EXHIBIT 10.9
EQUIPMENT LEASE AGREEMENT
Dated as of September 30, ▇▇▇▇
▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ BANK AND TRUST COMPANY
OF CALIFORNIA, NATIONAL ASSOCIATION
not in its individual capacity
but solely as Owner Trustee
as Lessor,
and
CALIFORNIA STEEL INDUSTRIES, INC.,
as Lessee
Steel Galvanizing Equipment
CLOSING DOCUMENTS
EQUIPMENT LEASE AGREEMENT
CLOSING DOCUMENTS
Parties
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California Steel California Steel Industries, Inc., a Delaware
corporation
State Street State Street Bank and Trust Company of California,
National Association, a national banking corporation
IBJ The Industrial Bank of Japan, Limited, a Japanese
banking corporation acting by and through its duly
licensed Los Angeles Agency
IBJTC Leasing IBJTC Leasing Corporation, a New York corporation
DKB The Dai-Ichi Kangyo Bank, Limited, a Japanese banking
corporation acting by and through its duly licensed
Los Angeles Agency
Document Tab No.
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A. Equipment Lease Agreement, dated as of September 30, 1998, between ▇
▇▇▇▇▇ ▇▇▇▇▇▇, as Lessor and California Steel, as Lessee.
Exhibits:
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Exhibit A Form of Lease Supplement
Exhibit B Form of Report of Alterations
Exhibit C Form of Notice of Accident
Exhibit D Form of Notice of Liens
Exhibit E Form of Notice of Change of Principal Place of
Business
Exhibit F Form of Certificate of Chief Financial Officer -
Monthly Financial Statements
Exhibit G Form of Certificate of Responsible Officer
Schedules:
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Schedule A Basic Rent Payments and Rent Payment Dates
Schedule B Stipulated Loss Values
Schedule C Termination Values
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Document Tab No.
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B. Closing Documents.
1. Lease Supplement No. 1, dated September 30, 1998, among ▇
▇▇▇▇▇ ▇▇▇▇▇▇, as Lessor and California Steel, as Lessee.
2. Tax Indemnification Agreement, dated as of September 30, 3
1998, between IBJTC Leasing, as Owner, and California
Steel, as Lessee.
3. Irrevocable License Agreement, dated as of September 30, 4
1998, between California Steel, as Grantor, State
Street, as Lessor, and IBJTC Leasing, as Agent, recorded
with the San Bernardino County Recorder on November 6,
1998 as Document No. 1998-0476403.
4. Acknowledgment Agreement, dated as of September 30, 5
1998, among State Street, as Owner Trustee, IBJ, as
Agent, and IBJ, as Party in Interest, recorded with the
San Bernardino County Recorder on November 6, 1998 as
Document No. 1998-0476401.
5. Acknowledgment Agreement, dated as of September 30, 6
1998, among State Street, as Owner Trustee, IBJ, as
Agent, and DKB, as Party in Interest, recorded with the
San Bernardino County Recorder on November 6, 1998 as
Document No. 1998-0476402.
6. Promissory Note, dated June 24, 1997, in the amount of 7
$35,000,000 by State Street in favor of IBJ, marked
"Canceled."
7. Promissory Note, dated September 30, 1998, in the amount 8
of $27,635,051.20 by State Street in favor of IBJ.
8. Revised Schedule 1 to the Participation Agreement, dated 9
as of June 12, 1997, among California Steel, as Lessee;
State Street, as Owner Trustee and Lessor; IBJ, as
Initial Lender and Agent for the Lenders; and IBJTC
Leasing, as Initial Beneficiary and Arranger.
9. Opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, independent insurance broker, 10
dated September 30, 1998.
10. Evidence of Property Insurance. 11
12. Preliminary Title Report from Chicago Title Company 12
dated September 15, 1998.
13. Release of Mechanic's Lien by ▇▇▇▇▇▇▇▇▇'▇, dated 13
September 22, 1998.
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Document Tab No.
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14. Release of Mechanic's ▇▇▇▇ ▇▇▇▇, Private Work, by The 14
American Insurance Company (for claimant B&B Industrial
Services, Inc.), dated September 29, 1998.
C. Closing Certificates.
1. California Steel Secretary Certificate, dated September 15
30, 1998, regarding authorization by the Board of
Directors and incumbency.
2. California Steel Officer Certificate, dated September 16
30, 1998, regarding representations and warranties.
3. California Steel Completion Certificate, dated September 17
29, 1998.
4. Delaware Long-Form Good Standing Certificate for 18
California Steel dated September 24, 1998, attaching
certified copies of all documents filed with the
Delaware Secretary of State.
5. California Secretary of State Good Standing Certificate 19
dated September 24, 1998 and California Franchise Tax
Good Standing Certificate dated September 23, 1998 for
California Steel.
6. State Street Officer Certificate, dated September 30, 20
1998, regarding authorization by the Board of Directors
and incumbency and attaching Articles of Association and
Bylaws.
7. State Street Officer Certificate, dated September 30, 21
1998, regarding representations and warranties.
D. Opinions.
1. Opinion of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP. 22
2. Opinion of ▇▇▇▇▇▇, ▇▇▇▇▇ & Bockius LLP. 23
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EQUIPMENT LEASE AGREEMENT
Dated as of September 30, 1998
between
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, NATIONAL ASSOCIATION
not in its individual capacity
but solely as Owner Trustee,
as Lessor
and
CALIFORNIA STEEL INDUSTRIES, INC.,
as Lessee
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CERTAIN RIGHTS, TITLE AND INTEREST IN AND TO THIS EQUIPMENT LEASE AGREEMENT ON
THE PART OF CALIFORNIA STEEL INDUSTRIES, INC. HAVE BEEN ASSIGNED TO AND ARE
SUBJECT TO A LIEN AND SECURITY INTEREST IN FAVOR OF THE INDUSTRIAL BANK OF
JAPAN, LIMITED, LOS ANGELES AGENCY, AS AGENT, UNDER A LOAN AND SECURITY
AGREEMENT, DATED AS OF JUNE 12, 1997. TO THE EXTENT, IF ANY, THAT THIS EQUIPMENT
LEASE AGREEMENT 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 EQUIPMENT LEASE AGREEMENT MAY BE CREATED THROUGH THE
TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL COUNTERPART
THAT CONTAINS THE RECEIPT THEREFOR EXECUTED BY THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES BRANCH, AS AGENT, ON OR IMMEDIATELY FOLLOWING THE SIGNATURE
PAGE THEREOF.
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TABLE OF CONTENTS
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Page
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ARTICLE I Definitions; Construction of References ................ 1
SECTION 1.1 Definitions ............................................ 1
SECTION 1.2 Construction of References ............................. 1
ARTICLE II Lease of Equipment ..................................... 2
ARTICLE III Rent ................................................... 2
SECTION 3.1 Basic Rent ............................................. 2
SECTION 3.2 Supplemental Rent ...................................... 2
SECTION 3.3 Method of Payment ...................................... 2
SECTION 3.4 Late Payment ........................................... 3
SECTION 3.5 Net Lease; No Setoff; etc. ............................. 3
SECTION 3.6 Indemnity for Break Funding Costs and
Lenders' Costs ......................................... 4
ARTICLE IV Recomputation of Stipulated Loss Value
and Termination Value .................................. 4
SECTION 4.1 Adjustments for Payments Under the Tax
Indemnification Agreement .............................. 4
SECTION 4.2 Limitations on Adjustments ............................. 4
ARTICLE V Purchase Option ........................................ 5
SECTION 5.1 Purchase Option ........................................ 5
SECTION 5.2 Purchase and Transfer of Equipment ..................... 6
ARTICLE VI Obsolescence Termination ............................... 7
ARTICLE VII Disclaimer of Warranties ............................... 8
ARTICLE VIII Restriction on Liens ................................... 9
ARTICLE IX Operation and Maintenance .............................. 9
SECTION 9.1 Operation and Maintenance .............................. 9
SECTION 9.2 Replacement of Parts ................................... 9
SECTION 9.3 Optional Alterations ...................................10
SECTION 9.4 Title to Parts .........................................10
SECTION 9.5 Removal of Severable Alterations .......................11
SECTION 9.6 Parts Free and Clear of Liens ..........................11
SECTION 9.7 Restriction on Lessee Improvements and
Removal of Parts .......................................11
SECTION 9.8 Records ................................................12
SECTION 9.9 Reports of Alterations .................................12
SECTION 9.10 Licenses and Permits ...................................12
ARTICLE X Insurance ..............................................12
SECTION 10.1 Insurance ..............................................12
SECTION 10.2 Policy Provisions ......................................13
SECTION 10.3 Evidence of Insurance ..................................15
SECTION 10.4 Insurance Report .......................................15
SECTION 10.5 Payment of Proceeds ....................................16
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ARTICLE XI Return and Disposition of Leased Property ..............16
ARTICLE XII Additional Covenants of Lessee .........................17
SECTION 12.1 Further Assurances .....................................17
SECTION 12.2 Tax Indemnity Agreement ................................17
SECTION 12.3 Financial and Other Information ........................17
ARTICLE XIII Loss, Destruction, Condemnation or
Damage .................................................18
SECTION 13.1 Replacement or Payment of Stipulated Loss
Value on an Event of Loss ..............................18
SECTION 13.2 Application of Other Payments on an Event
of Loss ................................................19
SECTION 13.3 Application of Payments Not Relating to
an Event of Loss .......................................20
SECTION 13.4 Other Dispositions .....................................21
SECTION 13.5 Special Event of Loss ..................................21
ARTICLE XIV Interest Conveyed to Lessee ............................21
SECTION 14.1 Interest Conveyed ......................................21
SECTION 14.2 Equipment as Personal Property .........................21
ARTICLE XV Restrictions on Assignment and Sublease;
Location ...............................................22
SECTION 15.1 ASSIGNMENT AND SUBLEASE ................................22
SECTION 15.2 Location ...............................................23
ARTICLE XVI Inspection and Notices .................................23
SECTION 16.1 Condition and Operation ................................23
SECTION 16.2 Liability ..............................................24
SECTION 16.3 Liens ..................................................24
SECTION 16.4 Change of Principal Place of Business ..................24
SECTION 16.5 Identification Marks ...................................24
ARTICLE XVII Events of Default ......................................25
ARTICLE XVIII Enforcement ............................................27
SECTION 18.1 Remedies ...............................................27
SECTION 18.2 Survival of Lessee's Obligations .......................29
SECTION 18.3 Remedies Cumulative ....................................30
SECTION 18.4 Storage Agreement ......................................30
ARTICLE XIX Right to Perform for Lessee ............................31
ARTICLE XX Indemnities ............................................31
SECTION 20.1 General Indemnity ......................................31
SECTION 20.2 Federal Tax Indemnities ................................34
SECTION 20.3 Fees, Taxes and Other Charges ..........................34
SECTION 20.4 Survival ...............................................39
ARTICLE XXI Miscellaneous ..........................................40
SECTION 21.1 Further Assurances .....................................40
SECTION 21.2 Quiet Enjoyment ........................................40
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SECTION 21.3 Collateral as Security for Lessor's
Obligations ............................................41
SECTION 21.4 Notices ................................................41
SECTION 21.5 Severability ...........................................41
SECTION 21.6 Amendment ..............................................42
SECTION 21.7 Headings ...............................................42
SECTION 21.8 Counterparts; Uniform Commercial Code ..................42
SECTION 21.9 Governing Law ..........................................42
SECTION 21.10 Performance of Obligations to Lenders ..................42
SECTION 21.11 Confidentiality ........................................42
SECTION 21.12 Binding Effect; Successors and Assigns;
Survival ...............................................43
SECTION 21.13 Limitations of Lessor's Liability ......................43
SECTION 21.14 Chattel Paper ..........................................44
Exhibits:
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EXHIBIT A - Form of Lease Supplement
EXHIBIT B - Form of Report of Alterations
EXHIBIT C - Form of Notice of Accident
EXHIBIT D - Form of Notice of Liens
EXHIBIT E - Form of Notice of Change of Principal Place
of Business
EXHIBIT F - Form of Certificate of Chief Financial Officer -
Monthly Financial Statements
EXHIBIT G - Form of Certificate of Responsible Officer
Schedules:
---------
SCHEDULE A - Basic Rent Payments and Rent Payment Dates
SCHEDULE B - Stipulated Loss Values
SCHEDULE C - Termination Values
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EQUIPMENT LEASE AGREEMENT
THIS EQUIPMENT LEASE AGREEMENT (this "Agreement" or this "Lease") is
entered into as of September 30, 1998 between STATE STREET BANK AND TRUST
---------------------------
COMPANY OF CALIFORNIA NATIONAL ASSOCIATION, a national banking association, not
------------------------------------------
in its individual capacity but solely as Owner Trustee, except as expressly
provided herein (the "Lessor") and CALIFORNIA STEEL INDUSTRIES, INC., a Delaware
---------------------------------
corporation (the "Lessee").
Recitals:
--------
A. The Lessor has acquired ownership of, and title to, the Equipment in
accordance with the Participation Agreement.
B. The Lessor desires to lease to the Lessee, and the Lessee desires to
lease from Lessor, the Equipment pursuant to the terms and conditions of this
Agreement.
C. The Lessor and the Lessee agree that this Agreement shall constitute
and govern the lease of the Equipment.
In consideration of the mutual agreements herein contained and other good
and valuable consideration, receipt of which is hereby acknowledged, the parties
hereto, intending to be legally bound hereby, hereby agree as follows:
ARTICLE I
Definitions; Construction of References
---------------------------------------
SECTION 1.1 Definitions. The capitalized terms used herein and not
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otherwise defined shall have the meanings assigned thereto in Appendix A to the
Participation Agreement dated as of June 12, 1997, among The Industrial Bank of
Japan, Limited, a Japanese banking corporation acting by and through its duly
licensed Los Angeles Agency, not in its individual capacity but solely as agent,
The Industrial Bank of Japan, Limited, a Japanese banking corporation acting by
and through its duly licensed Los Angeles Agency, as initial lender, IBJ Leasing
Corporation, a New York corporation, as initial beneficiary, IBJ Leasing
Corporation, a New York corporation, as arranger, the Lessor and the Lessee (the
"Participation Agreement") for all purposes hereof (such definitions to be
equally applicable to both the singular and plural forms of the terms defined).
SECTION 1.2 Construction of References. All references in this instrument
--------------------------
to designated Sections and other subdivisions are to designated Sections and
other subdivisions of this instrument, and the words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Lease as a whole and
not to any particular Section or other subdivision.
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Except as otherwise indicated, all the agreements or instruments herein
defined shall mean such agreements or instruments as the same may from time to
time be supplemented or amended or the terms thereof waived or modified to the
extent permitted by, and in accordance with, the terms thereof.
ARTICLE II
Lease of Equipment
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On the Lease Commencement Date, subject to all the terms and conditions of
this Lease, the Lessor shall lease, and hereby as of the Lease Commencement Date
does lease, the Equipment described in the applicable Lease Supplement to the
Lessee, and the Lessee shall lease, and hereby as of the Lease Commencement Date
does lease, such Equipment from the Lessor, for the Lease Term.
ARTICLE III
Rent
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SECTION 3.1 Basic Rent. The Lessee shall pay to the Lessor Basic Rent in
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arrears for the Equipment in consecutive installments on the Basic Rent Payment
Dates shown on Schedule A annexed hereto and in the amounts as provided in such
Schedule A.
SECTION 3.2 Supplemental Rent. The Lessee shall pay to the Lessor, or to
-----------------
whoever shall be entitled thereto as expressly provided herein or in any other
Operative Document, any and all Supplemental Rent promptly as the same shall
become due and payable.
SECTION 3.3 Method of Payment. Basic Rent and Supplemental Rent (other
-----------------
than Excepted Payments which shall be paid directly to the Lessor upon the
written instructions of the Agent) shall be paid directly to the Agent as
provided in Section 21.3 hereof provided that to the extent provided in Section
21.3 hereof and after the Notes and all other amounts owing to the Lenders have
been paid in full, such amounts shall be payable to the Lessor at such place as
the Lessor shall specify in writing. Each payment of Rent shall be made by the
Lessee in immediately available funds prior to 1:00 P.M., New York time at the
place of payment (or, so long as the Loan Agreement remains in effect, such
earlier time as the Lessor, with the Lessee's prior written consent, shall agree
to make payment to the Agent), on the scheduled date when such payment shall be
due, unless such scheduled date shall not be a Business Day, in which case such
payment shall be made on the next following Business Day, with the same force
and effect as though made on such scheduled date; provided, however, that if
such next following Business Day occurs in the month following the month in
which such scheduled
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date occurs, then such payment shall be made on the next preceding Business Day.
SECTION 3.4 Late Payment. If any Rent shall not be paid when due, the
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Lessee shall pay to the Lessor (or, in the case of Supplemental Rent, to whoever
shall be entitled thereto as expressly provided herein or in any other Operative
Document), as Supplemental Rent, interest (to the extent permitted by law) on
such overdue amount from and including the due date thereof to but excluding the
date of payment thereof (unless such payment shall be made after 1:00 P.M., New
York time at the place of payment, on such date of payment, in which case such
date of payment shall be included) at the Overdue Rate. If any Rent shall be
paid on the date when due, but after 1:00 P.M., local time at the place of
payment or at any time thereafter, interest shall be payable at the Overdue Rate
for that day together with all interest due for each day thereafter.
SECTION 3.5 Net Lease; No Setoff; etc. This Lease is a net lease and,
--------------------------
notwithstanding any other provision of this Lease, it is intended that Basic
Rent and Supplemental Rent shall be paid without notice, demand, counterclaim,
setoff, deduction or defense and without abatement, suspension, deferment,
diminution or reduction. Except to the extent otherwise expressly specified
herein, the obligations and liabilities of the Lessee hereunder shall in no way
be released, discharged or otherwise affected for any reason, including without
limitation: (a) any defect in the condition, quality or fitness for use of the
Equipment or any part thereof; (b) any damage to, removal, abandonment, salvage,
loss, scrapping or destruction of or any requisition or taking of the Equipment
or any part thereof; (c) any restriction, prevention or curtailment of or
interference with any use of the Equipment or any part thereof; (d) any defect
in title to or rights to the Equipment or any Lien on such title to or rights to
the Equipment; (e) any change, waiver, extension, indulgence or other action or
omission in respect of any obligation or liability of the Lessor, the Agent or
the Lenders; (f) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceedings relating to the
Lessee, the Lessor, the Agent, the Lenders, or any other Person, or any action
taken with respect to this Lease by any trustee or receiver of the Lessee, the
Lessor, the Lenders, the Agent, or any other Person, or by any court, in any
such proceeding; (g) any claim that the Lessee has or might have against any
Person, including without limitation the Lessor or the Agent, the Lenders; (h)
any failure on the part of the Lessor to perform or comply with any of the terms
hereof or of any other agreement; (i) any invalidity or unenforceability or
disaffirmance of this Lease against or by the Lessee or any provision hereof or
any of the other Operative Documents or any provision of any thereof; or (j) any
other occurrence whatsoever, whether similar or dissimilar to the foregoing,
whether or not the Lessee shall have notice or knowledge of any of the
foregoing. This Lease shall be noncancelable by the Lessee and, except as
expressly provided
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herein, the Lessee, to the extent permitted by law, waives all right now or
hereafter conferred by statute or otherwise to quit, terminate or surrender this
Lease, or to any diminution or reduction of Rent payable by the Lessee
hereunder. If for any reason whatsoever this Lease shall be terminated in whole
or in part by operation of law or otherwise except as expressly provided herein,
the Lessee shall, to the extent permitted by applicable law, nonetheless pay to
the Lessor (or, in the case of Supplemental Rent, to whoever shall be entitled
thereto as expressly provided herein or in any other Operative Document) an
amount equal to each Rent payment at the time and in the manner that such
payment would have become due and payable under the terms of this Lease if it
had not been terminated in whole or in part, and in such case, so long as such
payments are made and no Lease Event of Default shall have occurred and be
continuing the Lessor will deem this Lease to have remained in effect.
SECTION 3.6 Indemnity for Break Funding Costs and Lenders' Costs. If
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Lessee makes any payment of Basic Rent on any day later than as otherwise
required under this Lease in addition to all other amounts payable by Lessee in
accordance with the Lease, an amount which in the Lessee's opinion, is
sufficient to indemnify the Lessor (i) for Break Funding Costs; and (ii) for
Lenders' Costs, in both cases whether incurred by the Lessor or the Lenders (for
which the Lessor is required to indemnify the Lenders).
ARTICLE IV
Recomputation of Stipulated
---------------------------
Loss Value and Termination Value
--------------------------------
SECTION 4.1 Adjustments for Payments Under the Tax Indemnification
------------------------------------------------------
Agreement. In the event that the Lessee shall have indemnified the Lessor
---------
pursuant to the Tax Indemnification Agreement for any Loss (as defined in the
Tax Indemnification Agreement), the Stipulated Loss Value and Termination Value
set forth on Schedules B and C shall be revised as set forth in Section 10.9 of
the Participation Agreement.
SECTION 4.2 Limitations on Adjustments. After giving effect to any
--------------------------
adjustment referred to in this Article IV:
(a) at each time thereafter when Stipulated Loss Value may be
payable by the Lessee pursuant to this Lease, the sum of the following
amounts: (i) Stipulated Loss Value payable under this Lease at such time;
(ii) any Basic Rent payable under this Lease at such time; and (iii) any
other amounts unconditionally payable by the Lessee under this Lease in
connection with such payment of Stipulated Loss Value on or prior to the
date for payment thereof and required to be paid to the Lenders pursuant
to the Loan Agreement shall be
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at least sufficient to pay in full the aggregate unpaid principal amount
of the Outstanding Notes plus premium, if any, and accrued interest
thereon at such time;
(b) at each time thereafter when Termination Value shall be payable
by the Lessee pursuant to this Lease, the sum of the following amounts:
(i) Termination Value payable under this Lease at such time; (ii) any
Basic Rent payable under this Lease at such time; and (iii) any other
amounts unconditionally payable by the Lessee under this Lease in
connection with such payment of Termination Value on or prior to the date
for payment thereof and required to be paid to the Lenders pursuant to the
Loan Agreement shall be at least sufficient to pay in full the aggregate
unpaid principal amount of the Outstanding Notes plus premium, if any, and
accrued interest thereon at such time; and
(c) the amount of Basic Rent payable on each Rent Payment Date
thereafter shall be equal to or greater than the aggregate amount of
principal and accrued interest which becomes due and payable on the Notes
on such Rent Payment Date.
ARTICLE V
Purchase Option
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SECTION 5.1 Purchase Option. Unless a Lease Default pursuant to Section
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17(a) or 17(e) or Lease Event of Default shall have occurred and be continuing,
the Lessee shall have the right at its option upon no more than two hundred
seventy (270) days prior written notice and on at least one hundred eighty (180)
days prior written notice to the Lessor, the Agent and the Lenders (which notice
shall be irrevocable), to purchase all (but not less than all) of the Equipment
from the Lessor:
(a) on the last Rent Payment Date at a purchase price equal to the
Fair Market Sales Value of such Equipment as of the last Rent Payment
Date;
(b) on the seventh anniversary of the Lease Commencement Date at a
purchase price equal to fifty-two percent (52%) of the Lessor's Cost of
such Equipment; and
(c) on any Rent Payment Date (i) if the Lessee has or will become
obligated to pay an amount greater than five percent (5%) of the
Stipulated Loss Value of the Equipment as of each Rent Payment Date to the
Lessor under (A) Article XX of this Lease; (B) Article XI of the
Participation Agreement; or (C) the Tax Indemnification Agreement for any
Indemnified Expense
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(as defined in the Participation Agreement and the Lease) and any Loss (as
defined in the Tax Indemnity Agreement) and the termination of the Lease
will allow the Lessee to legally avoid making such payment (provided that
the Lessee takes all commercially reasonable legal actions required to
avoid such Loss); or (ii) if there is a change in any law or regulation
governing the operation and use of the Equipment which has or will
obligate the Lessee to incur expenses, or reimburse the Lessor for
expenses, in an amount greater than five percent (5%) of the Stipulated
Loss Value of the Equipment as of each Rent Payment Date in maintaining or
modifying the Equipment in order to comply with such change of law or
regulation and termination of the Lease will legally allow the Lessee to
avoid incurring such expenses or reimbursing the Lessor for such expenses
(provided that the Lessee takes all commercially reasonable legal actions
necessary to avoid the Lessor or the Lessee incurring such expenses) at a
purchase price equal to the higher of (A) the Fair Market Sales Value of
such Equipment as of such Rent Payment Date or (B) the Stipulated Loss
Value for the Equipment on such Rent Payment Date, plus in either case
Break Funding Costs. Fair Market Sales Value of the Equipment shall be
determined by the mutual agreement of the Lessor and the Lessee on or
before a date forty (40) Business Days prior to the proposed purchase date
after receipt by the Lessor of the notice referred to above, or, if they
shall fail to agree within such period, such Fair Market Sales Value shall
be determined by the Section 5.1(c) Appraisal Procedure.
SECTION 5.2 Purchase and Transfer of Equipment. If the Lessee shall have
----------------------------------
exercised (i) the options to purchase the Equipment provided in clauses (a) or
(c) of Section 5.1 hereof, the Lessee shall pay for the Equipment in immediately
available funds and purchase the Equipment on the date specified; or (ii) the
option to purchase the Equipment provided in clause (b) of Section 5.1 hereof,
the Lessee shall pay for such Equipment in cash or by executing and delivering
to the Lessor a Promissory Note, in form prescribed by the Lessor, evidencing
the purchase price, payable on such terms as may be mutually acceptable to the
Lessor and the Lessee. If the Lessee shall fail to pay for the Equipment on such
date, the Lessee shall no longer have any right to purchase the Equipment
pursuant to Section 5.1 and in the case of the exercise with respect to any
option provided in Section 5.1 (other than the option exercisable on the last
Basic Rent Payment Date) the Lessee shall continue to pay Rent hereunder as such
becomes due and payable. Upon payment by the Lessee to the Lessor of the
purchase price for the Equipment in immediately available funds as provided in
clause (i) above or by executing and delivering of a promissory note as provided
in clause (ii) above, plus any accrued and unpaid Basic Rent due or accrued to
-6-
and including the date of purchase, and all Supplemental Rent owing by the
Lessee to and including the date of purchase and the Break Funding Cost, if any,
due with respect to the prepayment of principal due on the Notes as a result of
the termination of this Lease, the Lessor shall transfer to the Lessee, AS IS,
WHERE IS, WITHOUT RECOURSE OR WARRANTY OF ANY KIND OR NATURE, but free and clear
of Lessor Liens and the lien of the Loan Agreement, all the Lessor's right,
title and interest in, to and under the Equipment, together with all of the
Lessor's right, title and interest, if any, in, to and under any warranty,
claims, rights and causes of action (whether actual or potential) against
Danieli-Wean with respect to the Equipment. Thereupon the obligations of the
Lessee hereunder (other than any such obligations expressed herein as surviving
termination of this Lease) shall terminate.
ARTICLE VI
Obsolescence Termination
------------------------
Unless a Lease Default or a Lease Event of Default shall have occurred and
be continuing, the Lessee shall have the right, on the terms and subject to the
conditions contained in this Article VI, at its option at any time on at least
one hundred eighty (180) days prior written notice (a "Notice of Article VI
Termination") to the Lessor, the Agent and the Lenders, to terminate this Lease
as to all (but not less than all) of the Equipment (the "Article VI Termination
Date") on or after the fifth anniversary of the Lease Commencement Date, if such
Item or Items shall have become Obsolete. During the period commencing with the
date on which such Notice of Article VI Termination is given until the Article
VI Termination Date, the Lessee, as agent for the Lessor, shall use its best
efforts to obtain cash bids for the purchase of the Equipment. The Lessor shall
also have the right to obtain cash bids for the purchase thereof, either
directly or through agents other than the Lessee. The Lessee shall certify to
the Lessor in writing the amount and terms of each bid received by the Lessee
and the name and address of the Person submitting a bid (which Person shall not
be the Lessee or any Affiliate of the Lessee but may be the Lessor). On the
Article VI Termination Date, the Lessor shall (subject to receipt of the sale
price and all additional payments specified in the next sentence), without
recourse or warranty but free and clear of Lessor Liens and the lien of the Loan
Agreement (if and to the extent the Lenders are required to release the same),
sell the Equipment for cash to the bidder which shall have submitted the highest
bid prior to such date and the Lessor shall be released from all obligations
with respect to the Equipment. The total sales price realized at such sale shall
be retained by the Lessor pursuant to this Lease, and, in addition, on the
Article VI Termination Date, the Lessee shall pay to the Lessor (or, in the case
of Supplemental Rent, the Person entitled thereto) (i) the excess, if any, of
the Termination Value of the Equipment over
-7-
the sales price of the Equipment after deducting all expenses incurred by the
Lessor and the Agent on behalf of the Lenders in connection with such sale; (ii)
any accrued and unpaid Basic Rent due or accrued and unpaid to but not including
the Article VI Termination Date; and (iii) all Supplemental Rent owing by the
Lessee under this Lease to and including the Article VI Termination Date,
including Break Funding Costs, if any. If a sale shall not have occurred on or
as of the Article VI Termination Date, the Equipment shall continue to be
subject to this Lease and this Lease shall continue in full force and effect
with respect thereto. In the event of any such sale and upon compliance by the
Lessee with the provisions of this Article VI, the obligation of the Lessee to
pay Basic Rent with respect to the Equipment shall cease, the Lease Term shall
end with respect to the Equipment and the obligations of the Lessee hereunder
with respect to the Equipment (other than any such obligations surviving
termination of this Lease, including the obligations set forth in Article XX
hereof) shall terminate as of the Article VI Termination Date. The Lessor shall
be under no duty to solicit bids, to inquire into the efforts of the Lessee to
obtain bids or otherwise to take any action in connection with any such sale
other than to sell the Equipment as provided above. At such sale the Lessor
shall transfer to the third party purchaser, AS IS, WHERE IS, WITHOUT RECOURSE
OR WARRANTY OF ANY KIND OR NATURE, but free and clear of Lessor Liens and the
lien of the Loan Agreement, all the Lessor's right, title and interest in, to
and under the Equipment, together with all of the Lessor's right, title and
interest, if any, in, to and under any warranty, claims, right and causes of
action (whether actual or potential) against Danieli-Wean with respect to the
Equipment.
ARTICLE VII
Disclaimer of Warranties
------------------------
THE EQUIPMENT IS BEING LEASED BY THE LESSOR TO THE LESSER ON AN "AS-IS,
WHERE-IS" BASIS. NEITHER THE LESSOR (IN ITS INDIVIDUAL OR TRUST CAPACITIES), THE
AGENT NOR THE LENDERS HAVE MADE OR SHALL BE DEEMED TO HAVE MADE ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, VALUE,
MERCHANTABILITY, COMPLIANCE WITH SPECIFICATIONS, CONDITION, DESIGN, OPERATION,
FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT, ABSENCE OF LATENT DEFECTS OR
FITNESS FOR USE OF THE EQUIPMENT FOR ANY PARTICULAR PURPOSE (OR ANY PART
THEREOF), OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, WITH RESPECT TO THE EQUIPMENT (OR ANY PART THEREOF) except that the
Lessor hereby represents and warrants that the Equipment is and shall be free
of Lessor Liens and Lessor, in its individual capacity, hereby represents and
warrants that the Equipment shall be free of Trustee Liens. It is agreed that
except as expressly provided herein, all risks incident to the matters discussed
in the preceding sentence, as between the Lessor, the Agent or the Lenders, on
the one hand, and the Lessee, on the other, are to be
-8-
borne by the Lessee. THE PROVISIONS OF THIS PARAGRAPH 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 BY THE LESSOR, THE AGENT OR THE LENDERS, EXPRESS OR IMPLIED, WITH
RESPECT TO THE EQUIPMENT, THAT MAY ARISE PURSUANT TO ANY LAW NOW OR HEREAFTER IN
EFFECT, OR OTHERWISE.
ARTICLE VIII
Restriction on Liens
--------------------
The Lessee shall not directly or indirectly create, incur, assume or
suffer to exist any Lien on or with respect to the Equipment, title thereto or
any interest therein, except Permitted Liens. The Lessee shall promptly, at its
own expense, take such action as may be necessary duly to discharge or eliminate
or bond in a manner satisfactory to the Lessor any such Lien if the same shall
arise at any time. The Lessee further agrees that it shall pay or cause to be
paid on or before the time or times prescribed by law (after giving effect to
any applicable grace period) any taxes, assessments, fees or charges imposed on
the Lessee (or any affiliated or related group of which the Lessee is a member)
under the laws of any jurisdiction that, if unpaid, might result in any Lien
that is not a Permitted Lien.
ARTICLE IX
Operation and Maintenance
-------------------------
SECTION 9.1 Operation and Maintenance. The Lessee shall operate, service,
-------------------------
repair and maintain the Equipment during the Lease Term in a manner so that each
Item will be and remain in serviceable and good condition and (i) in the same
condition as when new, normal wear and tear excepted; (ii) in material
compliance with all recommendations and specifications of the manufacturer(s);
(iii) in material accordance with all applicable requirements of law and any
governmental authority having jurisdiction; (iv) in compliance with the standard
imposed by any insurance policies required by Article X hereof with respect to
such Item or any part thereof; and (v) in no case to a lesser standard than that
held for similar equipment owned by the Lessee.
SECTION 9.2 Replacement of Parts. Except after the occurrence of an Event
--------------------
of Loss, the Lessee, at its own expense (unless prohibited by applicable law or
regulation), shall promptly replace all necessary or useful appliances, parts,
instruments, appurtenances, accessories and miscellaneous property of whatever
nature (herein collectively referred to as "Parts"), that may from time to time
be incorporated or installed
-9-
in or attached to or otherwise part of (collectively, "incorporated in") the
Equipment and that may from time to time become worn out, destroyed, damaged
beyond repair, lost, condemned, confiscated, stolen or seized for any reason
whatsoever. The Lessor hereby authorizes the Lessee to order Parts as the agent,
and in the name, of the Lessor, but at the sole cost and expense of the Lessee.
In addition, in the ordinary course of maintenance, service, repair or testing,
the Lessee may remove any Parts, but the Lessee shall cause such Parts to be
replaced as promptly as practicable. All replacement Parts shall be free and
clear of all Liens except Permitted Liens and shall be in at least as good
operating condition as, and shall have a value and utility at least equal to,
the Parts replaced, assuming such replaced Parts were in condition and repair
required to be maintained by the terms hereof.
SECTION 9.3 Optional Alterations. In addition to the foregoing, the
--------------------
Lessee, at its own expense (subject to Section 9.5 hereof), may from time to
time:
(a) make such Alterations to the Equipment as the Lessee may deem
desirable in the proper conduct of its business, provided that such
Alterations (i) are readily removable without causing damage to any of the
Equipment; (ii) do not adversely affect the productive capacity, cost
efficiency, utility, reliability or value of the Equipment; and (iii) such
Alterations do not cause the Lease to lose its characteristic as a lease
for federal income tax purposes ("Severable Alterations"); and
(b) make such Alterations to the Equipment as the Lessee may deem
desirable in the proper conduct of its business, provided that such
Alterations (i) do not adversely affect the productive capacity, cost
efficiency, utility, reliability or value of the Equipment; and (ii) such
Alterations do not cause the Lease to lose its characteristic as a lease
for federal income tax purposes ("Non-Severable Alterations").
SECTION 9.4 Title to Parts. Title to each Part (including any
--------------
Non-Severable Alteration but excluding any Severable Alteration) shall without
further act vest in the Lessor and shall be deemed to constitute a part of the
Equipment and be subject to this Lease and each of the Operative Documents if
such Part shall be required to be incorporated in the Equipment pursuant to the
terms of Section 9.1 or 9.2 hereof. Title to each Severable Alteration shall
vest in the Lessee. In all other cases, title to a Part or Parts shall vest in
Lessor. All Parts (other than Severable Alterations) at any time removed from
the Equipment shall remain the property of the Lessor, no matter where located,
until such time as such Parts shall be replaced by Parts that have been
incorporated in the Equipment and that meet the requirements for replacement
Parts specified in Section 9.2
-10-
hereof. Immediately upon any replacement Part becoming incorporated in the
Equipment as provided in Section 9.2 hereof, without further act, (i) title to
the removed Part shall thereupon vest in such Person as shall be designated by
the Lessee, free and clear of all rights of the Lessor; (ii) title to such
replacement Part shall thereupon vest in the Lessor; and (iii) such replacement
Part shall become subject to this Lease and each of the other Operative
Documents and be deemed part of the Equipment for all purposes hereof to the
same extent as the Parts originally incorporated in the Equipment.
SECTION 9.5 Removal of Severable Alterations. The Lessee (i) during the
--------------------------------
Lease Term, may remove any Severable Alteration at any time, so long as such
removal shall not result in any violation of any law or governmental regulation
and so long as no Lease Default or Lease Event of Default shall have occurred
and be continuing; and (ii) upon the termination of this Lease and prior to the
delivery of the Equipment to the Lessor in accordance with the provisions of the
Lease (other than upon the termination of this Lease pursuant to Article V or
Article XVIII hereof) may remove all Severable Alterations; provided, however,
that to the extent Severable Alterations are removed, the Equipment shall be
restored so that it is returned to the Lessor in fully operational condition and
in compliance with the provisions of Sections 9.1 and 9.2 hereof; provided
further, that if the Lessee shall not have removed a Severable Alteration prior
to the delivery of the Equipment to the Lessor in accordance with the provisions
of this Lease, then all of Lessee's right, title and interest to such Severable
Alteration shall without further action vest in the Lessor; and provided
further, that if the Lessee does not exercise the purchase option set forth in
Section 5.1(a) hereof and purchase the Equipment on the last Rent Payment Date,
then, at the Lessor's option, the Lessee shall not remove Severable Alterations
and shall sell the Severable Alterations for a purchase price equal to the Fair
Market Sales Value of the Severable Alterations. Fair Market Sales Value of the
Severable Alterations shall be determined by the mutual agreement of the Lessor
and the Lessee on or before a date thirty (30) Business Days prior to the
termination of the Lease, or, if they shall fail to agree within such period,
such Fair Market Sales Value shall be determined by the Appraisal Procedure. The
Lessor and the Lessee shall share the costs of such Appraisal Procedure equally.
SECTION 9.6 Parts Free and Clear of Liens. Any Part title to which shall
-----------------------------
vest in the Lessor pursuant to Section 9.4 hereof shall be free and clear of all
Liens except Permitted Liens.
SECTION 9.7 Restriction on Lessee Improvements and Removal of Parts.
-------------------------------------------------------
Except as expressly required or permitted by Sections 9.1, 9.2 and 9.3 hereof,
the Lessee shall not, without the prior written consent of the Lessor, make any
alteration to any Item or remove any Part from any Item.
-11-
SECTION 9.8 Records. The Lessee shall maintain or cause to be maintained
-------
operating logs, maintenance and repair reports, current operating manuals (if
any) and a complete set of plans and specifications (if any) for each Item in
accordance with prudent industry practice. Such logs, reports, manuals and plans
and specifications shall be made available, at the Lessee's expense, to the
Lessor upon reasonable request.
SECTION 9.9 Reports of Alterations. The Lessee shall furnish to the Lessor
----------------------
and the Agent, upon request, a report, in substantially the form annexed as
Exhibit B describing in reasonable detail all Alterations to the Equipment and
all Parts added to the Equipment or replaced (other than alterations and Parts
constituting routine or preventive maintenance) during the preceding calendar
year and the coat of and the ownership of each Alteration and each Part added or
replaced costing (in each case) more than Two Million Dollars ($2,000,000).
SECTION 9.10 Licenses and Permits. Without limiting the generality of
--------------------
Section 9.1, the Lessee shall obtain and maintain in full force and effect all
governmental licenses and permits necessary or advisable to operate the
Equipment.
ARTICLE X
Insurance
---------
SECTION 10.1 Insurance. Without limiting any other obligation or liability
---------
of the Lessee hereunder, the Lessee, at all times during the Lease Term, shall
carry and maintain at its own expense at least the minimum insurance coverage
with respect to each Item set forth in this Article X. Such insurance may be
carried under blanket policies maintained by the Lessee so long as such policies
otherwise comply with the terms and provisions of this Article X. The Lessee
shall maintain:
(a) all-risk property insurance covering physical loss or damage to
the Equipment. At all times during the Lease Term, the amount of such
insurance shall be at least the Stipulated Loss Value as of the next
succeeding Rent Payment Date plus an amount equal to any Basic Rent due
and payable on such Rent Payment Date, and such insurance shall include,
without limitation, the following:
(i) flood and windstorm insurance, customarily included under
all-risk policies available with respect to equipment similar in
kind and location to the Equipment; and
(ii) "boiler and machinery" property damage insurance with
respect to damage to the Equipment and related property included in
the Lessee's
-12-
Premises from risks normally insured against under machinery
policies in an amount equal to at least the Stipulated Loss Value as
of the next succeeding Rent Payment Due plus an amount equal to any
Basic Rent due and payable on such Rent Payment Date.
(b) comprehensive general public liability insurance, including
blanket contractual, personal injury, property damage and loss of use of
property of others, insurance applicable to the Equipment in such amounts
as are usually carried by Persons operating manufacturing facilities
presenting comparable risks in the same general region of the Facility but
in any event with a combined single limit of not less than Fifty Million
Dollars ($50,000,000).
Any loss of the type customarily covered by the policies described in
Sections 10.1(a) and (b), whether actually covered in whole or in part by such
policies, shall be the responsibility of the Lessee and the absence of such
coverage shall not relieve the Lessee from any of its obligations under any of
the Operative Documents.
All insurance policies carried in accordance with this Section 10.1 must
be maintained with insurers of recognized responsibility and standing in the
industry and authorized to do an insurance business in each jurisdiction in
which any Equipment will be located and not disqualified from insuring risks in
the State of California (the "Approved Insurer").
Any insurance policies carried in accordance with this Section 10.1 may be
subject to (i) exclusions substantially similar to those contained in similar
insurance policies for equipment of a type similar to the Equipment in effect on
the Lease Commencement Date; and (ii) such deductible amounts and retentions as
shall not exceed the following amounts specified with respect to such policies:
(1) Property Damage Five Million Dollars ($5,000,000)
(2) Public Liability Five Million Dollars ($5,000,000)
Notwithstanding anything to the contrary in this Article X, the Lessee
shall at all time maintain insurance with respect to the Equipment at least
comparable with its standard corporate practice with respect to equipment
similar to the Equipment.
SECTION 10.2 Policy Provisions. Any insurance policy maintained by the
-----------------
Lessee pursuant to Section 10.1 hereof shall:
(a) specify the Lessor (in both its individual and trust
capacities), the Equity Participants, the Agent and the Lenders as
additional insureds, as their
-13-
respective interests may appear, and with respect to property damage
insurance, specify the Lenders, the Agent and Lessor, as their interests
may appear, as loss payees pursuant to a standard loss payable clause as
long as the Loan Agreement is in effect;
(b) provide (except in the case of public liability insurance and
workers' compensation insurance) that all property damage insurance
proceeds in respect of any loss or occurrence shall be adjusted with the
Lessee (subject to approval of Lessor), unless a Lease Default or Lease
Event of Default shall have occurred and be continuing, in which case such
proceeds shall be adjusted by the Lenders (subject to the approval of
Lessor), and payable (x) in respect of payments not exceeding Two Hundred
Fifty Thousand Dollars ($250,000) provided no Lease Default or Lease Event
of Default shall have occurred or be continuing, to the Lessee; and (y) in
all other circumstances (A) unless and until receipt of notice from the
Agent stating that the Loan Agreement shall have been satisfied and
discharged, to the Agent and (B) thereafter, to the Lessor;
(c) include effective waivers by the insurer of all claims for
insurance premiums or commissions of additional premiums or assessments
against the Lessor (in both its individual and trust capacities), the
Agent and the Lenders (if such policies provide for the payment hereof)
to the extent required under the Approved Broker Insurance Determination;
(d) provide that in respect of the interest of the Lessor, the
Equity Participants, the Agent and the Lenders, such policies shall not be
invalidated by any action or inaction of the Lessee or any other Person
and shall insure the Lessor, the Agent and the Lenders regardless of, and
any claims for losses shall be payable notwithstanding to the extent
required under the Approved Insurance Broker Determination:
(i) any act of negligence, including any breach of any
condition or warranty in any policy of insurance, of the Lessee, the
Lessor, the Equity Participants, the Agent, the Lenders or any other
Person;
(ii) the use of the Equipment for purposes more hazardous
than permitted by the terms of the policy;
(iii) any foreclosure or other proceeding or notice of sale
relating to the Equipment; or
-14-
(iv) any change in the title to or ownership of the Equipment;
(e) provide that such insurance shall be primary insurance and that
the insurers under such insurance policies shall be liable under such
policies without right of contribution from any other insurance coverage
effected by or on behalf of the Lessor, the Equity Participants, the Agent
or the Lenders under any other insurance policies covering a loss that is
also covered under the insurance policies maintained by the Lessee
pursuant to this Article X and shall expressly provide that all provisions
thereof, except the limits of liability (which shall be applicable to all
insureds as a group) and liability for premiums (which shall be solely a
liability of the Lessee), shall operate in the same manner as if there
were a separate policy covering each insured;
(f) provide that any cancellation thereof or material adverse change
therein shall not be effective as to the Lessor, the Equity Participants,
the Agent and the Lenders until at least thirty (30) days after receipt by
the Lessor, the Agent and the Lenders of written notice thereof;
(g) waive any right of subrogation of the insurers against the
Lessor, the Equity Participants, the Agent and the Lenders, and waive any
right of the insurers to any setoff or counterclaim or any other
deduction, whether by attachment or otherwise, in respect of any liability
of the Lessor, the Equity Participants, the Agent or the Lenders to the
extent required under the Approved Insurance Broker Determination; and
(h) provide that the whole or any part of the right, title and
interest of the Lessor or the Lessee therein may be assigned to the Agent
on behalf of the Lenders.
SECTION 10.3 Evidence of Insurance. The Lessee shall deliver to the
---------------------
Lessor, the Agent and the Lenders at least two (2) days before the Lease
Commencement Date copies of all policies of insurance required hereby and, by
the Lease Commencement Date, certificates of insurance evidencing the provisions
described in Section 10.2 hereof executed by the Approved Insurer or its duly
authorized agent.
SECTION 10.4 Insurance Report. Within thirty (30) days after any material
----------------
change (including any material increase in deductible amounts) in the
information set forth in the certificates provided pursuant to Section 10.3
hereof, the Lessee shall deliver to the Lessor and the Agent a certificate of
the
-15-
Approved Insurance Broker setting forth the insurance, if any, obtained by the
Lessee pursuant to this Article X and then in effect, and stating whether, in
the opinion of the Approved Insurance Broker, the insurance policies comply with
the requirements of this Article X, stating that all premiums then due thereon
have been paid, stating that such insurance policies are in full force and
effect and stating that the insurance is in such amounts and covers such risks
as is customary in the industry for a company such as the Lessee.
SECTION 10.5 Payment of Proceeds. All property damage insurance proceeds
-------------------
received by or payable to the Lessor, the Equity Participants, the Agent or the
Lenders on account of any damage to or destruction of the Equipment or any part
thereof (less the actual costs, fees and expenses incurred in the collection
thereof), other than any damage or destruction constituting an Event of Loss,
unless a Lease Default or a Lease Event of Default shall have occurred and be
continuing, shall be paid over to the Lessee or as it may direct from time to
time, upon delivery of evidence satisfactory to the Agent and the Lessor that
the Equipment has been fully repaired and is in the condition required by the
terms of this Lease, to pay (or reimburse the Lessee for) the costs referred to
in Section 13.3 hereof upon receipt by the Lessor, the Equity Participants,
Agent or the Lenders, as the case may be, of an Officer's Certificate of the
Lessee to the effect that (i) the sums requested are for the payment (or
reimbursement) of costs as aforesaid which have become due and payable, or which
will become due and payable within thirty (30) days of the date of such
Officer's Certificate, or which have theretofore been paid by the Lessee, and
setting forth such costs in reasonable detail; (ii) such costs have not been
included under any Officer's Certificate previously submitted pursuant to this
Section 10.5; and (iii) the balance of the amounts held by the Lessor, the
Equity Participants, the Agent or the Lenders pursuant to this Section 10.5 are
sufficient, together with funds otherwise available to the Lessee for the
purpose, to complete the repairs and replacement of Parts contemplated by clause
first of Section 13.3 hereof (or that such repairs and replacement of Parts have
been completed.
ARTICLE XI
Return and Disposition of Leased Property
-----------------------------------------
Unless the Equipment shall have been transferred to the Lessee pursuant to
Article V, Article VI, Section 13.1 or Article XVIII hereof, on termination of
this Lease, and at the Lessee's own cost and expense, the Lessee shall forthwith
return the Equipment (together with all related training, operating and service
manuals and records in the possession of the Lessee) to the Lessor properly
crated and disassembled, in good condition, repair and in working order, having
been maintained according to
-16-
the standards required by this Lease, with all parts fully functional and able
to perform their intended function, with all Equipment meeting the
manufacturer's original specifications and in a condition appropriate for a
commercially reasonable sale, at a location designated by the Lessor in the
continental United States, free and clear of Liens other than Lessor Liens. In
the event an Item does not meet the return condition set forth in this Article
XI, the Lessee shall cause such Item to be repaired and refurbished at its
expense. In the event of a dispute relating to the return condition of the
Equipment, the dispute between the Lessor and the Lessee shall be settled by an
independent expert mutually appointed by the Lessor and the Lessee, the expenses
of which shall be shared equally by the Lessor and the Lessee. At reasonable
times and upon reasonable notice during the 180-day period prior to the end of
the Lease (provided the Lessee has not exercised its option to purchase) the
Lessor or any prospective purchaser of the Equipment may inspect the Equipment
subject to reasonable security measures imposed by the Lessee including barring
any inspector because of a competitive business relationship. The Lessee agrees
to provide the Lessor free storage of the Equipment on the Lessee's Premises for
a period not to exceed one hundred eighty (180) days after the expiration or
earlier termination of the Lease for the Equipment.
ARTICLE XII
Additional Covenants of Lessee
------------------------------
SECTION 12.1 Further Assurances. The Lessee shall cause to be promptly and
------------------
duly taken, executed, acknowledged or delivered all such further acts,
conveyances, documents and assurances as the Lessor may from time to time
reasonably request in order to carry out more effectively the intent and
purposes of this Lease and the other Operative Documents and the transactions
contemplated hereby and thereby (including, without limitation, the execution
and filing of any and all Uniform Commercial Code financing statements and other
filings or registrations which the Lessor may from time to time request to be
filed or effected).
SECTION 12.2 Tax Indemnity Agreement. Not later than the Lease
-----------------------
Commencement Date, the Lessee shall duly execute and deliver to Lessor the Tax
Indemnity Agreement.
SECTION 12.3 Financial and Other Information. During the Lease Term, the
-------------------------------
Lessee shall deliver to the Lessor and the Equity Participants the following:
(a) Annual financial statements. Within one hundred twenty (120)
---------------------------
days after the end of each fiscal year of the Lessee, copies of the
balance sheet of the Lessee as of the end of such fiscal year and the
related statements of income and changes in financial position for such
fiscal year, prepared in conformity with generally accepted accounting
-17-
principles consistently applied, accompanied by an audit report thereon by
certified public accountants of recognized national standing selected by
the Lessee, all in reasonable detail and setting forth in comparative form
the corresponding figures for the preceding fiscal year;
(b) Monthly financial statements. Within thirty (30) days after the
----------------------------
end of each calendar month, an unaudited consolidated balance sheet of the
Lessee and its subsidiaries as of the end of such month and unaudited
consolidated statements of income, retained earnings and cash flows of the
Lessee and its subsidiaries for the period commencing at the end of the
preceding fiscal year and ending with the end of such month, setting forth
in each case in comparative form the corresponding figures for the
corresponding period of the preceding fiscal year, all in reasonable
detail and accompanied with a Certificate of Chief Financial Officer in
the form annexed as Exhibit F, wherein the chief financial officer of the
Lessee duly certifies (subject to normal year-end audit adjustments) that
such statements have been prepared in accordance with generally accepted
accounting principles; provided; however, that after the IBJ Credit
Termination Date the Lessee shall be required to deliver quarterly
financial statements in lieu of such monthly financial statements;
(c) Annual certificate. Within thirty (30) days after the end of
------------------
each fiscal year of the Lessee, a Certificate executed by a Responsible
Officer of the Lessee in the form annexed as Exhibit G, certifying that
(i) the Equipment is in good operating condition; (ii) the Equipment is
being maintained as required hereunder; and (iii) no Event of Loss has
occurred with respect to any Item during the previous fiscal year; and
(d) Other information. Such other information (financial or
-----------------
otherwise) relating to the affairs of the Lessee as the Lessor may
reasonably request.
Notwithstanding anything to the contrary herein contained, receipt
by the Agent under the IBJ Credit Agreement of any of the financial
information required under clauses (a) and (b) of this Section 12.3, shall
be deemed to satisfy the obligations of such clauses.
ARTICLE XIII
Loss, Destruction, Condemnation or Damage
-----------------------------------------
SECTION 13.1 Replacement or Payment of Stipulated Loss Value on an Event
-----------------------------------------------------------
of Loss. If an Event of Loss shall occur with respect to any Item or Items, the
-------
Lessee shall give the Lessor and the Agent prompt written notice of such
occurrence and the date thereof, and the Lessee at its option shall:
-18-
(a) continue the Lease, without interruption, as if no such Event of
Loss had occurred, purchase in Lessor's name equipment having a value and
utility at least equal to such Item or Items replaced and provide to the
Lessor appropriate documentation evidencing the Lessor's title to such
Item or Items, which shall be free and clear of all Liens except Permitted
Liens and which shall be in as good operating condition as such Item
replaced and, in any case, in the condition required by the terms of this
Lease; or
(b) give the Lessor the date on which the Stipulated Loss Value for
such Item or Items is payable pursuant to this Section 13.1, and shall pay
the Stipulated Loss Value with respect to such Item or Items, determined
as of the Rent Payment Date which is at least thirty (30) days following
the occurrence of such Event of Loss (such Rent Payment Date to be
referred to hereinafter as the "Determination Date"), plus (i) Basic Rent
due as of the Determination Date; and (ii) Break Funding Costs, if any.
Upon payment in full of such Stipulated Loss Value, Basic Rent and Break
Funding Costs, if any, and all other Rent due or accrued through the date
of payment, (i) the Lease Term for such Item or Items shall end; (ii) the
obligations of the Lessee hereunder with respect to such Item or Items
(other than any other such obligations expressed herein as surviving
termination of this Lease) shall terminate as of the date of such payment;
and (iii) the Lessor shall transfer to the Lessee AS IS, WHERE IS, WITHOUT
RECOURSE OR WARRANTY OF ANY KIND OR NATURE WHATSOEVER, but free and clear
of Lessor Liens and the lien of the Loan Agreement all right, title and
interest of the Lessor in, to and under such Item or Items, together with
all of the Lessor's right, title and interest, if any, in, to and under
any warranty, claims, rights and causes of action (whether actual or
potential) against Danieli-Wean with respect to such Item or Items. In the
Event that an Item is not returned to the Lessor at the end of the Lease
Term, if such Item is required to be returned under this Lease and an
Event of Loss has occurred with respect to such Item, the Stipulated Loss
Value applicable to such Item, shall be the Stipulated Loss Value in
effect on the last day of the Lease Term.
SECTION 13.2 Application of Other Payments on an Event of Loss. Any
-------------------------------------------------
payments (except for payments under insurance policies maintained other than
pursuant to Article X of this Lease) received at any time by the Lessor or by
the Lessee from any governmental authority or other Person (except the Lessee)
as a result of the occurrence of an Event of Loss shall be applied as follows:
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(a) all such payments received at any time by the Lessee shall be
promptly paid to the Lessor for application pursuant to the following
provisions of this Section 13.2, except that so long as no Lease Default
or Lease Event of Default shall have occurred and be continuing, the
Lessee may retain any amounts that the Lessor would at the time be
obligated to reimburse or pay to the Lessee under the provisions of
paragraph (b) or (c) below;
(b) so much of such payments as shall not exceed the amount required
to be paid by the Lessee pursuant to the first sentence of Section 13.1
hereof shall be applied in reduction of the Lessee's obligation to pay
such amounts if not already paid by the Lessee or, if already paid by the
Lessee, shall be applied to reimburse the Lessee for its payment of such
amounts, unless a Lease Default or a Lease Event of Default shall have
occurred and be continuing; and
(c) the balance, if any, of such payments remaining thereafter shall
be retained by the Lessor or paid by the Lessee to the Lessor, except that
(i) any such payments remaining thereafter as may be attributable to the
proceeds of insurance maintained by the Lessee; and (ii) any proceeds of
requisition of use payments made by any governmental authority and
attributable to the Equipment for a period equal to the Lease Term, shall
be retained by the Lessee or paid by the Lessor to the Lessee.
SECTION 13.3 Application of Payments Not Relating to an Event of Loss.
--------------------------------------------------------
Unless a Lease Default or a Lease Event of Default shall have occurred and be
continuing, payments (except for payments under insurance policies maintained
other than pursuant to Article X of this Lease) received at any time by the
Lessor or the Lessee from any governmental authority or other Person with
respect to any loss, condemnation, confiscation, or seizure of, or requisition
of title to or use of, or damage to, the Equipment or any part thereof not
constituting an Event of Loss shall be paid to or retained by the Lessee (except
as otherwise provided in Article X hereof) and shall be applied as follows:
first, directly in payment for repairs or replacement of the Equipment in
-----
respect of which such payment was received in accordance with the provisions of
Article X hereof, if not already paid for by the Lessee, or, if already paid for
by the Lessee, shall be applied to reimburse the Lessee for such payment; and
second, the balance remaining, if any, at the end of such payments remaining
------
thereafter as may be attributable to (x) the proceeds of insurance maintained by
Lessee pursuant to Article X hereof or (y) amounts paid by any government
authority with respect to any requisition of use of the Equipment during the
Lease Term, shall be retained by the Lessee. The Lessee shall maintain records
setting forth information relating to the
-20-
receipt and application of such payments in accordance with this Section 13.3.
Such records shall be kept on file by the Lessee at its offices and copies shall
be provided to the Lessor upon request.
SECTION 13.4 Other Dispositions. Notwithstanding the foregoing provisions
------------------
of this Article XIII, so long as a Lease Default or a Lease Event of Default
shall have occurred and be continuing, any amount that would otherwise be
payable to or for the account of, or that would otherwise be retained by, the
Lessee pursuant to this Article XIII shall be paid to the Agent on behalf of the
Lenders (or to the Lessor after the lien of the Loan Agreement shall have been
released) as security for the obligations of the Lessee under this Lease and, at
such time thereafter as no Lease Default or a Lease Event of Default shall be
continuing, such amount shall be paid promptly to the Lessee unless the Lessor
shall have theretofore declared this Lease to be in default pursuant to Section
18.1 hereof, in which event such amount shall be disposed of by the Lenders in
accordance with the provisions of the Loan Agreement or by the Lessor in its
sole discretion if the lien of the Loan Agreement shall have been released.
SECTION 13.5 Special Event of Loss. If a Special Event of Loss shall
---------------------
occur, then the Lessee shall give the Lessor and the Agent prompt written notice
of such occurrence and upon receipt of payment of the Special Stipulated Loss
Value, such payment shall be applied as provided in Section 2.7 of the
Participation Agreement and the Basic Rent, Stipulated Loss Values, Termination
Values and the percentage set forth in Section 5.1(b) hereof, shall be adjusted
as provided in Section 10.7 of the Participation Agreement.
ARTICLE XIV
Interest Conveyed to Lessee
---------------------------
SECTION 14.1 Interest Conveyed. This Lease is an agreement of lease and
-----------------
does not convey to the Lessee any right, title or interest in or to the
Equipment except as a lessee.
SECTION 14.2 Equipment as Personal Property.
------------------------------
(a) Personal property. Each Item is intended to be and shall be and at all
-----------------
times shall remain separately identifiable personal property, severable from any
real property on which it is located.
(b) Separation from Personal Property. The Lessee shall not permit any
---------------------------------
Item to be attached to, installed in or used, stored or maintained with, any
other personal property (except other Items) in such manner or under such
circumstances that such
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Item would become an accession to or confused with such other personal property.
(c) Separation from Real Property. The Lessee shall not permit any Item to
-----------------------------
be attached to, installed in or used, stored or maintained with, any real
property in such manner or under such circumstances that any Person would
acquire any rights in such Item paramount to or ratable with the rights of the
Lessor, the Agent on behalf of the Lenders or the Lenders by reason of such Item
being deemed to be real property or a fixture thereon unless the Lessee has
complied with the provisions of Section 6.1(1) of the Participation Agreement.
The Lessee will not enter into or be a party to any lease or mortgage of any
real property on which any Item is or is to be located, unless (i) such lease or
mortgage permits (or such lessor or mortgagee otherwise consents to in writing)
the operation of such Item and the removal of such Item at any time free and
clear of any lien on the part of the lessor or mortgagee of such property and
shall be subordinate to the rights of the Lessor, the Agent on behalf of the
Lenders or the Lenders and their respective successors and permitted assigns
under this Lease; or (ii) the Lessee has complied with the provisions of Section
6.1(1) of the Participation Agreement.
(d) Severance and Waiver Agreement. On the Initial Closing, (i) the Lessee
------------------------------
executed and delivered the Severance and Waiver Agreement with respect to
Equipment installed on the Lessee's Premises; and (ii) the Lessee complied with
the Initial Closing Date Conditions Precedent set forth in Section 5.1(o) and
(p) of the Participation Agreement.
ARTICLE XV
Restrictions on Assignment and Sublease; Location
-------------------------------------------------
SECTION 15.1 ASSIGNMENT AND SUBLEASE. EXCEPT AS PROVIDED IN SECTION 21.3
-----------------------
HEREOF AND SECTION 8.1 OF THE PARTICIPATION AGREEMENT, THE LESSOR MAY NOT ASSIGN
ANY OF ITS RIGHT, TITLE OR INTEREST IN, TO OR UNDER THIS LEASE, PROVIDED, THAT,
SUBJECT TO SECTION 8.1 OF THE PARTICIPATION AGREEMENT, UPON PAYMENT IN FULL OF
THE NOTES, THE LESSOR MAY ASSIGN, SELL, TRANSFER AND/OR GRANT A SECURITY
INTEREST IN, THIS LEASE, ANY LEASE SUPPLEMENT AND/OR ANY OF THE EQUIPMENT, WITH
THE PRIOR WRITTEN CONSENT OF THE LESSEE, WHICH CONSENT SHALL NOT BE UNREASONABLY
WITHHELD, AND UPON SUCH CONSENT, AND SUCH ASSIGNEE, TRANSFERRED OR SECURED PARTY
SHALL HAVE ALL RIGHTS OF THE LESSOR OR A SECURED PARTY OF THE LESSOR, AS THE
CASE MAY BE, HEREUNDER, AND THE LESSOR SHALL PAY ANY REASONABLE OUT-OF-POCKET
COSTS AND EXPENSES OF LESSEE IN CONNECTION THEREWITH. THE LESSEE MAY NOT
SUBLEASE THE EQUIPMENT OR ANY PART THEREOF OR ASSIGN ANY OF ITS RIGHTS OR
INTEREST HEREUNDER WITHOUT THE PRIOR WRITTEN CONSENT OF THE LESSOR AND THE AGENT
ON BEHALF OF THE LENDERS, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD OR
DELAYED; PROVIDED, HOWEVER, THAT (I) ANY
-22-
SUCH PERMITTED SUBLEASE OR ASSIGNMENT SHALL NOT RELEASE THE LESSEE FROM ANY OF
ITS OBLIGATIONS OR LIABILITIES OF ANY NATURE WHATSOEVER ARISING UNDER ANY OF THE
OPERATIVE DOCUMENTS; (II) ANY SUCH PERMITTED SUBLEASE OR ASSIGNMENT SHALL BE
EXPRESSLY SUBJECT TO AND SUBORDINATE TO THIS LEASE; (III) NO SUCH SUBLEASE OR
ASSIGNMENT SHALL BE PERMITTED IF A LEASE DEFAULT OR LEASE EVENT OF DEFAULT HAS
OCCURRED AND IS CONTINUING; AND (IV) NO SUCH SUBLEASE OR ASSIGNMENT SHALL BE
PERMITTED IF IT HAS MATERIAL ADVERSE TAX CONSEQUENCES TO THE LESSOR. THESE
PROVISIONS SHALL BE BINDING ON ANY SUBSEQUENT ASSIGNEE OR SUBLESSEE OF THE
LESSEE'S OR THE LESSOR'S RIGHTS OR INTEREST HEREUNDER. THE RIGHTS AND
OBLIGATIONS OF THE LESSOR AND THE LESSEE HEREUNDER SHALL INURE TO THE BENEFIT
OF, AND BE BINDING UPON, THE PERMITTED SUCCESSORS AND ASSIGNS OF THE LESSOR AND
THE LESSEE, RESPECTIVELY.
SECTION 15.2 Location. The Lessee shall not remove, or permit to be
--------
removed, the Equipment, any Item or any Part thereof without the prior written
consent of the Lessor, except that the Lessee or any other Person may remove (i)
in accordance with the provisions of Section 9.5 hereof, any Part with respect
to which title has passed to or remained with the Lessee, or such Person as
provided in Section 9.4 hereof; (ii) the Equipment, if title to the Equipment
shall have passed to the Lessee in accordance with the provisions of Article V
or Article VI or Section 13.1 hereof; or (iii) any Part in accordance with the
provisions of Section 9.2 hereof.
ARTICLE XVI
Inspection and Notices
----------------------
SECTION 16.1 Condition and Operation. The Agent, on behalf of the Lenders,
-----------------------
and the Lessor and their authorized representatives (the "Inspecting Parties"),
at their own expense and risk, may inspect the Equipment and Lessee's records
pertaining to the Equipment without disturbing Lessee's operations in any
unreasonable way and in compliance with the Lessee's security and safety
restrictions. Lessee agrees to make a good faith effort to make the Equipment
and records available for such inspections. After a Lease Event of Default has
occurred and is continuing or after the Lessee has given notice of a termination
pursuant to Article VI or has failed to exercise its purchase options under
Article V one hundred eighty (180) days prior to the end of the Lease Term, the
Inspecting Parties, at their expense and risk, and at any time, may also inspect
the books and records of the Lessee relating to the Equipment and make copies
and abstracts therefrom. The Lessee shall furnish to the Inspecting Parties
statements accurate in all material respects regarding the condition and state
of repair of the Equipment, all at such times and as often as may be reasonably
requested. None of the Inspecting Parties shall have any duty to make any such
inspection or inquiry and none of the Inspecting Parties shall
-23-
incur any liability or obligation by reason of not making any such inspection or
inquiry. To the extent permissible, the Lessee shall prepare and file in timely
fashion, or, where the Lessor shall be required to file, the Lessee shall
prepare and deliver to the Lessor within a reasonable time prior to the date
for filing, any reports with respect to the condition or operation of the
Equipment that shall be required to be filed with any Federal, state or other
governmental or regulatory authority.
SECTION 16.2 Liability. The Lessee, promptly after obtaining knowledge
---------
thereof, shall give prompt written notice, in substantially the form annexed as
Exhibit C, to the Lessor, the Equity Participants and the Agent of each accident
likely to result in material damages, or claims for material damages against the
Lessee or any such Person, with respect to the Equipment in excess of Two
Hundred Fifty Thousand Dollars ($250,000) and occurring in whole or in part
(whenever asserted) during the Lease Term, and on request shall furnish to the
Lessor and the Agent information as to the time, place and nature thereof, the
names and addresses of the parties involved, any Persons injured, witnesses and
owners of any property damaged, and such other information as may be known to
it, and shall promptly upon request furnish the Lessor and the Agent with copies
of all correspondence, papers, notices and documents whatsoever received by the
Lessee in connection therewith.
SECTION 16.3 Liens. The Lessee, promptly and in no event later than 10
-----
days after it shall have obtained knowledge thereof, shall give prompt, written
notice, in substantially the form annexed as Exhibit D, to the Lessor and the
Agent, of the attachment of any Lien that it shall be obligated to discharge or
eliminate pursuant to Article VIII hereof and the full particulars thereof
(including the means by which the Lessee proposes to remove said Lien) unless
the same shall have been removed or discharged by the Lessee.
SECTION 16.4 Change of Principal Place of Business. The Lessee shall give
-------------------------------------
a written notice, in substantially the form annexed as Exhibit E, to the Lessor
and the Agent of the change of the Lessee's principal place of business, within
thirty (30) days of such change.
SECTION 16.5 Identification Marks. The Lessee shall not allow the name of
--------------------
any Person to be placed upon any Item as a designation which might be
interpreted as indicating a claim of ownership thereof or a security interest
therein by any Person other than the Lessor, any permitted assignee of the
Lessor or the Agent.
-24-
ARTICLE XVII
Events of Default
-----------------
The following events shall constitute Lease Events of Default (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 or any court or any order, rule or regulation of any administrative or
governmental body):
(a) the Lessee shall fail to make any payment of Basic Rent when
due;
(b) the Lessee shall fail to make any payment of Supplemental Rent
(including payments of Stipulated Loss Values and Termination Values) or
any other amount payable hereunder within ten (10) Business Days after
written notice of such failure from the Lessor or the Lender;
(c) the Lessee shall fail to perform or observe any covenant,
condition or agreement to be performed or observed by it under Section
10.1, 10.2 or 15.1 hereof and such failure shall continue unremedied for a
period of ten (10) Business Days after written notice thereof from the
Lessor;
(d) the Lessee shall fail to perform or observe any covenant,
condition or agreement (not included in clause (a), (b) or (c) of this
Article XVII) to be performed or observed by it hereunder or under any
other Operative Document (including, without limitation, the covenants and
agreements of the Lessee set forth in Article VI of the Participation
Agreement), or under any document delivered by the Lessee in accordance
with any Operative Document (other than the Tax Indemnification
Agreement), and such failure shall continue unremedied for a period of
thirty (30) Business Days after written notice thereof from the Lessor;
provided, however, that such failure shall not constitute an Event of
Default for a period of six (6) months from the date of such written
notice if, and so long as during such six-month period the Lessee is
diligently attempting to cure such failure and so long as such failure
shall not involve any danger of the sale, forfeiture or loss of any part
of the Equipment, title thereto or any interest therein and shall not
interfere with the use or disposition of the Equipment or the payment of
Rent;
(e) the filing by the Lessee of any petition commencing dissolution
or liquidation of the Lessee by the Lessee of a voluntary case under any
applicable
-25-
bankruptcy, insolvency or other similar law now or hereafter in effect, or
the Lessee shall have consented to the entry of an order for relief in an
involuntary case under any such law, or the failure of the Lessee
generally to pay its debts as such debts become due (within the meaning of
the Bankruptcy Reform Act of 1978, as amended), or the failure by the
Lessee promptly to satisfy or discharge any execution, garnishment or
attachment of such consequence as will impair its ability to carry out its
obligations under this Lease, or the appointment of or taking possession
by a receiver, custodian or trustee (or other similar official) for the
Lessee or any substantial part of its property, or a general assignment by
the Lessee for the benefit of its creditors, or the entry by the Lessee
into an agreement of composition with its creditors, or the Lessee shall
have taken any corporate action in furtherance of any of the foregoing; or
the filing against the Lessee of an involuntary petition in bankruptcy
which results in an order for relief being entered or, notwithstanding
that an order for relief has not been entered, the petition is not
dismissed within ninety (90) days of the date of the filing of the
petition, or the filing under any law relating to bankruptcy, insolvency
or relief of debtors of any petition against the Lessee for
reorganization, composition, extension or arrangement with creditors which
either (i) results in a finding or adjudication of insolvency of the
Lessee; or (ii) is not dismissed within ninety (90) days of the date of
the filing of such petition (the term "dissolution or liquidation" of the
Lessee as used in this subsection, shall not be construed to include the
cessation of the corporate existence of the Lessee resulting either from a
merger or consolidation of the Lessee into or with another corporation or
a dissolution or liquidation of the Lessee following a transfer of all or
substantially all of its assets as an entirety, unless the conditions
permitting such actions contained in Article VII of the Participation
Agreement are not satisfied;
(f) the Lessee shall default in the payment of money in excess of
Five Million Dollars ($5,000,000) under any lease, loan or other
instrument for borrowed money (including, without limitation, under the
IBJ Credit Agreement);
(g) the Lessee shall cease to exist for any reason;
(h) a judgment for the payment of money in excess of Five Million
Dollars ($5,000,000), which is not covered by insurance, shall be rendered
against the Lessee and such judgment shall remain in force
-26-
undismissed, unstayed, unbonded or unvacated for a period of thirty (30)
consecutive days after the date of entry;
(i) any of the Operative Documents shall for any reason cease to be
in full force and effect, except for those Operative Documents which have
been performed in accordance with their terms; or
(j) any representation or warranty by the Lessee in any Operative
Document (other than the Tax Indemnification Agreement) or in any
certificate or document delivered pursuant thereto shall have been
materially false when made and, if capable of curing, is not cured within
thirty (30) days after written notice.
ARTICLE XVIII
Enforcement
-----------
SECTION 18.1 Remedies. Upon the occurrence of any Lease Event of Default
and at any time thereafter so long as the same shall be continuing, the Lessor,
at its option, by notice to the Lessee, may declare this Lease to be in default,
and at any time then or thereafter the Lessor may do one or more of the
following as the Lessor in its sole discretion shall determine:
(a) the Lessor, by notice to the Lessee, may rescind or terminate
this Lease;
(b) the Lessor may demand that the Lessee, and the Lessee shall upon
the written demand of the Lessor, return the Equipment promptly to the
Lessor in the manner and condition required by, and otherwise in
accordance with all of the provisions of, Articles IX and XI hereof as if
the Equipment were being returned at the end of the Lease Term, and the
Lessor shall not be liable for the reimbursement of the Lessee for any
costs and expenses incurred by the Lessee in connection therewith; and
thereupon the Lessor either (i) may enter upon the property of the Lessee
and take immediate possession of (to the exclusion of the Lessee) the
Equipment or remove the Equipment or both, by summary proceedings or
otherwise, all without liability to the Lessee for or by reason of such
entry or taking of possession, whether for the restoration of damage to
property caused by such taking or for any proceeds arising from the
disposition thereof, or otherwise; or (ii) may enter the Facility under
the License, take immediate possession (to the exclusion of the Lessee) of
the Equipment and store the Equipment therein, as provided in the License;
-27-
(c) the Lessor may sell all or any part of the Equipment at public
or private sale, as the Lessor may determine, free and clear of any rights
of the Lessee and without any duty to account to the Lessee with respect
to such action or inaction or any proceeds with respect thereto (except to
the extent required by paragraph (f) below if the Lessor shall elect to
exercise its rights thereunder) in which event the Lessee's obligation to
pay Basic Rent hereunder for periods commencing after the date of receipt
of payment from such sale shall be terminated or proportionately reduced,
as the case may be (except to the extent that Basic Rent is to be included
in computations under paragraph (e) or (f) below if the Lessor shall elect
to exercise its rights thereunder);
(d) the Lessor may hold, keep idle or lease to others all or any
part of the Equipment as the Lessor in its sole discretion may determine,
free and clear of any rights of the Lessee and without any duty to account
to the Lessee with respect to such action or inaction or for any proceeds
with respect to such action or inaction, except that the Lessee's
obligation to pay Basic Rent with respect to the Equipment for periods
commencing after the Lessee shall have been deprived of use of the
Equipment pursuant to this paragraph (d) shall be reduced by the net
proceeds, if any, received by the Lessor from leasing the Equipment to any
Person other than the Lessee for the same periods or any portion thereof;
(e) the Lessor, whether or not the Lessor shall have exercised or
shall thereafter at any time exercise any of its rights under clause (b),
(c) or (d) above with respect to the Equipment, may demand, by written
notice to the Lessee specifying a payment date which shall be a Rent
Payment Date not earlier than ten (10) days after the date of such notice,
that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor,
on the payment date specified in such notice, as liquidated damages for
loss of a bargain and not as a penalty (in lieu of Basic Rent for the
Equipment due after the payment date specified in such notice), any unpaid
Basic Rent for the Equipment due through the payment date specified in
such notice, plus Break Funding Costs, if any, plus whichever of the
following amounts the Lessor, in its sole discretion, shall specify in
such notice (together with interest on such amount at the Overdue Rate
from the payment date specified in such notice to the date of actual
payment):
(i) an amount equal to the excess, if any, of the Stipulated
Loss Value of the Equipment,
-28-
computed as of the payment date specified in such notice, over the
Fair Market Sales Value of the Equipment as of the payment date
specified in such notice (such Fair Market Sales Value to be
determined by mutual agreement of the Lessor and the Lessee or if
they cannot agree within ten (10) days after such notice by the
Appraisal Procedure);
(ii) an amount equal to (A) the excess, if any of such
Stipulated Loss Value over the sum of (A) the net proceeds of a sale
of any of the Equipment pursuant to clause (c) above which has
occurred prior to the date of payment of the amount due hereunder
(although the Lessor has no obligation whatsoever to exercise any
right pursuant to clause (c) above) and (B) if any of the Equipment
has not been sold pursuant to clause (c) above, the Fair Market
Sales Value of such Equipment pursuant to clause (i) above;
(f) if the Lessor shall have sold all the Equipment pursuant to
paragraph (c) above, the Lessor, in lieu of exercising its rights under
paragraph (e) above, if it shall so elect, may demand that the Lessee pay
to the Lessor, and the Lessee shall pay to the Lessor, on the date of such
sale, as liquidated damages for loss of a bargain and not as a penalty (in
lieu of Basic Rent due for periods commencing after the next Rent Payment
Date following the date of such sale), any unpaid Basic Rent for the
Equipment due through such Rent Payment Date, plus Break Funding Costs, if
any, plus the amount of any deficiency between the net proceeds of such
sale and the Stipulated Loss Value of the Equipment, computed as of such
Rent Payment Date, together with interest at the Overdue Rate on the
amount of such Rent and such deficiency from the date of such sale until
the date of payment and discharge of the Notes with any funds realized
pursuant to this Section 18.1(f); or
(g) the Lessor may exercise any other right or remedy that may be
available to it under applicable law or proceed by appropriate court
action or actions either at law or in equity to enforce the terms hereof
or to recover damages for the breach thereof.
SECTION 18.2 Survival of Lessee's Obligations. No termination of this
--------------------------------
Lease, in whole or in part, or repossession of any of the Equipment or exercise
of any remedy under Section 18.1 hereof, except as specifically provided
therein, shall relieve the Lessee of any of its liabilities and obligations
hereunder. In addition, the Lessee shall be liable, except as otherwise provided
above, for any and all unpaid Rent due hereunder before,
-29-
after or during the exercise of any of the foregoing remedies, including all
legal fees and other costs and expenses incurred by the Lessor and the Lenders
by reason of the occurrence of any Lease Event of Default or the exercise of the
Lessor's remedies with respect thereto, and including all costs and expenses
incurred in connection with the return of the Equipment in the manner and
condition required by, and otherwise in accordance with the provisions of,
Articles IX and XI hereof as if such Equipment were being returned at the end of
the Lease Term. At any sale of the Equipment or any part thereof or any other
rights pursuant to Section 18.1 hereof, the Lessor or the Agent on behalf of the
Lenders may bid for and purchase such property.
SECTION 18.3 Remedies Cumulative. To the extent permitted by, and subject
-------------------
to the mandatory requirements of, applicable law, each and every right, power
and remedy herein specifically given to the Lessor or otherwise in this Lease
shall be cumulative and shall be in addition to every other right, power and
remedy herein specifically given or now or hereafter existing at law, in equity
or by statute, and each and every right, power and remedy whether specifically
herein given or otherwise existing may be exercised from time to time and as
often and in such order as may be deemed expedient by the Lessor, and the
exercise or the beginning of the exercise of any power or remedy shall not be
construed to be a waiver of the right to exercise at the same time or thereafter
any right, power or remedy. No delay or omission by the Lessor in the exercise
of any right, power or remedy or in the pursuit of any remedy shall impair any
such right, power or remedy or be construed to be a waiver of any default on the
part of the Lessee or to be an acquiescence therein. No express or implied
waiver by the Lessor of any Lease Event of Default shall in any way be, or be
construed to be, a waiver of any future or subsequent Lease Event of Default. To
the extent permitted by applicable law, the Lessee hereby waives any rights now
or hereafter conferred by statute or otherwise that may require the Lessor to
sell, lease or otherwise use the Equipment or part thereof in mitigation of the
Lessor's damages upon the occurrence of a Lease Event of Default or that may
otherwise limit or modify any of the Lessor's rights or remedies under this
Article XVIII.
SECTION 18.4 Storage Agreement. The Lessee hereby grants to the Lessor the
-----------------
right to store the Equipment in the Facility for a period of eighteen (18)
months following a Lease Event of Default and exercise of any remedy under this
Article XVIII at no cost to the Lessor. During such storage period, the Lessor
shall have the right to enter the Lessee's Premises and the Facility during
regular business hours to inspect and/or remove the Equipment.
-30-
ARTICLE XIX
Right to Perform for Lessee
---------------------------
During the continuance of a Lease Event of Default, if the Lessee shall
fail to perform or comply with any of its agreements contained herein, the
Lessor may perform or comply with such agreement, and the amount of such payment
and the amount of the expenses of the Lessor incurred in connection with such
payment or the performance of or compliance with such agreement, as the case may
be, together with interest thereon at the Overdue Rate, shall be deemed
Supplemental Rent, payable by the Lessee upon demand. Without limitation on the
foregoing, the Lessee hereby acknowledges that if it fails to maintain insurance
as required under Article X then the Lessor shall have the right to obtain
insurance coverage which so complies with such Article and that the Lessee shall
be estopped from asserting as a defense to any demand for reimbursement by the
Lessor of the cost of such alternate insurance that such alternate insurance
could have been obtained at a lower cost.
ARTICLE XX
Indemnities
-----------
SECTION 20.1 General Indemnity.
-----------------
(a) Payment of Indemnified Expenses by Lessee. Whether or not any of the
-----------------------------------------
transactions contemplated by the Operative Documents shall be consummated
(unless such transactions are consummated and any of the items hereinafter
described shall constitute Transaction Costs), the Lessee shall pay, and shall
indemnify and hold harmless each Indemnitee from and against, any and all
liabilities, obligations, losses, damages, penalties, claims, actions, suits,
costs, expenses and disbursements, including legal fees and expenses, of
whatsoever kind and nature (herein collectively referred to as "Indemnified
Expenses" and individually as an "Indemnified Expense"), imposed on, incurred by
or asserted against any Indemnitee (whether because of an action or omission by
such Indemnitee or otherwise), in any way relating to or arising out of (i) the
Operative Documents, the Notes or the participation of the Lessor, or payments
made pursuant thereto or any other transactions contemplated by the Operative
Documents; (ii) the manufacture, financing, construction, purchase, acceptance,
rejection, ownership, acquisition, delivery, nondelivery, lease, sublease,
re-lease, preparation, installation, storage, maintenance, repair,
transportation, transfer of title, abandonment, possession, rental, use,
operation, condition, return, sale or other disposition or other application of
all or any part of any interest in the Equipment, including without limitation
(A) claims or penalties arising from any violation of law or based upon
liability in tort (strict or otherwise) or from the
-31-
active or passive negligence of any Indemnitee, (B) loss of or damage to any
property or the environment or death or injury to any Person, (C) latent or
other defects, whether or not discoverable, and (D) any claim for patent,
trademark or copyright infringement relating to the Equipment, the Overall
Transaction or any process, method or product used or produced by the Lessee by
operation of the Equipment; (iii) the sale or other disposition of the Equipment
or any part thereof after a Lease Event of Default, an Event of Loss, a
termination of the Lease pursuant to Article XVIII or a purchase by the Lessee
pursuant to Article VI; (iv) the presence, handling, use or storage of any
Hazardous Substance or Hazardous Condition on, in, under or around Lessee's
Premises, or the transportation of any Hazardous Substance to or from Lessee's
Premises, including without limitation any Release, spill, discharge, emission,
migration or disposal, whether on- or off-site, of any Hazardous Substance; or
(v) violation or claim of violation of any laws for the protection of human
health or safety or the environment, including Environmental Law(s), in
connection with use or operation of Lessee's Premises or any equipment or
facilities used in connection therewith.
Without limitation of the foregoing, whether or not any of the
transactions contemplated by the Operative Documents shall be consummated
(except to the extent that any of the items hereafter described shall constitute
Transaction Costs, the Lessee shall pay all reasonable costs and expenses
incurred by any Indemnitee in connection with (i) a Lease Default or Lease
Event of Default; (ii) the entering into or giving or withholding of any
amendments, supplements, waivers or consents with respect to any Operative
Document requested by the Lessee; or (iii) any Event of Loss, or any prepayment
of the Notes.
(b) Exceptions. The indemnities contained in Section 20.1(a) hereof with
----------
regard to any particular Indemnitee shall not extend to any Indemnified Expense
(i) resulting directly from the willful misconduct or gross negligence of any
Indemnitee (other than willful misconduct or gross negligence imputed to such
Indemnitee solely by reason of its interest in the Equipment); (ii) resulting
solely from the breach by any Indemnitee of any of its representations,
warranties or covenants in any of the Operative Documents; (iii) unless a Lease
Event of Default shall have occurred and be continuing, and the Lessor or the
Agent on behalf of the Lenders shall be exercising remedies with respect
thereto, to the extent such Indemnified Expense shall relate to acts or events
not attributable to the Lessee that occur upon the expiration of the Lease Term
after the Equipment has been purchased by the Lessee or returned to the Lessor
and the Lease has been terminated; (iv) so long as no Lease Event of Default
shall have occurred and be continuing, to the extent attributable solely to the
disposition or attempted disposition of the Equipment or any interest thereof,
by or on behalf of any Indemnitees, other than a sale, transfer or other
disposition of the Equipment pursuant to Articles VI, XIII or XVIII hereof or as
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required by any Operative Document; (v) constituting Fees, Taxes or Other
Charges, indemnification of which is the subject of the Tax Indemnification
Agreement; or (vi) which does not constitute an out-of-pocket expense of the
Indemnitee. Nothing in Section 20.1(a) hereof shall be deemed to create or
constitute a guaranty by the Lessee of the payment by the Lessor of the
principal of or the premium, if any, or interest on the Notes.
(c) Notice. If any party entitled to indemnity under this Section 20.1 or
------
the Lessee shall have received written notice of any liability indemnified
against under this Section 20.1, it shall give prompt notice thereof to the
Lessee, or the party entitled to be indemnified, as the case may be. The failure
to give such notice shall not affect any obligation under this Section 20.1,
provided, however, that any Indemnitee so failing to give notice shall indemnify
the Lessee for all direct damages proximately caused by such failure. In case
any action, including any investigatory proceeding, shall be brought against, or
commenced with respect to, any Indemnitee in respect of which the Lessee is
required to indemnify such Indemnitee pursuant to the provisions of this Section
20.1, the Lessee shall have the right to assume the defense thereof, including
the employment of counsel satisfactory to such Indemnitee and the payment of all
expenses. In the event the Lessee assumes the defense of any such action, any
Indemnitee shall have the right to employ separate counsel in such action and
participate therein, but the fees and expenses of such counsel shall be at the
expense of such Indemnitee, unless (i) the employment of such counsel has been
specifically authorized by the Lessee; (ii) the named parties to such action
(including any impleaded parties) include both such Indemnitee and the Lessee
and representation of such Indemnitee and the Lessee by the same counsel would
be inappropriate under applicable standards of professional conduct due to
actual or potential conflicting interests between them; or (iii) the counsel
employed by the Lessee and satisfactory to such Indemnitee has advised such
Indemnitee, in writing, that such counsel's representation of such Indemnitee
would be likely to involve such counsel in representing differing interests
which could adversely affect either the judgment or loyalty of such counsel to
such Indemnitee, whether it be a conflicting, inconsistent, diverse or other
interest (in which case the Lessee shall not have the right to assume the
defense of such action on behalf of such Indemnitee; it being understood,
however, that in connection with any one such action, or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, the Lessee shall not be liable
for the reasonable fees and expenses of more than one separate firm of
attorneys, and of any local counsel retained by said firm, at any one time for
each such Indemnitee, which firm shall be designated in writing by such
Indemnitee). Settlement of any such action may not be made without the consent
of the Indemnitee entitled to indemnity for the claim from which such action
arose. The Lessee shall not be liable for any settlement of any such action
effected without its consent, but
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if settled with the consent of the Lessee or if there be a final judgment,
beyond further review or appeal, in any such action, the Lessee agrees to
indemnify and hold harmless any Indemnitee from and against any loss or
liability by reason of such settlement or judgment.
(d) Supplemental Rent. The Lessee covenants and agrees to pay, as
-----------------
Supplemental Rent, all amounts under this Section 20.1 on demand by the relevant
Indemnitee.
SECTION 20.2 Federal Tax Indemnities. The Lessee agrees with the Lessor to
-----------------------
comply with and to pay directly to the Lessor, as Supplemental Rent, all amounts
payable by it under the Tax Indemnification Agreement, which provisions are
hereby incorporated herein by this reference as fully as if set forth in full at
this place.
SECTION 20.3 Fees, Taxes and Other Charges.
-----------------------------
(a) Payment by Lessee. (1) The Lessee hereby agrees to pay and assume
-----------------
liability for, and on written demand to indemnify, protect, defend, save and
hold harmless on an after-tax basis each Indemnitee from and against, any and
all governmental or quasi-governmental fees (including without limitation
license and registration fees), taxes (including without limitation gross
receipts, franchise, sales, use, property, excise, real or personal, tangible or
intangible, interest equalization and stamp taxes), assessments, levies,
imposts, duties, charges or withholdings of any nature whatsoever, together
with any and all penalties, fines, additions to tax or interest thereon ("Fees,
Taxes and Other Charges") imposed against any Indemnitee, the Lessee or the
Equipment or any portion thereof by any Federal, state or local government or
taxing authority in the United States of America or by any foreign government or
any subdivision or taxing authority thereof, upon or with respect to (i) the
Equipment or any portion thereof or interest therein, (ii) the manufacture,
financing, construction, preparation, installation, purchase, ownership,
acquisition, acceptance, rejection, delivery, non-delivery, possession,
re-leasing, rental, use, operation, transportation, leasing, subleasing,
condition, maintenance, repair, sale, transfer of title, return, abandonment, or
other application or disposition of the Equipment or any portion thereof, (iii)
the rental payments, receipts, earnings or profits arising from the Equipment or
any portion thereof or interest therein or payable pursuant to this Lease, (iv)
interest, principal and other amounts payable on the Notes or any other
indebtedness secured by the Equipment and the payment thereof pursuant to the
Notes and any other indebtedness secured by the Equipment, (v) the Operative
Documents or the issuance of the Notes or any instrument contemplated by the
Operative Documents, or (vi) otherwise with respect to or in connection with the
Overall Transaction.
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(2) Without prejudice to the provisions of the Tax Indemnification
Agreement and notwithstanding anything in the foregoing, the provisions of this
Section 20.3 shall not apply to:
(i) United States Federal income tax;
(ii) Fees, Taxes and Other Charges on, or measured in whole or in
part by, the net or gross income of an Indemnitee imposed by the United
States or by any state or local taxing authority in the United States (in
each case, except to the extent such Fees, Taxes and Other Charges are in
the nature of sales, use, license, ad valorem or property taxes);
(iii) Fees, Taxes and Other Charges on, or measured in whole or in
part by the franchise, capital, conduct of business, net worth or tax
preference of an Indemnitee and imposed by the United States or any state
or local taxing authority in the United States (other than such a tax
imposed by the state taxing jurisdiction in which the principal place of
business of the Lessor is located or any other state in which the
Equipment may be located) and not described in (ii) above; provided,
however, that this clause shall not apply to the extent that (i) any such
Fees, Taxes and Other Charges are in the nature of sales, use, license, ad
valorem or property taxes, or (ii) the amount of such Fees, Taxes or Other
Charges exceeds the amount of Fees, Taxes or Other Charges that would have
been imposed solely as a result of activities of an Indemnitee unrelated
to the Overall Transaction and not involving the Equipment;
(iv) Fees, Taxes or Other Charges imposed by any foreign taxing
authority other than Fees, Taxes or Other Charges imposed by a foreign
taxing authority as a result of or in connection with the presence,
location, use or operation of the Equipment in such foreign jurisdiction,
the presence of any Lessee Person in such foreign jurisdiction or any
Lessee Person engaging in activities in or otherwise maintaining contact
with such foreign jurisdiction;
(v) Fees, Taxes and Other Charges to the extent on, levied on, or
measured by, any fees or compensation received by an Indemnitee for
services rendered in connection with the Overall Transaction;
(vi) Fees, Taxes and Other Charges that are included in Lessor's
Cost;
(vii) Fees, Taxes or Other Charges which result from any Indemnitee
being engaged in activities in, or
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otherwise maintaining contact with, the jurisdiction imposing such Fees,
Taxes or Other Charges, in each case if unrelated to the Overall
Transaction and not involving the Equipment.
(viii) so long as no Lease Default or Lease Event of Default has
occurred and is continuing, Fees, Taxes or other Charges imposed as a
result of the voluntary sale, transfer, assignment or other disposition
(it being understood that any transfer attributable directly or indirectly
to any substitution, replacement, removal, modification or addition made
by any Lessee Person is not voluntary) of any interest in any Note or the
Equipment by an Indemnitee;
(ix) Fees, Taxes or Other Charges imposed solely with respect to
any period after the end of the Lease Term unless a Lease Event of Default
has occurred and is continuing, provided that the exclusion set forth in
this clause (ix) shall not apply to any Fees, Taxes or Other Charges
resulting from events or circumstances occurring or matters arising prior
to or simultaneously with the end of the Lease Term or the exercise by the
Lessee of its rights under Article V of the Lease;
(x) Fees, Taxes or Other Charges imposed as the result of any
transfer or disposition of any interest in the Equipment or any Note by
any Indemnitee resulting from bankruptcy or other proceedings for the
relief of debtors (voluntary or involuntary) in which the transferor is
the debtor unless such transfer or disposition is pursuant to or arises in
connection with a Lease Default or Lease Event of Default or Event of Loss
or shall result from or in connection with the failure of Lessee to abide
by or perform any of its obligations under the Operative Documents;
(xi) Fees, Taxes and Other Charges imposed solely as a result of
the willful misconduct or gross negligence of the Indemnitee other than
willful misconduct or gross negligence imputed to such Indemnitee by
reason of such Indemnitee's participation in the Overall Transaction;
(xii) Fees, Taxes and Other Charges imposed solely as a result of
the breach of any representation, warranty or covenant to the Lessee
contained in the Operative Documents, but only if such breach is not
attributable to any act or omission of any Lessee Person or any breach or
inaccuracy of any representation, warranty or covenant of any Lessee
Person; or
(xiii) Fees, Taxes and Other Charges (other than California Taxes)
in the nature of withholding taxes
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(other than California Withholding Taxes) imposed on or with respect to
payments required pursuant to the Operative Documents.
(3) The Lessee shall provide (at its own expense) such information as may
be reasonably requested by an Indemnitee to enable the Indemnitee to fulfill its
tax filing requirements with respect to the transactions contemplated by this
Lease. If any return, statement, report or other document (a "Report") is
required by law to be made or filed with respect to any Fees, Taxes and Other
Charges which the Lessee is required to pay under this Section 20.3, the Lessee
shall notify the affected Indemnitee of such requirement and
(i) To the extent permitted by law (unless otherwise directed by
the Indemnitee in writing) or required by law, make and file in the
Lessee's own name such Report in such manner as will show the interest of
the Indemnitee in the Equipment in a manner satisfactory to the Indemnitee
and furnish the Indemnitee with a copy of such Report, or
(ii) If such Report is required to be in the name of or filed by
the Indemnitee (unless otherwise directed by the Indemnitee in writing),
prepare and furnish such Report for filing by the Indemnitee in such
manner as shall be satisfactory to the Indemnitee and send the same to the
Indemnitee for filing not later than 15 days prior to the due date
(including any extensions thereof), or
(iii) If such Report is required to reflect items in addition to
Fees, Taxes and Other Charges which Lessee is required to pay under this
Section 20.3 (as reasonably determined by the Indemnitee), provide the
Indemnitee with information within a reasonable time and in such form as
shall be reasonably acceptable to the Indemnitee, sufficient to permit
such information to be reviewed, and such Report to be properly made and
timely filed, by the Indemnitee.
The Lessee shall hold each Indemnitee harmless from and against any liabilities
(including, but not limited to, penalties, additions to tax, fines and interest)
arising out of any insufficiency or inaccuracy of any such Report or any failure
to file any such Report in a timely manner if such insufficiency, inaccuracy or
failure is attributable to the Lessee. Each Indemnitee agrees that it will
promptly forward to the Lessee any notice, ▇▇▇▇ or any advice received by it
concerning any such Fees, Taxes and Other Charges and will, at Lessee's expense,
use its reasonable best efforts and take such lawful and reasonable steps as may
be proposed by the Lessee in writing to minimize any of the same for which the
Lessee is responsible under this Section 20.3.
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(4) The amount which the Lessee shall be required to pay to or for the
account of any Indemnitee with respect to any Fees, Taxes and Other Charges
which are subject to indemnification under this Section 20.3 shall be an amount
sufficient to restore the Indemnitee to the same position the Indemnitee would
have been in had such Fees, Taxes and Other Charges not been incurred or
imposed. If the payment by the Lessee under this Section 20.3 of an amount equal
to such Fees, Taxes and Other Charges would be more or less than the amount
which would be required to make such Indemnitee whole as a result of any tax
effect to an Indemnitee in connection with such payment of such Fees, Taxes or
Other Charges, including, without limitation (i) the inclusion of any payment to
be made by the Lessee under this Section 20.3 in the taxable income of any
Indemnitee in one year and the deduction of the Fees, Taxes and Other Charges
with respect to which such payment is made from the taxable income of such
Indemnitee in a different year, (ii) the nondeductibility of such Fees, Taxes
and Other Charges from the taxable income of such Indemnitee or (iii) the
anticipated realization by such Indemnitee in a different year of tax benefits
resulting from the transaction giving rise to such Fees, Taxes and Other
Charges, the amount of the indemnity to be paid by the Lessee shall be adjusted
to an amount which (after taking into account all tax effects on such
Indemnitee, any loss of use of money resulting from differences in timing
between the inclusion of such indemnity in the taxable income of such Indemnitee
and the anticipated realization by such Indemnitee of tax benefits resulting
from the transaction to which such indemnity is related and the present value of
any anticipated future tax benefits to be realized by such Indemnitee as a
result of deducting such Fees, Taxes and Other Charges or as a result of the
transaction giving rise thereto) will be sufficient to place the Indemnitee in
the same position such Indemnitee would have been in had such Fees, Taxes and
Other Charges not been imposed. All computations for purposes hereof shall be
based on tax rates in effect on the date payment pursuant to this Section 20.3
is made. Computations involving the loss of use of money or calculations of
present value shall be based on the Prime Rate as adjusted for applicable income
tax effects and compounded semi-annually on the Rent Payment Dates. In the case
of any dispute with regard to the computations made pursuant to this paragraph
procedures similar to those described in Section 6 of the Tax Indemnification
Agreement will be utilized to resolve such dispute. Each Indemnitee shall in
good faith use reasonable efforts in filing its tax returns and in dealing with
taxing authorities to seek and claim all tax benefits available with respect to
items referred to herein. This paragraph (4) also shall apply, mutatis mutandis,
for the purpose of determining the amount which the Lessee shall be required to
pay to or for the account of any Indemnitee with respect to any Indemnified
Expenses which are subject to indemnification under Section 20.1 hereof.
(b) Refunds. If any Indemnitee shall obtain a refund or credit of all or
-------
any part of any Fees, Taxes and Other Charges,
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payment of or indemnity for which shall have been made by the Lessee pursuant to
this Section 20.3, such Indemnitee shall, unless a Lease Default or a Lease
Event of Default shall have occurred and be continuing, promptly pay to the
Lessee (i) the amount of such refund or credit (together with any interest paid
to such Indemnitee with respect to such refund or credit) plus (ii) an amount
equal to all tax benefits realized by such Indemnitee as the result of the
payment of the amounts referred to in clause (i) above and this clause (ii).
(c) Withholding. Lessee agrees that all payments by or on behalf of Lessee
-----------
(including without limitation any amounts paid as Rent and Supplemental Rent)
shall be made free and clear of, and without deduction for, any and all
California Withholdings (and, in the event any withholding is required or
imposed, the Lessee shall pay, at the time it is required to make any such
payments upon which such withholding is required or imposed, an additional
amount such that the net amount actually received will, after reduction for any
such withholding, equal the full amount of the payment due absent such
withholding) and any such payment shall be free of expense for collection or
other charges associated with such withholding; provided, however, that Lessee's
obligations under this Section 20.3(c) shall not apply to the extent that such
California Withholding Tax is imposed upon or with respect to a transferee of
Equity Participants, Lenders or Lessor and would not have been imposed upon or
with respect to Equity Participants, Lenders or Lessor, respectively. In the
event that Lessee pays any California Withholding Tax pursuant to this Section
20.3(c) which Lessee is not obligated to indemnify against under the Operative
Documents, then the party benefiting from such payment by or on behalf of Lessee
("Payee") shall reimburse Lessee for such amount of California Withholding Tax
paid by Lessee within the earlier of (i) ninety (90) days after the date that
Payee files the California income tax return that should reflect such
California Withholding Tax (or, if earlier, the last day such return could be
filed after taking into account extensions); and (ii) thirty (30) days after the
date Payee receives a refund of California income taxes that it would not have
received but for the payment of such California Withholding Taxes.
SECTION 20.4 Survival. The obligations of the Lessee under Sections 20.1,
--------
20.2 and 20.3 shall survive the termination of this Lease and are expressly made
for the benefit of and shall be enforceable by any Indemnitee, separately or
together, without declaring this Lease to be in default and notwithstanding any
assignment by the Lessor of this Lease or any of its rights hereunder. The
extension of applicable statutes of limitations by an Indemnitee or the Lessee
shall not affect the survival of the Lessee's or any Indemnitee's obligations,
as the case may be, under any of such Sections. The obligations of the
Indemnitees under this Article XX shall survive the termination of this Lease.
All payments required to be paid pursuant to Sections 20.1, 20.2 and 20.3 shall
be made directly to, or as otherwise
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requested by, the Indemnitee entitled thereto, upon written demand by such
Indemnitee. All such written demands shall specify the amounts payable and the
facts upon which the right to indemnification is based.
ARTICLE XXI
Miscellaneous
-------------
SECTION 21.1 Further Assurances. The Lessee shall cause the Operative
------------------
Documents and any amendments and supplements to any of them (together with any
other instruments, financing statements, continuation statements, records or
papers necessary in connection therewith) to be recorded and/or filed and
rerecorded and/or refiled in each jurisdiction as and to the extent required by
law in order to, and shall take such other actions as may from time to time be
necessary to, establish, perfect and maintain (i) the Lessor's right, title and
interest in and to the Equipment, not subject to any Liens except Permitted
Liens; (ii) for the benefit of the Lenders and other holders of Notes, the first
mortgage lien and first priority security interest in the Collateral provided
for in the Loan Agreement including any Parts made subject to this Lease or the
Loan Agreement pursuant to Section 9.2 hereof or Section 2.10 of the
Participation Agreement; and (iii) each of the other rights and interests
created by the Loan Agreement or by any other Operative Document in the Lessor,
the Agent, the Lenders or any holder of a Note. The Lessee will promptly and
duly execute and deliver to each of the Lessor, the Agent and the Lenders such
documents and assurances and take such further action as the Lessor may from
time to time reasonably request in order to carry out more effectively the
intent and purpose of the Operative Documents and to establish and protect the
rights and remedies created or intended to be created in favor of the Lessor, to
establish, perfect and maintain the Lessor's right, title and interest in and to
the Equipment and, for the benefit of the Lenders and other holders of Notes,
the first priority security interest in the Collateral provided for in the Loan
Agreement, including without limitation if requested by the Lessor, the Agent,
or the Lenders at the expense of the Lessee, the recording or filing of
counterparts or appropriate memoranda of the Operative Documents, and of such
financing statements or other documents with respect thereto as the Lessor or
the from time to time reasonably request, and the Lessor agrees promptly to
execute and deliver such of the foregoing financing statements or other
documents as may require execution by the Lessor.
SECTION 21.2 Quiet Enjoyment. The Lessor covenants that it will not
---------------
interfere in the Lessee's quiet enjoyment of the Equipment hereunder during the
Lease Term, so long as no Lease Event of Default has occurred and is continuing.
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SECTION 21.3 Collateral as Security for Lessor's Obligations. In order to
-----------------------------------------------
secure the indebtedness evidenced by the Notes, the Loan Agreement provides,
among other things, for the creation in favor of the Agent on behalf of the
Lenders of a first priority security interest for the benefit of the Agent on
behalf of the Lenders and any other holder of Notes in the Collateral (including
the Equipment) and for the assignment by the Lessor to Agent on behalf of the
Lenders of the right, title and interest of the Lessor in and to this Lease and
the other Operative Documents, to the extent provided in the Loan Agreement. The
Lessee hereby (i) consents to the Loan Agreement and such assignment pursuant to
the terms of the Loan Agreement; (ii) agrees to pay directly to the Agent on
behalf of the Lenders and the Lessor at The Bank of America National Trust and
Savings Association, San Francisco, California, ABA number ▇▇▇▇-▇▇▇▇-▇, under
the name "The Industrial Bank of Japan, Ltd., Los Angeles Agency" with account
number 62906-14014, or such other address as the Agent shall advise the Lessor
in writing (or, after receipt of notice from the Agent stating that the Notes
have been paid in full and the lien of the Loan Agreement has been discharged,
to the Lessor) all amounts of Rent and any other payments due or to become due
to the Lessor hereunder (except to the extent such payments constitute Excepted
Payments and except to the extent provided in the following sentence); and (iii)
agrees that the right of the Lenders to such payments hereunder shall be
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including without limitation those circumstances set forth in
Section 3.5 hereof. The Lessee agrees to make all payments of Supplemental Rent
which constitute Excepted Payments directly to Lessor, and so long as no Event
of Default (as defined in the Loan Agreement) shall have occurred and be
continuing, the Lessee shall pay directly to the Lessor any amounts of Rent to
which the Lessor would be entitled under Article VI of the Loan Agreement, such
amounts to be notified to the Lessee by the Lenders in writing.
SECTION 21.4 Notices. Unless otherwise specifically provided herein, all
-------
notices, consents, directions, and approvals, provided herein, and all notices,
consents, instructions, requests and other communications required or permitted
by the terms hereof to be given to any Person shall be in writing and any such
notice shall become effective five (5) Business Days after being deposited in
the mails, certified or registered with appropriate postage prepaid for
first-class mail or, if delivered by hand or in the form of a telex, facsimile
transmission or telegram (followed in each case by written confirmation sent by
certified or registered mail, postage prepaid), when received, and shall be
directed to the Address of such Person. From time to time any such Person may
designate a new address for purposes of notice hereunder by notice to each of
the other parties to the Participation Agreement.
SECTION 21.5 Severability. Any provision of this Lease that shall be
------------
prohibited or unenforceable in any jurisdiction
-41-
shall be ineffective as to such jurisdiction 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. To the extent
permitted by applicable law, the Lessee hereby waives any provision of law that
renders any provision hereof prohibited or unenforceable in any respect.
SECTION 21.6 Amendment. This Lease and any of the terms hereof may not be
---------
terminated, amended, supplemented, waived or modified orally, but only by an
instrument in writing signed by the party against which the enforcement of the
termination, amendment, supplement, waiver or modification shall be sought and,
for so long as the Loan Agreement is in effect, with the prior written consent
of the Agent on behalf of the Lenders. The parties agree that any consents
required hereunder shall not be unreasonably withheld.
SECTION 21.7 Headings. The Table of Contents and headings of the various
--------
Articles and Sections of this Lease are for convenience of reference only and
shall not modify, define or limit any of the terms or provisions hereof.
SECTION 21.8 Counterparts; Uniform Commercial Code. This Lease may be
-------------------------------------
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 21.9 Governing Law. This Lease has been delivered in, and shall in
-------------
all respects be governed by, and construed in accordance with, the laws of the
State of California applicable to agreements made and to be performed entirely
within such State, including all matters of construction, validity and
performance.
SECTION 21.10 Performance of Obligations to Lenders. The provisions of
-------------------------------------
this Lease which require or permit action by, the consent, approval or
authorization of, the furnishing of any document, paper or information to, or
the performance of any other obligation to, the Lenders shall not be effective,
and the Sections hereof containing such provisions shall be read as though there
were no such requirements of permissions, after all the Notes shall have been
paid in full in accordance with their terms.
SECTION 21.11 Confidentiality. The Lessor acknowledges that the Lessee is
---------------
the proprietor of proprietary information pertaining to the Equipment. The
proprietary information or portions thereof may be disclosed to the Lessor
pursuant to the terms of this Lease or in connection with the Overall
Transaction and/or may be observed by the Lessor during any inspection or tour
of the Equipment in connection herewith or therewith.
-42-
The Lessor agrees to use its best efforts to prevent unauthorized
disclosure or unauthorized transfer to any third parties (who are not parties to
the Overall Transaction) of any and all proprietary information. The Lessor
agrees to return to the Lessee upon its request and upon termination of this
Lease, all such proprietary information then in its possession that is in
documentary or written form, provided that the Lessor may disclose such
proprietary information to the extent necessary to remarket or release any Item
after a Lease Event of Default or after termination or expiration of the Lease
with respect to such Item.
The obligations set forth in this Section 21.11 shall survive the
termination of this Lease; provided, however, that such obligations shall not
apply in respect of any portion of the proprietary information, if and when such
portion (i) shall otherwise become legally available to the public; (ii) was
otherwise in the lawful possession of the receiving party; or (iii) shall have
been lawfully disclosed to the receiving party by a third party not under any
obligation of confidentiality to the Lessee in respect thereof.
The Lessor agrees that any breach of the obligations of confidentiality
set forth in this Section 21.11 would result in damage to the Lessee which could
not be adequately or reasonably compensated for by damages at law. It is
therefore further agreed that the Lessee will be entitled to immediate
injunctive relief or other equitable relief to restrain any such breach, in
addition to any other remedies to which the Lessee may be entitled at law.
Nothing in this Section 21.11 shall prevent the Lessor from disclosing or
providing proprietary information to the Lenders or the Agent or any other party
to the Overall Transaction.
SECTION 21.12 Binding Effect; Successors and Assigns; Survival. The terms
------------------------------------------------
and provisions of this Lease, and the respective rights and obligations
hereunder of the Lessor and the Lessee, shall be binding upon their respective
successors and assigns (including, in the case of the Lessor, any Person to whom
the Lessor may transfer the Equipment), and inure to the benefit of their
respective permitted successors and assigns, and the rights hereunder of the
Lessor, the Agent and the Lenders shall inure (subject to such conditions as are
contained herein) to the benefit of their respective permitted successors and
assigns.
SECTION 21.13 Limitation of Lessor's Liability. All representations,
--------------------------------
warranties and undertakings of Lessor hereunder (except as expressly provided
herein) shall be binding upon Lessor only in its capacity as Owner Trustee under
the Trust Agreement and in no case shall the Trust Company be personally liable
for or on account of, any statements, representations, warranties, covenants or
obligations stated to be those of Lessor hereunder, except that the Trust
Company (or any successor Owner
-43-
Trustee) shall be personally liable (i) in the case of handling funds, for its
failure to act with the same care as the Trust Company uses in handling its own
funds, and, in all other cases, for its gross negligence or willful conduct and
(ii) for its breach of its covenants, representations and warranties contained
herein to the extent covenanted or made in its individual capacity.
SECTION 21.14 Chattel Paper. The parties hereto agree that certain rights,
-------------
title and interest of Lessor in and to this Lease and to the Equipment have been
assigned to and are subject to a lien and security interest in favor of The
Industrial Bank of Japan, Limited, Los Angeles Branch, as Agent, under the Loan
Agreement. To the extent, if any, that this Lease constitutes chattel paper (as
such term is defined in the Uniform Commercial Code as in effect in any
applicable jurisdiction), no security interest in this Lease may be created
through the transfer or possession of any counterpart other than the original
counterpart that contains the receipt therefor executed by The Industrial Bank
of Japan, Limited, Los Angeles Branch, as Agent on or immediately following the
signature page thereof.
[Remainder of Page Intentionally Left Blank]
-44-
IN WITNESS WHEREOF, the undersigned have each caused this Equipment Lease
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the day and year first above written.
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, NATIONAL
ASSOCIATION, not in its individual
capacity but solely as Owner
Trustee, as Lessor
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------
Title: VICE PRESIDENT
-------------------------------
CALIFORNIA STEEL INDUSTRIES, INC.,
as Lessee
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------------------
Title: PRESIDENT AND C.E.O.
-------------------------------
* Receipt of the original counterpart of the foregoing Equipment Lease
Agreement is hereby acknowledged on this 30th day of September, 1998:
----------------------------------
By----------------------------------
-------------------
* This language contained in original counterpart only.
-45-
Schedule A
----------
to
--
Equipment Lease Agreement
-------------------------
BASIC RENT PAYMENTS AND RENT PAYMENT DATES
Rent Payment Date Basic Rent*
----------------- -----------
3/30/99 5.70808
9/30/99 2.59436
3/30/00 11.86710
9/30/00 2.28419
3/30/01 6.45698
9/30/01 2.14461
3/30/02 12.02429
9/30/02 1.81413
3/30/03 7.23302
9/30/03 1.63287
3/30/04 13.54599
9/30/04 6.72415
3/30/05 1.05074
9/30/05 7.04065
3/30/06 12.64533
9/30/06 0.73606
3/30/07 13.77618
9/30/07 0.29987
3/30/08 13.53298
9/30/08 3.73476
* Basic Rent is the factor listed below times the Lessor's Cost of
$34,543,814.
Schedule B
----------
to
--
Equipment Lease Agreement
-------------------------
STIPULATED LOSS VALUES
Payment Date Stipulated Loss Value
------------ ---------------------
9/30/98 105.48698
3/30/99 103.62887
9/30/99 104.58519
3/30/00 96.06935
9/30/00 96.70440
3/30/01 93.05076
9/30/01 93.50715
3/30/02 84.02939
9/30/02 84.41492
3/30/03 79.37681
9/30/03 79.76309
3/30/04 68.24511
9/30/04 63.18087
3/30/05 63.65039
9/30/05 52.00000
3/30/06 46.92747
9/30/06 47.24568
3/30/07 34.68482
9/30/07 35.32309
3/30/08 22.91427
9/30/08 20.00000
Schedule C
----------
to
--
Equipment Lease Agreement
-------------------------
TERMINATION VALUES
Payment Date Termination Value
------------ -----------------
9/30/98 105.48698
3/30/99 103.62887
9/30/99 104.58519
3/30/00 96.06935
9/30/00 96.70440
3/30/01 93.05076
9/30/01 93.50715
3/30/02 84.02939
9/30/02 84.41492
3/30/03 79.37681
9/30/03 79.76309
3/30/04 68.24511
9/30/04 63.18087
3/30/05 63.65039
9/30/05 52.00000
3/30/06 46.92747
9/30/06 47.24568
3/30/07 34.68482
9/30/07 35.32309
3/30/08 22.91427
9/30/08 20.00000