnership.
1.11 "Cash Flow from Capital Events" shall mean the net proceeds from each
Capital Event which the Management Committee makes available for distribution
after the Management Committee has set aside the amounts deemed prudent by the
Management Committee to: (a) replace tangible property disposed of or destroyed
and (b) provide working capital for the Partnership.
1.12 "Cash Flow from Operations" means, with respect to any fiscal period
and determined on the basis of a closing or interim closing of the books as of
the end of such period: (a) all cash receipts received during such fiscal
period by the Partnership (other than Cash Flow from Capital Events and Capital
Contributions); plus (b) any amounts that were originally reserved from amounts
that would otherwise have been Cash Flow from Operations that are no longer
deemed by the Management Committee to be required as reserves; less (c) all cash
outlays during such fiscal period to pay expenses of the Partnership; less (d)
any amounts set aside as reserves, including reserves for capital improvements,
expenses or contingent liabilities; less (e) payments (and reserves for
payments) of debt service (and premiums or penalties thereon, if any) on
indebtedness of the Partnership.
1.13 "CED" means Coso Energy Developers, a California general partnership,
the general partners of which are New CHIP Company, LLC, a Delaware limited
liability company and Caithness Coso Holdings, LLC, a Delaware limited liability
company (successor by merger with Caithness Coso Holdings, L.P., a California
limited partnership).
1.14 "CFP" means Coso Finance Partnership, a California general
partnership.
1.15 "COC" means Coso Operating Company, LLC, a Delaware limited liability
company.
1.16 "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any succeeding law.
1.17 "Co-Tenancy Agreement" means that certain Co-Tenancy Agreement, dated
as of even date herewith, by and between, the Partnership, CED, and Coso Finance
Partners, a California general partnership.
1.18 "CTLP" means Coso Transmission Line Partners, a California general
partnership, the general partners of which are CED and the Partnership.
5
1.19 "Distribution Date" means the 45th day following the end of each
calendar quarter, commencing with the second quarter of 1988, or the next
succeeding Business Day if such day is not a Business Day.
1.20 "Escrow Account" means an interest-bearing deposit account acceptable
to the partners of each Joint Venture and established in the name of the
Managing Partner with a bank acceptable to the Partners pursuant to an escrow or
other similar agreement which is acceptable to each such Partner and contains
distribution provisions in form attached as Exhibit C to this Agreement.
1.21 "Excess Revenues" means, with respect to a period and a Project, one-
half of the difference between (a) the revenue for the Project for the period,
minus (b) the revenue which would have been guaranteed if the Project had
operated continuously during the period at 85% of its nominal capacity
(calculated at an assumed capacity of 80 MW for the CPD Project and the CFP
Project and 70 MW for the CED Project).
1.22 "Fair Market Value" shall mean the fair market value of an asset, as
reasonably agreed to among the Partners in arm's length negotiations, net of
liabilities secured by such asset or assumed by the Partnership with regard to
such asset.
1.23 "FERC" means the Federal Energy Regulatory Commission and any
successor thereto.
1.24 "FPLE" means FPL Energy Operating Services, Inc., a Florida
corporation.
1.25 "Interest" means a partnership interest in the Partnership with the
rights, terms and preferences described in this Agreement.
1.26 "Joint Venture" means any or all of CED, the Partnership and CFP.
1.27 "Management Committee" means the Management Committee established
pursuant to Article VIII.
1.28 "Managing Partner" means New CTC.
1.29 "Maximum Payment" means an amount equal to the Preferred Return.
1.30 "Meeting" means a meeting of Partners or of the Management Committee
duly called in accordance with Article VIII hereof.
1.31 "Navy II Assigned Rights" means the following rights that were
assigned to the Partnership (subject to Section 4.1) in partial consideration of
the issuance of Interests to CTC and Navy II Group; provided, however, that with
respect to the Transmission Line, the
6
Navy II Assigned Rights include only the Partnership's initial "Segment
Interests" in "Segments 1 and 2" (each as defined in the Amended and Restated
General Partnership Agreement of Coso Transmission Line Partners) of the
Transmission Line (i.e., a 53.3% undivided interest in Segment 1 and the related
----
rights and a 100% undivided interest in Segment 2 and the related rights):
(a) the Navy II Project Area Rights;
(b) the Navy II Power Sales Contract, the Turnkey Contract and the
TMG Guarantee;
(c) an assignment of all assignable Navy II Project Authorizations;
(d) all other rights CED may have of any kind to the Navy II Project
Area, the Navy Contract, or other rights to or concerning the Navy II Project.
1.32 "Navy II Power Sales Contract" means the Power Sales Contract
effective June 28, 1985 between Southern California Edison Company and CLJV as
amended.
1.33 "Navy II Project" means the construction and operation of geothermal
power plants on the Navy II Project Area, and the development and operation of
the Navy II Project Area Rights and, from and after the date of this Agreement
and subject to and in accordance with the terms and conditions of the Co-Tenancy
Agreement, the rights and interests under the BLM Leases.
1.34 "Navy II Project Area" means the area described in Exhibit A.
1.35 "Navy II Project Area Rights" means the rights, titles, interests,
estates, powers and privileges the Partnership has (by assignment from CLJV or
otherwise) pursuant to the Navy Contract with respect to the Navy II Project
Area, including rights to all wells, the plant site, the Transmission Line and
other facilities (and all improvements, equipment, fixtures and other items
appurtenant or accessorial to those wells and facilities), including rights of
access and egress to the Navy II Project Area, subject to the terms and
conditions of the Navy Contract, and, from and after the date of this Agreement
and subject to and in accordance with the terms and conditions of the Co-Tenancy
Agreement, the rights and interests under the BLM Leases.
1.36 "Navy II Project Authorizations" means all permits, authorizations,
rights of way and licenses necessary or appropriate to operate and maintain the
Navy II Project and the geothermal resources subject to the Navy II Project Area
Rights.
7
1.37 "Navy Contract" means the Original Service Contract N62474-79-C-5382
entered into between CECI and the United States Navy dated December 6, 1979,
together with all subsequent modifications thereto.
1.38 "Net Profit" and "Net Loss" means the net "income" and net Aloss" as
those terms are used in Section 1.8(b).
1.39 "Operator" means such operator as is designated by the Managing
Partner pursuant to Article VII.
1.40 "Original Agreement" means the General Partnership Agreement of Coso
Power Developers, dated December 30, 1988, as amended prior to the date hereof.
1.41 "Partners" means the Managing Partner, Navy II Group, and all
substituted or additional Partners. Where no distinction is required by the
context in which the term is used herein, APartner" means any one of the
Partners.
1.42 "Partnership" means Coso Power Developers, a California general
partnership, as such Partnership may be constituted from time to time.
1.43 "Plant Operations" means the operation and maintenance of all facets
of the Navy II Project operation which do not constitute Resource Operations,
including operation of the Transmission Line, power transmission facilities and
substation interconnection facilities.
1.44 "Preferred Return" means (a) $7,500,000, plus (b) the amount of
Preferred Return Interest accrued during any previous Preferred Return Year that
was not paid from distributions from the Escrow Account for that Preferred
Return Year, less (c) the sum of all distributions from the Escrow Account
previously applied to reduce the Preferred Return. Notwithstanding the
foregoing, the Preferred Return was prepaid in full at a discount to the parties
entitled thereto on December 16, 1992; provided, however, that if for any
Preferred Return Year for which the Preferred Return would have been paid if
such prepayment had not been made the Distribution Condition is not satisfied,
then Navy II shall promptly pay to the Escrow Account an amount equal to its
proportionate share (based on the percentage share of the Preferred Return paid
to it) of $715,000, which is the amount of the Preferred Return allocable to
each Preferred Return Year after taking into account the discount in connection
with the prepayment, to be distributed pursuant to Exhibit C.
---------
1.45 "Preferred Return Interest" means (a) an amount equivalent to the
interest which would have accrued from March 19, 1991 through the date of
determination on the amount of Preferred Return, as adjusted to reflect
distributions for each previous Preferred Return Year, at a per annum rate of
10%, less (b) the sum of all distributions from the Escrow Account previously
applied to reduce Preferred Return Interest.
8
1.46 "Preferred Return Year" means each of the periods beginning on July 1
and ending on the immediately subsequent June 30. The first Preferred Return
Year shall begin on July 1, 1991, and the last Preferred Return Year shall end
on the date on which the Preferred Return would have been reduced to zero if
there had been no prepayment.
1.47 "Projects" means the three geothermal power projects owned by the
Joint Ventures.
1.48 "Regulations" means the Treasury Regulations promulgated under the
Code, as such Regulation may be amended from time to time, including
corresponding provisions of any succeeding Regulations.
1.49 "Resource Operations" means the well drilling and well operation and
maintenance work for the Navy II Project Area, as well as the operation and
maintenance of the geothermal resource related to that Project Area, the surface
steam gathering system and brine disposal system, together with construction and
maintenance of buildings, roads and other surface structures on that Project
Area.
1.50 "Section," unless preceded by the words "Code" or "Regulation," means
a Section of this Agreement.
1.51 "TMG Guarantee" means (i) that certain Guaranty Agreement (Navy II
Project) dated as of January 25, 1989 from The Mission Group, a California
corporation to CED and (ii) that certain Consent to Assignment of Agreement
dated as of January 25, 1989 by The Mission Group.
1.52 "Transmission Line" means the power line constructed pursuant to a
construction contract entered into by CED, a preliminary description of the
right-of-way for which is included as Exhibit B hereof.
1.53 "Turn-key Contract" means (i) that certain Contract for the
Engineering and Construction of the Coso Geothermal Project (Navy II - Units 1,
2 and 3) dated January 25, 1989 between CED and Mission Power Engineering
Company, a California corporation, as the same may be amended from time to time,
including all Exhibits thereto and (ii) that certain Consent to Assignment of
Agreement dated as of January 25, 1989 by Mission Power Engineering Company.
9
ARTICLE II
PARTNERSHIP AMENDMENT; IDENTIFICATION; AND TERM
2.1 Amendment. The parties hereto agree to amend and restate the
---------
Original Agreement. The Managing Partner shall do, make or cause to be made all
such filings, recording, publishing and other acts as may be necessary or
appropriate from time to time in connection therewith, and as required to
preserve the existence of the Partnership.
2.2 Name, Principal Executive Office, Registered Office and Registered
------------------------------------------------------------------
Agent for Service of Process. The name of the Partnership shall be Coso Power
- ----------------------------
Developers, or such other name or names as may be selected by the Management
Committee from time to time. The principal executive office of the Partnership
and the office at which shall be kept the records, if any, required by the Act
shall be 1114 Avenue of the Americas, 41st Floor, New York, NY 10036, unless
changed by the Managing Partner with prior written notice given to the Partners
of such change. The Partnership may also maintain such other offices at such
other places as the Managing Partner may deem advisable. The name of the
Partnership's agent for service of process is Corporation Service Company, 80
State Street, Albany, New York 12207 and Corporation Service Company, which
will do business in California as CSC-Lawyers Incorporating Services, 2730
Gateway Oak Drive, Sacramento, California 95833.
2.3 Term. The term of the Partnership commenced on December 30, 1988 and
----
shall continue so long as it has any geothermal property interests in the Navy
II Project Area Rights, or so long as it has any obligations outstanding to any
lender having provided construction or term financing to the Partnership, or any
assignee thereof, unless the Partnership is terminated earlier in accordance
with Article XIII; provided, however, that nothing contained herein shall be
-------- -------
deemed to give a Partner a right to withdraw from the Partnership.
ARTICLE III
PURPOSE AND NATURE OF BUSINESS; CERTAIN OBLIGATIONS
3.1 Purpose. The purpose of the Partnership and the business to be
-------
carried on by it, subject to the limitations contained elsewhere in this
Agreement, are:
(a) To hold the Navy II Assigned Rights (subject to the conditions of
this Agreement), to develop the same, and to develop, construct, own and operate
the Navy II Project;
10
(b) to raise sufficient capital through borrowings from banks or other
lenders to finance the construction of the Navy II Project, and to provide for
the development and the exploitation of the lands subject to the Navy II Project
Area Rights;
(c) to borrow money for any legitimate Partnership purpose and in
connection therewith to issue notes, bonds, debentures and other evidences of
indebtedness and to secure the same and hypothecate any, all or substantially
all of the assets of the Partnership by mortgage, deed of trust, pledge or other
lien in furtherance of the foregoing purposes of the Partnership;
(d) to enter into and perform contracts and agreements and to carry on
any other activities necessary to or desirable or incidental in connection with,
the accomplishment of the foregoing purposes of the Partnership.
(e) to engage in any kind of activity and to enter into and perform
obligations of any kind necessary to, or in connection with, or incidental to,
the accomplishment of the purposes and business of the Partnership, so long as
such activities and obligations may lawfully be engaged in or performed by a
partnership under the Act; and
(f) to be a general partner of CTLP.
Such purpose and business of the Partnership shall include the entering
into by the Partnership of the transactions described in that certain
preliminary Offering Circular of Caithness Coso Funding Corp. dated May 5, 1999
(as it may have been revised, the "Offering Circular"), including without
limitation the making by the Partnership of certain loans to and the pledging by
the Partnership of certain funds of the Partnership for payment of certain
obligations of affiliated partnerships, all to the extent provided for and
described in the Offering Circular and the definitive documents entered into in
accordance therewith.
ARTICLE IV
CAPITAL
4.1 Partners' Capital Contributions to the Partnership.
--------------------------------------------------
(a) The Partnership has assumed and taken the Navy II Assigned Rights
subject to, all liabilities secured by or incurred in connection with the Navy
II Assigned Rights at the time of the contribution or assumed by the Partnership
with regard to such assigned rights.
11
(b) The Partners agree that the fair market value of each Partner's
Capital Contribution as of the date of this Agreement is as indicated in the
books and records of the Partnership.
4.2 Additional Capital Contributions. Each Partner shall have the right,
--------------------------------
but not the obligation, to make additional capital contributions ("Additional
Capital Contributions") under the terms of this Section 4.2.
(a) A Partner may make an Additional Capital Contribution only if one
or both of the following conditions has occurred:
(i) the Management Committee has approved a Budget authorizing
Additional Capital Contributions; or
(ii) a Partner has notified the Management Committee in writing
that, in that Partner's best business judgment, the Partnership requires
additional equity capital for any bona fide reasonable business purpose relating
to drilling and construction necessary to bring on line for commercial
operations the power plant to provide electricity for the Navy II Power Sales
Contract (such notice to include a proposed required capital amount and
description of the uses and schedule of application of the funds and to be made
in a form and format established by the Management Committee and to indicate
that it constitutes a notice under this Section 4.2(a)(ii)), and the Management
Committee has not approved the proposal within ten (10) days of the notice.
(b) (i) If the conditions described in (a) above have occurred,
either Partner without first being required to obtain the approval of the other
Partner shall give written notice to the other Partner, which shall specify the
amount of Additional Capital Contributions required and the contribution date
("Contribution Date") upon which the Partners shall contribute the Additional
Capital Contributions to the capital of the Partnership. The additional Capital
Contributions shall be contributed to the capital of the Partnership by each of
the Partners in the ratio which each Partner's Capital Account bears to the
aggregate of all Partners' Navy II Capital Accounts (immediately prior to that
Additional Capital Contribution).
(ii) In the event that at any time either Partner shall fail to
contribute its share of the Additional Capital Contributions on the Contribution
Date (for purposes of this subsection (ii), a "Defaulting Partner"), as provided
in Section 4.2(b)(i), then, as to each such default, the other Partner (for
purposes of this subsection (ii), the "Contributing Partner") shall have the
right, but not the obligation, to make the contribution of Additional Capital
Contributions which the Defaulting Partner failed to make (but only after the
Contributing Partner made the full amount of its own Additional Capital
Contributions) on behalf of the Defaulting Partner by giving notice to the
Defaulting Partner within twenty (20) days after the Contribution Date (such
notice to specify that it constitutes a notice under this
12
Section 4.2(b)(ii)), in which event such sum shall become and be treated as a
loan ("Default Loan") by the Contributing Partner to the Defaulting Partner
bearing interest at the rate of two percentage points above the rate of interest
publicly announced by Chase Manhattan Bank N.A., in New York, from time to time
as its "Prime" or "Base" rate of interest, publicly announced by Chase Manhattan
Bank N.A., in New York, from time to time as its "Prime" or "Base" rate of
interest, and due and payable in full on the date which is six months after the
Contribution Date (the "Default Date"). The Defaulting Partner shall have no
obligation to repay the Default Loan, but in the event the Defaulting Partner
does not repay the Default Loan, plus all accrued but unpaid interest thereon,
in full by the Default Date, the respective Capital Accounts shall be adjusted
to reflect the Additional Capital Contributions, including all such unpaid
interest, as follows: the contributing Partner's Capital Account shall be
increased by the number of dollars by which the Contributing Partner's
Additional Capital Contribution exceeded the Defaulting Partner's Additional
Capital Contributions, and the percentages in Sections 5.1 and 5.2 shall be
adjusted according to the new relative Capital Accounts. In such event, the
Defaulting Partner's percentages shall be reduced accordingly and the Default
Loan, and all accrued but unpaid interest, shall be deemed paid in full.
4.3 Restrictions Relating to Capital; No Withdrawal. Except as otherwise
-----------------------------------------------
specifically provided in this Agreement or in the Act, no Partner shall have the
right to withdraw or reduce its Capital Contributions, to receive interest on
its Capital Contributions, to partition Partnership assets or to receive
property other than cash in return for its Capital Contributions.
4.4 Additional Partners. No additional Partners shall be admitted to the
-------------------
Partnership except with the consent of, and in accordance with the terms
(including the relative rights, duties and interest of such additional
Partners), conditions and procedures agreed to by all Partners; provided,
--------
however, that any Partner may, without the consent of any other Partner or the
- -------
Management Committee, subdivide its Interest, through formation of a
partnership, corporation or other arrangement that would hold that Partner's
Interest so long as that Partner remains the owner of a portion of the Interest.
5.5 Right of First Offer. Each Partner grants to the other Partner a
--------------------
right of first offer with respect to any desired or proposed sale or transfer,
whether originated by that Partner or a third party (a "Disposition") of all or
part of the Interest of the Partner proposing to make the Disposition (the
"Disposing Partner"), upon the terms and conditions of this Section 4.5.
(a) The right of first offer described in this Section 4.5 shall not
be effective unless the following conditions are satisfied:
(i) The Disposition shall involve the granting of a seat on the
Partnership's Management Committee, whether a present grant, a future right or
contingent opportunity of any kind to that seat; and
13
(ii) The Disposition shall become effective, with respect to any
unit or plant to be constructed, during the development stage of the unit or
plant constructed to provide electricity for the Navy II Power Sales Contract,
up to and including the time the unit or plant has been completed and goes on
line for commercial operations.
(b) Any Disposing Partner desiring to make a Disposition of all or
part of its Interest under conditions satisfying subsection (a) above shall send
a notice to the other Partner (the "Non-Disposing Partner") of the intended
Disposition, including the name of the proposed purchaser, a description of the
portion of the interest to be sold or transferred and the terms of the
Disposition. For a period of 30 days after receipt of the notice, the Non-
Disposing Partner shall have the right to purchase the portion of the notice.
The purchase right shall be exercised by notifying the Disposing Partner in
writing of the decision to exercise that right. If the Non-Disposing Partner
exercised the right to purchase within 30 days of receipt of the notice, the
Non-Disposing Partner must complete the purchase within 60 days of the notice of
intent to purchase. Failure to give notice of intent to purchase or to
consummate the purchase within the time limits described above shall allow the
Disposing Partner to proceed with the intended Disposition on the terms
described in the original notice; provided, however, that if the Disposing
Partner amends any material term of the sale or transfer, or changes the nature
or amount of the Interest to be sold or transferred, the Non-Disposing Partner
shall again have the right, as described in this Section 4.5, to purchase the
offered Interest on the amended terms and conditions.
(c) If the Non-Disposing Partner exercises its right to purchase the
Interest to be disposed of, the Disposing Partner shall cooperate in all
reasonable ways and in good faith with the Non-Disposing Partner to consummate
the sale of the Interest within the time period described in (b) above.
(d) No purchase by a Partner of any portion of an Interest under this
Section 4.5 shall in any way cause the purchasing Partner to increase its number
of seats, or the Disposing Partner to reduce its number of seats, on the
Management Committee.
ARTICLE V
CURRENT DISTRIBUTIONS
5.1 Cash Flow from Operations. Subject to Article XIII (that is, other
-------------------------
than in liquidation of a Partner's Interest in the Partnership as provided in
Section 13.4(a)) and to Section 4.2, Cash Flow from Operations shall be applied
or distributed on each Distribution Date as follows:
14
(a) until the Preferred Return has been reduced to zero (or funds are
on deposit in the Escrow Account sufficient to reduce the Preferred Return to
zero and the Distribution Condition will be satisfied for the Preferred Return
Year):
(i) to New CTC 50%;
(ii) to Navy II Group 50%;
provided, however, that all amounts distributable to New CTC pursuant to this
Section 5.1(a) on a Distribution Date shall be deposited into the Escrow Account
until (a) the Joint Ventures have deposited therein an amount, in the aggregate,
equal to the Maximum Payment for the Preferred Return year in which the
Distribution Date occurs, or (b) the Partnership has deposited therein an
amount, in the aggregate, equal to the Excess Revenues for the Partnership's
Project for the Preferred Return Year; and
(b) after the Preferred Return has been reduced to zero, in the manner
provided in Section 5.1(a), without regard to the proviso in Section 5.1(a).
5.2 Cash Flow from Capital Events. Subject to Article XIII (that is,
-----------------------------
other than in liquidation of a Partner's Interest in the Partnership as provided
in Section 13.4(a)) and to Section 4.2, Cash Flow from Capital Events shall be
applied or distributed on each Distribution Date as follows:
(a) before the Preferred Return has been reduced to zero:
(i) To deposit 50% in the Escrow Account; and
(ii) To distribute 50% to Navy II Group
(b) after the Preferred Return has been reduced to zero, 50% to New
CTC and 50% to Navy II Group.
ARTICLE VI
ALLOCATIONS
6.1 Allocation of Net Profit and Net Loss. For each fiscal year of the
-------------------------------------
Partnership, the Net Profit or Net Loss of the Partnership, and each item of
income or deduction entering into the computation thereof (exclusive of other
items of income, gain, loss or deduction that are otherwise allocated under this
Article VI), shall be allocated to and among the Partners in the same proportion
that Cash Flow from Operations is (or would have been had there been
15
Cash Flow from Operations) distributed to them under the provisions of Section
5.1 hereof for such fiscal year.
6.2 Allocation of Net Gain and Net Loss from Capital Events. The net
-------------------------------------------------------
Book gain (Book gain in excess of Book loss) of the Partnership from Capital
Events, and the net Book loss (Book loss in excess of Book gain) of the
Partnership from Capital Events, shall be allocated, to and among the Partners
in the same manner that Cash Flow from Capital Events is distributed under the
provisions of Section 5.2.
6.3 Allocation of Intangible Drilling and Development Costs. The Book
-------------------------------------------------------
deduction for intangible drilling and development costs of the Partnership shall
be allocated to and among the Partners as follows:
(i) Intangible drilling and development costs with respect to the
Navy II Project paid from Additional Capital Contributions (which for the
purposes of this subsection shall be deemed to include any Default Loan under
Section 4.2 which has not been paid in full) shall be allocated 98% to the
Partner from whom the Additional Capital Contributions (or the Default Loan) for
the deductible items were received, and 2% to the Partners in the manner
described in Section 5.2.
(ii) Intangible drilling and development costs for the Navy II Project
paid from funds borrowed by the Partnership shall be allocated among the
Partners in the same manner that Cash Flow from Capital Events is distributed
under the provisions of Section 5.2.
6.4 Allocations for Tax Purposes.
----------------------------
(a) All items of Partnership income, gain, loss and deduction for
federal and state income tax purposes shall be allocated to and among the
Partners in the same manner that the corresponding Book items of the Partnership
are allocated in Sections 6.1 through 6.3, except as otherwise provided in
Regulation Section 1.704-1(b)(4)(i) and except that solely for Federal, local
and state income and franchise tax purposes and not for Book or Capital Account
purposes, income, gain, loss and deduction with respect to property properly
carried on the Partnership's books at a value other than its tax basis shall be
allocated, (i) in the case of property contributed in kind, in accordance with
the requirements of Code Section 704(c) and such Regulations as may be
promulgated thereunder from time to time, and (ii) in the case of other
property, in accordance with the principles provided in Regulations under Code
Section 704(b).
(b) In the event that the Partnership has taxable income that is
characterized as ordinary income by reason of the recapture provisions of the
Code, each Partner's allocation of taxable gain from the sale or exchange of
Partnership assets (to the extent possible) shall include a proportionate share
of the recapture income equal to the Partner's (and his predecessors in
interest's) share of prior cumulative depreciation, cost recovery or other
16
deductions with respect to the assets which gave rise to the recapture income
(but not to exceed the amount of gain allocated to each Partner).
6.5 Allocation in Event of Transfer of Partnership Interest during the
------------------------------------------------------------------
Year. The Capital Account of any Partner shall carry over to the transferee of
- ----
any Partner to the extent it relates to the transferred interest. Except to the
extent otherwise required by the Code and any Regulations thereunder, if a
Partnership interest or part thereof is transferred, the portion of each such
item allocable to such Partnership interest shall be allocated between the
transferor and transferee in proportion to the number of days in such fiscal
year the Partnership interest is held by said transferor and transferee (as
determined in accordance with Section 10.1), except that, if they so agree
between themselves and so notify the Managing Partner in writing within 30 days
of the transfer, extraordinary items, including capital gains and losses, may be
allocated to the person who held the Partnership interest on the date such item
was realized by the Partnership.
6.6 Regulatory and Curative Allocations.
-----------------------------------
(a) Notwithstanding the foregoing provisions of this Article VI, the
Partnership shall allocate items of book income and gain in a manner that
constitutes a "minimum gain chargeback" as described in Section 1.704-2 of the
Treasury Regulations and the term "minimum gain" shall have the meaning assigned
to it therein. Determinations of each Partner's share of minimum gain shall be
made in accordance with Section 1.704-2 of the Treasury Regulations. In
addition, "partner nonrecourse deductions" shall be allocated to the Partners
bearing the risk of loss with respect to such deductions in accordance with
Section 1.704-2 of the Treasury Regulations.
(b) The Partners acknowledge and ratify the following modifications to
the provisions of this Article VI that were adopted pursuant to discussions
among the Partners and the Partnership accountants:
(i) For purposes of allocating income with respect to each year,
distributions are to be taken into account on the day in which they occur, and
the effective profit and loss percentages shall be determined as of each date
such distributions occur;
(ii) The following items are allocated in the ratios that apply
to Capital Events cash flow: depreciation, write-offs of plant and well capital
costs, fees paid to Southern California Edison related to transmission lines,
and alternative minimum tax adjustments and preferences associated with
property, plant and equipment; and
(iii) The initial capital contributions of the Partners are
determined by reference to the generally accepted accounting principle financial
statement figures for such capital contributions.
17
(c) As stated in Treasury Regulations Section 1.704-1(b)(4)(i), when
any property of the Partnership is reflected in the Capital Accounts of the
Partners and on the books of the Partnership at a book value that differs from
the adjusted tax basis of such property, then certain book items with respect to
such property will differ from certain tax items with respect to that property.
Since the Capital Accounts of the Partners are required to be adjusted solely
for allocation of the book items, the Partners' shares of the corresponding tax
items are not independently reflected by adjustments to the Capital Accounts.
These tax items must be shared among the Partners in a manner that takes account
of the variation between the adjusted tax basis of the applicable property and
its book value pursuant to or in the same manner as variations between the
adjusted tax basis and fair market value of property contributed to the
Partnership are taken into account in determining the Partners' share of tax
items under Code Section 704(c). In making allocations of tax items of the
Partnership, the Partnership shall comply with the foregoing principles.
(d) The Partners intend that the allocation of items of income, gain,
loss, deduction and credit pursuant to this Agreement result in Capital Account
balances that achieve the economic sharing provisions reflected in Article V,
as amended. Notwithstanding any other provisions contained herein, allocations
of income, gain, loss and deductions shall be applied and amended by the
Managing Partner as necessary to produce such result, including special
allocations of gross income and gross deductions and amendment of prior tax
returns. This Section 6.6(d) shall control notwithstanding any reallocation of
income, loss or items thereof by the Internal Revenue Service or other taxing
authority.
ARTICLE VII
RIGHTS, DUTIES, LIABILITIES AND
COMPENSATION OF THE MANAGING PARTNER
7.1 General.
-------
(a) Except as otherwise provided in this Agreement, the Managing
Partner shall be responsible for the conduct of the business of the Partnership
and for Project operations. The Managing Partner shall devote to the business
affairs of the Partnership such time and effort as the Managing Partner may from
time to time deem necessary. Pursuant to that certain Amended and Restated
Operations and Maintenance Agreement, made and entered into by the Partnership,
COC and FPLE, dated February 25, 1999, and that certain Amended and Restated
Field Operations Agreement, executed by COC and the Partnership, dated February
25, 1999 (FPLE and COC are individually and collectively referred to herein as
"Operator"), as either may be amended, COC shall act as Operator, provided,
however, that certain field and maintenance operations shall be performed by
FPLE.
18
(b) The Managing Partner and the Operator shall be subject to all
directives of the Management Committee with respect to the performance of their
respective duties hereunder, and shall be liable to the Partnership for all
damages, losses and expenses incurred by the Partnership as a result of
noncompliance with such directives.
7.2 General Rights and Powers of Managing Partner. Except as otherwise
---------------------------------------------
provided herein, including the provisions of Article VIII:
(a) The management and control of the day-to-day business and affairs
of the Partnership shall rest with the Managing Partner, which shall have such
rights and powers as are necessary, advisable or convenient to the discharge of
its duties under this Agreement and to the management of the business affairs of
the Partnership in furtherance of the purposes of the Partnership as set forth
in Article III.
(b) In furtherance of the purposes of the Partnership as set forth in
Article III of this Agreement, the Managing Partner is hereby granted the right,
power and authority to do on behalf of the Partnership all things which, in its
reasonable judgment, are necessary, proper or desirable to carry out its duties
and responsibilities hereunder, including, but not limited to, the following:
from time to time to incur all reasonable expenditures pursuant to the Budget;
to employ and dismiss from employment any and all employees, agents,
contractors, brokers, attorneys and accountants except for the partnership's
auditor; to create, by grant or otherwise, easements and servitudes; to borrow
money up to an aggregate principal amount of $100,000 at any time outstanding;
and to execute, acknowledge and deliver any and all contracts, agreements or
other instruments to effectuate any and all of the foregoing. Subject to the
direction of the Management Committee, the Managing Partner shall be responsible
for the following:
(i) maintain and protect the assets of the Partnership and the
interests of the Partners;
(ii) obtain such consultants, technicians, agents, and
contractors as it deems may be required for Project operations;
(iii) make all reports and disburse funds in accordance with the
Budget for all payments required under this Agreement with respect to Project
operations and under all agreements, permits, authorizations, and other rights
relating thereto;
(iv) submit the Budget, cost projections and any other budgets
for Project operations to the Management Committee;
(v) keep full and accurate records and accounts of the
transactions entered into by it on behalf of the Partnership;
19
(vi) do all such acts and things and conduct all such steps as
may reasonably be necessary or advisable in its judgment for the efficient and
economical conduct of Project operations; and
(vii) secure adequate and reasonable insurance (to the extent
possible and with the Partners and Partnership as named insureds) covering those
insurable risks with respect to the Partnership and Partnership operations that
can be insured at reasonable costs, including risk of personal injuries to or
deaths of employees or others, risks of fire, and all other risks ordinarily
insured against in similar operations, and adjust losses and claims pertaining
to or arising out of such insurance.
7.3 Expenses. The Partnership shall reimburse the following expenses of
--------
the Partnership incurred by either of the Partners limited to the amounts set
forth in the applicable Budget approved in accordance with Section 7.4:
(a) all organizational fees and expenses of the Partnership and of the
Partners;
(b) the actual costs of goods and materials used by or for the
Partnership by the Managing Partner, any subcontractors or the Partnership;
(c) all employee time and costs and related overhead of the Managing
Partner attributable to the business of the Partnership;
(d) all operational expenses of the Partnership that may be paid by
the Managing Partner pursuant to the terms hereof, including, without
limitation, the following: obligations related to Navy II Assigned Rights; all
costs of borrowed money paid to lenders; taxes and assessments on Partnership
assets and other taxes applicable to the Partnership; legal, accounting,
appraisal, audit and brokerage fees; fees and expenses paid to independent
consultants or insurance brokers; and
(e) all accounting, documentation, professional and reporting expenses
of the Partnership paid or to be paid to any person, including, without
limitation, the following: preparation and documentation of Partnership
accountings and audits; preparation and documentation of Partnership state and
federal tax returns; expenses of revising, amending, converting, modifying, or
terminating this Agreement or the Partnership; costs incurred in connection with
any litigation in which the Partnership is involved as well as any examination,
investigation or other proceedings conducted by any regulatory agency with
respect to the Partnership, including legal and accounting fees incurred in
connection therewith; costs of any computer equipment or services used for or by
the Partnership; and the costs of preparation and dissemination of informational
material and documentation relating to a potential sale by the Partnership of
Partnership Interests to third parties or relating to a potential acquisition,
sale, financing or refinancing of Partnership assets.
20
7.4 Budget; Mechanism for Reimbursement.
-----------------------------------
(a) The Managing Partner shall prepare the Budget for the Partnership,
which shall include a capital expenditure budget and a budget for Partnership
operations for each quarter, which is to be presented to the Management
Committee for approval no later than 45 days prior to the beginning of the
applicable quarter. Once the Budget has been approved by the Management
Committee, the Managing Partner may pay all Partnership expenses, reimburse
itself for expenditures permitted by Section 7.3, and otherwise apply all
available Partnership funds in accordance with the approved Budget.
(b) Subject to the approval of the Management Committee, the
reasonable costs incurred by the Partners in connection with matters to be
considered by the Management Committee as well as any other activities of the
Partners assigned to such Partners by the Management Committee shall be
reimbursed by the Partnership in accordance with the amounts set forth in the
applicable Budget approved in accordance with Section 7.4(a).
7.5 Third-Party Reliance. Any person dealing with the Partnership as to
--------------------
any matter with respect to which the Managing Partner is granted authority
hereunder may rely solely on written advice from the Managing Partner as to any
matter relating to this Agreement, as to compliance herewith and as to the
authority of the Managing Partner to act on behalf of the Partnership, and as
between the Partnership or the Managing Partner, on the one hand, and such other
person, on the other hand, the facts stated in such written advice from the
Managing Partner will be conclusive and binding on the Partnership and the
Managing Partner.
7.6 Justification of Expenses. In connection with the reimbursement or
-------------------------
payment by the Partnership of any expenses under this Agreement to any Partner,
each Partner shall have the right to receive from the Partner claiming
reimbursement or payments such supporting documentation as may be reasonably
requested to justify such reimbursement or payments.
ARTICLE VIII
MANAGEMENT OF PARTNERSHIP
8.1 Management Committee. Subject to the requirements of the Act or
--------------------
other applicable law, the business operations of the Partnership shall be
overseen by a Management Committee, consisting of two delegates appointed by New
CTC and two delegates appointed by Navy II Group. New CTC and Navy II Group
shall each be fully empowered to substitute for its own delegates and to appoint
alternates. The decision of the Management Committee shall be required for all
actions set forth at Section 8.4.
21
8.2 Meetings. The Partnership shall hold Meetings to transact all
--------
Partnership business for which a meeting or a vote of the Partners is required
by the Act. Each Partner shall send two delegates to each Meeting. Each
Partner may substitute or change delegates at will, and shall notify the other
Partner of the names of such delegates prior to each Meeting.
8.3 Procedures. Management Committee Meetings and Partnership Meetings
----------
shall occur and be conducted pursuant to the following procedures:
(a) The Partnership and the Management Committee shall hold a Meeting
on the second Tuesday of January, April, July and October of each year and on
such other dates as shall be called by a Partner on written notice of not less
than fifteen (15) business days given by the calling party to all Partners,
which notice shall be accompanied by an agenda and supporting documentation
describing, in reasonable detail, the issues to be presented to the Management
Committee for voting. Meetings shall be held at the Managing Partner's office
and begin at 10:00 A.M. unless another time or place is agreed to.
(b) A quorum of three delegates (including alternates to delegates not
present) must be present to convene a Meeting and/or vote on Partnership or
Management Committee matters.
(c) All votes on Partnership or Management Committee action shall
require a favorable vote of at least a majority of the delegates comprising the
quorum present at the Meeting; provided, however, that said favorable vote must
be composed of at least one favorable vote by a delegate representing New CTC
and one favorable vote by a delegate representing Navy II Group.
(d) Action by the Partnership and the Management Committee may be
taken at any time without a meeting upon the written consent of at least three
delegates. For the purposes of this provision, written consent shall be deemed
given by a delegate if said delegate does not make an objection to the action
proposed in the form of written consent sent to the delegates within 15 days
after the actual receipt of such form of written consent by such delegate.
(e) The Partnership and the Management Committee may also take action
by vote of at least three delegates given by telephone which vote shall be
subsequently confirmed in writing to all delegates. The notice provision in
Section 8.3(a) shall apply also to such vote by telephone, provided, however,
that vote may be taken without notice if, in the reasonable opinion of the three
delegates so voting, there exists an emergency situation precluding such advance
notice, and that all reasonable efforts have been made to notify all Partners of
the emergency and the vote.
22
(f) Minutes shall be prepared for all Meetings, and shall be approved
by the Partners or the Management Committee, as applicable, prior to being
entered into the permanent minute book maintained by the Managing Partner for
the Partnership.
8.4 Limitations on Authority of Managing Partner. The Managing Partner
--------------------------------------------
shall have no authority to do any act prohibited by law, nor shall the Managing
Partner, without the consent of the Management Committee, have any authority to:
(a) permit any creditor who makes a nonrecourse loan to the
Partnership to take, as a condition of making such loan, any direct or indirect
interest in the profits, capital, assets or property of the Partnership other
than as a secured creditor;
(b) sell or lease the Partnership's rights in commercial geothermal
wells, power plants and other substantial assets owned by the Partnership;
(c) make or amend contracts for the sale of electricity;
(d) terminate, liquidate and wind up the Partnership, except upon the
occurrence of an event which, under the Act, dissolves or terminates the
Partnership;
(e) approve and establish procedures and ongoing review of all budgets
and the budget process, including each Budget;
(f) change the Partnership's auditor;
(g) create, incur or assume any indebtedness for borrowed money other
than in the ordinary course of Partnership business;
(h) obtain refinancing or replacements of any mortgages or other
security instruments related in any way to any Partnership property, or repay in
whole or in part, refinance, recast, modify, consolidate or extend any of the
terms of any indebtedness owed by the Partnership or affecting all or any
portion of any Partnership property;
(i) modify, amend or waive any provision of any material agreement to
which the Partnership is a party;
(j) create, incur or assume any indebtedness in aggregate principal
amount at any time outstanding greater than $100,000;
(k) acquire, amend or terminate any geothermal leases;
(l) engage and discharge outside consultants, construction
contractors, engineers or similar entities or professionals, including contracts
with third-party Project
23
operators in connection with work to be performed by or for the benefit of the
Partnership in instances where the estimated or incurred cost of said work
exceeds $1,000,000; excluding, however, contracts for drilling of wells and all
related supplies and equipment, provided the estimated costs of such contracts
do not exceed the amounts budgeted for such items in an approved Budget; further
provided that any contract between the Partnership and the Operator, the
Managing Partner or any of their affiliates must have the approval of the
Management Committee;
(m) all other functions for which Partnership approval is required by
applicable law or for which Management Committee approval is required by this
Agreement; or
(n) (i) do any act in contravention of this Agreement or not in
furtherance of the purposes of the Partnership set forth in Article III; (ii) do
any act which would make it impossible to carry on the ordinary business of the
Partnership; (iii) confess a judgment against the Partnership; (iv) possess
Partnership property or assign rights in specific Partnership property for any
purpose other than a Partnership purpose; (v) change or reorganize the
Partnership into any other legal form; or (vi) admit a person as a Partner,
except as provided in this Agreement.
Notwithstanding anything to the contrary set forth herein, the Managing Partner
shall have the authority, without the approval of the Management Committee, to
administer the definitive documents entered into by the Partnership in
accordance with and as generally described in the Offering Circular, including
any amendments, waivers, extensions, indulgences, minor adjustments, or other
loan administration matters with respect to such documents (other than
amendments materially affecting the Partnership or any Partner).
ARTICLE IX
REPRESENTATIONS AND COVENANTS OF PARTNERS
9.1 Representation of Partners. Each Partner represents to each other
--------------------------
Partner that it is an entity duly organized and validly existing under the laws
of its jurisdiction, and qualified to do business in the State of California,
that all action required by such Partner to authorize that Partner to enter into
this Agreement has been taken, and that this Agreement is a binding agreement of
that Partner, enforceable in accordance with its terms.
9.2 Covenants of Partners. Each Partner covenants that it will not
---------------------
engage in any business or in any other activities other than performing its
obligations under this Agreement to the extent such business or other activities
are limited by agreements between the Partnership and lenders providing
financing to the Partnership.
24
ARTICLE X
ASSIGNMENTS OR TRANSFERS OF INTERESTS
10.1 Assignments. Subject to compliance with applicable federal and state
-----------
securities laws, and subject to Sections 4.4 and 4.5, a Partner may transfer all
or a portion of his Interest in the Partnership, by an executed and acknowledged
written instrument, only with the consent of the Management Committee. Subject
to compliance with applicable federal and state securities laws, assignments
will be recognized by the Partnership only effective the last day of the
calendar month following the receipt by the Partnership of written notice of the
assignment. The Partnership may charge the assigning or transferring Partner
and any Partner requesting a change of name, type of ownership, etc., a fee not
to exceed the expenses, including actual legal expenses, incurred in effecting
the assignment or transfer of his interest in the Partnership or other change in
the records of the Partnership.
10.2 Substituted Partners. No assignee of the whole or any portion of a
--------------------
Partners' Interest in the Partnership shall have the right to become a
substituted Partner in the place of his assignor unless all of the following
conditions are satisfied:
(a) the fully executed and acknowledged written instrument of
assignment that has been filed with the Partnership sets forth the intention of
the assignor that the assignee become a substituted Partner in his place;
(b) the assignor and assignee execute and acknowledge such other
instruments as the Management Committee may deem necessary or desirable to
effect such admission, including the written acceptance and adoption by the
assignee of the provisions of this Agreement and his execution, acknowledgment
and delivery to the Management Committee of a Power of Attorney, the form and
content of which shall be provided by the Management Committee;
(c) any transfer fee and legal expenses, if any, referred to in
paragraph (a) above required to be paid shall have been paid;
(d) the transfer shall not be in violation of any applicable federal
or state securities laws, including the Securities Act of 1933, as amended, nor
shall it cause the termination of the Partnership under Section 708(b) of the
Code, it being understood and agreed that the Management Committee may require
as a condition to such transfer that the Partnership be furnished with an
appropriate opinion of counsel to the foregoing effect, which counsel and
opinion shall be satisfactory to the Management Committee; and
(e) the Management Committee has consented to the assignment (which
consent may be granted or withheld at the sole discretion of the Management
Committee).
25
10.3 Management Committee Option. The Management Committee may elect to
---------------------------
treat an assignee who has not become a substituted Partner as a substituted
Partner in the place of his assignor should it deem, in its sole discretion,
that such treatment is in the best interest of the Partnership for any of its
purposes or for any of the purposes of this Agreement.
10.4 Amendment of Agreement. The Managing Partner will be required to
----------------------
prepare an amendment to this Agreement for signature by the Partners to reflect
the substitution of Partners. Until this Agreement is amended, an assignee
shall not become a substituted Partner.
10.5 Insolvency. Upon the bankruptcy, insolvency, dissolution, or other
----------
cessation to exist as a legal entity of a Partner not an individual, the
authorized representative of such entity shall have all the rights of a Partner
for the purpose of effecting the orderly winding up and disposition of the
business of such entity and such power as such entity possessed to constitute a
successor as an assignee of its interest in the Partnership and to join with
such assignee in making application to substitute such assignee as a Partner.
10.6 Special Restrictions Relating to Non-U.S. Persons. Each transferee of
-------------------------------------------------
an Interest shall certify whether or not such transferee is a U.S. person. Each
Partner shall notify the Managing Partner if it becomes a non-U.S. person within
30 days of such change. Prior to a disposition of a "United States Real
Property Interest," as defined in Code Section 897, or a distribution pursuant
to a disposition of a "United States Real Property Interest," each Partner
shall, if requested to do so by the Managing Partner, certify as to its U.S.
person status.
10.7 Amendments in Respect to Transfers; Admission of Partners. The
---------------------------------------------------------
Managing Partner, at the discretion of the Management Committee, shall promptly
amend any Partnership document listing the Partners from time to time to reflect
the admission, substitution or withdrawal of Partners. No such admission,
substitution or withdrawal shall be effective until all appropriate Partnership
documents are so amended.
ARTICLE XI
LOANS TO THE PARTNERSHIP
11.1 Authority to Borrow. Subject to the approval of the Management
-------------------
Committee and to the limitations elsewhere provided in this Agreement, the
Partnership may from time to time borrow such amounts from such persons
(including the Managing Partner or any other Partner and its affiliates) on such
security and payable on such terms as the Managing Partner may determine.
11.2 Loans From Partners. If a Partner shall, with the prior consent of
-------------------
the Management Committee, make any loan or loans to the Partnership or advance
money on its
26
behalf, the amount of any such loan or advance shall not increase the Capital
Account of the lending Partner or entitle such lending Partner to any increase
in his share of the distributions of the Partnership or result in his having any
greater share of Partnership allocations of Net Profit and Net Loss. The amount
of any such loan or advance shall be a debt due from the Partnership to such
lending Partner, repayable upon such terms and conditions and bearing interest
at such rates as shall be mutually agreed upon by the lending Partner and the
Management Committee, and such loan or advance may, subject to approval of the
Management Committee, be secured by a mortgage, deed of trust, pledge, security
interest or other lien in or on any, all or substantially all of the properties
and other assets of the Partnership.
ARTICLE XII
BOOKS, RECORDS AND REPORTS
12.1 Books. The Partnership, at its expense, shall maintain books and
-----
records for the Partnership at the Managing Partner's designated office, and all
Partners shall have the right to inspect and examine such books and records, and
to copy them (at their own expense) during regular business hours.
12.2 Reports. The Partnership shall cause to be prepared and delivered
-------
to the Partners, at its expense, the following reports (all unaudited reports to
be certified by the Chief Financial Officer of the Managing Partner):
(a) Within 60 days after the end of the first three quarterly periods
of the Partnership's fiscal year, a quarterly report containing the following:
(i) a balance sheet, which may be unaudited;
(ii) a statement of income for the three-month period then
ended, and for the year to date at such quarter end, which may be unaudited;
(iii) a statement of changes in cash flow for the three-month
period then ended, and for the year to date at such quarter end, which may be
unaudited;
(iv) other pertinent information regarding the Partnership and
its activities during the three-month period covered by the report; and
(v) a statement setting forth in reasonable detail the services
rendered by the Managing Partner to the Partnership and the amounts charged for
those services.
27
(b) Within 75 days after the end of each fiscal year of the
Partnership, all information concerning the Partnership reasonably necessary for
the preparation of the Partners' federal and state income tax returns.
(c) Within 90 days after the end of each fiscal year of the
Partnership, an annual report containing (i) a balance sheet as of the end of
its fiscal year and statements of income, Partners' equity and changes in
financial position, for the year then ended, all of which shall be prepared in
accordance with generally accepted accounting principles consistently applied
and accompanied by an auditor's report containing to the extent available an
unqualified opinion of an independent certified public accountant; and (ii) a
report of the activities of the Partnership during the period covered by the
report.
(d) Copies of any documents delivered to any institution providing
financing to the Partnership pursuant to the requirements of any Partnership
loan documents.
12.3 Accounting and Tax Decisions. Except as otherwise provided in
----------------------------
this Agreement, all decisions as to accounting and tax matters shall be made by
the Managing Partner and as directed by the Management Committee.
12.4 Income Tax Election and Proceedings.
-----------------------------------
(a) The Management Committee shall direct the Managing Partner to make
such elections under the tax laws of the United States, the several States and
other relevant jurisdictions as to the treatment of the Partnership's items of
income, gain, loss, deduction and credit and as to all other relevant matters as
it reasonably believes necessary, appropriate or desirable.
(b) In the event the Partnership is subject to administrative or
judicial proceedings for the assessment and collection of deficiencies for
federal, state or local taxes or for the refund of overpayments of federal,
state or local taxes arising out of a Partner's distributive share of the tax
items of the Partnership, the Managing Partner shall act as, and shall have the
power and duties assigned to, the "tax matters partner" under Code Sections
6221-6232 and the Regulations thereunder. The Partners agree to perform all
acts necessary under Code Section 6231 and the Regulations thereunder to
designate the Managing Partner as the "tax matters partner."
(c) No Partner shall, on such Partner's federal or state income tax
return, treat any "partnership item" (as defined in Code Section 6231(a)(3) and
the Regulations thereunder) in a manner which is inconsistent with the treatment
of such "partnership item" on the Partnership's return without first submitting
its proposed treatment to the other Partner for its advance review.
28
12.5 Bank Accounts. The Managing Partner may designate from time to time
-------------
those persons authorized to execute checks and other items on the Partnership
bank accounts. The funds of the Partnership shall not be commingled with the
funds of any other person. The Managing Partner shall have fiduciary
responsibility for the safekeeping and use of all funds and assets of the
Partnership, whether or not in the Managing Partner's possession or control, and
it shall not employ, or take actions to permit another to employ, such funds or
assets in any manner except as provided in this Agreement.
ARTICLE XIII
DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
AND THE LIQUIDATION OF A PARTNER'S
INTEREST IN THE PARTNERSHIP
13.1 Dissolution. Only the happening of any one of the following events
-----------
shall dissolve the Partnership:
(a) the expiration of the term of the Partnership;
(b) the expiration of 60 days after the Partnership's election to
dissolve the Partnership (provided that no Partner shall, without such approvals
as may be required from lenders providing financing to the Partnership in
accordance with the relevant loan or financing agreements, seek the dissolution
of the Partnership during the term of any such agreements);
(c) the entry of a decree of judicial dissolution of the Partnership
pursuant to the Act; or
(d) the occurrence of any event that would cause the dissolution of
the Partnership under the Act or that would make it unlawful for the business of
the Partnership to be continued.
13.2 Distributions in Liquidation of the Partnership and in Liquidation
------------------------------------------------------------------
of a Partner's Interest in the Partnership.
- ------------------------------------------
(a) In the event of a distribution in connection with the liquidation
of the Partnership, the occurrence of which is described in Section 13.4(b), the
Partnership shall apply and distribute the proceeds from the liquidation of the
assets of the Partnership and collection of the receivables of the Partnership,
together with assets distributed in kind, to the extent sufficient therefor, in
the following order of priority:
29
(i) first, to the payment and discharge of all liabilities,
obligations and debts of the Partnership and the expenses of liquidation, paid
in the order then required by California law;
(ii) second, to the creation and setting up of any reserves which the
Management Committee may deem necessary, appropriate or desirable for any
future, contingent or unforeseen liabilities, obligations or debts of the
Partnership which are not yet payable or have not yet been paid. The
Partnership may pay, but is not obligated to pay, such reserves to an
independent escrow holder designated by the Management Committee, to be held by
it for the purpose of disbursing such reserves in payment of any of the
aforementioned liabilities, obligations and debts and, at the expiration of such
period as the Management Committee shall deem necessary, advisable or desirable,
to distribute the balance thereafter remaining in the manner hereinafter
provided;
(iii) third, to the payment and discharge of all of the liabilities,
obligations and debts of the Partnership owing to Partners, but if the amount
available for payment is insufficient, then pro rata in accordance with the
amount of those liabilities, obligations and debts; and
(iv) fourth, to the Partners with positive Capital Accounts, in
accordance with their respective Capital Account after taking into account all
Capital Account adjustments for the Partnership taxable year during which such
liquidation occurs (other than those made pursuant to this Section 13.2, or
Section 13.3).
(b) Except as otherwise provided in Regulation Section 1.704-
1(b)(2)(ii)(b), a distribution to a Partner in liquidation of such Partner's
interest in the Partnership (as described in Section 13.4(c)), but other than in
liquidation of the Partnership (the occurrence of which is described in Section
13.4(b)), shall be in an amount equal to each Partner's Capital Account after
taking into account all Capital Account adjustments for the Partnership taxable
year during which such liquidation occurs (other than those made pursuant to
this Section 13.2 or Section 13.3).
(c) For purposes of this Section 13.2, the Partnership taxable year
shall be determined without regard to Code Section 706(c)(2)(A).
13.3 Deficit Capital Account. Notwithstanding any other provision of
-----------------------
this Agreement to the contrary, upon liquidation of a Partner's interest in the
Partnership (whether or not in connection with the liquidation of the
Partnership), after all Capital Account adjustments for the taxable year during
which such liquidation occurs (other than those occurring as a result of any
contributions made pursuant to this Section 13.3), if such Partner has a
negative balance in its Capital Account, such Partner shall be obligated to pay
to the Partnership on or before the end of the taxable year in which such
liquidation occurs (or, if
30
later, within ninety (90) days after the date of such liquidation) an amount in
cash equal to the difference between its negative Capital Account and zero.
13.4 Liquidation of the Partnership and Liquidation of a Partner's
-------------------------------------------------------------
Interest in the Partnership.
- ---------------------------
(a) For purposes of Sections 1.8, 5.1, 5.2 and 13.3, a liquidation of
a Partner's Interest in the Partnership occurs upon the earlier of (i) the date
upon which there is a liquidation of the Partnership or (ii) the date upon which
there is a liquidation of the Partner's Interest in the Partnership.
(b) For purposes of Section 13.4(a) and Sections 13.2(a) and 13.3, the
liquidation of the Partnership occurs upon the earlier of (i) the date upon
which the Partnership is terminated under Code Section 708(b)(1), or (ii) the
date upon which the Partnership ceases to be a going concern (even though it may
continue in existence for the purpose of winding up its affairs, paying its
debts, and distributing any remaining balance to its Partners).
(c) For purposes of Sections 13.4(a) and 13.2(b), the liquidation of a
Partner's Interest in the Partnership means the termination of a Partner's
entire Interest in the Partnership by means of a distribution, or a series of
distributions, to the Partner by the Partnership. A series of distributions
will come within the meaning of this term whether they are made in one year or
in more than one year. Where a Partner's Interest is to be liquidated by a
series of distributions, the Interest will not be considered as liquidated until
the final distribution has been made.
(d) The liquidation of a Partner's Interest in the Partnership, the
occurrence of which is described in Section 13.4(a), will not be delayed after
the Partnership's primary business activities have been terminated for a
principal purpose of deferring any distribution pursuant to Section 13.2(a)(iv),
or deferring a Partner's obligation under Section 13.3.
13.5 Time of Liquidation. Subject to Section 13.4(d) a reasonable time
-------------------
shall be allowed for the orderly liquidation of the assets of the Partnership
and the discharge of liabilities to creditors so as to enable the Partnership to
minimize to the extent it deems practicable, advisable or desirable the normal
losses attendant upon a liquidation.
13.6 Liquidation Statement. Each of the Partners shall be furnished
---------------------
with a statement prepared by the Partnership, which shall set forth the assets
and liabilities of the Partnership as of the date of complete liquidation. Upon
the Partnership complying with the foregoing distribution plan, the Partners
shall cease to be such and the Managing Partner may execute, acknowledge and
cause to be filed and recorded a certificate of cancellation of the Partnership
or other appropriate documents evidencing its dissolution and winding up.
31
ARTICLE XIV
LIMITATION OF LIABILITY OF MANAGING PARTNER
AND INDEMNIFICATION OF THE MANAGING PARTNER AND OTHERS
14.1 Limitation on Liability of Managing Partner. None of (i) the
-------------------------------------------
Managing Partner in its capacity as such, or (ii) its officers, directors,
shareholders, employees or agents will be liable to the Partnership or the
Partners for any expense, loss or liability suffered by the Partnership or the
Partners in connection with the Partnership or its activities; provided that, in
the event such expense, loss or liability arose out of any action or inaction of
a Managing Partner or its affiliates or such other persons, as the case may be,
the foregoing shall only apply if (i) such course of conduct did not constitute
gross negligence, acts of bad faith or willful misconduct, and (ii) the Managing
Partner, its affiliates or such other persons, as the case may be, had
previously determined in good faith that such course of conduct was in the best
interests of the Partnership.
14.2 Indemnification of the Managing Partner.
---------------------------------------
(a) The Partnership shall indemnify and hold harmless the Managing
Partner, and its officers, directors, shareholders, employees and agents
(individually, an "Indemnitee") 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 incidental to the business of the Partnership,
including without limitation liabilities under the federal and state securities
laws, regardless of whether the Indemnitee continues to be the Managing Partner,
or an officer, director, shareholder, employee or agent of the Managing Partner
at the time any such liability or expense is paid, if the Indemnitee's conduct
did not constitute actual fraud, willful misconduct or gross negligence and if
the Indemnitee acted in a manner it reasonably believed to be in the best
interests of the Partnership. The termination of any action, suit or proceeding
by settlement or upon a plea of nolo contendre, or its equivalent, shall not, in
and of itself, create a presumption or otherwise constitute evidence that the
Indemnitee acted in a manner contrary to that specified above.
(b) Reasonable expenses incurred by an Indemnitee in defending any
claim, demand, action, suit or proceeding subject to this Section 14.2 shall,
from time to time, be advanced by the Partnership prior to the final disposition
of such claim, demand, action, suit or proceeding upon receipt by the
Partnership of an undertaking by or on behalf of the Indemnitee to repay such
amount if it shall be determined that such person is not entitled to be
indemnified as authorized in this Section 14.2.
32
(c) The indemnification provided by this Section 14.2 shall be in
addition to any other rights to which those indemnified may be entitled under
any agreement, vote of the Partners, as a matter of law or equity or otherwise,
both as to action in the Indemnitee's capacity as Managing Partner, as an
affiliate or as an officer, director, employee or agent of a Managing Partner or
an affiliate and as to any action in another capacity, and shall continue as to
an Indemnitee who has ceased to serve in such capacity and shall inure to the
benefit of the heirs, successors, assigns and administrators of the Indemnitee.
(d) The Partnership may purchase and maintain insurance, at the
Partnership's expense on behalf of the Managing Partner and such other persons
as the Management Committee shall determine, against any liability that may be
asserted against or expense that may be incurred by such person in connection
with the activities of the Partnership and/or the Managing Partner's acts or
omissions as Managing Partner of the Partnership regardless of whether the
Partnership would have the power to indemnify such person against such liability
under the provisions of this Agreement.
(e) Any indemnification hereunder shall be satisfied solely out of the
assets of the Partnership. No Partner shall be subject to personal liability by
reason of these indemnification provisions.
(f) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 14.2 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.
(g) The provisions of this Section 14.2 are for the benefit of the
Indemnitees, their heirs and personal representatives, and shall not be deemed
to create any rights for the benefit of any other person.
14.3 Management Committee Indemnification. The Partnership shall
------------------------------------
indemnify and save harmless the delegates to the Management Committee, including
the alternates, against all actions, claims, demands, costs and liabilities
arising out of the acts (or failure to act) of any such person in good faith
within the scope of their authority in the course of the Partnership's business,
and such persons shall not be liable for any obligations, liabilities or
commitments incurred by or on behalf of the Partnership as a result of any such
acts or failure to act, provided that the foregoing shall not entitle a member
to indemnification for gross negligence or willful misconduct.
14.4 Survival of Rights. The rights of the Managing Partner, and its
------------------
respective officers, directors, shareholders, employees or agents under this
Article XIV shall survive the termination of the Managing Partner's status as a
Partner of the Partnership.
33
ARTICLE XV
GENERAL PROVISIONS
15.1 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, or the breach thereof, which cannot be settled by agreement of
the Partners, shall be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association and judgment upon the
award rendered thereunder may be entered in any court having jurisdiction
thereof.
15.2 Notices.
-------
(a) Except as otherwise provided herein, any notice, distribution,
offer, report or other communication that is to be given to any Partner in
connection with the Partnership or this Agreement shall be in writing and shall
be sent in person by first-class mail, by telecopy, or by nationally recognized
overnight courier services to the address set forth below or to such other
address as a Partner may notify the Management Committee in writing, and shall
be deemed delivered upon receipt.
NEW CTC: NEW CTC Company, LLC
c/o Caithness Power, L.L.C.
1114 Avenue of the Americas
New York, New York 10036-7790
Attention: General Counsel
Telefacsimile: (212) 921-9239
CCH: Caithness Navy II Group, LLC
c/o Caithness Power, L.L.C.
1114 Avenue of the Americas
New York, New York 10036-7790
Attention: General Counsel
Telefacsimile: (212) 921-9239
(b) Copies of any notices provided to any Partner in connection with
any loan documents or other financing documents (or any documents relating
thereto) shall be forwarded to each other Partner promptly upon receipt.
(c) Copies of any notices provided to any Partner in connection with
any documents relating to the Partnership's rights in the Project, or loan
documents or other financing documents (or any documents relating thereto) shall
be forwarded to each other Partner promptly upon receipt.
34
15.3 Survival of Rights. This Agreement shall be binding upon, and, as to
------------------
permitted or accepted successors, transferees and assigns, inure to the benefit
of the Partners and the Partnership and their respective heirs, legatees, legal
representatives, successors, transferees and assigns, in all cases whether by
the laws of descent and distribution, merger, reverse merger, consolidation,
sale of assets, other sale, operation of law or otherwise.
15.4 Construction. The language in all parts of this Agreement shall be
------------
in all cases construed simply according to its fair meaning and not strictly for
or against the Partners or the Managing Partner.
15.5 Section Headings. The captions of the Articles or Sections in this
----------------
Agreement are for convenience only and in no way define, limit, extend or
describe the scope or intent of any of the provisions hereof, shall not be
deemed part of this Agreement and shall not be used in construing or
interpreting this Agreement.
15.6 Agreement in Counterparts. This Agreement and any amendments hereto
-------------------------
may be executed in multiple counterparts, each of which shall be deemed an
original agreement and all of which shall constitute one and the same agreement,
notwithstanding the fact that all parties are not signatories to the original or
the same counterpart. For purposes of recording this instrument, if required,
multiple signature pages and acknowledgment pages may be attached to each
counterpart; the signature pages and the acknowledgment pages pertaining thereto
may be detached from the counterpart, when executed, and attached to another
counterpart, which other counterpart may thereafter be recorded.
15.7 Governing Law. This Agreement shall be construed according to the
-------------
internal laws, but not the laws pertaining to choice or conflict of laws, of the
State of California.
15.8 Additional Documents. Each Partner, upon the request of the
--------------------
Management Committee, agrees to perform all further acts and execute,
acknowledge and deliver all further documents which may be reasonably necessary,
appropriate or desirable to carry out the provisions of this Agreement,
including but not limited to acknowledging before a notary public any signature
heretofore or hereafter made by a Partner.
15.9 Severability. Should any portion or provision of this Agreement be
------------
declared illegal, invalid or unenforceable in any jurisdiction, then such
portion or provision shall be deemed to be severable from this Agreement as to
such jurisdiction (but, to the extent permitted by law, not elsewhere) and in
any event such illegality, invalidity or unenforceability shall not affect the
remainder hereof.
15.10 Pronouns and Plurals. Whenever the context may require, any pronoun
--------------------
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns, pronouns and verbs shall include
the plural and vice versa.
35
15.11 Third-Party Beneficiaries. There are no third-party beneficiaries
-------------------------
of this Agreement.
15.12 Partition. The Partners agree that any assets the Partnership may
---------
at any time have may not be suitable for partition. Each Partner hereby
irrevocably waives any and all rights that he may have to maintain any action
for partition of any assets the Partnership may at any time have.
15.13 Security Interest and Right of Set-Off. As security for any
--------------------------------------
withholding tax or other liability or obligation to which the Partnership may be
subject as a result of any act or status of any Partner or to which the
Partnership becomes subject with respect to the Interests of any Partner, the
Partnership shall have (and each Partner hereby grants to the Partnership) a
security interest in all Cash Flow from Operations or Cash Flow from Capital
Events distributable to such Partner to the extent of the amount of such
withholding tax or other liability or obligation. The Partnership shall have a
right to setoff against any such cash distributable in the amount of such
withholding tax or other liability or obligation.
15.14 Entire Agreement. This Agreement delivered by the Partners
----------------
constitutes the entire agreement of the Partners with respect to, and supersedes
all prior written and prior and contemporaneous oral agreements, understandings
and negotiations with respect to the subject matter hereof.
15.15 Waiver. No failure by any party to insist upon the strict
------
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute a waiver of any such breach or any other covenant, duty, agreement or
condition.
15.16 Attorneys' Fees. In the event of any litigation or arbitration
---------------
between the parties hereto with respect to the subject matter hereof, the
unsuccessful party to such litigation or arbitration shall pay to the successful
party all costs and expenses, including, without limitation, reasonable
attorneys' fees and expenses, incurred therein by the successful party, all of
which shall be included in and as a part of the judgment or decision rendered in
such litigation or arbitration.
36
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
--------------------------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company
its General Partner
By: Caithness Geothermal 1980 Ltd., L.P.,
a Delaware limited partnership
its Member
By: Caithness Power, L.L.C.,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
--------------------------------------------
Christopher T. McCallion
Executive Vice President
By: Mt. Whitney Geothermal-II Limited Partnership,
a Delaware limited partnership,
its Member
By: Caithness Power, L.L.C.,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
--------------------------------------------
Christopher T. McCallion
Executive Vice President
37
By: Caithness Power, L.L.C.,
a Delaware limited liability company,
its Managing Member
By: /s/ Christopher T. McCallion
--------------------------------------------
Christopher T. McCallion
Executive Vice President
By: Dominion Energy, Inc.,
a Virginia corporation,
its Member
By: /s/ James W. Braswell
-----------------------------------------------
Name: James W. Braswell
Its: Vice President
38
EXHIBIT A
NAVY II PROJECT AREA
--------------------
All of Section 16, all of Section 17, and the East half of Section 18, all
located in Township 22 South, Range 39 East, Mount Diablo Base and Meridan, in
the County of Inyo, State of California.
A-1
EXHIBIT B
TRANSMISSION LINE DESCRIPTION
-----------------------------
Parcel A
- --------
Parcel A of the Coso-Inyokern transmission line corridor begins at
survey station 0+00 at the Inyokern substation in the SE3, SE3 of Section 20,
T26S, R39E, in Kern County, California and goes Northerly approximately 27 miles
ending at survey station 1380+00 NWC/BLM Geothermal Plant No. 1 Switchyard in
SE3, NW3 of Section 19, T22S, R39E in Inyo County, California. The transmission
line is located entirely within the boundaries of the China Lake Naval Weapons
Center.
The corridor for the transmission line is the eastern portion of a
common corridor which is a strip of land 200 feet wide of which 65 feet of this
corridor is located to the left (Westerly) of the 115 kV transmission line
centerline and 135 feet is located to the right (Easterly) of the 115 kV
transmission line centerline from station 0+00 to station 731+59.27. From
station 731+59.27 to station 1245+11.06, the corridor is a strip of land 250
feet wide of which 100 feet is located to the left (Westerly) and 150 feet is
located to the right (Easterly) of the 115 kV transmission line centerline.
From station 1245+11.06 to station 1291+52.54, the corridor is a strip of land
300 feet wide of which 100 feet of this corridor is located to the left
(Westerly) and 200 feet is located to the right (Easterly) of the 115 kV
transmission line centerline. From station 1291+52.54 to Station 1380+00 the
corridor is a strip of land 250 feet wide of which 100 feet is located to the
left (Westerly) and 150 feet is located to the right (Easterly) of the 115 kV
transmission line centerline.
The transmission corridor centerline is described as follows:
Sections 20, 7, 8, 5, and 6 of T26S, R39E
-----------------------------------------
Beginning at survey station 0+00, which is located on the North boundary fence
line of the Inyokern substation and is 400 feet West, more or less, and 320 feet
North, more or less, of the SE Corner of Section 20, T26S, R39E. Thence, from
station 0+00, N21 degrees 11'57"W a distance of 255.00 feet to an angle point at
station 2+55.00; thence N17 degrees 40'18"W a distance of 21,637 feet, more or
less, to the Leliter Road crossing at station 218+92 which is a point on the
North boundary of Section 6, T26S, R39E and 1410 feet West, more or less, of the
NE Corner of Section 6, T26S, R39E.
B-1
Sections 31, 30 and 19 of T25S, R39E
------------------------------------
Thence, from station 218+92, N17 degrees 40'18"W a distance of 13,228 to station
351+20 which is a point on the West boundary of Section 19, T25S, R39E and is
1960 feet North, more or less, of the SW Corner of Section 19, T25S, R39E.
Sections 24, 13, 12, 1 and 2 of T25S, R38E
------------------------------------------
Thence, from station 351+20, N17 degrees 40'18"W a distance of 20,165 feet, to
survey station 552+85 which is a point on the Kern and Inyo County Line and on
the North boundary of Section 2, T25S, R38E and is 540 feet West, more or less,
of the NE Corner of Section 2, T25S, R38E.
Sections 35, 34, 27, 22, 15, 10 and 3 of T24S, R38E
---------------------------------------------------
Thence, from station 552+85, N17 degrees 40'18"W a distance of 980.65 feet to an
angle point at station 562+65.65; thence, N00 degrees 32'59"E a distance of
1849.86 feet to an angle point at station 581+15.51; thence N18 degrees 55'43"W
a distance of 8200.72 feet to an angle point at station 663+16.23; thence N17
degrees 49'44"W a distance of 6844.77 feet to an angle point at station
731+59.27; thence, N09 degrees 26'36"E a distance of 13,279.45 feet to an angle
point at equation station 864+40.45 Back and 873+76 Ahead; thence N07 degrees
43'29"E a distance of 1460 feet to survey station 888+39.76 which is a point on
the North boundary of Section 3, T24S, R38E and is 1680 feet West, more or less,
of the NE Corner of Section 3, T24S, R38E.
Sections 34, 27, 26, 23, 24, 13, 12 and 1 of T23S, R38E
-------------------------------------------------------
Thence, from station 888+39.76, N07 degrees 43'29"E a distance of 5111.45 feet
to an angle point at station 939+51.21; thence N31 degrees 43'12"E a distance of
9820.50 feet to an angle point at station 1037+71.71; thence N31 degrees 14'47"E
a distance of 10,758.97 feet to an angle point at station 1145+30.68; thence N10
degrees 29'29"W a distance of 8780.38 feet to survey station 1233+11.06 which is
a point on the North boundary of Section 1, T23S, R38E and is 1600 feet West,
more or less, of the NE Corner of Section 1, T23S, R38E.
Section 36 of T22S, R38E
------------------------
Thence, from station 1233+11.06, N10 degrees 29'29"W a distance of 1200.00 feet
to an angle point at station 1245+11.06; thence N43 degrees 08'19"E a distance
of 2718.94 feet to survey station 1272+30 which is a point on the East boundary
of Section 36, T22S, R38E and is 2180 feet South, more or less, of the NE Corner
of Section 36, T22S, R38E.
B-2
Sections 31, 30 and 19 of T22S, R39E
------------------------------------
Thence, from station 1272+30, N43 degrees 08'19"E a distance of 1922.34 feet to
an angle point at station 1291+52.34; thence N06 degrees 45'07"E a distance of
8634.99 feet to the end of Parcel A of the Coso-Inyokern transmission line
corridor at survey station 1380+00. This point is located at the NWC-BLM
Geothermal Plant No. 1 switchyard in the SE3, NW3 of Section 19, T22S, R39E in
Inyo County, California.
Parcel B
- --------
Parcel B of the Coso-Inyokern 230 kV transmission line corridor begins
at station 0+00 at BLM (West) Geothermal Plant No. 1 switchyard in the SE 3, NW
3 of Section 19, T22S, R39E in Inyo County, California and extends to station
77+57.20 BLM (East) Geothermal Plant No. 2 switchyard in the S2 of Section 20,
T22S, R39E. The transmission line is located entirely within the boundaries of
the China Lake Naval Weapons Center.
This portion of the corridor is a strip of land 100 feet wide of which
50 feet of this corridor is located left (Northerly) and 50 feet is located
right (Southerly) of centerline of the corridor.
The transmission centerline is described as follows:
Sections 19 and 20 of T22S, R39E
--------------------------------
Beginning at survey station 0+00, BLM (West) Geothermal Plant No. 1 switchyard,
which is located at S52 degrees W 4035 feet, more or less, from the NE corner of
Section 19, T22S, R39E; thence N83 degrees 00'00"E, a distance of 350.00 feet to
an angle point at station 3+50.00; thence N42 degrees 55'19"E a distance of
469.21 feet to an angle point at station 8+19.21; thence N84 degrees 34'06"E, a
distance of 1148.23 feet to an angle point at station 19+67.44; thence N72
degrees 42'43"E a distance of 1445.45 feet to an angle point at equation station
34+12.89 back and 34+12.04 ahead; thence S53 degrees 05'47"E a distance of
2075.45 feet to an angle point at station 54+87.49; thence S08 degrees 59'02"E a
distance of 1301.63 feet to an angle point at station 67+89.12; thence S42
degrees 29'52"E a distance of 468.25 feet to an angle point at station 72+57.37;
thence N47 degrees 49'10"E a distance of 359.83 feet to an angle point at
station 76+17.20; thence N76 degrees 15'49"E a distance of 140.00 feet to the A-
Frame structure at station 77+57.20. This point is located at BLM (East)
Geothermal Plant No. 2 switchyard, S32 degrees W 5,080 feet plus or minus from
the NE corner of Section 20, T22S, R39E in Inyo County, California, and is the
end of Parcel B Coso-Inyokern transmission line corridor.
B-3
Parcel C
- --------
Parcel C of the Coso-Inyokern 230 kV transmission line corridor begins
at station 0+00 at BLM (East) Geothermal Plant No. 2 switchyard in the S2 of
Section 20, T22S, R39E in Inyo County, California and extends to station
70+58.51 Navy II Geothermal Plant switchyard in Section 17, T22S, R39E. The
transmission line is located entirely within the boundaries of the China Lake
Naval Weapons Center.
This portion of the corridor is a strip of land 100 feet wide of which
50 feet of this corridor is located left (Westerly) and 50 feet is located right
(Easterly) of centerline of the corridor.
The transmission centerline is described as follows:
Sections 17 and 20 of T22S, R39E
--------------------------------
Beginning at survey station 0+00, BLM (East) Geothermal Plant No. 2 switchyard,
which is located S32 degrees W 5040 feet, more or less, from the NE corner of
Section 20, T22S, R39E; thence N76 degrees 58'47" W, a distance of 76.36 feet to
an angle point at station 0+76.36; thence N06 degrees 46'21"W, a distance of
2483.22 feet to an angle point at station 25 + 59.52; thence N19 degrees
32'09"E, a distance of 2513.26 feet to an angle point at station 50 + 72.82;
thence N63 degrees 57'16" W, a distance of 1169.08 feet to an angle point at
station 62 + 41.90; thence N18 degrees 16'46"W, a distance of 394.50 feet to an
angle point at station 66 + 36.40; thence N37 degrees 00'00"E, a distance of
422.11 feet to the A-Frame structure at station 70+58.51. This point is located
at Navy II Geothermal Plant switchyard, S42 degrees W 4,580 feet plus or minus
from the NE corner of Section 17, T22S, R39E in Inyo County, California and is
the end of Parcel C Coso-Inyokern transmission line corridor.
B-4
EXHIBIT C
ESCROW ACCOUNT DISTRIBUTION PROVISIONS
--------------------------------------
1. Amounts deposited in the Escrow Account with respect to a Preferred
Return Year shall be distributed promptly after it is determined whether the
Distribution Condition is satisfied with respect to that Preferred Return Year,
as follows:
(a) if the Distribution Condition was satisfied for the Preferred
Return Year:
(i) first, to CCH, ESCA and Navy II Group, as directed in
writing by an authorized representative thereof, until distributions pursuant to
this Section 1(a)(i) equal the lesser of (a) the Maximum Payment for the
Preferred Return Year, and (b) the amount or deposit in the Escrow Account;
(ii) the balance to the Managing Partner; or
(b) to the Managing Partner, if the Distribution Condition was not
satisfied for the Preferred Return Year.
2. Amounts deposited in the Escrow Account pursuant to Sections
5.2(a)(ii) of the CPD and CED Partnership Agreements and Sections 5.3(a)(ii) and
5.4(a)(ii) of the CFP Partnership Agreement shall be distributed within fifteen
days after deposit to CCH, ESCA and Navy II Group, as directed in writing by an
authorized representative thereof.
3. All amounts distributed pursuant to Section 1(a)(i) and Section 2 will
be applied (i) first, to reduce Preferred Return Interest, and (ii) second, to
reduce the Preferred Return.
4. For the purpose of Section 1, ADistribution Condition" means the
generation of Excess Revenues by at least one Project during the Preferred
Return Year.
C-1