1
EXHIBIT: 10.11.2
APPENDIX 7
GROUND LEASE AGREEMENT,
BETWEEN
UNION CARBIDE CORPORATION, LANDLORD
AND
NORTHERN COGENERATION ONE COMPANY, TENANT
DATED
JANUARY 1, 1986
IN
TEXAS CITY, TEXAS
2
TABLE OF CONTENTS
ARTICLE I: DEFINITIONS..................................................... 1
1.01. Certain Definitions............................................. 1
ARTICLE II: DEMISE; TERM; USE............................................... 3
2.01. Demise of Premises.............................................. 3
2.02. Term and Commencement........................................... 4
2.03. Renewal and Extension........................................... 5
2.04. Use of Premises................................................. 5
ARTICLE III: CONSTRUCTION OF IMPROVEMENTS AND LANDLORD'S IMPROVEMENTS........ 6
3.01. Plans........................................................... 6
3.02. Contractor...................................................... 7
3.03. Construction.................................................... 7
3.04. Compliance Inspections.......................................... 7
3.05. Utilities....................................................... 7
3.06. Payment Certificate............................................. 8
3.07. Ownership of Landlord's Improvements............................ 9
3.08. Tenant's Failure to Complete.................................... 9
3.09. Tenant's Failure to Prosecute the Work.......................... 9
ARTICLE IV: RENT AND ADJUSTMENTS............................................ 9
4.01. Payment of Rent................................................. 9
4.02. Net Lease.......................................................10
ARTICLE V: TAXES, UTILITIES AND ADDITIONAL EXPENSES........................10
5.01. Tenant's Payment of Taxes and Assessments.......................10
5.02. Utility Charges.................................................12
5.03. Liens...........................................................12
5.04. Landlord's Option to Pay or Perform.............................13
ARTICLE VI REPAIR AND MAINTENANCE..........................................13
6.01. Obligation of Repair............................................13
6.02. Safety and Environmental Matters................................13
3
ARTICLE VII: INSURANCE; INDEMNIFICATION......................................15
7.01. Tenant's Insurance..............................................15
7.02. Maintenance of Insurance........................................15
7.03. Waiver of Subrogation Rights....................................16
7.04. INDEMNITY.......................................................16
ARTICLE VIII: DAMAGE AND DESTRUCTION..........................................17
8.01. Election to Restore.............................................17
8.02. Election to Terminate...........................................17
ARTICLE IX: CONDEMNATION....................................................17
9.01. Total Taking....................................................17
9.02. Partial Taking..................................................18
9.03. Prosecution of Proceedings......................................18
ARTICLE X: TRADE FIXTURES AND OTHER IMPROVEMENTS ON TERMINATION............19
10.01. Ownership of Improvements.......................................19
10.02. Removal of Trade Fixtures by Tenant.............................19
ARTICLE XI: DEFAULTS AND REMEDIES...........................................20
11.01. Events of Default by Tenant.....................................20
11.02. Landlord's Remedies.............................................20
11.03. Events of Default by Landlord...................................21
11.04. Tenant's Remedies...............................................22
11.05. Damage Limitations..............................................22
11.06. Non-Waiver......................................................23
11.07. Remedies Cumulative.............................................23
ARTICLE XII: TRANSFER OF INTERESTS...........................................23
12.01. Assignment and Subletting.......................................23
12.02. Permitted Transfers.............................................23
12.03. Prohibition Against Encumbrances................................24
12.04. Estoppel Certificates...........................................24
ARTICLE XIII: LANDLORD'S RIGHT TO USE PREMISES................................24
ARTICLE XIV: QUIET ENJOYMENT.................................................24
4
ARTICLE XV: HOLDING OVER....................................................25
ARTICLE XVI: NOTICES.........................................................25
ARTICLE XVII: GENERAL PROVISIONS..............................................26
17.01. Time is of the Essence..........................................26
17.02. Entire Agreement................................................26
17.03. No Agency or Partnership........................................26
17.04. No Merger.......................................................26
17.05. Attorneys' Fees.................................................27
17.06. Governing Law...................................................27
17.07. Partial Invalidity..............................................27
17.08. Binding Effect..................................................27
17.09. Construction....................................................27
17.10. Memorandum of Lease.............................................27
17.11. Confidentiality.................................................27
17.12. Force Majeure...................................................28
17.13. Compliance with Laws............................................28
17.14. Late Payments...................................................28
17.15. Precautionary Filings...........................................28
17.16. Priority of Agreements..........................................29
17.17. Fair Market Value...............................................29
EXHIBIT A: Legal Description of Premises
EXHIBIT A-1: Premises Survey
EXHIBIT B: Cogeneration Site Clearance
EXHIBIT C: Designation of Main Drainage Ditch
5
GROUND LEASE AGREEMENT
THIS GROUND LEASE AGREEMENT dated as of January 1, 1986 ("Lease") is
made and entered into by and between UNION CARBIDE CORPORATION ("Landlord") and
NORTHERN COGENERATION ONE COMPANY ("Tenant").
W I T N E S E T H:
ARTICLE I
DEFINITIONS
1.01. Certain Definitions. In addition to those certain terms
defined elsewhere in this Lease, the following capitalized terms shall be
defined as set forth below, for purposes of this Lease and all supplements and
amendments hereto, unless otherwise required by the context in which such term
appears:
(1) "Additional Rent" means any and all sums other than Annual
Rent which Tenant is or becomes obligated to pay to Landlord under this
Lease.
(2) "Agreements" means this Lease, the Steam and Electricity
Service Agreement and the Utility Service Agreement.
(3) "Annual Rent" shall have the meaning described in Section
4.01.
(4) "Applicable Law" means all present and future statutes,
regulations, ordinances, resolutions and orders of any Governmental
Authority in any way relating to this Lease, the Premises or Tenant's use
thereof.
(5) "Applicable Rate" means, at any time, the then current
short-term borrowing rate, plus one percent (1%0, of the obligor, not to
exceed the maximum interest rate permitted to be charged by Applicable
Law.
(6) "Commencement Date" means that date for commencement of the
Term of this Lease determined in accordance with Section 2.02 hereof.
(7) "Commencement of Service Date" shall have the same meaning as
described in the Steam and Electricity Service Agreement.
(8) "Contractor" means the general construction contractor or
contractors for construction of Tenant's Plant, selected by Tenant as
provided in Section 3.02.
6
(9) "Force Majeure" means fire, strike, riot, explosion, flood,
accident, acts of God, the public enemy, governmental laws, ordinances,
rules or regulations (whether valid or invalid), or without limitation by
enumeration, any other acts or circumstances beyond the reasonable control
of the affected party which prevents or delays the performance by Landlord
or Tenant of any obligation imposed upon it hereunder (other than the
payment of Rent). Unscheduled shutdowns due to failure of either party to
properly maintain the equipment for which it is responsible according to
accepted practices shall not be considered as a force majeure event.
(10) "Governmental Authority" means any federal, state, county or
municipal governing body, and any department, agency or board thereof,
having jurisdiction over the Project.
(11) "Improvements" means Tenant's Plant and the Retrofit
Equipment.
(12) "Landlord's Improvements" means those improvements on certain
land as designated in the plans and specifications attached hereto as
Exhibit "B".
(13) "Landlord's Land" means the land owned by Landlord in Texas
City, Texas, situated in the vicinity of the Premises, as such land may be
increased or decreased from time to time, except that the Premises is
expressly excluded from such definition.
(14) "Landlord's Plant" means the plant, including equipment,
rolling stock and all personal property of any kind, owned and operated by
or on behalf of Landlord on Landlord's Land, now or in the future, being
the property and equipment on Landlord's side of the Point of Delivery,
excluding the Retrofit Equipment.
(15) "Lease Year" means each calendar year, or portion thereof,
during the term of the Lease.
(16) "Plans" means the plans and specifications for the
construction of the Improvements, prepared as provided in Section 3.01.
(17) "Point of Delivery" shall be those points specified in the
Steam and Electricity Service Agreement.
(18) "Premises" means the property which is the subject hereof and
leased by Landlord to Tenant and which is described by metes and bounds in
Exhibit A, attached hereto.
-2-
7
(19) "Project" means the Premises and Tenant's Plant to be
constructed thereon.
(20) "Rent" means Annual Rent and Additional Rent.
(21) "Retrofit Equipment" means that equipment described in the
Steam and Electricity Service Agreement as Retrofit Equipment and owned,
constructed and provided by Tenant on Landlord's Land.
(22) "Steam and Electricity Service Agreement" means the Steam and
Electricity Service Agreement dated as of June 12, 1985, between Landlord
and Tenant providing for the sale and purchase of steam and electricity as
therein provided, as amended from time to time.
(23) "Substantial Completion" means that Tenant's Plant has been
substantially completed in accordance with the Plans and evidenced by a
certificate to such effect executed by Landlord and Tenant. Such
certificate shall not be withheld because certain minor items of
construction or mechanical adjustment remain to be completed.
(24) "Tenant's Plant" means the plant, including equipment, rolling
stock and all personal property of any kind, owned and operated by Tenant
on the Premises, being the property and equipment on Tenant's side of the
Point of Delivery up to and including the Point of Delivery.
(25) "Term" means the term of this Lease, as provided in Sections
2.02 and 2.03.
(26) "Utility Service Agreement" means the Utility Service
Agreement dated as of June 12, 1985, between Landlord and Tenant providing
for the sale of utility service as therein provided, as amended from time
to time.
ARTICLE II
DEMISE; TERM; USE
2.01 Demise of Premises. (a) Subject to the terms and conditions
set forth herein, and in consideration of the covenants of payment and
performance set forth herein, Landlord hereby leases and demises unto Tenant,
and Tenant hereby rents and accepts from Landlord, the Premises, subject to all
existing exceptions, reservations, conditions, restrictions, easements and other
third-party rights and the exception and reservation by Landlord of the
exclusive right to use any wastewater, drainage, utility or product ditches,
conduits or pipelines now located in, under, upon or through the Premises,
whether visible from
-3-
8
apparent inspection or otherwise, except as may be otherwise expressly provided
by the Agreements. The foregoing shall be subject to the limitations and
indemnification contained in Section 6.02 (b) of this Agreement.
(b) Landlord agrees to inform Tenant of the nature and
approximate location of such facilities or easements on or pertaining to the
Premises, or privilege to install same, of which Landlord is aware. Tenant has
the duty to investigate and inspect the Premises for the purpose of ascertaining
the conditions existing at such Premises; provided, however, that the inability
to visually observe any of such conditions shall not affect Tenant's liability
and responsibilities hereunder. In any event, Tenant shall have the right to
build the Improvements in substantially. the manner originally anticipated as
long as the construction, operation and use thereof does not unreasonably
interfere with the rights of those parties entitled to possession of the
Premises by way of easements, whether express, prescriptive or otherwise.
(c) Tenant may, at Tenant's sole cost, expense and
liability, exercise all of Landlord's rights and privileges pertaining to the
relocation or removal of third party property on the Premises, subject however
to any pre-existing agreements between Landlord and such third party. Tenant
agrees to indemnify and hold Landlord harmless from and against any claims,
costs, damages or liabilities arising in connection with the exercise of such
rights and privileges.
(d) Landlord, its subsidiaries and affiliates, currently
utilize portions of the Premises for pipelines as indicated on the site plan of
D. Engineers, Inc., dated September 30, 1985, and such use shall continue
uninterrupted by this Lease, subject however to the provisions of
Section 2.01(b) above. Landlord shall have the right to evidence in written,
recordable form easements sufficient to reasonably service such pipelines and
this Lease shall thereby be subject to such easements.
2.02 Term and Commencement. Unless sooner terminated as provided in
this Lease, the Term of this Lease will be for a period beginning on the
Commencement Date and ending on June 30, 1999, or such earlier date as the Steam
and Electricity Service Agreement may terminate if such termination is due to
Tenant's default or the mutual agreement of the parties. The Commencement Date
and the date of delivery of possession of the Premises to Tenant shall be the
effective date of this Agreement or such earlier date as may be mutually agreed
by the parties hereto. Notwithstanding the Commencement Date, however, Landlord
shall have the right to use the Premises as a parking lot until such
-4-
9
time as Tenant has provided satisfactory alternative parking facilities for
Landlord as specified on Exhibit "B" hereto.
2.03. Renewal and Extension. In the event that the parties agree
to extend the Steam and Electricity Service Agreement beyond the initial term
thereof, this Lease shall be extended for the same period of time. In the event
of termination of the Steam and Electricity Agreement (except due to the default
by Tenant) and subject to the continuous operation of Tenant's Plant and the
Retrofit Equipment in accordance with Section 2.04 below and this Lease, the
term of this Lease shall be extended at the option of Landlord and Tenant f or
so long as Tenant's Plant is used for the production of steam or electric
power, provided that if Landlord chooses in its sole discretion not to extend
the term of this Lease, Tenant shall have, the option to purchase the Premises
upon terms mutually agreeable to Landlord and Tenant. In the event Landlord and
Tenant are unable to reach a satisfactory agreement as to acquisition of the
Premises and Tenant still desires to purchase the Premises, the purchase price
shall be the fair market value of the Premises as determined in accordance with
Section 17.17 of this Lease. Within sixty (60) days after Landlord provides
written notice to Tenant of its election not to extend this Lease, Tenant shall
provide written notice to Landlord whether it intends to purchase the Premises.
Conveyance of the Premises to Tenant and payment of the consideration for such
sale shall occur within sixty (60) days after the purchase price is agreed upon
or determined. In the event Tenant fails or refuses to exercise the option
provided for herein, Tenant shall have no continuing right to the Premises after
termination of this Lease, except as may be otherwise provided in this Lease.
The instrument(s) conveying the Premises to Tenant shall contain a restriction
limiting use of the Premises to the same extent limited by this Lease, unless
otherwise approved by Landlord, which approval shall not be unreasonably
withheld as long as the intended use does not potentially interfere with the
ongoing business of Landlord. Landlord and Tenant shall also agree upon such
mutual reciprocal easements and rights and obligations between Landlord and
Tenant as may be necessary to continue use of the Premises, the Improvements and
Landlord's Plant in the same manner contemplated by this Lease. Such restriction
and mutual reciprocal easements shall terminate in the event Landlord becomes
the owner of the Premises or the Premises is merged with Landlord's Land. In the
event of violation of such restriction, Landlord shall have the option to
acquire the Premises in the same manner described above and the Improvements
shall be disposed of in accordance with Article X.
2.04. Use of Premises. Tenant shall have the right to use the
Premises for the following purposes, and only for those purposes: construction
of Tenant's Plant, and the business of
-5-
10
operating and maintaining Tenant's Plant for the generation and production of
steam and electricity for sale to Landlord and third parties. Any use by Tenant
of the Premises for any other purposes shall require the specific prior written
approval of Landlord thereto. Tenant shall at all times during the Term,
excepting periods of reconstruction due to casualty or condemnation (provided
Tenant diligently and continuously prosecutes the same), continuously operate
Tenant's Plant and the Retrofit Equipment in accordance with the terms of the
Agreements. Notwithstanding the above, however, if Landlord is in default under
the Steam and Electricity Service Agreement, and said Agreement has been
terminated for that reason, Tenant shall have the right for the balance of the
term of any then effective agreement for the sale of electric power generated
by Tenant's Plant to operate and maintain Tenant's Plant. If, however, Tenant is
in default under (i) the existing agreement, as amended, for the sale of
electricity to said public utility of electric power generated by Tenant's Plant
and (ii) the Steam and Electricity Agreement and/or Utility Service Agreement
and Landlord has obtained the full amount of its remedy due to such default,
Tenant may sublease the Premises to said electric public utility for the balance
of the original term of this Lease.
ARTICLE III
CONSTRUCTION OF IMPROVEMENTS AND LANDLORD'S IMPROVEMENTS
3.01. Plans. (a) Tenant shall, without expense to Landlord,
prepare plans and specifications for construction of the Improvements and shall
construct such Improvements as required by the Steam and Electricity Service
Agreement. Such plans and specifications shall include working drawings,
complete for building purposes and sufficient for approval by all Governmental
Authorities. Tenant shall design the Improvements to provide for all surface
water runoff to be delivered in the manner designated on Exhibit "C" hereto.
Tenant shall design the Improvements to conform with all easement obligations of
Landlord and to prevent any damage to pipelines existing on the Premises on the
date of execution of this Lease. Tenant shall comply with all pipeline easement
conditions applicable to Landlord on the Premises.
(b) Tenant, as an independent contractor and not as an agent
or partner of Landlord, shall also construct Landlord's Improvements at no cost
to Landlord on land to be provided by Landlord in accordance with the plans and
specifications. for Landlord's Improvements attached hereto as Exhibit "B".
Landlord's Improvements are hereby expressly agreed not to be part of the
Retrofit Equipment.
-6-
11
(c) Tenant shall obtain, without expense to Landlord, all
building permits and approvals required by Governmental Authorities before
commencing construction.
3.02. Contractor. (a) Tenant shall retain one or more contractors
(the "Contractor") to construct the Improvements and Landlord's Improvements.
The construction contract to be executed between Tenant and Contractor shall
provide that Contractor shall look solely to Tenant for any payment due under
the construction contract.
(b) Tenant shall require all Contractors to furnish payment
and performance bonds, naming Landlord as a co-obligee, which shall be in such
amount and with such other terms as are reasonably satisfactory to Landlord.
Such bonds shall remain in effect notwithstanding any breach of contract by
Tenant or termination of this Lease. The comprehensive general liability
insurance and indemnification provisions set forth in Article VII shall apply to
the construction of Landlord's Improvements, and Tenant shall require similar
provisions of its Contractors.
3.03. Construction. Upon obtaining required permits and approvals,
Tenant shall commence construction of the Improvements and Landlord's
Improvements and thereafter prosecute same to Substantial Completion. All
construction shall be done substantially in accordance with the Plans, in
compliance with all Applicable Laws, and in a good and workmanlike manner.
Tenant shall pay all bills for labor, materials and supplies in connection with
such construction, and shall obtain releases of liens from the persons or
entities performing such labor or furnishing such materials and supplies, and
all fees for engineering, architectural, legal and other professional services
incurred in connection with such construction.
3.04. Compliance Inspections. Landlord shall have the right to
inspect, at any time during business hours, the Improvements and Landlord's
Improvements and all construction and materials thereof and all plans, drawings,
records and other documents that relate to construction of the Improvements and
Landlord's Improvements. Tenant shall afford Landlord full and free access to
the Improvements and Landlord's Improvements and all such documents. Landlord
shall have no obligation to make any inspections, and if Landlord makes any
inspection, Landlord shall have no responsibility or liability for detecting or
determining deficiency in construction or variance from the Plans.
3.05. Utilities. Except to the extent otherwise provided in the
Steam and Electricity Service Agreement and the Utility Service Agreement,
Tenant shall be responsible for obtaining satisfactory utility service for full
operation of the Improvements without expense to Landlord. As an incident to
-7-
12
Tenant's occupancy and subject to availability, capacity and sufficient prior
notice, Landlord will endeavor to provide Tenant with electric power sufficient
to enable Tenant to commence initial operations in Tenant's Plant on the
Premises or restart Tenant's Plant in the event of a power shutdown. Such power
shall be generated from Landlord's qualifying cogeneration facilities under
Federal Energy Regulatory Commission guidelines. Tenant's use of power supplied
by Landlord shall be strictly limited to use at Tenant's Plant and may not be
held for resale or distribution to any other party. Landlord shall have the
right to terminate the supply of electric power if at any time such activity
would endanger the operations at Landlord's Plant or if required under
Applicable Laws. The agreement of the Landlord to the foregoing is based on the
assumption that the ratepayers of the utility in whose service area the Tenant
is located will not be substantially adversely affected as a result of the
activity of Landlord or Tenant anticipated by this Section. If at any time it
is claimed by governmental agencies exercising jurisdiction in such area under
Applicable Laws that Landlord is in violation of Applicable Laws, that Landlord
is required to obtain a Certificate of Convenience and Necessity or that the
services provided by Landlord are deemed evidence that it is operating or
holding itself out as a public utility, any rights or obligations with regard to
supplying electric power shall thereby terminate. Landlord shall not be liable
to Tenant for any claims, damages, loss or liability due to (i) Landlord's
inability or failure to furnish any of the power pursuant to the provisions of
this Section on account of any force majeure occurrences, (ii) any failure of
Landlord's supplier of electricity to provide adequate and reliable service
which affects Landlord's ability to provide power to Tenant, or (iii) any
failure, interruption or curtailment of any of the power due to equipment, labor
or other problems which do not arise out of the gross negligence or willful
misconduct of Landlord, its employees, agents or contractors. Tenant shall fully
and promptly pay, perform, discharge, defend, indemnify and hold Landlord
harmless from and against any claim, demand, action or suit, loss, cost, damage,
fine, penalty or expense (including reasonable attorneys' fees) resulting from
Landlord delivering electric power to Tenant's Plant.
3.06. Payment Certificate. At the time of Substantial Completion,
Tenant shall deliver to Landlord a certificate signed by Tenant and Contractor
certifying that all work for which payment is due under the Construction
Contract has been completed and fully paid for. Such certificate shall
constitute Tenant's representation that the materials have been physically
incorporated into the Improvements or Landlord's Improvements free of liens and
encumbrances and that the work conforms to the Plans and Applicable Law.
-8-
13
3.07. Ownership of Landlord's Improvements. Upon Substantial
Completion of Landlord's Improvements, ownership and possession of Landlord's
Improvements shall be transferred to Landlord by Tenant. Tenant shall promptly
provide Landlord with whatever documentation may reasonably be required by
Landlord to effectively transfer such ownership.
3.08. Tenant's Failure to Complete. If the Commencement of Service
Date does not occur within thirty-six (36) months after the effective date of
execution of this Lease, unless the prior written approval of Landlord thereto
is received, Landlord may by written notice delivered to Tenant within ninety
(90) days after the expiration of said thirty-six (36) month period exercise any
or all of the following options:
(a) Landlord, may, without cost to Landlord, terminate this
Lease and require the Premises to be returned to the condition in which it
existed on the Commencement Date, within a reasonable period thereafter, but not
to exceed nine (9) months after termination.
(b) Landlord may elect to purchase the unfinished
Improvements at the fair market value thereof, complete construction of the
Improvements and operate the Improvements as it may deem appropriate.
3.09. Tenant's Failure to Prosecute the Work. If at any time prior
to the Commencement of Service Date, Tenant fails to undertake substantial
construction towards completion for a continuous period of ninety (90) days for
reasons other than force majeure, Tenant shall have thirty (30) days in which to
cure such failure after receipt of written notice thereof from Landlord. If
Tenant fails to so cure this failure, Landlord may exercise any or all of the
remedies specified in Section 3.08.
ARTICLE IV
RENT AND ADJUSTMENTS
4.01. Payment of Rent. Tenant shall pay Rent as follows:
(a) Annual Rent beginning on the Commencement of Service
Date, as follows: $30,000 for calendar years 1987 and 1999, and $60,000 a
year for calendar years 1988 through 1998. Tenant shall pay Annual Rent in
advance commencing with the Commencement of Service Date and thereafter
pay the appropriate Annual Rent on January 1 of each calendar year of the
Term thereafter; and
-9-
14
(b) In the event of termination of the Agreements or any
other agreement providing substitute or similar rights and benefits to
Landlord, the Annual Rent due under this Lease shall be adjusted to equal
the fair market rental rate for the Premises and other rights provided
Tenant under this Lease and, in any event shall not be less than the
Annual Rent provided in (a) above. The fair market rental rate shall be
that rate agreed upon by Landlord and Tenant as the prevailing market rate
and, in the event the parties are not able to reach agreement, the rate
shall be determined in accordance with the procedure described in Section
17.17, provided that such appraisers shall determine the fair market
rental value on a net lease based upon use of the Premises for industrial
activity for the remainder of the term of this Agreement.
(c) Additional Rent, including but not limited to those
items payable by Tenant to Landlord pursuant to Article V, within twenty
(20) days of the receipt of Landlord's invoice or statement for same, or
if this Lease provides another time for the payment of certain items of
Additional Rent then at such other time.
Rent shall be paid in United States dollars without counterclaim, set off or
deduction and without demand to Landlord at its address for receipt of notices
hereunder, or at such other place in the United States of America as Landlord
may from time to time designate in writing.
4.02. Net Lease. This Lease is a net lease, and Tenant shall pay all
costs, taxes and assessments the payment for which Landlord or Tenant is or
becomes liable by reason of its estate or interest in the Project or this Lease,
and which are connected with or arise out of the possession, use, condition,
occupancy, maintenance, repair or rebuilding of the Project, or a portion
thereof, except as may be otherwise provided in the Steam and Electricity
Service Agreement, the Utility Service Agreement or in Section 6.02(b) of this
Lease.
ARTICLE V
TAXES, UTILITIES AND ADDITIONAL EXPENSES
5.01. Tenant's Payment of Taxes and Assessments. (a) Except as
otherwise provided herein, Tenant shall pay and discharge, prior to the
imposition of any interest or penalty or the attachment of any lien for
delinquency in payment, all taxes, assessments and other rates and charges,
excises, levies, and other governmental and similar charges, of every character,
-10-
15
directly relating to the Project, and any interest and penalties thereon, which
at any time during or in respect to the Term may be levied or assessed against,
or may become or be a lien upon, or in respect of the interest of Tenant in the
Project, or a portion thereof and the possession, use, occupancy, condition,
maintenance, repair or rebuilding of the Project by Tenant, or a portion
thereof. If at any time during the term of this Lease, the present method of
taxation or assessment shall be changed and another shall be substituted
therefor, Landlord and Tenant agree to amend this Lease in order to reflect such
change and return the parties to the original position intended by the Lease.
Nothing in this Section 5.01 shall require Tenant to pay any income or excess
profits tax of Landlord, unless such tax is in lieu of or a substitute (in whole
or in part) for another tax or assessment upon or against the Project, which, if
such other tax or assessment were in effect, would be payable by Tenant. Tenant
shall also pay all special assessments for public or other civic improvements
assessed or imposed against the Premises or the Improvements. In the event any
such assessment also applies to other property of Landlord and is not reasonably
capable of being equitably apportioned between Landlord and Tenant, that method
of allocation used by the public agency imposing the assessment shall be used.
If any such tax, assessment or other charge levied or assessed against the
Project may legally be paid in installments, Tenant may pay same in installments
and shall be obligated to pay only such installments as are allocable to periods
within the Term. Tenant shall promptly furnish to Landlord proof of the payment
of any tax, assessment, or other charge payable by Tenant hereunder.
(b) Landlord shall pay ad valorem real property taxes for
the Project directly to the appropriate taxing authority. However, Tenant shall
be liable to Landlord for, and shall pay to Landlord, upon receipt of
appropriate evidence that such taxes have been paid, (i) the property taxes for
the Premises, determined as the proportion that the acreage of that portion of
the Premises included in the statement for such tax bears to the acreage of all
the land included in such statement; and (ii) the property taxes for Tenant's
Plant, determined as the amount allocable for that portion of Tenant's Plant
included in the statement for such tax. Real property taxes on the Premises
which are levied or assessed for the tax years in which this Lease commences and
terminates, shall be prorated based on the portion of such tax years included in
the Term. Notwithstanding the above, to the extent that the Improvements, or
portion thereof, are considered as personal property and as required by law,
Tenant shall render the Improvements, or any portion thereof, and shall pay any
property taxes thereon directly to the appropriate taxing authority.
-11-
16
(c) Landlord or Tenant, as appropriate, shall promptly send
to the other party a copy of any tax bill, assessment, or other notice
pertaining to ad valorem property taxes due against the Project that indicates
an increase in the assessed valuation thereof or an increase in the amount of
such taxes. Landlord and Tenant shall cooperate in timely legal attempts to
render the Project and reduce the amount of any tax thereon prior to its
becoming due. Tenant shall have the right to participate on its own behalf in
any proceedings affecting the assessed valuation of the Project. After
consultation with Landlord, Tenant may, at its cost and expense, contest the
existence, amount or validity of any such taxes by appropriate proceedings that
prevent the attachment of any lien against the Project, or portion thereof, and
the sale, or loss of the Project, or portion thereof, and Tenant shall not be
required, and Landlord shall not have the right, to pay any tax, assessment or
other charge against the Project or portion thereof, for the duration of such
contest; provided Tenant gives such security as may be required in such
proceedings to ensure such payment and prevent any sale or loss of the Project,
or portion thereof, by reason of nonpayment; and, provided further, that
Landlord will not be in any danger of criminal liability by reason of such
nonpayment. Tenant shall keep Landlord informed of the status and progress of
any contest and provide copies of all material notices, filings and
correspondence. Landlord reserves right to become an active participant in any
such proceeding to the extent necessary to protect its interests. Tenant will
endeavor not to take any action which would have a material adverse impact on
Landlord's Land and Landlord's Plant.
(d) Notwithstanding any other provision of this Section
5.01, to the extent that the Steam and Electricity Service Agreement or the
Utility Service Agreement provide for payment by Landlord by any amounts
specified in this Section 5.01, such agreements shall control.
5.02 Utility Charges. Except to the extent otherwise provided by
the Utility Service Agreement and the Steam and Electricity Service Agreement,
Tenant shall pay all charges for connection for and use of gas, electricity,
water, sewer and all other utilities serving the Project. Landlord shall not be
liable to Tenant for any failure or interruption of any service being furnished
to the Project nor shall such failure or interruption result in an abatement of
Rent unless the same results from the, negligence or intentional act of
Landlord, its invitees or licensees.
5.03 Liens. Tenant or Landlord, as applicable depending on who is
legally responsible, shall promptly remove and discharge of record (whether by
payment, filing the necessary bond, order of a court of competent jurisdiction
or otherwise),
-12-
17
without expense to the other party, all liens, encumbrances and charges upon the
Project, Tenant's leasehold interest in the Premises, or the Retrofit Equipment,
which arise out of the owner's possession, use, occupancy, condition,
maintenance, repair, building or rebuilding of the Project or the Retrofit
Equipment, or by reason of labor or materials furnished or claimed to have been
furnished to Tenant for the Project or the Retrofit Equipment.
5.04 Option to Pay or Perform. If Tenant or Landlord, as
applicable, fails to make a payment or perform an act for which it is obligated
hereunder, then, subject to the provisions of Section 5.01(c), the other party
may (but need not), after notice to or demand upon the responsible party and
without waiving any default or releasing the responsible party from any
obligation, make such payment or perform such act for the account and at the
expense of the responsible party. The responsible party shall pay to the other
party all amounts so paid by the other party and all necessary and incidental
costs and expenses (including reasonable attorneys' fees and expenses) incurred
in connection with the performance of any such act by the other party, together
with interest at the Applicable Rate from the date the other party makes such
payment or incurs such costs and expenses until payment by the responsible
party.
ARTICLE VI
REPAIR AND MAINTENANCE
6.01 Obligation of Repair. Except as otherwise expressly provided
herein, Tenant waives any right to make repairs at Landlord's expense which may
be provided for in any law now or hereafter in effect. Tenant shall maintain and
repair and keep the Improvements in normal working order. Landlord, at its
option, shall have the right of access at all times to maintain in normal
working order the surface water runoff drainage system described on Exhibit "C".
6.02 Safety and Environmental Matters. (a) Tenant shall not cause
or permit any nuisance or extra hazardous condition to exist or be maintained
upon the Premises and shall eliminate or remove the same promptly upon any
notice thereof. Tenant shall not cause or permit the storage, production,
generation, emission, disposal or burial of any hazardous or toxic materials or
substances upon the Premises and shall cease and eliminate any such activities
and clean up and otherwise remove any wastes or other materials resulting
therefrom promptly upon the request of Landlord or any Governmental Authority.
Notwithstanding the above prohibitions, however, such prohibitions as to use or
storage only shall not apply (i) to any condition, material or substance usually
and necessarily required
-13-
18
in the normal course of steam and electricity generation (ii) if Landlord
consents to any such condition, material or substance being used or stored on
the Premises after receiving prior written notice thereof from Tenant, or (iii)
those matters which Landlord is responsible for in accordance with Section
6.02(b).the requirements of this Section 6.02, Tenant at its sole cost and
expense shall comply fully with all Applicable Law relating to the use,
operation or maintenance of the Project. In the event that Tenant causes any
nuisance or any dangerous, harmful, hazardous, toxic or unhealthful condition on
the Premises, Tenant shall be fully liable for any damages, penalties or fines
relating to any such condition.
(b) On and after the Commencement Date, Landlord shall fully
and promptly pay, perform, discharge, defend, indemnify and hold harmless
Tenant, its parent and subsidiaries and affiliates, and their respective
directors, officers and employees (and no other party) from and against any
claim, demand, action or suit, loss, cost, damage, fine, penalty or expense
(including reasonable attorneys' fees) resulting from any Environmental Claim
arising out of any operations conducted, commitment made, product manufactured
or any action taken or omitted by Landlord with respect to the Premises
(including but not limited to the business operations, transactions or conduct
of the business directly or indirectly related thereto) during periods prior to
the Commencement Date (excluding any liabilities expressly assumed by Tenant
pursuant to this Agreement); provided, however, that on and after the
Commencement Date, Tenant shall fully and promptly pay, perform and discharge,
defend, indemnify and hold harmless Landlord and its directors, officers and
employees from and against any claim, demand, action or suit, loss, cost,
damage, fine, penalty or expense (including reasonable attorneys' fees)
resulting from any Environmental Claim arising out of any operations conducted,
commitment made, product manufactured, aggravation of existing conditions by
Tenant or any other action taken or omitted by Tenant, its parent, subsidiaries,
affiliates successors and assigns, with respect to the Premises (including but
not limited to business operations, transactions or conduct of the business
directly or indirectly related thereto) solely during periods after the
Commencement Date. To the extent Tenant may be reasonably expected to discover
the presence of any conditions which may give rise to Environmental Claims upon
conducting the investigation described in Section 2.01, Landlord's liability
shall terminate upon curing any condition disclosed in writing to Landlord
pursuant to said investigation. In any event, Landlord shall have no liability
for pre-existing conditions after the substantial completion of the site
preparation, borings, footings and foundations for Tenant's Plant, except to the
extent specific written notice to such effect is provided to Landlord prior to
completion of such
-14-
19
site preparation. Nothing contained herein shall have the effect of relieving
Landlord or Tenant from any liability prescribed by Applicable Law with regard
to Environmental Claims. For purposes of this subsection "Environmental Claim"
shall mean any claim or demand by any governmental authority or any person for
personal injury (including sickness, disease or death), property damage or
damage to the environment resulting from the release of any chemical, material
or emission into the environment at or in the vicinity of the Premises.
ARTICLE VII
INSURANCE; INDEMNIFICATION
7.01 Insurance. (a) Tenant shall maintain at its expense fire and
extended coverage insurance on the Project and the Retrofit Equipment in amounts
as are reasonably satisfactory to Landlord, which insurance shall cover all
personal property, improvements and betterments, including removable trade
fixtures, located in the Project and the Retrofit Equipment and on all other
additions, improvements and betterments made by Tenant.
(b) Tenant shall, at its own expense, maintain a policy or
policies of comprehensive general liability insurance with the premiums thereon
fully paid on or before due date. Such policy or policies shall provide for
proper limits, in amounts reasonably satisfactory to Landlord.
(c) Tenant shall comply with all applicable Workers'
Compensation laws and provide Workers' Compensation insurance, if required, for
all persons employed by it on the Project or the Retrofit Equipment or in
connection with the business conducted pursuant to this Lease and shall pay any
and all contributions, taxes and costs of such insurance and benefits payable
thereunder which are required to be withheld and/or paid by any employer under
the provisions of any applicable present or future law, ruling and regulation.
(d) Landlord will continue to maintain at its expense fire
and extended coverage insurance on its property in the vicinity of the Premises
and comprehensive general public liability insurance. Such insurance shall be in
amounts and provide such coverage as may be carried by Landlord as of the
Commencement Date and shall be consistent with reasonable risk management.
7.02 Maintenance of Insurance. Landlord and Tenant shall review the
limits for the above required insurance policies annually and said policy limits
shall be increased to proper limits as circumstances warrant. All policies of
insurance which Tenant must provide pursuant to the provisions of this Lease,
-15-
20
except Workers' Compensation insurance, shall be issued by solvent. insurance
carriers licensed to do business in the State of Texas and having a Best's
rating of at least XIII, A, or better, and shall be in form reasonably
satisfactory to Landlord. Tenant shall provide to Landlord copies of insurance
binders (or certificates in lieu thereof) in respect to the insurance policies
to be maintained in compliance with this Article no later than fifteen (15) days
prior to the date on which such policies are to be effective and copies or
certificates of such policies as soon as possible after the effective date of
such policies. Each such binder and policy shall provide that it may not be
cancelled without at least fifteen (15) days' notice to Landlord. If at any time
Tenant fails to provide insurance as required by the foregoing provisions of
this Article, Landlord, upon ten (10) days' notice to Tenant, may provide such
insurance as Tenant's agent and in Tenant's name, and until such time as Tenant
so insures (which for the purposes of this provision may only be on a subsequent
renewal date), Tenant shall reimburse Landlord for premiums paid by Landlord in
respect of same plus interest at the Applicable Rate from the date of Landlord's
payment within twenty (20) days of receipt of Landlord's statement and evidence
of payment of same.
7.03 Waiver of Subrogation Rights. Landlord and Tenant each hereby
waives any and all rights of recovery, claim, action or cause of action, against
the other, their respective agents, officers, or employees for any loss or
damage that may occur to the Project or the Retrofit Equipment, or any personal
property of such party therein, which may arise by reason of fire, the elements,
or any other cause which could be insured against under the terms of standard
fire and extended coverage insurance policies, regardless of cause or origin,
including negligence of the other party hereto, its agents, officers or
employees, and covenants that no insurer shall hold any right of Subrogation
against such other party.
7.04 INDEMNITY. IT IS FURTHER AGREED THAT, EXCEPT AS PROVIDED
ELSEWHERE IN THIS LEASE, LANDLORD AND TENANT, AS THE CASE MAY BE, SHALL
INDEMNIFY AND SAVE THE OTHER PARTY, AND ITS DIRECTORS, OFFICERS, EMPLOYEES,
HEIRS, EXECUTORS, SUCCESSORS AND ASSIGNS, HARMLESS FROM AND AGAINST ANY AND ALL
LOSS, COST, EXPENSE, DAMAGES, LIABILITY, DEMANDS, CLAIMS, ACTIONS OR CAUSES OF
ACTION (INCLUDING BUT NOT LIMITED TO REASONABLE ATTORNEYS' FEES IN THE EVENT OF
ONE HUNDRED PERCENT (100%) LIABILITY OF SUCH PARTY FOR SUCH LOSS, COST, ETC.
FOR INJURY TO OR DEATH OF PERSONS (INCLUDING THE RESPECTIVE EMPLOYEES AND AGENTS
OF THE PARTIES HERETO AND THIRD PARTIES), OR DAMAGE TO OR THE LOSS OF PROPERTY
(INCLUDING THE RESPECTIVE PROPERTY OF THE PARTIES HERETO AND THIRD PARTIES) TO
THE EXTENT CAUSED BY, OR ARISING OUT OF, OR RESULTING FROM ANY ACT, ERROR,
OMISSION OR NEGLIGENCE (INCLUDING THE FAILURE TO COMPLY WITH ANY APPLICABLE
REGULATIONS AS REQUIRED
-16-
21
HEREIN) OR VICARIOUS OR STRICT LIABILITY OF THE INDEMNIFYING PARTY IN
CONNECTION WITH THE DESIGN, INSTALLATION, OPERATION OR MAINTENANCE OF THE
PROPERTY AND EQUIPMENT OF THE PARTIES HERETO AS REQUIRED HEREIN. IT IS THUS
INTENDED THAT EACH PARTY SHALL BE LIABLE, AS BETWEEN THE PARTIES HERETO, IN THE
PERCENTAGE THAT SUCH PARTY WAS THE CAUSE OF ANY SUCH LOSS, COST, ETC.
ARTICLE VIII
DAMAGE AND DESTRUCTION
8.01 Election to Restore. If during the Term, all or any part of
the Project or the Retrofit Equipment is destroyed or damaged by fire or other
casualty (a "casualty") then in such event, unless this Lease is terminated as
hereinafter provided, Tenant shall immediately give Landlord notice thereof and
repair and reconstruct the Project to a condition substantially equivalent to
its original condition and substantially in accordance with the Plans (but in
any event in compliance with all Applicable Law).
8.02 Election to Terminate. In the event that Tenant is unable to
restore the Project within six (6) months of any such casualty to substantially
the condition in which it existed prior to such casualty, Tenant shall have the
election, exercisable by written notice to Landlord to be given within fifteen
(15) days after the expiration of such six (6) month period, to terminate this
Lease as of the date of such casualty. In the event of such termination,
Landlord shall have the right to:
(i) Require Tenant to clear the Premises and restore the Premises
to the condition in which it existed on the Commencement Date within a
reasonable period thereafter, but not to exceed nine (9) months after such
termination.
(ii) Elect to purchase the Improvements, in whole or in part, at
the fair market value thereof.
In the event of such termination, Tenant shall also be liable for the removal or
elimination of any nuisances, dangerous, harmful or unhealthy conditions or
governmental violations arising therefrom.
ARTICLE IX
CONDEMNATION
9.01 Total Taking. If there is a total or constructive total taking
of the Project and the Retrofit Equipment in condemnation proceedings or by any
right of eminent domain, this Lease shall terminate on the date of such taking
and the Rent
-17-
22
shall be prorated to the date of such taking. For the purposes of this Section
9.01, a "constructive total taking" means a taking of so much of the Project and
the Retrofit Equipment that the remaining portion cannot be used by Tenant for
the same purpose as before such taking. The award or awards for such taking
shall be paid to Tenant and Landlord as their interests may appear.
9.02 Partial Taking. If there is less than a constructive total
taking of the Project and the Retrofit Equipment, this Lease shall terminate as
to the portion of the Project and the Retrofit Equipment so taken, and from and
after the date of such taking the Annual Rent shall be reduced by just
proportion. Until the amount of the reduction in Annual Rent shall have been
determined, Tenant shall continue to pay to Landlord the Annual Rent provided
herein, it being understood, however, that when the amount of the abatement is
determined, Landlord shall refund to Tenant the amount of Annual Rent paid from
the date of the taking which is in excess of the amount to which the Annual Rent
has been reduced by such abatement. Subject to the provisions of the of any such
taking, Tenant shall promptly restore, repair, replace and rebuild the remaining
portion of the Project and the Retrofit Equipment to substantially the former
condition, and shall restore Tenant's Plant and the Retrofit Equipment, if
affected by the taking in order to perform the function originally intended. In
the event the amount of proceeds obtained from such taking is insufficient to
restore Tenant's Plant and the Retrofit Equipment as above provided, then Tenant
shall not be required to restore and a total taking shall be deemed to have
occurred, provided that Tenant shall be required to clear the Premises and
restore the Premises (or the remainder thereof) to the condition in which it
existed on the Commencement Date within a reasonable period after such taking,
but not to exceed nine (9) months thereafter. Tenant shall provide written
notice to Landlord of its election within thirty (30) days after final
determination that the proceeds of such taking will be less than the costs of
restoration, and, in any event, within ninety (90) days after such taking,
otherwise it will be deemed that Tenant has elected to restore as provided
herein. The award or awards payable for any taking of the type described in this
Section 9.02, less than reasonable costs of determination of the amount thereof
(such net amount being hereinafter called the "Condemnation Proceeds"), shall be
paid to Tenant and Landlord as their interests may appear.
9.03 Prosecution of Proceedings. Landlord and Tenant will cooperate
in the prosecution of any claim for damages arising by virtue of any proceeding
described in this Article IX. Landlord and Tenant shall each have the right to
participate in any condemnation proceeding to present its claim and obtain
suitable compensation.
-18-
23
ARTICLE X
TRADE FIXTURES AND OTHER
IMPROVEMENTS ON TERMINATION
10.01 Ownership of Improvements. Tenant shall own the Improvements
as specified in the Steam and Electricity Service Agreement. Landlord shall
have the option to purchase the Improvements as provided in the Steam and
Electricity Service Agreement. However, in the event that the parties fail to
agree on a purchase price for Tenant's Plant or the Retrofit Equipment at the
expiration or earlier termination of the Term, Landlord and Tenant shall
negotiate in good faith to reach a mutually satisfactory disposition of such
property. In the event that the parties fail to agree on disposition of all or
part of such property, Landlord may require restoration of all or part of the
Premises as it deems appropriate to the condition in which it existed at the
Commencement Date.
10.02 Removal of Trade Fixtures by Tenant. Tenant may remove its
trade fixtures, personal property and rolling stock and any special improvements
installed by Tenant at its expense which are in addition to the Improvements
which Tenant is obligated to install hereunder and which are not attached to the
Premises, provided that Landlord's estate value is not thereby diminished, at
any time or times provided:
(i) Such removal must be made not later than thirty (30) days
after the date this Lease is terminated and be performed in such manner as
to minimize to the extent reasonably possible any interference with or
disturbance of work then being performed by Landlord in or on the Project;
(ii) Tenant is not then in default hereunder; and
(iii) Such removal is effected without damage to the Project or the
Retrofit Equipment, other than minor damage reasonably anticipated in such
removal operations (or Tenant promptly repairs all damage caused by such
removal), and Tenant pays all cost of clearing and removal of debris
caused by or resulting from such removal.
Landlord shall not be responsible or liable for any damage to or other loss of
such trade fixtures, personal property, rolling stock and special improvements
notwithstanding Landlord's possession of the Project and the Retrofit Equipment
at the termination of this Lease. All trade fixtures, personal property, rolling
stock and special improvements on the Project which Tenant does not remove by
the end of thirty (30) days after the termination of this Lease shall, without
compensation to Tenant, become the property of Landlord. Tenant shall deliver to
19
24
[NOTE: THE TEXT IN THIS PAGE WAS TRANSFERED TO PREVIOUS PAGE]
-19-
25
Landlord within thirty, (30) days after termination of this Lease a bill of sale
sufficient to properly evidence transfer of such Retrofit Equipment, fixtures,
property, stock and improvements, provided that delivery of such bill of sale
shall not be a prerequisite to the transfer of ownership of such property to
Landlord.
ARTICLE XI
DEFAULTS AND REMEDIES
11.01 Events of Default by Tenant. The following shall each
constitute an Event of Default by Tenant under this Lease:
(a) If Tenant defaults under the Steam and Electricity Service Agreement
and such default results in termination of the Steam and Electricity
Service Agreement; or
(b) Tenant has a material failure to comply with Applicable Law as
required in Section 6.02 of this Lease and such failure is not cured
within forty-five (45) days after receipt of notice from Landlord,
or, if it is not feasible to perform such obligation fully within
said period, if Tenant shall not have promptly commenced to cure
said failure within said period, and thereafter diligently prosecute
the curing of such failure to conclusion.
11.02 Landlord's Remedies. (a) Landlord may, at its sole option, in
the event of an occurrence of an Event of Default as defined in Section 11.01,
exercise the following remedies provided for in this Section by written notice
of default to Tenant, which shall constitute the sole and exclusive remedies
available to Landlord in connection with an Event of Default under this Lease;
and provided that Landlord shall be required to mitigate any damages that it
incurs as a result of such default, which mitigation obligation shall decrease
the amount otherwise payable by Tenant under this Section 11.02:
In the Event of Default as above described and subject to the
foregoing, Landlord may exercise its option to acquire Tenant's Plant as
provided in Section 10.02, free and clear of all liens, claims and
encumbrances or agreements. Such option must be exercised within thirty
(30) days after the termination of this Lease. Closing of the transfer of
the Project shall occur within thirty (30) days after the exercise of said
option. In the event Landlord chooses not to exercise the option provided
above or the parties are not able to agree upon a purchase price for the
-20-
26
Project, Tenant shall have the option to sublease the Premises to a
qualified operator reasonably satisfactory to Landlord who agrees to
comply with the terms of this Lease and complies with the terms of the
Steam and Electricity Agreement and the Utility Service Agreement for any
transferee or assignee. There shall be no continuing default in this Lease
and Landlord shall be satisfied that the benefits obtained from the Steam
and Electricity Service Agreement and the Utility Service Agreement will
not be interrupted or materially adversely affected. In the event Tenant
is not able or refuses to comply with the foregoing, Landlord may
terminate this Lease. In the event of such termination, Tenant shall be
liable to Landlord for a sum of money equal to the total of (i) the unpaid
Rent earned at the time of termination and Additional Rent, plus interest
thereon at the Applicable Rate from the due date until paid, and (ii) any
other sum of money and damages owed by Tenant to Landlord using a discount
rate of twelve percent (12%).
In the event that Tenant cures any such default, Landlord may elect to reinstate
this Lease and continue under this Lease for the duration of the Term.
(b) For any failure of Tenant to perform any of its obligations under
this Lease other than an Event of Default, Landlord shall have the right to
enforce such obligations by injunction or mandamus action in a court of law
having jurisdiction thereof, including the right to receive any damages, costs,
attorneys' fees and other expenses owed to Landlord due to such failure of
performance.
11.03 Events of Default by Landlord. The following shall each
constitute an Event of Default by Landlord under this Lease:
(a) Failure of Landlord to perform any of its material obligations
under this Lease and such failure is not cured within forty-five (45) days
after receipt of notice from Tenant, or, if it is not feasible to perform
such obligation fully within said period, if Landlord shall not have
promptly commenced to cure said failure within said period, and thereafter
diligently prosecute the curing of such failure to conclusion; or
(b) The occurrence of any of the following:
(i) Landlord's bankruptcy or insolvency or the initiation of
any proceeding, voluntary or involuntary, against Landlord under the
bankruptcy or insolvency laws, or Landlord's failure to meet its
debts in the ordinary course of business;
-21-
27
provided, however, that there shall be no Event of Default if,
within ten (10) days from the written receipt of notice from Tenant
to terminate for such default, Landlord as debtor in possession or
Landlord's trustee, receiver, assignee or custodian, whichever is
obligee under this Lease, in writing affirms this Lease, the Steam
and Electricity Service Agreement and the Utility Service Agreement
and demonstrates to Tenant's satisfaction the ability to fulfill its
or their obligations under this Lease, the Steam and Electricity
Service Agreement and the Utility Service Agreement;
(ii) Landlord makes an assignment of all or a substantial
part of Landlord's Plant for the benefit of creditors.
11.04 Tenant's Remedies. Tenant may, in the event of an occurrence
of an Event of Default as defined in Section 11.03, exercise any or all of the
following remedies by written notice of default to Landlord, which shall
constitute the sole and exclusive remedies available to Tenant in connection
with this Lease, and provided that Tenant shall be required to mitigate any
damages that it incurs as a result of such default, which mitigation obligation
shall decrease the amount otherwise payable by Landlord under this Section
11.04:
(a) Tenant may terminate this Lease. In the event of such
termination, Tenant shall vacate the Premises and may disconnect
and/or remove the Retrofit Equipment, after reasonable notice to
Landlord, provided entry on Landlord's Land is done in accordance
with Landlord's safety and security requirements.
(b) Tenant may elect to continue under this Lease for the
term of the Steam and Electricity Service Agreement and for such
longer term as may be permitted in Section 2.03.
In the event that Landlord cures any such default, Tenant may elect to reinstate
this Lease and continue under this Lease for the duration of the Term.
11.05 Damage Limitations. Notwithstanding any provision of this
Lease to the contrary, neither party shall be liable for any special, incidental
or consequential damages, including without limitation, loss of profits,
suffered by the other party due to this Agreement for the existence, use or
operation of the Improvements or Landlord's Plant. Landlord shall in no event
and under no circumstances whatsoever be liable
-22-
28
for the cost or value of Tenant's Plant, Tenant's leasehold interest in the
Premises or the Retrofit Equipment or any other equipment provided by Tenant
hereunder due to the failure of Tenant's Plant to qualify for any reason
whatsoever as a qualifying cogeneration facility pursuant to the Federal Energy
Regulatory Commission Rules or similar applicable rules promulgated by any
successor state or federal regulatory body or bodies or to maintain an exemption
from the Power Plant and Industrial Fuel Use Act of 1978 and applicable
regulations thereunder.
11.06 Non-Waiver. Failure by any party to declare any default
immediately upon occurrence thereof, or delay in taking action in connection
therewith, shall not waive such default, but such party shall during the
continuance of such default have the right to declare such default at any time
and take such action as provided hereunder. Waiver of any right for any default
shall not constitute a waiver of any right for either a subsequent default of
the same obligation or for any other default.
11.07 Remedies Cumulative. All rights, privileges and remedies
afforded either of the parties hereto by this Lease shall be deemed cumulative
and the exercise of any one of such rights, privileges and remedies shall not be
deemed to be a waiver of any other right, privilege or remedy provided for
herein.
ARTICLE XII
TRANSFER OF INTERESTS
12.01 Assignment and Subletting. Except as otherwise provided in
this Article XII, Landlord and Tenant shall not assign, convey or otherwise
transfer any estate, right, title and interest hereunder and/or in the Project,
or any portion thereof, without the prior consent of the other party and any
assignment in violation of this provision shall be void. This Lease shall be
binding upon and shall inure to the benefit of the parties and their successors
and permitted assigns.
12.02 Permitted Transfers. Either party may assign its rights and
obligations under this Lease, subject to the prior written approval of the other
party hereto, which approval shall not be unreasonably withheld, to any
subsequent owner of all or substantially all of the assets of Tenant's Plant and
the Retrofit Equipment or Landlord's Plant, as the case may be, if such
subsequent owner accepts the assignment of this Lease and assumes the
obligations of the conveying party hereunder; provided, however, such right may
only be exercised by Tenant if it first complies with the requirements set forth
in the Steam and Electricity Service Agreement to permit Landlord a first right
of
-23-
29
refusal with respect to such sale. Upon receipt by the other party of written
documentation of such assignment and assumption, the conveying party shall be
released from all further liability and obligation hereunder. Either party shall
have the right to assign this Lease to a subsidiary or affiliate of such party
without the consent of the other party; provided that the assigning party shall
not be released from its obligations hereunder.
12.03 Prohibition Against Encumbrances. It is specifically agreed
and understood that neither Tenant nor any of its successors or assigns may
assign, encumber or hypothecate this Lease or any interest therein to secure
financing for the purchase of Tenant's Plant, the Retrofit Equipment or Tenant's
leasehold interest in the Premises, unless otherwise agreed by Landlord in
writing.
12.04 Estoppel Certificates. At the request of any party hereto, the
other party will execute an estoppel certificate in favor of the requesting
party or any other third party who may reasonably require such certificate,
certifying to such matter as such party may reasonably require.
ARTICLE XIII
LANDLORD'S RIGHT TO USE PREMISES
Landlord shall have the. right, from time to time, and at Landlord's risk
and expense, to erect, maintain, repair and use pipes, cables, conduits and
wires in, to and through the underground or surface levels of the Project to the
extent that same may be necessary with respect to other construction or
maintenance of other property of Landlord adjoining or proximately related to
the Project. All such work shall be done in such manner and at such times as to
avoid undue interference with Tenant's use and enjoyment of the Project.
Landlord shall promptly repair and indemnify Tenant from and against all damages
to the Project, property and any injuries to persons resulting from any such
work. All such repair work shall be performed in a good and workmanlike manner
with materials of at least the same quality as the original materials.
ARTICLE XIV
QUIET ENJOYMENT
Landlord shall, provided Tenant pays all Rent and fulfills all terms and
conditions of this Lease, take all necessary steps to secure to Tenant and to
maintain for the benefit of Tenant, subject to the provisions hereof, the quiet
and peaceful possession of the Project for the Term, without hindrance by
Landlord or any other person claiming or purporting to claim
-24-
30
title to the Project for the Term, or any part thereof, by, through or under
Landlord. It is acknowledged by Tenant that the Premises are subject to alleged
claims for payment of mechanics and materialmen as evidenced by Affidavit for
Fixing Lien filed December 10, 1984, in the amount of $25,759.92 recorded in the
Official Public Records of Galveston County, Texas, under Film Code No.
###-##-####. Landlord hereby affirmatively covenants to Tenant that the claims
represented by such Affidavit for Fixing Lien do not constitute an exception to
the warranty provided above. Landlord specifically agrees to indemnify and hold
Tenant and any parties claiming by, through or under Tenant harmless from and
against any and all loss, cost, expense, damage, liability, demand, claim,
action or cause of action (including but not limited to reasonable attorneys'
fees) arising from, related to or in any way caused by such claim. Landlord
shall immediately take affirmative action to contest and resolve such claim and
diligently pursue prosecution thereof in order that such claim may be released.
In the event such claim has an adverse material effect on Tenant or Tenant's
Plant, Landlord shall cause such claim to be removed against the Premises within
sixty (60) days after written demand therefor by Tenant.
ARTICLE XV
HOLDING OVER
In the event Tenant holds over after expiration or termination of
this Lease, and any extension or renewal thereof, without the written consent of
Landlord, Tenant shall pay as Rent one hundred twenty-five percent (125%) of the
Rent effective immediately prior to the commencement of the holdover period. No
holding over by Tenant after the Term shall operate to extend the Lease. In the
event of any unauthorized holding over, Tenant shall indemnify Landlord against
all claims for damages, including, but not limited to, claims by any other
lessee to whom Landlord may have leased the Project, or a portion thereof,
effective upon the termination of this Lease. Any holding over with the consent
of Landlord in writing shall thereafter constitute this Lease a lease from month
to month.
ARTICLE XVI
NOTICES
Any notices or communications permitted or required by this Lease to
be in writing shall be deemed sufficiently given if delivered in person or sent
by United States Postal Service, certified mail, postage prepaid, return receipt
requested addressed to the respective parties at the following addresses:
-25-
31
If to Landlord: Union Carbide Corporation
P. O. Box 471
Texas City, Texas 77590
Attention: Energy Systems Manager
with a copy to: Corporate Real Estate Department
Union Carbide Corporation
Old Ridgebury Road
Danbury, Connecticut 06817
If to Tenant: Northern Cogeneration One Company
2600 Dodge Street
Omaha, Nebraska 68131
Attention: Vice President and
General Manager, Cogeneration
Business Line
Any such notices or communication shall be deemed to have been given
as of the date so delivered or mailed as evidenced by the stamped postal
receipt. Either party hereto may change its address for the foregoing purposes
by giving written notice as provided hereunder of its new address.
ARTICLE XVII
GENERAL PROVISIONS
17.01 Time is of the Essence. In all instances where Tenant is
required hereunder to pay any sum or to perform any act at a particular
indicated time or within an indicated period, time is of the essence of such
provision.
17.02 Entire Agreement. This Lease, together with other related
contracts and documents provided in connection therewith, contains the entire
agreement of the parties, and no representations or agreements, oral or
otherwise, between the parties which are not embodied therein or attached
thereto shall be of any force or effect. Any additions or amendments to this
Lease will be of no force or effect unless in writing and signed by the parties
hereto.
17.03 No Agency or Partnership. Nothing herein will be deemed or
construed by the parties hereto, nor by any third party, as creating or
authorizing the creation of the relationship of principal and agent or of a
partnership or joint venture between Landlord and Tenant.
17.04 No Merger. There will be no merger of this Lease or of the
leasehold estate created hereby with the fee estate in the Premises or any
portion thereof by reason of the fact that the same person or entity may acquire
or hold, directly
-26-
32
or indirectly, all or part of such Lease or leasehold estate, or any interest
therein, and such fee estate, or any interest therein.
17.05 Attorneys' Fees. In the event of any litigation regarding this
Lease, the losing party shall pay to the prevailing party all reasonable
attorneys' fees in connection with such proceedings.
17.06 Governing Law. This Lease will be governed and construed in
accordance with the laws of the State of Texas. Venue of any suit, right or
cause of action arising under or in connection with this Lease shall lie
exclusively in Galveston County, Texas.
17.07 Partial Invalidity. If any term or provision of this Lease or
the application thereof to any person or circumstances will, to any extent, be
illegal, invalid or unenforceable under Applicable Law or becomes unenforceable
because of judicial construction, the remaining terms and provisions of this
Lease or the application thereof to persons or circumstances other than those as
to which it is held unenforceable shall not be affected thereby.
17.08 Binding Effect. The terms and conditions of this Lease
constitute a real property right and covenant running with the Premises and
shall be binding upon and inure to the benefit of the parties hereto, their
respective legal representatives, successors and assigns. Notwithstanding
termination of this Lease, the obligations of the respective parties hereto
arising prior to such termination shall continue and remain in full force and
effect.
17.09 Construction. The headings contained in this Lease are for
reference purposes only and shall not affect the meaning or interpretation of
this Lease. All personal pronouns used in this Lease include the other genders,
whether used in the masculine, feminine or neuter gender, and the singular shall
include the plural whenever and as often as may be appropriate.
17.10 Memorandum of Lease. At the request of either party hereto,
Landlord and Tenant shall execute an appropriate memorandum of this Lease in
recordable form for filing in the Official Records of Real Property for
Galveston County, Texas.
17.11 Confidentiality Except to the extent necessary to record a
sufficient memorandum of this Lease as provided in Section 17.10 hereof, the
parties agree that the terms and conditions contained in this Lease shall not be
disclosed to third parties without the written consent of the parties hereto;
provided, however, that the terms and conditions in this Lease may
-27-
33
be disclosed to the extent such disclosure is required to comply with an order
of a court or administrative body having jurisdiction over this Lease.
17.12 Force Majeure. Neither Landlord or Tenant shall be liable to
the other for failure to perform as required in this Lease or for any damages
resulting from such failure to the extent that such failure or damages shall be
the result of occurrences of Force Majeure.
17.13 Compliance with Laws. Landlord and Tenant shall at all times
comply with all applicable and properly enacted statutes, ordinances, codes,
regulations, or enactments of public bodies or Governmental Authorities
exercising jurisdiction over the subject matter hereof in the installation and
operation of all facilities and equipment, and any other performance, required
hereunder. Tenant shall be solely responsible for acquiring any permits,
certificates or other such governmental approvals required by Applicable Law for
the construction and provision of Tenant's Plant and the Retrofit Equipment,
except to the extent otherwise expressly provided in the Agreements or agreed by
Landlord in writing.
17.14 Late Payments. (a) Each party hereto acknowledges that late
payment of any sum due hereunder will cause the receiving party to incur costs
not contemplated by this Lease, the exact amount of which will be difficult to
ascertain. Accordingly, if any sum due under this Lease shall not be received
within twenty (20) days after the same is due and payable, then the obligor
shall pay the sum due plus the Applicable Rate applied on a per annum basis, and
any costs of collection incurred by the party to be paid by reason of failure to
pay when due. Acceptance of late payments shall in no event constitute a waiver
of any default with respect to such overdue amount, nor prevent any party from
exercising any other rights and remedies granted herein.
(b) If Tenant fails to pay in full any installment or payment of
Rent or other charge or money obligation herein required to be paid by Tenant
within a period of ninety (90) days after such payment is due, unless Tenant
shall in good faith be disputing the portion of the amount due that has not been
paid, Landlord may offset the amount of such Rent or other charge or money
obligation against any amounts owed by Landlord to Tenant under the Steam and
Electricity Service Agreement.
17.15 Precautionary Filings. Landlord and Tenant intend that this
instrument shall be an agreement of lease and such instrument shall not be
intended as a security device. The parties hereto intend to file a Form UCC-1
Financing Statement in accordance with the provisions of Section 9.408 of the
Texas
-28-
34
Business and Commerce Code, which Financing Statement shall designate the
parties hereto as Landlord and Tenant, it being such parties' intent that such
Financing Statement shall not of itself be a factor in determining whether or
not this Lease is intended as security.
17.16 Priority of Agreements. In the event of any inconsistency
between or among this Lease, the Stream and Electricity Service Agreement or the
Utility Service Agreement, or any other agreements or documents prepared in
connection therewith, the order of priority of such agreements shall be as
follows, with the controlling agreements listed first:
a) The Steam and Electricity Service Agreement.
b) The Utility Service Agreement.
c) This Lease.
d) Other agreements or documents.
17.17 Fair Market Value. (a) That party exercising its purchase
rights (the "Purchaser"), shall give written notice to the owner of the Premises
(the "Seller") specifying the name and address of an appraiser acting on its
behalf to appraise the Premises and within twenty (20) days after receipt of
such notice the Seller shall give written notice to the Purchaser likewise
stating the name and address of its appraiser for such purposes. Said appraiser
shall within twenty (20) days after appointment of Seller's appraiser, appoint a
mutually acceptable third appraiser. Each of the said appraisers shall be a
member of the American Institute of Real Estate Appraisers or the Society of
Real Estate Appraisers and shall be reasonably qualified by professional
training and practical experience to appraise industrial real estate situated in
Galveston County, Texas.
(b) Each of said three appraisers shall promptly and independently
endeavor to arrived at the fair market value of the Premises based upon its use
for industrial activity and based upon such additional matters as are
customarily taken into account in preparing such appraisals. Each appraiser
shall submit to Seller and Purchaser a written appraisal report. The average
value of the two appraisals having values nearest to each other shall be the
fair market value of the Premises. Said appraisals shall be submitted to Seller
and Purchaser no later than thirty (30) days after the appointment of the third
appraiser.
(c) In the event that the two appraisers appointed by Seller and
Purchaser shall fail to appoint a third appraiser within the aforesaid twenty
(20) day period following appointment
-29-
35
appraisals shall be submitted to Landlord and Tenant no later than thirty (30)
days after the appointment of the third appraiser.
(c) In the event that the two appraisers appointed by Landlord and
Tenant shall fail to appoint a third appraiser within the aforesaid twenty (20)
day period following appointment of second appraiser, then the third appraiser
shall be designated by the American Arbitration Association in the City of
Houston, Texas upon the request of either of the parties hereto.
(d) Each party shall pay the fees and expenses of the appraiser
designated by it, and the parties shall share equally the fees and expenses of
the third appraiser.
EXECUTED AND WRITTEN effective as of the date and year first above
written.
LANDLORD:
UNION CARBIDE CORPORATION
By: /s/ H. W. Lichtenberger
--------------------------------------
ATTEST: Name: /s/ H. W. Lichtenberger
-------------------------------
[SIG] Title: President
- --------------------------- -------------------------------
Solvents & Coatings Material
TENANT:
NORTHERN COGENERATION ONE COMPANY
ATTEST: By: /s/ Gary D. Hoover
--------------------------------------
/s/ J. M. Bligh Name: Gary D. Hoover
- ----------------------------- -------------------------------
Assistant Secretary Title: Vice Pres & Gen Mngr.
-------------------------------
-30-
36
EXHIBIT "A"
A TRACT OF LAND OUT-OF KOHFELDT'S SECOND ADDITION TO THE CITY OF TEXAS
CITY, GALVESTON COUNTY, TEXAS
According to the map of Kohfeldt's Second Addition to the City of Texas City of
record in Volume 254-A, Page 19 in the office of the County Clerk of Galveston
County, Texas and being more fully described by metes and bounds as follows:
BEGINNING at a one-inch iron pipe set for the point of intersection of the South
right-of-way line of 5th Avenue South and and the West right-of-way line of
Grant Street, said beginning point being the Northeast corner of Block 2 of said
Kohfeldt's Second Addition and having 29 degrees 22' 40" North Latitude and 94
degrees 56' 34.8" West Longitude based on U.S.C.G.S. Horizontal Control
Monuments;
THENCE South 0 degrees 01' 12" East along the West right-of-way line of Grant
Street, same being the East line of said Block 2, a distance of 418.78 feet to a
one-inch iron pipe set for corner;
THENCE South 89 degrees 581 48" West along a line parallel to the South line of
said Block 2 a distance of 960.57 feet to a one-inch iron pipe set for corner;
THENCE North 0 degrees 01' 12" West along a line parallel to the East line of
said Block 2 a distance of 406.19 feet to a one-inch iron pipe set for corner on
the South right-of-way line of 5th Avenue South;
THENCE North 89 degrees 15' 07" East along the South right-of-way line of 5th
Avenue South a distance of 300.65 feet to a one-inch iron pipe set for point of
intersection;
THENCE North 89 degrees 13' 07" East along the South right-of-way line of 5th
Avenue South a distance of 660.00 feet to the PLACE OF BEGINNING and containing
9.09 Acres of land, more or less;
SUBJECT TO the pipeline facilities described on the attached Exhibit C and a
multi-pipeline easement shown on D. Engineers Inc. Plat dated September 30, 1985
as shown on the attached Exhibit A-1.
37
EXHIBIT "C"
Map describing Diagram of 24" Outfall Pipe Location Plan