EXHIBIT 4.8(a)
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FACILITY LEASE AGREEMENT
(L1)
Dated as of December 19, 2000
between
▇▇▇▇▇▇▇▇▇▇ ▇▇▇ LLC,
as Owner Lessor
and
SOUTHERN ENERGY MID-ATLANTIC, LLC
as Facility Lessee
MORGANTOWN BASE-LOAD UNITS 1 AND 2
1,164 Megawatt (net), Coal-Fired Electric Generating Units
Located in
▇▇▇▇▇▇▇ County, Maryland
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CERTAIN OF THE RIGHT, TITLE AND INTEREST OF THE OWNER LESSOR IN AND TO THIS
LEASE AND THE RENT DUE AND TO BECOME DUE HEREUNDER HAVE BEEN ASSIGNED AS
COLLATERAL SECURITY TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF STATE
STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, NOT IN ITS
INDIVIDUAL CAPACITY BUT SOLELY AS LEASE INDENTURE TRUSTEE UNDER AN INDENTURE OF
TRUST, MORTGAGE AND SECURITY AGREEMENT, DATED AS OF DECEMBER 19, 2000 BETWEEN
SAID LEASE INDENTURE TRUSTEE, AS SECURED PARTY, FOR THE BENEFIT OF THE HOLDERS
THEREUNDER, AND THE OWNER LESSOR, AS DEBTOR. SEE SECTION 22 HEREOF FOR
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INFORMATION CONCERNING THE RIGHTS OF THE HOLDERS OF THE VARIOUS COUNTERPARTS
HEREOF.
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS......................................................... 2
SECTION 2. LEASE OF THE UNDIVIDED INTEREST..................................... 2
SECTION 3. FACILITY LEASE TERM AND RENT........................................ 2
Section 3.1. Basic Lease Term............................................ 2
Section 3.2. Rent........................................................ 2
Section 3.3. Supplemental Lease Rent..................................... 4
Section 3.4. Adjustment of Periodic Lease Rent and Termination Value..... 4
Section 3.5. Manner of Payments.......................................... 7
SECTION 4. DISCLAIMER OF WARRANTIES; RIGHT OF QUIET ENJOYMENT.................. 8
Section 4.1. Disclaimer of Warranties.................................... 8
Section 4.2. Quiet Enjoyment............................................. 9
SECTION 5. RETURN OF UNDIVIDED INTEREST........................................ 9
Section 5.1. Return...................................................... 9
Section 5.2. Condition Upon Return....................................... 10
Section 5.3. Expenses.................................................... 13
SECTION 6. LIENS............................................................... 13
SECTION 7. MAINTENANCE; REPLACEMENTS OF COMPONENTS............................. 13
Section 7.1. Maintenance................................................. 13
Section 7.2. Replacement of Components................................... 14
Section 7.3. Environmental Matters....................................... 15
SECTION 8. IMPROVEMENTS........................................................ 17
Section 8.1. Required Improvements....................................... 17
Section 8.2. Optional Improvements....................................... 18
Section 8.3. Title to Improvements....................................... 18
Section 8.4. Financing of Improvements................................... 19
SECTION 9. NET LEASE........................................................... 19
SECTION 10. EVENTS OF LOSS..................................................... 20
Section 10.1. Occurrence of Events of Loss................................ 20
Section 10.2. Payment Upon Termination; Special Lessee Transfer........... 21
Section 10.3. Application of Proceeds..................................... 23
Section 10.4. Rebuilding or Replacement................................... 24
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Section 10.5. Application of Payments Not Relating to an Event of Loss.... 27
Section 10.6. Partial Casualties.......................................... 27
SECTION 11. INSURANCE.......................................................... 27
Section 11.1. Property Insurance.......................................... 27
Section 11.2. Liability Insurance......................................... 28
Section 11.3. Provisions With Respect to Insurance........................ 28
Section 11.4. Reports..................................................... 30
Section 11.5. Additional Insurance........................................ 30
Section 11.6. Amendment of Insurance Requirements......................... 30
Section 11.7. Application of Insurance Proceeds........................... 32
SECTION 12. INSPECTION......................................................... 33
SECTION 13. TERMINATION OPTION FOR BURDENSOME EVENTS........................... 34
Section 13.1. Election to Terminate....................................... 34
Section 13.2. Solicitation of Qualifying Bids; Payments Upon Termination.. 35
Section 13.3. Procedure for Exercise of Termination Option................ 36
Section 13.4. Assumption of the Lessor Notes; Special Lessee Transfers.... 37
SECTION 14. TERMINATION FOR OBSOLESCENCE; PARTIAL RELEASE OF INTEREST.......... 38
Section 14.1. Termination................................................. 38
Section 14.2. Solicitation of Offers...................................... 39
Section 14.3. Right of Owner Lessor to Retain the Undivided Interest...... 39
Section 14.4. Procedure for Exercise of Termination Option................ 40
Section 14.5. Partial Release of Interest................................. 41
SECTION 15. LEASE RENEWAL...................................................... 42
Section 15.1. Wintergreen Renewal Lease Terms............................. 42
Section 15.2. Fair Market Value Renewal Lease Terms....................... 43
Section 15.3. Renewal Rent and Termination Value for Renewal Lease Term... 44
Section 15.4. Determination of Fair Market Rental Value................... 45
Section 15.5. Termination Value During Renewal Lease Terms................ 45
SECTION 16. SIGNIFICANT LEASE DEFAULTS.......................................... 45
SECTION 17. EVENTS OF DEFAULT.................................................. 46
SECTION 18. REMEDIES........................................................... 49
Section 18.1. Remedies for Lease Event of Default......................... 49
Section 18.2. Cumulative Remedies......................................... 52
Section 18.3. No Delay or Omission to be Construed as Waiver.............. 53
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SECTION 19. SECURITY INTEREST AND INVESTMENT OF SECURITY FUNDS.................... 53
SECTION 20. RIGHT TO SUBLEASE..................................................... 53
Section 20.1. Sublease....................................................... 53
SECTION 21. OWNER LESSOR'S RIGHT TO PERFORM....................................... 55
SECTION 22. SECURITY FOR OWNER LESSOR'S OBLIGATION TO THE LEASE INDENTURE TRUSTEE. 55
SECTION 23. MISCELLANEOUS......................................................... 56
Section 23.1. Amendments and Waivers......................................... 56
Section 23.2. Notices........................................................ 56
Section 23.3. Survival....................................................... 57
Section 23.4. Successors and Assigns......................................... 58
Section 23.5. True Lease..................................................... 60
Section 23.6. Governing Law.................................................. 60
Section 23.7. Severability................................................... 60
Section 23.8. Counterparts................................................... 61
Section 23.9. Headings and Table of Contents................................. 61
Section 23.10. Further Assurances............................................. 61
Section 23.11. Effectiveness.................................................. 61
Section 23.12. Limitation of Liability........................................ 61
Section 23.13. Measuring Life................................................. 61
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TABLE OF CONTENTS
(continued)
EXHIBITS AND SCHEDULES
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Exhibit A Description of Facility Site
Exhibit B Description of Facility
Schedule 1-1 Periodic Lease Rent
Schedule 1-2 Allocation of Periodic Lease Rent
Schedule 1-3 467 Rent Allocation
Schedule 2 Termination Values
Schedule 5.2(d) Return Items
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FACILITY LEASE AGREEMENT
This FACILITY LEASE AGREEMENT, dated as of December 19, 2000 (as amended,
supplemented or otherwise modified from time to time and in accordance with the
provisions hereof, this "Facility Lease"), between ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ LLC, a
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Delaware limited liability company (together with its successors and permitted
assigns, the "Owner Lessor") created for the benefit of SEMA OP1 LLC, a Delaware
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limited liability company (together with its successors and permitted assigns,
the "Owner Participant"), and Southern Energy Mid-Atlantic, LLC, a Delaware
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limited liability company (together with its successors assigns, the "Facility
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Lessee" or "SEMA").
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WITNESSETH:
WHEREAS, the Facility Lessee owns the Facility Site which is more
particularly described in Exhibit A hereto, such Exhibit A being attached to
this Facility Lease as a part hereof;
WHEREAS, pursuant to the Facility Site Lease, SEMA has leased the Ground
Interest to the Owner Lessor for the Site Lease Term;
WHEREAS, pursuant to the Facility Site Sublease, the Owner Lessor has
leased the Ground Interest to SEMA for the term equal to the term of this
Facility Lease, including any renewals hereof;
WHEREAS, the Facility is located on the Facility Site and is more
particularly described in Exhibit B hereto, such Exhibit B being attached to
this Facility Lease as a part hereof;
WHEREAS, pursuant to the Facility Deed and the ▇▇▇▇ of Sale, the Owner
Lessor has acquired from Potomac Electric Power Company an undivided ownership
interest in the Facility equal to the Undivided Interest Percentage as tenant-
in-common with the other owners of an undivided interest in the Facility, with
the right to nonexclusive possession of the Facility (such undivided ownership
interest and entitlement share together, the "Undivided Interest");
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WHEREAS, the Facility does not include the Facility Site or any part
thereof, and the Facility Site is being leased to the Owner Lessor pursuant to
the Facility Site Lease and is being subleased to the Facility Lessee pursuant
to the Facility Site Sublease; and
WHEREAS, pursuant to this Facility Lease, the Owner Lessor will lease the
Undivided Interest to the Facility Lessee for the Basic Lease Term and the
Renewal Lease Terms, if any, provided herein.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
agreements herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
Capitalized terms used in this Facility Lease, including those in the
recitals, and not otherwise defined herein shall have the respective meanings
set forth in Appendix A to that certain Participation Agreement (L1), dated as
of December 18, 2000 (the "Participation Agreement"), among the Facility Lessee,
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the Owner Lessor, the Owner Manager, the Owner Participant, State Street Bank
and Trust Company of Connecticut, National Association, as Pass Through Trustee
and State Street Bank and Trust Company of Connecticut, National Association,
as Lease Indenture Trustee unless the context hereof shall otherwise require.
The general provisions of Appendix A to the Participation Agreement shall apply
to the terms used in this Facility Lease and not specifically defined herein.
SECTION 2. LEASE OF THE UNDIVIDED INTEREST
Upon the terms and conditions set forth herein, the Owner Lessor hereby
leases the Undivided Interest to the Facility Lessee, and the Facility Lessee
hereby leases the Undivided Interest from the Owner Lessor, for the Basic Lease
Term and, subject to the Facility Lessee's exercise of any of its options to
renew this Facility Lease as provided in Section 15, one or more Renewal Lease
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Terms. The Facility Lessee and the Owner Lessor understand and agree that this
Facility Lease is subject to those encumbrances set forth in the Title Policies.
The Undivided Interest shall be subject to the terms of this Facility Lease from
the date on which this Facility Lease is executed and delivered.
SECTION 3. FACILITY LEASE TERM AND RENT
Section 3.1. Basic Lease Term. The basic lease term of this Facility
Lease (the "Basic Lease Term") shall commence on the Closing Date (the "Basic
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Lease Commencement Date") and shall continue for a period of 33.75 years, to and
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including September 19, 2034, subject to earlier termination pursuant to Section
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10, 13, 14 or 18 hereof. The Facility Lessee shall have the right to renew this
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Facility Lease in accordance with Section 15 hereof. The Basic Lease Term and
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the Renewal Lease Terms are referred to as the "Facility Lease Term".
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Section 3.2. Rent. (a) The Facility Lessee hereby agrees to pay to the
Owner Lessor lease rent payable with respect to the Basic Lease Term ("Periodic
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Lease Rent"). The Periodic Lease Rent shall be paid by the Facility Lessee to
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the Owner Lessor in installments in the amounts and on the dates (each a Rent
Payment Date) shown on Schedule 1-1 hereto. All Periodic Lease Rent to be paid
pursuant to this Section 3.2 shall be payable in the manner set forth in Section
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3.5 and shall be adjusted from time to time in accordance with Section 3.4
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hereof. Renewal Rent, with respect to any exercised Renewal Lease Term, shall be
paid in accordance with the provisions of Section 15.3 hereof. The term
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"Periodic Lease Rent" is intended to constitute "fixed rent" (as such term is
defined in Treasury Regulation (S)1.467-1(h)(3)
(b) Unless and until such time as adjustments are made pursuant to
Section 3.4, the Periodic Lease Rent allocated to each period for the use by the
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Facility Lessee of the Undivided Interest shall be the amount set forth on
Schedule 1-2 hereto (the "Allocated Rent"). Notwithstanding that Periodic Lease
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Rent is payable in accordance with Section 3.2(a), the Allocated Rent allocated
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pursuant to this Section 3.2(b) shall represent and be the amount of Periodic
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Lease Rent for which the Facility Lessee becomes liable on account of the use of
the Undivided Interest for each calendar year in whole or in part of the Basic
Lease Term.
(c) It is the intention of the parties hereto that the allocation of
Periodic Lease Rent to each Rent Payment Period as provided in Section 3.2(b)
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constitutes a specific allocation of fixed rent within the meaning of Treasury
Regulation (S)1.467-1(c)(2)(ii)(A) with the effect that pursuant to Treasury
Regulation (S)(S)1.467-1(d) and 1.467-2 the Owner Lessor and the Facility
Lessee, on any federal income tax returns filed by them (or on any return on
which their income is included), shall accrue the amounts of rental income and
rental expense, respectively, set forth for each Rent Payment Period on Schedule
1-3 hereto under the caption "Proportional Rent" (the "Proportional Rent").
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Because there shall be from time to time a difference between (i) the cumulative
amount of Periodic Lease Rent paid by the Facility Lessee (as set forth in
Section 3.2(a)) and (ii) the cumulative amount of Periodic Lease Rent allocated
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pursuant to Section 3.2(b), there shall be considered to exist a loan for
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purposes of Section 467 of the Code, the amount of which is as set forth on
Schedule 1-3 hereto under the caption "Section 467 Loan" (the "Section 467
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Loan"). If the applicable amount of the Section 467 Loan set forth on Schedule
1-3 hereto is positive, such amount (the "Lessor Section 467 Loan Balance")
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represents a loan from the Facility Lessee to the Owner Lessor; if the
applicable amount of the Section 467 Loan set forth on Schedule 1-3 hereto is
negative, such amount (the "Lessee Section 467 Loan Balance") represents a loan
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from the Owner Lessor to the Facility Lessee. If there shall be a Lessor Section
467 Loan Balance, the Owner Lessor shall deduct interest expense and the
Facility Lessee shall accrue interest income, in each case, in an amount equal
to the amount set forth under the caption "Lessor Section 467 Interest" for the
applicable Rent Payment Period on Schedule 1-3 hereto (the "Lessor Section 467
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Interest"). If there shall be a Lessee Section 467 Loan Balance, the Owner
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Lessor shall accrue interest income and the Facility Lessee shall deduct
interest expense, in each case, in an amount equal to the amount set forth for
the applicable Rent Payment Period on
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Schedule 1-3 hereto (the "Lessee Section 467 Interest"). In no event shall any
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principal or interest on any Section 467 Loan be separately payable as such, it
being agreed and understood that these items represent characterizations for
income tax purposes only. All Section 467 Loan principal and interest is already
included as part of Periodic Lease Rent and Termination Value and is payable as
a portion of the amounts set forth under the heading "Periodic Lease Rent" on
Schedule 1-1 hereto or under the heading "Termination Value" on Schedule 2
hereto, as applicable.
Section 3.3. Supplemental Lease Rent. The Facility Lessee also agrees to
pay, on an After-Tax Basis, to the Owner Lessor, or to any other Person entitled
thereto as expressly provided herein or in any other Operative Document, as
appropriate, any and all Supplemental Lease Rent, promptly as the same shall
become due and owing, or where no due date is specified, promptly after demand
by the Person entitled thereto, and in the event of any failure on the part of
the Facility Lessee to pay any Supplemental Lease Rent, the Owner Lessor shall
have all rights, powers and remedies provided for herein or by law or equity or
otherwise for the failure to pay Periodic Lease Rent. The Facility Lessee agrees
to pay, on an After-Tax Basis, as Supplemental Lease Rent, when due any and all
Make-Whole Premiums due under the Lease Indenture or the Lessor Notes. The
Facility Lessee will also pay as Supplemental Lease Rent, unless prohibited by
any Requirement of Law, an amount equal to interest at the applicable Overdue
Rate (computed on the basis of a 360-day year of twelve 30-day months) on any
part of any payment of Periodic Lease Rent not paid when due for any period for
which the same shall be overdue and on any Supplemental Lease Rent not paid when
due (whether on demand or otherwise) for the period from such due date until the
same shall be paid. All Supplemental Lease Rent to be paid pursuant to this
Section 3.3 shall be payable in the manner set forth in Section 3.5.
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Section 3.4. Adjustment of Periodic Lease Rent and Termination Value.
(a) The Facility Lessee and the Owner Lessor agree that Periodic Lease Rent,
Allocated Rent, Proportional Rent, Lessor Section 467 Loan Balance, Lessee
Section 467 Loan Balance, Lessor Section 467 Interest, Lessee Section 467
Interest and Termination Value, may be adjusted, either upwards or downwards, at
the request of the Facility Lessee in the following situations: to reflect (A)
the interest rate on any New Lessor Notes issued pursuant to Section 2.13 of the
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Lease Indenture in connection with a refinancing or refunding of the Lessor
Notes pursuant to Section 12.2 of the Participation Agreement, (B) the principal
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amount, amortization and interest rate on any Additional Lessor Notes issued
pursuant to Section 2.13 of the Lease Indenture in connection with the financing
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of Improvements to the Facility pursuant to Section 8 hereof and Section 12.1 of
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the Participation Agreement and (C) the effect of any manifest error in the
mathematical computation of the Periodic Lease Rent, Allocated Rent, Lessor
Section 467 Loan Balance, Lessee Section 467 Loan Balance, Proportional Rent,
Lessor Section 467 Interest, Lessee Section 467 Interest and Termination Value.
4
(b) In the event that (i) either (A) the Exchange Offer has not been
consummated or the Shelf Registration Statement has not become effective within
365 days of the initial issuance date of the Certificates or (B) the Shelf
Registration Statement has been declared effective by the Commission but
thereafter ceases to be effective or the Shelf Registration Statement or the
related prospectus ceases to be usable as specified in the Registration Rights
Agreement (collectively, the "Registration Delay") or (ii) following the
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effectiveness of any registration statement pursuant to the Registration Rights
Agreement, the Facility Lessee ceases to maintain its status as a reporting
company under the Exchange Act (a "Reporting Cessation") (it being understood
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that no Reporting Cessation shall be deemed to have occurred if the Commission
will not accept the information and reports of the Facility Lessee to be filed
pursuant to the Exchange Act), the Owner Lessor and the Facility Lessee will
institute an alternative rent schedule (the "Alternative Rent Schedule") to
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replace Schedules 1-1, 1-2 and 1-3 attached hereto and an alternative
termination value schedule (the "Alternative Termination Value Schedule") to
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replace Schedule 2 attached hereto. The Alternative Rent Schedule will require
amounts of Periodic Lease Rent during the Basic Lease Term ("Alternative Rent")
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to be paid that equal the sum of (x) the Periodic Lease Rent that would have
been paid absent a Registration Delay or Reporting Cessation, as the case may
be, and (y) an amount equal to the increased interest paid pursuant to the
Lessor Notes because of the Registration Delay or Reporting Cessation, as the
case may be (the "Additional Amount"). The Alternative Termination Value
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Schedule will reflect the increase on any Termination Date of such Additional
Amount. The Alternative Rent Schedule will allocate the Additional Amount over
the Basic Lease Term in accordance with the rules of Section 467 of the Code
then in effect and in a manner that preserves the Owner Participant's Net
Economic Return. At the commencement of any Registration Delay or Reporting
Cessation, as applicable, the Alternative Rent Schedule and the Alternative
Termination Value Schedule will be based on the assumption that the Additional
Amount will apply for the term of the Lessor Notes. In the event the Additional
Amount terminates prior to the term of the Lessor Notes, such schedules will be
revised to reflect the amounts of the Additional Amount actually paid. It is the
intent of the Owner Lessor and the Facility Lessee that the options set forth in
this Section 3.5(b) constitute alternative rent schedules as contemplated under
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Treasury Regulation (S)1.467-1(h)(3)(v).
(c) Any adjustments pursuant to this Section 3.4 shall be calculated,
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(A) first, so as to maintain the Owner Participant's Net Economic Return through
the end of the Basic Lease Term (provided, that with respect to GAAP earnings,
the Owner Participant shall not be obligated by any such adjustment to record a
book loss or reduce book earnings by more than five percent (5%) in the year of
adjustment or in any of the succeeding ten (10) years) plus, any increase
attributable to the sharing of the net economic benefit of a refinancing of the
Lessor Notes pursuant to Section 2.13 of the Lease Indenture, and, (B) second at
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the option of the Facility Lessee (x) to minimize the average annual Periodic
Lease Rent over the Basic Lease Term for GAAP accounting purposes of the
Facility Lessee and/or (y) to minimize, to the extent possible, the net present
value of the Periodic Lease Rent. Adjustments shall be computed by the
5
Owner Participant, using the same method of computation, Tax Assumptions and
Pricing Assumptions originally used (other than those that have changed as a
result of the event giving rise to the adjustment) in the calculation of
Periodic Lease Rent Allocated Rent, Proportional Rent, Lessor Section 467 Loan
Balance, Lessee Section 467 Loan Balance, Lessor 467 Interest, Lessee 467
Interest and Termination Values set forth in Schedules 1-1, 1-2, 1-3 and
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Schedule 2 hereto, respectively, but shall be subject to the verification
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procedure described in Section 3.4(c) and shall be in compliance with Section
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467 of the Code except to the extent the original transaction did not comply
therewith. Adjustments to Periodic Lease Rent, Allocated Rent or Proportional
Rent contemplated by this Section 3.4 shall result in corresponding adjustments
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to Termination Values.
(d) Anything herein or in any other Operative Document to the
contrary notwithstanding, Periodic Lease Rent (excluding any Equity Portion of
Periodic Lease Rent included in such installment) payable on any Rent Payment
Date, whether or not adjusted in accordance with this Section 3.4, shall, in the
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aggregate, be in an amount at least sufficient to pay in full principal and
interest payable on the Lessor Notes on such Rent Payment Date. Anything herein
or in any other Operative Document to the contrary notwithstanding, Termination
Values (excluding the Equity Portion of Termination Value) payable on any date
under this Facility Lease, whether or not adjusted in accordance with this
Section 3.4, shall in the aggregate, together with all other Rent due and owing
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on such date, exclusive of any portion thereof that is an Excepted Payment, be
in an amount at least sufficient to pay in full the principal of, premium, if
any, and accrued interest on the Lessor Notes payable on such date.
(e) Any adjustment pursuant to this Section 3.4 or Section 14 of the
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Participation Agreement computed by the Owner Participant pursuant to Section
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3.4(a) shall be subject to the verification procedure described in this Section
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3.4(e). Once computed, the results of such computation shall promptly be
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delivered by the Owner Participant to the Facility Lessee. Within 30 days after
the receipt of the results of any such adjustment, the Facility Lessee may
request that a nationally recognized firm of accountants or lease advisors
selected by the Owner Participant and reasonably acceptable to the Facility
Lessee (the "Verifier") verify, on a confidential basis, after consultation with
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the Owner Participant and the Facility Lessee, the accuracy of such adjustment
in accordance with this Section 3.4. The Owner Participant hereby agrees,
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subject to the execution by the Verifier of an appropriate confidentiality
agreement, to provide the Verifier with all necessary information and materials
(other than the Equity Investor's, the Owner Participant's, the OP Guarantor's
or any of their respective Affiliates' income tax returns or accounting records)
as shall be necessary in connection with such verification. Each of the Owner
Participant, the Equity Investor, the OP Guarantor and the Facility Lessee shall
have the right to communicate with the Verifier and to submit supporting
information and data to the Verifier. If the Verifier confirms that such
adjustment is in accordance with this Section 3.4, and the adjustment to
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Periodic Lease Rent and Termination Value calculated by the Verifier are the
same as those calculated by the Owner Participant, it shall so certify to the
Facility Lessee, the Owner Lessor and the Owner Participant and such
certification shall be final, binding and conclusive on the Facility Lessee, the
Owner Lessor and the Owner Participant. If the Verifier concludes that such
adjustment is not in accordance with this Section 3.4, and the adjustments to
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Periodic Lease Rent and Termination Value calculated by the Verifier are
different from those calculated by the Owner Participant, it
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shall so certify to the Facility Lessee, the Owner Lessor and the Owner
Participant and such certification shall be final, binding and conclusive on the
Facility Lessee, the Owner Lessor and the Owner Participant. If the Verifier
concludes that such adjustment is not in accordance with this Section 3.4, and
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the adjustments to Periodic Lease Rent and Termination Value calculated by the
Verifier are different from those calculated by the Owner Participant, it shall
so certify to the Facility Lessee, the Owner Lessor and the Owner Participant,
and the Verifier's calculation shall be final, binding and conclusive on the
Facility Lessee, the Owner Lessor and the Owner Participant. If the Facility
Lessee does not request a verification of any adjustment within the 30 day
period specified above in this Section 3.4(e), the computation provided by the
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Owner Participant shall be final, binding and conclusive on the Facility Lessee,
the Owner Lessor and the Owner Participant. The final determination of any
adjustment hereunder shall be set forth in an amendment to this Facility Lease,
executed and delivered by the Owner Lessor and the Facility Lessee and consented
to by the Owner Participant; provided, however, that any omission to execute and
deliver such amendment shall not affect the validity and effectiveness of any
such adjustment. The reasonable costs of the Verifier in verifying an adjustment
pursuant to this Section 3.4 shall be paid by the Facility Lessee; provided,
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however, that in the event that such Verifier determines that the present value
of the remaining Periodic Lease Rent to be made under this Facility Lease as
calculated by the Owner Participant is greater than the present value of the
remaining Periodic Lease Rent as certified by the Verifier, in each case,
discounted annually at the Discount Rate, by more than ten basis points, then
such reasonable costs of the Verifier shall be paid by the Owner Participant.
Notwithstanding anything herein to the contrary, the sole responsibility of the
Verifier shall be to verify the calculations hereunder and the scope of the
Verifier's responsibilities shall not include matters of interpretation of this
Facility Lease or any other Operative Document.
Section 3.5. Manner of Payments. All Rent (whether Periodic Lease Rent,
Renewal Rent or Supplemental Lease Rent) and all Termination Value payments
shall be paid by the Facility Lessee in Dollars in immediately available funds
to the recipient not later than 11:00 a.m. (New York City time) on the date due.
If any Rent is due on a day which is not a Business Day, payment thereof shall
be made on the next succeeding Business Day with the same effect as if made on
the date on which such payment was due. All Rent payments payable to the Owner
Lessor (other than Excepted Payments) shall be paid by the Facility Lessee to
the Owner Lessor at its account at Wilmington Trust Company (Account No. 53573-
0)(the "Owner Lessor's Rent Account"), or to such other place as the Owner
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Lessor shall notify the Facility Lessee in writing; provided, however, that so
long as the Lessor Notes are outstanding and the Lien created under the Lease
Indenture has not been discharged, the Owner Lessor hereby irrevocably directs
(it being agreed and understood that such direction shall be deemed to have been
revoked after the Lien created under the Lease Indenture shall have been fully
discharged in accordance with its terms), and the Facility Lessee agrees, that
all payments of Rent (other than Excepted Payments) payable to the Owner Lessor
shall be paid by "wire" transfer directly to the Lease Indenture Trustee's
Account or to such other place as the Lease Indenture Trustee shall notify the
Facility
7
Lessee in writing pursuant to the Participation Agreement. On each Rent Payment
Date, Periodic Lease Rent shall be paid by transferring funds in the amount
equal to the Periodic Lease Rent payment (in the amount notified by the Facility
Lessee to the Owner Lessor and, so long as the Lessor Notes are outstanding and
the Lien created under the Lease Indenture has not been discharged, the Lease
Indenture Trustee) into the Owner Lessor's Rent Account or, so long as the
Lessor Notes are outstanding and the Lien created under the Lease Indenture has
not been discharged, the Lease Indenture Trustee's Account. Payments
constituting Excepted Payments shall be made to the Person entitled thereto at
the address for such Person set forth in the Participation Agreement, or to such
other place as such Person shall notify the Facility Lessee in writing.
SECTION 4. DISCLAIMER OF WARRANTIES; RIGHT OF QUIET ENJOYMENT
Section 4.1. Disclaimer of Warranties. (a) Without waiving any claim the
Facility Lessee may have against any manufacturer, vendor or contractor, THE
FACILITY LESSEE ACKNOWLEDGES AND AGREES SOLELY FOR THE BENEFIT OF THE OWNER
LESSOR AND THE OWNER PARTICIPANT THAT (i) THE FACILITY AND EACH COMPONENT ARE OF
A SIZE, DESIGN, CAPACITY AND MANUFACTURE ACCEPTABLE TO THE FACILITY LESSEE, (ii)
THE FACILITY LESSEE IS SATISFIED THAT THE FACILITY AND EACH COMPONENT ARE
SUITABLE FOR THEIR RESPECTIVE PURPOSES, (iii) NEITHER THE OWNER LESSOR NOR THE
OWNER PARTICIPANT IS A MANUFACTURER OR A DEALER IN PROPERTY OF SUCH KIND, (iv)
THE UNDIVIDED INTEREST IS LEASED HEREUNDER TO THE EXTENT PROVIDED HEREBY FOR THE
BASIC LEASE TERM AND THE RENEWAL LEASE TERMS, IF ANY, SPECIFIED HEREIN SUBJECT
TO ALL REQUIREMENTS OF LAW NOW IN EFFECT OR HEREAFTER ADOPTED, INCLUDING (1)
ZONING REGULATIONS, (2) ENVIRONMENTAL LAWS OR (3) BUILDING RESTRICTIONS, AND IN
THE STATE AND CONDITION OF EVERY PART THEREOF WHEN THE SAME FIRST BECAME SUBJECT
TO THIS FACILITY LEASE WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND BY THE
OWNER LESSOR OR THE OWNER PARTICIPANT AND (v) THE OWNER LESSOR LEASES FOR THE
BASIC LEASE TERM AND THE RENEWAL LEASE TERMS, IF ANY, SPECIFIED HEREIN AND THE
FACILITY LESSEE TAKES THE UNDIVIDED INTEREST UNDER THIS FACILITY LEASE "AS-IS,"
"WHERE-IS" AND "WITH ALL FAULTS," AND THE FACILITY LESSEE ACKNOWLEDGES THAT
NEITHER THE OWNER LESSOR, NOR THE OWNER PARTICIPANT MAKES NOR SHALL BE DEEMED TO
HAVE MADE, AND EACH EXPRESSLY DISCLAIMS, ANY AND ALL RIGHTS, CLAIMS, WARRANTIES
OR REPRESENTATIONS, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, CONDITION,
FITNESS FOR ANY PARTICULAR PURPOSE, DESIGN, OPERATION, MERCHANTABILITY THEREOF
OR AS TO THE TITLE OF THE FACILITY, THE QUALITY OF THE MATERIAL OR WORKMANSHIP
THEREOF OR CONFORMITY THEREOF TO SPECIFICATIONS, FREEDOM FROM
8
PATENT, COPYRIGHT OR TRADEMARK INFRINGEMENT, THE ABSENCE OF ANY LATENT OR OTHER
DEFECT, WHETHER OR NOT DISCOVERABLE, OR AS TO THE ABSENCE OF ANY OBLIGATIONS
BASED ON STRICT LIABILITY IN TORT OR ANY OTHER EXPRESS OR IMPLIED REPRESENTATION
OR WARRANTY WHATSOEVER WITH RESPECT THERETO, except that the Owner Lessor
represents and warrants that on the Closing Date, the Undivided Interest will be
free of Owner Lessor Liens. It is agreed that all such risks, as between the
Owner Lessor and the Owner Participant on the one hand and the Facility Lessee
on the other hand are to be borne by the Facility Lessee with respect to acts,
occurrences or omissions during the Facility Lease Term. Neither the Owner
Lessor nor the Owner Participant shall have any responsibility or liability to
the Facility Lessee or any other Person with respect to any of the following:
(x) any liability, loss or damage caused or alleged to be caused directly or
indirectly by the Facility or any Component or by any inadequacy thereof or
deficiency or defect therein or by any other circumstances in connection
therewith; (y) the use, operation or performance of the Facility, any Component
or any risks relating thereto; or (z) the delivery, operation, servicing,
maintenance, repair, improvement, replacement or decommissioning of the Facility
or any Component. The provisions of this paragraph (a) of this Section 4.1 have
-----------
been negotiated, and, except to the extent otherwise expressly stated, the
foregoing provisions are intended to be a complete exclusion and negation of any
representations or warranties of the Owner Lessor, express or implied, with
respect to the Facility, any Component or the Undivided Interest that may arise
pursuant to any Requirement of Law now or hereafter in effect, or otherwise.
(b) During the Facility Lease Term, so long as no Lease Event of
Default shall have occurred and be continuing, the Owner Lessor hereby appoints
irrevocably and constitutes the Facility Lessee its agent and attorney-in-fact,
coupled with an interest, to assert and enforce, from time to time, in the name
and for the account of the Owner Lessor and the Facility Lessee, as their
interests may appear, but in all cases at the sole cost and expense of the
Facility Lessee, whatever claims and rights the Owner Lessor may have in respect
of the Facility, any Component or the Undivided Interest against any
manufacturer, vendor or contractor, or under any express or implied warranties
relating to the Facility, any Component or the Undivided Interest.
Section 4.2. Quiet Enjoyment. So long as no Lease Event of Default has
occurred and is continuing, the Facility Lessee's quiet enjoyment of the use,
operation, or possession of the Facility or the Undivided Interest will not be
disturbed by the Owner Lessor, any Affiliate thereof or any other Person (other
than the Lease Indenture Trustee, any Noteholder or any Affiliate of either
thereof or any other Person having a rightful, valid and legal claim by, through
or under the Lease Indenture Trustee, any Noteholder or any Affiliate thereof)
having a rightful, valid and legal claim by, through or under the Owner Lessor
or any of its Affiliates.
SECTION 5. RETURN OF UNDIVIDED INTEREST
9
Section 5.1. Return. Upon expiration of the Facility Lease Term (or
earlier than such date if required pursuant to the provisions of this Facility
Lease) (the "Date of Return"), unless the Undivided Interest is being
--------------
transferred to the Facility Lessee (or its designee) pursuant to Section 10 or
-------------
13, the Facility Lessee shall return the Undivided Interest (together with all
--
Required Improvements, all Non-Severable Improvements, all other Improvements
financed through this Facility Lease, if any, all logs and records relating to
the Undivided Interest title to each of which shall vest in the Owner Lessor) to
the Owner Lessor or any designee or transferee of the Owner Lessor by
surrendering the Undivided Interest into the possession of the Owner Lessor or
such designee or transferee at the location of the Facility on the Facility
Site.
Section 5.2. Condition Upon Return. On the Date of Return, (other than
in connection with a return pursuant to Section 13 or 14), the Facility Lessee
----------------
agrees that the following conditions (the "Return Conditions") shall be
-----------------
satisfied or waived, whereupon this Facility Lease and the Facility Site
Sublease shall terminate:
(a) the Facility will be in at least as good condition as it would
have been in if it had been maintained during the Facility Lease Term in
compliance with the provisions of this Facility Lease;
(b) the Facility Lessee shall, to the extent permitted by Requirements
of Law and the provisions of such licenses or permits, assign an undivided
interest equal to the Owner Lessor's Percentage to the Owner Lessor or its
transferee or designee in, and shall cooperate with all reasonable requests of
the Owner Participant, the Owner Lessor or any transferee or designee of either
such Person for purposes of obtaining, or enabling the Owner Participant, the
Owner Lessor or such transferee or designee to obtain, any and all licenses and
permits of any Governmental Authorities or other Persons that are or will be
required to be obtained by the Owner Participant, the Owner Lessor or such
transferee or designee in connection with the use, operation or maintenance of
the Undivided Interest that are not already in the name of the Owner Lessor or a
transferee or designee, as the case may be;
(c) the Facility Lessee shall provide the Owner Lessor or its
transferee or designee with copies of all documents, instruments, plans, maps,
specifications, manuals, drawings and other documentary materials relating to
the installation, maintenance, operation, construction, design, modification and
repair of the Facility, in each case as shall be in the Facility Lessee's
possession and reasonably appropriate or necessary for the continued operation
of the Facility;
(d) the Facility Lessee, at the request of the Owner Lessor, shall
sell to the Owner Lessor or its designee or transferee at the then fair market
value thereof, determined by agreement between the Facility Lessee and the Owner
Lessor or, absent such agreement, by an
10
appraisal (the fees and expenses to be for the account of the Owner Lessor)
conducted according to the Appraisal Procedure, an undivided interest equal to
the Owner Lessor's Percentage in (i) the Facility Lessee's right, title and
interest in and to any or all Severable Improvements made to the Facility that
are owned by the Facility Lessee, subject to any existing encumbrances, (ii) any
and all supplies, spare parts, consumables, safety equipment, and other parts or
materials as shall be in the Facility Lessee's possession and shall be
reasonably appropriate or necessary for the continued operation of the Facility
and (iii) those items listed on Schedule 5.2(d) that are, on the Date of Return,
owned by, and in the possession of, the Facility Lessee;
(e) the Undivided Interest shall be free and clear of all Liens other
than Liens in existence on the Closing Date and Permitted Liens set forth in
clauses (ii), (iii), (ix), (xi), (xiii) and (xiv) of the definition thereof;
provided, however, in the case of Permitted Liens set forth in clauses (iii) and
(ix) of the definition thereof, adequate cash reserves shall have been escrowed
in a manner reasonably satisfactory to the Owner Lessor; provided, further, that
nothing in this Section 5.2(e) shall limit the obligations of the Facility
--------------
Lessee under Section 10.1 of the Participation Agreement;
------------
(f) any Component in existence on the Date of Return shall satisfy the
standards of Section 7.2;
-----------
(g) the Facility Lessee, or an Affiliate thereof, shall enter into an
agreement or other arrangements reasonably acceptable to the Owner Lessor, which
arrangements, however, shall not be a condition precedent to the return of the
Undivided Interest (the "Support Arrangements") to provide the Owner Lessor with
--------------------
the Support Services; provided, that the Facility Lessee, or its Affiliate, as
the case may be, shall be bound to provide Support Services only to the extent
the Facility Lessee or any domestic, unregulated Affiliate thereof is capable of
providing such services and is either in the business of providing such Support
Services to others or performs such Support Services on its own behalf, and only
to the extent that such services are necessary for the operation of the Facility
and cannot commercially reasonably and timely be obtained by the Owner Lessor or
its Affiliates from third parties. It is the intent of the parties hereto that
the Support Arrangements, together with the Facility Site Lease, appropriate
arrangements with respect to any Retained Assets and mutually agreed easements
and rights of way, if required, will provide all rights, including reasonable
access to the Facility and the Facility Site, that are necessary and appropriate
for the Owner Lessor (or any transferee or designee thereof) to own and operate
the Facility, and transmit power generated thereby, during and after the
expiration of this Facility Lease. Support Arrangements shall provide for the
provision of Support Services from and after the expiration of this Facility
Lease, and will provide for fair market value compensation from time to time to
be paid to the Facility Lessee, or an Affiliate thereof, for the performance of
such Support Services, periodically in advance on no less than an annual basis,
for such rights and the performance of other services and all such arrangements
shall terminate upon expiration or early termination of the Facility Site Lease
or at
11
the Owner Lessor's option. Within 180 days after the expiration or termination
of this Facility Lease, the Owner Lessor shall notify the Facility Lessee of the
material elements of the Support Services that the Owner Lessor desires the
Facility Lessee, or its Affiliate, to continue to perform. Following such
notice, the Facility Lessee and the Owner Lessor shall negotiate in good faith
the terms of the fair market value, performance standards, compensation and
other terms of such specified Support Services, including the circumstances
under which the Facility Lessee and its Affiliates shall be released of any
further obligation to provide such Support Services, and enter into contracts
for the performance of the Support Services upon any such negotiated terms,
provided, further, that if the notice referenced in the preceding sentence is
given by the Owner Lessor at any time up to 60 days prior to the Date of Return,
the Owner Lessor and the Facility Lessee shall use reasonable efforts to cause
such contracts to be executed no later than the Date of Return; provided,
further, that, in the event such contracts shall not have been executed prior to
the Date of Return, from the period beginning on such Date of Return and ending
on the date on which such contracts are executed, the Facility Lessee shall
provide to the Owner Lessor, at the then prevailing rate being charged for the
same or similar services in the wholesale power generation industry, such
specified Support Services as are necessary to enable the Owner Lessor to
operate, maintain and repair the Facility in accordance with Prudent Industry
Practice and in compliance with applicable Requirements of Law;
(h) the Facility Lessee shall provide to the Owner Lessor and the
Owner Participant a Phase I Environmental Survey of the Facility and the
Facility Site and, if as a result of such survey, facts are revealed that would
reasonably necessitate a Phase II Environmental Survey, a Phase II Environmental
Survey, as to the presence or absence of Environmental Conditions (including
compliance or non-compliance with applicable Environmental Laws), not later than
12 months prior to the Date of Return or, in connection with a return other than
pursuant to Section 5.1, not later than the date such Undivided Interest is
-----------
returned, such surveys to be prepared by a reputable and nationally recognized
environmental consulting firm (selected by the Facility Lessee and reasonably
acceptable to the Owner Participant) and to be in form and scope reasonably
satisfactory to the Owner Participant. If, as a result of either such
environmental survey, any action (including, any cleaning, investigation,
abatement, correction, removal or remediation) is required in order that the
Facility and the Facility Site are in compliance with applicable Environmental
Laws and the Return Conditions, the Facility Lessee shall, at its own expense,
within 90 days of the Owner Lessor having received such environmental survey,
provide the Owner Participant and, so long as the Lessor Notes are outstanding
and the Lien of the Lease Indenture shall not have been discharged, the Lease
Indenture Trustee with a plan, reasonably satisfactory to the Owner Participant
and/or the Lease Indenture Trustee, designed to ensure that the Facility and the
Facility Site will be brought into compliance with applicable Environmental Laws
and all material Environmental Conditions recommended for correction in such
survey will be corrected as promptly as is reasonably practical and without
materially adversely affecting the continued operation of the Facility. The
actions referred to in this Section 5.2(h) shall be completed prior to the
--------------
expiration of the Basic
12
Lease Term or any then existing Renewal Lease Term or early termination thereof,
as applicable, in compliance with Environmental Laws other than immaterial
violations that do not involve any (1) material risk of foreclosure, sale,
forfeiture or loss of, or imposition of a Lien (other than Liens permitted
pursuant to Section 5.2(e)) on the Facility, the Undivided Interest or the
--------------
Facility Site or the impairment of the use, operation or maintenance of the
Facility or the Facility Site in any material respect, (2) the risk of criminal
liability being incurred by the Owner Lessor, the Owner Participant, the Equity
Investor or the OP Guarantor or (3) a material risk of any material adverse
effect on the interest of the Owner Lessor, the Owner Participant, the Equity
Investor or the OP Guarantor; provided, however, if any such action cannot
reasonably be completed prior to the expiration or early termination of such
Lease Term and if continued operation of the Facility could not reasonably be
expected to result in strict liability being imposed upon the Owner Lessor, the
Owner Participant, the OP Guarantor or the Equity Investor, the Facility Lessee
shall complete such action as promptly thereafter as is reasonably practical and
shall provide financial assurance to the Owner Lessor and the Owner Participant,
reasonably satisfactory to each such Person, during the period of such action
following the end of such Lease Term. Neither the provision of the surveys
contemplated by this Section 5.2(h), nor any other provision of this Section
-------------- -------
5.2(h), shall alter the obligations of any party to the Operative Documents,
------
including those set forth in Sections 5.4(iv) and 10.1 of the Participation
---------------- --------
Agreement. The obligations of the Facility Lessee set forth in this Section
-------
5.2(h) shall survive the termination of this Facility Lease and the expiration
------
of the applicable Lease Term;
(i) the Facility shall have at least the capability and the functional
ability to generate electricity, on a continuous basis in normal commercial
operating conditions, substantially at the ratings for which it was designed
after taking into account normal performance degradation as a function of (i)
time and (ii) all Required Improvements to the Facility made in accordance with
this Facility Lease; and
(j) at the Owners Lessor's request, a nationally recognized
independent engineer (selected by the Facility Lessee and reasonably acceptable
to the Owner Participant) shall provide a certificate certifying that the
Facility is in compliance with the Return Conditions.
There shall be no other return conditions or requirements other than
the Return Conditions set forth in this Section 5.2.
-----------
Section 5.3. Expenses. Except as provided in Section 5.2(d) and 5.2(g),
-------------------------
the Facility Lessee agrees to pay or reimburse or to cause to be paid or
reimbursed, on an After-Tax Basis, on demand, all costs and expenses incurred in
connection with any return contemplated by this Section 5.
---------
SECTION 6. LIENS
13
The Facility Lessee hereby covenants that it will not directly or
indirectly create, incur, assume or suffer to exist any Lien or other
encumbrance on or with respect to the Undivided Interest, the Facility, the
Facility Site, any Component, or on any Operative Document or on the Owner
Lessor's or the Owner Participant's interest in or under any Operative Document,
except Permitted Liens. The Facility Lessee shall promptly notify the Owner
Lessor of the imposition of any such Lien of which the Facility Lessee has
Actual Knowledge and shall promptly, at its own expense, take such action as may
be necessary to fully discharge or release any such Lien (except for Lessor
Liens and Permitted Liens). The Facility Lessee shall defend the Owner Lessor
from and against all claims to the Owner Lessor's title to the Undivided
Interest or any portion thereof.
SECTION 7. MAINTENANCE; REPLACEMENTS OF COMPONENTS
Section 7.1. Maintenance. The Facility Lessee, at its own cost and
expense, will (i) cause the Facility to be maintained in as good condition,
repair and working order as when delivered, ordinary wear and tear excepted, and
in any event, in all material respects (a) no less favorably as compared to
other facilities of a similar type owned or operated by the Facility Lessee (or
any of its domestic unregulated Affiliates), solely as a result of the status of
the Facility as a leased facility as opposed to an owned facility, (b) in
accordance with Prudent Industry Practice, (c) in compliance with all
Requirements of Law, including, without limitation all applicable Environmental
Laws and safety laws, unless such noncompliance could not reasonably be expected
to result in a Material Adverse Effect or involve any (1) material risk of
foreclosure, sale, forfeiture or loss of, or imposition of a Lien (other than a
Permitted Lien) on, the Facility, the Undivided Interest or the Facility Site or
the impairment of the use, operation or maintenance of the Facility or the
Facility Site in any material respect, (2) risk of criminal liability being
incurred by the Owner Lessor, the Owner Participant, the Equity Investor or the
OP Guarantor, or (so long as the Lessor Notes are outstanding and the Lien of
the Lease Indenture has not been discharged) the Lease Indenture Trustee or any
Pass Through Trustee or any of their respective Affiliates, or (3) material risk
of any material adverse effect on the interests of the Owner Lessor, the Owner
Participant, the Equity Investor or the OP Guarantor, or (so long as the Lessor
Notes are outstanding and the Lien of the Lease Indenture has not been
discharged) the Lease Indenture Trustee or any Pass Through Trustee or any of
their respective Affiliates (including, without limitation, subjecting any such
Person to regulation as a public utility under any Requirement of Law), and (d)
in accordance with the terms of all insurance policies required to be maintained
pursuant to Section 11 and (ii) cause to be made all repairs, renewals,
----------
replacements, betterments and improvements to the Facility, all as in the
reasonable judgment of the Facility Lessee may be necessary so that the Facility
may be operated (x) in accordance with the Operative Documents and (y) to the
extent commercially reasonable, consistent with the estimated remaining economic
useful life of the Facility as set forth in the Closing Appraisal (it being
understood and agreed that the timing of such repairs, renewals,
14
replacements, betterments and improvements required under clause (y) of this
Section 7.1 shall be in the sole discretion of the Facility Lessee).
-----------
Section 7.2. Replacement of Components. In the ordinary course of
maintenance, service, repair or testing of the Facility or any Component, the
Facility Lessee, at no cost to the Owner Lessor, may remove or cause, or permit,
to be removed from the Facility any Component; provided, however, that the
Facility Lessee shall (a) cause any such Component to be replaced by a
replacement Component which shall be free and clear of all Liens (other than
Permitted Liens) and which shall be in as good an operating condition as the
Component replaced, assuming such replaced Component was maintained in
accordance with the terms of this Facility Lease, and (b) cause such replacement
to be performed in a manner that does not diminish the current value, residual
value, utility or remaining useful life of the Facility by more than a de
minimis amount (as measured immediately prior to such replacement, assuming the
Facility is, at such time, in the condition required by the terms of this
Facility Lease) or cause the Facility to become "limited-use" property within
the meaning of Rev. Proc. 75-28, 1975-1 C.B. 752 or Rev. Proc. 76-30, 1976-2
C.B. 647 (each such replacement Component being herein referred to as a
"Replacement Component"). An undivided interest equal to the Owner Lessor's
----------------------
Percentage in each Component at any time removed from the Facility shall remain
subject to this Facility Lease, wherever located, until such time as such
Component shall be replaced by a Replacement Component which has been
incorporated in the Facility and which meets the requirements for Replacement
Components specified above. Immediately upon any Replacement Component becoming
incorporated in the Facility, without further act (and at no cost to the Owner
Lessor and with no adjustment to the Purchase Price, Periodic Lease Rent,
Renewal Rent, Proportional Rent, Allocated Rent, Lessor Section 467 Loan
Balance, Lessee Section 467 Loan Balance, Lessor Section 467 Interest, Lessee
Section 467 Interest or Termination Values), (i) the replaced Component shall no
longer be subject to this Facility Lease, (ii) title to the Owner Lessor's
undivided interest equal to the Owner Lessor's Percentage in the removed
Component shall thereupon vest in the Facility Lessee or such other Person as
shall be designated by the Facility Lessee, free and clear of all rights of the
Owner Lessor and the Lease Indenture Trustee, and (iii) title to an undivided
interest equal to the Owner Lessor's Percentage in the Replacement Component
shall thereupon vest with the Owner Lessor and such undivided interest shall (a)
become subject to this Facility Lease and, so long as the Lessor Notes are
outstanding, the Lien of the Lease Indenture, and (b) be deemed a part of the
Facility and the Undivided Interest for all purposes of this Facility Lease.
Notwithstanding anything in this Section 7.2 to the contrary, if the Facility
-----------
Lessee has determined that any part, Component or portion of the Facility is
surplus or obsolete, the Facility Lessee shall have the right to remove such
part, Component or portion of the Facility without replacing it as long as such
removal would not diminish the current value, residual value, utility or
remaining useful life of the Facility or the Undivided Interest by more than a
de minimis amount below the then current or residual value, the remaining useful
life or the utility thereof (as measured immediately prior to such removal,
assuming the Facility is, at such time, in the condition required by the terms
of this Facility Lease) or cause the Facility to
15
become "limited-use" property within the meaning of Rev. Proc. 75-28, 1975-1
C.B. 752 or Rev. Proc. 76-30, 1976-2 C.B. 647.
Section 7.3. Environmental Matters. The Facility Lessee will, at its own
expense:
(i) comply with all Environmental Laws applicable to the
Facility or the Facility Site, except for those the failure to comply with
could not reasonably be expected to have a Material Adverse Effect or
involve any (1) material risk of foreclosure, sale, forfeiture or loss of,
or imposition of a Lien (other than a Permitted Lien) on, the Facility, the
Undivided Interest or the Facility Site or the impairment of the use,
operation or maintenance of the Facility or the Facility Site in any
material respect, (2) risk of criminal liability being incurred by the
Owner Lessor, the Owner Participant, the Equity Investor or the OP
Guarantor, or (so long as the Lessor Notes are outstanding and the Lien of
the Lease Indenture has not been discharged) the Lease Indenture Trustee or
any Pass Through Trustee or any of their respective Affiliates, or (3)
material risk of any material adverse effect on the interests of the Owner
Lessor, the Owner Participant, the Equity Investor or the OP Guarantor, or
(so long as the Lessor Notes are outstanding and the Lien of the Lease
Indenture has not been discharged) the Lease Indenture Trustee or any Pass
Through Trustee or any of their respective Affiliates (including, without
limitation, subjecting any such Person to regulation as a public utility
under any Requirement of Law);
16
(iii) conduct and complete, at no cost and expense to the Owner
Participant or the Owner Lessor, any investigation, study, sampling,
monitoring and testing and undertake any cleanup, removal, remediation,
correction, mitigation, response or other action necessary or advisable to
▇▇▇▇▇, correct, remove and clean up any Environmental Condition at the
Facility or the Facility Site, to the extent required by and in material
compliance with applicable Environmental Laws except for those the failure
to comply with which could not reasonably be expected to have a Material
Adverse Effect or involve any (1) material risk of foreclosure, sale,
forfeiture or loss of, or imposition of a Lien (other than a Permitted
Lien) on, the Facility, the Undivided Interest or the Facility Site or the
impairment of the use, operation or maintenance of the Facility or the
Facility Site in any material respect, (2) risk of criminal liability being
incurred by the Owner Lessor, the Owner Participant, the Equity Investor or
the OP Guarantor, or (so long as the Lessor Notes are outstanding and the
Lien of the Lease Indenture has not been discharged) the Lease Indenture
Trustee or any Pass Through Trustee or any of their respective Affiliates,
or (3) material risk of any material adverse effect on the interests of the
Owner Lessor, the Owner Participant, the Equity Investor or the OP
Guarantor, or (so long as the Lessor Notes are outstanding and the Lien of
the Lease Indenture has not been discharged) the Lease Indenture Trustee or
any Pass Through Trustee or any of their respective Affiliates (including,
without limitation, subjecting any such Person to regulation as a public
utility under any Requirement of Law); and
(iv) as soon as possible and in any event within thirty
Business Days of the Facility Lessee obtaining Actual Knowledge thereof,
provide the Owner Lessor with written notice of any pending or threatened
material Environmental Claim involving the Facility or the Facility Site
that could be expected to have a Material Adverse Effect on the or involve
any (1) material risk of foreclosure, sale, forfeiture or loss of, or
imposition of a Lien (other than a Permitted Lien) on, the Facility, the
Undivided Interest or the Facility Site or the impairment of the use,
operation or maintenance of the Facility or the Facility Site in any
material respect, (2) risk of criminal liability being incurred by the
Owner Lessor, the Owner Participant, the Equity Investor or the OP
Guarantor, or (so long as the Lessor Notes are outstanding and the Lien of
the Lease Indenture has not been discharged) the Lease Indenture Trustee or
any Pass Through Trustee or any of their respective Affiliates, or (3)
material risk of any material adverse effect on the interests of the Owner
Lessor, the Owner Participant, the Equity Investor or the OP Guarantor, or
(so long as the Lessor Notes are outstanding and the Lien of the Lease
Indenture has not been discharged) the Lease Indenture Trustee or any Pass
Through Trustee or any of their respective Affiliates (including, without
limitation, subjecting any such Person to regulation as a public utility
under any Requirement of Law).
SECTION 8. IMPROVEMENTS
17
Section 8.1. Required Improvements. The Facility Lessee, without expense
to the Owner Lessor or the Owner Participant, and without the consent of any
other Lease Financing Party, shall make or cause to be made any Improvements as
are required (x) by Requirements of Law or by any Governmental Authority having
jurisdiction thereon, (y) by any insurance policy required to be maintained by
the Facility Lessee under any Operative Document, (z) by the terms of the
Operative Documents (each, a "Required Improvement"); provided, however, that
--------------------
the Facility Lessee may, in good faith and by appropriate proceedings,
diligently contest the validity or application of any Requirement of Law in any
reasonable manner which does not involve any (1) material risk of foreclosure,
sale, forfeiture or loss of, or imposition of a Lien (other than a Permitted
Lien) on, the Facility, the Undivided Interest or the Facility Site or the
impairment of the use, operation or maintenance of the Facility or the Facility
Site in any material respect, (2) risk of criminal liability being incurred by
the Owner Lessor, the Owner Participant, the Equity Investor or the OP
Guarantor, or (so long as the Lessor Notes are outstanding and the Lien of the
Lease Indenture has not been discharged) the Lease Indenture Trustee or any Pass
Through Trustee or any of their respective Affiliates, or (3) material risk of
any material adverse effect on the interests of the Owner Lessor, the Owner
Participant, the Equity Investor or the OP Guarantor, or (so long as the Lessor
Notes are outstanding and the Lien of the Lease Indenture has not been
discharged) the Lease Indenture Trustee or any Pass Through Trustee or any of
their respective Affiliates (including, without limitation, subjecting any such
Person to regulation as a public utility under any Requirement of Law); provided
further, that no such contest may extend beyond the date that is 180 days prior
to the expiration or earlier termination of this Facility Lease.
Section 8.2. Optional Improvements. So long as no Lease Event of Default
set forth in clauses (a) or (b) of Section 17 hereof shall have occurred and be
----------
continuing, the Facility Lessee at any time may, without expense to the Owner
Lessor or the Owner Participant and without the consent of any other Lease
Financing Party make, cause to be made, or permit to be made any Improvement as
the Facility Lessee considers desirable in the proper conduct of its business
(any such non-Required Improvement being referred to as an "Optional
--------
Improvement"); provided that the Facility Lessee shall prevent any Optional
Improvement from being made that would decrease the then current value, residual
value, utility or remaining useful life of the Facility by more than a de
minimis amount below the then current or residual value, the remaining useful
life or the utility thereof (as measured immediately prior to the making of such
Optional Improvement, assuming the Facility is, at such time, in the condition
required by the terms of this Facility Lease), or cause the Facility to become
"limited-use" property within the meaning of Rev. Proc. 75-28, 1975-1 C.B. 752
or Rev. Proc. 76-30, 1976-2 C.B. 647.
Section 8.3. Title to Improvements. Title to an undivided interest equal
to the Owner Lessor's Percentage in (i) all Required Improvements, (ii) all Non-
Severable Improvements and (iii) all other Improvements which are financed by
the Owner Lessor by an Additional Equity Investment or a Supplemental Financing
pursuant to Section 12.1 of the Participation Agreement
------------
18
shall (at no cost to the Owner Lessor, the Owner Participant, the Equity
Investor or the OP Guarantor and with no adjustment to the Purchase Price, or,
except as expressly provided herein, Periodic Lease Rent, Renewal Rent,
Proportional Rent, Allocated Rent, Lessor Section 467 Loan Balance, Lessee
Section 467 Loan Balance, Lessor Section 467 Interest, Lessee Section 467
Interest or Termination Values) automatically vest in the Owner Lessor upon
being affixed to or incorporated into the Facility, and such undivided interest
shall immediately (a) become subject to this Facility Lease and (b) be deemed
part of the Undivided Interest for all purposes of this Facility Lease. The
Facility Lessee shall, at its own cost and expense, take such steps as the Owner
Lessor may reasonably require from time to time to confirm that title in such
undivided interest has vested in the Owner Lessor and that such undivided
interest is subject to this Facility Lease. No interest in any Optional
Improvement which is a Severable Improvement (other than Severable Improvements
which are financed by the Owner Lessor by an Additional Equity Investment or a
Supplemental Financing pursuant to Section 12.1 of the Participation Agreement)
------------
shall vest in the Owner Lessor or become subject to this Facility Lease;
provided, however, that if the Facility Lessee shall, at its cost and expense,
cause such Optional Improvements which are Severable Improvements to be made to
the Facility, the Owner Lessor shall have the right, prior to the return of the
Undivided Interest to the Owner Lessor hereunder, to purchase an undivided
interest equal to the Owner Lessor's Percentage in any such Optional
Improvements which are Severable Improvements. The purchase price for such
undivided interest shall be the then Fair Market Sales Value of such undivided
interest. If the Owner Lessor does not elect to purchase such Optional
Improvements which are Severable Improvements, the Facility Lessee may, and at
the request of the Owner Lessor shall, remove such Improvements at the end of
the Facility Lease Term. The Facility Lessee shall repair any damage to the
Facility and the Facility Site caused by such removal, all at the Facility
Lessee's sole cost and expense; provided, that such removal shall not (i)
diminish the value, remaining useful life or utility of the Facility by more
than a de minimus amount (assuming the Improvement so removed had not been made)
or (ii) cause the Facility to become "limited use" property, within the meaning
of Rev. Proc. 75-28, 1975-1 C.B. 752 or Rev. Proc. 76-30, 1976-2 C.B. 647. If
the Facility Lessee shall have failed to remove any Optional Improvement which
is a Severable Improvement as above provided prior to the return of the
Undivided Interest pursuant to Section 5.1, title to an undivided interest equal
-----------
to the Owner Lessor's Percentage in such Optional Improvement shall (at no cost
to the Owner Lessor, the Owner Participant, the Equity Investor or the OP
Guarantor) vest in the Owner Lessor.
Section 8.4. Financing of Improvements. Subject to Section 6.7 of the
-----------
Participation Agreement, the Facility Lessee shall at all times have the right
to finance Improvements other than through this Facility Lease. The Facility
Lessee may elect to finance Improvements to the Facility through this Facility
Lease in accordance with Section 12.1 of the Participation Agreement.
------------
SECTION 9. NET LEASE
19
This Facility Lease is a "net lease." The Facility Lessee's obligation to
make all Rent payments payable hereunder (and all amounts, including Termination
Value, following termination of this Facility Lease) shall be absolute and
unconditional under any and all circumstances, and shall not be terminated,
extinguished, diminished, lost or otherwise impaired by any circumstance of any
character, including by (i) any setoff, counterclaim, recoupment, defense or
other right which the Facility Lessee may have against the Owner Lessor, the
Owner Participant, the OP Guarantor, any Pass Through Trustee, the Lease
Indenture Trustee or any other Person, including, without limitation, any claim
as a result of any breach by any of said parties of any covenant or provision in
this Facility Lease or any other Operative Document, (ii) any lack or invalidity
of title or any defect in the title, condition, design, operation,
merchantability or fitness for use of the Facility or any Component, or any
eviction by paramount title or otherwise, or any unavailability of the Facility,
the Facility Site, any Component, any other portion of the Undivided Interest,
or any part thereof, (iii) any loss or destruction of, or damage to, the
Facility or any Component or interruption or cessation in the use or possession
thereof or any part thereof by the Facility Lessee for any reason whatsoever and
of whatever duration, (iv) the condemnation, requisitioning, expropriation,
seizure or other taking of title to or use of the Facility, the Facility Site,
any Component, or any other portion of the Undivided Interest by any
Governmental Authority or otherwise, (v) the invalidity or unenforceability or
lack of due authorization or other infirmity of this Facility Lease or any other
Operative Document, (vi) the lack of right, power or authority of the Owner
Lessor to enter into this Facility Lease or any other Operative Document, (vii)
any ineligibility of the Facility or any Component for any particular use,
whether or not due to any failure of the Facility Lessee to comply with any
Requirement of Law, (viii) any event of "force majeure" or any frustration, (ix)
any legal requirement similar or dissimilar to the foregoing, any present or
future law to the contrary notwithstanding, (x) any insolvency, bankruptcy,
reorganization or similar proceeding by or against the Facility Lessee or any
other Person, (xi) any Lien of any Person with respect to the Facility, the
Facility Site, any Component, any other portion of the Undivided Interest or any
part thereof, or (xii) any other cause, whether similar or dissimilar to the
foregoing, any present or future law notwithstanding, except as expressly set
forth herein or in any other Operative Document, it being the intention of the
parties hereto that Allocated Rent shall continue to accrue and all Periodic
Lease Rent, Renewal Rent and Supplemental Rent (and all amounts, including
Termination Value, in lieu of Periodic Lease Rent, following termination of this
Facility Lease) payable by the Facility Lessee hereunder shall continue to be
payable in all events in the manner and at times provided for herein. Such
Allocated Rent, Periodic Lease Rent, Renewal Rent and Supplemental Rent (and all
amounts, including Termination Value, in lieu of Periodic Lease Rent, following
termination of this Facility Lease) shall not be subject to any abatement and
the accrued and payments thereof shall not be subject to any setoff or reduction
for any reason whatsoever, including any present or future claims of the
Facility Lessee or any other Person against the Owner Lessor or any other Person
under this Facility Lease or otherwise. To the extent permitted by Requirements
of Law, the Facility Lessee hereby waives any and all rights
20
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 Facility
Lease with respect to the Undivided Interest except in accordance with Section
-------
10, 13, or 14. If for any reason whatsoever this Facility Lease shall be
--------------
terminated in whole or in part by operation of law or otherwise, except as
specifically provided herein, the Facility Lessee nonetheless agrees, to the
extent permitted by Requirements of Law, (x) that Allocated Rent shall continue
to accrue and (y) to pay to the Owner Lessor an amount equal to each installment
of Periodic Lease Rent, Renewal Rent and all Supplemental Lease Rent due and
owing, at the time such payment would have become due and payable in accordance
with the terms hereof had this Facility Lease not been so terminated. Nothing
contained herein shall be construed to waive any claim which the Facility Lessee
might have under any of the Operative Documents or otherwise or to limit the
right of the Facility Lessee to make any claim it might have against the Owner
Lessor or any other Person or to pursue such claim in such manner as the
Facility Lessee shall deem appropriate.
SECTION 10. EVENTS OF LOSS
Section 10.1. Occurrence of Events of Loss.
(a Each of the Owner Participant and the Owner Lessor will promptly
notify the Facility Lessee of any event of which it is aware that would result
in a Regulatory Event of Loss; provided, however, that the failure to provide
such notice shall not result in any liability with respect to the Owner
Participant or the Owner Lessor and shall not in any way relieve the Facility
Lessee of any of its obligations under this Facility Lease, including the
obligations under this Section 10. The Facility Lessee shall promptly notify
----------
each other Lease Financing Party of any Event of Loss.
(b) If an Event of Loss described in clauses (i) or (ii) of the
definition of Event of Loss shall occur, then, no later than six months
following the date that the Facility Lessee has actual knowledge of such
occurrence, the Facility Lessee shall notify the Owner Lessor and the other
Lease Financing Parties of its election either to (1) rebuild or replace the
Facility in accordance with the Operative Documents and the provisions of this
Facility Lease including Section 10.4, or (2) terminate this Facility Lease and
------------
purchase the Undivided Interest from the Owner Lessor by paying to the Owner
Lessor an amount equal to the applicable Termination Value and paying to the
parties entitled thereto all other amounts payable pursuant to Section 10.2.
------------
The Facility Lessee may elect the option provided in clause (2) of the preceding
sentence regardless of whether the Facility is to be rebuilt or replaced. If
the Facility Lessee fails to make an election as provided above, the Facility
Lessee will be deemed to have made the election to terminate this Facility Lease
pursuant to clause (2) of this Section 10.1(b) as of the end of the six month
---------------
period referred to in the first sentence of this Section 10.1(b).
---------------
Section 10.2. Payment Upon Termination; Special Lessee Transfer.
21
(a) If either of the following shall occur:
(x) the Facility Lessee shall elect (or be deemed to have
elected) to terminate this Facility Lease pursuant to clause
(2) of Section 10.1(b) following an Event of Loss described
---------------
in clause (i) or (ii) of the definition of Event of Loss, or
(y) an Event of Loss described in clause (iii) or (iv) of the
definition of Event of Loss shall occur,
then, in the case of (x), on the next Termination Date at least
15 days after the Facility Lessee's notice of its election not to
rebuild or replace the Facility or, if the Facility Lessee shall have
received insurance proceeds in respect of the Event of Loss described
in (x), within one month of receipt of such insurance proceeds, or in
the case of (y), on the next Termination Date at least six months
following the occurrence of the Event of Loss described in (y), the
Facility Lessee shall pay to the Owner Lessor , or so long as the
Lessor Notes are outstanding, the Lease Indenture Trustee, the sum of
(A) the Termination Value determined as of the relevant Termination
Date, plus (B) all other payments under this Facility Lease (other
----
than Periodic Lease Rent or Renewal Rent payable on or after the
Termination Date) due and unpaid on the Termination Date and any
amount due and unpaid, or accrued and unpaid on the Termination Date
under any other Operative Document, plus (C) all reasonable documented
----
out-of-pocket costs and expenses of the Owner Lessor, the Owner
Participant, the OP Guarantor, the Equity Investor, and so long as the
Lessor Notes are outstanding and the Lien of the Lease Indenture has
not been discharged, the Lease Indenture Trustee and Pass Through
Trustees, incurred in connection with such Event of Loss (such sum
being referred to as the "Event of Loss Payment").
---------------------
Concurrently with the payment of all amounts required to be paid pursuant to
this Section 10.2(a), (i) Periodic Lease Rent or Renewal Rent and Allocated
---------------
Rent, as applicable, for the Undivided Interest shall cease to accrue, (ii) this
Facility Lease, Facility Site Lease and the Facility Site Sublease shall
terminate and the Facility Lessee shall cease to have any liability to the Owner
Lessor or the Owner Participant with respect to the Undivided Interest, except
for obligations surviving pursuant to the express terms of any Operative
Document, (iii) the Owner Lessor will prepay all amounts of principal and
interest, and any other amounts owing under the Lessor Notes, to the Lease
Indenture Trustee pursuant to Section 2.11 of the Lease Indenture, excluding any
------------
Make Whole Premium, if any, due and payable, (iv) the Owner Lessor shall
transfer (by an appropriate instrument of transfer in form and substance
reasonably satisfactory to the Owner Lessor and prepared and recorded by and at
the expense of Facility Lessee) all of its
22
rights, title and interest in and to the Owner Lessor's Undivided Interest to
the Facility Lessee (or its designee), on an "as is," "where is" basis, without
warranty other than a warranty as to the absence of Owner Lessor Liens and Owner
Participant Liens, and (v) the Owner Lessor shall execute and deliver
appropriate releases and other documents or instruments necessary or reasonably
requested by the Facility Lessee to effect the foregoing (including, but not
limited to, termination of this Facility Lease) all to be prepared, filed and
recorded (if appropriate) by and at the cost and expense of the Facility Lessee.
(b) Notwithstanding the foregoing provisions of Section 10.2(a), in
---------------
the case of a Regulatory Event of Loss, the Facility Lessee may, at its option,
in lieu of making the Event of Loss Payment, assume the Owner Lessor's
obligations with respect to the Lessor Notes if (i) the Facility Lessee shall
have executed and delivered an assumption agreement to assume the Lessor Notes
as permitted by and in accordance with Section 2.12 of the Lease Indenture, (ii)
------------
no Significant Lease Default or Lease Event of Default shall have occurred and
be continuing after giving effect to such assumption or shall be created
thereby, (iii) all other conditions contained in such Section 2.12 of the Lease
------------
Indenture shall have been satisfied (including the receipt by the Lease
Indenture Trustee of an opinion of counsel, which opinion of counsel shall be
reasonably acceptable to the Lease Indenture Trustee, confirming that such
assumption shall not cause a taxable transaction to occur as to any direct or
indirect holder of a Lessor Note (including any Certificateholder)). The
obligation of the Facility Lessee to make the Event of Loss Payment shall be
reduced by the outstanding principal amount of the Lessor Notes so assumed by
the Facility Lessee and the Owner Lessor shall have no further obligation to
prepay the outstanding principal and accrued interest on the Lessor Notes;
provided, however, for so long as the Lessor Notes are outstanding, if the
Facility Lessee shall have chosen to assume the Lessor Notes pursuant to this
Section 10.2(b), the Facility Lessee shall acquire the Undivided Interest from
---------------
the Owner Lessor subject to the Lien of the Lease Indenture. Upon payment in
full of the amount required pursuant to this Section 10.2 (other than in the
------------
case of a Special Lessee Transfer), this Facility Lease, the Facility Site Lease
and the Facility Site Sublease shall terminate and all of the Owner Lessor's
right, title and interest in and to the Facility shall be transferred to the
Facility Lessee on an "as is, where is" basis, without warranty, but free of
Owner Lessor Liens and Owner Participant Liens.
(c) Notwithstanding the foregoing provisions of Sections 10.2(a) and
--------------------
(b) to the contrary, in the case of a Regulatory Event of Loss, the Facility
---
Lessee (or its designee) may, in lieu of purchasing the Undivided Interest in
accordance with Section 10.2(a) or Section 10.2(b), purchase, or arrange a
--------------- ---------------
purchase of, the Lessor Membership Interest or all of the outstanding membership
interests in the Owner Participant in accordance, in all respects, with Section
-------
XV of the Participation Agreement, and keep this Facility Lease (and the Lessor
--
Notes) in place so long as (i) the Lease Indenture Trustee shall have received
an opinion from counsel selected by the Facility Lessee and reasonably
acceptable to the Lease Indenture Trustee to the effect that such purchase would
not result in more than an immaterial risk of the merger of the
23
interests of the Owner Lessor and the Facility Lessee in this Facility Lease
(ii) unless the Facility Lessee has elected to provide to the Lease Indenture
Trustee an indemnity against the risk that such purchase will cause a Tax Event
to occur to any direct or indirect holder of a Lessor Note (including any
Certificateholder), the Lease Indenture Trustee shall have received an opinion
of counsel to the Facility Lessee (with customary qualifications and limitations
and otherwise reasonably satisfactory to the Lease Indenture Trustee), addressed
to the Lease Indenture Trustee and the holders of the Lessor Notes, to the
effect that such purchase shall not cause a Tax Event to occur as to any direct
or indirect holder of any Lessor Note (including any Certificateholder), and
(iii) the Facility Lessee pays the applicable amounts set forth under Section XV
----------
of the Participation Agreement. The Facility Lessee shall pay, on an After-Tax
Basis, for all reasonable expenses incurred by the Owner Participant, the Equity
Investor, the OP Guarantor and Owner Lessor in connection therewith. In the
event the Facility Lessee exercises its option to purchase the Lessor Membership
Interest or all of the outstanding membership interests in the Owner
Participant, the Facility Lessee shall acquire such Lessor Membership Interest
or such membership interests, as the case may be, on an "as is", "where is"
basis, without any warranty other than a warranty as to the absence of Owner
Participant Liens.
Section 10.3. Application of Proceeds. Any payments with respect to the
Undivided Interest received at any time by the Owner Lessor or the Facility
Lessee from any Governmental Authority or from insurance proceeds as a result of
the occurrence of an Event of Loss shall be applied as follows:
(a) all such payments received at any time by the Facility Lessee
shall be promptly paid to the Owner Lessor or, so long as the Lessor Notes are
outstanding, to the Lease Indenture Trustee, for application pursuant to the
following provisions of this Section 10.3, except that, so long as no
------------
Significant Lease Default or Lease Event of Default shall have occurred and be
continuing or shall be created thereby (other than Significant Lease Defaults
and Lease Events of Defaults arising as a result of such Event of Loss), the
Facility Lessee may retain any amounts that the Owner Lessor would at the time
be obligated to pay to the Facility Lessee as reimbursement pursuant to Section
-------
10.3(b);
-------
(b) so much of such payments as shall not exceed the Event of Loss
Payment required to be paid by the Facility Lessee pursuant to Section 10.2(a)
---------------
shall be applied in reduction of the Facility Lessee's obligation to pay such
amount if not already paid by the Facility Lessee or, if already paid by the
Facility Lessee, shall, so long as no Significant Lease Default or Lease Event
of Default shall have occurred and be continuing or shall be created thereby
(other than Significant Lease Defaults and Lease Events of Defaults arising as a
result of such Event of Loss), be applied to reimburse the Facility Lessee for
its payment of such amount; and
24
(c) the balance, if any, of such payments remaining thereafter shall
be apportioned between the Owner Lessor and the Facility Lessee in accordance
with their respective interests in the Facility.
Notwithstanding the foregoing, if the Facility Lessee shall have elected to
rebuild or replace the Facility pursuant to Section 10.1(b), any insurance
---------------
proceeds received by the Owner Lessor, the Lease Indenture Trustee or the
Facility Lessee as a result of the occurrence of an Event of Loss described in
clause (i) or (ii) of the definition of Event of Loss shall be applied as
provided in Section 11.7.
------------
Section 10.4. Rebuilding or Replacement. The Facility Lessee's right to
rebuild or replace the Facility pursuant to Section 10.1(b) shall be subject to
---------------
the fulfillment, at the Facility Lessee's sole cost and expense, in addition to
the conditions contained in Section 10.1(b), of the following conditions:
---------------
(a) no Significant Lease Default or Lease Event of Default shall have
occurred and be continuing or be created by such rebuilding or replacement;
(b) on the date the Facility Lessee shall give notice pursuant to
Section 10.1(b) of its election to rebuild or replace the Facility in accordance
---------------
with this Section 10.4, the Owner Participant shall have received (i) an opinion
------------
reasonably satisfactory to it from Owner Participant's Counsel to the effect
that such rebuilding or replacement should not result in any incremental risk of
material adverse federal income tax consequences to the Owner Participant, and
(ii) an indemnity against such risk in form and substance reasonably
satisfactory to the Owner Participant from or guaranteed by an entity that meets
the Minimum Credit Rating (or, if the Minimum Credit Rating requirement is not
met, the Owner Participant shall have received credit support in respect of such
indemnity reasonably satisfactory to the Owner Participant); provided that if
the opinion referred to in clause (i) shall be that such rebuilding or
replacement "will" not result in any incremental risk of material adverse
federal income tax consequences to the Owner Participant, then the Minimum
Credit Rating requirement shall not be required with respect to the indemnity
set forth in clause (ii);
(c) on the date the Facility Lessee shall give notice pursuant to
Section 10.1(b) of its election to rebuild or replace the Facility in accordance
----------------
with this Section 10.4, the Facility Lessee shall deliver to the Owner
------------
Participant and, so long as the Lessor Notes are outstanding, the Lease
Indenture Trustee and each Pass Through Trustee (i) reports of the Engineering
Consultant and the Environmental Consultant, or such other independent engineer
or environmental consultant reasonably satisfactory to the Owner Participant, to
the effect that it is reasonable to expect that the rebuilding or replacement of
the Facility is technologically feasible and economically viable and that it is
reasonable to expect that such rebuilding or replacement can be completed by a
date that is at least 36 months prior to the end of the Basic Lease Term or
25
at least 12 months prior to the expiration of any Renewal Lease Term then in
effect or already elected by the Facility Lessee, and (ii) an appraisal of an
Independent Appraiser selected by the Facility Lessee and reasonably acceptable
to the Owner Participant, to the effect that the rebuilt or replaced Facility
will have at least the same current value, residual value, utility and useful
life as the Facility immediately prior to the Event of Loss (assuming the
Facility was then in the condition required by the terms of this Facility Lease)
and such rebuilding or replacement will not result in the Facility being
"limited use" property within the meaning of Rev. Proc. 75-28, 1975-1 C.B. 752
or Rev. Proc. 76-30, 1976-2 C.B. 647;
(d) on the date the Facility Lessee shall notify the Owner Lessor
pursuant to Section 10.1(b) of its election to rebuild or replace the Facility
---------------
in accordance with this Section 10.4, the Facility Lessee shall demonstrate to
------------
the reasonable satisfaction of the Owner Participant that it will have adequate
financial resources, from insurance proceeds or otherwise, to complete such
rebuilding or replacement and to pay Periodic Lease Rent or Renewal Rent, as the
case may be, while the Facility is being rebuilt or replaced and shall deliver
an Officer's Certificate to that effect to the Owner Participant and, so long as
the Lessor Notes are outstanding and the Lien of the Lease Indenture has not
been discharged, the Lease Indenture Trustee;
(e) the Facility Lessee shall cause (i) the rebuilding or replacement
of the Facility to commence as soon as reasonably practicable after notifying
the Owner Lessor, the Owner Participant and, as applicable, the Lease Indenture
Trustee and the Pass Through Trustees, of its election to rebuild the Facility
in accordance with this Section 10.4 and in all events within 18 months of the
------------
occurrence of the event that caused such Event of Loss and (ii) work on such
rebuilding or replacement to proceed diligently thereafter. As the rebuilding
or replacement of the Facility progresses, title to an undivided interest equal
to the Owner Lessor's Percentage in such rebuilt or replaced Facility shall vest
in the Owner Lessor and such undivided interest shall become subject to this
Facility Lease and, so long as the Lessor Notes are outstanding, the Lien of the
Lease Indenture, and be deemed a part of the Undivided Interest for all purposes
of this Facility Lease and the other Operative Documents, automatically and
without any further act by any Person;
(f) on the date of the completion of the rebuilding or replacement of
the Facility (the "Rebuilding Closing Date"), the following documents shall be
-----------------------
duly authorized, executed and delivered and, if appropriate, filed for
recordation by the respective party or parties thereto and shall be in full
force and effect, and an executed counterpart of each shall be delivered to the
Owner Lessor, the Owner Participant and, so long as the Lessor Notes are
outstanding, the Lease Indenture Trustee and the Pass Through Trustee: (i)
supplements to this Facility Lease subjecting an undivided interest equal to the
Owner Lessor's Percentage in the rebuilt or replaced Facility to this Facility
Lease (with no change in the Purchase Price, Periodic Lease Rent, Renewal Rent
Proportional Rent, Allocated Rent, Lessor Section 467 Loan Balance, Lessee
Section 467 Loan Balance, Lessor Section 467 Interest, Lessee Section 467
Interest or
26
Termination Values as a result of such rebuilding or replacement), (ii) so long
as the Lessor Notes are outstanding, supplements to the Lease Indenture
subjecting such undivided interest in the rebuilt or replaced Facility to the
Lien of the Lease Indenture, (iii) such recordings and filings, as may be
reasonably requested by the Owner Participant or the Lease Indenture Trustee to
be made or filed, (iv) an opinion of counsel to the Facility Lessee, such
counsel and such opinion to be reasonably satisfactory to the Owner Participant
and, so long as the Lessor Notes are outstanding, the Lease Indenture Trustee,
to the effect that (x) the supplements to this Facility Lease required by clause
(i) above constitute effective instruments for subjecting such undivided
interest in the rebuilt or replaced Facility to this Facility Lease, (y) the
supplements to the Lease Indenture required by clause (ii) above, if any,
constitute effective instruments for subjecting such undivided interest in the
rebuilt or replaced Facility to the Lien of the Lease Indenture and (z) all
filings and other action necessary to perfect and protect the Owner Lessor's
interest in an undivided interest equal to the Owner Lessor's Percentage in the
rebuilt or replaced Facility have been accomplished, (v) an appraisal by an
Independent Appraiser, selected by the Facility Lessee and reasonably acceptable
to the Owner Participant, certifying that the Facility as so rebuilt or replaced
has a current value, residual value, remaining useful life and utility at least
equal to the current value, residual value, remaining useful life and utility of
the Facility (as measured immediately prior to such Event of Loss giving rise to
such rebuilding or replacement (assuming the Facility was in the condition and
repair required to be maintained by the terms of this Facility Lease and such
rebuilding or replacement has not resulted in the Facility being "limited use"
property within the meaning of Rev. Proc. 75-28, 1975-1C.B. 752 or Rev. Proc.
76-30, 1976 C.B. 647), (vi) reports by the Engineering Consultant and the
Environmental Consultant or such other independent engineer or environmental
consultant reasonably acceptable to the Owner Participant certifying that the
Facility as so rebuilt or replaced is in a state of repair and condition
required by this Facility Lease, (vii) an Officer's Certificate of the Facility
Lessee certifying as to compliance with this Section 10.4 and that no
------------
Significant Lease Default or Lease Event of Default shall have occurred and be
continuing as a result of the rebuilding or replacement, and (viii) satisfactory
evidence as to the compliance with Section 11 with respect to the Facility, as
----------
so rebuilt or replaced; and
(g) there shall be no material adverse accounting effect under GAAP on
the Owner Participant as a result of such rebuilding or replacement and the
other transactions contemplated by this Section 10.4.
------------
Whether or not the transactions contemplated by this Section 10.4 are
------------
consummated, the Facility Lessee agrees to pay, on an After-Tax Basis, any costs
or expenses (including reasonable legal fees and expenses) incurred by the Owner
Lessor, the Owner Participant, the Equity Investor, the OP Guarantor, the Lease
Indenture Trustee and each Pass Through Trustee in connection with the
transactions contemplated by this Section 10.4.
------------
27
Section 10.5. Application of Payments Not Relating to an Event of Loss.
(a) In the event that during the Facility Lease Term title to, or the use of,
all or any portion of the Undivided Interest, the Facility or the Facility Site
is requisitioned or taken by or pursuant to a request of any Governmental
Authority under the power of eminent domain or otherwise for a period or in a
manner which does not constitute an Event of Loss, the Facility Lessee's
obligation to pay all installments of Periodic Lease Rent or Renewal Rent, as
applicable, shall continue for the duration of such requisitioning or taking.
The Facility Lessee shall be entitled to receive and retain for its own account
all sums payable for any such period by such Governmental Authority as
compensation for such requisition or taking of possession; provided, that if at
the time of such payment a Significant Lease Default or a Lease Event of Default
shall have occurred and be continuing, such amounts shall be paid to and held by
the Owner Lessor unless the Lessor Notes are outstanding, in which case such
amounts shall be paid to and held by the Lease Indenture Trustee, as security
for the obligations of the Facility Lessee under this Facility Lease until such
time as no Significant Lease Default or Lease Event of Default is continuing.
(b) Any insurance proceeds with respect to the Undivided Interest
received at any time by the Owner Lessor, the Lease Indenture Trustee or the
Facility Lessee under any of the insurance policies required to be maintained by
the Facility Lessee under Section 11 as a result of any damage to the Facility
----------
or any part thereof which does not constitute an Event of Loss shall be applied
as follows: (i) in accordance with Section 11.7, and (ii) the balance, if any,
------------
of such insurance proceeds remaining thereafter shall be paid to the Facility
Lessee.
Section 10.6. Partial Casualties. If the Facility or any part thereof
shall suffer any destruction, damage, loss or theft not constituting an Event of
Loss, the Facility Lessee shall rebuild or make such repairs as are necessary
(i) to restore the Facility to the current value, residual value, utility and
remaining useful life it had immediately prior to such destruction, damage, loss
or theft (assuming, for the purposes of determining the current value, residual
value, utility and remaining useful life of the Facility, that no Severable
Improvements that are not Required Improvements shall have been made to the
Facility during the Facility Lease Term) and (ii) to ensure that the Facility is
maintained in accordance with Sections 7 and 8 hereof and that the Facility does
---------- -----
not become "limited use" property within the meaning of Rev. Proc. 75-28, 1975-1
C.B. 752 or Rev. Proc. 76-30, 1976-2 C.B. 647.
SECTION 11. INSURANCE
Section 11.1. Property Insurance. The Facility Lessee will, subject to
Section 11.6 below, maintain (or cause to be maintained) all-risk property
------------
insurance customarily carried by prudent operators of coal-fired electric
generating facilities of comparable size and risk as the Facility, and against
loss or damage from such causes as are customarily insured against, which
includes coverage for boiler and machinery and business interruption (including
contingent business interruption), and, in any case, subject to availability of
such insurance on commercially
28
reasonable terms, in an amount equal to the Owner Lessor's Percentage of the
Maximum Foreseeable Loss of the Facility, subject to a deductible, in respect of
the Facility Lessee's interest, not to exceed $2,500,000 per occurrence for
property damage, except $5,000,000 per occurrence in respect of boiler and
machinery coverage and a 60-day waiting period for business interruption or such
other higher amounts customarily maintained by prudent operators of coal-fired
electric generating facilities of comparable size and risk as the Facility.
Section 11.2. Liability Insurance. The Facility Lessee will, subject to
Section 11.6 below, maintain (or cause to be maintained) commercial general
------------
liability insurance, including contractual liability coverage and sudden and
accidental pollution liability coverage, and commercial automobile liability
insurance, insuring against claims for bodily injury (including death) and
property damage to third parties arising out of the ownership, operation,
maintenance, condition and use of the Facility and the Facility Site with limits
of not less than $100,000,000 per occurrence and in the aggregate scaled
proportionately to the Facility Lessee's leasehold interest in the Facility with
a deductible not to exceed $2,500,000 per occurrence in respect of the Facility
Lessee's interest or such other higher amount customarily maintained by prudent
operators of coal-fired electric generating facilities of comparable size and
risk as the Facility. The Facility Lessee will periodically review the liability
insurance maintained by it or on its behalf and will, if necessary, revise such
coverage and limits (including deductibles) in order that the liability
insurance maintained by it or on its behalf is consistent with that maintained
by prudent operators of similar facilities of comparable size and risk to the
Facility; provided that the Facility Lessee may not (except as permitted by
Section 11.6 below) increase deductibles above or decrease coverage or limits
------------
below the requirements set forth herein without the written consent of the Owner
Lessor, which consent shall not be unreasonably withheld. Such liability
insurance may be purchased either in a single limit or in combination with a
general and an excess policy.
Section 11.3. Provisions With Respect to Insurance. (a) With respect to
the insurance required to be maintained or caused to be maintained by the
Facility Lessee under this Section 11, the Facility Lessee will, or will use
----------
reasonable efforts in respect of insurance that it does not directly place, but
for which it has benefit, subject to Section 11.6 below, (1) place the insurance
------------
maintained pursuant to this Section 11.3 with companies having an A.M. Best
------------
rating of at least "A-" or, if not so rated, of comparable financial strength,
(2) name the Trust Company, the Owner Lessor, the Owner Participant, the Equity
Investor, the OP Guarantor and, so long as the Lessor Notes are outstanding and
the Lien of the Lease Indenture has not been discharged, the Lease Indenture
Trustee and the Pass Through Trustees as additional insureds, as their interests
may appear, (3) cause the insurance companies to agree to waive all subrogation
rights against, the Owner Lessor, the Owner Participant, the Equity Investor,
the OP Guarantor and Lease Indenture Trustee and the Pass Through Trustees, (4)
cause such insurance to be primary without right of contribution of any other
insurance carried by or on behalf of the Owner Lessor, the Owner Participant,
the Equity Investor, the OP Guarantor and, so long as the Lessor Notes are
29
outstanding and the Lien of the Lease Indenture has not been discharged, the
Lease Indenture Trustee and the Pass Through Trustees with respect to their
respective interests in the Facility and the Facility Site, (5) if any liability
insurance required under the provisions of this Section 11 is allowed to be
written on a "claims made" basis, then such insurance shall include (i) the
retroactive date (as such term is specified in each such policy) shall be no
later than the date hereof and (ii) each time any policy written on a "claims
made" basis is not renewed or the retroactive date of such policy is changed the
Facility Lessee shall obtain or cause to be obtained for each such policy or
policies an extended reporting period coverage, or "tail" for three years after
the expiration of such policy or policies, and (6) subject to Section 11.7(a),
name the Lease Indenture Trustee and the Owner Lessor, as their interests may
appear, as loss payee with respect to the property, boiler and machinery
insurance.
(b) The Facility Lessee will, subject to Section 11.6 below, use
------------
reasonable efforts to provide that the respective interests of the Owner Lessor,
Owner Participant, the Equity Investor, the OP Guarantor and, so long as the
Lessor Notes are outstanding and the Lien of the Lease Indenture has not been
discharged, the Lease Indenture Trustee and Pass Through Trustees shall not be
invalidated by any act or neglect of the Facility Lessee, or any breach or
violation by the Facility Lessee of any warranties, declarations or conditions
contained in the property insurance policies or by the use of the Facility for
purposes more hazardous than permitted by such policies. Additionally, the
Facility Lessee will, subject to Section 11.6 below, use reasonable efforts to
------------
provide that the liability insurance policies required to be maintained
hereunder shall be endorsed to provide that, inasmuch as the policies are
written to cover more than one insured, all terms, conditions, insuring
agreements and endorsements, with the exception of limits of liability, shall
operate in the manner as if there were a separate policy covering each insured.
The Facility Lessee shall, at its own expense, make or cause to be made all
proofs of loss and take all other steps necessary to collect the proceeds of
such insurance.
(c) All of the insurance policies required by this Section 11 may
----------
cover other operations, facilities and properties of the Facility Lessee or its
Affiliates as long as the limits of insurance available to the Facility are not
less than the requirements set forth herein.
(d) Claims and losses, if any, under any insurance policies required
to be carried under Section 11 shall be adjusted with the insurance companies,
----------
including the filing of appropriate proceedings, by the Facility Lessee.
(e) The Maximum Foreseeable Loss will be adjusted (i) within 60 days
after the close of each Fiscal Quarter during which the Owner Lessor's
Percentage of the cumulative cost of Improvements (other than Severable
Improvements that are not Required Improvements) to the Undivided Interest
exceeds an additional 10% of the Purchase Price since the most recent adjustment
of the Maximum Foreseeable Loss pursuant to this Section 11.3(e) and (ii) on
---------------
each
30
fifth anniversary of the earlier to occur of (A) the Closing Date and (B)
the most recent adjustment of the Maximum Foreseeable Loss pursuant to this
Section 11.3(e); provided, that the first such adjustment shall occur no later
---------------
than the fifth anniversary of the Closing Date. Such adjustment shall be based
on an analysis, at the Facility Lessee's expense, of an independent insurance
expert from a nationally recognized insurance brokerage firm selected by the
Facility Lessee and reasonably acceptable to the Owner Lessor. As soon as
reasonably practicable after any such adjustment, the Facility Lessee shall,
subject to the terms of this Section 11, cause the property insurance policies
----------
to carry limits equal to or no less than the latest adjusted Maximum Foreseeable
Loss.
Section 11.4. Reports. On the Closing Date and each anniversary thereof,
the Facility Lessee shall provide the Owner Lessor, Owner Participant, the
Equity Investor, the OP Guarantor and, so long as the Lessor Notes are
outstanding and the Lien of the Lease Indenture has not been discharged, the
Lease Indenture Trustee and the Pass Through Trustees with certificates from
insurance brokers or carriers to the effect that the policies required by this
Section 11 are in effect and in the case of policies maintained pursuant to
----------
Section 11.1 and Section 11.2 above, indicating their status as additional
------------ ------------
insureds and Officer's Certificate of the Facility Lessee certifying that all
premiums in respect of such policies are current and that such coverage is in
compliance with all insurance requirements set forth in this Section 11. Such
----------
insurance certificates shall provide for at least 30 days' prior written notice
(10 days for non-payment of premium) to the Owner Lessor, Owner Participant, the
Equity Investor, the OP Guarantor and, so long as the Lessor Notes are
outstanding and the Lien of the Lease Indenture has not been discharged, the
Lease Indenture Trustee and the Pass Through Trustees in the event of
cancellation or non-renewal, by the insurance carriers, of such policies and the
procedure for payment of insurance proceeds upon the occurrence of a Significant
Lease Default or Lease Event of Default or upon the occurrence of an Event of
Loss as specified in Section 11.7 hereof. Promptly upon the occurrence of a
------------
material adverse change with respect to such policies, the Facility Lessee shall
provide the Owner Lessor, the Owner Participant, the OP Guarantor, the Equity
Investor and, so long as the Lessor Notes are outstanding and the Lien of the
Lease Indenture has not been discharged, the Lease Indenture Trustee and the
Pass Through Trustees with notice of such occurrence.
Section 11.5. Additional Insurance. At any time the Owner Lessor (either
directly or in the name of the Owner Participant, the Equity Investor or the OP
Guarantor) or, so long as the Lessor Notes are outstanding and the Lien of the
Lease Indenture has not been discharged, the Lease Indenture Trustee may at its
own expense and for its own account carry insurance with respect to its interest
in the Facility, provided that such insurance does not in any way interfere with
the Facility Lessee's ability to obtain insurance or recover claims from such
insurance with respect to the Facility described in this Section 11. Any
----------
insurance payments received from policies maintained by the Owner Lessor (either
directly or in the name of the Owner Participant, the Equity Investor or the OP
Guarantor) or Lease Indenture Trustee pursuant to the previous
31
sentence shall be retained by the Owner Lessor (either for itself or on behalf
of the Owner Participant, the Equity Investor or the OP Guarantor, as
applicable) or Lease Indenture Trustee, as the case may be, without reducing or
otherwise affecting the Facility Lessee's obligations hereunder.
Section 11.6. Amendment of Insurance Requirements. (a) If any insurance
required to be maintained by the Facility Lessee pursuant to this Section 11
----------
(including the limits or deductibles or any other terms under policies for such
insurance) ceases to be available on a commercially reasonable basis, the
Facility Lessee shall provide written notice to the Owner Lessor and, so long as
the Lessor Notes are outstanding and the Lien of the Lease Indenture has not
been discharged, the Lease Indenture Trustee and the Pass Through Trustees
accompanied by a letter from the Facility Lessee's insurance broker stating that
such insurance is unavailable on a commercially reasonable basis. Such notice
shall be given not less than sixty (60) days' prior to the scheduled date for
renewal of any such policy. Upon receipt of such notice by the Owner Lessor, the
Owner Lessor and the Facility Lessee shall immediately enter into good faith
negotiations in order to obtain an alternative to such insurance.
(b) In the event that a resolution acceptable to the Owner Lessor and
the Facility Lessee cannot be reached, within ten (10) days, the parties shall
make arrangements for the formation of an insurance panel consisting of the
Facility Lessee's insurance advisor (or broker), the Owner Lessor's insurance
advisor (or broker), and an independent insurance expert from a nationally
recognized insurance brokerage firm, chosen by the Facility Lessee and
reasonably acceptable to the Owner Lessor. Such independent expert shall conduct
a separate review of the relevant insurance requirements of this Section 11 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 whether such insurance is available or
unavailable on a commercially reasonable basis.
(c) If the insurance expert concludes that such insurance is not
available on a commercially reasonable basis, the insurance expert shall provide
a written recommendation (which shall include the amount and type of insurance
which is available upon a commercially reasonable basis) not less than fifteen
(15) days before the date for renewal of such insurance. The Facility Lessee
shall, prior to the expiration of the insurance then in effect, obtain such
insurance that is available on a commercially reasonable basis. If the senior
unsecured long-term rating of the Facility Lessee shall be at least at least
BBB- by S&P and Baa3 by ▇▇▇▇▇'▇ at the time of renewal, the recommendation of
the insurance expert shall be conclusive and binding upon the Facility Lessee
and the Facility Lessee shall, for the immediately succeeding one (1) year
policy period, only be required to carry the insurance that the expert has
certified is available on a commercially reasonable basis.
(d) If the senior unsecured debt of the Facility Lessee is below BBB-
by S&P and Baa3 by ▇▇▇▇▇'▇ at such time of renewal, or if the Facility Lessee
has no such rated debt
32
outstanding at such time, and in the Owner Participant's reasonable judgment
keeping the insurance coverage at the level that is available on a commercially
reasonable basis is reasonably likely to result in a Material Adverse Effect or
involve any (1) material risk of foreclosure, sale, forfeiture or loss of, or
imposition of a Lien (other than a Permitted Lien) on, the Facility, the
Undivided Interest or the Facility Site or the impairment of the use, operation
or maintenance of the Facility or the Facility Site in any material respect, (2)
risk of criminal liability being incurred by the Owner Lessor, the Owner
Participant, the Equity Investor or the OP Guarantor, or (so long as the Lessor
Notes are outstanding and the Lien of the Lease Indenture has not been
discharged) the Lease Indenture Trustee or the Pass Through Trustee or any of
their respective Affiliates, or (3) material risk of any material adverse effect
on the interests of the Owner Lessor, the Owner Participant, the Equity Investor
or the OP Guarantor, or (so long as the Lessor Notes are outstanding and the
Lien of the Lease Indenture has not been discharged) the Lease Indenture Trustee
or the Pass Through Trustee or any of their respective Affiliates (including,
without limitation, subjecting any such Person to regulation as a public utility
under any Requirement of Law), then the Facility Lessee shall (i) comply with
this Section 11 without regard to the provision provided herein or (ii) obtain
----------
the insurance that is available on a commercially reasonable basis, and provide
collateral or credit support for the difference of a type and in an amount
satisfactory to the Owner Participant. For the purposes hereof, insurance will
be considered "not available on a commercially reasonable basis" if it is
obtainable only at excessive costs or upon other unreasonable terms which are
not justified in terms of the risk to be insured and is generally not being
carried by or applicable to projects or operations similar to the Facility
because of such excessive costs or other unreasonable terms.
(e) All reasonable fees, costs and expenses associated with the
insurance panel (including the review by the insurance expert) shall be for the
sole account of the Facility Lessee.
Section 11.7. Application of Insurance Proceeds. (a) All insurance
proceeds up to $25,000,000 on account of any damage to, or destruction of, the
Facility or any part thereof (in each case less the actual costs, fees and
expenses incurred in the collection thereof), shall, subject to the provisions
of Section 11.7(d), be paid to or retained by the Facility Lessee for
---------------
application in repair. If the insurance proceeds on account of such damage to,
or destruction of, the Facility exceed $25,000,000, or in the case of an Event
of Loss, then the Owner Lessor's Percentage of all insurance proceeds on account
of such damage or destruction to the Facility shall be paid to the Owner Lessor
or, if the Lessor Notes are outstanding and the Lien of the Lease Indenture
shall not have been discharged, the Lease Indenture Trustee and shall be applied
and dealt with as provided in Section 11.7(b) below.
---------------
(b) Other than proceeds of insurance paid to the Lease Indenture
Trustee or the Owner Lessor in connection with an Event of Loss as to which the
Facility Lessee has elected (or has been deemed to have elected) to pay
Termination Value, all proceeds of insurance paid to
33
the Lease Indenture Trustee or the Owner Lessor, as the case may be, and the
Facility Lessee shall be paid over to the Facility Lessee upon (i) delivery of
an Officer's Certificate of the Facility Lessee to the Owner Lessor and the
Lease Indenture Trustee, if applicable, (a) describing in reasonable detail the
nature and cost of such repair or restoration and the actual expenditures
theretofore made in connection therewith and (b) certifying that the sum
requested is a proper item request which has been paid to the Facility Lessee
and has been paid, or is then due and payable, by the Facility Lessee and (ii)
receipt by the Owner Lessor and the Lease Indenture Trustee, if applicable, of
evidence satisfactory to each of them, in their reasonable judgment that such
proceeds, together with funds of the Facility Lessee available for the purpose
will be sufficient to complete such repair and restoration of the Facility or
portion thereof. Promptly after receiving Actual Knowledge that a Significant
Lease Default or Lease Event of Default shall have occurred and be continuing,
the Facility Lessee shall notify the insurer under any property insurance policy
providing coverage of the Undivided Interest of the existence of such
Significant Lease Default or Lease Event of Default. After receipt of any such
notification, each such insurer shall pay the proceeds of any property insurance
policies in accordance with Section 11.7(d).
---------------
(c) Within 30 days after receiving Actual Knowledge that an Event of
Loss has occurred, the Facility Lessee shall notify the insurer under any
property insurance policy providing coverage for such Event of Loss, the Lease
Indenture Trustee so long as the Lien of the Lease Indenture shall not have been
discharged, and the Owner Lessor of the occurrence of such Event of Loss. Each
of the Facility Lessee, the Owner Lessor and the Lease Indenture Trustee, as
applicable, shall provide any necessary endorsements and otherwise cooperate in
the processing of any related claims or proceeds in accordance with the terms of
this Section 11.
-----------
(d) Notwithstanding the foregoing provisions of this Section 11 or
----------
Section 10, so long as a Significant Lease Default or Lease Event of Default
----------
shall have occurred and be continuing, the proceeds of any insurance required to
be maintained pursuant to this Section 11 that would otherwise be payable to or
----------
for the account of, or that would otherwise be retained by, the Facility Lessee
pursuant to this Section 11 or Section 10.3 will be held as security for the
---------- ------------
obligations of the Facility Lessee under this Facility Lease by the Owner Lessor
or, so long as the Lien of the Lease Indenture shall not have been terminated or
discharged, the Lease Indenture Trustee and, at such time thereafter as no
Significant Lease Default or Lease Event of Default shall be continuing, such
amount shall be paid promptly to the Facility Lessee.
SECTION 12. INSPECTION
During the Facility Lease Term, each of the Owner Lessor, the Owner
Participant, the Equity Investor, the OP Guarantor and, so long as the Lessor
Notes are outstanding and the Lien of the Lease Indenture has not been
discharged, the Lease Indenture Trustee and the Pass
34
Through Trustee and their respective representatives shall have the right,
during normal business hours, upon reasonable notice to the Facility Lessee and
at their own expense (except when a Significant Lease Default or a Lease Event
of Default has occurred and is continuing) and risk, to inspect the Facility and
the records relating to the operation and maintenance thereof in the Facility
Lessee's custody or, so long as the Facility Lessee has the opportunity to be
present, to which the Facility Lessee has access; provided, however, that any
such inspection shall be conducted in accordance with the Operative Documents
and so as not to unreasonably disturb or interfere with the operation or
maintenance of the Facility or the conduct by the Facility Lessee of its
business and shall be in accordance with the Facility Lessee's safety and
insurance programs; provided, further, however, that, except during the
continuance of a Significant Lease Default or a Lease Event of Default, no more
than one inspection in any twelve (12) month period shall be conducted by each
of (x) the Owner Lessor and the Owner Participant and (y), if applicable, the
Pass Through Trustees and the Lease Indenture Trustee; provided, further,
however, that any such Person (or group of Persons) may make more than one
inspection during the last eighteen (18) months of the Facility Lease Term
unless the Facility Lessee has exercised one of its options under Section 15
----------
hereof to renew this Facility Lease beyond such eighteen (18) month period. In
no event shall the Owner Lessor, the Owner Participant, the Equity Investor, the
OP Guarantor, the Lease Indenture Trustee or the Pass Through Trustees have any
duty or obligation to make any such inspection and such Persons shall not incur
any liability or obligation by reason of not making any such inspection.
SECTION 13. TERMINATION OPTION FOR BURDENSOME EVENTS
Section 13.1. Election to Terminate. The Facility Lessee, by giving
written notice (the "Burdensome Termination Notice") to the Owner Lessor no
-----------------------------
later than twelve (12) months after the date the Facility Lessee receives notice
or first has Actual Knowledge of either of the events specified below, shall
have the right, at its option, to terminate this Facility Lease in accordance
with Section 13.3 on the Termination Date specified in the Burdensome
------------
Termination Notice (which shall be a date occurring not less than 30 days nor
more than 60 days after the date of the Burdensome Termination Notice) or such
later Termination Date (which shall be a date occurring not more than 12 months
after the date of the Burdensome Termination Notice) as may be necessary for the
Facility Lessee to obtain such consents and approvals required for the Facility
Lessee to comply with its obligations under this Section 13 if:
----------
(a) as a result of a change in Requirements of Law, it shall have
become illegal for the Facility Lessee to continue this Facility Lease or for
the Facility Lessee to make payments under this Facility Lease or any other
Operative Document, and the transactions contemplated by the Operative Documents
cannot be restructured to comply with such change in Requirements of Law in a
manner reasonably acceptable to the Facility Lessee, the Owner
35
Participant, the Owner Lessor, and, so long as the Lessor Notes are outstanding,
the Lease Indenture Trustee and the Pass Through Trustees; or
(b) one or more events not caused by the Facility Lessee or any
Affiliate thereof, wholly or partially for purposes of exercising the
termination option set forth in this Section 13.1, shall have occurred which
------------
will, or can reasonably be expected to, give rise to an obligation by the
Facility Lessee to make a payment or to incur an indemnity obligation in respect
of the Tax Indemnity Agreement or Section 10.1 or 10.2 of the Participation
--------------------
Agreement; provided, however, that (i) such payment or indemnity obligation (and
the underlying cost or tax) can be avoided in whole or substantially in part if
this Facility Lease is terminated or the Owner Lessor sells the Owner Lessor's
Interest and (ii) the amount of such avoided payments would exceed (on a present
value basis, discounted at the Discount Rate, compounded on an annual basis to
the date of the termination) 2.5% of the Purchase Price (unless the Owner
Participant has waived its right to payments in excess of 2.5% of the Purchase
Price or arranged for its own account for the payment thereof).
Notwithstanding the foregoing, if the Owner Participant or any Affiliate
thereof owns the membership interest in any Other Owner Lessor, the Facility
Lessee may deliver to the Owner Lessor a Burdensome Termination Notice and
exercise the Burdensome Buyout Option (as defined below) only if (i) it has also
delivered such a notice to such Other Owner Lessor under Section 13.1 of the
------------
Affiliate OP Facility Lease and (ii) it is concurrently exercising its
Burdensome Buyout Option under Section 13 of the Affiliate OP Facility Lease;
----------
provided, however, that the requirements in clauses (i) and (ii) of this
paragraph shall not apply in the event the Facility Lessee does not have the
right to deliver such notice or exercise such Burdensome Buyout Option, as
applicable, under Section 13 of the Affiliate OP Facility Lease.
----------
If the Facility Lessee does not give the Burdensome Termination Notice
within twelve (12) months of the date the Facility Lessee receives notice or has
Actual Knowledge of an event or condition described above, the Facility Lessee
shall lose its right to terminate this Facility Lease pursuant to this Section
-------
13.1 as a result of such event or condition.
----
Section 13.2. Solicitation of Qualifying Bids; Payments Upon Termination.
(a) Upon receipt of a Burdensome Termination Notice pursuant to Section 13.1,
-------------
the Owner Lessor shall have the right, but shall be under no obligation to, sell
the Undivided Interest and, at the request of the Owner Lessor, the Facility
Lessee will, as nonexclusive agent for the Owner Lessor, use commercially
reasonable efforts to obtain cash bids from unaffiliated third parties for the
sale of the Undivided Interest. In connection with the delivery of a Burdensome
Termination Notice, the Facility Lessee may, but shall be under no obligation
to, make an offer to purchase the Undivided Interest and shall have a right of
first refusal with respect to any offer received from an unaffiliated third
party (which may be exercised any time prior to the Termination Date), in
connection with such sale. Only bona fide bids, whether from the Facility Lessee
or a third party,
36
to purchase the Undivided Interest for cash on the Termination Date on an "as
is, where is" basis without any representation, other than by the Owner Lessor
that the Owner Lessor's Undivided Interest is free of Owner Lessor Liens and a
warranty of the Owner Participant as to the absence of Owner Participant Liens,
shall be qualifying cash bids ("Qualifying Cash Bids") and all the proceeds of
--------------------
any such Qualifying Cash Bid shall be for the account of the Owner Lessor. If a
Qualifying Cash Bid is received and the Owner Lessor accepts such bid in
writing, the Facility Lessee shall pay the Owner Lessor on the Termination Date
(i) the Termination Value determined as of such Termination Date, less the cash
actually received by the Owner Lessor in connection with such Qualifying Cash
Bid (or, if the amount of such cash actually received by the Owner Lessor from
such Qualifying Cash Bid is equal to or greater than such Termination Value,
zero) plus (ii) all amounts due and payable under Section 13.3. If a Qualifying
---- ------------
Cash Bid is rejected in writing by the Owner Lessor and the Owner Lessor has not
elected to retain the Owner Lessor's Interest, the Facility Lessee shall pay the
Owner Lessor on the Termination Date (x) the Termination Value determined as of
such Termination Date, less the amount of such rejected Qualifying Cash Bid (or,
if the amount of such rejected Qualifying Cash Bid is equal to or greater than
such Termination Value, zero) plus (y) all amounts due and payable under Section
---- -------
13.3. If no Qualifying Cash Bid is offered and the Owner Lessor has not elected
----
to retain the Owner Lessor's Interest, the Facility Lessee shall pay the Owner
Lessor on the Termination Date (A) the Termination Value determined as of such
Termination Date plus (B) all amounts due and payable under Section 13.3. If the
---- ------------
Owner Lessor elects in writing to retain the Owner Lessor's Interest, the
Facility Lessee shall pay the Owner Lessor on the Termination Date all amounts
due and payable under Section 13.3 (but shall have no obligation to pay
------------
Termination Value).
(b) If, within 10 days of the Termination Date set forth in the
Burdensome Termination Notice delivered pursuant to Section 13.1(a), (i) the
---------------
Facility Lessee shall not have paid Termination Value in accordance with clause
(A) of Section 13.1 above, (ii) the Owner Lessor shall not have received a
-----------
Qualifying Cash Bid from the Facility Lessee, and (iii) the Owner Lessor shall
not have elected to retain the Owner Lessor's Interest, this Facility Lease
shall continue, the Facility Lessee shall lose its right to terminate this
Facility Lease for the Burdensome Buyout Event referred to in such Burdensome
Termination Notice, and any and all rights that the Owner Lessor had immediately
prior to the receipt of such Burdensome Termination Notice shall remain in full
force and effect.
(c) Any transfer in connection with this Section 13 shall be subject
----------
to the Ownership and Operation Agreement.
Section 13.3. Procedure for Exercise of Termination Option. (a) If the
Facility Lessee shall have exercised its option under Section 13.1 (a
------------
"Burdensome Buyout Option"), the Facility Lessee shall, prior to and as a
-------------------------
condition to the closing of the sale, pay (in addition to the applicable amount
set forth in Section 13.2(a), if any, without duplication of any other amounts
---------------
paid hereunder): (i) all reasonable documented out-of-pocket costs and expenses
of the Owner
37
Lessor, the Owner Participant and, so long as the Lessor Notes are outstanding
and the Lien of the Lease Indenture has not been discharged, the Lease Indenture
Trustee and the Pass Through Trustee; (ii) any other payment under this Facility
Lease (other than Periodic Lease Rent or Renewal Rent payable on or after the
Termination Date) due and unpaid on the Termination Date and any amounts due and
unpaid, or accrued and unpaid, on the Termination Date under any other Operative
Document. Concurrently with the payment of all sums specified in Section 13.2
------------
and this Section 13.3(a), (A) Allocated Rent and Periodic Lease Rent or Renewal
---------------
Rent, as the case may be, for the Undivided Interest shall cease to accrue, (B)
this Facility Lease, the Facility Site Lease and the Facility Site Sublease
shall terminate and the Facility Lessee shall cease to have any liability to the
Owner Lessor with respect to the Undivided Interest, except for obligations
surviving pursuant to the express terms of any Operative Document, (C) unless
the Facility Lessee assumes the Lessor Notes or makes a Special Lessee Transfer
pursuant to Section 13.4, the Owner Lessor will pay all amounts of principal and
------------
interest and any other amounts owing under the Lessor Notes (excluding any Make
Whole Premium, if any, due and payable) to the Lease Indenture Trustee pursuant
to Section 2.11 of the Lease Indenture, (D) in connection with any sale of the
------------
Owner Lessor's Interest pursuant to Section 13.2, the Owner Lessor shall
------------
transfer (by an appropriate instrument of transfer in form and substance
reasonably satisfactory to the Owner Lessor and prepared by and at the expense
of the Facility Lessee) all of its right, title and interest in and to the Owner
Lessor's Interest to the Facility Lessee or its designee on an "as is", "where
is" basis, without warranty other than a warranty as to the absence of Owner
Lessor Liens and a warranty of the Owner Participant as to the absence of Owner
Participant Liens, and (E) the Owner Lessor shall execute and deliver
appropriate releases and other documents or instruments necessary or desirable
to effect the foregoing all to be prepared, filed and recorded (as appropriate)
at the sole cost and expense of the Facility Lessee. It shall be a condition
precedent to the termination of this Facility Lease pursuant to this Section
-------
13.3, that the Owner Lessor and the Facility Lessee shall each pay all amounts
----
that each is obligated to pay under this Section 13.3.
------------
(b) If the Facility Lessee fails to consummate the termination option
under this Section 13 after giving notice of its intention to do so (other than
----------
in consequence of failure of the Owner Lessor or the Owner Participant to
fulfill their respective obligations under this Section 13), (A) this Facility
----------
Lease shall continue, (B) such failure to consummate shall not constitute a
default under this Facility Lease, and (C) the Facility Lessee will lose its
right to terminate this Facility Lease pursuant to this Section 13 as a result
----------
of such event or condition during the remainder of the Facility Lease Term but
the Facility Lessee shall in any event (without relieving the Owner Lessor of
any liability hereunder) pay the amounts set forth in clause (i) of the first
sentence of Section 13.3(a).
---------------
Section 13.4. Assumption of the Lessor Notes; Special Lessee Transfers.
38
(a) Notwithstanding the foregoing provisions of Section 13.3 to the
------------
contrary, at the option of the Facility Lessee, if (i) the Facility Lessee shall
have executed and delivered an assumption agreement to assume the Lessor Notes
on a fully recourse basis, as permitted by and in accordance with Section 2.12
------------
of the Lease Indenture, (ii) all other conditions contained in such Section 2.12
------------
of the Lease Indenture shall have been satisfied, (iii) no Significant Lease
Default or Lease Event of Default shall have occurred and be continuing and
shall not be cured by such assumption and (iv) the Facility Lessee shall
purchase the Undivided Interest pursuant to Section 13.1 or 13.2, as the case
--------------------
may be, then, the obligation of the Facility Lessee to pay Termination Value
shall be reduced by the outstanding principal amount of the Lessor Notes so
assumed by the Facility Lessee and the Owner Lessor shall have no further
obligation to prepay the outstanding principal and accrued interest on the
Lessor Notes to the extent of the Lessor Notes so assumed by the Facility
Lessee; provided, however, for so long as the Lessor Notes are outstanding, if
the Facility Lessee shall have chosen to assume the Lessor Notes pursuant to
this Section 13.4(a), the Facility Lessee shall acquire the Undivided Interest
---------------
from the Owner Lessor subject to the Lien of the Lease Indenture.
(b) If the Facility Lessee assumes the Lessor Notes under this Section
-------
13, the Facility Lessee shall, on the Termination Date, also pay (without
--
duplication of any other amount paid hereunder) the Owner Lessor the following:
(i) all reasonable out-of-pocket costs and expenses of the Owner Lessor, the
Owner Participant, the Equity Investor, the OP Guarantor, the Lease Indenture
Trustee and the Pass Through Trustee; (ii) any other payment under this Facility
Lease (other than Periodic Lease Rent or Renewal Rent payable on or after the
Termination Date) due and unpaid on the Termination Date and any amounts due and
unpaid, or accrued and unpaid, on the Termination Date under any other Operative
Document.
(c) Notwithstanding the foregoing provisions of Section 13.3 to the
------------
contrary, in the case of a Burdensome Buyout Event, the Facility Lessee (or its
designee) so long as the Facility Lessee shall remain liable under this Facility
Lease to pay Periodic Lease Rent and all other payments hereunder in full, and
in all respects in accordance with Section XV of the Participation Agreement,
----------
may purchase the Lessor Membership Interest or all of the outstanding membership
interests in the Owner Participant, in lieu of purchasing the Undivided Interest
pursuant to Sections 13.1 and 13.2 hereof, and keep this Facility Lease (and
----------------------
Lessor Notes) in place in consideration of the amounts set forth in Section XV
----------
of the Participation Agreement, so long as (i) the Lease Indenture Trustee shall
have received an opinion from counsel selected by the Facility Lessee and
reasonably acceptable to the Lease Indenture Trustee to the effect that such
purchase would not result in more than an immaterial risk of the merger of the
interests of the Owner Lessor and the Facility Lessee in this Facility Lease and
(ii) unless the Facility Lessee has elected to provide to the Lease Indenture
Trustee an indemnity against the risk that such purchase will cause a Tax Event
to occur, the Lease Indenture Trustee shall have received an opinion of counsel
to the Facility Lessee (with customary qualifications and limitations and
otherwise reasonably satisfactory to the Lease Indenture Trustee), addressed to
the Lease
39
Indenture Trustee and the holders of the Lessor Notes, to the effect that such
purchase shall not cause a Tax Event to occur as to any direct or indirect
holder of any Lessor Note (including any Certificateholder).
SECTION 14. TERMINATION FOR OBSOLESCENCE; PARTIAL RELEASE OF INTEREST
Section 14.1. Termination. Upon at least six months' prior written notice
to the Owner Lessor, (which notice shall be accompanied by a certification by
the board of directors of the Facility Lessee's Manager as to one or more of the
matters described in clauses (a) and (b) below), the Facility Lessee shall have
the option, so long as no Lease Event of Default shall have occurred and be
continuing on the date of such notice or on the proposed Obsolescence
Termination Date (as defined below), to terminate this Facility Lease on any
Termination Date occurring on or after the seventh anniversary of the Closing
Date (the date of termination selected by the Facility Lessee being the
"Obsolescence Termination Date") which proposed Obsolescence Termination Date
-----------------------------
shall be set forth in the aforementioned notice, on the terms and conditions set
forth in this Section 14, if (a) the Facility is economically or technologically
----------
obsolete; or (b) the Facility is otherwise surplus to the Facility Lessee's
needs or is no longer useful in its trade or business, as determined by the
board of directors of the Facility Lessee's Manager in good faith, including,
without limitation, as a result of any change in the markets for the wholesale
purchase and/or sale of energy or any material abrogation of power purchase
agreements or any other reason.
Notwithstanding the foregoing, the Facility Lessee may elect to
terminate this Facility Lease pursuant to this Section 14.1 and exercise its
------------
other rights under this Section 14 only if (i) concurrently with such election,
----------
it also elects to terminate all Other Facility Leases pursuant to Section 14.1
------------
thereof and (ii) concurrently with its termination hereunder, it terminates all
Other Facility Leases in accordance with Section 14 thereof.
----------
Section 14.2. Solicitation of Offers. If the Facility Lessee shall give
the Owner Lessor notice pursuant to Section 14.1 and the Owner Lessor shall not
------------
have elected to retain the Undivided Interest pursuant to Section 14.3 below,
------------
the Facility Lessee shall (i) as non-exclusive agent for the Owner Lessor, use
commercially reasonable efforts to obtain bids from unaffiliated third parties
with the Facility Lessee and sell the Owner Lessor's Interest on the
Obsolescence Termination Date and (ii) covenant that it will not sell the Owner
Lessor's Interest to itself, an Affiliate or to any third party with whom the
Facility Lessee or its Affiliate has an arrangement to use or operate the
Facility to generate power for the Facility Lessee's or any such Affiliate's
benefit after the termination of this Facility Lease. All of the proceeds of
any sale, in accordance with clause (i) of this Section 14.2, will be for the
------------
account of the Owner Lessor; provided that, so long as the Lessor Notes are
outstanding and the Lien of the Lease Indenture has not been
40
discharged, the proceeds of such sale shall be paid directly to the Lease
Indenture Trustee. At least 120 days prior to the Obsolescence Termination Date,
the Facility Lessee shall certify to the Owner Lessor and, so long as the Lessor
Notes are outstanding and the Lien of the Lease Indenture has not been
discharged, the Lease Indenture Trustee each bid or offer, the amount and terms
thereof and the name and address of the party (which shall not be the Facility
Lessee, any of its Affiliates or any third party with whom it or any such
Affiliate has an arrangement to use or operate the Facility to generate power
for the benefit of the Facility Lessee or such Affiliate after the termination
of this Facility Lease) submitting such bid or offer. The Owner Lessor shall
also have the right, but not the obligation, to obtain bids for the sale of the
Owner Lessor's Interest either directly or through agents other than the
Facility Lessee.
Section 14.3. Right of Owner Lessor to Retain the Undivided Interest.
The Owner Lessor may irrevocably elect to retain, rather than sell, the
Undivided Interest by giving notice to the Facility Lessee at least 90 days
prior to the Obsolescence Termination Date. If the Owner Lessor elects to
retain the Undivided Interest pursuant to this Section 14.3, on the Obsolescence
------------
Termination Date the Facility Lessee shall pay to the Owner Lessor the amounts
described in clauses (i) through (iv) of Section 14.4 below. Concurrently with
------------
the payment of all sums required to be paid pursuant to this Section 14.3 or
------------
Section 14.4 below, (i) Allocated Rent and Periodic Lease Rent or Renewal Rent,
------------
as the case may be, for the Undivided Interest shall cease to accrue, (ii) this
Facility Lease and the Facility Site Sublease shall terminate and the Facility
Lessee shall cease to have any liability hereunder or any other Operative
Document with respect to the Undivided Interest, except for obligations
surviving pursuant to the express terms of the Operative Documents, (iii) the
Owner Lessor shall pay all outstanding principal and accrued interest on the
Lessor Notes and, to the extent actually received from the Facility Lessee as
Supplemental Rent, all other amounts due under the Lease Indenture including the
reimbursement of any fees or expenses of the Lease Indenture Trustee, (iv) the
Facility Lessee shall return the Undivided Interest to the Owner Lessor in
accordance with Section 5.1 hereof and (v) the Owner Lessor shall execute and
-----------
deliver appropriate releases and other documents or instruments necessary or
desirable to effect the foregoing. It shall be a condition precedent to the
termination of this Facility Lease pursuant to this Section 14.3, that the Owner
------------
Lessor and the Facility Lessee shall each pay all amounts that each is obligated
to pay under this Section 14.3.
------------
Section 14.4. Procedure for Exercise of Termination Option. If the Owner
Lessor has not elected to retain the Undivided Interest in accordance with
Section 14.3 hereof, on the Obsolescence Termination Date, the Owner Lessor
------------
shall sell the Owner Lessor's Undivided Interest under this Section 14.4 and its
------------
interest in the Ground Interest under Section 6 of the Facility Site Lease and
---------
Section 6 of the Facility Site Sublease to the bidder or bidders pursuant to
---------
Section 14.2 hereof (which shall not be the Facility Lessee, any Affiliate
------------
thereof or any third party with whom the Facility Lessee or any such Affiliate
has an arrangement to use or operate the Facility to generate power for the
benefit of the Facility Lessee or such Affiliate after the termination of this
Facility Lease), that shall have submitted the highest cash bid or bids with
41
respect to the Owner Lessor's Interest. The Facility Lessee shall certify to the
Owner Lessor, the Owner Participant and, so long as the Lessor Notes are
outstanding and the Lien of the Lease Indenture has not been discharged, the
Lease Indenture Trustee that such bidder is not the Facility Lessee, any
Affiliate thereof or any third party with whom the Facility Lessee or any such
Affiliate has an arrangement to use or operate the Facility to generate power
for the benefit of the Facility Lessee or such Affiliate after the termination
of this Facility Lease. On the Obsolescence Termination Date, the Facility
Lessee shall pay to the Owner Lessor the excess, if any, of Termination Value
determined as of such Obsolescence Termination Date over the net proceeds from
the sale of the Undivided Interest paid to or retained by the Owner Lessor plus
----
(without duplication) (i) any premium due with respect to the Lessor Notes
redeemed in connection therewith plus (ii) all reasonable out-of-pocket costs
----
and expenses incurred by the Owner Lessor, the Owner Participant, the Equity
Investor, the OP Guarantor and, so long as the Lessor Notes are outstanding and
the Lien of the Lease Indenture has not been discharged, Lease Indenture Trustee
and Pass Through Trustees in connection therewith (excluding the reasonable fees
and costs of any broker unless engaged by the Facility Lessee on the Owners
Lessor's behalf) plus (iii) any other payment of the Facility Lessee (other than
----
Periodic Lease Rent or Renewal Rent payable on or after the Obsolescence
Termination Date) under this Facility Lease due and unpaid on the Obsolescence
Termination Date and any amount due and unpaid, or accrued and unpaid, on the
Obsolescence Termination Date under any Operative Document. Unless the Owner
Lessor, with the consent of the Facility Lessee, shall have entered into a
legally binding contract to sell the Owner Lessor's Interest, the Facility
Lessee may, at its election, revoke its notice of termination by giving notice
to the Owner Lessor at least 30 days prior to the proposed Obsolescence
Termination Date, in which event this Facility Lease shall continue with respect
to the Undivided Interest and the Facility Lessee shall have the right to later
reissue a notice to terminate pursuant to Section 14.1; provided that the
------------
Facility Lessee may give notice that it is exercising its Termination Option for
obsolescence no more than once in any five (5) year period. The Owner Lessor
shall be under no duty to solicit bids, to inquire into the efforts of the
Facility Lessee to obtain bids or otherwise take any action in arranging any
such sale of the Owner Lessor's Interest other than, if the Owner Lessor has not
elected to retain the Owner Lessor's Interest, to transfer the Owner Lessor's
Interest in accordance with this Section 14.4. It shall be a condition of the
------------
Owner Lessor's obligation to consummate a sale of the Owner Lessor's Interest
that the Facility Lessee shall pay all amounts it is obligated to pay under this
Section 14.4. If no sale shall occur on the Obsolescence Termination Date, the
------------
notice of termination shall be deemed revoked and this Facility Lease shall
continue with respect to the Undivided Interest in full force and effect in
accordance with its terms (without prejudice to the Facility Lessee's right to
exercise its rights under this Section 14); provided, however, that the
----------
Facility Lessee shall in any event pay, without duplication of any amounts
payable hereunder, the amounts set forth in clause (ii) of this Section 14.4.
------------
Section 14.5. Partial Release of Interest.
42
(a) The Facility Lessee shall be entitled to obtain a release of a
portion of the Facility Site (the "Released Interest") in the event that the
-----------------
Facility Lessee shall have delivered to the Owner Lessor, the Owner Participant
and, so long as the Lessor Notes are outstanding and the Lien of the Lease
Indenture has not been discharged, the Lease Indenture Trustee (i) certificates
of the Engineering Consultant and the Environmental Consultant certifying that
the Released Interest is not necessary for the operation of the Facility in
accordance with Prudent Industry Practice (ii) a letter of the Appraiser
certifying that (A) the release of the Released Interest (taking into account
any Released Interest Related Rights) will not diminish the current value,
residual value, utility or remaining useful life of the Facility by more than a
de minimis amount (as measured immediately prior to such release assuming the
Facility shall be in the condition required by the terms of this Facility
Lease), and (B) the release of the Released Interest will not cause the Facility
to become "limited use" property, within the meaning of Rev. Proc. 75-28, 1975-1
C.B. 752 or Rev. Proc. 76-30, 1976-2 C.B. 647 and (iii) an Officer's Certificate
of the Facility Lessee certifying that no Significant Lease Default or Lease
Event of Default has occurred and is continuing or would be created by such
release.
(b) Subject to Section 14.5(a), with respect to any Released Interest,
---------------
the Owner Lessor shall execute and deliver and take such other action as the
Facility Lessee may reasonably request to grant to the Facility Lessee or its
designee, easements, appurtenances, covenants, and other similar rights and
interests as the Facility Lessee may reasonably request in connection with any
ownership, maintenance, subdivision or operation of any Released Interest or
improvements or operations located on or in respect of such Released Interest
(the "Released Interest Related Rights"); provided that no such Released
--------------------------------
Interest Related Rights shall materially and adversely affect the Owner
Participant, the Equity Investor, the OP Guarantor, the Owner Lessor or the
Lease Indenture Trustee or any of their Affiliates.
(c) In connection with the release of any Released Interest, the Owner
Lessor and the Owner Participant shall execute and deliver, at the sole cost and
expense of the Facility Lessee, such releases, discharges, conveyances and other
documents as may be reasonably requested by the Facility Lessee to effect such
release and to convey and transfer title to such Released Interest to the
Facility Lessee.
SECTION 15. LEASE RENEWAL
Section 15.1. Wintergreen Renewal Lease Terms
(a) Not earlier than 42 months prior to, but not less than 18 months
prior to, the expiration of the Basic Lease Term, so long as no Lease Event of
Default shall have occurred and be continuing on the date any notice is given
pursuant to this Section 15.1(a) and no Lease Event of Default shall have
---------------
occurred and be continuing on the date the lease renewal proposed
43
pursuant to this Section 15.1(a) is to commence, the Facility Lessee may deliver
---------------
to the Owner Lessor a notice (which notice may be in addition to a notice of the
Facility Lessee's interest in electing a FMV Renewal Lease Term under Section
-------
15.2) of the Facility Lessee's interest in renewing this Facility Lease at the
----
end of the Basic Lease Term for a term (the "First Wintergreen Renewal Lease
-------------------------------
Term") selected by the Facility Lessee, which term shall satisfy the following
----
criteria: (i) the aggregate of the proposed First Wintergreen Renewal Lease
Term and the Basic Lease Term is expected to be not more than 75% of the
estimated remaining useful life of the Facility, measured from the Closing Date
and determined not more than 36 months prior to the end of the Basic Lease Term
and (ii) on the last date of such proposed First Wintergreen Renewal Lease Term,
the estimated Fair Market Sales Value of the Facility is expected to be no less
than 20% of the Purchase Price (without taking into account inflation or
deflation subsequent to the Closing Date). Items (i) and (ii) of the
immediately preceding sentence shall be determined by an Independent Appraiser
selected by the Facility Lessee and reasonably acceptable to the Owner Lessor.
The Facility Lessee shall bear all expenses of such Independent Appraiser. The
Facility Lessee may withdraw any notice given in accordance with this Section
-------
15.1(a) by written notice of such withdrawal to the Owner Lessor, on or prior
-------
to the date which is 18 months before the commencement of the proposed First
Wintergreen Renewal Lease Term.
(b) Not earlier than 42 months prior to, but not less than 18 months
prior to, the expiration of the First Wintergreen Renewal Lease Term, so long as
no Lease Event of Default shall have occurred and be continuing on the date any
notice is given pursuant to this Section 15.1(b) and no Lease Event of Default
---------------
shall have occurred and be continuing on the date the lease renewal proposed
pursuant to this Section 15.1(b) is to commence, the Facility Lessee may deliver
---------------
to the Owner Lessor a notice (which notice may be in addition to a notice of the
Facility Lessee's interest in electing a FMV Renewal Lease Term under Section
-------
15.2) of the Facility Lessee's interest in renewing this Facility Lease at the
----
end of the First Wintergreen Renewal Lease Term for a term (the "Second
------
Wintergreen Renewal Lease Term") selected by the Facility Lessee, which term
------------------------------
shall satisfy the following criteria: (i) the aggregate of the proposed Second
Wintergreen Renewal Lease Term, the First Wintergreen Renewal Lease Term and the
Basic Lease Term is expected to be no greater than 75% of the estimated
remaining useful life of the Facility, measured from the Closing Date and
determined not more than 36 months prior to the end of the First Wintergreen
Renewal Lease Term and (ii) on the last date of such proposed Second Wintergreen
Renewal Lease Term, the estimated Fair Market Sales Value of the Facility is
expected to be no less than 20% of the Purchase Price (without taking into
account inflation or deflation subsequent to the Closing Date). Items (i) and
(ii) of the immediately preceding sentence shall be determined by an Independent
Appraiser selected by the Facility Lessee and reasonably acceptable to the Owner
Lessor. The Facility Lessee shall pay all expenses and fees of such Independent
Appraiser. The Facility Lessee may withdraw any notice given in accordance with
this Section 15.1(b) by written notice of such withdrawal to the Owner Lessor on
---------------
or prior to 18 months before commencement of the proposed Second Wintergreen
Renewal Lease Term.
44
Notwithstanding the foregoing, the Facility Lessee may elect to renew
this Facility Lease pursuant to subsection (a) or (b) of this Section 15.1 and
------------
exercise its other rights under such subsections only if (i) concurrently with
such election, the Facility Lessee also elects to renew each Other Facility
Lease pursuant to subsection (a) or (b), as applicable, of Section 15.1 thereof
------------
and (ii) concurrently with the renewal of this Facility Lease, the Facility
Lessee renews each Other Facility Lease in accordance with subsection (a) or
(b), as applicable, of Section 15.1 thereof.
------------
Section 15.2. Fair Market Value Renewal Lease Terms. Not earlier than 42
months prior to, but not less than 18 months prior to, the expiration of the
Basic Lease Term or any Renewal Lease Term, so long as no Lease Event of Default
shall have occurred and be continuing on the date any notice is given pursuant
to this Section 15.2 and no Lease Event of Default shall have occurred and be
------------
continuing on the date the lease renewal proposed pursuant to this Section 15.2
------------
is to commence, the Facility Lessee may deliver to the Owner Lessor a notice
(which notice may be in addition to a notice of the Facility Lessee's interest
in electing the First Wintergreen Renewal Lease Term or the Second Wintergreen
Renewal Lease Term, as applicable) of the Facility Lessee's interest in renewing
this Facility Lease for a term (each such term, a "FMV Renewal Lease Term")
----------------------
commencing upon expiration of the Basic Lease Term or the Renewal Lease Term
otherwise expiring and extending for no less than two years and no more than
five years; provided that, unless such FMV Renewal Lease Term extends to the end
of the useful life of the Facility, no such FMV Renewal Lease Term shall extend
beyond the date that is three (3) years prior to the end of the useful life of
the Facility (as set forth in the most recent of (a) the Closing Appraisal, (b)
the appraisal obtained in connection with the First Wintergreen Renewal Option
and (c) the appraisal obtained in connection with the Second Wintergreen Renewal
Option.) The Facility Lessee may withdraw any notice given in accordance with
this Section 15.2 by written notice of such withdrawal to the Owner Lessor on or
------------
prior to 18 months before commencement of the proposed Fair Market Value Renewal
Lease Term.
Notwithstanding the foregoing, the Facility Lessee may elect to renew
this Facility Lease pursuant to this Section 15.2 and exercise its other rights
------------
under such Section only if (i) concurrently with such election, the Facility
Lessee also elects to renew each Other Facility Lease pursuant to Section 15.1
------------
thereof and (ii) concurrently with the renewal of this Facility Lease, the
Facility Lessee renews each Other Facility Lease in accordance with Section 15.1
------------
thereof.
Section 15.3. Renewal Rent and Termination Value for Renewal Lease Term.
During each Renewal Lease Term, Renewal Rent shall be paid on the Rent Payment
Dates. The installment of Renewal Rent payable on each such Rent Payment Date
during the First Wintergreen Renewal Lease Term shall be equal to the lesser of
(i) the Fair Market Rental Value of the Undivided Interest (as determined not
more than 36 months prior to the end of the Basic Lease Term) and (ii) in the
case of any period (or portion thereof) that is within the first five
45
years following the end of the Basic Lease Term, 75% of the average Periodic
Lease Rent payable with respect to the Basic Lease Term or, in the case of any
period thereafter, 50% of the average Periodic Lease Rent payable with respect
to the Basic Lease Term. The installment of Renewal Rent payable on each such
Rent Payment Date during the Second Wintergreen Renewal Lease Term shall be
equal to the lesser of (i) the Fair Market Rental Value of the Undivided
Interest (determined not more than 36 months before the end of the First
Wintergreen Renewal Term) and (ii) in the case of any period (or portion
thereof) that is within the first five years following the end of the Basic
Lease Term, 75% of the average Periodic Lease Rent payable with respect to the
Basic Lease Term or, in the case of any period thereafter, 50% of the average
Periodic Lease Rent payable with respect to the Basic Lease Term. The
installment of Renewal Rent payable on each such Rent Payment Date during the
FMV Renewal Lease Term shall be equal to (a) the Fair Market Rental Value (if
there has been a First Wintergreen Renewal Lease Term) or (b) 105% of the Fair
Market Rental Value (if there has not been a First Wintergreen Renewal Lease
Term) of the Undivided Interest at the end of the applicable Lease Term
(determined not more than 36 months prior to the commencement of such FMV
Renewal Lease Term); provided, however, that the 105% amount set forth in the
preceding clause (b) shall be payable only in respect of the first five years
following the expiration of the Basic Lease Term and Renewal Rent payable
thereafter during any FMV Renewal Lease Term shall be equal to 100% of the Fair
Market Rental Value of the Undivided Interest at the time; provided, further,
that if, in the case of clause (b) above, on or prior to the commencement of any
FMV Renewal Lease Term, the Owner Lessor and the Facility Lessee agree or, in
the absence of such agreement, if the Facility Lessee shall provide the Owner
Participant with an opinion of counsel reasonably satisfactory to the Owner
Participant or with a private letter ruling, in each case to the effect that the
Renewal Rent for an FMV Renewal Lease Term may be set at 100% of the Fair Market
Rental Value of the Undivided Interest without resulting in adverse Federal
income tax consequences to the Owner Participant under Section 467 of the Code,
the Renewal Rent for each FMV Renewal Lease Term will be equal to 100% of the
Fair Market Rental Value of the Undivided Interest.
Section 15.4. Determination of Fair Market Rental Value. The Fair Market
Rental Value of the Undivided Interest as of the commencement of any Renewal
Lease Term shall be determined by agreement of the Owner Lessor and the Facility
Lessee within six months after receipt by the Owner Lessor of the notice from
the Facility Lessee of its election to renew pursuant to Section 15.1 or 15.2
--------------------
(but not more than 36 months before the commencement of such Renewal Lease Term)
or, if they shall fail to agree within such six month period, shall be
determined by an appraisal conducted by an Independent Appraiser according to
the Appraisal Procedure. The Facility Lessee shall be responsible for such
Independent Appraiser's fees and expenses.
Section 15.5. Termination Value During Renewal Lease Terms. The amounts
which are payable during any Renewal Lease Term in respect of Termination Value
shall be determined on
46
the basis of the Fair Market Sales Value of the Undivided Interest as of the
commencement of such Renewal Lease Term, amortized on a straight-line basis over
such Renewal Lease Term to the projected Fair Market Sales Value of the Facility
as of the expiration of such Renewal Lease Term, as such Fair Market Sales Value
in each case is determined prior to the commencement of such Renewal Lease Term.
SECTION 16. SIGNIFICANT LEASE DEFAULTS
Each of the following events shall constitute a "Significant Lease Default"
-------------------------
hereunder:
(a) the Facility Lessee shall fail to make any payment of Periodic
Lease Rent, Renewal Rent or Termination Value, when due;
(b) the Facility Lessee shall fail to make any other payment required
to be made under any Operative Document (other than Excepted Payments, unless
the Owner Participant shall have declared a default with respect thereto) when
due, in excess of $500,000 except to the extent such amounts are in dispute and
have not been established to be due and payable;
(c) any event or circumstance shall occur which is (with the giving of
notice or passage of time) a Lease Event of Default under any of clauses (c),
(d), (g), (h), (i) or (j) of Section 17; or
----------
(d) if the Owner Participant owns the membership interest in any other
Owner Lessor, a Significant Lease Default or a Lease Event of Default under the
Affiliate OP Facility Lease.
SECTION 17. EVENTS OF DEFAULT
Each of the following events shall constitute a "Lease Event of Default"
----------------------
hereunder (whether any such event shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court or any order, rule or regulation of
any Governmental Authority):
(a) the Facility Lessee shall fail to make any payment of Periodic
Lease Rent, Renewal Rent or Termination Value, when due, and such failure shall
continue unremedied for five (5) Business Days; or
(b) the Facility Lessee shall fail to make any other payment required
to be made under any Operative Document (other than Excepted Payments, unless
the Owner Participant shall have declared a default with respect thereto) when
due, and such failure shall
47
have continued unremedied for 30 days after receipt by the Facility Lessee of
written notice of such failure from the Owner Participant, the Owner Lessor or,
so long as the Lessor Notes are outstanding and the Lien of the Lease Indenture
has not been discharged, the Lease Indenture Trustee or from any Pass Through
Trustee; or
(c) the Facility Lessee shall fail to maintain insurance in the
amounts and on the terms set forth in the Operative Documents, including Section
-------
11 hereof; or
--
(d) the Facility Lessee shall fail to perform or observe in all
material respects (i) any of the covenants set forth in Sections 5.13, 6.1,
-------------------
6.2, 6.7 or 6.8 of the Participation Agreement, or (ii) if such failure is in
---------------
respect of any borrowed money, the covenant set forth in Section 6.3 of the
-----------
Participation Agreement; or
(e) the Facility Lessee shall fail to perform or observe any other
covenant set forth in the Participation Agreement, this Facility Lease, any Pass
Through Trust Agreement or in any other Operative Document (other than any of
the covenants referred to in clauses (a), (b), (c) and (d) of this Section 17) ,
----------
in any material respect and such failure shall continue unremedied for 30 days
after receipt by the Facility Lessee of written notice thereof from the Owner
Participant, Owner Lessor, or, so long as the Lessor Notes are outstanding and
the Lien of the Lease Indenture has not been discharged, the Lease Indenture
Trustee or any Pass Through Trustee; provided, however, that if such failure
cannot be remedied within such 30-day period, then the period within which to
remedy such failure shall be extended up to an additional 180 days, so long as
the Facility Lessee diligently pursues such remedy and such failure is
reasonably capable of being remedied within such additional 180-day period;
provided, further, that in the case of the Facility Lessee's obligation set
forth in clause (b) of Section 7.1, to the extent and for so long as a test,
-----------
challenge, appeal or proceeding to review with respect to such non-compliance
shall be prosecuted in good faith by the Facility Lessee, the failure by the
Facility Lessee to comply with the requirements thereof shall not constitute a
Lease Event of Default if such test, challenge, appeal or proceeding shall not
involve any (i) material risk of foreclosure, sale, forfeiture or loss of, or
imposition of a Lien (other than a Permitted Lien) on, the Facility, the
Undivided Interest or the Facility Site or the impairment of the use, operation
or maintenance of the Facility or the Facility Site in any material respect,
(ii) risk of criminal liability being incurred by the Owner Lessor, the Owner
Participant, the Equity Investor or the OP Guarantor, or (so long as the Lessor
Notes are outstanding and the Lien of the Lease Indenture has not been
discharged) the Lease Indenture Trustee or the Pass Through Trustee or any of
their respective Affiliates, or (iii) material risk of any material adverse
effect on the interests of the Owner Lessor, the Owner Participant, the Equity
Investor or the OP Guarantor, or (so long as the Lessor Notes are outstanding
and the Lien of the Lease Indenture has not been discharged) the Lease Indenture
Trustee or the Pass Through Trustee or any of their respective Affiliates
(including, without limitation, subjecting any such Person to regulation as a
public utility under any Requirement of Law); and provided, further, also in the
case of the Facility Lessee's obligation set forth in clause
48
(b) of Section 7.1, if such noncompliance is not of a type that can be
-----------
immediately remedied, the failure to comply shall not be a Lease Event of
Default if the Facility Lessee is taking all reasonable action to remedy such
noncompliance and if, and only if, such noncompliance shall not involve any
danger described in clause (i), (ii) or (iii) of the preceding proviso; and
provided, further, such noncompliance, or such test, challenge, appeal or
proceeding to review with respect to such noncompliance shall not extend beyond
the date that is 36 months prior to the scheduled expiration of the Basic Lease
Term or any Renewal Lease Term then in effect or already irrevocably elected by
the Facility Lessee; or
(f) any representation or warranty of the Facility Lessee set forth
in the Operative Documents (other than a tax representation set forth in the Tax
Indemnity Agreement) shall prove to have been incorrect in any material respect
when made and continues to be material and the circumstances upon which such
breach of representation or warranty is based continue to be material and
unremedied for a period of 30 days after receipt by the Facility Lessee of
written notice thereof from the Owner Participant, Owner Lessor, or, so long as
the Lessor Notes are outstanding and the Lien of the Lease Indenture has not
been discharged, the Lease Indenture Trustee or any Pass Through Trustee;
provided, however, that if such condition cannot be remedied within such 30-day
period, then the period within which to remedy such condition shall be extended
by up to an additional 120 days, so long as the Facility Lessee diligently
pursues such remedy, such condition is reasonably capable of being remedied
within such additional 120-day period; or
(g) the Facility Lessee or any Designated Subsidiary shall (i)
commence a voluntary case or other proceeding seeking relief under Title 11 of
the Bankruptcy Code or liquidation, reorganization or other relief with respect
to itself or its debts under any bankruptcy, insolvency or other similar law now
or hereafter in effect, or apply for or consent to the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or (ii) consent to, or fail to controvert in a
timely manner, any such relief or the appointment of or taking possession by any
such official in any voluntary case or other proceeding commenced against it, or
(iii) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, or (iv) make a general assignment for the
benefit of creditors; or
(h) an involuntary case or other proceeding shall be commenced against
the Facility Lessee or any Designated Subsidiary, seeking (i) liquidation,
reorganization or other relief with respect to it or its debts under Title 11 of
the Bankruptcy Code or any bankruptcy, insolvency or other similar law now or
hereafter in effect, or (ii) the appointment of a trustee, receiver, liquidator,
custodian or other similar official with respect to it or any substantial part
of its property or (iii) the winding-up or liquidation of the Facility Lessee or
any such Designated Subsidiary, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or
49
(i) default under any bond, debenture, note or other evidence of
Indebtedness (but excluding obligations arising under the Operative Documents
and Non-Recourse Indebtedness) for money borrowed by the Facility Lessee under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness of the Facility Lessee,
whether such Indebtedness now exists or shall hereafter be created, which
Indebtedness is in an aggregate principal amount exceeding $50,000,000 (as such
amount is escalated annually based on the Consumer Price Index) and which
default shall have resulted in such Indebtedness becoming or being declared due
and payable prior to the date on which it would otherwise have become due and
payable, without such Indebtedness having been discharged, or such acceleration
having been rescinded or annulled; or
(j) failure by the Facility Lessee to comply with the restrictions on
transfer imposed on it by Section 23.4 hereof; or
------------
(k) SEI shall fail to make any payment under the Capital Contribution
Agreement, SE Potomac River shall fail to make any payment under the Potomac
River Note, or ▇▇ ▇▇▇▇▇▇ shall fail to make any payment under the Peaker Note,
when due, and such failure shall continue unremedied for ten (10) Business Days
after receipt by SEI, SE Potomac River, or ▇▇ ▇▇▇▇▇▇, as the case may be, of
written notice of such failure from the Owner Participant, the Owner Lessor or,
so long as the Lessor Notes are outstanding and the Lien of the Lease Indenture
has not been discharged, the Lease Indenture Trustee or from any Pass Through
Trustee; or
(l) SEI shall fail to perform or observe any other material covenant
set forth in the Capital Contribution Agreement and such failure shall continue
unremedied for 30 days after receipt by SEI of written notice thereof from the
Owner Participant, the Owner Lessor or, so long as the Lessor Notes are
outstanding and the Lien of the Lease Indenture has not been discharged, the
Lease Indenture Trustee or from any Pass Through Trustee; provided, however,
that if such failure cannot be remedied within such 30-day period, then the
period within which to remedy such failure shall be extended up to an additional
180 days, so long as SEI diligently pursues such remedy and such failure is
capable of being remedied within such additional 180-day period; or
(m) any representation or warranty of SEI set forth in the Capital
Contribution Agreement shall prove to have been incorrect in any material
respect when made and continues to be material and the circumstances upon which
such breach of representation or warranty is based continue to be material and
unremedied for a period of 30 days after receipt by SEI of written notice
thereof from the Owner Participant, the Owner Lessor, or, so long as the Lessor
Notes are outstanding and the Lien of the Lease Indenture has not been
discharged, the Lease Indenture Trustee or any Pass Through Trustee; provided,
however, that if such condition cannot be remedied within such 30-day period,
then the period within which to remedy such condition
50
shall be extended by up to an additional 120 days, so long as SEI diligently
pursues such remedy, such condition is reasonably capable of being remedied
within such additional 120-day period; or
(n) any material Operative Document to the which the Facility Lessee
or any of its Affiliates is a party is declared unenforceable against the
Facility Lessee or any of its Affiliates, is terminated by the Facility Lessee
or any of its Affiliates, or ceases to be in full force and effect in respect of
the Facility Lessee or any of its Affiliates (in each case, other than in
accordance with their terms); or
(o) the occurrence of a Change of Control; or
(p) any Lien on a material portion of the Indenture Estate created in
favor of the Lease Indenture Trustee shall cease to be enforceable or shall
cease to be of the same effect and priority purported to be created thereby.
SECTION 18. REMEDIES
Section 18.1. Remedies for Lease Event of Default. Upon the occurrence
of any Lease Event of Default and at any time thereafter so long as the same
shall be continuing, the Owner Lessor may, at its option, declare this Facility
Lease to be in default by written notice to the Facility Lessee (provided, that
this Facility Lease shall automatically be in default without the need for
giving any notice upon the occurrence of a Lease Event of Default in clause (g)
or (h) of Section 17); and at any time thereafter, so long as the Facility
----------
Lessee shall not have remedied all outstanding Lease Events of Default, the
Owner Lessor may, at the Facility Lessee's sole cost and expense, do one or more
of the following as the Owner Lessor in its sole discretion shall elect, to the
extent permitted by, and subject to compliance with any mandatory Requirements
of Law then in effect:
(a) proceed by appropriate court action or actions, either at law or
in equity, to enforce performance by the Facility Lessee of the applicable
covenants and terms of this Facility Lease or to recover damages for breach
thereof;
(b) by notice in writing to the Facility Lessee, terminate this
Facility Lease whereupon all right of the Facility Lessee to the possession and
use of the Undivided Interest under this Facility Lease shall absolutely cease
and terminate but the Facility Lessee shall remain liable as hereinafter
provided; and thereupon, the Owner Lessor may demand that the Facility Lessee,
and the Facility Lessee shall, upon written demand of the Owner Lessor and at
the Facility Lessee's sole cost and expense, forthwith return possession of the
Undivided Interest to the Owner Lessor in the manner and condition required by,
and otherwise in accordance with all of the provisions of Section 5, except
---------
those provisions relating to periods of notice; and the
51
Owner Lessor may thenceforth hold, possess and enjoy the same free from any
right of the Facility Lessee, or its successor or assigns, to use the Undivided
Interest for any purpose whatever;
(c) sell the Owner Lessor's Interest at public or private sale, as the
Owner Lessor may determine, free and clear of any rights of the Facility Lessee
under this Facility Lease and without any duty to account to the Facility Lessee
with respect to such sale or for the proceeds thereof (except to the extent
required by paragraph (f) below if the Owner Lessor elects to exercise its
rights under said paragraph and by Requirements of Law), in which event (i)
Allocated Rent shall cease to accrue and (ii) the Facility Lessee's obligation
to pay Periodic Lease Rent or Renewal Rent hereunder due for any periods
subsequent to the date of such sale shall terminate (except to the extent that
Periodic Lease Rent or Renewal Rent is to be included in computations under
paragraph (f) below if the Owner Lessor elects to exercise its rights under said
paragraph);
(d) hold, keep idle or lease to others the Owner Lessor's Interest as
the Owner Lessor in its sole discretion may determine, free and clear of any
rights of the Facility Lessee under this Facility Lease and without any duty to
account to the Facility Lessee with respect to such action or inaction or for
any proceeds with respect thereto, except that the Facility Lessee's obligation
to pay Periodic Lease Rent or Renewal Rent with respect to the Undivided
Interest due for any periods subsequent to the date upon which the Facility
Lessee shall have been deprived of possession and use of the Undivided Interest
pursuant to this Section 18 shall be reduced by the net proceeds, if any,
----------
received by the Owner Lessor from leasing the Undivided Interest to any Person
other than the Facility Lessee;
(e) whether or not the Owner Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under paragraph (b) above
with respect to the Undivided Interest, the Owner Lessor, by written notice to
the Facility Lessee specifying a Termination Date that shall be not earlier than
10 days after the date of such notice, may demand that the Facility Lessee pay
to the Owner Lessor, and the Facility Lessee shall pay to the Owner Lessor, on
the Termination Date specified in such notice any due and unpaid, or accrued and
unpaid, Periodic Lease Rent or Renewal Rent due before the Termination Date, any
Supplemental Lease Rent due and payable as of the payment date specified in such
notice, plus as liquidated damages for loss of a bargain and not as a penalty
(in lieu of the Periodic Lease Rent or Renewal Rent due after the Termination
Date specified in such notice), (i) an amount equal to the excess, if any, of
the Termination Value computed as of the Termination Date specified in such
notice over the Fair Market Sales Value of the Owner Lessor's Interest as of the
Termination Date specified in such notice; or (ii) an amount equal to the
excess, if any, of Termination Value computed as of the Termination Date
specified in such notice over the Fair Market Rental Value of the Owner Lessor's
Interest until the end of the Basic Lease Term or the then current Renewal Lease
Term,
52
after discounting such Fair Market Rental Value semi-annually to present value
as of the Termination Date specified in such notice at a rate equal to the
Discount Rate; or (iii) an amount equal to the Termination Value computed as of
the Termination Date specified in such notice provided that upon payment of such
Termination Value by the Facility Lessee pursuant to this clause (iii) and all
other Rent then due and unpaid, or accrued and unpaid by the Facility Lessee,
the Owner Lessor shall proceed to exercise its commercially reasonable efforts
promptly to sell the Undivided Interest at public or private sale and shall pay
over to the Facility Lessee upon consummation of any such sale the net proceeds
of such sale (after deducting from such proceeds all costs and expenses incurred
by the Owner Lessor in connection therewith and all other amounts that may
become payable to the Owner Lessor, the Lease Indenture Trustee or any other
Lease Financing Party) and the Facility Lessee waives all claims against the
Owner Lessor and the Owner Participant in connection with the sale of the
Undivided Interest or the use of commercially reasonable efforts pursuant to
this proviso; provided further that in lieu of paying an amount equal to the
Termination Value pursuant to clause (iii) above, the Facility Lessee may make a
rejectable offer in writing to the Owner Lessor (within 5 days following the
Facility Lessee's receipt of notice by the Owner Lessor specifying a Termination
Date) (an "Offer") to purchase the Undivided Interest at a purchase price equal
-----
to or greater than Termination Value (the "Offer Price"). If the Owner Lessor
-----------
rejects such Offer in writing, the Facility Lessee shall remain liable to pay
Termination Value pursuant to clause (iii) above provided that (1) the Facility
Lessee shall have no obligation to pay the costs and expenses incurred by the
Owner Lessor solely in connection with any sale of the Undivided Interest and
(2) the Owner Lessor shall proceed to exercise its best efforts promptly to sell
the Undivided Interest at public or private sale and shall pay over to the
Facility Lessee upon consummation of any such sale the proceeds of such sale,
but not to exceed the sum of Termination Value paid by the Facility Lessee plus
interest at the Applicable Rate from the Termination Date until the date of
payment of such proceeds to the Facility Lessee. If the Facility Lessee has
made an Offer and the Owner Lessor accepts such Offer or fails to respond to
such Offer within two (2) Business Days prior to the date on which the Facility
Lessee would have been required to pay Termination Value pursuant to clause
(iii) above, the Facility Lessee shall pay to the Owner Lessor the Offer Price
on or before the Termination Date and upon such payment of the Offer Price and
all other Rent then due and unpaid, or accrued and unpaid, by the Facility
Lessee, the Facility Lessee shall no longer remain liable to pay Termination
Value or other amounts pursuant to clause (iii) above and the Owner Lessor shall
forthwith transfer to the Facility Lessee (or its designee) in accordance with
this Section 18.1(e) hereof and Section 6 of the Facility Site Lease on an "as
--------------- ---------
is," "where is" basis, without representation or warranty other than a warranty
as to the absence of Owner Lessor Liens accompanied by a warranty of the Owner
Participant as to the absence of the Owner Participant Liens, all of its
interest in the Owner Lessor's Interest and execute, acknowledge and deliver,
and record and file (as appropriate), appropriate releases, including a release
from the Lien of the Lease Indenture, and all other documents or instructions
necessary or desirable to effect the foregoing all in form and substance
reasonably satisfactory to the Owner Lessor and at the cost and expense of the
Facility Lessee, and upon payment of such amounts
53
under either clauses (i) and (ii) of this paragraph (e), (x) Allocated Rent
shall cease to accrue and (y) this Facility Lease, and the Facility Lessee's
obligation to pay Periodic Lease Rent or Renewal Lease Rent hereunder due for
any periods subsequent to the date of such payment shall terminate; and
(f) if the Owner Lessor shall have sold the Owner Lessor's Interest
pursuant to paragraph (c) above, the Owner Lessor may, if it shall so elect,
demand that the Facility Lessee pay to the Owner Lessor, and the Facility Lessee
shall pay to the Owner Lessor, as liquidated damages for loss of a bargain and
not as a penalty (in lieu of the Periodic Lease Rent or Renewal Rent due for any
periods subsequent to the date of such sale), an amount equal to (i) any unpaid
Periodic Lease Rent or Renewal Rent due and unpaid before the date of such sale
plus (ii) the amount, if any, by which the Termination Value computed as of the
----
Termination Date next preceding the date of such sale or, if such sale occurs on
a Rent Payment Date or a Termination Date then computed as of such date, exceeds
the net proceeds of such sale, and, upon payment of such amount, this Facility
Lease and the Facility Lessee's obligation to pay Periodic Lease Rent or Renewal
Rent for any periods subsequent to the date of such payment shall terminate. In
addition, the Facility Lessee shall be liable, except as otherwise provided
above, for (i) any and all unpaid Periodic Lease Rent or Renewal Rent due
hereunder before, or during the exercise of any of the foregoing remedies, and
(ii) on an After-Tax Basis, for legal fees and other costs and expenses incurred
by reason of the occurrence of any Lease Event of Default or the exercise of the
Owner Lessor's remedies with respect thereto, including the repayment in full of
any costs and expenses necessary to be expended in connection with the return of
the Undivided Interest in accordance with Section 5 hereof, including, without
---------
limitation, any costs and expenses incurred by the Owner Lessor, the Owner
Participant, the Equity Investor, the OP Guarantor, the Lease Indenture Trustee
and the Pass Through Trustees in connection with retaking constructive
possession of, or in repairing, the Undivided Interest in order to cause it to
be in compliance with all maintenance standards imposed by this Facility Lease.
Section 18.2. Cumulative Remedies. The remedies in this Facility Lease
provided in favor of the Owner Lessor shall not be deemed exclusive, but shall
be cumulative and shall be in addition to all other remedies in the Owner
Lessor's favor existing at law or in equity; and the exercise or beginning of
exercise by the Owner Lessor of any one or more of such remedies shall not
preclude the simultaneous or later exercise by the Owner Lessor of any or all of
such other remedies. To the extent permitted by Requirements of Law, the
Facility Lessee hereby waives any rights now or hereafter conferred by statute
or otherwise which may require the Owner Lessor to sell, lease or otherwise use
the Undivided Interest or any Component in mitigation of Owner Lessor's damages
as set forth in this Section 18 or which may otherwise limit or modify any of
----------
Owner Lessor's rights and remedies in this Section 18.
----------
Section 18.3. No Delay or Omission to be Construed as Waiver. No delay
or omission to exercise any right, power or remedy accruing to the Owner Lessor
upon any breach or default
54
by the Facility Lessee under this Facility Lease shall impair any such right,
power or remedy of the Owner Lessor, nor shall any such delay or omission be
construed as a waiver of any breach or default, or of any similar breach or
default hereafter occurring; nor shall any waiver of a single breach or default
be deemed a waiver of any subsequent breach or default.
SECTION 19. SECURITY INTEREST AND INVESTMENT OF SECURITY FUNDS
Any moneys received by the Owner Lessor or the Lease Indenture Trustee
pursuant to Section 10.3, 10.5 or 11.7 shall, until paid to the Facility Lessee
--------------------------
as provided in accordance with such Sections, be held by the Owner Lessor or the
Lease Indenture Trustee, as the case may be, as security for the Facility
Lessee's obligations under this Facility Lease and be invested in Permitted
Investments by the Owner Lessor or the Lease Indenture Trustee, as the case may
be, at the sole risk of the Facility Lessee, from time to time as directed in
writing by the Facility Lessee if such investments are reasonably available for
purchase. Any gain (including interest received) realized as the result of any
such Permitted Investment (net of any fees, commissions, taxes and other
expenses, if any, incurred in connection with such Permitted Investment) shall
be applied or remitted to the Facility Lessee in the same manner as the
principal invested.
SECTION 20. RIGHT TO SUBLEASE
Section 20.1. Sublease. The Facility Lessee shall have the right to
sublease the Undivided Interest without the consent of the Owner Lessor, the
Owner Participant, the Lease Indenture Trustee or the Pass Through Trustee if:
(a) the sublessee is a United States Person within the meaning of
Section 7701(a)(30) of the Code that (i) is a solvent corporation, partnership,
business trust, limited liability company or other person or entity not then
subject to bankruptcy proceedings; and (ii) is not involved in material pending
or unresolved litigation with the Owner Participant or any of its Affiliates;
and (iii) is, or its operating, maintenance and use obligations under the
sublease are guaranteed by, or such obligations are contracted to be performed
by, an experienced operator of United States based, coal-fired electric
generating facilities similar to the Facility;
(b) the Owner Lessor, the Owner Participant, and so long as the Lessor
Notes are outstanding, the Lease Indenture Trustee and the Pass Through Trustees
shall have received an opinion of counsel, which opinion of counsel shall be
reasonably acceptable to the recipients thereof, to the effect that all material
regulatory approvals required to enter into the sublease have been obtained;
(c) the sublease does not extend beyond the scheduled expiration of
the Basic Lease Term or any Renewal Lease Term then in effect or irrevocably
elected by the Facility
55
Lessee (and may be terminated upon early termination of this Facility Lease) and
is expressly subject and subordinate to this Facility Lease;
(d) all terms and conditions of this Facility Lease and the other
Operative Documents remain in effect and the Facility Lessee remains fully and
primarily liable for its obligations under this Facility Lease and the other
Operative Documents;
(e) no Significant Lease Default or Lease Event of Default shall have
occurred and be continuing or be created as a result of such sublease;
(f) the sublease prohibits further assignment or subletting;
(g) the sublease requires the sublessee to operate and maintain the
Undivided Interest (or to cause the Undivided Interest to be operated and
maintained) in a manner consistent with this Facility Lease;
(h) the Owner Participant shall have received (i) an opinion
reasonably satisfactory to it from Owner Participant's Counsel to the effect
that such sublease should not result in any incremental risk of material adverse
federal income tax consequences to the Owner Participant and (ii) an indemnity
against such risk in form and substance reasonably satisfactory to the Owner
Participant (without regard to any Minimum Credit Rating or credit support
requirement);
(i) the sublessee shall pay on an After-Tax Basis all reasonable
documented out-of-pocket expenses incurred by the Owner Participant, the Owner
Lessor, the Lease Indenture Trustee or the Pass Through Trustees in connection
with such sublease; and
(j) the sublease does not cause the Facility to become "tax-exempt use
property" within the meaning of Section 168(h) of the Code (unless the sublessee
shall make a payment to the Owner Participant contemporaneously with the
execution of the sublease that, in the reasonable judgment of the Owner
Participant, compensates the Owner Participant for the adverse tax consequences
resulting from the classification of the Facility as "tax-exempt use property").
As a condition precedent to such sublease, the Facility Lessee shall
provide the Owner Lessor, the Owner Participant and, so long as the Lessor Notes
are outstanding and the Lien of the Lease Indenture shall not have been
terminated or discharged, the Lease Indenture Trustee with all documentation in
respect of such sublease and an opinion of counsel to the effect that such
sublease complies with the provisions of clause (j) of this Section 20 (such
----------
documentation, counsel and opinion to be reasonably satisfactory to each such
recipient).
56
SECTION 21. OWNER LESSOR'S RIGHT TO PERFORM
If the Facility Lessee fails to make any payment required to be made by it
hereunder or fails to perform or comply with any of its other agreements
contained herein after notice to the Facility Lessee and failure of the Facility
Lessee to so perform or comply within 10 Business Days thereafter, the Owner
Lessor or the Owner Participant may itself make such payment or perform or
comply with such agreement in a reasonable manner, but shall not be obligated
hereunder to do so, and the amount of such payment and of the reasonable
expenses of the Owner Lessor, the Owner Participant, the Equity Investor or the
OP Guarantor incurred in connection with such payment or the performance of or
compliance with such agreement, as the case may be, shall be deemed to be
Supplemental Lease Rent, payable by the Facility Lessee to the Owner Lessor on
demand.
SECTION 22. SECURITY FOR OWNER LESSOR'S OBLIGATION TO THE LEASE INDENTURE
TRUSTEE
In order to secure the Lessor Notes, the Owner Lessor will assign and ▇▇▇▇▇
▇ ▇▇▇▇ to the Lease Indenture Trustee in and to all of the Owner Lessor's right,
title and interest in, to and under this Facility Lease, and the Undivided
Interest (other than Excepted Payments and the rights to enforce and collect the
same). The Facility Lessee hereby consents to such assignment and to the
creation of such Lien and security interest and acknowledges receipt of copies
of the Lease Indenture, it being understood that such consent shall not affect
any requirement or the absence of any requirement for any consent of the
Facility Lessee under any other circumstances. Unless and until the Facility
Lessee shall have received written notice from the Lease Indenture Trustee that
the Lien of the Lease Indenture has been fully discharged, the Lease Indenture
Trustee shall have the right to exercise the rights of the Owner Lessor under
this Facility Lease (other than Excepted Payments and the rights to enforce and
collect the same) to the extent set forth in and subject in each case to the
exceptions set forth in the Lease Indenture. TO THE EXTENT, IF ANY, THAT THIS
FACILITY LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM
COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY
INTEREST IN THIS FACILITY LEASE MAY BE CREATED THROUGH THE TRANSFER OR
POSSESSION OF ANY COUNTERPART HEREOF OTHER THAN THE ORIGINAL COUNTERPART, WHICH
SHALL BE IDENTIFIED AS THE COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED
BY THE LEASE INDENTURE TRUSTEE ON THE SIGNATURE PAGE THEREOF.
SECTION 23. MISCELLANEOUS
Section 23.1. Amendments and Waivers. No term, covenant, agreement or
condition of this Facility Lease may be terminated, amended or compliance
therewith waived (either generally
57
or in a particular instance, retroactively or prospectively) except by an
instrument or instruments in writing executed by each party hereto and which
complies with Section 6.1 of the Lease Indenture.
-----------
Section 23.2. Notices. Unless otherwise expressly specified or permitted
by the terms hereof, all communications and notices provided for herein to a
party hereto shall be in writing or shall be produced by a telecommunications
device capable of creating a written record, and any such notice shall become
effective (a) upon personal delivery thereof, including, without limitation, by
overnight mail or courier service, (b) in the case of notice by United States
mail, certified or registered, postage prepaid, return receipt requested, upon
receipt thereof, or (c) in the case of notice by such a telecommunications
device, upon transmission thereof, provided such transmission is promptly
confirmed by either of the methods set forth in clauses (a) or (b) above, in
each case addressed to such party and any copy party at its address set forth
below or at such other address as such party or copy party may from time to time
designate by written notice to the other party:
If to the Owner Lessor:
▇▇▇▇▇▇▇▇▇▇ ▇▇▇ LLC
c/o Wilmington Trust Company
▇▇▇▇▇▇ Square North
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Corporate Trust Administration
with a copy to the Owner Participant:
SEMA OP1 LLC
c/o Wilmington Trust Company
▇▇▇▇▇▇ Square North
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Corporate Trust Administration
and to the Lease Indenture Trustee:
State Street Bank and Trust Company of Connecticut, National
Association
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Square
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
58
Attention: Corporate Trust Department
with a copy to:
State Street Bank and Trust Company
▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Corporate Trust Department
If to the Facility Lessee:
Southern Energy Mid-Atlantic, LLC
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
with copy to:
Southern Energy, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President, with a copy to General Counsel
Section 23.3. Survival. Except for the provisions of Sections 3.3, 3.5,
------------------
5, 9 and 18, which shall survive, the warranties and covenants made by each
-----------
party hereto shall not survive the expiration or termination of this Facility
Lease in accordance with its terms.
Section 23.4. Successors and Assigns. (a) This Facility Lease shall be
binding upon and shall inure to the benefit of, and shall be enforceable by, the
parties hereto and their respective successors and assigns as permitted by and
in accordance with the terms hereof.
(b) Except as expressly provided in Section 23.4(c), the Facility
---------------
Lessee may not assign this Facility Lease or any other Operative Document, or
any interest therein, without the prior written consent of the Owner Lessor, the
Owner Participant and, so long as the Lessor
59
Notes are outstanding and the Lien of the Lease Indenture has not been
discharged, the Lease Indenture Trustee.
(c) The Facility Lessee may, upon satisfaction of the conditions set
forth herein and in Section 23.4(d), without the consent of any Lease Financing
---------------
Party, so long as none of the Owner Lessor, the Owner Participant, the Equity
Investor, and the OP Guarantor becomes subject to regulation as a "public
utility," a "public utility company," a "holding company," a "subsidiary
company" of a "holding company" or an "affiliate" of a "holding company" within
the meaning of the Federal Power Act or PUHCA as a result of such assignment,
assign this Facility Lease and the corresponding Operative Documents to any
person or entity. In the case of an assignment, upon the transferee's assumption
of the Facility Lessee's obligations under this Facility Lease and the other
Operative Documents in accordance with the terms of this Section 23.4(c) and
---------------
Section 23.4(d), the Facility Lessee shall have no further liability or
---------------
obligation thereunder, except any liability and obligation relating to the
period prior to such assignment.
(d) Any assignment by the Facility Lessee pursuant to Section 23.4(c)
---------------
shall be subject to satisfaction of the following additional conditions:
(i) the transferee (or a party which guarantees such
transferee's obligations under the Operative Documents assigned to such
entity): (i) shall have a credit rating equal to, or greater than, BBB by
S&P and Baa2 by ▇▇▇▇▇'▇, (ii) shall have significant experience owning or
operating coal-fired electric generating facilities in the United States
and (iii) shall have a Tangible Net Worth of at least $750 million after
giving effect to the transfer contemplated by Section 23.4(c) and this
---------------
Section 23.4(d).
---------------
(ii) the Owner Lessor and the Owner Participant (and, so long as
the Lessor Notes are outstanding and the Lien of the Lease Indenture has
not been discharged, the Lease Indenture Trustee and the Pass Through
Trustee) shall have received an opinion of counsel, which opinion of
counsel shall be reasonably satisfactory to each recipient thereof, to the
effect that all regulatory approvals required in connection with such
transfer or necessary to assume the Facility Lessee's obligations under the
Operative Documents shall have been obtained;
(iii) such transfer shall be pursuant to an assignment and
assumption agreement in form and substance reasonably satisfactory to the
Owner Participant (and, so long as the Lessor Notes are outstanding and the
Lien of the Lease Indenture has not been discharged, the Lease Indenture
Trustee and the Pass Through Trustee);
(iv) the Owner Lessor and the Owner Participant (and, so long as
the Lessor Notes are outstanding and the Lien of the Lease Indenture has
not been discharged, the Lease Indenture Trustee and the Pass Through
Trustee) shall have
60
received an opinion of counsel, which opinion of counsel shall be
reasonably satisfactory to each recipient thereof, in respect of such
assignment and assumption;
(v) the Owner Participant shall have received (x) an opinion
reasonably satisfactory to it from Owner Participant's Counsel to the
effect that such transfer should not result in any incremental risk of
material adverse federal income tax consequences to the Owner Participant
and (ii) an indemnity against such risk in form and substance reasonably
satisfactory to the Owner Participant (without regard to any Minimum Credit
Rating or credit support requirement);
(vi) no Lease Event of Default shall have occurred and be
continuing, or shall be created by such transfer;
(vii) such transfer by the Facility Lessee shall not result in a
Regulatory Event of Loss;
(viii) the transferee shall not be involved in material
litigation with the Owner Participant or any of its Affiliates;
(ix) the Facility Lessee shall pay on an After-Tax Basis all
reasonable documented out-of-pocket expenses incurred by the Owner Lessor
and the Owner Participant, the Lease Indenture Trustee and the Pass Through
Trustees, in connection with such assignment;
(x) concurrently with such transfer, the Facility Lessee
assigns to the transferee each Other Facility Lease and, in each such case,
the corresponding Operative Documents;
(xi) each of the Rating Agencies shall have confirmed the then
existing credit rating on the Certificates; and
(xii) unless the Facility Lessee has elected to provide to the
Lease Indenture Trustee an indemnity against the risk that such assignment
will cause a Tax Event to occur to any direct or indirect holder of any
Lessor Note (including any Certificateholder), the Lease Indenture Trustee
shall have received an opinion of counsel to the Facility Lessee (with
customary qualifications and limitations and otherwise reasonably
satisfactory to the Lease Indenture Trustee), addressed to the Lease
Indenture Trustee and the Noteholders, to the effect that such assignment
shall not cause a Tax Event to occur to any direct or indirect holder of
any Lessor Note (including any Certificateholder).
61
Section 23.5. True Lease; Separate Legal Obligations. This Facility
Lease shall constitute an agreement of lease and nothing herein shall be
construed as conveying to the Facility Lessee any right, title or interest in or
to the Undivided Interest except as lessee only. The parties hereto hereby
agree that the Facility Lessee's obligation to make Excepted Payments is a
separate and independent obligation from its obligation to make other Rent
payments, and that the Facility Lessee's obligation to make Excepted Payments
may be independently enforced and may be assigned, pledged or otherwise
transferred separately from the Facility Lessee's obligations to make other Rent
payments. The obligation to make Excepted Payments has been included herein for
the convenience of the parties.
Section 23.6. Governing Law. This Facility Lease was negotiated in the
State of New York which the Facility Lessee and the Owner Lessor agree has a
substantial relationship to the parties and to the underlying transaction
embodied hereby, and, in accordance with (S) 5-1401 of the New York General
Obligations Law, in all respects, including matters of construction, validity
and performance, this Facility Lease shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts made
and performed in such State and any Requirement of Law of the United States of
America, except provisions for the creation and enforcement of the leasehold
------
interest created hereby shall be governed by and construed according to the law
of the state in which the Facility is located, it being understood that, to the
fullest extent permitted by the law of the state in which the Facility is
located, the law of the State of New York shall govern the validity and the
enforceability of the representations, warranties, covenants and obligations of
the Facility Lessee and the Owner Lessor under this Facility Lease and all other
Operative Documents and all of the indebtedness arising hereunder or thereunder.
To the fullest extent permitted by law, the Facility Lessee and the Owner Lessor
hereby unconditionally and irrevocably waive any claim to assert that the law of
any other jurisdiction governs this Facility Lease, except as expressly
otherwise provided above.
Section 23.7. Severability. Any provision of this Facility Lease that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or 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.
Section 23.8. Counterparts. This Facility Lease may be executed by the
parties hereto in separate counterparts, each of which, subject to Section 22,
----------
when so executed and delivered shall be an original, but all such counterparts
shall together constitute but one and the same instrument.
Section 23.9. Headings and Table of Contents. The headings of the
sections of this Facility Lease and the table of contents are inserted for
purposes of convenience only and shall not be construed to affect the meaning or
construction of any of the provisions hereof.
62
Section 23.10. Further Assurances. Each party hereto will promptly and
duly execute and deliver such further documents and assurances for and take such
further action reasonably requested by the other party, all as may be reasonably
necessary to carry out more effectively the intent and purpose of this Facility
Lease.
Section 23.11. Effectiveness. This Facility Lease has been dated as of
the date first above written for convenience only. This Facility Lease shall be
effective on the date of execution and delivery by the Facility Lessee and the
Owner Lessor.
Section 23.12. Limitation of Liability. It is expressly understood and
agreed by the parties hereto that (a) this Facility Lease is executed and
delivered by the Trust Company, not individually or personally but solely as
manager of the Owner Lessor under the Lessor LLC Agreement, in the exercise of
the powers and authority conferred and vested in it pursuant thereto, (b) each
of the representations, undertakings and agreements herein made on the part of
the Owner Lessor is made and intended not as personal a representation,
undertaking and agreement by the Trust Company but is made and intended for the
purpose for binding only the Owner Lessor, (c) nothing herein contained shall be
construed as creating any liability on the Trust Company individually or
personally, to perform any covenant either expressed or implied contained
herein, all such liability, if any, being expressly waived by the parties hereto
or by any Person claiming by, through or under the parties hereto and (d) under
no circumstances shall the Trust Company be personally liable for the payment of
any indebtedness or expenses of the Owner Lessor or be liable for the breach or
failure of any obligation, representation, warranty or covenant made or
undertaken by the Owner Lessor under this Facility Lease.
Section 23.13. Measuring Life. If and to the extent that any of the
rights and privileges granted under this Facility Lease, would, in the absence
of the limitation imposed by this sentence, be invalid or unenforceable as being
in violation of the rule against perpetuities or any other rule or law relating
to the vesting of interests in property or the suspension of the power of
alienation of property, then it is agreed that notwithstanding any other
provision of this Facility Lease, such options, rights and privileges, subject
to the respective conditions hereof governing the exercise of such options,
rights and privileges, will be exercisable only during (a) the longer of (i) a
period which will end twenty-one (21) years after the death of the last survivor
of the descendants living on the date of the execution of this Facility Lease of
the following Presidents of the United States: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇.▇. ▇▇▇▇ and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ or (ii) the period provided under the Uniform Statutory Rule
Against Perpetuities or (b) the specific applicable period of time expressed in
this Facility Lease, whichever of (a) and (b) is shorter.
63
IN WITNESS WHEREOF, the Owner Lessor and the Facility Lessee have caused
this Facility Lease to be duly executed and delivered under seal by their
respective officers thereunto duly authorized.
▇▇▇▇▇▇▇▇▇▇ ▇▇▇ LLC
By: WILMINGTON TRUST COMPANY,
not in its individual capacity but solely as
Owner Manager under the Lessor LLC
Agreement
By:______________________
Name:
Title:
Date: December ___, 2000
SOUTHERN ENERGY MID-ATLANTIC, LLC
By:______________________
Name:
Title:
Date: December ___, 2000