PRODUCTION SYSTEM LEASE AGREEMENT
(1996-A)
dated as of
November 15, 1996
among
WILMINGTON TRUST COMPANY,
not in its individual capacity but solely
as Corporate Grantor Trustee under the Trust Agreement,
and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
not in his individual capacity but solely
as Individual Grantor Trustee under the Trust Agreement,
Lessor
and
ENSERCH EXPLORATION, INC.,
Lessee
Lease of an Undivided Interest in an Oil and Gas Production System.
AS SET FORTH IN SECTION 14.1 OF THIS LEASE, CERTAIN OF THE RIGHT, TITLE AND
INTEREST OF THE LESSOR IN AND TO THIS LEASE HAS BEEN ASSIGNED TO AND IS
SUBJECT TO A SECURITY INTEREST IN FAVOR OF THE BANK OF NEW YORK, AS
INDENTURE TRUSTEE, UNDER THE TRUST INDENTURE, MORTGAGE, ASSIGNMENT OF LEASE
AND SECURITY AGREEMENT (1996-A) DATED AS OF NOVEMBER 15, 1996 BETWEEN THE
LESSOR AND THE INDENTURE TRUSTEE, AS SUCH INDENTURE MAY BE AMENDED,
MODIFIED OR SUPPLEMENTED FROM TIME TO TIME IN ACCORDANCE WITH THE
PROVISIONS THEREOF. THIS LEASE HAS BEEN EXECUTED IN SEVERAL COUNTERPARTS.
TO THE EXTENT, IF ANY, THAT THIS 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 LEASE MAY BE CREATED
THROUGH THE TRANSFER OR POSSESSION OF ANY EXECUTED COUNTERPART OTHER THAN
THE ORIGINAL EXECUTED COUNTERPART, WHICH SHALL BE IDENTIFIED AS THE
COUNTERPART THAT CONTAINS THE RECEIPT THEREFOR EXECUTED BY THE INDENTURE
TRUSTEE ON OR IMMEDIATELY FOLLOWING THE SIGNATURE PAGE THEREOF.
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS; INTERPRETATION 1
SECTION 2. LEASE OF UNDIVIDED INTEREST; ETC. 2
2.1. Undivided Interest 2
2.2. Personal Property 2
2.3. Description 3
SECTION 3. RENT 3
3.1. Basic Rent 3
3.2. Supplemental Rent 3
3.3. Method of Payment 3
3.4. Late Payment 4
3.5. Minimum Payment 4
3.6. Net Lease; No Setoff; Etc. 4
3.7. Premium 6
3.8. Applicability of Payments from Credit Support 6
SECTION 4. RECOMPUTATION OF BASIC RENT, STIPULATED LOSS
VALUE, TERMINATION VALUE, EARLY BUY-OUT
PERCENTAGES AND FIXED PRICE PURCHASE AMOUNT 6
4.1. Adjustments to Rent Percentages 6
4.2. Limitations on Adjustments 8
4.3. Timing of Adjustments 9
4.4. Confirmation of Adjustments 9
4.5. Further Assurances 10
SECTION 5. RENEWAL 10
5.1. Renewal Terms 10
5.2. Rent 11
5.3. Notice; Determination of Fair Market Sales Value;
Determination of Fair Market Rental Value 11
5.4. Stipulated Loss Value Percentages andT
Termination Value Percentages 12
SECTION 6. PURCHASE; OPTIONS 13
6.1. Purchase Options 13
6.2. Notice of Election; Manner of Purchase;
Transfer After Purchase 14
6.3. Assumption of Secured Notes 17
SECTION 7. EARLY TERMINATION 17
7.1. Decision 17
7.2. Notice of Termination 18
7.3. Sale of Undivided Interest or
Significant Portion; Termination Payment 19
7.4. Retention of Undivided Interest by Lessor 23
7.5. Calculation of Original Cost 24
SECTION 8. RELINQUISHMENT OF POSSESSION AND USE OF
UNDIVIDED INTEREST 25
8.1. Return of Undivided Interest 25
SECTION 9. QUIET USE AND ENJOYMENT; DISCLAIMER OF
WARRANTIES 26
9.1. Quiet Use and Enjoyment 26
9.2. Disclaimer of Warranties 27
9.3. Enforcement of Warranties 29
SECTION 10. LIENS 29
SECTION 11. OPERATION AND MAINTENANCE; INSPECTION;
MODIFICATIONS; REPLACEMENTS; PERSONNEL;
SALVAGE; FUEL; IDENTIFICATION 29
11.1. Operation and Maintenance 29
11.2. Inspection and Reports 31
11.3. Required Modifications 31
11.4. Optional Modifications 31
11.5. Title to Modifications; Purchase Option
for Severable Modifications 32
11.6. Payment for Modifications and Replacement
Components 33
11.7. Replacement of Components; Title to
Components; Removal of Property 34
11.8. Employment of Personnel 35
11.9. Salvage 35
11.10. Fuel, Oil, Etc. 35
11.11. Identification of Platform 35
11.12. Reports With Respect to the Production System 36
11.13. Required Filings 37
11.14. Repair of Production System 37
SECTION 12. EVENT OF LOSS 37
12.1. Notice of Event of Loss 37
12.2. Payment of Stipulated Loss Value, Etc. 37
12.3. Application of Other Payments upon the
Occurrence of an Event of Loss 44
12.4. Allocation of Payments Not Relating to
an Event of Loss 44
12.5. Other Dispositions 45
SECTION 13. INSURANCE 45
13.1. Coverage 45
13.2. Adjustment of Losses 47
13.3. Application of Insurance Proceeds 47
13.4. Additional Insurance 48
13.5. Annual Insurance Report 48
SECTION 14. RIGHTS TO ASSIGN OR LEASE; LEASEHOLD MORTGAGE
PROVISIONS 48
14.1. Assignment by Lessor; Security for
Lessor's Obligations to Indenture Trustee 48
14.2. Assignment and Sublease by Lessee 49
SECTION 15. LEASE EVENTS OF DEFAULT 51
SECTION 16. REMEDIES 53
16.1. In General 53
16.2. Continuing Obligations 58
16.3. Remedies Cumulative 58
SECTION 17. NOTICES 59
SECTION 18. RIGHT TO PERFORM FOR LESSEE 59
18.1. Lessor's Right to Perform 59
SECTION 19. MISCELLANEOUS 59
19.1. Amendments in Writing 59
19.2. Severability of Provisions 59
19.3. GOVERNING LAW 60
19.4. Headings 60
19.5. Counterpart Execution 60
19.6. Successors and Assigns 60
19.7. Investment of Security Funds 60
19.8. Immunities; Satisfaction of Undertakings;
Successor Grantor Trustee 61
19.9. Performance of Obligations to Indenture
Trustee and Holders 62
19.10. True Lease 62
19.11. Survival of Agreements 62
SCHEDULE 1 Basic Rent Percentages
SCHEDULE 1A Fixed Renewal Rent
SCHEDULE 2 Stipulated Loss Value Percentages
SCHEDULE 3 Termination Value Percentages
SCHEDULE 4 Early Buy-Out Percentages
SCHEDULE 5 Special Purchase Option Dates
SCHEDULE 6 Lessor's Cost
EXHIBIT A Description of Production System
EXHIBIT B Description of Undivided Interest in Production System
EXHIBIT C Description of Federal Leases
EXHIBIT D Form of Lease Supplement No. 1
PRODUCTION SYSTEM LEASE AGREEMENT
(1996-A)
BE IT KNOWN, that on the date hereinafter set forth, before me, the
undersigned Notary Public, duly commissioned and qualified in and for the
State of New York, and in the presence of the undersigned, competent
witnesses, personally came before me and appeared: WILMINGTON TRUST
COMPANY, a Delaware banking corporation, having a taxpayer identification
number of ▇▇-▇▇▇▇▇▇▇ and an address at ▇▇▇▇▇▇ Square North, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, not in its individual
capacity but solely as Corporate Grantor Trustee under the Trust Agreement
(together with its successors and permitted assigns, the "Corporate Grantor
Trustee") and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, an individual having a taxpayer
identification number of ▇▇▇-▇▇▇▇▇▇ and an address at ▇▇▇▇▇▇ Square North,
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, not in his
individual capacity but solely as Individual Grantor Trustee under the Trust
Agreement (together with its successors and permitted assigns, the "Individual
Grantor Trustee" and together with the Corporate Grantor Trustee, the
"Grantor Trustee"), as lessor (together with their respective successors and
permitted assigns, the "Lessor") and ENSERCH EXPLORATION, INC., a Texas
corporation, having a taxpayer identification number of ▇▇-▇▇▇▇▇▇▇ and an
address at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇,
as lessee (together with its successors and permitted assigns, the "Lessee"),
who each being duly sworn, did declare and say as follows:
W I T N E S S E T H :
WHEREAS, pursuant to this Lease, the Lessor desires to lease the
Undivided Interest to the Lessee and the Lessee desires to lease the
Undivided Interest from the Lessor;
NOW, THEREFORE, in consideration of 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; INTERPRETATION.
For the purposes hereof, capitalized terms used herein (including
those used in the preamble and in the foregoing recitals) and not otherwise
defined herein shall have the meanings assigned to them in Appendix A, which
Appendix A shall for all purposes constitute part of this Agreement and shall
be subject to amendment in accordance with the terms hereof. References in
this Lease to Sections, subsections, Schedules, Appendices and Exhibits are to
Sections and subsections of, and Schedules, Appendices and Exhibits to, this
Lease unless otherwise indicated.
SECTION 2. LEASE OF UNDIVIDED INTEREST; ETC.
2.1. Undivided Interest. Upon the terms and subject to the
conditions of this Lease, the Lessor agrees to lease and upon
delivery of Lease Supplement No. 1 leases the Undivided Interest to the
Lessee, and the Lessee agrees to lease and upon acceptance of Lease
Supplement No. 1 leases the Undivided Interest from the Lessor, for the
Interim Lease Term, the Basic Lease Term and, subject to the exercise by the
Lessee or the Lessor of the renewal option or options as provided in
Section 5, the Renewal Term or Renewal Terms.
2.2. Personal Property. The parties hereto stipulate and agree
that the Production System, the Undivided Interest and the Lessor's Share of
all Modifications to the Production System and every portion thereof is
severed, and shall be and remain severed, to the maximum extent permitted by
law, from any real estate underneath the Production System, even if physically
attached thereto. To the maximum extent permitted by law, the parties agree
that the Production System, the Undivided Interest and all such Modifications
shall constitute personal property and shall not be or become fixtures or
otherwise part of the real estate underneath the Production System or of any
other real property. The Lessee will not enter into or be a party to any lease
or mortgage of any real property on which any portion of the Production System
is or is to be located or enter into any other agreement which grants to any
other Person any right to any portion of the Production System by reason of
such portion being an accession to any real property owned by such Person to
the extent such lease or mortgage would constitute a Lien on the Production
System that is not a Permitted Lien.
2.3. Description. The Production System is described in
Exhibit A and the Undivided Interest is described in Exhibit B.
SECTION 3. RENT.
3.1. Basic Rent. The Lessee shall pay to the Lessor, as Basic
Rent for the Undivided Interest, semiannual installments of rent on the Basic
Rent Payment Dates during the Basic Lease Term. Basic Rent with respect to
any Renewal Term shall be payable as provided in Section 5.2. Subject to
adjustment as provided herein, each such installment of Basic Rent during the
Basic Lease Term shall be in an amount equal to the percentage set forth in
Schedule 1 opposite the applicable Basic Rent Payment Date multiplied by
Lessor's Cost. Each installment of Basic Rent shall be paid in advance or in
arrears and shall apply to a specific semiannual period as specified in
Schedule 1.
3.2. Supplemental Rent. The Lessee shall pay to the Lessor,
for its own account, or to the Person entitled thereto, as provided herein or
in any other Operative Document, any and all Supplemental Rent promptly as the
same shall become due and payable, and in the event of any failure on the part
of the Lessee to pay any Supplemental Rent, the Lessor shall have all rights,
powers and remedies provided for herein in the case of nonpayment of Basic
Rent.
3.3. Method of Payment. Subject to Section 14.1, all Rent
payable to the Lessor shall be paid to the Grantor Trustee's account specified
in Schedule 1 to the Participation Agreement or to such other account at such
other place as the Lessor shall specify in writing to the Lessee at least five
Business Days prior to the due date thereof. All Supplemental Rent payable to
any Person other than the Lessor pursuant to any Operative Document shall be
paid directly to such Person as provided in such Operative Document. Each
payment of Rent shall be made by the Lessee in immediately available funds, on
or before 12:00 noon, local time at the place of receipt, on the scheduled
date on which such payment shall be due, unless such scheduled date shall
not be a Business Day in which case such payment shall be due and payable on
the next succeeding Business Day with the same force and effect as if made on
such scheduled date and (provided such payment is made on such next succeeding
Business Day) no interest shall accrue on the amount of such payment from and
after such scheduled date.
3.4. Late Payment. If any Rent shall not be paid when due, the
Lessee shall pay to the Lessor (or, in the case of Supplemental Rent, to the
Lessor for its own account or to the Person entitled thereto as provided herein
or in any other Operative Document), as Supplemental Rent, interest (to the
extent permitted by law) on such overdue amount from and including the due date
thereof to but excluding the date of payment thereof (unless payment is made
after 12:00 noon, local time at the place of receipt, in which event such date
of payment shall be included) at the Overdue Rate.
3.5. Minimum Payment. Notwithstanding any other provision of
this Lease (including, without limitation, Section 4) or any other Operative
Document, (a) the amount of Basic Rent payable on each Basic Rent Payment
Date and on the Basic Lease Term Commencement Date, as the same may be
adjusted pursuant to Section 4 (excluding, in each case, any portion thereof
constituting an Excepted Payment), shall be at least equal to the aggregate
amount of scheduled principal and accrued interest due and payable on the
Secured Notes Outstanding on such Basic Rent Payment Date and on the Basic
Lease Term Commencement Date and (b) the amount of Stipulated Loss Value and
Termination Value as of any date and the amount of the initial installment of
the applicable Early Buy-Out Purchase Price as of the applicable Early Buy-Out
Date, as each such amount may be adjusted pursuant to Section 4, together
with the Rent payable under this Lease on such date (excluding, in each case,
any portion thereof constituting an Excepted Payment), shall be at least equal
to the aggregate amount of principal and accrued interest which would be due
and payable on the Secured Notes Outstanding on such date assuming such date
or the applicable Early Buy-Out Date, as the case may be, was the date such
payment was due on the Secured Notes in respect of any payment by the Lessee of
Stipulated Loss Value, Termination Value or Early Buy-Out Purchase Price.
3.6. Net Lease; No Setoff; Etc. This Lease is a net lease
and, notwithstanding any other provision of this Lease, the obligation of the
Lessee to pay Rent hereunder shall be absolute and unconditional and shall not
be affected by any circumstance of any character, including, without
limitation: (a) counterclaim, setoff, deduction, defense, abatement,
suspension, deferment, diminution or reduction; (b) any defect in the
condition, design, quality or fitness for use of the Production System, or any
part thereof or interest therein; (c) any damage to, removal, abandonment,
salvage, loss, scrapping or destruction of or any requisition or taking of, the
Undivided Interest, the Production System or any part thereof or interest
therein; (d) any restriction, prevention, interruption or curtailment of or
interference with any use, operation or possession of the Undivided Interest,
the Production System or any part thereof or interest therein; (e) any defect
in, or any Lien on, title to the Undivided Interest, the Production System or
any part thereof or interest therein; (f) any change, waiver, extension,
indulgence or other action or omission in respect of any obligation or
liability of the Lessee or the Lessor; (g) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceeding relating to the Lessee, the Indenture Trustee, the Lessor, the Owner
Participant, any Loan Participant, any Holder or any other Person, or any
action taken with respect to this Lease by any trustee or receiver of any
Person mentioned above, or by any court; (h) any claim that the Lessee has or
might have against any Person, including, without limitation, the Indenture
Trustee, any Loan Participant, the Lessor, the Owner Participant or any
Holder (but this Section 3.6 shall not constitute a waiver of any such claim);
(i) any failure on the part of the Lessor, the Indenture Trustee, the Owner
Participant or any Loan Participant to perform or comply with any of the terms
hereof or of any other agreement; (j) any invalidity or unenforceability or
disaffirmance of this Lease or any provision hereof or any of the other
Operative Documents, the Federal Leases, the Operating Agreement or any
provision of any thereof, whether against or by the Lessee or otherwise; or
(k) any other occurrence whatsoever, whether similar or dissimilar to the
foregoing, whether or not the Lessee shall have notice or knowledge of any of
the foregoing. Except as expressly provided herein, the Lessee, to the extent
permitted by law, waives all rights now or hereafter conferred by statute or
otherwise to quit, terminate or surrender this Lease, or to any diminution or
reduction of Rent payable by the Lessee hereunder. All payments by the Lessee
of Basic Rent or Stipulated Loss Value, Termination Value, any Early Buy-Out
Purchase Price or Fixed Price Purchase Amount (or amounts payable by reference
thereto) made hereunder as required hereby shall be final absent manifest
error, and the Lessee shall not seek to recover any such payment or any part
thereof for any reason whatsoever absent manifest error. If this Lease shall
be terminated in whole or in part for any reason whatsoever the Lessee shall,
except as expressly provided herein, nonetheless pay to the Lessor (or, in the
case of Supplemental Rent, to the Person entitled to such Supplemental Rent as
specified herein or in the appropriate Operative Document) an amount equal to
each Rent payment at the time and in the manner that such payment would have
become due and payable under the terms of this Lease if it had not been
terminated in whole or in part. Nothing contained in this Section 3.6 shall
be construed as (a) a guaranty of (i) the value of the Undivided Interest or
the Production System upon the expiration or termination of the Basic Lease
Term or any Renewal Term or (ii) the useful life of the Production System or
(iii) payment of any of the Secured Notes or (b) a prohibition of assertion of
any claim against any manufacturer, supplier, dealer, vendor, contractor,
subcontractor or installer with respect to the Production System or (c) a
waiver by the Lessee of its right to assert and ▇▇▇ upon any claims it may have
against any other Person in one or more separate actions.
3.7. Premium. The Lessee shall also pay on behalf of the Lessor
as Supplemental Rent an amount on an After-Tax Basis equal to any amount
payable by the Lessor as Premium as and when any such Premium shall be due and
payable.
3.8. Applicability of Payments from Credit Support. Drawings
under any Letter of Credit and payments received by the Lessor or the Owner
Participant in respect of any Surety Bond, in each case maintained as Credit
Support, shall be applied against unpaid Rent to the extent of such drawing;
provided that all such drawings shall be applied first to reduce the Lessee's
obligation to pay the Equity Portion of Stipulated Loss Value then due, second
to reduce the Lessee's obligation to pay the Equity Portion of Basic Rent then
due and third to pay any other amounts of Supplemental Rent owing to the Lessor
or the Owner Participant.
SECTION 4. RECOMPUTATION OF BASIC RENT,
STIPULATED LOSS VALUE, TERMINATION VALUE,
EARLY BUY-OUT PERCENTAGES AND FIXED PRICE
PURCHASE AMOUNT.
4.1. Adjustments to Rent Percentages. (a) If (i) the actual
Closing Date is a date other than as set forth in Schedule 2 to the
Participation Agreement, (ii) the actual amount of Transaction Expenses paid
by the Lessor as a percentage of Lessor's Cost is other than as set forth in
Schedule 2 to the Participation Agreement, (iii) the Owner Participant's Net
Economic Return is affected by any amendment to the Code or the regulations
(including proposed regulations to the extent the Owner Participant advises the
Lessee of such amendment to proposed regulations in writing prior to the time
of closing on the Closing Date) thereunder (other than the alternative minimum
tax) that is enacted, adopted or promulgated (or, in the case of proposed
regulations, proposed to be effective) on or prior to the Closing Date,
(iv) the actual Debt Rate is other than as set forth in Schedule 2 to the
Participation Agreement, (v) any other Pricing Assumption proves to be
incorrect, (vi) the Secured Notes are refinanced or refunded at any time
pursuant to Section 15 of the Participation Agreement, or (vii) Additional
Notes are issued by the Lessor in connection with a Supplemental Financing of a
Modification to the Production System pursuant to Section 14 of the
Participation Agreement, then, in each case, subject to the following
provisions of this Section 4 and to the provisions of Section 3.5, the Basic
Rent Percentages shall be appropriately adjusted (A) in the case of an
adjustment pursuant to clause (i), (iii), (iv) or (v) above, prior to the
Closing Date and (B) in the case of an adjustment pursuant to clause (ii),
(vi) or (vii) above, after the Closing Date, in each case so as to
(x) preserve the Owner Participant's Net Economic Return, (y) to the extent
consistent with clause (x), minimize the Net Present Value of Basic Rent, and
(z) minimize the Termination Value Percentages and Stipulated Loss Value
Percentages to the extent possible consistent with clauses (x) and (y) above.
(b) At the sole request of the Lessee, any adjustment pursuant
hereto may incorporate a revised amortization schedule for the Secured Notes,
which amortization schedule shall be structured to preserve the Owner
Participant's Net Economic Return while, to the extent consistent therewith,
minimizing (to the greatest extent possible) the Net Present Value of Basic
Rent in a manner consistent with the provisions of this Section 4.1.
(c) In connection with any such adjustment to the Basic Rent
Percentages made pursuant to this Section 4.1, appropriate corresponding
adjustments shall be made to the Stipulated Loss Value Percentages (and a
corresponding adjustment in the required amount of Credit Support), Termination
Value Percentages and Early Buy-Out Percentages; provided that each Early
Buy-Out Purchase Price shall not be reduced below the expected Fair Market
Sales Value of the Undivided Interest as of the applicable Early Buy-Out Date
as set forth in the Final Appraisal, or if the adjustment is more than one year
after the Closing Date, in an appraisal delivered in connection with such
adjustment.
(d) On or prior to the time of closing on the Closing Date, the
Basic Rent Percentages will be adjusted upward or downward to reflect tax law
changes described in clause (iii) of Section 4.1(a), subject to the
conditions therein. If such adjustment results in an increase in the Net
Present Value of Basic Rent of fifty (50) or more basis points, Lessee shall
have the option to terminate this Lease. In the event Lessee elects to
terminate this Lease pursuant to this Section 4.1(d), Lessee shall be
obligated to pay all Transaction Expenses and upon payment of such Transaction
Expenses, this Lease and Lessee's obligations hereunder shall terminate.
4.2. Limitations on Adjustments. (a) Any adjustment of the
Basic Rent Percentages pursuant to this Section 4 shall be computed by the
Owner Participant in a manner so as to satisfy the requirements of (i)
Section 3.5 hereof and (ii) Revenue Procedures 75-21 and 75-28 (to the
extent then in effect) and Section 467 of the Code and any regulations
effective or proposed thereunder and shall not cause this Lease to be a
"disqualified leaseback or long-term agreement" within the meaning of Section
467 of the Code and such regulations; provided that, subject to Section 12.4
of the Participation Agreement, the requirements of Section 4.08 of Revenue
Procedure 75-28 (to the extent then in effect) shall be applied, in the case
of any adjustment pursuant to Section 4.1, on a prospective basis taking into
consideration only Basic Rent payable by the Lessee from and including the
first Basic Rent Payment Date as of which the adjustment takes effect.
(b) In making any adjustment pursuant to this Section 4, each of
the Pricing Assumptions and the other assumptions and methods of calculation
employed in the calculation of the Basic Rent Percentages, Stipulated Loss
Value Percentages, Termination Value Percentages, Early Buy-Out Percentages
and Fixed Price Purchase Amount as reflected in Schedule 2 to the
Participation Agreement, other than Pricing Assumptions and such other
assumptions that have changed or proven to be incorrect (as such pricing
assumptions shall have been modified by previous adjustments under this Section
4) shall be used consistently in such adjustment subject to the constraints
specifically provided herein.
(c) In the case of any adjustment made pursuant to clause (vii)
of Section 4.1(a), Basic Rent shall be increased by an amount at least
sufficient to repay the principal of, and interest on, such Additional Notes
over the term of such Additional Notes.
4.3. Timing of Adjustments. All adjustments to be made pursuant
to this Section 4 shall be made as soon as practicable after the event giving
rise to the adjustment and shall in each case be made in respect of
installments of Basic Rent becoming due on and after the date such adjustment
is made; provided that all adjustments to the Stipulated Loss Value
Percentages, Termination Value Percentages and Early Buy-Out Percentages shall
be effective immediately.
4.4. Confirmation of Adjustments. (a) The amount of any
adjustment pursuant to this Section 4 shall be determined by the Owner
Participant, which shall provide to the Lessee, the Lessor and the Indenture
Trustee notice of such adjustment accompanied by an Officer's Certificate of
the Owner Participant, which Officer's Certificate shall set forth the amount
of and the reason for any such adjustment and which shall confirm that such
adjustment was made in accordance with the provisions of this Section 4. Such
adjustment shall become effective as of the date therein set forth (determined
in accordance with Section 4.3 (subject to later revision, if any, pursuant to
Section 4.4(b))) upon delivery by the Owner Participant to the Lessee of such
notice and Officer's Certificate.
(b) Within 20 Business Days after receipt of such certificate,
the Lessee may request that such adjustment be verified by a nationally
recognized, independent public accounting firm selected by Owner Participant
and reasonably acceptable to the Lessee. In such verification process pursuant
to the preceding sentence, such accounting firm shall be given access by the
Owner Participant to the assumptions, methods, computations, programs and files
utilized by the Owner Participant in calculating such proposed adjustment and
employed in the calculation of the Basic Rent Percentages, Stipulated Loss
Value Percentages, Termination Value Percentages, Early Buy-out Percentages
and Fixed Price Purchase Amount, subject to the execution of such
confidentiality agreements as the Owner Participant shall reasonably request
(which agreements shall prohibit disclosure of the Owner Participant's
assumptions, methodology, programs or files to any third party, including the
Lessee). Such independent accounting firm shall be entitled only to verify the
mathematical calculations made by the Owner Participant and shall not be
entitled to interpret the provisions of this Lease. Under no circumstances
shall such independent public accounting firm or any other Person be entitled
to review the tax returns of the Owner Participant. Any revised adjustment
resulting from such verification shall become effective on the next Basic Rent
Payment Date after such verification has been concluded, and shall take into
account any underpayment or overpayment resulting from an earlier effectiveness
of the original adjustment.
(c) Such verification by such accounting firm shall be at the
expense of the Lessee unless such verified adjustment results in a readjustment
in favor of the Lessee that exceeds ten (10) basis points in the Net Present
Value of Basic Rent (as a percentage of Lessor's Cost), in which case such
verification shall be at the expense of the Owner Participant. Such
determination by the Owner Participant, or, if so requested in accordance with
Section 4.4(b), such verified adjustment, as the case may be, shall be
conclusive and binding.
4.5. Further Assurances. At the time any adjustment is made
pursuant to this Section 4, the parties hereto shall, at the Lessee's expense,
enter into a supplement to this Lease to reflect such adjustment and shall
enter into such amendments and supplements to the other Operative Documents and
do such further acts as may be reasonably required in order to effectuate such
adjustment; provided that such adjustment shall become effective as provided in
Section 4.4 without regard to the date on which such supplement to this Lease
is executed and delivered.
SECTION 5. RENEWAL.
5.1. Renewal Terms. (a) The Lessee shall have the right to
renew this Lease for up to three (3) successive Fair Market Renewal Terms as
follows:
(i)at the end of the Basic Lease Term for a Fair Market Renewal Term; and
(ii)at the end of any Renewal Term for an additional Fair Market Renewal Term;
provided that (x) the term of any Fair Market Renewal Term shall be for a
period of not less than one (1) year each, (y) the aggregate of all Renewal
Terms shall not exceed five (5) years. It shall be a condition to the renewal
of this Lease for any Renewal Term that no Lease Default described in
paragraphs (a), (b), (c) or (g) of the definition of Lease Event of Default
in Section 15 and no Lease Event of Default shall have occurred and be
continuing at the commencement of such Renewal Term.
(b) The Lessor shall have the right to require the Lessee to
renew this Lease for a Fixed Rate Renewal Term. The exercise of this right by
the Lessor shall override any elections made by the Lessee under this Lease,
including without limitation any "irrevocable" election, other than the
Lessee's election to exercise its purchase option pursuant to Section 6.1(b).
5.2. Rent5.2. Rent . All of the terms and provisions of this Lease shall
be applicable during any Renewal Term, except that (1) the Lessee shall pay to
the Lessor as Basic Rent in arrears on each Basic Rent Payment Date during any
Fair Market Renewal Term an amount equal to the Fair Market Rental Value of
the Undivided Interest, as determined in accordance with Section 5.3, (2) the
Lessee shall pay to the Lessor as Basic Rent in arrears on each Basic Rent
Payment Date during the Fixed Rate Renewal Term an amount equal to the
percentage set forth in Schedule 1A opposite the applicable Basic Rent Payment
Date multiplied by Lessor's Cost and (3) Stipulated Loss Values and
Termination Values during any such Renewal Term shall be calculated as set
forth in Section 5.4.
5.3. Notice; Determination of Fair Market Sales Value;
Determination of Fair Market Rental Value. (a) At any time at least 365
days (in the case of the Basic Lease Term) or 210 days (in the case of any
Renewal Term) if applicable, but in each case not more than 590 days prior to
the expiration of the Basic Lease Term or any Renewal Term, the Lessee shall
give to the Lessor irrevocable notice (the "Preliminary Notice") of its
election to exercise its renewal option pursuant to Section 5.1(a) or a
purchase option pursuant to Section 6.1(a) or Section 6.1(b). At any time
at least 180 days (in the case of the Basic Lease Term) or 90 days (in the
case of any Renewal Term), if applicable, the Lessee shall give to the Lessor
irrevocable notice (the "Final Notice") specifying which such option it is
exercising. Promptly after receipt by the Lessor of the Preliminary Notice,
the Lessee and the Lessor shall attempt to agree upon the Fair Market Sales
Value of the Undivided Interest as of such expiration or, if requested by the
Lessee, the Fair Market Rental Value of the Undivided Interest as of such
expiration. If the Lessor and the Lessee shall fail to agree within 30 days
after the giving of such Preliminary Notice, such amounts shall be determined
pursuant to the Appraisal Procedure. Failure by the Lessee to provide any
Preliminary Notice referred to in this Section 5.3 within the applicable time
periods specified herein shall be deemed to constitute an irrevocable election
by the Lessee not to exercise its renewal option pursuant to Section 5.1(a) or
its purchase options pursuant to Sections 6.1(a) and 6.1(b). If the Lessee
fails to give the Final Notice within the time period specified above, it shall
be deemed to have elected to exercise its purchase option pursuant to Section
6.1(b).
(b) At any time after the latest date upon which the Lessee may
elect to exercise its renewal option for a Fair Market Renewal Term commencing
at the end of the Basic Lease Term pursuant to Section 5.1 or its purchase
option pursuant to Section 6.1(a), the Lessor may provide to the Lessee
notice of its irrevocable election to exercise its option to renew this Lease
for the Fixed Rate Renewal Term.
5.4. Stipulated Loss Value Percentages and Termination Value Percentages.
Concurrently with the Lessee's exercise of an option to renew
this Lease pursuant to Section 5.1, Schedules 2 and 3 shall be modified by
the Owner Participant in order to provide for Stipulated Loss Values and
Termination Values for the Undivided Interest applicable during the applicable
Renewal Term. Such Stipulated Loss Values and Termination Values shall be
reduced on a straight line basis for the remaining useful life of the
Production System (i) in the case of a renewal pursuant to Section 5.1(a), from
the Fair Market Sales Value of the Undivided Interest as of beginning of the
Renewal Term to the net salvage value of the Undivided Interest at the end of
the estimated useful life of the Production System (each as determined in
accordance with Section 5.3 and, if applicable, the Appraisal Procedure) and
(ii) in the case of a renewal pursuant to Section 5.1(b), from the greater of
(1) the Fair Market Sales Value of the Undivided Interest as of the beginning
of the Renewal Term (as determined in accordance with Section 5.3 and, if
applicable, the Appraisal Procedure) and (2) the Stipulated Loss Values and
Termination Values as of the date of expiration of the Basic Lease Term to the
net salvage value of the Undivided Interest at the end of the estimated useful
life of the Production System (as determined in accordance with Section 5.3
and, if applicable, the Appraisal Procedure).
SECTION 6. PURCHASE; OPTIONS.
6.1. Purchase Options. Subject to Sections 6.2 and 6.3, the
Lessee shall have the right to purchase (or, in the case of Section 6.1(g)
shall purchase) all, but not less than all, of Lessor's right, title and
interest in and to the Undivided Interest:
(a) on the date of expiration of the Basic Lease Term or any
Renewal Term, at a purchase price equal to the Fair Market Sales Value of
the Undivided Interest as of such date;
(b) on the date of expiration of the Basic Lease Term, at a
purchase price equal to the Fixed Price Purchase Amount;
(c) on any Early Buy-Out Date, at a purchase price equal to the
applicable Early Buy-Out Purchase Price;
(d) on any Special Purchase Option Date, at a purchase price equal
to the greater of (i) the Termination Value for the Undivided Interest as
of such Special Purchase Option Date and (ii) the Fair Market Sales Value
of the Undivided Interest as of such Special Purchase Option Date;
(e) if the Lessee shall have notified the Lessor, pursuant to
Section 11.6(b), that it intends to make (or cause or allowed to be made)
any Modification or series of related Modifications to the Production
System with an estimated cost applicable to the Undivided Interest in
excess of $15,000,000 (such Modification or series of related
Modifications a "Major Modification") and (x) such Major Modification is
not to be financed pursuant to a Supplemental Financing, or (y) such Major
Modification is prohibited by the terms of this Lease, on any Stipulated
Loss Value Determination Date occurring within one year following the
expiration of the 45 day period following the giving of such notice
pursuant to Section 11.6(b), at a purchase price equal to the greater of
(A) the Stipulated Loss Value for the Undivided Interest as of such date
and (B) the Fair Market Sales Value of the Undivided Interest as of such
date (without regard to any such proposed Modification or Modifications);
(f) if the Owner Participant becomes a Competitor of the Lessee,
on any Stipulated Loss Value Determination Date occurring within one year
following the occurrence of such event, at a purchase price equal to the
greater of (A) the Stipulated Loss Value for the Undivided Interest as of
such Stipulated Loss Value Determination Date and (B) the Fair Market
Sales Value of the Undivided Interest as of such date; or
(g) if the Owner Participant or the Lessor shall have drawn on the
Letter of Credit (or any other letter of credit naming the Lessor and/or
the Owner Participant as a beneficiary as contemplated by Section 10.14 of
the Participation Agreement) or shall have received payment under the
Surety Bond (or any other surety bond held by the Lessor and/or the Owner
Participant as contemplated by Section 10.14 of the Participation
Agreement), on the first Stipulated Loss Value Determination Date at least
30 days following such drawing or payment at a purchase price equal to the
Stipulated Loss Value for the Undivided Interest as of such date.
6.2. Notice of Election; Manner of Purchase; Transfer After Purchase.
(a) Notice of an election to exercise a purchase option pursuant to
Section 6.1(a) or (b) shall be given in the manner provided in Section 5.3.
(b) In order to exercise its purchase option pursuant to Section
6.1(c), the Lessee shall, at least 90 days but not more than 545 days prior
to the Early Buy-Out Date, give irrevocable notice to the Lessor in writing of
its election to exercise its purchase option.
(c) In order to exercise its purchase option pursuant to Section
6.1(d), the Lessee shall notify the Lessor in writing at least 180 days but
not more than 545 days prior to the applicable Special Purchase Option Date
that it desires to obtain an appraisal of the Fair Market Sales Value of the
Undivided Interest as of such Special Purchase Option Date. Promptly
thereafter, the Lessee and the Lessor shall attempt to agree upon such Fair
Market Sales Value. If the Lessee and the Lessor shall fail to agree within
30 days after the giving of such notice, such Fair Market Sales Value shall be
determined pursuant to the Appraisal Procedure. At least 90 days prior to the
applicable Special Purchase Option Date, the Lessee shall, provide to the
Lessor (i) notice of its irrevocable election to exercise its purchase option
pursuant to Section 6.1(d) or (ii) notice of its irrevocable election not to
exercise such option.
(d) In order to exercise its purchase option pursuant to Section
6.1(e) or (f), the Lessee shall notify the Lessor and the Indenture Trustee
in writing (i) in the case of an exercise of its purchase option pursuant to
Section 6.1(e), no earlier than the expiration of the 45 day period following
the giving of the notice referred to in Section 6.1(e) and (ii) in the case of
an exercise of its purchase option pursuant to Section 6.1(f), no later than
90 days following the earlier of (x) receipt by the Lessee of a written notice
from the Owner Participant that it has become a Competitor of the Lessee and
(y) the date Lessee obtains Actual Knowledge that the Owner Participant has
become a Competitor of the Lessee, that the Lessee desires to obtain an
appraisal of the Fair Market Sales Value of the Undivided Interest as of the
applicable Stipulated Loss Value Determination Date (in the case of an
election pursuant to Section 6.1(e), without regard to the proposed
Modification or Modifications). Promptly after the giving of such notice, the
Lessee and the Lessor shall attempt to agree upon such Fair Market Sales
Value. If the Lessee and the Lessor shall fail to agree within 30 days after
the giving of such notice, such Fair Market Sales Value shall be determined
pursuant to the Appraisal Procedure. On the second Stipulated Loss Value
Determination Date following completion of the Appraisal Procedure, the Lessee
shall provide to the Lessor (i) notice of its irrevocable election to exercise
its option to purchase the Undivided Interest specifying whether such option is
being exercised pursuant to Section 6.1(e) or (f) and the applicable
Stipulated Loss Value Date, or (ii) notice of its irrevocable election not to
exercise such option.
(e) The drawing on the Letter of Credit (or letter of credit)
or payment under the Surety Bond (or surety bond) referred to in Section
6.1(g) shall constitute the irrevocable exercise of the purchase option
pursuant to Section 6.1(g) and the drawings under such Letter of Credit (or
letter of credit) or payments in respect of such Surety Bond (or surety bond)
shall be applied in accordance with Section 3.8 on the applicable Stipulated
Loss Value Determination Date.
(f) On the date of purchase of all of Lessor's right, title and
interest in and to the Undivided Interest pursuant to this Section 6, the
Lessor shall transfer all right, title and interest of the Lessor in and to the
Undivided Interest, as is and where is, to the Lessee, free and clear of
Lessor's Liens and Owner Participant's Liens but otherwise without any
representation or warranty, upon payment to the Lessor of the purchase price
therefor, together with (i) all Basic Rent due and owing on or prior to such
date of purchase (but excluding any Basic Rent payable in advance on such date
of purchase) and (ii) all Supplemental Rent due and owing on or prior to such
date of purchase and any accrued other Supplemental Rent as to which there is
no dispute, and the Lessor shall, at the Lessee's expense, execute and deliver
to the Lessee a ▇▇▇▇ of sale or assignment and such other instruments,
documents and opinions as the Lessee may reasonably request to evidence the
valid consummation of such transfer and shall, at the Lessee's expense, take
such actions under Section 6.03 of the Indenture as the Lessee may reasonably
request.
(g) Failure by the Lessee to provide any initial notice or
subsequent confirmatory, notice referred to in subsections (c) or (d) of this
Section 6.2 within the applicable time periods specified therein shall be
deemed to constitute an irrevocable election by the Lessee not to exercise the
applicable purchase option set forth therein.
6.3. Assumption of Secured Notes. Notwithstanding the
provisions of Sections 6.1 and 6.2 and subject to compliance with Section
3.04 of the Indenture, if in connection with a purchase by the Lessee of all
of Lessor's right, title and interest in and to the Undivided Interest pursuant
to Section 6.1(c), 6.1(d), 6.1(e), 6.1(f) or 6.1(g), as the case may
be, the Lessee shall assume the Secured Notes pursuant to Section 11.6 of the
Participation Agreement, the obligation of the Lessee to pay the purchase price
pursuant to Section 6.1(c), 6.1(d), 6.1(e), 6.1(f) or 6.1(g), as the
case may be, shall be satisfied by such assumption of the Secured Notes to the
extent of the principal amount of and accrued but unpaid interest (other than
overdue interest), if any, on the Secured Notes so assumed and payment of the
remaining portion of the purchase price in cash.
SECTION 7. EARLY TERMINATION.
7.1. Decision. If (i) the President or Chief Financial Officer
of the Lessee shall have determined in good faith that the Undivided Interest
or any Significant Portion thereof is obsolete, uneconomic or surplus to the
needs of the Lessee for any reason (including, without limitation, by reason of
burdensome Governmental Rules) or (ii) the Lessee shall have determined to
withdraw from or terminate the Operating Agreement, then the Lessee may elect
to terminate this Lease with respect to the Undivided Interest or such
Significant Portion of the Undivided Interest, as the case may be, in
accordance with this Section 7 on any Basic Rent Payment Date; provided that
no such termination shall occur prior to January 2, 2001; provided, further,
that the Lessee shall have no right to terminate this Lease with respect to a
Significant Portion of the Undivided Interest if (1) that portion of the
Production System in which the Lessor will continue to own an interest after
giving effect to such termination (such portion, together with the interest of
the Other Owner and the Other Percentage Owner corresponding to such portion,
the "Remaining Portion") is not capable of functioning for its intended purpose
or (2) the Remaining Portion constitutes "limited use property" within the
meaning of Revenue Procedure 76-30 or (3) the Fair Market Sales Value of the
Remaining Portion as of the Termination Date is less than the product of (A) a
fraction the numerator of which is the excess of Lessor's Cost over the
Original Cost of such Significant Portion and the denominator of which is
Lessor's Cost and (B) the Fair Market Sales Value of the Production System
(without giving effect to such termination) as of the Termination Date or (4)
the Original Cost of such Significant Portion together with the Original Cost
of any other Significant Portion of the Undivided Interest in respect of which
the Lessee has previously paid Termination Value pursuant to Section 7.3 or
Stipulated Loss Value pursuant to Section 12 shall not exceed 50% of Lessor's
Cost or (5) the estimated Fair Market Sales Value of the Remaining Portion as
of the scheduled expiration of the Basic Lease Term is less than the product of
(A) a fraction, the numerator of which is the excess of Lessor's Cost over the
Original Cost of such Significant Portion and the denominator of which is
Lessor's Cost and (B) the estimated Fair Market Sales Value of the Production
System (without giving effect to such termination) as of the scheduled
expiration of the Basic Lease Term or (6) subject to the following sentence,
the Lessee shall have failed to provide the Owner Participant, by the 10th
Business Day preceding the Termination Date, with an opinion of tax counsel
selected by the Lessee but reasonably acceptable to the Owner Participant to
the effect that the termination of this Lease with respect to such Significant
Portion will not result in a greater risk of an unindemnified tax liability on
the part of the Owner Participant than it would have had if such termination
had not occurred (other than any tax liability of the Owner Participant with
respect to the inclusion in the taxable income of the Owner Participant of the
Termination Value payable with respect to such Significant Portion). The
Lessee shall be deemed to have failed to provide the opinion referred to in
clause (6) above if the Owner Participant provides the Lessee by the later of
(x) 10 Business Days after receipt of the opinion referred to in clause (6)
above and the approval by the Lessee of the Owner Participant's choice of
counsel and (y) the 5th Business Day preceding the Termination Date an opinion
of tax counsel selected by the Owner Participant and reasonably acceptable to
the Lessee to the contrary and describing in reasonable detail the increased
risk of unindemnified tax liability. If the Lessee shall, at any time after
the delivery of a notice of termination pursuant to Section 7.2 and prior to
the Termination Date, be precluded from terminating this Lease by reason of the
second proviso to the second preceding sentence, the Lessee shall be deemed to
have revoked its notice of termination pursuant to Section 7.2.
7.2. Notice of Termination. In order to exercise its right to
terminate this Lease as provided in this Section 7, the Lessee shall provide
the Lessor, the Owner Participant and the Indenture Trustee with (i) notice in
writing at least 90 days but not more than 545 days prior to the Basic Rent
Payment Date as of which the Lessee is electing to terminate this Lease with
respect to the Undivided Interest or a Significant Portion thereof (the
"Termination Date"), such notice to specify (a) whether the Lessee is
electing to terminate this Lease pursuant to clause (i) (an election pursuant
to such clause (i) being referred to herein as an "Obsolescence Termination
Election") or clause (ii) (an election pursuant to such clause (ii) being
referred to herein as a "Special Termination Election") of Section 7.1,
(b) if the Lessee is electing a termination under clause (i) of Section 7.1,
whether the Lessee is electing to terminate this Lease with respect to the
Undivided Interest or a Significant Portion thereof, (c) if the termination
election is with respect to a Significant Portion of the Undivided Interest, a
description of such Significant Portion, (d) the Termination Date and (e) the
Termination Value for the Undivided Interest or such Significant Portion, as
the case may be, as of the Termination Date and (ii) an Officer's Certificate
of the Lessee as to the determinations referred to in Section 7.1. Unless the
Lessor shall have elected to retain the Undivided Interest pursuant to Section
7.4, the Lessee may, at its option by written notice to the Lessor at any time
prior to the 30th day prior to the Termination Date, revoke any such notice of
termination, in which event this Lease shall not terminate and the reasonable
out-of-pocket expenses incurred by the Lessor, the Owner Participant and the
Indenture Trustee in connection therewith shall be borne by the Lessee;
provided, however, that the Lessee shall have no obligation to so reimburse the
Lessor or the Owner Participant if such notice of revocation is given (or
deemed to have been given pursuant to the penultimate sentence of Section 7.4)
as a result of the Lessor's failure to make the payments required to be made by
it under Section 7.4); and, provided, further, that the Lessee may revoke any
such notice of termination on only two occasions.
7.3. Sale of Undivided Interest or Significant Portion;
Termination Payment. (a) (i) Subject to Section 7.4, if the Lessee shall
have made an Obsolescence Termination Election, the Lessee shall, as
nonexclusive agent for the Lessor, use commercially reasonable efforts to
solicit bids for the cash purchase of all of the Lessor's right, title and
interest in and to the Undivided Interest or the Significant Portion thereof,
as the case may be, on the Termination Date. The Lessor may also solicit bids
for the cash purchase of all of Lessor's right, title and interest in and to
the Undivided Interest or the Significant Portion thereof, as the case may be,
on the Termination Date independent of the Lessee. The Lessee shall certify
in writing to the Lessor within ten days after the Lessee's receipt of each bid
the amount and terms of each bid received by it and the name and address of the
Person submitting such bid. Subject to Section 7.4, in the event that the
Lessee or the Lessor shall have obtained any such bids from any Person other
than the Lessee or an Affiliate of the Lessee, the Lessor shall sell all of its
right, title and interest in and to the Undivided Interest or such Significant
Portion, as the case may be, on the Termination Date to such Person which
shall have submitted the highest bona fide cash bid. Upon payment to the
Lessor of the purchase price in immediately available funds (and all other
amounts due pursuant to the next sentence) on the Termination Date, the Lessor
shall sell to the highest bona fide bidder all right, title and interest of the
Lessor in and to the Undivided Interest or such Significant Portion, as the
case may be, as is and where is, free and clear of Lessor's Liens and Owner
Participant's Liens but otherwise without representation, warranty or recourse.
In the case of an Obsolescence Termination Election with respect to the
Undivided Interest, this Lease and the obligations of the Lessee hereunder
(other than those obligations which are expressly stated to survive termination
of this Lease) shall terminate and, in the case of an Obsolescence Termination
Election with respect to a Significant Portion of the Undivided Interest, the
Lessee's obligations under this Lease (other than those obligations which are
expressly stated to survive termination of this Lease) shall terminate only
with respect to such Significant Portion, in each case, concurrently with such
sale and such payment. As a condition to the sale of the Undivided Interest or
a Significant Portion thereof, as the case may be, pursuant to the second
preceding sentence, the Lessee shall pay on the Termination Date to the
Lessor, in immediately available funds, (i) an amount equal to the excess, if
any, of (A) the Termination Value for the Undivided Interest or such
Significant Portion, as the case may be, as of the Termination Date over
(B) the proceeds of such sale net of the reasonable out-of-pocket expenses
incurred by the Lessor and the Owner Participant in connection with such sale,
(ii) all Basic Rent due and owing on or prior to the Termination Date (but
excluding, in the case of an Obsolescence Termination Election with respect to
the Undivided Interest, any Basic Rent payable in advance on the Termination
Date and, in the case of an Obsolescence Termination Election with respect to a
Significant Portion of the Undivided Interest, that portion of Basic Rent
payable in advance on the Termination Date equal to the product of the Original
Cost of such Significant Portion and the percentage set forth in Column B
(Advance Rent) of Schedule 1 opposite such Termination Date), (iii) all
Supplemental Rent due and owing on or prior to the Termination Date and any
other accrued Supplemental Rent as to which there is no dispute. On the
Termination Date, the Lessor shall, at the Lessee's expense, execute and
deliver to such Person a ▇▇▇▇ of sale or assignment and such other instruments,
documents and opinions as such Person or the Lessee may reasonably request to
evidence the valid consummation of such transfer and shall, at the Lessee's
expense, take such actions under Section 6.03 of the Indenture as the Lessee
may reasonably request. The Lessee shall not enter into any transaction with
the purchaser (or transferee thereof) of the Undivided Interest or a
Significant Portion thereof whereby the Lessee or any Affiliate of the Lessee
obtains the use of the Undivided Interest or such Significant Portion
thereafter; provided, however, that nothing in this Section 7 shall be
construed as prohibiting Enserch Exploration (or any Affiliate thereof) from
exercising its rights (other than its rights to purchase the Undivided Interest
or such Significant Portion) under the Operating Agreement.
(ii) If the Lessee shall have made a Special Termination
Election, the Lessee shall on the Termination Date pay to the Lessor, in
immediately available funds, (A) an amount equal to the Termination Value for
the Undivided Interest as of the Termination Date, (B) all Basic Rent due and
owing on or prior to the Termination Date (but excluding any Basic Rent payable
in advance on the Termination Date) and (C) all Supplemental Rent due and
owing on or prior to the Termination Date and any other accrued Supplemental
Rent as to which there is no dispute. Upon such payment, the Lessor shall sell
to the Lessee or its designee, for disposition in accordance with the
applicable provisions of the Operating Agreement, all right, title and interest
of the Lessor in and to the Undivided Interest, as is and where is, free and
clear of Lessor's Liens and Owner Participant's Liens but otherwise without
representation or warranty or recourse. This Lease and the obligations of the
Lessee hereunder (other than the obligations of the Lessee set forth in the
immediately following sentence or which are expressly stated to survive the
termination of this Lease) shall terminate concurrently with such sale and such
payment. The Lessee hereby agrees that (1) promptly following the conveyance
of all of Lessor's right, title and interest in and to the Undivided Interest
pursuant to the first sentence of this subparagraph (ii), Enserch Exploration
shall use its reasonable efforts as Operator under the Operating Agreement to
cause the disposition of the Production System in accordance with the terms of
the Operating Agreement, (2) any such disposition shall not result in the
Lessee or any Affiliate of the Lessee obtaining the ownership or use of the
Undivided Interest and (3) the Lessee shall, promptly following the
disposition of the Production System pay to the Lessor an amount equal to the
excess, if any, of (x) the proceeds of the sale of the Production System
allocated to Enserch Exploration under Exhibit C to the Operating Agreement
net of expenses incurred in respect of such sale (including, without
limitation, any reasonable commissions or other reasonable fees payable to any
brokers that are not the Lessee, the Operator or any Affiliates thereof)
allocated to Enserch Exploration under Exhibit C to the Operating Agreement
over (y) the Termination Value paid to the Lessor pursuant to this Section
7.3(a)(ii). In performing its obligation to dispose of the Undivided
Interest pursuant to the preceding sentence, the Lessee shall act in a
commercially reasonable manner as if it were the owner of the Undivided
Interest entitled to retain all proceeds of the disposition. On the
Termination Date, the Lessor shall, at the Lessee's expense, execute and
deliver to the Lessee (or its designee) a ▇▇▇▇ of sale or assignment and such
other instruments, documents and opinions as the Lessee may reasonably request
to evidence the valid consummation of the transfers effected pursuant to this
Section 7.3(a) (ii) and shall, at the Lessee's expense, take such actions
under Section 6.03 of the Indenture as the Lessee may reasonably request.
(b) In the event that (i) the Lessee shall have exercised (or
shall be deemed to have exercised pursuant to the last sentence of Section 7.1
or the penultimate sentence of Section 7.4) its right to revoke its notice of
termination pursuant to Section 7.2 or (ii) the highest bona fide bidder under
Section 7.3(a) shall have failed to purchase all of Lessor's right, title and
interest in and to the Undivided Interest pursuant to Section 7.3(a), then,
unless the Lessor shall have retained the Undivided Interest pursuant to
Section 7.4, this Lease shall remain in full force and effect.
7.4. Retention of Undivided Interest by Lessor. If the Lessee
shall have made an Obsolescence Termination Election with respect to the
Undivided Interest or any Significant Portion thereof, the Lessor may elect to
retain rather than sell the Undivided Interest or (to the extent consistent
with the Operating Agreement) such Significant Portion pursuant to Section
7.3(a)(i) by giving irrevocable notice to the Lessee and the Indenture
Trustee no earlier than 45 nor later than 30 days prior to the Termination
Date. If the Lessor so elects to retain the Undivided Interest, on the
Termination Date (a) the Lessor shall pay to the Indenture Trustee an amount
equal to the unpaid principal amount of, and accrued and unpaid interest on,
the Secured Notes then Outstanding to the date of payment, provided that if the
Lessee has elected to terminate this Lease with respect to a Significant
Portion of the Undivided Interest, the Lessor shall pay only a pro rata portion
of such amount, which pro rata portion will be determined in accordance with
the provisions of Section 7.5 hereof, and (b) the Lessee shall pay to the
Lessor or the Person entitled thereto as provided in the Operative Documents
(i) all Basic Rent due and owing on or prior to the Termination Date (but
excluding all Basic Rent payable in advance on the Termination Date) and
(ii) all Supplemental Rent due and owing on or prior to the Termination Date
and any other accrued Supplemental Rent as to which there is no dispute, but
the Lessee shall not be required to pay any amounts pursuant to Section 7.3.
Upon payment of the amounts due pursuant to clause (b) of the preceding
sentence, this Lease and the obligations of the Lessee hereunder (other than
those obligations which are expressly stated to survive the termination of
this Lease) shall terminate, and the Lessor shall, at the Lessee's expense,
execute and deliver to the Lessee on the Termination Date such instruments as
the Lessee shall reasonably request to evidence the termination of this
Lease. In the event the Lessor fails to pay the amounts specified in clause
(a) of the second sentence of this Section 7.4 or the Lessee fails to pay the
amounts specified in clause (b) of such sentence, the Lessee shall be deemed to
have revoked its notice of termination pursuant to Section 7.2. If the Lessor
shall fail to perform any of its obligations pursuant to this Section 7.4 and
as a result thereof this Lease shall not be terminated on a proposed
Termination Date, the Lessor shall thereafter no longer be entitled to exercise
its election to retain the Undivided Interest upon any subsequent Obsolescence
Termination Election pursuant to this Section 7 and Lessee may at its option at
any time thereafter submit a new termination notice pursuant to Section 7.2.
7.5. Calculation of Original Cost7.5. Calculation of Original Cost. If
(x) the Lessee has elected to terminate this Lease with respect to a
Significant Portion of the Undivided Interest pursuant to this Section 7 or
(y) (i) an Event of Loss has occurred with respect to a Significant Portion of
the Undivided Interest and (ii) the Lessee has elected to pay Stipulated Loss
Value in respect of such Significant Portion, the Original Cost of such
Significant Portion shall be determined as follows:
(a) The Original Cost of that portion of such Significant Portion
consisting solely of the Lessor's Share of any Major Component in its
entirety shall be an amount equal to the sum of the Original Cost (as
defined in clause (i) of the definition of Original Cost) of the Lessor's
Share of each such Major Component; and
(b) The Original Cost of that portion of such Significant Portion
consisting of the Lessor's Share of (i) any Component or (ii) any
Replacement Component which has replaced such Component in accordance with
this Lease (other than, in the case of (i) and (ii), respectively, any
Component that is part of a Major Component to which paragraph (a) above
applies and any Replacement Component which has replaced such Component in
accordance with this Lease) shall be in an amount agreed to by the Lessor
and the Lessee; provided, however, that if the Lessor and the Lessee
cannot agree as to the Original Cost of the Lessor's Share of any such
Component (or Replacement Component) by the 30th day following (x) the
issuance of a notice of such termination pursuant to Section 7.2 or (y)
the receipt by the Lessor of notice from the Lessee of the occurrence of
such Event of Loss, as the case may be, such Original Cost shall be
determined by the Appraisal Procedure.
The Original Cost of the Significant Portion of the Undivided Interest with
respect to which this Lease is being terminated or which has suffered an Event
of Loss shall be an amount equal to the sum of the amounts obtained in
paragraphs (a) and (b) above.
SECTION 8. RELINQUISHMENT OF POSSESSION AND USE OF UNDIVIDED INTEREST.
8.1. Return of Undivided Interest. Unless the Undivided
Interest shall have been transferred to the Lessee pursuant to this Lease, the
Lessee, at its own expense, shall, subject to the terms and conditions of the
Operating Agreement and the Agency and Support Agreement, relinquish
possession and use of the Undivided Interest to the Lessor or to any transferee
or assignee of the Lessor upon the expiration or termination of the Lease Term
by surrendering the same to the Lessor or such transferee or assignee at the
respective locations of the Major Components thereof. Upon the return of the
Undivided Interest pursuant to this Section 8.1, (x) the Production System
shall be (i) if Enserch Exploration or any of its Affiliates is then the
Operator or the operator of the Production System, in at least as good
condition as required by Section 11.1 or (ii) if neither Enserch Exploration
nor any of its Affiliates is then the Operator or the operator of the
Production System, in at least as good condition as the Production System would
be if it were maintained by a prudent operator which is in the business of
maintaining and operating facilities similar to the Production System (which
operator does not discriminate in such maintenance based on the leased status
of the Production System or otherwise (including, without limitation, any
discrimination with respect to the installation of Modifications required by
Governmental Rules that may be phased in over a period of time that commences
prior to and extends beyond the end of the Lease Term)), in compliance in all
material respects with all then applicable Governmental Rules (including,
without limitation, all Environmental Laws) and in such condition as will
entitle the Platform to the same classification and rating from the
Classification Society which the Platform had from American Bureau of Shipping
on the Closing Date (subject to any reduction in classification and rating
resulting from the age of the Platform). In addition, upon the return of the
Undivided Interest, the Undivided Interest shall be free and clear of all
Liens other than the Liens described in clauses (a), (b) (other than
Indenture Trustee's Liens), (f), (g), (to the extent removed within 60 days
after such return) (i) and (j) of the definition of Permitted Liens. If the
Lessee elects or is required to return the Undivided Interest, then, subject to
the restrictions set forth in Section 11.5 of the Participation Agreement, not
more than 180 days nor less than 60 days prior to the Lease Termination Date,
the Lessee shall, at its sole cost and expense, provide the Lessor, the Owner
Participant and, if the Lien of the Indenture has not been discharged, the
Indenture Trustee (1) a report of an engineer selected by the Lessee and
reasonably acceptable to the Lessor certifying that the Undivided Interest is
in the condition and state of repair and maintenance required by all then
applicable Governmental Rules, together with such inspection reports, tests,
and other data reasonably adequate to substantiate the conclusion reached in
such report, or, if the Undivided Interest is not in the condition and state of
repair and maintenance required by all then applicable Governmental Rules, such
engineer shall provide a list of any discrepancies in such condition, and the
Lessee, at its sole cost and expense, shall cause any such discrepancies to be
fully corrected prior to the return of the Undivided Interest, (2) an
inspection report by an environmental consulting firm selected by Lessee and
satisfactory to the Lessor certifying that the Production System is in
compliance with all applicable Environmental Laws and that the condition and
operation of the Production System are such that the Lease shall not be subject
to any Environmental Claim, (3) a reserve report with respect to the Unit
Reserves prepared by an independent consulting firm selected by the Lessee and
reasonably acceptable to the Lessor and (4) a list of all of the Lessee's
permits necessary for the use, operation and maintenance of the Production
System. The obligations of the Lessee under this Section 8.1 shall survive
the termination of this Lease.
SECTION 9. QUIET USE AND ENJOYMENT; DISCLAIMER OF WARRANTIES.
9.1. Quiet Use and Enjoyment. Unless a Lease Event of Default
shall have occurred and be continuing and the Lessee shall have been notified
of such Event of Default, the Lessee shall be entitled to the quiet use and
enjoyment of the benefits of the Undivided Interest including the right to
uninterrupted possession and use of the Undivided Interest and the Lessor
agrees not to take or permit any Person (other than the Indenture Trustee, the
Loan Participants or any Person claiming by, through or under the Indenture
Trustee or any Loan Participant) lawfully claiming by, through or under it to
take any action which interferes with such quiet use or enjoyment or such
possession or use or the rights of any sublessee or assignee to such quiet use
or enjoyment or such possession or use under any sublease or assignment
permitted hereunder (it being agreed that, without limiting the liability of
any Loan Participant, the Indenture Trustee or any Person claiming by, through
or under the Indenture Trustee or any Loan Participant for any action taken by
it in violation of the covenant contained in this sentence, neither the Owner
Participant nor the Grantor Trustee shall have any liability for any such
action taken by any Loan Participant, the Indenture Trustee or any Person
claiming by, through or under the Indenture Trustee or any Loan Participant
unless such action was taken at the direction of the Owner Participant or the
Grantor Trustee acting upon the express written instructions of the Owner
Participant acting in violation of the Operative Documents). Without limiting
the foregoing, the Lessor (for itself and its successors and assigns, it being
agreed that the following provisions of this sentence run with the Undivided
Interest and shall be binding on any transferee or assignee of the whole or any
part of the Undivided Interest) hereby waives the right to bring any action for
partition of the Production System or the Lessor's interest therein and hereby
covenants that, for so long as there are economically producible oil, gas or
other hydrocarbon reserves in the Unit Area ("Unit Reserves"), the Lessor
shall not (i) resort to any action at law or in equity to partition the
Production System, (ii) interfere in any manner with the quiet use and
enjoyment by the Other Owner of the Other Undivided Interest or the Other
Percentage Owner of the Other Percentage Undivided Interest, or (iii) permit
the Production System to be sold, removed or abandoned such that it is made
unavailable to produce the Unit Reserves. The Other Owner, the Other
Percentage Owner and their respective successors and assigns shall be third-
party beneficiaries of the Lessor's waiver and covenants contained in the
immediately preceding sentence. The Lessor agrees that any transferee of the
Lessor's interest in the Undivided Interest shall agree in writing to be bound
by the provisions of the second preceding sentence. In addition, the Lessor
(for itself and its successors and assigns) agrees that its interest in the
Production System will be bound by the terms of the Operating Agreement.
9.2. Disclaimer of Warranties. Neither the Trust Company in
its individual capacity or as Grantor Trustee nor the Owner Participant makes
any representations or warranties whether written, oral or implied, with
respect to the Undivided Interest, the Production System, or any part thereof,
except as expressly set forth in Section 6 or 8 of the Participation Agreement
or in any Officer's Certificate of the Trust Company, the Grantor Trustee or
the Owner Participant, in each case delivered pursuant to the Participation
Agreement. As between the Lessor and the Lessee, execution by the Lessee of
this Lease shall be conclusive proof of the Lessee's acceptance of the
Undivided Interest for all purposes hereof and of the commencement of this
Lease with respect thereto and that the Undivided Interest is satisfactory to
the Lessee in all respects. THE LESSEE ACKNOWLEDGES THAT THE LESSOR
IS NOT A MANUFACTURER OR DEALER IN PROPERTY OF THE KIND OF THE
PRODUCTION SYSTEM OR THE COMPONENTS THEREOF AND THE LESSOR
LEASES AND THE LESSEE TAKES THE UNDIVIDED INTEREST AND EACH PART
THEREOF AS IS AND WHERE IS, WITH ALL FAULTS (WHETHER OR NOT
DISCOVERABLE), AND SUBJECT TO ALL APPLICABLE LAWS (INCLUDING
ENVIRONMENTAL LAWS) AND NEITHER THE TRUST COMPANY IN ITS
INDIVIDUAL CAPACITY OR AS GRANTOR TRUSTEE NOR THE OWNER
PARTICIPANT SHALL BE DEEMED TO HAVE MADE, AND THE TRUST COMPANY
IN ITS INDIVIDUAL CAPACITY AND AS GRANTOR TRUSTEE HEREBY
DISCLAIMS, ANY REPRESENTATION OR WARRANTY OTHER THAN THOSE
REFERRED TO IN THE SECOND PRECEDING SENTENCE, EITHER EXPRESS OR
IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT
LIMITATION, THE DESIGN OR CONDITION OF THE PRODUCTION SYSTEM OR
ANY PART THEREOF, THE MERCHANTABILITY THEREOF OR THE FITNESS
THEREOF FOR ANY PARTICULAR PURPOSE, THE ABILITY OF THE
PRODUCTION SYSTEM TO PERFORM ANY FUNCTION, TITLE TO THE
PRODUCTION SYSTEM OR ANY PART THEREOF, THE QUALITY OF THE
MATERIALS OR WORKMANSHIP THEREOF OR CONFORMITY THEREOF TO
SPECIFICATIONS, OR THE PRESENCE OR ABSENCE OF ANY LATENT OR OTHER
DEFECTS, WHETHER OR NOT DISCOVERABLE. THE LESSEE CONFIRMS THAT
IT HAS SELECTED THE PRODUCTION SYSTEM AND EACH PART THEREOF ON
THE BASIS OF ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS RELIANCE IN
CONNECTION WITH SUCH SELECTION UPON ANY STATEMENTS,
REPRESENTATIONS OR WARRANTIES MADE BY THE LESSOR OR THE OWNER
PARTICIPANT. The provisions of this Section 9.2 have been negotiated and,
except as expressly set forth in Sections 6 and 8 of the Participation
Agreement or in any Officer's Certificate of the Grantor Trustee, the Trust
Company or the Owner Participant, the foregoing provisions are intended to be a
complete exclusion and negation of any representation or warranty by the Lessor
or the Owner Participant, express or implied, with respect to this Lease, the
Production System, the Undivided Interest or any part thereof that may arise
pursuant to any law now or hereafter in effect or otherwise. Nothing contained
in this Section 9.2 shall be construed as a waiver of any warranty or other
claim against any manufacturer, supplier, dealer, vendor, contractor,
subcontractor or installer.
9.3. Enforcement of Warranties. The Lessor hereby appoints and
constitutes the Lessee its agent and attorney-in-fact during the Lease Term to
assert and enforce, from time to time, in its sole discretion, in the name and
for the account of the Lessor and the Lessee, as their interests may appear,
but in all cases at no cost or expense to the Lessor, whatever claims and
rights the Lessor may have as the lessor of the Undivided Interest against any
manufacturer or vendor of any Component or Replacement Component of the
Production System; provided, however, that if this Lease shall have been
declared in default pursuant to Section 16.1, such power of attorney shall, at
the option of the Lessor, terminate and the Lessor may assert, at the Lessee's
expense, such claims and rights.
SECTION 10. LIENS.
The Lessee will not, directly or indirectly, create, incur, assume
or suffer to exist any Liens on or with respect to all or any part of the
Undivided Interest, title thereto or any interest therein, other than Permitted
Liens, and the Lessee promptly, at its own expense, will take such actions as
may be necessary duly to discharge any such Lien not excepted above.
SECTION 11. OPERATION AND MAINTENANCE;
INSPECTION; MODIFICATIONS;
REPLACEMENTS; PERSONNEL;
SALVAGE; FUEL; IDENTIFICATION.
11.1. Operation and Maintenance. So long as the Operating
Agreement is in effect, the Lessee will at its own expense maintain and operate
the Production System in accordance with the applicable provisions of the
Operating Agreement. At all other times, the Lessee shall, at its own
expense, for the Lease Term, operate and maintain (or cause the operator
thereof to operate and maintain) the Production System in accordance with the
Lessee's established maintenance, rebuild and repair programs (and without
discriminating against the Production System based on the leased, rather than
owned, status of the Undivided Interest or otherwise, including, without
limitation, any discrimination with respect to the installation of
Modifications required by Governmental Rules that may be phased in over a
period of time that commences prior to and extends beyond the end of the Lease
Term) so as to keep the Undivided Interest (a) in good working order and
condition, ordinary wear and tear excepted, (b) in compliance in all material
respects with all applicable Governmental Rules and Governmental Actions and
the requirements of any insurance policy required to be maintained pursuant to
Section 13 hereof, to the extent any such insurance policy expressly requires
certain maintenance activities; provided, however, that the Lessee shall not be
obligated to comply with any Governmental Rule or Governmental Action
(i) whose application or validity is being contested diligently and in good
faith by appropriate proceedings, (ii) compliance with which shall have been
excused or exempted by a nonconforming use permit, waiver, extension or
forbearance exempting it from such Governmental Rule or Governmental Action but
only to the extent that the Lessee's noncompliance is in accordance therewith
and the Lessee shall nevertheless be required to comply with such Governmental
Rule or Governmental Action if such nonconforming use permit, waiver, extension
or forbearance would not be effective to exempt the Lessor or its designee from
compliance with such Governmental Rule or Governmental Action upon the return
of the Undivided Interest in accordance with Section 8, (iii) if good faith
efforts and appropriate steps are being taken to comply (in which case such
compliance shall be effected prior to the date the Undivided Interest is to be
returned to the Lessor hereunder), or (iv) if failure of compliance
(individually and in the aggregate with all other instances of continuing
noncompliance by the Lessee) would result in no material adverse consequences
to the Lessee, so long as, in the case of each of clauses (i) through (iv) of
this proviso, neither such failure of compliance nor such contest shall result
in any material risk or danger of (1) the sale, forfeiture or loss of any
material part of or interest in the Production System or the Undivided
Interest, the Trust Estate or the Indenture Estate or title thereto or
interest therein, (2) any interference with the payment of Rent when due, or
(3) the imposition of any criminal liability on the part of, or any other
material adverse effect on, the Lessor, the Owner Participant, the Trust
Estate, the Indenture Estate or the Undivided Interest, (c) with respect to
the Platform, in compliance with recognized maintenance standards for other
comparable platforms in the Gulf of Mexico, (d) with respect to the Platform,
in compliance with the American Petroleum Institute guidelines for inspection
and repair of platforms and (e) with respect to the Platform, in compliance
with the existing classification for the Platform issued by the Classification
Society.
11.2. Inspection and Reports. The Lessor, the Owner
Participant and the Indenture Trustee (and their respective authorized
representatives) shall have the right to inspect the Production System and the
books and records of the Lessee relating thereto to the extent provided in, and
subject to the restrictions set forth in, Sections 10.7 and 11.5 of the
Participation Agreement. The Lessor, the Owner Participant and the Indenture
Trustee shall receive copies of the SEC reports and financial statements of the
Lessee as provided in Section 10.2 of the Participation Agreement.
11.3. Required Modifications. So long as the Operating
Agreement is in effect, the Lessee shall have the right, subject to the last
sentence of this Section 11.3, to propose, or approve all Modifications to
the Production System in accordance with the provisions of the Operating
Agreement and the Lessee shall take all actions thereunder which may be
required to make (or cause to be made) all Severable and Nonseverable
Modifications to the Production System as may be required from time to time to
comply in all material respects with the requirements of all applicable
Governmental Rules and Governmental Actions. At all other times, (i) the
Lessee shall make (or cause to be made) all Severable and Nonseverable
Modifications to the Production System as may be required from time to time to
meet the requirements of clause (b) of Section 11.1 or to maintain any
insurance coverage required by Section 13.1 (subject to the qualifications set
forth in such Section) unless the Lessee shall have made an irrevocable
election to terminate this Lease pursuant to Section 7.2; provided, that if
for any reason this Lease is not terminated on the applicable Termination Date,
the provisions of this Section 11.3 shall be automatically reinstated. The
Lessee shall complete (or cause to be completed) all Modifications in a good
and workmanlike manner, with reasonable dispatch and in a manner which does not
decrease the value of the Production System (except to a de minimis extent) or
decrease the remaining useful life or utility of the Production System or cause
the Production System to become "limited use property" within the meaning of
Revenue Procedure 76-30.
11.4. Optional Modifications. The Lessee may, at no expense to
the Lessor, make (or cause or allow to be made) such other Severable and
Nonseverable Modifications to the Production System not required by Section
11.3 as do not (i) decrease the value (except to a de minimis extent) or
utility of the Production System or decrease the remaining useful life or cause
the Production System to become "limited use property" within the meaning of
Revenue Procedure 76-30 or (ii) alter the primary function of the Production
System (namely to drill and produce oil and gas), taken as a whole, to a
function other than its primary function on the Closing Date.
11.5. Title to Modifications; Purchase Option for Severable Modifications.
(a) Title to the Lessor's Share of all Modifications to the
Production System shall vest in the Head Lessor or any Person designated by the
Head Lessor and shall automatically become part of the Production System and
the Undivided Interest and become subject to the Head Lease (unless the Head
Lease has been terminated) and this Lease; provided, that if the Head Lease
shall have been terminated, title to the Lessor's Share of all Nonseverable
Modifications and all Severable Modifications required by any Governmental Rule
or Government Action, shall vest in the Lessor or any Person designated by the
Lessor and shall automatically become part of the Production System and the
Undivided Interest and become subject to this Lease. The Lessee may remove
(or allow to be removed) any Severable Modification to the Production System
not required by any Governmental Rule or Governmental Action prior to or upon
the expiration of the Lease Term; provided, however, the Lessee shall repair
promptly any material damage to the Production System from such removal.
(b) An undivided interest equal to the Lessor's Share of
(i) Severable Modifications to the Production System required by any
Governmental Rule or Governmental Action and (ii) Nonseverable Modifications
to the Production System shall automatically become part of the Production
System and the Undivided Interest and become subject to the Head Lease (unless
the Head Lease has been terminated) and this Lease.
(c) The Lessee's Share of all Severable Modifications to the
Production System other than those required by any Governmental Rule or
Governmental Action shall automatically vest in the Lessee.
(d) Provided that the Lessor's right, title and interest in the
Undivided Interest has not been transferred to the Lessee pursuant to this
Lease, the Lessor shall have the option, at the expiration of the Lease Term,
to purchase the Lessor's Share of any Severable Modification to the Production
System not theretofore removed by Lessee pursuant to Section 11.5(a) (i)
which was not required by any Governmental Rule or Governmental Action,
(ii) title to the Lessor's Share of which is in the Lessee or any Affiliate of
the Lessee on the last day of the Lease Term and (iii) which is necessary for
the economic operation of the Production System and (iv) which is not
commercially available for purchase by the Lessor, at a purchase price equal to
the Fair Market Sales Value of such Lessor's Share as of such date. During
the final year of the Lease Term, the Lessee shall not remove any such
Severable Modification. On or prior to the 180th day prior to the expiration
of the Lease Term, the Lessee shall provide the Lessor with a list of the
Severable Modifications it intends to remove. The Lessor may exercise its
option to purchase such Severable Modifications by written notice to such
effect delivered to the Lessee at least 30 days prior to expiration of the
Lease Term. The Lessor and the Lessee shall attempt to agree upon the Fair
Market Sales Value of such undivided interest in any such Severable
Modification as of the expiration of the Lease Term. If the Lessor and the
Lessee shall fail to agree within 15 days after such written notice, such Fair
Market Sales Value of any such undivided interest shall be determined by the
Appraisal Procedure (except that the time periods set forth in the definition
of Appraisal Procedure shall be accelerated so that the Appraisal Procedure is
complete at least 20 days prior to the expiration of the Lease Term). If the
Lessor shall have exercised its option to purchase an undivided interest in any
Severable Modification to the Production System pursuant to this Section
11.5(d), the Lessee, if requested by the Lessor, shall furnish (or cause to
be furnished) to the Lessor a ▇▇▇▇ of sale or assignment, in form and substance
reasonably satisfactory to the Lessor, conveying the right, title and interest
of the Lessee (or its Affiliate) in and to such Severable Modification, free
and clear of all Liens (other than Permitted Liens described in clauses (a),
(b) (other than Indenture Trustee's Liens), (f), (g), (i) and (j) of the
definition thereof), to the Lessor.
11.6. Payment for Modifications and Replacement Components.
(a) The Lessee shall be permitted at any time to finance the cost of any
Severable Modification to the Production System not required by any
Governmental Rule or Governmental Action, directly or indirectly, including,
without limitation, on a third party ownership basis.
(b) If the Lessee intends to seek financing for the cost of any
Severable Modification to the Production System that is required by any
Governmental Rule or Governmental Action to be made or any Nonseverable
Modification to the Production System, the Lessee shall first provide the
Lessor and the Owner Participant with written notice of such Modification at
least 45 days prior to the date of such proposed financing. The cost of the
Lessor's Share of such Modification may be financed through the issuance of
Additional Notes as provided in Section 14 of the Participation Agreement and
subject to the conditions set forth therein.
11.7. Replacement of Components; Title to Components; Removal of Property.
(a) Any Component or Replacement Component may be removed and
replaced with a Replacement Component and, upon such replacement, the Lessee
(or its designee) shall be entitled to retain the amount of the net proceeds of
any sale or disposition of any such removed Component or Replacement Component.
Any such Replacement Components shall be free and clear of all Liens, except
Permitted Liens, and in as good operating condition as, and with a value and
utility (and, in the case of Major Components, useful life) at least equal to,
the Components or Replacement Components replaced, assuming such replaced
Components or Replacement Components were in at least the condition and repair
required to be maintained hereunder and shall not, individually or in the
aggregate, adversely affect the Production System's useful life. Immediately
upon any Replacement Component becoming incorporated in the Production System,
without further act, (i) title to the Lessor's Share of such Replacement
Component thereupon shall vest in the Head Lessor (or, if the Head Lease is no
longer in effect, the Lessor) or such Person as shall be designated by the Head
Lessor (or, if the Head Lease is no longer in effect, the Lessor), (ii) the
Lessor's Share of such Replacement Component shall become subject to the Head
Lease (unless the Head Lease has been terminated) and the Lien of the
Indenture and to this Lease and shall be deemed a part of the Production System
and the Undivided Interest for all purposes thereof and hereof to the same
extent as the Lessor's Share of the Component or Replacement Component it
replaced and (iii) title to the Lessor's Share of such removed Component or
Replacement Component shall remain in the Head Lessor (or, if the Head Lease
shall have been terminated, shall vest in the Lessee) or such Person as shall
be designated by the Head Lessor (or, if applicable, the Lessee) and shall be
free and clear of all rights of the Lessor and the Indenture Trustee and shall
no longer be deemed a Component or a Replacement Component hereunder.
(b) If, at any time during the Lease Term, the Lessee shall
conclude that any property included in the Production System is obsolete,
redundant or unnecessary and can be removed without diminishment of the value
or utility of the Production System or reduction of the remaining useful life
of the Production System and without causing the Production System to become
"limited use property" within the meaning of Revenue Procedure 76-30, the
Lessee may remove (or allow to be removed) such property. In addition,
notwithstanding anything contained in this Lease to the contrary, if an event
occurs with respect to any Component or Components which would constitute an
Event of Loss if such event occurred with respect to the Production System or a
Significant Portion thereof, the Lessee shall have no obligation to pay any
Stipulated Loss Value in respect of, or to otherwise replace or repair, such
Component or Components, so long as, in the Lessee's reasonable judgment (i)
such Component is not a Significant Portion and (ii) such Component or
Components are not material to the overall operation of the Production System.
11.8. Employment of Personnel. Solely as between the Lessor
and the Lessee, the master, officers and crew of the Platform and all other
persons at any time on board the Platform shall be deemed to be engaged and
employed exclusively by the Lessee and shall be deemed to be and remain the
Lessee's servants, navigating and working the Platform solely on behalf of and
at the risk of the Lessee. THIS SECTION 11.8 SHALL NOT BE DEEMED TO
CREATE ANY RIGHT IN, OR TO BE FOR THE BENEFIT OF, ANY THIRD
PARTY.
11.9. Salvage. The Lessor shall not have any interest in any
salvage monies earned by the Platform or received by the Lessee or the
Operator. The Lessee assumes and shall satisfy all costs and liabilities
incurred in connection with all salvage services rendered by the Platform.
11.10. Fuel, Oil, Etc. The Lessor acknowledges that such
fuel, lubricating oil and unbroached consumable stores as may be on board the
Platform at the time of its delivery to the Lessee hereunder and allocable to
the Undivided Interest will be the property of the Lessee.
11.11. Identification of Platform. At all times until the
expiration or termination of this Lease, the Lessee shall cause to be placed
and kept prominently displayed in the chart room of the Platform a notice, in
English, framed under glass, printed in plain type of such size that the
paragraph of reading matter thereof shall cover a space not less than six
inches wide by nine inches high, reading as follows:
"NOTICE OF MORTGAGE AND CHARTER"
A 40.139265588% undivided interest in this vessel is owned by
Enserch Exploration, Inc., is under demise charter to Wilmington
Trust Company, as the Grantor Trustee under that certain Trust
Agreement (1996-A), dated as of November 15, 1996, pursuant
to a Production System Lease Agreement (1996-A), dated as of
November 15, 1996, and is covered by a First Priority Naval
Mortgage (1996-A) dated as of November 15, 1996 in favor of
Wilmington Trust Company, as Grantor Trustee. Said lease and
mortgage provide that no person shall create, incur or permit to
be placed or imposed upon this vessel any lien or encumbrance
whatsoever except as expressly permitted therein. A copy of said
lease and mortgage are carried on this vessel and must be exhibited
on demand to any person having business with this vessel."
Such notice shall be changed to reflect the identity of any successor
owner or mortgagee. Neither the Lessor nor Lessee shall take any action or
omit to take any action that would (i) cause the Platform to cease to be
documented as a vessel pursuant to the laws of the Republic of Panama,
(ii) cause the Ship Mortgage on the Platform to cease to be a first priority
naval mortgage under the laws of the Republic of Panama or (iii) cause the
Platform to cease to be entitled to the same classification that the Platform
had from the Classification Society on the Closing Date (subject to any
reduction in classification and rating resulting from the age of the Platform).
Except as otherwise directed by the Lessor, the Lessee shall prevent the name
of any Person other than that of Enserch Exploration or any Affiliate thereof
(and the other owners and secured parties with respect to the Other Undivided
Interest) from being placed on any part of the Production System as a
designation that reasonably might be interpreted as a claim of ownership or
right to possession or use thereof.
11.12. Reports With Respect to the Production System. The
Lessee shall provide the Lessor and the Owner Participant with the following
reports: (i) promptly following receipt thereof, all written information
provided to the Lessee pursuant to Section 8.2 of the Operating Agreement;
(ii) concurrently with the delivery of annual financial statements pursuant to
Section 10.2 of the Participation Agreement and upon expiration of the Lease
Term, a report stating the total cost of all Modifications (or related group of
Modifications) that cost in excess of 1% of Lessor's Cost made during such
period and describing separately and in reasonable detail each such
Modification made during the period from the Closing Date to December 31, 1996
in the case of the first such report and covering the immediately preceding
fiscal year in the case of the remaining reports.
11.13. Required Filings. The Lessee shall prepare and file in
a timely fashion, or where the Lessor shall be required to file, the Lessee
shall prepare or cause to be prepared and deliver to the Lessor within a
reasonable time prior to the date for filing, any reports with respect to the
Undivided Interest, or the condition or operation thereof, that shall be
required to be filed with any Governmental Authority in order to comply with
any Governmental Rule or Governmental Action.
11.14. Repair of Production System. In the event of any damage
to the Production System which does not constitute an Event of Loss, subject to
the last sentence of Section 11.7(b), the Lessee shall, at no expense to the
Lessor, as soon as commercially practicable, repair, restore or rebuild (or
shall cause to be repaired, restored or rebuilt) the damaged or destroyed
property so that upon completion of such repair, restoration or rebuilding, the
value, utility and remaining useful life of such property shall be at least
equal to the value, utility and remaining useful life of such property
immediately prior to such damage or destruction, assuming such property was
maintained in accordance with the terms hereof.
SECTION 12. EVENT OF LOSS.
12.1. Notice of Event of Loss. If there shall occur an Event
of Loss, the Lessee shall promptly notify the Lessor, the Owner Participant
and the Indenture Trustee of the occurrence thereof.
12.2. Payment of Stipulated Loss Value, Etc. (a) If an Event
of Loss with respect to the Production System shall occur, the Lessee shall
within 180 days of the occurrence of such Event of Loss give Lessor, the Owner
Participant and the Indenture Trustee written notice of its election to either:
(i) pay to the Lessor as compensation for such Event of Loss, on the Basic
Rent Payment Date immediately following the date of such election, the
Stipulated Loss Value for the Undivided Interest as of such Stipulated Loss
Value Determination Date; or
(ii) subject to compliance with this Section 12.2, replace (or cause to be
replaced) the Production System with equipment of a similar type, service
and use, and of equal or greater Fair Market Sales Value, residual value,
remaining useful life and utility as the replaced Production System
immediately prior to such Event of Loss (assuming the Production System has
been maintained in accordance with the terms of this Lease).
provided that (x) the Lessee may not elect to replace the
Production System if at the time of the Event of Loss or the time of
election a Lease Default of the type described in Section l5(a), (b), (c) or
(g) or Lease Event of Default shall have occurred and be continuing and
(y) if the Lessee fails to give notice of its election to replace the
Production System in the time period specified above, it shall be deemed
to have elected to pay Stipulated Loss Value as specified in clause (i) above.
If the Lessee shall have elected, or shall be deemed to have
elected, the option set forth in paragraph (i) above, the Lessee shall pay
simultaneously with the payment of Stipulated Loss Value all Basic Rent due and
owing prior to the date of such payment, all Supplemental Rent due and owing on
or prior to the date of such payment and any other accrued Supplemental Rent as
to which there is no dispute and all Basic Rent payable in arrears on such
Basic Rent Payment Date. Upon such payment (1) this Lease and the
obligations (other than the expressly stated to survive the Termination of this
Lease, including the obligations set forth in the next paragraph) of the Lessee
hereunder shall terminate as of the date of such payment and (2) the Lessor
shall transfer all right, title and interest of the Lessor in and to the
Undivided Interest as is and where is, to the Lessee or as the Lessee shall
direct, free and clear of Lessor's Liens and Owner Participant's Liens but
otherwise without representation, warranty or recourse, and the Lessor shall,
at the Lessee's expense, execute and deliver to the Lessee or as the Lessee
shall direct a ▇▇▇▇ of sale or assignment and such other instruments and
documents as the Lessee may reasonably request to evidence the valid
consummation of such transfer and shall, at the Lessee's expense, take such
actions under Section 6.03 of the Indenture as the Lessee may reasonably
request.
The Lessee hereby agrees that, if the Event of Loss with respect
to the Production System in respect of which the Lessee has paid Stipulated
Loss Value pursuant to the preceding sentence is a Special Event of Loss and
such Event of Loss was caused by an act or omission of the Lessee or the Lessee
and MPTM acting in concert, (A) promptly following the conveyance of the
Undivided Interest pursuant to clause (2) of the preceding sentence, the
Lessee shall cause the disposition of the Production System in accordance with
the terms of the Operating Agreement, (B) any such disposition shall not
result in the Lessee or any Affiliate of the Lessee obtaining the ownership or
use thereafter of the Production System and (C) the Lessee shall, promptly
following the disposition of the Production System pay to the Lessor an amount
equal to the excess, if any, of (x) the proceeds of the sale of the Production
System allocated to Enserch Exploration under Exhibit C to the Operating
Agreement net of expenses incurred in respect of such sale (including, without
limitation, any commissions or other fees payable to any brokers that are not
the Lessee, the Operator or any Affiliates thereof) allocated to Enserch
Exploration under Exhibit C to the Operating Agreement over (y) the Stipulated
Loss Value paid to the Lessor pursuant to this Section 12.2(a). In
performing its obligation to dispose of the Production System pursuant to the
preceding sentence, the Lessee shall act in a commercially reasonable manner as
if it were the owner of the Production System entitled to retain all proceeds
of the disposition.
(b) If an Event of Loss with respect to a Significant Portion
of the Production System shall occur, the Lessee shall within 180 days of the
occurrence of such Event of Loss give the Lessor, the Owner Participant and
the Indenture Trustee written notice of its election to either:
(i) pay to the Lessor as compensation for such Event of Loss, on the Basic
Rent Payment Date immediately following the date of such election, the
Stipulated Loss Value for the Significant Portion of the Undivided Interest
suffering such Event of Loss as of such Stipulated Loss Value Determination
Date; or
(ii) subject to compliance with this Section 12.2(b) rebuild or cause
to be rebuilt (or replace
or cause to be replaced) the Significant Portion of the Production System
suffering such Event of Loss which such rebuilt portion (or replacement
portion) shall have at least the same value, utility and remaining useful
life as such Significant Portion had prior to the Event of Loss (assuming
the Production System has been maintained in accordance with the terms of
this Lease); provided that (w) if (1) the remaining portion of the
Production System not suffering such Event of Loss is not capable of
functioning for its intended purpose or (2) such remaining portion
constitutes "limited use property" within the meaning of Revenue Procedure
76-30 or (3) the Fair Market Sales Value of such remaining portion as of
the end of such 180-day period is less than the product of (A) a fraction
the numerator of which is the Lessor's Cost minus the Original Cost of the
Significant Portion of the Undivided Interest suffering such Event of Loss
and the denominator of which is Lessor's Cost and (B) the Fair Market
Sales Value of the Production System as of the end of such 180-day period
(assuming no such Event of Loss had occurred) or (4) the Original Cost of
such Significant Portion together with the Original Cost of any other
Significant Portion of the Undivided Interest in respect of which the
Lessee has previously paid Stipulated Loss Value pursuant to this Section
12.2 or Termination Value pursuant to Section 7.3 shall exceed 50% of
Lessor's Cost or (5) the Estimated Fair Market Sales Value of such
remaining portion as of the scheduled expiration of the Basic Term is less
than the product of (A) a fraction the numerator of which is the Lessor's
Cost minus the Original Cost of the Significant Portion of the Undivided
Interest suffering such Event of Loss and the denominator of which is
Lessor's Cost and (B) the estimated Fair Market Sales Value of the
Production System as of the scheduled expiration of the Basic Term
(assuming no such Event of Loss had occurred) or (6) subject to the
following sentence, the Lessee shall have failed to provide the Owner
Participant, by the 120th day following the occurrence of such Event of
Loss, with an opinion of tax counsel of recognized national standing
selected by the Lessee and reasonably acceptable to the Owner Participant
to the effect that the termination of this Lease with respect to such
Significant Portion will not result in a greater risk of unindemnified tax
liability on the part of the Owner Participant than it would have had if
such termination had not occurred (other than any tax liability of the
Owner Participant with respect to the inclusion in the taxable income of
the Owner Participant of the Stipulated Loss Value payable with respect to
such Significant Portion), the Lessee shall, subject to clause (y) below,
be deemed to have elected the option set forth in paragraph (ii) above,
(x) if the Lessee shall fail to provide such written notice within such
180-day period, the Lessee shall, unless clause (w) of this proviso is
applicable, be deemed to have elected the option set forth in paragraph
(i) above, (y) the Lessee may not elect the option set forth in paragraph
(ii) during such
time a Lease Default of the type described in Section 15(a), (b), (c) or
(g) or Lease Event of Default shall have occurred and be continuing and
(z) if the Lessee is deemed, pursuant to clause (w) above, to have elected
the option set forth in paragraph (ii) above but is then prevented from
electing such option pursuant to clause (y) above, an Event of Loss shall
be deemed to have occurred with respect to the Undivided Interest. The
Lessee shall be deemed to have failed to provide the opinion referred to in
clause (6) above if the Owner Participant provides the Lessee by 10
Business Days after receipt of the opinion referred to in clause (6) above
and the approval by the Lessee of the Owner Participant's choice of counsel
an opinion of tax counsel selected by the Owner Participant and reasonably
acceptable to the Lessee to the contrary and describing in reasonable
detail the increased risk of unindemnified tax liability.
Unless the Lessee shall have elected (or shall be deemed to have
elected) the option set forth in paragraph (ii) above, the Lessee shall pay,
simultaneously with the payment of Stipulated Loss Value pursuant to paragraph
(i) above, all Basic Rent due and owing prior to the date of such payment, all
Supplemental Rent due and owing on or prior to the date of such payment and any
other accrued Supplemental Rent as to which there is no dispute, and all Basic
Rent due on such Basic Rent Payment Date (but excluding that portion of Basic
Rent payable in advance on such Basic Rent Payment Date equal to the product of
the Original Cost of the Significant Portion of the Undivided Interest
suffering such Event of Loss and the percentage set forth in Column B (Advance
Rent) of Schedule 1 opposite such Basic Rent Payment Date), whereupon (1)
the obligations of the Lessee under this Lease (other than the obligations
expressly stated to survive termination of this Lease, including the
obligations set forth in the next sentence) shall terminate with respect to the
Significant Portion of the Undivided Interest suffering such Event of Loss and
(2) the Lessor shall transfer all right, title and interest of the Lessor in
and to such Significant Portion, as is and where is, to the Lessee or as the
Lessee shall direct, free and clear of Lessor's Liens and Owner Participant's
Liens but otherwise without representation, warranty or recourse, and the
Lessor shall, at the Lessee's expense, execute and deliver to the Lessee or as
the Lessee shall direct a ▇▇▇▇ of sale or assignment and such other instruments
and documents as the Lessee may reasonably request to evidence the valid
consummation of such transfer and shall, at the Lessee's expense, take such
actions under Section 6.03 of the Indenture as the Lessee may reasonably
request. The Lessee hereby agrees that, if the Event of Loss with respect to
a Significant Portion of the Production System in respect of which the Lessee
has paid Stipulated Loss Value pursuant to the preceding sentence is a Special
Event of Loss, (A) promptly following the conveyance of the Significant
Portion of the Undivided Interest pursuant to clause (2) of the preceding
sentence, the Lessee shall cause the disposition of the Significant Portion of
the Production System suffering such Special Event of Loss in accordance with
the terms of the Operating Agreement, (2) any such disposition shall not
result in the Lessee or any Affiliate of the Lessee obtaining the ownership or
use thereafter of the Significant Portion of the Undivided Interest suffering
such Event of Loss and (3) the Lessee shall, promptly following the
disposition of the Significant Portion of the Production System suffering such
Event of Loss pay to the Lessor an amount equal to the excess, if any, of (x)
the proceeds of the sale of such Significant Portion allocated to the Lessee
under Exhibit C to the Operating Agreement net of expenses incurred in respect
of such sale (including, without limitation, any commissions or other fees
payable to any brokers that are not Affiliates of the Lessee or the Operator)
allocated to the Lessee under Exhibit C to the Operating Agreement over (y)
the Stipulated Loss Value paid to the Lessor pursuant to this Section
12.2(b). In performing its obligation to dispose of a Significant Portion of
the Production System pursuant to the preceding sentence, the Lessee shall act
in a commercially reasonable manner as if it were the owner of such Significant
Portion of the Production System entitled to retain all proceeds of the
disposition.
(c) At the time of or prior to any replacement of the
Production System, any Component or any Significant Portion, the Lessee, at
its own expense, will (i) furnish the Lessor with evidence that the Head
Lessor (or, if the Head Lease has been terminated, the Lessor) has title to an
undivided interest equal to the Undivided Interest Percentage in the
replacement Production System, Components or Significant Portion, as the case
may be, free and clear of all Liens other than Permitted Liens, (ii) cause
supplements to the Head Lease (unless the Head Lease has been terminated) and
this Lease to be issued with appropriate modifications, subjecting such
undivided interest in the replacement Production System, Component or
Significant Portion, as the case may be, to the Head Lease and this Lease,
such supplements to be duly authorized, executed and delivered by the parties
thereto, and to be filed for recordation in the same manner as provided for the
Lease and the Head Lease in Section 4.16 of the Participation Agreement,
(iii) if the Platform is being replaced, cause a supplement to the Ship
Mortgage subjecting such undivided interest in the replacement Platform to the
Lien of the Ship Mortgage to be duly authorized, executed and delivered by the
appropriate parties and cause such Ship Mortgage to be filed for recordation in
the same manner as provided for the Ship Mortgage in Section 4.16 of the
Participation Agreement, (iv) so long as the Indenture shall not have been
satisfied and discharged, request the Lessor to execute and deliver to the
Indenture Trustee a supplement to the Indenture subjecting the Lessor's
interest in the replacement Production System, Components or Significant
Portion, as the case may be, to the Lien of the Indenture and requesting that
such Indenture Supplement be filed for recordation in the same manner as
provided for the Indenture in Section 4.16 of the Participation Agreement,
(v) upon the request of the Lessor, furnish the Lessor with an opinion (upon
which the Indenture Trustee shall be entitled to rely) of the Lessee's counsel
which counsel shall be reasonably satisfactory to the Lessor and the Owner
Participant, to the effect that (t) each of the supplements to the Head Lease
and the Lease referred to in clause (i) above constitutes a legal, valid,
binding and enforceable obligation of (u) in the case of the supplement to the
Head Lease, the Head Lessor and (v) in the case of the Lease, the Lessee
(subject to customary qualifications as to bankruptcy and equitable
principles), (w) if the Platform is being replaced, the supplement to the Ship
Mortgage referred to in clause (iii) above constitutes a legal, valid, binding
and enforceable obligation of the Head Lessor (subject to, customary
qualifications as to bankruptcy and equitable principles), (x) legal title to
such replacement Production System, Component or Significant Portion, as the
case may be, has vested in the Head Lessor (or, if the Head Lease has been
terminated, the Lessor), (y) such replacement Production System, Components
or Significant Portion, as the case may be, is free and clear of all Liens of
record, other than Permitted Liens and (z) all filings, recordings and other
action necessary or appropriate to perfect and protect the Lessor's and the
Indenture Trustee's respective interests in the replacement Production System,
Components or Significant Portion, as the case may be, have been accomplished,
(vi) upon the request of the Lessor, furnish the Lessor with an Officer's
Certificate (upon which the Indenture Trustee shall be entitled to rely)
certifying that as of said date, and upon consummation of the replacement, no
Lease Default of the type described in Section 15(a), (b), (c) or (g) or
Lease Event of Default shall have occurred and be continuing and (vii) furnish
such other documents and evidence as the Lessor or its counsel may reasonably
request in order to establish the consummation of the transactions contemplated
by this Section 12.2, including, without limitation, evidence that the
replacement Production System, Components or Significant Portion, as the case
may be, has a value, utility, remaining useful life and residual value at least
equal to that of the Production System, Component or Significant Portion
replaced.
12.3. Application of Other Payments upon the Occurrence of an Event of
Loss. Any amounts of condemnation or requisition proceeds received at
any time by the Lessor, the Indenture Trustee or the Lessee as a result of the
occurrence of an Event of Loss shall be divided between the Lessee and the
Lessor as their respective interests may appear or, in the case of proceeds of
insurance maintained pursuant to Section 13.1(a)(ii), applied pursuant to
Section 13.3, and the amount paid to the Lessor shall reduce the amount of
Stipulated Loss Value that the Lessee is required to pay to the Lessor (but
not below zero) pursuant to Section 12.2 (or, if the amount of Stipulated
Loss Value payable pursuant to Section 12.2 has already been paid by the
Lessee, the Lessee shall be entitled to retain out of the amounts otherwise
payable to the Lessor pursuant to this Section 12.3, the amount that would
have been applied in reduction of the amount of Stipulated Loss Value payable
by the Lessee under Section 12.2).
12.4. Allocation of Payments Not Relating to an Event of Loss.
Payments (except for payments under Insurance policies described in Section
13) received at any time by the Lessor, the Indenture Trustee or the Lessee
from any Governmental Authority or other Person with respect to any
destruction, damage, Loss, condemnation, confiscation, theft or seizure of or
requisition of title to or use of the Undivided Interest or any part thereof
not constituting an Event of Loss shall be paid over to the Lessee or the
Lessor as their interests may appear.
12.5. Other Dispositions. Notwithstanding anything to the
contrary under the Operative Documents, as long as any Lease Default of the
type described in Section 15(a), (b), (c) or (g) or any Lease Event of
Default shall have occurred and be continuing, any amount that otherwise would
be payable to or for the account of, or that otherwise would be retained by,
the Lessee pursuant to this Section 12 or otherwise under the Operative
Documents shall be paid to the Corporate Grantor Trustee (or to the Corporate
Indenture Trustee as long as the Undivided Interest is subject to the Lien of
the Indenture) as security for the obligations of the Lessee under this Lease
and, subject to the Indenture, applied against the Lessee's payment obligations
hereunder when and as they become due and payable and, at such time thereafter
as no Lease Default of the type described in Section 15(a), (b), (c) or (g)
or Lease Event of Default shall be continuing, such amount shall, to the extent
not theretofore applied as provided herein or in the Indenture, be paid
promptly to the Lessee or as it may direct.
SECTION 13. INSURANCE.
13.1. Coverage. (a) The Lessee, at its own cost and expense, shall
carry and maintain or cause to be carried and maintained in full force and
effect at all times during the Lease Term in such amounts and with such terms
(including co-insurance, deductibles, limits of liability and loss payment
provisions) as are customary under the Lessee's risk management programs and
customary industry practices; provided that at all times during the Lease Term,
the Lessee shall at a minimum maintain the following types and amounts of
insurance: (i) public liability insurance against loss or damage for personal
injury, death or property damage and against Claims including, without
limitation, Environmental Claims arising out of or connected with the
possession, use, leasing or condition of any part of the Production System in
an amount of $100,000,000 for 100% interest and in such forms as are
consistent with the Lessee's practice for other properties similar to the
Production System owned or leased by the Lessee; (ii) all risk property
insurance for the Undivided Interest in an amount equal to the lesser of
Lessor's Cost and Stipulated Loss Value for the Undivided Interest; and (iii)
Operator's Extra Expense coverage in such forms as are consistent with the
Lessee's practice for other properties similar to the Production System owned
or leased by the Lessee in an amount of $100,000,000 for 100% interest.
The insurance required under clause (i), (ii) or (iii) of this Section
13.1(a) may be subject to deductible amounts and self-insured retentions (up
to an aggregate amount of $50,000,000) as is consistent with the Lessee's
practice for other properties similar to the Production System owned or leased
by the Lessee. Such insurance may be carried under blanket policies maintained
by or on behalf of the Lessee so long as such policies otherwise comply with
the provisions of this Section 13.
(b) Any insurance carried in accordance with Section
13.1(a)(i) and (ii) shall provide in the policy or by special endorsement
that:
(i) the Lessor, the Trust Company, the Individual Grantor Trustee,
the Owner Participant, the Guarantor, the Indenture Trustee and each Loan
Participant are included as additional insureds and shall provide that no
such Person shall have any obligation or liability for payment of premiums;
(ii) the insurer thereunder waives all rights of subrogation against the
Lessor, the Indenture Trustee, the Owner Participant, the Guarantor, and
each Loan Participant, and waives any right of set-off and counterclaim and
any other right to deduction whether by attachment or otherwise;
(iii)such insurance shall be primary without right of contribution of any
other insurance carried by or on behalf of the Lessor, the Indenture
Trustee, the Owner Participant, the Guarantor, and each Loan Participant;
(iv) the respective interests of the Lessor, the Indenture Trustee, each
Loan Participant, the
Owner Participant, and the Guarantor under all insurance policies required
hereunder shall not be invalidated by any action or inaction of the Lessee
or any other Person (other than, with respect to any such insured, such
insured) and such insurance shall insure the Lessor, the Indenture
Trustee, each Loan Participant, the Owner Participant, and the Guarantor
as their interests may appear, regardless of any breach or violation of any
warranty, declaration or condition contained in such policies by the Lessee
or any other Person other than, with respect to any such insured, such
insured);
(v) if the insurers cancel such insurance for any reason whatsoever or any
materially adverse change is made in policy terms or conditions, or if such
insurance is allowed to lapse for nonpayment of premium, such cancellation,
change or lapse shall not be effective as to the Lessor, the Owner
Participant, the Guarantor, each Loan Participant or the Indenture Trustee
for thirty days after receipt by the Lessor, the Owner Participant, each
Loan Participant or the Indenture Trustee, respectively, of written notice
from such insurers of such cancellation, change or lapse;
(vi) with respect to all liability insurance, in as much as the policies
are written to cover more than one insured, all terms, conditions, insuring
agreements and endorsements, with the exception of the limits of liability
shall operate in the same manner as if there were a separate policy
covering each insured; and
(vii) any payment under any policy of insurance maintained pursuant to
Section 13.1(a)(ii) shall
be made to the Indenture Trustee so long as the Lien of the Trust Indenture
shall not have been discharged, and otherwise to the Lessor as their
respective interests may appear except that so long as any Lease Default of
the type described in Section 15(a), (b), (c) or (g) or any Lease Event
of Default shall have occurred and be continuing the first $25,000,000 of
payments made in respect of any single casualty or other occurrence or in
any policy year with respect to the Undivided Interest and the Other
Percentage Undivided Interest shall be paid solely to the Lessee;
13.2. Adjustment of Losses. Losses, if any, with respect to
the Production System under any property damage policies required to be carried
under Section 13.1(a) shall be adjusted with the insurance companies,
including the filing of appropriate proceedings, by the Lessee.
13.3. Application of Insurance Proceeds. All proceeds of
insurance maintained pursuant to Section 13.1(a)(ii) paid to the Indenture
Trustee or the Lessor, other than in connection with an Event of Loss or
Partial Event of Loss as to which the Lessee has elected (or has been deemed to
have elected) to pay Stipulated Loss Value, shall be paid over to the Lessee
or as the Lessee may direct to pay for, or reimburse the Lessee for, its
payment of the cost of repairing or restoring the Production System; provided,
however, that such payments to the Lessee shall be made only upon (i) delivery
by a Responsible Officer of the Lessee to the Lessor and the Indenture
Trustee, if applicable, of a certificate (A) describing in reasonable detail
the nature and cost of such repair or restoration and the actual expenditures
theretofore made in connection therewith (and accompanied by copies of related
invoices) and (B) certifying that the sum requested is a proper item of such
cost, has not been the subject of any previous such request which has been paid
to the Lessee and has been paid, or is then due and payable, by the Lessee and
(ii) receipt by the Lessor and the Indenture Trustee, if applicable, of
evidence satisfactory to each of them, in their reasonable judgment that such
proceeds, together with funds of the Lessee available for the purpose will be
sufficient to complete such repair and restoration of the Production System or
portion thereof.
13.4. Additional Insurance. Nothing in this Section 13 shall
prohibit the Lessee, the Lessor, the Owner Participant or the Indenture
Trustee from acquiring or maintaining, at its own expense, additional insurance
for its own account with respect to loss or damage to the Undivided Interest or
any part thereof provided that any such additional insurance shall not
nterfere with or in any way limit insurance maintained under Section 13.1(a) or
increase the amount of any premium payable with respect to any such insurance.
The proceeds of any such additional insurance will be for the account of the
party maintaining such additional insurance.
13.5. Annual Insurance Report. Prior to December 31 of each
year commencing in 1997, the Lessee will provide to the Lessor, the Owner
Participant and the Indenture Trustee an insurance report and certificate,
substantially in the form of the report and the certificate provided by the
Lessee pursuant to Section 4.7 of the Participation Agreement, with respect to
the insurance then required to be maintained by the Lessee pursuant to this
Section 13.
SECTION 14. RIGHTS TO ASSIGN OR LEASE;
LEASEHOLD MORTGAGE PROVISIONS
14.1. Assignment by Lessor; Security for Lessor's Obligations to
Indenture Trustee. (a) Except as set forth in Section 14.l(b) or (c) or
in the last two sentences of Section 19.8, the Lessor may not assign, transfer
or encumber this Lease or all or any part of its interests and rights hereunder
except in connection with the exercise of remedies by the Lessor following a
declaration by the Lessor pursuant to Section 16.1 that this Lease is in
default.
(b) (i) In order to secure the
indebtedness evidenced by the Secured Notes and certain other obligations as
provided in the Indenture, the Indenture provides, among other things, for the
assignment by the Lessor to the Indenture Trustee of its right, title and
interest in, to and under this Lease to the extent set forth in the Indenture.
The Lessee hereby consents to such assignment pursuant to the terms and
provisions of the Indenture and to any assignment or other transfer which may
occur pursuant to the exercise of any remedy set forth in the Indenture. The
Lessee (i) acknowledges that such assignment provides for the exercise by the
Indenture Trustee of certain rights of the Lessor hereunder to give any
consents, approvals, waivers, notices or the like, to make any elections,
demands or the like or to take any other discretionary action hereunder, but
only in accordance with the Indenture, (ii) acknowledges receipt of an executed
counterpart of the Indenture as in effect on the date hereof and (iii) agrees
that, to the extent provided in the Indenture, the Indenture Trustee shall have
all the rights of the Lessor hereunder and, in exercising any right or
performing any obligation of the Lessor hereunder, shall be subject to the
terms hereof. The Lessee will furnish to the Indenture Trustee counterparts of
all notices, certificates, opinions or other documents of any kind required to
be delivered hereunder by the Lessee to the Lessor. Notwithstanding any other
provision herein, so long as any Secured Notes remain Outstanding, the Lessor
hereby directs, and the Lessee agrees that, all payments of Basic Rent and all
other Rent payable hereunder to the Lessor, other than Excepted Payments,
shall be paid directly to the Corporate Indenture Trustee at its account
specified in Schedule 1 to the Participation Agreement or to such other account
as may be specified in writing by the Corporate Indenture Trustee to the Lessee
at least 5 Business Days prior to the due date thereof. The right of the
Indenture Trustee to receive payments of Basic Rent shall not be subject to any
defense, counterclaim, setoff or other right or claim of any kind which the
Lessee may be able to assert against the Lessor or the Owner Participant in an
action brought by either thereof on this Lease or otherwise.
14.2. Assignment and Sublease by Lessee. The Lessee may,
without the consent of any party to the Participation Agreement, at any time
and from time to time, sublease the Undivided Interest or any portion thereof
for any lawful use to another Person or assign this Lease and its interests and
rights hereunder to any Affiliate of the Lessee; provided that (i) such
sublease or assignment shall be expressly subject and subordinate to this Lease
and the Operating Agreement (and such sublease or assignment shall contain a
provision providing that any sublease or assignment permitted thereunder shall
be so subject and subordinate) and shall in no event continue beyond the Lease
Term, (ii) the Lessee shall remain primarily liable under this Lease and the
Other Operative Documents and all terms and conditions hereof and of the other
Operative Documents shall remain in full force and effect and shall be complied
with as though no such sublease or assignment was in existence (iii) each of
the Owner Participant, the Guarantor, the Lessor, the Indenture Trustee and
the Loan Participant shall have received such opinions (other than any opinion
regarding United States Federal income taxes) as the Owner Participant, the
Guarantor, the Lessor, the Indenture Trustee or the Loan Participant shall
reasonably request, (iv) such sublessee or assignee shall not be subject to any
bankruptcy, insolvency or other similar proceedings affecting creditors' rights
on the commencement date of the sub-sublease and shall have such authorizations
and approvals under Governmental Rules (and all Governmental Actions shall have
been taken) as may be necessary in order for such sublessee or assignee to
perform its obligations under the sublease or assignment, (v) each of the Owner
Participant, the Guarantor, the Lessor, the Indenture Trustee and the Loan
Participant shall bear no unindemnified tax risk associated with such sublease
or assignment, (vi) such sublease shall not permit further subleasing, (vii)
such sublease or assignment, to the extent that the sublessee or assignee
assumes responsibility for maintenance and insurance obligations of the Lessee,
shall have terms with respect to such maintenance and insurance obligations no
less stringent than those contained in Section 11 hereof, (viii) as of the
date of commencement of the sublease or assignment, no Lease Default of the
type described in Section 15(a), (b), (c) or (g) or Lease Event of Default
shall have occurred and be continuing, (ix) the sublessee or assignee shall not
be a Governmental Authority unless such Governmental Authority shall have
waived its right of sovereign immunity, (x) such sublease or assignment shall
have substantially the same terms with respect to use and operation as con-
tained in Section 11 hereof, (xi) any such sublease or assignment shall not
impair any right or remedy of the Lessor under the Lease or any other Operative
Document or the Indenture Trustee under any Operative Document and (xii) the
Lessee shall have obtained all consents and taken all actions necessary to
comply with all Governmental Rules and all shall have obtained all consents and
taken all actions as may be required under any contract or agreement binding on
the Lessee or the sublessee or assignee or any of their respective properties.
The Lessee shall give prompt written notice to the Lessor of any sublease or
assignment and shall deliver a certified copy of any sublease or assignment to
the Lessor within 10 days following the execution and delivery thereof. Any
assignment or sublease by the Lessee that is not in accordance with the terms
of this Section 14.2 shall be a violation of this Lease and shall be null and
void.
SECTION 15. LEASE EVENTS OF DEFAULT.
The term "Lease Event of Default", wherever used herein, shall
mean any of the following events (whatever the reason for such Lease Event of
Default and whether it shall be voluntary or involuntary, or come about or be
effected by operation of law, or be pursuant to or in compliance with any
judgment, decree or order of any court or any Governmental Rule or Governmental
Action):
(a) the Lessee shall fail to pay Basic Rent within 5 Business Days
after the date the same becomes due; or
(b) the Lessee shall fail to pay Stipulated Loss Value,
Termination Value, any Early Buy Out Purchase Price or Fixed Price
Purchase Amount within 10 Business Days after the date the same becomes
due; or
(c) the Lessee shall fail to pay Supplemental Rent or make any
other payment (other than Basic Rent, Stipulated Loss Value, Termination
Value, Early Buy Out Purchase Price or Fixed Price Purchase Amount)
required to be made by the Lessee under this Lease or under any other
Operative Document for more than 30 Business Days after the Lessee has
received written notice from the Lessor or the Indenture Trustee stating
that such payment is due; or
(d) the Lessee, in any capacity under the Operative Documents,
shall fail in any material respect to perform or observe any other covenant
or agreement to be performed or observed by it under this Lease or any
other Operative Document (other than the Tax Indemnity Agreement (except
with respect to the Lessee's obligation to make any payment required by the
Tax Indemnity Agreement)) and such failure shall continue for a period of
thirty (30) days after the earlier of receipt by the Lessee of a written
notice from the Lessor or the Indenture Trustee specifying such failure and
requiring it to be remedied or the date Lessee obtains Actual Knowledge of
such failure; provided, however, that the continuation of any such failure
for such period of thirty (30) days or such longer period (not to exceed
365 days or 180 days in the case of a failure to perform or observe the
covenants contained in Section 10.16 or 10.17 of the Participation
Agreement; provided that such 180 day period shall not extend beyond the
date 1 year prior to the expiration of the Lease Term) after receipt of
such notice shall not constitute a Lease Event of Default so long as
(i) such failure is curable or correctable and (ii) the Lessee is
diligently pursuing the cure or correction of such failure; or
(e) any representation or warranty made by the Lessee in any
Operative Document (other than the Tax Indemnity Agreement) or in any
Officer's Certificate of the Lessee delivered pursuant to any Operative
Document shall prove to have been inaccurate in any material respect when
made and such representation or warranty shall remain inaccurate in any
material respect thirty (30) days after the earlier of receipt by the
Lessee of a written notice thereof from the Lessor or the Indenture Trustee
or the date the Lessee obtains Actual Knowledge of such inaccuracy;
provided, however, that the continuation of any such inaccuracy for such
period of thirty (30) days or such longer period (not to exceed 180 days)
after receipt of such notice shall not constitute a Lease Event of Default
so long as (i) such inaccuracy is curable or correctable and (ii) the
Lessee is diligently pursuing the cure or correction of such inaccuracy; or
(f) the Lessee shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency or other similar law now or
thereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, or shall consent to any such relief or to the
appointment or taking possession by any such official or agency in an
involuntary case or other proceeding commenced against it, or shall make a
general assignment for the benefit of creditors, or shall take any
corporate action to authorize any of the foregoing; or
(g) an involuntary case or other proceeding shall be commenced
against the Lessee seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official or
agency of it or any substantial part of its property and such involuntary
case or other proceeding shall remain undismissed and unstayed for a period
of ninety (90) days; or
(h) the Lessee shall fail to maintain (or cause to be maintained)
the insurance required by Section 13 (subject to Lessee's right to self-
insure); or
(i) the Lessee shall fail to maintain the Credit Support to the
extent required by Section 10.14 of the Participation Agreement; or
(j) the Lessee shall fail to remove any lien relating to the Master
Lease or the transactions contemplated thereby, including the failure to
file any releases or termination statements necessary to remove any such
lien, prior to 5:00 p.m. New York City time on the second Business Day
following the Closing Date.
provided, however, that notwithstanding anything to the contrary contained in
Section 15(d), any failure of the Lessee to perform or observe any covenant or
agreement specified in Section 15(d) shall not constitute a Lease Event of
Default if such failure is caused solely by reason of any event that
constitutes an Event of Loss (or any event which with lapse of time would
constitute an Event of Loss) as long as the Lessee is continuing to comply with
all the applicable terms of Section 12.
SECTION 16. REMEDIES.
16.1. In General. Upon the occurrence of any Lease Event of
Default and so long as the same shall be continuing, the Lessor, at its option,
may declare this Lease to be in default by written notice to such effect given
to the Lessee (provided that this Lease shall be deemed to have been declared
in default without the necessity of such written notice upon the occurrence of
any Lease Event of Default described in paragraph (f) or (g) of Section 15
and it shall not be necessary for the Lessor to declare the Lease in default
prior to exercising any remedy described in Section 16.1(g) or prior to making
any demands that are required to be made as a condition to exercising any
remedy described in Section 16.1(g)), and at any time thereafter, provided such
Lease Event of Default shall be continuing, the Lessor may, to the extent
permitted by applicable Governmental Rules, exercise one or more of the
following remedies, as the Lessor in its sole discretion shall elect:
(a) the Lessor, by notice to the Lessee, may rescind or terminate
this Lease;
(b) whether or not this Lease has been terminated, the Lessor may
demand that the Lessee, and upon the written demand of the Lessor, the
Lessee shall, surrender the Undivided Interest promptly to the Lessor in
the manner and condition required by, and otherwise in accordance with the
provisions of, this Lease as if the Undivided Interest were being returned
at the end of the Lease Term and the Lessor shall not be liable for the
reimbursement of the Lessee for any costs and expenses incurred by the
Lessee in connection therewith;
(c) the Lessor may (whether or not the Lessor has taken possession
thereof), subject to the rights of the Operator and the Other Owner under
the Operating Agreement, sell all or any portion of the Undivided Interest
at public or private sale, as the Lessor may determine, free and clear of
any rights of the Lessee with respect thereto (except pursuant to the
Agency and Support Agreement) and without any duty to account to the Lessee
with respect to such sale or any proceeds with respect thereto (except to
the extent required by paragraph (e) or (f) of this Section 16.1 if the
Lessor shall elect to exercise its rights thereunder), in which event the
Lessee's obligation to pay Basic Rent with respect to the interest sold
accruing after the date of such sale shall be terminated (except to the
extent that Basic Rent is to be included in computations under paragraph
(e) or (f) of this Section 16.1 if the Lessor shall elect to exercise its
rights thereunder);
(d) the Lessor may, subject to the rights of the Operator and the
Other Owner under the Operating Agreement, hold or lease to others all or a
portion of the Undivided Interest, as the Lessor in its sole discretion may
determine, free and clear of any rights of the Lessee with respect thereto
(except pursuant to the Agency and Support Agreement) and without any duty
to account to the Lessee with respect to such action or inaction or for any
proceeds with respect to such action or inaction, except that the Lessee's
obligation to pay Basic Rent after the Lessee shall have been deprived of
use of all or a portion of the Undivided Interest pursuant to this
paragraph (d) shall be reduced by the net proceeds, if any, received by the
Lessor from leasing all or a portion of the Undivided Interest to any
Person other than the Lessee for the same periods or any portion thereof;
(e) whether or not the Lessor shall have exercised or thereafter at
any time shall exercise its rights under paragraph (a), (b), (c) or (d)
of this Section 16.1, the Lessor may demand, by written notice to the
Lessee specifying a payment date which shall be a Stipulated Loss Value
Determination Date not earlier than 10 Business Days after the date of
such notice, that the Lessee pay to the Lessor, and the Lessee shall pay to
the Lessor, on such specified payment date, as liquidated damages for loss
of a bargain and not as a penalty (in lieu of the Basic Rent accruing on or
after such specified payment date), any unpaid Basic Rent due and owing on
or prior to such specified payment date (but excluding any Basic Rent
payable in advance on such payment date) and any unpaid Supplemental Rent
(to whomsoever payable) due and owing on or prior to the date of such
payment and any other accrued Supplemental Rent as to which there is no
dispute, plus whichever of the following amounts the Lessor, in its sole
discretion, shall specify in such notice (together with interest on such
amount at the Overdue Rate from such specified payment date to the date of
actual payment):
(i) an amount equal to the excess, if any, of Stipulated
Loss Value for the Undivided Interest as of such specified payment
date over the Fair Market Sales Value of the Undivided Interest as
of such specified payment date (or the last day of the Basic Lease
Term, if earlier); or
(ii) an amount equal to the excess of (1) the present value
as of such specified payment date of all installments of Basic Rent
payable on or after such specified payment date during the remaining
balance of the Basic Lease Term (or any Renewal Term then in
effect), discounted semiannually at a rate per annum equal to the
Debt Rate, over (2) the present value as of such specified payment
date of the Fair Market Rental Value of the Undivided Interest
during the remaining balance of the Basic Lease Term (or any Renewal
Term then in effect), discounted semiannually at a rate per annum
equal to the Debt Rate; or
(iii)an amount equal to the greatest of (A) Stipulated Loss Value for
the Undivided Interest
determined as of such specified payment date, (B) the discounted
Fair Market Rental Value of the Undivided Interest for the remaining
useful life thereof determined pursuant to subclause (2) of clause
(ii) of this paragraph (e), and (C) the Fair Market Sales Value
determined pursuant to clause (i) of this paragraph (e), and, in
this event, upon full payment by the Lessee of all sums due
hereunder, the Lessor shall, without recourse, representation or
warranty (other than the absence of Owner Participant's Liens and
Lessor's Liens) transfer all of its right, title and interest in and
to the Undivided Interest to the Lessee, as is and where is,
whereupon this Lease and the Lessee's obligations hereunder shall
terminate. The Lessor shall, at the Lessee's expense, execute and
deliver to the Lessee a ▇▇▇▇ of sale or assignment and such other
instruments, documents and opinions as the Lessee may reasonably
request to evidence the valid consummation of such transfer and
shall, at the Lessee's expense, take such actions under Section
6.03 of the Indenture as the Lessee may reasonably request; or
(iv) an amount equal to the excess, if any, of Stipulated
Loss Value for the Undivided Interest, computed as of such
specified payment date, over the Fair Market Rental Value of the
Undivided Interest during the remaining Basic Lease Term (or any
Renewal Term then in effect), after discounting such Fair Market
Rental Value semiannually to present value as of such specified
payment date at a rate per annum equal to the Debt Rate;
(f) if the Lessor shall have sold all of the Undivided Interest, as a
whole or by a series of sales of portions thereof pursuant to paragraph
(c) of this Section 16.1 or other right of sale, the Lessor, in lieu of
exercising its rights under paragraph (e) of this Section 16.1, may, if it
shall so elect, demand that the Lessee pay to the Lessor and the Lessee
shall pay to the Lessor on the date of such sale, as liquidated damages for
loss of a bargain and not as a penalty (in lieu of Basic Rent accruing on
or after the next Basic Rent Payment Date following the date of such
sale), any unpaid Basic Rent due and owing on or prior to such next Basic
Rent Payment Date (but excluding any Basic Rent payable in advance on such
Basic Rent Payment Date) and any other Supplemental Rent due and owing on
or prior to such next Basic Rent Payment Date and any other accrued
Supplemental Rent as to which there is no dispute, plus the amount of any
deficiency between Stipulated Loss Value for the Undivided Interest,
computed as of such next Basic Rent Payment Date, and the proceeds of such
sale, together with interest at the Overdue Rate on the amount of such
Rent, from the due date or dates thereof, and on the amount of such
deficiency from the date of such sale, until the date of actual payment;
(g) If the Lessor has previously exercised its rights under any of
the foregoing remedies to demand Stipulated Loss Value or any amount
determined by reference thereto (or if it is prevented from demanding such
amounts whether by the provisions of the Indenture or by operation of any
stay or similar law or otherwise at a time when a Lease Event of Default
has occurred and is continuing), then, unless all Rent owing to the Owner
Participant and the Lessor under the Operative Documents shall have been
paid in full, the Lessor shall be entitled to draw on the Letter of Credit
(or any other letter of credit naming the Lessor and/or the Owner
Participant as a beneficiary as contemplated by Section 10.14 of the
Participation Agreement) or demand payment under the Surety Bond (or any
other surety bond held by the Lessor and/or the Owner Participant as
contemplated by Section 10.14 of the Participation Agreement) then in
effect, and upon the receipt of proceeds from the Letter of Credit (or
letter of credit) or Surety Bond (or surety bond), the Lessor shall apply
such proceeds in accordance with Section 3.8 hereof; or
(h) the Lessor may exercise any other right or remedy that may be
available to it under applicable law or proceed by appropriate court action
to enforce the terms hereof or to recover damages for the breach hereof.
16.2. Continuing Obligations. No rescission or termination of
this Lease, in whole or in part, or repossession of the Undivided Interest or
exercise of any remedy under Section 16.1 shall, except as specifically
provided herein, relieve the Lessee of any of its liabilities and obligations
hereunder. The Lessee shall be liable (i) for all reasonable legal fees and
other reasonable costs and expenses incurred by the Lessor, the Owner
Participant, each Loan Participant or the Indenture Trustee by reason of the
occurrence of any Lease Event of Default or the exercise of the Lessor's
remedies with respect thereto, including all costs and expenses reasonably
incurred in placing the Undivided Interest in the condition required by Section
8.1 and (ii) except as otherwise provided herein, for any and all other
accrued and unpaid Rent hereunder before, after or during the exercise of any
of the foregoing remedies. At any sale of the Undivided Interest or any part
thereof pursuant to Section 16.1, the Lessor, the Owner Participant, each
Loan Participant, or the Indenture Trustee may bid for and purchase such
property.
16.3. Remedies Cumulative. To the extent permitted by
applicable law and except as provided herein, no remedy under Section 16.1 is
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy provided under Section 16.1 or otherwise available to the Lessor
at law or in equity. No express or implied waiver by the Lessor of any Lease
Default or Lease Event of Default shall in any way be, or be construed to be,
a waiver of any future or subsequent Lease Default or Lease Event of Default.
The failure or delay of the Lessor in exercising any rights granted it here-
under upon the occurrence of any of the contingencies set forth herein shall
not constitute a waiver of any such right upon the continuation or recurrence
of any such contingencies or similar contingencies and any single or partial
exercise of any particular right by the Lessor shall not exhaust the same or
constitute a waiver of any other right provided herein. To the extent
permitted by applicable law, the Lessee hereby waives any rights now or
hereafter conferred by statute or otherwise which may enable it to cancel, quit
or surrender this Lease, except as otherwise provided herein, or which may
require the Lessor to sell, lease or otherwise use the Undivided Interest in
mitigation of the Lessor's damages as set forth in Section 16.1 or which may
limit or modify any of the Lessor's rights and remedies provided in Section
16.1.
SECTION 17. NOTICES.
All communications, notices and consents provided for in this
Lease shall be in writing and given in person or by courier or by means of
telecopy or other wire transmission (with provision for assurance of receipt in
a manner typical with respect to communications of that type), or delivered by
a major overnight delivery service such as Federal Express or United Parcel
Service, addressed to the respective addressee set forth in Schedule 1 to the
Participation Agreement, or in each case at such other address as the Person
entitled thereto shall from time to time designate by notice in writing to the
Lessee and the Lessor. All such communications, notices and consents given in
such manner shall be effective as provided in Section 17.3 of the
Participation Agreement.
SECTION 18. RIGHT TO PERFORM FOR LESSEE.
18.1. Lessor's Right to Perform. If the Lessee shall fail to
make any payment to be made by it hereunder or shall fail to perform or comply
with any of its other agreements contained herein or in any other Operative
Document relating to the Undivided Interest or this Lease, following written
notice to the Lessee, the Lessor may, but shall not be obligated to, make such
payment or perform or comply with such agreement, and the amount of such
payment and the amount of all reasonable costs and expenses (including, without
limitation, reasonable attorneys' and other professionals' fees and expenses)
incurred in connection with such payment or the performance of or compliance
with such agreement, as the case may be, together with interest thereon at the
Overdue Rate, shall be deemed Supplemental Rent for the Undivided Interest,
payable by the Lessee upon demand.
SECTION 19. MISCELLANEOUS.
19.1. Amendments in Writing. Neither this Lease nor any of the
terms hereof may be amended, supplemented, waived or modified orally, but only
by an instrument in writing signed by the party against which enforcement of
such change is sought.
19.2. Severability of Provisions. Any provision of this Lease
which may be determined by competent authority to be invalid or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such invalidity or unenforceability without invalidating or rendering
unenforceable any remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereto hereby waive any provision of
law which renders any provision hereof invalid or unenforceable in any respect.
19.3. GOVERNING LAW. THIS LEASE SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE
OF NEW YORK, WITHOUT REGARD TO ITS CONFLICT OF LAWS PRINCIPLES,
EXCEPT TO THE EXTENT THAT THE LAWS OF ANY OTHER JURISDICTION MAY
BE MANDATORILY APPLICABLE.
19.4. Headings. The division of this Lease into sections, the
provision of a table of contents and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Lease.
19.5. Counterpart Execution. This Lease may be executed in any
number of counterparts and by each of the parties hereto on separate
counterparts, all such counterparts together constituting but one and the same
instrument, with the counterpart containing the receipt therefor executed by
the Indenture Trustee on or immediately following the signature page thereof
being deemed the "original executed counterpart" and all other counterparts
being deemed duplicates. For purposes of recordation, Lessor and Lessee agree
that certain information set forth on Schedules 1 through 6 may be omitted from
the counterpart presented for filing.
19.6. Successors and Assigns. This Lease, including the terms
and provisions hereof, shall be binding upon the Lessor and the Lessee and
their respective successors and assigns and inure to the benefit of the Lessor
and the Lessee and their respective successors and permitted assigns.
19.7. Investment of Security Funds . Any amounts held by the
Lessor as security hereunder that would be payable to the Lessee upon
satisfaction of any applicable conditions shall be invested and reinvested by
the Lessor (or, so long as the Undivided Interest shall be subject to the Lien
of the Indenture, the Indenture Trustee), from time to time in Permitted
Investments at the written direction of the Lessee. The Lessor shall have no
liability for any loss resulting from any investment required to be made other
than by reason of its willful misconduct or gross negligence. Any net income
or gain realized as a result of any such investment or reinvestment shall be
applied by the Lessor at the same time, on the same conditions and in the same
manner as the amounts in respect of which such income or gain was realized are
required to be distributed in accordance with the provisions hereof, or of any
other Operative Document pursuant to which such amounts were required to be
held. The Lessee shall be responsible for any net loss realized as a result of
any such investment or reinvestment and shall reimburse the Lessor (or the
Indenture Trustee, as the case may be) therefor on demand. Any Permitted
Investment may be sold or otherwise reduced to cash (without regard to
maturity) by the Lessor whenever necessary to make any application as required
by the terms of this Lease or of any applicable Operative Document.
19.8. Immunities; Satisfaction of Undertakings; Successor Grantor Trustee.
Except as provided in Section 9.2, all and each of the
representations, warranties, undertakings and agreements herein made on the
part of the Lessor are made and intended not as personal representations,
warranties, undertakings and agreements by or for the purpose or with the
intention of binding the Lessor personally but are made and intended for the
purpose of binding only the Trust Estate (including the Louisiana Trust
Estate), and this Lease is executed and delivered by the Lessor solely in the
exercise of the powers expressly conferred upon it as trustee under the Trust
Agreement; and no personal liability or responsibility is assumed hereunder by,
or at any time shall be enforceable against, the Lessor or any successor in
trust on account of any representation, warranty, undertaking or agreement
hereunder of the Lessor, either expressed or implied, all such personal
liability, if any, being expressly waived by the Lessee; provided, however,
that (a) the Lessee or any Person claiming by, through or under it, making
claim hereunder, may subject to the terms and conditions hereof, look to the
Trust Estate for satisfaction of such liability or responsibility and (b) the
Lessor or its successor in trust, as applicable, shall be personally liable for
its own gross negligence and willful misconduct and for the matters described
in clauses (i) through (v) of the last sentence of Section 7.1 of the Trust
Agreement. Subject to the terms and conditions hereof, each time a successor
Grantor Trustee is appointed in accordance with the terms of the Trust
Agreement, such successor Grantor Trustee shall, without further act, succeed
to all the rights, duties, immunities and obligations of its predecessor
Grantor Trustee hereunder and under the other Operative Documents, and the
predecessor Grantor Trustee shall be released from all further duties and
obligations hereunder and under the other Operative Documents, all without the
necessity of any consent or approval by the Lessee and without in any way
altering the terms of this Lease or such other Operative Documents or the
obligations of the Lessee hereunder or thereunder. The Lessee, at its
expense, upon receipt of written notice of the appointment of a successor
Grantor Trustee in accordance with the Operative Documents, promptly shall make
such modifications and changes to reflect such appointment as reasonably shall
be requested by such successor Grantor Trustee in such insurance policies,
schedules, certificates and other instruments relating to the Undivided
Interest or this Lease or the other Operative Documents, all in form and
substance reasonably satisfactory to such successor Grantor Trustee.
19.9. Performance of Obligations to Indenture Trustee and Holders.
After the Undivided Interest shall no longer be subject to the Lien
of the Indenture, the provisions of this Lease which require or permit any
action by, any consent, approval or authorization of, the furnishing of any
document, paper or information to, or the performance of any other obligation
to, the Indenture Trustee or any Holder shall not be effective, and the
Sections hereof containing such provisions shall be read as though there were
no such references to any such requirements or permissions.
19.10. True Lease. This Lease is intended as and shall
constitute an agreement of lease and nothing herein shall be construed as
conveying to the Lessee any right, title or interest in or to the Undivided
Interest other than as lessee hereunder, it being expressly understood by the
parties hereto that the foregoing does not constitute a covenant,
representation or warranty of the Lessee. This Lease is intended to be a
"Finance Lease" under Article 2A of the Uniform Commercial Code as in effect in
the State of New York and a "true lease" for federal income tax purposes.
19.11. Survival of Agreements . The representations,
warranties, covenants and indemnities of the parties provided for in the
Operative Documents, and the parties' obligations under any and all thereof,
shall survive the execution and delivery of this Lease, the Investment by the
Owner Participant and the purchase of the Secured Notes by the Loan
Participant, any disposition of any interest of the Owner Participant or the
Lessor in the Production System, and shall be and continue in effect
notwithstanding any investigation made by any of such parties and the fact that
compliance with any of the other terms, provisions or conditions of any of the
Operative Documents shall have been waived. Except as expressly provided in
Section 12 of the Participation Agreement, all indemnities (and the Lessee's
obligation to pay Supplemental Rent with respect thereto) shall survive
termination of the Lease.
THUS DONE AND PASSED, on this [ ] day of November, 1996,
but effective for all purposes as of November 15, 1996, before me, the
undersigned Notary Public, in and for the County of New York, State of New
York, and in the presence of the undersigned competent witnesses, who have
hereunto signed their names with the Grantor Trustee, Enserch Exploration and
me, said Notary Public, after reading of the whole.
WILMINGTON TRUST COMPANY,
not in its individual capacity but solely as
Corporate Grantor Trustee under the Trust
Agreement
By:/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Its: Vice President
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
not in his individual capacity but solely as
Individual Grantor Trustee under the Trust
Agreement
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
WITNESSES: ENSERCH EXPLORATION, INC.
Name: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ By:/s/ ▇. ▇. ▇▇▇▇▇
(Please Print) Its: Vice President, Finance
and Treasurer
Name: /s/ ▇▇▇▇▇ ▇▇▇▇▇
(Please Print)
NOTARY PUBLIC
in and for the State of New York
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
My Commission Expires:
8/31/97
(PRINTED NAME OF NOTARY PUBLIC)