Exhibit 10.13
OPTION AGREEMENT
TEJON RANCHCORP
AND
PASTORIA ENERGY FACILITY, LLC
APRIL 30, 1999
This Option Agreement is made and entered into in Los Angeles, California
as of April 30, 1999 between Tejon Ranchcorp, a California corporation
("Ranchcorp"), and Pastoria Energy Facility, LLC, a Delaware limited liability
company ("PEF"). Capitalized terms used in this Agreement have the meanings
stated in Section 12 of this Agreement or the provisions there referred to.
RECITALS
Ranchcorp is the owner of the Tejon Ranch. PEF is a special purpose entity
created for the purpose of developing a merchant power plant to be located on a
portion of the Tejon Ranch. (This merchant power plant together with the
associated improvements serving it as described in the Easement Agreement are
collectively referred to in this Agreement as the "Project"). Ranchcorp and PEF
and certain of their Affiliates have agreed to work together toward development
of the Project pursuant to a Transaction Agreement of even date herewith between
the Tejon Interests and the Developer Interests (the "Transaction Agreement").
IN THIS CONTEXT, the parties agree as follows:
Section 1. Grant of Option and Easements.
1.1 Project Site. Ranchcorp hereby grants to PEF an option, subject to all
of the terms and conditions of this Agreement and on the terms and conditions
set forth in the Lease, to lease up to 35 contiguous acres of unimproved land
(the "Project Site") within the area described in Schedule 1.1 (the "Site
Selection Area"). Notwithstanding the foregoing, the Project Site does not
include, and Ranchcorp expressly reserves to itself, all water, water rights and
water stock (other than the right to use ground water from a well drilled for
the purpose of providing basic water service to the Project only for drinking,
bathrooms, kitchens, landscape irrigation and other comparable uses), minerals
and mineral rights belonging to the Project Site; provided that Ranchcorp shall
have no surface rights related to any minerals or mineral rights, and shall not,
in the exercise of any mineral rights, disturb the surface of the Project Site
or drill at a depth which is less than five hundred (500) feet below the surface
of the Project Site.
1.2 Easement Rights. Ranchcorp hereby grants to PEF an option to obtain
from Ranchcorp certain easements (the "Easement Rights") within the areas
described in Schedule 1.2 (the "Easement Selection Areas") (which include the
Site Selection Area but which do not include any land owned in fee by the
California Department of Water Resources), along the routes generally set forth
therein, subject to all of the terms and conditions of this Agreement and on the
terms and conditions set forth in the Easement Agreement. PEF shall have the
right to exercise such option to obtain the easements described in the Easement
Agreement within all or any portion of the Easement Selection Area, subject only
to Section 3.2(d) of the Lease. The real property subject to the Easement Rights
as located pursuant to Section 1.4 is referred to in this Agreement as the
"Easement Parcels."
1.3 Option; Option Property. The options described in Sections 1.1 and 1.2
are collectively referred to in this Agreement as the "Option." The Project Site
and the Easement Parcels are collectively referred to in this Agreement as the
"Property."
1.4 Location of Project Site and Easement Rights. On or before the earlier
of (i) the exercise of the Option under Section 4.1, and (ii) October 1, 2000,
PEF shall fix the location of (a) the Project Site by designating no more than
35 contiguous acres in the Site Selection Area identified by legal description
in a notice to Ranchcorp, and (b) the Easement Rights by providing a legal
description of the easement centerlines which shall be within the Easement
Selection Area and along the routes generally set forth in Schedule 1.2. Failure
to locate the Project Site and Easement Rights by October 1, 2000, shall entitle
Ranchcorp to fix such location by notice to PEF.
1.5 Ranchcorp's Representations and Warranties.
(a) Now and Until Selection Date. Ranchcorp represents and warrants that
the following facts and circumstances are now true and correct, and will
continue to be true and correct until the date (the "Selection Date") on which
the locations of the Project Site and the Easement Rights have been fixed
pursuant to Section 1.4:
(i) Ranchcorp is now and will on the Closing Date be the owner of fee
simple title to the Site Selection Area. The Site Selection Area includes at
least 35 contiguous acres (a) which are free and clear of Material Title
Defects, except for those (if any) set forth in Schedule 1.5(a)(i)), and (b)
which are not affected by any Material Environmental Condition.
(ii) Ranchcorp is now and will on the Closing Date be the owner of fee
simple title to the Easement Selection Areas; provided Ranchcorp may sell or
otherwise convey fee title to all or any portion of the Easement Selection Areas
(other than the Site Selection Area) so long as prior to doing so, the Easement
Agreement is duly executed and recorded as to the portion of the Easement
Selection Areas sold or conveyed (after appropriate modification of the Easement
Agreement and the Lease to reflect the fact that the Easement Agreement and
Lease will not be executed concurrently, as is contemplated at the date of this
Agreement), or other arrangements reasonably satisfactory to PEF are made which
will enable Ranchcorp to grant the Easement Rights over that portion of the
Easement Selection Areas on the Closing Date. The Easement Selection Areas
include (along the routes generally set forth in Schedule 1.2) linear routes (a)
which are free and clear of Material Title Defects except for those (if any) set
forth in Schedule 1.5(a)(ii), (b) which are not affected by any Material
Environmental Condition, and (c) which will provide PEF with uninterrupted
linear access (except for land contiguous to the California Aqueduct owned by
the California Department of Water Resources ("DWR") in fee) from the Project
Site to each of the Identified Facilities. The "Identified Facilities" are (i)
the Pastoria substation, (ii) the Edmonston Pumping Station, (iii) the natural
gas pipeline jointly owned by Kern River Gas Transmission Company and Mojave
Pipeline Company, (iv) the California Aqueduct right-of-way in the vicinity of
the Project Site, (v) the water pipelines of Wheeler Ridge Maricopa Water
Storage District ("WRM") in the vicinity of the Project Site, (vi) the proposed
location of a water bank facility which may be constructed in the vicinity of
the Project Site by WRM or a joint powers authority of which it is a member, and
(vii) the wells operated by Drilling and Production Company in the vicinity of
the Project Site, proposed for use as injection wells, and (viii) the Edmonston
Pumping Plant Road.
A "Title Condition" is any lien, lease, encumbrance, restriction or other title
matter affecting the Property. A "Material Title Defect" is any Title Condition
that would materially affect the construction, operation or maintenance of the
Project or enforcement of creditors' rights by any lender who provides financing
for the Project. A Title Condition will not be considered a Material Title
Defect if (i) it creates an obstacle to construction or requires other
corrective work not materially greater than customarily found in the pipeline
industry, the electricity transmission
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industry or in the construction of power plants comparable to the Project, or
(ii) it results in additional construction costs associated solely with the
expense of crossing an existing non-exclusive easement located on the Selection
Areas.
(b) Nature and Survival. Each representation and warranty contained in
this Section 1.5 shall be considered material and be effective notwithstanding
any investigation of the matters covered thereby by or on behalf of either of
the Developer Interests or any knowledge (actual or constructive) on the part of
either of the Developer Interests as to the truth or accuracy (or falseness or
inaccuracy) thereof. The warranties regarding ownership of the Selection Areas
set forth in the first sentences of Sections 1.5(a)(i) and 1.5(a)(ii) shall be
remade as of the Closing Date and shall survive the Closing Date, but as of the
Closing Date shall apply only to the Project Site and the Easement Parcels
respectively. However, the other warranties set forth in this Section 1.5 shall
not survive the Selection Date.
(c) Breach; Other. In the event any material breach of any of the
representations and warranties of Ranchcorp set forth in Section 1.5(a) shall
exist or occur prior to the Selection Date, then Ranchcorp shall, upon demand
made by PEF prior to the Selection Date, refund to PEF all payments made by PEF
under Section 2 prior to the date of its demand, together with interest thereon
at the rate of 10 percent per annum without compounding from the date of payment
thereof by PEF to the date of refund by Ranchcorp, whereupon this Agreement and
the Transaction Agreement shall terminate. PEF's remedies under the preceding
sentence shall be its sole and exclusive remedies against Ranchcorp on account
of any breach of Ranchcorp's representations and warranties set forth in this
Section 1.5, except that a breach of any of the representations and warranties
set forth in the first sentences of Sections 1.5(a)(i) and 1.5(a)(ii) shall
entitle PEF to the remedies set forth in Section 10 and those remedies shall
survive the termination of this Agreement.
1.6 Memorandum of Option. Concurrently with the execution of this
Agreement Ranchcorp shall execute and acknowledge a memorandum of option in the
form attached as Schedule 1.6 (the "Option Memorandum"). In the event the
Developer Interests record the Option Memorandum in the Official Records of Kern
County, the Developer Interests shall be responsible for payment of all fees and
taxes associated with such recording.
Section 2. Initial Obligation
2.1 Payments by PEF. In consideration of Ranchcorp entering into this
Agreement and of the Tejon Interests entering into the Transaction Agreement,
PEF agrees, subject to Section 2.2, to pay $5 million to Ranchcorp (the
"Initial Obligation"). The unpaid principal portion of the Initial Obligation
will bear interest at 10 percent per annum without compounding from the date of
this Agreement until the date (if any) of payment in full, and be payable,
subject to Section 2.2, as follows:
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Payment Date Payment Amount
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April 30, 1999 $500,000
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June 1, 1999 and
Monthly Thereafter
Until Financial Closing $100,000
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Payment Date Payment Amount
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December 30, 1999 $250,000
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Earlier of (x) October
1, 2000, and (y) the
Data/Water Adequacy Date $1 million
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Date of Financial The unpaid balance (if
Closing any) of the Initial
Obligation, together with all
accrued unpaid interest
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The "Data/Water Adequacy Date" is the first date on which each of the following
conditions is satisfied: (i) the CEC shall have determined that the Project AFC
is complete and data adequate within the meaning and for purposes of 20 CCR
Section 1709 and (ii) PEF shall have entered into a contract for the supply of
cooling water to the Project which is satisfactory to PEF or the Project AFC
shall specify air cooling as the primary cooling solution. PEF shall notify
Ranchcorp when a satisfactory water contract has been entered into, and shall
update Ranchcorp periodically on the status of its efforts to enter into such a
water contract.
PEF may prepay any or all of the Initial Obligation at any time and for any or
no reason as PEF deems appropriate, without premium or penalty.
2.2 Termination of Initial Obligation. By notice to Ranchcorp, PEF may
terminate the Initial Obligation and its obligation to make any payments under
Section 2.1 after the date of the notice. Any such notice may be given at any
time and for any or no reason as PEF deems appropriate. Upon any such
termination, the Option Period will end. Ranchcorp will have no obligation to
repay any payment made under Section 2.1 prior to the date of termination. If
Ranchcorp receives neither a termination notice nor full payment on or before
the date a payment is due under Section 2.1, then, on or after ten (10) days
after delivery of a notice of such non-receipt to PEF and failure of PEF to
deliver a termination notice or full payment within such 10-day time period,
Ranchcorp may terminate the Option, the Initial Obligation and the Transaction
Agreement.
The parties acknowledge that the Initial Obligation will not accelerate
upon its termination pursuant to this Section 2.2. For example, if PEF were to
terminate the Initial Obligation on July 15, 1999, PEF would have paid $700,000
to Ranchcorp prior to that date ($500,000 on April 30, 1999 and $100,000 on each
of June 1 and July 1, 1999.) Upon and following such termination, PEF would not
be obligated for any payments called for by Section 2.1 due subsequent to July
15, 1999, and would not be obligated for any interest. Ranchcorp would have no
obligation to refund to PEF any of the $700,000 that PEF had previously paid to
Ranchcorp under Section 2.1. Termination of the Initial Obligation will not
negate PEF's obligation to make any payment due prior to termination but not
paid prior to termination.
This Section 2.2 is not intended to and does not in any way limit or
affect any of the rights or remedies available to PEF in the event Ranchcorp
defaults in the due and timely performance of any of its obligations, or is in
breach of any of its representations and warranties, under this Agreement or any
other agreement.
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Section 3. Option Period
PEF's right to exercise the Option shall commence on the date of this
Agreement and shall continue until the earliest of (i) the date PEF exercises
the Option by delivering notice to Ranchcorp of PEF's exercise of the Option
pursuant to Section 4, (ii) 6 years after the date of this Agreement, and (iii)
the date PEF or Ranchcorp terminates the Initial Obligation pursuant to Section
2.2 (the "Option Period").
Section 4. Exercise of Option
4.1 Exercise Notice. PEF shall exercise the Option (if at all) by
delivering to Ranchcorp a written notice of exercise signed by PEF in the form
attached as Schedule 4.1. Ranchcorp expressly acknowledges that PEF may decline
to exercise the Option for any or no reason as PEF deems appropriate.
4.2 Closing. No later than 15 days after PEF's exercise of the Option, the
parties shall meet at the office of McCutchen, Doyle, Brown & Enersen in Los
Angeles, California to consummate the lease and easement transactions
contemplated by this Agreement (the "Closing Date"). No later than the Closing
Date, all Initial Obligation payments shall have been paid in full. At or
concurrently with this meeting:
(a) Ground Lease and Deed of Easement. Ranchcorp and PEF shall execute and
deliver the Lease and the Easement Agreement. The "Lease" is the ground lease
set forth in Schedule 4.2(a).1, as modified (if at all) prior to the Closing
pursuant to Section 3.4 of the Transaction Agreement or otherwise. The "Easement
Agreement" is the Easement Deed and Agreement set forth in Schedule 4.2(a).2, as
modified (if at all) prior to the Closing pursuant to Section 3.4 of the
Transaction Agreement or otherwise.
(b) Memorandum of Lease. The parties shall execute, acknowledge and
deliver a memorandum of the Lease in the form attached to the Lease (the "Lease
Memorandum").
(c) Ranchcorp's Deliveries. Ranchcorp shall deliver to PEF: (i) a
certificate of Ranchcorp remaking the representations and warranties of
Ranchcorp as required under Sections 1.5(b) and 9.2, (ii) such additional
documents including, but not limited to, state, county and local transfer and
transaction tax forms, as applicable, as may be necessary or desirable for
consummation of the transactions contemplated by this Agreement; and (iii) an
opinion of Ranchcorp's counsel as provided in Section 4.4 of the Transaction
Agreement.
(d) PEF's Deliveries. PEF shall deliver to Ranchcorp: (i) such additional
documents including, but not limited to, state, county and local transfer and
transaction tax forms, as applicable, as may be necessary or desirable for
consummation of the transactions contemplated by this Agreement; and (ii) an
opinion of PEF's counsel as provided in Section 4.4 of the Transaction
Agreement.
(e) Security. PEF shall deliver to Ranchcorp a guarantee, surety bond or
other form of security acceptable to Ranchcorp securing performance of PEF's
obligations under Section 8.14 of the Lease (the "Decommissioning Security").
The Decommissioning Security will be issued by (i) Enron Capital & Trade
Resources Corp., or (ii) Bank of America or another bank, insurer or other
Person having at least the same financial capability of performing under the
Decommissioning Security, or (iii) each owner of an equity interest in PEF (or
if such owner is not financially capable of performing its obligations under the
Decommissioning Security, by an
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Affiliate thereof which is so financially capable), who shall be severally
liable under the Decommissioning Security for that portion of any payment
required to be paid under the Decommissioning Security which is equal to such
owner's percentage ownership of the equity interest in PEF. The Decommissioning
Security shall be in the amount of $10 million. If the Decommissioning Security
provides for a date of expiration earlier than the date on which PEF shall have
performed its obligations under Section 8.13 of the Lease in full, the
Decommissioning Security shall provide it can be drawn upon if not replaced with
other Decommissioning Security no less than 30 days prior to the date of
expiration. PEF shall ensure that Decommissioning Security is in place until the
date on which PEF shall have performed its obligations under Section 8.13 of the
Lease in full."
(f) Recording. PEF shall cause the Lease Memorandum and Easement Agreement
to be recorded in the Official Records of Kern County, California, and shall pay
all amounts required to be paid to effect such recording, including any
documentary transfer tax associated with the Lease. Ranchcorp will cooperate
with PEF in any efforts by PEF to obtain a Leasehold Title Policy. PEF shall pay
for any title insurance and endorsements it obtains.
Section 5. Failure to Exercise the Option
If PEF fails to exercise the Option by the end of the Option Period, or if
the Option is terminated as provided in Section 2.2, then (a) Ranchcorp shall
have no obligation to refund to PEF any payments theretofore made on account of
the Initial Obligation; (b) PEF shall deliver to Ranchcorp a fully executed and
acknowledged quitclaim deed to the Site Selection Areas; (c) this Agreement
shall immediately terminate; and (d) the parties shall have no further
obligations to each other except as otherwise specifically provided in this
Agreement and the Transaction Agreement. This Section 5 is not intended to and
does not in any way limit or affect any of the rights or remedies available to
PEF in the event Ranchcorp defaults in the due and timely performance of any of
its obligations, or is in breach of any of its representations and warranties,
under this Agreement or any other agreement.
Section 6. Condition of Title
Ranchcorp represents, warrants and covenants as follows:
6.1 Title -- Easements. On the Closing Date, the Easement Rights shall be
conveyed by Ranchcorp to PEF, and Ranchcorp's title to the Easement Parcels
shall be, free and clear of Material Title Defects except for those (if any)
which existed of record with respect to the Easement Parcels at the Selection
Date, or (ii) which otherwise have been consented to in writing by PEF since the
Selection Date. If, on the Closing Date, the Easement Rights or Ranchcorp's
title to the Easement Parcels is subject to any Material Title Defect not
permitted by the preceding sentence, then PEF, at its election, may proceed or
not with the transactions contemplated by this Agreement. In either case, PEF
shall not be deemed to have waived any of its rights or remedies against
Ranchcorp on account of Ranchcorp's default under this Section 6.1 (or any other
provision of this Agreement), and PEF shall be free, subject only to Section
12.8 of the Transaction Agreement, to thereafter pursue all such rights and
remedies.
6.2 Title -- Leasehold. On the Closing Date, the leasehold interest in the
Project Site shall be conveyed by Ranchcorp to PEF, and Ranchcorp's title to the
Project Site shall be, free and clear of Material Title Defects except for those
(if any) (i) which existed of record with respect to the Project Site at the
Selection Date, or (ii) which have been consented to in writing by PEF since the
Selection Date. If, on the Closing Date, the leasehold interest in the Project
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Site or Ranchcorp's title to the Project Site is subject to any Material Title
Defect not permitted by the preceding sentence, then PEF, at its election, may
proceed or not with the transactions contemplated by this Agreement. In either
case, PEF shall not be deemed to have waived any of its rights or remedies
against Ranchcorp on account of Ranchcorp's default under this Section 6.1 (or
any other provision of this Agreement), and PEF shall be free, subject only to
Section 12.8 of the Transaction Agreement, to thereafter pursue all such rights
and remedies.
Section 7. Rights of Entry and Inspection
7.1 Environmental Studies and Feasibility Study. At any time and from time
to time during the Option Period, PEF and its agents, employees, independent
contractors and representatives shall have the right to enter upon all portions
of the Site Selection Area and the Easement Selection Areas (collectively, the
"Selection Areas") and, to the extent reasonably requested by PEF, other
adjacent portions of the Tejon Ranch for purposes of inspecting the Selection
Areas, conducting due diligence activities, tests and studies, preparing maps
and surveys and all other purposes reasonably related to the leasing of the
Property and the development of the Project (collectively, the "Feasibility
Study"). Without limiting the foregoing, PEF shall have the right to perform a
complete environmental audit of the Selection Areas and soils tests on any
portion of any of the Selection Areas and, to the extent reasonably requested by
PEF, other adjacent portions of the Tejon Ranch, and any other technical studies
which may in PEF's sole discretion be helpful in deciding whether to exercise
the Option (collectively, the "Environmental Studies"). Notwithstanding the
foregoing, PEF shall obtain Ranchcorp's prior written consent, not to be
unreasonably withheld, prior to the commencement of any surface-disturbing
activities on any of the Selection Areas and further provided that PEF's
contractors and consultants shall execute and deliver to Ranchcorp an agreement
in the form attached as Schedule 7.1 prior to entry upon any of the Selection
Areas or other portions of the Tejon Ranch.
7.2 Scope of Studies. The Environmental Studies and Feasibility Study may
include environmental assessments, environmental impact reports, weather
monitoring, traffic studies, noise studies, water quality and availability
studies, archeological and paleontological studies, seismic and slope stability
studies and other studies which may be necessary or appropriate in PEF's sole
discretion for PEF to completely evaluate the condition and suitability for
PEF's purposes of any part of any of the Selection Areas. All studies shall be
done at PEF's sole cost and at no cost or expense to Ranchcorp. Except as set
forth in Schedule 7.2, PEF shall not alter the grade of any portion of any of
the Selection Areas or erect any improvements prior to execution of the Lease
and Easement Agreement.
7.3 Insurance. During the Option Period, PEF shall maintain in effect in
respect of its activities and operations (and furnish Ranchcorp with evidence
that PEF does this) a comprehensive liability insurance policy (including owned
and non-owned autos) with combined single limit coverage of $1,000,000, naming
Ranchcorp as an additional insured, issued by a responsible licensed insurer.
The policy shall include an endorsement that the policy shall not be canceled or
subject to reduction or other modification except after 30 days prior written
notice to Ranchcorp by the insurer.
7.4 Indemnity.
Subject to Section 12.8 of the Transaction Agreement:
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(a) With respect to claims by PEF or by any of PEF's Agents or by third
parties (other than any of the Tejon Interests) arising or claimed to arise out
of the presence or activities of PEF or any of PEF's Agents on the Tejon Ranch,
and to claims by PEF or by any of PEF's Agents for work performed on the Project
or for materials supplied to the Project, PEF will defend, indemnify and hold
Ranchcorp harmless from all actual losses, damages, liabilities, claims,
expenses, causes of action, judgments and liens filed against any of the
Selection Areas or against any other land or land rights owned by Ranchcorp in
Kern County, California, arising directly from the actions of PEF or any of
PEF's Agents, except to the extent arising (i) from active negligence,
recklessness, willful misconduct or breach of contract or law by Ranchcorp or
any of Ranchcorp's Agents, (ii) as a consequence of strict liability imposed
upon Ranchcorp or any of Ranchcorp's Agents as a matter of law, or (iii) from
the discovery or disclosure of any Hazardous Substance or other substance in,
under or about the Tejon Ranch unless the presence thereof is due to any act or
omission of PEF or any of PEF's Agents.
(b) With respect to claims by Ranchcorp for physical damage to its
property or for personal injury to Ranchcorp or Ranchcorp's Agents arising out
of the presence of PEF or any of PEF's Agents on the Tejon Ranch, PEF will
defend, indemnify and hold Ranchcorp harmless from all actual losses, damages,
liens, liabilities, claims, expenses, causes of action and judgments arising
directly from the actions of PEF or any of PEF's Agents, except to the extent
arising (i) from negligence, recklessness, willful misconduct or breach of
contract or law by Ranchcorp or any of Ranchcorp's Agents, (ii) as a consequence
of strict liability imposed upon Ranchcorp or any of Ranchcorp's Agents as a
matter of law, or (iii) from the discovery or disclosure of any Hazardous
Substance or other substance in, under or about the Tejon Ranch unless the
presence thereof is due to any act or omission of PEF or any of PEF's Agents.
Section 8. Ranchcorp's Covenants
8.1 Delivery of Documents. Prior to the execution of this Agreement,
Ranchcorp has delivered to PEF, at Ranchcorp's expense, all of the documents
regarding the Site Selection Area which are to Ranchcorp's Knowledge in
Ranchcorp's possession or control, and which are described in the remaining
subsections of this Section 8.1 and have not previously been delivered to PEF
(collectively, the "Disclosure Documents"). The Disclosure Documents do not
include materials regarding the Easement Selection Areas. Ranchcorp shall
respond to the extent reasonably possible to inquiries made by PEF from time to
time during the Option Period, and shall make its employees available to PEF to
answer questions from time to time as reasonably requested by PEF, regarding all
Selection Areas.
(a) Soils Reports. Any soils or boring reports.
(b) Engineer's Reports. Any hydrological, environmental, geological or
other similar reports.
(c) Licenses, Etc. Copies of any licenses, permits, certificates,
including, without limitation, environmental permits, licenses and approvals.
(d) Access Agreements. Copies of all license and access agreements
permitting any party access to the Site Selection Area for any reason,
including, without limitation, for environmental remediation or testing.
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(e) Environmental Reports. Copies of all records, reports, data surveys,
maps, assessments and other documentation concerning the environmental condition
of, or the presence of any Hazardous Substance on or under or in the Site
Selection Area or any adjacent portions of the Tejon Ranch or any Hazardous
Substance in the ambient air surrounding the Site Selection Area, or any claims
by any party relating thereto.
(f) Agreements. Copies of written, and written descriptions of oral
agreements, easements, covenants, restrictions, agreements, contracts and other
documents, whether existing or, to the Knowledge of Ranchcorp, proposed as of
the date of this Agreement, which (i) will affect the Site Selection Area after
the Closing Date, and (ii) are not recorded in the Official Records of Los
Angeles or Kern Counties.
(g) Other Documents. All data, correspondence, documents, agreements,
waivers, notices, applications and other records with respect to any of the Site
Selection Area and relating to transactions with taxing authorities,
governmental agencies, utilities, vendors, tenants and others with whom PEF may
be dealing from and after the Closing Date.
(h) Requested Information. Such other documents and information as PEF may
reasonably request.
8.2 Subdivision of Project Site. Promptly after the date the Selection
Date, PEF, at its expense, may take all actions necessary to secure the legal
subdivision of the Project Site from the remainder of the Tejon Ranch.
Ranchcorp, at PEF's expense, agrees to provide support and assistance as
reasonably requested by PEF in securing such subdivision.
8.3 Operation and Maintenance. During the Option Period, Ranchcorp shall
operate and maintain the Selection Areas in substantially the manner in which
they are currently operated and maintained; provided, Ranchcorp may make lawful
changes in its use of the Selection Areas that will not materially affect PEF's
ability to construct, operate, maintain or finance the Project. Apart from
routine operation and maintenance and use, Ranchcorp shall not take any action
or enter into any contract affecting any of the Selection Areas without PEF's
consent, which consent PEF shall not unreasonably withhold or delay; provided,
Ranchcorp may take actions or enter into contracts affecting the Selection Areas
that will not materially affect PEF's ability to construct, operate, maintain or
finance the Project. The foregoing notwithstanding, after the Selection Date,
the obligations of Ranchcorp under this Section shall apply only to the Project
Site and the Easement Parcels.
Section 9. As Is; Representations and Warranties
9.1 In General. Except as otherwise provided in Sections 1.5, 6 and 9.2,
any information or documents furnished to PEF by Ranchcorp relating to any of
the Selection Areas including, without limitation, maps, surveys, studies, pro
formas, reports and other information shall be deemed furnished as a courtesy to
PEF but without warranty from Ranchcorp, and without representation or warranty
(express or implied) as to the completeness, accuracy, or reliability thereof,
or of the absence of material omissions or defects therein. With the sole
exception of those representations and warranties actually set forth in Sections
1.5, 6 and 9.2, PEF has not relied and will not rely upon any representations or
warranties, express or implied, affirmative or negative, concerning the Property
made by Ranchcorp, Ranchcorp's employees, agents, or any other person acting on
behalf of Ranchcorp. WITH THE SOLE EXCEPTION OF THOSE REPRESENTATIONS AND
WARRANTIES ACTUALLY SET FORTH IN SECTIONS 1.5, 6 AND 9.2, RANCHCORP MAKES NO
REPRESENTATIONS OR WARRANTIES AND
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EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
CONCERNING ANY OF THE SELECTION AREAS, THEIR PHYSICAL CONDITION AND THEIR
SUITABILITY FOR PEF'S INTENDED USE.
9.2 Representations and Warranties of Ranchcorp. Ranchcorp makes the
following representations and warranties for the benefit of PEF as of the date
of this Agreement, and (subject to Section 9.3) agrees to remake the same
representations and warranties as of the Closing Date, except that when so
remade the representations and warranties which concern the Selection Areas
shall be deemed limited to the Property:
(a) Transaction Agreement. All of the representations and warranties of
Ranchcorp in the Transaction Agreement.
(b) Documents. To Ranchcorp's Knowledge, the Disclosure Documents
delivered pursuant to Section 8.1, except as otherwise apparent from the face of
the document or as otherwise disclosed in writing, (i) are true, correct and
complete copies of what they purport to be; (ii) fairly represent the factual
matters stated in the documents; (iii) in the case of Disclosure Documents
creating rights in favor of, or obligations binding on, Ranchcorp or the Site
Selection Area, are in full force and effect; and (iv) have not been modified.
Ranchcorp has not, with Knowledge, failed to deliver to PEF any Disclosure
Document required to be delivered to PEF under Section 8.1.
(c) Disclosure Schedule. To Ranchcorp's Knowledge, the narrative
statements contained in Schedule 9.2(c) (the "Disclosure Schedule") fairly
represent the factual matters in the statements and do not omit any material
fact necessary to make the statements not misleading.
(d) Condemnation. To Ranchcorp's Knowledge, there are no presently pending
or contemplated proceedings to condemn or declare a nuisance any part of any of
the Selection Areas.
(e) No Options. Except as otherwise permitted under Sections 1.5 and 6, no
Person holds any option or other right to lease (other than oil and gas leases
which will not materially affect the construction, operation or maintenance of
the Project or the enforcement of creditors' rights by any lender who provides
financing for the Project) or purchase all or any part of any of the Selection
Areas or any interest in any of the Selection Areas.
(f) No Knowledge. Except as disclosed in the Disclosure Schedule, to
Ranchcorp's Knowledge, there is no geotechnical reason or other reason
pertaining to the characteristics of any part of any of the Selection Areas why,
to Ranchcorp's Knowledge, a project such as the Project cannot be built,
maintained and operated on the Selection Areas.
(g) Actions and Defaults. Except as disclosed in the Disclosure Documents
and the Disclosure Schedule, to Ranchcorp's Knowledge there are no existing
actions, suits, proceedings, judgments, orders, decrees, arbitration awards,
defaults, delinquencies or deficiencies pending, outstanding or threatened
against Ranchcorp respecting any of the Selection Areas. To Ranchcorp's
Knowledge, Ranchcorp has not received written notice that any part of any of the
Selection Areas or its operation is not in compliance with all applicable laws,
ordinances, codes, resolutions, rules, regulations, judgments, orders,
covenants, conditions, restrictions, whether federal, state, local, foreign,
public or private.
10
(h) Agreements With Governmental Authorities. To Ranchcorp's Knowledge,
there are no agreements with governmental authorities, agencies, utilities or
quasi-governmental entities which affect any of the Selection Areas, other than
those set forth in Schedule 1.5(a)(i) and Schedule 1.5(a)(ii) and those recorded
in the official records of Kern County, California. As to the Easement Selection
Areas only, the foregoing representation shall be limited to material
agreements, meaning those agreements that would materially affect the
construction, operation or maintenance of the Project or enforcement of
creditors' rights by any lender who provides financing for the Project.
(i) Hazardous Substances. Except as disclosed in the Disclosure Documents
or the Disclosure Schedule, to Ranchcorp's Knowledge: (i) the Selection Areas
are in compliance with all Environmental Laws, and neither Ranchcorp nor any
other present or former owner, tenant, occupant or user of any part of any of
the Selection Areas has received any notice of violation issued pursuant to any
Environmental Law with respect to any part of any of the Selection Areas; (ii)
neither Ranchcorp, nor any other present or former owner, tenant, occupant or
user of any part of any of the Selection Areas has used, handled, generated,
produced, manufactured, treated, stored, transported or Released any Hazardous
Substance on, under or from any part of any of the Selection Areas, with the
exception of agricultural chemicals used in connection with agricultural
activities on the Selection Areas and the possible past presence in the Site
Selection Area of an asphalt batch plant as indicated on the map attached hereto
as Schedule 9.2(i), and (iii) there are no Hazardous Substances stored on any
part of any of the Selection Areas, no Hazardous Substance has been Released on,
beneath or from or in the surface or ground water associated with any part of
any of the Selection Areas, and no Release of Hazardous Substances has occurred
on, beneath or from any part of any of the Selection Areas at any time in the
past, with the exception of agricultural chemicals used in connection with
agricultural activities on the Selection Areas and the possible past presence in
any of the Site Selection Area of an asphalt batch plant as indicated on the map
attached hereto as Schedule 9.2(i).
(j) Taxes. Ranchcorp has filed all required federal, state, county and
municipal tax returns and has paid all taxes owed and payable to date, to the
extent that any failure to do so would or could create a lien or encumbrance on
any part of any of the Selection Areas.
(k) Additional Assessments. To Ranchcorp's Knowledge, there is no basis
for any additional assessment of ad valorem real or personal property taxes for
time periods prior to the Closing Date with respect to any part of any of the
Selection Areas, nor of any pending or proposed reassessment of any part of any
of the Selection Areas.
9.3 Changed Circumstances. In the event that Ranchcorp becomes aware of
facts or circumstances after the date of this Agreement that might result in any
of the representations or warranties set forth in Section 9.2 not being true as
of the Closing Date, Ranchcorp shall give prompt written notice to PEF of such
facts or circumstances, and upon doing so the representations and warranties as
remade as of the Closing Date shall be subject to such facts or circumstances.
Notwithstanding the foregoing, the representations and warranties set forth in
subsections (a), (e) and (j) above are not subject to changed facts or
circumstances and must be remade as of the Closing Date without exception or
qualification.
9.4 Survival. Each representation and warranty as remade pursuant to
Sections 1.5(b) or 9.2 shall be considered material and survive the Closing Date
notwithstanding any investigation of the matters covered thereby by or on behalf
of either of the Developer Interests
11
or any knowledge (actual or constructive) on the part of either of the Developer
Interests as to the truth or accuracy (or falseness or inaccuracy) thereof.
9.5 Reliance By Environmental Insurers. Any insurer insuring PEF against
risks associated with preexisting or other Material Environmental Conditions
affecting the Property shall be a third party beneficiary of and may rely on
Ranchcorp's representations and warranties set forth in this Section 9 and in
Section 6. However, no such insurer shall have any greater recourse against
Ranchcorp for any breach of any such representation or warranty than would PEF.
Section 10. Default Remedies
Subject to Section 12.8 of the Transaction Agreement and Sections 1.5 and
11.3(c) of this Agreement, if Ranchcorp defaults in the performance of any of
its covenants or obligations under this Agreement, or breaches any of its
representations or warranties contained in, referred to or remade pursuant to
this Agreement, PEF shall be entitled to specific performance and any and all
other rights and remedies available to it at law or in equity; provided, in the
case of any default or breach which can be cured, PEF shall not exercise any
such right or remedy unless Ranchcorp has failed to cure the default or breach
within 30 days after PEF has given notice to Ranchcorp demanding the cure
thereof, unless the nature of the default is such that it cannot reasonably be
cured within the 30-day period, in which case Ranchcorp shall not be in default
if it commences the cure within 30 days and thereafter diligently prosecutes the
cure to completion.
Section 11. Risk of Loss; Eminent Domain; Substitute Property
11.1 Risk of Loss. This Agreement contemplates the lease of the Project
Site without consideration to any improvements currently located on the Project
Site. In the event of any loss, damage, or destruction of any improvements, or
taking of any of improvements by condemnation or eminent domain, the loss,
damage, destruction or taking shall not in any way affect any rights or
obligations of the parties.
11.2 Eminent Domain. If at any time prior to the exercise of the Option
any portion of the Property is Taken, or any Taking proceedings are instituted
or threatened, and PEF exercises the Option without requiring Ranchcorp to
provide an alternative Project Site or alternative Easement Rights pursuant to
Section 11.3, PEF shall be obligated to consummate the lease of the Property
without abatement or reduction of the rent to be paid pursuant to the Lease and
Ranchcorp shall as of the Closing Date assign to PEF all of Ranchcorp's right,
title and interest in the condemnation award payable for the Taking of PEF's
interest in that portion of the Property.
11.3 Substitute Property.
(a) Ranchcorp to Provide. In the event that prior to the Selection Date
PEF discovers a Title Condition affecting any of the Property, or after the
Selection Date but prior to exercise of the Option:
(i) PEF discovers (a) an environmental condition affecting the Property
which will materially affect the construction, operation or
maintenance of the Project or the ability of PEF to finance the
Project (a "Material Environmental Condition"), or (b)
12
another physical condition which will materially affect the
construction, operation or maintenance of the Project or the ability
of PEF to finance the Project; or
(ii) in the event any Taking proceedings are instituted or threatened
against any material part of the Property;
(any such condition or event described in the preceding clause (i) or (ii) being
referred to in this Agreement as a "Material Condition"), Ranchcorp shall within
30 days after request therefor by PEF identify an alternative Project Site
and/or alternative Easement Parcels which are suitable for the development of
the Project, from which access to the WRM and DWR electric loads is as feasible
physically and economically as the preferred site, and which are not affected by
that Material Condition or any other Material Condition (the "Alternative
Property"). If PEF approves the Alternative Property, this Agreement shall be
amended to substitute the Alternative Property for the Property and a new Option
Memorandum shall be recorded and/or the applicable Easement Agreement shall be
amended and re-recorded to substitute the alternative Easement Rights.
(b) Limitation. Notwithstanding Section 11.3(a), in the event:
(i) a Material Environmental Condition discovered after the Selection
Date shall affect the Property; and
(ii) it is not reasonably feasible for PEF to utilize Alternative
Property to avoid the Material Environmental Condition; and
(iii) a governmental authority requires cleanup or remediation of the
Material Environmental Condition;
then Ranchcorp will at its option either (A) clean up or remediate the Material
Environmental Condition when and to the extent required by the governmental
authority, or (B) reimburse PEF for its costs incurred in cleaning up or
remediating the Material Environmental Condition when and to the extent required
by the governmental authority.
(c) Limitation of Damages. In the event a Material Condition constitutes a
breach of any of Ranchcorp's representations and warranties under Section 9
(which may or may not be the case), PEF shall not be entitled to damages or
indemnity in respect of any loss which could be avoided by the exercise of PEF's
rights under Section 11.3(a) promptly after Ranchcorp notifies PEF of the
Material Environmental Condition or that Material Condition first becomes known
to an officer of PEF. Ranchcorp shall not be entitled to the benefit of this
Section 11.3(c) in the event it breaches any of its obligations under Section
11.3(a). Ranchcorp acknowledges that the provision of Alternative Property under
Section 11.3(a) upon discovery of a Material Condition which constitutes a
breach of any of Ranchcorp's representations and warranties under Section 9 may
not avoid any loss suffered by PEF by reason of that Material Condition. Among
other things, relocation of the Project Site or any Easement Right may require
PEF to abandon substantial development work previously performed. PEF's claims
in respect of any breach of any of Ranchcorp's representations and warranties
under Section 9 shall be subject to Section 12.8 of the Transaction Agreement.
(d) No Impairment. PEF's rights under this Section 11.3 shall not be
impaired by its failure to exercise any of its rights under Section 1.5(c).
13
Section 12. Glossary
Affiliate - a Person who controls, is controlled by or is under common
control with another Person, or who directly or indirectly owns 25% or more of
the voting power in such other Person, or of whose voting power such other
Person (or a Person holding 25% or more of the voting power in such other
Person) owns 25% or more. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
Agreement - the Option Agreement.
Alternative Property - Section 11.3(a).
CEC - the California Energy Commission.
Closing Date - Section 4.2.
Data/Water Adequacy Date - Section 2.1.
Decommissioning Security - Section 4.2(e).
Developer Interests - Enron Capital & Trade Resources Corp. and PEF.
Disclosure Documents - Section 8.1.
Disclosure Schedule - Section 9.2(d).
DWR - Section 1.5(a)(ii).
Easement Agreement - Section 4.2(a).
Easement Exceptions - Section 6.1.
Easement Parcels - Section 1.2.
Easement Rights - Section 1.2.
Easement Selection Areas - Section 1.2.
Environmental Laws - all present and future federal, state and local laws,
statutes, ordinances, regulations, rules, judicial and administrative orders and
decrees, permits, licenses, approvals, authorizations and similar requirements
pertaining to the protection of human health and safety or the environment.
Environmental Studies - Section 7.1.
Feasibility Study - Section 7.1.
Financial Closing - Section 15 of the Transaction Agreement.
14
Hazardous Substance - any chemical, substance, medical or other waste,
living organism or combination thereof which is or may be hazardous to the
environment or human or animal health or safety due to its radioactivity,
ignitability, corrosivity, reactivity, explosivity, toxicity, carcinogenicity,
mutagenicity, phytotoxicity, infectiousness or other harmful or potentially
harmful properties or effects. "Hazardous Substances" shall include, without
limitation, petroleum hydrocarbons, including crude oil or any fraction thereof,
asbestos, radon, polychlorinated biphenyls (PCBs), methane and all substances
which now or in the future may be defined as "hazardous substances," "hazardous
wastes," "extremely hazardous wastes," "Hazardous Substance," "toxic
substances," "infectious wastes," "biohazardous wastes," "medical wastes,"
"radioactive wastes" or which are otherwise listed, defined or regulated in any
manner pursuant to any Environmental Laws.
Identified Facilities - Section 1.5(a).
Initial Obligation - Section 2.1.
Knowledge - the knowledge, after due inquiry, of officers and employees of
Ranchcorp engaged in the management and operation of any part of any of the
Selection Areas, which are limited to the Senior Vice President - Livestock,
Vice President - Farming, Director of Resource Management, and General Counsel;
provided, however, that none of these Persons shall have any personal liability
as a result of being used as the measure of Ranchcorp's knowledge in the making
of Ranchcorp's representations and warranties.
Lease - Section 4.2(a).
Lease Memorandum - Section 4.2(b).
Lease Term - the initial term and any extended term of the Lease.
Material Condition - Section 11.3.
Material Environmental Condition - Section 11.3(a)(i)(a).
Material Title Defects - Section 1.5(a).
Option - Section 1.1.
Option Memorandum - Section 1.5.
Option Period - Section 3.
PEF - introductory paragraph.
PEF's Agents - any Affiliate of either of the Developer Interests and any
contractor, consultant, agent, employee, invitee or other Person acting at the
request and for the benefit of any of the Developer Interests or any of their
Affiliates.
Persons - an individual, or a corporation, partnership, limited liability
company, trust, association or other entity of any nature, or a governmental
agency.
Project - introductory paragraph.
15
Project AFC - application for certification of the Project by the CEC.
Project Site - Section 1.1.
Project Site - Section 1.1.
Property - Section 1.3.
Ranchcorp - introductory paragraph.
Ranchcorp's Agents - any Affiliate of the any of the Tejon Interests and
any contractor, consultant, agent, employee, invitee or other Person acting at
the request and for the benefit of any of the Tejon Interests or any of their
Affiliates.
Release - any accidental or intentional spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injection, escaping, leaching,
migrating, dumping or disposing into the air, land, surface water, ground water
or the environment.
Selection Areas - Section 7.1.
Selection Date - Section 1.5.
Site Selection Area - Section 1.1.
Taken or Taking - an acquisition and/or damaging, including severance
damage, by eminent domain, or by inverse condemnation, or by deed or transfer in
contemplation of a taking, or for any public or quasi-public use under any
statute or law as described in Section 11.2.
Tejon Interests - Ranchcorp, Tejon Ranch Co. and Pastoria Power Project
LLC.
Tejon Ranch - the approximately 270,000 acres of real property in Kern and
Los Angeles counties currently owned by Ranchcorp and known as The Tejon Ranch.
Title Condition - Section 1.5(a).
Transaction Agreement - introductory paragraph
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date of this Agreement.
PASTORIA ENERGY FACILITY LLC, TEJON RANCHCORP,
a Delaware limited liability company a California corporation
By: Enron Capital & Trade Resources Corp., By:
its sole member -------------------------------
Dennis Mullins
Vice President
By:
--------------------------
David Parquet
Vice President
16
SCHEDULES
1.1 Description of Site Selection Area
1.2 Description of Easement Selection Areas
1.5(a)(i) Permitted Exceptions - Site Selection Area
1.5(a)(ii) Permitted Exceptions - Easement Selection Areas
1.6 Memorandum of Option
4.1 Exercise Notice
4.2(a).1 Ground Lease
4.2(a).2 Easement Agreement
7.1 Access Agreement
7.2 Exceptions Regarding Grading or Improvements
9.2(c) Disclosure Schedule
9.2(i) Asphalt Plant
EXHIBIT 10.14
GROUND LEASE
TEJON RANCHCORP
AND
PASTORIA ENERGY FACILITY, LLC
This Lease is entered into in Los Angeles, California as of _________,
____ between Tejon Ranchcorp, a California corporation ("Ranchcorp"), and
Pastoria Energy Facility, LLC, a Delaware limited liability company ("PEF").
Capitalized terms used in this Lease have the meanings stated in Section 23 or
the provisions there referred to.
RECITALS
Ranchcorp is the owner of the Tejon Ranch. PEF is a special purpose entity
created for the purpose of developing a combined-cycle, natural gas-fired
combustion turbine merchant electric power plant to be located on a portion of
the Tejon Ranch (the "Project"). Ranchcorp and PEF and certain of their
Affiliates have agreed to work together toward development of the Project
pursuant to a Transaction Agreement dated April 30, 1999, between the Tejon
Interests and the Developer Interests (as originally executed and as thereafter
amended (if at all) in accordance with its terms, the "Transaction Agreement").
Ranchcorp and PEF also are party to an Option Agreement dated April 30, 1999 (as
originally executed and as thereafter amended (if at all) in accordance with its
terms, the "Option Agreement"). This Lease is being entered into following PEF's
exercise of the option contained in the Option Agreement.
IN THIS CONTEXT, the parties agree as follows:
Section 1. Premises
Ranchcorp leases to PEF, and PEF leases from Ranchcorp, that certain real
property which is legally described in the attached Schedule 1 (the "Premises").
Notwithstanding the foregoing, the leasehold hereby conveyed does not include,
and Ranchcorp expressly reserves to itself, all water, water rights and water
stock (other than the right to use ground water from a well drilled for the
purpose of providing basic water service to the Project only for drinking,
bathrooms, kitchens, landscape irrigation and other comparable uses), minerals
and mineral rights belonging to the Premises; provided that Ranchcorp shall have
no surface rights related to any minerals or mineral rights, and shall not, in
the exercise of any mineral rights, disturb the surface of the Premises,
interfere with or disturb the occupancy or operations of PEF on the Premises, or
drill at a depth which is less than five hundred (500) feet below the surface of
the Premises.
Section 2. Term
2.1 Initial Term. The initial term of this Lease (the "Initial Term")
shall commence upon the date of this Lease, and shall continue until the last
day of the month containing the twenty-fifth (25th) anniversary of the
Commencement Date, unless sooner terminated pursuant to the terms and conditions
of this Lease. The "Commencement Date" is the earlier of (x) the Commercial
Operation Date, and (y) the Nominal COD. The "Commercial Operation Date" is the
date on which PEF, following completion of customary commissioning and testing
of the Project, formally accepts the Project from its construction contractor as
available for commercial operation for the purpose of producing electric energy
and/or of providing Ancillary Services for sale to wholesale, retail or other
purchasers on a continuous basis. The "Nominal COD" is the third anniversary of
the date of this Lease; provided, if construction, commissioning or testing of
the Project shall be delayed for any number of days by any Excepted Cause(s),
the Nominal COD shall be extended by the same number of days. In that event, PEF
must provide notice thereof to Ranchcorp within fifteen (15) days of the
commencement of the Excepted Cause and if it fails to deliver timely notice, the
date of the commencement of the Excepted Cause shall be
deemed to have occurred no earlier than fifteen (15) days prior to the date
notice is delivered. PEF also shall notify Ranchcorp in writing when the
Commercial Operation Date has occurred, which notice shall also identify the
date of expiration of the Initial Term.
2.2 Option to Extend. Ranchcorp grants to PEF an option to extend the
Initial Term for three additional five (5) year periods (each an "Extended
Term"). This option to extend shall be exercised by PEF by giving Ranchcorp
written notice of its intent to extend this Lease not less than twelve (12)
months, nor more than twenty-four (24) months, prior to the expiration of the
preceding Term. Each Extended Term shall be on the same terms, covenants and
conditions as provided in this Lease. As used in this Lease, the word "Term"
means the Initial Term and, after exercise of any option to extend pursuant to
this Section 2.2, includes any Extended Term.
2.3 Possession. Possession of the Premises shall be delivered to PEF on
the date of this Lease.
Section 3. Rent
3.1 Fixed and Variable Rent. PEF shall pay rent to Ranchcorp during the
Term in a fixed component and a variable component. The fixed component, as
described in Section 3.2 (the "Fixed Rent"), shall be paid monthly in advance on
or before the first day of each month for which it is payable. The variable
component is described in Section 3.4 (the "Variable Rent"), and shall be
payable as set forth in that Section. All sums due under this Lease, whether
payable to Ranchcorp or to third parties, shall be defined as "Rent" for the
purposes of enforcement of this Lease.
3.2 Fixed Rent After Commercial Operation.
(a) PEF shall pay Fixed Rent in the amount of $216,666.66 per month for
the month in which the Commencement Date occurs and for each month thereafter
during the Term until PEF completes decommissioning of the Project under Section
8.13, provided, however, that Fixed Rent shall be fully abated from the date on
which PEF commences decommissioning the Project and for each month thereafter
until the earlier of (x) completion of decommissioning or (y) twelve (12) months
after PEF commences decommissioning. PEF shall be deemed to have commenced
decommissioning on the day it permanently ceases operation of the Project to
produce electric energy or to provide Ancillary Services. Completion of
decommissioning means that all Improvements and personal property have been
removed from the Premises to the extent required by Section 8.13 and the
Premises have been restored to their pre-construction condition. Fixed Rent for
any partial month at the beginning or end of the Term shall be prorated based on
a 30-day month.
(b) The Fixed Rent shall be escalated on each anniversary of the first day
of the month in which the Commencement Date occurs by an amount reflecting the
annual percentage increase (if any) in the Consumer Price Index for All Urban
Consumers, Los Angeles-Anaheim-Riverside Area, All Items (Base Year 1982-1984 =
100), published by the United States Department of Labor, Bureau of Labor
Statistics (the "CPI"), during the twelve-month period from the date that is
fifteen (15) months prior to the date of the escalation to the date that is
three (3) months prior to the date of the escalation. In the event the CPI is
ever discontinued, the parties shall substitute any generally recognized
successor or substitute index published by a governmental agency and reflecting
changes in consumer prices in the greater Los Angeles area.
2
(c) Notwithstanding the foregoing, in the event "C" (as defined in Section
3.4(c)) is less or more than 750 megawatts ("MW"), the monthly Fixed Rent
payable under Section 3.2(a) will be adjusted as follows:
(i) In the event C exceeds 750 MW, the monthly Fixed Rent payable
under Section 3.2(a) (as adjusted if at all under Section 3.2(b))
shall be increased by that percentage which is equal to:
(x - 750)/750
where "x" is equal to the lesser of C and 1000 MW.
(ii) In the event C is less than 750 MW, the monthly Fixed Rent
payable under Section 3.2(a) (as adjusted if at all under Section
3.2(b)) shall be decreased by that percentage which is equal to:
(750 - y)/750
where "y" is equal to the greater of C and 600 MW.
(d) The monthly Fixed Rent payable under Section 3.2(a) shall be increased
by $0.1667 per foot for every linear foot of easements which PEF obtains
pursuant to the Option Agreement in the "Sebastian Road Area" marked on Schedule
1.2 to the Option Agreement.
(e) In the event the Project does not utilize air cooled condensers as
either its primary or backup cooling source, the monthly Fixed Rent payable
under Section 3.2(a) shall be increased by $1,666.67 per acre for every acre by
which the Project Site exceeds 30 acres.
3.3 Advances Against Fixed Rent. Commencing on the first day of the month
next succeeding the month in which this Lease is executed and continuing on the
first day of each month thereafter until the earlier of the Commercial Operation
Date and the date on which $2.4 million has been advanced by PEF under this
Section 3.3, PEF will advance the sum of $100,000 per month to Ranchcorp. All
portions of such advances that Ranchcorp has not previously repaid, plus
interest thereon at the rate of 10 percent per annum without compounding from
the date of advance until the date of repayment, shall be credited against the
Fixed Rent payments (if any) required from PEF under Section 3.2, in equal
monthly amounts calculated to repay all such advances, plus the prescribed
interest, to PEF over the first four years after PEF begins paying Fixed Rent
under Section 3.2. In the event that this Lease is terminated before all
advances have been repaid, Ranchcorp shall be entitled to retain, and shall have
no obligation to repay any portion of, any advances it received from PEF
pursuant to this Section prior to termination of this Lease.
3.4 Variable Rent.
(a) Payable After Commercial Operation. The Variable Rent payable under
this Section 3.4 is payable for the calendar month in which the Commercial
Operation Date occurs and for each calendar month thereafter through and
including the calendar month in which this Lease terminates. The Variable Rent
payable under this Section 3.4 for any calendar month shall be due and payable
within 20 days after the end of that calendar month. Each payment of Variable
Rent under this Section 3.4 shall be accompanied by PEF's detailed calculation
of the amount due and shall include the statement required from PEF under
Section 3.4(e).
3
(b) Basic Calculation. The Variable Rent payable for a calendar month
under this Section 3.4 will be an amount equal to 1 percent (1%) of the Spark
Spread for that calendar month.
(c) Spark Spread. The "Spark Spread" for any calendar month is an amount
equal to:
H x [(C x PX) - (HR x C x GP)]
where:
"H" is equal to the aggregate number of Revenue Hours occurring during the
calendar month; and
"C" is equal to the maximum electrical output of the Project (expressed in
MW) which is guaranteed to PEF by its contractor for construction of the
Project.
"PX" is equal to the quotient of (x) the sum of the PX Prices for each
Revenue Hour occurring during the calendar month, divided by (y) the
aggregate number of Revenue Hours occurring during the calendar month; and
"HR" is equal to 7.250; and
"GP" is equal to the quotient of (x) the sum of the Daily Gas Prices for
each Revenue Day during the calendar month, divided by (y) the aggregate number
of Revenue Days occurring during the calendar month.
(d) Other Defined Terms.
Ancillary Services -- has the meaning specified in the ISO Tariff.
Daily Gas Price - for any Revenue Day is the daily price (expressed in
$/MMBTU) of natural gas at the California-Arizona border, as published by Gas
Daily for the Revenue Day under the "Others" table, under the heading titled
"SoCal gas, large packages (deliveries at Topock, Daggett, Blythe, Needles,
Ehrenberg)."
Gas Daily - Pasha Publications' Gas Daily, and any successor thereto.
ISO -- the California Independent System Operator Corporation, a
California non-profit corporation, and any successor thereto
ISO Controlled Grid - the transmission lines and associated facilities
controlled by the ISO.
ISO Tariff -- the California Independent System Operator Agreement and
Tariff dated March 31, 1997, as modified through the date of this Agreement.
ISO Zone - the ISO zone in which the Pastoria substation may from time to
time be located. The Pastoria Substation currently is located in (and the ISO
Zone therefore currently is at the date of the Transaction Agreement) the ISO
zone known as SP 15.
Pastoria Substation - the electrical substation through which the Project
delivers electrical energy to the ISO Controlled Grid, planned at the date of
the Option Agreement to be
4
the substation located in the vicinity of hypothetical Section 19, Township 10
North, Range 18 West, SBBM, in Rancho El Tejon, Kern County, California.
PX - the California Power Exchange Corporation, a California non-profit
corporation, and any successor thereto.
PX Price -- for any Revenue Hour is the Day Ahead Zonal Price
(Constrained) for that Revenue Hour for the ISO Zone as published by the PX.
Revenue Day -- any calendar day during which a Revenue Hour occurs.
Revenue Hour -- any hour for which the Project is paid to produce electric
energy or to provide Ancillary Services.
(e) Audit Rights. PEF shall provide to Ranchcorp monthly with PEF's
payment of the Variable Rent provided for in this Section 3.4 a statement of the
total Revenue Hours which occurred during the month for which the Variable Rent
is payable. No more frequently than once each year, PEF shall, upon Ranchcorp's
request, afford Tejon access to PEF's books and records during normal business
hours for the purpose of verifying (and to the extent necessary to verify) the
accuracy of PEF's statements as to the Revenue Hours occurring during any period
not previously audited by Ranchcorp or previously reported on by a Big 6 Firm
pursuant to this Section 3.4(e). In lieu of such access, PEF may instead elect
to provide such access to a Big 6 Firm which Ranchcorp selects and to cause such
firm to report, based on its examination of PEF's books and records, as to the
number of Revenue Hours which occurred during such period. Any such report shall
be conclusive as the subject thereof. All information to which Tejon or a Big 6
Firm is afforded access or which Tejon otherwise learns pursuant to this Section
3.4(e) shall be deemed "Confidential Information" for purposes of the
Confidentiality Agreement referred to in Section 9 of the Transaction Agreement.
"Big 6 Firm" means as of any given date of determination any of the six largest
national accounting firms as of the determination date.
(f) Changes. In the event of any change in the tariffs, practices or
operations of the PX, the ISO or Gas Daily subsequent to the date of the
Transaction Agreement which results in any of the following:
(i) The PX Price not being published by the PX as necessary to permit
the calculation of Variable Rent payable under this Section 3.4;
(ii) The PX Price being materially less representative than on the date
of the Transaction Agreement of the day ahead wholesale market price
of electric energy delivered to the ISO Zone; or
(iii) GP not being published by Gas Daily as necessary to permit the
calculation of Variable Rent payable under this Section 3.4; or
(iv) GP being materially less representative than on the date of the
Transaction Agreement of the wholesale price of natural gas
delivered at the Arizona/California Border (Topock, Daggett, Blythe,
Needles, Ehrenberg) in volumes of 5,000 MMBTU or more per day;
5
then, promptly upon request by either Ranchcorp or PEF, the parties will meet
and attempt to agree on one or more amendments to this Lease which will permit
the Spark Spread to be calculated, as near as practicable, on the same basis and
with the same results as it was calculated prior to the change. In the event the
parties are unable to agree on any such amendment thought by either party to be
necessary, the matter shall be settled by binding arbitration under Section 12
of the Transaction Agreement.
3.5 Late Charge. For any payment of Fixed Rent or Variable Rent not paid
within ten (10) days after the date it is due, PEF shall pay Ranchcorp, as
additional Rent, a late charge equal to one percent (1%) of the amount past due
as compensation to Ranchcorp for the extra costs incurred as a result of the
late payment. With any Fixed Rent or Variable Rent Payment that PEF makes more
than 30 days after it was due, PEF shall also pay interest on the overdue amount
calculated at the lesser of 18 percent per annum or the maximum rate allowed by
law, without compounding, from the day after the payment was due until the date
such Rent is paid in full. For any other Rent payment not paid within ten (10)
days after the date it is due, PEF shall pay Ranchcorp, as additional Rent, a
late charge equal to three percent (3%) of the amount past due as compensation
to Ranchcorp for the extra costs incurred as a result of the late payment. With
any other Rent payment that PEF makes more than 30 days after it was due, PEF
also shall pay interest on the overdue amount calculated at the lesser of 10%
per annum or the maximum rate allowed by law, without compounding, from the day
after the payment was due until the date such Rent is paid in full. The parties
agree that the late charge and the interest prescribed by this section represent
fair and reasonable estimates of the detriment that Ranchcorp will suffer by
reason of late payment of Rent by PEF.
3.6 Real Estate Taxes and Assessments. As additional rent ("Additional
Rent") payable under this Lease, PEF shall pay before delinquency all real and
personal property taxes, general and special assessments, levies and other
governmental charges of every description (the "Property Taxes") which are
levied, assessed, charged or imposed upon or against the Premises or the Project
(the Project and all other improvements to the Premises and all alterations,
additions or improvements to any thereof are referred to in this Lease as the
"Improvements"), or against any legal or equitable interest of Ranchcorp in the
Premises, or against any of PEF's personal property now or hereafter located on
the Premises, for or attributable to any portion of the Term. Ranchcorp shall
cause the Premises to be separately assessed from any other real property owned
by Ranchcorp. All Property Taxes required to be paid by PEF shall be prorated
for the first year of the Term and for the year in which the Lease expires or
terminates. If the law permits the payment of the Property Tax in installments
(whether or not interest accrues on the unpaid balance) PEF may elect to pay the
tax before delinquency in installments.
Ranchcorp will promptly notify PEF of all notices, levies and assessments
of Property Taxes received in connection with the Premises, and PEF shall pay
them prior to delinquency, provided, however, PEF may, at its expense , contest
in all desirable proceedings the validity of, amount of, or assessment of any
Property Tax agreed to be paid by PEF, provided, however, that PEF at all times
shall keep the Premises free from any delinquent tax lien. Any penalty, interest
or delinquency charge that may result from the contest shall be the obligation
of PEF. Ranchcorp shall not be required to join in any proceeding or contest
brought by PEF unless the provisions of any law require that the proceeding or
contest be brought by or in the name of the fee owner of the Premises. In that
case, Ranchcorp shall join in the proceeding or contest or permit it to be
brought in Ranchcorp's name and all costs, including Ranchcorp's attorneys'
fees, shall be borne by PEF. Ranchcorp agrees to execute any documents necessary
to perfect PEF's right of contest as provided for in this Section.
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3.7 Apportionment of Property Taxes. In the event that the Premises are
included in the same tax parcel as other real or personal property owned by
Ranchcorp, Ranchcorp and PEF agree to cooperate in requesting that the Premises
be separately assessed from other property owned by Ranchcorp. In the event that
the Premises are included in a tax bill with other property owned by Ranchcorp,
Ranchcorp shall pay the property tax bill before delinquency and PEF shall
reimburse Ranchcorp for the portion of the tax bill attributable to the land and
Improvements comprising the Premises, based on the actual assessed value of the
land and Improvements comprising the Project. Any dispute between the parties
regarding the amount of PEF's property tax obligation under this section shall
be resolved by arbitration as provided by Section 12 of the Transaction
Agreement.
3.8 Other Taxes. Property Taxes shall not include and PEF shall not be
required to pay the following: water district assessments and liens, business,
income or profit taxes levied or assessed against Ranchcorp by federal, state,
county, municipal or other governmental agencies, estate, succession, or
inheritance tax, or capital levy of Ranchcorp; or corporation, franchise or
other profit taxes imposed on Ranchcorp; any net income, profits or excess
profits taxes, or any tax which may, at any time during the Term, be required to
be paid on any gift or demise, deed, mortgage, descent or other alienation of
any part or all of the estate of Ranchcorp in and to the Premises or the
Improvements, provided, however, that PEF shall pay any recording costs or
documentary transfer taxes or fees arising from execution of this Lease or from
recording a memorandum of this Lease.
3.9 Deferral. PEF shall have the right to allow any assessment or any
other charge PEF is required to pay as Additional Rent to go to bond or
otherwise defer payment thereon, other than through voluntary delinquency, for
the maximum lawful period, provided that PEF shall not permit any liens for
delinquent taxes or other assessments to be placed on the Premises. Regardless
of whether any such obligation is so deferred, PEF shall be liable for any
portion of the obligation, plus any applicable interest, which applies or is
attributable to any portion of the Term.
3.10 No Abatement. Except as otherwise expressly provided in this Lease,
this Lease shall continue in full force and effect, and the obligations of PEF
hereunder shall not be released, discharged or otherwise affected, by reason,
of: (a) any damage to or destruction of the Premises or any portion thereof or
any Improvements thereon, or any Taking thereof in eminent domain; (b) any
restriction or prevention of or interference with any use of the Premises or the
Improvements or any part thereof; (c) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other
proceeding relating to Ranchcorp, PEF, or any subtenant, licensee or
concessionaire or any action taken with respect to this Lease by a trustee or
receiver, or by any court, in any proceeding; (d) any claim that PEF or any
other person has or might have against Ranchcorp; (e) any failure on the part of
Ranchcorp to perform or comply with any of the terms of this Lease or of any
other agreement with Ranchcorp; (f) any failure on the part of any sublessee,
licensee, concessionaire, or other person to perform or comply with any of the
terms of any sublease or other agreement between Ranchcorp and any such person;
(g) any termination of any sublease, license or concession, whether voluntary or
by operation of law; or (h) any other occurrence whatsoever, whether similar or
dissimilar to the foregoing. The obligations of PEF under this Lease shall be
separate and independent covenants and agreements. PEF hereby waives, to the
full extent permitted by applicable law, all rights now or hereafter conferred
by statute, including without limitation the provisions of California Civil Code
Sections 1932, 1933, 1941 or 1942 or any similar law, to quit, terminate or
surrender this Lease or the Premises or any part thereof, or to any abatement,
7
suspension, deferment, diminution or reduction of any Rent, unless otherwise
expressly provided in this Lease.
3.11 Effect on Ranchcorp's Rights. Ranchcorp's rights pursuant to this
Section 3, including without limitation, Ranchcorp's rights to collect Rent,
Additional Rent and other charges due under this Lease for any period during
which this Lease is in effect, shall survive any termination of the Lease,
regardless of the provision under which termination is effected. Notwithstanding
anything to the contrary contained herein, Ranchcorp shall have no obligation or
duty to mitigate or attempt to offset any damages which are or may be suffered
by Ranchcorp as a result of any default of PEF under this Lease; provided that
PEF shall retain its rights under Sections 18.1 (b) and (c) to submit proof as
to the rental loss that Ranchcorp could avoid by such mitigation. Any payment by
PEF of a sum of money less than the entire amount due Ranchcorp at the time of
such payment shall be applied to the obligations of PEF then furthest in
arrears. No endorsement or statement on any check or accompanying any payment
shall be deemed an accord and satisfaction and any payment accepted by Ranchcorp
shall be without prejudice to Ranchcorp's right to obtain the balance due or to
pursue any other remedy available to Ranchcorp under this Lease or in law or
equity for any default still outstanding.
Section 4. Priority
PEF shall not be required to subordinate the leasehold estate created by
this Lease to any lien or encumbrance whatsoever. Except to the extent provided
in Section 11.4 or Schedule 11.4 of the Transaction Agreement (as the same may
be modified, if at all, pursuant to Section 3.4 of the Transaction Agreement),
Ranchcorp shall have no obligation to subordinate its interest in this Lease, or
in the rents deriving from it, or its fee interest in the Premises to any liens
or encumbrances related to any leasehold or project financing arranged by or on
behalf of PEF.
Section 5. Quiet Enjoyment.
Upon the payment by PEF of Rent and upon the performance of all covenants,
terms and conditions on PEF's part required to be observed and performed, PEF
shall peaceably and quietly hold and enjoy the Premises without hindrance or
interruption by Ranchcorp or any other Person lawfully or equitably claiming by,
through, or under Ranchcorp.
Ranchcorp agrees that during the Term:
(i) Neither Ranchcorp nor any of Ranchcorp's Agents will commit or
permit waste or create a nuisance that affects the Premises.
(ii) Neither Ranchcorp nor any of Ranchcorp's Agents will unlawfully
Release a Hazardous Substance on, about or beneath any portion of
the Tejon Ranch which affects surface water or groundwater, or the
surface or subsurface environment, of the Premises. In the event any
unlawful Release of a Hazardous Substance to the environment occurs
on or about or beneath any portion of the Tejon Ranch which affects
the Premises as a result of any act or omission of Ranchcorp or
Ranchcorp's Agents, Ranchcorp shall promptly undertake reasonable
measures to abate the unlawful Release at Ranchcorp's sole cost, and
to remediate to the extent required by and in accordance with
applicable Environmental Laws and at Ranchcorp's sole cost any
portion of such Release that affects the Premises. Ranchcorp shall
indemnify, defend, protect and hold PEF harmless from and against
any and all claims, losses, damages, liabilities
8
and costs, including without limitation reasonable consultants' and
attorneys' fees and costs, arising out of or relating to the
presence of Hazardous Substances on or about the Premises as a
result of any act or omission of Ranchcorp or Ranchcorp's Agents.
(iii) Neither Ranchcorp nor any of Ranchcorp's Agents will use any portion
of the Tejon Ranch within one mile of the Premises for a purpose
which could be reasonably anticipated to interfere materially with,
or to be incompatible with, PEF's permitted use of the Premises,
provided that PEF acknowledges that the gravel quarry and permanent
crops, and operations related to those uses, as conducted at the
date of the Option Agreement in such portions of the Tejon Ranch are
compatible with PEF's use of the Premises and do not contravene this
Section 5.
Except as otherwise expressly provided in this Section 5, nothing in this Lease
shall limit or restrict in any way Ranchcorp's rights to develop or use any
portion of the Tejon Ranch as it deems appropriate in its sole and absolute
discretion.
Section 6. Use; Operation of the Project.
6.1 Use.
(a) PEF shall have the right to use the Premises for the purposes of (i)
constructing, maintaining and decommissioning the Project, (ii) operating the
Project for the purpose of producing and selling electric energy and providing
Ancillary Services, and (iii) undertaking other lawful uses incidental to the
production of electricity and the provision of the Ancillary Services, all such
purposes to be in accordance with all present and future zoning laws, rules and
regulations of governmental authorities having jurisdiction over the Premises.
(b) PEF (i) shall not undertake or permit any subsurface drilling on the
Premises other than that required for constructing and maintaining foundations
for structures, for installing well(s) for the production of basic water service
to the Project only for drinking, bathrooms, kitchens, landscape irrigation and
other comparable uses and for installing pipelines and other underground
facilities that are integral parts of the Project; and (ii) shall refrain from
entering into any transactions or agreements, and from providing any services in
a manner, that would cause PEF or the Project to become a public utility subject
to the regulatory jurisdiction of the Public Utilities Commission of the State
of California.
(c) All uses of the Premises other than the permitted uses described in
this Section 6 are prohibited.
6.2 Operation of the Project. At all times after the Commercial Operation
Date, the Project shall be operated, maintained and managed (either directly by
PEF or its permitted successors and assigns through its or their own employees
or those of its or their Affiliates or indirectly through independent
contractors employed by it or them) by persons experienced in operating
gas-fired electric power generation facilities of at least 300 MW in the
aggregate, including at least one gas-fired facility of at least 110 MW.
6.3 Compliance With Law. PEF, at PEF's cost and expense, shall comply with
all Applicable Laws. Any work or installations made or performed by or on behalf
of PEF or any person or entity claiming through or under PEF in order to conform
the Premises to Applicable
9
Laws shall be subject to and performed in compliance with the provisions of
Section 9. PEF shall promptly notify Ranchcorp of, and shall promptly rectify,
any violation of Applicable Laws.
6.4 No Waste or Nuisance. PEF shall not commit or permit waste or create
or permit a nuisance upon the Premises or create same upon any other land or
waters owned by Ranchcorp.
Section 7. Utilities
PEF shall pay for all water, sewer, gas, heat, light, power, steam,
communications, waste removal and other utilities and services supplied to the
Premises and the Improvements.
Section 8. Improvements, Alterations and Personal Property.
8.1 Construction of the Project. PEF hereby is granted permission, at
PEF's sole cost and expense and if PEF elects, to design, develop, construct
operate and maintain the Project in such manner as PEF deems appropriate,
subject always however to the requirements of this Lease, and the Final Project
Decision. PEF is under no obligation to develop, construct, operate or maintain
the Project, and may decline to do so for any or no reason PEF deems
appropriate.
8.2 Additional Improvements; Alterations. PEF shall have the right to
construct additional improvements and alterations to the Project on the Premises
("Alterations") without the consent of Ranchcorp provided all such Alterations
are permitted uses under Section 6.1. Any Alterations shall be at PEF's sole
cost and expense, and shall be subject to the terms of this Section 8.
8.3 Permits and Approvals. PEF shall be solely responsible for obtaining,
at its sole cost and expense, any approval or other governmental action
necessary to permit the development, construction, operation and decommissioning
of the Project and any Alterations in accordance with this Lease; provided
Ranchcorp shall support PEF's activities as provided in the Transaction
Agreement.
8.4 Prerequisites to Commencement of Construction.
(a) In addition to all other requirements set forth in this Section 8, before
commencing the construction of the Project or any Alterations and before
any building materials have been delivered to the Premises by PEF or under
PEF's authority, PEF shall obtain and maintain, or cause to be obtained
and maintained, at its own expense, the following insurance coverage in
full force and effect to cover all activities contemplated herein
throughout the term of this Lease, unless otherwise specified:
(i) Broad form comprehensive or commercial general liability insurance,
including products, completed operations, and contractual liability
coverage in limits of not less than $25 million per occurrence
combined single limit for bodily injury and property damage.
(ii) Statutory workers' compensation insurance and employers' liability
insurance in legally required limits.
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(iii) Pollution liability insurance, including liability and site
remediation coverage for both sudden and accidental and non-sudden
occurrences with limits of the greater of $5 million per occurrence
combined single limit for bodily injury and property damage with $5
million annual aggregate, or such limits as may be required
according to applicable CFR Codes or the State of California.
(iv) Comprehensive automobile liability insurance covering all owned and
non-owned and hired vehicles in limits of not less than $1 million
per occurrence combined single limit for bodily injury and property
damage, including all statutory coverage for all states of
operation.
(v) "All-risk" property insurance insuring all real and personal
property at full replacement cost value, together with rent
coverage/business interruption insurance in an amount necessary to
satisfy PEF's rent obligations under this Lease.
(vi) "Builders' risk" coverage in limits of not less than $25 million per
occurrence for bodily injury and property damage resulting from
PEF's design and construction of the Project.
(b) The coverages obtained by PEF pursuant to this Section shall be with
insurance companies authorized to do business in the State of California
and subject to the review and approval of Ranchcorp. Subsequent coverages
shall be substantially in accord with initial coverages but do not require
prior review and approval by Ranchcorp.
(c) PEF shall ensure that each subcontractor shall procure and maintain at all
times during the period of its performance of work with respect to the
Project such insurance as shall be reasonable and in accordance with
industry practices in relation to the work being performed or services
provided and as is customary for companies of similar size engaged in
similar businesses. Despite any conflicting provision in PEF's or any
subcontractor's insurance policies to the contrary, any comparable
insurance carried by Ranchcorp which may be applicable shall be deemed to
be excess insurance. All insurance required pursuant to this Section shall
be primary for all purposes under this Agreement and all of the insurance
to be carried by PEF or any subcontractor pursuant to this Section shall
so provide.
(d) All liability insurance coverage required under this Lease (except for
professional, workers' compensation and employer's liability coverages)
shall, to the extent available and on reasonable commercial terms, include
Ranchcorp and its directors, officers, agents and employees as additional
insureds and provide coverage on an occurrence basis or another basis
substantially equivalent to that. All such policies shall contain
"cross-liability" or "severability of interest" clauses or endorsements.
Notwithstanding any other provision of such policies, the insurance
afforded shall apply separately to each insured, named insured, or
additional insured with respect to any claim, suit, or judgment made or
brought by or for any other insured, named insured, or additional insured
as though a separate policy had been issued to each, except the insurer's
liability shall not be increased beyond the amount or amounts for which
the insurer would have been liable had only one insured been named.
Ranchcorp shall not, by reason of its inclusion under any of these
policies, incur liability to the insurance carrier for the payment of any
premium.
11
(e) PEF and Ranchcorp shall require their insurance carriers, with respect to
all insurance policies to be carried with respect to the Project, to waive
all rights of subrogation against each other and, in the case of PEF, such
waivers shall include Ranchcorp and Ranchcorp's directors, officers,
agents and employees. PEF agrees to exercise its reasonable efforts to
obtain from any subcontractor waivers of subrogation against Ranchcorp and
Ranchcorp's directors, officers, agents and employees.
(f) Any insurance required to be obtained and maintained by PEF shall be
subject to a deductible no more than $100,000 per policy period.
(g) In the event any insurance hereby required to be maintained by PEF, other
than insurance required by law to be maintained, shall not be available
and commercially feasible in the commercial insurance market, Ranchcorp
shall not unreasonably withhold its agreement to waive such requirement to
the extent maintenance thereof is not so available; provided, however,
that (i) PEF shall first request any such waiver in writing, which request
shall be accompanied by a written report prepared by an independent
insurance advisor of recognized national standing certifying that such
insurance is not reasonably available and commercially feasible in the
commercial insurance market for electric generating plants of similar type
and capacity as the Project and explaining in detail the basis for such
conclusions, such insurance advisor and the form and substance of such
reports to be reasonably acceptable to Ranchcorp; (ii) at any time after
the granting of any such waiver, Ranchcorp may request, and PEF shall
furnish to Ranchcorp within thirty (30) days after such request,
supplemental reports reasonably acceptable to Ranchcorp from such
insurance advisor updating its prior report and reaffirming such
conclusion; and (iii) any such waiver shall be effective only so long as
such insurance shall not be available and commercially feasible in the
commercial insurance market, it being understood that failure of PEF to
timely furnish any requested supplemental report shall be conclusive
evidence that such waiver is no longer effective because such condition no
longer exists, but that such failure is not the only way to establish such
nonexistence. Failure at any time to satisfy the conditions to any waiver
of an insurance requirement set forth in the proviso to the preceding
sentence shall not impair or be construed as a relinquishment of PEF's
ability to obtain a waiver of an insurance requirement pursuant to the
preceding sentence at any other time upon satisfaction of such conditions.
(h) PEF shall furnish Ranchcorp with certificates of insurance on forms
acceptable to Ranchcorp to evidence that policies providing the required
coverage and limits of insurance for PEF are in full force and effect. The
certificates shall provide that any company issuing an insurance policy
under this Agreement shall provide not less than thirty (30) days' advance
notice in writing to Ranchcorp prior to cancellation, termination, or
material change of any policy of insurance. In addition, PEF shall
immediately provide written notice to Ranchcorp upon receipt of notice of
cancellation of an insurance policy or decision to terminate or alter an
insurance policy. All certificates of insurance shall clearly state that
all applicable requirements of this Section have been satisfied.
Certificates of insurance for insurance to be furnished by PEF pursuant to
this Section and notices of any cancellations, terminations, or
alterations of such policies shall be mailed to Ranchcorp at the address
set forth for notices to Ranchcorp in this Lease.
(i) The coverage requirements set forth in this Section shall be adjusted
annually by an amount reflecting the annual percentage increase (if any)
in the CPI, during the twelve-
12
month period from the date that is fifteen (15) months prior to the date
of the escalation to the date that is three (3) months prior to the date
of the escalation. In the event the CPI is ever discontinued, the parties
shall substitute any generally recognized successor or substitute index
published by a governmental agency and reflecting changes in consumer
prices in the greater Los Angeles area.
8.5 General Construction Requirements.
(a) PEF shall construct the Project and any Alterations in strict
accordance with all Applicable Laws, and with all other provisions of this
Lease.
(b) Prior to the commencement of construction, Ranchcorp shall have
the right to post in a conspicuous location on the Premises as well as to record
in the Official Records of Kern and Los Angeles Counties, a Notice of
Ranchcorp's Nonresponsibility. PEF covenants and agrees to give Ranchcorp at
least ten (20) days prior written notice of the commencement of any
construction.
(c) PEF shall take all necessary safety precautions during any
construction.
8.6 Construction Completion Procedures.
(a) On completion of the construction of the Project or any
Alterations during the Term, PEF shall file for recordation, or cause to be
filed for recordation, a notice of completion. PEF hereby appoints Ranchcorp as
PEF's attorney-in-fact to file the notice of completion on PEF's failure to do
so after the work of improvement has been substantially completed.
(b) On completion of construction of the Project or any Alterations,
PEF shall deliver to Ranchcorp evidence satisfactory to Ranchcorp of payment of
all costs, expenses, liabilities and liens arising out of or in any way
connected with such construction (except for liens that are contested in the
manner provided in this Lease).
8.7 Mitigation Measures. PEF will incorporate into the design,
construction and operation of the Project the environmental mitigation measures
and pollution and waste (including waste water and/or solid waste) control
technologies described in Schedule 8.7.
8.8 Laydown License Area. During the construction of the Project,
Ranchcorp shall allow PEF an exclusive license to enter upon and use such
adjacent property belonging to Ranchcorp in the Site Selection Area as shall be
reasonably needed (currently thought to be 75 contiguous acres) for the storage
of equipment and materials for the Project, for staging of construction work on
the Project, and for construction of the Project (the "Laydown License Area").
8.9 Permits. Ranchcorp shall, upon written request of PEF, execute and
deliver all applications for permits, licenses or other authorizations relating
to the construction, use and occupancy of the Premises and the Improvements
required by any municipal, county, state or federal authorities, or required in
connection with any repair or Alteration of the Improvements, provided that such
permits, licenses or other authorizations are consistent with the terms of this
Lease and the other Project Agreements.
8.10 Personal Property. All equipment, furniture and other personal
property installed by PEF on the Premises shall remain the property of PEF. At
any time during the Term, PEF
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may remove any and all such equipment, furniture and personal property. Any
removal shall be performed in a good and workmanlike manner and PEF shall repair
any damage or injury to the Premises resulting from the removal. PEF shall be
entitled to all depreciation or amortization deductions attributable to all such
equipment, furniture and personal property.
8.11 Easements. Upon request by PEF, Ranchcorp shall grant to public
entities and public utilities, for the sole purpose of providing operating
utilities to the Project, rights of way or easements on, in or over the Premises
for poles or conduits or both for telephone, electricity, water, sanitary sewers
and storm sewers and for other utility, municipal and district services
reasonably required for the Project or any Alterations, in locations and on
alignments subject to Ranchcorp's reasonable review and approval. Ranchcorp
agrees to execute and acknowledge all required documentation to create the
required easements or rights of way. This Section 8.11 shall not apply to any
easement or right of way that is included in the Easement Deed and Agreement
between the parties of even date with this Lease.
8.12 Ownership of Improvements. The Improvements shall be owned in fee by
PEF or a permitted sublessee of the Premises. At any time during the Term, PEF
may remove any and all of the Improvements. Any removal shall be performed in a
good and workmanlike manner consistent with the requirements of this Section 8.
PEF shall repair any damage or injury to the Premises resulting from the
removal. PEF shall be entitled to all depreciation or amortization deductions
attributable to the Improvements.
8.13 Surrender. Before the end of the Term, PEF shall decommission the
Project by removing all buildings, equipment, and personal property from the
Premises and shall return the Premises to their pre-construction condition. For
purposes of this section and Section 8.14, the "Project" refers to the original
generating plant, as well as any Alterations, subsequent expansions,
re-powering, or other modifications thereof, and any then-existing above-ground
power lines. PEF may abandon buried pipelines in place after decommissioning
them in accordance with applicable state and/or federal regulations.
8.14 Decommissioning Security. Concurrently with the execution of this
Lease, PEF has furnished Ranchcorp with security for its obligations under
Section 8.13 in the form required under Section 4.2(e) of the Option Agreement.
8.15 Material Environmental Conditions. In the event that during
construction of the Project PEF discovers any Hazardous Substance on the
Property which will prevent or materially interfere with or make materially more
costly the construction, operation or financing of the Project, Ranchcorp shall
within 25 days after request therefor by PEF identify alternative property
adjacent to or in the vicinity of the Project site which will enable PEF to
avoid the Hazardous Substance (and any other Hazardous Substance) without making
access to the WRM and DWR electric loads less feasible physically or
economically than the property affected by the Hazardous Substance and which is
not affected by any Hazardous Substance but is otherwise generally as suitable
for the Project as the property affected by the Hazardous Substance (the
"Alternative Property"). If PEF approves the Alternative Property (which
approval shall not be unreasonably withheld or delayed), this Agreement shall be
amended to substitute the Alternative Property for the portion of the Property
affected by the Hazardous Substance and this Lease shall be amended, and the
memorandum hereof recorded to reflect the substitution. Notwithstanding the
foregoing, in the event no Alternative Property is or can be supplied and a
governmental authority requires cleanup of the Hazardous Substance, then
Ranchcorp will at its option either (A) clean up or remediate the Hazardous
Substance when and to the extent required by the governmental authority, or (B)
reimburse PEF for its costs
14
incurred in cleaning up or remediating the Hazardous Substance when and to the
extent required by the governmental authority. PEF's rights under this Section
shall not be impaired by its failure to exercise any of its rights under Section
1.5(c) or 11.3 of the Option Agreement.
Section 9. Maintenance; Repairs; Reconstruction.
9.1 Maintenance. PEF shall keep the Premises and the Improvements in good
order, condition and repair, including without limitation, all repairs to the
exterior or interior of the Improvements and all repairs of a structural nature.
All repairs shall be at the expense of PEF, except repairs caused by the
negligence or willful conduct of Ranchcorp or Ranchcorp's agents. Ranchcorp
shall not be obligated to make any repairs, replacements or renewals of any
kind, nature or description whatsoever (including but not limited to repairs or
restoration) required due to flooding of Pastoria Creek, and PEF hereby
expressly waives any right to terminate this Lease and any right to make repairs
at Ranchcorp's expense under Sections 1932, 1933, 1941 and/or 1942 of the
California Civil Code, or any amendments thereof or any similar law, statute or
ordinance now or hereafter in effect on account of any such flooding or any
failure to make any such repairs.
9.2 Obligation to Repair. PEF shall have the right to contest by
appropriate judicial or administrative proceedings, without cost or expense to
Ranchcorp, the validity or application of any Applicable Law or other
requirement that PEF repair, maintain, alter or replace the Improvements in
whole or in part or that would affect PEF's use of the Premises or the
Improvements. In the event that any such contest is finally determined in a
manner adverse to PEF, PEF shall either undertake the required repairs,
maintenance, alterations or replacements to the Premises and the Improvements,
or modify its use of the Premises and the Improvements so that no repair,
maintenance, alteration or replacement is required.
9.3 Damage or Destruction. If the Improvements are totally or partially
destroyed or damaged at any time, PEF may repair or reconstruct the
Improvements.
Section 10. Hazardous Substances
PEF shall provide to Ranchcorp prior to commencing construction of the
Project, and shall thereafter periodically update, a list of Hazardous
Substances that PEF requires on the Premises for the construction, operation,
maintenance and/or decommissioning of the Project or any Alterations. PEF shall
not cause or permit possession or storage on the Premises of any Hazardous
Substance other than those named on the then-most recent list of Hazardous
Substances provided to Ranchcorp. PEF shall not cause or permit to occur during
the Term any unlawful Release of a Hazardous Substance on, about or beneath the
Premises, whether affecting surface water or groundwater, air, the surface or
subsurface environment. In the event any unlawful Release of a Hazardous
Substance to the environment occurs on or about or beneath the Premises during
the Term as a result of any act or omission of PEF or any of PEF's Agents, PEF
shall promptly undertake all remedial measures required to clean up and abate or
otherwise respond to the unlawful Release in accordance with applicable
Environmental Laws at PEF's sole cost, and PEF shall, subject to Section 12.8 of
the Transaction Agreement, indemnify, defend, protect and hold Ranchcorp
harmless from and against any and all claims, losses, first and third party
damages, liabilities and costs, including without limitation reasonable
consultants' and attorneys' fees and costs, arising out of or relating to the
presence of Hazardous Substances on or about the Premises as a result of any act
or omission of PEF or PEF's Agents. If any unlawful Release of a Hazardous
Substance which is used on the Premises by PEF or any of PEF's Agents comes to
be located on or beneath the Premises or
15
within 50 feet of the property line of the Premises, unless the source of such
release is readily identifiable at the time the Release becomes known, such
release shall be presumed (subject to the following sentence) to be the result
of an act or omission of PEF or PEF's Agents and shall trigger PEF's remedial
and indemnity obligations under this section. Those obligations shall continue
in effect until and unless a different source of the Release is identified with
a reasonable degree of certainty, as evidenced either by Ranchcorp's written
concurrence with identification of a different source or a decision concurring
with identification of a different source by an arbitrator engaged pursuant to
the following sentence. Any dispute between the parties regarding the source of
a Release shall be resolved by arbitration as provided under Section 12 of the
Transaction Agreement. Nothing in this Lease is intended to release any party
from any liability it may have under the Comprehensive Environmental Response
Compensation and Liability Act. The prior sentence is not intended to modify any
indemnity or other undertaking of any party under any of the Project Agreements.
Section 11. Sublease.
PEF shall have the right from time to time or at any time to sublet the
Premises (a) to any Project Financing Entity as may be necessary or convenient
in connection with any financing of the Project, and (b) to any Person who or
which is a Qualified Person at the date of the sublease; provided that any
subtenant must be an owner of the Project and must have assumed PEF's
obligations under the Transaction Agreement and the Easement Agreement. Upon the
execution of any permitted sublease of the Premises by PEF, Ranchcorp shall
execute a non-disturbance agreement in form satisfactory to both Ranchcorp and
PEF in their reasonable discretion. Any such sublease shall be subject in all
respects to this Lease.
Section 12. Assignments and Pledges of Collateral.
Subject to and only in accordance with the terms of Section 11 and
Schedule 11.4 of the Transaction Agreement, PEF shall have the right, at any
time and from time to time, to enter into any leasehold mortgage or other
security agreement regarding, or to assign all or portions of, its rights and
interests under this Lease. All other assignments, pledges, mortgages, or other
transfers of PEF's rights or interests under this Lease, except for those
permitted under Section 11 and Schedule 11.4 of the Transaction Agreement, are
prohibited.
Section 13. Indemnity.
13.1 Indemnity.
Subject to Section 12.8 of the Transaction Agreement:
(a) With respect to claims by PEF or by any of PEF's Agents or by third
parties (other than any of the Tejon Interests) arising or claimed to arise out
of the presence or activities of PEF or any of PEF's Agents on the Tejon Ranch,
and to claims by PEF or by any of PEF's Agents for work performed on the Project
or for materials supplied to the Project, PEF will defend, indemnify and hold
Ranchcorp harmless from all actual losses, damages, liabilities, claims,
expenses, causes of action, judgments and liens filed against the Premises or
against any other land or land rights owned by Ranchcorp in Kern County,
California, arising directly from the actions of PEF or any of PEF's Agents,
except to the extent arising (i) from active negligence, recklessness, willful
misconduct or breach of contract or law by Ranchcorp or any of Ranchcorp's
Agents, (ii) as a consequence of strict liability imposed upon Ranchcorp or any
of Ranchcorp's Agents as a matter of law, or (iii) from the discovery or
disclosure of any
16
Hazardous Substance or other substance in, under or about the Tejon Ranch unless
the presence thereof is due to any act or omission of PEF or any of PEF's
Agents.
(b) With respect to claims by Ranchcorp for physical damage to its
property or for personal injury to Ranchcorp or Ranchcorp's Agents arising out
of the presence of PEF or any of PEF's Agents on the Tejon Ranch, PEF will
defend, indemnify and hold Ranchcorp harmless from all actual losses, damages,
liens, liabilities, claims, expenses, causes of action and judgments arising
directly from the actions of PEF or any of PEF's Agents, except to the extent
arising (i) from negligence, recklessness, willful misconduct or breach of
contract or law by Ranchcorp or any of Ranchcorp's Agents, (ii) as a consequence
of strict liability imposed upon Ranchcorp or any of Ranchcorp's Agents as a
matter of law, or (iii) from the discovery or disclosure of any Hazardous
Substance or other substance in, under or about the Tejon Ranch unless the
presence thereof is due to any act or omission of PEF or any of PEF's Agents.
Section 14. Mechanics and Other Liens.
PEF shall keep the Premises free and clear of all mechanics',
materialmen's and other liens for work done, services performed or materials
used in or about the Premises or the Improvements or in connection with any
operations of PEF ("Mechanics' Liens"). PEF shall have the right to contest the
amount or validity of any Mechanics' Lien by giving Ranchcorp written notice of
PEF's intention to do so within twenty (20) days after the recording of a
Mechanics' Lien. During the period of the contest, provided that PEF properly
records the bond permitted, in the amount provided, by California Civil Code
Section 3143, Ranchcorp shall not satisfy and discharge the Mechanics' Lien and
PEF shall not be in default so long as such bond remains valid and effective.
PEF shall satisfy and discharge any Mechanics' Lien within twenty (20) days
after the final determination of its amount or validity to the extent held valid
and all penalties, interest and costs related to the Lien; provided, however,
that the satisfaction and discharge of the Mechanics' Lien shall not, in any
case, be delayed until execution is levied upon any judgment. PEF shall
indemnify and hold Ranchcorp harmless against all loss, cost, expense and damage
(including reasonable attorneys' fees) arising out of the contest. Ranchcorp
shall not be required to join in any proceeding to contest the amount or
validity of any Mechanics' Lien, except that if any law shall require that the
proceeding be brought by Ranchcorp, Ranchcorp agrees to join in the proceeding,
or permit it to be brought in its name. Ranchcorp shall cooperate with PEF in
any contest. PEF's obligations under this Section with regard to Mechanic's
Liens arising prior to the Commercial Operation Date are guaranteed by Enron
Capital & Trade Resources Corp. under Section 2.2 of the Transaction Agreement.
Section 15. Eminent Domain.
15.1 Taking of Premises. If at any time during the Term, all or any
portion of the Project or the Premises are taken as a result of the exercise of
the right of eminent domain, the rights of Ranchcorp and PEF to the compensation
for the taking shall be determined in accordance with this Section 15. The terms
"taken" or "taking" shall mean an acquisition and/or damaging, including
severance damage, by eminent domain, or by inverse condemnation, or by voluntary
deed or transfer in contemplation of a taking or under threat of a taking, or
for any public or quasi-public use under any statute or law. The "date of
taking" shall be the earliest of (a) the date actual physical possession is
taken by the condemnor; (b) the date on which the right to compensation and
damages accrues under Applicable Laws; or (c) the date on which title vests in
the condemnor. "Entire Taking" means a taking as the result of which operating
the Project, even at reduced capacity, to produce electric energy and/or to
17
provide Ancillary Services is not, and is not reasonably likely to become again,
commercially viable. "Partial Taking" means a taking other than an Entire
Taking.
15.2 Effect on Rent. In the event of a Partial Taking as a result of which
the capacity of the Project is reduced, this Lease shall continue in full force
and effect for the remainder of the Term and : (a) Fixed Rent shall be adjusted
as set forth in the same manner as for changes in "C" under Section 3.2(c), and
(b) Variable Rent shall be adjusted by adjusting the factor "C" in the formula
stated in Section 3.4(c) for calculating the Spark Spread to conform with the
reduced capacity of the Project. During any period of a temporary taking, or
during any period after the date of a Partial Taking, during which the Project
necessarily ceases to operate, no portion of Rent shall be abated.
15.3 Notice. The party receiving any notice of an intended taking, service
of legal process relating to a taking, notice regarding any proceedings or
negotiations with respect to a taking, or notice of intent to negotiate a
transfer in lieu of a taking shall promptly give the other party notice of the
receipt, contents and date of the notice received. PEF shall provide any Project
Financing Entity with a copy of any notice of any threatened or pending taking.
15.4 Compensation. The rights of Ranchcorp and PEF to any award,
compensation or damages for a taking shall be separately determined by the
condemning authority or the court having jurisdiction over any proceedings as
follows:
(a) Entire Taking. In the event of an Entire Taking, this Lease shall
terminate on the date of taking and each party shall have the right to make its
own claim for any and all awards, compensation and damages for the taking. The
parties agree that an element of Ranchcorp's claim will be the present value of
its rental stream under this Lease.
(b) Partial Taking. In the event of a Partial Taking, all awards,
compensation and damages shall first be used for replacement and restoration of
the Project and the Premises, and then the remainder shall be allocated between
Ranchcorp and PEF as provided in Section 15.4(a).
(c) Temporary Taking. If the Project or the Premises are temporarily
taken, PEF shall receive the entire amount of any awards, compensation and
damages for the temporary taking, and Ranchcorp hereby assigns such awards,
compensation and damages to PEF to the extent that the taking does not extend
beyond the expiration of the Term.
15.5 Representation in Proceedings or Negotiations. Subject to the
allocation provisions of Section 15.4, Ranchcorp, PEF and any Project Finance
Entities shall have the right to participate as their interests may appear in
any proceeding, negotiation or settlement of awards, compensation and damages
and may contest and appeal any awards, compensation and damages. Neither
Ranchcorp nor PEF shall enter into any agreement or settlement with or sale or
transfer to the condemning authority without the consent of the other. Ranchcorp
and PEF each agree to execute and deliver to the other any instruments which may
be required to effectuate or facilitate the provisions of this Section 15. In
the event the condemning authority or court having jurisdiction over any takings
proceedings does not make the allocation and distribution of the award,
compensation and damages in accordance with this Section 15, and the parties
cannot mutually agree upon the appropriate allocation, the allocation shall be
determined pursuant to the dispute resolution provisions set forth in Section 12
of the Transaction Agreement.
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Section 16. Ranchcorp's Right of Inspection.
Ranchcorp may, at reasonable times during the Term and upon reasonable
prior written notice to PEF, enter upon the Premises during regular business
hours for the purpose of inspecting the Premises and the Improvements and for
such other purposes as the reasonable protection of its interests requires,
subject, however, to PEF's reasonable requirements regarding security on the
Premises and the confidentiality of its business affairs, which shall not bar
Ranchcorp's right to make reasonable inspections.
Section 17. Default.
The occurrence of any one of the following shall constitute a default and
breach of this Lease by PEF. Notices given under this Section 17 shall specify
the alleged default and the applicable Lease provisions, and shall demand that
PEF perform the provisions of this Lease or pay the rent that is in arrears, as
the case may be, within the applicable time period. Ranchcorp need not elect its
remedy or remedies for an uncured default at the time it gives notice of a
default.
17.1 Failure to Pay Rent. Any failure of PEF to pay Rent or any other
required payments, where the failure continues for a period of ten (10) days
after written notice from Ranchcorp to PEF. Such notice shall not be deemed to
be the notice required under California Code of Civil Procedure Section 1161;
Ranchcorp must separately provide such Section 1161 notice.
17.2 Failure to Observe Other Provisions. Any failure by PEF to observe or
perform any other provision of this Lease to be observed or performed by PEF,
where the failure continues for thirty (30) days after written notice by
Ranchcorp to PEF. Such notice shall not be deemed to be the notice required
under California Code of Civil Procedure Section 1161; Ranchcorp must separately
provide such Section 1161 notice. However, if the nature of PEF's default is
such that it cannot reasonably be cured within the thirty (30) day period, PEF
shall not be in default if PEF commences the cure within the thirty (30) day
period and thereafter diligently prosecutes the cure to completion.
17.3 Abandonment. The abandonment of the Premises.
17.4 Insolvency. Should PEF admit in writing its inability to pay its
debts generally as they become due, file a petition in bankruptcy, insolvency,
reorganization, readjustment of debt, dissolution or liquidation under any law
or statute of any government or any subdivision thereof either now or hereafter
in effect, make an assignment for the benefit of its creditors, consent to or
acquiesce in the appointment of a receiver of itself or of the whole or any
substantial part of the Premises.
17.5 Receivership. Should a court of competent jurisdiction enter an
order, judgment or decree appointing a receiver of PEF or of the whole or any
substantial part of the Premises or of the Project and should such order,
judgment or decree not be vacated, set aside or stayed within ninety (90) days
after the date of entry of such order, judgment, or decree, or should a stay
thereof be thereafter set aside.
17.6 Involuntary Bankruptcy. Should a court of competent jurisdiction
enter an order, judgment or decree approving a petition filed against PEF under
any bankruptcy, insolvency, reorganization, readjustment of debt, dissolution or
liquidation law or statute of the federal
19
government or any state government or any subdivision of either now or hereafter
in effect, and should such order, judgment or decree not be vacated, set aside
or stayed within sixty (60) days from the date of entry of such order, judgment
or decree, or should a stay thereof be thereafter set aside.
Section 18. Remedies.
In the event of a default by PEF, Ranchcorp shall have the following
remedies. These remedies are not exclusive; they are cumulative and are in
addition to any other right or remedy available to Ranchcorp at law or in
equity. Ranchcorp may initiate an action for damages or injunctive relief
without terminating this Lease or PEF's right to possession.
18.1 Termination of Right to Possession. If the default is in the
observance or performance of any material obligation of PEF under this Lease,
Ranchcorp may terminate PEF's right to possession of Premises. The parties agree
that a "material obligation" shall be any obligation of PEF which is material to
the realization by Ranchcorp of any of the material benefits intended to be
conferred on Ranchcorp by this Lease and includes without limitation any default
under Section 17.1. No act by Ranchcorp, other than giving specific notice of
termination to PEF, shall terminate this Lease. Acts of maintenance, or efforts
to relet the Premises, shall not constitute a termination of PEF's right to
possession. On termination, Ranchcorp has the right to recover from PEF: (a) the
worth, at the time of the award, of the unpaid Rent that had been earned at the
time of termination of this Lease; (b) the worth, at the time of the award, of
the amount by which the unpaid Rent that would have been earned after the date
of termination of this Lease until the time of the award exceeds the amount of
loss of rent that PEF proves could have reasonably been avoided; and (c) the
worth, at the time of the award, of the amount by which the unpaid Rent for the
balance of the Term after the time of the award exceeds the amount of the loss
of Rent that PEF proves could have been reasonably avoided;
"The worth, at the time of the award," as used in (a) and (b) of this
Section 18.1 is to be computed by allowing interest at the rate of 10% per
annum. "The worth, at the time of the award," as referred to in (c) of this
Section 18.1, is to be computed by discounting the amount by the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus 1%.
18.2 Civil Code Section 1951.4. Ranchcorp shall have the remedy described
in California Civil Code Section 1951.4 (lessor may continue lease in effect
after lessee's breach and abandonment and recover rent as it becomes due, if
lessee has right to sublet or assign, subject only to reasonable limitations).
18.3 Self-Cure; Costs Thereof. In the event of a default arising from
PEF's failure to perform work required to be performed by PEF under this Lease
within the time required by the Lease and/or by Ranchcorp's related notice of
default, unless Ranchcorp is expressly prohibited from performing such work by
this Lease, Ranchcorp may elect, but shall not be required, to perform such work
after delivery of thirty (30) days prior written notice to PEF of such election
(except that no such prior notice shall be required in the event of an
emergency). If Ranchcorp so elects, PEF shall pay all of Ranchcorp's costs and
expenses of such work, plus an overhead and management fee of ten percent (10%)
of such costs and expenses, within twenty (20) days after PEF receives
Ranchcorp's itemized invoice for such work. If PEF does not pay such an invoice
within such 20-day period, (i) the obligation shall accrue interest at the rate
of 10% per
20
annum without compounding from the twentieth day after PEF received the invoice
until it is fully paid, and (ii) without further notice to PEF, shall constitute
a default under Section 17.1.
Section 19. Waiver.
No waiver of any default under this Lease shall constitute or operate as a
waiver of any subsequent default, and no delay, failure or omission in
exercising or enforcing any right, privilege, or option under this Lease shall
constitute waiver, abandonment or relinquishment of, or prohibit or prevent any
election under or enforcement or exercise of, any right, privilege or option
under this Lease. Any waiver of any provisions of this Lease by Ranchcorp or PEF
must be in writing and signed by the party against whom it is sought to be
enforced. The receipt by Ranchcorp of Rent with knowledge of any default under
this Lease, or after having provided notice of a default, or after having
commenced an action to enforce this Lease shall not constitute or operate as a
waiver of the default, unless the payment of such Rent cures the monetary
default.
Section 20. No Merger.
There shall he no merger of the leasehold estate created by this Lease
with the fee estate in the Premises by reason of the fact that the same person
may own or hold (i) the leasehold estate created by this Lease or any interest
in the leasehold estate and (ii) the fee estate in the Premises or any interest
in the fee estate unless and until Ranchcorp shall execute, acknowledge and
record a written instrument effecting the merger. Termination of this Lease
shall not, unless Ranchcorp elects, cause a merger of the estates of Ranchcorp
and PEF. Termination shall, at the option of Ranchcorp, either cause a
termination of any sublease in effect or act as an assignment to Ranchcorp of
PEF's interest in any sublease.
Section 21. Reserved
Section 22. General Provisions.
22.1 Covenants Running With the Land. The agreements, covenants and
conditions contained in this Lease are and shall be deemed to be covenants
running with the land and the reversion and shall be binding upon and shall
inure to the benefit of Ranchcorp and PEF and their respective permitted
successors and assigns. All references in this Lease to "PEF" or "Ranchcorp"
shall be deemed to refer to and include permitted successors and assigns of PEF
or Ranchcorp, respectively, without specific mention of such successors or
assigns.
22.2 Estoppel Certificates. PEF or Ranchcorp, as the case may be, shall
execute, acknowledge and deliver to the other or any Person specified by the
other, promptly upon request, its certificate certifying: (a) that this Lease is
unmodified and in full force and effect (or, if there have been modifications,
that this Lease is in full force and effect, as modified, and stating the
modifications); (b) the dates, if any, to which all Rent has been paid; (c)
whether there are then existing charges, offsets or defenses against the
enforcement by Ranchcorp of any agreement, covenant or condition on the part of
PEF (and, if so, specifying the same); and (d) whether there are then existing
any defaults by PEF under the Lease and whether any notice has been given to PEF
of any default which has not been cured (and, if so, specifying the same). Any
certificate may be relied upon by the Person to whom the certificate is
delivered.
22.3 Holding Over. This Lease shall terminate without further notice upon
the expiration of the Term, and any holding over by PEF after the expiration of
the Term shall not
21
constitute a renewal or give PEF any rights to the Premises. PEF shall pay Rent
as provided under Section 3 of this Lease during any holdover period. If PEF
holds over with the consent of Ranchcorp, PEF shall be a tenant from
month-to-month during the holdover period. If PEF holds over without Ranchcorp's
consent, PEF shall be a tenant at sufferance during the holdover period.
22.4 Miscellaneous.
(a) Time is of the essence in each of the provisions of this Lease.
(b) All Exhibits referred to are attached to this Lease and
incorporated by reference.
(c) Contemporaneously with the execution of this Lease, Ranchcorp
and PEF will execute, acknowledge and record in the Official Records of Kern
County a memorandum of lease in the form of attached Schedule 22.4(c).
(d) The provisions of Section 14 of the Transaction Agreement apply
to this Lease.
22.5 Authority of PEF. PEF warrants to Ranchcorp that PEF is a validly
existing limited liability company under the laws of the State of Delaware, that
it is duly qualified to do business in the State of California, that its entry
into and performance of this Lease has been duly authorized, that the
officer(s), director(s), or employee(s), as applicable, executing this Lease on
PEF's behalf are duly authorized to do so, and that this Lease is binding upon
PEF.
22.6 Authority of Ranchcorp. Ranchcorp warrants to PEF that Ranchcorp is a
validly existing corporation under the laws of the State of California, that its
entry into and performance of this Lease has been duly authorized, that the
officer(s), director(s), or employee(s), as applicable, executing this Lease on
Ranchcorp's behalf are duly authorized to do so, and that this Lease is binding
upon Ranchcorp.
22.7 Labor Issues. The parties will consult with one another, and consider
each other's views, regarding labor issues of concern to either party
22.8 Consent. Without prejudice to its other rights and remedies under
this Lease and the other Project Agreements, either party shall have the right
to institute an arbitration for declaratory relief under Section 12 of the
Transaction Agreement to determine whether any proposed withholding or delay of
any consent or approval by the party would be unreasonable.
Section 23. Glossary.
Additional Rent - Section 3.6.
Affiliate - Section 15 of the Transaction Agreement.
Alterations - Section 8.2.
Ancillary Services -- Section 3.4(d).
22
Applicable Laws - all applicable laws, codes, ordinances, orders, rules,
regulations and requirements, including, without limitation, all Environmental
Laws, of all federal, state, county, municipal and other governmental
authorities and the departments, commissions, boards, bureaus,
instrumentalities, and officers relating to or affecting the Premises, the
Improvements or the use, operation or occupancy of the Premises, whether now
existing or hereafter enacted.
C - Section 3.4(c).
Commencement Date - Section 2.1.
Commercial Operation Date - Section 2.1.
Daily Gas Price - Section 3.4(d).
Developer Interests - Enron Capital & Trade Resources Corp. and PEF.
Entire Taking - Section 15.1.
Environmental Laws - all present and future federal, state and local laws,
statutes, ordinances, regulations, rules, judicial and administrative orders and
decrees, permits, licenses, approvals, authorizations and similar requirements
pertaining to the protection of human health and safety or the environment.
Excepted Cause - Section 15 of the Transaction Agreement.
Extended Term - Section 2.2.
Final Project Decision - the CEC's final decision with respect to the
Project AFC.
Fixed Rent - Section 3.1.
Gas Daily - Section 3.4(d).
GP -- Section 3.4(c).
Hazardous Substance - any chemical, substance, medical or other waste,
living organism or combination thereof which is or may be hazardous to the
environment or human or animal health or safety due to its radioactivity,
ignitability, corrosivity, reactivity, explosivity, toxicity, carcinogenicity,
mutagenicity, phytotoxicity, infectiousness or other harmful or potentially
harmful properties or effects. "Hazardous Substances" shall include, without
limitation, petroleum hydrocarbons, including crude oil or any fraction thereof,
asbestos, radon, polychlorinated biphenyls (PCBs), methane and all substances
which now or in the future may be defined as "hazardous substances," "hazardous
wastes," "extremely hazardous wastes," "Hazardous Substance," "toxic
substances," "infectious wastes," "biohazardous wastes," "medical wastes,"
"radioactive wastes" or which are otherwise listed, defined or regulated in any
manner pursuant to any Environmental Laws.
HR -- Section 3.4(c).
Improvements - Section 3.6.
Initial Term - Section 2.1.
23
ISO -- Section 3.4(d).
ISO Controlled Grid - Section 3.4(d).
ISO Tariff -- Section 3.4(d).
Laydown License Area - Section 8.8.
Mechanics' Liens - Section 14.
Nominal COD - Section 2.1
Option Agreement - Recitals.
Partial Taking - Section 15.
Pastoria Substation - Section 3.4(d).
PEF - introductory paragraph.
PEF's Agents - any Affiliate of either of the Developer Interests and any
contractor, consultant, agent, employee, invitee or other Person acting at the
request and for the benefit of any of the Developer Interests or any of their
Affiliates.
Premises - Section 1.
Project - Recitals.
Project Financing Agreements - Section 11.5 of the Transaction Agreement.
Project Financing Entity - Section 11.5 of the Transaction Agreement.
Project Financing -- Section 11.5 of the Transaction Agreement.
Property Taxes - Section 3.6.
PX - Section 3.4(d).
PX Price -- Section 3.4(d).
Qualified - Section 11.3(c) of the Transaction Agreement.
Ranchcorp - introductory paragraph.
Ranchcorp's Agents - any Affiliate of any of the Tejon Interests and any
contractor, consultant, agent, employee, invitee or other Person acting at the
request and for the benefit of any of the Tejon Interests or any of their
Affiliates.
Release - any accidental or intentional spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injection, escaping, leaching,
migrating, dumping or disposing into the air, land, surface water, ground water
or the environment.
24
Rent - Section 3.1.
Revenue Day -- Section 3.4(d).
Revenue Hour -- Section 3.4(d).
Security Agreement - Section 1 of Schedule 11.4 of the Transaction
Agreement.
Site Selection Area - Section 1.1 of the Option Agreement.
Spark Spread - Section 3.4(c).
Taken or Taking - Section 15.1.
Tejon Interests - Ranchcorp, Tejon Ranch Co. and Pastoria Power Project
LLC.
Tejon Ranch - the approximately 270,000 acres of real property in Kern and
Los Angeles counties currently owned by Ranchcorp and known as The Tejon Ranch.
Term - Section 2.2.
Transaction Agreement - Recitals.
Variable Rent - Section 3.1.
TEJON RANCHCORP, PASTORIA ENERGY FACILITY LLC,
a California corporation a Delaware limited liability company
By: Enron Capital & Trade Resources Corp.,
its sole member
By:________________________________ By:_______________________________________
Dennis Mullins David Parquet
Vice President Vice President
25
EXHIBIT 10.15
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
Pastoria Energy Facility LLC
_______________________
_______________________
_______________________
EASEMENT DEED AND AGREEMENT
BETWEEN
TEJON RANCHCORP
AND
PASTORIA ENERGY FACILITY LLC
Executed as of: ____________________, _____
EASEMENT DEED AND AGREEMENT
THIS EASEMENT DEED AND AGREEMENT (this "Agreement") is entered into in Los
Angeles, California as of this _____ day of ____________________, ____, [the
date it is executed and delivered] by and between Tejon Ranchcorp, a California
corporation, as grantor ("Tejon") and Pastoria Energy Facility LLC, a Delaware
limited liability company, as grantee ("Grantee").
RECITALS
A. Tejon is the owner of the Tejon Ranch. Grantee is a special purpose
entity created for the purpose of developing a merchant power plant (the
"Project") to be located on a portion of the Tejon Ranch (the "Project Site").
B. Tejon and Grantee and certain of their respective affiliates have
agreed to work together toward development of the Project pursuant to a
Transaction Agreement dated April 30, 1999 (the "Transaction Agreement").
C. Grantee has exercised its option to lease the Project Site pursuant to
an Option Agreement dated April 30, 1999, by and between Tejon and Grantee (the
"Option Agreement").
D. Concurrently with the execution of this Agreement, Tejon and Grantee
are entering into a lease of the Project Site pursuant to a Ground Lease of even
date herewith (the "Lease Agreement").
E. The Transaction Agreement, the Option Agreement, the Lease Agreement
and this Agreement are sometimes collectively referred to in this Agreement as
the "Project Agreements". Capitalized terms used in this Agreement have the
meanings stated in Section 24 or the provisions there referred to.
IN CONSIDERATION OF the mutual covenants, conditions, representations and
warranties herein contained, and the payments, covenants and representations
contained in the other Project Agreements, the parties agree as follows:
1. Grant of Easements.
(A) Gas Easement. Tejon hereby grants to Grantee, under the terms and
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conditions hereinafter set forth, a nonexclusive right-of-way easement
appurtenant to the Project Site over, through, under, and along the strip of
land (hereinafter called "Parcel A") located in Kern County, California, the
width and centerline of which parcel is set forth on Exhibit A, attached hereto
and made a part hereof, for the term set forth in Section 2 below, and for the
purposes set forth in Section 7(A) below, which include constructing and
operating in conformance with this Agreement certain facilities (the "Gas
Facilities") as defined and further described in Section 7(A) below (the "Gas
Easement"). The parties expressly agree that the Gas Facilities shall be owned
by Grantee or by any subeasement holder permitted under this Agreement. The Gas
Easement shall have a temporary width as reasonably necessary to construct and
install the Gas Facilities, but not to exceed fifty feet (50'). The width shall
revert to the permanent width set forth on Exhibit A upon the completion of said
construction and installation; provided, however, that Grantee shall have a
continuing license to use the full 50' width for on-going maintenance activities
as necessary during the Term.
(B) Water Easement. Tejon hereby grants to Grantee, under the terms and
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conditions hereinafter set forth, a nonexclusive right-of-way easement
appurtenant to the Project Site over,
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through, under, and along the strip of land (hereinafter called "Parcel B")
located in Kern County, California, the width and centerline of which parcel is
set forth on Exhibit B, attached hereto and made a part hereof, for the term set
forth in Section 2 below, and for the purposes set forth in Section 7(B) below,
which include constructing and operating in conformance with this Agreement
certain facilities (the "Water Facilities") as defined and further described in
Section 7(B) below (the "Water Easement"). The parties expressly agree that the
Water Facilities shall be owned by Grantee or by any subeasement holder
permitted under this Agreement. The Water Easement shall have a temporary width
as reasonably necessary to construct and install the Water Facilities, but not
to exceed seventy-five feet (75'). The width shall revert to the permanent width
set forth on Exhibit B upon the completion of said construction and
installation.
(C) Electric Easement. Tejon hereby grants to Grantee, under the terms and
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conditions hereinafter set forth, a nonexclusive right-of-way easement
appurtenant to the Project Site over, through, under, and along the strip of
land (hereinafter called "Parcel C") located in Kern County, California, the
width and centerline of which parcel is set forth on Exhibit C, attached hereto
and made a part hereof, for the term set forth in Section 2 below, and for the
purposes set forth in Section 7(C) below, which include constructing and
operating in conformance with this Agreement certain facilities (the "Electric
Facilities") as defined and further described in Section 7(C) below (the
"Electric Easement"). The parties expressly agree that the Electric Facilities
shall be owned by Grantee or by any subeasement holder permitted under this
Agreement. The Electric Easement shall have a temporary width as reasonably
necessary to construct and install the Electric Facilities, but not to exceed
one hundred forty feet (140'). The width shall revert to the permanent width set
forth on Exhibit C upon the completion of said construction and installation.
(D) Wastewater Easement. Tejon hereby grants to Grantee, under the terms
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and conditions hereinafter set forth, a nonexclusive right-of-way easement
appurtenant to the Project Site over, through, under, and along the strip of
land (hereinafter called "Parcel D") located in Kern County, California, the
width and centerline of which parcel is set forth on Exhibit D, attached hereto
and made a part hereof, for the term set forth in Section 2 below, and for the
purposes set forth in Section 7(D) below, which include constructing and
operating in conformance with this Agreement certain facilities (the "Wastewater
Facilities") as defined and further described in Section 7(D) below (the
"Wastewater Easement"). The parties expressly agree that the Wastewater
Facilities shall be owned by Grantee. The Wastewater Easement shall have a
temporary width as reasonably necessary to construct and install the Wastewater
Facilities, but not to exceed seventy-five feet (75'). The width shall revert to
the permanent width set forth on Exhibit D upon the completion of said
construction and installation.
(E) Access Easement. Tejon hereby grants to Grantee, under the terms and
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conditions hereinafter set forth, a nonexclusive right-of-way easement
appurtenant to the Project Site over, through, under, and along the strip of
land (hereinafter called "Parcel E") located in Kern County, California, the
width and centerline of which parcel is set forth on Exhibit E, attached hereto
and made a part hereof, for the term set forth in Section 2 below, and for the
purposes set forth in Section 7(E) below, which include constructing and
maintaining in conformance with this Agreement an access road to the Project
(the "Access Road") as defined and further described in Section 7(E) below (the
"Access Easement"). The parties expressly agree that the Access Easement shall
be owned by Grantee. The Access Easement shall have a temporary width as
reasonably necessary to construct and install the Access Road, but not to exceed
eighty feet (80'). The width shall revert to the permanent width set forth on
Exhibit E upon the completion of said construction and installation.
(F) Project Easements. The Gas Easement, the Water Easement, the Electric
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Easement, the Wastewater Easement and the Access Easement are collectively
referred to in this Agreement as the
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"Project Easements". The Gas Facilities, the Water Facilities, the Electric
Facilities, the Wastewater Facilities and the Access Road are collectively
referred to in this Agreement as the "Project Facilities". Parcel A, Parcel B,
Parcel C, Parcel D and Parcel E are collectively referred to in this Agreement
as the "Easement Parcels".
2. Term.
The term of each of the Project Easements (the "Term") shall be
coterminous with the Lease Agreement unless earlier terminated pursuant to the
provisions of Section 21 below, or unless Grantee voluntarily surrenders any
Easement Parcel by giving written notice of such surrender to Tejon and by
complying with the provisions of Section 19 below.
3. Acceptance of Premises.
By execution of this Agreement, and unless otherwise specifically provided
in this Agreement, Tejon grants and Grantee accepts the Easement Parcels in
their present condition, subject to the lien of taxes and assessments not yet
due, to all matters recorded against the Easement Parcels in the Official
Records of Kern County, California as of the date of this Agreement, and to
existing uses by Tejon of its property which were open and obvious as of the
date of the Option Agreement and occurring on a continuous basis. Tejon shall
have no obligation or liability whatsoever to make any improvements,
alterations, or repairs to the Easement Parcels or the Project Facilities, or to
pay or reimburse Grantee for any part of the cost thereof.
4. Consideration.
Consideration for the Project Easements is provided by the Lease
Agreement.
5. Governmental Approvals and Permits.
Grantee shall be responsible for obtaining and maintaining all necessary
approvals from governmental authorities having jurisdiction over the activities
and operations to be conducted hereunder, including, but not limited to,
permits, incidental take authority, franchises, licenses, parcel maps, zoning,
conditional use permits, variances, and building permits. Grantee shall bear all
costs related to the foregoing items. Tejon shall cooperate in Grantee's efforts
to secure any such licenses, permits, and approvals as and to the extent
provided in the other Project Agreements.
6. Markers and Location of Facilities.
Except as waived by Tejon in writing, Grantee shall install and maintain
markers showing the location of underground Project Facilities within the
Easement Parcels. Subject to the requirements of applicable regulations, said
markers shall be made of materials and designed in a manner approved by Tejon in
writing (which approval will not be unreasonably withheld or delayed) and shall
be placed and maintained at all angle points of said underground Project
Facilities, at fence and roadway crossings, and otherwise at locations not more
than 500 feet apart along the pertinent Easement Parcels. Said markers shall
identify Grantee as the user of the Project Facilities and shall provide a
telephone number to call for assistance in locating Project Facilities. When
requested by Tejon and permitted by applicable regulations, the markers shall be
installed and maintained flush with the ground surface, similar to survey
markers. In order to minimize possible future interferences with underground
Project Facilities, Grantee shall, upon written request from Tejon, find and
mark the location of underground Project Facilities within a reasonable period
of time after receipt of such request.
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7. Uses by Grantee.
(A) Gas Easement. The physical structures and improvements described below
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in this Section 7(A) are individually and collectively called the "Gas
Facilities". Grantee shall use the Gas Easement, consistent with the terms of
this Section 7(A), solely to construct, reconstruct, maintain, operate, inspect,
repair and replace underground pipelines for the transportation and delivery of
natural gas to the Project, together with such markers, valves, fittings,
meters, corrosion control devices and similar appurtenances as may be necessary
or convenient to the operation of such gas pipeline. Grantee shall use the Gas
Facilities only for the transportation of natural gas to, and for use by, the
Project and for no other purpose whatsoever.
(B) Water Easement. The physical structures and improvements described
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below in this Section 7(B) are individually and collectively called the "Water
Facilities". Grantee shall use the Water Easement, consistent with the terms of
this Section 7(B), solely to construct, reconstruct, maintain, operate, inspect,
repair and replace underground pipelines for the transportation of water used by
the Project, together with such markers, valves, fittings, meters, corrosion
control devices and similar appurtenances as may be necessary or convenient to
the operation of the water pipelines. Grantee shall use the Water Facilities
only for the transportation to and from the Project of water used, or to be
used, by the Project and for no other purpose whatsoever.
(C) Electric Easement. The physical structures and improvements described
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below in this Section 7(C) are individually and collectively called the
"Electric Facilities". Grantee shall use the Electric Easement, consistent with
the terms of this Section 7(C), solely to construct, reconstruct, maintain,
operate, inspect, repair and replace (i) a high voltage electric power
transmission line from the Project to the existing Pastoria Substation owned by
Southern California Edison Company, and (ii) a high voltage electric power
transmission line from the Pastoria Substation to the Edmonston Pumping Station
owned by the California Department of Water Resources (if elected by Grantee and
subject to the payment of additional consideration), for the transmission of
electric energy produced by the Project together with such poles, markers,
fittings, meters, and similar appurtenances as may be necessary or convenient to
the operation of the transmission line, and to erect, repair, maintain, remove
and operate other devices reasonably required for safe operation of the Electric
Facilities.
(D) Wastewater Easement. The physical structures and improvements
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described below in this Section 7(D) are individually and collectively called
the "Wastewater Facilities". Grantee shall use the Wastewater Easement,
consistent with the terms of this Section 7(D), solely to construct,
reconstruct, maintain, operate, inspect, repair and replace an underground
pipeline, wells and other facilities for the discharge of wastewater from the
Project to injection wells which are owned by a third party on Tejon property,
together with such markers, valves, fittings, meters, corrosion control devices
and similar appurtenances as may be necessary or convenient to the operation of
such pipeline. Grantee shall use the Wastewater Facilities only for the
transportation of wastewater from the Project and for no other purpose
whatsoever.
(E) Access Easement. The physical structures and improvements described
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below in this Section 7(E) are individually and collectively called the "Access
Road". Grantee shall use the Access Road, consistent with the terms of this
Section 7(E), solely to construct, reconstruct, maintain, operate, inspect,
repair and replace a private roadway for ingress to and egress from the Project.
Grantee shall use the Access Road only for pedestrian and vehicular
transportation to and from the Project and for no other purpose whatsoever.
(F) Communications Cables and Equipment. Grantee shall use any fiber optic
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cable and/or other communications cable or equipment (including any associated
conduit for communications
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cables) that it may install, or cause to be installed, in any of the Easement
Parcels only for the purpose of monitoring the integrity of, and communicating
data respecting, the Project and the Project Facilities (both internally and to
third parties). If Grantee installs any such communications cable and/or
conduit, Grantee shall not use or permit its use (i) for transmitting other data
not related to the Project or the Project Facilities, (ii) or by any other
party, unless related to the operation of the Project or the Project Facilities,
or (iii) on a basis that produces any compensation or credit of any kind to or
for the benefit of Grantee or its owners or their affiliates. If Grantee
installs any cable conduit, Grantee shall not use or permit its use to hold any
fiber optic cable or other communications facility of or for any party other
than Grantee, except to the extent necessary to the conduct of Grantee's
business at the Project as described in this subsection.
(G) Prohibited Uses. Any use of any Project Facilities or of any of the
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Easement Parcels other than as specifically permitted in this Section 7 is
beyond the scope of the rights of the Project Easements granted hereby and is
prohibited. Any commercial use of the Project Facilities other than in
connection with and for the benefit of the Project shall be a breach of the
provisions of this Agreement. All gross proceeds or credits received by or for
the benefit of Grantee, its owners and/or their affiliates arising from such
prohibited use during the period thereof (excluding revenues and earnings
attributable to power sales) shall be held in constructive trust for Tejon and
will be delivered to Tejon on demand, with interest thereon from the date of
receipt by any such person at a rate of ten percent (10%) per annum (the
"Default Rate"). Tejon shall make such demand in writing to Grantee within
ninety (90) days after Tejon learns of any alleged default under this Section;
failure to demand payment within such 90-day period shall be deemed a waiver of
Tejon's right to any gross proceeds or credits received after the end of such
90-day period and before the date such notice is actually delivered.
8. Uses by Tejon.
(A) Reservation of Rights. Tejon shall not materially interfere with the
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rights granted to Grantee hereunder, with the free flow of any pipelines or
transmission lines, or with access to the Project Facilities. Subject to the
foregoing, Tejon shall have the right to use and enjoy the Easement Parcels in
any manner whatsoever, including the right to grant other easements over all or
part of any or all of the Easement Parcels. Grantee and its Project Facilities
shall not interfere in any way with the use and enjoyment of senior interests
and facilities existing on the date hereof and of which Grantee has actual or
constructive notice.
(B) Assumption of Risk. Grantee assumes all risks and releases Tejon from
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liability for damage to the Project Facilities associated with Tejon's
construction, use, repair, and maintenance of roads, landscaping, and other
improvements in the general areas of the Project Easements, except for damage
caused by the negligence, recklessness, willful misconduct or breach of contract
by Tejon or its officers, employees, agents, contractors, subcontractors,
suppliers or consultants.
9. Hazardous Substances.
(A) In the event that during construction of the Project Facilities PEF
discovers any Hazardous Substance on the Easement Parcels which will materially
interfere with or make materially more costly the construction, operation or
financing of the Project, Ranchcorp shall within 25 days after request therefor
by PEF identify alternative property adjacent to or in the vicinity of the
affected Project Facilities which will enable PEF to avoid the Hazardous
Substance (and any other Hazardous Substance) and (a) which is suitable for the
development of the Project Facilities without making access to the WRM and DWR
electric loads less feasible physically or economically than the property
affected by the Hazardous Substance, (b) which is not affected by any Hazardous
Substance but is
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otherwise generally as suitable for the Project Facilities as the property
affected by the Hazardous Substance, (c) which shall not materially increase the
length of any Easement Parcel, and (d) which shall be provided without the
payment of additional consideration (the "Alternative Easement Parcel"). If PEF
approves the Alternative Easement Parcel (which approval shall not be
unreasonably withheld or delayed), this Agreement shall be amended to substitute
the Alternative Easement Parcel for that portion of the Easement Parcel affected
by the Hazardous Substance. Notwithstanding the foregoing, in the event no
Alternative Easement Parcel is or can be supplied and a governmental authority
requires cleanup of the Hazardous Substance, then Tejon will at its option
either (i) clean up or remediate the Hazardous Substance when and to the extent
required by the governmental authority, or (ii) reimburse PEF for its costs
incurred in cleaning up or remediating the Hazardous Substance when and to the
extent required by the governmental authority. PEF's rights under this Section
shall not be impaired by its failure to exercise any of its rights under Section
1.5(c) or 11.3 of the Option Agreement.
(B) Grantee's Obligations. The rights and obligations of the parties with
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respect to Hazardous Substances which are on, about or beneath the Project
Easements or on Tejon property in the vicinity of the Project Easements either
prior to or during the Term shall be governed by the provisions of the other
Project Agreements.
10. Relocation of Project Facilities.
(A) Adjustments by Grantee. In the event that Grantee reasonably requires
----------------------
adjustments to the Project Easements to accommodate field conditions discovered
during the course of development and construction of the Project Facilities, or
due to title matters which are contrary to Tejon's representation as set forth
in the Option Agreement, Grantee shall so notify Tejon in writing and Tejon
shall convey to Grantee without further charge a new right of way easement over
the new location, which new right of way shall not materially increase the
length of any Easement Parcel, shall have the same terminal points as the
original, and shall be subject to the same terms and conditions as are set forth
in this Agreement. Promptly upon completion of any such adjustment hereunder,
Grantee shall grant back to Tejon that portion of the relevant Project Easement
no longer required by reason of such relocation.
(B) Relocation by Tejon. Tejon reserves the right to require the Gas
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Facilities, the Water Facilities, the Wastewater Facilities and the Access Road
within each of the Easement Parcels, or any portions thereof, to be relocated
under the conditions hereinafter described. Grantee shall not be required,
however, to relocate or reconstruct the same portion of such Project Facilities
at the request of Tejon more than once. Whenever, in the reasonable opinion of
Tejon, any portion of such Project Facilities interferes with the proper
development and/or legitimate business use of Tejon's property, Grantee shall
commence, within ninety (90) days after written request therefor by Tejon, to
relocate and/or reconstruct that portion of such Project Facilities along the
route specified in Tejon's request, shall diligently and continuously pursue
such work, shall complete such relocation and reconstruction within a reasonable
time thereafter, and shall restore the premises as near as possible to the same
state and condition as they were in immediately prior to such relocation or
reconstruction, unless otherwise directed in writing by Tejon. Subject to
Section 10(C), Tejon and Grantee shall each bear one-half of all costs of such
relocation and restoration. Tejon shall convey to Grantee without further charge
a new right of way easement over the new substitute location, which new right of
way shall not materially increase the length of any Easement Parcel, shall have
the same terminal points as the original, and shall be subject to the same terms
and conditions as are set forth in this Agreement. Promptly upon completion of
any relocation hereunder, Grantee shall grant back to Tejon that portion of the
relevant Project Easement no longer required by reason of such relocation. In
the event the relocation of any Project Facilities required by Tejon results in
a disruption of operations at the Project
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that could not have been reasonably avoided by Grantee (including by scheduling
the interruption during a period the Project is not producing electricity or
providing Ancillary Services), Tejon shall reimburse Grantee upon demand for all
damages resulting from such disruption, including without limitation lost
profits which would otherwise have been earned from Project operations.
(C) Material Extensions. In the event of any relocation due to a
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pre-existing environmental condition as described in Section 9(A), or due to
exercise of Tejon's rights pursuant to Section 10(B), if the relocation
materially increases the length of any Easement Parcel, Tejon shall bear the
entire cost of the increased length of such relocation (i.e. the parties shall
share the cost of the relocation for that portion which is equivalent to the
length of the easement being relocated, and Tejon shall bear the entire cost of
any additional length).
11. Access Route.
Grantee shall have a nonexclusive right of access from the Project Site to
each of the Easement Parcels for the exercise of the rights herein granted,
subject to the following conditions:
(A) Existing Routes. Access shall be permitted over a road or roads in
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existence from time to time and over the route or routes Tejon shall specify in
writing from time to time to the extent Tejon owns land subject to the access
right.
(B) New Routes. Grantee shall not extend any existing road or trail and/or
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construct or create a new road or trail except with the prior written approval
of Tejon as to location and manner of construction and maintenance of the same,
which shall not be unreasonably withheld, conditioned or delayed, but the costs
of constructing and maintaining any such extension or new road or trail shall be
borne by Grantee.
(C) No Vested Right. Grantee shall not have a vested right in any
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particular route or routes of access between the Project Site and any of the
Easement Parcels, but reasonable access to each Easement Parcel over land owned
by Tejon, as specified by Tejon, shall be available to Grantee at all times.
(D) Dedication. Tejon shall have the right, at its election, at any future
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time or times to dedicate any such access route or routes, or any portion or
portions thereof, for public road purposes in a manner provided for by
applicable law.
12. Access Conditions.
(A) Rules and Regulations. Grantee shall use its best efforts to cause its
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officers, employees, agents, contractors, subcontractors, suppliers, and others
claiming right of access by reason of their relationship to Grantee and a
reasonable business purpose necessitating travel to and along the Easement
Parcels (collectively, "Authorized Personnel") to comply with the following
rules and regulations for access across Tejon's land:
(1) Stops. No stops shall be made between the Project Site and the
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destination within an Easement Parcel, except to pass through gates or for
emergency reasons.
(2) Gates. All gates which are passed through shall be left open or
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closed as encountered.
(3) Firearms; Animals. No firearms, explosives, alcohol, illegal
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drugs, dogs, or other animals shall be brought upon Tejon's land.
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(4) Identification. Authorized Personnel using Tejon land access
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routes other than the Access Road shall carry identification cards issued by
Grantee (or by a third party employer). Such personal identification shall be
displayed to Tejon's representatives upon request. Prior to construction and
from time to time thereafter, Grantee shall furnish to Tejon lists identifying
its regular vendors and all Authorized Personnel who may use the access routes.
(5) Marked Vehicles. Only Grantee's company-marked vehicles or other
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vehicles bearing a clearly recognizable standardized identification marker of
third-party vendors which have been previously identified pursuant to subsection
(4) above shall be used for access on routes other than the Access Road.
(6) Access Denial. Tejon shall have the right to deny access to any
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particular individual who, in its reasonable opinion, does not carry the proper
identification or who has violated the standards of conduct contained in this
Agreement.
(7) Trespass. Persons found on Tejon's land outside the Easement
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Parcels and not on an authorized access route shall be subject to prosecution
for trespass and may be banned from future access.
(8) Speed Limits. Reasonable speed limits established by Tejon shall
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be observed. During construction, Grantee shall post and maintain signs along
access routes respecting such speed limits. Tejon shall have the right to ban
from future access any individual it reasonably deems to be have acted in an
unsafe manner despite a prior warning.
(9) Vehicle Inspection. The contents of any vehicle may be inspected
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at any time by Tejon's representatives on Tejon's land and/or by any state game
warden for the purpose of ensuring security and/or verifying compliance with the
provisions of this Agreement and/or with California game laws.
(10) Fire Precautions. Due care shall be exercised to avoid grass,
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brush, and forest fires. Each vehicle used off of paved roads upon Tejon's land
shall have an exhaust system free from defect that might create a fire hazard,
shall be periodically inspected by the Kern County Fire Department to verify its
proper operating condition, and shall carry a shovel and other appropriate
firefighting equipment. No smoking shall occur while traveling in vehicles or
present upon Tejon's land. Tejon shall have the right to ban from future access
any individual it reasonably deems to have acted in an unsafe manner despite a
prior warning.
(B) Indemnity. Subject to the waiver set forth in Section 12.8 of the
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Transaction Agreement, Grantee shall defend, indemnify, and hold Tejon, its
directors, officers, employees, agents and affiliates harmless from any and all
losses, damages, liabilities, claims, and expenses (including court costs and
reasonable attorneys' fees) arising directly or indirectly from the breach of
the foregoing rules and regulations by Grantee or any Authorized Personnel. The
foregoing indemnity shall apply whether or not Grantee has used best efforts to
cause the Authorized Personnel to comply with the foregoing rules and
regulations, but indemnification shall be Tejon's only remedy in the event of a
breach of any rule or regulation. Tejon acknowledges that this Agreement shall
not be terminable due to a breach of any rule or regulation, but Tejon shall
have the right to seek declaratory or injunctive relief in order to prevent or
stop a breach of any rule or regulation.
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13. Access Maintenance.
(A) Repairs and Replacement. Grantee shall promptly repair to their prior
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condition and at its sole expense any damage to the access roadways, fences,
gates, cattle guards, and other improvements as may be caused by Grantee or its
Authorized Personnel. Tejon may require Grantee to replace, with equivalent
facilities and at Grantee's expense, any seriously damaged gates and cattle
guards.
(B) Road Repair. Upon completion of installation and testing of the
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Project Facilities and related appurtenances, Grantee, at its sole expense,
shall repair, rehabilitate, blade, refill, and smooth to their prior condition
the Edmonston Pump Plant Road and all dirt roads on Tejon's land which Grantee
used during the construction and testing period.
(C) Road Repair Contributions. From time to time, Grantee shall contribute
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to the cost of repair and maintenance of access routes used in connection with
its Project Facilities in proportion to usage thereof by all the users of such
access routes, as reasonably determined by Tejon.
(D) Clean and Safe Conditions. Grantee shall maintain the Easement Parcels
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and related access routes in a clean, safe, and attractive condition and free
from litter, refuse, and waste materials resulting from the use of the Easement
Parcels and the related access routes by Grantee and its agents, employees,
contractors, subcontractors and suppliers provided that Grantee's obligation
with respect to the access routes shall extend only to the litter, refuse and
waste actually deposited by Grantee or its Authorized Personnel, and shall not
be deemed to be a general maintenance obligation over the access routes.
14. Project Facilities.
No camps, tents, trailers, buildings, or other facilities whatsoever for
housing persons shall be established or maintained upon any of the Project
Easements granted hereby, except with the prior written consent of Tejon, which
may be withheld for any reason or no reason.
15. Fences and Gates.
(A) Installation or Modification. Grantee shall not fence any Easement
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Parcel or any part thereof, take down any fence, or install any gate or cattle
guard, without Tejon's prior written consent, which shall not be unreasonably
withheld or delayed.
(B) Tejon Fencing. Tejon reserves the right to maintain any existing
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fences and to construct or cause to be constructed additional or replacement
fences along and/or across any Easement Parcel or portion thereof; provided that
Grantee's access to or use of such Easement Parcel is not unreasonably impaired.
(C) Tejon's Directions. All fence, gate, and cattle guard construction,
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installation, removal, modification, and replacement performed on any Easement
Parcel shall be done according to the directions and to the satisfaction of
Tejon, and consistent with the access routes to the Easement Parcels designated
by Tejon pursuant to Section 11.
(D) Gate Locks. All gates which are installed by Grantee on any Easement
----------
Parcel shall be locked with Grantee's locks; provided, however, if Tejon so
desires, such locks shall be locked with Tejon's locks in such manner that
either party can lock or unlock said gates. All gates which are now or hereafter
may be installed and locked by Tejon on any Easement Parcel or access routes
which
9
are used by Grantee shall be locked also by Grantee's locks so that either party
can lock or unlock said gates.
(E) Grantee Locks. Each lock belonging to Grantee shall be stamped with
-------------
identifying letters or symbols approved by Tejon in writing. Grantee shall
furnish to Tejon a duplicate key to each lock that may be installed by Grantee
on Easement Parcel gates as provided herein.
16. Construction and Operation Practices.
The Project Facilities shall be constructed solely at Grantee's expense,
in compliance with regulatory requirements, and in conformance with the
representations and statements contained in any final environmental impact
report (or equivalent environmental analysis) for the construction of the
Project and with Grantee's application for Project approval submitted to the
California Energy Commission. Grantee shall perform its construction,
reconstruction, operation, maintenance, and removal practices respecting the
Project Facilities according to the highest standards respecting management,
nuisance prevention, safety and respect for the land associated with the
pipeline and electric industries, including, but not limited to, the following
terms and conditions:
(A) Depth of Pipelines. Grantee shall install underground pipelines with
------------------
the uppermost parts at a minimum depth of forty-eight inches (48") below the
surface of the ground existing at the time of installation; provided, however,
that to the extent consistent with good engineering practices, Grantee may
install such pipelines at shallower depths due to specific field conditions with
the prior written consent of Tejon, not to be unreasonably withheld or delayed.
(B) Construction Alignment. Prior to commencement of construction,
----------------------
reconstruction, or replacement which occurs outside the boundaries of any
Easement Parcel or which involves above-ground Project Facilities in an Easement
Parcel, Grantee shall furnish construction alignment drawings and plans and
specifications to Tejon. Before the commencement of any such work, Tejon shall
have the right to approve the location of such construction, the plans and
specifications for the work, the manner and schedule of any installation work
that will involve utilization of land other than an Easement Parcel, or
above-ground Project Facilities, or which will affect any Tejon facilities, and
the manner of restoration of the ground disturbed by such construction,
reconstruction, or replacement; provided, however, such approval shall not be
unreasonably withheld or delayed.
(C) As-Built Drawings. Within three hundred sixty-five (365) days after
-----------------
completion of construction or reconstruction of any Project Facilities, Grantee
shall furnish to Tejon as-built drawings of such Project Facilities, as-built
maps of their locations and an aerial map with the alignments and locations of
the Project Facilities depicted thereon. In the event of any subsequent
relocation of Project Facilities, corrected as-built drawings and maps shall be
furnished to Tejon to show such relocation.
(D) Grantee's Representative. Grantee shall designate one or more
------------------------
individuals to act as its representative(s) in respect to emergencies or to any
construction, reconstruction or replacement work performed on any Easement
Parcel or any other portion of Tejon land. Such representative(s) shall be
available at the work site or by telephone on a round-the-clock basis during the
continuance of the emergency or work. Such representative(s) shall have the
authority and responsibility to receive complaints, verify construction
violations and/or unsafe conditions, to contact construction personnel,
suppliers, and other agents and contractors of Grantee, and to promptly
formulate and carry out appropriate corrective actions so as to minimize
damages.
10
(E) Curative Work. Grantee shall promptly repair or replace to prior
-------------
condition and at its sole expense all damages to roads, fences, gates, cattle
guards, water lines, or other improvements on Tejon's land arising from
Grantee's work on any Easement Parcel.
(F) Litter Control. During the progress of the work, Grantee shall not
--------------
allow trash, debris, and other waste material to accumulate in the construction
sites and shall collect and remove the same upon a daily basis from the
construction sites and the access routes thereto.
(G) Safeguards and Crossings. Grantee shall exercise due care to avoid
------------------------
injury to persons or damage to property during Grantee's work. Grantee shall
erect and maintain such barriers, signs, and other accident prevention devices
as are reasonably necessary to give adequate warning of construction conditions
and/or to prevent injury to livestock. Grantee shall conduct its construction
activities in such manner as to minimize impediments to drainage and reasonable
access by traffic crossing the right of way or using roads overlying the right
of way. Pipeline construction under paved roads shall be performed as quickly as
possible and the schedule and proposed traffic blockages shall be approved in
advance by Tejon.
(H) Incurred Losses and Expenses. Damages, losses, and expenses incurred
----------------------------
by Tejon as a result of the activities of Grantee or its Authorized Personnel
(subject to the waiver set forth in Section 12.8 of the Transaction Agreement)
shall be compensated by Grantee upon presentation of reasonable documentation
itemizing and substantiating such damages, losses and expenses. Claims for such
losses submitted in writing by Tejon to Grantee's representative shall be paid
by Grantee within twenty (20) calendar days after submission of any claim and
supporting documentation arising during the initial construction and testing of
the pertinent Project Facilities or within thirty (30) days after submission of
any claims arising thereafter. Claims not paid within such period shall bear
interest from the due date until paid at the Default Rate.
(I) Maintenance. Grantee shall maintain the Project Facilities and the
-----------
Easement Parcels in accordance with good engineering practice so as to avoid
injury or death to persons or damage to property.
(J) Surface Reclamation. After completion of construction, repair,
-------------------
reconstruction, removal or cleanup of the Project Facilities, all excavations,
ruts, tracks, holes, swales, and other depressions made by Grantee shall be
backfilled and compacted to restore the surface of the ground to substantially
the same condition it was in before the excavation was made. Grantee shall
restore and maintain the surface of the ground disturbed by the installation,
construction, replacement, or removal of the Project Facilities as nearly as
reasonably possible to the same state and condition it was in prior to the
commencement of such activities. Care shall be taken by Grantee so as to avoid
erosion and subsidence, and Grantee shall have an ongoing responsibility to
correct any such erosion and subsidence that may result from Grantee's
activities, including but not limited to construction, repair, or operation of
the Project Facilities. Grantee shall reseed all areas in which the natural
vegetation (including prevalent non-native grasses) has been disturbed or
removed, using for that purpose seed approved by Tejon, combined with an
appropriate mulch of straw and fertilizer. Such reseeding shall be repeated
annually after the construction or reconstruction until the scarred area is
covered.
(K) Repairs/Reconstruction. Once the Project Facilities have been
----------------------
constructed and are in place, Grantee shall not reconstruct, alter, replace or
repair (except for emergency repair) the Project Facilities except in accordance
with the requirements of this Section.
(L) Removal of Obstructions. Grantee shall have the right to cut and
-----------------------
remove all trees and brush from the Easement Parcels and shall have the right
thereafter to keep the Easement Parcels
11
free from trees and brush whenever necessary and proper for the enjoyment of the
rights hereby granted and conveyed; provided, however, that oak trees shall be
cut down only if essential to the construction or maintenance of the Project
Facilities. All trees, roots, and brush cut by Grantee in clearing obstructions
to the installation, repair, maintenance, replacement, or removal of Project
Facilities in any Easement Parcel and the resultant debris shall be promptly
disposed of by Grantee at a county landfill or other permitted offsite disposal
facility, and Grantee shall not leave any trash or debris upon or adjacent to
its rights of way; provided, however, that if in the reasonable opinion of
Grantee any trees or wood so cut are valuable for firewood, Grantee shall so
notify Tejon and if within ten (10) days after receipt of such notice Tejon so
requests, Grantee shall cut the wood in stackable lengths and deliver it to
Tejon's Ft. Tejon storage yard.
(M) Appearance of Aboveground Structures. If at any time the character of
------------------------------------
the neighborhood or vicinity within which there is located any aboveground
Project Facilities (other than the electric power transmission towers) shall
become predominantly residential, commercial, or recreational, or Tejon is
constructing such a development in the vicinity of such Project Facilities,
then, upon written request by Tejon, Grantee shall, at its expense, install and
maintain such screening improvements and landscape plantings as are approved by
Tejon and are reasonably designed so as to cause the external appearance of such
aboveground Project Facilities to attractively conform and harmonize with other
uses being made or planned to be made in the surrounding area.
17. Liens.
(A) Mechanics' Liens. Grantee shall keep all Easement Parcels and access
----------------
routes thereto and all improvements thereon free and clear from liens or claims
for work performed, materials furnished, or obligations incurred by Grantee, and
Grantee shall indemnify, defend, and hold Tejon harmless therefrom and from all
court costs and reasonable attorneys' fees incurred in connection therewith.
Grantee shall have the right to contest the amount or validity of any such lien
in accordance with Section 14 of the Ground Lease. The indemnity provisions of
Section 14 of the Ground Lease shall apply to any liens on the Easement Parcels
and access routes.
(B) Project Financing. Grantee may pledge its rights and interests under
-----------------
this Agreement as collateral to any Project Financing Entity pursuant to Section
11 of the Transaction Agreement.
(C) Notices of Nonresponsibility. Grantee shall notify Tejon at least
----------------------------
twenty (20) days prior to the commencement of construction of the Project
Facilities and ten (10) days prior to the commencement of any other work of
improvement on any Easement Parcel and/or the access routes so that Tejon can
post or record notices of nonresponsibility.
18. Indemnification and Insurance.
The indemnity provisions of Section 13 of the Ground Lease and the
insurance provisions of Section 8.4 of the Ground Lease shall also apply to the
Project Easements.
19. Surrender and Removal of Project Facilities.
(A) Removal. Grantee shall have the right with respect to all Project
-------
Facilities, and shall be obligated with respect to above-ground Project
Facilities, to remove all such Project Facilities from any area where a Project
Easement is terminated for any reason. Upon such termination, Grantee may
abandon buried pipelines in place after decommissioning them in accordance with
applicable state and/or federal regulations. All Project Facilities not required
to be removed as provided above shall be deemed abandoned in place by Grantee
and thereupon, at Tejon's option, shall become the
12
property of Tejon for no additional consideration. In that event, Grantee shall
execute and deliver to Tejon, within sixty (60) days after receipt of a written
demand therefor, a good and sufficient quitclaim bill of sale or other
appropriate instrument conveying to Tejon all of Grantee's interest in the
abandoned property. After removal of any Project Facilities, Grantee shall
return the real property from which such Project Facilities have been removed to
its pre-existing condition.
(B) Quitclaim. Upon any termination of the Project Easements by surrender,
---------
default or expiration of the Term, Grantee shall execute and deliver to Tejon,
within sixty (60) days after receipt of a written demand therefor, a good and
sufficient quitclaim deed to the rights so terminated. Should Grantee fail or
refuse to deliver such quitclaim deed, a written notice by Tejon reciting the
failure or refusal of Grantee to execute and deliver such quitclaim deed shall,
after ten (10) days from the date or recordation of said notice, be conclusive
evidence of the termination of such rights against Grantee and all persons
claiming under Grantee. In the event Grantee fails to deliver such quitclaim
deed as required, Tejon may proceed to remove the cloud upon Tejon's title by
appropriate legal proceedings, and may recover reasonable attorneys' fees and
other expenses incidental to quieting title as provided in California Civil Code
Section 3306a and/or other applicable law. Acceptance of a deed by Tejon shall
not release Grantee from its obligations under this Agreement that have accrued,
but which have not been performed.
20. Assignment.
Grantee's right to assign its interest in the Easement Parcels shall be
governed by Section 11 of the Transaction Agreement, it being the intention of
the parties and the requirement of this Agreement that the assignment of its
interest in the Easement Parcels shall occur only in conjunction with an
assignment of the Ground Lease and shall be assigned only to the assignee under
the Ground Lease. Grantee may also grant subeasements of the Easement Parcels,
either in connection with a sublease permitted under Section 11 of the Ground
Lease or to third parties providing services to the Project or receiving
services from the Project; provided that such subeasements shall be only for the
purposes of the Project and not for other commercial purposes which are
prohibited pursuant to Section 7(G) above.
21. Default and Remedies.
(A) Ground Lease Termination. This Agreement will terminate in the event
------------------------
of a termination of the Ground Lease pursuant to Section 18.1 of the Ground
Lease due to a default described in Section 17 of the Ground Lease. Such
termination shall occur only upon voluntary surrender of the leasehold interest
in the Project Site or upon judgment for Tejon in any unlawful detainer or
ejectment action.
(B) Performance by Tejon. In the event Grantee fails to observe or perform
--------------------
any obligation of this Agreement to be performed by Grantee under this Agreement
within the time required by this Agreement and/or by Tejon's related notice of
default, then unless Tejon is expressly prohibited from performing such work by
this Agreement, Tejon may elect, but shall not be required, to perform such work
after delivery of thirty (30) days prior written notice to Grantee of such
election (except in an emergency no notice is required). If Tejon so elects,
Grantee shall pay all of Tejon's costs and expenses of such work, plus an
overhead and management fee of ten percent (10%) of such costs and expenses,
within twenty (20) days after Grantee's receipt of itemized statements for such
work. If Grantee does not pay such statements within such twenty (20) day
period, (a) the obligation shall accrue interest after the twentieth day until
paid at the Default Rate, and (b) without further notice to Grantee, Grantee
shall be in default under this Agreement.
13
(C) Notice and Cure. In the event Grantee fails to observe or perform any
---------------
obligation of Grantee under this Agreement, Tejon shall give written notice of
such failure setting forth the obligation with specificity. Grantee shall cure a
failure to perform any obligation within thirty (30) days after receipt of
notice, unless the nature of the obligation is such that it cannot reasonably be
cured within the 30-day period, in which case Grantee shall not be in default if
it commences the cure within thirty (30) days and thereafter diligently
prosecutes the cure to completion.
(D) Remedies. Tejon may terminate this Agreement only as provided in
--------
subsection (A) above or in the event of a breach of a "material obligation" of
Grantee under this Agreement which is not cured within the notice and cure
period described in subsection (C) above. The parties agree that a "material
obligation" shall be defined as any obligation of Grantee which is material to
the realization by Tejon of any of the material benefits intended to be
conferred on Tejon by this Agreement. The breach of any non-material obligation
of Grantee under this Agreement after the notice and cure period described in
subsection (C) above shall entitle Tejon to any remedy at law or equity other
than (i) as otherwise waived pursuant to Section 12.8 of the Transaction
Agreement, or (ii) termination of this Agreement; provided, however, that
breaches under Sections 7(G) and 12(B) shall be governed exclusively by those
Sections.
22. Recordation.
Upon execution and delivery, this Agreement shall be recorded in the
Official Records of Kern County.
23. Miscellaneous.
The provisions of Section 14 of the Transaction Agreement are incorporated
herein by this reference.
24. Glossary.
Agreement - introductory paragraph
Access Easement - Section 1(E)
Access Road - Section 1(E)
Authorized Personnel - Section 12(A)
Default Rate - Section 7(G)
Easement Parcels - Section 1(F)
Electric Easement - Section 1(C)
Electric Facilities - Section 1(C)
Gas Easement - Section 1(A)
Gas Facilities - Section 1(A)
Grantee - introductory paragraph
14
Lease Agreement - Recital D
material obligation - Section 21(D)
Option Agreement - Recital C
Parcel A - Section 1(A)
Parcel B - Section 1(B)
Parcel C - Section 1(C)
Parcel D - Section 1(D)
Parcel E - Section 1(E)
Project - Recital A
Project Agreements - Recital E
Project Easements - Section 1(F)
Project Facilities - Section 1(F)
Project Site - Recital A
Transaction Agreement - Recital B
Tejon - introductory paragraph
Term - Section 2
Wastewater Easement - Section 1(D)
Wastewater Facilities - Section 1(D)
Water Easement - Section 1(B)
Water Facilities - Section 1(B)
15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first hereinabove written.
TEJON RANCHCORP, PASTORIA ENERGY FACILITY LLC,
a California corporation a Delaware limited liability company
By: Enron Capital & Trade Resources Corp.,
By:________________________________ its sole member
Dennis Mullins
Vice President By:_______________________________________
David Parquet
Vice President
16
EXHIBIT A
PARCEL A ---------
- --------
A strip of land located in Kern County, California, which strip of land is
___ feet (__') in width [which shall be no wider than the construction width]
and the centerline of which strip is described as follows:
[This easement may extend beyond Sebastian Road upon payment of $2.00 per
linear foot per year as provided in Section 3.2(d) of the Lease. Included in the
fixed rent is approximately 9 miles of easement from the Project to Sebastian
Road.]
EXHIBIT B
PARCEL B ---------
- --------
A strip of land located in Kern County, California, which strip of land is
___ feet (__') in width [which shall be no wider than the construction width]
and the centerline of which strip is described as follows:
[This easement may include easements from the Project to the California
Aqueduct right of way, from the Project to the water bank facility, and from the
Aqueduct right of way to the water bank facility. Tejon will grant any of these
easements or all of them at no additional cost beyond the fixed rent already
established.]
EXHIBIT C
PARCEL C ---------
- --------
A strip of land located in Kern County, California, which strip of land is
___ feet (__') in width [which shall be no wider than the construction width]
and the centerline of which strip is described as follows:
EXHIBIT D
PARCEL D ---------
- --------
A strip of land located in Kern County, California, which strip of land is
___ feet (__') in width [which shall be no wider than the construction width]
and the centerline of which strip is described as follows:
EXHIBIT E
PARCEL E ---------
- --------
A strip of land located in Kern County, California, which strip of land is
___ feet (__') in width [which shall be no wider than the construction width]
and the centerline of which strip is described as follows: