Exhibit 10.5(a)
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PURCHASE NOTE AND SECURITY AGREEMENT
(SERIES B)
THIS PURCHASE NOTE AND SECURITY AGREEMENT (SERIES B)
["Agreement"] is entered into as of the 7th day of November, 1985 by and
between ZOND CONSTRUCTION CORPORATION III, a California corporation ("ZCC III"),
and ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-B, a California limited partnership
(the "Debtor"), the general partner of which is Zond Windsystems Management
Corporation IV, a California corporation (the "General Partner").
R E C I T A L S
A. ZCC III and the Debtor have previously entered into a
Windsystem Construction Agreement dated as of September 9, 1985 (the "Series B
Construction Agreement"), pursuant to which ZCC III has agreed to sell to the
Debtor, and the Debtor has agreed to purchase from ZCC III, certain property
more specifically described in paragraphs (a), (b) and (c) of Section 2.2 below
(collectively the "Windsystem"), including up to 240 Vestas Model V17 wind
turbine generators, certain concrete pads, cables and step-up transformers for
said wind turbine generators and a 30 MW power substation. The Windsystem will
be located and operated on certain real property located in Tehachapi, Kern
County, California and more specifically described on the attached Exhibit A
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(the "Operating Site").
B. A portion of the purchase price of the Windsystem will
be evidenced by one or more promissory notes (individually a "Series B Purchase
Note" and collectively the "Series B Purchase Notes"). Certain requirements as
to the content of and security for the Series B Purchase Notes are set forth in
Section 5.2.1 of the Series B Construction Agreement. Subject to and in
accordance with such requirements, ZCC III and the Debtor desire to enter into
this Agreement to provide, among other things, for the making and securing of
the Series B Purchase Notes.
C. ZCC III expects to obtain permanent financing (the "Term
Loan") from one or more lenders (collectively the "Lender") in relation to the
sale of the Windsystem to the Debtor. In connection with the Term Loan, ZCC III
will issue a promissory note (the "Term Loan Note") secured in part by the
Series B Purchase Notes and a collateral assignment of all of ZCC III's right,
title and interest under this Agreement.
NOW, THEREFORE, for and in consideration of the mutual promises
and covenants set forth below, ZCC III and the Debtor agree as follows:
1. Series B Purchase Notes.
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1.1 Form and Content. The Series B Purchase Notes shall, as
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to form and content, conform to the attached Exhibit B, with the blank spaces
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provided to be filled in appropriately.
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1.2 Secured Obligations. The Series B Purchase Notes shall
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be secured as more specifically provided in Section 2 and shall be additionally
secured by a Series B Deed of Trust and Assignment of Rents (the "Deed of
Trust") in the form of the attached Exhibit C, with the blank spaces provided to
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be filled in appropriately.
1.3 Non-Recourse. The Series B Purchase Notes and any and
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all obligations of the Debtor under this Agreement and the Deed of Trust shall
be without recourse to the Debtor, and in the event of any failure by the Debtor
to pay any amount when due or payable (at the stated time of maturity or upon
acceleration or otherwise) under any or all of the Series B Purchase Notes, this
Agreement and/or the Deed of Trust or in the event of the occurrence of an Event
of Default (this and all subsequent references to an Event of Default shall mean
an Event of Default as defined in Section 9.1), ZCC III's sole recourse shall be
to the collateral described in Section 2 and/or in the Deed of Trust and the
Debtor shall in no event be personally liable under the Series B Purchase Note,
this Agreement or the Deed of Trust.
1.4 Unconditional Obligations. All payments to be made
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under the Series B Purchase Notes shall be unconditional, and shall not be
subject to offset, defense or counterclaim for so long as the Series B Purchase
Notes remain outstanding.
2. Security Interests.
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2.1 Grant of Security Interest. The Debtor hereby grants to
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ZCC III, and ZCC III shall have, to secure the Series B Purchase Notes and any
and all payment obligations of the Debtor under this Agreement and the Deed of
Trust, a security interest in the following, to the extent a security interest
may be created in any or all of the following under Division 9 of the California
Commercial Code:
(a) the Windsystem Collateral (as defined in Section
2.2);
(b) the Intangible Collateral (as defined in Section
2.3);
(c) any and all bank accounts from time to time
maintained by the Debtor;
(d) all other personal property, excluding the
Indemnification Rights (as defined in Section 2.3), but including without
limitation all goods, inventory, equipment, accounts, accounts receivable,
contract rights, general intangibles, chattel paper, instruments and documents,
and fixtures, whether presently or hereafter owned by the Debtor, and wherever
located; and
(e) all substitutions and replacements for,
accessions to and proceeds of the foregoing.
2.2 Windsystem Collateral. "Windsystem Collateral" shall
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mean:
(a) all Vestas Model V17 wind turbine generators,
each having a rated capacity of 100 KW and equipped with two generators, a
controller and a
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supporting steel lattice tower, and all other parts or components thereof, sold
by ZCC III to the Debtor under the Series B Construction Agreement (the
"Turbines");
(b) all concrete pads located at the Operating Site,
and all intermediate step-up transformers for use in connection with the
Turbines together with all wire cable for use in connecting such intermediate
step-up transformers to the Turbines, and all parts and components thereof, sold
by ZCC III to the Debtor under the Series B Construction Agreement (the "Turbine
Related Equipment");
(c) the 30 MW power substation located at the
Operating Site, and all parts and components thereof, sold by ZCC III to the
Debtor under the Series B Construction Agreement (the "Power Substation"); and
(d) all insurance proceeds paid or payable to the
Debtor under the insurance policies (other than proceeds of any liability
insurance policies payable to the Debtor) maintained by or for the benefit of
the Debtor with respect to the Turbines, the Turbine Related Equipment, the
Power Substation and any other property of the Debtor.
2.3 Intangible Collateral. "Intangible Collateral" shall
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mean the following (other than any rights of the Debtor set forth in the
below-described agreements to be defended, indemnified or held harmless or to
receive any payments made or to be made pursuant to any obligation to such
effect, all of the foregoing being collectively the "Indemnification Rights"):
(a) the Power Purchase Contract designated Monolith
II (the "Power Agreement") dated June 22, 1984 between Zond Systems, Inc., a
California corporation ("Zond"), and Southern California Edison Company, a
California public utility, as assigned by Zond to the Debtor pursuant to the
Assignment of Power Purchase Contracts (the "Power Assignment") dated as of
September 9, 1985 between Zond and the Debtor, together with the Power
Assignment;
(b) the Windsystem Management Agreement (the "Series
B Management Agreement") dated as of September 9, 1985 between the Debtor and
Zond;
(c) the Series B Construction Agreement;
(d) the Wind Power Generating Facility Warranty
Agreement (the "Warranty Agreement") made by Vestas Energy A/S, a Danish
corporation, in favor of one or more purchasers to be subsequently designated,
as referred to in the Series B Construction Agreement;
(e) the Assignment (the "Warranty Assignment") dated
as of September 9, 1985 between ZCC III and the Debtor, by which ZCC III
assigned to the Debtor certain representations and warranties of Zond contained
in the Construction Agreement dated as of September 9, 1985 between Zond and ZCC
III;
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(f) the 1985 Tower Warranty executed by Vestas North
America Limited, a California corporation, in favor of the Debtor;
(g) the Series B Wind Park Easement Agreement (the
"Series B Easement Agreement") dated as of September 9, 1985 between the Debtor
and ZCC III;
(h) the Grant of Easement (Western Access) (Series
B) [the "Series B Access Easement"] dated as of September 9, 1985 between Zond
and the Debtor;
(i) the Grant of Easement (Interconnect) (Series B)
[the "Series B Interconnect Easement] dated as of September 9, 1985 between Zond
and the Debtor;
(j) the Series B Power Transfer Facilities Agreement
dated as of September 9, 1985 between Zond and the Debtor;
(k) the Non-Disturbance Agreement dated as of
September 9, 1985 between Zond and the Debtor;
(l) any and all payments or monies (other than
payments or monies received pursuant to any Indemnification Rights) received or
to be received under any of the foregoing, including without limitation any and
all proceeds from the sale of electricity under the Power Agreement as assigned
to the Debtor by the Power Assignment;
(m) any additional agreements to which the Debtor is
a party, or warranties assigned or running to the Debtor, and which relate to
the ownership and operation of the Windsystem; and
(n) any replacements, substitutions, modifications,
amendments or proceeds of any of the foregoing.
2.4 No Assumption. The grant of the security interests
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provided for in Section 2.1 and the exercise by ZCC III of any of its rights and
remedies under this Agreement, the Deed of Trust or otherwise do not and shall
not constitute, and shall not be construed to constitute, an assumption by or
transfer to ZCC III of any obligations of the Debtor, or any other party, under
any of the agreements included in the Intangible Collateral, or any other
agreements to which the Debtor is a party, all of which shall continue to be
obligations of the Debtor and such other parties, respectively.
2.5 No Merger. Neither the Debtor's grant of a security
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interest to ZCC III under Section 2.1 or the Deed of Trust in any agreement to
which ZCC III is also a party, including without limitation the Series B
Construction Agreement, the Warranty Assignment and the Series B Easement
Agreement, nor the exercise by any assignee or successor of the Debtor with
respect to any rights under this Agreement, the Deed of Trust or otherwise
relating to any such security interest, shall constitute a merger of the
interests in such agreement or otherwise result in any extinguishment or
termination of any such agreement.
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3. Representations and Warranties.
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In order to induce ZCC III to enter into this Agreement and to
accept the Series B Purchase Notes in partial payment of the purchase price of
the Windsystem, the Debtor represents and warrants to ZCC III that:
3.1 Organization and Powers. The Debtor is a limited
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partnership duly organized and validly existing under the laws of the State of
California, has full power to own its properties and to conduct its business as
now being conducted and is in good standing in each jurisdiction in which the
character of its business or its ownership of property so requires. The Debtor
has and will have full power, authority and legal right to execute, deliver and
perform its obligations under the Series B Purchase Notes, this Agreement and
the Deed of Trust and to grant the security interests granted under this
Agreement and the Deed of Trust.
3.2 Authorization; Absence of Conflicts; Approvals. The
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execution, delivery and performance by the Debtor of the Series B Purchase
Notes, this Agreement and the Deed of Trust (a) have been duly authorized by all
requisite action of the Debtor and the General Partner, (b) will not (i) violate
the Debtor's partnership agreement or any provision of any law or any
governmental or agency rule or regulation applicable to it, (ii) violate or
constitute a default under any indenture, agreement, license or other instrument
to which the Debtor or the General Partner is a party or by which the Debtor or
the General Partner or any of their respective properties may be bound, (iii)
violate any order of any court, tribunal or governmental agency binding upon the
Debtor or the General Partner or their respective properties, or (iv) result in
the creation of any lien of any nature whatsoever upon any properties or assets
of the Debtor or the General Partner, except as contemplated or permitted
hereby, and (c) do not require any license, consent or approval of any
governmental agency or regulatory authority.
3.3 Binding Obligations. This Agreement constitutes, and
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upon execution and delivery by the Debtor the Series B Purchase Notes and the
Deed of Trust will constitute, legal, valid, and binding obligations of the
Debtor enforceable against the Debtor in accordance with their respective terms.
3.4 Litigation. There are no actions, suits, proceedings
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(including proceedings by or before any arbitrator or administrative agency)
pending or, to the knowledge of the Debtor, threatened against the Debtor or the
General Partner which, if adversely determined, would have a material adverse
affect on the financial condition or business of the Debtor.
3.5 Conflicting Agreements. Neither the Debtor nor the
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General Partner is a party to any agreement or instrument that adversely affects
the operation or nature of the Debtor's business, property or assets or its
ability to perform its obligations under the Series B Purchase Notes, this
Agreement or the Deed of Trust. Neither the Debtor nor the General Partner is in
default under any agreement for borrowed money or under any other material
agreement in any manner which would materially adversely
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affect Debtor's ability to perform its obligations under the Series B Purchase
Notes, this Agreement or the Deed of Trust.
3.6 Public Utility Regulation. Neither the execution or
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delivery of the Series B Purchase Notes, this Agreement and/or the Deed of
Trust, nor the due performance by any of the parties thereto of their respective
obligations thereunder, nor the proper exercise of any of their rights
thereunder, will, solely as a result thereof, cause ZCC III to become subject to
regulation as a public utility under the Federal Power Act, as amended, or to be
an "electric utility company" or a "holding company" as defined in the Public
Utility Holding Company Act of 1935, as amended. No orders, approvals or filings
are necessary to prevent classification under Federal law of ZCC III as a public
utility, electric utility company or holding company.
3.7 Security Interests. The security interests granted
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under this Agreement will, upon attachment and proper filing of appropriate UCC
financing statements with the Office of the California Secretary of State in
Sacramento, California, appropriate UCC fixture filings in the Office of the
County Recorder of Kern County, California and appropriate UCC transmitting
utility filings with the Office of the California Secretary of State,
Sacramento, California and proper giving of appropriate notices to the
organizations with which the Debtor's bank accounts are at any time maintained
and the issuers of any insurance policies maintained by or for the benefit of
the Debtor with respect to the Windsystem (such filings and notices being a
condition to ZCC III's taking of any Series B Purchase Note as more specifically
provided in Section 4.2), (i) be perfected under the California Commercial Code
(the "UCC"), (ii) be entitled to all of the rights, benefits and priorities
provided by the UCC, as applicable, and (iii) be first in priority and superior
to all other security interests and liens of third parties arising under the
UCC, whether presently existing or hereafter arising, in the same collateral.
4. Conditions Precedent.
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The obligation of ZCC III to take a Series B Purchase Note as
partial payment under the Series B Construction Agreement (each date on which
the Debtor delivers a Series B Purchase Note to ZCC III being a "Closing") is in
each instance subject at the time of delivery of any such Series B Purchase
Note, to the satisfaction of the following conditions:
4.1 Agreements in Full Force and Effect. Prior to the
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issuance of the initial Series B Purchase Note, the Debtor shall have executed
the Deed of Trust and recorded same in the office of the county recorder of Kern
County, California, and the Deed of Trust and this Agreement shall be in full
force and effect.
4.2 Filings and Recordings. Prior to the issuance of the
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initial Series B Purchase Note, all filings, recordings, notices and actions as
may be required by law to establish, perfect, preserve and protect ZCC III's
rights in and to the collateral covered by this Agreement and the Deed of Trust
shall have been made, given or taken, it being understood that any filing or
recording fees incurred in connection therewith shall be for the account of ZCC
III.
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4.3 Series B Purchase Note. The Series B Purchase Note
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delivered to ZCC III shall be signed by the Debtor and shall conform to the
attached Exhibit B, with the blank spaces filled in appropriately.
4.4 No Default. At the time of each Closing there shall
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exist no Event of Default described in Section 9.1(a) with respect to any Series
B Purchase Note previously delivered by the Debtor to ZCC III.
4.5 Representations and Warranties. At the time of each
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Closing, and immediately after giving effect thereto, all representations and
warranties contained herein, in the Deed of Trust or otherwise made in writing
by the Debtor in connection herewith or therewith shall be true and correct in
all material respects with the same force and effect as though such
representations and warranties had been made on and as of such time.
4.6 Representative's Certificate. At the time of each
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Closing, there shall have been delivered to ZCC III a certificate, dated as of
the date of such Closing, signed by an authorized representative of the General
Partner to the effect set forth in Sections 4.4 and 4.5.
4.7 Cash Reserve. At the time of each Closing, the Debtor
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shall have funded the Cash Reserve (as defined in Section 5.1) in the amount of
$6,325 per Turbine purchased at such Closing.
4.8 ZCC III as Designated Purchaser. At the time of each
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Closing, Vestas North America Limited shall have provided to ZCC III a writing
in which it designates ZCC III and its successors and assigns as a "Designated
Purchaser" under the Warranty Agreement with respect to the Turbines involved in
such Closing, which designation is made effective as of the date on which ZCC
III takes possession of such Turbines upon the occurrence and continuance of an
Event of Default.
4.9 Title Insurance. Prior to the issuance of the initial
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Series B Purchase Note, the Debtor shall have caused to be issued to ZCC III a
lender's policy of title insurance issued by Ticor Title Insurance Company of
California ("Ticor") insuring that the Debtor is the owner of the grantee's
rights under the Series B Easement Agreement, the Series B Access Easement and
the Series B Interconnect Easement and that ZCC III has a lien thereon under the
Deed of Trust subject to such exceptions as ZCC III may approve, which policy of
title insurance shall be on Ticor's standard form and be for an amount not to
exceed $5,000,000.
5. Cash Reserve.
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5.1 Cash Reserve Account. The Debtor shall establish a cash
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reserve depositary trust account and maintain in such account a cash reserve
(the "Cash Reserve") for use in accordance with Section 5.3.
5.2 Minimum Reserve Level. The "Minimum Reserve Level" of
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the Cash Reserve at any particular time shall mean an amount equal to (a) the
number of
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Turbines then owned by the Debtor, which number shall include any Turbines which
have been damaged or destroyed by an Insured Property Loss (as defined in
Section 6.5) and as to which the Debtor, pursuant to the applicable provisions
of Section 6.5 and within the 60 day period provided therein, has either elected
or may elect to make replacement or repair, multiplied by (b) $6,325. In the
event the Debtor makes any payments from the Cash Reserve as permitted under
Section 5.3, replenishment of the Cash Reserve to the Minimum Reserve Level
shall not be required; provided, however, that at any time the amount of the
Cash Reserve is less than the Minimum Reserve Level, the Debtor shall be subject
to the distribution restrictions set forth in Section 7.8.
5.3 Permitted Disbursement. The Debtor shall make payments
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from the Cash Reserve solely for the following purposes (but not necessarily in
the following order): (a) making payments under the Series B Purchase Notes,
this Agreement and the Deed of Trust; (b) performing necessary repair and
maintenance on the Windsystem; (c) paying real property taxes and assessments;
and (d) paying insurance premiums on the insurance polices required by Section
6.
6. Insurance.
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6.1 Existing Policies. The Debtor presently maintains or is
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a named insured under the insurance policies (individually an "Existing Policy,"
and collectively the "Existing Policies") described on the attached Exhibit D.
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6.2 Obligation to Maintain Insurance. The Debtor shall
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maintain or remain as a named insured under the Existing Policies or under such
other insurance policies (collectively with the Existing Policies, the
"Insurance Policies") as are substantially similar to the Existing Policies in
all respects, including without limitation insured risks, coverage amounts,
excluded risks and deductible amounts, and as are issued by insurance companies
reasonably acceptable to ZCC III; provided, however, that the Debtor shall not
be obligated to renew any windsystem performance policies, or renewals thereof,
included in the Insurance Policies which expire at any time after the elapse of
five years from the date of this Agreement if at the time of such expiration the
following conditions are satisfied: (a) no Event of Default has occurred and is
then continuing, and (b) the amount of the Cash Reserve is equal to or greater
than the Minimum Reserve Level. ZCC III shall be a named insured under each of
the Insurance Policies, and the Insurance Policies shall not be cancellable for
nonpayment of premiums other than as provided therein. Upon demand by ZCC III at
any time, the Debtor shall furnish proof of compliance with the requirements of
this Section 6.
6.3 Insurance Certificate. Within 90 days after the close
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of each fiscal year of the Debtor, the Debtor shall furnish to ZCC III a letter
from Marsh & McClennan (or such other insurance broker of nationally recognized
standing as the Debtor may retain from time to time) describing the insurance
coverage as then in effect under the Insurance Policies and certifying that such
coverage is in compliance with the requirements of Section 6.2.
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6.4 Notices and Claims. The Debtor shall promptly furnish
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to ZCC III copies of any notice relating to any of the Insurance Policies and
received by the Debtor from any of the issuers of any of the Insurance Policies.
The Debtor shall promptly file all necessary claims under the Insurance Policies
after consultation with ZCC III and in accordance with all of the applicable
terms and conditions of such Insurance Policies. The Debtor and ZCC III agree to
cooperate to the extent reasonably necessary in the preparation and verification
of such claims.
6.5 Use of Insurance Proceeds. All insurance proceeds in
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excess of $50,000 per loss occurrence paid to the Debtor in respect of a loss
claimed or for which a claim can be made under any property damage policy or
policies or the property loss (whether or not by casualty) coverage provisions
of any windsystem performance policy or policies maintained by or for the
benefit of Debtor (an "Insured Property Loss") shall be used by the Debtor in
accordance with the following:
(a) Upon the occurrence of an Insured Property Loss
in respect of which insurance proceeds are received by the Debtor in excess of
$50,000, the Debtor may elect to replace or repair any property with respect to
which such proceeds were paid by so notifying ZCC III within 60 days after
receipt of such payment, and upon making such election shall have 320 days to
complete the replacement or repair of such property.
(b) If the Debtor does not elect to replace or
repair all or any Turbines included in such property within such 60 day period,
the Debtor shall prepay the Series B Purchase Notes in an amount which bears the
same proportion to the then outstanding principal balance of the Series B
Purchase Notes plus accrued interest thereon as the rated capacity of all
Turbines damaged by such Insured Property Loss and which the Debtor does not so
elect to repair or replace, bears to the total rated capacity of all Turbines
(including such damaged Turbines) then owned by the Debtor. The amount of any
such prepayment shall be allocated among the Series B Purchase Notes in
proportion to their respective unpaid balances of principal and accrued
interest. Any such prepayment shall be applied pro rata or as otherwise required
by applicable tax law or regulation to each outstanding installment so as to
maintain the level payment character of the Series B Purchase Notes.
(c) In the event that the Debtor makes an election
to replace or repair as provided for in paragraph (b) of this Section 6.5, such
proceeds shall be applied to the costs of replacement or repair as such costs
are incurred by the Debtor, with the remaining balance, if any, applied to
prepay the Series B Purchase Notes.
7. Certain Covenants.
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The Debtor covenants and agrees with ZCC III as follows:
7.1 Type of Business. The Debtor shall not enter into any
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business other than as contemplated by the Debtor's Confidential Private
Placement Memorandum dated September 25, 1985 (the "Offering Memorandum").
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7.2 Preservation of Existence. The Debtor shall not
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liquidate, wind up or dissolve its affairs, and shall maintain and preserve its
existence and its right to carry on its business as contemplated by the Offering
Memorandum and duly procure all necessary renewals and extensions thereof, and
use reasonable efforts to maintain, preserve and renew all necessary rights,
powers, privileges and franchises, including without limitation the rights
granted to the Debtor under the Intangible Collateral.
7.3 Sale of Assets, Etc.. The Debtor shall not convey,
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sell, lease or otherwise dispose of (or agree to do any of the foregoing at any
future time) all or any portion of the Windsystem (other than any property
included in the Windsystem which sustains major damage and which the Debtor does
not choose to repair or replace) or all or substantially all its property or
assets, or any part of such property or assets essential to the conduct of its
business as contemplated by the Offering Memorandum.
7.4 Compliance with Laws, Agreements, Etc. The Debtor shall
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comply with all applicable laws, statutes and regulations in respect of the
conduct of its business. Without limiting the generality of the foregoing, the
Debtor shall cause the Windsystem to be operated in compliance with (a) all
applicable laws, ordinances, rules and regulations of Federal, state, county or
municipal governments or agencies now in force or that may be enacted hereafter
(including, without limitation, environmental and land use legislation), (b) all
applicable requirements of the Intangible Collateral and the Insurance Policies
and (c) the operations and maintenance manuals supplied by Vestas Energy A/S, a
Danish corporation.
7.5 Investments. The Debtor shall not invest in (by capital
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contribution or otherwise), suffer to exist any investment in, or acquire or
purchase or make any commitment to purchase the obligations or capital stock of,
or other indicia of equity rights in, any individual, firm, corporation,
association, trust or other enterprise or any governmental or political
subdivision or agency, department or instrumentality thereof (collectively, a
"Person"), except (a) the purchase of direct or indirect obligations of the
Government of the United States of America with remaining terms of less than one
year, (b) certificates of deposit maturing no more than one year from the date
of issue and issued by banks organized under the laws of the United States or
any State thereof having a capital surplus and undivided profits of not less
than $100,000,000 and the senior debt of which is rated at least "Al" by
Standard and Poor's Corporation or Moody's Investor Services, Inc. and (c)
commercial paper of domestic corporations having the highest rating of both
Standard & Poor's Corporation and Moody's Investor Services, Inc.
Notwithstanding the foregoing, the provisions of this Section 7.5 shall not
apply with respect to any funds of the Debtor deposited in the Partnership Trust
Account (as defined and referred to in the Depository Trust Agreement dated as
of September 25, 1985 between Manufacturers Hanover Trust Company and the Debtor
[the "Depository Trust Agreement"]) pursuant to the Depository Trust Agreement.
7.6 Bank Accounts. The Debtor shall maintain all of its
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trust and depositary accounts with banks whose certificates of deposit would be
permitted investments of the Debtor under Section 7.5.
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7.7 Guarantees and Other Liabilities. The Debtor shall not
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purchase or repurchase (or agree, contingently or otherwise, so to do) the
indebtedness of, or assume, guarantee (directly or indirectly or by an
instrument having the effect of assuring another's payment or performance of any
obligation or capability of so doing, or otherwise), endorse or otherwise become
liable, directly or indirectly, in connection with the obligations, stock or
dividends of any Person, except
(a) by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business;
(b) as permitted under Section 7.5;
(c) trade obligations incurred in the ordinary
course of business and in an aggregate amount outstanding at any one time not to
exceed $750,000; and
(d) advances from the General Partner or any
affiliate of Zond (other than by ZCC III pursuant to Section 13), provided that
such advances are specifically acknowledged to be subordinate in right of
payment to the Series B Purchase Notes.
7.8 Distributions. The Debtor shall not make any
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distributions (whether of earnings or of capital and whether in the form of cash
or of property) to any of its partners when (a) an Event of Default has occurred
and is continuing or will occur upon giving effect to such distribution, (b) the
Cash Reserve balance is less than the Minimum Reserve Level or (c) the Debtor
has not reimbursed ZCC III for amounts outstanding and reimbursable by the
Debtor under Section 13. Distributions (if any) to partners of the Debtor shall
be made annually within 90 days after the anniversary date of the issuance of
the first Series B Purchase Note.
7.9 ERISA. The Debtor shall not establish, maintain or
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contribute to any plan to which Title IV of ERISA applies.
7.10 Limitation on Actions Affecting Public Utility
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Regulation. The Debtor shall not take or omit to take any action in respect of
- ----------
its business if, solely as a consequence of such action or omission, ZCC III
becomes subject to regulation under, or is considered to be an "electric utility
company" or a "holding company" as defined in the Public Utility Holding Company
Act of 1935, as amended, or any laws or regulations of the State of California
regarding public utilities.
7.11 Reports, Notices and Certificates. The Debtor shall
---------------------------------
furnish to ZCC III:
(a) promptly after the filing thereof, and in any
event within 90 days after the end of the applicable quarter with respect to
quarterly reports and within 120 days after the end of the applicable year
period with respect to annual reports, a copy of any report filed by the Debtor
with the Securities and Exchange Commission pursuant to Section 13(a) of the
Securities Exchange Act of 1934, as amended;
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(b) within 120 days after the end of each fiscal
year of the Debtor, copies of the Debtor's financial statements for and as at
the close of such fiscal year, audited by the Debtor's independent certified
public accountants (who shall be an accounting firm of nationally recognized
standing selected by the Debtor and reasonably satisfactory to ZCC III), a copy
of the auditors report with respect to such financial statements and a
certificate of such auditors certifying that in making such audit they have
obtained no knowledge of the existence of any Event of Default or, if in the
opinion of such accountants any such Event of Default exists, specifying the
nature and status thereof;
(c) concurrently with the materials to be furnished
under paragraph (b) above, a certificate signed by the Chief Financial Officer
of the General Partner to the effect that after due inquiry he has no knowledge
of the occurrence and continuance of an Event of Default, or a description of
any Event of Default as to which he has such knowledge and a statement as to
what the General Partner proposes to do to resolve such Event of Default;
(d) promptly after becoming aware thereof, notice of
the following: the occurrence of any material casualty loss; the occurrence of
any Event of Default, the nature and period of existence thereof and the action
which the Debtor pro-poses to take with respect thereto; any meritorious action,
proceeding or claim which is not fully covered by insurance and which has been
commenced or asserted against the Debtor or any of its assets, and any dispute
between the Debtor and any governmental regulatory body which, in any case,
would materially adversely affect the operations, business, assets or condition
(financial or otherwise) of the Debtor; and
(e) promptly after delivery or receipt thereof,
copies of all material documents, notices and other papers furnished by or to
the Debtor under the agreements included in the Intangible Collateral (including
but not limited to copies of the quarterly reports rendered to the Debtor under
the Series B Management Agreement).
7.12 Inspection of Books and Assets. The Debtor shall allow
------------------------------
any representative of ZCC III to visit and inspect, upon reasonable telephonic
notice to the Debtor, the Debtor or any of its properties, to examine its books
of record and account and to discuss its affairs, finances and accounts with its
officers, all at such reasonable times and as often as ZCC III may reasonably
request.
7.13 No Impairment. The Debtor shall not take any action
-------------
which will materially impair in any way the value of the Windsystem Collateral
or the Intangible Collateral (provided, that the Debtor shall have no obligation
to upgrade or maintain the Windsystem except to the extent covered, and in
accordance with, the operations and maintenance manual supplied by Vestas Energy
A/S, a Danish corporation), or operate the Windsystem contrary to the manner
contemplated by the Offering Memorandum.
7.14 Amendments to Documents. The Debtor shall not amend,
-----------------------
modify, change, terminate or permit to be terminated any of the agreements
included in Intangible Collateral or waive any of its rights thereunder, without
the prior written consent of ZCC
12
III (which consent shall not be unreasonably withheld) other than in the
ordinary course of administering the Windsystem.
7.15 Payment of Charges. The Debtor shall pay and discharge
------------------
all taxes (other than sales taxes payable by ZCC III with respect to the
Windsystem in connection with the sale of the Windsystem to the Debtor),
assessments and governmental charges or levies imposed upon it or its property
or assets, prior to the date on which penalties attach thereto, and lawful
claims which, if unpaid, might become a lien upon its property or assets not
permitted or contemplated hereby, provided that the Debtor shall not be required
to pay any such tax, assessment, charge, levy or claim which is being contested
in good faith and by proper proceedings if adequate reserves with respect
thereto have been set up by the Debtor.
7.16 Permitted Liens. The Debtor shall maintain its assets
---------------
and properties free and clear from any and all claims, liens, security
interests, encumbrances, rights or interests of any third parties arising by,
through or under the Debtor, except for the following (collectively the
"Permitted Liens"):
(a) any security interests created under this
Agreement or the Deed of Trust;
(b) liens for taxes, assessments and other
governmental charges either not yet payable or being contested by the Debtor in
good faith;
(c) mechanics liens, materialmans liens or similar
liens which are inchoate, or which are being contested by the Debtor in good
faith and which shall either have been removed within 30 days or have been
bonded against in an amount reasonably satisfactory to ZCC III; and
(d) other liens or encumbrances which do not arise
in connection with the borrowing of money by the Debtor and which do not
materially impair any of the Windsystem Collateral or the Intangible Collateral
or materially interfere with the use and operation of the Windsystem, or which
are specifically listed in title insurance policy exceptions approved by ZCC III
pursuant to Section 4.9.
7.17 Location of Windsystem. The Windsystem shall at all
----------------------
times be located at the Operating Site.
7.18 Chief Executive Office. The chief executive office of
----------------------
the Debtor is presently located at 112 South Curry Street, Tehachapi, California
93561. The Debtor shall give ZCC III prompt written notice, and if at all
possible at least 30 days' prior written notice, of any change in location of
the Debtor's chief executive office, and in any event shall take such steps in
connection with any such change as ZCC III may reason-ably require to maintain
perfection of the security interests granted under this Agreement.
8. Filings and Further Assurances.
------------------------------
13
8.1 Filings. At the request of ZCC III, the Debtor shall
-------
promptly sign and deliver to ZCC III such financing statements, fixture filings
and UCC-2 forms, or forms similar thereto, all in a form acceptable to ZCC III,
as ZCC III reasonably deems necessary to perfect and maintain perfection of the
security interests granted under this Agreement.
8.2 Further Assurances. The Debtor shall perform all acts,
------------------
do all things and make, execute and endorse all additional and further
documents, assurances and instruments as ZCC III may reasonably require to
assure to ZCC III the rights granted to ZCC III under this Agreement.
9. Events of Default and Acceleration.
----------------------------------
9.1 Events of Default. The occurrence of any or all of the
-----------------
following shall constitute an event of default (each an "Event of Default")
under this Agreement:
(a) the Debtor shall fail to pay when due any
installment of principal or interest under any of the Series B Purchase Notes,
or the Debtor shall have asserted and be continuing to assert against ZCC III
any offset, defense or counterclaim in respect of any amounts owing under the
Series B Purchase Notes;
(b) any representation of the Debtor made in this
Agreement shall prove to have been untrue in any material respect when made and
shall continue to be untrue and material at the time an Event of Default is
declared based thereon;
(c) the Debtor shall have breached any of the
provisions of, or shall have failed to perform any of the obligations to be
performed by Debtor under, Section 6.2, 7.1, 7.2, 7.7, 7.8, 7.13, 7.14 or 7.16,
which breach or failure to perform shall be continuing;
(d) the Debtor shall fail to pay any amounts due
hereunder or under any Series B Purchase Note (other than the payment of
installments of principal or interest under any Series B Purchase Note) or
breach any of the provisions of, or fail to perform any of the obligations to be
performed by the Debtor under, any Section of this Agreement other than the
Sections listed in paragraph (c) above, and, within 30 days after ZCC III's
written notice thereof to the Debtor, the Debtor shall have failed to cure such
breach or default in performance or, if such breach or default is incapable of
cure within 30 days, the Debtor shall fail to promptly commence and diligently
proceed to cure such breach or default as promptly as possible;
(e) the occurrence and continuance of any default
(as provided specifically in Section 4.01(b) of the Deed of Trust, and which is
not cured within any applicable cure period) under the Deed of Trust;
(f) any involuntary dissolution proceeding shall be
commenced against the Debtor which shall not have been dismissed within 60 days
from the institution thereof; or a voluntary dissolution proceeding shall be
commenced by the Debtor;
14
(g) any receiver, liquidator or trustee shall be
appointed for the Debtor or any substantial portion of its properties or assets
which appointment shall not have been terminated within 60 days;
(h) the Debtor shall become insolvent, or shall make
a general assignment for the benefit of creditors, or shall be unable, or shall
admit in writing its inability, to pay its debts as they fall due; or
(i) any bankruptcy, reorganization or other
proceeding shall be commenced by or against the Debtor under any bankruptcy,
insolvency or other laws for the relief of debtors which in the case of such a
proceeding commenced against the Debtor shall not have been dismissed within 60
days from the institution thereof.
9.2 Acceleration of the Notes. Upon the occurrence and
-------------------------
continuance of any Event of Default, ZCC III may, by giving written notice to
the Debtor, accelerate and declare immediately due and payable the outstanding
principal balance of, and interest accrued thereon at the applicable rate of
interest specified in the Series B Purchase Notes, all of the Series B Purchase
Notes, and such principal and interest shall thereupon be immediately due and
payable without presentment, demand, protest or notice of any other kind, all of
which are hereby waived by the Debtor to the fullest extent permitted by law;
provided, however, such acceleration shall occur automatically and without
notice in the event of the occurrence of the Events of Default specified in
paragraphs (f), (g), (h) or (i) of Section 9.1.
10. Remedies on Default.
-------------------
Upon the occurrence of any Event of Default, or at any time
thereafter if such Event of Default shall be continuing, ZCC III shall have, in
addition to and without limiting any other rights and remedies it may have under
the Series B Purchase Notes, this Agreement, the Deed of Trust or as may
otherwise be available at law or in equity, all of the following rights and
remedies, subject, however, to the limitations of Section 11:
10.1 Rights of Secured Party. ZCC III shall have all of the
-----------------------
rights and remedies of a secured party under the Commercial Code of California
and, as applicable, under the Uniform Commercial Code as adopted in any other
jurisdiction.
10.2 Possession of Windsystem. ZCC III shall have the right
------------------------
to take possession of all or any part of the Windsystem, wherever located, or by
appropriate proceedings, appoint a receiver to take possession thereof pending
disposition and, at the option of ZCC III, remove all or any part of the
Windsystem from such location. If ZCC III chooses to dispose of all or any part
of the Windsystem at and from such location, ZCC III may render all or any part
of the Windsystem unusable pending such disposition.
10.3 Delivery of Windsystem to ZCC III. ZCC III shall have
---------------------------------
the right to require the Debtor to assemble and deliver, at the Debtor's
expense, all or any part of the Windsystem to ZCC III at the Operating Site.
15
10.4 Disposition of Windsystem by ZCC III. ZCC III may,
------------------------------------
without any obligation to resort to other security, at any time and from time to
time, but only after ZCC III has given to the Debtor not less than ten days
written, telegraphic or telex notice of its intention to dispose of all or any
part of the Windsystem, lease all or any part of the Windsystem on such terms
and in such manner as it deems appropriate, or sell, resell, transfer, assign,
dispose of, and deliver all or any part of the Windsystem at the same or
different times, and all right, title and interest therein, at public or private
sale, for cash, upon credit or for future delivery, and at such price or prices
and on such terms as ZCC III may determine, with the amounts realized from any
such sale to be applied in the manner provided in Section 12 of this Agreement.
10.5 Rights Related to Disposition. In connection with any
-----------------------------
disposition of all or any part of the Windsystem by ZCC III, whether pursuant to
judicial or non-judicial foreclosure, ZCC III may do the following:
(a) bid for the purchase of all or any part of the
Windsystem, and by such purchase acquire absolute right, title and interest
therein; and
(b) for itself and for and on behalf of the Debtor,
make and deliver to any purchaser of all or any part of the Windsystem a good
and sufficient bill of sale or other evidence of transfer of all right, title
and interest therein to such purchaser.
10.6 Effect of Disposition. Any disposition of the
---------------------
Windsystem pursuant to Section 10.4 shall divest all of the Debtor's right,
title and interest therein, and shall perpetually bar the Debtor and its
successors and assigns, and any other party claiming through any of them, from
making any claims or demands with respect thereto.
10.7 Collection of Monies. ZCC III shall have the right to
--------------------
notify or require the Debtor to notify any party obligated to make payments to
the Debtor (to the extent such payments are subject to the security interests
granted under this Agreement) under any of the agreements included in the
Intangible Collateral to make such payments directly to ZCC III or to such
special account of ZCC III or otherwise as may be established for collection of
such payments, and shall have the further right to require the Debtor to
promptly turn over to ZCC III any monies or instruments, such instruments to be
appropriately endorsed over to ZCC III, received by the Debtor as or for any
such payments. For purposes only of exercising ZCC III's rights under this
Section 10.7, the Debtor hereby authorizes ZCC III, as the Debtor's duly
constituted attorney-in-fact, to endorse any instruments payable to the Debtor
and received by ZCC III under this Section 10.7.
10.8 Further Assurances. The Debtor shall perform all acts,
------------------
do all things and make, execute and endorse all additional and further
documents, assurances and instruments as ZCC III may reasonably require to
enforce its rights and remedies under this Section 10.
10.9 Waiver of Notices, Etc. Except as to the notice of
-----------------------
intent to sell required under Section 10.4, the Debtor may exercise any of its
rights under this Section
16
10 without demand, advertisement or notice (except as required by law), all of
which (to the extent permitted by law) are hereby expressly waived by the
Debtor.
11. Limitations on Remedies.
-----------------------
11.1 Retention of Windsystem. ZCC III may not retain (other
-----------------------
than pursuant to Section 10.5(a)) all or any part of the Windsystem in exchange
for the release or cancellation of any or all of the Series B Purchase Notes
without the prior written consent of the Debtor.
11.2 Return of Windsystem. In the event that ZCC III takes
--------------------
possession of all or any part of the Windsystem pursuant to Section 10 and,
prior to any sale or other permanent disposition thereof, or the making of any
binding commitment or agreement to make such sale or permanent disposition, is
paid indefeasibly by the Debtor all amounts owed by the Debtor under the Series
B Purchase Notes, this Agreement and the Deed of Trust, ZCC III shall promptly
assign to the Debtor all of its right, title and interest therein on a where is
and as is basis, and permit the Debtor to retake possession.
12. Application of Monies.
---------------------
12.1 Order of Application. Subject to Section 12.2, any
--------------------
monies received by ZCC III upon exercising any of its rights under Section 10
shall be applied, to the extent available, first, to the payment of all costs
(including reasonable attorneys' fees) properly incurred by ZCC III and
allocable to enforcement and collection of amounts due under the Series B
Purchase Notes and under this Agreement; second, to the payment of accrued and
unpaid interest under the Series B Purchase Notes; and third, to the payment of
the outstanding principal balance of the Series B Purchase Notes.
12.2 Proceeds as to Turbines. Any proceeds realized by ZCC
-----------------------
III on the disposition of any of the Turbines pursuant to Section 10.4 shall be
applied only to obligations under the Series B Purchase Note issued with respect
to such Turbines.
12.3 Surplus/Deficiency. Any surplus of monies remaining
------------------
after application pursuant to Section 12.1 shall be promptly paid over to the
Debtor or such other persons as may be legally entitled to receive the same. In
no event shall the Debtor be liable for any deficiency.
13. Payments on Behalf of the Debtor.
--------------------------------
ZCC III shall be entitled to pay such sums for the account and
at the expense of the Debtor as may be necessary to cure any breaches by the
Debtor which are occasioned by the failure of Debtor to pay when due (a) the
amount of premiums due under the Insurance Policies, or (b) amounts required to
be paid by it pursuant to the Series B Easement Agreement or the Series B
Management Agreement. Debtor agrees that it will reimburse ZCC III for such
sums, together with interest thereon at a rate equal to 15% per annum from the
date of payment by ZCC III to the date of reimbursement by the Debtor, prior to
the Debtor making any distribution of cash or property to its partners.
17
14. Miscellaneous.
-------------
14.1 Assignment and Transfer to Other Parties. The Debtor
----------------------------------------
shall not transfer or assign any of its rights or delegate any of its duties
under this Agreement without the prior written consent of ZCC III. The Debtor
hereby expressly agrees that ZCC III may assign to the Lender, or any trustee
for the Lender, to secure the Term Loan Note and all of the obligations of ZCC
III to the Lender in connection with the Term Loan, all of ZCC III's right,
title and interest in to, and under the Series B Purchase Notes, this Agreement
and the Deed of Trust. The Debtor shall provide such reasonable cooperation as
may be required to facilitate issuance of the Term Loan Note, which cooperation
shall include, but not be limited to, the extension of reasonable
representations and warranties to the Lender, or any trustee for the Lender.
14.2 Notices. Any notice permitted or required to be given
-------
to either party shall be deemed to have been given upon personal delivery or on
the second business day after the date of deposit in the United States mail,
first-class registered or certified, postage prepaid, to the following
addresses, or to such other address of which notice has been given as provided
by this Section 14.2:
To the Debtor: Zond Windsystem Partners, Ltd. Series 85-B,
a California Limited Partnership
c/o Zond Windsystems Management Corporation IV
112 South Curry Street
Tehachapi, California 93561
Attention: Kenneth C. Karas
To ZCC III: Zond Construction Corporation III
112 South Curry Street
Tehachapi, California 93561
Attention: Kenneth C. Karas
and, until the first to occur of (a) the payment in full of all amounts due
under the Series B Purchase Notes, this Agreement and the Deed of Trust or (b)
the payment in full of all amounts due to the Lender pursuant to the Term Loan
Note or in connection with the Term Loan, a copy to the Lender, as and at the
address designated by ZCC III to the Debtor.
14.3 Waiver. Neither party hereto shall be deemed to have
------
waived any of its rights or remedies hereunder unless such waiver be in writing
and signed by said party or its duly authorized representative, and then only to
the extent specifically set forth therein. A waiver on one occasion shall not be
construed as continuing or as a bar to or waiver of any right or remedy on any
other occasion.
14.4 Attorneys' Fees. If either the Debtor or ZCC III brings
---------------
any action or proceeding for the enforcement, protection or establishment of any
right or remedy under this Agreement or for the interpretation of this
Agreement, the prevailing party
18
shall be entitled to recover its reasonable attorneys' fees and costs in
connection with such action or proceeding, whether or not taxable, as awarded by
the trier of fact in such action or proceeding.
14.5 No Partnership, Etc. Nothing in this Agreement shall be
--------------------
deemed to constitute the Debtor or ZCC III a partner of, or joint venturer with,
the other.
14.6 Binding Effect. This Agreement shall be binding upon
--------------
the Debtor and ZCC III and their respective permitted assignees,
successors-in-interest and legal representatives.
14.7 Governing Law. The terms and provisions of this
-------------
Agreement shall be construed in accordance with the laws of the State of
California.
14.8 Interpretation. The Debtor and ZCC III agree that the
--------------
terms and provisions of this Agreement embody their mutual intent and that they
are not to be construed more liberally in favor of, nor more strictly against,
either of them.
14.9 Partial Invalidity. If any term or provision of this
------------------
Agreement, or the application thereof to any person or circumstance shall, to
any extent, be invalid or unenforceable, the remainder of this Agreement or the
application of such term or provision to persons or circumstances other than
those to which it is held invalid or unenforceable, shall not be affected
thereby, and each remaining term and provision of this Agreement shall be valid
and enforceable to the fullest extent permitted by law.
14.10 Headings, References and Exhibits. The headings
---------------------------------
contained in this Agreement are for purposes of reference and convenience only
and shall not limit or otherwise affect the meaning of this Agreement. Unless
otherwise indicated, all references to Sections are to Sections in this
Agreement. All exhibits attached to this Agreement are incorporated herein by
this reference.
14.11 Number and Gender. Where appropriate, words in the
-----------------
singular include the plural, and vice versa, and words in any gender include the
corresponding words in any other gender.
14.12 Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which shall be deemed an original and all of which,
when taken together, shall constitute one and the same instrument.
14.13 Entire Agreement. This Agreement supersedes all
---------------
previous agreements, understandings, negotiations and proposals between the
Debtor and ZCC III relating to the subject matter of this Agreement. This
Agreement may not be altered or amended except by an instrument in writing
signed by the Debtor and ZCC III and, for so long as there remains unpaid any
amounts due to the Lender under the Term Loan Note or in connection with the
Term Loan, consented to by the Lender. The Debtor and ZCC III each acknowledge
and agree that no representation, warranty or inducement has been made to it
regarding the subject matter of this Agreement which is not expressly set forth
in this Agreement or the Construction Agreement.
19
14.14 Termination of Interest. ZCC III agrees that it will
-----------------------
not exercise any right of disposition of property in which a security interest
is granted to it pursuant to this Agreement or the Deed of Trust until the
occurrence and continuance of an Event of Default. ZCC III further agrees that
it will no longer have any right or interest in any property or rights granted
to it pursuant to this Agreement or the Deed of Trust and the Debtor will have
no further duties and obligations under this Agreement and the Deed of Trust
when the Series B Purchase Notes and any amounts owed under this Agreement and
the Deed of Trust have been indefeasibly paid in full to ZCC III, at which time
this Agreement shall terminate, and ZCC III shall, when and as requested by the
Debtor, confirm such termination to the Debtor and any third party in writing
and by filing appropriate UCC-2, or other similar form of, termination
statements and taking such action as may be necessary to cause the full
reconveyance of the Deed of Trust.
20
IN WITNESS WHEREOF, the parties have executed this Purchase Note
and Security Agreement (Series B) by its duly authorized representatives.
Debtor ZCC III
ZOND WINDSYSTEM PARTNERS, ZOND CONSTRUCTION CORPORATION III,
LTD. SERIES 85-B, a a California corporation
California Limited Partnership 112 South Curry Street
112 South Curry Street Tehachapi, California 93561
Tehachapi, California 93561
By its authorized General By
Partner ----------------------------------------
Craig A. Anderson,
Senior Vice President -
General Counsel
Zond Windsystems Management
Corporation IV, a California
corporation
By
----------------------------
Craig A. Anderson,
Senior Vice President -
General Counsel
21
EXHIBIT A
TO
SERIES B PURCHASE NOTE AND SECURITY AGREEMENT
Legal Description of the Operating Site:
ALL OF SECTION 33, TOWNSHIP 32 SOUTH, RANGE 34 EAST, MOUNT DIABLO MERIDIAN, IN
THE UNINCORPORATED AREA OF THE COUNTY OF KERN, STATE OF CALIFORNIA, ACCORDING TO
THE OFFICIAL PLAT THEREOF.
EXCEPT THAT PORTION OF SAID SECTION 33, THAT IS INCLUDED WITHIN THE LAND
DESCRIBED AS PARCEL IF IN THE FINAL ORDER OF CONDEMNATION HAD IN KERN COUNTY
SUPERIOR COURT, CASE NO. 101028, A CERTIFIED COPY THEREOF WAS RECORDED JULY 23,
1970 IN BOOK 4420 PAGE 123, OFFICIAL RECORDS.
ALSO EXCEPT ALL THAT PORTION WITHIN THE RIGHT OF WAY, 200 FEET WIDE OF THE
SOUTHERN PACIFIC RAILROAD COMPANY AS GRANTED BY ACT OF CONGRESS OF JULY 27,
1866.
22