1
Exhibit 4.6a
Execution Copy
================================================================================
FACILITY LEASE AGREEMENT
(▇▇▇▇▇▇▇ A-1)
Dated as of May 1, 1999
between
▇▇▇▇▇▇▇ FACILITY TRUST A-1,
as Lessor
and
AES EASTERN ENERGY, L.P.,
as Lessee
▇▇▇▇▇▇▇
COAL-FIRED GENERATION FACILITY
================================================================================
CERTAIN OF THE RIGHTS OF THE LESSOR IN AND TO THIS LEASE AND THE RENT DUE AND TO
BECOME DUE HEREUNDER HAVE BEEN ASSIGNED AS COLLATERAL SECURITY TO, AND ARE
SUBJECT TO A SECURITY INTEREST IN FAVOR OF, BANKERS TRUST COMPANY, NOT IN ITS
INDIVIDUAL CAPACITY BUT SOLELY AS INDENTURE TRUSTEE UNDER AN INDENTURE OF TRUST
AND SECURITY AGREEMENT (▇▇▇▇▇▇▇ A-1), DATED AS OF MAY 1, 1999 BETWEEN SAID
INDENTURE TRUSTEE, AS SECURED PARTY, AND THE LESSOR, AS DEBTOR. SEE SECTION 21
FOR INFORMATION CONCERNING THE RIGHTS OF THE ORIGINAL HOLDER AND THE HOLDERS OF
THE VARIOUS COUNTERPARTS HEREOF.
2
TABLE OF CONTENTS
Page
----
SECTION 1 DEFINITIONS ................................................................................2
SECTION 2 LEASE OF THE UNDIVIDED INTEREST.............................................................2
SECTION 3 LEASE TERM AND RENT.........................................................................2
Section 3.1. Lease Interim Term..............................................................2
Section 3.2. Lease Basic Term................................................................2
Section 3.3. Rent............................................................................2
Section 3.4. Deferrable Payments.............................................................3
Section 3.5. Supplemental Rent...............................................................3
Section 3.6. Adjustment of Basic Rent and Termination Values.................................4
Section 3.7. Manner of Payments..............................................................6
SECTION 4 DISCLAIMER OF WARRANTIES; RIGHT OF QUIET ENJOYMENT..........................................6
Section 4.1. Disclaimer of Warranties........................................................6
Section 4.2. Quiet Enjoyment.................................................................8
SECTION 5 RETURN OF UNDIVIDED INTEREST................................................................8
Section 5.1. Return..........................................................................8
Section 5.2. Condition Upon Return...........................................................8
Section 5.3. Expenses.......................................................................10
Section 5.4. Support Agreements; Dismantlement..............................................10
Section 5.5. Environmental Reports..........................................................10
Section 5.6. Engineering Report.............................................................13
SECTION 6 LIENS.......................................................................................13
SECTION 7 MAINTENANCE; REPLACEMENTS OF COMPONENTS....................................................14
Section 7.1. Maintenance....................................................................14
Section 7.2. Replacement of Components......................................................14
SECTION 8 MODIFICATIONS..............................................................................15
Section 8.1. Required Modifications.........................................................15
Section 8.2. Optional Modifications.........................................................15
Section 8.3. Title to Modifications.........................................................15
SECTION 9 NET LEASE..................................................................................16
Section 9.1. Net Lease......................................................................16
Section 9.2. Net Lease Not Guaranty.........................................................17
i
3
SECTION 10 EVENTS OF LOSS............................................................................17
Section 10.1. Occurrence of Events of Loss..................................................17
Section 10.2. Termination of Lease..........................................................18
Section 10.3. Rebuild.......................................................................20
Section 10.4. Application of Payments Not Relating to an Event of Loss......................23
SECTION 11 INSURANCE.................................................................................23
Section 11.1. Property Insurance............................................................23
Section 11.2. Liability Insurance...........................................................24
Section 11.3. Provisions with Respect to Insurance..........................................24
Section 11.4. Reports.......................................................................25
Section 11.5. Additional Insurance by Lessor................................................25
Section 11.6. Amendment of Requirements.....................................................26
Section 11.7. Application of Insurance Proceeds.............................................27
SECTION 12 INSPECTION................................................................................28
SECTION 13 TERMINATION OPTION FOR BURDENSOME EVENTS..................................................28
Section 13.1. Termination for Illegality....................................................28
Section 13.2. Termination for Burdensome Indemnity..........................................29
Section 13.3. Procedure for Exercise of Termination Option..................................30
Section 13.4. Assumption of the Lessor Notes................................................31
Section 13.5. Revocation of Termination Notice..............................................31
SECTION 14 TERMINATION FOR OBSOLESCENCE..............................................................32
Section 14.1. Termination...................................................................32
Section 14.2. Solicitation of Offers........................................................32
Section 14.3. Right of Lessor to Retain the Lessor's Interest...............................33
Section 14.4. Procedure for Exercise of Termination Option..................................33
SECTION 15 LEASE RENEWAL.............................................................................35
Section 15.1. Evergreen Renewal Term........................................................35
Section 15.2. Fair Market Value Renewal Terms...............................................36
Section 15.3. Renewal Rent and Termination Values for Renewal Term..........................36
Section 15.4. Determination of Fair Market Rental Value.....................................37
Section 15.5. Concurrent Renewals...........................................................37
SECTION 16 EVENTS OF DEFAULT.........................................................................37
SECTION 17 REMEDIES .................................................................................40
Section 17.1. Remedies for Lease Event of Default...........................................40
Section 17.2. Cumulative Remedies...........................................................43
Section 17.3. No Delay or Omission to be Construed as Waiver................................43
ii
4
SECTION 18 SECURITY INTEREST AND INVESTMENT OF SECURITY FUNDS........................................43
SECTION 19 SUBLEASE .................................................................................44
SECTION 20 LESSOR'S RIGHT TO PERFORM.................................................................45
SECTION 21 SECURITY FOR LESSOR'S OBLIGATION TO THE INDENTURE TRUSTEE.................................46
SECTION 22 MISCELLANEOUS.............................................................................46
Section 22.1. Amendments and Waivers........................................................46
Section 22.2. Notices.......................................................................46
Section 22.3. Survival......................................................................47
Section 22.4. Successors and Assigns........................................................47
Section 22.5. True Lease....................................................................48
Section 22.6. Business Day..................................................................48
Section 22.7. Governing Law.................................................................48
Section 22.8. Severability..................................................................48
Section 22.9. Counterparts..................................................................48
Section 22.10. Headings and Table of Contents...............................................48
Section 22.11. Further Assurances...........................................................48
Section 22.12. Effectiveness................................................................48
Section 22.13. Limitation of Liability......................................................49
Exhibit A - Description of Facility Site
Exhibit B - Description of Facility
Schedule 1 - Schedule of Basic Rent (Including Deferrable Basic Rent)
Schedule 2 - Termination Values
iii
5
FACILITY LEASE AGREEMENT
(▇▇▇▇▇▇▇ A-1)
This FACILITY LEASE AGREEMENT (▇▇▇▇▇▇▇ A-1), dated as of May
1, 1999 (as amended, supplemented or otherwise modified from time to time and in
accordance with the provisions hereof, this "Lease"), between ▇▇▇▇▇▇▇ FACILITY
TRUST A-1, a Delaware business trust (the "Lessor" or the "Owner Trust"), and
AES EASTERN ENERGY, L.P., a limited partnership organized under the laws of the
State of Delaware (the "Lessee" or "AEE").
W I T N E S S E T H :
WHEREAS, concurrently with the execution and delivery of this
Lease, the Trustee and the Owner Participant are entering into the Trust
Agreement whereby a business trust is created;
WHEREAS, AEE owns the Facility Site as more particularly
described in Exhibit A, such Exhibit A being attached to this Lease as a part
hereof;
WHEREAS, pursuant to the Site Lease, AEE will lease the Ground
Interest to the Lessor;
WHEREAS, pursuant to the Site Sublease, the Lessor will lease
the Ground Interest to AEE for the term equal to the Lease Term, including any
Renewal Term;
WHEREAS, the Facility is located on the Facility Site and is
more particularly described in Exhibit B, such Exhibit B being attached to this
Lease as a part hereof;
WHEREAS, pursuant to the ▇▇▇▇ of Sale and the Deed, the Lessor
will acquire from NYSEG and NGE the Undivided Interest; and
WHEREAS, pursuant to this Lease, the Lessor will lease the
Undivided Interest to AEE for the Lease Term, including any Renewal Term.
NOW, THEREFORE, in consideration of the foregoing premises,
the mutual agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
6
SECTION 1
DEFINITIONS
Capitalized terms used in this Lease, including the recitals,
and not otherwise defined herein shall have the respective meanings set forth in
Appendix A to the Participation Agreement (▇▇▇▇▇▇▇ A-1), dated as of the date
hereof (the "Participation Agreement"), among AEE, the Owner Trust, the Owner
Participant, the Indenture Trustee and Pass Through Trustees, unless the context
hereof shall otherwise require. The general provisions of Appendix A to the
Participation Agreement shall apply to the terms used in this Lease and
specifically defined herein.
SECTION 2
LEASE OF THE UNDIVIDED INTEREST
The Lessor hereby leases the Undivided Interest, upon the
terms and conditions set forth herein, to the Lessee for the Lease Interim Term,
the Lease Basic Term and, subject to the Lessee's exercise of any Renewal
Option, one or more Renewal Terms, and the Lessee hereby leases the Undivided
Interest, upon the terms and conditions set forth herein, from the Lessor. The
Lessee and the Lessor understand and agree that this Lease is subject to
Permitted Encumbrances. The Undivided Interest shall be subject to the terms of
this Lease from the date on which this Lease is executed and delivered.
SECTION 3
LEASE TERM AND RENT
Section 3.1. Lease Interim Term. The interim lease term of
this Lease (the "Lease Interim Term") shall commence on the Closing Date and
shall terminate at 11:59 p.m. (New York City time) on January 1, 2000, subject
to earlier termination pursuant to Section 10, 13 or 17.
Section 3.2. Lease Basic Term. The basic lease term of this
Lease (the "Lease Basic Term") shall commence on January 2, 2000 and shall
terminate at 11:59 p.m. (New York City time) on the Lease Expiration Date,
subject to earlier termination pursuant to Section 10, 13, 14 or 17.
Section 3.3. Rent. The Lessee hereby agrees to pay to the
Lessor interim rent with respect to the Lease Interim Term ("Interim Term Rent")
and basic lease rent with respect to the Lease Basic Term ("Basic Term Rent,"
and together with Interim Term Rent and Renewal Rent, and including Deferrable
Payments, "Basic Rent") for the lease of the Undivided Interest (as allocated to
each Rent Payment Period pursuant to Schedule 1) for each Rent Payment Period
throughout the Lease Interim Term and the Lease Basic Term in the amounts
payable in advance or in arrears or both, as the case may be, on each
2
7
Rent Payment Date as indicated on Schedule 1 under the caption "Advance Rent" in
the case of Rent Payment Periods immediately following such Rent Payment Date
("Advance Rent") and/or "Arrears Rent" in the case of Rent Payment Periods
ending on such Rent Payment Date ("Arrears Rent") and for each Rent Payment
Period throughout any Renewal Term in the amounts determined pursuant to Section
15. Each such payment of Interim Term Rent and Basic Term Rent shall be in the
amount set forth opposite such Rent Payment Date on Schedule 1, in each case,
subject to Section 3.6. The parties hereto agree that for purposes of Code
Section 467(b)(1), Basic Rent (including Deferrable Basic Rent) shall be
allocated to the Rent Payment Period indicated on Schedule 1, regardless of the
date such Basic Rent is actually paid. Any payment that is treated as a payment
by the Lessee of "fixed rent," as defined in Proposed Reg. Section 1.467-1(h)(3)
of the Code (or such regulation as finally promulgated or any successor
provision), that is not specifically allocated to a particular Rent Payment
Period pursuant to Schedule 1 shall be allocated to the Rent Payment Period in
which such payment occurs.
Section 3.4. Deferrable Payments. Notwithstanding the
provisions of Section 3.3, that portion of Basic Term Rent set forth under the
column entitled "Deferrable Basic Rent" as indicated on Schedule 1 ("Deferrable
Basic Rent") may be deferred until the Deferrable Basic Rent Maturity Date. The
Lessee shall also pay an amount equal to interest calculated at the Deferrable
Basic Rent Accrual Rate on any part of any payment of Deferrable Basic Rent not
paid on the date indicated on Schedule 1 for any period for which the same shall
remain unpaid ("Deferrable Interest," and together with Deferrable Basic Rent,
"Deferrable Payments"), and on any Deferrable Interest not paid when due for any
period for which the same shall be overdue, in each case compounded
semi-annually. Any payment received by the Lessor in respect of Deferrable
Payments shall be applied in the following order of priority: first, to the
payment of any Deferrable Interest then remaining unpaid and second, to the
payment of any Deferrable Basic Rent then remaining unpaid.
The Lessee and the Lessor agree and acknowledge that,
notwithstanding anything contained herein to the contrary, for all purposes of
this Lease and the other Operative Documents, unless otherwise indicated, Basic
Term Rent shall include Deferrable Basic Rent and Basic Rent shall include
Deferrable Payments; provided, however, that the failure of the Lessee to make
any payment of all or any portion of Deferrable Basic Rent or Deferrable
Interest shall not constitute a Lease Event of Default prior to the Deferrable
Basic Rent Maturity Date with respect to such payment (or portion thereof);
provided, further, however, that without any notice or any other action, on the
Deferrable Basic Rent Maturity Date with respect to all or any portion of
Deferrable Basic Rent or Deferrable Interest, the Lessee shall be obligated to
immediately pay to the Lessor all Deferrable Basic Rent (or portion thereof)
theretofore scheduled to be paid, together with all Deferrable Interest (or
portion thereof) then remaining unpaid.
Section 3.5. Supplemental Rent. The Lessee also agrees to pay
to the Lessor, or to any other Person entitled thereto as expressly provided
herein or in any other Operative Document, as appropriate, any and all
Supplemental Rent, promptly as the same shall become due and owing, or where no
due date is specified, promptly after demand by
3
8
the Person entitled thereto, and in the event of any failure on the part of the
Lessee to pay any Supplemental Rent, the Lessor shall have all rights, powers
and remedies provided for herein or by law or equity or otherwise for the
failure to pay Basic Rent. The Lessee shall also pay as Supplemental Rent an
amount equal to interest at the applicable Overdue Rate on any part of any
payment of Basic Rent not paid when due for any period for which the same shall
be overdue, and on any Supplemental Rent not paid when due (whether on demand or
otherwise) for the period from such due date until the same shall be paid, in
each case compounded semi-annually. All Supplemental Rent to be paid pursuant to
this Section 3.5 shall be payable in the manner set forth in Section 3.7.
Section 3.6. Adjustment of Basic Rent and Termination Values.
(a) Basic Rent and Termination Values shall be adjusted, at the request of
either the Lessee or the Lessor, either upwards or downwards, to reflect (i) the
principal amount, amortization and interest rate on any Additional Lessor Notes
issued pursuant to Section 2.12 of the Indenture in connection with a refunding
or refinancing of the Lessor Notes pursuant to Section 12.2 of the Participation
Agreement, (ii) the principal amount, amortization and interest rate on any
Additional Lessor Notes issued pursuant to Section 2.12 of the Indenture in
connection with the financing of Modifications to the Facility pursuant to
Section 12.1 of the Participation Agreement and (iii) any Tax Law Change enacted
or adopted on the Closing Date.
(b) Any adjustments shall be calculated to preserve the Owner
Participant's Net Economic Return (with respect to the Lease Fixed Term, through
the Lease Expiration Date and, with respect to any Renewal Term, through the end
of such Renewal Term); provided, however, that (i) no adjustment of Basic Rent
shall (A) change the amount or pattern of Deferrable Basic Rent, (B) together
with all previous adjustments, decrease by more than 10 percent the total
earnings anticipated by the Owner Participant in the first 10 years of the Lease
Fixed Term, (C) cause the Owner Participant to record a book (GAAP) loss in any
year in respect of its investment or (D) together with all previous adjustments,
increase the average life, measured from the Closing Date, of the Equity Portion
of Basic Rent (excluding any Deferrable Payments) anticipated as of the Closing
Date by more than one year, provided there shall be no such average life
limitations on any additional Equity Portion of Basic Rent solely and directly
attributable to any adjustment to Basic Rent made in connection with a
Supplemental Financing, and (ii) each adjustment of Basic Rent shall comply with
the requirements of Rev. Proc. 75-21 and Sections 4.02(5), 4.07(1) and (2) and,
on a prospective basis, 4.08(1) or (2) of Rev. Proc. 75-28, as modified and as
in effect at the time of such adjustment, and shall not cause this Lease to be a
"disqualified leaseback or long term agreement" within the meaning of Section
467 of the Code and any such regulations thereunder; and provided, further,
however, that to the extent consistent with preserving the Owner Participant's
Net Economic Return and without violating any of the limitations set forth in
the first proviso to this Section 3.6(b), all adjustments of Basic Rent shall be
calculated at the option of the Lessee to (i) minimize the average annual Basic
Rent over the Lease Fixed Term for the Lessee's GAAP accounting purposes, (ii)
minimize the net present value of Basic Rent to the Lessee over the Lease Fixed
Term at the Basic Rent Discount Rate, (iii) preserve
4
9
operating lease treatment under GAAP for the Lessee and/or (iv) minimize any
adverse effect of any such adjustment on the credit ratings of the Pass Through
Certificates.
(c) Adjustments shall be made using the same method of
computation and assumptions originally used on the Closing Date (other than
those that have changed as the result of the event giving rise to the
adjustment) in the calculation of the Basic Rent. The adjustments contemplated
by this Section 3.6 shall result in corresponding adjustments to Termination
Values.
(d) Anything herein or in any other Operative Document to the
contrary notwithstanding, each installment of Basic Rent (other than Deferrable
Payments) payable hereunder, whether or not adjusted in accordance with this
Section 3.6, shall be in an amount at least sufficient to pay in full principal
and interest payable on the Lessor Notes on each Rent Payment Date. Anything
herein or in any other Operative Document to the contrary notwithstanding,
Termination Values payable on any date under this Lease, whether or not adjusted
in accordance with this Section 3.6, shall, together with all other Basic Rent
(other than Deferrable Payments) due and owing on such date, be in an amount at
least sufficient to pay in full the principal of and accrued interest on the
Lessor Notes payable on such date.
(e) Any adjustment pursuant to this Section 3.6 shall
initially be computed by the Owner Participant, subject to the verification
procedure described in this Section 3.6(e). Once computed, the results of such
computation shall promptly be delivered by the Owner Participant to the Lessee.
Within 20 days after the receipt of the results of any such adjustment, the
Lessee may request that a nationally recognized firm of accountants or lease
advisors selected by the Owner Participant and reasonably satisfactory to the
Lessee (the "Verifier") verify, after consultation with the Owner Participant
and the Lessee, the accuracy of such adjustment in accordance with this Section
3.6. If the Verifier confirms that such adjustment is in accordance with this
Section 3.6, it shall so certify to the Lessee, the Lessor and the Owner
Participant and such certification shall be final, binding and conclusive on the
Lessee, the Lessor and the Owner Participant. If the Verifier concludes that
such adjustment is not in accordance with this Section 3.6, and the adjustments
to Basic Rent and Termination Values calculated by the Verifier are different
from those calculated by the Owner Participant, then it shall so certify to the
Lessee, the Lessor and the Owner Participant and the Verifier's calculation
shall be final, binding and conclusive on the Lessee, the Lessor and the Owner
Participant. If the Lessee does not request verification of any adjustment
within the period specified above, the computation provided by the Owner
Participant shall be final, binding and conclusive on the Lessee, the Lessor and
the Owner Participant. The final determination of any adjustment hereunder shall
be set forth in an amendment to this Lease, executed and delivered by the Lessor
and the Lessee and consented to by the Owner Participant; provided, however,
that any omission to execute and deliver such amendment shall not affect the
validity and effectiveness of any such adjustment. The reasonable fees, costs
and expenses of the Verifier in verifying an adjustment pursuant to this Section
3.6 shall be paid by the Lessee; provided, further, however, that in the event
that such Verifier determines that the present value of Basic Rent to be made
under this
5
10
Lease as calculated by the Owner Participant is greater than the present value
of the correct Basic Rent as certified by the Verifier, in each case, discounted
annually at the Basic Rent Discount Rate, by more than 7.5 basis points, then
such expenses of the Verifier shall be paid by the Owner Participant.
Notwithstanding anything herein to the contrary, the sole responsibility of the
Verifier shall be to verify the calculations hereunder and matters of
interpretation of this Lease or any other Operative Document shall not be within
the scope of the Verifier's responsibilities; provided, that in the event it is
necessary to interpret this Lease or any other Operative Document to determine
any adjustments pursuant to this Section 3.6, then legal counsel selected by the
Owner Participant and reasonably satisfactory to the Lessee (and at the Lessee's
expense) shall be designated to do so.
Section 3.7. Manner of Payments. All Rent (whether Basic Rent
or Supplemental Rent) shall be paid by the Lessee in lawful currency of the
United States of America in immediately available funds to the recipient not
later than 11:00 a.m. (New York City time) on the date due. All Rent payable to
the Lessor (other than Excepted Payments) shall be paid by the Lessee to the
Lessor at the Lessor's Account, or to such other account as the Lessor shall
notify the Lessee in writing; provided, however, that so long as the Lien of the
Indenture shall not have been terminated or discharged, the Lessor hereby
irrevocably directs (it being agreed and understood that such direction shall be
deemed to have been revoked after the Lien of the Indenture shall have been
fully discharged in accordance with its terms), and the Lessee agrees, that all
payments of Rent (other than Excepted Payments) payable to the Lessor shall be
paid by wire transfer directly to the Indenture Trustee's Account or to such
other place as the Indenture Trustee shall notify the Lessee in writing pursuant
to this Lease. Payments constituting Excepted Payments shall be made to the
Person entitled thereto at the address for such Person set forth in the
Participation Agreement, or to such other place as such Person shall notify the
Lessee in writing.
SECTION 4
DISCLAIMER OF WARRANTIES; RIGHT OF QUIET ENJOYMENT
Section 4.1. Disclaimer of Warranties. (a) Without waiving any
claim the Lessee may have against any manufacturer, vendor or contractor, THE
LESSEE ACKNOWLEDGES AND AGREES SOLELY FOR THE BENEFIT OF THE LESSOR AND THE
OWNER PARTICIPANT THAT (i) THE FACILITY AND EACH COMPONENT THEREOF ARE OF A
SIZE, DESIGN, CAPACITY AND MANUFACTURE ACCEPTABLE TO THE LESSEE, (ii) THE LESSEE
IS SATISFIED THAT THE FACILITY AND EACH COMPONENT THEREOF ARE SUITABLE FOR THEIR
RESPECTIVE PURPOSES, (iii) NEITHER THE LESSOR NOR THE OWNER PARTICIPANT IS A
MANUFACTURER OR A DEALER IN PROPERTY OF SUCH KIND, (iv) THE UNDIVIDED INTEREST
IS LEASED HEREUNDER TO THE EXTENT PROVIDED HEREBY FOR THE LEASE INTERIM TERM,
THE LEASE BASIC TERM AND THE RENEWAL TERMS, IF ANY,
6
11
SPECIFIED HEREIN SUBJECT TO ALL APPLICABLE LAWS NOW IN EFFECT OR HEREAFTER
ADOPTED, INCLUDING WITHOUT LIMITATION (A) ZONING REGULATIONS, (B) ENVIRONMENTAL
LAWS OR (C) BUILDING RESTRICTIONS, AND IN THE STATE AND CONDITION OF EVERY PART
THEREOF WHEN THE SAME FIRST BECAME SUBJECT TO THIS LEASE WITHOUT REPRESENTATION
OR WARRANTY OF ANY KIND BY THE LESSOR OR THE OWNER PARTICIPANT AND (v) THE
LESSOR LEASES FOR THE LEASE INTERIM TERM, THE LEASE BASIC TERM AND THE RENEWAL
TERMS, IF ANY, SPECIFIED HEREIN AND THE LESSEE TAKES THE UNDIVIDED INTEREST
UNDER THIS LEASE "AS-IS," "WHERE-IS" AND "WITH ALL FAULTS," AND THE LESSEE
ACKNOWLEDGES THAT NEITHER THE LESSOR NOR THE OWNER PARTICIPANT MAKES, NOR SHALL
BE DEEMED TO HAVE MADE, AND EACH EXPRESSLY DISCLAIMS, ANY AND ALL RIGHTS,
CLAIMS, WARRANTIES OR REPRESENTATIONS, EITHER EXPRESS OR IMPLIED, AS TO THE
VALUE, CONDITION, FITNESS FOR ANY PARTICULAR PURPOSE, DESIGN, OPERATION,
MERCHANTABILITY THEREOF OR AS TO THE TITLE OF THE FACILITY, THE QUALITY OF THE
MATERIAL OR WORKMANSHIP THEREOF OR CONFORMITY THEREOF TO SPECIFICATIONS, FREEDOM
FROM PATENT, COPYRIGHT OR TRADEMARK INFRINGEMENT, THE ABSENCE OF ANY LATENT OR
OTHER DEFECT, WHETHER OR NOT DISCOVERABLE, OR AS TO THE ABSENCE OF ANY
OBLIGATIONS BASED ON STRICT LIABILITY IN TORT OR ANY OTHER EXPRESS OR IMPLIED
REPRESENTATION OR WARRANTY WHATSOEVER WITH RESPECT THERETO, except that the
Lessor represents and warrants that on the Closing Date, the Undivided Interest
will be free of Lessor's Liens and Owner Participant's Liens. It is agreed that
all such risks, as between the Lessor and the Owner Participant on the one hand
and the Lessee on the other hand are to be borne by the Lessee during the Lease
Term. Neither of the Lessor nor the Owner Participant shall have any
responsibility or liability to the Lessee or any other Person with respect to
any of the following: (x) any liability, loss or damage caused or alleged to be
caused directly or indirectly by the Facility or any Component or by any
inadequacy thereof or deficiency or defect therein or by any other circumstances
in connection therewith; (y) the use, operation or performance of the Facility
or any Component or any risks relating thereto; or (z) the delivery, operation,
servicing, maintenance, repair, improvement, replacement or decommissioning of
the Facility or any Component. The provisions of this paragraph (a) of this
Section 4.1 have been negotiated, and, except to the extent otherwise expressly
stated, the foregoing provisions are intended to be a complete exclusion and
negation of any representations or warranties of the Lessor or the Owner
Participant, express or implied, with respect to the Facility or any Components
thereof or the Undivided Interest that may arise pursuant to any Applicable Law
now or hereafter in effect, or otherwise.
(b) During the Lease Term, so long as no Lease Bankruptcy
Default or Lease Event of Default shall have occurred and be continuing, the
Lessor hereby appoints irrevocably and constitutes the Lessee its agent and
attorney-in-fact, coupled with an interest, to assert and enforce, from time to
time, in the name and for the account of the
7
12
Lessor and the Lessee, as their interests may appear, but in all cases at the
expense of the Lessee, whatever claims and rights the Lessor may have in respect
of the Facility, any Component or the Undivided Interest against any
manufacturer, vendor or contractor (including, without limitation, against NYSEG
or NGE), or under any express or implied warranties relating to the Facility,
any Component or the Undivided Interest, or in respect of any Title Policies.
Section 4.2. Quiet Enjoyment. The Lessor agrees that,
notwithstanding any provision of any other Operative Document, so long as no
Lease Event of Default shall have occurred and be then continuing and this Lease
shall not have been declared (or deemed declared) in default, it shall not take
or cause to be taken any action to interfere with or interrupt the quiet
enjoyment of the use, operation and possession by the Lessee of the Facility or
the Undivided Interest, subject to the terms of this Lease.
SECTION 5
RETURN OF UNDIVIDED INTEREST
Section 5.1. Return. Unless the Undivided Interest is being
transferred to the Lessee pursuant to Section 10 or 13 or the Facility is being
dismantled pursuant to Section 5.4 or the Lessee has purchased the Beneficial
Interest pursuant to Section 14.1 or 15.1 of the Participation Agreement, upon
the date of expiration or earlier termination of the Lease Term the Lessee shall
return the Undivided Interest to the Lessor or any permitted transferee or
assignee of the Lessor by surrendering the Undivided Interest, together with a
corresponding undivided interest in all Required Modifications and Nonseverable
Modifications, into the possession of the Lessor or such transferee or assignee
at the location of the Facility on the Facility Site.
Section 5.2. Condition Upon Return. At the time of any return
of the Undivided Interest by the Lessee pursuant to Section 5.1, the following
conditions shall be complied with, all at the Lessee's expense:
(a) The right to use the Undivided Interest granted hereunder
for the benefit of the Lessee shall cease and terminate.
(b) The Facility shall be in at least as good condition as if
it had been maintained, repaired and operated during the Lease Term in
compliance with the provisions of this Lease, ordinary wear and tear
excepted, and there shall be no deferred maintenance in respect of the
Facility.
(c) The Lessee shall cooperate with all reasonable requests of
the Lessor (or its designee) for purposes of obtaining, or enabling the
Lessor (or such designee) to obtain, any and all licenses, permits,
approvals and consents of any Governmental Entities or other Persons
that are or will be required to be obtained by the Lessor (or such
designee) in connection with its use, operation or
8
13
maintenance of the Undivided Interest on or after such return in
compliance with Applicable Law.
(d) The Undivided Interest shall be free and clear of all
Liens other than Permitted Liens of the type described in clause (d),
(e), (f) or (g) of the definition thereof.
(e) The Facility shall be capable of being operated,
maintained and monitored from the Facility Site; and the Facility shall
be capable of being operated as a coal-fired electric generating
facility at the ratings for which it was designed, on a continuing
basis in normal commercial operation, and shall be capable of
functioning in the manner for which it was designed and all capital
expenditures in respect of the Facility shall have been made without
discriminating against the Facility (considered in the context of
Prudent Industry Practice) solely because the Undivided Interest is
leased to and not owned by the Lessee.
(f) The Facility shall be in compliance with all requirements
of manufacturers required to maintain in full force and effect any
material warranty then in effect with respect to the Facility.
(g) No Component shall be a temporary Component and any
Replacement Component shall satisfy the standards of Section 7.2.
(h) The Lessee shall surrender to the Lessor (or its designee)
originals or copies of all documents, instruments, plans, maps,
specifications, manuals, drawings, performance logs and other
documentary materials relating to the installation, maintenance,
operation, construction, design, modification and repair of the
Facility, as shall be in the Lessee's possession and shall be
reasonably appropriate or necessary for the continued operation of the
Facility.
(i) The Lessee, at the request of the Lessor, shall sell
(subject to all existing Liens and so long as a contemporaneous sale is
consummated to the applicable Other Lessor under each of the Other
Leases, other than any Other Leases in which the Lessee (or its
Affiliates) has an owner participant interest) to the Lessor (or its
designee) at the then fair market value thereof, determined by
agreement between the Lessee, the Lessor and such applicable Other
Lessors or, absent agreement, by an appraisal conducted according to
the Appraisal Procedures, an undivided interest equal to the Lessor's
Percentage in all Severable Modifications made to the Facility that are
owned by the Lessee. If the Lessor and such other applicable Other
Lessors do not elect to purchase such Severable Modifications, the
Lessee may, at its expense, remove such Severable Modifications at the
end of the Lease Term.
(j) Each Support Agreement shall be valid and in full force
and effect, unless such Agreement has been previously terminated to the
extent permitted by the Operative Documents.
9
14
The obligations of the Lessee set forth in this Section 5.2
shall survive the termination of this Lease and the expiration of the Lease
Term.
Section 5.3. Expenses. The Lessee agrees to pay or reimburse,
on an After-Tax Basis, on demand, all expenses incurred by the Lessor or the
Owner Participant in connection with any return contemplated by this Section 5;
provided, however, that any appraisal fees incurred pursuant to Section 5.2(i)
shall be payable by the Lessor.
Section 5.4. Support Agreements; Dismantlement. The Lessor
shall have the right to terminate its interest in the Site Lease or any other
Support Agreement at any time following the expiration or earlier termination of
the Lease Term upon payment of $1.00 to the Lessee and, in connection with any
such termination of its interest in the Site Lease, the Lessor may transfer all
of its right, title and interest in and to the Lessor's Interest to the Lessee.
The Lessor shall also have the right, at the expiration of the Site Lease Term
(so long as a similar right is exercised by the Other Lessors under each of the
Other Leases, other than any Other Leases in which the Lessee (or its
Affiliates) has an owner participant interest), to require the Lessee, at its
own risk and expense, to dismantle the Facility, remove all of the Components of
the Facility from the Facility Site and cause them to be delivered to a railhead
or other suitable common carrier, or to keep and store such Components at the
Facility Site for a period of up to 180 days at the Lessor's sole risk and
expense; provided, however, that notwithstanding the foregoing, the Lessee may
avoid dismantling the Facility, and storing and shipping such Components of the
Facility, by offering to purchase the Undivided Interest at a price equal to the
greater of $1.00 or the Fair Market Sales Value of the Undivided Interest
(taking into account the fact that the Facility must be removed from the
Facility Site and therefore determined after deducting the estimated cost of
dismantlement, removal and shipment and the costs of restoring the Facility Site
to its original condition). If the Lessor rejects the Lessee's offer to purchase
the Undivided Interest, the Lessor shall, at the expiration of the Site Lease
Term and at its sole expense, dismantle and remove the Facility from the
Facility Site.
Section 5.5. Environmental Reports. (a) Provided that the
Lessee shall not have exercised a Renewal Option in respect of the period
immediately following the then current Lease Term, the Lessee shall, not earlier
than 24 months (nor later than 12 months) prior to the expiration of such Lease
Term, at its sole expense, provide to the Lessor and the Owner Participant a
Return Environmental Report regarding the Facility and the Facility Site. The
Return Environmental Report shall be prepared for the Lessee by a qualified
environmental consulting firm chosen by the Lessee but reasonably acceptable to
the Lessor and the Owner Participant. The Return Environmental Report shall
consist of:
(i) A Phase I environmental assessment report,
prepared consistently with applicable standards, including but
not limited to any ASTM standards in place at the time the
Phase I is undertaken, which Phase I report shall be in form
and substance reasonably satisfactory to the Lessor; and
10
15
(ii) A Phase II environmental assessment report,
prepared consistently with applicable standards, including but
not limited to any ASTM standards in place at the time the
Phase II is undertaken, which shall be based upon the results
of the Phase I environmental assessment report and shall be in
form and substance reasonably satisfactory to the Lessor;
provided, however, that the Lessee shall be free to perform
any additional investigations which the Lessee believes to be
useful in connection with the evaluation of conditions
identified in the Return Environmental Report.
(b) Upon completion of the environmental investigations, the
Lessee shall, at its sole expense, engage a qualified environmental
consulting firm reasonably acceptable to the Lessor and the Owner
Participant to prepare a response plan to address the presence, if any,
of Hazardous Substances contamination at the Facility Site based on the
results of the Return Environmental Report and any additional
investigations performed by the Lessee ("Response Plan"). The Response
Plan shall outline a course of action for (x) conducting any actions
that are required by any Environmental Law in response to the presence
of Hazardous Substances at the Facility Site; or (y) obtaining any
regulatory approvals with respect to the Lessee's proposed responsive
measures to address such Hazardous Substances. The Response Plan shall
provide an analysis of all measures potentially required under
Environmental Law to respond to the conditions at the Facility Site
relating the presence of such Hazardous Substances and the estimated
costs for each proposed response measure (including but not limited to
the feasibility of use of site restrictions or other limitations in
light of the uses of the Facility Site permitted under the Site Lease).
Use of site restrictions or limitations that are consistent with the
permitted uses of the Facility Site under the Site Lease as a remedial
alternative, or any remedy that does not include remediation of
Hazardous Substances at the Facility Site, shall require a showing by
the Lessee that the value of the Facility for the uses allowed under
the Site Lease for the remaining term of the Site Lease is not
materially decreased by such remedial alternative, and as set forth in
subparagraph (e) hereto, the Lessee shall provide a satisfactory
insurance policy or, at Lessee's option, other financial assurance
mechanism reasonably satisfactory to the Lessor and the Owner
Participant. In addition, to the extent that the Response Plan provides
for responsive measures that do not require remediation of Hazardous
Substances contamination to applicable remediation standards or goals
identified under applicable Environmental Laws, the Lessee shall obtain
approval of any such measures from the Governmental Entity with
jurisdiction over such Hazardous Substances prior to implementation of
the Response Plan. The Response Plan shall be designed to be the most
cost-effective responsive approach to comply with the requirements of
Environmental Laws with respect to addressing the presence of Hazardous
Substances at the Facility Site, consistent with maintaining the value
of the Facility for the uses allowed under the Site Lease for the
remaining term of the Site Lease, and shall not unreasonably interfere
with the Lessee's use, operation or maintenance of the Facility.
11
16
(c) The Response Plan shall be in form and substance
reasonably satisfactory to the Lessor and the Owner Participant. Upon
approval of the plan by the Lessor and the Owner Participant, the
Lessee shall commence the responsive actions set forth in the plan
according to the time schedule set forth in the plan for performing
such work, which time schedule shall reflect the earliest practicable
schedule for performing the responsive action and shall establish
appropriate reserves, collateral or other financial mechanisms
reasonably satisfactory to the Lessor and the Owner Participant to fund
actions and work to be undertaken prior to approval of the final
Response Plan. The Lessee shall implement the approved Response Plan,
to the maximum extent feasible in accordance with the schedule, prior
to the end of the applicable Lease Term. In any event, the Lessee shall
be responsible for completing any cleanup, removal or remediation
called for in the Response Plan. In the event the actions or activities
called for in the Response Plan cannot be completed prior to expiration
of the Lease Term, the Lessor shall grant to the Lessee access to the
Facility Site to complete any such actions or activities.
(d) The Lessee may, at its sole discretion, prepare a cost
assessment without waiting for completion of the investigations or the
preparation of a final Response Plan if, based upon any sampling data
or other information available to the Lessee, the Lessee reasonably
believes that environmental conditions or contamination are present at
the Facility Site for which the costs of responsive action may
reasonably be expected to exceed $10 million. The Lessor, the Owner
Participant and the Lessee shall confer for a period not to exceed 30
days from the date such analysis is provided to the Lessor and the
Owner Participant by the Lessee in order to come to an agreement on the
projected costs; provided, however, that such agreement may be
postponed until sufficient data is developed to reasonably conclude
that the above threshold amount would be exceeded.
(e) Upon completion of the final Response Plan, the Lessee
shall prepare an assessment of the projected costs for performing all
responsive measures that are called for in the final Response Plan, and
the cost of an insurance policy with terms and price that are
reasonably acceptable to the Lessor, the Lessee and the Owner
Participant, providing for the payment of all costs of remediation and
any third party liability, in excess of the amount funded in the
Indemnity Account for such purposes and arising out of any conditions
identified in the Return Environmental Report. The term of such
insurance policy shall be for ten years or the then remaining term of
the Site Lease, whichever is greater or, in lieu of an insurance
policy, the Lessee may, at the Lessee's sole discretion, provide
another mechanism of financial assurance with respect to potential
costs of remediation and third-party liability. Such alternative
financial assurance mechanisms shall be reasonably satisfactory to the
Lessor and the Owner Participant. Lessee shall prepay the premium for
such policy. The Lessee and the Lessor shall deliver a joint Officer's
Certificate to the Depositary Agent stating the amount of funds to be
transferred to the Indemnity Account during the balance of the Lease
Term for application by the Lessee in accordance with the agreed upon
Response Plan;
12
17
provided, however, that nothing in this Section shall limit the
Lessee's obligation to perform all actions in the agreed upon, final
Response Plan.
(f) Not more than 90 days prior to the end of the applicable
Lease Term the Lessee shall provide the Lessor an update to the Return
Environmental Report.
(g) To the extent that the Lessor and the Lessee are unable to
agree upon any matters for which agreement is called for in subsections
(a) through (e) above, the issue shall be submitted to arbitration in
accordance with the rules of the American Arbitration Association in
New York; provided, however, that any such arbitration shall be
completed within 60 days of the filing of an arbitration demand by the
Lessor or the Lessee.
Section 5.6. Engineering Report. Provided that the Lessee
shall not have exercised a Renewal Option in respect of the period immediately
following the then current Lease Term, the Lessee shall, not earlier than 24
months (nor later than 12 months) prior to the expiration of such Lease Term, at
its sole expense, provide to the Lessor and the Owner Participant a Return
Engineering Report confirming that the Facility and the Facility Site are then
in compliance with the requirements of paragraphs (b), (e), (f), (g) and (h) of
Section 5.2, together with such inspection reports, test results and other data
reasonably adequate to substantiate the conclusions reached in such report or,
if such is not the case, a list of any discrepancies in the condition and state
of repair from that required by said paragraphs of Section 5.2, and such testing
and overhaul procedures as would be required to cause the Facility and the
Facility Site to be in compliance with the requirement of said paragraphs of
Section 5.2. The Lessee, at its own expense, shall cause any such discrepancies
to be fully corrected prior to the return of the Undivided Interest. The Lessee
and the Lessor shall deliver a joint Officer's Certificate to the Depositary
Agent stating the amount of funds to be transferred to the Indemnity Account
during the balance of the Lease Term for application by the Lessee to correct
any such discrepancies.
SECTION 6
LIENS
The Lessee shall not (and the Lessee shall not permit any AEE
Subsidiary to) create, incur, assume or suffer to exist any Lessee Liens, and
the Lessee shall promptly notify the Lessor of the imposition of any such Lessee
Liens of which the Lessee has Actual Knowledge and shall promptly, at its own
expense, take such action as may be necessary to fully discharge or release any
such Lessee Liens.
13
18
SECTION 7
MAINTENANCE; REPLACEMENTS OF COMPONENTS
Section 7.1. Maintenance. The Lessee, at its own expense,
shall (a) cause the Facility to be maintained in good condition, repair and
working order and, in all material respects (i) in accordance with Prudent
Industry Practice, (ii) in compliance with all Applicable Laws of any
Governmental Entity having jurisdiction, including without limitation,
Environmental Laws, (iii) in accordance with the terms of all insurance policies
required to be maintained pursuant to Section 11, (iv) in accordance with such
operating standards as shall be required to take advantage of and enforce all
available warranties and (v) without discriminating against the Facility solely
because the Undivided Interest is leased to and not owned by the Lessee, as
compared to other similar facilities owned, leased from others or operated by
the Lessee or any Affiliate thereof within the United States and (b) make all
necessary repairs, renewals, replacements, betterments and improvements thereto
as may be reasonably necessary, in the Lessee's judgment, so that the Facility
may be operated in accordance with its intended purpose, in each case consistent
with any assumptions set forth in the Engineering Report (including the
applicable assumptions contemplated by the "AEE Life Extension Forecast"
described therein) and the Appraisal; provided, however, that the Lessee may, in
good faith and by appropriate proceedings diligently contest the validity or
application of any Applicable Laws in any reasonable manner pursuant to a
Permitted Contest.
Section 7.2. Replacement of Components.
(a) In the ordinary course of maintenance, service, repair or
testing, the Lessee, at its own expense, may remove or cause to be removed from
the Facility any Component; provided, however, that the Lessee shall cause such
Component to be replaced by a replacement Component which shall be free and
clear of all Liens (except Permitted Liens) and shall be in as good operating
condition as, and shall have a current fair market value, residual value,
remaining useful life and utility at least equal to that of the Component
replaced, assuming such replaced Component was in at least the condition and
repair required to be maintained in accordance with the terms of this Lease
(each such replacement Component being herein referred to as a "Replacement
Component") as soon as commercially practicable.
(b) An undivided interest equal to the Lessor's Percentage in
each Component at any time removed from the Facility shall remain subject to
this Lease, wherever located, until such time as such Component shall be
replaced by a Replacement Component which has been incorporated in the Facility
and which meets the requirements for Replacement Components specified above.
Immediately upon any Replacement Component becoming incorporated in the
Facility, without further act (and at no cost to the Lessor and with no
adjustment to the Purchase Price or Basic Rent), (i) the replaced Component
shall no longer be subject to this Lease, (ii) title to the Lessor's undivided
interest in the removed Component shall thereupon vest in the Lessee or such
other Person as shall be designated by the Lessee, free and clear of all rights
of the Lessor and
14
19
the Indenture Trustee, (iii) title to an undivided interest equal to the
Lessor's Percentage in the Replacement Component shall thereupon vest with the
Lessor and such undivided interest shall (A) become subject to this Lease and
the Lien of the Indenture, and (B) be deemed a part of the Undivided Interest
for all purposes of this Lease.
(c) Notwithstanding anything in this Section 7.2 or elsewhere
in this Lease to the contrary, if the Lessee has determined that a Component is
surplus or obsolete (each such Component herein referred to as an "Obsolete
Component"), it shall, in its sole discretion and at its own expense, have the
right to remove such Obsolete Component without replacing it; provided, however,
that no such Obsolete Component may be so removed without being replaced if such
removal would diminish or impair the then current fair market value, residual
value, utility or the remaining useful life of the Facility by more than a de
minimis amount or cause the Facility to become "limited use" property within the
meaning of Rev. Proc. 75-28, 1975-1 C.B. 752 or Rev. Proc. 76-30, 1976-2 C.B.
647.
SECTION 8
MODIFICATIONS
Section 8.1. Required Modifications. The Lessee, at its own
expense, shall make or cause to be made to the Facility all Modifications as are
required by Applicable Law or which the Lessee reasonably determines could be
required as a result of any pending or reasonably expected change in Applicable
Law or any Modifications made in respect of achieving the objective of the "AEE
Life Extension Forecast" as described in the Engineering Report (each, a
"Required Modification"); provided, however, that the Lessee may, in good faith
and by appropriate proceedings diligently contest the validity or application of
any Applicable Laws in any reasonable manner pursuant to a Permitted Contest.
Section 8.2. Optional Modifications. The Lessee shall have the
right, at its own expense, to make or cause to be made to the Facility any
Modification as the Lessee considers desirable in the proper conduct of its
business (any such non-Required Modification being referred to as an "Optional
Modification"); provided, however, that no such Optional Modification to the
Facility shall diminish or impair the then current fair market value, residual
value, remaining useful life or utility of the Facility below the then current
fair market value, residual value, remaining useful life or utility thereof
immediately prior to such Optional Modification, assuming the Facility was then
in the condition required to be maintained by the terms of this Lease, or cause
the Facility to become "limited use" property, within the meaning of Rev. Proc.
75-28, 1975-1 C.B. 752 or Rev. Proc. 76-30, l976-2 C.B. 647.
Section 8.3. Title to Modifications. (a) Title to an undivided
interest equal to the Lessor's Percentage in (i) all Required Modifications,
(ii) all Nonseverable Modifications and (iii) all Modifications financed by the
Lessor by an Additional Equity
15
20
Investment or a Supplemental Financing pursuant to Section 12.1 of the
Participation Agreement shall (at no cost to the Lessor and, except as set forth
in Section 12.1 of the Participation Agreement and Section 3.6 of this Lease,
with no adjustment to the Purchase Price or Basic Rent or Termination Values)
immediately vest in the Lessor. Such undivided interest shall immediately (A)
become subject to the Lease and, so long as the Lien of the Indenture shall not
have been terminated or discharged, the Lien of the Indenture and (B) be deemed
part of the Undivided Interest for all purposes of this Lease. The Lessee, at
its own expense, shall take such steps as the Lessor and, so long as the Lien of
the Indenture shall not have been terminated or discharged, the Indenture
Trustee may reasonably require from time to time to confirm that title in such
undivided interest has vested in Lessor and that such undivided interest is
subject to the Lease and, so long as the Lien of the Indenture shall not have
been terminated or discharged, the Lien of the Indenture.
(b) No interest in any Optional Modification which is a
Severable Modification (other than Severable Modifications which are financed by
the Lessor by an Additional Equity Investment or a Supplemental Financing
pursuant to Section 12.1 of the Participation Agreement) shall vest in the
Lessor or become subject to this Lease or the Lien of the Indenture.
SECTION 9
NET LEASE
Section 9.1. Net Lease. (a) This Lease is a "net lease" and
the Lessee's obligation to pay all Rent payable hereunder shall be absolute and
unconditional under any and all circumstances and shall not be terminated,
extinguished, diminished, lost or otherwise impaired by any circumstance of any
character, including, without limitation, by (i) any setoff, counterclaim,
recoupment, defense or other right which the Lessee may have against the Lessor,
the Owner Participant, the Indenture Trustee or any other Person, including,
without limitation, any claim resulting from any breach by any Transaction Party
of any covenant or provision in this Lease or any other Operative Document, (ii)
any lack or invalidity of title or any defect in the title, condition, design,
operation, merchantability or fitness for use of the Facility or any Component,
or any eviction by paramount title or otherwise; or any unavailability of the
Facility, the Facility Site, any Component, any other portion of the Undivided
Interest, or any part thereof, (iii) any loss or destruction of, or damage to,
the Facility or any Component or interruption or cessation in the use or
possession thereof or any part thereof by the Lessee for any reason whatsoever
and of whatever duration, (iv) the condemnation, requisitioning, expropriation,
seizure or other taking of title to or use of the Facility, the Facility Site,
any Component, or any other portion of the Undivided Interest by any
Governmental Entity or otherwise, (v) the invalidity or unenforceability or lack
of due authorization or other infirmity of this Lease or any other Operative
Document, (vi) the lack of right, power or authority of the Lessor to enter into
this Lease or any other Operative Document, (vii) any ineligibility of the
Facility or any Component for any particular use, whether or not due to any
failure of the
16
21
Lessee to comply with any Applicable Law, (viii) any event of "force majeure" or
any frustration, (ix) any legal requirement similar or dissimilar to the
foregoing, any present or future law to the contrary notwithstanding, (x) any
insolvency, bankruptcy, reorganization or similar proceeding by or against the
Lessee or any other Person, (xi) any Lien of any Person with respect to the
Facility, the Facility Site, any Component, any other portion of the Undivided
Interest or any part thereof, or (xii) any other cause, whether similar or
dissimilar to the foregoing, any present or future law notwithstanding, except
as expressly set forth herein or in any other Operative Document, it being the
intention of the parties hereto that all Rent payable by the Lessee hereunder
shall continue to be payable in all events in the manner and at times provided
for herein.
(b) Such Rent shall not be subject to any abatement and the
payments thereof shall not be subject to any setoff or reduction for any reason
whatsoever, including any present or future claims of the Lessee or any other
Person against the Lessor or any other Person under this Lease or otherwise.
(c) To the extent permitted by Applicable Law, the Lessee
hereby waives any and all rights which it may now have or which at any time
hereafter may be conferred upon it, by statute or otherwise, to terminate,
cancel, quit or surrender this Lease with respect to the Undivided Interest
except in accordance with Section 10, 13 or 14. If for any reason whatsoever
this Lease shall be terminated in whole or in part by operation of law or
otherwise, except as specifically provided herein (including, without
limitation, in the immediately preceding sentence), the Lessee nonetheless
agrees, to the extent permitted by Applicable Law, to pay to the Lessor an
amount equal to each installment of Basic Rent and all Supplemental Rent due and
owing, at the time such payment would have become due and payable in accordance
with the terms hereof had this Lease not been so terminated. Nothing contained
herein shall be construed to waive any claim which the Lessee might have under
any of the Operative Documents or otherwise or to limit the right of the Lessee
to make any claim it might have against the Lessor or any other Person or to
pursue such claim in such manner as the Lessee shall deem appropriate.
Section 9.2. Net Lease Not Guaranty. Nothing contained in this
Section 9 shall be construed as (a) a guaranty of (i) the value of the Undivided
Interest or the Facility upon the expiration or termination of the Lease Fixed
Term or any Renewal Term, (ii) the useful life of the Facility or (iii) payment
of any of the Lessor Notes, or (b) a prohibition of assertion of any claim
against any manufacturer, supplier, dealer, vendor, contractor (including,
without limitation, NYSEG or NGE), subcontractor or installer with respect to
the Facility.
SECTION 10
EVENTS OF LOSS
Section 10.1. Occurrence of Events of Loss. The Owner
Participant or the Lessor will promptly notify the Lessee of any event of which
it is aware that, unless
17
22
expressly waived in writing by the Lessor or the Owner Participant, would result
in a Regulatory Event of Loss, but in any case, failure to provide such notice
shall not affect the rights of the Lessor or the Owner Participant pursuant to
this Section 10. If an Event of Loss described in clause (a) or (b) of the
definition thereof shall occur, the Lessee shall promptly provide notice thereof
to the Lessor, the Owner Participant and, so long as the Lien of the Indenture
shall not have been terminated or discharged, the Indenture Trustee and then, no
later than 6 months following the occurrence of such Event of Loss, the Lessee
shall notify the Lessor, the Owner Participant and, so long as the Lien of the
Indenture shall not have been terminated or discharged, the Indenture Trustee in
writing of its election either (a) subject to the satisfaction of the conditions
set forth in Section 10.3, to rebuild and restore the Facility so that the
Facility shall be a generating facility of the same character and size (i.e., a
coal-fired electric generating facility of the same capacity and heat rate, of
the same or better operating and cost efficiency and utilizing the same grade of
coal as the Facility and which can reasonably be expected to be similarly ranked
on the dispatch curve) and otherwise have a fair market value, residual value,
remaining useful life and utility at least equal to that of the Facility
immediately prior to such Event of Loss (assuming that the Facility was in the
condition and repair required to be maintained pursuant to this Lease) or (b) to
terminate this Lease pursuant to Section 10.2. The Lessee may elect the option
provided in clause (b) of the preceding sentence regardless of whether the
Facility is to be rebuilt. If the Lessee fails to make an election as provided
above in respect of an Event of Loss described in clause (a) or (b) of the
definition thereof, then for purposes of determining the Termination Date upon
which the payments are required pursuant to Section 10.2 are due and payable the
date of occurrence of such Event of Loss shall be deemed to be the last day of
the 6 month period referred to in the second sentence of this Section 10.1 and
the Lessee shall be deemed to have made the election to terminate this Lease
pursuant to Section 10.2.
Section 10.2. Termination of Lease. (a) If (i) the Lessee
shall not have elected to rebuild or restore the Facility pursuant to Section
10.3 following an Event of Loss described in clause (a) or (b) of the definition
thereof, or (ii) an Event of Loss described in clause (c) or (d) of the
definition thereof shall occur, then, on the next Termination Date following the
Lessee's notice of its election referred to in the second sentence of Section
10.1, in the case of clause (i) above, or on the next Termination Date occurring
at least 3 months after the date of the occurrence of such Event of Loss or, if
earlier, at least one month after receipt of insurance or condemnation proceeds
in respect of such Event of Loss in the case of clause (ii) above, the Lessee
shall terminate this Lease and pay to the Lessor (A) the Termination Value
determined as of the relevant Termination Date, plus (B) all amounts of
Supplemental Rent (including, without limitation, any prepayment premiums and
all documented out-of-pocket costs and expenses of the Lessor, the Owner
Participant, the Indenture Trustee and the Pass Through Trustees, and all use,
value added and other Taxes required to be indemnified by the Lessee pursuant to
Section 10.2 of the Participation Agreement associated with the exercise of the
termination option pursuant to this Section 10.2) due and payable on or prior to
such Termination Date, plus (C) any unpaid Basic Rent due before (together with
any Deferrable Payments due on or before) such Termination Date and, if such
18
23
Termination Date shall be a Rent Payment Date, the Basic Rent (to the extent
payable in arrears) due and payable on such Rent Payment Date.
(b) Concurrently with the payment of all sums required to be
paid pursuant to this Section 10.2, (i) Basic Rent for the Undivided Interest
shall cease to accrue, (ii) the Lessee shall cease to have any liability to the
Lessor with respect to the Undivided Interest except for Supplemental Rent and
other obligations (including, without limitation, those under Section 10.1 of
the Participation Agreement) surviving pursuant to the express terms of any
Operative Document, (iii) the Lessor shall transfer the Lessor's Interest to the
Lessee pursuant to this Section 10.2, on an "as is," "where is" and "with all
faults" basis, without representations or warranties other than a warranty as to
the absence of Lessor's Liens and a warranty of the Owner Participant as to the
absence of Owner Participant's Liens and (iv) unless the Lessee shall have
assumed the Lessor's obligations under the Notes as provided in paragraph (c) of
this Section 10.2, (A) the Lessor shall prepay the Lessor Notes pursuant to
Section 2.10(a) of the Indenture, (B) the Lessor shall notify the Indenture
Trustee to discharge the Lien of the Indenture and (C) the Lease Term shall
terminate and the Lessor shall, at the Lessee's expense, execute and deliver to
the Lessee a release or termination of this Lease. In furtherance hereof, the
Lessee and the Lessor shall execute and deliver appropriate releases and other
documents or instruments necessary or desirable to effect the foregoing, all to
be prepared, filed and recorded (as appropriate) at the expense of the Lessee.
(c) Notwithstanding the foregoing provisions of paragraph (a)
of this Section 10.2, in the case of a Regulatory Event of Loss, if (i) the
Lessee shall have assumed the Lessor Notes as permitted by and in accordance
with Section 2.10(b) of the Indenture and (ii) all other conditions contained in
such Section 2.10(b) shall have been satisfied, the obligation of the Lessee to
pay Termination Value shall be reduced by the then scheduled outstanding
principal amount of and accrued interest, if any, on the Lessor Notes so assumed
by the Lessee.
(d) Subject to the last paragraph of Section 11.7, any
payments with respect to the Undivided Interest received at any time by the
Lessor, the Indenture Trustee or the Lessee (i) from any Governmental Entity as
a result of the occurrence of an Event of Loss described in clause (c) of the
definition thereof or (ii) from the proceeds of any insurance maintained by the
Lessee pursuant to Section 11 as a result of the occurrence of an Event of Loss
described in clause (a) or (b) of the definition thereof, shall, in each case,
be applied as follows:
(A) all such payments received at any time by the Lessee shall
be promptly paid to the Lessor or, if the Lien of the Indenture shall
not have been terminated or discharged, to the Indenture Trustee, for
application pursuant to the following clauses (B) and (C) of this
Section 10.2(d), except that so long as no Lease Material Default or
Lease Event of Default shall have occurred and be then continuing, the
Lessee may retain any amounts that the Lessor would at the time be
obligated to pay to the Lessee as reimbursement under the provisions of
paragraph (B) below;
19
24
(B) so much of such payments as shall not exceed the amount
required to be paid by the Lessee pursuant to paragraph (a) of this
Section 10.2 shall be applied in reduction of the Lessee's obligation
to pay such amount if not already paid by the Lessee or, if already
paid by the Lessee, shall, so long as no Lease Material Default or
Lease Event of Default shall have occurred and be then continuing, be
applied to reimburse the Lessee for its payment of such amount; and
(C) the balance, if any, of such payments remaining thereafter
shall, if insurance proceeds, be for the account of the Lessee (but in
no event in an amount greater than Termination Value) and, if payments
from a Governmental Entity, shall be for the respective accounts of the
Lessor and the Lessee, in accordance with their ownership and leasehold
interests, respectively, in the Undivided Interest.
Notwithstanding the foregoing, if the Lessee shall have
elected to rebuild or restore the Facility pursuant to Section 10.3, any
insurance proceeds received by the Lessor, the Indenture Trustee or the Lessee
as a result of the occurrence of an Event of Loss described in clause (a) or (b)
of the definition thereof shall be deposited in the Loss Proceeds Account or
other appropriate Reserve Account (and shall be subject to withdrawal as
provided in Section 11.7).
Section 10.3. Rebuild. The Lessee's right to rebuild or
restore the Facility pursuant to Section 10.1(a) shall be subject to the
fulfillment, at the Lessee's expense, of the following conditions:
(a) no Lease Bankruptcy Default or Lease Event of Default
shall have occurred and be then continuing;
(b) At the Lessee's expense, the Owner Participant shall have
received an opinion of independent tax counsel selected by the Owner
Participant and reasonably acceptable to the Lessee (in form, scope and
substance reasonably satisfactory to the Owner Participant) that no
material adverse tax consequences to the Owner Participant will result
from such rebuilding (and in the case of any such material adverse tax
consequences the Lessee shall provide appropriate financial assurance
reasonably satisfactory to the Owner Participant), and the Lessee shall
have indemnified the Owner Participant in accordance with Section 10 of
the Participation Agreement and the Tax Indemnity Agreement against all
tax risk arising from such rebuilding;
(c) on the date the Lessee shall notify the Lessor pursuant to
Section 10.1 of its election to rebuild or restore the Facility in
accordance with this Section 10.3, the Lessee shall deliver to the
Owner Participant and, so long as the Lien of the Indenture shall not
have been terminated or discharged, the Indenture Trustee, (i) a report
of the Independent Engineer to the effect that the rebuilding or
restoring of the Facility is technologically feasible and economically
viable and that such rebuilding or restoring can reasonably be expected
to be completed at
20
25
least 36 months prior to the expiration of the Lease Basic Term or 12
months prior to the expiration of any Renewal Term then in effect or
elected by the Lessee, but in any event within three years from the
date of the Event of Loss giving rise to such rebuilding and (ii) an
appraisal of an Independent Appraiser, such appraiser and such
appraisal to be reasonably satisfactory to the Owner Participant, to
the effect that the Facility will have a fair market value, residual
value, remaining useful life and utility at least equal to that of the
Facility immediately prior to such Event of Loss (assuming that the
Facility was in the condition and repair required to be maintained
pursuant to this Lease);
(d) on the date the Lessee shall notify the Lessor pursuant to
Section 10.1 of its election to rebuild or restore the Facility in
accordance with this Section 10.3, the Lessee shall demonstrate to the
reasonable satisfaction of the Owner Participant and, so long as the
Lien of the Indenture shall not have been terminated or discharged, the
Indenture Trustee that adequate, committed or presently available,
funds, including amounts sufficient to pay all Rent during construction
and to fund construction and other appropriate reserves, from insurance
proceeds (including proceeds from business interruption insurance) or
other sources, exist (including binding third party commitments to
provide financing) to complete such rebuilding or restoration;
(e) the Lessee shall cause the rebuilding or restoring of the
Facility (including obtaining all applicable construction approvals,
permits and licenses) to commence as soon as practicable after
notifying the Lessor of its election to rebuild or restore the Facility
in accordance with this Section 10.3, and in all events, no later than
within 18 months of the date of the occurrence of the event that caused
such Event of Loss and shall cause work on such rebuilding to proceed
diligently thereafter. As the rebuilding or restoring of the Facility
progresses, title to an undivided interest equal to the Lessor's
Percentage in such rebuilt or restored facilities shall vest in the
Lessor and such undivided interest shall become subject to this Lease
and, so long as the Lien of the Indenture shall not have been
terminated or discharged, the Lien of the Indenture, and be deemed a
part of the Undivided Interest for all purposes of this Lease
automatically without any further act by any Person;
(f) prior to rebuilding or restoring the Facility (but in no
event later than 30 days before such rebuilding or restoration is
scheduled to begin), the Lessee shall deliver (i) a fixed-price
turn-key construction contract with a nationally recognized and
experienced contractor (together with all documents and agreements
related thereto), in form, scope and substance reasonably satisfactory
to the Owner Participant and (ii) such documentation, in form, scope
and substance reasonably satisfactory to the Owner Participant, that
the Pass Through Certificates shall at the time of such rebuilding or
restoration have a credit rating of not less than Investment Grade;
21
26
(g) on the date of the completion of such rebuilding or
restoration of the Facility (the "Rebuilding Closing Date"), the
following documents shall be duly authorized, executed and delivered
and, if appropriate, filed for recordation by the respective party or
parties thereto and shall be in full force and effect, and an executed
counterpart of each thereto shall be delivered to the Lessor and the
Indenture Trustee: (i) supplements to this Lease subjecting an
undivided interest equal to the Lessor's Percentage in the rebuilt or
restored facilities to this Lease (with no change in Purchase Price or
the Basic Rent as a result of such replacement), (ii) so long as the
Lien of the Indenture shall not have been terminated or discharged,
supplements to the Indenture and the Mortgage subjecting such undivided
interest in the rebuilt or restored facilities to the Lien of the
Indenture, (iii) such recordings and filings as may be reasonably
requested by the Lessor, the Mortgagee and the Indenture Trustee to be
made or filed, (iv) an opinion of counsel of the Lessee, such counsel
and such opinion to be reasonably satisfactory to the Owner Participant
and, so long as the Lien of the Indenture shall not have been
terminated or discharged, the Indenture Trustee and the Mortgagee to
the effect that (A) the supplements to this Lease required by clause
(i) above constitute effective instruments for subjecting such
undivided interest in the rebuilt or restored facilities to this Lease,
(B) the supplements to the Indenture and the Mortgage required by
clause (ii) above, if any, constitute effective instruments for
subjecting such undivided interest in the rebuilt or restored
facilities to the Lien of the Indenture and (C) all filings and other
action necessary to perfect and protect the Lessor's interest in an
undivided interest equal to the Lessor's Percentage in the rebuilt or
restored facilities have been accomplished, (v) an appraisal by an
Independent Appraiser, certifying that the Facility as so rebuilt or
restored has a current fair market value, residual value, remaining
useful life and utility at least equal to the fair market value,
residual value, remaining useful life and utility of the Facility
immediately prior to such repair or replacement (assuming the Facility
was in the condition and repair required to be maintained by the terms
of this Lease), (vi) a report by an Independent Engineer certifying
that the Facility as so rebuilt or restored is in a state of repair and
condition required by this Lease, and (vii) satisfactory evidence as to
the existence of adequate insurance in compliance with Section 11 with
respect to the Facility as so rebuilt; and
(h) the Owner Participant shall have consented (in its sole
discretion) to such rebuilding or restoration.
Whether or not the transactions contemplated by this Section
10.3 are consummated, the Lessee agrees to pay or reimburse, on an After-Tax
Basis, any costs or expenses (including reasonable legal fees and expenses)
incurred by the Lessor, the Owner Participant, the Indenture Trustee and the
Pass Through Trustees in connection with the transactions contemplated hereby.
22
27
Section 10.4. Application of Payments Not Relating to an Event
of Loss.
(a) In the event that during the Lease Term the use of all or
any portion of the Undivided Interest is requisitioned or taken by or pursuant
to a request of any Governmental Entity under the power of eminent domain or
otherwise for a period which does not constitute an Event of Loss, the Lessee's
obligation to pay all installments of Basic Rent shall continue for the duration
of such requisitioning or taking. The Lessee shall be entitled to receive and
retain for its own account all sums payable for any such period by such
Governmental Entity as compensation for such requisition or taking of
possession.
(b) Any amount referred to in Section 10.4(a) which is payable
to the Lessee shall not be paid to the Lessee, or if it has been previously paid
directly to the Lessee, shall not be retained by the Lessee, but instead shall
be paid to and held by the Lessor or, so long as the Lien of the Indenture shall
not have been terminated or discharged, the Indenture Trustee, as security for
the obligations of the Lessee under this Lease, as provided in Section 11.7.
(c) Any insurance proceeds with respect to the Undivided
Interest received at any time by the Lessor, the Indenture Trustee or the Lessee
under any of the insurance policies required to be maintained by the Lessee
under Section 11 as a result of any damage to the Facility or any part thereof
which does not constitute an Event of Loss shall be applied as follows: first,
in accordance with Section 11.7; and second, the balance, if any, of such
insurance proceeds remaining thereafter shall be paid to the Lessee.
SECTION 11
INSURANCE
Section 11.1. Property Insurance. Subject to Section 11.6, the
Lessee shall maintain (or cause to be maintained) all risk property insurance
customarily carried by prudent operators of coal-fired facilities of comparable
size, and of a comparable risk profile as, the Facility, and against loss or
damage from such causes as are customarily insured against, which includes
coverage for flood and boiler and machinery coverage to cover mechanical
breakdown with normal policy exclusions. Such insurance will include coverage
against direct physical loss or damage to the Facility including business
interruption coverage with a limit of $250,000,000 per occurrence (provided that
such coverage shall be increased to, and maintained at, $350,000,000 per
occurrence as soon as reasonably practicable but in no event later than three
(3) months after the Closing Date), except for the perils of flood and
earthquake, which limit will be an annual aggregate of $100,000,000. Business
interruption cover shall contain an indemnity period of not less than 15 months.
A self-insured retention or deductible of not more than $1,000,000 for direct
physical loss and a 90-day waiting period for business interruption can apply
per occurrence; however, these deductibles are established as maximum
deductibles and the
23
28
Lessee shall endeavor to procure the most competitive deductibles commercially
available and economically feasible.
Section 11.2. Liability Insurance. Subject to Section 11.6,
the Lessee will maintain liability insurance, including the following:
(a) Commercial General Liability. Commercial general liability
with a combined single limit of $1,000,000 per occurrence and in the aggregate
where applicable. The insurance will include coverage for bodily injury and
death, property damage, personal injury, contractual liability, actions of
independent contractors, products, and completed operations, cross liability if
multiple named insureds and sudden and accidental pollution. Such cover, with
the exception of sudden and accidental pollution, shall be written on occurrence
policy forms or AEGIS claims-first-made. A self-insured retention or deductible
of not more than $50,000 per occurrence can apply;
(b) Commercial Automobile Liability. Commercial automobile
liability with a combined single limit of $1,000,000 per occurrence for
liability arising out of the use of all owned, hired, and non-owned vehicles. A
self-insured retention or deductible of not more than $50,000 per occurrence can
apply;
(c) Worker's Compensation and Employer's Liability. Worker's
compensation coverage providing statutory benefits for the State of New York and
employer's liability with limits of $1,000,000 per occurrence and in the
aggregate where applicable. A self-insured retention or deductible of not more
than $250,000 per occurrence can apply; and
(d) Excess Liability. Excess liability coverage with a limit
of $50,000,000 per occurrence and in the aggregate where applicable. Such
coverage shall be excess of the commercial general, automobile, and employer's
liability coverages in paragraphs (a), (b) and (c) above. Such insurance shall
contain a per location aggregate endorsement.
The Lessee will periodically review the liability insurance
maintained by it or on its behalf and will, if necessary, revise such coverage
and limits (including deductibles) in order that the liability insurance
maintained by it or on its behalf is consistent with that maintained by prudent
operators of similar facilities of comparable size and risk as the Facility;
provided, however, that the Lessee may not (except as permitted by Section 11.6)
decrease coverage without the written consent of the Lessor. Such liability
insurance may be purchased either in a single limit or in combination with a
general and an excess policy.
Section 11.3. Provisions with Respect to Insurance. (a)
Subject to Section 11.6, the Lessee will place the insurance maintained pursuant
to this Section 11 with insurers of recognized reputation, each having an A.M.
Best rating of at least "A-,IX" or, if not so rated, of comparable financial
strength as an insurer with such a rating. All insurance policies required to be
maintained pursuant to Section 11.1 shall name the
24
29
Lessor or, if the Lien of the Indenture shall not have been terminated or
discharged, the Indenture Trustee as the First Loss Payee and pursuant to
clauses (a), (b) and (d) of Section 11.2 shall name the Lessor, the Trust
Company, the Trustee, the Owner Participant and the Indenture Trustee as
additional insureds, as their interests may appear. All insurance policies
required to be maintained pursuant to this Section 11 shall also provide for at
least 30 days' prior written notice (10 days for non-payment) by the insurance
carrier to the Lessor, the Trust Company, the Trustee, the Owner Participant and
the Indenture Trustee in the event of cancellation, non-renewal, termination,
expiration or material change. The Lessee will place the insurance required by
this Section 11 only with insurance companies which agree to waive all claims
for premiums from, and all subrogation rights against, the Lessor, the Trust
Company, the Trustee, the Owner Participant and the Indenture Trustee. All the
insurance maintained pursuant to this Section shall be primary without right of
contribution of any other insurance carried by or on behalf of the Lessor, the
Trust Company, the Trustee, the Owner Participant and the Indenture Trustee with
respect to their respective interests in the Facility and the Facility Site.
(b) Subject to Section 11.6, the Lessee will ensure that the
respective interests of the Lessor, the Trust Company, the Trustee, the Owner
Participant and the Indenture Trustee shall not be invalidated by any act or
neglect of the Lessee, or any breach or violation by the Lessee of any
warranties, declarations or conditions contained in any policies referred to in
Section 11.1 or by the use of the Facility for purposes more hazardous than
permitted by such policies. Additionally, the Lessee will use its best efforts
to provide that the policies referred to be Sections 11.2(a), (b) and (d) are
endorsed to provide that, inasmuch as the policies are written to cover more
than one insured, all terms, conditions, insuring agreements and endorsements,
with the exception of limits of liability, shall operate in the manner as if
there were a separate policy covering each insured. The Lessee shall, at its own
expense, make or cause to be made all proofs of loss and take all other steps
necessary to collect the proceeds of such insurance.
Section 11.4. Reports. The Lessee shall furnish the Lessor,
the Owner Participant and, so long as the Lien of the Indenture shall not have
been terminated or discharged, the Indenture Trustee and the Pass Through
Trustees annually with a report signed by a Responsible Officer of the Lessee
identifying all insurance coverages in place and certifying that (a) all
premiums in respect of such policies are current and (b) that it is in
compliance with all insurance requirements set forth in Section 11. Within 10
Business Days after expiration and renewal of any insurance policy required to
be maintained pursuant to this Section 11, the Lessee shall provide the Lessor,
the Owner Participant, and, so long as the Lien of the Indenture shall not have
been terminated or discharged, the Indenture Trustee certificates from insurance
brokers or carriers to the effect that such policy is in effect and in the case
of policies maintained pursuant to Sections 11.1 and 11.2, indicating their
status as additional insureds.
Section 11.5. Additional Insurance by Lessor. At any time the
Lessor (either directly or in the name of the Owner Participant), the Owner
Participant or the Indenture Trustee may at its own expense and for its own
account carry insurance with
25
30
respect to its interest in the Undivided Interest; provided, that such insurance
does not in any way interfere with the Lessee's ability to obtain insurance with
respect to the Undivided Interest required by this Section 11. Any insurance
payments received from policies maintained by the Lessor, the Owner Participant
or the Indenture Trustee pursuant to the previous sentence shall be retained by
such Person without reducing the Lessee's obligations hereunder.
Section 11.6. Amendment of Requirements. (a) If any insurance
required to be maintained by the Lessee pursuant to Section 11.1 or 11.2
(including the limits or deductibles or any other terms under policies for such
insurance) ceases to be available on a commercially reasonable basis at the time
of renewal, the Lessee shall provide written notice to the Lessor accompanied by
a letter from the Lessee's insurance broker stating that such insurance is
unavailable on a commercially reasonable basis. Such notice shall be given not
less than 30 days prior to the scheduled date for renewal of any such policy.
Upon receipt of such notice by the Lessor, the Lessor and the Lessee shall
immediately enter into good faith negotiations in order to obtain an alternative
to such insurance.
(b) In the event that the Lessor and the Lessee cannot reach a
resolution acceptable to both parties within 5 days of receipt of such notice by
the Lessor, the Lessor and the Lessee shall make arrangements for the formation
of an insurance panel consisting of the Lessee's insurance advisor (or broker),
the Lessor's insurance advisor (or broker) and an independent insurance expert
from an internationally recognized insurance brokerage firm, chosen by the
Lessor and reasonably acceptable to the Lessee. Such independent expert shall
conduct a separate review of the relevant insurance requirements of this Section
11 and the market for such insurance at the time, giving due consideration to
the representations of both insurance advisors, and upon conclusion of such
review shall issue a written report stating whether such insurance is available
or unavailable on a commercially reasonable basis.
(c) If the insurance expert concludes that such insurance is
not available on a commercially reasonable basis, the insurance expert shall
provide a written recommendation of the amount and type of insurance which is
available on a commercially reasonable basis not less than 15 days before the
date for renewal of such insurance. The Lessee shall, prior to the expiration of
the insurance then in effect, obtain such insurance that is then available on a
commercially reasonable basis. If the Pass Through Certificates shall be rated
at the time of renewal at least the rating in effect on the Closing Date, the
recommendation of the insurance expert shall be conclusive and binding upon the
Lessee and the Lessor and the Lessee shall, for the immediately succeeding 1
year policy period, only be required to carry the insurance that the expert has
certified is available on commercially reasonable basis. If the Pass Through
Certificates are rated at such time of renewal below the rating in effect on the
Closing Date and, in the reasonable judgment of the Lessor and the Owner
Participant, keeping the insurance coverage at the level that is available on a
commercially reasonable basis could reasonably be expected to result in a
Material Adverse Effect, the Lessee shall (i) comply with Section 11 without
regard to this Section 11.6 or (ii) obtain the insurance that is available on a
commercially reasonable basis and provide collateral or credit support for the
difference of a type and in an amount
26
31
reasonably satisfactory to the Lessor and the Owner Participant. For purposes
hereof, insurance will be considered "not available on a commercially reasonable
basis" if it is obtainable only at excessive costs which are not justified in
terms of the risk to be insured and is generally not being carried by or
applicable to facilities similar to the Facility because of such excessive
costs. All fees, costs and expenses associated with the insurance panel
(including the review by the insurance expert) shall be for the sole account of
the Lessee.
Section 11.7. Application of Insurance Proceeds. Insurance
proceeds shall be applied in the following order:
(a) all insurance proceeds in respect of a single casualty of
less than $25,000,000 shall be paid to or retained by the Lessee for
application in repair or replacement of the affected property;
(b) all insurance proceeds in respect of a single casualty in
excess of $25,000,000 shall be paid to the Lessor or, if the Lien of
the Indenture shall not have been terminated or discharged, the
Indenture Trustee and shall be applied and dealt with as follows:
(i) all such proceeds actually received on account of
any such damage or destruction, other than in connection with
an Event of Loss, shall be paid over to the Lessee or as it
may direct from time to time as restoration progresses, to pay
(or reimburse the Lessee for) the cost of restoration, if the
amount of such proceeds received by the Indenture Trustee or
the Lessor, together with such additional amounts, if any,
theretofore expended by the Lessee out of its own funds for
such restoration, are sufficient to pay the estimated cost of
completing such restoration, but only upon receipt by the
Lessor and, so long as the Lien of the Indenture shall not
have been terminated or discharged, the Indenture Trustee, of
a written application of the Lessee accompanied by (A) an
Officer's Certificate of the Lessee setting forth in
reasonable detail the nature of such restoration, the actual
cash expenditures made to date for such restoration and the
estimated cost to complete such restoration and stating that
no Lease Material Default or Lease Event of Default shall have
occurred and be then continuing and (B) confirmation by the
Independent Engineer that such restoration is technologically
feasible and economically viable; and
(ii) all such proceeds received or payable on account
of an Event of Loss shall, unless the Lessee has elected to
rebuild or restore the Facility, be dealt with in accordance
with Section 10.2(d).
Notwithstanding the foregoing provisions of this Section 11 or
Section 10, all insurance and condemnation proceeds referred to in this Section
11.7 or in Section 10 not required to be paid to the Lessor or the Indenture
Trustee shall be paid to the
27
32
Depositary Agent to be held in the Loss Proceeds Account in accordance with the
Depositary Agreement and shall be applied in accordance with this Section 11.7
or Section 10, as applicable, Section 6.2 of the Participation Agreement or
Section 3.11 of the Depositary Agreement, as applicable; provided, however, that
so long as a Lease Material Default or Lease Event of Default shall have
occurred and be then continuing, any such insurance or condemnation proceeds
that would otherwise be payable to or for the account of, or that would
otherwise be retained by, the Lessee pursuant to this Section 11 or Section 10
shall be held by the Lessor as security for the obligations of the Lessee under
this Lease and, at such time thereafter as no Lease Material Default or Lease
Event of Default shall be continuing, such amount shall be applied as set forth
above or in Section 10, as applicable.
SECTION 12
INSPECTION
During the Lease Term, the Lessor, the Owner Participant, and,
so long as the Lien of the Indenture shall not have been terminated or
discharged, the Indenture Trustee and the Pass Through Trustees, and their
representatives may, at their own expense (except, at the expense of the Lessee
when a Lease Bankruptcy Default or Lease Event of Default shall have occurred
and be then continuing), during normal business hours, on reasonable prior
notice to the Lessee, inspect the Facility and the records in the Lessee's
custody or to which the Lessee has access; provided, however, that any such
inspection will not interfere with the operation or maintenance of the Facility
or the conduct by the Lessee of its business and will be in accordance with the
Lessee's safety and insurance programs. The Owner Participant shall cooperate
with any Lessee effort to coordinate its inspection with each Other Owner
Participant. In no event shall the Lessor, the Owner Participant, the Indenture
Trustee or the Pass Through Trustees have any duty or obligation to make any
such inspection and such Persons shall not incur any liability or obligation by
reason of not making any such inspection. In addition, the Independent Engineer
shall have the same right to inspect the Facility and its records as the
aforementioned parties, which right, so long as no Lease Bankruptcy Default or
Lease Event of Default shall have occurred and be then continuing, shall not be
exercised on more than one occasion in any two-year period; such inspection
shall be at the expense of the Lessee.
SECTION 13
TERMINATION OPTION FOR BURDENSOME EVENTS
Section 13.1. Termination for Illegality. So long as no Lease
Bankruptcy Default or Lease Event of Default shall have occurred and be then
continuing, if it shall have become illegal for the Lessee to continue this
Lease (or for any Other Lessee or Related Lessee, under any Other Lease or
Related Lease in which the Owner Participant
28
33
(or any Affiliate thereof) has an interest, to continue such Other Lease or
Related Lease) or for the Lessee (or such Other Lessee or Related Lessee) to
make payments under this Lease (or such Other Lease or Related Lease) (other
than as a result of events caused by the Lessee or any Affiliate thereof with a
purpose to enable the Lessee to have the right to exercise an option to purchase
the Undivided Interest) and the transactions contemplated thereby cannot be
restructured in a manner reasonably acceptable to the Lessee (or such Other
Lessee or Related Lessee), the Lessee shall have the right, at its option
(unless, in the case of an illegality under such Other Lease or Related Lease,
the "Owner Participant" thereunder shall have waived the requirement to
terminate this Lease), by giving written notice to the Lessor, the Owner
Participant, and, so long as the Lien of the Indenture shall not have been
terminated or discharged, the Indenture Trustee, in each case no later than 180
days after the date of the Lessee's Actual Knowledge of such illegality, to
terminate this Lease on the date specified in such notice (which shall be a
Termination Date occurring not less than 60 nor more than 90 days after the date
of such notice) and purchase the Lessor's Interest by paying the Lessor the
Burdensome Buyout Price determined as of such Termination Date and all other
amounts required to be due and payable under Section 13.3, provided, that unless
the Owner Participant shall have waived such requirement (in its sole
discretion), the Lessee shall have exercised a similar right with respect to all
Other Leases and Related Leases in which the Owner Participant (or any
Affiliates thereof) has an interest.
Section 13.2. Termination for Burdensome Indemnity. (a) If, so
long as no Lease Bankruptcy Default or Lease Event of Default shall have
occurred and be then continuing, (I) (i) one or more events (other than as a
result of events caused by the Lessee or any Affiliate thereof with a purpose of
enabling the Lessee to have the right to exercise an option to purchase an
Undivided Interest) shall have occurred which have or will give rise to one or
more obligations of the Lessee to make indemnification or other payments under
the Operative Documents (other than the Tax Indemnity Agreement), including in
respect of or as a result of past (limited to three years) or future indemnity
or other payments (and one or more Indemnified Parties shall have validly
claimed by notice given to the Lessee that such indemnity or similar payments
are or will become due), (ii) such indemnity obligation referenced in clause (i)
(and the underlying cost or tax) can be avoided (as to such Indemnified Party
and any Person to whom the Lessor may sell the Lessor's Interest as contemplated
hereby) in whole or in substantial part if this Lease is terminated and the
Lessor sells the Lessor's Interest and (iii) the aggregate amount of all such
avoided payments would exceed (on a present value basis, discounted at the
Discount Rate, compounded on a semi-annual basis (from, in the case of future
payments, the date or dates on which such payments would otherwise be due) to
the date of the termination) 3% of the Purchase Price for such Undivided
Interest (unless the Owner Participant or other Person entitled to receive such
payments has waived its right to "excess" payments or arranged for its own
account the payment thereof), or (II) any Other Lessee or Related Lessee under
any Other Lease or Related Lease in which the Owner Participant (or any
Affiliate thereof) has an interest shall have the right to exercise similar
rights with respect to such Other Lease or Related Lease, then the Lessee shall
have the right, at its option (so long as the Owner Participant shall not have
waived its rights as
29
34
aforesaid in the case of this Lease, or, in the case of such indemnity
obligation under such Other Lease or Related Lease, the "Owner Participant"
thereunder shall have waived the requirement to terminate this Lease), no later
than 180 days after the date the Lessee's Actual Knowledge of such indemnity
obligation, to terminate this Lease on the date specified in such notice (which
shall be a Termination Date occurring not less than 30 days nor more than 90
days after the date of such notice) and purchase the Lessor's Interest by paying
the Burdensome Buyout Price determined as of such Termination Date and all other
amounts required to be due and payable under Section 13.3, provided, that unless
the Owner Participant shall have waived such requirement (in its sole
discretion), the Lessee shall have exercised the similar right with respect to
such Other Leases and, unless the Pass Through Certificates shall at the time of
such exercise have a credit rating of not less than Investment Grade, such
Related Leases.
(b) If either the projected costs of the responsive action
determined pursuant to Section 5.5(d) or the amount required to be transferred
to the Indemnity Account pursuant to Section 5.5(e) shall exceed $10 million,
the Lessee shall have the right, at its option (so long as the Owner Participant
shall not have waived compliance with Section 5.5 and Section 5.5 of the Other
Leases in which the Owner Participant (or any Affiliate thereof) has an
interest), by giving written notice to the Lessor and the Owner Participant, in
each case no later than 90 days prior to the Lease Expiration Date, to terminate
this Lease on the date specified in such notice (which shall be a Termination
Date occurring not less than 30 days nor more than 60 days after the date of
such notice) and purchase the Lessor's Interest by paying the Lessor the
Burdensome Buyout Price determined as of such Termination Date and all other
amounts required to be due and payable under Section 13.3, provided, that unless
the Owner Participant shall have waived such requirement (in its sole
discretion), the Lessee shall have exercised the similar right with respect to
such Other Leases), at which point the Lessee's obligations under Section 5.5
shall cease.
Section 13.3. Procedure for Exercise of Termination Option.
(a) If the Lessee shall have exercised its option under Section 13.1 or 13.2, on
the Termination Date specified in the Lessee's notice of such exercise, the
Lessee shall pay (i) all amounts of Supplemental Rent (including all reasonable
out-of-pocket expenses of the Lessor, the Owner Participant, the Indenture
Trustee and the Pass Through Trustees, all sales, use, value added and other
Taxes covered by Section 10.2 of the Participation Agreement associated with the
exercise of the termination option pursuant to this Section 13 and all indemnity
amounts not obviated by the termination) due and payable on or prior to the
Termination Date and (ii) any unpaid Basic Rent due before (together with any
Deferrable Payments due on or before) such Termination Date and, if such
Termination Date shall be a Rent Payment Date, the Basic Rent (to the extent
payable in arrears) due and payable on such Rent Payment Date.
(b) Concurrently with the payment of all sums specified in
Section 13.1 or 13.2, as the case may be, and this Section 13.3, (i) Basic Rent
for the Undivided Interest shall cease to accrue, (ii) the Lessee shall cease to
have any liability to the Lessor with respect to the Undivided Interest, except
for Supplemental Rent and other obligations
30
35
(including those under Section 10 of the Participation Agreement) surviving
pursuant to the express terms of any Operative Document, (iii) the Lessor shall,
subject to Section 13.4, pay all outstanding principal and accrued interest on
the Lessor Notes and the Lessee shall pay all other amounts due under the
Indenture (including the premium, if any, due in respect of the Lessor Notes),
(iv) the Lessor shall execute and deliver to the Lessee, to be prepared (and
where appropriate recorded and filed) at the Lessee's expense, a release or
termination of this Lease and any Memorandum of Lease, (v) the Lessor shall
transfer the Lessor's Interest to the Lessee on an "as is," "where is" and "with
all faults" basis, without representations or warranties other than a warranty
as to the absence of Lessor's Liens and a warranty of the Owner Participant as
to the absence of Owner Participant's Liens, (vi) the Lease Term shall terminate
and (vii) the Lessor shall deliver appropriate releases and other documents or
instruments necessary or desirable to effect the foregoing, all to be prepaid,
filed and recorded (if appropriate) at the cost and expense of the Lessee.
(c) If the Lessee fails to consummate the termination option
under this Section 13 after giving notice of its intention to do so, (i) this
Lease shall continue, (ii) such failure to consummate shall not constitute a
default under this Lease, and (iii) (other than in consequence of a failure of
the Owner Participant to fulfill their obligations under this Section 13) the
Lessee shall lose its right to terminate this Lease pursuant to this Section
13.3 as a result of such event or condition during the remainder of the Lease
Term.
(d) Anything to the contrary in this Section 13
notwithstanding, no termination pursuant to this Section 13 shall be effective
(regardless of whether the Lessor shall elect to retain or sell the Undivided
Interest in connection with such proposed termination) unless and until the
Lessee shall have assumed the Lessor Notes pursuant to Section 13.4 or the
Lessor shall have paid all outstanding principal and accrued interest on the
Lessor Notes and all other amounts due under the Indenture on such proposed date
of termination.
Section 13.4. Assumption of the Lessor Notes. Notwithstanding
the foregoing provisions of Section 13.1 and 13.2, if (a) the Lessee shall have
assumed the Lessor Notes as permitted by and in accordance with Section 2.10(b)
of the Indenture, and all other conditions contained in such Section 2.10(b)
shall have been satisfied, and (b) the Lessee shall have purchased the Lessor's
Interest pursuant to Section 13.1 or 13.2, as the case may be, then the
obligation of the Lessee to pay the Termination Value as provided therein shall
be reduced by the then scheduled outstanding principal amount of and accrued
interest, if any, on the Lessor Notes so assumed by the Lessee.
Section 13.5. Revocation of Termination Notice. The Lessee
may, at its election, revoke its notice of termination under Section 13.2 on at
least 60 days' prior notice to the Lessor, the Owner Participant and, so long as
the Lien of the Indenture Trustee shall not have been terminated or discharged,
the Indenture Trustee and the Pass Through Trust Trustees, in which event this
Lease shall continue with respect to the Undivided Interest. Subject to the
conditions set forth in Sections 13.1 and 13.2, the
31
36
Lessee shall have the right to re-initiate a notice to terminate pursuant to
Section 13 at any time.
SECTION 14
TERMINATION FOR OBSOLESCENCE
Section 14.1. Termination. Upon at least 6 months' prior
written notice to the Lessor, the Owner Participant and, so long as the Lien of
the Indenture shall not have been terminated or discharged, the Indenture
Trustee and the Pass Through Trustees (which notice shall contain a
certification by the board of directors of the Lessee's General Partner, as to
one or more of the matters described in clauses (a) or (b) below and shall set
forth in reasonable detail the basis on which it is exercising its termination
option), the Lessee shall have the option, so long as no Lease Bankruptcy
Default or Lease Event of Default shall have occurred and be then continuing, to
terminate this Lease on any Termination Date occurring on or after the seventh
anniversary of the Closing Date (the date of termination selected by the Lessee
being the "Obsolescence Termination Date") on the terms and conditions set forth
in this Section 14 if, (a) the Facility is then economically or technologically
obsolete as a result of a change in Applicable Law (including any regulation or
tariff of general application), as determined in good faith by the board of
directors of the Lessee's General Partner, or (b) the Facility is otherwise
economically or technologically obsolete or is surplus to the Lessee's needs or
is no longer useful in its trade or business (including, without limitation, as
a result of (i) a change in the markets for the wholesale purchase and/or sale
of energy or (ii) any material abrogation by any purchaser under a power
purchase agreement, as determined in good faith by the board of directors of the
Lessee's General Partner, provided, that in each case a similar determination
has been made with respect to all Other Leases and all Related Leases.
Section 14.2. Solicitation of Offers. If the Lessee shall give
the Lessor and the Owner Participant notice pursuant to Section 14.1 and the
Lessor shall not have elected to retain the Lessor's Interest pursuant to
Section 14.3, the Lessee shall, as non-exclusive agent for the Lessor, use its
commercially reasonable efforts to obtain bids and sell the Lessor's Interest on
the Obsolescence Termination Date, all of the proceeds of which will be for the
account of the Lessor; provided, however, that so long as the Lien of the
Indenture shall not have been terminated or discharged, the proceeds of such
sale shall be paid directly to the Indenture Trustee. The Lessor shall also have
the right to obtain bids for the sale of the Lessor's Interest either directly
or through agents other than the Lessee. At least 90 days prior to the
Obsolescence Termination Date the Lessee shall certify to the Lessor each bid or
offer, the amount and terms thereof and the name and address of the party (which
shall not be the Lessee, any Affiliate or any third party with whom it or an
Affiliate has an arrangement to use or operate the Facility to generate power
for the benefit of the Lessee or such Affiliate after the termination of this
Lease) submitting such bid or offer.
32
37
Section 14.3. Right of Lessor to Retain the Lessor's Interest.
The Lessor may irrevocably elect to retain, rather than sell, the Lessor's
Interest by giving notice to the Lessee at least 90 days prior to the
Obsolescence Termination Date. If the Lessor elects to retain the Lessor's
Interest pursuant to this Section 14.3, on the Termination Date (a) the Lessee
shall pay to the Lessor all Supplemental Rent (including all reasonable
out-of-pocket costs and expenses of the Lessor, the Owner Participant, the
Indenture Trustee and the Pass Through Trustees (excluding the fees and costs of
any broker unless engaged by the Lessee on the Lessor's behalf) and all sales,
use, value added and other Taxes covered by Section 10.2 of the Participation
Agreement associated with the exercise of the termination option pursuant to
this Section 14.3) due and payable on such Obsolescence Termination Date and (b)
the Lessee shall pay to the Lessor any unpaid Basic Rent due before (together
with any Deferrable Payments due on or before) such Obsolescence Termination
Date and, if such Obsolescence Termination Date shall be a Rent Payment Date,
the Basic Rent (to the extent payable in arrears) due and payable on such Rent
Payment Date, but shall not be required to pay Termination Value. Concurrently
with the payment of all sums required to be paid pursuant to this Section 14.3,
(i) Basic Rent for the Undivided Interest shall cease to accrue, (ii) the Lessee
shall cease to have any liability to the Lessor with respect to the Undivided
Interest, except for Supplemental Rent and other obligations (including, without
limitation, those under Section 10 of the Participation Agreement) surviving
pursuant to the express terms of any Operative Document, (iii) the Lessor shall
pay all outstanding principal and accrued interest on the Lessor Notes and the
Lessee shall pay all other amounts due under the Indenture (including any
premium due in connection with the Lessor Notes) and, (iv) the Lessee shall
return the Undivided Interest to the Lessor in accordance with Section 5, (v)
the Lease Term shall terminate and the Lessee shall be relieved of any further
obligation to pay Termination Value hereunder and (vi) the Lessor shall execute
and deliver appropriate releases and other documents or instruments necessary or
desirable to effect the foregoing, all to be prepaid, filed and recorded (if
appropriate) at the expense of the Lessee.
Section 14.4. Procedure for Exercise of Termination Option.
(a) If the Lessor has not elected to retain the Lessor's Interest in accordance
with Section 14.3, on the Obsolescence Termination Date the Lessor shall sell
the Lessor's Interest to the bidder or bidders (which shall not be the Lessee,
any Affiliate thereof or any third party with whom the Lessee or any Affiliate
thereof has an arrangement to use or operate the Facility to generate power for
the benefit of the Lessee or such Affiliate after the termination of this Lease)
that shall have submitted the highest cash bid or bids with respect to the
Lessor's Interest, and the Lessee shall certify to the Lessor and the Owner
Participant that such buyer is not the Lessee, any Affiliate thereof or any
third party with whom the Lessee or any Affiliate thereof has an arrangement to
use or operate the Facility to generate power for the Lessee or such Affiliate's
benefit after the termination of this Lease.
(b) On the Obsolescence Termination Date, the Lessee shall pay
to the Lessor (i) the excess, if any, of Termination Value determined as of such
Obsolescence Termination Date over the total sales price of the Lessor's
Interest paid to or retained by the Lessor, after deducting from the sales price
the expenses, if any, incurred by or on behalf of the Lessor and the Owner
Participant in connection with such sale, plus (ii) any
33
38
unpaid Basic Rent due before (together with any Deferrable Payments due on or
before) such Obsolescence Termination Date and, if such Termination Date shall
be a Rent Payment Date, any Basic Rent (to the extent payable in arrears) due
and payable on such Rent Payment Date, plus (iii) all amounts of Supplemental
Rent (including all reasonable out-of-pocket costs and expenses of the Lessor,
the Owner Participant, the Indenture Trustee and the Pass Through Trustees
(excluding the fees and costs of any broker unless engaged by the Lessee on the
Lessor's behalf) and all sales, use, value added and other Taxes covered by
Section 10.2 of the Participation Agreement associated with the exercise of the
termination option pursuant to this Section 14) due and payable on such
Obsolescence Termination Date, plus (iv) any premium due with respect to the
Lessor Notes.
(c) Concurrently with the payment of all sums required to be
paid pursuant to this Section 14.4, (i) Basic Rent for the Undivided Interest
shall cease to accrue, (ii) the Lessee shall cease to have any liability
hereunder to the Lessor with respect to the Undivided Interest, except for
Supplemental Rent and other obligations (including Section 10.1 of the
Participation Agreement) surviving pursuant to the express terms of any
Operative Document, (iii) the Lessor shall prepay the Lessor Notes pursuant to
Section 2.10 of the Indenture, (iv) the Lessor shall transfer (by an appropriate
instrument of transfer in form and substance reasonably satisfactory to the
Lessor and prepared and recorded at the Lessee's expense) the Lessor's Interest,
to the purchaser on an "as is", "where is" and "with all faults" basis, without
representations or warranties other than a warranty as to the absence of
Lessor's Liens and a warranty of the Owner Participant as to the absence of
Owner Participant's Liens, (v) the Lease Term shall terminate and the Lessee
shall be relieved of any further obligation to pay Termination Value hereunder
and (vi) the Lessor shall execute and deliver appropriate releases and other
documents or instruments necessary or desirable to effect the foregoing, all to
be prepaid, filed and recorded (if appropriate) at the expense of the Lessee.
(d) Unless the Lessor shall have elected to retain the
Lessor's Interest pursuant to Section 14.3 or the Lessor, with the consent of
the Lessee, shall have entered into a legally binding contract to sell the
Lessor's Interest, the Lessee may, at its election, revoke its notice of
termination on at least 30 days' prior notice to the Lessor, the Owner
Participant and, so long as the Lien of the Indenture shall not have been
terminated or discharged, the Indenture Trustee and the Pass Through Trustees in
which event this Lease shall continue with respect to the Undivided Interest;
provided, that the Lessee shall not have the right to re-initiate a notice to
terminate pursuant to Section 14.1 more than once in any five-year period.
(e) The Lessor shall be under no duty to solicit bids, to
inquire into the efforts of the Lessee to obtain bids or otherwise take any
action in arranging any such sale of the Lessor's Interest other than, if the
Lessor has not elected to retain the Lessor's Interest, to transfer the Lessor's
Interest in accordance with Section 14.4(c)(iv).
(f) If no sale shall occur on the Termination Date, the notice
of termination shall be deemed revoked and this Lease shall continue as to the
Undivided
34
39
Interest in full force and effect in accordance with its terms (subject to
paragraph (d) above, without prejudice to the Lessee's right to exercise its
rights under this Section 14).
(g) Anything to the contrary in this Section 14
notwithstanding, no termination pursuant to this Section 14 shall be effective
(regardless of whether the Lessor shall elect to retain or sell the Lessor's
Interest in connection with such proposed termination) unless and until the
Lessor shall have paid all outstanding principal and accrued interest on the
Lessor Notes, and the Lessee shall have paid all other amounts due under the
Indenture (including any premium due in respect of the Lessor Notes) on such
proposed date of termination.
SECTION 15
LEASE RENEWAL
Section 15.1. Evergreen Renewal Term. (a) Not earlier than 36
months (nor less than 18 months) prior to the Lease Expiration Date, unless a
Lease Bankruptcy Default or Lease Event of Default shall have occurred and be
then continuing, the Lessee may deliver to the Lessor notice (which notice may
be in addition to a notice of the Lessee's tentative interest in electing a FMV
Renewal Term under Section 15.2) of the Lessee's tentative interest in renewing
this Lease for a term (the "Evergreen Renewal Term") commencing on the day
following the Lease Expiration Date and ending on the earlier of (i) the latest
date as of which the estimated fair market value of the Undivided Interest, as
determined by the Appraisal Procedure, shall equal 20% of the Purchase Price
(without taking into account inflation or deflation subsequent to the Closing
Date) and (ii) the date as of which the sum of the number of years of the
proposed Evergreen Renewal Term and the Lease Fixed Term shall equal 75% of the
estimated economic useful life of the Undivided Interest (measured from the
Closing Date) (minus one day) as determined by such Appraisal Procedure (the
earlier of the dates described in clauses (i) and (ii) above, the "Initial
Evergreen Renewal Termination Date"). The Appraisal Procedure referred to in
clauses (i) and (ii) of the preceding sentence shall be conducted subsequent to
the Lessee's notice of its tentative interest in renewing this Lease for the
Evergreen Renewal Term, and any costs of such appraisal (and any appraisal in
respect of the FMV Renewal Term performed at the same time) shall be paid by the
Lessee.
(b) Unless the Lessee shall have elected to renew this Lease
for a FMV Renewal Term under Section 15.2, and provided that no Lease Bankruptcy
Default or Lease Event of Default shall have occurred and be continuing on any
such notice date or on the Lease Expiration Date, on or prior to 18 months
before the Lease Expiration Date, the Lessee may deliver to the Lessor a further
notice irrevocably electing to renew this Lease for the Evergreen Renewal Term
determined as aforesaid and the Evergreen Renewal Term shall thereupon take
effect as provided herein.
(c) The Lessee shall have the further option to renew this
Lease at the end of the initial Evergreen Renewal Term described above for one
additional ▇▇▇▇▇▇▇▇▇
▇▇
▇▇
▇▇▇▇▇▇▇ ▇▇▇▇ of at least 2 years in accordance with, and subject to, compliance
with the provisions of, this Section 15.1; provided, however, that the Lessee's
notice of its tentative interest in renewing this Lease for an additional
Evergreen Renewal Term shall be given not earlier than 36 months (nor less than
18 months) prior to the Initial Evergreen Renewal Termination Date and the
irrevocable notice electing to renew this Lease for an additional Evergreen
Renewal Term shall be given not later than 12 months prior to the Initial
Evergreen Renewal Termination Date; provided further, however, that if as a
result of the Appraisal Procedure described in Section 15.1 (a) (completed not
later than 10 months prior to the Initial Evergreen Renewal Termination Date),
the term of the additional Evergreen Renewal Term would be less than two years,
such irrevocable notice shall, without further act, be deemed to be an
irrevocable notice under Section 15.2 for a FMV Renewal Term of 2 years. The
earlier of the dates described in clauses (i) and (ii) of Section 15.1(a) as
they relate to the additional Evergreen Renewal Term is herein referred to as
the "Additional Evergreen Renewal Termination Date."
Section 15.2. Fair Market Value Renewal Terms. Not earlier
than 36 months (nor less than 18 months) prior to the Lease Expiration Date or,
if applicable, the date of the expiration of any Renewal Term, unless a Lease
Bankruptcy Default or Lease Event of Default shall have occurred and be then
continuing, the Lessee may deliver to the Lessor notice (which notice may be in
addition to a notice of the Lessee's tentative interest in electing the initial
or the additional Evergreen Renewal Term) of the Lessee's tentative interest in
renewing this Lease for a term (each such term, a "FMV Renewal Term") commencing
on the day following the last day of the Lease Basic Term or the Renewal Term
otherwise expiring and extending for no less than 4 years; provided, however,
that unless such FMV Renewal Term extends to the end of the Site Lease Term, no
such FMV Renewal Term shall extend beyond the date that is 5 years prior to the
end of the Site Lease Term (as set forth in the Site Lease (as extended)).
Unless the Lessee shall have irrevocably elected to renew this Lease for the
initial or the additional Evergreen Renewal Term under Section 15.1 (and such
Evergreen Renewal Term commences on the same date that the FMV Renewal Term is
scheduled to commence), and provided that no Lease Bankruptcy Default or Lease
Event of Default shall have occurred and be continuing on the date of expiration
of the existing Lease Term, on or prior to 18 months before the expiration of
the existing Lease Term or the relevant Renewal Term, as the case may be, the
Lessee may deliver to the Lessor a further notice irrevocably electing to renew
this Lease for the FMV Renewal Term tentatively elected as aforesaid and the FMV
Renewal Term shall thereupon take effect as provided herein.
Section 15.3. Renewal Rent and Termination Values for Renewal
Term.
(a) Renewal Rent shall be paid in arrears on each January 2
and July 2 during each Renewal Term.
(b) The installment of Renewal Rent payable in arrears on each
such Rent Payment Date during any Evergreen Renewal Term shall be equal to the
lesser of (i) the Fair Market Rental Value for such term determined in
accordance with Section 15.4 and (ii) an amount equal to 50% of the quotient
obtained by dividing (A) the sum of the
36
41
actual amounts of Basic Rent (including Deferrable Basic Rent, but excluding
Deferrable Interest) payable on each Rent Payment Date during the Lease Fixed
Term (without including in such Basic Rent any amount attributable to
adjustments to Basic Rent pursuant to clause (i) of Section 3.6(a) and, unless
the applicable Modifications were financed with Additional Equity Investments,
clause (ii) of Section 3.6(a)) by (B) the number of Rent Payment Dates occurring
during the Lease Fixed Term.
(c) Renewal Rent payable on each Rent Payment Date during any
FMV Renewal Term for the Undivided Interest shall be equal to the Fair Market
Rental Value thereof determined in accordance with Section 15.4.
(d) The Termination Value of the Undivided Interest at the
commencement of any Renewal Term shall be (i) for the first such Renewal Term,
an amount equal to the higher of (A) 25% of the Purchase Price and (B) the then
Fair Market Sales Value of the Undivided Interest, and (ii) for all subsequent
Renewal Terms, an amount equal to then Fair Market Sales Value of the Undivided
Interest.
Section 15.4. Determination of Fair Market Rental Value. The
Fair Market Rental Value of the Undivided Interest as of the commencement of any
Renewal Term shall be determined by agreement of the Lessor and the Lessee
within six months after receipt by the Lessor of the tentative notice from the
Lessee of its election to renew pursuant to Section 15.1 or 15.2 (but not more
than 36 months before the commencement of such Renewal Term) or, if they shall
fail to agree within such six month period, shall be determined by an appraisal
conducted according to the Appraisal Procedure not more than 36 months before
the commencement of such Renewal Term. The appraiser's fees and expenses shall
be borne equally by the Lessee and the Lessor.
Section 15.5. Concurrent Renewals. Notwithstanding the
foregoing, the Lessee's right to exercise any Renewal Option pursuant to Section
15.1 or Section 15.2 shall be conditioned upon the Lessee concurrently
exercising the corresponding renewal option under the Other Leases in which the
Owner Participant (or any Affiliate thereof) has an interest.
SECTION 16
EVENTS OF DEFAULT
Any of the following events shall constitute a "Lease Event of
Default" hereunder (whether any such event shall be voluntary or involuntary or
come about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree or order of any court or any order, rule or regulation
of any Governmental Entity):
(a) The Lessee shall fail to make any payment of Basic Rent
(other than Deferrable Payments, but only to the extent provided in
Section 3.4) or
37
42
Termination Value, in each case within 5 Business Days after the same
shall become due.
(b) The Lessee shall fail to make any payment of Supplemental
Rent (other than Termination Value and, unless the Owner Participant
shall have declared a default with respect thereto, Excepted Payments)
after the same shall have become due and such failure shall have
continued for a period of 30 days after receipt by the Lessee of
written notice of such failure from the Owner Participant, the Lessor
or the Indenture Trustee, provided, however, that, in the case of any
failure to make any indemnity payment (or any portion thereof or
interest thereon), if sufficient available funds are not then on
deposit in the Indemnity Account for such payment, then the period
within which to remedy such failure shall be extended to up a date five
(5) days following the date such funds are on deposit in the Indemnity
Account for the payment of such indemnity (or portion thereof or
interest thereon) in accordance with the Depositary Agreement.
(c) The Lessee shall fail to maintain insurance in the amounts
and on the terms set forth in Section 11.
(d) The Lessee shall fail to perform or observe any covenant,
obligation or agreement to be performed or observed by it under this
Lease or any other Operative Document, including without limitation any
covenant made by the Lessee herein or in Section 5 of the Participation
Agreement with respect to any AEE Entity (other than any covenant,
obligation or agreement contained in the Tax Indemnity Agreement or
Section 5.12 of the Participation Agreement or any covenant, obligation
or agreement referred to in clause (a), (b), (c), or (e) of this
Section 16) in any material respect, which shall continue unremedied
for 30 days after receipt by the Lessee of written notice thereof by
the Lessor or the Indenture Trustee; provided, however, that if such
condition cannot be remedied within 30 days, then the period within
which to remedy such failure shall be extended up to an additional 180
days, so long as the Lessee diligently pursues such remedy and such
condition is reasonably capable of being remedied within such
additional 180-day period.
(e) The Lessee shall fail to perform or observe in any
material respect its obligations set forth in Section 6 of the
Participation Agreement.
(f) Any representation or warranty made by the Lessee in the
Operative Documents (other than a Tax Representation) or in any Funding
Date Certificates (as defined in the Depositary Agreement), including
without limitation any representation or warranty made by the Lessee in
Section 3 of the Participation Agreement with respect to the Lessee or
any AEE Entity, shall prove to have been incorrect in any material
respect when made and continues to be material and unremedied for a
period of 30 days after receipt by the Lessee of written notice thereof
by the Lessor or the Indenture Trustee; provided, however, that if such
condition cannot be remedied within 30 days, then the period within
38
43
which to remedy such condition shall be extended up to an additional
180 days, so long as the Lessee diligently pursues such remedy and such
condition is reasonably capable of being remedied within such
additional 180-day period.
(g) The Lessee, AES NY or AEE 2 shall (i) commence a voluntary
case or other proceeding seeking relief under Title 11 of the
Bankruptcy Code or liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect, or apply for or consent
to the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property,
or (ii) consent to, or fail to controvert in a timely manner, any such
relief or the appointment of or taking possession by any such official
in any voluntary case or other proceeding commenced against it, or
(iii) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, or (iv) make a general
assignment for the benefit of creditors; or (v) shall take any action
to authorize any of the foregoing.
(h) An involuntary case or other proceeding shall be commenced
against the Lessee, AES NY or AEE 2, seeking (i) liquidation,
reorganization or other relief with respect to it or its debts under
Title 11 of the Bankruptcy Code or any bankruptcy, insolvency or other
similar law now or hereafter in effect, or (ii) the appointment of a
trustee, receiver, liquidator, custodian or other similar official with
respect to it or any substantial part of its property or (iii) the
winding-up or liquidation of the Lessee or AES NY or AEE 2; and such
involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 90 days.
(i) The holder of any Permitted Indebtedness of AEE or any AEE
Subsidiary in an aggregate principal amount in excess of $20,000,000
shall have commenced the exercise of any remedies upon a default and
declared such indebtedness due and payable prior to the date on which
it would otherwise have become due and payable, and otherwise
accelerated the indebtedness; provided, however, that a default with
respect to any Other Lease or Related Lease will not result in a Lease
Event of Default.
(j) One or more judgments or decrees shall be entered against
the Lessee, AES NY or AEE 2 involving in the aggregate a liability (not
paid or fully covered by insurance) of $25,000,000 or more and all such
judgments or decrees shall not have been vacated, discharged, or stayed
or bonded pending appeal within 60 days after the entry thereof.
(k) at any time after the Closing Date:
(i) AES shall cease to own or control, directly or
indirectly, at least 51% of the voting and economic interests
in the Lessee, which interests shall be free and clear of all
Liens; or
39
44
(ii) AES shall cease to own or control, directly or
indirectly, at least 51% of the voting and economic interests
in AES NY, which interests shall be free and clear of all
Liens; or
(iii) AES shall cease to own or control, directly or
indirectly, 51% of the voting and economic interests in AES
NY3, which interests shall be free and clear of all Liens; or
AES NY3 shall cease to own or control, directly or indirectly,
100% of the voting and economic interests in Somerset
Railroad, which interests shall be free and clear of all Liens
other than any Lien created in connection with the Rail Credit
Facility or any facility replacing, refunding or refinancing
the Rail Credit Facility; or
(iv) the Lessee shall cease to own and control,
directly or indirectly, 100% of the voting and economic
interests in each of the AEE Subsidiaries, which interests
shall be free and clear of all Liens, other than any Lien
created in connection with the Working Capital Facility or any
facility replacing, refunding or refinancing the Working
Capital Facility and any other Liens securing Permitted
Secured Indebtedness.
(1) The Lessee shall fail (i) to cause the Rent Reserve
Account to be funded in an amount at least equal to the Rent Reserve
Account Required Balance either through amounts available pursuant to a
Payment Undertaking Agreement, through amounts on deposit in the Rent
Reserve Account or through a combination thereof, on three consecutive
Rent Payment Dates (after giving effect to the payment of Basic Rent
(other than Deferrable Payments) on such dates) or (ii) at any time
after the payment in full of the Lessor Notes, to cause the Additional
Liquidity Account to be funded in accordance with the Depositary
Agreement in an amount at least equal to the Additional Liquidity
Required Balance, on three consecutive Rent Payment Dates (after giving
effect to the payment of Basic Rent on such dates).
(m) The certificate of formation, operating agreement or
partnership agreement or such other organizational document of AEE, AES
NY or AES NY3, as applicable, shall be amended, changed, modified or
supplemented in any material respect.
SECTION 17
REMEDIES
Section 17.1. Remedies for Lease Event of Default. Upon the
occurrence of any Lease Event of Default and at any time thereafter so long as
the same shall be continuing, the Lessor may, at its option, declare this Lease
to be in default by written notice to the Lessee; provided, however, that upon
the occurrence of a Lease Bankruptcy Default, this Lease shall automatically be
deemed to be in default without the need for
40
45
giving any notice; provided further, however, that at any time thereafter, so
long as the Lessee shall not have remedied all outstanding Lease Events of
Default, the Lessor may do one or more of the following as the Lessor in its
sole discretion shall elect, to the extent permitted by, and subject to
compliance with any mandatory requirements of, Applicable Law then in effect:
(a) proceed by appropriate court action or actions, either at
law or in equity, to enforce performance by the Lessee, at the Lessee's sole
expense, of the applicable covenants and terms of this Lease or to recover
damages for breach thereof;
(b) by notice in writing to the Lessee, terminate this Lease
whereupon all right of the Lessee to the possession and use of the Undivided
Interest under this Lease shall absolutely cease and terminate but the Lessee
shall remain liable as hereinafter provided; and thereupon, the Lessor may
demand that the Lessee, and the Lessee shall, upon written demand of the Lessor
and at the Lessee's sole expense, forthwith return possession of the Undivided
Interest to the Lessor in the manner and condition required by, and otherwise in
accordance with, all of the provisions of Section 5, except those provisions
relating to periods of notice; and the Lessor may thenceforth hold, possess and
enjoy the same free from any right of the Lessee, or its successor or assigns,
to use the Undivided Interest for any purpose whatsoever;
(c) sell the Lessor's Interest at public or private sale, as
the Lessor may determine, free and clear of any rights of the Lessee under this
Lease and without any duty to account to the Lessee with respect to such sale or
for the proceeds thereof (except to the extent required by paragraph (f) below
if the Lessor elects to exercise its rights under said paragraph and by
Applicable Law), in which event the Lessee's obligation to pay Basic Rent
hereunder due for any periods subsequent to the date of such sale shall
terminate (except to the extent that Basic Rent is to be included in
computations under paragraph (f) below if the Lessor elects to exercise its
rights under said paragraph);
(d) hold, keep idle or lease to others the Lessor's Interest
as the Lessor in its sole discretion may determine, free and clear of any rights
of the Lessee under this Lease and without any duty to account to the Lessee
with respect to such action or inaction or for any proceeds with respect
thereto, except that the Lessee's obligation to pay Basic Rent with respect to
the Undivided Interest due for any periods subsequent to the date upon which the
Lessee shall have been deprived of possession and use of the Undivided Interest
pursuant to this Section 17 shall be reduced by the net proceeds, if any,
received by the Lessor from leasing the Undivided Interest to any Person other
than the Lessee;
(e) whether or not the Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under paragraph (b) above
with respect to the Undivided Interest, the Lessor, by written notice to the
Lessee specifying a Termination Date that shall be not earlier than 10 days
after the date such notice is sent, may demand that the Lessee pay to the
Lessor, and the Lessee shall pay to the Lessor, on the Termination Date
specified in such notice, any unpaid Basic Rent due before such
41
46
Termination Date and, if such Termination Date shall be a Rent Payment Date, any
Basic Rent (to the extent payable in arrears) due and payable on such Rent
Payment Date, any Supplemental Rent due and payable as of the payment date
specified in such notice, plus as liquidated damages for loss of a bargain and
not as a penalty (in lieu of the Basic Rent due after the Termination Date
specified in such notice), (i) an amount equal to the excess, if any, of the
Termination Value computed as of the Termination Date specified in such notice
over the Fair Market Sales Value of the Lessor's Interest as of the Termination
Date specified in such notice, or (ii) an amount equal to the excess, if any, of
Termination Value computed as of the Termination Date specified in such notice
over the Fair Market Rental Value of the Lessor's Interest until the end of the
Lease Fixed Term or the then current Renewal Term, after discounting such Fair
Market Rental Value semiannually to present value as of the Termination Date
specified in such notice at a rate equal to the Default Discount Rate or (iii)
an amount equal to the Termination Value computed as of the Termination Date
specified in such notice and, upon payment of such Termination Value by the
Lessee pursuant to this clause (iii) and all other Rent then due and payable by
the Lessee, the Lessor will forthwith transfer to the Lessee in accordance with
this Section 17.1(e) and Section 10 of the Site Lease on an "as is," "where is"
and "with all faults" basis, without representation or warranty other than a
warranty as to the absence of Lessor's Liens accompanied by a warranty of the
Owner Participant as to the absence of the Owner Participant's Liens, all of its
interest in the Lessor's Interest and execute, acknowledge and deliver, and
record and file (as appropriate), appropriate releases, including, a release
from the Lien of the Indenture, and all other documents or instructions
necessary or desirable to effect the foregoing all in form and substance
reasonably satisfactory to the Lessor and at the cost and expense of the Lessee,
and upon payment of such amounts under either clause (i), (ii) or (iii) of this
paragraph (e), this Lease, and the Lessee's obligation to pay Basic Rent
hereunder due for any periods subsequent to the date of such payment, shall
terminate;
(f) if the Lessor shall have sold the Lessor's Interest
pursuant to paragraph (c) above, the Lessor may, if it shall so elect, demand
that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor, as
liquidated damages for loss of a bargain and not as a penalty (in lieu of the
Basic Rent due for any periods subsequent to the date of such sale), an amount
equal to (i) any unpaid Basic Rent due before the date of such sale, (ii) (A) if
that date is a Rent Payment Date, the Basic Rent due on that date (to the extent
payable in arrears), or, (B) if that date is not a Rent Payment Date or a
Termination Date, the daily equivalent of Basic Rent (to the extent payable in
arrears) for the period from the preceding Termination Date to the date of such
sale, plus (iii) the amount, if any, by which the Termination Value computed as
of the Termination Date next preceding the date of such sale or, if such sale
occurs on a Rent Payment Date or a Termination Date then computed as of such
date, exceeds the net proceeds of such sale, and, upon payment of such amount,
this Lease and the Lessee's obligation to pay Basic Rent for any periods
subsequent to the date of such payment shall terminate.
In addition, the Lessee shall be liable, except as otherwise
provided above, for any and all unpaid Rent (including any premium payable under
the Indenture) due hereunder before, or during the exercise of any of the
foregoing remedies, and, on an
42
47
After-Tax Basis, for legal fees and other costs and expenses incurred by reason
of the occurrence of any Lease Event of Default or the exercise of the Lessor's
remedies with respect thereto, including the repayment in full of any costs and
expenses necessary to be expended in connection with the return of the Undivided
Interest in accordance with Section 5.2, including, without limitation, any
costs and expenses incurred by the Lessor, the Owner Participant, the Indenture
Trustee and the Pass Through Trustees in connection with retaking constructive
possession of, or in repairing, the Undivided Interest in order to cause it to
be in compliance with all maintenance standards imposed by this Lease.
Section 17.2. Cumulative Remedies. The remedies in this Lease
provided in favor of the Lessor shall not be deemed exclusive, but shall be
cumulative and shall be in addition to all other remedies in its favor existing
at law or in equity; and the exercise or beginning of exercise by the Lessor of
any one or more of such remedies shall not preclude the simultaneous or later
exercise by the Lessor of any or all of such other remedies. To the extent
permitted by Applicable Law, the Lessee hereby waives any rights now or
hereafter conferred by statute or otherwise which may require the Lessor to
sell, lease or otherwise use the Undivided Interest or any Component thereof in
mitigation of Lessor's damages as set forth in this Section 17 or which may
otherwise limit or modify any of Lessor's rights and remedies in this Section
17.
Section 17.3. No Delay or Omission to be Construed as Waiver.
No delay or omission to exercise any right, power or remedy accruing to the
Lessor upon any breach or default by the Lessee under this Lease shall impair
any such right, power or remedy of the Lessor, nor shall any such delay or
omission be construed as a waiver of any breach or default, or of any similar
breach or default hereafter occurring; nor shall any waiver of a single breach
or default be deemed a waiver of any subsequent breach or default.
SECTION 18
SECURITY INTEREST AND INVESTMENT OF SECURITY FUNDS
Any moneys received by the Lessor pursuant to Section 10.2(d)
or 11.7 shall, until paid to the Lessee as provided in accordance with such
Sections, be held by the Lessor or the Indenture Trustee, as the case may be, as
security for the Lessee's obligations under this Lease and invested in Permitted
Investments by the Lessor or the Indenture Trustee, as the case may be, at the
sole risk of the Lessee, from time to time as directed in writing by the Lessee
if such investments are reasonably available for purchase. Any gain (including
interest received) realized as the result of any such Permitted Investment (net
of any fees, commissions, taxes and other expenses, if any, incurred in
connection with such Permitted Investment) shall be applied or remitted to the
Lessee in the same manner as the principal invested.
43
48
SECTION 19
SUBLEASE
Except in accordance with the following conditions, the Lessee
shall not sublease the Facility without the consent of the Lessor, the Owner
Participant and, so long as the Lien of the Indenture shall not have been
terminated or discharged, the Indenture Trustee:
(a) the sublessee is (i) a United States person within the
meaning of Section 7701(a)(30) of the Code, (ii) solvent and not
subject to bankruptcy proceedings, (iii) not involved in any material
litigation with the Owner Participant, and (iv) an experienced,
reputable operator of electric generating assets, or its operating and
maintenance obligations under the sublease are guaranteed by an
experienced, reputable operator of electric generating assets;
(b) the sublease does not have a term of more than 10 years
and during the Lease Basic Term does not extend beyond the date 36
months prior to the expiration of the Lease Basic Term (and may be
terminated upon early termination of this Lease) and is expressly
subject and subordinated to this Lease;
(c) all terms and conditions of this Lease and the other
Operative Documents remain in effect and the Lessee remains fully and
primarily liable for its obligations under this Lease and the other
Operative Documents;
(d) no Lease Material Default or Lease Event of Default shall
have occurred and be then continuing;
(e) the sublease prohibits further assignment or subletting;
(f) the sublease requires the sublessee to operate and
maintain the Facility in a manner consistent with this Lease;
(g) such sublease shall not cause the property to become
"tax-exempt use property" within the meaning of Section 168(h) of the
Code (unless the Lessee shall make a payment to the Owner Participant
contemporaneously with the execution of such sublease that in the
judgment of the Owner Participant compensates the Owner Participant for
the adverse tax consequences resulting from the classification of the
property as "tax-exempt use property");
(h) the Lessor, the Owner Participant, the Indenture Trustee
and the Pass Through Trustees shall have received (i) all documentation
in respect of such sublease and (ii) an opinion of counsel to the
effect that all regulatory approvals relating to such sublease have
been obtained and that such sublease complies with the provisions of
this Section 19 (such documentation, counsel and opinion to be in form,
scope and substance satisfactory to such recipients);
44
49
(i) all amounts to be paid under the sublease are deposited
directly into the Revenue Account;
(j) the rights of the Lessee as sublessor under the sublease
are collaterally assigned as security to the Lessor;
(k) (i) the execution of the sublease does not result in any
(A) diminution in any then applicable projected Pro Forma Coverage
Ratios for the remainder of the Lease Term beyond a de minimis amount
and in no event below any Required Coverage Ratio or (B) reduction in
cash flows available to the Lessee (as though the Lessee had not
subleased the Facility) as calculated by the then applicable Pro Forma
projections for the balance of the Lease Term or (C) downgrade in any
then current rating of the Pass Through Certificates (as confirmed in
writing by the Rating Agencies); (ii) rental payments under the
sublease exceed all Basic Rent payments; and (iii) there is no
prepayment of rent or any other lump sum or advance payments payable to
the Lessee under the sublease; and
(l) the Lessee shall have concurrently subleased the Related
Facility pursuant to terms of the Related Leases.
The Lessee shall pay, on an After-Tax Basis, all reasonable
costs and expenses incurred by the Lessor, Owner Participant, Indenture Trustee
and the Pass Through Trustees in connection with any sublease or proposed
sublease.
SECTION 20
LESSOR'S RIGHT TO PERFORM
If the Lessee fails to make any payment required to be made by
it hereunder or fails to perform or comply with any of its other agreements
contained herein after notice to the Lessee and failure of the Lessee to so
perform or comply within 10 days thereafter, the Lessor or the Owner Participant
may itself make such payment or perform or comply with such agreement in a
reasonable manner, but shall not be obligated hereunder to do so, and the amount
of such payment and of the reasonable expenses of the Lessor or the Owner
Participant incurred in connection with such payment or the performance of or
compliance with such agreement, as the case may be, together with interest
thereon at the Overdue Rate, to the extent permitted by Applicable Law, shall be
deemed to be Supplemental Rent, payable by the Lessee to the Lessor on demand.
45
50
SECTION 21
SECURITY FOR LESSOR'S OBLIGATION TO THE INDENTURE TRUSTEE
In order to secure the Lessor Notes, the Lessor will assign
and ▇▇▇▇▇ ▇ ▇▇▇▇ to the Indenture Trustee on all of the Lessor's right, title
and interest in, to and under this Lease and the Undivided Interest (other than
Excepted Payments and Excepted Rights). The Lessee hereby consents to such
assignment and to the creation of such Lien and security interest and
acknowledges receipt of copies of the Indenture, it being understood that such
consent shall not affect any requirement or the absence of any requirement for
any consent of the Lessee under any other circumstances. Unless and until the
Lessee shall have received written notice from the Indenture Trustee that the
Lien of the Indenture has been fully terminated, the Indenture Trustee shall
have the right to exercise the rights of the Lessor under this Lease to the
extent set forth in and subject in each case to the exceptions set forth in the
Indenture. 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 HEREOF OTHER THAN THE
ORIGINAL COUNTERPART, WHICH SHALL BE IDENTIFIED AS THE COUNTERPART CONTAINING
THE RECEIPT THEREFOR EXECUTED BY THE INDENTURE TRUSTEE ON THE SIGNATURE PAGE
THEREOF.
SECTION 22
MISCELLANEOUS
Section 22.1. Amendments and Waivers. No term, covenant,
agreement or condition of this Lease may be terminated, amended or compliance
therewith waived (either generally or in a particular instance, retroactively or
prospectively) except by an instrument or instruments in writing executed by
each party hereto.
Section 22.2. Notices. Unless otherwise expressly specified or
permitted by the terms hereof, all communications and notices provided for
herein to a party hereto shall be in writing or by a telecommunications device
capable of creating a written record, and any such notice shall become effective
(a) upon personal delivery thereof, including, without limitation, by overnight
mail or courier service, (b) in the case of notice by United States mail,
certified or registered, postage prepaid, return receipt requested, upon receipt
thereof, or (c) in the case of notice by such a telecommunications device, upon
transmission thereof, provided, that such transmission is promptly confirmed by
either of the methods set forth in clauses (a) and (b) above, in each case
addressed to such party and copy party at its address set forth below or at such
other address as such party or copy party may from time to time designate by
written notice to the other party:
46
51
If to the Lessor:
▇▇▇▇▇▇▇ Facility Trust A-1
c/o Wilmington Trust Company, as Trustee
▇▇▇▇▇▇ Square North
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Corporate Trust Administration
with a copy to the Owner Participant at the address specified
in the Participation Agreement:
and to the Indenture Trustee:
Bankers Trust Company
MS #5041
▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Assistant Vice President
If to the Lessee:
AES Eastern Energy, L.P.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Project Manager
Section 22.3. Survival. Except for the provisions of Sections
3.5 (Supplemental Rent), 3.7 (Manner of Payments), 5 (Return of Undivided
Interest), 9 (Net Lease) and 17 (Remedies), which shall survive, the warranties
and covenants made by each party hereto shall not survive the expiration or
termination of this Lease in accordance with its terms.
Section 22.4. Successors and Assigns. (a) This Lease shall be
binding upon and shall inure to the benefit of, and shall be enforceable by, the
parties hereto and their respective successors and assigns as permitted by and
in accordance with the terms hereof.
47
52
(b) Except as expressly provided herein or in the other
Operative Documents, neither party hereto may assign its interests or transfer
its obligations herein without the consent of the other party hereto.
Section 22.5. True Lease. This Lease shall constitute an
agreement of lease and nothing herein shall be construed as conveying to the
Lessee any right, title or interest in or to the Undivided Interest except as
lessee only.
Section 22.6. Business Day. Notwithstanding anything herein to
the contrary, if the date on which any payment or performance is to be made
pursuant to this Lease is not a Business Day, the payment otherwise payable on
such date shall be payable on the next succeeding Business Day with the same
force and effect as if made on such scheduled date (provided such payment is
made on such succeeding Business Day) and no interest shall accrue on the amount
of such payment from and after such scheduled date to the time of such payment
on such next succeeding Business Day.
Section 22.7. Governing Law. This Lease shall be in all
respects governed by and construed in accordance with the laws of the State of
New York including all matters of construction, validity and performance without
giving effect to the conflicts of laws provisions thereof.
Section 22.8. Severability. Any provision of this Lease that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 22.9. Counterparts. This Lease may be executed by the
parties hereto in separate counterparts, each of which, subject to Section 21,
when so executed and delivered shall be an original, but all such counterparts
shall together constitute but one and the same instrument.
Section 22.10. Headings and Table of Contents. The headings of
the sections of this Lease and the Table of Contents are inserted for purposes
of convenience only and shall not be construed to affect the meaning or
construction of any of the provisions hereof.
Section 22.11. Further Assurances. Each party hereto will
promptly and duly execute and deliver such further documents and assurances for
and take such further action reasonably requested by the other party, all as may
be reasonably necessary to carry out more effectively the intent and purpose of
this Lease.
Section 22.12. Effectiveness. This Lease has been dated as of
the date first above written for convenience only. This Lease shall be effective
on the date of execution and delivery by the Lessee and the Lessor.
48
53
Section 22.13. Limitation of Liability. It is expressly
understood and agreed by the parties hereto that (a) this Lease is executed and
delivered by the Trustee not individually or personally but solely as trustee of
the Owner Trust under the Trust Agreement, in the exercise of the powers and
authority conferred upon and vested in it pursuant thereto, (b) each of the
representations, undertakings and agreements herein made on the part of the
Lessor is made and intended not as personal representations, undertakings and
agreements by the Trustee but is made and intended for the purpose of binding
only the Lessor, (c) nothing herein contained shall be construed as creating any
liability on the Trustee, individually or personally, to perform any covenant
either expressed or impliedly contained herein, all such liability, if any,
being expressly waived by the parties hereto or by any Person claiming by,
through or under the parties hereto and (d) under no circumstances shall the
Trustee be personally liable for the payment of any indebtedness or expenses of
the Lessor or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Lessor under this
Lease.
49
54
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this
Lease to be duly executed and delivered under seal by their respective officers
thereunto duly authorized.
▇▇▇▇▇▇▇ FACILITY TRUST A-1
as Lessor
By: WILMINGTON TRUST COMPANY,
not in its individual
capacity but solely as
Trustee
By:
--------------------------
Name:
Title:
AES EASTERN ENERGY, L.P.
as Lessee,
By: AES NY, L.L.C., its general
partner
By:
--------------------------
Name:
Title:
*Receipt of the original counterpart of the foregoing Lease is hereby
acknowledged on this 14th day of May, 1999.
BANKERS TRUST COMPANY, not in its
individual capacity, but solely as
Indenture Trustee
By:
--------------------------
Name:
Title:
*This acknowledgment executed in the original counterpart only.
50
55
EXHIBIT A
to
Lease
56
EXHIBIT B
to
Lease
57
SCHEDULE 1
to
Lease
BASIC RENT
Deferrable
Advance Rent Arrears Rent Basic Rent
Rent Payment Rent Payment (% of Purchase (% of Purchase (% of Purchase
Period Date Price) Price) Price)
------ ---- ------ ------ ------
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
58
SCHEDULE 2
to
Lease
TERMINATION VALUES
Termination Date Termination Value
(Monthly) (% of Purchase Price)
--------- ---------------------
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
