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EXHIBIT 10.16(a)
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TAX INDEMNITY AGREEMENT
Dated as of August 24, 2000
between
PSEG CONEMAUGH GENERATION, LLC,
as Owner Participant,
and
RELIANT ENERGY MID-ATLANTIC POWER HOLDINGS, LLC,
as Facility Lessee
UNDIVIDED INTEREST IN
CONEMAUGH FACILITY
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TABLE OF CONTENTS
SECTION 1 DEFINITIONS ...................................................... 2
SECTION 2 TAX ASSUMPTIONS .................................................. 8
SECTION 3 RECORDS AND STATEMENTS ........................................... 12
SECTION 4 THE FACILITY LESSEE'S TAX REPRESENTATIONS ........................ 12
SECTION 5 INDEMNIFICATION OF CERTAIN INCOME TAX CONSEQUENCES ............... 14
Section 5.1 Indemnification for Deduction Losses .................... 14
Section 5.2 Indemnification for Inclusion Losses .................... 15
Section 5.3 Notice of Indemnified Tax Loss .......................... 17
Section 5.4 Computation of Tax Loss and Tax Indemnity ............... 17
Section 5.5 Method of Payment ....................................... 18
Section 5.6 Time of Payment ......................................... 19
Section 5.7 Tax Savings ............................................. 19
Section 5.8 Verification of Computations ............................ 20
SECTION 6 EXCLUDED EVENTS .................................................. 21
SECTION 7 CONTESTS ......................................................... 25
SECTION 8 CERTAIN ADJUSTMENTS .............................................. 28
SECTION 9 MISCELLANEOUS .................................................... 29
Section 9.1 Survival ................................................ 29
Section 9.2 Late Payments ........................................... 29
Section 9.3 Notices ................................................. 29
Section 9.4 Assignment by the Parties ............................... 29
Section 9.5 Set Off, Counterclaim, Etc. ............................. 29
Section 9.6 Method of Payment ....................................... 30
Section 9.7 Severability ............................................ 30
Section 9.8 Governing Law ........................................... 30
Section 9.9 Counterparts ............................................ 30
Section 9.10 Confidentiality ......................................... 30
Section 9.11 Non-Parties ............................................. 31
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TAX INDEMNITY AGREEMENT
This TAX INDEMNITY AGREEMENT, dated as of August 24, 2000 (as amended,
supplemented or otherwise modified from time to time, in accordance with the
provisions hereof), between PSEG CONEMAUGH GENERATION, LLC and RELIANT ENERGY
MID-ATLANTIC POWER HOLDINGS, LLC.
WITNESSETH:
WHEREAS, the Facility Lessee and the Owner Participant have undertaken
certain obligations described in the Participation Agreement among said parties
and the other parties thereto dated as of August 24, 2000 (the "Participation
Agreement");
WHEREAS, the Facility Lessee has leased the Facility Interest pursuant
to the Facility Lease from the Owner Lessor;
WHEREAS, the Owner Lessor has leased the Facility Site pursuant to the
Site Lease and Sublease from the Facility Lessee and subleased the Facility Site
to the Facility Lessee;
WHEREAS, the parties hereto intend to set forth their agreement with
respect to the circumstances under which the Facility Lessee shall be required
to indemnify the Owner Participant against certain adverse tax consequences
referred to below.
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 do
hereby agree as follows:
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SECTION 1 DEFINITIONS
The capitalized terms used in this Agreement and not otherwise defined
herein shall have the respective meanings set forth and incorporated by
reference, and shall be construed and interpreted as specified in Appendix A to
the Participation Agreement.
For all purposes hereof the following expressions shall, unless the
context otherwise requires, and whether used in the singular or plural, have the
following respective meanings:
"15-Year MACRS Deductions" the meaning specified in Section 2(a)(iii).
"20-Year MACRS Deductions" the meaning specified in Section 2(a)(iv).
"39-Year MACRS Deductions" the meaning specified in Section 2(a)(v).
"Agreement" this Tax Indemnity Agreement.
"Assumed Deductions" the meaning specified in Section 2(f).
"Assumed Tax Rate" the meaning specified in Section 2(f).
"Deduction Loss" the meaning specified in Section 5.1.
"Depreciation Deductions" the meaning specified in Section 2(a).
"Facility Lessee" Reliant Energy Mid-Atlantic Power Holdings
LLC, a Delaware limited liability company,
its successors and permitted assigns.
"Facility Lessee Actions" the meaning specified in Section 5.2(f).
"Facility Lessee Person" the meaning specified in Section 4(d).
"Facility Lessee Tax
Representation" the representations, warranties and
covenants set forth in Section 4.
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"Final Determination" (i) a decision, judgment, decree or other order
by any court of competent jurisdiction,
which decision, judgment, decree or other
order has become final after all appeals
allowable by law and hereunder by either
party to the action have been exhausted or
the time for filing such appeals has
expired, or in any case where judicial
review shall at the time be unavailable
because the proposed adjustment involves a
decrease in a net operating loss
carryforward or a business credit
carryforward, a decision, judgment, decree
or other order of an administrative official
or agency of competent jurisdiction, which
decision, judgment, decree or other order
has become final (i.e., where all
administrative appeals have been exhausted
by all parties thereto),
(ii) a closing agreement entered into under
section 7121 of the Code or any other
settlement agreement entered into in
connection with an administrative or
judicial proceeding,
(iii) the expiration of the time for instituting a
suit with respect to a claimed deficiency,
or
(iv) the expiration of the time for instituting a
claim for refund, or if such a claim was
filed, the expiration of the time for
instituting suit with respect thereto.
"Inclusion Losses" the meaning specified in Section 5.2.
"Indemnified Tax Loss" a Tax Loss for which the Facility Lessee is
obligated to reimburse the Owner Participant
pursuant to Section 5.1 or Section 5.2.
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"Interest Deductions" the meaning specified in Section 2(c).
"Lessor Group Member" the meaning specified in Section 6(a).
"Lump Sum Method" A method pursuant to which the Facility
Lessee shall pay to the Owner Participant
a lump sum (computed as provided in Section
5.4 hereof) equal to the present value
(discounted at a rate to preserve the Owner
Participant's Expected Return) of all
additional federal income taxes currently
payable and anticipated to be payable in
future years by the Owner Participant as a
result of such Indemnified Tax Loss, less
(but not below zero) the present value
(discounted at a rate to preserve the Owner
Participant's Expected Return) of all
anticipated future tax savings that the
Owner Participant would not realize but for
such Indemnified Tax Loss or other event
giving rise thereto (for purposes of this
calculation, additional federal income
taxes anticipated to be payable or reduced
will be computed in accordance with Section
5.4 and on the basis that then-existing
laws will prevail in such subsequent
years).
"MACRS" the Modified Accelerated Cost Recovery
System described in Section 168(b) and
168(c) of the Code.
"Owner Participant" PSEG Conemaugh Generation, LLC, a Delaware
limited liability company, its successors
and permitted assigns. As defined herein,
the term "Owner Participant" shall include
any affiliated group of corporations (and
any member thereof) of which the Owner
Participant is or shall become a member, if
consolidated, unitary or combined returns
are or shall be filed
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for such affiliated group for U.S. federal,
state or local income tax purposes.
"Permitted Act" the execution or delivery of the Operative
Documents, any act or failure to act taken
at the express written request of the Owner
Participant or the Owner Lessor acting at
the direction of the Owner Participant
(other than during the continuance of a
Lease Event of Default), any act or failure
to act expressly required by the Operative
Documents, and any act or failure to act
expressly permitted by the Operative
Documents other than:
(i) the making of improvements or modifications
to the Facility;
(ii) any substitution or replacement of the
Facility;
(iii) the assignment, transfer, relinquishment of
possession or subleasing of the Lessee's
interest in the Facility Interest or the
Lease;
(iv) the removal of the Lessor Manager at the
request of the Lessee;
(v) any voluntary or involuntary case or
proceeding seeking relief of debts of any
Facility Lessee Person other than as a
result of a breach of any representation,
warranty, covenant or other obligation of
the Owner Lessor (but only to the extent
acting at the express written direction of
the Owner Participant) or Owner Participant
under the Operative Documents;
(vi) any Supplemental Financing or adjustments
to Periodic Lease Rent, Renewal Lease Rent,
Termination Value or Adjustment Items;
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(vii) any Exchange;
(viii) a merger, consolidation or sale of
substantially all the assets of the
Facility Lessee or any Subsidiary
Guarantor;
(ix) the rebuilding or replacement of the
Facility; or
(x) any decommissioning of the Facility;
provided, however, that an act shall not be
considered to be expressly permitted merely because
such act is not prohibited; and provided further,
that the execution and delivery of documents
pursuant to transactions with Other Facility Owners
shall also constitute a Permitted Act.
"Section 467 Interest
Deductions" the meaning specified in Section 2(d).
"Reasonable Basis" has the meaning assigned to such term in Section
6662(d)(2)(B)(ii)(II) of the Code (or such other
level of confidence required by the Code at that
time to avoid the imposition of penalties).
"Statement" the meaning specified in Section 5.3.
"Substantial Authority" shall mean substantial authority within the meaning
of Section 6662(d)(2)(B)(i) of the Code and the
Treasury Regulations promulgated thereunder.
"Tax Indemnity Agreement" this Tax Indemnity Agreement.
"Tax Assumptions" the meaning specified in the introductory paragraph
of Section 2.
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"Tax Law Change" modifications to, or enactment, promulgation,
release or adoption of any changes in, (i) the Code
(including those arising from technical corrections
legislation), (ii) any treaties, (iii) any Treasury
Regulations, Revenue Rulings, Revenue Procedures or
other administrative pronouncements, or executive
order, or any judicial decision, which occur after
the Closing Date.
"Tax Loss" the meaning specified in Section 5.2.
"Transaction Cost
Deductions" the meaning specified in Section 2(b).
SECTION 2 TAX ASSUMPTIONS
The Owner Participant and the Facility Lessee acknowledge that the
Periodic Lease Rent and Termination Values under the Facility Lease and the
Owner Participant's Expected Return have been calculated based upon the
following income tax assumptions (the "Tax Assumptions") for United States
federal income tax purposes:
(a) on the Closing Date:
(i) the percentage of the Purchase Price indicated on
Appendix A of this Agreement will be attributable to
property at the Facility that constitutes 15-year
property under Section 168(e) of the Code and be
entitled to 15-year, 150 percent declining balance
method (switching to the straight-line method when
most favorable) depreciation deductions, utilizing
the half-year convention and a zero salvage value,
under the MACRS (the "15-Year MACRS Deductions");
(ii) the percentage of the Purchase Price indicated on
Appendix A of this Agreement will be attributable to
property at the Facility that constitutes 20-year
property under Section 168(e) of the Code and be
entitled
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to 20-year, 150 percent declining balance method
(switching to the straight-line method when most
favorable) depreciation deductions, utilizing the
half-year convention and a zero salvage value, under
the MACRS (the "20-Year MACRS Deductions"); and
(iii) the percentage of the Purchase Price indicated on
Appendix A of this Agreement will be attributable to
property at the Facility that constitutes
non-residential real property under Section 168(e) of
the Code and be entitled to 39 year straight line
method of depreciation using a mid-month convention
and zero salvage value, under the MACRS (the "39-Year
MACRS Deductions").
The 15-Year MACRS Deductions, 20-Year MACRS Deductions and 39-Year
MACRS Deductions are referred to collectively as the "Depreciation
Deductions."
(b) Transaction Costs will be amortizable under the Code on a
straight-line basis over the Basic Lease Term (the "Transaction Cost
Deductions").
(c) The Loans will constitute loans made to the Owner Lessor, and all
interest accrued with respect to advances thereunder will be deductible, as
accrued in accordance with their terms pursuant to section 163 of the Code (the
"Interest Deductions").
(d) The Owner Participant will be entitled to current deductions of
amounts paid as "Section 467 Interest" with respect to any "Section 467 Loan" to
the Owner Participant pursuant to the terms of the Facility Lease as required by
Section 467 of the Code and the Treasury Regulations thereunder (the "Section
467 Interest Deductions").
(e) As a result of entering into the transactions contemplated by the
Operative Documents, the Owner Participant will not be required to include any
amount in gross income prior to termination of the Facility Lease other than:
(i) payments of Periodic Lease Rent (and, if the Facility Lease is renewed,
Renewal Lease Rent) in the amounts and at the times such amounts are accrued
pursuant to the
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terms of the Facility Lease; (ii) gain upon the receipt of Termination Value (or
other amounts based on Termination Value) in the amount and at the time such
payment is required to be made; (iii) gain upon sale of all or any portion of
the Facility Interest or of all or any portion of the Owner Participant's
interest in the Owner Lessor if such sale shall not occur during the continuance
of a Lease Event of Default or, if the sale shall occur during the continuance
of a Lease Event of Default, if(A) in the case of a sale of the Facility
Interest, the sales price for the Facility Interest shall be equal to or in
excess of the Termination Value (or a pro rata portion thereof in the case of a
partial sale) or (B) in the case of a sale of the Owner Lessor, the sales price
for the Owner Lessor shall be equal to or in excess (or a pro rata portion
thereof in the case of a partial sale) of the excess of Termination Value over
the then-outstanding amount of the Loans; (iv) payments made on an After-Tax
Basis to the Owner Participant or the Owner Lessor; (v) amounts identified as
interest under the Operative Documents; (vi) any other amount to the extent such
item of income results in an equal and offsetting deduction of the same
character in the same taxable year as the inclusion other than the Depreciation
Deductions, Interest Deductions and Transaction Cost Deductions; and (vii)
amounts accrued as "section 467 interest" with respect to "section 467 fixed
rent" accrued but not yet paid pursuant to the terms of the Facility Lease as
required by Section 467 of the Code and the Regulations thereunder.
(f) The marginal federal, state and local income tax rate applicable to
the Owner Participant will be as set forth in Appendix A to this Agreement (the
"Assumed Tax Rate"), and the Owner Participant will always have sufficient
taxable income for federal, state and local income tax purposes to utilize fully
the income tax benefit of the Depreciation Deductions, Transaction Cost
Deductions, Interest Deductions and the Section 467 Interest Deductions
(collectively, the "Assumed Deductions").
(g) The Facility Lease will be a "true lease" for federal income tax
purposes, under which the Owner Participant shall be treated as owner and
lessor, and the Facility Lessee shall be treated as lessee of the Facility
Interest for such purposes.
(h) The Owner Participant will compute its federal taxable income on a
calendar-year basis using the accrual method of accounting.
(i) The Facility Interest will be treated as placed in service by the
Owner Participant on the Closing Date.
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(j) The Facility Lease will not be a "disqualified leaseback or
long-term agreement" within the meaning of Section 467(b)(4) of the Code, and
the Owner Participant will not be subject to application of Section 467(b)(2) of
the Code with respect to the Periodic Lease Rent under the Facility Lease.
(k) The Owner Lessor, created for the benefit of the Owner Participant,
will be treated as a disregarded entity or pass-through entity for federal,
state and local tax purposes, and the Owner Participant, as owner of the Owner
Lessor, will be entitled and required to take into account, in computing the
Owner Participant's federal, state and local taxable income, all items of
income, gain, loss, deduction and credit with respect to the Facility Interest.
(1) Periodic Lease Rent, Renewal Lease Rent and all other gains,
losses, income, deductions and credits under the Facility Lease or the
transactions contemplated by the Operative Documents will be treated as U.S.
source items pursuant to Sections 861-865 of the Code.
(m) For state and local income tax purposes, the Owner Participant will
be entitled to depreciation, interest and amortization deductions at the same
times and in the same amounts as the Owner Participant is allowed the
Depreciation Deductions, the interest Deductions and the Transaction Cost
Deductions.
(n) The Owner Participant will be required to include in its gross
income for state and local income tax purposes for any taxable year during the
Lease Term, with respect to the Facility Interest, amounts equal to such amounts
as are required to be included in its gross income for federal income tax
purposes.
(o) The Facility Interest will be treated as an undivided ownership
interest in the Facility for federal income tax purposes.
(p) Except as set forth in Sections 4(d) or 5.4, the Owner Participant
and, to the extent required to file, the Facility Lessee and any Affiliate
thereof, will each file federal and state income tax returns in a manner
consistent with the Tax Assumptions.
If the Owner Participant shall suffer an Indemnified Tax Loss and shall
have been (or is being) indemnified by the Facility Lessee for such Indemnified
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Tax Loss pursuant to the terms of this Agreement, then the Tax Assumptions set
forth above, without further act of the parties hereto, shall thereupon be and
be deemed to be amended, if and to the extent appropriate at the time of such
Indemnified Tax Loss, to reflect such Indemnified Tax Loss.
No private letter ruling will be sought from the IRS with respect to
the availability of any of the Assumed Deductions nor will the Facility Lessee
be required, except as may be otherwise expressly provided in any Operative
Document, to provide an opinion of counsel with respect to the availability of
any of the Assumed Deductions.
SECTION 3 RECORDS AND STATEMENTS
The Facility Lessee shall maintain such information or records relating
to the Facility Interest as are regularly maintained by the Facility Lessee or
as may be required by law to be maintained by the Facility Lessee, and shall
provide or cause to be provided such information as the Owner Participant may
reasonably request, at the Facility Lessee's cost and expense, in order to
enable the Owner Participant to fulfill its tax filing, tax audit, and tax
litigation obligations, including but not limited to any federal, state and
local income tax filing obligations.
SECTION 4 THE FACILITY LESSEE'S TAX REPRESENTATIONS
As of the Closing Date, the Facility Lessee represents and warrants the
following to the Owner Participant with respect to the Tax Assumptions relating
to the Lease of the Facility Interest (the "Tax Representations"):
(a) During the Basic Lease Term, no portion of the Facility Interest
is, or will become, tax-exempt use property within the meaning of Section
168(h)(l) of the Code, tax-exempt bond financed property within the meaning of
Section 168(g)(5) of the Code or "public utility property" within the meaning of
Section 168(i)(l0) of the Code, assuming that the Facility Interest is not
treated as such as a result of the status (including its character for federal
income tax purposes) or acts of the Owner Participant or the Owner Lessor
unrelated to the transactions contemplated by the Operative Documents (it being
understood that this is not a representation as to the "true lease" status of
the Facility Lease nor as to the pass-through nature of the Owner Lessor);
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(b) (i) All written, factual information identified in Exhibit I hereto
which was provided by or on behalf of the Facility Lessee or any of its
Affiliates to Appraiser in connection with the Closing Appraisal, was, to the
best of such person's knowledge, accurate at the time given and did not omit
information available to such person which, in light of the circumstances in
which the supplied information was provided, rendered the supplied information
materially misleading (provided, however, that the Facility Lessee's failure to
provide information with respect to forecasts, projections or estimations of the
future life, performance, costs, revenues or other future items relating to the
Facility Interest shall not be treated as a breach of this representation), and
(ii) all projections and other "forward looking" information identified in
Exhibit I hereto were prepared in good faith and, to the Actual Knowledge of the
Facility Lessee or any of its Affiliates, are based on reasonable assumptions;
(c) On the Closing Date, no Improvements will be required in order to
render the Facility Interest complete for its intended use by the Facility
Lessee, other than ancillary items of removable equipment of a kind customarily
selected and furnished by lessees of property substantially similar to the
Facility;
(d) Neither the Facility Lessee, nor any sublessee or other user or
person in possession of the Facility or any portion thereof, nor any Affiliate
of any of the foregoing, but excluding in all events the Owner Lessor and the
Owner Participant and any Affiliate of the Owner Lessor or the Owner Participant
(each a "Facility Lessee Person") has taken, or will take, any position in any
filing by it for federal, state or local income tax purposes that is
inconsistent with the Tax Assumptions and the Facility Lessee and its Affiliates
will allocate its purchase price for the Facility Interest consistently with
such Tax Assumptions, in each case unless (1) there is not a reasonable basis
(within the meaning of Section 6662(d)(2)(B)(ii)(II) of the Code (or such other
level of confidence required by the Code at the time to avoid the imposition of
penalties)) ("Reasonable Basis") to take a position that is consistent with the
Tax Assumptions, (2) required otherwise by Applicable Law or (3) consistent with
a contrary Final Determination binding on such Owner Participant or the Facility
Lessee with respect to such position;
(e) The Facility Interest was placed in service for federal income tax
purposes no later than the Closing Date;
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(f) On the Closing Date, the percentages of the Owner Participant's
basis in the Facility Interest indicated on Appendix A of this Agreement will be
attributable to 15-year property pursuant to Section 1 68(e)(l) of the Code;
20-year property pursuant to Section 168(e)(l) of the Code, and the percentage
indicated on Appendix A will be attributable to nonresidential real property
pursuant to Section 168(e)(2)(B) of the Code, assuming, in each instance, that,
for federal income tax purposes, the Facility Lease is a "true lease" and that
the Owner Lessor is properly treated as a disregarded entity for foreign,
federal, state or local tax purposes (it being understood that this is not a
representation as to the "true lease" status of the Facility Lease, the
pass-through nature of the Owner Lessor or the aggregate dollar amounts
includible in the Owner Participant's aggregate depreciable basis in the
Facility Interest); and
(g) No Facility Lessee Person will acquire or guarantee (directly or
indirectly) any interest in the Lease Debt, the Loans, the Lessor Notes or the
Pass Through Certificates, provided that the exercise of rights or performance
of obligations in accordance with or as contemplated by the Lessee and the Owner
Participant under the Operative Documents shall not be deemed to violate this
provision.
The inaccuracy of any Facility Lessee Tax Representation shall not give
rise to a Lease Event of Default except if such inaccuracy gives rise to an
obligation to make an indemnity payment and such payment is not made.
SECTION 5 INDEMNIFICATION OF CERTAIN INCOME TAX CONSEQUENCES
Section 5.1 Indemnification for Deduction Losses. The Facility Lessee
shall reimburse and indemnify the Owner Participant and hold the Owner
Participant harmless if, as a result of:
(a) any act or failure to act by the Facility Lessee or any Facility
Lessee Person (other than (w) the execution or delivery of the Operative
Documents, (x) any act or failure to act expressly required by the Operative
Documents, (y) any Permitted Act or (z) any act or failure to act taken at the
express written request of the Owner Participant or the Owner Lessor acting at
the direction of the Owner Participant (other than during the continuance of a
Lease Event of Default);
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(b) the breach, inaccuracy or incorrectness of any of the Facility
Lessee Tax Representations, or the breach of any of the representations or
warranties Sections 3.1(a), (b), (c), (d), (f), (h), (i), (j), (o), (q), (s),
(z), and (aa) of the Participation Agreement or Sections 5.1 or 5.2 of the
Facility Lease Agreement; by the Facility Lessee or any Facility Lessee Person.
(c) any loss, damage, destruction, casualty, nonuse, replacement,
substitution, repair, rebuilding, theft, taking, confiscation, requisition,
seizure or condemnation of all or any portion of the Facility;
(d) the receipt of any warranty, damage, refund, insurance, indemnity
or similar payment that is not retained by the Owner Participant or the Owner
Lessor;
(e) the bankruptcy, insolvency or other proceeding for the relief of
debtors of, or any foreclosure on or against, the Facility Lessee or any
Facility Lessee Person or
(f) any foreclosure or pursuit of remedies (whether by the Owner
Participant or otherwise) resulting from a Lease Event of Default (with (a)
through (f) being hereafter referred to as a "Facility Lessee Action");
such Owner Participant shall suffer a delay in claiming, shall not have the
right to claim or shall not claim (in each case, only after receiving a written
opinion, delivered to the Facility Lessee as soon as practicable and prior to
the date on which the tax return is to be filed on which such claim will not be
made, of independent tax counsel selected by the Owner Participant and
reasonably acceptable to the Facility Lessee (setting forth in reasonable detail
the facts and analysis upon which such opinion is based) to the effect that, as
a result of a Tax Law Change, other than a Tax Law Change described in Section
6(e) below, or change in facts subsequent to the Closing Date, there is no
Reasonable Basis to make such claim, or shall lose, suffer a disallowance of or
be required to recapture all or any portion of the Assumed Deductions (a
"Deduction Loss") subject, in each instance, to the exclusions set forth in
Section 6 below.
Section 5.2 Indemnification for Inclusion Losses. The Facility Lessee
shall reimburse and indemnify the Owner Participant and hold the Owner
Participant harmless if, as a result of:
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(a) any repair, replacement, rebuilding or substitution of, or
any alteration, modification, addition or improvement to, the Facility or any
portion thereof;
(b) any loss, damage, destruction, casualty, nonuse,
replacement, rebuilding, substitution, theft, taking, confiscation, requisition,
seizure or condemnation of all or any portion of the Facility;
(c) the receipt of any warranty, damage, refund, insurance,
indemnity or similar payment that is not retained by the Owner Participant or
the Owner Lessor;
(d) the bankruptcy, insolvency or other proceeding for the
relief of debtors of, or any foreclosure on or against, the Facility Lessee or
any Facility Lessee Person;
(e) any foreclosure or pursuit of remedies (whether by the
Owner Participant or otherwise) during the continuance of a Lease Event of
Default;
(f) any act or omission of the Facility Lessee that is
prohibited by the Operative Documents;
(g) a change, adjustment or modification of the allocation or
payment schedules of Periodic Lease Rent in connection with a Lease Event of
Default;
(h) payment by the Facility Lessee of Periodic Lease Rent or
Termination Value prior to the date required under the Lease other than at the
express written request of the Owner Participant or the Owner Lessor acting at
the direction of the Owner Participant (other than a payment made at the request
of the Owner Participant during the continuance of a Lease Event of Default);
(i) any refinancing of the Loans;
(j) any amendment, modification, supplement or waiver effected
after the Closing Date of or to any Operative Document (A) that is made,
initiated or requested by the Facility Lessee, unless the Owner Participant has
consented in
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writing thereto, or (B) that is undertaken in connection with a Lease Event of
Default;
(k) the breach, inaccuracy or incorrectness of any of the
Facility Lessee Tax Representations, or the breach of any of the representations
or warranties in Sections 3.1(a), (b), (c), (d), (f), (h), (i), (j), (o), (q),
(s), (z), and (aa) of the Participation Agreement or Sections 5.1 or 5.2 of the
Facility Lease Agreement; by the Facility Lessee or any Facility Lessee Person;
or
(l) the inclusion of any provision increasing the interest
rate on the Lease Debt in the event that the Lease Debt or Certificates are not
registered under the Securities Act of 1933 or otherwise (other than any overdue
rate applicable to the Lease Debt in the event of an Indenture Event of
Default);
such Owner Participant shall be required for federal income tax purposes to
include in its gross income an amount not described under the Tax Assumptions
(an "Inclusion Loss" and, together with the Deduction Loss, a "Tax Loss"),
subject, in each instance, to exclusions set forth in Section 6 below.
Section 5.3 Notice of Indemnified Tax Loss. In the event of an
Indemnified Tax Loss, and if contested, following a Final Determination with
respect to such Tax Loss, the Owner Participant shall give the Facility Lessee
written notice thereof accompanied by a written statement (the "Statement")
describing such Indemnified Tax Loss in reasonable detail, stating the amount
the Owner Participant believes to be payable by the Facility Lessee on account
thereof pursuant to the terms hereof and setting forth in reasonable detail the
computation of such amount.
Section 5.4 Computation of Tax Loss and Tax Indemnity. Any tax
indemnity payable by the Facility Lessee or Tax Savings payable by the Owner
Participant shall be computed based on the Tax Assumptions and shall be computed
by assuming that at all times (A) the Owner Participant has sufficient federal,
state and local taxable income to make full use of the tax benefits that are
subject to the Tax Loss in the year in which all of such tax benefits were
assumed to be available (and in future years with respect to tax benefits that
result from the Tax Loss) and (B) the Owner Participant's combined marginal
federal, state and local income tax rate is the Assumed Tax Rate (other than for
purposes of calculating (i) payments necessary to make such payment on an
After-Tax Basis and (ii) an amount or amounts in the case of an Inclusion Loss,
in which case such calculation shall be made using the highest
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marginal U.S. federal, state and local income tax rates applicable to
corporations generally for the relevant period or periods taking into account
the deductibility of state and local taxes for U.S. federal income tax
purposes). Notwithstanding the previous sentence, if, and only if, Periodic
Lease Rent and Termination Value have been computed on the assumption that the
Owner Participant will be entitled to state income tax benefits, will the amount
of any income tax indemnification payable by the Facility Lessee to the Owner
Participant, or as the case may be, any reverse tax indemnity payable by the
Owner Participant to the Facility Lessee, reflect such state income tax
benefits. Any reverse indemnity payment will not be in excess of the amount of
the indemnity previously paid by the Facility Lessee (with any excess reverse
indemnity amounts being available as an offset against future federal income tax
indemnities otherwise payable by the Facility Lessee). Although the Owner
Participant will covenant that it will file its income tax returns by accruing
Periodic Rent in accordance with the Tax Assumptions, if the Owner Participant
shall be required or permitted pursuant to a Final Determination to accrue
Periodic Lease Rent at a rate less accelerated than that assumed in the Tax
Assumptions and as a result the Facility Lessee suffers adverse tax consequences
on an actual basis, the Facility Lessee shall be permitted to defer the equity
portion of Periodic Lease Rent or Termination Value by such amounts and to such
dates as shall preserve the Owner Participant's Expected Return (computed, for
the avoidance of doubt, in accordance with the Tax Assumptions (but excluding
that specified in Section 2(j)) and, to the extent consistent therewith, as
shall compensate the Facility Lessee for such adverse tax consequences. In this
regard, the Owner Participant agrees to use reasonable good faith efforts to
file and diligently pursue a protective claim for refund with respect to any
year as to which the IRS has challenged, pursuant to Section 446 or 467 of the
Code, the rental deductions claimed by the Facility Lessee, if the Facility
Lessee shall so request.
Section 5.5 Method of Payment. Upon the occurrence of a Tax Loss that
results in the Facility Lessee having a tax indemnity payment obligation to the
Owner Participant, the Facility Lessee, at its election, will have the option
to:
(a) pay, as Supplemental Lease Rent, during the remaining
Basic Lease Term, such amounts as are necessary to preserve the Owner
Participant's Expected Return;
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(b) pay the Owner Participant the indemnity amount determined
under the Lump Sum Method on an After-Tax Basis necessary to preserve the Owner
Participant's Expected Return; or
(c) reimburse the Owner Participant, on an After-Tax Basis,
from time to time for such federal, state and local taxes that it is required to
pay as a result of the Tax Loss, in which case, provided no Significant Lease
Default or Lease Event of Default is continuing, the Owner Participant shall, on
a grossed-up basis, pay the Facility Lessee a reverse indemnity as tax benefits
attributable to the circumstances relating to the Indemnified Tax Loss are
realized (but not in excess of the indemnity previously paid by the Facility
Lessee). Any subsequent loss of any tax benefit taken into account in computing
the Facility Lessee's indemnity, or paid to the Facility Lessee, shall be
indemnifiable as a Tax Loss without regard to the exclusions set forth in
Section 6.
The Facility Lessee's ability to pay an indemnity pursuant to (a) and (c) above
shall be conditioned, however, on there being no Lease Event of Default nor
Significant Lease Default that has occurred and which is continuing, and on the
senior unsecured obligations of the Facility Lessee being rated (x) investment
grade by at least two (2) nationally recognized rating agencies at the times the
indemnity is otherwise payable by the Facility Lessee if then rated by such
agencies, or (y) if rated by only one (1) such rating agency, investment grade
by the agency which is then rating the senior unsecured obligations of the
Facility Lessee.
Section 5.6 Time of Payment. Any amounts payable to the Owner
Participant, other than those payable in accordance with Section 5.5(a) or
Section 5.5(c), shall be paid within the latest of:
(a) 23 days after the receipt by the Facility Lessee of the
Statement (but in any event not later than three Business Days prior to the due
date of such taxes);
(b) in the case of amounts not previously advanced and that
are the subject of a contest in accordance with Section 7 of this agreement, 15
days after the date of a Final Determination thereof, and
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(c) in the case of any indemnity demand for which the Facility
Lessee has requested review and determination pursuant to Section 5.8 below, 15
days after the completion of such review and determination.
Section 5.7 Tax Savings.
(a) Tax Savings. If, as the result of a Tax Loss, with respect
to which, (A) the Facility Lessee is required to pay a tax indemnity, and (B)
the Facility Lessee has paid all amounts that have to date been payable, the
Owner Participant shall realize any reduction in federal, state or local income
taxes ("Tax Savings") that it would not have realized but for such Tax Loss or
the event giving rise thereto, and that was not previously taken into account in
computing the amount of the indemnity payable hereunder, then the Owner
Participant shall pay (so long as no Significant Lease Default or Lease Event of
Default is continuing) to the Facility Lessee an amount equal to such Tax
Savings (as determined in accordance with Section 5.4) plus an amount equal to
any additional Tax Savings to the Owner Participant by reason of the total
amount of such payments, less any increase in Taxes to the Owner Participant as
a result of such payment.
(b) Savings Associated with Increased Lease Debt Interest. In
the event that the Owner Participant actually realizes a current federal, state
or local income tax savings as a result of the event described in Section 5.2(1)
above, the Facility Lessee may reduce any payment of Periodic Lease Rent;
provided, however, that (i) each payment of Periodic Lease Rent, after such
reduction, shall be sufficient to pay any scheduled payment of principal and
interest with respect to the Lease Debt; (ii) such aggregate reduction shall not
cause the Owner Participant to fail to realize the Owner Participant's Expected
Return; and (iii) the aggregate amount of any such reduction shall be paid to
the Owner Lessor as Periodic Lease Rent no later than the expiration of the
Facility Lease.
Section 5.8 Verification of Computations. Within 23 days after the
Facility Lessee receives from the Owner Participant any calculation of the
amount or amounts payable to either the Owner Participant or the Facility Lessee
pursuant to this Section 5, if the Facility Lessee so requests in writing, such
calculation shall be reviewed by a nationally recognized independent accounting
firm, selected by the Owner Participant and reasonably acceptable to the
Facility Lessee, to determine on a confidential basis the amount of any
indemnity payment by the Facility Lessee to the Owner Participant, or the amount
of any payment by the Owner Participant to the Facility Lessee
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pursuant to this Section 5. The Owner Participant and the Facility Lessee shall
cooperate with such accounting firm and supply it with all information
reasonably necessary for the accounting firm to conduct such review and
determination, provided that such accounting firm shall agree in writing in a
manner satisfactory to the Owner Participant, or the Facility Lessee, as the
case may be, to maintain the confidentiality of such information, and provided
further that neither the Owner Participant nor the Facility Lessee shall be
required to disclose any of its tax returns or books that the Owner Participant,
or the Facility Lessee, as the case may be, reasonably deems to be confidential
in connection with such verification, and the parties hereto agree that the
Owner Participant or the Facility Lessee, as the case may be, shall have sole
control over the positions taken with respect to such party's tax returns and
filings. The fees and disbursements of such accounting firm will be paid by the
Facility Lessee; provided that such fees and disbursements will be paid by the
Owner Participant if the accountants determine that the present value of the
total payments as calculated by the Owner Participant is more than 105 percent
of the present value of the correct payments (such present value in each case to
be determined by the Discount Rate). In the event such accounting firm
determines that such computations are incorrect, then such firm shall determine
what it believes to be the correct computations. The computations of the
accounting firm shall be final, binding and conclusive upon the Facility Lessee
and the Owner Participant. The parties hereto agree that the independent public
accounting firm's sole responsibility shall be to verify the computation of any
payment pursuant to this Section 5 and that matters of interpretation of this
Agreement or any other Operative Document are not within the scope of the
independent accountant's responsibility. Such accounting firm shall be requested
to make its determination within 30 days.
SECTION 6 EXCLUDED EVENTS
Notwithstanding anything to the contrary in this Agreement, the
Facility Lessee shall not be required to indemnify the Owner Participant with
respect to a Tax Loss provided for herein to the extent that such Tax Loss
results from the occurrence of any one or more of the following events:
(a) any voluntary sale, assignment, transfer or other
voluntary disposition by the Owner Lessor, the Owner Participant or any
Affiliate of the foregoing (each, a "Lessor Group Member"), or any involuntary
sale, transfer or other disposition resulting from the bankruptcy of a Lessor
Group Member or the foreclosure by a creditor of a Lessor Group Member, of (i)
any interest in or arising
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under the Operative Documents, (ii) the Facility Interest or any interest
therein or (iii) any interest in the Owner Participant, the Owner Lessor or any
Affiliate of the foregoing, unless, in each case, such sale, transfer or other
disposition is in connection with a Lease Event of Default that shall have
occurred and be continuing, or unless, in the case of a sale, transfer or other
disposition by the Owner Lessor or any Affiliate thereof, the Owner Lessor or
Affiliate is not acting pursuant to the directions or with the express consent
of the Owner Participant;
(b) an event that requires the Facility Lessee to pay
Termination Value to the extent such payment is made, and to the extent the
amount of such payment accurately reflects the timing of tax consequences
arising from the event or occurrence giving rise to such payment;
(c) failure by the Owner Participant timely or properly to
claim any Assumed Deduction or to exclude such income on its tax return, unless,
in the written opinion of independent tax counsel (selected by the Owner
Participant and reasonably acceptable to the Facility Lessee) setting forth in
reasonable detail the facts and analysis upon which such opinion is based and a
copy of which is delivered to the Facility Lessee as soon as practicable and
prior to the date on which the tax return in which such Assumed Deduction or
exclusion is not claimed, there is no Reasonable Basis as a result of a Tax Law
Change or change in facts subsequent to the Closing Date (other than as a result
of a Tax Law Change described in (e) below) to claim such Assumed Deduction or
exclusion;
(d) other than as a result of a Facility Lessee Action,
failure of the Owner Participant's basis in the Facility Interest to equal the
Purchase Price;
(e) other than with respect to a modification, substitution,
replacement or rebuilding of the Facility or any portion thereof, any Tax Law
Change enacted, adopted, promulgated or decided after the Closing Date;
(f) the application of Section 59A, 168(d)(3), 168(d)(4)(C),
291 or 467 of the Code, except as a result of a Facility Lessee Action;
(g) the application of any rules relating to change in taxable
year, short taxable years, a change in the location, business, tax or other
status or tax year of the Owner Participant or the Owner Lessor to the extent of
a resulting increase in
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the Facility Lessee's indemnity obligations unless attributable to a Facility
Lessee Action;
(h) the failure of the Owner Participant to have sufficient
income or tax liability to benefit from the Assumed Deductions or other tax
benefits set forth in the Tax Assumptions, provided that this exclusion shall
not affect indemnification to be calculated on the basis of an assumed rate of
tax;
(i) the failure of the Facility Lease to be treated as a "true
lease" or the Loans to be treated as true debt for federal income tax purposes,
other than as a result of a Facility Lessee Action;
(j) the failure of the Owner Lessor to be treated as a
disregarded entity or pass-through entity for federal, state or local tax
purposes to the extent of a resulting increase in the Facility Lessee's
indemnity obligations;
(k) the failure of the undivided Facility Interest to be
treated as an undivided interest in the Facility other than as a result of a
Facility Lessee Action;
(1) the fraud, gross negligence or willful misconduct of any
Lessor Group Member, or the breach or inaccuracy of any representation by the
Owner Participant or the Owner Lessor in any of the Operative Documents;
(m) any Lessor Group Member's being, or becoming, for federal
income tax purposes, a charitable organization, a tax-exempt entity within the
meaning of Section 168(h) of the Code, an agency or instrumentality of the
United States, a state or political subdivision thereof or an international
organization; or the special status of a Lessor Group Member which status causes
such Lessor Group Member to be subject to the provisions of Section 55, 56, 57,
58, 59, 59A, 168(0(2), 291, 465, 469, 501, 542, 552, 593, 851, 856 or 1361 of
the Code to the extent of a resulting increase in the Facility Lessee's
indemnity obligations;
(n) the failure by the appropriate Lessor Group Member to
contest a tax claim in accordance with, and to the extent required by Section 7,
to the extent that the Facility Lessee's ability to contest the claim is
adversely affected as a result of such failure, unless attributable to a
Facility Lessee Action;
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(o) the inclusion in income by the Owner Participant upon
termination of the Facility Lease of amounts attributable to Improvements,
modifications or additions to the Facility not financed by the Owner Participant
and as to which title vests in the Owner Lessor or the Owner Participant;
(p) an amendment, supplement, modification or waiver of or to
(each an "Amendment") any Operative Document to which any Lessor Group Member is
a party and to which the Facility Lessee is not a party and which Amendment is
not requested by the Facility Lessee in writing, other than an Amendment (A)
that may be necessary or appropriate to, and is in conformity with, any
Amendment of or to any Operative Document requested by the Facility Lessee in
writing, (B) that is required by the terms of the Operative Documents or by
Applicable Law, or (C) if, at the time of such Amendment, a Lease Event of
Default shall have occurred and be continuing;
(q) penalties or additions to tax under Section 6662 or
Section 6663 of the Code or relating to estimated tax, in either case to the
extent attributable to matters unrelated to the transaction contemplated in the
Operative Documents;
(r) a determination that the Owner Participant is not holding
the Facility Interest in the ordinary course of a trade or business or that the
Owner Participant did not enter into the transactions contemplated by the
Operative Documents "for profit" for purposes of the Code, other than as a
result of a Facility Lessee Action;
(s) the failure of the Loans or any "Section 467 Loan" to
constitute qualified nonrecourse financing within the meaning of Treasury
Regulation Section 1.861-lOT, other than as a result of a Facility Lessee
Action;
(t) any tax election by a Lessor Group Member that is
inconsistent with the Tax Assumptions;
(u) the source of any income, losses or deductions being
treated as outside the United States;
(v) the existence of, or any consequence of, a deferred rent
payment structure or equity structure, provided that the Facility Lessee makes
all
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payments when due and accrues all rental expense in accordance with the
applicable rent accrual schedules;
(w) acts, omissions, or breaches by a Lessor Group Member that
constitute the Operative Documents or of the representations, warranties or
covenants of the Owner Lessor in the Operative Documents in Sections 3.2(a),
(b), (c), (d), (e), (f), and 7.1, 7.2, 7.4, 7.5 and 7.6 of the Participation
Agreement, or of the Owner Participant in Sections 3.4(a), (b), (c), (d), (e),
(f), (g), (h), (i), (k) and 8.1, 8.2, 8.3, 8.4 and 8.7 of the Participation
Agreement;
(x) the failure by the appropriate Lessor Group Member to file
timely any tax return in accordance with the appropriate filing procedure, to
the extent the Facility Lessee's indemnity obligation is increased as a result
of such failure unless attributable to a Facility Lessee Action;
(y) a Tax Loss occurring after (and not simultaneously with)
(1) the expiration or earlier termination of the Basic Lease Term (other than in
connection with a Lease Event of Default) or (2) the return of the Facility
Interest to the Owner Lessor (other than in connection with a Lease Event of
Default);
(z) the existence of, or the inclusion (or omission) of any
provision in, any Operative Document, except for Section 3.5 of the Facility
Lease;
(aa) a Tax Loss resulting from a transfer by the Owner
Participant of its interest in the Owner Lessor, unless such transfer or
disposition occurs pursuant to the exercise of remedies during the continuation
of a Lease Event of Default; and
(bb) a Tax Loss or portion of any Tax Loss to the extent
properly allocable under the Owners Agreements, Applicable Law, contract,
contribution or indemnity or otherwise to an interest in the Facility or the
Facility Site of the Equity Investor or any Affiliate thereof (other than in
respect of a Facility Interest, including an undivided interest in the Facility
Site).
The loss of state income tax benefits alone shall not give rise to a tax
indemnity obligation, but such loss shall be taken into account in calculating
the amount of a tax indemnity payment pursuant to Section 5.4.
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SECTION 7 CONTESTS
If the Owner Participant receives written notice of a claim by
the IRS which, if sustained, would result in a Tax Loss requiring the payment of
an indemnity by the Facility Lessee in excess of $50,000 as to the Facility
Interest, then the Owner Participant shall notify the Facility Lessee in writing
of such claim within 20 days after receipt and, in the event that there are less
than 20 days in which to respond to such claim, the Owner Participant agrees to
request an extension of time to contest such claim so that the period remaining
to initiate such contest is not less than 20 days from the date of the Owner
Participant's notice to the Facility Lessee of such claim, and the Owner
Participant agrees to take such action in contesting such claim as the Facility
Lessee shall request from time to time, including, but not limited to, (i) all
administrative appeals, proceedings, hearings and conferences with respect to
the claim, (ii) seeking a judicial determination with respect to such claim and
(iii) the appeal of any adverse judicial determination with respect to such
claim (but not to the U.S. Supreme Court), provided that:
(a) No Lease Event of Default shall have occurred and be
continuing;
(b) the Owner Participant shall not have received prior to the
time before which a response to such claim is due a written opinion, from
independent tax counsel, selected by the Owner Participant and reasonably
acceptable to the Facility Lessee, setting forth in reasonable detail the facts
and analysis upon which such opinion is based (a copy of which is delivered to
the Facility Lessee as soon as practicable after receipt), to the effect that,
with respect to any initial contest, there is not a Reasonable Basis for such
contest, (or it is not "more likely than not" in the case of an appeal of
adverse judicial determination);
(c) the Facility Lessee shall have agreed to pay, on an
After-Tax Basis, all reasonable costs and expenses incurred by the Owner
Participant in connection with any contest, including, without limitation, all
reasonable legal and other documented out-of-pocket expenses, and shall have
provided the Owner Participant with adequate assurances for the payment thereof;
and
(d) the Facility Lessee shall have acknowledged in writing its
liability to indemnify the Owner Participant in respect of the claim if the
contest is
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not successful; provided, however, that such acknowledgment of liability will
not be binding if the contest is resolved on a clearly articulated basis which
establishes that the Facility Lessee is not liable to the Owner Participant.
Subject to the foregoing, the Owner Participant may forego any and all
administrative appeals, proceedings, hearings and conferences with the IRS in
respect of any claim and may, at its sole option, contest the claim in any
permissible forum selected by the Owner Participant, considering, however, in
good faith such requests as the Facility Lessee and its counsel shall make
concerning the prudent manner in which to contest such claim.
The Owner Participant may, at its sole option, either pay the
tax claimed and ▇▇▇ for a refund or contest the claim in any permissible forum,
considering in good faith, however, such requests as the Facility Lessee and its
counsel shall make concerning the most appropriate forum in which to proceed and
other related matters. If the Owner Participant chooses to pay the tax claimed
and ▇▇▇ for a refund, the Facility Lessee shall advance to the Owner
Participant, on an interest-free basis and with no additional net after-tax cost
to the Owner Participant, sufficient funds to pay the tax and any interest,
penalties and additions to tax payable with respect thereto (to the extent such
amount is indemnified-against by the Facility Lessee). The Owner Participant
shall not settle any claim without the Facility Lessee's consent; provided, that
the Owner Participant shall not be required to contest any proposed adjustment
and may settle any such proposed adjustment if, (i) the Owner Participant shall
waive its right to indemnity with respect to such adjustment and shall pay to
the Facility Lessee any amount previously paid or advanced by the Facility
Lessee with respect to such adjustment or the contest of such adjustment (other
than amounts paid or advanced pursuant to the Facility Lessee's obligations to
pay the costs of the contest), or (ii) the subject of such contest has
previously been resolved in a Final Determination for a prior taxable year
adversely to the Owner Participant, unless the Facility Lessee shall have
provided the Owner Participant with an opinion of independent tax counsel,
selected by the Facility Lessee and reasonably satisfactory to the Owner
Participant, setting forth in reasonable detail the facts and analysis upon
which such opinion is based (a copy of which is delivered to the Owner
Participant), that as a result of a Tax Law Change or a change in fact, the
prior Final Determination is no longer determinative of the issue.
The Owner Participant (i) shall not make payment of any claim
for at least 30 days after giving written notice of such claim to the Facility
Lessee if such
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forbearance is permitted by law and shall inform the Facility Lessee in
reasonable detail of the nature and extent of and purported basis (to the extent
of the Owner Participant's knowledge thereof) for such claim, (ii) shall use
good faith efforts to consult with and consider in good faith the Facility
Lessee's and its counsel's suggestions regarding the conduct of such contest
(but the manner in which such contest is conducted shall be determined in all
respects by the Owner Participant in its sole discretion) and shall keep the
Facility Lessee reasonably informed as to the progress of such contest, and
(iii) shall provide the Facility Lessee and its counsel with copies of any
correspondence (or excerpts thereof relating to the adjustment or the contest of
such adjustment) or excerpts of other written material received by the Owner
Participant in connection with the contest and shall provide to the Facility
Lessee for comment within a reasonable period of time prior to submission
written materials with respect to the claim submitted to the IRS, the courts or
administrative tribunals or bodies involved with respect to the issues for which
the Facility Lessee is liable for an indemnity hereunder (it being understood
that the Facility Lessee shall not be permitted to review any portions of such
documents or submissions that relate to issues unrelated to the transactions
contemplated by the Operative Documents). The Facility Lessee and its counsel
shall maintain confidentiality with respect to all such information.
If the Facility Lessee shall have requested the Owner
Participant to contest such claim as above provided and shall have duly complied
with all the terms of this Section 7, the Facility Lessee's liability for
indemnification under Section 5 shall, at the Facility Lessee's election, be
deferred until a Final Determination of the liability of the Owner Participant.
At such time, the Facility Lessee shall become obligated for the payment of any
indemnification hereunder resulting from the outcome of such contest, and the
Owner Participant shall become obligated to refund to the Facility Lessee any
amount received as a refund by the Owner Participant or credited to the Owner
Participant fairly attributable to advances by the Facility Lessee hereunder.
Within fifteen (15) days following such Final Determination, any amounts due
hereunder shall be paid first by set-off against each other and either (a) the
Facility Lessee shall pay to the Owner Participant any excess of the full amount
due hereunder over the amount of any advances previously made by the Facility
Lessee and applied against the Facility Lessee's indemnity obligation as
aforesaid or (b) the Owner Participant shall repay to the Facility Lessee any
excess of such advances over such full amount due hereunder, together with any
interest received by the Owner Participant that is properly attributable to such
excess amount of such advances during the period such advances were outstanding,
and, if the Facility
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Lessee shall have indemnified the Owner Participant with respect to the adverse
tax consequences of any advances or payments hereunder, the amount of any tax
savings resulting from any payment pursuant to this sentence.
SECTION 8 CERTAIN ADJUSTMENTS.
In the event of an Indemnified Tax Loss for which the Owner
Participant has received indemnification hereunder, the Owner Participant shall
recalculate Termination Values (upwards or downwards) using the methodology and
assumptions (except to the extent such assumptions shall be varied to take into
account the Tax Loss (and any prior or contemporaneous Tax Loss) that is the
subject of such indemnification) used to calculate Termination Values on the
Closing Date in order to (i) reflect such Indemnified Tax Loss and maintain the
Owner Participant's Expected Return, and (ii) to the extent consistent with
clause (i) hereof, at the option of the Facility Lessee, minimize (a) the
average annual Periodic Lease Rent over the Fixed Lease Term for the Facility
Lessee's GAAP accounting purposes and/or (b) minimize the net present value,
discounted at the Discount Rate, compounded on a semi-annual basis to the
Termination Date, of Periodic Lease Rent to the Facility Lessee. Promptly after
such Indemnified Tax Loss occurs, the Owner Participant shall deliver to the
Facility Lessee a description of the revised Tax Assumptions and shall prepare a
schedule of revised Termination Values, with a description setting forth in
reasonable detail the calculation thereof (not including such methodology and
assumptions) and such adjustment shall, at the request of the Facility Lessee,
be verified by a nationally recognized independent accounting firm in accordance
with the procedures set forth in Section 5.8 hereof. All adjustments shall be in
compliance with the tests of Section 4.02(5) and 4.07 of Rev. Proc. 75-28 and
with one or more of any "safe harbors" from characterization of the Facility
Lease as a "disqualified leaseback or long-term agreement" set forth in section
467 of the Code (or any proposed, temporary or final regulations thereunder
applicable to the Facility Lease) or, if no "safe harbor" exists, made in a
manner to avoid characterization of the Facility Lease as a "disqualified
leaseback or long-term agreement" within the meaning of Section 467 of the Code.
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SECTION 9 MISCELLANEOUS.
Section 9.1 Survival. Notwithstanding any other provision of any of the
Operative Documents, the obligations, rights and liabilities of the Owner
Participant and the Facility Lessee hereunder shall continue in full force and
effect notwithstanding the expiration or other termination of any of the
Operative Documents.
Section 9.2 Late Payments. Except as otherwise provided in this
Agreement, any amount payable to the Owner Lessor, the Owner Participant or the
Facility Lessee under this Agreement not paid within 10 days from the date due
and payable under this Agreement shall bear interest from the due date to the
date paid at the Overdue Rate.
Section 9.3 Notices. All notices, requests and other communications
provided for herein shall be given in the manner, to the respective addresses
and become effective as provided in Section 17.6 of the Participation Agreement
except to the extent otherwise expressly provided herein.
Section 9.4 Assignment by the Parties. The obligations and liabilities
of the Facility Lessee and the Owner Participant arising under this Agreement
are expressly made for the benefit of, and shall be enforceable by, the Owner
Participant and the Facility Lessee and their successors, assigns and agents,
provided, however, that (a) such successor or assign shall have specifically
agreed in writing to be bound by the terms and conditions of this Agreement to
perform the obligations imposed hereunder on the Owner Participant or the
Facility Lessee, as the case may be, in accordance with the interest of such
successor or assign in the Facility Interest, the Facility Lease and any
Operative Documents, (b) the successor or assign shall not be entitled to
indemnity payments or other rights or benefits greater than the payments, rights
or benefits to which the Owner Participant or the Facility Lessee, as the case
may be, would have been entitled if no transfer or assignment had occurred, and
(c) in applying the terms hereof to such successor or assign, the terms "Owner
Participant" and "Facility Lessee" as used herein shall mean such respective
successor or assign.
Section 9.5 Set Off, Counterclaim, Etc. Except as explicitly provided
herein, no payment required to be made by any party pursuant to this Agreement
shall be subject to any right of set off, counterclaim, defense, abatement,
suspension, deferment or reduction, and, except in accordance with the express
terms hereof, no party shall have any right to be released, relieved, or
discharged from any obligation
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or liability under this Agreement for any reason whatsoever. Nothing contained
herein shall be construed to waive any claim which the Facility Lessee or the
Owner Lessor might have under any of the Operative Documents (including this
Agreement and including, without limitation, claims or defenses that indemnities
or other payments demanded from or paid by the Facility Lessee or the party are
or were erroneous) or otherwise, or to limit the right of the Facility Lessee or
the party to make any claim it might have against the Owner Participant or the
Facility Lessee or any other Person or to pursue such claim in such manner as
the Facility Lessee or the Owner Participant shall deem appropriate, or to
require the Facility Lessee or the Owner Participant to pay the same obligation
more than once.
Section 9.6 Method of Payment. All payments to be made to the Owner
Participant by the Facility Lessee pursuant to this Agreement shall be made by
wire transfer in immediately available funds to such bank account of the Owner
Participant as the Owner Participant from time to time shall have directed to
the Facility Lessee, such direction to be given in writing at least 5 Business
Days prior to the due date thereof. All payments to be made to the Facility
Lessee by the Owner Participant pursuant to this Agreement shall be made by wire
transfer of immediately available funds to such bank account as the Facility
Lessee from time to time shall have directed to the Owner Participant, such
direction to be given in writing at least 5 Business Days prior to the due date
thereof.
Section 9.7 Severability. If any provision hereof shall be invalid,
illegal or unenforceable under Applicable Law, the validity, legality and
enforceability of the remaining provisions hereof shall not be affected or
impaired thereby.
Section 9.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PROVISIONS THEREOF EXCEPT NEW YORK GENERAL OBLIGATIONS LAW
SECTION 5-1401.
Section 9.9 Counterparts. This Agreement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, and such counterparts together shall constitute and be one and the
same instrument.
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Section 9.10 Confidentiality. Except to the extent necessary for the
exercise of its rights and remedies and the performance of its obligations under
the Operative Documents, no party hereto will itself use or intentionally
disclose or permit its agents to disclose, directly or indirectly, any
information obtained from any of the parties hereto or in connection herewith or
any portion of any Operative Document not available for public inspection, and
will use all reasonable efforts to have all such information kept confidential;
provided, that (a) each party may use, retain and disclose any such information
to (i) its counsel and public accountants, any Indemnitee and any of its
potential transferees if the party in question agrees to keep such information
confidential to the extent provided herein and (ii) any governmental agency or
instrumentality or other supervisory body requesting such disclosure, (b) each
party may use, retain and disclose any such information which has been publicly
disclosed (other than by such party or any affiliate thereof in breach of this
section 9.11) or has rightfully come into the possession of such party or any
affiliate thereof (other than from another party hereto) and (c) to the extent
that such party or any Affiliate thereof may have received a subpoena or other
written demand under color of legal right for such information, such party or
Affiliate may disclose such information, but such party shall first, as soon as
practicable upon receipt of such demand, furnish a copy thereof to the party
such information relates to, as the case may be, and take advantage of the
maximum time allowed under such demand or any extension thereof obtained by such
party.
Section 9.11 Non-Parties. The Facility Lessee may require as a
precondition to the making of any indemnity payment hereunder calculated by
reference to a Person other than the Owner Participant, that the Owner
Participant shall deliver to the Facility Lessee an agreement in writing signed
by such Person, in a form reasonably acceptable to the Facility Lessee, in which
such Person agrees to be bound by the terms of this Agreement.
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IN WITNESS WHEREOF, the Owner Participant and the Facility
Lessee have caused this Tax Indemnity Agreement to be duly executed as of the
day and year first above written.
PSEG CONEMAUGH GENERATION, LLC
By
Name:
Title:
RELIANT ENERGY MID-ATLANTIC
POWER HOLDINGS, LLC,
By
Name:
Title:
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APPENDIX A
1. PURCHASE PRICE $300,000,000
Percentage of
Purchase Price
2. COST RECOVERY DEDUCTIONS: Property Type & Deduction --------------
--------------------------------------
20-year, 150 percent Declining Balance 99.78%
Switching to Straight Line
15-year, 150 percent Declining Balance .010%
Switching to Straight Line
39-year, Straight Line 0.21%
In case of the 20-year and 15-year deductions, utilizing
the half-year convention. In the case of the 39-year
deductions, utilizing the mid-month convention.
3. FEDERAL TAX RATE: 35%
4. STATE TAX RATE: 2.5% as reflected in the Schedules of Periodic Rent, Lease
Debt Amortization, Termination Values and the Pricing
Assumptions.
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EXHIBIT I
FACTUAL INFORMATION OR FORWARD LOOKING INFORMATION FOR PURPOSES OF
SECTION 4(b) OF THE TAX INDEMNITY AGREEMENT
Factual information or projections and other forward looking
information, as the case may be, provided by or on behalf of the Facility Lessee
or its Affiliates to the Appraiser in connection with the Closing Appraisal:
1. Electronic mail dated May 4, 2000 to Deloitte & Touche containing an
excel spreadsheet "key-con ▇▇▇▇ D&T cost flow 050400.xls". The data
included general and administration expense to be used for years 2000
through 2044 for Keystone and Conemaugh and 2000 through 2034 for
Shawville.
2. Electronic mail dated August 2, 2000 to Deloitte & Touche containing an
excel spreadsheet, "o&mcapex d&t rev 4b no controls.xls". The data
included Keystone, Conemaugh and Shawville operations and maintenance
expenses and capital expenditures, both excluding costs for adding
environmental control equipment, beginning year 2000 through 2044 for
Keystone and Conemaugh and 2034 for Shawville.
3. Electronic mail dated August 2, 2000 to Deloitte & Touche containing
excel spreadsheets, "reliantnox D&T O73000.xls" and "reliantso2 D&T
O73000.xls". The data provided Keystone, Conemaugh and Shawville tons
of projected NO2 and SO2 emissions and capacity factors for each unit
at each Facility, for the years 2000 through 2029. The emissions
reflected the addition of environmental control equipment.
4. Electronic mail dated August 2, 2000 to Deloitte & Touche containing an
excel spreadsheet, "o&mcapex d&t rev4a shawville adj cashflow.xls". The
data included Keystone, Conemaugh and Shawville operations and
maintenance expenses and capital expenditures, both including costs for
adding environmental control equipment, beginning year 2000 through
2044 for Keystone and Conemaugh and 2034 for Shawville.
5. Electronic mail dated July 19, 2000 to Deloitte & Touche containing an
excel spreadsheet, "netbook.xls", with updated net book values for
plants.
6. Inter-Office Memo dated July 31, 2000 detailing Keystone Unit #1 HP
turbine Failure.
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7. Factual information, projections or forward looking information
provided to Stone & ▇▇▇▇▇▇▇ Management Consultants, Inc., including
without limitation, the useful life table on page 4-20 of "Independent
Technical Review For Financing Reliant Energy Mid-Atlantic Power
Holdings LLC", the independent engineering report for Keystone,
Conemaugh and Shawville Facilities, dated May 5, 2000, which
information was identified in section 4.2 Remaining Life, pages 4-18
through 4-21 and pages 6-1 though 6-6 of such document.
8. Reliant Energy, Inc. SEC Form 10-K for the fiscal year ended December
31, 1999.
9. Reliant Energy, Inc. SEC Form l0-Q for the quarterly period ended June
30, 2000.
10. Reliant Energy, Inc. SEC Form 8-K Dated July 27, 2000.
11. Reliant Energy, Inc. 1999 Annual Report to Stockholders.
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