CASH FLOWS. Shall mean the portion of expected pre-tax cash flows (to the extent not taxed at the Chaparral, Mesquite, Mesquite Operating Subsidiary, or project level) from the Project Companies (excluding Mesquite) that would be distributable to Chaparral or Mesquite, as the case may be (after working capital, debt service of the relevant Project Company, capital expenditures/investment requirements, reserve requirements (including reserves for maintenance, debt service, known/expected environmental,
... decommissioning, litigation, or other such costs) and taxes other than income taxes), plus expected net restructuring monetization proceeds or expenses, as the case may be, plus cash flows from Contingent Debt Instruments, and plus a terminal value, as appropriate. For purposes of determining Cash Flows, project financial models shall be prepared annually as of October 1 by the Management Company, in good faith and on a consistent basis, based upon actual historical and expected future performance at the time of determination of the Annual Performance Fee (the "OCTOBER 1 FINANCIAL MODEL"). Additionally, projections shall be prepared to reflect a common set of general economic assumptions (including market prices for power (by region, as required), commodity prices, inflation rates, interest rates, and exchange rates, as applicable). Such assumptions shall be updated at the time of determination of the Annual Performance Fee to reflect current conditions and expectations at such time. For purposes of calculating expected net restructuring monetization proceeds or expenses, as the case may be, the expected cost of funds in the monetization shall consider the counterparty credit risk and other residual risks retained after restructuring, as well as the average life of the financing and the required debt service coverage ratios. Projections shall be prepared for the period representing the shortest of: (i) the longer of (a) 20 operating years or (b) the life of the power purchase agreement (if the project is not expected to be restructured), (ii) the expected economic useful life of the asset or (iii) the expected physical life of the asset; provided that in the case of the Contingent Debt Instruments, the projection period shall equal the term of the relevant Contingent Debt Instrument. If the project is expected to be restructured, the maximum projection period shall be the shortest of (i)(a),(ii) or (iii) of the preceding sentence. If it is reasonably expected that the asset will have economic value at the end of the projection period as defined by this paragraph, a liquidation terminal value shall be estimated and included in determining Cash Flows. As a guideline for calculating terminal values, a current dollar estimate shall be prepared, shall be projected forward to the terminal year assuming a general inflation rate (or other such rate as shall be applicable at the time), and shall be discounted at the Applicable Discount Rate. Alternative methods for calculating terminal values may also be utilized, provided that such methods are utilized reasonably in good faith and are appropriately supported and documented. A series of examples illustrating the methodologies used to determine Cash Flows is included as Annex A to this Agreement.
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