[EXECUTION COPY]
EXHIBIT 10.36
LEASE AGREEMENT
between
STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT,
NATIONAL ASSOCIATION,
not in its individual capacity
but solely as Owner Trustee,
Lessor,
and
S.D. ▇▇▇▇▇▇ COMPANY,
Lessee
Dated as of July 29, 1997
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Lease of #3 Paper Machine
TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER (AS DEFINED IN
THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO
SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER OR
POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL COUNTERPART CONTAINING
THE RECEIPT THEREFOR EXECUTED BY STATE STREET BANK AND TRUST COMPANY OF
CONNECTICUT, NATIONAL ASSOCIATION, AS OWNER TRUSTEE
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TABLE OF CONTENTS
Page
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ARTICLE I
Definitions........................................................... 1
ARTICLE II
Lease of the Equipment; Term.......................................... 2
SECTION 2.01. Lease of the Equipment............................ 2
SECTION 2.02. Sublease of the Equipment Site.................... 2
SECTION 2.03. Term.............................................. 2
SECTION 2.04. Personal Property................................. 2
SECTION 2.05. Descriptions...................................... 2
ARTICLE III
Rent.................................................................. 2
SECTION 3.01. Basic Rent........................................ 2
SECTION 3.02. Supplemental Rent................................. 3
SECTION 3.03. Adjustments of Basic Rent, Stipulated
Loss Value and Early Buyout Price................................ 3
SECTION 3.04. Method of Payment................................. 5
ARTICLE IV
Net Lease.............................................................. 5
ARTICLE V
Restriction on Liens................................................... 7
ARTICLE VI
Warranty of Lessor; Disclaimer......................................... 7
SECTION 6.01. Quiet Enjoyment.................................... 7
SECTION 6.02. Disclaimer of Other Warranties..................... 7
SECTION 6.03. Enforcement of Certain Warranties.................. 8
ARTICLE VII
Operation and Maintenance; Modifications; Location of
Equipment.............................................................. 9
SECTION 7.01. Operation and Maintenance.......................... 9
SECTION 7.02. Replacement of Parts............................... 10
SECTION 7.03. Modifications Required by Law...................... 11
SECTION 7.04. Optional Modifications............................. 11
SECTION 7.05. Title to Modifications............................. 11
SECTION 7.06. Removal of Property................................ 11
SECTION 7.07. Contest of Requirements of Law..................... 12
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Page
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SECTION 7.08. Location of the Equipment............................. 13
ARTICLE VIII
Event of Loss; Obsolescence Termination................................. 13
SECTION 8.01. Event of Loss......................................... 13
SECTION 8.02. Requisition Not Constituting an Event
of Loss............................................................ 14
SECTION 8.03. Obsolescence Termination.............................. 14
ARTICLE IX
Reports.................................................................. 16
SECTION 9.01. ..................................................... 16
Reports to Governmental Authorities.................................... 16
SECTION 9.02. Information Concerning the Equipment................... 16
ARTICLE X
Insurance................................................................ 17
SECTION 10.01. Coverage............................................... 17
SECTION 10.02. Endorsements........................................... 19
SECTION 10.03. Application of Certain Proceeds........................ 20
SECTION 10.04. Certifications......................................... 21
SECTION 10.05. Insurance Reports...................................... 22
SECTION 10.06. Right of Lessor and Owner Participant
To Insure........................................................... 22
ARTICLE XI
Identification........................................................... 23
SECTION 11.01. Identification......................................... 23
SECTION 11.02. Insignia of Lessee..................................... 23
ARTICLE XII
Default; Remedies........................................................ 23
SECTION 12.01. Events of Default...................................... 23
SECTION 12.02. Remedies............................................... 25
ARTICLE XIII
Additional Covenants; Indemnities........................................ 29
ARTICLE XIV
Assignment or Sublease................................................... 29
SECTION 14.01. Assignment or Sublease by Lessee....................... 29
ARTICLE XV
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Renewal and Purchase Options............................................. 30
SECTION 15.01. Renewal Option......................................... 30
SECTION 15.02. Early Buyout Options................................... 30
SECTION 15.03. Fair Market Purchase Options........................... 31
SECTION 15.04. Notices for Renewal and Purchase
Options; Certain Conditions......................................... 31
SECTION 15.05. Determination of Fair Market Values
and other Matters................................................... 33
ARTICLE XVI
Return of Equipment; Disposition Services................................ 33
SECTION 16.01. Return of Equipment.................................... 33
SECTION 16.02. Disposition Services................................... 34
ARTICLE XVII
Recording; Further Assurances............................................ 35
ARTICLE XVIII
Lessor's Right to Perform for Lessee..................................... 35
ARTICLE XIX
Notices.................................................................. 36
ARTICLE XX
Severability............................................................. 36
ARTICLE XXI
Effect and Modification of Lease......................................... 36
ARTICLE XXII
Third-Party Beneficiaries................................................ 37
ARTICLE XXIII
Execution................................................................ 37
ARTICLE XXIV
Governing Law; UCC Article 2-A........................................... 37
ARTICLE XXV
No Recourse.............................................................. 38
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ARTICLE XXVI
Successors and Assigns................................................... 38
ARTICLE XXVII
Successor and Co-Trustees................................................ 38
ARTICLE XXVIII
Miscellaneous............................................................ 39
SECTION 28.01. No Conveyance.......................................... 39
SECTION 28.02. Captions............................................... 39
SECTION 28.03. Chattel Paper.......................................... 39
Appendix A -- Definitions
Annex A -- Description of Equipment
Annex B -- Description of Equipment Site
Schedule I -- Basic Rent
Schedule II -- Stipulated Loss Values
Schedule III -- Certain Terms
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LEASE AGREEMENT dated as of July 29, 1997, between STATE
STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL
ASSOCIATION, a national banking association, not in its
individual capacity but solely as Owner Trustee under the Trust
Agreement, as Lessor, and S.D. ▇▇▇▇▇▇ COMPANY, a Pennsylvania
corporation, as Lessee.
WHEREAS pursuant to the Participation Agreement, the ▇▇▇▇ of Sale and
the Conveyance Instrument, concurrently with the execution and delivery of this
Lease Lessee is selling the Equipment to Lessor and Lessor is purchasing the
Equipment from Lessee;
WHEREAS pursuant to the Ground Lease, concurrently with the execution
and delivery of this Lease Lessee is leasing the Equipment Site to Lessor and
Lessor is leasing the Equipment Site from Lessee; and
WHEREAS upon such sale and purchase of the Equipment, Lessee desires
to lease the Equipment and sublease the Equipment Site from Lessor and Lessor
desires to lease the Equipment and sublease the Equipment Site to Lessee upon
the terms and subject to the conditions hereinafter provided.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, Lessor and Lessee hereby
agree as follows:
ARTICLE I
Definitions
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For purposes of this Lease, capitalized terms used herein and not
defined herein have the meanings assigned to them in Appendix A (such
definitions to be equally applicable to both the singular and plural forms of
the terms defined). Any term defined by reference to an agreement, instrument
or other document has the meaning so assigned to it whether or not such document
is in effect. Unless otherwise indicated, references in this Lease to sections,
paragraphs, clauses, appendices, schedules and exhibits are to the same
contained in or attached to this Lease.
ARTICLE II
Lease of the Equipment; Term
----------------------------
SECTION 2.01. Lease of the Equipment. Upon the terms and subject to
----------------------
the conditions of this Lease, Lessor agrees to lease and hereby leases the
Equipment to Lessee hereunder, and Lessee agrees to lease and hereby leases the
Equipment from Lessor hereunder, for the Lease Term.
SECTION 2.02. Sublease of the Equipment Site. Upon the terms and
------------------------------
subject to the conditions of this Lease, Lessor agrees to sublease and hereby
subleases the Equipment Site to Lessee hereunder, and Lessee agrees to sublease
and hereby subleases the Equipment Site from Lessor hereunder, for the Lease
Term.
SECTION 2.03. Term. The term of this Lease shall begin on the Basic
----
Lease Term Commencement Date and, unless earlier terminated in accordance with
the provisions hereof, shall end on the Basic Lease Term Termination Date or the
last day of the Renewal Term, if any. The Lease Term shall be comprised of the
Basic Lease Term and the Renewal Term, if any.
SECTION 2.04. Personal Property. It is the intent of the parties
-----------------
hereto that the Equipment is now, and from and after this date shall continue to
be, personal property and not be or become a part of the real property on which
the Equipment is now located notwithstanding the extent of affixation thereto or
the fitness or adaption of the Equipment to the uses or purposes of such real
property. By executing this Lease, Lessee and Lessor affirm their desire and
intent that the Equipment be and remain personal property.
SECTION 2.05. Descriptions. The Equipment is described in Annex A
------------
hereto and the Equipment Site is described in Annex B hereto.
ARTICLE III
Rent
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SECTION 3.01. Basic Rent. Lessee shall pay to Lessor, as basic rent
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("Basic Rent") for the Equipment, in arrears, the following amounts:
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(a) on each Basic Rent Payment Date occurring during the Basic Lease
Term, an amount equal to the product of (i) the Lessor's Cost and (ii) the
Basic
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Rent percentage set forth opposite such Basic Rent Payment Date in Schedule
I; and
(b) on each Basic Rent Payment Date occurring during the Renewal Term,
if any, an amount equal to the Fair Market Basic Rent for the Equipment for
the Rental Period then ending.
SECTION 3.02. Supplemental Rent. Lessee shall pay to Lessor, or to
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whoever shall be entitled thereto, as supplemental rent ("Supplemental Rent"),
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the following amounts:
(a) when due, any amount payable hereunder in respect of the Equipment
as Stipulated Loss Value or Early Buyout Price;
(b) when due or, if no due date is specified, within five Business
Days of demand, any amount (other than Basic Rent, Stipulated Loss Value or
Early Buyout Price) that Lessee is required to pay to, or for the account
of, Lessor (in its individual and trust capacity), the Owner Participant or
any other Person under this Lease or any other Basic Agreement;
(c) on demand, to the extent permitted by Applicable Laws, interest at
the rate of 2% per annum above the Prime Rate (computed on the basis of the
actual number of days elapsed over a year of 365 or 366 days, as
applicable) on any Rent not paid when due for each day from the date such
Rent becomes due and payable until the same is paid; and
(d) when due by the Lessor as lessee under the Ground Lease, as rent
for the sublease by Lessor to Lessee of the Equipment Site pursuant to
Section 2.02 hereof, an amount equal to all rent and other amounts payable
during or with respect to the Lease Term by Lessor under the Ground Lease.
For purposes of this Section 3.02, any payment made after 2:00 p.m., New York
City time, shall be deemed to have been made on the next succeeding Business
Day.
SECTION 3.03. Adjustments of Basic Rent, Stipulated Loss Value and
----------------------------------------------------
Early Buyout Price. (a) The percentages for Basic Rent, Stipulated Loss Value
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and Early Buyout Price set forth, respectively, in Schedules I, II and III, have
been calculated in part on the basis of the Pricing Assumptions. If the amount
of Transaction Expenses payable by the Lessor is other than as set forth in the
Pricing Assumptions, then such percentages for Basic Rent, Stipulated Loss Value
and the Early Buyout Price shall be
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adjusted (upward or downward) so as to preserve the Owner Participant's Net
Economic Return. Any adjustments pursuant to this Section 3.03(a) shall be
satisfactory to Owner Participant's special tax counsel, using the same
standards applied by such counsel in approving the original rent structure,
Early Buyout Price and Stipulated Loss Values as of the Closing Date.
The percentages for Stipulated Loss Value also shall be subject to
adjustment pursuant to Section 7 of the Tax Indemnity Agreement.
(b) (i) Upon the occurrence of an event requiring adjustments to
the percentages for Basic Rent, Stipulated Loss Value and Early Buyout Price
pursuant to Section 3.03(a) hereof or pursuant to Section 7 of the Tax Indemnity
Agreement, the Owner Participant shall make the necessary computations as
promptly as possible on a basis consistent with that used by the Owner
Participant in the computation of the percentages for Basic Rent, Stipulated
Loss Value and the Early Buyout Price as of the Closing Date, taking into
account only the event, and the timing thereof, giving rise to the adjustments.
Subject to paragraph (ii) of this Section 3.03(b), such adjustments shall be
effective from and including the date the Owner Participant shall have furnished
to Lessee a certificate signed on behalf of the Owner Participant by a
Responsible Officer confirming that such adjustments have been properly computed
in accordance with the provisions of this Lease (and, if appropriate, the Tax
Indemnity Agreement), and shall remain effective until changed in consequence of
any inaccuracy discovered in the course of any verification procedure conducted
pursuant to paragraph (ii) of this Section 3.03(b) or in consequence of any
event occurring thereafter requiring further adjustment pursuant to Section
3.03(a) hereof or pursuant to Section 7 of the Tax Indemnity Agreement; provided
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that the consequences of any inaccuracy in any such certificate shall be limited
to those set forth in paragraph (ii) below.
(ii) Within 30 days after the Owner Participant shall have
provided Lessee with a certificate pursuant to paragraph (i) of this Section
3.03(b), Lessee shall have the right to require that such adjustments be
submitted to the independent accounting firm regularly employed by the Owner
Participant, whose determination in writing shall be binding on Lessee, Lessor
and the Owner Participant and conclusive, absent manifest error. The fees and
expenses of such accounting firm incurred in connection with the calculation and
verification procedures described in this paragraph (b) shall be paid by Lessee,
unless the net present value of the Basic Rent payments over the Lease Term as
computed by the Owner Participant exceeds by 15
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basis points or more of Lessor's Cost the net present value of the Basic Rent
payments over the Lease Term as verified. For purposes of the preceding
sentence, net present values shall be computed using a discount rate of 10.0%.
Each adjustment of the percentages for Basic Rent, Stipulated Loss Value or
Early Buyout Price for the Equipment may, but need not (unless requested by
Lessee, Lessor or the Owner Participant), be evidenced by the execution and
delivery of a supplement to this Lease in form and substance satisfactory to
Lessee and the Owner Participant, and shall be effective as provided herein
without regard to the date on which or whether such supplement to this Lease is
so executed and delivered. The responsibility of such independent accounting
firm shall be limited to verifying such adjustments and shall not extend to
matters of interpretation of any Basic Agreement.
SECTION 3.04. Method of Payment. Each payment of Rent shall be made
-----------------
in immediately available funds no later than 2:00 p.m., local time at the place
of receipt, on the date such payment is due and payable hereunder, and shall be
paid either (i) in the case of payments other than amounts payable to any
Indemnified Person pursuant to Article VII or VIII of the Participation
Agreement, to Lessor at its address for payments set forth in the Participation
Agreement, or at such other address as Lessor may specify by notice in writing
to Lessee, or (ii) in the case of Supplemental Rent payable to any Indemnified
Person pursuant to Article VII or VIII of the Participation Agreement, to such
Person as shall be entitled to receive such payment at such address as such
Person may specify by notice to Lessee. If the date on which any payment of Rent
is due hereunder is not a Business Day, such payment shall be made as aforesaid
on the next succeeding Business Day, with the same force and effect as if made
on the nominal due date provided for in this Lease.
ARTICLE IV
Net Lease
---------
This Lease is a net lease and the parties intend that Lessee shall pay
all costs, charges, fees and expenses in connection with the use, operation,
maintenance and repair of the Equipment and the Equipment Site, including,
without limitation, the costs, charges, fees and expenses expressly set forth in
this Lease. Notwithstanding any other provision of this Lease, the obligation
of Lessee to pay all Rent payable hereunder is absolute and unconditional and
Lessee shall not be entitled to any abatement, suspension, deferment or
reduction of, or any setoff against, Rent for any reason whatsoever, including,
but not
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limited to, abatements, suspensions, deferments, reductions or setoffs due or
alleged to be due by reason of any past, present or future claims of Lessee
against Lessor, the Owner Participant or any other Person or entity, either
under this Lease or otherwise; nor, except as otherwise expressly provided in
Section 8.01, 8.03, 12.02(d) or (e) or 15.02, shall the obligation of Lessee to
pay all Rent payable hereunder be released, discharged or otherwise affected, by
reason of (i) any defect in or damage to or loss of possession or loss of use
or destruction, requisition or taking of the Equipment or the Equipment Site, or
any part thereof, from whatsoever cause, (ii) any liens, encumbrances or rights
of others with respect to the Equipment or the Equipment Site, or any part
thereof, (iii) the prohibition of or other restriction against Lessee's use of
the Equipment or the Equipment Site, or any part thereof, (iv) the interference
with such use by any Person, (v) the invalidity or unenforceability or lack of
due authorization of this Lease or any provision hereof or any other Basic
Agreement, in each case whether against or by Lessee or otherwise, (vi) any
defect in the title to, compliance with plans or specifications for, condition,
design, quality, fitness for use, operation, damage or destruction of the
Equipment or the Equipment Site, or any part thereof, (vii) any insolvency of or
any bankruptcy, reorganization or similar proceeding against Lessee, Lessor or
any other Person, (viii) any claim that Lessee may have against Lessor or any
other Person or (ix) for any other cause whether similar or dissimilar to the
foregoing, it being the intention of the parties hereto that the Rent payable by
Lessee hereunder during the Lease Term shall continue to be payable in all
events in the manner and at the times herein provided unless the obligation to
pay the same shall expire or be terminated pursuant to Section 8.01, 8.03,
12.02(d) or (e) or 15.02. TO THE EXTENT PERMITTED BY APPLICABLE LAWS, LESSEE
HEREBY WAIVES ANY AND ALL RIGHTS WHICH IT MAY NOW HAVE OR WHICH AT ANY TIME
HEREAFTER MAY BE CONFERRED UPON IT, BY STATUTE OR OTHERWISE, TO TERMINATE,
CANCEL, QUIT OR SURRENDER THIS LEASE, OR TO ANY DIMINUTION OR REDUCTION OF RENT
PAYABLE BY LESSEE HEREUNDER, EXCEPT IN ACCORDANCE WITH THE EXPRESS PROVISIONS OF
THIS LEASE. If for any reason whatsoever this Lease shall be terminated in
whole or in part by operation of law or otherwise except as expressly provided
herein, Lessee shall nonetheless pay to Lessor (or, in the case of Supplemental
Rent, to whoever shall be entitled thereto) an amount equal to each Rent payment
at the time and in the manner that such payment would have become due and
payable under the terms of this Lease if it had not been terminated in whole or
in part. Subject to the next succeeding sentence, each payment of Rent made by
Lessee hereunder shall be final and Lessee shall not seek to recover all or any
part of such payment (except for any excess payment made in error) from Lessor
or the Owner
6
Participant for any reason whatsoever. Nothing in this Article IV shall be
construed to prevent Lessee from pursuing any claim it may have against Lessor,
the Owner Participant or any other Person in such court of law or otherwise as
Lessee may deem appropriate.
ARTICLE V
Restriction on Liens
--------------------
Lessee shall not, directly or indirectly, create, incur, assume or
suffer to exist any Lien on or with respect to the Equipment or the Equipment
Site, or any part thereof or Lessor's title thereto or interest therein, except
Permitted Liens, and Lessee shall promptly take such action at its expense as
may be necessary duly to discharge any such Lien that may arise.
ARTICLE VI
Warranty of Lessor; Disclaimer
------------------------------
SECTION 6.01. Quiet Enjoyment. Lessor warrants and covenants that,
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unless an Event of Default shall have occurred and be continuing, Lessor, any
Person acting by, through or under Lessor or deriving its rights from Lessor,
and any successor or assign of Lessor or any such Person, shall not interfere
with Lessee's rights of quiet enjoyment, use and possession of the Equipment as
provided herein during the Lease Term.
SECTION 6.02. Disclaimer of Other Warranties. As between Lessor and
------------------------------
the Owner Participant on the one hand and Lessee on the other, the execution by
Lessee of this Lease shall be conclusive proof that Lessee has accepted the
Equipment and the Equipment Site, for all purposes of this Lease
(notwithstanding any defect or inherent vice with respect to design,
manufacture, condition or in any other respect), and that the Equipment and the
Equipment Site, has been delivered to and is in the possession of Lessee, has
been fully inspected by Lessee and Lessee has no knowledge of any such defect or
inherent vice, is suitable for its intended purposes, conforms in all respects
to the specifications of this Lease and to manufacturing specifications and
warranties and is in good working order and repair and conforms to all
requirements of Applicable Law. Lessee acknowledges and agrees that (i) NEITHER
LESSOR NOR THE OWNER PARTICIPANT IS A MANUFACTURER OF OR A DEALER IN PROPERTY OF
SUCH KIND, AND (ii) LESSOR LEASES AND LESSEE TAKES THE EQUIPMENT AND THE
EQUIPMENT SITE, AND LESSEE SHALL TAKE EACH MODIFICATION AND ANY PART THEREOF, AS
IS AND WHERE
7
IS, WITH ALL FAULTS, and subject to all Applicable Laws and Governmental Actions
now in effect or hereafter adopted, and neither Lessor nor the Owner Participant
makes or shall be deemed to have made, and LESSOR AND THE OWNER PARTICIPANT EACH
HEREBY DISCLAIMS, ANY REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED,
WITH RESPECT TO THE EQUIPMENT OR ANY PART OR COMPONENT THEREOF OR THE EQUIPMENT
SITE, INCLUDING, WITHOUT LIMITATION, THE DESIGN OR CONDITION OF THE EQUIPMENT OR
MODIFICATION OR PART, THE MERCHANTABILITY OR THE FITNESS OF THE EQUIPMENT OR
MODIFICATION OR PART FOR ANY PARTICULAR PURPOSE, TITLE TO THE EQUIPMENT OR
MODIFICATION OR PART OR THE EQUIPMENT SITE, THE QUALITY OF THE MATERIAL OR
WORKMANSHIP OF THE EQUIPMENT OR MODIFICATION OR PART OR THE CONFORMITY THEREOF
TO SPECIFICATIONS, FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT OR THE ABSENCE
OF ANY LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, NOR SHALL LESSOR OR
THE OWNER PARTICIPANT BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING LIABILITY IN TORT, STRICT OR OTHERWISE) WITH RESPECT TO THE
FOREGOING, it being agreed that all such risks, as between Lessor and the Owner
Participant on the one hand and Lessee on the other, are to be borne by Lessee,
except to the extent expressly provided in Section 6.02(a) and Section 6.03(a)
of the Participation Agreement, and except that Lessor (in its individual and
trust capacities) represents and warrants that on the Closing Date, Lessor shall
have received whatever title to the Equipment as was conveyed to it by the ▇▇▇▇
of Sale and the Conveyance Instrument covering the Equipment.
The provisions of this Section have been negotiated and, except to the
extent otherwise expressly stated in Section 6.02(a) and Section 6.03(a) of the
Participation Agreement, the foregoing provisions are intended to be a complete
exclusion and negation of any representations or warranties by Owner Participant
or Lessor, express or implied, with respect to the Equipment, whether arising
pursuant to any statute, ordinance, rule or regulation now or hereafter in
effect or otherwise. Neither Owner Participant nor Lessor shall at any time be
required to inspect the Equipment, nor shall any such inspection be deemed to
affect or modify the foregoing provisions of this Section.
SECTION 6.03. Enforcement of Certain Warranties. Lessee hereby
---------------------------------
assigns to Lessor any and all warranties and claims against dealers,
manufacturers, contractors or subcontractors relating to the Equipment. Except
if an Event of Default has occurred and is continuing, Lessor authorizes Lessee
(directly or through agents), at Lessee's expense, to assert for Lessor's
account, during the Lease Term, all of Lessor's rights (if any) under any
applicable warranty and any other claim Lessee or Lessor may have
8
against any vendor or manufacturer with respect to the Equipment or Modification
or Part, and Lessor agrees to cooperate, at Lessee's expense, with Lessee in
asserting such rights. If an Event of Default shall have occurred and be
continuing, Lessor shall have the right to control the handling of all such
rights and claims, including without limitation the determination of whether and
when to assert and/or settle any such right or claim; provided that Lessee shall
--------
have the right to participate in the handling of any such right or claim that
Lessor shall have determined to assert so long as such participation by Lessee
does not interfere with the rights of Lessor to control the handling of such
right or claim. Any amount recovered by Lessee under any such warranty or other
claim against any vendor or manufacturer shall be applied as provided in Section
10.03 hereof.
ARTICLE VII
Operation and Maintenance; Modifications; Location of
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Equipment
---------
SECTION 7.01. Operation and Maintenance. At all times during the
-------------------------
Lease Term, Lessee shall operate and maintain the Equipment and the component
Parts thereof so as to keep the same in good working order and repair and in the
same condition as when delivered, ordinary wear and tear excepted, and in a
condition such that will enable the Equipment to perform its intended functions
for its intended useful life. In furtherance and not in limitation of the
foregoing, Lessee shall operate and maintain the Equipment and the Parts thereof
(i) in a prudent and responsible manner, (ii) in accordance with Lessee's
standard practice from time to time in effect for similar equipment located in
Skowhegan, Maine owned or leased by it without discrimination based on the
leased status of the Equipment or otherwise, (iii) in accordance with the terms
of all operating manuals and other documents applicable to the Equipment, all
applicable insurance policies and all appropriate specifications, procedures and
manufacturer requirements, (iv) subject to Section 7.07 hereof, in compliance
with all requirements of Applicable Laws and (v) in accordance with standard
industry practices. During the Lease Term, Lessee shall (x) keep reports
regarding maintenance, repair, modifications and replacements in respect of the
Equipment in sufficient detail to indicate the nature and date of major work
done in accordance with Lessee's standard operating practices and (y) maintain
current operating manuals (including training, maintenance and technology
manuals) and a complete set of plans and specifications of the Equipment, in
sufficient detail to enable an engineer not otherwise familiar with the
Equipment to locate and identify the various items of property
9
comprising the Equipment, in each case in accordance with the standards set
forth above and promptly update the same as necessary. A set of such reports,
manuals, plans and specifications shall be kept by Lessee at its offices at the
Equipment Site and shall be made available to Lessor or Owner Participant in
accordance with Section 9.01 hereof. Lessor shall have no obligation to
maintain, alter, repair, rebuild or replace the Equipment, and Lessee expressly
waives the right to perform any such action at the expense of Lessor pursuant to
any law at any time in effect.
SECTION 7.02. Replacement of Parts. (a) Subject to Section 8.01
--------------------
hereof, in the event that any Part becomes worn out or is lost, stolen,
destroyed, seized, condemned, confiscated, requisitioned, damaged beyond repair
or permanently rendered unfit for normal use for any reason whatsoever, Lessee
at its expense shall repair or replace such Part. Each such replacement Part
shall be free and clear of all Liens (except Permitted Liens) and shall be in as
good operating condition as, and shall have a value, utility and remaining
useful life at least equal to, the Part being replaced, it being assumed for
this purpose that such replaced Part was in the condition and repair required to
be maintained pursuant to Section 7.01 hereof; provided, however, that, pending
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the completion of repairs to any Part or the installation of a permanent
replacement Part therefor, Lessee may, if necessary in order to operate the
Equipment, install a temporary Part, in which event Lessee shall complete such
repairs or install a permanent replacement Part meeting the requirements of this
Section 7.02 or shall cause such temporary replacement Part to meet such
requirements as soon as reasonably practicable but in any event within the
earlier of 90 days (or such longer period as shall be necessary under the
circumstances so long as Lessee is diligently attempting to obtain a permanent
replacement Part) and the expiration or termination of the Lease Term.
Immediately upon the permanent replacement of a Part, without further act, (i)
title to the replacement Part shall vest in Lessor, (ii) the replacement Part
shall become subject to this Lease and be deemed to be part of the Equipment for
all purposes hereof, and (iii) all of Lessor's right, title and interest in and
to the replaced Part shall pass to Lessee on an "as-is, where-is" basis, without
recourse or warranty (except as to the absence of Lessor Liens), and such
replaced Part shall no longer be subject to this Lease. From time to time at the
request of Lessor and at Lessee's expense, Lessee will take such action as is
reasonably practicable to confirm Lessor's title to any replacement Part. From
time to time at the request of Lessee and at Lessee's expense, Lessor shall take
such action as is reasonably practicable to confirm Lessee's title to each
replaced Part. No matter where located, any Part at any time removed therefrom
shall remain the property
10
of Lessor unless and until title thereto shall pass to Lessee in accordance with
the second preceding sentence.
SECTION 7.03. Modifications Required by Law. Subject to Section
-----------------------------
7.07 hereof, Lessee at its expense shall make such Modifications as may be
required from time to time to meet the requirements of any Applicable Laws or as
soon as reasonably practicable after any such requirement shall arise but in any
event not later than the earlier of the date required by such Applicable Laws
(subject to Section 7.07) and the expiration or termination of the Lease Term.
SECTION 7.04. Optional Modifications. Provided no Default or Event
----------------------
of Default shall have occurred and be continuing, Lessee at its expense from
time to time may make such Modifications to the Equipment as Lessee may deem
desirable in the conduct of its business; provided, however, that Lessee shall
-------- -------
not have the right to make any such optional Modification that would diminish
the fair market value, residual value, utility or remaining useful life of the
Equipment or cause the Equipment to become "limited use property" within the
meaning of Revenue Procedure 76-30.
SECTION 7.05. Title to Modifications. Title to each Modification
----------------------
(other than a Severable Modification) shall vest in Lessor, without further act,
effective on the date such Modification (or any Part in replacement thereof or
in substitution therefor) becomes incorporated into or installed in or attached
to the Equipment. Immediately upon title to any Modification vesting in Lessor
pursuant to this Section 7.05, such Modification shall, without further act,
become subject to this Lease and be deemed part of the Equipment for all
purposes hereof. The provisions of this Section shall not be construed to
impose any obligation on Lessor to finance the cost of any Modification, or any
obligation on Lessee to offer Lessor an opportunity to finance any Modification;
provided, however, that Lessor and Lessee may, if they choose (in their
-------- -------
respective sole discretion), enter into any such arrangements on mutually
acceptable terms.
SECTION 7.06. Removal of Property. (a) Subject to compliance with
-------------------
Applicable Laws, so long as no Event of Default or Specified Default shall have
occurred and be continuing, Lessee from time to time may remove any Severable
Modification (or any Part in replacement thereof or in substitution therefor).
Notwithstanding the foregoing, if Lessee does not exercise a purchase option
under Article XV hereof with respect to the Equipment, Lessee will (i) notify
Lessor in writing not less than 90 days prior to the expiration of the Lease
Term of any Severable Modification that Lessee is entitled to remove and intends
to remove in accordance with this Section 7.06(a)
11
and (ii) afford Lessor an opportunity to purchase such Severable Modification at
a cash price equal to the Fair Market Sale Value thereof. In any event Lessee
will repair any damage to the Equipment caused by the removal of a Severable
Modification therefrom as provided herein.
(b) In addition, if at any time during the Lease Term Lessee shall
conclude that any property included in the Equipment to which Lessor shall have
title (other than a Severable Modification that may be removed as provided in
Section 7.06(a)) is unnecessary and can be removed without diminishment of the
fair market value, residual value, utility or remaining useful life of the
Equipment, Lessee may remove such property; provided, however, that, if, in the
-------- -------
reasonable judgment of Lessee, the sum of the net proceeds from a disposition of
such property plus the net proceeds from any and all prior dispositions of
property of the type referred to in this Section 7.06(b), would exceed 0.5% of
Lessor's Cost of the Equipment, then, Lessee shall give Lessor reasonably prompt
notice of all such property so removed, which notice will request Lessor's
direction as to the disposition of such property. If Lessor does not respond to
such notice within 60 days of the date of delivery thereof, Lessee may, on
behalf of Lessor, dispose of such property in a commercially reasonable manner
and upon such disposal, without further act, title thereto shall vest in the
purchaser thereof, on an "as-is, where-is" basis, without recourse or warranty
and free and clear of any Lien or other interest in favor of Lessor or the Owner
Participant. Lessee shall pay over to Lessor any net proceeds received from
such dispositions in excess of 0.5% of Lessor's Cost of the Equipment. From
time to time at the request of Lessee and at Lessee's expense, Lessor shall take
such action as is reasonably practicable to confirm the relevant purchaser's
title to such property.
SECTION 7.07. Contest of Requirements of Law. If, with respect to
------------------------------
any requirement of Applicable Laws relating to the operation, maintenance or
modification of the Equipment or the Facility, (i) Lessee is contesting such
requirement diligently and in good faith by appropriate proceedings, (ii)
compliance with such requirement shall have been excused or exempted by a
nonconforming use permit, waiver, extension or forbearance exempting Lessee from
such requirement or (iii) Lessee shall be making a good faith effort and shall
be diligently taking appropriate steps to comply with such requirement, then the
failure by Lessee to comply with such requirement shall not constitute a Default
hereunder; provided that such contest or noncompliance does not involve (A) any
--------
material danger of (1) foreclosure, forfeiture or loss of the Equipment or any
part thereof or (2) criminal liability or any material civil liability being
imposed on Lessor or the Owner Participant or (B) any
12
material danger of (1) sale of, or the creation of any Lien (other than a
Permitted Lien) on, the Equipment or any part thereof or (2) the non-payment of
Rent or a material adverse effect on Lessee's ability to perform its obligations
hereunder or under the other Basic Agreements or (3) extending the ultimate
application of such requirements of Applicable Laws beyond the termination of
the Basic Lease Term or the Renewal Term, as appropriate, unless Lessee has
posted a bond or other security in respect thereof satisfactory to Lessor.
Lessee shall provide Lessor with notice of any contest of the type described in
clause (i) above to enable Lessor to ascertain whether such contest may have the
effect of the type described in the proviso above.
SECTION 7.08. Location of the Equipment. During the Lease Term
-------------------------
Lessee shall not, without the prior written consent of Lessor, remove the
Equipment or any part thereof from the Equipment Site, which is located in the
Skowhegan, Maine (it being understood that this Section 7.08 shall not prohibit
removal from the Equipment Site of (i) replaced Parts, title to which has passed
to Lessee pursuant to Section 7.02 hereof, (ii) Severable Modifications, and
(iii) unnecessary property, title to which has passed to a purchaser pursuant to
Section 7.06(b) hereof).
ARTICLE VIII
Event of Loss; Obsolescence Termination
---------------------------------------
SECTION 8.01. Event of Loss. (a) Upon the occurrence of an Event of
-------------
Loss with respect to the Equipment, Lessee shall promptly (and in any event
within the earlier of 30 days after the occurrence of such Event of Loss and
five days after a Responsible Officer of Lessee obtains knowledge thereof)
notify Lessor of such Event of Loss. On the earlier of (A) the Determination
Date next following the date of receipt by Lessee of insurance proceeds in
respect of such Event of Loss and (B) the latest Determination Date that occurs
on or before the date 180 days following the occurrence of such Event of Loss,
Lessee shall pay to Lessor an amount equal to the Stipulated Loss Value of the
Equipment, computed as of such Determination Date, plus (if such Determination
Date is a Basic Rent Payment Date) any Basic Rent payable on such date (it being
understood and agreed that Lessee shall continue to be obligated to pay all
Basic Rent due on any Basic Rent Payment Date occurring on or prior to the
Determination Date on which such Stipulated Loss Value is due (notwithstanding
the occurrence of such Event of Loss)). The excess of any proceeds referred to
in Section 10.03(a) received by Lessee with respect to an Event of Loss over the
amount of Stipulated Loss Value computed pursuant to the preceding
13
sentence shall be the property of Lessee, except for payments with respect to
the condemnation, confiscation, seizure or the requisition of title of the
Equipment and except further for payments attributable to the property interest
of Lessor in the Equipment recovered from any dealer, manufacturer, contractor
or subcontractor pursuant to Section 6.03, in all of which cases such excess
shall be divided between Lessor and Lessee as their interests may appear.
(b) Upon payment by Lessee of the Stipulated Loss Value for the
Equipment following an Event of Loss, together with all other Basic Rent and
Supplemental Rent then due hereunder (including, without limitation, all Basic
Rent due on any Basic Rent Payment occurring on or prior to the Determination
Date on which such Stipulated Loss Value payment is due), (i) all obligations of
Lessee hereunder to pay Basic Rent for the Equipment, and the Lease Term, shall
terminate and (ii) Lessor shall transfer, without recourse or warranty (except
as to the absence of Lessor Liens) and on an "as-is, where-is" basis, all right,
title and interest of Lessor in and to the Equipment to or at the direction of
Lessee, and shall furnish to or at the direction of Lessee, at Lessee's expense,
one or more bills of sale, in form and substance reasonably satisfactory to
Lessee, evidencing such transfer.
SECTION 8.02. Requisition Not Constituting an Event of Loss. In the
---------------------------------------------
event of the requisition for use of the Equipment that does not constitute an
Event of Loss, all of Lessee's obligations under this Lease (including, without
limitation, the obligation to pay Rent) shall continue as if such requisition
had not occurred; provided, however, that all payments received by Lessor or
-------- -------
Lessee for the use of the Equipment shall, so long as no Event of Default or
Specified Default has occurred and is continuing, be paid over to, or retained
by, Lessee, or if an Event of Default or Specified Default has occurred and is
continuing, be paid over to, or retained by, Lessor.
SECTION 8.03. Obsolescence Termination. (a) If the Senior
------------------------
Management and/or the Board of Directors of Lessee shall have determined in good
faith that the Equipment has become technologically obsolete and/or is no longer
economically viable, Lessee shall have the right to terminate this Lease on any
Basic Rent Payment Date occurring on or after the sixth anniversary of the
Closing Date that is specified by Lessee (a "Termination Date") in a notice to
----------------
the Lessor (a "Termination Notice") given not later than 60 days prior to the
------------------
proposed Termination Date and accompanied by a certificate of a Responsible
Officer of Lessee evidencing such determination. Subject to paragraph (c) of
this Section 8.03, Lessee, as agent for Lessor, shall
14
use commercially reasonable efforts to obtain cash bids for the purchase of the
Equipment. Lessee shall certify to Lessor the amount and terms of each bid
received by Lessee and the name and address of the Person who submitted such
bid. Lessor and Owner Participant shall have the right to obtain such cash bids,
in either case either directly or through agents other than Lessee. Neither
Lessee nor any Affiliate of Lessee shall, directly or indirectly, submit a bid
for, or enter into any arrangement to acquire title to or an interest in or the
right to use, the Equipment or any part thereof.
(b) Subject to paragraph (c) of this Section 8.03, on the Termination
Date Lessor shall transfer, without recourse or warranty (except as to the
absence of Lessor Liens), and on an "as-is, where-is" basis, all right, title
and interest of Lessor in and to the Equipment to or at the direction of the
Person who shall have submitted the highest cash bid prior to the Termination
Date, and shall furnish to or at the direction of such Person, and at the
expense of Lessee, one or more bills of sale, in form and substance reasonably
satisfactory to such Person, evidencing such transfer. The net proceeds of such
transfer shall be paid to or retained by Lessor, and, in addition, on such
Termination Date Lessee shall pay to Lessor (or, in the case of Supplemental
Rent, to the Person or Persons entitled thereto) (i) an amount equal to the
excess, if any, of (A) the higher of (I) the Stipulated Loss Value of the
Equipment, computed as of such Termination Date, and (II) the Fair Market Sale
Value of the Equipment as of such Termination Date, over (B) such net proceeds,
(ii) the Basic Rent for the Equipment payable on such date and (iii) all other
Basic Rent and Supplemental Rent then due hereunder. If for any reason (other
than default by Lessee or the applicability of paragraph (c) of this Section
8.03) the transfer of the Equipment to the highest bidder does not occur on or
as of such Termination Date, then this Lease shall continue in full force and
effect in accordance with its terms (including the terms of this Section 8.03).
Lessor shall be under no duty to solicit bids, to inquire into the efforts of
Lessee to obtain bids or otherwise to take any action in connection with any
such proposed termination of this Lease other than to transfer the Equipment to
the Person named in the highest bid certified by Lessee to Lessor or obtained by
Lessor against receipt of the payments provided for herein. Lessee shall pay all
reasonable expenses of Lessor and Owner Participant incurred in connection with
any termination pursuant to this Section.
(c) Notwithstanding the provisions of paragraphs (a) and (b) of this
Section 8.03, upon receipt of a Termination Notice, Lessor shall have the
option, by irrevocable written notice to Lessee given no later than 30
15
days after receipt of such Termination Notice, to elect to retain the Equipment,
in which case on the relevant Termination Date Lessee shall deliver the
Equipment to Lessor in accordance with Article XVI hereof and pay to Lessor (or,
in the case of Supplemental Rent, to the Person or Persons entitled thereto), in
lieu of the amounts payable under paragraph (b) above, (i) an amount equal to
the excess, if any, of (A) the Stipulated Loss Value of the Equipment, computed
as of such Termination Date, over (B) the Fair Market Sale Value thereof as of
the Termination Date (as determined by the Appraisal Procedure promptly upon
exercise of such option), (ii) the Basic Rent for the Equipment payable on such
date and (iii) all other Basic Rent and Supplemental Rent then due hereunder.
(d) Upon payment by Lessee of all amounts payable by it under this
Section 8.03, all obligations of Lessee hereunder to pay Basic Rent for the
Equipment, and the Lease Term, shall terminate.
(e) Notwithstanding any other provision of this Article VIII, Lessee
may, by notice to Lessor, revoke any Termination Notice previously delivered at
any time prior to the Termination Date specified in such Termination Notice, but
such right of revocation may not be exercised with respect to more than a total
of three Termination Notices.
ARTICLE IX
Reports
-------
SECTION 9.01. Reports to Governmental Authorities. Lessee shall
-----------------------------------
prepare (or cause to be prepared) and file in a timely fashion, or, if Lessor
shall be required to file, Lessee shall prepare or cause to be prepared and
deliver to Lessor within a reasonable time prior to the date for filing, all
reports with respect to the Equipment, or the condition or operation thereof,
that are required from time to time to be filed with any Government Authority.
Upon discovering that it is required to file any such report, Lessor shall give
timely notice thereof to Lessee; provided, however, that Lessor shall not be
-------- -------
liable for any failure to give such notice.
SECTION 9.02. Information Concerning the Equipment. Lessee shall
------------------------------------
furnish Lessor and Owner Participant such information as Lessor or Owner
Participant reasonably may request from time to time concerning the Equipment,
including information concerning the condition, maintenance, use and location
thereof, as well as copies of non-privileged studies or reports prepared by or
for Lessee, or non-privileged audits prepared by or for Lessee
16
concerning the environment or the conditions relating to public or worker health
and safety at the Equipment, the Equipment Site or the Facility, in accordance
with the provisions of Article VI of the Participation Agreement.
ARTICLE X
Insurance
---------
SECTION 10.01. Coverage. Without limiting any of the other
--------
obligations or liabilities of Lessee under this Lease, Lessee shall, during the
Lease Term, carry and maintain, at its own expense, at least the minimum
insurance coverage set forth in this Article X. Lessee shall also carry and
maintain any other insurance that Lessor may reasonably require from time to
time. All insurance carried pursuant to this Article X shall be placed with
such insurers with an AM Best Rating of A-X or other insurers as are acceptable
to Lessor; provided that, with respect to the all risk property insurance and
--------
business interruption insurance required to be carried and maintained pursuant
to clauses (a) and (b) of this Section 10.01, (1) up to an aggregate of
$1,000,000 of such insurances on a combined basis may be placed with an insurer
with an AM Best rating of A/VI or better, (2) up to an aggregate of $1,000,000
of such insurances on a combined basis may be placed with an insurer with an AM
Best rating of A/VIII or better, (3) up to an aggregate of $2,000,000 of such
insurances on a combined basis may be placed with an insurer with an AM Best
rating of A/IX or better, and (4) up to an aggregate of $1,000,000 of such
insurances may be placed with an insurer with an AM Best rating of A++/IX or
better. Such insurance shall be written with deductibles or self insured
retentions as are acceptable to Lessor.
(a) All Risk Property Insurance. Lessee shall maintain all risk
---------------------------
property insurance covering the Equipment against physical loss or damage,
including, but not limited, to fire and extended coverage, collapse, flood,
earth movement and comprehensive boiler and machinery coverage (including
electrical malfunction and mechanical breakdown). Coverage shall be
written in the greater of the then current Stipulated Loss Value or
replacement cost value of the Equipment in an amount acceptable to Lessor
except with respect to the perils of flood and earthquake in which case
separate sublimits of not less than $100,000,000 may apply. Such insurance
policy shall include expediting expense in an amount not less than
$1,000,000 and contain an agreed amount endorsement waiving any coinsurance
penalty.
17
(b) Business Interruption. As an extension of the insurance required
---------------------
under clause (a) of this Section 10.01, Lessee shall maintain business
interruption insurance in an agreed amount equal to twelve (12) months of
continuing expenses including lease payments. Such policy shall include an
agreed amount endorsement waiving any coinsurance penalty. If business
interruption insurance required to be maintained by Lessee pursuant to this
clause (b) (including the limits on deductibles or any other terms under
policies for such insurance) ceases to become available on a commercially
reasonable basis at the time of renewal, Lessee shall provide written
notice to Lessor accompanied by a letter from Lessee's insurance broker
stating that such insurance is unavailable on a commercially reasonably
basis. Such notice shall be given not less than thirty (30) days prior to
the scheduled date for renewal of any such policy. Upon receipt of such
notice Lessor and Lessee shall immediately negotiate in good faith to
obtain a commercially reasonably alternative to such insurance. In the
event that Lessor and Lessee can not reach a resolution acceptable to both
parties within five (5) days, Lessor shall make arrangements for the
formation of an insurance panel consisting of Lessee's insurance advisor
(or broker), Lessor's insurance adviser (or broker) and an independent
insurance expert chosen by Lessor and reasonably acceptable to Lessee
selected from an internationally recognized insurance brokerage. Such
independent expert shall conduct a separate review of the relevant
insurance requirements of this clause (b) and the market for such insurance
at the time, giving due consideration to the representations of both
insurance advisors, and upon conclusion of such review shall issue a
written report stating that such insurance is either available or not
available on a commercially reasonable basis. In the event the insurance
expert concludes that such insurance is not available on a commercially
reasonably basis, the insurance expert shall provide a written
recommendation not less than fifteen (15) days before the date for renewal
of such insurance which shall be conclusive and binding on both Lessee and
Lessor. Lessor shall issue a waiver to Lessee for a period of two (2)
years upon the insurance expert certifying that the relevant insurance is
not available on a commercially reasonable basis and the Lessee having
implemented the recommendation of the insurance expert. All fees, costs
and expenses associated with the insurance panel (including the review by
the insurance expert) shall be for the sole account of Lessee.
18
(c) Comprehensive General Liability Insurance. Lessee shall maintain
-----------------------------------------
comprehensive general liability insurance written on an occurrence basis
with a limit of not less than $1,000,000. Such coverage shall include, but
not be limited to, premises/operations, explosion, collapse, underground
hazards, contractual liability, independent contractors, products/completed
operations, property damage and personal injury liability. Such insurance
shall not exclude coverage for punitive or exemplary damages where
insurable by law.
(d) Workers' Compensation/Employer's Liability. Lessee shall maintain
------------------------------------------
workers' compensation insurance in accordance with statutory provisions
covering accidental injury, illness or death of an employee of Lessee while
at work or in the scope of his employment with Lessee and employer's
liability in an amount not less than $1,000,000. Such coverage shall not
contain any exclusions for occupational disease exclusions.
(e) Excess Liability. Lessee shall maintain excess or umbrella
----------------
liability insurance in an amount not less than $25,000,000 written on an
occurrence basis providing coverage limits excess of the insurance limits
required under clause (c) of this Section 10.01 and clause (d) of this
Section 10.01 with respect to employer's liability only. Such insurance
shall provide drop down coverage in case of exhaustion of underlying limits
and/or aggregates. Such insurance shall not exclude coverage for punitive
or exemplary damages where insurable by law.
SECTION 10.02. Endorsements. Lessee shall cause all insurance carried
------------
and maintained in accordance with Section 10.01 hereof to be endorsed as
follows:
(a) Lessee shall be the named insured and Lessor shall be an
additional named insured and as a loss payee for (x) insurance proceeds in
excess of $4,000,000 (whether in one payment or a series of payments) with
respect to loss or damage to the Equipment and (y) for all insurance
proceeds with respect to loss or damage to the Equipment while an Event of
Default or Specified Default shall be continuing, in each case net of the
applicable deductible, with respect to the policy described in clause (a)
of Section 10.01 hereof. Lessee shall be the named insured and Lessor
shall be an additional named insured and as a loss payee for (x) insurance
proceeds in excess of $4,000,000 (whether in one payment or a series of
payments) on account of an event relating to the Equipment and (y) for all
insurance
19
proceeds while an Event of Default or Specified Default shall be
continuing, in each case net of the applicable deductible, with respect to
the policy described in clauses (b) of Section 10.01 hereof. Lessee shall
be the named insured and Lessor (in both its individual and trust
capacities) and the Owner Participant shall be additional insureds with
respect to policies described in clauses (c) and (e) of Section 10.01
hereof. It shall be understood that any obligation imposed upon Lessee,
including, but not limited to, the obligation to pay premiums, shall be the
sole obligation of Lessee and not that of Lessor or Owner Participant.
(b) With respect to policies described in clauses (a) and (b) of
Section 10.01 hereof, the interests of Lessor and Owner Participant shall
not be invalidated by any action or inaction of Lessee, or any other
Person, and shall insure Lessor and Owner Participant regardless of any
breach or violation by Lessee or any other Person, of any warranties,
declarations or conditions of such policies.
(c) Inasmuch as the liability policies are written to cover more than
one insured, all terms, conditions, insuring agreements and endorsements,
with the exception of the limits of liability, shall operate in the same
manner as if there were a separate policy covering each insured.
(d) The insurers thereunder shall waive all rights of subrogation
against Lessor and Owner Participant, any right of setoff or counterclaim
and any other right to deduction, whether by attachment or otherwise.
(e) Such insurance shall be primary without right of contribution of
any other insurance carried by or on behalf of Lessor or Owner Participant
with respect to their interests as such in the Equipment.
(f) If such insurance is canceled for any reason whatsoever, including
nonpayment of premium, or any changes are initiated by Lessee or carrier
which affect the interests of Lessor or Owner Participant, such
cancellation or change shall not be effective as to Lessor or Owner
Participant until thirty (30) days, except for non-payment of premium which
shall be ten (10) days, after receipt by Lessor and Owner Participant of
written notice sent by registered mail from such insurer.
20
SECTION 10.03. Application of Certain Proceeds. (a) All insurance
-------------------------------
proceeds with respect to the policies described in clause (a) and (b) of Section
10.01 hereof while an Event of Default or Specified Default shall be continuing
shall be paid to Lessor and held or dealt with as provided in clause (b) of this
Section 10.03. Subject to the preceding sentence, all insurance proceeds in
excess of $4,000,000 (whether in one payment or a series of payments) with
respect to the policies described in clause (a) and (b) of Section 10.01 hereof
in respect of loss or damage to the Equipment from a single event or related
series of events, or in respect of an Event of Loss, or relating to the
Equipment in the case of business interruption insurance, shall be paid to
Lessor and such proceeds shall be applied or dealt with as follows:
(i) All such proceeds in excess of $4,000,000 (whether in one payment
or a series of payments) with respect to the policy described in clause (a)
of Section 10.01 hereof on account of a loss or damage to the Equipment not
constituting an Event of Loss shall be paid to Lessor and shall be assigned
over to Lessee to pay the cost of restoration of the Equipment, upon notice
from Lessee (x) that it has established a plan for such restoration
acceptable to Lessor and (y) stating that no Specified Default or Event of
Default exists. Lessor may request reasonable documentation evidencing the
expenses incurred or to be incurred in respect of such restoration.
(ii) All such proceeds on account of an Event of Loss shall be dealt
with in accordance with Section 8.01 hereof.
(iii) All such proceeds in excess of $4,000,000 (whether in one
payment or a series of payments) with respect to the policy described in
clause (b) of Section 10.01 hereof on account of an event relating to the
Equipment not constituting an Event of Loss shall, if Lessor shall have
received reasonable assurance of Lessee's continuing ability to make
scheduled Basic Rent payments, be assigned over to Lessee. All such
proceeds with respect to the policy described in clause (b) of Section
10.01 hereof not so required to be assigned over to Lessee shall be paid to
and held by Lessor and held as security for the obligations of Lessee under
this Lease and the other Basic Agreements and may be applied against
Lessee's obligations under the Basic Agreements. Any such proceeds held by
Lessor at such time as the event giving rise to the payment of such
business interruption insurance shall have ceased, shall, so long as no
Event of Default or Specified
21
Default shall have occurred and be continuing, be paid over or assigned to
Lessee or as it may direct.
(b) If an Event of Default or Specified Default shall have occurred
and be continuing, any proceeds or amounts payable to or for the account of
Lessor or Lessee, or to be retained by Lessee, pursuant to Section 10.02(a) or
10.03(a) hereof shall be paid to Lessor and held as security for the obligations
of Lessee under this Lease and the other Basic Agreements and may be applied by
Lessor to satisfy the obligations of Lessee under the Basic Agreements, and, at
such time thereafter as no Event of Default or Specified Default shall be
continuing, such proceeds and amounts, to the extent they have not been applied
against such obligations, shall be paid promptly to Lessee.
SECTION 10.04. Certifications. On the Closing Date, and at each
--------------
policy renewal, but not less frequently than annually, Lessee shall provide to
Lessor and Owner Participant approved certification from each insurer or by an
authorized representative of each insurer. Such certification shall identify
the underwriters, the type of insurance, the limits, deductibles, and term
thereof and shall specifically list the special provisions delineated for such
insurance required for this Article X. Upon request, Lessee shall permit Lessor
and Owner Participant to review all policies of insurance required by Section
10.01 during normal business hours at Lessee's corporate offices in the United
States.
SECTION 10.05. Insurance Reports. Concurrently with the furnishing of
-----------------
all certificates referred to in Section 10.04, Lessee shall furnish Lessor and
Owner Participant with an opinion from Aon Risk Services Inc. of Illinois or any
other internationally recognized independent insurance broker, reasonably
acceptable to Lessor; stating that all premiums then due have been paid and
that, in the opinion of such broker, the insurance then maintained by Lessee is
in accordance with this Article X.
SECTION 10.06. Right of Lessor and Owner Participant To Insure. (a)
-----------------------------------------------
Lessor and the Owner Participant shall have the right (but not the obligation),
at their expense, to maintain any insurance in respect of any of the Equipment
or any Part thereof, and any insurance so maintained shall not result in a
reduction of coverage or amounts payable under insurance required to be
maintained by Lessee hereunder.
(b) In addition, if Lessee is in default in respect of its
obligations to maintain insurance pursuant to this Article X, Lessor and the
Owner Participant shall have the right (but not the obligation), and without in
any way
22
limiting or otherwise modifying any other rights or remedies of Lessor or the
Owner Participant under this Lease by reason of such default or otherwise, to
obtain such insurance at the expense of Lessee and, in such event, Lessee shall
be obligated in accordance with Article XVIII. To the extent that Lessor has
placed such insurance required to be maintained by Lessee pursuant to this
Article X and that there are no other outstanding Events of Default, Lessor will
cancel such insurance upon Lessee providing satisfactory evidence that
replacement coverage has become effective and is in compliance with Article X.
Lessee shall also immediately reimburse Lessor or Owner Participant for any
additional costs, including but not limited, to short rate cancellation
penalties which are incurred by Lessor or Owner Participant.
ARTICLE XI
Identification
--------------
SECTION 11.01. Identification. At all times during the Lease Term,
--------------
Lessee at its expense shall maintain in a prominent place on the Equipment
conspicuous markings stating the following: "THIS UNIT IS OWNED BY STATE STREET
BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, AS OWNER TRUSTEE,
AND IS UNDER LEASE TO S.D. ▇▇▇▇▇▇ COMPANY" or other appropriate words reasonably
satisfactory to Lessor, with appropriate changes thereof and additions thereto
as from time to time may be required under Applicable Laws in order to protect
Lessor's right, title and interest in and to the Equipment and the rights of
Lessor under this Lease. Lessee will replace promptly any such marking which
may be removed, defaced, obliterated or destroyed.
SECTION 11.02. Insignia of Lessee. The Equipment may be lettered with
------------------
the names or initials or other insignia customarily used by Lessee but Lessee
will not allow the name of any other Person to be placed on the Equipment as a
designation that might be interpreted as a claim of ownership or right to
possession or use thereof.
ARTICLE XII
Default; Remedies
-----------------
SECTION 12.01. Events of Default. The term "Event of Default",
-----------------
wherever used herein, shall mean any of the following events (whatever the
reason for such event and whether it shall be voluntary or involuntary, or come
about or be effected by operation of law, or be pursuant to or in
23
compliance with any Applicable Laws or Governmental Action), and any such event
shall continue to be an Event of Default if and for so long as it shall not have
been remedied:
(1) default in the payment of any Basic Rent, Stipulated Loss Value or
Early Buyout Price when and as the same shall become due and payable, and
the continuance of such default unremedied for a period of one Business Day
after notice of such default shall have been received by Lessee; or default
in the payment of any other Supplemental Rent when and as the same shall
become due and payable, and the continuance of such default unremedied for
a period of 10 Business Days after notice of such default shall have been
received by Lessee; or
(2) default in Lessee's obligations with respect to the location of
the Equipment under Section 7.08 hereof; or default in the maintenance of
any insurance required by Article X hereof; or default in Lessee's
obligation to provide a Letter of Credit satisfying the requirements of,
and otherwise in compliance with, Section 6.01(h) of the Participation
Agreement (including, without limitation, default in Lessee's obligation to
provide a replacement Letter of Credit satisfying the requirements of, or
to obtain an extension or renewal of the Letter of Credit in accordance
with, such Section 6.1(h)); or default in the performance or observance of
any of the terms and provisions of Article XIV hereof or Section 6.01(d) of
the Participation Agreement; or default in the performance or observance of
Lessee's obligations under Section 6.01(j) of the Participation Agreement;
or
(3) default in any material respect in the observance or performance
of any covenant or agreement of Lessee contained herein or in any other
Basic Agreement (other than those specified in clauses (1) and (2) above),
and the continuance of such default unremedied for a period of 30 days
after notice of such default shall have been received by Lessee (or such
longer period (not exceeding 120 days) as may be necessary to remedy the
same, so long as Lessee is diligently proceeding to do so and provides
satisfactory evidence thereof to Lessor); or
(4) any representation or warranty made by Lessee in this Lease or in
any other Basic Agreement (other than those set forth in the Tax Indemnity
Agreement), or in any document or certificate furnished by Lessee in
connection herewith or therewith or pursuant hereto or thereto, shall have
been incorrect in any material respect when made, and shall continue to be
material
24
and unremedied for a period of 30 days after notice thereof shall have been
received by Lessee (or such longer period (not exceeding 120 days) as may
be necessary to remedy the same, so long as Lessee is diligently proceeding
to do so); or
(5) a court having jurisdiction in the premises shall enter a decree
or order (i) approving as properly filed or commenced an involuntary
proceeding or case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal, state or foreign bankruptcy,
insolvency or other similar laws against Lessee seeking liquidation,
reorganization or other relief with respect to it or its debts, and such
proceeding or case shall not be dismissed or stayed within 60 days
thereafter, or (ii) for the appointment of a receiver, liquidator,
assignee, custodian, trustee or sequestrator (or other similar official) of
Lessee or of any substantial part of its property, or ordering the winding-
up or liquidation of the affairs of Lessee, and such decree or order
remains unstayed and in effect for a period of 60 days; or
(6) the institution by Lessee of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by Lessee to the institution of
bankruptcy or insolvency proceedings against Lessee, or the commencement by
Lessee of a voluntary proceeding or case under the Federal bankruptcy laws,
as now or hereafter constituted, or any other applicable Federal, state or
foreign bankruptcy, insolvency or other similar laws, or the consent by
Lessee to the filing of any petition seeking a reorganization, arrangement,
adjustment or composition of or in respect of Lessee or to the appointment
of or taking possession by a receiver, liquidator, assignee, trustee,
custodian or sequestrator (or other similar official) of Lessee or of any
substantial part of its property, or the making by Lessee of an assignment
for the benefit of creditors, or the admission by Lessee of its inability
to pay its debts generally as they become due or of its willingness to be
adjudicated a bankrupt, or the failure of Lessee generally to pay its debts
as they become due; or
(7) Lessee shall, in respect of any Indebtedness of Lessee exceeding
$1,000,000 in aggregate amount outstanding (i) fail to pay any amount of
principal or interest when due (after the expiration of any applicable
grace period), whether at maturity, at a date fixed for prepayment, upon
acceleration or otherwise, or (ii) default in the performance or observance
of any other provision contained in any
25
instrument or agreement evidencing such Indebtedness or pursuant to which
such Indebtedness was issued or incurred if the effect of such default is
to cause, or permit the holder of such Indebtedness or a trustee or agent
thereof to cause, such Indebtedness to become or be declared due and
payable prior to its stated maturity; provided, that no Event of Default
--------
shall exist under this Section 12.01(7) from and after the time when such
failure or default is cured or waived.
SECTION 12.02. Remedies. Upon the occurrence of any Event of Default
--------
and at any time thereafter so long as the same shall be continuing, Lessor at
its option may, by notice to Lessee (except that such notice shall not be
required with respect to an Event of Default specified in Section 12.01(5) or
(6), in which case this Lease shall automatically be deemed to be declared in
default), declare this Lease to be in default; and at any time thereafter Lessor
may, to the extent permitted by Applicable Laws, exercise one or more of the
following remedies, except as hereinbelow otherwise set forth, as Lessor in its
sole discretion shall elect:
(a) Lessor may demand that Lessee, and Lessee shall solely at Lessee's
expense, return the Equipment and the Equipment Site promptly to Lessor or its
agent in the manner and condition required by, and otherwise in accordance with
the provisions of, Article XVI hereof and the Ground Lease as if the same were
being returned at the end of the Basic Lease Term or the Renewal Term; or Lessor
or its agents, at Lessor's option, may enter upon the premises where any of the
Equipment is located and take immediate possession of and remove the same by
summary proceedings or otherwise, all without liability on the part of Lessor or
its agents for or by reason of such entry or taking of possession, whether for
the restoration of damage to property caused by such taking or otherwise;
(b) Lessor may sell its right, title and interest in and to the
Equipment or the Equipment Site, or any part thereof, or any of its rights or
interests under the Ground Lease, at public or private sale, as Lessor may
determine, and with or without notice to Lessee, free and clear of any rights of
Lessee and without any duty to account to Lessee with respect to such sale or
for the proceeds thereof except to the extent required by Section 12.02(e)
hereof if Lessor elects to exercise its rights thereunder, in which event
Lessee's obligation to pay Basic Rent with respect to the Equipment for periods
commencing after the date of such sale shall be terminated (except to the extent
that Basic Rent is to be included in computations under Section 12.02(e) hereof
if Lessor shall elect to exercise its rights thereunder);
26
(c) Lessor may hold, keep idle, use, operate, assign, lease or
sublease to others any of the Equipment or the Equipment Site, or any part
thereof, or any of its rights or interests under the Ground Lease, as Lessor may
determine, free and clear of any rights of Lessee and without any duty to
account to Lessee with respect to any such action or inaction or for any
proceeds thereof, except that Lessee's obligation to pay Basic Rent for the
Equipment after Lessee shall have been deprived of the possession thereof
pursuant to this Section 12.02(c) shall be reduced by an amount equal to the net
proceeds, if any, received by Lessor from leasing the Equipment or such part
thereof to any Person other than Lessee;
(d) If Lessor has not sold the Equipment pursuant to paragraph (b) of
this Section 12.02, Lessor may, by notice to Lessee specifying a payment date
(which shall be a Determination Date not earlier than 15 days nor later than 180
days after the date of such notice), demand that Lessee pay to Lessor, and
Lessee shall pay to Lessor, on the Determination Date specified in such notice,
as liquidated damages for loss of a bargain and not as a penalty (in lieu of the
Basic Rent due after the Determination Date specified in such notice, any unpaid
Basic Rent specified in such notice, plus whichever of the following amounts
Lessor, in its sole discretion, shall specify in such notice (together with
interest on such amount at the rate of 2% per annum over the Prime Rate from
such Determination Date to the date of actual payment):
(i) an amount equal to the excess, if any, of (A) the Stipulated
Loss Value of the Equipment, computed as of the Determination Date
specified in such notice, over (B) the Fair Market Sale Value of the
Equipment, determined as of the Determination Date specified in such
notice; or
(ii) an amount equal to the excess, if any, of (A) the Stipulated
Loss Value of the Equipment referred to and determined in accordance with
clause (i)(A) above, over (B) the Fair Market Rental Value of the Equipment
until the end of the Basic Lease Term or the Renewal Term, as the case may
be, after discounting such Fair Market Rental Value to present value as of
the Determination Date specified in such notice at the Prime Rate; or
(iii) an amount equal to the excess of (A) the present value,
as of the Determination Date specified in such notice, of all installments
of Basic Rent for the Equipment, until the end of the Basic Lease Term or
the Renewal Term, as the case may be, discounted at the Prime Rate, over
(B) the present value as of such
27
Determination Date of the Fair Market Rental Value of the Equipment until
the end of the Basic Lease Term or the Renewal Term, as the case may be,
discounted at the Prime Rate;
(e) If Lessor shall have sold its right, title and interest in and to
any of the Equipment or the Equipment Site, or any part thereof, or its rights
and interests under the Ground Lease, pursuant to Section 12.02(b) hereof,
Lessor may, in lieu of exercising its rights under Section 12.02(d) hereof with
respect thereto, by notice to Lessee specifying a payment date, demand that
Lessee pay to Lessor, and Lessee shall pay to Lessor on the date specified in
such notice, as liquidated damages for loss of a bargain and not as a penalty
(in lieu of Basic Rent for the Equipment due for periods commencing after the
date specified in such notice), (i) all unpaid Basic Rent for the Equipment due
on any Basic Rent Payment Date occurring prior to the date specified in such
notice and, if the date specified in such notice is coincident with a Basic Rent
Payment Date, an amount equal to the Basic Rent for the Equipment payable on
such date plus (ii) an amount equal to the excess, if any, of (X) the Stipulated
Loss Value for the Equipment, computed as of the Determination Date coincident
with or next preceding the date of such sale, over (Y) the aggregate net
proceeds theretofore received by Lessor with respect to the Equipment from such
sale (together with interest on the amount of such Rent at the rate of 2% per
annum over the Prime Rate from such specified payment date to the date of actual
payment, computed on the basis of actual days elapsed over a year of 365 or 366
days, as appropriate); or
(f) Lessor may rescind or terminate this Lease or exercise any other
right or remedy that may be available to Lessor under Applicable Laws or proceed
by appropriate court action to enforce the terms hereof or to recover damages
for the breach hereof or to rescind this Lease.
In addition (but without duplication), Lessee shall be liable, except
as otherwise provided above, for any and all unpaid Supplemental Rent due
hereunder before or during the exercise of any of the foregoing remedies and, on
an After-Tax Basis, for all costs and expenses (including the reasonable fees
and expenses of counsel but not including costs and expenses in respect of
overhead or internal administration) incurred or suffered by reason of the
occurrence of any Default or Event of Default or the exercise of any of Lessor's
rights and remedies with respect thereto, including all costs and expenses
incurred in connection with the return of the Equipment or the Equipment Site,
or any part thereof, or in placing the Equipment or the Equipment Site, or any
part thereof, in the condition required by Article XVI hereof or by the Ground
Lease.
28
At any sale of any of the Equipment or the Equipment Site, or any part
thereof, or the rights and interests of the Lessor under the Ground Lease,
pursuant to this Section 12.02, the Owner Participant may bid for and purchase
the same.
Except as and to the extent specifically otherwise provided in Section
12.02(d) and Section 12.02(e), to the extent permitted by Applicable Law, no
right or remedy referred to in this Section 12.02 is intended to be exclusive,
but each shall be cumulative and in addition to any other right or remedy
referred to above or otherwise available to Lessor under any of the Basic
Agreements or at law or in equity; and to the extent permitted by Applicable
Law, the exercise or beginning of exercise by Lessor of any one or more of such
rights or remedies shall not preclude the simultaneous or later exercise by
Lessor of any or all such other rights and remedies. No express or implied
waiver by Lessor of any Default or Event of Default shall in any way be, or be
construed to be, a waiver of any other Default or Event of Default. No delay or
omission in the exercise of any right, power or remedy shall restrict Lessor
from exercising the same or any other right, power or remedy thereafter nor be
construed to be a waiver of any Default or Event of Default or to be an
acquiescence therein.
ARTICLE XIII
Additional Covenants; Indemnities
---------------------------------
Lessee agrees to perform and observe all of its covenants and
obligations contained in Articles VI, VII and VIII of the Participation
Agreement and the provisions of said Sections are hereby incorporated herein by
reference with the same force and effect as though set forth in full herein.
Lessee further agrees to perform all covenants and obligations (including,
without limitation, payment obligations) imposed during the Lease Term by the
Ground Lease on the Owner Trustee directly for the benefit of the Ground Lessor
thereunder.
ARTICLE XIV
Assignment or Sublease
----------------------
SECTION 14.01. Assignment or Sublease by Lessee. (a) Except as
--------------------------------
contemplated by Section 6.01(d) of the Participation Agreement, Lessee may not
assign any of its right, title and interest in and to, or its obligations under,
this Lease. Lessee may sublease the Equipment to any Person (including in such
sublease a sub-sublease of the
29
Equipment Site); provided that (i) any such sublease shall be expressly subject
--------
and subordinate to this Lease (including the right to repossess the Equipment
and the Equipment Site and to void such sublease upon such repossession) and no
such sublease shall release Lessee from any of its obligations as Lessee
hereunder or from any of its obligations under any of the other Basic
Agreements, (ii) no such sublease shall be entered into by Lessee so long as any
Event of Default or Specified Default has occurred and is continuing, (iii) the
term of any such sublease shall not extend beyond the Lease Term, (iv) the
Equipment shall not be removed from the Equipment Site (except as permitted by
Section 7.08 hereof), (v) the terms and provisions of any such sublease shall
not conflict with the terms and provisions of this Lease, (vi) the terms of any
such sublease shall prohibit the sublessee from sub-subleasing the Equipment or
sub-sub-subleasing the Equipment Site, or from assigning its rights or
obligations under such sublease, and (vii) Lessee shall not enter into any such
sublease with a sublessee that is bankrupt or insolvent. Lessee shall not be
required to assign to Lessor any rights of Lessee under any such sublease,
except that Lessee agrees to assign to Lessor, as collateral security pursuant
to an assignment reasonably satisfactory in form and substance to Lessor, its
rights under any such sublease entered into with a party that is not an
Affiliate of Lessee if such sublease has a term in excess of two years.
(b) Without limiting the generality of Section 14.01(a) above, Lessee
shall not grant any Lien (other than a Permitted Lien) on its rights as lessee
under this Lease.
ARTICLE XV
Renewal and Purchase Options
----------------------------
SECTION 15.01. Renewal Option. Subject to the provisions of Section
--------------
15.04 hereof, Lessee shall have the option to renew the term of this Lease on
the Basic Lease Term Termination Date for a period as determined by Lessee and
specified in the Twelve Month Notice (as defined in Section 15.04 below)
provided such period satisfies the following conditions: (i) such period shall
be at least two years and shall end on and include a Basic Rent Payment Date and
(ii) the length of such period shall not exceed 80% of the remaining economic
useful life of the Equipment as of the Basic Lease Term Termination Date as
determined by the appraisal delivered on the Closing Date pursuant to Section
4.01 of the Participation Agreement, or, at Lessee's option, as determined by
the Appraisal Procedure. During the Renewal Term, Lessee shall pay to Lessor
the Fair Market Rental Value of the Equipment in semiannual installments in
30
arrears on each Basic Rent Payment Date during the Renewal Term.
SECTION 15.02. Early Buyout Options. (a) Subject to the provisions of
--------------------
Section 15.04 hereof, Lessee shall have the option to purchase all (but not less
than all) of the Equipment on the First Early Buyout Date for a price equal to
the First Early Buyout Price.
(b) Subject to the provisions of Section 15.04 hereof, Lessee shall
have the option to purchase all (but not less than all) of the Equipment on the
Second Early Buyout Date for a price equal to the Second Early Buyout Price.
(c) Upon payment by Lessee of the Early Buyout Price for the Equipment
pursuant to Section 15.02(a) or 15.02(b) hereof, as the case may be, together
with all Basic Rent for the Equipment and all Supplemental Rent then due
hereunder, (i) all obligations of Lessee hereunder to pay Basic Rent for the
Equipment, and the Lease Term, shall terminate, and (ii) Lessor shall transfer,
without recourse or warranty (except as to the absence of Lessor Liens and Liens
granted by Lessor to secure any Bonds issued in connection with the exercise of
the Leverage Option in accordance with Section 10.02 of the Participation
Agreement) and on an "as-is, where-is" basis, all right, title and interest of
Lessor in and to the Equipment to or at the direction of Lessee, and shall
furnish to or at the direction of Lessee, at the expense of Lessee, one or more
bills of sale, in form and substance reasonably satisfactory to Lessee,
evidencing such transfer.
SECTION 15.03. Fair Market Purchase Options. (a) Subject to the
----------------------------
provisions of Section 15.04 hereof, Lessee shall have the option to purchase all
(but not less than all) of the Equipment on the Basic Lease Term Termination
Date for a price equal to the Fair Market Sale Value of the Equipment on the
Basic Lease Term Termination Date.
(b) Subject to the provisions of Section 15.04 hereof, Lessee shall
have the option to purchase all (but not less than all) of the Equipment on the
last day of the Renewal Term, if any, for a price equal to the Fair Market Sale
Value of the Equipment on such day.
(c) Upon payment by Lessee of the purchase price for the Equipment
pursuant to Section 15.03(a) or 15.03(b) hereof, as the case may be, together
with all Basic Rent for the Equipment and all Supplemental Rent then due
hereunder, Lessor shall transfer, without recourse or warranty (except as to the
absence of Lessor Liens and Liens granted by
31
Lessor to secure any Bonds issued in connection with the exercise of the
Leverage Option in accordance with Section 10.02 of the Participation Agreement)
and on an "as-is, where-is" basis, all right, title and interest of Lessor in
and to the Equipment to or at the direction of Lessee, and shall furnish to or
at the direction of Lessee, at the expense of Lessee, one or more bills of sale,
in form and substance reasonably satisfactory to Lessee, evidencing such
transfer.
SECTION 15.04. Notices for Renewal and Purchase Options; Certain
-------------------------------------------------
Conditions. (a) Not earlier than twenty-four months and not later than eighteen
----------
months prior to the Basic Lease Term Termination Date, Lessee shall give to
Lessor notice (the "Eighteen Month Notice") of its election (i) to return the
---------------------
Equipment to Lessor pursuant to Article XVI hereof or (ii) to exercise in the
Twelve Month Notice (as defined below) either the option to renew this Lease for
the Renewal Term pursuant to Section 15.01 hereof or the option to purchase the
Equipment on the Basic Lease Term Termination Date pursuant to Section 15.03
hereof. If the Eighteen Month Notice is not given within the prescribed period,
Lessee shall be deemed to have made the election specified in clause (ii) of the
preceding sentence. If in the Eighteen Month Notice Lessee shall have made the
election specified in clause (ii) of the first sentence of this Section
15.04(a), then not later than twelve months prior to the Basic Lease Term
Termination Date Lessee shall give to Lessor notice (the "Twelve Month Notice")
-------------------
of its election (x) to exercise the option to renew this Lease for the Renewal
Term pursuant to Section 15.01 hereof (which notice shall specify the length of
the Renewal Term as permitted by Section 15.01 hereof) or (y) to exercise the
option to purchase the Equipment pursuant to Section 15.03 hereof. If the
Twelve Month Notice is not given by such date, Lessee shall be deemed to have
made the election specified in clause (y) of the preceding sentence.
(b) Not earlier than twenty-four months and not later than eighteen
months prior to the expiration date of the Renewal Term, if any, Lessee shall
give to Lessor notice of its election (i) to return the Equipment to Lessor
pursuant to Article XVI hereof or (ii) to exercise the option to purchase the
Equipment on the last day of the Renewal Term pursuant to Section 15.03 hereof.
If such notice is not given within the prescribed period, Lessee shall be deemed
to have made the election specified in clause (ii) of the preceding sentence.
(c) If Lessee desires to exercise its option to purchase the Equipment
pursuant to Section 15.02(a) hereof, Lessee shall give to Lessor notice of its
election to exercise such option not earlier than 360 days and not later
32
than 180 days prior to the First Early Buyout Date. If Lessee desires to
exercise its option to purchase the Equipment pursuant to Section 15.02(b)
hereof, Lessee shall give to Lessor notice of its election to exercise such
option not earlier than 360 days and not later than 180 days prior to the Second
Early Buyout Date.
(d) Lessee's right to exercise its option to renew this Lease for the
Renewal Term pursuant to Section 15.01 hereof, or to exercise its option to
purchase the Equipment pursuant to Section 15.02 or Section 15.03 hereof, shall
be subject to the conditions that (i) no Event of Default or Specified Default
shall have occurred and be continuing either at the date that notice of such
election is given by Lessee or at the date that the Lessee would purchase the
Equipment or the date that the Renewal Term would commence, as the case may be,
and (ii) in the case of such renewal, if the Renewal Term is in excess of seven
years, then at the date the Renewal Term would commence Lessee's senior secured
debt shall be rated at least "BB" by Standard & Poor's and "Ba2" by ▇▇▇▇▇'▇.
(e) Any election made by Lessee pursuant to this Article XV shall be
irrevocable by Lessee, and such election shall be binding on Lessor, in each
case subject to the conditions specified in Section 15.04(d) hereof.
SECTION 15.05. Determination of Fair Market Values and other Matters.
-----------------------------------------------------
If in the Eighteen Month Notice Lessee makes the election specified in clause
(ii) of the first sentence of Section 15.04(a) hereof, then, Lessee shall
forthwith inform Lessor of the proposed length of Renewal Term Lessee may desire
to elect in the Twelve Month Notice (the "Proposed Renewal Period") and promptly
-----------------------
thereafter Lessor and the Lessee shall attempt to agree on the Fair Market
Rental Value of the Equipment during the Proposed Renewal Period and the Fair
Market Sale Value of the Equipment on the Basic Lease Term Termination Date and
the last day of the Proposed Renewal Period. If pursuant to Section 15.04(b)
hereof Lessee gives Lessor notice of its election to purchase the Equipment on
the last day of the Renewal Term pursuant to Section 15.03 hereof, then, Lessor
and Lessee shall promptly thereafter attempt to agree on the Fair Market Sale
Value of the Equipment as of such last day. If Lessee and Lessor are unable to
agree upon such Fair Market Rental Value or Fair Market Sale Value, such Fair
Market Rental Value or Fair Market Sale Value shall be determined by the
Appraisal Procedure. If the Proposed Renewal Period is longer than 80% of the
remaining economic useful life of the Equipment as determined by the Appraisal
delivered on the Closing Date, Lessor and Lessee shall promptly thereafter
attempt to agree on the remaining economic useful life of the Equipment as of
the Basic Lease
33
Term Termination Date and if they are unable to agree, such remaining economic
useful life shall be determined by the Appraisal Procedure.
ARTICLE XVI
Return of Equipment; Disposition Services
-----------------------------------------
SECTION 16.01. Return of Equipment. Upon the expiration of the Lease
-------------------
Term, unless Lessee exercises its option to purchase the Equipment as provided
in Section 15.02 or 15.03 hereof, Lessee shall return the Equipment and the
Equipment Site to Lessor or to any transferee or assignee of Lessor by
surrendering the same to Lessor or such transferee or assignee at the Equipment
Site, in the condition required to be maintained under Article VII hereof and
under the Ground Lease and free and clear of all Liens other than Lessor Liens
and Liens granted by Lessor to secure any Bonds issued in connection with the
exercise of the Leverage Option in accordance with Section 10.02 of the
Participation Agreement. Prior to such expiration, Lessee shall remove all
Parts or property incorporated or installed in or attached to the Equipment that
are not owned by, or not being purchased by, Lessor, and any Parts or property
not so removed that are owned by Lessee shall become the property of Lessor. In
addition, in connection with the delivery of the Equipment pursuant to this
Article, Lessee will deliver to Lessor copies of any manuals, technical
information and other data in Lessee's possession or control (including non-
exclusive rights to the use of software, patents and other intellectual
property) necessary for the operation of the Equipment for its intended
purposes. The obligations of Lessee under this Section shall survive the
termination of this Lease.
SECTION 16.02. Disposition Services. If Lessee shall not have
--------------------
exercised any of its rights provided in Article XV with respect to the
Equipment, then, during the last six months of the Lease Term, Lessee, at
Lessor's expense, will cooperate in a reasonable manner with Lessor in
connection with efforts to lease or dispose of the Equipment.
SECTION 16.03. Dismantling of Equipment. If Lessor shall request at
------------------------
or prior to the expiration of the Ground Lease Term, then unless Lessee shall
have purchased the Equipment pursuant to this Lease, Lessee shall, at its own
cost and expense, within a reasonable period of time after expiration of the
Ground Lease Term (not to exceed one year), dismantle the Equipment and deliver
the salvageable portions thereof to the railhead nearest the Equipment Site
prepared for shipment to Lessor in an acceptable manner;
34
provided that in lieu of its obligation to so dismantle and deliver the
Equipment, Lessee may purchase the Equipment for a cash price equal to the Fair
Market Sale Value of the Equipment, net of the estimated cost of such
dismantlement and delivery (but in no event less than $1), whereupon Lessor
shall transfer, without recourse or warranty (except as to the absence of Lessor
Liens and as to the absence of Liens granted by Lessor to secure any Bonds
issued in connection with the exercise of the Leverage Option in accordance with
Section 10.02 of the Participation Agreement) and on an "as-is, where-is" basis,
all right, title and interest of Lessor in and to the Equipment to or at the
direction of Lessee, and shall furnish to or at the direction of Lessee, at the
expense of Lessee, one or more bills of sale, in form and substance reasonably
satisfactory to Lessee, evidencing such transfer. The obligations of Lessee
under this Section 16.03 shall survive the expiration or other termination of
this Lease.
ARTICLE XVII
Recording; Further Assurances
-----------------------------
Lessee at its expense shall cause this Lease, a memorandum of this
Lease and/or appropriate financing statements or continuation statements and
fixture filings to be filed and recorded and, from time to time when required,
refiled and rerecorded, in accordance with the applicable provisions of the
Uniform Commercial Code as in effect in the State of Maine and the Commonwealth
of Massachusetts (and, if Lessee changes its chief executive office, in any
other state where Lessee's chief executive office is located) and other
Applicable Laws and in any other state of the United States of America or the
District of Columbia where filing and/or recording is necessary or reasonably
requested by the Owner Participant for the purpose of protecting their
respective interests in the Equipment and rights under this Lease. In addition,
Lessee at its expense shall do and perform any other act, and shall execute,
acknowledge, deliver, file, register, record (and will refile, reregister,
deposit and redeposit or rerecord whenever required) any and all further
instruments, from time to time required by law or reasonably requested by the
Owner Participant for the purpose of protecting their respective interests in
the Equipment and rights under this Lease.
35
ARTICLE XVIII
Lessor's Right to Perform for Lessee
------------------------------------
If Lessee fails to perform or comply with any of its covenants or
agreements contained herein or in any other Basic Agreement, Lessor or Owner
Participant may perform or comply with such covenant or agreement, and the
amount of the reasonable costs and expenses of Lessor or Owner Participant
incurred in connection with such performance or compliance, together with
interest on such amount at the rate of 2% per annum over the Prime Rate
(computed on the basis of the actual days elapsed over a year of 365 or 366
days, as appropriate), shall be payable by Lessee upon demand except as
otherwise provided in this Lease. No such performance or compliance by Lessor or
Owner Participant shall be deemed a waiver of the rights and remedies of Lessor
or any assignee of Lessor against Lessee hereunder.
ARTICLE XIX
Notices
-------
All communications, declarations, demands and notices provided for in
this Lease shall be in writing and shall be given in person or by means of
telecopy, or other wire transmission, or mailed by registered or certified mail,
or sent by courier, addressed as provided in Section 11.01 of the Participation
Agreement or at such other address or facsimile number as any party hereto may
from time to time designate by notice given in accordance with Section 11.01 of
the Participation Agreement to the other party hereto. All such communications,
declarations, demands and notices given in such manner shall be effective and
shall be deemed to have been received (i) when delivered personally or by
courier (or when delivery is tendered, if such delivery is refused), (ii) in the
case of mail delivery, upon delivery (or when delivery is tendered, if such
delivery is refused), or (iii) in the case of telecopy or other wire
transmission, at the time of dispatch with a transmission confirmation appearing
at the end of the communication.
ARTICLE XX
Severability
------------
Any provision of this Lease that is prohibited or unenforceable in any
jurisdiction shall be, as to such jurisdiction, to the extent permitted by
Applicable Laws, ineffective to the extent of such prohibition or
36
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by Applicable Laws, the parties hereto hereby waive any provision of
law that renders any provision hereof prohibited or unenforceable in any
respect.
ARTICLE XXI
Effect and Modification of Lease
--------------------------------
Except for the Participation Agreement and the other Basic Agreements
referred to therein, this Lease exclusively and completely states the rights of
Lessor and Lessee with respect to the leasing of the Equipment and supersedes
all other agreements, oral or written, with respect thereto. Except as provided
in Section 3.03 hereof, no variation or modification of this Lease and no waiver
of any of its provisions or conditions shall be valid unless in writing and
signed by a duly authorized signatory of the party against which enforcement of
such variation or modification or waiver is sought.
ARTICLE XXII
Third-Party Beneficiaries
-------------------------
Nothing in this Lease shall be deemed to create any right in any
Person not a party hereto (other than the Owner Participant and the permitted
successors and assigns of the Owner Participant and any party hereto) and this
instrument shall not be construed in any respect to be a contract in whole or in
part for the benefit of a third party except as aforesaid.
ARTICLE XXIII
Execution
---------
This Lease may be executed in several counterparts, such counterparts
together constituting but one and the same instrument.
37
ARTICLE XXIV
Governing Law; UCC Article 2-A
------------------------------
THIS LEASE IS BEING DELIVERED IN THE STATE OF NEW YORK AND SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
LESSOR AND LESSEE AGREE THAT THIS LEASE IS A "FINANCE LEASE" FOR
PURPOSES OF ARTICLE 2-A OF, AND AS DEFINED BY SECTION 2-A-103(g) OF, THE NEW
YORK UNIFORM COMMERCIAL CODE. THE LESSEE AGREES THAT NO RIGHT OR REMEDY GRANTED
SOLELY BY REASON OF ARTICLE 2-A OF THE UNIFORM COMMERCIAL CODE SHALL BE
AVAILABLE TO LESSEE AS AGAINST LESSOR UNLESS EXPRESSLY SET FORTH IN THIS LEASE.
ARTICLE XXV
No Recourse
-----------
The Trust Company is entering into this Lease solely as trustee for
the Owner Participant under the Trust Agreement and not in its individual
capacity, and in no case whatsoever shall the Trust Company (or any entity or
individual acting as successor trustee, co-trustee or separate trustee under the
Trust Agreement) or the Owner Participant be personally liable for any of the
statements, representations, warranties, agreements or obligations of the Lessor
hereunder, as to all of which the Lessee agrees to look solely to the Trust
Estate, except that the Trust Company shall be liable in its individual capacity
for any loss caused by its own willful misconduct or gross negligence and as
provided in Section 6.02 (it being understood and agreed that the foregoing
shall not constitute a waiver of any claims the Lessee may have against the
Owner Participant for a breach of its obligations under Section 6.02(d) of the
Participation Agreement).
ARTICLE XXVI
Successors and Assigns
----------------------
The terms and provisions of this Lease and the respective rights and
obligations of Lessor and Lessee and the rights of the Owner Participant
hereunder shall be binding upon, and inure to the benefit of, their respective
permitted successors and assigns.
38
ARTICLE XXVII
Successor and Co-Trustees
-------------------------
If a successor trustee is appointed in accordance with the terms of
the Trust Agreement, such successor trustee shall, without further act, succeed
to the rights, duties, immunities and obligations of Lessor hereunder and the
predecessor trustee shall be released from all further duties and obligations
hereunder, all without the necessity of any consent or approval by Lessee and
without in any way altering the terms of this Lease or Lessee's obligations
hereunder. The trustee under the Trust Agreement or any successor trustee
thereunder may from time to time, with prior consultation with the Owner
Participant and (unless an Event of Default or Specified Default has occurred
and is continuing) Lessee, appoint one or more co-trustees or separate trustees
pursuant to the Trust Agreement, and such right may be exercised repeatedly so
long as this Lease shall be in effect. Upon receipt of written notice of the
appointment of a successor trustee, co-trustee or separate trustee under the
Trust Agreement, Lessee at its own expense shall make such changes to reflect
such appointment as shall be reasonably requested by the Owner Participant or
such successor trustee, co-trustee or separate trustee in such insurance
policies, schedules, certificates and other instruments relating to the
Equipment or this Lease, all in form and substance satisfactory to the Owner
Participant and such successor trustee, co-trustee or separate trustee.
ARTICLE XXVIII
Miscellaneous
-------------
SECTION 28.01. No Conveyance. This Lease shall constitute an
-------------
agreement of lease only and nothing herein shall be construed as conveying to
Lessee any right, title or interest in the Equipment or any Part thereof except
as lessee only.
SECTION 28.02. Captions. The captions in this Lease and the table of
--------
contents are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
SECTION 28.03. Chattel Paper. To the extent, if any, that this Lease
-------------
constitutes chattel paper (as defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction), no security interest in this Lease may
be created through the transfer or possession of any counterpart other than the
original counterpart containing the receipt therefor executed by State Street
Bank and Trust
39
Company of Connecticut, National Association, as Owner Trustee.
40
IN WITNESS WHEREOF, the parties hereto have executed or caused this
instrument to be executed as of the date first above written.
STATE STREET BANK AND TRUST COMPANY
OF CONNECTICUT, NATIONAL
ASSOCIATION, not in its
individual capacity but solely as
Owner Trustee, Lessor
By:
--------------------------------
Name:
Title:
S.D. ▇▇▇▇▇▇ COMPANY, Lessee
By:
--------------------------------
Name:
Title:
[Lease Agreement]
STATE OF )
) ss.: July __, 1997
COUNTY OF )
Personally appeared the above-named _____________________ _________________ of
the aforesaid S.D. ▇▇▇▇▇▇ Company, and acknowledged the foregoing instrument to
be his free act and deed in his said capacity, and the free act and deed of said
corporation.
Before me,
-------------------------------
Notary Public
STATE OF )
) ss.: July __, 1997
COUNTY OF )
Personally appeared the above-named _______________, ____________________ of
State Street Bank and Trust Company of Connecticut, National Association, a
national banking association, as Owner Trustee aforesaid, and acknowledged the
foregoing instrument to be his free act and deed in his said capacity, and the
free act and deed of said national banking association.
Before me,
-------------------------------
Notary Public
[Lease Agreement]
SCHEDULE I
TO LEASE AGREEMENT
------------------
Basic Rent
----------
Basic Rent Basic Rent
Percentages
Payment Date (percentage of Lessor's Cost)
------------ -----------------------------
SCHEDULE II
TO LEASE AGREEMENT
------------------
Stipulated Loss Values
----------------------
Stipulated Loss Value
Percentages
Determination Date (percentage of Lessor's Cost)
------------------ -----------------------------
SCHEDULE III
TO LEASE AGREEMENT
------------------
Certain Terms
-------------
Purchase Price and Lessor's Cost: $ 150,400,000
First Early Buyout Price: 81.47% of Lessor's Cost
Second Early Buyout Price: 50.10% of Lessor's Cost