Exhibit 4.8
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FACILITY LEASE AGREEMENT
(T1)
Dated as of August 17, 2000
between
JOLIET TRUST I,
as Owner Lessor
and
MIDWEST GENERATION, LLC,
as Facility Lessee
JOLIET STATION, UNITS 7 AND 8
COAL-FIRED ELECTRIC GENERATING FACILITY
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CERTAIN OF THE RIGHT, TITLE AND INTEREST OF THE OWNER LESSOR IN AND TO THIS
LEASE AND THE RENT DUE AND TO BECOME DUE HEREUNDER HAVE BEEN ASSIGNED AS
COLLATERAL SECURITY TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF
UNITED STATES TRUST COMPANY OF NEW YORK
JOLIET FACILITY LEASE (T1)
NOT IN ITS INDIVIDUAL CAPACITY BUT SOLELY AS LEASE INDENTURE TRUSTEE UNDER AN
INDENTURE OF TRUST, MORTGAGE AND SECURITY AGREEMENT, DATED AS OF AUGUST 17, 2000
BETWEEN SAID LEASE INDENTURE TRUSTEE, AS SECURED PARTY, FOR THE BENEFIT OF THE
HOLDERS THEREUNDER, AND THE OWNER LESSOR, AS DEBTOR. SEE SECTION 21 HEREOF FOR
INFORMATION CONCERNING THE RIGHTS OF THE HOLDERS OF THE VARIOUS COUNTERPARTS
HEREOF.
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TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS.............................................................................2
SECTION 2. LEASE OF THE UNDIVIDED INTEREST.........................................................2
SECTION 3. FACILITY LEASE TERM AND RENT............................................................2
Section 3.1. Basic Lease Term............................................................2
Section 3.2. Rent........................................................................2
Section 3.3. Supplemental Lease Rent.....................................................3
Section 3.4. Adjustment of Basic Lease Rent and Termination Value........................3
Section 3.5. Manner of Payments..........................................................5
SECTION 4. DISCLAIMER OF WARRANTIES; RIGHT OF QUIET ENJOYMENT......................................6
Section 4.1. Disclaimer of Warranties....................................................6
Section 4.2. Quiet Enjoyment.............................................................7
SECTION 5. RETURN OF UNDIVIDED INTEREST............................................................7
Section 5.1. Return......................................................................7
Section 5.2. Condition Upon Return.......................................................8
Section 5.3. Expenses....................................................................9
Section 5.4. Freight and Crate...........................................................9
SECTION 6. LIENS..................................................................................10
SECTION 7. MAINTENANCE; REPLACEMENTS OF COMPONENTS................................................10
Section 7.1. Maintenance................................................................10
Section 7.2. Replacement of Components..................................................10
Section 7.3. Environmental Matters......................................................11
SECTION 8. IMPROVEMENTS...........................................................................12
Section 8.1. Required Improvements......................................................12
Section 8.2. Optional Improvements......................................................12
Section 8.3. Title to Improvements......................................................12
Section 8.4. Financing of Improvements..................................................13
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TABLE OF CONTENTS
(CONTINUED)
SECTION 9. NET LEASE..............................................................................13
SECTION 10. EVENTS OF LOSS.........................................................................14
Section 10.1. Occurrence of Events of Loss..............................................14
Section 10.2. Payment Upon Termination; Special Lessee Transfer.........................15
Section 10.3. Application of Proceeds...................................................17
Section 10.4. Rebuild...................................................................17
Section 10.5. Application of Payments Not Relating to an Event of Loss..................19
SECTION 11. INSURANCE.............................................................................20
Section 11.1. Property Insurance........................................................20
Section 11.2. Liability Insurance.......................................................20
Section 11.3. Provisions With Respect to Insurance......................................20
Section 11.4. Reports...................................................................21
Section 11.5. Additional Insurance......................................................21
Section 11.6. Amendment of Insurance Requirements.......................................22
Section 11.7. Application of Insurance Proceeds.........................................22
SECTION 12. INSPECTION.............................................................................24
SECTION 13. TERMINATION OPTION FOR BURDENSOME EVENTS...............................................24
Section 13.1. Termination for Illegality................................................24
Section 13.2. Termination for Burdensome Indemnity......................................24
Section 13.3. Procedure for Exercise of Termination Option..............................25
Section 13.4. Assumption of the Lessor Notes; Special Lessee Transfers..................26
SECTION 14. TERMINATION FOR OBSOLESCENCE...........................................................27
Section 14.1. Termination...............................................................27
Section 14.2. Solicitation of Offers....................................................28
Section 14.3. Right of Owner Lessor to Retain the Undivided Interest....................28
Section 14.4. Procedure for Exercise of Termination Option..............................29
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TABLE OF CONTENTS
(CONTINUED)
SECTION 15. LEASE RENEWAL.........................................................................30
Section 15.1. Wintergreen Renewal Lease Terms...........................................30
Section 15.2. Fair Market Value Renewal Lease Terms.....................................32
Section 15.3. Renewal Lease Rent and Termination Value for Renewal Lease Term...........32
Section 15.4. Determination of Fair Market Rental Value.................................32
SECTION 16. EVENTS OF DEFAULT......................................................................33
SECTION 17. REMEDIES...............................................................................36
Section 17.1. Remedies for Lease Event of Default.......................................36
Section 17.2. Limitation on Recourse....................................................39
Section 17.3. Cumulative Remedies.......................................................40
Section 17.4. No Delay or Omission to be Construed as Waiver............................40
SECTION 18. SECURITY INTEREST AND INVESTMENT OF SECURITY FUNDS.....................................40
SECTION 19. RIGHT TO SUBLEASE......................................................................40
Section 19.1. Sublease..................................................................40
SECTION 20. OWNER LESSOR'S RIGHT TO PERFORM........................................................42
SECTION 21. SECURITY FOR OWNER LESSOR'S OBLIGATION TO THE LEASE INDENTURE TRUSTEE..................42
SECTION 22. MISCELLANEOUS.........................................................................43
Section 22.1. Amendments and Waivers....................................................43
Section 22.2. Notices...................................................................43
Section 22.3. Survival..................................................................44
Section 22.4. Successors and Assigns....................................................45
Section 22.5. "True Lease...............................................................47
Section 22.6. Governing Law.............................................................47
Section 22.7. Severability..............................................................47
Section 22.8. Counterparts..............................................................47
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TABLE OF CONTENTS
(CONTINUED)
Section 22.9. Headings and Table of Contents............................................48
Section 22.10. Further Assurances........................................................48
Section 22.11. Effectiveness.............................................................48
Section 22.12. Limitation of Liability...................................................48
Section 22.13. Measuring Life............................................................48
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TABLE OF CONTENTS
(CONTINUED)
EXHIBITS AND SCHEDULES
Exhibit A Description of Facility Site
Exhibit B Description of Facility
Schedule 1-1 Basic Lease Rent
Schedule 1-2 Allocation of Basic Lease Rent
Schedule 1-3 467 Rent Allocation
Schedule 2 Termination Values
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FACILITY LEASE AGREEMENT
(T1)
This FACILITY LEASE AGREEMENT (T1), dated as of August 17, 2000 (as
amended, supplemented or otherwise modified from time to time and in accordance
with the provisions hereof, this "FACILITY LEASE"), between Joliet Trust I, a
Delaware business trust (the "OWNER LESSOR" or the "OWNER TRUST") created for
the benefit of Joliet Generation I, LLC, a Delaware limited liability company
(the "OWNER PARTICIPANT"), and Midwest Generation, LLC, a Delaware limited
liability company (the "FACILITY LESSEE").
WITNESSETH:
WHEREAS, the Owner Lessor is governed by the Amended and Restated Trust
Agreement (T1), dated as of August 17, 2000 (the "TRUST AGREEMENT"), between
Wilmington Trust Company (the "OWNER TRUSTEE") and the Owner Participant;
WHEREAS, the Facility Lessee owns the Facility Site which is more
particularly described in Exhibit A hereto, such Exhibit A being attached to
this Facility Lease as a part hereof;
WHEREAS, pursuant to the Facility Site Lease, Midwest has leased the
Ground Interest to the Owner Lessor and granted certain non-exclusive easements
to the Owner Lessor;
WHEREAS, pursuant to the Facility Site Sublease, the Owner Lessor has
leased the Ground Interest to Midwest for the term equal to the term of this
Facility Lease, including any renewals hereof;
WHEREAS, the Facility is located on the Facility Site and is more
particularly described in Exhibit B hereto, such Exhibit B being attached to
this Facility Lease as a part hereof;
WHEREAS, pursuant to the Facility Deed and the ▇▇▇▇ of Sale, the Owner
Lessor has acquired from the Facility Lessee an undivided ownership interest in
the
Facility equal to the Undivided Interest Percentage as tenant - in - common with
the other owner of an undivided interest in the Facility, with the right to
nonexclusive possession of the Facility including an entitlement share in the
electrical capacity and output of the Facility equal to the Undivided Interest
Percentage (such undivided ownership interest and entitlement share together,
the "UNDIVIDED INTEREST");
WHEREAS, the Facility does not include the Facility Site or any part
thereof, and the Facility Site is being leased to the Owner Lessor pursuant to
the Facility Site Lease and is being subleased to the Facility Lessee pursuant
to the Facility Site Sublease; and
WHEREAS, pursuant to this Facility Lease, the Owner Trust will lease
the Undivided Interest to the Facility Lessee for the Basic Lease Term and the
Renewal Lease Terms, if any, provided herein.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
agreements herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
Capitalized terms used in this Facility Lease, including the recitals,
and not otherwise defined herein shall have the respective meanings set forth in
Appendix A to the Participation Agreement (T1), dated as of August 17, 2000 (the
"PARTICIPATION AGREEMENT"), among the Facility Lessee, the Owner Lessor, the
Owner Trustee, the Owner Participant, Edison Mission Energy ("EME"), United
States Trust Company of New York as Pass Through Trustees and United States
Trust Company of New York, as Lease Indenture Trustee unless the context hereof
shall otherwise require. The general provisions of Appendix A to the
Participation Agreement shall apply to the terms used in this Facility Lease and
not specifically defined herein.
SECTION 2. LEASE OF THE UNDIVIDED INTEREST
Upon the terms and conditions set forth herein, the Owner Lessor hereby
leases the Undivided Interest to the Facility Lessee, and the Facility Lessee
hereby leases the Undivided Interest from the Owner Lessor, for the Basic Lease
Term and,
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subject to the Facility Lessee's exercise of any of its option to renew the
Facility Lease as provided in Section 15, one or more Renewal Lease Terms. The
Facility Lessee and the Owner Lessor understand and agree that this Facility
Lease is subject to those encumbrances set forth in the Title Policies. The
Undivided Interest shall be subject to the terms of this Facility Lease from the
date on which this Facility Lease is executed and delivered.
SECTION 3. FACILITY LEASE TERM AND RENT
SECTION 3.1. BASIC LEASE TERM. The basic lease term of this Facility
Lease (the "BASIC LEASE TERM") shall commence on the Closing Date and shall end
on the date 30 years following the Closing Date, subject to earlier termination
pursuant to Section 10, 13, 14 or 17 hereof.
SECTION 3.2. RENT. The Facility Lessee hereby agrees to pay to the
Owner Lessor pursuant to Section 3.5 hereof, periodic rent for the lease of the
Undivided Interest during the Basic Lease Term ("BASIC LEASE RENT") in
installments in the amounts shown on Schedule 1-1 hereto on each Rent Payment
Date. Basic Lease Rent is allocable in arrears over the Basic Lease Term as set
forth in Schedule 1-2 hereto. Basic Lease Rent may be adjusted from time to time
in accordance with Section 3.4 hereof.
SECTION 3.3. SUPPLEMENTAL LEASE RENT. The Facility Lessee also agrees
to pay to the Owner Lessor, or to any other Person entitled thereto as expressly
pro vided herein or in any other Operative Document, as appropriate, any and all
Supplemental Lease Rent, promptly as the same shall become due and owing, or
where no due date is specified, promptly after demand by the Person entitled
thereto, and in the event of any failure on the part of the Facility Lessee to
pay any Supplemental Lease Rent, the Owner Lessor shall have all rights, powers
and remedies provided for herein or by law or equity or otherwise for the
failure to pay Basic Lease Rent. The Facility Lessee agrees to pay, as
Supplemental Lease Rent, when due any and all Make-Whole Premiums or other
prepayment premiums due under the Lease Indenture or the Lessor Notes. The
Facility Lessee will also pay as Supplemental Lease Rent, to the extent
permitted by Requirement of Law, an amount equal to interest at the applicable
Overdue Rate (computed on the basis of a 360-day year of twelve 30-day months)
on any part of any payment of Basic Lease Rent not paid when due for any period
for which the same shall be overdue and on any Supplemen-
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tal Lease Rent not paid when due (whether on demand or otherwise) for the period
from such due date until the same shall be paid. All Supplemental Lease Rent to
be paid pursuant to this Section 3.3 shall be payable in the manner set forth in
Section 3.5.
SECTION 3.4. ADJUSTMENT OF BASIC LEASE RENT AND TERMINATION VALUE. (a)
The Facility Lessee and the Owner Lessor agree that Basic Lease Rent,
Termination Values, the Equity Portion of Basic Lease Rent, the Equity Portion
of Termination Value and allocations of Basic Lease Rent and 467 Fixed Rent may
be adjusted, either upwards or downwards, at the request of the Facility Lessee,
the Owner Lessor or the Owner Participant in the following situations: to
reflect (A) the principal amount, amortization and interest rate on any New
Lessor Notes issued pursuant to Section 2.13 of the Lease Indenture in
connection with a refinancing or refunding of the Lessor Notes pursuant to
Section 14.2 of the Participation Agreement, (B) the principal amount,
amortization and interest rate on any Additional Lessor Notes issued pursuant to
Section 2.13 of the Lease Indenture in connection with the financing of
Improvements to the Facility pursuant to Section 8 herein and (C) a change in
the interest rate on the Initial Lessor Notes during or after the calendar year
2001, under the circumstances set forth in the second paragraph of each Initial
Lessor Note.
Any adjustments pursuant to this Section 3.4 shall be calculated, FIRST
so as not to negatively impact the Owner Participant's Expected Return through
the end of the Basic Lease Term (except that with respect to GAAP earnings the
Owner Participant shall also not have to record a book loss or reduce earnings
by more than ten percent in the year of adjustment) and, SECOND at the option of
the Facility Lessee (x) to minimize, to the extent possible, the average annual
Basic Lease Rent over the Basic Lease Term for GAAP accounting purposes of the
Facility Lessee, and/or (y) to minimize, to the extent possible, the present
value to the Facility Lessee of the Basic Lease Rent; PROVIDED, that no
adjustment pursuant to this Section 3.4 shall result in a book loss to the Owner
Participant in the year such adjustment is made. Adjustments shall be computed
by the Owner Participant, or, if prior to the Closing Date, the Equity Investor,
using the same method of computation, assumptions and pricing constraints
originally used (other than those that have changed as the result of the event
giving rise to the adjustment) in the calculation of Basic Lease Rent and
Termination Values set forth in Schedule 1-1 and Schedule 2 hereto and shall be
subject to the verification procedure described in Section 3.4(c). Adjustments
to
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Basic Lease Rent contemplated by this Section 3.4 shall result in corresponding
adjustments to Termination Values. All Basic Lease Rent adjustments shall comply
(in case of the adjustment in connection with the event set forth in Section
3.4(a)(C) above, such compliance shall be with respect to all of the Basic Lease
Term from the Closing Date, as a single lease term, taking into account the
Basic Rent allocations for the period of the Basic Lease Term prior to the date
of adjustment) with Revenue Procedures 75-21 and 75-28 and 467 of the Code and
any proposed, temporary, or final regulations thereunder, in each case as
modified and in effect on the date of such adjustment and shall be calculated in
such a manner so that, if the Facility Lease were determined to be a
"disqualified leaseback or long-term agreement" within the meaning of Section
467 of the Code, the result would be an increase in the Owner Participant's
Expected Return (when contrasted with the Owner Participant's Expected Return
computed on the assumption that the Facility Lease is not a "disqualified
leaseback or long-term agreement").
(b) Anything herein or in any other Operative Document to the
contrary notwithstanding, each installment of Basic Lease Rent (excluding any
Equity Portion of Basic Lease Rent included in such installment) payable
hereunder, whether or not adjusted in accordance with this Section 3.4, shall be
in an amount at least sufficient to pay in full principal and interest payable
on the Lessor Notes on each Rent Payment Date. Anything herein or in any other
Operative Document to the contrary notwithstanding, Termination Values
(excluding the Equity Portion of Termination Value) payable on any date under
this Facility Lease, whether or not adjusted in accordance with this Section
3.4, shall, together with all other Rent due and owing on such date, exclusive
of any portion thereof that is an Excepted Payment, be in an amount at least
sufficient to pay in full the principal of, premium, if any, and accrued
interest on the Lessor Notes payable on such date.
(c) Any adjustment pursuant to this Section 3.4 shall
initially be computed by the Owner Participant or, if prior to the Closing Date,
by the Equity Investor, subject to the verification procedure described in this
Section 3.4(c). Once computed, the results of such computation shall promptly be
delivered by the Owner Participant or, if prior to the Closing Date, the Equity
Investor to the Facility Lessee. Within 20 days after the receipt of the results
of any such adjustment, the Facility Lessee may request that ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇,
Inc. or a nationally recognized firm of accountants or lease advisors selected
by the Owner Participant, or if prior to the Closing Date, the Equity Investor,
and reasonably satisfactory to the Facility Lessee
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(the "VERIFIER") verify, on a confidential basis, after consultation with the
Owner Participant or the Equity Investor, as the case may be, and the Facility
Lessee, the accuracy of such adjustment in accordance with this Section 3.4. The
Owner Participant or the Equity Investor, as the case may be, hereby agrees,
subject to the execution of an appropriate confidentiality agreement, to provide
the Verifier with all necessary information and materials (other than the Owner
Participant's income tax returns and accounting records) as shall be necessary
in connection with such verification. Each of the Owner Participant or the
Equity Investor, as the case may be, and the Facility Lessee shall have the
right to communicate with the Verifier and to submit supporting information and
data. If the Verifier confirms that such adjustment is in accordance with this
Section 3.4, it shall so certify to the Facility Lessee, the Owner Lessor and
the Owner Participant or the Equity Investor, as the case may be, and such
certification shall be final, binding and conclusive on the Facility Lessee, the
Owner Participant or the Equity Investor, as the case may be, and the Owner
Lessor. If the Verifier concludes that such adjustment is not in accordance
with this Section 3.4, and the adjustments to Basic Lease Rent and Termination
Value calculated by the Verifier are different from those calculated by the
Owner Participant or the Equity Investor, as the case may be, then it shall so
certify to the Facility Lessee, the Owner Lessor and the Owner Participant or
the Equity Investor, as the case may be, and the Verifier's calculation shall be
final, binding and conclusive on the Facility Lessee, the Owner Lessor and the
Owner Participant or the Equity Investor, as the case may be. The final
determination of any adjustment hereunder shall be set forth in an amendment to
this Facility Lease, executed and delivered by the Owner Lessor and the Facility
Lessee and consented to by the Owner Participant or the Equity Investor, as the
case may be. The reasonable costs of the Verifier in verifying an adjustment
pursuant to this Section 3.4 shall be paid by the Facility Lessee; PROVIDED,
HOWEVER, that in the event that such Verifier determines that the present value
of the remaining Basic Lease Rent to be made under this Facility Lease as
calculated by the Owner Participant or the Equity Investor, as the case may be,
is greater than the present value of the correct Basic Lease Rent as certified
by the Verifier, in each case, discounted annually at the Discount Rate, by more
than ten basis points, then such reasonable costs of the Verifier shall be paid
by the Owner Participant or the Equity Investor, as the case may be.
Notwithstanding anything herein to the contrary, the sole responsibility of the
Verifier shall be to verify the calculations hereunder and matters of
interpretation of this Facility Lease or any other Operative Document shall not
be within the scope of the Verifier's responsibilities.
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SECTION 3.5. MANNER OF PAYMENTS. All Rent (whether Basic Lease Rent or
Supplemental Lease Rent) and all Termination Value payments shall be paid by the
Facility Lessee in lawful currency of the United States of America in
immediately available funds to the recipient not later than 11:00 a.m. (New York
City time) on the date due. If any Rent is due on a day which is not a Business
Day, payment thereof shall be made on the next succeeding Business Day with the
same effect as if made on the date on which such payment was due. All Rent
payments payable to the Owner Lessor (other than Excepted Payments) shall be
paid by the Facility Lessee to the Owner Lessor at its account at Wilmington
Trust Company (Account No. 52414-0), or to such other place as the Owner Lessor
shall notify the Facility Lessee in writing; PROVIDED, HOWEVER, that so long as
the Lessor Notes are outstanding and the Lien created under the Lease Indenture
has not been discharged, the Owner Lessor hereby irrevocably directs (it being
agreed and understood that such direction shall be deemed to have been revoked
after the Lien created under the Lease Indenture shall have been fully
discharged in accordance with its terms), and the Facility Lessee agrees, that
all payments of Rent (other than Excepted Payments) payable to the Owner Lessor
shall be paid by "wire" transfer directly to the Lease Indenture Trustee's
Account or to such other place as the Lease Indenture Trustee shall notify the
Facility Lessee in writing pursuant to the Participation Agreement. On each Rent
Payment Date, Rent shall be paid by transferring funds in the amount equal to
the Rent payment (in the amount notified by the Facility Lessee to the Owner
Lessor and the Lease Indenture Trustee) into the Lease Indenture Trustee's
Account. Payments constituting Excepted Payments shall be made to the Person
entitled thereto at the address for such Person set forth in the Participation
Agreement, or to such other place as such Person shall notify the Facility
Lessee in writing.
SECTION 4. DISCLAIMER OF WARRANTIES; RIGHT OF QUIET ENJOYMENT
SECTION 4.1. DISCLAIMER OF WARRANTIES. (a) Without waiving any claim
the Facility Lessee may have against any manufacturer, vendor or contractor, THE
FACILITY LESSEE ACKNOWLEDGES AND AGREES SOLELY FOR THE BENEFIT OF THE OWNER
LESSOR AND THE OWNER PARTICIPANT THAT (i) THE FACILITY AND EACH COMPONENT
THEREOF ARE OF A SIZE, DESIGN, CAPACITY AND MANUFACTURE ACCEPTABLE TO THE
FACILITY LESSEE, (ii) THE FACILITY LESSEE IS SATISFIED THAT THE FACIL-
7
ITY AND EACH COMPONENT THEREOF ARE SUITABLE FOR THEIR RESPECTIVE PURPOSES, (iii)
NEITHER THE OWNER LESSOR NOR THE OWNER PARTICIPANT IS A MANUFACTURER OR A DEALER
IN PROPERTY OF SUCH KIND, (iv) THE UNDIVIDED INTEREST IS LEASED HEREUNDER TO
THE EXTENT PROVIDED HEREBY FOR THE BASIC LEASE TERM AND THE RENEWAL LEASE
TERMS, IF ANY, SPECIFIED HEREIN SUBJECT TO ALL REQUIREMENTS OF LAW NOW IN EFFECT
OR HEREAFTER ADOPTED, INCLUDING WITHOUT LIMITATION (1) ZONING REGULATIONS,
(2)ENVIRONMENTAL LAWS OR (3) BUILDING RESTRICTIONS, AND IN THE STATE AND
CONDITION OF EVERY PART THEREOF "WHEN" THE SAME FIRST BECAME SUBJECT TO THIS
FACILITY LEASE WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND BY THE OWNER
LESSOR OR THE OWNER PARTICIPANT AND (v) THE OWNER LESSOR LEASES FOR THE BASIC
LEASE TERM AND THE RENEWAL LEASE TERMS, IF ANY, SPECIFIED HEREIN AND THE
FACILITY LESSEE TAKES THE UNDIVIDED INTEREST UNDER THIS FACILITY LEASE "AS-IS,"
"WHERE-IS" AND "WITH ALL FAULTS," AND THE FACILITY LESSEE ACKNOWLEDGES THAT
NEITHER THE OWNER LESSOR, NOR THE OWNER PARTICIPANT MAKES NOR SHALL BE DEEMED TO
HAVE MADE, AND EACH EXPRESSLY DISCLAIMS, ANY AND ALL RIGHTS, CLAIMS, WARRANTIES
OR REPRESENTATIONS, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, CONDITION,
FITNESS FOR ANY PARTICULAR PURPOSE, DESIGN, OPERATION, MERCHANTABILITY THEREOF
OR AS TO THE TITLE OF THE FACILITY, THE QUALITY OF THE MATERIAL OR WORKMANSHIP
THEREOF OR CONFORMITY THEREOF TO SPECIFICATIONS, FREEDOM FROM PATENT, COPYRIGHT
OR TRADEMARK INFRINGEMENT, THE ABSENCE OF ANY LATENT OR OTHER DEFECT, WHETHER
OR NOT DISCOVERABLE, OR AS TO THE ABSENCE OF ANY OBLIGATIONS BASED ON STRICT
LIABILITY IN TORT OR ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY
WHATSOEVER WITH RESPECT THERETO, except that the Owner Lessor represents and
warrants that on the Closing Date, the Undivided Interest will be free of Owner
Lessor's Liens. It is agreed that all such risks, as between the Owner Lessor
and the Owner Participant on the one hand and the Facility Lessee on the other
hand are to be borne by the Facility Lessee with respect to acts, occurrences or
omissions during the Facility Lease Term. Neither the Owner Lessor nor the Owner
Participant shall have any responsibility or liability to the Facility Lessee or
any other Person with respect to any of the follow-
8
ing: (x) any liability, loss or damage caused or alleged to be caused directly
or indirectly by the Facility or any Component or by any inadequacy thereof or
deficiency or defect therein or by any other circumstances in connection
therewith; (y) the use, operation or performance of the Facility or any
Component or any risks relating thereto; or (z) the delivery, operation,
servicing, maintenance, repair, improvement, replacement or decommissioning of
the Facility or any Component. The provisions of this paragraph (a) of this
Section 4.1 have been negotiated, and, except to the extent otherwise expressly
stated, the foregoing provisions are intended to be a complete exclusion and
negation of any representations or warranties of the Owner Lessor, express or
implied, with respect to the Facility, any Component thereof or the Undivided
Interest that may arise pursuant to any Requirement of Law now or hereafter in
effect, or otherwise.
(b) During the Facility Lease Term, so long as no Lease Event
of Default shall have occurred and be continuing, the Owner Lessor hereby
appoints irrevocably and constitutes the Facility Lessee its agent and
attorney-in-fact, coupled with an interest, to assert and enforce, from time to
time, in the name and for the account of the Owner Lessor and the Facility
Lessee, as their interests may appear, but in all cases at the sole cost and
expense of the Facility Lessee, whatever claims and rights the Owner Lessor may
have in respect of the Facility, any Component or the Undivided Interest
against any manufacturer, vendor or contractor, or under any express or implied
warranties relating to the Facility, any Component or the Undivided Interest.
SECTION 4.2. QUIET ENJOYMENT. The Owner Lessor agrees that,
notwithstanding any provision of any other Operative Document, so long as no
Lease Event of Default shall have occurred and be continuing, neither it nor any
party acting by, through or under the Owner Lessor shall interfere with or
interrupt the quiet enjoyment of the use, operation and possession by the
Facility Lessee of the interest in the Facility or the Undivided Interest
conveyed by this Facility Lease subject to the terms of this Facility Lease.
SECTION 5. RETURN OF UNDIVIDED INTEREST
SECTION 5.1. RETURN. Unless the Undivided Interest is being transferred
to the Facility Lessee (or its designee) pursuant to Section 10 or 13 of this
Facility Lease, the Facility Lessee shall return the Undivided Interest
(together with all
9
Required Improvements and Non-Severable Improvements, if any, title to which
shall vest in the Owner Lessor) to the Owner Lessor or any permitted transferee
or assignee of the Owner Lessor at the expiration of the Facility Lease Term (or
earlier than such date if required pursuant to the provisions of this Facility
Lease) by surrendering the Undivided Interest into the possession of the Owner
Lessor or such transferee or assignee at the location of the Facility on the
Facility Land.
SECTION 5.2. CONDITION UPON RETURN. At the time of any return of the
Undivided Interest by the Facility Lessee pursuant to Section 5.1, the Facility
Lessee agrees that:
(a) the Facility Lease and the Facility Site Sublease shall
cease and terminate;
(b) the Facility will be in at least as good condition as if
it had been maintained during the Facility Lease Term in compliance with the
provisions of this Facility Lease (including, without limitation the provisions
of Section 7) ordinary wear and tear excepted, as determined in accordance with
the Return Acceptance Tests;
(c) the Facility Lessee shall assign an undivided interest
equal to the Owner Lessor's Percentage in any and all licenses and permits of
any Governmental Authorities or other Persons that are required to be obtained
in connection with the use, operation or maintenance of the Undivided Interest
that are not already in the name of the Owner Lessor to the Owner Lessor or a
transferee or designee of the Owner Lessor, to the extent permitted by
Requirements of Law and the provisions of such licenses or permits;
(d) the Facility Lessee, at the request of the Owner Lessor,
shall sell to the Owner Lessor or its designee or transferee at the then fair
market value thereof, determined by agreement between the Facility Lessee and
the Owner Lessor or, absent such agreement, by an appraisal conducted according
to the Appraisal Procedure, an undivided interest equal to the Owner Lessor's
Percentage in any or each Severable Improvement made to the Facility that is
owned by the Facility Lessee, subject to any existing encumbrances. The fees and
expenses incurred in connection with the appraisal required by this subsection
(d) shall be paid by the Owner Lessor;
10
(e) the Facility Lessee, or an Affiliate thereof, shall enter
into an agreement or other arrangements reasonably acceptable to the Owner
Lessor (the "SUPPORT ARRANGEMENTS") to provide, from and after expiration or
early termination of the Facility Site Sublease, the Facility Lessor with the
Support Services; PROVIDED, that the Facility Lessee, or its Affiliate, as the
case may be, shall be bound to provide Support Services only to the extent the
Facility Lessee (or its Affiliate) is capable of, and is still in the business
of, providing such Support Services, and only to the extent that such services
are necessary for the operation of the Facility and cannot reasonably and
timely be obtained from third parties. Support Arrangements shall provide for
the provision of all Support Services during and after expiration of the
Facility Lease, and will provide for fair market value compensation to the
Facility Lessee, or an Affiliate thereof, for such Support Services, payable
periodically in advance on no less than a monthly basis, for such rights and
other services provided under such arrangements and shall terminate upon
expiration or early termination of the Facility Site Lease or at the Facility
Lessor's option; and
(f) the Facility Lessee shall arrange, at its sole cost and
expense, for a Phase I Environmental Survey of the Facility and the Facility
Site, which shall be in form, scope and substance reasonably satisfactory to the
Owner Participant, not later than 180 days prior to a return of the Undivided
Interest pursuant to Section 5.1 or, in connection with a return other than
pursuant to Section 5.1, not later than the date of return; PROVIDED that, if as
a result of the Phase I Environmental Survey, facts are revealed that would
reasonably necessitate a Phase II Environmental Survey, such Phase I
Environmental Survey shall be expanded to a Phase II Environmental Survey, which
shall be in form, scope and substance reasonably satisfactory to the Owner
Participant. Each such survey shall be conducted, with appropriate diligence and
good faith, by an environmental consulting firm selected by the Facility Lessee
and reasonably acceptable to the Owner Participant. Any reports prepared by such
consulting firm documenting the surveys shall be provided promptly upon receipt
by the Facility Lessee to the Owner Participant. If, as a result of the
environmental surveys conducted pursuant to this Section 5.2(f), further
investigation, or abatement, corrective action, removal, monitoring, clean-up,
remediation or other response actions relating to Environmental Conditions at,
on, under or migrating from the Facility or the Facility Site are required to
ensure that the Facility and the Facility Site comply in all material respects
with all applicable Environmental Laws, the Facility Lessee shall, at its sole
cost and expense, as promptly as is reasonably practical and without materially
affecting the continued operation of the Facility or
11
the Facility Site, make arrangements reasonably satisfactory to the Owner
Participant for conducting and completing any such clean-up, remediation or
other response action in relation to the Environmental Conditions identified in
such environmental surveys as required to ensure that the Facility and the
Facility Site comply with all applicable Environmental Laws. Nothing in this
Section 5.2(f) shall relieve EME of its indemnification obligations under the
Participation Agreement. The obligations of the Facility Lessee set forth in
this Section 5.2(f) shall survive the termination of this Facility Lease and the
expiration of the Facility Lease Term.
SECTION 5.3. EXPENSES. Except as provided in Section 5.2(d), the
Facility Lessee agrees to pay or reimburse or to cause to be paid or reimbursed,
on an After-Tax Basis, on demand, all costs and expenses incurred in connection
with any return contemplated by this Section 5.
SECTION 5.4. FREIGHT AND CRATE. At the expiration of the Facility Site
Lease, the Owner Lessor shall have the right to require the Facility Lessee (i)
at the Facility Lessee's sole risk and expense, to dismantle the Facility, to
remove the dismantled components of the Facility from the Facility Land and to
cause such components to be delivered to a railhead or other suitable common
carrier or (ii) at the Owner Lessor's risk and expense, to dismantle the
Facility and keep and store such components at the Facility Land for a period
not to exceed 180 days; PROVIDED, HOWEVER, the Facility Lessee shall not be so
required if it has chosen to purchase the Facility from the Owner Lessor at a
price equal to the greater of (a) $1.00 and (b) the Fair Market Sales Value
thereof (MINUS the estimated costs of such decommissioning, dismantling,
removal and shipment and the estimated cost of restoring the Facility Land to
its original condition). The Facility Lessee's obligation to dismantle the
Facility under this Section 5.4 shall survive the termination of the Facility
Lease.
SECTION 6. LIENS
The Facility Lessee hereby covenants that it will not directly or
indirectly create, incur, assume or suffer to exist any Lien or other
encumbrance on or with respect to the Undivided Interest, the Facility, the
Facility Site or any Component, or on the Owner Lessor's or the Owner
Participant's interest in or under any Operative Document, except Lease
Permitted Liens.
12
SECTION 7. MAINTENANCE; REPLACEMENTS OF COMPONENTS
SECTION 7.1. MAINTENANCE. The Facility Lessee, at its own expense, will
(i) cause the Facility to be maintained in as good condition, repair and working
order as when delivered on the Closing Date, ordinary wear and tear excepted,
without discrimination as compared to other facilities of similar type owned or
operated by the Facility Lessee or any of its Affiliates, and in any event, in
all material respects (a) in accordance with Prudent Industry Practice, (b) in
compliance with all Requirements of Law, including without limitation, all
Environmental Laws and (c) in accordance with the terms of all insurance
policies required to be maintained pursuant to Section 11 and (ii) cause to be
made all repairs, renewals, replacements, betterments and improvements to the
Facility, all as in the reasonable judgment of the Facility Lessee may be
necessary to operate the Facility in accordance with the Operative Documents.
SECTION 7.2. REPLACEMENT OF COMPONENTS. In the ordinary course of
maintenance, service, repair or testing the Facility or any Component, the
Facility Lessee, at no cost to the Owner Lessor, may remove or cause to be
removed from the Facility any Component; PROVIDED, HOWEVER, that the Facility
Lessee shall cause such Component to be replaced by a replacement Component
which shall be free and clear of all Liens (except Lease Permitted Liens) and
shall be in as good operating condition as that of the Component replaced,
assuming such replaced Component was maintained in accordance with the terms of
this Facility Lease, and does not diminish, other than in an immaterial respect,
the current and residual value, remaining useful life or utility of the Facility
as measured immediately prior to such replacement, assuming the Facility shall
then be in the condition required to have been maintained by the terms of this
Facility Lease, or cause the Facility to become "limited use" property within
the meaning of Rev. Proc. 75-28, 1975-1 C.B. 752 or Rev. Proc. 76-30, 1976-2
C.B. 647 (each such replacement Component being herein referred to as a
"REPLACEMENT COMPONENT"). An undivided interest equal to the Owner Lessor's
Percentage in each Component at any time removed from the Facility shall remain
subject to this Facility Lease, wherever located, until such time as such
Component shall be replaced by a Replacement Component which has been
incorporated in the Facility and which meets the requirements for Replacement
Components specified above. Immediately upon any Replacement Component becoming
incorporated in the Facility, without further act (and with no adjustment to the
Purchase Price or Basic Lease Rent), (i) the replaced Component shall no longer
13
be subject to this Facility Lease, (ii) title to the Owner Lessor's undivided
interest in the removed Component shall thereupon vest in the Facility Lessee or
such other Person as shall be designated by the Facility Lessee, free and clear
of all rights of the Owner Lessor and the Lease Indenture Trustee, (iii) title
to an undivided interest equal to the Owner Lessor's Percentage in the
Replacement Component shall thereupon vest with the Owner Lessor and such
undivided interest shall (a) become subject to this Facility Lease and the Lien
of the Lease Indenture, and (b) be deemed a part of the Undivided Interest for
all purposes of this Facility Lease. Notwithstanding anything in this Section
7.2 to the contrary, if the Facility Lessee has determined that any part,
Component or portion of the Facility is surplus or obsolete, it shall have the
right to remove such part, Component or portion of the Facility without
replacing it if such removal would not, other than in an immaterial respect,
diminish the current or residual value, the utility or the remaining useful life
of the Facility, as measured immediately prior to such replacement, assuming the
Facility shall then be in the condition required to have been maintained by the
terms of this Facility Lease or cause the Facility to become "limited use"
property within the meaning of Rev. Proc. 75-28, 1975-1 C.B. 752 or Rev. Proc.
76-30, 1976-2 C.B. 647.
SECTION 7.3. ENVIRONMENTAL MATTERS. The Facility Lessee will
(i) comply in all material respects and make all
reasonable efforts to cause all other Persons to comply in all material
respects with all Environmental Laws applicable to the Facility or the
Facility Site, and the Facility Lessee shall have the sole
responsibility for any and all costs and expenses associated with such
compliance;
(ii) obtain, comply in all material respects with and
maintain all necessary Governmental Approvals required under any
applicable Environmental Law in connection with the use, operation and
maintenance of the Facility and the Facility Site;
(iii) conduct and complete, at its sole cost and
expense, any investigation, study, sampling, monitoring and testing and
undertake any cleanup, removal, remedial, corrective, mitigation,
response or other action necessary or advisable to ▇▇▇▇▇, correct,
remove and clean up or remediate all Hazardous Materials Released at,
on, in, under or from the Facility or the
14
Facility Site, to the extent required by and in material compliance
with applicable Environmental Laws; and
(iv) as soon as possible and in any event within
fifteen Business Days of the Facility Lessee obtaining knowledge
thereof, provide the Owner Lessor with written notice of, and copies of
all written communications relating to, any pending or threatened
material Environmental Claim involving the Facility or the Facility
Site. To the extent possible, all such notices shall describe in
reasonable detail the nature of the Environmental Claim.
SECTION 8. IMPROVEMENTS
SECTION 8.1. REQUIRED IMPROVEMENTS. The Facility Lessee, without
expense to the Owner Lessor and without the consent of any other Lease Financing
Party, shall make or cause to be made any Improvements to the Facility as it
relates to the Undivided Interest as are required (w) by Requirements of Law or
any Governmental Authority having jurisdiction thereon, (x) by any insurance
policy required to be maintained by the Facility Lessee under any Operative
Document, (y) by the terms of the Operative Documents or (z) to meet Return
Acceptance Tests as set forth in Section 5.1 (each, a "REQUIRED IMPROVEMENT");
PROVIDED, HOWEVER, that the Facility Lessee may, in good faith and by
appropriate proceedings, diligently contest the validity or application of any
Requirement of Law in any reasonable manner which does not involve any risk of
(i) foreclosure, sale, forfeiture or loss of, or imposition of a Lien (other
than a Lease Permitted Lien) on any part of the Facility or impair the use,
operation or maintenance of the Facility in any material respect, or (ii) any
criminal liability being incurred by, or any material adverse effect on the
interests of, the Owner Participant, the Equity Investor, the Owner Lessor, the
Trust Company, the Pass Through Trustees, the Pass Through Company, the Lease
Indenture Trustee, the Lease Indenture Company, any Certificateholder or the
Facility Lessee, including, without limitation, subjecting any such Person to
regulation as a public utility (or similar regulation) under Requirement of Law;
PROVIDED FURTHER, that no such contest may extend beyond the expiration or
earlier termination of this Facility Lease.
SECTION 8.2. OPTIONAL IMPROVEMENTS. The Facility Lessee at any time
may, without expense to the Owner Lessor and without the consent of any other
Lease
15
Financing Party, make or cause to be made any Improvement to the Facility as the
Facility Lessee considers necessary or desirable in the proper conduct of its
business (any such non-Required Improvement being referred to as an "OPTIONAL
IMPROVEMENT"); PROVIDED that no Optional Improvement to the Facility shall,
other than in an immaterial respect, diminish the current or residual value,
remaining useful life or utility of the Facility below the current or residual
value, remaining useful life or utility thereof immediately prior to such
Optional Improvement, assuming the Facility shall then be in the condition
required to have been maintained by the terms of this Facility Lease, or cause
the Undivided Interest to become "limited use" property, within the meaning of
Rev. Proc. 75-28, 1975-1 C.B. 752 or Rev. Proc. 76-30, 1976-2 C.B. 647.
SECTION 8.3. TITLE TO IMPROVEMENTS. Title to an undivided interest
equal to the Owner Lessor's Percentage in (i) all Required Improvements and (ii)
all Non-Severable Improvements shall automatically vest in the Owner Lessor
upon being affixed to or incorporated into the Facility, and such undivided
interest shall immediately (a) become subject to this Facility Lease and (b) be
deemed part of the Undivided Interest for all purposes of this Facility Lease.
No interest in any Optional Improvement which is a Severable Improvement (other
than Severable Improvements which are financed by the Owner Lessor by an
Additional Equity Investment or a Supplemental Financing pursuant to Section
14.1 of the Participation Agreement) shall vest in the Owner Lessor or become
subject to this Facility Lease; PROVIDED, HOWEVER, that if the Facility Lessee
shall, at its cost and expense, cause such Optional Improvements which are
Severable Improvements to be made to the Facility, the Owner Lessor shall have
the right, prior to the return of the Undivided Interest to the Owner Lessor
hereunder, to purchase an undivided interest equal to the Owner Lessor's
Percentage in any such Optional Improvements which are Severable Improvements.
The purchase price for such undivided interest shall be the then Fair Market
Sales Value of such undivided interest. If the Owner Lessor does not elect to
purchase such Optional Improvements which are Severable Improvements, the
Facility Lessee may, and at the request of the Owner Lessor shall, remove such
Improvements at the end of the Facility Lease Term.
SECTION 8.4. FINANCING OF IMPROVEMENTS. The Facility Lessee shall at
all times have the right to finance Improvements other than through the Facility
Lease, so long as no Liens on the Facility, the Facility Site or any portion
thereof are granted or created in connection with such financing; PROVIDED,
HOWEVER that, in the
16
case of a financing of a Severable Improvement which is not a Required
Improvement, a Lien on such Severable, non-Required Improvement may be granted
or created in connection with such financing. The Facility Lessee may elect to
finance Improvements to the Facility through the Facility Lease in accordance
with Section 14.1 of the Participation Agreement.
SECTION 9. NET LEASE
This Facility Lease is a "net lease." The Facility Lessee's obligation
to make all payments payable hereunder (and all amounts, including, without
limitation, Termination Value, following termination of this Facility Lease)
shall be absolute and unconditional under any and all circumstances and shall
not be terminated, extinguished, diminished, lost or otherwise impaired by any
circumstance of any character, including, without limitation, by (i) any setoff,
counterclaim, recoupment, defense or other right which the Facility Lessee may
have against the Owner Lessor, the Owner Participant, the Lease Indenture
Trustee or any other Person, including, without limitation, any claim as a
result of any breach by any of said parties of any covenant or provision in this
Facility Lease or any other Operative Document, (ii) any lack or invalidity of
title or any defect in the title, condition, design, operation, merchantability
or fitness for use of the Facility or any Component, or any eviction by
paramount title or otherwise, or any unavailability of the Facility, the
Facility Site, any Component, any other portion of the Undivided Interest, or
any part thereof, (iii) any loss or destruction of, or damage to, the Facility
or any Component or interruption or cessation in the use or possession thereof
or any part thereof by the Facility Lessee for any reason whatsoever and of
whatever duration, (iv) the condemnation, requisitioning, expropriation, seizure
or other taking of title to or use of the Facility, the Facility Site, any
Component, or any other portion of the Undivided Interest by any Governmental
Authority or otherwise, (v) the invalidity or unenforceability or lack of due
authorization or other infirmity of this Facility Lease or any other Operative
Document, (vi) the lack of right, power or authority of the Owner Lessor to
enter into this Facility Lease or any other Operative Document, (vii) any
ineligibility of the Facility or any Component for any particular use, whether
or not due to any failure of the Facility Lessee to comply with any Requirement
of Law, (viii) any event of "force majeure" or any frustration, (ix) any legal
requirement similar or dissimilar to the foregoing, any present or future law to
the contrary notwithstanding, (x) any insolvency, bankruptcy, reorganization or
similar proceeding by or against the Facility Lessee or any other Person, (xi)
any Lien of any Person
17
with respect to the Facility, the Facility Site, any Component, any other
portion of the Undivided Interest or any part thereof, or (xii) any other cause,
whether similar or dissimilar to the foregoing, any present or future law
notwithstanding, except as expressly set forth herein or in any other Operative
Document, it being the intention of the parties hereto that all Basic Lease Rent
(and all amounts, including, without limitation, Termination Value, in lieu of
Basic Lease Rent following termination of this Facility Lease) payable by the
Facility Lessee hereunder shall continue to be payable in all events in the
manner and at times provided for herein. Such Basic Lease Rent (and all amounts,
including, without limitation, Termination Value, in lieu of Basic Lease Rent
following termination of this Facility Lease) shall not be subject to any
abatement and the payments thereof shall not be subject to any setoff or
reduction for any reason whatsoever, including any present or future claims of
the Facility Lessee or any other Person against the Owner Lessor or any other
Person under this Facility Lease or otherwise. To the extent permitted by
Requirements of Law, the Facility Lessee hereby waives any and all rights which
it may now have or which at any time hereafter may be conferred upon it, by
statute or otherwise, to terminate, cancel, quit or surrender this Facility
Lease with respect to the Undivided Interest except in accordance with Section
10, 13, 14 or 17. If for any reason whatsoever this Facility Lease shall be
terminated in whole or in part by operation of law or otherwise, except as
specifically provided herein, the Facility Lessee nonetheless agrees, to the
extent permitted by Requirements of Law, to pay to the Owner Lessor an amount
equal to each installment of Basic Lease Rent and all Supplemental Lease Rent
due and owing, at the time such payment would have become due and payable in
accordance with the terms hereof had this Facility Lease not been so terminated.
Nothing contained herein shall be construed to waive any claim which the
Facility Lessee might have under any of the Operative Documents or otherwise or
to limit the right of the Facility Lessee to make any claim it might have
against the Owner Lessor or any other Person or to pursue such claim in such
manner as the Facility Lessee shall deem appropriate.
SECTION 10. EVENTS OF LOSS
SECTION 10.1. OCCURRENCE OF EVENTS OF LOSS.
(a) Each of the Owner Participant and the Owner Lessor will
promptly notify the Facility Lessee of any event of which it is aware that would
result in a Regulatory Event of Loss; PROVIDED, HOWEVER, that the failure to
provide
18
such notice shall not result in any liability with respect to the Owner
Participant or the Owner Lessor and shall not in any way relieve the Facility
Lessee of any of its obligations under this Facility Lease, including the
obligations under this Section 10.
(b) If an Event of Loss described in clauses (i) or (ii) of
the definition of Event of Loss shall occur, then, no later than six months
following the date that the Facility Lessee has actual knowledge of such
occurrence, the Facility Lessee shall notify the Owner Lessor and the other
Lease Financing Parties of its election to either (1) subject to the
satisfaction of the conditions set forth in Section 10.3 and the terms of the
other Operative Documents, rebuild the Facility so that the Facility shall have
a current and residual value, remaining useful life and utility at least equal
to that of the Facility prior to such Event of Loss, assuming the Facility was
in the condition and repair required to be maintained by this Facility Lease, or
(2) terminate this Facility Lease and purchase the Facility from the Owner
Lessor by paying to the Owner Lessor an amount equal to the applicable
Termination Value and causing EME to pay to the parties entitled thereto all
other amounts payable pursuant to Section 10.2. If the Facility Lessee fails to
make an election as provided above, the Facility Lessee will be deemed to have
made the election to terminate this Facility Lease pursuant to clause (2) of
this Section 10.1(b) as of the end of the six month period referred to in the
first sentence of this Section 10.1(b).
SECTION 10.2. PAYMENT UPON TERMINATION; SPECIAL LESSEE TRANSFER.
(a) If either of the following shall occur:
(x) the Facility Lessee shall elect (or be
deemed to have elected) to terminate this
Facility Lease pursuant to clause (2) of
Section 10.1(b) following an Event of Loss
described in clause (i) or (ii) of the
definition of Event of Loss, or
(y) an Event of Loss described in clause (iii)
or (iv) of the definition of Event of Loss
shall occur,
then in the case of either (x) or (y), the Facility
Lessee shall pay to the Owner Lessor the sum of (A) the
Termination Value determined as of the relevant Termination
Date, PLUS (B) if the Termi-
19
nation Date is also a Rent Payment Date, any Basic Lease
Rent or Renewal Lease Rent, as the case may be, payable on
such Termination Date, PLUS (C) all other payments of Rent
under this Facility Lease or under any Operative Document
which are due and unpaid on the Termination Date under any
other Operative Document (the "EVENT OF LOSS PAYMENT") and EME
shall pay (X) all reasonable documented out-of-pocket costs
and expenses of the other Lease Financing Parties incurred in
connection with such Event of Loss and (Y) and any fees and
expenses of the Lease Indenture Trustee and Pass Through
Trustees. The Facility Lessee shall pay such Event of Loss
Payment, in the case of clause (x) above, on the next
Termination Date immediately following the earlier of (1) the
date of the Facility Lessee's notice of its election to
terminate this Facility Lease and (2) the date which is six
months following the occurrence of such Event of Loss, and in
the case of clause (y) above, on a Termination Date occurring
no later than six months following such Event of Loss.
Concurrently with the payment of all amounts required to be paid pursuant to
this Section 10.2(a), (i) Basic Lease Rent for the Undivided Interest shall
cease to accrue, (ii) the Facility Lessee shall cease to have any liability to
the Owner Lessor with respect to the Undivided Interest, except for Supplemental
Lease Rent and other obligations surviving pursuant to the express terms of any
Operative Document, (iii) the Owner Lessor will prepay all amounts of principal
and interest, any other amounts owing under the Lessor Notes, pursuant to
Section 2.11 of the Lease Indenture, (iv) subject to the EME having paid all
amounts owed by EME to the Lease Financing Parties under the Operative
Documents, the Owner Lessor shall transfer (by an appropriate instrument of
transfer in form and substance reasonably satisfactory to the Owner Lessor and
prepared and recorded at the Facility Lessee's expense) the Undivided Interest
to the Facility Lessee (or its designee), on an "as is," "where is" basis,
without warranty other than a warranty as to the absence of Owner Lessor's Liens
and Owner Participant's Liens, (v) each of this Facility Lease, the Facility
Site Lease and the Facility Site Sublease shall terminate and (vi) the Owner
Lessor shall execute and deliver appropriate releases and other documents or
instruments necessary or reasonably requested by the Facility Lessee to effect
the foregoing (including, but not limited to, termination of this Facility
Lease) all to be prepared, filed and recorded (if appropriate) at the cost and
expense of the Facility Lessee.
20
(b) Notwithstanding the foregoing provisions of Section
10.2(a), in the case of a Regulatory Event of Loss, at the option of the
Facility Lessee or its designee, if (i) the Facility Lessee shall have executed
and delivered an assumption agreement to assume the Lessor Notes as permitted by
and in accordance with Section 2.12 of the Lease Indenture, (ii) all other
conditions contained in such Section 2.12 of the Lease Indenture shall have been
satisfied and (iii) no Lease Event of Default shall have occurred and be
continuing and shall not be cured by such assumption, the obligation of the
Facility Lessee to make the Event of Loss Payment shall be reduced by the
outstanding principal amount of the Lessor Notes so assumed by the Facility
Lessee; PROVIDED, HOWEVER, for so long as the Lessor Notes are outstanding, if
the Facility Lessee shall have chosen to assume the Lessor Notes pursuant to
this Section 10.2(b), the Facility Lessee (or its designee) shall acquire the
Undivided Interest from the Owner Lessor subject to the Lien of the Lease
Indenture.
(c) Notwithstanding the foregoing provisions of Sections
10.2(a) and (b) to the contrary, in the case of a Regulatory Event of Loss, the
Facility Lessee (or its designee) so long as the Facility Lessee shall remain
liable under the Facility Lease to pay Basic Lease Rent and all other payments
hereunder in full, and in all respects in accordance with Section 17 of the
Participation Agreement, may purchase the Owner Participant's Beneficial
Interest in lieu of purchasing the Undivided Interest pursuant to Sections 10.2
(a) and (b) and keep the Facility Lease (and Lessor Notes) in place.
SECTION 10.3. APPLICATION OF PROCEEDS. Any payments with respect to the
Undivided Interest received at any time by the Owner Lessor or the Facility
Lessee from any Governmental Authority or from insurance proceeds as a result of
the occurrence of an Event of Loss shall be applied as follows:
(a) all such payments received at any time by the Facility
Lessee shall be promptly paid to the Owner Lessor or, so long as the Lessor
Notes are outstanding, to the Lease Indenture Trustee, for application pursuant
to the following provisions of this 10.3, except that, the Facility Lessee may
retain any amounts that the Owner Lessor would at the time be obligated to pay
to the Facility Lessee as reimbursement pursuant to Section 10.3(b);
(b) so much of such payments as shall not exceed the Event of
Loss Payment required to be paid by the Facility Lessee pursuant to Section
10.2(a)
21
shall be applied in reduction of the Facility Lessee's obligation to pay such
amount if not already paid by the Facility Lessee or, if already paid by the
Facility Lessee, shall be applied to reimburse the Facility Lessee for its
payment of such amount; and
(c) the balance, if any, of such payments remaining thereafter
shall be apportioned between the Owner Lessor and the Facility Lessee in
accordance with their respective interests in the Facility.
Notwithstanding the foregoing, if the Facility Lessee shall have
elected to rebuild the Facility pursuant to Section 10.1(b), any insurance
proceeds received by the Owner Lessor, the Lease Indenture Trustee or the
Facility Lessee as a result of the occurrence of an Event of Loss described in
clause (i) or (ii) of the definition of Event of Loss shall be applied as
provided in Section 11.7.
SECTION 10.4. REBUILD. The Facility Lessee's right to rebuild the
Facility pursuant to Section 10.1(b) shall be subject to the fulfillment, at the
Facility Lessee's sole cost and expense, in addition to the conditions contained
in Section 10.1(b), of the following conditions:
(a) no Material Lease Default or Lease Event of Default shall
have occurred and be continuing;
(b) on the date the Facility Lessee shall give notice pursuant
to Section 10.1(b) of its election to rebuild the Facility in accordance with
this Section 10.4, either (i) the Owner Participant shall have received an
opinion reasonably satisfactory to it from Hunton & ▇▇▇▇▇▇▇▇, or a nationally
recognized tax counsel selected by the Owner Participant and reasonably
acceptable to the Facility Lessee, to the effect that, assuming the proposed
rebuilding is accomplished in the manner and within the time proposed, such
rebuilding would not result in any material indemnified incremental tax risk, or
any unindemnified incremental tax risk to the Owner Participant or (ii) the
Owner Participant shall have received an opinion of Hunton & ▇▇▇▇▇▇▇▇, or
another nationally recognized tax counsel selected by the Owner Participant and
reasonably acceptable to the Facility Lessee to the effect that it is more
likely than not that such proposed rebuilding would not result in any
unindemnified incremental tax risk or any material indemnified incremental tax
risk and the Owner Participant shall have received collateral or other security
for the indemnification obligations with respect to any such incremental tax
risk, such
22
collateral or other security to be acceptable to the Owner Participant in its
sole discretion exercised in good faith;
(c) on the date the Facility Lessee shall give notice pursuant
to Section 10.1(b) of its election to rebuild the Facility in accordance with
this Section 10.4, the Facility Lessee shall deliver to the Owner Participant
and, so long as the Lessor Notes are outstanding, the Lease Indenture Trustee
and the Pass Through Trustees (i) a report of the Engineering Consultant, or
such other independent engineer reasonably satisfactory to the Owner Participant
and, so long as the Lessor Notes are outstanding, the Lease Indenture Trustee,
to the effect that it is reasonable to expect that such rebuilding of the
Facility is technologically feasible and economically viable and that such
rebuilding can be completed by a date that is 36 months prior to the end of the
Basic Lease Term or any Renewal Lease Term then in effect or already elected by
the Facility Lessee, and (ii) an appraisal of an Independent Appraiser
reasonably acceptable to the Owner Participant, and, so long as the Lessor Notes
are outstanding, the Lease Indenture Trustee to the effect that the rebuilt
Facility will have at least the same value, residual value, utility and useful
life as the Facility immediately prior to the Event of Loss, assuming the
Facility was then in the condition required to have been maintained by the terms
of the Facility Lease;
(d) on the date the Facility Lessee shall notify the Owner
Lessor pursuant to Section 10.1(b) of its election to rebuild the Facility in
accordance with this Section 10.4, the Facility Lessee shall demonstrate to the
reasonable satisfaction of the Owner Participant and, so long as the Lessor
Notes are outstanding, the Lease Indenture Trustee, adequate financial
resources, from insurance proceeds or otherwise, to complete such rebuilding and
to pay Basic Lease Rent while the Facility is being rebuilt;
(e) the Facility Lessee shall cause the rebuilding of the
Facility to commence as soon as reasonably practicable after notifying the Owner
Participant and, so long as the Lessor Notes are outstanding, the Lease
Indenture Trustee and the Pass Through Trustees, of its election to rebuild the
Facility in accordance with this Section 10.4 and in all events within 18 months
of the occurrence of the event that caused such Event of Loss and will cause
work on such rebuilding to proceed diligently thereafter. As the rebuilding of
the Facility progresses, title to an undivided interest equal to the Owner
Lessor's Percentage in such rebuilt Facility shall vest in the Owner Lessor and
such Undivided Interest shall become subject to this
23
Facility Lease and, so long as the Lessor Notes are outstanding, the Lien of the
Lease Indenture, and be deemed a part of the Undivided Interest for all purposes
of this Facility Lease and the other Operative Documents, automatically and
without any further act by any Person;
(f) on the date of the completion of such rebuilding of the
Facility (the "REBUILDING CLOSING DATE") the following documents shall be duly
authorized, executed and delivered and, if appropriate, filed for recordation by
the respective party or parties thereto and shall be in full force and effect,
and an executed counterpart of each shall be delivered to the Owner Lessor, the
Owner Participant and, so long as the Lessor Notes are outstanding, the Lease
Indenture Trustee and the Pass Through Trustees: (i) supplements to this
Facility Lease subjecting an undivided interest equal to the Owner Lessor's
Percentage in the rebuilt Facility to this Facility Lease (with no change in
Purchase Price or the Basic Lease Rent as a result of such rebuilding), (ii) so
long as the Lessor Notes are outstanding, supplements to the Lease Indenture
subjecting such undivided interest in the Facility to the Lien of the Lease
Indenture, (iii) such recordings and filings, as may be reasonably requested by
the Owner Participant or the Lease Indenture Trustee to be made or filed, (iv)
an opinion of counsel to the Facility Lessee, such counsel and such opinion to
be reasonably satisfactory to the Owner Participant and, so long as the Lessor
Notes are outstanding, the Lease Indenture Trustee, to the effect that (x) the
supplements to this Facility Lease required by clause (i) above constitute
effective instruments for subjecting such undivided interest in the rebuilt
Facility to this Facility Lease, (y) the supplements to the Lease Indenture
required by clause (ii) above, if any, constitute effective instruments for
subjecting such undivided interest in the rebuilt Facility to the Lien of the
Lease Indenture and (z) all filings and other action necessary to perfect and
protect the Owner Lessor's interest in an undivided interest equal to the Owner
Lessor's Percentage in the rebuilt Facility have been accomplished, (v) an
appraisal by an Independent Appraiser, certifying that the Facility as so
rebuilt has a current and residual value, remaining useful life and utility at
least equal to the current and residual value, remaining useful life and utility
of the Facility immediately prior to such rebuilding (assuming the Facility was
in the condition and repair required to be maintained by the terms of this
Facility Lease), (vi) a report by an independent engineer (selected by the Owner
Lessor and reasonably satisfactory to the Facility Lessee) certifying that the
Facility as so rebuilt is in a state of repair and condition required by this
Facility Lease, (vii) an Officer's Certificate of the Facility Lessee as to
compliance with this Section 10.4 and certifying that no Lease Event of
24
Default shall have occurred as a result of the rebuilding, and (viii)
satisfactory evidence as to the compliance with Section 11 of this Facility
Lease with respect to the Facility, as so rebuilt; and
(g) there shall be no material adverse accounting effect under
GAAP on the Owner Participant as a result of such rebuilding and the other
transactions contemplated by this Section 10.4.
SECTION 10.5. APPLICATION OF PAYMENTS NOT RELATING TO AN EVENT
OF LOSS. (a) In the event that during the Facility Lease Term title to, or the
use of, all or any portion of the Undivided Interest, the Facility or the
Facility Site is requisitioned or taken by or pursuant to a request of any
Governmental Authority under the power of eminent domain or otherwise for a
period or in a manner which does not constitute an Event of Loss, the Facility
Lessee's obligation to pay all installments of Basic Lease Rent shall continue
for the duration of such requisitioning or taking. The Facility Lessee shall be
entitled to receive and retain for its own account all sums payable for any such
period by such Governmental Authority as compensation for such requisition or
taking of possession; PROVIDED, THAT if at the time of such payment a Material
Lease Default or a Lease Event of Default shall have occurred and be continuing,
such amounts shall be paid to and held by the Owner Lessor unless the Lessor
Notes are outstanding, in which case such amounts shall be paid to and held by
the Lease Indenture Trustee, as security for the obligations of the Facility
Lessee under this Facility Lease until such time as no Material Lease Default or
Lease Event of Default is continuing.
(b) Any insurance proceeds with respect to the Undivided
Interest received at any time by the Owner Lessor, the Lease Indenture Trustee
or the Facility Lessee under any of the insurance policies required to be
maintained by the Facility Lessee under Section 11 as a result of any damage to
the Facility or any part thereof which does not constitute an Event of Loss
shall be applied as follows: (i) in accordance with Section 11.7, and (ii) the
balance, if any, of such insurance proceeds remaining thereafter shall be paid
to the Facility Lessee.
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SECTION 11. INSURANCE
SECTION 11.1. PROPERTY INSURANCE. Subject to Section 11.6, the Facility
Lessee will maintain (or cause to be maintained) all risk property insurance,
including coverage for boiler and machinery and the peril of flood and the peril
of earthquake, customarily carried by prudent operators of coal-fired and
oil/gas-fired electric generating facilities of comparable size and risk as the
Facility, and, in any case, subject to availability of said insurance on
commercially reasonable terms and in an amount equal to the Probable Maximum
Loss of the Facility.
SECTION 11.2. LIABILITY INSURANCE. Subject to Section 11.6, the
Facility Lessee will maintain (or caused to be maintained) liability insurance,
including contractual liability coverage, insuring against claims for bodily
injury (including death) and property damage to third parties arising out of the
ownership, operation, maintenance, condition and use of the Facility and the
Facility Site, with limits of not less than (i) $35,000,000 in the aggregate per
occurrence if such insurance also covers any of the Other Facilities and (ii)
$25,000,000 if such insurance covers solely the Facility and the Facility Site.
The Facility Lessee will at least annually review the liability insurance
maintained by it or on its behalf and will, if necessary, increase such coverage
in order that the liability insurance maintained by it or on its behalf is
consistent with that maintained by prudent operators of similar facilities of
comparable size and risk to the Facility. Such liability insurance may be
purchased either in a single limit or in combination with a general and an
excess policy.
SECTION 11.3. PROVISIONS WITH RESPECT TO INSURANCE. Subject to Section
11.6, the Facility Lessee will place the insurance maintained pursuant to this
Section 11 with companies having an A.M. Best rating of at least "A-" or, if not
so rated, with comparable financial strength. All insurance policies required to
be maintained pursuant to Sections 11.1 and 11.2 shall name each of the Owner
Participant, the Equity Investor, the Owner Lessor, the Owner Trustee, the Lease
Indenture Trustee, the Pass Through Trustees and holders of the Lessor Notes, as
additional insureds, as their respective interests may appear (the "ADDITIONAL
INSUREDS"). All insurance policies required to be maintained pursuant to the
terms hereof shall also provide for at least 30 days' prior written notice (10
days if as a result of non-payment) by the insurance carrier to each Additional
Insured in the event of cancellation, non-renewal, termination, expiration or
material change. The Facility Lessee will place the insurance required by the
terms of this Section 11 with insurance companies
26
which agree to waive all claims for premiums from, and all subrogation rights
against, the Additional Insureds. All the insurance maintained pursuant to this
Section 11 shall be primary without right of contribution of any other insurance
carried by or on behalf of each of the Additional Insureds with respect to its
interests in the Facility and the Facility Site.
Subject to Section 11.6, to the extent available on commercially
reasonable terms, the Facility Lessee will use its best efforts to provide that
the respective interests of the Additional Insureds shall not be invalidated by
any act or neglect of the Facility Lessee, or any breach or violation by the
Facility Lessee of any warranties, declarations or conditions contained in such
policies or by the use of the Facility for purposes more hazardous than
permitted by such policies. Additionally, to the extent available on
commercially reasonable terms, the Facility Lessee will use its best efforts to
provide that such policies shall be endorsed to provide that, inasmuch as the
policies are written to cover more than one insured, all terms, conditions,
insuring agreements and endorsements, with the exception of limits of liability,
shall operate in the manner as if there were a separate policy covering each
insured. The Facility Lessee shall, at its own expense, make or cause to be made
all proofs of loss and take all other steps necessary to collect the proceeds of
such insurance.
SECTION 11.4. REPORTS. Within 15 days after the expiration and renewal
of any insurance policy required to be maintained pursuant to the terms of this
Section 11, the Facility Lessee shall furnish each Additional Insured with an
executed broker letter identifying all insurance coverage in place and
certifying that all premiums in respect of such policies are current.
Certificates of insurance shall accompany said letter documenting insurance
coverage and the Additional Insured status as required.
SECTION 11.5. ADDITIONAL INSURANCE. At any time any Additional Insured
may at its own expense and for its own account carry insurance with respect to
its interest in the Undivided Interest, PROVIDED, that such insurance does not
in any way interfere with the Facility Lessee's ability to obtain insurance with
respect thereto as required in this Section 11. Any insurance payments received
from policies maintained by an Additional Insured pursuant to the previous
sentence shall be retained by such Additional Insured without reducing or
otherwise affecting the Facility Lessee's obligations hereunder.
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SECTION 11.6. AMENDMENT OF INSURANCE REQUIREMENTS.
(a) If any insurance required to be maintained by the Facility
Lessee pursuant to the Operative Documents (including the limits or deductibles
or any other terms under policies for such insurance) ceases to be available on
a commercially reasonable basis at the time of renewal, the Facility Lessee
shall provide written notice to each Additional Insured accompanied by a letter
from the Facility Lessee's insurance broker stating that such insurance is
unavailable on a commercially reasonable basis. Such notice shall be given not
less than 30 days prior to the scheduled date for renewal of any such policy.
Upon receipt of such notice, the Facility Lessee and each Additional Insured
shall immediately enter into good faith negotiations in order to agree upon an
alternative to such insurance.
(b) In the event that a resolution acceptable to the Facility
Lessee and all Additional Insureds cannot be reached within 10 days from the
date of the notice referred to in paragraph (a) above, the Additional Insureds
shall make arrangements for the formation of an insurance panel consisting of
the Facility Lessee's insurance advisor (or broker), the Facility Lessor's
insurance advisor (or broker), and an independent insurance expert from an
internationally recognized insurance brokerage firm, chosen by the Facility
Lessee and reasonably acceptable to the Additional Insureds. Such independent
expert shall conduct a separate review of the relevant insurance requirements of
the Operative Documents and the market for such insurance at the time, giving
due consideration to the representations of both insurance advisors, and upon
conclusion of such review shall issue a written report stating whether such
insurance is available, or unavailable, on a commercially reasonable basis.
(c) If the insurance expert concludes that such insurance is
not available on a commercially reasonable basis, the insurance expert shall
provide a written recommendation (which shall include the amount and type of
insurance which is available upon a commercially reasonable basis) not less than
15 days before the date for renewal of such insurance. The Facility Lessee
shall, prior to the expiration of the insurance then in effect, obtain such
insurance that is available on a commercially reasonable basis. The
recommendation of the insurance expert shall be conclusive and binding upon the
Additional Insureds, and the Facility Lessee shall, for the immediately
succeeding one-year policy period, only be required to carry the
28
insurance that the expert has certified is available on a commercially
reasonable basis.
(d) All fees, costs and expenses associated with the insurance
panel (including review by the insurance expert) shall be paid by the Facility
Lessee.
SECTION 11.7. APPLICATION OF INSURANCE PROCEEDS. (a) All insurance
proceeds up to $5,000,000 on account of any damage to or destruction of the
Facility or any part thereof (in each case less the actual costs, fees and
expenses incurred in the collection thereof), shall, subject to Section 11.7(d),
be paid to or retained by the Facility Lessee for application in repair or
replacement of the affected property. If the insurance proceeds on account of
such damage or destruction to the Facility exceed $5,000,000 but are less than
$25,000,000, then all such insurance proceeds shall, subject to Section 11.7(d),
be paid to or retained by the Facility Lessee for application in repair or
replacement of the affected property for so long as the EME long-term unsecured
indebtedness shall be rated at least BBB- and Baa3 by S&P and ▇▇▇▇▇'▇,
respectively. In all other situations, all insurance proceeds on account of such
damage or destruction to the Facility, shall be paid to the Owner Lessor or, if
the Lessor Notes are outstanding, the Lease Indenture Trustee and be applied and
dealt with as provided in Section 11.7(b) below.
(b) All such proceeds actually received on account of any such
damage or destruction other than in connection with an Event of Loss shall,
unless a Material Lease Default or a Lease Event of Default shall have occurred
and continuing, be paid over to the Facility Lessee or as it may direct from
time to time as restoration progresses, to pay (or reimburse the Facility Lessee
for) the cost of restoration, if the amount of such proceeds received by the
Lease Indenture Trustee or the Owner Lessor, together with such additional
amounts, if any, theretofore expended by the Facility Lessee out of its own
funds for such restoration, are sufficient to pay the estimated cost of
completing such restoration, but only upon receipt by the Owner Lessor and, so
long as the Lessor Notes are outstanding, the Lease Indenture Trustee of a
written application of the Facility Lessee accompanied by an Officer's
Certificate of the Facility Lessee setting forth in reasonable detail the nature
of such restoration, the actual cash expenditures made to date for such
restoration and the estimated cost to complete such restoration and stating that
no Lease Event of Default has occurred and is continuing.
29
(c) All such proceeds received or payable on account of an
Event of Loss shall, unless the Facility Lessee has elected to rebuild or
restore the Facility pursuant to Section 10.2, be dealt with in accordance with
Section 10.3.
(d) Notwithstanding the foregoing provisions of this Section
11 or Section 10, so long as a Material Lease Default or a Lease Event of
Default shall have occurred and be continuing, the proceeds of any insurance
required to be maintained pursuant to this Section 11 that would otherwise be
payable to or for the account of, or that would otherwise be retained by, the
Facility Lessee pursuant to this Section 11 or Section 10.3 will be held as
security for the obligations of the Facility Lessee under this Facility Lease by
the Owner Lessor or, so long as the Lessor Notes are outstanding, the Lease
Indenture Trustee and at such time thereafter as no Material Lease Default or a
Lease Event of Default shall be continuing, such amount shall be paid promptly
to the Facility Lessee.
SECTION 12. INSPECTION
During the Facility Lease Term, each of the Lease Financing Parties and
their respective representatives shall have the right, during normal business
hours, upon reasonable notice to the Facility Lessee and at no expense (except
when a Material Lease Default or a Lease Event of Default has occurred and is
continuing) or risk to the Facility Lessee, to inspect the Facility and the
records with respect to the operations and maintenance thereof in the Facility
Lessee's custody or to which the Facility Lessee has access; PROVIDED, HOWEVER,
that any such inspection shall be conducted in accordance with the Operative
Documents and so as not to interfere with the operation or maintenance of the
Facility or the conduct by the Facility Lessee of its business and shall be in
accordance with the Facility Lessee's safety and insurance programs. The Lease
Financing Parties shall attempt to conduct their inspections at the same time
and, except during the continuance of a Material Lease Default or a Lease Event
of Default or during the last 24 months of the Facility Lease Term (unless the
Facility Lessee shall have exercised its option to renew the Facility Lease), no
more than one inspection a year shall be conducted by any Lease Financing Party.
30
SECTION 13. TERMINATION OPTION FOR BURDENSOME EVENTS
SECTION 13.1. TERMINATION FOR ILLEGALITY. If, as a result of change in
Requirements of Law, it shall have become illegal for the Facility Lessee to
continue this Facility Lease or for the Facility Lessee to make payments under
this Facility Lease or any other Operative Document, and the transactions
contemplated by the Operative Documents cannot be restructured to comply with
such change in law in a manner reasonably acceptable to the Lease Financing
Parties, the Facility Lessee shall have the right, at its option, by giving
notice to the Owner Lessor no later than twelve months after the date the
Facility Lessee receives notice or first has actual knowledge of such
illegality, to terminate this Facility Lease on the Termination Date specified
in such notice (which shall be a date occurring not more than 60 days after the
date of such notice) and purchase the Undivided Interest by paying to the Owner
Lessor the Termination Value determined as of such Termination Date and causing
EME to pay to the Persons entitled thereto all other amounts required to be paid
under Section 13.3; PROVIDED, that all amounts owed by EME to the Lease
Financing Parties under the Operative Documents at such time, shall have been
paid to such Persons. It shall be a condition to the termination of this
Facility Lease pursuant to this Section 13.1 that each Other Facility Lessee
which is an Affiliate of the Facility Lessee, or is the Facility Lessee itself,
shall also exercise its right to terminate any and all Other Facility Leases to
which each such Facility Lessee is a party to the extent that the "Owner Lessor"
with respect to such Other Facility Lease is the Owner Lessor itself or an
Affiliate thereof and to the extent the Facility Lessee is then entitled to
exercise such termination right under such Other Facility Leases.
SECTION 13.2. TERMINATION FOR BURDENSOME INDEMNITY. If (i) one or more
events outside the control of the Facility Lessee or its Affiliates shall have
occurred which will, or could reasonably be expected to, give rise to an
obligation by the Facility Lessee or EME to pay or incur an indemnity obligation
under Section 12 of the Participation Agreement (except for tax indemnity
obligations expected on the Closing Date to be incurred) or pursuant to the Tax
Indemnity Agreement, (ii) such payment or indemnity obligation (and the
underlying cost or tax) can be avoided in whole or in part if the Facility
Lessee purchases the Undivided Interest and (iii) the amount of such avoided
payments, together with the amount of any indemnity payments made during the
Burdensome Buyout Period that could have been avoided if the Facility had been
purchased by the Facility Lessee would exceed (on a present value basis,
discounted at the Discount Rate, compounded on an annual basis to the
31
date of the termination) 2.5% of the Purchase Price (unless the Owner
Participant has waived its right to indemnity payments in excess of 2.5% of the
Purchase Price or arranged for its own account for the payment thereof), the
Facility Lessee shall have the right, at its option, no later than 24 months
after the date the Facility Lessee receives notice or actual knowledge of such
event referred to in clause (i) above, to terminate this Facility Lease on the
Termination Date specified in the notice provided pursuant to Section 13.1
(which shall be a date occurring not more than 60 days after the date of such
notice), and purchase the Undivided Interest by paying to the Owner Lessor the
Termination Value determined as of such Termination Date and causing EME to pay
to the Persons entitled thereto all other amounts required to be paid under
Section 13.3; PROVIDED, that all amounts owed by EME to the Lease Financing
Parties under the Operative Documents at such time, shall have been paid to such
Persons. It shall be a condition to the termination of this Facility Lease
pursuant to this Section 13.2 that each Other Facility Lessee which is an
Affiliate of the Facility Lessee, or is the Facility Lessee itself, shall also
exercise its right to terminate any and all Other Facility Leases to which each
such Facility Lessee is a party to the extent that the "Owner Lessor" with
respect to such Other Facility Lease is the Owner Lessor itself or an Affiliate
thereof and to the extent the Facility Lessee is then entitled to exercise such
termination right under such Other Facility Leases.
SECTION 13.3. PROCEDURE FOR EXERCISE OF TERMINATION OPTION. If the
Facility Lessee shall have exercised its option under Section 13.1 or 13.2
(each, a "BURDENSOME BUYOUT OPTION"), on the Termination Date specified in the
Facility Lessee's notice of such exercise, the Facility Lessee shall pay the
Termination Value to the Owner Lessor, and shall pay (or in the case of clause
(b) below, cause EME to pay) the following amounts to the Owner Lessor or the
Person entitled thereto, without duplication, (a) all amounts of Basic Lease
Rent or Renewal Lease Rent, as the case may be, due and payable on or prior to
such Termination Date PLUS (b) all reasonable documented out-of-pocket costs and
expenses incurred by the Lease Financing Parties, other than Affiliates of the
Facility Lessee, in connection with the exercise of the Burdensome Buyout Option
due and payable on or prior to the Termination Date and any fees and expenses of
the Lease Indenture Trustee and Pass Through Trustees due and unpaid on such
Termination Date PLUS (c) any other Rent payments under the Facility Lease or
under the Lease Indenture or under any other Operative Document. Concurrently
with the payment of all sums specified in Section 13.1 or 13.2, as the case may
be, and this Section 13.3, (1) Basic Lease Rent for the Undivided Interest shall
cease to accrue, (2) the Facility Lessee shall cease to have any liability
32
to the Owner Lessor with respect to the Undivided Interest, except for
Supplemental Lease Rent and other obligations surviving pursuant to the express
terms of any Operative Document, (3) subject to EME having paid all amounts owed
by EME to the Lease Financing Parties under the Operative Documents, the Owner
Lessor will in connection with a sale of the Facility pursuant to Section 13.1
or 13.2 transfer (by an appropriate instrument of transfer in form and substance
reasonably satisfactory to the Owner Lessee and prepared and recorded at the
Facility Lessee's expense), the Undivided Interest to the Facility Lessee (or
its designee) on an "as is" and "where is" basis, without representations or
warranties other than a warranty as to the absence of Owner Lessor's Liens and
Owner Participant's Liens, (4) this Facility Lease shall terminate and (5) the
Owner Lessor shall deliver appropriate releases and other documents or
instruments necessary or desirable to effect the foregoing, all to be prepared,
filed and recorded (if appropriate) at the cost and expense of the Facility
Lessee. It shall be a condition of the termination of this Facility Lease
pursuant to this Section 13 that the Facility Lessee shall pay all amounts it is
obligated to pay under Section 13.1 or 13.2, as the case may be, and this
Section 13.3 and all other amounts due by the Facility Lessee under this
Facility Lease and the other Operative Documents and that EME shall pay all
amounts owed by EME to the Lease Financing Parties under the Operative
Documents. The Burdensome Buyout Option must be exercised within the 24 month
period (the "BURDENSOME BUYOUT PERIOD") after actual knowledge by the Facility
Lessee of the event or illegality, as the case may be, giving rise thereto, and
if the Burdensome Buyout Option is not exercised within the Burdensome Buyout
Period, the Facility Lessee shall be deemed to have irrevocably waived its right
to exercise the Burdensome Buyout Option with respect to such event. If the
Facility Lessee fails to consummate the Burdensome Buyout Option under this
Section 13 after giving notice of its intention to do so (other than in
consequence of a failure of the Owner Lessor or Owner Participant to fulfill
their obligations, if any, under Section 13), (i) the Facility Lease shall
continue, (ii) such failure to consummate shall not constitute a default under
the Facility Lease, and (iii) the Facility Lessee will lose its right to
terminate this Facility Lease pursuant to this Section 13.3 as a result of the
event or condition giving rise to such Burdensome Buyout Option during the
remainder of the Facility Lease Term. The Facility Lessee hereby acknowledges
the Lien of the Lease Indenture and agrees for the benefit of the Lease
Indenture Trustee that any transfer effected pursuant to this Section 13.3 will
be subject to said Lien unless the same has been released or discharged in
accordance with the terms of the Lease Indenture.
33
SECTION 13.4. ASSUMPTION OF THE LESSOR NOTES; SPECIAL LESSEE TRANSFERS.
(a) Notwithstanding the foregoing provisions of Section 13.3
to the contrary, at the option of the Facility Lessee, if (i) the Facility
Lessee shall have executed and delivered an assumption agreement to assume the
Lessor Notes on a fully recourse basis, as permitted by and in accordance with
Section 2.12 of the Lease Indenture, (ii) all other conditions contained in such
Section 2.12 of the Lease Indenture shall have been satisfied, (iii) no Lease
Event of Default shall have occurred and be continuing and shall not be cured by
such assumption, (iv) the Facility Lessee shall remain liable under the Facility
Lease to pay Basic Lease Rent and to make other payments under the Facility
Lease in full and (v) the Facility Lessee shall purchase the Facility pursuant
to Section 13.1 or 13.2, as the case may be, then, the obligation of the
Facility Lessee to pay Termination Value shall be reduced by the outstanding
principal amount of the Lessor Notes so assumed by the Facility Lessee;
PROVIDED, HOWEVER, for so long as the Lessor Notes are outstanding, if the
Facility Lessee shall have chosen to assume the Lessor Notes pursuant to this
Section 13.4(a), the Facility Lessee (or its designee) shall acquire the
Undivided Interest from the Owner Lessor subject to the Lien of the Lease
Indenture; PROVIDED, FURTHER, that if the Facility Lessee assumes the Lessor
Notes, then the EME Guarantee shall be re-executed in favor of the Lease
Indenture Trustee or its successor, and for the benefit of the Pass Through
Trustees.
(b) Notwithstanding the foregoing provisions of Section 13.3
to the contrary, in the case of a Burdensome Buyout Event, the Facility Lessee
(or its designee) so long as the Facility Lessee shall remain liable under the
Facility Lease to pay Basic Lease Rent and all other payments hereunder in full,
and in all respects in accordance with Section 17 of the Participation
Agreement, may purchase the Owner Participant's Beneficial Interest or all of
the outstanding membership interests in the Owner Participant, in lieu of
purchasing the Undivided Interest pursuant to Sections 13.1 and 13.2, and keep
the Facility Lease (and Lessor Notes) in place.
SECTION 14. TERMINATION FOR OBSOLESCENCE
SECTION 14.1. TERMINATION. Upon at least six months' prior written
notice to the Owner Lessor, (which notice shall be accompanied by a
certification by the board of directors of the Facility Lessee as to one or more
of the matters described in clauses (a) and (b) below), the Facility Lessee
shall have the option, so long as no
34
Material Lease Default or Lease Event of Default shall have occurred and be
continuing on the date of such notice or the proposed Obsolescence Termination
Date (as defined below), to terminate this Facility Lease on any Termination
Date occurring on or after the seventh anniversary of the Closing Date and not
less than 180 days after such notice (the date of termination selected by the
Facility Lessee being the "OBSOLESCENCE TERMINATION DATE") which proposed
Obsolescence Termination Date shall be set forth in the notice, on the terms
and conditions set forth in this Section 14, if (a) the Facility is economically
or technologically obsolete as a result of (i) a change in Requirements of Law,
regulation or tariff of general application or imposition by the FERC or any
other Governmental Authority having or claiming jurisdiction over the Facility
Lessee or the Facility of any conditions or requirements (including, without
limitation, requiring significant capital improvements to the Facility) relating
to the availability, continued effectiveness or renewal of any license or permit
required for the operation or ownership of the Facility, or (ii) as a result of
any change in the markets for the wholesale purchase and/or sale of energy or
any material abrogation of power purchase agreements; (b) an event has occurred
that, in the Facility Lessee's good faith judgment, will cause the Facility to
become obsolete; or (c) the Facility is surplus to the Facility Lessee's needs
or is no longer useful in its trade or business. It shall be a condition to the
termination of this Facility Lease pursuant to this Section 14.1 that each Other
Facility Lessee which is an Affiliate of the Facility Lessee, or is the Facility
Lessee itself, shall also exercise its right to terminate any and all Other
Facility Leases to which such Facility Lessee is a party to the extent that the
"Owner Lessor" with respect to such Other Facility Lease is the Owner Lessor
itself or an Affiliate thereof and to the extent the Facility Lessee is then
entitled to exercise such termination right under such Other Facility Leases.
SECTION 14.2. SOLICITATION OF OFFERS. If the Facility Lessee shall give
the Owner Lessor notice pursuant to Section 14.1 and the Owner Lessor shall not
have elected to retain the Undivided Interest pursuant to Section 14.3 hereof,
the Facility Lessee shall (i) as non-exclusive agent for the Owner Lessor, use
commercially reasonable efforts to obtain bids from third parties unaffiliated
with the Facility Lessee and sell the Owner Lessor's Interest on the
Obsolescence Termination Date and (ii) covenant that it will not sell the Owner
Lessor's Interest to any third party with whom the Facility Lessee or an
Affiliate thereof has an arrangement to use or operate the Facility to generate
power for the benefit of the Facility Lessee or any Affiliate thereof after the
termination of this Facility Lease. All of the proceeds of any such sale will be
for the account of the Owner Lessor; PROVIDED that, so long as
35
the Lessor Notes are outstanding, the proceeds of such sale shall be paid
directly to the Lease Indenture Trustee.
SECTION 14.3. RIGHT OF OWNER LESSOR TO RETAIN THE UNDIVIDED INTEREST.
The Owner Lessor may irrevocably elect to retain, rather than sell, the
Undivided Interest by giving notice to the Facility Lessee at least 90 days
prior to the Obsolescence Termination Date. If the Owner Lessor elects to retain
the Undivided Interest pursuant to this Section 14.3, on the Obsolescence
Termination Date the Facility Lessee shall pay (or, in the case of clauses (iii)
and (iv) below, cause EME to pay) to the Owner Lessor (i) any Basic Rent or
Renewal Lease Rent, as the case may be, payable on the Obsolescence Termination
Date, PLUS (ii) the amount set forth under the column headed "Excess of the
Cumulative Allocated 467 Fixed Rent and Interest on 467 Fixed Rent over Basic
Lease Rent Paid" set forth in Schedule 2 for such Obsolescence Termination Dates
(PROVIDED that the amount, if any, set forth in Schedule 2 under the column
headed "Excess of Basic Lease Rent Paid over the Cumulative Allocated 467 Fixed
Rent and Interest on 467 Fixed Rent" shall be credited against the amount
payable under this Section 14.3 and any excess payable under this Section 14.3
after such crediting shall be payable by the Owner Lessor to the Facility
Lessee), PLUS (iii) all reasonable documented out-of-pocket costs and expenses
incurred in connection with exercise by the Facility Lessee of the termination
option pursuant to this Section 14 by the other Lease Financing Parties (but
excluding the fees and costs of any broker unless engaged by the Facility Lessee
on behalf of the Owner Lessor), PLUS (iv) any other Rent payments under this
Facility Lease due and unpaid on the Obsolescence Termination Date including the
reimbursement of any fees or expenses of the Lease Indenture Trustee under the
Lease Indenture, but not including the outstanding amount of the Lessor Notes on
such date, under any other Operative Document. Concurrently with the payment of
all sums required to be paid pursuant to this Section 14.3, (i) Basic Lease Rent
for the Undivided Interest shall cease to accrue, (ii) the Facility Lessee shall
cease to have any liability hereunder or any other Operative Document with
respect to the Undivided Interest, except for Supplemental Lease Rent and other
obligations surviving pursuant to the express terms of any Operative Document,
(iii) the Owner Lessor shall pay all outstanding principal and accrued interest
on the Lessor Notes and all other amounts due under the Lease Indenture
including the reimbursement of any fees or expenses of the Lease Indenture
Trustee, (iv) the Facility Lessee will return the Undivided Interest to the
Owner Lessor in accordance with Section 5.1, (v) this Facility Lease shall
terminate and (vi) subject to EME having paid all amounts owed
36
by EME to the Lease Financing Parties under the Operative Documents, the Owner
Lessor shall execute and deliver appropriate releases and other documents or
instruments necessary or desirable to effect the foregoing, all to be prepaid,
filed and recorded (if appropriate) at the cost and expense of the Facility
Lessee. It shall be a condition precedent to the termination of this Facility
Lease pursuant to this Section 14.3, that the Owner Lessor and the Facility
Lessee shall each pay all amounts that each is obligated to pay under this
Section 14.3.
SECTION 14.4. PROCEDURE FOR EXERCISE OF TERMINATION OPTION. If the
Owner Lessor has not elected to retain the Undivided Interest in accordance with
Section 14.3 hereof, on the Obsolescence Termination Date the Owner Lessor shall
sell the Owner Lessor's Undivided Interest under this Section 14.4 and its
interest in the Ground Interest under Section 6 of the Facility Site Lease and
Section 6 of the Facility Site Sublease to the bidder or bidders (which shall
not be the Facility Lessee, any Affiliate thereof or any third party with whom
the Facility Lessee or an Affiliate thereof has an arrangement to use or operate
the Facility to generate power for the benefit of the Facility Lessee or any
Affiliate after the termination of this Facility Lease), that shall have
submitted the highest cash bid or bids with respect to the Owner Lessor's
Interest. On the Obsolescence Termination Date, the Facility Lessee shall pay
(or in the case of clause (c) and (d) below, cause EME to pay to the appropriate
Lease Financing Party (a) the excess, if any, of Termination Value plus, in the
case of a termination of this Facility Lease pursuant to Section 14.1(a)(ii),
(b) or (c) hereof, Make-Whole Premium, if any, in each case as determined as of
such Obsolescence Termination Date over the proceeds of the sale of the
Undivided Interest paid to or retained by the Owner Lessor in connection with
such sale, PLUS (b) if such Obsolescence Termination Date shall be a Rent
Payment Date, any Basic Lease Rent or Renewal Lease Rent due and payable on such
Rent Payment Date, PLUS (c) all reasonable out-of-pocket costs and expenses of
the Lease Financing Parties (excluding the fees and costs of any broker unless
engaged by the Facility Lessee on the Owners Lessor's behalf) incurred in
connection with the exercise of the termination option pursuant to this Section
14 due and payable on such Obsolescence Termination Date, PLUS (d) any other
Rent payments under this Facility Lease due and unpaid on the Obsolescence
Termination Date. If the proceeds from the sale of the Owner Lessor's Interest
paid to or retained by the Owner Lessor exceeds the Termination Value PLUS, in
the case of a termination of the Facility Lease pursuant to Section 14.1(a)(ii),
(b) or (c) hereof, Make-Whole Premium, if any, in each case as determined as of
the Obsolescence Termination Date, the Owner Lessor shall
37
reimburse the Facility Lessee for the amount of the Termination Value paid by
the Facility Lessee, if any. Concurrently with the payment of all sums required
to be paid pursuant to this Section 14.4, (i) Basic Lease Rent for the Undivided
Interest shall cease to accrue, (ii) the Facility Lessee shall cease to have any
liability hereunder to the Owner Lessor with respect to the Undivided Interest,
except for Supplemental Lease Rent and other obligations surviving pursuant to
the express terms of any Operative Document, (iii) subject to EME having paid
all amounts owed by EME to the Lease Financing Parties under the Operative
Documents, the Owner Lessor will transfer (by an appropriate instrument of
transfer in form and substance reasonably satisfactory to the Owner Lessor and
prepared and recorded at the Facility Lessee's expense) the Owner Lessor's
Interest under this Section 14.4, to the purchaser on an "as is" and "where is"
basis, without representations or warranties other than a warranty as to the
absence of Owner Lessor's Liens and Owner Participant's Liens, (iv) this
Facility Lease shall terminate and (v) the Owner Lessor shall execute and
deliver appropriate releases and other documents or instruments necessary or
desirable to effect the foregoing, all to be prepaid, filed and recorded (if
appropriate) at the cost and expense of the Facility Lessee. The Facility Lessee
may, at its election, revoke its notice of termination on at least 30 days'
prior notice to the Owner Lessor, in which event this Facility Lease shall
continue with respect to the Undivided Interest; PROVIDED, HOWEVER, that the
Facility Lessee shall not be permitted to reissue a notice to terminate pursuant
to Section 14.1 more than once in any five year period. The Owner Lessor shall
be under no duty to solicit bids, to inquire into the efforts of the Facility
Lessee to obtain bids or otherwise take any action in arranging any such sale of
the Owner Lessor's Interest other than, if the Owner Lessor has not elected to
retain the Undivided Interest, to transfer the Owner Lessor's Interest in
accordance with clause (iv) of the second preceding sentence. It shall be a
condition of the Owner Lessor's obligation to consummate a sale of the Owner
Lessor's Interest that the Facility Lessee shall pay all amounts it is obligated
to pay under this Section 14.4 and that EME shall have paid all amounts owed by
EME to the Lease Financing Parties under the Operative Documents. If no sale
shall occur on the Obsolescence Termination Date, the notice of termination
shall be deemed revoked and this Facility Lease shall continue as to the
Undivided Interest in full force and effect in accordance with its terms
(without prejudice to the Facility Lessee's right to exercise its rights under
this Section 14). It shall be a condition to the termination of this Facility
Lease pursuant to this Section 14.4 that each Other Facility Lessee which is an
Affiliate of the Facility Lessee, or is the Facility Lessee itself, shall also
exercise its right to terminate any and all Other Facility Leases to
38
which each such Facility Lessee is a party to the extent that the "Owner Lessor"
with respect to such Other Facility Lease is the Owner Lessor itself or an
Affiliate thereof and to the extent the Facility Lessee is then entitled to
exercise such termination right under such Other Facility Leases. The Facility
Lessee hereby acknowledges the Lien of the Lease Indenture and agrees for the
benefit of the Lease Indenture Trustee that any transfer effected pursuant to
this Section 14.4 will be subject to said Lien unless the same has been released
or discharged in accordance with the terms of the Lease Indenture.
SECTION 15. LEASE RENEWAL
SECTION 15.1. WINTERGREEN RENEWAL LEASE TERMS.
(a) Not earlier than 42 months prior to, but not less than 18
months prior to, the expiration of the Basic Lease Term, so long as no Lease
Event of Default shall have occurred and be continuing on the date any notice is
given pursuant to this Section 15.1(a) and no Lease Event of Default or Material
Lease Default shall have occurred and be continuing on the date the lease
renewal proposed pursuant to this Section 15.1(a) is to commence, the Facility
Lessee may deliver to the Owner Lessor a notice (which notice may be in addition
to a notice of the Facility Lessee's interest in electing a FMV Renewal Lease
Term under Section 15.2) of the Facility Lessee's interest in renewing this
Facility Lease at the end of the Basic Lease Term for a term (the "FIRST
WINTERGREEN RENEWAL LEASE TERM") selected by the Facility Lessee, which term
shall satisfy the following criteria: (i) on the last date of such proposed
First Wintergreen Renewal Lease Term, the estimated Fair Market Sales Value of
the Facility shall be no less than 20% of the Purchase Price (without taking
into account inflation or deflation subsequent to the Closing Date), (ii) the
aggregate of the proposed First Wintergreen Renewal Lease Term and the Basic
Lease Term shall be no greater than 80% of the estimated remaining useful life
of the Facility, measured from the Closing Date and (iii) the First Wintergreen
Renewal Lease Term will be for a period of not less than 3.25 years and items
(i), (ii) and (iii) shall be determined not more than 36 months prior to the
expiration of the Basic Lease Term by an Independent Appraiser selected by the
Facility Lessee and reasonably acceptable to the Owner Lessor. The Facility
Lessee may withdraw any notice given in accordance with this Section 15.1(a) by
written notice of such withdrawal to the Owner Lessor, on or prior to the date
which is 18 months before the commencement of the proposed First Wintergreen
Renewal Lease Term and if
39
such notice is not so withdrawn, the Facility Lessee shall be deemed to have
irrevocably elected to renew the Facility Lease for the First Wintergreen
Renewal Term.
(b) Not earlier than 42 months prior to, but not less than 18
months prior to, the expiration of the First Wintergreen Renewal Term, so long
as no Lease Event of Default shall have occurred and be continuing on the date
any notice is given pursuant to this Section 15.1(b) and no Lease Event of
Default or Material Lease Default shall have occurred and be continuing on the
date the lease renewal proposed pursuant to this Section 15.1(b) is to commence,
the Facility Lessee may deliver to the Owner Lessor a notice (which notice may
be in addition to a notice of the Facility Lessee's interest in electing a FMV
Renewal Lease Term under Section 15.2) of the Facility Lessee's interest in
renewing this Facility Lease at the end of the First Wintergreen Renewal Lease
Term for a term (the "SECOND WINTERGREEN RENEWAL LEASE TERM") selected by the
Facility Lessee, which term shall satisfy the following criteria: (i) on the
last date of such proposed Second Wintergreen Renewal Lease Term, the estimated
Fair Market Sales Value of the Facility shall be no less than 20% of the
Purchase Price (without taking into account inflation or deflation subsequent to
the Closing Date) and (ii) the aggregate of the proposed Second Wintergreen
Renewal Lease Term, the First Wintergreen Renewal Lease Term and the Basic Lease
Term shall be no greater than 80% of the estimated remaining useful life of the
Facility, measured from the Closing Date and both (i) and (ii) determined not
more than 36 months prior to the expiration of the First Wintergreen Renewal
Lease Term by an Independent Appraiser selected by the Facility Lessee and
reasonably acceptable to the Owner Lessor. The Facility Lessee may withdraw any
notice given in accordance with this Section 15.1(b) by written notice of such
withdrawal to the Owner Lessor on or prior to 18 months before commencement of
the proposed Second Wintergreen Renewal Lease Term and if such notice is not so
withdrawn, the Facility Lessee shall be deemed to have irrevocably elected to
renew the Facility Lease for the Second Wintergreen Renewal Term.
SECTION 15.2. FAIR MARKET VALUE RENEWAL LEASE TERMS. Not earlier than
42 months prior to, but not less than 18 months prior to, the expiration of the
Basic Lease Term or any Renewal Lease Term, so long as no Lease Event of Default
shall have occurred and be continuing on the date any notice is given pursuant
to this Section 15.2 and no Lease Event of Default or Material Lease Default
shall have occurred and be continuing on the date the lease renewal proposed
pursuant to this Section 15.2 is to commence, the Facility Lessee may deliver to
the Owner Lessor a
40
notice (which notice may be in addition to a notice of the Facility Lessee's
interest in electing the First Wintergreen Renewal Lease Term or the Second
Wintergreen Renewal Lease Term) of the Facility Lessee's interest in renewing
this Facility Lease for a term (each such term, a "FMV RENEWAL LEASE TERM")
commencing upon expiration of the Basic Lease Term or the Renewal Lease Term
otherwise expiring and extending for no less than two years and no more than
five years; PROVIDED that, unless such FMV Renewal Lease Term extends to the end
of the useful life of the Facility, no Renewal Lease Term shall extend beyond
the date that is 36 months prior to the end of the useful life of the Facility
(as set forth in the most recent of the Closing Date Appraisal, the appraisal
obtained by the Facility Lessee in connection with the determination of the
First Wintergreen Renewal Lease Term and the appraisal obtained by the Facility
Lessee in connection with the determination of the Second Wintergreen Renewal
Lease Term). The Facility Lessee may withdraw any notice given in accordance
with this Section 15.2 by written notice of such withdrawal to the Owner Lessor
and if such notice is not so withdrawn, the Facility Lessee shall be deemed to
have irrevocably elected to renew the Facility Lease for the FMV Renewal Term.
SECTION 15.3. RENEWAL LEASE RENT AND TERMINATION VALUE FOR RENEWAL
LEASE TERM. During each Renewal Lease Term, Renewal Lease Rent shall be paid on
the Rent Payment Dates. The installment of Renewal Lease Rent payable on each
such Rent Payment Date during the First Wintergreen Renewal Lease Term and the
Second Wintergreen Renewal Lease Term shall be equal to the lesser of (i) the
Fair Market Rental Value of the Undivided Interest determined not more than 36
months prior to the expiration of the Basic Lease Term, in the case of rent
payable during the First Wintergreen Renewal Term, or the First Wintergreen
Renewal Lease Term, in the case of rent payable during the Second Wintergreen
Renewal Term, and (ii) 50% of the average Basic Lease Rent payable with respect
to the Basic Lease Term. Renewal Lease Rent payable on each Rent Payment Date
during any FMV Renewal Lease Term for the Undivided Interest shall be equal to
105% of the Fair Market Rental Value of the Undivided Interest determined not
more than 36 months before the commencement of such FMV Renewal Lease Term.
SECTION 15.4. DETERMINATION OF FAIR MARKET RENTAL VALUE. The Fair
Market Rental Value of the Undivided Interest as of the commencement of any
Renewal Lease Term shall be determined by agreement of the Owner Lessor and the
Facility Lessee within six months after receipt by the Owner Lessor of the
notice from the
41
Facility Lessee of its election to renew pursuant to Section 15.1 or 15.2 (but
not more than 36 months before the commencement of such Renewal Lease Term) or,
if they shall fail to agree within such six month period, shall be determined by
an appraisal conducted by an Independent Appraiser according to the Appraisal
Procedure. The Facility Lessee shall be responsible for such Independent
Appraiser's fees and expenses.
SECTION 16. EVENTS OF DEFAULT
Each of the following events shall constitute a "LEASE EVENT OF
DEFAULT" hereunder (whether any such event shall be voluntary or involuntary or
come about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree or order of any court or any order, rule or regulation
of any Governmental Authority):
(a) the Facility Lessee shall fail to make any payment of
Basic Lease Rent, Renewal Lease Rent, Termination Value, Make-Whole Premium or
other prepayment premium or other costs (but in no event interest or principal),
fees and expenses associated with the Lessor Notes (other than costs, fees and
expenses in respect of the Lessor Notes incurred as a result of the Lease
Indenture Event of Default which is not a Lease Event of Default) when due, and
such failure shall continue unremedied for five (5) Business Days; or
(b) the Facility Lessee shall fail to make or cause EME to
make any other payment required to be made by the Facility Lessee under this
Facility Lease, or under any other Operative Document (other than Excepted
Payments, unless the Owner Participant shall have declared a default with
respect thereto) when due, and such failure shall have continued unremedied for
30 days after receipt by the Facility Lessee of written notice of such failure;
or
(c) the Facility Lessee shall fail to maintain insurance in
the amounts and on the terms set forth in the Operative Documents, including
Section 11 hereof, and such failure shall continue unremedied for 10 Business
Days after receipt by the Facility Lessee of written notice thereof; or
(d) the Facility Lessee shall fail to perform or observe any
other material covenant set forth in this Facility Lease or any other covenant
set forth in
42
the Participation Agreement or in any other Operative Document and such failure
shall continue unremedied for 30 days after receipt by the Facility Lessee of
written notice thereof; PROVIDED, HOWEVER, that if such failure cannot be
remedied within such 30-day period, then the period within which to remedy such
failure shall be extended up to an additional 180 days, so long as the Facility
Lessee diligently pursues such remedy, such failure is reasonably capable of
being remedied within such additional 180-day period and the continuation of
such failure during the period of such extension would not have a Material
Adverse Effect on the Facility Lessee or the Guarantor; PROVIDED, FURTHER, that
in the case of the Facility Lessee's obligation set forth in clause (b) of
Section 7.1, to the extent and for so long as a test, challenge, appeal or
proceeding to review with respect to such non-compliance shall be prosecuted in
good faith by the Facility Lessee, the failure by the Facility Lessee to comply
with the requirements thereof shall not constitute a Lease Event of Default if
such test, challenge, appeal or proceeding shall not involve (i) a risk of
foreclosure, sale, forfeiture or loss of, or imposition of a Lien on, the
Facility or any part thereof or of impairment of the use, operation or
maintenance of the Facility, or (ii) a risk of criminal liability being incurred
by, or of a material adverse effect on the interests of, any other Lease
Financing Party, including, without limitation, subjecting any such person to
regulation as a public utility under Requirements of Law; and PROVIDED, FURTHER,
also in the case of the Facility Lessee's obligation set forth in clause (b) of
Section 7.1, if such noncompliance is not a type that can be immediately
remedied, the failure to comply shall not be a Lease Event of Default if the
Facility Lessee is taking all reasonable action to remedy such noncompliance and
if, but only if, such noncompliance shall not involve any danger described in
clause (i) or (ii) of the preceding proviso; and PROVIDED, FURTHER, such
noncompliance, or such test, challenge, appeal or proceeding to review with
respect to such noncompliance shall not extend beyond the date that is 36 months
prior to the scheduled expiration of the Basic Lease Term or any Renewal Lease
Term then in effect or already elected by the Facility Lessee; or
(e) any representation or warranty of the Facility Lessee or
the Guarantor set forth in the Operative Documents (other than a tax
representation set forth in the Tax Indemnity Agreement) shall prove to have
been incorrect in any material respect when made and the facts or circumstances
upon which such breach of representation or warranty is based continue to be
material and unremedied for a period of 30 days after receipt by the Facility
Lessee of written notice thereof; PROVIDED, HOWEVER, that if such condition
cannot be remedied within such 30-day
43
period, then the period within which to remedy such condition shall be extended
up to an additional 60 days, so long as the Facility Lessee diligently pursues
such remedy, such condition is reasonably capable of being remedied within such
additional 60-day period and the continuation of such condition during the
period of such extension would not have a Material Adverse Effect on the
Facility Lessee or the Guarantor; or
(f) the Facility Lessee or the Guarantor shall (i) commence a
voluntary case or other proceeding seeking relief under Title 11 of the
Bankruptcy Code or liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect, or apply for or consent to the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or (ii) consent to, or fail to controvert in a
timely manner, any such relief or the appointment of or taking possession by any
such official in any voluntary case or other proceeding commenced against it, or
(iii) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, or (iv) make a general assignment for the
benefit of creditors; or
(g) an involuntary case or other proceeding shall be commenced
against the Facility Lessee or the Guarantor, seeking (i) liquidation,
reorganization or other relief with respect to it or its debts under Title 11 of
the Bankruptcy Code or any bankruptcy, insolvency or other similar law now or
hereafter in effect, or (ii) the appointment of a trustee, receiver, liquidator,
custodian or other similar official with respect to it or any substantial part
of its property or (iii) the winding-up or liquidation of the Facility Lessee or
the Guarantor, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 90 days; or
(h) default under any bond, debenture, note or other evidence
of Indebtedness (but excluding obligations arising under the Operative Documents
and non-recourse Indebtedness) for money borrowed by the Facility Lessee or the
Guarantor under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness of the
Facility Lessee or the Guarantor, whether such indebtedness now exists or shall
hereafter be created, which Indebtedness is in an aggregate principal amount
exceeding $20,000,000 at all other times and which default shall have resulted
in such Indebtedness becoming or being declared due and payable prior to the
date on which
44
it would otherwise have become due and payable, without such Indebtedness having
been discharged, or such acceleration having been rescinded or annulled; or
(i) failure by the Facility Lessee to comply in all material
respects with the restrictions on transfer imposed on it by Section 22.4 herein;
or
(j) any of the Operative Documents (including the Lease
Indenture) to which the Facility Lessee or the Guarantor is a party are declared
unenforceable, are terminated, cease to be in full force and effect or fail to
constitute valid and perfected first priority security interests (in each case,
other than in accordance with their terms) or either the Facility Lessee or the
Guarantor fails to comply with its respective obligations under Sections 5.7, or
7.5 of the Participation Agreement; or
(k) judgments or orders for the payment of money against
either of the Facility Lessee or the Guarantor, which judgments or orders, as
the case may be, are in excess of $20,000,000 in the aggregate (taking into
account any insurance proceeds payable under a policy where the insurer has
accepted coverage without reservation) and which are not vacated, discharged or
effectively stayed or bonded within 60 days from the entry thereof; or
(l) the Guarantor fails to make any payment under the EME
Guarantee, the EME OP Guarantee or any other Operative Document (other than
payments pursuant to the Reimbursement Agreement and other than Excepted
Payments, unless the Owner Participant shall have declared a default with
respect to such Excepted Payments) when due, and such failure shall continue
unremedied for five (5) Business Days after receipt by the Guarantor of written
notice of such failure;
(m) occurrence of a Regulatory Violation with respect to the
Facility Lessee; or
(n) (i) any Reportable Event shall occur; (ii) there shall be
initiated any action by the Guarantor or any member of the Controlled Group to
terminate a Plan; (iii) there shall be initiated proceedings by the PBGC under
Section 4042 of ERISA to terminate a Plan or to appoint a trustee to administer
a Plan; (iv) any Plan shall incur an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), unless waived; (v)
the imposition upon the
45
Guarantor or any member of the Controlled Group or any Plan fiduciary of a
material liability resulting from either the engagement by any such party in a
transaction prohibited under Section 4975 of the Code or Section 406 of ERISA or
any other violation of Title I of ERISA; (vi) the Guarantor or any member of the
Controlled Group suffers a partial or complete withdrawal from a Multiemployer
Plan, which, with respect to clauses (i) through (vi) above, results in a
liability, individually or in the aggregate, of at least $20,000,000;
(o) the Guarantor shall fail to perform or observe any other
material covenant set forth in the Participation Agreement or in any other
Operative Document (other than the EME OP Guarantee) and such failure shall
continue unremedied for 30 days after receipt by the Guarantor of written notice
thereof; PROVIDED, HOWEVER, that if such failure cannot be remedied within such
30-day period, then the period within which to remedy such failure shall be
extended up to an additional 180 days, so long as the Guarantor diligently
pursues such remedy, such failure is reasonably capable of being remedied within
such additional 180-day period and the continuation of such failure during the
period of such extension would not have a Material Adverse Effect on the
Guarantor; or
(p) the Guarantor shall fail to perform or observe any other
material covenant set forth in the EME OP Guarantee, the Owner Participant shall
have declared a default thereunder with respect to such failure and such failure
shall continue unremedied for 30 days after such declaration; PROVIDED, HOWEVER,
that if such failure cannot be remedied within such 30-day period, then the
period within which to remedy such failure shall be extended up to an additional
180 days, so long as the Guarantor diligently pursues such remedy, such failure
is reasonably capable of being remedied within such additional 180-day period
and the continuation of such failure during the period of such extension would
not have a Material Adverse Effect on the Guarantor.
SECTION 17. REMEDIES
SECTION 17.1. REMEDIES FOR LEASE EVENT OF DEFAULT. Upon the occurrence
of any Lease Event of Default and at any time thereafter so long as the same
shall be continuing, the Owner Lessor may, at its option, declare this Facility
Lease to be in default by written notice to the Facility Lessee (PROVIDED, that
this Facility Lease shall automatically be in default without such declaration
or delivery of such notice
46
upon the occurrence of a Lease Event of Default in clause (f) or (g) of Section
16); and at any time thereafter, so long as the Facility Lessee shall not have
remedied all outstanding Lease Events of Default, the Owner Lessor may do one or
more of the following as the Owner Lessor in its sole discretion shall elect, to
the extent permitted by, and subject to compliance with any mandatory
Requirements of Law then in effect and subject to Section 17.2 below:
(a) proceed by appropriate court action or actions, either at
law or in equity, to enforce performance by the Facility Lessee of the
applicable covenants and terms of this Facility Lease or to recover damages for
breach thereof;
(b) by notice in writing to the Facility Lessee, terminate
this Facility Lease whereupon all right of the Facility Lessee to the possession
and use of the Undivided Interest under this Facility Lease shall absolutely
cease and terminate but the Facility Lessee shall remain liable as hereinafter
provided; and thereupon, the Owner Lessor may demand that the Facility Lessee,
and the Facility Lessee shall, upon written demand of the Owner Lessor,
forthwith return possession of the Undivided Interest to the Owner Lessor in the
manner and condition required by, and otherwise in accordance with all of the
provisions of Section 5, except those provisions relating to periods of notice;
and the Owner Lessor may thenceforth hold, possess and enjoy the same free from
any right of the Facility Lessee, or its successor or assigns, to use the
Undivided Interest for any purpose whatever;
(c) sell the Owner Lessor's Interest at public or private
sale, as the Owner Lessor may determine, free and clear of any rights of the
Facility Lessee under this Facility Lease and without any duty to account to the
Facility Lessee with respect to such sale or for the proceeds thereof (except to
the extent required by paragraph (f) below if the Owner Lessor elects to
exercise its rights under said paragraph and by Requirements of Law), in which
event the Facility Lessee's obligation to pay Basic Lease Rent hereunder due for
any periods subsequent to the date of such sale shall terminate (except to the
extent that Basic Lease Rent is to be included in computations under paragraph
(f) below if the Owner Lessor elects to exercise its rights under said
paragraph);
(d) hold, keep idle or lease to others the Owner Lessor's
Interest as the Owner Lessor in its sole discretion may determine, free and
clear of any rights of the Facility Lessee under this Facility Lease and without
any duty to account to the
47
Facility Lessee with respect to such action or inaction or for any proceeds with
respect thereto, except that the Facility Lessee's obligation to pay Basic Lease
Rent with respect to the Undivided Interest due for any periods subsequent to
the date upon which the Facility Lessee shall have been deprived of possession
and use of the Undivided Interest pursuant to this Section 17 shall be reduced
by the net proceeds, if any, received by the Owner Lessor from leasing the
Undivided Interest to any Person other than the Facility Lessee;
(e) whether or not the Owner Lessor shall have exercised, or
shall thereafter at any time exercise, any of its rights under paragraph (b)
above with respect to the Undivided Interest, the Owner Lessor, by written
notice to the Facility Lessee specifying a Termination Date that shall be not
earlier than 10 days after the date of such notice, may demand that the Facility
Lessee pay to the Owner Lessor, and the Facility Lessee shall pay to the Owner
Lessor, on the Termination Date specified in such notice (or immediately upon
the occurrence of a Lease Event of Default described in clause (f) or (g) of
Section 16, in which case no such written notice or demand shall be required
under this Section 17.1(e) for the amounts described in this Section 17.1(e) to
become due and payable by the Facility Lessee), any unpaid Basic Lease Rent due
before such Termination Date and, if such Termination Date shall be a Rent
Payment Date, any Basic Lease Rent due and payable on such Rent Payment Date,
any Supplemental Lease Rent due and unpaid as of the payment date specified in
such notice, plus as liquidated damages for loss of a bargain and not as a
penalty (in lieu of the Basic Lease Rent due after the Termination Date
specified in such notice), (i) an amount equal to the excess, if any, of the
Termination Value computed as of the Termination Date specified in such notice
over the Fair Market Sales Value of the Owner Lessor's Interest as of the
Termination Date specified in such notice; or (ii) an amount equal to the
excess, if any, of Termination Value computed as of the Termination Date
specified in such notice over the Fair Market Rental Value of the Owner Lessor's
Interest until the end of the Basic Lease Term or the then current Renewal Lease
Term, after discounting such Fair Market Rental Value quarterly to present value
as of the Termination Date specified in such notice at a rate equal to the
Discount Rate; or (iii) an amount equal to the Termination Value computed as of
the Termination Date specified in such notice and, upon payment of such
Termination Value by the Facility Lessee pursuant to this clause (iii) and all
other Rent then due and unpaid by the Facility Lessee, the Owner Lessor will
forthwith transfer to the Facility Lessee (or its designee) in accordance with
this Section 17.1(e) and Section 6 of the Facility Site Lease on an
48
"as is," "where is" and "with all faults" basis, without representation or
warranty other than a warranty as to the absence of Owner Lessor's Liens
accompanied by a warranty of the Owner Participant as to the absence of the
Owner Participant's Liens, all of its interest in the Owner Lessor's Interest
and execute, acknowledge and deliver, and record and file (as appropriate),
appropriate releases, including a release from the Lien of the Lease Indenture,
and all other documents or instructions necessary or desirable to effect the
foregoing all in form and substance reasonably satisfactory to the Owner Lessor
and at the cost and expense of the Facility Lessee, and upon payment of such
amounts under either clauses (i) and (ii) of this paragraph (e), this Facility
Lease, and the Facility Lessee's obligation to pay Basic Lease Rent hereunder
due for any periods subsequent to the date of such payment shall terminate; and
(f) if the Owner Lessor shall have sold the Owner Lessor's
Interest pursuant to paragraph (c) above, the Owner Lessor may, if it shall so
elect, demand that the Facility Lessee pay to the Owner Lessor, and the Facility
Lessee shall pay to the Owner Lessor, as liquidated damages for loss of a
bargain and not as a penalty (in lieu of the Basic Lease Rent due for any
periods subsequent to the date of such sale), an amount equal to (A) any unpaid
Basic Lease Rent due before the date of such sale PLUS (B) if that date is a
Rent Payment Date, the Basic Lease Rent due on that date, PLUS (C) the amount,
if any, by which the Termination Value computed as of the Termination Date next
preceding the date of such sale or, if such sale occurs on a Rent Payment Date
or a Termination Date then computed as of such date, exceeds the net proceeds of
such sale, and, upon payment of such amount, this Facility Lease and the
Facility Lessee's obligation to pay Basic Lease Rent for any periods subsequent
to the date of such payment shall terminate.
In addition, the Facility Lessee shall be liable, except as otherwise
provided above, for (i) any and all unpaid Basic Lease Rent due hereunder
before, or during the exercise of any of the foregoing remedies, and (ii) on an
After-Tax Basis, for legal fees and other costs and expenses incurred by reason
of the occurrence of any Lease Event of Default or the exercise of the Owner
Lessor's remedies with respect thereto, including the repayment in full of any
costs and expenses necessary to be expended in connection with the return of the
Undivided Interest in accordance with Section 5.2 hereof, including, without
limitation, any costs and expenses incurred by the Owner Lessor, the Owner
Participant, the Lease Indenture Trustee and other Lease Financing Parties in
connection with retaking constructive possession of, or in
49
repairing, the Undivided Interest in order to cause it to be in compliance with
all maintenance standards imposed by this Facility Lease.
SECTION 17.2. LIMITATION ON RECOURSE. Notwithstanding anything herein
to the contrary, at any time during the Basic Lease term only, if Rent
(including Termination Value) and Other Midwest Liabilities due and unpaid at
such time is greater than the aggregate Free Cashflow amount attributable to the
Fiscal Quarters during which Rent and Other Midwest Liabilities became due and
are undischarged, any claim against the Facility Lessee for the amount by which
such Rent and Other Midwest Liabilities due and unpaid exceed the aggregate Free
Cashflow amount attributable to the Fiscal Quarters during which Rent and Other
Midwest Liabilities became due and are undischarged shall be subordinated to the
claims of the holders of Specified Midwest Indebtedness on the terms and
conditions set forth in the Subordination Agreement; PROVIDED that such
subordination shall not impair or otherwise restrict any right or ability of the
Owner Participant, the Owner Trustee, the Equity Investor, the Lease Indenture
Trustee or either Pass Through Trustee to make a claim under the EME Guarantee
or the EME OP Guarantee, as the case may be, in respect of such excess or to
retain any amount paid by EME under the EME Guarantee or the EME OP Guarantee,
as the case may be, in respect of such excess.
Notwithstanding the foregoing, no provision of this Facility Lease
(including this Section 17.2) or the Subordination Agreement shall limit or
impair, or be deemed to limit or impair, in any way the right of the Owner
Lessor to take (or cause to be taken) any of the following actions: (i) the
giving of any notice necessary to cause a default, breach, failure or
misrepresentation to become a Lease Event of Default, (ii) the declaration of
this Facility Lease to be in default; (iii) the election or exercise of any
remedy arising out of or in connection with a Lease Event of Default (including
making any demand for payment of Termination Value, terminating this Facility
Lease, exercising the rights of the Owner Lessor as owner of the Undivided
Interest or any other remedy under Section 17 hereof); (iv) the making of demand
for payment of any claim required to be subordinated pursuant this Section 17.2
and Section 18.19 of the Participation Agreement; and (v) the exercise of any
other right or remedy in the Operative Documents or at law with respect to any
claim not constituting a claim required to be subordinated pursuant this Section
17.2 and Section 18.19 of the Participation Agreement; PROVIDED, HOWEVER, that
in no event shall the Owner Lessor be entitled to seek to collect or enforce
payment of any
50
amount constituting a claim required to be subordinated pursuant to this Section
17.2 and Section 18.19 of the Participation Agreement.
SECTION 17.3. CUMULATIVE REMEDIES. The remedies in this Facility Lease
provided in favor of the Owner Lessor shall not be deemed exclusive, but shall
be cumulative and shall be in addition to all other remedies in its favor
existing at law or in equity; and the exercise or beginning of exercise by the
Owner Lessor of any one or more of such remedies shall not preclude the
simultaneous or later exercise by the Owner Lessor of any or all of such other
remedies. To the extent permitted by Requirements of Law, the Facility Lessee
hereby waives any rights now or hereafter conferred by statute or otherwise
which may require the Owner Lessor to sell, lease or otherwise use the Undivided
Interest or any Component thereof in mitigation of Owner Lessor's damages as set
forth in this Section 17 or which may otherwise limit or modify any of Owner
Lessor's rights and remedies in this Section 17.
SECTION 17.4. NO DELAY OR OMISSION TO BE CONSTRUED AS WAIVER. No delay
or omission to exercise any right, power or remedy accruing to the Owner Lessor
upon any breach or default by the Facility Lessee under this Facility Lease
shall impair any such right, power or remedy of the Owner Lessor, nor shall any
such delay or omission be construed as a waiver of any breach or default, or of
any similar breach or default hereafter occurring; nor shall any waiver of a
single breach or default be deemed a waiver of any subsequent breach or default.
SECTION 18. SECURITY INTEREST AND INVESTMENT OF SECURITY FUNDS
Any moneys received by the Owner Lessor or the Lease Indenture Trustee
pursuant to Section 10.3, 10.5 or 11.7 shall, until paid to the Facility Lessee
as provided in accordance with such Sections, be held by the Owner Lessor or the
Lease Indenture Trustee, as the case may be, as security for the Facility
Lessee's obligations under this Facility Lease and be invested in Permitted
Investments by the Owner Lessor or the Lease Indenture Trustee, as the case may
be, at the sole risk of the Facility Lessee, from time to time as directed in
writing by the Facility Lessee if such investments are reasonably available for
purchase. Any gain (including interest received) realized as the result of any
such Permitted Investment (net of any fees, commissions, taxes and other
expenses, if any, incurred in connection with such
51
Permitted Investment) shall be applied or remitted to the Facility Lessee in the
same manner as the principal invested.
SECTION 19. RIGHT TO SUBLEASE
SECTION 19.1. SUBLEASE. Except as provided in this Section 19.1, the
Facility Lessee shall not assign, transfer or sublease all or any portion of its
rights in the Owner Lessor's Undivided Interest under this Facility Lease.
Pursuant to the provisions of the Operative Documents, the Facility Lessee shall
have the right to sublease the Undivided Interest without the consent of any
other Lease Financing Party if:
(a) the EME Guarantee, the Reimbursement Agreement and the
EME OP Guarantee remain in full force and effect;
(b) the sublessee (i) is a solvent corporation, partnership,
business trust, limited liability company or other entity (but not individuals)
not subject to bankruptcy proceedings, (ii) is not involved in material
litigation with the Owner Participant, and (iii) is, or its operating,
maintenance and use obligations under the sublease are guaranteed by, or such
obligations are contracted to be performed by, an experienced, reputable
operator of electric generating assets similar to the Facility;
(c) the sublease does not extend beyond the scheduled
expiration of the applicable Basic Lease Term or any Renewal Lease Term then in
effect or already elected by the Facility Lessee (and may be terminated upon
early termination of the Facility Lease) and is expressly subject and
subordinate to the Facility Lease;
(d) all terms and conditions of the Facility Lease and the
other Operative Documents remain in effect and the Facility Lessee remains fully
and primarily liable for its obligations thereunder but subject to Section 17.2
of this Facility Lease and Section 18.19 of the Participation Agreement;
(e) no Lease Event of Default under the Facility Lease shall
have occurred and be continuing;
(f) the sublease prohibits further assignment or subletting;
52
(g) the sublease requires the sublessee to operate and
maintain the Undivided Interest in a manner not less favorable than that
required under the Facility Lease and the other Operative Documents;
(h) the sublessee does not cause the Facility to become
"tax-exempt use property" within the meaning of Section 168(h) of the Code
(unless the Facility sublessee shall make a payment to the Owner Participant
contemporaneously with the execution of the sublease that, in reasonable
judgement of the Owner Participant, compensates such Owner Participant for the
adverse tax consequences resulting from the classification of the Facility as
"tax-exempt use property");
(i) the Owner Lessor (and so long as the Lessor Notes are
outstanding, the Pass-Through Trustee and the Lease Indenture Trustee) shall
have received an opinion of counsel, which opinion of counsel shall be
reasonably acceptable to each such recipient, to the effect that all regulatory
approvals required to enter into such sublease shall have been obtained;
(j) the Facility sublessee shall pay all reasonable documented
out-of-pocket expenses incurred by the other Lease Financing Parties in
connection with such sublease; and
(k) the Owner Participant shall have received an opinion
reasonably satisfactory to it from Hunton & ▇▇▇▇▇▇▇▇ or from a nationally
recognized tax counsel selected by the Owner Participant and reasonably
acceptable to the Facility Lessee, to the effect that such sublease would not
result in any material indemnified, or any unindemnified, incremental tax risk
to the Owner Participant.
As a condition precedent to such sublease, the Facility Lessee shall
provide the Owner Lessor, the Owner Participant, and, so long as the Lessor
Notes are outstanding, the Lease Indenture Trustee and Pass Through Trustees
with all documentation in respect of such sublease and an opinion of counsel to
the effect that such sublease complies with the provisions of this Section 19.1
(such documentation, counsel and opinion to be reasonably satisfactory to such
recipients).
53
SECTION 20. OWNER LESSOR'S RIGHT TO PERFORM
If the Facility Lessee fails to make any payment required to be made by
it hereunder or fails to perform or comply with any of its other agreements
contained herein after notice to the Facility Lessee and failure of the Facility
Lessee to so perform or comply within 10 days thereafter, the Owner Lessor or
the Owner Participant may itself make such payment or perform or comply with
such agreement in a reasonable manner, but shall not be obligated hereunder to
do so, and the amount of such payment and of the reasonable expenses of the
Owner Lessor or the Owner Participant incurred in connection with such payment
or the performance of or compliance with such agreement, as the case may be,
shall be deemed to be Supplemental Lease Rent, payable by the Facility Lessee
to the Owner Lessor on demand.
SECTION 21. SECURITY FOR OWNER LESSOR'S OBLIGATION TO THE
LEASE INDENTURE TRUSTEE
In order to secure the Lessor Notes, the Owner Lessor will assign and
▇▇▇▇▇ ▇ ▇▇▇▇ to the Lease Indenture Trustee of all of the Owner Lessor's right,
title and interest in, to and under this Facility Lease, and the Undivided
Interest (other than Excepted Payments and the rights to enforce and collect the
same). The Facility Lessee hereby consents to such assignment and to the
creation of such Lien and security interest and acknowledges receipt of copies
of the Lease Indenture, it being understood that such consent shall not affect
any requirement or the absence of any requirement for any consent of the
Facility Lessee under any other circumstances. Unless and until the Facility
Lessee shall have received written notice from the Lease Indenture Trustee that
the Lien of the Lease Indenture has been fully terminated, the Lease Indenture
Trustee shall have the right to exercise the rights of the Owner Lessor under
this Facility Lease (other than the rights to enforce and collect the same) to
the extent set forth in and subject in each case to the exceptions set forth in
the Lease Indenture. TO THE EXTENT, IF ANY, THAT THIS FACILITY LEASE CONSTITUTES
CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN
EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS FACILITY
LEASE MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART
HEREOF OTHER THAN THE ORIGINAL COUNTERPART, WHICH SHALL BE IDENTIFIED AS THE
COUNTERPART CONTAINING THE RE-
54
CEIPT THEREFOR EXECUTED BY THE LEASE INDENTURE TRUSTEE ON THE SIGNATURE PAGE
THEREOF.
SECTION 22. MISCELLANEOUS
SECTION 22.1. AMENDMENTS AND WAIVERS. No term, covenant, agreement or
condition of this Facility Lease may be terminated, amended or compliance
therewith waived (either generally or in a particular instance, retroactively or
prospectively) except by an instrument or instruments in writing executed by
each party hereto.
SECTION 22.2. NOTICES. Unless otherwise expressly specified or
permitted by the terms hereof, all communications and notices provided for
herein to a party hereto shall be in writing or shall be produced by a
telecommunications device capable of creating a written record, and any such
notice shall become effective (a) upon personal delivery thereof, including,
without limitation, by overnight mail or courier service, (b) in the case of
notice by United States mail, certified or registered, postage prepaid, return
receipt requested, upon receipt thereof, or (c) in the case of notice by such a
telecommunications device, upon transmission thereof, PROVIDED such transmission
is promptly confirmed by either of the methods set forth in clauses (a) or (b)
above, in each case addressed to such party and any copy party at its address
set forth below or at such other address as such party or copy party may from
time to time designate by written notice to the other party:
If to the Owner Lessor:
Joliet Trust I
c/o Wilmington Trust Company
▇▇▇▇▇▇ Square North
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Corporate Trust Administration
55
with a copy to the Owner Participant:
Joliet Generation I, LLC
c/o PSEG Resources Inc.
▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇-▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
and to the Lease Indenture Trustee:
United States Trust Company of New York,
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Vice President
If to the Facility Lessee:
Midwest Generation, LLC
One Financial Place
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No. : (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
with copy to:
Edison Mission Energy
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
56
SECTION 22.3. SURVIVAL. Except for the provisions of Sections 3.3, 3.5,
5, 9 and 17, which shall survive, the warranties and covenants made by each
party hereto shall not survive the expiration or termination of this Facility
Lease in accordance with its terms.
SECTION 22.4. SUCCESSORS AND ASSIGNS. (a) This Facility Lease shall be
binding upon and shall inure to the benefit of, and shall be enforceable by, the
parties hereto and their respective successors and assigns as permitted by and
in accordance with the terms hereof.
(b) Except as expressly provided in Section 22.4(c), the
Facility Lessee may not assign the Facility Lease or any other Operative
Document, or any interest therein, without the prior written consent of the
Owner Lessor and the Owner Participant.
(c) The Facility Lessee may, upon satisfaction of the
conditions set forth herein and in Section 22.4(d), without the consent of any
other Lease Financing Party, so long as the Owner Lessor or Owner Participant
does not become regulated as a "public utility" or "public utility holding
company" as a result of such assignment, assign the Facility Lease and the other
Operative Documents, or any interest therein. In addition to the conditions set
forth in the preceding sentence, the Facility Lessee may assign the Facility
Lease and the other Operative Documents, or any interest therein, under the
following circumstances:
(i) to any entity; PROVIDED that such entity's long
term senior unsecured Indebtedness is rated equal to or greater than
BBB+ from S&P and Baa1 from ▇▇▇▇▇'▇ or, if higher, the rating by S & P
and ▇▇▇▇▇'▇ of EME's long term senior unsecured Indebtedness (but not
to exceed A - by S & P or A3 by ▇▇▇▇▇'▇); or
(ii) to any entity; PROVIDED that the Facility Lessee
shall remain secondarily liable under the Facility Lease and all other
Operative Documents, subject to Section 17.2 of this Facility Lease and
Section 18.19 of the Participation Agreement such that the Facility
Lessee would be directly obligated to pay or perform any obligation not
paid or performed by the assignee when due, and the EME Guarantee, the
Reimbursement Agreement and the EME OP Guarantee shall remain in full
force and effect.
57
In the case of an assignment pursuant to clause (i) above, the Facility Lessee
shall, upon the transferee's assumption of the Facility Lessee's obligations
under the Facility Lease and the other Operative Documents in accordance with
the terms of this Section 22.4(c) and Section 22.4(d), have no further liability
or obligation thereunder, arising after such transfer and the obligations of the
Facility Lessee and the Guarantor, as the case may be, under the other Operative
Documents shall be assumed by the transferee, including, without limitation, the
EME indemnity obligations set forth in Section 12 of the Participation Agreement
and the parties shall execute and deliver amendments to the Operative Documents
necessary to effect the release of EME from such obligations. Notwithstanding
the foregoing, so long as the Lessor Notes are outstanding, no such assignment
shall be permitted unless each of S&P and ▇▇▇▇▇'▇ shall have confirmed that such
assumption shall not result in a downgrade of the then existing credit rating of
the Certificates.
(d) Any assignment by the Facility Lessee pursuant to Section
22.4(c) shall be subject to satisfaction of the following additional conditions:
(i) the Owner Lessor and the Owner Participant (and,
so long as the Lessor Notes are outstanding, the Lease Indenture
Trustee and the Pass-Through Trustees) shall have received an opinion
of counsel, which opinion and counsel shall be reasonably satisfactory
to each recipient thereof, to the effect that all regulatory approvals
required in connection with such transfer or necessary to assume the
Facility Lessee's obligations under the Operative Documents shall have
been obtained;
(ii) such transfer shall be pursuant to an assignment
and assumption agreement in form and substance reasonably satisfactory
to the Owner Participant (and the Lease Indenture Trustee and the
Pass-Through Trustees, so long as the Lessor Notes are outstanding);
(iii) the Owner Lessor and the Owner Participant (and
the Lease Indenture Trustee and the Pass-Through Trustees, so long as
the Lessor Notes are outstanding) shall have received an opinion of
counsel, which opinion and counsel are reasonably satisfactory to each
recipient thereof, as to the validity and enforceability of such
assignment and assumption agreement required pursuant to (ii) above;
58
(iv) the Owner Participant shall have received an
opinion reasonably satisfactory to it from Hunton & ▇▇▇▇▇▇▇▇, or from a
nationally recognized tax counsel selected by the Owner Participant and
reasonably acceptable to the Facility Lessee, to the effect that such
transfer would not result in any material indemnified incremental tax
risk, or any unindemnified, incremental tax risk to the Owner
Participant;
(v) no Material Lease Default or no Lease Event of
Default shall have occurred and be continuing;
(vi) such transfer by the Facility Lessee shall not
result in a Regulatory Event of Loss;
(vii) the transferee shall not be involved in
material litigation with the Owner Participant;
(viii) the Facility Lessee shall pay all reasonable
documented out-of-pocket expenses incurred by the other Lease Financing
Parties in connection with such assignment; and
(ix) the transferee, or the operator of the Facility
retained by the transferee, shall be experienced in operating
facilities such as the Facility.
The Facility Lessee acknowledges that the Owner Participant is a third
party beneficiary of this Section 22.4 and should be entitled to enforce its
rights hereunder as if it were a party to this Facility Lease.
SECTION 22.5. "TRUE LEASE." This Facility Lease shall constitute an
agreement of lease and nothing herein shall be construed as conveying to the
Facility Lessee any right, title or interest in or to the Undivided Interest
except as lessee only. The parties hereto hereby agree that the Facility
Lessee's obligation to make Excepted Payments is a separate and independent
obligation from its obligation to make other Rent payments, and that the
Lessee's obligation to make Excepted Payments may be assigned, pledged or
otherwise transferred separately from the Lessee's
59
obligations to make other Rent payments. The obligation to make Excepted
Payments has been included herein for the convenience of the parties.
SECTION 22.6. GOVERNING LAW. This Facility Lease was negotiated in the
State of New York which the Facility Lessee and the Owner Lessor agree has a
substantial relationship to the parties and to the underlying transaction
embodied hereby, and, in accordance with Section 5-1401 of the New York General
Obligations Law, in all respects, including matters of construction, validity
and performance, this Facility Lease shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts made
and performed in such State and any applicable law of the United States of
America, EXCEPT that the provisions for the creation and enforcement of the
leasehold interest created hereby shall be governed by and construed according
to the law of the state in which the Facility is located, it being understood
that, to the fullest extent permitted by the law of the state in which the
Facility is located, the law of the State of New York shall govern the validity
and the enforceability of the representations, warranties, covenants and
obligations of the Facility Lessee and the Owner Lessor under this Facility
Lease and all other Operative Documents and all of the indebtedness arising
hereunder or thereunder. To the fullest extent permitted by law, the Facility
Lessee and the Owner Lessor hereby unconditionally and irrevocably waive any
claim to assert that the law of any other jurisdiction governs this Facility
Lease, except as expressly otherwise provided above.
SECTION 22.7. SEVERABILITY. Any provision of this Facility Lease that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 22.8. COUNTERPARTS. This Facility Lease may be executed by the
parties hereto in separate counterparts, each of which, subject to Section 21,
when so executed and delivered shall be an original, but all such counterparts
shall together constitute but one and the same instrument.
SECTION 22.9. HEADINGS AND TABLE OF CONTENTS. The headings of the
sections of this Facility Lease and the Table of Contents are inserted for
purposes of conve-
60
nience only and shall not be construed to affect the meaning or construction of
any of the provisions hereof.
SECTION 22.10. FURTHER ASSURANCES. Each party hereto will promptly and
duly execute and deliver such further documents and assurances for and take such
further action reasonably requested by the other party, all as may be reasonably
necessary to carry out more effectively the intent and purpose of this Facility
Lease.
SECTION 22.11. EFFECTIVENESS. This Facility Lease has been dated as of
the date first above written for convenience only. This Facility Lease shall be
effective on the date of execution and delivery by the Facility Lessee and the
Owner Lessor.
SECTION 22.12. LIMITATION OF LIABILITY. It is expressly understood and
agreed by the parties hereto that (a) this Facility Lease is executed and
delivered by Wilmington Trust Company ("WILMINGTON"), not individually or
personally but solely as trustee of the Owner Trust under the Trust Agreement,
in the exercise of the powers and authority conferred and vested in it pursuant
thereto, (b) each of the representations, undertakings and agreements herein
made on the part of the Owner Lessor is made and intended not as personal
representations, undertakings and agreements by Wilmington but is made and
intended for the purpose for binding only the Owner Lessor, (c) nothing herein
contained shall be construed as creating any liability on Wilmington
individually or personally, to perform any covenant either expressed or implied
contained herein, all such liability, if any, being expressly waived by the
parties hereto or by any Person claiming by, through or under the parties hereto
and (d) under no circumstances shall Wilmington be personally liable for the
payment of any indebtedness or expenses of the Owner Lessor or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Owner Lessor under this Facility Lease.
SECTION 22.13. MEASURING LIFE. If and to the extent that any of the
rights and privileges granted under this Facility Lease, would, in the absence
of the limitation imposed by this sentence, be invalid or unenforceable as being
in violation of the rule against perpetuities or any other rule or law relating
to the vesting of interests in property or the suspension of the power of
alienation of property, then it is agreed that notwithstanding any other
provision of this Facility Lease, such options, rights and privileges, subject
to the respective conditions hereof governing the exercise of such options,
rights and privileges, will be exercisable only during (a) the longer of
61
(i) a period which will end twenty-one (21) years after the death of the last
survivor of the descendants living on the date of the execution of this Facility
Lease of the following Presidents of the United States: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇.▇.
▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ or (ii) the period provided under the Uniform
Statutory Rule Against Perpetuities or (b) the specific applicable period of
time expressed in this Facility Lease, whichever of (a) and (b) is shorter.
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IN WITNESS WHEREOF, the Owner Lessor and the Facility Lessee have
caused this Facility Lease to be duly executed and delivered under seal by their
respective officers thereunto duly authorized.
JOLIET TRUST I
By: Wilmington Trust Company,
not in its individual capacity
but solely as Owner Trustee
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President
Date: August 24, 2000
MIDWEST GENERATION, LLC
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
-------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
Title: Vice President
Date: August 24, 2000
EXHIBIT A
TO
FACILITY LEASE
DESCRIPTION OF FACILITY SITE
A-1
EXHIBIT B
TO
FACILITY LEASE
DESCRIPTION OF FACILITY
▇-▇
▇-▇
▇▇▇▇▇▇▇▇ 1-1
TO
FACILITY LEASE
BASIC LEASE RENT
Schedule 1-1-1
SCHEDULE 1-2
TO
FACILITY LEASE
ALLOCATION OF BASIC LEASE RENT
Schedule 1-2-1
SCHEDULE 1-3
TO
FACILITY LEASE
467 RENT ALLOCATION
SUM OF 467 FIXED RENT
RENTAL PERIOD 467 INTEREST ON AND 467
ENDING ON 467 FIXED RENT FIXED RENT INTEREST ON FIXED RENT
---------------------------- ----------------------- ----------------------- -----------------------------
Schedule 1-3-1
SCHEDULE 2
TO
FACILITY LEASE
TERMINATION VALUES
Schedule 1-3-1