Exhibit 10.5(b)
---------------
AMENDMENT TO
PURCHASE NOTE AND SECURITY AGREEMENT (SERIES B)
THIS AMENDMENT (the "Amendment") TO PURCHASE NOTE AND SECURITY
AGREEMENT dated as of November 7, 1985 (the "Series B Purchase Note Agreement")
between ZOND CONSTRUCTION CORPORATION III, a California corporation ("ZCC III"),
and ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-B, a California Limited Partnership
(the "Debtor") is entered into as of this 26th day of March 1986.
WHEREAS, ZCC III and the Debtor entered into the Series B
Purchase Note Agreement pursuant to which the Debtor, among other things, issued
to ZCC III three promissory notes, respectively dated November 13, November 27
and December 16, 1985 as amended by that certain Modification Agreement dated as
of February 19, 1986, in the aggregate original principal amount of $20,563,200
(collectively, the "Series B Purchase Notes"); and
WHEREAS, ZCC III and the Debtor deem it to be in their
respective best interests to amend and supplement certain terms and provisions
of the Series B Purchase Note Agreement.
NOW THEREFORE, for good and valuable consideration, receipt of
which is hereby acknowledged, ZCC III and the Debtor agree as follows:
SECTION 1. Defined Terms. All terms used but not defined in this
Amendment which are used or defined in the Series B Purchase Note Agreement as
1
supplemented and amended by this Amendment are used in this Amendment as so used
or defined.
SECTION 2. Representations of the Debtor. The Debtor represents
and warrants to ZCC III as hereinafter set forth.
A. Representations in Series B Purchase Note Agreement. The
representations and warranties in Section 3 of the Series B Purchase Note
Agreement are reaffirmed.
B. Authority of the Debtor. The Debtor has full power and
authority to enter into this Amendment and to carry out the transactions
contemplated by this Amendment and by the Series B Purchase Notes.
SECTION 3. Amendments to Series B Purchase Note Agreement. The
Series B Purchase Note Agreement is amended:
(1) (by amending Sections 2.2(e), 2.3(g), 2.3(h) 2.3(i),
6.1, 6.5, 7.5, 7.6, 7.7, 7.8, 7.15 and 13, thereof to read as respectively set
forth in Annex A hereto,
(2) by amending Exhibit D thereto to read as set forth in
its entirety in Annex B hereto and
(3) by adding a new Exhibit E thereto to read as set forth
in its entirety in Annex C hereto
SECTION 4. Effectiveness of this Amendment. This Amendment shall
become effective on the date first written above
2
SECTION 5. Ratification. The provisions of the Series B Purchase
Note Agreement, except as supplemented and amended by this Amendment are in all
respects ratified and confirmed, and the terms, covenants and agreements thereof
shall be and remain in full force and effect as written.
SECTION 6. Governing Law. This Amendment shall be construed in
accordance with and governed by the law of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the day and year first above written.
ZOND CONSTRUCTION CORPORATION III
By /s/ Kenneth C. Karas
----------------------------------
President
----------------------------------
ZOND WINDSYSTEM PARTNERS, LTD.
SERIES 85-B
By ZOND WINDSYSTEMS MANAGEMENT
CORPORATION IV, its General
Partner
By /s/ Kenneth C. Karas
----------------------------------
President
3
ANNEX A
(1) 2.2 Windsystem Collateral. The definition of Windsystem
Collateral as set forth in Section 2.2 of the Series B Purchase Note Agreement
shall be amended by adding to such Section 2.2 a clause (e) which shall read in
full as follows:
(e) Any and all Turbine Completion Certificates and
Bills of Sale, Power Substation Completion Certificates and
Bills of Sale and Power Transfer Facilities Completion
Certificates issued to the Debtor by ZCC III pursuant to the
Series B Construction Agreement.
(2) 2.3 Intangible Collateral. The following definitions of
Intangible Collateral set forth in Section 2.3 of the Series B Purchase Note
Agreement are amended as follows:
(i) The definition of the Series B Easement Agreement
set forth in Section 2.3(g) of the Series B Purchase Note
Agreement is hereby amended to include the Amended and
Restated Series B Windpark Easement Agreement dated as of March
24, 1986 between the Debtor and ZCC III.
(ii) The definition of Series B Access Easement set
forth in Section 2.3(h) of the Series B Purchase Note
Agreement is hereby amended to refer to the Amended and
Restated Grant of Easement (Western Access) dated as of March
24, 1986 between Zond and the Debtor.
(iii) The definition of Series B Interconnect
Easement contained in Section 2.3(i) of the Series B Purchase
Note Agreement is defined to refer to the Grant of Easement
(Interconnect) dated as of March 24, 1986 between Zond and the
Debtor.
(3) 6.1 Existing Policies. Section 6.1 of the Series B
Purchase Note Agreement is amended to read in full as follows:
6.1 Existing Policies. The Debtor presently maintains
or is a named insured under the insurance policies
(individually an "Existing Policy," and collectively the
"Existing Policies") which are identified on the attached
Exhibit D.
(4) 6.5 Use of Insurance Proceeds. Section 6.5 of the Series
B Purchase Note Agreement is amended to read in full as follows:
6.5 Use of Insurance and Taking Proceeds. All
insurance proceeds in excess of $50,000 per loss occurrence in
respect of a loss claimed or for which a claim can be made
under any property damage
4
policy or policies or the property loss (whether or not by
casualty) coverage provisions of any windsystem performance
policy or policies maintained by or for the benefit of Debtor
(an "Insured Property Loss") and all moneys received by the
Debtor as an award or compensation in the event of a Taking (as
defined in the Indenture referred to below) (a "Taking Award")
in excess of $50,000 per Taking shall be used by the Debtor in
accordance with the following:
(a) Upon the occurrence of an Insured Property Loss
in respect of which insurance proceeds in excess of $50,000
are paid to the Debtor or upon the occurrence of a Taking in
respect of which a Taking Award in excess of $50,000 is paid
to the Debtor, the Debtor may elect to replace or repair any
property which is damaged by such Insured Property Loss or
which is the subject of such Taking (the "Affected Property")
by so notifying ZCC III within 60 days after payment to the
Debtor of such insurance proceeds or of such Taking Award, as
the case may be, and upon making such election shall have 320
days to complete the replacement or repair of such property.
(b) If the Debtor does not elect to replace or repair
all or any of the Affected Property within such 60-day period,
the Debtor shall prepay the Series 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 which
are the subject of such Insured Property Loss or are the
subject of such Taking, and which the Debtor does not so elect
to repair or replace, bears to the total rated capacity of all
Turbines (including such damaged Turbines or Turbines subject
to such Taking) then owned by the Debtor. The amount of any
such prepayment shall be allocated among the Series 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 (a) of this
Section 6.5, such proceeds or moneys shall be applied to the
costs of replacement or repair as such costs are incurred by
the Debtor, with the remaining balance, if any, applied to
prepay the Series B Purchase Notes.
(d) Notwithstanding anything to the contrary above or
in the Indenture referred to below in this paragraph (d), all
proceeds or moneys in excess of $50,000 per loss occurrence
paid to the Debtor in respect of an Insured Property Loss, and
any Taking Award in excess of $50,000 paid to the Debtor,
shall be deposited in the separate depository account
described in Section 5.2 of the Indenture, Deed of Trust and
Security
5
Agreement dated as of December 1, 1985 (the "Indenture") between
ZCC III and First Interstate Bank of California, as Trustee (the
"Trustee") and shall be held and disbursed by the Trustee in
accordance with the provisions of such Section 5.2 of the
Indenture.
(5) 7.5 Investments. Section 7.5 of the Series B Purchase
Note Agreement is amended to add thereto as a final sentence the following:
Anything to the contrary in this Agreement
notwithstanding, any such investments shall at all times
remain in the possession of ZCC III or the agent of ZCC III
which may be designated from time to time in a writing
addressed to the Debtor.
(6) 7.6 Bank Accounts. Section 7.6 of the Series B Purchase
Note Agreement is amended so that it reads in full as follows:
7.6 Bank Accounts. So long as any amounts remain
outstanding under those certain secured promissory notes
issued by ZCC III under the Indenture, the Debtor shall
maintain all of its trust and depositary accounts with the
Trustee or any successor trustee appointed pursuant to Section
8.3 of the Indenture, provided that such successor trustee is
a bank whose certificates of deposit would be permitted
investments of the Debtor under Section 7.5 hereof.
(7) 7.7 Debt, Guarantees and Other Liabilities. Section 7.7
of the Agreement is amended so that it reads in full as follows:
7.7 Debt, Guarantees and Other Liabilities. The
Debtor shall not create, incur or assume, directly or
indirectly, any indebtedness, or purchase or repurchase (or
agree, contingently or otherwise, so to do) the indebtedness
of, or assume, guarantee (directly or indirectly or by an
instrument having the effect of assuring another's payment or
performance of any obligation or capability of so doing, or
otherwise), endorse or otherwise become liable, directly or
indirectly, in connection with the obligations, stock or
dividends of any Person, except
(a) by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business;
(b) as permitted under Section 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 any such advance (i) has a stated maturity after December
17, 1997, (ii) is not
6
subject to any mandatory payment, redemption or other retirement
requirement by means of any installment, sinking funds, serial
maturity or other required payments prior to the stated
maturity, and (iii) is evidenced by one or more promissory notes
substantially in the form of Exhibit E hereto.
(8) 7.8 Distributions. Section 7.8 of the Series B Purchase
Note Agreement is amended so that it reads in full as follows:
7.8 Distributions. The Debtor shall not make (i) any
distributions (whether of earnings or of capital and whether in
the form of cash or of property) to any of its partners or
(ii) any payment on account of the principal of or interest
or prepayment charge, if any, on, or any expenditure for the
purchase or other retirement of, any subordinated advance
under Section 7.7(d) when in any such case (a) an Event of
Default has occurred and is continuing or will occur upon
giving effect to such distribution, payment or expenditure,
(b) the Cash Reserve balance is less than the Minimum
Reserve Level or (c) the Debtor has not reimbursed ZCC III
for amounts outstanding and reimbursable by the Debtor under
Section 13. Distributions (if any) to partners of the Debtor
and payments and expenditures (if any) on account of
subordinated advances under Section 7.7(d) shall be made
annually within 90 days after the anniversary date of the
issuance of the first Series B Purchase Note.
(9) 7.15 Payment of Charges. Section 7.15 of the Series B
Purchase Note Agreement is amended so that it reads in full as follows:
7.15 Payment of Charges. The Debtor shall pay and
discharge all taxes (other than sales taxes payable by ZCC III
with respect to the Windsystem in connection with the sale of
the Windsystem to the Debtor), assessments and governmental
charges or levies imposed upon it or its property or assets,
prior to the date on which penalties attach thereto, and
lawful claims which, if unpaid, might become a lien upon its
property or assets not permitted or contemplated hereby,
provided that the Debtor shall not be required to pay any such
tax, assessment, charge, levy or claim which is being
contested in good faith and by proper proceedings if (i)
adequate reserves with respect thereto have been set up by the
Debtor, (ii) such contest or any bond delivered in connection
therewith shall suspend the collection of such tax,
assessment, charge, levy or claim, and (iii) neither the
Windsystem or any interest therein nor any sums payable to the
Debtor under any of the Intangible Collateral would be in
danger of being sold, forfeited or lost by reason of such
contest.
(10) 13. Payments on Behalf of the Debtor. Section 13 of the
Series B Purchase Note Agreement is amended so that it reads in full as follows:
7
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 per annum equal to the lesser of (1) 15% and
(2) the maximum interest rate permitted by law from the date
of payment by ZCC III to the date of reimbursement by the
Debtor, prior to the Debtor making any distribution of cash or
property to its partners.
8
ANNEX B
EXHIBIT D
TO
SERIES B PURCHASE NOTE AND SECURITY AGREEMENT
A IDENTIFICATION OF EXISTING POLICIES
1. PRIMARY-SYSTEMS PERFORMANCE POLICY
California Union Insurance Company
Policy #ZPM017468
2. EXCESS-SYSTEMS PERFORMANCE POLICY
California Union Insurance Company (HAFNIA)
Policy #ZPM018487
National Union Fire Insurance Company
Policy #D7292751
3. PRIMARY-"ALL RISK" PROPERTY DAMAGE POLICY
Continental Insurance Company
Policy #SFP2980475
4. PRIMARY-GENERAL LIABILITY POLICY
Hartford Insurance Company
Policy #83UENPF1765
5. EXCESS-GENERAL LIABILITY POLICY
US International Insurance Company
Policy #5234125869
National Surety Corporation
Policy #XLX1735756
B SUMMARY OF SIGNIFICANT TERMS OF EXISTING POLICIES
The following summary is intended to set forth the significant
coverage terms of the insurance policies identified in A1 through A5, inclusive,
above, and is
9
qualified in its entirety by reference to such policies, true and correct copies
of each of which ZCC III acknowledges have been heretofore supplied to it by the
Debtor. For convenience, descriptions in the summary below of the significant
coverage terms of the "systems performance policies" refer to the aggregate
protection afforded under the policies identified in A1, A2(a) and A2(b) above;
such references to "property damage and business interruption policy" refer to
the protection afforded under policy identified in A3 above; and such references
to "general liability insurance policies" refer to the aggregate protection
afforded under the policies identified in A4(a) and A5(a) and A5(b) above.
Systems Performance Policies
The systems performance policies provide combined aggregate
coverage of up to $4.5 million per loss occurrence for a declared project of 100
Turbines. The 240 Turbines purchased by the Debtor are included in the first and
second projects declared by the Debtor. The 40 remaining Turbines are contained
in a third declared project which also covers 60 Turbines owned and operated by
Zond Windsystem Partners, Ltd. Series 85-A primary coverage layer of $2.5
million provides protection against revenue losses due to failure to meet
projected energy output, and against physical loss or damage to the Turbines due
to mechanical or electrical breakdown or defects in materials, design and
fabrication. The excess layers provide $2 million of additional protection
against physical loss or damage to the Turbines due to mechanical or electrical
breakdown or defects in materials, design and fabrication, including lost
revenues attributable to such physical loss or damage (but not lost revenues due
to wind deficiencies). The systems performance policies do not protect against
revenue losses arising out of a failure or a
10
malfunction of the power substation. The revenue protection provided by these
policies is designed to substantially cover the Debtor's anticipated debt
service payments under the Series B Purchase Notes and the projected necessary
operating costs of Turbines so long as such policies remain in effect.
The systems performance policies insure each declared project
for a term of five years and may not be cancelled by the insurer except for
nonpayment of premiums or fraud in the procurement of the policies. The premiums
for the systems performance policies are prepaid for the first five years. The
Partnership may extend these policies for each declared project for an
additional five-year term upon prepayment of the required premiums whose amount
depends in part upon the insurers' loss experience in connection with the
declared project in question.
Reimbursement for losses due to mechanical or electrical
breakdown or defects in materials, design and fabrication (including resulting
shortfall between projected and actual revenues until damage is repaired or
defects are corrected) and costs incurred to investigate, repair or replace
suspected defective components is subject to a deductible amount of $1,500 per
Turbine per loss occurrence. A loss occurrence is defined as any one loss,
disaster or casualty or a series of losses, disasters or casualties arising out
of a single event.
Coverage under the systems performance policies for losses due
to the failure of a declared project to meet projected electric power production
due to wind deficiency, or any cause other than those described above or
excluded by the policies, is subject to a deductible amount for each loss period
equal to 45% of the projected
11
revenues for the first month after which the Turbines contained in a declared
project were first placed in service, 40% for the second month after which the
Turbines contained in a declared project were first placed in service, 35% for
the third month after which the Turbines contained in a declared project were
first placed in service and 30% thereafter No loss period is greater than 12
months in duration Revenue losses incurred with respect to any loss period are
calculated as the ,shortfall between the projected and actual revenues generated
by the insured Turbines from the production of electric power, after adding back
the amount of reimbursement for lost revenues payable on account of the causes
described in the preceding paragraph. The amount of such shortfall is computed
by taking the difference between the minimum projected kilowatt production for
the loss period and the actual kilowatt production, and multiplying it by the
applicable purchase price under the Power Agreement. The minimum annual
projected power production for each declared Project was established by
agreement between the Debtor and the insurer at the time of each project
declaration. This minimum projected power production amount will be prorated in
the case of loss periods shorter than 12 months. The policy allows the insurer,
at its cost and expense including reimbursement of any revenue losses incurred
by the Debtor due to interruption of Turbine operation), to evaluate and modify
the Turbines if they fail to meet the minimum projected power production
estimate set forth in the project declaration. Additionally, the policy requires
the Debtor to maintain records of wind speed and power production in order to
allow accurate loss calculations. The policies require, with respect to each
declared project, the repayment to the insurers of amounts paid as reimbursement
for revenue shortfall in any loss period from the
12
excess of actual power production revenues over projected power revenues in
subsequent loss periods.
Premiums due under the policies for the first five years of
coverage are calculated at $9,125 per Turbine and are payable when each Turbine
is certified to be operational. Upon expiration of the first five years of
coverage, the Partnership will be entitled to a return of a portion of the
premiums paid with respect to a project if the aggregate amounts paid under the
policy with respect to that project do not exceed 60% of such premiums. Premiums
for the remaining five years of coverage have not been fixed and will be
determined on a project-by-project basis under a formula which is based in part
upon the insurers' loss experience under the policies. In addition to the
Debtor, Zond, ZCC III, Vestas Energy A/S "Vestas" Vestas North America Limited
"VNA") the general partner of the Debtor and Zond Windsystem Partners, Ltd.
Series 85-A and its general partner are each named insureds under the policies
and are covered thereunder for liability incurred by them by reason of breaches
of their warranties to the Partnership relating to the Turbines. Consequently,
claims made by such entities under the policies may cause the amount of premium
refund to be reduced, and may cause an increase in the amount of any renewal
premium.
All losses are payable to the Debtor within 30 days after proofs
of loss are filed and accepted by the insurer Losses must first be claimed and
adjusted under the insurance policy before any warranty claims may be made by
the Partnership against Vestas, VNA, ZCC III or Zond.
13
Under the terms of the policy, the insurers are not liable for
losses caused by any insured's willful acts performed with the specific intent
to cause or aggravate loss to the property; the absence (but not failure) of the
components of the Turbine which protect the equipment which control or regulate
yawing, vibration, excessive oil temperature and oil levels (the Turbines are
equipped with vibration and yaw control equipment but not equipment to regulate
oil-temperature and-oil levels); failure to construct, operate and maintain the
Turbines in accordance with the procedures or instructions of Zond, Vestas or
VNA; normal deterioration of the Turbines; any loss covered under the "All-Risk"
property damage and business interruption policy issued by Continental Insurance
Company and identified in A3 above; and other common insurance exclusions such
as war, governmental or court intervention, nuclear radiation, strikes riots etc
Coverage for revenue shortfall contains additional exclusions for revenue losses
caused by loss of market price changes not contemplated by the Power Agreement,
the inability to sell electricity produced by the Turbines or the abandonment of
the Turbines Coverage for damage or physical loss to the Turbines contains
additional exclusions for loss or damage caused by frost or freezing, due to
disappearance or inventory shortages, or loss or damage caused by any
contractor's equipment or the cost to repair or replace the Power Substation
Property Damage and Business Interruption Policy
The Debtor, along with Zond, Vestas VNA, ZCC III and Zond
Windsystem Partners, Ltd Series 85-A, is a named insured under a one-year
"All-Risk" property policy covering the Windsystem As is common with such
coverage, the insurer
14
may cancel the policy upon 90 days notice except for premium nonpayment, which
requires a 10-day notice.
The policy-covers all direct physical damage to the Turbines and
the power transfer system. It also provides boiler and machinery coverage with
business interruption provisions for the power transfer system which insures
against losses of income caused by physical damage to the power transfer system
or by the inability of Southern California Edison Company ("SCE") to accept
power generated by the Turbines. Risks insured against by the policy include
fire, wind, hail, freezing, theft, flood and earthquake. The policy contains
aggregate combined limits of $40,000,000 per loss occurrence, with an annual
aggregate sublimit of $25,000,000 for losses occasioned by either earthquake or
flood. The coverage sublimit for boiler and machinery (property damage) on the
power transfer system is $2,000,000 per occurrence; for boiler and machinery
(business interruption) is $4,000,000 per occurrence; for contingent business
interruption is $2,000,000 per occurrence; and for service interruption due to
physical damage caused by a peril covered by the policy is $2,000,000 per
occurrence. The policy excludes any loss or damage to the Turbines covered by
systems performance policies, and contains other commonly specified exclusions
such as nuclear radiation, acts of war or civil disobedience, or fraud.
The following table summarizes the policy deductibles and
coverage limitations and deductible amounts per occurrence:
15
Per Occurrence
Coverage Coverage Limits Deductible
- -------------------------- ---------------- -----------
Boiler and Machinery $ 2,000,000 $ 5,000
(Property Damage)
on Transformers,
Feeder Lines and the
Power Substation
Boiler and Machinery
(Business Interruption) 4,000,000
Contingent Business
Interruption 2,000,000
All-Risk Property
Damage and Business
Interruption 40,000,000 1,0002)
Property in Transit 500,000 10,0003)
Service Interruption 2,000,000
Earthquake 25,000,000(3
Flood 25,000,000(3) 100,000
16
Will not provide coverage for revenue losses occurring during
the first 12 hours of each service interruption
Per Turbine deductible per loss occurrence, subject to an
aggregate per loss occurrence deductible of $10,000.
Annual aggregate sublimit. Each earthquake loss occurrence
includes all damage occurring during a continuous period of 72 hours
Will not provide coverage for revenue losses occurring during
the first 48 hours of each service interruption
(5) The deductible amount per loss occurrence for each damaged structure is set
out in a schedule which is part of the policy. The deductible amount per loss
occurrence with respect to each Turbine and its supporting tower is $5,000 and
with respect to the Power Substation is $22,140.
General Liability Insurance Policies
Zond currently maintains a $1,000,000 primary liability
insurance policy with the Hartford Insurance Company, identified in A4 above, a
$5,000,000 excess general liability policy from
17
US International Insurance Company identified in A5(a) above and
an additional $5,000,000 excess policy from the National Surety Corporation
identified in A5(b) above The aggregate liability limits will apply to all
facilities and operations of named insureds at the Operating Site The Debtor,
along with Zond ZCC III and their affiliates, have been named as insureds under
the policies The primary policy expires on July 1, 1986 and the excess policies
expire on June 1, 1986. The coverage limits under the above policies extend to
all activities of Zond, its subsidiaries and affiliates and all investor
programs sponsored by them not only at Zond's Tehachapi site but at other
locations as well. Additional Zond subsidiaries and affiliates and future
Zond-sponsored programs, operating at Tehachapi or elsewhere, may also share in
such coverage. To the extent that named insureds other than the Debtor perfect
claims under the policies, the protection provided to the Debtor may be
correspondingly reduced.
18
ANNEX C
EXHIBIT E
FORM OF SUBORDINATED NOTE
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-B
Subordinated Note Due ________________
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-B, a California
limited partnership (the "Series B Partnership"), for value received, hereby
promises to pay to [Zond or a subsidiary thereof] (the "Payee"), the principal
sum of $ _________, on* _________, 19___, at the office of _____________ , or
such other place as the Payee shall from time to time designate to the Company
in writing, in lawful money of the United States of America.
Anything in this Subordinated Note to the contrary
notwithstanding, the indebtedness evidenced by this Subordinated Note shall be
subordinate and junior in right of payment, to the extent and in the manner
hereinafter forth, to all indebtedness of the Partnership on the Purchase Notes
as such Notes may at any time and from time to time be supplemented or amended
in any respect (all such indebtedness to which this Subordinated Note is
subordinate as aforesaid being sometimes hereinafter referred to as "Superior
Indebtedness"):
- ----------
* Stated maturity to be after December 17, 1997
1
(i) The holder of this Subordinated Note shall not be entitled to
receive any payment on account of this Subordinated Note
unless the Partnership would be permitted to make
distributions under the provisions of Section 7.8 of the
Purchase Note and Security Agreement (Series B) as amended.
(ii) In the event of any insolvency or bankruptcy proceedings, and
any receivership, liquidation, reorganization or other
similar proceedings in connection therewith, relative to the
Series B Partnership or to its creditors, as such, or to its
property, and in the event of any proceedings for voluntary
liquidation, dissolution or other winding up of the Series B
Partnership, whether or not involving insolvency or
bankruptcy, then the holders of Superior Indebtedness shall
be entitled to receive full payment in full of all principal
of and premium (if any) and interest on all Superior
Indebtedness (including interest thereon accruing after the
commencement of any such proceedings) before the Payee is
entitled to receive, or make any demand for, any payment on
account of this Subordinated Note, and to that end (subject
to the power of a court of competent jurisdiction to make
other equitable provisions reflecting the rights conferred
herein upon Superior Indebtedness and the holders thereof
with respect to the subordinated indebtedness represented by
this Subordinated Note and the Payee by a lawful plan of
reorganization under applicable bankruptcy law) the holders
of Superior Indebtedness (until payment in full of all
principal of and premium (if any) and interest on all
Superior Indebtedness, including interest thereon accruing
after the commencement of any such proceedings) shall be
entitled to receive for application in payment thereof any
payment or distribution of any kind or character, whether in
cash or property or securities, which may be payable or
deliverable in any such proceedings in respect of this
Subordinated Note (including any such payment or
distribution which may be payable or deliverable by virtue
of the provisions of, or any security for, any securities
which are subordinate and junior in right of payment to this
Subordinated Note), except securities which are subordinate
and junior (to at least the same extent as this Subordinated
Note) in right of payment to the payment of all Superior
Indebtedness then outstanding. The Payee will not exercise
or attempt to exercise any right of setoff or counterclaim
in respect of any obligations (including accounts payable)
of the Payee to the Series B Partnership against the
obligations of the Series B Partnership under this
Subordinated Note if the effect thereof shall be to reduce
in any way the amount of any such payment or distribution to
which the holders of Superior Indebtedness would be
en-titled in the absence of such setoff or counterclaim;
provided, however, that notwithstanding the fore-going if
and to the extent the Payee is required by any mandatory
provisions of law to exercise any such right of setoff or
counterclaim, all amounts which the Payee shall be entitled
to retain by reason of such setoff or counterclaim shall be
deemed to be payments in respect of this Subordinated Note
to which the first sentence of this Clause (ii) shall apply.
2
(iii) In the event that this Subordinated Note is declared due and
payable before its expressed maturity because of the
occurrence of any default in respect hereof (under
circumstances when the provisions of the foregoing Clause
(ii) shall not be applicable), the holders of Superior
Indebtedness then due or becoming due by acceleration or
otherwise shall be en-titled to receive payment in full of
all principal of and premium (if any) and interest on all
such Superior Indebtedness before the Payee is entitled to
receive any payment on account of this Subordinated Note.
Nothing herein shall prevent the Payee from seeking any
remedy allowed at law or in equity so long as any judgment
or decree obtained thereby makes provision for enforcing
this Clause (iii).
(iv) If any payment or distribution of any character, whether in
cash, securities or other property, in respect of this
Subordinated Note shall (despite these subordination
provisions) be received by the Payee which is not then
permitted by the foregoing provisions of this Subordinated
Note, such payment or distribution shall be held in trust for
the benefit of and shall be paid over or delivered to, the
holders of Superior Indebtedness (or their representatives),
ratably according to the respective aggregate amounts
remaining unpaid thereon, to the extent necessary to pay all
Superior Indebtedness in full.
No present or future holder of Superior Indebtedness shall be
Prejudiced in its right to enforce subordination of this Subordinated Note by
any act or failure to act on the part of the Series B Partnership or by any act
(including without limitation any surrender, release or discharge in whole or in
part of any mortgage, lien, pledge, charge, security interest or other
en-cumbrance of any kind securing such Superior Indebtedness) or failure to act
on the part of such holder or any trustee for such holder. The foregoing
provisions are solely for the purpose of defining the relative rights of the
holders of Superior Indebtedness on the one hand, and the Payee on the other
hand, and nothing herein shall impair, as between the Series B Partnership and
the Payee, the obligation of the Series B Partnership, which is Unconditional
and absolute, to pay to the Payee the principal hereof in accordance with the
terms hereof, nor shall anything herein prevent the Payee from exercising all
remedies otherwise permitted by applicable law in respect hereof, subject to the
rights, if any, under this Subordinated Note of holders of Superior
Indebtedness to receive cash, property or securities otherwise payable or
deliverable to the Payee and all amounts which the Payee would be entitled to
retain by reasons of setoff or counterclaim in respect of any obligations of the
Payee to the Series B Partnership against the obligations of the Series B
Partnership under this Subordinated Note.
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The Payee will look solely to the assets of the Series B Partnership for
satisfaction of the obligations of the Series B Partnership on this Subordinated
Note.
This Subordinated Note shall be governed by and construed in accordance
with the laws of the State of California.
ZOND WINDSYSTEMS PARTNERS, LTD.
SERIES 85-B
By Zond Windsystems Management
Corporation IV
By ---------------------------------
Title
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